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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Before: SHRI D. KARUNAKARA RAO, A.M. & SHRI AMARJIT SINGH, J.M.
: Shri Arvind Sonde अपीलाथ� क� ओर से / Appellant by : Shri Shiddramappa K. Mavar ��यथ� क� ओर से/Respondent by सुनवाई क� तार�ख / : 03.12.2015 Date of Hearing घोषणा क� तार�ख / : 11.12.2015 Date of Pronouncement आदेश / O R D E R PER D. KARUNAKARA RAO, A. M: There are three appeals by the assessee under consideration against three different commonly dated orders of the CIT for the common Assessment Year 2010- 2011.
The issue raised in all these three appeals is common and it relates to disallowance of expenses u/s. 14A of the Act read with Rule 8D(2)(iii). For the sake of completeness, the ground relevant of the appeal in is extracted as under. “The CIT(A) erred in upholding the disallowance of administrative expenses of Rs.8,33,695/- out of Rs.8,97,505/- made by AO on investment in shares claiming the entire administrative expenses was incurred by the assessee for the purpose of investment in shares.” Considering the commonness of the issue and the common counsels before us for all these three appeals, we called all these three appeals and adjudicated the same in this composite order.
Before us, ld. Counsel for the assessee informed that identical issue was decided by the Tribunal in a related concern namely Capstan Trading Private Limited (vide for the Assessment Year 2010-11 dated 11.03.2015). In this regard he brought our attention to the ground which found similarly worded and 3 4089 & 4091/Mum/2013 (A.Y: 2010-11) informed that the facts are also identical with mutatis mutandis. Tracing the facts of the said case, the counsel demonstrated that the AO made disallowance u/s. 14A of the Act read with Rule 8D(2)(iii) on account of administrative expenses and applied the rate of 0.5% of the average value of investment. However, he ignored the fact that the expenses actually incurred for earning the dividend income is less than what is disallowed by the AO. The CIT(A) confirmed the order of AO, ignoring the facts of the case.
Under these circumstances, the matter was decided by the Tribunal in the said case on 11.02.2013, vide the discussion given in para 7 of the said order (supra) the appeal of the assessee was allowed. The Tribunal held that the disallowance made by the assessee is just and proper. He also brought our attention to para 6, where schedule “K” containing the details of the administrative and the other expenses were extracted and made part of the order of the Tribunal, and drew parallel to the similar expenses of these three appeals under consideration. The concern schedule is differently numbered in other cases of appeals and the counsel demonstrated the expenses claimed are more or less identical, in such circumstances, the ratio laid down by the Tribunal in the case of Cape Trading Private Ltd. (supra) is applicable to the facts of these three appeals.
Ld. DR for the Revenue relied heavily on the order of the CIT(A) / AO. We perused them and examined closely the said decision of the Tribunal in the case of Cape Trading Private Ltd. and find the expenses mentioned in para 6 of the said order are more or same. We compared the heads of accounts of the expenses of the administrative and other expenses and in comparison we find majority of expenses claimed by the assessee are more or less on same accounts, i.e., auditors remuneration, depreciation, legal and professional fees, business support fees etc. For example, on perusing the schedule “L” related to administrative expenses of M/s. Casa Maria
4 4089 & 4091/Mum/2013 (A.Y: 2010-11) Properties Private Limited, pg. no. 20 of the relevant, we find none of the accounts are prima facie directly identifiable as one meant for earning the exempt of income. Some of the expenses so claimed in the schedule related to other business expenses. Similar is the case with the other appeals under consideration as well. In such circumstances, we are of the view that the AO mechanically applied the provisions of Rule 8D(2)(iii) without examining the books of accounts of assessee and therefore, the addition is unsustainable in law. Thus, we are of the opinion that the discussion given by ITAT vide paragraph 9 of the order of the Tribunal in ITA No.3772/Mum/13 (supra) are considered relevant and significant. Accordingly the said paragraph 7 is extracted as below:
From the details of the expenses, we find that the printing and stationery expenses and bank charges and commission are only two items which could have direct or proximate nexus with the investment and exempt income. Therefore, the disallowance u/s 144 r.w Rule 8D(2)(iii) cannot exceed to the allocable expenses incurred by the assessee for a composite activity resulting in taxable and exempt income. The working of disallowance under Rule 8D(2)(iii) by the Assessing Officer clearly shows that it exceeds not only the expenses debited and claimed by the assessee which could have a proximate nexus with the earning of exempt income but also to the total expenditure debited by the assessee in the P&L account under the head ‘administrative and other expenses’. Therefore, it turns out to be contradictory to the actual facts and gives absurd results in complete disregard to the scheme of disallowance u/s 14A. Therefore, the provisions of Rule 8D(2)(iii) cannot be applied in the case of the assessee as it becomes unworkable and unrealistic. In the facts and circumstances of the case, we find that when the provisions of Rule 8D(2)(iii) becomes unworkable, then in the absence of any finding as well as any specific expenses debited to the P&L account which could have a direct or proximate nexus for earning
5 4089 & 4091/Mum/2013 (A.Y: 2010-11) the dividend income the disallowance made by the assessee suo motu is just and proper. Accordingly, we delete the disallowance made by the Assessing Officer.
Considering the above finding of the Tribunal, the decision of the Tribunal is applicable to the facts of the three appeals under consideration. Therefore, we are of the opinion, that the decisions of the CIT(A) in all these three cases are required to be reversed. Accordingly, the grounds raised by the assessee in all the appeals are allowed.
In the result, all the three appeals by the three different assessee’s are allowed. Order pronounced in the open court on December 11th, 2015
Sd/- Sd/- (Amarjit Singh ) (D. KARUNAKARA RAO) �या�यक सद�य / Judicial Member लेखा सद�य / Accountant Member मुंबई Mumbai; �दनांक Dated :11.12.2015 Ps. Ashwini Gajakosh आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent 3. आयकर आयु�त(अपील) / The CIT(A) 4. आयकर आयु�त / CIT - concerned 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR, ITAT, Mumbai 6. गाड� फाईल / Guard File आदेशानुसार/ BY ORDER,