EVERSMILE CONSTRUCTION COMPANY PRIVATE LIMITED, MUMBAI V. DCIT CEN CIR 1(4), MUMBAI

ITA 5696/MUM/2017

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 6484 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-02-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2012-2013
• Appeal Filed On: 07-09-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D G PANSARI
• Keywords: Capital asset; Earning of tax free income; Rule 8D
• Section: 143(3); 14A

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL E B ENCH MUMBAI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO. 5696/MUM/2017 (ASSESSMENT YEAR 2012-13) EVERSMILE CONSTRUCTION CO. PVT. LTD., DB HOUSE, YASHODHAM, GEN. A.K. VAIDYA MARG, GOREGAON (EAST), MUMBAI-400063. P AN: AAACE0875E VS. DCIT, CENTRAL CIRCULE-1(4), 9 TH FLOOR, OLD C.G.O. BUILDING, ANNEX, M.K. ROAD, MUMBAI-400020. APPELLANT RESPONDENT APPELLANT BY : MS. ARATI VISSANJI (AR) RESPONDENT BY : SHRI D.G. PANSARI (DR) DATE OF HEARING : 10.01.2019 DATE OF PRONOUNCEMEN T : 15.02.2019 ORDER UNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER; 1. THIS APPEAL BY ASSESSEE IS DIRECTED AGAINST THE ORD ER OF LD. COMMISSIONER OF INCOME-TAX (APPEALS)-47, MUMBAI (THE LD. CIT(A) DATED 31.07.2017, WHICH IN TURN ARISES FROM THE ORDER PASSED BY ASSES SING OFFICER UNDER SECTION 143(3) DATED 24.03.2015 FOR ASSESSMENT YEAR 2012-13. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) OUGHT TO HAVE RESTRICTED THE INADMISSIBLE EXPENDITU RE UNDER SECTION 14A AT RS. 6,13,076/-, BEING THE AMOUNT DISALLOWED BY THE APPELLANT ITSELF AND CONSEQUENTLY, OUGHT TO HAVE DIRECTED THE LD. AO TO DELETE THE ADDITIONAL DISALLOWANCE OF RS. 64,38,117/- MADE UNDER SECTION 14A BY INVOKING RULE 80(2)(III). ITA NO. 5696 MUM 2017-EVERSMILE CON STRUCTION CO. PVT. LTD. 2 1.1 WITHOUT PREJUDICE TO THE ABOVE AND IN THE ALTER NATE, ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, IF AT ALL INA DMISSIBLE EXPENDITURE HAD TO BE QUANTIFIED UNDER SECTION 14A BY INVOKING RULE 80(2)(III), THEN, THE LD. CIT(A) OUGHT TO HAVE DIRECTED TO THE LD. AO TO CONS IDER ONLY THOSE INVESTMENTS ON WHICH EXEMPT INCOME HAS BEEN RECEIVE D DURING THE YEAR AND CONSEQUENTLY, OUGHT TO HAVE DIRECTED THE LD. AO TO RESTRICT THE ADDITIONAL DISALLOWANCE UNDER SECTION 14A AT RS. 32,73,005/- . 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE-COMPA NY IS ENGAGED IN THE BUSINESS OF CONSTRUCTION AND REAL ESTATE DEVELOPMEN T, FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2012-13 ON 27.09.2012 DE CLARING NIL INCOME. THE RETURN OF INCOME WAS SELECTED FOR SCRUT INY. THE ASSESSING OFFICER WHILE PASSING THE ASSESSMENT ORDER NOTED TH AT ASSESSEE HAS MADE INVESTMENT AS CAPITAL IN PARTNERSHIP FIRM AND ARRIV E TAX FREE INCOME AS SHARE OF PROFIT FROM THE FIRM. THEREFORE, THE ASSES SING OFFICER ISSUED SHOW-CAUSE NOTICE AS TO WHY DISALLOWANCE UNDER SECT ION 14A R.W. RULE 8D SHOULD NOT BE MADE. THE ASSESSEE FILED ITS REPLY DATED 20.02.2015. IN THE REPLY, THE ASSESSEE CONTENDED THAT THE ASSESSEE HAS OFFERED SUO-MOTU DISALLOWANCE UNDER SECTION 14A OF RS. 6,13,076/- WH ICH IS ATTRIBUTED IN HOLDING OF INVESTMENT IN SHARE, INCOME WHEREOF IS C LAIMED AS EXEMPT INCOME. THE ASSESSEE FURTHER CONTENDED THAT NO INTE REST EXPENDITURE UNDER RULE 8D(2)(II) IS REQUIRED. THE ASSESSEE HAS INCURR ED INTEREST OF RS. 53,944/- WHICH REPRESENT THE INTEREST ON CAR FINANC E AND OTHER INTEREST OF RS. 3,602/- REPRESENT THE INTEREST PAID ON DELAYED INCOME TAX DUES. FOR ADMINISTRATIVE EXPENSES, THE ASSESSEE CONTENDED THA T THE ASSESSEE HAS NOT ITA NO. 5696 MUM 2017-EVERSMILE CON STRUCTION CO. PVT. LTD. 3 INCURRED ANY EXPENDITURE TO HOLD THE INVESTMENT IN SHARE, HENCE NO DISALLOWANCE OF EXPENDITURE @ .5% OF AVERAGE VALUE OF INVESTMENT IS REQUIRED. THE CONTENTION OF ASSESSEE WAS NOT ACCEPT ED BY ASSESSING OFFICER HOLDING THAT THE ASSESSEE HAS NOT PROVIDED ANY EVIDENCE THAT ALL THE MANAGERIAL AND ADMINISTRATIVE EXPENSES NOT INCU RRED FOR EARNING EXEMPT INCOME. THE EXPENDITURE ON ADMINISTRATIVE AN D MANAGERIAL HEAD ARE CUMULATIVE AND PAID FOR ALL TYPE OF WORK AND AC TIVITIES UNDERTAKEN BY EMPLOYEE OF ASSESSEE. THE ACTUAL COST ATTRIBUTABLE FOR EARNING EXEMPT INCOME OUT OF THE EXPENSES HAVE NOT BEEN WORKED OUT BY THE ASSESSEE AND NO DATA HAS BEEN PROVIDED. THE ASSESSING OFFICER WO RKED OUT THE DISALLOWANCE OF ADMINISTRATIVE EXPENSES OF RS. 70,5 1,193/-. AS THE ASSESSEE HAS ALREADY MADE THE SUO-MOTU DISALLOWANCE OF RS. 6,13,076/-, THEREFORE, THE ASSESSING OFFICER MADE FURTHER DISAL LOWANCE OF RS. 64,38,117/-. ON APPEAL BEFORE THE LD. CIT(A), THE A CTION OF ASSESSING OFFICER WAS CONFIRMED. HENCE, FURTHER AGGRIEVED BY THE ORDER OF LD. CIT(A), THE ASSESSEE HAS FILED THE PRESENT APPEAL B EFORE US. 3. WE HAVE HEARD THE SUBMISSION OF LD. AUTHORIZED REPR ESENTATIVE (AR) OF THE ASSESSEE AND LD. DEPARTMENTAL REPRESENTATIVE (D R) FOR THE REVENUE AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE L D. AR OF THE ASSESSEE SUBMITS THAT THE ASSESSING OFFICER BEFORE APPLYING RULE 8D HAS NOT RECORDED ITS SATISFACTION THAT SUO-MOTU DISALLOWANCE OFFERED BY THE ASSESSEE IS NOT CORRECT. THE LD. AR OF THE ASSESSEE SUBMITS THAT EMPLOYEE ITA NO. 5696 MUM 2017-EVERSMILE CON STRUCTION CO. PVT. LTD. 4 COST OF THE ASSESSEE WAS FURNISHED TO THE ASSESSING OFFICER AND DETAILS OF WHICH ARE FILED AT PAGE NO. 19 OF PAPER BOOK. THE L D. AR OF THE ASSESSEE FURTHER SUBMITS THAT SUO-MOTU DISALLOWANCE UNDER SECTION 14A IS OFFERED BY ASSESSEE OF RS. 6,13,076/-, THE WORKING OF WHICH IS PROVIDED AS PER DETAILS AVAILABLE ON PAGE NO. 55 OF PAPER BOOK. 4. THE LD. AR FURTHER SUBMITS THAT THE SIMILAR DISALLO WANCE WAS MADE FOR ASSESSMENT YEAR 2009-10 AND ON APPEAL BEFORE THE LD . CIT(A), THE SUO- MOTU DISALLOWANCE OF ASSESSEE OF RS. 7,28,280/- WAS ACC EPTED. ON FURTHER APPEAL BEFORE THE TRIBUNAL, THE ORDER OF LD. CIT(A) WAS CONFIRMED. AGAIN THE ASSESSING OFFICER FOR A.Y. 2010-11 MADE SIMILAR DISALLOWANCE AND ON APPEAL BEFORE THE LD. CIT(A), THE SUO-MOTU DISALLOWANCE WAS ACCEPTED. AND ON FURTHER APPEAL BEFORE TRIBUNAL, TRIBUNAL FOL LOWED THE ORDER FOR A.Y. 2009-10. BY FOLLOWING THE ORDER OF TRIBUNAL FO R A.Y. 2009-10 & 2010-11, THE DISALLOWANCE FOR A.Y. 2011-12 WAS REST RICTED TO 10% OF TOTAL EXPENSES INCURRED BY ASSESSEE. THE LD. AR OF THE ASSESSEE FILED COPY OF TRIBUNAL IN ASSESSMENT YEAR 2009-10, 2010-11 & 2 011-12 IN ITA NO. 6142/MUM/2012 DATED 19.08.2015, ITA NO. 7630/MUM/20 14 DATED 27.07.2016 AND ITA NO. 7733/MUM/2014 DATED 14.02.20 18 RESPECTIVELY. THE LD. AR ALSO RELIED UPON THE DECISION OF HONBLE BOMBAY HIGH COURT IN PCIT VS. RELIANCE CAPITAL ASSET (400 ITR 217 (BO MBAY) AND DECISION OF SPECIAL BENCH OF DELHI TRIBUNAL IN VIREET INVEST MENT (P.) LTD. VS. ACIT [2017] 82 TAXMANN.COM 415 (DEL-TRIB.). ITA NO. 5696 MUM 2017-EVERSMILE CON STRUCTION CO. PVT. LTD. 5 5. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE RELIE D UPON THE ORDER OF ASSESSING OFFICER/LD. CIT (A). 6. WE HAVE CONSIDERED THE SUBMISSION OF BOTH THE PARTI ES AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. DURING THE ASSESSMENT, THE ASSESSING OFFICER NOTED THAT ASSESSEE HAS MADE INVE STMENT AS CAPITAL IN PARTNERSHIP FIRM AND ARRIVE TAX FREE INCOME AS SHAR E OF PROFIT FROM THE FIRM, THE ASSESSING OFFICER ISSUED SHOW-CAUSE NOTIC E AS TO WHY DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D SHOULD NOT BE MADE. THE ASSESSEE FILED ITS REPLY DATED 20.02.2015. IN THE R EPLY, THE ASSESSEE CONTENDED THAT THE ASSESSEE HAS OFFERED SUO-MOTU DISALLOWANCE UNDER SECTION 14A OF RS. 6,13,076/- WHICH IS ATTRIBUTED I N HOLDING OF INVESTMENT IN SHARE, INCOME WHEREOF IS CLAIMED AS EXEMPT INCOM E. THE ASSESSEE FURTHER CONTENDED THAT NO INTEREST EXPENDITURE UNDE R RULE 8D(2)(II) IS REQUIRED. THE ASSESSEE HAS INCURRED INTEREST OF RS. 53,944/- WHICH REPRESENT THE INTEREST ON CAR FINANCE AND OTHER INT EREST OF RS. 3,602/- REPRESENT THE INTEREST PAID ON DELAYED INCOME TAX D UES. FOR ADMINISTRATIVE EXPENSES, THE ASSESSEE CONTENDED THA T THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE TO HOLD THE INVESTMENT IN SHARE, HENCE NO DISALLOWANCE OF EXPENDITURE @ .5% OF AVERAGE VALUE OF INVESTMENT IS REQUIRED. THE CONTENTION OF ASSESSEE WAS NOT ACCEPT ED BY ASSESSING OFFICER HOLDING THAT THE ASSESSEE HAS NOT PROVIDED ANY EVIDENCE THAT ALL THE MANAGERIAL AND ADMINISTRATIVE EXPENSES NOT INCU RRED FOR EARNING ITA NO. 5696 MUM 2017-EVERSMILE CON STRUCTION CO. PVT. LTD. 6 EXEMPT INCOME. THE EXPENDITURE ON ADMINISTRATIVE AN D MANAGERIAL HEAD ARE CUMULATIVE AND PAID FOR ALL TYPE OF WORK AND AC TIVITIES UNDERTAKEN BY EMPLOYEE OF ASSESSEE. THE ACTUAL COST ATTRIBUTABLE FOR EARNING EXEMPT INCOME OUT OF THE EXPENSES HAVE NOT BEEN WORKED OUT BY THE ASSESSEE AND NO DATA HAS BEEN PROVIDED. THE ASSESSING OFFICER NO TED RECORDED THE SATISFACTION REGARDING THE CORRECTNESS OF SUO-MOTU DISALLOWANCE OFFERED BY ASSESSEE. THE ASSESSING OFFICER INVOKE THE PROVI SION OF RULE 8D AND WORKED OUT THE DISALLOWANCE OF RS. 70,51,193/-. THE ASSESSEE HAS ALREADY MADE THE SUO-MOTU DISALLOWANCE OF RS. 6,13,076/-, THEREFORE, THE ASSESSING OFFICER AFTER GIVING A SET OFF OF SUO-MOTU DISALLOWANCE MADE FURTHER DISALLOWANCE OF RS. 64,38,117/-. 7. WE HAVE NOTED THAT ON SIMILAR FACT IN ASSESSMENT YE AR 2009-10, 2010-11 & 2011-12, THE ASSESSING OFFICER MADE DISALLOWANCE IN ASSESSMENT YEAR 2009-10, 2010-11 & 2011-12, HOWEVER, ON APPEAL BEFO RE THE LD. CIT(A) THE DISALLOWANCE WAS RESTRICTED TO SUO-MOTU DISALLOWANCE MADE BY ASSESSEE. AND ON APPEAL BEFORE TRIBUNAL, THE APPEAL OF REVENUE WAS DISMISSED VIDE IN ITA NO. 6142/MUM/2012 DATED 19.08 .2015, ITA NO. 7630/MUM/2014 DATED 27.07.2016 AND ITA NO. 7733/MUM /2014 DATED 14.02.2018 FOR A.Y. 2009-10, 2010-11 & 2011-12 RESP ECTIVELY. 8. WE HAVE NOTED THAT ON THE BASIS OF SUO-MOTU DISALLOWANCE OFFERED BY ASSESSEE UNDER SECTION 14A FOR A.Y. 2009-10, 201-11 & 2011-12, THE ASSESSEE HAS OFFERED SUO-MOTU DISALLOWANCE @ 10% OF EXPENSES I.E. RS. ITA NO. 5696 MUM 2017-EVERSMILE CON STRUCTION CO. PVT. LTD. 7 6,13,076/- INCURRED ON SALARY AND WELFARE EXPENSES OF STAFF, CONTRIBUTION TO PROVIDENT FUNDS, GRATUITY AND PRINTING, STATIONA RY, POSTAGE, TELEGRAM, TELEPHONE AND OTHER EXPENSES OF AGGREGATE OF RS. 61 ,30,764/- (AS PER PAGE NO.55 OF PB). CONSIDERING THE DECISION OF CO-ORDINA TE BENCH WHEREIN CONSISTENT VIEW WAS TAKEN FOR DISALLOWANCE UNDER SE CTION 14A, THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF CO-ORDINATE BENCH, THE ASSESSING OFFICER IS DIRECTED TO ACCEPT THE SUO-MOTU DISALLOWANCE OFFERED BY ASSESSEE. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 15/ 02/2019. SD/ SD/- SHAMIM YAHYA PAWAN SINGH ACCOUNTANT MEMBER J UDICIAL MEMBER MUMBAI, DATE: 15.02.2019 SK COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. DR E BENCH, ITAT, MUMBAI 6. GUARD FILE BY ORDER, DY./ASST. REGISTRAR ITAT, MUMBAI