Swew Benefit Company, Bangalore V. D.C.I.T.Cir - 51,Kol., Kolkata

ITA 41/KOL/2013

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0479 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-06-2015
• Appeal Filed By: Assessee
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 07-01-2013
• Court: TRIBUNAL
• Department Lawyers: SANJAY
• Assessee Lawyers: N O N E
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: KOLKATA [BEFORE SHRI P. K. BANSAL, AM & SHRI MAHAVIR SINGH, JM ] I.T.A NO. 41 /KOL/201 3 ASSESSMENT YEAR : 200 9 - 1 0 SWEW BENEFIT COMPANY VS. DEPUTY COMMISSIONER OF INCOME - TAX - (PAN: A A H C S4728F ) (OSD), KOLKATA. ( APPELLANT ) ( RESPONDENT ) DATE OF HEARING: 0 8 .0 6 .2015 DATE OF PRONOUNCEMENT: 0 8 . 0 6 . 2015 FOR THE APPELLANT: N O N E FOR THE RESPONDENT: S HRI SANJAY, ADDL. CIT ORDER PER SHRI MAHAVIR SINGH, JM: THIS APPEAL BY ASSESSEE IS ARISING OUT OF ORDER OF CIT (A) - VI , KOLKATA VIDE APPEAL NO. 315/CIT(A) - VI,CIR - 5/09 - 10/KOL DATED 2 6 . 1 0 .201 2 . ASSESSMENT WAS FRAMED BY DCIT, CIRCLE - 5, KOLKATA U/S. 1 43(3) OF THE INCOME - TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ) FOR ASSE SSMENT YEAR 200 9 - 1 0 VIDE HIS ORDER DATED 14 . 12 .20 1 1 . 2. THE ONLY ISSUE IN THIS APPEAL OF ASSESSEE IS AGAINST THE ORDER OF CIT(A) CONFIRMING THE ACTION OF AO IN MAKING AD - HOC DISALLOWANCE U/S. 14A OF THE ACT READ WITH RULE 8D OF I. T. RULES, 1962, HEREINAFTER REFERRED TO AS THE RULES , AMOUNTING TO RS. 2 LAKH. 3. WE HAVE HEARD LD. DR AND FIND THAT THE ASSESSEE S MAIN CLAIM BEFORE THE AO AS WELL AS BEFORE CIT(A) WAS THAT ASSESSEE HAS MADE INVESTMENT OUT OF OWN FUNDS. THE ASSESSEE S ISSUE IS THAT THE AO HAS MADE DISALLOWANCE ON AD HOC BASIS. WE HAVE GONE THROUG H THE ASSESSMENT ORDER AND NOTED THAT THIS DISALLOWANCE WAS MADE BY OBSERVING AS UNDER: DURING THE COURSE OF HEARING IT IS NOTICED THAT THE ASSESSEE CLAIMED EXEMPTED INCOME U/S. 10(34) BUT NO EXPENDITURE WAS DISALLOWED FOR WHICH THE ASSESSEE FILED EXPLA NATION. THE CONTENTION OF THE ASSESSEE IS NOT ACCEPTED AS THERE ARE CERTAIN EXPENDITURE WAS INCURRED FOR THE PURPOSE OF EARNING DIVIDEND. HENCE RS.7,11,303/ - (RESTRICTED TO EXPENDITURE APPLYING RULE 8D IS ADDED BACK). THIS CASE IS HEARD AND DISCUSSED. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A). WE FIND THAT THE CIT(A) AGAIN RESTRICTED THE DISALLOWANCE AT RS. 2 LAKH BY OBSERVING IN PARA 6 & 7 AS UNDER: 2 ITA NO. 41 /K/201 3 SWEW BENEFIT COMPANY AY 200 9 - 10 6. I HAVE CONSIDERED THE OBSERVATIONS OF THE ASSESSING OFFICER IN THE ASSESSMENT ORDER AND SUBMISSIONS OF THE APPELLANT. NORMALLY NO INCOME CAN BE EARNED FREE OF COSTS AND THERE ARE ALWAYS DIRECT OR INDIRECT EXPENSES IN THE EARNING OF INCOME IN THE COMMERCIAL WORLD. THE APPELLANT IS RUNNING ITS BUSINESS IN THE COMMERCIAL WORLD FOR WHICH IT HAS TO INCUR COSTS. THE APPELLANT IS ONLY A JURISTIC PERSON AND NOT INDIVIDUAL AND IN SUCH A CASE EVERY ACTION OF THE APPELLANT COSTS TO IT IN THE FORM OF LABOUR OF ITS PERSONS INCLUDING BOARD OF DIRECTORS WHO ARE ALSO EVEN PAID FOR TAKING DECISIONS ON BEHALF OF IT. THE PERUSAL OF THE ANNUAL ACCOUNT SHOW THAT THE APPELLANT HAS AVERAGE AMOUNT OF INVESTMENT AMOUNTING TO RS. 31.78 CRORES AND OTHER ASSETS OF RS. 14,72,21,463/ - AND TOTAL ADMINISTRATIVE EXPENSES OF RS.7,11,303/ - . THE PERUSAL OF THE DETAILS OF THE EXP ENSES SHOW THAT THERE IS EXPENSE OF RS. 2,88,500/ - ON STAMP DUTY. THE APPELLANT IS ALSO RUNNING THE BUSINESS OF GIVING AMOUNT OF INTEREST AND HAS EARNED INTEREST OF RS.78,09,191/ - . THERE ARE NO INTEREST EXPENSES OF THE APPELLANT. THE ASSESSING OFFICER HAS DISALLOWED ENTIRE ADMINISTRATIVE EXPENSES ON THE OTHER HAND THE APPELLANT HAS NOT DISALLOWED ANY EXPENSES ON EARNING OF EXEMPTED DIVIDEND ALTHOUGH THERE ARE DEMAT CHARGES OF RS. 6,617/ - . IN THE PRESENT CASE THE ASSESSEE HAS NOT BEEN ABLE TO ESTABLISH WITH SUFFICIENT MATERIAL THAT THE MANNER OF CALCULATING THE AMOUNT DISALLOWABLE FOR EARNING THE EXEMPTED INCOME (I.E. INCOME NOT FORMING PART OF TOTAL INCOME), AS PER HIS WORKING WAS THE CORRECT METHOD AND THAT NO OTHER EXPENSES WERE INCURRED IN RELATION TO EAR NING OF TAX FREE INCOME. I AM SATISFIED THAT THE CLAIM OF EXPENDITURE INCURRED AND SHOWN BY THE APPELLANT WITH REGARD TO THE ACCOUNTS IS NOT CORRECT. ONCE THE ASSESSEE HAS FAILED TO ESTABLISH HIS EXPLANATION THEN THE ONLY COURSE PERMISSIBLE FOR WORKING OUT THE AMOUNT DISALLOWABLE IS APPLICATION OF RULE 8D. I AM SATISFIED THAT THE EXPENSES SHOWN BY THE APPELLANT ARE NOT CORRECT HAVING REGARD TO THE ENTRIES IN THE BOOKS OF ACCOUNTS. FOR THE REASONS SET OUT ABOVE, I THEREFORE HELD THAT IN THE APPELLANT'S CASE THE DISALLOWANCE UNDER SEC 14A WAS REQUIRED TO BE MADE IN CONFORMITY WITH RULE 8D BY THE ASSESSING OFFICER. 7. THE ASSESSING OFFICER HAS RECORDED HIS SATISFACTION BY SAYING THAT THE APPELLANT HAS NOT SHOWN ANY EXPENDITURE FOR EARNING THIS INCOME ALTHOUGH THERE ARE CERTAIN EXPENDITURES INCURRED BY THE APPELLANT FOR THE PURPOSE OF EARNING DIVIDEND. SINCE FUNDS ARE FUNGIBLE, IT WOULD BE DIFFICULT TO ALLOCATE THE ACTUAL QUANTUM OF BORROWED FUNDS THAT HAVE BEEN USED FOR MAKING TAX - FREE INVESTMENTS BY THE APPELL ANT. THE ADMINISTRATIVE EXPENSES ATTRIBUTABLE TO TAX - FREE INVESTMENT INCOME HAVE TO BE CALCULATED AS PER THE ESTIMATION. EVEN UNDER PORTFOLIO MANAGEMENT SCHEMES (PMS) THE FEE CHARGED RANGES BETWEEN 2 AND 2.5 PER CENT OF THE PORTFOLIO VALUE WHICH INCLUDE A PROFIT ELEMENT FOR THE PORTFOLIO MANAGER. THE EXPENSES RELATING TO EXEMPTED INCOME COULD NOT BE CORRECTLY CALCULATED SINCE IN THIS CASE THESE EXPENSES ARE SPREAD OVER A LARGE NUMBER OF VOLUMINOUS ACTIVITIES. THE ADMINISTRATIVE EXPENSES AMOUNT TO RS .4 ,22,80 3/ - AFTER EXCLUDING THE STAMP DUTY. THE DISALLOWANCE IS CONSIDERED TO BE REASONABLE. THE APPLICATION OF RULE 8D IS APPLICABLE IN THE FACTS OF THE CASE. THEREFORE, LOOKING INTO THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE EXPENSES INCURRED BY THE APPELLA NT THE ASSESSING OFFICER WAS REQUIRED TO DISALLOW AS EXPENSES RELATING TO EXEMPTED INCOME U/S 14A READ WITH RULE 8 D (2)(III) @ 0.5% OF AVERAGE INVESTMENTS, WHICH WILL BE MUCH MORE THAN THE ENTIRE ADMINISTRATIVE EXPENDITURE. THEREFORE, LOOKING INTO THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE EXPENSES INCURRED BY THE APPELLANT AN AMOUNT OF RS.2 LAKHS IS DISALLOWED AS EXPENSES RELATING TO EXEMPTED INCOME U/S 14A. THIS GROUND OF APPEAL IS PARTLY ALLOWED. AGGRIEVED, NOW ASSESSEE IS IN APPEAL BEFORE US. 4. WE HAVE GONE THROUGH THE ORDERS OF THE LOWER AUTHORITIES AND FOUND THAT BOTH THE AUTHORITIES BELOW HAVE MADE AD - HOC DISALLOWANCE. NO DOUBT THE CIT(A) HAS TRIED TO GET HELP OF FORMULA UNDER RULE 8D(2)(III) I.E. FOR AVERAGE INVESTMENT @ 0.5% BUT FINALLY DISALLOWED ONLY RS.2 LAKH ON AD - HOC BASIS. WE FIND NO REASON TO CONFIRM THE AD - HOC 3 ITA NO. 41 /K/201 3 SWEW BENEFIT COMPANY AY 200 9 - 10 DISALLOWANCE. THERE CANNOT BE ANY AD - HOC DISALLOWANCE U/S. 14A OF THE ACT READ WITH RULE 8D OF THE RULES. HENCE, WE DELETE THE DISALLOWANCE. APPEAL OF ASSESSEE IS ALLOWED. 5 . IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED . 6 . ORDER IS PRONOUNCED IN THE OPEN COURT . S D / - S D / - ( P. K. BANSAL ) (MAHAVIR SINGH) ACCOUNTANT MEMBER J UDICIAL MEMBER DATED : 8 TH JUNE , 201 5 JD.(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1 . A PPELLANT SWEW BENEFIT COMPANY, UB TOWERS, LEVEL 15, UB CITY, 24 VITTAL MALLYA ROAD, BANGALORE - 560001 2 RESPONDENT D CIT (OSD), KOLKATA. 3 . THE CIT (A), KOLKATA 4. 5. CIT, KOLKATA . DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, ASSTT. REGISTRAR .