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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:2011-12) Raghukool Estate Development Pvt. Vs. The Dy. Commissioner of Ltd., Raheja Tower, Plot No.C-30, G Income Tax (OSD)-II, Central Block, Opp. SIDBI, Bandra Kurla Range -7, Mumbai Complex, Bandra East, Mumbai- 51 PAN: AAACR 2452E .. Appellant Respondent Appellant by .. Shri Arvind Sonde, AR Respondent by .. Shri Vijay Kumar Bora, DR Date of hearing .. 08-09- 2016 Date of pronouncement .. 08- 09 - 2016 O R D E R PER MAHAVIR SINGH, JM:
This appeal by the assessee is arising out of the order of the CIT (Appeals)-40, Mumbai in appeal No.CIT (A)-40/IT/DCIT (OSD-II)C.R.7/394/2013-14, dated 07th August, 2014. Assessment was framed by the DCIT (OSD-I), Central Range-7, Mumbai for the assessment year 2011-12 u/s 143 (3) of the Income Tax Act, 1961 (hereinafter “the Act”) vide his order dated 29-11-2013.
The only issue in this appeal of the assessee is against the order of the CIT (A) confirming the disallowance of expenses in relation to exempted income u/s 14A of the Act read with Rule 8D (2)(ii) of the Income Tax Rules, 1962 (hereinafter “the Rules”). For this, the assessee has raised the following two grounds:- “1. The CIT (A) erred in upholding the disallowance of Rs.6,50,789/- out of Rs.9,45,800/- made by the AO u/s. 14A of the Income Tax Act r. w. rule 8D (2)(iii) as against Rs.95,914/- disallowed by the appellant on account of the administrative expenses for the purpose of investment in shares. 2. Without prejudice to ground No.1, the CIT (A) erred in considering long term capital gain of Rs.1,63,78,800/- as exempt income for the purpose of disallowance u/s. 14A of the Act.
Briefly stated facts are that the assessee company is engaged in the business of real estate development, trading in real estate and investment related activities. The AO noticed that the assessee has earned exempted income on investments as on 31-03-2011, investments amounting to Rs.91,10,29,850/- as against investments as on 31-03-2010 of Rs.34,81,954/-. According to the AO, the provisions of Section 14A of the Act read with Rule 8D of the Rules were attracted in this case and disallowable amount worked out by him was at Rs.31,48,067/-. According to him, the assessee itself has disallowed a sum of Rs.95,914/- u/s 14A of the Ac and further disallowed a sum of Rs.6,32,400/- towards legal and professional fee and a further sum of Rs.25,000/- u/s 14A of the Act. The assessee has incurred expenditure under the head “administrative and other expenses” at Rs.15,78,200/-. Therefore, according to the AO, the expenditure to the extent of Rs.9,20,800/- was to be disallowed further. Accordingly, the AO disallowed this amount of Rs.9,20,800/-. Aggrieved, the assessee preferred appeal before the CIT (A) who also confirmed the action of the AO. Aggrieved, now the assessee is in second appeal before the Tribunal.
Before us, the learned Counsel for the assessee filed copy of the Tribunal’s order in assessee’s own case in dated 29-02-2016 wherein the Tribunal exactly on similar facts relying on the decision of the Coordinate Bench of Mumbai Bench of the Tribunal in the case of Cape Trading P. Ltd. in ITA No.3722/M/2013 deleted the disallowance made by the AO by observing as under:- “3. We have heard the rival submissions and gone the rough the material placed before us including the decision of the ITAT Mumbai relied upon by the assessee. The co-ordinate bench of Mumbai Tribunal in the case of Cape Trading Pvt. Ltd. vs. ACIT, Mumbai ITA No 3772/M/2013, has decided the identical issue in favour of the assessee holding as under:- “7. The Assessing Officer while making the disallowance u/s 14A worked out the disallowance under Rule 8D(2)(iii) at Rs. 20,86,230/- which shows that the working under the provisions of Rule 8D negates the actual total expenditure debited by the assessee in the P&L account on administrative and other expenses. In any case, disallowance cannot be made more than the total expenses debited to the P&L Account. From the details of the expenses, it is clear that most of the expenses are specific in nature and exclusively incurred for the business activity of the assessee. Therefore, the expenses on account of auditor fee, legal and professional fees, profession tax, business support fees
cannot be said to have any direct or proximate nexus with the activity of investment or earning the exempt income. Thus the disallowance u/s 14A can be made only to the extent of allocation of these expenses which has direct or proximate nexus with earning of exempt income. From the details of the expenses, we find that the printing and stationary expenses and bank charges & commission are only two items which could have direct or proximate nexus with the investment and exempt income. Therefore, the disallowance u/s 14A r.w. Rule 8D(2) (iii) cannot exceed to the allocable expenses incurred by the assessee for a composite activity resulting taxable and exempt income. The working of disallowance under Rule 8D(2)(iii) by the Assessing Officer clearly shows that it exceeds not only the expenses debited and claimed by the assessee which could have a proximate nexus with the earning of exempt income but also to the total expenditure debited by the assessee in the P&L account under the head administrative and other expenses. Therefore, it turns out to be contradictory to the actual facts and gives absurd results in complete disregard to the scheme of disallowance u/s 14A. Therefore, the provisions of Rule 8D(2)(iii) cannot be applied in the case of the assessee as it becomes unworkable and unrealistic. In the facts and circumstances of the case, we find that when the provisions of Rule 8D(2)(iii) becomes unworkable then in the absence of any finding as well as any specific expenses debited to the P&L account which could have a direct or proximate nexus for earning the dividend income the disallowance made by the assessee suo motu is just and proper. Accordingly, we delete the disallowance made by the Assessing Officer.” 3.1 The aforesaid decision of Mumbai Tribunal was further followed by “C” Bench of the Mumbai Tribunal in Capstan Trading Pvt. Ltd. vs. ACIT, Mumbai ITA 4088/M/12, Palm shelter Estate Development Pvt. Ltd. vs. ACIT, Mumbai ITA 4089/M/12 & Casa Maria Properties Pvt. Ltd. vs. ACIT, Mumbai ITA 4091/M/13 and all the three appeals filled by assessee were allowed. 3.2 In the case before us, the only grievance of the assessee is that the CIT(A) has wrongly upheld the disallowance of administrative expenses made by the AO on investment in shares holding that the entire administrative expenses was incurred by the assessee for the purpose of investment in shares. The ground in present case is identical to the ground in the case of Cape Trading Pvt. Ltd. vs. ACIT, Mumbai (supra) and the other appeals discussed in the foregoing paras. The co-ordinate Benches of ITAT Mumbai have already decided the identical issue in favour of the assessee. Following the decisions of co-ordinate Benches, we decide the sole ground of appeal in favour of the assessee and delete the disallowance made by the Assessing Officer”. Since, the Revenue could not point out any factual difference in the facts of earlier year with that of this year, respectfully following the above decision of the Tribunal in assessee’s own case, we delete the disallowance and allow the appeal of the assessee.
In the result, appeal of the assessee is allowed. Order pronounced in the open court on 08-09-2016.