GLOBAL FINTECH P. LTD, MUMBAI V. DCIT CIR 9(1), MUMBAI

ITA 3951/MUM/2009

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 6292 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-11-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 05-10-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 22-06-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K NAYAK
• Assessee Lawyers: ARUN SATHE
• Keywords: Business expenditure; Opportunity of being heard; Principle of natural justice; Rule of consistency; Earning of tax free income; Speculation loss; Revenue expenditure
• Section: 234B; 14A; 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, G, MUMBAI BEFORE SHRI R K PANDA, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER ITA NO. 149//MUM/2008 (ASSESSMENT YEAR : 2004-05) GLOBAL FINTECH P LTD., FLAT NO. 102 AND 103, FIRST FL., ARIHANT BUILDING, OPP. DARA HOUSE KHAR GULNAZ CO-OP.HSG SOCY. 15 TH ROAD, BANDRA (W), MUMBAI-400050 PAN: AAACG1389-B APPELLANT VS ACIT RANGE 9(1)CIR-1 MUMBAI RESPONDENT ITA NO. 3951/MUM/2009 (ASSESSMENT YEAR : 2006-07) GLOBAL FINTECH P LTD., APPELLANT VS DCIT CIRCLE 9(1)CIR-1 AAYAKAR BHAVAN M K ROAD, MUMBAI-400020 RESPONDENT ASSESSEE BY : SHRI ARUN SATHE REVENUE BY : SHRI A K NAYAK O R D E R PER VIJAY PAL RAO THESE TWO APPEALS BY THE ASSESSEE ARE DIRECTED AG AINST THE TWO DIFFERENT ORDERS DATED 5.10.2007 AND 14.05. 2009 OF THE ITA NO. 149//MUM/2008 ITA NO. 3951/MUM/2009 2 CIT(A)-IX, MUMBAI FOR THE ASSESSMENT YEARS 2004-05 AND 2006-07 RESPECTIVELY. ITA NO. 149//MUM/2008 IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLOWIN G GROUNDS : 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE APPELLANT SUBMIT THAT THE LEARNED CIT(A) HAS PASSED THE ORDER WITHOUT GIVING PROPER OPPORTUNITY OF HEARING. TE ORDER PASSED BY HIM IS BAD IN LAW AND AGAINST PRINCIPLE OF NATURAL JUSTICE. THE LD. CIT( A) DID NOT GIVE OPPORTUNITY TO THE APPELLANT TO EXPLAIN TH E FACTS OF THE CASE. THE APPELLANT SUBMIT THAT THE O RDER PASSED BY LD. CIT(A) MAY BE SET ASIDE; 2. THE LD. CIT(A) HAS STATED IN THE ORDER THAT THE APPELLANT HAS ONLY FILED THE PAPER BOOK BUT DID NOT APPEARED. THIS STATEMENT OF LEARNED LD. CIT(A) I S NOT CORRECT. THE APPELLANT HAS APPEARED FROM TIME T O TIME BEFORE THE LD. CIT(A) THE APPELLANT HAD ALSO ARGUED THE MATTER. THE LAST HEARING WAS FIXED ON 24.9.2007. THE APPELLANT HAD FILED THE LETTER OF ADJOURNMENT OF 24.9.2007. BASED ON THESE FACTS THE CONCLUSION OF THE LD. CIT(A) IS ERRONEOUS AND BAD IN LAW; WITHOUT PREJUDICE TO ABOVE SUBMISSIONS ON MERITS TH E APPELLANT PRAYS AS UNDER R: 3. THE LD. CIT(A) HAS ERRED IN DISALLOWING THE CLAIM OF THE APPELLANT OF RS.61,53,450/-. ON THE F ACTS AND CIRCUMSTANCES OF THE CASE THE CONCLUSION REACHE D BY REACHED BY LEARNED CIT(A) IS ERRONEOUS THE APPELLANT PRAYS THAT THE CLAIM OF DEDUCTION OF RS.61,53,450/- MAY BE ALLOWED; 4. THE LD. CIT(A) HAS ERRED IN CONCLUDING THAT THE TRANSACTIONS ARE DOUBTFUL. THIS CONCLUSION IS WITH OUT ANY BASE, FACTS OR EVIDENCES AND THE APPELLANT OBJECTS TO THE OBSERVATIONS MADE BY LD CIT(A) TO TH E EFFECT THAT THE TRANSACTIONS ARE DOUBTFUL ITA NO. 149//MUM/2008 ITA NO. 3951/MUM/2009 3 5. THE LD. CIT(A) HAS ERRED IN CONCLUDING THAT THE DOCUMENTS ARE NOT RELIABLE AND APPEARS TO BE CONCERTED. THIS CONCLUSION IS WITHOUT ANY BASE, FAC TS OR EVIDENCES AND THE APPELLANT OBJECTS TO THE OBSERVATIONS MADE BY THE LD. CIT(A) TO THE EFFECT T HAT THE TRANSACTIONS ARE DOUBTFUL. 6. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE APPELLANT PRAYS THAT THE CLAIM OF RS.61,53,450/- M AY BE ALLOWED AS DEDUCTION; 7. THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF THE EXPENSES OF RS.12,350/- BEING EXPENSES ON SALE OF FLATS. ON THE FACTS AND CIRCUMSTANCES OF HE CASE THE ASSESSEE IS ENTITLED TO DEDUCTION OF RS.12,350/-: 8. THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.27,77,355/- U/S 14A OF IT ACT, 1961. THE LD. CIT(A) HAS NOT CONSIDERED THE FACT FULLY. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE APPELLANT SUBMIT THAT DISALLOWANCE OF RS.27,77,355 /- U/S 14A IS NOT JUSTIFIED AND BE DELETED; 9 THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.7,23,913/ BEING FOREIGN TRAVELIN G EXPENSES. THE APPELLANT SUBMIT THAT THE EXPENSES ARE SUPPORTED BY VOUCHERS AND EVIDENCES AND ARE FOR THE PURPOSES OF BUSINESS. ON THE FACTS AND CIRCUMSTANCES OF THE CASE DISALLOWANCE OF RS.7,23,913/- IS NOT JUSTIFIED. THE APPELLANT PRAYS THAT THEY ARE ENTITLED TO DEDUCTION OF RS.7,23,913/-; BE ING FOREIGN TRAVELING EXPENSES. 10. THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.15,057/- BEING 10% OF GENERAL EXPENSES OF RS./1,50,579/- ON THE FACTS AND CIRCUMSTANCES THE DISALLOWANCES ON ADHOC BASIS MAY BE DELETED; 11. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD.. CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANC E OF RS.18,999/- BEING THE GENERAL EXPENSES CLAIMED BY ITA NO. 149//MUM/2008 ITA NO. 3951/MUM/2009 4 APPELLANT. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE APPELLANT IS ENTITLED TO DEDUCTION OF RS..18,999/- AND DISALLOWANCES MAY BE DELETED; 12. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE APPELLANT SUBMIT THAT LEVY OF INTEREST U/S 234 B IS NOT JUSTIFIED. THE APPELLANT IS NOT LIABLE TO PAY INTEREST U/S 234B OF THE IT ACT, 1961. THE APPELLAN T PRAYS THAT INTEREST LEVIED U/S 234B MAY BE DELETED 2. GROUNDS OF APPEAL NO.1 AND 2, REGARDING, VIOLATI ON OF PRINCIPLE OF NATURAL JUSTICE BECAUSE THE CIT(A) HAS NOT GIVEN AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE BEFO RE PASSING THE IMPUGNED ORDER. 3. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND REL EVANT RECORD. AT THE TIME OF HEARING THE ASSESSEE HAS NO T SERIOUSLY ARGUED THE ISSUE OF VIOLATION OF PRINCIPLE OF NATUR AL JUSTICE. THEREFORE, WE DO NOT FIND ANY SUBSTANCE IN THESE GR OUNDS RAISED BY THE ASSESSEE. EVEN OTHERWISE THE CIT(A) HAS DECIDED THE APPEAL AFTER CONSIDERING THE CONTENTION S AND EXPLANATIONS OF THE ASSESSEE. THEREFORE, WE DO NOT FIND IT IS A CASE OF VIOLATION OF PRINCIPLE OF NATURAL JUSTIC E. THEREFORE, WE REJECT THESE GROUNDS. 4. GROUNDS OF APPEAL NO.3 TO 6, REGARDING, DISALLO WANCE OF THE CLAIM OF THE ASSESSEE OF RS.61,53,450/- AS DED UCTION DUE TO THE LOSS ON THE SALE OF FLATS. THE ASSESSEE I S STATED TO BE ENGAGED IN THE BUSINESS OF HOUSING FINANCE AND DEA LING IN ITA NO. 149//MUM/2008 ITA NO. 3951/MUM/2009 5 SHARES AND SECURITIES. THE ASSESSEE WAS ALSO REGI STERED WITH THE NATIONAL HOUSING BANK AND SOUGHT THE REGIST RATION TO BE CANCELLED AT THE REQUEST OF THE ASSESSEE FROM FEBR UARY 2004. THE AO NOTICED THAT THE ASSESSEE IN THE BOOKS OF A CCOUNT DEBITED A SUM OF RS.61,53,450/- AS LOSS ON SALE O F FLATS. THE ASSESSEE IN ITS DIRECTORS REPORT HAS MENTIONE D THAT IT HAS ENTERED INTO AN AGREEMENT WITH THREE DEVELOPERS FOR ACQUIRING 39 FLATS AND CAR PARKING AREA. OUT OF THESE FIVE FLATS AND 12 CAR PARKING AREA STATED TO HAVE COME INTO THE PHYSICAL POSSESSION OF THE ASSESSEE. IN THE BALANC E-SHEET OF THE ASSESSEE, IT WAS SHOWN AS INVESTMENT, AT THE SA ME TIME THE AGREEMENTS HAVE NOT BEEN EXECUTED BETWEEN THE A SSESSEE AND THE DEVELOPER FOR PURCHASES OF THESE FLATS. A FTER CONSIDERING THE ARGUMENTS AND CONTENTIONS OF THE AS SESSEE, THE AO DISALLOWED THIS CLAIM OF THE ASSESSEE AND HE LD THAT THE LOSS OF RS.61,53,450/- EITHER IS A CAPITAL LOSS OR A SPECULATION LOSS AND NOT THE LOSS OR EXPENDITURE AS ALLOWABLE U /S 37(1) OF THE IT ACT. 5. ON APPEAL, THE CIT(A) HAS CONFIRMED THE DISALLOW ANCE MADE BY THE AO. 6. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND REL EVANT RECORD. THE LD. AR OF THE ASSESSEE REFERRED VARIOU S DOCUMENTS FILED IN THE PAPER BOOK AND SUBMITS THAT THESE FLATS ITA NO. 149//MUM/2008 ITA NO. 3951/MUM/2009 6 CAME INTO POSSESSION OF THE ASSESSEE AS MORTGAGED BY THE DEVELOPERS AGAINST THE FINANCE MADE BY THE ASSESSEE . THEREFORE, THE LOSS ON SALE OF THESE FLATS IS IN TH E NATURE OF NPA AND ALLOWABLE AS BUSINESS EXPENDITURE. 7. ON THE OTHER HAND, THE LEARNED DR HAS RELIED UPO N THE ORDERS OF THE LOWER AUTHORITIES. 8. AFTER CONSIDERING THE RIVAL CONTENTIONS AND RELE VANT RECORD, WE NOTE THAT THE AO WHILE DISALLOWING THE CLAIM OF THE ASSESSEE FOLLOWED THE EARLIER ASSESSMENT FOR THE A SSESSMENT YEAR 2003-04 IN PARAGRAPH OF THE ASSESSMENT ORDER CONTENDED AS UNDER : 5. MY PREDECESSOR HAD CAREFULLY EXAMINED THIS ISSUE IN THE ORDER FOR THE AY 2003-04 AND TAKEN A ADVERSE VIEW AS FAR AS ALLOWANCE OF THE ALLEGED LOS S ON SALE OF THE FLATS IS CONCERNED. WHILE SUBSCRIBI NG TO HER DECISION THAT THIS LOSS IS NOT ALLOWABLE, I WOULD LIKE TO PICK UP SOME AREAS FROM THE ADMISSION MADE BY THE ASSESSEE AS QUOTED ABOVE. FIRSTLY THE ASSESSEES CONTENTION IS THAT THE FLATS WERE SECUR ED AGAINST THE LOANS GRANTED TO THE PURCHASES AND THE SAID FLATS WERE ACQUIRED IN LIEU OF RECOVERY OF LOA NS. THE ASSESSEE HAS ALSO ADMITTED THAT THE FLATS WERE NOT ACQUIRED WITH THE INTENTION OF EARNING INCOME. AT THIS JUNCTURE I WOULD LIKE TO STRESS ON THE POINT THAT THE DEFINITION OF BUSINESS AS PER SECTION 2(13) INCLUDES ANY TRADE, COMMERCE OR MANUFACTURE OR ANY ADVENTURE OR CONCERN IN THE NATURE OF TRADE, COMMERCE OR MANUFACTURE. IN REGARD TO ALLOWANCE OF ANY EXPENDITURE OF LOSS IN BUSINESS, VARIOUS COURT S HAVE HELD TO THE EFFECT THAT THE OBJECT PROFIT MAKI NG LIES, IN THE INTENTION OF THE ASSESSEE AND MAY NOT RESULT IN MAKING SUCH PROFITS OR GAIN. THIS SHOWS THAT WHEN THE ASSESSEE ITSELF IS ADMITTING THAT THE INTENTION WAS NOT TO EARN INCOME, THE VERY FIBRE O F THE ITA NO. 149//MUM/2008 ITA NO. 3951/MUM/2009 7 REVENUE EARNING ACTIVITY IS LOST IN RESPECT OF HE SALE/SURRENDER OF THE FLATS AND THUS, IN CLAIMING T HE LOSS ON SUCH SALE OR SURRENDER, FOR THIS REASONS ALONE THE LOSS OF RS.61,53,450/- IS NOT AN ALLOWAB LE ITEMS U/S 37(1) AND DESERVES TO BE DISALLOWED 9. WE FURTHER NOTE THAT THIS TRIBUNAL WHILE DECIDI NG THE APPEAL OF THE ASESEEE FOR THE ASSESSMENT YEAR 2003- 04 IN ITA NO.2739/MUM/2007 IN PARAGRAPHS 11 TO 14 OF THE ORDE R DATED 6.4.2010 HAS ADJUDICATED THE ISSUE AS UNDER : 11. BRIEF FACTS APROPOS THIS ISSUE ARE THAT FROM SCHEDULE 14 OF THE P AND L ACCOUNT, THE AO NOTICED THAT THE ASSESSEE HAD CLAIMED RS.19,42,462/- BEING LOSS ON SALE OF FLATS AS BUSINESS EXPENSES IN THE P AND L ACCOUNT. HE REQUIRE THE ASSESSEE TO FURNISH THE DETAILS OF THE SAID LOSS AND ITS ALLOWABILITY. THE ASSESSEES REPLY DATED 18.03.2006 HAS BEEN REPRODUCED IN PARAGRAPH 5 OF HIS ORDER, AFTER CONSIDERING WHICH, THE AO OBSERVED AS UNDER : THE SUBMISSIONS OF THE ASESEEE HAVE BEEN DULY CONSIDERED. HOWEVER, THE ASSESSEE HAS NOT FURNISHED THE COPIES OF THE PURCHASE AND SALE AGREEMENT OF FLATS. THERE ARE NO WRITTEN AGREEMENTS OF DOCUMENTARY EVIDENCES BETWEEN THE ASSESSEE COMPANY AND THE ABOVE REFERRED LOAN PARTIES REGARDING THE SAME. IN ABSENCE OF DOCUMENTARY EVIDENCE AND FOR THE REASONS DISCUSSED ABOVE, THE LOSS ON SALE OF FLATS CLAIMED BY THE ASSESSEE IS DISALLOWED AND RS.19,42,462/- IS ADDED BACK TO THE TOTAL INCOME 12. BEFORE, THE CIT(A), IT WAS POINTED OUT THAT THE ACTUAL LOSS ON SALE OF FLATS AND PARKING SPACE WAS RS.33,05,746/- INSTEAD OF RS.19,42,462/-. IT WAS FURTHER STATED THAT COMPLETE DETAILS AND PROOF OF AGREEMENT WERE PRODUCED BEFORE THE AO. HOWEVER, ITA NO. 149//MUM/2008 ITA NO. 3951/MUM/2009 8 THE CIT (A) DISMISSED THE ASSESSEES APPEAL AS UNDE R : IT APPEARS THAT THERE IS SOME MISTAKE IN THE FIGU RE OF DISALLOWANCE WHICH HAS BEEN AT RS.19,42,462/- BY THE AO INSTEAD OF APPELLANTS CLAIM OF RS.33,05,74 6/- HOWEVER, I FIND THAT EVEN DURING THE APPELLATE PROCEEDINGS ALSO NO DETAILS HAVE BEEN FURNISHED FO R CLAIMING SUCH LOSS ON SALE OF SUCH FLATS. THE AO I S, THEREFORE, DIRECTED TO DISALLOW THE LOSS AMOUNTING TO RS.33,05,746/- INSTEAD OF RS.19,42,462/- AND THUS, THE INCOME SHOULD BE ENHANCED BY RS.13,63,284 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE RECORD OF THE CASE. AS IS EVIDENT FROM THE ABOVE NOTED OBSERVATIONS OF THE AO AND LD. CIT(A) THAT NECESSARY DETAILS WERE NOT AVAILABLE BEFORE THE LOWER REVENUE AUTHORITIES FOR ARRIVING A T THE CORRECT CONCLUSION. THE ASSESSEE HAS MERELY STATEE D THAT DETAILS OF THE SALE WERE ENCLOSED FOR READY REFERENCE ALONG WITH NECESSARY PROOF IN OUR OPINI ON, THE ENTIRE ISSUE NEEDS TO BE THOROUGHLY EXAMINED BEFORE ARRIVING AT ANY CONCLUSION AND FOR THIS PURP OSE ALL THE NECESSARY DOCUMENTS NEEDS TO BE FURNISHED BEFORE THE AO. WE, THEREFORE, AS AGREED BY BOTH TH E SIDES, RESTORE THIS ISSUE TO THE FILE OF THE AO FO R EXAMINING THE ISSUE DENOVO. THIS GROUND IS ALLOWE D FOR STATISTICAL PURPOSES. 10. THIS TRIBUNAL IN THE EARLIER ORDER HAS SET ASID E THE ISSUE TO THE RECORD OF THE AO FOR EXAMINING THE ISSUE DE NOVO AFTER CONSIDERING THE NECESSARY DOCUMENTS. BY FOLLOWING THE PRINCIPLE OF CONSISTENCY, WE SET ASIDE THIS ISSUE T O THE ORDERS OF THE LOWER AUTHORITIES AND REMIT THE SAME TO TH E RECORD OF THE AO FOR DECIDING THE ISSUE IN TERMS OF THE EA RLIER ORDERS. ITA NO. 149//MUM/2008 ITA NO. 3951/MUM/2009 9 11. GROUNDS OF APPEAL NO.7, REGARDING THE DISALLOWA NCE OF EXPENSES ON SALE OF FLATS OF RS.12,00,350/-. 12. WE HAVE HEARD THE RIVAL CONTENTIONS AND RELEVAN T RECORD. WE FIND THAT THIS ISSUE IS CONNECTED WITH THE ISSU ES RAISED IN GROUNDS OF APPEAL NO.3 TO 6. SINCE, WE HAVE ALREAD Y REMITTED THE GROUNDS OF APPEAL NO.3 TO 6 TO THE RECORD OF TH E AO FOR FRESH CONSIDERATION AND ADJUDICATION, ACCORDINGLY, THIS ISSUE IS ALSO RESTORED TO THE FILE OF THE AO FOR DENOVO ADJU DICATION. 13. GROUNDS OF APPEAL NO.8 IS REGARDING DISALLOWANC E U/S 14A. THE AO FOUND THAT THE ASSESSEE CREDITED DIVI DEND INCOME OF RS.2,77,73,546/- IN THE PROFIT AND LOSS ACCOUNT AND CLAIMED AN EXEMPTION U/S 10(33) OF THE ACT. THE AO NOTICED THAT NO EXPENDITURE HAS BEEN ALLOCATED BY THE ASSE SSEE AGAINST SUCH DIVIDEND INCOME IN TERMS OF SECTION 1 4A. ACCORDINGLY, THE AO HELD THAT 10% OF THE DIVIDEND MAY BE ATTRIBUTED TO THE EXPENDITURE IN RELATION TO THE SA ID DIVIDEND AND THEREFORE, THE SUM OF RS..27,77,355/- BE DISAL LOWED U/S 14A. 14. ON APPEAL, THE CIT(A) HAS CONFIRMED THE DISALL OWANCE. 15. WE HAVE HEARD THE LEARNED AR AS WELL AS THE LEA RNED DR AND CONSIDERED THE RELEVANT RECORD. AT THE OUTSET WE NOTE THAT THIS ISSUE IS NOW COVERED BY THE DECISION OF THE JU RISDICTIONAL HIGH COURT IN THE CASE IN THE CASE OF GODREJ AND B OYCE MFG ITA NO. 149//MUM/2008 ITA NO. 3951/MUM/2009 10 CO. LTD V/S DY CIT REPORTED IN (2010) 328 ITR 81 (B OM) IN PARAGRAPH 81 OF THE REPORT HAS HELD AS UNDER : 81. EVEN IN THE ABSENCE OF SUB SECTIONS (2) AND (3) OF SECTION 14A AND OF RULE 8D, THE ASSESSING OFFICER WAS NOT PRECLUDED FROM MAKING APPORTIONMENT . SUCH AN APPORTIONMENT WOULD HAVE TO BE MADE IN ORDER TO GIVE EFFECT TO THE SUBSTANTIVE PROVISIONS OF SUB SECTION (1) OF SECTION 14A WHICH PROVIDE THAT N O DEDUCTION WOULD BE ALLOWED IN RESPECT OF EXPENDITUR E INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER HE ACT. CONSEQUENTL Y, DEHORS THE PROVISIONS OF SECTIONS (2) AND (3) OF SECTION 14A AND RULE 8D, THE ASSESSING OFFICER WAS ENTITLED TO DETERMINE BY THE APPLICATION OF A REASONABLE METHOD WHAT QUANTUM OF THE EXPENDITURE INCURRED BY THE ASSESSEE WOULD HAVE TO BE DISALLOWE D ON THE GROUND THAT IT WAS INCURRED IN RELATION O TH E EARNING OF INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. UNDOUBTEDLY IN DETERMINING WHAT WOULD CONSTITUTE A REASONABLE METHOD FOR EFFECTING THE DISALLOWANCE, THE ASSESSIN G OFFICER WOULD HAVE TO GIVE DUE REGARD TO ALL THE FA CTS AND CIRCUMSTANCES OF THE CASE. THE CHANGE WHICH IS BROUGHT ABOUT BY THE INSERTION OF SUB SECTIONS (2) AND (3) INTO SECTION 14A BY THE FINANCE ACT OF 2006 WIT H EFFECT FROM 1 APRIL 2007 IS THAT IN A SITUATION WHE RE THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN REGARD TO THE EXPENDITURE INCURRED BY IT IN RELATION TO THE NONTAXABLE INCOME, THE ASSESSING OFFICER WOULD HAVE TO FOLLOW THE METHOD WHICH IS PRESCRIBED BY THE RUL ES. THE RULES WERE NOTIFIED TO COME INTO FORCE ON 24 MARCH 2008. IT IS A TRITE PRINCIPLE OF LAW THAT THE LAW WHICH WOULD APPLY TO AN ASSESSMENT YEAR IS THE LAW PREVAILING ON THE FIRST DAY OF APRIL. CONSEQUENTLY, RULE 8D WHICH HAS BEEN NOTIFIED ON 24 MARCH 2008 WOULD APPLY WITH EFFECT FROM ASSESSMENT YEAR 200809. THE RULE CONSEQUENTLY CANNOT HAVE APPLICATION IN RESPEC T OF ASSESSMENT YEAR 2002-03 WHICH IS THE YEAR UNDER CONSIDERATION IN THIS CASE. ITA NO. 149//MUM/2008 ITA NO. 3951/MUM/2009 11 16. ACCORDINGLY, WE SET ASIDE THE ISSUE TO THE RECO RD OF THE AO TO DECIDE IT AFRESH IN THE LIGHT OF THE DECISION OF THE JURISDICTIONAL HIGH COURT. 17. GROUNDS OF APPEAL NO.9 IS REGARDING DISALLOWANC E OF RS.7,23,913/- BEING FOREIGN TRAVELING EXPENSES. T HE AO NOTICED THAT THE ASSESSEE HAS DEBITED AN AMOUNT OF RS.25,35,713/- ON ACCOUNT OF TRAVELING AND CONVEYAN CE EXPENSES. THIS INCLUDES FOREIGN TRAVEL EXPENSES I NCURRED ON CHAIRMAN AND EXECUTIVE DIRECTORS AMOUNTING TO RS.19,63,982/-. THE ASSESSEE FURNISHED THE DETAILS OF EXPENSES. THE AO FOUND THAT FROM THE DETAILS FURNI SHED BY THE ASSESSEE THAT THE TRAVELING OF THESE DIRECTORS TO UK WERE ON FIVE OCCASIONS DURING THE YEAR. SINCE THE ASSESSEE S ACTIVITIES DOES NOT INDICATE ANY INVOLVEMENT OF INT ERNATIONAL TRANSACTION AND THE ASSESSEE ALSO NOT FURNISHED AN Y PARTICULARS OF PURPOSE FOR WHICH THE OVERSEAS TRAVE LS HAS BEEN UNDERTAKEN. THE AO DISALLOWED THE SAID AMOUNT OF RS.19,63,982/- INCURRED ON THE FOREIGN TRAVELING E XPENSES OF THE CHAIRMAN AND EXECUTIVE DIRECTORS OF THE ASSESSE E. THE ASSESSEE CHALLENGED THE DISALLOWANCE TO THE EXTENT OF RS.7,23,913/- OUT OF THE TOTAL DISALLOWANCE OF RS. 19,63,982/- BEFORE THE CIT(A). THE LD. CIT(A) CONFIRMED THE DIS ALLOWANCE MADE BY THE AO. ITA NO. 149//MUM/2008 ITA NO. 3951/MUM/2009 12 18. BEFORE US, THE LEARNED AR OF THE ASSESSEE HAS S UBMITTED THAT THE ASSESSEE HAS DULY SUPPORTED THE CLAIM BY VOUCHERS AND EVIDENCE. THE EXPENDITURE OF RS.7,23,913/- IS FOR THE FOREIGN TRAVELING OF EXECUTIVE DIRECTOR OF THE ASS ESSEE TO UK FOR BUSINESS PURPOSES AND THEREFORE ADHOC DISALLOWA NCE IS NOT JUSTIFIED.. 19. ON THE OTHER HAND, THE LEARNED DR RELIED ON TH E ORDERS OF THE LOWER AUTHORITIES. 20. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND R ELEVANT RECORD. THE EVIDENCE ON RECORD FILED BY THE ASSESSE E IS ONLY IN RELATION TO THE EXPENDITURE INCURRED AND NOT IN RELATION TO THE PURPOSE OF EXPENDITURE. THE LOWER AUTHORITIES HAVE NOT DISPUTED THE ACTUAL EXPENDITURE BUT THE DISALLOWAN CE WAS MADE ON THE GROUND THAT THE SAME WAS NOT INCURRED F OR THE PURPOSES OF BUSINESS. WHEN THE ASSESSEE HAS MADE TH E CLAIM OF DEDUCTION THEN THE PRIMARY ONUS IS ON THE ASSES SEE TO PROVE THAT THE SAID EXPENSES BEEN MADE OUT WHOLL Y AND EXCLUSIVELY FOR THE BUSINESS PURPOSES. SINCE NOTHI NG HAS BEEN BROUGHT ON RECORD BY THE ASSESSEE TO SHOW THAT THESE FOREIGN TRIPS WERE UNDERTAKEN BY THE CHAIRMAN AND EXECUTIVE DIRECTOR OF THE ASSESSEE IN RELATION TO THE BUSINES S OF THE ASSESSEE AND FOR WHICH PARTICULAR PURPOSES, THEREF ORE, WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE HAS FAILED TO ESTABLISH THE NEXUS BETWEEN THE EXPENDITURE AND THE PURPOSE ITA NO. 149//MUM/2008 ITA NO. 3951/MUM/2009 13 OF THE BUSINESS AND THUS THE CLAIM IS NOT ALLOWAB LE. ACCORDINGLY, WE UPHOLD THE ORDER OF CIT(A) QUA THIS ISSUE. 21. GROUNDS OF APPEAL NO.10 AND 11 REGARDING 10% DISALLOWANCE OF GENERAL EXPENSES AND DISALLOWANCE O F SUNDRY BALANCES WRITTEN OFF OF RS.18,999/-. THE AO NOTIC ED THAT THE ASSESSEE HAS DEBITED THE GENERAL EXPENSES OF RS.15, 05,579/- AND SUNDRY BALANCES WRITTEN OFF OF RS.18,999/-. S INCE THE DETAILS REGARDING GENERAL EXPENSES OF RS.1,55,579/ - WERE NOT FURNISHED BY THE ASSESSEE, THE AO DISALLOWED 20% OF THE EXPENSES WHICH AMOUNTING TO RS.30,116/-. AS REGARD S THE WRITTEN OFF AN AMOUNT OF RS.18,999/-, THE AO NOTICE D THAT THE ASSESSEE HAS NOT FURNISHED ANY SUPPORTING EVIDENC E FOR THE CLAIM OF THE SAME AS REVENUE EXPENDITURES, ACCORDIN GLY, THE SAID AMOUNT WAS ALSO DISALLOWED. 22. ON APPEAL, THE CIT(A) HAS REDUCED THE DISALLOW ANCE OF GENERAL EXPENSES FROM 20% TO 10% AND CONFIRMED THE DISALLOWANCE ON ACCOUNT OF SUNDRY BALANCES WRITTEN OFF. 23. WE HAVE HEARD THE LEARNED AR AND LEARNED DR AND CONSIDERED THE RELEVANT RECORD. AS REGARDS THE CON FIRMATION OF 10% OF THE DISALLOWANCE BY THE CIT(A) OF THE GENERA L EXPENSES IS CONCERNED WHEN THE ASSESSEE HAS NOT FI LED PROPER DETAILS REGARDING EXPENSES THEN THE DISALLOW ANCE ITA NO. 149//MUM/2008 ITA NO. 3951/MUM/2009 14 REDUCED TO 10% BY THE CIT(A), IN OUR VIEW, IS JUST AND PROPER AND NEEDS NO INTERFERENCE. THEREFORE, WE UPHOLD TH E SAME. 24. AS REGARDS THE DISALLOWANCE OF SUNDRY BALANCES OF RS.18,999/- WHEN NO DOCUMENTARY EVIDENCE IN SUPPORT OF THE CLAIM HAS BEEN FILED BY THE ASSESSEE THEN WE FIND N O REASON TO INTERFERE WITH THE ORDER OF THE LEARNED CIT(A). 25. GROUNDS OF APPEAL NO.12, REGARDING LEVY OF INTE REST U/S 234B OF THE ACT. SINCE THE LEVY OF INTEREST U/S 2 34B IS CONSEQUENTIAL AND MANDATORY IN NATURE, THEREFORE, N O SPECIFIC FINDING IS REQUIRED ON THIS ISSUE. 26. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO. 3951/MUM/2009 27. ONLY GROUND RAISED BY THE ASSESSEE IN THIS APPE AL IS AS UNDER : 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) ERRED IN AFFIRMING THE ADDITIO N OF RS.3,99,717/- BEING ALLEGEDLY THE EXPENDITURE INCURRED IN RELATION TO EARNING DIVIDEND BEING THE EXEMPT INCOME DESPITE ABSENCE OF ANY DIRECT NEXUS O F THE BUSINESS EXPENDITURE WITH SUCH DIVIDEND EARNED 28. WE HAVE ALREADY DECIDED THIS ISSUE IN THE ASSES SEES OWN APPEAL HEREINABOVE BEING ITA NO.149/MUM/2008. ACCORDINGLY, THIS ISSUE IS ALSO REMITTED TO THE FIL E OF THE AO ITA NO. 149//MUM/2008 ITA NO. 3951/MUM/2009 15 FOR FRESH CONSIDERATION AND ADJUDICATION IN VIEW OF OUR FINDING ABOVE. 29. THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATI STICAL PURPOSES. 30. IN SUM AND SUBSTANCE, THE APPEAL FOR THE ASSESS MENT YEAR 2004-05 IS PARTLY ALLOWED FOR STATISTICAL PUR POSES AND THE APPEAL FOR THE ASSESSMENT YEAR 2006-07 IS ALLOWED F OR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 24.11.2010 SD SD (R. K. PANDA) (VIJAY P AL RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 24 TH NOV 2010 SRL:191110 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT CONCERNED 4. CIT(A) CONCERNED 5. DR CONCERNED BENCH BY ORDER TRUE COPY ASSTT. REGISTRAR, ITAT, MUMBAI