ACIT 14(2)(1), MUMBAI V. MAHANAGAR GAS LTD, MUMBAI

ITA 658/MUM/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8824 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-01-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 30-01-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G NANTHAKUMAR
• Assessee Lawyers: P P JAYARAMAN
• Keywords: Business expenditure; Earning of tax free income; Reason to believe
• Section: 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI . . , , BEFORE SHRI C.N. PRASAD , JM AND SHRI RAJESH KUMAR , AM ITA NO. 5 3 / MUM/ 20 1 5 ( / ASSESSMENT YEAR: 20 10 - 11 ) MAHANAGAR GAS LTD. MGL HOUSE, BLOCK NO. G - 33, BANDRA KURLA COMPLEX, BANDRA (EAST), MUMBAI - 400 051. / VS. THE ADDL. COMMISSIONER OF INCOME - TAX10(1), 4TH FLOOR , AAYAKAR BHAVAN, M. K. MARG, MUMBAI - 400 020. ( / APPELLANT) ( / RESPONDENT ) ITA NO. 658/ MUM/ 2015 ( / ASSESSMENT YEAR: 20 10 - 11 ) THE ASSTT. COMMISSIONER OF INCOME - TAX - 14(2)(1), 432, 4TH FLOOR , AAYAKAR BHAVAN, M. K. MARG, MUMBAI - 400 020. / VS. MAHANAGAR GAS LTD. MGL HOUSE, BLOCK NO. G - 33, BANDRA KURLA COMPLEX, BANDRA (EAST), MUMBAI - 400 051 ./ ./ PAN : AABCM4640G ( / APPELLANT) : ( / RESPONDENT ) / ASSESSEE BY : SHRI P P JAYAR AMAN /RE VENUE BY : SHRI G NANTHA KUMAR / DATE OF HEARING : 2 9 .12.20 1 6 / DATE OF PRONOUNCEMENT : 16. 1. 201 7 2 ITA NO. 53 / MUM/201 5 AND 658/MUM/2015 / O R D E R PER RAJESH KUMAR, A. M: THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER DATED 1 0 - 11 - 2014 PASSED BY THE LD. CIT(A) - 21 , MUMBAI. THESE APPEALS FOR THE SAKE OF CONVENIENCE AR E CLUBBED TOGETHER, HEARD TOGETHER AND ARE BEING DISPOSED OF IN THIS CONSOLIDATED ORDER. WE WILL FIRST TAKE UP ITA NO. 658 /MUM/201 5 : - 2. THE ISSUE R AISED IN THE FIRST GROUND OF APPEAL IS AGAINST THE DELETION OF RS.1,68,49,000/ - BY THE LD.CIT(A) UNDER SECTION 40(A)(IA) OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED THE ACT) ON THE GROUND THAT NO TDS HAS BEEN DEDUCED BY THE ASSESSEE. 3. AT THE OUTSE T, THE LD.AR BROUGHT TO OUR ATTENTION THAT THE IDENTICAL ISSUE HAS BEEN DECIDED BY THE CO - ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 1945/MUM/2013 (A Y : 2009 - 10) , DATED 15.04.2016 4. BRIEF FACTS OF THE CASE ARE THAT THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT THE ASSESSEE HAS CHARGED TO THE PROFIT AND LOSS ACCOUNT RS.168.49 LAKHS ON ACCOUNT OF SECONDMENT CHARGES UNDER THE HEAD PERSONNEL COST. THE AO CALLED UPON THE ASSESSEE TO JUSTIFY THE ALLOWABILITY OF S ECONDMENT CHARGES HAVING REGARD TO THE JOINT VENTURE PARTNERS, NAMELY GAIL AND BRITISH GAS WHICH WAS REPLIED BY THE ASSESSEE VIDE LETTER DATED 6.2.2013. THE ASSESSEE 3 ITA NO. 53 / MUM/201 5 AND 658/MUM/2015 SUBMITTED BEFORE T HE AO THAT THE SECONDMENT CHARGES WERE ON THE EMPLOYEES SECONDED BY GAIL AND BRITISH GAS TO WORK IN MAHANAGAR GAS LTD AND THEREFORE THERE WAS NO MARK UP IN THE PAYMENTS MADE TO T H EM WHICH WAS PROVED BY THE ASSESSEE BY FURNISHING A COPY OF THE SECONDMENT AGREEMENT AND OTHER EVIDENCES WHICH PROVIDE D THAT ALL TAXES IN INDIA OF THE EMPLOYEES SECONDED TO MAHANAGAR GAS LTD HAVE BEEN DEDUCTED FROM THE SALARY AND PAID TO THE GOVERNMENT TAX EXCHEQUER. THE ASSESSEE ALSO PRODUCED BEFORE THE AO A LETTER DATED 1.9.1997 ISSUED BY THE ITO (TDS), AUTHORIZING THE ASSESSEE NOT TO DEDUCT TAX AT SOURCE . F URTHER ON THE BASIS OF SAID LETTER THE AO HELD THAT THE SAID EXEMPTION WAS GRANTED ONLY IN RESPECT OF FINANCIAL YEAR 1997 - 98 AND ACCORDINGLY CAME TO THE CONCLUSION THAT THE ASSESSEE FAILED TO DEDUCT TDS ON THE SECONDMENT PAYMEN T OF RS.1,68,49,000/ - AND THE EXPENSES WERE NOT ALLOWABLE UNDER SECTION 40(A ) (IA) OF THE ACT AND ACCORDINGLY DISALLOWED THE SAME AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY, WHO ALLOWED THE APPEAL OF THE ASSESSEE BY OBSERVING AND HOLDING AS UNDER : 3.1 I HAVE CONSIDERED THE FACTS AND CIRCU MSTANCES OF THE CASE. THIS ISSUE HAD COME INTO CONSIDERATION OF C IT(A) IN A.Y. 2009 - 10 WHEREIN IN PARA 2.3 IT IS HELD AS UNDER : '2.3 I HAVE CONSIDERED THE FACTS OF THE CASE. THE APPELLANT HAS E NTERED INTO THE SECONDMENT AGREEMENT WITH BRITISH GAS (BG) BY WHIC H PROVIDES THEIR EMPLOYEES F OR WORKING UNDER THE SUPERVISION OF MAHA NAGAR GAS CO. LTD. TO A SS IST THE M IN THEIR BUSINESS ACTIVITY AND SALARY PA YMENT TO THIS SECONDMENT EMPLOYEE WILL BE BORNE BY BG. 4 ITA NO. 53 / MUM/201 5 AND 658/MUM/2015 THIS AMOUNT WILL BE REIMBURSED BY THE MAHANAQAR GAS CO.LTD . WITHOUT ANY MARK UP. THE SECONDMENT EMPLOYEES WILL BE WORKING UNDER THE SUPERVIS ION OF MAHANAGAR G AS CO. LTD. AND IF MAHANAGAR GAS CO. LTD. IS NOT SATISFIED WITH THE WITH THE PERFORMANCE OF THESE EMPLOYEES BG MAY REPLACE HIM WITH ANOTHER SUITABLE EMPLOYEE. THE EMPLOYER AND EMPLOYEE RELATIONSHIP EXIST BE TWEEN BG AND SECONDMENT EMPLOYEE AND NOT WITH THE MAHANAGAR GAS C 0.LTD. SIMILAR ISSUE HAS ARISEN IN THE CASE OF IDS OI1DS SOFTWARE SOLUTIONS (INDIA) PVT LTD. VS. ITO (INTERNATIONAL TAXATION), I TAT BANGALORE 'A' BENCH (2009) 122 TTJ 410 (BANG) WHEREIN IT WAS HELD AS UNDER : 'SALARY PAID BY US COMPAN U U N DER SECONDMENT AGREEMEN T TO MANAGING DIRECTOR WHO WAS APPOINTED BY US COMPANY AND SECONDED TO ITS INDIAN SUBSIDIARY HAVING ALREADY SUFFERED TAX AT SOURCE, REIMBURSEMENT OF SAID SALAR Y BY ASSESSEE TO IDS NEED NOT SUFFER TAX, AT SOURCE IN THIS INSTANT CA SE ALSO SALARY TO THE SECONDMENT EMPLOY EE WAS PAID BY THE BG AND ITS REIMBURSEMENT B Y MAHANAGAR GAS CO. LTD. TO WITHOUT ANY MARK UP. 'BG FOR THE PAYMENT OF SALARY TO SECON DMENT EMPLOYEE HAD ALSO DEDUCTED TAX AT SOURCE AND PAID TO THE DEPART TMENT. THIS IS SI MILAR TO THE CASE MENTIONED ABOVE. FURTHER TO IT IN THE CASE OF CIT V/S KOTAK SECURITIES LT D . APPEAL 3111 OF 2009 THE HONBLE BOMBAY HIGH COURT HELD AS UNDER : HELD, THE PRESENT CASE, THE ASSESSEE HAD BONA FIDE REASON TO BELIEVE THAT THE TAX WAS NOT DEDUCTIBLE AT SOURCE UNDER SECTION 194J OF THE ACT AND, THEREFORE, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN INVOKING SECTION 40(A)(IA) OF THE ACT AND DISALLOWING THE BUSINESS EXPENDITURE BY WAY OF TRANSACTION CHARGES INCURRED BY THE ASSESSEE. THE TRANSAC TION CHARGES PAID BY THE ASSESSEE TO THE STOCK EXCHANGE CONSTITUTE 'FEES FOR TECHNICAL SERVICES' COVERED UNDER SECTION 194J OF THE ACT AND, THEREFORE, THE ASSESSEE WAS LIABLE TO DEDUCT TAX AT SOURCE WHILE CREDITING THE TRANSACTION CHARGES TO THE ACCOUNT OF THE STOCK EXCHANGE. HOWEVER, SINCE BOTH THE REVENUE AND THE ASSESSEE WERE UNDER THE BONA FIDE BELIEF FOR NEARLY A DECADE THAT TAX WAS NOT DEDUCTIBLE AT SOURCE ON PAYMENT OF TRANSACTION CHARGES, NO FAULT CAN BE FOUND WITH THE ASSESSEE IN NOT DEDUCTING THE TAX AT SOURCE IN THE ASSESSMENT YEAR IN QUESTION AND CONSEQUENTLY DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 40(A)(IA) OF THE ACT IN RESPECT 5 ITA NO. 53 / MUM/201 5 AND 658/MUM/2015 OF THE TRANSACTION CHARGES CANNOT BE SUSTAINED. HENCE APPEAL DISPOSED OFF IN THE INSTANT CASE ALSO APPELLANT AND DEPARTMENT WERE UNDER THE BONA FIDEBELIEF THAT NO TAX IS DEDUCTIBLE BY MAHANAGAR GAS CO. LTD. FOR THE REIMBURSEMENT TO THE B BG FOR SECONDMENT EMPLOYEE AS HELD BY THE BOMBAY HIGH COURT IN THE A BOVE MENTIONED CASE. APPLYING THE ABOVE TWO DEC ISIONS, IT IS CLEAR THAT MAHANAGAR GAS CO. LTD. NEED NOT DEDUCTS - THE TDS FOR REIMBURSEMENT FOR SECONDMENT EMPLOYEE FOR PAYMENT TO B'G AS BG HAS DEDUCTED THE TDS AND PAID TO THE DEPARTMENT. IN VIEW OF THE ABOVE REASONS, THE ADDITION MADE BY THE A.O. IS DELE TED. THIS GROUND OF APPEAL IS ALLOWED.' 5 . THE LD.AR AT THE BEGINNING OF THE HEARING SUBMITTED THAT THE GROUND TAKEN BY THE REVENUE IS COVERED IN FAVOUR OF THE ASSESSEE IN ASSESSES OWN CASE IN ITA NO. 1945/MUM/2013 (SUPRA) AND HENCE THE GROUND TAKEN BY T HE REVENUE SHOULD BE DISMISSED. 6 . THE LD. DR RELIED ON THE ORDER OF THE AO. 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL PLACED BEFORE US INCLUDING THE ORDERS OF THE AUTHORITES BELOW AND THE CASE LAW RELIED UPON B Y THE ASSES SEE . WE FIND FROM THE MATERIAL PLACED BEFORE US AND THE DECISION OF TRIBUNAL RELIED UPON BY THE AR THAT THE ISSUE RAISED BY THE REVENUE COVERED IS IN FAVOUR OF THE ASSESSEE IN ASSESSEES OWN CASE IN ITA NO. 1945/MUM/2013 (SUPRA) . THE OPERATIVE PART IS AS UNDER : 6. NOW WE GO THROUGH THE CASE LAW CITED BY THE LD. COUNSEL FOR THE ASSESSEE IN THE CASE OF CIT VS. KOTAK SECURITIES LTD. (2012) 340 ITR 333 (BOM), WHEREIN IT HAS BEEN HELD AS UNDER: 6 ITA NO. 53 / MUM/201 5 AND 658/MUM/2015 31. THE OBJECT OF INTRODUCING SECTION 40(A)(IA), AS EXPLAINED IN THE CENTRAL BOARD OF DIRECT TAXES CIRCULAR NO. 5, DATED JULY 15, 2005 SEE [2005] 276 ITR (ST.) 151 ), IS TO AUGMENT COMPLIANCE WITH THE TDS PROVISIONS IN THE CASE OF RESIDENTS AND CURB BOGUS PAYMENTS. MOREOVER, THOUGH SECTION 194J WAS INSER TED WITH EFFECT FROM JULY 1, 1995, TILL THE ASSESSMENT YEAR IN QUESTION THAT IS THE ASSESSMENT YEAR 2005 - 06 BOTH THE REVENUE AND THE ASSESSEE PROCEEDED ON THE FOOTING THAT SECTION 194J WAS NOT APPLICABLE TO THE PAYMENT OF TRANSACTION CHARGES AND ACCORDINGL Y, DURING THE PERIOD FROM 1995 TO 2005 NEITHER THE ASSESSEE HAS DEDUCTED TAX AT SOURCE WHILE CREDITING THE TRANSACTION CHARGES TO THE ACCOUNT OF THE STOCK EXCHANGE NOR THE REVENUE HAS RAISED ANY OBJECTION OR INITIATED ANY PROCEEDINGS FOR NOT DEDUCTING THE TAX AT SOURCE. IN THESE CIRCUMSTANCES, IF BOTH THE PARTIES FOR NEARLY A DECADE PROCEEDED ON THE FOOTING THAT SECTION 194J IS NOT ATTRACTED, THEN IN THE ASSESSMENT YEAR IN QUESTION, NO FAULT CAN BE FOUND WITH THE ASSESSEE IN NOT DEDUCTING THE TAX AT SOURCE UNDER SECTION 194J OF THE ACT AND CONSEQUENTLY, NO ACTION COULD BE TAKEN UNDER SECTION 40(A)(IA) OF THE ACT. IT IS RELEVANT TO NOTE THAT FROM THE ASSESSMENT YEAR 2006 - 07 THE ASSESSEE HAS BEEN DEDUCTING TAX AT SOURCE WHILE CREDITING THE TRANSACTION CHARGES TO THE ACCOUNT OF THE STOCK EXCHANGE THOUGH NOT AS FEES FOR TECHNICAL SERVICES BUT AS ROYALTY. IT IS FURTHER RELEVANT TO NOTE THAT IT IS NOT THE CASE OF THE REVENUE THAT ON ACCOUNT OF THE FAILURE ON THE PART OF THE ASSESSEE TO DEDUCT TAX AT SOURCE, THE REV ENUE HAS SUFFERED PRESUMABLY BECAUSE, THE STOCK EXCHANGE HAS DISCHARGED ITS TAX LIABILITY FOR THE ASSESSMENT YEAR IN QUESTION. IN ANY EVENT, IN THE FACTS OF THE PRESENT CASE, IN VIEW OF THE UNDISPUTED DECADE OLD PRACTICE, THE ASSESSEE HAD BONA FIDE REASON TO BELIEVE THAT THE TAX WAS NOT DEDUCTIBLE AT SOURCE UNDER SECTION 194J OF THE ACT AND, THEREFORE, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN INVOKING SECTION 40(A)(IA) OF THE ACT AND DISALLOWING THE BUSINESS EXPENDITURE BY WAY OF TRANSACTION CHARGES INCUR RED BY THE ASSESSEE. 32. ACCORDINGLY, WE HOLD THAT THE TRANSACTION CHARGES PAID BY THE ASSESSEE TO THE STOCK EXCHANGE CONSTITUTE 'FEES FOR TECHNICAL SERVICES' COVERED UNDER SECTION 194J OF THE ACT AND, THEREFORE, THE ASSESSEE WAS LIABLE TO DEDUCT TAX AT SOURCE WHILE CREDITING THE TRANSACTION CHARGES TO THE ACCOUNT OF THE 7 ITA NO. 53 / MUM/201 5 AND 658/MUM/2015 STOCK EXCHANGE. HOWEVER, SINCE BOTH THE REVENUE AND THE ASSESSEE WERE UNDER THE BONA FIDE BELIEF FOR NEARLY A DECADE THAT TAX WAS NOT DEDUCTIBLE AT SOURCE ON PAYMENT OF TRANSACTION CHARGE S, NO FAULT CAN BE FOUND WITH THE ASSESSEE IN NOT DEDUCTING THE TAX AT SOURCE IN THE ASSESSMENT YEAR IN QUESTION AND CONSEQUENTLY DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 40(A)(IA) OF THE ACT IN RESPECT OF THE TRANSACTION CHARGES CANNOT BE SUSTAINED. WE MAKE IT CLEAR THAT WE HAVE ARRIVED AT THE ABOVE CONCLUSION IN THE PECULIAR FACTS OF THE PRESENT CASE, WHERE BOTH THE REVENUE AND THE ASSESSEE RIGHT FROM THE INSERTION OF SECTION 194J IN THE YEAR 1995 TILL 2005 PROCEEDED ON THE FOOTING THAT TH E ASSESSEE IS NOT LIABLE TO DEDUCT TAX AT SOURCE AND IN FACT IMMEDIATELY AFTER THE ASSESSMENT YEAR IN QUESTION, I.E., FROM THE ASSESSMENT YEAR 2006 - 07 THE ASSESSEE HAS BEEN DEDUCTING TAX AT SOURCE WHILE CREDITING THE TRANSACTION CHARGES TO THE ACCOUNT OF T HE STOCK EXCHANGE. 7. WE ALSO FIND THAT THE ISSUE IS COVERED BY THE DECISION OF ITAT, BANGALORE BENCH IN THE CASE OF IDS SOFTWARE SOLUTIONS (INDIA) (P) LTD. VS. ITO (INTERNATIONAL TAXATION) (2009) 122 TTJ 410 (BANG), WHEREIN THE FACTS DISCUSSED AS REGAR DS TO WHERE THE ASSESSEE ENTERED INTO A SECONDMENT AGREEMENT WITH A US COMPANY AND OBTAINED THE SERVICES OF AN EMPLOYEE AND THE QUESTION AROSE WHETHER THE REIMBURSEMENT BY THE ASSESSEE TO THE US COMPANY OF THE SALARY PAID BY THE US COMPANY WAS CHARGEABLE TO TAX AS FEES FOR TECHNICAL SERVICES . IT WAS HELD THAT THOUGH THE US CO WAS THE EMPLOYER IN A LEGAL SENSE BUT SINCE THE SERVICES OF THE EMPLOYEE HAD BEEN SECONDED TO THE ASSESSEE AND SINCE THE ASSESSEE WAS TO REIMBURSE THE EMOLUMENTS AND IT CONTROLLE D THE SERVICES OF THE EMPLOYEE, IT WAS THE ASSESSEE WHICH FOR ALL PRACTICAL PURPOSES WAS THE EMPLOYER. ACCORDINGLY, THE SALARY REIMBURSED TO THE US CO WAS NOT CHARGEABLE TO TAX. THOUGH THE PERSON DEPUTED BY THE US CO WAS A TECHNICAL PERSON, THE CONSIDERATI ON PAID UNDER THE SECONDMENT AGREEMENT WAS NOT FEES FOR TECHNICAL SERVICES BECAUSE THE FACT THAT THE SECONDED EMPLOYEE WAS RESPONSIBLE AND SUBSERVIENT TO THE PAYER (ASSESSEE) AND WAS REQUIRED TO ALSO ACT AS OFFICER OR AUTHORIZED SIGNATORY OR NOMINEE OF T HE ASSESSEE MADE IT INCONSISTENT WITH AN AGREEMENT FOR PROVIDING TECHNICAL SERVICES. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, WE DISMISS THIS ISSUE OF REVENUES APPEAL. 8 ITA NO. 53 / MUM/201 5 AND 658/MUM/2015 RESPECTFULLY FOLLOWING THE ORDER OF CO - ORDINATE BENCH, WE DISMISS THE GROUN D NO.1 RAISED BY THE REVENUE. 8 . THE ISSUE RAISED IN GROUND NO.2 IS AGAINST THE DELETION OF RS.30 LAKHS MADE BY THE AO ON ESTIMATE D BASIS ON ACCOUNT OF COMPENSATION FROM CUSTOMERS WITHOUT APPRECIATING THE FACTS THAT THE ASSESSEE WAS FOLLOWING MERCANTILE SYS T EM OF ACCOUNTING, AND HENCE, THE COMPENSATION RECEIVABLE FROM THE CUSTOMERS WAS REQUIRED TO BE ACCOUNTED ON ACCRUAL BASIS . 9 . THE LD. AR SUBMITTED BEFORE US THAT THE CO - ORDINATE BENCH IN ITA NO.1945/MUM/2013 (SUPRA) VIDE PARA 9 OF THE ORDER SEN T BA CK THE ISSUE TO THE FILE OF THE AO TO DECIDE THE ISSUE IN TERM OF THE PRINCIPLES LAID DOWN IN THE ORDER PASSED IN ITA NO. 6832/MUM/2011 FOR ASST. YEAR 2008 - 09 DATED 27.02.2013. THE LD. AR SUBMITTED THAT THE ISSUE BE RESTORED BACK TO THE FILE OF THE AO TO BE DECIDED IN ACCORDANCE WITH THE SAID DECISION. ON THE OTHER HAND , THE LD. DR ALSO FAIRLY AGREED TO THE SUBMISSIONS OF THE LD.AR. 10 . WE FIND THAT THE IDENTICAL HAD COME UP BEFORE THE TRIBUNAL AND THE TRIBUNAL H AS SEN T BACK THE ISSUE TO THE FILE OF THE AO FOR RE - ADJUDICATION IN TERM OF THE PRINCIPLES LAID DOWN IN THE ORDER PASSED IN ITA NO. 6832/MUM/2011 FOR ASST. YEAR 2008 - 09 VIDE ORDER DATED 27.02.2013 . THE RELEVANT OPERATIVE PARA OF THE SAID ORDER IS REPRODUCED BELOW : 9 ITA NO. 53 / MUM/201 5 AND 658/MUM/2015 9. AT THE OUTSET, LD. COUN SEL FOR THE ASSESSEE STATED THAT THIS ISSUE HAS ALREADY BEEN REMITTED BACK TO THE FILE OF AO IN THE IMMEDIATE PRECEDING YEAR EXACTLY ON IDENTICAL FACTS BY TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 6832/MUM/2011 FOR ASST. YEAR 2008 - 09 VIDE ORDER DATED 27.0 2.2013 AND ON SIMILAR LINE IF THE ISSUE IS REMITTED BACK TO THE FILE OF THE AO THAT WILL SUFFICE THE MATTER. ON QUERY FROM THE BENCH, LD. SR. DR HAS NOT OBJECTED TO THE STAND OF THE ASSESSEE. HENCE, WE DIRECT THE AO TO DECIDE THE ISSUE IN TERM OF THE PRI NCIPLES LAID DOWN IN THE ORDER PASSED IN ITA NO. 6832/MUM/2011 FOR ASST. YEAR 2008 - 09 VIDE ORDER DATED 27.02.2013. THIS ISSUE OF REVENUES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES 11 . IN VIEW OF THE ABOVE, WE ARE INCLINED TO SEND THE ISSUE BACK TO THE FILE OF THE AO TO DECIDE THE MATTER AFRESH IN TERMS OF RATIO LAID DOWN IN ITA NO. 6832/MUM/2011(SUPRA). ACCORDINGLY, THE GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 12 . APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ITA NO.53/MUM/2015 THE ONLY ISSUE RAISE D IN ALL THE GROUNDS OF APPEAL IS AGAINST THE UPHOLDING THE ORDER OF THE AO CONFIRMING THE DISALLOWANCE MADE U/S 14A WHICH WAS CALCULATED BY TAKING THE ENTIRE FINANCIAL EXPENSE INCLUDING BANK CHARGES FOR DISALLOWANCE UNDER S . 14A OF THE ACT WHEREAS THE ASSESSEE PLEADED THAT FOR THE PURPOSE OF DISALLOWANCE U/S 14A ONLY INTEREST IS TO BE TAKEN AND NOT BANK CHARGES. 13 . THE BRIEF FACTS OF THE CASE ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTED THAT THE ASSESSEE HAS EARNED EXEMPT I NCOME OF RS.4.27 CRORES WHICH WAS CLAIMED AS EXEMPT AND ALSO SU O MOTTU 10 ITA NO. 53 / MUM/201 5 AND 658/MUM/2015 DISALLOWED RS.52.13 LAKHS AS EXPENSES ATTRIBUTABLE TO THE EARNING OF THE SAID INCOME. THE AO, HOWEVER WAS NOT SATISFIED WITH THE CLAIM OF THE ASSESSEE AND ACCORDINGLY INVOKED THE PR OVISIONS OF SECTION 14A R.W.RULE 8D AND RE - CALCULATED THE DISALLOWANCE OF RS.10.47 LAKHS APART FROM THE SUO MOTTO DISALLOWANCE . 14 . DURING THE APPELLATE PROCEEDINGS BEFORE THE FIRST APPELLATE AUTHORITY, THE LD.CIT(A) ALSO DISMISSED THE APPEAL OF THE ASSES SEE AFTER REJECTING THE CONTENTION S OF THE ASSESSEE BY OBSERVING AND HOLDING AS UNDER : . 6.1 THE FACTS OF THE CASE WERE THAT THE A.O. HAD DISALLOWED RS.10,47,OOO / - U / S.14A OF THE ACT. 6.2 DURING APPELLATE PROCEEDINGS THE APPELLANT SUBMITTED AS UNDER : 'THE LEARNED AO WRONGLY TOOK THE ENTIRE FINANCIAL EXPENSES INCLUDING BANK CHARGES FOR DISALLOWANCE UNDER SECTION 14A INSTEAD OF ONLY THE INTEREST FIGURE. THIS HAS LED TO THE INCREASE IN DISALLOWANCE. THE ENTIRE CALCULATION SHEET OF 14A IS ENCLOSED FOR YOUR READY REFERENCE. THE INTEREST AMOUNT AS PER THE SCHEDULE 0 IS RS. 8, 13,419/ - PLUS RS. 64,34,152/ - TOTA LING TO RS. 72,48, 204/ - INSTEAD OF RS.1, 8 7,34,611/ - AS TAKEN BY THE LD.AO. WHAT HAS BEEN DONE IS TO TAKE THE ENTIRE SCHEDULE OF INTEREST AND FINANC E CHARGES INSTEAD OF ONLY THE INTEREST AMOUNTS. WE REQUEST YOU TO KINDLY GIVE DIRECTIONS TO THE LD AO TO AMEND THE AMOUNT TAKEN FOR DISALLOWANCE. 6.3 I HAVE CONSIDERED APPELLANT'S SUBMISSIONS. THE APPELLANT'S MAIN CONTENTION IS THAT A.O. HAD INCLUDED B ANK CHARGES IN COMPUTATION OF SEC.14A WHICH APPELLANT OBJECTS. WHEN WE EXAMINE SEC.2(28A) INTEREST INCLUDES OTHER CHARGES PAID FOR THE INTEREST. BANK CHARGES IS ALSO TO BE COUNTED AS PART OF THE INTEREST, HENCE, I FIND NO ERROR IN THE A.O'S COMPUTATION. T HIS GROUND OF APPEAL IS DISMISSED. 11 ITA NO. 53 / MUM/201 5 AND 658/MUM/2015 1 5. THE LD. AR VEHEMENTLY, SUBMITTED BEFORE THAT THE FAA HAS MISINTERPRETED THE PROVISIONS OF SECTION 2(28A) OF THE ACT. THE LD AR TOOK US THROUGH THE DETAILS OF INTEREST AND FINANCE CHARGES IN SCHEDULE O AT PAGE 3 OF THE PAPER BOOK AND SUBMITTED THAT THE AO HAS WRONGLY I NCLUDED THE AMOUNT OF BANK CHARGES OF RS.114.27 LOSS AS APPEARING IN THE ABOVE REFERRED SCHEDULE FOR THE PURPOSES OF CALCULATING DISALLOWANCE UNDER SECTION 14A OF THE ACT , WHEREAS AS P ER THE ACT ONLY INTEREST PART WAS REQUIRED TO BE TAKEN FOR THE PURPOSE OF DISALLOWANCE. THE LD. AR FURTHER STATED THAT SINCE T HE BANK CHARGES ARE NOT PART OF THE INTEREST EXPENSES AND THEREFORE REQUIRED TO BE NOT TAKEN INTO ACCOUNT FOR CALCULATING TH E DISALLOWANCE . FINALLY THE LD COUNSEL OF THE ASSESSEE PRAYED THAT THE ADDITION AS SUSTAINED BY THE FAA SHOULD BE DELETED AS BEING CONTRARY TO THE PROVISIONS OF THE ACT . THE LD. DR, ON THE CONTRARY RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 16 . W E HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL PLACED BEFORE US INCLUDING THE ORDERS OF AUTHORITIES BELOW . WE FIND THAT THE AO HAS INCLUDED THE BANK CHARGES OF RS.114.27 LOSS AS PART OF THE INTEREST EXPENSES FOR THE PURPOSE OF W ORKING OUT THE DISALLOWANCE U /S 14A R.W.R . 8D(2) (II)OF THE RULES THEREBY MA KING ADDITION AL DISALLOWANCE OF RS.10,47,000/ - WHICH IS OVER AND ABOVE THE ASSESSEE S SUO - MOTTU DISALLOW ANCE OF RS.52.13 LAKHS BEING EXPENDITURE FOR EARNING THE 12 ITA NO. 53 / MUM/201 5 AND 658/MUM/2015 EXEMPT INCOME BY T HE ASSESSEE . IT WAS SUBMITTED BEFORE US BY THE LD.AR THAT THE BANK CHARGES WERE DEDUCTED BY THE BANKS FOR THE VARIOUS TRANSACTION S /COLLECTION S OF MONEY ENTERED INTO IN THE ORDINARY COURSE OF BUSINESS AND IN NO WAY CONSTITUTED THE PART OF INTEREST EXPENSE S AS PER THE PROVISIONS OF SECTION 2(28A) OF THE ACT. A PERUSAL OF PROVISION OF SECTION 2(28A) REVEALS THAT THE INTEREST INCLUDE S ONLY INTEREST PAYABLE ON THE MONEY BORROWED AND INCLUDED ANY SERVICE FEES OR OTHER CHARGES IN RESPECT OF MONEY BORROWED. FOR THE SAKE OF BETTER UNDERSTANDING, WE REPRODUCE THE PROVISIONS OF SECTION 2(28A) OF THE ACT. : (28A) 'INTEREST' MEANS INTEREST PAYABLE IN ANY MANNER IN RESPECT OF ANY MONEYS BORROWED OR DEBT INCURRED (INCLUDING A DEPOSIT, CLAIM OR OTHER SIMILAR RIGHT OR OBLIGATION) AND INCLUDES ANY SERVICE FEE OR OTHER CHARGE IN RESPECT OF THE MONEYS BORROWED OR DEBT INCURRED OR IN RESPECT OF ANY CREDIT FACILITY WHICH HAS NOT BEEN UTILISED ; 17 . IN VIEW OF THE ABOVE PROVISIONS, WE ARE OF THE OPINION THAT THE INTEREST F OR THE PURPOSE OF WORKING OUT THE DISALLOWANCE UNDER SECTION 2(28A) INCLUDE S ONLY INTEREST ON THE MONEY BORROWED AND ANY FEES OR CHARGES PAID ON THE SAID BORROWINGS WHICH IS AVAILED BY THE ASSESSEE AND NOT BANK CHARGES WHICH ARE CHARGED BY THE BANK FOR REN DERING VARIOUS SERVICES LIKE MAKING PAYMENTS AND COLLECTION ON BEHALF OF THE ASSESSEE RELATING TO BUSINESS OF THE ASSESSEE WHOLLY AND EXCLUSIVELY . WE ARE THEREFORE, NOT INCLINED TO ACCEPT THE FINDINGS OF THE LD. CIT(A) IN PARA 6.3 13 ITA NO. 53 / MUM/201 5 AND 658/MUM/2015 OF ITS ORDER AND ACCORDINGLY SET ASIDE THE ORDER OF THE LD. CIT(A) AS BEING WRONG AND CONTRARY TO LAW . THE AO IS DIRECTED TO DELETE THE DISALLOWANCE. 18. IN THE RESULTS , THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AND THAT OF REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 16TH JAN, 2017. SD SD ( C.N. PRASAD ) ( RAJESH KUMAR) / J UDICIAL MEMBER / A CCOUNTANT MEMBER MUMBAI ; DATED : 16. 1.2017 SRL,SR.PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPE LLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, TRUE COPY / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI