ELEGANT MARBLES & GRANI INDUSTRIES LTD, MUMBAI V. DCIT CIR 6(2), MUMBAI

ITA 6825/MUM/2012

• Counselvise Citation: 682519914 RSA 2012
• Duration Of Justice: 1 year(s) 2 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2008-2009
• Appeal Filed On: 07-11-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: DEVENDRA A MEHTA IZRFKHZ DH LS
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

- 1 - VK;DJ VIHYH; VF/KDJ.K BZ U;K;IHB EQACBZ ESAA IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI JH VKJ JH VKJ JH VKJ JH VKJ- -- - LH LHLH LH- -- - 'KEKZ] YS[KK LNL; ,OA 'KEKZ] YS[KK LNL; ,OA 'KEKZ] YS[KK LNL; ,OA 'KEKZ] YS[KK LNL; ,OA MK0 ,L MK0 ,L MK0 ,L MK0 ,L- -- - VH VHVH VH- -- - ,E ,E,E ,E- -- - IOYU IOYU IOYU IOYU] U;KF;D LNL; ] U;KF;D LNL; ] U;KF;D LNL; ] U;KF;D LNL; DS LE{K DS LE{K DS LE{K DS LE{K BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER AND DR. S.T. M PAVALAN, JUDICIAL MEMBER VK;DJ VIHY LA[;K /ITA NO.6825/MUM/2012 FU/KKZJ.K O'KZ @ ASSESSMENT YEAR 2008-09 ELEGANT MARBLES & GRANI INDUSTRIES LTD C/O. M/S RAVI & DEV, CHARTERED ACCOUNTANTS, 601, A WING, AURUS CHAMBERS, BEHIDNG MAHINDRA TOWERS, S.S. AMRUTWAR MARG, WORLI MUMBAI 400 013. CUKE@ VS. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 692) MUMBAI. PAN: - AAAC E1584C VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VIHYKFKHZ DH VKSJ LS @ ASSESSEE BY SHRI DEVENDRA A. MEHTA IZR;FKHZ DH VKSJ LS @ REVENUE BY MS. SONIA KUMAR VKNS'K@ VKNS'K@ VKNS'K@ VKNS'K@ ORDER PER R.C. SHARMA, AM, THIS IS AN APPEAL, FILED BY THE ASSESSEE AGAINST TH E ORDER OF CIT(A) DATED 6.09.2012 FOR A.Y. 2008-09, IN THE MATTER OF ORDER PASSED U/S 143(3) OF THE INCOME TAX ACT. LQUOKBZ DH RKJH[K@ DATE OF HEARING 1 3 - 01 - 2014 ?KKS'K.KK DH RKJH[K@ DATE OF PRONOUNCEMENT 22 - 01 - 2014 - 2 - 2. THE SOLITARY ISSUE RAISED BY ASSESSEE RELATES TO DISALLWOANCE OF EXPENSES BY INVOKING THE PROVISIONS OF SECTION 14A R.W. RULE 8D (2) OF THE INCOME TAX ACT. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PER USED. FACTS IN BRIEF ARE THAT ASSESSEE DERIVED EXEMPT INCOME FROM DIVIDE ND LONG TERM CAPITAL GAINS ON EQUITY SHARES AND EQUITY ORIENTED FUNDS. D URING THE COURSE OF SCRUTINY ASSESSMENT, THE AO REJECTED THE DISALLOWAN CE WORKED OUT BY ASSESSEE AND AO HIMSELF WORKED OUT DISALLOWANCE AT RS. 10,40,025/- BY APPLYING RULE 8D R.W.S 14A OF THE INCOME TAX ACT 19 62. AO OBSERVED THAT MANAGEMENT EXPENSES WERE INCURRED IN RELATION TO EX EMPT INCOME, ACCORDINLGY HE PROPORTIONATELY MADE DISALLOWANCE U/ S 14A. PLAIN READING OF PROVISIONS OF SECTION 14A READ WITH RULE 8D, IT EME RGES THAT AN EXPENDITURE WHICH IS INCURRED IN RELATION TO EXEMPT INCOME, SHA LL NOT BE ALLOWED AS DEDUCTION. THE EXPENDITURE IN RELATION TO EXEMPTED INCOME IS REQUIRED TO BE COMPUTED IN ACCORDANCE WITH PRESCRIBED METHOD AS PE R RULE 8D, WHEN THE AO IS NOT SATISFIED ABOUT THE CORRECTNESS OF THE AS SESSEES CLAIM HAVING REGARD TO ACCOUNTS. RULE 8D(1) CLEARLY PROVIDES THA T SUB RULE 2 SHALL BE APPLICABLE ONLY IN THE EVENT OF WHEN THE AO IS NOT SATISFIED, HAVING REGARD TO ITS ACCOUNTS, ABOUT THE CORRECTNESS OF ASSESSEES C LAIM OF EXPENSES IN RELATION TO EXEMPTED INCOME. HONBLE HIGH COURT OF DELHI IN THE CASE OF MAXOPP INVESTMENT LTD. VS. CIT ( 203 TAXMAN 364) WHILE EXPLAINING THE PROVISIONS OF SECTION 14A AND RULE 8D OBSERVED AS U NDER:- - 3 - HOWEVER IF ONE EXAMINES THE PROVISION CAREFULLY, IT WOULD BE FOUND THAT THE ASSESSING OFFICER IS REQUIRED TO DETERMINE THE AMONT OF SUCH EXPENDITURE ONLY IF THE ASSESSING OFFICER, HAVING R EGARD TO THE ACCOUNTS OF THE ASSESSEEE, IS NOT SATISFIED WITH THE CORRECT NESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. IN OTHER WORDS, THE REQUIREMENT OF THE ASSESSING OFFICER EMBARKING UPON A DETERMINATION OF THE AMOUNT OF EXPENDITURE INCURRED IN RELATION T O EXEMPT INCOME WOULD BE TRIGEERED ONLY IF THE ASSESSING OFFICER RE TURNS A FINDING THAT HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE. THEREFORE, THE CONDITI ON PRECEDENT FOR THE ASSESSING OFFICER ENTERING UPON A DETERMINATION OF THE AMOUNT OF THE EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME I S THAT THE ASSESSING OFFICER MUST RECORD THAT HE IS NOT SATISFIED WITH T HE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITUR E. SUB-SECTION (3) IS NOTHING BUT AN OFFSHOOT OF SUB-SECTION (2) OF SECTIO N 14A. WHILE REJECTING THE CLAIM OF THE ASSESSEE WITH REGARD TO THE EXPENDITURE OR NO EXPENDITURE, AS THE CASE MAY BE, IN RELATION TO EXE MPT INCOME, THE ASSESSING OFFICER WOULD HAVE TO INDICATE COGENT REA SONS FOR THE SAME. . THE SAID RULE 8D ALSO MAKES IT CLEAR THAT WHERE THE ASSESSING OFFICER HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE OF A PREVIOUS YEAR, IS NOT SATISFIED WITH ( A) THE CORRECTNESS OF THE CLAIM OF EXPENDITURE MADE BY THE ASSESSEE; OR (B) THE CLAIM MADE BY THE ASSESSEE THAT NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAIDACT FOR SUCH PREVIOUS YE AR, THE ASSESSING OFFICER SHALL DETERMINE THE AMOUNT OF THE EXPENDITU RE IN RELATION TO - 4 - SUCH INCOME IN ACCORDANCE WITH THE PROVISIONS OF SU B-RULE (2) OF RULE 8D. RULE 8D(1) PLACES THE PROVISIONS OF SECTION 14A(2) AND (3) IN THE CORRECT PERSPECTIVE. THE CONDITION PRECEDENT FOR THE ASSESS ING OFFICER TO HIMSELF DETERMINE THE AMOUNT OF EXPENDITURE MADE BY THE ASS ESSEE OR WITH THE CORRECTNESS OF THE CLAIM MADE BY THE ASSESSEE THAT NO EXPENDITURE HAS BEEN INCURRED. IT IS ONLY WHEN THIS CONDITION PRECE DENT IS SATISFIED, THAT THE ASSESSING OFFICER IS REQUIRED TO DETERMINE THE AMOUNT OF EXPENDITURE IN RELATION TO INCOME NOT INCLUDABLE IN TOTAL INCOME IN THE MANNER INDICATED IN SUB-RULE (2) OF RULE 8D. 4. FROM THE RECORD WE FOUND THAT ASSESSEE IS PRIMAR ILY ENGAGED IN MANUFACTURING AND TRADING OF MARBLE AND GRANITE SLA BS AND TILES. THE INVESTMENT IN SHARES AND MUTUAL FUNDS RESULTED INT O EXEMPT INCOME OF RS 4,55,83,040/-. ALL THE EXPENSES, EXCEPT SECURITY TR ANSACTION TAX, WERE RELATED TO ITS MANUFACTURING AND TRADING ACTIVITIES AND THE Y HAVE NO RELATION WITH THE EXEMPT INCOME EARNED DURING THE YEAR. WE HAVE ANALY SED THE EXPENSES SO INCURRED BY ASSESSEE WITH RESPECT TO THE EXEMPT INC OME EARNED AND FOUND THAT EXPENSES INCURRED AT ABU ROAD, WHERE THE MANUF ACTURING FACILITIES OF THE ASSESSEE WERE LOCATED, WERE DIRECTLY RELATED TO MAR BLE AND GRANITE MANUFACTURING ACTIVITIES OF THE ASSESSEE. HOWEVER N O INVESTMENT ACTIVITES WERE CARRIED OUT THERE-FROM. AS THESE EXPENSES WERE NOT AT ALL REALTED TO INVESTMENT ACTIVITIES OF THE ASSESSEE, THEY ARE OUT SIDE THE PURVIEW OF SECTION 14A. SELLING AND DISTRIBUTION EXPENSES AT MUMBAI OF FICE WERE DIRECTLY INCURRED IN RELATION TO SALE OF MARBLE AND GRANITE AND, THER EFORE, THEY WERE NOT AT ALL RELATED TO INVESTMENT ACTIVITY OF THE ASSESSEE. EMP LOYEES REMUNERATION INCURRED AT MUMBAI OFFICE CONSISTED OF SALARY TO SA LES PERSONNEL ENGAGED IN LOCAL SALES OF MARBLE AND GRANITES. HOWEVER OUT OF TOTAL REMUNERATION OF RS. - 5 - 11,25,000/-, WE FOUND THAT SALARY OF RS. 1,50,000 P AID TO ACCOUNTANT CAN BE TERMED AS INDIRECTLY RELATED TO EXEMPTED INCOME. OT HER ADMINISTRATIVE EXPENSES CONSISTED OF DIRECTORS REMUNERATION, PAID TO SHRI RAKESH AGARWAL AND SHRI RAJESH AGARWAL WHO WERE LOOKING AFTER LOCA L SALES OF MARBLE AND GRANITES. THEREFORE, SALARY PAID TO THE DIRECTORS W ERE RELATED TO MARBLE AND GRANITE MANUFACTURING ACTIVITIES. MOTOR CAR EXPENS ES INCURRED BY ASSESSEE WERE DIRECTLY RELATED TO MARBLE AND GRANITE MANUFAC TURING ACTIVITIES. OUT OF THE TELOPHONE EXPENSES OF RS. 3,46,117/-, RS. 20,0 51/- RELATED TO TELEPHONE EXPENSES OF SHRI RAJESH AGARWAL, WHICH COULD BE TE RMED AS INDIRECTLY REALTED TO THE EXEMPTED INCOME. ASSESSEE HAS ALSO INCURRED EXPENDITURE ON PAYMENT OF RENT RELATING TO DIRECTORS RESIDENCE AND GODOW N FOR STORING MARBLE AND GRANITES. IN THE ASSESSEES CASE, ALL THE EXPENSES DEBITED TO ITS PROFIT & LOSS ACCOUNT HAVE BEEN ANALYZED THREADBARE. ON THE BASIS OF IMPGUNED ANALYSIS, EXPENSES HAVE BEEN CATEGORIZED IN THREE PARTS.. (A) EXPENSES WHICH ARE DIRECTLY RELATED TO EXEMPTED INCOME, (B) EXPENSES WHICH ARE DIRECTLY RELATED TO INCOME S UBJECTED TO TAX AND (C) EXPENSES WHICH ARE REALTED TO EXEMPTED AS WELL AS TAXABLE INCOME OF THE ASSESSEE. AFTER CONSIDERING THE VARIOUS EXPENDITURE SO INCURR ED, THE DISALLOWANCE ENVISAGED U/S. 14A OF THE INCOME-TAX ACT, 1961 IS W ORKED OUT AT RS. 4,36,416/-, THE DETAILS OF WHICH ARE AS FOLLOWS: EXEMPTED INCOME / TOTAL REVENUE * INDIRECT EXPENSE S RELATED TO EXEMPTED INOCME =4,55,83,040 / 24,08,14,308* 23,05,577 =4,36,416 - 6 - 5. ACCORDINGLY, WE MODIFY THE ORDERS OF LOWER AUTHO RITIES AND DIRECT THE AO TO RESTRICT DISALLOWANCE U/S 14A TO THE EXTE NT OF RS. 4,36,416/- 6. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED IN PART. . ORDER PRONOUNCED ON 22 /01/2014 SD/- SD/- (DR. S.T.M. PAVALAN) (R.C. SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI DATED 22 /01/2014 SKS SR. P.S COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, E BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI