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Income Tax Appellate Tribunal, MUMBAI BENCH “A” MUMBAI
Before: SHRI OM PRAKASH KANT & SHRI RAHUL CHAUDHARY
This appeal by the assessee is directed against order dated 04.02.2019 passed by the Ld. Commissioner of Income-tax (Appeals) – 5, Mumbai [in short ‘the Ld. CIT(A)’] for assessment year 2014-15, raising following grounds :
That on the facts and in the circumstances of the case, the Ld. CIT(A) was not justified and grossly erred in confirming the disallowance u/s 14A.
L & T Finance Holdings Ltd.. 2 L & T Finance Holdings Ltd.. ITA No.
Briefly stated, facts of the case are Briefly stated, facts of the case are that the assessee filed that the assessee filed return of income declaring current year loss at Rs.( return of income declaring current year loss at Rs.(- )22,78,49,240/- on 30.11.2014. The return of income filed by the assessee was on 30.11.2014. The return of income filed by the assessee was on 30.11.2014. The return of income filed by the assessee was selected for scrutiny assessment and statutory notices under the selected for scrutiny assessment and statutory notices under the selected for scrutiny assessment and statutory notices under the Income-tax Act, 1961 (in short ‘the tax Act, 1961 (in short ‘the Act’) were issued and complied Act’) were issued and complied with. During the course of assessment proceedings, the Assessing with. During the course of assessment proceedings, the Assessing with. During the course of assessment proceedings, the Assessing Officer noted that the assessee earned dividend income of Officer noted that the assessee earned dividend income of Officer noted that the assessee earned dividend income of Rs.2,19,68,85,793/- from investment in equity shares and mutual from investment in equity shares and mutual funds and claimed the entire dividend the entire dividend income as exempt. However, income as exempt. However, the assessee did not the assessee did not make any suo moto disallowance out of any suo moto disallowance out of expenses in profit and loss account related to exempted income. It expenses in profit and loss account related to exempted income. It expenses in profit and loss account related to exempted income. It was claimed by the assessee that investment in subsidiary or group was claimed by the assessee that investment in subsidiary or group was claimed by the assessee that investment in subsidiary or group companies was made with the object o companies was made with the object of controlling sta f controlling stake in the subsidiary company and not for earning dividend income. The subsidiary company and not for earning dividend income. The subsidiary company and not for earning dividend income. The Assessing Officer recorded the dissatisfaction on the claim of the Assessing Officer recorded the dissatisfaction on the claim of the Assessing Officer recorded the dissatisfaction on the claim of the assessee of incurring no expenses for earning exempted income and assessee of incurring no expenses for earning exempted income and assessee of incurring no expenses for earning exempted income and accordingly invoked Rule 8D of the I accordingly invoked Rule 8D of the Income-tax Rules, 1962 (the tax Rules, 1962 (the Rules) and made disallowance of Rs.14,58,76,907/- computing as Rules) and made disallowance of Rs.14,58,76,907/ Rules) and made disallowance of Rs.14,58,76,907/ under: Rule 8D(2)(ii) 2. Amount of the Interest expense indirectly attributable to 2. Amount of the Interest expense indirectly attributable to 2. Amount of the Interest expense indirectly attributable to such income, in accordance with the formula AxB/C, where such income, in accordance with the formula AxB/C, where such income, in accordance with the formula AxB/C, where A. A. Total Total Interest Interest Expenditure Expenditure minus minus direct direct interest interest expenditure on such income. expenditure on such income. = Rs. Nil (A) = Rs. Nil (A) B. Average on such Investment on the first and last day of B. Average on such Investment on the first and last day of B. Average on such Investment on the first and last day of previous year 25410800910+329399619910 25410800910+329399619910 = (B) 2
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Rs.29175381410 Rs.29175381410 C. Average of total assets on first and last day of previous year assets on first and last day of previous year assets on first and last day of previous year 55105652885+53334023479 55105652885+53334023479 = Rs.54219838182 (C) 2 Nil AxB/C= Rule 8D(2)(iii) 14,58,76,907 3. 05.% of the average value of investment of (‘B’ above 3. 05.% of the average value of investment of (‘B’ above 3. 05.% of the average value of investment of (‘B’ above Rs.29175381410/- - x 0.5% = Total disallowance u/s 14A Total disallowance u/s 14A 3. On further appeal, the Ld. CIT(A) upheld the disallowance On further appeal, the Ld. CIT(A) upheld the disallowance On further appeal, the Ld. CIT(A) upheld the disallowance observing as under:
“6.4.3 The Hon'ble Third Member Bench, ITAT, Mumbai in the 6.4.3 The Hon'ble Third Member Bench, ITAT, Mumbai in the 6.4.3 The Hon'ble Third Member Bench, ITAT, Mumbai in the case of D.H. Securities P Ltd reported in 41 taxmann.com 352 case of D.H. Securities P Ltd reported in 41 taxmann.com 352 case of D.H. Securities P Ltd reported in 41 taxmann.com 352 has held that: that: "There could be no quarrel with regard to the allocation of "There could be no quarrel with regard to the allocation of "There could be no quarrel with regard to the allocation of direct expenditure, which in fact states the obvious, and direct expenditure, which in fact states the obvious, and direct expenditure, which in fact states the obvious, and would in any case warrant a disallowance, i.e., even in the would in any case warrant a disallowance, i.e., even in the would in any case warrant a disallowance, i.e., even in the absence of the rule. Similarly, the part of the rule prescribing absence of the rule. Similarly, the part of the rule prescribing absence of the rule. Similarly, the part of the rule prescribing the ratio in respect of indirect expenditure (rule 8D(2) (ini)) io in respect of indirect expenditure (rule 8D(2) (ini)) io in respect of indirect expenditure (rule 8D(2) (ini)) cannot be altered on account of (say) hardship. This is as the cannot be altered on account of (say) hardship. This is as the cannot be altered on account of (say) hardship. This is as the rule prescribes the same as the ratio of indirect expenditure rule prescribes the same as the ratio of indirect expenditure rule prescribes the same as the ratio of indirect expenditure required to support an investment. In fact, the same, at 0.5%, required to support an investment. In fact, the same, at 0.5%, required to support an investment. In fact, the same, at 0.5%, is very nominal, recommending itself to an easy acceptance, inal, recommending itself to an easy acceptance, inal, recommending itself to an easy acceptance, eschewing the charge of being harsh. eschewing the charge of being harsh. In view of the above, no fault can be found with the action of In view of the above, no fault can be found with the action of In view of the above, no fault can be found with the action of the Ld. AO in making disallowance under Rule 8D(2) (i). AO in making disallowance under Rule 8D(2) (i). AO in making disallowance under Rule 8D(2) (i). Hence, disallowance made under Rule 8D(2) (i) at Rs Hence, disallowance made under Rule 8D(2) (i) at Rs Hence, disallowance made under Rule 8D(2) (i) at Rs. 14,58,76,907/ 14,58,76,907/-, being 0.5% of the average value of investment , being 0.5% of the average value of investment is CONFIRMED. Accordingly, the Ground No. I raised in appeal is CONFIRMED. Accordingly, the Ground No. I raised in appeal is CONFIRMED. Accordingly, the Ground No. I raised in appeal is DISMISSED. is DISMISSED.”
At the outset, we find that this appeal has been filed with a At the outset, we find that this appeal has been filed with a At the outset, we find that this appeal has been filed with a delay of substantial number of substantial number of days. The the Ld. Co the Ld. Counsel of the assessee submitted that though the order u/s 250 was passed by assessee submitted that though the order u/s 250 was passed by assessee submitted that though the order u/s 250 was passed by the Ld. CIT(A) on 04.02.2019 the Ld. CIT(A) on 04.02.2019, however the aforesaid order was aforesaid order was neither received at the official address of the assessee not at the neither received at the official address of the assessee not at the neither received at the official address of the assessee not at the L & T Finance Holdings Ltd.. 4 L & T Finance Holdings Ltd.. ITA No.
official e-mail ID. It was further submitted that mail ID. It was further submitted that the assess the assessee while checking the e-filing filing account on the website of income on the website of income-tax department, noticed department, noticed that order u/s 250 dated 04.02.2019 was that order u/s 250 dated 04.02.2019 was already uploaded on the Income already uploaded on the Income-tax e-filing account. In the account. In the application filed before us for condonation of the delay in filing application filed before us for condonation of the delay in filing application filed before us for condonation of the delay in filing appeal, the assessee has stated the date of knowing the order of ld appeal, the assessee has stated the date of knowing the order of ld appeal, the assessee has stated the date of knowing the order of ld CIT(A) on e-fling account as fling account as on 16/08/22. Thereafter hereafter, the assessee made a request for certified copy of the above but but as per the submission of the assessee, submission of the assessee, same has not been provided so far. same has not been provided so far. Thereafter, the appeal , the appeal has been filed on 18.10.2022 filed on 18.10.2022, so according to assessee the order of the Ld. CIT(A) was served through e-filing to assessee the order of the Ld. CIT(A) was served through e to assessee the order of the Ld. CIT(A) was served through e account only on 16.08.2022 and the account only on 16.08.2022 and thereafter appeal has been filed reafter appeal has been filed within the period of 60 days and there was no deliberate attempt on within the period of 60 days and there was no deliberate within the period of 60 days and there was no deliberate the part of the assessee in delaying the filing of the appeal. the part of the assessee in delaying the filing of the appeal. the part of the assessee in delaying the filing of the appeal.
On the contrary, the Ld. Departmental Representative (DR) On the contrary, the Ld. Departmental Representative (DR) On the contrary, the Ld. Departmental Representative (DR) submitted that uploading uploading the order on the e-filing account of the filing account of the assessee is one of the prescribed assessee is one of the prescribed mode of service provided under Rule 127 of the Income Income-tax Rules, 1962 ( In short the Rules) , 1962 ( In short the Rules) and therefore, assessee cannot take the therefore, assessee cannot take the plea that i that it came to the knowledge of the assessee only o knowledge of the assessee only on the 16.08.2022 while going n the 16.08.2022 while going through the e-filing account. He submitted that filing account. He submitted that it is it is the duty of the assessee to verify its e assessee to verify its e-filing account. He submitted that the submitted that the assessee is always intimated through SMS regarding uploading of always intimated through SMS regarding uploading of always intimated through SMS regarding uploading of the order on the e- -filing account therefore the assessee cannot unt therefore the assessee cannot
L & T Finance Holdings Ltd.. 5 L & T Finance Holdings Ltd.. ITA No. argue that the order of Ld the order of Ld. CIT(A) came to the knowledge . CIT(A) came to the knowledge only on 16.08.2022. According to him, the delay in filing 16.08.2022. According to him, the delay in filing the appeal the appeal is due to carelessness or negligence on the part of the assessee. ness or negligence on the part of the assessee. ness or negligence on the part of the assessee.
We have heard rival submis We have heard rival submission of the parties on the issue in sion of the parties on the issue in dispute and perused the relevant material on record. We find that dispute and perused the relevant material on record. We find that dispute and perused the relevant material on record. We find that the Ld. CIT(A) duly uploaded the order passed on 04.02.2019 on the the Ld. CIT(A) duly uploaded the order passed on 04.02.2019 on the the Ld. CIT(A) duly uploaded the order passed on 04.02.2019 on the Income-tax Portal as provided under Rule 127 of the Income tax Portal as provided under Rule 127 of the Income tax Portal as provided under Rule 127 of the Income-tax Rules, 1962 therefore, d Rules, 1962 therefore, delay in noticing the said order is due to the said order is due to the carelessness or negligence on the part of the ness or negligence on the part of the employee employees of the assessee company. However, . However, this action of delay is not for any this action of delay is not for any malafide purpose and delay is unintentional and assessee is not pose and delay is unintentional and assessee is not pose and delay is unintentional and assessee is not going to gain by way going to gain by way of delaying filing of appeal. T of delaying filing of appeal. Therefore, in the interest of the substantial justice interest of the substantial justice and for the issue to be to be decided on merit, we condone the delay the delay in filing the appeal.
Before us, the Ld. Counsel of the assessee us, the Ld. Counsel of the assessee filed filed a paperbook containing pages 1 to 35 and containing pages 1 to 35 and relied on the decision relied on the decisions of Mumbai bench of Tribunal in the case of Future Retails ltd Vs ACIT ( in the case of Future Retails ltd Vs ACIT ( in the case of Future Retails ltd Vs ACIT ( dated 11/08/2020) and Tata Projects Ltd Vs 5959/Mum/2016 dated 11/08/2020) and Tata Projects Ltd Vs 5959/Mum/2016 dated 11/08/2020) and Tata Projects Ltd Vs ACIT ( ITA No. 459/Mum/2016 dated 22/10/2020) 459/Mum/2016 dated 22/10/2020) 459/Mum/2016 dated 22/10/2020). He further referred to Paper Book page No. 22 and submitted that the assessee eferred to Paper Book page No. 22 and submitted that the assessee eferred to Paper Book page No. 22 and submitted that the assessee has worked out suo suo-moto disallowance towards earning of disallowance towards earning of exempted income. The ld The ld Counsel of the assessee has the assessee has referred to page no. 34 and 35 of the paperbook, wherein d 35 of the paperbook, wherein he has provided a he has provided a breakup of common administrative expenses of rupees 246.78 kup of common administrative expenses of rupees 246.78 kup of common administrative expenses of rupees 246.78
L & T Finance Holdings Ltd.. 6 L & T Finance Holdings Ltd.. ITA No. lakhs and other business expenses of lakhs and other business expenses of ₹ 1893.21 lakh 1893.21 lakhs aggregating to ₹ 2139.99 lakhs debited under the head administrative and other 2139.99 lakhs debited under the head administrative and other 2139.99 lakhs debited under the head administrative and other expenses. The learned counsel of the assessee submitted that the expenses. The learned counsel of the assessee submitted that the expenses. The learned counsel of the assessee submitted that the ratio of the exempt income of the exempt income to total income is 75.44% ( dividend is 75.44% ( dividend income of ₹ 21, 968.86 lakhs/total income of 21, 968.86 lakhs/total income of ₹ 29, 122.67 lakhs). 29, 122.67 lakhs). Based on the above ratio Based on the above ratio, the learned counsel submitted that the learned counsel submitted that disallowance should be restricted to 75.44% of rupees 246.78 lakhs disallowance should be restricted to 75.44% of rupees 246.78 lakhs disallowance should be restricted to 75.44% of rupees 246.78 lakhs i.e. 186. 17 lakhs, being the administrative expenses for earning i.e. 186. 17 lakhs, being the administrative expenses for earning i.e. 186. 17 lakhs, being the administrative expenses for earning dividend income.
We have heard rival submission of the parties on the issue in We have heard rival submission of the parties on the issue in We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. pute and perused the relevant material on record. pute and perused the relevant material on record. We find that the assessee earned dividend income of Rs. the assessee earned dividend income of Rs. Rs.2,19,68,85,793/ Rs.2,19,68,85,793/- from investment in equity shares and mutual funds and claimed from investment in equity shares and mutual funds and claimed from investment in equity shares and mutual funds and claimed the entire dividend income as exempt, but did not make any suo the entire dividend income as exempt, but did not make any suo the entire dividend income as exempt, but did not make any suo moto disallowance before the lower authorities. T disallowance before the lower authorities. T disallowance before the lower authorities. The Assessing Officer recorded dissatisfaction recorded dissatisfaction as to the claim of the assessee and as to the claim of the assessee and invoked Rule 8D of the invoked Rule 8D of the income tax Rules,1962 and determined the and determined the disallowance accordingly under the provisions of section 14A of the disallowance accordingly under the provisions of section 14A of t disallowance accordingly under the provisions of section 14A of t Act. In the case of Future Retail Ltd (supra) the disallowance In the case of Future Retail Ltd (supra) the disallowance In the case of Future Retail Ltd (supra) the disallowance worked out under rule 8D(2)(iii) being more than the actual worked out under rule 8D(2)(iii) being more than the actual worked out under rule 8D(2)(iii) being more than the actual administrative expenses incurred by the assessee and therefore the administrative expenses incurred by the assessee and therefore the administrative expenses incurred by the assessee and therefore the Tribunal has restored the matter back to the Assessing Officer. has restored the matter back to the Assessing Officer. In has restored the matter back to the Assessing Officer. the case of Tata projects Ltd(supra) it is held that disallowance the case of Tata projects Ltd(supra) it is held tha the case of Tata projects Ltd(supra) it is held tha under section 14A under section 14A of the Act has to be computed on a fair , has to be computed on a fair ,
L & T Finance Holdings Ltd.. 7 L & T Finance Holdings Ltd.. ITA No. reasonable and scientific basis where expenses related to composite reasonable and scientific basis where expenses related to composite reasonable and scientific basis where expenses related to composite activities was allocated in the ratio of the exempt in taxable income. activities was allocated in the ratio of the exempt in tax activities was allocated in the ratio of the exempt in tax 8.1 We are of the opinion that once the Assessing Officer records We are of the opinion that once the Assessing Officer records We are of the opinion that once the Assessing Officer records the dissatisfaction as to the claim of the assessee made in books of the dissatisfaction as to the claim of the assessee made in books of the dissatisfaction as to the claim of the assessee made in books of accounts, there is no discretion with the Assessing Officer and he accounts, there is no discretion with the Assessing Officer and he accounts, there is no discretion with the Assessing Officer and he has to invoke Rule 8D for determining di has to invoke Rule 8D for determining disallowance. However if the sallowance. However if the disallowance computed under rule 8D(2)(iii) computed under rule 8D(2)(iii) exceeds the total exceeds the total expenses in the nature of administrative expenses claimed in the expenses in the nature of administrative expenses claimed in the expenses in the nature of administrative expenses claimed in the profit and loss account, then disallowance should be restricted to profit and loss account, then disallowance should be restricted to profit and loss account, then disallowance should be restricted to that amount only as disallowance ca that amount only as disallowance cannot be made more than the nnot be made more than the expenditure claimed against composite activities of earning exempt expenditure claimed against composite activities of earning exempt expenditure claimed against composite activities of earning exempt and taxable income. In the case of the head administrative expenses and taxable income. In the case of the head administrative expenses and taxable income. In the case of the head administrative expenses administrative expenses, the assessee has claimed amount of administrative expenses, the assessee has claimed amount of administrative expenses, the assessee has claimed amount of rupees 2139.99 lakhs which being m rupees 2139.99 lakhs which being more than the disallowance ore than the disallowance under Rule 8d(2)(iii) of 8d(2)(iii) of ₹14,58,76,907/- and therefore we do not find and therefore we do not find any absurdity in disallowance which has been computed invoking any absurdity in disallowance which has been computed invoking any absurdity in disallowance which has been computed invoking rule 8D of rules.
8.2 Before us, the Ld. Counsel of the assessee has efore us, the Ld. Counsel of the assessee has efore us, the Ld. Counsel of the assessee has now admitted to have incurred some expenses toward to have incurred some expenses toward earning of the exempted earning of the exempted income but no such disallowance has been computed by the no such disallowance has been computed by the no such disallowance has been computed by the assessee while filing return of income assessee while filing return of income. In view of the fresh claim of . In view of the fresh claim of disallowance under section 14A of the Act for earning exempted disallowance under section 14A of the Act for earning exem disallowance under section 14A of the Act for earning exem income, we feel it appropriate to restore the issue of disallowance income, we feel it appropriate to restore the issue of disallowance income, we feel it appropriate to restore the issue of disallowance under section 14A of the under section 14A of the Act back to the file of the learned back to the file of the learned
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Assessing Officer for examining the correctness of the claim of the Assessing Officer for examining the correctness of the claim of the Assessing Officer for examining the correctness of the claim of the assessee and deciding the issue in dispute in accordance with law. assessee and deciding the issue in dispute in accordan assessee and deciding the issue in dispute in accordan The ground of appeal of the assessee f appeal of the assessee is accordingly accordingly allowed for statistical purposes.
In the result, the appeal filed by the assessee is In the result, the appeal filed by the assessee is In the result, the appeal filed by the assessee is allowed for statistical purposes.