MANISH S. MEHTA, MUMBAI V. ITO 16(1)(1), MUMBAI

ITA 1152/MUM/2014

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9566 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 6 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-09-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 16-03-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 20-02-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Speculation loss; Wrong claim; Revised return
• Section: 143(3); 14A; 43(5); 68; 154; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE SHRI B.R. BASKARAN , AM AND SHRI AMARJIT SINGH , JM I.T.A. NO S . 1831 /M/ 20 1 4 &1832 /M/201 4 ASSESSMENT YEAR S : 2010 - 11, 2010 - 11 ) ITO 16(1)(1) MATRU MANDIR, TARDEO RD, MUMBAI PIN: 400007 VS. MANISH S. MEHTA 17 MAHESHWAR NIKETAN, PEDDAR , RD , MUMBAI PIN:400026 ./ ./ PAN/GIR NO. : AABPM 7817 L (APPELLANT ) .. (RESPONDENT ) I.T.A. NOS . 1152 /M/2014 ASSESSMENT YEARS : 2010 - 11 ) MANISH S. MEHTA 17 MAHESHWAR NIKETAN, PEDDAR , RD , MUMBAI PIN:400026 VS. ITO 16(1)(1) MATRU MANDIR, TARDEO RD, MUMBAI PIN: 400007 ./ ./ PAN/GIR NO. : AABPM 7817 L ( APPELLANT ) .. ( RESPONDENT ) DATE OF HEARING : 15 .0 6 .2017 DATE OF PRONOUNCEMENT : 13 .09 .2017 O R D E R PER AMARJIT SINGH, JM: THE ASSESSEE AS WELL AS THE REVENUE HAVE FILED THE ABOVE MENTIONED APPEA LS AGAINST THE ORDER DATED 13.12.2013 PASSED BY THE COMMIS S IONER OF INCOME TAX (APPEALS) - 27 , MUMBAI [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO THE ASSESSMENT YEAR S 2010 - 11. ASSESSEE BY: SHRI BHAVESH MEHTA DEPARTMENT BY: SHRI SUMAN KUMAR (DR) MANISH S. MEHTA 2 ITA NO.1831 /M/201 4 : - 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: - 1 . 'WHETHER ON THE FACTS AND CIRCUMSTANCES AND IN LAW, THE LD.CIT(A) HAS ERRED IN RESTRICTING THE DISALLOWANCE OF KG. 33.30 LACS TO RS. 8.76 FACT MADE INS 14A READ WITH RULE 8D OF THE 1 - TAX ACT, 1961 WHERE - IN IT IS MANDATORY TO APPLY RULE 8?' 2. 'WHETHER ON THE FACTS AND CIRCUMSTANCES AND IN LAW, THE ED C1T4) HAS ERRED IN RESTRICTING THE DISALLOWANCE MADE W 144 READ WITH RULE 8TJ OF THE I - TAX ACT, 1961 WHERE - IN IT IS MANDATORY TO APPLY RULE 8D IN RESPECT OF INCOME NOT FORMING PART OF THE INCOME?' 3, 'WHETHE R O N THE FACTS AND CIRCUMSTAN CES AND IN LAW, THE LDCIT(A) HAS ERRED IN RESTRICTING THE DISALLOWANCE MADE ITS 144 READ WITH RULE 8D OF THE I - TAX ACT, 1961 WITHOUT NOTING THE FACT THAT, THE ASSESSEE HAD PROVIDED THE DETAILS OF SPECULATION INCOME AND BASED ON BIFURCATION OF INCOME,' THE DISALLOWANCE WAS MADE IN RESPECT OF INCOME NOT FORMING PART OF THE INCOME?' 4. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY, THE APPELLAN T PRAYS THAT THE ORDER OR THE CI T(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. A COPY OF THE CIT(A)'S ORDER WAS RECEIVED BY THIS OFFICE ON 17.01.2014. THE LAST DATE FOR FILING APPEAL IS 17.03.2014. 3 . THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED HIS RETURN OF INCOME ON 27.09.2010 DECLARING TOTAL INCOME TO THE TUNE OF RS.7,31,877/ - AND LOSS TO THE TUNE OF RS.4,65,597/ - UNDER THE HEAD OF LONG TERM CAPITAL GAIN. THE ASSESSEE WAS AN INDIVIDUAL AND HAS EARNED P ROFIT ON SALE OF SHARE AND SHOWED A SUM OF RS.2,91,51,467/ - AS INCOME FROM SHORT TERM CAPITA L GAIN. THE ASSESSMENT U/S 143(3 ) WAS COMPLETED ON 24.08.2011 DETERMINING TOTAL INCOME TO THE TUNE OF RS.3,90,65,820/ - . THE ASSESSING OFFICER DI SALLOWED AN AMOUNT OF MANISH S. MEHTA 3 RS.33,30,847 - U/S 14A R.W. RULE 8D OF THE ACT. THE ASSESSEE W AS NOT SATISFIED , THEREFORE , FILED AN APPEAL BEFORE THE CIT(A) WHO PARTLY ALLOWED THE APPEAL OF THE ASSESSEE AND RESTRICTED THE DISALLOWANCE TO THE EXTENT OF RS. 8,76,302/ - U/S 14A R.W. RULE 8D OF THE ACT . FEELING AGGRIEVED, THE REVENUE HAS FILED THE PRESE NT APPEAL BEFORE US. ISSUE NO.1 TO 3 : - 4 . ALL THE ISSUES ARE IN CONNECTION WITH THE ASSESSING THE EXPENDITURE INCURRED TO THE EARN THE EXEMPT INCOME BY THE CIT(A) TO THE TUNE OF RS.8,76,302/ LACS U/S 14A R.W. RULE 8D. THE ASSESSING OFFICER ASSESSED THE EXPENDITURE TO EARN THE EXEMPT INCOME TO THE TUNE OF RS.33.30 ,847/ - . THE LD. REPRESENTATIVE OF THE REVENUE HAS ARGUED THAT THE AO HAS RIGHTLY ASSESSED THE EXPENDITURE TO EARN THE EXEMPT INCOME TO THE TUNE OF RS.33.30 ,847 WHICH HAS BEEN WRONGLY ASSESSED BY THE CIT(A) TO THE TUNE OF RS. 8,76,302/ - WITHOUT APPLYING THE PROVISION OF THE SECTION 14A R.W. RULE 8D OF THE ACT WHICH IS WRONG AGAINST LAW AND FACT THEREFORE, THE FINDING OF THE CIT(A) IS LI ABLE TO BE SET ASIDE . HOWEVER, ON THE OTHER HAND, THE LD. REPRESENTATIVE OF THE ASSESSEE HAS REFUTED THE SAID CONTENTIONS. BEFORE GOING FURTHER IT IS NECESSARY TO ADVERT THE FINDING OF THE CIT(A) ON RECORD.: - GROUND NO. 1 IS AGAINST THE ACTION OF THE LD . AO IN DISALLOWING THE SUM OF RS.33,30,847/ - U/S 14A OF THE ACT READ WITH RULE 8D OF THE I.T. RULES, 1962. IT HAS BEEN CONTENDED BY THE APPELLANT THAT THE INVESTMENT IN SHARES WERE MADE OUT OF THE MANISH S. MEHTA 4 APPELLANTS OWN FUNDS ALONG WITH THE INTEREST FREE BORROWI NGS FROM FRIEDNS AND RELATIVES AND HENCE, THE CALCULATION MADE BY THE LD. AO WAS INCORRECT. IN THIS REGARD, THE LD. AR HAS CONTENDED THAT OUT OF THE SUM OF RS.66.44,837/ - THE SUM OF RS.59,27,149/ - HAS BEEN DISALLOWED AS PER PARA 5.2 OF THE IMPUGNED ORDER. THIS ADDITION ON PROTECTIVE BASIS HAS NOT EVEN BEEN AGITATED IN APPEAL. I FIND THAT THE CONTENTION MADE BY THE LD. AR IS CORRECT AND THEREFORE, THE WORKING OF DISALLOWANCE U/S 14A R.W. RULE 8D HAS TO BE RECOMPUTED AS UNDER: AMOUNT OF EXPENSES DIRECTLY RELATED TO TAX FREE INCOME NILL AMOUNT OF INTEREST EXPENSES INDIRECTLY ATTRIBUTED TO TAX FREE INCOME (A*B/C) INTEREST EXPENSES - 7,17,688 (A) AVG TAX FREE INVESTMENTS - 10,53,07,544(B) AS PER IMPUGNED ORDER AVG TOTAL ASSETS - 21,60,81,811(C)(AS PER IMPUGNED ORDER) 3,49,765 0.5% OF AVERAGE INVESTMENTS (AS PER IMPUGNED ORDER) 5,26,537 DISALLOWANCE U/S 14A R.W. RULE 8D 8,76,302 5 . ON APPRAISAL OF THE ABOVE MENTIONED ORDER , WE NOTIC ED THAT THE CIT(A) NOWHERE APPLIED THE PROVISION OF SECTION 14A R.W. RULE 8D OF THE ACT PROPERLY . I T HAS ALSO NOT BEEN OBSERVED THAT THE ASSESSEE HAS APPLIED HIS OWN FUND TO EARN THE EXEMPT INCOME OR NOT. NO SATISFACTION WAS RECORDED TO DECLINE THE CLAIM OF THE ASSESSEE IF ANY . THE FACTS A RE NOT DISPUTED. THE APPLICATION OF THE FUNDS HAVE NOWHERE BIFURCATED. SINCE, THERE IS NO PROPER APPLICATION OF THE PROVISION U/S 14A R.W. RULE 8D OF THE ACT, T HEREFORE, WE ARE OF THE VIEW THAT THE FINDING OF THE CIT(A) IS NOT CORRECT AND IS NOT LIABLE TO BE SUSTAINABLE IN THE EYES OF LAW. T HEREFORE , IN THE SAID CIRCUMSTANCES, WE SET ASIDE THE FINDING OF THE CIT(A) ON THIS ISSUE AND RESTORED THE ISSUE BEFORE MANISH S. MEHTA 5 THE AO TO DECIDE THE MATTER AFRESH BY GIVING AN OPPORTUNITY BEING HEARD TO THE PARTIES IN ACCORDANCE WITH LAW. ACCORDINGLY, THE APPEAL OF THE REVENUE IS HEREBY ALLOWED. I TA NO.1832 /M/201 4 : - 6 . THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: - 1 . WHETHER ON THE FACTS AND CIRCUMSTANCES AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN ALLOW ING THE ALLEGED LOSS OCCURRED IN TRADING OF FUTURES AND OPTIONS WHICH WAS CLAIMED AS SPECULATION LOSS IN RETURN OF INCOME? 2. WHETHER ON THE FACTS AND CIRCUMSTANCES AND IN LAW, THE LD. CIT(A) HAS ERRED IN NOT TAKING COGNIZANCE OF HON. SUPREME COURT OF INDIA DECISION IN CASE OF GOETZE (INDIA) LTD. VS. CIT 284 ITR 323 (2006); WHEREIN IT IS ASCERTAINED THAT, ASSESSEE CANNOT CLAIM D EDUCTION OTHER THAN BY FILLING REVISED RETURN? 3. THE LD. CIT(A) GROSSLY ERRED ON FACTS OF THE CASE IN ALLOWING THE LOSS TO BE CARRIED FORWARD WHICH WAS AFTER THOUGHT OF ASSESSEE AND LOSS CANNOT BE ALLOWED WITH RETROSPECTIVELY EFFECT LEST PROSPECTIVELY ON ACCOUNT OF ANY TYPE OF LOSSES WHICH NEEDS TO CLAIMED IN RETURN OF INCOME AND NOT AFTER THE ASSESSMENT ORDER PASSED. 4. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY, THE APPELLAN T PRAYS THAT THE ORDER OR THE CI T(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. A COPY OF THE CIT(A)'S ORDER WAS RECEIVED BY THIS OFFICE ON 17.01.2014. THE LAST DATE FOR FILING APPEAL IS 17.03.2014. 7 . THE FACTS OF THE PRESEN T CASE ARE THAT QUITE SIMILAR TO THE FACTS OF THE CASE AS NARRATED IN TH E ABOVE MENTIONED APPEAL BEARING NO . 1831 /M/201 4 BUT THE FIGURE S ARE DIFFERENT , THEREFORE, THERE IS NO NEED TO REPEAT THE SAME. MANISH S. MEHTA 6 8 . ALL THE ISSUES ARE IN CONNECTION WITH THE FINDING OF THE CIT(A) IN WHICH THE CIT(A) HAS DIRECTED THE AO TO VERIFY THE RECORD IN RESPECT OF LOSS ARISING FROM F & O ACTIVITIES AND ALLOW THE SAME ON THE BUSINESS LOSS RATHER THAN SPECULATIVE LOSS AS AN ADVERTE NTLY CLAIM ED BY HIM. THE LD. REPRESENTATIVE OF THE REVENUE HAS ARGUED THAT THE ASSESSEE DID NOT RAISE THE CLAIM IN HIS RETURN, T HEREFORE, THE CLAIM OF THE ASSESSEE IS NOT LIABLE TO BE ALLOWABLE IN VIEW OF THE DECISION IN THE CASE OF GOETZE (INDIA) LTD. VS . CIT 284 ITR 323 (2006). HOWEVER, ON THE OTHER HAND, THE LD. REPRESENTATIVE OF THE ASSESSEE HAS REFUTED THE SAID CONTENTIONS. BEFORE GOING FURTHER IT IS NECESSARY TO ADVERT THE FINDING OF THE CIT(A) ON RECORD.: - 1 ALSO FIND THAT THE LD. AC IN THE APPEL LANTS OWN CASE WHILE PASSING NOW U/S. 143(3) OF THE ACT FOR A. YS 2007 - 08 AND 2010 - 11 HAS HELD THAT INCOME FROM F & C) ACTIVITIES PERTAINS TO THE HEAD BUSINESS AND NOT SPECULATION. SO MUCH SO IN THE ASSESSMENT OR DER FOR THE AY, 2007 - 08, LD.. AO HAS HELD TH AT AS PER SECTION 43(5) OF THE ACH LOSS IN DERIVATIVE TRADING IS A BUSINESS LOSS AND THEREFORE, AS PER SECTION?) OF THE ACT, IT HAS TO BE SET OFF AGAINST INCOME UNDER ANY OTHER HEAD EXCEPT SALARY. THUS, IT CANNOT BE SAID THAT THERE WAS NO MISTAKE APPARENT FROM RECORD AS THE VERY FACT OF CARRYING OUT F & C ACTIVITY WAS ON THE RECORDS OF THE LD. AC) AND HE PAD GIVEN A CATEGORICAL FINDING IN AY 201 REGARDING THE CARRY FORWARD OF F & 0 LOSS AS BUSINESS LOSS AND THUS IN DENYING THE CARRY FORWARD AT F & 0 LOSS AS BUSINESS LOSS IN A.Y. 2008 - 09 WAS CONTRARY TO THE RULE OF LAW AND INCONSISTENT WI TH DIE FINDINGS GIVEN IN THE EARLIER AND LATER YEARS. WHAT I S RECTIFIABLE U/S. 154 OF THE ACT IS NOT ONLY A MISTAKE OF FACT BUT ALSO A MISTAKE OF AW, AND A WRONG CAIRN MADE BY THE APPELLANT CANNOT BE TAKEN ADVANTAGE OF IF IT IS PATENT FROM RECORDS THAT THE LOSS BEING CLAIMED WAS ON ACCOUNT OF F & C ACTIVITY. 14. AC IS ACCORDINGLY DIRECTED TO VERIFY THE RECORDS PRODUCED BY THE APPELLANT IN RESPECT OF TOSS ARISING FROM F & U ACTIVITY AND ALLOW THEAS BUSINESS LOSS RATHER MANISH S. MEHTA 7 THAN SPECULATIVE LOSS AS INADVERTENTLY CLAIMED BY HIM. ACCORDINGLY, GROUND NOS, 1 AND 2 ALLOWED FOR STATISTICAL PURPOSES. 9 . ON APPRAISAL OF THE ABOVE SAID FINDING, WE NOTICED THAT THE AO HAS ALREADY ALLOWED THE CLAIM OF THE ASSESSEE FOR THE A.Y 2007 - 08 AND 2010 - 11 AND SPECIFICALLY HELD THAT THE INCOME FROM F & O ACTIVITIES PERTAIN TO THE HEAD OF BUSIN ESS AND NOT SPECULATION . I N THE A.Y. 2007 - 08. AO HAS HELD THAT THE AS PER SECTION 43(5) OF THE ACT, LOSS IN DEVIATING TRADING I S A BUSINESS LOSS AND THEREFORE AS PER SECTION 71 OF THE ACT THE SAME HAS TO BE SET OFF AGAINST THE INCOME UNDER ANY OTHER HEAD E XCEPT SALARY. SO THE MISTAKE WAS FOUND APPARE NT ON RECORD WHICH IS REQUIRE D TO BE RECTIFIED. ACCORDINGLY, THE CIT(A) DIRECTED THE AO TO VERIFY THE RECORD PRODUCED BY ASSESSEE IN RESPECT OF LOSS ARISING FROM F & O ACTIVITIES AND ALLOW THE SAME A S BUSINESS LOSS RATHER THAN SPECULATIVE LOSS AS INADVERTENTLY CLAIMED BY ASSESSEE. THE FACTUAL POSITION IS NOT DIFFERENT AT THIS STAGE. NO DOUBT, THE ASSESSEE RAISED THE WRONG CLAIMED WHICH HAS NOT BEEN ORDERED TO BE RECTIFIED BY THE CIT(A) IN ACCORDANCE WI TH LAW. THEREFORE, THE FINDING NO IRREGULARITY AND ILLEGALITY IN THE ORDER PASSED BY THE CIT(A) ON THIS ISSUE WE CONFIRMED THE FINDING OF THE CIT(A) ON THIS ISSUE AND DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE AGAINST THE REVENUE. 10 . IN RES ULT APPEAL FILED BY THE REVENUE IS HEREBY ORDERED TO BE DISMISSED. I TA NO.1152 /M/201 4 : - MANISH S. MEHTA 8 1 1 . THE FACTS OF THE PRESENT CASE ARE THE SAME AS MENTIONED IN TH E ABOVE MENTIONED APPEAL NO 1831/M/2014 . T HE ASSESSEE WITHDRAW THE PRESENT APPEAL BY MAKING THE APPLICATION DATED 19.06.2017 . T HE REVENUE HAS NO OBJECTION . T HEREFORE, THE PRESENT APPEAL IS HEREBY ORDERED TO BE DISMISSED AS WITHDRAWN. 12 . IN THE RESULT , THE APPEAL BEARING NO. 183 2 /M/2014 & 1152/M/2014 ARE HEREBY ORDERED TO BE DISMI SSED AND APPEAL BEARING NO. 183 1 /M/2014 IS HEREBY ORDERED TO BE ALLOWED FOR STATISTICAL PURPOSE. ORDER P RONOUNCED IN THE OPEN COURT ON 13 .09 . 2017 SD/ - SD/ - ( B. R. BASKARAN ) (AMARJIT SINGH) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; DATED : 13 .09 . 2017 V.P. SINGH / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. / BY ORDER, MANISH S. MEHTA 9 //TRUE COPY// / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI