RAKSHA SUDHIR SHETH,MUMBAI vs. ITO WD 22(2)(4), NAVI MUMBAI

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ITA 1159/MUM/2015Status: DisposedITAT Mumbai14 July 2016AY 2008-094 pages
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What did the Tribunal hold?

The Tribunal held that the assessee had sufficient own funds to cover the investments yielding exempt income, citing High Court decisions. Therefore, the disallowance under Section 14A was not justified. The Tribunal also directed verification of a commission difference issue.

What were the facts?

The assessee earned dividend income and long-term capital gains, claiming them as exempt. The AO disallowed expenses under Section 14A read with Rule 8D, attributing a significant amount as indirect interest and a percentage of average investment. The CIT(A) confirmed this disallowance.

What were the issues?

Whether disallowance of expenses under Section 14A read with Rule 8D is justified when the assessee has sufficient own funds. Whether a commission difference needs further verification.

Which sections of the Income-tax Act were involved?

Section 14A

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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI

For Appellant: Ms. Mathuria, AR
For Respondent: Shri Jitendra Kumar Yadav, DR

O R D E R

PER MAHAVIR SINGH, JM:

1.

This appeal by the assessee is arising out of the order of the CIT (A), Mumbai-25 passed in appeal No. CIT (A)-33/IT/364/10-11 dated 01-12-2014. Assessment was framed by the ITO, Ward- 22(2)(4), Mumbai for assessment year 2008-09 vide his order dated 20-12-2010 passed u/s 143(3) of the Income Tax Act, 1961 (hereinafter “the Act”).

2.

The first issue in this appeal of the assessee is against the order of the CIT (A) confirming the action of the AO in making disallowance of expenses qua exempted income by invoking the provisions of Section 14 of the Act read with Rule 8 D of the Income Tax Rules, 1962 (hereinafter “the Rules”)

3.

Briefly stated facts are that the AO noted from the accounts of the assessee that the assessee has earned dividend income of Rs.87,626/- and long term capital gains of Rs.4,80,827/-. The same was claimed as exempt. According to the AO, no expenditure was allocated for earning of this exempt income. And accordingly, he invoked the provisions of Section 14A of the Act read with Rule 8 D of the Rules. Accordingly, he

Rule 8 D (ii) i.e. indirect interest attributable to interest income at Rs.8,94,023/- and under Rule 8 D (iii) i.e. 0.5% of average investment at Rs.40,223/-. Thereby, he disallowed a sum of Rs.9,34,245/-. Aggrieved, the assessee preferred appeal before the CIT (A), who simply confirmed the disallowance. Aggrieved, now the assessee is in second appeal before the Tribunal.

4.

I have heard the rival submissions and gone through the facts and circumstances of the case. Before me, the learned Counsel for the assessee first of all drew my attention to the assessee’s capital account wherein the assessee’s total capital is at Rs.67,74,371/- as against investment in shares to the tune of Rs.31,31,195/-. According to the learned Counsel once the assessee has own funds to the tune of Rs.67,74,371/-, which is more than the investment in shares/share application money, the disallowance cannot be attributed, particularly when the AO is unable to prove the nexus. I find from the facts of the case that the assessee’s issue is covered by the decision of the Hon’ble Bombay High Court in the case of HDFC Ltd. Vs CIT (2016) 383 ITR 529 and CIT Vs. Reliance Utilities (2009) 313 ITR 340. In view of the above facts, I am of the view that the assessee was having own funds, which are more than the funds invested in shares yielding exempted income. Accordingly, the issue being covered, I allow the claim of the assessee.

5.

The next issue in this appeal of the assessee is against the order of the CIT (A) in giving direction to the AO to allow conditional relief in respect of disallowance of addition of Rs.1,78,680/- being difference in the commission earned from Kotak Securities.

6.

At the outset, the learned Counsel for the assessee drew my attention to the written submissions before the CIT (A) and the same is reproduced in Para 3.1 of the appellate order which reads as under:-

“3.1. During the appellate proceedings, the appellant has made a written submission which is reproduced here under: “….. It is respectfully submitted that there is no such alleged difference in profit disclosed by the appellant. In fact, the said Messrs. Kotak Securities Ltd. had issued a statement showing profit earned by the appellant by taking “GROSS VALUE OF SALES/ PURCHASES OF SHARES” through them without making/adding brokerage, service tax, surcharge on service tax, transaction charges etc. (copy of impugned statement is attached herewith and marked as Exhibit E). Your kind attention is drawn to my submission in para (3), (3.1) and (3.2) read with Exhibit “B” and Exhibit “C”. Full details of „Net Share trading Profit‟ as per Schedule “H” of Income and expenditure Account was Rs.21,61,483/- after making appropriate entries for brokerage, service tax, surcharge on service tax, transaction charges, delivery charges etc. as per the law.” He also stated that the CIT (A) has given direction for verification of difference in statement given by Kotak Securities Ltd. and the accounts of the assessee. He fairly agreed that he has no objection if it is verified by the AO. In terms of the above, I am of the view that CIT (A) has rightly directed the AO to verify the reconciliation and accordingly allow the claim of the assessee. I find no infirmity in the directions of CIT(A).

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