SHREYAS R. METHA, MUMBAI V. ITO 8(2)(4), MUMBAI

ITA 4495/MUM/2014

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3491 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-07-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2010-2011
• Appeal Filed On: 30-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J SARAVANAN DR
• Assessee Lawyers: AJAY C GOSALIA
• Keywords: Business expenditure; Earning of tax free income
• Section: 14A

Judgement Text

1 , INCOME-TAX APPELLATE TRIBUNAL -EBENCH MUMBAI , . . , BEFORE S/SHRI RAJENDRA,ACCOUNTANT MEMBER AND C. N. PRASAD,JUDICIAL MEMBER ./ITA/4495/MUM/2014, /ASSESSMENT YEAR: 2010-11 SHREYAS R. MEHTA C/O., RASIKLAL HARILAL & CO., 205, SHEIKH MEMON STREET,MUMBAI-400 002. PAN:AACPM 8602 L VS. INCOME TAX OFFICER-8(2)(4) ROOM NO.213, 2 ND FLOOR, AAYAKAR BHAVAN, M.K. ROAD MUMBAI-400 020. ( /APPELLANT ) ( / RESPONDENT) REVENUE BY: SHRI J. SARAVANAN-DR ASSESSEE BY: SHRI AJAY C. GOSALIA / DATE OF HEARING: 07.07.2016 / DATE OF PRONOUNCEMENT: 07.07.2016 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER,DATED 21/04/2014,OF THE CIT ( A)-17, MUMBAI, THE ASSESSEE HAS FILED THE PRESENT APPEAL.ASSESSEE, AN INDIVIDUAL, ENGAGED IN ARBITRAGE BUSINESS AND SECURITIES MARKET AND TRADIN G AND MANUFACTURING OF DIAMONDS, FILED HIS RETURN OF INCOME ON 14/09/2010, DECLARING TOTAL INCOME AT RS. 15.82 LAKHS. THE ASSESSING OFFICER(AO)COMPLETED THE ASSESSMENT,U/S.143(3)OF THE ACT,DETERMINING THE INC OME OF THE ASSESSEE AT RS.19.22 LAKHS. 2. EEFFECTIVE GROUND OF APPEAL IS ABOUT DISALLOWANCE O F RS. 3.39 LAKHS,MADE U/S.14- A OF THE ACT.DURING THE ASSESSMENT PROCEEDI NGS,THE AO FOUND THAT THE ASSESSEE HAD RECEIVED DIVIDEND INCOME OF RS. 26.96 LAKHS(RS. 25.86 LAKHS+ 1.10 LAKHS),THAT HE HAD CLAIMED THE SAME AS EXEMPT U/S.1 0 (34) OF THE ACT. HE DIRECTED THE ASSESSEE TO EXPLAIN AS TO WHY DISALLOW ANCE U/S.14 A READ WITH RULE 8D OF THE INCOME TAX RULES,1962 (RULES)SHOULD NOT B E MADE. AS PER THE AO THE ASSESSEE DID NOT SUBMIT ANY EXPRESSION IN THAT REGARD.HE,AFTER CONSIDERING THE AVAILABLE MATERIAL, HELD THAT THE ASSESSEE HAD NOT ATTRIBUTED ANY EXPENSES WHICH HAD BEEN INCURRED TO EARN THE EXEMPT INCOME,T HAT IT WAS AN ACCEPTED FACT THAT FOR EARNING OF ANY INCOME SOME KIND OF EXPENDI TURE NECESSARILY HAD TO BE 4495/MUM/2014(10-11(SHREYAS R.MEHTA) 2 INCURRED, THAT A COMPANY COULD NOT EARN DIVIDEND WI THOUT ITS EXISTENCE AND MANAGEMENT, THAT INVESTMENT DECISIONS WERE VERY COM PLEX IN NATURE, THAT IT WAS NOT CORRECT TO SAY THAT DIVIDEND INCOME COULD BE EA RNED BY INCURRING NO OR NOMINAL EXPENDITURE, THAT THE TERM EXPENDITURE OCCU RRING IN SECTION 14A WOULD TAKE IN ITS SWEEP NOT ONLY DIRECT EXPENDITURE BUT A LSO ALL FORMS OF EXPENDITURE, THAT THE DISALLOWANCE U/S.14A HAD TO BE WORKED OUT AS PER RULE 8D OF THE RULES,THAT THE RULE HAD PRESCRIBED FORMULA FOR CALC ULATION OF DISALLOWANCE AND SAME WAS BINDING IN NATURE.HE MADE A DISALLOWANCE O F RS. 3,39, 352/-(HALF PERCENT OF AVERAGE INVESTMENTS). 3. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA).BEFORE HIM IT WAS AR GUED THAT ASSESSEE WAS RUNNING A COMPANY,THAT THE STANDARD CHARTERED BANK, WHERE THE COMPANY HAD CURRENT-ACCOUNT,WOULD TRANSFER THE EXCESS MONEY INT O LIQUID MUTUAL FUND AND WOULD GIVE DAILY DIVIDEND,THAT TOTAL DIVIDEND RECEI VED DURING THE YEAR WAS RS. 1.10 LAKHS AS PER THE PROFIT AND LOSS ACCOUNT OF TH E COMPANY, THAT THE OPENING BALANCE OF STANDARD CHARTERED BANK WAS RS. 1.28 CRO RES AND CLOSING BALANCE OF THE SAME WAS RS. 20.74 LAKHS,THAT HALF PERCENT OF A VERAGE INVESTMENT WOULD BE RS. 37,235/-,THAT DISALLOWANCE U/S.14 A SHOULD BE R ESTRICTED TO RS. 37,235/-,THAT HE WAS MAINTAINING SEPARATE BOOKS OF ACCOUNTS FOR T HE COMPANY,THAT THE BOOKS OF ACCOUNTS WERE AUDITED U/S. 44AB OF THE ACT,THAT THE ASSESSEE WAS HAVING INVESTMENT IN SHARES IN MUTUAL FUNDS, THAT THE OPEN ING BALANCE OF THE SAME WAS RS. 4.01 CRORES AND THE CLOSING BALANCE WAS RS. 9.5 6 CRORES EXCLUDING PPF ACCOUNT BALANCE AND BANK OF INDIA FDR,THAT THE DIVI DEND EARNED FOR THE SAME WAS RS. 25.86 LAKHS, THAT THE ASSESSEE HAD DEBITED D-MAT CHARGES,SUNDRY EXPENSES AND OTHER EXPENSES TO THE CAPITAL ACCOUNT, THAT HE HAD NOT CLAIMED THE SAME AS BUSINESS EXPENSES, THAT NO EXPENSES WERE CL AIMED TO EARN THE EXEMPT INCOME,THAT DISALLOWANCE U/S. 14A COULD NOT BE MADE .ALTERNATIVELY,IT WAS ARGUED THAT THE DISALLOWANCE SHOULD BE RESTRICTED T O RS.37,235/-.AFTER 4495/MUM/2014(10-11(SHREYAS R.MEHTA) 3 CONSIDERING THE SUBMISSION OF THE ASSESSEE, THE FAA HELD THAT THE AO HAD RIGHTLY MADE THE DISALLOWANCE,THAT IT WAS NOT THE C ASE OF THE ASSESSEE THAT NO EXPENDITURE WAS INCURRED BY HIM,SO AS NOT TO MAKE A NY DISALLOWANCE. 4. BEFORE US,THE AUTHORISED REPRESENTATIVE(AR)ARGUED T HAT THE ASSESSEE HAD NOT CLAIMED ANY EXPENDITURE FOR EARNING EXEMPT INCOME, THAT THERE WAS NO JUSTIFICATION IN MAKING DISALLOWANCE ON THAT ACCOUN T.THE DEPARTMENTAL REPRESENTATIVE (DR) LEFT THE ISSUE TO THE DISCRETIO N OF THE BENCH. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS.IT IS FOUND THA T THE ASSESSEE HAD NOT CLAIMED ANY EXPENDITURE AGAINST THE EXEMPT INCOME.T HEREFORE, IN OUR OPINION, THE FAA WAS NOT JUSTIFIED IN CONFIRMING THE DISALLO WANCE MADE BY THE AO. WE FIND THAT IN THE CASE OF JOINT INVESTMENTS PVT.LTD .(372ITR694),THE HONBLE DELHI HIGH COURT HAS HELD THAT THE WINDOW FOR DISAL LOWANCE WAS INDICATED IN SECTION 14A AND WAS ONLY TO THE EXTENT OF DISALLOWI NG EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO THE TAX EXEMPT INCOME . RESPECTFULLY, FOLLOWING THE ABOVE DECISION,WE REVERSE THE ORDER OF THE FAA,AS T HE WINDOW WAS NOT OPEN FOR DISALLOWANCE IN THE CASE UNDER APPEAL-THE ASSESSEE HAD NOT CLAIMED ANY EXPENDITURE TO EARN THE EXEMPT INCOME.EFFECTIVE GRO UND OF APPEAL, RAISED BY THE ASSESSEE, IS DECIDED IN HIS FAVOUR. AS A RESULT,APPEAL FILED BY THE ASSESSEE STANDS ALLOWED. . ORDER PRONOUNCED IN T HE OPEN COURT ON 7 TH JULY,2016. 7 , 2016 SD/- SD/- ( . . / C.N. PRASAD ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 07.07.2016. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 4495/MUM/2014(10-11(SHREYAS R.MEHTA) 4 3. THE CONCERNED CIT(A)/ ! '#$ , 4. THE CONCERNED CIT / ! '#$ 5. DR K BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ %& //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.