Morgan Stanley Indian Company P Ltd Mumbai v. Dcit 4 3 Mumbai

In The Income Tax Appellate Tribunal Mumbai Bench G Mumbai Before Shri Rajendra Honble Accountant Member And Shri C N Prasad Honble Judicial Member Ita No 1576 Mum 201 6 A Y 201 0 11 M S Morgan Stanley India Company Private Limited 18 F Tower 2 One Indiabulls Centre 841 Senapati Bapat Marg Mumbai 400 013 Pan No Aaacj 4998 F V Acit Range 4 3 2 Room No 649 6 Th Floor Aayakar Bhavan M K Road Mumbai 400 020 Appellant Respondent Assessee By Shri Sunil Moti Lala Department By Shri Vidhyadhar Date Of Hearing 16 11 2017 Date Of Pronouncement 20 12 2017 O R D E R Per C N Prasad Jm 1 This Appeal Is Filed By The Assessee Against T He Order Of The Learned Commissioner Of Income Tax Appeals 9 Mumbai Dated 19 01 2016 For The Assessment Year 2010 11 The Only Issue In The Appeal Of The Assessee Is In Respect Of Conformation Of Disallowance Made U S 14 A R W Rule 8 D 2 Iii Of The I T Rules 2 Ita No 1576 Mum 2016 A Y 2010 11 M S Morgan Stanley India Company 2 Learned Counsel For The Assessee Submits That Assessee Received Dividend Income Of 5 20 000 During This Assessment Year And In The Computation Of Income Assessee Himself Disallowed 6 15 628 Suo Motu Towards Expenditure Incurred F Or E Arning Such Dividend Income Learned Counsel For T He Assessee Submits That The Assessing Officer By Invoking The Provisions Of Section 14 A R W Rule 8 D Computed The Disallowance Under Rule 8 D 2 Ii I Of The I T Rules At 1 02 54 975 Being 0 5 Of The Average Value Of Investment S And Since The Assessee I Tself Disallowed 6 15 628 In The Computation Of Income The Same Was Reduced From 1 02 54 975 And The Balance Disallowance Of 96 39 3 37 Was Made By The Assessing Officer While Computing The Income Of The Assessee On Appeal The Ld Cit A Sustained The Said Disallowance Before Us The Learned Counsel For The Assessee Submits That Since The Assessee Has Rec Eived Dividend Income Of 5 20 000 Only And It Had Already Disallowed 6 15 628 There Should Not Be Any Further Disallowance U S 14 A R W Rule 8 D Of The I T Rules 3 Ld Dr Vehemently Supported The O Rders Of The Authorities Below In Making Disallowance U S 14 A R W Rule 8 D He Submits That The Assessing Officer Has Rightly Worked Out The Disallowance As Per The Provisions Of The Ac T 3 Ita No 1576 Mum 2016 A Y 2010 11 M S Morgan Stanley India Company 4 We Have Heard The Rival Submissions Perused The Orders Of The Authorities Below We Are Of The Considered View And Find Force In All The Submissions Of The Assessee That The Disallowance U S 14 A R W Rule 8 D Should Not Be More Than The Dividend Inco Me Earned By The Assessee It Is An Admitted Fact That During The Assessment Year The Assessee Received Dividend Income Of 5 20 000 Only It Is Also An Admitted Fact That T He Assessee In Its Computation Of Income Suo Motu Disallowed 6 15 628 As Expenses Attributable For Earning Such Dividend Income Therefore As Cou L D Be Observed The Assessee Itself Disallowed Expenses More Than The Dividend Income Earned By The Assessee And In Such Circumstance S We Are Of The Considered View That There Should Not Be Any Further Disallowance U S 14 A R W Rule 8 D Of The I T Rules 5 The Coordinate Bench In The Case Of M S Pest Control India Pvt Ltd V Dcit In Ita No 5048 Mum 2016 By Order Dated 31 10 2017 Held That Disallowance U S 14 A R W Rul E 8 D Cannot Exceed The Exempt Income Observing As Under 7 We Have Heard The Rival Submissions Perused The Orders Of The Authorities Below And The Case Laws Relied Upon The Assessing Officer Computed The Disallowance U S 14 A R W Rule 8 D At 38 43 918 And The Ld Cit A Recomputed The Disallowance At 5 10 601 Which Comprises Of 3 42 870 Under Rule 8 D 2 Ii And 1 67 731 Under Rule 8 D 2 Iii This Calculation Of The Ld Cit A Appears To Be Proper And Justified 8 Further It Has Been Held In Various C Ases That The Disallowance U S 14 A R W Rule 8 D Cannot Exceed The Exempt 4 Ita No 1576 Mum 2016 A Y 2010 11 M S Morgan Stanley India Company Income The Honble Punjab And Haryana High Court In The Case Of Principal Commissioner Of Income Tax I V M S Empire Package Pvt Ltd In Ita No 415 Of 2015 Dated 12 01 2016 Dismissed The Appeal Of The Revenue Holding That There Is No Substantial Question Of Law Arise In The Appeal On The Following Q Uestion Raised By The Revenue Whether In The Facts And Circumstances Of The Case The Honble Itat Is Justified In Law To Hold That The Disallowance Made Under Section 14 A Read With Rule 8 D Cannot Exceed The Exempt Income In The Absence Of Any Such Restriction Being There In The Relev Ant Section Or Rule The Honble High Court Affirmed The Order Of The Itat In Holding That The Disallowance U S 14 A R W Rule 8 D As Worked Out By The Assessing Officer Is Not In Accordance With Law For The Reason That Assessing Officer Has Disallowed Entire Tax Exempt Income And This Is Not Permissible In View Of The Judgment Of The Honble Delhi High Court 9 The Honble Delhi H Igh Court In The Case Of Joint Investment Private Limited In Ita No 117 15 Dated 25 02 2015 Held That By No Stretch Of Imagination Can Section 14 A Or Rule 8 D Be Interpreted So As To Mean That Entire Tax Exempt Income Is To Be Disallowed 10 Further We Find That Considering The Above Two Decisions The Coordinate Bench In The Case Of Sanghavi Exports International P Ltd V Acit In Ita No 3405 Mum 2015 Dated 10 07 2017 Held That Disallowance Should Not Be More Than The Dividend Income By Observing As Unde R 4 We Have Perused The Assessment Order And Find That The Assessee Earned Exempt Income Of Rs 1 70 000 Only During This Assessment Year And The Assessing Officer By Invoking The Provision Of Section 14 A Made Disallowance At Rs 54 66 813 The H Onble Delhi High Court In The Case Of Joint Investment Private Limited In Ita No 117 15 Dated 25 02 2015 Held That By No Stretch Of Imagination Can Section 14 A Or Rule 8 D Be Interpreted So As To Mean That Entire Tax Exempt Income Is To Be Disallowed Sim Ilarly Punjab And Haryana High Court In The Case Of Pcit V Empire Package Private Limited In Ita No 415 2015 Held That Disallowance Should Not Exceed Exempt Income In The Case On Hand Since The Assessee Received Dividend Income Of Rs 1 70 000 As Rec Orded In The Assessment Order The Disallowance Should Not Be More Than Rs 1 70 000 Thus We Direct The Assessing Officer To Restrict The Disallowance To The 5 Ita No 1576 Mum 2016 A Y 2010 11 M S Morgan Stanley India Company Extent Of Dividend Income I E Rs 1 70 000 And Delete The Balance Amount And Compute The Incom Es Accordingly 6 Therefore Respectfully Following The Said Decision We Hold That T He Disallowance Should Not Be More Than Dividend Income Further In This Case The Assessee I Tself Has Disallowed Expenses Of 6 15 628 Which Is More Than The Dividend Income Of 5 20 000 Earned During This Assessment Year Therefore There Should Not Be Any Further Disallowance U S 14 A R W Rule 8 D Of The I T Rules Thus We D Irect The Assessing Officer To Delete The Disallow Ance Made U S 14 A R W R Ule 8 D 2 Iii Of I T Rules 7 In The Result Appeal Of The Assessee Is Allowed Order Pronounced In The Open Court On The 20 Th December 2017 Sd Sd Rajendra C N Prasad Accountant Member Judicial Member Mumbai Dated 20 12 2017 Vssgb Sps Copy Of The Order Forwarded To 1 The Appellant 2 The Respondent 3 The Cit A Mumbai 4 Cit 5 Dr Itat Mumbai 6 Guard File True Copy By Order Asstt Registrar Itat Mum