CRESCENT FINSTOCK LTD, MUMBAI V. ITO 4(1)(1), MUMBAI

ITA 5175/MUM/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 8347 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-08-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 07-08-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 14-08-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R A
• Keywords: Earning of tax free income; Condonation of delay
• Section: 143(3); 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI . , , , BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , JUDI CIAL MEMBER . / ITA NO. 5175 /MUM./ 2012 ( / ASSESSMENT YEAR : 2009 10 ) CRESCENT FINSTOCK LIMITED 1 ST FLOOR, KANTA TERRACE 533, KALBADEVI ROAD, MUMBAI 400 002 .. / APPELLANT V/S ASSTT. COMM ISSIONER OF INCOME TAX CIRCLE 4(1), AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .... / RESPONDENT ./ PERMANENT ACCOUNT NUMBER AAACC6420F / ASSESSEE BY : SHRI DHARMESH SHAH / RE VENUE BY : SHRI R.A. PANT / DATE OF HEARING 07 .08.2014 / DATE OF ORDE R 14.08.2014 / ORDER , / PER AMIT SHUKLA , J.M. THE PRESENT APPEAL IS PREFERRED BY THE ASSESSEE, CH ALLENGING THE IMPUGNED ORDER DATED 28 TH MAY 2012 , PASSED BY THE LEARNED COMMISSIONER (APPEALS) VIII , MUMBAI, FOR THE QUANTUM OF ASSESSMENT CRESCENT FINSTOCK LIMITED 2 PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (FOR SHORT 'THE ACT' ) FOR THE ASSESSMENT YEAR 2009 10 . 2 . THIS APPEAL IS TIME BARRED BY TWO DAYS. ALONG WITH THE APPEAL, THE ASSESSEE HAS FILED PETITION FOR CONDONATION OF DELAY WHICH IS DULY SUPPORTED BY AN AFFIDAVIT OF THE DIRECTOR. IN VIEW OF THE REASONS STATED THEREIN, WE CONDONE THE DELAY OF TWO DAYS. 3 . THE MAIN ISSUE INVOLVED HERE IN THIS APPEAL IS DISALLOWANCE OF ` 15,89,295 , MADE UNDER SECTION 14A. 4 . THE ASSESSEE HAS SHOWN EXEMPT INCOME OF ` 26,310, BEING DIVIDEND INCOME. BEFORE THE ASSESSING OFFICER, IT WAS SUBMITTED THAT THE ASSESSEE HAD INVESTED IN SHARE , MO STLY IN THE SUBSIDIARY COMPANIES WHICH WAS DEVOLVED ON DEMERGER AND A PALTRY SUM WAS INVESTED IN THE EQUITY SHARES OF BOMBAY STOCK EXCHANGE. THE REST INVESTMENTS ARE IN MUTUAL FUNDS. THE ASSESSEE HAS ONLY DISALLOWED SUM OF ` 1,200 ON ACCOUNT OF DEMAT CHARG ES AND SUBMITTED THAT THE OTHER EXPENSES DEBITED IN THE PROFIT & LOSS ACCOUNT ARE ENTIRELY FOR THE BUSINESS PURPOSE. THE ASSESSING OFFICER REJECT ED THE ASSESSEES CONTENTION AND HELD THAT RULE 8D IS TO BE APPLIED AND ACCORDINGLY HE DISALLOWED 0.5% BY TAKIN G THE AVERAGE VALUE OF THE INVESTMENT , WHICH WORKED OUT TO ` 15,89,295. CRESCENT FINSTOCK LIMITED 3 5 . BEFORE THE LEARNED COMMISSIONER (APPEALS), IT WAS SUBMITTED THAT BEFORE INVOKING THE PROVISIONS OF RULE 8D, THE ASSESSING OFFICER HAS NOT GIVEN ANY PARTICULAR REASON OR IDENTIFIED ANY EXPENDITURE WHICH COULD HAVE BEEN INCURRED FOR THE PURPOSE OF EARNING OF TAX FREE DIVIDEND INCOME OR MAKING THE INVESTMENT . THE ADMINISTRATIVE EXPENSES WHICH HAVE BEEN INCURRED ARE PURELY FOR BUSINESS PURPOSE AND WHATEVER WAS ATTRIBUTABLE FOR THE DIVIDEND INCOME, WHICH TOO WAS RECEIVED THROUGH ECS, THE ASSESSEE HAS DISALLOWED THE SAME. HOWEVER, THE LEARNED COMMISSIONER (APPEALS) REJECTED THE ASSESSEES CONTENTION AND HELD THAT RULE 8D I S MANDATORY IN SUCH A SITUATION AND DISALLOWANCE HAS TO BE MADE UNDER R ULE 8D. 6 . BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE SHARES WHICH HAVE BEEN INVESTED IN THE SUBSIDIARY COMPANIES WERE DEVOLVED THROUGH DEMERGER OF THE SAID COMPANY AND THE ASSESSEE HAS NOT MADE ANY EFFORT FOR ACQUIRING THE SHARES. TH E MUTUAL FUNDS TOO WERE INVESTED IN THE EARLIER YEARS. THUS, WITHOUT ATTRIBUTING ANY EXPENSES FOR THE PURPOSE OF DIVIDEND INCOME OF ` 26, 310 , NO DISALLOWANCE CAN BE MADE ON ACCOUNT OF ADMINISTRATIVE EXPENSES BY APPLYING RULE 8D. THE CONDITION PRECEDENT UND ER SUB SECTION (2) OF SECTION 14, HAS NOT BEEN FULFILLED IN BY THE ASSESSING OFFICER . THUS, THE CRESCENT FINSTOCK LIMITED 4 DISALLOWANCE WORKED OUT BY THE ASSESSEE AT ` 1,200 , ALONE SHOULD BE DISALLOWED FOR THE PURPOSE OF SECTION 14A. 7 . THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, STRONGLY RELIED UPON THE ORDER OF THE ASSESSING OFFICER AS WELL AS THE LEARNED COMMISSIONER (APPEALS). 8 . WE HAVE HEARD THE RIVAL SUBMISSION AND ALSO PERUSED THE RELEVANT RECORD. BEFORE US, T HE ONLY DISPUTE WITH REGARD TO DISALLOWANCE UNDER SECTI ON 14A , IS ADMINISTRATIVE EXPENSES WHICH HAS BEEN MADE AFTER TAKING 0.5% OF THE AVERAGE INVESTMENT VALUE , AS ENVISAGED IN RULE 8D . T HE LEARNED COUNSEL HAS POINTED OUT THAT THE MAJOR INVESTMENT IS ON ACCOUNT OF EQUITY SHARES IN SUBSIDIARY COMPANY WHICH TOO WAS DEVOLVED ON DEMERGER OF THE SAID COMPANY IN THE EARLIER YEAR S . INSOFAR AS THE MUTUAL FUND ARE CONCERNED, AS ON 31 ST MARCH 2009, THE MUTUAL FUNDS WERE NOT APPEARING IN THE BALANCE SHEET. THUS, NO EFFORT WAS MADE OR ANY TIME WAS CONSUMED FOR MAKING ANY A NALYSIS OF THE INVESTMENT WHICH HAS RESULTED INTO EXEMPT INCOME OF ` 26, 310, BY WAY OF DIVIDEND. THE ASSESSEE HAS ALREADY DISALLOWED THE SUM OF ` 1,200 ON ACCOUNT OF DEMAT CHARGES WHICH IS SUFFICIENT AND DIRECTLY ATTRIBUTABLE TO TH E EXEMPT INCOME. UNDER THE SE FACTS AND CIRCUMSTANCES, WE ARE OF THE OPINION THAT SIMPLY RELYING ON RULE 8D , FOR THE PURPOSE OF DISALLOWANCE , CANNOT BE HELD TO BE APPLICABLE , BECAUSE THE ASSESSING OFFICER HAVING CRESCENT FINSTOCK LIMITED 5 REGARD TO THE ACCOUNTS OF THE ASSESSEE AS WELL AS THE NATURE OF EXPE NSES INCURRED WHICH CAN BE SAID TO BE ATTRIBUTABLE FOR THE EARNING OF EXEMPT INCOME , HAS NOT POINTED OUT WHAT ARE THE EXPENSES WHICH COULD BE SAID TO BE HAVE BEEN INCURRED OR ATTRIBUTABLE ON THE ADMINISTRATIVE EXPENSES. ONLY WHEN THE ASSESSING OFFICER IS N OT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE, HE CAN PROCEED TO APPLY RULE 8D. IN THIS CASE, SUCH A REQUIREMENT HAS NOT BEEN FULFILLED BY THE ASSESSING OFFICER. ACCORDINGLY, WE DO NOT FIND ANY MERIT IN THE DISALLOWANCE MADE BY THE ASSESSI NG OFFICER UNDER RULE 8D AND ACCORDINGLY, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER RULE 8D AND CONFIRMED BY THE LEARNED COMMISSIONER (APPEALS) STANDS DELETED. THIS GROUND RAISED BY THE ASSESSEE IS THUS ALLOWED. 9 . 9 . IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. 14 TH AUGUST 2014 ORDER PRONOUNCED IN THE OPEN COURT O N 14 TH AUGUST 2014 SD/ - . D. KARUNAKARA RAO ACCOUNTANT MEMBER SD/ - AMIT SHUKLA JUDICIAL MEMBER MUMBAI, DATED : 14 TH AUGUST 2014 CRESCENT FINSTOCK LIMITED 6 / COPY OF THE ORDER FORWARDED TO : ( 1 ) / THE ASSESSEE ; ( 2 ) / THE REVENUE; ( 3 ) ( ) / THE CIT(A ) ; ( 4 ) / THE CIT, M UMBAI 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