Sonoma Managements Partners Pvt.Ltd, Pune V. Deputy Commissioner of Income-tax, Circle - 6, Pune

ITA 2602/PUN/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 8046 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-01-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 27-11-2018
• Assessment Year: 2013-2014
• Appeal Filed On: 13-11-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: ARISES OUT OF PASSED
• Keywords: Transfer pricing; Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH SMC, PUNE BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER . / ITA NO.2602/PUN/17 / ASSESSMENT YEAR : 2013-14 SONOMA MANAGEMENTS PARTNERS PVT.LTD., 4 TH FLOOR, PLEXUS, ABOVE WORLD OF TITAN, ITI ROAD, AUNDH, PUNE 411 007 PAN : AAKCS0765M VS. DCIT, CIRCLE-6, PUNE (APPELLANT) (RESPONDENT) / ORDER PER R.S.SYAL, VP : THIS APPEAL BY THE ASSESSEE ARISES OUT OF THE ORDER PASSE D BY THE CIT(A) ON 30-06-2017 IN RELATION TO THE ASSESSME NT YEAR 2013-14. 2. THE FIRST ISSUE RAISED IN THIS APPEAL IS CONFIRMATION OF DISALLOWANCE OF RS.31,68,347/- MADE BY THE AO U/S.14A OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE AC T). APPELLANT BY SHRI KISHOR PHADKE RESPONDENT BY SHRI RAJESH GAWALI DATE OF HEARING 07-01-2019 DATE OF PRONOUNCEMENT 08-01-2019 ITA NO.2602/PUN/2017 SONOMA MANAGEMENTS PARTNERS PVT. LTD., 2 3. SHORN OFF UNNECESSARY DETAILS, IT IS OBSERVED FROM THE ASSESSMENT ORDER THAT THE ASSESSEE MADE INVESTMENTS IN THE EQUITY SHARES TO THE EXTENT OF RS.38.72 CRORE. IN THE ABS ENCE OF THE ASSESSEE HAVING MADE ANY DISALLOWANCE U/S.14A OF THE ACT, THE AO PROCEEDED TO COMPUTE SUCH DISALLOWANCE AS PER RULE 8D AT RS.31,68,347/-. THE LD. CIT(A) UPHELD THE ADDITION. 4. HAVING HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD, IT IS OBSERVED FROM THE ASSESS MENT ORDER ITSELF THAT THE ASSESSEE DID NOT EARN ANY EXEMPT INCOM E DURING THE YEAR. SUCH FINDING HAS BEEN RECORDED BY THE AO IN PARA NO.5 OF THE ASSESSMENT ORDER. 5. T HE HON'BLE DELHI HIGH COURT IN CHEMINVEST LTD. VS. CIT (2015) 378 ITR 33 (DEL) HAS HELD THAT IF THERE IS NO EXEMPT INCOME, THERE CAN BE NO QUESTION OF MAKING ANY DISALLOWANCE U/S 14A OF THE ACT. SIMILAR VIEW HAS BEEN TAKEN BY THE HON'BLE DELHI HIGH COURT IN CIT VS. HOLCIM INDIA P. LTD. (2014) 90CCH 081-DEL-HC . IN VIEW OF THE FACT THAT THE ASSESSEE DID NOT EARN ANY EXEMPT INCOME DURING THE YEAR, THERE CAN BE NO QUESTION OF MAKING OR SUSTAINING ANY DISALLOWANCE U/S 14A OF THE ACT. SIMILAR VIEW HAS BEEN TAKEN BY THE DELHI ITA NO.2602/PUN/2017 SONOMA MANAGEMENTS PARTNERS PVT. LTD., 3 BENCH OF THE TRIBUNAL IN SEVERAL CASES INCLUDING INDO HONGKONG INDUSTRIES PVT. LTD. VS. DCIT IN ITA NOS. 2611 & 2612/DEL/2015 VIDE ITS ORDER DATED SEPTEMBER, 2018. NO CONTRARY DECISION HAS BEEN BROUGHT TO OUR NOTICE BY THE LD. DR. WE, THEREFORE, OVERTURN THE IMPUGNED ORDER TO THIS EXTENT. THIS GROUND IS, THUS, ALLOWED. 6. THE NEXT GROUND IS AGAINST THE CONFIRMATION OF DISALLOWANCE OF RS.18 LAKHS U/S. 40A(2)(A) OF THE ACT. 7. BRIEFLY STATED, THE FACTS OF THIS GROUND ARE THAT THE ASSESSEE PAID RENT OF RS.2,25,000/- PER MONTH FOR A BU NGALOW FOR USE BY ITS DIRECTOR. THE AO MADE DISALLOWANCE OF THE FULL AMOUNT BY HOLDING THAT THE TRANSACTION IS COVERED U/S.40A(2)(B) OF THE ACT. THE LD. CIT(A) CONSIDERED THE SUM OF RS.9 LAKHS AS REASONABLE AND SUSTAINED THE DISALLOWANC E OF RS.18 LAKHS, AGAINST WHICH THE ASSESSEE HAS APPROACHED THE TRIBUNAL. 8. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS SEEN FROM A TABLE DRAWN AT PAGE 6 OF THE IMPUGNED ORDER THAT THE ASSESSEE PAID SALARY OF RS.66 LAKHS TO ITS DIRECTOR IN ADDITION TO RENT FOR ACCOMMODATION AT ITA NO.2602/PUN/2017 SONOMA MANAGEMENTS PARTNERS PVT. LTD., 4 RS.5,50,000/-. IN A.Y. 2011-12, THE ASSESSEE PAID SALA RY OF RS.1 CRORE AND RENT OF RS.7 LAKHS. FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR, THE ASSESSEE DID NOT PAY ANY SALARY TO ITS DIRECTOR AND PAID RENT OF RS.9,09,678/- FOR A FLAT. FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE AGAIN DID NOT PA Y ANY SALARY BUT PROVIDED RENT FREE ACCOMMODATION TO ITS DIRECTOR BY PAYING RENT OF RS.27 LAKHS. THE TRANSACTION O F PAYMENT OF RENT OF RS.27 LAKHS P.A. IS ADMITTEDLY AT ARMS LENGTH PRICE IN AS MUCH AS THE PAYMENT OF RENT WAS MADE TO A THIRD PARTY. WHEREAS IN THE PRECEDING YEAR, THE ASSESSEE PROVIDED A FLAT TO ITS DIRECTOR, DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE PROVIDED A BUNGALOW. IN SUCH CIRCUMSTANCES, THERE CAN BE NO RATIONALE IN COMPARING RENT PAID FOR A FLAT WITH THE RENT PAID FOR A BUNGALOW FOR SUSTAIN ING DISALLOWANCE U/S 40A(2)(A) OF THE ACT AND THAT TOO WHEN THE PAYMENT HAS BEEN MADE TO A THIRD PARTY. IN THE ABSENCE O F THE AO HAVING BROUGHT ON RECORD ANY COMPARABLE INSTANCE OF LOWER PAYMENT OF RENT FOR SIMILAR ACCOMMODATION, WE ARE SATISFIED THAT THE SUSTENANCE OF DISALLOWANCE TO SUCH AN EXTE NT IS NOT WARRANTED. THE SAME IS DIRECTED TO BE DELETED. ITA NO.2602/PUN/2017 SONOMA MANAGEMENTS PARTNERS PVT. LTD., 5 9. THE ONLY OTHER ISSUE WHICH SURVIVES IN THIS APPEAL IS AGAINST AD HOC DISALLOWANCE OF RS.5,78,018/- TOWARDS 50% OF THE TRAVELLING AND BUSINESS PROMOTION EXPENSES. THE ASSES SEE CLAIMED TRAVELLING AND BUSINESS PROMOTION EXPENSES AT RS.23,34,807/-. OUT OF SUCH EXPENSES, A SUM OF RS.11,56,037/- WAS NOT SUPPORTED BY REQUISITE BILLS. THE AO MADE ADDITION @ 50% OF SUCH SUM WHICH CAME TO RS.5,78,018/-. THE LD. CIT(A) SUSTAINED THE SAME. 10. HAVING HEARD BOTH THE SIDES AND PERUSED THE RELEVANT MATERIAL ON RECORD AND ALSO CONSIDERING THE PECULIAR FACTS PREVAILING IN THE INSTANT CASE, WE ARE OF THE CONSIDERED OPINIO N THAT THE ADDITION SUSTAINED AT 50% OF TRAVELLING EXPENSES FOR WHICH PROPER BILLS WERE NOT THERE, IS EXCESSIVE. THE SAM E IS REDUCED TO 25%. WE ORDER ACCORDINGLY. 11. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 08 TH JANUARY, 2019. SD/- SD/- (VIKAS AWASTHY) (R.S.SYAL) JUDICIAL MEMBER VICE PRESID ENT PUNE; DATED : 08 TH JANUARY, 2019 ITA NO.2602/PUN/2017 SONOMA MANAGEMENTS PARTNERS PVT. LTD., 6 / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. ( ) / THE CIT (APPEALS),-4, PUNE 4. 5. THE PR. CIT-3, PUNE , , SMC / DR SMC, ITAT, PUNE; 6. / GUARD FILE. / / TRUE COPY // / BY ORDER, // TRUE COPY // SENIOR PRIVATE SECRETARY , / ITAT, PUNE ITA NO.2602/PUN/2017 SONOMA MANAGEMENTS PARTNERS PVT. LTD., 7 DATE 1. DRAFT DICTATED ON 07-01-2019 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 07-01-2019 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. DATE OF UPLOADING ORDER SR.PS 8. FILE SENT TO THE BENCH CLERK SR.PS 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK 10. DATE ON WHICH FILE GOES TO THE A.R. 11. DATE OF DISPATCH OF ORDER. *