MEHTA FINANCIAL SERVICES LTD., MUMBAI V. DY CIT CIRCLE- 4(2)(2), MUMBAI

ITA 515/MUM/2020

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 8513 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-01-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2013-2014
• Appeal Filed On: 21-01-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JEETENDRA KUMAR
• Keywords: Earning of tax free income; Rule 8D
• Section: 14A

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, MUMBAI SHRI SHAMIM YAHYA (AM) & SHRI RAMLAL NEGI (JM) I.T.A. NO. 515/MUM/2020 (ASSESSMENT YEAR 2013-14) MEHTA FINANCIAL SERVICES LIMITED 903, LODHA SUPREMUS DR. E. MOSES ROAD WORLI NAKA MUMBAI-400 018. PAN : AAACR4142D VS . DCIT-4(2)(2) AAYAKAR BHAVAN M.K. ROAD CHURCHGATE MUMBAI-400 020. (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI RAJIV KHANDELWAL DEPARTMENT BY SHRI JEETENDRA KUMAR DATE OF HEARING 20.10.2020 DATE OF PRONOUNCEMENT 01.01.2021 O R D E R PER SHAMIM YAHYA (AM) :- THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST ORD ER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS) [IN SHORT LEAR NED CIT(A)] DATED 8.11.2019 AND PERTAINS TO ASSESSMENT YEAR 2013-14. 2. THE GROUNDS OF APPEAL READ AS UNDER :- 1. THE COMMISSIONER OF INCOME-TAX (APPEALS)-9, MUMBAI ( HEREINAFTER REFERRED TO AS THE CIT(A)) ERRED IN UPHOLDING THE AC TION OF THE DEPUTY COMMISSIONER OF INCOME-TAX-4(2)(2), MUMBAI (HEREINAF TER REFERRED TO AS THE ASSESSING OFFICER) IN MAKING A DISALLOWANCE OF A SUM OF RS 8,55,173 BY INVOKING THE PROVISIONS OF SECTION 14A READ WITH RULE 8D. 2. THE APPELLANTS CONTEND THAT ON THE FACTS AND IN THE CIR CUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) OUGHT NOT TO HAVE UPHELD TH E ACTION OF THE ASSESSING OFFICER INASMUCH AS HE HAS NOT CORRECTLY AP PRECIATED THE FACTS IN ITS ENTIRETY AND THE DISALLOWANCE IS NOT IN ACCOR DANCE WITH THE PRESCRIPTION OF SECTION 14A READ WITH RULE 8D(2)(II) ; HENCE, THE IMPUGNED DISALLOWANCE NEEDS TO BE DELETED. 3. BRIEF FACTS ON THE ISSUE ARE AS UNDER :- MEHTA FINANCIAL SERVICES LIMITED 2 THE ASSESSEE HAD EARNED DIVIDEND INCOME OF RS.9,88 ,451/- ON INVESTMENT IN EQUITY SHARES OF RS.9,24,33,284/- AND THE SAME WAS CLAIMED AS EXEMPT U/S. 10(34) OF THE ACT. THE ASSESSEE HAD VOL UNTARILY DISALLOWED AN AMOUNT OF RS. 1,33,278/- U/S. 14A OF THE ACT. BEFO RE THE ASSESSING OFFICER, THE ASSESSEE CONTENDED THAT NO EXPENSES WERE DIRECT LY INCURRED FOR THE PURPOSE OF EARNING OF EXEMPT INCOME AND HENCE NO FU RTHER DISALLOWANCE U/S, 14A OF THE ACT WAS WARRANTED IN IT'S CASE. THE SUBM ISSION MADE BY THE ASSESSEE WAS CONSIDERED BY THE AO BUT THE SAME WAS NOT FOUND ACCEPTABLE. AS PER THE ASSESSING OFFICER, THE ASSESSEE HAD FAIL ED TO FURNISH ANY EVIDENCE TO PROVE THAT NO EXPENDITURE WAS INCURRED OR ATTRIBUTA BLE FOR EARNING OF EXEMPT INCOME. THEREFORE, THE AO WAS OF THE OPINION THAT T HE DISALLOWANCE U/S 14A OF THE ACT HAS TO BE DONE AS PER THE PROVISIONS OF RUL E 8D. THE AO INVOKED THE PROVISIONS OF RULE 8D AND ACCORDINGLY DISALLOWED AN AMOUNT OF RS.15,57,192/- UNDER RULE 8D2(II) IN RESPECT OF INTEREST EXPENDITU RE AND RS.4,12,663/- UNDER RULE 8D2(III). THE TOTAL DISALLOWANCE U/S. 14A OF T HE ACT WORKED OUT TO RS.19,69,855/-. AFTER REDUCING THE SUO-MOTO DISALLO WANCE OF RS.1,57,034/- AS WORKED OUT BY THE ASSESSEE, THE BALANCE OF RS. 18,1 2,821/- WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 4. UPON ASSESSEE'S APPEAL LEARNED CIT(A) REJECTED T HE CONTENTIONS OF THE ASSESSEE FOR THE ISSUE OF DISALLOWANCE UNDER SECTIO N 14A OF THE ACT HOWEVER HE DIRECTED THAT THE DISALLOWANCE SHOULD BE RESTRICTED TO THE EXEMPT INCOME EARNED. THE ASSESSEE IS AGGRIEVED BEFORE US BY THE AFORESAID ORDER. LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT ASSESSEE IS AGGRIEVED FOR THE REASON THAT THE LEARNED CIT(A) HAD NOT CONSIDERED THAT THE ASSESSEE HAS ADEQUATE INTEREST FREE FUNDS. HENCE DISALLOWANCE ON ACCOUNT OF INTEREST UNDER RULE 8D(II) OF THE I.T. RULES IS NOT SUSTAINABLE ON THE TOUCHST ONE OF HONOURABLE JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF H DFC BANK LTD. (366 1TR 505). W E FIND THAT LEARNED CIT(A) HAD ADJUDICATED THIS ISS UE BY OBSERVING AS UNDER :- MEHTA FINANCIAL SERVICES LIMITED 3 THE APPELLANT HAS ARGUED THAT THE DISALLOWANCE UNDER RULE 8D2(II) AMOUNTING TO RS.15,57,152/- WAS NOT APPLICABLE IN ITS C ASE AS IT'S OWN FUNDS AND NON-INTEREST BEARING FUNDS EXCEEDED THEIR INVESTM ENT MADE IN TAX FREE SECURITIES. AS REGARDS DISALLOWANCE U/S 14A OUT OF INTEREST EXPEN DITURE INCURRED BY THE ASSESSEE, I FIND THAT THE APPELLANT HAD NET WORTH OF 8,1 2 CRORES IN THE FORM OF SHARE CAPITAL AND RESERVES AND THE INVESTMENT IN TAX F REE SECURITIES AMOUNTED TO RS,9,23 CRORES. HENCE IT IS SEEN THAT THE INVESTMENT IN SHARES/SECURITIES IS MUCH HIGHER THAN THE NET WORTH OF THE APPELLANT. THUS THE RATIO OF THE JUDGEMENT OF THE JURISDICTIONAL HIGH CO URT IN THE CASE OF HDFC BANK LTD. (366 1TR 505) IS NOT APPLICABLE IN TH E APPELLANT'S CASE. 5. FROM THE ABOVE OBSERVATIONS OF LEARNED CIT(A) IT SELF IS AMPLY EVIDENT THAT ASSESSEE DESERVES RELIEF ON ACCOUNT OF INTEREST FRE E FUNDS AVAILABLE. HENCE FOR FACTUAL VERIFICATION OF INTEREST FREE FUNDS AVAILAB LE THIS ISSUE IS REMITTED TO THE FILE OF ASSESSING OFFICER. THE ASSESSING OFFICER IS DIRECTED TO EXAMINE THE INTEREST FREE FUNDS AVAILABLE AND GRANT RELIEF ON THIS ACCOU NT UNDER RULE 8D(III) AS PER THE MANDATE OF HONOURABLE BOMBAY HIGH COURT DECISIO N IN THE CASE OF HDFC BANK LTD. (SUPRA). 6. LEARNED COUNSEL OF THE ASSESSEE TO BE AGREED TO THE ABOVE PROPOSITION. 7. IN THE RESULT THIS APPEAL BY THE ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED UNDER RULE 34(4) OF THE ITAT RUL ES BY PLACING THE RESULT ON NOTICE BOARD ON 1.1.2021. SD/- SD/- (RAMLAL NEGI) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; DATED : 01/01/2021 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI MEHTA FINANCIAL SERVICES LIMITED 4 6. GUARD FILE. BY ORDER, //TRUE COPY// ( ASSISTANT REGISTRAR) PS ITAT, MUMBAI