SHRI AVINASH NIVRUTTI BHOSALE, PUNE V. DY CIT-CC-2(3), MUMBAI

ITA 858/MUM/2021

• Counselvise Citation: [2021] 104 COUNSELVISE.COM (IT) 5624 (ITAT-MUMBAI)
• Duration Of Justice: 7 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-12-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2016-2017
• Appeal Filed On: 19-05-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Condonation of delay; Rule 8D; Capital Gains
• Section: 132; 143(3); 153A; 14A; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “A”, MUMBAI BEFORE MS. SUCHITRA RAGHUNATH KAMBLE, JUDICIAL MEMBER & SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO. 858/MUM/2021 (A.Y.2016 -17) ITA NO. 860/MUM/2021 (A.Y. 2017-18) Shri. Avinash Nivrutti Bhosale, 2, ABIL House, Ganesh Khind Road, Range Hill Corner, Pune-411007 PAN: ABTPB8151F ............ Appellant Vs. The Deputy Commissioner of Income tax , CC-2(3), 8 th Floor, Room No. 803, Old CGO Annexe Building, Pratistha Bhavan, M.K. Road, Mumbai-400020 ............ Respondent Appellant by : Sh. Anuj kisnadwala, AR Respondent by : Ms. Surbhi Sharma, CIT-DR Date of hearing : 15/12/2021 Date of pronouncement : 23/12/2021 ORDER PER PRASHANT MAHARISHI, A.M: 1. These are the two appeals filed by the same assessee involving identical issues, both the parties argued them together and therefore those are disposed of by this common order. 2. The assessee against the order dated 25.12.2020 for Assessment Year (AY) 2016-17 passed by the ld. Commissioner of Income Tax (Appeals)-48, [hereinafter referred to as ‘the CIT (A)’] files ITA number 858/MUM/2021. 3. Assessee aggrieved by that order has raised the solitary ground of appeal against the confirmation of disallowance of Rs. 1,04,65,669/- by the learned CIT – A under 2 ITA No. 858 & 860 Mum 2021-Shri. Avinash Nivrutti Bhosale section 14A of The Income Tax Act r.w.r 8D(2) of the Income Tax Rules (‘the Rules’). 4. The brief facts of the case show that assessee is an individual and proprietor in three different entities; he is also partner in some partnership firms and Director in Some companies. He offered Income from Salary, Profits & Gains from Business & Profession, Capital Gains and Income from Other Sources in his return of income. 5. A search and seizure operation under section 132 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) was carried out on assessee on 21.07.2017. The assessee was issued notice under section 153A of the Act on 04.09.2018. In response to which the return of income was filed on 14.11.2018 declaring total income of Rs. 15,97,03,940/-. 6. As assessee in his return of income claimed exempt income of Rs. 17,90,861/-, assessee was asked to show the expenses incurred for earning the exempt income. The assessee submitted that investments are shown in his individual books of accounts whereas the expenses are accounted for in three different proprietary firms of the assessee. The assessee submitted that there is no requirement of any disallowance under section 14A of the Act. The Assessing Officer (AO) rejected the contentions and computed the disallowances in terms of Rule 8D of the Rules and disallowed a sum of Rs. 1,04,65,669/- under section 14A of the Act. Consequently, the assessment order was passed under section 153A r.w.s. 143(3) of the Act on 25.09.2019 declaring total income of Rs. 19,69,08,583/-. 7. Assessee aggrieved with the order of the ld. AO preferred an appeal before the ld. CIT(A) who passed an order on 25.12.2020 wherein he granted relief of Rs. 8,84,795/- and disallowance was retained by him at Rs. 98,80,874/-. He granted this relief because of income from foreign investment, which was considered by the AO for working out disallowance, as there cannot be any exempt income from foreign investments. The assessee was aggrieved with the order of the ld. CIT(A) on the balance disallowance confirmed , has preferred this appeal before us. 8. At the time of hearing, it was found that the appeal filed by the assessee is delayed by 22 days. The assessee preferred an application for condonation of delay vide letter dated 19.05.2021 stating that due to Covid-19 lockdown declared in the State of 3 ITA No. 858 & 860 Mum 2021-Shri. Avinash Nivrutti Bhosale Maharashtra since 4 th April 2021 office of the appellant and his counsel were closed and therefore, there was delay in collecting the details and filing the appeals. 9. The ld. Departmental Representative (DR) opposed the delay in filing the appeal. 10. We have carefully considered the rival contentions and the application for condonation of appeal in filing of the appeal. We find that the delay has occurred because of Covid-19 lockdown. We find that there is a cause for delay in filing of the appeal, therefore, we condone delay. 11. The ld. Authorized Representative (AR) submitted that the AO has considered all investments whether any exempt income is received from those investments during the year or not. Accordingly to him only those investments from which the exempt income is received during the year is required to be considered for making a disallowance under Rule 8D(2)(iii) of the Rules. He submitted a chart showing the working of disallowance based on the above arguments. According to that chart average value of investment was Rs. 108,18,14,958/- and proportionate disallowance thereon @ 0.5% was only Rs. 54,09,075/-. He, therefore, submitted that the disallowance could not exceed the above sum. For this proposition, he relied upon the decision of the Special Bench in case of Vireet Investment Pvt. Ltd. (165 ITD 27) and the decision of the Hon’ble Delhi High Court in case of ACB Investments Ltd. (374 ITR 160). 12. The ld. DR vehemently objected to the above submission and stated that even if there is no exempt income received during the year such investments needs to be considered for working out disallowance. She further stated that the Rule 8D(2)(iii) does not make any such distinction. 13. We have carefully considered the rival contentions and perused the order of the lower authorities. The Hon’ble Delhi High Court in ACB Investments Ltd. (supra) has held that for working out disallowance under Rule 8D(2)(iii) only those investments on which exempt income is received are required to be considered. The ld. DR could not point out any other judicial precedent, which is contrary to this proposition. Therefore, respectfully following the decision of the Hon’ble Delhi High Court, we direct the AO to consider only those investments for working out disallowance under section 14A of the Act from which exempt income is received 4 ITA No. 858 & 860 Mum 2021-Shri. Avinash Nivrutti Bhosale during the year. The assessee has submitted a working wherein the disallowance is only of Rs. 54,09,075/- based on above proposition. Therefore, we direct the assessee to submit the working before the ld AO and if the same is found in accordance with the decision of the Hon’ble Delhi High Court, the disallowance may be retained only to the extent of Rs. 54,09,075/-. Accordingly, ground no. 1 & 2 of the appeal of assessee are allowed with above directions. 14. This was only the issue in this appeal and therefore, the ITA No. 858/Mum/2021 for AY 2016-17 filed by the assessee is allowed for statistical purposes. . ITA No. 860/Mum/2021 for AY 2017-18 15. Assessee field his return of income on 1411 2018 in response to notice under section 153A dated 04.09.2018 declared income of Rs. 5,12,85,910/-. 16. At the time of the assessment the learned AO found that assessee has received exempt income of Rs. 3,37,43,513/-. The AO questioned about the disallowance under section 14A of the Act. The assessee submitted similar reply as was submitted for AY 2016-17. Based on this the AO worked out a disallowance of Rs. 3,12,37,113/- under section 14A of the Act. The above disallowance was worked out at 1% of annual average of monthly average in accordance with sub-rule 2(ii) of Rule 8D as amended w.e.f 02.06.2016. Consequently, the total income of the assessee was computed at Rs. 27,13,12,015/- vide order dated 29.05.2019 passed under section 153A r.w.s 143(3) of the Act. 17. Aggrieved, the assessee preferred an appeal before the ld. CIT(A). The assessee contested that only those investments should be considered on which assessee has earned any exempt income during the year. The ld. CIT(A) rejected the above contentions of the assessee for the reason that vide notification No. 43/2016 the method of computation of disallowance under section 14A r.w.r 8D is amended w.e.f. 02.06.2016 where from the distinction of investment whether any exempt income is received during the year or not is no more relevant, therefore, he confirmed the disallowance made by the AO and dismissed the appeal of the assessee. 18. Assessee is aggrieved with that order and has preferred this appeal. 5 ITA No. 858 & 860 Mum 2021-Shri. Avinash Nivrutti Bhosale 19. At the time of hearing, it was noted that the appeal of the assessee is delayed by 18 days. The assessee submitted an application of condonation of delay vide letter dated 19.05.2021 stating that due to the lockdown, the office of the assessee as well as the counsel was closed, hence, there was some delay in collecting the information which has caused this delay. 20. The ld. DR vehemently objected the application for condonation of delay. 21. We find that the delay has occurred due to Covid-19 lockdown, which is sufficient and reasonable cause for the delay. Thus, we condone delay of 18 days in filing of the appeal. 22. On the merits of the case, the ld. AR submitted that there is no change in the provision of Rule 8D(2) w.e.f. 02.06.2016. He referred the earlier provisions and changes in such provisions. He accordingly, submitted that only those value of investment from which exempt income is received during the year is required to be considered for working out disallowance. He submitted that, as there is no change in the language of Rule 8 D, the earlier decision of the Special Bench as well as the Hon’ble Delhi High Court squarely applied to the facts of this case. He, therefore, submitted that even in the revised Rule 8D only those investments from which exempt income is received during the year is required to be considered for working out disallowance under section 14A of the Act. 23. The ld. DR vehemently supported the order of the ld. CIT(A). 24. We have carefully considered the rival contentions and perused the orders of the lower authorities. There is no dispute between the parties that the assessee has received exempt income of Rs. 3,37,43,513/- during the year and there is disallowance required to be made under section 14A of the Act. There is also no dispute that provisions of Rule 8D, which is made applicable from 02.06.2016, is required to be employed for working out disallowance. The only dispute is whether in the new Rule for working out the value of investments from which no exempt income is received during the year is required to be considered or not. We find that the wordings of Rule 8D(2)(iii) employed the same language which was there in Rule 8D(2)(iii)earlier. Prior to its substitution, sub-rule (2) read as under : 6 ITA No. 858 & 860 Mum 2021-Shri. Avinash Nivrutti Bhosale "(2) The expenditure in relation to income which does not form part of the total income shall be the aggregate of following amounts, namely :— (i) the amount of expenditure directly relating to income which does not form part of total income; (ii) in a case where the assessee has incurred expenditure by way of interest during the previous year which is not directly attributable to any particular income or receipt, an amount computed in accordance with the following formula, namely :— A × B C Where A = amount of expenditure by way of interest other than the amount of interest included in clause (i) incurred during the previous year ; B = the average of value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year ; C = the average of total assets as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year; (iii) an amount equal to one-half per cent of the average of the value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year." 27. Now as substituted by the IT (Fourteenth Amdt.) Rules, 2016, w.e.f. 2-6-2016 it provides that:- [(2) The expenditure in relation to income which does not form part of the total income shall be the aggregate of following amounts, namely:— (i) the amount of expenditure directly relating to income which does not form part of total income; and (ii) an amount equal to one per cent of the annual average of the monthly averages of the opening and closing balances of the value of investment, income from which does not or shall not form part of total income: Provided that the amount referred to in clause (i) and clause (ii) shall not exceed the total expenditure claimed by the assessee.] 28. Therefore, in absence of any difference between the languages employed in working out disallowance, we are of the view that the decision of Hon’ble Delhi High Court in case of ACB Investments Ltd. (supra) and special bench decision in case of Vireet Investments [2017] 82 taxmann.com 415 (Delhi - Trib.) (SB) are still applicable. 7 ITA No. 858 & 860 Mum 2021-Shri. Avinash Nivrutti Bhosale 29. In view of the above facts, we direct the AO to retain the disallowance under Rule 8D for section 14A of the Act only to the extent of investments which yielded exempt income during the year. Accordingly, ground no. 1 & 2 of the appeal of the assessee are allowed. 30. In the result, ITA No. 860/Mum/2021 filed by the assessee for AY 2017-18 is allowed. Order pronounced in the court on 23.12.2021. Sd/- sd/- Sd/- Sd/- (MS. SUCHITRA R. KAMBLE) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER मुंबई/Mumbai, Dated: 23 /12/2021 SK, PS ितिलिप अ ेिषत/Copy of the Order forwarded to : 1. /The Appellant , 2. / The Respondent. 3. आयकर आय ( )/ The CIT(A)- 4. आयकर आय CIT 5. भ ग य , आय. . ., म बंई/DR, ITAT, Mumbai 6. ग फ इ /Guard file. BY ORDER, //True Copy// (Dy./Asstt. Registrar) ITAT, Mumbai