ESMART ENERGY SOLUTIONS LTD., MUMBAI V. DCIT - 1 (1)(2), MUMBAI

ITA 5407/MUM/2018

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 1680 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-12-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2013-2014
• Appeal Filed On: 19-09-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AMIT PRATAP SINGHLD
• Assessee Lawyers: H N MOTIWALLA LD
• Keywords: Depreciation; Earning of tax free income; Rule 8D
• Section: 14A

Judgement Text

ITA NO.5407/MUM/2018 ESMART ENERGY SOLUTIONS PRIVATE LIMITED ASSESSMENT YEAR: 2013-14 1 IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI . . , , BEFORE HONBLE SHRI C.N. PRASAD, JM AND HONBLE SHRI MANOJ KUMAR AGGARWAL, AM ./ I.T.A. NO.5407/MUM/2018 ( ! ' / ASSESSMENT YEAR : 2013-14 ) ESMART ENERGY SOLUTIONS PVT. LTD . C/O. H.N.MOTIWALLA & CO., 508, SHARDA CHAMBERS, 33, NEW MARINE LINES, MUMBAI- 400 020 / VS. DCIT - 1(1)(2), AAYKAR BHAWAN MUMBAI ./ ./PAN/GIR NO. AACCS-0489-G ( &'( /APPELLANT ) : ( )'( / RESPONDENT ) ASSESSEE BY : SHRI H.N.MOTIWALLA LD. AR REVE NUE BY : SHRI AMIT PRATAP SINGH LD. DR / DATE OF HEARING : 11/12/2019 / DATE OF PRONOUNCEMENT : 11/12/2019 / O R D E R MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. AFORESAID APPEAL BY ASSESSEE FOR ASSESSMENT YEAR [IN SHORT REFERRED TO AS AY] 2013-14 CONTEST THE ORDER OF L D. COMMISSIONER OF INCOME-TAX (APPEALS)-2, MUMBAI [IN SHORT REFERRED T O AS CIT(A)], APPEAL NO. CIT(A)-2/IT/82/2016-17, DATED 24/04/2018 . ALTHOUGH THE ASSESSEE HAS RAISED MULTIPLE GROUNDS, BUT DURING HE ARING, LD. ITA NO.5407/MUM/2018 ESMART ENERGY SOLUTIONS PRIVATE LIMITED ASSESSMENT YEAR: 2013-14 2 AUTHORIZED REPRESENTATIVE FOR ASSESSEE (AR) PLEADED ONLY FOR GROUND NOS. 2,3, 5 & 6 WHICH READ AS UNDER: - 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE SAID LEARNED COMMISSIONER OF INCOME TAX HAS ALSO ERRED IN CONFIR MING THE DISALLOWANCE OF RS.2,61,577/-, OUT OF BALANCE TRAVELLING EXPENSES W ITHOUT APPRECIATING THAT THE APPELLANT HAS RECEIVED LOI FOR THE WORK OF ESTABLIS HMENT OF ENERGY EFFICIENT PUBLIC STREET LIGHT PROJECTS IN VARIOUS STATES AND ALSO FR OM MUNICIPAL CORPORATION FOR REPLACEMENT OF ENERGY EFFICIENT, LED STREET LIGHT D EVELOPED INHOUSE BY THE APPELLANT. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE THE SAID LEARNED COMMISSIONER OF INCOME TAX HAS ALSO ERRED IN CONFIR MING THE DISALLOWANCE OF SOFTWARE DEVELOPMENT EXPENSES OF RS. 19,50,000/- PA RTICULARLY WHEN THE SAID EXPENSES WERE INCURRED FOR REMOTE METER READING, WH ICH IS BUSINESS OF THE APPELLANT AND HAS ALSO SUBMITTED INVOICE FOR THE SAME. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE THE SAID LEARNED COMMISSIONER OF INCOME TAX HAS ALSO ERRED IN RESTRI CTING THE DISALLOWANCE UNDER SECTION 14A OF THE ACT, PARTICULARLY WHEN, THE APPE LLANT HAD INVESTED IN SHARES AND MUTUAL FUNDS RS. 24,20,65,605/- OUT OF ITS OWN FUND OF RS. 33,78,56,341/- AND THUS NOT FOLLOWING THE JUDGEMENT OF JURISDICTIONAL HIGH COURT. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE THE SAID LEARNED COMMISSIONER OF INCOME TAX HAS ALSO ERRED IN RESTRI CTING THE DISALLOWANCE UNDER SECTION 14A OF THE ACT. 2. FACTS IN BRIEF ARE THAT THE ASSESSEE BEING RESID ENT CORPORATE ASSESSEE STATED TO BE ENGAGED IN PROVIDING CONSULTA NCY SERVICES WAS ASSESSED FOR THE YEAR UNDER CONSIDERATION U/S 143(3 ) ON 15/03/2016 WHEREIN THE LOSS WAS DETERMINED AT RS.143.23 LACS A FTER CERTAIN ADJUSTMENTS / DISALLOWANCES AS AGAINST RETURNED LOS S OF RS.244.07 LACS FILED BY THE ASSESSEE ON 28/09/2013. THE FOLLOWING ADDITIONS FORM SUBJECT MATTER OF PRESENT APPEAL BEFORE US: - 3. WE HAVE CAREFULLY HEARD THE RIVAL SUBMISSIONS AN D PERUSED RELEVANT MATERIAL ON RECORD INCLUDING DOCUMENTS PLA CED IN THE PAPER- NO. NATURE OF DIS A LLOWANCE AMOUNT ( RS. ) 1 TRAVELLING EXPENSES 2,61,557/- 2 SOFTWARE EXPENSES 19,50,000/- 3 DISALLOWANCE U/S.14A 27,62,173/- ITA NO.5407/MUM/2018 ESMART ENERGY SOLUTIONS PRIVATE LIMITED ASSESSMENT YEAR: 2013-14 3 BOOK. OUR ADJUDICATION ON THE STATED ISSUES WOULD B E AS GIVEN IN SUCCEEDING PARAGRAPHS. 4.1 DISALLOWANCE OF TRAVELLING EXPENSES DURING ASSESSMENT PROCEEDINGS, IT TRANSPIRED THAT T HE ASSESSEE DEBITED TRAVELLING EXPENSES OF RS.24.27 LACS OUT OF WHICH E XPENSES OF RS.13.80 LACS WERE TOWARDS FOREIGN TRAVELLING EXPENSES. BESI DES DISALLOWING FOREIGN TRAVEL EXPENSES, LD. AO ESTIMATED ADDITIONA L DISALLOWANCE OF 25% ON BALANCE TRAVELLING EXPENSES OF RS.10.47 LACS WHICH CAME TO RS.2.61 LACS. THE ASSESSEE IS AGGRIEVED BY ESTIMATI ON OF 25%. THE STAND OF LD. AO, UPON CONFIRMATION BY LEARNED FIRST APPELLATE AUTHORITY, IS UNDER CHALLENGE BEFORE US. THE PRIME ARGUMENT OF LD . AR WOULD REVOLVE AROUND THE FACT THAT THE EXPENDITURE WAS AN ALLOWAB LE DEDUCTION AND COMPLETE DETAILS WAS AVAILABLE ON RECORD AND THEREF ORE, THE DISALLOWANCE WAS ON HIGHER SIDE. THE LD. DR SUBMITTED THAT THE E STIMATION WAS FAIR. UPON DUE CONSIDERATION OF DETAILS FILED BY THE ASSE SSEE, WE FIND THAT ESTIMATION OF 10% WOULD MEET THE END OF JUSTICE AND WOULD MITIGATE THE LITIGATION FURTHER. THEREFORE, WE RESTRICT THE IMPU GNED ADDITION TO 10% OF RS.10,46,229/- WHICH COMES TO RS.1,04,623/-. THE BA LANCE ADDITION STANDS DELETED. THE GROUND STANDS PARTLY ALLOWED. 4.2 DISALLOWANCE OF SOFTWARE EXPENSES IT TRANSPIRED THAT THE ASSESSEE DEBITED AN AMOUNT O F RS.19.50 LACS ON ACCOUNT OF SOFTWARE EXPENSES. THE SAID AMOUNT WAS PRIMA-FACIE AN ADVANCE PAID TO AN ENTITY NAMELY UTJ WIRELESS PVT. LTD. IN THE ABSENCE OF ANY SUPPORTIVE DOCUMENTS, THE SAID EXPENDITURE W AS DISALLOWED. FOR THE SAME REASONS, DEPRECIATION WAS ALSO DISALLOWED. THE LD. CIT(A) CONFIRMED THE SAME SINCE THE ASSESSEE COULD NOT SUB STANTIATE THE SAID ITA NO.5407/MUM/2018 ESMART ENERGY SOLUTIONS PRIVATE LIMITED ASSESSMENT YEAR: 2013-14 4 EXPENDITURE NEITHER AT THE TIME OF ASSESSMENT PROCE EDINGS NOR AT THE TIME OF APPELLATE PROCEEDINGS. THE LD. AR DREW OUR ATTENTION TO THE COPIES OF INVOICES, LEDGER EXTRACTS ETC. TO SUBMIT THAT THE EXPENDITURE WAS WELL DOCUMENTED AND THE SAME WAS AN ALLOWABLE D EDUCTION. THE LD. DR SUBMITTED THAT THE ASSESSEE COULD NOT SUBSTA NTIATE THE EXPENDITURE WITH DOCUMENTARY EVIDENCES. KEEPING IN VIEW THE RIVAL SUBMISSIONS, WE DEEM IT FIT TO RESTORE THE MATTER B ACK TO THE FILE OF LD. AO FOR RE-ADJUDICATION IN THE LIGHT OF DOCUMENTARY EVIDENCES FURNISHED BY THE ASSESSEE. NEEDLESS TO ADD THAT ADEQUATE OPPORTU NITY OF BEING HEARD SHALL BE PROVIDED TO THE ASSESSEE. THIS GROUND STAN D ALLOWED FOR STATISTICAL PURPOSES. 4.3 DISALLOWANCE U/S 14A IT TRANSPIRED THAT THE ASSESSEE HELD SUBSTANTIAL CL OSING INVESTMENT OF RS.2420.66 LACS WHICH CALLED FOR DISALLOWANCE U/S.1 4A. THE LD. AO, INVOKING RULE 8D, WORKED OUT AGGREGATE DISALLOWANCE OF RS.27.62 LACS WHICH COMPRISED-OFF OF INTEREST DISALLOWANCE U/R 8D (2)(II) FOR RS.13.47 LACS AND ADMINISTRATIVE EXPENSE DISALLOWANCE U/R 8D (2)(III) FOR RS.14.14 LACS. THE LEARNED CIT(A), WHILE CONFIRMING THE SAID DISALLOWANCE, DIRECTED LD. AO TO RESTRICT THE SAME TO RS.3,27,971 /-, BEING EXEMPT INCOME EARNED BY THE ASSESSEE. AGGRIEVED, THE ASSES SEE IS UNDER APPEAL BEFORE US. UPON DUE CONSIDERATION, WE FIND THAT THE ACTION OF LD. CIT(A) IN RESTRICTING THE DISALLOWANCE TO THE EXTENT OF EXEMP T INCOME EARNED BY THE ASSESSEE WAS WELL IN LINE WITH SETTLED LEGAL PO SITION THAT DISALLOWANCE COULD NOT EXCEED EXEMPT INCOME. THEREFORE, THE IMPU GNED ORDER, IN THIS ITA NO.5407/MUM/2018 ESMART ENERGY SOLUTIONS PRIVATE LIMITED ASSESSMENT YEAR: 2013-14 5 ASPECT, WOULD NOT REQUIRE ANY INTERREFERENCE ON OUR PART. THIS GROUND STANDS DISMISSED. 5. IN THE RESULT, THE APPEAL STANDS PARTLY ALLOWED TO THE EXTENT INDICATED IN THE ORDER. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH DECEMBER, 2019. SD/- SD/- (C.N. PRASAD) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 11/12/2019 SR.PS, MURALI MOHAN #$%&'(& / COPY OF THE ORDER FORWARDED TO : 1. &'( / THE APPELLANT 2. )'( / THE RESPONDENT 3. ../ ( & ) / THE CIT(A) 4. ../ / CIT CONCERNED 5. 01 * , .& , / DR, ITAT, MUMBAI 6. 12 3 / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI.