SATYANARAYAN SEKHSARIA P. LTD, MUMBAI v. ITO WD 3(3)(2), MUMBAI

ITA 7351/MUM/2014 | 2011-2012
Pronouncement Date: 17-10-2016 | Result: Allowed

Appeal Details

RSA Number 735119914 RSA 2014
Assessee PAN AAACS5489A
Bench Mumbai
Appeal Number ITA 7351/MUM/2014
Duration Of Justice 1 year(s) 10 month(s) 8 day(s)
Appellant SATYANARAYAN SEKHSARIA P. LTD, MUMBAI
Respondent ITO WD 3(3)(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 17-10-2016
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted E
Tribunal Order Date 19-07-2016
Assessment Year 2011-2012
Appeal Filed On 09-12-2014
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH ES E MUMBAI BEFORE SHRI RAJENDRA HONBLE ACCOUNTANT MEMBER AND SHRI C.N. PRASAD HONBLE JUDICIAL MEMBER ITA NO S . 891 & 7351 / MUM /201 4 (ASST. YEAR : 20 1 0 - 1 1 & 2011 - 12 ) SATYANARAYAN SEKHSARIA PVT. LTD. 11 - A MITTAL CHAMBERS NARIMAN POINT MUMBAI 21 VS. A CIT RANGE - 3(3) MUMBAI. PAN NO. AAACS 5489 A (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI VIJAY MEHTA CA & SHRI HITENDRA BHANDARI - CA DEPARTMENT BY : SHRI N. SATHYA MOORTHY - D R DATE OF HEARING : 19 / 07 /201 6 . DATE OF PRONOUNCEMENT : 17 / 1 0 /201 6 . O R D E R PER C.N. PRASAD JUDICIAL MEMBER THESE TWO APPEALS FILED BY THE ASSESSEE AGAINST THE SEPARATE ORDERS OF THE LD. CIT(A) - 7 MUMBAI DATED 25/11/2013 & 29/09/2014 FOR THE ASSESSMENT YEARS 2010 - 1 1 & 2011 - 12 RESPECTI VE LY. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSE S SMENT S WERE COMPLETED BY THE ASSESSING OFFICER UNDER SECTION 143(3) OF THE ACT . WHILE COMPLETING THE ASSESSMENTS THE ASSESSING OFFICER DISALLOWED RS.16 05 051/ - AND RS. 16 67 50/ - UNDER SECTION 14A READ WITH RULE 8D FOR THE ASSESSMENT YEARS 2010 - 11 & 2011 - 12 RESPECTIVELY . HOWEVER SINCE THE ASSESSEE ITSELF SUO - MOTU DISALLOWED RS.6 05 051/ - AND RS. 6 67 551/ - IN BOTH THESE ASSESSMENT YEARS H E RESTRICTED THE DISALLOWANCE TO RS. 10 LAC. E ACH FOR BOTH THE ASSESSMENT YEARS W HILE 2 ITA NO S . 891 & 7351 / MUM /201 4 WORKING OUT THE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D . T HE ASSESSING OFFICER WHILE WORKING OUT THE DISALLOWANCE CONSIDERED THE INVESTMENT MADE IN PARTNERSHIP FIRM WHICH THE ASSESSEE HAS NOT CONSIDERED WHILE WORKING OUT THE DISALLOWANCE OF 0.5% OF AVERAGE INVESTMENT. THE LD. CIT(A) SUSTAINED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 3 . THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT ASSESSEE HAS CALCULATED THE EXPENDITURE ATTRIBUTABLE FOR EARNING DIVIDEND INCOME BY TAKING TOTAL INVESTMENTS EXCEPT THE CAPITAL INTRODUCED IN THE PARTNERSHIP FIRM WHE RE THE ASSESSEE IS HAVING ONLY 5% SHARE OF PROFIT . THE COUNSEL FOR ASSESSEE FURTHER SUBMITTED THAT THE ASSESSING OFFICER HAS NOT RECORDED ANY SATISF A CTION WITH REGARD TO CLAIM OF THE ASSESSEE IN RESPECT OF THE DISALLOWANCE MADE SUO - MOTU BY THE ASSESSEE AN D IN THE ABSENCE OF ANY DISSATISFACTION RE CORDED BY THE ASSESSING OFFICER WITH REGARD TO THE CLAIM OF THE ASSESSEE THERE IS NO JUSTIFICATION IN INVOKING THE PROVISIONS OF SECTION 14A (2) READ WITH RULE 8D . THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE BY PLAC ING RELIANCE ON THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF RADHA MADHAV INVESTMENTS LTD. IN ITA NO. 6972/MUM/2012 DATED 17/04/2015 SUBMITS THAT IN THE ABSENCE OF RECORDING OF SATISFACTION THE PROVISIONS OF RULE 8D CANNOT BE INVOKED. 4 . DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 5 . WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW . ON PERUSAL OF THE ASSESSMENT ORDER S WE FIND TH A T THERE IS NO DISSATISFACTION RECORDED BY THE ASSESSING OFFICER WITH REGARD TO SUO - MOTU DISALLOWANCE MADE BY THE ASSESSEE. THE ASSESSING OFFICER HAS SIMPLY CALCULATED THE DISALLOWANCE BY APPLYING 0.5% O N TOTAL AVERAGE INVESTMENTS INCLUDING THE CAPITAL INVESTMENT BY THE ASSESSEE IN 3 ITA NO S . 891 & 7351 / MUM /201 4 TH E FIRM WITHOUT REJECT ING THE CONTENTIONS OF THE ASSESSEE THAT THE SUO - MOTU DISALLOWANCE OF RS. 6 05 051/ - AND RS. 6 6 7 5 51/ - MADE BY THE ASSESSEE ARE NOT REASONABLE AT ALL . IN THE CASE OF RADHA MADHAV INVESTMENTS LTD. (SUPRA) MORE OR LESS O N IDENTICAL SITUATION THE TRIBUNAL HAS CONSIDERED NON - RECORDING OF DISSATISFACTION BY THE ASSESSING OFFICER AS UNDER: - 2 . THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF TRADING OF VARIOUS ITEMS INVESTMENT AND FINANCING . FROM THE COMPUTATION OF INCOME THE ASSESSING OFFICER NOTED THAT ASSESSEE HAS CLAIMED FOLLOWING INCOMES AS EXEMPT FROM TAX: - I) DIVIDEND INCOME OF RS.31 86 93 627/ - II) SHARE OF PROFIT F R OM PARTNERSHIP FIRM RS.13 04 48 840/ - . IN RESPONSE TO THE SHOW CAUSE NOTICE AS TO WHY DISALLOWANCE SHOULD NOT BE MADE AS PER RULE 80 THE ASSESSEE SUBMITTED THAT IT HAS ALREADY ALLOCATED AN AMOUNT OF RS . 1 65 43 645 / - FOR THE PURPOSE OF DISALLOWANCE U/S 14A WHICH HAS BEEN MADE AS PER RULE 80 ONLY . THE WORKI NG OF SUCH DISALLOWANCE WAS ALREADY ENCLOSED WITH TAX AUDIT REPORT IN FROM NO. 3CD . HOWEVER THE ASSESSING OFFICER HELD THAT THE SAME IS STRICTLY NOT IN ACCORDANCE WITH THE RULE 80 AND WORKED OUT THE DISALLOWANCE OF RS.3 55 96 346/ - AS PER THE WORKING GIVE N AT THE PAGE 4 OF THE ASSESSMENT ORDER. 3. BEFORE THE LD. CIT(A) THE ASSESSEE SUBMITTED THAT SO FAR AS INVESTMENT MADE IN FIRM IS CONCERNED THE SAME CANNOT BE TAKEN IN THE VALUE OF INVESTMENT AS PER CLAUSE (III) OF RULE 80. FURTHER SHARE I N THE PROFIT OF THE FIRM IS ALLOCATED AMONGST THE PARTNERS ONLY WHEN THE FIRM HAS PAID THE TAXES . THUS THE PARTNER HAS ALREADY SUFFERED TAX PAID BY THE FIRM . BESIDES THIS IT WAS ALSO POINTED OUT THAT THE ASSESSEE HAS INCU RR ED BUSINESS EXPENSES OF 8 . 60 C R ORES WH ICH WERE MOSTLY I NCU R RED FOR THE BUSINESS PURPOSE AND THERE ARE NO EXPENSES DIRECTLY RELATED TO EARNING OF THE DIVIDEND INCOME. ACCORDINGLY NO DISALLOWANCE OVER AND ABOVE SHOULD BE MADE. HOWEVER THE LD. CIT(A) HELD THAT DISALLOWANCE HAS TO BE MADE STRIC TLY WITHIN RULE 80 AND CONFIRMED THE DISALLOWANCE WITHOUT CONSIDERING THE ASSESSEE'S SUBMISSION. THIS IS EVIDENT FROM THE FOLLOWING FINDING GIVEN BY THE LD. CIT(A). ''I HAVE CONSIDERED THE AOS ORDER AS WELL AS APPELLANT ARS SUBMISSIONS. HAVING CONSIDERE D BOTH I FIND THAT THE AO HAS APPLIED THE JURISDI CT IONAL HIGH COURT DECISION I THE 4 ITA NO S . 891 & 7351 / MUM /201 4 CASE OF M/S. GODREJ & BOYCE MFG. CO. LTD. WHILE MAKING THE DISALLOWANCE. AS THE JURISDI CT IONAL HIGH COURT HAS HELD THAT RULE 80 IS APPLICABLE FROM A. Y. 2008 - 09 ONWARD. IT IS ALSO THE FAD THAT THE APPELLANT COMPANY HAS GOT SUBSTANTIAL EXEMPT INCOME WHICH HAS BEEN MENTIONED BY THE AO IN PARA 5.1 OF THE ORDER. I VIEW OF THE SAME AND TAKING NOTE OF PROVISIONS OF SECTION 14A OF THE ACT; . I AM OF THE CONSIDERED VIEW THAT THE DISALLOWANCE MADE BY THE AO IS COMPLETELY JUSTIFIED AND ACCORDINGLY CONFIRMED. IN VIEW OF THE SAME THE APPELLANTS THIS GROUND OF APPEAL IS DISMISSED. ' 4. BEFORE US LEARNED COUNSEL SHRI VIJAI MEHTA SUBMITTED THAT AS SESSEE HAS ALREADY OFFERED A HUGE DISALLOWANCE OF RS.L 65 43 645 / - WHICH WAS AS PER RULE 80 ONLY. THE DISALLOWANCE WAS MADE AFTER TAKING THE AVERAGE INVESTMENTS MADE IN THE SHARES WHEREAS THE ASSESSING OFFICER HAS INCLUDED THE INVESTMENT MADE BY WAY OF CAPITAL IN THE PARTNERSHIP FIRM. THE INVESTMENT IN THE CAPITAL OF THE FIRM WAS COMING FROM EARLIER YEARS . ONCE THE ASSESSEE HAS ITSELF ATTRIBUTED DISALLOWABLE EXPENSES THE ASSESSING OFFICER WITHOUT RECOR DING HIS SATISFICATION OR BEING SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE CANNOT PROCEED TO MAKE FURTHER DISALLOWANCE UNDER RULE 8D. IT IS MORE SO IN THIS CASE WHEN THE ASSESSEE HAS DULY PLACED BEFORE THE ASSESSING OFFICER THE NATURE O F EXPENSES AS APPEARING IN SCHEDULE 12 & 13 OF P & L ACCOUNT WHICH WILL GO TO SHOW THAT MOST OF THE EXPENSES WERE INCURRED FOR THE BUSINESS CARRIED OUT BY THE ASSESSEE. THUS WITHOUT REJECTING THE CLAIM OF THE ASSESSEE AND WITHOUT RECORDING SATISFACTION THE ASSESSING OFFICER CANNOT MAKE FURTHER DISALLOWANCE. IN SUPPORT OF HIS CONTENTION HE RELIED UPON VARIOUS CASES LAWS. HE ALSO FILED ANALYSIS OF THE EXPENDITURES DEBITED TO THE P&L ACCOUNT IN ORDER TO SHOW THAT MAJOR EXPENSES HAVE BEEN INCURRED FOR ASSE SSEE'S OTHER BUSINESS. 5. ON THE OTHER HAND LD. DR STRONGLY RELIED UPON THE ORDER OF THE LD. CIT(A). 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PERUSED THE RELEVANT MATERIAL PLACED ON RECORD. AS DISCUSSED ABOVE THE ASSESSEE HAS ALREADY OFFERED DISALLOWANCE OF AN AMOUNT OF RS.1 65 43 645/ - FOR ALLOCATING THE INDIRECT EXPENSES UNDER RULE 8D. ONCE THE ASSESSEE HAS ATTRIBUTED THE EXPENSES FOR THE PURPOSE OF DISALLOWANCE THEN IT IS INCUMBENT UPON THE ASSESSING OFFICER TO EXAMINE THE CORRECTNESS OF SUCH A CLAIM OF EXPENDITURE AND IF HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE HE IS NOT SATISFIED TO SUCH CORRECTNESS OF THE CLAIM THEN HE CAN PROCEED TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED WHICH 5 ITA NO S . 891 & 7351 / MUM /201 4 CAN BE SAID TO BE ATTRIBUTABLE FOR THE EARNI NG OF EXEMPT INCOME. THIS IS THE MANDATE OF LAW UNDER SECTION 14(2). IN OTHER WORDS ONCE HE HAS FULFILLED THE CONDITIONS LAID DOWN IN SECTION 14(2) THEN ONLY HE CAN PROCEED TO VARY THE DISALLOWANCE U/S 14A. HERE IN THIS CASE THE AO HAS FAILED TO FULFILTH E REQUIREMENT OF SECTION 14(2) AND WITHOUT BEING SATISFIED ABOUT THE CORRECTNESS OF THE CLAIM HAS PROCEEDED TO DISALLOW WHICH IS NOT THE CORRECT APPROACH . 6 . THEREFORE IN THE CASE O N HAND ALSO THE ASSESSING OFFICER HAS NOT RECORDED ANY DISSATISFACTION ON THE CORRECTNESS OF THE CLAIM MADE BY THE ASSESSEE. THE ASSESSING OFFICER SHOULD NOT HAVE INVOKED THE PROVISIONS OF RULE 8D WITHOUT RECORDING THE SATISFACTION ON THE CORRECT NESS OF THE CLAIM MADE BY THE ASSESSEE WITH REFERENCE TO BOOKS O F ACCOUNT THAT THE EXPENSES DISALLOWED BY THE ASSESSEE ARE NOT REASONABLE . THUS WE DELETE THE DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 14A READ WITH RULE 8D . 7 . IN THE RESULT BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH OCTOBER 2016 S D / - S D / - ( RAJENDRA ) ( C.N. PRASAD ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 17 TH OCT. 201 6 . VR/ - COPY TO: 1 . THE ASSESSEE. 2 . THE REVENUE. 3 . THE CIT 4 . THE CIT(A) 5 . THE D.R . 6 . GUARD FILE. BY ORDER //TRUE COPY// ASSISTANT REGISTRAR I.T.A.T. MUMBAI