ACIT 18(2), MUMBAI V. METROPOLITAN TRADING CO., MUMBAI

ITA 3218/MUM/2014

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2367 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 06-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AO SHRI VIJAY KUMAR SONI MS V
• Assessee Lawyers: CIRCUMSTANCES OF CASE
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH B MUMBAI. BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO 3218/MUM/2014 ASSESSMENT YEAR: - 2009-10 THE ACIT 18(2) ROOM NO. 115, 1 ST FLOOR, PIRAMAL CHAMBERS, PAREL, MUMBAI- 400012. VS.` M/S METROPOLITAN TRADING CO. 10/76, APTE PROPERTIES, OFF. HAINES ROAD, WORLI, MUMBAI 400 018. PAN/GIR NO. AAAFM1474C APPELLANT RESPONDENT ORDER PER RAJESH KUMAR, ACCOUNTANT MEMBER THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 26.02.2014 OF COMMISSIONER OF INCOME TAX (APPEALS) {(HEREINAFTER REFERRED TO AS CIT(A)} FOR A.Y. 2009-10. THE ONLY GROUND RAI SED IN THE APPEAL READS AS UNDER:- 1. 'ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) WAS NOT JUSTIFIED IN DELETING THE DISALLO WANCE MADE BY AO REVENUE BY SHRI VIJAY KUMAR SONI ASSESSEE BY MS. VASANTI B. PATEL DATE OF HEARING 29.10.2015 DATE OF PRONOUNCEMENT 20.11.2015 2 ITA NO 3218/MUM/2014 ASSESSMENT YEAR: - 2009-10 PAGE 2 OF 7 U/S. 14A R.W. RULE 8D WITHOUT APPRECIATING THE FACT THAT IT HAS BEEN CLARIFIED IN CBDT'S CIRCULAR NO. 5 OF 2011 DATED 11 .02.2014 THAT RULE 8D R. W. SECTION 14A OF THE ACT PROVIDES DISAL LOWANCE OF THE EXPENDITURE EVEN WHERE TAXPAYER IN A PARTICULAR YEA R HAS NOT EARNED ANY EXEMPT INCOME. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD.CIT(A) WAS NOT JUSTIFIED IN ACCEPTING THE WORKIN G OF DISALLOWANCE U/S 14A BY THE ASSESSEE WHICH WAS NOT AS PER RULE 8 D OF THE I. T. RULES. 2. COMMON ISSUE RAISED IN ALL THE GROUNDS OF APPEAL RELATE TO THE DELETION OF DISALLOWANCE BY CIT(A) U/S 14A R.W.R 8D. 3. FACTS IN BRIEF ARE THAT THE ASSESSEE WAS HAVING TAX FREE INCOME BY WAY OF DIVIDEND ON MUTUAL FUNDS AND SHARES OF RS. 74,84,92 4/- AND LONG TERM CAPITAL GAIN ON SHARES OF RS. 5,54,362/-. THE ASSES SEE ITSELF MADE DISALLOWANCE U/S 14A OF THE ACT TO THE TUNE OF RS. 6,37,751/-. T HE ASSESSEE WAS DOING JOB WORK FOR M/S ZODIAC CLOTHING CO. AND WAS DEALING I N TIES AND SHIRTS ETC. THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS, NOT ICED THAT THE ASSESSEE DISALLOWED ONLY RS. 6,37,751/- U/S 14A IN RELATION TO THE EXEMPT INCOME BEING EXPENSES RELATING TO EXEMPT INCOME BY NOT FOLLOW ING RULE 8D WHICH IS APPLICABLE FROM A.Y. 2008-09, THEREFORE, THE AO AF TER ISSUING SHOW-CAUSE NOTICE WORKED OUT THE DISALLOWANCE UNDER RULE 8D AT RS. 16,58,981/-. WHILE 3 ITA NO 3218/MUM/2014 ASSESSMENT YEAR: - 2009-10 PAGE 3 OF 7 WORKING OUT THE SAID DISALLOWANCE THE ASSESSEE ATTR IBUTED DIRECT EXPENSES TO THE TUNE OF RS. 6,37,757/- AS DIRECT EXPENSES U/S 1 4A RULE 8D(2)(I). UNDER RULE 8D(2)(II), THERE WAS NO DISALLOWANCE AS THERE WAS N O INTEREST DURING THE YEAR. THE AO WORKED OUT THE DISALLOWANCE UNDER RULE 8D(2 )(III) AT THE RATE OF 0.5% OF THE AVERAGE VALUE OF INVESTMENT WHICH CAME TO RS . 10,21,230/- AGGREGATING TO RS. 16,58,981/-. THE AO AFTER REDUCING RS. 6,37, 751/- , THE AMOUNT OF EXPENSES, THE ASSESSEE SUO MOTU DISALLOWED U/S 14A, MADE THE DISALLOWANCE AT RS. 10,21,230/- AS EXPENSES RELATING TO EXEMPT I NCOME NOT FORMING PART OF TOTAL INCOME. 4. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN AP PEAL BEFORE CIT(A) 5. THE CIT(A) DELETED THE ADDITION OF RS. 10,21,230 /- BY HOLDING THAT THE ASSESSEE VOLUNTARILY DISALLOWED RS. 6,37,751/- INCL UDING EXPENSES ON ACCOUNT OF SHARE TRANSFER CHARGES OF RS. 93/- AND SECURITY TRANSACTION CHARGES OF RS. 789/-. THE CIT(A) FURTHER OBSERVED THAT MAJOR PORTI ON OF THE DISALLOWANCE MADE BY THE ASSESSEE SUO MOTU INCLUDED SALARIES OF TWO EMPLOYEES WHO USED TO PARTLY LOOK AFTER THE INVESTMENT OF THE APPELLAN T FIRM AS WELL AS PARTNERS . FURTHER ON THE SAFER SIDE, THE ASSESSEE DISALLOWED THE ENTIRE SALARY OF THESE TWO EMPLOYEES . LD. CIT(A) FURTHER NOTED THAT THERE WAS NO EXPENSES IN THE PROFIT & LOSS ACCOUNT WHICH WERE OF COMMON NATURE WHICH REQUIRED APPORTIONMENT BETWEEN THE EXEMPT AND NON EXEMPT INC OME. BESIDES IT, THE CIT(A) ALSO MENTIONED IN PARA 5.1 OF THE IMPUGNED O RDER THAT THERE WAS NO OTHER EXPENDITURE DEBITED IN THE PROFIT & LOSS ACCO UNT WHICH COULD BE 4 ITA NO 3218/MUM/2014 ASSESSMENT YEAR: - 2009-10 PAGE 4 OF 7 ATTRIBUTED TO THE EXEMPT INCOME AND ALSO THAT THE A OS SATISFACTION WAS NOT ARRIVED AT IN A PROPER MANNER AND, THEREFORE, THE P ROVISIONS OF RULE 8D WERE NOT APPLICABLE. THE CIT(A) RELIED UPON THE DECISION IN THE CASE OF ACIT VS SIL INVESTMENT LTD. 26 TAXMAN 78 AND SESA GOA LTD. VS. JCIT 38 TAXMAN 34. 6. BEFORE US, THE LD. DR APPEARING FOR THE REVENUE, SUBMITTED THAT THE ORDER OF CIT(A) IS BAD TO THE EXTENT THAT THE CIT(A ) REVERSED THE ORDER OF AO WHICH APPLIED RULE 8D FOR ARRIVING AT THE DISALLOWA NCE RELATING TO THE EXEMPT INCOME OF THE ASSESSEE. HE FURTHER POINTED OUT THAT ASSESSEE HAD EARNED HUGE EXEMPT INCOME BY WAY OF DIVIDEND AND LONG TERM CAPI TAL GAIN AND, THEREFORE, THE AO HAS RIGHTLY INVOKED THE PROVISIONS OF SECTIO N 14A R.W.R 8D. 7. THE LD. AR, ON THE OTHER HAND, ARGUED THAT THE A SSESSEE SUO MOTU DISALLOWED RS. 6,37,751/- U/S 14A WHICH COULD BE TH E MAXIMUM AMOUNT DISALLOWED U/S 14A AS NO OTHER EXPENDITURE OF EXCLU SIVE OR COMMON NATURE WAS CHARGED TO THE PROFIT & LOSS ACCOUNT. THE LD. C OUNSEL FURTHER SUBMITTED THAT ASSESSEE WAS DOING JOB WORK FOR M/S ZODIAC CLO THING CO. LTD AND WAS DEALING IN TIES AND SHIRTS ALSO AND THE EXPENSES C HARGED TO THE PROFIT & LOSS ACCOUNT WERE DIRECTLY RELATED TO JOB WORK DONE OR T HE TRADING ACTIVITY CARRIED OUT BY THE ASSESSEE, THEREFORE, THE LD. AR PRAYED F OR UPHOLDING THE ORDER OF CIT(A) 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND CAR EFULLY PERUSED THE RELEVANT MATERIAL ON RECORD AND FIND FROM THE PROFI T & LOSS ACCOUNT FILED BY THE 5 ITA NO 3218/MUM/2014 ASSESSMENT YEAR: - 2009-10 PAGE 5 OF 7 LD. AR THAT THERE WAS NO EXPENSE OF COMMON NATURE I NCURRED OR CHARGED TO PROFIT & LOSS ACCOUNT BY THE ASSESSEE. A CLOSE PERU SAL OF PROFIT & LOSS ACCOUNT SHOWS THAT EXPENSES WERE EITHER RELATING TO MANUFAC TURING OF TIES RELATING TO TRADING ACTIVITY AND, THEREFORE, THE INVOCATION OF SECTION 14A R.W.R 8D APPEARS TO BE WRONG AND INCORRECT. WE FURTHER NOTE THAT THE CIT(A) HAD GONE INTO ISSUE OF EXPENSES RELATING TO EXEMPT INCOME VERY MINUTELY AND ARRIVED AT A CORRECT FINDING THAT THE DISALLOWANCE MADE BY THE AO TO THE TUNE OF RS. 10,21,230/- WAS WRONG BY APPLYING .05% OF AVERAGE VALUE OF INVE STMENT AS MADE BY THE AO U/S SUBSECTION 3 TO SECTION 14A. THE ASSESSEES CASE ALSO FINDS SUPPORT FROM THE TWO JUDGMENT (I) ACIT SIL INVESTMENT LTD. 26 TAXMAN 78 (II). SESA GOA LTD. VS. JCIT 38 TAXMAN 34. IN CASE OF ACIT V S SIL INVESTMENT LTD (SUPRA) IT HAS BEEN HELD THAT IT WAS WRONG ON THE PART OF THE AO TO APPLY RULE 8D(2)(III) TO COMPUTE THE DISALLOWANCE U/S 14A WHER E THE AO DID NOT ESTABLISH THAT THE ASSESSEE INCURRED EXPENSES IN R ELATION TO EXEMPT INCOME. IN THE CASE SESA GOA LTD VS JCIT(SUPRA), IT HAS BEEN HELD THAT THE AO BEFORE REJECTING THE DISALLOWANCE COMPUTED BY THE ASSESSE E , MUST GIVE A CLEAR CUT FINDING HAVING REGARDS AS TO THE ACCOUNT OF THE ASS ESSEE AS TO HOW THE EXPENDITURE CLAIMED BY THE ASSESSEE OUT OF NON EXE MPT INCOME WAS RELATED WITH THE EXEMPT INCOME. WE NOTE THAT THE ASSESSEE N OWHERE GAVE REASONS OR RECORDED HIS SATISFACTION AS TO HOW THE DISALLOWAN CE WORKED OUT BY THE ASSESSEE WAS NOT CORRECT AND THERE THE ORDER OF AO IS WRONG. WE ARE THEREFORE OF THE VIEW THAT THE FACTS OF THE ASSESSE ES CASE ARE SQUARELY COVERED BY ABOVE TWO DECISIONS AND RESPECTFULLY FOLLOWING THE RATIO LAID DOWN IN WE UPHOLD THE ORDER OF CIT(A). 6 ITA NO 3218/MUM/2014 ASSESSMENT YEAR: - 2009-10 PAGE 6 OF 7 9. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 20 TH DAY OF NOV. 2011. SD/- SD/- (JOGINDER SINGH) (RAJESH KUMAR) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) MUMBAI DATED 20-11-2015 SKS SR. P.S COPY TO: THE APPELLANT THE RESPONDENT THE CONCERNED CIT(A) THE CONCERNED CIT THE DR, G BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI