RAKESH MEHTA, MUMBAI V. A.C.I.T. 4(2), MUMBAI

ITA 4510/MUM/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 70919 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2008-2009
• Appeal Filed On: 03-07-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DIPAK RIPOTE
• Keywords: Business expenditure; Opportunity of being heard; Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCO ME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI VIJAY PAL RAO , JUDICIAL MEMBER AND SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER ./I.T.A. NO. 4510/M/2012 ( / ASSESSMENT YEAR : 2008 - 20 09 ) MR. RAKESH MEHTA, 6 12, ARUN CHAMBERS, TARDEO, MUMBAI 400 034. / VS. ACIT - 4(2), AAYAKAR BHAVAN, MUMBAI 400 020. ./ PAN : AAJPM 7755 K ( / APPELLANT) .. ( / RESPONDENT ) / APPELLANT BY : SHRI RAJIV KH ANDELWAL / RESPONDENT BY : SHRI DIPAK RIPOTE, DR / DATE OF HEARING : 22 .8.2013 / DATE OF PRONOUNCEMENT : 4.9 .2013 / O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FIL ED BY THE ASSESSEE ON 3.7.2012 IS AGAINST THE ORDER OF CIT (A) - 8, MUMBAI DATED 14.6.2011 FOR THE ASSESSMENT YEAR 2008 - 2009. 2. AT THE OUTSET, SHRI RAJIV KHANDELWAL, LD COUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO THE GROUNDS RAISED IN THIS APPEAL AND MENTIONED THAT THE ASSESSEE IS NOT INTERESTED TO PRESS THE GROUND NO.2. THEREFORE, THE GROUND NO.2 IS DISMISSED AS NOT PRESSED. 3. REFERRING TO THE GROUND NO.1 LD COUNSEL MENTIONED THAT THE ASSESSEE REPORTED EARNING OF EXEMPT INCOME OF RS. 3,19,410/ - I. E., THE DIVIDEND INCOME AND INTEREST ON PPF. DURING THE ASSESSMENT PROCEEDINGS, AO INVOKED THE PROVISIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D OF IT RULES, 1962 AND QUANTIFIED THE DISALLOWANCE OF RS. 2,05,849/ - . THE RELEVANT CALCULATIONS ARE AS UND ER: 2 1. AMOUNT OF EXPENDITURE [AS PER RULE - 8D(2)(1)] NIL 2. AMOUNT AS PER THE FORMULA GIVEN IN RULE - 8D(2)(II) (A) AMOUNT OF INTEREST RS. 1,70,960/ - (B) AVERAGE VALUE OF INVESTMENT RS. 2,47,57,558/ - (C) AVERAGE VALUE OF TOTAL ASSETS RS. 5,10,74,029/ - THEREFORE, A*B/C RS. 82,061/ - 3. AMOUNT EQUAL TO ONE - HALF PERCENTAGE OF (B) RS. 1,23,788/ - [AS PER RULE 8D(2)(III)] [AS PER THE CALCULATION SHOWN IN THE TABLE ABOVE] TOTAL DISALLOWANCE RS. 2,05 ,849/ - IN VIEW OF THE DISCUSSION MADE ABOVE, THIS TOTAL EXPENDITURE ALLOCATED FOR EARNING EXEMPT INCOME IS RS. 2,05,849/ - . 4. DURING THE PROCEEDINGS, ASSESSEE SUBMITTED THAT NO EXPENDITURE IS INCURRED BY THE ASSESSEE FOR EARNING THE SAID EXEMPT IN COME. AO REJE CTED THE ASSESSEES SUBMISSIONS AND PARA 3.2 OF THE ASSESSMENT ORDER IS RELEVANT IN THIS REGARD. OTHERWISE, ASSESSEE HAS PPF ACCOUNT WITH UNION BANK OF INDIA AND THE INTEREST WAS EARNED BY THE ASSESSEE ON THE DEPOSITS AMOUNTING TO RS. 13,38,2 34/ - . ASSESSEE FILED P & L ACCOUNT GIVING THE LIST OF EXPENSES INCURRED BY THE ASSESSEE FOR EARNING OF THE CONSULTANCY FEES OFFERED BY THE ASSESSEE IN THE RETURN. THESE EXPENSES WORKED OUT TO RS. 8,64,558/ - . MATTER TRAVELLED TO THE FIRST APPELLATE AUTHOR ITY. 5. DURING THE PROCEEDINGS BEFORE THE FIRST APPELLATE AUTHORITY, ASSESSEE MADE ELABORATE SUBMISSIONS AND MENTIONED THAT APPLYING THE PROVISIONS OF RULE - 8D MECHANICALLY WITHOUT HAVING REGARD TO THE BOOKS OF ACCOUNTS IS NOT PROPER. FURTHER, IT IS THE S UBMISSION OF THE ASSESSEE THAT THE DISALLOWANCE OF RS. 2,05,849/ - AS EXPENDITURE INCURRED FOR EARNING OF THE EXEMPT INCOME OF RS. 3,19,410/ - IS TOTALLY DISPROPORTIONATE WHICH SHOULD NOT BE SUSTAINED BY THE CIT (A). AS PER THE LD COUNSEL, THE SUM OF RS. 2,0 5,849/ - WAS DISALLOWED BY AO QUANTIFYING THAT A SUM OF RS. 82,061/ - RELATES TO THE INTEREST EXPENDITURE ON INVESTMENTS. AS PER HIM, NO INTEREST EXPENDITURE IS INCURRED FOR INVESTMENT IN SHARES / PPF DEPOSITS. HOWEVER, CIT (A) REJECTED THE ABOVE SUBMISSION S OF THE ASSESSEE AND CONFIRMED THE DISALLOWANCE MADE BY THE AO. AGGRIEVED WITH THE SAME, ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL WITH THE GROUND NO.1 WHICH READS AS UNDER: 1. THE CIT (A) ERRED IN CONFIRMING THE ACTION OF THE AO IN DISALLOWING A SUM O F RS. 2,05,849/ - ON ACCOUNT OF EXPENSES INCURRED OF EARNING DIVIDEND INCOME BY INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT. 3 THE APPELLANT CONTENDS THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT (A) OUGHT NOT TO HAVE CONFIR MED THE IMPUGNED DISALLOWANCE MADE BY THE AO AS THERE IS NO EXPENDITURE INCURRED IN RELATION TO EARNING DIVIDEND INCOME AND AS SUCH, NO DISALLOWANCE IS CALLED FOR UNDER SECTION 14A OF THE ACT. 6. DURING THE PROCEEDINGS BEFORE US, LD COUNSEL BROUGHT OUR ATTENTION TO THE PAGE 9 OF THE PAPER BOOK AND MENTIONED THAT NONE OF THESE EXPENSES WAS INCURRED BY THE ASSESSEE RELATING TO THE EARNING OF THE DIVIDEND INCOME AND ALL O F THEM WERE ACTUALLY SPENT FOR EARNING CONSULTANCY FEES OF RS. 22,10,756/ - , WHICH WAS D ULY OFFERED IN THE RETURN OF INCOME. IN SUCH CIRCUMSTANCES, APPLYING THE PROVISIONS OF RULE - 8D IS NOT PROPER. FURTHER, REFERRING TO THE PPF DEPOSITS AND THE INTEREST INCOME EARNED ON THE SAME , LD COUNSEL MENTIONED THAT RULE - 8D SHOULD NOT BE APPLIED IN RE SPECT OF SUCH INTEREST INCOME EARNED OUT OF PPF. FURTHER, LD COUNSEL FILED A COPY OF THE ORDER OF THE ITAT, KOLKATA IN THE CASE OF JCIT VS. M/S. PILANI INVESTMENT & INDUSTRIES CORPN LTD VIDE ITA NO. 653/KOL/2012 (2008 - 09) DATED 4.2.2013 FOR THE PROPOSITIO N THAT THE EXPENSES WHICH ARE NOT DIRECTLY RELATABLE TO THE EXEMPT INCOME SHOULD NOT BE BROUGHT UNDER THE SCOPE OF RULE - 8D OF IT RULES, 1962. 7. ON THE OTHER HAND, LD DR RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES. 8. WE HAVE HEARD BOTH THE PARTIES A ND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE CASE LAWS FIELD BEFORE US. IT IS AN UNDISPUTED FACT THAT THE ASSESSEES EXEMPT INCOME IS RS. 3,19,410/ - AND THE BREAKUP OF THE SAME IS AS FOLLOWS. A) DIVIDEND (SELF) RS. 1,39,616/ - (MI NOR CHILDREN) RS. 413/ - B) PPF (SELF) RS. 1,12,192/ - (MINOR CHILDREN) RS. 67,459/ - RS. 3,19,410/ - 9. AO APPLIED THE PROVISIONS OF SECTION 14A READ WITH RULE - 8D AND MADE DISALLOWANCE OF RS. 2,05,849/ - . THE DETAILS ARE ALREADY GIVEN IN THE PRECEDING PARAGRAPHS OF THIS ORDER. WHILE THE DISALLOWANCE WAS MADE U/S 14A READ WITH RULE - 8D(2)( II ) AT RS. 82,026 / - ON ACCOUNT OF INTEREST AND OTHER DISALLOWANCE AS PER RULE - 8D(2)( III ) @ % OF THE AVERAGE INVESTMENT IE RS.1,23,788 / - . THE TOTAL DISALL OWANCE COMES TO RS. 2,05,849/ - . IT IS SEEN FROM PAGE 9 OF THE PAPER THAT NO 4 EXPENDITURE IS CLAIMED ON ACCOUNT OF INTEREST ON ANY BORROWED CAPITAL FOR INVESTMENT IN SHARES OR PPF A/C IN THE P & L ACCOUNT. FURTHER, IT IS ALSO FOUND THAT INTEREST EXPENDITURE OF RS. 1,70,960/ - (PAGE 13 OF PB) RELATES TO BUSINESS EXPENDITURE AND UNRELATED TO INVESTMENT ACTIVITY. THE REVENUE OFFICER HAS NOT DISCUSSED THIS ISSUE BEFORE INVOKING SECTION 14A OF THE ACT. IT IS NOT CLEAR AS TO HOW THIS INTEREST EXPENDITURE IS RELATA BLE TO THE SHARE INVESTMENT OR PPF INVESTMENT ACTIVITIES WHICH YIELDED EXEMPT INCOME. IF THESE EXPENDITURE IS NOT INCURRED IN CONNECTION WITH THE ABOVE INVESTMENT ACTIVITIES, IN OUR OPINION, HAVING REGARD TO THE BOOKS OF ACCOUNTS, NO DISALLOWANCE IS CALLE D FOR UNDER RULE - 8D(2)(II) OF THE INCOME TAX RULES, 1962. THAT IS HOW THE DISALLOWANCE OF RS 82,061/ - BECOMES UNSUSTAINABLE. COMING TO THE APPLICABILITY OF RULE - 8D(2) (III), IN OUR OPINION, AO NEED TO DECIDE THE ISSUE ABOUT THE QUANTIFICATION IN ACCORDANCE WITH THE CITED DECISION OF THE TRIBUNAL IN THE CASE OF THE M/S. PILANI INVESTMENT (SUPRA). AO MUST EXAMINE HOW ANY PART OF THE EXPENDITURE CLAIM OF RS 8,64,558/ - IS RELATABLE TO THE EXEMPT INCOME IN THE LIGHT OF THE CITED JUDGMENT (SUPRA) . FOR EXAMINI NG THIS ISSUE, WE REMIT THIS MATTER TO THE FILES OF THE AO FOR FRESH DECISION AFTER GRANTING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THEREFORE, THE RELEVANT DECISION OF THE CIT(A) IS SET ASIDE . ACCORDINGLY, GROUND NO.1 IS ALLOWED FOR STATI STICAL PURPOSES. 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OP EN COURT O N 4.9 .2013 . SD/ - SD/ - (VIJAY PAL RAO) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; 4.9 .2013 . . . ./ OKK , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE C IT(A) - 5 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI