Appeal details
Counselvise Citation
[2020] 111 COUNSELVISE.COM (IT) 8027 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 year(s) 4 month(s) 7 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
15-01-2020
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
B
Assessment Year
2011-2012
Appeal Filed On
07-09-2018
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL B, BENCH MUMBAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEM BER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ITA NO.5170 & 5171/MUM/2018 ( ASSESSMENT YEARS: 2011-12 & 2012-13 ) SHRI. NEEL BHUPENDRA DALAL 39, ALI CHAMBERS, TAMARIND LANE FORT, MUMBAI-400 001 VS. ITO-4(2)(3) MUMBAI PAN/GIR NO. AACPD1862F APPELLANT ) .. RESPONDENT ) ASSESSEE BY SHRI. S.E.DASTUR, SR.ADVOCATE REVENUE BY SHRI. KAILASH MANGAL, DR DATE OF HEARING 17/12 / 201 9 DATE OF PRONOUNCEMENT 15/01/2020 / O R D E R PER G.MANJUNATHA, ACCOUNTANT MEMBER : THESE TWO APPEALS FILED BY THE ASSESSEE ARE DIRECTE D AGAINST SEPARATE, BUT IDENTICAL ORDERS OF THE LD. COMMISSI ONER OF INCOME TAX (APPEALS)-09, MUMBAI, BOTH DATED 07/06/2018 FOR THE ASST. YEARS 2011-12 AND 2012-13. SINCE, THE FACTS ARE IDE NTICAL ISSUES ARE COMMON, FOR THE SAKE OF CONVENIENCE, THESE APPEALS WERE HEARD TOGETHER AND ARE DISPOSED- OFF, BY THIS CONSOLIDATE D ORDER. ITA.NO.5170/MUM/2018 FOR AY 2011-12:- 2. THE ASSESSEE HAS, MORE OR LESS RAISED COMMON GRO UNDS OF APPEAL FOR BOTH ASSESSMENT YEARS. THEREFORE, FOR TH E SAKE OF ITA NOS.5170 &5171/MUM/2018 NEEL BHUPENDRA DALAL 2 BREVITY, THE GROUNDS OF APPEAL FILED FOR THE AY 201 1-12 ARE REPRODUCED AS UNDER:- 1. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEA LS) ('CIT(A)') ERRED IN UPHOLDING THE DISALLOWANCE UNDER SECTION 14A OF THE INCOME-TAX ACT, 1961 (THE ACT') OF EXPENDITURE OF RS. 19,31,359/-. 2. THE LEARNED CIT(A) OUGHT TO HAVE HELD THAT TH E ASSESSING OFFICER ERRED IN MAKING AN ADDITION UNDER SECTION 14A IN TH E ABSENCE OF HIS BEING SATISFIED AS REQUIRED BY LAW. 3. THE LEARNED CIT(A) OUGHT TO HAVE HELD THAT TH E MARGIN FACILITY AVAILED BY THE ASSESSEE FROM RELIGARE FINVEST WAS U TILIZED SOLELY FOR THE PURPOSE OF TRADING IN SHARES AND NOT TOWARDS PERSON AL INVESTMENTS AND HENCE SECTION 14A WAS NOT APPLICABLE TO SUCH EXPENDITURE, 4. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALT ER OR DELETE AND/OR MODIFY THE ABOVE GROUNDS OF APPEAL BEFORE OR DURING THE COURSE OF HEARING . 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS AN INDIVIDUAL ENGAGED IN THE BUSINESS OF SHARE AND STO CK BROKING, FILED HIS RETURN OF INCOME FOR AY 2011-12 ON 28/03/2013, DECLARING TOTAL INCOME AT RS.NIL. THE CASE WAS SELECTED FOR SCRUT INY AND DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE LD. AO NOTICE D THAT THE ASSESEE HAS EARNED DIVIDEND INCOME FROM SHARES, HOW EVER DID NOT MADE SUO-MOTO DISALLOWANCES OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME AS REQUIRED U/S 14A OF THE ACT. THERE FORE, CALLED UPON THE ASSESSEE TO EXPLAIN AS TO WHY DISALLOWANCE S CONTEMPLATED U/S 14A SHALL NOT BE DETERMINED IN ACCORDANCE WITH RULE 8D OF I.T.RULES 1962. IN RESPONSE, THE ASSESSEE, VIDE LET TER DATED 11/11/2013 SUBMITTED THAT HE HAD NOT INCURRED ANY S PECIFIC EXPENDITURE, INCLUDING INTEREST FOR EARNING EXEMPT INCOME. THEREFORE, THE QUESTION OF DISALLOWANCES OF EXPENDI TURE U/S 14A DOES NOT ARISE. THE ASSESSEE VIDE HIS LETTER DATED 27/11/2013 HAS MADE AN ALTERNATIVE PLEA WITHOUT PREJUDICE TO HIS E ARLIER SUBMISSIONS, DATED 11/11/2013 AND WORKED OUT ADHOC DISALLOWANCES OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOM E U/S 14A AT RS. 1,08,239/- AND ALSO, A FURTHER SUM OF RS. 55,152/-. THE LD. AO DID ITA NOS.5170 &5171/MUM/2018 NEEL BHUPENDRA DALAL 3 NOT CONVINCED WITH EXPLANATIONS FURNISHED BY THE A SSESSE AND ACCORDINGLY, BY RELIED UPON BY THE DECISION OF HON BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE MANUFACTURI NG COMPANY LIMITED VS DCIT 328 ITR 81 OBSERVED THAT WHETHER OR NOT ANY EXEMPT INCOME IS EARNED FOR THE YEAR AND ANY EXPEND ITURE IS INCURRED IN RELATION TO SAID INCOME, BUT DISALLOWAN CES CONTEMPLATED U/S 14A SHALL BE DETERMINED IN ACCORDANCE WITH RULE 8D OF I.T.RULES, 1962 AND ACCORDINGLY, DETERMINED TOTAL D ISALLOWANCES OF RS.27,66,659/- TOWARDS EXPENDITURE INCURRED IN RELA TION TO EXEMPT INCOME U/S 14A OF THE I.T.ACT, 1961. 4. THE ASSESSE CARRIED THE MATTER IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. BEFORE THE LD.CIT(A), THE ASSE SSEE HAS REITERATED HIS SUBMISSIONS MADE BEFORE THE LD. AO T O ARGUE THAT THE LD. AO HAS APPLIED RULE 8D WITHOUT APPRECIATING THE FACTS AND SUPPORTING CASE LAWS CITED BY THE ASSESSEE. THE LD. CIT(A) AFTER CONSIDERING RELEVANT SUBMISSIONS OF THE ASSESSEE AN D ALSO BY RELIED UPON THE DECISION OF HONBLE BOMBAY HIGH COURT IN T HE CASE OF GODREJ AND BOYCE MANUFACTURING COMPANY LIMITED.(SUP RA) HELD THAT IN VIEW OF AMENDED PROVISIONS OF SECTION 14A FROM A SST. YEAR 2008- 09 ONWORDS, THE DISALLOWANCES CONTEMPLATED THERIN S HALL BE DETERMINED IN ACCORDANCE WITH RULE 8D. THEREFORE, H E OPINED THAT THERE IS NO ERROR IN THE FINDINGS RECORDED BY THE LD. AO, WHILE DETERMINING THE DISALLOWANCES OF RS.27,66,659/-. HO WEVER, BY CONSIDERING THE AMOUNT OF EXEMPT INCOME EARNED FOR THE YEAR, HE HAS RESTRICTED DISALLOWANCES U/S 14A TO THE EXTENT OF EXEMPT INCOME EARNED FOR THE YEAR AMOUNTING TO RS. 19,31,3 59/-. AGGRIEVED BY THE LD.CIT(A) ORDER, THE ASSESSEE IS IN APPEAL B EFORE US. ITA NOS.5170 &5171/MUM/2018 NEEL BHUPENDRA DALAL 4 5. THE LD. AR FOR THE ASSESSEE SUBMITTED THAT THE L D.CIT(A) WAS ERRED IN UPHOLDING THE DISALLOWANCES U/S 14A OF THE I.T.ACT, 1961 WITHOUT APPRECIATING THE FACT THAT THE LD. AO HAS N OT RECORDED SATISFACTION AS REQUIRED U/S 14A(2) HAVING REGARD TO THE BOOKS OF ACCOUNTS OF THE ASSESSEE AND THAT THE CLAIM OF THE ASSESSEE THAT NO EXPENDITURE HAS BEEN INCURRED TO EARN EXEMPT INCOME OR ANY SUO- MOTO DISALLOWANCES MADE BY THE ASSESSEE IS INCORREC T, HE CANNOT PROCEED TO APPLY RULE 8D TO DETERMINE DISALLOWANCES OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME. THE LD. AR F OR THE ASSESSEE REFERRING TO THE DECISION OF HONBLE SUPREME COURT, IN THE CASE OF GODREJ AND BOYCE MANUFACTURING COMPANY LIMITED VS D CIT (2017) 394 ITR 449 (SC) SUBMITTED THAT THE HONBLE SUPREM COURT HAS REITERATED THE POSITION OF LAW AS HELD BY THE HONB LE BOMBAY HIGH COURT, IN THE CASE IN PARAGRAPH 37, WHERE IT WAS CA TEGORICALLY HELD THAT WHETHER, APPLICATION OF FORMULA PRESCRIBED UND ER RULE 8D ARE IN THE BEST JUDGMENT OF THE LD. AO, IN DETERMINATION O F DISALLOWANCES, WHAT THE LAW POSTULATES IS REQUIREMENT OF A SATISF ACTION BY THE LD. AO THAT HAVING REGARD TO THE ACCOUNTS OF THE ASSESS EE AS PLACED BEFORE HIM, IT IS NOT POSSIBLE TO GENERATE THE REQU ISITE SATISFACTION WITH REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. IT IS ONLY THEREAFTER THAT THE PROVISION OF SECTION 14A (2) &( 3) R.W.RULE 8D OF THE I.T.RULES, 1962, OR BEST JUDGMENT DETERMINATION AS EARLIER PREVAILING WOULD BECOME APPLICABLE. THE LD. AR FOR THE ASSESSE FURTHER REFERRING TO THE DECISION OF ITAT IN ASSESS EES OWN CASE FOR EARLIER YEAR SUBMITTED THAT THE TRIBUNAL HAS HELD T HAT UNLESS, THE LD. AO HAS RECORDED PROPER SATISFACTION AS REQUIRED U/S 14A(2) HAVING REGARD TO THE BOOKS OF ACCOUNTS OF THE ASSESSEE, NO DISALLOWANCES COULD BE MADE BY INVOKING THE FORMULA PRESCRIBED U NDER RULE 8D (2) OF THE INCOME TAX RULES 1962. ITA NOS.5170 &5171/MUM/2018 NEEL BHUPENDRA DALAL 5 6. THE LD. DR, ON THE OTHER HAND, STRONGLY SUPPORTI NG ORDER OF THE LD.CIT(A) SUBMITTED THAT FROM THE AY 2008-09 ONWARD S DISALLOWANCES CONTEMPLATED U/S 14A SHALL BE DETERMI NED IN ACCORDANCE WITH THE PRESCRIBED FORMULA PROVIDED UND ER RULE 8D OF I.T.RULES, 1962 WHETHER OR NOT ANY EXEMPT INCOME IS EARNED FOR THE YEAR AND ALSO, WHETHER ANY DISALLOWANCES IS MADE BY THE ASSESSEE ON ITS OWN. THE LD. DR, FURTHER SUBMITTED THAT IN T HIS CASE, THE LD. AO HAS RECORDED SATISFACTION HAVING REGARD TO THE B OOKS OF ACCOUNTS OF THE ASSESSEE AND ALSO, THE CLAIM THAT NO EXPENDI TURE HAS BEEN INCURRED IN RELATION TO EXEMPT INCOME AFTER CONSIDE RING THE NATURE AND EXTENT OF EXEMPT INCOME EARNED BY THE ASSESSEE. THEREFORE, THERE IS NO MERIT IN THE ARGUMENTS OF THE LD. AR FO R THE ASSESSEE THAT NO SATISFACTION WAS RECORDED BY THE LD. AO. 7. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIAL AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIE S BELOW ALONG WITH CASE LAWS CITED BY THE LD. AR FOR THE ASSESSEE . IT IS A SETTLED POSITION OF LAW THAT BEFORE INVOKING RULE 8D OF I.T .RULES, 1962 FOR DETERMINATION DISALLOWANCES OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME U/S 14A OF THE ACT, 1961, THE LD. AO SHALL REQUIRED TO RECORD SATISFACTION HAVING REGARD TO THE BOOKS OF A CCOUNTS OF THE ASSESSEE AS REQUIRED U/S 14A(2) OF THE I.T.ACT, 196 1 THAT THE CLAIM OF THE ASSESSEE THAT NO EXPENDITURE HAS BEEN INCURRED TO EARN EXEMPT INCOME OR ANY SUO-MOTO DISALLOWANCES MADE BY THE AS SESSEE IN ITS COMPUTATION OF TOTAL INCOME IS NOT CORRECT. UNLESS , THE LD. AO RECORDS SATISFCATION AS REQUIRED U/S 14A(2), HE SHA LL NOT PROCEED TO DETERMINE DISALLOWANCES BY INVOKING RULE 8D OF I.T .RULES, 1962. THE HONBLE SUPREME COURT IN THE CASE OF GODREJ AND BOYCE MANUFACTURING COMPANY LIMITED VS DCIT(SUPRA) HAD CO NSIDERED AN IDENTICAL ISSUE AND IN PARAGRAPH 37 OF THE JUDGMEN T HAS CLEARLY HELD ITA NOS.5170 &5171/MUM/2018 NEEL BHUPENDRA DALAL 6 THAT 14A(2) &(3) OF THE ACT R.W.RULE 8D OF THE I.T .RULES, 1962 MERELY PRESCRIBED A FORMULA FOR DETERMINATION OF EX PENDITURE INCURRED IN RELATION TO INCOME, WHICH DOES NOT FOR M PART OF THE TOTAL INCOME UNDER THE ACT IN A SITUATION, WHERE THE LD. AO IS NOT SATISFIED WITH THE CLAIM OF THE ASSESSEE. WHETHER, SUCH DETER MINATION IS TO BE MADE ON APPLICATION OF THE FORMULA PRESCRIBED UNDER RULE 8D OR IN THE BEST JUDGMENT OF THE AO, WHAT THE LAW POSTULATE S IS THE REQUIREMENT OF THE SATISFACTION BY THE LD. AO THAT HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, AS PLACED BEFORE HIM, IT IS NOT POSSIBLE TO GENERATE THE REQUISITE SATISFACTION WITH REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSESEE. IT IS ONLY, THEREAFTER THAT PROVISION OF SECTION 14A(2) &(3) R.W.RULE 8D OF I.T.RULES, 1962 OR A BEST JUDGMENT DETERMINATION AS EARLIER PREVAILING, WOUL D BECOME APPLICABLE. THIS LEGAL PRINCIPLE HAS BEEN FURTHER SUPPORTED BY THE FINDINGS OF THE HONBLE BOMBAY HIGH COURT, IN THE C ASE OF PCIT VS. BAJAJ FINANCE LTD. (2019) 110 TAXMANN.COM 303, WHER E IT WAS HELD THAT IN TERMS OF SECTION 14A, SATISFACTION OF LD. A O ABOUT CORRECTNESS OF EXPENDITURE OFFERED FOR DISALLOWANCES BY ASSESEE THEREFORE, IS A FREE CONDITION AND, THUS WHERE THE LD. AO DID NOT IN ANY MANNER REJECT EXPLANATION OF THE ASSESSE, BUT MERELY PROC EEDED TO MAKE DISALLOWANCES BY INVOKING SECTION 14A R.W.RULE 8D O F I.T.RULES, 1962, THE TRIBUNAL WAS JUSTIFIED IN DELETING THE S AME. THE CO- ORDINATE BENCH OF ITAT IN ASSESSEE OWN CASE FOR AY 2010-11 IN ITA NO. 451/MUM/2015 HELD THAT UNLESS, THE LD. AO RECOR DS SATISFACTION AS REQUIRED U/S 14A(2), HE CANNOT PROCEED TO DETERM INE DISALLOWANCES BY INVOKING RULE 8D OF I.T.RULES, 19 62. THE SUM AND SUBSTANCE OF THE RATIO LAID DOWN BY THE HONBLE SUP REME COURT AND HIGH COURT INCLUDING THE COORDINATE BENCH IS THAT U NLESS, THE LD. AO RECORDS SATISFACTION AS REQUIRED U/S.14A(2), HAVING REGARD TO THE BOOKS OF ACCOUNTS OF THE ASSESSEE THAT THE CLAIM OF THE ASSESSEE IS ITA NOS.5170 &5171/MUM/2018 NEEL BHUPENDRA DALAL 7 INCORRECT, HE CANNOT PROCEED TO COMPUTE DISALLOWANC ES BY INVOKING RULE 8D(2) OF I.T.RULES, 1962. IN THIS CASE, ON PER USAL OF ASSESSMENT ORDER PASSED BY THE LD. AO, WE FIND THAT NOWHERE, THE LD. AO HAS RECORDED OBJECTIVE SATISFACTION HAVING R EGARD TO THE BOOKS OF ACCOUNTS OF THE ASSESSEE OR THE CLAIM OF T HE ASSESEE THAT NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO EXE MPT INCOME. IN ABSENCE OF ANY SATISFACTION AS REQUIRED U/S 14A(2), THE LD. AO CANNOT PROCEED TO DETERMINE DISALLOWANCES BY INVOKI NG PRESCRIBED FORMULA PROVIDED UNDER RULE 8D OF I.T.RULES, 1962. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE LD. AO, AS WELL AS THE LD.CIT(A) WERE ERRED IN MAKING ADDITIONS TOWARDS DISALLOWANCE S OF EXPENDITURE U/S 14A R.W.R. 8D OF THE INCOME TAX RUL ES, 1962. HENCE, WE DIRECT THE AO TO DELETE ADDITIONS MADE TO WARDS DISALLOWANCES OF EXPENDITURE U/S 14A OF THE I.T.ACT 1961. 8. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS A LLOWED. ITA NO.5171/MUM/2018:- 9. THE FACTS AND ISSUES INVOLVED IN THE PRESENT APP EAL ARE IDENTICAL TO THE FACTS AND ISSUES, WHICH WE HAD CON SIDERED IN ITA NO.5170/MUM/2018 FOR AY 2011-12. THE REASONS GIVEN BY US IN PRECEDING PARAGRAPH SHALL MUTATIS MUTANDIS APPLY TO THIS APPEAL AS WELL. THEREFORE, FOR SIMILAR REASONS, WE DIRECT THE LD. AO TO DELETE ADDITIONS MADE TOWARDS DISALLOWANCES OF EXPENDITURE U/S 14A OF THE I.T.ACT, 1961. 10. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLOWED. 11. AS A RESULT, BOTH APPEALS FILED BY THE ASSESSEE ARE ALLOWED. ITA NOS.5170 &5171/MUM/2018 NEEL BHUPENDRA DALAL 8 ORDER PRONOUNCED IN THE OPEN COURT ON THIS 15 /01/ 2020 SD/- (MAHAVIR SINGH) SD/- (G. MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 15/01/2020 THIRUMALESH SR.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//
