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TMI Blog2016 (5) TMI 1097X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 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 this issue for AY 2008- 09 and direct the AO to restrict the disallowance u/s 14A at 5% of the dividend income received during the year under consideration. Disallowance out of administrative expenses - Held that:- As we notice that the assessee has received dividend income of ₹ 2.25 lakhs and the fresh investment made was ₹ 48 lakhs. The assessee has redeemed investment to the tune of ₹ 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. Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in confirming the addition. Addition of brokerage amount - Held that:- 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 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 professional as a retainer on the payment of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngaged in the business of engineering consultancy. The AO completed the assessment of both the years by making various additions. In the appeals filed before Ld CIT(A), the assessee got partial relief. Still aggrieved, the assessee has filed these appeals before the Tribunal. 4. The first issue urged in both the years relates to the disallowance made u/s 14A of the Act. At the time of hearing learned AR placed reliance on the decision rendered by Hon'ble Bombay High Court in the case of CIT Vs. Reliance Utilities Powers Ltd.(313 ITR 340)(Bom) and DCIT Vs. HDFC Bank Ltd. (366 ITR 505) and submitted that interest free funds available 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 funds of ₹ 4.25 crores and ₹ 5.81 crores as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elating to disallowance relating to interest expenditure 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 ₹ 2.25 lakhs and the fresh investment made was ₹ 48 lakhs. The assessee has redeemed investment to the tune of ₹ 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. 9. The next issue relates to the inclusion 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eged suppression of sale value of property sold by the assessee and the related brokerage expenses. During the year under consideration, the assessee has sold a property for a sum of ₹ 38,69,000/-. The assessee had paid brokerage of ₹ 91,980/- at 2% of the sale consideration. The AO noticed that the sale consideration based on the brokerage amount of 2% should have been ₹ 45,99,000/-. Hence, he conducted enquiries with the broker and also recorded 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 the assessee. With regard to the brokerage paid, the AO held that the said payment related to a building falling in the block of assets and hence the same is required to be adjusted in the depreciation schedule. Accordingly he mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 internal audit of the concern and the payment made includes reimbursement of out of pocket expenses. The AO asked the assessee to furnish the internal audit report given by the above said Chartered Accountant. The assessee replied that the defects noticed during the course of audit are discussed with the directors and no separate audit report is prepared. It was further submitted that the above said C.A also looks after the taxation matters, service tax/P.F/ESI matters. It was further submitted 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence, 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 scenario, we are of the view that the AO was not justified in questioning the reasonableness of payment made to the C.A by the assessee, when the assessee has taken a conscious decision to pay the same. It is also pertinent to note that the assessing officer has not brought any material on record to show that the professional fee payment has been inflated or beyond market rates, except making an observation in that regard. It is stated that the C.A is carrying out all types of taxation and compliance work and he is well experienced and knowledgeable. Hence we are of the view that the tax authorities cannot question the choice exercised by the assessee without bringing any material on record. We have also noticed that the disallowance has been made without bringing any material on record. For these reasons, we are of the view that the disallowance made u/s 40A(2)(a) is not justified. Accordingly we set aside the order of Ld CIT(A) on this is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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