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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: HON’BLE SHRI AMARJIT SINGH, JM & HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM
सुनवाई की तारीख/ : 11/02/2020 Date of Hearing घोषणा की तारीख / : 11/02/2020 Date of Pronouncement आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by assessee for Assessment Year [in short referred to as ‘AY’] 2014-15 contest the order of Ld. Commissioner of Income-Tax (Appeals)-36, Mumbai, [in short referred to as ‘CIT(A)’], Appeal No. CIT(A)-36/IT-351/ACIT-24(3)/2016-17 dated 31/05/2018 on following grounds: -
2 Mr. Ravi Mohan Gehi Assessment Year :2014-15
1. Ld. CIT(A) has erred in confirming the disallowance u/s 14A of the Income Tax Act 1961, amounting to Rs.11,52,314/-made by the Ld. AO.
2. The Ld. CIT(A) has failed to take into account the documentary evidences such the details of dividend placed on record along with the Statements of Mutual Funds which shows that appellant had not given any efforts or time for the said activity since the intention is to invest the spare amount lying in the bank account.
3. On the facts and circumstances of the case, the Ld. CIT (A) has failed to appreciate the fact that without Prejudice to Section 14A r.w. rule 8D the appellant had on its own disallowed Rs. 40,000/- by way of disallowance u/s 14A of the Income Tax Act 1961, being Rs 2,000/- per transaction of Investments or liquidation of Investments for the 20 Transactions entered by the appellant during the year.” As evident, the sole subject matter of appeal is disallowance u/s. 14A.
2. We have carefully considered arguments advanced by both the representatives and perused relevant material on record. We have also deliberated upon various judicial pronouncements as cited before us. Our adjudication to the subject matter of dispute would be as given in succeeding paragraphs. 3.1 Facts on record would reveal that assessee being resident individual stated to be carrying out brokerage business, was assessed for year under consideration u/s. 143(3) on 26/12/2016 wherein income of the assessee was determined at Rs.173.55 Lacs after sole disallowance u/s. 14A for Rs. 11.52 lacs as against returned income of Rs.162.02 lacs e-filed by the assessee on 31/07/2014. 3.2 During assessment proceedings, it transpired that the assessee had investments in its Balance Sheet, which called for disallowance u/s 14A. The Ld. AO, observing that the assessee has not shown to have incurred any expenditure specifically to earn exempt income, applied Rule 8D and computed indirect expense disallowance u/r 8D(2)(iii) for Rs.11.52 Lacs, being 0.5% of average investments.
3 Mr. Ravi Mohan Gehi Assessment Year :2014-15 4. Before Ld. CIT(A), the assessee drew attention to the fact that it had already offered suo-moto disallowance of Rs.40,000/- computed @Rs.2000/- per transactions while computing its income for the year. The attention was also drawn to the fact that entire dividend received by the assessee were by way of investments in units of mutual funds. It was also submitted that negligible efforts were made by the assessee to earn the exempt income. However, Ld. CIT(A), relying upon appellate order for AYs 2009-10 & 2010-11, confirmed the disallowance as made by Ld. AO. Aggrieved, the assessee is under further appeal before us.
Upon due consideration of factual matrix, it is observed that Ld. AO has failed to consider the fact that the assessee had already offered suo- moto disallowance of Rs.40,000/- while computing its income for the year. It is trite law that application of Rule 8D is not automatic and it was incumbent on Ld. AO to first reject the method of disallowance adopted by the assessee, having regards to the accounts of the assessee, before proceeding to apply Rule 8D. The same is a jurisdictional requirement and the failure to do so the same would oust the jurisdiction of Ld.AO to apply Rule 8D. The assessee had identified estimated expenditure of Rs.2,000/- per transaction and computed disallowance of Rs.0.40 Lacs. Upon perusal of financial statements as placed on record, it is evident that majority of the expenses were towards business activities being carried out by the assessee during the year under consideration. Therefore, the suo-moto disallowance as computed by the assessee, in our opinion, was quite fair and adequate. Therefore, the facts of the case do not inspire us to confirm the additional disallowance of Rs.11.52 Lacs as made by Ld.AO. By deleting the same, we allow the appeal.