EMKAY GLOBAL FINANCIAL SERVICES LTD, MUMBAI V. DCIT CR 4(1), MUMBAI

ITA 2498/MUM/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 1489 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2016
• Appeal Filed By: Assessee
• Bench Allotted: E
• Assessment Year: 2009-2010
• Appeal Filed On: 11-04-2014
• Court: TRIBUNAL
• Keywords: Earning of tax free income
• Section: 143(3); 14A; 2

Judgement Text

, , E, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E, MUMBAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.2498/MUM/2014 ASSESSMENT YEAR: 2009-10 M/S . EMKAY GLOBAL FINANCIAL SERVICES LTD. 7 TH FLOOR, THE RUBY SENAPATI BAPAT MARG, DADAR (W) MUMBAI-400028 / VS. DCIT 4(1) MUMBAI- ( APPELLANT ) (RESPONDENT ) P.A. NO. AAACE0994L APPELLANT BY SHRI SANJIV M. SHAH ( A R) REVENUE BY SHRI T.A KHAN (DR) / DATE OF HEARING: 28/11/2016 / DATE OF ORDER: 21/12/2016 / O R D E R PER ASHWANI TANEJA (ACCOUNTANT MEMBER): THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST ORDER OF LD. COMMISSIONER OF INCOME TAX(APPEALS), MUMBAI- 8 (IN SHORT CIT(A)}, DATED 13.03.2014 PASSED ORDER AGAI NST U/S 143(3) OF THE ACT, DATED 30.12.2011 FOR ASSESSMENT YEAR 2009- 10 ON THE FOLLOWING GROUNDS: 1.THE LEARNED CIT(A) HAS GROSSLY ERRED IN CONFIRMIN G THE DISALLOWANCE RS.16,85,305/- U/S 14A OF THE INCOME T AX ACT, 1961 DISREGARDING THE DETAILED SUBMISSIONS MAD E BY THE APPELLANT AND THE REASONS ASSIGNED BY HIM IN EMKAY GLOBAL 2 DOING SO ARE WRONG AND ARE CONTRARY TO THE PROVISIO NS INCOME TAX ACT, 1961 AND RULES MADE THERE UNDER. 2. THE APPELLANT CRAVES LEAVE TO ADD TO/OR AMEND AN D/OR DELETE AND/OR MODIFY AND/OR ALTER THE AFORESAID GRO UND OF APPEAL AS AND WHEN U OCCASION DEMANDS. 2. DURING THE COURSE OF HEARING, ARGUMENTS WERE MADE BY SHRI SANJIV M. SHAH, AUTHORISED REPRESENTATIVES (AR ) ON BEHALF OF THE ASSESSEE AND BY SHRI T.A KHAN, DEPART MENTAL REPRESENTATIVE (CIT-DR) ON BEHALF OF THE REVENUE. 3. THE ONLY GROUND RAISED IN THIS APPEAL WITH REGARD TO DISALLOWANCE MADE U/S 14A. 3.1. THE BRIEF BACKGROUND IS THAT IN THIS CASE THE ASSE SSEE HAD SUO MOTO DISALLOWANCE OF RS.21,699/- U/S 14A IN ITS RETURN OF INCOME. BUT, THE AO WAS OF THE VIEW THAT DISALLOWAN CE IS TO BE MADE UNDER RULE 8D(2)(III), AND THEREFORE, HE COMPU TED TOTAL DISALLOWANCE TO BE MADE FOR RS.17,07,004/-. THUS, H E MADE NET DISALLOWANCE OF RS.16,85,395/- (I.E. 17,07,004- 21699). THE ASSESSEE CONTESTED DISALLOWANCE BEFORE THE LD. CIT( A) INTER ALIA ON THE GROUND THAT THE MAJOR INVESTMENT WAS MADE IN THE GROUP COMPANIES FOR THE PURPOSE OF STRATEGIC REASON S. BUT, LD. CIT(A) DID NOT ACCEPT SUBMISSIONS OF THE ASSESSEE A ND DISALLOWANCE MADE BY THE AO WAS CONFIRMED. 3.2. DURING THE COURSE OF HEARING BEFORE US, IT WAS STA TED AT THE OUTSET BY LD. COUNSEL OF THE ASSESSEE THAT DISA LLOWANCE U/S 14A WAS MADE IN IDENTICAL MANNER BY THE AO IN T HE ASSESSMENT YEAR 2010-11 WHEREIN THE ISSUE HAD REACH ED BEFORE THE TRIBUNAL AND TRIBUNAL DELETED THE DISALL OWANCE VIDE ITS ORDER DATED 13.07.2016 IN ITA NO.7218/MUM/2014. HE EMKAY GLOBAL 3 REQUESTED FOR DELETING THE DISALLOWANCE IN THIS YEA R ALSO FOLLOWING ORDER OF THE TRIBUNAL IN EARLIER YEARS. 3.3. PER CONTRA LD. DR RELIED UPON THE ORDERS OF THE LO WER AUTHORITIES. 3.4. WE HAVE GONE THROUGH THE ORDERS PASSED BY THE LOWE R AUTHORITIES AS WELL AS ORDER OF THE TRIBUNAL FOR A. Y. 2010-11. IT IS NOTED THAT WHILE DELETING THE DISALLOWANCE U/S 1 4A IN A.Y.2010-11, THE TRIBUNAL OBSERVED AS UNDER: 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT THE ASSESSEE HAD E ARNED DIVIDEND INCOME OF RS.2.58 LAKHS, THAT IT HAD MADE A DISALLOWANCE OF RS. 21,568/-ON ITS OWN WITH REGARD TO EARNING OF EXEMPT INCOME, THAT THE FAA UPHELD THE DISALLOWANCE OF RS. 40.51 LAKHS,MADE BY THE AO U/S. 14A OF THE ACT, THAT ASSESSEE HAD MADE INVESTMENT IN TH E SUBSIDY COMPANIES, THAT THE SAID FACT WAS IGNORED B Y THE AO AND THE FAA WHILE WORKING OUT THE DISALLOWANCE, THAT THEY DID NOT CONSIDER THE AVAILABILITY OF ASSESSEE S OWN FUNDS INCLUDING THE RESERVES AND SURPLUS BEFORE MAK ING THE DISALLOWANCE. IN OUR OPINION, WITHOUT CONSIDERI NG THIS VITAL FACT THEY SHOULD NOT HAVE MADE THE DISALLOWAN CE OF RS.40.51 LAKHS AGAINST THE EXEMPT INCOME OF RS. 2.5 8 LAKHS. IN OUR OPINION, DISALLOWANCE TO BE MADE U/S. 14A OF THE ACT SHOULD NOT EXCEED THE EXEMPTION CLAIMED BY THE ASSESSEE. THE BASIC PURPOSE BEHIND INTRODUCING THE SECTION WAS TO PREVENT THE ASSESSEE CLAIMING DOUBLE DEDUCTION I.E. SHOWING EXEMPT INCOME AND CLAIMING EXPENDITURE WITH REGARD TO THE SAME EXEMPT INCOME. THEREFORE, THE HONBLE COURTS ARE OF THE VIEW THAT DISALLOWANCE SHOULD BE RESTRICTED TO THE INTEREST-F REE INCOME ONLY. THE AO AND THE FAA HAVE MECHANICALLY APPLIED THE PROVISIONS OF RULE 8D. IN OUR OPINION, THE APPROACH OF BOTH THE AUTHORITIES WAS NOT AS PER THE PROVISIONS OF THE ACT. THE ASSESSEE HAD, ON ITS OWN , MADE A DISALLOWANCE WITH REGARD TO THE EXPENDITURE INCUR RED FOR EARNING EXEMPT INCOME. THE FAA HAS NOT POINTED OUT ANY DEFECT IN THE APPROACH OF THE ASSESSEE. IT HAD DISA LLOWED THE AMOUNT THAT WAS INCURRED BY IT FOR EARNING EXEM PT EMKAY GLOBAL 4 INCOME. IF THERE WAS NO OTHER EXPENDITURE RELATED W ITH THE TAX FREE INCOME THEN THERE WAS NO JUSTIFICATION FOR DISALLOWING IT. CONSIDERING THE ABOVE, WE REVERSE T HE ORDER OF THE FAA AND DECIDE THE EFFECTIVE GROUND OF APPEA L IN FAVOUR OF THE ASSESSEE. 3.5. IT IS THUS, NOTED FROM THE ABOVE THAT THE DISALLOWA NCE HAS BEEN DELETED BY THE TRIBUNAL MAINLY ON THE GROUND T HAT THE INVESTMENTS WAS MADE BY THE ASSESSEE IN THE SUBSIDI ARY COMPANIES FOR STRATEGIC REASONS. IT WAS ALSO OBSERV ED BY THE TRIBUNAL THAT THE SUO-MOTO DISALLOWANCE WAS MADE BY THE ASSESSEE WITH REGARD TO EXPENDITURE INCURRED IN THE EARNING EXEMPT INCOME. THE LOWER AUTHORITIES DID NOT POINT OUT ANY DEFECT IN WORKING OUT THE AMOUNT OF DISALLOWANCE. I T WAS STATED DURING THE COURSE OF HEARING THAT FACTS ARE IDENTICAL IN THIS YEAR ALSO. NO DISTINCTION HAS BEEN MADE BY THE LD. DR BETWEEN THE FACTS OF THE TWO YEARS. THUS, RESPECTFU LLY FOLLOWING THE ORDER OF THE TRIBUNAL FOR A.Y.2010-11, DISALLOW ANCE MADE U/S 14A IS DELETED IN THE YEAR BEFORE US. 4. IN THE RESULT, THE APPEALS OF THE ASSESSEE IS ALLO WED. ORDER WAS PRONOUNCED IN THE OPEN COURT AT THE CONCL USION OF THE HEARING. SD/- (MAHAVIR SINGH ) SD/- (ASHWANI TANEJA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 21/12/2016 CTX? P.S/. .. EMKAY GLOBAL 5 !'#$%&%'# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT, MUMBAI. 4. / CIT(A)- , MUMBAI 5. #$% &' , &' ) , / DR, ITAT, MUMBAI 6. %*+ / GUARD FILE. / BY ORDER, # //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI