Vini Cosmetics Private Ltd., Ahmedabad V. The DCIT, Circle-4(1)(2), Ahmedabad

ITA 845/AHD/2018

• Counselvise Citation: [2019] 111 COUNSELVISE.COM (IT) 9788 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 8 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 05-04-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: L P JAIN
• Assessee Lawyers: A C SHAH
• Keywords: Earning of tax free income; Rule 8D
• Section: 14A; 201; 143(2); 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH BEFORE: SHR I MAHAVIR PRASAD , JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER VINI COSMETICS PVT. LTD. JANKI HOUSE, 2, SUNRISE PARK SOCIETY, OPP. HIMALAYA MALL BODAKDEV, AHMEDABAD - 380054 PAN: AADCV1454B (APPELLANT) VS THE DCIT , CIRCLE - 4( 1 )(2 ) , AHMEDABAD (RESPONDENT) REVENUE BY : S H RI L. P. JAIN , SR. D . R. ASSESSEE BY: SHRI A.C. SHAH , A.R. DATE OF HEARING : 13 - 12 - 2 019 DATE OF PRONOUNCEMENT : 18 - 12 - 2 019 / ORDER P ER : AMARJIT SINGH, ACCOUN TANT MEMBER : - THIS ASSESSEE S APPEAL FOR A.Y. 2013 - 14 , ARI SES FROM ORDER OF THE CIT(A) - 8 , AHMEDABAD DATED 1 4 - 03 - 2 018 , IN PROCEEDINGS UNDER SECTION 1 4 3(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . 2. THE SOLITARY GROUND OF APPEAL OF THE ASSESSEE IS AGAINST THE DECISION OF LD. CIT(A) IN CONFIRMING THE ADDITION OF OTHER EXPENSES OF RS. 6 , 31 , 171/ - I T A NO . 845 / A HD/20 18 A SS ESSMENT YEAR 2013 - 14 I.T.A NO. 845 /AHD/20 18 A.Y. 2013 - 14 PAGE NO VINI COSMETICS PVT. LTD. VS. DCIT 2 U/S. 14A R.W.R. 8D AS AGAINST THE DISALLOWANCE MADE BY THE ASSESSEE OF RS. 45,000/ - 3. THE FACT IN BRIEF IS THAT THE ASSESSEE HAS FILED RETURN OF INCOME DECLARING LOSS OF RS. 1 , 39 , 42 , 719/ - ON 27 TH S EP, 2013. THE CASE WAS SUBJECT TO SCRUTINY ASSESSMENT AND NOTICE U/S. 143(2) OF THE ACT WAS ISSUED ON 8 TH SEP, 2014. DURING THE COURSE OF ASSESSMENT, THE ASSESSING OFFICER HAS NOTICED THAT ASSESSEE HAS EARN ED AN EXEMPT INCOME OF RS. 1 , 01 ,4 4 , 039/ - AS DIVIDEND WHICH WAS CLAIMED AS EXEMPT INCOME. THE ASSESSING OFFICER HAS ASKED THE ASSESSEE TO EXPLAIN WHY NOT DISALLOWANCE U/S. 14A SHOULD BE MADE AS IT HAS EARNED EXEMPT INCOME. THE ASSESSEE HAS EXPLAINED THAT IT HAS NOT USED BORROWED FUND FOR MAKING INVESTMENT IN SHARE HOWEVER IT HAS DISALLOWED RS. 45,000/ - IN RESPECT OF THE EMPLOYEE DEVOTED TOWARDS THE ACTIVITY OF M.F. THE ASSESSING OFFICER HAS NOT AGREED WITH THE EXPLANATION OF THE ASSESSEE AND STATED AT PAR A 7.3.5 OF THE ASSESSMENT ORDER THAT TO RETAIN THE INVESTMENT OR TO LIQUIDATE THE INVESTMENT THE MANAGEMENT HAS TO MAKE VERY STRATEGIC DECISION. THE ASSESSING OFFICER HAS FURTHER STATED THAT TOP MANAGEMENT WAS INVOLVED IN TAKING DECISION AN D THE DECISION MAKING PROCESS WAS VERY COMPLICATED WHICH REQUIRED CAREFUL ANALYSIS FROM THE TOP MANAGEMENT. THE ASSESSING OFFICER HAS ALSO STATED THAT ASSESSEE HAS TO KEEP TRACK OF THE DIVIDEND IN COME DECLARED BY THE INVESTING COMPANY AND ALSO TO KEEP TRACK OF THE DIVID END INCOME HAVING BEEN REGULARLY RECEIVED BY THE ASSESSEE AND THESE ACTIVITIES REQUIRED CONSIDERABLE MANA GE MENT ATTENTION WHICH CANNOT BE TACKLED BY A JUNIOR CLE R K . THE ASSESSING OFFICER HAS CLEARLY DISCUSSED THE PROVISION OF SECTION 14A AND RULE 8D IN TH E ASSESSMENT ORDER. CONSEQUENTLY, THE ASSESSING OFFICER HAS MADE DISALLOWANCE @ 0.5% I.T.A NO. 845 /AHD/20 18 A.Y. 2013 - 14 PAGE NO VINI COSMETICS PVT. LTD. VS. DCIT 3 ACCORDING TO RULE 8D TO THE AMOUNT OF RS. 6 , 31 , 171/ - AS ADMINISTRATIVE EXPENDITURE INCURRED FOR EARNING EXEMPT IN COME. 4. THE ASSESSEE HAS FILED APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS DISMISSED THE APPEAL OF THE ASSESSEE AFTER CONSIDERING THE SIZE OF THE INVESTMENT STATING THAT ONE EMPLOYEE CANNOT MAKE INVESTMENT DECISION. 5. WE HAVE HARD RIVAL CONTENTION AND PERUSED THE MATERIAL ON RECORD. THE ASSESSEE HA S EARNED EXEMPT INCOME TO THE AMOUNT OF RS. 1 , 01 , 44 , 039/ - . THE ASSESSEE ITSELF HAS DISALLOWED AN AMOUNT OF RS. 45,000/ - INCURRED TOWARDS COST OF EMPLOYEE HANDLED THE WORK RELATING TO INVESTMENT ACTIVITIES OF M.F. THE ASSESSING OFFICER HAS CONSIDERED THAT THE TOP MANAGEMENT IS INVOLVED IN TAKING DECISION FOR LIQUIDATING THE INVESTMENT OR RETAINING THE INVESTMENT OR MAKING INVESTMENT. IT IS ALSO CONSIDER ED THAT ONLY ONE EMPLOYEE CANNOT TAKE SUCH IMPORTANT DECISION TO SUPERVISE AND MAINTAIN THE INVESTMENT A CTI VITY OF THE COMPANY AT A LARGE SCALE. THE LD. COUNSEL HAS CONTENDED THAT THE ASSESSEE IN FACT HAS NOT INCURRED ANY ADDITIONAL EXPENDITURE IN EARNING THE EXEMPT INCOME AND CONTENDED DURING THE YEAR THE ASSESSEE HAS MADE INVESTMENT OF R S. 3.17 CRORE ONLY . HE HAS ALSO CONTENDED THAT INVESTMENT ACTIVITIES ARE HANDLED ON LINE WHICH DOES NOT REQUIRE INVOLVEMENT OF ANY TOP LEVEL MANAGEMENT. IN THE LIGHT OF THE ABOVE FACTS, WE OBSERVE THAT DISALLOWANCE OF ONLY 10% OF ONE EMPLOYEE AS A COST OF ADMINISTRATIVE EXPENDITURE TO THE AMOUNT OF R S. 45,000/ - IS NOT SUFFICIENT AND APPROPRIATE LOOKING TO THE SIZE OF THE INVESTMENT AND THE QUANTUM OF EXEMPT INCOME EARNED FROM THE INVESTMENT WHICH WAS CLAIMED AS EXEMPT. WE ARE OF THE VIEW THAT INVOLVEMENT OF TOP EXECUTIVE S AND USE OF OTHER BUSINESS OFFICE I.T.A NO. 845 /AHD/20 18 A.Y. 2013 - 14 PAGE NO VINI COSMETICS PVT. LTD. VS. DCIT 4 EQUIPMENT LIK E COMPUTE R ETC. AND OFFICE PREMISES IN RESPECT OF INVESTMENT ACTIVITIES CANNOT BE RULED OUT, THEREFORE, WE ARE OF THE VIEW THAT IT WILL BE REASONABLE TO RESTRICT THE DISALLOWANCE UNDER ADMINISTRATIVE EXPENDIT URE TO THE AMOUNT OF RS. 4 LACS. T HERE FORE, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED . 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PR ONOUNCED IN THE OPEN C OURT ON 18 - 12 - 201 9 SD/ - SD/ - ( MAHAVIR PRASAD ) ( AMARJIT SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD : DATED 18 /12 /2019 / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,