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Income Tax Appellate Tribunal, “I” BENCH, MUMBAI
These Cross appeals are arising out of the order of Commissioner of Income Tax (Appeals)-9, Mumbai, [in short CIT(A)] in appeal No. CIT(A)-9/Cir.4/406/2013-14 dated 16-03-2016. The Assessment was framed by the Assistant Commissioner of Income Tax, Circle 4(2), Mumbai (in short ACIT) for the assessment year 2011-12 vide order dated &4547/Mum/2016 25-02-2014 under section 143(3) of the Income Tax Act, 1961(hereinafter ‘the Act’).
The first common issue in these cross appeals is as regards to the order of CIT(A) restricting the disallowance at 51,11,981/-. For this Revenue has raised following grounds: -
“1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the AO to delete the disallowance of Rs. 51,11,981/- made by the Assessing Officer u/s 14A read with rule 8D of the income Tax Act. 1961 relying on the decision in the ease of India Advantage Fund."
2. On the facts and in the circumstances of the case and in law, the 14. CIT(A) further erred in not appreciating the fact that the issue of disallowance u/s 14A read with rule 3D has not reaching finality, there being catena of cases where decision is given favour of Revenue like - Daga Capital Management Pvt. Ltd. 117 lTD 169, American Express Bank Ltd. 24 Taxmann.com 50, D.H. Securities Pvt. Ltd. 41 Taxmann.com 352 and Damani Estate & Finance Pvt. Ltd. 44 Taxmann.com 385.”
Assessee has raised following ground No.1
“The Learned CIT(A) erred in not deleting addition made under Rule 8D(ii) of Rs.50,08,589/- & under Rule 8D(iii) of Rs.1,03,392/- of Sec.14A & directing AO to deduct the value of stock in trade for purposes of Rule 8D(iii) only & not for Rule 8D(ii).”
&4547/Mum/2016 3. Briefly stated facts are that the assessee is engaged in trading of shares as well as stock broker. The AO during the course of assessment proceedings noticed that the assessee has earned exempt income i.e. the dividend income of ₹ 1,51,348/- and claim the same as exempt under section 10(38) of the Act. Accordingly, the AO computed the disallowance under section 14A read with Rule 8D(2)(ii) of Income Tax Rules, 1962 (hereinafter the ‘Rules’) at ₹ 50,08,589/- and also under Rule 8D(2)(iii) at ₹ 1,03,392/-. Thereby, the AO made total disallowance at ₹ 51,11,981/-. Aggrieved, assessee preferred the appeal before CIT(A). The CIT(A) after considering various aspects directed the AO to recompute the disallowance under section 8D(2)(ii) and retain the disallowance at ₹ 65,027/- under Rule 8D(2)(iii) by observing as under: -
“In view of the above, it can be concluded that the appellant had mixed bag of shares and which included stock in investment as well as stock in trade both. Accordingly, the AO is directed to re-compute calculation of disallowance u/s.14A r.w.r.8D(2Xii) of I T Rules, 1962 in view of the above facts and modify the disallowance from Rs8,18,090/- to the fresh figure which can be arrived at only on the figure of stock of investment as reflected in the Balance Sheet Schedule F of the Audited Accounts.
As regards disallowance of ₹ 65,027/-, no worthwhile defence have been put forward during the appellate stage. In such situation, it can be clearly concluded that there will be some administrative and other general expenses which can be disallowed u/r.81)(2)(iii) of IT Rules, 1962. In view of this, the disallowance of Rs. 65,027/- is confirmed.
&4547/Mum/2016 In the result, the appellant's ground on disallowance u/s14A r.w.r.8D is Partly Allowed as indicated above.”
Aggrieved by the decision of CIT(A), both came in appeal before Tribunal.
We have heard the rival contentions and gone through the facts and circumstances of the case. At the outset, the learned Counsel for the assessee stated that the assessee’s exempt income i.e. dividend income is to the tune of ₹ 1,51,348/-. According to him, the issue is squarely covered by the decision of Hon’ble Delhi High Court in the case of Joint Investment Pvt. Ltd. vs. CIT (2015) 372 ITR 694 (Delhi), wherein it is held that the window for disallowance was indicated in section 14A of the Act and was only to the extent of disallowing expenditure incurred by the assessee in relation to the tax exempt income. This proportion or portion of the exempt income surely cannot swallow the entire amount. In view of the above Delhi High Court decision, the learned Counsel for the assessee fairly conceded that the disallowance under Rule 8D(2) can be retained only to ₹ 1,51,348/- to the extent of dividend income.
We find that the assessee himself has suo moto made disallowance of ₹ 58,095/- before CIT(A). On query from the Bench, the learned Sr. Departmental Representative (‘DR') could not counter the judgement of the Hon’ble Delhi High Court before us, or he could not brought any precedent of Hon’ble jurisdictional High Court in Revenue’s favour. Accordingly, we are of the view that the issue is squarely covered and hence, we restrict the disallowance at ₹ 1,51,348/- to the extent of exempt income. We direct the AO accordingly.
The next issue in assessee’s appeal in CIT(A) confirming the action of the AO in not allowing carry forward of speculation loss at ₹ 1,04,65,899/- instead &4547/Mum/2016 restricted the carry forward only at ₹ 56,42,063/-. For this Assessee has raised following ground No. 2 : -
“2. The Learned CIT(A) erred in not allowing carry forward of speculation loss of Rs.1,04,65,899/- in place of Rs.56,42,063/- by holding that appellant should have moved an application u/s 154 while the AO has in clear terms held that the appellant was eligible for carry forward of Rs. 1,04,65,8991- & further holding that appellant has not made case on merits, while the AO himself has stated that the appellants case had merits.”
At the outset, the learned Counsel for the assessee took us through the assessment order at Para 6 which reads as under: -
“6. For the year under consideration, the assessee company has claimed the following losses:
AY 2009-10 Speculation Loss 56,42,063/- Business Loss 27,14,160/- Depreciation Loss 19,33,204/- AY 2010-11 Business Loss 6,45,656 The same has been duly verified from records and observed as under:-
AY 2009-10 (Assessed Income / Loss vide order U/s 143(3) dated 15/12/2011) Speculation loss 1,04,65,899/- Business income 23,02,740/- AY 2010-11 (Assessed Income / Loss vide order u/s 143(3) dated 28/11/2013) Business Income 4,11,919/- &4547/Mum/2016 Therefore, for the year under consideration, the assessee is eligible to claim speculation loss of ₹ 1,04,65,899/- for AY 2009-10. However, considering the claim of the assessee’s of speculation loss of ₹ 56,42,063/- as per its return of income, ₹ 56,42,063/- is set off during the year and the balance of ₹ 48,23,836/- is allowed to carry forward for the subsequent years.”
The learned Counsel for the assessee explained that the assessee mistakenly mentioned speculation loss claim in the return of income at ₹ 56,42,063/- but AO himself had noted the correct speculation loss after verifying from the records is at ₹ 1,04,65,899/-. According to the learned Counsel, the CIT(A) should have allowed this speculation loss, whereas, he only admitted that this loss is genuine loss but stated that the assessee should have moved a rectification application to the AO under section 154 of the Act. He read out Para 4.3 of the CIT(A)’s order which reads as under: -
“4.3. I have considered the stand of the AO as well as submission of the appellant. The main crux of the appellant's submission is that AO has made mathematical error while quantifying the amount of disallowance. This being the case, the issue becomes whether the disallowance made by the AO is mistake apparent from record or not. I have a thoughtful consideration to the same and I am of considered opinion that the appellant should have move rectification petition u/s.154 before the AO and if the same was rejected by the AC), then only, the appellant could have pursued the matter in appeal. Since, the &4547/Mum/2016 appellant has not made out any case on merit and has harped upon mathematical error on computation of the amount of disallowance; this ground of appeal is Dismissed being pre- mature and jumping the procedure and without following the proper route for appeal. Had the appellant made out any case on merit, a final decision could have been taken here itself.”
In view of the above, the learned Counsel for the assessee stated that the assessee is entitled for this loss and authorities below have admitted this but only mistaken occurred while filing the return of income by the assessee and in the return of income it was claimed of ₹ 56,42,063/- instead of the actual claim of ₹ 1,04,65,899/-. On the other hand, the learned Sr. Departmental Representative (‘DR') fairly agreed that the assessee is entitled for this loss and it should have been done through rectification application under section 154 of the Act.
We have heard the rival contentions and gone through the facts and circumstances of the case. Admittedly, the assessee has claimed speculation loss in the return of income at ₹ 56,42,063/- but the AO himself has verified from the records that the speculation loss is at ₹ 1,04,65,899/-. According to us, the assessee is entitled for this loss and this has been verified by the AO from records. Accordingly, we direct the AO to allow the speculation loss at ₹ 1,04,65,899/-. The appeal of assessee is allowed and that of the Revenue is dismissed.