NEHARAJ STOCK BROKERS P.LTD,MUMBAI vs. ACIT CIR 4(2), MUMBAI

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ITA 1673/MUM/2013Status: DisposedITAT Mumbai10 October 2018AY 2009-106 pages

In favour of the Revenue: the assessee's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The tribunal upheld the disallowance of expenses for the director's son's education and business promotion expenses, deeming them personal. The disallowance under Section 14A was also confirmed as the assessee had already computed a disallowance under Rule 8D.

What were the facts?

The assessee claimed expenses for the higher education of a director's son and business promotion expenses. The Assessing Officer (AO) disallowed these, treating them as personal. The assessee also made a suo-moto disallowance under Section 14A, but the AO made a higher disallowance.

What were the issues?

Whether expenses for a director's son's higher education and business promotion are personal or for business purposes. Applicability of Section 14A and Rule 8D when the assessee has already made a suo-moto disallowance.

Which sections of the Income-tax Act were involved?

Section 14A,Section 37(1)

AI-generated summary — verify with the full judgment below

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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI

Before: SHRI SAKTIJIT DEY, JM & SHRI MANOJ KUMAR AGGARWAL, AM

आदेश / O R D E R

Per Manoj Kumar Aggarwal (Accountant Member)

1.

Aforesaid appeal by assessee for Assessment Year [AY] 2009-10 contest the order of the Ld. Commissioner of Income-Tax (Appeals)-8 [CIT(A)], Mumbai, Appeal No.CIT(A)-8/Cir.4/179/2011-12 dated 02/01/2013 by raising the following grounds of appeal:-

Neharaj Stock Brokers Private Limited Assessment Year-2009-10 1. The Ld. CIT(A) erred on facts and in law in confirming the findings of the Ld. AO that the provisions of Sec 14A are applicable to the facts of the appellant when the AO has not given any finding why the disallowance of Rs.3,30,594/- made by the appellant suo-moto is not acceptable.

2.

The Ld. CIT(A) erred on facts and in law in confirming the disallowance of Rs.12,18,970 made by the AO out of the Office Expenses incurred on the higher education of the son of a director treating these expenses as personal expenses when actually these expenses were incurred for the purpose of the business of the appellant.

3. The Ld. CIT(A) erred on facts and in law in confirming the disallowance of Rs.63,835 made by the AO out of Business Promotion Expenses treating them as personal expenses when actually these expenses were incurred for the purpose of the business of appellant. The assessment for impugned AY was framed by Ld. Assistant Commissioner of Income Tax, Circle-4(2), Mumbai [AO] u/s 143(3) of the Income Tax Act, 1961 on 29/11/2011 wherein the loss of the assessee has been assessed at Rs.2.43 Lacs after certain disallowances as against returned loss of Rs.30.78 Lacs e-filed by the assessee on 27/09/2009. 2.1 The assessee being resident corporate entity was engaged in trading of shares, brokerage and investment activities. The following disallowances made by Ld. AO are the subject matter of this appeal: No. Nature of addition Amount (Rs.) 1. Disallowance u/s 14A Rs.13,55,911/- 2. Disallowance out of office expenses Rs.12,18,970/- 3. Disallowance out of business promotion expenses Rs.63,835/- TOTAL Rs.26,38,716/- 2.2 Facts qua disallowance u/s 14A are that the assessee earned exempt dividend income of Rs.8.86 Lacs during impugned AY and offered suo-moto disallowance of Rs.3.30 Lacs against the same while computing its income / loss. However, Ld. AO, applying Rule 8D computed aggregate disallowance of Rs.16.86 Lacs which comprised-off of interest disallowance of Rs.11.74 Lacs u/r 8D (2)(ii) & expense Neharaj Stock Brokers Private Limited Assessment Year-2009-10 disallowance of Rs.5.11 Lacs u/r 8D (2)(iii). After adjusting suo-moto disallowance of Rs.3.30 Lacs as offered by the assessee, the net additional disallowance worked out to Rs.13.55 Lacs. 2.2 The second addition of Rs.12.18 Lacs represents expenditure incurred by assessee towards higher education expenses of the director’s son namely Neeraj Anil Mutha. The said payment was made to Drexel University, Philadelphia and claimed as business expenditure on the understating that after completion of studies, the candidate shall come back and join the company. However, finding the same to be personal in nature in terms of Section 37(1), the same has been disallowed. 2.3 The last addition of Rs.0.63 Lacs out of Business Promotion Expenses has been made since the same, in the opinion of Ld. AO, were personal expenditure. The details of the same have already been extracted at para-6.1 of the quantum assessment order.

3.

Aggrieved, the assessee contested the same with partial success before Ld. CIT(A) vide impugned order dated 02/01/2013 wherein disallowances listed at Serial number 2 & 3 as well as expense disallowance u/r 8D(2)(iii) for Rs.5.11 Lacs got confirmed. The interest disallowance made by Ld. AO u/r 8D(2)(ii) has been remitted back to the file of Ld. AO to consider the assessee’s submissions that entire interest expenditure was related to windmill business. Aggrieved, the assessee is in the further appeal before us.

4.

The Ld. Authorized Representative [AR] for assessee, Shri Naresh Kumar, drawing our attention to the documents placed in the paper book Neharaj Stock Brokers Private Limited Assessment Year-2009-10 agitated the additions which have been controverted by Ld. Departmental Representative [DR], Shri Asghar Zain. 5.1 We have carefully heard the rival contentions and perused relevant material on record including material placed before us. From the perusal of record, it is observed that the assessee has made suo-moto expense disallowance of Rs.3,30,594/- u/s 14A read with Rule 8D(2)(iii), being 0.5% of average value of investment in shares [0.5% of average of Rs.646.96 Lacs & 675.41 Lacs]. This being the case, the legal grounds as to applicability of Rule 8D as raised by Ld. AR fails since the assessee, himself, has computed disallowance u/r 8D and there was no question of satisfaction by Ld. AO before proceeding to compute the disallowance in terms of Rule 8D. The additional disallowance is arising only out of the fact that Ld. AO has added the value of inventories also while working out the said disallowance. The same is well in line with recent decision of Hon’ble Supreme Court rendered in Maxopp Investment Ltd. Vs CIT [12/02/2018 91 Taxmann.com 154]. Therefore, we find no reason to deviate from the stand of lower authorities so far as disallowance u/r 8D(2)(iii) is concerned. 5.2 Further, the interest disallowance u/r 8D(2)(ii) has already been set aside by Ld. first appellate authority to the file of Ld. AO to ascertain the factual matrix of assessee’s submissions that interest expenditure pertained only to wind mill business carried out by the assessee. Since the same is factual in nature and set aside to Ld. AO, we see no reason to interfere with the same at this stage. Ground Number-1 stands dismissed.

Neharaj Stock Brokers Private Limited Assessment Year-2009-10 6. So far as disallowance of education expenses incurred by assessee towards director’s son education is concerned, Ld. AR has submitted that the same is allowable to the assessee in terms of Section 37(1) on the premise that the candidate was under obligation to join the assessee after completion of studies. We do not agree with the same since the premise is far-fetched. No such general scheme was floated by the assessee for the other employees and no commercial expediency as to allowability of the same has been demonstrated before us. The perusal of various clauses of the agreement dated 24/06/2008 entered into by the assessee with Neeraj Anil Mutha reveal that the candidate was under no obligation to join the assessee & serve for any stipulated period of time. Further, the agreement did not provide for any security / safeguards for the assessee in case the various terms of the agreement were not abided by the candidate at later stage or in case the candidate decided not to join the assessee at a later stage. Therefore, finding no substance in the submissions, the ground stand dismissed.

7.

The last addition of Rs.0.63 Lacs has been made by Ld. AO since the same, in the opinion of Ld. AO, were personal expenditure in nature. The details of the same have already been extracted in the quantum assessment order. Nothing on record controvert the findings of Ld. AO and the submissions of Ld. AR do not persuade us to delete the impugned additions. This ground stand dismissed.

8.

Resultantly, the appeal stands dismissed.

Order pronounced in the open court on 10th October, 2018.

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