CREATIVE IMPEX, MUMBAI V. ADDL CIT RG 18(1), MUMBAI

ITA 2903/MUM/2017

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8073 (ITAT-MUMBAI)
• Duration Of Justice: 7 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-12-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2006-2007
• Appeal Filed On: 24-04-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SAURABH DESH
• Keywords: Depreciation
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A , MUMBAI BEFORE S HRI G.S. PANNU (AM) AND SHRI RAM LAL NEGI (JM) ITA NO. 2903 /MUM/20 1 7 ASSESSMENT YEAR: 2006 - 07 M/S CREATIVE IMPEX, C/O KARNAVAT & CO. 2A KITAB MAHAL, 1 ST FLOOR, 192, DR. D.N. ROAD, M UMBAI - 400001 PAN: AAAFC1329E VS. THE ADDL. COMMISSIONER OF INCOME - TAX, RANGE 18(1), ROOM NO. 138, 1 ST FLOOR, PIRAMAL CHAMBERS, LALBAUG, MUMBAI - 400012 (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SUNIL HIRAWAT (AR) REVENUE BY : SHRI SAURAB H DESHPANDE (DR) DATE OF HEARING: 06 /09 /201 7 DATE OF PRONOUNCEMENT: 04 / 12 /201 7 O R D E R PER RAM LAL NEGI, JM THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST ORDER DATED 01/12/2015 PASSE D BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - 33 , MUMBAI , FOR THE A S S ESSMENT YEAR 2006 - 07 , WHEREBY THE LD. CIT (A) HAS PARTLY ALLOWED THE APPEAL FILED BY THE ASSESSEE AGAINST ASSESSMENT ORDER PASSED U/S 143 (3) OF THE INCOME TAX ACT, 1961 (FOR SHORT T HE A CT). 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF EXPORT OF TEXTILES READYMADE GARMENTS, MADE UPS, FAB RICS AND HANDICRAFT ITEMS, FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION DECLARING THE TOTAL INCOME OF RS. 4,20,77,640/ - . S INCE THE CASE WAS SELECTED FOR SCRUTINY, NOTICE U/S 143 (2) ALONG WITH QUESTIONNAIRE WAS ISSUED AND IN RESPONSE THEREOF THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE ATTENDED THE PROCEEDINGS TIME TO TIME AN D ALSO FILED THE DETAILS CALLED FOR BY THE 2 ITA NO. 2903 /MUM/2017 ASSESSMENT YEAR: 2006 - 07 AO. IT WAS SEEN FROM THE PROFIT AND LOSS ACCOUNT THAT THE ASSESSEE HAD RECEIVED DIVIDEND INCOME OF RS. 4,43,256/ - AND THE SAME WAS CLAIMED AS EXEMPT U/S 10(34) OF THE ACT. THE ASSESSEE WAS ASKED TO EXPLAIN AS TO W HY DISALLOWANCE BE NOT MADE U/S 14A OF THE ACT AND AS PER RULE 8D OF THE INCOME TAX RULES, 1962 (FOR SHORT RULES). AFTER HEARING THE ASSESSEE THE DISALLOWANCE WAS COMPUTED AT RS. 1,10,031/ - . THE AO ALSO MADE DISALLOWANCE OF INTEREST INCOME OF RS. 5,74,44 0/ - HOLDING THAT ON THE ONE HAND, THE ASSESSEES PAYING INTEREST ON LOANS AND OTHER HAND, IT IS ADVANCING LOAN TO ITS SISTER CONCERN COVERED U/S 40(A)(2)(B) OF THE ACT AND THE ASSESSEE HAS FAILED TO GIVEN A DETAILS RELATED TO THE RATE OF INTEREST PAID BY IT, HOWEVER, ADMITTED THAT IT WAS AROUND 12%. THE AO ALSO MADE DISALLOWANCE OF RS. 2,25,284/ - OUT OF THE TOTAL EXPENSES CLAIMED BY THE ASSESSEE, TELEPHONE EXPENSES OF RS. 26,479/ - OUT OF THE TOTAL EXPENSES CLAIMED OF RS. 26,47,941/ - , MOTO R CAR EXPENSES OF RS. 1,59,490/ - OUT OF TOTAL MOTORCAR EXPENSES CLAIMED OF RS. 6,73,362/ - AND DEPRECIATION OF RS. 9,21,546/ - , RS. 1,00,000/ - OUT OF RS. 38,86,232/ - CLAIMED AS STAFF WELFARE EXPENSES AND RS. 1,00,000/ - OUT OF RS. 37,22,228/ - CLAIMED AS BUSINESS PROMOTION EXPE NSES. ACCORDINGLY, THE AO DETERMINED THE TOTAL INCOME OF THE ASSESSEE AT RS. 4,31,18,640/ - (ROUNDED OFF). IN THE FIRST APPEAL THE LD. CIT (A), PARTIAL RELIEF. 3 . STILL A GGRIEVED BY THE ORDER OF LD. CIT (APPEAL S ), THE ASSESSEE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL ON THE FOLLOWING EFFECTIVE GROUNDS: - 1. ON FACTS AND IN LAW, THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) [HEREINAFTER REFERRED TO AS LD. CIT (A)] HAD ERRED IN CONFIRMING THE ADDITION OF RS. 1,10,031/ - U/S 14A WITHOUT APPRECIATING THE FACTS OF THE CASE. UNDER THE FACTS AND CIRCUMSTANCES OF THE MATTER, THERE SHOULD NOT BE ANY DISALLOWANCE U/S 14A OF THE I.T. ACT. 3 ITA NO. 2903 /MUM/2017 ASSESSMENT YEAR: 2006 - 07 2. ON FACTS AND IN LAW, THE LD. CIT (A) HAD ERRED IN CONFIRMING THE DISALLOWANCE OUT OF TRAVELLING EXPENSES AMOUNTING TO RS. 75,284/ - EVEN THOUGH NO PERSONAL/PLEASURE ADVANTAGE WAS AVAILED BY THE PERSONS WHO TRAVELLED ABROAD. UNDER THE FACTS AND CIRCUMSTANCES OF THE MATTER, THE LD. CIT (A) OUGHT NOT BE HAVE CONFIRMED THE DISALLOWANCE OF RS. 75,284/ - MADE BY THE LEARNED ASSESSIN G OFFICER (HEREINAFTER REFERRED TO AS LAO) IN THE IMPUGNED ASSESSMENT ORDER. 3. ON FACTS AND IN LAW, THE LD. CIT (A) HAD ERRED IN CONFIRMING THE DISALLOWANCE OUT OF TELEPHONE EXPENSES AMOUNTING TO RS. 26,479/ - ON AD - HOC BASIS (10%) WITHOUT APPRECIATING THE FACTS OF THE CASE. UNDER THE FACTS AND CIRCUMSTANCES OF THE MATTER, THE LD. CIT (A) OUGHT NOT TO HAVE CONFIRMED THE SAID DISALLOWANCE OF RS. 26,479/ - MADE BY THE LAO IN THE IMPUGNED ASSESSMENT ORDER. 4. ON FACTS AND IN LAW, THE LD. CIT (A) HAD ERRED IN CONF IRMING THE DISALLOWANCE OUT OF MOTOR CAR EXPENSES AMOUNTING TO RS. 1,59,490/ - ON AD - HOC BASIS (10%) WITHOUT APPRECIATING THE FACTS OF THE CASE. UNDER THE FACTS AND CIRCUMSTANCES OF THE MATTER, THE LD. CIT (A) OUGHT NOT TO HAVE CONFIRMED THE SAID DISALLOWAN CE OF RS. 1,59,490/ - MADE BY THE LAO IN THE IMPUGNED ASSESSMENT ORDER. 4. THE FIRST GROUND PERTAINS TO DISALLOWANCE U/S 14A OF THE ACT. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE LD. CIT (A) HAS WRONGLY CONFIRMED THE ADDITION MADE BY THE AO ON A CCOUNT OF DISALLOWANCE U/S 14A BY APPLYING RULE 8D OF THE RULES AS RULE 8D WAS NOT APPLICABLE DURING THE ASSESSMENT YEAR UNDER CONSIDERATION. THE LD. COUNSEL FURTHER SUBMITTED THAT NO INVESTMENT WAS MADE BY THE ASSESSEE DURING THE YEAR RELEVANT TO THE ASSE SSMENT YEAR UNDER CONSIDERATION AND THE DIVIDEND RECEIVED WAS IN RESPECT OF THE INVESTMENT MADE IN THE PREVIOUS YEARS. THE LD. COUNSEL FURTHER SUBMITTED THAT THE INVESTMENTS WERE MADE FROM SURPLUS FUNDS AVAILABLE WITH THE ASSESSEE DURING THE RELEVANT YEARS AND NO EXPENDITURE WAS INCURRED TO EARN DIVIDEND IN QUESTION, HENCE, NO DISALLOWANCE IS REQUIRED TO BE MADE UNDER SECTION 14A OF THE ACT. 4 ITA NO. 2903 /MUM/2017 ASSESSMENT YEAR: 2006 - 07 5. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESENTATIVE (DR) RELYING ON THE ORDER PASSED BY THE AUTHORITIES BELOW SUBMITTED THAT SINCE THE AO HAS MADE A REASONABLE ADDITION IN ACCORDANCE WITH THE OBSERVATIONS OF THE HONBLE BOMBAY HIGH COURT IN GODREJ & BOYCE PVT. LTD. V S. DCIT 328 ITR 81 ( BOM ), THERE IS NO MERIT IN THE CONTENTION OF THE ASSESSEE, THEREFORE THE APPEA L IS LIABLE TO BE DISMISSED BEING DEVOID OF MERITS. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY GONE THROUGH THE MATERIAL ON RECORD . THE CONTENTION OF THE ASSESSEE IS THAT THE AO HAS CALCULATED THE DISALLOWANCE BY APPLYING RULE 8D OF THE INCOME TAX RULES, 1962 , WHEREAS THE APPLICATION OF RULE 8D CAME INTO BEING W.E.F. THE ASSESSMENT YEAR 2008 - 09 AS PER THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT PASSED IN GODREJ & BOYCE PVT. LTD. (SUPRA). WE NOTICE THAT THE ASSESSEE HAS RECEIVED DIVIDEND INCOM E OF RS.4,43,256/ - IN THE ASSESSMENT YEAR UNDER CONSIDERATION AND THE AO HAS COMPUTED THE DISALLOWANCE AT RS. 1,10,031/ - , UNDER SECTION 14A READ WITH RULE 8D(2) OF THE ACT . NO DOUBT, RULE 8D WAS BROUGHT ON THE STATUTE IN THE YEAR 2008, HOWEVER, IN THE LIGH T OF THE FINDINGS OF THE HONBLE JURISDICTIONAL HIGH COURT IN GODREJ & BOYCE CO LTD.(SUPRA), AO IS WITHIN ITS JURISDICTION TO WORK OUT THE DISALLOWANCE U/S 14A(1) ON REASONABLE BASIS PERTAINING TO THE ASSESSMENT YEARS PRIOR TO ASSESSMENT YEAR 2008 - 09. SO, IN THE PRESENT CASE , AO HAD JURISDICTION TO DETERMINE THE DISALLOWANCE ON REASONABLE BASIS. AS PER THE SETTLED LAW, S UB - SECTIONS (2) AND (3) OF SECTION 14A AS WELL AS RULE 8D ARE PROSPECTIVE AND NOT APPLICABLE RETROSPECTIVELY , HOWEVER, EVEN PRIOR THERETO, S ECTION 14A REQUIRED THE AO TO FIRST REJECT THE CLAIM OF THE ASSESSEE WITH REGARD TO THE EXTENT OF SUCH EXPENDITURE FOR COGENT REASONS AND THEN TO DETERMINE THE AMOUNT OF SUCH EXPENDITURE ON THE BASIS OF A REASONABLE AND ACCEPTABLE METHOD OF APPORTIONMENT. 5 ITA NO. 2903 /MUM/2017 ASSESSMENT YEAR: 2006 - 07 7. IN THE PRESENT CASE THE AO HAS APPLIED RULE 8D TO DETERMINE THE DISALLOWANCE WITHOUT REJECTING THE CLAIM OF THE ASSESSEE. PERUSAL OF BALANCE SHEET ATTACHED WITH THE PAPER BOOK ENDING 31 ST . MARCH 2005, SHOWS THAT THE ASSESSEE HAD SUFFICIENT FUNDS TO JUSTIFY THE CLAIM OF THE ASSESSEE THAT THE INVESTMENTS WERE MADE FROM ITS SURPLUS FUNDS. IT FURTHER REFLECTS THAT INVESTMENT OF THE ASSESSEE AS ON 31 ST . MARCH 2006 WAS NIL. HENCE, THERE IS NO JUSTIFICATION IN MAKING DISALLOWANCE UNDER RULE 8D(2)(II) IN THE LIGHT OF THE DECISION OF THE HONBLE HIGH COURT OF BOMBAY RENDERED IN RELIANCE UTILITIES AND POWER LTD. 313 ITR 340 ( BOM ). HENCE, WE DELETE THE ADDITION RS. 81,085/ - MADE UNDER RULE 8D(2)(II). HOWEVER, WE SUSTAIN THE ADDITION OF RS. 28,946/ - MADE UNDER RUL E 8D(2)(III) HOLDING THAT THE DISALLOWANCE ON ACCOUNT OF ADMINISTRATIVE AND GENERAL EXPENSES UPHELD BY THE LD. CIT(A) IS REASONABLE DESPITE THE FACT THAT AO HAS COMPUTED THE SAME AS PER THE METHOD PRESCRIBED UNDER RULE 8D. WE, THEREFORE, PARTLY ALLOW THIS GROUND OF APPEAL OF THE ASSESSEE . 8 . GROUND NOS. 2, 3 AND 4 PERTAIN TO DISALLOWANCE OF RS. 75,284/ - , RS. 26,479/ - AND RS. 1,59,490/ - OUT OF TRAVELLING EXPENSES, TELEPHONE EXPENSES AND MOTORCAR EXPENSES RESPECTIVELY CLAIMED BY THE ASSESSEE. THE LD. COU NSEL FOR THE ASSESSEE SUBMITTED BEFORE US THAT ALL THESE EXPENSES ARE SUBJECTED TO FRINGE BENEFIT TAX AND THE ASSESSEE HAS ALREADY FILED THE RETURN OF FRINGE BENEFITS FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. THEREFORE, THE ADDITIONS CONFIRMED BY THE L D. CIT (A) ARE REQUIRED TO BE DELETED. 9 . WE NOTICE THAT THE ASSESSEE HAS FILED THE RETURN OF FRINGE BENEFITS FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, WHICH ARE PLACE AT PAGE 11 TO 14 OF THE PAPER BOOK. THE ASSESSEE HAS ALSO PLACED ON RECORD THE ASSE SSMENT ORDER PASSED BY THE AO. SINCE, THE ISSUE HAS ALREADY BEEN DEALT WITH BY THE AO IN FRINGE BENEFITS RETURN, WE DELETED THE ADDITIONS CONFIRMED BY THE LD. CIT (A) AND ALLOW THESE GROUNDS OF APPEAL. 6 ITA NO. 2903 /MUM/2017 ASSESSMENT YEAR: 2006 - 07 IN THE RESULT, APPEAL FILED BY THE ASSESSEE FOR A SSESSMENT YEAR 2006 - 2007 IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 4 TH . DECEMBER , 2017 . SD/ - SD/ - ( G.S. PANNU ) ( RAM LAL NEGI ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; DATED: 04 / 12 / 2017 ALINDRA, PS / COPY OF THE ORDER FORWARDED TO : 1. / TH E APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI