M/s. Academy for Computer Training (Guj.) Pvt. Ltd., Ahmedabad V. The Dy. CIT, Circle-1, Ahmedabad

ITA 3065/AHD/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9885 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 11 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 09-11-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 23-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD , , BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER ./ I.T.A. NO.3065/AHD/2013 ( / ASSESSMENT YEAR : 2009-10) M/S.ACADEMY FOR COMPUTER TRAINING (GUJ) PVT.LTD. 2 ND FLOOR, PARTH EMPIRE NR.RAMBAUG AHMEDABAD / VS. DY.CIT CIRCLE-1 AHMEDABAD # ./ ./ PAN/GIR NO. : AABSA 2973 L ( #% / APPELLANT ) .. ( &#% / RESPONDENT ) #%' / APPELLANT BY : SHRI SAKAR SHARMA, AR &#%(' / RESPONDENT BY : SHRI JAMES KURIAN, SR.DR )*(+ / DATE OF HEARING 09/11/2016 ,-./(+ / DATE OF PRONOUNCEMENT 30/11/2016 / O R D E R PER PRADIP KUMAR KEDIA, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-6, AHMEDABAD [C IT(A) IN SHORT] DATED 12/11/2013 FOR THE ASSESSMENT YEAR (AY)2009-1 0. 2. IN THE PRESENT APPEAL, THE ASSESSEE IS AGGRIEVE D BY THE ADDITION OF RS.9,75,698/- ON ACCOUNT OF DISALLOWANCE MADE UNDER SECTION 14AOF THE ITA NO.3065/AHD /2013 M/S.ACADEMY FOR COMPUTER TRAINING (GUJ.) P.LTD. VS . DCIT ASST.YEAR 2009-10 - 2 - INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS 'T HE ACT') BY APPLYING RULE 8D OF THE INCOME TAX RULES, 1962. 3. THE FACTS APROPOS TO THE ISSUE ARE THAT THE ASSE SSEE IS ENGAGED IN THE BUSINESS OF FEW TRAINING AND SOFTWARE SALES. D URING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER (AO) OBSERVED THAT THE ASSESSEE HAS EARNED DIVIDEND INCOME OF RS.2,10,000/ - FROM MUTUAL FUND WHICH IS EXEMPT FROM TAX. 3.1. IT WAS ALSO NOTED BY THE AO THAT THE ASSESSEE HOLDS INVESTMENT IN MUTUAL FUNDS OF RS.2,30,78,589/- AS ON 31/033/2009 WHILE THE CORRESPONDING INVESTMENT AS ON 31/03/2008 STANDS AT RS.3,13,87,847/-. THE AO FOUND THAT THE ASSESSEE HAS CLAIMED INTEREST EXPENDITURE AMOUNTING TO RS.13,050/- WHICH IS ALLOWABLE FOR PRO PORTIONATE DISALLOWANCE UNDER SECTION 14A OF THE ACT. THE AO FURTHER OBSERVED THAT THE ASSESSEE MUST HAVE ALSO INCURRED ADMINISTR ATIVE EXPENSES SUCH AS DOCUMENTATIONS, SALARY TO THE EMPLOYEES, HANDLING T HE INVESTMENT PORTFOLIO AND OTHER ADMINISTRATIVE OVER-HEADS. LIK E, STATIONERY, TELEPHONE, COMPUTER OFFICE EQUIPMENTS, VEHICLES, ET C. EVERY YEAR A PART OF WHICH CAN BE ATTRIBUTABLE TO THE INVESTMENT PORTFOL IO. 4. HE ACCORDINGLY, APPLIED RULE 8D OF THE IT RULES, 1962 AND RESORTED TO DISALLOWANCE OF RS.27,857/- UNDER RULE 8D(2)(II) AND ITA NO.3065/AHD /2013 M/S.ACADEMY FOR COMPUTER TRAINING (GUJ.) P.LTD. VS . DCIT ASST.YEAR 2009-10 - 3 - RS.1,36,166/- UNDER RULE 8D(2)(III). THUS, THE AGG REGATE DISALLOWANCE UNDER RULE 8D WAS WORKED OUT TO RS.1,64,063/-. 5. THE CIT(A) CONFIRMED THE ACTION OF THE AO IN FIR ST APPEAL. 6. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESS EE IS IN APPEAL BEFORE THE TRIBUNAL. 7. THE LD.AR FOR THE ASSESSEE, AT THE OUTSET, ADVER TED OUR ATTENTION TO THE BALANCE-SHEET OF THE ASSESSEE-COMPANY AND SUBMI TTED THAT THE OWN CAPITAL ALONG WITH RESERVES EXCEEDS CORRESPONDING I NVESTMENT IN MUTUAL FUNDS AND THEREFORE DISALLOWANCE UNDER RULE 8D(2)(I I) IS NOT PERMISSIBLE. 7.1. AS REGARDS ESTIMATED DISALLOWANCE TOWARDS ADMI NISTRATIVE AND MANAGERIAL EXPENSES UNDER RULE 8D(2)(III), THE LD.A R FOR THE ASSESSEE ADVERTED OUR ATTENTION TO THE SUBMISSION MADE BEFOR E THE AO AS RECORDED AT PAGE NOS.5 & 6 OF THE ASSESSMENT ORDER AND SUBMI TTED THAT THE DIVIDEND INCOME IS DERIVED FROM INVESTMENT IN MUTUA L-FUNDS WHICH WERE IN THE NATURE OF ONE TIME SINGLE INVESTMENTS MADE A ND SIP PLAN IS IN PLACE. THE LD.AR FURTHER SUBMITTED THAT MUTUAL FUN DS MANAGERS ARE DEDUCTING THEIR FUND MANAGEMENT CHARGES FROM THE SA ID MUTUAL INVESTMENTS MADE. THUS, IN THE GIVEN FACTS, NO FUR THER DISALLOWANCE IS CALLED FOR. ITA NO.3065/AHD /2013 M/S.ACADEMY FOR COMPUTER TRAINING (GUJ.) P.LTD. VS . DCIT ASST.YEAR 2009-10 - 4 - 9. THE LD.DR, ON THE OTHER HAND, RELIED ON THE ORDE R OF THE CIT(A). 10. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE O RDERS OF THE AUTHORITIES BELOW. THE SOLITARY ISSUE IN THE PRE SENT APPEAL IS DISALLOWANCE OF CERTAIN EXPENDITURE BY RESORTING TO SECTION 14A OF THE ACT. WE FIND THAT AVERMENT MADE ON BEHALF OF THE A SSESSEE THAT THE OWN CAPITAL TOGETHER WITH RESERVES HELD BY THE ASSESSEE ARE IN EXCESS OF CORRESPONDING INVESTMENT IS SUPPORTED BY THE BALANC E-SHEET FILED BY THE ASSESSEE. THERE IS NO REBUTTAL FROM THE REVENUE IN THIS REGARD. IN VIEW OF THE LONG LINE OF JUDICIAL PRECEDENTS ON THE ISSU E, WE FIND MERIT IN THE CONTENTION OF THE ASSESSEE THAT PROPORTIONATE DISAL LOWANCE OF EXPENDITURE UNDER RULE 8D(2)(II) IS NOT JUSTIFIED WHERE THE INT EREST-FREE OWN CAPITAL TOGETHER WITH RESERVES EXCEEDS THE CORRESPONDING IN VESTMENT. WITH REFERENCE TO THE DISALLOWANCE MADE BY THE AO UNDER RULE 8D2(III) AGITATED BY THE ASSESSEE, WE NOTICE THE AVERMENTS MADE ON BEHALF OF THE ASSESSEE THAT IN TAX-FREE INCOME BY WAY OF DIVIDEND ARISES ENTIRELY OUT OF MUTUAL FUNDS WHICH ARE ONE TIME SINGLE INVESTMENTS WITHOUT ANY PROACTIVE INVOLVEMENT OF THE MANAGEMENT PER SE . THE SURPLUS FUND OF THE COMPANY HAS BEEN SIMPLY PARKED IN THE MUTUAL FU NDS. WE TAKE COGNIZANCE OF THE ARGUMENT ON BEHALF OF THE ASSESSE E THAT MUTUAL FUNDS INVESTMENT BEARS DIFFERENT TRAITS AND IS A DIFFEREN T SPECIES OF INVESTMENT. ITA NO.3065/AHD /2013 M/S.ACADEMY FOR COMPUTER TRAINING (GUJ.) P.LTD. VS . DCIT ASST.YEAR 2009-10 - 5 - THE MUTUAL FUNDS ARE SUPERVISED BY THE EXPERTS IN T HE FIELD AND MANAGEMENT CHARGES FOR SUCH SUPERVISION IS RECOVERE D FROM THE CLIENTS. THIS BEING SO, AN INVESTOR IN THE MUTUAL FUND SEPAR ATELY PAYS ADMINISTRATIVE AND MANAGERIAL EXPENSES UNLIKE A CAS E WHERE ASSESSEE CHOOSES TO MAKE INVESTMENT IN SHARES DIRECTLY. IN THE CASE OF A MUTUAL FUNDS, ADMINISTRATIVE AND MANAGERIAL EXPENSES ARE F ACTORED IN THE INVESTMENTS ITSELF. IN SUCH A SCENARIO, THE EXPLAN ATION OFFERED BY THE ASSESSEE OF NO EXPENDITURE INCURRED APPEARS TO BE IN CONGRUITY WITH THE MARKET PRACTICE. ACCORDINGLY, WE DO NOT FIND IT A FIT CASE FOR RESORTING TO DOUBLE DISALLOWANCE OF THE SIMILAR EXPENDITURE IN THE GARB OF RULE 8D(III) OF THE IT RULES. IT WILL BE PERTINENT TO N OTE THAT A BARE READING OF SECTION 14A OF THE ACT SUGGESTS THAT ITS APPLICABIL ITY IS NOT AUTOMATIC. IT IS HEDGED BY CONDITIONS PRESCRIBED THEREIN. SECTIO N 14A INHERES IN IT THE CONCEPT OF REASONABLENESS. THE FORMIDABLE AMOUNT O F EXPENDITURE AS COMPUTED BY THE AO CANNOT BE SAID TO BE ATTRIBUTABL E TO TAX-FREE INCOME BY APPLYING A STRAIGHT JACKET FORMULA AS PER RULE 8 D(2)(III) OF THE IT RULES IN THE GIVEN FACTS. THUS, WE FIND CONSIDERAB LE MERIT IN THE PLEA OF THE ASSESSEE. HENCE, WE ARE DISPOSED TO ADJUDICATE THE ISSUE IN FAVOUR OF THE ASSESSEE. THUS, ORDER OF THE CIT(A) SUSTAINING THE DISALLOWANCE SECTION 14A DESERVES TO BE VACATED. ITA NO.3065/AHD /2013 M/S.ACADEMY FOR COMPUTER TRAINING (GUJ.) P.LTD. VS . DCIT ASST.YEAR 2009-10 - 6 - 11. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 30/11/2016 SD/- SD/ - () ( ) (RAJPAL YADAV) ( PRADIP KUMAR KEDIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 30/ 11 /2016 3..),.)../ T.C. NAIR, SR. PS !'#$#! / COPY OF THE ORDER FORWARDED TO : 1. #% / THE APPELLANT 2. &#% / THE RESPONDENT. 3. 456+ 7+ / CONCERNED CIT 4. 7+ ( ) / THE CIT(A)-6, AHMEDABAD 5. 89:+)56 , 56/ , 4 / DR, ITAT, AHMEDABAD 6. :<* / GUARD FILE. / BY ORDER, &8++ //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 25.11.16 (DICTATION-PAD 15 PAGES ATTACHED AT THE END OF THIS APPEAL-FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 28.11.16 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.30.11.16 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 30.11.16 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER