M/s. Mid Valley Health Care Services Pvt. Ltd., Ahmedabad V. The Asst. Commissioner of Income Tax, Circle-2(1)(2), Ahmedabad

ITA 2524/AHD/2017

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 6942 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 15-11-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Principle of natural justice; Earning of tax free income; Rule 8D
• Section: 271(1)(c); 143(3); 14A; 115JB

Judgement Text

, A IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER &SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ./I.T.A. NOS. 2524 & 2525/AHD/2017 ( / ASSESSMENT YEARS:2013-14 & 2014-15) MID VALLEY HEALTH CARE SERVICES PVT. LTD. 51, 5 TH FLOOR, NEW YORK TOWER, S.G. ROAD, THALTEJ, AHMEDABAD / VS. ACIT CRICLE- 2(1)(2), AHMEDABAD ./ ./PAN/GIR NO. : AAE CM7 777 K ( /APPELLANT ) .. ( / RESPONDENT ) MID VALLEY HEALTH CARE SERVICES PVT. LTD. 51, 5 TH FLOOR, NEW YORK TOWER, S.G. ROAD, THALTEJ, AHMEDABAD / VS. DCIT CRICLE- 2(1)(2), AHMEDABAD ./ ./PAN/GIR NO. : AAE CM7 777 K ( /APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI TUSHAR HEMANI, A.R. / RESPONDENTBY: SHRI S. K. DEV, SR. DR !' /DATE OFHEARING 26/06/2019 #$!' / DATE OF PRONOUNCEMENT 31/07/2019 %& /O R D E R PER AMARJIT SINGH - AM: THESE TWO APPEALS HAVE BEEN FILED BY THE ASSESSEE F OR A.YS. 2013-14 &2014-15, ARISE FROM ORDER OF THE CIT(A)-2, AHMEDAB AD DATED ITA NOS. 2524 & 2525/AHD/2017 A.YS. 2013-14 &2014-15 2 13.09.2017&14.09.2017, IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT. ITA NO. 2524/AHD/2017 (A.Y. 2013-14):- 2. THE BRIEF FACT IS THAT ASSESSEE HAS FILED RETURN OF INCOME DECLARING INCOME OF RS. 7,61,31,960/- ON 30.11.2013. THE CASE WAS S UBJECT TO SCRUTINY AND NOTICE UNDER SEC. 143(2) OF THE ACT, WAS ISSUED ON 16.09.2 014. THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF SERVICES RELATED TO INFO RMATION TECHNOLOGY. THE ISSUES ARISING OUT OF THE APPEAL FILED BY THE ASSES SEE ARE DISCUSSED WHILE ADJUDICATING THE GROUND OF APPEAL ASSESSEE AS UNDER :- 1. THE LEARNED CIT(A) HAS ERRED BOTH IN LAW AND ON THE FACTS OF THE CASE IN CONFIRMING THE ACTION OF THE AO OF INVOKING THE PRO VISIONS OF RULE 8D WITHOUT RECORDING ANY DISSATISFACTION TO THE CLAIM OF APPEL LANT. 2. THE LEARNED CIT(A) HAS ERRED BOTH IN LAW AND ON THE FACTS OF THE CASE IN CONFIRMING DISALLOWANCE MADE BY THE AO U/S. 14A OF THE ACT RW.R. 8D OF THE INCOME TAX RULES, 1962 TO THE EXTENT OF RS. 10,28,141/-. 3. THE LEARNED CIT(A) HAS ERRED BOTH IN LAW AND ON THE FACTS OF THE CASE IN CONFIRMING THAT DISALLOWANCE U/S. 14A IS TO BE MADE WHILE CALCULATING BOOK PROFIT U/S. 115JB. 4. THE LEARNED CIT(A) HAS ERRED BOTH IN LAW AND ON FACTS OF THE CASE IN CONFIRMING DISALLOWANCE OF EXPENSES TO THE EXTENT O F RS. 2,79,788/- IN THE COMPUTATION OF SHORT TERM CAPITAL GAIN U/S. 48 OF THE ACT. 5. BOTH THE LOWER AUTHORITIES HAVE PASSED THE ORDER S WITHOUT PROPERLY APPRECIATING THE FACTS AND THEY FURTHER ERRED IN GR OSSLY IGNORING VARIOUS SUBMISSIONS, EXPLANATIONS AND INFORMATION SUBMITTED BY THE APPEL LANT FROM TIME TO TIME WHICH OUGHT TO HAVE BEEN CONSIDERED BEFORE PASSING THE IM PUGNED ORDER. THIS ACTION OF THE LOWER AUTHORITIES IS IN CLEAR BREACH OF LAW AND PRI NCIPLES OF NATURAL JUSTICE AND THEREFORE DESERVES TO BE QUASHED. 6. THE LEARNED CIT(A)HAS ERRED IN LAW AND ON FACTS OF THE CASE IN CONFIRMING ACTION OF THE LD. AO IN LEVYING INTEREST U/S. 234A/ B/C OF THE ACT. 7. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN CONFIRMING ACTION OF THE LD. AO IN INITIATING PENALTY U/S. 271 (1)(C) OF THE ACT. ITA NOS. 2524 & 2525/AHD/2017 A.YS. 2013-14 &2014-15 3 GROUND NO. 1:- CONFIRMING DISALLOWANCE OF RS. 10,28,141/- UNDER S EC. 14A OF THE ACT:- 3. DURING THE COURSE OF ASSESSMENT THE AO NOTICED T HAT ASSESSEE HAS EARNED DIVIDEND INCOME OF RS. 26,15,624/- CLAIMED AS EXEMP T FROM TAX. THE AO HAS FURTHER NOTICED THAT ASSESSEE HAS SHOWN NON-CURRENT INVESTMENT TO THE AMOUNT OF RS. 26,54,75,536/- IN ITS BALANCE SHEET DURING THE YEAR UNDER CONSIDERATION AS AGAINST NON-CURRENT INVESTMENT OF RS. 23,96,32,378/ - IN THE IMMEDIATE PRECEDING YEAR. THEREFORE, THE ASSESSEE WAS ASKED TO EXPLAIN WHY NOT THE PROVISIONS OF SEC. 14A R.W.R 8D OF THE INCOME TAX R ULE, 1962 SHOULD BE APPLIED IN ITS CASE. THE ASSESSEE RESPONDED THAT I T HAS BEEN DERIVING INCOME FROM LONG TERM AND SHORT TERM CAPITAL GAIN FROM SAL E AND SHARES AND UNITS OF MUTUAL FUNDS AND VARIOUS EXPENSES WERE EARNED FOR E ARNING THIS INCOME.IT WAS ALSO EXPLAINED THAT AMOUNT DISCLOSED IN THE STATEME NT OF INCOME WAS AFTER DEDUCTING EXPENSES IN THIS RESPECT I.E. NET OF EXPE NSES. THE AO HAS NOT ACCEPTED THE EXPLANATION THE ASSESSEE. SHE WAS OF THE VIEW THAT ASSESSEE HAS NOT MAINTAINED ANY ACCOUNT OR RECORD TO SHOW THAT NO AD MINISTRATIVE EXPENDITURE HAS BEEN INCURRED FOR THE PURPOSE OF EARNING EXEMPT INCOME. THE AO HAS CITED INSTANCES OF SOME ADMINISTRATIVE ACTION SUCH AS THE REVIEW OF INVESTMENT,MONITORING OF THE ACTIVITIES OF THE COMP ANY IN WHICH THE ASSESSEE COMPANY HAS MADE SUBSTANTIAL INVESTMENT BY THE DIRE CTORS OF THE ASSESSEE COMPANY AND EMPLOYEES ETC.CONSIDERING THE AFORESAID PERSPECTIVE THE SALARY PAID BY THE ASSESSEE COMPANY TO THOSE EMPLOYEE AND DIRECTORS HAVE NOT BEEN UTILIZED EXCLUSIVELY FOR THE PURPOSE OF THE BUSINES S. ACCORDINGLY, THE AO HAS DETERMINED THE DISALLOWANCE OF ADMINISTRATIVE EXPEN DITURE AS PER 14A R.W.R. 8D TO THE AMOUNT OF RS. 12,62,770/- AND ADDED TO THE T OTAL INCOME OF THE ASSESSEE. 4. AGGRIEVED ASSESSEE FILE BEFORE THE LD. CIT(A). L D. CIT(A) HAS PARTLY ALLOWED THE APPEAL OF THE ASSESSEE BY REDUCING THE INVESTMENT IN THE MUTUAL FUND FROM THE TOTAL INVESTMENT ON THE GROUND THAT M UTUAL FUND IS TAXED AS SHORT ITA NOS. 2524 & 2525/AHD/2017 A.YS. 2013-14 &2014-15 4 TERM CAPITAL GAIN OR LONG TERM CAPITAL GAIN DEPENDI NG UPON THE PERIOD OF HOLDING AND NO INCOME IS SHOWN FROM MUTUAL FUND FROM YEAR T O YEAR BASIS. THEREFORE, THE LD. CIT(A) HAS COMPUTED THE DISALLOWANCE TO THE AMOUNT OF RS. 11,01,175/- AFTER REDUCING THE DISALLOWANCE OF RS. 73,074/- ALR EADY MADE BY THE ASSESSEE, THE NET DISALLOWANCE OF RS. 10,28,141/- WAS CONFIRM ED. WE HAVE HEARD THE RIVAL CONTENTION AND PERUSED THE MATERIAL ON RECORD. THE AO HAS COMPUTED THE DISALLOWANCE UNDER SEC. 14A TO THE AMOUNT OF RS. 12,62,770/-. HOWEVER, THE LD. CIT(A) HAS CONFIRMED THE DISALLOWANCE TO THE EXTENT OF RS. 10,28,141/- AFTER EXCLUDING INVESTMEN T IN THE NATURE OF MUTUAL FUND ETC. WITH REGARD TO THE ISSUE IN APPEAL THAT AO HAS NOT RECORDED ANY SATISFACTION FOR MAKING DISALLOWANCE UNDER SEC. 14A OF THE ACT, WE NOTICED THAT AO AT PAGE 5 OF THE ASSESSMENT ORDER HAS CLEARLY ST ATED THAT ASSESSEE HAS NOT MAINTAINED ANY RECORD TO DEMONSTRATE THAT NO ADMINI STRATIVE EXPENDITURE HAS BEEN INCURRED FOR THE PURPOSE OF EARNING EXEMPT INC OME. THE AO HAS ALSO CITED INSTANCES OFADMINISTRATIVE EXPENDITURE SUCH AS THE REVIEW OF INVESTMENT,MONITORING OF THE ACTIVITIES OF THE COMP ANY IN WHICH THE ASSESSEE COMPANY HAS MADE SUBSTANTIAL INVESTMENT BY THE DIRE CTOR OF THE ASSESSEE COMPANY AND THE EMPLOYEES OF THE ASSESSEE COMPANY E TC.THEREFORE, THE SALARY PAID BY THE ASSESSEE COMPANY TO THOSE EMPLOYEE AND THE DIRECTOR WHO HAVE DEVOTED THEIR TIME TOWARDS INVESTMENT ACTIVITIES HA VE NOT BEEN UTILISED EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE COMPANY. IN THE LIGHT OF THE ABOVE FACTS AND CIRCUMSTANCES WE DO NOT FIND ANY MERIT IN THE GROUND OF APPEAL OF THE ASSESSEE THAT NO SAT ISFACTION HAS BEEN RECORDED BY THE AO BEFORE MAKING DISALLOWANCE UNDER SEC. 14A OF THE ACT. HOWEVER, AFTER PERUSAL OF THE INFORMATION ON RECORD FILED BY THE A SSESSEE WE OBSERVE THAT ASSESSEE HAS MADE INVESTMENT IN EQUITY SHARE OF LIS TED COMPANYS DEBENTURES, ITA NOS. 2524 & 2525/AHD/2017 A.YS. 2013-14 &2014-15 5 BOND UNITS OF MUTUAL FUND ETC. AND ALL THESE HAVE B EEN MADE THROUGH PORTFOLIO MANAGEMENT CONSULTANT WHO HAS PROVIDED FULL FLEDGE SERVICES IN THAT RESPECT. THE ASSESSEE HAD SUO-MOTU DISALLOWED AN AMOUNT OF RS. 73,034/- UNDER SEC. 14A OF THE ACT. HOWEVER, LOOKING TO THE QUANTUM OF EXEMPT INCOME AND INVESTMENT MADE BY THE ASSESSEE IT WILL BE APPROPRI ATE TO RESTRICT THE DISALLOWANCE OUT OF ADMINISTRATIVE EXPENDITURE TO T HE AMOUNT OF RS. 3,00,000/-. THEREFORE, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED . GROUND NO. 3:- CONSIDERING OF DISALLOWANCE MADE UNDER SEC. 14A FO R CALCULATING BOOK PROFIT UNDER SEC. 115JB:- 5. THE AO HAS MADE ADJUSTMENT TO THE BOOK PROFIT UN DER SEC. 115JB AFTER INCLUDING THE DISALLOWANCE UNDER SEC. 14A MADE BY T HE AO. IN APPEAL THE LD. CIT(A) HAS DISMISSED THE APPEAL OF THE ASSESSEE. WE HAVE HEARD THE RIVAL CONTENTION OF THIS ISSUE. IN VIEW OF THE DECISION OF SPECIAL BENCH OF ITAT DELHI CIT VS. VIREET INVES TMENT PVT. LTD. 165 ITD 27 (DEL)(SB) WHEREIN IT IS HELD THAT DISALLOWANCE U NDER SEC. 14A CANNOT BE ADDED TO BOOK PROFIT UNDER SEC. 115JB OF THE ACT, T HE DECISION OF THE LD. CIT(A)S IS NOT JUSTIFIED. ACCORDINGLY, APPEAL OF THE ASSESSEE IS ALLOWED. GROUND NO. 4:- DISALLOWANCE OF EXPENSES OF RS. 2,79,788 IN COMPUT ATION OF SHORT TERM CAPITAL GAIN UNDER SEC. 48:- 6. DURING THE COURSE OF ASSESSMENT THE AO HAS DISAL LOWED VARIOUS EXPENSES WHILE COMPUTING SHORT TERM CAPITAL GAIN ARISING ON TRANSFER OF SHARES AGGREGATING TO RS. 17,97,854/- ON THE GROUND THAT S UCH EXPENSES WERE NOT ALLOWABLE AS PER THE PROVISION OF SEC. 48 OF THE AC T. ITA NOS. 2524 & 2525/AHD/2017 A.YS. 2013-14 &2014-15 6 AGGRIEVED ASSESSEE HAS FILED APPEAL BEFORE LD. CIT (A). LD. CIT(A) HAS PARTLY ALLOWED THE APPEAL OF THE ASSESSEE AND RESTR ICTED THE DISALLOWANCE TO THE EXTENT OF RS. 2,79,788/-(CONSISTING OF RS. 96,172/- TOWARD MANAGEMENT FEES AND RS. 1,83,616/- TOWARD PORTFOLIO MANAGEMENT FEES). DURING THE COURSE OF APPELLATE PROCEEDING BEFORE US THE LD. COUNSEL HAS CONTENDED THAT LD. CIT(A) HAS FAILED TO APPRECIATE THAT PORTFOLIO MANAGEMENT FEES ARE ALLOWABLE AS DEDUCTION UNDER SEC. 48 OF THE ACT AND RELIANCE WAS PLACED ON THE DECISION OF JOY BEAUTY CARE PVT. LTD. VS. DCIT ITA 856/KOL/2017 . WE HAVE PERUSED THE ABOVE CITED DECISION OF THE CO -ORDINATE BENCH. THE RELEVANT PART OF THE ABOVE CITED DECISION IS REPROD UCED AS UNDER:- 12. WE HAVE HEARD RIVAL SUBMISSIONS. AT THE OUTSET , WE FIND THAT THE LD. CIT(A) HAD ACCEPTED THAT THE GAINS ON SALE OF SHARES THROUGH P MS PROVIDERS TO BE TAXED UNDER THE HEAD CAPITAL GAINS. AGAINST THESE FINDINGS OF T HE LD. CIT(A), THE REVENUE HAS NOT PREFERRED THE APPEAL BEFORE US AS PER THE MATERIAL AVAILABLE ON RECORD. THE ASSESSEE PLACED RELIANCE ON THE DECISION OF CO-ORDINATE BENC H OF PUNE TRIBUNAL IN THE CASE OF KRA HOLDING & TRADING PVT. LTD. VS. DCIT IN ITA NOS . 499, 500, 1320 TO 1322 OF 2008 AND 434 OF 2009 AND 806 OF 2009 DATED 31.05.20 11 REPORTED IN 2011 (5) TMI 498 ITAT PUNE. THERE WERE PRIMARILY TWO ISSUES BEFO RE THE PUNE TRIBUNAL IN THE AFORESAID CASES:- 1. WHETHER I HE TRANSACTIONS OF PURCHASE AND SALE O F SHARES CARRIED OUT THROUGH PMS PROVIDERS WOULD BE TAXED UNDER BUSINESS INCOME OR U NDER THE HEAD CAPITAL GAIN. 2. WHETHER PMS PROVIDERS FEES PAID TO M/S. EN AM WO ULD BE ALLOWABLE AS DEDUCTION UNDER SECTION 48 OF THE ACT. BOTH THE QUESTIONS WERE DECIDED IN FAVOUR OF THE AS SESSEE BY THE PUNE TRIBUNAL. 13. THE REVENUE PREFERRED FURTHER APPEAL TO HON'BLE BOMBAY HIGH COURT AGAINST THE ORDER. WE FIND THAT THE HON'BLE BOMBAY HIGH COURT W HILE ADMITTING THE SUBSTANTIAL QUESTIONS OF LAW ADMITTED ONLY ONE QUESTION WHICH I S AS UNDER: 'WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE ITAT WAS JUSTIFIED IN HOLDING THAT THE INCOME EARNED BY THE ASSESSEE BY T HE PORTFOLIO MANAGEMENT SCHEME WAS LIABLE TO BE ASSESSED UNDER THE HEAD 'CA PITAL GAINS' INSTEAD OF BEING ASSESSED UNDER THE HEAD PROFIT & GAINS OF BUS INESS OR PROFESSION' 14. THIS GOES TO PROVE THAT THE OTHER ISSUE DECIDED IN FAVOUR OF THE ASSESSEE BY PUNE TRIBUNAL I.E. ALLOWABILITY OF PMS FEES AS DEDUCTION UNDER SECTION 48 OF THE ACT WAS NOT ADMITTED BY HON'BLE BOMBAY HIGH COURT HENCE THE DECISION OF PUNE TRIBUNAL HAD ATTAINED FINALITY. RESPECTFULLY FOLLOWING THE S AID DECISION, WE HOLD THAT THE PMS ITA NOS. 2524 & 2525/AHD/2017 A.YS. 2013-14 &2014-15 7 FEES PAID BY THE ASSESSEE IN THE SUM OF RS. 18,93,7 88/- IS ELIGIBLE FOR DEDUCTION WHILE COMPUTING SHORT TERM CAPITAL GAIN. ACCORDINGLY, GRO UND NO 2 RAISED BY THE ASSESSEE IS ALLOWED. RESPECTFULLY, FOLLOWING THE DECISION OF THE CO-ORDI NATE BENCH HAS CITED ABOVE ON SIMILAR ISSUE AND FACT WE ALLOW THE CLAIM OF THE ASSESSEE FOR DEDUCTION UNDER SEC. 48 TO THE EXTENT OF EXPENSES INCURRED TO WARD PORTFOLIO MANUAL FEES OF RS. 1,83,686/-. ACCORDINGLY, THE APPEAL OF THE ASS ESSEE IS PARTLY ALLOWED. 7. THE GROUND OF APPEAL NO. 6 IS PERTAINED TO CHARG ING OF INTEREST UNDER SEC. 234 A/B/C OF THE ACT. SINCE CHARGING OF INTER EST UNDER THE AFORESAID PROVISIONS OF THE ACT ARE MANDATORY.THEREFORE, THIS GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. 8. THE GROUND NO. 7 REGARDING INITIATION OF PENALTY UNDER SEC. 271(1)(C) OF THE ACT IS PREMATURE AT THIS STAGE WHICH DOES NOT R EQUIRE ANY ADJUDICATION AT THIS STAGE. THEREFORE, THE SAME STANDS DISMISSED. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ITA NO. 2525/AHD/2017 (A.Y. 2014-15):- GROUND NO. 1:- DISALLOWANCE OF RS. 14,076 UNDER SEC. 36(1)(VA):- 10. DURING THE ASSESSMENT THE AO NOTICED THAT ASSES SEE HAS MADE LATE PAYMENT OF EMPLOYEES CONTRIBUTION TOWARDS PROVIDEN T FUND AND ESI ON THE VARIOUS DATE AS REPORTED AT PAGE 2 & 3 OF THE ASSES SMENT ORDER. THEREFORE, AN AGGREGATING AMOUNT OF RS. 14,076/- WAS DISALLOWED A FTER CONSIDERING THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. GSRTC (TAX APPEAL NO. 637 OF 2013) AS PER PROVISION OF SEC. 36 91)(VA) R.W.S. 2(24)(X) OF THE ACT. ITA NOS. 2524 & 2525/AHD/2017 A.YS. 2013-14 &2014-15 8 11. AGGRIEVED ASSESSEE HAS FILED APPEAL BEFORE LD. CIT(A). LD. CIT(A) HAS DISMISSED THE APPEAL. WE HAVE HEARD THE RIVAL CONTENTION AND CONSIDER TH AT HONBLE GUJARAT HIGH COURT IN THE ABOVE CITED DECISION HAS HELD THA T THE DEDUCTION TOWARDS EMPLOYEES CONTRIBUTION TO PROVIDENT FUND AND ESI I S AVAILABLE IF SUCH SUM IS CREDITED BY THE ASSESSEE TO THE EMPLOYEES ACCOUNT I N THE RELEVANT FUND ON OR BEFORE THE DUE DATE AS PER RESPECTIVE ACTS. THEREF ORE, CONSIDERING THE DECISION OF HONBLE GUJARAT HIGH COURT WE DO NOT FIND ANY ER ROR IN THE DECISION OF THE LD. CIT(A). ACCORDINGLY, THIS GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. GROUND NO. 2:- CONFIRMING DISALLOWANCE OF RS. 6,15,598 U/S. 14A O F THE ACT R.W.R. 8D:- 12. DURING THE COURSE OF ASSESSMENT THE AO HAS NOTI CED THAT ASSESSEE HAS EARNED DIVIDEND INCOME OF RS. 26,15,624/- DURING TH E YEAR AND CLAIMED AS EXEMPT FROM TAX. THE AO HAS FURTHER NOTICED THAT A SSESSEE HAS SHOWN NON- CURRENT INVESTMENT TO RS. 26,54,75,536/- IN ITS BAL ANCE SHEET DURING THE YEAR UNDER CONSIDERATION AS AGAINST NON-CURRENT INVESTME NT OF RS. 23,96,32,378/- IN THE IMMEDIATE PRECEDING YEAR. THEREFORE, THE ASSES SEE WAS ASKED TO EXPLAIN WHY NOT THE PROVISIONS OF SEC. 14A R.W.R 8D OF THE INCOME TAX RULE, 1962 SHOULD BE APPLIED IN ITS CASE. THE ASSESSEE HAS RE SPONDED THAT IT HAS BEEN DERIVING INCOME FROM LONG TERM AND SHORT TERM CAPIT AL GAIN FROM SALE AND SHARES AND UNITS OF MUTUAL FUNDS AFTER TAKING INTO CONSIDE RATION VARIOUS EXPENSES INCURRED FOR EARNING SUCH INCOME AND IT HAD DISCLOS ED NET INCOME THEREFORE NO FURTHER DISALLOWANCE SHOULD BE MADE. THE AO HAS NOT ACCEPTED THE EXPLANATION THE ASSESSEE. SHE WAS OF THE VIEW THAT ASSESSEE HA S NOT MAINTAINED ANY ACCOUNT OR RECORD TO SHOW THAT NO ADMINISTRATIVE EXPENDITUR E HAS BEEN INCURRED FOR THE PURPOSE OF EARNING EXEMPT INCOME. THE AO HAS STATE D THAT SOME ADMINISTRATIVE ACTION SUCH AS THE REVIEW OF INVESTMENT OR MONITORI NG OF THE ACTIVITIES OF THE COMPANY IN WHICH THE ASSESSEE COMPANY HAS MADE SUBS TANTIAL INVESTMENT MIGHT ITA NOS. 2524 & 2525/AHD/2017 A.YS. 2013-14 &2014-15 9 HAVE BEEN DONE BY THE DIRECTORS OF THE ASSESSEE COM PANY AND EMPLOYEES. THEREFORE, SALARY PAID BY THE ASSESSEE COMPANY TO T HOSE EMPLOYEE AND DIRECTORS HAVE NOT BEEN UTILIZED EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS. ACCORDINGLY, THE AO HAS DETERMINED THE DISALLOWANCE OF ADMINISTR ATIVE EXPENDITURE AS PER 14A R.W.R. 8D TO THE AMOUNT OF RS. 12,62,770/- AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. AGGRIEVED ASSESSEE FILE BEFORE THE LD. CIT(A). LD. CIT(A) HAS PARTLY ALLOWED THE APPEAL OF THE ASSESSEE BY REDUCING THE INVESTMENT IN THE MUTUAL FUND FROM THE TOTAL INVESTMENT ON THE GROUND THAT M UTUAL FUND IS TAXED AS SHORT TERM CAPITAL GAIN OR LONG TERM CAPITAL GAIN DEPENDI NG UPON THE PERIOD OF HOLDING AND NO INCOME IS SHOWN FROM MUTUAL FUND FROM YEAR T O YEAR BASIS. THEREFORE, THE LD. CIT(A) HAS COMPUTED THE DISALLOWANCE TO THE AMOUNT OF RS. 11,01,175/- AND AFTER REDUCING THE DISALLOWANCE OF RS. 73,074/- ALREADY MADE BY THE ASSESSEE, THE NET DISALLOWANCE OF RS. 10,28,141/- W AS CONFIRMED. WE HAVE HEARD THE RIVAL CONTENTION AND PERUSED THE MATERIAL ON RECORD. THE AO HAS COMPUTED THE DISALLOWANCE UNDER SEC. 14A TO THE AMOUNT OF RS. 12,62,770/-. HOWEVER, THE LD. CIT(A) HAS CONFIRMED THE DISALLOWANCE TO THE EXTENT OF RS. 10,28,141/- AFTER EXCLUDING INVESTMEN T IN THE NATURE OF MUTUAL FUND ETC. WITH REGARD TO THE ISSUE IN APPEAL THAT AO HAS NOT RECORDED ANY SATISFACTION FOR MAKING DISALLOWANCE UNDER SEC. 14A OF THE ACT, IN THIS REGARD, WE HAVE NOTICED THAT AO AT PAGE 5 OF THE ASSESSMENT ORDER HAS CLEARLY STATED THAT ASSESSEE HAS NOT MAINTAINED ANY RECORD TO DEMO NSTRATE THAT NO ADMINISTRATIVE EXPENDITURE HAS BEEN INCURRED FOR TH E PURPOSE OF EARNING EXEMPT INCOME. IT IS ALSO STATED THAT SOME ADMINISTRATIVE EXPENDITURE SUCH AS THE REVIEW OF INVESTMENT OR MONITORING OF THE ACTIVITIE S OF THE COMPANY IN WHICH THE ASSESSEE COMPANY HAS MADE SUBSTANTIAL INVESTMEN T MIGHT HAVE BEEN DONE BY ITA NOS. 2524 & 2525/AHD/2017 A.YS. 2013-14 &2014-15 10 THE DIRECTOR OF THE ASSESSEE COMPANY AND THE EMPLOY EES OF THE ASSESSEE COMPANY. THE AO HAS ALSO STATED THAT, THEREFORE, T HE SALARY PAID BY THE ASSESSEE COMPANY TO THOSE EMPLOYEE AND THE DIRECTOR WHO HAVE DEVOTED THEIR TIME TOWARDS INVESTMENT ACTIVITIES HAVE NOT BEEN UTILISE D EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE COMPANY. IN THE LIGHT OF THE ABOVE FACTS AND CIRCUMSTANCES WE DO NOT FIND ANY MERIT IN THE GROUND OF APPEAL OF THE ASSESSEE THAT NO SAT ISFACTION HAS BEEN RECORDED BY THE AO BEFORE MAKING DISALLOWANCE UNDER SEC. 14A OF THE ACT. HOWEVER, AFTER PERUSAL OF THE INFORMATION ON RECORD FILED BY THE A SSESSEE WE OBSERVE THAT ASSESSEE HAS MADE INVESTMENT IN EQUITY SHARE OF LIS TED COMPANYS DEBENTURES, BOND UNITS OF MUTUAL FUND ETC. AND ALL THESE HAVE B EEN MADE THROUGH PORTFOLIO MANAGEMENT CONSULTANT WHO HAS PROVIDED FULL FLEDGE SERVICES IN THAT RESPECT. THE ASSESSEE HAS SUO-MOTU MADE DISALLOWANCE TO THE EXTENT OF RS. 73,034/- ONLY.THE ASSESSEE HOWEVER, LOOKING TO THE QUANTUM O F EXEMPT INCOME AND RELATED INVESTMENT MADE BY THE ASSESSEE COMPANY.WE ARE VIEW OF THE THAT IT WILL BE APPROPRIATE TO RESTRICT THE DISALLOWANCE OUT OF ADMINISTRATIVE EXPENDITURE TO THE AMOUNT OF RS. 3,00,000/-. THEREFORE, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. GROUND NO. 3:- CONSIDERING DISALLOWANCE MADE U/S. 14A IS TO BE MA DE WHILE CALCULATING BOOK PROFIT U/S. 115JB:- 13. THE AO HAS MADE ADJUSTMENT TO THE BOOK PROFIT U NDER SEC. 115JB AFTER INCLUDING THE DISALLOWANCE UNDER SEC. 14A MADE BY T HE AO. IN APPEAL THE LD. CIT(A) HAS DISMISSED THE APPEAL OF THE ASSESSEE. WE HAVE HEARD THE RIVAL CONTENTION OF THIS ISSUE. IN VIEW OF THE DECISION OF SPECIAL BENCH OF ITAT DELHI CIT VS. VIREET INVES TMENT PVT. LTD. 165 ITD 27 (DEL)(SB) WHEREIN IT IS HELD THAT DISALLOWANCE U NDER SEC. 14A CANNOT BE ITA NOS. 2524 & 2525/AHD/2017 A.YS. 2013-14 &2014-15 11 ADDED TO BOOK PROFIT UNDER SEC. 115JB OF THE ACT. WE CONSIDER THAT LD. CIT(A)S DECISION IS NOT JUSTIFIED. ACCORDINGLY, A PPEAL OF THE ASSESSEE IS ALLOWED. 14. IN THE RESULT, THE APPEAL OF THE ASSESSEEIS PAR TLY ALLOWED. SD/- SD/- (SUDHANSHU SRIVASTAVA) (AMARJIT SINGH) JUDICIAL MEMBER ACCOUNTANT M EMBER AHMEDABAD: DATED 31/07/2019 TANMAY TRUE COPY / COPY OF ORDER FORWARDED TO:- 1. / REVENUE 2. % / ASSESSEE 3. '( ! )! / CONCERNED CIT 4. )! - / CIT (A) 5. *+, ! ( , ' ( , -.%'% / DR, ITAT, AHMEDABAD 6. ,/ 0 / GUARD FILE. BY ORDER / %& , 1 / - ' ( , -.%'% 2 1.DATE OF DICTATION ON 03.07.2019 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING MEMBER 04.07.2019 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 09.07.2019 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 31.07.2019 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 31.07.2019 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 31 .07.2019 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER THIS ORDER PRONOUNCED IN OPEN COURT ON 31/07/2019