R.S. ESTATE DEVELOPERS P. LTD, MUMBAI V. ACIT CEN CIR 23, MUMBAI

ITA 306/MUM/2013

• Counselvise Citation: 30619914 RSA 2013
• Duration Of Justice: 1 year(s) 6 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 16-07-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 10-01-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: R MURALIDHAR
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE S/SHRI B.R.BASKARAN (AM) AND SANJAY GARG, (JM) . . , , ./I.T.A. NO.306/MUM/2013 ( ! ' # / ASSESSMENT YEARS : 2009-10) M/S R S ESTATE DEVELOPERS PRIVATE LIMITED, COMMERZ, 3 RD FLOOR, INTERNATIONAL BUSINESS PARK, OBEROI GARDEN CITY, OFF WESTERN EXPRESS HIGHWAY, GOREGAON (E), MUMBAI-400063. / VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCEL-23, ROOM NO.409, 4 TH FLOOR, AAYAKAR BHAVAN, M K ROAD, MUMBAI-400020 ( $% / APPELLANT) .. ( &'$% / RESPONDENT) $ ./ ( ./PAN/GIR NO. : AABCR6809C $% ) / APPELLANT BY : SHRI R MURALIDHAR &'$% * ) /RESPONDENT BY : SHRI DURGA DUTT + , * - . / DATE OF HEARING : 16.7.2014 /0#' * - . /DATE OF PRONOUNCEMENT : 31.7.2014 / O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 10.10.2012 PASSED BY LD CIT(A)-40, MUMBAI AND IT RE LATES TO THE ASSESSMENT YEAR 2009-10. 2. THE SOLITARY ISSUE URGED IN THIS APPEAL FILE D BY THE ASSESSEE IS WHETHER THE LD CIT(A) WAS JUSTIFIED IN CONFIRMING THE DISALLOWA NCE OF RS.9,42,195/- MADE BY THE AO BY INVOKING PROVISIONS OF SEC. 14A OF THE I NCOME TAX ACT, 1961 (THE ACT) R.W. RULE 8D OF THE INCOME TAX RULES, 1962(THE RUL ES). I.T.A. NO.306/MUM/2013 2 3. THE FACTS RELATING TO THE CASE ARE STATED IN BRIEF. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF REAL ESTATE DEVELOPMENT. DURING THE YEAR UNDER CONSIDERATION, IT EARNED DIVIDEND INCOME OF RS.54,4 9,592/-, OUT OF WHICH RS.6.00 LAKHS WAS RECEIVED FROM EQUITY SHARES AND THE BALAN CE AMOUNT OF RS.48,49,592/- WAS RECEIVED FROM MUTUAL FUNDS. THE ASSESSEE CLAIM ED THE DIVIDEND INCOME AS EXEMPT FROM TAXATION U/S 10(34) / 10(35) OF THE ACT . THE AO NOTICED THAT THE ASSESSEE DID NOT DISALLOW ANY AMOUNT AS REQUIRED U/ S 14A OF THE ACT, WHICH SECTION REQUIRES THAT THE EXPENDITURE RELATABLE TO THE EXEMPTED INCOME SHOULD BE DISALLOWED. THOUGH THE ASSESSEE CONTENDED THAT IT DID NOT INCUR ANY EXPENDITURE IN EARNING THE DIVIDEND INCOME, YET THE AO DISALLOWED A SUM OF RS.9,42,195/- COMPUTED IN TERMS OF RULE 8D(2)(III) OF THE IT RULES, BEING THE AMOUNT COMPUTED AT 0.5% OF THE ADMINISTRATIVE EXPEN SES. THE LD CIT(A) ALSO CONFIRMED THE SAID DISALLOWANCE AND HENCE THE ASSES SEE HAS FILED THIS APPEAL BEFORE US. 4. THE LD A.R. SUBMITTED THAT THE ASSESSING OFFI CER DID NOT MAKE ANY DISALLOWANCE UNDER RULE 8D(2)(I) AND RULE 8D(2)(II) ACCEPTING THE CONTENTIONS OF THE ASSESSEE THAT IT DID NOT INCUR ANY DIRECT EXPEN SES AND INTEREST EXPENSES RESPECTIVELY IN EARNING THE EXEMPTED INCOME. HE FU RTHER SUBMITTED THAT THE ASSESSING OFFICER HAS SIMPLY APPLIED THE PROVISIONS OF RULE 8D(2)(III) IN COMPUTING THE DISALLOWANCE OF GENERAL AND ADMINISTRATIVE EXPE NSES WITHOUT CONSIDERING THE EXPLANATION OF THE ASSESSEE AND ALSO THE ACCOUNTS M AINTAINED BY IT. THE LD A.R FURTHER SUBMITTED THAT ALL THE GENERAL EXPENSES INC URRED BY THE ASSESSEE ARE RELATED TO THE REAL ESTATE BUSINESS ACTIVITIES AND HENCE THE ASSESSEE CONTENDED BEFORE THE TAX AUTHORITIES THAT THERE IS NO REQUIRE MENT OF MAKING ANY I.T.A. NO.306/MUM/2013 3 DISALLOWANCE. THE LD A.R PLACED RELIANCE ON THE FO LLOWING DECISION RENDERED BY THE TRIBUNAL AND SUBMITTED THAT THE TRIBUNAL HAS HE LD THAT THERE IS NO REQUIREMENT OF MAKING ANY DISALLOWANCE WHEN THE NEX US IS NOT ESTABLISHED BY THE ASSESSING OFFICER. (A) M/S I-VEN REALTY LIMITED VS. ITO (ITA NO.7191/MUM/2013 DT.12.3.14) (B) DCIT VS. M/S RELIANCE LAND PVT LTD (ITA NO.60/MUM/2013 DT. 09-07-2014). 5. ON THE CONTRARY, THE LD D.R PLACED STRONG REL IANCE ON THE ORDER PASSED BY THE LD CIT(A). HE SUBMITTED THAT THE JURISDICTIONA L HIGH COURT HAS HELD IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD (328 ITR 81) TH AT THE PROVISIONS OF SEC. 14A IS MANDATORY FROM AY 2008-09. HE SUBMITTED THAT TH E DISALLOWANCE IS REQUIRED TO BE MADE EVEN IF THE ASSESSEE CLAIMS THAT HE DID NOT INCUR ANY EXPENDITURE IN EARNING THE INCOME. 6. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE RECORD. THERE IS NO DISPUTE THAT THE ASSESSEE DID NOT INCUR ANY DIRECT EXPENDITURE IN EARNING THE EXEMPTED INCOME AND HENCE THE AO DID NOT MAKE ANY D ISALLOWANCE UNDER RULE 8D(2)(I) OF THE IT RULES. FURTHER THE ASSESSING OF FICER HAS ACCEPTED THAT THE ASSESSEE HAS INVESTED ONLY ITS SURPLUS FUNDS IN EQU ITY SHARES AND MUTUAL FUNDS AND HENCE HE DID NOT MAKE ANY DISALLOWANCE UNDER RU LE 8D(2)(II) OF THE IT RULES. THE AO HAS MADE DISALLOWANCE U/S RULE 8D(2) (III) OF THE IT RULES BY COMPUTING 0.5% OF THE GENERAL AND ADMINISTRATIVE EX PENSES. IN PAGE NO.3 & 4 OF THE ORDER PASSED BY LD CIT(A), THE DETAILS OF GENERAL EXPENSES AGGREGATING TO RS.41.78 LAKHS IS GIVEN, OUT OF WHICH THE ASSESS EE HAD ITSELF DID NOT CLAIM DONATION EXPENSES AMOUNTING TO RS.10.05 LAKHS, THUS LEAVING A BALANCE OF RS.31.73 LAKHS. OUT OF THE SAME, THE MAJOR PORTIO N OF EXPENSES CONSISTS OF I.T.A. NO.306/MUM/2013 4 REPAIRS AND MAINTENANCE OF RS.24.55 LAKHS, WHICH IS PURELY RELATED TO THE CONSTRUCTION BUSINESS. IF WE DEDUCT THE ABOVE SAID AMOUNT, THE BALANCE AMOUNT OF EXPENDITURE LEFT IS ONLY RS.7.18 LAKHS. 7. BEFORE US, THE LD A.R PLACED RELIANCE ON THE DECISION RENDERED BY THIS BENCH OF TRIBUNAL IN THE CASE OF RELIANCE LAND PVT LTD (SUPRA), WHEREIN THE TRIBUNAL HAD PLACED RELIANCE ON THE DECISION RENDER ED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD VS. CIT (347 ITR 272). IN THE ABOVE CITED CASE, THE HONBLE DELHI HIGH COURT HAS EXPRESSED THE VIEW THAT THE ASSESSING OFFICER HAS TO FIRST REJECT THE CLAIM OF THE ASSESSEE WITH REGARD TO THE EXTENT OF EXPENDITURE AND SUCH REJECTION MUST BE FO R DISCLOSED COGENT REASONS. IT IS ONLY THEN THAT THE QUESTION OF DETERMINATION OF EXPENDITURE U/S 14A BY THE ASSESSING OFFICER WOULD ARISE. 8. IN THE INSTANT CASE, THE ASSESSEE HAS POINTE D OUT THAT IT DID NOT INCUR ANY EXPENDITURE IN EARNING THE INCOME AND HAS ALSO FURN ISHED THE DETAILS OF GENERAL EXPENSES. WE HAVE ALSO NOTED THAT SOME OF THE MAJO R EXPENSES ARE RELATED TO THE CONSTRUCTION BUSINESS. THE REMAINING AMOUNTS C ONSISTED OF FOLLOWING ITEMS. SECURITY SERVICE CHARGES 1,31,151 FILING FEE 1,631 LOSS FROM MUTUAL FUND 81,783 PROFESSION TAX 2,500 VEHICLE EXPENSES 19,900 SITE EXPENSES 99,717 AUDITORS REMUNERATION 2,00,000 BANK CHARGES 1,340 CONVEYANCE EXPENSES 19,244 ELECTRICITY CHARGES 2,09,670 REGISTRATION CHARGES 1,000 INSURANCE CHARGES 1,81,996 LEGAL AND PROFESSIONAL CHARGES 56, 643 OFFICE EXPENSES 17,033 TELEPHONE EXPENSES 58,350 I.T.A. NO.306/MUM/2013 5 THE CONTENTION OF THE ASSESSEE IS THAT THE ABOVE SA ID EXPENSES ARE ALSO RELATED TO THE CONSTRUCTION BUSINESS AND NO PART OF THEM CA N BE ATTRIBUTABLE TO THE EXEMPTED INCOME. WE NOTICE THAT THE ASSESSING OFFI CER DID NOT EXAMINE THE SAID CLAIM WITH REFERENCE TO THE BOOKS OF ACCOUNTS OF TH E ASSESSEE AND DID NOT REJECT THE SAME. THE EXPLANATION FURNISHED BY THE ASSESSE E BEFORE LD CIT(A) READS AS UNDER:- THE APPELLATE COMPANY DOES NOT REQUIRE ANY SUBSTAN TIAL MANPOWER OR COST TO MAKE SUCH INVESTMENTS AND EARN SUCH INCOME. ACCORDINGLY, THE COMPANY DOES NOT INCUR ANY SUBSTANTIAL OR MATERIAL EXPENSE IN CONNECTION WITH EARNING SUCH INCOME. FURTHER, THE APPELLATE C OMPANY HAS NOT INCURRED ANY OTHER DIRECT EXPENSES FOR EARNING IN R ELATION TO EXEMPT INCOME. AS FAR AS OTHER INDIRECT EXPENSES RELATED TO EXEMPT INCOME, IT WILL BE NEGLIGIBLE I.E. NOT EVEN EXCEEDING RS.10,00 0/- IN FULL YEAR ON ACCOUNT OF TWO / THREE MAN HOURS OF PEON AND ONE EX ECUTIVE USED FOR ACCOUNTING AND OTHER RELATED RECORD KEEPING PURPOSE S. THE BROKERS AND MUTUAL FUND HOUSES ARE SENDING THEIR MARKETING REPR ESENTATIVE FOR FILLING UP OF FORMS, COLLECTION AND DEPOSIT OF FORMS. FURT HER, THE ENCASHMENT ALSO HAPPENS ELECTRONICALLY (THROUGH RTGS / ECS). MOREOVER, THE APPELLANT DOESNT INCUR ANY EXPENDITURE FOR DEPOSIT OF DIVIDEND ETC., AS DIVIDEND, IN MAJORITY OF CASES, IS RE-INVESTED INTO THE SCHEME OR OTHERWISE, DIRECTLY CREDITED TO THE APPELLANTS BANK ACCOUNT T HROUGH ECS. ACCORDINGLY, ONCE THE AMOUNT HAS BEEN INVESTED, THE RE ARE NO EFFORTS REQUIRED TO EARN THE DIVIDEND INCOME. THE DIVIDEND INCOME COMES IN AUTOMATICALLY TILL THE PERIOD OF INVESTMENT IS HELD BY THE APPELLANT. WE NOTICE THAT THE ASSESSEE ITSELF HAS SUGGESTED A DISALLOWANCE OF RS.10,000/- IN THE ABOVE SAID EXPLANATION FURNISHED BEFORE LD CIT( A). 9. FROM THE ORDER OF LD CIT(A), WE NOTICE THAT THE ASSESSEE HAS SOLD UNITS OF MUTUAL FUNDS OF RS.5.62 CRORES OF DBS CHOLA FREEDOM AND RS.2.99 CRORES OF LOTUS INDIA. THE ASSESSEE HAS ALSO RECEIVED DIVIDE ND INCOME FROM MUTUAL FUNDS AND EQUITY SHARES. HENCE, IT IS APPARENT THAT THE ASSESSEE HAS CARRIED OUT SOME ACTIVITY IN MAKING INVESTMENTS, LIQUIDATING THE INV ESTMENTS AND ALSO IN RECEIVING DIVIDEND. CONSIDERING THE MAGNITUDE OF SUCH ACTIVI TIES AND EXPLANATIONS OF THE ASSESSEE, WE AGREE WITH THE CONTENTIONS OF LD A.R T HAT IT WOULD NOT BE PROPER TO I.T.A. NO.306/MUM/2013 6 APPLY RULE 8D(2)(III) IN THE FACTS AND CIRCUMSTANCE S OF THE CASE. AT THE SAME TIME, WE ARE OF THE VIEW THAT SOME PORTION OF GENER AL EXPENSES NEEDS TO BE ALLOCATED TO SUCH KIND OF ACTIVITIES. HENCE, ON A CONSPECTUS OF THE MATTER, WE ARE OF THE VIEW THAT THE DISALLOWANCE REQUIRED TO B E MADE U/S 14A OF THE ACT MAY BE ESTIMATED AT A ROUND SUM FIGURE OF RS.25,000 /-. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND DIRE CT THE AO TO RESTRICT THE DISALLOWANCE TO THE ABOVE SAID SUM. WE ORDER ACCOR DINGLY. 10. IN THE RESULT, THE APPEAL FILED BY THE ASSE SSEE IS PARTLY ALLOWED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COUR T ON 31ST JULY , 2014. /0#' + 1 2 3 31ST JULY, 2014 0 * , 4 SD SD ( /SANJAY GARG) ( . . / B.R. BASKARAN ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER + , MUMBAI: 31ST JULY,2014. . . ./ SRL , SR. PS ! ' / COPY OF THE ORDER FORWARDED TO : 1. $% / THE APPELLANT 2. &'$% / THE RESPONDENT. 3. + 6- ( ) / THE CIT(A)- CONCERNED 4. + 6- / CIT CONCERNED 5. 78 &-9! , . 9! ' , + , / DR, ITAT, MUMBAI CONCERNED 6. : , / GUARD FILE. ; + / BY ORDER, TRUE COPY < (ASSTT. REGISTRAR) . 9! ' , + , /ITAT, MUMBAI