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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY, JM & SHRI N. K. PRADHAN, AM
This is an appeal filed by the assessee. The relevant assessment year is 2008-09. The appeal is directed against the order of the Commissioner (Appeals)-23 at Mumbai and arises out of the assessment completed under section 143(3) of the Income Tax Act 1961, (hereinafter ‘the Act’) .
Ground No. 1 of the appeal is against the order of the learned CIT(A) upholding the action of the AO in disallowing expenses of Rs. 72,26,096/-out of Rs. 86,71,315/-.
2.1 The AO on receipt of an information from DCIT -2 (1), Mumbai came to know that one M/s DSP HMK Holding Pvt Ltd is also functioning from the premises of the assessee firm. Further he found that five private limited companies, in which either the assessee or any of its members are interested, are functioning from the assessee’s premises i.e. 1103, Stock Exchange Tower, Dalal Street, Mumbai-400001. He allowed assessee’s claim of expenses to the extent of 1/6th and held the balance expenses as attributable to the remaining five companies functioning from the said premises. Out of the total expenses, he excluded the expenses on account of interest on financial overheads. Thus he allowed the assessee’s claim of expenses to the extent of Rs.15,85,742/- and disallowed the balance of Rs.79,28,714/-. 2.2 The learned CIT(A) directed the AO to allow the Bloomberg subscription charges (Rs.6,01,157/-) being directly related to the assessee’s business and Hotline charges (Rs.2,41,984/-) paid to MTNL which are essential for maintaining connectivity for obtaining exchange rates. She confirmed the AO’s action in allowing 1/6th of the balance expenses. 2.3 Before us, the learned counsel of the assessee referred to the P & L a/c of DSP HMK Holdings Pvt. Ltd.; Reclamation Properties (India) Pvt. Ltd.; Reclamation Reality (India) Pvt. Ltd.; DSP Adiko Holdings Pvt. Ltd. and DSP Investment Pvt. Ltd. for the A.Y. 2008-09. Referring to the above, he stated that expenditures have been claimed by the above concerns in their P & L a/c. He also filed a copy of the submission dated 3rd August 2011 submitted before the learned CIT(A)-23 enclosing a copy of the major expenses incurred by the assessee during the impugned assessment year. Also it was stated that the two years before and two years after the impugned assessment year, similar disallowances have not been made by the AO. Reliance was also placed by him on the decision in the case of Sassoon J. David & Co. Pvt. Ltd. vs. CIT (1979) 118 ITR 259 (SC); CIT vs. Samsung India Electronics Ltd. (2014) 42 Taxmann.com 498 (Del).
2.4 Before us, the learned DR submitted that res judicata does not apply to income tax proceedings and the AO can depart from the finding of an earlier assessment year. It was stated that the said five concerns have made huge investments and earned large dividend income. No expenses have been claimed by them. Thus he supported the order passed by the learned CIT(A). 2.5 After considering the rival submissions and perusing the rival material on record, we find that DSP HMK Holdings Pvt. Ltd. has claimed expenditure of Rs.41,910,083/- during the A.Y. 2008-09. Such expenditure in the case of Reclamation Properties (India) Pvt. Ltd. was Rs.5,108,346/-. In the case of Reclamation Reality (India) Pvt. Ltd., it was Rs.5,108,398/-. In the case of DSP Adiko Holdings Pvt. Ltd. the expenditure was Rs.34,873,731/-. In the case of DSP Investment Pvt. Ltd. the expenditure was Rs.21,211,959/-. Thus it is evident that the said five concerns have claimed expenditure against income shown by them. 2.6 In the case of Sasoon J. David and Co. Pvt. Ltd., the Hon’ble Supreme Court held: “the fact that somebody other than the assessee is also benefited by the expenditure should not come in the way of an expenditure being allowed by way of deduction u/s 10(2)(xv) of the Act if it satisfies otherwise the tests laid down by law”.
Also the Hon’ble Delhi High Court in the case of Samsung India Electronics Ltd. held : “The view that in any case, expenditure, the benefit of which inures partly to the assessee and partly to another person, cannot be allowed as a deduction, we are afraid, is not the correct view to take in law since it has been settled by a long line of cases that expenditure incurred by the assessee in the running of his business cannot be disallowed merely on the ground that a part of the expenditure results in some benefit to a third party.”
2.7 We also find that the assessee had submitted before the AO a copy of the tax audit report. Section 44 AB was inserted from the assessment year 1985-86 and was primarily intended to ensure credibility of accounts maintained by an assessee. The AO has not found any specific faultline in the audited accounts of the assessee. In view of the above factual matrix and legal position, the above ground of appeal of the assessee is allowed.
3. Ground No.2 raised by the assessee is against the action of the learned CIT(A) in upholding the action of the AO in disallowing Rs.8,66,620/- u/s 14A r.w.r. 8D(2)(iii). 3.1 The AO in his assessment order had calculated the average value investment at Rs.17,33,24,014/- and thus computed the expenses attributable for earning exempted income @ 0.5% and it comes to Rs.8,66,620/- . The learned CIT(A), however directed the AO to compute the disallowances as per rule 8D after taking into account the findings regarding disallowance of expenditure indicated in the appellate order. 3.2 Before us, the learned counsel of the assessee submitted that out of the investment in mutual fund during the year, Rs 4 crore has been invested in growth funds (viz DSPML Top 100 Equity Growth Fund Rs.2 crore and DSP India T.I.G.E.R. Fund Growth Rs.2 crore) on which no tax free income is earned. It was also stated that the above facts have been mentioned by the learned CIT(A) at para 4.2 of the appellate order. 3.3 Before us, the learned DR relied on the order on the above issue passed by the learned CIT(A). 3.4 We have carefully considered the matter. We find that as per Schedule 3 to the balance sheet of the assessee as at 31st March 2008 there has been an investment of Rs.2 crore in DSPML Top 100 Equity Growth & Rs.2 crore in DSP India T.I.G.E.R. Fund Growth . The contentions of the learned Counsel of the assessee that no tax free income has been earned on investment in the above growth funds require further verification at the assessment stage. We accordingly restore this issue back to the file of AO. The AO is directed to verify and ascertain the true nature of the above scheme. The assessee is directed to furnish all necessary details / documents to substantiate its claim that on the above no tax free income is earned. In case the gains are taxable, section 14A should not be applicable as held in Sundaram Asset Management Co. Ltd. vs. DCIT [2013] 145 ITD 17, (Chennai)(Trib.). After verification and having given reasonable opportunity to the assessee of being heard, the AO would decide the issue of applicability or otherwise of Section 14A on the above investment .
4. In the result, the appeal filed by the assessee is allowed for statistical purpose. Order pronounced in the open court on 19TH August, 2016.