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Income Tax Appellate Tribunal, “J” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI RAMIT KOCHAR
PER SAKTIJIT DEY, J.M.
Captioned appeals at the instance of the assessee are directed against two separate orders passed by the learned Commissioner (Appeals)–4, Mumbai, for the assessment year 2010–11 and 2011–12.
The only common issue arising for consideration in both these appeals relates to disallowance of expenditure under section 14A r/w
2 J.M. Financial Institutional Securities Ltd. rule 8D. Since facts are common in both the appeals, for the sake of convenience, we will discuss the facts as involved in assessment year 2010–11 corresponding to the appeal in ITA no.7073/Mum./2014.
Brief facts are, the assessee a company is engaged in the business of investment banking and financial advisory services. During the assessment proceedings, the Assessing Officer while verifying the Profit & Loss account and computation of income of the assessee noticed that in the relevant previous year assessee had received exempt income of ` 3,13,51,605 and had voluntarily disallowed an amount of ` 11,06,163 towards expenditure incurred for earning exempt income on the following basis.
Name of Employee Designation Compen– % of time Amount of sation for invest– disallow– ment ance Surendra R. Nayak Chief 58,57,528 10% 5,85,753 Financial Officer Dilip Marwadi Associate 10,69,800 20% 2,13,960 Total compensation cost 7,99,713 Add: Overhead cost 3,06,450 (38.32%) Disallowance u/s 14A 11,06,163
4. The Assessing Officer, however, did not accept the disallowance made by the assessee observing that it is not in terms of rule 8D. Therefore, rejecting assessee’s computation of disallowance, the Assessing Officer proceeded to compute disallowance independently, in 3 J.M. Financial Institutional Securities Ltd. terms of rule 8D which worked out to ` 1,85,19,542. After adjusting the disallowance made by the assessee voluntarily, he added back the amount of ` 1,74,13,379. Being aggrieved of the disallowance made by the Assessing Officer, assessee preferred appeal before the learned Commissioner (Appeals).
5. The learned Commissioner (Appeals) having found that disallowance made under section 14A under identical facts and circumstances in assessee’s own case for the assessment year 2009– 10, was upheld by his predecessor–in–office followed the same and sustained the disallowance made by the Assessing Officer. The finding of the learned Commissioner (Appeals) in this regard is extracted hereinafter for convenience.
5.2. Ground of appeal no. B (Disallowance of expenses u/s. 14A r.w.r.8D) 5.2.1. Having carefully and dispassionately considered the facts and circumstances of the case, it is observed that ground of appeal no. 'B is squarely covered by the appellate decision of my Ld. predecessor in the case of the same appellant for A.Y. 2009-10 vide appeal no.CIT(A)-4/IT.44/DCIT.3(2)/2011-12 dated 11.12.2012. Since the appellant's grounds of appeal no. 1 and 2 of A.Y. 2009-10 are identical with the ground of appeal no. 'B' of this appeal, hence this ground 'B' is treated as a covered matter which is covered by the appellate order in the same case for A.Y. 2009-10 vide appeal no. CTT(A)4/IT.44/bCIT.3(2)/2011-12 dated 11.12.2012. Relevant extracts from the said appellate order no. CIT(A)-4/IT.44/1)CIT.3(2)/2011-12 dated 11.12.2012 may be reproduced as under for the sake of convenience:
2. Grounds No.1 and2" Disallowance u/c. 14A."
4 J.M. Financial Institutional Securities Ltd. Both the grounds relate to the same issue i.e. deduction u/s. 3. 14A, therefore, taken together.
The facts of the case are that assessee has received dividend income of Rs. 3.70 crore which is claimed exempt from Income-tax and offered Rs. 1,42,040/- for disallowance u/s. 14A, whereas, A. 0. applied Rule 8D and made a disallowance of Rs. 1,79,85,122/-, which has been disputed by the assessee, claiming that the main business of the assessee is to give consultancy regarding IPOs, mergers and acquisitions etc. and only surplus funds have been invested in shares/securities. It is also claimed that mainly investment is in group companies and that to in preference shares, therefore, not much of efforts are required to monitor the investment or to collect dividend etc. The assessee filed submissions vide letter dated 22/11/12, which have been considered.
I have considered the fcts of the case and submissions of the assessee. Rule 8D is applicable from A. Y. 08-09 as has been held by Hon’ble High Court in the case of Godrej & Boyce Mfg CO. Ltd vs. CIT, 328 ITR 81. In the case of the assessee part of the expenditure is admittedly allocable to investment activity in exempt income generating securities, even assessee has offered certain .disallowance on its own, whereas, after introduction of Rule 8D there is no option with the A. but to allocate the common expenses as per Rule 8D only and, therefore, the disallowance calculated by the A.0. as per Rule 8Pis confirmed:" 5.2.3 Since the appellant, the material facts involved and the circumstances of the grounds of appeal for AYs. 2010-11 and 2009- 10 are identical, therefore, respectfully following the appellate order for A.Y. 2009-10 and also in view of the principle of judicial consistency, ground of appeal no. 'B’ is not allowed.”
The learned Authorised Representative submitted, against the order of the learned Commissioner (Appeals) sustaining the disallowance under section 14A, for the assessment year 2009–10, the assessee had preferred appeal before the Tribunal and the Tribunal after considering assessee’s submissions has deleted the disallowance made by the Assessing Officer. He further submitted, following its own
5 J.M. Financial Institutional Securities Ltd. order for the assessment year 2009–10, the Tribunal again in assessee’s own case in assessment year 2008–09, deleted the disallowance made by the Assessing Officer and sustained by the learned Commissioner (Appeals). He, therefore, submitted there being no difference in facts, the decision of the Tribunal in assessee’s own case for the preceding assessment years should be followed and the addition made should be deleted.
Learned Departmental Representative, on the other hand, relying upon the observations of the Assessing Officer and the learned Commissioner (Appeals) submitted the Assessing Officer had recorded a satisfaction that the disallowance made by the assessee is not in accordance with the provisions of rule 8D and accordingly has proceeded to disallow the expenditure, therefore, the disallowance is justified.
We have considered the submissions of the parties and perused the material available on record. It is manifest from the findings of the learned Commissioner (Appeals) while sustaining the disallowance under section 14A, as reproduced above, the learned Commissioner (Appeals) having found that in assessment year 2009–10 under identical facts and circumstances disallowance made under section 14A r/w rule 8D was upheld by his predecessor–in–office followed the same
6 J.M. Financial Institutional Securities Ltd. and sustained the disallowance. However, we have noted that the order passed by the learned Commissioner (Appeals) for assessment year 2009–10 on the issue of disallowance under section 14A r/w rule 8D, was challenged by the assessee before the Tribunal and the Tribunal while disposing off assessee’s appeal in ITA no.1863/Mum./2013, dated 7th October 2015, deleted the disallowance made by the Assessing Officer and sustained by the learned Commissioner (Appeals). Following the aforesaid order passed for the assessment year 2009–10, the Tribunal again in assessee’s own case for the assessment year 2008–09, deleted such disallowance vide order dated 27th April 2016 in ITA no.7339/Mum./2012. As these decisions of the Tribunal rendered in assessee’s own case under identical facts and circumstances are binding precedents, adhering to the principle of judicial discipline, we follow the aforesaid decisions of the Tribunal in assessee’s own case for preceding assessment year and delete the disallowance made under section 14A r/w rule 8D. Grounds no.1 and 2 are allowed. We make it clear this decision of ours is given on the peculiar facts and circumstances of this case.
In view of our aforesaid decisions, grounds no.3, 4, 5 and 6 have become infructuous, hence, dismissed.
7 J.M. Financial Institutional Securities Ltd. 10. Facts being identical in assessment year 2011–12, our decision in assessee’s appeal for the assessment year 2010–11 being ITA no. 7073/Mum./2014, vide Para–8 above, would apply mutatis mutandis in the appeal for the assessment year 2011–12, being Mum./2014. Accordingly, the addition made on account of disallowance under section 14A r/w rule 8D, is deleted in this year also.
In the result, both the appeals of the assessee are partly allowed. Order pronounced in the open Court on 18.11.2016