DADIBA PUNDOLE, MUMBAI v. ACIT 12(2), MUMBAI

ITA 423/MUM/2012 | 2008-2009
Pronouncement Date: 03-07-2013 | Result: Dismissed

Appeal Details

RSA Number 42319914 RSA 2012
Assessee PAN AADPP0451H
Bench Mumbai
Appeal Number ITA 423/MUM/2012
Duration Of Justice 1 year(s) 5 month(s) 15 day(s)
Appellant DADIBA PUNDOLE, MUMBAI
Respondent ACIT 12(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 03-07-2013
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted D
Tribunal Order Date 03-07-2013
Date Of Final Hearing 11-06-2013
Next Hearing Date 11-06-2013
Assessment Year 2008-2009
Appeal Filed On 19-01-2012
Judgment Text
D IN THE INCOME TAX APPELLATE TRIBUNAL D BENC H MUMBAI . . ! # $%& $ BEFORE SHRI D. MANMOHAN VICE PRESIDENT AND SHRI D. KARUNAKARA RAO AM $ ./I.T.A. NO.423/M/2012 ( ' ( )( / ASSESSMENT YEAR : 2008-2009) MR. DADIBA PUNDOLE C/O. KALYANIWALLA & MISTRY ARMY & NAVY BUILDING 3 RD FLOOR 148 M.G. ROAD FORT MUMBAI 400 001. / VS. ACIT-12(2) AAYAKAR BHAVAN M.K. MARG MUMBAI 400 020. &* # $ ./PAN : AADPP 0451 H ( *+ /APPELLANT) .. ( -*+ / RESPONDENT) *+ . / $ / APPELLANT BY : SHRI M.M. GOLVALA -*+ . / $ / RESPONDENT BY : SHRI RAJARSHI DWIVEDI DR $ . 0# /DATE OF HEARING : 11.6.2013 1) . 0# /DATE OF PRONOUNCEMENT : 3.7.2013 %2 %2 %2 %2 / O R D E R PER D. KARUNAKARA RAO AM: THIS APPEAL FILED BY THE ASSESSEE ON 19.1.2012 IS AGAINST THE ORDER OF CIT (A)- 23 MUMBAI FOR THE ASSESSMENT YEAR 2008-2009. 2. IN THIS APPEAL ASSESSEE RAISED THE FOLLOWING GRO UNDS WHICH READ AS UNDER: 1. BOTH THE LOWER AUTHORITIES ERRED IN DISALLOWING AN AMOUNT O F RS. 1 78 460/- UNDER SECTION 14A. 2. BOTH THE LOWER AUTHORITIES FAILED TO CONSIDER TH AT THE CASE OF AN INDIVIDUAL IS DIFFERENT WHILE COMPUTING DISALLOWANCE UNDER SECTIO N 14A AS COMPARED TO ALL OTHER FORMS OF BUSINESS. 3. BOTH THE LOWER AUTHORITIES ERRED IN APPLYING RUL E-8D WITHOUT RECORDING OBJECTIVE DISSATISFACTION WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE HAVING REGARD TO HIS ACCOUNT. 4. THE LD CIT (A) ERRED IN NOT DELETING INTEREST LE VIED UNDER SECTION 234D. THE APPELLANT DENIED HIS LIABILITY TO BE LEVIED THE SAI D INTEREST. 5. THE LD CIT (A) ERRED IN NOT RESTRICTING THE LEVY OF INTEREST UNDER SECTION 234C TO RS. 37 877/- AS COMPUTED BY THE APPELLANT. 2 3. BEFORE US AT THE OUTSET SHRI M.M. GOLVALA LD COUNSEL FOR THE ASSESSEE MENTIONED THAT GROUND NO.4 & 5 ARE NOT PRESSED. THE REFORE AFTER CALLING LD DRS COMMENTS IF ANY ON SUCH PROPOSAL GROUND NO.4 AND 5 ARE DISMISSED AS NOT PRESSED . 3.1. FURTHER LD COUNSEL MENTIONED THAT GROUNDS 1 2 AND 3 RELATE TO THE ISSUE OF DISALLOWANCE OF RS. 1 78 460/- INVOKING THE PROVISI ON OF SECTION 14A OF THE ACT READ WITH RULE-8D OF THE INCOME TAX RULES 1962. IN THE S AID GROUNDS ASSESSEE REASONED THAT HE IS ASSESSED IN INDIVIDUAL STATUS A ND FOR THE PURPOSE OF SECTION 14A HE SHOULD BE TREATED DIFFERENTLY FROM THAT OF OTHER BUSINESS CONCERNS. FURTHER LD COUNSEL MENTIONED THAT OBJECTION RAISED WITH REGARD TO THE SATISFACTION OF THE AO REFERRED TO IN SECTION 14A(2) OF THE ACT WITH REGAR D TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE WAS NOT MET BY RECORDING IN WRITING. THEREFORE A SSESSEES CLAIM THAT NOTHING IS INCURRING OUT OF THE ADMINISTRATIVE EXPENDITURE CANNOT BE REJECTED AND AO SHOULD NOT INVOKE THE PROVISIONS OF THE SAID RULE-8D OF THE I T RULES 1962. RELEVANT FACTS RELATING TO THE ISSUE ARE NARRATED. 4. THE ASSESSEE IS AN ART DEALER / SERVICE PROVIDER . ASSESSEE FILED THE RETURN OF INCOME DECLARING THE TOTAL INCOME OF RS 3 75 59 508 /-. THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT AND THE ASSESSED IN COME OF THE ASSESSEE WAS DETERMINED AT RS. 3 77 52 650/-. IN THE ASSESSMENT AO MADE A DISALLOWANCE OF RS. 1 78 460/- U/S 14A OF THE ACT BY INVOKING THE PROVI SIONS OF RULE 8D. FACTUALLY ASSESSEE MADE INVESTMENTS IN SHARES AND THE AVERAGE VALUATION OF SUCH INVESTMENT IN SHARES IS CALCULATED AT RS. 3 56 92 029/-. THE A SSESSEE EARNED THE DIVIDEND INCOME OF RS. 32 78 351/- IN THE YEAR UNDER CONSIDE RATION. IT IS THE CLAIM OF THE ASSESSEE THAT NO EXPENDITURE WHATSOEVER WAS INCURRE D FOR EARNING OF SUCH DIVIDEND INCOME OUT OF THE ADMINISTRATIVE AND OTHER EXPENDI TURE DEBITED TO P AND L ACCOUNT. HOWEVER THE AO DID NOT ACCEPT THE SAID CLAIM OF T HE ASSESSEE. CONSEQUENTLY RELYING ON THE SPECIAL BENCH DECISION IN THE CASE O F M/S. DAGA CAPITAL MANAGEMENT PVT. LTD. VIDE ITA NO.8057/M/2003 AO INVOKED THE PROVISIONS OF SECTION 14A OF THE ACT AND QUANTIFIED THE DISALLOWANCE AT RS. 1 78 460 /- WHICH IS EQUALANT OF 0.5% OF THE AVERAGE VALUE OF THE SAID INVESTMENT. AO ADDED THE SAME TO THE INCOME 3 RETURNED BY THE ASSESSEE. AGGRIEVED WITH THE SAME ASSESSEE FILED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 5. DURING THE PROCEEDINGS BEFORE THE FIRST APPELLAT E AUTHORITY ASSESSEE REASONED THAT WHEN THERE IS NO EXPENDITURE INCURRED OR NOT CLAIMED NO DISALLOWANCE CAN BE MADE U/S 14A OF THE ACT. ASSESSEE BEING AN INDIVI DUAL MUST BE TREATED DIFFERENTLY UNLIKE THE CASES OF THE CORPORATE / FIRM HOUSES. H E ARGUED THAT THE ASSESSEE BEING AN INDIVIDUAL MADE INVESTMENT WITHOUT ANY EXPENDIT URE ON THE PERSONNEL AND NO PERSONAL EXPENDITURE IS BOOKED TO THE P & L ACCOUNT AND THEREFORE NO DISALLOWANCE IS CALLED FOR BY THE AO. AS PER THE ASSESSEE THE DIVIDEND IS RECEIVED BY WAY OF ECS METHODS AND CREDITED TO THE BANK ACCOUNT DIRECTLY W ITHOUT ANY HUMAN INTERVENTION. ALTERNATIVELY ASSESSEE SUBMITTED THAT AT THE MAXIMUM THE DISALL OWANCE U/S 14A SHOULD NOT EXCEED RS.10 000/- TO RS. 15 000/- IF A REASONABLE APPROACH IS CONSIDERED. CIT (A) CONSIDERED THE ABOVE SUBMISSIO NS OF THE ASSESSEE AND DISCUSSED THE JUDGMENT OF THE HONBLE JURISDICTIONA L HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD (328 ITR 81) AND FINALLY HELD THAT THE RULE-8D HAS TO BE APPLIED FOR THE AY 2008-2009. CIT (A) DISCUSSED THE MANDATORY REQUIREMENT OF INVOKING OF THE PROVISIONS OF RULE-8D FOR THE AY 20 08-2009 AND THE MAKING OF DISALLOWANCE ON REASONABLE BASIS FOR THE EARLIER ASSESSMENT YEARS. THERE IS A DISCUSSION ABOUT REQUIREMENT OF INCURRING OF ADMINI STRATIVE EXPENSES AND OTHER EXPENSES IN CONNECTION WITH THE INVESTMENT IN SHARE S FOR EARNING OF THE DIVIDEND INCOME. CIT (A) IS CRITICAL OF THE FACT THAT ASSES SEE HAS NOT CLAIMED ANY EXPENDITURE WHATSOEVER IN THE BOOKS OF ACCOUNTS WHICH IS RELATA BLE TO THE EXEMPT INCOME. ASSESSEES FAILURE TO MAINTAIN SEPARATE BOOKS OF AC COUNTS SHOWING THE EXPENDITURE RELATABLE TO THE EXEMPT INCOME WAS DISCUSSED TOO. FINALLY CIT (A) REJECTED THE ASSESSEES CLAIM THAT NO EXPENDITURE WAS INCURRED A ND ALSO THE ALTERNATIVE CLAIM OF DISALLOWANCE OF RS. 10 000/- TO 15 000/- BEFORE THE CONFIRMING THE ORDER OF THE AO. IN THE RESULT CIT (A) CONFIRMED THE ADDITION OF RS. 1 78 460/- AND APPLICABILITY OF THE PROVISIONS OF RULE 8D OF I T RULES 62 R W S 14 A OF THE ACT. AGGRIEVED WITH THE SAME ASSESSEE FILED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 6. DURING THE PROCEEDINGS BEFORE US SHRI SHRI M.M. GOLVALA LD COUNSEL FOR THE ASSESSEE BROUGHT THE AFORE-NARRATED FACTS TO OUR AT TENTION AND MENTIONED THAT THIS IS 4 THE CASE OF AN INDIVIDUAL AND THE INVESTMENT PORTFO LIO WAS DONE BY THE ASSESSEE HIMSELF AND THERE IS NO EXPENDITURE BOOKED TO THE P & L ACCOUNT. THEREFORE THERE IS NO NEED FOR MAKING DISALLOWANCE U/S 14A OF THE A CT. FURTHER LD COUNSEL FILED NUMBER OF DECISIONS TO SUPPORT HIS ARGUMENTS. HE R ELIED ON THE SUBMISSIONS MADE BY THE ASSESSEE BEFORE THE LOWER AUTHORITIES WHICH FORM PART OF THE PAPER BOOK. APART FROM OTHER DECISIONS LD COUNSEL SPECIALLY RE LIED ON THE DECISION OF THE COORDINATE BENCH OF ITAT MUMBAI IN THE CASE OF JK INVESTORS (BOMBAY) LTD VS. ACIT VIDE ITA NO. 7858/MUM/2011 AND OTHERS FOR THE PROPOSITION THAT NO DISALLOWANCE IS CALLED FOR U/S 14A READ WITH RULE-8 D OF IT RULES 1962. 7. ON THE OTHER HAND LD DR RELIED ON THE ORDERS OF THE AO AS WELL AS CIT (A). BRINGING OUR ATTENTION TO THE ASSESSEES PAPER BOOK PAGE NO.14 LD DR MENTIONED THAT ASSESSEE DEBITED VARIOUS EXPENSES TO THE P & L ACCOUNT OF PUNDOLE EXPORTS PROPRIETORSHIP CONCERN AND MENTIONED THAT ASSESSEE AN ART DEALER IS ENGAGED IN VARIOUS BUSINESS ACTIVITIES. THE CLAIM THAT HE WAS PERSONALLY INVOLVED IN MAKING OF THE INVESTMENT AND EARNING OF THE DIVIDEND INCOME IS NOT SUBSTANTIATED WITH EVIDENCES. LD DR MENTIONED THAT THE SAID CLAIM LACK S CREDIBILITY AND THEREFORE PRAYED FOR DISMISSING THE SAME. LD DR ALSO MENTION ED THAT ASSESSEE SPENT NEARLY RS. 1 CR ON VARIOUS ACCOUNTS APPEARING IN THE P & L ACCOUNT OF M/S PUNDOLE EXPORTS AND IT IS IMPOSSIBLE THAT NO PART OF EXPENDITURE IS INCURRED DIRECTLY OR INDIRECTLY FOR THE PURPOSE OF MAKING OF THE INVESTMENT IN SHARES A ND EARNING OF THE DIVIDEND INCOME. IN THIS REGARD HE BROUGHT OUR ATTENTION TO THE WRITTEN SUBMISSIONS (PAGE 32 OF THE ASSESSEES PB) MADE BEFORE THE LOWER AUTHOR ITIES AND MENTIONED THAT THE ASSESSEE MAINTAINED CERTAIN ACCOUNTS LIKE DRIVER O FFICE BOY ETC WHOSE SERVICES ARE OFTEN USED TO ENCASH THE DIVIDEND WARRANTS. MENTION ING THAT THE PROVISIONS OF SECTION RULE 8D ARE APPLICABLE TO THE AY 2008-2009 ONWARDS LD DR SUBMITTED THAT THERE IS A NEED FOR MAKING DISALLOWANCE IN ACCORDAN CE WITH THE METHOD PRESCRIBED IN THE INCOME TAX RULES. REFERRING TO THE DIVISION BENCH DECISION IN THE CASE OF JK INVESTORS (SUPRA) LD DR MENTIONED THAT THE FACTS OF THIS CASE ARE ENTIRELY DIFFERENT AS THE SAID ASSESSEE HIMSELF OFFERED INTEREST EXPEN SES OF RS. 1.52 CRS AT THE D-MAT CHARGES AND OTHER COMMON ADMINISTRATIVE EXPENSES U NLIKE IN THE PRESENT CASE WHERE ASSESSEE CLAIMS THAT NO EXPENDITURE IS INCURR ED FOR INVESTMENT IN SHARES AS 5 WELL AS EARNING OF THE DIVIDEND INCOME. HE ALSO ME NTIONED THAT SOME OF THE DECISIONS ARE RELEVANT TO THE PERIOD PRIOR TO THE A Y 2008-2009 THEREFORE IN SUBSTANCE THEY ARE DISTINGUISHABLE. THUS LD DR C ONCLUDED STATING THAT ORDER OF THE CIT (A) DOES NOT CALL FOR ANY INTERFERENCE. 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE O RDERS OF THE REVENUE AUTHORITIES. WE HAVE ALSO PERUSED THE PARA 2.3 OF THE IMPUGNED ORDER WHICH CONTAINS DISCUSSION RELATING TO THE SUSTENANCE OF T HE ADDITION OF RS. 1 78 460/-. FOR THE SAKE OF COMPLETENESS THE SAID PARA 2.3 IS REPR ODUCED HERE UNDER: 2.3. THE BOMBAY HIGH COURT IN ITS JUDGMENT DATE D 12.8.2010 IN GODREJ & BOYCE VS. DCIT IN IT APPEAL NO.626 OF 2010 AND WP N O.758 OF 2010 HAS HELD THAT RULE 8D IS NOT RETROSPECTIVE AND APPLIED FROM AY 20 08-2009. HOWEVER FOR EARLIER YEARS DISALLOWANCE HAS TO BE WORKED OUT ON REASON ABLE BASIS U/S 14A (1). S. 14A SUPERSEDES THE PRINCIPLE OF LAW THAT IN THE CASE OF A COMPOSITE BUSINESS EXPENDITURE INCURRED TOWARDS TAX-FREE INCOME COULD NOT BE DISAL LOWED AND INCORPORATES AN IMPLICIT THEORY OF APPORTIONMENT OF EXPENDITURE BETWEEN TAXA BLE AND NON-TAXABLE INCOME. THUS IN CASE OF RECEIPTS WHICH ARE NOT TAXABLE DI SALLOWANCE UNDER SECTION 14A WOULD COME INTO PLAY AS IN THE PRESENT CASE WHERE DIVIDE ND INCOME HAS BEEN RECEIVED. EXPENSES HAVE BEEN INCURRED ON MAKING AND MANAGING INVESTMENTS. DIVIDENDS HAVE ALSO BEEN ARISEN OUT OF INVESTMENTS MADE. APART FRO M EXPENSES WHICH CAN BE ATTRIBUTED SPECIFICALLY TO THE BUSINESS OF THE APPE LLANT THERE ARE GENERAL ADMINISTRATIVE EXPENSES WHICH WOULD BE INDIRECTLY ATTRIBUTABLE TOWARDS EARNING EXEMPT INCOME. THE ASSESSING OFFICER HAS SPELT OUT IN HIS ORDER THAT MANPOWER AND OTHER ADMINISTRATIVE FACTORS HAVE BEEN UTILIZED FOR EARNING THE SAID INCOME. THUS IT CAN BE CLEARLY CONCLUDED THAT THERE ARE EXPENSES INDIRECTL Y USED FOR EARNING THE NON-TAXABLE INCOME EVEN IF NO DIR ECT EXPENSE ARE BOOKED. THE ASSESSING OFFICERS ACTION IN INVOKING THE PROVISIO NS OF SECTION 14A IS CONFIRMED. CONSEQUENTLY THE COMPOSITE EXPENDITURE INCURRED TO WARDS BOTH TAXABLE AND TAX-FREE INCOME REQUIRES APPORTIONMENT OF EXPENDITURE BETWEE N TAXABLE AND NON-TAXABLE INCOME AND SUCH EXPENSES ACCORDINGLY APPORTIONED TOWARDS EARNI NG OF TAX FREE INCOME (DIVIDEND IN THE PRESENT CASE) WHICH I S DISALLOWABLE UNDER SECTION 14A. IN TERMS OF THE DECISION IN GODREJ & BOYCE DISAL LOWANCE UNDER SECTION 14A IS TO BE COMPUTED IN ACCORDANCE WITH RULE 8D W. E.F 2008-2009. IT IS ONLY PRIOR TO AY 2008-2009 THAT IT COULD BE SAID THAT A REASONABL E DISALLOWANCE IS REQUIRED TO BE MADE AND RULE 8D WAS NOT APPLICABLE RETROSPECTIVELY . AO HAS THUS RIGHTLY COMPUTED DISALLOWANCE IN TERMS OF RULE-8D. THE GROUND NOS. 1 & 2 ARE ACCORDINGLY DISMISSED. 8.1. IT IS THE CASE OF THE CIT (A) THAT THE RELATABL E EXPENDITURE TO THE EXEMPT INCOME HAS TO BE DISALLOWED U/S 14A OF THE ACT IF T HE COMPOSITE EXPENDITURE INCLUDES THE INDIRECTLY RELATED EXPENDITURE INCURRE D FOR EARNING OF EXEMPT INCOME. PROPORTIONATE BASIS IS APPROVED BY THE CIT (A). 8.2 IT IS A TRITE LAW THAT THE PROVISIONS OF SECTION 14A R W RULE 8D HAS APPLICATION TO THE AY 2008-09 WHICH IS UNDER CONSIDERATION HER E. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE MADE INVESTMENT IN SHARES AND EARNED E XEMPT INCOME OUT OF IT. 6 FURTHER REGARDING MAINTAINING COMPOSITE ACCOUNTS O F EXPENDITURE THE ASSESSEE HAS NOT MAINTAINED SEPARATE ACCOUNTS FOR HIS INVESTMENT ACTIVITIES. THE EXPENDITURE ACCOUNTS ARE COMMONLY MAINTAINED. THE INCLUSION OF DISALLOWABLE EXPENDITURE U/S 14A OF THE ACT IN SUCH COMMON ACCOUNTS IS CERTAINLY A POSSIBILITY AS HELD BY THE TRIBUNAL IN MANY OTHER CASES. HENCE THERE IS GREAT AMOUNT OF POSSIBILITY THAT SOME OF THE EXPENDITURE INCURRED AND DEBITED TO P & L AC COUNT OF PUNDOLE EXPORTS MUST RELATE TO THE EXEMPT INCOME OF THE ASSESSEE. THERE FORE IN THAT POINT OF VIEW THE ARGUMENT MADE BY LD DR HAS MERIT. CONSIDERING THE F ACT THE DISALLOWANCE MADE BY THE AO IS REASONABLE AND IN ACCORDANCE WITH THE PRO VISIONS OF SECTION 14A OF THE ACT READ WITH RULE-8D OF THE ACT. REGARDING THE RECORD ING OF THE SATISFACTION OF THE AO WITH REGARD TO THE CORRECTNESS OF THE CLAIM WE FIN D THAT CLAIM OF THE ASSESSEE IE NO EXPENDITURE IS INCURRED AND ASSESSEE HAS NOT BEEN DEMONSTRATED CONCLUSIVELY AND LOGICALLY. IT IS A SETTLED POSITION THAT THE ONUS I S ON THE ASSESSEE TO DEMONSTRATE WHEN A CLAIM OF EXEMPTION AND DEDUCTION OF INCOME O R EXPENDITURE IS MADE. AS DISCUSSED BY THE LD DR THE BIVISION BENCH DECISION IN THE CASE OF JK INVESTORS (SUPRA) IS DISTINGUISHABLE ON FACTS AND WE AGREE WI TH THE ARGUMENTS OF LD DR IN THIS REGARD. THUS THE ASSESSEE HAS NOT DISCHARGED HIS O NUS SATISFACTORILY. THEREFORE THE ORDER OF THE CIT(A) IS REASONABLE AND IT DOES N OT CALL FOR ANY INTERFERENCE. ACCORDINGLY GROUNDS RAISED BY THE ASSESSEE ARE DISMISSED . 9. IN THE RESULT APPEAL OF THE ASSESSEE IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 3.7.2013 . SD/- SD/- (D. MANMOHAN ) (D. KARUNAKARA RAO ) / VICE PRESIDENT # $%& / ACCOUNTANT MEMBER MUMBAI; 3% 3.7.2013 . ' . $ ./ OKK SR. PS %2 %2 %2 %2 . .. . '045 '045 '045 '045 65)0 65)0 65)0 65)0 / COPY OF THE ORDER FORWARDED TO : 1. *+ / THE APPELLANT 2. -*+ / THE RESPONDENT. 3. 7 ( ) / THE CIT(A)- 7 4. 7 / CIT 5. 5 89 '0' / DR ITAT MUMBAI 6. 9( : / GUARD FILE. $-50 '0 //TRUE COPY// %2 $ %2 $ %2 $ %2 $ / BY ORDER / $ $ $ $ ; ; ; ; (DY./ASSTT. REGISTRAR) / ITAT MUMBAI