SHARDUL SECURITIES LTD., MUMBAI V. DCIT, RANGE-3(3)(1), MUMBAI

ITA 4340/MUM/2019

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 3237 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-10-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2013-2014
• Appeal Filed On: 24-06-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T S KHALSA
• Keywords: Rule 8D
• Section: 14A; 201; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL , G BENCH MUMBAI BEFORE : SHRI SAKTIJIT DEY, JUDICIAL MEMBER & SHRI M.BALAGANESH, A CCOUNTANT MEMBER ITA NO. 4340 /MUM/ 20 19 ( ASSESSMENT YEAR : 2013 - 14 ) & ITA NO. 3249 /MUM/ 2018 ( ASSESSMENT YEAR : 201 4 - 1 5 ) M/S. SHARDUL SECURITIES LTD., G - 12, TULSIANI CHAMBERS FREE PRESS ROAD212 NARIMAN POINT MUMBAI 400 021 VS. DEPUTY COMMISSIONER OF INCOME TAX, RANGE - 3(3)(1) 6 TH FLOOR, ROOM NO.609 AAYKAR BHAVAN M.K.ROAD, MUMBAI 400 020 PAN/GIR NO. AAACS7141R (APPE LLANT ) .. (RESPONDENT ) ASSESSEE BY SHRI ANUJ KISNADWALA REVENUE BY SHRI T.S. KHALSA DATE OF HEARING 30 / 09 /2021 DATE OF PRONOUNCEMENT 08 / 10 /202 1 / O R D E R PER M. BALAGANESH (A.M) : THESE APPEAL S IN ITA NO. 4340/MUM/2019 & 3249/MUM/2018 FOR A.Y .2013 - 14 & 2014 - 15 ARISES OUT OF THE ORDER BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - 9, MUMBAI IN APPEAL NO. CIT(A) - 9/CIR.3/T.206/2016 - 17 DATED 30/04/2019 (LD. CIT(A) IN SHORT) AGAINST THE ORDER OF ASSESSMENT PASSED U/S.143(3) OF THE INCOME TAX ACT, 1961 ITA NO . 4340/MUM/2019 & 3249/MUM/2018 M/S. SHARDUL SECURITIES LTD., 2 (HEREINAFTER REFERRED TO AS ACT) DATED 27/02/2016 BY THE LD. DY. COMMISSIONER OF INCOME TAX - 3(3)(1), MUMBAI (HEREINAFTER REFERRED TO AS LD. AO). ITA NO.4340/MUM/2019 (A.Y.2013 - 14) 2. THE ONLY EFFECTIVE ISSUE TO BE DECIDED IN THIS APPEAL IS WITH REGARD TO DISALLOWANCE MADE U/S.14A OF THE ACT R.W.RULE 8D(2) OF THE INCOME TAX RULES (RULES). 3. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT ASSESSEE COMPANY IS A LIMITED COMPANY ENGAGED IN THE BUSINESS OF LEASING, FINANCE, INVESTMENT AND ADVISORY SERVICES. THE ASSESSEE HAD RECEIVED DIVIDEND INCOME OF RS. 83,68,000/ - WHICH IS CLAIMED AS EXEMPT U/S.10(34) OF THE ACT AND LONG TERM CAPITAL GAIN OF RS.1 , 16,44,309/ - WHICH IS CLAIMED AS EXEMPT U/S. 10(38) OF THE ACT. THE ASSESSEE HAD VOLUNTARILY DISALLOWED A SUM OF RS.4,98,960/ - ROUNDED OFF TO 4,99,000/ - U/S.14A OF THE ACT. THE LD. AO REJECTED THE WORKINGS OF DISALLOWANCE U/S.14A OF THE ACT AND PROCEEDED TO APPLY THE COMPUTATION MECHANISM PROVIDED UN DER RULE 8D (2) OF THE RULES AS UNDER: - I ) UNDER RULE 8D(2)(II) - RS.46,24,637/ - II ) UNDER RULE 8D(2)(III) - RS. 21,72,398/ - TOTAL RS.67,97,035 __ LESS VOLUNTARY DISALLOWANCE MADE BY THE ASSESSEE - RS.4,99,000 ___ REMAINING DISALLOWANCE U/S.14A OF THE ACT - RS.62,48,035 ========== ITA NO . 4340/MUM/2019 & 3249/MUM/2018 M/S. SHARDUL SECURITIES LTD., 3 3.1. THIS SUM OF RS.62,48,035/ - WAS ADDED BY THE LD. AO U/S.14A OF THE ACT BOTH UNDER NORMAL PROVISIONS OF THE ACT AS WELL AS IN THE COMPUTATION OF BOOK PROFITS U/S.115JB OF THE ACT. THE LD. CIT(A) DELETED THE DISALLOW ANCE OF INTEREST MADE UNDER RULE 8D(2)(II) OF THE RULES BY GIVING A CATEGORICAL FINDING THAT ASSESSEE IS HAVING SUFFICIENT INTEREST FREE FUNDS IN ITS KITTY TO MAKE INVESTMENTS. WITH REGARD TO DISALLOWANCE MADE UNDER RULE 8D(2) (III) OF THE RULES, THE LD. C IT(A) OBSERVED THAT THE VOLUNTARY DISALLOWANCE MADE BY THE ASSESSEE IN THE SUM OF RS.4,98,960/ - WAS INSUFFICIENT AND NOT SATISFACTORY AND ACCORDINGLY, UPHELD THE ACTION OF THE LD. AO. 3.2. WE FIND THAT VOLUNTARY DISALLOWANCE OF RS.4,98,960/ - MADE BY THE A SSESSEE U/S.14A OF THE ACT WAS MADE BY TAKING INTO ACCOUNT EMPLOYEE COST OF SPECIFIC EMPLOYEES DEALING WITH THE INVESTMENT ACTIVITIES TOGETHER WITH CERTAIN ADMINISTRATIVE EXPENSES. THE BASIS OF WORKING OUT THE SAID DISALLOWANCE OF EXPENDITURE IS TABULATED IN PAGE 4 OF THE ORDER. PARTICULARS AMOUNT PERCENTAGE OF DISALLOWANCE AMOUNT DISALLOWED VIDYA PUTHRAN (SALARY) 2.00,000 100% 2,00,000 TARUN CHATURVEDI (SALARY ) 7,50,000 15% 1,12,500 TELEPHONE 1,57,456 15% 23,618 POSTAGE & TELEGRAM 86,3 94 15% 12,959 CHARGES 66,381 15% 9,957 SECURITIES TRANSACTION TAX 49,925 100% 49,925 RENT FOR TABLE SPACE 90,000 100% 90,000 TOTAL 4,98,960 ITA NO . 4340/MUM/2019 & 3249/MUM/2018 M/S. SHARDUL SECURITIES LTD., 4 3.3. WE FIND FROM THE PERUSAL OF THE ENTIRE ASSESSMENT ORDER THAT THE LD. AO HAD NOT REC ORDED ANY SATISFACTION IN TERMS OF SECTION 14A(2) OF THE ACT R.W.RULE 8D(1) OF THE RULES AS TO HOW THE VOLUNTARY DISALLOWANCE MADE BY THE ASSESSEE IS INCORRECT. BOTH THE LOWER AUTHORITIES HAVE DIRECTLY APPLIED THE COMPUTATION MECHANISM PROVIDED IN RULE 8D( 2) (III) OF THE RULES , W ITHOUT RECORDING THE MANDATORY SATISFACTION IN TERMS OF SECTION 14A(2) OF THE ACT R.W.RULE 8D(1) OF THE RULES HAVING REGARD TO THE BOOKS OF ACCOUNTS OF THE ASSESSEE WITH COGENT REASONS. WE FIND THAT ASSESSEE HAS BEEN CONSISTENTLY FO LLOWING THIS METHOD OF IDENTIFYING SPECIFIC EMPLOYEES INVOLVED IN INVESTMENT ACTIVITIES AND ADMINISTRATIVE EXPENSES FOR THE PURPOSE OF WORKING OUT THE DISALLOWANCE U/S.14A OF THE ACT FROM A.Y.2012 - 13 TO A.Y.2016 - 17 ONWARDS. SIMILAR ISSUE HAD CREPT UP FOR A .Y.2015 - 16 AND 2016 - 17 IN ASSESSEES OWN CASE WHEREIN THIS TRIBUNAL IN ITA NO S .354 & 355/MUM/2020 DATED 02/08/2021 BY PLACING RELIANCE ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD., VS. DCIT REPORTED IN 3 94 ITR 449 HAD HELD THAT THE LD. AO HAD FAILED TO RECORD ANY OBJECTIVE SATISFACTION AS TO WHY THE ASSESSEES STAND WAS NOT ACCEPTABLE HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE AS PER THE MANDATE OF SECTION 14A OF THE ACT. THIS TRIBUNAL ALSO PLACED RELI ANCE ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF MAXO P P INVESTMENTS LTD., REPORTED IN 402 ITR 640 WHEREIN IT WAS HELD THAT IT IS MANDATORY ON THE PART OF THE LD. AO TO RECORD THE SATISFACTION WITH COGENT RE ASONS IN TERMS OF SECTION 14A(2) A ND 14A(3) OF THE ACT R.W.RULE 8D(1) OF THE RULES BEFORE RESORTING TO COMPUTATION MECHANISM PROVIDED IN RULE 8D(2) OF THE RULES. SINCE, NO SATISFACTION HAS BEEN RECORDED IN THE INSTANT CASE BY THE LD. AO , WE HOLD THAT WE HAVE NO HESITATION IN DIRECTING THE LD. AO TO DELETE THE DISALLOWANCE OF ADMINISTRATIVE EXPENSES MADE U/S.14A OF THE ACT R.W.RULE 8D(2) (III) OF ITA NO . 4340/MUM/2019 & 3249/MUM/2018 M/S. SHARDUL SECURITIES LTD., 5 THE RULES. IN EFFECT, THE SUOMOTO DISALLOWANCE MADE BY THE ASSESSEE IN THE SUM OF RS.4,98,960/ - SHALL REMAIN BOTH UNDER NORMAL PROVISIONS OF THE AC T AS WELL AS IN THE COMPUTATION OF BOOK PROFITS U/S.115JB OF THE ACT. 4. SINCE, ENTIRE RELIEF IS GRANTED TO THE ASSESSEE ON THE ISSUE OF DISALLOWANCE U/S.14A OF THE ACT, THE ADDITIONAL GROUND NO.2 RAISED BY THE ASSESSEE NEED NOT BE GONE INTO. 5 . THE ADD ITIONAL GROUND NO.3 RAISED BY THE ASSESSEE IS ONLY CHALLENGING DISALLOWANCE OF EXPENSES U/S.14A R.W.RULE 8D (2) OF THE RULES U/S.115JB OF THE ACT. THIS WE HAVE ALREADY COVERED WHILE ADDRESSING THE MAIN ISSUE HEREINABOVE. ACCORDINGLY, THE ADDITIONAL GROUND N O.3 RAISED BY THE ASSESSEE IS ADMITTED AND ALLOWED. 4. IN THE RESULT, APPEAL OF THE ASSESSEE IN ITA NO.4340/MUM/2019 IS ALLOWED. ITA NO.3249/MUM/2018 (A.Y.2014 - 15) 5. THE FACTS IN DISPUTE ARE EXACTLY IDENTICAL TO THAT OF A.Y.2013 - 14 AND HENCE, THE DECIS ION RENDERED BY US FOR A.Y.2013 - 14 WOULD APPLY WITH EQUAL FORCE FOR A.Y.2014 - 15 EXCEPT WITH VARIANCE IN FIGURES. ITA NO . 4340/MUM/2019 & 3249/MUM/2018 M/S. SHARDUL SECURITIES LTD., 6 6. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED ON 08 / 10 /202 1 BY WAY OF PROPER MENTIONING IN THE NO TICE BOARD. SD/ - ( SAKTIJIT DEY ) SD/ - (M.BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 08 / 10 / 2021 KARUNA , SR.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//