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Income Tax Appellate Tribunal, MUMBAI BENCH “C”, MUMBAI
Before: SHRI VIKAS AWASTHY & SHRI OM PRAKASH KANT
2 आअसं. 2695 & 3072/मुं/2019 (िन.व. 2002-03) & 3072/MUM/2019 (A.Y.2002-03) आदेश/ ORDER
PER VIKAS AWASTHY, JM :
This cross appeals by the Revenue and asssessee have been filed against the order of Commissioner of Income Tax (Appeals)-2, Mumbai [hereinafter referred to as ‘the CIT(A)’] dated 26.02.2019 for the Assessment Years 2002-03.
The appeal of the asssessee is time barred by six days. The asssessee has filed an application seeking condonation of delay. The Revenue has not opposed condonation of delay in filing of appeal by the asssessee. After perusing the application, we are satisfied that the delay in filing of appeal by the asssessee is unintentional and for bonafide reasons stated in the application. The delay of six days in filing of appeal is condoned and appeal of the asssessee is admitted to be heard and disposed of on merits. 3. The Revenue in appeal has raised solitary ground, the same reads as under: 1. “On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in directing the A.O to restrict the disallowance u/s. 14A at 2% of indirect expenses relying on the decision of Hon’ble Bombay High Court in the case of M/s. Godrej Agrovet Ltd for A.Y. 2005-06 without appreciating the fact that the disallowance @5% u/s 14A out of indirect expenses.” 4. The asssessee in appeal has also raised single issue with respect to disallowance under section 14A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’). The ground raised
by the asssessee in appeal reads as under: 1. “the CIT(A) erred in confirming the disallowance of 2% of the exempt income earned on securities, other than shares, held as stock-in-trade as indirect expenses incurred towards earning of such exempt income, as disallowance u/s. 14A of the Act..”
5. The Revenue and the asssessee both in their respective appeals has raised grounds assailing the findings of CIT(A) with respect to disallowance under 3 आअसं. 2695 & 3072/मुं/2019 (िन.व. 2002-03) & 3072/MUM/2019 (A.Y.2002-03) section 14A of the Act in respect of securities held by the asssessee other than stock-in-trade.
Sh. Krupa Gandhi appearing on behalf of the asssessee submitted that this is second round of litigation before the Tribunal. In the first round, in ITA No. 884/Mum/2007 the Tribunal vide order dated 15.09.2019 while adjudicating the appeals of the asssessee for AY 2001-02 & 2002-03 had restored this issue back to the file of CIT(A). The CIT(A) in second round held that in so far as exempt income earned from shares held as stock-in-trade, no disallowance under section 14A is called for and as regards shares held other than stock-in-trade, the CIT(A) held that indirect expenses under section 14A of the Act be restricted to 2%. The ld. Counsel for the asssessee submitted that there are several decisions of the Tribunal wherein disallowance under section 14A has been restricted to 1%.
Per contra, Sh. J. Sarvanand representing the Department submitted that the CIT(A) has erred in restricting disallowance under section 14A of the Act, to 2%. The disallowance made by the CIT(A) is very much on the lower side. The ld. DR vehemently supported the assessment order wherein the AO had calculated the disallowance under section 14A @ 5% of indirect expenses.
We have heard the submissions made by rival sides and have examined the orders of authorities below. The short issue in the present appeal is the rate at which disallowance under section 14A is to be made in respect of securities held as investments. The AO in assessment proceedings made adhoc disallowance of 5% on indirect expenses under section 14A of the Act. The First Appellate Authority after placing reliance on the decision of Hon’ble Bombay High Court in the case of CIT Vs. Godrej Agrovet Ltd. in ITA No. 934 of 2011 for AY 2005-06 decided on 08.01.2013 has restricted the disallowance under section 14A of the Act to 2% of the exempt income.
4 आअसं. 2695 & 3072/मुं/2019 (िन.व. 2002-03) & 3072/MUM/2019 (A.Y.2002-03) 9. A specific query was made to the ld. counsel for the asssessee as to whether the asssessee is maintaining any separate portfolio of securities held as investments. The counsel replied that though no separate portfolio is maintained, but, the investments have been made only in group companies wherein no dividend was received. If that be so, no disallowance under section 14A of the Act is warranted in respect of securities held as investments where no dividend income is received.
In so far as, the rate at which disallowance under section 14A is to be made qua the securities yielding tax free income held as investment, both the sides have disputed the rate of disallowance. The CIT(A) has estimated disallowance under section 14A of the Act @ 2% of exempt income by following the decision of Hon’ble Jurisdictional High Court in the case of CIT Vs. Godrej Agrovet Ltd. (supra). Taking into consideration entire facts of the case, we see no reason to disturb the findings of the CIT(A). We find no merit in the appeal filed by the Revenue or the asssessee, hence, both these appeals are dismissed, being devoid of any merit.
In the result, the appeal of the Revenue and the assessee is dismissed. Order pronounced in the open court on Monday, the 31st day of January, 2022. Sd/- Sd/- (OM PRAKASH KANT) (VIKAS AWASTHY) लेखा सद� /ACCOUNTANT MEMBER �ाियक सद�/JUDICIAL MEMBER मुंबई/Mumbai, िदनांक/Dated: 31/01/2022 SK, Sr.PS 5 आअसं. 2695 & 3072/मुं/2019 (िन.व. 2002-03) ITA NO.2695 & 3072/MUM/2019 (A.Y.2002-03)