RAPTAKOS BRETT & CO. LTD, MUMBAI V. ADDL CIT 5(3), MUMBAI

ITA 7490/MUM/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 2083 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 10 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-11-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 24-08-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 19-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SIVAJI GHOTE
• Keywords: Earning of tax free income
• Section: 143(3); 14A; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH , MUMBAI BEFORE SRI MAHAVIR SINGH, J M AND SRI RAJESH KUMAR, AM ITA NO. 7490 /MUM/201 3 (A.Y: 20 10 - 11 ) M/S RAPTAKOS BRETT & CO. LTD. 21A MITTAL TOWER, NIRMAN POINT, MUMBAI - 400021 PAN NO. AAACR1772R VS. ADDL CIT(A ) 5(3) ROOM NO. 525B, 5 TH FLOOR, AAYAKAR BHAVAN, MK ROAD, NEW MARINE LINES, MUMBAI - 20 APPELLANT .. RESPONDENT ASSESSEE BY .. RONAK DOSHI , AR REVENUE BY .. SIVAJI GHOTE , SR. DR DATE OF HEARING .. 10 - 11 - 2016 DATE OF PRONOUNCEMENT .. 10 - 1 1 - 2016 O R D E R PER MAHAVIR SINGH , JM : THIS APPEAL BY THE ASSESSEE IS ARISING OU T OF THE ORDER OF CIT (A) - 9 , MUMBAI IN APPEAL NO . CIT (A ) - 9 / DC IT - 5(3)/225/2012 - 13 DATED 24 - 1 0 - 20 1 3 . THE ASSESSMENT WAS FRAMED BY ACIT RANGE - 5(3) , MUMBAI FOR THE AY 20 10 - 11 VIDE ORDER DA TED 26 - 12 - 201 2 UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER THE ACT) . 2. THE ONLY ISSUE IN THIS APPEAL OF ASSESSEE AGAINST THE ORDER OF CIT(A) CONFIRM ING THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING THE EXPENSES RELATABLE TO EXEMPTED INCOME BY INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE INCOME TAX RULES , 1962 (HEREINAFTER THE RULES). 3. BRIEFLY STATED FACTS ARE THAT THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDING NOTICED THAT THE ASSESSE E HAS EARNED DIVIDEND INCOME OF RS.15,26,721/ - AND CLAIM THE SAME AS EXEMPTED U/S 10(34) OF THE ACT, BUT THE EXPENSES TO THE EXTENT OF RS. 75,84,842/ - WAS ATTRIBUTED TOWARDS EXEMPT INCOME. THE ASSESSEE TOOK US THROUGH THE COMPUTATION OF DISALLOWANCE MADE B Y ASSESSING OFFICER U/S 14A OF THE ACT READ WITH RULE 8D RULE AS UNDER: - 2 (I) THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME 58,361 2(II) THE AMOUNT OF INTEREST EXPENDITURE NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT 25,08,560 2(III) AMOUNT @ 0.50% OF AVERAGE INVESTMENT VALUE 76.92.288 TOTAL 1,02,59,209 ITA NO.7490/MUM/2013 2 4. THE ASSESSING OFFICER NOTED THAT ASSESSEE HAS WORKED OUT AN AMOUNT OF RS. 75,84,842/ - AS EXPENSES ATTRIBUTABLE EARNING OF EXEMPTED IN COME. THE ASSESSEE SUBSEQUENTLY VIDE LETTER DATED 09 - 10 - 2012 REVISED THE WORKING OF DISALLOWANCE RELATABLE TO EXEMPT INCOME QUA - EXPENSES OTHER THAN INTEREST ON BORROWINGS AS UNDER: EXPENSES OTHER THAN INTEREST ON BORROWINGS: 7. 4. RBCL HAS INCURRED A TOT AL EXPENSE OF RS. 58,361 TOWARDS DEMAT AND DEPOSITORY CHARGES AND THIS HAS BEEN CONSIDERED FOR THE PURPOSE OF DISALLOWANCE. 7.5. IN SO FAR AS OTHER EXPENDITURE IS CONCERNED, BASED ON THE INTERNAL RECORDS, EXPENDITURE DIREC TL Y IDENTIFIABLE SUCH AS STAMP DUT Y, TRANSFER FEES AND SAFE CUSTODY CHARGES HAS NOT BEEN DISALLOWED AS SUCH EXPENSES ARE NOT DIRECTLY Y RELATABLE TO EARNING OF DIVIDEND; THEY MAY BE SO RELATABLE TO ACQUISITION OF SHARES BUT NOT TO DIVIDEND BEING EARNED FOR THIS VIEW RELIANCE IS PLACED ON C IT VS G I C OF LNDIA (254 I TR 203) ( BOM ) WH I CH HAS HELD THAT EXPEN SES INCURRED ON ACCOUNT OF SALA RY PAID TO STAFF, STAMP DUTY, TRANSFER FEES, CUSTODY ARE NOT D I RECTLY RELATABLE TO EARNING OF DIVIDEND 7. 6. WE HA VE THEREAFTER IDENTIFIED THE EXPENSES THAT AR E INDIRECT/ Y INCURRED IN RELATION TO SUCH INVESTMENTS BY WAY OF COST ON THE PERSONNEL OF RBCL WHO ARE ENGAGED IN THE DAY - TO - DAY ACT IVITY OF FUND MANAGEMENT AND INVESTMENTS. FOLL OWING TABLE SHOWS THE ENTIRE EMOLUMENTS OF FUND MANAGEMENT TEAM ON COST - TO - COM PANY BASIS AND ALSO THE PORTION THEREOF REASONABLY ATTRIBUTABLE, BASED ON TIME SPENT BY THE TEAM, TO THE ACTIVITY OF INVESTMENT WHICH GIVES/MAY RISE TO TAX FREE INCOME. SR. NO NAME EMPLOYEE DESIGNAION EMOLUMENT (COST TO COMPANY) (AMOUNT IN RS.) % ATTRIBUT A BLE TO INVESTME NTS ACTIVITY ATTRIBUTED AMOUNT IN RS. 1. MR. KETAN VP FINANCE 1,498,598 15% 187,725 2. MR. S K SHENOY SR. MANAGER FINANCE 422,341 15% 53,873 3. MR. VITHOBA PATIL SR. EXECUTIVE - ACCOUNTS 309,822 15% 39,990 4. MR. LAXMAN ADDAGATLA EXECUTIVE AC COUNTS 281,913 15% 36,248 TOTAL 317,835 7.7 APART FROM THE EMOLUMENTS THAT ARE INCURRED FOR SUCH PERSONNEL, OTHER EXPENSES THAT CAN BE DIRECTLY OR INDIRECTLY ATTRIBUTABLE TO SUCH PERSONNEL ARE ALSO IDENTIFIED BASED ON THE TOTAL EXPENSES OF HO, WHICH AR E DULY ITA NO.7490/MUM/2013 3 ALLOCATED IN RELATION TO SUCH PERSONNEL. THERE ARE TOTAL EIGHTY FOUR (84) EMPLOYEES IN HO OUT OF WHICH FOUR (4) EMPLOYEES MENTIONED AT S. NO. 1 , 2, 3 &4 IN THE ABOVE TABLE ARE WORKING IN THE FUND MANAGEMENT TEAM OF THE COMPANY. DETAILS OF SUCH EXPENS ES ARE GIVEN BELOW AND THE BASIS OF ALLOCATION IS THE RATIO OF EMPLOYEES OF THE FMT TO THE TOTAL NUMBER OF EMPLOYEES IN HO: SR. NO. PARTICULARS AMOUNT IN RS. EXPENSE OF HO APPROPRIATED AMOUNT (4/84 OF EXPENSE OF HO) 1. STAFF WELFARE 1,2999,001 61,857 2. ELECTRICITY EXPENSES 3,102,574 147,742 3. REPAIRS AND MAINTENANCE 1,838,548 87,550 4. PRINTING & STATIONERY 1,518,459 72,308 5. BOOKS & PERIODICALS 228,791 10,895 6. TELECOMMUNICATION EXPENSES 5,027,479 239,404 7. POSTAGE AND TELEGRAM 883,692 42 ,091 8. AUTOMOBILE EXPENSES 2,655,119 126,434 9. CONVEYANCE CHARGES 286,410 13,639 TOTAL 16,840,073 801,910 7.8 BASED ON THE FOREGOING, THE TOTAL AMOUNT OF EXPENSES THAT MAY REASONABLY BE CONSIDERED AS INCURRED IN RELATION TO EXEMPT INCOME AND WHICH A RE DISALLOWABLE UNDER SECTION 14A OF THE ACT AMOUNT TO RS.11,78,104/ - AND IT COMPRISES OF: 1. DEMAT AND DEPOSITORY CHARGES 58,361 2. EMOLUMENTS OF EMPLOYEES IN FMT (SEE PARA 7.3) 317,835 3. OTHER EXPENSES OF HO PRORATED (SEE PARA 7.4) 801,908 TOTAL AMOU NT DISALLOWABLE UNDER SECTION 14A OF THE ACT 1 1 , 78,104 ACCORDINGLY, THE ASSESSEE WORK OUT THE DISALLOWANCE U/S 14A OF THE ACT READ WITH RULE 8D OF THE RULES AT RS. 11,78,104/ - AS AGAINST THE EARLIER COMPUTATION AT RS. 75,84,842/ - . THE LEARNED COUNSEL FO R THE ASSESSEE STATED THE FACT THAT THE ASSESSEE HAS NOT ATTRIBUTED ANY DISALLOWANCE IN RESPECT TO INTEREST UNDER RULE 8D (2) BY STATING THAT ASSESSEES POSITION OF TOTAL OWN FUNDS (NON INTEREST BEARING) I.E. SHARE CAPITAL AND RESERVES AN D SURPLUS IS AT AB OUT RS.285.27/ - CRORES AS AGAINST THE AMOUNT OF INVESTMENT OF RS. 18.19 CRORES. THE ASSESSEE HAS GIVEN THE FOLLOWING DETAILS OF SHARE CAPITAL AND RESERVE AND SURPLUS AS UNDER: - ITA NO.7490/MUM/2013 4 PARTICULARS AMOUNT (IN RS.000) AS ON MARCH 31,2010 MARCH 31,2009 SHARE CA PITAL 12,500 12,500 RESERVE & SURPLUS 28,40,270 23,59,727 TOTAL 28,52,770 23,72,227 5. IN VIEW OF THIS LEARNED COUNSEL FOR THE ASSESSEE STATED THAT NO ELEMENT OF EXPENDITURE ON ACCOUNT OF INTEREST WHICH WAS RELATABLE TO EXEMPT INCOME RATHER THE EXEMPTED I NCOME IS OUT OF NON - INTEREST BEARING ON FUNDS WHICH ARE MORE THAN THE INVESTMENTS. THE LEARNED COUNSEL FOR THE ASSESSEE STATED THAT PRESUMPTION GO IN FAVOUR OF ASSESSEE AND FOR THIS HE RELIED ON THE DECISIONS OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT (A) VS. HDFC BANK LTD. 366 ITR 505 (B OM) (HC). THE LEARNED COUNSEL FOR THE ASSESSEE STATED THAT THE ASSESSING OFFICER COULD NOT FIND ANY FAULT IN THE WORKING OF THE ASSESSEE AND WITHOUT ANY FAULT THE ASSESSING OFFICER HAS COMPUTED HIS OWN DISALLOWANCE . HE TOOK US THROUGH THE ORDER OF CIT ( A) WHICH IS VERY CRYPTIC AND JUST CONFIRMED THE ACTION OF THE ASSESSING OFFICER. 6. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH THE FACT AND CIRCUMSTANCES OF THE CASE . FROM THE ABOVE IT IS CLEAR THAT NO DISALLOWANCE U/S RULE 8D CAN BE MADE FOR THE REASON THAT THE ABOVE FACTS CLEARLY DEMONSTRATE D THAT THE ASSESSEE IS HAVING NON - INTEREST BEARING FUNDS AVAILABLE IN THE SHAPE OF SHARE CAPITAL AND RESERVES AND SURPLUSES WITH HIM AMOUNTING TO RS. 285 .27 CRORE WHICH IS MORE THA N THE AMOUNT OF INVESTMENT MADE IN INTEREST EARNING INSTRUMENTS AMOUNTING TO RS. 18.19 CRORES AND ONCE AVAILABILITY OF AMOUNT FROM INTEREST FREE FUND OF THE ASSESSEE IS MORE THAN THE INVESTMENT, TH E N A PRESUMPTION ARISES THAT ASSESSEE MIGHT HAVE INVEST OUT OF INTEREST FREE FUND AVAILABLE WITH HIM. THIS VIEW OF OURS IS SUPPORTED BY THE DECISIONS OF HONBLE BOMBAY HIGH COURT IN THE CASE OF HDFC BANK LTD. (SUPRA). AS REGARDS TO DIRECT EXPENDITURE UNDER RULE 8D (1) , THERE IS NO DISPUTE. AS REGARDS TO WORKING OF DISALLOWANCE UNDER RULE 8D (3), THE ASSESSEE HAS COMPUTED THE DISALLOWANCE AND THE ASSESSING OFFICER COULD NOT POINT OUT ANY DISCREPANCY OR UNREASONABLENESS OR COULD NOT F I ND ANY FAULT IN THE SAME. ACCORDINGLY, IN VIEW OF THE GIVEN FACTS AND CIRCUMSTANCES , WE DELETE THE ITA NO.7490/MUM/2013 5 ADDITION AND ALLOW THE APPEAL OF THE ASSESSEE RETAINING THE SAME TO THE EXTENT OF THE ASSESSEE S UO - MOTO DISALLOWANCE OF SUM OF RS. 11,78,104/ - . WE DIRECT THE AO ACCORDINGLY. 7. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 10 - 1 1 - 2016 . SD/ SD/ (RAJESH KUMAR) (MAHAVIR SINGH) ACCO U NTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 10 - 11 - 2016 SUDIP SARKAR/SR.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, ASSISTANT REGISTRAR ITAT, M UMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT (A), M UMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//