BOMBAY REAL ESTATE DEVELOPMENT CO. P. LTD, MUMBAI V. DCIT 1(1), MUMBAI

ITA 7952/MUM/2011

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 8170 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 9 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-09-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 09-09-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 25-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SU JIT BANGAR
• Assessee Lawyers: DEEPAK TRALSHWAL A
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI . . , , , BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMB ER . / ITA NO. 7952 / MUM./ 2011 ( / ASSESSMENT YEAR : 20 0 8 09 ) BOMBAY REAL ESTATE DEVELOPMENT COMPANY PVT. LTD. NOSHIRWAN MANSION, 3 RD FLOOR HENRY ROAD, COLABA, MUMBAI 400 039 .. / APPELLANT V/S DY. COMMIS SIONER OF INCOME TAX RANGE 1(1), MUMBAI .... / RESPONDENT . / PERMANENT ACCOUNT NUMBER AAACB2092K / ASSESSEE BY : SHRI DEEPAK TRALSHWALA / REVENU E BY : SHRI S UJIT BANGAR / DATE OF HEARING 09 .0 9 .2014 / DATE OF ORDER 19.09.2014 / ORDER , / PER AMIT SHUKLA , J.M. THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSESSEE CHALLENGING THE IMPUGNED ORDER DATED 2 ND AUGUST 2011 , PASSED BY THE LEARNED COMMISSIONER (APPEALS) I , MUMBAI, FOR THE QUANTUM OF ASSESSMENT PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 BOMBAY REAL ESTATE 2 (FOR SHORT THE ACT ) FOR THE ASSESSMENT YEAR 20 0 8 09 , ON THE FOLLOWING GRO UNDS: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE OF A SUM OF ` 35,10,885 UNDER THE PROVISIONS OF SECTION 14A, WITHOUT CONSIDERING THE FACTS OF THE CASE AND VARIOUS JUDGMENTS QUOTE D BY THE APPELLANT. HENCE, THE TOTAL INCOME BE REDUCED BY ` 35,10,885 BY DELETING THE ADDITION MADE UNDER THE PROVISIONS OF SECTION 14A R/W RULE 8D(III) THERETO. 2. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF DEVELOPING PROJECTS AS BUILDER AND DEV ELOPER . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS CLAIMED DIVIDEND INCOME OF ` 3,98,82,384, AS EXEMPT FORM TAXATION. THE ASSESSEE HAD NOT ALLOCATED ANY EXPENDITURE ATTRIBUTABLE TO EARNING OF SUCH A HUGE EXEMPT INCOME. IN RESPONSE TO THE SHOW CAUSE NOTICE, THE ASSESSEE VIDE LETTER DATED 18 TH FEBRUARY 2010, SUBMITTED THAT THE DIVIDEND HAS BEEN EARNED ON MUTUAL FUNDS, THE PORTFOLIO OF WHICH WAS HANDLED BY STANDARD CHARTERED BANK, KOTAK MAHINDRA BANK AND COM SOL FINANCIAL SALES PVT. LTD. THE DIVIDENDS WERE DIRECTLY CREDITED BY THE MUTUAL FUND COMPANIES / HOUSE TO THE ASSESSEES BANK ACCOUNT AND HENCE, THERE WAS NO EFFORT OR ANY FOLLOW UP BY THE ASSESSEE FOR EARNING OF THE DIVIDEND INCOME. THUS, NO EXPENDITURE CAN BE SAID TO BE INCURRED BY THE ASSESSEE FOR EARNING OF EXEMPT INCOME . THEREAFTER, VARIOUS CASE LAWS WERE ALSO RELIED UPON. IT WAS ALSO SUBMITTED THAT IN BOMBAY REAL ESTATE 3 THE ASSESSMENT YEAR 2004 05, THE LEARNED COMMISSIONER (APPEALS) HAD RESTRICTED THE DISALLOWANCE TO 3 % OF THE DIVIDEND INCOME. THE ASSESSING OFFICER REJECTED THE ASSESSEES CONTENTION AND AFTER INVOKING THE FORMULA PRESCRIBED IN RULE 8D HAS DISALLOWED 0.5% OF THE AVERAGE INVESTMENT WHICH WORKED OUT TO ` 35,10,885. 3. SUCH A DISALLOWANCE MADE BY THE ASSESSI NG OFFICER HAS ALSO BEEN CONFIRMED BY THE LEARNED COMMISSIONER (APPEALS) ON THE GROUND THAT RULE 8D IS APPLICABLE FROM THIS YEAR I.E., 2008 09 , AFTER REPLYING ON THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN GODREJ & BOYCE MFG. CO. LTD. V/S DCI T, (2010), 328 ITR 081 (BOM.) . HE FURTHER HELD THAT THE ASSESSING OFFICER HAD NOT DISALLOWED ANY DIRECT OR INDIRECT EXPENDITURE ELATING TO INTEREST BUT HAS ONLY DISALLOWED 0.5% OF THE AVERAGE INVESTMENT IN ACCO RDANCE WITH THE RULE 8D(2)(III) FOR DISALLOWIN G ADMINISTRATIVE EXPENSES. 4. BEFORE US, THE LEARNED COUNSEL, SHRI DEEPAK TRAL L SHWALA, ON BEHALF OF THE ASSESSEE, SUBMITTED THAT WHILE APPLYING RULE 8D, THE ASSESSING OFFICER HAS NOT RECORDED ANY SATISFACTION OR HAS SATISFIED HIMSELF WITH THE CORRECTNESS OF THE CLAIM HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE , AS PER THE REQUIREMENT OF SUB SECTION (2) OF SECTION 14A. IN SUPPORT OF THIS PROPOSITION, HE STRONGLY RELIED UPON THE DECISION OF THE HON'BLE DELHI COURT IN MAXOPP INVESTMENT LTD. AND ORS. V/S CI T AND THE DECISION S OF THE TRIBUNAL, MUMBAI BENCH IN J.K. BOMBAY REAL ESTATE 4 INVESTORS (BOMBAY) LTD. V/S ACIT, ITA NO.7858/MUM./2011 ORDER DATED 13 TH MARCH 2013, AND THE DECISION IN CASE OF JUSTICE S.P. BHARUCHA V/S ACIT, [2012] 25 TAXMAN.COM 381. HE ALSO DREW OUR ATTENTION AND CONCLUSION DRAWN BY THE HON'BLE DELHI HIGH COURT IN MAX INVESTMENT LTD. (SUPRA). 5. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, STRONGLY RELIED UPON THE ORDER OF THE ASSESSING OFFICER AND THE LEARNED COMMISSIONER (APPEALS) AND SUBMITTED T HAT THE ASSESSING OFFICER HAS HIMSELF NOT MADE ANY DISALLOWANCE ON ACCOUNT OF INTEREST BUT ONLY ON ACCOUNT OF ADMINISTRATIVE EXPENSES AS PER RULE 8D, WHICH IS MANDATORY REQUIREMENT FROM THE ASSESSMENT YEAR 2008 09. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. ADMITTEDLY, THE ASSESSEE HAS EARNED EXEMPT INCOME IN THE FORM OF DIVIDEND FOR SUMS AGGREGATING TO ` 3,98,82,384. FOR EARNING OF SUCH INCOME, THE ASSESSEE HAS NOT ATTRIBUTED ANY EXPENDITURE FOR THE PURPOSE OF DISALLOWANCE UNDER SECTION 14A. RATHER ITS CLAIM HAS BEEN THAT IT HAS NOT INCURRED ANY EXPENDITURE , BECAUSE DIVIDEND AS ARISING FROM MUTUAL FUNDS HAVE BEEN HANDLED BY WAY OF PORTFOLIO MANAGEMENT THROUGH VARIOUS BANKS. THE ASSESSING OFFICER HAS REJECTED SUCH A CONTENTION OF THE ASSESSEE AND HAS PROCEEDED TO DISALLOW ADMINISTRATIVE EXPENSES BY TAKING 0.5% OF THE AVERAGE INVESTMENT. SUB SECTION (2) OF SECTION 14 PROVIDES THE BOMBAY REAL ESTATE 5 MANNER IN WHICH THE ASSESSING OFFICER I S REQUIRED TO DETERMINE THE AMOUNT OF EXPEND ITURE , INCURRED IN RELATION TO THE EXEMPT INCOME FOR THE DISALLOWANCE UNDER SECTION 14(1) . FOR THIS PURPOSE, RULE 8D HAS BEEN PRESCRIBED , IF THE ASSESSING OFFICER I S NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF EXPENDITURE IN CURRED IN RELATION TO THE EARNING OF THE EXEMPT INCOME HAVING REGARD TO THE ACCOUNTS MAINTAINED BY THE ASSESSEE. SUB SECTION (3) FURTHER PROVIDES THAT SUCH A MECHANISM OF DETERMINATION BY THE ASSESSING OFFICER IS ALSO APPLICABLE WHERE THE ASSESSEE HAS C LAIMED NO EXPENDITURE FOR THE EARNING OF EXEMPT INCOME . O NCE THE ASSESSEE HA S EARNED ANY EXEMPT INCOME OR INCOME WHICH DO NOT FORM PART OF THE TOTAL INCOME, THEN THE ASSESSEE HAS TO , FIRST OF ALL , JUSTIFY HIS CLAIM OF EXPENDITURE IN RELATION TO EARNING OF THE EXEMPT INCOME AND ONCE THE ASSESSEE HAS SUB MITTED ITS CLAIM , THE ONUS THEN SHIFTS UPO N THE ASSESSING OFFICER TO DETERMINE THE AMOUNT OF SUCH EXPENDITURE AFTER EXAMINING THE EXPENDITURE DEBITED BY THE ASSESSEE AND THE NATURE OF ACCOUNTS. HOWEVER, THIS C AN BE DONE ONLY IF HE IS NOT SATISFIED WITH THE CLAIM MADE BY THE ASSESSEE. THIS EXERCISE HAS TO BE DONE BY THE ASSESSING OFFICER EVEN WHEN THE ASSESSEE HAS CLAIMED NO SUCH EXPENDITURE FOR THE EARNING OF EXEMPT INCOME. TH US STAGE OF THE ASSESSING OFFICER F OR DETERMINATION OF THE AMOUNT OF EXPENDITURE IN RELATION TO THE EXEMPT INCOME GETS TRIGGERED ONLY WHEN ASSESSEE SUBMIT ITS CLAIM ON A PROPER BASIS OR WORKING AND I FP SUCH A CLAIM IS BOMBAY REAL ESTATE 6 REJECTED BY THE ASSESSING OFFICER ON HAVING BEING NOT SATISFIED WITH THE C ORRECTNESS OF THE CLAIM. HERE IN THIS CASE, THE ASSESSEE HAS NOT BROUGHT ON RECORD ITS WORKING OF EXPENDITURE WHICH CAN BE SAID TO BE ATTRIBUTABLE FOR EARNING OF THE EXEMPT INCOME OR THAT THE EXPENDITURE S WHICH HAVE BEEN DEBITED ARE NOT RELATED TO OR ATTRI BUTABLE TO THE EARNING OF EXEMPT INCOME. ONCE THE ASSESSEE HAS JUSTIFIED ITS CLAIM THEN ONLY THE ONUS SHIFTS UPON THE ASSESSING OFFICER. ON THE FACTS OF THE PRESENT CASE, THE INITIAL ONUS OF THE ASSESSEE FOR EXPLAINING THE NATURE OF EXPENDITURE DEBITED IN THE BOOKS OF ACCOUNT AND HOW THEY ARE NOT RELATED TO OR ATTRIBUTABLE TO FOR EARNING OF EXEMPT INCOME HAS NOT BEEN DISCHARGED. THUS, IN OUR OPINION, THE MATTER SHOULD BE RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER , TO WHOM THE ASSESSEE WILL SUBMIT IT S CLAIM AFTER EXPLAINING THAT NONE OF THE EXPENDITURE WHICH HAVE BEEN DEBITED TO THE ACCOUNTS RELATE S TO EARNING OF THE EXEMPT INCOME. THEREAFTER, THE ASSESSING OFFICER WILL EXAMINE THE CORRECTNESS OF THE CLAIM. IF HE IS NOT SATISFIED THEN ONLY HE WILL PROC EED TO DETERMINE THE EXPENDITURE FOR THE PURPOSE OF DISALLOWANCE. IT IS NEEDLESS TO SAY THAT IF THE ASSESSING OFFICER DOES NOT GIVEN ANY COGENT REASON FOR HIS SATISFACTION WITH REGARD TO THE CORRECTNESS OF THE ASSESSEES CLAIM , THEN RULE 8D CANNOT BE INVOK ED AND ASSESSEES CLAIM HA S TO BE ACCEPTED. THUS, THE MATTER IS REMANDED BACK TO THE ASSESSING OFFICER WITH THE AFORESAID OBSERVATION AND HE WILL GIVE DUE AND EFFECTIVE OPPORTUNITY OF HEARING TO THE ASSESSEE TO BOMBAY REAL ESTATE 7 PRESENT ITS CASE . ACCORDINGLY, THE GROUND RAI SED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 7. 7 . IN THE RESULT, ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 19 TH SEPTEMBER 2014 ORDER PRONOUNCED IN THE OPEN COURT O N 19 TH SEPTEMBER 2014 SD/ - . . R.C. SHARMA ACCOUNTANT MEMBER SD/ - AMIT SHUKLA JUDICIAL MEMBER MUMBAI, DATED : 19 TH SEPTEMBER 2014 / COPY OF THE OR DER FORWARDED TO : (1) / THE ASSESSEE ; (2) / THE REVENUE; (3) ( ) / THE CIT(A ) ; (4) / THE CIT, MUMBAI CITY CONCERNED ; (5) , , / THE DR, ITAT, MUMBAI ; (6) / GUARD FILE . / TRUE COPY / BY ORDER . / PRADEEP J. CHOWDHURY / SR. PRIVATE SECRETARY / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI