DR HARSHAD J. JARIWALA, MUMBAI V. ASST CIT RG 11(2), MUMBAI

ITA 3615/MUM/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8166 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 25-05-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: SANJAY N KAPADIAA
• Keywords: Earning of tax free income; Cost of acquisition
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I MUMBAI BEFORE SHRI C.N. PRASAD (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 3615/MUM/2016 ASSESSMENT YEAR: 2011 - 12 DR. HARSHAD J. JARIWALA MARWARI BUNGALOW, SILVER GOLD SOCIETY COMPOUND, SVP ROAD, BRIVALI (W) MUMBAI - 400092 VS. ACIT - 11(2) MUMBAI PAN NO. AA CPJ2896D APPELLANT RESPONDENT ASSESSEE BY : MR. SANJAY N. KAPADIAA, AR REVENUE BY : MR. SAURABH KUMAR RAI, DR DATE OF HEARING : 02/11 /2017 DATE OF PRONOUNCEMENT : 21/12/2017 ORDER PER N.K. PRADHAN, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE . THE RELEVANT ASSESSMENT YEAR IS 2011 - 12 . THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMIS SIONER OF INCOME TAX (APPEALS) - 5 , MUMBAI AND ARISES OUT OF THE ASSESSMENT ORDER U/S 143(3) OF THE INCOME TAX ACT 1961, (THE ACT). 2. THE 1 ST GROUND RAISED BY THE ASSESSEE IN THIS APPEAL IS AGAINST THE ORDER OF THE LD. CIT(A) CONFIR MING THE DISALLOWANCE OF RS.70,627/ - U/S 14A R.W. RULE 8D OF THE INCOME TAX RULES 1962, (THE RULES). 2.1 IN A NUTSHELL , THE FACTS OF THE CASE ARE THAT THE ASSESSEE HAS EARNED EXEMPT INCOME IN THE SHAPE OF DIVIDEND OF RS.4,84,427/ - DURING DR. HARSHAD J. JARIWALA ITA NO. 3615/MUM/2016 2 THE YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER (AO) ASKED THE ASSESSEE VIDE ORDER SHEET ENTRY DATED 03.02.2014 TO GIVE THE WORKING OF THE DI SALLOWANCE U/S 14A R.W. RULE 8D. THE ASSESSEE FILED A REPLY BEFORE HIM STATING THAT HE HAS MADE INVESTMENT OUT OF HIS PERSONAL ACCOUNT AND HAS NOT INCURRED ANY ADMINISTRATIVE EXPENSES TO EARN THE EXEMPT INCOME. HOWEVER, THE AO WAS NOT CONVINCED WITH THE SAID EXPLANATION OF THE ASSESSEE AND RELYING ON THE DECISION IN THE CASE OF CITICORP FINANCE (INDIA) LTD. (2007) 108 ITD 471 (MU M) , MADE A DISALLOWANCE OF RS.70,627/ - BY ESTIMATING 0.5% OF THE AVERAGE VALUE OF INVESTMENTS OF RS.1,41,25,475/ - . 2.2 AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS NOTED THAT DURING THE APPELLATE PROCEEDINGS BEFORE HIM, HE ASKED THE ASSESSEE TO SUBMIT A COPY OF PROFIT AND LOSS ACCOUNT. HOWEVER, THE ASSESSEE FAILED TO PRODUCE THE SAME. THEREFORE, HE UPHELD THE DISALLOWANCE OF RS.70,627/ - MADE BY THE AO. 2.3 BEFORE US, THE LD. COUNSEL OF THE ASSESS EE FILES A PAPER BOOK CONTAINING (I) BALANCE SHEET AND PROFIT AND LOSS ACCOUNT FOR THE AY 2011 - 12, (II) THE ORDER OF THE TRIBUNAL IN CASE OF JUSTICE SAM P. BHARUCHA V. ACIT (2012) 25 TAXMANN.COM 381 (MUM) AND AUCHTAL PRODUCTS LTD. VS. ACIT (2012) 22 TAXMAN N.COM 99 (MUM). 2.4 ON THE OTHER HAND, THE LD. DR RELIES ON THE ORDER OF THE LD. CIT(A). 2.5 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVAN T MATERIALS ON RECORD. THE FACT REMAINS THAT THE ASSESSEE HAS EARNED EXEMPT INCOME IN THE SHAPE OF DIVI DEND OF RS.4,84,427/ - DURING THE DR. HARSHAD J. JARIWALA ITA NO. 3615/MUM/2016 3 YEAR UNDER CONSIDERATION. IN GODREJ & BOYCE MFG. CO. LTD. VS. DY. CIT (2010) 194 TAXMAN 203 (BOM.) THE HON'BLE BOMBAY HIGH COURT HAS EXPLAINED RULE 8D(2)(III) AS UNDER : AS REGARD RULE 8D(2)(III), IT HAD BEEN SUBMITTED THAT SOME MECHANISM OR FORMULA HAD TO BE ADOPTED FOR ATTRIBUTING PART OF THE ADMINISTRATIVE / MANAGERIAL EXPENSES TO TAX - EXEMPT INVESTMENT INCOME. THE ADMINISTRATIVE EXPENSES ATTRIBUTABLE TO TAX - FREE INVESTMENT INCOME HAVE A FIXED COMPONENT AND A VARIABLE COMPONENT. A VIEW WAS TAKEN THAT THE DISALLOWANCE SHOULD ALSO BE LINKED TO THE VALUE OF THE INVESTMENT RATHER THAN THE AMOUNT OF EXEMPT INCOME. UNDER PORTFOLIO MANAGEMENT SCHEMES (PMS), THE FEE CHARGED RANGES BETWEEN 2 AND 2.5 PER CENT OF THE PORTFOLIO VALUE WHICH WOULD BE INCLUSIVE OF A PROFIT ELEMENT FOR THE PORTFOLIO MANAGER. WHILE THE FIXED ADMINISTRATIVE EXPENSES WERE EXCLUDED ON THE GROUND THAT IN THE CASE OF A LARGE CORPORATE TAXPAYER THEY WOULD BE SPREAD OVER A LARGE NUMBER OF VOLUMINOUS ACTIVITI ES, THE VARIABLE EXPENSES WERE COMPUTED AT ONE - HALF PER CENT OF THE VALUE OF THE INVESTMENT. 2.5.1 FOLLOWING THE ABOVE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT, WE UPHOLD THE DISALLOWANCE OF RS.70,627/ - MADE BY THE AO U/S 14A R.W. RULE 8D. AS THE ABOVE JUDGMENT IS APPLICABLE TO THE INSTANT CASE, WE ARE NOT ADVERTING TO THE ORDER OF THE TRIBUNAL RELIED ON BY THE LD. COUNSEL OF THE ASSESSEE. THUS THE 1 ST GROUND OF APPEAL IS DISMISSED. 3. THE 2 ND GROUND RAISED BY THE ASSESSEE IN TH IS APPEAL IS AGAINST THE ORDER OF THE LD. CIT(A) CONFIRMING THE DISALLOWANCE OF RS.10,02,288/ - CALCULATED @ 5% ON PURCHASE COST OF MEDICINE BY THE AO. 3.1 DURING THE COURSE OF ASSESSMENT PROCEEDINGS , THE AO ASKED THE ASSESSEE TO FILE THE DETAILS OF PURCHA SES OF RS.2,00,45,753/ - ALONG WITH DR. HARSHAD J. JARIWALA ITA NO. 3615/MUM/2016 4 SUPPORTING BILLS AND CONSUMPTION RECORD. THE ASSESSEE VIDE ORDER SHEET ENTRY DATED 03.02.2014 STATED BEFORE THE AO THAT NO CONSUMPTION RECORD OF MEDICINE WAS BEING KEPT. FOR THAT REASON , THE AO DISALLOWED 5% OF THE PURCHA SES OF RS.2,00,45,753/ - WHICH COMES TO RS.10,02,288/ - . 3.2 AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. C IT(A). AS THE ASSESSEE FAILED TO FILE BEFORE THE LD. CIT(A) ANY CONSUMPTION RECORD OR STOCK REGISTER, HE UPHELD THE D ISALLOWANCE OF RS.10,02,288/ - MADE BY THE AO. 3.3 BEFORE US, THE LD. COUNSEL OF THE ASSESSEE FILES A PAPER BOOK CONTAINING (I) TAX AUDIT REPORT FOR THE AY 2011 - 12 AND (II) THE ORDER OF THE TRIBUNAL D BENCH, KOLKATA IN THE CASE OF PIONEER HIMUDHYOG P. LT D. V. ACIT FOR THE AY 2011 - 12 (ITA NO. 338/KOL/2017) . 3.4 ON THE OTHER HAND, THE LD. DR SUPPORTS THE ORDER PASSED BY THE LD. CIT(A). 3.5 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. WE FIND THAT IN THE ASSESSMENT ORDER DATED 19.03.2014 PASSED U/S 143(3) , THE AO HAS MENTIONED AT PARA 2 THAT IN RESPONSE TO THE ABOVE SAID STATUTORY NOTICES, MR. ASHOK SETH, AUTHORIZED REPRESENTATIVE OF THE ASSESSEE ATTENDED FROM TIME TO TIME AND FURNISHED THE NECESSARY DETAILS CALLED FOR A ND THE CASE WAS DISCUSSED WITH HIM. IN VIEW OF THE ABOVE, THERE WAS NO GROUND BEFORE THE AO TO DISALLOW 5% OF THE PURCHASES ON THE ARGUMENT THAT THE ASSESSEE FAILED TO FILE THE DETAILS. BEFORE ESTIMATING SUCH DISALLOWANCE, THE AO HAS NOT REJECTED THE BO OKS OF ACCOUNTS. AS THE SAID DISALLOWANCE IS MADE ON DR. HARSHAD J. JARIWALA ITA NO. 3615/MUM/2016 5 PRESUMPTION, WE DELETE THE AMOUNT OF RS.10,02,288/ - ADDED BY THE AO. THUS THE 2 ND GROUND OF APPEAL IS ALLOWED. 4. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21/12/2017. SD/ - SD/ - (C.N. PRASAD) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 21/12/2017 RAHUL SHARMA, SR. P.S. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI