Income Tax Appellate Tribunal - Mumbai
Hrithik Rakesh Nagrath, Mumbai vs Department Of Income Tax on 25 July, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL,
MUMBAI BENCH H' BENCH
BEFORE SHRI B.R.MITTAL(JUDICIAL MEMBER) AND
SHRI RAJENDRA (ACCOUNTANT MEMBER)
ITA No.6110/Mum/2011
Assessment Year: 2008 -09
ACIT 11(1), Hrithik RakeshNagrath,
Aayakar Bhavan, M.K. Road, B-27, Commerce Centre, 1st floor, Off New
Mumbai. Link Road, Andheri(W), Mumbai-53
Vs.
PA No.AABPN 2790 F
(Appellant) (Respondent)
Appellant by : Shri N.K.Mehta
Respondent by: Shri R.Prasad Rao
Date of hearing: 25.7.2012
Date of pronouncement: 8 .8.2012
ORDER
Per B.R.Mittal, JM:
This appeal filed by the department against the order dated 15.6.2011 of the CIT(A)-3, Mumbai for the assessment year 2008-09 disputing the action of ld CIT(A) in deleting disallowance made by the AO u/s.14A r.w. Rule 8D of I.T.Rules amounting to Rs.15,74,023.
2. The relevant facts are that during the course of assessment proceedings, AO asked assessee to explain as to why section 14A r.w. Rule 8D is not applicable to him. Assessee stated that the exempt income comprised of PPF interest, equity dividend, interest on RBI Relief Bonds, which were either credited through ECS or recovered by passing a journal entry. As such, there was no expenditure relatable to such exempt income within the meaning of section 14A. Therefore, no disallowance is called for. It was also stated that assessee has not debited or incurred any interest expense in the profit and loss account. However, AO did not agree with assessee and made disallowance of Rs.15,74,023 as per Rule 8D r.w. Section 14A. In the first appeal, it was 2 ITA No.6110/Mum/2011 contended that AO has to give a categorical finding that some expenditure in relation to an exempt income was in fact incurred by assessee before invoking provisions of section 14A r.w. Rule 8D. It was contended that AO computed the disallowance in a mechanical manner by applying arithmetic formula of rule 8D. It was contended that dividend income is Rs.7,547 which was also credited through ECS. Ld CIT(A) considered the submissions of assessee and facts of the case and vide para 1.3 of the impugned order, deleted the disallowance made by the AO, which reads as under:
"I have considered the facts and perused the material on record. The provisions of section 14A (1) read with section 14A(2) provides that for the purpose of total income computed under this chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of total income under this chapter and the AO will determine the amount of expenditure incurred in relation to exempt income if he is not satisfied with the correctness of the claim of the assessee. The perusal of profit and loss account of the appellant shows that the appellant has not made any claim of expenditure incurred in relation to exempt income, therefore, the provisions of section 14A(1) r.w. s 14A(2) of the Act are not attracted. The AO has also not given any findings on whether the assessee has made a claim of expenditure in relation to exempt income and the claim is not correct. It is seen that the assessee has earned dividend of Rs.7,547 only, which has been directly credited to bank through ECS. The interest of Rs.58,304 received on PPF, for which a journal entry is passed on 31.3.3008 and similarly, interest of Rs.81,40,390 on tax free bonds is credited by journal entries passed on 31.3.2008. Thus, no expenditure has been incurred for earning exempt income. Therefore, there is no proximate cause for disallowance in relationship with exempt income as held in CIT vs. Walfort Shares & Stock Brokers Pvt Ltd., 326 ITR 1 (SC) and Godrej Boyce Manufacturing Co. Ltd vs DCIT (2010) 328 ITR 81(Bom) for attracting the provisions of section 14A. In view of this facts and following the decision of Jurisdictional High Court, the disallowance of Rs.15,74,023 is deleted."
Hence, department is in appeal before the Tribunal.
3. During the course of hearing, ld D.R. relied on order of AO and whereas ld A.R. made his submissions on the line of submissions made before the authorities below. He referred to page 4 r.w. page 10 of PB, which contains a copy of balance sheet, income and expenditure account and the details of professional expenses claimed and submitted that assessee has not debited any interest expenses in the profit and loss account. It was contended that net professional receipts of the assessee is Rs.25.37crores and the expenditure claimed is Rs.7.36 crores and in the professional expenses, there is no claim 3 ITA No.6110/Mum/2011 of interest, which could be attributable to the exempt income of the assessee. On other than, there is interest income of the assessee of Rs.2.66 crores.
4. We have carefully considered submissions of ld representatives of parties and orders of authorities below. We have considered profit and loss account and also details of receipts and expenses claimed by the assessee in P&L account. It is a fact that there is no claim of payment of interest by the assessee and expenses claimed. On the other hand, there is receipt of interest and dividend income of the assessee in the income and expenditure account of Rs.2.66 crores. It is a fact that AO can apply Rule 8D to make disallowance only if he is not satisfied as per section 14A(2) of the Act that having regard to the accounts of assessee with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under the Act. We observe that there is no such finding by AO in assessment order. On the other hand, in the case before us, there is no such claim of the assessee towards expenses in relation to income which does not form part of total income under the Act. Therefore, question of applying Rule 8D in the facts of the case to make disallowance does not arise. Hence, we uphold the order of ld CIT(A) and reject ground of appeal taken by department.
5. In the result, appeal is dismissed.
Pronounced in the open court on 8th August, 2012
Sd/- Sd/-
(RAJENDRA) (B.R. MITTAL)
Accountant Member Judicial Member
Mumbai, Dated 8th August, 2012
Parida
Copy to:
1. The appellant
2. The respondent
3. Commissioner of Income Tax (Appeals),H, Mumbai
4. Commissioner of Income Tax, 11 , Mumbai
5. Departmental Representative, Bench 'H' Mumbai
//TRUE COPY// BY ORDER
ASSTT. REGISTRAR, ITAT, MUMBAI