Income Tax Appellate Tribunal - Mumbai
Udhav Holdings Pvt. Ltd., Mumbai vs Assessee on 6 December, 2013
आयकर अपीऱीय अधिकरण, मुंबई न्यायपीठ „एफ‟ मुंबई
IN THE INCOME TAX APPELLATE TRIBUNAL
"F" BENCH, MUMBAI
श्री डी. करुणाकर राव, ऱेखा सदस्य, एवुं श्री अममत शक्ऱा, न्याययक सदस्य के समक्ष
BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND
SHRI AMIT SHUKLA, JUDICIAL MEMBER
आमकय अऩीर सं. / ITA no. 5117/Mum./2012
(ननधधायण वषा / Assessment Year : 2009-10)
Udhav Holdings Pvt. Ltd. ....................... अऩीरधथी /
11-A, Mittal Chambers Appellant
Nariman Point, Mumbai 400 021
फनधभ v/s
Asstt. Commissioner of Income Tax ................... प्रत्मथी /
Circle-3(3), Mumbai Respondent
स्थधमी रेखध सं./ Permanent Account Number - AAACU0808K
ननधधारयती की ओय से / Assessee by : Mr. Rajesh Chamaria
यधजस्व की ओय से / Revenue by : Mr. Ravi Prakash
सन
ु वधई की तधयीख / आदे श घोषणध की तधयीख /
Date of Hearing - 02.12.2013 Date of Order - 06.12.2013
आदे श / ORDER
अममत शक्ऱा, न्याययक सदस्य के द्वारा /
PER AMIT SHUKLA, J.M.
The present appeal has been preferred by the assessee, challenging the impugned order 4th April 2012, passed by the learned Commissioner (Appeals)-VII, Mumbai, for the quantum of assessment passed under section 143(3) of the Income Tax Act, 1961 (for short "the Act") for the assessment year 2007-08, vide which, following grounds have been raised:-
Udhav Holdings Pvt. Ltd.2
1. The Ld. CIT (A) erred in facts of the case and in law upholding disallowance of expenses of Rs. 7,99,580/- mechanically disallowed by AO u/s 14 A of the Act out of expenses as per Rule 8D (2) (iii) calculated at the rate of 0.5% of the average investments. The reasons given by him for doing so are wrong and contrary to the facts and against the provisions of law.
2. The Ld. CIT (A)/ AO failed to consider that none of the expenses claimed are incurred, related or attributed to investments or exempt income and whatever expenses are incurred for its business and corporate structure which are also far less than the expenses disallowed.
3. The Ld. CIT (A) failed to consider that AO has not noted his dissatisfaction as required by Rule 8D (1) as to disallowance u/s 14A already made by the assessee before determining the amount of expenditure in relation to exempt income as per Rule 8D (2).
2. The assessee company is engaged in the business of finance and investments in shares and securities. It has earned dividend income of ` 88,52,577 which has been claimed as exempt under section 10(34) and 10(35). It has also claimed long term capital gain on sale of shares. The assessee, in the computation of income, has disallowed sum of ` 46,309 towards expenditure which is to be disallowed under section 14A. The Assessing Officer rejected the assessee's working and has disallowed sum of ` 10,77,677 in the following manner:-
I. Expenses directly attributable to ` 22,497 exempt income (Depository charges) II. Formula: A x B / C ` 2,55,600 A: Expenses not directly related to exempt income (interest) i.e. (665000 + 131507) = 796507 B: Average value of investment on the opening and closing day of the previous year i.e. (319723459 + 108884)/2 1599161712) C: Average value of assets on the opening and closing day of the previous year i.e. (461411133 + 535259622)/2 = 498335377 796507 x 159916172 498335377 = 255600 Udhav Holdings Pvt. Ltd.3
III. 0.5% of average value of ` 7,99,580
investment in the opening and
closing day of the
previous year i.e. 0.5% of B =
799580
Aggregate of I + II + III ` 10,77,677
3. The learned Commissioner (Appeals), though has removed
disallowance on account of interest in the formula given in rule 8D and gave relief of ` 2,55,600, however, he confirmed the balance disallowance after observing and holding as under:-
"3.5 I have considered the A.O.'s order as well .as appellant AR's submission. Having considered both, I find that Rule 8D is applicable in the case of the appellant company the year under consideration as held by the decision of jurisdictional High Court in case of Godrej & Boyce Manufacturing Co. Ltd. vs. DCIT reported in 328 ITR page 81. However, I find that the appellant was having sufficient interest free funds available for making investments. I also find that the appellant company had suo moto disallowed Rs.46,309/- i.e. Rs.21,954/- being depository charges and Rs.24,355/- being miscellaneous expenses under section 14A of the Act as these expenses did not relate to earning taxable income. Hence the disallowance made by the A.O. under rule 8D(2)(ii) of I.T. rules r.w.s 14A of the Act is not correct in view of decision of Reliance Utility and Power Limited (313 ITR 340). Accordingly the addition so made of Rs.2,55,600/- is deleted. However as application of rule 80 is mandatory as held by the Bombay Court in the case of Godrej & Boyce Mfg. Co. Ltd. reported in 328 ITR 81. Accordingly, the addition so made by the A.O. under rule 80(2)(iii) r.w.s 14A of the Act of Rs.7,99,580 is confirmed. Thus, appellant's this ground of appeal is partly allowed."
4. Before us, the learned Counsel submitted that the assessee has debited the total expenditure of ` 34,91,251 out of which the interest component is ` 7,96,507. From the balance, the assessee has itself disallowed ` 23,35,000 towards donation. Then again out of the balance sum, the assessee has worked out the disallowance of ` 46,309. He submitted that the balance expenditure debited after all the disallowance come to approximately ` 3 lakhs and odd. Even these expenses which are in Udhav Holdings Pvt. Ltd.
4the form of rates and taxes, legal and professional charges, auditor's remuneration, depreciation and bank charges, are very much essential for running of corporate office and other business of the assessee. The assessee has not debited any salary in the Profit & Loss account. Thus, a huge disallowance of ` 7,99,580 cannot be made. In any case, the disallowance of expenses cannot exceed the expenditure claimed. Regarding expenditure relating to depository charges of ` 22,497, he submitted that the assessee has debited only ` 21,954 which forms part of the disallowance offered by the assessee at ` 46,309. The Assessing Officer has disallowed the said sum again even though the assessee has itself disallowed it, which has resulted into double disallowance.
5. On the other hand, the learned Departmental Representative submitted that once the provisions of rule 8D are triggered, then the disallowance has to be calculated @ 0.5% of the average investment. Therefore, the disallowance of ` 7,99,580, as made by the Assessing Officer and sustained by the learned Commissioner (Appeals), has to be confirmed. He, thus, strongly relied upon the findings of the Assessing Officer as well as the learned Commissioner (Appeals).
6. We have heard the rival contention, perused the relevant findings of the authorities below and the material available on record. Insofar as the disallowance on account of interest is concerned, there is no dispute as the learned Commissioner (Appeals) has removed the disallowance from the working of rule 8D. As regards disallowance of ` 22,497, it has been brought on record that the assessee has itself disallowed the depository charges of ` 21,954. Thus, to the extent of ` 21,954, this amount has been added twice and such disallowance has to be removed under section 14A r/w rule 8D. Now, coming to the disallowance of ` 7,99,580, which has been worked out at 0.5% of the average value of investment, it is seen that the assessee has debited total expenditure of ` 34,91,251. If the interest expenditure of ` 7,96,507 which has been deleted by the learned Commissioner (Appeals) Udhav Holdings Pvt. Ltd.
5and donation amount of ` 23,35,000 which itself was disallowed by the assessee in its computation of income, then, the balance expenditure under the administrative head is ` 3,59,744 i.e., [` 34,91,251 (-) 7,96,507 (-) ` 23,35,000 = 3,59,744]. From this sum, if the amount of ` 46,309 is removed which the assessee has itself disallowed in the computation of income for the purpose of section 14A, then the resultant expenses debited is only ` 3,13,435. This expenditure mostly relates to legal and professional charges, auditor's remuneration, depreciation and bank charges and rates and taxes. These expenses are, any way, required to be incurred for the maintenance and running of corporate office and other business of the assessee. The entire expenditure cannot be said to be attributable to earning of exempt income. Provisions of section 14A provide that any deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income. The expenditure which has to be disallowed has to be in relation to the exempt income only. Sub- section (2) of section 14A, provides that the Assessing Officer has to determine the amount of expenditure incurred in relation to such exempt income, if the Assessing Officer having regard to the accounts of the assessee is not satisfied with the correctness of the claim of the assessee in respect of such expenditure relating to exempt income. This fact of incurring of the expenditure needs to be examined and then only provisions of section 14A can be applied. In this case, no such exercise has been done by the Assessing Officer. Insofar as the Assessing Officer's observation regarding interest income is concerned, the assessee's plea has already been accepted that no borrowed funds have been utilized for the investment purposes. Regarding the administrative expenditure, no satisfaction about the correctness of the assessee's claim has been looked into. Under the totality of the facts and circumstances of the case and the nature of expenditure which has been discussed above, we are of the considered opinion that the disallowance of ` 7,99,580 on account of administrative expenditure is too excess than the expenditure claimed in the Profit & Loss account and without rebutting the correctness of the assessee's claim, the disallowance offered Udhav Holdings Pvt. Ltd.
6by the assessee at ` 46,309, cannot be tinkered with. Consequently, we set aside the impugned order passed by the learned Commissioner (Appeals) and the ground raised by the assessee is treated as allowed.
7. ऩरयणधभत् ननधधारयती की अऩीर स्वीकृत भधनी जधती है ।
7. In the result, assessee's appeal is treated as allowed.
आदे श की घोषणध खर ु े न्मधमधरम भें ददनधंक् 6 December 2013 को की गई ।
th Order pronounced in the open Court on 6th December 2013 Sd/- Sd/-
डी. करुणाकर राव अममत शक्ऱा
ऱेखा सदस्य न्याययक सदस्य
D. KARUNAKARA RAO AMIT SHUKLA
ACCOUNTANT MEMBER JUDICIAL MEMBER
मुंबई MUMBAI, ददनाुंक DATED: 6th December 2013 आदे श की प्रनतलरपऩ अग्रेपषत / Copy of the order forwarded to:
(1) ननधधारयती / The Assessee;
(2) यधजस्व / The Revenue;
(3) आमकय आमुक्त(अऩीर) / The CIT(A);
(4) आमकय आमुक्त / The CIT, Mumbai City concerned;
(5) पवबधगीम प्रनतननधध, आमकय अऩीरीम अधधकयण, भुंफई / The DR, ITAT, Mumbai;
(6) गधर्ा पधईर / Guard file.
सत्मधपऩत प्रनत / True Copy
आदे शधनुसधय / By Order
प्रदीऩ जे. चौधयी / Pradeep J. Chowdhury
वरयष्ठ ननजी सधचव / Sr. Private Secretary
उऩ / सहधमक ऩंजीकधय / (Dy./Asstt. Registrar)
आमकय अऩीरीम अधधकयण, भुंफई / ITAT, Mumbai