VANDANA CYRIL SHROFF, MUMBAI V. ADDL.C.I.T. 11(3), MUMBAI

ITA 4582/MUM/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 8272 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-12-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 02-12-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 06-07-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PAWAN KU MAR BEERLA
• Assessee Lawyers: RASESH V PAREKH
• Keywords: Depreciation; Business expenditure; Earning of tax free income
• Section: 143(3); 14A; 28

Judgement Text

, , , , , IN THE INCOME TAX APPELLATE TRIBUNALF BENCH, MUMB AI , , ,, , , ,, , ! ' BEFORE SHRI JOGINDER SINGH, JM AND SHRI SANJAY ARORA, AM ITA NOS.4582/MUM/2012 ASSESSMENT YEARS-2008-09 VANDANA CYRIL SHROFF 3 RD FLOOR, LENTIN CHAMBERS, DALAL STREET, FORT, MUMBAI-400001 # # # # / VS. ADDL. COMMISSIONER OF INCOME-TAX, 11(3), 4 TH FLOOR, AAYAKAR BHAVAN, M.K.ROAD, CHURCHGATE, MUMBAI-400020 $ ! ./ PAN :ASCPS9994D ( $% / APPELLANT) .. ( &'$% / RESPONDENT ) $% ( ) / ASSESSEE BY: SHRI RASESH V.PAREKH &'$% ( ) / RESPONDENT BY : SHRI PAWAN KUMAR BEERLA # ( *+! / DATE OF HEARING 02/12/2014 ,- ( *+! / DATE OF PRONOUNCEMENT : 04/12/2014 . / O R D E R PER JOGINDER SINGH, JM: THE ASSESSEE IS AGGRIEVED BY THE IMPUGNED ORDER DAT ED 04/05/2012 OF THE LD. FIRST APPELLATE AUTHORITY, MU MBAI, ON THE GROUND THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.3,52,414 /- ON THE GROUND THAT THE SHARE OF THE PROFIT WAS RECEIVED BY THE 2 ITA NO.4582/MUM/2012 M/S VANDANA CYRIL SHROFF ASSESSEE AFTER PAYMENT OF FULL TAX BY THE FIRM CONS EQUENTLY DISALLOWING AND TAXING IT AGAIN IN THE HANDS OF THE ASSESSEE AMOUNTS TO DOUBLE TAXATION. 2. AT THE TIME OF HEARING, THE LD. DR SHRI PAWAN KU MAR BEERLA ADVANCED HIS ARGUMENTS IDENTICAL TO THE GROU ND RAISED BY SUPPORTING THE ASSESSMENT ORDER. ON THE OTHER H AND , THE LD. COUNSEL FOR THE ASSESSEE, SHRI RASESH V. PAREKH DEFENDED THE CONCLUSION DRAWN IN THE IMPUGNED ORDER BY CONTE NDING THAT THE IMPUGNED ISSUED IS COVERED BY THE DECISION OF THE TRIBUNAL ( ITA NO.3511/MUM/2010) IN THE CASE OF MS . PALLAVI SHARDUL SHROFF AND ACIT VS ASHWATH UDIPI RAU (ITA NO.6089/MUM/2012) BY FURTHER CONTENDING THAT THE AS SESSEE IS A PARTNER IN THE FIRM AND ONLY CLAIMED MOTOR CAR EXPENSES LIKE DEPRECIATION, SALARY AND MOTOR RUNNING EXPENSE S FROM THE FIRM. 2.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND P ERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACTS, IN BR IEF, ARE THAT THE ASSESSEE IS AN ADVOCATE BY PROFESSION AND ALSO A SENIOR PARTNER IN M/S AMARCHAND MANGAL DAS AND SURESH A. S HROFF AND CO. AND M/S AMARCHAND MANGAL DAS AND HIRALAL SH ROFF & CO., THE LEGAL FIRMS. THE ASSESSEE GETS SHARE PR OFITS AND SALARY FROM THE FIRMS. THE ASSESSEE DID NOT INCUR ANY DIRECT OR INDIRECT EXPENSES TO EARN THE EXEMPT INCOME IN T HE FORM OF DIVIDEND ON SHARES, DIVIDEND FROM MUTUAL FUNDS AND SHARE OF PROFIT FROM PARTNERSHIP FIRM. THE SHARE OF PROFIT WAS RECEIVED AFTER PAYMENT OF FULL RATE OF TAX BY THE RESPECTIVE FIRM. THE 3 ITA NO.4582/MUM/2012 M/S VANDANA CYRIL SHROFF ASSESSING OFFICER APPLIED RULE 8D OF THE RULES AND DISALLOWED 0.5% OF THE AVERAGE CAPITAL IN THE FIRM AND INVESTM ENT IN SHARES AND MUTUAL FUNDS. THE CAPITAL BALANCE IN TH E FIRM IS UNDISTRIBUTED PROFIT IN THE FIRM AS ON EVERY 31 ST MARCH WHICH INCLUDES TAXABLE SALARY AS WELL AS TAX FREE PROFIT. THE STAND OF THE ASSESSEE IS THAT SHE IS NOT EARNING FROM CAPITA L EMPLOYED BUT FROM HER SKILL AS AN ADVOCATE. THE ASSESSEE DI D NOT CLAIM ANY EXPENSES FOR EARNING DIVIDEND INCOME. THE LD. ASSESSING OFFICER WHILE FRAMING ASSESSMENT U/S 143(3) DISALLO WED A SUM OF RS.3,52,414/- INVOKING SECTION 14A OF THE INCOME -TAX ACT. HOWEVER, THE DISALLOWANCES WAS RESTRICTED TO RS.2,9 0,824/- AS THE ASSESSEE CLAIMED THE AMOUNT AS EXPENSES IN THE RETURN. THE CLAIM OF THE ASSESSEE IS THAT THE ONLY VEHICLE RUNNING EXPENSES FOR DISCHARGING PROFESSIONAL DUTIES WERE C LAIMED AGAINST TAXABLE SALARY U/S 28 (V) OF THE ACT. 2.2. THE ASSESSEE FELT AGGRIEVED AND FILED APPEAL B EFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS), WHEREIN VIDE IMPUGNED ORDER THE STAND OF THE ASSESSEE WAS DISALL OWED AGAINST WHICH THE ASSESSEE IS IN FURTHER APPEAL BEF ORE THIS TRIBUNAL. WE NOTE THAT IDENTICAL ISSUE AROSE BEFOR E THE TRIBUNAL IN THE CASE OF ANOTHER SENIOR PARTNER I.E. MS PALLAVI SHARDUL SHROFF, WHEREIN, VIDE ORDER DATED 27/04/201 1 (A.Y. 2005-06) IT WAS HELD AS UNDER:- 7. RIVAL CONTENTIONS WERE HEARD. ON CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND ON PERUSAL OF THE PAPERS ON RECORD AND 4 ITA NO.4582/MUM/2012 M/S VANDANA CYRIL SHROFF THE ORDERS OF THE AUTHORITIES BELOW, WE HOLD AS FOLLOWS. (I) THE ASSESSEE WAS FOLLOWING A PRACTICE OF DISALLOWING 15% OF CAR EXPENDITURE ON AD-HOC BASIS UP TO THE ASSESSMENT YEAR 2003-04. AT THAT TIME, THE EXPENDITURE INCURRED BY THE ASSESSEE ON ALL THE CARS MAINTAINED BY THE FAMILY, WERE BEING CLAIMED AND OUT OF THE TOTAL EXPENDITURE, AD-HOC DISALLOWANCE @ 15% WAS MADE. FROM THE ASSESSMENT YEAR 2004-05, THE ASSESSEE HAS CLAIMED EXPENDITURE ON CAR AFTER EARMARKING CERTAIN CARS FOR PERSONAL USE. THIS FACT WAS BROUGHT OUT BEFORE THE ASSESSING OFFICER. THE ASSESSING OFFICER HAS NOT BROUGHT OUT ANY EVIDENCE TO REFUTE THIS SUBMISSION OF THE ASSESSEE. THE ASSESSEE HAS GIVEN THE AMOUNT OF EXPENDITURE AND DEPRECIATION INCURRED ON THESE THREE CARS. THESE FIGURES HAVE NOT BEEN DISPUTED. WHEN THE ASSESSEE HAS NOT CLAIMED EXPENDITURE ON ALL THE CARS MAINTAINED BY THE FAMILY AND THEN DISALLOW ON AD-HOC BASIS 15% OF THE TOTAL EXPENDITURE, THE ASSESSING OFFICER AS WELL AS THE COMMISSIONER (APPEALS) WERE NOT JUSTIFIED IN FURTHER CONTINUING AD-HOC DISALLOWANCE OF 15% IN THIS YEAR ALSO. THE EXPENDITURE INCURRED ON THE CAR WAS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF PROFESSION AND, HENCE THE AD-HOC DISALLOWANCE IS HEREBY DELETED. (II) NOW, COMING TO THE APPLICATION OF PROVISIONS O F SECTION 14A, THE FIRM IN WHICH THE ASSESSEE IS A PARTNER, IS NOT PAYING REMUNERATION AND CONVEYANCE ALLOWANCE OR CAR ALLOWANCE SEPARATELY. AS A MATTER OF POLICY, A CONSOLIDATED SUM IS PAID AS REMUNERATION AND THE PARTNER IS REQUIRED TO INCUR EXPENDITURE ON ITS OWN. UNDER THESE CIRCUMSTANCES, IN OUR OPINION, THE EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING REMUNERATION WHICH IS BEING BROUGHT TO TAX UNDER SECTION 28(V). THE SHARE OF INCOME OF THE FIRM HAS NO NEXUS WITH THE 5 ITA NO.4582/MUM/2012 M/S VANDANA CYRIL SHROFF EXPENDITURE INCURRED ON CAR BY THE ASSESSEE. ALL THE EXPENDITURE OF THE FIRM ARE BOOKED IN THE FIRM S ACCOUNT AND THE EXPENDITURE INCURRED BY THE PARTNER ON CAR CANNOT BE HELD TO HAVE A NEXUS IN THE EARNING OF SHARE INCOME FROM THE FIRM. HENCE, PROPORTIONATE DISALLOWANCE UNDER SECTION 14A, IN OUR OPINION, IS UNCALLED FOR. THUS, THE PROPORTIONATE DISALLOWANCE IS DISALLOWED. 2.3. IDENTICALLY FOR ASSESSMENT YEAR 2009-10 IN THE CASE OF ACIT VS ASHWATH UDIPI RAU (ITA NO.6089/MUM/2012) VI DE ORDER DATED 18/06/2014 THE TRIBUNAL HELD AS UNDER:- 2. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. THE ASSESSEE HAS BEEN EQUITY PARTNER WITH LEGAL FIRM, M/S. AMARCHAND MANGALDAS & SURESH A. SHROFF & CO. WITH EFFECT FROM 1ST OCTOBER, 2008. THE ASSESSEE HAS RECEIVED SHARE IN PROFIT OF RS.57,54,075/- AND FURTHER RECEIVED RS.68,57,206/- AS PARTNERS SALARY FROM THE SAME FIRM AND PROFESSIONAL FEES OF RS.1,55,34,998/-. THE ASSESSEE HAS DEBITED EXPENSES OF RS.51,80,992/- IN THE P & L ACCOUNT. DURING THE COURSE OF ASSESSMENT AO ASKED THE ASSESSEE TO SHOW CAUSE AS TO WHY DISALLOWANCE SHOULD NOT BE MADE U/S.14A IN RESPECT OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOM E. IT WAS EXPLAINED VIDE LETTER DATED 14.12.2011 THAT THE AMOUNT OF EXPENSES INCURRED BY HIM ARE NOT FOR EARNING JUST HIS PARTNERS SHARE OF PROFIT BUT FOR EARNING PROFESSIONAL FEES. FURTHER, THERE ARE NO EXPENSES SPECIFICALLY INCURRED FOR EARNING HIS SHAR E OF PROFIT. THE AO OBSERVED THAT THE ASSESSEE HAS ALSO CITED SOME CASE LAWS WHERE THE MAIN REASON FOR NON DISALLOWANCE U/S.14A WAS THAT THE SHARE OF 6 ITA NO.4582/MUM/2012 M/S VANDANA CYRIL SHROFF PROFIT OF THE FIRM CANNOT BE STRICTLY CALLED AS TAX FREE AS IT IS ALREADY TAXED IN THE HANDS OF THE FIRM. HOWEVER, THE AO WAS OF THE VIEW THAT THE PARTNERS AND FIRMS ARE TWO SEPARATE TAXABLE ENTITIES AND THEREFORE, THE TREATMENT OF ANY INCOME IN ONES HAN D CANNOT BE AFFECTED ITS NATURE IN OTHERS HAND. MOREOVER, THE DIVIDENDS ARE TAXED INITIALLY IN THE FORM OF DIVIDEND DISTRIBUTION TAX, THEN ALSO THESE ARE CONSIDERED AS EXEMPT IN ABSOLUTE SENSE FOR THE PURPOSE OF 14A. IN VIEW OF THESE FACTS, THE AO MADE DISALLOWANCE OF RS. 10,59,174/-U/S. 14A OF THE ACT. 2.1 BY THE IMPUGNED ORDER CIT(A) DELETED THE DISALLOWANCE AFTER HAVING THE FOLLOWING OBSERVATIONS:- 1.3 I HAVE CONSIDERED THE FACTS AND PERUSED THE MATERIAL ON RECORD. THE PROVISIONS OF SECTION 14A ( 1) READ WITH SECTION 14A (2) PROVIDES THAT FOR THE PURPOSE OF TOTAL INCOME COMPUTED UNDER THIS CHAPTER, NO DEDUCTION SH ALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE A SSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTA L INCOME UNDER THIS CHAPTER AND THE AO WILL DETERMINE THE AM OUNT OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME I F HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. IT IS SEEN THAT THE APPELLANT HAS NOT INCURRED ANY EXP ENDITURE IN RELATION TO EARN THE SHARE OF PROFIT AND PARTNER S REMUNERATION FROM THE FIRM. THE INVESTMENT OF FIXED CAPITAL AMOUNTING TO RS. 16,00,000/- HAS BEEN MADE OUT OF O WN FUND/ NON INTEREST BEARING FUND. HENCE, NO INTEREST IN RELATION TO SHARE OF PROFIT AND REMUNERATION FROM T HE PARTNERSHIP FIRM HAS BEEN INCURRED. THE EXPENDITURE OF RS.51,80,992/- IS DEBITED AGAINST THE PROFESSIONAL INCOME OF RS.1.55 CRORES HENCE, SAME IS NOT INCURRED IN RELAT ION TO 7 ITA NO.4582/MUM/2012 M/S VANDANA CYRIL SHROFF EXEMPT INCOME. THEREFORE, THIS EXPENDITURE CANNOT B E RELATED FOR EARNING EXEMPT INCOME IN THE FORM OF SHARE OF P ROFIT FROM THE PARTNERS FIRM AND REMUNERATION FROM THE FIRM. THE MUMBAI TRIBUNAL, J BENCH IN THE CASE OF PALLAVI SH ARDUL SHROFF, PARTNER OF M/S. AMARCHAND MANGALDAS FIRM [I TA 3511/MUM/2010] AY 05-06 DATED 27/4/11 HAS HELD THAT THAT THE SHARES OF PROFIT OF THE FIRM HAS NO NEXUS WITH EXPENDITURE INCURRED ON CAR BY THE ASSESSEE. ALL TH E EXPENDITURE ARE BOOKED IN THE FIRMS ACCOUNT AND TH E EXPENDITURE INCURRED ON CAR CANNOT TO BE HAVING ANY NEXUS WITH THE EARNING OF SHARES INCOME FROM THE FIRM. TH E MOTOR CAR EXPENSE AND SALARY TO DRIVER CANNOT BE ATTRIBUT ED TO EARNING SHARES OF PROFIT FROM FIRM. THE APPELLANT H AS NOT CLAIMED ANY EXPENDITURE IN RELATION TO EXEMPT INCOM E. THEREFORE, THERE IS NO PROXIMATE CAUSE FOR DISALLOW ANCE IN RELATIONSHIP WITH EXEMPT INCOME AS HELD IN CIT VS. WALFORT SHARES & STOCK BROKERS PVT. LTD. 326 ITR1 (SC) AND GODREJ & BOYCE MANUFACTURING CO. LTD VS. DCIT (2010) 328 ITR 81 (BOM) FOR ATTRACTING THE PROVISIONS OF SECTION 14A. IN THE LIGHT OF THESE FACTS, THE DISALLOWANCE OF RS.10,59,174/- MADE U/S.14A IS, THEREFORE, DELETED. 2.3 AGAINST THIS ORDER OF CIT(A) REVENUE IS IN APPE AL BEFORE US. 3. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND GONE THROUGH THE AUTHORITIES BELOW AND FOUND FROM THE RECORD THAT THE AO MADE DISALLOWANCE TAKING INTO ACCOUNT THE ENTIRE EXPENSES OF RS.51.80 LACS DEBITED TO PROFIT & LOSS A/C. HOWEVER, THE ASSESSEE HAS RECEIVED INCOME FROM PROFESSION AND ALSO RECEIVED REMUNERATION FROM PARTNERSHIP FIRM M/S. AMARCHAND MANGALDAS & SURESH A. SHROFF & CO. 8 ITA NO.4582/MUM/2012 M/S VANDANA CYRIL SHROFF AGAINST THE PROFESSIONAL FEE OF RS.1.55 CRORES THE ASSESSEE HAS CLAIMED BUSINESS EXPENSES OF RS.51.80 LACS. HOWEVER, THE ASSESSEE HAS NOT INCURRED ANY EXPENSES TOWARDS BECOMING PARTNER IN THE FIRM AND AS SUCH NO EXPENSES WERE INCURRED AGAINST THE REMUNERATION RECEIVED/ SHARE OF PROFIT RECEIVED FROM THE FIRM. WHATEVER EXPENDITURE IS INCURRED IS FOR CARRYING OUT HIS PROFESSIONAL CONSULTANCY IN HIS PERSONAL NAME FOR WHICH ASSESSEE WAS RECEIVING A FEE OF RS.1.55 CRORES. THU S WE FIND THAT AGAINST THE INCOME OF RS.1.55 CRORES ASSESSEE CLAIMED EXPENSES ONLY OF RS.51.80 LACS WHICH IS 33.5% OF PROFESSIONAL INCOME. WE FIND THAT ASSESSEE MADE CAPITAL INVESTMENT OF RS.16.00 LACS BY WAY OF FIXED CAPITAL IN THE PARTNERSHIP FIRM AND HAS NOT PAID ANY INTEREST ON BORROWINGS FOR THE PURPOSE OF MAKING INVESTMENT IN THE PARTNERSHIP FIRM. SUCH INVESTMENT WAS MADE OUT OF OWN FUNDS/NON INTEREST BEARING FUNDS WHICH IS EVIDENT FROM PROFIT & LOSS A/C. WE FIND THAT INTEREST EXPENDITURE DEBITED TO PROFIT & LOSS A/C WAS IN RESPECT OF CAR LOAN AMOUNTING TO RS.66,739/-. THUS NO DISALLOWANCE IS WARRANTED U/S. 14A. SINCE NO EXPENDITURE WAS CLAIMED IN PROFIT & LOSS A/C WHICH CAN BE DIRECTLY OR INDIRECTLY ATTRIBUTED TO EARNING OF SHARE OF PROFIT FROM THE FIRM. 3.1. IN THE INSTANT CASE ALSO WHILE DELETING THE DISALLOWANCE CIT(A) HAS RECORDED A CATEGORICAL FINDING THAT EXPENDITURE OF RS.51.80 LACS WAS NOT INCURRED IN RELATION TO EXEMPT INCOME. FINDING SO RECORDED BY CIT(A) HAS NOT BEEN CONTROVERTED BY DEPARTMENT BY BRINGING ANY POSITIVE MATERIAL ON RECORD. ACCORDINGLY WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) FOR DELETING THE DISALLOWAN CE 9 ITA NO.4582/MUM/2012 M/S VANDANA CYRIL SHROFF MADE U/S. 14A. 4. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSED . 2.4. IN THE PRESENT APPEAL ALSO THE FACTS AND THE ISSUES ARE IDENTICAL, THEREFORE, FOLLOWING THE AFORESAID ORDER OF THE TRIBUNAL WE REVERSE THE ORDER OF THE LD. COMMISSION ER OF INCOME TAX (APPEALS) SO FAR AS ISSUE IN HAND IS CON CERNED. FINALLY, THE APPEAL OF THE ASSESSEE IS ALLOWED. THIS ORDER WAS PRONOUNCED, IN THE OPEN COURT, IN TH E PRESENCE OF LD. REPRESENTATIVE FROM BOTH SIDES AT T HE CONCLUSION OF THE HEARING, ON 04 TH DECEMBER, 2014. SD/- SD/- (SANJAY ARORA) ( JOGINDER SINGH) ACCOUNTANT MEMBER J UDICIAL MEMBER MUMBAI; /# DATED.- 04/12/2014 F{X~{T? P.S/. # . . . . . . ( (( ( &*0 &*0 &*0 &*0 1 0-* 1 0-* 1 0-* 1 0-* / COPY OF THE ORDER FORWARDED TO : 1. $% / THE APPELLANT 2. &'$% / THE RESPONDENT. 3. 2 ( ) / THE CIT(A)- CONCERNED, MUMBAI 4. 2 / CIT CONCERNED, MUMBAI 5. 03 &*# , , / DR, ITAT, MUMBAI E BENCH 6. 45 6 / GUARD FILE. .# .# .# .# / BY ORDER, '0* &* //TRUE COPY// 7 77 7 / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI.