ITO 3(1)(3), MUMBAI V. EMERGIC VENTURE CAPITAL P.LTD, MUMBAI

ITA 6988/MUM/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1035 (ITAT-MUMBAI)
• Duration Of Justice: 5 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-05-2017
• Appeal Filed By: Department
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 30-11-2016
• Court: TRIBUNAL
• Department Lawyers: BHARTI SINGH
• Assessee Lawyers: R S SANGHAI
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, MUMBAI BEFORE SHRI B.R. BASKARAN (AM) I.T.A. NO. 6988 /MUM/ 201 6 (ASSESSMENT YEAR 20 1 2 - 1 3 ) ITO 3(1)(3) ROOM NO. 666 6 TH FLOOR AAYAKAR BHAVAN M.K. ROAD MUMBAI - 400 020. VS. M/S. EMERGIC VENTURE CAPITAL P. LTD . 304, TULSIANI CHAMBERS FREE PRESS JOURNAL MARG 212, NARIMAN POINT MUMBAI - 400 021. ( APPELLANT ) ( RESPONDENT ) PAN NO . AABCN9891N ASSESSEE BY SHRI R.S. SANGHAI DEPARTMENT BY M ISS BHARTI SINGH DATE OF HEARING 3 . 5. 201 7 DATE OF PRONOUNCEMENT 3 .5 . 201 7 O R D E R THE APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 31.8.2016 PASSED BY THE LEARNED CIT(A) - 8, MUMBAI AND IT RELATES TO A.Y. 2012 - 13. THE REVENUE IS AGGRIEVED BY THE DECISION OF THE LEARNED CIT(A) IN DELETING THE D ISALLOWANCE MADE BY THE ASSESSING OFFICER U/S. 14A OF THE I.T. ACT. 2. I HAVE HEARD THE PARTIES AND PERUSED THE RECORD. THE ASSESSEE - COMPANY IS AN INVESTMENT COMPANY. IT HAS MADE INVESTMENT OF ` 72.42 CRORES IN SHARES AND MUTUAL FUNDS. THE ASSESSEE DID NO T RECEIVE ANY DIVIDEND DURING THE YEAR UNDER CONSIDERATION AND IT ALSO DID NOT MAKE ANY DISALLOWANCE U/S. 14A OF THE ACT. THE ASSESSING OFFICER TOOK THE VIEW THAT THE DISALLOWANCE UNDER SECTION 14 A SHOULD BE COMPUTED IN TERMS OF THE PROVISIONS OF RULE 8D AND ACCORDINGLY COMPUTED THE DISALLOWANCE UNDER RULE 8D(2)(III) OF THE I.T. RULES AT 0.5% OF THE AVERAGE VALUE OF INVESTMENTS, WHICH WORKED OUT TO ` 3 5,81,324/ - . THE ASSESSING OFFICER ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. IN THE APPEAL FILED BY THE ASSESSEE, THE LEARNED CIT(A) TOOK THE VIEW THAT THE M/S. EMERGIC VENTURE CAPITAL P. LTD. 2 ASSESSING OFFICER HAS APPLIED THE PROVISIONS OF R ULE 8D IN A MECHANICAL MANNER AND FURTHER THE ASSESSING OFFICER HAS NOT ESTABLISHED ANY NEXUS BETWEEN THE EXPENSES AND EXEMPT INCOME. ACCORDINGLY, H E DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AND HENCE THE REVENUE HAS FILED THIS APPEAL BEFORE THE TRIBUNAL. 3. LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE DISALLOWANCE U/S. 14A IS MANDATORY AS PER CIRCULAR NO. 5 OF 2014 DATED 11.2.2014 ISSUED BY CBDT, EVEN IF, THE ASSESSEE DID NOT RECEIVE ANY EXEMPT INCOME. 4 . THE LEARNED AUTHORIZED REPRESENTATIVE POINTED THAT THE ASSESSEE HAS INCURRED EXPENDITURE OF ` 2,31,701/ - ONLY DURING THIS YEAR, OUT OF WHICH MAJOR EXPENSE WAS TRAVELLI NG EXPENSES A MOUNTING ` 1,82,023/ - AND THE SAME IS NOT CONNECTED WITH THE INVESTMENT ACTIVITY . HE SUBMITTED THAT THE COMMON EXPENSES RELATE TO SUBSCRIPTION FOR MAGAZINES & JOURNALS ` 26,189/ - AND AUDIT FEE ` 11,030/ - ONLY . HE FURTHER SUBMITTED THAT THE AS SESSEE DID NOT EARN ANY EXEMPT INCOME DURING THIS YEAR AND HENCE THE LEARNED CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER U/S. 8D(2)(III) OF THE I.T. RULES. 5 . I NOTICED FROM THE ARGUMENTS OF THE LD A.R THAT THE COMMON EXPENDITURE INCURRED BY THE ASSESSEE RELATED TO THE SUBSCRIPTION FOR MAGAZINES & JOURNALS AND AUDIT FEES BOTH AGGREGATED TO ` 37,000/ - . THE ASSESSEE HAS US ED I T S OWN FUNDS FOR MAKING INVESTMENTS AND HENCE THE ASSESSING OFFICER HAS NOT COMPUTED ANY DISALLOW ANCE U/R. 8D(2)(II) OF THE I.T. RULES. CONSIDERING THE DETAILS AND QUANTUM OF THE EXPENDITURE INCURRED BY THE ASSESSEE (REFERRED SUPRA), I AM OF THE VIEW THAT THIS IS NOT A FIT CASE FOR APPLYING PROVISIONS OF RULE 8D OF THE I.T. RULES. SINCE THE ASSESSEE HAS MADE INVESTMENTS OF ` 72.42 CRORES, I AM OF THE VIEW THAT A REASONABLE SUM MAY BE DISALLOWED OUT OF THE TWO EXPENSES DISCUSSED ABOVE AS RELATING TO INVESTME N T ACTIVITY. ACCORDINGLY, I MODIFY THE ORDER OF THE LEARNED CIT(A) AND DIRECT THE ASSESSING OFF ICER TO MAKE M/S. EMERGIC VENTURE CAPITAL P. LTD. 3 A DISALLOWANCE OF ` 5,000/ - U/S. 14A OF THE ACT , AS IN MY VIEW THE SAME WOULD BE REASONABLE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. I ORDER ACCORDINGLY. 6 . IN THE RESULT, APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED. ORDER HAS BE EN PRONOUNCED IN THE COURT ON 3 . 5 . 201 7. SD/ - (B.R.BASKARAN) ACCOUNTANT MEMBER MUMBAI ; DATED : 3 / 5 / 20 1 7 COPY OF THE ORDER FORWA RDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( DY./ASSTT. REGISTRAR) PS ITAT, MUMBAI