SHREYAS MORAKHIA & FAMILY ASSETS PRIVATE LIMITED (FORMERLY KNOWN AS SHIVA SHAKTI PROPERTIES PRIVATE LIMITED, MUMBAI V. DEPUTY COMMISSIONER OF INCOME TAX 8(2)(1), MUMBAI

ITA 275/MUM/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 5406 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-05-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: J
• Assessment Year: 2014-2015
• Appeal Filed On: 11-01-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: CHAUDHARY ARUN KUMAR SINGH
• Keywords: Depreciation; Earning of tax free income; TDS; Rule 8D
• Section: 14A; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH G, MUMBAI BEFORE SHRI RAJESH KUMAR, ACCOUNTANT MEMBER AND SHRI RAM LAL NEGI, JUDICIAL MEMBER ITA NO.275/M/2018 ASSESSMENT YEAR: 2014-15 M/S. SHREYAS MORAKHIA & FAMILY ASSETS PVT. LTD. (FORMERLY KNOWN AS SHIVA SHAKTI PROPERTIES PVT. LTD.), 706, RAHEJA JOURNAL MARG, 214, NARIMAN POINT, MUMBAI 400 021 PAN: AAFCS 8009P VS. DY. COMMISSIONER OF INCOME TAX 8(2)(1), AAYAKAR BHAVAN, MAHARSHI KARVE MARG, MUMBAI - 400020 (APPELLANT) (R ESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI NEELKANTH KHANDELWAL, A.R. REVENUE BY : SHRI CHAUDHARY ARUNKUMAR SINGH, D.R . DATE OF HEARING : 02.05.2019 DATE OF PRONOUNCEMENT : 15.05.2019 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSES SEE AGAINST THE ORDER DATED 31.10.2017 OF THE COMMISSIO NER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS TH E CIT(A)] RELEVANT TO ASSESSMENT YEAR 2014-15. 2. THE ONLY ISSUE RAISED BY THE ASSESSEE IS AGAINST THE CONFIRMATION OF ADDITION OF RS.53,95,230/- BY LD. C IT(A) AS MADE BY THE AO UNDER SECTION 14A OF THE ACT READ WI TH RULE 8D OF THE ACT WHICH IS APPROXIMATELY 80.10% OF THE ACT UAL EXPENSES CLAIMED OF RS.67,35,894/-. THE ASSESSEE HAS ALSO C HALLENGED ITA NO.275/M/2018 M/S. SHREYAS MORAKHIA & FAMILY ASSETS PVT. LTD. 2 THE ADDITION/DISALLOWANCE TO THE BOOK PROFIT AS COM PUTED UNDER SECTION 115JB OF THE ACT. 3. THE FACTS IN BRIEF ARE THAT AO, DURING THE COURS E OF ASSESSMENT PROCEEDINGS, OBSERVED THAT ASSESSEE HAS RECEIVED EXEMPT INCOME BY WAY OF DIVIDEND, INTEREST AND PROF IT ON SALE OF INVESTMENTS TO THE TUNE OF RS.7,98,91,254/-. THE A SSESSEE HAS SUBMITTED DURING THE COURSE OF ASSESSMENT PROCEEDIN GS THAT OUT OF TOTAL EXPENSES OF RS. 1,56,74,085/- , IT CLAIMED ONLY TO THE TUNE OF RS. 67,35,894/- AND THE REMAINING EXPENSES TO THE TUNE OF RS.89,38,191/- WERE INCURRED EXCLUSIVE IN CONNEC TION WITH THE BUSINESS OF THE ASSESSEE AND RELATES TO BUILDIN G AND OTHER REPAIRS, ELECTRICITY, INSURANCE CHARGES, DONATION P AID, BUSINESS PROMOTION, AUDITOR REMUNERATION, PROFESSIONAL FEES, TRAVELLING EXPENSES, INTEREST ON CAR LOAN AND DEPRECIATION AND AMORTIZATION EXPENSES. HOWEVER, THE AO DID NOT ACCEPT THE CONTE NTIONS OF THE ASSESSEE AND CALCULATED THE DISALLOWANCE AT RS.65,8 7,383/- AND AFTER ALLOWING THE DEDUCTION OF SUO-MOTO DISALLOWAN CE OF RS.64,583/- MADE A NET ADDITION OF RS.65,22,800/-. 4. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) PAR TLY ALLOWED THE APPEAL OF THE ASSESSEE BY WORKING OUT THE DISAL LOWANCE OF RS.53,95,230/- BY TAKING THE PROPORTIONATE EXPENSES IN THE RATIO OF EXEMPT INCOME TO TOTAL EXEMPT INCOME BY OBSERVIN G AND HOLDING AS UNDER: 4. I HAVE CONSIDERED THE SUBMISSION MADE BY THE AP PELLANT AND THE REASONS RECORDED BY THE AO. SO FAR AS THE FIRST GROUND OF A PPEAL IS CONCERNED, I FIND THAT THE ISSUE IN HAND IS COVERED BY THE DECISION OF JURISDI CTIONAL TRIBUNAL IN THE CASE OF THE APPELLANT FOR A.Y. 2008 -- 09. IN ITS DECISION DATE D 20/10/2015 IN ITA NO. 776/M/2012, THE HONOURABLE TRIBUNAL HAS HELD THAT I N THE FACTS OF THE CASE OF THE APPELLANT, APPLICATION OF RULE 8D IS NOT PROPER (BE CAUSE IT GIVES RISE TO ABSURD RESULTS) AND THE DISALLOWANCE SHOULD BE MADE OUT OF ACTUAL EXPENSES CLAIMED BY THE APPELLANT BY APPLYING THE RATIO WHICH EXEMPT INCOME BEARS TO THE TOTAL INCOME OF ITA NO.275/M/2018 M/S. SHREYAS MORAKHIA & FAMILY ASSETS PVT. LTD. 3 THE APPELLANT. THEREFORE, I'M OF THE OPINION THA T THE AO IS JUSTIFIED IN MAKING THE DISALLOWANCE BY APPLYING THE DECISION OF HONOURABLE TRIBUNAL IN THE CASE OF THE APPELLANT FOR A.Y. 2008 - 09. SO FAR AS WORKING OF THE DISALLOWANCE BY THE AO IS CONCERNED, I AM IN AGREEMENT WITH THE SAME EXCEPT T HAT IN MY OPINION, THE AO SHOULD HAVE EXCLUDED THE DEPRECIATION AMOUNTING TO RS. 14,42,021 FROM THE TOTAL EXPENSES CONSIDERED FOR DISALLOWANCE IN VIEW OF THE DECISION OF HONOURABLE TRIBUNAL IN THE CASE OF HOSHANG D. NANAVATI VS ACIT [20 12] 16 ITR(T) 614 (MUMBAI- TNB.). ACCORDINGLY, TOTAL EXPENSES ACTUALLY CLAIMED IN THE RETURN OF INCOME WORK OUT TO RS. 69,87,133. AS PER THE ASSESSMENT ORDER, THE EXEMPT INCOME IS RS. 7,98,91,254/-, THE TAXABLE INCOME IS RS 2,23,48,643 /- AND THE TOTAL INCOME IS RS. 10,22, 39, 897/- . IF THESE FIGURES ARE ADOPTED THE N DISALLOWANCE WORKS OUT TO RS. 69,87,133 X 7,98,91,254/10,22,39,897 = RS. 54,59,81 3/-. SINCE THE APPELLANT HAS ALREADY DISALLOWED AMOUNT OF RS. 64,583/- IN THE RE TURN OF INCOME, THE DISALLOWANCE TO BE MADE U/S 14A WORKS OUT TO RS. 53 ,95,230/-. THE AO IS DIRECTED TO RESTRICT THE DISALLOWANCE ACCORDINGLY. ACCORDING LY, THE APPEAL OF THE APPELLANT IS PARTLY ALLOWED. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. WE OBSERVE THA T TOTAL EXPENSES AS CLAIMED IN THE PROFIT & LOSS ACCOUNT WE RE RS.1,56,74,085/- AND AFTER EXCLUDING THE EXPENSES W HICH WERE INCURRED AND CONSIDERED SEPARATELY AND ALSO THE SUO -MOTO DISALLOWANCES OUT OF THESE EXPENSES , THE NET EXPEN SES COMES TO RS.67,35,894/- AS PER DETAIL AS UNDER: TOTAL EXPENSES AS PER PROFIT & LOSS ACCOUNT = 1,56, 74,085/- PARTICULARS OF EXPANSES AMOUNT BRIEF DETAILS LESS: DONATION 69,10,000/- ADDED WHILE COMPUTING THE TOTAL INCOME AND CONSIDERED SEPARATELY. LESS: DEPRECIATION AS PER BOOKS 14,42.021/- ADDED WHILE COMPUTING THE TOTAL INCOME AND CONSIDERED SEPARATELY. LESS: EXPENSES RELATING TO OTHER HEAD OF INCOME 1,86,656/- ADDED WHILE COMPUTING THE TOTAL INCOME. LESS: DISALLOWANCE U/S 14A 64,583/- ADDED WHILE COMPUTING THE TOTAL INCOME. LESS: APPEAL FILING FEES 1000/- ADDED WHILE COMPUTING THE TOTAL INCOME. LESS: INTEREST ON LATE PAYMENT OF TDS 1,678/- ADDED WHILE COMPUTING THE TOTAL INCOME. ITA NO.275/M/2018 M/S. SHREYAS MORAKHIA & FAMILY ASSETS PVT. LTD. 4 LESS: SECURITIES TRANSACTION TAX 12,253/- ADDED WHILE COMPUTING THE TOTAL INCOME. LESS: ESTABLISHMENT CHARGES -.KIREF IV 3,20,000/- ADDED WHILE COMPUTING THE TOTAL INCOME. CLAIM IN RETURN OF INCOME AS AN EXPENSE 67,35,894/- 6. WE OBSERVE THAT OUT OF THESE EXPENSES THE MAJORI TY OF THE EXPENSES WERE NOT RELATING TO THE EARNING OF EXEMPT INCOME AS THE EXPENSES WERE INCURRED FOR THE PURPOSE OF RUNNI NG OF BUSINESS OF THE ASSESSEE. THEREFORE, WE ARE NOT IN AGREEMENT WITH THE CONCLUSION DRAWN BY THE LD. CIT(A) OF ATTR IBUTING THE EXPENSES TO EARNING OF EXEMPT INCOME IN THE RATIO O F EXEMPT INCOME TO TOTAL INCOME. WE, FURTHER, NOTE THAT THE CO-ORDINATE BENCH OF THE TRIBUNAL IN ITA NO.5608/M/2015 A.Y. 20 11-12 VIDE ORDER DATED 15.12.2017 WHICH WAS AN EX-PARTE O RDER , HAS MADE A LUMP SUM DISALLOWANCE OF RS.10,00,000/- UNDE R RULE 8D2(III). WE, FURTHER, NOTE THAT THE AO HAS FAILED TO ESTABLISH ANY EXPENSES OUT OF TOTAL EXPENSES CLAIMED BY THE ASSESSEE TO BE RELATING TO THE EXEMPT INCOME AND IN ABSENCE OF ANY DIRECT NEXUS BETWEEN EXPENDITURE AND EXEMPT INCOME, THE A O CAN NOT INVOKE PROVISIONS OF SECTION 14A OF THE ACT TO DISALLOW THE SAID EXPENSES AS HAS BEEN HELD IN THE CASE OF LEENA KASBEKAR VS. ACIT (2017) 85 TAXMANN.COM 82 (MUMBAI TRIB). THEREFORE, UNDER THE CURRENT FACTS AND CIRCUMSTANCES, WE ARE O F THE VIEW THAT IT WOULD BE REASONABLE IF A REASONABLE DISALLO WANCE IS WORKED OUT BY APPLYING THE PERCENTAGE ON THE TOTAL EXPENSES OF RS.67,35,894/- AS HAS BEEN CALCULATED HEREINABOVE. THE LD. A.R. DURING THE COURSE OF HEARING PRAYED BEFORE THE BENCH TO APPLY A PERCENTAGE OF 2% TO 5% OF THE SAID EXPENSES , HOWEVER, WE ARE NOT CONVINCED WITH THE ARGUMENTS OF LD. A.R . ON THIS ITA NO.275/M/2018 M/S. SHREYAS MORAKHIA & FAMILY ASSETS PVT. LTD. 5 ISSUE. IN THE PRESENT SCENARIO , WE ARE OF THE VIEW THAT 10% OF THE SAID EXPENSES WOULD BE REASONABLE DISALLOWANCE U/S 14A R.W.R. 8D(2)(III) IN THIS CASE. ACCORDINGLY, A SUM OF RS.6,73,589/- IS SUSTAINED BY REVERSING THE ORDER OF LD. CIT(A) A ND AO IS DIRECTED TO DELETE THE REMAINING DISALLOWANCE. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 15.05.2019. SD/- SD/- ( RAM LAL NEGI) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 15.05.2019. * 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 ORDER DY/ASS TT. REGISTRAR, ITAT, MUMBAI.