MR.DHANESH B RAHEJA, MUMBAI V. ACIT 19(1) NOW ACIT 22(1), MUMBAI

ITA 2553/MUM/2018

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 0346 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-12-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2011-2012
• Appeal Filed On: 25-04-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JYOTHILAKSHMI NAYAK SR AR
• Assessee Lawyers: MRS C J AHUJA
• Keywords: Business income; Depreciation; Salary income; Earning of tax free income; Rule 8D
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D, BENCH MUM BAI BEFORE SHRI G. MANJUNATHA, ACCOUNTANT MEMBER & SHRI RAVISH SOOD, JUDICIAL MEMBER ITA NO.2553/MUM/2018 ( ASSESSMENT YEAR: 2011-12 ) DHANESH B RAHEJA 401, SHUBLAXMI BLDG, 4 TH FLOOR, PLOT NO.235 12 TH ROAD, KHAR (WEST) MUMBAI-400 052 VS. ACIT,CIRCLE-19(1), MUMBAI NOW ACIT-22(1) MUMBAI PAN/GIR NO. AA APR7637Q ( APPELLANT ) .. RESPONDENT ) REVENUE BY SMT.JYOTHILAKSHMI NAYAK, SR.AR (ADDL, CIT) ASSESSEE BY MRS. C.J.AHUJA, AR DATE OF HEARING 10/12 /2019 DATE OF PRONOUNCEME NT 10 /12 /201 9 / O R D E R PER G.MANJUNATHA (A.M) : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST, THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)34, MUMBAI, DATED 01/03/2018 AND IT PERTAINS TO ASSESSMENT YEAR 2011-12. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1) ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED ASSISTANT COMMISSIONER OF INCOME TAX , CIRC LE 19(1) MUMBAI ERRED IN DISALLOWING RS.6,65,786/- AS PER CALCULATI ON U/S 14 A RULE 8D AGAINST TOTAL EXPENDITURE OF RS. 33,799/-, INCURRED BY YOUR APPELLANT FOR BUSINESS PURPOSES ONLY. THIS SECTION IS NOT APPLICA BLE TO THE APPELLANT. 2) THE LEARNED ASSISTANT COMMISSIONER OF INCOME TA X HAS IGNORED THE FACT THAT ALL OF THE EXPENSES CLAIMED, HAVE A DIREC T CO-RELATION TO THE BUSINESS OF YOUR APPELLANT NAMELY, TRADING IN SHARE S , SECURITIES UND BROKERAGE , AND AS SUCH, THE SAME SHOULD BE ALLOWED TO BE SET OFF AGAINST THE SUBSTANTIAL BUSINESS INCOME, EARNED BY THE APPELLANT. OUT OF ITA NO.2553/MUM/2018 DHANESH B RAHEJA 2 THE TOTAL EXPENSES OF RS.33,799/- ALL OF THE EXPENS ES PAID RELATES ONLY TO EARNING OF BUSINESS INCOME OF RS.4,63,860/-. 3) THE APPELLANT PRAYS THAT SECTION 14A-RULE8D IS N OT APPLICABLE AT ALL AS HE HAS NOT INCURRED ANY EXPENSES TOWARDS EARNING TA X FREE INCOME AND HAS USED HIS OWN FUNDS FOR ALL HIS INVESTMENTS, FUR THER NO LOAN OR OVERDRAFT WERE TAKEN FOR ANY INVESTMENTS MADE WHETH ER TAXABLE OR TAX FREE INCOME. 4) YOUR APPELLANT FURTHER SUBMITS THAT THE LEARNED ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 19(1) MUMBAI HAS WORKED OUT THE DISALLOWANCE MECHANICALLY, WITHOUT REDUCING THE ITE MS WHERE NO TAX FREE INCOME / EXEMPT INCOME IS RECEIVED AND EVEN TAKEN T AXABLE BONDS, DEBENTURES, PPF AMOUNT, CASH & BANK BALANCES, ADVAN CES & LIFE INSURANCE AS INVESTMENTS IN ITS CALCULATIONS(INCLUD ING PREVIOUS YEAR) . FURTHER WITHOUT APPRECIATING THAT SECTION 14A OF TH E INCOME TAX ACT IS BASED ON THE PRINCIPLE THAT EXPENSES MUST BE ALLOCA TED TO THAT INCOME TO WHICH THEY RELATE, TO AVOID DISTORTIONS IN THE COMP UTATION OF BOTH TAXABLE AS WELL AS EXEMPT INCOME. THE LEARNED ASSISTANT COM MISSIONER OF INCOME TAX HAS FAILED TO APPRECIATE THAT SUCH MECHA NICAL DETERMINATION OF THE DISALLOWANCE, AS HAS BEEN DONE IN THE INSTAN CE EASE, HAS RESULTED IN THE COMPUTATION OF A HIGHER THAN ACTUAL EXPENSES WHICH IS NOT THE INTENSION OF THE SAID PROVISIONS.(TOTAL EXPENSES RS . 33,799/- AND DISALLOWED U/S SECTION 14A RS,6,65,786/-) 5) FURTHER THE LEARNED ASSISTANT COMMISSIONER OF IN COME TAX HAS DISALLOWED AN AMOUNT OF RS: 5,378/- PAID BEING SHOW N AS 'PENALTY M F GLOBAL SIFY' WHEREAS THE AMOUNT PAID RELATES TO COL LATERAL CHARGES/HANDLING CHARGES WHICH IS OUR NORMAL BUSINE SS EXPENSES. 6) SUBMISSION OF CBDT CIRCULAR DT: 02ND JUNE 2016 NOT CONSIDERED DURING APPEAL PROCEEDINGS WHERE IN CLEARLY STATED T HAT DISALLOWANCE SHALL NOT EXCEED EXPENDITURE CLAIMED BY ASSESSES AMOUNT O F RS: 33,799/- 7) YOUR APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTE R VARY AND OR WITHDRAW ANY OR ALL OF THE GROUNDS OF APPEAL BEFORE OR AT TH E TIME OF HEARING 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS AN INDIVIDUAL, DERIVES INCOME FROM SALARY, HOUSE PROPE RTY, BUSINESS AND OTHER SOURCES, FILED HIS RETURN OF INCOME FOR AY 20 11-12 ON 15/07/2011, DECLARING TOTAL INCOME OF RS. 62,32,387 /-. THE CASE WAS SELECTED FOR SCRUTINY AND DURING THE COURSE OF ASSE SSMENT PROCEEDINGS, THE LD. AO NOTICED THAT THE ASSESSEE H AS EARNED TAX FREE INCOME BEING DIVIDEND FROM SHARES, INTEREST ON TAX FREE BONDS AND INTEREST ON PPF AGGREGATING TO RS.12,02,753/-, BUT DID NOT MADE SUO-MOTO DISALLOWANCES OF ANY EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME. THEREFORE, HE CALLED UPON THE ASSESS EE TO FURNISH ITA NO.2553/MUM/2018 DHANESH B RAHEJA 3 NECESSARY DETAILS, INCLUDING NATURE OF EXEMPT INCOM E EARNED AND RELATED EXPENDITURE INCURRED THEREON. IN RESPONSE, THE ASSESSEE VIDE LETTER DATED 19/12/2013 SUBMITTED THAT IT HAS EARNE D TAX FREE INCOME BEING DIVIDEND FROM SHARES AND INTEREST INCOME, HO WEVER DID NOT INCURRED ANY SPECIFIC EXPENDITURE, INCLUDING INTERE ST ON LOANS BORROWED, IF ANY AND HENCE, THE QUESTION OF DISALL OWANCES OF EXPENDITURE IN RELATION TO EXEMPT INCOME DOES NOT A RISE. THE LD. AO AFTER CONSIDERING RELEVANT SUBMISSIONS OF THE ASSES EE AND ALSO BY FOLLOWING THE DECISION OF HONBLE BOMBAY HIGH COURT , IN THE CASE OF GODREJ AND BOYCE MANUFACTURING COMPANY LIMITED VS D CIT 234 CTR 1 (BOM.) HELD THAT FROM AY 2008-09 ON WARDS DIS ALLOWANCES OF EXPENDITURE IN RELATION TO EXEMPT INCOME SHALL BE D ETERMINED IN ACCORDANCE WITH PRESCRIBED METHOD PROVIDED UNDER RU LE 8D AND ACCORDINGLY, DETERMINED TOTAL DISALLOWANCES OF EXPE NSES @0.5% OF AVERAGE VALUE OF INVESTMENTS AND MADE DISALLOWANCES OF RS.6,65,786/-. THE ASSESSEE CARRIED THE MATTER IN A PPEAL BEFORE THE LD.CIT(A), BUT COULD NOT SUCCEED . THE LD.CIT(A) FO R DETAILED REASONS RECORDED IN HIS ASSESSMENT ORDER, CONFIRMED ADDITIONS MADE BY THE LD. AO AND DISMISSED APPEAL FILED BY TH E ASSESEE. AGGRIEVED BY THE LD.CIT(A) ORDER, THE ASSESEE IS IN APPEAL BEFORE US. 4. THE LD.AR FOR THE ASSESSEE SUBMITTED THAT THE LD .CIT(A) WAS ERRED IN CONFIRMING DISALLOWANCES MADE BY THE LD. A O OF RS.6,65,786/- WITHOUT CONSIDERING THE EXPLANATION O FFERED BY THE ASSESEE, IN LIGHT OF TOTAL EXPENDITURE CLAIMED FOR THE YEAR AMOUNTING TO RS.33,799/-. THE LD. AR, FURTHER, SUBMITTED THAT WHEN, TOTAL EXPENDITURE DEBITED INTO THE PROFIT AND LOSS ACCOUN T IS AT RS.33,799/-, THE LD. AO IS ERRED IN DISALLOWED A SUM OF RS. 6,65 ,786/-. THE ITA NO.2553/MUM/2018 DHANESH B RAHEJA 4 LD.CIT(A) WITHOUT APPRECIATING THESE FACTS HAS SIMP LY CONFIRMED ADDITIONS MADE BY THE LD.AO. 5. THE LD. DR, ON THE OTHER HAND, STRONGLY SUPPORTI NG ORDER OF THE LD.CIT(A) SUBMITTED THAT IF, YOU GO BY PLAIN READI NG OF SECTION 14A R.W.RULE 8D, IT DOES NOT SPEAKS ABOUT ACTUAL EXPEND ITURE INCURRED IN RELATION TO EXEMPT INCOME, BUT WHAT IS REQUIRED TO BE SEEN IS WHETHER IS THERE ANY EXEMPT INCOME AND CORRESPONDI NG EXPENDITURE IN RELATION TO SUCH EXEMPT INCOME. FURTHER, ONCE IT IS NOTED THAT THERE IS EXPENDITURE, THEN DISALLOWANCES CONTEMPLATED U/S 14A SHALL BE DETERMINED IN ACCORDANCE WITH RULE 8D. THEREFORE, T HERE IS NO ERROR IN FINDINGS OF THE LD. AO, AS WELL AS THE LD.CIT(A) AND HENCE, THEIR ORDER SHOULD BE UPHELD. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. WE FIND THAT THE LD. AO HAS DE TERMINED TOTAL DISALLOWANCES OF EXPENDITURE IN RELATION TO EXEMPT INCOME U/S 14A AT RS. 6,65,786/-, AS AGAINST TOTAL EXPENSES DEBITED I NTO THE PROFIT AND LOSS ACCOUNT AMOUNTING TO RS. 33,799/-. THERE IS NO DISPUTE, FROM ASSESSMENT YEAR 2008-09 ONWARDS SECTION 14A DISALL OWANCES SHALL BE DETERMINED IN ACCORDANCE WITH RULE 8D OF I.T.RUL ES, 1962. BUT, IT DOES NOT MEAN THAT SUCH DISALLOWANCES SHALL EXCEED EXPENSES DEBITED INTO THE PROFIT AND LOSS ACCOUNT. THE PURPO SE OF DETERMINATION OF EXPENSES RELATABLE TO EXEMPT INCOM E IS TO BIFURCATE COMMON EXPENSES INCURRED BY THE ASSESSEE TOWARDS EX EMPT INCOME AND TAXABLE INCOME, WHEN THE ASSESEE HAS NOT MAINTAINED SEPARATE BOOKS OF ACCOUNTS. HOWEVER, IT DOES NOT ME AN THAT SUCH DISALLOWANCE SHALL GO BEYAOND EXPENSES DEBITED INTO PROFIT AND LOSS ACCOUNT OR EXPENDITURE INCURRED BY THE ASSESSEE. IN THIS CASE, THERE ITA NO.2553/MUM/2018 DHANESH B RAHEJA 5 IS NO DISPUTE WITH REGARD TO FACT THAT THE ASSESEE HAS DEBITED TOTAL EXPENDITURE INTO THE PROFIT AND LOSS ACCOUNT AMOUNT ING TO RS.33,799/-. IF YOU GO THROUGH THE NATURE OF EXPEN SES DEBITED INTO PROFIT AND LOSS ACCOUNT, THERE ARE DIRECT EXPENSES RELATABLE TO EXEMPT INCOME BEING DMAT CHARGES AND PENALTY M F GLOBAL SIFY. THE OTHER EXPENSES DEBITED INTO PROFIT AND LOSS ACC OUNT LIKE AUDIT FEE, BANK CHARGES, DEPRECIATION, OFFICE INSURANCE, PROFESSIONAL TAX AND SCOOTER INSURANCE ARE COMMON EXPENSES, WHICH NE EDS TO BE ALLOCATED TO EXEMPT INCOME AND TAXABLE INCOME. THER EFORE, EVEN IF YOU CONSIDER 100% DIRECT EXPENSES AND 50% THER EXPE NSES FOR DISALLOWANCES, THEN TOTAL DISALLOWANCE REQUIRED TO BE MADE U/S 14A CANNOT BE MORE THAN RS. 15,000/-. WE, THEREFORE, CO NSIDERING TOTALITY OF FACTS AND CIRCUMSTANCES OF THIS CASE, AND ALSO T OTAL EXPENSES DEBITED INTO THE PROFIT AND LOSS ACCOUNT, ARE OF TH E CONSIDERED VIEW THAT AN ADHOC DISALLOWANCES OF SUM OF RS. 15,000/- WOULD MEET THE ENDS OF JUSTICE. HENCE, WE DIRECT THE LD. AO TO RES TRICT DISALLOWANCES QUANTIFIED UNDER RULE 8D(2)(III) OF THE I.T.RULES, 1962 TO THE EXTENT OF RS.15,000/- AND THE BALANCE AMOUNT OF DISALLOWANCE IS DIRECTED TO BE DELETED. 7. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS P ARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 10 /12 /2019 SD/- (RAVISH SOOD) SD/- (G. MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER ITA NO.2553/MUM/2018 DHANESH B RAHEJA 6 MUMBAI ; DATED: 10/12/2019 THIRUMALESH SR.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//