HATHWAY CABLE AND DATACOM LIMITED, MUMBAI V. DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-3(2), MUMBAI

ITA 2322/MUM/2023

• Counselvise Citation: [2023] 100 COUNSELVISE.COM (IT) 6226 (ITAT-MUMBAI)
• Duration Of Justice: 3 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-10-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 18-10-2023
• Assessment Year: 2020-2021
• Appeal Filed On: 27-06-2023
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Rule 8D; Set aside
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL Mumbai “E” Bench, Mumbai. Before Shri B.R. Baskaran (AM) & Shri Rahul Chaudhary (JM) I.T.A. No. 2322/Mum/2023 (A.Y. 2020-21) Hathway Cable And Datacom Limited. 805/806, Windwor, 8 th Floor,, Off CST Road, Kalina, Santacruz (East), Mumbai 400 098. PAN : AAACC6814B Vs. Dy CIT Cent.Cir 3(2), Room No. 344 3 rd Floor Aayakar Bhavan M.K. Road Mumbai-400020. (Appellant) (Respondent) Assessee by Shri Nimesh Vora & Ms. Moksha Mehta Department by Shri P D Chougule Date of Hearing 19.10.2023 Date of Pronouncement 25.10.2023 O R D E R Per B.R.Baskaran (AM) :- The assessee has filed the appeal challenging the order dated 01-05- 2023 passed by Ld CIT(A)-51, Mumbai and it relates to the assessment year 2020-21. The assessee is aggrieved by the decision of Ld CIT(A) in confirming the disallowance made by the AO u/s 14A of the Act. 2. The assessee is engaged in the business of distributing internet services through cable. The assessee had received dividend income of Rs.4,19,72,694/- from one of its associate company named M/s GTPL Hathway Ltd. Since the above said dividend income was claimed as exempt, the assessee disallowed a sum of Rs.67,64,294/- u/s 14A of the Act. 2 ITA No. 2322/Mum/2023 Hathway Cable And Datacom Limited 3. The assessing officer took the view that the disallowance computed by the assessee does not have any sound basis and reasoning and adhoc in nature. He further held that the expenditure occurring in sec.14A of the Act would take in its sweep not only direct expenditure, but also all forms of expenditure regardless of whether they are fixed, variable, direct, indirect, administrative, managerial or financial. Accordingly, he rejected the disallowance computed by the assessee. Accordingly, he computed disallowance at Rs.1,68,74,972/- by applying provisions of Rule 8D of I T Rules, which resulted in enhancement of disallowance by further amount of Rs.1,01,10,678/-. The Ld CIT(A) confirmed the disallowance computed by Ld CIT(A) and hence the assessee is in appeal before the Tribunal. 4. We heard the parties on this issue and perused the record. The Ld D.R supported the orders passed by the tax authorities. However, the Ld A.R raised multiple contentions. He first submitted that the assessee has received dividend income from only one associate company. Despite this fact, the assessee has computed disallowance at Rs.67,64,294/- by considering expenses incurred for “Management Audit Team”. He submitted that assessing officer did not examine the working made by the assessee and did not record dissatisfaction over the same. He submitted that without recording dissatisfaction, the AO could not have resorted to the provisions of Rule 8D at all. However, we notice that the AO has specifically stated that the assessee did not consider all the expenses for computing disallowance u/s 14A of the Act. Hence, in our view, the AO has recorded dissatisfaction over the methodology adopted by the assessee, even though he did not specifically examine the workings made by the assessee. 5. The Ld A.R next contended that the value of shares in GTPL presently held by the assessee is NIL. Explaining it further, the Ld A.R submitted that the assessee had originally held 11,99,334 shares of in GTPL as on 1.4.2015. During the financial year 2015-16, it received 4,79,73,360 bonus shares. During the FY 2017-18, the assessee has sold 72,00,000 shares. 3 ITA No. 2322/Mum/2023 Hathway Cable And Datacom Limited He submitted that the shares presently held by the assessee represents bonus shares, whose value is taken as NIL as per sec.55(2)(aa)(iia) of the Act. We are unable to accept this contention. The disallowance is computed u/r 8D on the basis of value shown in the books of accounts, where as the provisions of sec. 55(2) would govern computation of capital gains. Accordingly, the provisions of section 55(2) cannot be imported into sec.14A of the Act. 6. The Ld A.R next contended that the suo-motu disallowance made by the assessee was sufficient enough to cover proportionate indirect expenses also. The Ld A.R submitted that he has furnished a working u/s 14A by considering all relevant expenses on proportionate basis under two methods, i.e., (a) proportionate to value of investments and (b) proportionate to income. Under investment based approach, the disallowance works out to Rs.26.14 lakhs and under income based approach, it works out to Rs.4.97 lakhs. The average of both works out to Rs.15.56 lakhs, while the disallowance made by the assessee was Rs.67.64 lakhs. Accordingly, he submitted that the no interference is called for in the working made by the assessee. 7. We noticed earlier that the AO did not examine the workings made by the assessee for computing disallowance u/s 14A of the Act. In the revised workings now furnished before us, the assessee has considered all relevant indirect expenses also. According to the assessee, the said method of workings results in disallowance of Rs.15.56 lakhs only, while the assessee had disallowed a sum of Rs.67.64 lakhs. Accordingly, we are of the view that, prima facie, there is merit in the above said submissions made by the assessee. However, we are of the view all the three types of workings made by the assessee require to be examined by the assessing officer. Accordingly for the said purpose, we restore this issue to the file of AO. Accordingly, we set aside the order passed by Ld CIT(A). We make it clear that the assessing officer should examine all types of workings made by the assessee and may 4 ITA No. 2322/Mum/2023 Hathway Cable And Datacom Limited resort to the provisions of Rule 8D, only after recording proper dissatisfaction over the workings furnished by the assessee, that too, after affording adequate opportunity of hearing to the assessee. 8. In the result, the appeal filed by the assessee is treated as allowed for statistical purposes. Order pronounced in on 25.10.2023 Sd/- Sd/- (Rahul Chaudhary) (B.R. Baskaran) Judicial Member Accountant Member Mumbai.; Dated : 25/10/2023 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// (Assistant Registrar) PS / SA ITAT, Mumbai