HARESH S. JHAVERI, MUMBAI V. DCIT 4(1), MUMBAI

ITA 8518/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8340 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 29-10-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 07-12-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V KRISHNAMOORTHY
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES H MUMBAI . . , BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND , SHRI RAJENDRA, ACCOUNTANT MEMBER I.TA. NO. 8518/MUM/2010 ASSESSMENT YEAR 2007-08 HARESH S. JHAVERI, PS-67, ROTUNDA BLDG, 2 ND FLOOR, B.S. MARG, DALAL STREET, MUMBAI 400 023. PAN: AABPJ 8053 B VS. DCIT 4(1), AAYAKAR BHAVAN, MUMBAI. ( / APPELLANT ) ( ! / RESPONDENT ) ' / APPELLANT BY : NONE ! # ' /RESPONDENT BY : SHRI V. KRISHNAMOORTHY $ # %& / DATE OF HEARING : 29-10-2012 '() # %& / DATE OF PRONOUNCEMENT : 31-10-2012 * / O R D E R PER RAJENDRA, AM THE PRESENT APPEAL IS DIRECTED AGAINST THE ORDER DT . 21-10-2010 PASSED BY THE CIT(A)-10, MUMBAI. FOLLOWING GROUNDS OF APPEAL HAV E BEEN RAISED BY THE ASSESSEE: (1)ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS W ELL AS IN LAW THE LEARNED CIT (A) HAS ERRED IN DIRECTING THE AO TO RE-CALCULATE THE D ISALLOWANCE U/S. 14A, WHICH IS MORE OR LESS IN THE LINE OF FORMULA LAID DOWN UNDER RULE 8D UNDER IT RULES, APPLIED BY THE ASSESSING OFFICER WHILE MAKING THE DISALLOWA NCE OF RS.12,41,875/- IN THE ASSESSMENT ORDER. HE HAS FAILED TO APPRECIATE THAT THE TOTAL EXPENDITURE DEBITED TO THE PROFIT & LOSS ACCOUNT WAS ONLY TO THE EXTENT OF RS. 4,67,083/- OUT OF WHICH APPELLANT ALREADY MADE DISALLOWANCE OF RS.1,04,771/- IN THE R ETURN OF INCOME AND THE DISALLOWANCE AS PER THE DIRECTION WOULD BE MORE THA N THE TOTAL EXPENDITURE. (2)THAT THE ORDER OF THE LD. C.I.T.(APPEALS) BEING ARBITRARY AND BAD IN LAW, THE SAME SHOULD BE QUASHED AND YOUR APPELLANT BE GIVEN SUCH RELIEF OR RELIEFS AS PRAYED FOR. (3)THAT THE APPELLANT CRAVES THE LEAVE TO ADD, AMEN D AND MODIFY THE ABOVE GROUNDS AT THE TIME OF HEARING OF THE APPEAL. 2. ASSESSEE AN INDIVIDUAL ENGAGED IN THE BUSINESS OF S HARE TRADING, DEALING IN SHARES AND SECURITIES AND INVESTMENT IN SHARES, FILED HIS RETURN OF INCOME ON 23-10-2007 DECLARING TOTAL INCOME AT RS. 2.15 CRORES. THE RET URN WAS PROCESSED U/S.143(1) OF THE INCOME TAX ACT, 1961 (ACT). LATER ON CASE WAS SELE CTED FOR SCRUTINY AND ASSESSMENT 8518/MUM/2010 HARESH S. JHAVERI 2 WAS FINALIZED U/S. 143(3) OF THE ACT BY THE ASSESSI NG OFFICER (AO) DETERMINING TOTAL INCOME OF THE ASSESSEE AT RS. 2.28 CRORES. DURING THE COURSE OF SCRUTINY PROCEEDINGS, AO FOUND THAT ASSESSEE HAD SHOWN DIVIDEND INCOME OF RS. 29.94 LAKHS AND HAD CLAIMED THE SAME AS EXEMPT INCOME U/S. 10(34) OF TH E ACT. HE FURTHER FOUND THAT ASSESSEE HAS NOT DIS-ALLOWED PROPORTIONATE EXPENSES RELATING TO SUCH EXEMPT INCOME IN VIEW OF SECTION 14A OF THE ACT. AO ASKED THE AS SESSEE TO EXPLAIN AS WHY THE PROVISIONS OF SECTION 14A R.W. RULE 8D OF INCOME TA X RULES, 1962 (RULES) SHOULD NOT BE APPLIED IN HIS CASE. 3. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, AO APPLIED THE PROVISIONS OF SECTION 14A R.W. RULE 8D AND DIS-ALLOWED RS. 12.4 1 LAKHS AS EXPENDITURE INCURRED FOR EARNING EXEMPT INCOME. ASSESSEE PREFERRED AN A PPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE ASSESSMENT ORDER, HE HELD THAT ASSESSEES CLAIM OF NOT INCURRING ANY EXPENDITURE FOR EARNING DIVIDEND INCOME COULD NOT BE ACCEPTED. REF ERRING TO THE JUDGMENT DELIVERED BY THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD., (43 DTR (BOM) 177), HE DIRECTED THE AO TO APPLY A CERTAIN FORMULA FOR MAKING A DIS-ALLOWANCE OF THE EXPENSES INCURRED TO EARN EXEMPT INCOME. 4. BEFORE US, AUTHORISED REPRESENTATIVE (AR) SUBMITTED THAT FAA HAD DIRECTED THE AO TO RE-CALCULATE THE DIS-ALLOWANCE THAT WAS BASED ON THE FORMULA LAID DOWN UNDER RULE 8D OF THE RULES, THAT TOTAL EXPENDITURE DEBITE D TO P&L A/C WAS ONLY OF RS. 4.67 LAKHS, THAT ASSESSEE HAD ALREADY MADE DIS-ALLOWANCE OF RS. 1.04 LAKHS IN THE RETURN OF INCOME, THAT IF FORMULA DEVISED BY THE FAA WAS A PPLIED IT WOULD RESULT IN DIS-ALLOWANCE MORE THAN THE TOTAL EXPENDITURE INCUR RED BY THE ASSESSEE. DEPARTMENTAL REPRESENTATIVE (DR) RELIED UPON THE ORDER OF THE AO AND FAA. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON THE FILE. IN OUR OPINION, RULE 8D OR ANY OTHER FORMULA THAT IS BASED ON THE PRINCIPLES OF RULE 8D CANNOT BE APPLIED UP TO THE ASSESSMENT YEAR (AY) 2007-08 FOR CALCULATING DIS-ALLOWANCE TO BE MADE U/S. 14A OF THE ACT. IN T HE CASE UNDER CONSIDERATION, THE ASSESSEE HAD DEBITED EXPENDITURE OF RS. 4,67,083/-. SO, IF ANY DIS-ALLOWANCE HAS TO BE MADE, IT SHOULD NOT BE MORE THAN THE SAID EXPENDITU RE. WE FIND THAT ASSESSEE HIMSELF HAS DIS-ALLOWED HAS MADE A DIS-ALLOWANCE OF RS. 1.0 4 LAKHS IN THE RETURN FILED BY HIM. 6. WE ARE OF THE OPINION THAT AS PER THE ORDER OF THE HONBLE HIGH COURT OF BOMBAY, THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD., (SUPRA), REASONABLE DIS-ALLOWANCE CAN BE MADE UP TO AY 2007-08 U/S. 14A OF THE ACT. THEREFORE, IN THE INTEREST OF JUSTICE, WE RESTORE BACK THE MATTER TO THE FILE OF THE AO TO CALCULATE THE REASONABLE DIS-ALLOWANCE AS PER SECTION 14A OF THE ACT, CONSIDERING THE FACT THAT ASSESSEE HAD DEBITED THE TOTAL EXPENDITURE OF RS. 4 .67 LAKHS ONLY IN HIS P&L A/C. HE SHOULD RE-ADJUDICATE THE MATTER AFTER AFFORDING THE ASSESSEE A REASONABLE OPPORTUNITY OF HEARING. APPEAL FILED BY THE ASSESSEE STANDS PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST OCTOBER, 2012. SD/- SD/- ( . . / I.P. BANSAL ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI, +$ DATE: 31 ST OCTOBER, 2012 8518/MUM/2010 HARESH S. JHAVERI 3 TNMM * * * * # ## # %, %, %, %, -,)% -,)% -,)% -,)% / COPY OF THE ORDER FORWARDED TO : 1. APP ELLANT 2. RESPONDENT 3. THE CONCERNED CIT (A) 4. THE CONCERNED CIT 5. DR H BENCH, ITAT, MUMBAI 6. GUARD FILE !,% % //TRUE COPY// *$ *$ *$ *$ / BY ORDER, . .. . / / / / / DY./ASSTT. REGISTRAR , / ITAT, MUMBAI