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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, MUMBAI BEFORE SRI MAHAVIR SINGH, JM AND SRI RAJESH KUMAR, AM (A.Y:2010-11) M/s Raptakos Brett & Co. Ltd. Addl CIT(A) 5(3) Room No. 525B, 5th Floor, Aayakar 21A Mittal Tower, Vs. Nirman Point, Mumbai-400021 Bhavan, MK Road, New Marine PAN No.AAACR1772R Lines, Mumbai-20 Appellant .. Respondent Assessee by .. Ronak Doshi, AR Revenue by .. Sivaji Ghote, Sr. DR Date of hearing .. 10-11-2016 Date of pronouncement .. 10-11-2016 O R D E R PER MAHAVIR SINGH, JM:
This appeal by the assessee is arising out of the order of CIT (A)-9, Mumbai in appeal No. CIT (A)-9/DCIT-5(3)/225/2012-13 dated 24-10-2013. The Assessment was framed by ACIT range-5(3), Mumbai for the AY 2010-11 vide order dated 26-12-2012 under section 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).
The only issue in this appeal of assessee against the order of CIT(A) confirming the action of the Assessing Officer in disallowing the expenses relatable to exempted income by invoking the provisions of Section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 (hereinafter ‘the Rules’).
Briefly stated facts are that the Assessing Officer during the course of assessment proceeding noticed that the assessee has earned dividend income of Rs.15,26,721/- and claim the same as exempted u/s 10(34) of the Act, but the expenses to the extent of Rs. 75,84,842/- was attributed towards exempt income. The assessee took us through the computation of disallowance made by Assessing Officer u/s 14A of the Act read with Rule 8D Rule as under: - 2 (i) The amount of expenditure directly relating to income 58,361 which does not form part of total income 2(ii) The amount of interest expenditure not directly 25,08,560 attributable to any particular income or receipt 2(iii) Amount @ 0.50% of Average investment value 76.92.288 Total 1,02,59,209
The Assessing Officer noted that assessee has worked out an amount of Rs. 75,84,842/- as expenses attributable earning of exempted income. The assessee subsequently vide letter dated 09-10-2012 revised the working of disallowance relatable to exempt income qua-expenses other than interest on borrowings as under:
“Expenses other than interest on borrowings: 7.
4. RBCL has incurred a total expense of Rs. 58,361 towards demat and depository charges and this has been considered for the purpose of disallowance. 7.5. In so far as other expenditure is concerned, based on the internal records, expenditure directly identifiable such as stamp duty, transfer fees and safe custody charges has not been disallowed as such expenses are not directly y relatable to earning of dividend; they may be so relatable to acquisition of shares but not to dividend being earned For this view reliance is placed on CIT Vs GIC of lndia (254 ITR 203) (Bom) Which has held that expenses incurred on account of salary paid to staff, stamp duty, transfer fees, custody are not directly relatable to earning of dividend 7.
6. We have thereafter identified the expenses that are indirect/ y incurred in relation to such investments by way of cost on the personnel of RBCL who are engaged in the day-to-day activity of Fund management and investments. Following table shows the entire emoluments of Fund management team on cost-to-company basis and also the portion thereof reasonably attributable, based on time spent by the team, to the activity of investment which gives/may rise to tax free income. Sr. Name Employee Emolument % Attributed No Designaion (cost to Attributa amount in company) ble to Rs. (amount in investme Rs.) nts activity 1. Mr. Ketan VP – Finance 1,498,598 15% 187,725 2. Mr. S K Shenoy Sr. Manager 422,341 15% 53,873 Finance 3. Mr. Vithoba Sr. Executive- 309,822 15% 39,990 Patil Accounts 4. Mr. Laxman Executive – 281,913 15% 36,248 Addagatla Accounts Total 317,835 7.7 Apart from the emoluments that are incurred for such personnel, other expenses that can be directly or indirectly attributable to such personnel are also identified based on the total expenses of HO, which are duly
allocated in relation to such personnel. There are total Eighty Four (84) employees in HO out of which four (4) employees mentioned at S. NO. 1, 2, 3&4 in the above table are working in the Fund management team of the company. Details of such expenses are given below and the basis of allocation is the ratio of employees of the FMT to the total number of employees in HO: Sr. Particulars Amount in Rs. No. Expense of Appropriated HO Amount (4/84 of Expense of HO) 1. Staff Welfare 1,2999,001 61,857 2. Electricity Expenses 3,102,574 147,742 3. Repairs and Maintenance 1,838,548 87,550 4. Printing & Stationery 1,518,459 72,308 5. Books & Periodicals 228,791 10,895 6. Telecommunication 5,027,479 239,404 Expenses 7. Postage and Telegram 883,692 42,091 8. Automobile Expenses 2,655,119 126,434 9. Conveyance Charges 286,410 13,639 Total 16,840,073 801,910 7.8 Based on the foregoing, the total amount of expenses that may reasonably be considered as incurred in relation to exempt income and which are disallowable under Section 14A of the Act amount to Rs.11,78,104/- and it comprises of: 1. Demat and depository charges 58,361 2. Emoluments of employees in FMT (See Para 7.3) 317,835 3. Other expenses of Ho Prorated (See Para 7.4) 801,908 Total amount disallowable under section 14A of the Act 11,78,104 Accordingly, the assessee work out the disallowance u/s 14A of the Act read with Rule 8D of the Rules at Rs. 11,78,104/- as against the earlier computation at Rs. 75,84,842/-. The learned Counsel for the assessee stated the fact that the assessee has not attributed any disallowance in respect to interest under Rule 8D (2) by stating that assessee’s position of total own funds (non interest bearing) i.e. share capital and reserves and surplus is at about Rs.285.27/- crores as against the amount of investment of Rs. 18.19 crores. The assessee has given the following details of share capital and reserve and surplus as under:-
Amount (in Rs.’000) “Particulars As on March 31,2010 March 31,2009 Share Capital 12,500 12,500 Reserve & Surplus 28,40,270 23,59,727 Total 28,52,770 23,72,227
In view of this learned Counsel for the assessee stated that no element of expenditure on account of interest which was relatable to exempt income rather the exempted income is out of non-interest bearing on funds which are more than the investments. The learned Counsel for the assessee stated that presumption go in favour of assessee and for this he relied on the decisions of Hon’ble Bombay High Court in the case of CIT(A) Vs. HDFC Bank Ltd. 366 ITR 505 (Bom) (HC). The learned Counsel for the assessee stated that the Assessing Officer could not find any fault in the working of the assessee and without any fault the Assessing Officer has computed his own disallowance. He took us through the order of CIT (A) which is very cryptic and just confirmed the action of the Assessing Officer.
We have heard rival contentions and gone through the fact and circumstances of the case. From the above it is clear that no disallowance u/s Rule 8D can be made for the reason that the above facts clearly demonstrated that the assessee is having non-interest bearing funds available in the shape of share capital and reserves and surpluses with him amounting to Rs. 285.27 crore which is more than the amount of investment made in interest earning instruments amounting to Rs. 18.19 crores and once availability of amount from interest free fund of the assessee is more than the investment, then a presumption arises that assessee might have invest out of interest free fund available with him. This view of ours is supported by the decisions of Hon’ble Bombay High Court in the case of HDFC Bank Ltd. (supra). As regards to direct expenditure under Rule 8D (1), there is no dispute. As regards to working of disallowance under Rule 8D (3), the assessee has computed the disallowance and the Assessing Officer could not point out any discrepancy or unreasonableness or could not find any fault in the same. Accordingly, in view of the given facts and circumstances, we delete the addition and allow the appeal of the assessee retaining the same to the extent of the assessee suo-moto disallowance of sum of Rs.11,78,104/-. We direct the AO accordingly. 7. In the result, the appeal of Assessee is allowed. Order pronounced in the open court on 10-11-2016.