KRISHIRAJ TRADING LTD, MUMBAI V. DCIT 6(2), PALGHAR

ITA 1141/MUM/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0655 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-01-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 04-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: POOJA SWAROOP
• Assessee Lawyers: MITESH SHAH
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

P A G E | 1 ITA NOS. 1141 & 2663/MUM/2016 AY: 2011 - 12 KRISHIRAJ TRADING LTD. VS. DCIT IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI BEFORE SHRI RAJENDRA , AM AND SHRI RAVISH SOOD, JM ./ I.T.A. NO.1141/MUM/2016 ( / ASSESSMENT YEAR: 2011 - 12) M/S. KRISHIRAJ TRADING LTD. B - WING, 9 TH FLOOR, TRADE WORLD, KAMALA MILL COMPOUND, SENAPATI BAPAT MARG, LOWER PAREL, MUMBAI - 400 013 / VS. DCIT 6(2), AAYAKAR BHAVAN, ROOM NO. 563, 5 TH FLOOR, MAHARSHI KARVE MARG, MUMBAI - 400 020. ./ ./ PAN/GIR NO. AAACK2257N ( / APPELLANT ) : ( / RESPONDENT ) ./ I.T.A. NO.2663/MUM/2016 ( / ASSESSMENT YEAR: 2011 - 12 ) JT. COMMISSIONER OF INCOME TAX - (OSD) - 6(3)(2) ROOM NO.522, 5 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 20 / VS. M/S KRISHIRAJ TRADING LIMITED, B - 9, TRADE WORLD, KAMALA MILL COMPOUND, SENAPATI BAPAT ROAD, LOWER PAREL, MUMBAI - 400 013 ./ ./ PAN/GIR NO. AAACK2257N ( / APPELLANT ) : ( / RESPONDENT ) / A SSESSEE BY : SH. MITESH SHAH , A .R / R E VENUE BY : MS. POOJA SWAROOP, D.R / DATE OF HEARING : 08.01. 201 8 P A G E | 2 ITA NOS. 1141 & 2663/MUM/2016 AY: 2011 - 12 KRISHIRAJ TRADING LTD. VS. DCIT / DATE OF PRONOUNCEMENT : 17 .01. 2018 / O R D E R PER RAVISH SOOD, JUDICIAL MEMBER THE PRESENT SET OF CROSS APPEALS FILE D BOTH BY THE ASSESSEE AND THE REVENUE ARE DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) - 12, MUMBAI DATED 19.01.2016, WHICH IN ITSELF ARISES FROM THE ORDER PASSED BY THE A.O UNDER SEC. 1 43(3) OF THE ACT, DATED 11.12.2013. TH AT AS CERTAIN COMMON ISSUES ARE INVOLVED, THEREFORE, THE APPEALS ARE BEING TAKEN UP TOGETHER AND DISPOSED OF BY WAY OF A CONSOLIDATE ORDER. WE SHALL FIRST TAKE UP THE APPEAL OF THE ASSESSEE. THE ASSESSEE ASSAILING THE ORDER OF THE CIT(A) HAD RAISED BEFORE US THE F OLLOWING GROUNDS OF APPEAL: - THE GROUND OR GROUNDS OF APPEAL ARE WITHOUT PREJUDICE TO ONE ANOTHER. 1.I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID. CIT(A) ERRED IN CONFIRMING THE ADDITION TO THE EXTENT OF RS. 44,63,736/ - MADE BY THE AO TO THE INCOME OF APPELLANT BY WAY OF DISALLOWING PROPORTIONATE FINANCE CHARGES ALLEGED TO HAVE BEEN INCURRED RELATING TO EXEMPT INCOME INVOKING THE PROVISIONS OF SECTION 14A R.W. RULE 8D. II) THE L D . CIT(A) FAILED TO APPRECIATE THAT: - (A) THERE IS NO REASON AND BASIS IN REACHING TO DIS - SATISFACTION WITH THE CORRECTNESS OF THE CLAIM OF THE APPELLANT THAT NO EXPENDITURE OTHER THAN DEMAT CHARGES OFRS. 93,692/ - WAS INCURRED IN RELATION TO DIVIDEND INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME; AND (B) THAT THE INVESTMENT IN SHARES ARE MADE OUT OF OWN CAPITAL AND THE SHAREHOLDERS FUNDS WERE MORE THAN INVESTMENT IN SHARES; AND (C) THE NET RESULT OF INTEREST ACCOUNT (I.E. RECEIVED - PAID) WAS SURPLUS. III) IN REACHING TO THE CONCLUSION AND CONFIRMING SUCH ADDITION THE ID. CIT(A) OMITTED TO CONSIDER RELEVANT FACTORS, CONSIDERATIONS, PRINCIPLES AND EVIDENCES WHILE HE WAS OVERWHELMED, INFLUENCED AND PREJUDICED BY IRRELEVANT CONSIDERATIONS AND FACTORS. P A G E | 3 ITA NOS. 1141 & 2663/MUM/2016 AY: 2011 - 12 KRISHIRAJ TRADING LTD. VS. DCIT THE APPELL ANT CRAVES LEAVE TO ADD, ALTER, AMEND OR DELETE ANY OR ALL OF THE ABOVE GROUNDS OF APPEAL. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY WHICH IS ENGAGED IN THE BUSINESS OF TRADING IN FABRICS & DERIVATIVES AND INVEST MENT IN SHARES HAD E - FILED ITS RETURN OF INCOME FOR A . Y: 2011 - 12 O N 20.01.2011 , DISCLOSING A LOSS OF RS. 11,62,57,458/ - . THE RETURN OF INCOME FILED BY THE ASSESSEE WAS PROCESSED AS SUCH UNDER SEC. 143(1) OF THE ACT. THE CASE OF THE ASSESSEE WAS THEREAFTER TAKE N UP FOR SCRUTINY ASSESSMENT UNDER SEC. 143(2). 3. THE A.O OBSERVED D URING THE COURSE OF THE ASSESSMENT PROCEEDINGS THAT THOUGH THE ASSESSEE HAD RECEIVED DIVIDEND INCOME OF RS.5,46,27,122/ - FROM ITS EXEMPT INCOME YIELDING INVESTMENTS IN SHARES, HOWEVER, NO EXPENDITURE WAS APPORTIONED AND OFFERED AS A DISALLOWANCE TOWARDS EARNING OF THE SAID EXEMPT INCOME. THE A.O BEING OF THE VIEW THAT SOME EXPENSES HAD TO BE APPR OPRIATED TOWARDS EARNING OF THE EXEMPT INCOME, THEREFORE, APPLIED THE PROVISIONS OF SEC. 14A R. W. RULE 8D AND MADE A DISALLOWANCE OF RS.4,20,64,448/ - IN THE HANDS OF THE ASSESSEE , AS UNDER : DETERMINING AMOUNT OF EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME AGGREGATE OF THE FOLLOWING AMOUNTS I. THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME RS. 93,692 II. IN A CASE WHERE THE ASSESSEE HAS INCURRED EXPENDITURE BY WAY OF INTEREST DURING THE PREVIOUS YEAR WHICH IS NOT DIREDTLY ATTRIBUTABLE TO ANY PARTICULAR INCO EN OR RECEIPT, AN AMOUNT COMPUTED IN ACCORDANCE WITH THE FOLLOWING FORMULA, NAMELY A X B/C RS. 44,63,736 A. AMOUNT OF EXPENDITURE BY WAY OF INTEREST 5121392 P A G E | 4 ITA NOS. 1141 & 2663/MUM/2016 AY: 2011 - 12 KRISHIRAJ TRADING LTD. VS. DCIT OTHER THAT THE AMOUNT OF INTEREST INCLUDED IN (I) INCURRED DURING THE PREVIOUS YEAR B. THE AVERAGE OF VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR 7501404079 C. THE AVERAGE OF TOTAL ASSETS AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR; 8606609587 III. AN AMOUNT EQUAL TO ONE - HALF PERCENT OF THE AVERAGE OF VALUE OF I N VESTME N T, INCOME FROM WHICH DOES NOT OR SHALL NOT FROM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE , ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR. 3,75,07,020 TOTAL AMOUNT OF EXPENDITURE RELATED TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME. 4,20,64,448 THE A.O ON THE BASIS OF HIS AFORESAID OBSERVATIONS ASSESSED THE TOTAL LOSS OF THE ASSESSEE AT RS. 7,41,93,010/ - . 4. AGGRIEVED , THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). THE CIT(A) OBSERVED THAT AS THE ASSESSEE WAS NOT MAINTAINING SEPARATE BOOKS OF ACCOUNT , THER EFORE, ITS CONTENTION THAT NO EXPENDITURE WAS INCURRED FOR EARNING OF THE EXEMPT DIVIDEND INCOME COULD NOT BE SUBSTANTIATED . THE CIT(A) FURTHER DELIBERATING ON THE FACTS , OBSERVED THAT THE ASSESSEE HAD INVESTED TOWARDS PURCHASE OF SHARES FROM THE MIXED FUND. IT WAS FURTHER OBSERVED BY THE CIT(A) THAT THE ASSESSEE HAD DEBITED FINANCE EXPENSES OF RS.51,21,392/ - AND ADMINISTRATIVE AND OTHER EXPENSES OF RS.14,47,542/ - IN ITS PROFIT AND LOSS ACCOUNT FOR THE YEAR UNDER CONSIDERATION . THE CIT(A) IN THE BACKDROP OF THE AFORESAID FACTS CONCLUDED THAT AS THE FINANCIAL EXPENSES INCURRED BY THE ASSESSEE WERE COMPOSITE AND INDIVISIBLE, THEREFORE, THE A.O HAD CORRECTLY INVOKED THE PROVISIONS OF S ECTION 14A(2) R.W. RULE 8D (2) (II) AND DISALLOWED A PROPORTIONATE AMOUNT OF P A G E | 5 ITA NOS. 1141 & 2663/MUM/2016 AY: 2011 - 12 KRISHIRAJ TRADING LTD. VS. DCIT RS.44,63,736/ - IN RESPECT OF THE INTEREST EXPENSES INCURRED ON EARNING OF THE EXEMPT INCOME . TH E CIT(A) FURTHER OBSERVED THAT AS THE DEMAT CHARGES OF RS.93,692/ - WERE CLEARLY IN RES PECT OF EARNING OF EXEMPT DIVIDEND INCOME BY THE ASSESSEE, THEREFORE, THE SAME WERE RIGHTLY DISALLOW ED BY THE A.O UNDER SEC.14A(2) R.W. RULE 8D(I) . 5. THAT AS REGARDS THE DISALLOWANCE UNDER SEC. 14A(2) R.W. RULE 8D(2)(III) OF RS.3,75,07,020/ - THE CIT(A) OB SERVED THAT IT WAS SUBMITTED BY THE ASSESSEE THAT THE ADMINISTRATIVE EXPENSES OF RS.13,53,850/ - INCURRED WERE NOT RELATED TO EARNING OF EXEMPT INCOME. THE CIT(A) IN THE BACKDROP OF THE AFORESAID FACTS DIRECTED THE A.O TO VERIFY THE AUTHENTICITY OF THE CLAI M OF THE ASSESSEE AND VERIFY AS TO WHETHER THE AFORESAID ADMINISTRATIVE EXPENSES WERE WHOLLY AND EXCLUSIVELY INCURRED BY THE ASSESSEE FOR ITS BUSINESS OF TRADING IN FABRIC, OR NOT. THE CIT(A) FURTHER OBSERVED THAT IN CASE IF THE AFORESAID EXPENSES W ERE FOUND TO BE INDIVISIBLE , I.E INCURRED FOR EARNING BOTH THE TAXABLE AND NON - TAXABLE INCOME, THEN ONLY PROPORTIONATE AMOUNT OF THE RELATED EXPENSES WERE TO BE DISALLOWED . TH E CIT(A) FURTHER OBSERVED THAT THE DISALLOWANCE UNDER SEC. 14A(2) R.W RULE 8D(2)(III ) MADE BY THE A.O WAS HIGHLY PITCHED AT RS.3,75,07,020/ - . THE CIT(A) AFTER DELIBERATING OVER THE CONTENTIONS OF THE ASSESSEE, DIRECTED THE A.O TO VERIFY THE VERACITY OF THE CLAIM OF THE ASSESSEE THAT NO ADMINISTRATIVE EXPENSES WERE INCURRED FOR EARNING OF EXEMPT DIVIDEND INCOME AND READJUDICATE THE ISSUE PERTAINING TO THE DISALLOWANCE OF RS. 3,75,07,020/ - AFTER MAKING NECESSARY VERIFICATIONS . 6. THE ASSESSEE BEING AGGRIEVED WITH THE ORDER OF THE CIT(A) HAD CARRIED THE MATTER IN APPEAL BEFORE US. THE LD. AUT HORIZED R EPRESENTATIVE (FOR SHORT A.R) AT THE VERY OUTSET SUBMITTED THAT THE CIT(A ) HAD ERRED IN SUSTAINING THE ADDITION OF RS.44,63,736/ - TOWARDS PROPORTIONATE FINANCE CHARGES . IT WAS FURTHER AVERRED BY THE LD. A.R P A G E | 6 ITA NOS. 1141 & 2663/MUM/2016 AY: 2011 - 12 KRISHIRAJ TRADING LTD. VS. DCIT THAT THE CIT(A) HAD ALSO ERRED IN DISA LLOWING THE DEMAT CHARGES AT RS.93,692/ - BY FAILING TO APPRECIATE THAT THE SAME WERE NOT INCURRED IN RELATION TO EARNING OF THE DIVIDEND INCOME WHICH DID NOT FORM PART OF THE TOTAL INCOME OF THE ASSESSEE. THE LD. A.R SUBMITTED THAT THE ISSUE INVOLVED WAS S QUARELY COVERED BY THE EARLIER ORDER OF THE COORDINATE BENCH OF THE TRIBUNAL, VIZ. ITAT A BENCH, MUMBAI IN THE ASSESSES OWN CASE FOR A . Y 2009 - 10, VIZ. M/S KRISHIRAJ TRADING LTD, VS. ACIT - 692) (ITA NO. 4014/MUM/2013, DATED 02.03.2016). IT WAS SUBMITTED B Y THE LD. A.R THAT AS IN THE AFORESAID CASE ALSO THE LOWER AUTHORITIES HAD MECHANICALLY APPLIED THE PROVISIONS OF RULE 8D, THEREFORE, THE TRIBUNAL IN ALL FAIRNESS HAD RESTORED THE MATTER TO THE FILE OF THE A.O FOR FRESH ADJUDICA TION . IT WAS SUBMITTED BY TH E LD. A.R THAT AS THE FACTS AND THE ISSUE INVOLVED IN THE PRESENT CASE WERE THE SAME AS WERE INVOLVED IN THE CASE OF THE ASSESSEE FOR A . Y 2009 - 10, THEREFORE, THE MATTER MAY BE RESTORED TO THE FILE OF THE A.O WITH A DIRECTION TO RE - ADJUDICATE THE SAME. PER CONTRA, THE LD. D.R RELIED ON THE ORDER S OF THE LOWER AUTHORITIES. 7. WE HAVE HEARD THE LD. A UTHORIZED R EPRESENTATIVES FOR BOTH THE PARTIES, PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON RECORD. WE HAVE PERUSED THE ORDER PASSED BY THE COORDINATE BENCH OF THE TRIBUNAL, VIZ. ITAT A BENCH, MUMBAI IN THE ASSESSES OWN CASE FOR A.Y 2009 - 10, VIZ. M/S KRISHIRAJ TRADING LTD, VS. ACIT - 6 ( 2) (ITA NO. 4014/MUM/2013, DATED 02.03.2016) AND ARE UNABLE TO PERSUADE OURSELVES TO BE IN AGREEMENT WITH THE CLAIM OF THE LD. A.R THAT THE ISSUE S INVOLVED IN THE PRESENT APPEAL ARE SQUARELY COVERED BY THE AFORESAID ORDER OF THE TRIBUNAL. WE FIND THAT IN THE AFORESAID CASE THE INDULGENCE OF THE TRIBUNAL WAS SOUGHT TO ADJUDICATE THE VALIDITY OF THE MECHANI CAL DISALLOWANCE MADE BY THE A.O UNDER SEC. 14A(2) R.W RULE 8D(2)(III) OF RS. 3.12 CRORES, LOOSING SIGHT OF THE P A G E | 7 ITA NOS. 1141 & 2663/MUM/2016 AY: 2011 - 12 KRISHIRAJ TRADING LTD. VS. DCIT TOTAL EXPENSES OF RS. 4.14 LAKHS INCURRED BY THE ASSESSEE. THE TRIBUNAL WHILE DISPOSING OF THE AFORESAID APPEAL OF THE ASSESSEE HAD OBSERVED AS UNDER: WE FIND THAT THE AO MADE A DISALLOWANCE OF RS.3.12 CRORES AS AGAINST THE TOTAL EXPENSES OF RS.4. 1 4 LAKHS INCURRED BY THE ASSESSEE, THAT THE AO HAD NOT GIVEN ANY REASON OR BASIS FOR DISALLOWING THE SAID AMOUNT, THAT THE AO AND THE FAA HAD MECHANICALLY APPLIED PROVISIONS OF RULE 8D.DISALLOWANCE U/ S.14A COULD HE MADE IF THE ASSESSEE CLAIMED SOME EXPENDITURE AGAINST THE EXEMPT INCOME. THE REASON BEHIND THE SECTION 14A AND RULE 8D IS TO D ENY DOUBLE BENEFIT TO THE ASSESSEE I.E. CLAIMING EXEMPTION O N ONE HAND AND CLAIMING EXPENDITURE ON THE OTHER. BUT IT WAS NEVER INTENDED BY THE LEGISLATURE THAT DISALLOWANCE SHOULD BE MADE IN A ROUTINE MANNER WITHOUT CONSIDERING THE BASIC FACT I.E. AMOUNT O F EXPENDITURE INCURRED B Y THE ASSESSEE. THE ASSESSEE HAD ADVANCED CERTAIN ARGUMENTS THAT ARE L ISTED AT PARA 4.2 AT PG NO.3 OF THE ORDER OF THE FAA. WE FIND THAT THE FAA HAS NOT DEALT WITH THE SUBMISSIONS MADE BY THE ASSESSEE. IN THESE CIRCUMSTANCES, WE ARE OF THE OPINION THAT THE MATTER NEEDS FURTHER VERIFICATION AND INVESTIGATION. THEREFORE, IN THE INTERE ST OF JUSTICE WE ARE RENDERING B ACK THE ISSUE TO THE FILE OF AO FOR FRESH ADJUDICATION WHO WOULD DECIDE THE ISSUE AFTER CONSIDERI NG THE LATEST JUDICIAL PRONOUNCEMENT OF - THE HONBLE JURISDICTIONAL H IG H COURT AND THE HON'BLE DELHI HIGH COURT. FIRST EFFECTIVE GROUND IS DECIDED IN FAVOUR OF THE ASSESSEE, IN PART. WE FIND THAT THE ISSUE AS REGARDS THE DISALLOWANCE UNDER SEC. 14A, RULE 8D(2)(I) AND 8D(2)(II) , AS IS THERE BEFORE US IN THE PRESENT CASE, WAS NOT THERE BEFORE THE TRIBUNAL. WE FIND THAT IN THE CASE BEFORE US, THE ISSUE AS REGARDS T HE MECHANICAL DISALLOWANCE OF RS. 3,75,07,020/ - MADE BY THE A.O UNDER SEC. 14A R.W RULE 8D(2)(III) AS AGAINST THE ADMINISTRATIVE EXPENSES OF RS.13,53,850/ - INCURRED BY THE ASSESSEE TOWARDS ADMINISTRATIVE EXPENSES HAD ALREADY BEEN RESTORED BY THE CIT(A) TO THE FILE OF THE A.O FOR READJUDICATING THE SAME IN THE BACKDROP OF HIS SPECIFIC DIRECTIONS. WE THUS ARE OF THE CONSIDERED VIEW THAT THE OBSERVATIONS RECORDED BY THE TRIBUNAL WHILE DISPOSING OF THE APPEAL OF THE ASSESSEE FOR A.Y 2009 - 10 IN ITA NO. 4014/MUM/2013, DATED 02.03.2016 , AS RELIED UPON BY THE LD. A.R, WOULD NOT BE OF ANY ASSIST ANCE FOR ADJUDICATING THE ISSUE AS REGARDS THE VALIDITY OF P A G E | 8 ITA NOS. 1141 & 2663/MUM/2016 AY: 2011 - 12 KRISHIRAJ TRADING LTD. VS. DCIT DISALLOWANCE MADE UNDER SEC. 14A R.W RULE 8D(2)(I) AND 8D(2)(II) IN THE CASE BEFORE US. 8. W E NOW IN THE BACKDROP OF THE FACTS EMERGING FROM THE RECORD, ADVERT TO THE VALIDITY OF THE DISALLOWANCE OF RS. 44,63,736/ - MADE BY THE A.O UNDER SEC. 14A R.W RULE 8D(II). WE FIND THAT THE A.O IN THE PRESENT CASE HAD DISALLOW ED THE INTEREST EXPENDITURE UNDER SEC. 14A(2) R.W RULE 8D(2)(II) , BY MERELY REFERRING TO THE FACT THAT THE INVESTMENT TOWARDS THE EXEMPT INCOME YIELDING INVESTMENTS IN SHARE S WAS MADE FROM THE MIXED FUNDS OF THE ASSESSEE . WE ARE OF THE CONSIDERED VIEW THAT KEEPING IN VIEW THE JUDGMENT OF THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF COMMISSIONER OF INCOME - TAX VS. HDFC BANK LTD . (2014) 3 66 ITR 505 (BOM) , THE A.O PRIOR TO ARRIVING AT THE AFORESAID CONCLUSION , OUGHT TO HAVE VERIFIED THE AVAILABILITY OF THE OWNED FUNDS WITH THE ASSESSEE. WE THUS RESTORE THE ISSUE PERTAINING TO DISALLOWANCE MADE BY THE A.O UNDER SEC. 14A(2) R.W RULE 8D(2)(II) TO THE FILE OF THE A.O FOR FRESH ADJUDICATION . THE A.O IS DIRECTED TO READJUDICATE THE ISSUE AS REGARDS THE DISALLOWANCE UNDER SEC. 14A R.W RULE 8D(2)(II) KEEPING IN VIEW THE JUDGMENT OF THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF HDFC BANK LTD. (SUPR A). THE GROUND OF APPEAL NO. 1(II)(B) & (C) ARE ALLOWED FOR STATISTICAL PURPOSES . 9. WE NOW TAKE UP THE CLAIM OF THE ASSESSEE THAT THE CIT(A) HAD ERRED IN SUSTAINING THE DISALLOWANCE MADE BY THE A.O UNDER SEC. 14A R.W RULE 8D(2)(I) IN RESPECT OF THE DEMAT CHARGES OF RS.93,692/ - . WE FIND THAT THOUGH THE ASSESSEE HAD ASSAILED BEFORE US THE VALIDITY OF THE DISALLOWANCE OF THE DEMAT CHARGES OF RS. 93,692/ - MADE BY THE A.O, BUT HOWEVER, A PERUSAL OF THE ORDER OF THE CIT(A) REVEALS THAT THE ASSESSEE ON THE CONTRA RY HAD AGREED BEFORE HIM THAT THE SAME WERE P A G E | 9 ITA NOS. 1141 & 2663/MUM/2016 AY: 2011 - 12 KRISHIRAJ TRADING LTD. VS. DCIT THE DIRECT EXPENSES INCURRED IN RELATION TO ITS EXEMPT INCOME. WE THUS ARE OF THE CONSIDERED VIEW THAT IN THE BACKDROP OF THE AFORESAID CONCESSION OF THE ASSESSEE, THE GRIEVANCE OF THE ASSESSEE AS REGARDS THE SUS TAINING OF THE DISALLOWANCE BY THE CIT(A) DOES NOT SURVIVE. BEFORE PARTING, W E MAY HEREIN OBSERVE THAT NOTHING HAD BEEN AVERRED BEFORE US WHICH COULD PERSUADE US TO CONCLUDE THAT THE OBSERVATIONS OF THE CIT(A) AS REGARDS THE CONCESSION MADE BY THE ASSESSEE BEFORE HIM WERE PERVERSE. BE THAT AS IT MAY, IN THE BACKDROP OF THE AFORESAID STATE OF FACTS WE ARE UNABLE TO PERSUADE OURSELVES TO ACCEPT THE AFORESAID CONTENTION OF THE ASSESSEE. WE THUS UPHOLD THE ORDER OF THE CIT(A) TO THE EXTENT HE HAD SUSTAINED THE DISALLOWANCE OF THE DEMAT CHARGES OF RS. 93,692/ - UNDER SEC. 14A(2) R.W RULE 8D(2)(I). THE GROUND OF APPEAL NO. 1(II)(A) IS DISMISSED. 8. THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO 2663/MUM/2016 AY:2011 - 12 9. WE SHALL NOW TAKE UP THE APPEAL OF THE DEPARTMENT. THE DEPARTMENT ASSAILING THE ORDER OF THE CIT(A) HAD RAISED BEFORE US THE F OLLOWING GROUNDS OF APPEAL: - 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS EXCEEDED HER JURISDICTION IN RESTORING THE MATTER OF DISALLOWANCE U/S 14A(2) R. W.R.8D(2)(II) OF RS.3,75,07,020/ - BY GIVING DIRECTION TO THE A.O. TO VERIFY ITS EXPENSES AND FIND OUT IF IT IS WHOLLY AND EXCLUSIVELY FOR THE BUSINESS OF TRADING IN THE FABRIC AND IF THE NATURE OF EXPENSES IS INDIVISIBLE I.E. WHETHER IT IS FOR EARNING BOTH THE INCOMES, VIZ TAXABLE AND NON TAXABLE AND THUS ERRED IN NOT CONSIDERING THE FACT THAT THE DISALLOWANCE WAS MADE BY THE AO, AS PER THE RULE PRESCRIBED IN 8D. 2. THE APPELLANT CRAV ES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. P A G E | 10 ITA NOS. 1141 & 2663/MUM/2016 AY: 2011 - 12 KRISHIRAJ TRADING LTD. VS. DCIT 10. WE FIND THAT THE REVENUE HAD ASSAILED BEFORE US THE ORDER OF THE CIT(A) ON THE GROUND THAT HE HAD ERRED IN RESTORING THE DISALLOWANCE OF RS. 3 ,75,07,020/ - MADE UNDER SEC . 14A(2) R.W. RULE 8D(2)(I I I) TO THE FILE OF THE A.O FOR FRESH ADJUDICATION . WE FIND THAT THE ASSESSEE HAD AVERRED BEFORE THE CIT(A) THAT THE ADMINISTRATIVE EXPENSES OF RS.13,53,850/ - (EXCLUDING DEMAT CHARGES OF RS. 93,692/ - ) WERE NOT INCURRED FOR EARNING OF EXEMPT INCOME . WE FIND THAT THE CIT(A) TAKING COGNIZANCE OF THE AFORESAID CLAIM OF THE ASSESSEE AND FURTHER OBSERVING THAT THE DISALLOWANCE OF RS. 3,75,07,020/ - MADE BY THE A.O UNDER SEC. 14 A (2) R.W. RULE 8D(2)(III) WAS HIGHLY PITCHED, HAD THUS RESTORED THE MATTER TO THE FILE OF THE A.O FOR MAKING NECESSARY VERIFICATIONS . WE FIND THAT THE CIT(A) WHILE RESTORING THE MATTER TO THE FILE OF THE A.O HAD DIRECTED HIM TO VERIFY THE VERACITY OF THE CLAIM OF THE ASSESSEE THAT EXPENSES TO THE EXTENT OF RS.13,53,850/ - WERE NOT RELATED TO EARNING OF EXEMPT INCOME AND WERE INCURRED WHOLLY AND EXCLUSIVELY FOR ITS BUSINESS OF TRADING IN FABRIC . WE FURTHER FIND THAT THE CIT(A) HAD DIRECTED THE A.O THAT IN CASE THE EXPENSES WERE FOUND TO HAVE BEEN INCURRED BY T HE ASSESSEE FOR EARNING OF BOTH THE TAXABLE AND EXEMPT INCOME AND THE NATURE OF EXPENSES IS INDIVISIBLE, THEN ONLY PROPORTIONATE AMOUNT OF THE RELATED EXPENSES WERE TO BE DISALLOWED. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE AFORESAID OBSERVATIONS OF THE CIT(A) . WE ARE OF THE CONSIDERED VIEW THAT THE CIT(A) KEEPING IN VIEW THE CLAIM OF THE ASSESSEE THAT THE ADMINISTRATIVE EXPENSES TO THE EXTENT OF RS. 13,53,850/ - WERE NOT INCURRED IN RELATION TO EARNING OF EXEMPT INCOME, AND NO EXPENSE WAS INCURRED FO R EARNING OF THE EXEMPT INCOME, HAD THUS RIGHTLY DIRECTED THE A.O TO MAKE NECESSARY VERIFICATIONS AS REGARDS THE SAID CLAIM OF THE ASSESSEE AND READJUDICATE THE DISALLOWANCE UNDER SEC. 14A R.W RULE 8D(2)(III) . WE ARE OF THE CONSIDERED VIEW THAT NO INFIRMIT Y EMERGES FROM THE AFORESAID P A G E | 11 ITA NOS. 1141 & 2663/MUM/2016 AY: 2011 - 12 KRISHIRAJ TRADING LTD. VS. DCIT OBSERVATIONS OF THE CIT(A). WE THUS FINDING NO REASON TO DIS LODGE THE VIEW ARRIVED AT BY THE CIT (A), THEREFORE, UPHOLD THE SAME. 11. THE APPE AL OF THE REVENUE IS DISMISSED. 12. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED FOR STATISTICAL PURPOSES AND THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 17 .01.2018 SD/ - SD/ - ( RAJENDRA ) ( RAVISH SOOD ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; 17 .01.2018 PS. ROHIT KUMAR / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI P A G E | 12 ITA NOS. 1141 & 2663/MUM/2016 AY: 2011 - 12 KRISHIRAJ TRADING LTD. VS. DCIT