DCIT CEN CIR 1(4), MUMBAI vs. EVERSMILE CONSTRUCTION COMPANY P.LTD, MUMBAI

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ITA 7733/MUM/2014Status: DisposedITAT Mumbai14 February 2018AY 2011-124 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the disallowance offered by the assessee in a previous year, which was accepted by the Tribunal, should be considered reasonable. Therefore, no further disallowance was required.

What were the facts?

The assessee received dividend income and claimed it as exempt. The Assessing Officer (AO) disallowed a portion of expenses under Section 14A. The CIT(A) allowed the appeal, following a previous year's order where the Tribunal had accepted a disallowance offered by the assessee.

What were the issues?

The primary issue was the quantum of disallowance of expenses related to exempt income under Section 14A. The secondary issue was whether the principle of consistency should be applied based on previous year's orders.

Which sections of the Income-tax Act were involved?

Section 14A

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI

Before: SHRI D.T. GARASIA

For Respondent: Shri Aarju Garodia, D.R
Hearing: 18.01.2018Pronounced: 14.02.2018

Per D.T. Garasia, Judicial Member:

1.

The present appeal has been preferred by the Revenue against the order dated 24.10.2014 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2011-12.

2.

The short facts of the case are as under: On perusal of books of accounts, it was observed that assessee has received dividend income of Rs.46,74,925/- from M/s. Goan Real Estate & Construction Pvt. Ltd. during the year under consideration. Assessee has claimed the said dividend income exempt from income tax. The assessee was show caused as to why disallowance under section 14A r.w.r. 8D(2)(iii) should not be made

2 M/s. Eversmile Construction Company Pvt. Ltd. to its total income. In response, the assessee filed its submission of computation of disallowance u/s 14A at 05% of the average value of investments, income from which do not form part of total income. The Assessing Officer (hereinafter referred to as the AO) has calculated the disallowance under section 14A by observing as under: I Expenditure directly related to earning exempt income Nil II Interest expenditure not directly attributable to any income or receipt=A*B/C A= Interest expenditure other than mentioned at Sr. No.I B= the average value of investment, income from which does not or shall not form part of total income. As appearing in the balance sheet of the assessee, on the first day and last day of the previous year as per Total (A*B/C) Nil III 0.5% of the average value of the investment, income from which does not form part of total 6061501 income Average Investments Opening Investments Rs.1077433420 Closing Investments Rs.1347167052 Total :- Rs.2424600472 Average Investments Rs.1212300236 In quantifying average value of investments, investment in property of Rs.9086173/- is excluded (0.5% of Rs.1212300236) Total (I+II+III) 6061501

3.

The matter carried to the Ld. CIT(A) and the Ld. CIT(A) has allowed the appeal by observing as under:

3 M/s. Eversmile Construction Company Pvt. Ltd. “6.1 The written submissions of the appellant is carefully considered. Based on the facts as applicable for the year under appeal, the CIT(A)-36, Mumbai my predecessor, vide his order dated 20.7.2012 for the A.Y. 2009-10 has elaborately discussed in detail and then confirmed the disallowance offered by the appellant of Rs.7,28,280/- as having been incurred on administrative and managerial expenses in relation to investments held, the income of which is exempt under Chapter III of the Act (vide para 5.5 on page no.6). Therefore, in the light of the discussion above, for this year i.e. A.Y. 2011-12 also, respectfully following my predecessor’s view as held for A.Y. 2009-10, I also confirm the disallowance offered by the appellant of Rs.7,88,167/- representing 10% of Rs.78,81,670/- and not Rs.60,61,504/-. Out of total Rs.60,61,504/-, Rs.7,88,167/- is confirmed and balance Rs.52,73,337/- is deleted.”

4.

The Ld. D.R. relied upon the order of the AO.

5.

The Ld. A.R. has drawn my attention to page 1 to 4 of the relevant extract for A.Y. 2009-10, 2010-11 & 2011-12. The Ld. A.R. submitted that for A.Y. 2009-10 the matter was travelled up to the Tribunal and the Tribunal has accepted the disallowance of Rs.7,28,280/- and for A.Y. 2010-11 no appeal was filed by the Department. The Ld. CIT(A) has followed the order of 2009-10. Therefore, applying the principal of consistency, no further disallowance is required.

6.

I have heard the rival contentions of both the parties. I have gone through the order of Ld. CIT(A) and Ld. CIT(A) has followed the order of 2009-10 and he has disallowed 10% of the total investment. In A.Y. 2009-10, the matter was travelled up to Tribunal and the Tribunal has dismissed the appeal by observing as under:

“8. We have given a thoughtful consideration to the orders of the authorities below. We have also carefully perused the relevant documentary evidences referred to during the course of the proceedings. Undoubtedly and undisputedly all the investments made by the assessee are in subsidiary company/associated companies as capital contribution in partnership finm'association of persons. In its note to accounts and at point No. 10, the assessee has disclosed the relationship under the head "Related Party Disclosure"

4 M/s. Eversmile Construction Company Pvt. Ltd. which is at page-24 of the Paper Book and the details of investments are at pages 16 & 17 of the Paper Book. Considering the facts in totality, we find that the related issues are squarely decided in favour of the assessee and against the Revenue by the decision of the Tribunal in the case of JM Financial (supra) which has been followed by the Tribunal Delhi Bench in ITA No. 4245/Del/201 1, Ahmedabad Bench in ITA No. 2839/AhdI201 1 and recently by the Tribunal, Lucknow Bench in ITA No. 538/Lkw/2012. 8.1. As the assessee has offered the disallowance at Rs.7,28,280/- before the First Appellate authority which has been accepted by him, in our considered opinion, the same should be taken as reasonable on the facts of the case, no interfere is called for.”

7.

Respectfully following the decision of Tribunal for A.Y. 2009- 10, I dismiss the departmental appeal.

Order pronounced in the open court on 14.02.2018.

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