Fali S. Nariman, Mumbai vs Assessee

ी जो ग दर संह, या यक सद य एवं ी संजय अरोड़ा, लेखा सद य के सम ।

BEFORE SHRI JOGINDER SINGH, JM AND SHRI SANJAY ARORA, AM

आयकर अपील सं./I.T.A. No. 2368/Mum/2013 ( नधा रण वष / Assessment Year: 2009-10)

Fali S. Nariman Addl. CIT, Range-11(2), 126, Hampton Court, बनाम/ Room No. 435, 4th Floor, Wodehouse Road, Colaba, Vs. Aayakar Bhavan, Mumbai-400 005 M. K. Road, Mumbai-400 020 थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. AAAPN 4141 R (अपीलाथ# /Appellant) : ($%यथ# / Respondent)

अपीलाथ# क& ओर से / Appellant by : Shri Apurva Shah

$%यथ# क& ओर से/Respondent by : Shri Pawan Kumar Beerla

ु वाई क& तार-ख / सन : 26.11.2014 Date of Hearing घोषणा क& तार-ख / : 30.01.2015 Date of Pronouncement

आदे श / O R D E R Per Sanjay Arora, A. M.:

This is an Appeal by the Assessee directed against the Order by the Commissioner of Income Tax (Appeals)-3, Mumbai ('CIT(A)' for short) dated 18.02.2013, partly allowing the assessee's appeal contesting his assessment u/s.143(3) of the Income Tax Act, 1961 ('the Act' hereinafter) for the assessment year (A.Y.) 2009-10 vide order dated 20.12.2011.

2. The brief facts of the case are that the assessee, an advocate by profession, was observed during the course of assessment proceedings to have substantial investments in securities/investments yielding, or liable to yield, income not forming part of the total 2 ITA No.2368/Mum/2013 (A.Y. 2009-10) Fali S. Nariman vs. Addl. CIT

income, i.e., at an average of Rs.21.71 crores for the relevant year; the assessee having for the current year earned tax-free income by way of dividend (Rs.3.23 lacs) and interest (at Rs.39.96 lacs). Even though the assessee sought to justify its suo motu disallowance u/s.14A, made at Rs.1 lac, the Assessing Officer (A.O.), unsatisfied therewith, proceeded with the disallowance by applying rule 8D, effecting a disallowance of Rs.9,85,283/-. The same being confirmed in appeal by the ld. CIT(A), relying on the decisions in the case of Godrej & Boyce Mfg. Co. Ltd. v. Dy. CIT [2010] 328 ITR 81 (Bom) and Asst. CIT v. Citicorp Finance (India) Ltd. [2007] 108 ITD 457 (Mum), forms the subject matter of appeal before us, or the principal ground/s thereof.

3.1 Before us, the assessee's sole charge was of the Revenue authorities having invoked and applied rule 8D mechanically, i.e., without regard to the quantum and the nature of administrative expenditure qua which disallowance has been made in terms of r.8D(2)(iii). The A.O. had in fact not recorded his dissatisfaction with the assessee's claim for the disallowance, as made suo motu, so that he could rather have not proceeded to make the same in view of section 14A(2). On being enquired as to the basis of the assessee's disallowance at Rs.1 lac, the ld. Authorized Representative (AR), the assessee's counsel, would take us through the working, forming part of the computation of income (PB pgs.11-13, also see pages 1-4). Excluding the expenses which were of wholly professional in nature, as well as disallowances, i.e., out of the total expenditure debited in accounts, left a balance of Rs.9,15,770/-. The assessee has tax-exempt income of Rs.52.44 lacs for the current year as against professional receipt of Rs.1267.85 lacs. The assessee, he clarified, in the absence of any other basis, has allocated the said expenditure on the basis of the said incomes. The assessee's main asset, i.e., qua his profession, he would further explain, is his 'mind'. Accordingly, the expenditure could not be apportioned on the basis of the quantum of investment in tax-free investments vis- à-vis the total assets.

3.2 The ld. Departmental Representative (DR), on the other hand, would rely on the orders of the authorities below, stating that the assessee's method is arbitrary in-as-much 3 ITA No.2368/Mum/2013 (A.Y. 2009-10) Fali S. Nariman vs. Addl. CIT

as income could not be the basis of the allocation of the expenditure. The Revenue was thus justified in applying rule 8D, which only seeks to, in the absence of the assessee's accounts forming the basis of the suo motu disallowance u/s. 14A, the correctness of which could thus be verified with reference thereto, invoke the statutory estimate prescribed per r. 8D, which is only toward providing a uniform, non-arbitrary method of estimating such expenditure, and which is in fact for both direct and indirect expenditure, even as the disallowance in the instant case is only toward indirect administrative expenditure, covered u/r. 8D(2)(iii).

4. We have heard the parties, and perused the material on record.

We are wholly unimpressed with the assessee's argument supporting his working of the expenditure relatable to income not forming part of total income under the Act on the ground that 'mind' is his principal asset. So be it; every economic activity, particularly in today's extremely competitive environment, entails some degree of cerebral activity. There is, however, no corresponding expenditure, or claim in its respect, while the issue at hand is the apportionment of such expenditure. Income, which may or may not arise on incurring expenditure, and again with no certainty as to its quantum, cannot by itself form the basis of either incurring or allocation of expenditure.

So, however, we consider the Revenue's reading of r. 8D as equally misplaced. The estimate per r. 8D(2) is only qua expenditure relatable to tax exempt income/s. The expenditure claimed stands debited in the assessee's accounts, which could be inquired in to as to their purpose. For all we know, the assessee may be managing his investments in instruments yielding tax exempt incomes, which are at a healthy sum of Rs. 21.71 cr., i.e., on an average for the year, on his own, or could also be assisted by personnel, who stand remunerated. No inquiry in this regard stands made, while the assessee has maintained proper accounts, duly audited and, further, bases his claim of having incurred a lower expenditure than that per the statutory prescription of r. 8D, thereon. The expenditure observed as relatable to the income not forming part of the total income by the Revenue are: salary (Rs. 3.54 lacs); printing & stationery (Rs. 0.11 lacs); and bank 4 ITA No.2368/Mum/2013 (A.Y. 2009-10) Fali S. Nariman vs. Addl. CIT

charges (Rs. 0.10 lacs), without specifying the relationship, so that the same is inferably casual. Even the claim for depreciation (Rs. 7.26 lacs) we observe as principally on law books.

The ingredients of s. 14A(2) r/w r. 8D(1) are clearly not satisfied in the instant case. We, accordingly find no infirmity in the assessee's claim of disallowance u/s. 14A(1) at Rs. 1,00,000/-. We decide accordingly.

5. The assessee's Ground # 2 agitates the disallowance of expenditure by way of, as claimed, chandla, given to the family of an employee working at the bar association, on the ground of being a donation. No arguments qua this ground were raised before us. The same is accordingly dismissed as not pressed. We hold accordingly.

6. In the result, the assessee's appeal is partly allowed.

प2रणामतः नधा52रती क& अपील आं शक वीकृत क& जाती है ।

Order pronounced in the open court on January 30, 2015

Sd/- Sd/-

(Joginder Singh) (Sanjay Arora) या यक सद य / Judicial Member लेखा सद य / Accountant Member मुंबई Mumbai; 9दनांक Dated : 30.01.2015 व. न.स./Roshani, Sr. PS

आदे श 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. गाड5 फाईल / Guard File आदे शानस ु ार/ BY ORDER,

उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील य अ धकरण, मुंबई / ITAT, Mumbai