TMI Blog2018 (6) TMI 1270X X X X Extracts X X X X X X X X Extracts X X X X ..... were unreasonable and exceeding market rate. However, before us, none of the lower authority has brought on record to justify the prevailing market rate for such consultancy fees. Thus, it appears that the disallowance has been made on the estimated basis on the surmises and conjuncture of the AO. In these circumstances, we are of the view that the estimated disallowance is not sustainable in the eyes of the law. See ANIMESH SADHU, C/O. SHRI SOMNATH GHOSH, ADVOCATE, VERSUS ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1, AAYAKAR BHAWAN, DIST. HOOGHLY [2014 (11) TMI 1170 - ITAT KOLKATA] - we delete the addition made by the lower authorities - Decided in favour of assessee. - I.T.A. No.2845/Ahd/2016 And I.T.A. No.2846/Ahd/2016 - - - Dated:- 20-6-2018 - SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER For The Appellant : Shri Surendra Modiani, A.R. For The Respondent : Shri Prasoon Kabra, Sr. D.R. ORDER PER WASEEM AHMED, ACCOUNTANT MEMBER: The captioned appeals have been filed at the instance of the assessee against two separate orders of the Commissioner of Income Tax(Appeals)-6, Ahmedabad [CIT(A) in short] vide appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s own funds exceed the amount of investments. Therefore, no disallowance u/s 14A is warranted given the judgment of Hon ble Gujarat High Court in the case of UTI Bank Ltd. reported in 32 Taxman.com 370. However, the learned CIT(A) disregarded the submission of the assessee and confirmed the addition made by the AO by observing as under: 9. I have carefully considered the assessment order and the submission of the appellant. It is seen that the AO has worked out the disallowance of expenditure as per the provision of section 14A. The appellant has relied on various case laws and the decision of Gujarat High Court in the case of UTI Bank Ltd. 32 Taxman.com 370, however, the facts are different and distinguishable as the assessee could not prove before the AO that he has sufficient interest free fund for making tax free investment. In the case of UTI Bank the Hon ble Gujarat High Court has noted that the assessee had interest free fund of ₹ 3404/- crores and tax free investment was only 589 crores thus the interest free fund were far in excess of the investment. However, in the appeal under consideration the appellant could not justify that the interest free fund was give ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent interest free funds to meet tax free investments, they are presumed to be made from interest free funds and not loaned funds and no disallowance can be made under section 14A In view of above proposition, we hold that no disallowance of interest expense claimed by the assessee can be made under the provision of Section14A of the Act r.w.r. 8D of IT Rules. Hence, we reverse the order of authorities below. The AO is directed to delete the addition made by him. Hence the ground of appeal of the assessee is allowed. 7. The second issue raised by the assessee that learned CIT(A) erred in confirming the addition made by the AO for ₹ 3,20,000/- on account of professional fees. The assessee during the year has shown gross interest income of ₹ 63,79,238/- only, which was offered to tax as income from other sources. The assessee against such interest income has claimed an expense of ₹ 5,60,000/- under the professional head fees. The assessee claimed to have made the payment of professional fees for availing the services about its investment activities. The services availed by the assessee were confirmed by Shri Milind Mehta, CA, Authorities Representative, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... represented the case during the appellate proceedings also. The AO noted that Shri Mehta is practicing CA and does not have any experience in investment consultancy and noted that the quantum of investment do not justify the fees paid therefore disallowed ₹ 3,20,000/- out of ₹ 5,60,000/- shown by the appellant. During the appellate proceedings, the A.R./CA Shri M.K. Mehta was asked to furnish the detail of services rendered for the professional fee received by him. The A.R. has submitted the details for which he has charged professional fee of ₹ 5,60,000/- as under: Date Nature of investment Amount Invested (Rs.) 30-4-12 Unique Agmart Bill discounted 2,00,000 24-5-2012 Fixed Deposit with HDFC Ltd 50,00,000 26-7-12 Unique Agmart Bill discounted 2,00,000 12-10-12 Siddharth Conmart Bill discounted 2,00,000 17-10-2012 Fixed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... horities are entitled to look into the surrounding circumstances to find out the reality and the matter has to be considered by applying the test of human probabilities. 13.3.2 The issue of lifting of corporate veil was discussed by the various courts and certain guidelines were made. In the case of K. Ramaswamy vs. CIT - 261 ITR 358 (Mad) the Hon'ble Madras High Court followed the ratio laid down by the Supreme Court in the case of Juggilal Kamlapat v. CIT [1969] 73 ITR 702 held that in cases where the same persons entered into transactions though by introducing a corporate personality into some of those transactions, the income-tax authorities are entitled to pierce of veil of corporate personality and look at the reality of the transaction. The Court in that case observed: ... It is true that from juristic point of view the company is Q legal personality entirely distinct from its members and the company is capable of enjoying rights and being subjected to duties which are not the same as those enjoyed or borne by its members. But in certain exceptional cases the Court is entitled to lift the veil of the corporate entity and to pay regard to the economic real ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the capital borrowed for the purpose of the assessee's business. 13.4 Considering the facts and decision mentioned above I am of the view that the AO has rightly disallowed the professional fee payment against interest income therefore addition of ₹ 3,20,000/- is confirmed. The ground is dismissed. Being aggrieved by order of learned CIT(A) assessee is in the second appeal before us. The assessee before us has submitted as under: iv) Appellant's submissions a) It is submitted that the Assessing Officer and the Commissioner (Appeals) have not properly appreciated information furnished during assessment and appeal proceedings and the disallowance is based merely on their own personal opinion and judgment exercised in a manner not contemplated under S.58(2) read with S.40A(2). b) That the appellant has paid professional fees is not in dispute but both authorities have held a biased view about incapability of CAs to act as investment advisor. They have chosen to ignore a submission that due to their professional education, CAs are versatile professionals and there are large firms rendering a wide variety of professional services, not jus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contemplated only u/s.58(2) so far as relates to cases falling u/s.40A(2) of the Act in respect of payments made to related parties. g) It is further submitted that a part of professional fees to the extent relating investments that generate exempt income would be covered by separate disallowance of ₹ 23,948 from expenditure u/s.14A as per Rule 8D computed @ 1/2% of average investments in tax-free income securities. h) In Bhavin A. Shah v. ACIT, Cir. 14, Ahmedabad, pronounced on 29-3-2017, Hon'ble ITAT, T Bench, Ahmedabad also held that once it is beyond dispute that expenses were incurred for earning income, mere fact that expenses are on higher side cannot be reason enough for disallowance and that even if expenses are on higher side it does not imply that they are fictitious and inadmissible. i) Appellant submits that the ratio of judicial decisions cited by Commissioner (Appeals) is inappropriate in present case as described hereunder: a. GIT v. P. Mohanakala (2007) 161 Taxman 169 (SC) It was ruled that payment through banking channel is not a conclusive evidence to decide genuineness of transactions. But in that case, department had establishe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubted. The payment was made through banking channel. However, as per the lower authorities, the expenses claimed by the assessee were unreasonable and exceeding market rate. However, before us, none of the lower authority has brought on record to justify the prevailing market rate for such consultancy fees. Thus, it appears that the disallowance has been made on the estimated basis on the surmises and conjuncture of the AO. In these circumstances, we are of the view that the estimated disallowance is not sustainable in the eyes of the law. In this connection, we also rely on the order of Co-ordinate Bench of ITAT Kolkata in the case of Animesh Sadhu Vs. ACIT in ITA 11/Kol/2013 Dated 12.11.2014. The relevant extract is reproduced below: - 8. We have considered the rival submissions. A perusal of the assessment order shows that the Assessing Officer has disallowed 20% of the expenses on estimate basis on the ground that no independent verification to be made to find out the authenticity of the expenses. Ld. CIT(Appeals) has reduced the same on the same ground. However, we are of the view that no estimated disallowance scan be made for inability to make independent verificati ..... X X X X Extracts X X X X X X X X Extracts X X X X
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