UMESH B. DHARNIDHARKA, MUMBAI V. ASST CIT 12(1), MUMBAI

ITA 6450/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 84035 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-10-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Assessment Year: 2007-2008
• Appeal Filed On: 22-10-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PAWAN KU MAR BEERLA
• Keywords: Business expenditure; Earning of tax free income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUM BAI , , BEFORE SHRI JOGINDER SINGH, JM AND SHRI SANJAY ARO RA, AM ./ I.T.A. NO. 6450/MUM/2012 ( / ASSESSMENT YEAR: 2007-08) UMESH B. DHARNIDHARKA C/O. KARNAVAT & CO., 2A KITAB MAHAL, 1 ST FLOOR, 192 DR. D. N. ROAD, MUMBAI-400 001 / VS. ASST. CIT, CIRCLE 12(1), AAYAKAR BHAVAN, MUMBAI ./! ./PAN/GIR NO. AABPD 4546 K ( ' /APPELLANT ) : ( #$ ' / RESPONDENT ) ' % & / APPELLANT BY : SHRI SUNIL HIRAWAT #$ ' % & / RESPONDENT BY : SHRI PAWAN KUMAR BEERLA ' ()* % +, / DATE OF HEARING : 16.09.2014 -./ % +, / DATE OF PRONOUNCEMENT : 22.10.2014 0 / O R D E R PER SANJAY ARORA, A. M.: THIS IS AN APPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-10, MUMBAI (CIT(A) FOR SH ORT) DATED 31.08.2012, PARTLY ALLOWING THE ASSESSEES APPEAL CONTESTING ITS ASSES SMENT U/S.143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMEN T YEAR (A.Y.) 2007-08 VIDE ORDER DATED 30.10.2009. 2. THE PRINCIPAL ISSUE ARISING IN THIS APPEAL, PROJ ECTED PER ITS GROUNDS 1 & 2, IS THE DISALLOWANCE U/S.14A, WHICH STANDS EFFECTED AND SUS TAINED BY THE REVENUE FOLLOWING 2 ITA NO. 6450/MUM/2012 (A.Y. 2007-08) UMESH B. DHARNIDHARKA VS. ASST. CIT RULE 8D, AT A SUM OF RS.4,73,442/-, I.E., RS.51,209 /- TOWARD INTEREST AND RS.4,22,234/- TOWARD INDIRECT ADMINISTRATIVE EXPENSES, IN TERMS O F R. 8D(2)(II) AND (III) RESPECTIVELY. 3. THE ASSESSEE IS AN INDIVIDUAL, ENGAGED IN TRADIN G AND INVESTMENT IN SHARES, MAINTAINING SEPARATE PORTFOLIOS FOR THE SAME (REFER : BALANCE-SHEET AS ON 31.03.2007 AND 31.03.2006 AT PB PGS. 1-9). THE DISALLOWANCE U/S.14 A IS QUA LONG TERM CAPITAL GAIN (LTCG) (RS.178.45 LACS) AND DIVIDEND INCOME (RS.33. 85 LACS), CLAIMED EXEMPT U/S. 10(38) AND 10(34) OF THE ACT RESPECTIVELY (PB PGS.1 0-12). 4. BEFORE US, THE ASSESSEES CASE IN RESPECT OF DIS ALLOWANCE OF INTEREST WAS THAT IT HAD SURPLUS FUNDS BY WAY OF OWN CAPITAL, I.E., AT AN AV ERAGE OF RS.1627.41 LACS, AS AGAINST AN AVERAGE INVESTMENT OF RS.1025.98 LACS FOR THE RELEV ANT YEAR, BOTH RECKONED AT ONE-HALF OF THE BALANCE AS AT THE BEGINNING AND THE END OF THE YEAR, I.E., AS PROVIDED UNDER R.8D (PB PGS. 1-9). ACCORDINGLY, NO CASE FOR DISALLOWANCE U/ S.14A, WHICH ADOPTS THE PROPORTIONATE METHOD, WAS MADE OUT, RELYING ON THE DECISION IN TH E CASE OF CIT VS. RELIANCE UTILITIES & POWER LTD. [2009] 313 ITR 340 (BOM). 5. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. THE ASSESSEES CONTENTIONS AS MADE BEFORE US STOOD ALSO RAISED BEF ORE THE LD. CIT(A), WHO QUESTIONED THE SAME IN THE ABSENCE OF ANY EVIDENCE WITH REGARD TO THE BORROWED FUNDS BEING USED ONLY FOR BUSINESS ACTIVITY, WHICH IN FACT, BEING TR ADING IN SHARES, ALSO YIELDS DIVIDEND INCOME, WHICH DOES NOT FORM PART OF THE TOTAL INCOM E, I.E., APART FROM THE SHARE TRADING INCOME, WHICH IS TAXABLE. RELIANCE WAS PLACED BY HI M ON GODREJ & BOYCE MFG. CO. LTD. V. DY. CIT [2010] 328 ITR 81 (BOM), WHEREIN ITS STANDS CLARIF IED THAT IN THE ABSENCE OF ANY EVIDENCE, THERE COULD BE NO PRESUMPTION AS TO T HE INTEREST-FREE FUNDS FINANCING THE INVESTMENT ACTIVITY ALONE. RULE 8D, THOUGH NOT MAND ATORY FOR THE CURRENT YEAR, PRESCRIBES A REASONABLE METHOD FOR ESTIMATING SUCH EXPENDITURE , I.E., AS ATTRIBUTABLE TO THE INCOME NOT FORMING PART OF THE TOTAL INCOME, AND WAS THUS IN HIS VIEW RIGHTLY ADOPTED BY THE ASSESSING OFFICER (A.O.). THE LD. CIT(A) HAS RIGHTL Y RELIED ON GODREJ & BOYCE MFG. CO. LTD. (SUPRA), WHEREIN THE DISALLOWANCE U/S.14A, AND IN ALL ITS ASPECTS, STANDS DISCUSSED AT 3 ITA NO. 6450/MUM/2012 (A.Y. 2007-08) UMESH B. DHARNIDHARKA VS. ASST. CIT LENGTH BY THE HONBLE JURISDICTIONAL HIGH COURT. TH E DISCUSSION QUA INTEREST EXPENDITURE APPEARS AT PARAS 85 & 86 (PGS. 135 TO 137) OF THE D ECISION, NOTING AND TAKING INTO CONSIDERATION THE DECISION BY IT IN RELIANCE UTILITIES & POWER LTD. (SUPRA), WHICH IS IN FACT NOT QUA S.14A, BUT S.36(1)(III)). THE CALCUTTA HIGH COURT HAS ALSO EXPRESSED THE SAME VIEW IN DHANUKA & SONS V. CIT [2011] 339 ITR 319 (CAL.) FOLLOWING THE DECISION GODREJ & BOYCE MFG. CO. LTD. (SUPRA), WHICH BEING BY THE HONBLE JURISDICTIONAL HIGH COURT IS EVEN OTHERWISE BINDING ON THIS TRIBUNAL. WE ACCORDI NGLY UPHOLD THE ADOPTION OF THE PROPORTIONATE PRINCIPLE IN ESTIMATING THE INTEREST EXPENDITURE ATTRIBUTABLE TO THE TAX EXEMPT INCOME; THE ASSESSEES ACCOUNTS NOT YIELDING ANY DIRECT NEXUS BETWEEN THE INVESTMENTS AND THE SOURCE OF THEIR FUNDING. IN VIE W OF THE FOREGOING, WE FIND NO MERIT IN THE ASSESSEES CASE. WE DECIDE ACCORDINGLY. 6. WITH REGARD TO THE DISALLOWANCE OF INDIRECT EXPE NDITURE, THE ASSESSEES CASE WAS AGAIN OF AN EXCESS DISALLOWANCE; R. 8D BEING NOT MA NDATORY FOR THE CURRENT YEAR. THE TOTAL EXPENDITURE CLAIMED BY THE ASSESSEE PER ITS PROFIT AND LOSS ACCOUNT, I.E., AS BUSINESS EXPENDITURE, IS TO THE TUNE OF RS.15.80 LACS (PB PG S. 10-12). INVESTMENTS COMPRISE A SIGNIFICANT PROPORTION OF BOTH THE ASSESSEES TOTAL ASSETS AND ACTIVITY. UNDER THE CIRCUMSTANCES, WE HAVE NO HESITATION IN CONFIRMING THE DISALLOWANCE AS MADE, EVEN AS HELD BY THE LD. CIT(A), AND ON THE SAME BASIS, POIN TING OUT THAT THE DISALLOWANCE UNDER R.8D WORKED TO AN AMOUNT LOWER THAN THAT WOULD OBTA IN ON APPLYING THE RATIO OF THE INCOMES. WE DECIDE ACCORDINGLY, DISMISSING THE ASSE SSEES GROUND # 2. 7. THE ASSESSEES GROUND NO. 3 CONTESTS THE LEVY OF INTEREST U/S.234C, I.E., AT RS.675/-. THE ASSESSEES ONLY PRAYER MADE WAS FOR WORKING THE SAME WITH REFERENCE TO THE ADVANCE TAX ON THE INCOME RETURNED, AND NOT THAT ASSESSED. THE ASSESSEES CLAIM IS ONLY IN TERMS OF THE CLEAR PROVISION OF LAW. THE A.O. IS ACCORDINGLY DIRECTED TO VERIFY AND RESTRICT THE LEVY OF INTEREST U/S.234C TO THAT BY RECKONING THE SHORT FALL IN THE ADVANCE-TAX ON THE BASIS OF THAT WITH REFERENCE TO THE INCOME RETURNED. WE DECI DE ACCORDINGLY. 8. GROUND NO. 4 OF ITS APPEAL WAS NOT PRESSED BY TH E ASSESSEE AT THE TIME OF HEARING, AND IS ACCORDINGLY DISMISSED AS NOT PRESSED. 4 ITA NO. 6450/MUM/2012 (A.Y. 2007-08) UMESH B. DHARNIDHARKA VS. ASST. CIT 9. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY A LLOWED FOR STATISTICAL PURPOSES. 1/+2 (341+ % 5% 678 9 0 ) : + % + ; ORDER PRONOUNCED IN THE OPEN COURT ON OCTOBER 22, 2 014 SD/- SD/- (JOGINDER SINGH) (SANJAY ARORA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER ' <* MUMBAI; =( DATED : 22.10.2014 ).(. ./ ROSHANI , SR. PS !' # $%&' (!'% / COPY OF THE ORDER FORWARDED TO : 1. ' / THE APPELLANT 2. #$ ' / THE RESPONDENT 3. ' >+ ( ) / THE CIT(A) 4. ' >+ / CIT - CONCERNED 5. A)B #+(3 , , 3/ , ' <* / DR, ITAT, MUMBAI 6. D4 E* / GUARD FILE !' ) / BY ORDER, */)+ , (DY./ASSTT. REGISTRAR) , ' <* / ITAT, MUMBAI