Income Tax Appellate Tribunal - Mumbai
Morgan Stanley Indian Company P.Ltd, ... vs Dcit 4(3), Mumbai on 20 December, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH "G", MUMBAI
BEFORE SHRI RAJENDRA, HON'BLE ACCOUNTANT MEMBER AND
SHRI C.N. PRASAD, HON'BLE JUDICIAL MEMBER
ITA NO.1576/MUM/2016 (A.Y: 2010-11)
M/s. Morgan Stanley India Company v. ACIT - Range 4(3)(2)
Private Limited, Room No.649, 6th Floor,
18F, Tower 2, One IndiaBulls centre, Aayakar Bhavan,
841, Senapati Bapat Marg, M.K.Road,
Mumbai 400 013 Mumbai-400 020
PAN NO: AAACJ 4998 F
(Appellant) (Respondent)
Assessee by : Shri Sunil Moti Lala
Department by : Shri Vidhyadhar
Date of Hearing : 16.11.2017
Date of Pronouncement : 20.12.2017
ORDER
PER C.N. PRASAD (JM)
1. This appeal is filed by the assessee against the order of the Learned Commissioner of Income Tax (Appeals) - 9, Mumbai dated 19.01.2016 for the Assessment Year 2010-11. The only issue in the appeal of the assessee is in respect of conformation of disallowance made u/s. 14A r.w. Rule 8D(2)(iii) of the I.T. Rules.
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ITA NO.1576/MUM/2016 (A.Y: 2010-11) M/s. Morgan Stanley India Company
2. Learned Counsel for the assessee submits that assessee received dividend income of ₹.5,20,000/- during this Assessment Year and in the computation of income assessee himself disallowed ₹.6,15,628/- suo-motu towards expenditure incurred for earning such dividend income. Learned Counsel for the assessee submits that the Assessing Officer by invoking the provisions of section 14A r.w. Rule 8D computed the disallowance under Rule 8D2(iii) of the I.T. Rules at ₹.1,02,54,975/- being 0.5% of the average value of investments and since the assessee itself disallowed ₹.6,15,628/- in the computation of income the same was reduced from ₹.1,02,54,975/- and the balance disallowance of ₹.96,39,337/- was made by the Assessing Officer while computing the income of the assessee. On appeal the Ld.CIT(A) sustained the said disallowance. Before us the Learned Counsel for the assessee submits that since the assessee has received dividend income of ₹.5,20,000/- only and it had already disallowed ₹.6,15,628/- there should not be any further disallowance u/s. 14A r.w. Rule 8D of the I.T. Rules.
3. Ld.DR vehemently supported the orders of the authorities below in making disallowance u/s. 14A r.w. Rule 8D. He submits that the Assessing Officer has rightly worked out the disallowance as per the provisions of the Act.
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ITA NO.1576/MUM/2016 (A.Y: 2010-11) M/s. Morgan Stanley India Company
4. We have heard the rival submissions, perused the orders of the authorities below. We are of the considered view and find force in all the submissions of the assessee that the disallowance u/s. 14A r.w. Rule 8D should not be more than the dividend income earned by the assessee. It is an admitted fact that during the Assessment Year the assessee received dividend income of ₹.5,20,000/- only. It is also an admitted fact that the assessee in its computation of income suo-motu disallowed ₹.6,15,628/- as expenses attributable for earning such dividend income. Therefore, as could be observed the assessee itself disallowed expenses more than the dividend income earned by the assessee and in such circumstances we are of the considered view that there should not be any further disallowance u/s. 14A r.w. Rule 8D of the I.T. Rules.
5. The Coordinate Bench in the case of M/s. Pest control India Pvt Ltd. v. DCIT in ITA.No. 5048/Mum/2016 by order dated 31.10.2017 held that disallowance u/s. 14A r.w. Rule 8D cannot exceed the exempt income observing as under: -
"7. We have heard the rival submissions, perused the orders of the authorities below and the case laws relied upon. The Assessing Officer computed the disallowance u/s. 14A r.w. Rule 8D at ₹.38,43,918/- and the Ld.CIT(A) recomputed the disallowance at ₹.5,10,601/- which comprises of ₹.3,42,870/- under Rule 8D(2)(ii) and ₹ 1,67,731/- under Rule 8D(2)(iii). This calculation of the Ld.CIT(A) appears to be proper and justified.
8. Further, it has been held in various cases that the disallowance u/s. 14A r.w. Rule 8D cannot exceed the exempt 4 ITA NO.1576/MUM/2016 (A.Y: 2010-11) M/s. Morgan Stanley India Company income. The Hon'ble Punjab and Haryana High Court in the case of Principal Commissioner of Income Tax-I v. M/s Empire Package Pvt. Ltd in ITA.No. 415 of 2015 dated 12.01.2016, dismissed the appeal of the Revenue holding that there is no substantial question of law arise in the appeal on the following question raised by the Revenue:
"Whether in the facts and circumstances of the case, the Hon'ble ITAT is justified in law to hold that the disallowance made under section 14A read with Rule 8D cannot exceed the exempt income, in the absence of any such restriction being there in the relevant section or rule?"
The Hon'ble High Court affirmed the order of the ITAT in holding that the disallowance u/s. 14A r.w. Rule 8D as worked out by the Assessing Officer is not in accordance with law for the reason that Assessing Officer has disallowed entire tax exempt income and this is not permissible in view of the judgment of the Hon'ble Delhi High Court.
9. The Hon'ble Delhi High Court in the case of Joint Investment Private Limited in ITA.No. 117/15 dated 25.02.2015 held that by no stretch of imagination can section 14A or Rule 8D be interpreted so as to mean that entire tax exempt income is to be disallowed.
10. Further, we find that considering the above two decisions the Coordinate Bench in the case of Sanghavi Exports International P. Ltd v. ACIT in ITA.No.3405/Mum/2015 dated 10.07.2017 held that disallowance should not be more than the dividend income by observing as under: -
4. We have perused the Assessment Order and find that the assessee earned exempt income of Rs.
1,70,000/- only during this Assessment Year and the Assessing Officer by invoking the provision of Section 14A made disallowance at Rs.54,66,813/-. The Hon'ble Delhi High Court in the case of Joint Investment Private Limited in ITA.No. 117/15 dated 25.02.2015 held that by no stretch of imagination can section 14A or Rule 8D be interpreted so as to mean that entire tax exempt income is to be disallowed. Similarly, Punjab and Haryana High court in the case of PCIT v. Empire Package Private Limited in ITA.No. 415/2015 held that disallowance should not exceed exempt income. In the case on hand since the assessee received dividend income of Rs.1,70,000/- as recorded in the Assessment Order the disallowance should not be more than Rs.1,70,000/-. Thus we direct the Assessing Officer to restrict the disallowance to the 5 ITA NO.1576/MUM/2016 (A.Y: 2010-11) M/s. Morgan Stanley India Company extent of dividend income i.e. Rs.1,70,000/- and delete the balance amount and compute the incomes accordingly."
6. Therefore, respectfully following the said decision we hold that the disallowance should not be more than dividend income. Further in this case the assessee itself has disallowed expenses of ₹.6,15,628/- which is more than the dividend income of ₹.5,20,000/- earned during this assessment year. Therefore, there should not be any further disallowance u/s. 14A r.w. Rule 8D of the I.T. Rules. Thus we direct the Assessing Officer to delete the disallowance made u/s. 14A r.w. Rule 8D(2)(iii) of I.T Rules.
7. In the result, appeal of the assessee is allowed.
Order pronounced in the open court on the 20th December, 2017.
Sd/- Sd/-
(RAJENDRA) (C.N. PRASAD)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai / Dated 20/12/2017
VSSGB, SPS
Copy of the Order forwarded to:
1. The Appellant
2. The Respondent.
3. The CIT(A), Mumbai.
4. CIT
5. DR, ITAT, Mumbai
6. Guard file.
//True Copy//
BY ORDER,
(Asstt. Registrar)
ITAT, Mum