DARIUS CAVASJI SHROFF, MUMBAI V. ACIT 11(2), MUMBAI

ITA 4738/MUM/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71295 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-09-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2008-2009
• Appeal Filed On: 17-07-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J K GARG
• Assessee Lawyers: H P MAHAJANI; PRASAD BAPAT
• Keywords: Gift; Depreciation; Earning of tax free income
• Section: 132; 14A

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI - D BENCH. . .. . , , , , !'# !'# !'# !'# $ $ $ $ !%&'( !%&'( !%&'( !%&'( , &! &! &! &! )* )* )* )* BEFORE S/SH. D.MANMOHAN,VICE PRESIDENT & RAJENDRA, ACCOUNTANT MEMBER ./ ITA NO.4738/MUM/2012, ! ! ! ! + + + + / ASSESSMENT YEAR-2008-09 DARIUS CAVASJI SHROFF, 8 MOONLIGHT, M.K.ROAD, OPP. OVAL MAIDAN MUMBAI- 400023 VS. ACIT 11(2) AAYAKAR BHAVAN, M.K.ROAD, MUMBAI- 400020 PAN: AACPS7090J ( !,- / APPELLANT ) ( ./,- / RESPONDENT ) !,- !,- !,- !,- 0 0 0 0 & && & / APPELLANT BY : SHRI H.P.MAHAJANI & SHRI PRASAD BAPAT ./,- 1 0 & / RESPONDENT BY : SHRI J.K.GARG ! ! ! ! 1 11 1 2! 2! 2! 2! / DATE OF HEARING : 26-08-2013 3+ ! 1 2! / DATE OF PRONOUNCEMENT : 25-09-2013 , 1961 1 11 1 !! !! !! !! 254(1) & && & '242 '242 '242 '242 )&5 )&5 )&5 )&5 ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, A.M. CHALLENGING THE ORDER DATED 08.06.2012 OF THE CIT(A )-3, MUMBAI ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) IN TOTAL DISREGARD TO THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE HIM, ERRED IN CONFIRMING DISALLOWANCE OF INTEREST AND OTHER EXPENDITURE AGGREGATING TO RS. 75,492/- U /S. 14A READ WITH RULE 8D. 2. THE LD. CIT(A) ERRED IN NOT APPRECIATING THAT THE EXPENDITURE OF RS. 75,492/- COMPRISING OF EXPENDITURE OF RS. 27,837/- INCURRED TOWARDS DEPREC IATION ON CAR AND AIR CONDITIONER, ELECTRICITY CHARGES AND SERVICE CHARGES, CLAIMED AGAINST INCOME BY WAY OF INCOME FROM BUSINESS OR PROFESSION AND EXPENDITURE OF RS. 47,655/- INCURRED TOWARDS ENTERTAINMENT, PROFESSIONAL TAX AND BOOKS ETC CLAIMED AGAINST INCOME UNDER THE HEAD INC OME FROM OTHER SOURCES HAD DIRECT NEXUS WITH SAID INCOME AND WAS NOT INCURRED IN RELATION T O ANY EXEMPT INCOME. THE DISALLOWANCES BE DELETED. 3. YOUR APPELLANT RESERVES THE RIGHT TO ADD, TO ALTER OR AMEND ANY OF THE ABOVE GROUNDS, IF NECESSARY. 2.ASSESSEE,AN INDIVIDUAL,FILED HIS RETURN OF INCOME ON 15.9.2008 DECLARING TOTAL INCOME OF RS.67. 58 LACS.ASSESSMENT WAS FINALISED ON 25.10.2010DETER MINING THE TOTAL INCOME OF THE ASSESSEE AT RS.68.34 LACS.DURING THE ASSESSMENT PROCEEDINGS,AO FOUND THAT THE ASSESSEE HAD SHOWN INVESTME -NT IN SHARES AND MUTUAL FUNDS AT RS.3.08 CRORES.HE ASKED THE ASSESSEE TO FILE WORKING OF DISALLOW -ANCE U/S.14A OF THE ACT R.W.RULE 8D OF INCOME TAX RULES, 1962 (RULES).AFTER CONSIDERING HIS SUBMISSIONS,AO HELD THAT ASSESSEE HAD INCURRED EXPE NSES TOWARDS THE EARNING OF REMUNERATION FROM THE FIRM(RS.27,837/-) AND TOWARDS EARNING INCO ME BY WAY OF DIRECTORS FEES AND COMMISSION (RS.47,652/-),THAT THE ASSESSEE HAD UTILISED THE WH OLE INFRASTRUCTURE FOR MAINTAINING THE ABOVE INVE 2 ITA NO.4738/MUM/2012,(AY-2008-09) DARIUS CAVASJI SH ROFF -STMENT,THAT DISALLOWANCE AS PER THE SECTION 14A R. W. RULE 8D HAD TO BE MADE.INITIALLY HE MADE DISALLOWANCE@0.05% OF THE INVESTMENT I.E. OF RS.3,0 8,93,434/-.FINALLY,SAID DISALLOWANCE OF RS. 1,54,467/-WAS RESTRICTED BY HIM TO RS. 74,492 (27,8 73+47,665)-THE AMOUNT OF EXPENSES CLAIMED BY THE ASSESSEE. 3. ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPEL LATE AUTHORITY (FAA).AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE ASSESSMENT ORDE R, FAA HELD THAT NO SUBSTANTIAL EXEMPT INCOME COULD BE EARNED WITHOUT INCURRING ANY EXPEND ITURE,THAT THE AO HAD MADE DISALLOWANCE AS PER RULE 8D OF THE RULES,THAT THE SAID RULE WAS APP LICABLE DURING THE YEAR UNDER CONSIDERATION, THAT THE ASSESSEE HAD DEBITED DMATE CHARGES AND OTHER EXPENSES RELATED TO EARNING EXEMP T INCOME IN HIS STATEMENT OF INCOME,THAT THE EXPENDITURE ACC OUNT SUPPORTED THE FINDINGS OF THE AO, THAT DISALLOWANCE WAS RIGHTLY MADE BY THE AO U/S. 14A(1) OF THE ACT,THAT THE AO HAD RESTRICTED THE DISALLOWANCE TO INDIRECT EXPENSES OF RS. 75,492/-.F INALLY, HE DISMISSED THE APPEAL FILED BY THE ASSESSEE. 4. BEFORE US,AUTHORISED REPRESENTATIVE(AR)SUBMITTED TH AT WHILE COMPUTING THE INCOME U/S.28 (V) OF THE ACT,ASSESSEE HAD CLAIMED CERTAIN DEDUCTIONS LIKE DEPRECIATION OF ASSETS,ELECTRICITY CHARGES AND SERVICE CONTRACT FOR ASSETS,THAT THE SAID EXPEN SES WERE RESTRICTED TO 75%, 25% AND 50% RESPECT -TIVELY WHILE PREPARING THE STATEMENT OF INCOME,THA T HE WAS ALSO A NON-EXECUTIVE DIRECTOR OF BOARD OF DIRECTORS OF SEVERAL COMPANIES AND HAD EAR NED INCOME BY WAY OF DIRECTORS FEES AND COMMISSION,THAT IN COMPUTING THE INCOME U/S.56 HE H AD CLAIMED DEDUCTIONS UNDER THE HEAD ENTER -TAINMENT, GIFTS, PROFESSIONAL TAX AND BOOKS, THAT THE AGGREGATE EXPENDITURE CLAIMED AS DEDUCTION UNDER BOTH THE HEADS WAS RS.75,492/- AS AGAINST THE AGGREGATE INCOME OF RS. 68.82 LACS,THAT THE EXPENDITURE WAS CLAIMED @ 1.10%, THAT THE ASSESSEE HAD EARNED EXEMPT INCOME OF RS. 2.43CRORES INCLUDING SHARE ON PROFIT FROM THE FIRM(85.86 LACS) ,DIVIDEND FROM MUTUAL FUNDS (RS. 1.23 CRORES) AND SALE OF SHARES(11.25LACS),THAT NO EXPENDITURE W AS INCURRED IN RELATION TO THE EXEMPT INCOME, THAT THE AO HAD NOT PROVIDED THE WORKING OF THE VAL UE OF INVESTMENT,THAT DISALLOWANCE COULD NOT BE MADE U/S.14A OF THE ACT.DEPARTMENTAL REPRESENTAT IVE (DR) SUPPORTED THE ORDER OF THE AO AND THE FAA. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.PROVISIONS OF SECTION 14A OF THE ACT R.W.RULE 8D OF THE RULES ARE ATTRACT ED, IF AN ASSESSEE CLAIMS AN EXPENDITURE FOR EARNING EXEMPT INCOME OR IF AO IS NOT SATISFIED WIT H THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO INCOM E WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. SUB SECTION 3 PROVIDES THAT IF ANY ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT,AO CAN MAKE DISALLOWANCE.RULE 8D DEALS WITH THE METHODOLOG Y OF CALCULATING THE DISALLOWANCE.NOW, WE WOULD LIKE TO CONSIDER THE FACTS OF THE CASE UNDER CONSIDERATION.ASSESSE HAD EARNED EXEMPT INCOME OF RS.2.43 CRORES AND HAD NOT CLAIMED ANY EX PENDITURE AGAINST THE SAID INCOME.EVEN THOUGH ASSESSEE HAD NOT CLAIMED ANY EXPENDITURE AO IS AUTHORISED TO DISALLOW EXPENDITURE INVOKING THE PROVISIONS OF SECTION 14(3)OF THE ACT, PROVIDED HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM MADE BY THE ASSESSEE.WE FIND THAT WHIL E DECIDING THE MATTER OF MAXOPP INVESTMENT LTD. & ORS. ( 247 CTR 162) HONBLE DELHI HIGH COURT HAS HELD AS U NDER : SUB-S. (2) OF S. 14A OF THE SAID ACT PROVIDES THE M ANNER IN WHICH THE AO IS TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO INCOM E WHICH DOES NOT FORM PART OF THE TOTAL INCOME. HOWEVER, IF WE EXAMINE THE PROVISION CAREFULLY, WE WOULD FIND THAT THE AO IS REQUIRED TO DETERMINE THE AMOUNT OF SUCH EXPENDITURE ONLY IF TH E AO, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FO RM PART OF THE TOTAL INCOME UNDER THE SAID ACT. IN OTHER WORDS, THE REQUIREMENT OF THE AO EMBARKING UPON A DETERMINATION OF THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME W OULD BE TRIGGERED ONLY IF THE AO RETURNS A FINDING THAT HE IS NOT SATISFIED WITH THE CORRECTNE SS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE. THEREFORE, THE CONDITION PRECEDENT FOR THE AO ENTERING UPON A DETERMINATION OF THE 3 ITA NO.4738/MUM/2012,(AY-2008-09) DARIUS CAVASJI SH ROFF AMOUNT OF THE EXPENDITURE INCURRED IN RELATION TO E XEMPT INCOME IS THAT THE AO MUST RECORD THAT HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE. SUB-S. (3) IS NOTHING BUT AN OFFSHOOT OF SUB-S. (2) OF S. 14A. SUB-S. (3) APPLIES TO CASES WHERE THE ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURR ED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT. IN OTH ER WORDS, SUB-S.(2) DEALS WITH CASES WHERE THE ASSESSEE SPECIFIES A POSITIVE AMOUNT OF EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT AND SUB-S. ( 3) APPLIES TO CASES WHERE THE ASSESSEE ASSERTS THAT NO EXPENDITURE HAD BEEN INCURRED IN RELATION T O EXEMPT INCOME. IN BOTH CASES, THE AO, IF SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE OR NO EXPENDITURE, AS THE CASE MAY BE, CANNOT EMBARK UPON A DETERMINATION OF THE AMOUNT OF EXPENDITURE IN ACCORDANCE WITH ANY PRESCRIBED METHO D, AS MENTIONED IN SUB-S. (2) OF S. 14A OF THE SAID ACT. IT IS ONLY IF THE AO IS NOT SATISFIED WIT H THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE, IN BOTH CASES, THAT THE AO GETS JURISDICTION TO DETERM INE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT IN ACCORDANCE WITH THE PRESCRIBED METHOD. THE PRESCRIB ED METHOD BEING THE METHOD STIPULATED IN R. 8D OF THE SAID RULES. WHILE REJECTING THE CLAIM OF THE ASSESSEE WITH REGARD TO THE EXPENDITURE OR NO EXPENDITURE, AS THE CASE MAY BE, IN RELATION TO EXE MPT INCOME, THE AO WOULD HAVE TO INDICATE COGENT REASONS FOR THE SAME. WHILE DECIDING THE MATTER,HONBLE DELHI HIGH COURT HAS CONSIDERED THE HISTORY AND OBJECTS OF INTRODUCING THE SECTION.IT ALSO DISCUSSED IMPORTANT JUDGMENTS DELIVERED BY THE HONBLE SUPREME COURT AND VARIOUS HIGH COURTS PERTAINING TO THE ISS UE OF DISALLOWANCE TO BE MADE U/S.14A R.W.R. 8D OF THE RULES.AFTER DELIBERATING UPON THE ISSUE E XTENSIVELY,HONBLE COURT HELD THAT FOR INVOKING PROVISIONS OF SECTION 14A(2)AND(3) OF THE ACT,AO SHOULD INDICATE COGENT REASONS FOR HOLDING THE VIEW THAT HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE.WE FIND THAT AO HAD NOT MENTIONED AS HOW AND WHY HE WAS NOT SATISFIED WITH THE CLAIM MADE BY THE ASSEESSEE.WHILE CONFIRMING THE ORDER OF THE AO,FAA HAS ALSO IGNORED THIS VITAL FACTOR.IN TAXATION MATTERS, RECORDING OF SATISFACTION IS A PRE-CONDITI ON FOR INVOKING CERTAIN PROVISIONS E.G.SECTION 132 OR SECTION148.HONBLE DELHI COURT HAS,IMPLIEDLY,INC LUDED THE PROVISIONS OF SECTION 14A IN THAT CATEGORY.IN ABSENCE OF RECORDING OF SATISFACTION B Y THE AO ABOUT CORRECTNESS OF THE CLAIM MADE BY THE ASSESSEE,WE ARE NOT ABLE TO ENDORSE THE VIEW S OF THE AO AND THE FAA.THEREFORE, REVERSING THE ORDER OF THE FAA, WE ALLOW THE APPEAL FILED BY THE ASSESSEE.EFFECTIVE GROUND OF APPEAL FILED BY THE ASSESSEE IS DECIDED IN HIS FAVOUR. AS A RESULT,APPEAL FILED BY THE ASSESSEE STANDS ALL OWED. 6 !27 !62 8!! )!9 1 4 *:2 1 %!2 ; . ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH SEPTEMBER,2013 . )&5 1 3+ ! & '!! < =)! 25 2 , 2013 1 4 > ( . .. . / // / D.MANMOHAN) ( !%&'( !%&'( !%&'( !%&'( / RAJENDRA) !'# !'# !'# !'# / VICE PRESIDENT &! &! &! &! )* )* )* )* /ACCOUNTANT MEMBER / MUMBAI, =)! /DATE: 25 TH SEPTEMBER,2013 SK )&5 )&5 )&5 )&5 1 11 1 .2@ .2@ .2@ .2@ A&@+2 A&@+2 A&@+2 A&@+2 / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / !,- 2. RESPONDENT / ./,- 3. THE CONCERNED CIT (A) / B C , 4. THE CONCERNED CIT / B C 4 ITA NO.4738/MUM/2012,(AY-2008-09) DARIUS CAVASJI SH ROFF 5. DR D BENCH, ITAT, MUMBAI / @D!4 .2 , . . '!! . 6. GUARD FILE/ 4! E! /!@2 /!@2 /!@2 /!@2 .2 .2.2 .2 //TRUE COPY// )&5!! / BY ORDER, / ! %! DY./ASST. REGISTRAR , /ITAT, MUMBAI