HINDUSTAN DIAMOND CO. P. LTD, MUMBAI V. DCIT i(OSD) CIR 3(1), MUMBAI

ITA 7200/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 92480 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-05-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Assessment Year: 2009-2010
• Appeal Filed On: 10-12-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: MITESH N SHAH
• Keywords: Earning of tax free income; Initiation of penalty proceedings
• Section: 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI . . , . , BEFORE SHRI I.P. BANSAL, JM AND RAJENDRA, AM ./ I.T.A. NO.7200/MUM/2013 ( / ASSESSMENT YEAR : 2009-10 M/S.HINDUSTAN DIAMOND CO. PVT. LTD. DE-6010, BHARAT DIAMOND BOURSE, BANDRA KURLA COMPLEX, BANDRA(E), MUMBAI 400 051 / VS. THE DCIT (OSD), CIR.3(1), AAYKAR BHAVAN, MK ROAD, MUMBAI 400 020 ./ ./ PAN/GIR NO. :AAACH 0400Q ( / APPELLANT ) .. ( / RESPONDENT ) A PPELLANT BY SHRI MITESH N. SHAH RESPONDENT BY SHRI SANJAY PUNGLIA ' #$ / DATE OF HEARING : 11/05/2015 ' #$ / DATE OF PRONOUNCEMENT : 11/05/2015 / O R D E R PER I.P.BANSAL, J.M: THIS IS AN APPEAL FILED BY THE ASSESSEE AND IT IS DIRECTED AGAINST ORDER PASSED BY LD. CIT(A)-7, MUMBAI DATED 18/10/2013 FOR ASSESSMENT YEAR2009-10. GROUNDS OF APPEAL READ AS UNDER: THE GROUND OR GROUNDS OF APPEAL ARE WITHOUT PREJUDI CE TO ONE ANOTHER. 1.A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE ID. CIT(A) ERRED IN CONFIRMING THE ADDITION TO THE EXTE NT OF' 62,93,547/- MADE BY THE AO TO THE INCOME OF THE APPELLANT BY WAY OF DIS ALLOWANCE OF CERTAIN EXPENDITURE ALLEGED TO HAVE BEEN INCURRED RELATING TO EXEMPT INCOME, INVOKING THE PROVISIONS OF SECTION 14A R.W. RULE 8D. B) THE LD. CIT(A) FAILED TO APPRECIATE THAT HAVING REGARD TO THE ACCOUNTS OF THE APPELLANT, THERE IS NO REASON AND BASIS FOR BEING D ISSATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE APPELLANT THAT EXPE NDITURE OF ONLY' 5,42,800/- IN THE NATURE OF PROPORTIONATE PART OF PMS EXPENSES , WAS INCURRED IN RELATION TO EXEMPT INCOME WHICH DOES NOT FORM PART OF THE TO TAL INCOME. ./ I.T.A. NO.7200/MUM/2012 ( / ASSESSMENT YEAR : 2009-10 2 C) IN REACHING THE CONCLUSION AND CONFIRMING SUCH A DDITION, THE ID. CIT(A) OMITTED TO CONSIDER RELEVANT FACTORS, CONSIDERATION S, PRINCIPLES AND EVIDENCES WHILE HE WAS OVERWHELMED, INFLUENCED AND PREJUDICED BY IRRELEVANT CONSIDERATIONS AND FACTORS. 2. THE LD. CIT(A) ERRED IN HOLDING THAT LEVY OF IN TEREST U/S..234B AND 234C OF THE INCOME TAX ACT, 1961 IS CONSEQUENTIAL. THE APPE LLANT DENIES ITS LIABILITY FOR SUCH INTEREST. 3. THE ID. CIT(A) ERRED IN HOLDING THAT THE GROUND RAISED DISPUTING INITIATION OF PENALTY PROCEEDINGS U/S.271(1)(C) IS PRE-MATURE. TH E APPELLANT DENIES ITS LIABILITY FOR SUCH PENALTY. THE APPELLANT CRAVES LE AVE TO ADD, ALTER, AMEND OR DELETE ANY OR ALL OF THE ABOVE GROUNDS OF APPEAL. 2. THE AO COMPUTED THE DISALLOWANCE UNDER SECTION 1 4A WITH REFERENCE TO RULE 8-D AS PER FOLLOWING COMPUTATION. 1. AMOUNT OF DIRECT EXPENDITURE 15,07,777/- 2. INTEREST PAID TO BANK RS.0.22 LAKH & OTHER 3.43 LAKHS AVERAGE VALUE OF INVESTMEN T IN SHARES INTEREST X --------------------------------------- ------- AVERAGE VALUE OF ASSETS 10657.14 (1/2 OF 11757.12 + 9557. 12) 3.65 X -------------------------------------- ----------- 15980.91 (1/2 OF 14542.16 + 17419.66 ) 2,28,570 3.0.5% OF AVERAGE VALUE OF INVESTMENT IN SHARES. I.E. RS.10657.14 (1/2 OF 11757.12 + 9557. 12) 53,28,570 70, 65,100 (70,65,100 5,42,800) THUS, THE TOTAL DISALLOWANCE WILL BE RS.65,22,300 /-. 2.1 THE DISALLOWANCE WAS AGITATED IN THE APPEAL FIL ED BEFORE LD. CIT(A). BEFORE LD. CIT(A) IT WAS PLEADED THAT ASSESSEE ITSE LF HAS DISALLOWED A SUM OF RS.5.43 LACS TO BE PROPORTIONATE PART OF EXPENDITU RE RELATING TO PORTFOLIO MANAGEMENT SERVICES (PMS) AND REST OF THE DISALLOWA NCE MADE BY THE AO WAS NOT CALLED FOR. IT WAS SUBMITTED THAT THE INVE STMENT OF THE ASSESSEE IN THE MUTUAL FUNDS AND EQUITY SHARES IS A SUM OF RS. 11,757.15 LACS AND IN VIEW OF SHAREHOLDER FUNDS OF RS.14542.16 LACS, THE INVESTMENT BY THE ./ I.T.A. NO.7200/MUM/2012 ( / ASSESSMENT YEAR : 2009-10 3 ASSESSEE CANNOT BE PRESUMED TO BE OUT OF BORROWED F UNDS OF THE ASSESSEE. 2.2 IN RESPECT OF INDIRECT EXPENSES IT WAS SUBMITTE D THAT SINCE ENTIRE INVESTMENT WAS HANDLED BY PMS FOR WHICH PAYMENT O F RS.15,07,777/- IS MADE, ASSESSEE DID NOT INCUR ANY OTHER EXPENDITURE TO EARN DIVIDEND INCOME OF RS.4.61 CRORES. LD. CIT(A) HAS ACCEPTED THE CO NTENTION OF THE ASSESSEE REGARDING ADDITION ON ACCOUNT OF INTEREST, HOWEVER, HE HAS UPHELD THE ADDITION OF RS.15,07,777/- BEING DIRECT EXPENSES PA ID TO PMS AND 0.5% OF THE AVERAGE VALUE OF INVESTMENT AMOUNTING TO RS.53 .28 LACS. IT IS IN THIS MANNER, LD. CIT(A) HAS UPHELD THE DISALLOWANCE TO T HE TUNE OF RS.62,93,547/-AFTER REDUCING THE AMOUNT OF RS.5,42, 800/- VOLUNTARILY DISALLOWED BY THE ASSESSEE. 3. AFTER NARRATING THE FACTS, IT WAS SUBMITTED BY L D. AR THAT IN VIEW OF DISALLOWANCE OF RS.15,07,777/- NO FURTHER DISALLOWA NCE WAS CALLED FOR AS ASSESSEE DID NOT INCUR ANY EXPENDITURE IN RELATION TO EARNING EXEMPT INCOME AS ENTIRE SERVICES WERE AVAILED FROM PMS, DEPART MENT COULD NOT BRING ON RECORD ANY MATERIAL TO SHOW THAT APART FROM AVAILIN G SERVICES OF PMS ASSESSEE HAS INCURRED ANY EXPENDITURE. 4. ON THE OTHER HAND, LD. DR RELIED UPON THE ORDER PASSED BY AO & LD. CIT(A). 5. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTENT IONS HAVE CAREFULLY BEEN CONSIDERED. RIGHT FROM THE BEGINNING, IT IS T HE CASE OF THE ASSESSEE THAT FOR MAKING INVESTMENT OF SURPLUS FUNDS IN THE MUTUAL FUND AND SHARES, IT HAS AVAILED THE SERVICES OF PMS PROVIDERS FOR WH ICH ASSESSEE HAS INCURRED A SUM OF RS.15,07,777/-, WHICH HAS ALSO BEEN HELD T O BE ADDED TO THE INCOME OF THE ASSESSEE BY LD. CIT(A) BEING DIRECT EXPENDITURE INCURRED IN RELATION TO EARNING OF EXEMPT INCOME. THEREAFTER, A SUM OF RS.53,28,570/- IS ADDED BY AO ON ACCOUNT OF INDIRECT EXPENSES. N OWHERE IN THE ASSESSMENT ORDER OR IN THE ORDER OF LD. CIT(A), IT HAS BEEN FOUND THAT APART FROM INCURRING THE EXPENDITURE ON PMS BY PAYMENT OF FEES OF ./ I.T.A. NO.7200/MUM/2012 ( / ASSESSMENT YEAR : 2009-10 4 RS.15,07,777/-, THE ASSESSEE WAS REQUIRED TO INCUR ANY OTHER EXPENDITURE. IN ABSENCE OF ANY SUCH FINDING GIVEN BY AO OR LD. CIT(A), IT WOULD BE INAPPROPRIATE TO ADD FURTHER AMOUNT ON ASSUMPTIONS AND PRESUMPTIONS. FOR MAKING DISALLOWANCE, IF IT IS CLAIMED BY THE AS SESSEE THAT IT DID NOT INCUR ANY EXTRA AMOUNT, IT HAS TO BE DEMONSTRATED THAT WH ICH OTHER EXPENDITURE ASSESSEE HAS OR ASSESSEE CAN INCUR FOR EARNING THE EXEMPTED INCOME. IF IT IS NOT SO SHOWN BY THE REVENUE AUTHORITIES, THEN DISAL LOWANCE WOULD BE INAPPROPRIATE AND HAS TO BE DELETED. THERE IS COMP LETE ABSENCE OF SUCH DEMONSTRATION BY THE REVENUE TO SHOW THAT IN FACT A SSESSEE HAS INCURRED ANY AMOUNT MORE THAN EXPENSES INCURRED BY IT ON AVA ILING PMS SERVICES. IN THIS VIEW OF THE SITUATION, ON THE FACTS OF THE PRESENT CASE, WE ARE OF THE OPINION THAT DISALLOWANCE OF MORE THAN RS.15,07,777 /- IS NOT CALLED FOR AND DISALLOWANCE IS RESTRICTED TO A SUM OF RS.15,07,777 /-ONLY AND REST OF THE DISALLOWANCE IS DELETED. GROUND NO.1 IS PARTLY ALL OWED. 6. APROPOS GROUND NO.2, THE SAME IS CONSEQUENTIAL A ND WE DIRECT THE AO TO RECOMPUTED INTEREST AFTER GIVING EFFECT TO OUR O RDER ON GROUND NO.1. 7. APROPOS GROUND NO.3, THE SAME IS PREMATURE AND I S DISMISSED. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED IN THE MANNER AFORESAID. ORDER PRONOUNCED IN THE OPEN COURT ON 11/05/2015 ' * +, 11/05/2015 ' SD/- SD/- (RAJENDRA) . . (I.P.BANSAL) /ACCOUNTANT MEMBER /JUDICIAL MEMBER MUMBAI; + DATED 11/05/2015 ./ I.T.A. NO.7200/MUM/2012 ( / ASSESSMENT YEAR : 2009-10 5 !'# $#! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. 0# ( ) / THE CIT(A)- 4. 0# / CIT 5. 12 #34 , $ 34 , / DR, ITAT, MUMBAI 6. 5 / GUARD FILE. / BY ORDER, 1# # //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI . . .VM , SR. PS