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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER & SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER ITA No.2433/Mum/2019 (A.Y: 2013-14) M/s. Bennett Coleman Vs. ACIT – 1(1)(1) & Company Ltd., 5th Floor, Aaykar The Times of India Bhavan, Churchgate, Bldg, DN Road, Fort, Mumbai – 400020. Mumbai – 400001. �थायी लेखा सं./जीआइआर सं./PAN/GIR No. : AAACB4373Q Appellant .. Respondent
ITA No. 3020/Mum/2019 (A.Y: 2013-14) DCIT – 1(1)(1) Vs. M/s. Bennett Coleman 5th Floor, Aaykar & Company Ltd., Bhavan, Churchgate, The Times of India Mumbai – 400020. Bldg, DN Road, Fort, Mumbai – 400001. �थायी लेखा सं./जीआइआर सं./PAN/GIR No. : AAACB4373Q Appellant/Respondent .. Respondent/Appellant Appellant/Respondent Shri Srinivasan by : Venkataraman.AR Respondent/Appellant Shri. K.C. Selvamani. DR by : Date of Hearing 23.08.2021 Date of Pronouncement 15.11.2021 आदेश / O R D E R PER PAVAN KUMAR GADALE JM:
The cross appeal is filed by the assessee and the revenue against the order of the CIT(A) – 2, Mumbai passed u/s 143(3) and 250 of the Act.
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For the sake of convenience, we shall take up the assessee appeal in ITA No. 2433/Mum/2019(A.Y.2013-14) as a lead case and the facts narrated. The assessee has raised the following grounds of appeal.
“1.On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in confirming the invocation of Rule 8D by the Assessing Officer without appreciating that the Assessing Officer had not come to an objective satisfaction as to the correctness of the claim of disallowance of Rs 12,88,000 made by the assessee under Section 14A(1) of the Income Tax Act, 1961 ("the Act") while filing its return of income. 2. On the facts and in the circumstances of the case and in law,the Learned CIT(A( erred in holding that the disallowance of Rs 12,88,000 made by the assessee under Section 14A(1) of the Act while filing its return of income was on an ad hoc basis, when in fact the said disallowance was made by apportioning the treasury department expenses in the ratio of exempt income to total income and was on the same basis as in earlier years.
3.The Assessee submits that when there has been no change in the facts and neither has the learned Assessing Officer brought any new facts on record, the disallowance of Rs 12,88,000 out of the treasury department expenses made under Section 14A(1) of the Act by the Assessee, which was on the same basis as in earlier years, and having been accepted by his predecessors and by the Hon'ble ITAT in the assessee's own case in earlier years, ought to have been accepted by the learned CIT(A) in the year under appeal. 4. On the facts and in the circumstances of the case and in law the Ld. CIT(A) erred in upholding the action of the AO in not allowing carry forward of long term capital loss amounting to Rs. 12,88,75,757/- suffered during the year under consideration on sale / redemption of equity shares and mutual funds subject to securities transaction tax. 5. On the facts and circumstances of the case and in law,
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the assessee submits that, following the decision of the Hon’ble ITAT in Raptakos Brett & Co Ltd (ITA No. 3317/Mum/2009) the long term capital loss of Rs. 12,88,75,757/- on sale of equity shares and mutual funds ought to be allowed to be carried forwarded. 6. The assessee may be permitted to add, alter, amend or delete any of the grounds at the time of or before the hearing.
The Brief facts of the case are that the assessee company is engaged in the business of print and electronic media, trading in leisure products and broad casting, guarantee, investing and financing. The assessee has filed the return of income electronically on 29.11.2013 for the A.Y 2013-14 with a total income of Rs. 1,05,22,92,220/-.Subsequently, the assessee has filed the revised return of income on 27.03.2015 with the total income as per the original return of income and current year loss of Rs. 13,10,49,976/-. The return of income was processed u/s 143(1) of the Act. Further the case was selected for scrutiny under the CASS and notice u/s 143(2) and 142(1) of the Act along with questionnaire are issued. In compliance, the Ld.AR of the assessee appeared from time to time and furnished the details. The A.O on perusal of the financial statements found that the assessee has properties at various destinations and has not offered any income. Whereas the assessee has filed a letter dated 26.12.2016 explaining the nature of house properties and also the reasons for not offering the income referred at page 2 of the Assesseement order. The A.O having considered these facts wants to tax the
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assessee as per the provisions of Sec. 23(1) of the Act. The A.O has made calculations based on the inflation rate and worked out around 4.39% of the cost of properties as the gross value and allowed the standard deduction of 30% and assessed the income from house property of Rs. 2,76,32,416/-.
The other disputed issue, that the A.O. has made disallowance u/s 14A of the Act. The assessee has made investments in equity shares, mutual funds, preference shares and was claiming the dividend income exempt from tax. During the financial year 2012-13 the assessee has received exempt income of Rs. 45,85,28,028/- as long term capital gains and the assessee has suo moto disallowed of Rs. 12,88,000/- u/s 14A of the Act. The A.O has considered the facts that the disallowance should be major compared to the investments and income earned. The A.O has applied the provisions Sec. 14A r.w.r 8D(2)(iii) of the Income Tax Rules and worked out the disallowance of Rs. 14,23,26,250/- after setoff of suo motto disallowance by the assessee. Similarly, the A.O. has made addition of (i)non moving material written off of Rs.30,75,302/-(ii) Web site registration expenses of Rs. 21,37,854/-(iii) payments made to clubs u/s 40A(9) of the Act Rs.6,52,274/- (iv) repairs and maintenance expenses disallowance of Rs.11,13,11,113/- on the capitalization of the projects (v) software charges to be capitalized of Rs.17,65,08,146/- and assessed the total
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income of Rs.10,88,12,26,707/- and passed the order u/s 143(3) of the Act dated 29.12.2016.
Aggrieved by the order, the assessee has filed an appeal before the CIT(A), Whereas the CIT(A) considered the findings of the Assessing officer, grounds of appeal, submissions of the assessee and provisions of law on the disputed issue and has confirmed the disallowance u/s 14A of the Act. Further the CIT(A) has confirmed the action of the A.O. in not allowing the carry forward of long term capital loss and granted relief in other grounds of appeal and partly allowed the assessee appeal. Aggrieved by the CIT(A) order, the assessee and the revenue has filed appeal before the Honble Tribunal.
At the time of hearing, the Ld. AR submitted that the CIT(A) has erred in confirming the addition u/sec14A r.w.r 8D(2)(iii) of I T rules irrespective of the fact that the A.O has not made satisfactory note in his order and the assessee has suo moto made disallowance u/s 14A of the Act in respect of exempt income. The Ld. AR further submitted that the assessee has sufficient funds and the CIT(A) has not considered assesses own case for A.Y 2010-11.The A.O has computed the disallowance considering the overall funds for calculation of average investments, whereas the disallowance should be only on the basis of dividend yielding funds. In respect of carry forward of long term capital loss, the CIT(A) has not considered the assessee own case and confirmed the
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action of the A.O. The Ld.AR supported the submissions with the paper book and judicial decisions. Contra, the Ld. DR supported the order of the CIT(A) on these disputed issues.
We heard the rival submissions and perused the material on record. On the first disputed issue with respect to the disallowance u/s 14A of the Act, the contentions of the Ld.AR that the A.O has not made satisfactory note in the order and therefore there cannot be any disallowance u/s 14A of the Act. We find that the provisions of Sec. 14A r.w.r 8D has come into effect from A.Y 2008-09, subsequently the disallowance has to be computed as per the provisions. The contentions of the Ld.AR are that in the assessee’s own case for the A.Y 2010-11, the Hon’ble Tribunal has granted the relief. We find the Hon’ble Tribunal in assessee’s own case has considered the facts of investments in ITA No. 1951/Mum/2016 at Para 10, which is read as under:
“10. We find there is cogency in the ld. Counsel of the assessee’s submissions that the issue in present appeal is covered in favour of the assessee by the ITAT decision in assessee’s own case earlier. It is not the case that the Hon'ble jurisdictional High Court has reversed the decision. As regards the ld. Departmental Representative’s objection that current year’s investments and source have not been examined by ITAT, we find that for the current year, the ld. Commissioner of Income Tax (Appeals) has given his findings that sufficient interest free own funds are available. This has not been disputed by the ld. Departmental Representative. Hence, we find that the order of the ld. Commissioner of Income Tax (Appeals) is in accordance with the ITAT decision
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in assessee’s own case. Hence, we uphold the order of the ld. Commissioner of Income Tax (Appeals).
6.1 We find that in the present case, the assessee has sufficient own funds/ interest free funds. Further the A.O has to consider the only dividend yielding investments in computing the average value of investments. We rely on the decision of the Hon’ble Tribunal Special Bench, Delhi in the case of ACIT Vs Vireet Investments Pvt Ltd., ITA No. 502/Del/2012. Therefore considering the fact of investments and sufficient own funds available to the assessee and the ratio of decision in the case of Vireet Investments Pvt Ltd., (Supra), we restore the disputed issue to the file of the Assessing officer to recompute the disallowance u/s 14A r.w.r 8D(2)(iii) of I T Rules as discussed above and we allow the ground of appeal No. 1,2 & 3 for statistical purposes.
The grounds of appeal No. 4 & 5 are with regard to carry forward of long term capital loss, the Ld. AR argued that the CIT(A) has erred in confirming the action of the A.O. Further the Ld. AR submitted that the CIT(A) has not considered the similar facts in respect of the coordinate bench of Tribunal decision in the case of M/s Nomura India Investment Mother Fund Vs. Addl DIT in ITA No.
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8140/Mum/2010 dated 24.12.2019 and the observations at page 11 Para 12 to 14 are as under:
“12. We have considered rival submissions and perused the material on record. We have also carefully applied our mind to the decisions relied upon. The issue arising for consideration is, whether long term capital loss arising on sale of shares can be set off against long term capital gain arising on sale of shares claimed to be exempt u/s. 10(38) of the Act. It is the case of the Revenue that the expression “income” as used in section 10(38) of the Act also includes loss. However, on a reading of section 10(38) of the Act, it becomes clear that the exemption in respect of income derived from sale of shares is exempt in a case where STT has been paid. Therefore, it cannot be said that capital gain on sale of shares is generally exempt. Only on fulfillment of certain conditions, gain derived from sale of shares is exempt u/s. 10(38) of the Act. Thus, the income derived from sale of shares is not exempt at the source itself. The aforesaid view has been expressed by ITAT, Mumbai Bench in the case of Raptakos Brett & Co. Ltd. vs. DCIT (supra). The observations of the Bench in this regard is reproduced hereunder for ease of reference: “7. We have heard rival submissions and perused the relevant findings given in the impugned orders. The main issue before us is, whether Long term capital loss on sale of equity shares can be set off against Long term capital gain arising on sale of land or not, as the income from Long term capital gain on sale of such shares are exempt u/s. 10(38). The nature of income here in this case is from sale of Long term capital asset, which are equity shares in a company and unit of an equity oriented fund which is chargeable to STT. First of all, Long term capital gain has been defined under section 2(39A), as capital gains arising from transfer of a Long term capital asset. Section 2(14) defines “Capital asset” and various exceptions and exclusions have been provided which are not treated as capital asset. Section 45 is the charging section for any profits or gain arising from a transfer of a capital asset in the previous year i.e. taxability of capital gains. Section 47 enlists various exceptions and transactions which are not treated as transfer for the purpose of capital gain u/s. 45. The mode of computation to arrive at capital gain or loss has been
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enumerated from sections 48 to 55. Further sub section (3) of section 70 and section 71 provides for set off of loss in respect of capital gain. 8. From the conjoint reading and plain understanding of all these sections it can be seen that, firstly, shares in the company are treated as capital asset and no exception has been carved out in section 2(14), for excluding the equity shares and unit of equity oriented funds that they are not treated as capital asset. Secondly, any gains arising from transfer of Long term capital asset is treated as capital gain which is chargeable u/s. 45; thirdly, section 47 does not enlist any such exception that transfer of long term equity shares/funds are not treated as transfer for the purpose of section 45 and section 48 provides for computation of capital gain, which is arrived at after deducting cost of acquisition i.e. cost of any improvement and expenditure incurred in connection with transfer of capital asset, even for arriving of gain in transfer of equity shares; lastly, section 70 & 71 elaborates the mechanism for set off of capital gain. Nowhere, any exception has been made/ carved out with regard to Long term capital gain arising on sale of equity shares. The whole genre of income under the head capital gain on transfer of shares is a source, which is taxable under the Act. If the entire source is exempt or is considered as not to be included while computing the total income then in such a case, the profit or loss resulting from such a source do not enter into the computation at all. However, if a part of the source is exempt by virtue of particular “provision” of the Act for providing benefit to the assessee, then in our considered view it cannot be held that the entire source will not enter into computation of total income. In our view, the concept of income including loss will apply only when the entire source is exempt and not in the cases where only one particular stream of income falling within a source is falling within exempt provisions. Section 10(38) provides exemption of income only from transfer of Long term equity shares and equity oriented fund and not only that, there are certain conditions stipulated for exempting such income i.e. payment of security transaction tax and whether the transaction on sale of such equity share or unit is entered into on or after the date on which chapter VII of Finance (No.2) Act 2004 comes into force. If such conditions are not fulfilled then exemption is not given. Thus, the income
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contemplated in section 10(38) is only a part of the source of capital gain on shares and only a limited portion of source is treated as exempt and not the entire capital gain (on sale of shares). If an equity share is sold within the period of twelve months then it is chargeable to tax and only if it falls within the definition of Long term capital asset and, further fulfils the conditions mentioned in subsection (38) of section 10 then only such portion of income is treated as exempt. There are further instances like debt oriented securities and equity shares where STT is not paid, then gain or profit from such shares are taxable. Section 10 provides that certain income are not to be included while computing the total income of the assessee and in such a case the profit or loss resulting from such a source of income do not enter into computation at all. However, a distinction has been drawn where the entire source of income is exempt or only a part of source is exempt. Here it needs to be seen whether section 10(38) is source of income which does not enter into computation at all or is a part of the source, the income in respect of which is excluded in the computation of total income. For instance, if the assessee has income from Short term capital gain on sale of shares; Long term capital gain on debt funds; and Long term capital gain from sale of equity shares, then while computing the taxable income, the whole of income would be computed in the total income and only the portion of Long term capital gain on sale of equity shares would be removed from the taxable income as the same is exempt u/s 10(38). This precise issue had come up for consideration before the Hon’ble Calcutta High Court in Royal Turf Club, wherein the Hon’ble High Court observed that “under the Income tax Act 1961 there are certain incomes which do not enter into the computation of the total income at all. In computing the total income of a resident assessee, certain incomes are not included under s.10 of the Act. It depends on the particular case; where the Act is made inapplicable to income from a certain source under the scheme of the Act, the profit and loss resulting from such a source will not enter into the computation at all. But there are other sources which, for certain economic reasons, are not included or excluded by the will of the Legislature. In such a case, one must look to the specific exclusion that has been made.” The Hon’ble High Court was besieged with the following question.
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“Whether under s.10(27) read with s.70 of the I.T.Act, 1961, was the assessee entitled to set off the loss on the two heads, namely, Broodmares Account and the Pig Account, against its income of other sources under the head “Business” Their Lordships after analysing the provisions of section 70 and section 10(27) observed in the following manner: “In this case it is important to bear in mind that set-off is being claimed under Section 70 of the 1961 Act which permits set off of any income falling under any head of income other than the capital gain which is a loss, the assessee shall be entitled to have the amount of such loss set off against his income from any other source under the same head. We have noticed that in the instant case the exclusion has been conceded in computing the business income or the source of income from the head of business and in computing that business income, the loss from one particular source, that is, broodmares account and the pig account, had been excluded contrary to the submission of the assessee. The assessee wanted these losses to be set off. The Revenue contends that as the sources of the income are not to be included in view of the provisions of Clause (27) of s. 10 of the 1961 Act, the loss suffered from this source could also not merit the exclusion. Under the I.T. Act, there are certain incomes which do not enter into the computation of the total income at all. In this connection we have to bear in mind the scheme of the charging section which provides that the incomes shall be charged and s. 4 of the Act provides that the Central Act enacts that the incomes shall be charged for any assessment year and in accordance with and subject to the provisions of the 1961 Act in respect of the total income of the previous year or years or whatever the case may be. The scheme of " total income " has been explained by s. 5 of the Act which provides that subject to the provisions of the Act, the total income of the previous year of a person who is a resident includes all income from whatever source it is derived. In computing the total income, certain incomes are not included under s. 10 of the Act. It depends on the particular case where certain income, in respect of which the Act is made inapplicable to the scheme of the Act, and in such a case, the profit and loss resulting from such a source do not enter into the computation at all. But there are other sources which for certain economic reasons are not included or excluded by the will of the Legislature. In such
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a case we must look to the specific exclusion that has been made. The question is in this case whether s. 10(27) is a source which does not enter into the computation at all or is a source the income in respect of which is excluded in the computation of total income. How this question will have to be viewed, has been looked into by the Supreme Court in several decisions to some of which our attention was drawn After discussing the various decisions of the Hon’ble Supreme Court specifically the decision of in the case of Karamchand Premchand (supra), the Hon’ble High Court came to the following conclusion: “cl.(27) of s.10 excludes in express terms only “any income derived from a business of live-stock breeding or poultry or dairy farming. It does not exclude the business of livestock breeding or poultry or dairy farming from the operation of the Act. Therefore, the losses suffered by the assessee in the broodmares account and in the pig account were admissible deductions in computing its total income” Thus, the ratio laid down by the Hon’ble Calcutta High Court is clearly applicable and accordingly we follow the same in the present case. 9. Now coming to the argument of the learned DR and learned CIT(A) that income includes loss and if income is exempt then loss will also not be taken into computation of the income, and such an argument is with reference to the decision of Hon’ble Supreme Court in the case of CIT vs. Hariprasad & Company Pvt. Ltd. (1975) 99 ITR 118 . The Hon’ble Supreme Court, opined that, if loss was from the source or head of income not liable to tax or congenitally exempt from income tax, neither the assessee was required to show the same in the return nor was the Assessing Officer under any obligation to compute or assess it much less for the purpose of carry forward. Further, the Hon’ble Supreme Court observed that "From the charging provisions of the Act, it is discernible that the words ' income ' or ' profits and gains' should be understood as including losses also, so that, in one sense 'profits and gains' represent ' plus income ' whereas losses represent 'minus income'. In other words, loss is negative profit. Both positive and negative profits are of a revenue character. Both must enter into computation, wherever it becomes material, in the same mode of the taxable income of the assessee. Although Section 6
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classifies income under six heads, the main charging provision is Section 3 which levies income-tax, as only one tax, on the 'total income ' of the assessee as defined in Section 2(15). An income in order to come within the purview of that definition must satisfy two conditions. Firstly, it must comprise the ' total amount of income, profits and gains referred to in Section 4(1)'. Secondly, it must be 'computed in the manner laid down in the Act'. If either of these conditions fails, the income will not be a part of the total income that can be brought to charge." While concluding the issue their Lordships observed that “it may be remembered that the concept of carry forward of loss does not stand in vacuo. It involves the notion of set- off. Its sole purpose is to set off the loss against the profits of a subsequent year. It pre-supposes the permissibility and possibility of the carried forward loss being absorbed or set off against the profits and gains, if any, of the subsequent year. Set off implies that the tax is exigible and the assessee wants to adjust the loss against profit to reduce the tax demand. It follows that if such setoff is not permissible or possible owing to the income or profits of the subsequent year being from a non-taxable source, there would be no point in allowing the loss to be “carried forward”. Conversely, if the loss arising in the previous year was under a head not chargeable to tax, it could not be allowed to be carried forward and absorbed against income in a subsequent year from a taxable source.” The ratio and the principle laid down by the Hon’ble Apex Court would not apply here in this case, because the concept of income includes loss will apply only when entire source is exempt or is not liable to tax and not in the case where only one of the income falling within such source is treated as exempt. The Hon’ble Apex Court on the other hand, itself has stated that if loss from the source or head of income is not liable for tax or congenitally exempt from income tax, then it need not be computed or shown in the return and Assessing Officer also need not assess it. This distinction has to be kept in mind. Hon’ble Calcutta High Court in Royal Turf Club have discussed the aforesaid decision of the Hon’ble Supreme Court and held that the same will not apply in such cases. Thus, in our conclusion, we hold that section 10(38) excludes in expressed terms only the income arising from transfer of Long term capital asset being equity share or equity fund which is chargeable to STT and not entire
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source of income from capital gains arising from transfer of shares. It does not lead to exclusion of computation of capital gain of Long term capital asset or Short term capital asset being shares. Accordingly, Long term capital loss on sale of shares would be allowed to be set off against Long term capital gain on sale of land in accordance with section 70(3).” 13. Following the aforesaid decision of the Mumbai Bench, the Kolkata Bench in the case of United Investments vs. ACIT (supra), and Pune Bench in the case of ACIT vs. Shri Somnath Vaijanath Sakre (supra) have expressed identical views. It is relevant to observe, the decision of the Mumbai Bench of the Tribunal in case of Raptakos Brett & Co. Ltd. vs. DCIT (supra) has attained finality as the appeal preferred by the department against the said decision has been dismissed by the Hon’ble Jurisdictional High Court, though, due to non- prosecution. Therefore, following the consistent view expressed by different Benches of the Tribunal on identical issue, we hold that long term capital loss arising out of sale of shares cannot be set off against long term capital gain from shares subjected to STT and claimed exempt u/s. 10(38) of the Act. Accordingly, we direct the Assessing Officer to allow carry forward of long term capital loss as claimed by the assessee. Ground nos. 2 & 3 raised by the assessee are allowed. 14. In the result, the appeal is allowed.
We find the Honble Tribunal has relied on the Honble High Court and the Tribunal decisions and granted the relief. We respectfully follow the judicial precedence and with similar directions direct the Assessing officer to allow the carry forward long term capital loss and allow the grounds of appeal in favour of the assessee.
In the result appeal filed the by the assessee is partly allowed for statistical purpose.
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ITA No. 3020/Mum/2019
The revenue has raised the following grounds of appeal:
“1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) was erred in directing the A.O to restrict the disallowance to the extent of exempt income while computing the disallowance u/s 14A r.w.r 8D of IT rules, without appreciating the fact that no such restrictions are provided under the statute.
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) was erred in deleting the addition made on account of writing off of obsolete and non moving items, without appreciating the fact that the claim is worked out by applying certain method of account applied and not that the products have become obsolete.
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) was erred in deleting the addition made on account of onetime entrance fee to club as revenue expenditure as against capital in nature as was held by the A.O”
At the time of hearing, the Ld. DR submitted that the CIT(A) has erred in directing the A.O to restrict the disallowance to the extent of exempt income while computing the disallowance u/s 14A r.w.r 8D of the IT Rules and contended that CIT(A) observations cannot be accepted. Further, in respect of deletion on account of writing off of obsolete and non moving items, the CIT(A) has not appreciated the fact that the claim is worked out on certain method of accounting. The Ld.DR submitted that the CIT(A) has erred in deleting the addition on account of onetime entrance fee to club treating it as
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revenue expenditure and prayed for allowing the revenue appeal.
We heard the rival submissions and perused the material on record. On the first disputed issue with respect to disallowance u/s 14A of the Act, where the CIT(A) has directed the A.O to restrict the addition to the extent of exempt income at page 23 para 5.2.3 of the CIT(A) order which is read as under:
5.2.3. Further I find that the AO has erred in including all the investments for computing the disallowance without any regard to the investments which have not yielded exempt income. At this regard, I find merit in the submission of the appellant that only those investments on which exempt income was actually earned in the previous year relevant to AY 2013- 14 should only considered for computing the disallowance under Rule 8D(2)(iii), in light of the decision of the ITAY Special Bench New Delhi in case of Vireet Investment ITA No. 502/Del/2012 and CO No. 68/Del/2014 AY 2008-09. Accordingly the AO is directed to compute the disallowance u/s 8D(2)(iii) by considering only the investments which have yielded exempt income during the year and allow appropriate relief to the appellant. However, it the disallowance so computed is less than the amount suo moto disallowed by the appellant then it may be restricted to the amount of Rs. 12,88,000/-. Accordingly, the ground nos thus ground nos. 9 &11 are partly allowed.
The Ld.DR could not controvert the findings of the CIT(A) with any cogent evidence or information. We find the CIT(A) has relied on the special bench decision of Hon’ble Tribunal in the case of ACIT Vs. Vireet investments Pvt Ltd (supra). We find in the case of M/s
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Joint Investments Pvt Ltd Vs. CIT 59 taxman.com 295 the observations are as under:
“7. During the course of hearing, counsel for the petitioner had relied upon a decision of this Court in Commissioner of Income Tax VI v. Taikisha Engineering India Ltd., (ITA 115/2014, decided on 25.11.2014). The court had, in that judgment, highlighted the necessity in view of the peculiar wording of Section 14A (2) that computation or disallowance of the assessee, or claim that no expenditure was incurred for earning exempt income should be examined with reference to the accounts and only if the assessee's explanation is unsatisfactory, can the AO proceed further.
The Court in Taikisha Engineering (supra) pertinently observed: -
"Thus, Section 14A(2) of the Act and Rule 8D(1) in unison and affirmatively record that the computation or disallowance made by the assessee or claim that no expenditure was incurred to earn exempt income must be examined with reference to the accounts, and only and when the explanation/claim of the assessee is not satisfactory, computation under sub Rule (2) to Rule 8D of the Rules is to be made.
We need not, therefore, go on to sub Rule (2) to Rule 8D of the Rules until and unless the Assessing Officer has first recorded the satisfaction, which is mandated by sub Section (2) to Section 14A of the Act and sub Rule (1) to Rule 8D of the Rules."
In the present case, the AO has not firstly disclosed why the appellant/assessee's claim for attributing `2,97,440/- as a disallowance under Section 14A had to be rejected. Taikisha says that the jurisdiction to proceed further and determine amounts is derived after examination of the accounts and rejection if any of the assessee's claim or explanation. The second aspect is there appears to have been no scrutiny of the accounts by the AO - an aspect which is completely unnoticed by the CIT (A) and the ITAT. The third, and in the opinion of this court, important anomaly which we cannot be unmindful
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is that whereas the entire tax exempt income is `48,90,000/-, the disallowance ultimately directed works out to nearly 110% of that sum, i.e., `52,56,197/-. By no stretch of imagination can Section 14A or Rule 8D be interpreted so as to mean that the entire tax exempt income is to be disallowed. The window for disallowance is indicated in Section 14A, and is only to the extent of disallowing expenditure "incurred by the assessee in relation to the tax exempt income". This proportion or portion of the tax exempt income surely cannot swallow the entire amount as has happened in this case.
For the above reasons, the impugned order of the ITAT is set aside. The question of law is answered in favour of the assessee. Consequently, order of the AO is set aside. The initiation of penalty ITA117-15 Page 5 proceedings also is set aside. The matter is remitted to the AO for fresh consideration in accordance with the above directions. The appeal is partly allowed.”
The disallowance u/s 14A of the Act cannot exceed the exempted income. we considering the present case facts and the judicial decisions do not find merits in the grounds of appeal raised by the revenue and are dismissed.
On the Second disputed issue with respect to deletion of addition on account of writing off of obsolete and non moving items by the CIT(A). We find the CIT(A) has relied on the assessee’s own case of the Honble Tribunal and granted the relief. We consider it appropriate to refer to the observations of the CIT(A) at page 25 Para 6.2 read as under:
“6.2 I find that the AO has made the disallowance on account of
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Obsolete/Non-moving material written off since it has not been allowed in past years. Further, I find that this issue has been allowed by the Hon'ble ITAT in A.Y. 2000-01 in appellant's own case in para 4 of the order dated 08.01.2008. This decision has been followed in subsequent years and in A.Y. 2009-10 by CIT(A)-1,Mumbai in Appeal No.CIT(A)- 1/IT/83/2011-12. Accordingly, following the above said precedent, the addition made of Rs.30,75,302/- is deleted and ground No.12 is allowed.”
The CIT(A) has deleted the addition made in respect of entrance fees paid by the assessee being one time to the club. The CIT(A) has dealt on the Jurisdictional Honble High Court decision at page 28 Para 8.2 of the order read as under;
8.2. I Find that the AO has disallowed an amount of Rs. 6,52,274/- being payment made towards onetime entrance fee to Mayar Health Resorts Ltd., holding it to be a capital expenditure. I find that similar issue has been decided in favour of the appellant in AY 2011-12 by this office in Appeal No. CIT(A)-2/IT/41/2014-15 by relying on the decision of the High Court of Bombay in the case of Otis Elevators 195 ITR 682. Accordingly following the above said precedent, it is held that the said expenditure is revenue expenditure and the addition made by the AO of Rs. 6,52,274/- is deleted. Ground No.14 is allowed.
The Ld. DR could not controvert the findings of the CIT(A) with any cogent evidence or information and relied on the order of the A.O in respect of disputed issues raised by the revenue. Accordingly, we are not inclined to interfere with the order of the CIT(A) on these issues and
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uphold the same and dismiss the grounds of appeal of the revenue.
In the result assessee appeal is allowed and revenue appeal is dismissed.
Order pronounced in the open court on 15.11.2021.
Sd/- Sd/- (SHAMIM YAHYA) (PAVAN KUMAR GADALE) ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated 15.11.2021
KRK, PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant ��यथ� / The Respondent. 2. 3. संबं�धत आयकर आयु�त / The CIT(A) आयकर आयु�त(अपील) / Concerned CIT 4. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Mumbai 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy// 1. ( Asst. Registrar) ITAT, Mumbai