TATA POWER TRADING CO. LTD, MUMBAI V. DCIT CIR 8(3)(1), MUMBAI

ITA 910/MUM/2017

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 8070 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 09-02-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V JUSTIN; CHAUDHARY ARUN KUMAR SINGH
• Assessee Lawyers: MILIN THAKORE
• Keywords: Gift; Opportunity of being heard
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E , MUMBAI BEFORE SHRI C.N. PRASAD, HON'BLE JUDICIAL MEMBER AND SHRI RAJESH KUMAR , HON'BLE ACCOUNTANT MEMBER ITA NO. 910 /MUM/201 7 (A.Y: 2012 - 13 ) M/S. TAT A POWER TRADING CO. LTD., CORPORATE CENTRE, A BLOCK, 34 SANT TUKARAM ROAD, CARNAC BUNDER, MUMBAI 400 009 PAN: AABCT 9887 A V. DY. CIT, CIRCLE 8 (3) (1) ROOM NO. 615, 6 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400 020 (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI MILIN THAKORE DEPARTMENT BY : SHRI V. JUSTIN & SHRI CHAUDHARY ARUN KUMAR SINGH DATE OF HEARING : 26 .10.2018 DATE OF PRONOUNCEMENT : 21 .12 .2018 O R D E R PER C. N. PRASAD (JM) 1. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) 14, MUMBAI [HEREINAFTER IN SHORT LD.CIT(A)] DATED 28.11.2016 FOR THE ASSESSMENT YEAR 2012 - 13. 2. THE FIRST ISSUE IN THE APPEAL OF THE ASSESSEE IS WITH REG ARD TO SUSTAINING THE DISALLOWANCE OF .3,34,714/ - IN RESPECT OF GIFT EXPENDITURE. THE ASSESSING OFFICER IN THE COURSE OF THE ASSESSMENT PROCEEDINGS 2 ITA NO.910/MUM/2017 (A.Y: 2012 - 13) M/S. TATA POWER TRADING CO. LTD., NOTICED THAT THE ASSESSEE DEBITS ITS PROFIT AND LOSS ACCOUNT EXPENDITURE OF .3,34,714/ - TOWARDS GIFTS. A SSESSEE WAS REQUIRED TO EXPLAIN AS TO WHY THESE EXPENSES SHOULD NOT BE DISALLOWED. ASSESSEE SUBMITTED THAT EXPENDITURE ON GIFTS HAS BEEN INCURRED BY THE COMPANY IN V THE NORMAL COURSE OF ITS BUSINESS FOR ITS CLIENTS AND EMPLOYEES AND UTILIZED FOR PROMOTI ON AND GROWTH OF THE BUSINESS AND FOR CREATING HARMONIOUS RELATIONS BETWEEN MANAGEMENT AND STAFF. HOWEVER, ASSESSING OFFICER DISALLOWED THE SAME OBSERVING THAT THE SAID EXPENDITURE IS NOT IN THE NATURE OF BUSINESS EXPEDIENCY. ON APPEAL THE LD. CIT(A) SUS TAINED THE SAME. 3. LD. DR VEHEMENTLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 4. BEFORE US, LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES. LD. COUNSEL FOR THE ASSESSEE FURTHER INVITED OUR ATTENTION TO THE GIFT ARTICLES PRESENTED TO ITS STAFF AND CLIENTS. LD. COUNSEL FOR THE ASSESSEE INVITED THE COMPANY POLICY FOR GIVING GIFTS. HOWEVER, WE SEE THAT THE LD. CIT(A) SUSTAINED THE DISALLOWANCE OBSERVING AS UNDER: - 3. AS REGARDS GROUND NO 1, THE FACTS ARE THAT THE APPELLANT HAS CLAIMED GIFT EXPENSES OF RS 3,34,714/ - . DURING THE ASSESSMENT PROCEEDINGS, THE APPELLANT SUBMITTED THAT SUCH GIFTS ARE MADE TO THE CLIENTS AND EMPLOYEES ON OCCASION OF DIWALI AND ALSO INCLUDES BIRTHDAY GIFTS REIMBURSED TO THE EMPLOYEES. THE AO NOTED THAT THE GIFT GIVEN BY THE ASSESSEE ARE WATCHES, VOUCHERS ETC AND FURTHER NO EVIDENCE HAS BEEN FURNISHED REGARDING THE GIFTS HAVING BEEN MADE TO THE STAFF AND CLIENTS AND THEREFORE THE SAME WAS ADDED. THE APPELLANT DURING THE COURSE OF APPELLATE P ROCEEDING SUBMITTED THE COPIES OF LETTER SUBMITTED BEFORE A.O. 3 ITA NO.910/MUM/2017 (A.Y: 2012 - 13) M/S. TATA POWER TRADING CO. LTD., HOWEVER, GOING THROUGH THE SAME I FIND NARRATIONS LIKE GIFT PASSE S, GIFTS FOR STAFF/ BANKER, RAJ AN NAIR/ BIRTHDAY GIFT, SIVA/GIFT FOR KUNDAN, RA J AN/GIFT/NEHA/BIRTHDAY, GIFT FOR SOURABH AGARWAL ETC. WITH LIMITED INFORMATION, IT CANNOT BE SAID WITH CERTAINTY THAT THE GIFTS PERTAIN TO BUSINESS OF THE APPELLANT AND GIVEN TO STAFF/ CLIENTS. THE A.O HAS ALSO CONTENDED THAT REQUISITE DETAILS ARE NOT FURNISHED. THEREFORE, CONSIDERING THE FACTS, THIS GRO UND IS DISMISSED. 5. ON A CAREFUL CONSIDERATION OF THE OBSERVATION OF THE ASSESSING OFFICER, WE FIND THAT THE ASSESSING OFFICER FAILED TO CONSIDER THE SUBMISSIONS OF THE ASSESSEE AND THE COMPANY POLICY FOR GIVING BIRTHDAY GIFTS AND MARRIAGE GIFTS TO THE EMPL OYEES AND CAME TO THE CONCLUSION THAT THE EXPENDITURE IS NOT LIABLE EXPENDITURE. IN THE LIGHT OF THE SUBMISSIONS OF THE ASSESSEE, WE ARE OF THE VIEW THAT THIS ISSUE HAS TO BE RE - EXAMINED BY THE ASSESSING OFFICER WITH REFERENCE TO THE COMPANY POLICY AND TH E SUBMISSIONS OF THE ASSESSEE . WE RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR DENOVO CONSIDERATION AFTER PROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSE. 6. THE LAST GROUNDS OF AP PEAL OF THE ASSESSEE IS IN RESPECT OF DISALLOWANCE MADE UNDER RULE 8D(2)(III) OF I.T. RULES. 7. THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT INVOKING THE PROVISIONS OF SECTION 14A R.W. RULE 8D MADE DISALLOWANCE OF .2,82,076/ - BEING INTEREST OF .1,5 7,076/ - AND ADMINISTRATIVE EXPENSES AT .1,25,000/ - . ON APPEAL, LD. CIT(A) DELETED THE DISALLOWANCE ON INTEREST OF .1,57,076/ - AND SUSTAINED THE DISALLOWANCE UNDER RULE 8D(2)(III) OF THE 4 ITA NO.910/MUM/2017 (A.Y: 2012 - 13) M/S. TATA POWER TRADING CO. LTD., I.T. RULES. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT NO SATISFA CTION HAS BEEN RECORDED BY THE ASSESSING OFFICER FOR INVOKING THE PROVISIONS OF RULE 8D. LD. COUNSEL FOR THE ASSESSEE ALSO INVITED OUR ATTENTION TO THE DECISION OF THE COORDINATE BENCH IN ASSESSEE S OWN CASE IN ITA.NO. 2724/MUM/2016 DATED 30.05.2018 FOR T HE ASSESSMENT YEAR 2011 - 12 , WHEREIN THE TRIBUNAL DELETED THE DISALLOWANCE MADE U/S. 14A R.W. RULE 8D (2)(III) OF I.T. RULES FOR NON - RECORDING OF PROPER SATISFACTION. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT DURING THE ASSESSMENT YEAR UNDER CONSIDERATIO N ALSO NO SATISFACTION RECORDED BY THE ASSESSING OFFICER IN INVOKING THE PROVISIONS OF RULE 8D OF I.T. RULES. 8. LD. DR VEHEMENTLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF THE AUTHORITIES BELOW. ON A PERUSAL OF THE ORDERS OF THE AUTHORITIES BELOW AND THE DECISION OF THE TRIBUNAL, WE FIND THAT THE COORDINATE BENCH DELETED THE DISALLOWANCE FOR NOT RECORDING OF SATISFACTION OBSERVING AS UNDER: - 7. WE HAVE FURTHER DELIBERATED ON THE FACTS LEADING TO THE DISALLOWANCE OF RS.1,56,689/ - MADE UNDER SEC. 14A R.W RULE 8D. WE ARE PERSUADED TO BE IN AGREEMENT WITH THE CLAIM OF THE LD. A.R THAT IN THE BACKDROP OF SUBSTANTIAL OWN FUNDS AVAILABLE WITH THE ASSESSEE, NO DISALLOWANCE OF ANY PART OF THE INTEREST E XPENDITURE WAS CALLED FOR UNDER SEC. 14A R.W RULE 8D(2)(II). WE FIND THAT OUR AFORESAID VIEW STANDS FORTIFIED BY THE JUDGMENT OF THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF CIT - 2, MUMBAI VS. HDFC BANK LTD. (2014) 366 ITR 505 (BOM). ALTERNATIVELY, WE AR E ALSO PERSUADED TO SUBSCRIBE TO THE CLAIM OF THE LD. A.R, THAT AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. VS. DCIT & ANR. (2017) 394 ITR 0449 (SC), THE A.O WHILE DISLODGING THE CLAIM OF THE ASSESSEE THAT NO D ISALLOWANCE UNDER SEC.14A WAS LIABLE TO BE MADE, REMAINED UNDER A STATUTORY OBLIGATION TO RECORD HIS SATISFACTION THAT HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, AS PLACED BEFORE HIM, IT WAS 5 ITA NO.910/MUM/2017 (A.Y: 2012 - 13) M/S. TATA POWER TRADING CO. LTD., NOT POSSIBLE FOR HIM TO GENERATE THE REQUISITE SATISFACTION W ITH REGARD TO THE CORRECTNESS OF THE SAID CLAIM OF THE ASSESSEE. WE ARE OF THE CONSIDERED VIEW THAT AS THE A.O HAD FAILED TO RECORD HIS SATISFACTION WHILE REFUSING TO ACCEPT THE CLAIM OF THE ASSESSEE THAT NO EXPENSES WERE INCURRED FOR EARNING OF THE EXEMPT DIVIDEND INCOME, AND HAD RATHER MECHANICALLY CARRIED OUT THE DISALLOWANCE UNDER SEC. 14A R.W RULE 8D, THE SAME ON THE FAILURE ON HIS PART TO COMPLY WITH THE STATUTORY OBLIGATION SO CAST ON HIM, THUS CANNOT BE SUSTAINED AND ON THE SAID COUNT ITSELF IS LIAB LE TO BE VACATED. WE THUS IN TERMS OF OUR AFORESAID OBSERVATIONS ARE UNABLE TO PERSUADE OURSELVES TO UPHOLD THE DISALLOWANCE OF RS.1,56,689/ - MADE BY THE A.O UNDER SEC. 14A R.W. RULE 8D IN THE HANDS OF THE ASSESSEE. THE GROUND OF APPEAL NO. 2 IS ALLOWED . 10. ON A PERUSAL OF THE ASSESSMENT ORDER, WE FIND THAT NO PROPER SATISFACTION HAS BEEN RECORDED BY THE ASSESSING OFFICER HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE AND THE SUBMISSIONS MADE BEFORE HIM. THUS, FOLLOWING THE ORDER OF ITAT FOR ASSESSMENT YEAR 2 011 - 12, WE DIRECT THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE MADE UNDER RULE 8D (2)(III) OF I.T. RULES. THIS GROUND OF APPEAL IS ALLOWED. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON THE 21 ST DECEMBER , 2018 SD/ - SD/ - ( R AJESH KUMAR) ) (C.N. PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI / DATED 21 / 12 / 2018 GIRIDHAR , SR. PS 6 ITA NO.910/MUM/2017 (A.Y: 2012 - 13) M/S. TATA POWER TRADING CO. LTD., COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY// BY ORDER (ASSTT. REGISTRAR) ITAT, MUM