M/s. Trimurti Heights and Properties Pvt. Ltd. v. I TO Ward 2(3)(3), Mumbai
[Citation -2016-LL-0930-185]

Citation 2016-LL-0930-185
Appellant Name M/s. Trimurti Heights and Properties Pvt. Ltd.
Respondent Name I TO Ward 2(3)(3), Mumbai
Court ITAT-Mumbai
Relevant Act Income-tax
Date of Order 30/09/2016
Assessment Year 2011-12
Judgment View Judgment
Keyword Tags taxable and non-taxable income • computation of disallowance • disallowance of interest • computation of income • interest expenditure • interest free fund • unsecured loan
Bot Summary: The assessee furnished its reply vide reply dated 5th September 2014, wherein the assessee submitted that no disallowance u/s. For AY 2011-12 Ld. AR of assessee argued that during the year under consideration, the assessee invested in mutual fund and earned exempt income of Rs. 3,40,617/-, the income was by way of dividend on the unit of mutual fund. The AR of the assessee further argued that details of computation of disallowance were provided to the AO. The Rule 8D can only be invoked, if the AO is not satisfy with the correctness of the claim of the expenditure incurred for earning exempt income, or the claim made by assessee that no expenditure has been incurred for earning exempt income. The assessee categorically stated that only cost incurred by the assessee to earn exempt dividend income was in the form of interest payment of the said loan for which the voluntary disallowance of interest expenditure of Rs. 7,03,118/- was made. For AY 2012-13, the Ld. AR of the assessee argued that assessee earned dividend income of Rs. 98,450/-. The assessee has not made any voluntary disallowance as they have not claimed deduction for the expenses incurred by assessee, thus, the disallowance u/s 14A were not possible. On specific queries, the AR of the assessee submitted that the assessee has incurred corresponding interest expenditure of Rs. 1,95,668/-.


IN INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI B. R. BASKARAN, AM AND SHRI PAWAN SINGH, JM I.T.A. No. 541/Mum/2016 (Assessment Year: 2011-12) And I.T.A. No. 542/Mum/2016 ( Assessment Year: 2012-13) M/s. Trimurti Heights and I TO Ward 2(3)(3), Properties Pvt. Ltd., 102, Mumbai Arihant Building, 15th Road, Khar (West), Vs. Mumbai, 400052 PAN/GIR No.AACCT5299F ( Appellant) : ( Respondent) Appellant by : Sh. Aarti Sathe -AR Respondent by : Sh. B.S. Bist - Sr DR : 28.07.2016 Date of Hearing : 30.09.2016 Date of Pronouncement O R D E R Per Pawan Singh, JM: 1. These two appeals u/s. 253 are directed against common order of Commissioner of Income Tax (Appeals)-6, Mumbai dated 20.11.2015 for Assessment Years (AY) 2011-12 and 2012-2013. In both appeal assessee has raised common grounds of appeal against disallowance u/s. 14 of Act. As facts of both years are almost identical and common grounds of appeal are raised, thus both appeals were clubbed, heard together and are decided by common order. 2 ITA Nos. 541 & 542/Mum/16 M/s. Trimurti Heights and Properties Pvt. Ltd. 2. Brief facts related to disposal of present appeals are that assessee- company is engaged in business of investing in properties. For AY 2011-12, assessee filed its return of income on 24th September 2011. In return of income, assessee claimed exempt income of Rs. 3,40,617/-. assessee has not apportioned any expenditure toward earning such exempt income. return of income was selected for scrutiny and while framing assessment, AO asked assessee as to why appropriate disallowance should not be made u/s. 14A of Income Tax Act as per Rule 8D. assessee filed revised computation of income and offered Rs.7,03,118/- for disallowance u/s. 14A of Act. working of disallowance of assessee was not accepted by AO. AO computed disallowance u/s. 14A as per Rule 8D at Rs. 10,45,373/- and added back to assessee s total income, in its order dated 26th March 2014. Similarly, for AY 2012 -13, assessee-company claimed dividend income of Rs. 98,450/-. AO while framing assessment asked assessee to furnish its explanation as to why appropriate disallowance should not be made u/s. 14A of Income Tax Act as per rule 8D of I.T Rules, 1962. assessee furnished its reply vide reply dated 5th September 2014, wherein assessee submitted that no disallowance u/s. 14A had been made for reasons that assessee has shown its income under head House Property and Other Sources . contention of assessee was not accepted by AO and AO made disallowance u/s. 14A read with Rule 8D of Rs 34,50,193/- vide order dated 27th Feb 2015. Aggrieved by orders of assessment, assessee filed appeal before CIT(A). Both appeals of assessee were decided by CIT(A) vide common order impugned in present appeals. 3. We have heard ld AR of assessee and DR for Revenue and perused material available on record. Ld AR of assessee argued that order of AO and CIT(A) for making disallowance are not only unfair but unreasonable. AO disallowed exorbitant amount which is many folds, than exempt income earned by assessee. For AY 2011-12 Ld. AR of assessee argued that during year under consideration, assessee invested in mutual fund and earned exempt income of Rs. 3,40,617/-, income was by way of dividend on unit of mutual fund. 3 ITA Nos. 541 & 542/Mum/16 M/s. Trimurti Heights and Properties Pvt. Ltd. assessee borrowed funds from M/s Saraswat Bank for purpose of investing in business, repayment of unsecured loan and for working capital. assessee had invested excess funds from time to time in mutual fund to save cost when funds were temporarily not utilized. assessee suo-moto disallowed interest expenditure of Rs. 7,03,118/- which was incurred to earn exempt income. AR of assessee further argued that details of computation of disallowance were provided to AO. Rule 8D can only be invoked, if AO is not satisfy with correctness of claim of expenditure incurred for earning exempt income, or claim made by assessee that no expenditure has been incurred for earning exempt income. AO has not recorded its satisfaction that calculation/details for disallowance are not correct. On other hand, ld. DR for Revenue supported order of authorities below. DR for Revenue further argued that calculation of disallowance submitted by AO was found to be not as per Rule 8D and AO duly recorded his observation in paragraph 4.3 of order. We have considered rival contentions of parties and further perused material available on record. assessee claimed to have earned dividend income of Rs. 3,40,617/- during relevant financial year. During assessment proceeding, assessee furnished calculation of voluntary disallowance u/s.14A of Rs. 7,03,118/-. assessee further contended that they have invested excess loan from fund from time to time for mutual fund to save cost when funds were temporarily available. We have seen that assessee reserve and surplus fund of Rs.10.93 crore and assessee had investment of Rs. 2.61 crore during year under consideration. assessee categorically stated that only cost incurred by assessee to earn exempt dividend income was in form of interest payment of said loan for which voluntary disallowance of interest expenditure of Rs. 7,03,118/- was made. AO while framing assessment order simply observed that working of disallowance submitted by assessee is not as per Rule 8D not satisfied in respect of working is recorded. Ld. CIT(A) while considering ground of disallowance concluded that assessee made huge investment of Rs. 2,61,25,979/-. assessee incurred finance cost of Rs. 2,49,37,929/- in year. AO finally concluded that apportionment is required to be made in terms of 4 ITA Nos. 541 & 542/Mum/16 M/s. Trimurti Heights and Properties Pvt. Ltd. section 14A r.w.r 8D which is mandatory from AY 2008-09. Ld. CIT(A) has also not examined pre-conditions for applicability of Rule 8D. AO as well as ld CIT(A) failed to record correctness of claim of assessee in respect of expenditure incurred in relation to exempt income. AO calculated disallowance without discarding statement of account and working of disallowance submitted by assessee. disallowance made by AO is not in accordance with pre-condition provided under sub-section (2) of section 14A of Act. In our considered opinion, when assessee is engaged in composite and indivisible business and earned both taxable and exempt income (non-taxable income), expenditure incurred towards exempt income should be identify by apportionment. AO while framing assessments should issue specific questionary to identify apparent connection to specific expenditure when assessee earn taxable and non-taxable income from all business activities constitute indivisible bossiness. expenditure factually incurred on non-taxable receipt is to be disallowed. expenditure assumes, presumes or deemed to be incurred on non- taxable income cannot be allowed. There should be proximate cause for disallowance, which has relationship with exempt income. return of investment or huge investment cannot be proximate cause. assessee specifically pleaded during assessment that they have earned non-taxable income by way of dividend on mutual funds. assessee has invested excess loans funds. assessee has suo-moto disallowed interest expenditure of Rs.7,03,118/-. AO merely hold that working of disallowance is not as per Rule 8D, and same was upheld by Ld. CIT(A). With above observation, we hold that disallowance u/s 14A should be restricted to Rs. Rs.7,03,118/- plus Rs.65000/- on account of administrative expenses as per Rule 8D2(iii). In result appeal of assessee for AY 2011-12 is allowed. 4. For AY 2012-13, Ld. AR of assessee argued that assessee earned dividend income of Rs. 98,450/-. assessee has not made any voluntary disallowance as they have not claimed deduction for expenses incurred by assessee, thus, disallowance u/s 14A were not possible. AO disallowed sum of Rs.43,50,194/- u/s 14A of Act, while framing assessment and same was sustained in first 5 ITA Nos. 541 & 542/Mum/16 M/s. Trimurti Heights and Properties Pvt. Ltd. appeal. Ld. DR for Revenue argued that during year under consideration, assessee earned dividend income of Rs 98,450/- which was claimed as exempt income. assessee has not apportioned any expenditure for earning such exempt income. Despite making show cause by AO that as to why disallowance u/s 14A be not made against assessee. assessee has not furnished any satisfactory explanation. AO has no option except to calculate disallowance as per Rule 8D of Income-tax Rule 1962. We have considered rival contention of parties and gone through material available on record. assessee earned dividend income of Rs. 98,450/- which was claimed as exempt income. assessee has not apportioned any expenditure attributable to earn such exempt income. CIT(A) while considering ground observed that investment of assessee has increased from Rs. 2,61,25,979/- to Rs. 4,21,25,979/- during FY. finance cost has also gone from 2,49,37,929/- to 3,44,17,216/-. CIT(A) dismissed appeal of assessee holding that submission made by AR are similar as for earlier years. We have considered rival contention of parties and gone through material available before us. assessee has surplus interest free fund of Rs. 10.10 crore and made investment of Rs.5.56 crore during year. On specific queries, AR of assessee submitted that assessee has incurred corresponding interest expenditure of Rs. 1,95,668/-. We have further seen that fact of this appeal are at little variance to earlier year. In earlier year, assessee voluntarily made disallowance of Rs.7,03,118/-, however, in year under consideration, no voluntary disallowance was made. It has come on record that assessee earned dividend income on units of mutual fund. assessee invested borrowed fund for investment in mutual fund in earlier years, thus, assessee must incurred interest on borrowed fund. On our specific queries, assessee submitted corresponding interest expenditure incurred for earning exempt income and such interest is worked out at Rs. 1,96,668/-. Accordingly, AO is directed to restrict disallowance u/s of Act at Rs. 1,95,668/- plus administrative expanses of Rs.1,70,000/- under rule D2(iii). 6 ITA Nos. 541 & 542/Mum/16 M/s. Trimurti Heights and Properties Pvt. Ltd. In result, both appeal of assessee are allowed in above term. Order announced in open court on 30th day of September 2 016. Sd/- Sd/- (B. R. Baskaran) (Pawan Singh) Accountant Member Judicial Member Mumbai; Dated :30.09.2016 Copy of Order forwarded to : 1. Appellant 2. Respondent 3. CIT(A) 4. CIT - concerned 5. DR, ITAT, Mumbai 6. Guard File BY ORDER, (Dy./Asstt. Registrar) ITAT, Mumbai M/s. Trimurti Heights and Properties Pvt. Ltd. v. I TO Ward 2(3)(3), Mumbai
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