TOPSTAR MERCANTILE P.LTD, MUMBAI V. ITO RG 7(3)(2), MUMBAI

ITA 497/MUM/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8095 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-03-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 02-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: RONAK G DOSHI
• Keywords: Capital asset; Earning of tax free income; Cost of acquisition; Scheme of amalgamation
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH J, MUMBAI BEFORE SHRI B R BASKARAN, ACCOUNTANT MEMBER & SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NO.497/MUM/2016 ASSESSMENT YEAR: 2010-2011 TOPSTAR MERCANTILE P LTD. NOW MERGED WITH PENINSULA LAND LTD PENINSULA SPENTA, 2 ND FLOOR, MATHURADAS MILL COMPOUND, SENAPATI BAPAT MARG, LOWER PAREL, MUMBAI- 400 013 PAN: AAACT5173A VS. ITO RANGE 7(3)(2) MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI RONAK G DOSHI RESPONDENT BY : SHRI VAIBHAV JAIN DATE OF HEARING : 06.12.2016 DATE OF PRONOUNCEMENT : 06.03.2017 O R D E R PER AMIT SHUKLA, JUDICIAL MEMBER: THE AFORESAID APPEAL HAS BEEN FILED BY THE ASSESSE E AGAINST THE IMPUGNED ORDER DATED 26.11.2015, PASSED BY LD. CIT( APPEALS)- 14, MUMBAI FOR THE QUANTUM OF ASSESSMENT PASSED U/S. 143 (3) OF THE INCOME TAX ACT, 1961. IN THE GROUNDS OF APPEAL THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS:- GROUND I: INACCURATE COMPUTATION OF LONG TERM CAPITAL LOSS 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD.CIT(A) ERRED IN UPHOLDING THE ACTION OF THE INCO ME-TAX OFFICER, RANGE 7(3)(2), MUMBAI (THE AO) IN INACCU RATELY COMPUTING THE LONG-TERM CAPITAL LOSS ON SALE OF RIG HTS SHARES ACQUIRED BY WAY OF AMALGAMATION AT RS.1,94,47,166/-/ ITA NO.497/MUM/2016 TOPSTAR MERCANTILE PRIVATE LIMITED 2 2. HE FAILED TO APPRECIATE AND OUGHT TO HAVE HELD THAT : (I) COST OF ACQUISITION OF SHARES ACQUIRED BY WAY OF AMALGAMATION SHALL BE COMPUTED AS PER THE PROVISION S OF SECTION 49(1)(E) OF THE ACT AND ACCORDINGLY THE COS T OF ACQUISITION SHALL BE THE COST AT WHICH THE PREVIOUS OWNER ACQUIRED THE RIGHTS SHARES; (II) COST INFLATION INDEX SHALL BE THE INFLATION INDEX CORRESPONDING TO THE YEAR IN WHICH THE PREVIOUS OWN ER, ACQUIRED THE RIGHTS SHARES I.E. F.Y. 2006-07. 3. THE APPELLANT, THEREFORE, PRAYS THAT THE LONG-TERM CAPITAL LOSS OF RS.5,36,19,339/- AS CLAIMED BY THE APPELLAN T IN ITS RETURN OF INCOME BE ALLOWED. GROUND II: DISALLOWANCE UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF THE INCOME TAX RULES, 1962 (THE RULES) 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD.CIT(A) ERRED IN UPHOLDING THE ACTION OF THE AO I N DISALLOWING THE EXPENDITURE AMOUNTING TO RS.2,86,61 6/- U/S. 14A OF THE ACT R.W.R. 8D OF THE RULES, WITHOUT APPRECIATING THAT THE EXPENSES DISALLOWED HAVE NO D IRECT NEXUS WITH THE EARNING OF EXEMPT INCOME. 2. THE APPELLANT, THEREFORE, PRAYS THAT THE DISALLOWAN CE OF RS.2,86,616/- BE DELETED I.E. THE SAME BE RESTRICTE D TO R.15,14,901/- AS SUO-MOTO DISALLOWED BY THE APPELLA NT. 2. THE BRIEF FACTS, QUA THE ISSUE RAISED VIDE GROUND NO.1 & 2 ARE THAT, THE ASSESSEE IS AN INVESTMENT COMPANY AND DURING THE YEAR UNDER CONSIDERATION, IT HAD SOLD 47,23,432 SHARES OF MORARJEE TEXTILES LTD.(MTL) AT THE VALUE OF RS. 14 PER SHARE AMO UNTING TO RS.6,61,28,048/- AND DECLARED LONG TERM CAPITAL LOSS. THE ASSESSEE SOLD THESE SHARES OFF MARKET. THE MODE OF ACQUISITIO N OF 23,61,716 SHARES WAS BY WAY OF AMALGAMATION, WHICH WAS EXPLAIN ED BY THE ASSESSEE IN THE FOLLOWING MANNER TO THE AO:- PEL HOLDING PVT. LTD. (PEL) WAS MERGED WITH BIGDEA L MERCANTILE PVT. LTD. (BIGDEAL) W.E.F. OCTOBER 1, 2007 VIDE BOMBAY HIGH COURT ORDER ITA NO.497/MUM/2016 TOPSTAR MERCANTILE PRIVATE LIMITED 3 DATED NOVEMBER 23, 2007. THEREAFTER, BIGDEAL WAS M ERGED WITH THE APPELLANT W.E.F. JANUARY 1, 2009 VIDE BOMBAY HIGH C OURT ORDER DATED DECEMBER 12, 2008. PRIOR TO THE AMALGAMATION OF PEL WITH BIGDEAL, PEL HELD 13,49,552 SHARES OF MTL PRIOR TO NOVEMBER 3, 2006 (HERE AFTER REFERRED TO AS THE ORIGINAL SHARES ). THE SAME CAN BE SEEN FROM THE SHAREHOLDING PATTERN OF PEL FOR THE Q UARTER ENDED SEPTEMBER 2006 AS EXTRACTED FROM THE WEBSITE OF BOM BAY STOCK EXCHANGE (BSE). THEREAFTER ON NOVEMBER 3, 2006, PE L WAS FURTHER ALLOTTED 10,12,164 SHARES AT RS.55 PER SHARE BY MTL IN LIEU OF THE RIGHTS ISSUE IN THE RATIO OF 3:4. AS A CONSEQUENCE, PEL WAS HOLDING IN AGGREGATE 23,61,716 SHARES (13,49,552 ORIGINAL SHAR ES + 10,12,164 RIGHT SHARES) AS ON DECEMBER 31, 2006. THE SAME CAN BE SEEN FROM THE SHAREHOLDING PATTERN OF PEL FOR THE QUARTER END ED DECEMBER 2006 AS EXTRACTED FROM THE WEBSITE OF BSE. THE SAID SHARES WERE TRANSFERRED TO BIGDEAL IN LIEU OF SCHEME OF AMALGAM ATION OF PEL WITH BIGDEAL W.E.F. OCTOBER 1, 2007. THEREAFTER, W.E.F. JANUARY 1, 2009 THE SAID 23,61,716 SHARES STOOD TRANSFERRED TO THE ASSESSEE IN LIEU OF THE SCHEME OF AMALGAMATION OF BIGDEAL WITH THE A SSESSEE. ALL THESE SHARES WERE SOLD BY THE ASSESSEE ON 10.12 .2009. ON SALE OF ORIGINAL SHARES, ASSESSEE EARNED LONG TERM C APITAL GAIN. HOWEVER, THE AO AFTER CONSIDERING THE ENTIRE BACKGROUN D OF THE CASE, HISTORY OF AMALGAMATION, ACQUISITION OF SHARES, HELD THAT THE LONG TERM CAPITAL GAIN WOULD BE RS.3,83,40,894/-, AS AGAI NST LONG TERM CAPITAL LOSS CLAIMED BY THE ASSESSEE ON RIGHT SHARES O F MTL. LATER ON, THERE WAS CERTAIN MISTAKES IN THE ORDER OF THE AO AND L ONG TERM CAPITAL GAIN WAS REVISED TO RS.1,94,47,166 AS AGAINST LONG TERM CAPITAL LOSS OF RS.5,36,339/- CLAIMED BY THE ASSESSEE . 3. BEFORE THE LD. CIT(A), THE ASSESSEES MAIN C ONTENTION WAS THAT ON A PLAIN READING OF SECTION 49(1) READ WITH EXPLANATION , THE COST OF ACQUISITION OF SHARES RECEIVED BY WAY OF AMALGAMATIO N IS TO BE ON THE BASIS COST OF ACQUISITION AS HELD BY THE PREVIOUS OWN ER, I.E. PEL HOLDING PRIVATE LIMITED. IT WAS SUBMITTED THAT THE COST OF A CQUISITION OF PART OF THE RIGHT SHARES AGGREGATING TO 10,12,164 SH ARES OF MTL ITA NO.497/MUM/2016 TOPSTAR MERCANTILE PRIVATE LIMITED 4 WOULD BE RS.5,56,69,020/-, BECAUSE THIS WAS THE COST AT WHICH PEL WAS ALLOTTED SHARES ON 3.11.2006. THE AO HAS INCORREC TLY TAKEN THE COST OF ACQUISITION AT A COST AT WHICH THE SHARES WERE RE FLECTED IN THE FINANCIAL STATEMENTS OF THE ASSESSEE IMMEDIATELY PRECED ING THE DECISION OF TRANSFER OF RS.2,93,08,895/-. IT WAS SUBM ITTED THAT THE VALUE GIVEN IN THE BOOKS SHOULD NOT BE CONSIDERED, BE CAUSE THE TREATMENT GIVEN IN THE BOOKS IS NOT DECISIVE. WHAT IS MA TERIAL IS THE COST OF ACQUISITION OF THE PREVIOUS OWNER I.E. PEL. HO WEVER, THE LEARNED CIT (A) AFTER CONSIDERING THE ASSESSEES SU BMISSION AND NOTING DOWN THE MODE OF ACQUISITION BY THE ASSESSEE, CONFIRMED THE ACTION OF THE AO. 4. WE HAVE HEARD BOTH THE PARTIES AND ALSO PERUSED TH E FINDING GIVEN IN THE IMPUGNED ORDERS AS WELL AS THE MATERIA L PLACED ON RECORD. HERE THE SOLE ISSUE INVOLVED IS, ON THE PART O F SHARES WHICH WERE SOLD BY THE ASSESSEE IN THIS YEAR, WHAT WOULD BE THE COST OF ACQUISITION. OUT OF THE TOTAL SALE OF 47,23,432 SHARES OF MTL THE DISPUTE QUA THE COST OF ACQUISITION IS WITH RESPECT TO 10,12,164 SHARES, WHICH WAS RECEIVED BY WAY OF AMALGAMATION TO THE PREVIOUS OWNER, I.E., PEL HOLDING PRIVATE LIMITED. THE MODE OF ACQUISITION AND THE HISTORY OF AMALGAMATION HAVE ALREADY BEEN INCORPO RATED ABOVE IN ASSESSEES SUBMISSION. HOWEVER, FOR THE SALE OF READ Y REFERENCE FOLLOWING CHRONOLOGY OF EVENT WOULD BE RELEVANT TO UND ERSTAND THE MODE OF ACQUISITION OF THE SHARES:- SR.N O EVENTS NO. OF SHARES DATE 1 PEL HELD SHARES OF MTL 13,49,552 PRIOR TO NOVEMBER 03, 2006 2 ALLOTMENT OF RIGHTS SHARES TO PEL BY MTL IN THE RATIO OF 3:4 10,12,164 NOVEMBER 03, 2006 3 TRANSFER OF SHARES TO BIGDEAL IN LIEU OF AMALGAMATION OF PEL WITH BIGDEAL W.E.F. OCTOBER 01, 2007 23,61,716 (13,49,552 + 10,12,164) OCTOBER 01, 2007 ITA NO.497/MUM/2016 TOPSTAR MERCANTILE PRIVATE LIMITED 5 4 TRANSFER OF SHARES TO TH E APPELLANT IN LIEU OF AMALGAMATION OF BIGDEAL WITH APPELLANT W.E.F JANUARY 01, 2009 23,61,716 JANUARY 01, 2009 5 ALLOTMENT OF SHARES BY MTL TO THE APPELLANT PURSUANT TO RIGHTS ISSUE IN THE RATIO OF 1:1 AT RS.15/- PER SHARE 23,61,716 OCTOBER 12, 2009 6 S ALE OF SHARES BY THE APPELLANT. 47,23,432 DECEMBER 10, 2009 FURTHER FOLLOWING CHART /COMPUTATION OF LONG TERM CAPITAL GAIN/ LOSS AS PER AO AND AS PER ASSESSEE IS REPRODUCED BELOW F OR SAKE OF CLARITY. PARTICULARS MODE OF ACQUISITION ALLOTTED TO THE APPELLANT BY MTL IN LIEU OF RIGHTS ISSUE BY WAY OF AMALGAMATION (ORIGINAL SHARES ACQUIRED BY PEL BY WAY OF AMALGAMATION (RIGHTS SHARES OFFERED BY MTL TO PEL) NO. OF SHARES ACQUIRED 23,61,716 13,49,552 10,12,164 COST OF ACQUISITION 3,54,25,740 (RS.15/- PER SHARE) NIL 5,56,69,020 (RS.55 PER SHARE) DATE OF SALE DECEMBER 10, 2009 DECEMBER 10, 2009 DE CEMBER 10, 2009 COMPUTATION OF CAPITAL GAINS AS PER APPELLANT AS PER AO AS PER APPELLANT AS PER AO AS PER APPELLANT AS PER AO DATE OF ACQUISITION OCTOBER 12, 2009 PRIOR TO NOVEMBER 03, 2009 NOVEMBER 03, 2006 OCTOBER 1, 2007 COST OF ACQUISITION(A) NOT DISPUTED BY THE AO 5,56,69,020 2,93,08,895 YEAR OF ACQUISITION 2006-07 2007-08 YEAR OF SALE 2009-10 2009-10 COST INFLATION INDEX(B) YEAR OF PURCHASE (I) YEAR OF SALE (II) 519 632 551 632 INDEXED COST OF ACQUISITION C = (A) * B(II)B(I) 6,77,89,635 3,36,17,462 SALES CONSIDERATION @14 PER SHARE (D) 1,41,70,296 1,41,70,296 CAPITAL GAINS/(LOSS) (5,36,19,339) [(D) (C)] (1,94,47,166) [(D) (C)] NATURE OF CAPITAL GAINS LONG TERM CAPITAL LOSS LONG TERM CAPITAL LOSS ITA NO.497/MUM/2016 TOPSTAR MERCANTILE PRIVATE LIMITED 6 THE STAND OF THE AO AS WELL AS THE LD. CIT(A) ARE THAT , THE COST OF ACQUISITION OF 10,12,164 RIGHTS SHARES OF MTL SHOUL D BE TAKEN; FIRSTLY, FROM 1.10.2017, I.E., FROM THE DATE OF THE TRANSFER O F SHARES TO BIGDEAL IN LIEU OF AMALGAMATION OF PEL W.E.F. 1.10.2007 AND NOT 3.11.2006 WHEN THESE SHARES WERE ALLOTTED TO PEL; AND SECONDLY, THE RATE PER SHARE AS PER ASSESSEE IS TO BE TAKEN AT RS.55/- WHICH WAS THE MARKET VALUE/COST AT THAT TIME WHEN THE SHARES WERE ACQUIRED, WH EREAS, THE AO HAS TAKEN COST WHICH WERE REFLECTED IN THE FINANCI AL STATEMENTS OF THE ASSESSEE IMMEDIATELY PRECEDING THE DATE OF TRANSF ER AT RS. 2,93,08,895/-. SECTION 49(1) PROVIDES THAT THE COST OF ACQUISITION OF THE ASSET SHALL BE DEEMED THE COST FOR WHICH THE PR EVIOUS OWNER OF THE PROPERTY ACQUIRED IT, AS INCREASED BY THE COST OF A NY IMPROVEMENT OF THE ASSETS INCURRED OR BORNE BY THE PREVIOUS OWNER OR THE ASSESSEE, AS THE CASE MAY BE. THE EXPLANATION PROVIDES THAT THE EXPRESSION PREVIOUS OWNER OF THE PROPERTY IN RELATION TO ANY CAPITAL ASSET OWNED BY AN ASSESSEE MEANS THE LAST PREVIOUS OWNER OF THE CAPITAL ASSET WHO ACQUIRED IT BY A MODE OF ACQUISITION OTHER THAN REF ERRED TO IN CLAUSE (I) TO CLAUSE (IV) OF SUBSECTION (1) OF SECTION 49 . HOWEVER, IN THIS CASE, THE SHARES WERE INITIALLY OWNED BY PEL WHO WAS ALLOTTED THE SE SHARES ON 3.11.2006 AND LATER ON THE SHARES WERE PASSED ON TO B IGDEAL ON ACCOUNT OF AMALGAMATION ON 1.10.2007. HENCE THE LAST PR EVIOUS OWNER OF THE CAPITAL ASSET WHO ACQUIRED IT BY MODE OF A CQUISITION IS TO BE RECKONED AS PEL, THEREFORE, FOR THE PURPOSE OF DET ERMINING THE COST OF ACQUISITION IN THE HANDS OF THE ASSESSEE REFE RENCE WILL HAVE TO BE DRAWN TO THE COST AT WHICH THE SAID SHARES WERE INI TIALLY ALLOTTED TO PEL IN LIEU OF RIGHTS ISSUE ON 3.11.2006. ONCE PEL IS PREVIOUS OWNER OF THE CAPITAL ASSET THEN THE COST OF ACQUISITION AT THE H ANDS OF THE PREVIOUS OWNER WOULD BE RECKONED AS THE COST OF ACQUI SITION IN TERMS OF SECTION 49(1). HERE THE DATE OF AMALGAMATION OF 1. 10.2007 CANNOT BE ACCEPTED TO BE THE DATE OF ACQUISITION, BECAUSE THE BIGDEAL HAD ITA NO.497/MUM/2016 TOPSTAR MERCANTILE PRIVATE LIMITED 7 ALSO ACQUIRED THE RIGHT SHARES BY ONE OF THE MEANS AS ILLUSTRATED IN SECTION 49(1) AND IT CAN IN NO WAY BE CONSIDERED AS PREVIOUS OWNER OF THE RIGHT SHARES. HENCE, WE HOLD THAT THE PERIOD O F HOLDING SHOULD BE TAKEN FROM 3.11.2006, THE DATE OF ALLOTMENT OF RIGHT SHARES TO PEL AND THE COST OF SUCH ACQUISITION SHOULD BE TAKEN AT THE C OST ON WHICH THE PREVIOUS OWNER HAD ACQUIRED THE SHARES, I.E., RS. 55/- PER SHARE. ACCORDINGLY, THE COMPUTATION OF CAPITAL LOSS AS WORKED OUT BY THE ASSESSEE IS LIABLE TO BE ADMITTED. THE LEARNED COUNSE L FOR THE ASSESSEE HAD STRONGLY RELIED UPON THE DECISION OF HONBLE BOMB AY HIGH COURT IN THE CASE OF CIT V. MANJULA J SHAH 255 ITR 474, W HEREIN THEIR LORDSHIPS REITERATE THE SAME PROPOSITION THAT COST OF AC QUISITION ACTUALLY PAID FOR AN ASSET BY PREVIOUS OWNER SHALL BE TAKEN FOR THE PURPOSE OF COMPUTATION OF CAPITAL GAIN FOR THE PURPOSE OF SECTION 48. OUR CONCLUSION ALSO IS BASED ON THE SAME PRINCIPLE A ND, HENCE, WE ALLOW THE GROUNDS RAISED BY THE ASSESSEE BEFORE US. THE OTHER DECISIONS RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEES ARE NOT BEING DISCUSSED. 5. AS REGARDS THE DISALLOWANCE U/S. 14A READ WITH RUL E 8D OF RS.2,86,616/- IS CONCERNED, THE BRIEF FACTS ARE THAT THE ASSESSEE IN ITS COMPUTATION OF INCOME HAD SHOWN AN AMOUNT OF RS.10,62 ,63,987/- AS DIVIDEND INCOME, WHICH WAS CLAIMED AS EXEMPT. IN RESPONSE TO SHOW CAUSE NOTICE BY THE AO, THE ASSESSEE SUBMITTED THAT I T HAD INCURRED EXPENSES OF RS.18,01,517/- AND OUT OF THE SA ID EXPENSES THE ASSESSEE HAD SUO-MOTO DISALLOWED SUM OF RS.15,14,901/-. THE LEARNED AO HELD THAT AS PER RULE 8D DISALLOWANCE FOR INDIRECT EXPENDITURE COMES TO RS.1,52,10,895/-, BUT, SINCE THE ASSESSEE HAS DEBITED TOTAL EXPENSES OF RS.18,01,517/- ONLY, THEREFO RE, DISALLOWANCE SHOULD BE RESTRICTED TO THE SAME AMOUNT. THE LEARNED CIT (A) NOTED THAT SUO-MOTO DISALLOWANCE OF RS.15,14,901/- SHOULD BE REDUCED F ROM ITA NO.497/MUM/2016 TOPSTAR MERCANTILE PRIVATE LIMITED 8 THE DISALLOWANCE OF RS.18,01,517/- AND DID NOT AGREE WITH THE ASSESSEE THAT NO FURTHER DISALLOWANCE SHOULD BE MADE. 6. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND ON PE RUSAL OF THE RELEVANT FINDINGS GIVEN IN THE IMPUGNED ORDER, WE FIN D THAT THE ONLY DISPUTE IS WITH REGARD TO THE DISALLOWANCE OF INDIRECT E XPENDITURE IN TERMS OF RULE 8D(2)(III). SINCE THE ASSESSEE HAS DEB ITED TOTAL INDIRECT EXPENDITURE OF RS.18,01,517/-, THE AO HAS RESTRICTED TH E DISALLOWANCE TO THIS SUM ONLY. THE LEARNED CIT(A) HAS GIVEN RELIEF ON ACCOUNT OF SUO MOTO DISALLOWANCE MADE BY THE ASSESSEE AT RS.15,14,907/- AND ACCORDINGLY, NET DISALLOWANCE WH ICH HAS BEEN CHALLENGED BEFORE US IS RS. 2,86,616/- 7. BEFORE US THE LEARNED COUNSEL HAD SUBMITTED THAT THE ASSESSEE HAS GIVEN THE WORKING OF DISALLOWANCE U/S. 14A AFTER ANALYZING EACH AND EVERY NATURE OF EXPENSES, THE BREAK-UP OF WHICH I S AS UNDER: SR. NO PARTICULARS AMOUNT IN RS. 1 PROFESSIONAL FEES FOR MERGER 3,39,976 2 DEPOSITORY CHARGES 11,49,245 3 APPEAL FEES 19,000 4 INTEREST ON TDS 6,198 5 PRELIMINARY EXPENSES 480 TOTAL 15,14,901 APART FROM THAT THE ASSESSEE HAD ALSO GIVEN THE BREAK-U P OF EXPENDITURE OF RS.2,86,616/-, WHICH WAS STATED THAT IT HA D NOTHING TO DO WITH THE EARNING OF EXEMPT INCOME. THE DETAILS OF WHICH ARE AS UNDER:- SR. NO PARTICULARS AMOUNT IN RS. AMOUNT IN RS. 1 PROF ESSIONAL FEES PAID TO: - SINGH & CO TOWARDS PROFESSIONAL FEES 21,120 ITA NO.497/MUM/2016 TOPSTAR MERCANTILE PRIVATE LIMITED 9 NI LESH SHAH TOWARDS PROFESSIONAL FEES 24,159 A K JAIN & CO. TOWARDS CERTIFICATION CHARGES 13,000 J D MISTRY TOWARDS PROFESSIONAL FEES FOR IT APPEAL 1,12,500 NITESH S JOSHI TO WARDS PROFESSIONAL FEES FOR ITAT 22,500 SANJIV SHAH TOWARDS CONSULTANCY SERVICES 75,000 2,68,279 2 AUDIT FEES 16,545 3 FILING FEES 900 4 BANK CHARGES 894 TOTAL 2,86,616 8. ON THE OTHER HAND, THE LEARNED CIT-DR STRONGLY RELIE D UPON THE ORDERS OF THE AUTHORITIES BELOW. 9. AFTER CONSIDERING THE ABOVE FACTS THAT, WHEN THE ASSE SSEE HAS GIVEN THE ENTIRE BREAK-UP AND DETAILS OF THE EXPENDITURE , THEN CAN IT BE SAID THAT THE AFORESAID EXPENSES ARE AT ALL ATTRIBUTAB LE FOR THE EARNING OF EXEMPT INCOME. WITHOUT THERE BEING ANY CONTR ARY MATERIAL OR FINDING BY THE AO, WE DO NOT FIND ANY REASON TO DI SALLOW THE ENTIRE EXPENDITURE DEBITED TO THE PROFIT & LOSS ACCOUNT. IT IS AXIOMATIC THAT THE EXPENDITURE WHICH HAS TO BE DISALLOWED U/S 14A HA S TO BE IN RELATION TO THE EARNING OF THE EXEMPT INCOME AND SUBSECTION 2 OF SECTION 14A MANDATES THAT THE AO HAS TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO SUCH EXEMPT INCOME ONLY. THE SECTION FURTHER MANDATES THAT THE 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 RELATING TO EX EMPT INCOME, THEN ONLY HE CAN PROCEED TO DISALLOW AS PER RULE 8D. HERE IN THIS CASE THERE IS NO SUCH EXERCISE HAS BEEN DONE BY THE AO AS WAS REQUIRED UNDER THE LAW. THEREFORE, WE DO NOT FIND ANY REASON TO DISALLOW THE ENTIRE EXPENDITURE AS DEBITED IN THE PROFIT & LOSS ACCOU NT AND, HENCE, ITA NO.497/MUM/2016 TOPSTAR MERCANTILE PRIVATE LIMITED 10 THE DISALLOWANCE OF RS.15,14,901/- MADE BY THE ASSESS EE IS UPHELD AND THE BALANCE OF RS.2,86,616/- IS DIRECTED TO BE DE LETED. GROUND NO.3 IS ALLOWED. 10. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 6 TH MARCH, 2017. SD/- SD/- (B R BASKARAN) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDI CIAL MEMBER MUMBAI, DATED: 06.03.2017. SA COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR J BENCH //TRUE COPY// BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, MUMBAI