NAVROZ HORMASJI SEERVAI, MUMBAI V. ASST CIT 11(3), MUMBAI

ITA 296/MUM/2014

• Counselvise Citation: 29619914 RSA 2014
• Duration Of Justice: 1 year(s) 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 10-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RADHA K NARANG SR
• Keywords: Depreciation; Earning of tax free income
• Section: 143(3); 14A

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI B BENCH , , , BEFORE S/SH. JO GINDER SINGH,JUDICIAL MEMBER & RAJENDRA,ACCOUNTANT MEMBER /. ITA NO.296/MUM/2014, / ASSESSMENT YEAR - 2010 - 11 MR. NAVROZ HORMASJI SEERVAI 8, SHIV SHAKTI BHAVAN,146, M.KARVE ROAD, MUMBAI - 400 020. PAN: ABKPS 4285 N VS ACIT 11(3) AAYAKAR BHAVAN, M. KARVE ROAD MUMBAI - 400 020. ( / APPELLANT ) ( / RESPONDENT ) / ASSESSEE BY : SHRI NITE SH JOSHI / REVENUE BY : SHRI RADHA K. NARANG, SR.AR / DATE OF HEARING : 1 7 - 06 - 2015 / DATE OF PRONOUNCEMENT : 1 7 - 06 - 2015 , 1961 254 ( 1 ) ORDER U/S.254(1)OF THE INCOME - TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DATED 21.10.2013 O F THE CIT(A) - 2,MUMBAI,THE ASSESSEE HAS RAISED FOLLOWING GROUND OF APPEAL: 1.THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN LAW AS WELL AS ON THE FACTS OF THE CASE IN CONFIRMING THE DISALLOWANCE TO THE EXTENT OF RS. 10,60,441/ U/S 14A OF INC OME TAX ACT READ WITH RULE 8D OF THE INCOME TAX RULES. 2A. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) FAILED TO APPRECIATE THAT YOUR PETITIONERS MAINTAINS SEPARATE ACCOUNTS AS WELL AS SEPARATE BANK ACCOUNTS FOR PROFESSIONAL ACTIVITY AND OTHER ACTIVITY (PERSONAL). ACCORDINGLY ALL PERSONAL EXPENSES AND EXPENSES RELATED TO EARNING TAX FREE INCOME, INCLUDING PORTFOLIO MANAGEMENT FEES ARE CHARGED TO THE CAPITAL ACCOUNT AND ALL EXPENSES INCURRED FOR EARNING PROFESSIONAL INCOME ARE ONLY DEBITED TO T HE INCOME AND EXPENDITURE ACCOUNT. 2B. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE APPRECIATED THAT YOUR PETITIONER HAS CHARGED TO THE PERSONAL CAPITAL ACCOUNT A SUM OF RS. 4,299,110/ WHICH INCLUDES EXPENSES ON PORTFOLIO MANAGEME NT FEES OF RS. 2,50,000/ . FURTHER IN THE CAPITAL ACCOUNT FORMING PART OF THE PROFESSIONAL ACCOUNTS A SUM OF RS. 32,59,959/ IS SEPARATELY DEBITED WHICH INCLUDES VOLUNTARY DISALLOWANCE OF 1,04,019/ TOWARDS MOTORCAR EXPENSES, ELECTRICITY CHARGES AND TEL EPHONE EXPENSE. ALSO IN THE COMPUTATION OF INCOME DEPRECIATION ON MOTOR CAR OF RS.48,537/ IS ALSO DISALLOWED BY YOUR PETITIONER. THESE FACTS CLEARLY ESTABLISH THAT THE EXPENDITURE IN RELATION TO EXEMPT INCOME IS ONLY DEBITED TO CAPITAL ACCOUNT AND NOT C HARGED TO INCOME & EXPENDITURE ACCOUNT 2C. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE APPRECIATED THAT THE PROFESSIONAL INCOME OF THE APPELLANT AMOUNTED TO RS. 42,167,311 / AGAINST WHICH PROFESSIONAL EXPENDITURE CLAIMED ARE ONLY RS. 4,048,031/ WHICH IS LESS THAN 10% OF THE TOTAL REVENUE. ACCORDINGLY IF THE DISALLOWANCE OF RS.10,60,441/ IS SUSTAINED THE SAME WILL RESULT IN MORE THAN 25% OF EXPENSES CHARGED TO THE INCOME AND EXPENDITURE ACCOUNT BEING DISALLOWED. THE C I T(A ) BY SUSTAINING THE DISALLOWANCE OF RS. 10,60,441/ HAVE ARRIVED AT AN INCORRECT PRESUMPTION THAT THE EXPENSES RELATING TO EARNING EXEMPT INCOME ARE NECESSARILY IMBEDDED IN THE INCOME AND ITA/ 296 /MUM/201 4 , - AY. 10 - 11 - NAVROZ HORMASJI 2 EXPENDITURE ACCOUNT, EVEN WHEN THE ASSESSEE HAS BROUGHT ON RECORD THAT SUCH EXPENSES ARE DIRECTLY CHARGED TO THE CAPITAL ACCOUNT. 3A.THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS CONFIRMED THE DISALLOWANCE UNDER SECTION 14A ON THE GROUND THAT CERTAIN EXPENSES CHARGED BY YOUR PETITIONER TO THE PROFIT AND LOSS ACC OUNT CANNOT BE ENTIRELY ATTRIBUTABLE TO THE TAXABLE INCOME. THE CIT(A) HAS ARRIVED AT THIS FINDING WITHOUT APPRECIATING AND HAS CHOSEN TO REMAIN SILENT ON THE FACT THAT PERSONAL EXPENSES AND EXPENSES INCURRED IN CONNECTION WITH EARNING EXEMPT INCOME WER E ALL CHARGED BY YOUR PETITIONER TO THE PERSONAL CAPITAL ACCOUNT AND CAPITAL ACCOUNT OF THE PROFESSION AND ACCORDINGLY THE QUESTION OF CHARGING EXPENSES IN CONNECTION WITH EARNING EXEMPT INCOME TO THE INCOME AND EXPENDITURE ACCOUNTS DOES NOT ARISE. 3B. THAT THE CIT(A) HAS RELIED ON THE DECISION IN THE CASE OF DAMANI ESTATES & FINANCIAL PVT. LTD. MUMBAI TRIBUNAL WITHOUT APPRECIATING THE FACT THAT THE SAID DECISION WAS WITH REGARDS TO A CORPORATE ENTITY HERE ALL THE EXPENSES ARE DEBITED TO THE PROFIT AN D LOSS ACCOUNT AND CLAIMED AS A DEDUCTION WHERE AS IN YOUR PETITIONERS CASE, THE PERSONAL EXPENSES AND EXPENSES RELATED TO EXEMPT INCOME ARE CHARGED SEPARATELY TO THE CAPITAL ACCOUNT AND DOES NOT FORM PART OF THE INCOME AND EXPENDITURE ACCOUNT. 3C. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS IGNORED VARIOUS DECISIONS OF THE COURTS , INCLUDING THE HON'BLE MUMBAI ITAT DECISION IN CASE OF SHRI PAWANKUMAR PARMESHWARLAL VS. ACIT 4 ,(2) ITA NO. 530/MUM/2009 HAVING SIMILIAR FACTS, WHERE IN IT HAS BEEN CONSISTENTLY HELD THAT ANY DISLIOWANCE UNDER SECTION 14A REQUIRES A FINDING OF INCURRING OF THE EXPENDITURE. IF THERE IS NO SUCH FINDING THE DISALLOWANCE UNDER SECTION 14A CANNOT BE MADE. IN FACT IN YOUR PETITIONER'S CASE IT IS EARLY BROUGHT OUT WI THOUT ANY DISPUTE THAT EXPENDITURE IN RELATION TO EXEMPT INCOME WAS DEBITED TO RE CAPITAL ACCOUNT AND NOT CHARGED TO INCOME AND EXPENDITURE ACCOUNT . ACCORDINGLY APPLYING RULE 8D IN MECHANICAL MANNER WITHOUT ASSIGNING REASONS AS TO WHICH EXPENSES REIATED TO EXEMPT INCOME ARE INCLUDED IN THE INCOME AND EXPENDITURE ACCOUNT AND IGNORING THE FACTS AT ALL PERSONAL EXPENSES AND EXPENSES IN CONNECTION WITH EARNING EXEMPT INCOME ARE CHARGED TO THE CAPITAL ACCOUNT IS CLEARLY NOT JUSTIFIED. 4.YOUR PETITIONERS CRA VE LEAVE TO ADD ALTER AMEND THE ABOVE GROUNDS AS AND WHEN THE OCCASION ARISES. 2. ASSESSEE,AN INDIVIDUAL,FILED HIS RETURN OF INCOME ON 30.09.2010 DECLARING INCOME OF RS. 3.79 CRORES. THE ASSESSING OFFICER (AO) COMPLETED THE ASSESSMENT,ON 28.12.2012,U/S. 1 43(3) OF THE ACT, DETERMIN ING HIS INCOME AT RS. 3.19CRORES . THE ASSESSEE IS AN ADVOCATE AND DERIVES INCOME FROM BUSINESS AND PROFESSION CAPITAL GAINS AND OTHER SOURCES. THE EFFECTIVE GROUND OF APPEAL IS ABOUT DISALLOWANCE MADE U/S. 14A OF THE ACT. DURING THE ASSESSMENT PROCEEDINGS THE AO FOUND THAT THE ASSESSEE HAD INVESTMENT OF RS.22.85 CRORES AND HAD EARNED EXEMPT INCOME TO THE TUNE OF RS.1.82 CRORES, INVOKING THE PROVISIONS OF S.14A R.W. RULE 8D OF THE INCOME TAX RULES, 1962(RULES) HE MADE AN ADDITION O F RS.10.60 LACS TO THE TOTAL INCOME OF THE ASSESSEE. 3. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA) WHO CONFIRMED THE ORDER OF THE AO. BEFORE US AUTHORISED REPRESENTATIVE (AR) SUBMITTED THAT I N THE EARLIER YEARS SIMILAR ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE, THAT FOR THE AY 2008 - 09 (ITA NO.1077/MUM/2012 DT.28.10.2 - 14) THE ASSESSEE HAD FILED THE APPEAL, THAT FOR THE AY 2009 - 10 (ITA NO.4129/MUM2013 DT.3.9.14) THE AO HAD FILED AN APPEAL CHAL LENGING THE ORDER OF THE FAA, THAT IN BOTH THE EARLIER YEARS ADDITION MADE BY AO /CONFIRMED BY THE FAA WERE DELETED . THE DEPARTMENTAL REPRESENTATIVE(DR) CONCEDED THAT THE ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE BY THE EARLIER YEARS. ITA/ 296 /MUM/201 4 , - AY. 10 - 11 - NAVROZ HORMASJI 3 4. WE HAVE PERUSED T HE MATERIAL BEFORE US.WE FIND THAT WHILE DECIDING THE APPEAL FOR THE AY 2009 - 10 THE TRIBUNAL HAD DISCUSSED THE MATTER AS UNDER : - 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND PERUSED THE RECORDS AVAILABLE ON RECORD. FACTS IN BRIEF ARE THAT THE ASSESSEE IS A N ADVOCATE FILED HIS RETURN OF INCOME AT RS. 3.04 CRORES. IN THE ASSESSMENT FRAMED U/S 143(3) OF THE ACT, THE A.O. DISALLOWED AN AMOUNT OF RS. 9,39,852/ BY INVOKING THE PROVISIONS OF SECTION 14 A READ WITH RULE 8 D OF THE INCOME TAX RULES, 1962. 4. BY THE IMPUGNED ORDER, THE LD. CIT(A) DELETED THE ADDITION BY OBSERVING AS UNDER: I HAVE GONE THROUGH THE ISSUE. IT IS SEEN THAT THE APPELLANT IS MANAGING HIS INVESTMENTS BY AVAILING PROFESSIONAL MANAGEMENT SERVICES AND THE EXPENSES INVOLVED WAS NOT C LAIMED AS DEDUCTION FOR INCOME - TAX PURPOSE. FURTHER, THE APPELLANT HAS DISALLOWED THE EXPENSES LIKE CAR, TELEPHONE, ELECTRICITY EXPENSES, CAR DEPRECIATION ETC. FOR PERSONAL USE. CONSIDERING ALL THESE ASPECTS, I AM OF THE VIEW THAT NO FURTHER DISALLOWAN CE SHOULD BE MADE WITH REGARD TO THE EXPENSES CONNECTED WITH THE EARNING OF TAX FREE INCOME. THE AO IS DIRECTED TO DELETE THE ADDITION OF RS. 9,39,852/ - . 5. WE HAVE CONSIDERED THE RIVAL CONTENTIONS, CAREFULLY GONE THROUGH THE ORDERS OF AUTHORITIES BELOW AND FOUND FROM THE RECORDS THAT ASSESSEES FUNDS WERE MANAGED BY PROFESSIONAL MANAGER AND PROFESSIONAL MANAGEMENT FEES PAID OF RS. 6,78,451/ WAS NOT CLAIMED AS EXPENDITURE FOR INCOME TAX PURPOSES AND THE SAME WAS DEBITED TO THE PERSONAL CAPITAL A CCOUNT. SIMILARLY, STT OF RS. 46,462/ WAS ALSO DEBITED TO THE PERSONAL CAPITAL ACCOUNT AND THE SAME WAS NOT CLAIMED AS EXPENDITURE FOR INCOME TAX PURPOSES. DEMAT CHARGES WERE ALSO NOT CLAIMED AS EXPENDITURE. IN ADDITION TO THIS, THE ASSESSEE HIMSELF H AS DISALLOWED 1/5TH OF THE MOTOR CAR EXPENSES AND TELEPHONE EXPENSES OF RS. 9352/ ON ACCOUNT OF PERSONAL USE. SINCE THE INDIRECT EXPENSES INCURRED BY THE ASSESSEE ON ACCOUNT OF PAYMENT MADE TO THE PROFESSIONAL MANAGER, WHO WAS MANAGING THE FUNDS OF THE ASSESSEE, WAS NOT CLAIMED AS EXPENDITURE, THERE IS NO REASON FOR DISALLOWANCE OF EXPENDITURE BY INVOKING THE RULE 8 D OF THE INCOME TAX RULES, 1962. FURTHER, THE FINDINGS RECORDED BY THE LD. CIT(A) AT PARA NO. 3.5 HAS NOT BEEN CONTROVERTED, WE DO NOT FIND ANY REASON OR INFIRMITY IN THE ORDER OF THE LD. CIT(A) DELETING THE DISALLOWANCE MADE BY THE A.O. RESPECTFULLY FOLLOWING THE ABOVE, EFFECTIVE GROUND OF APPEAL IS DECIDED IN FAVOUR OF THE ASSESSEE. AS A RESULT,A PPEAL FILED BY THE ASSESSEE STANDS ALLOWED. . ORDER PRONOUNCED IN THE OPEN COURT ON 1 7 TH ,JUNE,2015. 17 , 2015 SD/ SD/ - ( /JOGINDER SINGH) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOU NTANT MEMBER / MUMBAI, /DATE: 1 7 .6.2015 . . . JV . SR.PS. / COPY OF THE ORDER FORWARDED TO : ITA/ 296 /MUM/201 4 , - AY. 10 - 11 - NAVROZ HORMASJI 4 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT( A)/ , 4. THE CONCERNED CIT / 5. DR H BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASS T. REGISTRAR , / ITAT, MUMBAI.