PAINTERIOR (INDIA), MUMBAI V. ADDL CIT RG 13(1), MUMBAI

ITA 2732/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 84109 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-11-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 30-07-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 23-04-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AKHILENDR P YADAV
• Assessee Lawyers: H N MOTIWALA
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH C, MUMBAI BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NO. 2732/MUM/2012 ASSESSMENT YEAR: 2008-09 M/S. PAINTERIOR (INDIA) C/O. H.N. MOTIWALA & CO., 508 SHARDA CHAMBERS, 33, NEW MARINE LINES MUMBAI- 400 020 PAN:AAAFP 4830 F VS. ACIT RANGE - 1 3 (1) MUMBAI (APPELLANT) (RESPON DENT) ASSESSEE BY : SHRI H.N. MOTIWALA REVENUE BY : SHRI AKHILENDR P. YADAV DATE OF HEARING : 05 . 11 . 2014 DATE OF ORDER : 12 . 1 1 .2014 O R D E R PER AMIT SHUKLA, JM: THIS APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AG AINST ORDER DATED 09.02.2012, PASSED BY THE LD.CIT(A) -24 , FOR THE QUANTUM OF ASSESSMENT PASSED U/S 143(3), FOR THE A.Y. 2008- 09, MAINLY ON THE FOLLOWING GROUNDS: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE LEARNED COMMISSIONER OF INCOME-TAX (APPEAL) 24, MUM BAI, ERRED IN CONFIRMING DISALLOWANCE OF RS.89,911/- BEING 20% OF TELEPHONE EXPENSES OF RS.4,49,555/- ON AD HOC BASIS WITHOUT APPRECIATING THAT THE SIMILAR ADDITION HAD BEEN DEL ETED BY INCOME TAX APPELLATE TRIBUNAL IN ASSESSMENT YEAR 2005/06 V IDE ITAT NO. 6457/MUM/2001 DATED MAY 15, 2009. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE SAID LEARNED COMMISSIONER OF INCOME-TAX HAS ALSO ERRED I N CONFIRMING ITA NO. 2732/MUM/2012 M/S. PAINTERIOR (INDIA) ASSESSMENT YEAR: 2008-09 2 THE DISALLOWANCE OF BUSINESS PROMOTION EXPENSES OF RS.97,640/- BEING 20% OF RS.4,88,201/- ON AD HOC BASIS AS PERSO NAL EXPENSES, WITHOUT RINGING ANY MATERIAL ON RECORD AN D WITHOUT APPRECIATING THAT DURING THE YEAR THE APPELLANTS T URNOVER WAS RS.19,92,45,824/- HAVING 84 SITES AND PADI THE FRIN GE BENEFIT TAX ON THE SAID AMOUNT. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE SAID LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) 24, MU MBAI ERRED IN DIRECTING THE ASSESSING OFFICER TO WORK OUT THE DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D OF THE INCOME TAX AC T, 1961, PARTICULARLY WHEN, THE APPELLANT AND INVESTED IN SH ARES, MUTUAL FUNDS AND DEBT FUND RS.5,50,24,042/- OUT OF ITS OWN FUND OF RS.6,44,52,051/- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE SAID LEARNED COMMISSIONER OF INCOME-TAX, HAS ALSO ERRED IN DIRECTING THE ASSESSING OFFICER TO WORK OUT THE DISALLOWANCE UNDER SECTION 14A R.W. RULE 6D OF THE ACT WITHOUT ESTABLISHING TH AT A PARTICULAR EXPENDITURE HAS BEEN INCURRED FOR THE PURPOSE OF EX EMPTED INCOME. 2. THE ASSESSEE IS A PARTNERSHIP FIRM, ENGAGED IN T HE BUSINESS OF CIVIL REPAIRS, AND PAINTING CONTRACTS. IN GROUND NO.1, AS SESSEE HAS CHALLENGED THE DISALLOWANCE OF RS.89,911/-, BEING 20% OF TELEP HONE EXPENSES OUR OF TOTAL TELEPHONE EXPENSES OF RS.4,49,555/- DEBITE D IN THE PROFIT & LOSS ACCOUNT. THE ASSESSING OFFICER REQUIRED THE ASSESS EE TO FURNISH TELEPHONE WISE AMOUNT OF CLAIM AND THE PLACES WHERE TELEPHONES WERE INSTALLED. SINCE NO DETAILS WERE FILED, AO MADE THE DISALLOWANCE @ 20%. THE LD.CIT(A) FOLLOWING THE ORDER OF THE A.Y. 2005- 06, CONFIRMED THE SAID DISALLOWANCE. 3. BEFORE US LEARNED COUNSEL SUBMITTED THAT, FIRSTL Y, THIS IS PURELY AD HOC DISALLOWANCE AND THE ONLY REASON FOR DISALLOWAN CE IS THAT THE ASSESSEE COULD NOT GIVE DETAILS, AS TO WHERE THE TE LEPHONE WERE INSTALLED AND SECONDLY, IN A.YS. 2004-05 AND 2005-06, THE TRI BUNAL HAS DELETED ITA NO. 2732/MUM/2012 M/S. PAINTERIOR (INDIA) ASSESSMENT YEAR: 2008-09 3 THE SAID DISALLOWANCE. THEREFORE, IN THIS YEAR ALSO THE SAID DISALLOWANCE SHOULD BE DELETED. 4. ON THE OTHER HAND LD. DR, SUBMITTED THAT NO DETA ILS WITH REGARD TO TELEPHONE EXPENSES WERE FURNISHED THEREFORE, THIS D ISALLOWANCE HAS RIGHTLY BEEN MADE. 5. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND ALSO ON PERUSAL OF THE IMPUGNED ORDER AS WELL AS THE TRIBUNAL ORDER, WE FI ND THAT THE ASSESSEE BEFORE THE AO COULD NOT FURNISH ANY DETAILS OF EXPE NSES, NEITHER WITH REGARD TO PURPOSE FOR WHICH THE TELEPHONE WAS USED AND WHERE SUCH TELEPHONES WERE INSTALLED. IN SUCH A CASE, PERSONAL USER BY THE PARTNERS CANNOT BE RULED OUT. THERE CANNOT BE ANY PRECEDENCE ON FACTUAL MATTER, WHEN IN A.Y. 2004-05, THE LD.CIT(A) HAS DELETED THE DISALLOWANCE ON THE GROUND THAT THERE WAS NO BASIS OF AD HOC DISAL LOWANCE BY THE AO. IT WAS IN THIS BACKGROUND THE TRIBUNAL HAD DELETED THE SAID ADDITION. THE LEARNED COUNSEL WAS UNABLE TO FURNISH THE DETAILS O R POINT OUT THAT ON SIMILAR REASONS DISALLOWANCE WAS MADE IN THE EARLIE R YEARS. THUS LOOKING TO THE FACTS OF THE CASE, WE ARE OF THE OPINION THA T THIS MATTER SHOULD GO BACK TO THE FILE OF THE AO TO EXAMINE THIS ISSUE A FRESH AND ASSESSEE WILL FILE THE RELEVANT DETAILS OF TELEPHONE EXPENSES WHI CH WERE USED FOR THE PURPOSES OF BUSINESS AND ACCORDINGLY DECIDE THE ISS UE. THUS GROUND NO. 1 IS TREATED AS ALLOWED FOR STATISTICAL PURPOSE. 6. IN GROUND NO. 2, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF BUSINESS PROMOTION EXPENSES OF RS.97,640/- BEING 20 % OF RS.4,88,201/- THE ASSESSING OFFICER HAS DISALLOWED SAID EXPENSES ON AD HOC BASIS ON THE GROUND THAT THESE EXPENSES PERTAIN TO EXPENDITU RE INCURRED ON HOTELS AND CLUBS AND SIMILAR DISALLOWANCE IN THE PA SED WERE MADE. THIS ITA NO. 2732/MUM/2012 M/S. PAINTERIOR (INDIA) ASSESSMENT YEAR: 2008-09 4 HAS BEEN SUSTAIN BY THE LD.CIT(A), ON THE GROUND TH AT PERSONAL ELEMENT COULD NOT RULED OUT. 7. BEFORE US LEARNED COUNSEL SUBMITTED THAT THE TR IBUNAL HAS DISMISSED THE SAID GROUND IN A.Y. 2004-05, HOWEVER, A VERY IMPORTANT FACT AND DISTINGUISHING FEATURE IN THIS YEAR IS THA T, ASSESSEE HAS PAID FRINGE BENEFIT TAX ON PAYMENTS RELATING TO BUSINESS PROMOTION. THEREFORE TO THE PROPORTION OF FBT PAID, NO DISALLO WANCE SHOULD BE MADE. 8. AFTER HEARING BOTH THE PARTIES, WE AGREE WITH TH E CONTENTION OF THE LEARNED COUNSEL THAT, IF THE ASSESSEE HAS PAID FBT ON THE SAID AMOUNT THEN NO DISALLOWANCE IS CALLED FOR. HOWEVER, IN ORD ER TO VERIFY, THIS CONTENTION THE MATTER IS RESTORED TO THE FILE TO TH E AO, TO SEE WHETHER, ANY FBT HAS BEEN PAID ON THE AMOUNT DEBITED FOR BUS INESS PROMOTION EXPENSES. IN CASE FBT HAS BEEN PAID THEN NO DISALLO WANCE SHOULD BE MADE ON SUCH PAYMENT. ACCORDINGLY, GROUND NO. 2 IS PARTLY ALLOWED. 9. GROUND NO. 3 AND 4 PERTAINS TO DISALLOWANCE MADE U/S 14A READ WITH RULE 8D. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS CLAIMED DIVIDEND INCOME OF RS.60,55,179/- AND LONG TERM CAP ITAL GAIN OF RS.13,95,825/- AS EXEMPT. HOWEVER, NO DISALLOWANCE U/S 14A HAS BEEN OFFERED IN THE COMPUTATION OF INCOME. ACCORDINGLY, HE WORKED OUT THE DISALLOWANCE U/S 14A AS PER RULE 8D AT RS.2,63,845 /-. THIS HAS BEEN CONFIRMED BY THE LD.CIT(A). 10. BEFORE US THE LEARNED COUNSEL SUBMITTED THAT TH E INVESTMENTS WERE MADE PRIOR TO THE LOAN TAKEN FROM BANK OF INDI A AND ALL THE INVESTMENTS WERE MADE OUT OF SURPLUS FUNDS, THEREFO RE, NO INTEREST DISALLOWANCE SHOULD BE MADE. AS REGARDS INDIRECT EX PENSES, HE SUBMITTED THAT INVESTMENT ON DEBENTURES AND MUTUAL FUNDS HAVE TO BE ITA NO. 2732/MUM/2012 M/S. PAINTERIOR (INDIA) ASSESSMENT YEAR: 2008-09 5 EXCLUDED AS THEY WERE DEBT ORIENTED AND ONLY AVERAG E INVESTMENT ON EQUITY SHARES SHOULD BE MADE, IF DISALLOWANCE OF 0. 5% OF AVERAGE INVESTMENT IS TO BE MADE. LD. DR ON THE OTHER HAND RELIED UPON THE ORDER OF THE LD.CIT(A). 11. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIN D THAT, SO FAR AS ASSESSEES CONTENTION THAT NO INTEREST SHOULD BE DI SALLOWED AS THE INVESTMENTS HAVE BEEN MADE FROM SURPLUS AND WERE MA DE PRIOR TO THE LOAN TAKEN FROM THE BANK, HAVE NOT BEEN EXAMINED EI THER BY THE AO OR BY THE LD.CIT(A). THEREFORE, WE FEEL THAT THIS CONT ENTION OF THE ASSESSEE SHOULD BE EXAMINED BY THE AO. FURTHER WE AGREE WITH THE CONTENTION OF THE LEARNED COUNSEL THAT, SO FAR AS INVESTMENT IN D EBENTURES AND MUTUAL FUNDS WHICH ARE DEBT ORIENTED, THE SAME SHOULD BE E XCLUDED WHILE TAKING THE AVERAGE INVESTMENT FOR THE PURPOSE OF DI SALLOWANCE UNDER CLAUSE (III) OF RULE 8D (2). ONLY AVERAGE INVESTMEN T MADE IN THE SHARES SHOULD BE TAKEN INTO ACCOUNT. ACCORDINGLY, WE DIREC T THE AO TO COMPUTE THE DISALLOWANCE UNDER CLAUSE (III) OF RULE 8D (2) ONLY ON AVERAGE INVESTMENT MADE IN SHARES. THUS THE ENTIRE ISSUE OF DISALLOWANCE U/S 14A IS RESTORED BACK TO THE FILE OF THE AO TO EXAMI NE THE ISSUE OF INTEREST AND INDIRECT EXPENSES AS PER DIRECTIONS GI VEN ABOVE. IN THE RESULT GROUND NO. 3 AND 4 ARE TREATED AS PARTLY ALL OWED FOR STATISTICAL PURPOSES. 12. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 12 TH DAY OF NOVEMBER, 2014. SD/- SD/- (SANJAY ARORA) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 12.11.2014 ITA NO. 2732/MUM/2012 M/S. PAINTERIOR (INDIA) ASSESSMENT YEAR: 2008-09 6 *SRIVASTAVA COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR C BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.