SYNDEGY LIFESTYLES P. LTD, MUMBAI v. ACIT 7(2), MUMBAI

ITA 5795/MUM/2009 | 2005-2006
Pronouncement Date: 15-07-2011 | Result: Partly Allowed

Appeal Details

RSA Number 579519914 RSA 2009
Assessee PAN AAFCS1753A
Bench Mumbai
Appeal Number ITA 5795/MUM/2009
Duration Of Justice 1 year(s) 8 month(s) 15 day(s)
Appellant SYNDEGY LIFESTYLES P. LTD, MUMBAI
Respondent ACIT 7(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 15-07-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted I
Tribunal Order Date 15-07-2011
Date Of Final Hearing 07-07-2011
Next Hearing Date 07-07-2011
Assessment Year 2005-2006
Appeal Filed On 30-10-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI I BENCH BEFORE SHRI R.V.EASWAR PRESIDENT & SHRI T.R.SOOD ACCOUNTANT MEMBER I.T.A.NO.5795/MUM/2009 A.Y 2005-06 M/S. SYNERGY LIFESTYLES PVT. LTD. 130 DINSHAW PETIT LANE BEHIND DIGVIJAY MILLS KALA CHOWKY MUMBAI 400 033. PAN: AAFCS 1753 A VS. ASST. COMMISSIONER OF I.T. 7(2) MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PANKAJ JAIN. RESPONDENT BY : SHRI SUNIL KUMAR SINGH. O R D E R PER T.R.SOOD AM: IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLOWI NG GROUNDS: 1. THE CIT(APPEALS-VII)- MUMBAI [HEREINAFTER REFERRED TO AS CIT(A)] ERRED IN NOT DIRECTING THE DEPUTY COMMISSIO NER OF INCOME TAX 7(2) MUMBAI [HEREINAFTER REFERRED TO AS THE AO] TO ALLOW DEDUCTION UNDER SECTION 10[34]/[35] IN RES PECT OF DIVIDEND INCOME IN SPITE OF THE HOLDING THE SAME TO BE INCOME FROM OTHER SOURCES AND NOT BUSINESS INCOME. THE AP PELLANTS PRAY THAT THE AO BE DIRECTED TO ALLOW DEDUCTION UND ER SECTION 10(34)/(35) IN RESPECT OF DIVIDEND INCOME OF RS.23 72 210/-. 2. THE CIT(A) ERRED IN HOLDING THAT THE AO WAS RIGHT I N APPLY THE PROVISIONS OF SECTION 14A AND IN ACCORDINGLY DIRECT ING HIM TO RELINQUISHMENT-COMPUTE THE DISALLOWANCE UNDER THIS SECTION AS PER RULE 8D OF THE RULES. THE APPELLANTS SUBMIT THA T NO EXPENDITURE IS ATTRIBUTABLE TO THE ABOVE YEAR AND A S SUCH THE CIT(A) OUGHT NOT TO HAVE DIRECTED THE AO TO RECOMPU TE THE DEDUCTION UNDER SECTION 14A IN ACCORDANCE WITH THIS RULE. THE APPELLANTS THEREFORE PRAY THAT THE DISALLOWANCE UND ER SECTION 14A BE DELETED. 3. THE CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.10 57 000/- MADE BY THE AO IN RESPECT OF COMMISS ION PAID TO FOREIGN PARTIES ON THE GROUND THAT THE APPELLANT S HAD FAILED TO SUBSTANTIATE THEIR CLAIM AS ALSO THAT THEY HAD F AILED TO DEDUCT TAX THEREON AS REQUIRED BY SECTION 40[A][I] OF THE ACT. THE APPELLANTS SUBMIT THAT THE NECESSARY EVIDENCE F OR SUBSTANTIATING THE CLAIM WAS BEFORE THE AO AS ALSO THE CIT(A) AND THEREFORE HE OUGHT NOT TO HAVE CONFIRMED THE DI SALLOWANCE ITA NO.5795/M/09 2 MADE BY THE AO. THE APPELLANTS FURTHER SUBMIT THAT THE SAID PAYMENTS ARE COVERED BY BOARD CIRCULAR NO.786 AND A S SUCH THEY WERE UNDER NO OBLIGATION TO DEDUCT TAX AT SOUR CE AND THEREFORE THE CIT(A) HAS ERRED IN HOLDING THAT THE DISALLOWANCE WAS ALSO JUSTIFIED UNDER SECTION 40[A][I] OF THE AC T. THE APPELLANTS THEREFORE PRAY THAT THE AO BE DIRECTED T O DELETE THE DISALLOWANCE OF RS.10 57 000/-. 4. THE CIT(A) ERRED IN HOLDING THAT THE AO WAS RIGHT I N DISALLOWING EMPLOYEES CONTRIBUTION TO PROVIDENT FU ND OF RS.5 08 129 UNDER SECTION 43B OF THE ACT. THE APPEL LANTS SUBMIT THAT SINCE THE SAID PAYMENTS HAVING BEEN MAD E WITHIN THE GRACE PERIOD UNDER THE PROVIDENT FUND ACT THE SE OUGHT TO BE TREATED AS MADE BEFORE THE DUE DATE AND ARE NOT DISALLOWABLE UNDER SECTION 43B. EVEN OTHERWISE SIN CE THE SAID PAYMENTS HAVING BEEN MADE BEFORE THE DUE DATE OF FI LING OF THE RETURN OF INCOME FOR THE ABOVE ASSESSMENT YEAR THEY OUGHT TO BE ALLOWED AS A DEDUCTION UNDER SECTION 43 B. THE APPELLANTS THEREFORE PRAY THAT THE AO BE DIRECTED T O DELETE THE ADDITION OF RS.5 08 129. 2. GROUND NO.1 : AFTER HEARING BOTH THE PARTIES WE FIND THAT ASSESSEE HAD PURCHASED AND SOLD CERTAIN UNITS OF MU TUAL FUNDS INCOME FROM WHICH WAS RETURNED UNDER THE HEAD CAPITAL GAI NS. HOWEVER AO NOTED THAT SUCH TRANSACTIONS WERE DONE QUITE FREQUE NTLY AND THE MUTUAL FUND UNITS HAVE BEEN SOLD COMPARATIVELY IN A SHORT DURATION OF 12/15 MONTHS WHICH MEANS ASSESSEE HAD NO INTENTION TO HOLD THE SHARES AS INVESTMENT. ACCORDINGLY THE INCOME WAS A SSESSED AS INCOME FROM BUSINESS. CORRESPONDINGLY THE DIVIDEND FROM SH ARES AND MUTUAL FUNDS WAS ALSO TREATED AS BUSINESS INCOME. HOWEVER ON APPEAL THE LD. CIT(A) REVERSED THE DECISION OF THE AO AND HELD THAT SALE AND PURCHASE OF MUTUAL FUND UNITS AND SHARES IN THE NAT URE OF INCOME FROM CAPITAL GAINS ONLY AND REVENUE HAS NOT FILED ANY AP PEAL AGAINST THE SAME. AT THE SAME TIME THE LD. CIT(A) HELD THAT DI VIDEND INCOME SHOULD BE CONSIDERED AS INCOME UNDER THE HEAD INCO ME FROM OTHER ITA NO.5795/M/09 3 SOURCES DESPITE GROUND BEING TAKEN THAT SUCH INCOM E WAS EXEMPT U/S.10[34]/[35]. 3. BEFORE US LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT INCOME FROM MUTUAL FUNDS IS SPECIFICALLY EXEMPT U/S.10[35] . HE FURTHER SUBMITTED THAT ONCE THE LD. CIT(A) HELD THAT INCOME FROM SALE AND PURCHASE OF MUTUAL FUNDS WAS TO BE TREATED AS CAPIT AL GAINS THEN THERE IS NO JUSTIFICATION FOR NOT APPLYING THE PROV ISIONS OF SEC.10[35]. 4. ON THE OTHER HAND LD. DR STRONGLY RELIED ON TH E ORDER OF THE CIT(A). 5. AFTER CONSIDERING THE RIVAL SUBMISSIONS CAREFULL Y WE FIND THAT INCOME FROM MUTUAL FUNDS IS EXEMPT U/S.10[35] AND THEREFORE SUCH INCOME COULD NOT BE SUBJECTED TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES. ACCORDINGLY WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND DIRECT THE AO TO TREAT THE INCOME FROM MUTUAL F UNDS EXEMPT U/S.10[35]. 6. GROUND NO.2 : AFTER HEARING BOTH THE PARTIES WE FIND THAT THE AO AFTER DETAILED DISCUSSION HELD THAT SINCE ASSESS EE HAD CLAIMED EXEMPT INCOME FROM DIVIDENDS OF MUTUAL FUNDS THERE FORE PROVISIONS OF SEC.14A WERE APPLICABLE. HE ACCORDINGLY AFTER DETAILED DISCUSSION CALCULATED 5% OF DIVIDEND INCOME AS EXPENDITURE. HE FURTHER DISALLOWED PROPORTIONATE INTEREST BECAUSE ASSESSEE ALSO HAD CERTAIN BORROWED FUNDS. 7. ON APPEAL LD. CIT(A) UPHELD THE ORDER OF THE AO ON THE BASIS OF THE DECISION OF SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF DAGA ITA NO.5795/M/09 4 CAPITAL MANAGEMENT PVT. LTD. & ORS. (2008) 119 TTJ (MUM) (S.B) 289 IN ITA NO.8057/M/03 & ORS. DATED 20 TH OCTOBER 08. 8. BEFORE US LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT HON'BLE BOMBAY HIGH COURT HAS HELD IN THE CASE OF OF GODREJ & BOYCE MFG. CO.LTD. VS. DCIT [328 ITR 81] THAT RULE 8D IS NOT O F RETROSPECTIVE APPLICATION THEREFORE PROPORTIONATE INTEREST COUL D NOT HAVE BEEN DISALLOWED. 9. ON THE OTHER HAND LD. DR SUBMITTED THAT IN THE ABOVE DECISION THE HON'BLE HIGH COURT HAS CLEARLY HELD THAT REASON ABLE EXPENDITURE AND INTEREST CAN STILL BE DISALLOWED. 10. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIN D THAT THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG . CO.LTD. VS. DCIT [328 ITR 81] HAS HELD AS UNDER: HELD THAT THE PROVISIONS OF RULE 8D OF THE RULES WHICH HAVE BEEN NOTIFIED W.E.F. 24TH MARCH 2008 SHALL APPLY W ITH EFFECT FROM ASSESSMENT YEAR 2008-09. EVEN PRIOR TO ASSESSM ENT YEAR 2008-09 WHEN RULE 8D WAS NOT APPLICABLE THE ASSES SING OFFICER HAS TO ENFORCE THE PROVISIONS OF SUB-SECTION (1) OF SECTION 14A. FOR THAT PURPOSE THE ASSESSING OFFICER IS DUTY BOU ND TO DETERMINE THE EXPENDITURE WHICH HAS BEEN INCURRED I N RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INC OME UNDER THE ACT. THE ASSESSING OFFICER MUST ADOPT A REASONA BLE BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT FACTS AND C IRCUMSTANCES AFTER FURNISHING A REASONABLE OPPORTUNITY TO THE AS SESSEE TO PLACE ALL GERMANE MATERIAL ON THE RECORD. THE PROCE EDINGS FOR ASSESSMENT YEAR 2002-03 SHALL STAND REMANDED BACK T O THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL DETE RMINE AS TO WHETHER THE ASSESSEE HAS INCURRED ANY EXPENDITURE ( DIRECT OR INDIRECT) IN RELATION TO DIVIDEND INCOME/INCOME FRO M MUTUAL FUNDS WHICH DOES NOT FORM PART OF THE TOTAL INCOME AS CONTEMPLATED UNDER S. 14A. THE ASSESSING OFFICER CA N ADOPT A REASONABLE BASIS FOR EFFECTING THE APPORTIONMENT. W HILE MAKING THAT DETERMINATION THE ASSESSING OFFICER SHALL PRO VIDE A REASONABLE OPPORTUNITY TO THE ASSESSEE OF PRODUCING ITS ITA NO.5795/M/09 5 ACCOUNTS AND RELEVANT OR GERMANE MATERIAL HAVING A BEARING ON THE FACTS AND CIRCUMSTANCES OF THE CASE. THUS IT IS CLEAR THAT RULE 8D IS APPLICABLE ONLY F ROM A.Y 2008-09 AND IS NOT APPLICABLE FOR A.YR. 2005-06 WHICH IS BEFORE US . THEREFORE WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND REMIT THE MAT TER BACK TO THE FILE OF THE AO TO RE-COMPUTE THE DISALLOWANCE U/S.14A IN THE LIGHT OF THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CA SE OF GODREJ & BOYCE MFG. CO.LTD. VS. DCIT [SUPRA]. 11. GROUND NO.3 : AFTER HEARING BOTH THE PARTIES WE FIND THAT ASSESSEE HAD CLAIMED A SUM OF RS.10 57 000/- AS COM MISSION PAID TO THE FOREIGN PARTIES. THIS COMMISSION WAS NOT ALLOWE D BY THE AO BECAUSE ACCORDING TO HIM NO AGREEMENT EXISTED AND EVEN DETAILS WERE NOT FILED. THE ACTION OF THE AO WAS UPHELD BY THE LD. CIT(A). 12. BEFORE US LD. COUNSEL OF THE ASSESSEE POINTED OUT THAT RELEVANT DETAILS WERE FILED BEFORE THE AO AS WELL AS THE CIT (A) AND IN THIS REGARD HE REFERRED TO PAGES 2 TO 56 OF THE PAPER BO OK WHICH WERE FILED BEFORE THE AO AS WELL AS THE CIT(A). HE POINT ED OUT THAT DETAILS OF THE PARTIES TO WHOM COMMISSION WAS PAID WERE FURNIS HED AND COPY OF THE SAME IS PLACED AT PAGE 4 OF THE PAPER BOOK. REL EVANT INVOICES ON WHICH COMMISSION WAS PAID ARE ALSO ATTACHED. EVEN D EBIT ADVICES AND CORRESPONDENCES OF THE FOREIGN PARTIES WERE ALSO FI LED. HE ARGUED THAT THOUGH THERE IS NO FORMAL AGREEMENT WITH THE FOREIG N PARTIES THE ASSESSEE WHO IS DEALING IN THE FURNITURE ITEMS HAD TO PAY COMMISSION ITA NO.5795/M/09 6 TO PROCURE ORDERS FROM THE FOREIGN PARTIES. HE SUBM ITTED THAT THE MATTER MAY BE SET ASIDE FOR VERIFICATION OF THE DET AILS BY THE AO. 13. ON THE OTHER HAND LD. DR SUBMITTED THAT NO AGR EEMENT EXISTED WITH THE PARTIES TO WHOM COMMISSION WAS PAID. MOREO VER AS POINTED OUT BY THE LD. CIT(A) EVEN THE NATURE OF SERVICES C OULD NOT BE ESTABLISHED BY THE ASSESSEE AND THEREFORE DISALLO WANCE WAS JUSTIFIED. 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY AND FIND THAT VARIOUS DETAILS LIKE NAMES OF THE PARTIES TO WHOM C OMMISSION WAS PAID DEBIT ADVISES OF SUCH PARTIES INVOICES WITH REFERENCE TO COMMISSION PAID AND EVEN SOME CORRESPONDENCE IS STA TED TO HAVE BEEN FILED. THE CERTIFICATE TO THE PAPER BOOK CLEAR LY STATES THAT THESE DOCUMENTS WERE FILED BEFORE THE AO AS WELL AS THE C IT(A) BUT IT SEEMS THE SAME HAVE NOT BEEN CONSIDERED. THEREFORE IN TH E INTERESTS OF JUSTICE WE SET ASIDE THE ORDER OF THE LD. CIT(A) A ND REMIT THE MATTER BACK TO THE FILE OF THE AO WITH A DIRECTION TO RE-E XAMINE THE ISSUE REGARDING PAYMENT OF COMMISSION. NEEDLESS TO SAY T HAT ASSESSEE SHOULD BE GIVEN PROPER OPPORTUNITY OF HEARING TO EX PLAIN ITS CASE. 15. GROUND NO.4 : DURING ASSESSMENT PROCEEDINGS AO NOTED THAT PF AND ESIC PAYMENTS HAVE BEEN MADE LATE. THE AO HAS D ISCUSSED THE DETAILS AT PAGE-6 OF HIS ORDER AND THE DELAY IS STA TED TO BE 1/3 DAYS. AO ADDED THESE AMOUNTS BECAUSE PF CONTRIBUTION RELA TED TO EMPLOYEES CONTRIBUTION. THE ACTION OF THE AO WAS CONFIRMED BY THE LD. CIT(A). 16. BEFORE US LD. COUNSEL OF THE ASSESSEE SUBMITTE D THAT THE ISSUE REGARDING PF IS SQUARELY COVERED BY THE DECISION OF THE HON'BLE ITA NO.5795/M/09 7 SUPREME COURT IN THE CASE OF CIT VS. ALOM EXERCUSIO N LTD. [319 ITR 306]. 17. ON THE OTHER HAND LD. DR RELIED ON THE ORDER OF THE CIT(A). 18. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIN D THAT HON'BLE SUPREME COURT IN THE CASE OF CIT VS. ALOM EXERCUSIO N LTD. [SUPRA] HAS CLEARLY HELD THAT IF PF AND ESIC PAYMENTS ARE MADE BEFORE THE DUE DATE OF FILING OF THE RETURN THEN SAME HAVE TO BE ALLOWED. RESPECTFULLY FOLLOWING THIS DECISION WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND DIRECT THE AO TO ALLOW THE PAYMENTS ON ACCOUNT OF E MPLOYEES CONTRIBUTION TO PF & ESIC. 19. IN THE RESULT APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 15/7/2011. SD/- SD/- (R.V.EASWAR) (T.R.SOOD) PRESIDENT ACCOUNTANT MEMBER MUMBAI: 15/7/2011. P/-*