ASHOK C PRATAP, MUMBAI V. ADDL CIT 16(2), MUMBAI

ITA 6965/MUM/2017

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 4058 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-03-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 08-12-2017
• Court: TRIBUNAL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A , MUMBAI BEFORE S HRI SHAMIM YAHYA (AM ) AND SHRI RAM LAL NEGI (JM) ITA NO. 6965/MUM/2017 ASSESSMENT Y EAR: 2013 - 14 SHRI ASHOK C. PRATAP, OFFICE NO. 115, FREE PRESS HOUSE, FREE PRESS MARG, NARIMAN POIN T, MUMBAI - 400021 PAN: AABPP3708P VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE - 16(2), AAYKAR BHAVAN, M.K. ROAD, MUMBAI - 400020 (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI PANKAJ TOPRANI ( AR ) REVENUE BY : SHRI SATISHCHANDRA RAJORE (DR ) DATE OF HEARING: 06 /03 /201 9 DATE OF PRONOUNCEMENT: 08 / 03 /201 9 O R D E R PER RAM LAL NEGI, JM THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER DATED 05.09.2017 PASSED BY THE COMM ISSIONER OF INCOME TAX (APPEALS) - 6 (FOR SHORT THE CIT(A) , MUMBAI, FOR THE ASSESSMENT YEAR 2013 - 14 , WHEREBY THE LD. CIT(A) HAS DISMISSED T HE APPEAL FILED BY THE ASSESSEE AGAINST THE ASSESSMENT ORDER PASSED U/S 143 (3) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT). 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE AN ADVOCATE BY PROFESSION, FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION DECLARING THE TOTAL INCOME OF RS. 2,55,70,220/ - . THE RETURN WAS PROCESSED U/S 143 (1) OF THE A CT . S UBSEQUENTLY THE CASE WAS SELECTED FOR SCRUTINY. IN RESPONSE TO THE NOTICES U/S 143(2) AND 142(1) THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE APPEARED BEFORE THE AO AND FURNISHED THE NECESSARY DETAILS CALLED FOR. SINCE, THE ASSESSEE HAD SHOWN EXEMPT INCOME OF RS. 1,28,61, 333/ - AO AS KED THE ASSESSEE TO SUBMIT WORKING OF DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D . THE ASSESSEE DID NOT SUBMIT ANY WORKING AND THE AO FOLLOWING THE DECISION 2 ITA NO. 6965 / MUM/2017 ASSESSMENT YEAR: 2013 - 14 OF THE MUMBAI TRIBUNAL IN THE CASE OF ASSISTANT COMMISSIONER OF INCOME TAX, MUMBAI VS. CITICORP FINANCE INDIA LTD. (2007) 12 SOT 248 (MUM) AND ITO VS. DAGA CAPITAL (ITAT MUMBAI SPECIAL BENCH) APPLIED SECTION 14A READ WITH RULE 8D AND WORKED OUT THE DISALLOWANCE UNDER RULE 8D(2)(III) AT RS. 15,04,494/ - . THE AO INTER ALIA MAKING THE AFORESAID DISALLOWANCE DETERMINED THE TOTAL INCOME OF THE ASSESSEE AT RS. 2,72,67,470/ - . THE ASSESSEE CHALLENGED THE ASSESSMENT ORDER BEFORE THE CIT (A). THE LD. CIT (A) AFTER HEARING THE ASSESSEE DISMISSED THE APPEAL AND CONFIRMED THE ADD ITION MADE BY THE AO U/S 14A READ WITH RULE 8D. AGAINST THE SAID FINDINGS OF THE LD. CIT (A), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 3 . THE ASSESSEE HAS CHALLENGED THE ORDER OF LD. CIT (APPEAL S ), ON THE FOLLOWING GROUNDS : - 1. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS THE CIT (A)] ERRED IN LAW AND ON FACTS IN UPHOLDING DISALLOWANCE OF RS. 15,04,494/ - MADE BY THE ASSESSING OFFICER (HEREINAFTER REFERRED TO AS THE A.O) UNDER SECTION 14A R/W. RULE 8D ON THE ALLEGED GRO UND THAT THE SAME HAS BEEN INCURRED BY THE APPELLANT TO EARN EXEMPT INCOME OF RS. 1,28,61,333/ - . 2. THE LD. CIT (A) ERRED IN LAW AND ON FACTS IN UPHOLDING DISALLOWANCE OF RS. 15,04,494/ - MADE BY THE A.O. UNDER SECTION 14A R/W RULE 8D WITHOUT APPRECIATING THAT THE APPELLANT HAS NOT CLAIMED ANY EXPENDITURE IN HIS PROFIT AND LOSS ACCOUNT AGAINST THE EXEMPT INCOME. 3. THE LD. CIT (A) ERRED IN LAW AND ON FACTS IN UPHOLDING DISALLOWANCE OF RS. 15,04,494/ - MADE BY THE A.O. UNDER SECTION 14A R/W RULE 8D WITHOUT APPRECIAT ING THAT THE A.O. HAS NOT RECORDED THAT THE CLAIM MADE BY THE APPELLANT THAT NO EXPENDITURE WAS INCURRED TO EXEMPT INCOME WAS INCORRECT. 4. WITHOUT PREJUDICE TO THE ABOVE GROUNDS, THE LOWER AUTHORITIES ERRED IN LAW AND ON FACTS IN NOT RESTRICTING DISALLOWANC E U/S 14A TO A REASONABLE PERCENTAGE OF THE EXEMPT INCOME RS. 1,28,61,333/ - . 3 ITA NO. 6965 / MUM/2017 ASSESSMENT YEAR: 2013 - 14 5. THE LOWER AUTHORITIES ERRED IN LAW AND ON FACTS IN MAKING THE DISALLOWANCE OF RS. 15,04,494/ - UNDER SECTION 14A R/W RULE 8D WITHOUT APPRECIATING THAT RULE 8D IS NOT AUTOMATIC. 6. THE LOWER AUTHORITIES WHILE MAKING DISALLOWANCE OF RS. 15,04,494/ - U/S 14A R/W RULE 8D ERRED IN LAW AND ON FACTS IN RELYING UPON JUDICIAL PRONOUNCEMENTS WHICH ARE NOT APPLICABLE TO THE FACTS OF THE APPELLANTS CASE. 4. BEFORE US, THE LD. COUNSEL FOR THE AS SESSEE SUBMITTED THAT SINCE THE ASSESSEE HAS NOT CLAIMED ANY EXPENDITURE IN HIS PROFIT AND LOSS ACCOUNT AGAINST THE EXEMPT INCOME, THE LD. CIT (A) OUGHT TO HAVE DELETED THE ADDITION MADE BY THE AO. THE LD. COUNSEL FURTHER SUBMITTED THAT THE ORDER OF THE LD . CIT (A) IS NOT SUSTAINABLE IN THE LIGHT OF THE FACT THAT AO HAS MADE THE DISALLOWANCE WITHOUT RECORDING HIS DISSATISFACTION AFTER EXAMINING THE ACCOUNTS OF THE APPELLANT BECAUSE DISALLOWANCE U/S 14A READ WITH RULE 8D IS NOT AUTOMATIC. THE LD. COUNSEL WIT HOUT PREJUDICE CONTENDED THAT THE LOWER AUTHORITIES HAVE ERRED IN LAW AND ON FACTS IN NOT RESTRICTING THE DISALLOWANCE TO A REASONABLE PERCENTAGE OF THE EXEMPT INCOME. THE LD. COUNSEL RELIED ON THE DECISION OF THE ITAT, MUMBAI IN THE CASE OF ASSISTANT COMM ISSIONER OF INCOME TAX, MUMBAI VS. SACHIN R. TENDULKAR 163 ITD 65 (MUM), IN WHICH THE TRIBUNAL HAS UPHELD THE FINDINGS OF THE LD. CIT (A) THAT WHERE ASSESSEE DOES NOT CLAIM ANY EXPENDITURE RELATING TO EXEMPT INCOME, DISALLOWANCE OF EXPENDITURE U/S 14A READ WITH RULE 8D CANNOT BE MADE . 5. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESENTATIVE (DR) RELYING ON THE ORDER PASSED BY THE LD. CIT (A) SUBMITTED THAT SINCE THE AO HAS MADE THE DISALLOWANCE IN ACCORDANCE WITH THE PROVISIONS OF LAW, THERE IS NO INFI RMITY IN THE ORDER OF THE LD. CIT (A) TO INTERFERE WITH THE SAME. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PERUSED THE MATERIAL ON RECORD INCLUDING THE CASES RELIED UPON BY THE AUTHORITIES BELOW AND THE LD. COUNSEL FOR THE ASSESSEE. THE ONLY ISSUE RAISED BY THE ASSESSEE IN THE PRESENT 4 ITA NO. 6965 / MUM/2017 ASSESSMENT YEAR: 2013 - 14 CASE IS THAT THE LD. CIT (A) HAS WRONGLY UPHELD THE DISALLOWANCE MADE BY THE AO U/S 14A READ WITH RULE 8D. THE CONTENTION OF THE LD. COUNSEL IS THAT SINCE THE ASSESSEE HAD NOT CLAIMED ANY EXPENDITURE RELATING TO EXEMPT INCOME , THE LD. CIT (A) HAS WRONGLY UPHELD THE DISALLOWANCE MADE BY THE AO. THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE COORDINATE BENCH RENDERED IN THE CASE OF ASSISTANT COMMISSIONER OF INCOME TAX V S. SACHIN R TENDULKAR (SUPRA). I N THE SAID CASE, THE ASSESSEE RECEIVED EXEMPT INCOME IN THE NATURE OF DIVIDEND TO THE EXTENT OF RS. 68,02,975/. HOWEVER, NO EXPENDITURE WAS DISALLOWED FOR EARNING OF THE SAID INCOME. THE CONTENTION OF THE ASSESSEE WAS THAT HE DID NOT INCUR ANY EXPENDITURE FOR EARNING EXEMPT INCOME. THE AO REJECTING THE CONTENTION OF THE ASSESSEE MADE DISALLOWANCE U/S 14A READ WITH RULE 8D. IN THE FIRST APPEAL, THE LD. CIT (A) DELETED THE DISALLOWANCE MADE BY THE AO. THE REVENUE CHALLENGED THE FINDINGS OF THE LD. CIT (A) BEF ORE THE ITAT. THE COORDINATE BENCH OF THE TRIBUNAL DISMISSED THE APPEAL OF THE REVENUE AND CONFIRMED THE FINDINGS OF THE LD. CIT (A). THE RELEVANT PARAS OF THE ORDER OF THE COORDINATE BENCH READ AS UNDER: - 30. WE HAVE GONE THROUGH THE ORDERS PASSED BY THE LOWER AUTHORITIES AND SUBMISSIONS MADE BEFORE US. LD. CIT (A) CONSIDERED THE FACTS OF THE CASE IN DETAIL AND DELETED THE DISALLOWANCE BY OBSERVING AS UNDER: - I HAVE, DULY CONSIDERED THE ABOVE SUBMISSION OF THE APPELLANT AND FIND THAT THE APPELLANT HAS I NCURRED TOTAL EXPENDITURE OF RS. 34,51,220/ - WHICH HAS BEEN PAID TO KOTAK/DSP FOR HANDLING OF HIS INVESTMENTS. THE ENTIRE AMOUNT HAS NOT BEEN DEBITED TO THE P&L ACCOUNT, BUT TO HIS CAPITAL ACCOUNT. THE APPELLANT HAS OUT OF THE SAID AMOUNT CLAIMED RS. 9,09, 449/ - ON PROPORTIONATE BASIS BEING THE EXPENDITURE RELATED TO EARNING OF CAPITAL GAINS. THUS, AMOUNT OF RS. 25,41,771/ - DEBITED IN THE CAPITAL ACCOUNT OF THE APPELLANT IS THE DIRECT EXPENDITURE RELATING TO EARNING OF THE EXEMPT INCOME WHICH HAS NOT BEEN C LAIMED BY THE APPELLANT. AS FOR THE INDIRECT EXPENSES, THE APPELLANTS ARGUMENT, WHICH IS 5 ITA NO. 6965 / MUM/2017 ASSESSMENT YEAR: 2013 - 14 WITHOUT PREJUDICE TO ITS SUBMISSION, IS THAT THE TOTAL AMOUNT OF EXPENDITURE CLAIMED IN THE P&L ACCOUNT IS RS. 2,01,17,805/ - OUT OF WHICH RS. 1,78,45,499/ - IS DIRECT LY RELATABLE TO BUSINESS, ON ACCOUNT OF SERVICE TAX AND PROFESSIONAL FEES, DONATION, LEGAL AND PROFESSIONAL EXPENSES AND DEPRECIATION ON BUSINESS ASSETS AND AMOUNT OF RS. 22,72,306/ - ONLY IS THE COMMON EXPENDITURE WHICH HAS BEEN CHARGED TO THE P&L ACC OUNT. THE APPELLANTS CONTENTION, THEREFORE, IS THAT EVEN IF DISALLOWANCE OF ANY EXPENDITURE IS WARRANTED UNDER THE ABOVE SECTION, THE SAME CANNOT EXCEED THE ABOVE AMOUNT OF RS. 22,72,306/ - . I HAVE DULY CONSIDERED THE SUBMISSION OF THE APPELLANT. AS PRESCR IBED UNDER RULE 8D, EXPENSES OF RS. 25,41,771/ - DIRECTLY RELATED TO EARNING OF EXEMPT INCOME HAS NOT BEEN CLAIMED IN THE P&L ACCOUNT, HENCE NOT APPLICABLE. SIMILARLY, INTEREST EXPENSES BEING NIL THE SAME WILL NOT BE APPLICABLE. HOWEVER, AT THE MOST AND W ITHOUT PREJUDICE TO APPELLANTS CLAIM DEEMED EXPENSES OF RS. 22,72,306/ - CAN BE CONSIDERED AS PER THE FORMULA PRESCRIBED THEREIN, I.E. 0.5% AVERAGE INVESTMENTS WHICH IS COMING TO RS. 67,46,392/ - . HOWEVER, THE TOTAL DIRECT EXPENSES BEING RS. 22,72,306/ - , I T CANNOT EXCEED THE SAID AMOUNT. AS FAR AS THE DIRECT EXPENSES OF RS. 9,09,449/ - TAKEN BY THE APPELLANT FOR DISALLOWANCE & U/S 14A OF THE ACT IS CONCERNED, THE SAME IS RELATING TO EARNING OF CAPITAL GAINS, HENCE, CANNOT BE CONSIDERED UNDER THE ABOVE SECTIO N. IN THIS REGARD APPELLANTS CONTENTION THAT A.O. HAS INVOKED RULE 8D R/W SEC. 14A OF THE ACT, WITHOUT RECORDING IN THE ORDER AS TO HOW IN REGARD TO THE ACCOUNTS, HE WAS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE APPELLANT IN RESPECT OF SUCH E XPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT, AS LAID DOWN IN SUB - SECTION (2) OF SECTION 14A OF THE ACT, IS FOUND VALID 31. THEREAFTER, LD. CIT (A) CONSIDERED THE DECISION OF PUNE BENCH OF TRIBUNAL IN THE CA SE OF KALYANI STEELS LTD. V. ADDL. CIT [IT APPEAL NO. 1733 (PUNE) OF 2012, DATED 30.01.2014] AND HELD THAT AO HAD INVOLVED RULE 8D WITHOUT COMPLYING WITH THE REQUIREMENT OF SECTION 14A(2) OF THE ACT AND ALSO NOTED THAT SINCE THE ASSESSEE HAS NOT CLAIMED AN Y 6 ITA NO. 6965 / MUM/2017 ASSESSMENT YEAR: 2013 - 14 EXPENDITURE RELATING TO THE EXEMPT INCOME, THEREFORE, NO DISALLOWANCE WAS LIABLE TO BE MADE AND THEREFORE DISALLOWANCE MADE BY THE AO WAS DELETED. IT IS NOTED THAT WHILE MAKING DISALLOWANCE, THE AO OMITTED TO CONSIDER THE FACT THAT THE ASSESSEE IS INDIVI DUAL AND NOT ANY CORPORATE ASSESSEE. THE ASSESSEE HAS MAINTAINED SEPARATE ACCOUNTS WITH REGARD TO ITS BUSINESS INCOME AND EXPENSES INCURRED IN EARNING THE BUSINESS INCOME. IT IS FURTHER BROUGHT TO OUR NOTICE THAT THE EXPENSES INCURRED WITH REGARD TO THE AC TIVITY OF MAKING INVESTMENT IN SHARES HAVE BEEN DEBITED TO THE CAPITAL ACCOUNT AND HAVE NOT BEEN DEBITED TO P & L ACCOUNT. THE P & L A/C PREPARED BY THE ASSESSEE IS EXCLUSIVELY FOR THE PURPOSE OF REFLECTING ITS TRANSACTIONS ARISING OUT OF BUSINESS ACTIVITI ES I.E. COMPRISING OF BUSINESS INCOME AND BUSINESS EXPENSES. UNDER THESE CIRCUMSTANCES, THERE WAS HEAVY ONUS UPON THE SHOULDERS OF THE AO TO ESTABLISH IF ANY OF THE EXPENSES DEBITED IN THE P&L ACCOUNT DID NOT PERTAIN TO ITS BUSINESS ACTIVITY BUT WITH ANY O THER ACTIVITY SAY FOR EARNING INCOME FROM CAPITAL GAINS. UNFORTUNATELY, NO SUCH EXERCISE HAS BEEN DONE BY THE AO BEFORE INVOKING THE PROVISIONS OF SECTION 14A. IT WAS ALL THE MORE NECESSARY IN THE LIGHT OF THE FACT THAT EXPENSES INCURRED ON PMS BROKERAGE F EE AND OTHER INCIDENTAL EXPENSES FOR MAKING INVESTMENT INTO SHARES HAVE NOT BEEN DEBITED IN THE P & L ACCOUNT BY THE ASSESSEE. THESE FACTS HAVE ALSO NOT BEEN DISPUTED BY THE LD. DR BEFORE US. 32. UNDER THESE CIRCUMSTANCES, WE FIND THAT THE REASONING GIVEN BY THE LD. CIT (A) FOR DELETING THE DISALLOWANCE MADE BY THE AO IS IN ACCORDANCE WITH LAW AND FACTS OF THIS CASE. NO INTERFERENCE IS CALLED FOR BY US, THEREFORE HIS ORDER IS UPHELD AND GROUND NO. 2 IS DISMISSED. 7. I N OUR CONSIDERED VIEW, THE ISSUE INVOLVED IN THE PRESENT CASE IS IDENTICAL TO THE ISSUE INVOLVED IN THE CASE OF ACIT VS. SACHIN R. TENDULKAR (SUPRA). SINCE, THE COORDINATE BENCH HAS DECIDED THE IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE IN THE SIMILAR SET OF FACTS, WE ARE OF THE CONSIDERE D VIEW THAT THE ISSUE RAISED BY THE APPELLANT/ASSESSEE IN THE PRESENT CASE IS COVERED BY THE DECISION OF THE 7 ITA NO. 6965 / MUM/2017 ASSESSMENT YEAR: 2013 - 14 COORDINATE BENCH RENDERED IN THE CASE DISCUSSED ABOVE. HENCE, RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH RENDERED IN THE CASE OF A CIT VS. SACHIN R. TENDULKAR (SUPRA) WE SET ASIDE THE FINDINGS OF THE LD. CIT (A) AND DIRECT THE AO TO DELETE THE ADDITION. SINCE, WE HAVE ALLOWED THE MAIN GROUND OF APPEAL OF THE ASSESSEE, WE DO NOT DEEM IT NECESSARY TO DECIDE THE ALTERNATIVE GROUND TAKEN WITHOUT PREJUDICE TO THE MAIN GROUND. IN THE RESULT, APPEAL FILED BY THE ASSESSEE FOR ASSESSMENT YEAR 2013 - 2014 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 8 TH ARCH , 2019 . SD/ - SD/ - ( SHAMIM YAHYA ) ( RAM LAL NEGI ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; DATED: 08 / 03 / 201 9 ALINDRA, PS / C OPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI