DCIT, V. M/s M.N. Dastur & Company,

ITA 94/BANG/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 95295 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 8 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-10-2015
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 15-09-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 20-01-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Principle of natural justice; Rule of consistency; Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH C BEFORE SHRI VIJAYPAL RAO, JUDICIAL MEMBER AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER ITA NO.94/ BANG/2014 (ASST. YEAR 2010-11) THE DY. COMMISSIONER OF INCOME-TAX, CIRCLE-12(1), BANGALORE. . APPELLANT VS. M/S MN DASTUR & CO. PVT. LTD., 7 TH FLOOR, RAHEJA TOWERS, 26/27, MG ROAD, BANGALORE-560 001. . RESPONDENT AABCM2136M. ITA NO.410/BANG/2014 & CO NO.74/BANG/2014 (ASST. YEAR 2010-11) (BY ASSESSEE) REVENUE BY : SHRI SUNIL KUMAR AGARWALA, JCIT ASSESSEE BY : SHRI BK MANJUNATH, C.A DATE OF HEARING : 15-9-2015 DATE OF PRONOUNCEMENT : 07-10-2015 ITA NO.94 & 470 /B/14 CO NO.74/B/14 2 O R D E R PER SHRI VIJAYPAL RAO, JUDICIAL MEMBER : THESE CROSS APPEALS AND CROSS OBJECTIONS BY THE AS SESSEE ARE DIRECTED AGAINST THE ORDER DATED 21/10/2013 OF COM MISSIONER OF INCOME-TAX (APPEALS) - III, BANGALORE FOR THE ASS ESSMENT YEAR 2010- 11. 2. FIRST WE TAKE UP THE REVENUES APPEAL WHEREIN TH E FOLLOWING GROUNDS HAVE BEEN RAISED: I. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE THE LEARNED CIT(A) ERRED IN LAW IN DELETING THE ADD ITION MADE BY THE AO U/S 26(1)(IV) BY PLACING RELIANCE ON THE DECISION OF THE ITAT, BANGALORE IN THE CASE OF ASSE SSEE FOR AY 2007-08 WITHOUT APPRECIATING THE FACT THAT T HE DEPARTMENT HAS NOT ACCEPTED THAT DECISION OF THE IT AT AND FURTHER APPEAL HAS BEEN FILED BEFORE THE HIGH C OURT. II. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE CIT(A) IS SO FAR AS IT RELATES TO THE ABOVE GROUNDS MAY BE REVERSED AND THAT OF THE AO MAY BE RESTORED. ITA NO.94 & 470 /B/14 CO NO.74/B/14 3 3. THE ASSESSEE CLAIMED RS.81,57,099/- AS REVENUE E XPENDITURE FOR PAYMENT TOWARDS INTEREST ON PF. THE AO ASKED T HE ASSESSEE AS TO WHY SUCH INTEREST ON PF WAS MADE OVER AND ABOVE THE STATUTORY LIABILITY. THE ASSESSEE SUBMITTED THAT THE SAME IS ALLOWABLE EXPENDITURE SINCE SUCH INTEREST WAS OFFERED BY THE EMPLOYEES AS PERQUISITE WHICH HAS SUFFERED TAX IN THE HANDS OF THE EMPLOYEE. THE AO DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AN D DISALLOWED THE SAID AMOUNT OF RS.81,57,099/- PAID ON ACCOUNT OF IN TEREST ON PF. ON APPEAL, THE CIT(A) HAS ALLOWED THE CLAIM OF THE ASS ESSEE BY FOLLOWING THE DECISION OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 1999-2000 AND 2006-07 TO 2007-08. 4. WE HAVE HEARD THE LEARNED DR AS WELL AS THE LEAR NED AR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET WE NOTE THAT IDENTICAL ISSUE HAS BEEN CONSIDERED AND DECIDED BY THE COORDINATE BENCH OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FO R THE ASSESSMENT YEAR 1999-00 AS WELL AS FOR THE ASSESSMENT YEAR 200 6-07 AND 2007-08 VIDE ORDER DATED 27/2/2012. THE RELEVANT PART OF T HE FINDING OF THE TRIBUNAL IS IN PARA 9 TO 11 AS UNDER:- ITA NO.94 & 470 /B/14 CO NO.74/B/14 4 9. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS O F BOTH THE PARTIES AND HAVE PERUSED THE MATERIAL AVAI LABLE ON RECORD. IN THE INSTANT CASE, IT IS NOT IN DISPU TE THAT THE AO MADE THE DISALLOWANCE OF THE INTEREST PAID BY TH E ASSESSEE ON THE RUNNING BALANCE OF PF. THIS ISSUE WAS INVOLVED IN AN EARLIER ASSESSMENT YEAR 1998-99, IN THE ASSESSEES CASE, AND THE ITA WHILE DECIDING THE APP EAL OF THE ASSESSEE IN ITA NO.611/BANG/2002 REMANDED THE ISSUE BACK TO THE FILE OF THE AO FOR FRESH ADJUDICA TION VIDE ORDER DATED 4.10.2003. THE AO IN ACCORDANCE WITH T HE TRIBUNALS DIRECTIONS CONSIDERED THE MATTER AND DEC IDED THE ISSUE IN FAVOUR OF THE ASSESSEE VIDE ORDER DATE D 21.12.2004, A COPY OF WHICH WAS FURNISHED BY THE LE ARNED COUNSEL FOR THE ASSESSEE DURING THE COURSE OF HEARI NG AND IS AVAILABLE ON RECORD. IT IS ALSO SEEN THAT FOR T HE AY 2005-06, AN ADDITION ON THE SAME ISSUE HAS BEEN DEL ETED BY THE LEARNED CIT(A). THE CONTENTION OF HE LEARNE D COUNSEL FOR THE ASSESSEE THAT THIS ORDER DATED 27.2 .2009 PASSED BY THE LEARNED CIT(A)-V, BANGALORE FOR THE A Y 2005-06 WAS NOT CHALLENGED BY THE DEPARTMENT IN FUR THER APPEAL HAS BEEN REBUTTED. FROM THE ABOVE FACTS, IT IS CLEAR THAT THE DEPARTMENT HAS ACCEPTED A SIMILAR CL AIM IN SIMILAR CIRCUMSTANCES IN AY 1998-99 AND ALSO FOR TH E AY 2005-06. FURTHER, THE TRIBUNAL IN AY 1999-2000 AND 2006-07 IN ITA NOS.1530 & 1531/BANG/2010 (SUPRA) HA S ALSO HELD IN FAVOUR OF THE ASSESSEE ON THE VERY SAM E ISSUE. THEREFORE, WE DO NOT SEE ANY VALID GROUND TO INTERF ERE ITA NO.94 & 470 /B/14 CO NO.74/B/14 5 WITH OR DEVIATE FROM THE FINDING OF THE LEARNED CIT (A) FOR THE ASSESSMENT YEAR UNDER CONSIDERATION I.E 2007-08 . 10. FOR THE AFORESAID VIEW, WE ARE FORTIFIED BY TH E RATIO LAID DOWN BY THE HONBLE PUNJAB & HARYANA HIG H COURT IN CIT VS. LEADER VALVES LTD. [2007] 295 ITR 273, WHEREIN IT HAS BEEN HELD AS UNDER: THAT KEEPING IN VIEW THE PRINCIPLE OF CONSISTENCY, THE REVENUE COULD NOT BE PERMITTED TO RAISE AN ISSUE IN ISOLATION ONLY FOR ONE YEAR IN THE CASE OF ONE ASSESSEE, WHILE ACCEPTING THE FINDINGS ON THE SAME ISSUE IN THE CASE OF OTHER ASSESSEES AND FOR THE OTHER YEARS IN THE CASE OF THE ASSESSSEE. 11. IN THE PRESENT CASE ALSO, THE DEPARTMENT HAD ACCEPTED THE CLAIM OF THE ASSESSEE ON THE SAME ISSU E FOR THE AY 1998-99 AND 2005-06. THE PRINCIPLE OF CONSISTENCY IS REQUIRED TO BE MAINTAINED. WE, THER EFORE, HOLD THAT THE DISALLOWANCE MADE BY THE AO WAS NOT JUSTIFIED AND THAT THE LEARNED CIT(A) RIGHTLY DELET ED THE SAME. IN VIEW OF THE ABOVE, WE DO NOT SEE ANY MERI T IN THE APPEAL OF THE DEPARTMENT. ITA NO.94 & 470 /B/14 CO NO.74/B/14 6 5. FOLLOWING THE EARLIER ORDERS OF THIS TRIBUNAL AN D TO MAINTAIN THE RULE OF CONSISTENCY, WE DO NOT FIND ANY ERROR OR LE GALITY IN THE ORDER OF THE CIT(A). ACCORDINGLY, REVENUES APPEAL IS DISM ISSED. 6. CO 74/BANG/2014 AS WELL AS THE APPEAL IN ITA NO.470/BANG/2014 FILED BY THE ASSESSEE RAISED COMMO N GROUNDS AS UNDER: I. THAT THE ORDERS OF THE AUTHORITIES BELOW IN SO FAR AS IT IS AGAINST THE APPELLANT IS AGAINST THE LAW, FACTS, CIRCUMSTANCES, NATURAL JUSTICE, WITHOUT JURISDICTIO N, BAND IN LAW AND ALL OTHER KNOWN PRINCIPLES OF LAW. II. THE TOTAL INCOME COMPUTED AND TOTAL TAX COMPUTED IS HEREBY DISPUTED. III. THE LEARNED CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE MADE U/S 14A OF THE ACT AMOUNTING TO RS.41,86,447/-. 7. FROM THE GROUNDS, IN THE CROSS OBJECTION AS WELL AS IN THE APPEAL FILED BY THE ASSESSEE, THE ONLY ISSUE RAISED IS REG ARDING DISALLOWANCE MADE BY THE AO IS OF RS.41,86,447/- U/S 14A WHICH H AS BEEN UPHELD BY THE CIT(A). ITA NO.94 & 470 /B/14 CO NO.74/B/14 7 8. FROM THE ASSESSMENT PROCEEDINGS, THE AO NOTED TH AT THE ASSESSEE COMPANY HAS CLAIMED EXEMPT INCOME IN RESPE CT OF DIVIDEND RECEIVED. ACCORDINGLY, THE AO PROPOSED TO MAKE DISA LLOWANCE U/S 14A. IN RESPONSE, THE ASSESSEE SUBMITTED BEFORE THE AO THAT THE INVESTMENT HAS BEEN MADE OUT OF ASSESSEES OWN FUND AND INTERNAL TRANSFERS. THEREFORE, NO EXPENDITURE HAS BEEN INCU RRED BY THE ASSESSEE FOR EARNING THE EXEMPT INCOME. ALTERNATIV ELY, IT WAS SUBMITTED THAT THE EXPENDITURE INCURRED IF ANY IS M INIMUM AND NEGLIGIBLE CONSIDERING THE INCOME EARNED OUT OF THE SE INVESTMENT. THE AO HAS WORKED OUT THE DISALLOWANCE U/S 14A READ WITH RULE 8D ON ACCOUNT OF INDIRECT EXPENSES AND ACCORDINGLY DI SALLOWANCE BEING 0.5% OF AVERAGE INVESTMENT HAS BEEN WORKED OUT AS R S.41,86,447/-. THE ASSESSEE CHALLENGED THE ACTION OF THE AO BEFORE THE CIT(A) BUT COULD NOT SUCCEED. 9. BEFORE US, THE LEARNED AR OF THE ASSESSEE SUBMIT TED THAT THE ASSESSEES ENTIRE INVESTMENT IS IN MUTUAL FUNDS, T HEREFORE, THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE FOR EARNI NG THE DIVIDEND INCOME FROM THE MUTUAL FUNDS. HE HAS FURTHER SUBMIT TED THAT AO HAS NOT POINTED OUT OR IDENTIFIED WHICH OF THE EXPENDIT URE HAS HAVING NEXUS FOR EARNING THE EXEMPT INCOME. IN SUPPORT OF HIS CONTENTION, HE ITA NO.94 & 470 /B/14 CO NO.74/B/14 8 HAS RELIED UPON VARIOUS DECISIONS OF THIS TRIBUNAL AND SUBMITTED THAT WHEN THE AO HAS NOT RECORDED ITS SATISFACTION AND I DENTIFIED THE EXPENDITURE WHICH CAN BE APPORTIONED FOR EARNING TH E EXEMPT INCOME THEN THE DISALLOWANCE MADE BY THE AO IS NOT SUSTAIN ABLE. 10. ON THE OTHER HAND, LEARNED DR HAS SUBMITTED THA T AS PER RULE 8D DISALLOWANCE IS WORKED OUT BEING 0.5% OF THE AVE RAGE INVESTMENT. THEREFORE, THE AO HAS PROCEEDED AS PER THE PROVISIO N OF THE ACT AS WELL AS RULES. HE HAS FURTHER CONTENDED THAT THE A O HAS NOT MADE ANY DISALLOWANCE ON ACCOUNT OF INTEREST EXPENDITURE . THEREFORE, THE CONTENTION OF THE ASSESSEE THAT THE INVESTMENT IS M ADE FROM ITS OWN FUNDS IS NOT RELEVANT. HE HAS RELIED UPON THE ORDE RS OF THE AUTHORITIES BELOW: 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WEL L AS RELEVANT MATERIAL ON RECORD. WE NOTE FROM THE DETAILS FILED BY THE ASSESSEE THAT DURING THE YEAR UNDER CONSIDERATION THERE ARE SEVER AL INSTANCES OF FRESH INVESTMENT AS WELL AS SALE OF THE INVESTMENT IN MUTUAL FUNDS. THEREFORE, THERE IS A FREQUENT MOVEMENT IN THE ASSE SSEES INVESTMENT PORTFOLIO AND ACCORDINGLY IT CANNOT BE ACCEPTED THA T NO EXPENDITURE CAN BE SAID TO HAVE BEEN INCURRED BY THE ASSESSEE F OR EARNING EXEMPT ITA NO.94 & 470 /B/14 CO NO.74/B/14 9 INCOME. ONCE THE ASSESSEE HAS TAKEN VARIOUS DECISI ON OF PURCHASE AND SALE OF THE INVESTMENT DURING THE YEAR UNDER CO NSIDERATION THEN THE EXPENDITURE IN RELATION TO THE SALARY AND OTHER REMUNERATION OF HIGHER EXECUTIVE STAFF AND TOP MANAGEMENT WHO ARE INVOLVED IN THE PROCESS OF TAKING DECISION OF PURCHASE AND SALE OF THE INVESTMENT HAS A NEXUS, AT LEASE PROXIMATE NEXUS WITH INVESTMENT MADE BY THE ASSESSEE YIELDED THE EXEMPT INCOME. ACCORDINGLY, I T IS A MATTER OF FINDING OF FACT AS WHICH OF THE EXPENDITURE CAN BE RELATABLE BEING AN INDIRECT EXPENDITURE INCURRED FOR AN ACTIVITY WHICH HAS RESULTED THE EXEMPT INCOME AS WELL AS TAXABLE INCOME. SINCE THE RE IS A FREQUENT MOVEMENT IN THE INVESTMENT PORTFOLIO OF THE ASSESSE E THEREFORE, THE QUESTION WHICH REQUIRES TO BE ASCERTAINED BY INDENT IFYING THE PARTICULAR ITEMS OF THE EXPENDITURE DEBITED BY THE ASSESSEE IN THE PROFIT AND LOSS ACCOUNT WHICH CAN BE APPORTIONED U/ S 14A. ACCORDINGLY, IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE CONSIDERED OPINION THAT THIS ISSUE REQUIRES A PROPE R VERIFICATION AND EXAMINATION OF THE FACT ON THE ASPECT OF IDENTIFYI NG THE PARTICULAR EXPENDITURE FOR THE PURPOSE OF DISALLOWANCE U/S 14A . THE AO HAS NOT GIVEN ANY FINDING OR IDENTIFIED THE EXPENDITURE WHI CH CAN BE ALLOCATED FOR EARNING THE EXEMPT INCOME. THEREFORE, THIS ISS UE IS SET ASIDE TO THE RECORD OF THE AO FOR PROPER VERIFICATION AND FO R IDENTIFYING ITA NO.94 & 470 /B/14 CO NO.74/B/14 10 EXPENDITURE WHICH CAN BE TREATED AS ALLOCABLE FOR T HE PURPOSE OF EARNING THE DIVIDEND INCOME AND CONSEQUENTLY CAN BE DISALLOWED U/S 14A OF THE ACT. WE MAKE IT CLEAR THAT THE DISALLOW ANCE MADE U/S 14A AND QUANTUM OF DISALLOWANCE WORKED OUT AS PER RULE 8D CANT EXCEED THE ACTUAL EXPENDITURE DEBITED BY THE ASSESS EE IN THE PROFIT AND LOSS ACCOUNT WHICH HAS A NEXUS FOR EARNING EXEMPT I NCOME. ACCORDINGLY THE AO IS DIRECTED TO RE-ADJUDICATE THE ISSUE AFTER GIVING AN OPPORTUNITY OF HEARING TO THE ASSESSEE. 12. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED AND THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STA TISTICAL PURPOSES AND CROSS OBJECTION OF THE ASSESSEE STANDS DISMISSED ORDER PRONOUNCED IN THE OPEN COURT ON 7TH OCT, 2015. SD/- SD/ (JASON P BOAZ) (VIJAYPAL RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER VMS. BANGALORE DATED : 7 /10/2015 ITA NO.94 & 470 /B/14 CO NO.74/B/14 11 COPY TO : 1. THE ASSESSEE 2. THE REVENUE 3.THE CIT CONCERNED. 4.THE CIT(A) CONCERNED. 5.DR 6.GF BY ORDER ASST. REGISTRAR, I TAT, BANGALORE.