Asman Investment Ltd., Ahmedabad V. The Dy.CIT,Range-1, Ahmedabad

ITA 932/AHD/2011

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6069 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 2 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-06-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 18-06-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 30-03-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: VIJAY RANJAN
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER AND SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER ITA NOS.932 & 933/AHD/2011 A.YS. 2006-07 & 2007-08 ASMAN INVESTMENTS LTD., ARVIND MILLS PREMISES, NARODA ROAD, AHMEDABAD. PAN: AABCA 5968 R VS DCIT, CIRCLE-1, AHMEDABAD. (APPELLANT) (RESPONDENT) REVENUE BY : SURABHI SHARMA, SR.D.R., ASSESSEE(S) BY : SHRI VIJAY RANJAN, A.R. / DATE OF HEARING : 18/06/2014 / DATE OF PRONOUNCEMENT: 27/06/2014 / O R D E R PER SHRI MUKUL KUMAR SHRAWAT, JUDICIAL MEMBER THESE TWO APPEALS HAVE BEEN FILED BY THE ASSESSEE A RISING FROM THE ORDER OF LEARNED CIT(A)-VI, AHMEDABAD, BOTH DAT ED 03.03.2011. THE ASSESSEE HAS RAISED THE GROUNDS WHICH WERE CONCISED AS UNDER: IN LAW AND IN THE FACTS OF THE CASE THE COMMISSION ER OF INCOME TAX(APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE OF (RS.64,35,0 00/- FOR A.Y.2006-07 AND (RS.64,48,000/- FOR A.Y.2007-08) TOWARDS ADMINISTRA TIVE EXPENSES UNDER RULE 8D READ WITH SECTION 14A OF THE INCOME-TAX ACT, 196 1. 2. THE ASSESSEE COMPANY IS IN THE BUSINESS OF TRADI NG IN SHARES AND SECURITIES. IT WAS NOTED BY THE AO THAT THE ASSESSE E HAD EARNED DIVIDEND INCOME OF RS.42,940/- FOR A.Y. 2006-07 AND RS.42,34 7/- FOR A.Y. 2007- 08 WHICH WERE EXEMPTED FROM TAX. IT HAS ALSO BEEN N OTED BY THE AO THAT THE INVESTMENT TO THE TUNE OF RS.12911.42 LACS WAS MADE ON 31.03.2006. FURTHER, IT WAS NOTED THAT THE ASSESSEE TOOK LOAN O F RS.12334.25 LACS FOR THE F.Y. 2005-06 AND RS.12229.25 LACS FOR F.Y.2006- 07. HOWEVER, NO ITA NOS.932 & 933/AHD/2011 ASMAN INVESTMENT LTD. VS. DCIT CIRCLE-1, AHMEDABAD. A.YS.2006-07 & 2007-2008. - 2 - INTEREST WAS CLAIMED BY THE ASSESSEE. THE AO HAS TH EREFORE COMMENTED THAT SOME ADMINISTRATIVE OR OTHER EXPENSES MUST HAV E BEEN INCURRED TO EARN TAX FREE INCOME. ACCORDING TO AO, SOME DISALLO WANCE U/S.14A WAS WARRANTED. ACCORDING TO AO, SOME EXPENDITURE MIGHT HAVE BEEN INCURRED TOWARDS ADMINISTRATIVE EXPENSES, DOCUMENTATION, HAN DLING OF THE INVESTMENT, PORTFOLIO, ETC. THE AO HAS, THEREFORE, APPLIED THE PROVISIONS OF RULE 8D OF IT ACT AND DISALLOWED THE 0.5% OF THE AVERAGE VALUE OF THE INVESTMENT AMOUNTING TO RS.64.35 LACS FOR A.Y.2006- 07 AND RS.64.48 LACS FOR A.Y.2007-08. THE ADDITIONS FOR BOTH THE YE ARS WERE CHALLENGED. 3. BEFORE LEARNED CIT(A), IT WAS CHALLENGED THAT TH E PROVISIONS OF RULE-8D WERE WRONGLY INVOKED AND THAT ALTERNATIVELY A TOKEN DISALLOWANCE OF RS.20,000/- OR RS.25,000/- WOULD BE SUFFICIENT. HOWEVER, LEARNED CIT(A) HAS HELD THAT CONSIDERING T HE SIZE OF BALANCE- SHEET AND THE APPLICATION OF FUNDS, IT WAS CLEAR TH AT SOME ADMINISTRATIVE EXPENDITURE SHOULD HAVE BEEN INCURRED BY THE ASSESS EE AND BECAUSE RULE- 8D HAS FRAMED A FORMULA FOR DISALLOWANCE OF EXPENSE S RELATING TO EXEMPT EXPENSE, THEREFORE, THE AO HAS RIGHTLY MADE THE IMP UGNED ADDITION. BEING AGGRIEVED THE ASSESSEE IS FURTHER IN APPEAL. 4. FROM THE SIDE OF THE APPELLANT, LEARNED AR, MR. VIJAY RANJAN HAD PLEADED THAT IN THE CASE OF CATHOLIC SYRIAN BANK LTD., 9 TAXMANN.COM 148 (KERALA) AND IN THE CASE OF M/S. E-INFOCHIPS LTD. ITAT A BENCH AHMEDABAD IN ITA NO.421/AHD/2012 FOR A.Y.2006-07 AN D 2007-08 VIDE AN ORDER DATED 31.01.2013 HAS HELD THAT THE PROVISI ONS OF SECTION 14-A WITH RULE 8D ARE PROSPECTIVE AND TO BE APPLIED FROM ASSESSMENT YEAR ITA NOS.932 & 933/AHD/2011 ASMAN INVESTMENT LTD. VS. DCIT CIRCLE-1, AHMEDABAD. A.YS.2006-07 & 2007-2008. - 3 - 2008-09. LEARNED AR HAS ALSO CITED FEW DECISIONS OF THE RESPECTED CO- ORDINATE BENCHES. 5. FROM THE SIDE OF THE REVENUE, LEARNED DR, SURABH I SHARMA HAS PLEADED THAT CONSIDERING THE HUGE INVESTMENT FOR EA RNING THE EXEMPTED INCOME SOME ADMINISTRATIVE EXPENDITURE SHOULD HAVE BEEN INCURRED BY THE ASSESSEE. SHE HAS ALSO ARGUED THAT EVEN IN THE ABSENCE OF THE APPLICABILITY OF THE PROVISIONS OF RULE-8D UNDER TH E MAIN PROVISION OF SECTION 14A THIS TYPE OF DISALLOWANCE CAN BE MADE. SHE HAS ALSO PLEADED THAT EVEN BEFORE THE INTRODUCTION OF RULE 8D, THE A O WAS ENTITLED TO DISALLOW THE ADMINISTRATIVE EXPENDITURE IF INCURRED TO EARN THE EXEMPTED INCOME. IT WAS UNDER THE DISCRETION OF THE AO TO ES TIMATE THE EXPENDITURE AND IN THE PRESENT CASE THE AO HAD THOUGHT IT PROPE R TO ESTIMATE THE ADMINISTRATIVE EXPENDITURE @ 0.5% OF THE TOTAL INVE STMENT AND THE SAID ESTIMATION HAS ALSO BEEN APPROVED BY RULE 8D OF IT RULES. THERE WAS NO FALLACY IN THE SAID ESTIMATION; HENCE, DESERVES TO BE ACCEPTED, SHE HAS CONCLUDED. 6. HAVING HEARD THE SUBMISSION OF BOTH THE SIDES. W E ARE OF THE VIEW THAT CONSIDERING THE LAW LAID DOWN BY SEVERAL HIGH COURTS INCLUDING THE DECISION OF WALFORT SHARE AND STOCK BROKER, 326 ITR 1 , THE DECISION OF GODREJ AND BOYCE MFG. CO. LTD., 43 DTR 177 (BOM.) AND ONE OF THE DECISION OF THE TRIBUNAL PRONOUNCED IN THE CASE OF E.INFOCHIPS LTD. (SUPRA) WE HEREBY HOLD THAT THE PROVISIONS OF RULE 8D ARE N OT TO BE APPLIED FOR THE ASSESSMENT YEARS UNDER CONSIDERATIO N. THIS IS ONE ASPECT OF THE ARGUMENT RAISED BEFORE US FROM THE SIDE OF T HE ASSESSEE. BUT THERE IS AN ANOTHER ARGUMENT FROM THE SIDE OF THE REVENUE THAT IN TERMS OF THE ITA NOS.932 & 933/AHD/2011 ASMAN INVESTMENT LTD. VS. DCIT CIRCLE-1, AHMEDABAD. A.YS.2006-07 & 2007-2008. - 4 - MAIN PROVISIONS OF SECTION 14A FOR THE PURPOSE OF C OMPUTING THE TOTAL INCOME NO DEDUCTION IS TO BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NO T FORM PART OF THE TOTAL INCOME. BECAUSE OF THIS IMPUGNED PROVISION OF SECTI ON 14A, THE AO IS AUTHORIZED TO DISALLOW SUCH EXPENDITURE. IN THIS SI TUATION, ACCORDING TO US IT IS PROPER TO MAKE A RIGHT ADHOC DISALLOWANCE. TH E AO IS EXPECTED TO ARRIVE AT A REASONABLE AMOUNT OF DISALLOWANCE, ESPE CIALLY, IN THE ABSENCE OF RULE 8D OF IT RULES. BECAUSE OF THIS REASON, WE HEREBY HOLD THAT WHEN THE MATTER WAS DISCUSSED BEFORE LEARNED CIT(A) THE ASSESSEE HAS ITSELF OFFER A SUM OF RS.20,000/- TO RS.25,000/- ON ESTIMATE BASIS TO BE DISALLOWED, AS NOTED BY LEARNED CIT(A) ON PAGE 5 PA RAGRAPH 3.3 OF THE IMPUGNED APPELLATE ORDER. IN THE ABSENCE OF ANY PAS T HISTORY THAT SUCH DISALLOWANCE WERE EVEN MADE WE HEREBY HOLD THAT SUC H AN OFFER AS MADE BY THE ASSESSEE BEFORE LEARNED CIT(A) SHOULD RESOLV E THE CONTROVERSY. WE, THEREFORE, HOLD THAT AN ESTIMATED DISALLOWANCE OF ADMINISTRATIVE EXPENDITURE OF RS.20,000/- CAN BE MADE FOR A.Y. 200 6-07 AND RS.25,000/- FOR A.Y. 2007-08. WE DIRECT ACCORDINGLY . THE GROUND RAISED BY THE ASSESSEE IS, THEREFORE, PARTLY ALLOWED. 7. IN THE RESULT, BOTH THE APPEALS ARE PARTLY ALLOW ED. SD/- SD/- (ANIL CHATURVEDI) (MUKUL KR. SHRAWAT) ACCOUNTANT MEMBER JUD ICIAL MEMBER AHMEDABAD; DATED 27/06/2014 PRABHAT KR. KESARWANI, SR. P.S. / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT ITA NOS.932 & 933/AHD/2011 ASMAN INVESTMENT LTD. VS. DCIT CIRCLE-1, AHMEDABAD. A.YS.2006-07 & 2007-2008. - 5 - 4. ( ) / THE CIT(A)-III, AHMEDABAD 5. , , / DR, ITAT, AHMEDABAD 6. / GUARD FILE. / BY ORDER, / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD