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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Before: SHRI R.C.SHARMA, AM & SHRI AMARJIT SINGH, JM
Assessee by: Shri Sunil Hirawat Department by: Shri Sumit Kumar सुनवाई क� तार�ख / Date of Hearing: 18.03.2016 घोषणा क� तार�ख /Date of Pronouncement: 24.06.2016 आदेश / O R D E R PER AMARJIT SINGH, JM:
The assessee has filed the present appeal against the order dated 14.12.2012 passed by the Commissioner of Income Tax (Appeals)5, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y.2009-10.
ITA No.2462/Mum/13 A.Y.2009-10
The brief facts of the case are that the assessee company filed its return of income on 29.09.2009 declaring total loss to the tune of Rs1,87,62,567/-. The case was selected for scrutiny and statutory notice u/s.143(2) of the Income Tax Act, 1961( in short “the Act”) dated 19.08.2010 was issued and served upon the assessee. Thereafter, the notice u/s.142(1) was also issued and served upon the assessee. The assessee company is engaged in the business of investment in shares and such other activities in finance, commission and brokerage for liaison work etc. The Assessing Officer disallowed an amount of Rs.9,89,336/- i.e. 25% of foreign travel expenses and also disallowed an amount of Rs.4,18,569/- i.e. 25% of the business promotion expenses and also disallowed an amount of Rs.10,19,190/- u/s.14A read with rule 8D of the Act. The Assessing Officer assessed the loss to the tune of Rs.1,63,35,562/-. Aggrieved by this order the assessee filed the order before CIT(A) who confirmed the same, therefore, the assessee filed the present appeal before us.
The assessee raised the following ground of appeal before us:-
“1. (i) On the facts and in law, the learned Commissioner of Income Tax (Appeals) has erred in upholding the disallowance of a sum of Rs.9,89,336/- on adhoc basis being 25% of foreign tour expenses incurred by director. Under the facts and circumstances of the matter, he ought to have deleted the entire disallowance of Rs.9,89,336/- made by the Assessing Officer. (ii) Without prejudice to the above, the learned Commissioner of Income-tax (Appeals) has failed to appreciate that Fringe Benefit Tax has already been levied
ITA No.2462/Mum/13 A.Y.2009-10 at 20% of the total expenditure of Rs.44,54,201/- incurred on travelling & conveyance. Under the facts and circumstances of the matter, he ought to have deleted the entire disallowance of Rs.9,89,336/- 2. On the facts and in law, the learned Commissioner of Income-tax (Appeals) has erred in upholding the disallowance of a sum of Rs.4,18,569/- on adhoc basis being 25% out of Business Promotion expenses of Rs.16,74,275/-. Under the facts and circumstances of the matter, he ought to have deleted the said disallowance of Rs.4,18,569/-.
3. Disallowance u/s. 14A:- (i) On facts and in law, the learned CIT(A) had failed to appreciate that applying Rule 8D without rejecting the claim of the appellant in ban-in-law. Under the facts and circumstances of the matter, he ought to have directed the Assessing Office not to apply Rule 8D without rejecting the claim of the appellant while computing the disallowance u/s.14A of the Act. (ii) Without prejudice to Ground of Appeal No.3(i) & (ii) above, the learned CIT(A) ought to have directed the Assessing Officer that the disallowance under Rule 8D(2)(ii) should be made with reference to net interest paid and not the gross amount of interest.
ISSUE NO.1:-
Under issued no.1, the assessee has challenged the disallowance to the tune of Rs.9,89,336/- on adhoc basis i.e. 25% of foreign tour expenses incurred by the Director. At the very outset, the learned representative of the assessee has argued that in the assessee’s own case for the A.Y.2005-06, 2006-07 and 2007-08. the Hon’ble Income Tax Appellate Tribunal, Mumbai has allowed the claim on account of foreign travelling expenses therefore in view of the said circumstances
ITA No.2462/Mum/13 A.Y.2009-10 no disallowance of any kind on account foreign travelling expences is required to be made in the interest of justice. Copy of order dated 27.02.2015 in for A.Y.2005-06 to 2007-08 have been filed wherein the co-ordinate bench of Mumbai has allowed the foreign traveling expenses in connection with Ms. Geetika Jain to the foreign countries. Since the facts and circumstances of the present case is quite similar and in the assesses own case Hon,ble Income Tax appellate Tribunal has allowed the foreign expenses therefore honoring the order passed by co-ordinate bench of Income Tax Appellate Tribunal we allowed the said expenses. Therefore, we find no ground to differ with the said finding hence we allowed the claim of the assessee in this regard. Accordingly, this issue is decided in favour of the assessee and against the revenue.
ISSUE NO.2:-
According to issue no.2, the assessee has challenged the disallowance to the tune of Rs.4,18,569/- i.e. 25% out of business promotion expenses to the tune of Rs.16,74,275/-. The learned representative of the assessee has further relied upon the assessee’s own case for A.Y.2005-06 to 2007-08 order dated 27.02.2015 in wherein the disallowance has been confirmed to the extent of 10% out of business promotion expenses. Since the facts and circumstances of the present case is quite similar and in the assesses own case Hon,ble Income Tax appellate Tribunal has ITA No.2462/Mum/13 A.Y.2009-10 disallowed business promotion expenses therefore honoring the order passed by co-ordinate bench of Income Tax Appellate Tribunal we also disallowed the business promotion expenses. No distinguishable facts have been place on record. Therefore, we found no ground to differ with the said finding hence we allowed the claim of the assessee to this extent . Therefore, in the said circumstances and finding nothing contrary to the above said finding, we inclined to follow the order passed by the co-ordinate bench and restrict the disallowance to the extent of Rs.1,67,427/- of the total business promotion expenses i.e. 10% Rs.16,74,275/-. Accordingly, this issue is decided in favour of the Assessee against the Revenue.
ISSUE NO.3:-
According to issue no.3, the assessee has challenged the disallowance u/s.14A of the Act to the tune of Rs.4,87,581/-. The representative of the assessee has argued that the share capital and surplus as on 31.03.2009 are to the extent of Rs.17,27,79,961/- against the investments in share to the tune of Rs.10,56,74,042/-. Therefore, apparently, the investment has been made out of his own funds therefore provision of section 14A read with rule 8 D of the Act is not applicable to the case of assessee. In support of this contention the learned representative of the assessee has placed reliance upon the law settled in CIT Vs. Reliance Utilities & Powers Ltd. (2009) 313 ITR 340/178 taxman 135. It is also argued that the assessee officer
ITA No.2462/Mum/13 A.Y.2009-10 nowhere established any nexus of expenses with the investment incurred to earn the exempt income, therefore, disallowance of @ 0.5% of the investment of Rs.5,31,609/- is liable to be deleted in the interest of justice and also placed reliance on the law settled in CIT Vs. Hero Cycles (P&H) 323 ITR 518 and ACIT Vs. Eicher Ltd. 101 TTJ (Del) 369. However, on the other hand the learned representative of the department has strongly relied upon the order passed by the CIT(A). In view of the arguments advanced by learned representative of the parties and perusing the record carefully, it came into notice that the share capital and reserve and surplus as on 31.03.2009 is available with the assessee to the extent of Rs.17,27,79,961/- against the total investment of Rs.10,56,74,042/-. The Bombay High Court in the case of Reliance Utilities & Powers Ltd. (Supra) has clearly held that if interest free and interest bearing funds are available then a presumption would arise that interest free funds have been utilized for investment to earn the exempt income. No doubt if the interest free fund is more than the interest bearing funds no disallowance can be made u/s.14A of the Act. So far as the disallowance @ 0.5% of the average investment of Rs.5,31,609/- is concerned the same has wrongly been applied by the Assessing Office. No nexus of expenses with the investment to earn the exempt income has been proved on record. It is necessary on the part of the Assessing Officer to prove the nexus of expenses with the investment to earn the exempt income which is not on record. Reliance placed on the law settled in CIT Vs.
ITA No.2462/Mum/13 A.Y.2009-10 Hero Cycles (P&H) (Supra). In view of the said circumstances we are of the view that the CIT(A) has confirmed the order wrongly and illegally which is not require to be sustainable in the eyes of law, therefore, we set aside the order in question on this ground and direct the Assessing Officer to re-assess the applicability of the provision of section 14A read with Rule 8D of the Act, hence we restore this issue on the file of the Assessing Officer to decide afresh after giving an opportunity of being heard to the assessee. Accordingly, this issue is decided in favour of the assessee and against the revenue.
Accordingly the appeal filed by the assessee is hereby allowed for statistical purpose.