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2016 (5) TMI 1097 - ITAT MUMBAI

2016 (5) TMI 1097 - ITAT MUMBAI - TMI - Disallowance made u/s 14A - Held that:- A perusal of Balance Sheet as at 31-03-2008 shows that the assessee is having interest free funds of ₹ 4.25 crores and ₹ 5.81 crores as on 1.4.2007 and 31.3.2008 respectively. The investments held by the assessee stand at ₹ 2.11 crores and ₹ 2.00 crores as at the beginning of the year and end of the year respectively. These facts show that the own funds available with the assessee exceeds the .....

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ortfolio and hence we are of the view that a portion of administrative expenses is required to be disallowed. Since the factual details relating to the investment activity of the assessee are available, we are of the view that there is no requirement to adopt the methodology provided in Rule 8D of the I.T Rules. Considering the details of investment activity, we are of the view that the disallowance out of administrative expenses towards the above said investment activity may be estimated at 5% .....

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41 lakhs. Thus, we notice that the level of investment activity has reduced during the year under consideration and the dividend income has also gone down considerably. Consistent with the view taken in the immediately preceding year, we direct the AO to restrict the disallowance towards administrative expenses to 5% of the dividend income.

Inclusion of the amount disallowed u/s 14A of the Act to the Book profit computed u/s 115JB - Held that:- Clause (f) of Explanation 1 given below .....

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he years under consideration.

Disallowance of repair expenses - Held that:- Though the case of the assessing officer is that these expenses have enhanced the value of building and would give benefit of enduring nature, yet the fact remains that these expenses have not brought into existence any new asset. It is quite normal for a business man to carry out renovation expenses in new premises in order to suit his requirement of having good ambience and convenience. Hence, the purpose of .....

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ating to alleged suppression of sale value of property sold - Held that:- There is merit in the contentions of the assessee. We notice that the AO has drawn conclusions without bringing any material to support his view. Even though the reasons for giving higher amount of brokerage were explained, yet the AO refused to accept the same on the suspicion that the broker might have been tutored by the assessee. It was submitted that the market value of the property is lesser than the sale value discl .....

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sset requires to be deducted from the sale value of the asset. Accordingly, we are of the view that the AO was justified in disallowing the brokerage expenses and making necessary adjustments in the depreciation schedule.

Disallowance of professional fee paid to the Chartered Accountant who is also one of the directors of the assessee company - addition u/s 40A(2)(b) - Held that:- C.A has been paid retainer fee on monthly basis. It is quite common in trade circles to engage a professi .....

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would depend upon the knowledge and experience of the professional. For similar type of work, two professionals may charge two different rates. Generally the public approaches a professional by considering various criteria such as knowledge, experience, name & fame in the market, reliability, dependability etc. Hence a professional is chosen depending upon the choice of a business man and after agreeing to the terms and conditions of the professional, the work is entrusted to him. In this scena .....

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ified. Accordingly we set aside the order of Ld CIT(A) on this issue and direct the AO to delete the disallowance. - Decide against revenue

Disallowance relating to interest on FBT - disallowance u/s 40(a)(ic) - Held that:- The assessee did not show as to how the provisions of 40(a)(ic) of the Act are not applicable to the disallowance. Accordingly, we confirm the decision taken by Ld CIT(A) observing that no argument was advanced against the disallowance - Decided against assessee - .....

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rder, for the sake of convenience. 2. The appeal filed for AY 2008-09 is barred by limitation by 148 days. The assessee has moved a petition requesting the Bench to condone the delay. We heard the parties on this preliminary issue. Having regard to the reasons given in the petition, we condone the delay and admit the appeal for hearing. 3. The assessee is engaged in the business of engineering consultancy. The AO completed the assessment of both the years by making various additions. In the appe .....

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vailable with the assessee is more than the investment made by it and hence disallowance of interest is not called for. With regard to the disallowance made out of expenses, the Ld A.R submitted that they have been incurred for its regular business only. 5. On the contrary, the Ld D.R placed strong reliance on order passed by Ld CIT(A). 6. We have heard the parties on this issue and perused the record. A perusal of Balance Sheet as at 31-03-2008 shows that the assessee is having interest free fu .....

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se. Accordingly, we hold that there is no requirement of making any disallowance out of interest expenditure. 7. We notice that the assessee has received dividend income of ₹ 18,16,295/- during the year relevant to AY 2008-09. The Ld A.R submitted that the investments have been made mostly in mutual funds and the dividends are credited directly to the bank account of the assessee. Accordingly he contended that there is no requirement of making any disallowance out of administrative expense .....

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required to be disallowed. Since the factual details relating to the investment activity of the assessee are available, we are of the view that there is no requirement to adopt the methodology provided in Rule 8D of the I.T Rules. Considering the details of investment activity, we are of the view that the disallowance out of administrative expenses towards the above said investment activity may be estimated at 5% of the dividend income. Accordingly, we modify the order of Ld CIT(A) passed on thi .....

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re to the file of the AO with the direction to follow our decision rendered for AY 2008-09, i.e., he should not make any disallowance out of interest expenditure, if the own funds available with the assessee is more than the amount of investments. If it is not the case, then the AO adjudicate this matter in accordance with the law, after hearing the assessee. 9. With regard to the disallowance out of administrative expenses, we notice that the assessee has received dividend income of ₹ 2.2 .....

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usion of the amount disallowed u/s 14A of the Act to the Book profit computed u/s 115JB of the Act. The Ld A.R contended that the provisions of sec. 14A cannot be extended to the computation of book profit u/s 115JB of the Act. However, we notice that clause (f) of Explanation 1 given below sec. 115JB(2) provides that the expenditure relatable to income exempt u/s 10 is required to be added to the Net profit for the purpose of computation of Book profit. Accordingly, we do not find any merit in .....

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ssee shifted its premises. In the new premises, the assessee incurred certain expenses on renovation such as tiling, plumbing, plastering, electrical work, painting etc. The AO took the view that the expenditure incurred on renovation would give benefit of enduring nature and accordingly disallowed a sum of ₹ 14,32,435. After allowing depreciation of ₹ 1,27,589/-, the AO made net disallowance of ₹ 13,04,846/-. The Ld CIT(A) also confirmed the same. 11. We heard the parties on t .....

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business operations smoothly. Since it is not shown that these expenses have brought any new asset and since the assessee has replaced old items with new ones and carried out repair/painting works, we are of the view that these expenses cannot be considered to be capital in nature. Accordingly, we set aside the order of Ld CIT(A) on this issue and direct the AO to delete the impugned disallowance. 12. The next two issues contested in the appeals filed for AY 2008-09 relate to the addition of  .....

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a statement from him. The broker replied that the amount of brokerage received by him includes reimbursement of expenses incurred by him. The AO did not believe the said explanations as he was of the view that the broker has given replies as per the instructions of the assessee. Accordingly, he took the sale consideration at ₹ 45,99,000/- and accordingly held that the assessee has suppressed sale consideration to the tune of ₹ 7,30,000/-. The AO added the same to the total income of .....

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reimbursement of expenses. It was further contended that the AO has made this addition purely on surmises, even though the broker has explained the factual aspects and further the AO has not brought any material to support his conclusions. On the contrary, the Ld D.R strongly placed reliance on the order of Ld CIT(A). 14. Having heard rival contentions on this issue, we are of the view that there is merit in the contentions of the assessee. We notice that the AO has drawn conclusions without br .....

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sion purely on surmises. Accordingly, we are of the view that the Ld CIT(A) was not justified in confirming the addition of ₹ 7,30,000/-. Accordingly we set aside the order of Ld CIT(A) and direct the AO to delete this addition. 15. With regard to the brokerage amount, we notice that the property sold by the assessee is a depreciable asset falling in the block. Hence, the brokerage paid on the sale of the said asset requires to be deducted from the sale value of the asset. Accordingly, we .....

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of professional fee paid to the Chartered Accountant who is also one of the directors of the assessee company. This issue is common in both the years under consideration. In AY 2008-09, the AO noticed that the assessee has paid a sum of ₹ 17,84,710/- to the proprietary concern of a Chartered Accountant named Shri G.D. Rajadhyaksha. The said person was also one of the directors of the assessee company. When questioned about the nature of payment, the assessee submitted that he carries out .....

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that the C.A. is only an independent director and does not hold any share in the share capital of the company. The AO noticed that the bills are raised by the C.A with the narration Retainership fees . It did not disclose any details about the nature of work. Since the directors are covered by sec. 40A(2)(b), the AO took the view that the amount paid to the C.A, who is also a director of the company, is excessive or unreasonable in terms of sec. 40A(2)(a) of the Act. Accordingly he restricted th .....

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ng the payment as excessive or unreasonable. He further submitted that the assessee has deducted TDS from the payment and the C.A has duly disclosed the same in his return of income. He further submitted that the C.A is only an independent director without having any share holding and the assessee has retained him to utilise is knowledge and experience. Accordingly he submitted that the decision to pay the professional fee/retainer fee is a commercial decision. He further submitted that the asse .....

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monthly retainer fee. As against the monthly payment of ₹ 1.25 lakhs, the AO has restricted the same to ₹ 20,000/-. The assessing officer has done so with the observation that the payment is in excess of prevailing market price for the services rendered by the C.A. However, it is pertinent to note that the AO has not brought any material on record to support his conclusions. It is in the common knowledge of every one that the fee of a professional would depend upon the knowledge and .....

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