SUNIDHI SECURITIES AND FINANCE LIMITED , MUMBAI V. DCIT - 4(2)(1), MUMBAI

ITA 4734/MUM/2017

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 8782 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-12-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2013-2014
• Appeal Filed On: 04-07-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHAUDHARY ARUN KUMAR SINGH
• Keywords: Earning of tax free income; Deemed to accrue or arise in india
• Section: 143(3); 14A; 195

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G MUMBAI BEFORE SHRI PAWAN SINGH (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 4734/MUM/2017 ASSESSMENT YEAR: 2013 - 14 SUNIDHI SECURITIES & FINANCE LTD. 8 TH FLOOR, UNIT 1, KALPATARU INSPIRE, OPP. GRAND HYATT HOTEL, SANTACRUZ (EAST), MUMBAI - 400055. VS. DCIT 4 (2)(1), AAYAKARBHAVAN, MUMBAI. PAN NO. AADCS1657D APPELLANT RESPONDENT ASSESSEE BY : MR. HIRO RAI, AR REVENUE BY : MR. CHAUDHARY ARUN KUMAR SINGH, DR DATE OF HEARING : 22/11 /2018 DATE OF PRONOUNCEMENT : 27/12/2018 ORDER PER N.K. PRADHAN, AM THIS IS AN APPEAL FILED BY THE ASSESSEE. THE RELEVANT ASSESSMENT YEAR IS 2013 - 1 4 . THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) - 9 , MUMBAI [IN SHORT CIT(A)] AND ARISES OUT OF THE ASSESSMENT COMPLETED U/S 143(3) OF THE INCOME TAX ACT 1961, (THE ACT). 2. THE GROUND S OF APPEAL READ AS UNDER: 1. ( I) THE LD. CIT(A) ERRED IN CONFIRMING THE ACTION OF DCIT OF MAKING ADDITION TO THE EXTENT OF RS.10,94,218/ - U/S 14A READ WITH RULE 8D. SUNIDHI SECURITIES ITA NO. 4734/MUM/2017 2 (II) WITHOUT PREJUDICE, THE LD. CIT(A) FURTHER ERRED IN CONFIRMING THE ACTION OF DCIT OF INCLUDING STOCK IN TRADE ALONG WITH INVESTMENT FOR THE PURPOSE OF CALCULATION OF DISALLOWANCE U/S 14A READ WITH RULE 8D. 2. THE LD. CIT(A) ERRED IN CONFIRMING THE ADDITION MADE BY LD. DCIT OF RS.2,03,680/ - U/S 9 READ WITH SECTION 195 AND SECTION 40. 3. WE BEGIN WITH THE 1 ST GROUND OF APPEAL . T HE FACTS ARE THAT DURING YEAR UNDER CONSIDERATION, THE ASSESSEE HAS SHOWN DIVIDEND INCOME FROM INVESTMENT IN EQUITY SHARES OF RS.36,43,038/ - IN ITS COMPUTATION OF INCOME AND CLAIMED IT AS EXEMPT. THE ASSESSING OFFICER (AO) OBSERVED THAT IN THE COMPUTATION OF INCOME, THE ASSESSEE HAS DISALLOWED RS.2,87,376/ - U/S 14A OF THE ACT. HOWEVER, THE AO WAS NOT CONVINCED WITH THE SAID DISALLOWANCE MADE BY THE ASSESSEE AND COMPUTED THE DISALLOWANCE U/S 14A R.W. RULE 8D WHICH COMES TO RS.17,56,594/ - . AS THE ASSESSEE HAD MADE A DISALLOWANCE OF RS.2,8 7 ,376/ - , THE AO RESTRICTED THE DISALLOWANCE TO RS.14,69,218/ - . 4. AGGRIEVED BY THE ORDER OF THE AO , THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A). WE FIND THAT THE LD. CIT(A) HELD THAT THE VALUE OF DE BENTURES SHOULD NOT BE TREATED AS PART OF INVESTMENTS FOR THE PURPOSE OF CALCULATING DISALLOWANCE U/S 14A AND THEREFORE, HE DIRECTED THE AO TO EXCLUDE THE VALUE OF DEBENTURES AND THEREAFTER, CALCULATE THE AVERAGE VA LUE OF INVESTMENT AND DISALLOW AS PER RULE 8D(2)(III) I.E. @ 0.5% OF THE EXPENSES ON THE BALANCE AMOUNT WORKABLE ON THE AVERAGE VALUE OF INVESTMENTS U/S 14A. 5. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE SUBMITS THAT IN THE INSTANT CASE, NO SATISFACTION HAS BEEN RECORDED BY THE AO AS TO HOW THE SUNIDHI SECURITIES ITA NO. 4734/MUM/2017 3 SUO MOTU DISALLOWANCE OF RS.2,87,376/ - IS INCORRECT. IT IS SUBMITTED BY HIM SIMILAR ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE ITAT E BENCH MUMBAI IN ASSESSEES OWN CASE FOR THE IMMEDIATE PRECEDING YEAR I.E. AY 2012 - 13. ON THE O THER HAND, THE LD. DR RELIES ON THE ORDER OF THE LD. CIT(A). 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. IN THE INSTANT CASE, NO SATISFACTION HAS BEEN RECORDED BY THE AO AS TO HOW THE SUO MOTU DISALLOWANCE OF RS.2,8 7,376/ - IS INCORRECT. THE SAME ISSUE HAS BEEN DECIDED BY THE ITAT E BENCH, MUMBAI IN ASSESSEES OWN CASE FOR AY 2012 - 13 (ITA NO.737/MUM/2016). THE TRIBUNAL HELD : 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND FROM THE FACTS OF THE CASE THAT THE ASSESSEE HAS MADE SCIENTIFIC COMPUTATION FOR DISALLOWANCE UNDER SECTION 14A OF THE ACT READ WITH RULE 8D I.E. ADMINISTRATIVE EXPENSES AND DIRECT EXPENSES AT 2,50,839/ - . WE FIND FROM THE ASSESSMENT ORDER THAT THERE IS NO FINDING AS TO HOW THE COMPUTATION OF DISALLOWANCE OF EXPENSES RELATABLE TO EXEMPT INCOME IS WRONG OR INCORRECT. WE HAVE GONE THROUGH THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENT LTD. (SUPRA) AND FIND THAT THE SUPR EME COURT RECORDED THE FOLLOWING FINDING: - 41. HAVING REGARD TO THE LANGUAGE OF SECTION 14A(2) OF THE ACT, READ WITH RULE 8D OF THE RULES, WE ALSO MAKE IT CLEAR THAT BEFORE APPLYING THE THEORY OF APPORTIONMENT, THE AO NEEDS TO RECORD SATISFACTION THAT H AVING REGARD TO THE KIND OF THE ASSESSEE, SUO MOTO DISALLOWANCE UNDER SECTION 14A WAS NOT CORRECT. IT WILL BE IN THOSE CASES WHERE THE ASSESSEE IN HIS RETURN HAS HIMSELF APPORTIONED BUT THE AO WAS NOT ACCEPTING THE SAID APPORTIONMENT. IN THAT EVENTUALITY, IT WILL HAVE TO SUNIDHI SECURITIES ITA NO. 4734/MUM/2017 4 RECORD ITS SATISFACTION TO THIS EFFECT. FURTHER, WHILE RECORDING SUCH A SATISFACTION, NATURE OF LOAN TAKEN BY THE ASSESSEE FOR PURCHASING THE SHARES/ MAKING THE INVESTMENT IN SHARES IS TO BE EXAMINED BY THE AO. 7. IN VIEW OF THE ABOVE FA CTS AND RESPECTFULLY FOLLOWING THE SUPREME COURT, WE ARE OF THE VIEW THAT IN THE PRESENT CASE, THE AO HAS NOT RECORDED ANY SATISFACTION AS TO WHY THE DISALLOWANCE MADE BY ASSESSEE SUO MOTO IS INCORRECT. ACCORDINGLY, WE DELETE THE DISALLOWANCE AND ALLOW THE APPEAL OF THE ASSESSEE. HOWEVER, THE DISALLOWANCE WILL BE RESTRICTED TO THE EXTENT OF 2,50,839/ - . THIS ISSUE OF ASSESSEES APPEAL IS ALLOWED. 6.1 FACTS BEING IDENTICAL, WE FOLLOW THE ABOVE ORDER OF THE CO - ORDINATE BENCH AND RESTRICT THE DISALLOWANCE TO RS. 2,87,376/ - . 7. WE NOW MOVE TO THE 2 ND GROUND OF APPEAL. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAD PAID RS.2,03,680/ - TO FACTSET RESEARCH SYSTEMS INC., USA UNDER THE HEAD BUSINESS INFORMATION EXPENSE. THE AO H ELD THAT THE ASSESSEE HAD MADE PAYMENT TOWARDS TECHNICAL SERVICE CHARGES TO NON - RESIDENT, WHICH IS IN RESPECT OF SERVICES USED IN A BUSINESS IN INDIA AND USED FOR EARNING INCOME IN INDIA. THE SAME BEING IN THE NATURE OF FEES FOR TECHNICAL SERVICES PAID TO NON - RESIDENT IS AN INCOME DEEMED TO ACCRUE OR ARISE IN INDIA U/S 9(VII) ATTRACTING TDS PROVISIONS U/S 195 OF THE ACT. AS PER THE AO, SINCE NO TDS IS MADE AND DEPOSITED THEREON, PROVISIONS OF SECTION 40(A)(I) ARE DIRECTLY ATTRACTED. THEREFORE, HE MADE A DIS ALLOWANCE OF RS.2,03,680/ - . 8. IN APPEAL, THE LD. CIT(A) AGREED WITH THE REASONS GIVEN BY THE AO AND DISMISS ED THE APPEAL FILED BY THE ASSESSEE. SUNIDHI SECURITIES ITA NO. 4734/MUM/2017 5 9. BEFORE US, THE LD. COUNSEL SUBMITS THAT THE ABOVE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE ITAT E BENCH MUMBAI IN ASSESSEES OWN CASE FOR AY 2012 - 13. ON THE OTHER HAND, THE LD. DR RELIES ON THE ORDER PASSED BY THE LD. CIT(A) . 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. WE FIND THAT SIMILAR ISSUE AROSE BEFORE THE ITAT E BENCH MUMBAI IN ASSESSEES OWN CASE FOR AY 2012 - 13 IN ITA NO. 737/MUM/2016. THE TRIBUNAL VIDE ORDER DATED 30.07.20 18 HELD AS UNDER: 12. WE HAVE HEARD THE PARTIES AND AFTER GOING THROUGH THE FACTS OF THE CASE, WE ARE OF THE VIEW THAT THE PAYMENT MADE BY ASSESSEE TO FACTSET RESEARCH SYSTEMS INC. IS FOR SIMPLY PROVIDING OF SERVICE AND NO TECHNOLOGY IS TRANSFER TO ASSES SEE. IT IS A PAYMENT FOR ANNUAL BASIS AND EACH YEAR SEPARATE PAYMENT IS TO BE MADE FOR AVAILING THESE SERVICES. ACCORDINGLY, THIS ISSUE OF ASSESSEES APPEAL IS ALLOWED. 10 .1 FACTS BEING IDENTICAL, WE FOLLOW THE ABOVE ORDER OF THE CO - ORDINATE BENCH AND ALL OW THE 2 ND GROUND OF APPEAL. 11 . IN THE RESULT, THE APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 27/12/2018 . SD/ - SD/ - ( PAWAN SINGH ) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 27/12/2018 RAHUL SHARMA, SR. P.S. SUNIDHI SECURITIES ITA NO. 4734/MUM/2017 6 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (SR. PRIVATE SECRETARY) ITAT, MUMBAI