RAVINDRA J GOKUL, MUMBAI V. DCIT 12(3), MUMBAI

ITA 3917/MUM/2012

• Counselvise Citation: 391719914 RSA 2012
• Duration Of Justice: 2 year(s) 7 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-01-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 29-12-2014
• Assessment Year: 2004-2005
• Appeal Filed On: 04-06-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S D SRIVASTAVA; AKHILENDRA YADAV
• Assessee Lawyers: S C TIWARI; NATASHA MANGAT
• Keywords: Depreciation; Earning of tax free income
• Section: 14A

Judgement Text

, MH MHMH MH INCOME TAX APPELLATE TRIBUNAL,MUMBAI - D BENCH , ! ' ' ' ' #$ , # ! BEFORE S/SH.JOGINDER SINGH, JUDICIAL MEM BER & RAJENDRA,ACCOUNTANT MEMBER /. ITA NO.3917/MUM/2012, % % % % & & & & / ASSESSMENT YEAR-2004-05 RAVINDRA J. GOKAL, KASTURI BUILDING, 2ND FLOOR, 171- 172, JAMSHEDJI TATA ROAD, MUMBAI-400020 PAN: AADPG0702G % VS. DCIT, 12(3), MUMBAI-400020 ( '( / APPELLANT) ( )*'( / RESPONDENT) % +, % +, % +, % +, - - - - # ## # / ASSESSEE BY : SHRI S.C. TIWARI & MS. NATASHA MANGAT ! . - # / REVENUE BY : SHRI AKHILENDRA YADAV & SHRI S.D.SRIVASTAVA % % % % . .. . , / , / , / , / / DATE OF HEARING :29 -12-2014 0& . , / / DATE OF PRONOUNCEMENT :09 -01-2015 % % % % , 1961 . .. . 254(1) # ## # ,, ,, ,, ,, #1 #1 #1 #1 ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, A.M. # ! #$ # % : CHALLENGING THE ORDER DTD. 30.03.2012 OF THE CIT(A) -23,MUMBAI THE ASSESSEE HAS FILED FOLLOWING GROUNDS OF APPEAL: 1.THE LEARNED CIT (A) ERRED IN NOT ALLOWING THE EXP ENSES OF RS. 29,11,853/- IN FULL. 2.YOUR APPELLANT SUBMIT THAT THE EXPENSES INCURRED BY YOUR APPELLANT IS FOR THE PURPOSE OF BUSINESS. AND AS SUCH THE CIT (A) OUGHT TO HAVE ALL OWED THE SAME IN FULL. THE EXPENSES OF RS. 29,11,853/- IS ON ACCOUNT OF BANK CHARGES, LEGAL AN D PROFESSIONAL CHARGES, SECURITY CHARGES, CAR EXPENSES AND CAR DEPRECIATION WHICH THE LEARNED CIT (A) OUGHT TO HAVE ALLOWED THE SAME IN FULL. 3.YOUR APPELLANT THEREFORE SUBMIT THAT THE EXPENSES OF RS. 29,11,853/-INCURRED BY YOUR APPELLANT FOR PURPOSES OF BUSINESS BE ALLOWED IN FULL. 4.YOUR APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND, WITHDRAW OR SUBSTITUTE ALL OF ANY OF THE GROUNDS OF APPEAL AS THE CIRCUMSTANCES OF THE APPEA L MAY REQUIRE. 2. EFFECTIVE GROUND OF APPEAL RELATES TO DISALLOWING E XPENDITURE OF RS.29,11,853/-.THE ASSESSEE AN INDIVIDUAL,DERIVES INCOME FROM INTEREST,CAPITAL GAI NS AND SHARE OF PROFIT FROM FIRMS. THE ASSESSEE FILED HIS RETURN OF INCOME,ON 01.11.2004 DECLARING TOTAL INCOME OF RS.50,53,898/- EXCLUDING LONG TERM CAPITAL GAINS.DURING THE ASSESSMENT PROCEEDING S,THE ASSESSING OFFICER (AO)FOUND THAT THE ASSESSEE HAD CLAIMED EXPENSES AMOUNTING TO RS. 53.4 5 LAKHS AGAINST THE DECLARED INCOME.HE COMPLETED THE ASSESSMENT IN WHICH AN ADDITION OF RS . 31,91,126/- WAS MADE.AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREFERRED AN APPEAL B EFORE THE FIRST APPELLATE AUTHORITY(FAA)WHO RESTRICTED THE DISALLOWANCE OF RS. 3,19,013/-.THE A SSESSEE DID NOT CONTEST THE ISSUE BEFORE THE TRIBUNAL.HOWEVER,ON AN APPEAL BY THE AO,THE TRIBUNA L,VIDE ITS ORDER DATED 05.08.2009(ITA64/ MUM/2008),RESTORED BACK THE MATTER TO THE FILE OF T HE AO FOR THE PURPOSE OF ASCERTAINING DISALLOW -ANCE U/S.14A OF THE ACT IN ACCORDANCE WITH LAW. 3. DURING THE SECOND ROUND OF ASSESSMENT PROCEEDINGS,T HE AO FOUND THAT THE MAJOR EXPENSES CLAIMED BY THE ASSESSEE WERE UNDER THE HEADS INTERE ST,CAR-EXPENSES,DEPRECIATION,LEGAL-FEES,BANK- CHARGES,DEMAT-CHARGES ETC.,AMOUNTING TO RS. 31.91 L AKHS.AFTER PERUSAL OF THE DETAILS FILED,HE HELD THAT CLAIM OF THE ASSESSEE TO RESTRICT THE DISALLOW ANCE AT VERY LOW FIGURE WAS NOT ACCEPTABLE,THAT HE WAS DERIVING MAJOR INCOME FROM TWO FIRMS BY WAY OF SHARE OF PROFIT,THAT DEMAT CHARGES, BANK 2 ITA NO. 3917/M/2012 RAVINDRA J. GOKAL CHARGES WERE DIRECTLY LINKED TO THE CAPITAL GAINS,T HAT SAME WERE TO BE ALLOWED,THAT BANK CHARGES, SECURITY CHARGES,CAR EXPENSES,CAR DEPRECIATION ETC WERE NOT ALLOWABLE AS PER THE RATIO OF GODREJ & BOYCE MFG.CO. LTD. DELIVERED BY THE BOMBAY HIGH COU RT. HE MADE A DISALLOWANCE OF RS.29.11 LAKHS AND ALLOWED EXPENDITURE OF RS. 2.78 LAKHS. 4. IN THE APPELLATE PROCEEDINGS IT WAS ARGUED THAT SEC TION 14A OF THE ACT WAS NOT APPLICABLE DURING THE YEAR UNDER CONSIDERATION.THE FAA HELD THAT HON' BLE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG.CO.LTD.(SUPRA) HAD AFFIRMED THE VIEW THAT DIVIDEND INCOME WOULD COME UNDER THE PURVIEW OF SECTION 14A, THAT THE ASSESSEE HAD MADE SEVERAL INVESTMENTS IN SHARES, THAT EXPENSES HAD BEEN INCURRED ON MAKING AND MANAGING T HE INVESTMENTS, THAT THE DIVIDEND HAD ARISEN OUT OF INVESTMENT WHICH WERE EXEMPT, THAT TH ERE WERE EXPENSES INDIRECTLY USED FOR EARNING NON-TAXABLE INCOME EVEN IF NO DIRECT EXPENSES WERE BOOKED, THAT IN THE CASE OF D.M.POPAT (ITA 7534/MUM/2004)THE BOMBAY TRIBUNAL HAD HELD THAT PRO FITS IN THE BANKS OF PARTNERS FELL WITHIN THE PURVIEW OF SECTION 14A,THAT THE TAXABLE EXPENDITURE INCURRED TOWARDS TAXABLE AND TAX FREE INCOME REQUIRED APPORTIONMENT OF EXPENDITURE BETWEEN TAXAB LE AND NON-TAXABLE INCOME, THAT EXPENSES HAD TO BE APPORTIONED TOWARDS EARNING OF TAX FREE I NCOME (DIVIDEND, CAPITAL GAINS AND SHARES FROM PARTNERSHIP FIRMS),THAT THE AO HAD ALLOWED THE CLAI M OF EXPENSES FOR DEMAT CHARGES AND BANK CHARGES, THAT REMAINING EXPENSES OF RS. 29.11 LAKHS COMPRISED OF BANK CHARGES, LEGAL AND PROFESSIONAL CHARGES,SECURITY CHARGES, CAR EXPENSES AND CAR DEPRECIATION, THAT THE AO HAD NOT ALLOWED THEM AS ALLOWABLE EXPENDITURE,THAT THE ASSE SSEE HAD NOT SHOWN AS TO HOW ANY OF THOSE EXPENSES WERE LINKED TO EITHER EXEMPT AND NON-EXEMP T INCOME, THAT EXPENSES BEING OF INDIRECT NATURE HAD TO BE APPORTIONED.THE FAA DIRECTED THE A O TO WORK OUT THE DISALLOWANCE ON A REASONABLE BASIS.IT WAS ALSO STATED THAT THE DISALL OWANCE WOULD BE MADE IN THE SAME RATIO HAD TAXABLE INCOME AND NON-TAXABLE INCOME. 5. BEFORE US,THE AUTHORISED REPRESENTATIVE (AR) STATED THAT DISALLOWANCE MADE BY THE AO WAS NOT JUSTIFIABLE,THAT THE ORDER OF THE FAA DELIVERED DUR ING FIRST ROUND OF APPELLATE PROCEEDINGS SHOULD BE UPHELD, THAT THE ASSESSEE HIMSELF HAD DISALLOWED SUBSTANTIAL EXPENDITURE IN THE CAPITAL ACCOUNT, THAT HE HAD USED HIS OWN FUNDS AND THE BORROWED FUN DS WERE RELATIVELY SMALL, THAT THE AO HAD ERRED IN TREATING THE STOCK-IN-TRADE HELD BY THE AS SESSEE AS INVESTMENT,THAT HE HAD EARNED CONSIDER -ED INCOME FROM INTEREST ALSO,THAT THERE COULD NOT BE COMPLET DISALLOWANCE OF ENTIRE EXPENDITURE OTHER THAN THE DEMAT CHARGES AND BANK CHARGES AS AT TRIBUTABLE TO EARNING OF EXEMPT INCOME.HE RELIED UPON THE JUDGMENT OF K. RAHEJA CORPORATION P . LTD. (ITA NO. 1260 OF 2009) DELIVERED BY THE HON'BLE BOMBAY HIGH COURT ON 8TH AUGUST 2011.DE PARTMENTAL REPRESENTATIVE(DR) SUPPORTED THE ORDER OF THE FAA AND ARGUED THAT FAA HAD MADE A REASONABLE DISALLOWANCE, THAT ASSESSEE HAD EARNED SUBSTANTIAL TAX FREE INCOME. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.IT IS THE SECOND ROUND OF LITIGATION AND THE ISSUED OF DISALLOWANCE TO BE MAD E U/S.14A OF THE ACT IS STILL UNRESOLVED.IN THE FIRST GROUND, THE FAA HAD RETAINED DISALLOWANCE OF RS. 3.07 LAKHS OUT OF THE TOTAL DISALLOWANCE OF RS.31.91 LAKHS,WHEREAS THIS TIME THE FAA HAD GIVEN A FORMULA TO MAKE DISALLOWANCE. ON A QUERY BY THE BENCH, IT WAS STATED THAT THE AO HAD PASSED AN ORDER GIVING EFFECT TO THE ORDER OF THE FAA ON 06.08.2013 AND HE ALLOWED A RELIEF OF RS. 10,47, 789/-.THE ISSUE OF REASONABLE DISALLOWANCE FOR EARNING INCOME THAT DOES NOT FORM PART OF TAXABLE I NCOME HAS BEEN SUBJECT MATTER OF LOT OF LITIGATI -ON.IN OUR OPINION NO HARD AND FAST RULE COULD BE A PPLIED IN THIS REGARD.REASONABLE EXPENDI-TURE IS A RELATIVE TERM THAT COULD BE USED BY THE ASSESSEE /AO AS PER THEIR UNDERSTANDING.THE ASSESSEE BEFORE US,HAD AGREED TO THE DISALLOWANCE MADE BY TH E PREVIOUS FAA TO THE TUNE OF RS. 3.07 LAKHS, WHEREAS IN THE SECOND ROUND OF APPEAL TOTAL DISALLO WANCE OF RS. 29.11 LAKHS WAS MADE BY THE AO.IN PURSUANCE OF THE ORDER OF THE FAA,HE GOT FURT HER RELIEF.IN THESE CIRCUMSTANCES, WE ARE OF THE OPINION THAT IT WOULD NOT BE SERVE ANY PURPOSE TO REFER BACK THE MATTER TO THE AO/ FAA. 3 ITA NO. 3917/M/2012 RAVINDRA J. GOKAL CONSIDERING THE DIVIDEND INCOME EARNED,THE INVESTME NT MADE AND OTHER RELEVANT FACTORS,WE ARE OF THE OPINION THAT IN THE INTEREST OF JUSTICE,THE TOT AL DISALLOWANCE SHOULD BE RESTRICTED TO RS.7.5 LAKHS WHICH IS MORE THAN THE ADDITION RETAINED BY T HE FAA DURING THE FIRST APPELLATE PROCEEDINGS BUT LESS THAN THE ADDITION UPHELD BY THE FAA IN THE LATEST ORDER.WE WANT TO MAKE IT CLEAR THAT OUR DECISION IS RESTRICTED TO THE PECULIAR FACTS AND CI RCUMSTANCES OF THE CASE AND IT SHOULD NOT BE TREATED AS A PRECEDENT IN ANY OTHER CASE.GROUND NO. 1 IS ALLOWED IN FAVOUR OF THE ASSESSEE IN PART. AS A RESULT,APPEAL FI LED BY THE ASSESSEE STANDS PARTLY ALLOWED. 2,3 % +, 4 5 . VA'KR% VA'KR% VA'KR% VA'KR% 6 . , 7 . ORDER PRONOUNCED IN THE OPEN COURT ON 9TH,JANUARY,2 015. #1 . 0& # 8 9% 9 %/ , ,, , 201 5 . = SD/- SD/- ( / JOGINDER SINGH) ( #$ / RAJENDRA) ! ! ! ! / JUDICIAL MEMBER # # # # ! ! ! ! / ACCOUNTANT MEMBER / MUMBAI, 9% /DATE: 09.01.2015 SK #1 #1 #1 #1 . .. . ),> ),> ),> ),> ?#>&, ?#>&, ?#>&, ?#>&, / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / '( 2. RESPONDENT / )*'( 3. THE CONCERNED CIT(A)/ @ A , 4. THE CONCERNED CIT / @ A 5. DR D BENCH, ITAT, MUMBAI / >B ),% MH MHMH MH , . . . 6. GUARD FILE/ 2 * >, ), //TRUE COPY// #1 % / BY ORDER, C / DY./ASST. REGISTRAR , /ITAT, MUMBAI