ORIENTAL AROMATICS LTD, MUMBAI V. ADDL CIT RG 10(2), MUMBAI

ITA 4734/MUM/2011

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 70706 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 04-07-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 13-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T ROUMUAN PAITE
• Keywords: Onus to prove

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUM BAI , ! ! ! ! '! !, $ BEFORE SHRI SANJAY ARORA, A. M. AND SHRI VIJAY PAL RAO, J. M. ./ I.T.A. NO.4734/MUM/2011 ( ' ( !)( ' ( !)( ' ( !)( ' ( !)( / / / / ASSESSMENT YEAR: 2008-09) ORIENTAL AROMATICS LTD. 2 ND FLOOR, JEHANGIR BLDG., 133, M. G. ROAD, MUMBAI-400 001 ' ' ' ' / VS. ADDL. CIT, RANGE 10(2), ROOM NO.433, 4 TH FLOOR, AAYKAR BHAVAN, M. K. ROAD, MUMBAI-400 020 * ./ + ./ PAN/GIR NO. AAACO 4618 F ( *, / APPELLANT ) : ( -.*, / RESPONDENT ) *, / / APPELLANT BY : SHRI K. GOPAL -.*, 0 / / RESPONDENT BY : SHRI T. ROUMUAN PAITE '! 0 12 / // / DATE OF HEARING : 04.07.2013 3) 0 12 / DATE OF PRONOUNCEMENT : 23.08.2013 4 / O R D E R PER SANJAY ARORA, A. M.: THIS IS AN APPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-22, MUMBAI (CIT(A) FOR SH ORT) DATED 09.03.2011, PARTLY ALLOWING THE ASSESSEES APPEAL CONTESTING ITS ASSES SMENT U/S.143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMEN T YEAR (A.Y.) 2008-09 VIDE ORDER DATED 30.11.2010. 2 ITA NO.4734/MUM/2011 (A.Y. 2008-09) ORIENTAL AROMATICS LIMITED. VS. ADDL. CIT 2.1 THE ONLY ISSUE ARISING IN THE INSTANT APPEAL IS THE VALIDITY IN LAW OF THE DISALLOWANCE IN THE SUM OF RS.21,64,004/- EFFECTED BY THE ASSESSING OFFICER (A.O.) U/S.14A R/W R. 8D OF THE INCOME TAX RULES, 1962 (T HE RULES HEREINAFTER). THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HAVING CLAIMED TH E DIVIDEND INCOME OF RS.108.61 LACS AS TAX EXEMPT, WAS QUESTIONED IN RESPECT OF THE PROPOR TIONATE DISALLOWANCE OF DIRECT OR INDIRECT EXPENDITURE IN RESPECT OF THE SAID INCOME IN VIEW OF SECTION 14A. THE ASSESSEE JUSTIFIED ITS SUO MOTU DISALLOWANCE U/S.14A AT RS.1,88,728/-, AS UNDER: RUPEES 10% OF DIRECTORS REMUNERATION 1,65,840 ESTIMATED AMOUNT OF TELEPHONE AND SALARY OF ACCOUNT ANT AS PER ASSESSMENT ORDER OF A.Y. 2005-06 10,000 DEMAT CHARGES 12,888 1,88,728 THIS WAS THE SAME BASIS AS HAD BEEN ADOPTED BY THE REVENUE FOR THE ASSESSMENT FOR A.Y. 2005-06 (COPY OF THE ASSESSMENT ORDER DATE D 15.10.2007 ON RECORD). HOWEVER, THE SAME DID NOT FIND FAVOUR WITH THE A.O. AS FROM THE CURRENT YEAR R.8D WAS APPLICABLE. HUGE INVESTMENTS IN SHARES AND UNITS, BLOCKING FUND S/CAPITAL OF THE FIRM, WHICH HAVE AN ATTENDANT OPPORTUNITY COST, HAVE BEEN MADE. FURTHER , SUCH CAPITAL INVESTMENT DECISIONS ARE GENERALLY MADE BY THE DIRECTORS/TOP MANAGEMENT, AGAIN ENTAILING DIRECT AND INDIRECT ADMINISTRATIVE EXPENSES. BESIDES, THERE IS EXPENDIT URE AS BY WAY OF EQUITY RESEARCH, ANALYSIS OF THE TREND IN THE RATES AS WELL AS THE M ARKET IN GENERAL, LEADING TO DECISIONS AS TO ACQUISITION, RETENTION OR SALE, ETC., AGAIN ENTA ILING COST. THE ASSESSEE HAD NOT BEEN ABLE TO SUBSTANTIATE ITS CLAIM OF THE SUO MOTU DISALLOWANCE WITH ANY EVIDENCE. HE, ACCORDINGLY, EXPRESSED HIS DISSATISFACTION THEREWITH IN TERMS OF SECTION 14A(2) R/W S. 14A(3), AND PROCEEDED TO ESTIMATE THE DISALLOWANCE BY ADOPTING RULE 8D(2)(III), I.E., AT 0.5% OF THE AVERAGE INVESTMENT OBTAINING DURING THE YEAR. THIS, AS THERE WAS ADMITTEDLY NO DIRECT EXPENDITURE NOR ANY EXPENDITURE BY WAY OF INTEREST. 2.2 BEFORE THE FIRST APPELLATE AUTHORITY THE ASSESS EE REFURBISHED ITS CASE BY STATING THAT THE A.O. HAD ASSUMED A WRONG VALUE OF THE INVESTMEN T INASMUCH AS THE AVERAGE INVESTMENT OF RS.4705.48 LACS IN SHARES AND UNITS, I.E., AS ADOPTED, INCLUDES THE AVERAGE 3 ITA NO.4734/MUM/2011 (A.Y. 2008-09) ORIENTAL AROMATICS LIMITED. VS. ADDL. CIT INVESTMENT OF RS.2587.60 LACS (RECKONED ON THE SAME BASIS) IN INVESTMENTS IN ITS SUBSIDIARY COMPANY, ORIENTAL AROMATICS INC. (USA), THE DIVIDEND INCOME FROM WHICH WOULD NOT BE EXEMPT U/S. 10(34) OF THE ACT. THE SAM E, ACCORDINGLY, IS REQUIRED TO BE EXCLUDED IN THE WORKING THE AVERAGE INVESTMENT U/R. 8D (2)(III), AND FOR WHICH THE ASSESSEE HAD MOVED A SEPARATE APPLICATION U/S.154 B EFORE THE A.O. ON 27.01.2011. THE LD. CIT(A) CONFIRMED THE ASSESSMENT IN PRINCIPLE, THOUG H DIRECTED THE A.O. TO DISPOSE OF THE ASSESSEES RECTIFICATION APPLICATION BEFORE HIM EXP EDITIOUSLY, MAKING HIS CONFIRMATION OF THE ASSESSMENT ORDER AS SUBJECT TO THE DETERMINATIO N OF THE QUANTUM OF DISALLOWANCE ON THE DISPOSAL OF THE SAID APPLICATION. AGGRIEVED, TH E ASSESSEE IS IN SECOND APPEAL. 3. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. CLEARLY THE BASIS ADOPTED FOR AY 2005-06 HAS NO BE ARING OR RELEVANCE FOR THE CURRENT YEAR; R. 8D BEING MANDATORY IN ITS APPLICAT ION. IN FACT, AS IT APPEARS, THERE IS NO EXPENDITURE ON DIRECTORS REMUNERATION INCURRED FOR THE CURRENT YEAR. ON MERITS, NO DEFINITE IMPROVEMENT IN ITS CASE STOOD MADE BY THE ASSESSEE BEFORE US. THE DISALLOWANCE IN THE INSTANT CASE IS ONLY IN RESPECT OF INDIRECT EXPENDITURE, THE ESTIMATION OF WHICH HAS BEEN STATUTORILY PROVIDED AT 0.5% OF THE AVERAGE VA LUE OF THE RELEVANT INVESTMENT, I.E., THE INVESTMENT YIELDING INCOME NOT FORMING PART OF THE TOTAL INCOME. THIS IS OF-COURSE SUBJECT TO THE ASSESSEE SHOWING THE INCURRING OF EXPENDITUR E IN A DIFFERENT SUM WITH REFERENCE TO ITS ACCOUNTS AND/OR UNDERLYING RECORDS, AND WHICH I S CLEARLY ABSENT IN THE INSTANT CASE, AS WOULD BE APPARENT FROM THE ASSESSEES SUO MOTU DISALLOWANCE, REPRODUCED ABOVE. AT THE SAME TIME, HOWEVER, AS POINTED OUT BY THE LD. AR, T HERE IS NO REFERENCE TO THE INCURRING OF THE RELEVANT EXPENDITURE IN THE SAID SUM IN THE FIR ST PLACE IN THE ORDERS OF THE AUTHORITIES BELOW. TAKING US THROUGH SCHEDULE 9 (ADMINISTRATIVE AND OTHER EXPENSES AT RS.429.88 LACS) OF ITS BALANCE-SHEET (COPY ON RECORD), IT WAS SUBMITTED BY HIM THAT THE SAME INCLUDES EXPENDITURE WHICH HAS NO RELATION WHATSOEVER WITH T HE INVESTMENT ACTIVITY, VIZ., EXCISE DUTY, REPAIR AND MAINTENANCE, FREIGHT AND HANDLING CHARGES, DISCOUNT, TRAVELLING, COMMISSION, LOAN PROCESSING CHARGES, ETC. THE ARGUM ENT HAS SOME MERIT INASMUCH AS THE DISALLOWANCE COULD NOT EXCEED OR BE EVEN AT AN INOR DINATE PROPORTION OF THE TOTAL RELEVANT EXPENDITURE INCURRED FOR THE YEAR. FURTHER, THE ASS ESSEES CLAIM OF AN INCORRECT WORKING 4 ITA NO.4734/MUM/2011 (A.Y. 2008-09) ORIENTAL AROMATICS LIMITED. VS. ADDL. CIT QUA THE RELEVANT INVESTMENT HAVING BEEN MADE BY THE A. O., AND FOR WHICH THE LD. AR WOULD TAKE US THROUGH SCHEDULE 4 OF THE BALANCE-SHE ET, DEPICTING THE INVESTMENT IN ITS SUBSIDIARY COMPANY, ORIENTAL AROMATICS INC. (USA), SO THAT THE SAME IS NOT AN INVESTMENT IN A DOMESTIC COMPANY INCOME FROM WHICH WOULD BE SUBJECT TO EXEMPTION U/S. 10(34), THE SAME IS PRIMA FACIE CORRECT. THE ASSESSEE HAS NOT INFORMED ON THE STAT US OF ITS APPLICATION U/S. 154. THE SAME FORMING A SUB JECT MATTER OF APPEAL, REFERENCE THERETO WOULD EVEN OTHERWISE BE OF NO MOMENT. UNDER THE CIRCUMSTANCES, WE, THEREFORE, ONLY CONSID ER IT FIT AND PROPER THAT THE MATTER IS RESTORED BACK TO THE FILE OF THE FIRST AP PELLATE AUTHORITY FOR A CONSIDERATION AFRESH OF THE ASSESSEES CLAIMS. THE ONUS TO PROVE THE SAM E THOUGH WOULD ONLY BE ON THE ASSESSEE. THE FAA SHALL DECIDE THE SAME IN ACCORDAN CE WITH LAW, ISSUING DEFINITE FINDINGS OF FACT AFTER HEARING BOTH THE SIDES. WE D ECIDE ACCORDINGLY. 4. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 5 16 ' (51 0 70 89: ! ;1 0 1 <= ORDER PRONOUNCED IN THE OPEN COURT ON AUGUST 23, 20 13 SD/- SD/- (VIJAY PAL RAO) (SANJAY ARORA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; >' DATED : 23.08.2013 !.'. ./ ROSHANI , SR. PS 4 0 -1' ?')1 4 0 -1' ?')1 4 0 -1' ?')1 4 0 -1' ?')1/ COPY OF THE ORDER FORWARDED TO : 1. *, / THE APPELLANT 2. -.*, / THE RESPONDENT 3. @ ( ) / THE CIT(A) 4. @ / CIT - CONCERNED 5. '!CD -1' , , / DR, ITAT, MUMBAI 6. DE( F / GUARD FILE 4' 4' 4' 4' / BY ORDER, 8 88 8/ // / < < < < (DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI