ACIT CEN CIR 3(3) CEN RG 3, MUMBAI V. PASSIONATE INVESTMENT MANAGEMENT P. LTD, MUMBAI

ITA 1950/MUM/2017

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 9108 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-12-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 20-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S ABI RAMA KARTHIKEYANDR
• Keywords: Earning of tax free income; Rule 8D
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C MUMBAI BEFORE SHRI MAHAVIR SINGH (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 1950/MUM/2017 ASSESSMENT YEAR: 2012 - 13 DCIT - CENTRAL CIRCLE - 3(3) ROOM NO.1923,AIR INDIA BUILDING, 19 TH FLOOR, NARIMAN POINT, MUMBAI. VS. M/S. PASSIONATE INVESTMENT MANAGEMENT PVT.LTD., 2 ND FLOOR, PALM SPRING CENTRE, NEW LINK ROAD, MALAD (W), MUMBAI - 400 064. PAN NO. AAACM 7085 N APPELLANT RESPONDENT ASSESSEE BY : MR. MALAV SHETH, AR REVENUE BY : MR. S.ABI RAMA KARTHIKEYAN,DR DATE OF HEARING : 07/12/2018 DATE OF PRONOUNCEMENT: 13 /12/2018 ORDER PER N.K. PRADHAN, AM THIS IS AN APPEAL FILED BY THE REVENUE. THE RELEVANT ASSESSMENT YEAR IS 2012 - 13. THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) - 51, MUMBAI [IN SHORT CIT(A)] AND ARISES OUT OF THE ASSESSMENT ORDER U/S 143(3) OF THE INCOME TAX AC T 1961, (THE ACT). 2. THE GROUNDS OF APPEAL READ AS UNDER: - 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS.1,17,94,690/ - MADE U/S. 14A READ WITH RULE 8D OF IT ACT IN CONTRAVENTION TO THE PROVISIONS OF THE ACT. M/S PASSIONATE INVESTMENT ITA NO. 1950/MUM/2017 2 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT SINCE THE ADDITION U/S. 14A ITSELF HAS BEEN DELETED, NO ADJUSTMENT CAN BE MADE IN THE BOOK PROFIT U/S. 14A. 3. BRIEFLY STATED, FACTS OF THE CASE ARE THAT ASSESSEE IS A NON BANKING FINANCIAL INTERMEDIARY ENGAGED IN THE BUSINESS OF FINANCING. IT FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR (AY) 2012 - 13 ON 21/09/2012 DECLARING TOTAL INCOME OF RS.45,10,060/ - . DURING THE COURSE OF ASSE SSMENT PROCEEDINGS, THE ASSESSING OFFICER (AO) NOTICED THAT THE ASSESSEE HAS EARNED LONG TERM CAPITAL GAINS (LTCG) OF RS. 21,67,26,754/ - AND DIVIDEND INCOME OF RS.21,80,51,877/ - . IN RESPONSE TO THE QUERY RAISED BY THE AO, THE ASSESSEE SUBMITTED THAT SINCE NO EXPENSES WERE CLAIMED IN THE RETURN OF INCOME, THE QUESTION OF DISALLOWANCE U/S.14A DOES NOT ARISE. FURTHER, THE ASSESSEE ALSO CLAIMED THE DISALLOWANCE U/S. 14A CANNOT EXCEED THE EXPENSES INCURRED. HOWEVER, THE AO WAS NOT CONVINCED WITH THE ABOVE EXPLAN ATION OF THE ASSESSEE IN VIEW OF THE FACT THAT THE ASSESSEE WAS MAINTAINING CONSOLIDATED ACCOUNTS PRECLUDING THE POSSIBILITY OF ESTABLISHING ONE - TO - ONE NEXUS BETWEEN EXPENSES AND EXEMPT INCOME YIELDING INVESTMENTS. THE AO FURTHER NOTED THAT THE ASSESSEE HA S NOT MAINTAINED SEPARATE ACCOUNTS FOR EXEMPT INCOME YIELDING INVESTMENTS AND FOR BUSINESS ACTIVITIES. THEREFORE, THE AO WORKED OUT THE DISALLOWANCE U/S 14A R.W. RULE 8D AND MADE A DISALLOWANCE OF RS.1,17,94,690/ - . 4. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) FOUND THAT THE ENTIRE EXPENDITURE OF RS.92,69,724/ - HAS BEEN DISALLOWED BY THE ASSESSEE IN THE COMPUTATION OF INCOME AND THEREFORE, NO EXPENDITURE AS SUCH HAS BEEN CLAIMED WHILE FILING THE RETU RN OF INCOME. IN VIEW OF THE ABOVE FACTS, M/S PASSIONATE INVESTMENT ITA NO. 1950/MUM/2017 3 THE LD. CIT(A) DIRECTED THE AO TO DELETE THE DISALLOWANCE OF RS.1,17,94,690/ - MADE BY HIM U/S 14A R.W. RULE 8D. 5. BEFORE US, THE LD. DR RELIES ON THE ORDER OF THE AO. ON THE OTHER HAND, THE LD. COUNSEL OF THE ASS ESSEE RELIES ON (I) THE ORDER OF THE BOMBAY HIGH COURT IN ASSESSEES OWN CASE FOR AY 2007 - 08 AND 2008 - 09 IN ITA NO. 2345 & 2367 OF 2013 DATED 27.06.2016, (II) THE ORDER OF THE ITAT, MUMBAI IN ASSESSEES OWN CASE FOR AY 2007 - 08 AND 2008 - 09 IN ITA NO. 6603/M UM/2010 & 5838/MUM/2011 DATED 26.05.2013, (III) THE ORDER OF THE BOMBAY HIGH COURT IN ASSESSEES OWN CASE FOR AY 2009 - 10 IN ITA NO. 221 OF 2015 DATED 10.07.2017, (IV) ORDER OF THE ITAT MUMBAI IN ASSESSEES OWN CASE FOR AY 2009 - 10 IN ITA NO. 4578/MUM/2012 D ATED 25.06.2014, (V) ORDER OF THE ITAT MUMBAI IN ASSESSEES OWN CASE FOR AY 2010 - 11 IN ITA NO. 6252/MUM/2013 DATED 28.08.2015 AND (VI) ORDER OF THE ITAT IN ASSESSEES OWN CASE FOR AY 2011 - 12 IN ITA NO. 379/MUM/2015 DATED 07.09.2016. 6. WE HAVE HEARD THE RI VAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. FACTS BEING SIMILAR, WE MAY REFER HERE TO THE ORDER OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR 2009 - 10 AND THE SUBSEQUENT JUDGMENT BY THE HONBLE BOMBAY HIGH COURT. IN AY 2009 - 10, THE ASSESSEE HAD EARNED LTCG OF RS.4,49,38,696/ - AND DIVIDEND INCOME OF RS.8,04,32,399/ - , WHICH WAS CLAIMED AS EXEMPT. THE AO MADE A DISALLOWANCE OF RS.87,16,813/ - AFTER COMPUTING THE ADMINISTRATIVE EXPENDITURE @ 0.5% OF AVERAGE INVESTMENT. IN APPEAL THE LD. CIT(A) HELD THAT THE AO SHOULD DISALLOW THE ADMINISTRATIVE EXPENDITURE AS PER RULE 8D (2)(III), HOWEVER, THE M/S PASSIONATE INVESTMENT ITA NO. 1950/MUM/2017 4 DISALLOWANCE SHOULD NOT EXCEED THE TOTAL ADMINISTRATIVE EXPENDITURE INCURRED. IN FURTHER APPEAL, THE TRIBUNAL VIDE ORDER DATED 2 5.06.2014 IN ITA NO. 4578/MUM/2012 FOR AY 2009 - 10 HELD : 12. AFTER HEARING BOTH THE PARTIES AND CONSIDERING THE ORDER OF THE LEARNED COMMISSIONER (APPEALS), WE FIND NO INFIRMITY IN THE ORDER PASSED BY THE LEARNED COMMISSIONER (APPEALS) AS THE DISALLOWANC E UNDER SECTION 14A, CANNOT EXCEED THE TOTAL ADMINISTRATIVE EXPENDITURE DEBITED BY THE ASSESSEE IN THE PROFIT & LOSS ACCOUNT. EVEN UNDER THE FORMULA GIVEN IN RULE 8D, THE DISALLOWANCE CANNOT EXCEED THE OVERALL EXPENDITURE CLAIMED IN THE PROFIT & LOSS ACCOU NT. THUS, WE DO NOT FIND ANY MERIT IN THE GROUND RAISED BY THE REVENUE AND THE SAME STANDS DISMISSED. IN FURTHER APPEAL, THE HONBLE BOMBAY HIGH COURT VIDE ORDER DATED 10.07.2017 IN ITA NO. 221 OF 2015 DISMISSED THE APPEAL BY THE REVENUE. 6.1 FACTS BEING IDENTICAL, WE FOLLOW THE DECISIONS IN ASSESSEES OWN CASE MENTIONED AT PARA 6 HEREINBEFORE AND UPHOLD THE ORDER OF THE LD. CIT(A). 7. IN THE RESULT, THE APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 13 /12/2018. SD/ - SD/ - ( MAHAVIR SINGH ) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: DATED: 13 /12/2018 RAHUL SHARMA, SR. P.S. M/S PASSIONATE INVESTMENT ITA NO. 1950/MUM/2017 5 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// (SR. PRIVATE SECRETARY) ITAT, MUMBAI