UDHAV HOLDINGS PVT. LTD., MUMBAI V. A.C.I.T.CIRCLE 3(3), MUMBAI

ITA 5117/MUM/2012

• Counselvise Citation: 511719914 RSA 2012
• Duration Of Justice: 1 year(s) 3 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-12-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 02-12-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 10-08-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAVI PRAKASH
• Assessee Lawyers: RAJESH CHAMARIA
• Keywords: Depreciation; Earning of tax free income
• Section: 143(3); 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI . , , , BEFORE SHRI D. KARUNAKARA RAO , ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , JUD ICIAL MEMBER . / ITA NO. 5117 /MUM./2012 ( / ASSESSMENT YEAR : 2009 10 ) UDHAV HOLDINGS PVT. LTD. 11 A, MITTAL CHAMBERS NARIMAN POINT, MUMBAI 400 021 .. / APPELLANT V/S ASSTT. COMMISSIONER OF INC OME TAX CIRCLE 3(3), MUMBAI .... / RESPONDENT . / PERMANENT ACCOUNT NUMBER AAACU0808K / ASSESSEE BY : MR. RAJESH CHAMARIA / REVENUE BY : MR. RAVI PRAKASH / DATE OF HEARING 02.12.2013 / DATE OF ORDER 06.12.2013 / ORDER , / PER AMIT SHUKLA , J.M. THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSESSEE, CHALLENGING THE IMPUGNED ORDER 4 TH APR IL 2012 , PASSED BY THE LEARNED COMMISSIONER (APPEALS) VII, MUMBAI, FOR THE QUANTUM OF ASSESSMENT PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (FOR SHORT 'THE ACT' ) FOR THE ASSESSMENT YEAR 2007 08, VIDE WHICH, FOLLOWING GROUNDS HAVE BEEN RAISED: UDHAV HOLDINGS P VT. LTD. 2 1 . THE LD . CIT (A) ERRED IN FACTS OF THE CASE AND IN LAW UPHOLDING DISALLOWANCE OF EXPENSES OF RS. 7 , 99 , 580/ - MECHANICALLY DISALLOWED BY AO U/S 14 A OF THE ACT OUT OF EXPENSES AS PER RULE 8D (2) (III) CALCULATED AT THE RATE OF 0 . 5% OF THE AVERAGE INVESTMENTS . THE REASONS GIVEN BY HIM FOR DOING SO ARE WRONG AND CONTRARY TO THE FACTS AND AGAINST THE PROVISIONS OF LAW. 2 . THE LD . CIT (A)/ AO FAILED TO CONSIDER THAT NONE OF THE EXPENSES CLAIMED ARE INCURRED , RE L ATED OR ATTRIBUTED TO INVESTMENTS OR EXEMPT INCOME AND WHATEVER EXPENSES ARE INCURRED FOR ITS BUSINESS AND CORPORATE STRUCTURE WHICH ARE ALSO FAR LESS THAN THE EXPENSES DISALLOWED . 3 . THE LD. CIT (A) FAILED TO CONSIDER THAT AO HAS NOT NOTED HIS DISSATISFACTION AS REQUIRED BY RULE 8D (1) AS TO DISALLOWANCE U/S 1 4A ALREADY MADE BY THE ASSESSEE BEFORE DETERMINING THE AMOUNT OF EXPENDITURE IN RELATION TO EXEMPT INCOME AS PER RULE 8D (2). 2 . THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF FINANCE AND INVESTMENTS IN SHARES AND SECURITIES. IT HAS EARNED DIVIDEND INCO ME OF ` 88,52,577 WHICH HAS BEEN CLAIMED AS EXEMPT UNDER SECTION 10(34) AND 10(35). IT HAS ALSO CLAIMED LONG TERM CAPITAL GAIN ON SALE OF SHARES. THE ASSESSEE, IN THE COMPUTATION OF INCOME, HAS DISALLOWED S UM OF ` 46,309 TOWARDS EXPENDITURE WHICH IS TO BE DISALLOWED UNDER SECTION 14A. THE ASSESSING OFFICER REJECTED THE ASSESSEES WORKING AND HAS DISALLOWED SUM OF ` 10,77,677 IN THE FOLLOWING MANNER: I. EXPENSES DI R ECT L Y ATTRIB UT A BL E T O EXEMPT INCOME ( D EPOS I TORY C H ARGES) ` 22,497 II. FORMULA: A X B / C A : E XPE N SES NO T DI R EC TL Y R E L ATE D T O EXEM P T INC OM E (IN TE R ES T) I .E. ( 6650 00 + 1 3 1 507) = 796 5 07 B: AVERAGE VA L UE OF INVESTME N T ON THE OPENING A ND C L OSING DAY OF THE PREVIOUS YEAR I.E . (3 1 9723459 + 1 0888 4)/2 1599 1 61712 ) C: AVERAGE VA L UE OF ASSETS ON T H E OPENING A N D C L OSING DAY OF T H E PREVIO U S YEAR I.E. (46141 1 133 + 535259622 ) /2 = 498335377 796507 X 159916172 498335377 = 255600 ` 2,55,600 UDHAV HOLDINGS P VT. LTD. 3 III. 0.5% OF AVERAGE VAL U E OF I N VES TM E NT IN THE OPENING A N D C L OSING D AY OF THE PREVIOUS YEAR I . E . 0 . 5 % OF B = 799580 ` 7, 99,580 AGGREGATE OF I + II + III ` 10,77,677 3 . THE LEARNED COMMISSIONER (APPEALS), THOUGH HAS REMOVED DISALLOWANCE ON ACCOUNT OF INTEREST IN THE FORMULA GIVEN IN RULE 8D AND GAVE RELIEF OF ` 2,55,600, HOWEVER, HE CONFIRMED THE BALANCE DISALLOWANCE AFTER OBSERVING AND HOLDING AS UNDER: 3.5 I HAVE CONSIDERED THE A.O.'S ORDER AS WELL .AS APPELLANT AR'S SUBMISSION. HAVING CONSIDERED BOTH, I FIND THAT RULE 8D IS APPLICABLE IN THE CASE OF THE APPELLANT COMPANY THE YEAR UNDER CONSIDERATION AS HELD BY THE DEC ISION OF JURISDICTIONAL HIGH COURT IN CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. VS. DCIT REPORTED IN 328 ITR PAGE 81. HOWEVER, I FIND THAT THE APPELLANT WAS HAVING SUFFICIENT INTEREST FREE FUNDS AVAILABLE FOR MAKING INVESTMENTS. I ALSO FIND THAT THE AP PELLANT COMPANY HAD SUO MOTO DISALLOWED RS.46,309/ - I.E. RS.21,954/ - BEING DEPOSITORY CHARGES AND RS.24,355/ - BEING MISCELLANEOUS EXPENSES UNDER SECTION 14A OF THE ACT AS THESE EXPENSES DID NOT RELATE TO EARNING TAXABLE INCOME. HENCE THE DISALLOWANCE MADE BY THE A.O. UNDER RULE 8D(2)(II) OF I.T. RULES R.W.S 14A OF THE ACT IS NOT CORRECT IN VIEW OF DECISION OF RELIANCE UTILITY AND POWER LIMITED (313 ITR 340). ACCORDINGLY THE ADDITION SO MADE OF RS.2,55,600/ IS DELETED. HOWEVER AS APPLICATION OF RULE 80 IS M ANDATORY AS HELD BY THE BOMBAY COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. REPORTED IN 328 ITR 81. ACCORDINGLY, THE ADDITION SO MADE BY THE A.O. UNDER RULE 80(2)(III) R.W.S 14A OF THE ACT OF RS.7,99,580 IS CONFIRMED. THUS, APPELLANTS THIS GROUND OF APPEAL IS PARTLY ALLOWED. 4 . BEFORE US, THE LEARNED COUNSEL SUBMITTED THAT THE ASSESSEE HAS DEBITED THE TOTAL EXPENDITURE OF ` 34,91,251 OUT OF WHICH THE INTEREST COMPONENT IS ` 7,96,507. FROM THE BALANCE , THE ASSESSEE HAS ITSELF DISALLOWED ` 23,35,000 TOW ARDS DONATION. THEN AGAIN O UT OF THE BALANCE SUM, THE ASSESSEE HAS WORKED OUT THE DISALLOWANCE OF ` 46,309. HE SUBMITTED THAT THE BALANCE EXPENDITURE DEBITED AFTER ALL THE DISALLOWANCE COME TO APPROXIMATELY ` 3 LAKHS AND ODD. EVEN THESE EXPENSES WHICH ARE IN UDHAV HOLDINGS P VT. LTD. 4 THE FORM OF RATES AND TAXES, LEGAL AND PROFESSIONAL CHARGES, AUDITORS REMUNERATION, DEPRECIATION AND BANK CHARGES, ARE VERY MUCH ESSENTIAL FOR RUNNING OF CORPORATE OFFICE AND OTHER BUSINESS OF THE ASSESSEE. THE ASSESSEE HAS NOT DEBITED ANY SALARY IN TH E PROFIT & LOSS ACCOUNT. THUS, A HUGE DISALLOWANCE OF ` 7,99,580 CANNOT BE MADE. IN ANY CASE, THE DISALLOWANCE OF EXPENSES CANNOT EXCEED THE EXPENDITURE CLAIMED . R EGARDING EXPENDITURE RELATING TO DEPOSITORY CHARGES OF ` 22,497 , H E SUBMITTED THAT THE ASSESS EE HAS DEBITED ONLY ` 21,954 WHICH FORMS PART OF THE DISALLOWANCE OFFERED BY THE ASSESSEE AT ` 46,309. THE ASSESSING OFFICER HAS DISALLOWED THE SAID SUM AGAIN EVEN THOUGH THE ASSESSEE HAS ITSELF DISALLOWED IT , WHICH HAS RESULTED INTO DOUBLE DISALLOWANCE. 5 . ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT ONCE THE PROVISIONS OF RULE 8D ARE TRIGGERED, THEN THE DISALLOWANCE HAS TO BE CALCULATED @ 0.5% OF THE AVERAGE INVESTMENT. THEREFORE, THE DISALLOWANCE OF ` 7,99,580, AS MADE BY THE A SSESSING OFFICER AND SUSTAINED BY THE LEARNED COMMISSIONER (APPEALS), HAS TO BE CONFIRMED. HE, THUS, STRONGLY RELIED UPON THE FINDINGS OF THE ASSESSING OFFICER AS WELL AS THE LEARNED COMMISSIONER (APPEALS). 6 . WE HAVE HEARD THE RIVAL CONTENTION, PERUSED THE RELEVANT FINDINGS OF THE AUTHORITIES BELOW AND THE MATERIAL AVAILABLE ON RECORD. INSOFAR AS THE DISALLOWANCE ON ACCOUNT OF INTEREST IS CONCERNED, THERE IS NO DISPUTE AS THE LEARNED COMMISSIONER (APPEALS) HAS REMOVED THE DISALLOWANCE FROM THE WORKING OF RUL E 8D. AS REGARDS DISALLOWANCE OF ` 22,497, IT HAS BEEN BROUGHT ON RECORD THAT THE ASSESSEE HAS ITSELF DISALLOWED THE DEPOSITORY CHARGES OF ` 21,954. THUS, TO THE EXTENT OF ` 21,954, THIS AMOUNT HAS BEEN ADDED TWICE AND SUCH DISALLOWANCE HAS TO BE REMOVED U NDER SECTION 14A R/W RULE 8D. NOW, COMING TO THE DISALLOWANCE OF ` 7,99,580, WHICH HAS BEEN WORKED OUT AT 0.5% OF THE AVERAGE VALUE OF INVESTMENT, IT IS SEEN THAT THE ASSESSEE HAS DEBITED TOTAL EXPENDITURE OF ` 34,91,251. IF THE INTEREST EXPENDITURE OF ` 7 ,96,507 WHICH HAS BEEN DELETED BY THE LEARNED COMMISSIONER (APPEALS) UDHAV HOLDINGS P VT. LTD. 5 AND DONATION AMOUNT OF ` 23,35,000 WHICH ITSELF WAS DISALLOWED BY THE ASSESSEE IN ITS COMPUTATION OF INCOME, THEN, THE BALANCE EXPENDITURE UNDER THE ADMINISTRATIVE HEAD IS ` 3,59,744 I.E. , [ ` 34,91,251 ( ) 7,96,507 ( ) ` 23,35,000 = 3,59,744 ] . FROM THIS SUM, IF THE AMOUNT OF ` 46,309 IS REMOVED WHICH THE ASSESSEE HAS ITSELF DISALLOWED IN THE COMPUTATION OF INCOME FOR THE PURPOSE OF SECTION 14A, THEN THE RESULTANT EXPENSES DEBITED IS ONLY ` 3,13,435. THIS EXPENDITURE MOSTLY RELATES TO LEGAL AND PROFESSIONAL CHARGES, AUDITORS REMUNERATION, DEPRECIATION AND BANK CHARGES AND RATES AND TAXES. THESE EXPENSES ARE, ANY WAY, REQUIRED TO BE INCURRED FOR THE MAINTENANCE AND RUNNING OF CORPORATE OFFIC E AND OTHER BUSINESS OF THE ASSESSEE . THE ENTIRE EXPENDITURE CANNOT BE SAID TO BE ATTRIBUTABLE TO EARNING OF EXEMPT INCOME. PROVISIONS OF SECTION 14A PROVIDE THAT ANY DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. THE EXPENDITURE WHICH HAS TO BE DISALLOWED HAS TO BE IN RELATION TO THE EXEMPT INCOME ONLY. SUB SECTION (2) OF SECTION 14A , PROVIDES THAT THE ASSESSING OFFICER HAS TO DETERMINE THE AMOUNT OF EXPENDIT URE INCURRED IN RELATION TO SUCH EXEMPT INCOME , IF THE ASSESSING OFFICER HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE RELATING TO EXEMPT INCOME . THIS FACT OF INCURRING OF THE EXPENDITURE NEEDS TO BE EXAMINED AND THEN ONLY PROVISIONS OF SECTION 14A CAN BE APPLIED. IN THIS CASE, NO SUCH EXERCISE HAS BEEN DONE BY THE ASSESSING OFFICER. INSOFAR AS THE ASSESSING OFFICERS OBSERVATION REGARDING INTEREST INCOME IS CO NCERNED, THE ASSESSEES PLEA HAS ALREADY BEEN ACCEPTED THAT NO BORROWED FUNDS HAVE BEEN UTILIZED FOR THE INVESTMENT PURPOSES. REGARDING THE ADMINISTRATIVE EXPENDITURE, NO SATISFACTION ABOUT THE CORRECTNESS OF THE ASSESSEES CLAIM HAS BEEN LOOKED INTO. UNDE R THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE NATURE OF EXPENDITURE WHICH HAS BEEN DISCUSSED ABOVE, WE ARE OF THE CONSIDERED OPINION THAT THE DISALLOWANCE OF ` 7,99,580 ON ACCOUNT OF ADMINISTRATIVE EXPENDITURE IS TOO EXCESS THAN THE EXP ENDITURE CLAIMED IN THE PROFIT & LOSS ACCOUNT AND WITHOUT REBUTTING THE CORRECTNESS OF THE ASSESSEES CLAIM, THE DISALLOWANCE OFFERED UDHAV HOLDINGS P VT. LTD. 6 BY THE ASSESSEE AT ` 46,309, CANNOT BE TINKERED WITH. CONSEQUENTLY, WE SET ASIDE THE IMPUGNED ORDER PASSED BY THE LEARNED COMMISSIONER (APPEALS) AND THE GROUND RAISED BY THE ASSESSEE IS TREATED AS ALLOWED. 7 . 7. IN THE RESULT, ASSESSEES APPEAL IS TREATED AS ALLOWED. 6 TH DECEMBER 2013 ORDER PRONOUNCED IN THE OPEN COURT O N 6 TH DECEMBER 2013 SD/ - . D. KARU NAKARA RAO ACCOUNTANT MEMBER SD/ - AMIT SHUKLA JUDICIAL MEMBER MUMBAI, DATED : 6 TH DECEMBER 2013 / COPY OF THE ORDER FORWARDED TO : ( 1 ) / THE ASSESSEE ; ( 2 ) / THE REVENUE; ( 3 ) ( ) / THE CIT(A ) ; ( 4 ) / THE CIT, MUMBAI CITY CONCERNED ; ( 5 ) , , / THE DR, ITAT, MUMBAI ; ( 6 ) / GUARD FILE . / TRUE COPY / BY ORDER . / PRADEEP J . CHOWDHURY / SR. PRIVATE SECRETARY / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI