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TMI Blog2011 (5) TMI 652X X X X Extracts X X X X X X X X Extracts X X X X ..... rned CIT(A) has grossly erred in points of law and facts. 2. In law and in facts and circumstances of the Appellant's case, the learned CIT(A) has grossly erred in confirming the addition on certain long term capital assets for Rs.7,19,407. 3. In law and in facts and circumstances of the Appellant's case, the learned CIT(A) has grossly erred in confirming disallowance of accounting charges Rs.10,00,000. 4. In law and in facts and circumstances of the Appellant's case, the learned CIT(A) has grossly erred in holding that charging of interest u/s.234B is consequential." 2.1 Various grounds raised in ITA No. 1753/Ahd./2009 for the assessment year 2004-05 by the assessee Kisan Discretionary Family Trust are as under: "1. In law and in facts and circumstances of the Appellant's case, the learned CIT(A) has grossly erred in points of law and facts. 2. In law and in facts and circumstances of the Appellant's case, the learned CIT(A) has grossly erred in confirming disallowance of Rs.5,00,000 out of consultation expenses and accounting charges Rs.5,25,000.. 3. In law and in facts and circumstances of the Appellant's case, the learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rounds raised in ITA No. 1756/Ahd./2009 for the assessment year 2004-05 by the assessee Shantaben Karsanbhai Patel are as under: "1. In law and in facts and circumstances of the Appellant's case, the learned CIT(A) has grossly erred in points of law and facts. 2. In law and in facts and circumstances of the Appellant's case, the learned CIT(A) has grossly erred in confirming disallowance of accounting charges Rs.4,00,000. 3. In law and in facts and circumstances of the Appellant's case, the learned CIT(A) has grossly erred in holding that charging of interest u/s.234B is consequential. 4. In law and in facts and circumstances of the Appellant's case, the learned CIT(A) has grossly erred in holding that charging of interest u/s.234D is consequential. 5. In law and in facts and circumstances of the Appellant's case, the learned CIT(A) has grossly erred in holding that withdrawing interest u/s.244A is consequential." 2.5 Various grounds raised in ITA No. 1757/Ahd./2009 for the assessment year 2004-05 by the assessee Karsanbhai Khodidas Patel HUF are as under: "1. In law and in facts and circumstances of the Appellant's case, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olved in ground no. 2 in the case of Jethiben K. Patel Discretionary Trust in ITA No.1752/A/2009 for the assessment year 2004-05 are that in the assessment order, the Assessing Officer made addition in respect of long term capital gain for Rs.7,19,407/-. The assessee calculated long term capital loss for Rs.29,19,871/- in respect of ten securities after indexing the cost of acquisition as per annexure 'E' to written submission dated 28.01.2009. During the year, the assessee has incurred long term capital loss as well as long term capital gain on the transfer of certain securities. Wherever there was a gain, the assessee did not opt for indexation. However, where there was a loss, the assessee chose to claim indexation in respect of that particular script. The long term capital loss was then set off against the long term capital gain. The Assessing Officer was of the view that the assessee cannot follow different yardsticks for different types of long term capital gain/loss. The difference between indexation cost of acquisition Rs.48,15,084/- and cost of acquisition Rs.40,95,677/- resulting into difference of Rs.7,19,470/- which was added by the Assessing Officer in long term capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proviso to section 46. then such excess shall be ignored for the purpose of computing the tax payable by the assessee". The option of indexation is given to the appellant either to take benefit of indexation or not. But the option is not given to take benefit of indexation in respect of one share and no benefit of indexation in respect of other share. The appellant has to exercise the option in respect of all the securities & not in respect of selective securities as done by the appellant. I therefore agree with the view taken by the Assessing Officer that the appellant cannot selectively take the benefit of indexation in respect of those securities in which the appellant had incurred long term capital loss and no indexation where the appellant has shown long term capital gain. The addition of Rs.7,19,407/- made on this account is therefore confirmed." 6. Aggrieved with the above, the assessee is in appeal before the Tribunal. 7. At the time of hearing before us, Shri S.N.Soparkar, A.R. appeared and contended that controversy involved in this ground of appeal is squarely covered in favour of the assessee by the decision of ITAT, Mumbai Bench 'B' in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no.3 in ITA Nos. 1752/A/09, 1754/A/09 and 1976/A/09 and ground no.2 in ITA Nos.1753/A/09, 1755/A/09, 1756/A/09, 1757/A/09 and 1758/A/09 are against confirming disallowance of accounting charges/consultation fees/rent expenses, etc. The relevant ground number appeal number and amount of disallowance are given as under: ITA No. Ground No. Amount(Rs.) Remarks 1752/A/09 3 10,00,000/- accounting charges 1753/A/09 2 5,00,000/- consultation charges 5,25,000/- accounting charges 1754/A/09 3 2,50,000/- accounting and related charges 50,000/- consultation charges 1755/A/09 2 2,90,000/- consultation charges 4,000/- rent expenses 10,00,000/- accounting charges 1756/A/09 2 4,00,000/- accounting charges 1757/A/09 2 4,00,000/- accounting charges 1758/A/09 2 3,00,000/- accounting charges 1976/A/09 3 2,50,000/- accounting charges 1,00,000/- consultation fees 10.1 Brief facts, reasoning given by the Assessing Officer in the assessment order for making disallowance and in the impugned orders in confirming the disallowance are identical. Therefore, our finding in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner of Income Tax(Appeals) confirmed the disallowance of Rs.10 lakhs observing that the assessee has claimed consultation fees of Rs.50,250/- in the computation of income which have been allowed by the Assessing Officer. Aggrieved with this, the assessee is in appeal. 12. At the time of hearing before us, Shri S.N.Soparkar, the ld. Counsel for the assessee appeared and filed a paper book containing 45 pages, which, inter alia, include the return of income for the assessment year 2004-05, accounts of Nirma Management Services Pvt. Ltd. for the year ending 31.03.2004, assessment order of Nirma Management Services Pvt. Ltd. for the assessment year 2004-05, return of income filed for the assessment year 2005-06 by Nirma Management Services Pvt. Ltd., accounts and assessment order of Nirma Management Services Pvt. Ltd. for the year ending 31.03.2005. The Counsel of the assessee further furnished the details of service charges paid by various assessees to the group company, namely, Nirma Management Services Pvt. Ltd. who is maintaining the accounts, etc. He further clarified that various entities, which are under appeal, have no staff and entire activity of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity of such type of expenses, but while considering the justification for allowing such expenses; onething which is to be kept in mind, is the reasonableness of the expenditure visa-avis to the exigencies/requirements of the business which may include the quantum of services, quality of services, necessity for such services, so on and so forth and, therefore, if we consider the assessee s present claim in the light of these requirements, ft will be seen that though the assessee's business exigencies may have required such services, but keeping in view the nature of sources of income as well as the quantum of the income one cannot prevent himself from coming to the conclusion that business exigencies were not commensurate to the quantum of expenditure; meaning thereby that requirements of such services to meet the business exigencies was far far little than the quantum of expenditure. The assessee, during this year, had income either from other sources, such as, interest and dividend on old investments/deposits and loans, etc. and/or income from capital gain for which the requirement of Consultant and Accountant was very little one. Similarly, the brokerage activities carried on by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l include Rs.31,426/-. Being aggrieved, the assessee is in appeal. 17. At the time of hearing, the ld. Counsel of the assessee pointed out that there is no discussion in the assessment order. Therefore, this issue be restored to the file of the Assessing Officer. We find considerable force in the submissions of the ld. Counsel of the assessee. Admittedly, there is no discussion in the assessment order. Therefore, we direct the Assessing Officer to pass a speaking order in this regard, after giving opportunity of being heard to the assessee. 18. The facts relating to controversy involved in ground no.2 in ITA No.1754/A/2009 in the case of Shiva Specific Family Trust for the assessment year 2005-06 are that in the assessment order, the Assessing Officer disallowed interest expenses of Rs.3,57,848/- vide discussion at para 8 of the assessment order. The relevant discussion contained in the assessment order reads as under: "8. The assessee has claimed interest expense in the net amount of Rs3,57,848/-. The gross figure is Rs. 4,26,522/-. It is credited to the account of Nima Specific Family Trust. As per details filed with the return and in the course of assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me did not involve any borrowing as the assets, i.e. REC Bonds and OFCPNs, on which such income is earned were acquired several years back. The income of RAC Bonds/OFCPNs is offered by the assessee in the year of receipt as the assessee is following cash method of accounting. Assessee had interest expenses during the year and these expenses had to be allowed though the income may be taxed in the current year or in the subsequent year. It was also pointed out that shares of Rs.154 crores of Mirza Tanners Ltd. and shares of Nirma Ltd. of Rs.3,47,90,831/- were acquired before few years. There is no interest expenses on the borrowing either in the current Assessment Year 2005-06 or in the earlier Assessment Year 2004-05 for acquisition of these shares. Therefore, interest expenses of Rs.3,57,848/- should be allowed. 20.1. Shri R.K.Dhanesta, Learned Departmental Representative appeared on behalf of the Revenue and vehemently supported the orders of the lower authorities. He pointed out that it is the duty of assessee to furnish Cash Flow/Fund Flow chart of the year in which assets yielding exempt income were purchased. Since the assessee has not discharged the onus, addition was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inserted by the Income Tax (Fifth Amendment), Rules, 2008 by publication in the Gazette dated 24/03/2008, relevant findings are reproduced below:- "a) The ITAT had recorded a finding in the earlier assessments that the investments in shares and mutual funds have been made out of own funds and not out of borrowed funds and that there is no nexus between the investments and the borrowings. However, in none of those decisions was the disallowability of expenses incurred in relation to exempt income earned out of investments made out of own funds considered. Moreover, under Section 14A, expenditure incurred in relation to exempt income can be disallowed only if the assessing officer is not satisfied with the correctness of the expenditure claimed by the assessee. In the present case, no such exercise has been carried out and, therefore, the Tribunal was justified in remanding the matter. b) Section 14A was introduced by the Finance Act 2001 with retrospective effect from 1 April 1962. However, in view of the proviso to that Section, the disallowance thereunder could be effectively made from assessment year 2001-2002 onwards. The fact that the Tribunal failed to conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pays tax in discharge of its own liability and not on behalf of or as an agent for its shareholders. In the hands of the shareholder as the recipient of dividend, income by way of dividend does not form part of the total income by virtue of the provisions of Section 10(33). Income from mutual funds stands on the same basis; iii) The provisions of sub sections (2) and (3) of Section 14A of the Income Tax Act 1961 are constitutionally valid; iv) The provisions of Rule 8D of the Income Tax Rules as inserted by the Income Tax (Fifth Amendment) Rules 2008 are not ultra vires the provisions of Section 14A, more particularly sub section (2) and do not offend Article 14 of the Constitution; v) The provisions of Rule 8D of the Income Tax Rules which have been notified with effect from 24 March 2008 shall apply with effect from Assessment Year 2008-09; vi) Even prior to Assessment Year 2008-09, when Rule 8D was not applicable, the Assessing Officer has to enforce the provisions of sub section (1) of Section 14A. For tht purpose, the Assessing Officer is duty bound to determine the expenditure which has been incurred in relation to income which does not form p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground of the assessees in both the appeals is rejected. 23.. Ground No.4 in ITA No.1758/A/2009 is against levy of interest under section 234D . No specific arguments were raised against this ground of appeal. Therefore, this ground is dismissed. 24. The ground No.2 in ITA No. 1976/A/2009 is relating to the controversy on account of disallowance of interest expenses of Rs.25,37,280/-. 25. Facts in brief as emerged from the corresponding assessment order passed u/s.143(3) of the I.T. Act, 1961 dated 27/12/2006 were that the Assessing Officer observed that the assessee-trust had made investment in shares and debentures worth Rs.15,33,90,985/- and, therefore, interest expenses should be disallowed towards the investment made in exempted assets. On appeal before the first appellate authority, assessee contended as under:- "8. Ground No.6 is regarding disallowance of interest expenses of Rs.25,37,280/-. This addition was made by the AO vide discussion at para 6 of the assessment order. The AO observed that the appellant trust had made investment in shares and debentures worth Rs.15,33,90,985/- and hence interest expenses should be disallowed towards th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so be noted that shares of Rs.154 of Mirza Tanners Ltd. and shares of Nirma Ltd. Rs.3,47,90,831 which were acquired before few years. There is no interest expenses on the borrowing either in the current Asst.Year 2004-05 or in the earlier Asst.Year 2003-04 for acquisition of these shares. Hence, whole of the interest expenses Rs.25,37,280 should be allowed." 25.2. After considering the addition in the impugned order, the Learned CIT(Appeals) confirmed the disallowance keeping in view of his decision in assessee's won case for Assessment Year 2005-06. Aggrieved the assessee is in appeal. 25.3. We have heard both the sides. It is pertinent to note that in the Assessment Year 2005-06, the Assessing Officer disallowed sum of Rs.25,37,280/-. The reasoning given by the ld.CIT(A) in that year is same as given for this assessment year. In the Assessment Year 2005-06 vide order of even date in ITA No.1754/Ahd/2009 (supra) while adjudicating the ground No.2, we have restored the issue back to the file of Assessing Officer. Relevant discussion is contained in para 20.2 (supra). We, therefore following the same, restore this issue back to the file of Assessing Officer to readju ..... X X X X Extracts X X X X X X X X Extracts X X X X
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