RAMU S. DEORA, MUMBAI V. DCIT RG 12(3), MUMBAI

ITA 4860/MUM/2012

• Counselvise Citation: 486019914 RSA 2012
• Duration Of Justice: 2 year(s) 3 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-11-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 03-11-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 25-07-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JEETENDRA KUMAR
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE S/SHRI B.R.BASKARAN (AM) AND VIVEK VARMA, (JM) . . , , ./I.T.A. NO.4860/MUM/2012 ( / ASSESSMENT YEAR : 2009-10) RAMU S DEORA, SAMBHAV CHAMBERS, 4 TH FLOOR, SIR P M ROAD, FORT, MUMBAI-400001. / VS. DY.COMMISSIONER OF INCOME TAX 12(3), MUMBAI. ( / APPELLANT) .. ( ! / RESPONDENT) ./ '# ./PAN/GIR NO. :AAMPD2141H $ / APPELLANT BY SHRI NISHIT GANDHI ! % $ /RESPONDENT BY SHRI JEETENDRA KUMAR & ' % () / DATE OF HEARING : 3.11.2014 *+ % () /DATE OF PRONOUNCEMENT : 7.11.2014 / O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINS T THE ORDER DATED 11.05.2012 PASSED BY LD CIT(A)-23, MUMBAI AND IT RE LATES TO THE ASSESSMENT YEAR 2009-10. 2. THE GROUNDS URGED BY THE ASSESSEE RELATE TO THE FOLLOWING THREE ISSUES:- (A) DISALLOWANCE OF RS.45,58,691/- MADE U/S 14A O F THE ACT. (B) DISALLOWANCE OUT OF MOTOR CAR EXPENSES RS.7 7,869/- (C) DISALLOWANCE OUT OF TRAVELLING & CONVEYANCE E XP. RS.1,20,630/-. (D) DISALLOWANCE MADE OUT OF TELEPHONE EXPENSES. 3. WE HEARD THE RIVAL CONTENTIONS AND PERUSED TH E RECORD. THE FIRST ISSUE RELATES TO THE DISALLOWANCE MADE U/S 14A OF THE ACT . THE LD A.R SUBMITTED THAT THE ASSESSEE IS THE PROPRIETOR OF TWO DIFFERENT CON CERNS VIZ., M/S G.AMPHRAY ITA 4860/MUM/2012 2 LABORATORIES, M/S 4R MILLENIUM SECURITIES AND CARRI ES ON SHARE TRADING/INVESTMENT ACTIVITIES IN HIS PERSONAL NAME ALSO. THE FIRST CONCERN IS ENGAGED IN CHEMICAL BUSINESS. THE SECOND CONCERN I S ENGAGED IN SHARE TRADING ACTIVITIES. THE LD A.R SUBMITTED THAT THE ASSESSEE DID NOT CARRY ON ANY TRADING ACTIVITY IN THE CONCERN M/S 4R MILLENIUM SECURITIES AS WELL AS IN HIS PERSONAL NAME DURING THE YEAR UNDER CONSIDERATION. THE ONLY EXPENDITURE DEBITED IN THE PERSONAL ACCOUNT WAS AUDIT FEE OF RS.16,545/- AND N O EXPENDITURE WAS INCURRED IN THE CONCERN M/S 4R MILLENIUM SECURITIES. THE LD A.R FURTHER SUBMITTED THAT THE ASSESSEE RECEIVED DIVIDEND INCOME OF RS.1,56,00 ,246/- AND THE SAME WAS DIRECTLY CREDITED TO THE CAPITAL ACCOUNT OF THE ASS ESSEE. BESIDES THE ABOVE THE ASSESSEE HAD RECEIVED INTEREST FROM PPF ACCOUNT TO THE TUNE OF RS.1,80,413/- AND INTEREST FROM TAX FREE BOND TO THE TUNE OF RS.1 4,14,99,500/-. THE LD A.R SUBMITTED THAT THE ABOVE SAID INCOME WERE RECEIVED FROM THE INVESTMENTS MADE IN THE EARLIER YEARS AND HENCE NO EXPENDITURE WAS I NCURRED FOR EARNING THE ABOVE SAID INCOME DURING THE YEAR UNDER CONSIDERATION. T HE LD A.R SUBMITTED THAT THE ASSESSING OFFICER HAS ACCEPTED THE IDENTICAL EXPLAN ATIONS GIVEN BY THE ASSESSEE IN THE IMMEDIATELY PRECEDING YEAR AND RESTRICTED TH E DISALLOWANCE U/S 14A OF THE ACT TO RS.5,306/-. THE LD A.R FURTHER SUBMITTED TH AT THE ASSESSING OFFICER, HOWEVER, DID NOT ACCEPT THE EXPLANATIONS AND FURTHE R DID NOT REFER TO THE ACCOUNTS OF THE ASSESSEE TO EXAMINE THE VERACITY OF THE EXPL ANATIONS. FURTHER THE AO DID NOT RECORD ANY SATISFACTION TO THE EFFECT THAT HE W AS NOT SATISFIED WITH THE CLAIM MADE BY THE ASSESSEE. ACCORDINGLY, THE LD A.R SUBM ITTED THAT THE DISALLOWANCE MADE BY THE AO IS LIABLE TO BE SET ASIDE. IN THIS REGARD, THE LD A.R PLACED RELIANCE ON THE DECISION OF MUMBAI TRIBUNAL IN THE CASE OF J.K. INVESTORS (BOMBAY) LTD (ITA NO.7858 & 7851/MUM/2011 DATED 13. 03.2013). ON THE CONTRARY, THE LD D.R PLACED RELIANCE ON THE ORDER O F LD CIT(A). 4. ADMITTEDLY, THE ASSESSEE DID NOT CLAIM ANY E XPENDITURE IN THE PROFIT AND LOSS ACCOUNT RELATING TO M/S 4R MILLENIUM SECURITIE S AND HIS PERSONAL ACCOUNT EXCEPT AUDIT FEE REFERRED ABOVE. THE ASSESSEE HAS C REDITED THE EXEMPTED INCOME IN HIS CAPITAL ACCOUNT. ACCORDING TO LD A.R THE EXPENDITURE CLAIMED IN THE CHEMICAL DIVISION ARE RELATED TO THE CHEMICAL B USINESS ONLY AND THEY ARE NOT RELATED TO THE INVESTMENT ACTIVITIES. WHEN A SPECI FIC QUERY WAS ASKED AS TO WHETHER ALL THE THREE CONCERNS MAY BE OPERATING FRO M DIFFERENT ADDRESSES, THE LD ITA 4860/MUM/2012 3 A.R SUBMITTED THAT THE SAID FACT NEEDS TO BE CONFIR MED. HOWEVER, IT IS A FACT THAT THE ASSESSING OFFICER HAS ACCEPTED FOR A NOMINAL DI SALLOWANCE OF RS.5,306/- IN THE IMMEDIATELY PRECEDING YEAR, MEANING THEREBY THE ASSESSING OFFICER HAS ACCEPTED THAT THE RULE 8D CANNOT BE APPLIED TO THE FACTS OF THE INSTANT CASE BLINDLY. AS SUBMITTED BY LD A.R, THE ASSESSING OFF ICER DID NOT ADDRESS VARIOUS CONTENTIONS OF THE ASSESSEE DURING THE YEAR UNDER C ONSIDERATION, BEFORE WORKING OUT THE DISALLOWANCE UNDER RULE 8D(2)(III) OF THE I .T RULES, I.E., THE DISALLOWANCE RELATING TO ADMINISTRATIVE EXPENSES COMPUTED AT 0.5 % OF AVERAGE VALUE OF INVESTMENTS. IT IS ALSO A FACT THAT THE AO DID NOT MAKE ANY DISALLOWANCE TOWARDS INTEREST EXPENDITURE. 5. FROM THE FOREGOING DISCUSSIONS AND ON CONSIDERA TION OF THE ACCOUNTS OF THE ASSESSEE, WE ARE OF THE VIEW THAT THE TAX AUTHO RITIES WERE NOT JUSTIFIED IN APPLYING RULE 8D(2)(III) BY DISREGARDING THE ACCOUN TS AND CLAIMS OF THE ASSESSEE. ACCORDING TO THE ASSESSEE, HE HAD MADE THE INVESTME NTS IN THE EARLIER YEARS AND MAJOR PORTION OF EXEMPT INCOME WAS FROM GOVERNMENT SECURITIES. HOWEVER, THE LD A.R COULD NOT CONCLUSIVELY CLARIFY THAT THE DIFF ERENT CONCERNS ARE NOT OPERATING FROM DIFFERENT ADDRESSES. ACCORDINGLY, ON A CONSPE CTUS OF THE MATTER, WE ARE OF THE VIEW THE DISALLOWANCE U/S 14A MAY BE RESTRICTED TO RS.10,000/- AND THE SAME, IN OUR VIEW, WOULD MEET THE ENDS OF JUSTICE. ACCORDINGLY WE MODIFY THE ORDER OF THE LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO RESTRICT THE DISALLOWANCE U/S 14A OF THE ACT TO RS.10,000/-. 6. THE NEXT THREE ISSUES RELATE TO DISALLOWANCE MA DE OUT OF MOTOR CAR EXPENSES, TRAVELLING & CONVEYANCE EXPENSES AND TELE PHONE EXPENSES. THE AO HELD THAT THESE EXPENSES WOULD INCLUDE PERSONAL ELE MENT ALSO AND ACCORDINGLY DISALLOWED 10% OF THE CLAIM. THE LD CIT(A) SUSTAIN ED THE DISALLOWANCE MADE OUT OF MOTOR CAR EXPENSES AND TRAVELLING & CONVEYAN CE EXPENSES. WITH REGARD TO THE TELEPHONE EXPENSES, THE LD CIT(A) DIRECTED T HE AO TO RESTRICT DISALLOWANCE TO 10% OF OFFICE TELEPHONE EXPENSES AND 90% OF RESI DENTIAL TELEPHONE EXPENSES. THE ASSESSEE IS AGGRIEVED BY THE SAID DECISION. 7. WE HAVE HEARD THE PARTIES AND PERUSED THE RECO RD. WITH REGARD TO THE DISALLOWANCE MADE OUT OF MOTOR CAR EXPENSES AND TRA VELING & CONVEYANCE ITA 4860/MUM/2012 4 EXPENSES, THE ASSESSEE DID NOT FIND MATERIAL TO CON TRADICT THE FINDINGS GIVEN BY THE TAX AUTHORITIES. ACCORDINGLY, WE CONFIRM THE O RDER OF LD CIT(A) ON THESE TWO ADDITIONS. WITH REGARD TO THE TELEPHONE EXPENSES, THE DISALLOWANCE SUGGESTED BY THE LD CIT(A) APPEARS TO BE ON HIGHER SIDE. ACC ORDINGLY, WE DIRECT THE AO TO RESTRICT THE DISALLOWANCE TO 50% OF RESIDENTIAL TEL EPHONE EXPENSES AND 5% OF THE OFFICE TELEPHONE EXPENSES. IN OUR VIEW, THE SAME W OULD MEET THE ENDS OF JUSTICE. ACCORDINGLY, THE ORDER OF LD CIT(A) ON THIS ISSUE S TANDS MODIFIED. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSE E IS PARTLY ALLOWED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 7TH NOV , 2014. *+ & , -. 7TH NOV, 2014 + % /' 0 SD SD ( / VIVEK VARMA) ( . . / B.R. BASKARAN) / JUDICIAL MEMBER / ACCOUNTANT MEMBER & ' MUMBAI: 7TH NOV,2014. . . ./ SRL , SR. PS !'#$% &%'# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. ! / THE RESPONDENT. 3. & 1( ( ) / THE CIT(A)- CONCERNED 4. & 1( / CIT CONCERNED 5. 2/ (3 , ) 3 , & ' / DR, ITAT, MUMBAI CONCERNED 6. / 4' / GUARD FILE. 5 & / BY ORDER, TRUE COPY 6 ' (ASSTT. REGISTRAR) ) 3 , & ' /ITAT, MUMBAI