YEW INVESTMENT P. LTD, MUMBAI V. ASST CIT 10(2), MUMBAI

ITA 5794/MUM/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4208 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-04-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2010-2011
• Appeal Filed On: 15-09-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS NEELIMA NADKARNI
• Assessee Lawyers: AJAY SINGHAR
• Keywords: Earning of tax free income; Notional interest
• Section: 143(3); 14A

Judgement Text

INCOME TAX APPELLATE TRIBUNAL,MUMBAI- G,BENCH , , BEFORE S/SHRI JOGINDER SINGH,JUDICIAL MEMB ER & RAJENDRA,ACCOUNTANT MEMBER ./ITA NO./5794/MUM/2014, / ASSESSMENT YEARS: 2010-11 M/S. YEW INVESTMENT PVT. LTD. B-7/8, SATYAM COMMERCIAL CENTRE, M.G. ROAD, GHATKOPAR (E) MUMBAI-400 077. PAN:AAACY 1560 C VS. ACIT-10(2) AAYAKAR BHAVAN, M.K. ROAD MUMBAI-400 020. ( /APPELLANT ) ( / RESPONDENT ) REVENUE BY: MRS. NEELIMA NADKARNI (DR) ASSESSEE BY: SHRI AJAY SINGH-(AR) / DATE OF HEARING: 06.04.2016 / DATE OF PRONOUNCEMENT: 06.04.2016 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA A.M. - CHALLENGING THE ORDER DATED 12/06/2014 OF THE CIT ( A)-22,MUMBAI, THE ASSESSEE HAS RAISED TWO GROUNDS IN ITS APPEAL.ASSESSEE-COMPANY ENGAGED IN THE BUSINESS OF INVESTMENT IN SHARES, FILED ITS RETURN OF INCOME ON 28/07/2010,DECLARING TOTAL INCOME OF RS. 12.63 LACS.THE ASSESSING OFFICER(AO) COMPLETED THE ASSESSMENT, UND ER SECTION 143(3) OF THE ACT, ON 19/10/ 2012,DETERMINING THE INCOME OF THE ASSESSEE AT RS. 17.24 LAKHS. 2. FIRST GROUND OF APPEAL IS ABOUT DISALLOWANCE MADE U NDER SECTION 14 A OF THE ACT. DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT THE AS SESSEE HAD CLAIMED EXEMPT INCOME, THAT IT HAD NOT MADE ANY DISALLOWANCE UNDER SECTION 14 A OF THE ACT.HE CALLED FOR RELEVANT DETAILS FROM THE ASSESSEE IN THAT REGARD.HE ASKED THE ASSES SEE TO SHOW CAUSE AS TO WHY THE DISALLOW - ANCE U/S.14 A SHOULD NOT BE MADE.IT WAS SUBMITTED B Y THE ASSESSEE THAT NO DISALLOWANCE COULD BE MADE UNDER RULE 8D OF THE INCOME TAX RULES , 1962 (RULES),THAT NO INTEREST-BEARING FUNDS WERE INCURRED BY THE ASSESSEE FOR MAKING INVE STMENTS,THAT NO OTHER ADMINISTRATIVE EXPENSES COULD BE ATTRIBUTABLE TO THE EARNING OF TH E DIVIDEND. HOWEVER,THE AO HELD THAT ASSESSEE HAD NOT ADVANCED ANY CONCRETE EVIDENCE TO SHOW THAT NO EXPENSES COULD BE ATTRIBUTABLE TO THE EARNING OF THE DIVIDEND. FINALL Y,HE DISALLOWED RS. 2.02 LAKHS, INVOKING THE PROVISIONS OF SECTION 14 A R.W. RULE 8D OF THE RULE S. 3. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA).BEFORE HIM, IT WAS ARGUED THAT NONE OF THE ADMITTED EXPENSES WERE ATTRIBUTE - ABLE TO THE EARNING OF DIVIDEND EXCEPT THE DEMAT EX PENSES OF RS. 17,503/- THAT THE SAID EXPENSE WAS DISALLOWED BY THE ASSESSEE ITSELF IN TH E RETURN OF INCOME, THAT THE AO HAD MECHANICALLY APPLIED THE PROVISIONS OF RULE 8D WITH OUT LOOKING INTO THE MERITS OF THE CASE. AFTER CONSIDERING THE OMISSION OF THE ASSESSEE AND THE ASSESSMENT ORDER, THE FAA HELD THAT ASSESSEE WAS DERIVING INCOME FROM BUSINESS OF LENDI NG AND FINANCING, THAT THE SURPLUS ONE WAS INVESTED IN SHARES OF LISTED COMPANIES AND OTHE R INVESTMENTS, IT HAD INCURRED ADMITTED EXPENSES OF RS. 12.30 LACS. REFERRING TO THE PROVIS IONS OF SECTION 14 A OF THE ACT AND RULE 8D OF THE RULES,HE HELD THAT THE AO WAS DUTY BOUND TO DETERMINE THE EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DID NOT FORM PART OF THE T OTAL INCOME UNDER THE ACT, THAT THE AO HAD 5794/M/14-YEW IPL 2 TO ADOPT A REASONABLE BASIS FOR MAKING DISALLOWANCE . UPHOLDING THE ORDER OF THE AO, HE DISMISSED THE APPEAL FILED BY THE ASSESSEE. 4. BEFORE US,THE AUTHORISED REPRESENTATIVE (AR) STATED THAT ASSESSEE ITSELF HAD MADE A DISALLOWANCE OF RS. 17,503/-PERTAINING TO THE DEMAT CHARGES, THAT NO OTHER EXPENSE WAS INCURRED BY THE ASSESSEE FOR EARNING THE EXEMPT INC OME, THAT THE AO HAD APPLIED THE A READ WITH RULE 8D WITHOUT APPLYING HIS MIND AND HAD MADE THE DISALLOWANCE MECHANICALLY. DEPARTMENTAL REPRESENTATIVE (DR) SUPPORTED THE ORDE R OF THE FAA. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT THE ASSESSEE HAD EARNED DIVIDEND INCOME OF RS.1.08 LACS , THAT IT HAD MADE A DISALLOWANCE OF RS.17,503/- ON ITS OWN AS PER THE PROVISIONS OF SEC .14A OF THE ACT, THAT THE AO HAD MADE A DSISALLOWANCE OF RS.2.02 LAKHS,THAT THE AO HAD NOT MENTIONED AS TO HOW MUCH EXPENDITURE WAS INCURRED BY THE ASSESSEE FOR EARNING EXEMPT INC OME, THAT SUBMISSION MADE BY THE ASSESSEE WAS NOT CONSIDERED PROPERLY BY THE AO.WE A RE OF THE OPINION THAT DISALLOWANCE U/S. 14A CAN BE MADE,IF AN ASSESSEE CLAIMS AN EXPENDITUR E FOR EARNING EXEMPT INCOME.IN OTHER WORDS,IF NO EXPENDITURE IS CLAIMED BY THE ASSESSEE IN ITS P&L ACCOUNT FOR EARNING TAX FREE INCOME NO DISALLOWANCE CAN BE MADE.SECONDLY, THE DI SALLOWANCE CANNOT EXCEED THE EXEMPT INCOME.IN THE CASE UNDER CONSIDERATION THE ASSESSEE HAD INCRRED AN EXPENDITURE OF RS.17, 503/-(DMAT CHARGES) AND THAT WAS THE ONLY ITEM WHIC H COULD HAVE BEEN DISALLOWED.THE AO HIMSELF HAD MENTIONED THAT ASSESSEE IN ITS COMPUTAT ION OF INCOME HAD MADE THE SAID DISALLOWANCE.IN THESE CIRCUMSTANCES,WE ARE OF THE O PINION THAT ORDER OF THE FAA WAS NOT JUSTIFIED.REVERSING HIS ORDER,WE DECIDE FIRST GROUN D IN FAVOUR OF THE ASSESSEE . 6. SECOND GROUND IS ABOUT NOTIONAL INTEREST OF RS. 34, 038/-. DURING THE ASSESSMENT PROCEEDING THE AO FOUND THAT THE ASSESSEE HAD ADVANCED SUM OF RS 5 LAKHS TO ITS BROKER,M/S. SUNSHINE SHARE BROKING PVT. LTD. (SSBPL) CARRYING AN INTERES T RATE OF 6% , THAT DURING THE YEAR UNDER APPEAL IT HAD ALSO ADVANCED FUNDS TO OTHER PARTIES CARRYING AN INTEREST RATE OF 9% TO 12% RESPECTIVELY. HE DIRECTED THE ASSESSEE TO EXPLAIN A S TO WHY LOWER RATE OF INTEREST (6%) WAS CHARGED TO SSBPL AS AGAINST THE 9% TO 12% OF INTERE ST RATE CHARGED FROM OTHER PARTIES. IN ITS REPLY DT.11.10.12 THE ASSESSEE STATED THAT LOAN TO SSBPL WAS ADVANCED IN FY. 2006-07, THAT AT THAT TIME INTEREST RATE WAS HOVERING TO AN AVERAGE OF 6-7% APPROXIMATELY. LOAN ADVANCED TO ITS BROKER WAS RECEIVED BACK BY THE ASSESSEE IN THE YEAR UNDER CONSIDERATION,THAT IT HAD ADVANCED LOAN TO OTHER PARTIES AFTER TAKING INTO CO NSIDERATION AVAILABILITY OF FUNDS, THAT THE DIFFERENT LENDING RATES AT DIFFERENT TIMES WERE JUS T AND RATIONAL TO CARRY OUT THE BUSINESS. HOWEVER,THE AO WAS NOT SATISFIED WITH THE REPLY OF THE ASSESSEE AND ADDED RS.34,038/- (DIFFERENCE BETWEEN THE LENDING RATES) TO THE TOTAL INCOME OF THE ASSESSEE. 7. DURING THE APPELLATE PROCEEDING BEFORE THE FAA, THE ASSESSEE CONTENDED THAT THERE WAS NO PROVISION IN THE ACT TO ADD NOTIONAL INTEREST BY A N AO BY COMPARING OTHER INTERNAL/EXTERNAL RATES OF INTEREST,THAT THE AO COULD NOT ASSUME THE ROLE OF BUSINESSMAN, THAT HE HAD FAILED TO PROVE THAT NOTIONAL INCOME WAS RECEIVED BY THE ASSE SSEE OR SAME HAD ACCRUED TO IT. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AND THE ASSESSMENT ORDER,HE HELD THAT ASSESSEE WAS CHARGING 9% INTEREST ON LOAN ADVANCED TO OTHER PARTIES, THAT NO DOCUMENTARY EVIDENCE WAS FILED BEFORE HIM TO SHOW THAT ASSESSEE HAD TAK EN LOAN AT 6-7%, THAT THE AO WAS JUSTIFIED IN MAKING THE ADDITION. 8. BEFORE US,THE AR MADE THE SAME SUBMISSIONS THAT WER E MADE BEFORE THE FAA AND ADDED THAT SSBPL WAS THE BROKER OF THE ASSESSEE,THAT THE OTHER TWO PARTIES WERE NOT THE BROKERS ,THAT 5794/M/14-YEW IPL 3 THE LOAN ADVANCED AT 9% WAS GIVEN FOR A VERY SHORT PERIOD. DR SUPPORTED THE ORDER OF THE FAA. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT THE AO HAD ADDED A SUM OF RS34,038/- TO THE INCOME OF T HE ASSESSEE ON NOTIONAL BASIS.IN OUR OPINION,IF THE INCOME HAS NOT ACCRUED/RECEIVED BY T HE ASSESSEE IT CANNOT BE ADDED TO ITS INCOME,UNLESS PROVIDED IN THE PROVISIONS OF THE ACT . WE AGREE WITH THE ASSESSEE THAT THE ACT DOES NOT PROVIDE FOR TAXING THE NOTIONAL INTEREST INCOME.SECONDLY THE AO IS NOT SUPPOSED TO STEP INTO THE SHOES OF THE ASSESSEE TO DECIDE AS T O HOW MUCH INTEREST IT SHOULD CHARGED. THEREFORE,REVERSING THE ORDER OF THE FAA WE DECIDE GROUND NO.2 IN FAVOUR OF THE ASSESSEE . AS A RESULT ,APPEAL FILED BY THE ASSESSEE STANDS ALLOWED. . ORDER PRON OUNCED IN THE OPEN COURT ON 6 TH ,APRIL, 2016. 06 , 2016 SD/- SD/- /JOGINDER SINGH) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 06.04.2016. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR A BENCH, ITAT, MUMBAI / , G , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.