JANAK D. DWARKADAS,MUMBAI vs. ADDLCIT RG 11(2), MUMBAI

The present appeal has been preferred by the assessee against the order dated 19.09.2014 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2010-11.

The sole issue raised by the assessee in this appeal is against the confirmation of disallowance of a sum of Rs.3896520/- under section 14A of the Income Tax Act read with Rule 8D of the Income Tax Rules, 1962 in relation to the expenditure supposed to be incurred for earning of tax free dividend income. The assessee is an advocate by profession and during the year has shown professional receipts of Rs.24.81 crores whereas the expenditure claimed against the said receipts was at Rs.82.61 lakhs. The Assessing Officer (hereinafter referred to as the AO) observed that the assessee during the year had earned tax exempt income of Rs.3,76,66,541/-. However, the assessee had not offered the disallowance under section 14A as per the

The Ld. CIT(A) confirmed the said disallowance made by the AO. The assessee, thus, has come in appeal before us.

At the outset, the Ld. A.R. of the assessee has submitted that the assessee has claimed the expenditure which was directly relatable to the earning of the professional income. It has been further submitted on behalf of the assessee that no expenses were claimed by the assessee against either the dividend income or exempt capital gains. It has also been submitted that Scrutiny Transaction Tax and Custodian and other PMS charges were debited to the assessee’s capital account and no deduction was claimed for such expenses either from tax free or taxable income. The assessee’s P& L account reflected expenses only related to the assessee’s profession and no other expenses against exempt income. The Ld. A.R. has further submitted that the assessee did not use his office for the purpose of activities to earn exempt income and no expenses such as Computer, Electricity, Stationery, Telephone expenses etc. were incurred to earn exempt income. The assessee’s Portfolio Managers looked after his investments portfolio for which they were paid PMS fees which was debited to the assessee’s Capital Account. However, the assessee had suo moto offered a sum of Rs.15,000/-as disallowance on estimate basis u/s.14A of the Act,1961 in the Computation of Income for the assessment year under consideration. The assessee even did not incur any expenditure by way of interest during the year as he had no borrowing/loan funds. The Ld. A.R. has further brought our attention to the order dated 06.04.2016 of the Ld. CIT(A) in relation to subsequent assessment year 2012- 13 wherein the similar contentions were raised by the assessee and the Ld. CIT(A) considering the same has accepted the appeal of the assessee. The department has not filed any appeal against said order of the Ld. CIT(A). Considering the above submissions of the assessee, we do not find justification

In view of the above submissions of the assessee and overall facts and circumstances of the case, the disallowance, in this case is restricted to that has been suo-moto offered by the assessee.

In the result, appeal of the assessee is hereby allowed.