SHUBHKAM STOCK & SHARES LTD, MUMBAI V. ITO 4(2)(2), MUMBAI

ITA 3358/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49021 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2004-2005
• Appeal Filed On: 29-04-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ASHIMA GUPTA
• Assessee Lawyers: R C JAIN
• Keywords: Earning of tax free income; Onus to prove
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E, MUMBAI BEFORE SHRI PRAMOD KUMAR, A.M. AND SHRI V. DURGA RA O, J.M. ITA NO. 3358/MUM/2010 ASSESSMENT YEAR: 2004-05 SHUBHKAM STOCK & SHARES LTD., APPELLANT THE INTERNATIONAL HOUSE 4 TH FLOOR, NEW MARINE LINES CROSS ROAD NO.1, NEAR AMERICA CENTRE, 16, MK ROAD, CHURCH GATE, MUMBAI 400 020. VS. THE INCOME TAX OFFICER-4(2)(2), RESPONDENT AAYAKAR BHAVAN, MK ROAD, MUMBAI 400 020. APPELLANT BY : MR. R.C. JAIN RESPONDENT BY : MS. ASHIMA GUPTA . ORDER PER V. DURGA RAO, J.M.: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGA INST THE ORDER OF CIT(A)- 8, MUMBAI, PASSED ON 27/01/2010 FOR THE ASSESSMENT YEAR 2004-05. 2. GROUND NO. 1 IS DIRECTED AGAINST THE DISALLOWANC E U/S 14A OF THE ACT OF RS. 1,97,298/-. 3. THE ASSESSEE HAD EARNED DIVIDEND INCOME OF RS. 3 8,45,953/-, WHICH IS EXEMPT, HOWEVER, NO EXPENSES WERE CLAIMED TO BE INCURRED TO EARN THIS INCOME. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE SHARE TRADING ACTIVITY INVOLVES IDENTIFICATION, EVALUATIO N, TRANSACTION, SOURCING OF FUNDS, MAINTENANCE , ACCOUNTING, AND, THEREFORE, ASSESSEE HAVING INCURRED EXPENDITURE TO EARN THE DI VIDEND INCOME ITA NO. 3358/M/2010 SHUBHKAM STOCK & SHARES LTD. 2 CANNOT BE RULED OUT. ACCORDINGLY, AN AMOUNT OF RS. 1,97,298/- BEING 5% OF DIVIDEND INCOME EARNED IS TAKEN AS BEING INCU RRED IN RELATION TO EARNING THIS EXEMPT INCOME AND DISALLOWED THE SAME U/S 14A OF THE ACT. THE CIT(A) FOLLOWING THE SPECIAL BENCH DECISIO N OF ITAT IN THE CASE OF DAGA CAPITAL MANAGEMENT PVT LTD. DIRECTED T HE ASSESSING OFFICER TO COMPUTE DISALLOWANCE IN ACCORDANCE WITH RULE 8D OF THE INCOME TAX RULES. AGGRIEVED, THE ASSESSEE IS IN AP PEAL BEFORE THE ITAT. 4. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARITES AND PERUSED THE RECORD. WE FIND THAT THIS ISSUE IS COVE RED BY THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CAS E OF GODREJ & BOYCE MFG. CO. LTD., [2010] 328 ITR 81 (BOM.) WHEREIN THE HONBLE COURT HELD AS UNDER:- THAT THE PROVISIONS OF RULE 8D OF THE RULES WHICH H AVE BEEN NOTIFIED WITH EFFECT FROM MARCH 24, 2008, WOULD APP LY WITH EFFECT FROM ASSESSMENT YEAR 2008-09. EVEN PRIOR TO ASSESSM ENT YEAR 2008-09, WHEN RULE 8D WAS NOT APPLICABLE, THE AO HA D TO ENFORCE THE PROVISIONS OF SUB-SECTION (1) OF SECTION 14A. F OR THAT PURPOSE, THE AO IS DUTY BOUND TO DETERMINE THE EXPENDITURE W HICH HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. THE AO MUST ADOPT A REASONABLE BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT FA CTS AND CIRCUMSTANCES AFTER FURNISHING A REASONABLE OPPORTU NITY TO THE ASSESSEE TO PLACE ALL GERMANE MATERIAL ON THE RECOR D. THE PROCEEDINGS FOR ASSESSMENT YEAR 2002-03 WOULD STAND REMANDED TO THE AO. THE AO SHOULD DETERMINE AS TO WHETHER TH E ASSESSEE HAD INCURRED ANY EXPENDITURE (DIRECT OR INDIRECT) I N RELATION TO DIVIDEND INCOME/INCOME FROM MUTUAL FUNDS WHICH DOES NOT FORM PART OF THE TOTAL INCOME AS CONTEMPLATED UNDER SECT ION 14A. THE AO CAN ADOPT A REASONABLE BASIS FOR EFFECTING THE A PPORTIONMENT. WHILE MAKING THAT DETERMINATION, THE AO SHOULD PROV IDE A REASONABLE OPPORTUNITY TO THE ASSESSEE OF PRODUCING ITS ACCOUNTS AND RELEVANT OR GERMANE MATERIAL HAVING A BEARING O N THE FACTS AND CIRCUMSTANCES OF THE CASE. 5. IN VIEW OF THE RATIO LAID DOWN BY THE HONBLE JU RISDICTIONAL HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. ( SUPRA), WE REMIT THE MATTER BACK TO THE FILE OF THE AO WITH A DIRECTION DECIDE THE ISSUE AFRESH IN THE LIGHT OF THE SAID JUDGMENT OF THE HON BLE JURISDICTIONAL ITA NO. 3358/M/2010 SHUBHKAM STOCK & SHARES LTD. 3 HIGH COURT AFTER PROVIDING REASONABLE OPPORTUNITY O F BEING HEARD TO THE ASSESSEE. 6. GROUND NO. 2 IS DIRECTED AGAINST THE DISALLOWANC E OF RS. 21,19,584/- OUT OF FOREIGN TRAVEL EXPENSES. 7. THE ASSESSEE HAD CLAIMED TRAVELING & CONVEYANCE EXPENSES OF RS. 25,77,6145/-, WHICH WAS INCLUDED AN AMOUNT OF R S. 21,19,584/- TOWARDS FOREIGN TRAVEL BY THE DIRECTOR. ON BEING AS KED TO FURNISH THE DETAILS OF FOREIGN TRAVEL AND SUBSTANTIATE THAT THE SAID EXPENDITURE IS INCURRED FOR THE PURPOSE OF BUSINESS, ASSESSEE FURN ISHED THE BILLS FOR FOREIGN TRAVEL AND STATED THAT THE DIRECTOR HAD MAD E FOREIGN VISITS FOR EXPLORING THE MARKET AND IN SEARCH OF NEW BUSINESS OPPORTUNITIES. THE ASSESSING OFFICER HELD THAT THE ASSESSEE HAD FA ILED TO SUBSTANTIATE THAT THE FOREIGN TRAVEL IS FOR THE PUR POSE OF BUSINESS AND NOTHING HAD BEEN BROUGHT ON RECORD TO SHOW THAT THE TRIP WAS UNDERTAKEN TO EXPLORE FOREIGN MARKET AND TO SEARCH FOR NEW BUSINESS OPPORTUNITIES. SINCE THE EXPENDITURE WAS NOT INCURR ED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS, THE AMOUNT OF RS. 21,19,584/- WAS DISALLOWED BY THE ASSESSING OFFICER . ON APPEAL, THE CIT(A) CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICER BY OBSERVING AS UNDER:- 4.1.8. THUS, IT IS OBVIOUS THAT AS NO BILL OF FOREI GN EXCHANGE EXPENDITURE WAS PRODUCED (BILL IS ONLY FOR PURCHASE OF FOREIGN EXCHANGE), THE APPELLANT DID NOT DISCHARGE THE BASI C ONUS TO PROVE WHETHER THE EXPENDITURE WAS INCURRED FOR NOT THE SUM OF RS. 18.345 LAKHS PERTAINING TO FOREIGN EXCHANGE IS DISALLOWABLE FOR NON PRODUCTION OF EVIDENCE OF EXPENDITURE AS NO N-DISCLOSURE OF PURPOSE AS EXPLAINED AND ALSO FOR NO PROOF WHETHER THE EXPENDITURE IS ACTUALLY INCURRED OR NOT. THE EXPEND ITURE OF FOREIGN EXCHANGE WAS NOT FOR THE PURPOSE OF BUSINESS. IT IS OBVIOUS THAT THE TRAVEL EXPENDITURE WAS ALSO NOT FOR THE PURPOSE OF BUSINESS AND WAS PURELY PERSONAL AND DEFINITELY NOT WHOLLY A ND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. 8. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES AND PERUSED THE RECORD. WE FIND THAT SINCE THE ASSESSEE FAILED TO ITA NO. 3358/M/2010 SHUBHKAM STOCK & SHARES LTD. 4 SUBSTANTIATE FOREIGN TRAVEL CLAIM OF RS. 21,19,584/ - BY ITS DIRECTOR THAT THE EXPENDITURE IS WHOLLY INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS, THE REVENUE AUTHORITIES DISALL OWED THE CLAIM OF THE ASSESSEE. EVEN BEFORE US THE ASSESSEE FAILED TO SUBSTANTIATE THAT THE EXPENDITURE INCURRED FOR THE PURPOSE OF BUSINES S. THEREFORE, WE FIND NO INFIRMITY IN THE ORDER OF CIT(A) IN CONFIRM ING THE DISALLOWANCE OF EXPENDITURE OF RS. 21,19,584/- ON ACCOUNT OF FOR EIGN TRAVEL BY ASSESSING OFFICER. ACCORDINGLY, WE CONFIRM THE ORDE R OF CIT(A) IN THIS REGARD AND DISMISS THE GROUND RAISED BY THE ASSESSE E. 9. GROUND NO. 3 IS DIRECTED AGAINST THE DISALLOWANC E OF RS. 4,14,462/-. 10. OUT OF THE CLAIM OF TRAVELING & CONVEYANCE EXPE NSES OF RS. 25,77,614/-, AN AMOUNT OF RS. 4,14,462/- INCLUDED T OWARDS VISITS TO VARIOUS CITIES IN INDIA BY THE DIRECTORS AND OTHER PERSONS. SINCE THE ASSESSEE FAILED TO SUBSTANTIATE THE CLAIM THAT THE EXPENDITURE IS INCURRED FOR THE PURPOSE OF BUSINESS, THE ASSESSING OFFICER DISALLOWED THE SAID EXPENDITURE, WHICH WAS CONFIRMED BY THE CI T(A). 11. AFTER HEARING THE LEARNED REPRESENTATIVES OF TH E PARTIES AND PERUSING THE RECORD, THE DISALLOWANCE MADE BY THE R EVENUE AUTHORITIES IN THIS GROUND IS ALSO SIMILAR TO THE GROUND NO. 2 FOR THE REASON THAT THE ASSESSEE FAILED TO SUBSTANTIATE ITS CLAIM THAT THE EXPENDITURE INCURRED FOR THE PURPOSE OF BUSINESS. THEREFORE, IN THE SAME ANALOGY WE UPHOLD THE ORDER OF THE CIT(A) IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING THE CLAIM OF RS. 4 ,14,462/- ON ACCOUNT OF VISITS TO VARIOUS CITIES IN INDIA. EVEN BEFORE US, THE ASSESSEE FAILED TO SUBSTANTIATE THAT THE EXPENDITUR E INCURRED TO TRAVEL IN INDIA ALONG WITH VARIOUS PERSONS FOR THE PURPOSE OF THE BUSINESS. THUS, THIS GROUND OF APPEAL OF THE ASSESSEE IS ALSO DISMISSED. ITA NO. 3358/M/2010 SHUBHKAM STOCK & SHARES LTD. 5 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 20 TH MAY, 2011. SD/- SD/- (PRAMOD KUMAR) (V. DURG A RAO) ACCOUNTANT MEMBER JUDI CIAL MEMBER MUMBAI, DATED: 20 TH MAY, 2011 KV COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE, E BENCH, I.T .A.T., MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR, I.T.A.T., MUMBAI.