ANAND DESAI (ADVOCATE),MUMBAI vs. ASST CIT 11(2), MUMBAI

Order u/s.254(1)of the Income-tax Act,1961(Act) अनुसार PER Rajendra A.M.- लेखा सद�य सद�य राजे�� राजे�� केकेकेके अनुसार लेखा लेखा लेखा सद�य सद�य राजे�� राजे�� अनुसार अनुसार Challenging the order dt.14.8.2018 of CIT(A)-3,Mumbai,the assessee has filed the present appeal.Assessee,an individual,filed his return of income on 30.9.2009,declaring total income of Rs.2.84 crores.The Assessing Officer(AO)completed the assessment on 23.12.2011 u/s. 143(3)of the Act,determining the income of the assessee at Rs.2.91 crores.The solitary Ground of appeal is about disallowance made u/s. 14A of the Act.

2.During the assessment proceedings,the AO found that the assessee had made investment in shares and mutual funds at Rs.14.76 crores, that he had earned exempt income.Vide his order sheet entry,dt.9.9.2011,he asked the assessee to submit computation of disallowance u/s. 14A r.w. Rule 8D of the Income tax Rules, 1962 (Rules).After considering the submission of the assessee, the AO made a disallowance of Rs.6,39,802/-.

3.Aggrieved by the order of the Assessing Officer,the assessee preferred an appeal before the FAA.Before him,it was contended that there was no proximate connection between the exempt income and expenditure,that the AO had not recorded his satisfaction with the claim made by the assessee, that direct expenses like STT, depository charges had been debited to capital account of the assessee. After considering the submission of the assessee and the AO the FAA held that onus was on the assessee to prove that no expense had been incurred on exempt income.Referring to the provisions of section 14A of the Act,he upheld the disallowance made by the AO.

4.Before us,the Authorised Representative (AR) submitted that assessee had not claimed any expenditure, that all the direct expenses were part of the capital account of the assessee , he referred to page no.19 of the Paper Book and relied upon the case of Justice Sam P. Bharucha (ITA/3889/Mum/2011-AY 2008-09) dated 25th July 2012.Departmental Representative (DR) supported the order of the FAA.

5.We find that the assessee had earned dividend income,that it had not claimed any expenditure for earning exempt income,that the AO had disallowed Rs.6.39 lakhs u/s.14 A of the Act r.w.Rule 8D of the Act,that in the audit report the auditors had specifically mentioned that the assessee had not claimed any expenditure relatable to exempt income in the P&L

6418/M/2013-Anand Desai account.The AO had ignored the very basic fact i.e. non incurring of any expenditure for earning tax free income.In the case of Hero Cycle (323ITR518)of Hon’ble P&H High Court has held as under: “Disallowance under section 14A required finding of incurring of expenditure and where it was found that for earning exempted income no expenditure had been incurred, disallowance under section 14A could not stand. Consequently, the disallowance was not permissible. Respectfully following the above judgment and considering the fact that the assessee had not incurred any expenditure to earn dividend income,we decide effective ground of appeal in favour of the assessee.Effective ground is decided in favour of the assessee.