RADHA MADHAV INVESTMENTS LTD, MUMBAI V. DCIT CIR 3(3), MUMBAI

ITA 6972/MUM/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 92397 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-04-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 26-03-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 20-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AKHILENDRA P YADAV
• Keywords: Business expenditure; Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH D, MUMBAI BEFORE SHRI B.R BASKARAN, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NO. 6972/MUM/2012 ASSESSMENT YEAR: 2009-10 RADHA MADHAV I NVESTME NTS LTD. 11-A, MITTAL CHAMBERS, NARIMAN POINT MUMBA- 400 021 PAN:-AAACR 4063 M VS. DCIT CIR - 3(3) 6 TH FLOOR, ROOM NO. 609, AAYAKAR BHAVAN, MUMBAI (APPELLANT) (RESPON DENT) ASSESSEE BY : SHRI VIJAY MEHTA, SHRI RAJESH CHAMARIA & SHRI ANUJ KISNADWAL A REVENUE BY : SHRI AKHILENDRA P. YADAV DATE OF HEARING : 26 .03.2015 DATE OF PRONOUNCEMENT : 17 .04.2015 O R D E R PER AMIT SHUKLA, JM: THIS APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGA INST ORDER DATED 17.08.2012, PASSED BY THE LD.CIT(A)-7, MUMBAI FOR QUANTUM OF ASSESSMENT U/S 143(3) FOR THE A.Y. 2009-10, ON THE FOLLOWING GROUNDS:- THE LD. CIT(A)/LD AO ERRED IN LAW AND FACTS IN UPH OLDING DISALLOWANCE RS.1,90,52,701/- OUT OF EXPENSES U/S 1 4A OF THE ACT WITH REFERENCE TO INVESTMENT IN PARTNERSHIP FIRM. T HE REASONS GIVEN BY HIM FOR DOING SO ARE WRONG AND CONTRARY TO THE FACTS OF THE CASE AND AGAINST THE PROVISIONS OF LAW. (II) THE LD. CIT(A)/LD AO OUGHT TO HAVE HELD THAT P ROVISIONS OF SECTION 14A OF THE ACT ARE NOT APPLICABLE TO INVEST MENTS MADE IN ITA NO. 6972/MUM/2012 ASSESSMENT YEAR: 2009-10 2 PARTNERSHIP FIRM AS INCOME THERE FROM IS NOT EXEMPT ;BUT TAX PAID. (III) THE LD. CIT(A)/LD AO OUGHT TO HAVE CONSIDERED THAT NO EXPENSES ARE INCURRED FOR EARNING THE EXEMPT INCOME OR MAINTAIN THE INVESTMENTS AND HENCE NO DISALLOWANCE U/S 14A I S REQUIRED TO BE DONE. 2. THE BRIEF FACTS OF THE CASE ARE THAT, ASSESSEE C OMPANY IS ENGAGED IN THE BUSINESS OF TRADING OF VARIOUS ITEMS, INVEST MENT AND FINANCING. FROM THE COMPUTATION OF INCOME THE ASSESSING OFFICE R NOTED THAT ASSESSEE HAS CLAIMED FOLLOWING INCOMES AS EXEMPT FR OM TAX:- I) DIVIDEND INCOME OF RS.31,86,93,627/- II) SHARE OF PROFIT FROM PARTNERSHIP FIRM RS.13,04, 48,840/-. IN RESPONSE TO THE SHOW CAUSE NOTICE AS TO WHY DISA LLOWANCE SHOULD NOT BE MADE AS PER RULE 8D, THE ASSESSEE SUBMITTED THAT IT HAS ALREADY ALLOCATED AN AMOUNT OF RS.1,65,43,645/- FOR THE PUR POSE OF DISALLOWANCE U/S 14A WHICH HAS BEEN MADE AS PER RULE 8D ONLY. TH E WORKING OF SUCH DISALLOWANCE WAS ALREADY ENCLOSED WITH TAX AUDIT RE PORT IN FROM NO. 3CD. HOWEVER, THE ASSESSING OFFICER HELD THAT THE S AME IS STRICTLY NOT IN ACCORDANCE WITH THE RULE 8D AND WORKED OUT THE DISA LLOWANCE OF RS.3,55,96,346/- AS PER THE WORKING GIVEN AT THE PA GE 4 OF THE ASSESSMENT ORDER. 3. BEFORE THE LD. CIT(A), THE ASSESSEE SUBMITTED TH AT, SO FAR AS INVESTMENT MADE IN FIRM IS CONCERNED, THE SAME CANN OT BE TAKEN IN THE VALUE OF INVESTMENT AS PER CLAUSE (III) OF RULE 8D. FURTHER SHARE IN THE PROFIT OF THE FIRM IS ALLOCATED AMONGST THE PARTNER S ONLY WHEN THE FIRM HAS PAID THE TAXES. THUS, THE PARTNER HAS ALREADY S UFFERED TAX PAID BY THE FIRM. BESIDES THIS IT WAS ALSO POINTED OUT THAT THE ASSESSEE HAS INCURRED BUSINESS EXPENSES OF 8.60 CRORES WHICH WER E MOSTLY INCURRED ITA NO. 6972/MUM/2012 ASSESSMENT YEAR: 2009-10 3 FOR THE BUSINESS PURPOSE AND THERE ARE NO EXPENSES DIRECTLY RELATED TO EARNING OF THE DIVIDEND INCOME. ACCORDINGLY, NO DIS ALLOWANCE OVER AND ABOVE SHOULD BE MADE. HOWEVER, THE LD. CIT(A) HELD THAT DISALLOWANCE HAS TO BE MADE STRICTLY WITHIN RULE 8D AND CONFIRME D THE DISALLOWANCE WITHOUT CONSIDERING THE ASSESSEES SUBMISSION. THIS IS EVIDENT FROM THE FOLLOWING FINDING GIVEN BY THE LD. CIT(A). I HAVE CONSIDERED THE AOS ORDER AS WELL AS APPELL ANT ARS SUBMISSIONS. HAVING CONSIDERED BOTH, I FIND THAT TH E AO HAS APPLIED THE JURISDICTIONAL HIGH COURT DECISION I TH E CASE OF M/S. GODREJ & BOYCE MFG. CO. LTD. WHILE MAKING THE DISAL LOWANCE. AS THE JURISDICTIONAL HIGH COURT HAS HELD THAT RULE 8D IS APPLICABLE FROM A.Y. 2008-09 ONWARD. IT IS ALSO THE FACT THAT THE APPELLANT COMPANY HAS GOT SUBSTANTIAL EXEMPT INCOME WHICH HAS BEEN MENTIONED BY THE AO IN PARA 5.1 OF THE ORDER. I VIE W OF THE SAME AND TAKING NOTE OF PROVISIONS OF SECTION 14A OF THE ACT, I AM OF THE CONSIDERED VIEW THAT THE DISALLOWANCE MADE BY T HE AO IS COMPLETELY JUSTIFIED AND ACCORDINGLY CONFIRMED. IN VIEW OF THE SAME, THE APPELLANTS THIS GROUND OF APPEAL IS DISM ISSED. 4. BEFORE US, LEARNED COUNSEL SHRI VIJAI MEHTA, SUB MITTED THAT ASSESSEE HAS ALREADY OFFERED A HUGE DISALLOWANCE OF RS.1,65,43,645/- WHICH WAS AS PER RULE 8D ONLY. THE DISALLOWANCE WAS MADE AFTER TAKING THE AVERAGE INVESTMENTS MADE IN THE SHARES, WHEREAS , THE ASSESSING OFFICER HAS INCLUDED THE INVESTMENT MADE BY WAY OF CAPITAL IN THE PARTNERSHIP FIRM. THIS INVESTMENT IN THE CAPITAL OF THE FIRM WAS COMING FROM EARLIER YEARS. ONCE THE ASSESSEE HAS ITSELF AT TRIBUTED DISALLOWABLE EXPENSES, THE ASSESSING OFFICER WITHOUT RECORDING H IS SATISFACTION OR BEING SATISFIED WITH THE CORRECTNESS OF THE CLAIM O F THE ASSESSEE CANNOT PROCEED TO MAKE FURTHER DISALLOWANCE UNDER RULE 8D. IT IS MORE SO IN THIS CASE WHEN THE ASSESSEE HAS DULY PLACED BEFORE THE AO, THE NATURE OF EXPENSES AS APPEARING IN SCHEDULE 12 AND 13 OF P &L ACCOUNT WHICH WILL GO TO SHOW THAT MOST OF THE EXPENSES WERE INCU RRED FOR THE BUSINESS ITA NO. 6972/MUM/2012 ASSESSMENT YEAR: 2009-10 4 CARRIED OUT BY THE ASSESSEE. THUS, WITHOUT REJECTIN G THE CLAIM OF THE ASSESSEE AND WITHOUT RECORDING SATISFACTION, THE AS SESSING OFFICER CANNOT MAKE FURTHER DISALLOWANCE. IN SUPPORT OF HIS CONTENTION HE RELIED UPON VARIOUS CASES LAWS. HE ALSO FILED ANALYSIS OF THE EXPENDITURES DEBITED TO THE P&L ACCOUNT, IN ORDER TO SHOW THAT M AJOR EXPENSES HAVE BEEN INCURRED FOR ASSESSEES OTHER BUSINESS. 5. ON THE OTHER HAND, LD. DR STRONGLY RELIED UPON T HE ORDER OF THE LD. CIT(A). 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PER USED THE RELEVANT MATERIAL PLACED ON RECORD. AS DISCUSSED ABOVE, THE ASSESSEE HAS ALREADY OFFERED DISALLOWANCE OF AN AMOUNT OF RS.1,65,43,645 /- FOR ALLOCATING THE INDIRECT EXPENSES UNDER RULE 8D. ONCE, THE ASSESSEE HAS ATTRIBUTED THE EXPENSES FOR THE PURPOSE OF DISALLOWANCE, THEN IT I S INCUMBENT UPON THE ASSESSING OFFICER TO EXAMINE THE CORRECTNESS OF SUC H A CLAIM OF EXPENDITURE AND IF, HAVING REGARD TO THE ACCOUNTS O F THE ASSESSEE HE IS NOT SATISFIED TO SUCH CORRECTNESS OF THE CLAIM, THE N HE CAN PROCEED TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED WHICH CAN BE SAID TO BE ATTRIBUTABLE FOR THE EARNING OF EXEMPT INCOME. THIS IS THE MANDATE OF LAW UNDER SECTION 14(2). IN OTHER WORDS, ONCE HE HA S FULFILLED THE CONDITIONS LAID DOWN IN SECTION 14(2) THEN, ONLY HE CAN PROCEED TO VARY THE DISALLOWANCE U/S 14A. HERE IN THIS CASE THE AO HAS FAILED TO FULFILL THE REQUIREMENT OF SECTION 14(2), AND WITHOUT BEING SATISFIED ABOUT THE CORRECTNESS OF THE CLAIM HAS PROCEEDED TO DISALLOW, WHICH IS NOT THE CORRECT APPROACH. FROM THE PERUSAL FOR THE EXPENDIT URE DEBITED TO THE P&L ACCOUNT, IT IS SEEN THAT UNDER THE HEAD ADMINI STRATIVE, SELLING AND OTHER EXPENSES THE ASSESSEE HAS DEBITED SUMS AGGRE GATING RS.5,08,80,326/- UNDER FOLLOWING HEADS:- ITA NO. 6972/MUM/2012 ASSESSMENT YEAR: 2009-10 5 GODOWN RENT & WAREHOUSING CHARGES 5,065,038 SERVICE CHARGES 5,400,000 OFFICE RENT 3,451,696 FREIGHT & TRANSPORATION CHARGES 2,968,855 OTHER TRADING EXPENSES 2,098,614 INSURANCE 952,010 LEGAL & PROFESSION FEES 14,187,926 AUDITORS REMUNERATION 523,925 DEPOSITORY CHARGES 214,012 FOREIGN TRAVELLING 8,882,866 CONVEYANCE & TRAVELLING (DOMESTIC) 994,275 BROKERAGE & COMMISSION 651,523 BUSINESS PROMOTION 81,903 MISCELLANEOUS EXPENSES 5,407,682 50,880,325 OUT OF THESE EXPENSES, ASSESSEE HAS BIFURCATED THE EXPENSES RELATING TO VARIOUS BRANCHES WHICH CANNOT BE CONSIDERED AT ALL FOR THE EARNING OF THE EXEMPT INCOME, WHICH HAS BEEN WORKED OUT AT 1,1 6,01,123. OUT OF THE BALANCE AMOUNT, EXPENDITURE LIKE GODOWN RENT AN D WAREHOUSING CHARGES, OTHER TRADING EXPENSES INSURANCE, FOREIGN FOLLOWING TRAVELLING, BUSINESS PROMOTION ETC. AGGREGATING TO RS.1.15 CRO RES CANNOT BE CONSIDERED AS EXPENDITURE INCURRED FOR THE PURPOSE OF EARNING EXEMPT INCOME. THE BALANCE EXPENDITURE COMES TO 2.59 CRORE S AND IF SALARY COST OF APPROXIMATELY 2.12 CRORES IS ADDED THEN THE SAME COMES TO RS.4.71 CRORES. IF FROM THE TOTAL EXPENDITURE OF RS. 4.71 C RORES, THE ASSESSEE ITSELF HAS DISALLOWED RS.1,65,43,645/-, THEN DEFINI TELY IT CAN BE HELD TO BE REASONABLE ATTRIBUTION FOR THE PURPOSE OF DISALL OWANCE U/S 14A. THUS, THE DISALLOWANCE MADE BY THE AO OVER AND ABOVE THE DISALLOWANCE AND ITA NO. 6972/MUM/2012 ASSESSMENT YEAR: 2009-10 6 CONFIRMED BY THE LD. CIT(A) IS DELETED AND ACCORDIN GLY, THE ORDER OF THE LD. CIT(A) ON THIS SCORE IS REVERSED. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 17 TH DAY OF APRIL, 2015. SD/- SD/- (B.R. BASKARAN) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 17.04.2015 *SRIVASTAVA COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR D BENCH // TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.