AVIPRO INDIA PRIVATE LIMITED, MUMBAI V. DY.CIT-9(1)(2), MUMBAI

ITA 5952/MUM/2018

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 1442 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-12-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 16-10-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S MICHAEL JERALD
• Assessee Lawyers: JIGAR MEHTA
• Keywords: Earning of tax free income; Rule 8D
• Section: 14A; 10(33); 10(33); 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE SHRI MAHAVIR SINGH , JUDICIAL MEMBER AND SHRI M. BALAGANESH, ACCOUNTANT MEMBER ITA NO. 5952 /MUM. /2018 ( ASSESSMENT YEAR : 20 13 14 ) AVIPRO INDIA PVT. LTD. 602, GRACE CHAMBER ANDHERI KURLA ROAD CHAKALA, ANDHERI (E) MUMBAI 400 099 PAN AAECA7338Q . APPELLANT V/S DY. COMMISSIONER OF INCOME TAX CIRCLE 9 ( 1 )( 2 ), MUMBAI . RESPONDENT ASSESSEE BY : SHRI JIGAR MEHTA REVENUE BY : SHRI S . MICHAEL JERALD DATE OF HEARING 12.12.2019 DATE OF ORDER 13.12.2019 O R D E R PER M. BALAGANESH, A.M. THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE CHALLENGING THE ORDER DATED 26 TH JULY 2018 , PASSED BY THE LEARNED CIT(A) 16 , MUMBAI, FOR THE ASSESSMENT YEAR 20 13 14 . 2. GROUND S NO.1 AND 2 , RAISED BY THE ASSESSEE ARE WITH REGARD TO DISALLOWANCE OF TRAVEL EXPENDITURE @ 50% OF THE TOTAL EXPENDITURE AND 2 AVIPRO INDIA PVT. LTD. DISALLOWANCE OF BUSINESS PROMOTION EXPENDITURE BY THE ASSESSEE MADE BY THE ASSESSING OFFICER ON AD HOC BASIS. 3. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY RENDERING CONSULTANCY SERVICES. THE ASSESSEE COMPANY RECEIVES FEE FOR SERVICES RENDERED BY IT TO VARIOUS AIRLINE COMPA NIES. THE SERVICES RENDERED BY THE ASSESSEE COMPRISED OF PROMOTING AND MARKETING VARIOUS COMPONENTS MANUFACTURED BY VARIOUS PARTIES WHICH ARE USED IN COMMERCIAL AVIATION SECTOR. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE RECEIVES FEE FROM ABROAD AND DOES NOT REQUIRE MAJOR EXPENDITURE TO BE INCURRED IN INDIA. THE ASSESSING OFFICER MADE A GENERAL OBSERVATION THAT SHRI SAIRAM PATRO, WHO IS A 50% SHAREHOLDER AND DIRECTOR IN ASSESSEE COMPANY IS THE MAIN FORCE BEHIND THE ASSESSEE COMPANY AND HIS PERSONAL EX PENDITURE HAS BEEN DEBITED IN THE COMPANYS BOOKS. WE FIND THAT THE ASSESSEE HAD DEBITED AN AMOUNT OF ` 7,82,743, ON ACCOUNT OF BUSINESS PROMOTION EXPENDITURE. THE ASSESSEE REPLIED BEFORE THE ASSESSING OFFICER THAT MAJORITY OF THESE EXPENDITURES WERE INCUR RED BY THE ASSESSEES DIRECTOR USING HIS CREDIT CARD AND THE SAME WERE LATER REIMBURSED BY THE ASSESSEE COMPANY TO ITS DIRECTOR. THE ENTIRE LIST OF EXPENDITURE INCURRED THROUGH VARIOUS CREDIT CARDS BELONGING TO SHRI SAIRAM PETRO, AT VARIOUS PLACES INCLUDIN G IN BOMBAY PRESIDENTIAL GOLF CLUB WERE 3 AVIPRO INDIA PVT. LTD. DETAILED IN PAGE 5 TO 8 OF THE ASSESSMENT ORDER. WE ALSO FIND THAT THE ASSESSING OFFICER TREATED THE ENTIRE EXPENDITURE TO BE FULLY PERSONAL IN NATURE AND DISALLOWED THE ENTIRE SUM OF ` 7,82,743, ON ACCOUNT OF BUSINE SS PROMOTION EXPENDITURE. 4. IN RESPECT OF TRAVEL EXPENDITURE, THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAD CLAIMED TOTAL TRAVELLING EXPENDITURE OF ` 10,01,584. THE ASSESSEE FURNISHED THE ENTIRE DETAILS OF THE TRAVEL MADE BY THE DIRECTOR WITH HIS FAMILY MEMBERS TO VARIOUS PLACES AND GAVE COMPLETE DETAILS OF THE SAME BEFORE THE ASSESSING OFFICER TOGETHER WITH THE PURPOSE OF VISIT. THE ASSESSING OFFICER OBSERVED THAT SINCE THE ENTIRE CONSULTANCY FEE IS RECEIVED BY THE ASSESSEE FULLY FROM ABROAD , THERE IS NO NEED FOR THE ASSESSEE TO MAKE ANY DOMESTIC TRAVEL IN INDIA. WE FIND THAT THE ASSESSING OFFICER ON A PERUSAL OF THE DETAILS FILED BY THE ASSESSEE TOWARDS TRAVELLING EXPENDITURE DISALLOWED THE SUM OF ` 8,55,547, OUT OF TOTAL TRAVEL EXPENDITURE OF ` 10,01,58 4, AS PERSONAL EXPENDITURE DEBITED TO THE COMPANYS ACCOUNT. 5. WE FIND THAT THE LEARNED COMMISSIONER (APPEALS) UPHELD THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING THE ENTIRE BUSINESS PROMOTION EXPENSES OF ` 7,82,743. WITH REGARD TO TRAVEL EXPENDITURE, THE LEARNED COMMISSIONER (APPEALS) OBSERVED THAT THE ASSESSEE COULD PRODUCE DETAILS ONLY FOR ` 3,01,197, OUT OF THE TOTAL EXPENDITURE OF ` 4 AVIPRO INDIA PVT. LTD. 10,01,584. ULTIMATELY, HE HELD THAT 50% OF THE TRAVEL EXPENDITURE WOULD BE ESTIMATED ON AD HOC BASIS AS NOT MEANT FO R THE PURPOSE OF BUSINESS AND REQUIRES TO BE DISALLOWED FOR WANT OF NECESSARY DOCUMENTARY EVIDENCE. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 6. WE FIND THAT FOR THE ASSESSMENT YEAR S 2009 10 TO 2012 13 AND FOR THE ASSESSMENT YEAR 2014 15, THE ASSESSING OFFICER HAD DISALLOWED ONLY 8% OF THE BUSINESS PROMOTION EXPENDITURE AND TRAVEL EXPENDITURE AS NOT MEANT FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. IN VIEW OF THIS CONSISTENT STAND TAKEN BY THE REVENUE IN EARLIER ASSESSMENT YEARS AS WELL AS IN SUBSEQUENT ASSESSMENT YEAR, WE HOLD THAT THE DISALLOWANCE @ 8% OF THE TOTAL TRAVEL EXPENDITURE AND BUSINESS PROMOTION EXPENDITURE WOULD MEET THE ENDS OF JUSTICE AND THE ASSESSING OFFICER IS DIRECTED ACCORDINGLY. GROUNDS NO.1 AND 2, RAISED BY THE ASSESSEE ARE PARTLY ALLOWED. 7. GROUND NO.3, IS WITH REGARD TO DISALLOWANCE MADE UNDER SECTION 14A R/W RULE 8D (2) IN THE SUM OF ` 2,71,266. 8. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE ASSESSEE HAD RECEIVED DIVIDEND ON MUT UAL FUND AND SHARES TOTALING TO ` 25,81,967, AND CLAIMED THE SAME AS EXEMPT UNDER SECTION 10(33) / 10(34) OF THE ACT AND AN AMOUNT OF ` 9,14,629, AS LONG TERM CAPITAL GAIN ON SECURITIES CLAIMED 5 AVIPRO INDIA PVT. LTD. AS EXEMPT U/ 10(38) OF THE ACT. THE ASSESSEE DID NOT MAKE ANY DISALLOWANCE UNDER SECTION 14A OF THE ACT IN THE RETURN OF INCOME. THE ASSESSING OFFICER PROCEEDED TO APPLY THE COMPUTATION MECHANISM PROVIDED IN RULE 8D(2) AND MADE THE DISALLOWANCE UNDER THE FIRST AND THIRD LIMBS THEREON TO THE TUNE OF ` 2,71,266. THE LE ARNED COMMISSIONER (APPEALS) UPHELD THE ACTION OF THE ASSESSING OFFICER. 9. WE FIND THAT THE LEARNED AUTHORISED REPRESENTATIVE FAIRLY CONCEDED FOR THE DISALLOWANCE MADE IN THE SUM OF ` 71,09 4 , AND UNDER FIRST LIMB OF RULE 8D(2). WITH REGARD TO THE DISALLOWANCE MADE UNDER RULE 8D(2)(III), TOWARDS ADMINISTRATIVE EXPEN SES , THE LAW IS NOW WELL SETTLED BY THE SPECIAL BENCH DECISION OF THE TRIBUNAL, DELHI BENCH, IN CIT V/S VIREET INVESTMENTS PVT. LTD., [2017] 165 ITD 0 27 (DEL.) (SB) THAT ONLY THOSE INVEST MENTS WHICH HAD ACTUALLY YIELDED EXEMPT INCOME TO THE ASSESSEE SHOULD BE CONSIDERED FOR THE PURPOSE OF WORKING OUT THE DISALLOWANCE UNDER RULE 8D. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO RE COMPUTE THE DISALLOWANCE UNDER THIRD LIMB OF RULE 8D(2) BY CONSIDERING ONLY THOSE INVESTMENTS WHICH HAD YIELDED EXEMPT INCOME. ACCORDINGLY, GROUND NO.3, RAISED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 6 AVIPRO INDIA PVT. LTD. 10. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN C OURT ON 13.12.2019 SD/ - MAHAVIR SINGH JUDICIAL MEMBER SD/ - M. BALAGANESH ACCOUNTANT MEMBER MUMBAI, DATED: 13.12.2019 COPY OF THE ORDER FORWARDED TO : (1) THE ASSESSEE; (2) THE REVENUE; (3) THE CIT(A); (4) THE CIT, MUMBAI CITY CONCERNED; (5) THE DR, ITAT, MUMBAI; (6) GUARD FILE . TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY ASSISTANT REGISTRAR ITAT, MUMBAI