TATA PROJECTS LTD, MUMBAI V. DCIT CIRCLE - 2(3)(1), MUMBAI

ITA 329/MUM/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 0326 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-03-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2013-2014
• Appeal Filed On: 12-01-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D G
• Assessee Lawyers: R R VORA; VIPUAL SONI
• Keywords: Depreciation; Transfer pricing; Search and seizure; Opportunity of being heard; Principle of natural justice; Earning of tax free income; Period of limitation; Time period of passing order; Condonation of delay; Rule 8D; Set aside
• Section: 143(3); 14A

Judgement Text

E IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI SANDEEP GOSAIN, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO.329/ MUM/2018 ( / ASSESSMENT YEAR : 2013 - 14 TATA PROJECTS LIMITED, 2 ND ,3 RD AND 4 TH FLOOR, TRANSOCEAN HOUSE, LAKE BOULEVARD ROAD, HIRANANDANI GARDENS MHADA COLONY POWAI, MUMBAI - 400076 / V. DCIT CIRCLE - 2(3)(1) AAYAKAR BHAWAN M K ROAD MUMBAI - 400020 ./ PAN : AAACT4119L ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY: SHRI. R.R. VORA & SHRI. VIPUAL SONI REVENUE BY: SHRI. D.G. PANSARI (DR) / DATE OF HEARING : 26.03.2019 / DATE OF PRONOUNCEMENT : 29 .03.2019 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER: THIS APPEAL, FILED BY ASSESSEE, BEING ITA NO. 329/MUM/2018, IS DIRECTED AGAINST APPELLATE ORDER DATED 27.10.2017 IN APPEAL NO. CIT(A) - 6/IT - 52/2016 - 17, PASSED BY LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - 6, MUMBAI (HEREINAFTER CALLED THE CIT(A)), FOR A SSESSMENT YEAR 2013 - 14 , THE APPELLATE PROCEEDINGS HAD ARISEN BEFORE LEARNED CIT(A) FROM THE ASSESSMENT ORDER DATED 24.02.2016 PASSED BY LEARNED ASSESSING OFFICER (HEREINAFTER CALLED THE AO) U/S 143(3) OF THE INCOME - TAX ACT, 1961 (HEREINAFTER CALLED THE ACT) FOR AY 2013 - 14 . I.T.A. NO.329/MUM/2018 2 2. THE GROUNDS OF APPEAL RAISED BY ASSESSEE IN THE MEMO OF APPEAL FILED WITH THE INCOME - TAX APPELLATE TRIBUNAL, MUMBAI (HEREINAFTER CALLED THE TRIBUNAL) READ AS UNDER: - ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSION ER OF INCOME TAX (APPEALS) - 6 [ CIT(A)] HAS: DISALLOWANCE UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF THE INCOME - TAX RULES. 1962 ('THE RULES') GENERAL GROUND 1. ERRED IN CONFIRMING THE DISALLOWANCE UNDER SECTION 14A OF THE ACT BY INVOKING THE PROVISIONS OF RULE 8D OF THE INCOME - TAX RULES, 1962; NON RECORDING OF SATISFACTION BY AO WITH REGARD TO INCORRECTNESS OF THE CLAIM OF APPELLANT 2. ERRED IN CONFIRMING THE ACTION OF THE AO IN INVOKING RULE 8D OF THE RULES, WHEREI N THE AO APPLIED RULE 8D WITHOUT RECORDING ITS JUDICIAL SATISFACTION (AS REQUIRED UNDER SECTION 14A OF THE ACT) ON INCORRECTNESS OF THE CLAIM MADE BY THE APPELLANT, THEREBY NOT APPRECIATING THE FACT THAT THE APPELLANT SUO - MOTO OFFERED RS 26,83,723 FOR DISA LLOWANCE U/S 14A OF THE ACT; DISALLOWANCE OF ADMINISTRATIVE EXPENSES TOWARDS DIVIDEND INCOME 3. ERRED IN DISALLOWING 0.5% OF AVERAGE VALUE OF INVESTMENTS AS PER RULE 8D(2)(III) TOWARDS ADMINISTRATIVE EXPENSES WITHOUT APPRECIATING THAT APPELLANT'S SUO - MOTO DISALLOWANCE OF RS 26,83,723 INCLUDES THE ADMINISTRATIVE EXPENDITURE ATTRIBUTABLE TO EARNING EXEMPT INCOME; 4. WITHOUT PREJUDICE TO THE ABOVE , DISALLOWANCE UNDER SECTION 14A OF THE ACT SHOULD BE MADE ONLY FOR ACTUAL EXPENDITURE TO EARN EXEMPT INCOM E. 5. WITHOUT PREJUDICE TO THE ABOVE , WHILE COMPUTING DISALLOWANCE UNDER SECTION 14A OF THE ACT READ WITH RULE 8D, INVESTMENTS WHICH HAVE NOT YIELDED EXEMPT INCOME DURING THE YEAR OUGHT TO BE EXCLUDED. 6 . WITHOUT PREJUDICE TO THE ABOVE , WHILE COMPUTING DISALLOWANCE UNDER SECTION 14A OF THE ACT READ WITH RULE I.T.A. NO.329/MUM/2018 3 8D, STRATEGIC INVESTMENTS OF RS 9.57 CRORES SHOULD BE EXCLUDED FROM THE COMPUTATION OF TOTAL INVESTMENTS. 7. WITHOUT PREJUDICE TO THE ABOVE , DISALLOWANCE UNDER SECTION 14A IF ANY, SHOULD BE RESTRICTED TO REASONABLE PERCENTAGE OF DIVIDEND INCOME TOWARDS ADMINISTRATIVE EXPENSES NOT EXCEEDING 3% OF THE DIVIDEND INCOME. THE ABOVE GROUNDS OF APPEAL ARE DISTINCT AND SEPARATE AND WITHOUT PREJUDICE TO EACH OTHER. THE APPELLANT CRAVES, TO CONSIDER EACH OF THE ABOVE GROUNDS OF APPEAL WITHOUT PREJUDICE TO EACH OTHER AND CRAVES LEAVE TO ADD, ALTER, DELETE OR MODIFY ALL OR ANY OF THE ABOVE GROUNDS OF APPEAL. 3. THIS APPEAL IS FILED LATE BY 1 DAY BEYOND THE LIMITATION PERIOD AS IS PROVIDED U/S 253(3) OF THE 1961 ACT. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE THE BENCH THAT THE APPEAL OF THE ASSESSEE IS DELAYED BY 1 DAY BEYOND THE TIME STIPULATED FOR L IMITATION OF APPEAL U/S 253(3) OF THE 1961 ACT AND PRAYER S ARE MADE TO CONDONE THE AFORESAID DELAY . AN AFFIDAVIT DATED 11.01.2018 EXECUTED BY MR. SANTANU CHAKRABARTI HEAD - TAXATION OF THE ASSESSEE IS PLACED ON RECORD EXPLAINING REASONS FOR FILING THIS APPEA L LATE BY 1 DAY BEYOND TIME STIPULATED U/S 253(3) OF THE 1961 ACT, AS UNDER: - 3. THAT THE DUE DATE FOR FILING AN APPEAL BEFORE THE INCOME - TAX APPELLATE TRIBUNAL AGAINST THE SAID ORDER WAS 9 JANUARY 2018; 4. THAT THERE WERE MULTIPLE DEADLINES SUCH AS F ILING OF RETURN OF INCOME, TAX AUDIT REPORT, TRANSFER PRICING REPORT, ON - GOING TIME BARRING ASSESSMENT PROCEEDINGS AND WRIT PETITION PROCEEDINGS BEFORE THE HON'BIE BOMBAY HIGH COURT DURING THE MONTHS OF NOVEMBER AND DECEMBER 2017 AND THERE WERE PROCEEDINGS BEFORE THE ASSESSING OFFICER IN CONNECTION WITH OUTSTANDING DEMAND FOR AY 2014 - 15 RAISED VIDE ASSESSMENT ORDER DATED 30 DECEMBER 2017 INCLUDING SUBMISSIONS MADE ON 2 JANUARY 2018 AND 5 JANUARY 2018 AND PERSONAL HEARINGS UPTO 9 JANUARY 2018 IN RESPONSE TO INTIMATION ISSUED UNDER SECTION 245 OF THE INCOME - TAX ACT, 1961 FOR AY2015 - 16; I.T.A. NO.329/MUM/2018 4 5. THAT IN VIEW OF THE ABOVE, DUE TO OVERSIGHT THE APPEAL REMAINED TO BE FILED AGAINST THE CIT(A) ORDER ON OR BEFORE 9 JANUARY 2018; 6. THAT IT IS HUMBLY SUBMITTED THAT TH ERE IS NO INTENTION TO TAKE ADVANTAGE BY BELATED FILING OF THE APPEAL OR ANY ULTERIOR MOTIVE; 7. THAT IT IS HUMBLY SUBMITTED THAT THE DELAY IN FILING THE APPEAL WAS DUE TO THE ABOVE MENTIONED REASONS BEYOND THE CONTROL OF THE UNDERSIGNED, AND ACCORDINGL Y A PRAYER IS MADE TO YOUR HONOUR TO CONDONE THE DELAY AND ADMIT THE APPEAL AND DECIDE THE ISSUE ON MERITS IN THE INTEREST OF JUSTICE. 8. THAT THIS AFFIDAVIT IS MADE TO PUT ON RECORD THE FACTS. 3.2 THE ASSESSEE HAS ALSO SUBMITTED AN APPLICATION ALONG WITH THE AFORESAID AFFIDAVIT PRAYING FOR CONDONATION OF DELAY IN FILING THIS APPEAL BEFORE THE TRIBUNAL LATE BY 1 DAY BEYOND THE TIME STIPULATED U/S 253(3) OF THE 1961 ACT . THE ASSESSEE ALSO RELIED ON THE FOLLOWING JUDGMENT IN AN APPLICATION FILED WITH TR IBUNAL PRAYING FOR CONDONATION OF DELAY, AS UNDER: - MST KATIJI & OTHERS (1987) 167 ITR 471 (SC), STERLITE INDUSTRIES (INDIA) LTD. (2006) 102 TTJ (MUMBAI) 53 BALKRISHNAN V . M. KRISHNAMURTHY (1998) 7 SCC 123 LALA MATA DIN V. A NARAYAN AIR 1970 (SC) 1953 3. 3 THE LEARNED DR FAIRLY LEFT THE MATTER TO BE DECIDED BY THE BENCH IN ACCORDANCE WITH LAW. 3. 4 AFTER HEARING BOTH THE PARTIES AND PERUSING THE MATERIAL ON RECORD, WE ARE OF THE CONSIDERED VIEW THAT DELAY OF ONE DAY IN FILIN G THIS APPEAL WITH TRIBUNAL LATE BEYOND THE TIME STIPULATED U/S 253(3) OF THE 1961 ACT NEED TO BE CONDONED IN THE INTEREST OF JUSTICE. THE DELAY ON PART OF THE ASSSESSEE IS NOT INTENTIONAL AND SUFFICIENT REASONS HAVE BEEN SHOWN BY THE ASSESSEE IN ITS AFFID AVIT EXPLAINING DELAY OF ONE DAY. WHEN TECHNICALITIES ARE PITTED AGAINST SUBSTANTIAL JUSTICE, THE COURTS WILL LEAN TOWARDS SUBSTANTIAL JUSTICE UNLESS MALAFIDE OR GROSS I.T.A. NO.329/MUM/2018 5 NEGLIGENCE ON THE PART OF LITIGANT IS SHOWN . AT BEST BY ADMITTING THIS APPEAL, THE ISSUE WILL BE DECIDED ON MERIT IN ACCORDANCE WITH LAW INSTEAD OF SHUTTING THE DOORS OF JUSTICE TO THE LITIGANT AT THRESHOLD BY DISMISSING THE APPEAL ON SHORT GROUND OF BEING FILED WITH TRIBUNAL BEYOND THE TIME PRESCRIBED U/S 253(3) OF THE 1961 ACT , WHICH WILL BE CONTRARY TO CANNONS OF JUSTICE AND EQUITY. THUS, IN THE INTEREST OF SUBSTANTIAL JUSTICE AND IN EXERCISE OF OUR POWERS AS ARE PROVIDED U/S 253(5) OF THE 1961 ACT, WE CONDONE DELAY OF ONE DAY IN FILING THIS APPEAL LATE BY THE ASSESSEE BEYOND THE TIME STI PULATED U/S 253(3) OF THE 1961 ACT AND ADMIT THIS APPEAL TO BE DECIDED ON MERITS IN ACCORDANCE WITH LAW. WE ORDER ACCORDINGLY. 4. THE BRIEF FACTS OF THE CASE ARE THAT T HE ASSESSEE IS ENGAGED IN THE BUSINESS OF ERECTION AND TURNKEY CONTRACTS INCLUDING SUPP LY OF MATERIAL, PROVIDING TECHNICAL SERVICES AND MANUFACTURE OF TOWERS. IT WAS OBSERVED BY THE AO DURING THE COURSE OF ASSESSMENT PROCEEDING S U/S. 143(3) READ WITH SECTION 143(2) OF THE 1961 ACT THAT THE ASSESSEE HAS EARNED AN EXEMPT INCOME IN THE FORM OF DIVIDEND OF RS. 10,96,66,355/ - . THE ASSESSEE HAD MADE SUO - MOTO DISALLOWANCE OF RS. 26,83,723/ - U/S. 14A OF THE 1961 ACT TOWARDS EXPENDITURE INCURRED IN RELATION TO EARNING OF AN EXEMPT INCOME IN THE RETURN OF INCOME FILED WITH REVENUE. THE ASSESSEE WAS SHOW CAUSED BY THE AO THAT DISALLOWANCE OF EXPENSES INCURRED IN RELATION TO EARNING OF AN EXEMPT INCOME WAS NOT MADE AS PER S ECTION 14A OF THE 1961 ACT READ WITH RULE 8D OF THE 1962 RULES . THE ASSESSEE CLAIMED THAT IT HAD MADE DISALLOWANCE OF RS. 26,83,723 / - U/S 14A OF THE 1961 ACT AS EXPENSES INCURRED IN RELATION TO EARNING OF AN EXEMPT INCOME AND NO FURTHER DISALLOWANCE IS WARRANTED. THE BREAK - UP OF THESE EXPENSES WERE FURNISHED BY THE ASSESSEE BEFORE THE AO, AS DETAILED HEREUNDER: SR N O. NATURE OF EXPEN SES AMOUNT (IN RS) 1 TELEPHONE EXPENSES 1,00,000 2 STATIONERY 2,30,000 I.T.A. NO.329/MUM/2018 6 3 SALARIES (BASED ON PROPORTIONATE TIME SPENT BY CERTAIN EMPLOYEES) 23,53,723 TOTAL 26,83,723 THE AMOUNT OF SALARY IS ARRIVED AT AS UNDER: SR. NO NAME OF EMPLOYEE COST TO COMPANY (RS) PROPORTION OF TIME SPENT ON EARNING EXEMPT INCOME AMOUNT (RS) 1 K. S. KRISHNAN 48,66,966 20% 9,73,393 2 R BALASUBRAMANIU AM 20,35,900 50% 10.17,950 3 N RAMAMURTHY 18,11,900 20% 3 62 380 TOTAL 23,53,723 THE RATIONALE FOR THE DISALLOWANCE OF SALARY EXPENSES WERE GIVEN BY THE ASSESSEE BEFORE THE AO AS THAT ONCE INVESTMENTS ARE MADE, NOTHING FURTHER NEEDS TO BE DONE AS DIVIDEND IS DIRECTLY REINVESTED INTO THE INVESTMENT/CREDITED TO THE BANK ACCOUNT AND NO OTHER TRANSACTIONS ARE AFFECTED. THE RATIONALE FOR DISALLOWING PROPORTIONATE SALARY WAS GIVEN AND IT WAS SUBMITTED THAT SMALL AMOUNT OF OVERHEAD WERE ALSO DISALLOWED CORRECTLY. 4 .2 THE AO WENT THROUGH THE SUBMISSIONS OF THE ASSESSEE AS TO ASSESSEES CLAIM THAT IT INCURRED RS. 26,83,723/ - AS AN EXPENSES IN RELATION TO EARNING OF AN EXEMPT INCOME BY WAY OF DIVIDEND OF RS. 10.97 CRORES WHICH NEEDED TO BE DISALLOWED U/S 14A OF THE 1961 ACT. THE AO OBSERVED THAT THE ASSESSEE HAS AN AVERAGE INVESTMENT OF RS. 9,386.55 LACS AS ON 31.03.2013 FROM WHICH AN EXEMP T INCOME BY WAY OF DIVIDEND IS EARNED. IT WAS ALSO OBSERVED BY THE AO THAT THE ASSESSEE HAS ALSO MADE FRESH INVESTMENT S DURING THE YEAR . THE AO OBSERVED THAT THESE INVESTMENTS CANNOT BE MANAGED UNLESS SEVERAL EXPENSES ARE INCURRED FOR MANAGING THESE INVESTMENTS FOR WHICH ANALYSIS AN D EXPERTISE IS REQUIRED . THE AO OBSERVED THAT SUBSTANTIAL I.T.A. NO.329/MUM/2018 7 TIME AND COSTS ARE REQUIRED TOWARDS SALARY, CONVEYANCE, TRAVELLING, TELEPHONE/MOBILE BILLS, STATIONARY ETC. AND IT IS DIFFICULT TO ASCERTAIN THESE EXPENSES ON QUANTITATIVE BASIS , WHILE APPROXIMATIO N HAS TO BE DONE FOR COMPUTING DISALLOWANCE THE AO ALSO OBSERVED THAT THE ASSESSEE WOULD BE IN RECEIPT OF VARIOUS DAILY REPORTS , FORTNIGHTLY REPORTS AND MONTHLY REPORTS AT REGULAR INTERVALS SO THAT THE ASSESSEE CAN TAKE INFORMED DECISION REGARDING DEPLOY MENT/REDEMPTION OF ITS INVESTMENTS. THE AO ALSO OBSERVED THAT SINCE AY 2008 - 09 ONWARDS , RULE 8D OF THE INCOME - TAX RULES, 1962 IS APPLICABLE AS HELD BY HONBLE BOMBA Y HIGH COURT IN THE CASE OF GOD R E J AND BOYCE MANUFACTURING COMPANY LIMITED (2010) 328 ITR 81(BOM.) . THUS, THE AO HAD CLAIMED TO HAVE RECORDED SATISFACTION IN THE AFORESAID MANNER AS IS CONTEMPLATED U/S 14A(2) OF THE 1961 ACT 4 .3 THE AO , HOWEVER, DID NOT MAKE ANY DISALLOWANCE U/S. 14A OF THE 1961 ACT READ WITH RULE 8D2(II) OF THE 1961 ACT BY FOLLOWING DECISION OF MUMBAI - TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2008 - 09 TO 2010 - 11 , AS THE ASSESSEE HAD DEMONSTRATED BEFORE THE AO THAT OWNED FUNDS AVAILABLE WITH THE ASSESSEE ARE SUFFICIENT TO COVER INVESTMENTS MADE DURING THE IMPUGNED ASSESSMENT YEA R UNDER CONSIDERATION . 4 .4 THE AO HOWEVER MADE DISALLOWANCE OF ADMINISTRATIVE EXPENSES OF RS. 46,93,278/ - U/S. 14A OF THE 1961 ACT READ WITH RULE 8D2(III) OF THE 1962 RULES , WHILE THE ASSESSEE HAD SUO - MOTO DISALLOWED RS. 26,83,723/ - U/S 14A OF THE 1961 ACT , VIDE ASSESSMENT ORDER DATED 24.02.2016 PASSED BY THE AO U/S 143(3) OF THE 1961 ACT . THE AO WHILE MAKING DISALLOWANCE OF EXPENSES U/S 14A OF THE 1961 ACT BY APPLYING RULE 8D(2)(III) OF THE 1962 RULES ALSO CONSIDERED ORDER OF MUMBAI TRIBUNA L IN ASSESSEES OWN CASE FOR AY 2008 - 09 TO 2010 - 11 , WHEREIN TRIBUNAL HELD THAT CERTAIN EXPENSES ARE BOUND TO BE INCURRED FOR MANAGING SUCH HUGE INVESTMENT S . 5 . AGGRIEVED BY AN ASSESSMENT ORDER DATED 24.02.2016 FRAMED BY THE AO U/S 143(3) OF THE 1961 ACT , THE ASSESSEE FILED FIRST APPEAL WITH I.T.A. NO.329/MUM/2018 8 LEARNED CIT(A) WHO WAS PLEASED TO DISMISS THE APPEAL OF THE ASSESSEE VIDE APPELLATE ORDER DATED 27.10.2017 , WHEREIN LEARNED CIT(A) HELD THAT THE ASSESSEE HAS NOT ADOPTED ANY SCIENTIFIC BASIS FOR DISALLOWANCE OF EXPE N SES RELATABLE TO EARNING OF AN EXEMPT INCOME NOR EXACT EXPENSES WHICH WERE INCURRED FOR EARNING OF AN EXEMPT INCOME WAS WORKED OUT BY THE ASSESSEE. THE LEARNED CIT(A) UPHELD THE DECISION OF THE AO IN INVOKING RULE 8D OF THE 1962 RULES AND IT WAS HELD THAT THE ADDITIONS SO MADE BY THE AO U/S 14A OF THE 1961 ACT READ WITH RULE 8D(2)(III) OF THE 1962 RULES ARE I N ACCORDANCE WITH MUMBAI - TRIBUNAL ORDER IN ASSESSEES OWN CASE FOR AY 2008 - 09 TO 2011 - 12 . 6 . STILL AGGRIEVED BY THE APPELLATE ORDER DATED 27.10.2017 P ASSED BY LEARNED CIT(A) , THE ASSESSEE HAS FILED SECOND APPEAL WITH TRIBUNAL . 7. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IN THIS APPEAL CONCERNS DISALLOWANCE OF EXPENSES INCURRED IN RELATION TO EARNING OF AN EXEMPT INCOME , U/S 14A OF THE 1961 ACT. IT WAS SUBMITTED THAT NO DISALLOWANCE WERE MADE TOWARDS INTEREST EXPENDITURE BY INVOKING RULE 8D(2)(II) OF THE 1962 RULES READ WITH SECTION 14A OF THE 1961 ACT , WHILE ADMINISTRATIVE EXPENSES WERE DISALLOWED TO THE TUNE OF RS. 46,9 3,278/ - BY APPLYING RULE 8D(2)(III) OF THE 1962 RULES READ WITH SECTION 14A OF THE 1961 ACT. IT WAS SUBMITTED THAT THE ASSESSEE HAD GIVEN COMPLETE DETAIL S OF THE EXPENSES INCUR RED BY IT TOWARD EARNING OF AN EXEMPT INCOME WHICH WERE TO TH E TUNE OF RS. 26,83 ,723/ - , WHILE THE DISALLOWANCE WAS MADE U/S. 14A OF THE 1961 ACT BY APPLYING RULE 8D2(III) OF THE 1962 RULES @ 0.5% OF THE AVERAGE INVESTMENTS, WHICH LED TO DISALLOWANCE TO THE T UNE OF RS. 46,93,278/ - . IT WAS SUBMITTED BY LEARNED COUNSEL FOR THE ASSESSEE , WITHOUT PREJUDICE , THAT EVEN IF RULE 8D(2)(III) OF THE 1962 RULES READ WITH SECTION 14A OF THE 1961 ACT IS TO BE INVOKED, THEN ONLY THOSE INVESTMENTS ARE TO BE TAKEN INTO ACCOUNT WHILE COMPUTING AVERAGE INVESTMENTS WHICH ACTUALLY YIELDED AN EXEMPT INCOME IN VIEW OF DECISION OF SPECIAL B ENCH OF ITAT, DELHI IN THE CASE OF ACIT V. VIREET INVESTMENT PRIVATE LIMITED (2017) 165 ITD 27(DEL. SB - TRIB.). IT WAS I.T.A. NO.329/MUM/2018 9 CONCEDED BY LEARNED COUNSEL FOR THE ASSESSEE THAT IN VIEW OF DECISION OF HONBLE SUPREME COURT IN THE CAS E OF MAXOPP INVESTMENT LIMITED V. CIT REPORTED IN (2018) 402 ITR 640 (SC), NOW EVEN STRATEGIC INVESTMENTS IN ASSOCIATED CONCERNS/SUBSIDIARIES ARE ALSO TO BE COVERED FOR MAKING DISALLOWANCE U/S 14A READ WITH RULE 8D OF THE 1962 RULES FOR COMPUTING AVERAGE I NVESTMENTS HELD BY THE ASSESSEE. IT WAS SUBMITTED THAT NO INDEPENDENT SATISFACTION WAS RECORDED BY THE AO WHILE INVOKING RULE 8D OF THE 1962 RULES AS IS MANDATED U/S 14A(2) OF THE 1961 ACT . REFERENCE WAS MADE TO THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF GODREJ AND BOYCE MANUFACTURING COMPANY LIMITED V. DCIT (2017) 394 ITR 449(SC). I T WAS SUBMITTED THAT ASSESSEES APPEAL FOR AY 2008 - 09 TO 2010 - 11 WERE DECIDED BY THE TRIBUNAL IN ASSESSE S OWN CASE IN ITA NO. 544 & 1677 /MUM/2012 FOR AY 2008 - 09, ITA NO. 171 8/MUM/20 13 & CO NO. 09/MUM/2013 ARISING OUT OF ITA NO. 1718/MUM/2013 FOR AY 2009 - 10 AND ITA NO. 5881 & 6641 /MUM/2013 & CO. NO. 10/MUM/2013 FOR AY 2010 - 11, VIDE COMMON ORDER DATED 21.02.2014 , WHEREIN THE TRIBUNAL WAS PLEASED TO HOLD THAT RULE 8D IS APPLICABLE FOR THE IMPUGNED ASSESSMENT YEAR S AND CERTAIN EXPENSES ARE BOUND TO BE INCURRED FOR EARNING OF AN EXEMPT INCOME. THE DIRECTIONS WERE GIVEN BY THE TRIBUNAL TO THE AO TO COMPUTE THE TOTAL EXPENDITURE INCURRED BY THE ASSESSEE TOWARD EARNING OF AN EXEMP T INCOME. 7 . 2 IT WAS SUBMITTED BY LEARNED COUNSEL FOR THE ASSESSEE THAT WHILE DECIDING APPEAL OF THE ASSESSEE FOR AY 2011 - 12 IN ITA NO. 1018/MUM/2015 VIDE ORDER DATED 17.10.2016 ON THE ISSUE OF DISALLOWANCE OF ADMINISTRATIVE EXPENSES , THE TRIBUNAL HAS SET ASIDE THE ISSUE TO THE FILE OF THE AO BY FOLLOWING AFORESAID DECISION OF CO - ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2008 - 09 TO 2010 - 11 . 7 .3 O UR ATTENTION WAS DRAWN BY LEARNED COUNSEL FOR THE ASSESSEE TO THE DECISION OF CO - ORDINATE BENCHES OF THE TRIBUNAL IN THE CASE OF ACIT V . CYRUS INVESTMENT S PRIVATE LTD., IN ITA NO. 6414/MUM/2016 FOR AY I.T.A. NO.329/MUM/2018 10 2012 - 13 VIDE ORDERS DATED 09.05.2018 WHEREIN ONE OF US BEING ACCOUNTANT MEMBER WAS PART OF THE DIVISION B ENCH WHO DECIDED THE SAID A PPEAL . IT WAS SUBMITTED THAT THE ADDITIONS WERE DELETED ON THE GROUNDS THAT AO HAD NOT RECORDED SATISFACTION U/S. 14A(2) AS TO WHY DISALLOWANCE MADE BY THE ASSESSEE VOLUNTARILY IS NOT A CORRECT DISALLOWANCE AND THE DISALLOWANCE OF EXPENDITURE U/S 14A SO M ADE BY THE ASSESSEE SUO MOTO WERE UPHELD. IT WAS SUBMITTED BY LD. COUNSEL FOR THE ASSESSEE THAT NO INDEPENDENCE SATISFACTION WAS RECORDED BY THE AO AS IS REQUIRED U/S 14A(2) IN THE INSTANT CASE BEFORE US. RELIANCE IS PLACED ON THE DECISION OF HONBLE SUPRE ME COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. (SUPRA) , AND IT WAS SUBMITTED THAT IN CASE NO INDEPENDENT SATISFACTION IS RECORDED BY THE AO , ADDITION AS WERE MADE U/S 14A CANNOT BE SUSTAINED. IT WAS SUBMITTED THAT THE ASSESSEE MAKE INVESTME NT ON THE DIRECTION OF THE TATA MUTUAL FUND . I T WAS SUBMITTED BY LEARNED COUNSEL FOR THE ASSESSEE THAT AO DID NOT ASK ANY QUESTION WITH RESPECT TO SUBMISSION S MADE BY THE ASSESSEE REGARDING BREAKUP OF THE EXPENSES CLAIM ED TO BE INCURRED FOR EARNING OF AN EXEMPT INCOME. I T WAS SUBMITTED THAT THERE WAS NO REBUTTABLE BY REVENUE WITH RESPECT TO SUO MOTO DISALLOWANCE MADE BY THE ASSESSEE. OUR ATTENTION WAS ALSO DRAWN TO PARA 6.3 AND 6.5 OF THE APPELLATE ORDER PASSED BY THE LD. CIT(A). I T WAS SUBMITTED BY LEARNE D COUNSEL FOR THE ASSESSEE THAT TRIBUNAL ORDERS FOR AY 2008 - 09 TO 2010 - 11 WERE MISREAD BY BOTH AO AS WELL BY LD. CIT(A). THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT LEARNED CIT(A) REFERRED TO NON SUBMISSION OF CALCULATION OF DISALLOWANCE BASED ON SCIENTIFIC METHOD FOR WORKING OF DISALLOWANCE OF THE EXPENSES INCURRED IN RELATION TO EARNING OF AN EXEMPT INCOME , WHICH IT IS CLAIMED IS NOW BEEN SUBMITTED BY THE ASSESSEE BEFORE THE BENCH, AS UNDER: - DISALLOWANCE OF EXPENDITURE ATTRIBUTABLE TO EXE MPT INCOME UNDER SECTION 14A REVENUE AMOUNT (IN CRORES) I.T.A. NO.329/MUM/2018 11 TOTAL TAXABLE RECEIPTS (A) (EXCLUDING DIVIDEND INCOME) 3,530.68 TOTAL EXEMPT INCOME (B) (GROUPED UNDER OTHER INCOME) 10.97 TOTAL RECEIPTS : (C ) = (A) + (B) 3,541.64 NATURE OF EXPENSE AMOUNT (IN CRORES) TOTAL EXPENSES RELATED TO OPERATIONS (D) 3,384.14 EXPENSES RELATED TO COMPOSITE ACTIVITIES RENT 20.04 POSTAGE, TELEPHONE, TELEGRAM & TELEX 4.82 PRINTING & STATIONERY 2.62 AMORTISATION FOR DIMINUTION IN INVESTMENT VALUE 0.00 MISCELLANEOUS EXPENSES 14.73 TOTAL EXPENSES RELATED TO COMPOSITE ACTIVITIES (E) 42.21 TOTAL EXPENSES DEBITED TO PROFIT AND LOSS ACCOUNT (F) 3,426.35 DISALLOWANCE UNDER SECTION 14A PARTICULARS AMOUNT (IN CRORES) COMPOSITE EXPENSES APPORTIONED TO EXEMPT INCOME : (G) = (E) * (B) / (C) 0.13 EMPLOYEE COST APPORTIONED TO EXEMPT INCOME : (H) 0.24 TOTAL EXPENSES APPORTIONABLE TO EXEMPT INCOME: (I) = (G) + (H) 0.37 D ISALLOWANCE AS PER RULE 8D(III) MADE IN ASSESSMENT ORDER DATED 16 MARCH 2015 PASSED UNDER SECTION 143(3) OF THE ACT OPENING VALUE OF INVESTMENTS: (J) 45.50 CLOSING VALUE OF INVESTMENTS: (K) 142.23 AVERAGE VALUE OF INVESTMENTS : (1) = [(J) + (K)]/2 93.87 DISALLOWANCE OF 0.5% OF THE AVERAGE VALUE OF INVESTMENTS : (M) = (1) * 0.5% 0.47 AMOUNT ALREADY DISALLOWED IN RETURN OF INCOME : (N) 0.27 ADDITIONAL DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D : (O) = (M) - (N) 0.20 EXCESS DISALLOWANCE UNDER SECTION 14A AS PER RULE 8D (P) = (M) - (1) 0.10 I.T.A. NO.329/MUM/2018 12 IT IS SUBMITTED THAT AS PER ABOVE CALCULATIONS , ADDITIONAL DISALLOWANCE OF EXPENDITURE INCURRED IN RELATION TO EARNING OF AN EXEMPT INCOME HAVING REGARDS TO ACCOUNTS OF THE ASSESSEE OF APPROX. RS. 10 LACS IS FURTHER REQUIRED TO BE MADE U/S 14A OF THE 1961 ACT . 7 .4 WITHOUT PREJUDICE, IT IS CLAIMED THAT IF RULE 8D(2)(III) OF THE 1962 RULES READ WITH SECTION 14A OF THE 1961 ACT IS INVOKED, THEN IN THAT CASE ONLY THOSE INVESTMENTS SHOULD BE CONSIDERED FOR MAKING DISALLOWANCE U/S 14A OF THE 1961 ACT WHICH ACTUALLY YIELDED AN EXEMPT INCOME. THE RELIANCE IS PLACED ON THE DECISION OF SPECIAL BENCH OF DELHI - TRIBUNAL IN THE CASE OF ACIT V. VIREET INVESTMENT PRIVATE LIMITED (2017) 165 ITD 27(DEL. SB - TRIB.). THE LEARNED COUNSE L FOR THE ASSESSEE SUBMITTED BEFORE T HE BENCH DETAILS OF THE INVESTMENTS ON WHICH IT IS CLAIMED THAT EXEMPT INCOME BY WAY OF DIVIDEND INCOME WAS EARNED DURING THE YEAR , WHICH IS PLACED IN FILE. 7 .5 I T WAS SUBMITTED BY LEARNED COUNSEL FOR THE ASSESSEE THAT ASSESSEE HAD DISCHARGE D ITS ONUS IN THE COURSE OF PROCEEDINGS BEFORE THE AUTHORITIES BELOW AND DISALLOWANCE U/S 14A BE RESTRICTED TO RS. 26,83,723 / - . IT WAS CLAIMED THAT THE AO AS WELL LEARNED CIT(A) MISREAD THE APPELLATE ORDER PASSED BY TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2008 - 09 TO 2010 - 11. 8 . THE LD. DR ON THE OTHER HAND SUBMITTED THAT RULE 8D IS TO BE APPLI ED AS THE ASSESSEE HAS NOT ADOPTED ANY SCIENTIFIC BASIS/METHOD FOR COMPUTING DISALLOWANCE OF EXPENSES INCURRED IN RELATION TO EARNING OF AN EXEMPT INCOME U/S. 14A OF THE 1 961 ACT , HAVING REGARDS TO THE ACCOUNTS OF THE ASSESSEE . THE LEARNED DR ALSO RELIED UPON APPELLATE ORDER PASSED BY LD. CIT(A). THE LEARNED DR SUBMITTED THAT MATTER CAN BE RESTORED TO THE FILE OF THE AO FOR VERIFICATION OF THE COMPUTATION OF DISALLOWANCES CLAIMED TO BE SUBMITTED BY THE ASSESSEE NOW BEFORE THE BENCH. THE LEARNED DR ALSO SUBMITTED THAT THE TRIBUNAL FOR ALL THE YEARS I.E. AY 2008 - 09 TO 2011 - 12 HAD RESTORED THE ISSUE TO THE FILE OF THE AO AND FOR THIS YEAR ALSO IT IS CLAIMED BY LEARNED DR THAT THE I.T.A. NO.329/MUM/2018 13 ISSUES IN THIS APPEAL MAY ALSO BE RESTORED TO THE FILE OF THE AO WITH SIMILAR DIRECTIONS. 9 . WE HAVE CONSIDERED RIVAL CONTENTION S AND HAVE PERUSED THE MATERIAL ON RECORD . WE HAVE OBSERVED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF ERECTION AND T URNKEY CONTRACTS INCLUDING SUPPLY OF MATERIAL, PROVIDING TECHNICAL SERVICES AND MANUFACTURE OF TOWERS. THE ASSESSEE HAS EARNED AN EXEMPT INCOME IN THE FORM OF DIVIDEND OF RS. 10,96,66,355/ - DURING THE PREVIOUS YEAR RELEVANT TO THE IMPUGNED ASSESSMENT YEAR . THE ASSESSEE MADE SUO - MOTO DISALLOWANCE OF RS. 26,83,723/ - U/S. 14A OF THE 1961 ACT TOWARDS EXPENDITURE INCURRED IN RELATION TO EARNING OF AN EXEMPT INCOME IN THE RETURN OF INCOME FILED WITH REVENUE. THE BREAK - UP OF THESE EXPENSES WHICH WERE OFFERED FOR DISALLOWANCE U/S 14A OF THE 1961 ACT WERE FURNISHED BY THE ASSESSEE BEFORE THE AO, AS DETAILED HEREUNDER: SR N O. NATURE OF EXPENSES AMOUNT (IN RS) 1 TELEPHONE EXPENSES 1,00,000 2 STATIONERY 2,30,000 3 SALARIES (BASED ON PROPORTIONATE TIME SPENT BY CERTAIN EMPLOYEES) 23,53,723 TOTAL 26,83,723 THE AMOUNT OF SALARY IS ARRIVED AT AS UNDER: SR. NO NAME OF EMPLOYEE COST TO COMPANY (RS) PROPORTION OF TIME SPENT ON EARNING EXEMPT INCOME AMOUNT (RS) 1 K. S. KRISHNAN 48,66,966 20% 9,73,393 2 R BALASUBRAMANIU AM 20,35,900 50% 10.17,950 3 N RAMAMURTHY 18,11,900 20% 3 62 380 TOTAL 23,53,723 I.T.A. NO.329/MUM/2018 14 ON BEING SHOW CAUSED BY THE AO AS TO JUSTIFY THAT DISALLOWANCE OF EXPENSES AS WERE MADE BY THE ASSESSEE IS IN ACCORDANCE WITH SECTION 14A OF THE 1961 ACT READ WITH RULE 8D OF THE 1962 RULES, THE ASSESSEE JUSTIFY THAT IT HAD CORRECTLY MADE DISALLOWANCE OF E XPENSES INCURRED IN RELATION TO EARNING OF AN EXEMPT INCOME U/S 14A OF THE 1961 ACT AND NO FURTHER DISALLOWANCE OF EXPENSES IS WARRANTED. THE RATIONALE FOR THE DISALLOWANCE OF SALARY EXPENSES WERE GIVEN BY THE ASSESSEE BEFORE THE AO AS THAT ONCE INVESTMENT S ARE MADE, NOTHING FURTHER NEEDS TO BE DONE AS DIVIDEND IS DIRECTLY REINVESTED INTO THE INVESTMENT/CREDITED TO THE BANK ACCOUNT AND NO OTHER TRANSACTIONS ARE AFFECTED. THE RATIONALE FOR DISALLOWING PROPORTIONATE SALARY WAS GIVEN AND IT WAS SUBMITTED T HAT SMALL AMOUNT OF OVERHEAD WERE ALSO DISALLOWED CORRECTLY. THE AUTHORITIES BELOW WERE OF THE VIEW THAT THE ASSESSEE HAS NOT ADOPTED SCIENTIFIC METHOD/BASIS FOR MAKING DISALLOWANCE OF EXPENSES INCURRED IN RELATION TO EARNING OF AN EXEMPT INCOME U/S 14A HAVIN G REGARDS TO ACCOUNTS OF THE ASSESSEE. THE AUTHORITIES BELOW OBSERVED THAT THE ASSESSEE EARNED EXEMPT INCOME BY WAY OF DIVIDEND OF RS. 10.97 CRORES. THE ASSESSEE HAS AN AVERAGE INVESTMENT OF RS. 9,386.55 LACS AS ON 31.03.2013 FROM WHICH AN EXEMPT INCOME BY WAY OF DIVIDEND IS EARNED. THE ASSESSEE HAS ALSO MADE FRESH INVESTMENTS DURING THE YEAR. THE AUTHORITIES BELOW OBSERVED THAT THESE INVESTMENTS CANNOT BE MANAGED UNLESS SEVERAL EXPENSES ARE INCURRED FOR MANAGING THESE INVESTMENTS FOR WHICH ANALYSIS AND EX PERTISE IS REQUIRED . THE AUTHORITIES BELOW HAD OBSERVED THAT SUBSTANTIAL TIME AND COSTS ARE REQUIRED TOWARDS SALARY, CONVEYANCE, TRAVELLING, TELEPHONE/MOBILE BILLS, STATIONARY ETC. AND IT IS DIFFICULT TO ASCERTAIN THESE EXPENSES ON QUANTITATIVE BASIS, WHI LE APPROXIMATION HAS TO BE DONE FOR COMPUTING DISALLOWANCE THE AUTHORITIES BELOW HAD OBSERVED THAT THE ASSESSEE WOULD BE IN RECEIPT OF VARIOUS DAILY REPORTS , FORTNIGHTLY REPORTS AND MONTHLY REPORTS AT REGULAR INTERVALS SO THAT THE ASSESSEE CAN TAKE INFOR MED DECISION REGARDING DEPLOYMENT/REDEMPTION OF ITS INVESTMENTS. THE AUTHORITIES BELOW CONCLUDED THAT NO SCIENTIFIC METHOD/BASIS WAS ADOPTED BY THE ASSESSEE FOR MAKING DISALLOWANCE OF I.T.A. NO.329/MUM/2018 15 EXPENSES INCURRED IN RELATION TO EARNING OF AN EXEMPT INCOME U/S 14A OF THE 1961 ACT. THE AUTHORITIES BELOW WERE OF THE VIEW THAT THE ASSESSEE HAS NOT GIVEN EXACT EXPENSES INCURRED BY THE ASSESSEE FOR EARNING OF AN EXEMPT INCOME WHICH NEEDED TO BE DISALLOWED U/S 14A OF THE 1961 ACT AND THE DISALLOWANCE OF EXPENSES OFFERED BY T HE ASSESSEE U/S 14A WAS REJECTED BY THE AUTHORITIES BELOW. THE AUTHORITIES BELOW INVOKED RULE 8D OF THE 1962 RULES AND MADE DISALLOWANCE OF ADMINISTRATIVE EXPENSES OF RS. 46,93,278/ - U/S. 14A OF THE 1961 ACT READ WITH RULE 8D2(III) OF THE 1962 RULES . HOW EVER, NO DISALLOWANCE OF INTEREST EXPENDITURE WERE MADE BY AUTHORITIES BELOW BY INVOKING RULE 8D(2)(II) OF THE 1962 RULES READ WITH SECTION 14A OF THE 1961 ACT. THE MUMBAI TRIBUNAL WHILE ADJUDICATING ASSESSEES OWN APPEAL FOR AY 2008 - 09 TO 2010 - 11 IN ITA NO. 544 & 1677 /MUM/2012 FOR AY 2008 - 09, ITA NO. 1718/MUM/2013 & CO NO. 09/MUM/2013 ARISING OUT OF ITA NO. 1718/MUM/2013 FOR AY 2009 - 10 AND ITA NO. 5881 & 6641 /MUM/2013 & CO. NO. 10/MUM/2013 FOR AY 2010 - 11, VIDE COMMON ORDER DATED 21.02.2014, HELD THAT RUL E 8D OF THE 1962 RULES IS APPLICABLE FOR ASSESSMENT YEARS 2008 - 09 TO 2010 - 11 AND CERTAIN EXPENSES ARE BOUND TO BE INCURRED FOR EARNING OF AN EXEMPT INCOME. THE DIRECTIONS WERE GIVEN BY THE TRIBUNAL TO THE AO TO COMPUTE THE TOTAL EXPENDITURE INCURRED BY THE ASSESSEE TOWARD EARNING OF AN EXEMPT INCOME , BY HOLDING AS UNDER: - 9. AS REGARD, THE DISALLOWANCE OF ADMINISTRATIVE EXPENSES, THE LD. AR OF THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE SUO - MOTO DISALLOWED RS.10.17 LAKH WHICH ARE SUFFICIENT CONSIDERING THE NATURE AND VOLUME OF THE TRANSACTION. HE HAS FURTHER SUBMITTED THAT TH E AO HAS NOT GIVEN THE FINDING THAT THE ASSESSEE HAS INCURRED ANY EXPENDITURE FOR EARNING THE EXEMPT INCOME THEREFORE, THE PROVISIONS OF SECTION 14A CANNOT BE INVOKED. ALTERNATIVELY, THE LD. AR HAS SUBMITTED THAT THE DISALLOWANCE IN EARLIER YEARS HAS BEEN RESTRICTED TO 5% OF THE EXEMPT INCOME AND THE SAME CAN BE DISALLOWED FOR THESE YEARS ON ACCOUNT OF ADMINISTRATIVE EXPENSES. ON THE OTHER HAND, THE LD. DR HAS RELIED UPON THE ORDERS OF THE ASSESSING OFFICER AND CIT(A) AND SUBMITTED THAT WHEN RULE 8D IS APPL ICABLE FOR I.T.A. NO.329/MUM/2018 16 THE YEAR UNDER CONSIDERATION THEN THE DISALLOWANCE HAS TO BE COMPUTED AS PER THE FORMULA PROVIDED IN RULE 8D. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORDS. AS REGARDS, THE DISALLOWANCE OF EXPENDITURE U/S 14A, THE ASSESSEE HAS CLAIMED THAT NO BORROWED FUND WAS USED FOR INVESTMENT IN MUTUAL FUNDS ON WHICH THE DIVIDEND INCOME HAS EARNED BY THE ASSESSEE. .................... AS REGARDS THE ADMINISTRATIVE EXPENSES, THERE IS NO DENIAL THAT CERTAIN EXPENSES ARE BOUND TO BE INCURRED FOR MANAGING SUCH HUGE INVESTMENT BY THE ASSESSEE. EVEN THE ASSESSEE ITSELF HAS DISALLOWED A SUM OF RS.10.17 LAKHS ON THIS ACCOUNT. THE ASSESSEE CLAIMED THAT THE SUO MOTO DISALLOWANCE MADE BY THE ASSESSEE IS SUFFICIENT CONSIDERING THE NATURE AND VOLUME OF THE TRANSACTIONS. IT IS TO BE NOTED THAT RULE 8D IS APPLICABLE FOR THE YEAR UNDER CONSIDERATION THEREFORE, THE DISALLOWANCE OF ADMINISTRATIVE EXPENSES HAS TO BE COMPUTED AS PER THE FORMULA PROVIDED IN RULE 8D. HOWEVER, THE DISALLOWANC E WORK OUT UNDER RULE 8D CANNOT EXCEED THE TOTAL EXPENDITURE CLAIMED BY THE ASSESSEE WHICH CAN BE APPORTIONED TO THE EXEMPT INCOME. THUS WE SET ASIDE THIS ISSUE TO THE RECORD OF AO FOR THE LIMITED PURPOSE OF COMPUTING THE TOTAL EXPENDITURE INCURRED BY THE ASSESSEE FOR THE COMPOSITE/INDIVISIBLE ACTIVITIES IN WHICH TAXABLE AND NON - TAXABLE INCOME IS RECEIVED AND IF THE DISALLOWANCE WORK OUT UNDER RULE 8D ON ACCOUNT OF ADMINISTRATIVE EXPENSES EXCEEDS THE TOTAL CLAIM OF EXPENDITURE INCURRED FOR THE COMPOSITE ACT IVITIES RESULTING TAXABLE OR NON - TAXABLE INCOME THEN THE DISALLOWANCE SHOULD BE RESTRICTED TO THE SAID ACTUAL TOTAL CLAIM OF EXPENDITURE. 11. ACCORDINGLY, THE AO IS DIRECTED TO RECOMPUTED THE DISALLOWANCE AFTER CONSIDERING THE ABOVE ASPECT. SIMILARLY , W HILE DECIDING APPEAL FOR AY 2011 - 12 IN ASSESSEES OWN CASE IN ITA NO. 1018/MUM/2015 VIDE ORDER DATED 17.10.2016 ON THE ISSUE OF DISALLOWANCE OF ADMINISTRATIVE EXPENSES , THE TRIBUNAL HAS SET ASIDE THE ISSUE TO THE FILE OF THE AO BY FOLLOWING AFORESAID DE CISION OF CO - ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2008 - 09 TO 2010 - 11 , BY HOLDING AS UNDER: I.T.A. NO.329/MUM/2018 17 5.WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. WE NOTICED THAT AN IDENTICAL ISSUE HAS BEEN RESTORED TO THE FILE OF THE ASSE SSING OFFICER IN ASSESSEES OWN CASE BY THE COORDINATE BENCH IN A.Y. 2008 - 09 TO 2010 - 11 (REFERRED ABOVE) WITH FOLLOWING DIRECTIONS: 'IT IS TO BE NOTED THAT RULE 8D IS APPLICABLE FOR THE YEAR UNDER CONSIDERATION THEREFORE, THE DISALLOWANCE OF ADMINISTRATIVE EXPENSES HAS TO BE COMPUTED AS PER THE FORMULA PROVIDED IN RULE 8D. HOWEVER, THE DISALLOWANCE WORKED OUT UNDER RULE 8D CANNOT EXCEED THE TOTAL EXPENDITURE CLAIMED BY THE ASSESSEE WHICH CAN BE APPORTIONED TO THE EXEMPT INCOME. THUS WE SET ASIDE THIS ISSUE TO THE RECORD OF AO FOR THE LIMITED PURPOSE OF COMPUTING THE TOTAL EXPENDITURE INCURRED BY THE ASSESSEE FOR THE COMPOSITE/INDIVISIBLE ACTIVITIES IN WHICH TAXABLEAND NON - TAXABLE INCOME IS RECEIVED AND IF THE DISALLOWANCE WORK OUT UNDER RULE 8D ON ACCOUNT OF ADMINISTRATIVE EXPENSES EXCEEDS THE TOTAL CLAIM OF EXPENDITURE INCURRED FOR THE COMPOSITE ACTIVITIES RESULTING TAXABLE OR NON - TAXABLE INCOME THEN THE DISALLOWANCE SHOULD BE RESTRICTED TO THE SAID ACTUAL TOTAL CLAIM OF EXPENDITURE.' 6. CONSISTENT WITH THE VIEW TAKEN BY THE COORDINATE BENCH, WE SET ASIDE THE ORDER PASSED BY THE LEARNED CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE ASSESSING OFFICER FOR CONSIDERING THE ISSUE AFRESH BY DULY CONSIDERING ALL THE TYPES OF CONTENTIONS THAT MAY BE R AISED AND ALL THE MATERIALS THAT MAY BE PRODUCED BY THE ASSESSEE. 7. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. THE ASSESSEE HAS DURING THE COURSE OF HEARING BEFORE US HAS SUBMITTED A CHART WHEREIN IT IS CL AIMED THAT IT REPRESENTS DETAILED WORKING OF DISALLOWANCE OF EXPENDITURE INCURRED IN RELATION TO EARNING OF AN EXEMPT INCOME U/S 14A OF THE 1961 ACT HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE AND CLAIM IS MADE THAT THIS REPRESENT SCIENTIFIC BASIS/METHOD FOR COMPUTING DISALLOWANCE U/S 14A OF THE 1961 ACT. THE SAID WORKING AS SUBMITTED BY THE ASSESSEE IS REPRODUCED BY US IN PREC EDING PARAS OF THIS ORDER. THIS CLAIM OF THE ASSESSEE REQUIRES VERIFICATION BY THE AUTHORITIES BELOW AND WE ARE INCLINED TO SET ASIDE AND RESTORE THE ISSUE BACK TO THE FILE OF THE AO FOR FRESH ADJUDICATION TO WORK OUT DISALLOWANCE OF EXPENDITURE INCURRED IN RELATION TO EARNING OF AN EXE MPT INCOME HAVING REGARDS TO ACCOUNTS OF THE ASSESSEE U/S 14A OF THE 1961 ACT. WE WOULD LIKE TO CLARIFY THAT IN CASE THE AO AFTER GOING THROUGH THE WORKINGS AS ARE NOW SUBMITTED BY THE ASSESSEE AND WHICH ARE CLAIMED TO BE AN EXPENDITURE INCURRED IN RELATIO N TO EARNING OF AN EXEMPT INCOME HAVING REGARDS TO THE I.T.A. NO.329/MUM/2018 18 ACCOUNTS OF THE ASSESSEE , HAS TO RESORT TO RULE 8D(2)(III), THEN IN THAT SITUATION ONLY THOSE INVESTMENTS SHALL BE CONSIDERED WHICH YIELDED AN EXEMPT INCOME DURING THE YEAR UNDER CONSIDERATION AS LAI D DOWN BY SPECIAL BENCH OF ITAT, DELHI IN THE CASE OF VIREET INVESTMENT PRIVATE LIMITED(SUPRA). AT THIS STAGE , WE ARE REMINDED OF THE OBSERVATIONS OF HONBLE SUPREME COURT IN THE CASE OF GODREJ AND BOYCE MANUFACTURING COMPANY LIMITED(SUPRA) ALTHOUGH IT WA S GIVEN IN CONTEXT OF ASSESSMENT YEARS PRIOR TO INTRODUCTION OF RULE 8D OF THE 1962 RULES , WHEREIN HONBLE SUPREME COURT OBSERVED AS UNDER: 37. WE DO NOT SEE HOW IN THE AFORESAID FACT SITUATION A DIFFERENT VIEW COULD HAVE BEEN TAKEN FOR THE ASSESSMENT YE AR 2002 - 2003. SUB - SECTIONS (2) AND (3) OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES MERELY PRESCRIBE A FORMULA FOR DETERMINATION OF EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT IN A SITUA TION WHERE THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CLAIM OF THE ASSESSEE. WHETHER SUCH DETERMINATION IS TO BE MADE ON APPLICATION OF THE FORMULA PRESCRIBED UNDER RULE 8D OR IN THE BEST JUDGMENT OF THE ASSESSING OFFICER, WHAT THE LAW POSTULATES IS T HE REQUIREMENT OF A SATISFACTION IN THE ASSESSING OFFICER THAT HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, AS PLACED BEFORE HIM, IT IS NOT POSSIBLE TO GENERATE THE REQUISITE SATISFACTION WITH REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. IT IS ONLY THEREAFTER THAT THE PROVISIONS OF SECTION 14A(2) AND (3) READ WITH RULE 8D OF THE RULES OR A BEST JUDGMENT DETERMINATION, AS EARLIER PREVAILING, WOULD BECOME APPLICABLE. SO FAR AS CONTENTION OF THE ASSESSEE THAT STRATEGIC INVESTMENTS MADE IN ASSOCIA TED CONCERNS/SUBSIDIARIES ETC. SHOULD NOT BE INCLUDED WHILE COMPUTING DISALLOWANCE OF EXPENDITURE INCURRED IN RELATION TO EARNING OF AN EXEMPT INCOME U/S 14A OF THE 1961 ACT, WE ARE AFRAID THAT THIS PROPOSITION CANNOT BE ACCEPTED IN VIEW OF DECISION OF HON BLE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENT LIMITED V. CIT REPORTED IN(2018) 402 ITR 640(SC) . THE ASSESSEE HAS ALSO FAIRLY CONCEDED TO BE GOVERNED BY AFORESAID DECISION OF HONBLE SUPREME COURT AND THE SAID PLEA STOOD WITHDRAWN . AT THIS STAGE, IT IS IMPORTANT TO REFER TO DECISION OF TRIBUNAL IN THE CASE OF CYRUS INVESTMEN TS PRIVATE LIMITED(SUPA), TO WHICH ONE OF US BEING ACCOUNTANT MEMBER WAS PART OF THE DB PRONOUNCING THE SAID ORDER. THIS CASE WAS DECIDED ON ITS OWN FACTS AS IN THIS CASE, THE TAX - PAYER I.T.A. NO.329/MUM/2018 19 HAS DEBITED ONLY RS. 15 .03 LACS TO PROFIT AND LOSS ACCOUNT, OUT OF WHICH THE TAXPAYER HAS VOLUNTARILY DISALLOWED RS. 4.13 LACS EXPENSES WHICH WERE NEVER CLAIMED AS AN EXPENSES FROM THE INCOME COMPUTED WITHIN PROVISIONS OF THE 1961 ACT . OUT OF TH E REMAINING EXPENSES OF RS. 10.90 LACS, THE TAX - PAYER FURTHER VOLUNTARILY DISALLOWED AN AMOUNT OF RS. 5.45 LACS AS AN EXPENDITURE INCURRED IN RELATION TO EARNING OF AN EXEMPT INCOME WITHIN CONTEMPLATION OF SECTION 14A OF THE 1961 ACT, WHICH WAS 50% OF THE EXPENSES CLAIMED BY THE TAX - PAYER. THE REVENUE WENT AHEAD AND DISALLOWED RS. 2.41 CRORES U/S 14A ALBEIT THE TAX - PAYER NEVER CLAIMED EXPENSES OF THAT MAGNITUDE. THE AO DID NOT RECORDED ANY SATISFACTION AS TO WHAT IS BASIS OF DISALLOWING EXPENSED TO THE TUN E OF RS. 2.41 CRORES U/S 14A OF THE 1961 ACT , WHILE THE TOTAL EXPENSES DEBITED TO PROFIT AND LOSS ACCOUNT (NET OF VOLUNTARY DISALLOWANCE OF RS. 4.13 LACS) WAS ONLY RS. 10.90 LACS. BASED ON PECULIAR FACTUAL MATRIX OF THE CASE, THE SAID APPEAL WAS DECIDED B Y TRIBUNAL VIDE ITS ORDER DATED 08.05.2018 WHEREIN SUO MOTO DISALLOWANCE OF 50% OF THE TOTAL EXPENSES OFFERED FOR DISALLOWANCE U/S 14 OF THE 1961 ACT BY THE TAX - PAYER VOLUNTARY IN THE RETURN OF INCOME FILED WITH THE REVENUE WAS ACCEPTED BY THE TRIBUNAL , W HILE THE FACTUAL MATRIX IN ASSESSE ES CASE IS ENTIRELY DIFFERENT AS WE HAVE DISCUSSED IN DETAILS IN PRECEDING PARAS OF THIS ORDER. THUS, BASED ON OUR DETAILED DISCUSSIONS IN THE PRECEDING PARAS OF THIS ORDER, WE ARE RESTORING THE ISSUE BACK TO THE FILE OF THE AO FOR FRESH ADJUDICATION OF DISALLOWANCE OF EXPENDITURE INCURRED IN RELATION TO THE EARNING OF AN INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. THE ASSESSEE IS DIRECTED TO PRODUCE BEFORE THE AO F OR VERIFICATION ITS WORKING OF COMPUTING DISALLOWANCE OF EXPENSES U/S 14A BEING INCURRED IN RELATION TO EARNING OF AN EXEMPT INCOME HAVING REGARD TO ACCOUNTS OF THE ASSESSEE. THE ASSESSEE IS ALSO DIRECTED TO PRODUCE BEFORE THE AO COMPLETE DETAILS AS TO HOW ITS INVESTMENTS PORTFOLIO IN SECURITIES IS MANAGED AND HANDLED. NEEDLESS TO SAY THAT THE AO SHALL GIVE PROPER I.T.A. NO.329/MUM/2018 20 AND ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE IN ACCORDANCE WITH PRINCIPLES OF NATURAL JUSTICE IN ACCORDANCE WITH LAW. THE EVIDENCES/E XPLANATIONS SUBMITTED BY THE ASSESSEE SHALL BE ADMITTED BY THE AO AND SHALL BE ADJUDICATED ON MERITS IN ACCORDANCE WITH LAW. THIS DISPOSES OF GROUND NO. 1 TO 7 RAISED BY THE ASSESSEE IN ITS MEMO OF APPEAL FILED WITH TRIBUNAL. WE ORDER ACCORDINGLY. 10. IN THE RESULT , APPEAL OF THE ASSESSEE IN ITA NO. 329/MUM/2018 FOR AY 2013 - 14 IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 2 9 .03.2019. 2 9 .03.2019 S D / - S D / - ( SANDEEP GOSAIN ) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 2 9 .03.2019 NISHANT VERMA SR. PRIVATE SECRETARY COPY TO 1 . THE APPELLANT 2 . THE RESPONDENT 3 . THE CIT(A) CONCERNED, MUMBAI 4 . THE CIT - CONCERNED, MUMBAI 5 . THE DR BENCH, 6 . MASTER FILE // TUE COPY// BY ORDER DY/ASSTT. REGISTRAR ITAT, MUMBAI