I-VEN REALTY LTD, MUMBAI V. ITO 6(1)(2), MUMBAI

ITA 7191/MUM/2013

• Counselvise Citation: 719119914 RSA 2013
• Duration Of Justice: 3 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-03-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 09-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B P K
• Assessee Lawyers: R MURLIDHAR
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'SMC' BENCH, MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT ITA NO. 7191/MUM/2013 (ASSESSMENT YEAR: 20090-10) M/S. I-VEN REALTY LIMITED INCOME TAX OFFICER - 6(1) (2) COMMERZ, 3RD FLOOR, INTERNATIONAL AAYAKAR BHAVAN, M.K. ROAD BUSSINESS PARK, OBEROI GARDEN CITY VS. MUMBAI 400020 GOREGAON (E), MUMBAI 400063 PAN - AABCI2278J APPELLANT RESPONDENT APPELLANT BY: SHRI R. MURLIDHAR RESPONDENT BY: SHRI B.P.K. PANDA DATE OF HEARING: 12.03.2014 DATE OF PRONOUNCEMENT: 12.03.2014 O R D E R PER D. MANMOHAN, V.P. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 01.10.2013 PASSED BY CIT(A)-14, MUMBAI AND IT PERTA INS TO A.Y. 2009-10. 2. THE ONLY GROUND URGED BY THE ASSESSEE COMPANY IN TH IS APPEAL READS AS UNDER: - THE LEARNED ASSESSING OFFICER (A.O.) HAS ERRED IN LAW AND FACTS BY MAKING ADDITION OF ` 3,27,313/- TO THE TOTAL INCOME OF THE APPELLANT BY DISALLOWING EXPENDITURE U/S. 14A OF THE ACT READ WI TH RULE 8D OF THE INCOME-TAX RULES, 1962 WITHOUT ESTABLISHING ANY NEX US BETWEEN THE EXPENDITURE INCURRED AND INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME AND HE HON'BLE COMMISSIONER OF INCOME-TAX (A PPEALS) HAS ERRED IN CONFIRMING THE ABOVE ACTION OF THE LEARNED A.O. 3. IT IS NOT IN DISPUTE THAT THE ASSESSEE COMPANY INVE STED ONLY IN MUTUAL FUNDS AND IN THE YEAR UNDER CONSIDERATION THE INVES TMENTS WERE ONLY TO THE TUNE OF ` 1.70 CRORES AS AGAINST ` 11.38 CRORES IN THE IMMEDIATELY PRECEDING YEAR. ASSESSEE COMPANY WAS ALSO ENGAGED IN REAL EST ATE BUSINESS. FOR THE YEAR UNDER CONSIDERATION IT DECLARED TOTAL INCOME O F ` 900/-, WHICH WAS PROCESSED ACCORDINGLY. THEREAFTER IT WAS TAKEN UP F OR SCRUTINY WHEREIN THE ITA NO. 7191/MUM/2013 M/S. I-VEN REALITY LIMITED 2 AO OBSERVED THAT THE ASSESSEE COMPANY EARNED INCOME FROM THE FIRM AND CLAIMED EXEMPTION. FURTHER HE OBSERVED THAT THE ASS ESSEE HAS NOT RECEIVED ANY INTEREST ON THE CAPITAL INVESTED IN THE SAID PA RTNERSHIP FIRM BUT CHOSE TO MAKE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D WHEREIN HE ADMITTED THAT THERE IS NO DIRECT EXPENDITURE OR NO INTEREST EXPENDITURE INCURRED WITH REGARD TO THE SO CALLED EXEMPT INCOME BUT 0.5% OF THE AVERAGE INVESTMENTS WAS TAKEN INTO CONSIDERATION FOR WORKIN G OUT THE INDIRECT EXPENDITURE AND THE SAME WAS DISALLOWED. ACCORDINGL Y HE RECOMPUTED THE INCOME AT ` 3,28,216/- AND TAX THEREON WORKED OUT TO ` 13,770/-. IN THE OFFICE NOTE ATTACHED TO THE ASSESSMENT ORDER IT WAS MENTIONED THAT THE ASSESSEE COMPANY, IN THE P & L ACCOUNT, HAS CREDITE D DIVIDEND AND INTEREST OF ` 12,57,974/- AND ` 51,710/- RESPECTIVELY. PRESUMABLY, BECAUSE THE DIVIDEND INCOME IS NOT ASSESSABLE TO TAX THE AO WAS OF THE OPINION THAT INDIRECT EXPENDITURE REFERABLE TO EARNING OF SUCH E XEMPT INCOME IS ASSESSABLE TO TAX. AT THE TIME OF HEARING THE LEARN ED COUNSEL SUBMITTED THAT THE AO WRONGLY USED THE EXPRESSION FIRM BUT THE F ACT REMAINS THAT THE ASSESSEE INVESTED ONLY IN MUTUAL FUNDS. 4. BEFORE THE LEARNED CIT(A) THE ASSESSEE CONTENDED TH AT IT HAD NOT INCURRED ANY EXPENDITURE FOR EARNING EXEMPT INCOME SO AS TO MAKE DISALLOWANCE UNDER SECTION 14A OF THE ACT. NO DOUBT , SECTION 14A READ WITH RULE 8D IS APPLICABLE FOR THE YEAR UNDER CONSIDERAT ION BUT IN ORDER TO ATTRACT PROVISIONS OF SECTION 14A THE AO HAS TO SHOW THAT S OME EXPENDITURE WAS INCURRED BY THE ASSESSEE IN RELATION TO AN INCOME W HICH DOES NOT FORM PART OF THE TOTAL INCOME AND REASONS HAVE TO BE RECORDED IN THAT REGARD WHEREAS NO SUCH FINDING WAS GIVEN BY THE AO TO REJECT THE B OOK RESULTS, AND THUS THE COMPUTATION OF DISALLOWANCE IS NOT IN ACCORDANCE WI TH LAW. THE LEARNED CIT(A) WAS, HOWEVER, OF THE OPINION THAT IF THE ASS ESSEE HAS NOT CLAIMED ANY EXPENDITURE IN RESPECT OF AN EXEMPT INCOME, AND SIN CE THE AO HAS RECORDED THAT THERE IS NO DIRECT EXPENDITURE AND INTEREST EX PENDITURE INCURRED AGAINST THE EXEMPT INCOME, IT HAS TO BE ASSUMED THAT HE WAS SATISFIED THAT THERE WAS SOME INDIRECT EXPENDITURE ATTRIBUTABLE TO EXEMP T INCOME AND HENCE HE WAS JUSTIFIED IN COMPUTING THE DISALLOWANCE BY INVO KING RULE 8D. ITA NO. 7191/MUM/2013 M/S. I-VEN REALITY LIMITED 3 5. FURTHER AGGRIEVED, ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. THE LEARNED COUNSEL FOR THE ASSESSEE ADVERTED THE ATTEN TION OF THE BENCH TO THE ORDERS PASSED BY THE AO AND THE CIT(A) TO SUBMIT TH AT THERE IS NO SPECIFIC FINDING RECORDED BY THE AO THAT THE ASSESSEE INCURR ED CERTAIN INDIRECT EXPENDITURE. IT WAS NOT RECORDED IN THE BOOKS OF AC COUNT OR IT IS NOT PART OF THE TOTAL EXPENDITURE CLAIMED. IN SUCH AN EVENT OF THE MATTER SECTION 14A CANNOT BE APPLIED AND AS A NECESSARY CONSEQUENCE TH E DISALLOWANCE MADE BY THE AO DESERVES TO BE SET ASIDE. HE ALSO RELIED UPON THE ORDER PASSED BY THE ITAT D BENCH, MUMBAI IN THE CASE OF DARIUS CA VASJI SHROFF (ITA NO. 4738/MUM/2012 DATED 25.09.2013) WHEREIN UNDER IDENT ICAL CIRCUMSTANCES THE MUMBAI BENCH HELD THAT BEFORE EMBARKING UPON TH E PROCESS OF COMPUTING DISALLOWANCE UNDER RULE 8D THE AO HAS TO GIVE COGENT REASONS AND RECORD HIS SATISFACTION WITH REGARD TO THE INCO RRECTNESS OF THE EXPENDITURE CLAIMED BY THE ASSESSEE. THE LEARNED CO UNSEL FOR THE ASSESSEE SUBMITTED THAT IN THE INSTANT CASE THE AO HAS NOT M ENTIONED ABOUT THE TOTAL EXPENDITURE CLAIMED AND WHETHER ANY EXPENDITURE IS INSEPARABLE AND RELATABLE TO EXEMPT INCOME. 6. ON THE OTHER HAND, THE LEARNED D.R. STRONGLY RELIED UPON THE ORDERS PASSED BY THE TAX AUTHORITIES. 7. I HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS A ND PERUSED THE RECORD. FOR THE YEAR UNDER CONSIDERATION THE ASSESS EE MAINTAINED PROPER BOOKS OF ACCOUNT WHICH WERE PLACED BEFORE THE AO. T HE AO HAS NOT RECORDED ANY FINDING THAT THE BOOKS ARE NOT AVAILABLE FOR VE RIFICATION. IT IS NOT THE CASE OF THE AO THAT SOME COMMON EXPENDITURE WAS CLAIMED AS DEDUCTION OUT OF WHICH SOME PORTION IS RELATABLE TO EARNING OF EXEMP T INCOME. UNDER IDENTICAL CIRCUMSTANCES THE ITAT D BENCH IN THE C ASE OF DARIUS CAVASJI SHROOF (SUPRA) OBSERVED THAT FOR INVOKING PROVISION S OF SECTION 14A OF THE INCOME TAX ACT THE AO HAS TO INDICATE COGENT REASO NS FOR HOLDING THE VIEW THAT HE IS NOT SATISFIED WITH THE CORRECTNESS OF TH E CLAIM OF THE ASSESSEE AND IN THE ABSENCE OF SUCH A FINDING THE AO IS NOT JUST IFIED IN INVOKING PROVISIONS OF SECTION 14A READ WITH RULE 8D. THE FACTS OF THE INSTANT CASE ARE SIMILAR. HAVING REGARD TO THE CIRCUMSTANCES OF THE CASE I AM OF THE VIEW THAT IT IS NOT ITA NO. 7191/MUM/2013 M/S. I-VEN REALITY LIMITED 4 A FIT CASE FOR COMPUTING DISALLOWANCE REFERABLE TO INDIRECT EXPENSES. IN SHORT, THE DISALLOWANCE MADE BY THE AO IS SET ASIDE. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH MARCH, 2014. SD/- (D. MANMOHAN) VICE PRESIDENT MUMBAI, DATED: 12 TH MARCH, 2014 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 14, MUMBAI 4. THE CIT 6, MUMBAI CITY 5. THE DR, SMC BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.