J. M FIANANCIAL & INVESTMENT CONSULTANCY SERVICES P.LTD, MUMBAI V. ACIT(OSD)-3, MUMBAI

ITA 5454/MUM/2018

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 9325 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 9 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2012-2013
• Appeal Filed On: 24-09-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIJAY KUMAR MENON
• Keywords: Earning of tax free income; Question of law; Rule 8D
• Section: 14A; 201; 13; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (VIRTUAL COURT) F BENCH, MUMBAI BEFORE SHRI C.N. PRASAD, HON'BLE JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN , HON'BLE ACCOUNTANT MEMBER ITA NO. 5454 /MUM/201 8 (A.Y: 201 2 - 13) J.M. FINANCIAL & INVESTMENT CONSULTANCY SERVICES P. LTD., 5 TH FLOOR, 5B CNERGY APPASAHEB MARATHE MARG PRABHADEVI, MUMBAI - 400025 PAN: AAACJ1237H V. ACIT (OSD) 3 AAYAKAR BHAVAN, M.K. ROAD MUMBAI - 400020 (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI K. SHIVRAM DEPARTMENT BY : SHRI VIJAY KUMAR MENON DATE OF HEARING : 09.04.2021 DATE OF PRONOUNCEMENT : 25 .06.2021 O R D E R PER C.N. PRASAD (JM) 1. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) 8 , MUMBAI [HEREINAFTER IN SHORT LD.CIT(A)] DATED 18.07.2018 FOR THE A.Y .201 2 - 13 IN CONFIRMING THE DISALLOWANCE MADE U/S. 14A R.W. RULE 8D OF I.T. RULES. 2. BRIEFLY STATED THE FACTS A RE THAT, THE ASSESSING OFFICER W HILE COMPLETING THE ASSESSMENT NOTICED THAT DURING THE YEAR UNDER 2 ITA NO. 5454/MUM/2018 (A.Y: 2012 - 13) J.M. FINANCIAL & INVESTMENT CONSULTANCY SERVICES P. LTD., CONSIDERATION ASSESSEE HAS RECEIVED DIVIDEND INCOME AND INCOME FROM LONG TERM CAPITAL GAIN AND CLAIMED AS EXEMPT U/S. 10 OF THE ACT. ASSESSING OFFICER ALSO NOTICED THAT IN THE COMP UTATION OF INCOME ASSESSEE HAS U/S. 14A R.W. RULE 8D OF I.T. RULES SUOMOTO DISALLOWED .19,20,394/ - AS THE EXPENSES ATTRIBUTABLE FOR EARNING EXEMPT INCOME WHICH INCLUDE DIRECT EXPENSES OF .4 , 52 , 090/ - . ACCORDING TO THE ASSESSING OFFICER S INCE SUOMOTO DISALL OWANCE MADE BY THE ASSESSEE WAS NOT IN ACCORDANCE WITH PROVISIONS OF RULE 8D OF I.T. RULES, ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY DISALLOWANCE U/S. 14A R.W. RULE 8D SHOULD NOT BE MADE. IN RESPONSE, ASSESSEE HAS FURNISHED WORKING OF SUOMOTO DISALLOWANCE O F .19,20,394/ - AND SUBMITTED THAT NO FURTHER DISALLOWANCE IS WARRANTED . 3. HOWEVER, THE ASSESSING OFFICER WAS OF THE VIEW THAT THE SUOMOTO WORKING OF DISALLOWANCE OF EXPENSES AS PROVIDED BY THE ASSESSEE IS NOT SATISFACTORY AND BY INVOKING PROVISIONS OF RULE 8D HE COMPUTED THE DISALLOWANCE U/S. 14A OF THE ACT AT .49 , 17 , 810/. HOWEVER, SINCE THE ASSESSEE HAS ALREADY MAD E SUOMOTO DISALLOWANCE OF .19,20,394/ - IN ITS COMPUTATION THE ASSESSING OFFICER RESTRICTED THE DISALLOWANCE TO .29 , 97 , 416 WHICH COMPRISE OF DIRECT EXPENSES OF .4 , 52 , 090/ - AND ADMINISTRATIVE EXPENSES BEING 0. 5% OF AVERAGE VALUE OF INV EST MENT AT .25,45,326/ - . 3 ITA NO. 5454/MUM/2018 (A.Y: 2012 - 13) J.M. FINANCIAL & INVESTMENT CONSULTANCY SERVICES P. LTD., 4. BEFORE THE LD.CIT(A) ASSESSEE CONTENDED THAT NO OBJECTIVE SATISFACTION WAS RECORDED BY THE ASSESSING OFFICER O N THE SUOMOTO DISALLOWANCE OF .19,20,394/ - MADE ON SCIENTIFIC BASIS BY THE ASSESSEE TOWARDS EXPENSES ATTRIBUTABLE TO EARNING EXEMPT INCOME FOR THE PURPOSE OF DISALLOWANCE UNDER RULE 8D R.W.S. 14A OF THE ACT AND THEREFORE INVOKING RULE 8D IS NOT CORRECT AND JUSTIFIED. ASSESSEE REL IED ON THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG., CO. LTD., V. CIT [328 ITR 81] WHEREIN IT HAS BEEN HELD THAT DISALLOWANCE UNDER RULE 8D CAN BE MADE ONLY IF THE ASSESSING OFFICER RECORDS A SATISFACTION THAT THE DISALL OWANCE HAS NOT BEEN MADE CORRECTLY HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. WITHOUT PREJUDICE, LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATION IT HAD NOT RECEIVED DIVIDEND ON SHARES OF CERTAIN COMPANIES AND LI ST OF WHICH WAS ALSO FURNISHED. IT WAS CONTENDED THAT IN VIEW OF THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LIMITED V. CIT [378 ITR 33] WHEREIN IT HAS BEEN HELD THAT THE INVESTMENTS ON WHICH NO EXEMPT INCOME HAS BEEN RECEIVED NEEDS TO BE EXCLUDED WHILE COMPUTING THE DISALLOWANCE U/S. 14A OF THE ACT AND IF THE INVESTMENTS ON WHICH NO DIVIDEND INCOME WAS RECEIVED BY THE ASSESSEE ARE EXCLUDED THE DISALLOWANCE U/S. 14A OF THE ACT WOULD WORK OUT TO .21,11,440/ - AS 4 ITA NO. 5454/MUM/2018 (A.Y: 2012 - 13) J.M. FINANCIAL & INVESTMENT CONSULTANCY SERVICES P. LTD., AGAINST THE SAME. ASSESSEE HAS ALREADY DISALLOWED .19,20,394/ - AND THE ADDITIONAL DISALLOWANCE, IF ANY, WORKS OUT TO ONLY .1,91,056/ - . TH ESE SUBMISSION S OF THE ASSESSEE WERE NOT ACCEPTED BY THE LD.CIT(A). 5. BEFORE US, LD. COUNSEL FOR THE ASSESSEE SHRI K. SHIVRAM SUBMIT TED THAT IN THE COURSE OF THE ASSESSMENT PROCEEDINGS ASSESSEE FURNISHED WORKING OF SUOMOTO DISALLOWANCE OF EXPENSES MADE U/S. 14A R.W. RULE 8D OF I.T. RULES WHICH IS PLACED AT PAGE NO. 36 OF THE PAPER BOOK. REFERRING TO THE SAID WORKING IT IS SUBMITTED TH AT THE DISALLOWANCE WAS MADE ON A SCIENTIFIC BASIS. IT IS SUBMITTED THAT ASSESSEE HAD NOT ONLY CONSIDERED DIRECT EXPENSES BUT IT ALSO CONSIDERED PROPORTIONATE EMPLOYEE COST AND INDIRECT EXPENSES. IT IS SUBMITTED THAT APART FROM DIRECT EXPENSES IN THE FORM OF SECURITY TRANSACTION TAX OF .3,32,265/ - AND DEMAT CHARGES OF .1,19,825/ - ASSESSEE H AS ALSO ALLOCATED PROPORTIONATE SALARY OF AN EMPLOYEE WHO WAS LOOKING AFTER THE INVESTMENT ACTIVITIES . SIMILAR LY, INDIRECT EXPENSES WERE ALSO ALLO CATED WHILE COMPUTING THE DISALLOWAN CE MADE U/S. 14A OF THE ACT. 6. IT IS FURTHER SUBMITTED THAT ON SIMILAR CIRCUMSTANCES THIS TRIBUNAL IN ASSESSEES GROUP CONCERNS NAMELY JM FINANCIAL INVESTM ENT MANAGERS LIMITED AND JM FINANCIAL PRODUCTS LIMITED FOR A.Y. 201 0 - 11 HELD THAT NO 5 ITA NO. 5454/MUM/2018 (A.Y: 2012 - 13) J.M. FINANCIAL & INVESTMENT CONSULTANCY SERVICES P. LTD., PROPER SATISFACTION WAS RECORDED. RELIANCE WAS PLACED ON THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG., CO. LTD., V. CIT [328 ITR 81]. LD. COUNSEL FOR THE ASSESSEE STRONGLY PLACED RELIANCE ON THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF PR.CIT V. BOMBAY STOCK EXCHANGE LTD., (2020) 185 DTR 390 ( BOM ) IN SUPPORT O F HIS ABOVE CONTENTIONS . 7. LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMITS THAT LD.CIT(A) DID NOT CONSIDER THE ALTERNATIV E ARGUMENT OF THE ASSESSEE REGARDING NOT REDUCING AVERAGE VALUE OF INVESTMENTS F ROM WHICH NO DIVIDEND INCOME WAS EARNED. 8. LD. DR ON THE OTHER HAND SUBMITTED THAT ASSESSING OFFICER HAS RECORDED HIS SATISFACTION PROPERLY IN PARA NO . 4.3 TO 4.6 OF THE ASSESSME NT ORDER. THEREFORE , IT IS NOT CORRECT TO STATE THAT THERE IS NO PROPER SATISFACTION RECO RDED BY THE ASSESSING OFFICER. LD. DR VEHEMENTLY SUPPORTED THE O RDERS OF THE AUTHORITIES BELOW. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND THE DECISIONS RELIED ON. IT IS NOT IN DISPUTE THAT THE ASSESSEE HAS FURNISHED WORKING FOR SUOMOTO DISALLOWANCE OF EXPENSES U/S. 14A R.W. RULE 8D OF I.T. RULES. THIS FACT WAS ALSO RECORDED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. ON A P ERUSAL OF THE 6 ITA NO. 5454/MUM/2018 (A.Y: 2012 - 13) J.M. FINANCIAL & INVESTMENT CONSULTANCY SERVICES P. LTD., ASSESSMENT ORDER WE FIND THAT ASSESSING OFFICER HAS NOT RECORDED ANY SATISFACTION AS TO WHY THIS BREAK UP OF SUOMOTO DISALLOWANCE OF EXPENSES OF .19,20,394/ - MADE BY THE ASSESSEE IS NOT SATISFACTORY EXCEPT STATING THAT ASSESSEE IS UNABLE TO ESTAB LISH BEYOND DOUBT THE DEMARCATION BETWEEN THE EXPENSES INCURRED IN THE COURSE OF THE BUSINESS AND THOSE INCURRED FOR EARNING EXEMPT INCOME TO THE SATISFACT ION OF THE ASSESSING OFFICER. THE ASSESSING OFFICER HAS NOT GONE I NTO THE BREAKUP OF EXPENSES SUBMITTED BY THE ASSESSEE AND HAS NOT RECORDED AS TO WHY IT IS NOT SATISFACTOR ILY EXPLAINED BY THE ASSESSEE THE SAID EXPENDITURE INCURRED IS INSUFFICIENT FOR EARNING EXEMPT INCOME. 10. IN THE CASE OF GODREJ & BOYCE MFG., CO. LTD., V. CIT (SUPRA) THE HON'BLE BOMBAY HIGH COURT HELD AS UNDER: - ..WHAT MERITS EMPHASIS IS THAT THE JURISDICTION OF THE ASSESSING OFFICER TO DETERMINE THE EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME, IN ACCORDANCE WITH THE PRESCRIBED METHOD, ARISES IF THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF THE EXPENDITURE WHICH THE ASSESSEE CLAIMS TO HAVE INCUR RED IN RELATION TO INCOME WHICH DOES NOT PART OF THE TOTAL INCOME. MOREOVER, THE SATISFACTION OF THE ASSESSING OFFICER HAS TO BE ARRIVED AT, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. HENCE, SUB SECTION (2) DOES NOT IPSO FACTO ENABLE THE ASSESSING OFFI CER TO APPLY THE METHOD PRESCRIBED BY THE RULES STRAIGHTAWAY WITHOUT CONSIDERING WHETHER THE CLAIM MADE BY THE ASSESSEE IN RESPECT OF THE EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME IS CORRECT. THE ASSESSING OFFI CER MUST, IN THE FIRST INSTANCE, DETERMINE WHETHER THE CLAIM OF THE ASSESSEE IN THAT REGARD IS CORRECT AND THE DETERMINATION MUST BE MADE HAVING REGARD TO THE VBC 32 ITXA626.10 ACCOUNTS OF THE ASSESSEE. THE SATISFACTION OF THE 7 ITA NO. 5454/MUM/2018 (A.Y: 2012 - 13) J.M. FINANCIAL & INVESTMENT CONSULTANCY SERVICES P. LTD., ASSESSING OFFICER MUST BE ARR IVED AT ON AN OBJECTIVE BASIS. IT IS ONLY WHEN THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CLAIM OF THE ASSESSEE, THAT THE LEGISLATURE DIRECTS HIM TO FOLLOW THE METHOD THAT MAY BE PRESCRIBED. IN A SITUATION WHERE THE ACCOUNTS OF THE ASSESSEE FURNISH AN OBJECTIVE BASIS FOR THE ASSESSING OFFICER TO ARRIVE AT A SATISFACTION IN REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE OF THE EXPENDITURE WHICH HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME, THERE WOULD BE N O WARRANT FOR TAKING RECOURSE TO THE METHOD PRESCRIBED BY THE RULES. FOR, IT IS ONLY IN THE EVENT OF THE ASSESSING OFFICER NOT BEING SO SATISFIED THAT RECOURSE TO THE PRESCRIBED METHOD IS MANDATED BY LAW. 11. FURTHER , I DENTICAL ISSUE CAME UP BEFORE HON'BLE BO MBAY HIGH COURT IN THE CASE OF PR.CIT V. BOMBAY STOCK EXCHANGE LTD., (SUPRA) , AND T HE HON'BLE BOMBAY HIGH COURT CONSIDERING THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENT LTD., V. CIT [402 ITR 640] HELD AS UNDER: - 11. NON - SATISFACTION WITH THE DISALLOWANCE OFFERED BY THE ASSESSEE HAS TO BE ARRIVED AT ON THE BASIS OF THE ACCOUNTS SUBMITTED BY THE ASSESSEE. IN THIS CASE, THE ASSESSING OFFICER HAD NOT CARRIED OUT THE AFORESAID EXERCISE BUT REJECTED THE DISALLOWANCE CLAIMED BY THE ASSESSEE ONLY ON THE GROUND THAT IT WAS NOT IN ACCORDANCE WITH RULE 8D OF THE RULES. THE APPLICATION OF RULE 8D OF THE RULES WOULD ONLY ARISE ONCE THE ASSESSING OFFICER IS NOT SATISFIED ON AN OBJECTIVE CRITERIA IN THE CONTEXT OF ITS ACCOUNTS, THAT SUO MOTU DISALLOWANCE CLAIMED BY THE ASSESSEE IS NOT PROPER. 12. IN FACT, THE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENT LTD. V. COMMISSIONER OF INCOME TAX 2 WHILE UPHOLDING THE VIEW OF THE DELHI HIGH COURT HAS HELD THAT THE ASSESSING OFFICER NEEDS TO RECORD HIS NON - SATISFACTION HAVING REGARD TO THE SOU MOTU DISALLOWANCES CLAIMED BY THE ASSESSEE IN THE CONTEXT OF ITS ACCOUNTS. IT IS ONLY THEREAFTER, THE OCCASION TO APPLY RULE 8D OF THE RULES FOR APPORTIONMENT OF EXPENSES CAN ARISE. 13. IN THE PRESENT FACTS, THE TRIBUNAL HAS CORRECTLY COME TO THE CONCLUSION THAT NON - SATISFACTION AS RECORDED BY THE ASSESSING OFFICER FOR REJECTING THE SOU MOTU DISALLOWANCES CLAIMED BY THE ASSESSEE IS 8 ITA NO. 5454/MUM/2018 (A.Y: 2012 - 13) J.M. FINANCIAL & INVESTMENT CONSULTANCY SERVICES P. LTD., NOT DONE AS REQUIRED UNDER SECTION 14A(2) OF THE ACT. ON FACTS, THE VIEW TAKEN BY THE TRIBUNAL IS A POSSIBLE VIEW AND CALLS FOR NO INTERFERENCE. 14. IN THE ABOVE VIEW, THE QUESTION AS PROPOSED DOES NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW. THUS, NOT ENTERTAINED. 15. ACCORDINGLY, APPEAL IS DISMISSED . 12. THE RATIO OF THI S DECISION SQUARELY APPLIES TO THE FACTS OF THE ASSESSEES CASE AS IN THE CASE IN HAND ALSO THE ASSESSING OFFICER HAS NOT CARRIED OUT ANY EXERCISE AS TO WHY THE BREAKUP OF EXPENSES GIVEN BY THE ASSESSEE CANNOT BE ACCEPTED AS THE EXPENSES ATTRIBUTABLE FOR E ARNING EXEMPT INCOME BEFORE INVOKING RULE 8D OF I.T. RULES FOR MAKING DISALLOWANCE U/S. 14A R.W. RULE 8D OF I.T. RULES . RESPECTFULLY FOLLOWING THE SAID DECISION, WE DELETE THE DISALL OWANCE MADE U/S. 14A OF THE ACT . 13. IN THE RESULT, APP EAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON 25 . 06.2021 AS PER RULE 34(4) OF ITAT RULES BY PLACING THE PRONOUNCEMENT LIST IN THE NOTICE BOARD. SD/ - SD/ - ( S. RIFAUR RAHMAN ) (C.N. PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI / DATED 25 / 06/2021 GIRIDHAR, SR.PS 9 ITA NO. 5454/MUM/2018 (A.Y: 2012 - 13) J.M. FINANCIAL & INVESTMENT CONSULTANCY SERVICES P. LTD., COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY// BY ORDER (ASSTT. REGISTRAR) ITAT, MUM