ROHIT A KAPADIA, MUMBAI V. ASST CIT 11(3), MUMBAI

ITA 1022/MUM/2014

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2491 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-11-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 14-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR DARSI S RATNAM
• Assessee Lawyers: APURVA R SHAH
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH D, MUMBAI BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.1022/M/2014 ASSESSMENT YEAR: 2010-11 SHRI ROHIT A. KAPADIA, 102-B, PARADISE APARTMENTS, 10 TH FLOOR, 44, NEPEAN SEA ROAD, MUMBAI 400 006. PAN: AABPK0215A VS. ASSTT. COMMISSIONER OF INCOME TAX, 11(3), INCOME-TAX OFFICE, R.NO.446, 4 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020 (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI APURVA R. SHAH, A.R. REVENUE BY : DR. DARSI S. RATNAM, D.R. DATE OF HEARING : 23.11.2015 DATE OF PRONOUNCEMENT : 23.11.2015 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSES SEE AGAINST THE ORDER DATED 28.11.2013 OF THE COMMISSIONER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO ASSESSMENT Y EAR 2010-11. 2. THE ASSESSEE IN THIS APPEAL HAS AGITATED THE CON FIRMATION OF DISALLOWANCE OF RS.10,62,120/- MADE BY THE ASSESSING OFFICER (HE REINAFTER REFERRED TO AS THE AO) UNDER SECTION 14A OF THE INCOME TAX ACT READ WI TH RULE 8D OF THE INCOME TAX RULES. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S AN ADVOCATE BY PROFESSION. DURING THE ASSESSMENT PROCEEDINGS, THE AO NOTED THAT THE ASSESSEE DURING THE YEAR HAD EARNED TAX EXEMPT INCOME OF RS. 1,25,76,001/-. THE ASSESSEE HAD SUO-MOTO DISALLOWED A SUM OF RS.1,10,9 74/- IN RELATION TO ITA NO.1022/M/2014 SHRI ROHIT A. KAPADIA 2 EXPENDITURE INCURRED FOR EARNING OF TAX EXEMPT INCO ME. HOWEVER, THE AO NOTED THAT FOR THE YEAR UNDER CONSIDERATION RULE 8D WAS APPLICABLE. HE REJECTED THE SUO-MOTO DISALLOWANCE MADE BY THE ASSESSEE AND COMPUTED THE SAME UNDER RULE 8D2(III) IN RELATION TO ADMINISTRATIVE EXPENS ES INCURRED FOR EARNING OF TAX EXEMPT INCOME AT RS.11,73,094/- AND AFTER DEDUCTING THE AMOUNT OF DISALLOWANCE SUO-MOTO MADE BY THE ASSESSEE, HE FURT HER DISALLOWED AN AMOUNT OF RS.10,62,120/- UNDER SECTION 14A READ WITH RULE 8D AND ADDED BACK THE SAME INTO THE INCOME OF THE ASSESSEE. THE LD. CIT(A) ALSO CONFIRMED THE DISALLOWANCE SO M ADE BY THE AO. BEING AGGRIEVED, THE ASSESSEE HAS COME IN APPEAL BEFORE U S. 3. WE HAVE CONSIDERED THE RIVAL CONTENTIONS OF THE LD. REPRESENTATIVES OF THE PARTIES. ADMITTEDLY, THE AO, IN THIS CASE, HAS STRAIGHT AWAY APPLIED RULE 8D FOR COMPUTATION OF DISALLOWANCE UNDER SECTION 14 A. HE HAS NOT CONSIDERED THE CORRECTNESS OF THE WORKING OF THE SUO-MOTO DISA LLOWANCE OF EXPENDITURE MADE BY THE ASSESSEE. IT MAY BE OBSERVED THAT IN TH E CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. 328 ITR 81, THE HON'BLE BOM BAY HIGH COURT HAS HELD THAT UNDER SECTION 14A OF THE ACT, RESORT CAN BE MA DE TO RULE 8D OF THE INCOME TAX RULES FOR DETERMINING THE AMOUNT OF EXPENDITURE IN RELATION TO EXEMPT INCOME, IF, THE AO IS NOT SATISFIED WITH THE CORREC TNESS OF THE CLAIM MADE BY THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE. THE SA TISFACTION OF THE ASSESSING OFFICER HAS TO BE ARRIVED AT, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. SUB SECTION (2) DOES NOT IPSO FACTO ENABLE THE ASSESSIN G OFFICER TO APPLY THE METHOD PRESCRIBED BY THE RULES STRAIGHTAWAY WITHOUT CONSIDERING WHETHER THE CLAIM MADE BY THE ASSESSEE IN RESPECT SUCH EXPENDIT URE IS CORRECT. THE SATISFACTION OF THE ASSESSING OFFICER MUST BE ARRIV ED AT ON AN OBJECTIVE BASIS. IN A SITUATION WHERE THE ACCOUNTS OF THE ASSESSEE F URNISH AN OBJECTIVE BASIS FOR THE ASSESSING OFFICER TO ARRIVE AT A SATISFACTION I N REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE, THERE WOULD BE NO WARRAN T FOR TAKING RECOURSE TO THE ITA NO.1022/M/2014 SHRI ROHIT A. KAPADIA 3 METHOD PRESCRIBED BY THE RULES. AN OBJECTIVE SATISF ACTION CONTEMPLATES A NOTICE TO THE ASSESSEE, AN OPPORTUNITY TO THE ASSESSEE TO PLACE ON RECORD ALL THE RELEVANT FACTS INCLUDING HIS ACCOUNTS AND RECORDING OF REASONS BY THE ASSESSING OFFICER IN THE EVENT THAT HE COMES TO THE CONCLUSIO N THAT HE IS NOT SATISFIED WITH THE CLAIM OF THE ASSESSEE. FURTHER, THE HONBLE DELHI HIGH COURT IN A RECENT D ECISION HAS FURTHER GIVEN A SIMILAR VIEW IN THE CASE OF CIT VS. TAIKISHA ENGIN EERING INDIA LTD. (SUPRA) WHEREIN THE HONBLE DELHI HIGH COURT HAS HELD THAT THE AO HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE IS REQUIRED TO RECORD HIS SATISFACTION THAT THE SELF OR VOLUNTARILY EXPENDITURE OFFERED BY THE ASSESSEE OR CLAIM THAT NO EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE IN RELATION TO EA RNING OF EXEMPT INCOME, WAS NOT CORRECT OR THE SAME WAS UNSATISFACTORY ON EXAMI NATION OF THE ACCOUNTS OF THE ASSESSEE. WITHOUT RECORDING SUCH A SATISFACTIO N HE CANNOT PROCEED TO APPLY RULE 8D FOR THE COMPUTATION OF DISALLOWANCE UNDER S ECTION 14A. HOWEVER, A PERUSAL OF THE ASSESSMENT ORDER REVEALS THAT THE AO HAS NOT FOLLOWED THE GUIDELINES OF OBJECTIVE SATISFACTION A S LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE (SU PRA) WHILE MAKING THE DISALLOWANCE. THE LD. CIT(A) ALSO IGNORED THE MANDA TE OF THE PROVISIONS OF SECTION 14 A, WHILE CONFIRMING THE DISALLOWANCE. 4. THE LD. AR OF THE ASSESSEE HAS SUBMITTED THAT TH E ASSESSEE HAS MADE A VERY REASONABLE AND SCIENTIFIC WORKING OF THE DISAL LOWANCE UNDER SECTION 14A. THE LD. A.R. HAS INVITED OUR ATTENTION TO THE FACT THAT APART FROM THE EXEMPT INCOME, THE ASSESSEE HAS EARNED PROFESSIONAL RECEIP TS OF RS.6,62,52,459/- (APPROX. RS.6.62 CRORES ) WHEREAS THE TAX FREE INCO ME RECEIVED BY THE ASSESSEE HAS BEEN ONLY RS.70,42,137 (70 LAKHS APPROX). THE TOTAL ADMINISTRATIVE AND OTHER EXPENSES CLAIMED BY THE ASSESSEE ARE AT RS.1, 07,32,363/- OUT OF WHICH A SUM OF ABOUT RS.91 LAKHS IS ON ACCOUNT OF LOSS ON SHARES AND RS.2 LAKHS IS ON ACCOUNT OF DONATIONS, WHICH AMOUNT IS NOT AN ALLOWA BLE EXPENDITURE. THUS ITA NO.1022/M/2014 SHRI ROHIT A. KAPADIA 4 THERE REMAINS TOTAL CLAIM OF EXPENDITURE OF RS.13,3 8,769/- ,OUT OF WHICH CERTAIN EXPENSES LIKE BOOKS AND PERIODICAL INSURANCE, MEMBE RSHIP FEES, PROFESSION TAX, PROFESSIONAL FEES ETC. AMOUNTING TO RS.4.15 LAKHS E XCLUSIVELY RELATE TO THE PROFESSIONAL ACTIVITY OF THE ASSESSEE. THE LD. A.R . HAS EXPLAINED THAT AFTER DEDUCTING THE SAID PROFESSIONAL EXPENSES, THE TOTAL COMMON EXPENDITURE CLAIMED BY THE ASSESSEE COMES TO RS.9,23,628/- OUT OF WHICH THE ASSESSEE HAS SUO-MOTO DISALLOWED A SUM OF RS.1,10,974/- IN PROPO RTION TO THE PROFESSIONAL INCOME RECEIVED AND EXEMPT INCOME RECEIVED BY THE A SSESSEE. WE FIND THAT THE AO HAS TOTALLY IGNORED THE ABOVE W ORKING OF THE ASSESSE. EVEN THE TOTAL DISALLOWANCE MADE BY THE AO MADE AT RS.11,73,094/- EXCEEDS THE CLAIM OF TOTAL COMMON EXPENSES OF RS.9. 3 LAKHS. THE ASSESSEE HAS GIVEN FULL DETAILS AND HAVE SUO-MOTO DISALLOWED A S UM OF RS.1,10,974/- ON SCIENTIFIC BASIS WHICH SEEMS TO BE OTHERWISE REASON ABLE ALSO. THERE IS NO LOGIC IN MAKING A DISALLOWANCE MORE THAN THE EXPENDITURE INCURRED ESPECIALLY WHEN THE ASSESSEE IS SHOWING A TAXABLE PROFESSIONAL INCO ME OF RS.6.62 CRORES AS AGAINST THE TAX EXEMPT INCOME OF RS.70 LAKH ONLY. W E, THEREFORE, DO NOT FIND JUSTIFICATION ON THE PART OF THE LOWER AUTHORITIES IN DIRECTLY APPLYING RULE 8D WITHOUT CONSIDERING THE WORKING/COMPUTATION GIVEN B Y THE ASSESSEE. THE COMPUTATION/WORKING GIVEN BY THE ASSESSEE, IN OUR V IEW, IS QUITE REASONABLE. WE THEREFORE RESTRICT THE DISALLOWANCE UNDER SECTIO N 14A TO THE EXTENT OF SUO- MOTO MADE BY THE ASSESSEE OF RS.1,10,974/- AND THE ADDITIONAL DISALLOWANCE MADE BY THE AO IS HEREBY ORDERED TO BE DELETED. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS HER EBY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 23.11.2015. SD/- SD/- (ASHWANI TANEJA) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 23.11.2015. * KISHORE, SR. P.S. ITA NO.1022/M/2014 SHRI ROHIT A. KAPADIA 5 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.