ACIT - 1(1)(1), MUMBAI V. BOMBAY GYMKHANA LTD., MUMBAI

ITA 6410/MUM/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8418 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-11-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 31-10-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAM TIWARI
• Keywords: Rectification of order; Earning of tax free income
• Section: 14A; 54; 154; 15

Judgement Text

P A G E | 1 ITA NO. 6410/MUM/2016 AY: 2010 - 11 ACIT VS. M/S BOMBAY GYMKHANA LTD. IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI BEFORE SHRI RAJENDRA , AM AND SHRI RAVISH SOOD, JM ./ I.T.A. NO.6410/MUM/2016 ( / ASSESSMENT YEAR: 2010 - 11) AC IT - 1(1)(1), 579 AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400 020 . / VS. M/S BOMBAY GYMKHANA LTD. MAHATMA GANDHI ROAD, FORT, MUMBAI - 400001 ./ ./ PAN/GIR NO. AAACB2122M ( / REVENUE ) : ( / ASSESSEE) / REVENUE BY : SHRI RAM TIWARI , D.R / ASSESSEE BY : NONE / DATE OF HEARING : 07 /11/2017 / DATE OF PRONOUNCEMENT : 10 /11/2017 / O R D E R PER RAVISH SOOD, JUDICIAL MEMBER THE PRESENT APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) - 2, MUMBAI, DATED 11.07.2016 , DISPOSING OF THE RECTIFICATION APPLICATION FIL ED BY THE ASSESSEE UNDER SEC. 15 4 OF THE INCOME TAX ACT, 1961 (FOR SHORT ACT), DATED 09.07.2016. THE REVENUE P A G E | 2 ITA NO. 6410/MUM/2016 AY: 2010 - 11 ACIT VS. M/S BOMBAY GYMKHANA LTD. ASSAILING THE ORDER OF THE CIT(A) HAD RAISED BEFORE US THE FOLLOWING GROUNDS OF APPEAL: - 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) HAS ERRED IN DEL ETING THE DISALLOWANCE OF RS. 51,27,721/ - MADE BY AO U/S.14A, WHICH WAS CONFIRMED BY HIM IN HIS OWN ORDER DTD.10.12.2015 WHILE DECIDING THE APPLICATION MADE BY ASSESSEE AGAINST THE APPELLATE ORDER DTD.10.12.2015 BY REVIEWING HIS OWN DECISION? 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) WAS RIGHT IN DELETING THE ADDITION CONFIRMED BY HIM IN HIS ORDER DATED 10.12.2015 TREATING THE SAME AS MISTAKE APPARENT FROM RECORD WHEN THERE WAS NO SUCH APPARENT MISTAK E AND HE HAS INAPPROPRIATELY TRANSGRESSED HIS JURISDICTION AND GONE AHEAD TO REVIEW HIS OWN SPEAKING ORDER PASSED EARLIER CONFIRMING THE ADDITION? THE APPELLANT CRAVES LEAVE TO ADD TO, AMEND OR WITHDRAW THE AFORESAI D GROUND OF APPEAL. 2. BRIEFLY STATED , THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A CLUB WHICH RECIEVES INCOME BY WAY OF MEMBERS CONTRIBUTION, GAMES , AMENITIES, ACTIVITIES AND EVENTS, INVESTMENTS AS WELL AS OTHER INCOME . THE ASSESSEE HAD FILED ITS RETURN OF INCOME FOR AY: 2010 - 11 ON 29.09.2010 , DECLARING TOTAL INCOME OF RS.90,16,742/ - . THE RETURN OF INCOME FILED BY THE ASSESSEE WAS PROCESSED AS UNDER SEC. 143(1) OF THE ACT. THE CASE OF THE ASSESSEE WAS THEREAFTER TAKEN UP FOR SCRUTINY ASSESSMENT UNDER SEC. 143(2). 3. THAT DUR ING TH E COURSE OF THE ASSESSMENT PROCEEDINGS IT WAS OBSERVED BY THE A.O THAT THE ASSESSEE HAD DURING THE YEAR UNDER CONSIDERATION EARNED DIVIDEND INCOME OF RS.99,8 8,387/ - ON UNITS OF MUTUAL FUND AND RS.2 ,50,000/ - ON PREFERENCE SHARES O F IFCI, WHICH WERE CLAIMED AS EXEMPT UNDER SEC. 10(35) AND SEC. 10(34), RESPECTIVELY . THE A.O OBSERVED THAT THE ASSESSEE DESPITE HAVING EARNED EXEMPT INCOME HAD NOT OFFERED FOR DISALLOWANCE UNDER SEC. 14A ANY P A G E | 3 ITA NO. 6410/MUM/2016 AY: 2010 - 11 ACIT VS. M/S BOMBAY GYMKHANA LTD. DIRECT AND INDIRECT EXPENDITURE INCURRED FOR EARNING OF THE AFORESAID EXEM PT INCOME . THAT ON BEING CALLED UPON BY THE A.O TO EXPLAIN AS TO WHY AN APPROPRIATE DISALLOWANCE MAY NOT BE MADE IN RESPECT OF EXPENDITURE INCURRED FOR EARNING THE DIVIDEND INCOME WHICH WAS CLAIMED AS EXEMPT FROM TAX , I T WAS SUBMITTED BY THE ASSESSEE THAT AS IT WAS A MUTUAL CONCERN, THEREFORE, THE PROVISIONS OF SEC. 14A WERE NOT APPLICABLE TO IT. THE A.O HOWEVER DID NOT FIND FAVOUR WITH THE SUBMISSIONS OF THE ASSESSEE AND DISALLOWED AN AMOUNT OF RS. 51,27,921/ - UNDER SEC. 14A R.W. RULE 8D OF THE INCOME TAX RULES, 1962. 4. AGGRIEVED , THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). HOWEVER, THE CIT(A) AFTER DELIBERATING ON THE CONTENTIONS OF THE ASSESSEE IN THE BACKDROP OF THE FACTS OF THE CASE , DID NOT FIND FA VOUR WITH THE SAME AND UPHELD THE DISALLOWANCE MADE BY THE A.O UNDER SEC. 14A R.W.R. 8D . HOWEVER, THE CIT(A) RESTRICTED THE ADDITION /DISALLOWANCE UNDER SEC. 14A TO RS.44,95,379/ - , AS AGAINST RS.51,27,721/ - MADE BY THE A.O. THE CIT(A) WHILE PRINCIPALLY UPH OLDING THE ADDITION MADE BY THE A.O , OBSERVED AS UNDER: - 6.3. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE APPELLANT, ASSESSMENT ORDER AND FACTS OF THE CASE. THE A.O HAS CALCULATED THE DISALLOWANCE U/S 14A R.W. RULE 8D (III) AS ABOVE. I FIND THAT T HIS DISALLOWANCE HAS BEEN RIGHTLY MADE RELYING ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF M/S GODREJ & BOYCE MFG. CO. LTD. I ALSO FIND THAT THE CONTENTION OF THE APPELLANT ABOUT THE ADDITION MADE BY THE A.O FOR AY 2008 - 09 IS NOT COMPARABLE SINCE RULE 8D HAS BEEN HELD TO BE MANDATORY FROM AY 2009 - 10 BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE (SUPRA). THE ADDITION MADE BY THE A.O IS UPHELD. AS REGARDS THE CALCULATION OF DISALLOWAN CE U/S 14A R.W. RULE 8D (III) THE CALCULATION REWORKED BY THE APPELLANT AS ABOVE IS CORRECT AS PER THE VALUE OF INVESTMENT WORKED OUT BY THEM. THEREFORE, THE ADDI TION OF RS.44,95,379/ - IS CONFIRMED INSTEAD OF THE ADDITION OF RS.51,27,721/ - MADE BY THE A.O GROUND NO. 4 IS PARTLY ALLOWED. 5. THE ASSESSEE THEREAFTER FILED A RECTIFI CATION APPLICATION UNDER SEC. 15 4, DATED 09.07.2006. THE ASSESSEE IN THE COURSE OF PR OCEEDINGS P A G E | 4 ITA NO. 6410/MUM/2016 AY: 2010 - 11 ACIT VS. M/S BOMBAY GYMKHANA LTD. SUBMITTED BEFORE THE CIT(A) THAT NOW WHEN NO EXPENSES WERE CLAIMED IN ITS RETURN OF INCOME , THEREFORE, NO DISALLOWANCE UNDER SEC. 14A WAS CALLED FOR IN ITS HANDS. THE AFORESAID CONTENTION OF THE ASSESSEE WAS BASED ON THE FACT THAT IT HAD OFFERED ITS INCOME FOR TAX ON GROSS BASIS , AND HAD NOT CLAIMED ANY DEDUCTION OR EXPENDITURE AT ALL IN ITS RETURN OF INCOME . THE ASSESSEE IN ORDER TO FORTIFY ITS AFORESAID CONTENTION , THEREIN FURNISHED WITH THE CIT(A) THE BIFURCATED DETAILS OF ITS INCOME, AS UNDER: - INVESTMENT INCOME AS PER AUDITED ACCOUNTS FOR THE YEAR ENDED 31 ST MARCH 2010 (RS.) TAXABILITY UNDER INCOME TAX ACT, 1961 LONG TERM INVESTMENTS DIVIDEND INCOME ON UNITS OF MUTUAL FUNDS. 88,44,306 EXEMPT UNDER SECTION 10(35) SURPLUS ON SALE/DISPOSAL OF UNITS OF MUTUAL FUNDS. 8,06,71,738 OFFERED TO TAX UNDER SEC. 10(35) SURPLUS ON SALE/DISPOSAL OF UNITS OF MUTUAL FUNDS. 8,06,71,738 OFFERED TO TAX UNDER THE HEAD LONG TERM/CAPITAL GAIN (REFER ANNEXURE 1& ANNEXURE 2 OF COMPUTATION OF INCOME, ENCLOSED HEREWITH) CURRENT INVESTMENTS DIVIDEND INCOME ON UNITS OF MUTUAL FUNDS. 11,44,081 EXEMPT UNDER SEC. 10(35) DIVIDEND INCOME ON SHARES. (IFC) 2,50,000 EXEMPT UNDER SEC. 10(34) OTHER INCOME - INTEREST 15,42,461 TAXED ON GROSS BASIS P A G E | 5 ITA NO. 6410/MUM/2016 AY: 2010 - 11 ACIT VS. M/S BOMBAY GYMKHANA LTD. THUS, ON THE BASIS OF THE AFORESAID CONTENTIONS WHICH WERE AVAILABLE ON RECORD AND HAD BEEN CANVASSED BY THE ASSESSEE BEFORE THE CIT(A) DURING THE COURSE OF THE ORIGINAL APPELLATE PROCEEDINGS, IT WAS SUBMITTED BY THE ASSESSEE THAT AS IT HAD OFFERED ITS INC OME FOR TAX ON GROSS BASIS AND HAD NOT CLAIMED ANY EXPENSES IN THE RETURN OF INCOME, THEREFORE, NO DISALLOWANCE UNDER SEC. 14A OF THE ACT WAS CALLED FOR IN ITS HANDS. 6. THE CIT(A) IN THE COURSE OF THE RECTIFICATION PROCEEDINGS DELIBERATED ON THE AFORESAID CONTE NTION OF THE ASSESSEE AND FOU ND FAVOUR WITH THE SAME. THE CIT(A) AGREED WITH THE ASSESSEE THAT AS IT HAD OFFERED ITS INCOME ON GROSS BASIS AND HAD NOT CLAIMED DEDUCTION OF ANY EXPENDITURE IN ITS RETURN OF INCOME, THEREFORE, THE QUEST ION OF DISALLOWANCE OF ANY EXPENDITURE UNDER SEC. 14A DID NOT ARISE AT ALL. THUS , ON THE BASIS OF HIS AFORESAID OBSERVATIONS , THE CIT(A) BEING OF THE VIEW THAT THE RE WAS A MISTAKE APPARENT FROM THE RECORD W HICH WAS AMENABLE FOR RECTIFICATION UNDER SEC. 154 OF THE ACT, THEREFORE, ALLOWED THE APPLICATION OF THE ASSESSEE AND DELETED THE DISALLOWANCE OF RS.51,27,721/ - . THE CIT(A) WHILE ARRIVING AT THE AFORESAID CONCLUSION OBSERVED AS UNDER : - I HAVE CAREFULLY GONE THROUGH THE SUBMISSIONS OF THE APPELLANT AND THE FACTS OF THE CASE. I AGREE THAT THE APPELLANT HAS NOT CLAIMED ANY EXPENDITURE FOR EARNING THE EXEMPT INCOME U/S 14A. I AGREE WITH THE APPELLANTS A.R THAT THE APPELLANT HAS OFFERED INCOME ON GROSS BASIS AND HAS NOT CLAIMED DEDUCTION OF ANY EXPENDITURE AT ALL IN THE RETURN OF INCOME. THE QUESTION OF DISALLOWANCE WILL ARISE ONLY WHEN SOME EXPENDITURE IS ALREADY ALLOWED AS DEDUCTION FROM THE INCOME LIABLE TO TAX. I HAVE GONE THROUGH THE FINANCIAL STATEMENT OF THE APPELLANT COMPANY AS ON 31.03.2010. AS PER SCHEDULE 13 UNDER THE HEAD OTHER INCOME THE APPELLANT COMPANY HAS SHOWN RS.15,42,461/ - AS INTEREST INCOME ON DEPOSITS WITH BANKS AND OTHERS. I HAVE ALSO GONE THROUGH THE ASSESSMENT ORDER ON PAGE NO. 7, PARA NO. 8, WHEREIN THE A.O HAS ADDED UNDER DISALLOW ANCE THE INCOME FROM OTHER SOURCES OF RS.15,42,461/ - ON GROSS BASIS. THEREFORE, I AM IN AGREEMENT WITH THE A.R OF THE APPELLANT COMPANY THAT AS THE INCOME HAS BEEN OFFERED ON GROSS BASIS, IT IS NOT FAIR TO APPLY SECTION 14A DISALLOWANCE R.W. RULE 8D. SINC E THE ABOVE IS A MISTAKE APPARENT FROM RECORD, THE SAME IS BEING RECTIFIED UNDER SECTION 154 OF THE ACT AND THE P A G E | 6 ITA NO. 6410/MUM/2016 AY: 2010 - 11 ACIT VS. M/S BOMBAY GYMKHANA LTD. DISALLOWANCE MADE OF RS.51,27,721/ - IS DELETED. THE SAID GROUND OF APPEAL IS ALLOWED. 7. THE REVENUE BEING AGGRIEVED WITH THE ORDER OF THE CIT(A) HAD CARRIED THE MATTER IN APPEAL BEFORE US. THE LD. DEPARTMENTAL REPRESENTATIVE (FOR SHORT D.R) AT THE VERY OUTSET ASSAILED THE VALIDITY OF THE RECTIFICATION ORDER PASSED BY THE CIT(A) UNDER SEC. 1 54 OF THE ACT. IT WAS SUBMITTED BY THE LD. D.R THAT AS THERE WAS NO MISTAK E APPARENT FROM RECORD, THEREFORE, THE CIT(A) HAD EXCEEDED AND TRAVERSED BEYOND THE SCOPE OF THE JURISDICTION AS STOOD VESTED WITH HIM UNDER SEC. 15 4. THE LD. D.R SUBMITTED THAT NO W WHEN THE DISALLOWANCE OF RS.51,27,721/ - MADE BY THE A.O UNDER SEC. 14A HAD BEEN CONFIRMED BY THE CIT(A) VIDE HIS ORD ER DATED 10.12.2015, THEREFORE, TAKING OF A CONTRARY VIEW AND ALLOWING THE APPLICATION FILED BY T HE ASSESSEE UNDER SEC. 154 DID CLEARLY TA NTAMOUNT TO REVIEW ING OF HIS ORDER IN THE GARB OF POWERS VESTED WITH HIM TO RECTIFY AN APPARENT MISTAKE. PER CONTRA, THE LD. AUTHORIZED REPRESENTATIVE (FOR SHO RT A.R.) FOR THE ASSESSEE RELIED ON THE ORDER OF THE CIT(A). IT WAS SUBMITTED BY THE LD. A.R TH AT AS THE CIT(A) REMAINING WELL WITHIN HIS JURISDICTION HAD RECTIFIED THE MISTAKE WHICH WAS APPARENT FROM RECORD, TH EREFORE, NO INFIRMITY DID EMERGE FRO M HIS ORDER PASSED UNDER SEC. 15 4 OF THE ACT. 8. WE HAVE HEARD THE AUTHORIZED REPRESENTATIVE S FOR BOTH THE PARTIES, PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON RECORD. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE FACTS OF THE CASE , AND ARE OF THE CONSIDERED VIEW THAT IT REMAINS AS A MATTER OF FACT BORN E FROM THE RE CORDS THAT THE ASSESSEE HAD OFFERED FOR TAX ITS INCOME ON GROSS BASIS , AND HAD NOT CLAIMED DEDUCTION OF ANY EXPENDITURE IN ITS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION. WE FIND THAT THE AFORESAID FACTS ARE NOT ONLY BORN E FROM THE RECORDS, P A G E | 7 ITA NO. 6410/MUM/2016 AY: 2010 - 11 ACIT VS. M/S BOMBAY GYMKHANA LTD. BUT WERE DULY BROUGHT TO THE NOTICE OF THE CIT(A) DURING THE COURSE OF THE ORIGINAL APPELLATE PROCEEDINGS. WE ARE OF THE CONSIDERED VIEW THAT THE CIT(A) WHILE DISPOSING OF THE APPEAL OF THE ASSESSEE HAD INADVERTENTLY FAILED TO CONSIDER THE AFORESAID FACTUAL POSITI ON AND HAD RESTRICTED THE ADJUDICATION OF THE APPEAL ON THE BASIS OF TH E OTHER CONTENTIONS WHICH WERE RAISED BEFORE HIM. WE ARE OF THE CONSIDERED VIEW THAT NOW WHEN IT REMAINS AS A MATTER OF FACT THAT THE ASSESSEE HAD OFFERED ITS INCOME ON GROSS BASIS AND HAD NOT CLAIMED DEDUCTION OF ANY EXPENDITURE AT ALL IN ITS RETURN OF INCOME, THEREFORE, THERE REMAINED NO OCCASION FOR MAKING OF ANY DISALLOWANCE OF EXPENDITURE UNDER SEC. 14A OF THE ACT. WE ARE PERSUADED TO BE IN AGREEMENT WITH THE CONTENTION OF THE LD. D.R. THAT THE CIT(A) CAN ASSUME JURISDICTION TO RECTIFY A MISTAKE B Y TAKING RECOURSE TO PROCEEDI NGS UNDER SEC. 154 OF THE ACT, ONLY WHERE IT IS FOUND THAT A MISTAKE WHICH IS GLARING , APPARENT, PATENT AND OBVIOUS FROM RECORD HAD CREPT IN THE ORDER . WE ARE ALSO NOT OBLIVIOUS OF THE FACT THAT THE SCOPE OF POWERS OF THE CIT(A) UNDER SEC. 154 ARE STRICTLY CIRCUMSCRIBED, AS A RESULT WHEREOF HE STAND S ABSOLUTELY PRECLUDED FROM EXERCISING THE SAID POWERS FOR REVIEWING HIS EARLIER ORDER IN THE GARB OF EXER CISE OF POWERS UNDER THE SAID STATUTORY PROVISION. HOWEVER, WE ARE UNABLE TO PERSUADE OURSELVES TO BE IN AGREEMENT WITH THE CONTENTION OF THE LD. D.R THAT THE CIT(A) IN THE PRESENT CASE HAD EXCEEDED HIS JURISDICTION , AND IN THE GARB OF POWER S VESTED WITH H IM UNDER SEC. 154 HAD REVIEWED HIS EARLIER ORDER . WE ARE OF THE CONSIDERED VIEW THAT AS THE CIT(A) WHILE DISPOSIN G OF THE APPEAL OF THE ASSESSEE HAD FAILED TO CONSIDER THE AFORESAID FACTS WHICH WERE AVAILABLE ON RECORD AND WERE RAISE D BY THE ASSESSEE BEFO RE HIM, THEREFORE, THE ORDER PASSED BY HIM THEREIN REC TIFYING THE AFORESAID MISTAKE SQUARELY FALLS WITHIN THE SWEEP OF THE POWE RS VESTED WITH HIM UNDER SEC. 15 4 OF THE ACT. WE DO NOT FIND ANY INFIRMITY IN THE OR DER OF THE CIT(A) AND THEREFORE UPHOLD THE SAME. P A G E | 8 ITA NO. 6410/MUM/2016 AY: 2010 - 11 ACIT VS. M/S BOMBAY GYMKHANA LTD. 9. THE GROUND OF APPEAL NO. 1 AND 2 RAISED BY THE REVENUE IS DISMISSED. 10. THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRO NOUNCED IN THE OPEN COURT ON 10. 11.2017 SD/ - SD/ - ( RAJENDRA ) ( RAVISH SOOD ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; 10 . 11 .2017 PS. ROHIT KUMAR / COPY OF THE ORDER FORWARDED TO: 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI P A G E | 9 ITA NO. 6410/MUM/2016 AY: 2010 - 11 ACIT VS. M/S BOMBAY GYMKHANA LTD.