DCIT 1(2), MUMBAI V. KHATAU INTERNATIONAL P.LTD, MUMBAI

ITA 5585/MUM/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3462 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 11 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 07-01-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 30-08-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A RAMCHANDARAN
• Assessee Lawyers: D J JARIWALA
• Keywords: Depreciation; Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A , MUMBAI , , BEFORE SHRI B R BASKARAN , ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , JUDICIAL MEMBER ITA NO. : 5 585 /MUM/20 1 3 (ASSESSMENT YEAR: 200 9 - 1 0 ) DCIT - 1(2) , ROOM NO. 535, 5 TH FLOOR, AAYAKAR BHAVAN, M K MARG, MUMBAI - 400 020 VS M/S KHATAU INTERNATIONAL PVT LIMITED , 81/88, ATLANTA, 8 TH FLOOR, NA RIMAN POINT, MUMBAI - 400 021 PAN: AA DCK 3 6 1 9 B (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI A RAMCHANDARAN RESPONDENT BY : MS D J JARIWALA /DATE OF HEARING : 02 - 0 8 - 201 6 / DATE OF PRONOUNCEMENT : 26 - 0 8 - 2016 ORDER , : PER AMIT SHUKLA , J M: THE AFORESAID APPEAL HAS BEEN FILED BY THE REVENUE AGAINST ORDER DATED 03.06.2013 , PASSED BY LD. CIT(A PPEALS ), MUMBAI FOR THE QUANTUM OF ASSESSMENT PASSED UNDER SECTION 143(3) FOR THE ASSESSMENT YEAR 2009 - 10. THE ONLY GROUND RAISED BY THE REVENUE READS AS UNDER: - ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERR ED IN DELETING THE DISALLOWANCE OF RS.34,88,725/ - AND BY ESTIMATING DISALLOWANCE UNDER SECTION 14A OF RS.1,00,000/ - WHICH IS NOT AS PER THE 2 M/S KHATAU I NTERNATIONAL PVT LIMITED ITA 5585 /MUM/ 201 3 DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG CO LTD. 2. THE FACTS IN BRIEF ARE THAT, TH E ASSESSEE HAD SHOWN DIVIDEND INCOME AMOUNTING TO RS.82,982/ - WHICH HAS BEEN CLAIMED AS EXEMPT. THE ASSESSEE HAS NOT MADE ANY DISALLOWANCE FOR EARNING OF SUCH AN EXEMPT INCOME. IN RESPONSE TO SHOW CAUSE WHY NOTICE UNDER SECTION 14A SHOULD NOT BE MADE, THE ASSESSEE SUBMITTED THAT THE DIVIDEND HAS ARIS E N OUT OF MUTUAL FUND S AND NO BORROWED FUNDS HAVE BEEN UTILIZED FOR MAKING THE INVESTMENTS . H ENCE, NO DISALLOWANCE UNDER SECTION 14A IS CALLED FOR. HOWEVER, THE LD. AO HELD THAT IT IS MANDATORY TO A PPLY RULE 8D FOR MAKING THE DISALLOWANCE AND ACCORDINGLY HE MADE THE DISALLOWANCE OF RS.34,88,875/ - IN ACCORDANCE WITH RULE 8D. 3. BEFORE THE LD. CIT(A), THE ASSESSEE SUBMITTED THAT, INTEREST EXPENDITURE INCURRED IS ONLY RS.581/ - AND, THEREFORE, NO DISALLOWANCE ON ACC OUNT OF INTEREST CAN BE MADE IN THE WORKING OF FORMULA LAID DOWN UNDER RULE 8D. FURTHER, AS REGARDS THE INDIRECT EXPENDITURE RULE 8D(2)(III), THE ASSESSEE HAS GIVEN THE DETAILS OF VARIOUS EXPENSES DEBITED IN THE PROFIT & LOSS ACCOUNT AND SUBMITTED THAT NON E OF THE EXPENSES CAN BE ATTRIBUTED TO THE EARNING OF EXEMPT INCOME. THE LD. CIT(A) AFTER TAKING THE NOTE O F THE FACTS AND LEGAL PROPOSITION AS SUBMITTED BY THE ASSESSEE, HELD THAT SO FAR AS INTEREST EXPENDITURE UNDER RULE 8D(2) IS CONCERNED, THE SAME CANN OT BE MADE, BECAUSE ONLY INTEREST EXPENDITURE DEBITED IS RS.547/ - WHICH TOO IS ON ACCOUNT OF LATE PAYMENT OF TDS. THEREAFTER, HE EXAMINED THE NATURE OF EXPENDITURE DEBITED TO THE P&L ACCOUNT WHICH WERE AS UNDER: - 3 M/S KHATAU I NTERNATIONAL PVT LIMITED ITA 5585 /MUM/ 201 3 HO RESORT TOTAL EXPENSES 31.03.2009 31. 03.2009 31.03.2009 CONSUMPTION OF FOOD, BEVERAGES, ETC. - 14,90,312 14,90,312 FOREST DEPARTMENT & SAFARI EXPENSES - 4,13,437 4,13,437 EMPLOYEES REMUNERATION AND BENEFITS - 31,82,357 31,82,357 SERVICE CHARGES & RETAINER - SHIP FEES - 6,57, 721 6,57,721 POWER & FUEL - 8,36,224 8,36,224 HOUSEKEEPING EXPENSES - 23,97,509 23,97,509 RENT, RATES & TAXES - 2,76,863 2,76,863 REPAIR & MAINTENANCE - 11,70,716 11,70,716 HOSPITALITY EXPENSES - 1,73,555 1,73,555 VEHICLE EXPENSE S - 5,74,145 5,74,145 TRAVELLING & CONVEYANCE EXPENSES 27,789 2,30,774 2,58,563 COMMUNICATION EXPENSES 3,118 1,23,742 1,26,860 PRINTING & STATIONERY EXPENSES - 84,700 84,700 LEGAL & PROFESSIONAL EXPENSES 7,500 3,91, 505 3,91,505 MANAGEMENT SUPPORT SERVICE FEES - 11,20,000 11,20,000 INSURANCE EXPENSES - 1,11,520 1,11,520 SOFTWARE EXPENSES - 40,500 40,500 ADVERTISEMENT & SALES PROMOTION EXPENSES 17,539 23,127 40,666 COMMISSION ON SALES - 15,512 15,512 INTEREST PAID OTHERS - 581 581 LICENSE FEES - 2,12,500 2,12,500 REGISTRATION & FILING FEES 1,02,400 500 1,02,900 MISCELLANEOUS EXPENSES 25,991 1,36,159 1,62,150 AUDITORS REMUNER ATION 57,604 - 57,604 (INCLUDING PRIOR PERIOD RS.13,484/ - ) - STAMP DUTY & REGISTRATION / FILLING FEES 32,710 - 31,710 DEPRECIATION - 26,30,595 26,30,595 PRELIMINARY EXPENSES WRITTEN OFF 23,000 - 23,000 TOTAL EXPENSES 2,97,651 1,62,94,554 1,65,92,205 AND ESTIMATED THE DISALLOWANCE AT RS. 1 LAKH AFTER OBSERVING AND HOLDING AS UNDER: - 3.8 TOTAL EMPLOYEES REMUNERATION AND BENEFITS IS RS.31,82,357/ - , SO THE TOTAL COMMON EXPENSES FROM WHICH A SMALL FACTION RELATED TO INVESTMENTS WILL BE RS.33,80,008/ - (RS.2,97,651/ - + RS.31,82,357/ - ) WHICH IS LESS THAN THE AMOUNT DETERMINED BY THE AO UNDER RULE 8D(2)(III). IN OTHER WORDS, THE COMMON EXPENSES MET OUT IS LESS THAN THE AMOUNT DISALLOWABLE UNDER RULE 8D(2)(III) AND THIS FA CT MAKES IT CLEAR THAT RULE 8D IS NOT WORKABLE AND APPLICABLE IN THIS CASE. IF IT IS APPLIED THEN IT WILL LEAD TO THE DISALLOWANCE OF THE ENTIRE COMMON EXPENSES AND IT IS VERY CLEAR THAT MOST OF THE COMMON EXPENSES ARE MET OUT FOR NORMAL BUSINESS PURPOSES OTHER THAN 4 M/S KHATAU I NTERNATIONAL PVT LIMITED ITA 5585 /MUM/ 201 3 THE TAX FREE INVESTMENTS. IN VIEW OF THIS, I HOLD THAT RULE 8D(2)(III) IS NOT APPLICABLE IN THIS CASE. HOWEVER, I FEEL CERTAIN ADMINISTRATIVE EXPENSES ARE MET OUT FOR MAINTAINING THE TAX FREE INVESTMENTS AND EARNING TAX FREE INCOME. I ESTIMATE THE EXPENSES AT RS.1 LAKHS AS AGAINST RS.34,88,725/ - DETERMINED BY THE AO. THE AO IS DIRECTED TO REWORK THE DISALLOWANCE ACCORDINGLY AND DELETE THE EXCESS ADDITION MADE . 4. AFTER HEARING BOTH THE PARTIES AND ON PERUSAL OF IMPUGNED ORDER, WE FIND THAT, FI RST OF ALL, THE EXEMPT INCOME ITSELF IS RS.82,982/ - , AS AGAINST THIS, THE LD. CIT(A) HAS CONFIRMED RS.1 LAKH ON ACCOUNT OF INDIRECT EXPENDITURE. AGAINST THIS FINDING OF LD. CIT(A) THE ASSESSEE HAS NOT COME IN APPEAL. HENCE THE FINDING OF CIT(A) CANNOT BE F AULTED WITH, F ROM THE PERUSAL OF THE AUDITED ACCOUNTS AND SCHEDULE OF INVESTMENTS, WE FIND THAT OUT OF RS.139,52,57,594/ - , THE INVESTMENT IN THE SUBSIDIARY COMPANY / AE IS RS.139,51,20,000/ - . THAT APART, THE EXPENDITURE UNDER THE HEAD OFFICE IS ONLY RS.2,9 7,651/ - AS NOTED BY THE LD. CIT(A). THUS, THE AMOUNT OF RS.1 LAKH AS ESTIMATED BY THE LD. CIT(A) ON THE FACTS AND CIRCUMSTANCES OF THE CASE IS SUFFICIENT TO COVER UP THE DISALLOWANCE OF EXPENDITURE FOR THE PURPOSE OF EARNING OF EXEMPT INCOME WHICH IS STILL MUCH LESS THAN THE DISALLOWANCE SUSTAINED BY THE LD. CIT(A). ACCORDINGLY, ON THE FACTS OF THE CASE REVENUES APPEAL IS DISMISSED. 5. IN THE RESULT, APPEAL OF THE REVENUE STANDS DISMISSED. 5 M/S KHATAU I NTERNATIONAL PVT LIMITED ITA 5585 /MUM/ 201 3 ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH AUGUST, 2016 . SD/ - SD/ - ( ) ( ) ( B R BASKARAN ) ( AMIT SHUKLA ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 26 TH AUGUST , 2016 / COPY TO: - 1 ) / THE APPELLANT. 2 ) / THE RESPONDENT. 3 ) THE C IT 2 , MUMBAI . 4 ) THE C IT 1 , MUMBAI 5 ) , , / THE D.R. A BENCH, MUMBAI. 6 ) \ COPY TO GUARD FILE. / BY ORDER / / TRUE COPY / / / , DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI * . . *CHAVAN, SR.PS