BHAVANA V. TRIVEDI, MUMBAI V. ITO 11(2)(2), MUMBAI

ITA 6161/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 84611 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-12-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 10-12-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 08-10-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N PADAMANABHAN
• Assessee Lawyers: MRS KAVITA MEHENDALE
• Keywords: Business expenditure; Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH B, MUMBAI BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NO. 6161/MUM/2012 ASSESSMENT YEAR: 2009-10 DR.(MRS) BHAVANA VIKRAM TRIVEDI 4-B, GROUND FLOOR, CHANDRALOK, MANAV MANDIR ROAD, WALKESHWAR, MUMBAI- 400 006 PAN:ABQPT 7072 C VS. ITO 11(2)(2) MUMBAI (APPELLANT) (RESPON DENT) ASSESSEE BY : MRS. KAVITA MEHENDALE REVENUE BY : SHRI N. PADAMANABHAN DATE OF HEARING : 10 . 12 . 2014 DATE OF ORDER : 22 . 12 .2014 PER AMIT SHUKLA, JM: THE AFORESAID APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST ORDER DATED 08.08.2012, PASSED BY THE LD.CIT-3, MUMBAI, F OR THE QUANTUM OF ASSESSMENT PASSED U/S 143(3) FOR THE A.Y. 2009-10. 2. THE ASSESSEE HAS MAINLY CHALLENGED THE DISALLOWA NCE OF RS.50,139/- MADE U/S 14A AFTER TAKING 0.5% OF AVERA GE VALUE OF INVESTMENT UNDER RULE 8D. 3. BRIEF FACTS OF THE CASE ARE THAT, ASSESSEE IS AN INDIVIDUAL AND IS HOMEOPATH DOCTOR BY PROFESSION. THE ASSESSING OFFIC ER NOTED THAT, ASSESSEE HAS EARNED EXEMPT INCOME OF RS.4,75,918/- WHICH INCLUDES INTEREST ON PPF, DIVIDEND AND INTEREST OF RBI BONDS . IN RESPONSE TO THE ITA NO. 6161/MUM/2012 DR.(MRS) BHAVANA VIKRAM TRIVEDI ASSESSMENT YEAR: 2009-10 2 SHOW CAUSE NOTICE, THE ASSESSEE SUBMITTED THAT SHE HAS NOT INCURRED ANY EXPENDITURE IN RELATION TO THE EARNING OF EXEMP T INCOME AND DISALLOWANCE U/S 14A IS NOT AN AUTOMATIC, BECAUSE N EXUS HAS TO BE ESTABLISHED BETWEEN THE EXPENSES CLAIM AND EXEMPT I NCOME. HOWEVER, THE LEARNED ASSESSING OFFICER REJECTED THE ASSESSEE S CONTENTION AND HELD THAT RULE 8D IS MANDATORY AND ACCORDINGLY, HE WORKE D OUT THE DISALLOWANCE OF RS.50,139/- UNDER RULE 8D AFTER TAK ING 0.5% OF THE AVERAGE VALUE OF INVESTMENT WHICH WAS AT RS.1,00,27 ,871/-. 4. BEFORE THE LD.CIT(A), THE ASSESSEE SUBMITTED THA T PART OF THE INVESTMENT RELATE TO PPF AND RELIANCE PMS ACCOUNT. THE PMS ACCOUNT IS MANAGED BY THE MUTUAL FUND AND SERVICE CHARGES AMOU NTING TO RS.1,49,305/- HAS BEEN DEBITED TO THE CAPITAL ACCOU NT, THAT IS, IT HAS NOT BEEN CLAIMED AS EXPENDITURE. HOWEVER, THE LD.CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE AO. 5. BEFORE US, LEARNED COUNSEL SUBMITTED THAT ALL TH E EXPENSES CLAIMED BY THE ASSESSEE ARE DIRECTLY RELATED TO HER PROFESS IONAL INCOME. THE PMS EXPENDITURE HAS ALREADY BEEN DEBITED TO THE CAPITAL ACCOUNT, THEREFORE, NO FURTHER DISALLOWANCE U/S 14A SHOULD BE MADE. SHE ALTERNATIVELY SUBMITTED THAT, OUT OF THE TOTAL INVESTMENTS MADE B Y THE ASSESSEE, INVESTMENTS RELATING TO PMS, PPF, RBI TAX FREE BOND S SHOULD NOT BE TAKEN INTO CONSIDERATION AND THERE ARE ONLY THREE C ATEGORIES OF INVESTMENT, THAT IS, INVESTMENT IN SHARES, MUTUAL F UND, AND MUTUAL FUND DIVIDEND OPTION, WHICH CAN BE CONSIDERED FOR TAKING AS INVESTMENT FOR THE PURPOSE OF CALCULATING DISALLOWANCE U/S 14A. 6. ON THE OTHER HAND, LD. DR STRONGLY RELIED UPON T HE ORDER OF THE LD.CIT(A). ITA NO. 6161/MUM/2012 DR.(MRS) BHAVANA VIKRAM TRIVEDI ASSESSMENT YEAR: 2009-10 3 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PER USED THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDERS. THE ASSESSEE IS HOMOEOPATH DOCTOR BY PROFESSION AND AS PER P&L ACCOUNT, THE AS SESSEE HAS CLAIMED TOTAL EXPENDITURE OF RS.2,88,964/- WHICH WERE AS UN DER:- PARTICULARS RS. RS. SALARY, WELFARE PAYMENT TO DOCTORS MEDICINES RATES, TAXES CLINIC CAR EXPENSES CONVENCE EXPENSES PROFESSION TAX ACCOUNTS WRITING SEMINAR EXPENSES PHONE, MOBILE ELECTRICITY EXPENSES MISCELLANEOUS EXPENSES 94,274 20,400 33,867 5,872 40,064 7,487 2,000 10,000 19,690 26,705 11,575 157,242 17,048 114,674 174,290 288,964 THE ASSESSEE HAS MADE INVESTMENTS IN SHARES, PMS MU TUAL FUNDS, PPF AND RBI TAX FREE BONDS. SHE HAS EARNED TAX FREE INC OME OF RS.4,75,918/-. ON ACCOUNT OF INTEREST AND DIVIDEND FROM THESE INVESTMENTS. SO FAR AS SERVICE CHARGES ON PMS ACCOU NT, THE ASSESSEE HAS DEBITED TO THE CAPITAL ACCOUNT AND REGARDING OT HER EXPENSES WHICH WERE CLAIMED AS BUSINESS EXPENDITURE, THE ASSESSEE HAS NOT ATTRIBUTED ANY EXPENDITURE FOR THE PURPOSE OF EARNING EXEMPT I NCOME. THE ASSESSING OFFICER WITHOUT EXAMINING THE ASSESSEES CLAIM HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE HAS PROCEEDED TO MA KE DISALLOWANCE UNDER RULE 8D. SUCH A BLANKET APPLICATION OF RULE 8 D, WITHOUT FOLLOWING ITA NO. 6161/MUM/2012 DR.(MRS) BHAVANA VIKRAM TRIVEDI ASSESSMENT YEAR: 2009-10 4 THE STATUTORY REQUIREMENT OF SECTION 14(2) IS LEGAL LY NOT TENABLE. HOWEVER, WITHOUT GOING INTO THE MERITS OF ATTRIBUTI ON OF EXPENDITURE FOR THE PURPOSE OF EARNING EXEMPT INCOME, WE ARE ACCEPT ING THE ALTERNATE PLEA OF THE LEARNED COUNSEL THAT, INVESTMENTS HELD IN THE FORM OF SHARES, MUTUAL FUND AND MUTUAL FUND DIVIDEND OPTION SHOULD BE TAKEN FOR THE PURPOSE OF DETERMINING THE DISALLOWANCE UNDER RULE 8D(III) FOR INDIRECT EXPENDITURE, THAT IS 0.5% OF THE AVERAGE VALUE OF I NVESTMENT. THE OTHER INVESTMENTS LIKE PPF, INVESTMENT IN PMS SHOULD NOT BE CONSIDERED, BECAUSE ASSESSEE HAS DEBITED THE EXPENSES RELATING TO PMS IN THE CAPITAL ACCOUNT AND IT HAS NOT BEEN CLAIMED AS BUSI NESS EXPENDITURE. THUS, THE AO IS DIRECTED TO WORK OUT THE DISALLOWAN CE ON THE INVESTMENT UNDER THE THREE HEADS, NAMELY, (I) INVESTMENT HELD IN DEMAT ACCOUNT, THAT IS, SHARES; (II) MUTUAL FUND FMP; AND (III) MU TUAL FUND DIVIDEND OPTION. THUS, THE APPEAL OF THE ASSESSEE IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 22 ND DAY DECEMBER, 2014. SD/- SD/- (N.K. BILLAIYA) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 22.12.2014 *SRIVASTAVA COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR B BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.