R.B.K. SHARE BROKING LTD, MUMBAI V. ITO 4(2)(3), MUMBAI

ITA 6678/MUM/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3966 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 23-07-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 05-10-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: PRAKASH K JOTWANI
• Keywords: Earning of tax free income
• Section: 14A; 115JB; 12; 10; 11

Judgement Text

, , , , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D, MUMBAI .. , ! ' #. . $.. % , & ', ' BEFORE SHRI R.S.SYAL, AM AND DR.S.T.M.PAVALAN, JM ITA NO.7546/MUM/2011 : ASST.YEAR 2008-2009 THE INCOME TAX OFFICER WARD 4(2)(3) MUMBAI. M/S.RBK SHARE BROKING PVT.LTD. 1-A, ALLIED CHAMBERS, 1 ST FLOOR MEADOWS STREET, FORT MUMBAI 400 023. PAN : AAACR5488A. ( () / // / APPELLANT) % % % % / VS. ( +,()/ RESPONDENT) ITA NO.6678/MUM/2011 : ASST.YEAR 2008-2009 M/S.RBK SHARE BROKING PVT.LTD. 1-A, ALLIED CHAMBERS, 1 ST FLOOR MEADOWS STREET, FORT MUMBAI 400 023. THE INCOME TAX OFFICER WARD 4(2)(3) MUMBAI. ( () / // / APPELLANT) % % % % / VS. ( +,()/ RESPONDENT) - - - - . .. . / / / / / REVENUE BY : SHRI S.D.SRIVASTAVA (CIT-DR) &% 01 &% 01 &% 01 &% 01 . / . / . / . / / ASSESSEE BY : SHRI PRAKASH K.JOTWANI % . 1! / / / / DATE OF HEARING : 23.07.2013 234 . 1! / DATE OF PRONOUNCEMENT : 24.07.2013 ' 5 ' 5 ' 5 ' 5 / / / / O R D E R PER R.S.SYAL (AM) : THESE TWO CROSS APPEALS ONE BY THE ASSESSEE AND T HE OTHER BY THE REVENUE ARISE OUT OF THE ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) ON 20.09.2011 IN RELATION TO T HE ASSESSMENT YEAR 2008-2009. 2. FIRST GROUND OF THE ASSESSEES APPEAL IS AGAINS T THE CONFIRMATION OF DISALLOWANCE OF ` 7,39,752 MADE U/S 14A READ WITH RULE 8D. ITA NOS.7546 & 6678/MUM/2011. M/S.RBK SHARE BROKING PVT.LTD. 2 BRIEFLY STATED THE FACTS OF THE CASE ARE THAT THE A SSESSEE RECEIVED DIVIDEND INCOME OF ` 21.77 LAKH WHICH WAS CLAIMED AS EXEMPT. THE ASSESSING OFFICER NOTICED THAT NO DISALLOWANCE WAS OFFERED U/S 14A. IT WAS OPINED THAT : ` A CERTAIN PERCENTAGE OF EXPENSES CLAIMED BY THE ASSESSEE WOULD DEFINITELY BE ATTRIBUTABLE TO TAX FR EE INCOME EARNED BY THE ASSESSEE AS IT WAS ` THE COMMON POOL OF HUMAN AND FINANCIAL RESOURCES WHICH WAS BEING UTILIZED FOR EARNING INCO ME IN VARIOUS FORMS . INVOKING THE PROVISIONS OF RULE 8D, THE A.O. MADE DISALLOWANCE AT 0.5% TOWARDS EXPENSES, OTHER THAN INTEREST, AMOUNTING TO ` 7,39,752. THIS DISALLOWANCE WAS CONFIRMED IN THE FI RST APPEAL. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED T HE RELEVANT MATERIAL ON RECORD. THE ASSESSMENT YEAR INVOLVED BE FORE US IS 2008- 2009. THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ & BOYCE LTD. MFG. CO. VS. DCIT [(2010) 328 ITR 81 (BO M)] HAS HELD THAT THE PROVISIONS OF RULE 8D ARE APPLICABLE FROM ASSESSMENT YEAR 2008-2009. IN THIS VIEW OF THE MATTER, THE DISALLOW ANCE U/S 14A IS REQUIRED TO BE WORKED OUT AS PER THE MANDATE OF RUL E 8D. THE ASSESSING OFFICER HAS RECORDED SATISFACTION ABOUT T HE EXPENSES ATTRIBUTED TO THE TAX FREE INCOME NOT DISALLOWED BY THE ASSESSEE. IT IS IN THE BACKGROUND OF THIS SCENARIO THAT THE DISALLO WANCE AT 0.5% HAS BEEN MADE TOWARDS EXPENSES OTHER THAN INTEREST. AS THIS DISALLOWANCE HAS BEEN COMPUTED AS PER THE MANDATE OF RULE 8D, WH ICH IS APPLICABLE FOR THE YEAR UNDER CONSIDERATION, WE SEE NO REASON TO ITA NOS.7546 & 6678/MUM/2011. M/S.RBK SHARE BROKING PVT.LTD. 3 INTERFERE WITH THE IMPUGNED ORDER ON THIS ISSUE. TH IS GROUND IS NOT ALLOWED. 4. SECOND GROUND OF THE ASSESSEES APPEAL IS AS UND ER:- THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN CONFORMING ADDITION OF ` 7,39,752/- MADE WHILE COMPUTING BOOK PROFIT U/S 115JB IGNORING THE FACT T HAT SUPREME COURT IN THE CASE OF APOLLO TYRES LTD. HELD THAT BOOK PROFIT PREPARED IN ACCORDANCE WITH SCHEDULE VI OF THE COMPANIES ACT CANNOT BE DISTURBED. 5. PURSUANT TO THE MAKING OF DISALLOWANCE OF ` 7.39 LAKH U/S 14A, THE ASSESSING OFFICER ADDED BACK THIS AMOUNT IN COM PUTING `BOOK PROFIT U/S 115JB. THIS ISSUE WAS NOT TAKEN UP BEFO RE THE LEARNED CIT(A) AS IS APPARENT FROM THE GROUNDS TAKEN IN THE FIRST APPEAL. FROM THE SECOND GROUND REPRODUCED ABOVE, IT IS SEEN THAT THE SAME HAS BEEN WORDED AS IF THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDITION OF ` 7.39 LAKH WHILE COMPUTING THE BOOK PROFIT U/S 115JB OF THE ACT. HOWEVER, THE FACT OF THE MATTER IS THAT NO SUCH ISSUE WAS EVER RAISED BEFORE THE LEARNED CIT(A) AND IT IS FOR THE FIRST TIME THAT THE ASSESSEE HAS CHALLENGED THIS ISSUE BEFORE THE TRIBU NAL. THIS GROUND CAN BE DISMISSED ON THIS VERY SHORT NOTE OF IT BEIN G NOT EMANATING FROM THE IMPUGNED ORDER. 6. BE THAT AS IT MAY, WE WILL PROCEED TO DEC IDE THIS GROUND ON MERITS AS WELL BECAUSE IT INVOLVES A PURE LEGAL ISS UE AS TO WHETHER THE AMOUNT DISALLOWED U/S 14A CAN BE ADDED WHILE COMPUT ING THE BOOK ITA NOS.7546 & 6678/MUM/2011. M/S.RBK SHARE BROKING PVT.LTD. 4 PROFIT U/S 115JB OF THE ACT. THE LEARNED AR RELIED ON CERTAIN DECISIONS TO BRING HOME THE POINT THAT THE AMOUNT D ISALLOWED U/S 14A CANNOT BE ADDED TO NET PROFIT FOR COMPUTING `BOOK P ROFIT U/S 115JB. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESE NTATIVE TOOK US THROUGH THE LANGUAGE OF CLAUSE (F) OF EXPLANATION (1) TO SECTION 115JB, AS PER WHICH THE AMOUNT OF EXPENDITURE RELAT ABLE TO ANY EXEMPT INCOME IS TO BE ADDED BACK TO THE NET PROFIT SHOWN IN THE PROFIT AND LOSS ACCOUNT. AT THIS JUNCTURE, IT WOUL D BE RELEVANT TO NOTE THAT `BOOK PROFIT U/S 115JB IS COMPUTED AS PER EXPLANATION (1) TO SUB-SECTION (2) OF SECTION 115JB. THIS EXPLANATION PROVIDES THAT BOOK PROFIT MEANS NET PROFIT AS SHOWN IN THE PROF IT AND LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR PREPARED UNDER SUB-S ECTION (2) AS INCREASED BY CERTAIN AMOUNTS SPECIFIED UNDER CLAUSE S (A) TO (I) IF DEBITED TO THE PROFIT AND LOSS ACCOUNT AND CLAUSE ( J) IF NOT CREDITED TO THE PROFIT AND LOSS ACCOUNT. THE AMOUNT SO DETERMIN ED IS FURTHER ADJUSTED BY REDUCING THE AMOUNTS SPECIFIED IN CLAUS ES (I) TO (VII). THE AMOUNT WHICH EVENTUALLY RESULTS IS THE AMOUNT OF `B OOK PROFIT ON WHICH TAX LIABILITY IS DETERMINED U/S 115JB. CLAUSE (F) TO EXPLANATION (1) PROVIDES THAT THE NET PROFIT SHOWN IN THE PROFIT A ND LOSS ACCOUNT SHALL BE INCREASED BY : (F) THE AMOUNT OR AMOUNTS OF EXPENDITURE RELATABLE TO ANY INCOME TO WHICH SECTION 10 (OTHER THAN THE PROVISIONS CONTAINED IN CLAUSE 38 THEREOF) OR SECTI ON 11 OR SECTION 12 APPLY; . A BARE PERUSAL OF CLAUSE (F) OF EXPLANATION (1) MAKES IT ABUNDANTLY CLEAR THAT THE AMOUNT OF EXPENDITURE RELATABLE TO ANY EXEMPT INCOME, OTHER THAN SECTION 10(38), IS LIABL E TO BE ADDED BACK TO THE AMOUNT OF NET PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCOUNT. ITA NOS.7546 & 6678/MUM/2011. M/S.RBK SHARE BROKING PVT.LTD. 5 WHEN WE TURN TO THE LANGUAGE OF SECTION 14A, IT TRA NSPIRES THAT IT TALKS OF DISALLOWING ANY EXPENDITURE INCURRED `IN RELATION TO INCOME NOT INCLUDIBLE IN THE TOTAL INCOME. SUB-SECTION (1) OF THIS PROVISION PROVIDES THAT : FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME UNDER THIS CHAPTER, NO DEDUCTION SHALL BE ALLOWED IN RESP ECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. THE EXPRE SSION IN RELATION TO USED FOR MAKING DISALLOWANCE U/S 14A HAS BEEN EMP LOYED IN EXPLANATION (1) TO SECTION 115JB(2) AS EXPENDITURE RELATABLE TO , IN MORE OR LESS THE SAME FORM. IT IS MANIFEST THAT THE AMOUNT OF DIVIDEND IS EXEMPT U/S 10(33) [NOT SECTION 10(38)] OF THE AC T. THUS ANY EXPENDITURE ` RELATABLE TO THE EXEMPT DIVIDEND INCOME WOULD FALL UNDER CLAUSE (F). THE LD. AR ARGUED THAT UNLESS A N AMOUNT IS SPECIFICALLY DEBITED TO THE PROFIT AND LOSS ACCOUNT IN RESPECT OF AN EXEMPT INCOME, THE SAME CANNOT BE BROUGHT WITHIN TH E PURVIEW OF CLAUSE (F) OF THE EXPLANATION 1 TO SECTION 115JB(2) . HE STATED THAT SINCE THE DISALLOWANCE U/S 14A IS COMPUTED AS PER R ULE 8D, THE ORIGIN OF THE EXPENSES DISALLOWED CANNOT BE TRACED TO THE PROFIT AND LOSS ACCOUNT AND HENCE IT CANNOT BE COVERED WITHIN THE M ISCHIEF OF CLAUSE (F) OF THE EXPLANATION. WE FAIL TO FIND ANY LOGIC I N THIS SUBMISSION BECAUSE OF THE CLEAR LANGUAGE OF THE EXPLANATION 1, WHICH PROVIDES IN UNEQUIVOCAL TERMS THAT THE AMOUNT OF EXPENDITURE `RELATABLE TO THE EXEMPT INCOME SHALL BE ADDED BACK. NEITHER THE LAN GUAGE OF CLAUSE (F) EXPRESSLY REFERS TO THE AMOUNT SPECIFICALLY DEB ITED TO THE PROFIT AND LOSS ACCOUNT NOR THERE CAN BE AN IMPLICATION IN THI S REGARD. WHAT HAS BEEN CONTEMPLATED BY THE PROVISION IS THE AMOUNT OF THE EXPENDITURE ITA NOS.7546 & 6678/MUM/2011. M/S.RBK SHARE BROKING PVT.LTD. 6 `RELATABLE TO THE EXEMPT INCOME. FURTHER, THE AMOU NT DISALLOWABLE U/S 14A IS ALWAYS PART OF THE EXPENSES SPECIFICALLY DEBITED TO THE PROFIT AND LOSS ACCOUNT. IT IS AXIOMATIC THAT UNLES S ANY EXPENDITURE IS INCURRED AND CLAIMED AS DEDUCTION, THERE CAN BE NO QUESTION OF ANY HYPOTHETICAL DISALLOWANCE U/S 14A. IT, THEREFORE, FOLLOWS THAT THE AMOUNT DISALLOWABLE U/S 14A IS COVERED UNDER CLAUSE (F) OF EXPLANATION (1) TO SECTION 115JB(2). OUR VIEW IS FO RTIFIED BY ANOTHER ORDER DATED 29 AUGUST, 2012 PASSED BY THE MUMBAI BE NCH OF THE TRIBUNAL IN THE CASE OF ESQUIRE P. LTD, MUMBAI (ITA NO. 5688/MUM/2011) . AS THE ASSESSMENT YEAR UNDER CONSIDERATION IS ASSESSMENT YEAR 2008-2009 IN WHICH DISALLOWANCE U/S 14A IS REQUIRED TO BE COMPUTED AS PER RULE 8D AND FURTHER IT IS THIS AMOUNT WHICH HAS BEEN DISALLOWED AND ALSO ADDED TO THE AMO UNT OF NET PROFIT FOR COMPUTING `BOOK PROFIT U/S 115JB, WE SEE NO RE ASON TO DISTURB THE IMPUGNED ORDER ON THIS ISSUE. THIS GROUND FAILS . 7. THE ONLY GROUND RAISED IN THE REVENUES APPEAL I S AGAINST THE ALLOWING OF REBATE U/S 88E ON THE TAX ON TOTAL INCO ME COMPUTED U/S 115JB OF THE ACT. THE ASSESSING OFFICER COMPUTED IN COME AND PAYMENT OF TAX AS PER SECTION 115JB WHICH WAS MORE THAN THE INCOME UNDER THE REGULAR PROVISIONS. IN DOING SO, THE ASSE SSING OFFICER OPINED THAT IF THE TAX PAYABLE AFTER ALLOWING REBAT E U/S 88E TURNS OUT TO BE LESS THAN 10% OF ITS BOOK PROFIT THEN THE PRO VISIONS OF SECTION 115JB SHALL BE APPLICABLE AND SINCE THE TAX PAYABLE AFTER REBATE U/S 88E WAS LESS THAN 10% OF BOOK PROFIT, HE HELD THAT THE BENEFIT OF REBATE U/S 88E COULD NOT BE ALLOWED. THE LEARNED CI T(A) DIRECTED TO ITA NOS.7546 & 6678/MUM/2011. M/S.RBK SHARE BROKING PVT.LTD. 7 ALLOW REBATE U/S 88E SUBJECT TO THE PROVISIONS U/S 87(2) AS RELEVANT TO ASSESSMENT YEAR 2008-2009. IN REACHING THIS CONCLUS ION HE RELIED ON CERTAIN DECISIONS INCLUDING AN ORDER PASSED BY THE BANGALORE BENCH OF THE TRIBUNAL. 8. HAVING HEARD THE RIVAL SUBMISSIONS AND PERUSED T HE RELEVANT MATERIAL ON RECORD, WE FIND THAT THE LEARNED CIT(A) WAS RIGHT IN DIRECTING THE ASSESSING OFFICER TO ALLOW REBATE U/S 80E SUBJECT TO AMENDED SUB-SECTION (2) OF SECTION 87. THE LEARNED DEPARTMENTAL REPRESENTATIVE WAS FAIR ENOUGH NOT TO PRESS THIS PO INT BEYOND THE LIMIT. AS THE DIRECTION IS ONLY FOR ALLOWING THE RE BATE AFTER VERIFICATION AS PER LAW APPLICABLE FOR THE ASSESSMENT YEAR AT THE END OF THE AO, WE FAIL TO FIND ANY REASON FOR INTERFERING WITH THE SAME. 9. 0 16 7 !0- . -1 89 IN THE RESULT, BOTH THE APPEALS STAND DISMISSED. ORDER PRONOUNCED ON THIS 24 TH DAY OF JULY, 2013. ' 5 . 234 :'%6 3 . ; SD/- SD/- (DR.S.T.M.PAVALAN) (R.S.SYAL) & ' & ' & ' & ' / JUDICIAL MEMBER ! ' ! ' ! ' ! ' / ACCOUNTANT MEMBER MUMBAI ; :'% DATED : 24 TH JULY, 2013. DEVDAS* ITA NOS.7546 & 6678/MUM/2011. M/S.RBK SHARE BROKING PVT.LTD. 8 ' 5 . +&1<= > =41 ' 5 . +&1<= > =41 ' 5 . +&1<= > =41 ' 5 . +&1<= > =41/ COPY OF THE ORDER FORWARDED TO : 1. () / THE APPELLANT 2. +,() / THE RESPONDENT. 3. ? () / THE CIT, MUMBAI. 4. ? / CIT(A) - 9, MUMBAI 5. =B; +&1&% , , / DR, ITAT, MUMBAI 6. ; C / GUARD FILE. ' 5% ' 5% ' 5% ' 5% / BY ORDER, ,=1 +&1 //TRUE COPY// D D D D/ // /8 - 8 - 8 - 8 - ( DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI