MADHAV PRASAD AGGARWAL, MUMBAI V. ASST CIT CIR 18(2), MUMBAI

ITA 3694/MUM/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4215 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 10 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-04-2016
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 19-02-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 09-05-2013
• Court: TRIBUNAL
• Assessee Lawyers: SHANKARLAL JAIN
• Keywords: Depreciation; Business expenditure; Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUM BAI BEFORE SHRI R.C. SHARMA, AM AND SHRI MAHAVIR SINGH, JM ITA NO. 3694/MUM/2013 (ASSESSMENT YEAR: 2008-09) SHRI MADHAV PRASAD AGGARWAL C/O, SHANKARLAL JAIN & ASSOCIATES, 12, ENGINEER BUILDING, 265, PRINCESS STREET, MUMBAI-400 002. (PAN:AABPA6137H) VS. ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-18(2), PIRAMAL CHAMBERS, MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SHANKARLAL JAIN, AR RESPONDENT BY : SHRI SANJEEV JAIN (DR) DATE OF HEARING: 31.03.2016 DATE OF PRONOUNCEMENT: 07.04.2016 O R D E R PER MAHAVIR SINGH, JM: THIS APPEAL BY ASSESSEE IS DIRECTED AGAINST THE ORD ER OF CIT(A)-16, MUMBAI IN APPEAL NO. CIT(A)-16/ACIT-18(2)/IT-425/2010-11 VIDE ORDER DATED 11.02.2013. ASSESSMENT WAS FRAMED BY ACIT-18(2), MUMBAI U/S. 14 3(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) FO R AY 2008-09 VIDE HIS ORDER DATED NIL. 2. THE FIRST ISSUE IN THIS APPEAL OF ASSESSEE IS AGAIN ST THE ORDER OF CIT(A) IN CONFIRMING THE DISALLOWANCE MADE BY AO U/S. 14A OF THE ACT READ WITH RULE 8D OF THE I.T. RULES, 1962 (HEREINAFTER REFERRED TO AS TH E RULES) IN RESPECT TO THE CLAIM OF EXEMPT INCOME I.E. THE EXPENSES OF RS.7,49,546/- . 3. BRIEFLY STATED FACTS ARE THAT THE AO NOTICED FROM T HE BALANCE SHEET OF THE ASSESSEE FOR THE YEAR ENDING 31.03.2008 I.E. FOR TH E RELEVANT ASST. YEAR 2008-09 THAT THE ASSESSEE HAS MADE INVESTMENT IN SHARES, MU TUAL FUNDS, BONDS AND PARTNERSHIP FIRM ETC. WHICH COMES TO RS.15,98,98,93 8/- EXCLUDING INVESTMENT IN PROPRIETARY CONCERN AND POST OFFICE MIS. THE AO AL SO NOTICED THAT THE ASSESSEE HAS CLAIMED SEVERAL INDIRECT EXPENSES SUCH AS SALAR Y PAID, STAFF WELFARE EXPENSES, 2 ITA NO. 3694/MUM/2013 MADHAV PRASAD AGGARWAL ASST. YEAR 2008-09 MISCELLANEOUS EXPENSES, MOTOR CAR EXPENSES, DEPRECI ATION ON MOTOR CAR, TELEPHONE/MOBILE CHARGES, BANK CHARGES, AUDITORS R EMUNERATION, PROFESSIONAL CHARGES, TRAVELLING CHARGES ETC. AND DEBITED THE SA ME TO P&L ACCOUNT. ACCORDING TO AO, THE ENTIRE EXPENDITURE CANNOT BE CONSIDERED TO BE INCURRED EXCLUSIVELY FOR BUSINESS ACTIVITY. ACCORDING TO AO, THE FOLLOWING INCOMES DO NOT FORM PART OF TOTAL INCOME AND HENCE, ASSESSEE WAS ASKED TO EXPLA IN AS TO WHY DISALLOWANCE OF EXPENSES RELATING TO EXEMPT INCOME COULD NOT BE MAD E BY INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES. THE ASSESSEE EXPLAINED THAT NO EXPENSES HAVE BEEN CLAIMED BY THE ASSESSEE OTHER THAN DIRECTLY RELATED TO BUSINESS EXPENSES IN ITS PROPRIETARY CONCERN IS REL ATABLE TO EXEMPT INCOME AND HENCE, NO EXPENDITURE CAN BE DISALLOWED UNDER RULE 8D OF THE RULES TOWARDS EARNING OF THE ABOVE EXEMPTED INCOME. THE AO BY TA KING AVERAGE VALUE OF THE INVESTMENT, DISALLOWED 0.5% WHICH COMES TO RS.7,49, 546/- U/S. 14A OF THE ACT READ WITH RULE 8D OF THE I. T. RULES. AGGRIEVED, A SSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO ALSO CONFIRMED THE ACTION OF AO. AGGRI EVED, NOW ASSESSEE IS IN SECOND APPEAL BEFORE TRIBUNAL. 4. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FA CTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE INVEST MENT INCLUDES QUOTED SHARES OF RS.96.11 LACS, UNQUOTED SHARES OF RS.80.41 LACS AND BONDS AND OTHER INVESTMENT INCLUDING POST OFFICE MIS OF RS.1157.77 LACS. IT H AS ALSO MADE INVESTMENT IN PARTNERSHIP AT RS.264.68 LACS, WHICH INCLUDES GOVT. OF INDIA BONDS OF RS.64.44 LACS, LICI BIMA NIVESH OF RS.76.14 LACS, LICI JEEVA NSHREE RS.998.56 LACS AND GOVT. OF INDIA BONDS RS.9.91 LACS. WE FIND THAT WH ILE CALCULATING DISALLOWANCE UNDER RULE 8D OF THE RULES ONLY DISALLOWANCE CAN BE MADE WHICH IS EXPENSES DIRECTLY RELATABLE TO EXEMPT INCOME QUA THAT THERE IS NO FINDING AND THE AO HAS TAKEN THE ENTIRE INVESTMENT WHILE MAKING DISALLOWAN CE. IN VIEW OF THESE FACTS, WE ARE OF THE VIEW THAT THIS ISSUE NEED RECONSIDERATIO N BY THE AO IN RESPECT TO DISALLOWANCE U/S. 14A OF THE ACT READ WITH RULE 8D OF THE RULES REGARDING EXEMPTED INCOME LIKE INTEREST ON PPF, POST OFFICE D EPOSITS, DIVIDEND INCOME ETC. WHICH ARE DERIVED FROM OLD INVESTMENTS AND IS WITHO UT ANY EXPENDITURE RELATABLE TO THESE EXEMPT INCOMES. ACCORDINGLY, THIS ISSUE O F ASSESSEES APPEAL IS REMITTED 3 ITA NO. 3694/MUM/2013 MADHAV PRASAD AGGARWAL ASST. YEAR 2008-09 BACK TO THE FILE OF THE AO FOR FRESH ADJUDICATION I N TERM OF THE ABOVE. THIS ISSUE OF ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOS ES. 5. THE NEXT COMMON ISSUE IS IN RESPECT TO AD HOC DISAL LOWANCE OF TELEPHONE EXPENSES AND MOTOR CAR EXPENSES. 6. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH FA CTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ASSESSE E HAS INCURRED TELEPHONE EXPENSES OF RS.5,12,728/- OUT OF WHICH HE INCURRED EXPENSES TO THE TUNE OF RS.93,293/- IN RESPECT TO TELEPHONE INSTALLED AT RE SIDENCE WHICH INCLUDES MOBILE EXPENSES. THE AO DISALLOWED 20% OF THE TELEPHONE E XPENSES AMOUNTING TO RS.51,272/- AS PERSONAL IN NATURE. THE CIT(A) HAS A LSO CONFIRMED THE SAME. LD. COUNSEL FOR THE ASSESSEE BEFORE US FILED COPIES OF TRIBUNALS ORDER IN ASSESSEES OWN CASE FOR AY 2006-07 IN ITA NO. 2124/MUM/2012 DA TED 08.12.2015, WHEREIN THE TRIBUNAL HAS RESTRICTED THE DISALLOWANCE AT 10% . WE ALSO RESTRICT AT 10% IN THIS YEAR AND DIRECT THE AO ACCORDINGLY. 7. IN REGARD TO DISALLOWANCE OF MOTOR CAR EXPENSES THE ASSESSEE HAS INCURRED EXPENSES OF MOTOR CAR AND DEBITED TO THE P &L ACCOUNT AMOUNTING TO RS.1,47,214/- AND ALSO CLAIMED DEPRECIATION AT RS.1 ,21,779/- I.E. THE TOTAL EXPENDITURE OF RS.9,68,993/-. THE AO DISALLOWED 10 % AT RS.96,899/- AND CIT(A) CONFIRMED THE SAME. WE FIND NO INFIRMITY IN THE OR DER OF CIT(A). HENCE, THE SAME IS CONFIRMED. THIS GROUND OF APPEAL OF ASSESSEE IS PARTLY ALLOWED. 8. IN THE RESULT, APPEAL OF ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 7TH APRIL, 2016. SD/- SD/- (R.C. SHARMA) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 7TH APRIL, 2016 JD. SR. P.S. 4 ITA NO. 3694/MUM/2013 MADHAV PRASAD AGGARWAL ASST. YEAR 2008-09 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. CIT(A) -16, MUMBAI 4. CIT- , MUMBAI 5. DR, B BENCH ITAT, MUMBAI 6. GUARD FILE. BY ORDER //TRUE COPY// (ASSTT. REGISTRAR) ITAT, MUMBAI