BINDU C. ZAVERI, MUMBAI V. ITO WD 11(1)(1), MUMBAI

ITA 7771/MUM/2011

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0970 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 4 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-04-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 25-03-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 17-11-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N PADMANABHAN
• Assessee Lawyers: SAMEER G DALAL
• Keywords: Depreciation; Bonafide belief; Earning of tax free income; Period of limitation; Time period of passing order; Condonation of delay
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH E , MUMBAI BEFORE SHRI R.C. SHARMA , ACCOUNTANT MEMBER AND SHRI SANJAY GARG , JUDICIAL MEMBER ITA NO. 7771/M/2011 ASSESSMENT YEAR: 2007 - 08 SMT. BINDU C. ZAVERI, C/O. SHANKARLAL JAIN & ASSOCIATES, 12, ENG INEER BUILDING, 265, PRINCESS STREET, MUMBAI 400 002 PAN: AAAPZ0883A VS. INCOME TAX OFFICER, WARD 11(1)(1), MUMBAI (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SAMEER G. DALAL, A.R. REVENUE BY : SHRI N. PADMANABHAN, D.R. DATE OF HEARING : 25.03. 201 5 DATE OF PRONOUNCEMENT : 08.04. 2015 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGAINST THE ORDER DATED 16.08.2011 OF THE COMMISSIONE R OF INCOME TAX (APPEALS) [(HEREINAFTER REFERRED TO AS CIT(A)] RELEVANT TO ASSESSMENT YEAR 2007 - 08. 2. THERE IS A DELAY OF 30 DAYS IN PREFERRING THE PRESENT APPEAL. THE ASSESSEE HAS FILED AN APPLICATION FOR CONDONATION OF DELAY WHICH IS ACCOMPANIED WIT H THE AFFIDAVIT OF THE ASSESSEE EXPLAINING THAT THE ASSESSEE WAS UNDER BONAFIDE BELIEF THAT THE LIMITATION PERIOD FOR FILING THE APPEAL BEFORE THE TRIBUNAL WAS OF 90 DAYS. UNDER THIS BONAFIDE BELIEF, THE SHORT DELAY OF 30 DAYS HA S OCCURRED IN PREFERRING T HE PRESENT APPEAL. ITA NO.7771/M/2011 SMT. BINDU C. ZAVERI 2 2.1 CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AS WELL AS THE SHORTNESS OF THE DELAY PERIOD, WE CONDONE THE DELAY IN PREFERRING THE PRESENT APPEAL AND PROCEED TO DECIDE THE SAME ON MERITS. 3. THE ASSESSEE HAS RAISED TWO EFFECTIVE ISSUES THROUGH HER GROUNDS OF APPEAL . GROUND NOS.1 TO 3 RELATE TO THE ISSUE OF DISALLOWANCE OF RS.2 , 85 , 860 / - UNDER SECTION 14A OF THE INCOME TAX ACT ON ACCOUNT OF EXPENDITURE INCURRED FOR EARNING OF EXEMPT INCOME. 4. THE ASSESSING OFFICER (HEREINAFTER REFERRED TO AS THE AO) NOTICED THAT THE ASSESSEE HAD CLAIMED EXEMPT INCOME IN RELATION TO MUTUAL FUNDS, DIVIDEND ON SHARES, INTEREST ON PPF ACCOUNT, INTEREST ON TAX FREE BONDS, BONDS OF KONKAN RAILWAY CORPORATION AND VESTED BONUS FROM LIC AND DIVIDEND FROM HOUSING CO - OPERATIVE CREDIT SOCIETY L IMITED AGGREGATING TOTAL EXEMPT INCOME OF RS.32,04,703/ - . HE, THEREFORE, OBSERVED THAT DISALLOWANCE OF EXPENDITURE IN RELATION TO EARNING OF THE ABOVE EXEMPT INCOME WAS REQUIRED TO BE MADE. THE AO OBSERVED THAT NO IN TEREST EXPENDITURE HAD BEEN INCURRED BY THE ASSESSEE FOR MAKING THE INVESTMENTS. HE, HOWEVER, WORKED OUT THE DISALLOWANCE UNDER RULE 8D2(III) OF THE INCOME TAX RULES, 1962, I.E. AT THE RATE OF 0.5% OF THE AVERAGE VALUE OF INVESTMENT AT RS.2,85,860/ - . 5 . IN APPEAL, THE LD. CIT(A) OBSERVED THAT THE CLAIM OF THE ASSESSEE THAT SHE HAD NOT INCURRED ANY EXPENDITURE IN RELATION TO EARNING OF EXEMPT INCOME COULD NOT BE SAID TO BE CORRECT. HE ALSO OBSERVED THAT AS PER THE DECISION OF THE HONBLE BOMBAY HIGH COUR T IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. VS. DCIT [(2010) 328 ITR 81 (BOM)] , RULE 8D WAS NOT APPLICABLE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION AND THAT THE DISALLOWANCE UNDER SECTION 14A WAS REQUIRED TO BE MADE ON SOME REASONABLE BASIS . HE, HOWEVER, CONFIRMED THE DISALLOWANCE MADE BY THE AO OBSERVING THAT DISALLOWANCE AT THE ITA NO.7771/M/2011 SMT. BINDU C. ZAVERI 3 RATE OF 0.5% OF AVERAGE INVESTMENT WAS REASONABLE. AGGRIEVED BY THE ORDER OF THE LD. CIT(A) ON THIS ISSUE, THE ASSESSEE HAS COME IN APPEAL BEFORE US. 6. WE HAV E HEARD THE RIVAL CONTENTIONS OF THE LD. REPRESENTATIVES OF BOTH THE PARTIES AND HAVE ALSO GONE THROUGH THE RECORDS. THE LD. A.R. OF THE ASSESSEE HAS STATED THAT FOR EARNING OF EXEMPT INCOME LIKE INTEREST ON TAX FREE BONDS, DIVIDEND FROM MUTUAL FUNDS ETC. , IT GENERALLY DO NOT REQUIRE INCURRING OF ANY EXPENDITURE. HE HAS FURTHER STATED THAT INVESTMENT IN MUTUAL FUND WAS CARRIED OUT THROUGH AGENCY OF DISTRIBUTORS AND THAT MOST OF THE INVESTMENTS WERE MADE IN EARLIER YEARS AND AS SUCH FOR THE YEAR UNDER CONS IDERATION, NO DISALLOWANCE WAS ATTRACTED. ON THE OTHER HAND, THE LD. D.R. HAS RELIED UPON THE FINDINGS OF THE LOWER AUTHORITIES. 7. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LD. REPRESENTATIVES OF BOTH THE PARTIES AND HAVE ALSO GONE THROUGH THE RECOR DS. IT MAY BE OBSERVED THAT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. (SUPRA) , THE HON'BLE BOMBAY HIGH COURT HAS HELD THAT RULE 8D R.W.S. 14A(2) IS NOT ARBITRARY OR UNREASONABLE BUT CAN BE APPLIED , ONLY , IF , THE ASSESSEE'S METHOD IS NOT SATISFAC TORY. IT HAS BEEN FURTHER HELD THAT RULE 8D IS NOT RETROSPECTIVE AND APPLIES FROM A.Y. 2008 - 09. FOR THE YEARS FOR WHICH RULE 8D IS NOT APPLICABLE AND IN THE EVENT OF THAT THE AO IS NOT SATISFIED WITH THE EXPLANATION/WORKING GIVEN BY THE ASSESSEE, DISALLOWA NCE UNDER SECTION 14A HAS TO BE MADE ON A REASONABLE BASIS. ALMOST SIMILAR VIEW HAS BEEN EXPRESSED BY HON'BLE DELHI HIGH COURT IN THE CASE OF 'MAXOPP INVESTMENT LTD. & OTHERS' VS. CIT (247 ITR 162). IT MAY BE FURTHER OBSERVED THAT IT IS NOT A CASE WHERE NO EXEMPT INCOME WAS RECEIVED BY THE ASSESSEE DESPITE MAKING INVESTMENTS FOR EARNING EXEMPT ITA NO.7771/M/2011 SMT. BINDU C. ZAVERI 4 INCOME. IT IS ALSO NOT THE CASE OF THE REVENUE THAT THE EXEMPT INCOME EARNED BY THE ASSESSEE WAS VERY LESS OR NOT IN PROPORTION TO THE INVESTMENTS MADE BY THE ASSESS EE FOR THIS PURPOSE. UNDER SUCH CIRCUMSTANCES THE DIFFERENT CO - ORDINATE BENCHES OF THIS TRIBUNAL HAVE OBSERVED THAT IN SUCH CASES CERTAIN PERCENTAGE OF EXEMPT INCOME CAN CONSTITUTE A REASONABLE ESTIMATE FOR MAKING DISALLOWANCE FOR THE YEARS EARLIER TO ASSE SSMENT YEAR 2008 - 09. THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. 'GODREJ AGROVET LTD.' (ITA NO.934/2011) DECIDED ON 08.01.13 HAS UPHELD THE ORDER OF THE TRIBUNAL DIRECTING THE AO TO RESTRICT THE DISALLOWANCE TO THE EXTENT OF 2% OF THE TOTAL EXEMPT INCOME EARNED BY THE ASSESSEE. IN VIEW OF THE ABOVE, THE STRAIGHTWAY APPLICATION OF RULE 8D IN THE CASE OF THE ASSESSEE BY THE LOWER AUTHORITIES IS NOT SUSTAINABLE. TAKING INTO CONSIDERATION THE OVERALL FACTS AND CIRCUMSTANCES OF THE CASE ESPECIALLY THE NATURE OF INVESTMENTS MADE BY THE ASSESSEE AND FURTHER THAT MOST OF THE INVESTMENTS WERE MADE IN EARLIER YEARS , I N OUR VIEW, THE EXPENSES EQUAL TO 2 % OF THE EXEMPT INCOME EARNED BY THE ASSESSEE WOULD CONSTITUTE A REASONABLE DISALLOWANCE AND THE SAME IS RE STRICTED TO THAT EXTENT ACCORDINGLY. THIS GROUND OF APPEAL OF THE ASSESSEE IS THUS PARTLY ALLOWED. 8. THE ISSUE TAKEN VIDE GROUND NOS.4 & 5 ARE RELATING TO DISALLOWANCE OUT OF MOTOR CAR EXPENSES AND DEPRECIATION AT THE RATE OF 33.3% AS AGAINST THE CLAIM O F THE ASSESSEE THA T THE SAME BE RESTRICTED TO 25%. THE AO NOTED THAT THE ASSESSEE HAD CLAIMED MOTOR CAR EXPENSES OF RS. 1,18,660/ - BEING 75% OF THE MOTOR CAR EXPENSES AND DEPRECIATION ON MOTOR CAR. THE AO NOTED THAT THE ASSESSEE IN THE EARLIER ASSESSMENT YEARS HAD SUO MOT O DISALLOWED 1/3 RD OF THE MOTOR CAR EXPENSES. THE AO, THEREFORE, DISALLOWED 1/3 RD OF THE MOTOR CAR EXPENSES AND DEPRECIATION ON MOTOR CAR FOR THIS YEAR ALSO WHICH WAS WORKED ITA NO.7771/M/2011 SMT. BINDU C. ZAVERI 5 OUT AT RS.13,814/ - AND RS.1,19,590/ - RESPECTIVELY. THE LD. CIT( A) UPHELD THE F INDING OF THE AO. 9. BEFORE US, THE LD. A.R. OF THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF HOARDING CONTRACTOR AND IS A FILM ARTIST. THAT OWING TO THE NATURE OF THE BUSINESS AND PROFESSION OF THE ASSESSEE, THE DISALLOWANCE AT THE RATE OF 33.3% WAS ON HIGHER SIDE. HE HAS FURTHER SUBMITTED THAT HAVING REGARD TO INCREASING COST OF MAINTENANCE OF CAR , WHICH IS MUST FOR THE PROFESSI ON OF THE ASSESSEE, THE SUO MOTO DISALLOWANCE OFFERED BY THE ASSESSEE AT THE RAT E OF 25% WAS JUSTIFIED. CONSIDERING THE OVERALL FACTS AND CIRCUMSTANCES, IN OUR VIEW, THE DISALLOWANCE AT THE RATE OF 25% OF THE MOTOR CAR EXPENSES AND ALSO OUT OF THE CLAIM OF DEPRECIATION IS A REASONABLE DISALLOWANCE WHICH ASSESSEE HERSELF HAS OFFERED. WE ACCORDINGLY RESTRICT THE DISALLOWANCE IN RELATION TO MOTOR CAR EXPENSES AND DEPRECIATION TO THE EXTENT OF 25% INSTEAD OF 33.3% MADE BY THE LOWER AUTHORITIES. 10. IN VIEW OF OUR FINDINGS GIVEN ABOVE, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 08.04. 201 5 . SD/ - SD/ - (R.C. SHARMA ) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 08.04.2015 . * KISHORE , SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI ITA NO.7771/M/2011 SMT. BINDU C. ZAVERI 6 THE CIT ( A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.