SAHILESH R PARIWALA, MUMBAI V. JCIT 24(1)(1), MUMBAI

ITA 5183/MUM/2013

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3583 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 11 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-07-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2009-2010
• Appeal Filed On: 18-07-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VISHWAS JADHAV
• Assessee Lawyers: K SHIVARAM
• Keywords: Depreciation; Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH E, MUMBAI BEFORE SHRI SANJAY ARAORA, ACCOUNTANT MEMBER A ND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO.5183/MUM/2013 ASSESSMENT YEARS: 2009-10 SHAILESH R. PARDIWALA, 206, HIGH TECH INDUSTRIAL CENTRE, CAVES ROAD, JOGESHWARI (E), MUMBAI-400060. PAN: AAAPP6260B VS. JCIT 24(1)(1), PRATYAKSH KAR BHAVAN, BANDRA, MUMBAI-400020. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI K.SHIVARAM & NEELAM JADHAV (AR) REVENUE BY : SHRI VISHWAS JADHAV (DR) DATE OF HEARING : 30.05.2016 DATE OF PRONOUNCEMENT : 05.07.2016 O R D E R PAWAN SINGH JM: 1. THE PRESENT APPEAL FILED BY ASSESSEE AGAINST THE OR DER OF CIT(A)-34, MUMBAI DATED 10.05.2013 FOR AY-2009-10 RAISING THE FOLLOWING GRO UND OF APPEAL: I. DISALLOWANCE U/S. 14A R.W. RULE 8D OF THE ACT OF RS . 2,08,590/-. II. NOT ALLOWING INDEXATION BENEFIT WHILE DETERMINING T AX ON THE SALE OF LONG TERM CAPITAL GAIN UNITS 2. LD. AR FOR ASSESSEE WHILE MAKING SUBMISSION MADE TH E STATEMENT THAT HE IS NOT PRESSING GROUND NO.2 RAISED IN THE PRESENT APPEAL. THUS, THE GROUND NO. 2 RAISED IN THE PRESENT APPEAL IS DISMISSED AS NOT PRESSED. 3. BRIEF FACTS LEADING TO DISALLOWANCE U/S. 14A OF THE ACT ARE THAT PER THE RETURN OF INCOME THE ASSESSEE CLAIMED TAX FREE DIVIDEND OF RS . 77,49,343/- AND TAX FREE INTEREST OF RS. 26,82,197/-. WHILE FRAMING ASSESSME NT, AO SHOW CAUSED THE ASSESSEE AS TO WHY THE ADDITION TO THE TOTAL INCOME SHOULD NOT BE MADE IN 2 ITA NO. 5183/M/13 SHAILESH R. PARDIWALA ACCORDANCE WITH PROVISION OF SECTION 14A R.W. RULE 8D OF THE ACT. THE ASSESSEE SUBMITTED HIS REPLY DATED 30.08.2011, WHICH ARE REP RODUCED AS UNDER: OUT OF THE DIVIDEND OF RS.77,49,343/-,RS.77,00,000 /-HAS BEEN RECEIVED FROM COMPUTER GRAPHICS LTD IN WHICH I AM ONE OF THE DIRE CTORS. DIVIDEND IS TAX FREE IN THE HANDS OF RECIPIENT AS P AYING COMPANIES HAVE PAID DIVIDEND TAX ON IT. WHATEVER INVESTMENT I AM HOLDING, IS FROM MY OWN FU ND. I HAVE NOT INVESTED ANY SUM FROM OUTSIDE BORROWING. TO EARN TAX-FREE DI VIDEND, I HAVE NOT BORROWED SINGLE PAISA FROM ANY BANK OR FINANCIAL IN STITUTION OR ANYBODY CORPORATE AND THE INVESTMENT IS ABSOLUTELY FROM MY OWN FUND. 4. THE CONTENTION OF ASSESSEE WAS NOT ACCEPTED BY THE AO, AND RELYING ON THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. REPORTED IN 328 ITR 81 AND DAGA CAPITAL MANAGEMENT PVT. LTD., HE WO RKED OUT DISALLOWANCE OF RS. 2,17,385/- U/S 14A R.W. RULE 8D(2)(III). AGGRI EVED BY THE AO, ASSESSEE FILED AN APPEAL BEFORE THE CIT(A). THE CIT(A) AFTER HEARI NG THE ASSESSEE RESTRICTED THE DISALLOWANCE TO 2% OF THE TOTAL EXEMPTED INCOME OF THE ASSESSEE. THE TOTAL EXEMPT INCOME OF ASSESSEE CONSIST OF DIVIDEND INCOME OF RS . 77,47,343/- AND TAX FREE INTEREST RS. 26,82,197/- TOTAL OF RS. 1,04,29,540/- , THUS DISALLOWANCE WAS RESTRICTED TO RS. 2,08,950/- . FURTHER AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE FILED THIS APPEAL BEFORE US. 5. BEFORE US, THE LD. AR OF THE ASSESSEE ARGUED THAT A SSESSEE HAS NOT BORROWED A SINGLE PAISA FROM BANK OR FINANCIAL INSTITUTION OR FROM ANY CORPORATE BODY. THE ASSESSEE HAS ITS OWN SUFFICIENT FUND AVAILABLE WITH HIM. ASSESSEE HAS DRAWN OUT ATTENTION TO PROFIT & LOSS A/C OF ASSESSEE WHEREIN THE ASSESSEE HAS SHOWN PROFESSION FEES OF RS.21,500/- AND BANK CHARGE OF R S.2069/- (PAGE 7 OF PB). LD. AR FOR ASSESSEE FURTHER ARGUED BEFORE WORKING OUT T HE CALCULATION OF DISALLOWANCE U/S 14A, THE AO HAS NOT REJECTED THE STATEMENT OF A CCOUNT OFFERED BY THE ASSESSEE. THE ASSESSEE HAS NOT MADE ANY EXPENDITURE FOR EARNI NG EXEMPT INCOME, THUS NO VOLUNTARY DISALLOWANCE WAS MADE IN RESPECT OF EARNI NG OF EXEMPT INCOME WHILE FILING THE RETURN. AND ARGUED THAT THE ORDER OF AO FOR DISALLOWANCE U/S 14A R.W. RULE 8D(2)(III) WHICH WAS RESTRICTED TO RS. 2,08,95 0/- IS NOT SUSTAINABLE. THE AR OF THE ASSESSEE FINALLY ARGUED THAT A REASONABLE AMOUN T MAY BE DISALLOWED WHICH THIS HONBLE TRIBUNAL MAY DEEM FIT AND PROPER IN THE FAC T AND CIRCUMSTANCES OF THE CASE. LD. DR FOR THE REVENUE HAS ARGUED THAT .5% OF THE AVERAGE VALUE OF INVESTMENT WAS CORRECTLY DISALLOWED BY AO, HOWEVER, LD. CIT(A) FURTHER RESTRICTED IT ONLY 2% OF THE TOTAL EARNING OF EXEMPT INCOME, A ND THE PARTIAL RELIEF GRANTED TO 3 ITA NO. 5183/M/13 SHAILESH R. PARDIWALA THE ASSESSEE IS SUFFICIENT AS THE ASSESSEE HAS EARN ED EXEMPT INCOME OF RS. 1,04,29,540/-. 6. WE HAVE CONSIDERED THE RIVAL CONTENTION OF THE PART IES AND PERUSED THE RECORD. THE ONLY EXPENDITURE DISALLOWED U/S. 14A BY THE AO, SIN CE RESTRICTED MARGINALLY BY THE LD. CIT(A), IS QUA INDIRECT, ADMINISTRATIVE EXPENDITURE. THE ASSESSEE S CLAIM OF THE ENTIRE INVESTMENT IN THE TAX-EXEMPT SECURITIES BEIN G OUT OF OWN INTEREST-FREE CAPITAL, AND NOT BORROWED FUNDS, IS THEREFORE OF NO MOMENT. AS REGARDS THE ADMINISTRATIVE EXPENDITURE, WE HAVE PERUSED THE ASSESSEES PROFIT & LOSS A/C FOR THE RELEVANT YEAR (PB PG. 7), TO FIND THAT THE ONLY EXPENDITURE DEBIT ED THERETO AND CLAIMED PER ITS RETURN WHICH COULD HAVE RELATION TO HIS TAX- EXEMPT INCOME (BY WAY OF DIVIDEND AND INTEREST) IS PROFESSIONAL FEES (STATED TO BE PO RTFOLIO MANAGEMENT CHARGES, CLAIMED AGAINST SHORT-TERM CAPITAL GAIN, FOR RS. 21 ,500/-), BANK CHARGES (RS. 3069/-) AND DEPRECIATION (RS. 6653/-), I.E., AT A TOTAL OF RS. 31,222/-, WHILE THE ASSESSING AND THE FIRST APPELLATE AUTHORITIES HAVE MADE AND CONFI RMED THE DISALLOWANCE AT RS. 2.17 LACS AND RS. 2.09 LACS RESPECTIVELY. HOW COULD THAT BE? THE AOS DISSATISFACTION U/S. 14A(2) WITH THE ASSESSEES EXPLANATION OF HA VING NOT INCURRED ANY EXPENDITURE IN RELATION TO ITS TAX-EXEMPT INCOME, W HICH IS TO BE MADE WITH REFERENCE TO AND HAVING REGARD TO THE ACCOUNTS, THU S, CANNOT BE SAID TO BE PROPER. RATHER, EVEN THIS EXPENDITURE COULD PERHAPS BE EXPL AINED TO HAVE NO RELATION WITH THE TAX-EXEMPT INCOME, LEADING TO NO DISALLOWANCE U /S. 14A. FURTHER, EVEN THE ASSESSEES CONTENTION OF NO EXPENDITURE HAVING BEEN INCURRED IN RELATION TO THE SAID INCOME, IS WITHOUT REFERENCE TO AND DE HORS HIS ACCOUNTS. THOUGH, THEREFORE, THE MATTER OUGHT TO, STRICTLY SPEAKING, TRAVEL BACK TO THE FILE OF THE AO, WE, IN VIEW OF THE NOMINALITY OF THE AMOUNT INVOLVED, I.E., UNDER THE CIRCUMSTANCES, CONSIDER IT ONLY PROPER TO ATTEMPT TO ESTIMATE THE SAID AMOUNT, EVEN AS OBSERVED DURING HEARING. WE, ACCORDINGLY, ESTIMATE THE SAID AMOUNT OF EXPENDITURE DISALLOWABLE U/S. 14A AT RS. 10,000/- (TEN THOUSAND ONLY). WE DECIDE ACCORDINGLY. 7. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY ALLO WED. ORDER PRONOUNCED IN THE OPEN COURT ON T HIS 5 TH JULY, 2016. SD/- SD/- ( SANJAY ARORA) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED 05/07/2016 4 ITA NO. 5183/M/13 SHAILESH R. PARDIWALA S.K.PS / COPY OF THE ORDER FORWARDED TO : / BY ORDER, / (ASSTT.REGISTRAR) , / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A), MUMBAI. 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. !'# / GUARD FILE. $ //TRUE COPY/