TECHPROCESS PAYMENT SERVICES LTD, MUMBAI V. DCIT 10(1), MUMBAI

ITA 589/MUM/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 2979 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-09-2016
• Appeal Filed By: Assessee
• Bench Allotted: D
• Next Hearing Date: 19-07-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 28-01-2015
• Court: TRIBUNAL
• Department Lawyers: B S BIST
• Assessee Lawyers: KRUPA R GANDHI
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI B.R. BASKARAN (AM) & PAWAN SINGH (JM) I.T.A. NO. 589 /MUM/ 20 1 5 (ASSESSMENT YEAR 20 1 0 - 11 ) M/S. TECHPROCESS PAYMENT SERVICES LTD. (FORMERLY KNOWN AS M/S. TECHPROCESS SOLUTIONS LTD.) BUILDING NO. 2, 1 ST FLOOR MEHRA INDUSTRIAL ESTATE NEXT TO JASWANT LANDMARK MUMBAI - 400 079. VS. DCIT - 10(1) 455, AAYAKAR BHAVAN M.K. ROAD MUMBAI - 400 020. ( APPELLANT ) ( RESPONDENT ) PAN NO . AABCB5216D ASSESSEE BY MS. KRUPA R. GANDHI DEPARTMENT BY SHRI B.S . BIST DATE OF HEARING 28 . 7 . 201 6 DATE OF PRONOUNCEMENT 14 .9 . 201 6 O R D E R PER B.R. BASKARAN (AM) : - THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING THE ORDER DATED 03.11.2014 PASSED BY LD CIT(A) - 21, MUMBAI CONFIRMING THE DISALLOWANCE MADE BY THE AO U/S 14A OF THE ACT FOR ASSESSMENT YEAR 2010 - 11. 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRANSACTION PROCESSING AND PAYMENT SERVICES. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE RECEIVED DIVIDEND INCOME OF RS.2.07 CRORES AND CLAI MED THE SAME AS EXEMPT. THE ASSESSEE DISALLOWED A SUM OF RS.3,94,711/ - U/S 14A OF THE ACT TOWARDS ADMINISTRATIVE EXPENSES BY ALLOCATING PART OF SALARY AND OTHER EXPENSES. THE AO, HOWEVER, WAS NOT SATISFIED WITH THE WORKINGS OF THE ASSESSEE AND ACCORDINGL Y COMPUTED THE DISALLOWANCE UNDER RULE 8D(2)(III) OF THE I T RULES AT M/S. TECHPROCESS PAYMENT SERVICES LTD. 2 RS.19,82,296/ - , BEING 0.5% OF AVERAGE VALUE OF INVESTMENTS. ACCORDINGLY HE ADDED THE DIFFERENCE AMOUNT OF RS.15,87,585/ - TO THE TOTAL INCOME OF THE ASSESSEE. THE LD CIT(A) ALSO CONFIRM ED THE SAME. 3. THE LD A.R SUBMITTED THAT THE ASSESSEE HAS MADE INVESTMENTS IN THE GROUP COMPANIES AND MUTUAL FUNDS. SHE FURTHER SUBMITTED THAT THE MUTUAL FUNDS INVESTMENTS WERE MOSTLY MADE UNDER REINVESTMENT OF DAILY DIVIDEND SCHEME. ACCORDINGLY S HE SUBMITTED THAT THE INVOLVEMENT OF RESOURCES OF THE ASSESSEE IN MAKING INVESTMENTS AND IN RECEIVING DIVIDENDS WERE VERY MINIMUM. DESPITE THESE FACTS, THE ASSESSEE HAS VOLUNTARILY DISALLOWED A SUM OF RS.3,94,711/ - BY ALLOCATING A PORTION OF ADMINISTRATIV E AND SALARY EXPENSES ON A REASONABLE BASIS. THE LD A.R ALSO URGED VARIOUS PROPOSITIONS TO CONTEND THAT NO DISALLOWANCE U/S 14A IS WARRANTED IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 4. ON THE CONTRARY, THE LD D.R SUBMITTED THAT THE PROVISIONS OF RU LE 8D HAS BEEN HELD TO BE MANDATORY FOR THE YEAR UNDER CONSIDERATION BY HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD (328 ITR 81). HE SUBMITTED THAT THE ASSESSEE HAS ALLOCATED ONLY JUNIOR EMPLOYEES SALARY ONLY. HE FURTHER SUBMITTE D THAT THE ASSESSEE HAS PURCHASED MUTUAL FUND UNITS TO THE TUNE OF RS. 83 2 3 CRORES AND SOLD EQUAL AMOUNT OF MUTUAL FUND UNITS. 5. WE HEARD THE PARTIES AND PERUSED THE RECORD. WE HAVE ALSO GONE THROUGH THE DETAILS OF INVESTMENTS GIVEN IN SCHEDULE 4 TO TH E BALANCE SHEET. A PERUSAL OF THE SAME SHOWS THAT THE ASSESSEE HAS MADE INVESTMENTS IN TWO SUBSIDIARY COMPANIES TO THE TUNE OF RS.14.98 CRORES. THE OPENING BALANCE OF INVESTMENTS IN THESE TWO COMPANIES STAND AT RS.12.87 CRORES, MEANING THEREBY THE ASSESS EE HAS MADE ADDITIONAL INVESTMENT OF ABOUT RS.2.00 CRORES DURING THIS YEAR. THE ASSESSEE HAS BROUGHT FORWARD INVESTMENT OF RS.4.93 LAKHS MADE IN ANOTHER COMPANY. BESIDES THE ABOVE, THE ASSESSEE IS MAKING SHORT TERM INVESTMENTS IN M/S. TECHPROCESS PAYMENT SERVICES LTD. 3 MUTUAL FUNDS, MOSTLY IN DEBT FUNDS GIVING DAILY DIVIDENDS. THE DETAILS OF SUCH INVESTMENTS ARE GIVEN IN PAGE 53 OF THE PAPER BOOK. A PERUSAL OF THE SAME WOULD SHOW THAT THE ASSESSEE HAS MADE INVESTMENTS IN 12 TYPES OF SCHEMES FLOATED BY VARIOUS MUTUAL FUNDS. THE ASSESSEE HAS I NVESTED IN LUMP SUMS AND WITHDRAWN IN LUMP SUMS. IN FACT, THE ASSESSEE HAS INVESTED RS.8275 CRORES IN THREE SCHEMES DURING THE YEAR UNDER CONSIDERATION AND WITHDRAWN THE SAME DURING THE CURRENT YEAR ITSELF. 6. WITH REGARD TO THE DISALLOWANCE U/S 14A WORKED OUT BY THE ASSESSEE, WE NOTICE THAT THE ASSESSEE HAS ALLOCATED A PORTION OF SALARY EXPENSES TOWARDS DIVIDEND INCOME AS DETAILED BELOW: - STAFF SALARY 2,54,622 AUTHORISED SIGNATORY 1% OF CTC 68,656 0.1% OF CEO DEPUTATION EXPENSES 8, 237 OFFICE BOY 1% OF CTC 1,112 BESIDES THE ABOVE, THE ASSESSEE HAS ALLOCATED A PORTION OF RENT AND OTHER EXPENSES ALSO. ACCORDINGLY THE TOTAL AMOUNT DISALLOWED BY THE ASSESSEE WORKS OUT TO RS.3,94,711/ - . 7. WE NOTICE THAT THE ASSESSING OF FICER HAS OBSERVED THAT THE ASSESSEE HAS NOT CATEGORISED THE EXPENSES INCURRED FOR MAKING INVESTMENT FROM WHICH IT HAS EARNED EXEMPT INCOME. ACCORDINGLY HE HAS EXPRESSED THE VIEW THAT HE IS SATISFIED THAT THE DISALLOWANCE NEEDS TO BE MADE UNDER RULE 8D. THUS, WE NOTICE THAT THE ASSESSING OFFICER DID NOT EXAMINE THE WORKINGS FURNISHED BY THE ASSESSEE VIS - A - VIS THE BOOKS OF ACCOUNTS. HENCE WE ARE OF THE VIEW THAT THE AO HAS NOT SHOWN THAT HE WAS NOT SATISFIED WITH THE CORRECTNESS OF THE WORKING OF THE ASSE SSEE BY HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE AS MANDATED UNDER SEC/ 14A(2) OF THE ACT. ACCORDINGLY WE ARE OF THE VIEW THAT THE AO COULD M/S. TECHPROCESS PAYMENT SERVICES LTD. 4 NOT HAVE RESORTED TO MAKE DISALLOWANCE AS PER RULE 8D WITHOUT ENTERTAINING OBJECTIVE DIS - SATISFACTION. 8. WE HAVE NOTICED THAT THE ASSESSEE HAS INCREASED INVESTMENT MADE IN THE TWO SUBSIDIARY COMPANIES BY ABOUT RS.2.00 CRORES DURING THE YEAR UNDER CONSIDERATION. FURTHER, THE ASSESSEE HAS INVESTED IN 15 SCHEMES OF MUTUAL FUNDS AND MADE WITHDRAWALS FROM THOSE ACCOUNTS. THUS, THE MAJOR INVESTMENT ACTIVITY OF THE ASSESSEE WAS IN THE MUTUAL FUNDS CATEGORY, WHICH HAS BEEN CATEGORISED AS SHORT TERM INVESTMENTS. WE HAVE EARLIER NOTICED THAT THE ASSESSEE HAS MADE INVESTMENTS TO THE TUNE OF RS.8,275 CRORES AND WITHDR AWN EQUAL AMOUNTS. DECISION FOR MAKING INVESTMENT OF SUCH A HIGH MAGNITUDE WOULD DEFINITELY REQUIRE INVOLVEMENT OF HIGH OFFICIALS. THE ASSESSEE HAS NOT FURNISHED THE BASIS FOR ALLOCATING 1% OF AUTHORISED SIGNATORYS (CEO) SALARY EXPENSES AND 0.1% OF HIS DEPUTATION EXPENSES. IT IS ALSO NOT KNOWN AS TO WHETHER CEO ALONE TOOK THE DECISION FOR MAKING INVESTMENTS IN MUTUAL FUNDS. NORMALLY SUCH DECISIONS ARE TAKEN BY CONSULTING FINANCE DEPARTMENT AND INVESTMENT EXPERTS. HOWEVER, SUCH DETAILS ARE NOT AVAILABL E ON RECORD. 9. IN VIEW OF THE ABOVE REASONS, IT IS DIFFICULT TO ACCEPT THE WORKINGS GIVEN BY THE ASSESSEE AND WE ARE OF THE VIEW THAT THE DISALLOWANCE OF RS.3,94,711/ - MADE BY THE ASSESSEE APPEARS TO BE ON THE LOWER SIDE. HOWEVER, SINCE THE NUMBER OF TRANSACTIONS IS LIMITED, WE ARE OF THE VIEW THAT THIS ISSUE MAY BE SETTLED BY MAKING AN ESTIMATE ON A REASONABLE BASIS. ACCORDINGLY, WE ARE OF THE VIEW THAT, CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, THE DISALLOWANCE U/S 14A OF THE ACT MAY B E MADE AT RS.10.00 LAKHS IN ORDER TO COVER UP THE EXPENSES RELATING TO UTILISATION OF HUMAN/OTHER RESOURCES NOT CONSIDERED BY THE ASSESSEE. IN OUR CONSIDERED VIEW, THE SAME WOULD MEET THE ENDS OF JUSTICE AND WE ORDER ACCORDINGLY. ACCORDINGLY THE ORDER PA SSED BY LD CIT(A) STANDS M/S. TECHPROCESS PAYMENT SERVICES LTD. 5 MODIFIED ACCORDINGLY AND THE AO IS DIRECTED TO DISALLOW THE ABOVE SAID AMOUNT OF RS.10.00 LAKHS U/S 14A OF THE ACT. 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER HAS BE EN PRONOUNCED IN THE C OURT ON 14 .9 .2016 SD/ - SD/ - (PAWAN SINGH ) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 14 / 9 / 20 1 6 COPY OF THE ORDER FORWARDED T O : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( DY./ASSTT. REGISTRAR) ITAT, MUMBAI PS