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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI ABY T. VARKEY, JM & SHRI, AMARJIT SINGH, AM
स्थधयी लेखध सं./जीआइआर सं./PAN/GIR No. : AACPP8377R (अपीलार्थी /Appellant) .. (प्रत्यर्थी / Respondent) Assessee by: Shri K. Gopal Revenue by: Ms. Mahita Nair (Sr. AR) सुनवाई की तारीख / Date of Hearing: 13/10/2022 घोषणा की तारीख /Date of Pronouncement: 31/10/2022 आदेश / O R D E R
PER ABY T. VARKEY, JM:
This is an appeal preferred by the assessee (individual) against the order of the Ld. Commissioner of Income Tax (Appeals)/ NFAC, Delhi dated 19.04.2022 for the assessment year 2013-14.
The grounds of appeal of the assessee are as under: - 1) “The learned Commissioner of Income Tax (Appeals) erred in conforming the action of the Assessing Officer in disallowing Rs. 5,12,121/- out of expenses u/s 14A. Your appellant submits that no expenditure has been incurred for the purpose of earning exempt income and the entire disallowance of Rs. 5,12,121/- ought to be deleted. Without prejudice to the above, your appellant submits that the disallowance is excessive and ought to be reduced substantially.
Manu Mahmud Parpia 2) The learned Commissioner of Income Tax (Appeals) erred in conforming the action of the Assessing Officer in charging interest u/s 234B at Rs. 75,252/-. Your appellant submits that the same ought to be restricted to Rs. 38,138/- as worked in computation of income.”
Ground no. 1, brief facts the AO noted was that the assessee has earned dividend income of Rs.1,26,61,700/- from shares and mutual funds and shown the same as exempt income. The AO also noted that the assesse has shown an amount of Rs.36,70,05,838/- under the head investments. So he issued show cause notice to the assessee as to why disallowance under Section14A of the Income Tax Act, 1961 (hereinafter “the Act’) read with Rule 8D of the Income Tax Rule, 1962 (hereinafter “the Rules”) should not be resorted to (i.e. disallowance of expenditure for earning exempt income). Pursuant to the same, the assessee replied that for earning exempt income, assessee incurred no expenses. However, the AO was not satisfied with the reply. So he calculated 0.5% of the average investments under Rule 8D of the Rules i.e. 0.5% x 10,24,24,336/- =5,12,121/-. Aggrieved, the assesse preferred an appeal before the Ld. CIT(A) who confirmed the same. Aggrieved, the assessee is before us.
We have heard both the parties and perused the records. Assailing the action of the Ld. CIT(A), the Ld. AR submitted that the assessee is a Board member of various companies and also providing consultancy on freelancing basis. And the assessee earned income
Manu Mahmud Parpia from salary, income from profession, capital gain and income from other sources. The assessee has earned dividend income of Rs.1,15,91,345/- and claimed the same as exempt u/s 10(33) and 10(34) of the Act. According to the Ld. AR, the assessee has not incurred any interest expenditure at all and has disallowed the expenditure to the tune of Rs.1,18,245/- in the computation of income as personal in nature. The main plea of the assessee is that he has not claimed any deduction of expenditure on account of earning of exempt income. According to him, the list of expenses (relating to investment) has been debited to the Capital Account and not to income & expenditure account as listed in the form of chart below: - Sr. Amount(Rs.) Particulars No. 1 DEMAT charges 26,562 2 Management fees 17,31,268 3 Security Transaction Tax 2,54,528 4 PMS Charges 26,013 TOTAL 20,38,371
The Ld. AR also drew our attention to page no. 6 of PB wherein the total expenditure debited to income & expenditure is shown wherein the assessee has debited an amount of Rs.8,93,960/-; and thereafter he drew our attention to page no. 20 to 21 of PB wherein the income of assessee to the tune of Rs.17,49,974/- is shown. According to him, thus it can be seen that assessee has already shown expenses of Rs.8,93,960/- and has transferred income to the capital account only to the tune of Rs.8,56,014/- which shows that more than 50% of the income has been expended by the assessee. And therefore, Rule 8D(2)(iii) of the Rules should not have been resorted to by the AO/Ld.
Manu Mahmud Parpia CIT(A) to disallow the expenditure for earning exempt income. Per contra, the Ld. DR relied on the order of the AO/Ld. CIT(A) and does not want us to interfere with it.
Having taken note of the aforesaid contention the main thrust of assessee’s contention is that for earning exempt income, he has not incurred any expenditure. For buttressing this fact the Ld. AR brought to our notice the fact that for earning professional income to the tune of Rs.17,49,974/- the assessee has booked expenses to the tune of Rs.8,93,960/- (which means assessee has spend or shown more than 50% for earning the professional income) and not for earning exempt income. Further, we note that the expenses relating to the investment activity for the year under consideration, the assessee has debited it to the Capital Account and not to income & expenditure account (supra). It has been brought to our notice that the assessee has not claimed any other expenses as deduction in the return of income. Thus, we note that the no expenses relating to exempt income are either claimed in the income & expenditure account or in the return of income. And as we noted the expenditure relating to investment (supra) has been debited to the Capital Account only. As noted (supra) expenses the assessee claimed to the tune of Rs.8,93,960/- was incurred for earning the professional income and no expenses are claimed from capital account or in the computation income. Further we note that the assessee has drawing of Rs.48,38,812/- and have remitted Security Transaction Tax of Rs.2,54,528/-. Therefore, according to the Ld. AR, if expenses has to be incurred for the purpose of earning exempt income, these
Manu Mahmud Parpia drawing are sufficient enough for such expenses. Having taken note of this aforesaid relevant facts and from the aforesaid discussion, we note that the assessee has not claimed any expenses for earning the exempt income. Hence there is no proximate cause for disallowance in relationship with the exempt income as held in case of CIT Vs. Walfort Shares & Stock brokers Pvt. Ltd. SC (326 ITR 1). Moreover, we note that the AO had resorted to disallowance u/s 14A of the Act for previous AY. 2012-13 and earlier AY. 2011-12 and for earlier AY. 2009-10 wherein the facts of the case of this relevant assessment year (AY. 2013-14) are identical and on appeal, we note that the Ld. CIT(A) has decided the matter in favour of the assessee and the revenue has not challenged the same before this Tribunal. Thus, applying the Rule of Consistency as laid down in the case of Radhasoami Satsang Vs. CIT (1992) 193 ITR 321 (SC) wherein the Hon’ble Supreme Court observed that when the issue is permeating from the earlier years and the department has accepted a stand one way or of other, then the department should not change their stand. Thus, relying on the principle of consistency, we note that similar action of the assessee (of not claiming any expenditure for earning the exempt income) has been accepted by the department from AY. 2009-10 to AY. 2012-13 and even in AY. 2014-15 wherein the Ld. CIT(A) has deleted the disallowance made by the AO (which has been accepted by the department by not preferring any appeal before this Tribunal) by holding as under: - “3.3 Decision: I have considered the facts of the case and submissions made by the appellant. It is seen that a similar disallowance was made in A.Y.
Manu Mahmud Parpia 2012-13 which has been deleted by my Ld. Predecessor vide order dated 08.07.2016. The para 5.5 of the said order is reproduced below: "5.5 I have considered the facts and circumstances of the case. Perusal of the details submitted by the appellant shows that the expenses pertaining to investment activity, namely, Demat charges of Rs.11,538/- ,management fees of Rs. 14,28,295/- and PMS charges of Rs. 1,32,538/- are all debited to the appellant's capital account. These expenses have neither been debited in the Profit & Loss Account nor claimed in the computation of income. I also find that on similar facts and circumstances, my Id. predecessors in the appeals for A. Y.s 2009-10 and 2011-12 had accordingly held that the expenses which have not been claimed or debited to the P & L account could not be disallowed and, hence, deleted the disallowance u/s 14A r.w.r 8D. In view of the facts of the case and following the decision of my predecessors, the disallowance made by the Assessing Officer u/s 14A r.w.r 8D(2)(iii) is deleted. The appellant's ground of appeal is allowed." Since the facts in the present year are identical to A.Y.2012-13 and following the order of CIT(A) for A.Y. 2012-13 the addition made by A.O. is directed to be deleted. This ground of appeal is allowed.”
7. In the light of the aforesaid discussion, we direct deletion of Rs. 5,12,121/-.
8. The ground no. 2 is against the action of the AO in charging interest u/s 234B of Rs.75,252/- whereas according to the assessee it ought to be restricted to Rs.38,138/-.
9. It has been brought to our notice that the assessee has already preferred rectification application before the AO vide letter dated 11.05.2016 and the Ld. CIT(A) has directed the AO to consider the Manu Mahmud Parpia same while computing the interest u/s 234B of the Act. In the light of the aforesaid facts, we direct the AO to examine the contention of the assessee on this issue and pass the order in the rectification application filed by assessee u/s 154 of the Act in accordance to law and accordingly pass the consequential order.
In the result, the appeal of the assessee is partly allowed for statistical purposes. Order pronounced in the open court on this 31/10/2022.