Appeal details
Counselvise Citation
[2015] 140 COUNSELVISE.COM (IT) 88496 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 year(s) 10 month(s) 27 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
02-03-2015
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
J
Next Hearing Date
23-12-2014
Assessment Year
2007-2008
Appeal Filed On
05-04-2013
Judgement Text
, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES J MUMBAI . . , . . , BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI R.C.SHARMA , ACCOUNTANT MEMBER ITA NO.289/MUM/2013(A.Y. 2006-07) ITA NO.2660/MUM/2013(A.Y.2007-08) ITA NO.2659/MUM/2013(A.Y.2009-10) JUST DIAL LIMITED, PALM COURT, BUILDING NO.M-501, 5 TH FLOOR, MALAD (WEST), MUMBAI 400 064. PAN:AAACA 8049G (APPELLANT ) VS. THE ACIT 9(1), MUMBAI. (RESPONDENT) APPELLANT BY : SHRI SANJAY DEEPCHAN DANI RESPONDENT BY : SHRI AKH ILENDRA YADAV DATE OF HEARING : 02/03/2015 DATE OF PRONOUNCEMENT : 02 /03/2015 ORDER PER I.P.BANSAL, J.M: ALL THESE APPEALS ARE FILED BY THE ASSESSEE. I TA NO.289/MUM/2013 IS DIRECTED AGAINST ORDER PASSED BY LD. CIT(A)-20, MUM BAI DATED 18/10/2012 FOR ASSESSMENT YEAR 2006-07. ITA NO.2660/MUM/2013 IS D IRECTED AGAINST ORDER PASSED BY LD. CIT(A)-20, MUMBAI DATED 23/1/2013 FO R ASSESSMENT YEAR 2007-08 AND ITA NO.2659/MUM/2009-10 IS DIRECTED AGAINST ORD ER PASSED BY LD. CIT(A)-20 MUMBAI DATED 07/01/2013 FOR ASSESSMENT YEAR 2009-10 . ITA NO.289/MUM/2013(A.Y. 2006-07) ITA NO.2660/MUM/2013(A.Y.2007-08) ITA NO.2659/MUM/2013(A.Y.2009-10) 2 ITA NO.289/MUM/2013:A.Y.2006-07: GROUNDS OF APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE PENALTY ORDER PASSED U/S 271(1)(C) OF THE I.T. ACT IS INVAL ID AND BAD IN LAW. 2.. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED C.I.T. (A) ERRED IN PARTLY CONFIRMING THE PENALTY L EVIED U/S 271(1)(C) OF THE I.T. ACT AND THAT TOO WITHOUT APPRECIATING FULLY AN D PROPERLY THE FACTS OF THE CASE. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT. (A) ERRED IN PARTLY CONFIRMING THE PENALTY LEV IED U/S 271(1)(C) OF THE I.T. ACT ALTHOUGH THERE HAS BEEN NEITHER ANY CONCEA LMENT OF INCOME NOR FURNISHING OF INACCURATE PARTICULARS OF INCOME. 3. IN THE DETAILS FURNISHED AT PAGE 1 & 2 OF THE PA PER BOOK THE ADDITIONS WHICH HAVE BEEN MADE IN THE ASSESSMENT ORDER AND THE POSI TION OF THE QUANTUM ARE DESCRIBED IN THE FOLLOWING CHART. FOR THE RELEVANT A.Y 2006-07 THE DATE OF HEARING F OR QUANTUM ADDITION MADE WAS 06/02/2014 AND THE ORDER WAS PRONOUNCED ON 28/02/20 14. FOLLOWING IS THE SUMMARY OF ITAT ORDERS PASSED RELEVANT FOR PENALTY LEVIED BY THE LEARNED CIT(A): S.NO. PARICULARS OF PENALTY LEVIED AMOUNT ITAT ORDER ON QUANTUM REFERENCE NO. REMARKS 1. DEFERRED REVENUE DISALLOWANCE 9,13,635 IN FAVOUR OF APPELLANT ITAT ORDER PG. NO.4- 6 PARA 17 TO PARA 28 PENALTY N.A 2. DEPRECIATION ON GOODWILL 1,26,563 ITAT HAS DIRECTED THE AO TO ALLOW DEPRECIATION ON GOODWILL BASED ON SUPREME COURT DECISION IN CASE OF SMIFS SECURITIES. ITAT ORDER PG.NO.2, PARA 4-5 LEVIABILITY OF PENALTY TO STAY IN ABEYANCE 3. GRATUITY 13,08,005 IN FAVOUR OF APPELLANT ITAT ORDER PG. NO.2 PARA 8 PENALTY N.A 4. RENOVATION/CIVIL EXPENSES 38,56,361 IN FAVOUR OF APPELLANT ITAT ORDER PG. NO.6- 11 PARA 30 TO 45 PENALTY N.A 5 ROC FEES 15,000 NOT PRESSED ITAT ORDER PB. NO.2 PARA 2 NOT PRESSED 6 FRANCHISEE TERMINATION 18,50,000 ITAT HAS DIRECTED THE AO TO VERIFY THE ITAT ORDER PG. NO. 11-12 PARA 52 TO 53 LEVIABILITY OF PENALTY STAY IN ITA NO.289/MUM/2013(A.Y. 2006-07) ITA NO.2660/MUM/2013(A.Y.2007-08) ITA NO.2659/MUM/2013(A.Y.2009-10) 3 EXPENSES CLAIM IN THE LIGHT OF AGREEMENTS, EVIDENCE AND CASE LAWS AFTER ALLOWING OPPORTUNITY TO JDL ABEYANCE 7. TRADEMARK & PATENT 11,235 NOT PRESSED ITAT ORDER PG. NO. 2- PARA 2 NOT PRESSED 8. EXCESS DEPRECIATION CLAIMED IN RETURN 3,45,661 INCOME SURRENDERED NOT APPEALED AGAINST N.A REFER NOTE 1 TOTAL 75,12,825 3.1 TO SUPPORT THE ABOVE CHART REFERENCE HAS BEEN M ADE TO THE ORDER PASSED BY THE TRIBUNAL IN QUANTUM PROCEEDINGS WHICH IS DATED 28/2/2014 IN ITA NO.3200/MUM/2010, COPY OF THIS ORDER IS FILED AT PA GES 3 TO 15 OF THE PAPER BOOK. REFERRING TO THE ABOVE CHART IT IS THE SUBMISSION O F LD. AR THAT SO FAR AS IT RELATES TO LEVY OF PENALTY ON DEPRECIATION ON GOODWILL (MEN TIONED AT SL.NO.2 IN THE ABOVE CHART ) FRANCHISEE TRANSACTION EXPENSES(ITEM ME NTIONED AT SL.NO.6 OF THE CHART), THE ISSUES HAVE BEEN RESTORED BACK TO THE FILE OF A O AND IT WAS REQUESTED THAT THE ISSUE REGARDING LEVY OF PENALTY ON THESE ITEMS MAY ALSO BE RESTORED BACK TO THE FILE OF AO WITH A DIRECTION RECONSIDER THE SAME AFTER PA SSING THE ORDER AS PER DIRECTIONS GIVEN BY ITAT. 3.2 LD. DR DID NOT RAISE ANY OBJECTION ON THIS SUBM ISSION OF LD. AR. THEREFORE, KEEPING IN VIEW THE AFOREMENTIONED SUBMISSIONS,, SO FAR AS IT RELATES TO LEVY OF CONCEALMENT PENALTY ON THE ADDITION RELATING TO DEP RECIATION ON GOODWILL AMOUNTING TO RS.1,26,563/- AND ADDITION RELATING TO FRANCHISEE TRANSACTION EXPENSES AMOUNTING TO RS.18,50,000/-, THE MATTER IS RESTORED BACK TO THE FILE OF AO WITH A DIRECTION TO RE-ADJUDICATE THE LEVY OR OTHER WISE OF CONCEALMENT PENALTY AFTER FINALIZATION OF THE QUANTUM PROCEEDINGS AS PER DIRE CTIONS GIVEN IN AFOREMENTIONED ITA NO.289/MUM/2013(A.Y. 2006-07) ITA NO.2660/MUM/2013(A.Y.2007-08) ITA NO.2659/MUM/2013(A.Y.2009-10) 4 ORDER OF THE TRIBUNAL. SO TO THIS EXTENT THE APPEA L FILED BY THE ASSESSEE RELATING TO THESE ADDITIONS ARE CONSIDERED TO BE ALLOWED FOR S TATISTICAL PURPOSES. 3.3 KEEPING IN VIEW THE AFOREMENTIONED CHART, SO FA R AS IT RELATES TO LEVY OF CONCEALMENT , ON THE FOLLOWING ADDITION PENALTY IS DELETED IN VIEW OF DELETION IN THE QUANTUM PROCEEDINGS BY THE AFOREMENTIONED ORDER OF THE TRIBUNAL. (I) DEFERRED REVENUE DISALLOWANCE - RS. 9,13,635/- (II) GRATUITY - RS. 13,08,005/- (III)RENOVATION/CIVIL EXPENSES - RS. 38,56,361/- 3.4 SO FAR AS IT RELATES TO THE LEVY OF CONCEALMEN T PENALTY WITH REGARD TO ROC FEES. ROC FEES IS NOT ALLOWABLE AS EXPENDITURE. THE POSITION OF LAW IN THIS REGARD IS VERY CLEAR. LD. AR ALSO DID NOT MAKE ANY SUBMIS SION. THUS, IT WAS A CLEAR CUT DISALLOWABLE AMOUNT, WHICH HAS BEEN CLAIMED AS RE VENUE EXPENDITURE. SO THE LEVY OF CONCEALMENT PENALTY TO THIS EXTENT IS CONF IRMED. 3.5 SIMILAR IS THE POSITION WITH REGARD TO TRADE MA RK AND PATENT EXPENSES OF RS.11,235/-. ON THIS ISSUE ALSO LD. AR DID NOT SUB MIT ANY ARGUMENTS AND LEVY OF CONCEALMENT PENALTY ON THIS AMOUNT IS ALSO CONFIRME D. 3.6 NOW THE ISSUE REMAIN ONLY WITH RESPECT TO EXCES S DEPRECIATION CLAIMED IN THE RETURN. IT WAS SUBMITTED BY LD. AR THAT ON AIR CO NDITIONERS AND OFFICE EQUIPMENTS INSTEAD OF 15% DEPRECIATION THE ASSESSEE INADVERTENTLY CLAIMED DEPRECIATION @25% AS PER COMPANIES ACT AND THIS WA S ONLY AN INADVERTENT MISTAKE AND ASSESSEE SURRENDERED THE SAME IN THE AS SESSMENT ITSELF AND DID NOT FILE ITA NO.289/MUM/2013(A.Y. 2006-07) ITA NO.2660/MUM/2013(A.Y.2007-08) ITA NO.2659/MUM/2013(A.Y.2009-10) 5 ANY APPEAL AGAINST THE SAID DISALLOWANCE. IT WAS SUBMITTED THAT IT WAS PURELY AN INADVERTENT MISTAKE AND NO PENALTY SHOULD BE LEVIED ON THIS. LD. AR FURTHER RELIED UPON THE FOLLOWING DECISIONS. IN CASE OF DEPUTY COMMISSIONER OF INCOME TAX VS. S HAHABAD CO-OP. SUGAR MILLS (2010) 129 TTJ (CHD)(UO) 92: (2010) 33 DTR 18 IT WAS HELD THAT THOUGH THE ASSETS WERE ADDED AFTER 30 TH SEPTEMBER, THE ASSESSEE CLAIMED DEPRECIATION FOR FULL YEAR AND THERE WAS A BONAFIDE MISTAKE WHILE FILING THE RETURN WHICH DID NOT INVOLVE ANY CONCEALMENT OR FUR NISHING OF INACCURATE PARTICULARS ATTRACTING PENALTY. IN CASE OF COMMISSIONER OF INCOME TAX VS. SKYLINE A UTO PRODUCTS (P) LTD., (2005) 193 CTR (MP) 72: (2004) 271 ITR 335 (MP): (2 005) 142 TAXMAN 558 IT WAS HELD THAT MISTAKE COMMITTED BY ASSESSEE WHILE CALCULATING DEPRECIATION WAS A BONAFIDE MISTAKE AND NOT A DELIB ERATE ACT ON THE PART OF THE ASSESSEE AND CANCELLED THE PENALTY UNDER SECTIO N 271(1)(C). IN JUDICIAL DECISION OF CIT VS. SOMANY EVERGREE KNI TS LTD. (ITA NO.1332 OF 2011)(BOMBAY HIGH COURT COURT) IT WAS HELD IN CASE THE ASSESSEE HAD CLAIMED DEPRECIATION OF RS.1.70 CRORES INSTEAD OF R S.1.05 CORES IN THE RETURN OF INCOME FILED WITH THE DEPARTMENT DUE TO MISTAKE IN CALCULATION. THE HONBLE BOMBAY HIGH COURT HELD THAT BONAFIDE AND IN ADVERTENT MISTAKE OF A CHARTERED ACCOUNTANT TO CLAIM EXCESS DEPRECIATION W HILE FILING A RETURN OF INCOME WILL NOT TO FURNISHING OF INACCURATE PARTICU LARS OF INCOME. 3.7 ON THE OTHER HAND, IT WAS SUBMITTED BY LD. DR T HAT THE ASSESSEE HAS CLAIMED WRONG RATE ON DEPRECIATION AND IT CANNOT BE SAID TO AN INADVERTENT MISTAKE AS ASSESSEE IS ASSISTED BY A TEAM OF PROFESSIONALS WH O CANNOT MAKE SUCH MISTAKE. 3.8 WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTEN TIONS HAVE CAREFULLY BEEN CONSIDERED. THIS CLAIM IS DISALLOWED BY THE AO AS PER FOLLOWING OBSERVATIONS: 11. EXCESS DEPRECIATION: ITA NO.289/MUM/2013(A.Y. 2006-07) ITA NO.2660/MUM/2013(A.Y.2007-08) ITA NO.2659/MUM/2013(A.Y.2009-10) 6 11.1 FROM THE PERUSAL OF DEPRECIATION CHART, IT IS OBSERVED THAT ASSESSEE COMPANY HAD CLAIMED DEPRECIATION ON AIR CONDITIONER AND OFF ICE EQUIPMENT 25%. THE CORRECT RATE OF DEPRECIATION IS 15%. ON BEING CONF RONTED, THE ASSESSEE COMPANY SUBMITTED REVISED CHART STATING THAT THERE IS A EXC ESS CLAIM OF DEPRECIATION OF RS.3,45,661/-. THE CHART IS REPRODUCED AS BELOW: PARTICULARS TOTAL DEP. 25% CLAIMED DEP. 15% CORRECT DIFF. EXCESS AIR CONDITIONER 34,68,002 6,42,488 3,85,493 2,56,995 OFFICE EQUIPMENT 11,05,765 2,21,665 1,32,999 88,666 3,45,661 3.8.1 AS IT CAN BE SEEN FROM THE ABOVE OBSERVATIONS OF THE AO, IT IS CASE OF THE ASSESSEE RIGHT FROM THE BEGINNING THAT SUCH CLAIM WAS INADVERTENTLY MADE. THE FACT REGARDING THE ASSETS WERE DULY DISCLOSED IN TH E RETURN AND ONLY RATE OF DEPRECIATION WAS WRONGLY CLAIMED. THE BASIS OF CLA IM MADE BY THE ASSESSEE IS THAT IT HAS BEEN DESCRIBED UNDER COMPANIES ACT. KEEPING IN VIEW THE SMALLNESS OF THE CLAIM AND DISCLOSURES OF PARTICULARS OF ASSETS AND RATE OF DEPRECIATION AND ALSO THE RETURNED INCOME OF RS.8.90 CRORES, WE ARE OF THE OP INION THAT THIS COULD BE AN INADVERTENT MISTAKE FOR WHICH THE ASSESSEE SHOULD N OT BE HELD LIABLE FOR CONCEALMENT PENALTY. WE, THEREFORE, DELETE THE PEN ALTY. .9 IN THE RESULT, THIS APPEAL IS PARTLY ALLOWED IN THE MANNER AFORESAID. ITA NO.2660/MUM/2013, A.Y.2007-08: GROUNDS OF APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE PENALTY ORDER PASSED U/S 271(1)(C) OF THE I.T. ACT IS INVAL ID AND BAD IN LAW. 2.. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED C.I.T. (A) ERRED IN PARTLY CONFIRMING THE PENALTY L EVIED U/S 271(1)(C) OF THE ITA NO.289/MUM/2013(A.Y. 2006-07) ITA NO.2660/MUM/2013(A.Y.2007-08) ITA NO.2659/MUM/2013(A.Y.2009-10) 7 I.T. ACT AND THAT TOO WITHOUT APPRECIATING FULLY AN D PROPERLY THE FACTS OF THE CASE. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT. (A) ERRED IN PARTLY CONFIRMING THE PENALTY LEV IED U/S 271(1)(C) OF THE I.T. ACT ALTHOUGH THERE HAS BEEN NEITHER ANY CONCEA LMENT OF INCOME NOR FURNISHING OF INACCURATE PARTICULARS OF INCOME. 4. THE IMPUGNED CONCEALMENT PENALTY OF RS.12,14,66 5/- IMPOSED ON THE ADDITION MADE IN RESPECT OF LOSS CLAIMED ON SALE OF PMS SALE OF SHARES WHICH WAS DEBITED TO P&L ACCOUNT BUT WAS NOT ADDED BACK TO TH E COMPUTATION. IT IS THE CASE OF THE ASSESSEE THAT THIS WAS ONLY DUE TO OVERSIGHT AND NO CONCEALMENT PENALTY SHOULD HAVE BEEN LEVIED. 4.1 DURING THE COURSE OF HEARING IT TRANSPIRED THAT ORDER PASSED BY LD. CIT(A) IS AN EX-PARTE ORDER. LD. CIT(A) HAS PROCEEDED TO DEC IDE THE APPEAL FILED BY THE ASSESSEE EX-PARTE AS PER THE FOLLOWING OBSERVATIONS : 3.1 THIS CASE WAS FIXED FOR HEARING ON 09.01.2013 . ON THIS DAY APPELLANT HAS SUBMITTED A LETTER REQUESTING FOR ADJ OURNMENT ON THE GROUND THAT QUANTUM APPEAL FILED BEFORE THE HONBLE ITAT, MUMBAI IS PENDING FOR DECISION, HENCE, PENALTY PROCEEDINGS MIGHT BE KEPT IN ABEYANCE TILL THE DISPOSAL OF APPEAL. THIS REASON FOR SEEKING ADJOUR NMENT WAS NOT FOUND ACCEPTABLE AND REASONABLE, THEREFORE, APPELLANT WA S ASKED TO REPRESENT THE CASE SO THAT APPEAL COULD BE DECIDED ON MERIT. MR. NITIL D. CHOTALIA, EXECUTIVE-TAXATION, HAS APPEAL AND ON 09.01.2013 A ND HAS REQUESTED TO GIVE ONE MORE DATE FOR REPRESENTATION, ACCORDINGLY, CASE WAS FINALLY FIXED FOR HEARING ON 22.01.2013 AT 11.30 AM BUT ON THIS D AY AGAIN A LETTER WAS SUBMITTED BY MR. NITIN D. CHOTALIA FOR ADJOURNMENT WHICH WAS REJECTED BECAUSE ON 09.01.2013, HE WAS COMMUNICATED THAT CAS E WAS FINALLY FIXED ON 22.01.2013, HENCE, THERE WAS NO PROPRIETY TO SEEK F URTHER ADJOURNMENT MERELY ON THE BASIS OF APPOINTMENT OF COUNSEL. THE REAFTER, NOTHING WAS HEAR FROM THE APPELLANT SIDE NOR WAS ANY COMMUNICATION FOR RECONSIDERATION OF REJECTION OF ADJOURNMENT APPLICATION. THUS, IT IS VERY CLEAR THAT APPELLANT IS NOT INTERESTED IN PROSECUTING ITS APPEAL, THEREFORE , CASE IS DECIDED ON MERIT. ITA NO.289/MUM/2013(A.Y. 2006-07) ITA NO.2660/MUM/2013(A.Y.2007-08) ITA NO.2659/MUM/2013(A.Y.2009-10) 8 4.2 AS IT CAN BE SEEN FROM THE ABOVE OBSERVATIONS O F LD. CIT(A) THAT DESPITE FILING OF ADJOURNMENT APPLICATION HE HAS PROCEEDED TO DECIDE THE IMPUGNED APPEAL. WE ARE OF THE OPINION THAT IT WILL SERVE THE INTERE ST OF JUSTICE IF THE MATTER IS RESTORED BACK TO THE FILE OF LD. CIT(A) WITH A DIRE CTION TO RE-ADJUDICATE THE SAME AFTER GIVING A REASONABLE OPPORTUNITY OF HEARING T O THE ASSESSEE. TO ENSURE COMPLIANCE BEFORE LD. CIT(A), WE HAVE DIRECTED LD. AR OF THE ASSESSEE TO APPEAR BEFORE LD. CIT(A) ON 17/04/2015 TO WHICH LD. AR HAD AGREED. THEREFORE, WE RESTORE THIS APPEAL TO THE FILE OF LD. CIT(A) FOR RE-ADJUDICATION OF THE ISSUE REGARDING LEVY OR OTHERWISE OF THE CONCEALMENT PE NALTY AS PER DIRECTIONS GIVEN ABOVE. SINCE WE ARE RESTORING THE ISSUE TO THE FI LE OF LD. CIT(A), WE DO NOT EXPRESS ANY OPINION ON THE MERITS. 4.3 IN THE RESULT, THIS APPEAL IS TREATED TO BE ALL OWED FOR STATISTICAL PURPOSES. ITA NO.2659/MUM/2013,A.Y.2009-10:. GROUNDS OF APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED C.I.T. (A) ERRED IN DISPOSING OF THE APPEAL AND THAT TOO W ITHOUT FULLY AND PROPERLY CONSIDERING THE WRITTEN SUBMISSION AS WELL AS THE E VIDENCE SUBMITTED DURING THE COURSE OF HEARING PROCEEDINGS 2. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED C.I.T. (A) ERRED IN APPROVING THE ACTION OF THE A.O. IN DISALL OWING OF RS. 12,80,130/- U/S 14A OF THE I.T. ACT. ITA NO.289/MUM/2013(A.Y. 2006-07) ITA NO.2660/MUM/2013(A.Y.2007-08) ITA NO.2659/MUM/2013(A.Y.2009-10) 9 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED C.IT. (A) ERRED IN APPROVING THE ACTION OF THE A.O. IN DI SALLOWING DEPRECIATION ON GOODWILL CLAIMED OF RS. 53,394/- 5. APROPOS GROUND NO.1, IT WAS SUBMITTED BY LD. AR THAT IT IS GENERAL IN NATURE AND REQUIRES NO ADJUDICATION. 5.1 APROPOS GROUND NO.2, FACTS ARE THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS EARNED DIVIDEND INCOME OF RS.2,93,98,0 75/-, WHICH WAS CLAIMED AS EXEMPT. HOWEVER, ASSESSEE DID NOT MAKE DISALLOWANC E UNDER SECTION 14A OF THE INCOME TAX ACT, 1961(THE ACT) IN THE RETURN OF INCO ME OR DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE AO INVOKED SECTION 14A R.W. RULE 8D AND CALCULATED THE DISALLOWANCE AS PER FOLLOWING TABLE : S.NO. PARICULARS AMOUNT 1. THE PARTICULARS OF EXPENDITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME- RULE 8D(2 )(I) NIL 2. EXPENDITURE BY WAY OF INTEREST DURING THE PREVIO US YEAR WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULA R INCOME OR RECEIPT AN AMOUNT COMPUTED IN ACCORDANCE WITH THE F OLLOWING FORMULA, NAMELY. A X B C 49627 X 254145342 1331466734 9403/- A= THE AMOUNT OF EXPENDITURE BY WAY OF INTEREST OT HER THAN AMOUNT OF INTERST INCLUDED IN CLAUSE (I) INCURRED D URING THE PREVIOUS YEAR. B= THE AVERAGE OF VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME , AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE ON T HE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR. C= THE AVERAGE OF TOTAL ASSETS AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAS T DAY OF THE PREVIOUS YEAR RULE 8D(2)(II) 1331466734 3. I)AVERAGE VALUE OF INVESTMENTS OPENING BALANCE OF INVESTMENTS + CLOSING BALANCE OF INVESTMENTS /2 207036460 + 301254224 = RS. 254145342 ITA NO.289/MUM/2013(A.Y. 2006-07) ITA NO.2660/MUM/2013(A.Y.2007-08) ITA NO.2659/MUM/2013(A.Y.2009-10) 10 2 -8D (2)(III) (II) DISALLOWANCE AN AMOUNT EQUAL TO ONE HALF PER CENT OF THE AVERAGE OF THE VALUE OF INVESTMENT INCOME FROM WHICH DOES NOT OR S HALL NOT FORM PART OF THE TOTAL INCOME AS APPEARING IN THE B ALANCE SHEET OF THE ASSESSEE ON THE FIRST DAY AND THE LAST DAY O F THE PREVIOUS YEAR. III. 0.5% OF 254145342 12,70,726/- 4. TOTAL DISALLOWANCE 12,80,130/- THUS TOTAL DISALLOWANCE AS PER SECTION 14A R.W.RULE 8D WORKS OUT TO RS.12,80,130/- (DISAL LOWANCE : RS. 12,80,130/-) 5.2 SO FAR AS IT RELATES TO ADDITION MADE ON ACCOUN T OF INTEREST OF RS.9403/- STATED AT SL.NO.2 IN THE AFOREMENTIONED TABLE, IT IS THE S UBMISSION OF LD. AR THAT NO DISALLOWANCE WAS CALLED FOR AS THE ASSESSEES OWN F UNDS WERE MUCH MORE THAN THE INVESTMENT MADE IN THE SHARES AND SECURITIES, OUT O F WHICH THE ASSESSEE HAS EARNED TAX FREE DIVIDEND. TO SUBSTANTIATE SUCH CONTENTION , LD. AR REFERRED TO THE BALANCE SHEET, COPY OF WHICH IS PLACED AT PAGE 48 OF THE PA PER BOOK. ACCORDING TO THE SAID BALANCE SHEET SHARE CAPITAL OF THE ASSESSEE INCLUDI NG RESERVES AND SURPLUS IS A TOTAL SUM OF RS.72,84,85,240/- AS AGAINST INVESTMENT OF R S.41,61,63,310/-. RELYING UPON THE DECISION OF HONBLE BOMBAY HIGH COURT IN T HE CASE OF CIT VS. HDFC BANK LTD., 366 ITR 505 (BOM) IT WAS PLEADED THAT N O ADDITION COULD BE MADE ON ACCOUNT OF INTEREST. 5.3 SO FAR AS IT RELATES TO OTHER PART OF THE DISAL LOWANCE, WHICH IS MENTIONED AT SL.NO.3 OF THE AFOREMENTIONED TABLE I.E. A SUM OF R S. 12,70,726/-, IT IS THE SUBMISSION OF LD.AR THAT NO PART OF THE SAME COULD BE DISALLOWED AS THE ASSESSEE DID NOT HAVE TO INCUR ANY SUCH EXPENDITURE, PARTICU LARLY IN VIEW OF THE TECHNOLOGY WHICH ENABLE THE ASSESSEE MAKE THE INVESTMENT BY CL ICK TO MOUSE AND DOES NOT ITA NO.289/MUM/2013(A.Y. 2006-07) ITA NO.2660/MUM/2013(A.Y.2007-08) ITA NO.2659/MUM/2013(A.Y.2009-10) 11 REQUIRE ANY EXPENDITURE FOR THE SAME. IT IS FURTHE R THE SUBMISSION OF LD. AR THAT BEFORE MAKING THE DISALLOWANCE THE AO BOUND TO RECO RD HIS SATISFACTION THAT THE CLAIM OF THE ASSESSEE THAT NO EXPENDITURE SBEEN INC URRED IS INCORRECT. IT IS FURTHER THE SUBMISSION OF THE LD. AR THAT HONBLE KARNATAKA HIGH COURT IN THE CASE OF CANARA BANK IN INCOME TAX APPEAL NO.382 OF 2010 HAS HELD THAT SINCE NO HUMAN AGENCY IS INVOLVED IN COLLECTING DIVIDEND FOR WHICH THE ASSESSEE HAS TO INCUR ANY EXPENDITURE AND WITH COMPUTERIZATION ONLINE TRANSA CTION THROUGH ANY FD, RTGS AND D-MAT ACCOUNT NO EXPENDITURE ARE REQUIRED TO BE INCURRED TO EARN THE DIVIDEND INCOME, THEN NO DISALLOWANCE IS SUSTAINABLE IN LAW. SIMILARLY, LD. AR HAS PLACED RELIANCE IN THE CASE OF PRIYA EXHIBITORS PVT. LTD. VS. ACIT,27 TAXAMANN 88 (DEL) TO CONTEND THAT DISALLOWANCE UNDER SECTION 14A WITHOUT POINTING OUT ANY DIRECT EXPENSES BEING INCURRED FOR EARNING EXEMPT INCOME W AS UNJUSTIFIED. LD. AR ALSO RELIED UPON THE DECISION IN THE CASE OF RAJ SHIPPIN G AGENCIES LTD. VS. ADDL. CIT, 38 TAXMAN 345 TO CONTEND THAT IT IS IMPERATIVE F OR THE AO TO EXAMINE THE ACCOUNTS OF THE ASSESSEE FIRST AND IF HE IS NOT SAT ISFIED WITH CORRECTNESS OF THE CLAIM, THEN ONLY HE CAN INVOKE RULE 8D. LD. AR ALSO RELIE D UPON THE DECISION IN THE CASE OF JUSTICE SAM P. BARROCHA VS. ADDL. CIT, 25 TAXMAN 381, TO CONTEND THAT PRINCIPLE OF APPORTIONMENT EMBEDDED IN SECTION 14A HAS NO APP LICATION WHEN NO EXPENDITURE WAS INCURRED TO EARN EXEMPTED INCOME, P ARTICULARLY WHEN ENTIRE EXPENDITURE WAS INCURRED ONLY TO EARN PROFESSIONAL INCOME. 5.4 ON THE OTHER HAND, LD. DR RELIED UPON THE ORDER PASSED BY AO AND LD. CIT(A). HE SUBMITTED THAT AS PER DECISION OF HONB LE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. COMPANY LTD, 328 ITR 81 (BOM)RULE 8D IS APPLICABLE AND DISALLOWANCE HAS CORRECTLY BEEN UPHE LD BY LD. CIT(A). ITA NO.289/MUM/2013(A.Y. 2006-07) ITA NO.2660/MUM/2013(A.Y.2007-08) ITA NO.2659/MUM/2013(A.Y.2009-10) 12 5.5 WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTEN TIONS HAVE CAREFULLY BEEN CONSIDERED . THE COPY OF PROFIT AND LOSS ACCOUNT OF THE ASSESSEE HAS BEEN PLACED AT PAGE 49 OF THE PAPER BOOK. IN THE SAID PROFIT A ND LOSS ACCOUNT, EMPLOYEE REMUNERATION AND BENEFITS ARE DESCRIBED IN SCHEDULE -N AND WHICH ARE A SUM OF RS.49,76,56,158/- AND TOTAL EXPENDITURE INCURRED IN RESPECT OF DIRECTORS REMUNERATION OUT OF THE ABOVE MENTIONED TOTAL AMOUN T IS A SUM OF RS.95,95,926/-. THE ADMINISTRATIVE AND OTHER EXPENSES IS AS PER SCH EDULE O, COPY OF WHICH IS PLACED AT PAGE 55 OF THE PAPER BOOK. SUCH EXPENSES ARE AMOUNTING TO RS.8,29,23,912/-. THUS, ABOUT 9.25 CRORES EXPENDIT URE RELATES TO DIRECTOR REMUNERATION AND ADMINISTRATIVE AND OTHER EXPENSES. THE INVESTMENT OF THE ASSESSEE, AS POINTED OUT EARLIER IN THE SHARES AND SECURITIES OUT OF WHICH DIVIDEND OF RS.2.93 CRORES HAS BEEN EARNED IS A SUM OF RS.41 .61 CRORES. THE DETAILS OF INVESTMENT IS ALSO FOUND PLACED IN SCHEDULE E. SUBSTANTIAL INVESTMENTS HAVE BEEN MADE DURING THE YEAR UNDER CONSIDERATION EXCE PT INVESTMENT OF RS.5.00 CRORES IN TEMPLETON FIXED HORIZON FUND SERIES AND INVESTMENT IN EQUITY SHARE OF SHARES OF JUST DIAL INC. (100% SUBSIDIARY) OF RS.1.36 CRORES. THUS, IN THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS MADE SUBSTANTI AL INVESTMENT AND FOR MAKING SUCH INVESTMENT DECISION HAVE TO BE TAKEN AND IT C ANNOT BE SAID THAT ASSESSEE DID NOT INCURRED ANY EXPENDITURE TO EARN DIVIDEND INCO ME WHICH IS SUBSTANTIAL. THEREFORE, THERE IS NO FORCE IN THE CLAIM OF LD. AR THAT ASSESSEE DID NOT INCUR EXPENDITURE FOR EARNING THE DIVIDEND INCOME. IT IS A CASE WHERE EXPENSES INCURRED BY THE ASSESSEE TO EARN EXEMPTED INCOME ARE INCURRE D FROM JOINT EXPENDITURE AND FOR SUCH SITUATION FORMULA HAS BEEN PRESCRIBED IN R ULE 8D. THE MANDATE OF APPLICATION OF RULE 8D FOR ASSESSMENT YEAR 2008-09 ONWARDS HAS BEEN CLEARLY UPHELD BY HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. COMPANY LTD.(SUPRA). IN THE PRESENT CASE, SINCE AS SESSEE DID NOT MAKE ANY ITA NO.289/MUM/2013(A.Y. 2006-07) ITA NO.2660/MUM/2013(A.Y.2007-08) ITA NO.2659/MUM/2013(A.Y.2009-10) 13 DISALLOWANCE AND EVEN COULD NOT SUBSTANTIATE ITS EX PLANATION THAT NO EXPENDITURE WAS INCURRED FOR EARNING EXEMPTED INCOME, THEREFORE , WE DONT SEE ANY FORCE IN THE CLAIM OF THE ASSESSEE THAT DISALLOWANCE ON ACCOUNT OF EXPENDITURE CANNOT BE MADE AS PER RULE 8D. 5.6 HOWEVER, SO FAR AS IT RELATES TO COMPONENT OF I NTEREST WHICH IS A SUM OF RS.9,403/-, WE ARE OF THE OPINION THAT SAME IS NOT SUSTAINABLE FOR THE REASON THAT ASSESSEES OWN FUNDS ARE MUCH MORE THE FUNDS DEPLOY ED BY THE ASSESSEE IN INVESTMENT OUT OF WHICH THE ASSESSEE HAS EARNED TAX FREE INCOME. SUCH CLAIM WOULD BE SUPPORTED BY THE DECISION OF HONBLE JURIS DICTIONAL HIGH COURT IN THE CASE OF HDFC BANK (SUPRA), WHEREIN IT HAS BEEN HEL D THAT IN A CASE WHERE THE OWN FUNDS OF THE ASSESSEE ARE SUFFICIENT TO MAKE INVEST MENT IN TAX FREE SECURITIES AND SHARES, THEN THE PRESUMPTION WOULD BE THAT INVESTME NT MADE BY THE ASSESSEE IN TAX FREE SHARES AND SECURITIES WOULD BE OUT OF THE OWN FUNDS OF THE ASSESSEE. THEREFORE, DISALLOWANCE TO THE EXTENT OF RS.9403/- IS DELETED. 5.7 IN VIEW OF ABOVE DISCUSSION, DISALLOWANCE OF RS .12,70,726/- IS UPHELD. GROUND NO.2 IS PARTLY ALLOWED. 5.8 APROPOS GROUND NO.3, DISALLOWANCE OF DEPRECIATI ON OF GOODWILL IS COVERED BY THE EARLIER DECISION OF TRIBUNAL RENDERED IN RES PECT OF A.Y 2006-07, THE MATTER HAS BEEN RESTORED BACK BY THE ITAT VIDE ITS ORDER D ATED 28/2/2014 IN ITA NO.3200/MUM/2010 WITH THE FOLLOWING OBSERVATIONS: 4. GROUND NO.4 PERTAINS TO DEPRECIATION CLAIMED ON GOODWILL. THE AR SUBMITTED THAT THE ISSUE IS COVERED BY THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. SMIFS SECURITIES LTD., REPORTED IN 348 ITR 302, THEREFORE, THE DECISION ON THE HONBLE SUPEME COURT OF INDIA ON THIS ISSUE ITA NO.289/MUM/2013(A.Y. 2006-07) ITA NO.2660/MUM/2013(A.Y.2007-08) ITA NO.2659/MUM/2013(A.Y.2009-10) 14 HAS TO BE FOLLOWED, AND AS A CONSEQUENCE OF WHICH , THE ISSUE HAS TO BE ALLOWED IN FAVOUR OF THE ASSESSEE. 5. THE DR ACCEPTED THAT THE ISSUE IS SQUARELY COVE RED BY THE DECISION OF HONBLE SUPREME COURT. 6. SINCE THE ISSUE IS COVERED BY THE HONBLE SUPRE ME COURT IN THE CASE OF SMIFS SECURITIES LTD. (SUPRA), AS ACCEPTED BY EITHE R PARTIES, THE GROUND IS ALLOWED. HENCE, THE ORDER OF THE LD. CIT(A) IS SET ASIDE ON THIS ISSUE AND THE AO IS DIRECTED TO ALLOW THE CLAIM OF DEPRECIATI ON ON GOODWILL. RESPECTFULLY FOLLOWING THE AFOREMENTIONED DECISION, AFTER HEARING BOTH THE PARTIES, WE RESTORE THIS ISSUE TO THE FILE OF AO WITH SIMILA R DIRECTION TO RE-ADJUDICATE THE ISSUE AS PER AFOREMENTIONED ORDER OF THE TRIBUNAL. THIS GROUND OF THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 6. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS T REATED TO BE PARTLY ALLOWED IN THE MANNER AFORESAID. 7. TO SUM UP ITA NO.289/MUM/2013 AND ITA NO.2659/MU M/2013 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES AND ITA NO.2660/MU M/2013 IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 02/03/2015 ! ' 02/03/2015 # $ SD/- SD/- ( . . /R.C.SHARMA ) ( . . / I.P. BANSAL ) /ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; %& DATED 02/03/2015 ITA NO.289/MUM/2013(A.Y. 2006-07) ITA NO.2660/MUM/2013(A.Y.2007-08) ITA NO.2659/MUM/2013(A.Y.2009-10) 15 '() '() '() '() *)!( *)!( *)!( *)!( / COPY OF THE ORDER FORWARDED TO : 1. +, / THE APPELLANT 2. '-+, / THE RESPONDENT. 3. . ( ) / THE CIT(A)- 4. . / CIT 5. )/# '(& , , / DR, ITAT, MUMBAI 6. #0 1 / GUARD FILE. & & & & / BY ORDER, -)( '( //TRUE COPY// 2 22 2 / 3 3 3 3 4 4 4 4 (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI . & . ./ VM , SR. PS
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