A.T.C. (CLEARING & SHIPPING) PVT. LTD., MUMBAI V. A.C.I.T. CIRCLE 2(1), MUMBAI

ITA 6917/MUM/2012

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3836 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 5 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-05-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 10-02-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 12-11-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Earning of tax free income
• Section: 143(3); 133A; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A , MUMBAI , , BEFORE SHRI R C SHARMA , ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , JUDICIAL MEMBER ITA NO. 1083 /MUM/201 2 (ASSESSMENT YEAR 200 8 - 09 ) ITA NO. 6917 /MUM/2012 (ASSESSMENT YEAR 2009 - 10 ) ATC ( CLEARING AND SHIPPING ) P LTD., 901 PENINSULA TOWERS, DCIT CENTRAL CIRCLE - 3 OLD CGO BLDG, ANNEXE, 9 TH FLOOR, M K ROAD, MUMBAI - 400 020 . PAN: AAACA 3307 K VS ACIT (2)(1), MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PRAKASH PANDIT RESPONDENT BY : SHRI YOGESH KAMAT /DATE OF HEARING : 18 - 0 2 - 201 6 /DATE OF PRONOUNCEMENT : 06 - 0 5 - 2016 ORDER , . : - PER AMIT SHUKLA, J. M. : T HE AFORESAID APPEAL S HAVE BEEN FILED BY THE ASSESSEE AGAINST SEPARATE IMPUGNED ORDERS DATED 17.11.2011 AND 31.08.2012 PASSED BY CIT (APPEALS) - IV , MUMBAI FOR THE QUANTUM OF ASSESSMENT PASSED UNDER SECTION 143(3) FOR THE ASSESSMENT YEAR 200 8 - 0 9 AND 2009 - 10 RESPECTIVELY. FIRST WE WILL TAKE - UP APPEAL FOR THE ASSESSMENT YEAR 2008 - 09, VIDE WHICH THE FOLLOWING GROUNDS HAVE BEEN RAISED : - 2 ATC (CLEARING AND SHIPPING) P LTD. ITA NO. 1083/MUM/2012 ITA NO.6917/MUM/2012 1. I N THE AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNE D CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS.6,18,119/ - MADE BY AO UNDER SECTION 14A R.W. RULE 8D OF THE INCOME TAX ACT, 1961 BEING THE EXPENSE ATTRIBUTABLE TO EXEMPT DIVIDEND INCOME. 2. REASONS GIVEN BY THE LEARNED CIT(A) FOR CONFIRMING THE ADDITION OF RS.6,18 ,119/ - MADE BY AO UNDER SECTION 14A R.W. RULE 8D OF THE INCOME TAX ACT, 1961 BEING THE EXPENSES ATTRIBUTABLE TO EXEMPT DIVIDEND INCOME, ARE WRONG INSUFFICIENT AND CONTRARY TO THE FACTS AND EVIDENCE ON RECORD. 3. IN THE AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDITION MADE BY AO OF RS.70,72,063/ - OUT OF THE CASH EXPENDITURE BACKED BY THE VOUCHER OF RS.3,53,60,266/ - UNDER DIFFERENT HEADS OF INCOME ON MERE SUSPICION. 4. REASONS GIVEN BY THE LEARNED AO FOR CONFIRMIN G ADDITION OF RS.70,72,053/ - OUT OF THE CASH EXPENDITURE BACKED BY THE VOUCHER OF RS.3,53,60,266/ - UNDER DIFFERENT HEADS OF INCOME ON MORE SUSPICION, ARE WRONG INSUFFICIENT AND CONTRARY TO THE FACTS AND EVIDENCE ON RECORD. 2. THE ASSESSEE COMPANY IS ENGAG ED IN THE BUSINESS OF CUSTOM AGENT WHEREBY IT ORGANIZE S THE CLEARANCE OF IMPORT AND EXPORT CONSIGNMENTS OF THE CUSTOMER BY COMPLETING THE FORMALITIES IN THE C USTOM AREAS AND PORTS. AS REGARDS THE FIRST ISSUE RAISED VIDE GROUNDS NO.1 & 2 RELATING TO DISALLO WANCE OF RS.6,18,119/ - MADE UNDER SECTION 14A R.W. RULE 8D, THE FACTS IN BRIEF ARE THAT ASSESSEE DURING THE YEAR HAS EARNED DIVIDEND INCOME FROM SHARES AMOUNTING TO RS.11,62,034/ - AND RS.14,82,876/ - FROM MUTUAL 3 ATC (CLEARING AND SHIPPING) P LTD. ITA NO. 1083/MUM/2012 ITA NO.6917/MUM/2012 FUNDS, WHICH WAS CLAIMED AS EXEMPT IN THE RE TURN OF INCOME . IN RESPONSE TO THE SHOW CAUSE NOTICE AS TO WHY DISALLOWANCE UNDER SECTION 14A SHOULD NOT BE MADE, THE ASSESSEE SUBMITTED THAT THE ACTUAL EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO THE EARNING OF EXEMPT INCOME WAS RS.12,131/ - INCLUD ING DEMAT CHARGES OF RS.1,185/ - . FURTHER, ALL THE INVESTMENTS HAVE BEEN MADE OUT OF THE ASSESSEES OWN FUNDS /SURPLUS INTEREST FREE FUNDS AND NO BORROWED FUNDS WERE UTILIZED FOR MAKING THE INVESTMENTS. ALL THESE INVESTMENTS HAVE BEEN DONE FOR A LONG - TERM P E R SPECTIVE WITHOUT REQUIRING MUCH TIME FOR MANAGING OR MONITORING THE INVESTMENTS . HOWEVER, THE LD. AO RELYING UPON THE DECISION OF SPECIAL BENCH IN THE CASE OF DAGA CAPITAL MANAGEMENT LTD (ORDER DATED 20.10.2008 IN ITA NO.8057/MUM/2003) HELD THAT DISALLOWANCE HAS TO BE WORKED OUT R ULE 8D AND ACCORDINGLY, WORKED OUT THE DISALLOWANCE AT RS.6,30,150/ - IN THE FOLLOWING MANNER: - (A) DIRECT EXPENDITURE = RS.12,131 (B) INTEREST EXPENDITURE = AVG INVESTMENT X INTEREST EXP. AVG. OF TOTAL ASSETS 16,76,88,763 = RS.4,49,788 (C) 0.5% OF AVERAGE INVESTMENT: - AVERAGE INVESTMENT = 3,49,49,664 + 3,23,42,673 = 3,36,46,169 2 0.5% OF RS.3,36,46,169 = RS.1,68,231 3. THE LD. CIT(A) TOO CONFIRME D THE SAID DISALLOWANCE ON THE GROUND THAT, STATUTE HAS PROVIDED RULE 8D FOR WORKING OUT THE DISALLOWANCE WHICH IS MANDATORY AND ITS APPLICABILITY HAS BEEN UPHELD BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODERAJ & BOYCE MFG. CO. LTD., REPORTED IN 328 ITR 81. 4. BEFORE US, THE LD. COUNSEL SUBMITTED THAT, THE TOTAL INVESTMENT MADE IN THE SHARES AND MUTUAL FUNDS AND OTHER GOVERNMENT SECURITIES IN THE BALANCE SHEET AS AT 31 ST MARCH 2008 4 ATC (CLEARING AND SHIPPING) P LTD. ITA NO. 1083/MUM/2012 ITA NO.6917/MUM/2012 WAS RS.3,49,49,664/ - . OUT OF THE SAID INVESTMENTS , INVESTMENTS OF RS.49 LAKHS WERE TAXABLE. THAT APART, ASSESSEE HAD INVESTED RS.91.36 LAKHS ON THE EQUITY SHARES OF THE SUBSIDIARY COMPANIES WHICH WERE IN THE NATURE OF STRATEGIC INVESTMENTS. THUS , TO THIS EXTENT, NO DISALLOWANCE UNDER SECTION 14A SHOULD HAVE BEEN MADE. HE FURTHER SUBMITTED THAT, ASSESSEE HA D HUGE SURPLUS FUNDS WHICH IS REFLECTED IN THE FORM OF RESERVES AND SURPLUS WHICH WAS AT RS.24.7 CRORES AND ALSO PROFIT OF THE YEAR WAS MORE T HAN RS.49 CRORES AFTER TAX . THE INTEREST WAS PAID ONLY ON THE OD ACCOUNT . I N FACT, THE ASSESSEE HAS EARNED MORE INTEREST INCOME WHICH IS RS. 28.70 LAKHS , THAN THE INTEREST PAID WHICH WAS AT RS. 22,41,645/ - . THUS NO DISALLOWANCE OF INTEREST CAN BE MADE. AS R EGARDS THE INDIRECT EXPENDITURE ALSO, THE ASSESSEE HAS GIVEN DETAILED EXPLANATION AS TO WHY OTHER THAN SUM OF RS.12,031/ - OFFERED FOR DISALLOWANCE BY THE ASSESSEE, NO EXPENDITURE IS ATTRIBUTABLE FOR EARNING OF THE EXEMPT INCOME. 5. ON THE OTHER HAND, LD . DR STRONGLY RELIED UPON THE ORDER OF THE CIT(A) AND SUBMITTED THAT, DISALLOWANCE UNDER SECTION 14A HAS TO BE COMPUTED IN ACCORDANCE WITH RULE 8D. 6. WE HAVE CONSIDER ED THE RIVAL CONTENTIONS AND ALSO PERUSED THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORD ERS AS WELL AS MATERIAL REFERRED TO BEFORE US. THE ASSESEEE HAS MADE INVESTMENT TO THE TUNE OF RS.3,49,49,664/ - WHICH WERE AS UNDER: - (I) GOVT. SECURITIES - RS. 47,531/ - (II) UNQUOTED EQUITY SHARES: IN SUBSIDIARY COMPANY - RS.91,35,837/ - (III) UNQUOTED EQUITY SHARES: IN O THER S - RS. 11,450/ - OTHER INVESTMENTS - RS.49,00,000/ - (IV) QUOTED EQUITY SHARES - RS.73,673,683/ - (V) UNITS IN MUTUAL FUNDS - RS.34,91,163/ - TOTAL - RS.3,49,49,664/ - 5 ATC (CLEARING AND SHIPPING) P LTD. ITA NO. 1083/MUM/2012 ITA NO.6917/MUM/2012 THE ASSESSEE HAD SURPLUS FUNDS IN THE BALANCE SHEET WHICH IS REFLECTED IN THE FORM OF RESERVES AND SURPLUS AT RS.24.7 CRORES AND PROFIT BEFORE TAXATION WAS SHOWN AT RS.70,43,90,686. OUT OF SUCH SURPLUS FUNDS, THE INVESTMENTS ARE ONLY RS.3 . 49 CRORES. THUS, IN VIEW OF AVAI LABILITY OF SUCH HUGE FUNDS LYING WITH THE ASSESSEE WHICH ARE INTEREST FREE, IT CAN BE VERY WELL INFERRED THAT, THE INVESTMENTS OF RS.3.49 CORES MUST HAVE BEEN MADE FROM SUCH SURPLUS FUNDS ONLY. NOT ONLY THAT, THE ASSESSEES INTEREST INCOME FROM FDRS ARE R S.28,78,559/ - WHEREAS INTEREST PAID BY THE ASSESSEE IS RS.22,41,645/ - . THUS ON THIS COUNT ALSO , IT CANNOT BE HELD THAT ANY DISALLOWANCE OF INTEREST CAN BE MADE WHILE COMPUTING THE DISALLOWANCE UNDER RULE 8D(2)(II). ACCORDINGLY, WE HOLD THAT, SO FAR AS DISA LLOWANCE OF INTEREST OF RS.4,49,788/ - IS CONCERNED SAME SHOULD BE DELETED. WE ORDER ACCORDINGLY. SO FAR AS DISALLOWANCE OF INDIRECT EXPENDITURE WHICH HAS BEEN WORKED OUT TAKING 0.5% OF THE AVERAGE INVESTMENTS, WE FIND THAT INVESTMENTS OF RS.49 LAKHS HAS B EEN STATED TO BE TAXABLE, THAT IS, INCOME FROM SUCH INVESTMENTS ARE TAXABLE BECAUSE THEY HAVE BEEN MADE IN UNQUOTED SHARES , GAIN FROM WHICH IS NOT EXEMPT . FURTHER, THE ASSESSEE HAS MADE INVESTMENT SHARES OF SUBSIDIARY COMPANIES FOR SUMS AMOUNTING TO RS.91, 35,837/ - WHICH IS IN THE NATURE OF STRATEGIC INVESTMENTS. THUS, THESE TWO AMOUNTS I.E. RS.49 LAKHS AND RS.91,35,837/ - SHOULD BE REMOVED FROM THE WORKING OF THE AVERAGE VALUE OF INVESTMENTS. NOW, FROM THE BALANCE INVESTMENT, AO IS DIRECTED TO WORK OUT THE D ISALLOWANCE AS PER FORMULA LAID DOWN UNDER RULE 8D (2)(III). WITH THIS DIRECTION, GROUND NO.1 & 2 AS RAISED BY THE ASSESSEE ARE TREATED AS PARTLY ALLOWED. 7. AS REGARDS SECOND ISSUE, RAISED VIDE GROUNDS NO.3 & 4, THE BRIEF FACTS ARE THAT, A SURVEY UNDE R SECTION 133A WAS CON DUCTED ON THE BUSINESS PREMISES OF THE ASSESSEE ON 17.12.2007, DURING THE COURSE OF WHICH , CERTAIN DOCUMENTS AND LOSE PAPERS WERE INVENTORI ZED AND IMPOUNDED. FROM THESE IMPOUNDED DOCUMENTS IT WAS NOTICED THAT, ASSESSEE HAD UNDERTAKEN NUMEROUS CASH 6 ATC (CLEARING AND SHIPPING) P LTD. ITA NO. 1083/MUM/2012 ITA NO.6917/MUM/2012 TRANSACTIONS. IN THE STATEMENT RECORDED OF ONE OF THE EMPLOYEES, IT WAS STATED THAT, COMPANY HAS TO PA Y RS.1,000/ - PER CONTAINER TO THE CUSTOM OFFICIAL S FOR THE IMPORTED GOODS AND FOR EXPORTS THE SPEED MONEY OF RS.250/ - IS PAID PER CONTAINER TO THE CUSTOM OFFICIALS. AS PER THE WORKING OF EXPORT AND IMPORT, THE SPEED MONEY WAS WORKED TO RS.67,50,000/ - . THE AO AFTER NOT ING DOWN THE RELEVANT STATEMENT S AND AFTER ANALYZING THE INFORMATION GATHERED ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE TO JUSTIF Y SUCH A HUGE CASH EXPENSES INCURRED BY IT. IN RESPONSE, ASSESSEE SUBMITTED THAT ALL THESE EXPENSES HAVE BEEN INCURRED IN CASH WHICH IN LINE OF ASSESSEES BUSINESS IS INEVITABLE AND IS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. NOTHING HAS BEEN PA ID FOR ANY ILLEGAL PURPOSE. IN MOST OF THE CASES EXPENSES PAID/INCURRED HAVE BEEN RECOVERED FROM THE CUSTOMERS. ALL THE EXPENDITURES I NCURRED ARE IN ACCORDANCE WITH THE CUSTOMER DOCUMENTATION, PROCEDURE AND PAPER WORK. THE ASSESSEES DETAILED SUBMISSION IN THIS REGARD HAS BEEN INCORPORATED FROM PAGES 9 TO 12 OF THE ASSESSMENT ORDER. HOWEVER, AO HELD THAT IT IS NOT IN DISPUTE THAT HUGE CASH EXPENSES HAVE BEEN INCURRED AND SOME OF THE CASH EXPENSES ARE NOT SUPPORTED BY ANY THIRD PARTY BILLS AND ALSO ASSESSEE COULD NOT FURNISH THE SPECIFIC DETAILS OF HEAD OF EXPENSES WITH COMPLETE VOUCHERS. HE ALSO CITED SOME INSTANCES WHERE A SSESSEE HAS FAILED TO PRO DUCE THE BILLS FOR EXPENSES INCURRED . ACCORDINGLY, OUT OF TOTAL CASH OF EXPENDITURE OF RS.3,53,60,266/ - , HE DISA LLOWED 20% OF THE SAME , WHICH WORKED OUT TO RS.70,72,053/ - . 8. BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THAT, SIMILAR DISALLOWANCE IN AY 2007 - 08 WAS DELETED BY THE CIT(A). HOWEVER, THE LD. CIT(A) REJECTED THE ASSES S EES CONTENTION AFTER OBSERVING AND HOL DING AS UNDER: - (I) THERE IS NO DOUBT THE CASH EXPENSES HAVE BEEN INCURRED. (II) THE FACT HAS BEEN SUBMITTED BY THE REPRESENTATIVE OF THE ASSESSEE THAT SOME OF THE CASH EXPENSES ARE NOT 7 ATC (CLEARING AND SHIPPING) P LTD. ITA NO. 1083/MUM/2012 ITA NO.6917/MUM/2012 SUPPORTED BY THIRD PARTY BILLS FOR WHICH HE IS TAKING A PLEA THAT THE EXPENSES WERE INCURRED ON DAY TO DAY BASIS IN THE NORMAL COURSE OF BUSINESS. (III) IT IS NOT DENIED THAT AFTER VERIFICATION OF THE BOOKS, VOUCHERS AND OTHER RELEVANT DETAILS, THE REPRESENTATIVE OF THE ASSESSEE WAS ASKED TO FURNISH SPECIFIC DETAILS OF HEADS OF EXPENSES WITH COMPLETE VOUCHERS. ON VER IFICATION OF THE ASSESSEES EXPLANATION, AS WELL AS THE ABOVE FACTS , IT CAN BE CONCLUDED THAT INSTEAD OF PRODUCING THIRD PARTY BILLS AND SUPPORTING CONTRACTS, THE ASSESSEE IS PLACING ON RECORD THE REASONS WHY THE SAME HAVE NOT BEEN MAINTAINED. THE INCURRENCE OF EXPENSE ON DAY TO DAY BASIS IS NOT DENIED BY THE UNDERSIGNED BUT IT WAS ASKED TO CO - RELATE THE CLAIM WITH SUPPORTING THIRD PARTY BILLS. AS THE ASSESSEE HAS FAILED TO PRODUCE THE BILLS FOR EXPENSES, THE GENERAL REASONS FOR NON - MAINTENANCE, LIKE INCURRED BY STAFF AT SITE, LABOUR PAYMENTS IN CASH, PROCEDURE FOR SANCTI ON OF EXPENSE BY THEIR DEPARTMENT / SUPERVISOR, DO NOT RESTRICT THE AO FROM DRAWING ADVERSE CONCLUSIONS. THE ASSESSEE, BY MERELY STATING THE REASONS FOR NON - MAINTENANCE OF PROPER RECORDS, CANNOT ESCAPE FROM THE PAYMENT OF AVOIDED TAXES. IN VIEW OF ALL TH E ABOVE FACTS AND SUBMISSION OF THE ASSESSEE, I AM OF THE OPINION THAT THE ASSESSEE FAILED TO JUSTIFY THE CASH EXPENSES ALONG WITH COMPLETE DETAILS IN THE COURSE OF ASSESSMENT PROCEEDING, EVEN AFTER BEING SPECIFICALLY ASKED TO PRODUCE THE DETAILS. MOREOVE R, ON PERUSAL OF THE DETAILS FURNISHED ALONG WITH THE ABOVE SUBMISSION, IT WAS NOTICED THE ASSESSEE HAS INCURRED A VERY HIGH PROPORTION AS SUCH EXPENDITURE, IN THE FOLLOWING HEADS OF EXPENSES VIZ. EXAM REPAIR SEALS, COOLIE/CART/LORRY HIRE CHARGES*, CRANE A ND FORKLIFT CHARGES ETC. TO NAME A FEW. 8 ATC (CLEARING AND SHIPPING) P LTD. ITA NO. 1083/MUM/2012 ITA NO.6917/MUM/2012 THE TOTAL CASH EXPENDITURE BY THE ATC HEAD OFFICE IS RS. 3,53,60,266/ - . IN THE LIGHT OF THE ABOVE DISCUSSION, AND CONSIDERING ALL THE ASSOCIATED FACTS AND CIRCUMSTANCES OF THE CASE AND KEEPING IN MIND THE NATURE OF T HE BUSINESS AND HOLDING A REASONABLE VIEW, IT IS DEEMED FIT THAT AN AMOUNT EQUAL TO 20% OF THE TOTAL CASH EXPENDITURE SHOULD BE DISALLOWED, IN ORDER TO MEET THE END OF JUSTICE. THEREFORE, RS.70,70,053/ - (BEING 20% OF RS.3,53,60,266/ - ) IS HEREBY DISALLOWED. IT IS PERTINENT TO POINT OUT THAT AS DISCUSSED IN THE PRECEDING PARAS, THE SPEED MONEY PAID IS NOT BEING ADDED SEPARATELY AS THEY HAVE BEEN ACCOMMODATED IN THE CASH EXPENDITURE MADE BY THE ASSESSEE COMPANY AND THE ABOVE DISALLOWANCE TAKES CARE OF THE SAME . ACCORDINGLY, RS.70 , 72,053/ - IS BEING DISALLOWED AND IS ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 9. BEFORE US, THE LD. COUNSEL SUBMITTED THAT IN AY 2007 - 08, THE MATTER HAD TRAVELED UP TO THE STAGE OF THE TRIBUNAL, WHEREBY THE TRIBUNAL HAS DELETED THE SAID ADDITION AND THIS YEAR ALSO , SINCE SIMILAR AD - HOC DISALLOWANCE HAVE BEEN MADE ON SUCH CASH EXPENSES, THEREFORE, SAME SHOULD BE DELETED. 10. ON THE OTHER HAND, LD. DR STRONGLY RELIED UPO N THE ORDER OF THE AO AS WELL AS CIT(A) AND SUBMITTED THAT IN THIS YEAR AO HAS BROUGHT SPECIFIC INSTANCES OF IRREGULARITY AND UN - VERIFIABILITY OF CASH EXPENSES. ACCORDINGLY, DISALLOWANCE MADE @ 20% IS FULLY JUSTIFIED. 11. WE HAVE HEARD RIVAL CONTENTION AN D PERUSED THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDER. IN THE CASE OF THE ASSESSEE IT HAS BEEN FOUND DURING THE COURSE OF THE SURVEY THAT, HUGE CASH EXPENDITURES HAVE BEEN INCURRED BY THE ASSESSEE FOR WHICH THERE WA S NO P ROPER JUSTIFICATION. THE AO HA S NOTED THAT, THE 9 ATC (CLEARING AND SHIPPING) P LTD. ITA NO. 1083/MUM/2012 ITA NO.6917/MUM/2012 REPRESENTATIVE OF THE ASSESSEE AT THE TIME OF SURVEY HAS ADMITTED THAT, SOME OF THE CASH EXPENSES WE RE NOT SUPPORTED BY THIRD PARTY BILLS AND SPECIFIC DETAILS OF HEAD OF EXPENSES AND COMPLETE VOUCHERS COULD NOT BE FURNISHED. LOOKING TO TH E NATURE OF EXPENSES AND VARIOUS OTHER SPECIFIC REASONS, HE RESORTED TO ESTIMATE OF DISALLOWANCE BY TAKING 20% OF TOTAL EXPENDITURE DEBITED FOR SUMS AGGREGATING TO RS.3,53,60,266/ - . IN THE EARLIER YEAR, THE TRIBUNAL HA S DELETED THE DISALLOWANCE MADE UNDER THE SAME HEAD ON THE GROUND THAT THE BOOKS OF ACCOUNTS ALONG WITH THE BILLS AND VOUCHERS WERE PRODUCED BEFORE THE AO AND IT IS NOT THE CASE OF THE AO THAT ANY OF THE EXPENSES SHOWN BY THE ASSESSEE ARE BOGUS. FURTHER, NO EVIDENCES HAVE BEEN BROUGHT ON RECO RD TO SHOW THAT, ANY EXPENDITURE CLAIMED BY THE ASSESSEE WAS NOT FOR THE PURPOSE OF ITS BUSINESS. THE RELEVANT OBSERVATION AND THE FINDING OF THE TRIBUNAL IN ITA NO.8584/MUM/2010 FOR THE ASSESSMENT YEAR 2007 - 08 IS AS UNDER: - 6. WE HAVE HEARD BOTH THE PART IES AND THEIR CONTENTIONS HAVE CAREFULLY BEEN CONSIDERED. WE HAVE ALSO THROUGH THE ASSESSMENT ORDER AS WELL AS THE ORDER PASSED BY LD. CIT(A). AFTER CAREFUL CONSIDERATION OF ALL THESE MATERIALS WE ARE OF THE OPINION THAT LD. CIT(A) HAS COMMITTED NO INFIRMI TY IN DELETING THE DISALLOWANCE. THE ASSESSEE HAS MAINTAINED BOOKS OF ACCOUNT IN REGULAR COURSE OF ITS BUSINESS. ALL THESE BOOKS OF ACCOUNT ALONG WITH BILLS AND VOUCHERS WERE PRODUCED BEFORE THE AO. IT IS NOT THE CASE OF AO THAT ANY EXPENDITURE SHOWN BY TH E ASSESSEE IS BOGUS. THE ASSESSMENT HAS BEEN FRAMED ON THE BASIS OF BOOKS OF ACCOUNT. THE DISALLOWANCE MADE BY THE AO IS NOT BASED ON ANY SPECIFIC VOUCHER FOR WHICH IT CAN BE SAID THAT ASSESSEE DID NOT INCUR SUCH EXPENDITURE. THE DISALLOWANCE IS ADHOC AND ON ESTIMATE BASIS. NO SINGLE EVIDENCE HAS BEEN BROUGHT ON RECORD TO SHOW THAT ANY EXPENDITURE CLAIMED BY THE ASSESSEE WAS NOT FOR THE PURPOSE OF ITS BUSINESS OR IT WAS NOT ACTUALLY INCURRED. IN THESE CIRCUMSTANCES, WE DECLINE TO INTERFERE WITH THE RELIEF G RANTED 10 ATC (CLEARING AND SHIPPING) P LTD. ITA NO. 1083/MUM/2012 ITA NO.6917/MUM/2012 BY LD. CIT(A) AND THE APPEAL FILED BY THE REVENUE IS DISMISSED. IN THIS YEAR, THE AO HAS SPECIFICALLY NOTED THE FOLLOWIN G FACTS BEFORE RESORTING TO A D - HOC DISALLOWANCE OF 20% : - (I) THERE IS NO DOUBT THE CASH EXPENSES HAVE BEEN INCURRED. (II) THE FACT HAS BEEN SUBMITTED BY THE REPRESENTATIVE OF THE ASSESSEE THAT SOME OF THE CASH EXPENSES ARE NOT SUPPORTED BY THIRD PARTY BILLS FOR WHICH HE IS TAKING A PLEA THAT THE EXPENSES WERE INCURRED ON DAY TO DAY BASIS IN THE NORMAL COURSE OF BUSINESS. (III) IT IS NOT DENIED THAT AFTER VERIFICATION OF THE BOOKS, VOUCHERS AND OTHER RELEVANT DETAILS, THE REPRESENTATIVE OF THE ASSESSEE WAS ASKED TO FURNISH SPECIFIC DETAILS OF HEADS OF EXPENSES WITH COMPLETE VOUCHERS. ON VER IFICATION OF THE A SSESSEES EXPLANATION, AS WELL AS THE ABOVE FACTS , IT CAN BE CONCLUDED THAT INSTEAD OF PRODUCING THIRD PARTY BILLS AND SUPPORTING CONTRACTS, THE ASSESSEE IS PLACING ON RECORD THE REASONS WHY THE SAME HAVE NOT BEEN MAINTAINED. THE INCURRENCE OF EXPENSE ON DAY TO DAY BASIS IS NOT DENIED BY THE UNDERSIGNED BUT IT WAS ASKED TO CO - RELATE THE CLAIM WITH SUPPORTING THIRD PARTY BILLS. AS THE ASSESSEE HAS FAILED TO PRODUCE THE BILLS FOR EXPENSES, THE GENERAL REASONS FOR NON - MAINTENANCE, LIKE INCURRED BY STAFF AT SITE, LABOUR PAYMENTS IN CASH, PROCEDURE FOR SANCTION OF EXPENSE BY THEIR DEPARTMENT / SUPERVISOR, DO NOT RESTRICT THE AO FROM DRAWING ADVERSE CONCLUSIONS. THE ASSESSEE, BY MERELY STATING THE REASONS FOR NON - MAINTENANCE OF PROPER RECORDS, CANNOT ESCAPE FROM THE PAYMENT OF AVOIDED TAXES. IN VIEW OF ALL THE ABOVE FACTS AND SUBMISSION OF THE ASSESSEE, I AM OF THE OPINION THAT THE A SSESSEE FAILED TO JUSTIFY THE CASH 11 ATC (CLEARING AND SHIPPING) P LTD. ITA NO. 1083/MUM/2012 ITA NO.6917/MUM/2012 EXPENSES ALONG WITH COMPLETE DETAILS IN THE COURSE OF ASSESSMENT PROCEEDING, EVEN AFTER BEING SPECIFICALLY ASKED TO PRODUCE THE DETAILS. MOREOVER, ON PERUSAL OF THE DETAILS FURNISHED ALONG WITH THE ABOVE SUBMISSION, IT W AS NOTICED THE ASSESSEE HAS INCURRED A VERY HIGH PROPORTION AS SUCH EXPENDITURE, IN THE FOLLOWING HEADS OF EXPENSES VIZ. EXAM REPAIR SEALS, COOLIE/CART/LORRY HIRE CHARGES*, CRANE AND FORKLIFT CHARGES ETC. TO NAME A FEW. THE TOTAL CASH EXPENDITURE BY THE AT C HEAD OFFICE IS RS. 3,53,60,266/ - . IN THE LIGHT OF THE ABOVE DISCUSSION, AND CONSIDERING ALL THE ASSOCIATED FACTS AND CIRCUMSTANCES OF THE CASE AND KEEPING IN MIND THE NATURE OF THE BUSINESS AND HOLDING A REASONABLE VIEW, IT IS DEEMED FIT THAT AN AMOUNT E QUAL TO 20% OF THE TOTAL CASH EXPENDITURE SHOULD BE DISALLOWED, IN ORDER TO MEET THE END OF JUSTICE. THEREFORE, RS.70,70,053/ - (BEING 20% OF RS.3,53,60,266/ - ) IS HEREBY DISALLOWED. IT IS PERTINENT TO POINT OUT THAT AS DISCUSSED IN THE PRECEDING PARAS, THE SPEED MONEY PAID IS NOT BEING ADDED SEPARATELY AS THEY HAVE BEEN ACCOMMODATED IN THE CASH EXPENDITURE MADE BY THE ASSESSEE COMPANY AND THE ABOVE DISALLOWANCE TAKES CARE OF THE SAME. ACCORDINGLY, RS.70 , 72,053/ - IS BEING DISALLOWED AND IS ADDED BACK TO THE T OTAL INCOME OF THE ASSESSEE. 12. ASSESSEES CASE ALL THROUGHOUT HAS BEEN THAT, IN ASSESSEES LINE OF BUSINESS HUGE TRANSACTIONS ARE INVOLVED AND THERE ARE MORE THAN 3000 VOUCHERS AND BILLS WHICH HAS BEEN ACCOUNTED FOR DURING THE YEAR. THE SAID BILLS HAVE BEEN IMPOUNDED BY THE SENIOR OFFICER OF THE DEPARTMENT FROM THE ASSESSEE COMPANY AND N OTHING INCRIMINATING WAS FOUND IN THE NOTING FOUND DURING THE SURVEY. MERELY INCURRING OF CASH EXPENSES DOES NOT MEAN THAT THESE EXPENSES ARE NOT FOR THE BUSINESS PURPOS ES. NOTHING ILLEGAL EXPENDITURE HAVE BEEN FOUND IN THE CASE OF THE ASSESSEE. THE 12 ATC (CLEARING AND SHIPPING) P LTD. ITA NO. 1083/MUM/2012 ITA NO.6917/MUM/2012 ASSESSEE HAS DEALT IN MORE THAN 21,000 CONSIGNMENTS AND ON NUMBER OF LOCATIONS AND THE EXPENSES INCURRED IN CASH OF RS.3,53,60,266 IS QUITE LESS OF THE TOTAL TRADING EXPENDITU RE. FROM THESE FACTS IT HAS BEEN CONTENDED BEFORE US THAT LOOKING TO THE NATURE OF ASSESSEES BUSINESS AND DETAILS MAINTAINED WHICH HAVE BEEN DULY AUDITED, NO DISALLOWANCE SHOULD BE MADE. THIS CONTENTION OF THE ASSESSEE PRIMA FACIE JUSTIFIES THE INCURRING OF HUGE CASH EXPENDITURE IN LINE OF BUSINESS AND THE ACTIVITIES CARRIED OUT BY THE ASSESSEE. HOWEVER, TO SAY THAT ON FACTS THE ENTIRE 100% OF THE CASH EXPENDITURE IS VERIFIABLE , CANNOT HELD TO BE AS A MATTER OF ESTABLISHED FACT. LOOKING TO THE OVERALL FACTS AND CIRCUMSTANCES AND THE MATERIAL ON RECORD, WE ARE OF THE OPINION THAT THE DISALLOWANCE ON ACCOUNT OF CASH EXPENSES SHOULD BE RESTRICTED TO 5% OF THE TOTAL CASH EXPENDITURE WHICH IS QUITE REASONABLE AND WILL MEET THE ENDS OF THE JUSTICE. ACCORDINGLY, WE DIRECT THE AO TO DISALLOW 5% OF THE CASH EXPENSES DEBITED. THUS, GROUND NO.3 & 4 ARE TREATED AS PARTLY ALLOWED. 13. NOW COMING T O ITA NO.6917/MUM/2012, VIDE WHICH FOLLOWING G ROUND HAS BEEN RAISED: - 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE IN LAW THE LEARNED CIT(APPEAL) ERRED IN APPLYING PROVISIONS OF SECTION 14A OF THE INCOME TAX ACT IN RESPECT OF DIVIDEND INCOME EARNED BY THE APPELLANT OF THE INVESTMENT IN MUTUAL FUN DS AND EQUITY SHARES. 2. IN THE FACTS AND CIRCUMSTANCES CASE IN LAW THE LEARNED CIT(APPEAL) ERRED IN MAKING DISALLOWANCE OF RS.3,96,579/ - UNDER SECTION 14A OF THE INCOME TAX ACT, 1961 BEING EXPENSES INCURRED TO EARN THE DIVIDEND INCOME. 13 ATC (CLEARING AND SHIPPING) P LTD. ITA NO. 1083/MUM/2012 ITA NO.6917/MUM/2012 14. IN THIS YEAR, THE ASSESSEE HAS EARNED DIVIDEND INCOME OF RS.15,57,693/ - WHICH HAS BEEN CLAIMED AS EXEMPT AND ASSESSEE HAS ONLY ATTRIBUTED RS.15,281/ - FOR THE PURPOSE OF DISALLOWANCE UNDER SECTION 14A. THE LD. AO HAS DISALLOWED AN AMOUNT OF RS.4 , 11,860/ - WHICH CON SISTED OF DISALLOWANCE OF INTEREST OF R S.2,09,527/ - WORKED OUT AS PER FORMULA UNDER RULE 8D(2)(II) AND R S.2 , 0 2 ,233/ - ON ACCOUNT OF INDIRECT EXPENDITURE UNDER RULE 8D(2)(III) SUCH A DISALLOWANCE HAS BEEN CONFIRMED BY THE CIT(A). LIKE IN THE PRECEDING YEAR, THAT IS, AY 2008 - 09 WHICH HAS BEEN DEALT BY US ABOVE , WE FIND THAT TOTAL INVESTMENT AS ON 31 ST MARCH,200 9 WAS AT RS.4,59,83,695/ - AS AGAINST RS.3,49,49,644/ - IN THE EARLIER YEARS. THE RESERVE AND SURPLUS FUND AS ON 31 ST MARCH, 2009 STOOD AT RS.30 4 , 820 ,774/ - AND PROFIT IN THE YEAR STOOD AT RS.7.99 CRORES. THUS, IN LIGHT OF OUR REASONING GIVEN ABOVE, WE HOLD THAT ASSESSEE HAD FAR MORE SURPLUS / OWN FUNDS FOR MAKING THE INVESTMENT AND, THEREFORE, NO DISALLOWANCE OF INTEREST UNDER RULE 8D(2) (II) CAN BE MADE. AS REGARDS THE INDIRECT EXPENDITURE, WE DIRECT THE AO LIKE IN THE EARLIER YEAR TO REMOVE THE INVESTMENT OF RS.49 LAKHS WHICH IS CAPABLE OF EARNING TAXABLE INCOME AND ALSO INVESTMENT MADE IN SUBSIDIARY COMPANY WHICH ARE IN THE NATURE OF STRATEGIC INVESTMENT FROM THE WORKING OF THE DISALLOWANCE OF AVERAGE INVESTMEN T UNDER RULE 8D(2)(III). WITH THIS DIRECTION, THE GROUNDS RAISED BY THE ASSESSEE ARE TREATED AS PARTLY ALLOWED. 15. IN THE RESULT, BOTH THE APPEALS FILED BY THE ASSESSEE I S TREATED AS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 6TH MAY, 2016 ( ) ( ) ( R C SHARMA ) ( AMIT SHUKLA ) ACCOUNTANT MEMBER JUDICIAL MEMBER 14 ATC (CLEARING AND SHIPPING) P LTD. ITA NO. 1083/MUM/2012 ITA NO.6917/MUM/2012 MUMBAI, DATE: 6TH MAY, 2016 /COPY TO: - 1 ) / THE APPELLANT. 2 ) / THE RESPONDENT. 3) THE CIT (A) - 4 , MUMBAI. 4 ) THE COMMISSIONER OF INCOME TAX - CENTRAL - 3 , MUMBAI. 5 ) , , / THE D.R. A BENCH, MUMBAI. 6 ) \ COPY TO GUARD FILE. BY ORDER / / TRUE COPY / / , ASSTT. REGISTRAR I.T.A.T., MUMBAI *CHAVAN, SR.PS