Jaymata Informatics Pvt. Ltd., Ahmedabad V. The Asstt. Commissioner of Income Tax, Circel-2(1)(2), Ahmedabad

ITA 817/AHD/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 4117 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 10 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-02-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 03-04-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

, - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ./ ITA NO.817/AHD/2017 / ASSTT. YEAR: 2013-2014 JAYATMA INFORMATICS P.LTD. 259, 3 RD FLOOR, P.JAYANTILAL NEW CLOTH MARKET, AHMEDABAD. PAN : AAACK 6167 H. VS. ACIT, CIR.2(1)(2) AHMEDABAD. / (APPELLANT) / (RESPONDENT) ASSESSEE BY : SHRI MANISH SHAH, AR REVENUE BY : SHRI MUDIT NAGPAL, SR.DR ! / DATE OF HEARING : 04/02/2019 '#$ ! / DATE OF PRONOUNCEMENT: 13 /02/2019 %& / O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST O RDER OF LD.CIT(A)-2, AHMEDABAD DATED 6.2.2017 PASSED FOR TH E ASSTT.YEAR 2013-14. 2. IN THE FIRST GROUND OF APPEAL, THE ASSESSEE HAS PLEADED THAT THE LD.CIT(A) HAS ERRED IN CONFIRMING ADDITION OF R S.2,41,344/- WHICH WAS ADDED BY THE AO ON THE GROUND THAT THE AS SESSEE FAILED TO MAKE PAYMENT OF EMPLOYEES CONTRIBUTION OF PF AN D ESIC WITHIN THE DUE PROVIDED UNDER THIS ACT. THUS, WITH THE AI D OF SECTION 36(1)(VA) THE LD.AO HAS DISALLOWED THE CLAIM MADE B Y THE ITA NO.817/AHD/2017 2 ASSESSEE. APPEAL TO THE LD.CIT(A) DID NOT BRING AN Y RELIEF TO THE ASSESSEE. 3. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVES, W E HAVE GONE THROUGH THE RECORD CAREFULLY. THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. GUJARAT STATE ROAD TRANSPORT HA S HELD THAT IF THE PAYMENT OF EMPLOYEES CONTRIBUTION IS NOT BEING MADE WITHIN THE DUE DATE PROVIDED UNDER THE PF AND ESI ACT, THE N THE ASSESSEE IS NOT ENTITLED FOR DEDUCTION. THE LD.CIT (A) HAS FOLLOWED THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT, AND THEREFORE NO INTERFERENCE IS CALLED FOR IN THE ORDER OF THE LD.C IT(A) ON THIS ISSUE. THIS GROUND IS REJECTED. 4. IN THE NEXT GROUND OF APPEAL, THE GRIEVANCE OF T HE ASSESSEE IS THAT THE LD.CIT(A) HAS ERRED IN CONFIRMING THE A DDITION OF RS.2,18,030/- WHICH WAS ADDED BY THE AO UNDER SECTI ON 14A R.W. RULE 8D(2)(VA) OF THE INCOME TAX RULES. 5. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HAS FILED ITS RETURN OF INCOME ON 20.9.2013 DECLARING INCOME AT RS.1,41,91,734/-. THE ASSESSEE AT THE RELEVANT TIM E WAS ENGAGED IN IT ENABLED SERVICES, SYSTEM INTEGRATION SERVICES AND TRADING OF HARDWARE AND SOFTWARE. ITS CASE WAS SELECTED FOR S CRUTINY ASSESSMENT AND NOTICE UNDER SECTION 143(2) WAS ISSU ED AND SERVED UPON THE ASSESSEE. ON SCRUTINY OF THE ACC OUNTS, IT REVEALED TO THE AO THAT THE ASSESSEE HAS TAX FREE I NCOME OF RS.34.02 LAKHS, WHICH INCLUDED RS.33.98 LAKHS DIVID END INCOME FROM MUTUAL FUND AND RS.0.04 LAKHS ON EQUITY SHARES . THE AO HAS DIRECTED THE ASSESSEE TO SHOW INTEREST EXPENDITURE ATTRIBUTABLE TO EARNING OF THIS EXEMPT INCOME. IT WAS NOTICED THAT THE ASSESSEE ITA NO.817/AHD/2017 3 HAS NOT ALLOCATED ANY EXPENDITURE FOR EARNING TAX F REE INCOME. HENCE, THE LD.AO HAS EXAMINED THE DETAILS, AND THER EAFTER WORKED OUT THE DISALLOWANCE WITH HELP OF RULE 8D AT RS.3,6 3,082/- WHICH INCLUDED INTEREST EXPENDITURE OF RS.1,45,051 AND AD MINISTRATIVE EXPENSES AT RS.2,18,030/- WHICH WAS CALCULATED AT 0 .5% OF THE AVERAGE VALUE OF INVESTMENTS. 6. DISSATISFIED WITH THE DISALLOWANCE, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD.CIT(A). THE ASSESSE E HAS FILED DETAILED WRITTEN SUBMISSIONS, WHICH HAS BEEN REPROD UCED BY THE LD.CIT(A) ON PAGE NOS.9 TO 16 OF THE IMPUGNED ORDER S, AND THEREAFTER RECORDED A FINDING THAT THE ASSESSEE WAS HAVING SUFFICIENT INTEREST FREE FUNDS, OUT OF WHICH IT COU LD BE STATED THAT THE INVESTMENTS WERE MADE. THEREFORE, THERE IS NO NEED TO DISALLOW THE EXPENDITURE. ACCORDINGLY, THE LD.CIT( A) HAS DELETED THE ADDITION OF RS.1,45,051/-. HOWEVER, THE LD.CIT (A) HAS UPHELD THE DISALLOWANCE WORKED OUT BY THE AO AT RS.2,18,03 0/- ON ACCOUNT OF ADMINISTRATIVE EXPENDITURE. 7. BEFORE US, THE LD.COUNSEL FOR THE ASSESSEE CONTEN DED THAT THE ASSESSEE HAS NOT INCURRED ANY DIRECT EXPENSES FOR E ARNING EXEMPT INCOME. THE AO HAS NOWHERE POINTED OUT FROM THE EX PENSES DEBITED BY THE ASSESSEE THAT CERTAIN PORTION IS ATT RIBUTABLE TOWARDS ADMINISTRATIVE EXPENSES. THE WORKING MADE BY THE AO WITH THE RULE 8D HAS NOT BEEN UPHELD BY THE LD.CIT( A) IN TOTO . HE SUBMITTED THAT THE DISALLOWANCE WAS WORKED OUT BY T HE AO AS PER RULE 8D IS ON THE HIGHER SIDE, LOOKING INTO THE NAT URE OF INVESTMENT MADE BY THE ASSESSEE. ON THE OTHER HAND , THE LD.DR RELIED UPON THE ORDERS OF THE AO. HE SUBMITTED THA T SINCE THE ASSESSEE HAS NOT MAINTAINED ANY SEPARATE ACCOUNTS, AND HAS NOT ITA NO.817/AHD/2017 4 CATEGORICALLY IDENTIFIED EXPENSES INCURRED BY IT FO R EARNING EXEMPT INCOME, THEN THE DISALLOWANCE HAS RIGHTLY BEEN WORK ED OUT BY THE AO. 8. WE HAVE DULY CONSIDERED RIVAL CONTENTIONS AND GO NE THROUGH THE RECORD. SUB-SECTION (2) OF SECTION 14A CONTEMP LATES THAT THE AO HAS TO DETERMINE THE AMOUNT OF EXPENDITURE INCUR RED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME UNDER THIS ACT. THE AO HAS TO RECORD HIS SATISFACT ION THAT THE ACCOUNTS MAINTAINED BY THE ASSESSEE FOR ALLOCATING EXPENDITURE TOWARDS EARNING EXEMPT INCOME DOES NOT DEPICT TRUE PICTURE. THEREAFTER, HE WILL ADOPT THE METHODOLOGY TO COMPUT E THE EXPENDITURE REQUIRED TO BE DISALLOWED. SINCE THE A SSESSEE HAS NOT ALLOCATED ANY EXPENDITURE FOR EARNING TAX FREE INCO ME, THEREFORE, IT IS QUITE DIFFICULT FOR THE AO TO FORM AN OPINION WHETHER THE ACCOUNTS DEPICT TRUE PICTURE OR NOT. HOWEVER, HE W ORKED OUT THE DISALLOWANCE WITH THE HELP OF RULE 8D WHICH WAS PAR TLY UPHELD BY THE LD.CIT(A). THE LD.CIT(A) HAS RECORDED A FINDIN G THAT THE ASSESSEE WAS HAVING SUFFICIENT INTEREST FREE FUNDS, AND THEREFORE, INTEREST EXPENDITURE CANNOT BE DISALLOWED, TAKING I NTO CONSIDERATION THE STAND OF THE ASSESSEE THAT IT HAS NOT INCURRED ANY DIRECT EXPENDITURE FOR EARNING EXEMPT INCOME. THIS ASPECT HAS NOT BEEN EXAMINED BY THE AO FROM THE ACCOUNTS. IN OTHER WORDS, THE AO COULD VERIFY HOW MUCH EXPENDITURE ARE DEBITED UNDER THE HEAD SALARIES, WHO ARE THE PERSONS LOOKIN G AFTER INVESTMENT; WHETHER INVESTMENT HAS ALSO BEEN REDUCE D IN COMPARISON TO EARLIER YEAR. THUS, LOOKING TO THE A MOUNT OF EXEMPT INCOME, ON WHICH NO INTEREST COULD BE DISALL OWED, WE ARE OF THE VIEW THAT THE LD.REVENUE AUTHORITIES HAVE NO T CONSIDERED THE ISSUE IN RIGHT PERSPECTIVE. THE AMOUNT INVOLVE D IS ITA NO.817/AHD/2017 5 RS.2,18,030/- WHICH IS A VERY MEAGER AMOUNT IN COMP ARISON OF RETURNED INCOME OF RS.1,41,91,734/-. NO FRUITFUL P URPOSE COULD BE ACHIEVED BY SENDING THE ISSUE FOR FRESH INQUIRY AT THE LEVEL OF AO. THEREFORE, WE DEEM IT APPROPRIATE TO ESTIMATE CERTA IN EXPENDITURE FOR TAKING CARE OF ADMINISTRATIVE NEEDS FOR THESE I NVESTMENTS. WE RESTRICT THE DISALLOWANCE AT RS.1,25,000/-. THIS F IGURE HAS BEEN CONSIDERED LOOKING TO THE TAX FREE INCOME. THEREFO RE, WE PARTLY ALLOW THIS GROUND OF APPEAL. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 13 TH FEBRUARY, 2019. SD/- SD/- (AMARJIT SINGH) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER