GOYAL GUMS PRIVATE LIMITED, JAIPUR V. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-2, JAIPUR

ITA 341/JPR/2019

• Counselvise Citation: [2019] 113 COUNSELVISE.COM (IT) 6362 (ITAT-JAIPUR)
• Duration Of Justice: 8 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-11-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2015-2016
• Appeal Filed On: 13-03-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Earning of tax free income; Rule 8D
• Section: 10; 14A

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCH B, JAIPUR JH FOT; IKY JKWO] U;KF;D LNL; ,O A JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM VK;DJ VIHY LA- @ ITA NO. 340 & 341/JP/2019 FU/KZKJ.K O'K Z @ ASSESSMENT YEARS : 2014-15 & 15-16. M/S. GOYAL GUMS PVT. LTD., C/O SHAH SURENDRA & ASSOCIATES, CHARTERED ACCOUNTANTS, 208, ANUKAMPA II, M.I. ROAD, JAIPUR. CUKE VS. THE DCIT, CIRCLE-2, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO. AABCG 4887 H VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI SURENDRA SHAH (CA) JKTLO DH VKSJ LS@ REVENUE BY : SMT. RUNI PAL (JCIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 14.11.2019. ?KKS'K .KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 15/11.2019. VKNS'K@ ORDER PER VIJAY PAL RAO, J.M. THESE TWO APPEALS BY THE ASSESSEE ARE DIRECTED AGA INST TWO SEPARATE ORDERS OF LD. CIT (A) BOTH DATED 18.01.2019 FOR THE ASSESS MENT YEARS 2014-15 AND 2015-16 RESPECTIVELY. THE ASSESSEE HAS RAISED COMMON GROUN DS IN THESE APPEALS. GROUNDS RAISED FOR THE ASSESSMENT YEAR 2014-15 ARE AS UNDER :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE COMMISSIONER (APPEALS) ER5RED IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER IN DISALLOWING AN AMOUNT OF R S. 804982/- AS PER THE PROVISIONS OF SECTION 14A READ WITH RULE 8D WITHOUT APPRECIATING THE FACT THAT THE APPELLANT HAD NOT IN CURRED ANY 2 ITA NOS. 340 & 341/JP/2019 M/S. GOYAL GUMS PVT. LTD., JAIPUR. EXPENDITURE DIRECTLY OR INDIRECTLY FOR THE PURPOSE OF EARNING SUCH EXEMPT INCOME. 1.1. THAT LD. CIT (A) HAS FURTHER ERRED IN CONFIRMING TH E ADDITION MADE BY LD. AO BY COMPLETELY DISREGARDING THE SUBMI SSIONS MADE IN SUPPORT OF CONTENTION THAT THE LD. AO DID N OT RECORD ANY SATISFACTION FOR INVOKING THE PROVISIONS OF SECTION 14A READ WITH RULE 8D. 2. THAT THE APPELLANT CRAVES THE RIGHT TO ADD, DELE TE, AMEND OR ABANDON THE GROUND OF THIS APPEAL AT THE TIME OR BE FORE THE ACTUAL HEARING OF THE CASE. THE SOLITARY COMMON ISSUE RAISED BY THE ASSESSEE IN THESE APPEALS IS REGARDING DISALLOWANCE MADE BY THE AO UNDER SECTION 14A OF THE IT ACT ON ACCOUNT OF ADMINISTRATIVE EXPENSES UNDER RULE 8D(2) (III) OF THE I.T. RULES BEING 1% OF THE AVERAGE INVESTMENT. 2. THE ASSESSEE IS A PRIVATE LIMITED COMPANY AND EN GAGED IN THE TRADING OF COMMODITIES AND COMMODITY DERIVATIVES. THE ASSESSE E HAS ALSO MADE INVESTMENT IN SHARES OF LISTED AND UNLISTED COMPANIES AS WELL AS INVESTMENT IN MUTUAL FUNDS. THE AO NOTED THAT THE ASSESSEE COMPANY HAS EARNED DIVID END ON THE SHARES TO THE TUNE OF RS. 3,33,276/- AND DIVIDEND FROM MUTUAL FUNDS OF RS. 97,55,794/-. THUS THE TOTAL EXEMPT INCOME EARNED BY THE ASSESSEE DURING THE ASS ESSMENT YEAR 2014-15 IS MORE THAN RS. 1 CRORE. SIMILARLY, FOR THE ASSESSMENT YE AR 2015-16 THE DIVIDEND INCOME ON SHARES AS WELL AS FROM MUTUAL FUNDS IS ABOUT RS. 12 ,50,000/-. THE AO MADE A DISALLOWANCE OF RS. 8,04,982/- FOR THE ASSESSMENT Y EAR 2014-15 AND RS. 6,19,202/- FOR THE ASSESSMENT YEAR 2015-16. THE ASSESSEE CHAL LENGED THE ACTION OF THE AO BEFORE THE LD. CIT (A) BUT COULD NOT SUCCEED. 3 ITA NOS. 340 & 341/JP/2019 M/S. GOYAL GUMS PVT. LTD., JAIPUR. 3. BEFORE THE TRIBUNAL, THE LD. A/R OF THE ASSESSEE HAS SUBMITTED THAT ALL THE EXPENSES INCURRED AND CLAIMED BY THE ASSESSEE ARE I N RESPECT OF BUSINESS OF TRADING OF COMMODITIES AND COMMODITY DERIVATIVES AND NO ADM INISTRATIVE EXPENSES HAVE BEEN INCURRED FOR EARNING THE EXEMPT INCOME. HE HAS REFERRED TO THE EXPENSES BOOKED TO THE PROFIT & LOSS ACCOUNT AND SUBMITTED T HAT ALL THESE EXPENSES HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOS E OF BUSINESS AND NOT FOR EARNING THE BUSINESS INCOME. THE INVESTMENT MADE IN THE MU TUAL FUNDS AND SHARES FOR WHICH NO ADMINISTRATIVE OR OTHER EXPENSES ARE REQUI RED TO BE INCURRED. HE HAS FURTHER SUBMITTED THAT THE INVESTMENT IN THE SHARES WERE MADE IN THE EARLIER YEARS AND, THEREFORE, EVEN OTHERWISE WHEN NO INVESTMENT W AS MADE DURING THE YEAR UNDER CONSIDERATION THEN NO DISALLOWANCE CAN BE CALLED FO R IN RESPECT OF THE DIVIDEND INCOME FROM THE SHARES. THUS THE LD. A/R HAS SUBMI TTED THAT THE REDEMPTION PROCEEDS OF DIVIDEND ARE DIRECTLY CREDITED TO THE B ANK ACCOUNT AND NO EXPENSES HAVE BEEN INCURRED FOR EARNING THE EXEMPT INCOME AND CON SEQUENTLY NO DISALLOWANCE IS CALLED FOR UNDER SECTION 14A OF THE IT ACT. HE HA S FURTHER CONTENDED THAT THE AO HAS ALSO NOT RECORDED HIS SATISFACTION WHILE MAKING THE DISALLOWANCE UNDER SECTION 14A. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UP ON THE JUDGMENT OF HONBLE PUNJAB & HARYANA HIGH COURT IN CASE OF CIT VS. HERO CYCLES, 311 ITR 349 (P&H) AS WELL AS JUDGMENT OF HONBLE SUPREME COURT IN CASE O F MAXOPP INVESTMENT LTD. VS. CIT, 402 ITR 640 (SC). 4. ON THE OTHER HAND, THE LD. D/R HAS SUBMITTED THA T THE ASSESSEE IS A COMPANY AND THE DECISION TO MAKE HUGE INVESTMENT IN SHARES AND MUTUAL FUNDS REQUIRE A DECISION MAKING PROCESS TO BE UNDERTAKEN AT THE HIG HEST LEVEL OF THE MANAGEMENT 4 ITA NOS. 340 & 341/JP/2019 M/S. GOYAL GUMS PVT. LTD., JAIPUR. AND, THEREFORE, IT CANNOT BE SAID THAT THE ASSESSEE HAS INCURRED ANY EXPENDITURE IN RESPECT OF INVESTMENT MADE IN THE SHARES AND MUTUAL FUNDS AND CONSEQUENTLY NO DISALLOWANCE CAN BE MADE UNDER SECTION 14A. THE AO HAS RECORDED HIS SATISFACTION IN THE ASSESSMENT ORDER AND MENTIONED THAT THE ASSE SSEE HAS MADE HUGE INVESTMENT AND EARNED EXEMPT INCOME UNDER SECTION 1 0 OF THE IT ACT. ACCORDINGLY, THE ASSESSEE WAS REQUIRED TO SUBMIT JUSTIFICATION A S TO WHY APPROPRIATE DISALLOWANCE MAY NOT BE MADE UNDER SECTION 14A. AFTER CONSIDERIN G THE CONTENTION OF THE ASSESSEE, THE AO HAS TAKEN A DECISION TO DISALLOW A DMINISTRATIVE EXPENSES UNDER SECTION 14A READ WITH RULE 8D(2) OF THE IT RULES. T HUS THE AO HAS DULY CONSIDERED THE CONTENTION OF THE ASSESSEE AND CONSEQUENTLY NO DISALLOWANCE WAS MADE ON ACCOUNT OF INTEREST EXPENSES. SHE HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. THERE IS NO DISPUTE ON THE SETTLED PROPOSI TION THAT IF THE ASSESSEE HAS CLAIMED THAT NO EXPENDITURE IS INCURRED FOR EARNING THE EXEMPT INCOME, THEN THE AO IS REQUIRED TO RECORD HIS REASONS TO REJECT THE CLA IM OF THE ASSESSEE BEFORE MAKING THE DISALLOWANCE OF EXPENDITURE UNDER SECTION 14A O F THE ACT. IN THE CASE IN HAND, WHEN THE ASSESSEE HAS MADE HUGE INVESTMENT OF MORE THAN RS. 16 CRORE IN SHARES AND MUTUAL FUNDS, THEN SUCH INVESTMENT IN CASE OF A COMPANY CANNOT BE MADE WITHOUT INVOLVEMENT OF THE MANAGEMENT MACHINERY AT HIGHEST LEVEL. THE LD. A/R HAS NOT DISPUTED THAT THE DECISION FOR MAKING THE INVES TMENT IS TAKEN AT THE LEVEL OF THE DIRECTORS OF THE ASSESSEE COMPANY. THEREFORE, THE CONTENTION OF THE ASSESSEE THAT ASSESSEE HAS NOT INCURRED ANY EXPENDITURE WHICH CAN BE APPORTIONED UNDER SECTION 5 ITA NOS. 340 & 341/JP/2019 M/S. GOYAL GUMS PVT. LTD., JAIPUR. 14A OF THE ACT IS NOT ACCEPTABLE. NO DOUBT THAT TH ERE IS NO DIRECT EXPENDITURE INCURRED BY THE ASSESSEE FOR MAKING THE INVESTMENT AS WELL AS EARNING THE DIVIDEND INCOME, HOWEVER, ONCE THE INVESTMENT OF THIS HUGE A MOUNT IS MADE AS PER THE DECISION TAKEN AT THE BOARD OF DIRECTORS LEVEL, THE N THE EXPENDITURE INCURRED BY THE ASSESSEE TOWARDS THE FUNCTIONING OF THE BOARD OF DI RECTORS OF THE COMPANY IS FALLING IN THE CATEGORY OF THE EXPENDITURE WHICH HAS BEEN M ADE FOR THE COMPOSITE ACTIVITY OF THE ASSESSEE COMPANY RESULTING TAXABLE AS WELL A S TAX FREE INCOME. THUS THE SAID CONTENTION OF THE ASSESSEE IS DEVOID OF ANY MERIT A ND SUBSTANCE. THE DECISIONS RELIED UPON BY THE ASSESSEE ARE SPECIFIC ON THE POI NT WHERE THE ASSESSEE MADE A SUO MOTO DISALLOWANCE UNDER SECTION 14A OF THE IT ACT A ND THE AO WITHOUT GIVING ANY REASON TO REJECT SUCH SUO MOTO DISALLOWANCE MADE FU RTHER DISALLOWANCES AND IN SUCH A SITUATION THE DISALLOWANCE MADE BY THE AO IN THOS E CASES WERE NOT FOUND TO BE IN ACCORDANCE WITH THE PROVISIONS OF LAW. IN THE CASE IN HAND, THE ASSESSEE HAS NOT MADE ANY DISALLOWANCE UNDER SECTION 14A FOR EARNING THE EXEMPT INCOME OF ABOUT RS. 1CRORE FOR THE ASSESSMENT YEAR 2014-15 AND ABOU T RS. 12,50,000/- FOR THE ASSESSMENT YEAR 2015-16. THE DETAILS OF THE EXPEND ITURE ON ACCOUNT OF SALARIES TO THE DIRECTORS FOR THE ASSESSMENT YEAR 2014-15 IS RS . 2,40,000/- AND FOR THE ASSESSMENT YEAR 2015-16 IS RS. 3,00,000/-. THEREFOR E, HAVING REGARD TO THE FACTS AND CIRCUMSTANCES, WE ARE OF THE CONSIDERED VIEW TH AT THE DISALLOWANCE UNDER SECTION 14A CANNOT BE MORE THAN THE ACTUAL CLAIM OF THE EXPENDITURE DEBITED TO PROFIT & LOSS ACCOUNT WHICH CAN BE ATTRIBUTED TO TH E EARNING OF EXEMPTED INCOME. THEREFORE, WE RESTRICT THE DISALLOWANCE UNDER SECTI ON 14A TO THE SALARY PAID TO THE 6 ITA NOS. 340 & 341/JP/2019 M/S. GOYAL GUMS PVT. LTD., JAIPUR. DIRECTORS OF RS. 2,40,000/- FOR THE ASSESSMENT YEAR 2014-15 AND RS. 3,00,000/- FOR THE ASSESSMENT YEAR 2015-16. 6. IN THE RESULT, APPEALS OF THE ASSESSEE ARE PARTL Y ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 15/11/2019 . SD/- SD/- FOE FLAG ;KNO FOT; IKY JKWO (VIKRAM SINGH YADAV) (VIJAY PAL RAO) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 15/11/2019. DAS/ VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- M/S. GOYAL GUMS PVT. LTD., JAIPUR. 2. IZR;FKHZ@ THE RESPONDENT-THE DCIT, CIRCLE-2, JAIPUR. 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE {ITA NO. 340 & 341 JP/2019} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR