PADMAKSHI FINANCIAL SERVICES LTD, MUMBAI V. ACIT CIR 4(2), MUMBAI

ITA 9093/MUM/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3714 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-05-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 25-04-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 28-12-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ROOPAK KUMAR
• Assessee Lawyers: MAHESH O RAJORA
• Keywords: Earning of tax free income
• Section: 14A; 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C, MUMBAI BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI D. KARUNAKARA RAO, ACCOUNTAT MEMBER I.T.A. NO. 9093/MUM/2010 ASSESSMENT YEAR: 2007-2008 PADMAKSHI FINANCIAL SERVICES LTD 96/98 MAKER TOWER, F 9 TH FLOOR, CUFFE PARADE MUMBAI- PIN- 40005 PAN: AABCP2260K VS. ACIT CIR 4(2) AAYAKAR BHAVAN, MUMBAI PIN: 400020 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI JITENDRA JAIN & MAHESH O. RAJOR A RESPONDENT BY : SHRI ROOPAK KUMAR, DR DATE OF HEARING: 25.04.2013 DATE OF ORD ER: 08.05.2013 O R D E R PER D. KARUNAKARA RAO, AM: THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER OF THE CIT(A) DATED 20.10.2010 FOR THE ASSESSMENT YEAR 2007-08. GROUND S READ AS UNDER: 1. THE COMMISSIONER OF INCOME TAX (APPEALS)-11, MUM BAI (HEREINAFTER REFERRED TO AS CIT(A)) ERRED IN CONFIR MING THE DISALLOWANCE OF RS. 1,53,614/- BEING PENALTY LEVIED BY THE NATIONAL SECURITIES CLEARING CORPORATION LTD. FOR VIOLATION OF ITS BYE- LAWS FOR PROCEDURAL MATTER. YOU APPELLANT SUBMITS THAT EXPLANATION TO SEC 37(1) DOES NOT APPLY TO THE NATURE OF PENALTIES LEVIED BY THE NATI ONAL SECURITIES CLEARING CORPORATION LTD. AS THE SAME ARE FOR CERTA IN DELAYS / TECHNICAL NON-COMPLIANCE AND HENCE NO DISALLOWANCE SHALL BE C ALLED FOR IN THE MATTER. 2. THE CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS . 8,58,829/- U/S 14A OF THE I.T. ACT AS AGAINST RS. 1 0,000/- OFFERED BY APPELLANT. 2 IT A NO. 9093/MUM/2010 PADMAKSHI FINANCIAL SERVICES LTD 2. DURING THE PROCEEDINGS BEFORE US, AT THE OUTSET, LD COUNSEL FOR THE ASSESSEE MENTIONED THAT THE ABOVE GROUNDS REVOLVE AROUND A C OUPLE OF ISSUES, NAMELY (A) ALLOWABILITY OF RS. 1,53,614/- BEING THE PENALTY LE VIED BY THE NSCC LTD FOR VIOLATION OF ITS BYE-LAWS AND (B) APPLICABILITY OF THE PROVI SIONS OF SECTION 14(A) READ WITH RULE 8D TO THE AY 2007-08. 3. REFERRING TO THE FIRST ISSUE, LEARNED COUNSEL FO R THE ASSESEE MENTIONED THAT AN IDENTICAL ISSUE CAME UP FOR ADJUDICATION IN THE ASS ESSEES OWN CASE FOR THE AY 2005- 06 AND THE SAID ISSUE WAS SET-ASIDE TO THE FILES OF THE AO VIDE THE CONTENTS OF PARA-5 OF THE TRIBUNAL ORDER (ITA NO. 5943/MUM/2009 DATED 09.07.2010). LEARNED COUNSEL FURTHER PRAYED THAT THIS ISSUE MAY ALSO BE SET-ASID E FOR DECIDING THE ISSUE AFRESH AFTER GRANTING REASONABLE OPPORTUNITY TO THE ASSESE E. LD DR RELIED ON THE ORDERS OF THE I T AUTHORITIES DUTIFULLY. 4. WE HAVE PERUSED THE CONTENTS OF THE SAID PARA-5 OF THE ORDER OF THE TRIBUNAL AND FOUND THE SAME READS AS UNDER:- 5. WE HAVE HEARD BOTH THE SIDES. WE FIND THE ASSES SING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE PENALTY HAS BEEN PAID TO SEBI, A STATUTORY CORPORATION FOR VIOL ATION OF RULES FRAMED BY THE GOVT. THE CIT(A) DELETED THE DISALLOWANCE ON THE GROUND THAT THE SAME HAS BEEN PAID TO STOCK EXCHANGES. WE FIND MERIT IN THE ALTERNATIVE CONTENTION OF THE ASSESSEE THAT THE MAT TER MAY BE RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR VERIFICATION OF THE NATURE OF PAYMENT AND ALLOW CONSEQUENTIAL RELIEF IN VIEW OF THE CONSI STENT VIEW OF THE CO- ORDINATE BENCHES OF THE TRIBUNAL. WE, THEREFORE, RE STORE THIS MATTER TO THE FILE OF ASSESSING OFFICER WITH A DIRECTION TO VERIFY THE NATURE OF PAYMENT AND GIVEN APPROPRIATE RELIEF AS PER LAW AFTER GIVING DUE OPPO RTUNITY OF BEING HEARD TO THE ASSESSEE. WE HOLD AND DIRECT ACCORDINGLY. GROUN D NO.1 BY THE REVENUE IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 5. CONSIDERING THE ABOVE SUBMISSIONS AND PRAYER OF THE LEARNED COUNSEL, WE SET- ASIDE THE FIRST ISSUE RELATING TO THE DISALLOWANCE OF THE PENALTY OF RS. 1,53,614/- WITH AN IDENTICAL DIRECTIONS. ACCORDINGLY GROUND NO.1 IS SET ASIDE. 6. 2 ND ISSUE RELATES TO THE APPLICABILITY OF THE PROVISIO NS OF SECTION 14(A) READ WITH RULE 8D OF THE I.T. RULE, 1962. IN THIS REGARD , THE COUNSEL MENTIONED THAT THE ASSESSEE EARNED THE DIVIDEND INCOME OF RS. 6,40,020 /-, WHICH IS EXEMPT FROM TAX. 3 IT A NO. 9093/MUM/2010 PADMAKSHI FINANCIAL SERVICES LTD ASSESSEES EXPLANATION IS THAT NO EXPENDITURE WAS I NCURRED FOR THE EARNING OF THE SAID EXEMPT INCOME. IGNORING THE SAME, AO APPLIED T HE PROVISIONS OF RULE 8D AND QUANTIFIED THE DISALLOWANCE AT RS. 8,58,829/-. THE MATTER TRAVELLED THE CIT(A). ASSESSEE SUBMITTED THAT SAID PROVISIONS OF RULE 8D ARE NOT APPLICABLE TO THE INSTANT AY 2007-08. HE PRAYED FOR RESTRICTING THE DISALLOWA NCE AT RS. 10,000/- ALTERNATIVELY. CIT(A) DISMISSED THE SAME AND CONFIRMED THE AOS FI NDING, OF COURSE, CIT(A) GAVE A FINDING IN PARA 6.3 OF THE IMPUGNED ORDER THAT (A) RULE 8D IS NOT APPLICABLE TO THE INSTANT YEAR AND (B) THE DISALLOWANCE OF RS. 8,58,8 29/- IS REASONABLE. BEFORE US LEARNED COUNSEL FOR THE ASSESSEE MENTIONED THAT THI S ISSUE OF DISALLOWANCE U/S 14A OF THE ACT IS THE SUBJECT MATTER OF LITIGATION IN T HE ASSESSEE OWN CASE FOR AY 2004- 05, WHERE THE CIT(A) HELD THAT THE DISALLOWANCE @ R S. 5% OF THE EXEMPT INCOME WOULD BE CONSTITUTE REASONABLE EXPENDITURE IN THAT YEAR. RELYING ON THE SAME, LEARNED COUNSEL FOR THE ASSESSEE MENTIONED THAT 5% OF THE DIVIDEND INCOME OF RS. 6,40,020/- MAY DISALLOWED FOR THE AY 2007-08 TOO. F URTHER, HE MENTIONED THAT AN IDENTICAL ISSUE EXISTS FOR AY 2006-07 TOO AND THE S AME WAS SET-ASIDE BY THE ITAT. LD COUNSEL APPREHENDS THAT IN ALL PROBABILITY, THE AO SHALL APPLY THE PROVISIONS OF RULE 8D. THEREFORE, ASSESSEE REQUESTED THE TRIBUNAL TO D ECIDE WITHOUT REMANDING TO THE AO. 7. ON THE OTHER HAND, LEARNED DR FOR THE REVENUE RE LIED ON THE ORDER OF THE CIT(A). 8. WE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AS WELL AS THE TRIBUNAL PLACED BEFORE US. IT IS ADMITTED FACT THAT INITIALLY ASSESSEE MENTIONED THAT NO EXPENDITURE WAS INCURRED FOR EARNING OF THE DIVIDEND INCOME OF RS. 6,40,020/- AND SUBSEQUENTLY, ON ADHOC BASIS, ASSESS EE OFFERED A SUM OF RS. 10,000/- FOR DISALLOWANCE. CIT(A) REJECTED THE SAME WITHOUT DISCUSSION. IT IS A FACT THAT THE DEPARTMENT CONSIDERED THE DISALLOWANCE @ 5 % WOULD BE QUITE REASONABLE FOR THE AY 2007-08 WHICH IS NOT DISPUTED BEFORE THE ITAT. FURTHER, WE FIND THE CONCLUSION OF CIT(A) THAT ASSESSEE SPENT RS. 8,58,8 29/- FOR EARNING THE DIVIDEND INCOME OF RS. 6,40,020/-, DOES NOT APPEAR REASONABL E. CONSIDERING UNDISPUTED ORDER OF THE CIT(A) FOR THE AY 2007-08, WE ARE OF T HE OPINION, MAKING DISALLOWANCE @ 5% OF THE DIVIDEND INCOME SHOULD MEET THE ENDS OF JUSTICE. IT IS A SETTLE LEGAL 4 IT A NO. 9093/MUM/2010 PADMAKSHI FINANCIAL SERVICES LTD PROPOSITION THAT THE PROVISIONS OF RULE 8D OF THE I .T. RULES, 1962 DOES NOT APPLY TO AY 2007-08. THEREFORE, WE PROCEED TO HOLD THAT THE MAKING DISALLOWANCE @ 5% SHOULD CONSTITUTE A REASONABLE DISALLOWANCE. ACCOR DINGLY, GROUND 2 IS PARTLY ALLOWED. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 08 TH DAY OF MAY, 2013. SD/- SD/- (I.P. BANSAL) (D. KA RUNAKARA RAO) JUDICIAL MEMBER ACCOUNT ANT MEMBER DATE :08.05.2013 AT :MUMBAI SK COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (A), CONCERNED. 4. THE CIT CONCERNED. 5. THE DR C, BENCH, ITAT, MUMBAI. 6. GUARD FILE. // TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI