SHAHID KAPOOR,MUMBAI vs. ACIT CIR (11)(1), MUMBAI

Assessee by: Shri R. Prasad Rao Revenue by: Shri A. K. Kardam सुनवाईकीतारीख / Date of Hearing: 27.10.2010 घोषणाकीतारीख /Date of Pronouncement:. 20.01.2017 आदेश / O R D E R

PER AMARJIT SINGH, JM:

1. The Ld. CIT(A) – 3, seriously erred in law and on the facts and in the circumstances of the case, in confirming the disallowance made of Rs.5,96,022/- ITA No.6262.M.13 A.Y. 2010-11 u/s.14A of the Act, by the Ld. Assessing Officer. The Ld. CIT(As) – 3, should have deleted the addition in view of the facts and circumstances of the appellant and the submissions made during the appeal proceedings. Your appellant prays that the said disallowance of Rs.5,96,022/- be deleted in full.”

3. The brief facts of the case are that the assessee filed his return of income on 19.09.2010 declaring total income to the tune of Rs.12,63,72,972/-. The return was processed u/s.143(1)of the Income Tax Act, 1961 ( in short “the Act”). Subsequently, the case was selected for scrutiny, therefore, notice u/s.143(2) of the Act dated 26.08.2011 was issued which was duly served upon the assessee. Further, notice u/s.142(1) of the Act along with questionnaire was issued and served upon the assessee. The assessee showed his income from house property, business or profession and other sources. Under the year of assessment, the assessee received dividend income to the tune of Rs.1,20,71,704/- on his investment in Indian Companies and PPF Interest to the tune of Rs.17,595/-. The assessee claimed the said income as exempt. The Assessing Officer applied the section 14A R.W. Rule 8D of the Act and disallowed the expenditure to the tune of Rs.5,96,022/-. Feeling aggrieved the assessee filed the appeal before the CIT(A) who confirmed the said addition, therefore, the assessee has filed the present appeal before us. ISSUE NO.1:-

4. Under this issue, the assessee challenged the confirmation of the addition to the tune of Rs.5,96,022/-. The learned representative of the assessee has argued that the exempt income comprises from PPF interest, ITA No.6262.M.13 A.Y. 2010-11 Mutual Fund Dividend which were either credited through ECS or reinvestment in growth schemes or recorded by passing journal entry at the year end. Therefore, no expenditure was incurred to earn the exempt income, hence the provision u/s.14A read with Rule 8D of the Act is not applicable to the case of the assessee. The assessee did not pay any interest to earn the said exempt income. It is argued that in view of the note 4 of Schedule XII of the financial statements a sum of Rs.1,37,875/- was paid to Standard Chartered Bank for mutual transactions which is debited to drawings, therefore, in the said circumstances no expenditure is required to be assessed to earn the exempt income. In support of these contentions the learned representative of the assessee has placed reliance upon the order passed by the Hon’ble Income Tax Appellate Tribunal, Mumbai bench in dated 15.09.2014 for A.Y.2009-10 in case titled as ACIT 11(I) Vs. Shri Hrithik Rakesh Nagrath. However, on the other hand the learned representative of the department has strongly relied upon the order passed by the CIT(A) in question. In view of the submission made by the both the parties, it came into the notice that the assessee has received dividend income to the tune of Rs.1,20,71,704/- on his investment in Indian Companies and PPF Interest to the tune of Rs.17,595/-. The assessee did not show any expenditure to earn the dividend income. The assessee received the exempt income from Income from PPF Income, Mutual Fund Divided income which were credited through ECS or reinvestment in growth schemes or recorded by passing a journal entry at the year end. No expenditure referable to such exempt income came into notice which leads to the application u/s.14A of the Act. An amount of Rs.1,37,875/- paid to ITA No.6262.M.13 A.Y. 2010-11