CAPSTAN TRADING P.LTD, MUMBAI V. ASST CIT CEN CIR 29, MUMBAI

ITA 4088/MUM/2013

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2068 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-12-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 12-03-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 21-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHIDDRAMAPPA K MAVAR
• Assessee Lawyers: ARVIND SONDE
• Keywords: Depreciation; Business expenditure; Earning of tax free income
• Section: 14A; 6; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUM BAI BEFORE SHRI D. KARUNAKARA RAO, A.M. AND SHRI AMARJIT SINGH, J.M. ./ I.T.A. NO.4088/MUM/2013 ( / ASSESSMENT YEAR: 2010-11) CAPSTAN TRADING PRIVATE LIMITED, RAHEJA TOWER, PLOT NO. C-30, G BLOCK, OPP. SIDBI, BANDRA KURLA COMPLEX, BANDRA EAST,MUMBAI-400 051. / VS. ASSTT. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-29, MUMBAI. ./ ./PAN/GIR NO. AABCC 7713J ( /APPELLANT ) : ( / RESPONDENT ) ./ I.T.A. NO.4089/MUM/2013 ( / ASSESSMENT YEAR: 2010-11) PALM SHELTER ESTATE DEVELOPMENT PRIVATE LIMITED, RAHEJA TOWER, PLOT NO. C-30, G BLOCK, OPP. SIDBI, BANDRA KURLA COMPLEX, BANDRA EAST,MUMBAI-400 051. / VS. ASSTT. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-29, MUMBAI. ./ ./PAN/GIR NO. AAACP 2732R ( /APPELLANT ) : ( / RESPONDENT ) ./ I.T.A. NO.4091/MUM/2013 ( / ASSESSMENT YEAR: 2010-11) CASA MARIA PROPERTIES PRIVATE LIMITED, RAHEJA TOWER, PLOT NO. C-30, G BLOCK, OPP. SIDBI, BANDRA KURLA COMPLEX, BANDRA EAST,MUMBAI-400 051 / VS. ASSTT. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-29, MUMBAI. ./ ./PAN/GIR NO. AAACC 1933B ( /APPELLANT ) : ( / RESPONDENT ) 2 ITA NOS. 4088, 4089 & 4091/MUM/2013 (A.Y: 2010-11) / APPELLANT BY : SHRI ARVIND SONDE / RESPONDENT BY : SHRI SHIDDRAMAPPA K. MAVAR / DATE OF HEARING : 03.12.2015 !'# / DATE OF PRONOUNCEMENT : 11.12.2015 $% / O R D E R PER D. KARUNAKARA RAO, A. M: THERE ARE THREE APPEALS BY THE ASSESSEE UNDER CONS IDERATION AGAINST THREE DIFFERENT COMMONLY DATED ORDERS OF THE CIT FOR THE COMMON ASSESSMENT YEAR 2010- 2011. 2. THE ISSUE RAISED IN ALL THESE THREE APPEALS IS C OMMON AND IT RELATES TO DISALLOWANCE OF EXPENSES U/S. 14A OF THE ACT READ W ITH RULE 8D(2)(III). FOR THE SAKE OF COMPLETENESS, THE GROUND RELEVANT OF THE APPEAL IN ITA NO. 4088/MUM/13 IS EXTRACTED AS UNDER. THE CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE OF ADMINISTRATIVE EXPENSES OF RS.8,33,695/- OUT OF RS.8,97,505/- MADE BY AO ON INVESTMENT IN SHARES CLAIMING THE ENTIRE ADMINISTRA TIVE EXPENSES WAS INCURRED BY THE ASSESSEE FOR THE PURPOSE OF INVESTM ENT IN SHARES. CONSIDERING THE COMMONNESS OF THE ISSUE AND THE COM MON COUNSELS BEFORE US FOR ALL THESE THREE APPEALS, WE CALLED ALL THESE TH REE APPEALS AND ADJUDICATED THE SAME IN THIS COMPOSITE ORDER. 3. BEFORE US, LD. COUNSEL FOR THE ASSESSEE INFORMED THAT IDENTICAL ISSUE WAS DECIDED BY THE TRIBUNAL IN A RELATED CONCERN NAMELY CAPSTAN TRADING PRIVATE LIMITED (VIDE ITA NO.3772/MUM/13 FOR THE ASSESSMENT YEAR 20 10-11 DATED 11.03.2015). IN THIS REGARD HE BROUGHT OUR ATTENTION TO THE GROUND WHICH FOUND SIMILARLY WORDED AND 3 ITA NOS. 4088, 4089 & 4091/MUM/2013 (A.Y: 2010-11) INFORMED THAT THE FACTS ARE ALSO IDENTICAL WITH MUTATIS MUTANDIS . T RACING THE FACTS OF THE SAID CASE, THE COUNSEL DEMONSTRATED THAT THE AO MADE DISALLOWANCE U/S. 14A OF THE ACT READ WITH RULE 8D(2)(III) ON ACCOUNT OF ADM INISTRATIVE EXPENSES AND APPLIED THE RATE OF 0.5% OF THE AVERAGE VALUE OF INVESTMENT . HOWEVER, HE IGNORED THE FACT THAT THE EXPENSES ACTUALLY INCURRED FOR EARNING THE DIVI DEND INCOME IS LESS THAN WHAT IS DISALLOWED BY THE AO. THE CIT(A) CONFIRMED THE ORDE R OF AO, IGNORING THE FACTS OF THE CASE. 5. UNDER THESE CIRCUMSTANCES, THE MATTER WAS DECIDE D BY THE TRIBUNAL IN THE SAID CASE ON 11.02.2013, VIDE THE DISCUSSION GIVEN IN PA RA 7 OF THE SAID ORDER (SUPRA) THE APPEAL OF THE ASSESSEE WAS ALLOWED. THE TRIBUNAL HE LD THAT THE DISALLOWANCE MADE BY THE ASSESSEE IS JUST AND PROPER. HE ALSO BROUGHT OU R ATTENTION TO PARA 6, WHERE SCHEDULE K CONTAINING THE DETAILS OF THE ADMINISTRATIVE AN D THE OTHER EXPENSES WERE EXTRACTED AND MADE PART OF THE ORDER OF THE TRIBUNAL, AND DRE W PARALLEL TO THE SIMILAR EXPENSES OF THESE THREE APPEALS UNDER CONSIDERATION. THE CON CERN SCHEDULE IS DIFFERENTLY NUMBERED IN OTHER CASES OF APPEALS AND THE COUNSEL DEMONSTRATED THE EXPENSES CLAIMED ARE MORE OR LESS IDENTICAL, IN SUCH CIRCUMS TANCES, THE RATIO LAID DOWN BY THE TRIBUNAL IN THE CASE OF CAPE TRADING PRIVATE LTD. (SUPRA) IS APPLICABLE TO THE FACTS OF THESE THREE APPEALS. 6. LD. DR FOR THE REVENUE RELIED HEAVILY ON THE ORD ER OF THE CIT(A) / AO. WE PERUSED THEM AND EXAMINED CLOSELY THE SAID DECISION OF THE TRIBUNAL IN THE CASE OF CAPE TRADING PRIVATE LTD. AND FIND THE EXPENSES MENTIONED IN PARA 6 OF THE SA ID ORDER ARE MORE OR SAME. WE COMPARED THE HEADS OF ACCOUNTS OF THE EXPENSES OF THE ADMINISTRATIVE AND OTHER EXPENSES AND IN COMPARISON WE FIND MAJORITY OF EXPENSES CLAIMED BY THE ASSESSEE ARE MORE OR LESS ON SAME AC COUNTS, I.E., AUDITORS REMUNERATION, DEPRECIATION, LEGAL AND PROFESSIONAL FEES, BUSINESS SUPPORT FEES ETC. FOR EXAMPLE, ON PERUSING THE SCHEDULE L RELATED TO ADMINISTRATIVE EXPENSES OF M/S. CASA MARIA 4 ITA NOS. 4088, 4089 & 4091/MUM/2013 (A.Y: 2010-11) PROPERTIES PRIVATE LIMITED, PG. NO. 20 OF THE RELEV ANT, WE FIND NONE OF THE ACCOUNTS ARE PRIMA FACIE DIRECTLY IDENTIFIABLE AS ONE MEANT FOR EARNING THE EXEMPT OF INCOME. SOME OF THE EXPENSES SO CLAIMED IN THE SCHEDULE RELATED TO OTHER BUSINESS EXPENSES. SIMILAR IS THE CASE WITH THE OTHER APPEALS UNDER CONSIDERAT ION AS WELL. IN SUCH CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE AO MECHANICALLY APPLIED THE PROVISIONS OF RULE 8D(2)(III) WITHOUT EXAMINING THE BOOKS OF ACCOUNTS OF ASSESSEE AND THEREFORE, THE ADDITION IS UNSUSTAINABLE IN LAW. THUS, WE ARE OF THE OPINION T HAT THE DISCUSSION GIVEN BY ITAT VIDE PARAGRAPH 9 OF THE ORDER OF THE TRIBUNAL IN IT A NO.3772/MUM/13 (SUPRA) ARE CONSIDERED RELEVANT AND SIGNIFICANT. ACCORDINGLY TH E SAID PARAGRAPH 7 IS EXTRACTED AS BELOW: FROM THE DETAILS OF THE EXPENSES, WE FIND THAT THE PRINTING AND STATIONERY EXPENSES AND BANK CHARGES AND COMMISSION ARE ONLY T WO ITEMS WHICH COULD HAVE DIRECT OR PROXIMATE NEXUS WITH THE INVESTMENT AND E XEMPT INCOME. THEREFORE, THE DISALLOWANCE U/S 144 R.W RULE 8D(2)(III) CANNOT EXC EED TO THE ALLOCABLE EXPENSES INCURRED BY THE ASSESSEE FOR A COMPOSITE ACTIVITY R ESULTING IN TAXABLE AND EXEMPT INCOME. THE WORKING OF DISALLOWANCE UNDER RULE 8D(2 )(III) BY THE ASSESSING OFFICER CLEARLY SHOWS THAT IT EXCEEDS NOT ONLY THE EXPENSES DEBITED AND CLAIMED BY THE ASSESSEE WHICH COULD HAVE A PROXIMATE NEXUS WITH TH E EARNING OF EXEMPT INCOME BUT ALSO TO THE TOTAL EXPENDITURE DEBITED BY THE ASSESS EE IN THE P&L ACCOUNT UNDER THE HEAD ADMINISTRATIVE AND OTHER EXPENSES. THEREFORE , IT TURNS OUT TO BE CONTRADICTORY TO THE ACTUAL FACTS AND GIVES ABSURD RESULTS IN COM PLETE DISREGARD TO THE SCHEME OF DISALLOWANCE U/S 14A. THEREFORE, THE PROVISIONS OF RULE 8D(2)(III) CANNOT BE APPLIED IN THE CASE OF THE ASSESSEE AS IT BECOMES UNWORKABL E AND UNREALISTIC. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT WHEN THE PR OVISIONS OF RULE 8D(2)(III) BECOMES UNWORKABLE, THEN IN THE ABSENCE OF ANY FINDING AS W ELL AS ANY SPECIFIC EXPENSES DEBITED TO THE P&L ACCOUNT WHICH COULD HAVE A DIREC T OR PROXIMATE NEXUS FOR EARNING 5 ITA NOS. 4088, 4089 & 4091/MUM/2013 (A.Y: 2010-11) THE DIVIDEND INCOME THE DISALLOWANCE MADE BY THE AS SESSEE SUO MOTU IS JUST AND PROPER. ACCORDINGLY, WE DELETE THE DISALLOWANCE MAD E BY THE ASSESSING OFFICER. 7. CONSIDERING THE ABOVE FINDING OF THE TRIBUNAL, T HE DECISION OF THE TRIBUNAL IS APPLICABLE TO THE FACTS OF THE THREE APPEALS UNDER CONSIDERATION. THEREFORE, WE ARE OF THE OPINION, THAT THE DECISIONS OF THE CIT(A) IN AL L THESE THREE CASES ARE REQUIRED TO BE REVERSED. ACCORDINGLY, THE GROUNDS RAISED BY THE AS SESSEE IN ALL THE APPEALS ARE ALLOWED. 8. IN THE RESULT, ALL THE THREE APPEALS BY THE THRE E DIFFERENT ASSESSEES ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON DECEMBER 11 TH , 2015 SD/- SD/- (AMARJIT SINGH ) (D. KARUNAKARA RAO) &' $ / JUDICIAL MEMBER $ / ACCOUNTANT MEMBER ( ) MUMBAI; *$ DATED :11.12.2015 PS. ASHWINI GAJAKOSH / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. + ( ) / THE CIT(A) 4. + / CIT - CONCERNED 5. ./0 ''12 , 12# , ( ) / DR, ITAT, MUMBAI 6. 045 6 / GUARD FILE / BY ORDER, / !'# (DY./ASSTT. REGISTRAR) #$ %, ( ) / ITAT, MUMBAI