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Income Tax Appellate Tribunal, MUMBAI BENCH “A”, MUMBAI
Before: SHRI B R BASKARAN & SHRI AMIT SHUKLA
आदेश ORDER �ी अिमत शु�ला, �या स: PER AMIT SHUKLA, JM: The aforesaid appeal has been filed by the revenue against order dated 03.06.2013, passed by Ld. CIT(Appeals), Mumbai for the quantum of assessment passed under section 143(3) for the assessment year 2009-10. The only ground raised by the revenue reads as under:- “On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of Rs.34,88,725/- and by estimating disallowance under section 14A of Rs.1,00,000/- which is not as per the
2 खटआऊ इंटरनेशनल �ाइवेट �ल�मटेड M/s Khatau International Pvt Limited ITA 5585/Mum/2013 decision of Hon’ble Bombay High Court in the case of Godrej & Boyce Mfg Co Ltd”.
The facts in brief are that, the assessee had shown dividend income amounting to Rs.82,982/- which has been claimed as exempt. The assessee has not made any disallowance for earning of such an exempt income. In response to show cause why notice under section 14A should not be made, the assessee submitted that the dividend has arisen out of mutual funds and no borrowed funds have been utilized for making the investments. Hence, no disallowance under section 14A is called for. However, the Ld. AO held that it is mandatory to apply Rule 8D for making the disallowance and accordingly he made the disallowance of Rs.34,88,875/- in accordance with Rule 8D.
Before the Ld. CIT(A), the assessee submitted that, interest expenditure incurred is only Rs.581/- and, therefore, no disallowance on account of interest can be made in the working of formula laid down under Rule 8D. Further, as regards the indirect expenditure Rule 8D(2)(iii), the assessee has given the details of various expenses debited in the Profit & Loss account and submitted that none of the expenses can be attributed to the earning of exempt income. The Ld. CIT(A) after taking the note of the facts and legal proposition as submitted by the assessee, held that so far as interest expenditure under Rule 8D(2) is concerned, the same cannot be made, because only interest expenditure debited is Rs.547/- which too is on account of late payment of TDS. Thereafter, he examined the nature of expenditure debited to the P&L account which were as under:-
3 खटआऊ इंटरनेशनल �ाइवेट �ल�मटेड M/s Khatau International Pvt Limited ITA 5585/Mum/2013
HO Resort Total EXPENSES 31.03.2009 31.03.2009 31.03.2009 Consumption of Food, Beverages, etc. - 14,90,312 14,90,312 Forest Department & Safari Expenses - 4,13,437 4,13,437 Employee’s Remuneration and Benefits - 31,82,357 31,82,357 Service Charges & Retainer-ship fees - 6,57,721 6,57,721 Power & Fuel - 8,36,224 8,36,224 Housekeeping Expenses - 23,97,509 23,97,509 Rent, Rates & Taxes - 2,76,863 2,76,863 Repair & Maintenance - 11,70,716 11,70,716 Hospitality Expenses - 1,73,555 1,73,555 Vehicle Expenses - 5,74,145 5,74,145 Travelling & Conveyance Expenses 27,789 2,30,774 2,58,563 Communication Expenses 3,118 1,23,742 1,26,860 Printing & Stationery Expenses - 84,700 84,700 Legal & Professional Expenses 7,500 3,91,505 3,91,505 Management Support Service Fees - 11,20,000 11,20,000 Insurance Expenses - 1,11,520 1,11,520 Software Expenses - 40,500 40,500 Advertisement & Sales promotion Expenses 17,539 23,127 40,666 Commission on Sales - 15,512 15,512 Interest Paid – Others - 581 581 License Fees - 2,12,500 2,12,500 Registration & Filing Fees 1,02,400 500 1,02,900 Miscellaneous Expenses 25,991 1,36,159 1,62,150 Auditors Remuneration 57,604 - 57,604 (Including prior period Rs.13,484/-) - Stamp duty & Registration / Filling Fees 32,710 - 31,710 Depreciation - 26,30,595 26,30,595 Preliminary Expenses Written Off 23,000 - 23,000 Total Expenses 2,97,651 1,62,94,554 1,65,92,205 and estimated the disallowance at Rs. 1 lakh after observing and holding as under:- “3.8 Total employees remuneration and benefits is Rs.31,82,357/-, so the total common expenses from which a small faction related to investments will be Rs.33,80,008/- (Rs.2,97,651/- + Rs.31,82,357/-) which is less than the amount determined by the AO under Rule 8D(2)(iii). In other words, the common expenses met out is less than the amount disallowable under Rule 8D(2)(iii) and this fact makes it clear that Rule 8D is not workable and applicable in this case. If it is applied then it will lead to the disallowance of the entire common expenses and it is very clear that most of the common expenses are met out for normal business purposes other than
4 खटआऊ इंटरनेशनल �ाइवेट �ल�मटेड M/s Khatau International Pvt Limited ITA 5585/Mum/2013 the tax free investments. In view of this, I hold that Rule 8D(2)(iii) is not applicable in this case.
However, I feel certain administrative expenses are met out for maintaining the tax free investments and earning tax free income. I estimate the expenses at Rs.1 lakhs as against Rs.34,88,725/- determined by the AO. The AO is directed to rework the disallowance accordingly and delete the excess addition made”.
After hearing both the parties and on perusal of impugned order, we find that, first of all, the exempt income itself is Rs.82,982/-, as against this, the Ld. CIT(A) has confirmed Rs.1 lakh on account of indirect expenditure. Against this finding of Ld. CIT(A) the assessee has not come in appeal. Hence the finding of CIT(A) cannot be faulted with, from the perusal of the audited accounts and schedule of investments, we find that out of Rs.139,52,57,594/-, the investment in the subsidiary company / AE is Rs.139,51,20,000/-. That apart, the expenditure under the Head Office is only Rs.2,97,651/- as noted by the Ld. CIT(A). Thus, the amount of Rs.1 lakh as estimated by the Ld. CIT(A) on the facts and circumstances of the case is sufficient to cover up the disallowance of expenditure for the purpose of earning of exempt income which is still much less than the disallowance sustained by the Ld. CIT(A). Accordingly, on the facts of the case revenue’s appeal is dismissed.
In the result, appeal of the revenue stands dismissed.
5 खटआऊ इंटरनेशनल �ाइवेट �ल�मटेड M/s Khatau International Pvt Limited ITA 5585/Mum/2013 Order pronounced in the open court on 26th August, 2016.
Sd/- Sd/- (बी आर भा�करन) (अिमत शु�ला) लेखा सद�य �याईक सद�य (B R BASKARAN) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Date: 26th August, 2016 ��त/Copy to:- 1) अपीलाथ� /The Appellant. 2) ��यथ� /The Respondent. 3) The CIT –2, Mumbai. 4) The CIT –1, Mumbai 5) िवभागीय �ितिनिध “ए”, आयकर अपीलीय अिधकरण, मुंबई/ The D.R. “A” Bench, Mumbai. 6) गाड� फाईल \ Copy to Guard File. आदेशानुसार/By Order / / True Copy / /