JAYANT R. PARDIWALA, MUMBAI V. ACIT 24(1), MUMBAI

ITA 3033/MUM/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 7801 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-03-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Assessment Year: 2010-2011
• Appeal Filed On: 26-04-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B C S NAYAK
• Keywords: Earning of tax free income
• Section: 143(3); 14A; 2

Judgement Text

ITA NO.3033/M/2016 JAYANT R PARDIWALA 1 IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH I, MU MBAI BEFORE SHRI D.KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO.3033/MUM/2016 (ASSESSMENT YEAR- 2013-14) JAYANT R PARDIWALA, 219, HIGH TECH INDUSTRIAL CENTRE, CAVES ROAD, JOGESHWARI(E), MUMBAI-400060. PAN: AAAPP4718N VS. ACIT, 24(1), PRAYATYKSH KAR BHAWAN, BANDRA MUMBAI- 400020. (APPELLANT) (RESPONDENT) ASSESSEE BY : DR. K. SHIVRAM SR ADVOCATE WITH MS. NEELAM C. JADHAV ADVOCATE REVENUE BY : SH. B.C. S.NAYAK- CIT (DR) DATE OF HEARING : 23.02.2017 DATE OF PRONOUNCEMENT : 15.03.2017 ORDER UNDER SECTION 254(1) OF INCOME TAX ACT PER PAWAN SINGH, JM: 1. THIS APPEAL BY ASSESSEE U/S 253 OF THE INCOME-TAX A CT (THE ACT) IS DIRECTED AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS) [FOR SHORT THE CIT(A)] 42, MUMBAI DATED 04.01.2016 FOR ASSESSMENT YEAR (AY) 2010-11. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : 1. THE LEARNED CIT(APPEALS) ERRED IN LAW AND ON THE FACTS OF THE CASE IN CONFIRMING THE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D OF RS. 8,72,168/-. ( GROUND I&II ) 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED RETURN OF INCOME FOR RELEVANT AY ON 21.09.2010 DECLARING INCOME OF RS. 2,53,97,410/- . THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT. THE ASSESSING OFFI CER (AO) WHILE PASSING THE ASSESSMENT ORDER DISALLOWED A SUM OF RS. 8,72,168/- UNDER SECTION14A READ WITH RULE 8D. ON APPEAL BEFORE COMMISSIONER (APPEALS) TH E DISALLOWANCE UNDER ITA NO.3033/M/2016 JAYANT R PARDIWALA 2 SECTION 14A READ WITH RULE 8D WAS CONFIRMED. THUS, FURTHER AGGRIEVED BY THE ORDER OF LD CIT (A), THE ASSESSEE HAS FILED THE PRE SENT APPEAL BEFORE US. 3. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVE (AR ) OF THE ASSESSEE AND LD. DEPARTMENTAL REPRESENTATIVE (DR) FOR THE REVENUE AN D PERUSED THE MATERIAL AVAILABLE ON RECORD. THE LEARNED AR OF THE ASSESSEE ARGUED THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF HIGH-TECH PRINTING MACHI NERY, COMPUTER SOFTWARE AND THEIR ANNUAL MAINTENANCE CONTRACT. THE ASSESSEE EAR NED EXEMPT INCOME IN THE TERMS OF GAIN FROM MUTUAL FUNDS, GAIN ON SALE OF SH ARE AND BONDS TOTALING RS.1,00,42,529/- AND ALSO EARNED EXEMPT DIVIDEND OF RS. 12,55,203/-. NO VOLUNTARY DISALLOWANCE WAS MADE AS ASSESSEE HAS NOT INCURRED ANY EXPENSES IN EARNING THE EXEMPT INCOME. THE ASSESSEE HAS SUFFICI ENT INTEREST-FREE FUNDS AVAILABLE WITH. NO BORROWED FUNDS WERE UTILIZED FOR EARNING THE EXEMPT INCOME. RULE 8D IS NOT APPLICABLE TO THE ASSESSEE FOR THE R EASONS THAT AMOUNT CALCULATED AS PER FORMULA REQUIRED UNDER RULE 8D IS GIVING ABSURD RESULT. THE ARTIFICIAL DISALLOWANCE OF EXPENSES EXCEEDS THE TOTAL EXPENDIT URE INCURRED BY THE ASSESSEE. THE ASSESSEE IS AVAILING SERVICES OF FUND MANAGERS AND STOCKBROKERS AS FREE OF COST FOR THE PURPOSE OF INVESTMENT AND EARNING TAX- FREE INCOME. AS BROKERS AND AGENTS GETS HEFTY COMMISSION FROM MUTUAL FUNDS BECA USE OF HUGE SIZE OF INVESTMENT MADE BY THE ASSESSEE. NOTHING WAS CHARG ED FROM THE ASSESSEE FOR THE REASONS THAT THE ASSESSEE PROVIDED GOOD INVESTMENT TO THEM. THE ASSESSEE IS NOT REQUIRED TO MAKE ANY EXPENDITURE BY WAY OF TRAVELLI NG OR DEPLOYING ANY STAFF. IN FACT NO DIRECT OR INDIRECT EXPENDITURE OF ANY NATUR E FOR EARNING THE TAX-FREE INCOME WAS INCURRED. THE ASSESSEE IS GETTING FREE HOME DE LIVERY SERVICES FROM MUTUAL FUNDS AGENTS, BROKERS AND FUND MANAGERS. ALL PORTFO LIO ANALYSES ARE MANAGED BY THE FUNDS MANAGER IN ORDER TO GET MORE BUSINESS FR OM THE ASSESSEE. NO STAFF HAS BEEN EMPLOYED BY ASSESSEE FOR HANDLING THE PORTFOLI O. THE SIMILAR DISALLOWANCE WAS MADE AGAINST THE ASSESSEE FOR ASSESSMENT YEAR 2 009-10. THE ASSESSEE FILED APPEAL BEFORE COMMISSIONER (APPEALS), WHEREIN THE D ISALLOWANCE WAS RESTRICTED TO 2% OF THE TOTAL EXEMPT INCOME OF THE ASSESSEE BY FIRST APPELLATE AUTHORITY VIDE ORDER DATED 10 MAY 2013. THE COPY OF ORDER PASSED B Y COMMISSIONER (APPEALS) ITA NO.3033/M/2016 JAYANT R PARDIWALA 3 FOR ASSESSMENT YEAR 2009-10 AND THE PROFIT AND LOSS ACCOUNT SHOWING THE AVAILABILITY OF INTEREST-FREE FUNDS WITH THE ASSESS EE IS ALSO PLACED ON RECORD. THE LD AR FOR ASSESSEE VOLUNTARILY OFFERED 2% OF THE EX EMPTED INCOME FOR DISALLOWANCE UNDER SECTION14A READ WITH RULE 8D. O N THE OTHER HAND THE LEARNED DR FOR THE REVENUE SUPPORTED THE ORDER AUTHORITIES BELOW. HOWEVER, ON A SPECIFIC QUERY, IF THE REVENUE HAS FILED APPEAL AGAINST THE ORDER OF COMMISSIONER (APPEALS) FOR ASSESSMENT YEAR 2009-10. THE LEARNED DR FOR REV ENUE FAIRLY SUBMITTED THAT AS PER RECORD AVAILABLE WITH HIM THERE IS NO SUCH REFE RENCE FOR FILING APPEAL BY REVENUE FOR ASSESSMENT YEAR 2009 -10. 4. WE HAVE CONSIDERED THE RIVAL CONTENTION OF THE PART IES AND FURTHER GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. FROM THE PERUSAL O F BALANCE SHEET, WE HAVE SEEN THAT ASSESSEE OWNED A FUND OF RS. 25,21,56,844 /- A S ON 31 ST OF MARCH 2010. THE ASSESSEE BORROWED FUND OF RS.15,00,000 /-. A SUM OF RS. 2495/-ONLY WAS DEBITED FROM THE PERSONAL ACCOUNT OF ASSESSEE ON ACCOUNT OF DEMAT CHARGE THE TOTAL INVESTMENT DURING THE YEAR WAS ONLY RS.16,82,77,652 /-. THE HONBLE JURISDICTIONAL HIGH COURT IN CIT VS RELIANCE UTILIT Y SERVICES LTD. 313 ITR- 340(BOMBAY) HELD THAT IF THE ASSESSEE OWNED SUFFICI ENT INTEREST-FREE FUND, THE PRESUMPTION IS IN FAVOUR OF ASSESSEE THAT INVESTMEN T WAS MADE FROM THE FUND AVAILABLE WITH ASSESSEE AND NO INTEREST DISALLOWANC E CAN BE MADE. FURTHER HONBLE JURISDICTIONAL HIGH COURT IN HDFC BANK LTD. V. DCIT (2014) 366 ITR 505(BOMBAY) AND IN HDFC BANK LIMITED V. DCIT (2016) 67 TAXMANN.COM 42(BOMBAY) HELD THAT NO DISALLOWANCE IS WARRANTED F OR INTEREST PAID BY THE ASSESSEE COMPANY UNDER SECTION 14A OF THE ACT READ WITH RULE 8D(2)(II) OF INCOME TAX RULES IF THE ASSESSEE OWNED SUFFICIENT I NTEREST FREE FUND AVAILABLE WITH HIM. THE ASSESSEE HAS CLAIMED THAT NO BORROWED FUND WAS UTILIZED FOR EARNING THE TAX FREE INCOME. THE REVENUE HAS NOT RE JECTED THE BOOKS OF ACCOUNT OF THE ASSESSEE BEFORE INVOKING THE PROCEDURE TO CALCU LATE THE DISALLOWANCE UNDER RULE8D. FURTHER, WE HAVE SEEN THAT FOR ASSESSMENT YEAR 2009- 10, THE LEARNED CIT(APPEALS) RESTRICTED THE SIMILAR DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D TO 2% OF THE TOTAL EXEMPT INCOME OF THE ASS ESSEE. WE HAVE FURTHER NOTICED ITA NO.3033/M/2016 JAYANT R PARDIWALA 4 THAT ASSESSING OFFICER WAS NOT HAVING THE BENEFIT O F THE PASSED BY LD COMMISSIONER (APPEALS) ON 10 TH MAY 2013 FOR ASSESSMENT YEAR 2009- 10, HOWEVER, THE ORDER WAS AVAILABLE WHEN THE IMPUGNED ORDER DATED 4 TH JANUARY 2016 WAS PASSED. HENCE KEEPING IN VIEW THE PRINCIPL E OF CONSISTENCY WE DIRECT THE ASSESSING OFFICER TO FOLLOW THE ORDER FOR ASSES SMENT YEAR 2009-10 AND RESTRICT THE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8 D TO 2% OF THE EXEMPT INCOME, WHICH IN OUR VIEW WILL MEET THE END OF JUST ICE. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 5. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 1 5 TH MARCH, 2017. SD/- SD/- (D.KARUNAKARA RAO) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED 15/03/2017 COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT.REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. UE COPY/