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

ITA 7201/MUM/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3776 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-05-2016
• Appeal Filed By: Assessee
• Bench Allotted: H
• Next Hearing Date: 11-05-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 10-12-2013
• Court: TRIBUNAL
• Department Lawyers: SIDDARTH B S MEENA
• Assessee Lawyers: MITESH N SHAH
• Keywords: Principle of natural justice; Revised return
• Section: 14A; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI BEFORE S/SHRI B.R. BASKARAN (AM) & RAMLAL NEGI (JM) I.T.A. NO. 7201 /MUM/ 2013 (ASSESSMENT YEAR 2010 - 11 ) M/S. HINDUSTAN DIAMOND CO. PVT. LTD. DE - 6010, BHARAT DIAMOND BOURSE BANDRA KURLA COMPLEX BANDR A EAST MUMBAI - 400 051. VS. DCIT - 3(1) AAYAKAR BHAVAN M.K. ROAD NEW MARINE LINES MUMBAI - 400 020. ( APPELLANT ) ( RESPONDENT ) PAN NO. AAACH0400Q ASSESSEE BY SHRI MITESH N. SHAH DEPARTMENT BY SHRI SIDDARTH B. S. MEENA DATE OF HEARING 11 . 5 . 201 6 DATE OF PRONOUNCEMENT 11 . 5 . 201 6 O R D E R PER B.R. BASKARAN, A M : - THE APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 18 - 10 - 2013 PASSED BY LD CIT(A) - 7, MUMBAI AND IT RELATES TO THE ASSESSMENT YEAR 2010 - 11. THE ASSESSEE IS AGGRIEVED BY THE DECISION RENDERED BY LD CIT(A) ON THE FOLLOWING ISSUES: - (A) DISALLOWANCE MADE U/S 14A OF THE ACT. (B) ADDITION OF AMOUNT DISALLOWED U/S 14A FOR COMPUTING BOOK PROFIT U/S 115JB OF THE ACT. (C) NON EXCLUSION OF FOREIGN EXCHANGE GAIN FROM TOTAL INCOME. 2. THE A SSESSEE IS ENGAGED IN THE BUSINESS OF TRADING IN ROUGH DIAMONDS. ITS SHARE CAPITAL IS HELD EQUALLY BY THE GOVERNMENT OF INDIA AND M/S DE BEERS CENETENARY MAURITIUS LTD. THE FIRST ISSUE RELATES TO THE DISALLOWANCE MADE U/S 14A OF THE ACT. THE CASE OF THE ASSESSEE IS THAT THE TAX AUTHORITIES HAVE APPLIED THE PROVISIONS OF RULE 8D WITHOUT HAVING REGARD TO THE ACCOUNTS. HE SUBMITTED THAT THE ASSESSEE HAS NOT BORROWED ANY AMOUNT FOR MAKING INVESTMENTS. THE ENTIRE INTEREST EXPENDITURE IS HINDUSTAN DIAMOND CO. PVT. LTD. 2 RELATED TO THE CREDI T FACILITY AVAILED BY IT FROM BANKS FOR IMPORTING GOODS. ACCORDINGLY HE SUBMITTED THAT THERE IS NO REQUIREMENT OF MAKING ANY DISALLOWANCE OUT OF INTEREST EXPENDITURE. WITH REGARD TO THE EXPENSES, HE SUBMITTED THAT THE ASSESSEE IS DEALING IN SHARES UNDER PMS SCHEME AND ACCORDINGLY, THE CO - ORDINATE BENCH OF TRIBUNAL HAS HELD IN THE ASSESSEES OWN CASE THAT THE DISALLOWANCE UNDER RULE 8D(2)(III) SHOULD BE RESTRICTED TO THE PMS CHARGES ONLY. 3. WE HEARD LD D.R AND PERUSED THE RECORD. THE CO - ORDINATE BE NCH HAS CONSIDERED AN IDENTICAL ISSUE IN THE ASSESSEES OWN CASE RELATING TO AY 2009 - 10 IN ITA NO.7200/MUM/2013 DATED 11.5.2015 AND HAS HELD THAT THE DISALLOWANCE OF RS.15.07 LAKHS RELATING TO PMS CHARGES MADE IN THAT YEAR WOULD BE SUFFICIENT, SINCE THE AO HAS NOT BROUGHT ANY MATERIAL TO SHOW THAT THE ASSESSEE HAS INCURRED ANY AMOUNT OVER AND ABOVE THAT AMOUNT. IN THE INSTANT YEAR, WE NOTICE THAT THE ASSESSEE HAS NOT BORROWED ANY FUNDS. THE INTEREST CHARGES WERE CLAIMED TO BE RELATED TO BUSINESS ACTIVITIE S. HENCE, IN OUR VIEW, NO DISALLOWANCE OF INTEREST IS CALLED FOR. WITH REGARD TO THE EXPENSES, WE NOTICE THAT THE ASSESSEE HAS DISALLOWED A SUM OF RS.9,75,585/ - AGAINST THE DIVIDEND INCOME OF RS.1.62 CRORES. THE SAID EXPENSES HAVE BEEN CLAIMED AS PMS CH ARGES. THOUGH THE ASSESSEE HAS CLAIMED THAT THE INVESTMENTS ARE MANAGED THROUGH PMS ACTIVITIES, WE ARE OF THE VIEW THAT A PORTION OF ADMINISTRATIVE EXPENSES SHOULD ALSO BE ALLOCATED TOWARDS THE SAID INVESTMENT ACTIVITY, SINCE THE ASSESSEE WOULD ALSO BE IN TERACTING WITH PORTFOLIO MANAGERS AND MONITORING THE INVESTMENTS. SINCE IT IS CLAIMED THAT MAJOR ACTIVITY OF INVESTMENTS ARE LOOKED AFTER BY THE PMS PEOPLE, WE ARE OF THE VIEW THAT THERE IS NO REQUIREMENT TO APPLY THE PROVISIONS OF RULE 8D OF THE IT RULES . HOWEVER, WE NOTICE THAT THE AO HAS NOT EXAMINED THE CLAIM OF INVESTMENT ACTIVITY THROUGH PMS SCHEME. ACCORDINGLY, THIS ASPECT REQUIRES VERIFICATION. ACCORDINGLY WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO EXAMINE THE CLAIM O F AVAILING OF PMS SCHEME. IF HE IS SATISFIED WITH THE SAID CLAIM, THEN THE AO SHOULD COMPUTE THE DISALLOWANCE U/S 14A BY AGGREGATING THE PMS CHARGES AND A SUM OF RS.3.00 LAKHS TOWARDS ADMINISTRATIVE CHARGES. WE ORDER ACCORDINGLY. HINDUSTAN DIAMOND CO. PVT. LTD. 3 4. THE NEXT ISSUE REL ATES TO THE COMPUTATION OF BOOK PROFIT U/S 115JB. THE LD A.R AGREED THAT THE DISALLOWANCE U/S 14A COMPUTED UNDER NORMAL PROVISIONS OF THE ACT MAY BE ADDED FOR COMPUTING BOOK PROFIT U/S 115JB OF THE ACT. WE ORDER ACCORDINGLY. 5. THE NEXT ISSUE RELATE S TO THE NON - ADMISSION CLAIM FOR DEDUCTION OF NOTIONAL GAINS ON EXCHANGE FLUCTUATION. THE ASSESSEE DID NOT MAKE THIS CLAIM IN THE RETURN OF INCOME FILED BY IT, BUT IT WAS CLAIMED DURING THE COURSE OF ASSESSMENT PROCEEDINGS BY FILING A LETTER. THE AO DID NOT ENTERTAIN THE SAID CLAIM, SINCE IT WAS NOT MADE THROUGH REVISED RETURN. THE LD CIT(A) HAS ALSO UPHELD THE SAME. 6. BEFORE US, THE LD A.R SUBMITTED THAT THE NOTIONAL GAIN OF FOREIGN EXCHANGE IS REQUIRED TO BE EXCLUDED, SINCE THE ASSESSEE DID NOT C LAIM THE PROVISION FOR LIABILITY CREATED BY IT IN EARLIER YEARS. ACCORDING TO LD A.R, THE ASSESSEE CREATED PROVISIONS TOWARDS CERTAIN LIABILITY IN THE BOOKS OF ACCOUNT, BUT THE SAME WAS ADDED WHILE COMPUTING THE TOTAL INCOME. SINCE THE ENTIRE TRANSACTION S HAVE BEEN EXCLUDED FROM THE INCOME TAX COMPUTATION, IT WAS CLAIMED THE RELEVANT NOTIONAL GAIN ON FOREIGN EXCHANGE FLUCTUATION SHOULD ALSO BE EXCLUDED. HOWEVER, SINCE THE TAX AUTHORITIES HAVE NOT EXAMINED THIS CLAIM, WE DECLINE TO EXPRESS ANY OPINION THE REON. THE HONBLE SUPREME COURT HAS HELD IN THE CASE OF GOETZ INDIA LTD (284 ITR 323) THAT THE ORDER PASSED BY IT DOES NOT IMPINGE THE RIGHT OF THE TRIBUNAL TO ENTERTAIN THE FRESH CLAIM. HENCE, IN THE INTEREST OF NATURAL JUSTICE, WE ARE OF THE VIEW THAT THE CLAIM OF THE ASSESSEE SHOULD BE ADMITTED. ACCORDINGLY, WE DIRECT THE AO TO ADMIT THIS CLAIM OF THE ASSESSEE, EXAMINE THE SAME AFTER PROVIDING ADEQUATE OPPORTUNITY TO THE ASSESSEE AND TAKE APPROPRIATE DECISION IN ACCORDANCE WITH THE LAW. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER HAS BEEN PRONOU NCED IN THE OPEN COURT ON 11 .5 .2016 . SD/ - SD/ - (RAMLAL NEGI ) (B.R.BASKARAN ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 11 / 5 /20 1 6 HINDUSTAN DIAMOND CO. PVT. LTD. 4 COPY OF THE ORDER FORWARDED 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) ITAT, MUMB AI PS