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2015 (11) TMI 58 - ITAT MUMBAI

2015 (11) TMI 58 - ITAT MUMBAI - TMI - Disallowance u/s'14A - Held that:- There is no doubt that the assessee definitely has to incur higher expenses for rendering professional services and thereby earning professional receipts. The contention of the assessee that the value of jewellary of ₹ 41,63,417/- included by the assessing officer in the determination of average investment need to be excluded is to be accepted as any gain on sale of jewellary is taxable under the Act. Keeping in view .....

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th rule 8D of Income Tax Rules,1962 for the impugned assessment nor setting any precedent whatsoever.- Decided partly in favour of assessee.

Disallowance of Foreign Exchange Fluctuation Loss on balance maintained in foreign currency in EEFC A/c. - Held that:- The assessee is consistently following the accounting policy of offering to tax both income/loss on mark to market basis as on the date of balance-sheet in the return of income filed with the revenue with respect to the EEFC acco .....

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sessee on account of foreign exchange fluctuation loss in the EEFC account as at the year end is to be allowed and the addition made by the assessing officer and as confirmed by the CIT(A) needs to be deleted. - Decided in favour of assessee.

Disallowance of Dentistry expenses u/s 40(a)(ia) - non deduction of TDS - Held that:- We have observed that the assessee is a cine artist /actress and her beauty and personality is one of the most important trait for generating business and reven .....

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77; 1,74,850/- is held to be disallowable expenditure u/s 40(a)(ia) of the Act as no TDS was deducted by the assessee u/s 194J of the Act while we allow expenditure of ₹ 89,500/- being incurred by the assessee towards the material cost paid for her treatment. - Decided partly in favour of assessee. - ITA NO 6243/Mum/2013 - Dated:- 28-9-2015 - SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER For The Assessee : Shri Hari S. Raheja For The Revenue : Shri A .....

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7; 3,44,545/- U/S 14A of the I.T. Act made by the Assessing Officer. i) The learned CIT(A) failed to appreciate that the Assessing Officer did not establish any nexus between the expenses disallowed and the tax free income earned by the appellant. ii) The learned CIT(A) failed to appreciate that the entire expenditure as claimed by the appellant were in respect of professional income earned by her and the Assessing Officer did not point out / prove any instance involving expenditure in relation .....

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ing in the EEFC A/c with State Bank of India. i) The learned CIT(A) failed to appreciate that irrespective of cash method account followed by the appellant, she has been consistently following Accounting Standard-11 as provided in the AS-11 issued by the ICAI and accordingly profit/(Ioss) on such valuation of foreign currency has been considered as income/(loss) of the respective year in the past. ii) The appellant relies on the decision of the Supreme Court in the case of Woodward Governor Indi .....

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reciate that the payment made to Dr. Sandesh Mayekar amounting to ₹ 1,74,850/-, was inclusive of ₹ 89,500/- being cost of material used by the Doctor for dental treatment of the appellant. ii) Details of dental treatment alongwith Doctor's Bill was furnished to the Assessing Officer and also to the CIT(A) for the reference and it was submitted that disallowance if at all required should be restricted to the professional charges of the Doctor and not the entire bill amount of the .....

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come of ₹ 1,07,53,499/- from dividend , PPF interest, Interest on RBI bonds, Dividend on mutual funds and Long Term Capital Gain on listed securities. The assessing officer observed that the assessee has not allocated any expenses relating to earning exempt income and is not maintaining any separate account for the exempt income . The assessing officer observed that the assessee was declaring utilization of every resources from the pool for purposes of her business. The assessee was asked .....

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that the entire investments in RBI tax free bonds, mutual funds, shares etc was made out of surplus funds available with her and no borrowed funds were utilized by the assessee and hence no interest expenses were incurred nor the assessee incurred any administrative expenses with respect to making / maintaining of the investments in which exempt income is earned. The assessee also contended that the provisions of section 14A of the Act read with rule 8D of the Income Tax Rules, 1962 are not appl .....

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imited (2012) 22 taxman 99(Mum-Trib.). The assessing officer after considering the replies of the assesee held that the plea of assessee that no expenditure was incurred for earning the income is not acceptable because no tax free income can be earned without making expenditure. The assessing officer held that expenditure may be direct or indirect, investment may be made / maintained by applying resources and hence he held that it is clear that the exempt income cannot be earned without incurrin .....

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(A) and reiterated its submissions and also stated that the assessing officer has failed to establish any nexus between the expenses disallowed and the tax free income earned by the assessee. She also contended that the assessing officer has failed to record any satisfaction to show the inaccuracy in respect of expenses claimed by the assessee. She also submitted that no expense were incurred to earn the tax free income. After considering the submissions of the assessee, the CIT(A) held that the .....

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e 8D(2)(iii) of the Income Tax Rules, 1962 and thus, the CIT(A) dismissed the appeal of the assessee. 5. Aggrieved with the orders of the CIT(A), the assessee is in appeal before us and reiterated its submissions as made before the authorities below. She contended that no expenses were incurred by the assessee for earning the exempt income. She also contended that no disallowance should be made u/s 14A of the Act read with Rule 8D(2)(ii) of Income Tax Rules,1962. The assessee referred to and dre .....

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udit assignment and tax matters. So in nutshell, the assesee submitted that assessee has not incurred any expense for earning the exempt income. She relied upon the orders of Mumbai Bench of Tribunal in ITA no. 7239/Mum/2012 in the case of Shri Hrithik Rakesh Nagrath to contend that in a similar case the Tribunal has deleted the disallowance. The assessee also relied upon the decision of Mumbai Bench of Tribunal in the case of Ramu S Deora in ITA no. 4860/Mum/2012 to contend that the Tribunal wh .....

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rroneously included the same for the purpose of computation of disallowance because gain from sale of jewellary is taxable under Income Tax Act,1961. 6. The Ld. DR on the other hand, relied upon the orders of authorities below and stated that since assessee has not offered for disallowance of expenditure u/s 14A of the Act, the Assessing Officer not being satisfied with the claim of the assessee has rightly invoked the provisions of section 14A(2) and 14A(3) of the Act to apply Rule 8D of Income .....

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ses which are common in nature such as salaries, car repair and running expense, entertainment, audit fees, secretarial expenses, telephone expenses and depreciation on assets etc. while the assessee has also brought to our notice that some expenses which are specific in nature and connected/attributable directly with the rendering of professional services and thereby earning professional income. It is unbelievable that there is no expenditure incurred by the assessee for making and maintaining .....

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are exempt from tax. On careful perusal of the Profit & Loss Account reveals that the common expenditure in aggregate comes to ₹ 12,83,814/- after excluding the specific expenses highlighted by the assessee incurred specifically and exclusively for earning exempt income. We have also observed that assessee has received professional income of ₹ 24 Lac during the year while the exempt income received is ₹ 1,07,53,499/- . There is no doubt that the assessee definitely has to .....

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cted to 10% of common expenses of ₹ 12,83,814/- whereby the disallowance will come to ₹ 1,28,381/- u/s 14A of the Act. The amount of disallowance is restricted to ₹ 1,28,381/- keeping in view the peculiar facts and circumstances of the case and shall neither be construed as our making any aspersion on the applicability of Section 14A of the Act read with rule 8D of Income Tax Rules,1962 for the impugned assessment nor setting any precedent whatsoever. 8. The next ground of appe .....

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financial year 1/4/2009 to 31/03/2010, with absolutely no transaction recorded therein. (ii) There is no deposit or professional income routed through the said EEFC account, thereby fortifying the conclusion that there has been no professional activity resulting in any foreign exchange transaction. (iii) The loss purported loss has arisen by a mere book entry, that too at the end of the year by passing a single journal entry. (iv) It is pertinent to note that the assessee is regularly following .....

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carried the matter in appeal to the CIT(A) and submitted that the EEFC account represented her foreign exchange earnings in the preceeding years although there was no foreign exchange transaction/earnings in the current year. The assessee further submitted that the loss from mark to market valuation was allowable keeping in view accounting standard 11 as prescribed by ICAI. Further it was submitted by the assessee that the profit accruing from mark to market re-evaluation, in the preceding year, .....

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er return of income and this cannot be allowed on accrual basis. Thus, the CIT(A) rejected the contentions of the assessee and dismissed the appeal of the assessee on this ground. 11. Aggrieved by the orders of the CIT(A), the assessee is in appeal before us and stated that assessee is consistently following the policy for many years of bringing to tax loss/profit on mark to market basis on account of foreign exchange fluctuation in the EEFC account balance as at year end. The assessee made the .....

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iled with the Revenue. She drew our attention to the audited account for the financial year ending 31.03.2009 ie immediately preceding assessment year to contend that mark to market profit in respect of foreign exchange held in EEFC account as at year end, the profit of ₹ 7,19,280/- were credited to the Profit & Loss account and were offered for taxation in the return of income filed for assessment year 2009-10 and due taxes have been paid to the Revenue. Hence on the basis of accounti .....

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al on record. We have observed that the assessee is consistently following the accounting policy of offering to tax both income/loss on mark to market basis as on the date of balance-sheet in the return of income filed with the revenue with respect to the EEFC account. The LD AR has made statement before us that the EEFC account is being maintained by the assessee and the credits in the earlier years were on account of professional fee received by the assessee in foreign exchange in the earlier .....

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order accordingly. 14. The third ground of appeal is against the disallowance of Dentistry expenses of ₹ 1,74,850/- u/s 40(a)(ia) of the Act . 15. The assessee contended before the assessing officer that the assesee is actress and the said expenses of ₹ 1,74,850/- are incurred for treatment of her teeth which expenses were incurred for beautification of the assessee and is directly linked to her profession and should be allowed as revenue expenditure incurred wholly and exclusively f .....

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see was disallowed u/s 40(a)(ia) of the Act. 16. Aggrieved, the assessee carried the matter in appeal to the CIT(A) and contended that she is an actress and she has to maintain her personality and beautification which is the need of profession and the expenses of ₹ 1,74,850/- incurred by the assessee is revenue expenditure incurred for her profession of cine artist. The CIT(A) accepted that since the assessee is actress and the said expenses are linked to her profession but the CIT(A) uphe .....

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h is predominant for her profession. The assessing officer had disallowed the same to be personal expenses and further on the ground that no TDS was deduced under Chapter XVIIB of the Act while CIT(A) disallowed the same as no TDS was deducted u/s 194J of the Act. The assessee contended that the assessee has paid ₹ 1,74,850/- towards the total dentistry charges out of which 89,500/- is towards the material cost for which the evidence has also been produced before us by way of Doctor Certif .....

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