RAGHUKOOL ESTATE DEVELOPEMENT P. LTD, MUMBAI V. ASST CIT CEN CIR 29, MUMBAI

ITA 4090/MUM/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 3530 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 9 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-02-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 23-03-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 21-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B S BIST
• Assessee Lawyers: ARVIND SONDE
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUM BAI , , , BEFORE SHRI RAJENDRA, AM AND SHRI RAM LAL NEGI, JM ./ I.T.A. NO. 4090/MUM/2013 ( / ASSESSMENT YEAR: 2010-11) RAGHUKOOL ESTATE DEVELOPMENT P. LTD. RAHEJA TOWER, PLOT NO. C-30, G BLOCK, OPP. SIDBI, BANDRA KURLA COMPLEX, BANDRA EAST, MUMBAI- 400051. PAN- AAACR2452E VS. THE ACIT , CENTRAL CIRCLE - 29 , MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI. ARVIND SONDE. RESPONDENT BY : SHRI. B.S. BIST. DATE OF HEARING: 17/02/2016 DATE OF PRONOUNCEMENT: 29/02/2016 O R D E R PER RAM LAL NEGI, JM THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST ORDER DATED 05/03/2013 PASSED BY THE CIT(APPEALS)-40, MUMBAI PE RTAINING TO THE ASSESSMENT YEAR 2010-11. THE ASSESSEE HAS CHALLENGE D THE IMPUGNED ORDER ON THE FOLLOWING EFFECTIVE GROUND:- 2 ITA NO. 4090/MUM/2013 ASSESSMENT YEAR: 2010-11 THE CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE OF A DMINISTRATIVE EXPENSES OF RS 7,78,596/-OUT OF RS. 8,41,256/- MADE BY THE AO ON INVESTMENT IN SHARES CLAIMING THE ENTIRE ADMINISTRA TIVE EXPENSES WAS INCURRED BY THE ASSESSEE FOR THE PURPOSE OF INV ESTMENT IN SHARES. 2.1 BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE, A PRIVATE LIMITED COMPANY IS ENGAGED IN THE BUSINESS OF REAL ESTATE DEVELOPMENT, TRADING AND INVESTMENT RELATED ACTIVITIES. IT FILED ITS RETURN OF INCOME F OR A.Y. 2010-11 DECLARING THE TOTAL INCOME OF RS. 1,39,92,884/-. THE RETURN WAS P ROCESSED U/S 143(1) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). THE CASE WAS SELECTED FOR SCRUTINY AND AFTER ASSESSMENT PROCEEDINGS THE ASSESSMENT ORD ER WAS PASSED. 2.2 DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSIN G OFFICER NOTED THAT THE ASSESSEE HAD SHOWN INVESTMENT AS ON 31/03/2010 AMOU NTING TO RS. 42,65,76,469/- AS COMPARED TO RS. 34,81,96,954/- IN THE PRECEDING YEAR, THE ASSESSEE WAS ASKED TO FURNISH EXPLANATION WITH REGA RD TO DISALLOWANCE AS PER SECTION U/S 14A OF THE ACT READ WITH RULE 8D(2)(III ) OF THE INCOME TAX RULES. IN RESPONSE THEREOF THE APPELLANT SUBMITTED THAT THE C OMPANY HAD DISALLOWED RS. 25,000/- ON ACCOUNT OF ADMINISTRATIVE EXPENSES IN I TS COMPUTATION OF INCOME. IT WAS FURTHER SUBMITTED THAT DIRECT EXPENSES OF RS . 62,660/- ON ACCOUNT OF DE- MAT CHARGES COULD NOT BE CONSIDERED AT THE TIME OF FILING OF RETURN AND HENCE THE TOTAL DISALLOWANCE WORKED OUT TO RS. 87,660/-. WITHOUT PREJUDICE, IT WAS FURTHER SUBMITTED THAT MAXIMUM DISALLOWANCE UNDER R ULE 8D(2)(III) MAY BE RESTRICTED TO THE ADMINISTRATIVE EXPENSES DEBITED T O PROFIT & LOSS A/C AMOUNTING TO RS. 8,66,256/-. THE AO DID NOT ACCEPT THE CONTENTION THE ASSESSEE AND AFTER ALLOWING SET OFF SUO MOTO DISALLOWANCE OF RS. 25,000/-, MADE BY THE APPELLANT MADE AN ADDITIONAL DISALLOWANCE OF RS. 8,41,256/-. 3 ITA NO. 4090/MUM/2013 ASSESSMENT YEAR: 2010-11 2.3 THE ASSESSMENT ORDER WAS CHALLENGED BY THE ASSE SSEE BY FILING FIRST APPEAL BEFORE THE CIT(A). THE CIT(A) AFTER HEARING THE PAR TIES UPHELD THE ASSESSMENT ORDERS AND DISMISSED THE APPEAL OF THE ASSESSEE. 2.4 FEELING AGGRIEVED BY THE IMPUGNED ORDER PASSED BY THE LD. CIT(A), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 2.5 BEFORE US, THE LD. COUNSEL SUBMITTED THAT THE C ASE OF THE ASSESSEES IS COVERED BY THE ORDER OF MUMBAI TRIBUNAL PASSED IN I TA 3775/MUM/2013 VIDE WHICH THE IDENTICAL ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE AND IN VIEW OF THE AFORESAID ORDER THE IMPUGNED ORDER PASSED BY TH E LD. CIT(A) IS LIABLE TO BE SET ASIDE. 2.6. ON THE OTHER HAND THE LD. DR HEAVILY RELYING U PON THE CONCURRENT ORDERS PASSED BY THE ASSESSING OFFICER AND LD. CIT(A) SUBM ITTED THAT SINCE RULE 8D IS APPLICABLE FOR THE YEAR UNDER CONSIDERATION THE DIS ALLOWANCE HAS RIGHTLY BEEN WORKED OUT AS PER RULE 8D. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND GONE TH ROUGH THE MATERIAL PLACED BEFORE US INCLUDING THE DECISION OF THE ITAT MUMBAI RELIED UPON BY THE ASSESSEE. THE CO-ORDINATE BENCH OF MUMBAI TRIBUNAL IN THE CASE OF CAPE TRADING PVT. LTD. VS. ACIT, MUMBAI ITA NO 3772/M/20 13, HAS DECIDED THE IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE HOLDING A S UNDER:- 7. THE ASSESSING OFFICER WHILE MAKING THE DISALLOW ANCE U/S 14A WORKED OUT THE DISALLOWANCE UNDER RULE 8D(2)(III) A T RS. 20,86,230/- WHICH SHOWS THAT THE WORKING UNDER THE PROVISIONS O F RULE 8D NEGATES THE ACTUAL TOTAL EXPENDITURE DEBITED BY THE ASSESSEE IN THE P&L ACCOUNT ON ADMINISTRATIVE AND OTHER EXPENSES. I N ANY CASE, DISALLOWANCE CANNOT BE MADE MORE THAN THE TOTAL EXP ENSES DEBITED TO THE P&L ACCOUNT. FROM THE DETAILS OF THE EXPENSE S, IT IS CLEAR THAT 4 ITA NO. 4090/MUM/2013 ASSESSMENT YEAR: 2010-11 MOST OF THE EXPENSES ARE SPECIFIC IN NATURE AND EXC LUSIVELY INCURRED FOR THE BUSINESS ACTIVITY OF THE ASSESSEE. THEREFOR E, THE EXPENSES ON ACCOUNT OF AUDITOR FEE, LEGAL AND PROFESSIONAL FEES , PROFESSION TAX, BUSINESS SUPPORT FEES CANNOT BE SAID TO HAVE ANY DI RECT OR PROXIMATE NEXUS WITH THE ACTIVITY OF INVESTMENT OR EARNING THE EXEMPT INCOME. THUS THE DISALLOWANCE U/S 14A CAN BE MADE ONLY TO THE EXTENT OF ALLOCATION OF THESE EXPENSES WHICH HA S DIRECT OR PROXIMATE NEXUS WITH EARNING OF EXEMPT INCOME. FROM THE DETAILS OF THE EXPENSES, WE FIND THAT THE PRINTING AND STATION ARY EXPENSES AND BANK CHARGES & COMMISSION ARE ONLY TWO ITEMS WHICH COULD HAVE DIRECT OR PROXIMATE NEXUS WITH THE INVESTMENT AND E XEMPT INCOME. THEREFORE, THE DISALLOWANCE U/S 14A R.W. RULE 8D(2) (III) CANNOT EXCEED TO THE ALLOCABLE EXPENSES INCURRED BY THE AS SESSEE FOR A COMPOSITE ACTIVITY RESULTING TAXABLE AND EXEMPT INC OME. THE WORKING OF DISALLOWANCE UNDER RULE 8D(2)(III) BY THE ASSESS ING OFFICER CLEARLY SHOWS THAT IT EXCEEDS NOT ONLY THE EXPENSES DEBITED AND CLAIMED BY THE ASSESSEE WHICH COULD HAVE A PROXIMATE NEXUS WIT H THE EARNING OF EXEMPT INCOME BUT ALSO TO THE TOTAL EXPENDITURE DEBITED BY THE ASSESSEE IN THE P&L ACCOUNT UNDER THE HEAD ADMINIST RATIVE AND OTHER EXPENSES. THEREFORE, IT TURNS OUT TO BE CONTR ADICTORY TO THE ACTUAL FACTS AND GIVES ABSURD RESULTS IN COMPLETE D ISREGARD TO THE SCHEME OF DISALLOWANCE U/S 14A. THEREFORE, THE PROV ISIONS OF RULE 8D(2)(III) CANNOT BE APPLIED IN THE CASE OF THE ASS ESSEE AS IT BECOMES UNWORKABLE AND UNREALISTIC. IN THE FACTS AND CIRCUM STANCES OF THE CASE, WE FIND THAT WHEN THE PROVISIONS OF RULE 8D(2 )(III) BECOMES UNWORKABLE THEN IN THE ABSENCE OF ANY FINDING AS WE LL AS ANY SPECIFIC EXPENSES DEBITED TO THE P&L ACCOUNT WHICH COULD HAVE A DIRECT OR PROXIMATE NEXUS FOR EARNING THE DIVIDEND INCOME THE DISALLOWANCE MADE BY THE ASSESSEE SUO MOTU IS JUST AND PROPER. ACCORDINGLY, WE DELETE THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 5 ITA NO. 4090/MUM/2013 ASSESSMENT YEAR: 2010-11 3.1 THE AFORESAID DECISION OF MUMBAI TRIBUNAL WAS F URTHER FOLLOWED BY C BENCH OF THE MUMBAI TRIBUNAL IN CAPSTAN TRADING PVT . LTD. VS. ACIT, MUMBAI ITA 4088/M/12, PALM SHELTER ESTATE DEVELOPMENT PVT. LTD. VS. ACIT, MUMBAI ITA 4089/M/12 & CASA MARIA PROPERTIES PVT. LTD. VS. ACIT, MUMBAI ITA 4091/M/13 AND ALL THE THREE APPEALS FILLED BY ASSES SEE WERE ALLOWED. 3.2 IN THE CASE BEFORE US, THE ONLY GRIEVANCE OF TH E ASSESSEE IS THAT THE CIT(A) HAS WRONGLY UPHELD THE DISALLOWANCE OF ADMINISTRAT IVE EXPENSES MADE BY THE AO ON INVESTMENT IN SHARES HOLDING THAT THE ENTIRE ADMINISTRATIVE EXPENSES WAS INCURRED BY THE ASSESSEE FOR THE PURPOSE OF INV ESTMENT IN SHARES. THE GROUND IN PRESENT CASE IS IDENTICAL TO THE GROUND I N THE CASE OF CAPE TRADING PVT. LTD. VS. ACIT, MUMBAI (SUPRA) AND THE OTHER AP PEALS DISCUSSED IN THE FOREGOING PARAS. THE CO-ORDINATE BENCHES OF ITAT MU MBAI HAVE ALREADY DECIDED THE IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE. FOLL OWING THE DECISIONS OF CO- ORDINATE BENCHES, WE DECIDE THE SOLE GROUND OF APPE AL IN FAVOUR OF THE ASSESSEE AND DELETE THE DISALLOWANCE MADE BY THE ASSESSING O FFICER. 4. IN THE RESULT, APPEAL OF THE ASSESSEE FOR THE A .Y. 2010-11 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH FEBRUARY, 2016 SD/- SD/- ( RAJENDRA ) (RAM LAL NEGI) ACCOUNTANT MEMBER JUDICIAL MEMBER ! MUMBAI; ' DATED: 29/02/2016 6 ITA NO. 4090/MUM/2013 ASSESSMENT YEAR: 2010-11 ! '#$% & %# / COPY OF THE ORDER FORWARDED TO : 1. #$ / THE APPELLANT 2. %&#$ / THE RESPONDENT. 3. '( ( ) / THE CIT(A)- 4. '( / CIT 5. +,- %(./ , 0 ./1 , ! / DR, ITAT, MUMBAI 6. 2 3! / GUARD FILE. ! ' / BY ORDER, &+( %( //TRUE COPY// (/') * (DY./ASSTT. REGISTRAR) , ! / ITAT, MUMBAI PRAMILA