KAMLESH GALIA,MUMBAI vs. ACIT 17(2), MUMBAI

This appeal by the assessee is directed against the order of the learned CIT (A)- 29, Mumbai dated 13-09-2013 passed in appeal No.CIT (A)-29/Rg. 17/ 115/1213 restricting the disallowance at Rs.1,76,873/- u/s 14A of the Act, 1961 (hereinafter referred to as “the Act”) read with Rule 8D(2) (iii) of the Income Tax Rules, 1962 (hereinafter referred to as “the Act”) as against the disallowance made by the AO at Rs.2,60,009/-. Assessment in this case was framed by the ACIT, Circle -17 (2), Mumbai for assessment year 2010-11 vide his order dated 05-03-2013 u/s 143(3) of the Act.

We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the AO noted that the assessee has earned dividend income of Rs.7,73,185/-. The AO worked out the disallowance in relation to exempted income at Rs.2.60 lacs being 0.5% of average value of investments as per Rule 8D (2)(iii) of the Rules. Aggrieved by the action of the AO, the assessee preferred

Before us, the learned Counsel for the assessee drew our attention to the accounts of the assessee and stated that the assessee being an individual deriving income from business, capital gains and income from other sources. The assessee filed the following particulars of taxable income and tax free income in comparative form:- TOTAL INCOME 4,62,11,978/- EXEMPTED INCOME 20,03,182/- TAXABLE INCOME 4,42,08,796/- Exempted income as a percentage of 4.25% total income Taxable income as a percentage of 95.75% total income He has also filed the following details:- PARTICULARS AY 2010-11 AY 2009-10 TAX FREE INCOME: Dividend on shares Rs.6,68,315 Rs.5,33,097 Dividend on Mutual Funds Rs.1,04,870 Rs.68,677 PPF Interest Rs.1,32,107 Rs.1,17,136 TOTAL: Rs.9,05,292 Rs.7,18,910 EXPENDITURE IN RELATION TO THE SAME: STT (debited to Capital A/C) Rs.2,89,663 Rs.31,267 Portfolio Management Fees (debited to Capital Rs.2,37,309 A/C) Suo Moto disallowed by appellant Rs.38,659 Rs.10,000 (5% of dividend income) (Rs.5056+4,944) TOTAL: Rs.5,65,631 Rs.46,211 TAXABLE BUSINESS INCOME Rs.2,91,63,801 Rs.53,15,577 OPENING VALUE OF TAX-FREE 5.18 crores 7.32 crores INVESTMENTS: CLOSING VALUE OF TAX FREE 6.77 crores 5.18 crores INVESTMENTS: % OF EXPENDITURE 62.5%(approx) 6.43%(approx) UNCLAIMED/DISALLOWED TO TOTAL TAX FREE INCOME: It was claimed that the total expensed debited to the profit & loss account are amounting to Rs.9,31,758/- which were incurred for earning of business income alone. According to him, the direct expenditure incurred in relation to earning extra income was debited to the capital account of the assessee and not claimed in the profit & loss account like Rs.2,89,663/- and management fee of Rs.2,37,309/-. In view of these facts, the learned Counsel also explained that the assessee suo moto disallowed a sum of Rs.38,659/- despite the fact that nothing is required to be disallowed. We find from the above facts which are very clear that in this case no expenditure relatable to dividend income is attributable except the amount disclosed by the assessee and suo moto disallowed at Rs.38,659/-, we delete the disallowance made by the AO and confirmed by the learned CIT (A) and allow this appeal of the assessee.

In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 17/06/2016.