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Income Tax Appellate Tribunal, “H” BENCH, MUMBAI
Before: Vivanta by Taj
This appeal by the Revenue is arising out of the order of Commissioner of Income Tax (Appeals)-8, Mumbai, [in short CIT(A)] in appeal No. CIT(A)-8/IT-452/14-15 dated 30-12-2015. The Assessment was framed by the Deputy Commissioner of Income Tax, Circle-3(2), Mumbai (in short DCIT) for the assessment year 2011-12 order dated 03- 03-2014 under section 143(3) of the Income Tax Act, 1961(hereinafter ‘the Act’).
2. The only issue in this appeal of Revenue is against the order of CIT(A) deleting the addition made by AO by disallowing the expenses relatable to exempt income by invoking the provisions of section 14A of the Act read with Rule 8D(2) of IT Rules 1962 (hereinafter the Rules).For this Revenue has raised following two grounds: - “1. Whether on the facts of the case and in law the ld. CIT(A) was right in deleting the addition of Rs.36,48,675/- made by the AO u/s.14A of the Act read with rule 8D, merely relying upon appeal orders in earlier assessment years without appreciating the fact that in view of the decision of the Hon'ble Bombay High Court in the case of Godrej & Boyce Ltd. the disallowance u/s.14A in respect of A.Y. 2008-09 and onwards is to be made following Rule 8D(2) of IT Rule 1962.?"
Whether on the facts of the case and in law, the Id. CIT(A) was right in deleting the addition of Rs.36,48,675/- made by the AO u/s.14A of the Act read with rule 8D, relying upon decision of Hon'ble ITAT in assessee's own case for A.Y. 2006-07 to A.Y.2008-09, without appreciating the fact that in assessee's own case in A.Y.2004-05 Hon'ble ITAT, Mumbai vide its order dated 11.08.2009 in had upheld application of Rule 8D in working of disallowance u/s.14A?.”
Brief facts are that the AO during the course of assessment proceedings noticed that the assessee has received dividend income on investment at ₹ 1,50,28,715/- and claimed the same as exempt under section 10(38) of the Act. He noted that assessee has worked out expenses relatable to this exempt income at ₹ 3,00,395/- as inadmissible in view of the provisions of section 14A of the Act read with Rule 8D of the Rules. The AO was not satisfied and he made disallowance under Rule 8D(2)(ii) at ₹ 1,57,796/- being interest paid and also administrative expenses i.e. 0.5% of average value of investment at ₹ 34,90,796/-, thereby the total disallowance was made at ₹ 36,48,675/-. The AO giving credit for already disallowed by the assessee for a sum of ₹ 3,00,396/-, restricted the disallowance at ₹ 33,48,280/-. Aggrieved, assessee preferred appeal before CIT(A), who deleted the disallowance by relying
ITAT’s orders in earlier years by observing in Para 5.2.1 and 5.2.2. as under: - “5.2.1 This pertains to disallowance of Rs. 33,48,280/- made by the AO u/s 14A of the Income Tax Act, 1961. I find that Hon’ble ITAT Mumbai has examined this issue in their orders ITA/240/Mum/2012-AY 2006-07, ITA/241/Mum/2012 AY 2007-08 and ITA/850t'Mumf201 2-AY 2008-09 and ruled in favour of the appellant. It was held that the appellant had made strategic investments in group companies and the fact remained unchanged. ITAT has also observed that for AY 2004-05 and 2005-06 the First Appellate Authority has also accepted the stand of the appellant and deleted additions made by AO u/s 14A. For AY 2008-09. Hon'ble ITAT has accepted the methodology adapted by the appellant and rejected the computation made by AO under Rule 80.
5.2.2 I find the facts of the instant assessment year are similar to the earlier years and there is no change in the nature of investments or the methodology adapted by the appellant to make suo moto disallowance for the purpose of s. 14A. In view of the decisions of Hon'ble ITAT cited above in appellant's own case, the AO is directed to accept the suo moto disallowance at Rs. 9,02,874/- and delete the balance of the additional disallowance of Rs. 33,48,280/- made by the Assessing Officer. This ground of appeal is allowed.”
Aggrieved, now Revenue is in appeal before us.
Before us, the learned Sr. Departmental Representative relied on the assessment order. On the other hand, the learned Counsel for the assessee filed a copy of tribunal orders for AY 2006-07 and 2008-09 in ITA 240 and 850/Mum/2012 vide order dated 20-03-2015, wherein Tribunal by holding that strategic investment cannot be considered for the purpose of making disallowance under section 14A read with Rule 8D(2)(iii). He referred to Para 5 and 7 of the Tribunal orders on both the years which reads as under: - “5. We have heard the rival submission and perused the material before us. We find that while deciding the appeal for the AY.2005-06 the FAA had deleted the addition made by the AO following his order for the AY.2004-05, that the then FAA had held that assessee was holding strategic investment, that same was inherent part of overall planning, that there was no change in facts of the case that year as compared to the facts of AY.2004- 05.
It is found that assessee had made investment in Taj group of companies only and it is part of Taj Group, that except for one or two companies most of the companies wherein it had made investment are in the same business or in the business related with the hotel industries. It is a fact the AO has not pinpointed as to what was the expenditure that was incurred by the assessee for earning tax free income. Incurring of expenditure by an assessee, is the precondition for making disallowance u/s.14A of the Act. The logic behind introducing the section was that the assessee should not claim or get two deductions-.i.e. offering no tax exempt income on one hand and claiming expenditure on other hand.
Incurring of expenditure for earning exempt income has to be proved as a matter of fact. There cannot be any guess work or presumption about incurring of expenditure. If the assessee claims interest expenditure or other expenditure (administrative)for earning exempt income, definitely a disallowance can be made. But, if no claim is made then the AO should not invoke the provisions of section 14A.The assessee must have incurred some expense is a very general and vague phrase and does not indicate the incurring of expenditure. The word may leave the door open. In the case of J.M. Finance (supra), to which one of us was the party, it has been held that if no expenditure was incurred for earning tax free income no disallowance should be made.
It is said that fact of each case are different so, without highlighting the facts of that case no addition should be made on the basis of general presumption. The FAA, in the present case, had held that the every assessee would keep watch over the market to maximise its profit but he had missed one important aspect that the assessee was holding the shares of group concerns for strategic purposes and for selling and buying and selling them frequently. In absence of the finding as to how much was the sum incurred by the assessee under the head administrative expenses, it is not possible for us to uphold the order of the FAA for the year under consideration.
We further find that the FAA had not brought on record as to how the facts of earlier two AY.s. were different from the facts of the year consideration. In the case of Aroni Commerci-als Ltd.(362ITR403) the Hon’ble Bombay High Court has held as under:
Though the principle of res judicata is not applicable to tax matters as each year is separate and distinct, nevertheless where facts are identical from year to year, there has to be uniformity and in treatment.
Hon’ble jurisdictional High Court in the case of Gopal Purohit (336ITR287) has held that that there should be uniformity in treatment and when facts and circumstances for different years were identical particularly in the case of the same assessee. Analysis of the above two judgments lay down that the principle of consistency can be ignored only in certain conditions and without pinpointing the difference of facts for a particular year with the facts of earlier year/s consistency should be maintained. Considering the peculiar facts and circumstances of the case, we are reversing the order of the FAA. Effective ground of appeal raised by the assessee for the year under consideration, is allowed in its favour.
7.The effective ground for the year under appeal is identical to the grounds raised in the two earlier assessment years i.e. disallowance u/s. 14A of the Act. During the year the assessee had received dividend income of Rs. 1.07 Crores and it was claimed exempt u/s. 10(34) of the Act. The assessee itself offered disallowance of Rs. 1.18 Lakhs u/s. 14A of the Act. The disallowance consisted of entire interest expenditure and a portion of administrative expenses. Applying the Rule 8D of the Income-tax Rules, 1962 the AO made a disallowance of Rs. 7.16 Lakhs. During the appellate proceedings, the FAA after considering the submission of the assessee upheld the order of the AO. We find that the assessee itself had made disallowance of interest expenditure and part of administrative expenses for the year under consideration. As the facts and circumstances of the matter are almost similar to the facts of earlier two assessment years, therefore, following the same we decide the effective ground of appeal in favour of the assessee.”
5. When pointed out to the learned Counsel that the Tribunal has not deleted the addition on the investments which gives dividend income or tax free income, he fairly conceded that for the limited purpose, the matter can be sent back to the file of the AO for verification that disallowance will be restricted to the extent of the investments which does given tax free income and also strategic investment should be excluded. Further, the learned Counsel for the assessee relied on the Tribunal orders for earlier years.
After hearing both the sides and going through the facts and circumstances of the case & respectfully following the tribunals order in earlier year we dismiss the appeal of the revenue.
In the Result, the appeal of Revenue is dismissed.
Order pronounced in the open court on 23-02-2018.