CHANAKYA INTERNATIONAL P.LTD, MUMBAI V. DCIT 5(1), MUMBAI

ITA 7376/MUM/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 1745 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-11-2016
• Appeal Filed By: Assessee
• Bench Allotted: C
• Assessment Year: 2008-2009
• Appeal Filed On: 10-12-2014
• Court: TRIBUNAL
• Department Lawyers: BEENA SANTOSH
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI B.R. BASKARAN (AM) & SHRI PAWAN SINGH (JM) I.T.A. NO. 7376 /MUM/ 2014 (ASSESSMENT YEAR 200 8 - 0 9 ) M/S. CHANAKYA INTERNATIONAL PVT. LTD. 218/219 JASWANT INDUSTRIAL ESTATE 63, TARDEO ROAD MUMB AI - 400 034. VS. ADDITIONAL/DCIT RANGE 5(1) AAYAYAR BHAVAN M.K. ROAD MUMBAI - 400 020. ( APPELLANT ) ( RESPONDENT ) PAN NO . AAACC4592Q ASSESSEE BY SHRI PARESH SHAPARIA DEPARTMENT BY MS. BEENA SANTOSH DATE OF HEARING 1 6 .1 1 . 201 6 DATE OF PRONOUNC EMENT 16 . 11 . 201 6 O R D E R PER B.R. BASKARAN (AM) : - THE APP E AL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 3.9.2014 PASSED BY THE LEARNED CIT(A) - 9, MUMBAI AND IT RELATES TO A.Y. 2008 - 09. ASSESSEE IS AGGRIEVED BY THE DECISION OF THE LEARNED CIT(A) IN CONFIRMING THE DISALLOWANCE U/S.14A OF THE ACT. 2. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD. THIS IS THE SECOND ROUND OF PROCEEDING S . IN THE FIRST ROUND , THE TRIBUNAL HAD SET A S IDE THE MATTER TO THE FILE OF ASSESSING OFFICER WIT H THE OBSERVATION THAT THE ASSESSING OFFICER HAS NOT RECORDED ANY DISSATISFACTION ON THE WORKINGS MADE BY THE ASSESSEE IN RESPECT OF DISALLOWANCE TO BE MADE U/S. 14A OF THE ACT. IN THE SET ASIDE PRO CEEDINGS, THE ASSESSING OFFICER SUSTAINED THE VERY SAME DI SALLOWANCE THAT WAS MADE IN THE ORIGINAL ASSESSMENT PROCEEDINGS. THE LEARNED CIT(A) ALSO CONFIRMED THE SAME. HENCE THE ASSESSEE HAS FILED THIS APP E AL BEFORE US. CHANAKYA INTERNATIONAL PVT. LTD. 2 3. LEARNED COUNSEL APPEARING FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS MADE INVESTMENT S UNDER PMS SCHEME AND HENCE P URCHASE AND SALE OF SHARES AND MUTUAL FUNDS ARE BEING MANAGED BY THE PMS AGENT. LEARNED COUNSEL SUBMITTED THAT THE ASSESSEE HAS DISALLOWED TH E DIRECT EXPENSES INCURRED TOWARDS D E MAT CHARGES AND SECURITY TRANSACTION TAX. FURTHER TH E ASSESSEE ESTIMATED THE EXPENSES INCURRED FOR ANY EXEMPT INCOME OF ` 5,18,000/ - , WHICH CONSISTED OF PMS CHARGES AND A PORTION OF ADMINISTRATIVE EXPENSES. HE SUBMITTED THAT THE ASSESSING OFFICER DID NOT FIN D FAULT WITH THE WORKINGS GIVEN BY THE ASSESSEE BUT PROCEEDED TO MAKE THE DISALLOWANCE UNDER RULE 8D(2)(III) OF THE I.T. RULES AT 0.5% AVERAGE VALUE OF INVESTMENT S . LEARNED COUNSEL SUBMITTED THAT MOST OF THE INVESTMENTS HAVE BEEN BROUGHT FORWARD FROM THE EARLIER YEARS. ACCORDINGLY, HE SUBMITTED THAT THE TAX AUTHORITIES WERE NOT JUSTIFIED IN COMPUTING DISALLOWANCE AT 0.5% OF THE AVERAGE VALUE OF THE INVESTMENT S . 4. ON THE CONTRARY, LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY SUPPORTED THE ORD ERS PASSED BY THE TAX AUTHORIT I E S. 5. THE UNDISPUTED FACT R EMAINS THAT THE ASSESSEE HAD CARRIED OUT INVESTMENT ACTIVIT IES THROUGH PMS SCHEME, MEANING THEREBY , THE ASSESSEE DID NOT UTILISE ITS OWN ESTABLISHMENT FOR MAKING INVESTMENTS. WE NOTICE THAT THE ASSESSEE ITSELF HAS DISALLOWED PMS CHARGES OF ` 3,2 0 ,898/ - AND A SUM OF ` 1,97,102/ - OUT OF OTHER EXPENSES. PERUSAL OF THE DETAILS OF INVESTMENT S PLACED AT PAGE NO. 22 & 23 WOULD SHOW THAT MAJOR PORTION OF INVESTMENTS HAVE BEEN BROUGHT FORWARD FROM THE EARLIER YEARS. THIS FACT, IN OUR VIEW , SHOWS THAT THERE IS MERIT IN THE WORKINGS GIVEN BY THE ASSESSEE FOR WORKING OUT THE DISALLOWANCE U/S. 14A OF THE ACT. WE NOTICED THAT THE ASSESSING OFFI CER DID NOT OBJECTIVELY EXAMINE THE METHODOLOGY ADOPTED BY THE ASSESSEE FOR WORKING OUT THE DISALLOWANCE AND INSTEAD HE HAS PROCEE DED TO APPLY THE PROVISION OF RULE 8D(2)(III) OF THE I.T. RULES WITHOUT CONSIDERING THE FACTUAL ASPECT S . WE NOTICED THAT THE LEARNED CIT(A) ALSO CONFIRMED THE DISALLOWANCE WITHOUT EXAMINING THE FACTUAL DETAILS DISCUSSED ABOVE. UNDER THESE SET OF FACTS, WE ARE OF THE VIEW CHANAKYA INTERNATIONAL PVT. LTD. 3 THAT THERE IS NO MERIT IN THE ENHANCEMENT OF DISALLOWANCE MADE BY THE TAX AUTHORITIES BY APPLYING THE PROVISIONS OF RULE 8D(2)(III) . IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE VIEW THAT THE DISALLOWANCE MADE BY THE ASSESSE E APPEARS TO BE REASONABLE. ACCORDINGLY, WE SET ASIDE THE ORDERS PASSED BY THE TAX AUTHORITIES AND DIRECT THE ASSESSING OFFICER TO RESTRICT THE DISALLOWANCE U/S. 14A OF THE ACT TO THE AMOUNT ALREADY WORKED OUT BY THE ASSESSEE. 6. IN THE RESULT, APPEAL F ILED BY THE ASSESSEE IS ALLOWED. ORDER HAS BE EN PRONOUNCED IN THE COURT ON 1 6 .1 1 .2016 SD/ - SD/ - (PAWAN SINGH) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 1 6 / 1 1 / 20 1 6 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, MUMBAI PS