IDFC ASSET MANAGEMENT COMPANY LTD, MUMBAI V. DCIT (OSD) 2(3), MUMBAI

ITA 7501/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79493 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 03-07-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 19-12-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: MILIN THAKORE; VALLABH GOKHALE
• Keywords: Rule of consistency; Earning of tax free income
• Section: 14A; 37; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH I, MUMBAI BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND DR. S.T.M. PAVALAN, JUDICIAL MEMBER ITA NOS. 7501/MUM/2012, 7502/MUM/2012 & 709/MUM/201 3 ASSESSMENT YEARS: 2007-08, 2008-09 & 2009-10 M/S. IDFC ASSET MANAGEMENT COMPANY LTD. ONE INDIA BULLS CENTRE, 6 TH FLOOR, JUPITER MILLS COMPOUND, 841, SENAPATI BAPAT MARG, ELPHINSTONE ROAD (W), MUMBAI 400 013 PAN: AACCA 3262 H VS. DCIT (OSD) CIR 2(2) R. NO. 545 AAYAKAR BHAVAN M.K. ROAD MUMBAI 400 020 (APPELLANT) (RESPONDENT) ITA NO. 229/MUM/2013 ASSESSMENT YEAR: 2007-08 DCIT (OSD) CIR 2(2) R. NO. 545 AAYAKAR BHAVAN M.K. ROAD MUMBAI 400 020 VS. M/S. IDFC ASSET MANAGEMENT COMPANY LTD. ONE INDIA BULLS CENTRE, 6 TH FLOOR, JUPITER MILLS COMPOUND, 841, SENAPATI BAPAT MARG, ELPHINSTONE ROAD (W), MUMBAI 400 013 PAN: AACCA 3262 H (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI MILIN THAKORE & MR. VALLABH GOKHALE REVENUE BY : SHRI SUNIL AGRAWAL DATE OF HEARING : 03 .07. 2014 DATE OF PRONOUNCEMENT : 30.07.2014 O R D E R PER DR. S.T.M. PAVALAN, JM: THERE ARE FOUR APPEALS, THREE FILED BY THE ASSESSE E AND ONE FILED BY THE REVENUE, THE DETAILS OF WHICH ARE AS AFOREMENTIONED IN THE SHORT CAUSE TITLE. ALL THE APPEALS ARE HEARD TOGETHER AND DISPOSED OFF BY THIS COMMON ORDER. ITA NO. 229/MUM/2013. 7501/MUM/2012 7502/MUM/2012, 709/MUM/2013 M/S. IDFC ASSET MANAGEMENT COMPANY LTD. ASSESSMENT YEAR: 2007-08, 2008-09, 2009-10 2 2. GROUND NO. 1 OF THE ASSESSEES APPEAL AND THE CR OSS APPEAL FILED BY THE REVENUE FOR THE ASSESSMENT YEAR 2007-08 RELATE TO T HE DECISION OF THE LD.CIT(A) RESTRICTING THE DISALLOWANCE TO RS.9,39,163/- (@ 5% OF THE DIVIDEND INCOME) AS AGAINST THE DISALLOWANCE OF RS.19,29,094/- MADE BY THE AO U/S 14A OF THE ACT. 2.1 THE RELEVANT FACTS ARE THAT DURING THE YEAR UND ER CONSIDERATION, THE ASSESSEE HAD EARNED A TAX FREE DIVIDEND INCOME OF RS.1,87,83 ,250/- FROM MUTUAL FUNDS INVESTMENTS AND THE ASSESSEE DID NOT DISALLOW ANY E XPENDITURE INCURRED FOR EARNING SUCH DIVIDEND INCOME IN ITS RETURN OF INCOME. IN TH E ASSESSMENT FRAMED, THE AO COMPUTED THE DISALLOWANCE AT RS.19,29,094/- BY INVO KING SECTION 14A READ WITH RULE 8D. ON APPEAL, THE LD.CIT(A) HELD THAT RULE 8D IS A PPLICABLE ONLY FOR THE A.Y. 2008- 09 ON WARDS AND THEREBY OBSERVED THAT THE ASSESSEE HAD NOT INCURRED ANY INTEREST EXPENDITURE INCOME EITHER DIRECTLY OR INDIRECTLY. A CCORDINGLY, THE LD.CIT(A) RESTRICTED THE DISALLOWANCE ON INDIRECT EXPENSES @ 5% OF THE D IVIDEND INCOME AMOUNTING TO RS.9,39,163/- WHICH ACCORDING TO THE LD.CIT(A) IS R EASONABLY BE ATTRIBUTED TO EARNING OF EXEMPT INCOME. AGGRIEVED BY THE IMPUGNED DECISION, THE ASSESSEE AND THE REVENUE ARE IN CROSS APPEALS. 2.1.1 HAVING HEARD BOTH THE SIDES AND PERUSED THE M ATERIAL ON RECORD IT IS OBSERVED THAT THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR TH E A.Y. 2005-06 & 2006-07 HAS RESTORED A SIMILAR ISSUE TO THE FILE OF THE AO FOR DETERMINING THE DISALLOWANCE U/S 14A ON REASONABLE BASIS BASED ON THE DECISION OF TH E HONBLE BOMBAY HIGH COURT IN THE CASE OF M/S. GODREJ & BOYCE LTD. VS DCIT (328 ITR 81) . WHILE GIVING EFFECT TO THE SAID ORDER OF THE TRIBUNAL, THE AO HAS COMPUTED THE DISALLOWANCE @ 5% OF THE DIVIDEND INCOME WHICH HAS BEEN ACCEPTED BY THE ASSE SSEE. AFTER NOTING THAT RULE 8D IS NOT APPLICABLE FOR THE AY UNDER CONSIDERATION, F OLLOWING THE PRINCIPLE OF CONSISTENCY IN THE ASSESSEES CASE, WE ARE OF THE C ONSIDERED VIEW THAT 5% OF THE DIVIDEND INCOME CONSTITUTES A REASONABLE EXPENSE TH AT MAY BE ATTRIBUTED TO EARNING OF THE SAID EXEMPT INCOME. THEREFORE, WE DO NOT FIN D ANY JUSTIFIABLE REASON TO INTERFERE WITH THE DECISION OF THE LD.CIT(A) AND TH US THE SAME IS UPHELD. GROUND NO. 1 OF THE ASSESSEES APPEAL AND THE GROUNDS RAISED B Y THE REVENUE IN THE CROSS APPEALS STANDS DISMISSED. ITA NO. 229/MUM/2013. 7501/MUM/2012 7502/MUM/2012, 709/MUM/2013 M/S. IDFC ASSET MANAGEMENT COMPANY LTD. ASSESSMENT YEAR: 2007-08, 2008-09, 2009-10 3 2.2 IN GROUND NO. 2 OF THE ASSESSEES APPEAL FOR TH E A.Y. 2007-08, THE ASSESSEE HAS AGITATED THE DECISION OF THE LD.CIT(A) IN CONFI RMING THE DISALLOWANCE OF COMPENSATION PAID OF RS.14,11,779/-. 2.2.1 THE RELEVANT FACTS ARE THAT DURING THE YEAR C ONSIDERATION, THE ASSESSEE HAD PAID AN AMOUNT OF RS.14,11,779/- BY WAY OF INTEREST ON LATE PAYMENT OF REDEMPTION/REPURCHASE PROCEEDS AND DIVIDEND TO UNIT HOLDERS, COMPENSATION TOWARDS INCORRECT REJECTION AND OTHER ARREARS ON TH E PART OF THE ASSESSEE. IN THE ASSESSMENT FRAMED, THE AO DISALLOWED THE SAME AS TH E SAID EXPENDITURE WAS IN THE NATURE OF FINE AND COMPENSATION DUE TO LATE PAYMENT . ON APPEAL, THE LD.CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE AO. AGGRIEVE D BY THE IMPUGNED DECISION, THE ASSESSEE HAS RAISED THIS GROUND IN THE APPEAL F OR THE A.Y. 2007-08. 2.2.2 HAVING HEARD BOTH THE SIDES AND PERUSED THE M ATERIAL ON RECORD, IT IS PERTINENT TO MENTION THAT CLAUSE 17(E)(II) OF THE T AX AUDIT REPORT MERELY REFERS TO NOTE 5 BY WHICH CLEARLY STATES THAT EXPENDITURE IS FOR LATE PAYMENT OF REDEMPTION PROCEEDS WHICH IS IN THE NATURE OF CONTRACTUAL OBLI GATION AND THE ORDINARY COURSE OF BUSINESS. AS PER INVESTMENT MANAGEMENT AGREEMENT BE TWEEN THE ASSESSEE AND THE MUTUAL FUND, THE ASSESSEE HAS A CONTRACTUAL OBLIGAT ION TO MANAGE THE AFFAIRS OF MUTUAL FUND AND IS ALSO LIABLE FOR LOSS ON ACCOUNT OF NEGLIGENCE. THIS APART, IT IS RELEVANT TO STATE THAT AS PER THE REGULATION 53(C) OF SEBI MUTUAL FUND REGULATION 1996, EVERY AMC IS LIABLE TO PAY UNIT HOLDERS INTER EST FOR DELAY IN DISPATCH OF REDEMPTION/REPURCHASE PROCEEDS WITHIN 182 DAYS FROM THE DATE OF REDEMPTION/REPURCHASE. SUCH RATE HAS BEEN PRESCRIBE D AT 15% PER ANNUM BY SEBI CIRCULAR NO. 226/2000 DATED 19.05.2010. AS PER SEBI CIRCULAR NO MFD/CIR/9/120/2000 DATED 24.09.2000, SUCH INTEREST IS TO BE BORNE BY AMC. SEPARATE PENALTY PROVISIONS HAVE BEEN MADE U/S 15E OF THE SEBI ACT AND REGULATION 153(D) OF SEBI MF REGULATIONS. CONSIDERING THE NATU RE OF THE PAYMENT IN THE LIGHT OF THE SEBI REGULATION, WE ARE OF THE CONSIDERED VIEW THAT THE INTEREST PAID BY THE ASSESSEE DOES NOT FALL IN THE NATURE OF FINE/PENALT Y FOR THE PURPOSE OF EXPLANATION TO SECTION 37 OF THE INCOME TAX ACT AND THEREFORE, THE AUTHORITIES BELOW ARE NOT JUSTIFIED IN MAKING/CONFIRMING THE IMPUGNED DISALLO WANCE. IN VIEW OF THAT MATTER, THE IMPUGNED DISALLOWANCE OF RS.14,11,779/- STANDS DELETED. ITA NO. 229/MUM/2013. 7501/MUM/2012 7502/MUM/2012, 709/MUM/2013 M/S. IDFC ASSET MANAGEMENT COMPANY LTD. ASSESSMENT YEAR: 2007-08, 2008-09, 2009-10 4 2.3 RESULTANTLY, THE APPEAL FILED BY THE A SSESSEE IS PARTLY ALLOWED AND THAT OF THE REVENUE IS DISMISSED IN RESPECT OF THE ASSES SMENT YEAR 2007-08. 3. IN GROUND NO. 1 OF THE ASSESSEES APPEAL FOR THE A.Y. 2008-09, THE ASSESSEE HAS AGITATED THE DECISION OF THE LD.CIT(A) CONFIRMI NG THE DISALLOWANCE OF RS.19,60,458/- MADE BY THE AO U/S 14A OF THE ACT RE AD WITH RULE 8D OF THE INCOME- TAX RULES 1962. 3.1 HAVING HEARD BOTH THE SIDES AND PERUSED THE MAT ERIAL ON RECORD, IT IS PERTINENT TO MENTION THAT THE ASSESSEE HAS EARNED A N EXEMPT DIVIDEND INCOME OF RS.2.83 CORES AND THE ASSESSEE HAS NOT DISALLOWED A NY EXPENSE TOWARDS EARNING THE EXEMPT INCOME. IN THE ASSESSMENT FRAMED, THE AO HAS INVOKED SECTION 14A READ WITH RULE 8D AND THEREBY MADE THE IMPUGNED DISALLOW ANCE AND ON APPEAL, THE LD.CIT(A) CONFIRMED THE SAID DISALLOWANCE. IN THIS CONNECTION, IT IS RELEVANT TO STATE THAT THE ASSESSMENT YEAR UNDER CONSIDERATION IS 200 8-09 FOR WHICH RULE 8D IS APPLICABLE AND ALSO THE ASSESSEE, DURING THE FIRST APPELLATE PROCEEDINGS HAS POINTED OUT THAT THERE HAVE BEEN CERTAIN MISTAKE IN THE COM PUTATION OF DISALLOWANCE OF RULE 8D FOR WHICH IT HAS FILED APPLICATION U/S 154 BEFOR E THE AO. THE LD.CIT(A) IN HIS ORDER DIRECTED THE AO TO RECTIFY THE MISTAKE WHILE UPHOLDING THE DECISION THAT DISALLOWANCE IS TO BE MADE UNDER SECTION 14A R.W.R 8D. SINCE WE DO NOT FIND ANY INFIRMITY IN THE SAID ORDER OF THE LD.CIT(A), THE S AME IS UPHELD. GROUND NO. 1 IS DISMISSED. 3.2 IN GROUND NO. 2, THE ASSESSEE, HAS AGITATED THE DECISION OF THE LD.CIT(A) CONFIRMING THE DISALLOWANCE OF COMPENSATION PAID AM OUNTING TO RS.26,441.55/-. THE LD.CIT(A) CONFIRMED THE SAID DISALLOWANCE AS THE IS SUE HAS BEEN EXAMINED BY HIM IN THE CASE OF THE ASSESSEE FOR THE A.Y. 2007-08. IN T HIS CONNECTION, IT IS RELEVANT TO STATE THAT IN PARA 2.2.2 AFOREMENTIONED, THE DECISI ON OF THE LD.CIT(A) FOR A.Y. 2007- 08 HAS BEEN REVERSED WHILE ADJUDICATING A SIMILAR I SSUE AND THE SAID DISALLOWANCE HAS BEEN DELETED BY US FOR THE REASONS STATED THERE IN. IN VIEW OF THAT MATTER, THE SIMILAR DISALLOWANCE CONFIRMED BY THE LD.CIT(A) FOR THE YEAR UNDER CONSIDERATION ALSO STANDS DELETED. ITA NO. 229/MUM/2013. 7501/MUM/2012 7502/MUM/2012, 709/MUM/2013 M/S. IDFC ASSET MANAGEMENT COMPANY LTD. ASSESSMENT YEAR: 2007-08, 2008-09, 2009-10 5 3.3 RESULTANTLY, THE APPEAL FILED BY THE ASSESSEE FOR THE A.Y. 2008 -09 IS PARTLY ALLOWED . 4. IN THE APPEAL FILED BY THE ASSESSEE FOR THE A.Y. 2009-10, THE ASSESSEE HAS AGITATED THE DECISION OF THE LD.CIT(A) CONFIRMING T HE DISALLOWANCE OF RS.17,96,520/- MADE BY THE AO U/S 14A R.W.R WITH 8D(2)(III). CONSI DERING THE FACT THAT THE A.Y. 2009-10 FOR WHICH RULE 8D IS APPLICABLE AND THE FAC T THAT THE ASSESSEE HAS EARNED A DIVIDEND INCOME OF RS.2,40,79,768/-, WHICH HAS BEEN CLAIMED AS EXEMPT AND THE ASSESSEE COULD HAVE INCURRED SOME ADMINISTRATIVE EX PENSES FOR EARNING THE SAID DIVIDEND INCOME, WE ARE OF THE CONSIDERED VIEW THAT TAKING 5% OF THE AVERAGE VALUE OF THE INVESTMENT FOR THE PURPOSE OF DISALLOWANCE A S PER RULE 8D IS REASONABLE AND HENCE THE DECISION OF THE LD.CIT(A) IS UPHELD. 4.1 RESULTANTLY, THE APPEAL FILED BY THE ASSESSEE FOR THE A.Y. 2009 -10 IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF JULY, 2014. SD/- SD/- (N.K. BILLAIYA) (DR. S.T.M. PAVALAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 30.07.2014 *SRIVASTAVA COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR I BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.