AMIDEEP INVESTMENTS CONSULTANTS, MUMBAI V. DCIT RG 4(1), MUMBAI

ITA 1111/MUM/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2368 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 24-02-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A RAMCHANDRAN
• Assessee Lawyers: HARDIK MISTRY
• Keywords: Business income; Earning of tax free income
• Section: 142(1); 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE HONBLE S/SHRI JOGINDER SINGH (JM), AND RAJESH KUMAR, ( AM ) ./ I.T.A. NO . 1111 /MUM/20 1 5 ( / ASSESSMENT YEAR : 20 1 0 - 11 ) M/S AMIDEEP INVESTMENTS CONSULTANTS , 406, PLATINUM, JAWAHAR ROAD, OPP R AILWAY S TATION GHATKOPAR (E), MUMBAI - 400077 / VS. DY.COMMISSIONER OF INCOME TAX , RANGE (4) (1) , MUMBAI - 400012 ( / APPELLANT ) .. ( / RESPONDENT ) ./ ./PAN/ TAN NO. : AAAFA6971A / APPELLANT BY: SHRI HARDIK MISTRY / RESPONDENT BY SHRI A RAMCHANDRAN / DATE OF HEARING : 2 6 . 7 .201 6 / DATE OF PRONOUNCEMENT : 29 . 7.2016 / O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY THE ASSESSEE AND IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A) - 9, MUMBAI DT. 15.12.2014 PERTAINING TO A.Y. 20 1 0 - 11 . 2. THE ONLY GROUND RAISED BY THE ASSESSEE IN THE GROUNDS OF APPEAL IS AGAINST T HE CONFIRMATION OF DISALLOWANCE OF RS.4,94,019/ - U/S 14A BY THE LD. CIT(A) AS MADE BY THE AO U/S 14A READ WITH RULE 8D OF T HE INCOME TAX RULES 1962 . 3. THE FACTS IN BRIEF ARE THAT THE ASSESSEE HAS FILED E - RETURN OF INCOME ON 27.9.2010 DECLARING TOTAL INCOME OF RS.93,76,548/ - WHICH WAS PROCESSED ITA NO 1111 / M/1 5 2 UNDER SECTION 143(1) OF THE ACT. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND STATUTORY NOTICES UNDER SECTION 143(2) AND 142(1) WERE ISSUED AND SERVED UPON THE ASSESSEE . 4 . THE ASSESSEE WAS A REGISTERED STOCK BROKER AND MEMBER OF THE NATIONAL STOCK EXCHANGE IN CAPITAL MARKET AND FUTURE AND OPTION SEGMENT AND ENGAGED IN THE BUSINESS OF EQUITY SHARE BROKING, TRADING AND DEALING IN SH ARES AND SECURITIES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS , THE AO FOUND THAT THE ASSESSEE HAS EARNED EXEMPT INCOME BY WAY OF DIVID END AMOUNTING TO RS.3,10,877/ - WHICH WAS CLAIMED EXEMPT UNDER SECTION 10(34) OF THE ACT WITHOUT DISALLOWING THE EXP ENSES WHICH WERE ATTRIBUTABLE TO EARNING OF EXEMPT AS PER SECTION U/S 14A R.W.RULE 8D. ACCORDINGLY , THE AO ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE TO EXPLAIN AS TO WHY THE PROVISION OF SECTION 14A R.W. RULE 8D SHOULD NOT BE INVOKED BY CONSIDERING THE S TOCK - IN - STOCK OF SHARES AND SECURITIES. THE AO NOT CONVINCED BY THE EXPLANATION GIVEN BY THE ASSESSEE INVOKED THE PROVISIONS OF SECTION 14A READ WITH RULE 8D OF THE RULES AND WORKED OUT TH E DISALLOWANCE AT RS.4,94,019 / - , CALCULATION WHEREOF IS GIVEN AT PAGE 7 OF THE ASSESSMENT ORDER . AGGRIEVED BY THE DECISION OF THE AO, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD.CIT(A), WHO , IN TURN , DISMISSED THE APPEAL OF THE ASSESSEE AFTER CONSIDERING T HE SUBMISSIONS AS PRODUCED IN PARA 2.2 OF THE APPELLAT E ORDE R AS UNDER BY OBSERVING AND HOLDING AS UNDER : 2.2 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, ASSESSMENT ORDER PASSED BY THE AO AND THE SUBMISSION MADE BY THE APPELLANT. FROM A READING OF RULE 8D, IT IS VERY MUCH CLEAR THAT WHEREVER THERE IS ITA NO 1111 / M/1 5 3 COMPOS ITE USE OF FUNDS AND EXPENDITURE CANNOT BE SEPARATELY CALCULATED BUT STILL THERE HAS TO BE A CERTAIN EXPENDITURE WHICH NEEDS TO BE ALLOCATED FOR THE PURPOSE OF CALCULATION OF EXPENDITURE U / S. 14A. THIS RULE PROVIDES FOR A RELIABLE BASIS FOR COMPUTING THE DISALLOWANCE. THE HON'BLE BOMBAY HIGH COURT IN RECENT JUDGMENT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. (G & B) VS. DCIT VIDE ITA NO. 626 OF 2010 & WP N O. 758 OF 2010, DTD. 12.08.2010 HAS ALSO UPHELD THE APPLICABILITY OF RULE 8D FOR THE PURPOSE OF CALCU LATING DISALLOWANCE U / S. 14A W.E.F. AY . 2008 - 09. IN VIEW OF THIS, THE DISALLOWANCE MADE BY THE AO IS UPHELD. HENCE APPEAL ON THIS GROUND IS TR EATED AS DISMISSED . AGGRIEVED BY THE DECISION OF THE LD.CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 5 . THE LD. AR VEHEMENTLY SUBMITTED BEFORE US THAT THE ASSESSEE WAS A MEMBER OF STOCK EXCHANGE AND CARRYING ON TRADING BUSINESS IN SHARES AND SECURITIES, FUTURES AND OPTION EQUITY SHARE BROKING AND WAS NOT MAKING ANY INVESTMENT S AND THEREFORE THE PROVISIONS OF SEC TION 14A R.W.R 8D WERE NOT APPLICABLE TO THE CASE OF THE ASSESSEE. THE LD.AR SUB MITTED THAT THE ORDER OF LD.CIT(A) WAS WRONG AND BE REVERSED IN VIEW OF THE DECISION OF THE CO - ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF DCIT V/S M/S INDIA ADVANTAGE S ECURITIES LTD IN ITA NO.6711/MUM/2011 (AY - 2008 - 09) DATED 14.9.2012. 6 . THE LD. DR SEEMS TO BE FAIRLY AGREED TO THE SUBMISSIONS MADE BY THE LD.AR. 7 . WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL PLACED BEFORE US INCLUDING THE ORDERS OF AUTHORITIES BELOW AND RELIED UPON BY THE ASSESSEE . THE FACTS ARE NOT IN DISPUTE THAT THE AS S ES S EE WAS A SHARE BROKER AND WAS MEMBER OF STOCK EXCHANGE AND WAS CARRYING ON BUSI NESS OF TRADING IN SHARES AND SECURITIES AND FUTURE AND OPTION S . THE ITA NO 1111 / M/1 5 4 ASSESSEE RECEIVED INCOME BY WAY OF DIVIDEND OF RS.3 , 10 , 877/ - WHICH WAS EXEMPT U/S 10(34) OF THE ACT ON THE SHARES AND SECURITIES WHICH WERE HELD AS STOCK - IN - TRADE IN THE BUSINESS OF THE ASSESSEE. NOW, THE ISSUE BEFORE IS WHETHER THE PROVISIONS OF SECT ION 14A R.W.R 8D COULD BE INVOKED IN THE CASE OF TRADING IN SHARES. IN THE CASE OF DCIT V/S M/S INDIA ADVANTAGE SECURITIES LTD (SUPRA) , THE CO - ORDINATE BENCH OF THE TRIBUNAL HAS HELD THAT NO DISALLOWANCE COULD BE MADE U/S 14A R.W.R 8D IN THE CASE OF ASSES SEE AS THE ASSESSEE IS ENGAGED IN THE TRADING OF SHARES. THE OPERATIVE PART OF THE DECISION IS REPRODUCED BELOW: 6. HOWEVER, THE HONBLE HIGH COURT OF KARNATAKA HAVE RECENTLY CONSIDERED THE DISALLOWANCE OF EXPENSES INCURRED ON BORROWINGS MADE FOR PURCH ASE OF TRADING SHARES U/S.14A OF THE I.T. ACT IN CASE OF CCL LTD. VS. JCIT (SUPRA). THE ASSESSEE IN THAT CASE WAS DISTRIBUTOR OF STATE LOTTERIES AND A DEALER IN SHARES AND SECURITIES. THE ASSESSEE HAD TAKEN LOANS FOR THE PURCHASE OF CERTAIN SHARES AND IT H AD INCURRED EXPENDITURE FOR BROKING THE LOANS WHICH HADBEEN DISALLOWED UNDER RULE 8D BY THE A.O. AND CONFIRMED BY THE LD.CIT(A). THE TRIBUNAL AGREED WITH THE AUTHORITIES BELOW THAT THE EXPENDITURE RELATABLE TO EARNING OF DIVIDEND INCOME THOUGH INCIDENTAL T O THE TRADING IN SHARES WAS ALSO TO BE DISALLOWED U/S.14A OF THE I.T. ACT. THE TRIBUNAL HOWEVER, HAD OBSERVED THAT THE ENTIRE BROKING COMMISSION WAS NOT RELATABLE TO EARNING OF DIVIDEND INCOME AS THE LOAN HAD BEEN UTILISED FOR THE PURCHASE OF SHARES AND TH E PROFIT SHOWN FROM THE SALE OF SHARES HAD BEEN OFFERED AS BUSINESS INCOME. THE TRIBUNAL, THEREFORE, DIRECTED THE A.O. TO BIFURCATE THE EXPENDITURE PROPORTIONATELY. THE ORDER OF THE TRIBUNAL WAS HOWEVER, NOT UPHELD BY THE TRIBUNAL. THE HIGH COURT NOTED THA T 63% OF SHARES WHICH WERE PURCHASED WERE SOLD AND INCOME DERIVED WAS OFFERED TO TAX AS BUSINESS INCOME. THE REMAINING 30% OF SHARES WHICH REMAINED UNSOLD HAD REVERTED TO DIVIDEND INCOME FOR WHICH THE ASSESSEE HAD NOT INCURRED ANY EXPENDITURE AT ALL. THE H IGH COURT ALSO OBSERVED THAT THE ASSESSEE HAD NOT RETAINED THE SHARES WITH THE INTENTION OF EARNING DIVIDEND INCOME WHICH WAS INCIDENTAL DUE TO HIS SALE OF SHARES WHICH REMAINED UNSOLD BY THE ASSESSEE. THE HIGH COURT, THEREFORE, DID NOT UPHOLD THE ORDER OF THE TRIBUNAL DISALLOWING THE EXPENDITURE IN RELATION TO THE DIVIDEND FROM SHARES. THUS THERE BEING A DIRECT JUDGMENT OF A HONBLE HIGH COURT ON THIS ISSUE, THE ITA NO 1111 / M/1 5 5 SAME HAS TO BE FOLLOWED IN PREFERENCE TO THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN T HE CASE OF M/S. DAGA CAPITAL MANAGEMENT P. LTD. (SUPRA). INFACT, WE NOTE THAT THE TRIBUNAL IN THE CASE OF GANJAM TREADING CO. LTD. (SUPRA) HAS ALREADY CONSIDERED THIS SITUATION AND HELD THAT IN VIEW OF THE JUDGMENT OF HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF CCL LTD. VS. JCIT (SUPRA) THE DISALLOWANCE OF INTEREST IN RELATION TO THE DIVIDEND RECEIVED FROM TRADING SHARES CANNOT BE MADE. WE, THEREFORE, SEE NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) IN DELETING THE DISALLOWANCE U/S.14A COMPUTED BY THE A.O . IN RELATION TO THE STOCK - IN - TRADE. THE ORDER OF THE LD.CIT(A) IS ACCORDINGLY UPHELD. 8 . A CLOSE PERUSAL OF THE FACTS OF THE ASSESSEES CASE IN THE LIGHT OF THE RATIO LAID DOWN BY THE MUMBAI BENCH OF THE TRIBUNAL , WE ARE O F THE CONSIDERED OPINION THAT THE CASE OF THE ASSESSEE STANDS FULLY COVERED BY THE ABOVE MENTIONED DECISION IN THE SAID CASE A S THE ASSESSEE WAS PURELY TRADING IN SHARES AND RECEIVED DIVIDEND INCOME FROM SHARES AND SECURITIES AS HELD IN STOCK - IN - TRADE IN THE ORDINARY COURSE OF BU SINESS IN SHARES AND ACCORDINGLY, WE SET ASIDE HE ORDER OF LD.CIT(A) AND DIRECT H E AO TO DELE T E THE ADDITION O F RS. RS.4,94,019/ - . 9 . IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOWED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 29TH JULY, 2016 . 29TH JULY, 2016 S D SD (JOGINDER SINGH ) ( RAJESH KUMAR ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 29TH JULY, 2016 . . . ./ SRL , SR. PS ITA NO 1111 / M/1 5 6 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - CONCERNED 4. / CIT CONCERNED 5. 6. , , / DR, ITAT, MUMBAI CONCERNED / GUARD FILE. / BY ORDER, T RUE COPY (ASSTT. REGISTRAR) , /ITAT, MUMBAI