DAIWA CAPITAL MARKETS INDIA PVT. LTD., MUMBAI V. DCIT-14(1)(2), MUMBAI

CO 51/MUM/2018

• Counselvise Citation: [2018] 123 COUNSELVISE.COM (IT) 3808 (ITAT-MUMBAI)
• Duration Of Justice: 2 month(s) 16 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 15-05-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2011-2012
• Appeal Filed On: 28-02-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: POOJA SWAROOP
• Keywords: Capital asset; Business income; Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH H, MUMBAI BEFORE SHRI C.N PRASAD, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO.3988/M/2016 ASSESSMENT YEAR: 2010-11 ACIT 24(2), R.NO.402, PIRAMAL CHAMBERS, 6 TH FLOOR, PAREL, MUMBAI - 12 VS. MRS. MITA D. SHAH, 31-B, 1 ST FLOOR, LAXMI ESTATE, AZAD ROAD, ANDHERI (E), MUMBAI- 400 069 PAN: AFBPS1012A (APPELLANT) (RE SPONDENT) CO NO.51/M/2018 ASSESSMENT YEAR: 2010-11 MRS. MITA D. SHAH, 31-B, 1 ST FLOOR, LAXMI ESTATE, AZAD ROAD, ANDHERI (E), MUMBAI- 400 069 PAN: AFBPS1012A VS. ACIT 24(2), R.NO.402, PIRAMAL CHAMBERS, 6 TH FLOOR, PAREL, MUMBAI - 400012 (APPELLANT) (RE SPONDENT) PRESENT FOR: ASSESSEE BY : SHRI RAJAN R. VORA, A.R. & SHRI NIKHIL TIWARI, A.R. REVENUE BY : MS. POOJA SWAROOP, D.R. DATE OF HEARING : 08.03.2018 DATE OF PRONOUNCEMENT : 15.05.2018 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER: THE ABOVE TITLED APPEAL BY THE REVENUE AND THE CRO SS OBJECTION BY THE ASSESSEE HAVE BEEN PREFERRED AGAIN ST THE ORDER DATED 31.03.2016 OF THE COMMISSIONER OF INCOM E TAX ITA NO.3988/M/2016 & CO NO.51/M/2018 MRS. MITA D. SHAH 2 (APPEALS) [HEREINAFTER REFERRED TO AS THE CIT(A)] R ELEVANT TO ASSESSMENT YEAR 2010-11. 2. THE ONLY ISSUE RAISED IN VARIOUS GROUNDS OF APPE AL OF THE REVENUE IS AGAINST THE DIRECTION OF LD. CIT(A) TO AO TO TREAT THE LONG TERM AS WELL AS SHORT TERM CAPITAL GAIN AM OUNTING TO RS.18,95,000/- AS SUCH AND NOT AS BUSINESS INCOME. 3. THE FACTS IN BRIEF ARE THAT DURING THE YEAR THE ASSESSEE HAS EARNED LONG TERM CAPITAL GAIN OF RS.89,95,728/- COMPRISING RS.41,23,584/- AS SHORT TERM CAPITAL GAIN AND RS.48,72,144/- ON ACCOUNT OF LONG TERM CAPITAL GAIN ON THE SALE AND PURCHASE OF SHARES UNDERTAKEN AS AN INVES TOR AND NOT AS A TRADER WHEREAS AS PER THE AO, LOOKING TO T HE FREQUENCY OF TRANSACTIONS, PERIOD OF HOLDING AND OTH ER FACTS AND CIRCUMSTANCES, THE ASSESSEE WAS DOING THE BUSIN ESS AND ACCORDINGLY THE AO TREATED THE SAID AMOUNT OF GAIN AS BUSINESS INCOME WHILE FRAMING THE ASSESSMENT. 4. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) DELET ED THE DISALLOWANCE BY OBSERVING THAT EVEN IN THE PAST, RE VENUE HAS ACCEPTED THE ASSESSEE AS INVESTOR AND THEREFORE CAM E TO THE CONCLUSION THAT ASSESSEE IS AN INVESTOR AND NOT A T RADER. LD. CIT(A) FURTHER RELIED ON THE ORDER OF HIS PREDECESS OR IN THE CASE OF SHRI DIPAK K. SHAH THE HUSBAND OF THE ASSES SEE IN WHICH LD. CIT(A)-39 FOR A.Y. 2010-11 WHO DECIDED THE ISSUE UNDER IDENTICAL FACTS AND CIRCUMSTANCES IN FAVOUR H OLDING THE ASSESSEE TO BE INVESTOR AND NOT AS TRADER IN SHARES . ITA NO.3988/M/2016 & CO NO.51/M/2018 MRS. MITA D. SHAH 3 5. THE LD. D.R. STRONGLY SUBMITTED BEFORE THE BENCH T HAT IN THE INSTANT CASE THE ASSESSEE HAS SHOWN SUBSTANTIAL INCOME BY WAY OF SURPLUS ON SALE AND PURCHASE OF SHARES AS LONG TERM AS WELL AS SHORT TERM CAPITAL WHEREAS IF THE TOTALI TY OF THE TRANSACTIONS AND INTENTION OF THE ASSESSEE ARE LOO KED INTO, IT IS QUITE APPARENT THAT THE ASSESSEE HAS INDULGED IN THE BUSINESS OF SHARES TRADING AND THUS AO RIGHTLY TREA TED THE GAIN ON SALE OF SHARES AS INCOME FROM BUSINESS. 6. LD. A.R., ON THE OTHER HAND, SUBMITTED THAT THE A SSESSEE IS A LONG TERM INVESTOR IN THE SHARES AND HAS EVEN UTILISED HIS OWN FUNDS FOR THE PURPOSE OF INVESTMENTS AND NO FUN DS WERE BORROWED FOR FINANCING THE PURCHASE OF SHARES AND S ECURITIES. THE LD. A.R. ALSO REFERRED TO THE CBDT CIRCULAR NO.0 6/2016(F. NO.225/12/2016-ITA-II) DATED 29.2.2016 A COPY OF WHIC H IS FILED AT PAGE NO.129 OF THE PAPER BOOK WHEREIN THE ATTENTION OF THE BENCH WAS DRAWN TO PARA 3(B) WHEREIN THE CBD T ISSUED A CIRCULAR TO AO TO TREAT THE INCOME FROM TRANSFER OF SHARES HELD FOR MORE THAN 12 MONTHS AS LONG TERM CAPITAL G AIN IF THE ASSESSEE CHOOSES SO. THE LD. A.R. REFERRED TO ANOTHE R CIRCULAR NO.4/2007 DATED 15.06.2007 FILED AT PAGE 130 OF THE P APER BOOK TO EMPHASIZE THE POINT THAT ASSESSEE CAN BE A TRADER AS WELL AS AN INVESTOR SIMULTANEOUSLY AND MAY HAVE TWO PORT- FOLIOS IN WHICH THE ASSESSEE CAN HOLD THE SHARES, S ECURITIES AS CAPITAL ASSETS AS WELL AS STOCK IN TRADE IN THE TRA DING SEGMENT. THE LD. A.R. SUBMITTED THAT ASSESSEE HAS MAINTAINED TWO PORTFOLIOS AND REPORTED THE INCOME UNDER BOTH THE H EADS OF INCOME I.E. INCOME FROM BUSINESS AND PROFESSION AND INCOME UNDER THE HEAD CAPITAL GAIN BY REFERRING TO PAGE NO .37 ITA NO.3988/M/2016 & CO NO.51/M/2018 MRS. MITA D. SHAH 4 WHEREIN THE COMPARATIVE DETAILS FROM A.Y. 2004-05 TO A.Y. 2015-16 ARE TABULATED. THE LD. A.R. FURTHER SUBMITTED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSE SSEE BY THE DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL I N THE CASE OF THE HUSBAND OF THE ASSESSEE WHEREIN THE TRIBUNAL, IN ITA NO.3661/M/2015 FOR A.Y. 2010-11 VIDE ORDER DATED 12.0 4.17, HAS DECIDED THE ISSUE UNDER IDENTICAL FACTS IN FAVO UR OF THE ASSESSEE BY DISMISSING THE APPEAL OF THE REVENUE. THE LD. A.R. SUBMITTED THAT FOLLOWING THE DECISION OF THE CO- ORDINATE BENCH OF THE TRIBUNAL THE APPEAL OF THE REVENUE SHO ULD BE DISMISSED. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE P ARTIES AND PERUSED THE MATERIAL ON RECORD INCLUDING THE IM PUGNED ORDER. THE UNDISPUTED FACTS ARE THAT THE ASSESSEE IS MAINTAINING TWO PORTFOLIOS I.E. INVESTMENT AS WELL A S TRADING. IN THE INVESTMENT PORTFOLIO THE SHARES ARE HELD AS INVESTMENTS WHEREAS IN THE TRADING PORTFOLIO THE SHARES AND SEC URITIES ARE HELD AS STOCK IN TRADE. THE ASSESSEE HAS DULY CLASSI FIED THE SAME IN THE SHARES INTO INVESTMENT PORTFOLIO AND TR ADING SEGMENT. WE ALSO NOTE THAT THE ASSESSEE HAS USED HE R OWN FUNDS AND NO FUNDS WERE USED FOR THE PURPOSE OF INV ESTMENTS. THEREFORE, LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE IN TOTALITY, WE DO NOT FIND ANY DEFECT OR INFIRMITY IN THE ORDER OF LD. CIT(A). MOREOVER, THE CASE OF THE ASSESSEE IS SQUARELY COVERED BY THE DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN ITA NO.3661/M/2015 FOR A.Y. 2010-11 AND O THERS. THE RELEVANT PARAS OF THE SAID ORDER ARE REPRODUCED AS UNDER: 18. TO SUM UP, WE FIND THE VIEW OF THE AO IN TREAT ING THE LTCG AND STCG AS BUSINESS INCOME OF THE ASSESSEE, IS NOT PROPER. CON SIDERING ITA NO.3988/M/2016 & CO NO.51/M/2018 MRS. MITA D. SHAH 5 STATUTORY PROVISIONS REGARDING THE DEFINITION OF LT CG, WE ARE CONVINCED THAT THE VIEWS OF CIT (A) ARE SUSTAINABLE. SIMILARL Y, REGARDING THE CLAIM OF STCG ALSO, WE FIND THAT (I) THE CONSISTENC Y PRINCIPLES; (II) USE OF OWN FUNDS OF RS. 54 CRS; (III) EARNING OF GR OSS DIVIDEND INCOME OF RS. 1.20 CRS OR RS. 30 IAKHS ON ACCOUNT OF SHORT TE RM CAPITAL ASSETS; IV) DETAILS GIVEN IN THE CONTRACT NOTES REGARDING INTENTION OF CERTAIN SHARES IN PHYSICAL FORM ETC., SUGGEST THAT THE STCG IN QUESTI ON CANNOT BE HELD AS BUSINESS INCOME. 19. THEREFORE, IN OUR OPINION, THE DECISION OF THE CIT (A) ON THIS ISSUE IS FAIR AND REASONABLE AND DOES NOT CALL FOR ANY INTER FERENCE. ACCORDINGLY, GROUNDS RAISED BY REVENUE WITH REGARD TO BOTH THE S TCG AND LTCG ARE DISMISSED. 20. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. 8. AFTER PERUSING THE ABOVE ORDER OF THE CO-ORDINATE BENCH OF THE TRIBUNAL VIS--VIS FACTS OF THE ASSESSEES C ASE, WE FIND THAT THE FACTS IN THE SAID CASE ARE SAME AS INVOLVE D IN THE PRESENT CASE BEFORE US. THEREFORE, FOLLOWING THE AB OVE ORDER OF THE TRIBUNAL WE AFFIRM THE ORDER OF LD. CIT(A) BY DISMISSING THE APPEAL OF THE REVENUE. 9. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSED. CO NO.51/M/2018 10. THE VARIOUS ISSUES RAISED BY THE ASSESSEE ARE R EPRODUCED BELOW: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE T HE LEARNED AO/CIT(A) - 1. ERRED IN MAKING A DISALLOWANCE OF AS. 6,28,793/- UNDER SECTION 14A R.W.R 8D(III); 2. FAILED TO APPRECIATE THE FACT THAT THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE TO EARN THE EXEMPT INCOME AND AO HAS MA DE AN ADJUSTMENT WITHOUT RECORDING ANY SATISFACTION WITH REGARDS TO THE CORR ECTNESS OF CLAIM OF ASSESSEE; 3. WITHOUT PREJUDICE TO THE ABOVE, DISALLOWANCE IF ANY, UNDER SECTION 14A OF THE ACT SHALL BE RESTRICTED TO 2% OF THE EXEMPT INC OME EARNED; 4. WITHOUT PREJUDICE TO THE ABOVE, DISALLOWANCE UNDER SECTION 14A OF THE ACT READ WITH RULE 8D(III) OF THE RULES, IF ANY, SH OULD BE RESTRICTED TO 0.5% OF AVERAGE VALUE OF INVESTMENTS, BY ONLY CONSIDERING T HOSE INVESTMENTS FROM WHICH DIVIDEND IS RECEIVED DURING THE YEAR; ITA NO.3988/M/2016 & CO NO.51/M/2018 MRS. MITA D. SHAH 6 5. WITHOUT PREJUDICE TO THE ABOVE, ERRED IN NOT EXCLUDING THE SHORT TERM INVESTMENTS, GAINS FROM WHICH ARE TAXABLE; WHI LE COMPUTING DISALLOWANCE UNDER SECTION 14A R.W.R 8D; 6. ERRED IN UPHOLDING INTEREST UNDER SECTION 234C O F THE ACT AMOUNTING TO RS. 10,113 TREATING IT AS CONSEQUENTIAL IN NATURE; 7. IN ADDITION TO ABOVE, THE AO ERRED IN NOT ACCEPT ING THE CIT(A)'S ORDER AND HAS FILED AN APPEAL BEFORE INCOME TAX APPELLATE TRI BUNAL; 11. THE ISSUE RAISED IN CROSS OBJECTION NO.1 IS AGA INST THE ADDITION OF RS.6,29,793/- UNDER SECTION 14A READ WITH RULE 8D(III) WHICH WAS CONFIRMED BY THE LD. CIT(A). 12. THE FACTS IN BRIEF ARE THAT THE AO, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, NOTED THAT ASSESSEE HAS NOT ATTRIBUTED AND APPORTIONED ANY EXPENSES TOWARDS TH E EARNING OF EXEMPT INCOME WHILE OBSERVING THAT NO DIRECT E XPENSES AND INTEREST EXPENSES WERE CLAIMED BY THE ASSESSEE IN THE P & L ACCOUNT. THE LD. CIT(A) ALSO UPHELD THE DECISION O F DISALLOWANCE OF RS.6,29,793/- AS MADE BY THE AO BY IN VOKING SECTION 14A READ WITH RULE 8D(III) BY OBSERVING THA T THE RULES WERE RIGHTLY INVOKED BY THE AO AS HOW CAN THERE BE ANY INCOME WITHOUT EXPENSES. THE LD. A.R. VEHEMENTLY SUBM ITTED BEFORE US THAT DURING THE YEAR THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE BY REFERRING TO THE P & L ACCOUNT W HICH IS FILED AT PAGE NO.42 OF THE PAPER BOOK. THE EXPENSES CLAIM ED IN THE P & L ACCOUNT WERE ONLY TO THE TUNE OF RS.2,22,354/- COMPRISING MISCELLANEOUS EXPENSES RS.60,000/-, CONV EYANCE AND TRAVELLING EXPENSES RS.40,000/-, BANK CHARGES RS.1,6 45/- AND MEMBERSHIP AND SUBSCRIPTION RS.1,20,700/-. THE L D. A.R. SUBMITTED THAT THERE IS NO EXPENSES INCURRED IN EAR NING THE EXEMPT INCOME AND THEREFORE DISALLOWANCE OF RS.6,28,79 3/- ITA NO.3988/M/2016 & CO NO.51/M/2018 MRS. MITA D. SHAH 7 UNDER SECTION 14A R.W.R. 8D WHEN THE ASSESSEE HAS IN CURRED AND CHARGED THE EXPENSES IN THE P & L ACCOUNT ONLY TO THE TUNE OF RS.2,24,354/-. THE LD. A.R. SUBMITTED THAT IN ORDER TO DISALLOW THE EXPENSES RELATING TO EARNING OF EXE MPT INCOME THE AO FIRST HAS TO RECORD HIS SATISFACTION AND THE N WORK OUT THE DISALLOWANCE BUT NOTHING OF THE SORT WAS DONE B Y THE AO BEFORE INVOKING THE PROVISIONS OF SECTION 14A R.W.R. 8D. THEREFORE, THE DISALLOWANCE SHOULD BE DELETED. WITH OUT PREJUDICE, THE LD. A.R. ALTERNATIVELY SUBMITTED THAT IN THE CASE OF ASSESSEES HUSBAND IN ITA NO.3661/M/2015 FOR A.Y. 2010- 11 (SUPRA) THE CO-ORDINATE BENCH OF THE TRIBUNAL HA S MADE THE DISALLOWANCE AT THE RATE OF 2% AND THE SAME SHOULD BE APPLIED IN THE PRESENT CASE AS WELL. 13. THE LD. D.R., ON THE OTHER HAND, OBJECTED TO THE ARGUMENTS OF THE LD. A.R. AND RELIED HEAVILY ON THE ORDER OF AUTHORITIES BELOW ON THIS ISSUE. 14. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT IN THIS CASE A DISALLOWANCE OF RS.6,29,793/- WAS MADE BY THE AO AND W AS ALSO SUSTAINED BY THE LD. CIT(A) ALSO JUSTIFYING TH E INVOCATION OF PROVISION OF SECTION 14A READ WITH RULE 8D(III) ON THE GROUND THAT IT WAS NOT POSSIBLE TO MAKE ANY INCOME WITHOUT EXPENSES THEREBY IGNORING THE FACTS THAT THE EXPENSES CLAIME D BY THE ASSESSEE IN THE P & L ACCOUNT ARE ONLY TO THE EXTEN T OF RS.2,24,354/-. THEREFORE, THE ARGUMENTS OF THE LD. A.R. THAT DISALLOWANCE CANNOT EXCEED ACTUAL EXPENSES CLAIMED BY THE ASSESSEE APPEAR TO BE CORRECT. MOREOVER FROM THE PE RUSAL OF ITA NO.3988/M/2016 & CO NO.51/M/2018 MRS. MITA D. SHAH 8 THE ORDER OF CO-ORDINATE BENCH OF THE TRIBUNAL, WE FIND THAT IN THE IDENTICAL FACTS, THE CO-ORDINATE BENCH OF THE T RIBUNAL HAS DIRECTED THE DISALLOWANCE @ 2% OF THE EXEMPT INCOME. BUT KEEPING IN VIEW THE NATURE OF BUSINESS AND FACTS OF THE CASE, WE ARE OF THE VIEW THAT DISALLOWANCE OF EXPENSES AT TRIBUTABLE TO EARNING OF EXEMPT INCOME HAS TO BE BASED UPON TH E QUANTUM OF EXPENSES INCURRED BY THE ASSESSEE. WE, THEREFORE, DEEM IT FIT AND REASONABLE TO DIRECT A D ISALLOWANCE @ 20% OF TOTAL EXPENSES I.E. RS.2,24,354/- AS EXPENSES ATTRIBUTABLE TO EARNING OF EXEMPT INCOME UNDER RULE 81D(2)(III) OF THE RULES. 15. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSE D AND THE CROSS OBJECTION OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 15.05.2018. SD/- SD/- (C.N PRASAD) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 15.05.2018. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY /ASSTT. REGISTRAR, ITAT, MUMBAI.