DCIT, CIRCLE-2(1)(1), MUMBAI V. M/S. CENTRUM CAPITAL LTD., MUMBAI

ITA 1764/MUM/2020

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 3331 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-09-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2016-2017
• Appeal Filed On: 18-08-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: RAVIKIRAN PATHAK
• Keywords: Business income; Earning of tax free income; Rule 8D
• Section: 14A; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C , MUMBAI BEFORE SHRI SAKTIJIT DEY , JUDICIAL MEMBER AND SHRI RAJESH KUMAR , ACCOUNTANT MEMBER ITA NO. 1764 /MUM/2020 ASSESSMENT Y EAR: 2016 - 17 DY. COMMISSIONER OF INCOME TAX, CIRC LE - 2(1)(1), ROOM NO. 561, 5 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020 VS. CENTRUM CAPITAL LIMITED, 2 ND FLOOR, BOMBAY MUTUAL BUILDING, DR. D N ROAD, FORT, MUMBAI - 400001 PAN: AAACC5099G (APPELLANT) (RESPONDENT) CO NO. 115/MUM/2020 (ARI SING OUT OF ITA NO. 1764/MUM/2020) ASSESSMENT Y EAR: 2016 - 17 CENTRUM CAPITAL LIMITED, 2 ND FLOOR, BOMBAY MUTUAL BUILDING, DR. D N ROAD, FORT, MUMBAI - 400001 PAN: AAACC5099G VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE - 2(1)(1), ROOM NO. 561, 5 TH FLOOR, A AYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020 (APPELLANT) (RESPONDENT) REVENUE BY : SHRI R.K. SAHU (CIT D R) ASSESSEE BY : SHRI RAVIKIRAN PATHAK (A R) DATE OF HEARING : 14/09 /202 1 DATE OF PRONOUNCEMENT: 29 / 0 9 /202 1 O R D E R PER SAKTIJIT DEY , JM CAPTIONED APPEAL BY TH E REVENUE AND CROSS OBJECTION BY THE ASSESSEE ARISE OUT OF ORDER DATED 07.02.2020 OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - 4, MUMBAI FOR THE ASSESSMENT YE AR 2016 - 17. 2. GROUNDS RAISED BY THE REVENUE ARE SET OUT AS UNDER: - 2 ITA NO. 1764 / MUM/2020 & CO NO. 115/MUM/2020 ASSESSMENT YEAR: 20 16 - 1 7 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE DISALLOWANCE U/S 14A R.W.R. 8D SHOULD NOT EXCEED THE EXEMPT INCOME WITHOUT APPRE CIATING THE BOARDS CIRCULAR NO. 5 OF 2014 DATED 11.02.2014, WHEREIN IT WAS CLARIFIED THAT DISALLOWANCE U/S 14A IS APPLICABLE EVEN IF THERE IS NO EXEMPT INCOME. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN REL YING ON THE DECISION OF HONBLE ITAT IN THE CASE OF FUTURE CORPORATE RESOURCES LTD. (IN ITA NO. 4658(MUM) 2015 DATED 26.12.2017 WITHOUT APPRECIATING THE FACT THAT INVESTMENTS HELD IN STOCK - IN - TRADE AND THE INCOME EARNED BY WAY OF DIVIDEND, WHICH IS EXEMPT FROM TAX U/S 10(34) OF THE ACT AND THE APPLICABILITY OF SECTION 14A FOR APPROPRIATION OF EXPENSES BETWEEN TAXABLE AND NON - TAXABLE INCOMES AND THEREBY RESTRICTING THE DISALLOWANCE TO DIVIDEND INCOME. 3. WHEREAS, CROSS OBJECTION OF THE ASSESSEE READ S AS UNDER: - 1. HONBLE COMMISSIONER OF INCOME TAX (APPEAL) - 4, MUMBAI [HEREINAFTER REFERRED AS CIT(A) OUGHT TO HAVE RESTRICTED THE DISALLOWANCE U/S 14A OF THE ACT AT RS. 44,250/ - BEING EXEMPT INCOME EARNED BY THE ASSESSEE AS AGAINST 22,82,187/ - . 4. AS COULD BE SEEN FROM THE GROUNDS RAISED BOTH BY THE REVENUE AS WELL AS ASSESSEE, THE ISSUE IS COMMON AND RELATES TO DISALLOWANCE MADE UNDER SECTION 14A OF THE INCOME TAX ACT, 1961 R.W.R. 8D. OF COURSE, VIDE LETTER DATED 13.09.2021, THE ASSESSEE HAS RAISED TH E FOLLOWING ADDITIONAL GROUNDS TO THE CROSS OBJECTION: 1. THE COMMISSIONER OF INCOME TAX (APPEAL) - 4, MUMBAI [HEREINAFTER REFERRED AS CIT(A)] OUGHT TO HAVE RESTRICTED THE DISALLOWANCE U/S 14A OF THE ACT AT RS. 54,625/ - CONSIDERING ONLY THOSE INVESTMENTS ON WHICH ASSESSEE HAS ACTUALLY EARNED THE EXEMPT INCOME AS AGAINST DISALLOWANCE OF RS. 5,04,585/ - CONFIRMED BY THE CIT(A). 2. IN THE ALTERNATIVE AND WITHOUT PREJUDICE TO THE ABOVE, THE CIT(A) OUGHT TO HAVE RESTRICTED THE DISALLOWANCE U/S 14A OF THE ACT AT R S. 3 ITA NO. 1764 / MUM/2020 & CO NO. 115/MUM/2020 ASSESSMENT YEAR: 20 16 - 1 7 1,74,750/ - BEING EXEMPT INCOME EARNED BY THE ASSESSEE AS AGAINST DISALLOWANCE OF RS. 5,04,585/ - CONFIRMED BY THE CIT(A). 3. THE CIT(A) OUGHT TO HAVE ALLOWED THE DEDUCTION OF EDUCATION CESS FROM BUSINESS INCOME OF THE ASSESSEE. SINCE, THE ADDITIONA L GROUNDS CAN BE DECIDED WITHOUT INVESTIGATING INTO FRESH FACTS, WE ADMIT THEM FOR ADJUDICATION. 5. MATERIAL FACTS RELEVANT FOR DEALING WITH ISSUE RELATING TO DISAL LOWANCE UNDER SECTION 14A OF THE ACT R.W.R. 8D ARE , THE ASSESSEE IS A RESIDENT COMPANY AND I S ENGAGED IN THE BUSINESS OF MERCHANT BANKING, FINANCIAL ADVISORY SERVICES, SYNDICATION OF FINANCE, ARRANGING CREDIT FACILITIES FROM BANKS AND FINANCIAL INSTITUTIONS AND TRADING IN PSU/SLU BONDS. IN THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD EARNED EXE MPT INCOME BY W AY OF DIVIDEND AMOUNTING TO RS.1,74,715/ - . SUO MOTU, THE ASSESSEE DISALLOWED AN AMOUNT OF RS. 5,04,585/ - UNDER SECTION 14A R.W.R. 8D , BEING EXPENDITURE ATTRIBUTABLE TO THE EXEMPT INCOME. THE ASSESSING OFFICER ( AO ) ON VERIFYING ASSESSEES COM PUTATION, HOWEVER , WAS OF THE VIEW THAT THE DISALLOWANCE MADE IS NOT IN ACCORDANCE WITH RULE 8D. ACCORDINGLY, HE PROCEEDED TO COMPUTE DISALLOWANCE UNDER RULE 8D AT RS. 1 0,23,42,493/ - . THE ASSESSEE HAVING ALREADY DISALLO WED AN AMOUNT OF RS. 5,04,585/ - , H E M ADE NET DISALLOWANCE OF RS. 10,18,37,908/ - . ASSESSEE CONTESTED THE AFORESAID DISALLOWANCE BEFORE LEARNED COMMISSIONER (APPEALS). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE IN THE CONTEXT OF FACTS AND MATERIAL ON RECORD AND IN THE LIGHT O F THE DECISI ON CITED BEFORE HIM, L EARNED COMMISSIONER (APPEALS) GRANTED SUBSTANTIAL RELIEF TO THE ASSESSEE BY RESTRICTING THE DISALL OWANCE TO THE EXTENT OF SUO MOTU DISALLOWANCE MADE B Y THE ASSESSE . 4 ITA NO. 1764 / MUM/2020 & CO NO. 115/MUM/2020 ASSESSMENT YEAR: 20 16 - 1 7 6. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED, LEARNED COMMISSIO NER (APPEALS) IS UN JUSTIFIED IN RESTRICTING THE DISALLOWANCE TO RS. 5,04,585/ - , BEING THE SUO MOTU DISA LLOWANCE MADE BY THE ASSESSEE. I NSTEAD OF RESTRICTING IT TO THE EXEMPT INCOME ACTUALLY EARNED BY THE ASSESSEE. FURTHER, HE SUBMITTED , WHILE DECIDING IDEN TICAL ISSU E IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2013 - 14 THE TRIBUNAL HAS RESTRICTED THE DISALLOWANCE TO THE EXEMPT INCOME EARNED DURING THE YEAR. 7 . THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE OBSERVATIONS OF THE AO. 8 . WE HAVE CONSIDER ED RIVAL SUBMISSIONS IN THE LIGHT OF THE DECISIONS RELIED UPON AND PERUSED THE MATERIAL ON RECORD. SHORT ISSUE ARISING FOR CONSIDERATION IS , WHETHER DISALLOWANCE UNDER SECTION 14A R.W.R. 8D CAN EXCEED THE EXEMPT INCOME DURING THE YEAR. APPLYING THE LEGAL P RINCIPLE SET OUT IN THE DECISION S CITED BEFORE US, IT HAS TO BE HELD THAT DISALLOWANCE UNDER SECTION 14A R.W.R. 8D CANNOT EXCEED THE QUANTUM OF EXEMPT INCOME EARNED IN A PARTI CULAR ASSESSMENT YEAR. IN FACT, IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2013 - 14 , THE TRIBUNAL IN ITA NO .497/MUM/2019 AND CO NO. 12/MUM/2020 DATED 05.10 .2020 HAS ALSO EXPRESSED IDENTICAL VIEW. THEREFORE, WE DIRECT THE AO TO RESTRICT THE DISALLOWANCE UNDER SECTION 14A R.W.R. 8D TO THE AMOUNT OF EXEMPT INCOME EARNED DURING THE YEAR UNDER CONSIDERATION. 9 . THERE IS ONE MORE SURVIVING ISSUE IN ASSESSEES CROSS OBJECTION RELATING TO CLAIM OF DEDUCTION OF EDUCATION CESS FROM THE BUSINESS INCOME. 10 . HAVING CONSIDERED RIVAL SUBMISSIONS, WE FIND THAT THE HONBLE JURISDICTIONAL HIGH COURT IN CA SE OF SESA GOA LIMITED VS. DCIT (423 ITR 426 5 ITA NO. 1764 / MUM/2020 & CO NO. 115/MUM/2020 ASSESSMENT YEAR: 20 16 - 1 7 BOM) HA S HELD THAT EDUCATION CESS IS AN ALLOWABLE DEDUCTION WHILE COMPUTING PROFIT AND GAINS OF BUSINESS AND PROFESSION. IN VIEW OF THE AFORESAID DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT, WE DIRECT THE AO TO ALLOW DEDUCTION OF EDUCATION CESS WHILE COMPUTING THE BUSINESS INCOME OF THE ASSESSEE. 11 . RESULTANTLY, REVENUE S APPEAL IS DISMISSED AND ASSESSEES CROSS OBJECTION IS ALLOWED AS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 29 T H SEPTEMBER , 2021 . SD/ - SD/ - ( RAJESH KUMAR ) ACCOUNTANT MEMBER (SAKTIJIT DEY) JUDICIAL MEMBER MUMBAI ; DATED: 29 / 09 /2021 ALINDRA, PS / 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 . / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI