M/s Mid Valley Health Care Services Pvt. Ltd., Ahmedabad V. The Dy.Commissioner of Income Tax,Circle-2(1)(2), Ahmedabad

ITA 895/AHD/2016

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 7281 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 3 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 11-07-2019
• Assessment Year: 2012-2013
• Appeal Filed On: 08-04-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KISHAN VYAS; SANTOSH KARNANI
• Keywords: Earning of tax free income; Rule 8D
• Section: 143(3); 14A; 115JB

Judgement Text

, A IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER & SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER ./ I.T.A. NO. 895/AHD/2016 ( / ASSESSMENT YEAR: 2012-13) M/S. MID VALLEY HEALTH CARE SERVICES PVT. LTD. 51, NEW YORK TOWER-A, S.G. HIGHWAY, AHMEDABAD- 380059 / VS. DCIT CIRCLE-2(1)(2), AHMEDABAD ./ ./ PAN/GIR NO. : AAE CM7 777 K ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI TUSHAR P. HEMANI, AR / RESPONDENT BY : SHRI KISHAN VYAS CIT DR AND SANTOSH KARNANI, SR. DR / DATE OF HEARING 11/07/2019 !'# / DATE OF PRONOUNCEMENT 29/07/2019 $%/ O R D E R PER PRADIP KUMAR KEDIA - AM: THE CAPTIONED APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT(A)-2, AHMEDABAD (CIT(A) IN SHORT ), DATED 01.01.2016 ARISING IN THE ASSESSMENT ORDER DATED 1 6.02.2015 PASSED BY THE ASSESSING OFFICER UNDER S. 143(3) OF THE INC OME TAX ACT, 1961 (THE ACT) CONCERNING A.Y. 2012-13. 2. IN THE CAPTIONED APPEAL, THE ASSESSEE IS AGGRIE VED BY THE DISALLOWANCE OF RS. 11,48,205/- SUSTAINED BY THE CI T(A) TOWARDS ADMINISTRATIVE EXPENSES ATTRIBUTABLE TO EXEMPT INCO ME WHILE ITA NO.895/AHD/2016 [M/S. MID VALLEY HEALTH CARE SERVICES PVT. LTD. VS. DCIT] A.Y. 2012-13 - 2 - COMPUTING THE TAXABLE INCOME UNDER THE NORMAL PROVI SIONS OF THE ACT. SIMILARLY, THE ASSESSEE IS ALSO AGGRIEVED BY THE ADJUSTMENT OF THE AFORESAID AMOUNT OF DISALLOWANCE CARRIED OUT UN DER S. 14A WHILE COMPUTING BOOK PROFITS UNDER S. 115JB OF THE ACT. 3. WHEN THE MATTER WAS CALLED FOR HEARING, THE LD. AR FOR THE ASSESSEE SUBMITTED THAT ASSESSEE HAS EARNED DIVIDEN D INCOME OF RS. 29,30,083/- DURING THE YEAR WHICH WAS CLAIMED AS EX EMPT ON INVESTMENT HELD BY IT AMOUNTING TO RS. 29,82,54,378 /- IN ITS BALANCE SHEET. THE LD. AR SUBMITTED THAT THE ASSESSEE HAS ENGAGED ONE MR. SAMEER PARIKH, CHARTERED ACCOUNTANT TO PROVIDE SUPE RVISORY AND ADVISORY SERVICES IN THE AREAS OF AMOUNTS, TAXATION AND INVESTMENT ADVISORY SERVICES. THE SAID EMPLOYEE HAS BEEN PAID AN AMOUNT OF RS. 6,61,800/- FOR SUCH SERVICES. THE ASSESSEE HAS SUO MOTO ESTIMATED 10% OF SUCH AMOUNT THAT IS RS. 66,180/- A S EXPENSE ATTRIBUTABLE TO EXEMPT INCOME. THE LD. AR THUS SUB MITTED THAT WHEN SUO MOTO DISALLOWANCE HAS BEEN CARRIED OUT BY THE ASSESSEE WHICH HAS NOT BEEN DISLODGED, THE AO COULD NOT HAVE APPLIED THE STATUTORY FORMULA UNDER RULE 8D(2)(III) IN A MECHAN ICAL MANNER. THE LD. AR ALSO POINTED OUT THAT THE ENTIRE ACTION OF APPLYING SEC. 14A FOR THE PURPOSE OF DISALLOWANCE ITSELF IS IMPRO PER AND WITHOUT AUTHORITY OF LAW IN THE ABSENCE OF ANY SATISFACTION FORMED BY THE AO HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE AS CO NTEMPLATED UNDER S. 14A(2) OF THE ACT. THE LD. AR, THEREFORE, PLEAD ED THAT THE DISALLOWANCE MADE BY THE AO AND SUSTAINED BY THE CI T(A) TO THE EXTENT OF RS. 13,60,848/- SHOULD BE VACATED. 4. THE LD. DR OF THE REVENUE, ON THE OTHER HAND, HA S SUPPORTED THE ORDER OF THE AO AND CONTENDED THAT THE LEGAL PL EA OF THE ASSESSEE THAT THE AO HAS FAILED TO FORM SATISFACTION HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE IS FACTUALLY INCORRECT IN VIEW OF THE EXPRESS ITA NO.895/AHD/2016 [M/S. MID VALLEY HEALTH CARE SERVICES PVT. LTD. VS. DCIT] A.Y. 2012-13 - 3 - AVERMENTS MADE BY THE AO HIMSELF AT PAGE NO. 3 OF T HE ASSESSMENT ORDER. AS REGARDS QUANTIFICATION OF DISALLOWANCE, THE LD. DR SUBMITTED THAT THE AO WAS JUSTIFIED IN DRAWING GUID ANCE FROM FORMULA PRESCRIBED IN THE STATUTE BY WAY OF RULE 8D (2)(III) OF THE RULES. SUCH DISALLOWANCE ACCORDING TO DR, THEREFOR E, SHOULD NOT BE TINKERED. 5. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. WE NOTE THAT ASSESSEE HAS CLAIMED EXEMPT INCOME OF RS. 29,3 0,083/- ONLY. THE ASSESSEE WAS HOLDING INVESTMENT TO THE TUNE OF RS. 27.24 CRORES IN THE EARLIER YEAR WHICH HAS INCREASED TO RS. 29.8 2 CRORES DURING THE YEAR. THE ASSESSEE HAS MADE A SUO MOTO DISALLOWANC E OF RS. 66,180/- BEING 10% OF THE AMOUNT PAID TO A PROFESSI ONAL DEDICATED FOR MONITORING INVESTMENTS. THUS, A BASIS HAS BEEN PROVIDED BY THE ASSESSEE FOR SUO MOTO DISALLOWANCE. IN SUCH CIRCUM STANCES, ON A BROADER CONSIDERATION, WE NOTE THAT WHERE THE INVES TMENTS WERE LARGELY MADE IN THE EARLIER YEARS AND HAS BEEN CARR IED FORWARD IN THE CURRENT YEAR WITH A VERY FEW MOVEMENTS THEREIN, A S UBSTANTIAL DISALLOWANCE OF RS. 14,26,648/- COMPUTED UNDER RULE 8D(2)(III) COULD NOT POSSIBLY BE JUSTIFIED. THE ASSESSEE HIMS ELF HAS DISALLOWED RS. 66,180/- AGAINST SUCH DISALLOWANCE. THE CIT(A) IN FIRST APPEAL HAS BROUGHT DOWN THE DISALLOWANCE FROM 14,26,648/- TO RS. 12,14,385/- ON ACCOUNT OF EXCLUSION OF TAXABLE INVE STMENTS BY WAY OF DEBENTURE AND BONDS. THEREFORE, AFTER TAKING NO TE OF THE SUO MOTO DISALLOWANCE OF RS. 66,180/- THE CIT(A) SUSTAINED T HE DISALLOWANCE OF RS. 11,48,025/-. 6. IT IS TRITE THAT THE AO CANNOT MECHANICALLY APPL Y THE FORMULA UNDER RULE 8D(2)(III) WITHOUT EXAMINING THE MERITS OF THE ASSESSEES STAND. WE, HOWEVER, AGREE WITH THE PLEA ON BEHALF OF THE REVENUE THAT CONDITIONS OF REGARDING SATISFACTION UNDER S. 14A(2) WAS ITA NO.895/AHD/2016 [M/S. MID VALLEY HEALTH CARE SERVICES PVT. LTD. VS. DCIT] A.Y. 2012-13 - 4 - SATISFIED FOR INVOKING THE PROVISION. WE ARE OF TH E CONSIDERED VIEW THAT UNDER THE CIRCUMSTANCES THE DISALLOWANCE OF 50 % OF THE EXPENDITURE INCURRED ON PROFESSIONAL THAT IS 50% OF 6,61,800/- WOULD BE SUFFICIENT TO COVER APPROPRIATE DISALLOWANCE TOW ARDS ADMINISTRATIVE EXPENSES. THE ASSESSEE HAS ALREADY DISALLOWED 10% THEREOF. THEREFORE, ANOTHER DISALLOWANCE OF 40% ON THE AFORESAID AMOUNT WHICH WORKS OUT TO RS. 2,64,720/- WOULD THUS MEET THE OBJECT IN THIS REGARD. THE ASSESSEE ACCORDINGLY, G ETS PARTIAL RELIEF. 7. THE ASSESSEE IN ITS GROUNDS OF APPEAL HAS ALSO O BJECTED TO THE ADJUSTMENTS MADE BY THE AO ON ACCOUNT OF DISALLOWAN CE COMPUTED UNDER S. 14A WHILE COMPUTING BOOK PROFIT UNDER S. 1 15JB. WE FIND MERIT IN THE PLEA OF THE ASSESSEE ON THIS SCORE. T HE SPECIAL BENCH OF TRIBUNAL IN THE CASE OF CIT VS. VIREET INVESTMENT P VT. LTD. 165 ITD 27 (DEL)(SB) HAS OBSERVED THAT DISALLOWANCE COMPUTE D UNDER S. 14A CANNOT BE IMPORTED TO THE PROVISIONS OF SEC. 115JB. HOWEVER, AT THE SAME TIME, THE CLAIM OF THE ASSESSEE THAT NO ADJUST MENT IS CALLED FOR WHILE COMPUTING BOOK PROFIT IS VOILATIVE OF EXPLANA TION 1 (F) REFERRED TO IN SEC. 115JB OF THE ACT AND THUS CANNO T BE ENTERTAINED. NO BLANKET EXEMPTION CAN BE READ IN THE SPECIAL BEN CH DECISION IN VIREETS CASE IN THIS REGARD. THUS, THE ADJUSTMENT TO THE TUNE OF RS. 3,30,900 SHALL BE TAKEN INTO ACCOUNT BY THE AO FOR THE PURPOSES OF CLAUSE (F) TO SEC. 115JB IN TUNE WITH DISALLOWANCE SUSTAINED UNDER NORMAL PROVISION. THE SECOND ISSUE IS ACCORDINGLY ALLOWED IN PARTLY. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTL Y ALLOWED. SD/- SD/- (RAJPAL YADAV) (PRADIP K UMAR KEDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: DATED 29/07/2019 TANMAY TRUE COPY THIS ORDER PRONOUNCED IN OPEN COURT ON 2 9/07/2019 ITA NO.895/AHD/2016 [M/S. MID VALLEY HEALTH CARE SERVICES PVT. LTD. VS. DCIT] A.Y. 2012-13 - 5 - !' #' / COPY OF ORDER FORWARDED TO:- 1. / REVENUE 2. $ / ASSESSEE 3. ) *+ , / CONCERNED CIT 4. ,- / CIT (A) 5. 012 33*+, *+#, 56$)$ / DR, ITAT, AHMEDABAD 6. 289 : / GUARD FILE. BY ORDER / $% , ;/5 *+#, 56$)$ < 1.DATE OF DICTATION ON 11.07.2019 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING MEMBER 12.07.2019 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 22.07.2019 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 22.07.2019 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR . P.S./P.S 29.07.2019 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 29.07.2019 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER