SHRI. DEEPEN A. PAREKH,MUMBAI vs. ACIT-CENTRSL CIR.-20, MUMBAI

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ITA 2087/MUM/2016Status: DisposedITAT Mumbai22 November 2017AY 2011-124 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that the disallowance under Section 14A cannot exceed the expenditure debited to the Profit and Loss Account. It directed the Assessing Officer to restrict the disallowance to the actual expenses incurred other than depreciation and speculative business expenses.

What were the facts?

The assessee's appeal concerned a disallowance under Section 14A read with Rule 8D(2)(iii). The assessee argued that the disallowance should be limited to the actual expenses debited to the Profit and Loss Account, excluding depreciation and speculative business expenses.

What were the issues?

Whether the disallowance under Section 14A can exceed the actual expenses incurred by the assessee for earning exempt income.

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 “I”, MUMBAI

Before: SHRI C.N. PRASAD, HONBLE & SHRI N.K. PRADHAN, HONBLEShri Deepen A. Parekh v.

For Appellant: Shri Vijay Mehta
For Respondent: Shri Saurabh Kumar Rai
Hearing: 02.11.2017Pronounced: 22.11.2017

Date of Hearing : 02.11.2017 Date of Pronouncement : 22.11.2017 O R D E R PER C.N. PRASAD 1. This appeal is filed by the assessee against the order of the Learned Commissioner of Income Tax (Appeals)-51, Mumbai dated 22.01.2016 for the Assessment Year 2011-12. The only grievance in its appeal is in respect of confirmation of disallowance u/s. 14A r.w. Rule 8D(2)(iii) being ½% of the average value of investments at ₹. 9,68,381/-.

2.

Learned Counsel for the assessee at the outset submits that in the Profit and Loss Account assessee has claimed expenditure of ₹.65,643/-

(A.Y: 2011-12) Shri Deepen A. Parekh only other than depreciation of ₹.7,65,160/- and share expenses for speculative business at ₹.2,73,798/-. Learned Counsel for the assessee submits that assessee is into share speculation business and had shown gain from such business separately in the Profit and Loss Account. Learned Counsel for the assessee submits that if depreciation and share expenses for speculative business are excluded what has been debited to Profit and Loss Account towards expenses remains ₹.65,643/- only and therefore the disallowance made by the Assessing Officer at ₹.9,68,381/- is totally unjustifiable.

3.

Learned Counsel for the assessee further referring to the Coordinate Bench decision in assessee’s own case for the Assessment Year 2009-10 in ITA.No.3308/MUM/2013 dated 27.05.2015 submits that the Hon'ble Tribunal noticed that assessee had debited total expenditure of ₹.1,94,511/- and Assessing Officer disallowed 25% of the dividend income as well as disallowance under Rule 8D2(iii) and it was held that in no case the disallowance can be more than the expenditure debited and claimed by the assessee. However, the Learned Counsel for the assessee submits that since none appeared before the Tribunal when the appeal for Assessment Year 2009-10 came up for hearing, the Tribunal restored the matter back to the file of the Assessing Officer for deciding the same afresh. The Learned Counsel for the assessee further submits

(A.Y: 2011-12) Shri Deepen A. Parekh that, the assessee is satisfied if the Assessing Officer is directed to make disallowance expenses of ₹.65,643/- debited to Profit and Loss Account except depreciation and share expenses for speculative business in line with the observations of the Hon'ble Bench for the Assessment Year 2009-10.

4.

The Ld.DR supported the orders of the authorities below.

5.

We have heard rival submissions, perused the material placed before us and the decisions of the Coordinate Bench for the Assessment Year 2009-10 and 2010-11 in assessee’s own case. On a perusal of the Profit and Loss Account for Assessment Year 2011-12 the assessee claimed various expenditures towards bank charges, salary, depreciation, professional fee paid, club and gym expenses, Demat charges and share expenses for speculative business. The expenditure towards depreciation and share expenses for speculative business can never be said to be incurred for earing exempt income. If this expenditure is excluded what has been debited to Profit and Loss Account is only ₹.65,643/-. Therefore, the disallowance made by the Assessing Officer at ½% of average investments at ₹.9,68,381/- under Rule 8D2(iii) is not correct. The disallowance should not exceed the expenditure debited to Profit and Loss Account. In view of the submissions of the Learned Counsel for the (A.Y: 2011-12) Shri Deepen A. Parekh assessee that assessee is satisfied if the disallowance is restricted to the expenditure debited to Profit and Loss Account other than depreciation and share expenses for speculative business, we are of the view that it would be appropriate to give direction to the Assessing Officer to restrict the disallowance only to the expenditure debited to Profit and Loss Account other than the depreciation and share expenses for speculative business for the Assessment Year under appeal. Thus, we direct the Assessing Officer to restrict the disallowance to ₹.65,643/- and recompute the disallowance u/s. 14A r.w. Rule 8D of I.T. Rules.

6.

In the result appeal of the assessee is partly allowed.

Order pronounced in the open court on the 22nd November, 2017.

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