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Income Tax Appellate Tribunal, MUMBAI BENCH “E” MUMBAI.
Before: SH. A.D. JAIN & SH. RAJENDRA
Assessment Year: 2008-09 PAN : AAFCS8009P M/s. Shiv Shakti Properties Pvt. Ltd. vs. Asstt. Commr. of Income-tax, A-1/122, Prithvi Apartments, Central Circle 22, 26, Altamount Road, Mumbai. Mumbai. (Appellant) (Respondent) Appellant by:Sh. Hero Rai Respondent by: Date of hearing : 28/07/2015 Date of pronouncement: 20/10/2015 ORDER PER A.D. JAIN, JM
This is assessee’s appeal for the assessment year 2008-09, taking the following effective grounds of appeal: “
1. Under the facts and circumstances of the case, the ld. CIT(A) has erred in confirming the addition made by the ld. AO of Rs.25,36,664/- u/s 14A r.w.r. 8D(ii).
2. Under the facts and in law, the ld. CIT(A) erred in confirming the Rs.2,00,000/- as income from property as against the income from business, and further erred in not allowing the claim of depreciation of Rs.11,68,023/-.
2. Apropos Ground No.1, the AO made disallowance of Rs.42,67,498/- u/s 14A of the Income-tax Act, 1961 under Rule 8D(2)(ii) & Rule 80D(2)(iii) of the I.T. Rules, 1962. The ld. CIT(A) deleted the disallowance of Rs.17,30,834/- made under Rule 8D(2)(ii), holding that there was no direct or indirect expenditure incurred in earning tax free income.
3. However, apropos disallowance of administrative expenditure under Rule 8D(2)(iii) of the I.T. Rules, the ld. CIT(A) maintained the disallowance, holding as follows:
“7. I have gone through the issue and the submissions of the appellant. In this case the appellant has made huge investments in tax free investments totaling to Rs.96,54,43,531/-. Certainly expenditure like clerical expenses, telephone expenses, stamp duty, etc. are incurred by the appellant with regard to these investments. The appellant has not maintained any separate account with regard to the expenditure met out for earning of tax free income. The expenses are mixed up and from the accounts maintained by the appellant it is difficult to know the exact amount of expenses met out for earning the tax free income. In the circumstances, there is no other option but to apply Rule 8D(2)(iii) (to find out the administrative expenditure in relation to earning tax free income). The A.O. has properly done so. In view of this there is no interference called for. The AO’s order is upheld with regard to the disallowance made under Rule 8D(2)(iii) of the I.T. Rules.”
The Ld. counsel for the assessee has contended that the disallowance of Rs.25,36,664/- as confirmed by the ld. CIT(A), represents 0.5% of the of the I.T. Rules and the ld. CIT(A) erroneously confirmed this; that the total operating expenditure debited in the account of the assessee is to the tune of Rs.13,068,316/-; that out of this, the assessee itself had disallowed Rs.9,95,52,34/-; that thus the total expenditure claimed is of Rs.31,13,082/-; that out of total of incomes of the assessee amounting to Rs.80,189,889/-, only an amount of Rs.9,04,668/- is dividend income; that thus, out of total expenses claimed Rs.31,13,082/-, Rs.25,36,664/- has been disallowed as in relation to dividend; that considering the enormous other income, this quantum of disallowance is grossly absurd and unreasonable. It has been contended that under section 14A(2) of the Act, resorting to Rule 8D of the Rules, arises only if the AO is not satisfied with the correctness of the claim of the assessee in respect of expenditure relating to income, which does not form part of the total income under the I.T.Act, having regard to the accounts of the assessee. It has been contended that as is evident from the phraseology specifically employed in the section, if from the accounts of the assessee, a reasonable disallowance could be worked out, there is no need to invoke Rule 8D of the Rules, particularly, if doing so gives an absurd and unreasonable result. In this regard, reliance has been placed on “K.P.
Varghese vs. CIT”, 131 ITR 597 (SC), as per which, a manifestly absurd and be avoided.
On the other hand, the ld. DR, strongly relied on the impugned order.
We have heard the rival contentions on this issue and have perused the material on record with regard thereto. A copy of the relevant extracts of the assessee’s final accounts have been placed at APB 3 to 8. APB-3 is assessee’s balance sheet as on 31.03.2008. APB 4 is assessee’s profit & loss account for the year ended 31st March, 2008. At APB-5 are the schedules forming part of balance sheet and profit & loss account (APB 5- 6). From APB-8, it is seen that that the assessee debited total expenditure of Rs.13,068,316/-. Out of this amount, as per the revised statement of total income (APB 1-2), the assessee itself disallowed a sum of Rs.1,17,66,229/-.
As pointed out, this disallowance includes certain items which are not part of the total expenditure debited of Rs.13,018,316/-, i.e., depreciation as per books amounting to Rs.3,49,167/- and loss from sale of mutual funds of Rs.14,61,828/-. As such, the disallowance comes to about Rs.99,55,235/-.
That being so, the amount effectively claimed as expenditure is of Rs.31,13,038/-. As per the profit & loss account (APB-4), the total income is amounting to Rs.80,189,899/-. Of this, dividend income is of Rs.9,04,668/- only. Therefore, out of the total expenses claimed of Rs.31,13,082/-, the evidently absurd on the face of it and the assessee is correct in contending that since there is huge other income, the quantum of disallowance is entirely unreasonable. Rather, a reasonable disallowance can be made, if the accounts of the assessee are considered, without taking recourse to Rule 8D of the Rules. The ld. counsel for the assessee has contended that the total expenses claimed (as above) being Rs.31,13,082/-, the total income ( as above) being of Rs.80,189,889/- and out of this income, dividend being of Rs.904,668/-, the disallowance of expenses needs to be worked out by applying the proportionate method, as per which, the disallowance works out to Rs.35120/-.
The contention of the assessee is found to be acceptable. The total income, the dividend and the total expenses claimed being as above, as discussed, the disallowable expenses would work out to Rs.35,120/-, applying the proportionate method. Therefore, the disallowance is restricted to Rs.35,120/-. Accordingly, Ground No.1 is partly accepted.
Coming to Ground No.2, the AO made a disallowance of Rs.2,00,000/- u/s 94(7) of the Act.
The assessee has short term capital loss of Rs.14,61,827/-. The ld. CIT(A) observed that out of the short-term capital loss, dividend had been was of Rs.3745/- and the dividend received was of Rs.3,52,163/-.
According to the ld. CIT(A), in view of this, as per section 94(7) of the Act, only the short term capital loss of Rs.3,745/- ought to have been added. The ld. CIT(A), therefore, directed the AO to delete Rs.1,96,255/- out of the disallowance of Rs.2,00,000/- and maintained the addition of Rs.3745/- only.
Since no worthwhile challenge had been laid to the above finding of the ld. CIT(A) by the assessee before us, finding no error therein, the action of the ld. CIT(A) in restricting the addition to Rs.3745/- is upheld. Ground No.2, is accordingly, rejected.
In the result, the appeal is partly allowed.
Order pronounced in the open court on 20th October, 2015