DCIT CEN CIR 37, MUMBAI V. RAKESHKUMAR K. WADHWAN, MUMBAI

ITA 3872/MUM/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 1719 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 29-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B S BIST
• Assessee Lawyers: DR K SHIVRAM
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH D, MUMBAI BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.3872/M/2014 ASSESSMENT YEAR: 2010-11 THE DCIT/ACIT, CENTRAL CIRCLE-37, ROOM NO.11, AAYAKAR BHAVAN, M.K. MARG, MUMBAI - 400020 VS. SHRI RAKESHKUMAR WADHWAN, WADHWAN HOUSE, UNION PARK, ROAD NO.5, NEAR SHATRANJ HOTEL, BANDRA(W), MUMBAI-400 050 PAN: AAEPW7656G (APPELLANT) (RESPONDENT) ITA NO.3918/M/2014 ASSESSMENT YEAR: 2010-11 SHRI RAKESHKUMAR WADHAWAN, WADHAWAN HOUSE, UNION PARK, ROAD NO.5, NEAR SHATRANJ HOTEL, BANDRA(W), MUMBAI-400 050 PAN: AAEPW7656G VS. THE DCIT/ACIT, CENTRAL CIRCLE-37, MUMBAI (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : DR. K. SHIVRAM, A.R. REVENUE BY : SHRI B.S. BIST, D.R. DATE OF HEARING : 29.06.2016 DATE OF PRONOUNCEMENT : 09.12.2016 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE ABOVE TITLED CROSS APPEALS ONE BY THE ASSESSEE AND THE OTHER BY THE REVENUE ARE AGAINST THE ORDER DATED 14.03.2014 OF T HE COMMISSIONER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS TH E CIT(A)] RELEVANT TO ASSESSMENT YEAR 2010-11. 2. THE SOLE ISSUE RAISED BY BOTH THE PARTIES THROUG H THEIR RESPECTIVE APPEAL IS IN RELATION TO THE DISALLOWANCE OF EXPENDITURE U NDER SECTION 14A OF THE ACT ITA NO.3872/M/2014 & ITA NO.3918/M/2014 SHRI RAKESHKUMAR WADHWAN 2 IN RELATION TO THE TAX EXEMPT DIVIDEND INCOME EARNE D BY THE ASSESSEE DURING THE YEAR. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS AN INDIVIDUAL DEALING IN REAL ESTATE AND SHARES. THE ASSESSEE DURING THE YEAR EARNED DIVIDEND INCOME OF RS.1,55,56,132/- AND CLAIMED THE SAME AS EXEMPT. THE ASSESSEE DID NOT MAKE ANY DISALLOWANCE AS REGARDS THE EXPENDITURE IN CURRED IN RELATION TO THE EARNING OF THE ABOVE SAID TAX EXEMPT DIVIDEND INCOM E. THE ASSESSEE CLAIMED THAT NO EXPENDITURE HAS BEEN INCURRED DURING THE YE AR FOR EARNING OF THE ABOVE TAX INCOME AS THE SAME WAS EARNED ON INVESTMENTS MA DE IN EARLIER YEARS. 4. THE ASSESSING OFFICER (HEREINAFTER REFERRED TO A S THE AO) HOWEVER REJECTED THE CONTENTIONS OF THE ASSESSEE AND PROCEE DED TO MAKE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D OF THE INCOME T AX RULES AND COMPUTED THE DISALLOWANCE AT RS.1,33,30,888/- AND ADDED BACK THE SAME INTO THE INCOME OF THE ASSESSEE. BEING AGGRIEVED BY THE ABOVE DISA LLOWANCE/ADDITION, ASSESSEE PREFERRED APPEAL BEFORE THE LD. CIT(A). THE LD. CI T(A) AFTER CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE EVIDENC ES ON THE FILE OBSERVED THAT THE EXPENDITURE CLAIMED BY THE ASSESSEE WAS RELATAB LE TO THE LAND DEVELOPMENT BUSINESS OF THE ASSESSEE. HE HELD THAT SINCE THERE WAS NO PROXIMATE RELATIONSHIP BETWEEN THE EXPENDITURE AND THE DIVIDE ND INCOME EARNED BY THE ASSESSEE, HENCE RULE 8D WAS NOT APPLICABLE TO THE F ACTS OF THE CASE OF THE ASSESSEE. HE, HOWEVER, OBSERVED THAT LOOKING AT TH E SUBSTANTIAL AMOUNT OF EXEMPT INCOME EARNED BY THE ASSESSEE, A CERTAIN AMO UNT OF TIME AND EFFORT WAS INDEED REQUIRED FOR THE MANAGEMENT OF THE PORTFOLIO S. HE, THEREFORE, CONSIDERING THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE HELD THAT SOME REASONABLE EXPENDITURE MIGHT HAVE BEEN INCURRED BY THE ASSESSEE FOR MANAGEMENT OF SUCH INVESTMENTS. HE ACCORDINGLY MAD E AN ADHOC DISALLOWANCE AT THE RATE OF 25% OF THE DIVIDEND INC OME. 5. THE REVENUE HAS COME IN APPEAL BEFORE US AGITATI NG THE ACTION OF THE LD. CIT(A) IN MAKING ADHOC DISALLOWANCE AT THE RATE OF 25% OF THE DIVIDEND ITA NO.3872/M/2014 & ITA NO.3918/M/2014 SHRI RAKESHKUMAR WADHWAN 3 INCOME AS AGAINST THE DISALLOWANCE MADE BY THE AO A S PER THE PROVISIONS OF RULE 8D OF THE INCOME TAX RULES. ON THE OTHER HAND , THE ASSESSEE HAS PREFERRED THE APPEAL AGITATING THE ADHOC DISALLOWAN CE OF 25% PLEADING THAT NO DISALLOWANCE UNDER SECTION 14A IS ATTRACTED IN THIS CASE. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND HAVE ALS O GONE THROUGH THE RECORDS. ADMITTEDLY, THE AO HAS NOT POINTED OUT AS TO WHICH PART OF THE EXPENSES CAN BE SAID TO BE DIRECTLY OR INDIRECTLY A TTRIBUTABLE TO THE DIVIDEND INCOME EARNED BY THE ASSESSEE. THE LD. CIT(A), THE REFORE, HELD THAT THE SATISFACTION RECORDED BY THE AO WAS NOT OBJECTIVE S ATISFACTION WHILE REJECTING THE ACCOUNTS OF THE ASSESSEE. HOWEVER, THE LD. CIT (A) HAS TAKEN THE NOTE OF FACT THAT CERTAIN TIME AND EFFORT MIGHT HAVE BEEN S PENT FOR MANAGEMENT OF THE INVESTMENTS OF THE ASSESSEE. HE, LOOKING INTO THE OVERALL FACTS AND CIRCUMSTANCES OF THE CASE, HAS MADE AN ADHOC DISALL OWANCE AT THE RATE OF 25% OF THE DIVIDEND INCOME. IN OUR VIEW, THE ADHOC DIS ALLOWANCE MADE BY THE LD. CIT(A) IS ON THE HIGHER SIDE. THE ASSESSEE HAS SPE CIFICALLY PLEADED THAT NO INVESTMENT HAS BEEN MADE DURING THE YEAR RATHER THE DIVIDEND INCOME PERTAINED TO THE INVESTMENTS MADE DURING EARLIER YEARS. CONS IDERING THE OVERALL FACTS AND CIRCUMSTANCES OF THE CASE, WE RESTRICT THE DISALLOW ANCE TO THE EXTENT OF 8% OF THE DIVIDEND INCOME EARNED BY THE ASSESSEE. BEFORE PARTING WITH THE ORDER, IT IS MADE CLEAR THA T OUR RESTRICTING OF THE ABOVE ADHOC DISALLOWANCE WILL NOT HOLD ANY BINDING PRECEDENT IN RELATION TO ANY OTHER CASE AS THE ADHOC DISALLOWANCE IN THIS CA SE IS RESTRICTED AS ABOVE OWING TO THE PECULIAR CIRCUMSTANCES OF THIS CASE ON LY. 7. WITH THE ABOVE OBSERVATIONS, THE APPEAL OF THE REVENUE IS TREATED AS DISMISSED WHEREAS THE APPEAL OF THE ASSESSEE IS TRE ATED AS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 09.12.2016. SD/- SD/- (ASHWANI TANEJA) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 09.12.2016. * KISHORE, SR. P.S. ITA NO.3872/M/2014 & ITA NO.3918/M/2014 SHRI RAKESHKUMAR WADHWAN 4 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.