SAFE ENTERPRISES, MUMBAI V. ASST CIT 19(3), MUMBAI

CO 21/MUM/2017

• Counselvise Citation: [2017] 123 COUNSELVISE.COM (IT) 3263 (ITAT-MUMBAI)
• Duration Of Justice: 8 month(s) 5 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 04-10-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 30-01-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V JUSTIN LD
• Assessee Lawyers: M M GOLVALE; HORMUZOL JAMSHEDJI LD ARS
• Keywords: Business income; Earning of tax free income
• Section: 143(3); 14A

Judgement Text

ITA NO4492/M/2015 & CO 21/M/2017 SAFE ENTERPRISES ASSESSMENT YEAR 2011-12 IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI , , BEFORE SHRI MAHAVIR SINGH, JM AND SHRI MANOJ KUMAR AGGARWAL, AM ./I.T.A. NO. 4492/MUM/2015 ( / ASSESSMENT YEAR: 2011-12) ASSISTANT COMMISSIONER OF INCOME TAX 19(3) MATRU MANDIR T ARDEO ROAD , MUMBAI 400 007 / VS. SAFE ENTERPRISES 198, MANEK 11, L.D.RUPAREL MARG MUMBAI - 400 006 ( /APPELLANT ) : ( / RESPONDENT ) & CROSS OBJECTION NO.21/MUM/2017 ( / ASSESSMENT YEAR: 2011-12) SAFE ENTERPRISES 198, MANEK 11,L.D.RUPAREL MARG MUMBAI-400 006 / VS. ASSISTANT COMMISSIONER OF INCOME TAX 19(3) MATRU MANDIR,TARDEO ROAD MUMBAI 400 007 ! ./ ./PAN/GIR NO. ABHFS-4029-H ( /APPELLANT ) : ( / RESPONDENT ) A SSESSEE BY : M.M.GOLVALE & HORMUZOL JAMSHEDJI, LD.ARS RE VENUE BY : V. JUSTIN, LD.DR / DATE OF HEARING : 29/08/2017 / DATE OF PRONOUNCEMENT : 04 /10/2017 ITA NO4492/M/2015 & CO 21/M/2017 SAFE ENTERPRISES ASSESSMENT YEAR 2011-12 2 / O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. THE CAPTIONED APPEAL BY REVENUE FOR ASSESSMENT Y EAR [AY] 2011- 12 ASSAILS THE ORDER OF THE LD. COMMISSIONER OF INC OME-TAX (APPEALS)- 30 [CIT(A)], MUMBAI DATED 06/05/2015 QUA RELIEF PROVIDED TO THE ASSESSEE AGAINST DISALLOWANCE U/S 14A . THE LD. DEPARTMENTAL REPRESENTATIVE [DR] HAS WITHDRAWN GROUND NO. 4 DURI NG HEARING BEFORE US BY FILING REVISED FORM 36 SINCE THE SAME WAS ERR ONEOUSLY BEEN RAISED BY THE REVENUE AND NO SUCH ISSUE WAS INVOLVE D IN THE APPEAL AND THEREFORE, THE SAME IS DISMISSED IN LIMINE. THE ASSESSEE HAS FILED CROSS-OBJECTIONS AGAINST THE SAME. 2.1 FACTS LEADING TO THE DISPUTE ARE THAT THE ASSES SEE BEING RESIDENT FIRM ENGAGED IN THE DEALING & INVESTMENT IN SHARES, SECURITIES & COMMODITIES WAS ASSESSED FOR IMPUGNED AY U/S 143(3) ON 28/02/20 14 AT RS.4,90,15,650/- AFTER CERTAIN ADDITIONS / DISAL LOWANCES AS AGAINST RETURNED INCOME OF RS.3,99,55,527/- FILED BY THE AS SESSEE ON 19/08/2011. 2.2 DURING ASSESSMENT PROCEEDINGS, IT WAS NOTED THA T THE ASSESSEE EARNED EXEMPT DIVIDEND INCOME OF RS.58,63,139/- INC LUDING DIVIDEND OF RS.54,86,125/- EARNED ON SHARES HELD AS STOCK-IN-TRADE AND HENCE THE SAME, IN THE OPINION OF LD. AO, CALLED FOR DISALLOW ANCE U/S 14A. THE ASSESSEE CONTENDED THAT NO EXPENSES WERE INCURRED T O EARN THE SAID INCOME AND THE MAJORITY OF DIVIDEND WAS RECEIVED FR OM STOCK-IN-TRADE WHERE THE MAIN MOTIVE WAS TO EARN BUSINESS INCOME AND THEREFORE, ITA NO4492/M/2015 & CO 21/M/2017 SAFE ENTERPRISES ASSESSMENT YEAR 2011-12 3 DISALLOWANCE WAS NOT JUSTIFIED. HOWEVER, LD. AO APP LYING THE RATIO OF MUMBAI TRIBUNAL IN D.H.SECURITIES PVT. LTD. VS. DCIT [ITA 5724/M/2011 DATED 27/11/2013] COMPUTED DISALLOWANCE AS PER RULE 8D AGGREGATING TO RS.91,70,894/- WHICH COMPRISED OF DISALLOWANCE F OR DIRECT EXPENSES FOR RS.41,10,331/- U/R 8D(2)(I) & EXPENSE DISALLOWA NCE @0.5% FOR RS.50,60,563/- U/R 8D(2)(III). AFTER ADJUSTING SUO-MOTO DISALLOWANCE OF RS.1,10,770/- MADE BY THE ASSESSEE, THE DIFFERENTIA L AMOUNT OF RS.90,60,124/- WAS ADDED TO THE INCOME OF THE ASSES SEE. 3. AGGRIEVED, THE ASSESSEE CONTESTED THE SAME WITH PARTIAL SUCCESS BEFORE LD. CIT(A) VIDE IMPUGNED ORDER DATED 06/05/2 015 WHERE THE ASSESSEE, WITH DETAILED CALCULATIONS, DREW ATTENTIO N TO THE FACT THAT LD. AO DISALLOWED EXPENDITURE WHICH WERE NOT AT ALL CON NECTED WITH THE EARNING OF EXEMPT INCOME AND THEREFORE, THE DISALLO WANCE WAS ERRONEOUS AND NOT JUSTIFIED. THE ATTENTION WAS DRAW N TO THE FACT THAT THE ASSESSEE SUFFERED DISALLOWANCE OF RS.91.70 LACS OUT OF TOTAL EXPENDITURE OF RS.145.30 LACS CLAIMED BY HIM WHEREA S EXEMPT INCOME CONSTITUTED ONLY 0.0005% OF THE TOTAL ACTIVITY CARR IED OUT BY THE ASSESSEE DURING THE YEAR. THE LD. AR ALSO CONTENDED THAT FIG URES OF INVESTMENT WERE WRONGLY TAKEN BY LD. AO AND THE CASE LAW RELIE D UPON BY LD. AO WAS DISTINGUISHABLE ON THE FACTS OF THE CASE. IN NU TSHELL, THE LD. AR STRESSED THE POINT THAT MAJORITY OF EXPENSES WERE I NCURRED TOWARDS SALE & PURCHASE OF SHARES WHICH CONSTITUTED BUSINESS INCOME FOR THE ASSESSEE AND EXEMPT INCOME CONSTITUTED INSIGNIFICAN T PORTION OF TOTAL ACTIVITIES CARRIED OUT BY THE ASSESSEE AND THEREFOR E, SUO-MOTO DISALLOWANCE MADE BY ASSESSEE WAS SUFFICIENT TO TAK E CARE OF THE SAID ITA NO4492/M/2015 & CO 21/M/2017 SAFE ENTERPRISES ASSESSMENT YEAR 2011-12 4 DISALLOWANCE. THE LD. CIT(A) AFTER CONSIDERING THE SAME RESTRICTED THE IMPUGNED DISALLOWANCE TO RS.3.12 LACS WHICH COMPRIS ED OF DISALLOWANCE U/R 8D(2(I) FOR RS.1.36 LACS & U/R 8D( 2)(III) FOR RS.1.75 LACS. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US WHEREAS THE ASSESSEE HAS FILED CROSS OBJECTIONS AGAINST THE SAM E WHICH CONTEST ADDITIONS SUSTAINED BY LD. CIT(A). 4. THE LD. DR CONTENDED THAT APPLICATION OF RULE 8D WAS MANDATORY NOTWITHSTANDING THE FACT THAT WHETHER THE SHARES WE RE HELD AS STOCK-IN- TRADE OR AS AN INVESTMENT. OUR ATTENTION IS FURTHER DRAWN TO THE FACT THAT THE ASSESSEE MADE SUO-MOTO DISALLOWANCE IN THE RETURN OF INCOME AND THEREFORE, RULE 8D, BEYOND DOUBT, WAS APPLICABLE TO THE ASSESSEE AND THE DISALLOWANCE HAS TO BE COMPUTED IN TERMS OF RUL E 8D AND THE SAME HAS TO BE APPLIED IN TOTO. 5. PER CONTRA, LD. REPRESENTATIVE FOR ASSESSEE [AR] REITERATING TH E CONTENTION AS RAISED BEFORE FIRST APPELLATE AUTHORI TY PLACED RELIANCE ON THE DECISION OF THIS TRIBUNAL RENDERED IN DCIT VS. INDIA ADVANTAGE SECURITIES LTD. [ITA NO. 6711/MUM/2011 ORDER DATED 14/09/2012] FOR THE CONTENTION THAT NO DISALLOWANCE WAS WARRANTED IN CA SE SHARES WERE HELD AS STOCK-IN-TRADE . 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED RELEVANT MATERIAL ON RECORD. UNDISPUTED FACTS AS EMANATING FROM PERUS AL OF FINANCIAL STATEMENTS OF IMPUGNED AY ARE THAT THE ASSESSEE HAS EARNED INCOME FROM SHARE TRADING ACTIVITIES WHICH HAS BEEN OFFERED / ASSESSED UNDER THE HEAD BUSINESS INCOME. ALL THE SHARES ARE HELD AS STOCK-IN-TRADE AS PER DETAILS GIVEN IN SCHEDULE-5 AND AS EVIDENT FROM BALANCE SHEET ITA NO4492/M/2015 & CO 21/M/2017 SAFE ENTERPRISES ASSESSMENT YEAR 2011-12 5 PLACED ON RECORD. THE ASSESSEE HAS OPENING INVESTME NT IN CERTAIN MUTUAL FUND FOR RS.443.08 LACS WHEREAS CLOSING INVESTMENT STOOD AT NIL. THE ASSESSEE HAS CLAIMED TOTAL EXPENSES OF RS.145.3 0 LACS IN THE PROFIT & LOSS ACCOUNT AGAINST TOTAL INCOME OF RS.601.11 LA CS. THE EXEMPT INCOME REFLECTED BY ASSESSEE ARE DIVIDEND FROM SHAR ES HELD AS STOCK-IN- TRADE RS.54.86 LACS, DIVIDEND FROM CURRENT INVESTME NTS RS.3.77 LACS AND EXEMPT BOND INTEREST RS.1.39 LACS. 7. SO FAR AS THE QUESTION WHETHER SECTION 14A DISA LLOWANCE IS CALLED FOR IN CASE THE SHARES ARE HELD AS STOCK-IN-TRADE I S CONCERNED, WE FIND THAT THE ISSUE STOOD SQUARELY IN ASSESSEES FAVOR B Y THE RATIO OF FOLLOWING JUDICIAL PRONOUNCEMENTS:- (I) DCIT VS. INDIA ADVANTAGE SECURITIES LTD. [ITAT MUMBAI ITA NO. 6711/MUM/2011 ORDER DATED 14/0 9/2012] [AS CONFIRMED BY HONBLE BOMBAY HIGH COURT BY WAY O F NON-ADMISSION OF REVENUES APPEAL 2015 79 TAXMANN.COM 370] (II) CCI LTD. VS. JCIT [HONBLE KARNATAKA HIGH COURT 2012 20 TAXMANN.COM 1 96] (III) PCIT VS. STATE BANK OF PATIALA [HONBLE PUNJAB & HARYANA HIGH COURT 2017 78 TAXMAN N.COM 3] (IV) CIT VS. G.K.K. CAPITAL MARKETS (P.) LTD. [HONBLE CALCUTTA HIGH COURT 2017 78 TAXMANN.COM 34 1] RESPECTFULLY FOLLOWING THE ABOVE, WE CONCLUDE THAT SHARES HELD AS STOCK- IN-TRADE DO NO ATTRACT DISALLOWANCE U/S 14A. 8. NOW COMING TO QUANTUM OF DISALLOWANCE U/S 14A AG AINST INVESTMENTS MADE BY THE ASSESSEE, WE ARE OF THE CON SIDERED OPINION THAT NO DISALLOWANCE IS WARRANTED FOR U/R 8D(2)(I) SINCE MAJORITY OF THE ITA NO4492/M/2015 & CO 21/M/2017 SAFE ENTERPRISES ASSESSMENT YEAR 2011-12 6 EXPENSES ARE DIRECTED ONLY TOWARDS SHARE TRADING ACTIVITY CARRIED OUT BY THE ASSESSEE. HOWEVER, DISALLOWANCE U/R 8D(2)(III) IS CALLED FOR SINCE THE ASSESSEE HAS REFLECTED OPENING INVESTMENT IN THE BALANCE SHEET. ACCORDINGLY, THE SAME IS TO BE COMPUTED @ 0.5% OF AVERAGE INVESTMENT WHICH COMES TO RS.1,10,770/- AND WHICH IS THE SAME AS SUO-MOTO MADE BY THE ASSESSEE IN THE RETURN OF INCOME. HENCE, DIS ALLOWANCE U/R 8D(2)(III) TO THE EXTENT OF RS.1,10,770/- IS CONFIR MED. THE LD. AO IS DIRECTED TO MODIFY THE ASSESSED INCOME INCLUDING IN COME U/S 115JB, IF REQUIRED, IN TERMS OF OUR ABOVE ORDER. 9. RESULTANTLY, REVENUES APPEAL STANDS DISMISSED W HEREAS CROSS OBJECTIONS FILED BY ASSESSEE STANDS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 04 TH OCTOBER, 2017. SD/- SD/- (MAHAVIR SINGH) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED :04.10.2017 SR.PS:- THIRUMALESH / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. * ( ) / THE CIT(A) 4. * / CIT CONCERNED 5. $- , - , / DR, ITAT, MUMBAI 6. ./ / GUARD FILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI