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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY, JM & SHRI RAJESH KUMAR, AM
आदेश / O R D E R PER RAJESH KUMAR, A. M: This appeal by the assessee is directed against the order dated 09-08-2012 of Commissioner of Income Tax (Appeals)-3, Mumbai (Hereinafter called as the CIT(A)) for assessment year 2009-10. The assessee has raised the following grounds of appeal:
(A.Y. 2009-10) S. Krishnamurthy, Vs. ACIT
On the facts and in the circumstances of the case and in law, the Learned CIT Appeals erred in passing an order confirming the order passed by the ACIT u/s 143(3) of the IT Act, 1961, without fully and properly appreciating the prevalent facts as submitted during the course of the hearing proceedings.
On the facts and in the circumstances of the case and in law, the Learned CIT Appeals erred in confirming the order passed by the ACIT u/s 143(3) of the IT Act, 1961, without fully and properly appreciating the written submission submitted during the course of hearing proceedings along with relevant judgements which justify the appellants arguments. 3. The Learned CIT Appeals has confirmed the addition made by the ACIT u/s 14A of Rs.289992/- on account of expenses deemed to have been incurred for earning of Dividend (Exempt) Income for reasons which are unreasonable and unjustified and the appellant is aggrieved of the same. Hence this appeal.
The common issue raised in all the grounds of appeal is against the 2. confirmation of addition by the CIT(A) of Rs.2,89,992/- made by the AO u/s 14A r.w. Rule 8D. The brief facts of the case are that the assessee filed his return of income on 22.09.2009 declaring an income of Rs.90,32,010/-. During the year the assessee had income by way of dividend of Rs.5,91,333/- and interest on PPF at Rs.2,09,015/-. The assesee did not disallow any expenses u/s 14A r.w. Rule 8D of the Act. The case of the assessee was selected for scrutiny and due notices u/s 143(2) & 142(1) were issued and served on the asessee. During the course of assessment the AO noticed that the assessee did not disallow any expenses which were attributable to the exempt income, not forming part of the assessee’s total income and therefore, issued the show cause notice. In response to said notice the (A.Y. 2009-10) S. Krishnamurthy, Vs. ACIT assessee replied that he had not made any borrowing for the purpose of investment in shares nor incurred any expenditure relating to the dividend income and interest on PPF which is covered by the provision of section 14A r.w. Rule 8D of the Act.
The ld. AO by applying the provisions of section 14A Rule 8D(2)(iii) disallowed sum of Rs. 2,89,992/- on the basis of average investments and assessed income of Rs.93,21,998/- vide assessment order dated 19.12.2011.
Aggrieved by the order of the AO the assessee preferred an appeal before the CIT(A) who upheld the order of the AO by observing as under.
“I have considered the facts and perused the material on record. It is seen that the appellant has earned dividend income of Rs.5,91,333 and interest on PPF at Rs.2,09,015 which are claimed as exempt under the Income-tax Act, 1961. The appellant has debited expenditure of Rs.1,741 being Demat charges against income from other source and transferred net income of Rs.12,64,818 to Capital Account. Similarly, the appellant has also debited repairs and maintenance expenses of Rs.7,447, conveyance expenses of Rs.1757 tax expenses of Rs.1281, office expenses of Rs.6165 printing & stationery expenses of Rs.5,305, telephone expenses of Rs.31,539 and professional charges of Rs.5,000 as reflected in the Profit and Loss
(A.Y. 2009-10) S. Krishnamurthy, Vs. ACIT
Account. Therefore, the claim of the appellant that no expenditure has been incurred for earning dividend income cannot be accepted as it sis impossible to earn substantial dividend income without incurring any expenses. this view is also fortified by decision in the case of Citicorp Finance (India) Ltd. (2007) 108 ITD 471 (Mum) wherein it was held that “ it is difficult to accept the hypothesis that one can earn substantial dividend income without incurring any expenses, whatsoever, including management or administrative expenses and Gujarat Gas financial Services Ltd v ACIT (2008) 14
DTR (Ahd) (SB) 481) wherein it was held that “there is no dispute and there cannot be any doubt, that some expenditure is incurred for making or earning the income from dividend”. I find that the AO has made disallowance on the basis of Rule8D which is very much applicable for AY under consideration as held by the Hon’ble
Bombay High Court in the case of Godrej & Boyce Manufacturing
Co. Ltd v DCIT(2010) 328 ITR 81 (Bom). The Hon’ble High Court further lay down that The Assessing Officer can adopt a reasonable basis for effecting the apportionment.” Therefore, following the above decision it would be reasonable to make the disallowance as
per section 14A of the Act and read with Rule 8D Income-Tax Rules
1962. Therefore, the disallowance made at Rs.2,89,992 as per Rule
(A.Y. 2009-10) S. Krishnamurthy, Vs. ACIT
8D of the Income-Tax Rules 1962 by the AO is correct and valid hence same are sustained. Therefore, ground no. 1to 3 of appeal is dismissed.” 4. The ld. AR submitted before us that the expenses disallowed by the AO and confirmed by the CIT(A) were excessive and unreasonable. The ld. Counsel further submitted that the ld. AO had not given any calculation of the said disallowance.
The ld. Counsel further argued that the assesee had investments which included those investments which did not yield any tax free dividend during the year and further submitted that while working out the disallowance u/s 14A r.w. Rule 8D(2)(iii) only dividend yielded investments should be taken and not the entire investments. The ld. Counsel relied heavily on the judgemnent of Delhi High Court in the case of ACB India Ltd. Vs. Assistant Commissioner of Income-tax [2015] 62 taxmann.com71 (Delhi) and ultimately prayed that the disallowance be worked out by excluding those investments which did not yield any dividend during the year. Per contra, the ld. DR relied on the authorities below and prayed for upholding the same.
We have heard the rival submissions and perused the material on record. We have no doubt that the disallowance u/s 14A r.w. Rule8D (2) (iii) were applicable to the assessment year 2009-10 which is before us however we find a merit in the (A.Y. 2009-10) S. Krishnamurthy, Vs. ACIT contention of the assessee that the disallowance has to be worked out on the basis of investments which yielded dividend during the year and not by factoring in the total amount of investments. In the case of ACB India Ltd. Vs. Assistant Commissioner of Income-tax [2015] 62 taxmann.com71 (Delhi) (supra). The Hon’ble Delhi High Court has held that while calculating disallowance u/s 14A r.w. Rule8D (2)(iii) only those investments which yielded dividend should be taken into account and not those investments which did not earn any dividend during the year. We, therefore, respectfully following the ratio laid down in the above decision set aside the issue to the file of the AO with the direction to work out the disallowance u/s14A r.w. Rule8D(2)(iii) by taking those investments which yielded dividend during the year by giving reasonable and proper opportunity to the assessee. In the result, the assessee’s appeal is allowed for statistical purposes.