LAKESH SHRIKANTH KAUL, MUMBAI V. ADDL CIT CIR 12(1), MUMBAI

ITA 851/MUM/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4163 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-07-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 15-07-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 08-02-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DIVYA BAJPAI
• Assessee Lawyers: LALCHAND CHOUDHARY
• Keywords: Opportunity of being heard; Earning of tax free income; Difference of opinion
• Section: 14A

Judgement Text

A IN THE INCOME TAX APPELLATE TRIBUNAL A BENC H, MUMBAI . . , . , ! '#$ ' BEFORE SHRI H.L. KARWA, PRESIDENT AND SHRI D. KARUNAKARA RAO, AM ' ./I.T.A. NO.851/M/2012 ( %& ' / ASSESSMENT YEAR :2008-2009) LAKESH SHRIKANTH KAUL, M/S. ENTERPRISES, 101 SHREEJI CHAMBERS, JANMABHOOMI MARG, MUMBAI 400 001. & / VS. ACIT, CIRCLE - 12(1), 1 ST FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. $( ! ' ./PAN : ADOPK 3913 C ( () /APPELLANT) .. ( *+() / RESPONDENT) () , - ' / APPELLANT BY : SHRI LALCHAND CHOUDHARY *+() , - ' / RESPONDENT BY : MS. DIVYA BAJPAI ' & , .! /DATE OF HEARING : 15.07.2013 /0' , .! /DATE OF PRONOUNCEMENT : 15.07.2013 #1 #1 #1 #1 / O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE ASSESSEE ON 8.2.2012 IS AG AINST THE ORDER OF CIT (A)- 23, MUMBAI DATED 11.11.2011 FOR THE ASSESSMENT YEAR 2008-2009. 2. IN THIS APPEAL, ASSESSEE RAISED THE FOLLOWING GRO UNDS WHICH READ AS UNDER: 1. ON THE FACTS AND IN LAW, THE CIT (A) WAS NOT JUS TIFIED IN CONFIRMING THE FOLLOWING DISALLOWANCES OF GENUINE BUSINESS EXPENDI TURES. (I) 25% OF MISC. EXPENSES RS. 10,215/- (II) 10% OF REFRESHMENT EXPENSES RS. 25,116/- (III) 25% OF TRAVEL EXPENSES RS.3,87,843/- (IV) 100% OF PROVISION FOR TRAVEL EXPENSES RS. 29,468 /- 2. ON FACTS AND IN LAW, THE CIT (A) WAS NOT JUSTIFI ED IN INVOKING POWERS CONFERRED UPON HIM U/S 251 AND IN ENHANCING OF THE ASSESSMENT. 3. ON FACTS AND IN LAW AND IN ABSENCE OF ANY SPECIF IC FINDING FOR INCURRING OF EXPENDITURE BY THE APPELLANT IN RESPECT OF HIS PERS ONAL INVESTMENTS, THE CIT (A) WAS NOT JUSTIFIED IN DIRECTING THE AO TO MAKE DISALLOWA NCE U/S 14A OF THE INCOME TAX ACT, 1961 READ WITH RULE-8D OF THE INCOME TAX RULES, 196 2. 2 3. BRIEFLY STATED RELEVANT FACTS OF THE CASE ARE TH AT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CIVIL CONSTRUCTION AND DEVELOPMENT OF REAL ESTATE. ASSESSEE FILED THE RETURN OF INCOME DECLARING THE TOTAL INCOME OF RS. 1,40,74,776/- AND THERE WAS AN ENQUIRY INTO THE CLAIM OF EXPENSES DEBITED TO THE P &L ACCOUNT. AO NOTICED THAT MOST OF THE EXPENSES ARE SELF VOUCHED AND NO PROPER BILLS ARE AVAILABLE. THEREFORE, AO REJECTED THE ASSESSEES CLAIM ABOUT THE GENUINEN ESS OF THE EXPENDITURE AND MADE DISALLOWANCE ON AD-HOC BASIS , WHICH RESULTED IN THE ADDITION OF RS. 7,53,992/-. THIS DISALLOWANCE COVERS VARIOUS ACCOU NTS, NAMELY (1) MISCELLANEOUS EXPENSES (2) REFRESHMENT EXPENSES (3) SALARY & WAGE S (4) TRAVELLING AND CONVEYANCE EXPENSES AND (5) VEHICLE EXPENSES. AGGR IEVED, WITH THE ABOVE ADDITION, ASSESSEE FILED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 4. DURING THE PROCEEDINGS BEFORE THE FIRST APPELLAT E AUTHORITY, AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, CIT (A) PARTLY-ALL OWED THE APPEAL OF THE ASSESSEE. FURTHER, IN CONNECTION WITH THE CLAIM OF EXEMPT INC OME OF THE ASSESSEE, CIT (A) GAVE A DIRECTION TO THE AO TO APPLY THE PROVISIONS OF RULE 8D OF INCOME TAX RULES, 1962 AND MAKE DISALLOWANCE U/S 14A OF THE ACT. AGG RIEVED WITH THE ABOVE ADDITIONS AND DIRECTION OF THE CIT (A), ASSESSEE FILED THE PR ESENT APPEAL BEFORE THE TRIBUNAL WITH THE ABOVE GROUNDS. GROUND-WISE ADJUDICATION I S GIVEN AS UNDER. 5. GROUND 1 RELATES TO THE DISALLOWANCE OF EXPENSES FROM VARIOUS EXPENSES DISCUSSED ABOVE INVOLVING (I) MISCELLANEOUS EXPENSE S ACCOUNT (II) REFRESHMENT ACCOUNT (III) TRAVELLING EXPENSES ACCOUNT AND (IV) PROVISION FOR TRAVELLING EXPENSES ACCOUNT. IN CONNECTION WITH THE SUB-GROUNDS (I), ( II) AND (IV) OF GROUND 1, LD COUNSEL SUBMITTED THAT THESE ISSUES ARE NOT PRESSED CONSIDERING THE SMALLNESS OF ADDITIONS. AFTER HEARING THE LD DR, WE PROCEED TO DISMISS THE SAID SUB-GROUNDS AS NOT PRESSED . 6. IN CONNECTION WITH THE ISSUE RAISED IN SUB-GROUND (III) OF GROUND 1 ABOVE, WHICH RELATES TO TRAVELLING EXPENSES, LD COUNSEL SU BMITTED THAT ORIGINALLY ASSESSEE MADE A CLAIM OF RS. 15,95,447/- ON ACCOUNT OF TRAVE LLING AND CONVEYANCE EXPENSES WHICH INCLUDES BOTH LOCAL AS WELL AS FOREIGN TRAVEL . LD COUNSEL MENTIONED THAT THE ASSESSEE, HIS WIFE AND DAUGHTER HAD TO TRAVEL ABROA D IN CONNECTION WITH THE BUSINESS PROMOTIONS. IN THE ASSESSMENT, AO ACCEPTED THE SAID CLAIM OF THE ASSESSEE TO THE 3 EXTENT OF 75% OF THE TRAVEL EXPENDITURE. HOWEVER, A O HAS DIFFERENCE OF OPINION ON THE BALANCE OF 25% OF EXPENSES AND DISALLOWED THE S AME. THE ADDITION ON THIS ACCOUNT WORKS OUT TO RS. 3,87,843/-. CIT (A) CONFIR MED THE SAME. FURTHER, LD COUNSEL TOOK OBJECTION TO THE DISALLOWANCE WHEN DEP ARTMENT ACCEPTED THE FACTS ABOUT THE BUSINESS PURPOSES OF THE FOREIGN AND LOCA L VISITS BY ALL THE THREE PERSONS. WITHOUT PREJUDICE, LD COUNSEL MENTIONED THAT THE DI SALLOWANCE @ 25% OF THE CLAIM IS ON HIGHER SIDE AND SUBMITTED FOR ADOPTING A REAS ONABLE BASIS FOR MAKING DISALLOWANCE. LD COUNSEL ALSO MENTIONED THAT THE DI SALLOWANCE @ 10% OF RS. 15,95,447/- IE THE TRAVEL EXPENDITURE MAY BE REASON ABLE. 6. ON THE OTHER HAND, LD DR RELIED ON THE ORDER OF THE AO. 7. WE HAVE HEARD BOTH THE PARTIES ON THE ISSUE RELA TING TO TRAVELLING EXPENSES AND FIND THAT THE AO AND CIT (A) HAVE ACCEPTED THE BUSINESS PURPOSES OF THE SAID EXPENDITURE ON TRAVEL OF SELF, SPOUSE AND THE DAUGH TER. HOWEVER, THEY MADE DISALLOWANCE OF RS. 3,87,843/- WITHOUT ANY BASIS. AO HAS NOT BROUGHT ANY MATERIAL OR COMPARABLE CASES ON RECORD TO DEMONSTRATE THAT T HE EXPENDITURE CLAIM IS EXCESSIVE BY 25% OF THE CLAIM. CIT (A) CONFIRMED T HE SAID CONCLUSIONS OF AO WITHOUT ANY JUSTIFIABLE BASIS. BEFORE US, LD COUNS EL SUBMITTED THAT HE HAS NO GRIEVANCE IF 10% OF THE TRAVEL EXPENDITURE IS DISAL LOWED. ON THE OTHER HAND, LD DR HAS NO EVIDENCE IN SUPPORT OF ADDITION CONFIRMED BY CIT (A). THEREFORE, WE ARE OF THE OPINION THAT MAKING DISALLOWANCE OF 10% OF RS. 15,95,447/- SHOULD MEET BOTH THE ENDS OF JUSTICE. WE ACCORDINGLY, DIRECT THE AO TO COMPUTE THE DISALLOWANCE AT THE RATE OF 10% OF THE TRAVEL EXPENDITURE. ACCORDI NGLY, GROUND NO.1 IS PARTLY ALLOWED . 8. GROUND NO.2 & 3 ARE RAISED AGAINST THE DIRECTION THE CIT (A) GIVEN TO THE AO TO MAKE DISALLOWANCE U/S 14A OF THE ACT READ WITH R ULE-8D OF IT RULES, 1962. RELEVANT FACTS OF THIS DIRECTION INCLUDE THAT THE A SSESSEE EARNED EXEMPT INCOME AMOUNTING TO RS. 63,96,725/-, BEING A DIVIDEND INCO ME, FROM INVESTMENTS IN SHARES AND UNITS IN MUTUAL FUNDS. ASSESSEE CLAIMED THE SA ME AS EXEMPT U/S 10(34)/10(35) OF THE ACT. HOWEVER, THE ASSESSEE HAS NOT MADE ANY DISALLOWANCE U/S 14A OF THE ACT. DURING THE ASSESSMENT ALSO, AO HAS NOT MADE AN Y DISALLOWANCE U/S 14A R W RULE-8D OF THE INCOME TAX RULES, 1962. HOWEVER, DUR ING THE FIRST APPELLATE 4 PROCEEDINGS, CIT(A) NOTED THAT IT ATTRACTS THE PRO VISIONS OF SECTION 14A OF THE ACT AND EXAMINED THE ISSUE IN DETAIL AND ISSUED ENHANCE MENT NOTICE TO THE ASSESSEE U/S 251 OF THE ACT. 9. BEFORE THE CIT (A), IT IS THE CLAIM OF THE ASSE SSEE THAT NO EXPENDITURE, WHATSOEVER WAS INCURRED FOR EARNING OF THE DIVIDEND INCOME. IN THIS REGARD, CIT (A) REMANDED THE MATTER TO THE AO AND CALLED FOR REPORT . IN REPLY, AO FURNISHED A REPORT ON 11.10.2011 TO THE CIT (A), WHEREIN THE AO MENTIO NED THAT DESPITE THE ASSESSEES CLAIM OF INCURRING NO EXPENDITURE FOR EARNING OF EX EMPT INCOME, THERE ARE EXPENSES INDIRECTLY INCURRED FOR EARNING OF THE EXEMPT INCOM E AND THERE IS NEED FOR MAKING DISALLOWANCE U/S 14A R.W. RULE-8D OF I.T. RULES, 19 62. FOR THIS, AO RELIED ON THE JUDGMENT OF BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD VS. DCIT, 328 ITR 81 AND PROPOSED FOR MAKING THE DISALL OWANCE AS PER THE PROVISIONS OF RULE-8D OF THE IT RULES, 1962. AFTER EXAMINING ASS ESSEES REPLY ON THE REMAND REPORT OF THE AO, CIT (A) GAVE A DIRECTION TO THE A O TO COMPUTE DISALLOWANCE U/S 14A IN TERMS OF RULE-8D AND MAKE ADDITION TO INCOME ACCORDINGLY. THEN, THE SAID DIRECTION IS THE BONE OF CONTENTION IN THIS APPEAL. ON THIS ISSUE, LD COUNSEL SUBMITTED THAT THE ABOVE DIRECTION OF THE CIT (A) H AS NOT LEFT ANY ROOM FOR THE ASSESSING OFFICER TO APPLY THE SAID PROVISIONS SCRU PULOUSLY. HE ALSO MENTIONED THAT BY VIRTUE OF THE SAID DIRECTION, AO HAS NO LIBERTY TO EXAMINE THE CLAIM OF THE ASSESSEE ABOUT THE NON-INCURRING OF ANY EXPENDITURE BEFORE THE SAID RULES ARE APPLIED TO THE FACTS OF THE PRESENT CASE. RELYING ON THE SAID JUDGMENT OF THE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE (SU PRA), LD COUNSEL MENTIONED THAT AO IS UNDER OBLIGATION TO SATISFY HIMSELF ABOU T THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE, EVEN IF THE CLAIM RELATES TO THE NON- INCURRING OF THE EXPENDITURE RELATABLE TO EARNING OF THE EXEMPT INCOME. ASSESSE ES COUNSEL SEEKS MODIFICATION OF THE SAID DIRECTION PROVIDING LIBERTY TO THE AO TO E XAMINE THE CLAIM BEFORE APPLYING THE RULE-8D FOR THE YEAR UNDER CONSIDERATION. 10. PER CONTRA , LD DR MENTIONED THAT, THIS BEING THE AY 2008-2009 , WHICH IS UNDER CONSIDERATION, AND BY VIRTUE OF THE CITED JUD GMENT OF BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE (SUPRA), THE AO IS UNDER OBLIGATION TO QUANTIFY THE DISALLOWANCE AS PER RULE-8D OF INCOME TAX RULES, 196 2 AND DISALLOW THE SAME U/S 5 14A OF THE ACT. AS PER LD DR, THE DIRECTION OF THE CIT (A) DOES NOT CALL FOR ANY MODIFICATION. 11. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE SUBSTANCE OF THE DIRECTION GIVEN BY THE CIT (A). WE FIND THAT DIRECTION OF T HE CIT (A), LEAVES NO DISCRETION TO THE AO FOR EXAMINING THE CLAIM OF THE ASSESSEE. WE FIND THAT THE RULE-8D PERMITS THE AO TO SATISFY HIMSELF ABOUT THE CORRECTNESS OF THE CLAIM AND AFTER HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. BEFORE US, ASSESS EE REQUESTS FOR MODIFYING THE SAID DIRECTION OF THE CIT(A) PROVIDING LIBERTY TO THE AO TO EXAMINE AND SATISFY HIMSELF ABOUT THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE HAVING REGARD TO THE ACCOUNTS FOR THE YEAR UNDER CONSIDERATION AND THEN APPLYING THE PROVISIONS OF SECTION 14A R W RULE-8D OF I T RULES, 1962. ON HEARING THE PARTIES , WE FIND THAT IT IS A SETTLED ISSUE THAT THE AO IS UNDER STATUTORY OBLIGATION TO SATISF Y HIMSELF ABOUT THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE HAVING REGARD TO THE BOOK S OF ACCOUNTS. THIS PART OF OBLIGATION HAS TO BE DISCHARGED BY THE AO BEFORE IN VOKING THE PROVISIONS OF THE SAID RULE-8D. THEREFORE, WE FIND MERIT IN THE CLAI M OF THE ASSESSEE AND APPROVE THE REQUEST FOR MODIFICATION OF THE DIRECTION OF THE CI T (A) TO THE AO. ACCORDINGLY, AS PER THE MODIFIED DIRECTIONS, AO SHALL EXAMINE THE S UBMISSIONS AND CLAIMS OF THE ASSESSEE AFRESH AND SATISFY HIMSELF ABOUT THE CORRE CTNESS OF THE CLAIM OF THE ASSESSEE. IN THIS REGARD, WE DIRECT THE AO TO EXAMI NE THE CLAIM OF NON-INCURRING ANY EXPENDITURE FOR EARNING EXEMPT INCOME TOO. ACCORDIN GLY, AO SHALL COMPUTE THE DISALLOWANCE U/S 14A READ WITH RULE-8D HAVING REG ARD TO THE ACCOUNTS OF THE ASSESSEE FOR THE PREVIOUS YEAR AND IN ACCORDANCE WI TH THE LAW IN FORCE. IN THE SET ASIDE PROCEEDINGS, AO SHALL GRANT A REASONABLE AND ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ACCORDINGLY, GROUNDS 2 & 3 A RE SET ASIDE . 12. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH JULY, 2013 SD/- SD/- (H.L. KARWA) (D. KARUNAKARA RAO ) / PRESIDENT ! '#$ / ACCOUNTANT MEMBER MUMBAI; 2#& DATED 15.7.2013 6 . %& . ' ./ OKK , SR. PS #1 #1 #1 #1 , ,, , *%.34 *%.34 *%.34 *%.34 54'. 54'. 54'. 54'. / COPY OF THE ORDER FORWARDED TO : 1. () / THE APPELLANT 2. *+() / THE RESPONDENT. 3. 6 ( ) / THE CIT(A)- 4. 6 / CIT 5. 478 *%.%& , , / DR, ITAT, MUMBAI 6. 8 9 / GUARD FILE.- '+4. *%. //TRUE COPY// #1& ' #1& ' #1& ' #1& ' / BY ORDER, : :: : / '; '; '; '; < < < < (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI