METROPOLITAN TRADING COMPANY,MUMBAI vs. ADDL CIT 18(2), MUMBAI

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ITA 5129/MUM/2013Status: DisposedITAT Mumbai24 February 2016AY 2008-094 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal found that the assessee had offered the maximum possible disallowance considering its business nature and followed its own earlier order on similar facts. Therefore, the further disallowance made by the AO was not justified.

What were the facts?

The assessee earned tax-free income from dividends and long-term capital gains. The assessee suo motu disallowed Rs. 3,94,726/- under Section 14A, but the AO applied Rule 8D and disallowed Rs. 13,99,799/-.

What were the issues?

Whether the AO was justified in disallowing expenses under Section 14A read with Rule 8D beyond the amount offered by the assessee, considering the nature of the assessee's business and prior year's precedents.

Which sections of the Income-tax Act were involved?

Section 14A

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “B”, BENCH MUMBAI

Before: SHRI R.C.SHARMA, AM & SHRI RAM LAL NEGI, JM

Hearing: 07/12/2015Pronounced: 24/02/2016

O R D E R PER R.C.SHARMA (A.M.) : This is an appeal filed by the assessee against the order of CIT(A), Mumbai, dated 15-4-2013, for the assessment year 2008-09, in the matter of order passed u/s.143(3) of the I.T. Act.

2.

The only grievance of the assessee relates to disallowance of Rs.13,99,799/- u/s.14A read with Rule 8D of the I.T. Act.

3.

Rival contentions have been heard and record perused. Facts in brief are that the assessee firm is engaged in job work and selling & dealing in ties, shirts etc. and also business incidental thereto. During the course of assessment proceedings AO noted that the assessee has earned tax free income of Rs.38,55,642/- as dividend in mutual funds/shares and Rs.46,24,200/- as long term capital gain (LTCG) on 2 shares during the financial year under consideration. That the assessee itself disallowed Rs.3,94,726/- u/s.14A of the Act on account of direct expenses only. The assessee furnished the calculation and submitted that most of the expenditure is directly related to the manufacturing unit for earning labour charges and the amount disallowed suo motu by the assessee is the maximum possible considering the nature of business of the firm. The assessee further submitted that the disallowance on similar basis has been accepted in the assessment proceedings earlier years. After considering the submission, the AO stated that the disallowance offered by the assessee of Rs.3,94,726/- i.e. direct expenditure is not sufficient in relation to earning of income which does not form part of the total income for the financial year 2007-08 because the legislature has prescribed specific rules i.e. Rule 8D for calculating disallowance u/s.14A w.e.f. 01-04-1008. Accordingly, the AO worked out disallowance at Rs.13,99,799/- applying rule 8D. Since the assessee has already made disallowance of Rs.3,94,726/-, the difference of Rs.10,05,073/- was further disallowed as expenses related to exempt income not includable in total income and added to the business income of the assessee.

4.

By the impugned order the CIT(A) confirmed the action of AO, against which the assessee is in further appeal before us.

5.

We have considered rival contentions and found from the record that the assessee has given detailed working of the amount offered for

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