, `'
INCOME TAX APPELLATE TRIBUNAL,MUMBAI "E" BENCH
. ., , ,
Before S/Sh. A.D. Jain,Judicial Member & Rajendra,Accountant Member
/.ITA No.711/Mum/2012, /Assessment Year-2008-09
Enam Shares and Securities The ACIT-4(2)
24 BD, Rajbahadur Compound Aayakar Bhavan
Ambalal Doshi Marg, Fort Vs Mumbai-400 020.
Mumbai-400 023.
PAN: AAACE 5146 N
( /Appellant) ( / Respondent)
/Assessee by : Shri R.V. Chaniyari-AR
/ Revenue by : Shri S.S. Rana-DR
/ Date of Hearing : 28 -07-2015
/ Date of Pronouncement : 31 -07-2015
,1961 254(1)
Order u/s.254(1)of the Inco me-tax Act,1961(Act)
PER RAJENDRA, AM-
Challenging the order dated 11.11.2011 of the CIT(A)-9, Mumbai,the Assessee has raised
following Grounds of Appeal:
"1.That on the facts and in the circumstances of the case and in law, the learned Assistant
Commissioner of Income Tax (hereinafter referred to as the ACIT) has erred in invoking the
provisions of Section 14A(2) read with Rule 8D and disallowing expenses incurred in relation
to exempt income of Rs.14,05,004/- while working out Book Profit u/s 115JB of the Income tax
Act,1961.The Honorable CIT (A) has erred in confirming the action of learned ACIT and
disallowed the said expenditure of Rs.14,05,004/-. The learned ACIT be directed to delete the
addition of Rs.14,05,004/- made to the Book profits worked out as per provision of section
14A(2) read with rule 8D and reduce the total income u/s 115JB accordingly.
2. The appellant-company holds the rights to add, alter, amend and delete any of the ground/s
before or during the course of the hearing."0
Assessee-company,engaged in the business of investment in shares,furnished its return of income
on 30.09.2008 declaring total income of Rs.4,31,58,620/-.Book profit was disclosed at Rs.56,
94,80,525/-.The Assessing Officer(AO) assessed total income u/s.143(3) of the Act,whereas total
income u/s. 115JB was determined at Rs.57,08,85,529/-.
2.Effective Ground of appeal is about disallowance made u/s.14A of the Act,amounting to Rs.
14.05 lakhs.During the assessment proceedings,the AO found that the assessee had shown
dividend income of Rs.2.34 Crores,that the dividend income was claimed as exempt,that it had
not allocated any expenditure towards earning tax free income.He asked the assessee as to why
disallowance u/s.14A should not be made.In response to the same,the assessee submitted
explanation and working of disallowance to be made.As per the AO,the assessee made
ITA/711/Mum/12 ,AY.08 09 -ESSPL
disallowance of Rs.19.72 lakhs.It was observed by the AO that while working tax computation
under the MAT provisions the assessee had included expenses attributable to earning of tax
exempt income only at Rs.5.67 lakhs as against disallowance of Rs.19.72 lakhs made as per the
provisions of section 14A of the Act. He made an addition of Rs.14.05 lakhs to the book profit of
the assessee.
3.Aggrieved by the order of the AO,the assessee preferred an appeal before the First Appellate
Authority(FAA).Before him the assessee argued that no expenditure was incurred in relation to
the earning of dividend income,that even if Rule 8D was applicable the AO had erred in working
out the average investment by including the investment income from which were not exempt
from tax.
After considering the submissions of the assessee and assessment order,the FAA held that the
mandate of Section 14A of the Act was to prevent claims of deduction of expenditure incurred in
relation to the income which did not form part of the total income of the assessee,that the
assessee could not establish the nexus between the entire capital being invested in securities and
that it was impossible to believe that out of the common hotch potch of the funds the entire
capital would have gone into the investment in shares without a part of the shares going to the
business,that it was also not possible that the entire income would have been invested in shares
and debentures and share application money especially when the assessee himself was not
categorical as to how much of the sum had been employed in business, that the assessee's case
was covered by sub section (3) of section 14A of the Act,that the assessee had claimed before the
AO that no expenditure was incurred by it in relation to the exempted income which did not for
part of total income,that the assessee's claim was also covered by sub section (2) of section 14A
of the Act because the AO was not satisfied with the correctness of the claim of the assessee in
respect of such expenditure,He referred to the decision of the Special Bench in the case of Daga
Capital Management reported in (26 SOT 603) and held that even if the shares were held as
stock in trade same would be considered for the purpose of disallowance.He referred to the
judgment of Dhapa & Sons of the Hon'ble Calcutta High Court (54 DTR 345)and held that mere
fact that shares were old and not acquired recently was immaterial,that it was for the assessee to
show by production of material that the shares were acquired from the funds available in its
hands at relevant point of time without taking any benefit of any loan or that the loan had
already been repaid and that no interest was paid by it for acquiring shares in the relevant
year.He further held that in the absence of any such material interest payable by the assessee
was to be disallowed u/s.14A of the Act having regard to the investments in shares and total
interest bearing funds.He also relied upon the case of Leena Ramachandran(45 DTR372).
Finally,he confirmed the disallowance made by the AO.
4.During the course of hearing before us,Authorised Representative(AR)relied upon cases of
Goetz India Ltd.(32SOT101),Radha Madhav Investment Ltd.(ITA/3897/Mum/2012-AY. 2008
-09, dtd. 23.10.13),Reliance Industrial Infrastructure Ltd.(ITA No. 69-70/Mum/2009- 5.4.2013),
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Essar Teleholding Ltd.(ITA/3850/Mum/2010-29.07.2011).Departmental Representative(DR)
stated that the matter may be decided on merits.
5. We have perused the material before us.We find that the issue of disallowance to be made
u/s.14A of the Act has been deliberated upon by the various benches of the Tribunal in the
cases relied upon by the AR.In the matter of Radha Madhav Investment Ltd.(supra)the issue
has been decided as under:
"2.3. We have heard the rival submissions and perused the material before us.We find that issue of
disallowance u/s.14A of the Act,while calculating book profits u/s. 115JB of the Act,has been
decided in favour of the assessee by the Tribunal in the cases referred above by the AR.We find that
following decisions of the Goetze India Ltd. (supra) `K' Bench of Mumbai Tribunal in the case of
Reliance Industries Ltd.(supra) has held that principal of apportionment as provided u/s. 14A
should not be applied while computing the book profit u/s. 115JB of the Act.
" In so far as disallowance of administrative expenses u/s 14A of the Act is concerned for earning
exempt income of Rs. 345,69,24,696/-, we are of the considered view that by following the order of
ld. CIT(A) for the preceding assessment year i.e. Assessment Year 2002-03, it will be fair and
reasonable to restrict the disallowance to 1 % of the exempt income which works out to Rs.
3,45,69,250/-. However, in regard to disallowance u/s 14A for computing book profit u/s 115JB of
the Act, we observe that similar issue had come up before the Tribunal, Mumbai Bench in the case
of Reliance Industrial Infrastructure Ltd V/s Addl. CIT in ITA Nos. 69 and 70/Mum/2009 (AY-
2005-06 and 2006-07) and Tribunal vide order dated 5.4.2013 after following the decision of Delhi
Bench of Tribunal in Goetze (India) Ltd (32 SOT 101) (Del) and the decision of Mumbai Bench of
the Tribunal in M/s Bengal Finance and Investment P. Ltd. in ITA No. 5620/Mum/2010, dated
31.07.2012 has held that while computing book profit u/s 115JB of the Act, provisions of section
14A cannot be imported. Therefore, amount disallowed u/s 14A of the Act cannot be considered
while computing book profit u/s 115JB of the Act. Accordingly, the issue was decided in favour of
the assessee.
In view of above Ground No.4 of the appeal taken by the assessee is allowed in part by restricting
the disallowance to Rs. 3,45,69,250/- towards administrative and general expenses u/s 14A of the
Act towards earning of exempt income u/s 10(23G) of the Act while computing total taxable
income under the normal provisions of Act. However, no disallowance under Section 14A be
considered while computing book profit u/s 115JB of the Act. Consequently, Ground No.4 taken by
the department is rejected."
Following the above ground no.3 is decided in favour of the assessee."
Respectfully,following the above mentioned decisions at paragraph 4 of the order,we
reverse the order of the FAA and decide effective ground of appeal in favour of the
assessee.
As a result,appeal filed by the assessee stands allowed.
.
Order pronounced in the open court on 31st July,2015.
31 ,2015
Sd/- Sd/-
(. . /A.D. Jain) ( / RAJENDRA)
/ JUDICIAL MEMBER / ACCOUNTANT MEMBER
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ITA/711/Mum/12 ,AY.08 09 -ESSPL
/Mumbai, /Date: 31 .07.2015
. ..Jv.Sr.PS.
/Copy of the Order forwarded to :
1.Appellant / 2. Respondent /
3.The concerned CIT(A)/ , 4.The concerned CIT /
5.DR A Bench, ITAT, Mumbai / , ,.. .
6.Guard File/
//True Copy//
/ BY ORDER,
/ Dy./Asst. Registrar
, /ITAT, Mumbai.
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