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Income Tax Appellate Tribunal, MUMBAI BENCH “D” MUMBAI
Before: SHRI M. BALAGANESH & SHRI RAVISH SOOD
ORDER PER RAVISH SOOD, J.M:
The present appeal filed by the assessee is directed against the order passed by the CIT(A)-55, Mumbai dated 26.11.2018, which in turn arises from the assessment order passed by the A.O under Sec. 143(3) of the Income Tax Act, 1961 (for short „Act‟), dated 11.02.2016 for A.Y. 2013-14 2. Briefly stated, the assessee firm had filed its return of income for A.Y. 2012-13 on 05.08.2013, declaring a total income of Rs.1,08,26,240/-. The return of income was initially processed as such under Sec. 143(1) of the Act. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2) of the Act. Observing that the assessee had offered a suo moto disallowance under Sec. 14A r.w. Rule 8D(2)(iii) of Rs.548/-, the A.O was of the view that the assessee while computing the „average value of investments‟ for the purpose of quantification of the said disallowance had erroneously excluded its mutual fund investments. Accordingly, by including the mutual fund investments for the purpose of computing the „average value of investments‟ within the meaning of Rule 8D(2)(iii), the A.O reworked the disallowance at Rs.3,65,575/-. Also, taking cognizance of the fact that 2 M/s D.S. Purbhoodas & Co. Vs. Asstt. CIT-17(1) as per the ITS details of the assessee under 26AS an amount of Rs.13,177/- was not offered by the assessee for tax in its return of income, the A.O made an addition of the said amount. On the basis of his aforesaid deliberations the A.O vide his order passed under Sec. 143(3), dated 11.02.2016 assessed the income of the assessee at Rs.1,07,05,573/- .
Aggrieved, the assessee carried the matter in appeal before the CIT(A). However, the CIT(A) not finding favour with the contentions advanced by the assessee dismissed the appeal.
The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. It was submitted by the ld. Authorized Representative (for short „A.R‟) for the assessee that the A.O while working out the disallowance under Sec. 14A r.w. Rule 8D(2)(iii) had for the purpose of determining the „average value of investments‟ wrongly included the mutual fund investments which did not earn any exempt income. It was submitted by the ld. A.R that the assessee had while computing the „average value of investments‟ for the purpose of quantifying the disallowance Under Sec. 14A r.w rule 8D(2)(iii) had rightly restricted itself to the exempt income yielding shares and therein worked out the same at Rs.548/-. It was further submitted by the ld. A.R that the A.O had wrongly made an addition w.r.t an amount of Rs.13,758/- as stood reflected in the assessee‟s ITS details under 26AS, loosing sight of the specific claim of the assessee that no part of the said amount belonged to it.
Per contra, the ld. Departmental Representative (for short „D.R‟) relied on the orders of the lower authorities.
We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record. As is discernible from the records, the assessee during the year in question had earned exempt dividend income of Rs.73,20,896/-. Against the aforesaid exempt income, the assessee had on a suo motto basis worked out the disallowance under Sec.14A r.w. Rule 8D(2)(iii) at Rs.548/-. On a perusal of the computation of the aforesaid disallowance, we find, that the assessee while computing the „average value of investments‟ within the meaning of Rule 8D(2)(iii) had excluded the investments made in mutual funds from which no exempt income was earned. However, the A.O
3 M/s D.S. Purbhoodas & Co. Vs. Asstt. CIT-17(1) holding a conviction that for applicability of Sec. 14A what was necessary was the existence of investments that give rise to exempt income and not the exempt income alone thus, rejected the aforesaid claim of the assessee. Apart from that, the A.O was also of the view that sale of the mutual funds by the assessee in the coming times would result to exempt long term capital gains in its hands. Backed by his aforesaid observations, the A.O included the investments made by the assessee in mutual funds for the purpose of working out the „average value of investments‟ within the meaning of Rule 8D(2)(iii) and worked out the disallowance at Rs.3,65,575/-.
We have given a thoughtful consideration to the issue pertaining to the quantification of the disallowance under Sec. 14A r.w. Rule 8D(2)(iii) in the case of the assessee, and are unable to persuade ourselves to subscribe to the view taken by the lower authorities. As the assessee had not earned any exempt income from the mutual funds therefore, the same in our considered view could not have been included for the purpose of computing the „average value of investments‟ while quantifying the disallowance under Sec. 14A r.w. Rule 8D (2)(iii). Our aforesaid view is fortified by the order of the ITAT, Special bench in the case of ACIT & Anr. Vs. Vireet Investment Pvt. Ltd. & Anr. (2017) 165 ITD 27 (De)(SB). In the said case it was observed by the Tribunal that as per rule 8D(2)(iii), only those investments were to be considered for computing „average value of investment‟ which had yielded exempt income during year under consideration. Accordingly, in the backdrop of our aforesaid deliberations, we herein direct the A.O to exclude the mutual funds which had not yielded any exempt income during the year for the purpose of quantifying the disallowance under Sec. 14A r.w. Rule 8D(2)(iii) in the hands of the assessee.
As regards the inclusion of an amount of Rs.13,758/- on the basis of Form 26AS to the returned income of the assessee, we find, that it is claim of the ld. A.R that no part of the said income belonged to the assessee. On a perusal of the records, we find, that as per Form 26AS commission income of Rs.13,758/- stated to have been received from “Abu Dhabi Commercial Bank Ltd. – Churchgate Branch” stands reflected in the annual tax statement of the assessee. In rebuttal, it is submitted by the ld. A.R that no part of the aforesaid amount of income belongs to the assessee. As the assessee had declined of having owned any part of the aforesaid income, the same, thus, could not have been summarily added by the A.O as its income. In the backdrop of the aforesaid claim of the assessee who had 4 M/s D.S. Purbhoodas & Co. Vs. Asstt. CIT-17(1)
denied ownership of the aforesaid income or the source thereof, we are of the considered view that the A.O was not justified in adding the impugned amount as the income of the assessee. Multiple reasons leading to the aforesaid anomaly in reflection of the above mentioned amount in the annual tax statement of the assessee cannot be ruled out. Be that as it may, we are of the considered view that the matter in all fairness requires to be revisited by the A.O, who is directed to verify the aforesaid claim of the assessee. Needless to say, the A.O shall in the course of the set aside proceedings afford a reasonable opportunity of being heard to the assessee who shall remain at a liberty to substantiate its aforesaid claim.
The appeal of the assessee is allowed in terms of our aforesaid observations.
Order pronounced in the open court on 25.02.2021