JANAK D. DWARKADAS, MUMBAI V. JT CIT RG 11(2), MUMBAI

ITA 4861/MUM/2012

• Counselvise Citation: 486119914 RSA 2012
• Duration Of Justice: 1 year(s) 5 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: J
• Next Hearing Date: 31-12-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 25-07-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

J IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH, MUMBAI .. , # %, & # ' BEFORE SHRI P.M. JAGTAP, AM AND SHRI SANJAY GARG, J M ./ I.T.A. NO.4861 /MUM/2012 ( &% % / ASSESSMENT YEAR : 2008-2009 MR. JANAK DWARKADAS, MULLA HOUSE, 3 RD FLOOR, 51, MAHATMA GANDHI ROAD, MUMBAI 400 001. / VS. THE JT. COMM.OF INCOME TAX RANGE 11(2), AAYAKAR BHAVAN, MAHARSHI KARVE MARG, MUMBAI -400 020. . / PAN : SSRPD8303R ( / APPELLANT ) .. ( / RESPONDENT ) APPELLANT BY SHRI PRADIP J. JOSHI RESPONDENT B Y : SHRI MOURYA PRATAP / DATE OF HEARING :31-12-2013 / DATE OF PRONOUNCEMENT : 22-01-2014. [ / O R D E R PER P.M. JAGTAP, A.M . : .. , THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DTD. 6-6-2012 PASSED BY THE LD. CIT(A) 3, MUMBAI AND T HE SOLITARY ISSUE RAISED THEREIN RELATES TO THE DISALLOWANCE OF RS. 2,36,939 /- MADE BY THE A.O. AND CONFIRMED BY THE LD.CIT(A) U/S 14A READ WITH RULE 8 -D OF THE INCOME TAX RULES, 1962. 2. THE ASSESSEE IN THE PRESENT CASE IS A SENIOR ADV OCATE PRACTICING IN HIGH COURT AND SUPREME COURT. THE RETURN OF INCOME FOR T HE YEAR UNDER CONSIDERATION WAS FILED BY HIM ON 30-9-2008 DECLARI NG TOTAL INCOME OF RS. 17,91,15,983/-. IN THE SAID RETURN, OTHER INCOME S HOWN BY THE ASSESSEE WAS ITA 4861/M/12 2 RS. 7,15,62,506/- WHICH WAS MAINLY COMPRISING OF EX EMPT INCOME. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS CALLED UPON BY THE A.O. TO EXPLAIN AS TO WHY DISALLOWANCE OF EXPENSES INCURRED IN RELATION TO THE EXEMPT INCOME SHOULD NOT BE MADE AS PER THE PROVISI ONS OF SECTION 14A READ WITH RULE 8-D OF THE INCOME TAX RULES, 1962. IN REP LY, IT WAS SUBMITTED BY THE ASSESSEE THAT THE EXPENSES IN THE P&L ACCOUNT C LAIMED BY HIM WERE ENTIRELY RELATED TO THE PROFESSIONAL INCOME AND THE RE WERE NO EXPENSES WHICH COULD BE RELATED TO THE EXEMPT INCOME. THIS EXPLANA TION OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE BY THE A.O. ACCORDING TO HIM, CERTAIN EXPENSES SUCH AS COMPUTER, ELECTRICITY, STATIONERY, TELEPHONE AND MA NPOWER ETC. SHOULD HAVE BEEN INCURRED BY THE ASSESSEE PARTLY IN RELATION TO THE INVESTMENT ACTIVITIES WHICH FETCHED THE EXEMPT INCOME AND SINCE NO SUCH A CTIVITY-WISE BIFURCATION WAS AVAILABLE, HE HELD THAT THE DISALLOWANCE U/S 14 A OF THE ACT WAS REQUIRED TO BE COMPUTED AS PER RULE 8D. ACCORDINGLY, HE MADE A DISALLOWANCE OF RS. 2,36,939/- AS PER SECTION 14A READ WITH RULE 8-D OF THE INCOME TAX RULES, 1962. 3. THE DISALLOWANCE MADE BY THE A.O. U/S 14A OF THE ACT WAS CHALLENGED BY THE ASSESSEE BY FILING AN APPEAL BEFORE THE LD. CIT(A) AND AFTER CONSIDERING THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE AS W ELL AS THE MATERIAL AVAILABLE ON RECORD, THE LD. CIT(A) CONFIRMED THE D ISALLOWANCE MADE BY THE A.O. U/S 14A READ WITH RULE 8-D OF THE INCOME TAX R ULES, 1962 FOR THE FOLLOWING REASONS GIVEN IN PARA 2.3 OF HIS IMPUGNED ORDER:- I HAVE CONSIDERED THE FACTS AND PERUSAL OF MATERIAL ON RECORD, IT IS SEEN THAT THE APPELLANT HAS EARNED DIVIDEND INCOME OF RS . 26,56,298/- WHICH IS CLAIMED AS EXEMPT U/S 10(34) OF I.T. ACT. SIMILARLY, THE APPELLANT HAS ALSO EARNED DIVIDEND INCOME ON MUTUAL FUNDS AT RS. 3,00,67,163/- WHICH IS ALSO CLAIMED EXEMPT U/S 10(3 8) OF I.T. ACT. BESIDES THIS, THE APPELLANT HAS ALSO EARNED TAX FRE E RBI INTEREST OF RS. 11,36,311/- AND INTEREST ON PPF AT RS. 3,13,663/-. IT IS ALSO SEEN THAT THERE IS CHANGE IN INVESTMENT FROM LAST YEAR TO THE CURRENT YEAR. THE APPELLANT HAS DEBITED RPMS EXPENSES OF RS.15,897/-, SECURITY TRANSACTION EXPENSES AT RS.3,16,729/- AND RPMS EXPE NSES OF RS.18,846/- IN THE P&L ACCOUNT UNDER THE HEARD PRO FESSIONAL, ITA 4861/M/12 3 ADMINISTRATION AND OTHER EXPENSES WHICH ARE DIRECT LY RELATED TO EARNING OF EXEMPT INCOME. THEREFORE, CLAIM OF THE A PPELLANT THAT NO EXPENDITURE HAS BEEN INCURRED FOR EARNING OF EXEMPT INCOME CANNOT BE ACCEPTED AS THE DIRECT EXPENDITURE RELATING TO EXEM PT INCOME HAS BEEN DEBITED TO P&L ACCOUNT. IT IS TRUE THAT THE APPELLA NT HAS DISALLOWED THE DIRECT EXPENSES WHILE COMPUTING PROFESSIONAL INCOME BUT THIS DOES NOT ABSOLVED TO INVOKING OF THE PROVISIONS OF SECTION 1 4A OF THE ACT. THEREFORE, THE CLAIM OF THE APPELLANT THAT NO EXPEN DITURE HAS BEEN INCURRED FOR EARNING DIVIDED INCOME CANNOT BE ACCEP TED AS IT IS IMPOSSIBLE TO EARN SUBSTANTIAL DIVIDEND INCOME WITH OUT INCURRING ANY EXPENSES. THIS VIEW IS FORTIFIED BY DECISION IN THE CASE OF CITICORP FINANCE (INDIA) LTD. (2007) 108 ITD 47 (MUM) WHEREI N IT WAS HELD THAT IT IS DIFFICULT TO ACCEPT THE HYPOTHESIS THAT ONE C AN EARN SUBSTANTIAL DIVIDEND INCOME WITHOUT INCURRING ANY EXPENSES, WHA TSOEVER, INCLUDING MANAGEMENT OR ADMINISTRATIVE EXPENSES. I ALSO FIND THAT THE AO HAS MADE DISALLOWANCE ON THE BASIS OF RULE 8D WHICH IS VERY MUCH APPLICABLE TO THE YEAR UNDER CONSIDERATION AS HELD BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MAN UFACTURING CO. LTD. VS. DCIT (2010) 328 ITR 81(BOM). IN VIEW OF TH ESE FACT, THE DISALLOWANCES MADE U/S.14A R.W.R. 8D IS THEREFORE U PHELD. THIS GROUND OF APPEAL IS DISMISSED. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE ASSES SEE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 4. AT THE TIME OF HEARING BEFORE US, THE LD. COUNSE L FOR THE ASSESSEE HAS REITERATED THE SUBMISSIONS MADE ON BEHALF OF THE AS SESSEE BEFORE THE AUTHORITIES BELOW WHILE THE LD. D.R. HAS STRONGLY R ELIED ON THE IMPUGNED ORDER OF THE LD. CIT(A). 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND AL SO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS OBSERV ED THAT SUBSTANTIAL EXEMPT INCOME IN THE FORM OF DIVIDEND ON SHARES AMOUNTING TO RS. 26,56,298/- AND DIVIDEND INCOME ON MUTUAL FUNDS AMOUNTING TO RS. 3, 00,67,163/- WAS EARNED BY THE ASSESSEE DURING THE YEAR UNDER CONSID ERATION IN ADDITION TO THE TAX FREE INTEREST INCOME OF RS. 11,36,311/- FROM RB I AND RS. 3,13,663/- INTEREST ON PPF. ALTHOUGH IT HAS BEEN CONTENDED ON BEHALF OF THE ASSESSEE BEFORE THE AUTHORITIES BELOW AS WELL AS BEFORE US T HAT NO EXPENDITURE IN RELATION TO THE EARNING OF THIS EXEMPT INCOME WAS I NCURRED DURING THE YEAR ITA 4861/M/12 4 UNDER CONSIDERATION, WE AGREE WITH THE AUTHORITIES BELOW THAT GOING BY THE MAGNITUDE OF THE INVESTMENT ACTIVITY OF THE ASSESSE E AND THE QUANTUM OF EXEMPT INCOME EARNED THEREON, CERTAIN COMMON EXPENS ES INCURRED ON OFFICE AND ADMINISTRATION INCURRED BY THE ASSESSEE SHOULD BE ATTRIBUTABLE PARTLY TO THE INVESTMENT ACTIVITY OF THE ASSESSEE WHICH RESUL TED IN SUBSTANTIAL EXEMPT INCOME. THE MANNER AND METHOD OF COMPUTING SUCH IN- DIRECT EXPENSES ATTRIBUTABLE TO THE EARNING OF EXEMPT INCOME IS NOW PROVIDED IN RULE 8-D AND THE SAME BEING APPLICABLE TO THE YEAR UNDER CONSIDE RATION I.E 2008-09, WE ARE OF THE VIEW THAT THE DISALLOWANCE MADE BY THE A.O. U/S 14A OF THE ACT BY APPLYING THE SAID RULE WAS FULLY JUSTIFIED AND THE LD. CIT(A) HAS RIGHTLY CONFIRMED THE DISALLOWANCE MADE BY THE A.O. ON THIS ISSUE. IN THAT VIEW OF THE MATTER, WE UPHOLD THE IMPUGNED ORDER OF THE LD. CIT(A) CONFIRMING THE DISALLOWANCE MADE BY THE A.O. U/S 14A READ WITH RUL E 8-D OF THE INCOME TAX RULES 1962 AND DISMISS THIS APPEAL FILED BY THE ASS ESSEE. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 22 -01-2014. . ( ) * 22-01-2014 SD/- SD/- (SANJAY GARG) (P.M. JAGTAP ) (- JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; * DATED 22-01-2014. [ .-../ RK , SR. PS ITA 4861/M/12 5 , -&./ 0/ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / () / THE CIT(A)3, MUMBAI. 4. / / CIT 11, MUMBAI 5. 2 --4 , 4 , / DR, ITAT, MUMBAI J BENCH 6. 7 / GUARD FILE. / BY ORDER, 2 - //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI