A.C.I.T.-2(1), MUMBAI vs. DSP INVESTMENT PVT. LTD., MUMBAI

For assessment year 2008-09 , this is a second round of litigation before us. In the first round, the Tribunal decided the issue against the assessee vide for the assessment year 2008-09, dated 10.7.2013. The assessee challenged the said order before the Jurisdictional High Court raising substantial question of law on the ground that there was a mistake apparent in the order of Tribunal as the decision 4 ITA No .6214/ M/ 2011 AND OT HER s ix A PPEA L S relied upon by the assessee in support of his contention of J K Investors (Bom) Ltd V/s ACIT in Income Tax Appeal No.7858/Mum/2011, dated 13.3.2013 has not been considered by the Tribunal while disposing of the appeal. Accordingly, the Hon’ble High court vide order dated 8.3.2016 passed in Income Tax Appeal No.2342 of 2013 has set aside the order of the Tribunal and directed the Tribunal to decide the issue afresh on the basis of facts and law. Hence this appeal before us. So we will take up ITA No.6214/Mum/2011:- 3. The issue raised in various grounds of appeal

s by the assessee is against the ld.CIT(A)’s not appreciating the fact that the provisions of section 14A can only be applied after pin pointing the expenditure on the basis of material on record and to prove that the appellant has incurred expenditure which related to exempt and only that expenditure which has nexus with the exempt income can be disallowed.

Being aggrieved by the order of AO , the assessee preferred an appeal before the First Appellate Authpority who partly allowed the appeal of the assessee by observing and holding as under : 6. I have considered the facts of the case and submissions of the assessee. Undisputedly certain expenses are allocable to the exempt income, these expenses are not directly relatable to either business income or the exempt income in total. Therefore, the disallowance has to be calculated as per Rule 8D only which is a statutory rule. Hence, the action of the A.O. is upheld in applying Rule 8D. But the depreciation is related to the business income because it is allowable irrespective of the exempt income or its quantum and the depreciation is not an expenditure but an allowance and same is the decision of Hon'ble ITAT in Hosang D. Nanavati's case as relied by the assessee. Therefore, A.O. is directed to recalculate the disallowance u/s. 14A after excluding the depreciation allowance from expenses as per Rule 8D. In the result, the ground of appeal is partly allowed.”

On the other hand, the ld. DR relied upon the orders of authorities below and requested for upholding the same.

We have carefully considered the rival contentions and perused the material placed before us including the orders of authorities’ below and case 7 M/ 2011 AND OT HER s ix A PPEA L S relied upon by the assessee. We find that from the facts before us that the assessee has exempt income of Rs. 13,89,40,620/- which was claimed exempt u.s 10(34) of the Act and taxable income of Rs. 23,53,65,240/-. The total expenses charged to the profit and loss account excluding the donations and bad debts were Rs. 24,11,959/- and the disallowance if is calculated as per section 14A rule 8D(2)(iii) comes to Rs. 1,22,90,682/- which is unreasonable and excessive and therefore the assessee suo motto disallowed a sum of Rs. 9,00,907/- out of expenses as relating to exempt income. We further find that the AO without recording any satisfaction with the reference to the books of accounts as regards the expenses attributable to exempt income made the additions of Rs. 15,11,000/- apart from the suo motto disallowance by the assessee of Rs. 9,00,907/-. In our opinion the disallowance as made by the assessee is reasonable and justified and no further disallowance without pointing out any defect in working of the assessee of the said disallowance with reference to the books of accounts. Moreover the case of the assessee is fully and squarely covered by the decision of the Tribunal in DSP Adiko Holdings Pvt. Ltd(supra) wherein an identical issue has been decided in favour of the assessee by the co-ordinate bench of the Tribunal by holding that the assessee himself has made disallowance which is reasonable and justified and no further disallowance is called for the operative part of the order is reproduced below: “5. We have considered the submissions of the parties and perused the material available on record. Undisputed facts are, during the year 8 M/ 2011 AND OT HER s ix A PPEA L S under consideration, assessee declared taxable income of Rs.23,48,56,710/- as against exempt income of Rs.13,40,30,621. Further, though, the assessee incurred expenditure of Rs.2,80,52,240, but the assessee itself disallowed expenditure of Rs.2.48 crore while computing its income as per the statement of total income. Further, in course of assessment proceedings, the assessee, out of the balance expenditure of Rs.32,52,240, disallowed Rs.22,69,274 under section 14A read with rule 8D. Thus, the actual expenditure claimed by the assessee for the year under consideration was ` Rs.9,82,966. Therefore, considering the quantum of taxable income and exempt income earned by the assessee during the relevant previous year, in our view, the expenditure apportioned / attributed by the assessee to exempt income at Rs.22,69,274, is more than reasonable. Moreover, as noticed by us, the Tribunal, while considering identical nature of dispute in assessee’s own case under similar facts and circumstances for assessment year 2008–09, in ITA no.7598/Mum./2011, dated 22nd January 2014, held as under:– “5. We are of the considered view that a reasonable allocation of expenditure has to be made which can be attributed to the income which is chargeable to tax particularly bank interest income of Rs.28.50 crores as against dividend income of Rs.12.46 crores (approximately). Considering the facts and circumstances of the case, we are of the considered view that expenditure of Rs.7,21,927/- as worked out by assessee, the details of which are mentioned by AO at page 2 of the assessment order, is reasonable to make disallowance u/s 14A with Rule 8D. Accordingly, we restrict the disallowance to Rs.7,21,927/- by reversing the orders of authorities below and allow the grounds of appeal taken by assessee. Hence, the grounds of appeal taken by assessee are allowed.”

Facts in the impugned assessment year being materially same, respectfully following the order of the co–ordinate bench of the Tribunal, we modify the order of the learned Commissioner (Appeals) by restricting the disallowance under section 14A r/w rule 8D to Rs. 22,69,274, as voluntarily offered by the assessee in the course of assessment proceedings. Accordingly, while ground raised by the assessee is allowed, the ground raised by the Department is dismissed.”

As regards the other appeals filed by the assessee vide AY 2009-10, ITA No 7137/Mum/2013 AY 2010-11 and ITA No 5468/Mum/2014 AY 2011-12, the issue raised in the various grounds are identical to as decided by us supra in ITA No 6214/Mum/2011 AY 2008-09, therefore our findings in ITA No 6214/Mum/2011 AY 2008-09 would, mutatis mutandis, apply to these appeals as well and accordingly the appeals of the assessee stand allowed. Since we have allowed the appeals of the assessee for AY 2009-10, AY 2010-11 and 2011-12, the cross appeals by the revenue become infructuous and accordingly dismissed as infructuous.

In the result, the appeals of the assessee are allowed and that of revenue stand dismissed.