Income Tax Appellate Tribunal - Ahmedabad
Academy For Computer Training (Guj.) ... vs Dy. Cit, Circle-1,, Ahmedabad on 30 November, 2016
आयकर अपील
य अ धकरण, अहमदाबाद यायपीठ 'बी', अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL
" B " BENCH, AHMEDABAD
सव ी राजपाल यादव, या यक सद य एवं द प कुमार के डया, लेखा सद य के सम ।
BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER
And SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER
आयकर अपील सं./I.T.A. No.3065/Ahd/2013
( नधा रण वष / Assessment Year : 2009-10)
M/s.Academy for Computer बनाम/ Dy.CIT
Training (Guj) Pvt.Ltd. Vs. Circle-1
nd
2 Floor, Parth Empire Ahmedabad
Nr.Rambaug
Ahmedabad
थायी ले खा सं . /जीआइआर सं . / PAN/GIR No. : AABSA 2973 L
(अपीलाथ% /Appellant) .. ( &यथ% / Respondent)
अपीलाथ% ओर से /Appellant by : Shri Sakar Sharma, AR
&यथ% क( ओर से/Respondent by : Shri James Kurian, Sr.DR
ु वाई क( तार ख /
सन Date of Hearing 09/11/2016
घोषणा क( तार ख /Date of Pronounce ment 30/11/2016
आदे श / O R D E R
PER PRADIP KUMAR KEDIA, AM:
This appeal by the Assessee is directed against the order of the Commissioner of Income Tax(Appeals)-6, Ahmedabad [CIT(A) in short] dated 12/11/2013 for the Assessment Year (AY)2009-10.
2. In the present appeal, the assessee is aggrieved by the addition of Rs.9,75,698/- on account of disallowance made under section 14Aof the ITA No.3065/Ahd/2013 M/s.Academy for Computer Training (Guj.) P.Ltd. vs. DCIT Asst.Year - 2009-10 -2- Income Tax Act, 1961 (hereinafter referred to as "the Act") by applying Rule 8D of the Income Tax Rules, 1962.
3. The facts apropos to the issue are that the assessee is engaged in the business of few training and software sales. During the course of assessment proceedings, the Assessing Officer (AO) observed that the assessee has earned dividend income of Rs.2,10,000/- from mutual fund which is exempt from tax.
3.1. It was also noted by the AO that the assessee holds investment in mutual funds of Rs.2,30,78,589/- as on 31/033/2009 while the corresponding investment as on 31/03/2008 stands at Rs.3,13,87,847/-. The AO found that the assessee has claimed interest expenditure amounting to Rs.13,050/- which is allowable for proportionate disallowance under section 14A of the Act. The AO further observed that the assessee must have also incurred administrative expenses such as documentations, salary to the employees, handling the investment portfolio and other administrative over-heads. Like, stationery, telephone, computer office equipments, vehicles, etc. every year a part of which can be attributable to the investment portfolio.
4. He accordingly, applied Rule 8D of the IT Rules, 1962 and resorted to disallowance of Rs.27,857/- under Rule 8D(2)(ii) and ITA No.3065/Ahd/2013 M/s.Academy for Computer Training (Guj.) P.Ltd. vs. DCIT Asst.Year - 2009-10 -3- Rs.1,36,166/- under Rule 8D(2)(iii). Thus, the aggregate disallowance under Rule 8D was worked out to Rs.1,64,063/-.
5. The CIT(A) confirmed the action of the AO in first appeal.
6. Aggrieved by the order of the CIT(A), the assessee is in appeal before the Tribunal.
7. The Ld.AR for the assessee, at the outset, adverted our attention to the balance-sheet of the assessee-company and submitted that the own capital along with reserves exceeds corresponding investment in mutual funds and therefore disallowance under Rule 8D(2)(ii) is not permissible.
7.1. As regards estimated disallowance towards administrative and managerial expenses under Rule 8D(2)(iii), the Ld.AR for the assessee adverted our attention to the submission made before the AO as recorded at page Nos.5 & 6 of the assessment order and submitted that the dividend income is derived from investment in mutual-funds which were in the nature of one time single investments made and SIP plan is in place. The Ld.AR further submitted that mutual funds Managers are deducting their fund management charges from the said mutual investments made. Thus, in the given facts, no further disallowance is called for.
ITA No.3065/Ahd/2013M/s.Academy for Computer Training (Guj.) P.Ltd. vs. DCIT Asst.Year - 2009-10 -4-
9. The Ld.DR, on the other hand, relied on the order of the CIT(A).
10. We have carefully considered the rival submissions, perused the material available on record and gone through the orders of the authorities below. The solitary issue in the present appeal is disallowance of certain expenditure by resorting to section 14A of the Act. We find that averment made on behalf of the assessee that the own capital together with reserves held by the assessee are in excess of corresponding investment is supported by the balance-sheet filed by the assessee. There is no rebuttal from the Revenue in this regard. In view of the long line of judicial precedents on the issue, we find merit in the contention of the assessee that proportionate disallowance of expenditure under Rule 8D(2)(ii) is not justified where the interest-free own capital together with reserves exceeds the corresponding investment. With reference to the disallowance made by the AO under Rule 8D2(iii) agitated by the assessee, we notice the averments made on behalf of the assessee that in tax-free income by way of dividend arises entirely out of mutual funds which are one time single investments without any proactive involvement of the management per se. The surplus fund of the company has been simply parked in the mutual funds. We take cognizance of the argument on behalf of the assessee that mutual funds investment bears different traits and is a different species of investment.
ITA No.3065/Ahd/2013M/s.Academy for Computer Training (Guj.) P.Ltd. vs. DCIT Asst.Year - 2009-10 -5- The mutual funds are supervised by the experts in the field and management charges for such supervision is recovered from the clients. This being so, an investor in the mutual fund separately pays administrative and managerial expenses unlike a case where assessee chooses to make investment in shares directly. In the case of a mutual funds, administrative and managerial expenses are factored in the investments itself. In such a scenario, the explanation offered by the assessee of no expenditure incurred appears to be in congruity with the market practice. Accordingly, we do not find it a fit case for resorting to double disallowance of the similar expenditure in the garb of Rule 8D(iii) of the IT Rules. It will be pertinent to note that a bare reading of section 14A of the Act suggests that its applicability is not automatic. It is hedged by conditions prescribed therein. Section 14A inheres in it the concept of reasonableness. The formidable amount of expenditure as computed by the AO cannot be said to be attributable to tax-free income by applying a straight jacket formula as per Rule 8D(2)(iii) of the IT Rules in the given facts. Thus, we find considerable merit in the plea of the assessee. Hence, we are disposed to adjudicate the issue in favour of the assessee. Thus, order of the CIT(A) sustaining the disallowance section 14A deserves to be vacated.
ITA No.3065/Ahd/2013M/s.Academy for Computer Training (Guj.) P.Ltd. vs. DCIT Asst.Year - 2009-10 -6-
11. In the result, Assessee's appeal is allowed.
This Order pronounced in Open Court on 30/11/2016
Sd/- Sd/-
(राजपाल यादव) ( द प कुमार के डया)
या यक सद य लेखा सद य
(RAJPAL YADAV) ( PRADIP KUMAR KEDIA )
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad; Dated 30/ 11 /2016
ट .सी.नायर, व. न.स./T.C. NAIR, Sr. PS
आदे श क त"ल#प अ$े#षत/Copy of the Order forwarded to :
1. अपीलाथ% / The Appellant
2. &यथ% / The Respondent.
3. संबं5धत आयकर आयु7त / Concerned CIT
4. आयकर आय7
ु त(अपील) / The CIT(A)-6, Ahmedabad
5. 8वभागीय त न5ध, आयकर अपील य अ5धकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाड फाईल / Guard file.
आदे शानुसार/ BY ORDER, स&या8पत त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad
1. Date of dictation .. 25.11.16 (dictation-pad 15 pages attached at the end of this appeal-file)
2. Date on which the typed draft is placed before the Dictating Member ...28.11.16
3. Other Member...
4. Date on which the approved draft comes to the Sr.P.S./P.S.................
5. Date on which the fair order is placed before the Dictating Member for pronouncement......
6. Date on which the fair order comes back to the Sr.P.S./P.S.......30.11.16
7. Date on which the file goes to the Bench Clerk.....................30.11.16
8. Date on which the file goes to the Head Clerk..........................................
9. The date on which the file goes to the Assistant Registrar for signature on the order..........................
10. Date of Despatch of the Order..................