DEPUTY COMMISSIONER OF INCOME TAX 1(1)(1), MUMBAI V. BENNETT PROPERTY HOLDING COMPANY LIMITED, MUMBAI

ITA 6911/MUM/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 5761 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 06-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MOHAMMED RIZWAN
• Assessee Lawyers: V MOHAN
• Keywords: Capital asset; Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B , BENCH MUMBAI BEFORE SHRI MAHAVIR SINGH, JM & SHRI M.BALAGANESH , AM ITA NO. 6911 / MUM/20 1 7 ( ASSESSMENT YEAR : 2013 - 14 ) DY. COMMISIONER OF INCOME TAX - 1(1)(1), ROOM NO.579, AAYAKAR BHAWAN, M.K.ROAD MUMBAI 400 020 VS. M/S. BENNETT PROPERTY HOLDING CO. LTD., 5 TH FLOOR, TIMES TOWER, KAMALA MILLS COMPOUND, SENAPATI BAPAT MARG LOWER PAREL (W) MUMBAI 400 013 PAN/GIR NO. AAECB3780H ( APPELLANT ) .. ( RESPONDENT ) REVENUE BY SHRI MOHAMMED RIZWAN ASSESSEE BY SHRI V. MOHAN DATE OF HEARING 24 / 01 /201 9 DATE OF PRONOUNCEMENT 30 / 01 /201 9 / O R D E R PER M. BALAGANESH (A.M) : THIS IS AN APPEAL FILED BY REVENUE DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) (IN SHORT CIT(A) ) - 6, MUMBAI DATED 21/09/2017 FOR A.Y.2013 - 14 IN THE MATTER OF ORDER PASSED U/S/.143(3) R.W.S. 254 OF THE INCOME TAX ACT, 1961. 2. THE ONLY ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE MADE U/ S.14A OF THE ACT R.W.R.8D OF THE RULES IN THE FACTS AND CIRCUMSTANCES OF THE CASE. ITA NO. 6911/MUM/20 17 M/S. BENNETT PROPERTY HOLDING CO. LTD., 2 3. BRIEF FACTS OF THE ISSUE ARE THAT THE ASSESSEE COMPANY EARNED INCOME FROM MUTUAL FUNDS AGGREGATING TO RS.8,57,04,289/ - AND CLAIMED THE SAME AS EXEMPT U/S.10(34) OF THE ACT. THE ASSESSEE SUO MOTO MADE DISALLOWANCE OF RS.1,91,935/ - IN THE RETURN OF INCOME. THE WORKINGS IN THE SAME ARE AS UNDER: - 4. THE COMMON EXPENSES OF RS. 40,06,392/ - INCURRED BY THE ASSESSEE COMPANY COMPRISED OF THE FOLIO WING: - SLA EXPENSES (SERV ICE AGREEMENT) - RS. 13,23,600/ - SALARY OF GENERAL MANAGER (FINANCE) - RS. 6,1 7,202/ - SALARY OF MANAGERS: - R S. 20,65,590/ - (HANDLING ALL ACTIVITIES OF THE COMPANY) TOTAL - RS. 40,06,392/ - T HE SLA EXPENSES REPRESENTED SERVICES AVAILED BY THE ASSESSEE COMPANY FROM ITS PARENT COMPANY, SUCH AS, HUMAN RESOURCES RELATED MATTERS, TREASURY, ERP RESOURCES, ETC., THAT IS USED BY THE ASSESSEE COMPANY FOR ALL ITS ACTIVITIES. CONSEQUENTLY, WHILE FILING ITS RETURN OF INCOME, FOR A.Y. 2013 - 14, THE ASSESSEE COMPANY DISALLOWED AN AMOUNT RS. 1 ,91,935/ - OUT OF THE COMMON EXPENSES OF RS. 40,06,392/ - , WHICH WAS ARRIVED AT IN THE RATIO OF 'EXEMPT INCOME' TO 'TOTAL INCOME'. THE WORKING OF THE SAME I S AS FOLLOWS: PARTICULARS AMOUNT (RS.) TOTAL ALLOCABLE EXPENSES A 40,06,392/ EXEMPTED INCOME 8,57,04,289/ - DIVIDEND EXEMPT U/S. 10(34) TOTAL EXEMPTED INCOME B 8,57,04,289/ - TOTAL INCOME C 178,89,68,270/ - % OF EXEMPTED INCOME TO TOTAL INCOME(D=B - C) 4.79 ------------------------------- ALLOCABLE EXPENSES (A X D) 1,91,935/ - =============== ITA NO. 6911/MUM/20 17 M/S. BENNETT PROPERTY HOLDING CO. LTD., 3 4. THE LD. AO IGNORED THESE WORKINGS AND RECORDED A SATISFACTION HAVING REGARD TO THE ACCOUNT S OF THE ASSESSEE COMPANY THAT EXPENSES ARE TO BE DISALLOWED ONLY BY APPLYING THE COMPUTATION MECHANISM PROVIDED IN RULE 8D OF THE RULES. ACCORDINGLY, HE APPLIED THIRD LIM B OF RULE 8D(2) AND MADE DISALLOWANCE OF RS.2,65,43,000/ - AFTER REDUCING THE AMOUNT ALREADY DISALLOWED IN THE SUM OF RS.1,91,935/ - IN THE ASSESSMENT. 5. THE LD. CIT(A) DELETED THE DISALLOWANCE U/S.14A OF THE ACT IN THE SUM OF RS.2,65,43,000/ - BY OBSERVING AS UNDER: - 9. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, THE STAND TAKEN BY THE A.O. IN THE ASSESSMENT ORDE R AND THE CONTENTIONS RAISED BY THE LD. AR IN THE WRITTEN SUBMISSIONS. THE APPELLANT, PURSUANT TO A SCHEME OF ARRANGEMENTS UNDER SECTION 391 TO 394 OF THE COMPANIES ACT, 1956, HAD ACQUIRED THE REAL ESTATE DIVISION THAT INCLUDED UNITS OF MUTUAL FUNDS, WITH EFFECT FROM 1 ST APRIL 2011. CONSEQUENTLY, THE APPELLANT HAD NOT BORROWED ANY MONIES FOR INVESTMENT IN UNITS. THE EXPENSES, OTHER THAN THOSE WHICH RELATED TO THE REAL ESTATE DIVISION, AGGREGATING RS.40,06,392/ - WERE, THEREFORE, ATTRIBUTABLE ALSO TO THE EARN ING OF THE EXEMPT INCOME FROM UNITS. THE APPELLANT HENCE ALLOCATED THE COMMON EXPENSES INCURRED IN THE RATIO OF EXEMPT INCOME TO TOTAL INCOME AND DISALLOWED RS. 1,91,935/ - UNDER SECTION 14A OF THE IT. ACT, 1961 WHILE FILING ITS RETURN OF INCOME. THE OBSERV ATIONS OF THE LD. A.O IN PARA 5.2 OF HIS ORDER TO INVOKE RULE 8D CLEARLY SHOW THAT HE HAS NOT ARRIVED AT ANY OBJECTIVE SATISFACTION WITH REGARD TO THE CORRECTNESS OF THE CLAIM OF THE APPELLANT TO DISALLOW THE COMMON EXPENSES IN THE RATIO OF EXEMPT INCOME T O TOTAL INCOME UNDER SEC 14A OF THE IT ACT THE OBSERVATIONS IN THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN GODREJ & BOYCE MFG. CO. LTD. VS. DCIT (328 ITR 81) RELIED UPON BY THE LD. AR, CLEARLY LAY DOWN THAT THE A.O. HAS TO ARRIVE AT AN OBJECTIVE SATIS FACTION AS TO THE CORRECTNESS OF THE DISALLOWANCE MADE BY THE APPELLANT BEFORE SEEKING TO INVOKE RULE 8D. A.O. CANNOT IPSO FACTO INVOKE RULE 8D STRAIGHT AWAY WITHOUT COMING TO SUCH A SATISFACTION. 9.1 UNDER SIMILAR FACTS AND ON THE SIMILAR BASIS CIT(A) IN THE APPELLANT'S OWN CASE P HAS DECIDED THE GROUND IN FAVOUR OF THE APPELLANT. UNDER THE CIRCUMSTANCES AND RESPECTFULLY FOLLOWING THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DCIT (32 8 TTR 8 1), I AM INCLINE D TO AGREE WITH THE SUBMISSIONS OF THE LD. AR. THE ITA NO. 6911/MUM/20 17 M/S. BENNETT PROPERTY HOLDING CO. LTD., 4 ADDITION OF FJFS.2,65,43,000/ - MADE BY THE A.O. BY INVOKING RULE 8D IS, THEREFORE, DELETED. 6. AGGRIEVED, REVENUE IS IN APPEAL BEFORE US. WE HAVE HEARD RIVAL SUBMISSIONS. WE FIND THAT THE LD. AO HAD NOT R ECORDED ANY OBJECTIVE SATISFACTION HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE THAT THE CLAIM MADE BY THE ASSESSEE IN DISALLOWING A SUM OF RS.1,91,935/ - WAS INCORRECT BEFORE PROCEEDING TO COMPUTATION MECHANISM PROVIDED IN RULE 8D OF THE RULES. WE FIND TH AT THE PROVISIONS OF SECTION 14A( 2 ) OF THE ACT R.W.R. 8D( 1 ) OF THE RULES CATEGORICALLY STATE THAT THE LD. AO HAD TO RECORD HIS OBJECTIVE SATISFACTION BEFORE RESORTING TO RULE 8D(2), WHICH IN THE INSTANT CASE ADMITTEDLY HAS NOT BEEN DONE BY LD. AO. IN THIS REGARD, RELIANCE PLACED BY THE LD. AR ON THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF PCIT VS. RELIANCE CAPITAL ASSET MANAGEMENT LTD., REPORTED IN 400 ITR 217 (BOMBAY) IS VERY WELL FOUND ED AND IS SQUARELY APPLICABLE TO THE FACTS OF THE INSTANT CASE. SIMILAR DECISION WAS ALSO RENDERED BY THE DECISION OF CO - ORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y.2012 - 13 IN ITA NO.728/MUM/2016 DATED 28/02/2018. RESPECTFULLY FOLLOWING THE AFORESAID JUDICIAL PRECEDENTS, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD. CIT(A) DELETING THE DISALLOWANCE U/S.14A OF THE ACT IN THE FACTS OF THE INSTANT CASE, ACCORDINGLY, THE GROUND RAISED BY THE REVENUE IS DISMISSED. ITA NO. 6911/MUM/20 17 M/S. BENNETT PROPERTY HOLDING CO. LTD., 5 7. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 30 / 01 /201 9 SD/ - ( MAHAVIR SINGH ) SD/ - ( M. BALAGANESH ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 30 / 01 /201 9 KARUNA 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//