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Income Tax Appellate Tribunal, DELHI BENCH “G”, NEW DELHI
Before: SHRI H.S. SIDHU & SHRI O.P. KANT
ORDER PER H.S. SIDHU : JM Assessee has filed this Appeal against the impugned Order dated 22.12.2011 passed by the Ld. CIT(A)-XXVIII, New Delhi relevant to assessment year 2008-09 on the following grounds:-
1. That on the facts and in the circumstances of the case the Ld. CIT(A) erred in confirming the disallowance u/s. 14A of Rs. 14,56,385/- as against Rs. 50,040/- computed by the assessee as expenses related to earning of income on which tax is not payable.
2. That the order of the authorities below holding that Rs.
14,56,385/- was to be disallowed out of the expenses incurred by the assessee in the course of his practice as a Senior Advocate is not sustainable as at no stage have said the authorities found any dissatisfaction as regards the correctness of the claim made by the assessee.
That the disallowance of expenses u/s. 14A on subjective
and presumed facts contrary to the realties of the case is a hypothetical disallowance which needs to be deleted.
4. That the orders of the ld. Authorities below being contrary
the facts and circumstances of the case and in law the appeal be allowed.
The brief facts of the case are that Assessee had filed the return declaring income of Rs. 13,58,38,450/- on 30.9.2008. The case was processed u/s. 143(1) of the I.T. Act, 1961 on 10.12.2009. The case of the Assesse was selected for scrutiny. The Assessing Officer issued the notice u/s. 143(2) of the Act dated 13.8.2009 to the assessee which was served on the assessee. In response thereto Authorised Representative of the assessee appeared and filed the requisite details. The books of account alongwith vouchers were called for and verified on test check basis. The assessee is a Senior Advocate, practicing at the Hon’ble Supreme Court of India and has shown income under the heads income from salary, income from house property, income from profession, income from capital gain and income from other sources. During the previous year, the assessee has shown professional receipts of Rs. 12.37 crores as against Rs. 10.19 crores last year. In this case, before the AO the assessee contended that it had added back amount of Rs. 50,400/- from 2 the expenses claimed as non-deductible expenditure incurred by the assessee in relation to income which does not form part of the total income as provided u/s. 14A of the Act. AO observed that assessee has not provided any details of cost incurred as fee paid to mutual fund agents/ portfolio managers. AO observed that the assessee has made investments for earning exempt income throughout the year. Managing such a large portfolio entail expenses right from diversion of manpower / staff for indulging in investment activities to various activities like visiting banks, use of vehicle and telephone, use of internet if portfolio management is web based, cost of computer and its depreciation, computer operator, consequent electricity, use of office premises, fee charged by mutual fund agents/ bankers, portfolio record maintenance and its tracking to ensure time sale/purchase of mutual fund units, etc.
Accordingly, the held that in view of provision of section 14A read with Rule8D of the Income Tax Rules, 1962, an expenditure of Rs. 14,56,385/- was determined which is attributable to the earning of exempt income and added back to the income of the assessee and accordingly, assessed the income of the assessee at Rs. 13,78,06,384/- and completed the assessment u/s. 143(3) of the I.T. Act, 1961 dated 15.12.2010.
3. Aggrieved with the assessment order dated 15.12.2010, the assessee preferred an appeal before the Ld. CIT(A), who vide impugned order dated 22.12.2011 has partly allowed the appeal and sustained the addition of Rs. 14,56,385/-.
Against the impugned order dated 22.12.2011, assessee has filed the Appeal before the Tribunal.
At the time of hearing, Ld. Counsel of the assessee stated that as regard to disallowance made u/s. 14A of the Act of Rs. 14,56,385/- as against Rs. 50,400/- computed by the assessee as expenses related to earning of income on which tax is not payable. He further stated that disallowance out of expenses incurred by the assessee in the course of his practice as a Senior Advocate is not sustainable as at no stage have said the authorities found any dissatisfaction as regards the correctness of the claim made by the assessee. He requested that the addition in dispute may be deleted and the Appeal of the Assessee may be allowed. In support of his contention, he relied upon the case law in the case of CIT vs. Taikisha Engineering Ltd. (Delhi High Court) & 119/2014 dated 25.11.2014.
On the other hand, Ld. DR relied upon the orders of the authorities below.
We have heard both the parties and perused the records available with me especially the orders of the revenue authorities. We find that disallowance made u/s. 14A of the Act of Rs. 14,56,385/- was against Rs. 50,400/- computed by the assessee as expenses related to earning of income on which tax is not payable in the eyes of law. We further find that disallowance out of expenses incurred by the assessee in the course of his practice as a Senior Advocate is not sustainable as at no stage it has been said that the authorities found any dissatisfaction as regards the correctness of the claim made by the assessee. In view of above, no disallowance under section 14A is sustainable in the eyes of law. Our view is fortified by the following decisions:-
CIT Vs Taikisha Engineering India Ltd. (Delhi High
Court) ITA 115/2014 & 119/2014 dated 25-11-2014
Disallowance of expenses on exempt income uls 14A r.w Rule 80 - investments in shares and mutual funds - Held that:- In Maxopp Investment Ltd. vs. Commissioner of Income Tax [2011 (11) TMI 267 - Delhi High Court] it has been held that it is only when the AO is not satisfied with the claim of the assessee, that the Legislature directs him to follow the method that may be prescribed - the findings recorded by the CIT(A) and the Tribunal are appropriate and relevant - the assessee had sufficient funds for making investments in shares and mutual funds - The self or voluntary deductions made by the assessee were not rejected and held to be unsatisfactory, on examination of accounts - the Rule in sub Rule (2) specifically prescribes the mode and method for computing the disallowance under Section 14A of the Act - under clause (ii) to Rule 80(2) of the Rules, the AO is required to examine whether the assessee has incurred expenditure by way of interest in the previous year and secondly whether the interest paid was directly attributable to particular income or receipt - the amount to be disallowed as expenditure relatable to exempt income, under sub Rule (2) is the aggregate of the amount under clause (i), clause (ii) 5 and clause (iii) - Clause (i) relates to direct expenditure relating to income forming part of the total income and under clause (iii) an amount equal to 0.5% of the average amount of value of investment, appearing in the balance sheet on the first day and the last day of the assessee has to be disallowed - thus, the order of the Tribunal is upheld - Decided against revenue.
7.1 In the background of the aforesaid discussions and respectfully following the precedent, as aforesaid, the disallowance made by the AO and confirmed by the Ld. CIT(A) is deleted and the issue in dispute raised by the Assessee is allowed.
In the result, the Appeal filed by the Assessee stands allowed.
Order pronounced in the Open Court on 14/12/2016.