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Income Tax Appellate Tribunal, “K” BENCH, MUMBAI
Before: SHRI RAJENDRA, AM & SHRI AMARJIT SINGH, JM
O R D E R
PER AMARJIT SINGH, JM:
The revenue has filed the present appeal against the order dated 01.01.2016 passed by the Commissioner of Income Tax (Appeals)-5 Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the AY.2011-12.
The revenue has raised the following grounds:-
1. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in deleting the addition made U/S.14A r.w. Rule A.Y. 2011-12 8D despite the AO making out a case for proximate cause of expenses incurred against earning exempt income. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in ignoring the provisions of Section 14A(3) wherein section 14A can be invoked even in cases where an assessee claims that no expenditure has been incurred in relation to exempt income. On the facts and in the circumstances of the case and in law the Ld. CIT(A) has erred in ignoring the fact that section 14A is applicable in a case where expenditure in relation to exempt income is claimed in capital account and not in profit and loss account and thereby providing proof of incurring expenditure towards earning exempt income. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition made u/s,40(a)(ia) of the IT Act by relying on the ITAT Special Bench decision in the case of Merilyn Shipping and Transport Vs Addl. C1T 136 ITD 23 (SB) Vishakapatnam without considering the fact that the operation of the said decision has been stayed by the Hon'ble High Court of Andhra Pradesh.”
3. The brief facts of the case, are that the assessee filed his return of income on 16.09.2011 declaring total income to the tune of Rs.5,41,38,530/-. The return was processed u/s 143(1). The case was selected for scrutiny under CASS. Thereafter, the notice u/s 143(2) dated 02.08.2012 and notice u/s 142(1) of the Act, dated 18.02.2013 were issued and served upon the assessee. The assessee is proprietor of M/s. Thakker & Thakker, Solicitors and Advocates. The assessee’s source of income consists of income from House Property, Income from Profession, Capital Gains and Income from other sources. On verification, it was found that the assessee paid association ship fees to the tune of Rs.10,48,590/- to Mr. C.Z. Shah at London without deducting any TDS. The notice was given and after filing the reply, ITA. No. 2787/M/2016 A.Y. 2011-12 the Assessing Officer was of the view that payment was of the violation of Section195 of the I.T. Act. Therefore, the said amount was disallowed u/s 40A(ia) of the I.T. Act, and added to the income of the assessee. The assessee also received the exempt income, therefore, the Assessing Officer applied provision of Section 14A r.w. Rule 8D of the Act and assessed the expenditure to incur the exempt income to the tune of Rs.3,216,994.01/-. The total income of the assessee was assessed to the tune of Rs.5,90,98,530/-. Feeling aggrieved, the assessee filed an appeal before the CIT(A) who allowed the claim of the assessee, therefore, the revenue has filed the present appeal before us.
ISSUE NO 1 & 3:- 4. Under this issue the revenue has challenged the deletion of the disallowance u/s 14A r.w. Rule 8D of the Act to the tune of Rs. 32,16,994/- which was restricted to the extent of 1,00,000/-. Before going further, it is necessary to advert the finding of the CIT(A) on record: - “In Ground No. 1 Appellant challenges disallowance of expenditure u/s 14A of the I.T. Act for Rs.32,16,994/-. AO had found out that appellant had invested in shares, mutual funds and Government securities to the extent of Rs.1,40,91,10,380/- As appellant has invested in investment where there is a scope of earning exempt income, AO had debited rule 8D(2)(iii) i.e. 0.5% of average investment disallowed Rs.32,16,994/- 3. On examining this case it appears that this is a recurrent issue in case of appellant same has been decided by CIT(A) in 2009-10 A.Y. 2011-12 wherein CIT had considered all the arguments and alternate plea of the appellant and upheld the disallowance at Rs.1,00,000/-.
Since the facts of the case are identical for the year under consideration, in view of the decision of CIT(A), earlier disallowance u/s 14A is allowed at Rs.1,00,000/- for this year too. Grounds of appeal
is partly allowed.”
6. On appraisal of the above mentioned finding, we noticed that the CIT(A) has decided the issue on the basis of finding of the CIT(A) in the case of the assessee for the A.Y. 2009-10. At the time of argument, the Ld. Representative of the assessee has also placed reliance upon the order passed by the Hon’ble ITAT in the assessee’s own case for the A.Y. 2008-09 in ITA. No. 4694/M/2012 dated 26.04.2017. The finding has been given in para no. 5 of the said case which is hereby reproduced below as under:-
“5. We have heard the rival contentions and gone through the facts and circumstances of the Case. We find that neither the AO nor CIT(A) has recorded any satisfaction in applying Rule 8D (2) (iii) despite the fact that the assessee himself offered a sum of Rs. 1 lac towards disallowance under section 14A of the Act. There is no basis given by AO while making this disallowance or how he is not satisfied with the correctness of the Account of the assessee. We find that Hon’ble Bombay High Court in the case of Godrej and Boyce Mfg. Co. Ltd. vs. DCIT (2010) 328 ITR 81 (Bom) has emphasized on satisfaction as under: - “……….What merits emphasis is that the jurisdiction of the Assessing Officer to determine the expenditure incurred in relation to such income which does not form part of the total income, in accordance with the prescribed method, arises if the Assessing Officer is not satisfied with the correctness of the claim of the assessee in respect of the expenditure which the assessee claims to have incurred in relation to income which does not part of the total income. Moreover, the satisfaction of the Assessing Officer has to be arrived at, having regard to the accounts of the assessee. Hence, sub-section (2) does not ipso facto enable the Assessing Officer to apply the Bijehsh Thakkar ITA. No. 2787/M/2016 A.Y. 2011-12 Prop,Thakker & Thakker; A.Y:08-09 Page 4 of 5 method prescribed by the Rules straightaway without considering whether the claim made by the assessee in respect of the expenditure incurred in relation to income which does not form part of the total income is correct. The Assessing Officer must, in the first instance, determine whether the claim of the assessee in that regard is correct and the determination must be made having regard to the accounts of the assessee. The satisfaction of the Assessing Officer must be arrived at on an objective basis. It is only when the Assessing Officer is not satisfied with the claim of the assessee, that the Legislature directs him to follow the method that may be prescribed. In a situation where the accounts of the assessee furnish an objective basis for the Assessing Officer to arrive at a satisfaction in regard to the correctness of the claim of the assessee of the expenditure which has been incurred in relation to income which does not form part of the total income, there would be no warrant for taking recourse to the method prescribed by the Rules. For, it is only in the event of the Assessing Officer not being so satisfied that recourse to the prescribed method is mandated by law. Sub-section (3) of section 14A provides for the application of sub-section (2) also to a situation where the assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under the Act………”
From the above judgment of the Hon’ble Bombay High Court and the facts of the case that the AO has not recorded satisfaction qua the incorrectness of the accounts of the assessee, we delete the disallowance and allow the appeal of the assessee.”
The facts of the present case is quite similar to the facts of the case as mentioned in dated 26.04.2017. The case of the assessee squarely covered by the said order. In view of the said circumstances, we are of the view that the ratio of the said judgment is quite applicable to the facts of the case, hence, the finding of the CIT(A) doesn’t warrant any interfere with at this appellate stage. Accordingly, these issues are decided in favour of the assessee against the revenue.
ISSUE NO 4:-
ITA. No. 2787/M/2016 A.Y. 2011-12
Under this issue the revenue has challenged the deletion of the addition raised u/s 40A(ia) of the I.T. Act, 1961. This matter of controversy has been adjudicated by CIT(A) in the case of assessee’s own case for the A.Y. 2009-10 by virtue of order dated 23.10.2012. The finding of the case is hereby reproduced below as under:-
“3 I have considered the facts and found that Shri C.Z. Shah has rendered services to the appellant in the field of identifying prospective clients, arranging meetings, co- ordination further follow up and interaction to obtain legal assignments for the appellant. Therefore, the services rendered by Shri C.Z. Shah are in the nature of managerial services as defined under explanation 2 to Section 9(l)(vii) of the I.T. Act, Therefore, Shri C.Z. Shah has not providing any professional services and net performing independent "activity similar to professional services within the meaning of Article 15 of India-UK. Double Taxation Avoidance Agreement. Therefore, "fees paid to Shri C.I. Shah by the assesses falls u/s.9(l)[vii)(b) and thereby such income in hands of Shri C.Z. Shah is deemed to arise in India n u/s.9 of the Act which are taxable u/s,5[2) of the Act. Although such services are also covered by provisions of Article 13 of India-UX. DTAA but Shri C.I, Shah have rendered 'such services which de not make available to the appellant. Therefore, such services rendered by Shri C.Z. Shah are outside the purview of Article 13 of India-UK. DTAA which have overriding effect over the I.T. Act. Further, it is also noticed that a sum paid to Shri C.Z. Shah was not outstanding and payable at the end of the accounting year as the same stands already paid before the end of the previous year. Therefore, same is not liable for disallowance u/s.40(a)(ia) of the Act as laid down by the Hon'ble Special Bench in the case of Merilyn Shipping Vs. AC1T 16 ITR 1 (Vish) (SB). The said decision is also followed by Hon'ble Mumbai ITAT in the case of Emkay Share Brokers Ltd Vs. Addl CIT in dated 20.06.2012 and also in the case of Hindustan Thomson Vs. ACIT in dated ITA. No. 2787/M/2016 A.Y. 2011-12 25.05.2012. Therefore, respectively following the aforesaid decisions of Hon’ble Jurisdictional Tribunal, disallowance of Rs.3,20,920/- made u/s 40(a)(ia) is deleted.”
The finding of the CIT(A) has not been challenged by revenue. The matter of controversy has been decided by CIT(A) on the basis of said finding which is hereby reproduced below as under:-
“On examining the case, it appears that this is a recurrent of issue in the case of the appellant and the same is decided by CIT(A) in A.Y. 2009-10 The CIT has considered all the arguments and decided the issue in the favour of the appellant. Since the facts of the case are identical for year under consideration of the earlier decision of CIT(A) the disallowance made u/s 40(a)(ia) is deleted for this year. Ground of appeal is allowed.”
10. The matter of controversy has been adjudicated by CIT(A) on the basis of the dated 26.04.2017. Therefore, we are of the view, The CIT (A) has decided the matter of controversy judiciously and correctly which is not liable to be interfere at this appellate stage.