RAGHUKOOL ESTATE DEVELOPMENT P.LTD, MUMBAI V. DCIT (OSD) II CEN RG 7, MUMBAI

ITA 6933/MUM/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3139 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-09-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2011-2012
• Appeal Filed On: 13-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIJAY KUMAR BORA
• Assessee Lawyers: ARVIND SONDE
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH , MUMBAI BEFORE SRI MAHAVIR SINGH, J M AND SRI RAJESH KUMAR , AM ITA NO . 69 33 /MUM/201 4 (A.Y:201 1 - 12 ) RAGHUKOOL ESTATE DEVELOPMENT PVT. LTD., RAHEJA TOWER, PLOT NO.C - 30, G BLOCK, OPP. SIDBI, BANDRA KURLA COMPLEX , BANDRA EAST, MUMBAI - 51 PAN: AAACR 2452E VS. THE DY. COMMISSIONER OF INCOME TAX (OSD) - II, CENTRAL RANGE - 7, MUMBAI APPELLANT .. RESPONDENT APPELLANT BY .. SHRI ARVIND SONDE, AR RESPONDENT BY .. SHRI VIJAY KUMAR BORA, DR DATE OF HEARING .. 08 - 09 - 2 016 DATE OF PRONOUNCEMENT .. 08 - 09 - 2016 O R D E R PER MAHAVIR SINGH , JM : THIS APPEAL BY THE ASSESSEE IS ARISING OUT OF THE ORDER OF THE CIT (APPEALS) - 40, MUM BAI IN APPEAL NO.CIT (A) - 40/IT/DCIT (OSD - II)C.R.7/394/2013 - 14, DATED 07 TH AUGUST, 2014. AS SESSMENT WAS FRAMED BY THE DCIT (OSD - I), CENTRAL RANGE - 7, MUMBAI FOR THE ASSESSMENT YEAR 2011 - 12 U/S 143 (3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER THE ACT) VIDE HIS ORDER DATED 29 - 11 - 2013. 2. THE ONLY ISSUE IN THIS APPEAL OF THE ASSESSEE IS AGAINST THE ORDER OF THE CIT (A) CONFIRMING THE DISALLOWANCE OF EXPENSES IN RELATION TO EXEMPTED INCOME U/S 14A OF THE ACT READ WITH RULE 8D (2)(II) OF THE INCOME TAX RULES, 1962 (HEREINAFTER THE RULES). FOR THIS, THE ASSESSEE HAS RAISED THE FOLLOWING TWO GROUND S: - 1. THE CIT (A) ERRED IN UPHOLDING THE DISALLOWANCE OF RS.6,50,789/ - OUT OF RS.9,45,800/ - MADE BY THE AO U/S. 14A OF THE INCOME TAX ACT R. W. RULE 8D (2)(III) AS AGAINST RS.95,914/ - DISALLOWED BY THE APPELLANT ON ACCOUNT OF THE ADMINISTRATIVE EXPENSES FOR THE PURPOSE OF INVESTMENT IN SHARES. 2. WITHOUT PREJUDICE TO GROUND NO.1, THE CIT (A) ERRED IN CONSIDERING LONG TERM CAPITAL GAIN OF RS.1,63,78,800/ - AS EXEMPT INCOME FOR THE PURPOSE OF DISALLOWANCE U/S. 14A OF THE ACT. ITA NO. 69 33 /MUM/20 1 4 2 3. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF REAL ESTATE DEVELOPMENT, TRADING IN REAL ESTATE AND INVESTMENT RELATED ACTIVITIES. THE AO NOTICED THAT THE ASSESSEE HAS EARNED EXEM PTED INCOME ON INVESTMENTS AS ON 31 - 03 - 2011, INVESTMENTS AMOUNTIN G TO RS.91,10,29,850/ - AS AGAINST INVESTMENTS AS ON 31 - 03 - 2010 OF RS.34,81,954/ - . ACCORDING TO THE AO, THE PROVISIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES WERE ATTRACTED IN THIS CASE AND DISALLOWABLE AMOUNT WORKED OUT BY HIM WAS AT RS.3 1,48,067/ - . ACCORDING TO HIM, THE ASSESSEE ITSELF HAS DISALLOWED A SUM OF RS.95,914/ - U/S 14A OF THE AC AND FURTHER DISALLOWED A SUM OF RS. 6,32,400/ - TOWARDS LEGAL AND PROFESSIONAL FEE AND A FURTHER SUM OF RS.25,000/ - U/S 14A OF THE ACT. THE ASSESSEE HAS I NCURRED EXPENDITURE UNDER THE HEAD ADMINISTRATIVE AND OTHER EXPENSES AT RS.15,78,200/ - . THEREFORE, ACCORDING TO THE AO, THE EXPENDITURE TO THE EXTENT OF RS.9,20,800/ - WAS TO BE DISALLOWED FURTHER. ACCORDINGLY, THE AO DISALLOWED THIS AMOUNT OF RS.9,20,800 / - . AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT (A) WHO ALSO CONFIRMED THE ACTION OF THE AO. AGGRIEVED, NOW THE ASSESSEE IS IN SECOND APPEAL BEFORE THE TRIBUNAL. 4. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE FILED COPY OF THE TRIBUNALS ORDER IN ASSESSEES OWN CASE IN ITA NO.4090/M/2013 DATED 29 - 02 - 2016 WHEREIN THE TRIBUNAL EXACTLY ON SIMILAR FACTS RELYING ON THE DECISION OF THE COORDINATE BENCH OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF CAPE TRADING P. LTD. IN ITA NO.3722/M/2013 DELE TED THE DISALLOWANCE MADE BY THE AO BY OBSERVING AS UNDER: - 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND GONE TH E ROUGH THE MATERIAL PLACED BEFORE US INCLUDING THE DECISION OF THE ITAT MUMBAI RELIED UPON BY THE ASSESSEE. THE CO - ORDINATE BENCH OF MUMBAI TRIB UNAL IN THE CASE OF CAPE TRADING PVT. LTD. VS. ACIT, MUMBAI ITA NO 3772/M/2013, HAS DECIDED THE IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE HOLDING AS UNDER: - 7. THE ASSESSING OFFICER WHILE MAKING THE DISALLOWANCE U/S 14A WORKED OUT THE DISALLOWANCE UNDER RULE 8D(2)(III) AT RS. 20,86,230/ - WHICH SHOWS THAT THE WORKING U NDER THE PROVISIONS OF RULE 8D NEGATES THE ACTUAL TOTAL EXPENDITURE DEBITED BY THE ASSESSEE IN THE P&L ACCOUNT ON ADMINISTRATIVE AND OTHER EXPENSES. IN ANY CASE, DISALLOWANCE CANNOT BE MADE MORE THAN THE TOTAL EXPENSES DEBITED TO THE P&L ACCOUNT. FROM THE DETAILS OF THE EXPENSES, IT IS CLEAR THAT MOST OF THE EXPENSES ARE SPECIFIC IN NATURE AND EXCLUSIVELY INCURRED FOR THE BUSINESS ACTIVITY OF THE ASSESSEE. THEREFORE, THE EXPENSES ON ACCOUNT O F AUDITOR FEE, LEGAL AND PROFESSIONAL FEES, PROFESSION TAX, BUSINESS SUPPORT FEES ITA NO. 69 33 /MUM/20 1 4 3 CANNOT BE SAID TO HAVE ANY DIRECT OR PROXIMATE NEXUS WITH THE ACTIVITY OF INVESTMENT OR EARNING THE EXEMPT INCOME. THUS THE DISALLOWANCE U/S 14A CAN BE MADE ONLY TO THE EXTEN T OF ALLOCATION OF THESE EXPENSES WHICH HAS DIRECT OR PROXIMATE NEXUS WITH EARNING OF EXEMPT INCOME. FROM THE DETAILS OF THE EXPENSES, WE FIND THAT THE PRINTING AND STATIONARY EXPENSES AND BANK CHARGES & COMMISSION ARE ONLY TWO ITEMS WHICH COULD HAVE DIREC T OR PROXIMATE NEXUS WITH THE INVESTMENT AND EXEMPT INCOME. THEREFORE, THE DISALLOWANCE U/S 14A R.W. RULE 8D(2) (III) CANNOT EXCEED TO THE ALLOCABLE EXPENSES INCURRED BY THE ASSESSEE FOR A COMPOSITE ACTIVITY RESULTING TAXABLE AND EXEMPT INCOME. THE WORKING OF DISALLOWANCE UNDER RULE 8D(2)(III) BY THE ASSESSING OFFICER CLEARLY SHOWS THAT IT EXCEEDS NOT ONLY THE EXPENSES DEBITED AND CLAIMED BY THE ASSESSEE WHICH COULD HAVE A PROXIMATE NEXUS WITH THE E ARNING OF EXEMPT INCOME BUT ALSO TO THE TOTAL EXPENDITURE D EBITED BY THE ASSESSEE IN THE P&L ACCOUNT UNDER THE HEAD ADMINISTRATIVE AND OTHER EXPENSES. THEREFORE, IT TURNS OUT TO BE CONTRADICTORY TO THE ACTUAL FACTS AND GIVES ABSURD RESULTS IN COMPLETE DISREGARD TO THE SCHEME OF DISALLOWANCE U/S 14A. THEREFORE, THE PROVISIONS OF RULE 8D(2)(III) CANNOT BE APPLIED IN THE CASE OF THE ASSESSEE AS IT BECOMES UNWORKABLE AND UNREALISTIC. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT WHEN THE PROVISIONS OF RULE 8D(2)(III) BECOMES UNWORKABLE THEN IN THE ABSENCE OF ANY FINDING AS WELL AS ANY SPECIFIC EXPENSES DEBITED TO THE P&L ACCOUNT WHICH COULD HAVE A DIRECT OR PROXIMATE N EXUS FOR EARNING THE DIVIDEND INCOME THE DISALLOWANCE MADE BY THE ASSESSEE SUO MOTU IS JUST AND PROPER. ACCORDINGLY, WE DELETE THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 3.1 THE AFORESAID DECISION OF MUMBAI TRIBUNAL WAS FURTHER FOLLOWED BY C BENCH OF THE MUMBAI TRIBUNAL IN CAPSTAN TRADING PVT. LTD. VS. ACIT, MUMBAI ITA 4088/M/12, PALM S HELTER ESTATE DEVELOPMENT PVT. LTD. VS. ACIT, MUMBA I ITA 4089/M/12 & CASA MARIA PROPERTIES PVT. LTD. VS. ACIT, MUMBAI ITA 4091/M/13 AND ALL THE THREE APPEALS FILLED BY ASSESSEE WERE ALLOWED. 3.2 IN THE CASE BEFORE US, THE ONLY GRIEVANCE OF THE ASSESSEE IS THAT THE CIT(A) HAS WRONGLY UPHELD THE DISALLOWAN CE OF ADMINISTRATIVE EXPENSES MADE BY THE AO ON INVESTMENT IN SHARES HOLDING THAT THE ENTIRE ADMINISTRATIVE EXPENSES WAS INCURRED BY THE ASSESSEE FOR THE PURPOSE OF INVESTMENT IN SHARES. THE GROUND IN PRESENT CASE IS IDENTICAL TO THE GROUND IN THE CASE OF CAPE TRADING PVT. LTD. VS. ACIT, MUMBAI (SUPRA) AND THE OTHER APPEALS DISCUSSED IN THE FOREGOING PARAS. THE CO - ORDINATE BENCHES OF ITAT MUMBAI HAVE ALREADY DECIDED THE IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE. FOLLOWING THE DECISIONS OF CO - ORDINATE BENCHE S, WE DECIDE THE SOLE GROUND OF APPEAL IN FAVOUR OF THE ASSESSEE AND DELETE THE DISALLOWANCE MADE BY THE ASSESSING OFFICER . SINCE, THE REVENUE COULD NOT P OINT OUT ANY FACTUAL DIFFERENCE IN THE FACTS OF EARLIER YEAR WITH THAT OF THIS YEAR, RESPECTFULLY F OLLOWING THE ABOVE DECISION OF THE TRIBUNAL ITA NO. 69 33 /MUM/20 1 4 4 IN ASSESSEES OWN CASE, WE DELETE THE DISALLOWANCE AND ALLOW THE APPEAL OF THE ASSESSEE. 5. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 08 - 09 - 2016 . BY ORDER, ASSISTANT REGISTRAR ITAT, MUMBAI SR.NO. PARTICULARS DATE INITIALS MEMBER CONCERNED 1 DICTATION GIVEN ON 08 /09/16 LK DEKA JM 2 DRAFT PLACED BEFORE AUTHOR 09 /09/16 3 DRAFT PROPOSED/PLACED BEFORE THE SECOND MEMBER 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 5 APPROVED DRAFT COMES TO THE SR.PS 6 KEPT FOR PRONOUNCEMENT ON 7 FILE SENT TO THE BENCH CLERK 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER SD/ - ( RA JE S H K UM AR) ACCONTANT MEMBER MUMBAI, DATED: 08 - 09 - 2016 LAKSHMIKANTA DEKA/SR.PS SD/ - ( MAHAVIR SINGH ) JUDICIAL MEMBER 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//