PARESH B. SHAH, MUMBAI V. ASST CIT 4(2), MUMBAI

ITA 1269/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79064 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-06-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 11-02-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 10-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ABHA KALA
• Assessee Lawyers: KHURSHAD BALSARA
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL C B ENCH, MUMBAI . . , , !'# , $ % BEFORE SHRI I.P. BANSAL, JM AND SHRI N.K. BILLAI YA, AM ./ I.T.A. NO.1269/MUM/2011 ( & & & & / ASSESSMENT YEAR :2006-07 MR. PARESH B. SHAH, C/O KALYANIWALLA & MISTRY, ARMY & NAVY BLDG., 3 RD FLOOR, 148, M.G. ROAD, FORT, MUMBAI-400 001 / VS. THE ACIT 4(2), AAYAKAR BHAVAN, MUMBAI-400 020 ' $ ./ () ./ PAN/GIR NO. : AAGPS 6604N ( '* / APPELLANT ) .. ( +,'* / RESPONDENT ) '* - / APPELLANT BY: SHRI KHURSHAD BALSARA +,'* . - / RESPONDENT BY: SHRI ABHA KALA . /0$ / DATE OF HEARING : 03.06.2014 12& . /0$ / DATE OF PRONOUNCEMENT :03.06.2014 3 / O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL BY THE ASSESSEE IS PREFERRED AGAINST TH E ORDER OF THE LD. CIT(A)-8, MUMBAI DT.23.12.2010 PERTAINING TO A.Y. 2 006-07. 2. THE SUM AND SUBSTANCE OF THE GRIEVANCE OF THE AS SESSEE IS THAT THE LD. CIT(A) ERRED IN HOLDING THE DISALLOWANCE MADE U/S. 14A THEREBY ERRED IN NOT DELETING THE DISALLOWANCE OF RS. 2,23, 857/- MADE BY THE AO U/S. 14A OF THE ACT. ITA NO. 1269/M/2012 2 3. THE ASSESSEE IS A MEMBER OF BOMBAY STOCK EXCHANG E AND IS IN THE BUSINESS OF SHARE TRADING, FUTURES AND OPTIONS AND ARBITRAGE BUSINESS. DURING THE YEAR UNDER CONSIDERATION, WHILE SCRUTINI ZING THE RETURN OF INCOME, THE ASSESSING OFFICER NOTICED THAT THE ASSE SSEE HAS EARNED TAX FREE DIVIDEND INCOME OF RS. 20,100/- AND INTEREST O F RS. 24,57,435/-. THE AO FURTHER NOTICED THAT THE ASSESSEE HAS NOT ALLOCA TED ANY EXPENDITURE FOR EARNING THESE EXEMPT INCOMES. THE ASSESSEE CLAIMED THAT HE HAS NOT INCURRED ANY EXPENDITURE TO EARN THE EXEMPT INCOME. THE AO WAS OF THE OPINION THAT CERTAIN EXPENSES HAVE TO BE ALLOCATED FOR EARNING THE EXEMPT INCOME. APPLYING RULE 8D, THE AO COMPUTED THE DISA LLOWANCE AT RS. 2,23,857/-. 4. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER BEFOR E THE LD. CIT(A). THE LD. CIT(A) WAS CONVINCED THAT RULE 8D IS NOT AP PLICABLE FOR THE YEAR UNDER CONSIDERATION. HOWEVER, THE LD. CIT(A) WAS O F THE OPINION THAT CERTAIN AMOUNT OF EXPENDITURE HAVE TO BE ALLOCATED TOWARDS EARNING OF EXEMPT INCOME. HE DIRECTED THE AO TO MAKE THE DISA LLOWANCE AS PER THE FOLLOWING FORMULA: THE TOTAL EXPENDITURE DEBITED TO P&L A/C (DIRECT & INDIRECT) X VALUE OF TRANSACTION IN SHARE AND BONDS YIELDING E XEMPT INCOME VALUE OF TOTAL TRANSACTIONS IN SHARE AND BONDS 5. AGGRIEVED BY THIS, THE ASSESSEE IS BEFORE US. T HE LD. COUNSEL FOR THE ASSESSEE REITERATED THAT THE ASSESSEE HAS INCUR RED NO EXPENDITURE FOR EARNING THE EXEMPT INCOME. ITA NO. 1269/M/2012 3 6. THE LD. DEPARTMENTAL REPRESENTATIVE RELIED UPON THE FINDINGS OF THE LOWER AUTHORITIES. 7. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTH ORITIES BELOW. IT IS A SETTLED LAW THAT RULE 8D IS APPLICABLE FROM ASSES SMENT YEAR 2008-09 AS HELD BY THE HONBLE JURISDICTIONAL HIGH COURT IN TH E CASE OF GODREJ & BOYCE MFG. CO. LTD. VS DCIT 328 ITR 81. HOWEVER, THE HONBLE HIGH COURT HAS ALSO HELD THAT A REASONABLE DISALLOWANCE NEEDS TO BE MADE. WE, THEREFORE, RESTORE THIS ISSUE BACK TO THE FILE OF THE AO. THE AO IS DIRECTED TO MAKE A REASONABLE DISALLOWANCE WITHOUT APPLYING RULE 8D AFTER GIVING A REASONABLE OPPORTUNITY OF BEING HEAR D TO THE ASSESSEE. 8. BEFORE CLOSING, A PERUSAL OF THE ASSESSMENT ORDE R SHOWS THAT WHILE COMPUTING THE TOTAL INCOME, SOME ARITHMETICAL ERROR S HAVE CREPT. THE AO IS DIRECTED TO RECTIFY THOSE ARITHMETICAL ERRORS. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 3 RD JUNE, 2014 . 3 . 2& $ 4 56 03.06.2014 2 . 7 SD/- SD/- (I.P. BANSAL ) (N.K. BILLAIYA) /JUDICIAL MEMBER $ / ACCOUNTANT MEMBER MUMBAI; 5 DATED 03.06.2014 . . ./ RJ , SR. PS ITA NO. 1269/M/2012 4 3 3 3 3 . .. . +/ +/ +/ +/ 8 &/ 8 &/ 8 &/ 8 &/ / COPY OF THE ORDER FORWARDED TO : 1. '* / THE APPELLANT 2. +,'* / THE RESPONDENT. 3. 9 ( ) / THE CIT(A)- 4. 9 / CIT 5. :7 +/ , , / DR, ITAT, MUMBAI 6. 7; < / GUARD FILE. 3 3 3 3 / BY ORDER, , / +/ //TRUE COPY// = == = / > > > > ( ( ( ( (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI