MAD ENTERTAINMENT LTD, MUMBAI V. ASST CIT CIR 11(1), MUMBAI

ITA 5993/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 84014 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 2 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-10-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 28-10-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 26-08-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: DHIRENDRA M SHAH
• Keywords: Earning of tax free income
• Section: 40A(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUM BAI , . . , ! BEFORE SHRI JOGINDER SINGH, JM AND SHRI N. K. BILL AIYA, AM ' #$ ./ I.T.A. NO. 5993/MUM/2011 ( / ASSESSMENT YEAR: 2008-09) MAD ENTERTAINMENT LTD. C/O. MANGALDAS D. SHAH & CO., 506, LOTUS HOUSE, 5 TH FLOOR, 33-A, NEW MARINE LINES, MUMBAI-400 020 / VS. ASST. CIT, CIRCLE 11(1), AAYAKAR BHAVAN, 6 TH FLOOR, R. NO. 667, M. K. ROAD, MUMBAI-400 020 & ./''' ./PAN/GIR NO. AABCM 2869 H ( #$&( /APPELLANT ) : ( )*&( / RESPONDENT ) #$&( + , / APPELLANT BY : SHRI DHIRENDRA M. SHAH )*&( + , / RESPONDENT BY : SHRI VIJAY KUMAR BORA - ./ + 0 1 / DATE OF HEARING : 28.10.2014 234 + 0 1 / DATE OF PRONOUNCEMENT : 28.10.2014 '5 / O R D E R PER N. K. BILLAIYA, AM: THIS APPEAL BY THE ASSESSEE IS PREFERRED AGAINST TH E ORDER OF THE CIT(A)-3, MUMBAI DATED 23.06.2011, PERTAINING TO ASSESSMENT YEAR (A. Y.) 2008-09. 2. THE SUM AND SUBSTANCE OF THE GRIEVANCE OF THE AS SESSEE IS TWOFOLD. FIRSTLY, THE LD. CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS.5,03, 361/- MADE U/S.14A OF THE ACT AND SECONDLY, THE LD. CIT(A) ERRED IN CONFIRMING THE AD DITION OF RS.47,94,682/- MADE OUT OF CASH EXPENSES. 3. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEED INGS, THE ASSESSING OFFICER (A.O.) NOTICED THAT THE ASSESSEE HAS EARNED EXEMPT INCOME AMOUNTING TO RS.72,02,178/- 2 ITA NO. 5993/MUM/2011 (A.Y. 2008-09) MAD ENTERTAINMENT LTD. VS. ASST. CIT AND DIVIDEND OF RS.21,373/-. THE ASSESSEE WAS ASKED TO EXPLAIN WHY THE PROVISIONS OF SECTION 14A R/W RULE 8D SHOULD NOT BE MADE APPLICAB LE. THE ASSESSEE EXPLAINED THAT THERE ARE NO NEW INVESTMENTS. THE INVESTMENTS WERE MADE IN EARLIER YEARS AND FURTHER NO COST HAS BEEN INCURRED FOR EARNING DIVIDEND INCOME, AS THE SAME IS CREDITED TO THE BANK ACCOUNT THROUGH ELECTRONIC CLEARING SYSTEM. THIS EX PLANATION OF THE ASSESSEE WAS NOT ACCEPTED BY THE A.O. WHO WAS OF THE FIRM BELIEF THA T THE ASSESSEE IS MAINTAINING OFFICE PREMISES AND STAFF AND, THEREFORE, CERTAIN EXPENDIT URE HAVE TO BE ATTRIBUTED TOWARDS EXEMPT INCOME. THE A.O. WENT ON TO COMPUTE THE DISA LLOWANCE BY APPLYING THE FORMULA GIVEN IN RULE 8D AND WORKED OUT THE DISALLOWANCE BE ING 0.5% OF THE AVERAGE INVESTMENT AT RS.5,03,361/-. PROCEEDING FURTHER, THE A.O. NOTI CED THAT THE ASSESSEE HAS INCURRED VARIOUS EXPENSES IN CASH. THE ASSESSEE WAS ASKED TO SUBMIT THE DETAILS OF CASH EXPENSES. THE ASSESSEE FILED THE DETAILS OF CASH EXPENSES AMO UNTING TO RS.2,39,73,409/- AND ALSO PROVIDED CASH VOUCHERS WHICH WERE EXAMINED ON A RAN DOM BASIS. THE A.O. EXAMINED THE DETAILS WITH THE VOUCHERS AND FOUND THAT MOST OF TH E CASH EXPENSES HAVE BEEN KEPT BELOW RS.20,000/- SO AS TO ESCAPE FROM THE PROVISIONS OF SECTION 40A(3). THE A.O. FURTHER OBSERVED THAT OUT OF THE TOTAL EXPENDITURE CLAIMED DURING THE YEAR AMOUNTING TO RS.34 CRORES, CASH EXPENSES ARE ABOUT RS.2.40 CRORES, WHI CH WORKS OUT TO 7% OF THE EXPENDITURE. CONSIDERING THE FACTS IN TOTALITY, THE A.O. TREATED 20% OF THE TOTAL EXPENDITURE DISALLOWABLE FOR LACK OF VERIFIABILITY. THE DISALLOWANCE WAS WORKED OUT AT RS.47,94,682/-. AGGRIEVED BY THIS, THE ASSESSEE CAR RIED THE MATTER BEFORE THE LD. CIT(A) BUT WITHOUT ANY SUCCESS. 4. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE STAT ED THAT NO EXPENDITURE WAS INCURRED FOR EARNING THE EXEMPT INCOME. THEREFORE, THE DISAL LOWANCE MADE U/S.14A R/W RULE 8D IS UNWARRANTED. THE DEPARTMENTAL REPRESENTATIVE (DR) S UPPORTED THE FINDINGS OF THE LOWER AUTHORITIES. WE HAVE GONE THOUGH THE ORDER OF THE A UTHORITIES BELOW. IT IS THE SETTLED PROPOSITION OF LAW THAT THE APPLICATION OF RULE 8D IS MANDATORY ON AND FROM A.Y. 2008- 09. WE FIND THAT THE DISALLOWANCE HAS BEEN COMPUTED AS PER THE FORMULA GIVEN UNDER RULE 3 ITA NO. 5993/MUM/2011 (A.Y. 2008-09) MAD ENTERTAINMENT LTD. VS. ASST. CIT 8D. WE, THEREFORE, DO NOT FIND ANY REASON TO INTERF ERE WITH THE FINDINGS OF THE LD. CIT(A). GROUND NO. 1 WITH ITS SUB-GROUND IS DISMISSED. 5. INSOFAR AS THE CLAIM OF EXPENDITURE IS CONCERNED , THE LD. COUNSEL FOR THE ASSESSEE STATED THAT THE DISALLOWANCE HAS BEEN MADE ON AD HOC BASIS WITHOUT POINTING OUT ANY SPECIFIC ITEM OF EXPENDITURE NOT VERIFIABLE OR NOT INCURRED FOR THE PURPOSES OF THE BUSINESS. PER CONTRA , THE LD. DR SUPPORTED THE ORDERS OF THE AUTHORITIE S BELOW. 6. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTH ORITIES BELOW. IT IS NOT IN DISPUTE THAT THE ASSESSEE HAS INCURRED EXPENDITURE AMOUNTIN G TO RS.2,39,73,409/- IN CASH. IT IS ALSO AN UNDISPUTED FACT THAT THE AUDITORS HAVE QUAL IFIED IN THEIR REPORT THAT AMOUNT OF RS.9.18 LACS HAVE BEEN PAID IN CASH IN VIOLATION OF THE PROVISIONS OF SECTION 40A(3) OF THE ACT. ALTHOUGH THE SAME WAS CLAIMED TO BE ALLOWABLE AS PER RULE 6DD, HOWEVER, NO DETAILS HAVE BEEN FURNISHED, NEITHER BEFORE THE REV ENUE AUTHORITIES NOR BEFORE US. THEREFORE, THE EXPENDITURE OF RS.9.18 LACS ARE CLEA RLY DISALLOWABLE, AS PER THE QUALIFICATION OF THE AUDITORS. THAT LEAVES US WITH A BALANCE DISALLOWANCE OF RS.38.76 LACS. IN OUR CONSIDERED OPINION, 50% OUT OF THIS S HOULD MEET THE ENDS OF JUSTICE, THEREFORE, IN ADDITION TO THE DISALLOWANCE OF RS.9. 18 LACS, WE DIRECT THE A.O. TO RESTRICT THE DISALLOWANCE OUT OF THE BALANCE EXPENDITURE AT RS.1 9.38 LACS MEANING THEREBY THAT THE TOTAL DISALLOWANCE SHOULD BE RESTRICTED TO RS.28.56 LACS. GROUND NO. 2 WITH ITS SUB GROUND IS PARTLY ALLOWED. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. $6 407 896 0 + #$ ' 5 . : 0 + 0 ! ORDER PRONOUNCED IN THE OPEN COURT ON OCTOBER 28 TH , 2014 SD/- SD/- (JOGINDER SINGH) (N. K. BILLAIYA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER - / MUMBAI; ; DATED : 28.10.2014 4 ITA NO. 5993/MUM/2011 (A.Y. 2008-09) MAD ENTERTAINMENT LTD. VS. ASST. CIT ... ./ ROSHANI , SR. PS ! ' #$%& ' &$ / COPY OF THE ORDER FORWARDED TO : 1. #$&( / THE APPELLANT 2. )*&( / THE RESPONDENT 3. ' ' - <0 ( #$ ) / THE CIT(A) 4. ' ' - <0 / CIT - CONCERNED 5. ?.@ )08 , ' #$1 #8 4 , - / / DR, ITAT, MUMBAI 6. A9 B/ / GUARD FILE ! ( / BY ORDER, )/(* + (DY./ASSTT. REGISTRAR) , - / / ITAT, MUMBAI