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Income Tax Appellate Tribunal, मुंबई पीठ “एसएमसी ”
Before: SHRI VIKAS AWASTHY & SHRI G.MANJUNATHA
अपीलाथ� �वारा/ Appellant by : S/ Shri V.G.Ginde/Kumar Kale ��तवाद� �वारा/Respondent by : Ms. R. Kavitha सुनवाई क� �त�थ/ Date of hearing : 20/02/2020 घोषणा क� �त�थ/ Date of pronouncement : 12/06/2020 आदेश/ ORDER PER VIKAS AWASTHY, JM:
This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)-2, Mumbai (in short ‘the CIT (A)) dated 30/08/2018 for the assessment year 2012-13.
The assessee in appeal has assailed the order of CIT (A) on two grounds:
(i) Disallowance under section 14A of the Income Tax Act, 1961 (herein after referred to as ‘the Act’) r.w.r. 8D;
(ii) Disallowance of Client referral fees Rs.27,93,401/-.
Shri V.G.Ginde, appearing on behalf of the assessee submitted that the assessee is a share broker. The assessee filed its return of income for the impugned assessment year on 30/09/2012 declaring total income of Rs.9,59,865/-. During the relevant period the assessee received dividend income of Rs.1,21,155/-. The assessee made suo-motu disallowance of Rs.10,000/- for earning exempt income. The Assessing Officer made further disallowance of Rs.9,57,180/- as direct expenditure under Rule 8D(2)(i) of the Income Tax Rules, 1962.( in short ‘the Rules’). The Assessing Officer has erred in holding that the Demat charges paid by the assessee are in relation to earning of exempt income. The ld. Authorized Representative of the assessee submitted that Demat account is held by the assessee under Broker Pool Account, connected with assessee’s share broking business and hence, the same are allowable as business expenditure. The ld. Authorized Representative of the assessee further pointed that apart from above, the Assessing Officer disallowed Rs.18,610/- under Rule 8D(2)(ii) as interest expenditure and Rs.26,333 under Rule 8D(2)(iii). Thus, the total disallowance U/s 14A r.w.r.8D was made at Rs.10,02,123/-. The ld. Authorized Representative of the assessee contended that own funds of the assessee are much more than the investment made, therefore, no interest expenditure was incurred by the assesse for making the investment. To substantiate his contentions, the ld. Authorized Representative of the assessee referred to Balance Sheet as on 31/3/2012 at page 4 of the Paper Book. The ld.Authorized Representative of the assessee submitted that as against the investment of Rs.55.51 Lakhs, own interest free funds of the assessee comprising of share capital and reserves and surplus are to the tune of Rs.33.53 crores. The ld.Authorized Representative of the assessee submitted that the Hon'ble Supreme Court of India in the case of Hero Cycles Pvt. Ltd. Vs. CIT reported as 379 ITR 347 has upheld presumption theory that where both, interest bearing funds and own funds are available, the presumption would be, that own funds are utilised for making investment. The ld. Authorized Representative of the assessee further submitted that as regards disallowance under Rule 8D(2)(iii) is concerned, the assessee has made suo-motu disallowance of Rs.10,000/-. The CIT (A) has enhanced disallowance to dividend income earned. The ld. Authorized Representative of the assessee prayed that the disallowance under rule 8D(2)(iii) may be restricted to suo- motu disallowance made by the assessee.
3.1 In respect of ground No.2, the ld.Authorized Representative of the assessee submitted that the assessee has paid Client Referral Fees of Rs.45,52,399/- as against total turnover of Rs.3,28,17,19/- during the period relevant to the assessment year under appeal. The Client referral Fees paid by the assessee during the assessment year under appeal is 13.87% of the total turnover. The Assessing Officer restricted the Client referral Fee to 5.36% i.e. the ratio of fees paid in the immediately preceding assessment year. The ld.Authorized Representative of the assessee referred to the details of Client referral Fees paid at pages 32 and 33 of the Paper Book. The details include; the names of the sub-brokers alongwith their address, PAN, amount paid and amount of TDS. The ld.Authorized Representative of the assessee submitted that complete details of the parties to whom Client referral Fees was paid was furnished before the AO, however, the authorities below brushed aside the same without considering. The assessee further filed a chart giving the details of the brokerage income earned and the Client referral Fees paid during the preceding three assessment years. The ld.Authorized Representative of the assessee pointed that during the assessment year 2009-10 the percentage of Client referral Fee to the brokerage income was 29.26%. In assessment year 2010-11 it was 15.85% and in assessment year 2011-12 it was 11.61%. Thus the average fee paid in the last three preceding years was 17.24%, which is still more than the fee paid during the assessment year under appeal. The ld.Authorized Representative of the assessee submitted that merely for the reason that the percentage of Client referral Fees paid in the immediately preceding assessment year was less, disallowance cannot be made in the current assessment year.
On the other hand, Ms. R. Kavitha, representing the Department vehemently defended the impugned order and prayed for dismissing the appeal of the assessee.
We have heard the submissions made by rival sides and have perused the orders of authorities below. The first ground of appeal is qua disallowance made under section 14A r.w.r. 8D. The assessee has earned dividend income of Rs.1,21,155/-. The assessee made suo-motu disallowance of Rs.10,000/- under section 14A of the Act. The Assessing Officer made further disallowance of Rs.9,92,123/-. In first appellate proceedings, the CIT (A) restricted the disallowance under section 14A of the Act to the total exempt income earned. After analysing the facts, we are of considered view that in so far as disallowance under Rule 8D(2)(i) and (ii), the disallowance made by the Assessing Officer was unwarranted. The Demat charges were related to assessee’s Share Broker business and were unrelated to earning of exempt income. As regards interest expenditure, the assessee has shown from the Balance Sheet as on 31/3/2012, that own funds of the assessee were much more than the investments made. It is a well settled legal proposition that were both, interest bearing and own interest free funds are available, it shall be presumed that investments are made from own funds. Hence, the disallowance made under rule 8D (2)(i) & (ii) were uncalled for. In so far as disallowance under rule 8D (2)(iii) is concerned, the assessee has made suo- motu disallowance of Rs.10,000/- as against dividend income of Rs.1,21,155/-. The Hon’ble Apex Court in the case of PCIT v. State Bank of Patiala reported as 259 Taxman 314 (SC) has approved that disallowance under section 14A r.w. Rule 8D(2)(iii) cannot exceed the exempt income earned. We find no merit in ground No.1 of the appeal, the same is dismissed, accordingly.
6. In ground No.2 of the appeal, the assessee has assailed disallowance of Client referral Fees claimed by the assessee. During the period relevant to the assessment year under appeal, the assessee has paid Client referral Fee to the tune of Rs.45,52,399/-. The Assessing Officer after taking into consideration quantum of Fees paid in the immediately preceding assessment year has restricted the payment of Client referral Fee to 5.36% in the current assessment year. The CIT (A) has upheld the same. The assessee has filed a comparative chart of the brokerage income earned and the Client referral Fees paid during the immediate three preceding assessment years. The same is reproduced herein below:
Particulars AY 2009-10 AY 2010-11 AY 2011-12 AY 2012-13 Rs. Rs. Rs. Rs. Brokerage income as per 3,21,35,055 4,98,14,411 5,00,61,333 2,74,97,389 P&L A/c. Client referral Fees 94,02,213 78,96,349 33,10,533 45,52,399 Per cent (B) to (A) 29.26% 15.85% 6.61% 16.56% Average for last 3 years : 17.24% The assessee has also furnished details of sub-brokers to whom Client referral Fees has been paid during the relevant period (pages 32 and 33 of the Paper Book). The contention of the assessee is that these details were furnished before the authorities below, however, the same were neither considered by the Assessing Officer nor by the CIT (A). We observe that the CIT(A) in the impugned order has remarked that the assessee has failed to provide factual data of the list of reference made, amount paid to them, mode of payment and their income tax details, etc. The observations made by CIT(A) are contrary to the documents on record. A perusal of the letter dated 09/01/2015 at pages 30 and 31 of the Paper Book shows that the details of Client referral Fees were furnished by the assesse before the Assessing Officer. The Assessing Officer has not taken note of the same and no steps were taken to verify genuineness of the details qua Client referral Fees furnished by the assessee. The reason for disallowing Client referral Fees that the percentage of fees paid in the earlier assessment years was comparatively lower and hence, the same has to be restricted to the same percentage is devoid of any merit. A perusal of the table furnished by the assessee clearly indicates that percentage of the fees paid in each year varies and there is no fixed pattern of payment of Client referral Fees. The Assessing Officer should have examined genuineness of the payments made rather than estimating by applying percentage of the earlier assessment year. In the facts of the case, we deem it appropriate to restore this issue back to the file of Assessing Officer to verify genuineness of the payments made to the parties concerned. The Assessing Officer while verifying genuineness of the payments, shall grant reasonable opportunity of hearing to the assesse, in accordance with law. The ground No.2 of the appeal is allowed for statistical purposes in the terms aforesaid.
In the result, appeal of the assessee is partly allowed for statistical purpose.
This appeal was heard on 20/02/2020. As per Rule 34(5) of the Income Tax (Appellate Tribunal) Rules, 1963, (ITAT Rules, 1963), the order was required to be “ordinarily” pronounced within a period of 90 days from the date of conclusion of the hearing of appeal. The instant appeal was heard prior to the lockdown declared by the Hon’ble Prime Minister on 24-03-2020 in view of COVID-19 pandemic. The lockdown was forced due to extra ordinary circumstances caused by world wide spread of COVID-19. Thereafter, the lockdown was extended from time to time. Therefore, the pronouncement of order beyond the period of 90 days from the date of hearing is not under “ordinary” circumstances. The Co-ordinate Bench of the Tribunal in the case of DCIT vs. JSW Ltd., for A.Y 2013-14 decided on 14/05/2020, under identical circumstances, after considering the provisions of Rule 34(5) of the ITAT Rules, 1963, judgements rendered By Hon’ble Apex Court and the Hon’ble Bombay High Court on the issue time limit for pronouncement of orders by the Tribunal and the circumstances leading to lockdown held:-
In the light of the above discussions, we are of the considered view that rather than taking a pedantic view of the rule requiring pronouncement of orders within 90 days, disregarding the important fact that the entire country was in lockdown, we should compute the period of 90 days by excluding at least the period during which the lockdown was in force. We must factor ground realities in mind while interpreting the time limit for the pronouncement of the order. Law is not brooding omnipotence in the sky. It is a pragmatic tool of the social order. The tenets of law being enacted on the basis of pragmatism, and that is how the law is required to interpreted. The interpretation so assigned by us is not only inconsonance with the letter and spirit of rule 34(5) but is also a pragmatic approach at a time when a disaster, notified under the Disaster Management Act 2005, is causing unprecedented disruption in the functioning of our justice delivery system. Undoubtedly, in the case of Otters Club Vs DIT [(2017) 392 ITR 244 (Bom)], Hon’ble Bombay High Court did not approve an order being passed by the Tribunal beyond a period of 90 days, but then in the present situation Hon’ble Bombay High Court itself has, vide judgment dated 15th April 2020, held that directed “while calculating the time for disposal of matters made time- bound by this Court, the period for which the order dated 26th March 2020 continues to operate shall be added and time shall stand extended accordingly”. The extraordinary steps taken suo motu by Hon’ble jurisdictional High Court and Hon’ble Supreme Court also indicate that this period of lockdown cannot be treated as an ordinary period during which the normal time limits are to remain in force. In our considered view, even without the words “ordinarily”, in the light of the above analysis of the legal position, the period during which and lockout was in force is to excluded for the purpose of time limits set out in rule 34(5) of the Appellate Tribunal Rules, 1963. Viewed thus, the exception, to 90-day time-limit for pronouncement of orders, inherent in rule 34(5)(c), with respect to the pronouncement of orders within ninety days, clearly comes into play in the present case. Of course, there is no, and there cannot be any, bar on the discretion of the benches to refix the matters for clarifications because of considerable time lag between the point of time when the hearing is concluded and the point of time when the order thereon is being finalized, but then, in our considered view, no such exercise was required to be carried out on the facts of this case.
Thus, in light of above facts and the decision of coordinate Bench, the present order is pronounced beyond the period of 90 days.
The appeal of the assessee is partly allowed for statistical purpose. Order pronounced under Rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1962, by placing the details on the notice board.