SHIV SHAKTI PROPERTIES P. LTD, MUMBAI V. ACIT CEN CIR 22, MUMBAI

ITA 776/MUM/2012

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2998 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 8 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-10-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 28-07-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 03-02-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Maximum Marginal Rate; Earning of tax free income
• Section: 14A

Judgement Text

IN INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH E MUMBAI . BEFORE SH. A.D. JAIN, JUDICIAL MEMBER AND SH. RAJENDRA, ACCOUNTANT MEMBER ITA NO.776/M/2012 ASSESSMENT YEAR: 2008-09 PAN : AAFCS8009P M/S. SHIV SHAKTI PROPERTIES PVT. LTD. VS. ASSTT. CO MMR. OF INCOME-TAX, A-1/122, PRITHVI APARTMENTS, CENTRAL CIRCLE 22, 26, ALTAMOUNT ROAD, MUMBAI. MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY:SH. HERO RAI RESPONDENT BY: DATE OF HEARING : 28/07/2015 DATE OF PRONOUNCEMENT: 20/10/2015 ORDER PER A.D. JAIN, JM THIS IS ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2008-09, TAKING THE FOLLOWING EFFECTIVE GROUNDS OF APPEAL: 1. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ADDITION MADE BY THE LD . AO OF RS.25,36,664/- U/S 14A R.W.R. 8D(II). 2. UNDER THE FACTS AND IN LAW, THE LD. CIT(A) ERRED IN CONFIRMING THE RS.2,00,000/- AS INCOME FROM PROPERTY AS AGAIN ST THE INCOME FROM BUSINESS, AND FURTHER ERRED IN NOT ALLO WING THE CLAIM OF DEPRECIATION OF RS.11,68,023/-. ITA NO.776/MUM./2012 ASSTT. YEAR : 2008-09 2 2.01. THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE DIRECTOR HAS USED THE PROPERTY OF THE APPELLANT AS A TENANT AND NOT A S A DIRECTOR OF THE COMPANY. 2. APROPOS GROUND NO.1, THE AO MADE DISALLOWANCE OF RS.42,67,498/- U/S 14A OF THE INCOME-TAX ACT, 1961 UNDER RULE 8D(2 )(II) & RULE 80D(2)(III) OF THE I.T. RULES, 1962. THE LD. CIT(A) DELETED THE DISALLOWANCE OF RS.17,30,834/- MADE UNDER RULE 8D(2)(II), HOLDIN G THAT THERE WAS NO DIRECT OR INDIRECT EXPENDITURE INCURRED IN EARNING TAX FREE INCOME. 3. HOWEVER, APROPOS DISALLOWANCE OF ADMINISTRATIVE EXPENDITURE UNDER RULE 8D(2)(III) OF THE I.T. RULES, THE LD. CIT(A) M AINTAINED THE DISALLOWANCE, HOLDING AS FOLLOWS: 7. I HAVE GONE THROUGH THE ISSUE AND THE SUBMISSION S OF THE APPELLANT. IN THIS CASE THE APPELLANT HAS MADE HUGE INVESTMENTS IN TAX FREE INVESTMENTS TOTALING TO RS.96,54,43,531/-. CER TAINLY EXPENDITURE LIKE CLERICAL EXPENSES, TELEPHONE EXPENSES, STAMP D UTY, ETC. ARE INCURRED BY THE APPELLANT WITH REGARD TO THESE INVE STMENTS. THE APPELLANT HAS NOT MAINTAINED ANY SEPARATE ACCOUNT W ITH REGARD TO THE EXPENDITURE MET OUT FOR EARNING OF TAX FREE INCOME. THE EXPENSES ARE MIXED UP AND FROM THE ACCOUNTS MAINTAINED BY THE AP PELLANT IT IS DIFFICULT TO KNOW THE EXACT AMOUNT OF EXPENSES MET OUT FOR EARNING THE TAX FREE INCOME. IN THE CIRCUMSTANCES, THERE IS NO OTHER OPTION BUT TO APPLY RULE 8D(2)(III) (TO FIND OUT THE ADMINISTRATI VE EXPENDITURE IN RELATION TO EARNING TAX FREE INCOME). THE A.O. HAS PROPERLY DONE SO. IN VIEW OF THIS THERE IS NO INTERFERENCE CALLED FO R. THE AOS ORDER IS UPHELD WITH REGARD TO THE DISALLOWANCE MADE UNDER R ULE 8D(2)(III) OF THE I.T. RULES. 4. THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED T HAT THE DISALLOWANCE OF RS.25,36,664/- AS CONFIRMED BY THE LD. CIT(A), R EPRESENTS 0.5% OF THE ITA NO.776/MUM./2012 ASSTT. YEAR : 2008-09 3 AVERAGE INVESTMENT; THAT THE AO ERRONEOUSLY STRAIGH TWAY APPLIED RULE 8D OF THE I.T. RULES AND THE LD. CIT(A) ERRONEOUSLY CO NFIRMED THIS; THAT THE TOTAL OPERATING EXPENDITURE DEBITED IN THE ACCOUNT OF THE ASSESSEE IS TO THE TUNE OF RS.13,068,316/-; THAT OUT OF THIS, THE ASSESSEE ITS ELF HAD DISALLOWED RS.9,95,52,34/-; THAT THUS THE TOTAL EXPENDITURE CL AIMED IS OF RS.31,13,082/-; THAT OUT OF TOTAL OF INCOMES OF THE ASSESSEE AMOUN TING TO RS.80,189,889/-, ONLY AN AMOUNT OF RS.9,04,668/- IS DIVIDEND INCOME ; THAT THUS, OUT OF TOTAL EXPENSES CLAIMED RS.31,13,082/-, RS.25,36,664/- HAS BEEN DISALLOWED AS IN RELATION TO DIVIDEND; THAT CONSIDERING THE ENORMOUS OTHER INCOME, THIS QUANTUM OF DISALLOWANCE IS GROSSLY ABSURD AND UNREA SONABLE. IT HAS BEEN CONTENDED THAT UNDER SECTION 14A(2) OF THE ACT, RES ORTING TO RULE 8D OF THE RULES, ARISES ONLY IF THE AO IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF EXPENDITURE RELATING TO INCOME, WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE I.T.ACT, H AVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. IT HAS BEEN CONTENDED THA T AS IS EVIDENT FROM THE PHRASEOLOGY SPECIFICALLY EMPLOYED IN THE SECTION, I F FROM THE ACCOUNTS OF THE ASSESSEE, A REASONABLE DISALLOWANCE COULD BE WORKED OUT, THERE IS NO NEED TO INVOKE RULE 8D OF THE RULES, PARTICULARLY, IF DOI NG SO GIVES AN ABSURD AND UNREASONABLE RESULT. IN THIS REGARD, RELIANCE HAS B EEN PLACED ON K.P. VARGHESE VS. CIT, 131 ITR 597 (SC), AS PER WHICH, A MANIFESTLY ABSURD AND ITA NO.776/MUM./2012 ASSTT. YEAR : 2008-09 4 UNJUST RESULT WHICH COULD HAVE NEVER BEEN INTENDED BY THE LEGISLATURE SHOULD BE AVOIDED. 5. ON THE OTHER HAND, THE LD. DR, STRONGLY RELIED ON THE IMPUGNED ORDER. 6. WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS ISSU E AND HAVE PERUSED THE MATERIAL ON RECORD WITH REGARD THERETO. A COPY OF T HE RELEVANT EXTRACTS OF THE ASSESSEES FINAL ACCOUNTS HAVE BEEN PLACED AT APB 3 TO 8. APB-3 IS ASSESSEES BALANCE SHEET AS ON 31.03.2008. APB 4 IS ASSESSEES PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31 ST MARCH, 2008. AT APB-5 ARE THE SCHEDULES FORMING PART OF BALANCE SHEET AND PROFIT & LOSS ACCOUNT (APB 5- 6). FROM APB-8, IT IS SEEN THAT THAT THE ASSESSEE D EBITED TOTAL EXPENDITURE OF RS.13,068,316/-. OUT OF THIS AMOUNT, AS PER THE REV ISED STATEMENT OF TOTAL INCOME (APB 1-2), THE ASSESSEE ITSELF DISALLOWED A SUM OF RS.1,17,66,229/-. AS POINTED OUT, THIS DISALLOWANCE INCLUDES CERTAIN ITEMS WHICH ARE NOT PART OF THE TOTAL EXPENDITURE DEBITED OF RS.13,018,316/- , I.E., DEPRECIATION AS PER BOOKS AMOUNTING TO RS.3,49,167/- AND LOSS FROM SALE OF MUTUAL FUNDS OF RS.14,61,828/-. AS SUCH, THE DISALLOWANCE COMES TO ABOUT RS.99,55,235/-. THAT BEING SO, THE AMOUNT EFFECTIVELY CLAIMED AS EX PENDITURE IS OF RS.31,13,038/-. AS PER THE PROFIT & LOSS ACCOUNT (A PB-4), THE TOTAL INCOME IS AMOUNTING TO RS.80,189,899/-. OF THIS, DIVIDEND INC OME IS OF RS.9,04,668/- ONLY. THEREFORE, OUT OF THE TOTAL EXPENSES CLAIMED OF RS.31,13,082/-, THE ITA NO.776/MUM./2012 ASSTT. YEAR : 2008-09 5 AMOUNT DISALLOWED IN RELATION TO DIVIDEND IS OF RS. 25,36,669/-. NOW, THIS IS EVIDENTLY ABSURD ON THE FACE OF IT AND THE ASSESSEE IS CORRECT IN CONTENDING THAT SINCE THERE IS HUGE OTHER INCOME, THE QUANTUM OF DISALLOWANCE IS ENTIRELY UNREASONABLE. RATHER, A REASONABLE DISALLO WANCE CAN BE MADE, IF THE ACCOUNTS OF THE ASSESSEE ARE CONSIDERED, WITHOUT TA KING RECOURSE TO RULE 8D OF THE RULES. THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT THE TOTAL EXPENSES CLAIMED (AS ABOVE) BEING RS.31,13,082/-, THE TOTAL INCOME ( AS ABOVE) BEING OF RS.80,189,889/- AND OUT OF THIS INC OME, DIVIDEND BEING OF RS.904,668/-, THE DISALLOWANCE OF EXPENSES NEEDS TO BE WORKED OUT BY APPLYING THE PROPORTIONATE METHOD, AS PER WHICH, TH E DISALLOWANCE WORKS OUT TO RS.35120/-. 7. THE CONTENTION OF THE ASSESSEE IS FOUND TO BE AC CEPTABLE. THE TOTAL INCOME, THE DIVIDEND AND THE TOTAL EXPENSES CLAIMED BEING AS ABOVE, AS DISCUSSED, THE DISALLOWABLE EXPENSES WOULD WORK OU T TO RS.35,120/-, APPLYING THE PROPORTIONATE METHOD. THEREFORE, THE D ISALLOWANCE IS RESTRICTED TO RS.35,120/-. ACCORDINGLY, GROUND NO.1 IS PARTLY ACCEPTED. 8. COMING TO GROUND NO.2, THE AO MADE A DISALLOWANC E OF RS.2,00,000/- U/S 94(7) OF THE ACT. 9. THE ASSESSEE HAS SHORT TERM CAPITAL LOSS OF RS.1 4,61,827/-. THE LD. CIT(A) OBSERVED THAT OUT OF THE SHORT-TERM CAPIT AL LOSS, DIVIDEND HAD BEEN ITA NO.776/MUM./2012 ASSTT. YEAR : 2008-09 6 EARNED ONLY IN THE CASE OF KOTAK LIQUID FUND; THAT THE SHORT-TERM CAPITAL LOSS WAS OF RS.3745/- AND THE DIVIDEND RECEIVED WAS OF RS.3,52,163/-. ACCORDING TO THE LD. CIT(A), IN VIEW OF THIS, AS P ER SECTION 94(7) OF THE ACT, ONLY THE SHORT TERM CAPITAL LOSS OF RS.3,745/- OUG HT TO HAVE BEEN ADDED. THE LD. CIT(A), THEREFORE, DIRECTED THE AO TO DELETE RS.1,96,255/- OUT OF THE DISALLOWANCE OF RS.2,00,000/- AND MAINTAINED THE AD DITION OF RS.3745/- ONLY. 10. SINCE NO WORTHWHILE CHALLENGE HAD BEEN LAID TO THE ABOVE FINDING OF THE LD. CIT(A) BY THE ASSESSEE BEFORE US, FINDING NO ERROR THEREIN, THE ACTION OF THE LD. CIT(A) IN RESTRICTING THE ADDITION TO RS .3745/- IS UPHELD. GROUND NO.2, IS ACCORDINGLY, REJECTED. 11. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 20TH OCTOBER, 2015 SD/- SD/- (RAJENDRA) (A.D. JAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER /SKR/ DATED: 20/10/2015 COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE:M/S. SHIV SHAKTI PROPERTIES LVT. LTD. MUMBAI 2. THE ACIT, CC-22, MUMBAI. 3. THE CIT(A)-39, MUMBAI. 4. THE CIT, MUMBAI 5. THE SR DR , ITAT, MUMBAI. TRUE COPY BY ORDER (ASSISTANT REGISTRAR)