M/S VISHAL DIAMONDS PVT LTD, MUMBAI V. INCOME TAX OFFICER-5(3)(1), MUMBAI

MA 509/MUM/2023

• Counselvise Citation: [2023] 100 COUNSELVISE.COM (IT) 5365 (ITAT-MUMBAI)
• Duration Of Justice: 2 month(s) 24 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 09-11-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 09-11-2023
• Assessment Year: 2018-2019
• Appeal Filed On: 16-08-2023
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Rule 8D
• Section: 263; 14A; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “F”, MUMBAI BEFORE SHRI S. RIFAUR RAHMAN, HON'BLE ACCOUNTANT MEMBER AND MS KAVITHA RAJAGOPAL, HON'BLE JUDICIAL MEMBER MA.No. 509/MUM/2023 [ARISING OUT OF ITA NO. 2790/MUM/2022 (A.Y: 2018-19)] M/s. Vishal Diamonds Pvt. Ltd., 11 th Floor, The Plaza Hughese Road, 55, Gamdevi Mumbai - 400007 PAN: AAACV2799Q v. Income Tax Officer – 5(3)(1) Mumbai Appellant Respondent Assessee Represented by : Shri Hariom Tulsyan Department Represented by : Shri Manoj Kumar Sinha Date of conclusion of Hearing : 10.11.2023 Date of Pronouncement : 10.11.2023 O R D E R PER S. RIFAUR RAHMAN (AM) 1. Through this Miscellaneous Application assessee is seeking for rectification in the order passed by the Tribunal in ITA.No.2790/Mum/2022 dated 12.07.2023 for the A.Y. 2018-19. 2. At the time of hearing, Ld. AR of the assessee submitted that assessee company had made investments in the partnership firms and MA.No. 509/MUM/2023 M/s. Vishal Diamonds Pvt. Ltd., Page No. 2 from them assessee has received share of income of ₹.91,39,137/- as the share of profit and above share of profit was not included in the total income by claiming exemption u/s. 10(2A) of Income-tax Act, 1961 (in short “Act”). Further, he submitted that assessee has incurred and claimed total expenses of ₹.73,54,549/- including interest expenditure of ₹73,18,356/-. In the result, assessee has actually claimed the total administrative expenses of ₹.36,193/-. In support of the above submission assessee has filed copy of the Profit and Loss Account and Balance Sheet. Whereas Assessing Officer has invoked Rule 8D(2) of I.T.Rules and determined the disallowance by adopting the above rule and disallowed 1% of the average investments made by the assessee. 3. Ld. AR submitted that in the original hearing, assessee has made the above submissions and also relied on the other decisions to claim that the Assessing Officer cannot invoke disallowance u/s. 14A of the Act. However, the ITAT by relying on the decision of Special Bench in the case of Vishnu Anant Mahajan v. ACIT [2012] 22 taxman.com 88 (Ahd) and held that the proviso contained in section 14A would come into operation and the expenditure incurred towards the earning of share of profit from partnership firm shall be disallowed. Accordingly, ITAT dismissed the appeal filed by the assessee. However, they have not considered the alternative submission made by the assessee in the original appeal filed MA.No. 509/MUM/2023 M/s. Vishal Diamonds Pvt. Ltd., Page No. 3 by the assessee and he prayed that the above mistake apparent on record may be rectified. 4. On the other hand, Ld. DR submitted that there is no mistake apparent on record and the Assessing Officer has invoked the Rule 8D(2) and made the disallowance. Therefore, he objected to the arguments of the Ld. AR. 5. Considered the rival submissions and material placed on record, after considering the submissions of the assessee and the material submitted by the assessee, we observe that we have adjudicated the issue relating to application of section 14A in the case of assessee and dismissed the appeal of the assessee by wholly relying on the decision of the Special Bench in the case of Vishnu Anant Mahajan v. ACIT (supra). However, we notice that assessee has also raised an alternative plea on the actual disallowance made by the Assessing Officer. We observe from the record that Assessing Officer has applied Rule 8D mechanically without looking at the actual expenditure incurred by the assessee to earn the taxable as well as non-taxable income. As per the Profit and Loss Account submitted by the assessee we observe that assessee has actually claimed total expenditure of ₹.73,54,549/- and has not declared any taxable income. The total expenditure claimed by the assessee includes interest MA.No. 509/MUM/2023 M/s. Vishal Diamonds Pvt. Ltd., Page No. 4 expenditure and interest paid on unsecured loans to the extent of ₹.73,18,356/-. Therefore, the actual administrative expenditure claimed by the assessee is only ₹.36,193/-. From the assessment record, we observe that Assessing Officer has disallowed administrative expenditure as per Rule 8D(2)(ii) of I.T. Rules to the extent of 1% of the average annual investments. Therefore, Assessing Officer has mechanically applied Rule 8D(2)(ii) of I.T. Rules. Further, we observe from the pending appeals of the assessee, wherein the assessee has filed appeal against the Pr.CIT order u/s. 263 of the Act, in which the assessee itself has submitted before Pr.CIT that the borrowed capital was utilized in the partnership firm and the interest free funds were not utilized to finance the related parties. Considering the above, we are inclined to take on record the above submissions that the assessee has utilized the interest bearing funds in the partnership firm and earned exempt income. When this fact was put across before Ld. AR, he accepted the same and prayed that the same may be considered. Therefore, we consider the interest expenditure claimed by the assessee may be treated as direct expenditure incurred for earning exempt income, which may be disallowed under Rule 8D(2)(i) of I.T. Rules. 6. Coming to the issue of disallowance under Rule 8D(2)(ii) of I.T.Rules, we noticed that the assessee has actually incurred MA.No. 509/MUM/2023 M/s. Vishal Diamonds Pvt. Ltd., Page No. 5 administrative expenditure of ₹.36,193/- only. Therefore, as per Rule 8D(2)(ii) of I.T.Rules, 1% of the average annual investment or actual expenditure claimed by the assessee has to be disallowed. In the given case, the assessee has actually claimed only ₹.36,193/- as the total administrative expenses, the disallowance u/s. 14A of the Act is restricted to that extent of actual claim of expenditure r.w. Rule 8D(2)(ii) of I.T.Rules. 7. Accordingly, Miscellaneous Application filed by the assessee is partly allowed and further appeal filed by the assessee is accordingly modified to the extent of alternative claim made by the assessee. Accordingly, in the result, appeal filed by the assessee is partly allowed. 8. In the result, Miscellaneous Application filed by the assessee is partly allowed as indicated above. Order pronounced in the open court on 10 th November, 2023. Sd/- Sd/- (KAVITHA RAJAGOPAL) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai / Dated 10/11/2023 Giridhar, Sr.PS MA.No. 509/MUM/2023 M/s. Vishal Diamonds Pvt. Ltd., Page No. 6 Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// BY ORDER (Asstt. Registrar) ITAT, Mum