BEC IMPEX INTERNATIONAL P.LTD, MUMBAI V. DCIT CIR 3(1), MUMBAI

ITA 2462/MUM/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2950 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 2 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 18-03-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 01-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Opportunity of being heard; Earning of tax free income
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI . . , , !' #$, % , & BEFORE SHRI R.C.SHARMA, AM AND SHRI AMARJIT SINGH, JM / I.T.A. NO.2462/M/13 ( %' ( / ASSESSMENT YEAR: 2009-10) M/S. BEC IMPEX INTERNATIONAL PVT. LTD. C/O. KARNAVAT & CO. 2A KITAB MAHAL, 1 ST FLOOR, 192, DR.D.N.ROAD, MUMBAI - 400001 ' / VS. THE DY. COMMISSIONER OF INCOME TAX CIRCLE 3(1) MUMBAI ./ ./ PAN/GIR NO. : AAACB0107C ( / APPELLANT ) .. ( / RESPONDENT ) / DATE OF HEARING: 18.03.2016 !' /DATE OF PRONOUNCEMENT: 24.06.2016 #$ / O R D E R PER AMARJIT SINGH, JM: THE ASSESSEE HAS FILED THE PRESENT APPEAL AGAINST T HE ORDER DATED 14.12.2012 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS)5, MUMBAI [HEREINAFTER REFERRED TO AS THE CIT(A)] R ELEVANT TO THE A.Y.2009-10. ASSESSEE BY: SHRI SUNIL HIRAWAT DEPARTMENT BY: SHRI SUMIT KUMAR ITA NO.2462/MUM/13 A.Y.2009-10 2 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY FILED ITS RETURN OF INCOME ON 29.09.2009 DECLARING TOTAL LOSS TO THE TUNE OF RS1,87,62,567/-. THE CASE WAS SELECTED FOR SCRUTIN Y AND STATUTORY NOTICE U/S.143(2) OF THE INCOME TAX ACT, 1961( IN S HORT THE ACT) DATED 19.08.2010 WAS ISSUED AND SERVED UPON THE ASS ESSEE. THEREAFTER, THE NOTICE U/S.142(1) WAS ALSO ISSUED A ND SERVED UPON THE ASSESSEE. THE ASSESSEE COMPANY IS ENGAGED IN THE B USINESS OF INVESTMENT IN SHARES AND SUCH OTHER ACTIVITIES IN F INANCE, COMMISSION AND BROKERAGE FOR LIAISON WORK ETC. THE ASSESSING OFFICER DISALLOWED AN AMOUNT OF RS.9,89,336/- I.E. 25% OF FOREIGN TRAV EL EXPENSES AND ALSO DISALLOWED AN AMOUNT OF RS.4,18,569/- I.E. 25% OF THE BUSINESS PROMOTION EXPENSES AND ALSO DISALLOWED AN AMOUNT OF RS.10,19,190/- U/S.14A READ WITH RULE 8D OF THE ACT. THE ASSESSI NG OFFICER ASSESSED THE LOSS TO THE TUNE OF RS.1,63,35,562/-. AGGRIEVE D BY THIS ORDER THE ASSESSEE FILED THE ORDER BEFORE CIT(A) WHO CONFIRME D THE SAME, THEREFORE, THE ASSESSEE FILED THE PRESENT APPEAL BE FORE US. 3. THE ASSESSEE RAISED THE FOLLOWING GROUND OF APPE AL BEFORE US:- 1. (I) ON THE FACTS AND IN LAW, THE LEARNED COMMIS SIONER OF INCOME TAX (APPEALS) HAS ERRED IN UPHOLDING THE DISALLOWANCE OF A SUM OF RS.9,89,336/- ON ADHOC BAS IS BEING 25% OF FOREIGN TOUR EXPENSES INCURRED BY DIRE CTOR. UNDER THE FACTS AND CIRCUMSTANCES OF THE MATTER, HE OUGHT TO HAVE DELETED THE ENTIRE DISALLOWANCE OF RS.9,89, 336/- MADE BY THE ASSESSING OFFICER. (II) WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) HAS FAILED TO APPRECIATE THAT FRINGE BENEFIT TAX HAS ALREADY BEEN LEVIED ITA NO.2462/MUM/13 A.Y.2009-10 3 AT 20% OF THE TOTAL EXPENDITURE OF RS.44,54,201/- I NCURRED ON TRAVELLING & CONVEYANCE. UNDER THE FACTS AND CIRCUMSTANCES OF THE MATTER, HE OUGHT TO HAVE DELET ED THE ENTIRE DISALLOWANCE OF RS.9,89,336/- 2. ON THE FACTS AND IN LAW, THE LEARNED COMMISSIONE R OF INCOME-TAX (APPEALS) HAS ERRED IN UPHOLDING THE DISALLOWANCE OF A SUM OF RS.4,18,569/- ON ADHOC BAS IS BEING 25% OUT OF BUSINESS PROMOTION EXPENSES OF RS.16,74,275/-. UNDER THE FACTS AND CIRCUMSTANCES OF THE MATTER, HE OUGHT TO HAVE DELETED THE SAID DISALLOWA NCE OF RS.4,18,569/-. 3. DISALLOWANCE U/S. 14A:- (I) ON FACTS AND IN LAW, THE LEARNED CIT(A) HAD FA ILED TO APPRECIATE THAT APPLYING RULE 8D WITHOUT REJECTI NG THE CLAIM OF THE APPELLANT IN BAN-IN-LAW. UNDER THE FA CTS AND CIRCUMSTANCES OF THE MATTER, HE OUGHT TO HAVE DIREC TED THE ASSESSING OFFICE NOT TO APPLY RULE 8D WITHOUT REJEC TING THE CLAIM OF THE APPELLANT WHILE COMPUTING THE DISALLOW ANCE U/S.14A OF THE ACT. (II) WITHOUT PREJUDICE TO GROUND OF APPEAL NO.3(I) & (II) ABOVE, THE LEARNED CIT(A) OUGHT TO HAVE DIRECT ED THE ASSESSING OFFICER THAT THE DISALLOWANCE UNDER RULE 8D(2)(II) SHOULD BE MADE WITH REFERENCE TO NET INT EREST PAID AND NOT THE GROSS AMOUNT OF INTEREST. ISSUE NO.1:- 4. UNDER ISSUED NO.1, THE ASSESSEE HAS CHALLENGED T HE DISALLOWANCE TO THE TUNE OF RS.9,89,336/- ON ADHOC BASIS I.E. 25 % OF FOREIGN TOUR EXPENSES INCURRED BY THE DIRECTOR. AT THE VERY OUTS ET, THE LEARNED REPRESENTATIVE OF THE ASSESSEE HAS ARGUED THAT IN T HE ASSESSEES OWN CASE FOR THE A.Y.2005-06, 2006-07 AND 2007-08. THE HONBLE INCOME TAX APPELLATE TRIBUNAL, MUMBAI HAS ALLOWED THE CLA IM ON ACCOUNT OF FOREIGN TRAVELLING EXPENSES THEREFORE IN VIEW OF TH E SAID CIRCUMSTANCES ITA NO.2462/MUM/13 A.Y.2009-10 4 NO DISALLOWANCE OF ANY KIND ON ACCOUNT FOREIGN TRAV ELLING EXPENCES IS REQUIRED TO BE MADE IN THE INTEREST OF JUSTICE. CO PY OF ORDER DATED 27.02.2015 IN ITA NO.1908-1910/M/11 FOR A.Y.2005-06 TO 2007-08 HAVE BEEN FILED WHEREIN THE CO-ORDINATE BENCH OF M UMBAI HAS ALLOWED THE FOREIGN TRAVELING EXPENSES IN CONNECTIO N WITH MS. GEETIKA JAIN TO THE FOREIGN COUNTRIES. SINCE THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE IS QUITE SIMILAR AND IN THE ASSESSES OWN CASE HON,BLE INCOME TAX APPELLATE TRIBUNAL HAS ALLOWED THE FOREI GN EXPENSES THEREFORE HONORING THE ORDER PASSED BY CO-ORDINA TE BENCH OF INCOME TAX APPELLATE TRIBUNAL WE ALLOWED THE SAID EXPENSE S. THEREFORE, WE FIND NO GROUND TO DIFFER WITH THE SAID FINDING HENC E WE ALLOWED THE CLAIM OF THE ASSESSEE IN THIS REGARD. ACCORDINGLY, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. ISSUE NO.2:- 5. ACCORDING TO ISSUE NO.2, THE ASSESSEE HAS CHALLE NGED THE DISALLOWANCE TO THE TUNE OF RS.4,18,569/- I.E. 25% OUT OF BUSINESS PROMOTION EXPENSES TO THE TUNE OF RS.16,74,275/-. THE LEARNED REPRESENTATIVE OF THE ASSESSEE HAS FURTHER RELIED U PON THE ASSESSEES OWN CASE FOR A.Y.2005-06 TO 2007-08 ORDER DATED 27. 02.2015 IN ITA NO.1908-1910/M/11 WHEREIN THE DISALLOWANCE HAS BEEN CONFIRMED TO THE EXTENT OF 10% OUT OF BUSINESS PROMOTION EXPENSE S. SINCE THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE IS QUITE SIM ILAR AND IN THE ASSESSES OWN CASE HON,BLE INCOME TAX APPELLATE TRIB UNAL HAS ITA NO.2462/MUM/13 A.Y.2009-10 5 DISALLOWED BUSINESS PROMOTION EXPENSES THEREFORE H ONORING THE ORDER PASSED BY CO-ORDINATE BENCH OF INCOME TAX AP PELLATE TRIBUNAL WE ALSO DISALLOWED THE BUSINESS PROMOTION EXPENSES. NO DISTINGUISHABLE FACTS HAVE BEEN PLACE ON RECORD. T HEREFORE, WE FOUND NO GROUND TO DIFFER WITH THE SAID FINDING HENCE WE ALLOWED THE CLAIM OF THE ASSESSEE TO THIS EXTENT . THEREFORE, IN THE SAID CIRCUMSTANCES AND FINDING NOTHING CONTRARY TO THE ABOVE SAID FIN DING, WE INCLINED TO FOLLOW THE ORDER PASSED BY THE CO-ORDINATE BENCH AN D RESTRICT THE DISALLOWANCE TO THE EXTENT OF RS.1,67,427/- OF THE TOTAL BUSINESS PROMOTION EXPENSES I.E. 10% RS.16,74,275/-. ACCOR DINGLY, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE AGAINST THE RE VENUE. ISSUE NO.3:- 6. ACCORDING TO ISSUE NO.3, THE ASSESSEE HAS CHALLE NGED THE DISALLOWANCE U/S.14A OF THE ACT TO THE TUNE OF RS.4 ,87,581/-. THE REPRESENTATIVE OF THE ASSESSEE HAS ARGUED THAT THE SHARE CAPITAL AND SURPLUS AS ON 31.03.2009 ARE TO THE EXTENT OF RS.17 ,27,79,961/- AGAINST THE INVESTMENTS IN SHARE TO THE TUNE OF RS.10,56,74 ,042/-. THEREFORE, APPARENTLY, THE INVESTMENT HAS BEEN MADE OUT OF HIS OWN FUNDS THEREFORE PROVISION OF SECTION 14A READ WITH RULE 8 D OF THE ACT IS NOT APPLICABLE TO THE CASE OF ASSESSEE. IN SUPPOR T OF THIS CONTENTION THE LEARNED REPRESENTATIVE OF THE ASSESSEE HAS PLAC ED RELIANCE UPON THE LAW SETTLED IN CIT VS. RELIANCE UTILITIES & POWERS LTD. (2009) 313 ITR 340/178 TAXMAN 135. IT IS ALSO ARGUED THAT THE ASSESSEE OFFICER ITA NO.2462/MUM/13 A.Y.2009-10 6 NOWHERE ESTABLISHED ANY NEXUS OF EXPENSES WITH T HE INVESTMENT INCURRED TO EARN THE EXEMPT INCOME, THEREFORE, DIS ALLOWANCE OF @ 0.5% OF THE INVESTMENT OF RS.5,31,609/- IS LIABLE T O BE DELETED IN THE INTEREST OF JUSTICE AND ALSO PLACED RELIANCE ON THE LAW SETTLED IN CIT VS. HERO CYCLES (P&H) 323 ITR 518 AND ACIT VS. EICH ER LTD. 101 TTJ (DEL) 369. HOWEVER, ON THE OTHER HAND THE LEAR NED REPRESENTATIVE OF THE DEPARTMENT HAS STRONGLY RELIED UPON THE ORDE R PASSED BY THE CIT(A). IN VIEW OF THE ARGUMENTS ADVANCED BY LEARN ED REPRESENTATIVE OF THE PARTIES AND PERUSING THE RECORD CAREFULLY, I T CAME INTO NOTICE THAT THE SHARE CAPITAL AND RESERVE AND SURPLUS AS O N 31.03.2009 IS AVAILABLE WITH THE ASSESSEE TO THE EXTENT OF RS.17, 27,79,961/- AGAINST THE TOTAL INVESTMENT OF RS.10,56,74,042/-. THE BOM BAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES & POWERS LTD. (SUPRA ) HAS CLEARLY HELD THAT IF INTEREST FREE AND INTEREST BEARING FUNDS AR E AVAILABLE THEN A PRESUMPTION WOULD ARISE THAT INTEREST FREE FUNDS HA VE BEEN UTILIZED FOR INVESTMENT TO EARN THE EXEMPT INCOME. NO DOUBT IF THE INTEREST FREE FUND IS MORE THAN THE INTEREST BEARING FUNDS NO DIS ALLOWANCE CAN BE MADE U/S.14A OF THE ACT. SO FAR AS THE DISALLOWANC E @ 0.5% OF THE AVERAGE INVESTMENT OF RS.5,31,609/- IS CONCERNED TH E SAME HAS WRONGLY BEEN APPLIED BY THE ASSESSING OFFICE. NO N EXUS OF EXPENSES WITH THE INVESTMENT TO EARN THE EXEMPT INCOME HAS B EEN PROVED ON RECORD. IT IS NECESSARY ON THE PART OF THE ASSESSI NG OFFICER TO PROVE THE NEXUS OF EXPENSES WITH THE INVESTMENT TO EARN T HE EXEMPT INCOME WHICH IS NOT ON RECORD. RELIANCE PLACED ON THE LAW SETTLED IN CIT VS. ITA NO.2462/MUM/13 A.Y.2009-10 7 HERO CYCLES (P&H) (SUPRA). IN VIEW OF THE SAID CIR CUMSTANCES WE ARE OF THE VIEW THAT THE CIT(A) HAS CONFIRMED THE ORDER WRONGLY AND ILLEGALLY WHICH IS NOT REQUIRE TO BE SUSTAINABLE IN THE EYES OF LAW, THEREFORE, WE SET ASIDE THE ORDER IN QUESTION ON TH IS GROUND AND DIRECT THE ASSESSING OFFICER TO RE-ASSESS THE APPLICABILIT Y OF THE PROVISION OF SECTION 14A READ WITH RULE 8D OF THE ACT, HENCE WE RESTORE THIS ISSUE ON THE FILE OF THE ASSESSING OFFICER TO DECIDE AFRE SH AFTER GIVING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ACCORD INGLY, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE R EVENUE. 7. ACCORDINGLY THE APPEAL FILED BY THE ASSESSEE IS HEREBY ALLOWED FOR STATISTICAL PURPOSE . ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH JUNE , 2016. SD/- SD/- (R.C.SHARMA) (AMARJIT SINGH) # / ACCOUNTANT MEMBER %& # /JUDICIAL MEMBER ' ( MUMBAI; )# DATED :24 TH JUNE, 2016 MP MP MP MP * +%'#, -,(' / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. * ( ) / THE CIT(A)- 4. * / CIT 5. -./ &&01 , 01' , ' ( / DR, ITAT, MUMBAI 6. /34 5 / GUARD FILE. ' / BY ORDER, - & //TRUE COPY// ./$ ! /(DY./ASSTT. REGISTRAR)