TATA SECURITIES LTD, MUMBAI V. ASST CIT 4(2), MUMBAI

ITA 2164/MUM/2013

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0741 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-07-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 22-06-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 18-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIJAY KUMAR BORA
• Assessee Lawyers: ZAREER N MEHTA
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH E, MUMBAI BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER ITA NO.2164/M/2013 ASSESSMENT YEAR: 2009-10 M/S. TATA SECURITIES LTD., C/O. KALYANIWALLA & MISTSRY, ARMY & NAVY BUILDING, 3 RD FLOOR, 148, M.G. ROAD, FORT, MUMBAI 400 001. PAN: AAACT 2150R VS. ASST. COMMISSIONER OF INCOME- TAX-4(2), ROOM NO.642, 6 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020 (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI M.M. GOLVALA, A.R. & SHRI ZAREER N. MEHTA, A.R. REVENUE BY : SHRI VIJAY KUMAR BORA, D.R. DATE OF HEARING : 22.06.2015 DATE OF PRONOUNCEMENT : 10.07.2015 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSES SEE AGAINST THE ORDER DATED 29.01.2013 OF THE COMMISSIONER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO ASSESSMENT Y EAR 2009-10. 2. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL: 1. THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN PARTIALLY CONFIRMING DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D. 2. THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN COMPUTING DISALLOWANCE UNDER RULE 8D BY INCLUDING INVESTMENT IN A MUTUAL FUND, ITA NO.2164/M/2013 M/S. TATA SECURITIES LTD. 2 WHICH HAS BEEN PURCHASED AND SOLD DURING THE YEAR I TSELF. 3. THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN COMPUTING DISALLOWANCE UNDER RULE 8D BY INCLUDING AN INVESTME NT WHICH WAS NEITHER APPEARING IN THE BALANCE SHEET ON THE FIRST DAY OF THE PREVIOUS YEAR NOR ON THE LAST DAY OF THE PREVIOUS YEAR. 4. IN ANY EVENT, THE DISALLOWANCE U/S.14A READ WIT H RULE 8D IS HIGHLY EXCESSIVE AND ARBITRARY AND NEEDS TO BE REDUCED SUB STANTIALLY. 3. THE ASSESSEE THROUGH ITS GROUNDS OF APPEAL HAS AGIT ATED THE CONFIRMATION OF DISALLOWANCE OF RS.9,43,465/- UNDER SECTION 14A OF THE INCOME TAX ACT READ WITH RULE 8D (2)(III) OF THE INCOME TAX RULES, 1962 . THE ASSESSEE DURING THE YEAR RECEIVED CERTAIN DIVIDEND INCOME ON ITS INVEST MENTS. HOWEVER, THE ASSESSEE DID NOT DISALLOW ANY EXPENDITURE IN RELATION TO THE EARNING OF ABOVE TAX FREE DIVIDEND INCOME. WHEN ASKED TO EXPLAIN IN THIS RES PECT, THE ASSESSEE SUBMITTED WORKING OF THE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D OF THE INCOME TAX RULES. ACCORDING TO ASSESSEE, THE DISALLOWANCE UNDER RULE 8D WAS WORKED OUT TO RS.16/- ONLY. THE ASSESSEE SUBMITTED THAT I TS INVESTMENT IN TATA LIQUID SUPER HIGH INVESTMENT FUND WAS NON EXISTENT ON THE FIRST DAY AND LAST DAY OF THE PREVIOUS YEAR. THE ASSESSEE HAD MADE INVESTMENT IN THE SAID FUND DURING THE YEAR AND SOLD THE SAME BEFORE THE LAST DAY OF THE F INANCIAL YEAR. AS PER THE FORMULA PRESCRIBED UNDER RULE 8D (2)(III), THE AVER AGE VALUE OF INVESTMENT FOR COMPUTING THE EXPENDITURE ON ACCOUNT OF ADMINISTRAT IVE EXPENSES IN RELATION TO EXEMPT INCOME ARE TO BE TAKEN AT THE RATE OF 0.5% O F AVERAGE VALUE OF INVESTMENT. THE AVERAGE VALUE OF INVESTMENT AS APP EARING IN THE BALANCE SHEET ON THE FIRST DAY AND THE LAST DAY OF PREVIOUS YEAR IS TO BE TAKEN. THE RELEVANT PROVISIONS OF RULE 8D FOR THE SAKE OF CONVENIENCE A RE REPRODUCED AS UNDER: 8D. (1) WHERE THE ASSESSING OFFICER, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE OF A PREVIOUS YEAR, IS NOT SATISFIED W ITH (A) THE CORRECTNESS OF THE CLAIM O F EXPENDITURE MADE BY THE ITA NO.2164/M/2013 M/S. TATA SECURITIES LTD. 3 ASSESSEE; OR (B) THE CLAIM MADE BY THE ASSESSEE THAT NO EXPENDITURE HAS BEEN INCURRED, IN RELATION TO INCOME WHICH DOES NOT FORM PART OF T HE TOTAL INCOME UNDER THE ACT FOR SUCH PREVIOUS YEAR, HE SHALL DETE RMINE THE AMOUNT OF EXPENDITURE IN RELATION TO SUCH INCOME IN ACCORD ANCE WITH THE PROVISIONS OF SUB-RULE (2). (2) THE EXPENDITURE IN RELATION TO INCOME WHICH DOE S NOT FORM PART OF THE TOTAL INCOME SHALL BE THE AGGREGATE OF FOLLOWIN G AMOUNTS, NAMELY: (I) THE AMOUNT OF EXPEND ITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME; (II) IN A CASE WHERE THE ASSESSEE HAS INCURRED EXPENDITU RE BY WAY OF INTEREST DURING THE PREVIOUS YEAR WHICH IS N OT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT, A N AMOUNT COMPUTED IN ACCORDANCE WITH THE FOLLOWING FORMULA, NAMELY: A X B C WHERE A = AMOUNT OF EXPENDITURE BY WAY OF INTEREST OTHER THAN THE AMOUNT OF INTEREST INCLUDED IN CLAUSE (I) INCURRED DURING THE PREVIOUS YEAR ; B = THE AVERAGE OF VALUE OF INVESTMENT, INCOME FROM WHI CH 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 ; C = THE AVERAGE OF TOTAL ASSETS AS APPEARING IN THE BAL ANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR ; (III) AN AMOUNT EQUAL TO ONE- HALF PER CENT OF THE AVERAGE OF THE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOM E, AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR. (3) FOR THE PURPOSES OF THIS RULE, THE TOTAL ASSET S SHALL MEAN, TOTAL ASSETS AS APPEARING IN THE BALANCE SHEET EXCLUDING THE INC REASE ON ACCOUNT OF ITA NO.2164/M/2013 M/S. TATA SECURITIES LTD. 4 REVALUATION OF ASSETS BUT INCLUDING THE DECREASE ON ACCOUNT OF REVALUATION OF ASSETS.] SINCE THE ASSESSEE HAD PURCHASED AND SOLD ITS INVES TMENT DURING THE YEAR, HENCE AS PER THE FORMULA PRESCRIBED A MEAGER DISALL OWANCE OF RS.16/- WAS WORKED OUT. THE AO, HOWEVER, FOR THE PURPOSE OF WO RKING OUT THE AVERAGE INVESTMENT TOOK THE AVERAGE OF PURCHASE PRICE AND S ALE PRICE DURING THE YEAR AND ACCORDINGLY WORKED THE DISALLOWANCE AT RS.9,43,465/ -. 4. THE LD. CIT(A) CONFIRMED THE SAID DISALLOWANCE. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE ASSESSEE HAS COME IN APPEAL BEFORE US. 5. WE NOTICE THAT WHEN THE AO FOUND THAT THE AVERAG E VALUE OF INVESTMENT CALCULATED AS PER THE FORMULA PRESCRIBED UNDER THE INCOME TAX RULES WAS ALMOST NEGLIGIBLE AND THE DISALLOWANCE UNDER SECTION 14A R EAD WITH RULE 8D WAS WORKED OUT AT A MEAGER AMOUNT OF RS.16/- ONLY, HE, THEN, HAS ADOPTED ANOTHER FORMULA WHICH HAS NEITHER BEEN PRESCRIBED NOR RECOM MENDED UNDER THE PROVISIONS OF THE STATUTE AND THE RELEVANT RULES. AS PER THE PROVISIONS OF SECTION 14A, IF THE AO IS NOT SATISFIED WITH THE WORKING OF DISALLOWANCE GIVEN BY THE ASSESSEE, HE CAN RESORT TO THE FORMULA PRESCRIBED U NDER RULE 8D. IF THE AO FINDS THAT THE DISALLOWANCE COMPUTED UNDER RULE 8D IS A V ERY MEAGER AMOUNT, IT IS NOT OPEN TO THE AO TO COMPUTE THE DISALLOWANCE ADOPTING HIS OWN OR ANY OTHER FORMULA. AO IS BOUND TO COMPUTE THE DISALLOWANCE A S PER THE PROVISIONS OF THE ACT AND THE RULES THERETO. WE ACCORDINGLY SET ASID E THE ORDERS OF THE LOWER AUTHORITIES AND DIRECT THE AO TO COMPUTE THE DISALL OWANCE UNDER SECTION 14A STRICTLY AS PER THE PROVISIONS OF RULE 8D OF THE IN COME TAX RULES AND NOT BY ADOPTING ANY OTHER FORMULA AT HIS OWN. ITA NO.2164/M/2013 M/S. TATA SECURITIES LTD. 5 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 10.07.2015. SD/- SD/- (R.C. SHARMA) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 10.07.2015. * KISHORE, SR. P.S. 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.