SHASHIKIRAN J. SHETTY, MUMBAI V. DCIT CEN CIR 44, MUMBAI

ITA 5564/MUM/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 0215 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-03-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2011-2012
• Appeal Filed On: 01-09-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K MISHRA
• Assessee Lawyers: B V JHAVERI
• Keywords: Salary income; Earning of tax free income; Rule 8D; Set aside
• Section: 14A; 37

Judgement Text

1 IN THE INCOME-TAX APPELLATE TRIBUNAL G BENCH MUMB AI BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND SHRI N.K. PRADHAN, ACCOUNTANT MEMBER ITA NO. 5564/MUM/2017 (ASSESSMENT YEAR 2011-12 ) SHASHIKIRAN J. SHETTY 5 TH FLO OR, DIAMOND SQUARE, CST ROAD, KALIAN SANTACRUZ (EAST), MUMBAI-400098 . PAN: AMEPS5601B VS. DCIT, CEN. CIRCLE- 8(1) ROOM NO. 656, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400020. APPELLANT RESPONDE NT APPELLANT BY : SHRI B.V. JHAVERI (AR) RESPONDENT BY : SHRI S.K. MISHRA (SR. DR) DATE OF HEARING : 20.03.2019 DATE OF PRONOUNCEMEN T : 27.03.2019 ORDER UNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER; 1. THIS APPEAL BY ASSESSEE IS DIRECTED AGAINST THE ORD ER OF LD. COMMISSIONER OF INCOME-TAX (APPEALS)-50, (HEREINAFTER REFERRED A S LD. CIT(A), MUMBAI DATED 27.05.2014 FOR ASSESSMENT YEAR 2011-12. THE A SSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: DISALLOWANCE OF EXPENSES U/S. 14A OF RS.4,06,239/- 1. THE COMMISSIONER (APPEALS) ERRED IN DISALLOWING ALL THE EXPENSES AGGREGATING TO RS.4,06,239/- INVOKING SEC. 14A R.W. RULE 8D OF THE I.T. ACT, 1961. 2. THE COMMISSIONER (APPEALS) FAILED TO APPRECIATE THAT THE ASSESSEE HAD NOT INCURRED ANY EXPENDITURE FOR EARNING EXEMPT INCOME IN THE FORM OF DIVIDEND AND THEREFORE, THE QUESTION OF DISALLOWANCE U/S. 14 A OF THE ACT DOES NOT ARISE AT ALL. 3. THE COMMISSIONER (APPEALS) FAILED TO APPRECIATE THAT THE AO WITHOUT RECORDING SATISFACTION, HAVING REGARDS TO THE ACCOU NTS OF THE ASSESSEE, REJECTED THE CONTENTION OF THE ASSESSEE THAT HE HAD NOT INCU RRED ANY EXPENDITURE FOR ITA NO . 5564 MUM 2017-SHASHIKIRAN J. SHETTY 2 EARNING EXEMPT INCOME AND HENCE THE PROVISIONS OF S EC. 14A OF THE ACT CANNOT BE IN YOKED. 4. THE COMMISSIONER (APPEALS) FAILED TO APPRECIATE THAT THE ASSESSEE DEBITED PROFESSIONAL FEES OF RS.4,06,239/- WHICH HAVE NO CO NNECTION WHATSOEVER WITH THE EARNING OF EXEMPT INCOME DURING THE YEAR UNDER CONSIDERATION. 5. THE COMMISSIONER (APPEALS) ERRED IN APPLYING RUL E 8D(2)(III) OF THE I.T. RULES, 1962 AND ERRED IN COMPUTING DISALLOWANCE @ 0 .5% OF THE AVERAGE INVESTMENT, I.E. RS.18,85,978/- AND THEREAFTER REST RICTING THE DISALLOWANCE TO RS.4,35,093/-. THE ASSESSEE HAS FILED APPEAL BEFORE COMMISSIONER OF INCOME TAX (APPEALS)-50. THE HON'BLE COMMISSIONER OF INCOM E TAX (APPEALS)-50 ALLOWED EXPENSES RS.28,854/- OUT OF RS.4,35093/-. 6. THE ORDER OF THE COMMISSIONER (APPEALS) UPHOLDIN G THE DISALLOWANCE MADE BY THE A.O. IS BAD IN LAW AND WITHOUT JURISDICTION. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS AN INDIVIDUAL FILED HIS RETURN OF INCOME FOR ASSESSMENT YEAR 2011-12 ON 01 .08.2011 DECLARING INCOME OF RS. 4.16 CRORE (APPROX). DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS SHOWN INCOME FROM SALARY FROM M/S ALL CARGO GLOBAL LOGISTIC LTD., RENTAL INCOME, BUSINESS AND CAPITAL GAINS. THE RETURN OF INCOME WAS SELECTED FOR SCRUTINY. THE ASSESSEE HAS SHOWN DIVIDEND INCOME OF RS. 8.51 CRORE, INTEREST FROM PPF OF RS. 3.27 LAKHS WHICH IS CLAIMED EXEMPTED. DURING THE ASSESSMENT, THE ASSESS ING OFFICER MADE DISALLOWANCE OF RS. 18,85,978/- UNDER SECTION 14A B Y INVOKING THE PROVISIONS OF RULE 8D AND MADE DISALLOWANCE @ .5% O F AVERAGE VALUE OF INVESTMENT. HOWEVER, THE ASSESSING OFFICER RESTR ICTED THE DISALLOWANCE TO RS. 4.35 LAKHS BEING ENTIRE EXPENDI TURE CLAIMED BY ASSESSEE IN HIS PROFIT & LOSS ACCOUNT. ON APPEAL BE FORE THE LD. CIT(A) THE DISALLOWANCES WAS RESTRICTED TO RS.4,0,239/- BY DELETING RS. 28,854/- ITA NO . 5564 MUM 2017-SHASHIKIRAN J. SHETTY 3 OUT OF RS. 4,35,093/-. FURTHER, AGGRIEVED BY THE ORDER OF LD. CIT(A), THE ASSESSEE HAS FILED THE PRESENT APPEAL BEFORE US. 3. WE HAVE HEARD THE SUBMISSION OF LD. AUTHORIZED REPR ESENTATIVE (AR) OF THE ASSESSEE AND LD. DEPARTMENTAL REPRESENTATIVE (D R) FOR THE REVENUE AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE L D. AR OF THE ASSESSEE SUBMITS THAT THE ASSESSEE HAS DEBITED ALL THE EXPEN DITURE INCURRED BY HIM FOR EARNING EXEMPT INCOME IN THE CAPITAL ACCOUNT AN D NOT IN THE PROFIT & LOSS ACCOUNT. THE ASSESSEE HAS NEITHER INCURRED NOR DEBITED ANY EXPENDITURE IN RESPECT OF EARNING EXEMPT INCOME IN PROFIT & LOSS ACCOUNT. THE LD. AR OF THE ASSESSEE FURTHER SUBMITS THAT ON IDENTICAL FACTS FOR ASSESSMENT YEAR 2012-13, THE TRIBUNAL RES TRICTED THE DISALLOWANCE TO RS. 10,000/- IN ITS ORDER DATED 04. 12.2018 IN ITA NO. 5080/MUM/2017. THEREFORE, THE LD. AR SUBMITS THAT T HE GROUND OF APPEAL RAISED BY ASSESSEE IS COVERED IN FAVOUR OF A SSESSEE BY THE DECISION OF TRIBUNAL FOR ASSESSMENT YEAR 2012-13. THE LD. AR OF THE ASSESSEE FURTHER SUBMITS THAT ASSESSEE IS PAID THE PROFESSIO NAL FEES TO CHARTERED ACCOUNTANT AND LAWYER FOR DEFENDING THE ASSESSEE AG AINST INCOME-TAX LIABILITY, WHEREBY THE BUSINESS OF ASSESSEE HAS BEE N PRESERVED AND PROTECTED AND HENCE ALLOWABLE UNDER SECTION 37 OF T HE ACT. FURTHER, THE PROFESSIONAL FEES PAID TO CONSULTANT OF RS. 88,598/ - WERE IN RESPECT OF ASSESSEE BUSINESS OF JOINT DEVELOPMENT OF LAND AND SALE OF FLATS FROM WHICH THE ASSESSEE HAS EARNED THE NET INCOME OF RS. 25.77 LAKHS. ITA NO . 5564 MUM 2017-SHASHIKIRAN J. SHETTY 4 4. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE SUPPO RTED THE ORDER OF LOWER AUTHORITIES BELOW. THE LD. DR SUBMITS THAT AS SESSEE COULD NOT SUBSTANTIATE THAT THE EXPENSES CLAIMED BY ASSESSEE WERE NOT RELATABLE TO EXEMPT INCOME AND PRAYED TO CONFIRM THE DISALLOWANC E SUSTAINED BY LD. CIT(A). 5. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE PART IES AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WE HAVE NO TED THAT THE FACTS OF THE YEAR UNDER CONSIDERATION ARE SIMILAR AS OF SIMI LAR TO THE FACT FOR ASSESSMENT YEAR 2012-13. WE HAVE NOTED THAT THE CO- ORDINATE BENCH OF TRIBUNAL FOR ASSESSMENT YEAR 2012-13 PASSED THE FOL LOWING ORDER: 6. WE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORDS. WE NOTICED THAT THE ASSESSEE HAS DEBITED HIS CAPITAL ACCOUNT WITH T HE EXPENSES RELATING TO SHARE TRANSACTION, VIZ., PMS EXPENSES, DP AND OTHER CHARG ES AND SECURITY TRANSACTION TAX. AS SUBMITTED BY THE LEARNED AR, OU T OF THE EXPENSES DEBITED TO THE PROFIT AND LOSS ACCOUNT, THE EXPENSES INCURR ED TOWARDS MAINTENANCE, PROFESSIONAL TAX AND STAMP DUTY ARE NOT RELATABLE T O THE SHARE TRANSACTIONS. THE REMAINING TWO EXPENSES, VIZ., PROFESSIONAL FEES AND BANK CHARGES CAN BE CONSIDERED AS COMMON EXPENSES INCURRED BY THE ASSES SEE TOWARDS BOTH EXEMPT INCOME AND TAXABLE INCOME. THOUGH THE LEARNE D AR CONTENDS THAT THESE EXPENSES ARE ALSO NOT RELATABLE TO EXEMPT INC OME, YET WE ARE NOT ABLE TO AGREE WITH THE SAME. THE PURPOSE OF INTRODUCTION OF SECTION 14A IS TO DISALLOW EXPENSES WHICH ARE RELATABLE TO THE EXEMPT INCOME. CONSIDERING THE FACTS THAT THE ASSESSEE HAS INCURRED A SUM OF RS.1.14 LAKH AS COMMON EXPENSES, WE ARE OF THE VIEW THAT A PORTION OF THE SAME SHOULD BE AP PORTIONED TOWARDS EXEMPT INCOME AS HELD BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT V. MAXOPP INVESTMENTS LTD (391 ITR 218). UNDER THE FACTS OF T HE CASE, WE AGREE WITH THE CONTENTION OF THE LEARNED AR THAT THE PROVISIONS OF RULE 8D CANNOT BE APPLIED, AS MAJOR PORTION OF EXPENSES ARE RELATED TO OTHER A CTIVITIES OF THE ASSESSEE. ACCORDINGLY, WE ARE OF THE VIEW THAT A SUM OF RS.10 ,000/- OUT OF COMMON ITA NO . 5564 MUM 2017-SHASHIKIRAN J. SHETTY 5 EXPENSES OF RS.1.14 LAKH MAY BE APPORTIONED TOWARDS EXEMPT INCOME AND THE SAME WOULD MEET THE REQUIREMENTS OF SEC. 14A OF THE ACT. ACCORDINGLY, WE SET ASIDE THE ORDER PASSED BY THE CIT(A) AND DIRECT THE ASSESSING OFFICER TO RESTRICT THE ADDITION U/S 14A OF THE ACT TO RS.10,0 00/-. WE ORDER ACCORDINGLY. 6. CONSIDERING THE FACT THAT FOR ASSESSMENT YEAR 2012- 13 THE ASSESSEE CLAIMED COMMON EXPENSES OF RS. 1.14 LAKHS AS COMMON EXPENSES AND THE TRIBUNAL ESTIMATED THE DISALLOWANCE UNDER SECTI ON 14A AT RS. 10,000/-. FOR ASSESSMENT YEAR 2012-13, THE ASSESSEE CLAIMED EXEMPT INCOME OF RS. 3146.91 LAKHS. FOR THE YEAR UNDER CON SIDERATION THAT IS 2011-12 THE ASSESSEE CLAIMED THE DIVIDEND INCOME O F RS. 892 LACKH. THE ASSESSEE HAS DEBITED A TOTAL EXPENSES OF RS. 4,45,0 93/-. THEREFORE, CONSIDERING THE DECISION OF TRIBUNAL FOR ASSESSMENT YEAR 2012-13 WE ARE OF THE VIEW THAT A SUM OF RS. 25,000/- OUT OF T HE COMMON EXPENSES OF RS. 4,35,093/- BE APPORTIONED TOWARDS EXEMPT INCOME WHICH WOULD MEET THE REQUIREMENT OF SECTION 14A. THEREFORE, WE SET-A SIDE THE ORDER OF LD. CIT(A) AND DIRECT THE ASSESSING OFFICER TO RESTRICT THE ADDITION UNDER SECTION 14A TO RS. 25,000/-. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 27/03/2019. SD/- SD /- N.K. PRADHAN, PAWAN SINGH ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 27.03.2019 SK ITA NO . 5564 MUM 2017-SHASHIKIRAN J. SHETTY 6 COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. DR G BENCH, ITAT, MUMBAI 6. GUARD FILE BY ORDER, DY./ASST. REGISTRAR ITAT, MUMBAI