ACIT 11(2), MUMBAI V. ASHWATCH UDIPI RAU, MUMBAI

ITA 6089/MUM/2012

• Counselvise Citation: 608919914 RSA 2012
• Duration Of Justice: 1 year(s) 8 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-06-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 09-06-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 05-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A R NINAWE
• Keywords: Business expenditure; Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'A' BENCH, MUMBAI BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER ITA NO. 6089/MUM/2012 (ASSESSMENT YEAR: 2009-10 ) ASTT. COMMISSIONER OF INCOME TAX -11(2) ROOM NO.479, 4 TH FLOOR AAYAKAR BHAVAN M.K. ROAD MUMBAI-400 020. VS. SHRI ASHWATH UDIPI RAU FLAT NO.B-3335, 3 RD FLOOR RADHE SHYAM CHS LTD. ANJALI BLDG., OPP. RADIO CLUB COLABA MUMBAI-400 005. (APPELLANT) (RESPONDENT) PERMANEN T ACCOUNT NO. : ADQPR 4566 B ASSESSEE BY : SHRI VIJAY MEHTA REVENUE BY : SHRI A. R. NINAWE DATE OF HEARING : 09.06.2014 DATE OF PRONOUNCEMENT : 18.06.2014 O R D E R PER R.C. SHARMA, ACCOUNTANT MEM BER: THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) DATED 24/07/2012 FOR THE ASSESSMENT YEAR 2009-10 IN THE MATTER OF ORDER PASSED U/S. 143(3) OF THE INCOME TAX ACT, 196 1 (THE ACT). FOLLOWING GROUND HAS BEEN TAKEN UP BY THE REVENUE :- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW LD. CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT DISA LLOWANCE U/S. 14A OF RS.10,59,174/- WAS CORRECTLY MADE BY THE AO IN RESPECT OF PROFIT OF RS.57,54,075/- AND TOTAL TAXABLE INCOME O F RS.2,23,92,204/- RECEIVED FROM FIRM. ITA NO. 6089 /M/12 AY:09-10 2 2. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PER USED. THE ASSESSEE HAS BEEN EQUITY PARTNER WITH LEGAL FIRM, M /S. AMARCHAND MANGALDAS & SURESH A. SHROFF & CO. WITH EFFECT FROM 1ST OCTOBER, 2008. THE ASSESSEE HAS RECEIVED SHARE IN PROFIT OF RS.57, 54,075/- AND FURTHER RECEIVED RS.68,57,206/- AS PARTNERS SALARY FROM TH E SAME FIRM AND PROFESSIONAL FEES OF RS.1,55,34,998/-. THE ASSESSEE HAS DEBITED EXPENSES OF RS.51,80,992/- IN THE P & L ACCOUNT. DURING THE COURSE OF ASSESSMENT AO ASKED THE ASSESSEE TO SHOW CAUSE AS TO WHY DISAL LOWANCE SHOULD NOT BE MADE U/S.14A IN RESPECT OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME. IT WAS EXPLAINED VIDE LETTER DATED 14.12.20 11 THAT THE AMOUNT OF EXPENSES INCURRED BY HIM ARE NOT FOR EARNING JUST H IS PARTNERS SHARE OF PROFIT BUT FOR EARNING PROFESSIONAL FEES. FURTHER, THERE ARE NO EXPENSES SPECIFICALLY INCURRED FOR EARNING HIS SHARE OF PROF IT. THE AO OBSERVED THAT THE ASSESSEE HAS ALSO CITED SOME CASE LAWS WHERE TH E MAIN REASON FOR NON DISALLOWANCE U/S.14A WAS THAT THE SHARE OF PROF IT OF THE FIRM CANNOT BE STRICTLY CALLED AS TAX FREE AS IT IS ALREADY TAX ED IN THE HANDS OF THE FIRM. HOWEVER, THE AO WAS OF THE VIEW THAT THE PART NERS AND FIRMS ARE TWO SEPARATE TAXABLE ENTITIES AND THEREFORE, THE TR EATMENT OF ANY INCOME IN ONES HAND CANNOT BE AFFECTED ITS NATURE IN OTHE RS HAND. MOREOVER, THE DIVIDENDS ARE TAXED INITIALLY IN THE FORM OF DIVIDE ND DISTRIBUTION TAX, THEN ALSO THESE ARE CONSIDERED AS EXEMPT IN ABSOLUTE SEN SE FOR THE PURPOSE OF 14A. IN VIEW OF THESE FACTS, THE AO MADE DISALLOWAN CE OF RS. 10,59,174/- U/S. 14A OF THE ACT. 2.1 BY THE IMPUGNED ORDER CIT(A) DELETED THE DISALL OWANCE AFTER HAVING THE FOLLOWING OBSERVATIONS :- 1.3 I HAVE CONSIDERED THE FACTS AND PERUSED THE MA TERIAL ON RECORD. THE PROVISIONS OF SECTION 14A (1) READ WITH SECTION 14A (2) PROVIDES THAT FOR THE PURPOSE OF TOTAL INCOME COMPU TED UNDER THIS CHAPTER, NO DEDUCTION SHALL BE ALLOWED IN RESPECT O F EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHIC H DOES NOT FORM PART OF TOTAL INCOME UNDER THIS CHAPTER AND TH E AO WILL DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN REL ATION TO ITA NO. 6089 /M/12 AY:09-10 3 EXEMPT INCOME IF HE IS NOT SATISFIED WITH THE CORRE CTNESS OF THE CLAIM OF THE ASSESSEE. IT IS SEEN THAT THE APPELLAN T HAS NOT INCURRED ANY EXPENDITURE IN RELATION TO EARN THE SH ARE OF PROFIT AND PARTNERS REMUNERATION FROM THE FIRM. THE INVES TMENT OF FIXED CAPITAL AMOUNTING TO RS. 16,00,000/- HAS BEEN MADE OUT OF OWN FUND/ NON INTEREST BEARING FUND. HENCE, NO INTEREST IN RELATION TO SHARE OF PROFIT AND REMUNERATION FROM THE PARTNERSH IP FIRM HAS BEEN INCURRED. THE EXPENDITURE OF RS.51,80,992/- IS DEBITED AGAINST THE PROFESSIONAL INCOME OF RS.1.55 CRORES H ENCE, SAME IS NOT INCURRED IN RELATION TO EXEMPT INCOME. THEREFOR E, THIS EXPENDITURE CANNOT BE RELATED FOR EARNING EXEMPT IN COME IN THE FORM OF SHARE OF PROFIT FROM THE PARTNERS FIRM AND REMUNERATION FROM THE FIRM. THE MUMBAI TRIBUNAL, J BENCH IN THE CASE OF PALLAVI SHARDUL SHROFF, PARTNER OF M/S. AMARCHAND M ANGALDAS FIRM [ITA 3511/MUM/2010] AY 05-06 DATED 27/4/11 HAS HELD THAT THAT THE SHARES OF PROFIT OF THE FIRM HAS NO N EXUS WITH EXPENDITURE INCURRED ON CAR BY THE ASSESSEE. ALL TH E EXPENDITURE ARE BOOKED IN THE FIRMS ACCOUNT AND THE EXPENDITUR E INCURRED ON CAR CANNOT TO BE HAVING ANY NEXUS WITH THE EARNING OF SHARES INCOME FROM THE FIRM. THE MOTOR CAR EXPENSE AND SAL ARY TO DRIVER CANNOT BE ATTRIBUTED TO EARNING SHARES OF PROFIT FR OM FIRM. THE APPELLANT HAS NOT CLAIMED ANY EXPENDITURE IN RELATI ON TO EXEMPT INCOME. THEREFORE, THERE IS NO PROXIMATE CAUSE FOR DISALLOWANCE IN RELATIONSHIP WITH EXEMPT INCOME AS HELD IN CIT VS. WALFORT SHARES & STOCK BROKERS PVT. LTD. 326 ITR1 (SC) AND GODREJ & BOYCE MANUFACTURING CO. LTD VS. DCIT (2010) 328 ITR 81 (B OM) FOR ATTRACTING THE PROVISIONS OF SECTION 14A. IN THE LI GHT OF THESE FACTS, THE DISALLOWANCE OF RS.10,59,174/- MADE U/S.14A IS, THEREFORE, DELETED. 2.3 AGAINST THIS ORDER OF CIT(A) REVENUE IS IN APPE AL BEFORE US. 3. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND GON E THROUGH THE AUTHORITIES BELOW AND FOUND FROM THE RECORD THAT TH E AO MADE DISALLOWANCE TAKING INTO ACCOUNT THE ENTIRE EXPENSE S OF RS.51.80 LACS DEBITED TO PROFIT & LOSS A/C. HOWEVER, THE ASSESSEE HAS RECEIVED INCOME FROM PROFESSION AND ALSO RECEIVED REMUNERATION FROM PARTNERSHIP FIRM M/S. AMARCHAND MANGALDAS & SURESH A. SHROFF & CO. A GAINST THE PROFESSIONAL FEE OF RS.1.55 CRORES THE ASSESSEE HAS CLAIMED BUSINESS EXPENSES OF RS.51.80 LACS. HOWEVER, THE ASSESSEE HA S NOT INCURRED ANY EXPENSES TOWARDS BECOMING PARTNER IN THE FIRM AND A S SUCH NO EXPENSES WERE INCURRED AGAINST THE REMUNERATION RECEIVED/ SH ARE OF PROFIT RECEIVED FROM THE FIRM. WHATEVER EXPENDITURE IS INCURRED IS FOR CARRYING OUT HIS ITA NO. 6089 /M/12 AY:09-10 4 PROFESSIONAL CONSULTANCY IN HIS PERSONAL NAME FOR W HICH ASSESSEE WAS RECEIVING A FEE OF RS.1.55 CRORES. THUS WE FIND THAT AGAINST THE INCOME OF RS.1.55 CRORES ASSESSEE CLAIMED EXPENSES ONLY OF RS.51.80 LACS WHICH IS 33.5% OF PROFESSIONAL INCOME. WE FIND THAT ASSES SEE MADE CAPITAL INVESTMENT OF RS.16.00 LACS BY WAY OF FIXED CAPITAL IN THE PARTNERSHIP FIRM AND HAS NOT PAID ANY INTEREST ON BORROWINGS FO R THE PURPOSE OF MAKING INVESTMENT IN THE PARTNERSHIP FIRM. SUCH INV ESTMENT WAS MADE OUT OF OWN FUNDS/NON INTEREST BEARING FUNDS WHICH I S EVIDENT FROM PROFIT & LOSS A/C. WE FIND THAT INTEREST EXPENDITURE DEBIT ED TO PROFIT & LOSS A/C WAS IN RESPECT OF CAR LOAN AMOUNTING TO RS.66,7 39/-. THUS NO DISALLOWANCE IS WARRANTED U/S. 14A. SINCE NO EXPEN DITURE WAS CLAIMED IN PROFIT & LOSS A/C WHICH CAN BE DIRECTLY OR INDIR ECTLY ATTRIBUTED TO EARNING OF SHARE OF PROFIT FROM THE FIRM. 3.1. IN THE INSTANT CASE ALSO WHILE DELETING THE DI SALLOWANCE CIT(A) HAS RECORDED A CATEGORICAL FINDING THAT EXPENDITURE OF RS.51.80 LACS WAS NOT INCURRED IN RELATION TO EXEMPT INCOME. FINDING SO R ECORDED BY CIT(A) HAS NOT BEEN CONTROVERTED BY DEPARTMENT BY BRINGING ANY POSITIVE MATERIAL ON RECORD. ACCORDINGLY WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) FOR DELETING THE DISALLOWANCE MADE U/S. 14A. 4. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH JUNE, 2014. SD/- SD/- (VIVEK VARMA) JUDICIAL MEMBER (R.C. SHARMA ) ACCOUNTANT MEMBER MUMBAI, DATED: 18-06-2014 JV. ITA NO. 6089 /M/12 AY:09-10 5 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.