Jhajjar KT Transco Pvt. Ltd., Gandhinagar V. The ITO, Ward-(2), Gandhinagar

ITA 2590/AHD/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 4956 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 6 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-05-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 23-11-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K DEV
• Assessee Lawyers: KISHAN M MEHTA
• Keywords: Earning of tax free income; Rule 8D
• Section: 143(3); 14A

Judgement Text

, A IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER & SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER ./ I.T.A. NOS. 2590 & 2591/AHD/2017 ( ASSESSMENT YEARS : 2013-14 & 2014-15) JHAJJAR KT TRANSCO PVT. LTD. 101, PART III, GIDC ESTATE, SECTOR 28, GANDHINAGAR, GUJARAT - 382028 / VS. INCOME TAX OFFICER WARD (2), GANDHINAGAR & DY.CIT GANDHINAGAR CIRCLE, GANDHINAGAR ./ ./ PAN/GIR NO. : AACCJ3767E ( APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI KISHAN M. MEHTA, A.R. / RESPONDENT BY : SHRI S. K. DEV, SR.D.R. DATE OF HEARING 01/05/2019 !'# / DATE OF PRONOUNCEMENT 29/05/2019 / O R D E R PER PRADIP KUMAR KEDIA - AM: THE CAPTIONED APPEALS HAVE BEEN FILED AT THE INSTAN CE OF THE ASSESSEE AGAINST THE ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS), GANDHINAGAR, (CIT(A) IN SHORT), DATED 18.09.2017 & ITA NOS. 2590 & 2591/AHD/17 [JHAJJAR KT TRANSCO PVT. LTD. VS. ITO] A.YS. 2013-14 & 2014-15 - 2 - 19.09.2017 ARISING IN THE ASSESSMENT ORDERS DATED 2 9.03.2016 & 23.12.2016 PASSED BY THE ASSESSING OFFICER (AO) UND ER S. 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT) CONCERNING AY S 2013-14 & 2014-15. 2. THE GROUNDS OF APPEAL RAISED BY ASSESSEE READ AS UNDER: 1. THAT ON FACTS AND IN LAW THE LD. CIT(A) HAS ERR ED IN NOT DELETING THE DISALLOWANCE FOR ADMINISTRATIVE EXPENS ES U/S14A OF IT ACT. 2. THE LD. CIT(A) HAS ERRED IN OBSERVING THAT THE A SSESSEE HAS NOT PROVIDED ANY BASIS FOR DISALLOWANCE OF EXPENDIT URE OF RS.10,000/-. 3. THAT THE DECISION OF DEVARSONS INDUSTRIES PVT LT D VS ACIT RELIED ON BY THE LD. CIT(A) IS NOT APPLICABLE ON TH E FACTS OF THE CASE OF THE ASSESSEE. 3. BY WAY OF SOLITARY GROUND OF ITS APPEAL, THE A SSESSEE SEEKS TO IMPUGN THE ACTION OF THE REVENUE AUTHORITIES IN MAK ING DISALLOWANCE UNDER S.14A OF THE ACT. 4. WHEN THE MATTER WAS CALLED FOR HEARING, THE LEAR NED AR FOR THE ASSESSEE POINTED OUT THAT THE ASSESSEE IS IN RE CEIPT OF DIVIDEND INCOME FROM CERTAIN MUTUAL FUNDS AGGREGATING TO RS. 9,90,090/-. THE ASSESSEE HAS CONSIDERED THE ABOVE DIVIDEND INCO ME AS EXEMPT INCOME. AN AMOUNT OF RS.10,000/- WAS HOWEVER SUO MOTTO DISALLOWED AS EXPENSES ATTRIBUTABLE TO EXEMPT INCOM E. THE ASSESSEE CONTENDED THAT THE EXEMPT INCOME IS GENERA TED FROM INVESTMENT IN MUTUAL FUNDS AND THEREFORE NO ADMINIS TRATIVE EXPENSES HAVE BEEN INCURRED SEPARATELY BY THE ASSES SEE AND ITA NOS. 2590 & 2591/AHD/17 [JHAJJAR KT TRANSCO PVT. LTD. VS. ITO] A.YS. 2013-14 & 2014-15 - 3 - THEREFORE THERE WAS NO WARRANT TO APPLY STATUTORY F ORMULA SPECIFIED IN RULE 8D(2)(III) FOR THE PURPOSES OF DI SALLOWANCE OF ADMINISTRATIVE EXPENDITURE. THE LEARNED AR CONTEND ED THAT THE ASSESSEE ITSELF HAS DISALLOWED A REASONABLE EXPENDI TURE OF RS.10,000/- AND THEREFORE, THERE WAS NO WARRANT TO INVOKE RULE 8D(2)(III) AND THEREBY MAKING FURTHER DISALLOWANCE OF RS.1,26,000/- ON SUCH EARNING. THE LEARNED DR FOR THE REVENUE RELIED UPON THE ORDER OF THE LOWER AUTHORITIES IN I TS DEFENSE. 5. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. THE ASSESSEE HAS AGITATED THE DISALLOWANCE MADE BY THE AO UNDER RULE 8D(2)(III) OF THE IT RULES. WE NOTICE AVERMENTS MA DE ON BEHALF OF THE ASSESSEE THAT TAX FREE INCOME EARNED IN THE FORM OF DIVIDEND HAS ARISEN ENTIRELY OUT OF MUTUAL FUNDS WHICH ARE O NE TIME INVESTMENTS WITHOUT ANY PROACTIVE INVOLVEMENT OF MA NAGEMENT PER SE. THE SURPLUS FUNDS OF THE COMPANY HAVE BEEN SIMPLY PARKED IN THE MUTUAL FUNDS. WE TAKE COGNIZANCE OF THE ARGUMENTS ADVANCED ON BEHALF OF THE ASSESSEE THAT MUTUAL FUND INVESTMENTS BEAR DIFFERENT TRAITS AND ARE DIFFERENT SPECIES OF INVESTMENT. THE MUTUAL FUNDS ARE SUPERVISED BY THE EXPERTS IN FIELD AND MANAGEMENT CHARGES FOR SUCH SUPERVISION IS RECOVERE D FROM THE CLIENTS. THIS BEING SO, AN INVESTOR UNDER THE MUTU AL FUND SEPARATELY BEARS ADMINISTRATIVE AND MANAGERIAL EXPE NSES UNLIKE A CASE WHERE ASSESSEE CHOOSES TO MAKE INVESTMENT IN S HARES DIRECTLY. IN THE CASE OF MUTUAL FUNDS, ADMINISTRAT IVE AND MANAGERIAL EXPENSES ARE FACTORED IN THE INVESTMENTS ITSELF. IN SUCH A SCENARIO, THE EXPLANATION OFFERED BY THE ASS ESSEE FOR NON- APPLICABILITY OF RULE 8D(2)(III) FOR RIGID DISALLOW ANCE APPEARS TO ITA NOS. 2590 & 2591/AHD/17 [JHAJJAR KT TRANSCO PVT. LTD. VS. ITO] A.YS. 2013-14 & 2014-15 - 4 - BE IN CONGRUITY WITH MARKET PRACTICE. ACCORDINGLY, WE DO NOT FIND IT A FIT CASE FOR RESORTING TO DOUBLE DISALLOWANCE OF SIMILAR EXPENDITURE TAKING SHELTER OF RULE 8D(2)(III) OF TH E IT RULES. IT WILL BE PERTINENT HERE TO NOTE THAT A BARE READING OF SECTION 14A OF THE ACT SUGGESTS THAT ITS APPLICABILITY IS NOT A UTOMATIC. IT IS HEDGED BY CONDITIONS PRESCRIBED THEREIN. SECTION 1 4A INHERES IN IT THE CONCEPT OF REASONABLENESS. THE FORMIDABLE A MOUNT OF EXPENDITURE AS COMPUTED BY THE AO CANNOT BE SAID TO BE ATTRIBUTABLE TO TAX FREE INCOME GENERATED FROM SEPA RATELY ADMINISTERED MUTUAL FUNDS BY APPLYING A STRAIGHT JA CKET FORMULA EMBODIED IN RULE 8D(2)(III) OF THE IT RULES. THUS, WE FIND CONSIDERABLE MERIT IN THE PLEA OF THE ASSESSEE FOR NO ADDITIONAL DISALLOWANCE OVER AND ABOVE SUO MOTU DISALLOWANCE MADE BY THE ASSESSEE ITSELF IN THIS REGARD. HENCE, WE ARE DISP OSED TO ADJUDICATE THE ISSUE IN FAVOUR OF THE ASSESSEE. TH US, THE ORDER OF THE CIT(A) SUSTAINING THE DISALLOWANCE UNDER S.14A OF THE ACT DESERVES TO BE VACATED. 6. IN THE RESULT, APPEAL OF THE ASSESSEE IN ITA NO. 2590/AHD/2017 FOR AY 2013-14 IS ALLOWED. 7. THE OTHER APPEAL OF THE ASSESSEE IN ITA NO. 2591 /AHD/2017 CONCERNING AY 2014-15 INVOLVES IDENTICAL ISSUE OF D ISALLOWANCE OF ADMINISTRATIVE EXPENSES UNDER S.14A R.W. RULE 8D (2)(III) OF THE IT RULES. THE FACTS AND CIRCUMSTANCES BEING IDENTI CAL, THE DISALLOWANCE MADE BY THE REVENUE AUTHORITIES UNDER RULE 8D(2)(III) OF IT RULES IS DELETED IN PARITY WITH TH E REASONINGS ITA NOS. 2590 & 2591/AHD/17 [JHAJJAR KT TRANSCO PVT. LTD. VS. ITO] A.YS. 2013-14 & 2014-15 - 5 - PROVIDED IN ITA NO.2590/AHD/2017 (SUPRA) CONCERNING AY 2013- 14 IN ASSESSEES OWN CASE. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IN ITA NO. 2591/AHD/2017 FOR AY 2014-15 IS ALLOWED. 9. IN THE COMBINED RESULT, BOTH APPEALS OF THE ASSE SSEE ARE ALLOWED. SD/- SD/- (RAJPAL YADAV) (PRADIP K UMAR KEDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: DATED 29/05/2019 TRUE COPY S. K. SINHA !'#' / COPY OF ORDER FORWARDED TO:- &. / REVENUE 2. / ASSESSEE (. )*+ , / CONCERNED CIT 4. ,- / CIT (A) /. 012 33*+4 *+#4 56) / DR, ITAT, AHMEDABAD 7. 289 : / GUARD FILE. BY ORDER / 4 /5 *+#4 56) THIS ORDER PRONOUNCED IN OPEN COURT ON 29/05/201 9