VIJAY HARKISON DESAI, MUMBAI V. ACIT 19(2), MUMBAI

ITA 4158/MUM/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4066 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-07-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Assessment Year: 2008-2009
• Appeal Filed On: 13-06-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business expenditure; Earning of tax free income
• Section: 14A

Judgement Text

ITA NO. 4158/MUM/201 2 SHRI VIJAY HARKISON DESAI PAGE 1 OF 3 IN THE INCOME TAX APPELLATE TRIBUNAL 'F' BENCH, MUMBAI BEFORE SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER AND DR. STM PAVALAN JUDICIAL MEMBER ITA NO. 4158/MUM/2012 ASSESSMENT YEAR 2008-09 DATE OF HEARING: 11/7/2013 DATE OF PRONOUNCEMENT: 19 /7/2013 O R D E R PER RAJENDRA SINGH, AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 9.2.2012 OF CIT(A) FOR THE ASSESSMENT YEAR 2008-09. THE ASSESSEE IN TH IS APPEAL HAS DISPUTED THE DISALLOWANCE OF CERTAIN EXPENSES MADE ON ESTIMATE BASIS AS WELL AS DISALLOWANCE U/S 14A OF THE INCOME TAX ACT. 2. WE FIRST TAKE UP THE DISPUTE RELATING TO ESTIMAT ED DISALLOWANCE OF EXPENSES. THE ASSESSEE HAD CLAIMED MISCELLANEOUS EXPENSES, ENTERT AINMENT EXPENSES, MOTOR CAR EXPENSES AND CONVEYANCE EXPENSES AT RS. 8,27,920. T HE AO FROM THE PERUSAL OF VOUCHERS OF THESE EXPENSES OBSERVED THAT THERE WERE PETTY CA SH EXPENSES AND CERTAIN EXPENSES WERE SUPPORTED ONLY BY SELF MADE VOUCHERS. HE, THEREFORE , ON ESTIMATE DISALLOWED A SUM OF RS. 70,000/-. IN APPEAL, THE ASSESSEE SUBMITTED THAT IT HAD DEBITED ONLY BUSINESS EXPENSES AND THERE WAS NO ELEMENT OF PERSONAL EXPENSES INVOLVED. THE EXPENDITURE HAD BEEN INCURRED ONLY FOR THE PURPOSE OF BUSINESS. CIT(A), HOWEVER D ID NOT ACCEPT THE CONTENTIONS RAISED SHRI VIJAY HARKISON DESAI VALA NO. 6/33, MITTAL INDUSTRIAL ESTATE, ANDHERI KURLA ROAD, ANDHERI (E) MUMBAI 400059 ACIT19 (2), 3 RD FLOOR, PIRAMAL CHAMBERS LALBAUG, PAREL, MUMBAI 400012. APPELLANT RESPONDENT DEPARTMENT BY. SHRI RAJESH R. PRASAD ASSESSEE BY: SHRI A.F. KHASGIWALA ITA NO. 4158/MUM/201 2 SHRI VIJAY HARKISON DESAI PAGE 2 OF 3 AND CONFIRMED THE DISALLOWANCE TO THE EXTENT OF RS. 50,000/-. AGGRIEVED BY THE DECISION OF CIT(A), THE ASSESSEE IS IN APPEAL BEFORE TRIBUNAL. 3. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE RECO RDS AND CONSIDERED MATTER CAREFULLY. THE ESTIMATED DISALLOWANCE OF EXPENSES H AD BEEN MADE BY AO ON THE GROUND OF SELF MADE VOUCHERS IN SOME CASES AND EXPENDITURE IN CURRED IN CASH. THE SAID FINDING OF FACT HAS NOT BEEN CONTROVERTED BY THE ASSESSEE EITHER BE FORE CIT(A) OR BEFORE US. THEREFORE, ESTIMATED DISALLOWANCE OF EXPENDITURE ON THE FACTS OF THE CASE IS JUSTIFIED. HOWEVER, IN OUR VIEW IT WILL MEET THE ENDS OF JUSTICE IF THE DISALL OWANCE IS RESTRICTED TO 5% OF TOTAL EXPENSES. WE ORDER ACCORDINGLY. 4. THE SECOND DISPUTE IS REGARDING DISALLOWANCE OF EXPENSES U/S 14A OF THE INCOME TAX ACT. THE AO NOTED THAT THE ASSESSEE HAD RECEIVE D DIVIDEND INCOME WHICH WAS EXEMPT FROM TAX. HE, THEREFORE, APPLIED THE PROVISIONS OF SECION 14A AND MADE ADDITION UNDER RULE 8D WHICH WAS APPLICABLE FROM ASSESSMENT YEAR 2008-0 9. THE DISALLOWANCE WAS MADEONLY IN RESPECT OF OFFICE EXPENSES AT THE RATE OF 5% OF AVERAGE INVESTMENTS, WHICH CAME TO RS. 1,91,153/-. THE ASSESSEE DISPUTED THE DECISION OF A O AND SUBMITTED BEFORE CIT(A) THAT THE ASSESSEE HAD NOT INCURRED ANY EXPENSES FOR EARNING DIVIDEND INCOME. THE ASSESSEE HAD MAINTAINED THE PERSONAL BOOKS OF ACCOUNT SEPARATELY FOR THE BUSINESS. IT WAS ARGUED THAT NO DISALLOWANCE OF EXPENSES SHOULD BE MADE. CIT(A) HOW EVER DID NOT ACCEPT THE CONTENTIONS RAISED. IT WAS OBSERVED BY HIM THAT RULE 8D WAS APP LICABLE FROM ASSESSMENT YEAR 2008-09 AS HELD BY HONBLE HIGH COURT OF BOMBAY IN CASE OF GODREJ BOYCE MFG. CO. (328 ITR 81). HE, THEREFORE CONFIRMED THE DISALLOWANCE MADE BY AO AS PER RULE 8D, AGGRIEVED BY WHICH THE ASSESSEE IS IN APPEAL BEFORE TRIBUNAL. 5. BEFORE US, LEARNED AR FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE WAS AN INDIVIDUAL WHO HAD MADE CERTAIN INVESTMENTS FROM WHICH DIVIDEN D INCOME HAD BEEN RECEIVED. THE ASSESSEE WAS NOT TRADING IN SHARES. THE ASSESSEE HA D NOT INCURRED ANY EXPENSES FOR EARNING DIVIDEND INCOME WHICH HAD BEEN DIRECTLY CREDITED TO THE BANK ACCOUNT. IT WAS ALSO SUBMITTED THAT THE ASSESSEE MAINTAINED SEPARATE ACC OUNTS FOR THE PROPRIETARY BUSINESS. THUS THERE BEING NO EXPENSES INCURRED, DISALLOWANCE MADE UNDER RULE 8D WAS NOT JUSTIFIED. THE LEARNED DR ON THE OTHER HAND SUBMITTED THAT THE ASS ESSEE HAD RECEIVED SUBSTANTIAL DIVIDEND INCOME AS WELL AS LONG TERM CAPITAL GAIN BOTH OF WH ICH WERE EXEMPT. THEREFORE, DISALLOWANCE OF EXPENSES WAS REQUIRED TO BE MADE AS PER RULE 8D OF SECTION 14A. ITA NO. 4158/MUM/201 2 SHRI VIJAY HARKISON DESAI PAGE 3 OF 3 6. WE HAVE PERUSED THE RECORDS AND CONSIDERED MATTE R CAREFULLY. THE DISPUTE IS REGARDING DISALLOWANCE OF EXPENSES U/S 14A IN RESPE CT OF EXEMPT INCOME. THE DISALLOWANCE OF EXPENSES IS REQUIRED TO BE COMPUTED AS PER RULE 8D WHICH WAS APPLICABLE FROM ASSESSMENT YEAR 2008-09. HOWEVER THE PROVISIONS OF SECTION 14A(2) MAKE IT CLEAR THAT DISALLOWANCE UNDER RULE 8D CAN BE MADE ONLY IF THE AO IS NOT SATISFIED WITH THE CORRECTNESS OF CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENSES. IN THIS CASE THE ASSESSEE HAD CLAIMED THAT HE HAD NOT INCURRED ANY EXPENDITUR E FOR EARNING DIVIDEND INCOME BUT THE AO HAS NOT RECORDED ANY SATISFACTION REGARDING THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. IT HAS BEEN ARGUED THAT THE ASSESSEE WAS ONLY AN IN DIVIDUAL WHO HAD NOT INCURRED ANY EXPENSES IN RELATION TO THE INVESTMENT MADE IN SHAR ES FROM WHICH THE DIVIDEND INCOME HAD BEEN RECEIVED. IN OUR VIEW THE CLAIM OF THE ASSESSE E IS REQUIRED TO BE VERIFIED AT THE LEVEL OF AO WHO IS REQUIRED TO GIVE A CLEAR FINDING REGARDI NG SATISFACTION ABOUT THE CLAIM OF THE ASSESSEE. WE, THEREFORE, SET ASIDE THE ORDER OF CIT (A) ON THIS POINT AND RESTORE THE ISSUE TO THE FILE OF AO FOR PASSING A FRESH ORDER AFTER NECE SSARY EXAMINATION, IN THE LIGHT OF OBSERVATIONS MADE ABOVE AND AFTER ALLOWING OPPORTUN ITY OF HEARING TO THE ASSESSEE. 6. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY A LLOWED. ORDER PRONOUNCED TODAY ON 19-7-2013 SD/- SD/- (DR. STM PAVALAN ) (RAJENDRA SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER SKS SR. P.S, MUMBAI DATED 19 .7.2013 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, F BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI