DCIT 4(1), MUMBAI V. BHARAT JAYANTILAL PATEL, MUMBAI

ITA 8104/MUM/2010

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 8176 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 10 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-10-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 16-10-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 24-11-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: LOVE KUMAR
• Assessee Lawyers: DR K SHIVRAM; NEELAM C JADHAV
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

B IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE SHRI N.K. BILLAIYA, AM AND SHRI VIVEK VARMA, JM ./ I.T.A. NO.8025/ MUM/2010 ( / ASSESSMENT YEAR : 2007-08 SHR I BHARAT JAYANTILAL PATEL, 3-3A CHURCHGATE HOUSE, V.N. ROAD, FORT, MUMBAI 400 001. / VS. DCIT, RANGE 4(1), MUMBAI. ./ PAN : AAAPP 6652 R ( / APPELLANT ) .. ( / RESPONDENT ) ./ I.T.A. NO.8104/ MUM/2010 ( / ASSESSMENT YEAR : 2007-08 DCIT, RANGE 4(1), 6 TH FLOOR, ROOM NO. 640, AAYAKAR BHAVAN, MUMBAI- 20. / VS. SHRI BHARAT JAYANTILAL PATEL, 3-3A CHURCHGATE HOUSE, V.N. ROAD, FORT, MUMBAI 400 001. ./ PAN : AAAPP 6652 R ( / APPELLANT ) .. ( / RESPONDENT ) A PPELLANT BY DR. K. SHIVRAM & SHRI NEELAM C. JADHAV DEPARTMENT BY SHRI LOVE KUMAR / DATE OF HEARING : 16-10-2014 / DATE OF PRONOUNCEMENT : 16-10-2014 [ !' / O R D E R PER N.K. BILLAIYA, A.M . : #. . $%&', ! THESE CROSS APPEALS BY THE ASSESSEE AND THE REVENUE ARE DIRECTED AGAINST THE ORDER OF LD. CIT(A) -8, MUMBAI DATED 27 -09-2010 PERTAINING TO ITA 8025/M/10 & ITA 8104/M/10 2 A.Y. 2007-08. BOTH THESE APPEALS WERE HEARD TOGETH ER AND DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. THE FIRST GRIEVANCE IN BOTH THESE APPEALS RELATE TO THE DISALLOWANCE U/S 14A OF THE INCOME TAX ACT, 1961. 3. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE A.O. NOTICED THAT THE ASSESSEE HAS EARNED DIVIDEND INCOME OF RS. 1,18 ,89,579/- WHICH IS CLAIMED AS EXEMPT. THE A.O. FURTHER NOTICED THAT TH E ASSESSEE HAS NOT ALLOCATED ANY EXPENSES FOR EARNING EXEMPT INCOME. T HE ASSESSEE WAS ASKED TO EXPLAIN. THE ASSESSEE REPLIED THAT HE IS A SHARE BR OKER WHOSE INCOME CONSTITUTES FROM COMPOSITE BUSINESS ACTIVITY, THERE FORE, NO SPECIFIC EXPENDITURE HAS BEEN INCURRED IN EARNING THE DIVIDE ND INCOME AND, HENCE, NO EXPENDITURE IS REQUIRED TO BE ALLOCATED AGAINST THE DIVIDEND INCOME. THE EXPLANATION OF THE ASSESSEE WAS NOT ACCEPTED BY THE A.O. WHO PROCEEDED TO COMPUTE THE DISALLOWANCE U/S 14A READ WITH RULE 8-D OF THE INCOME TAX RULES, 1962. THE DISALLOWANCE WAS COMPUTED AT RS. 5 2,59,744/-. BEFORE THE LD. CIT(A), IT WAS STRONGLY CONTENDED THAT RULE 8-D IS NOT APPLICABLE FOR THE YEAR UNDER CONSIDERATION. THE LD. CIT(A) ACCEPTED T HIS CONTENTION OF THE ASSESSEE THAT THE APPLICABILITY OF RULE 8-D IS PROS PECTIVE AND IS APPLICABLE FROM A.Y. 2008-09. AT THE SAME TIME, THE LD. CIT(A) OBSERVED THAT AS PER THE RATIO OF HONBLE BOMBAY HIGH COURT IN THE CASE OF G ODREJ AND BOYCE MFG. CO. LTD. VS. DCIT (2010) 328 ITR 81 (BOM) REASONABLE EX PENSES HAVE TO BE DISALLOWED. THE LD. CIT(A) GAVE A FORMULA WHICH IS : TOTAL EXPENDITURE (DIRECT & INDIRECT) X VALUE OF TR ANSACTION IN SHARE YIELDING EXEMPT INCOME VALUE OF TOTAL TRANSACTIONS IN SHARE THE ASSESSEE AND REVENUE ARE AGGRIEVED BY THIS FIN DINGS OF THE LD. CIT(A). 4. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTH ORITIES BELOW. IT IS THE SETTLED POSITION OF LAW THAT RULE 8-D IS APPLICABLE FROM A.Y. 2008-09 AND THEREFORE NOT APPLICABLE FOR THE YEAR UNDER CONSIDE RATION. HOWEVER, AT THE ITA 8025/M/10 & ITA 8104/M/10 3 SAME TIME A REASONABLE EXPENDITURE HAS TO BE DISALL OWED. THE LD. CIT(A) HAS GIVEN A FORMULA FOR THE ALLOCATION OF EXPENDITURE O F THE EARNING OF EXEMPT INCOME WHICH IS INCORRECT IN THE EYE OF LAW. WE, TH EREFORE, SET ASIDE THE FINDINGS OF THE LD. CIT(A) AND RESTORE THE MATTER B ACK TO THE FILE OF THE A.O. THE A.O. IS DIRECTED TO DISALLOW A REASONABLE EXPEN DITURE ON THE FACTS OF THE CASE. 5. IN THE RESULT, GROUND 1 OF BOTH THE APPEALS IS T REATED AS ALLOWED FOR STATISTICAL PURPOSE. 6. THE ONLY OTHER GROUND IN REVENUES APPEAL RELATE S TO THE DELETION OF ADDITION OF RS. 2,56,287/- BEING PAYMENT MADE TO ST OCK EXCHANGE AS TECHNICAL FEE. 7. THE A.O. NOTICED THAT THE ASSESSEE HAS DEBITED I TS P&L ACCOUNT BY STOCK EXCHANGE OF RS. 2,56,287/- WHICH MAINLY INCLU DES BSE MEMBERSHIP, TURNOVER CHARGES AND OTHER CHARGES OF STOCK EXCHANG E. THE A.O. FOUND THAT THE ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE. THE AS SESSEE WAS ASKED TO EXPLAIN WHY THE AMOUNT OF EXPENSES SHOULD NOT BE DI SALLOWED U/S 40(A)(IA) OF THE ACT. IT WAS EXPLAINED THAT THESE CHARGES ARE PA ID TO BSE FOR MEMBERSHIP FEE, TURNOVER CHARGES AND VARIOUS CLIENT SERVICES P ROVIDED DURING THE YEAR. IT WAS CONTENDED THAT THESE CHARGES DO NOT COME UNDER THE PURVIEW OF SECTION 194J OF THE ACT. RELIANCE WAS PLACED ON THE DECISIO N OF THE TRIBUNAL IN THE CASE OF KOTAK SECURITIES LIMITED VS. ACIT REPORTED IN (2008) 25 SOT 440 (MUM). THE A.O. DISALLOWED THE SAME HOLDING THAT TH E SAID DECISION OF THE TRIBUNAL HAS NOT BEEN ACCEPTED BY THE DEPARTMENT. T HE LD. CIT(A) DELETED THE ADDITION HOLDING THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE TRIBUNAL (SUPRA). 8. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTH ORITIES BELOW. THE ONLY REASON FOR MAKING THE DISALLOWANCE BY THE A.O. IS T HAT THE DEPARTMENT HAS ITA 8025/M/10 & ITA 8104/M/10 4 NOT ACCEPTED THE DECISION OF THE TRIBUNAL. IN OUR C ONSIDERED OPINION, THIS CANNOT BE A REASON FOR MAKING THE DISALLOWANCE. WE FIND THAT THE CHARGES PAID BY THE ASSESSEE TO THE BSE DO NOT COME UNDER T HE PURVIEW OF TECHNICAL FEES AND HENCE PROVISIONS OF SECTION 194 J OF THE ACT ARE NOT APPLICABLE. WE THEREFORE DECLINE TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). 9. IN THE RESULT, APPEAL BY THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSE AND APPEAL BY THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH OCTOBER, 2014. !' ) *+ ,! - 16-10-2014 . / SD/- SD/- (VIVEK VARMA) (N.K. BILLAIYA ) JUDICIAL MEMBER ACCOUNTANT MEMBER * % MUMBAI ; ,! DATED 16-10-2014. [ .B../ R.K. , SR. PS ..0 !' # $%&' (!'% / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. C () / THE CIT)A)8, MUMBAI 4. C / CIT 4, MUMBAI 5. FG. BBHI , HI , * % / DR, ITAT, MUMBAI B BENCH 6. .JK L / GUARD FILE. !' ) / BY ORDER, F B //TRUE COPY// */)+ , ( DY./ASSTT. REGISTRAR) , * % / ITAT, MUMBAI