Income Tax Appellate Tribunal - Mumbai
Bombay Real Estate Development Co. ... vs Acit Rg 1(1), on 6 September, 2017
आयकर अपीऱीय अधिकरण, मुंबई न्यायपीठ "डी", मुंबई IN THE INCOME TAX APPELLATE TRIBUNAL BENCH "D" MUMBAI BEFORE SHRI D.T.GARASIA, JM AND SHRI RAJESH KUMAR, AM I.T.A. No.6561/Mum/2014 (निर्धारण वर्ा / Assessment Year : 2010-11) Bombay Real Estate Development Asstt. Commissioner of Income Co.Pvt.Ltd., Tax- Range-1(1), Noshirwan Mansion, बनाम/ Mumbai.
rd 3 floor, Henry road, Vs. Colaba, Mumbai-400039 स्थायी ऱेखा सं ./ PAN : AAACB2092K (अपीऱाथी /Appellant) : (प्रत्यथी / Respondent) अपीऱाथी की ओर से / Appellant by : Shri Deepak Tralshawala प्रत्यथी की ओर से/ Respondent by : Shri Purushottam Kumar सुनवाई की तारीख /Da te o f He a r in g : 17.8.2017 घोषणा की तारीख /Da te o f Pro n ou n ce me nt : 6. 9.2017 आदे श / O R D E R PER RAJESH KUMAR, A. M:
This is an appeal filed by the assessee against the order of ld.CIT(A)-1, Mumbai dated 28.8.2014 for the assessment year 2010-11 wherein the assessee has challenged the sustenance of disallowance of Rs.34,59,553/-
by the ld. CIT(A) as made by the AO under section 14A of the Income Tax Act, 1961 r.w.s.Rule 8D of the Income Tax Rules, 1961 and also the issue of 2 I.T.A. No.6561/Mum/2014 disallowance u/s 40(a)(ia) of Rs.606,650/- made on account of non-payment of TDS on processional fees.
2. Brief facts of the case are that the assessee filed its return of income showing a loss of Rs.33,85,526/- which was processed under section 143(1) of the Act. Thereafter the case of the assessee was selected for scrutiny and the statutory notices u/s 143(2) and 142(1) were issued and served upon the assessee. During the course of assessment proceedings, the AO observed that the assessee has earned a dividend income of Rs.3,97,85,799/- and long term capital gains of Rs.49,97,230/- which were claimed as exempt whereas no allocation of expenses pertaining to earning of said exempt income were made. Accordingly, the AO issued show cause notice to explain as to why the disallowance not be made u/s 14A of the Act in respect of the expenses incurred for earning the income claimed as income exempt as per rule 8D. In reply to the show cause notice, the assessee submitted that it has not incurred any expenses to earn exempt income and the reliance was placed on the decision in the case of TATA Fertilizers Ltd and also the reliance was placed in the case of Reliance Utilities and Power Ltd and other similar decisions. The AO after considering he submissions of assessee found that the submissions of the assessee were not convincing and tenable in law and accordingly after applying the provisions of section 14A read with rule 8D calculated the disallowance at Rs.34,59,553/- comprising of direct expenses 3 I.T.A. No.6561/Mum/2014 of Rs.1,38,612/- and 0.5 of average investments Rs.33,20,941/- u/r 8D(2)(iii) by making assessment under section 143(3) at book profit of Rs.7,08,40,966/-. Aggrieved by the order of the AO, the assessee preferred an appeal before the ld. CIT(A).
3. Before the FAA, the ld.AR submitted that the disallowance of Rs.34,59,553 was worked out under section 14A r.w.rule 8D without recording any satisfaction with reference to the books of account maintained by the assessee and hence the AO has violated the provisions of section 14A of the Actr.w.r.8D of the Rules. However, the ld.CIT(A) brushed the submissions of the assessee and dismissed the appeal of the assessee by observing and holding as under(4.1,4.1.1 CIT) :
"4.1 I have considered the facts and circumstances of the case, the submissions of the appellant and the assessment order. The gist of the submission of the appellant is that where no specific expenditure is incurred in relation to exempt income, disallowance u/s 14A is not warranted and that there is no nexus between dividend income and administrative & other expenses incurred. However, the same arguments were placed before the AO also on this issue, who has elaborately discussed the factual and legal position in the assessment order in para 3, which has been reproduced above for the sake of convenience. The decision of the Hon'ble Jurisdictional High Court in Godrej & Boyce referred above is a specific to the issue that 'once a proximate cause for disallowance is established- which is the relationship of the expenditure with income which does not form part of the total income - a disallowance u/s 14A has to be effected.' The detailed discussion in para 3.4 of the assessment order recording the fact that 'The assessee's contention that no part of the expenses claimed can be attributed to earning of exempt income is simply not acceptable in the light of the facts that the major source of income for the assessee during the A Y is dividend or LTCG/STCG and without deploying sufficient time and resources, the assessee cannot earn any 4 I.T.A. No.6561/Mum/2014 income. The activities of buying/selling of securities are also carried out from the office of the assessee for which it pays rent, telephone, postage and courier charges, repairs and maintenance etc. The assessee has debited an amount of Rs.1,38,612/- under the head 'Bank charges' and the same are directly attributable to the earning of dividend income and LTCG' - is valid and calls for application of Rule 8D. Section 14A Rule 8D is applicable for the assessment year under appeal which is a deeming provision and once the facts & circumstances requiring its application are fulfilled, the disallowance has to be worked out under the very same fiction without splitting, and resorting to peace meal application. The AO has given specific instances of expenses attributable to earning exempt income. Therefore, the proposition of the appellant that no expenditure has been incurred for earning exempt income cannot be accepted. The word appearing in Section 14A for disallowance of expenditure is 'in relation to' which is to be considered without any restriction of expenditure being direct / dominant etc. The indicated expenditure in relation to exempt income pointed out by the AO is sufficient and confirming to the applicability of Section 14A read with Rule 8D as done by the AO. The decision in the case of Laxmi Ring Travelers CTS-210 - ITAT- 2012(Chny) is relevant and applicable where it was laid down that even in a case where an assessee claims that no expenditure was incurred, the assessing authority has to presume the incurring of such expenditure as provided under sub-section (2) of Sec.14A read with Rule 8D, and make disallowance. ITAT observed, "Therefore, it becomes clear that even in a case where the assessee claims that no expenditure was so incurred, the statute has provided for a presumptive expenditure which has to be disallowed by force of the statute in a distant manner, literally speaking, it may even be considered for the purpose of convenience as a deeming provision. When such deeming provision is made on the basis of statutory presumption, the requirement of factual evidence is replaced by statutory presumption and the Assessing Officer has to follow the consequences stated in the statute. "
4.1.1 The decisions of the Hon'ble higher judicial authorities referred by the appellant on this issue mostly relate to assessment year prior to the period of amendment by way of insertion of Rule 8D, and related to retrospective application of Sec.14A read with Rule 8D, which are not relevant for the year under appeal where the legal position is clarified as above and facts of the case as also noted by AO sustain the disallowance as made. In view of the above discussion, Ground no.1 is dismissed".
5
I.T.A. No.6561/Mum/2014 Aggrieved by the order of the ld.CIT(A), the assessee is in appeal before us.
4. The ld.AR of the assessee submitted before us that the AO made the disallowance on the basis of presumptions and assumption and without recording any specific recording of satisfaction on the books maintained by the assessee. The ld. CIT(A) also by relying on the finding of the AO confirmed the action of assessing authority. The ld.AR relied on the decision of Delhi High Court in the case of CIT V/s Taikisha Engg. India Ltd reported in 370 ITR 338(Del) in defence of his arguments. The ld. AR also alternatively argued that a sum of Rs.2 lakhs may be disallowed towards exempt income. Therefore, the ld. AR submitted that since there is no satisfaction recorded by the AO before invoking the provisions of section 14A r.w.r.8D the addition made by the AO and confirmed by the ld. CIT(A) be deleted.
5. The ld.DR relied upon the orders of authorities below.
6. We have carefully considered the rival submissions, material placed before us and the orders of authorities below including the decisions referred to and relied upon by the parties at the time of hearing. From the facts, we observe that the AO has not recorded any satisfaction with reference to the books of accounts, as to how the expenditures were incurred in relation to the exempt income and invoked the provisions of section 14A r.w.r 8D citing to be it is mandatory with effect from assessment year 2008-09. The case of the 6 I.T.A. No.6561/Mum/2014 assessee is also supported by the decision of the Hon'ble Delhi High Court in the case of Taikisha Engg. India Ltd (supra), in which it has been held that where ordinary disallowance made by the assessee is found to be unsatisfactory on exempt income, the AO is capable and authorized to compute deduction under rule 8D, however satisfaction of the AO has to be recorded. The relevant observations of the Hon-ble Delhi High Court are reproduced below (20 of order) :
"20. However, in the present case we need not refer to sub Rule (2) to Rule 8D of the Rules as conditions mentioned in sub Section (2) to Section 14A of the Act read with sub Rule (1) to Rule 8D of the Rules were not satisfied and the Assessing Officer erred in invoking sub Rule (2), without elucidating and explaining why the voluntary disallowance made by the assessee was unreasonable and unsatisfactory. We do not find any such satisfaction recorded in the present case by the Assessing Officer, before he invoked sub Rule (2) to Rule 8D of the Rules and made the re-computation. Therefore, the respondent assessee would succeed and the appeal should be dismissed"
7. During the course of hearing, the ld. AR also offered that disallowance of Rs. 2 lakhs may be made in the line with the decision of the Co-ordinate Bench in the earlier year in assessee's own case in which the similar disallowance was made on lump sum basis. The ld. AR also took us through the annual accounts of the company specifically schedule-J, "administrative and other expenses" and pointed out that all the expenses was incurred in connection with the business of the assessee exclusively and cannot be so attributed to exempt income. However, the expenditure on telephone, 7 I.T.A. No.6561/Mum/2014 postage Rs.1,49,989/-, rent Rs.6,00,000/- and Electricity charges Rs.1,91,484/- out of which only a small fraction could be disallowed as attributable to earning of exempt income. In view of this fact and settled legal position, we are inclined to hold that invocation of provision of section 14A r.w.r.8D(2) is not justified without recording any satisfaction with reference to the books of account maintained by the assessee on the basis of which the assessee has not made any disallowance at all. However, we are of the considered view that a reasonable disallowance could be made attributing to the earning of the exempt income which in the present case is Rs.2,50,000/-.
8. Resultantly, the appeal of the assessee is partly allowed." Order pronounced in the open court on 6th Sep, 2017.
Sd sd (D.T.GARASIA) (RAJESH KUMAR) Judicial Member Accountant Member मुंबई Mumbai; ददन ुंक Dated : 6. 9.2017 Sr.PS:SRL:
आदे श की प्रतिलऱपि अग्रेपिि/Copy of the Order forwarded to :
1. अपीऱाथी / The Appellant
2. प्रत्यथी / The Respondent
3. आयकर आयुक्त(अपीऱ) / The CIT(A)
4. आयकर आयुक्त / CIT - concerned
5. ववभागीय प्रतततनधि, आयकर अपीऱीय अधिकरण, मुंबई / DR, ITAT, Mumbai
6. गाडड फाईऱ / Guard File 8 I.T.A. No.6561/Mum/2014 आदे श नस र/ BY ORDER, True copy उि/सह यक िुंजीक र (Dy./Asstt. Registrar) आयकर अिीऱीय अधिकरण, मंब ु ई / ITAT, Mumbai