M/s Bebo Technologies Pvt. Ltd., Mohali v. DCIT, Mohali

ITA 1204/CHANDI/2012 | 2008-2009
Pronouncement Date: 16-04-2014 | Result: Dismissed

Appeal Details

RSA Number 120421514 RSA 2012
Assessee PAN AABCB9492R
Bench Chandigarh
Appeal Number ITA 1204/CHANDI/2012
Duration Of Justice 1 year(s) 5 month(s)
Appellant M/s Bebo Technologies Pvt. Ltd., Mohali
Respondent DCIT, Mohali
Appeal Type Income Tax Appeal
Pronouncement Date 16-04-2014
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 16-04-2014
Date Of Final Hearing 26-03-2014
Next Hearing Date 26-03-2014
Assessment Year 2008-2009
Appeal Filed On 15-11-2012
Judgment Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES A CHANDIGARH BEFORE SHRI T.R. SOOD ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA JUDICIAL MEMBER ITA NOS. 1204 TO 1205/CHD/2012 ASSESSMENT YEARS: 2008-09 TO 2009-10 M/S BEBO TECHNOLOGIES PVT. LTD. VS. THE DCIT #491 PHASE IV CIRCLE 6(1) MOHALI MOHALI PAN NO. AABCB9492R (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI. TEJ MOHAN SINGH RESPONDENT BY : SHRI J.S. NAGAR DATE OF HEARING : 26/03/2014 DATE OF PRONOUNCEMENT : 26/4/2014 ORDER PER T.R.SOOD AM BOTH THESE APPEALS FILED BY THE ASSESSEE ARE DIRECT ED AGAINST THE ORDER DATED 29/08/2012 OF CIT(APPEALS) CHANDIGARH. 2. IN BOTH THESE APPEALS THERE WAS SOME MISTAKE IN THE AMOUNT OF DISALLOWANCE IN THE ORIGINAL GROUNDS THEREFORE T HE ASSESSEE HAS FILED AMENDED GROUNDS WHICH READS AS UNDER:- 1. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) H AS ERRED IN LAW AS WELL AS ON FACTS IN UPHOLDING THE ADDITIO N OF RS. 2 90 615/- MADE BY APPLYING THE PROVISIONS OF SECTI ON 14A OF THE ACT IS ARBITRARY AND UNJUSTIFIED. 2. THAT NO EXPENSE WHATSOEVER HAS BEEN INCURRED TO EAR N DIVIDEND INCOME AND LONG TERM CAPITAL GAINS AND AS SUCH 2 INVOCATION OF SECTION 14A READ WITH RULE 8D OF THE ACT IS MISPLACED ARBITRARY AND UNJUSTIFIED. 3. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) H AS FURTHER ERRED IN UPHOLDING THE CHARGING OF INTEREST UNDER SECTION 234-A & 234-B OF THE ACT WHICH IS NOT CHARG EABLE IN THE FACTS OF THE CASE. 4. THAT THE ORDER OF THE LD. COMMISSIONER OF INCOME TA X (APPEALS) IS ERRONEOUS ARBITRARY OPPOSED TO LAW A ND FACTS OF THE CASE AND IS THUS UNTENABLE. 3. GROUND NOS. 1 & 2: AFTER HEARING BOTH THE PARTI ES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICE D THAT ASSESSEE HAS INVESTED A SUM OF RS. 6 90 24 775/- IN MUTUAL FUNDS AND EARN ED DIVIDEND INCOME OF RS. 41 69 342/-. FURTHER LONG TERM CAPITAL GAIN OF R S. 8 72 029/- WAS ALSO EARNED. SINCE INCOME FROM DIVIDEND WAS EXEMPT THE ASSESSIN G OFFICER INVOKED SECTION 14A READ WITH RULE 8-D AND MADE DISALLOWANCE OF RS. 5 34 247/- IN ASSESSMENT YEAR 2008-09. 4. ON APPEAL BEFORE THE CIT(A) WRITTEN SUBMISSIONS WERE FILED WHICH HAVE BEEN EXTRACTED BY THE LD. CIT(A) AT PARA 4 WHICH A RE AS UNDER:- 1. THAT WHATSOEVER NO EXPENDITURE DIRECTLY OR INDI RECTLY HAS BEEN INCURRED TO EARN EXEMPT INCOME. THE COMPAN Y HAS INVESTED IN MUTUAL FUNDS TO THE TUNE OF RS. 6 34 24 775.85 AND SHARES IN PRIVATE LIMITED COMPANY OF RS. 56 00 000. THAT MUTUAL FUNDS ARE MANAGED BY AN ASSET MANAGEMENT COM PANY (AMC) WHICH OVERSEES THE ENTIRE PROCESS FOR INVESTM ENT IN EQUITY AND BONDS OF VARIOUS ENTITIES. FOR THIS AMC CHARGES COMMISSION WHICH IS CHARGED BY REDUCING THE UNITS A LLOCATED (OF THE MUTUAL FUNDS) TO THE INVESTORS. THUS NO SEP ARATE CHARGES IS GIVEN TO AMC AND THE INVESTOR IS ALSO RE LIEVED OF DOING ANY PORTFOLIO MANAGEMENT OR OTHER RESPONSIBIL ITIES AS THE AMC IS TAKING CARE OF THE INVESTMENT. THE DIVID END AND BONUS ETC ARE AUTOMATICALLY REFLECTED IN THE STATEM ENT. NO 3 STAFF OF THE ASSESSEE COMPANY IS PERFORMING ANY FUN CTION TO MANAGE THE MUTUAL FUND AND NO ASSET IS BEING UTILIZ ED IN THE PROCESS. HENCE NO EXPENDITURE DIRECTLY OR INDIRECTL Y CAN SAID TO BE INCURRED TO EARN EXEMPT INCOME. 2. THAT THE LD. A.O. IN PAGE 3 PARA 2 OF ASSESSMENT ORDER HAS STATED THAT IN THE ASSESSMENT ORDER THAT DISAL LOWANCE OF INTEREST AS PER RULE 8D IS AS BELOW WHEREAS NO DIS ALLOWANCE OF INTEREST IS MANDATED AS NO INTEREST EXPENDITURE HAD BEEN INCURRED DURING THE YEAR. HENCE THE BASIS OF DISALL OWANCE OF THE LD. A.O. IS WRONG IN AS MUCH THAT TREATING IT A DISALLOWANCE OF INTEREST EXPENDITURE (TO EARN EXEMP T INCOME). THUS THE DISALLOWANCE OF RS. 5 34 247/- SHOULD BE D ELETED IN TOTAL. 3. THAT NOTWITHSTANDING TO THE ABOVE IN THE EARLIE R YEARS I.E. A.Y. 2006-07 NO DISALLOWANCE ON ACCOUNT OF SE CTION 14 A HAS BEEN MADE INSPITE OF THE FACT THAT SAME CIRCUM STANCES EXISTED IN THE EARLIER YEARS. 4. THAT THE LD. A.O. HAS ERRED IN COMPUTING THE DISALLOWANCE OF AMOUNT OF EXPENDITURE DIRECTLY RELA TING TO INCOME AS PER RULE 8D ON THE BASIS OF 0.5% OF RS. 4 87 26 340/- (TOTAL TURNOVER) AMOUNTING TO RS. 2 4 3 632/-. THAT NO EXPENDITURE HAS BEEN DIRECTLY INCURRED BY T HE ASSESSEE TO EARN EXEMPT INCOME. THERE IS NO SUCH FO RMULA IN RULE 8D (WHICH CALCULATES A HYPOTHETICAL FIGURE ON THE BASIS OF A PERCENTAGE ON THE TOTAL TURNOVER) TO ASCERTAIN THE EXPENDITURE DIRECTLY INCURRED BY THE ASSESSEE. THE EXPENDITURE DIRECTLY INCURRED SHOULD BE ONE WHICH IS IDENTIFIABLE IN THE ACCOUNTS OF THE ASSESSEE AS ON DIRECTLY RELATE TO EARN THE INCOME. ALSO AS THE LD. A.O. HAS ALREADY COMPUTED THE DISA LLOWANCE BY TAKING 0.5% OF AVERAGE VALUE OF INVESTMENTS NO DISALLOWANCE SHOULD HAVE BEEN MADE ON THE BASIS OF PROPORTIONATE EXPENDITURE WHICH HAS ALREADY BEEN CO VERED BY THIS POINT. 4 4. THE LD. CIT(A) EXAMINED THESE SUBMISSIONS AND DE CIDED THE ISSUE VIDE PARA 5.4 WHICH IS AS UNDER:- 5.4 THE ASSESSING OFFICER HAS COMPUTED DISALLOWANCE UNDER RULE 8D (2)(I) AND (III). RULE 8D(2)(I) IS AB OUT EXPENDITURE DIRECTLY RELATING TO THE EXEMPT INCOME. THIS EXPENDITURE IS NIL IN THE CASE OF THE APPELLANT. TH E ASSESSING OFFICER HAS DISALLOWED PROPORTIONATE EXPENDITURE ON THE BASIS OF TURNOVER BUT THAT IS NOT ALLOWABLE AS PER RULE 8D(2)(I). HENCE NO DISALLOWANCE WAS TO BE MADE UNDER RULE 8D (2)(I). THE DISALLOWANCE UNDER RULE 8D(2)(III) HAS RIGHTLY BEEN MADE AND THE SAME IS UPHELD. HENCE OUT OF THE DISALLOWA NCE MADE OF RS. 5 34 247/- DISALLOWANCE OF RS. 2 90 615/- I S CONFIRMED. GROUNDS OF APPEAL TAKEN BY THE APPELLANT ARE PARTLY ALLOWED. 5. BEFORE US LD. COUNSEL FOR THE ASSESSEE STRONGLY RELIED ON THE SUBMISSIONS MADE BEFORE LD. CIT(A). 6. ON THE OTHER HAND THE LD. DR SUPPORTED THE ORDE R OF THE ASSESSING OFFICER AND CIT(A). 7. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE DO NO T FIND ANY FORCE IN THE SUBMISSIONS OF LD. COUNSEL FOR THE ASSESSEE. IT HA S BEEN MAINLY CONTENDED THAT MUTUAL FUNDS ARE MANAGED BY ASSET MANAGEMENT COMPAN Y (AMC) WHICH OVERSEE THE ENTIRE PROCESS. THE AMC ARE BASICALLY C ONCERNED WITH THE FUNDS COLLECTED BY A PARTICULAR FUND AND IS CONCERNED AB OUT HOW TO INVEST THE FUND IN VARIOUS SHARES / BONDS TO GENERATE INCOME FOR THE U NIT HOLDERS. THE AMC ALSO DECIDES WHEN TO INVEST AND WHEN TO REDEEM THE SECUR ITIES AND IT HAS GOT NOTHING TO DO WITH THE INDIVIDUAL UNIT HOLDERS. THE INDIVID UAL UNIT HOLDERS LIKE ASSESSEE HAVE TO PUT IN EFFORT FIRSTLY TO DECIDE IN WHICH PA RTICULAR FUND THE INVESTMENT SHOULD BE MADE AND THEN SUCH INVESTMENT ARE CONTIN UOUSLY MONITORED. THE INDIVIDUAL UNIT HOLDER MAY WITHDRAW FROM A FUND DE PENDING UPON THE PERFORMANCE OF THAT FUND. IN THE COMMERCIAL WORLD T HESE FUNCTIONS ARE KNOWN AS TREASURY MANAGEMENT FUNCTIONS WHICH REQUIRES EXPERT KNOWLEDGE AND GENERALLY 5 QUALIFIED CHARTERED ACCOUNTANTS OR MBA (FINANCE) PE OPLE PERFORM THESE FUNCTIONS. THEREFORE IT CANNOT BE SAID THAT ASSESS EE HAS NOT DEVOTED ANY EFFORT IN MANAGEMENT OF THESE FUNDS. SINCE ASSESSEE HAS NO T USED THE INTEREST BEARING FUNDS THEREFORE NO DISALLOWANCE WAS MADE UNDER RU LE 8-D(II). FURTHER SINCE NO DIRECT EXPENDITURE HAS BEEN INCURRED LD. CIT(A) HAS RIGHTLY DELETED THE ADDITION UNDER CLAUSE 8-D(I). AS FAR AS INDIRECT E XPENDITURE ARE CONCERNED THE SAME HAS TO BE ALLOCATED AS PER RULE 8-D(III) WHICH HAS BEEN DONE BY THE ASSESSING OFFICER AND CONFIRMED BY LD. CIT(A). SIN CE THE SAME IS AS PER THE MANDATE OF THE LAW WE FIND NOTHING WRONG WITH THE ORDER OF LD. CIT(A) AND WE CONFIRM THE SAME. 8. GROUND NO.3: AS FAR AS THE ISSUE REGARDING LEVY OF INTEREST U/S 234A & 234B IS CONCERNED THE SAME IS OF CONSEQUENTIAL NAT URE AND THEREFORE THE ASSESSING OFFICER IS DIRECTED TO LEVY THE INTEREST AS PER THE PROVISIONS OF LAW. 9. IN THE RESULT APPEAL IS DISMISSED. ITA NO. 1205/CHD/2013 :- 9. IN THIS APPEAL ALSO SAME DISPUTE IS INVOLVED R EGARDING DISALLOWANCE U/S 14A READ WITH RULE 8-D. THE DISALLOWANCE HAS BEEN RESTRICTED BY THE LD. CIT(A) ONLY TO INDIRECT EXPENSE UNDER CLAUSE (III) OF RULE 8-D. FOLLOWING THE ABOVE ORDER WE DECIDE THIS ISSUE AGAINST THE ASSES SEE AND AS SUCH THE APPEAL IS DISMISSED. 10. IN THE RESULT BOTH THE APPEALS ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 16.04.20 14 SD/- SD/- (SUSHMA CHOWLA) (T.R.SOOD) JUDICIAL MEMBER ACCOUNTANT MEMER DATED : 16 TH APRIL 2014 RKK 6 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR