Peoples Safe Deposit Vault Pvt.Ltd.,, Surat v. The Income tax Officer-1(4),, Surat

ITA 626/AHD/2010 | 2007-2008
Pronouncement Date: 18-03-2011 | Result: Partly Allowed

Appeal Details

RSA Number 62620514 RSA 2010
Bench Ahmedabad
Appeal Number ITA 626/AHD/2010
Duration Of Justice 1 year(s) 23 day(s)
Appellant Peoples Safe Deposit Vault Pvt.Ltd.,, Surat
Respondent The Income tax Officer-1(4),, Surat
Appeal Type Income Tax Appeal
Pronouncement Date 18-03-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted SMC
Tribunal Order Date 18-03-2011
Date Of Final Hearing 10-03-2011
Next Hearing Date 10-03-2011
Assessment Year 2007-2008
Appeal Filed On 25-02-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL : SMC BENCH : AHMEDABAD (BEFORE HONBLE SHR I T.K. SHARMA J.M .) I.T.A. NO. 626/AHD./2010 ASSESSMENT YEAR : 2007-2008 PEOPLES SAFE DEPOSIT VAULT PVT. LTD. SURAT -VS- I.T.O. WARD-1(4) SURAT (PAN : AAABCP 4161D) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ANUJ J. PATCHIGA R A.R. RESPONDENT BY : SHRI VIMALENDU VERMA D .R. O R D E R THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE O RDER DATED 11.01.2010 PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-I SUR AT FOR THE ASSESSMENT YEAR 2006-2007. 2. THE ONLY GROUND RAISED IN THIS APPEAL BY THE ASS ESSEE IS AS UNDER: 1. THE LEARNED CIT(APPEALS) HAS ERRED IN DISALLOWIN G A SUM OF RS.7501 U/S. 14A WITHOUT ANY JUSTIFICATION. THE LEARNED CIT(APPEALS ) HAS DISALLOWED A SUM OF RS.7501 OUT OF THE TOTAL EXPENSES PAID TOWARDS DIRECTORS REMU NERATION U/S.14A CONSIDERING THE SAME TO BE THE EXPENSES ATTRIBUTABLE TO EARN DIVIDEND I NCOME (EXEMPTED INCOME) WITHOUT ANY JUSTIFICATION. 3. BRIEFLY STATED THE FACTS ARE THAT THE ASSESSEE C OMPANY IS ENGAGED IN PROVIDING LOCKER FACILITIES TO MEMBERS ON RENT OF VARIOUS SIZES. FOR THE ASSESSMENT YEAR UNDER APPEAL IT FILED THE RETURN OF INCOME DECLARING TOTAL INCOME OF RS.13 75 4/-. ON PERUSAL OF PROFIT & LOSS A/C. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE COMPANY H AD CLAIMED DIVIDEND INCOME AMOUNTING TO RS.97 451/- FROM INDIAN COMPANIES AS EXEMPT FROM IN COME TAX UNDER SECTION 10(34) OF THE I.T. ACT. HE FURTHER NOTICED THAT TOTAL INCOME AS CREDIT ED BY THE ASSESSEE COMPANY IN THE BOOKS INCLUDING THIS EXEMPT INCOME IS RS.7 31 071/- WHIC H FORMS 13.32% OF THE AGGREGATE INCOME CLAIMED TO HAVE EARNED BY THE COMPANY DURING THE YE AR UNDER CONSIDERATION. AS THIS INCOME IS EXEMPT THE ASSESSING OFFICER REQUESTED THE ASSESSE E TO SHOW CAUSE VIDE ORDER-SHEET-ENTRY DATED 16.02.2009 AS UNDER: 2 ITA NO. 626-AHD-2010 WHY THE PROPORTIONATE EXPENSES( @ 13.32%) FROM THE EXPENSES DEBITED AS 'DIRECTOR'S REMUNERATION' AND SALARY MAY NOT BE D ISALLOWED AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE-COMPANY CONSIDERING T HAT THE SERVICES OF THE DIRECTOR STAFF ETC. ARE REQUIRED TO MANAGE AND EARN THE INC OME NOT FORMING PART OF THE TOTAL INCOME AS STIPULATED UNDER S.14A OF THE ACT.' 3.1 IN REPLY THE ASSESSEE COMPANY SUBMITTED THAT T HE EXEMPTED INCOME EARNED DURING THE YEAR WAS FROM THE INVESTMENT MADE BY THE COMPANY IN SHARES AS WELL AS MUTUAL FUNDS INVESTED IN EARLIER YEARS AND NOT THE RELEVANT YEARS. THE COMPA NY HAS ALSO NOT PAID ANY CHARGES TO ANY AGENTS FOR SUCH INVESTMENT AND REMUNERATION TO ANY DIRECTO RS OR EMPLOYEE FOR EARNING SUCH INCOME. THE COMPANY INVESTMENT BASED ON VERBAL INVESTMENT TIPS THERE IS NO RELATION BETWEEN DIRECTOR'S REMUNERATION AND SALARY WITH EARNING OF THE DIVIDEN D INCOME RS.97 451/-. THE EXEMPT INCOME IS EARNED BY MERE UTILIZATION OF IDLE FUNDS WITH COMPA NY AND NO ADDITIONAL COST IS INCURRED BY THE COMPANY. 3.2 THE ASSESSING OFFICER FOUND THE AFORESAID REPLY OF THE ASSESSEE AS UNTENABLE ON THE FOLLOWING GROUNDS: DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE-CO MPANY HAS MADE A FRESH INVESTMENT IN THE MUTUAL FUND FOR RS.2 00 000/-. INVESTMENT DECISIONS ARE NECESSARILY MADE BY PERSON S HOLDING RESPONSIBLE POSITION AND NOT BY ORDINARY EMPLOYEE. IT NEEDS APPLICATION OF MIND AS TO IN WHICH MUTUAL FUND SCHEME THE FUNDS NEED TO BE INVESTED TO MAXIMIZE RETURNS AS NUMEROUS SCHEMES FOR INVEST MENT ARE AVAILABLE IN THE MARKET. THOUGH THE INCOME EARNED BY WAY OF DIVIDEND FORM MU TUAL FUNDS PERTAINS TO INVESTMENT MADE IN EARLIER YEARS BUT WHETHER THE I NVESTMENT NEEDS TO CONTINUED IN THE SAME SCHEME OR HAS TO BE ALTERED TO SOME OTHER SCHEME WITH AN OBJECTIVE TO MAXIMIZE RETURN ON INVESTMENT ALSO NEEDS APPLICATIO N OF MIND AND DEVOTION OF LIME BY THE DIRECTOR OF THE COMPANY. THESE INVESTMENT DECIS IONS HAVE TO BE CONSTANTLY REVIEWED IN EACH YEAR OR EVEN BETWEEN THE YEARS. AL L THIS REQUIRE GREAT DEAL OF EFFORT AND THE DIRECTORS ARE BEING PAID FOR LOOKING ALTER THE AFFAIRS OF THE ASSESSEE-COMPANY FOR WHICH REMUNERATION IS BEING PAID TO THEM AND DE BITED TO THE PROFIT & LOSS ACCOUNT. THOUGH NOT EXACT BUT SOME PORTION OF EXPENSES PAID AS DIRECTORS REMUNERATION IS ATTRIBUTABLE TO THE EARNING OF INCOME NOT FORMING P ART OF THE TOTAL INCOME. 3 ITA NO. 626-AHD-2010 3.3 FINALLY IN PARA NO.5.3 OF THE ASSESSMENT ORDER THE ASSESSING OFFICER IN THE ABSENCE OF SCIENTIFIC METHOD TO FIND OUT EXACT EXPENSES OUT OF DIRECTORS REMUNERATION BEING ATTRIBUTABLE TO EARN AN EXEMPT INCOME HE DISALLOWED RS.15 000/- OU T OF THE DIRECTORS REMUNERATION UNDER SECTION 14A OF THE I.T. ACT 1961. 4. ON APPEAL BEFORE THE LEARNED COMMISSIONER OF INC OME TAX(APPEALS) IT WAS CONTENDED THAT THE DIRECTORS ARE INVOLVED IN DAY-TO-DAY RUNNI NG OF OPERATION OF THE COMPANY AND ARE NOT INVOLVED IN INVESTMENT OF THE COMPANY ON DAY-TO-DAY BASIS. IT WAS FURTHER ARGUED THAT THERE IS NO EXPENDITURE RELATABLE TO THE DIVIDEND INCOME WHICH HAS BEEN DEBITED TO THE PROFIT & LOSS A/C. AND AS SUCH NO DISALLOWANCE SHOULD BE MADE. 4.1 AFTER CONSIDERING THE AFORESAID SUBMISSIONS IN THE IMPUGNED ORDER THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) WORKED OUT THE DISALLOWANCE UNDER SECTION 14A AMOUNTING TO RS.7 501/- FOR THE DETAILED REASONS GI VEN IN PARA 2.3 OF THE IMPUGNED ORDER WHICH IS REPRODUCED AS UNDER: 2.3 I HAVE CONSIDERED THE SUBMISSION MADE BY THE A PPELLANT AND THE OBSERVATION OF THE A.O. IT WAS POINTED OUT TO THE APPELLANT THAT THE PROVISIONS OF SECTION 14A HAVE BEEN ON THE INCOME-TAX ACT FOR A VERY LONG TIME AND TH EREFORE IT CANNOT BE STATED THAT JUST BECAUSE OF NEW PROCEDURE HAS BEEN SPECIFIED IN SUB -SECTION (2) & (3) THE DISALLOWANCE CANNOT BE MADE IN THE CURRENT YEAR WHEN THESE SUB-SECTIONS WERE NOT PRESENT. PRIOR TO INSERTION OF SUB-SECTION (2) & (3) THE DISALLOWAN CE U/S.14A(1) WAS IN RESPECT OF EXPENDITURE RELATABLE TO THE EXEMPT INCOME. NO MET HOD WAS PRESCRIBED FOR PASSING THE DISALLOWANCE BUT THAT DOES NOT MEAN THAT SOME REAS ONABLE BASIS FOR DISALLOWANCE CANNOT BE ASCERTAINED. IN FACT SUBSECTION (2) & ( 3) NOW PROVIDE A METHOD WHICH IS VERY REASONABLE W.E.F. A.Y. 2007-08. EVEN THOUGH THIS M ETHOD WAS NOT AVAILABLE ON STATUTE BUT THIS PROCEDURE CAN BE ADOPTED AS A GUIDELINES FOR A CURRENT YEAR AS IT IS A VERY REASONABLE METHOD. THE APPELLANT ITSELF WAS ASKED TO CALCULATE DISALLO WANCE IF SUCH METHOD IS ADOPTED AS A GUIDELINES. DURING THE CURR ENT YEAR THE APPELLANT HAS ITSELF WORKED OUT SUCH A DISALLOWANCE WHICH IS AS UNDER:- SL. PARTICULARS AMOUNT AMOUNT NO. RS. RS. 1 AMOUNT OF EXPENDITURE DIRECTLY NIL RELATING TO INCOME WINCH DOES NOT FORM PART OF TOTAL INCOME 2. EXPENDITURE INCURRED BY WAY OF NIL INTEREST DURING PREVIOUS YEAR WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT. 4 ITA NO. 626-AHD-2010 3. % OF AVERAGE VALUE OF INVESTMENTS INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME AS APPEARING IN THE BALANCE SHEET OF THE ASSESSES ON THE FIRST AND THE LAST DAY OF THE PREVIOUS YEAR. AVERAGE VALUE OF INVESTMENTS IN MUTUAL FUNDS OPENING STOCK OF INVESTMENTS 15 00 275 CLOSING STOCK OF INVESTMENTS 15 00 27 5 AVERAGE VALUE 15 00 275 % OF AVERAGE VALUE 7 501 AMOUNT INADMISSIBLE U/S.14A 7 501 AS PER THIS METHOD THE DISALLOWANCE U/S.14A BECOM ES RS.7 501/-. THIS METHOD OF DISALLOWANCE IS MORE REASONABLE THAN THE METHOD AD OPTED BY THE A.O. AND HENCE THE DISALLOWANCE TO THIS EXTENT IS CONFIRMED AND APPEA L IS THEREFORE PARTLY ALLOWED. 5. AGGRIEVED WITH THE ORDER OF THE LEARNED COMMISSI ONER OF INCOME TAX(APPEALS) THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 6. AT THE TIME OF HEARING BEFORE THE TRIBUNAL ON B EHALF OF THE ASSESSEE SHRI ANUJ J. PATCHIGAR APPEARED AND CONTENDED THAT IN THE PREVIO US YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL NO EXPENDITURE HAS BEEN INCURRED BY THE ASS ESSEE COMPANY IN EARNING EXEMPT DIVIDEND INCOME OF RS.97 541/-. RELYING ON THE DECISION OF T HE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ BOYCE MANUFACTURING CO. LTD. VS- DCIT REPOR TED IN 328 ITR 81 IT WAS CONTENDED THAT RULE 8D IS APPLICABLE ONLY PROSPECTIVELY I.E. FROM THE ASSESSMENT YEAR 2008-09 AND NOT FOR THE EARLIER YEARS. IN THIS CASE THE ASSESSING OFFICER MADE AD HOC DISALLOWANCE AND LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IN THE IMPUGNE D ORDER REDUCED THE SAID DISALLOWANCE TO RS.7 501/- BEING % OF AVERAGE VALUE OF INVESTMENT IN MUTUAL FUNDS. HE SUBMITTED THAT IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL NO FRESH INVESTMENT HAS BEEN MADE. THEREFORE NO DISALLOWANCE IS CALLED FOR. 7. ON THE OTHER HAND SHRI VIMALENDU VERMA D.R. A PPEARING ON BEHALF OF THE REVENUE VEHEMENTLY SUPPORTED THE ORDER OF THE LEARNED COMMI SSIONER OF INCOME TAX(APPEALS). HE POINTED OUT THAT MANAGEMENT PERIODICALLY REVIEWS TH E INVESTMENT PORTFOLIO. THEREFORE IT MAY NOT 5 ITA NO. 626-AHD-2010 BE SAID THAT NO PORTION OF DIRECTORS REMUNERATION IS ATTRIBUTABLE TO EARNING THE EXEMPT DIVIDEND INCOME OF RS. 97 541/-. 8. HAVING HEARD BOTH THE SIDES I HAVE CAREFULLY GO NE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ BOYCE MANUFACTURING CO. LTD. ( SUPRA ) HELD THAT RULE 8D IS APPLICABLE ONLY PROSPECTIVEL Y I.E. FROM THE ASSESSMENT YEAR 2008-09. THE ASSESSMENT YEAR INVOLVED IN THIS APPEAL IS 2007 -08. THEREFORE AS PER THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ BOY CE MANUFACTURING CO. LTD. ( SUPRA ) RULE 8D IS NOT APPLICABLE. IN SUCH CIRCUMSTANCES THE AS SESSING OFFICER CAN MAKE REASONABLE DISALLOWANCE AS HELD BY THE HON'BLE BOMBAY HIGH COU RT IN THE CASE CITED ( SUPRA ). LOOKING TO THE SMALLNESS OF THE AMOUNT INVOLVED IT WILL NOT B E APPROPRIATE TO RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR MAKING REASONABLE DISALLO WANCE. ADMITTEDLY NO FRESH INVESTMENT HAS BEEN MADE FOR EARNING EXEMPT INCOME THEREFORE I A M OF THE VIEW THAT IT WILL MEET THE ENDS OF JUSTICE IF THE DISALLOWANCE OF RS.2 000/- IS MADE. THE DISALLOWANCE MADE IS ACCORDINGLY REDUCED TO RS.2 000/- AS AGAINST RS.7 501/- WORKED OUT BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). 9. IN THE RESULT FOR STATISTICAL PURPOSES THE APP EAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 8.03.2011. SD/- (T.K. SHARMA) JUDICIAL MEMBER DATED : 18/03/2011 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE 2) THE DEPARTMENT. 3) CIT(A.) CONCERNED 4) CIT CONCERNED 5) D.R. ITAT AHMEDABAD. TRUE COPY` BY ORDER DEPUTY REGI STRAR ITAT AHMEDABAD TALUKDAR/SR.P.S. 6 ITA NO. 626-AHD-2010