Appeal Details
Counselvise Citation
728219914 RSA 2011
Assessee PAN
Bench
Appeal Number
Duration Of Justice
3 year(s) 7 month(s) 16 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
17-06-2015
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
E
Next Hearing Date
04-06-2015
Assessment Year
2008-2009
Appeal Filed On
31-10-2011
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH E, MUMBAI BEFORE SHRI R. C. SHARMA, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO. 7282/MUM/2011 ASSESSMENT YEAR: 2008-09 M/S. SAIGAL SEA TRADE B-202, NEELAM CENTRE HIND CYCLE ROAD, WORLI, MUMBAI 400 030 PAN:AAAFS 6920 K .(APPELLANT) VS. ACIT-18(1) 1 ST FLOOR, PIRAMAL CHAMBERS, LALBAUG, MUMBAI 400 012 (RESPONDENT) ITA NO. 6576/MUM/2011 ASSESSMENT YEAR: 2008-09 ACIT-18(1) 1 ST FLOOR, PIRAMAL CHAMBERS, LALBAUG, MUMBAI 400 012 .(APPELLANT) VS. M/S. SAIGAL SEA TRADE B-202, NEELAM CENTRE HIND CYCLE ROAD, WORLI, MUMBAI 400 030 PAN:AAAFS 6920 K (RESPONDENT) APPELLANT BY : SHRI JITENDRA JAIN SHRI MAHESH O. RAJORA RESPONDENT BY : SHRI NEIL PHILIP DATE OF HEARING : 04.06.2015 DATE OF PRONOUNCEMENT : 17.06.2015 ITA NOS. 6576/MUM/2011 7282/MUM/2011 ASSESSMENT YEAR 2008-09 2 O R D E R PER SUSHMA CHOWLA, JM: THESE CROSS APPEALS FILED BY THE ASSESSEE AS WELL A S REVENUE ARE AGAINST THE ORDER OF THE CIT(A)-29, MUMBAI DATED 29.07.2011 RELATING TO ASSESSMENT YEAR 2008-09 AGAINST ORDER PASSED UNDER SECTION 143 (3) OF THE I.T. ACT. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. THE COMMISSIONER OF INCOME TAX (APPEALS) - 29, MUMBAI [HEREINAFTER REFERRED TO AS CIT(A)] ERRED IN CONFIR MING THE DISALLOWANCE OF RS.26,01 ,054/- BEING FEES PAID UNDER PORTFOLIO MANAGEMENT SCHEME(PMS) AS NOT DEDUCTIBLE EXPENDITURE U/S 48(1) OF THE LT. ACT AGAINST SHORT TERM CAPITAL GAIN (STCG) COMPUTED BY THE APPELLANT DURING THE YEAR UNDER CONSIDERATION. THE APPELLANT SUBMITS THAT PMS FEES OF RS.26,01,054 /- IS DIRECTLY RELATED TO PURCHASE AND SALE OF SHARES AND SECURITI ES AND HENCE THE SAME OUGHT TO HAVE BEEN ALLOWED AS DEDUCTIBLE EXPEN DITURE WHILE COMPUTING STCG. 2. A) THE CIT(A) ERRED IN CONFIRMING THE DISALLOWAN CE OF RS.LL,23,6261- UNDER SECTION 14A OF THE LT. ACT R.W.R. 8D OF THE L T. RULE BEING THE EXPENSES ATTRIBUTABLE TO INVESTMENT ACTIVITY GIVING RISE TO THE EXEMPTED INCOME. THE APPELLANT SUBMITS THAT THE APPELLANT HAS NOT IN CURRED THE EXPENDITURE EXCEEDING RS.98,945/- ATTRIBUTABLE TO I NVESTMENT ACTIVITY GIVING RISE TO THE EXEMPTED INCOME AND HENCE THE DI SALLOWANCE U/S 14A OF THE ACT SHALL BE RESTRICTED TO RS.98,945/- ONLY. B) THE CI(A) ERRED IN CONFIRMING THE DISALLOWANCE U /S 14A OF THE LT. ACT BY RESORTING TO RULE 8D OF THE LT. RULES INSPITE OF THE FACT THAT THE AO MADE THE DISALLOWANCE U/S 14A R.W. RULE 8D WITHOUT RECORDING ADEQUATE REASON FOR REJECTING THE SUBMISSION OF THE APPELLANT. 3. THE CIT(A) ERRED IN CONFIRMING THE AD HOC DISALL OWANCE OF RS. 1,11,4501- BEING 5% OF VARIOUS EXPENSES AGGREGATING TO RS.22,29,005/- DEBITED TO THE PROFIT & LOSS ALE AS INCURRED FOR NO N BUSINESS PURPOSE. THE APPELLANT SUBMITS THAT THE EXPENSES INCURRED AR E FOR BUSINESS PURPOSE AND ITA NOS. 6576/MUM/2011 7282/MUM/2011 ASSESSMENT YEAR 2008-09 3 THE HENCE THE FULL AMOUNT SHALL BE ALLOWED AS DEDUC TIBLE BUSINESS EXPENDITURE. 4. THE CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF DEPRECIATION OF RS.7,91,136/- CLAIMED BY THE APPELLANT ON RESIDENTI AL PREMISES USED BY THE STAFF MEMBERS OF THE APPELLANT FOR ITS BUSINESS PURPOSE. YOUR APPELLANT SUBMITS THAT THE RESIDENTIAL PREMISE S WERE PROVIDED TO THE STAFF MEMBERS IN THE COURSE OF CARRYING ON ITS BUSINESS A CTIVITY AND THE AO OUGHT TO HAVE ALLOWED DEPRECIATION ON THE RESIDENTI AL PREMISES AS CLAIMED BY THE APPELLANT. 3. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN ALLOWING THE APPEAL OF THE ASSESSEE AND DELETING THE ADDITION OF RS.1,20,40,838/- TO THE RETURNED INCOME . 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED CIT(A) ERRED IN AADMITTING ADDITIONAL EVIDENCES IN CONTRAVENTION OF THE PROVISIONS OF RULE 46A OF THE I.T. RULES, 1962. 3. FOR THESE AND OTHER REASONS IT IS SUBMITTED THAT THE ORDER OF THE CIT(A) MAY BE SET ASIDE AND THAT OF THE AO RESTORED . 4. BOTH THE APPEALS RELATING TO THE ASSESSEE WERE H EARD TOGETHER AND ARE BEING DISPOSED OFF BY THIS CONSOLIDATED ORDER FOR T HE SAKE OF CONVEYANCE. ITA NO. 7282/MUM/2011 5. THE GROUND OF APPEAL NO. 1 RAISED BY THE ASSESSE E IS AGAINST THE DISALLOWANCE OF RS.26,01,054/- BEING FEES PAID UNDE R PORTFOLIO MANAGEMENT SCHEME. 6. THE LD. A.R. FOR THE ASSESSEE AT THE OUTSET POIN TED OUT THAT THE ISSUE RAISED IN THE VIDE PRESENT GROUND OF APPEAL NO. 1 I S COVERED AGAINST THE ASSESSEE BY THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE RELATING TO ASSESSMENT YEAR 2006-07. ITA NOS. 6576/MUM/2011 7282/MUM/2011 ASSESSMENT YEAR 2008-09 4 7. WE HAVE HEARD THE RIVAL CONTENTION AND PERUSED T HE RECORD. THE FIRST ISSUE RAISED IN GROUND OF APPEAL NO. 1 IS AGAINST THE ALL OWANCE OF FEES PAID UNDER PMS. WHILE COMPUTING THE INCOME FROM SHORT TERM CAP ITAL GAIN, ASSESSEE HAD CLAIMED EXPENDITURE OF RS.26,01,054/- AS DEDUCTABLE . SIMILAR ISSUE AROSE BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 3341 /MUM/2009 RELATING TO ASSESSMENT YEAR 2006-07 AND VIDE ORDER DATED 03.06. 2011, THE TRIBUNAL HELD THAT THE ISSUES STANDS DECIDED AGAINST THE ASSESSEE BY THE DECISION OF MUMBAI BENCH OF TRIBUNAL IN DEVENDRA MOTI LAL KOTHARI VS. DCIT (2011) 136 TTJ (MUM) 188, WHEREIN IT WAS HELD AS UNDER:- 6. ON MERIT, THE LEARNED COUNSEL FOR THE ASSESSEE H AS SUBMITTED THAT THE MATTER MAY BE RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR DECIDING THE SAME AFRESH IN THE LIGHT OF THE ADDITIONAL EVID ENCE FILED BY THE ASSESSEE. HOWEVER, AFTER AGREEMENTS, WE FIND THAT A SIMILAR ISSUE INVOLVING ALMOST IDENTICAL FACTS HAS ALREADY BEEN E XAMINED BY THIS BENCH IN THE CASE OF DEVENDRA MOTILAL KOTHARI V. DE N- (2011) 136 TTJ (MUMBAI) 188 AND THE SAME HAS BEEN DECIDED AGAINST THE ASSESSEE FOR THE ELABORATE REASONS WHICH, AS SUMMARIZED IN. THE HELD PORTION, ARE EXTRACTED BELOW: 'THE DEDUCTION ON ACCOUNT OF FEES PAID FOR PMS HAS BEEN CLAIMED BY THE ASSESSEE AS DEDUCTION IN COMPUTING CAPITAL G AINS ARISING FROM SALE OF SHARES AND SECURITIES. HE/ HOWEVER HAS FAILED TO EXPLAIN AS TO HOW THE SAID FEES COULD BE CONSIDERED AS COST OF ACQUISITION OF THE SHARES AND SECURITIES OR THE COS T OF ANY IMPROVEMENT THERETO. HE HAS ALSO FAILED TO EXPLAIN AS TO HOW THE SAID FEES COULD BE TREATED AS EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH SALE OF SHARES AND S ECURITIES. ON THE OTHER HAND, THE BASIS ON WHICH THE SAID FEES WAS PA ID BY THE ASSESSEE SHOWS THAT IT HAD NO DIRECT NEXUS WITH THE PURCHASES AND SALE OF SHARES AND AS RIGHTLY CONTENDED BY THE DEPA RTMENTAL REPRESENTATIVE/ THE SAID FEES WAS PAYABLE BY THE AS SESSEE GOING BY THE BASIS THEREOF EVEN WITHOUT THERE BEING ANY PURC HASE OR SALE OF SHARES IN A PARTICULAR PERIOD AS A MATTER OF TEET; WHEN THE CIT(A) REQUIRED THE ASSESSEE TO ALLOCATE THE FEES PAID FOR PMS IN RELATION TO PURCHASE AND SALE OF SHARES AS WELL AS IN RELATI ON TO THE SHARES HELD AS INVESTMENT ON THE LAST DATE OF THE PREVIOUS YEAR; THE ASSESSEE COULD HOT FURNISH SUCH DETAILS NOR COULD H E GIVE ANY DEFINITE BASIS ON WHICH SUCH ALLOCATION WAS POSSIBL E. THE FEES PAID BY THE ASSESSEE FOR PMS WAS NOT INEXTRICABLY LINKED WITH THE PARTICULAR INSTANCE OF PURCHASE AND SALE OF SHARES AND SECURITIES ITA NOS. 6576/MUM/2011 7282/MUM/2011 ASSESSMENT YEAR 2008-09 5 SO AS TO TREAT THE SAME AS EXPENDITURE INCURRED WHO LLY AND EXCLUSIVELY IN CONNECTION WITH SUCH SALE OR THE COS T OF ACQUISITION/IMPROVEMENT OF THE SHARES AND SECURITIE S SO AS TO BE ELIGIBLE FOR DEDUCTION IN COMPUTING CAPITAL GAINS U NDER SECTION 48. 7. KEEPING IN VIEW THE DECISION OF THE TRIBUNAL IN THE CASE OF DEVENDRA MOTILAL KOTHARI V. DCIT (SUPRA) ON THE SIMILAR ISSU E, WE ARE OF THE VIEW THAT NO MEANINGFUL PURPOSE WOULD BE SERVED BY SENDI NG THIS MATTER TO THE ASSESSING OFFICER AS SOUGHT BY THE LEARNED COUN SEL FOR THE ASSESSEE AND RESPECTFULLY FOLLOWING SAID DECISION, WE UPHOLD THE IMPUGNED ORDER OF THE LEARNED CIT(A) CONFIRMING THE DISALLOWANCE M ADE ~Y THE ASSESSING OFFICER ON ACCOUNT OF FEES PAID PMS WHILE COMPUTING THE SHORT TERM CAPITAL GAINS. GROUND NO. 1 OF THE ASSES SEE'S APPEAL IS ACCORDINGLY DISMISSED. 8. THE ISSUE ARISING BEFORE US IS IDENTICAL TO THE ISSUE BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE AND FOLLOWING THE SAME PARITY O F REASONING, WE UPHOLD THE ORDER OF CIT(A) IN DISALLOWING THE EXPENDITURE OF P MS, WHILE COMPUTING THE INCOME FROM SHORT TERM CAPITAL GAINS. THE GROUND OF APPEAL NO. 1 RAISED BY THE ASSESSEE IS THUS DISMISSED. 9. THE ISSUE IN GROUND OF APPEAL NO. 2 RAISED BY TH E ASSESSEE IS AGAINST THE DISALLOWANCE COMPUTED UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF THE ACT. 10. BRIEF FACTS RELATING TO THE ISSUE ARE THAT DURI NG THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD CLAIMED DIVIDEND IN COME OF RS.43,19,310/- AS EXEMPT UNDER SECTION 10(35) AND 10(34) OF THE ACT. THE EXPLANATION OF THE ASSESSEE BEFORE THE AO WAS THAT IT HAD UTILIZED ITS OWN FUNDS FOR INVESTMENT IN MUTUAL FUNDS AND ALSO THROUGH PMS IN SHARES AND SEC URITIES. FURTHER THE ASSESSEE HAD COMPUTED THE DISALLOWANCE UNDER SECTIO N 14A OF THE ACT AT RS.98,945/- BEING 50% OF THE EMPLOYEES COST. THE AO REJECTING THE CLAIM OF THE ASSESSSEE COMPUTED THE DISALLOWANCE UNDER SECTION 1 4A READ WITH RULE 8D AT RS.11,23,626/-. THE CIT(A) UPHELD THE ORDER OF THE AO. HOWEVER, SINCE THE ASSESSEE HAD ALREADY DISALLOWED RS.98,945/- THE DIS ALLOWANCE WAS RESTRICTED TO RS.10,24,681/-. ITA NOS. 6576/MUM/2011 7282/MUM/2011 ASSESSMENT YEAR 2008-09 6 11. THE ASSESSEE IS AN APPEAL AGAINST THE ORDER OF THE CIT(A). THE LD. A.R. FOR THE ASSESSEE POINTED OUT THAT WHERE THE ASSESSE E HAD ITSELF DISALLOWED RS.98,945/-, THE AO BEFORE APPLYING PROVISION OF RU LE 8D, HAD TO RECORD SATISFACTION THAT THE DISALLOWANCE MADE BY THE ASSE SSEE WAS NOT CORRECT AND IN THE ABSENCE OF ANY SUCH SATISFACTION BEING RECORDED , PROVISION OF RULE 8D COULD NOT BE APPLIED. RELIANCE IN THIS REGARD WAS PLACED UPON THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN GODREJ & BOYCE MA NUFACTURING LTD. VS. CIT 328 ITR 81 (BOM). ANOTHER CONTENTION RAISED BY THE ASSESSEE WAS THAT IT HAD UTILIZED THE PORTFOLIO MANAGEMENT SCHEME SERVIC ES FOR MAKING THE AFORESAID INVESTMENTS AND SUCH EXPENSES OF RS.26,01 ,054/- STANDS DISALLOWED IN THE HANDS OF THE ASSESSEE. HENCE THERE WAS NO MERIT IN ANY FURTHER DISALLOWANCE TO BE MADE UNDER SECTION 14A READ WITH RULE 8D. 12. THE LD. D.R. FOR THE REVENUE POINTED OUT THAT S IMILAR ISSUE AROSE BEFORE THE TRIBUNAL IN THE ASSESSEES OWN CASE AND THE ISS UE HAS BEEN RESTORED BACK TO THE FILE OF THE AO FOR ADOPTING REASONABLE METHOD F OR DISALLOWANCE UNDER SECTION 14A OF THE ACT. 13. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE ARISING VIDE PRESENT GROUND OF APPEAL IS AGAINST DI SALLOWANCE MADE UNDER SECTION 14A OF THE ACT. ADMITTEDLY THE ASSESSEE HAD EARNED TAX FREE INCOME ON ACCOUNT OF DIVIDEND FROM MUTUAL FUNDS AND SHARES, A ND THE QUESTION WAS WHETHER PROVISIONS OF SECTION 14A OF THE ACT COULD BE INVOKED TO WORK OUT THE EXPENDITURE RELATABLE TO SUCH EXEMPT INCOME. THE AS SESSEE ON ITS OWN MOTION HAD DISALLOWED SUM OF RS.98,945/- ON ACCOUNT OF 50% OF SALARY OF ONE PERSON, WHOSE SERVICES WERE UTILIZED FOR MAKING THE AFORESA ID INVESTMENTS. FURTHER CLAIM OF HE ASSESSEE WAS THAT THE INVESTMENTS WERE MADE THROUGH PORTFOLIO MANAGEMENT SERVICES TO WHICH PMS FEES OF RS.26,01,0 54/- WAS PAID, WHICH HAS BEEN DISALLOWED IN THE HANDS OF THE ASSESSEE. ANOTH ER CONTENTION RAISED BY THE ITA NOS. 6576/MUM/2011 7282/MUM/2011 ASSESSMENT YEAR 2008-09 7 ASSESSEE WAS THAT BEFORE APPLYING THE PROVISION OF SECTION 14A OF THE ACT, THE REQUIREMENT UNDER SUB SECTION 2 OF THE SAID SECTION , IS THAT THE AO HAS TO RECORD DISSATISFACTION VIS--VIS THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE RELATABLE TO INCOME, WHICH DOES NOT FORM PART OF TH E TOTAL INCOME UNDER THE ACT. 14. WE FIND THAT SIMILAR ISSUE AROSE BEFORE THE TR IBUNAL IN STOCK HOLDING CORPORATION OF INDIA PVT. LTD. VS. ACIT IN ITA NO. 5348/MUM/2013 RELATING TO ASSESSMENT YEAR 2009-10. THE TRIBUNAL VIDE ORDER DA TED 10.06.2015 HELD AS UNDER:- 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE ARISING BEFORE US IS IN RELATION TO APPLICATI ON OF THE PROVISIONS OF SECTION 14A OF THE I.T. ACT AND RULE 8D OF THE I.T. RULES. SECTION 14A LAYS DOWN THAT WHILE COMPUTING THE TOTAL INCOME IN THE HANDS OF THE ASSESSEE, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN EARNING SUCH INCOME, WH ICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. IN OTHER WO RDS, THE EXPENDITURE RELATING TO THE INCOME, WHICH IS EXEMPT FROM TAX IS NOT TO BE ALLOWED AS A DEDUCTION UNDER SECTION 14A OF THE ACT. SUBSECTIO N 2 TO THE SECTION PROVIDES THAT THE AO SHALL DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME, WHICH DOES NOT FORM PART OF TOTAL INCOME UNDER THE ACT, IN ACCORDANCE WITH SUCH METHO D AS MAY BE PRESCRIBED. IT IS FURTHER PROVIDED THAT IF THE AO H AVING REGARD TO THE FACTS OF THE ASSESSEE, IS NOT SATISFIED WITH THE C ORRECTNESS OF THE CLAIM OF THE ASSESSEE, IN RESPECT OF SUCH EXPENDITURE, IN RELATION TO INCOME WHICH DO NOT FORM PART OF THE TOTAL INCOME, THEN SU CH DISALLOWANCE HAS TO BE WORKED OUT. IN OTHER WORDS, BEFORE RELYING TO THE PROVISIONS OF RULE 8D PROVIDED UNDER THE INCOME TAX RULES, WHICH PRESCRIBES THE METHOD OF CALCULATING THE EXPENDITURE RELATABLE TO THE EXEMPT INCOME, WHICH IS TO BE DISALLOWED IN THE HANDS OF THE ASSES SEE, THERE IS ANOTHER CONDITION LAID UPON THE AO. THE AO HAS TO FIRST REC ORD HIS SATISFACTION THAT THE CLAIM OF THE ASSESSEE IN RESPECT OF THE EX PENDITURE RELATABLE TO EXEMPT INCOME IS NOT CORRECT AND AFTER RECORDING SU CH SATISFACTION THE AO IS TO DETERMINE THE AMOUNT OF EXPENDITURE WHICH IS TO BE EXCLUDED WHILE ASSESSING THE INCOME IN THE HANDS OF THE ASSE SSEE, WHICH IS EXEMPT FROM THE PROVISIONS OF THE ACT. SUCH NON-FUL FILLMENT OF RECORDING SATISFACTION IN TURN IS HELD TO VITIATE THE ORDER O F THE AO IN DISALLOWING EXPENDITURE UNDER THE PROVISIONS OF SECTION 14A OF THE ACT. 9. THE HON'BLE SUPREME COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. (SUPRA) HAD LAID DOWN THE FOLLOWING PROPOS ITION VIS-A-VIS SUBSECTION 2 TO SECTION 14A OF THE ACT: - HENCE, SUB-S. (2) DOES NOT IPSO FACTO ENABLE THE A O TO APPLY THE METHOD PRESCRIBED BY THE RULES STRAIGHTAWAY WITHOUT CONSIDERING WHETHER THE CLAIM MADE BY THE ASSESSEE IN RESPECT O F THE EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DO ES NOT FORM PART OF THE TOTAL INCOME IS CORRECT. THE AO MUST, IN THE FIRST INSTANCE, DETERMINE WHETHER THE CLAIM OF THE ASSESSEE IN THAT REGARD IS ITA NOS. 6576/MUM/2011 7282/MUM/2011 ASSESSMENT YEAR 2008-09 8 CORRECT AND THE DETERMINATION MUST BE MADE HAVING R EGARD TO THE ACCOUNTS OF THE ASSESSEE. THE SATISFACTION OF THE A O MUST BE ARRIVED AT ON AN OBJECTIVE BASIS. IT IS ONLY WHEN T HE AO IS NOT SATISFIED WITH THE CLAIM OF THE ASSESSEE, THAT THE LEGISLATURE DIRECTS HIM TO FOLLOW THE METHOD THAT MAY BE PRESCRIBED. IN A SITUATION WHERE THE ACCOUNTS OF THE ASSESSEE FURNISH AN OBJEC TIVE BASIS FOR THE AO TO ARRIVE AT A SATISFACTION IN REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE OF THE EXPENDITURE WHICH HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME, THERE WOULD BE NO WARRANT FOR TAKING RECOURSE TO TH E METHOD PRESCRIBED BY THE RULES . (UNDERLINE PROVIDED BY US). 10. THE HON'BLE BOMBAY HIGH COURT IN THE CASE GODRE J & BOYCE MFG. CO. LTD., WHILE CONCLUDING THE DISCUSSION ON VARIOU S ASPECT OF THE CASE, FURTHER OBSERVED AS UNDER:- ........... (VIII) SUB-S. (2) OF S. 14A DOES NOT ENABLE THE AO TO APPLY THE METHOD PRESCRIBED BY R. 8D WITHOUT DETERMINING IN THE FIRS T INSTANCE THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE, HAVING RE GARD TO THE ACCOUNTS OF THE ASSESSEE. SUB-S. (2) OF S. 14A MAND ATES THAT IT IS ONLY WHEN HAVING REGARD TO THE ACCOUNTS OF THE ASSE SSEE, THE AO IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF EXPENDITURE INCURRED IN RELATION TO INCO ME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT, THAT H E CAN PROCEED TO MAKE A DETERMINATION UNDER THE RULES; (IX) THE SATISFACTION ENVISAGED BY SUB-S. (2) OF S. 14A IS AN OBJECTIVE SATISFACTION THAT HAS TO BE ARRIVED AT BY THE AO HA VING REGARD TO THE ACCOUNTS OF THE ASSESSEE. THE SAFEGUARD INTRODUCED BY SUB-S. (2) OF S. 14A FOR A FAIR AND REASONABLE EXERCISE OF POWER BY THE AO, CONDITIONED AS IT IS BY THE REQUIREMENT OF AN OBJEC TIVE SATISFACTION, MUST, THEREFORE, BE SCRUPULOUSLY OBSERVED. AN OBJEC TIVE SATISFACTION CONTEMPLATES A NOTICE TO THE ASSESSEE, AN OPPORTUNI TY TO THE ASSESSEE TO PLACE ON RECORD ALL THE RELEVANT FACTS INCLUDING HIS ACCOUNTS AND RECORDING OF REASONS BY THE AO IN THE EVENT THAT HE COMES TO THE CONCLUSION THAT HE IS NOT SATISFIED WI TH THE CLAIM OF THE ASSESSEE; 11. THE HON'BLE BOMBAY HIGH COURT IN TAIKISHA ENGI NEERING INDIA LTD. (SUPRA) HELD AS UNDER: - SECTION 14A OF THE ACT POSTULATES AND STATES THAT NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY AN AS SESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. UNDER SUB SECTION (2) TO SECTION 14A OF THE ACT, THE ASSE SSING OFFICER IS REQUIRED TO EXAMINE THE ACCOUNTS OF THE ASSESSEE AND ONLY WH EN HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF EXPENDITURE IN RELATION TO EXEMPT INCOME, THE ASSES SING OFFICER CAN DETERMINE THE AMOUNT OF EXPENDITURE WHICH SHOULD BE DISALLOWED IN ACCORDANCE WITH SUCH METHOD AS PRESCRIBED, I.E. RUL E 8D OF THE RULES (QUOTED AND ELUCIDATED BELOW). THEREFORE, THE ASSES SING OFFICER AT THE FIRST INSTANCE MUST EXAMINE THE DISALLOWANCE MADE B Y THE ASSESSEE OR THE CLAIM OF THE ASSESSEE THAT NO EXPENDITURE WAS I NCURRED TO EARN THE ITA NOS. 6576/MUM/2011 7282/MUM/2011 ASSESSMENT YEAR 2008-09 9 EXEMPT INCOME. IF AND ONLY IF THE ASSESSING OFFICER IS NOT SATISFIED ON THIS COUNT AFTER MAKING REFERENCE TO THE ACCOUNTS, THAT HE IS ENTITLED TO ADOPT THE METHOD AS PRESCRIBED I.E. RULE 8D OF THE RULES. THUS, RULE 8D IS NOT ATTRACTED AND APPLICABLE TO ALL ASSESSEE WHO HAVE E XEMPT INCOME AND IT IS NOT COMPULSORY AND NECESSARY THAT AN ASSESSEE MU ST VOLUNTARILY COMPUTE DISALLOWANCE AS PER RULE 8D OF THE RULES. W HERE THE DISALLOWANCE OR NIL DISALLOWANCE MADE BY THE ASSE SSEE IS FOUND TO BE UNSATISFACTORY ON EXAMINATION OF ACCOUNTS, THE ASSE SSING OFFICER IS ENTITLED AND AUTHORISED TO COMPUTE THE DEDUCTION UN DER RULE 8D OF THE RULES. THIS PRE-CONDITION AND STIPULATION AS NOTICE D BELOW IS ALSO MANDATED IN SUB RULE (1) TO RULE 8D OF THE RULES. 12. THE HON'BLE HIGH COURT IN THE CASE OF TAIKISHA ENGINEERING INDIA LTD. FURTHER UPHELD THE RATIO LAID DOWN BY THE HON' BLE DELHI HIGH COURT IN MAXOPP INVESTMENT LTD. (SUPRA) THAT ON SIMILAR P ROPOSITION THAT UNDER SUB-SECTION 2 OF SECTION 14A OF THE ACT, THE AO IS REQUIRED TO DETERMINE THE AMOUNT OF SUCH EXPENDITURE ONLY IF TH E AO, HAVING REGARD TO THE ACCOUNTS OF ASSESSEE, IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITUR E, IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TAXABLE INCO ME. 13. NOW COMING TO THE FACTS OF THE PRESENT CASE ASS ESSEE, DURING THE YEAR UNDER CONSIDERATION, HAD RECEIVED DIVIDEND INC OME OF ` 81,80,792/- WHICH WAS 28% OF ITS TOTAL INCOME OF ` 27,48,09,826/-. ASSESSEE WAS MAINTAINING SEPARATE TREASURY AND STT DEPARTMENT FO R LOOKING AFTER ITS INVESTMENTS AND ASSESSEE COMPUTED THE DISALLOWANCE WHICH WAS RELATABLE TO EARNING OF PRESENT INCOME. THE DETAILE D WORKING OF THE EXPENSES SHOWS THAT AN AMOUNT OF ` 19.72 LAKHS ARE ATTRIBUTABLE TO THE EXEMPT INCOME EARNED BY THE ASSESSEE (RECORD PLACED AT PAGES 44 TO 46 OF THE PAPER BOOK). IN VIEW OF THE DETAILED WORKING GIVEN BY THE ASSESSEE AND FOLLOWING THE RATIO LAID DOWN BY THE H ON'BLE BOMBAY HIGH COURT IN GODREJ & BOYCE MFG. CO. LTD. (SUPRA) AND BY THE HON'BLE DELHI HIGH COURT IN THE CASE TAIKISHA ENGINEERING I NDIA LTD. AND MAXOPP INVESTMENT LTD. BEFORE APPLYING THE PROVISIO NS OF RULE 8D OF THE I.T. RULES, THE AO WAS DUTY BOUND TO RECORD HIS DIS SATISFACTION THAT THE WORKING OF THE DISALLOWANCE MADE BY THE ASSESSEE UN DER SECTION 14A OF THE ACT WAS INCORRECT. A PERUSAL OF THE ASSESSME NT ORDER REFLECTS THAT NO SUCH DISSATISFACTION WAS RECORDED BY THE AO AND IN VIEW THEREOF THE PROVISIONS OF SECTION 14A(2) OF THE ACT HAD NOT BEE N APPLIED AND ACCORDINGLY WE FIND NO MERIT IN THE DISALLOWANCE MA DE BY THE AO UNDER SECTION 14A(2) OF THE ACT READ WITH RULE 8D WITHOUT RECORDING DISSATISFACTION THAT THE WORKING MADE BY THE ASSESS EE VIS--VIS THE EXPENDITURE WHICH IS TO BE DISALLOWED UNDER SECTION 14A OF THE ACT WAS INCORRECT. ANOTHER ASPECT TO BE NOTED IN THE CASE I S THAT THE TRIBUNAL IN ASSESSEES OWN CASE HAD THOUGH ACCEPTED THE PROPOSI TION THAT AO IN STRAIGHTAWAY APPLYING RULE 8D WITHOUT RECORDING OBJ ECTIVE SATISFACTION THAT THE WORKING OF THE ASSESSEE WAS NOT CORRECT, C ANNOT BE APPRECIATED. HOWEVER, THE ISSUE WAS SET ASIDE TO TH E FILE OF THE AO AS THE ASSESSEE HAD DEVIATED FROM THE FORMULA CONSISTE NTLY ADOPTED IN EARLIER YEARS AND IT ADOPTED A NEW FORMULA FOR WORK ING OUT THE DISALLOWANCE. THE ASSESSEE IN THE EARLIER YEAR HAD DISALLOWED THE EXPENDITURE TO THE EXTENT OF 40%. HOWEVER, IN THE P RECEDING YEAR THE DISALLOWANCE WAS MADE AT 32% AND IN THE YEAR IN APP EAL BEFORE US THE DISALLOWANCE HAS BEEN COMPUTED @ 28% OF THE RELATED EXPENDITURE. THE EXPLANATION OF THE ASSESSEE IN THIS REGARD WAS THAT THE PERCENTAGE OF ITA NOS. 6576/MUM/2011 7282/MUM/2011 ASSESSMENT YEAR 2008-09 10 EXPENDITURE DISALLOWED BY THE ASSESSEE WAS IN RELAT ION TO THE PERCENTAGE OF EXEMPT INCOME EARNED BY THE ASSESSEE VIS--VIS THE TOTAL RECEIPTS FOR EACH YEAR OF ASSESSMENT. IN VIEW OF TH E FACT THAT ASSESSEE HAVING EXPLAINED THE BASIS FOR ADOPTING THE AFORESA ID FORMULA BEFORE US IN THE INSTANT ASSESSMENT YEAR, WE FIND NO MERIT IN SETTING ASIDE THE SAID ISSUE TO THE FILE OF THE AO. ACCORDINGLY WE HO LD THAT WHERE THE AO HAS NOT RECORDED HIS SATISFACTION WITH THE WORKING OF THE ASSESSEE VIS- -VIS THE EXPENDITURE RELATABLE TO EARNING EXEMPT I NCOME, BEING NOT CORRECT, THEN THE DISALLOWANCE WORKED OUT BY THE AO UNDER THE PROVISIONS OF SECTION 14A READ WITH RULE 8D CANNOT BE UPHELD. ACCORDINGLY THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. 15. THE ISSUE ARISING BEFORE US IS IDENTICAL TO THE ISSUE BEFORE THE TRIBUNAL IN STOCK HOLDING CORPORATION OF INDIA PVT. LTD VS. ACI T (SUPRA). IN THE FACTS OF THE PRESENT CASE ALSO THE AO, HAS FAILED TO RECORD THE DISSATISFACTION THAT THE WORKING OF THE DISALLOWANCE MADE BY THE ASSESSEE AG AINST THE INCOME EXEMPT FROM TAX, UNDER SECTION 14A OF THE ACT, WAS INCORRE CT. IN VIEW THEREOF THE PROVISION OF SECTION 14A(2) OF THE ACT HAVE NOT BEE N CORRECTLY APPLIED BY THE AO AND ACCORDINGLY WE FIND NO MERIT IN THE ORDER OF THE AUTHORITIES BELOW IN THIS REGARD. 16. THE LD. DR FOR THE REVENUE ON THE OTHER HAND HA D PLACED RELIANCE ON THE ORDER OF THE TRIBUNAL (SUPRA) IN ASSESSEES OWN CAS E RELATING TO ASSESSMENT YEAR 2006-07, WHEREIN THE MATTER WAS RESTORED TO THE FIL E OF THE AO TO MAKE SUITABLE DISALLOWANCES. IT MAY BE POINTED THAT THE SAID DECI SION WAS RENDERED BY THE TRIBUNAL IN VIEW OF THE RATIO LAID DOWN BY THE HON BLE BOMBAY HIGH COURT IN GODREJ & BOYCE MANUFACTURING COMPANY LTD. VS. ACIT (SUPRA), SINCE, THE ORIGINAL PROVISION OF RULE 8D WERE NOT APPLICABLE P RIOR TO ASSESSMENT YEAR 2008-09. HOWEVER, THE HONBLE BOMBAY HIGH COURT AS REFERRED TO BY US IN THE PARAS HEREINABOVE HAD LAID DOWN THE PROPOSITION THA T THE SATISFACTION REQUIRED UNDER SUBSECTION 2 OF SECTION 14A IS AN OBJECTIVE S ATISFACTION, THAT HAS TO BE ARRIVED AT BY THE AO, HAVING REGARD T THE ACCOUNTS OF THE ASSESSEE. IT WAS FURTHER HELD BY THE HONBLE BOMBAY HIGH COURT THAT SUCH EXE RCISE OF POWER MUST BE SCRUPULOUSLY OBSERVED. IT WAS FURTHER HELD BY THE H ONBLE BOMBAY HIGH COURT ITA NOS. 6576/MUM/2011 7282/MUM/2011 ASSESSMENT YEAR 2008-09 11 IN TAIKISHA ENGINEERING INDIA LTD. (SUPRA) THAT THE AO AT THE FIRST INSTANCE MUST EXAMINE THE DISALLOWANCE MADE BY THE ASSESSEE OR TH E CLAIM OF THE ASSESSEE THAT NO EXPENDITURE WAS INCURRED TO EARN THE EXEMPT INCO ME. IF THE ASSESSING OFFICER IS NOT SATISFIED ON THIS COUNT AFTER MAKING REFEREN CE TO THE ACCOUNT, THEN HE IS ENTITLE TO ADOPT THE METHOD AS PRESCRIBED I.E. RULE 8D OF THE RULES. IN THE ABSENCE OF SAID SATISFACTION BEING REFERRED BY THE AO IN THE PRESENT CASE, WE FIND NO MERIT IN THE DISALLOWANCE MADE BY THE AO UN DER SECTION 14A OF THE ACT. ACCORDINGLY, WE DELETE THE DISALLOWANCE OF RS.10,24 ,681/-, THOUGH THE ASSESSEE HAS RAISED GROUND OF APPEAL AGAINST THE DISALLOWANC E OF RS.11,23,626/-, OUT OF WHICH THE CIT(A) HAD ALREADY ALLOWED THE EXPENDITUR E OF RS.98,945/- . GROUND OF APPEAL NO. 2 RAISED BY THE ASSESSEE IS THUS ALLO WED. 17. NOW COMING TO THE ISSUE IN GROUND OF APPEAL NO. 3 RAISED BY THE ASSESSEE AGAINST AD HOC DISALLOWANCE OF 5% MADE OUT OF VARIO US EXPENSES. THE AO ON THE VERIFICATION OF THE DETAILS FURNISHED BY THE AS SESSEE NOTED THAT MAJORITY OF EXPENSES HAD BEEN CLAIMED BY THE ASSESSEE IN CASH A ND PERSONAL ELEMENT WAS VERY MUCH EXISTENT. IT WAS FURTHER HELD BY THE AO T HAT THE CLAIMS DO NOT APPEAR TO BE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUS INESS. THE AO FURTHER STATED THAT THE DISALLOWANCE WAS OVER AND ABOVE FRINGE BEN EFIT COMPUTED SEPARATELY. THE AO THEREAFTER DISALLOWED 5% OUT OF VARIOUS EXPE NDITURE AS DETAILED UNDER PARA 6.1 AT PAGE 9 OF THE APPELLATE ORDER, WHICH IS BEING REFERRED TO, BUT NOT BEING REPRODUCED FOR THE SAKE OF BREVITY. 18. BEFORE THE CIT(A) THE ASSESSEE FURNISHED DETAIL ED WRITTEN SUBMISSION AND POINTED OUT THAT THE FBT WAS PAID ON FURTHER EXPENS ES, WHICH HAVE NOT BEEN CONSIDERED BY THE AO. THE TABULATION DETAILS FILED BY THE ASSESSEE IN THIS REGARD ARE AT PAGE 10 OF THE APPELLATE ORDER WHICH ARE BEI NG REFERRED, BUT NOT REPRODUCED FOR THE SAKE OF BREVITY. ITA NOS. 6576/MUM/2011 7282/MUM/2011 ASSESSMENT YEAR 2008-09 12 19. THE CIT(A) IN VIEW THEREOF HELD THAT THE EXPEND ITURE ON WHICH FBT WAS PAID IS TO BE ALLOWED AS BUSINESS EXPENDITURE AND O N BALANCE EXPENDITURE OF RS.22,29,005/- WHICH WAS NOT COVERED BY FBT, 5% OF THE SAME WAS DISALLOWED AT RS1,11,450/-. 20. THE ASSESSEE IS APPEAL AGAINST THE AFORESAID DI SALLOWANCE. THE PERUSAL OF THE DETAILS REFLECT THAT THE SAID DISALLOWANCE OF 5 % HAS BEEN MADE OUT OF CORPORATE INCENTIVE OF RS.1,79,490/- ENTERTAINMENT EXPENSES OF RS.5,719/-, FOOD & BEVERAGE AT OFFICE OF RS.3,57,091/-, MISCELLANEOU S EXPENSES OF RS.3,29,614/-, MOTOR VEHICLE EXPENSES RS.1,39,190/- AND REPAIR AND MAINTENANCE OF RS.9,24,901/-. THE REASON FOR MAKING THE DISALLOWAN CES WAS EXPENDITURE HAVING BEEN INCURRED IN CASH AND NOT BEING SUPPORTED BY PR OPER VOUCHERS AND ALSO BEING INCURRED FOR NON BUSINESS PURPOSE. 21. THE ASSESSEE BEFORE US HAS FAILED TO BRING ON RECORD ANY EVIDENCE TO CONTROVERT THE FINDING OF THE AO/CIT(A) IN THIS REG ARD. ACCORDINGLY, WE UPHOLD THE DISALLOWANCE OF 5% OF EXPENDITURE OUT OF BALANC E EXPENSES OF RS.22,29,005/-. THE GROUND OF APPEAL NO. 3 RAISED B Y THE ASSESSEE IS DISMISSED. 22. THE ISSUE IN GROUND OF APPEAL NO. 4 IS AGAINST THE DISALLOWANCE OF DEPRECIATION ON RESIDENTIAL PREMISES OF RS.7,91,136 /- THE CLAIM OF THE ASSESSEE BEFORE THE AUTHORITIES BELOW WAS THAT IT HAD PROVID ED THE SAID RESIDENTIAL PREMISES BUT ITS EMPLOYEES WHO WERE WORKING WITH TH E ASSESSEE FOR THE PAST SEVERAL YEARS. THE AO FURTHER, DENIED THE SAID CLAI M OF THE ASSESSEE AS NO EVIDENCE WAS PRODUCED BY THE ASSESSEE IN SUPPORT TH EREOF. THE CIT(A) ALSO UPHELD THE ORDER OF CIT(A) FOR THE ABSENCE OF ANY E VIDENCE HAVING BEEN FILED BY THE ASSESSEE MERELY BECAUSE DEPRECIATION WAS ALLOWE D IN THE EARLIER YEARS, WAS DENIED TO THE ASSESSEE IN THE PRESENT YEAR IN THE A BSENCE OF ANY DETAILS. THE ASSESSEE IS IN APPEAL AGAINST THE SUCH DISALLOWANCE OF DEPRECIATION ON RESIDENTIAL BUILDING, WHICH IS CLAIMED TO BE BEING USED BY THE EMPLOYEES OF THE ASSESSEE. ITA NOS. 6576/MUM/2011 7282/MUM/2011 ASSESSMENT YEAR 2008-09 13 SIMILAR ISSUE OF CLAIM OF DEPRECIATION ON THE SAID ASSET AROSE IN ASSESSMENT YEAR 2001-02 WHEREIN THE PREMISES WERE ALLOTTED TO ONE OF THE EMPLOYEE OF THE ASSESSEE FIRM AND DEPRECIATION ON THE SAID ASSET WA S ALLOWED BY THE AO VIDE ORDER PASSED UNDER SECTION 143(3) OF THE ACT, DATED 19.02.2004, THE SAID RESIDENTIAL FLAT IS AS PER ASSESSEE, STILL BEING US ED BY THE EMPLOYEES AND THE PER QUEST ON ACCOUNT OF THE SAID RESIDENTIAL ACCOMMODAT ION IS ADDED IN THE HANDS OF THE EMPLOYEES. THE CLAIM OF THE ASSESSEE WAS DENIED BY THE AUTHORITIES BELOW IN THE ABSENCE OF THE PARTICULARS OF THE PERSON HAVING NOT BEEN PROVIDED BY THE ASSESSEE. IN ALL FAIRNESS WE ARE OF THE VIEW THAT T HE MATTER NEEDS TO BE LOOKED INTO BY THE AO, IN ORDER TO VERIFY CLAIMS OF THE AS SESSEE. FOLLOWING THE PRINCIPLES OF NATURAL JUSTICE WE MAY IT FIT DEEM T O THE RESTORE THIS ISSUE BACK TO THE FILE OF THE AO TO VERIFY THE NAMES OF THE EMPLO YEES TO WHOM THE PREMISES HAVE BEEN ALLOTTED AND IN WHOSE HANDS THE PERK HAS BEEN OFFERED. REASONABLE OPPORTUNITY OF HEARING SHALL BE AFFORDED TO THE ASS ESSEE. THE GROUND OF APPEAL NO. 4 RAISED BY THE ASSESSEE IS THUS ALLOWED FOR ST ATISTICAL PURPOSES. ITA NO. 6576/MUM/2011 23. THE ONLY ISSUE RAISED IN THE PRESENT APPEAL IS AGAINST THE DELETION OF ADDITION OF RS.1,20,40,838/-. 24. BRIEFLY IN THE FACTS RELATING TO THE ISSUE, THE AO RECEIVED CERTAIN AIR INFORMATION AS PER WHICH TWO PROPERTIES WORTH RS.60 ,20,400/- AND RS.60,20,438/- WERE SOLD BY THE ASSESSEE. HOWEVER, THE ASSESSEE HAD NOT DISCLOSED THE SAID TRANSACTION IN ITS RETURN OF INC OME, HENCE THE ASSESSEE WAS SHOW CAUSED TO EXPLAIN SAID TRANSACTION. THE ASSESS EE CLAIMED THAT IT HAD NOT ENTERED INTO ANY SUCH SALE OF THE PROPERTY AND IT W AS POINTED OUT THAT HE WOULD GET THE NECESSARY DETAILS FROM THE OFFICE OF THE SU B-REGISTRAR. HOWEVER, IN THE ABSENCE OF ANY DETAILS BEING FILED BY THE ASSESSEE, THE AO HELD THAT SIMPLE DENIAL OF THE TRANSACTION WOULD NOT SERVE THE PURPO SE. IN VIEW THEREOF THE AO ITA NOS. 6576/MUM/2011 7282/MUM/2011 ASSESSMENT YEAR 2008-09 14 TREATED THE SALE PROCEEDS AMOUNTING TO RS.1,20,40,8 38/- AS SHORT TERM CAPITAL GAINS. NO DEDUCTION WAS ALLOWED ON ACCOUNT OF COST OF ACQUISITION, IN THE ABSENCE OF ANY DETAILS. 25. BEFORE THE CIT(A) THE ASSESSEE FURNISHED WRITTE N SUBMISSIONS WHICH ARE INCORPORATED UNDER PARA 5.2 IN WHICH THE ASSESSEE E XPLAINED THAT IT HAD NOT SOLD ANY PROPERTY BUT IN TURN HAD PURCHASED TWO FLATS FR OM TWO DIFFERENT PERSONS AND THE ADVANCE MADE TO SAID PERSONS WERE DECLARED IN T HE BALANCE SHEET AT THE CLOSE OF THE YEAR. HOWEVER, THE SAID FLATS WERE CAP ITALIZED IN THE YEAR WHEN FULL INSTALLMENTS WERE PAID AND WERE PUT TO USE I.E. IN FINANCIAL YEAR 2010-11. THE CIT(A) ADMITTED THE EVIDENCE FILED BY THE ASSESSEE AND OBSERVED AS UNDER:- 5.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE, ARGUMENTS OF THE ASSESSING OFFICER AND THE WRITTEN SUBMISSIONS OF TH E AUTHORIZED REPRESENTATIVE OF THE APPELLANT. I FIND THAT APPELL ANT HAD MADE PURCHASES OF FLATS WHICH WERE DULY DISCLOSED IN BAL ANCE SHEET. APPELLANT WAS NOT GIVEN OPPORTUNITY TO GATHER AND P RODUCE THESE EVIDENCE AS IT WAS THE LAST MONTH OF TIME BARRING D ATE FOR ASSESSMENT. THEREFORE THIS EVIDENCE HAS TO BE ADMITTED. BOTH TH E PROPERTIES ARE DISCLOSED UNDER THE HEAD ADVANCES TO FINESTONE REAT ORS PVT. LTD. (RS.38,29,568/- AND TO RICHA REALTORS PVT. LTD. (RS .77,78,996/-) BEING THE ACTUAL AMOUNT PAID TO THE BUILDERS ON THE LAST DATE OF FINANCIAL YEAR. ALTHOUGH THE PROPERTIES WERE REGISTERED DURING THE YEAR THEY WERE CAPITALIZED AS ASSETS IN LATER YEARS. THE AGREEMENT VALUE AND AIR DATA TALLY. THEREFORE THE PURCHASES ARE NOT UNEXPLAINED. THE ADDITION OF RS.1,20,40,838/- RELATING TO UNDISCLOSED CAPITAL GA IN IS DELETED. THIS GROUND OF APPEAL IS ALLOWED. 26. THE REVENUE IS IN APPEAL AGAINST THE SAID ORDER OF THE CIT(A) AND IS ALSO AGGRIEVED BY THE ADMISSION OF THE ADDITIONAL EVIDEN CE. 27. THE LD. DR FOR THE REVENUE POINTED OUT THAT THE INFORMATION WAS WITH THE ASSESSING OFFICER ON ACCOUNT OF THE AIR INFORMA TION. THE LD. AR FOR THE ASSESSEE PLACED RELIANCE ON THE EXPLANATION FILED B EFORE THE CIT(A) AND ALSO THE ORDER OF THE CIT(A). ITA NOS. 6576/MUM/2011 7282/MUM/2011 ASSESSMENT YEAR 2008-09 15 28. WE HAVE HEARD RIVAL CONTENTION AND PERUSED THE RECORD. THE AO PURSUANT TO THE AIR INFORMATION RECEIVED SHOW CAUSED THE ASS ESSEE TO EXPLAIN THE SALE OF TWO PROPERTIES WORTH RS.60,20,400/- AND 60,20,438/- THE ASSESSEE DENIED TO HAVE SOLD ANY PROPERTY. BUT THE AO DID NOT ACCEPT T HE DENIAL MADE BY THE ASSESSEE AND MADE THE SAID ADDITION IN THE HANDS OF THE ASSESSEE AS INCOME FROM SHORT TERM CAPITAL GAINS. ON THE OTHER HAND, THE AS SESSEE SOUGHT INFORMATION FROM THE OFFICE OF SUB-REGISTRAR AND AFTER RECEIVIN G THE SAID INFORMATION, THE ASSESSEE REALIZED THAT THE TRANSACTIONS WERE RELATE D TO PURCHASE OF PROPERTIES. THE ASSESSEE FURTHER EXPLAINED THAT THE AMOUNT PAID FOR THE PURCHASE OF THE AFORESAID PROPERTIES WAS SHOWN AS ADVANCE TO THE RE SPECTIVE PARTIES IN ITS BOOKS OF ACCOUNT. HOWEVER, SINCE THE SALE DEED WAS EXECUT ED ON A VALUE OTHER THAN THE PURCHASED VALUE AS PER THE AGREEMENT, THE SAME COUL D NOT BE RECONCILED BEFORE THE AO. THE EXPLANATION OF THE ASSESSEE IN RESPECT OF THE SAID INVESTMENT MADE BEFORE THE CIT(A) WAS AS UNDER:- IN THIS CONNECTION THE APPELLANT SUBMIT THAT IT HA S NOT SOLD ANY IMMOVABLE PROPERTY AS SPECIFIED IN THE AIR. THE APP ELLANT HAS NOW OBTAINED THE DETAILS FROM THE SUB REGISTRAR MUMBAI. ON GETTING THE DETAILS IT WAS FOUND THAT THE TRANSACTIONS REFERRED IN AIR RELATES TO PURCHASE OF PROPERTIES FROM M/S FINETONE REALTORS P VT. LTD AND M/S. RICHA REAL ORS PVT. LTD. THE APPELLANT SUBMITS THAT IT HAS PURCHASED THE FLA T NO.1601 IN BUILDING GARDEN COURT FROM M/S. FINETONE REALTORS P VT. LTD. VIDE AGREEMENT DT.30TH JUNE,2007 (COPY ENCLOSED). THE AP PELLANT HAS REGISTERED THE ABOVE AGREEMENT WITH JOINT SUB REGIS TRAR, MUMBAI 0 4.07.2007. THE STAMP DUTY VALUE OF ABOVE FLAT WAS R S.60,20,438/- WHEREAS E PURCHASE VALUE AS PER AGREEMENT WAS RSA5, 05,6001-. THE APPELLANT PAID THE STAMP DUTY OF RS.285,2001- ON ST AMP DUTY VALUE OF FLAT. AS THE STAMP DUTY VALUE OF FLAT IS MORE THAN THE AGREEMENT VALUE, THE STAMP DUTY VALUE OF FLAT OF RS.60,40,438/- WAS DISCLOSED BY THE JOINT SUB REGISTRAR IN ANNUAL INFORMATION REPORT FILED BY THEM WITH IT AUTHORITIES. THE APPELLANT SUBMIT THAT IT HAS PURCHASED ABOVE FL AT FROM FINETONE REALTORS PVT. LTD FOR TOTAL CONSIDERATION OF RS.45, 05,6001-. TILL THE FINANCIAL YEAR ENDED 31ST MARCH, 2008 E APPELLANT H AS PAID 38,29,568/- FOR PURCHASE OF ABOVE PROPERTY. THE APP ELLANT ENCLOSE ITA NOS. 6576/MUM/2011 7282/MUM/2011 ASSESSMENT YEAR 2008-09 16 HEREWITH LEDGER ACCOUNT OF M/S. FINETONE REALTORS P VT. LTD FOR F.Y.2005-06 TO 2010 - 1 IN THE BOOKS OF APPELLANT. THIS PAYMENT WAS SHOWN AS 'OTHER ADVANCES' IN THE BALANCE SHEET OF A PPELLANT FOR F.Y.2007-08. SUBSEQUENTLY AFTER MAKING FULL PAYMENT AND WHEN THE ABOVE PREMISES WAS PUT TO USE THE APPELLANT HAS CAP ITALIZED THE SAME IN F.Y.2010- 11. THE TOTAL AMOUNT CAPITALIZED IN BOOKS OF ACCOUNTS IN F.Y. 2010-11 IS AS UNDER: PARTICULARS AMOUNT (RS.) COST OF FLAT 45,05,600 STAMP DUTY 2,85,200 REGISTRATION FEES 31,260 LEGAL CHARGES 15,000 SHARES 500 ENTRANCE FEES 100 ELECTRIC AND WATER METER 10,00 0 TOTAL AMOUNT CAPITALIZED 48,47660 SIMILARLY THE APPELLANT HAS PURCHASED THE FLAT NO. 4 IN BUILDING GANDHAR FROM M/S. RICHA REALTORS PVT. LTD VIDE AGRE EMENT DT.16TH APRIL,2007. THE APPELLANT HAS REGISTERED THE ABOVE AGREEMENT WITH JOINT SUB REGISTRAR, MUMBAI ON 16.04.2007. THE STAM P DUTY VALUE OF ABOVE FLAT WAS RS.49,94,082/- WHEREAS THE PURCHASE VALUE AS PER AGREEMENT WAS RS.60,20,4001-. THE APPELLANT PAID TH E STAMP DUTY OF RS.2,83,7001- ON AGREED PURCHASE VALUE OF FLAT. AS THE PURCHASE VALUE OF FLAT IS MORE THAN THE STAMP DUTY VALUE, THE PURCHAS E VALUE OF FLAT OF RS.60,40,400/- WAS DISCLOSED BY THE JOINT SUB REGIS TRAR IN ANNUAL INFORMATION REPORT FILED BY THEM WITH IT AUTHORITIE S. THE APPELLANT SUBMIT THAT IT HAS PURCHASED ABOVE FL AT FROM M/S RICHA REALTORS PVT. LTD. FOR CONSIDERATION OF RS.60,40,40 0/-. THE APPELLANT ALSO PAID RS.15,05,1 001- TO M/S RICHA REALTORS PVT . LTD FOR OTHER AMENITIES. TILL THE FINANCIAL YEAR ENDED 31 ST MARCH, 2008 THE APPELLANT HAS PAID 77,78,996/- FOR PURCHASE OF ABOVE PROPERTY INCLUDING OTHER AMENITIES. THE APPELLANT ENCLOSE HEREWITH LEDGER AC COUNT OF M/S RICHA REALTORS PVT. LTD FOR F.Y.2006-07 TO 2008 - 09 IN T HE BOOKS OF APPELLANT. THIS PAYMENT WAS SHOWN AS 'OTHER ADVANCES' IN THE B ALANCE SHEET OF APPELLANT FOR F.Y.2007-08.'SUBSEQUENTLY AFTER MAKIN G FULL PAYMENT AND WHEN THE ABOVE PREMISES WAS PUT TO USE THE APPELLAN T HAS CAPITALIZED THE SAME IN F.Y.2008-09. THE TOTAL AMOUNT CAPITALIZ ED IN BOOKS OF ACCOUNTS IN F.Y.2008- 09 IS AS UNDER: PARTICULARS AMOUNT (RS.) ITA NOS. 6576/MUM/2011 7282/MUM/2011 ASSESSMENT YEAR 2008-09 17 COST OF FLAT OTHER AMENITIES STAMP DUTY REGISTRATION FEES ELECTRIC AND WATER METER TOTAL AMOUNT CAPITALIZED 60,20,400 15,05,100 2,83,700 30,000 57,850 78,97,050 29. THE ABOVE SAID INVESTMENTS ARE DISCLOSED BY THE ASSESSEE IN ITS BALANCE SHEET WHICH WAS FILED ALONG WITH THE RETURN OF INCO ME. IN THE TOTALITY OF THE ABOVE SAID FACTS AND CIRCUMSTANCES WHERE THE ASSESE E HAD GATHERED THE INFORMATION FROM THE SUB-REGISTRAR OFFICE, WHICH IN TURN RELATED TO THE PURCHASE OF TWO DIFFERENT PROPERTIES BY THE ASSESSEE WHICH W AS REFLECTED/DISCLOSED IN ITS BALANCE SHEET, WE FIND NO MERIT IN THE ADDITION MAD E IN THE HANDS OF THE ASSESSEE ON ACCOUNT OF UNDISCLOSED CAPITAL GAINS. THE CIT(A) WHICH HAS GIVEN A FINDING THAT THE AGREEMENT VALUE AND THE AIR DATA TALLY, WH ICH HAS NOT BEEN CONTROVERTED BY THE LD. DR FOR THE REVENUE. WE FIND NO MERIT IN THE PLEA OF THE REVENUE IN THIS REGARD. THE EVIDENCE FILED BEFORE T HE CIT(A) WAS THE BALANCE SHEET OF THE ASSESSEE AND THE AGREEMENTS WHICH WERE REGISTERED BY THE SUB- REGISTRAR, MUMBAI WHICH IS A GOVERNMENT RECORD. THE ADMISSION OF SUCH EVIDENCE BY THE CIT(A) CANNOT BE SAID TO BE IN VIOL ATION OF RULE 46A OF I.T. RULES. UPHOLDING THE ORDER OF THE CIT(A), WE DISMIS S THE GROUND OF APPEAL RAISED BY THE REVENUE. 30. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED AND APPEAL OF THE REVENUE IS DISMISSED. SD/- SD/- (R. C. SHARMA) (SUSHMA CHOWLA) ACCOUNTANT MEMBER J UDICIAL MEMBER MUMBAI, DATED: 17.06.2015 *SRIVASTAVA ITA NOS. 6576/MUM/2011 7282/MUM/2011 ASSESSMENT YEAR 2008-09 18 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR E BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.
