D.S. PURBHOODAS & CO, MUMBAI V. ASST CIT RG 12(1), MUMBAI

ITA 7631/MUM/2011

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3480 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-08-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 04-03-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 11-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MADHUR AGARWAL SHRI B S BIST
• Keywords: Search and seizure
• Section: 143(3); 14A; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI , , , , BEFORE SHRI SAKTIJIT DEY, JM AND SHRI N. K. PRADHAN , AM / I.T.A. NO.7631/MUM/2011 ( / ASSESSMENT YEAR: 2008-09) D.S. PURBHOODAS & CO. TRADE WORLD B WING, 9 TH FLOOR KAMALA MILLS COMPOUND LOWER PAREL (W) MUMBAI-400013 / VS. ACIT, RG 12(1) MUMBAI - 400001 ./ ./ PAN/GIR NO. : AAAFD2711K ( / APPELLANT ) .. ( / RESPONDENT ) / DATE OF HEARING: 02.08.2016 /DATE OF PRONOUNCEMENT: 19.08.2016 / O R D E R PER N.K.PRADHAN, AM: THIS IS AN APPEAL FILED BY THE ASSESSEE. THE RELEVA NT ASSESSMENT YEAR IS 2008-09. THE APPEAL IS DIRECTED AGAINST THE ORDER O F THE COMMISSIONER (APPEALS)-23 AT MUMBAI AND ARISES OUT OF THE ASSESS MENT COMPLETED UNDER SECTION 143(3) OF THE INCOME TAX ACT 1961, (HEREINA FTER THE ACT) . 2. GROUND NO. 1 OF THE APPEAL IS AGAINST THE ORDER OF THE LEARNED CIT(A) UPHOLDING THE ACTION OF THE AO IN DISALLOWING EXPEN SES OF RS. 72,26,096/-OUT OF RS. 86,71,315/-. ASSESSEE BY: SHRI MADHUR AGARWAL DEPARTMENT BY: SHRI B. S . BIST 2 2 2.1 THE AO ON RECEIPT OF AN INFORMATION FROM DCIT -2 (1), MUMBAI CAME TO KNOW THAT ONE M/S DSP HMK HOLDING PVT LTD IS ALSO F UNCTIONING FROM THE PREMISES OF THE ASSESSEE FIRM. FURTHER HE FOUND THA T FIVE PRIVATE LIMITED COMPANIES, IN WHICH EITHER THE ASSESSEE OR ANY OF I TS MEMBERS ARE INTERESTED, ARE FUNCTIONING FROM THE ASSESSEES PREMISES I.E. 1 103, STOCK EXCHANGE TOWER, DALAL STREET, MUMBAI-400001. HE ALLOWED ASSESSEES CLAIM OF EXPENSES TO THE EXTENT OF 1/6 TH AND HELD THE BALANCE EXPENSES AS ATTRIBUTABLE TO TH E REMAINING FIVE COMPANIES FUNCTIONING FROM THE SAID PREMISES. OUT OF THE TOTAL EXPENSES, HE EXCLUDED THE EXPENSES ON ACCOUNT OF IN TEREST ON FINANCIAL OVERHEADS. THUS HE ALLOWED THE ASSESSEES CLAIM OF EXPENSES TO THE EXTENT OF RS.15,85,742/- AND DISALLOWED THE BALANCE OF RS.79, 28,714/-. 2.2 THE LEARNED CIT(A) DIRECTED THE AO TO ALLOW THE BLOOMBERG SUBSCRIPTION CHARGES (RS.6,01,157/-) BEING DIRECTLY RELATED TO T HE ASSESSEES BUSINESS AND HOTLINE CHARGES (RS.2,41,984/-) PAID TO MTNL WHICH ARE ESSENTIAL FOR MAINTAINING CONNECTIVITY FOR OBTAINING EXCHANGE RAT ES. SHE CONFIRMED THE AOS ACTION IN ALLOWING 1/6 TH OF THE BALANCE EXPENSES. 2.3 BEFORE US, THE LEARNED COUNSEL OF THE ASSESSEE REFERRED TO THE P & L A/C OF DSP HMK HOLDINGS PVT. LTD.; RECLAMATION PROPERTI ES (INDIA) PVT. LTD.; RECLAMATION REALITY (INDIA) PVT. LTD.; DSP ADIKO HO LDINGS PVT. LTD. AND DSP INVESTMENT PVT. LTD. FOR THE A.Y. 2008-09. REFERRIN G TO THE ABOVE, HE STATED THAT EXPENDITURES HAVE BEEN CLAIMED BY THE ABOVE CONCERN S IN THEIR P & L A/C. HE ALSO FILED A COPY OF THE SUBMISSION DATED 3 RD AUGUST 2011 SUBMITTED BEFORE THE LEARNED CIT(A)-23 ENCLOSING A COPY OF THE MAJOR EXP ENSES INCURRED BY THE ASSESSEE DURING THE IMPUGNED ASSESSMENT YEAR. ALSO IT WAS STATED THAT THE TWO YEARS BEFORE AND TWO YEARS AFTER THE IMPUGNED ASSES SMENT YEAR, SIMILAR DISALLOWANCES HAVE NOT BEEN MADE BY THE AO. RELIANC E WAS ALSO PLACED BY HIM ON THE DECISION IN THE CASE OF SASSOON J. DAVID & CO. PVT. LTD. VS. CIT (1979) 118 ITR 259 (SC); CIT VS. SAMSUNG INDIA ELECTRONICS LTD . (2014) 42 TAXMANN.COM 498 (DEL). 3 3 2.4 BEFORE US, THE LEARNED DR SUBMITTED THAT RES J UDICATA DOES NOT APPLY TO INCOME TAX PROCEEDINGS AND THE AO CAN DEPART FROM T HE FINDING OF AN EARLIER ASSESSMENT YEAR. IT WAS STATED THAT THE SAID FIVE C ONCERNS HAVE MADE HUGE INVESTMENTS AND EARNED LARGE DIVIDEND INCOME. NO EX PENSES HAVE BEEN CLAIMED BY THEM. THUS HE SUPPORTED THE ORDER PASSED BY THE LEARNED CIT(A). 2.5 AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PER USING THE RIVAL MATERIAL ON RECORD, WE FIND THAT DSP HMK HOLDINGS PVT. LTD. HAS CLAIMED EXPENDITURE OF RS.41,910,083/- DURING THE A.Y. 2008-09. SUCH EXPEN DITURE IN THE CASE OF RECLAMATION PROPERTIES (INDIA) PVT. LTD. WAS RS.5,1 08,346/-. IN THE CASE OF RECLAMATION REALITY (INDIA) PVT. LTD., IT WAS RS.5, 108,398/-. IN THE CASE OF DSP ADIKO HOLDINGS PVT. LTD. THE EXPENDITURE WAS RS.34, 873,731/-. IN THE CASE OF DSP INVESTMENT PVT. LTD. THE EXPENDITURE WAS RS.21,211, 959/-. THUS IT IS EVIDENT THAT THE SAID FIVE CONCERNS HAVE CLAIMED EXPENDITURE AGA INST INCOME SHOWN BY THEM. 2.6 IN THE CASE OF SASOON J. DAVID AND CO. PVT. LTD ., THE HONBLE SUPREME COURT HELD: THE FACT THAT SOMEBODY OTHER THAN THE ASSESSEE IS ALSO BENEFITED BY THE EXPENDITURE SHOULD NOT COME IN THE WAY OF AN EX PENDITURE BEING ALLOWED BY WAY OF DEDUCTION U/S 10(2)(XV) OF THE AC T IF IT SATISFIES OTHERWISE THE TESTS LAID DOWN BY LAW. ALSO THE HONBLE DELHI HIGH COURT IN THE CASE OF SAMSUNG INDIA ELECTRONICS LTD. HELD : THE VIEW THAT IN ANY CASE, EXPENDITURE, THE BENEF IT OF WHICH INURES PARTLY TO THE ASSESSEE AND PARTLY TO ANOTHER PERSON , CANNOT BE ALLOWED AS A DEDUCTION, WE ARE AFRAID, IS NOT THE CORRECT V IEW TO TAKE IN LAW SINCE IT HAS BEEN SETTLED BY A LONG LINE OF CASES T HAT EXPENDITURE INCURRED BY THE ASSESSEE IN THE RUNNING OF HIS BUSI NESS CANNOT BE DISALLOWED MERELY ON THE GROUND THAT A PART OF THE EXPENDITURE RESULTS IN SOME BENEFIT TO A THIRD PARTY. 2.7 WE ALSO FIND THAT THE ASSESSEE HAD SUBMITTED BE FORE THE AO A COPY OF THE TAX AUDIT REPORT. SECTION 44 AB WAS INSERTED F ROM THE ASSESSMENT YEAR 1985-86 AND WAS PRIMARILY INTENDED TO ENSURE CREDIB ILITY OF ACCOUNTS 4 4 MAINTAINED BY AN ASSESSEE. THE AO HAS NOT FOUND ANY SPECIFIC FAULTLINE IN THE AUDITED ACCOUNTS OF THE ASSESSEE. IN VIEW OF THE ABOVE FACTUAL MATRIX AND LEGAL POSIT ION, THE ABOVE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 3. GROUND NO.2 RAISED BY THE ASSESSEE IS AGAINST TH E ACTION OF THE LEARNED CIT(A) IN UPHOLDING THE ACTION OF THE AO IN DISALLO WING RS.8,66,620/- U/S 14A R.W.R. 8D(2)(III). 3.1 THE AO IN HIS ASSESSMENT ORDER HAD CALCULATED T HE AVERAGE VALUE INVESTMENT AT RS.17,33,24,014/- AND THUS COMPUTED T HE EXPENSES ATTRIBUTABLE FOR EARNING EXEMPTED INCOME @ 0.5% AND IT COMES TO RS.8,66,620/- . THE LEARNED CIT(A), HOWEVER DIRECTED THE AO TO COMPUTE THE DISALLOWANCES AS PER RULE 8D AFTER TAKING INTO ACCOUNT THE FINDINGS REGARDING DISALLOWANCE OF EXPENDITURE INDICATED IN THE APPELLATE ORDER. 3.2 BEFORE US, THE LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT OUT OF THE INVESTMENT IN MUTUAL FUND DURING THE YEAR, RS 4 CRO RE HAS BEEN INVESTED IN GROWTH FUNDS (VIZ DSPML TOP 100 EQUITY GROWTH FUND RS.2 CRORE AND DSP INDIA T.I.G.E.R. FUND GROWTH RS.2 CRORE) ON WHICH NO TAX FREE INCOME IS EARNED. IT WAS ALSO STATED THAT THE ABOVE FACTS HAVE BEEN MENT IONED BY THE LEARNED CIT(A) AT PARA 4.2 OF THE APPELLATE ORDER. 3.3 BEFORE US, THE LEARNED DR RELIED ON THE ORDER O N THE ABOVE ISSUE PASSED BY THE LEARNED CIT(A). 3.4 WE HAVE CAREFULLY CONSIDERED THE MATTER. WE FIN D THAT AS PER SCHEDULE 3 TO THE BALANCE SHEET OF THE ASSESSEE AS AT 31 ST MARCH 2008 THERE HAS BEEN AN INVESTMENT OF RS.2 CRORE IN DSPML TOP 100 EQUITY GROWTH & RS.2 CRORE IN DSP INDIA T.I.G.E.R. FUND GROWTH . THE CONTENTIONS OF THE LEARNED COUNSEL OF THE ASSESSEE THAT NO TAX FREE INCOME HAS BEEN EARNE D ON INVESTMENT IN THE ABOVE GROWTH FUNDS REQUIRE FURTHER VERIFICATION AT THE ASSESSMENT STAGE. WE ACCORDINGLY RESTORE THIS ISSUE BACK TO THE FILE OF AO. THE AO IS DIRECTED TO VERIFY AND ASCERTAIN THE TRUE NATURE OF THE ABOVE SCHEME. THE ASSESSEE IS DIRECTED 5 5 TO FURNISH ALL NECESSARY DETAILS / DOCUMENTS TO SUB STANTIATE ITS CLAIM THAT ON THE ABOVE NO TAX FREE INCOME IS EARNED. IN CASE THE GAI NS ARE TAXABLE, SECTION 14A SHOULD NOT BE APPLICABLE AS HELD IN SUNDARAM ASSET MANAGEMENT CO. LTD. VS. DCIT [2013] 145 ITD 17, (CHENNAI)(TRIB.). AFTER VERIFIC ATION AND HAVING GIVEN REASONABLE OPPORTUNITY TO THE ASSESSEE OF BEI NG HEARD, THE AO WOULD DECIDE THE ISSUE OF APPLICABILITY OR OTHERWISE OF S ECTION 14A ON THE ABOVE INVESTMENT . 4. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH AUGUST, 2016. SD/- SD/- (SAKTIJIT DEY) (N. K.PRADHAN) #$ /JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; ' DATED : 19 TH AUGUST, 2016 # $%& '(% / 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