ITI SECURITIES LTD, MUMBAI V. ASST CIT CIR 4(2), MUMBAI

ITA 1154/MUM/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 3866 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-02-2016
• Appeal Filed By: Assessee
• Bench Allotted: I
• Next Hearing Date: 18-11-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 20-02-2014
• Court: TRIBUNAL
• Department Lawyers: B SATYANARAYAN RAJU
• Keywords: Earning of tax free income
• Section: 143(3); 14A; 11

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL I , BENCH MUMBAI BEFORE SHRI D.KARUNAKARA RAO , AM & SHRI SANDEEP GOSAIN , JM ./ ITA NO. 1154 / MUM/20 1 4 ( / ASSESSMENT YEAR : 20 10 - 20 11 ) M/S IT I SECURITIES LIMITED, 4 TH FLOOR, KALPATARU HERITAGE, M.G.ROAD, FORT, MUMBAI - 400001 VS. ACIT - 4(2), MUMBAI ./ ./ PAN/GIR NO. : A A ACO 0574 E ( / APPELLANT ) .. ( / RESPONDENT ) /ASSESSEE BY : SHRI VIJAY MEHTA & SHRI ANUJ KISNADWALA, SHRI APURV GANDHI /REVENUE BY : SHRI B.SATYANARAYAN RAJU / DATE OF HEARING : 04 / 01 /201 6 / DATE OF PRONOUNCEMENT 17/02 /201 6 / O R D E R PER SANDEEP GOSAIN,(JM) THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 24 - 12 - 2013 , PASSED BY THE CIT (A) - 8 , MUMBAI , FOR THE ASSESSMENT YEAR 20 10 - 20 11. 2. THE ONLY GRIEVANCE OF THE ASSESSEE IS WITH REGARD TO INACTION ON THE PART OF THE CIT(A) IN CONFIRMING THE DISALLOWANCE SO MADE BY THE AO U/S.14A ON ACCOUNT OF EXPENSES ATTRIBUTABLE TO EARNING OF THE EXEMPT INCOME. 3. FACTS IN BRIEF ARE THAT THE ASSESSEE IS A MEMBER OF THE NATIONAL STOCK EXCHANGE OF INDIA LTD. AND BOMBAY STOCK EXCHA NGE LTD., AND IS ENGAGED IN THE BUSINESS OF SHARE BROKING, TRADING IN FUTURE OPTIONS. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND THE AO FRAMED ITA NO. 1154 /1 4 2 ASSESSMENT MAKING DISALLOWANCE U/S.14A OF THE ACT ON ACCOUNT OF EXPENSES ATTRIBUTABLE TO EARNING OF THE EXEMPT INCOME. IN APPEAL, THE CIT(A) WENT WITH THE VIEW OF ASSESSING OFFICER. NOW, THE ASSESSEE IS IN FURTHER APPEAL HERE BEFORE THE TRIBUNAL. 4. LD. AR SUBMITTED BEFORE US THAT THE ASSESSEES OWN FUNDS ARE SUFFICIENT TO COVER UP THE VALUE OF INVESTMEN TS AND HENCE NO INTEREST DISALLOWANCE IS REQUIRED TO BE MADE U/S.14A OF THE ACT. HE FURTHER CONTENDED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF TRIBUNAL FOR A.Y.2008 - 09 & 2009 - 2010 IN ASSESSEES OWN CASE PASSED IN ITA NO.3872 /MUM/2011 & OTHER CONNECTED APPEALS, DATED 7 - 5 - 2014. HE FURTHER RELIED ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES, 313 ITR 340. 5. ON THE OTHER HAND, LD. DR RELIED ON THE ORDERS OF TAX AUTHORITIES BELOW. 6. WE HAVE CONSI DERED THE SUBMISSIONS RAISED BY BOTH THE PARTIES AND PERUSED THE RECORD CAREFULLY. THE ISSUE BEFORE US IS TO DECIDE AS TO WHETHER THE DISALLOWANCE MADE BY THE AO U/S.14A AND CONFIRMED BY THE CIT(A) IS PROPER OR NOT. FROM THE RECORD WE NOTE THAT THE AO PASSED THE ASSESSMENT ORDER U/S. 143(3) OF THE INCOME TAX ACT, 1961 AND CALCULATED THE DISALLOWANCE U/S 14A OF THE ACT AT RS. 43,66,222/ - WHICH COMPRISES OF INTEREST AMOUNTING TO RS. 34,23,886/ - AND 0.5% OF ADMINISTRATIVE EXPENSES AMOUNTING TO RS. 9 ,42,336/ - . THE LD. A O AFTER REDUCING THE AMOUNT OF SUO - MOT O DISALLOWANCE MADE BY THE ASSESSEE COMPANY CALCULATED THE DISALLOWANCE AT RS. 35,59,550 (RS. 43,66,222 - 8,06,672) ITA NO. 1154 /1 4 3 U/S SEC. 14A OF THE INCOME TAX ACT, 1961. WHILE COMPUTING THE SAID DISALLOWANCE, THE AO CONSIDER ED THE TOTAL INVESTMENTS HELD BY THE ASSESSEE COMPANY AS AGAINST THE QUOTED INVESTMENTS AND INVOKED PROVISIONS OF RULE 8D (II) & (III). HOWEVER, THE AO HAS NOT POINTED OUT ANY NEXUS BETWEEN THE SAID SUM DISALLOWED AND THE EARNING OF THE EXEMPT INCOME ON AN ACTUAL BASIS. THE CONTENTION OF LD. AR BEFORE US WAS THAT THE ASSESSEE'S OWN FUNDS ARE SUFFICIENT TO COVER UP THE VALUE OF INVESTMENTS AND HENCE NO INTEREST DISALLOWANCE IS REQUIRED TO BE MADE U/S 14A OF THE ACT. THE DETAILS OF OWN FUNDS AND INVESTMENTS H AVE BEEN REPRODUCED AT PG 6 OF APPELLATE ORDER . FROM THE TABLE IT IS SEEN THAT THE OWN FUNDS AS OF 31.03.2010 ARE 3.5 TIMES THE INVESTMENTS AS ON 31.03.2010 AND ARE SUFFICIENT TO COVER THE VALUE OF INVESTMENTS AND HENCE NO INTEREST DISALLOWANCE IS REQUIRED TO BE MADE U/S 14A OF THE ACT IN VIEW OF THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT V. RELIANCE UTILITIES (313 ITR 340). IN THE YEAR UNDER CONSIDERATION ALSO, AS IS EVIDENT FROM THE CHART REPRODUCED IN THE ORDER OF CIT(A) AT PAGE 6, OWN FUNDS ARE SUFFICIENT TO COVER UP THE VALUE OF INVESTMENTS AND HENCE NO INTEREST DISALLOWANCE CAN BE MADE U/S 14A OF THE ACT. FROM THE RECORD WE ALSO FIND THAT INTEREST INCOME EARNED DURING THE YEAR IS RS. 2,04,27,192 AND INTEREST EXPENDITURE IS RS. 1,6 3,94,554. SINCE THE INTEREST INCOME IS MORE THAN INTEREST EXPENDITURE NO INTEREST DISALLOWANCE CAN BE MADE U/S 14A OF THE ACT. THIS VIEW ALSO IS ALSO SUPPORTED BY THE DECISION OF THE TRIBUNAL IN ASSESSE'S OWN CASE FOR A.Y. 2009 - 10 , PASSED IN ITA NO. 3872/M UM/2011, ORDER DATED 7 - 5 - 14, WHEREIN THE TRIBUNAL FOLLOWING ITA NO. 1154 /1 4 4 THE DECISION IN CASE OF PARESH K. SHAH V. D C IT (ITA NO: 8214/MUM/2011) HELD THAT SINCE INTEREST INCOME IS MORE THAN INTEREST EXPENDITURE NO DISALLOWANCE OF INTEREST CAN BE MADE U/S 14A OF THE ACT. THE AO HAS NOT BROUGHT ON RECORD ANY MATERIAL TO SHOW THAT THE ASSESSEE HAS INCURRED ANY EXPENDITURE IN RELATION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. SECTION 14A HAS WITHIN IT IMPLICIT THE NOTION OF APPORTIONMENT IN THE CASES WHERE THE EXPENDITURE IS INCURRED FOR COMPOSITE/INDIVISIBLE ACTIVITIES IN WHICH TAXABLE AND NON TAXABLE INCOME IS RECEIVED BUT WHEN NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO THE EXEMPT INCOME THEN PRINCIPLE OF APPORTIONMENT EMBEDDED IN SECTION 14A HAS NO A PPLICATION. THE OBJECT OF SECTION 14A IS NOT ALLOWING TO REDUCE TAX PAYABLE ON THE NON EXEMPT INCOME BY DEDUCTING THE EXPENDITURE INCURRED TO EARN THE EXEMPT INCOME. IN THE CASE IN HAND IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE HAS INCURRED ANY D IRECT EXPENDITURE OR ANY INTEREST EXPENDITURE FOR EARNING THE EXEMPT INCOME OR KEEPING THE INVESTMENT IN QUESTION. IF THERE IS EXPENDITURE DIRECTLY OR INDIRECTLY INCURRED IN RELATION TO EXEMPT INCOME THE SAME CANNOT BE CLAIMED AGAINST THE INCOME WHICH IS T AXABLE. FOR ATTRACTING THE PROVISIONS OF SECTION 14A - THERE SHOULD BE PROXIMATE CAUSE FOR DISALLOWANCE WHICH HAS RELATIONSHIP WITH THE TAX EXEMPT INCOME AS HELD BY THE HONBLE SUPREME COURT IN CASE OF CIT VS. WALFORT SHARE AND STOCK BROKERS P. LTD. ( 326 ITR 1). 7. THE OBSERVATION OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR ASSESSMENT YEAR 2008 - 09 & 2009 - 2010 , ORDER DATED 7 - 5 - 2014 , ARE AS UNDER : - ITA NO. 1154 /1 4 5 9.2 WE HAVE HEARD THE LD. AR AS WELL AS LD. DR AND CONSIDERED THE RELEVANT MATERIAL ON REOCRD. WE NOTE THAT T HE ASSESSEES OWN FUND IS MORE THAN THE INVESTMENT IN QUESTION. THE ASSESSEE HAS ALSO RAISED AN ADDITIONAL PLEA THAT THE INTEREST RECEIVED BY THE ASSESSEE IS MORE THAT THE INTEREST PAID, THEREFORE, NO DISALLOWANCE COULD BE MADE ON ACCOUNT OF INTEREST EXPEN DITURE U/S 14A. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE FOLLOWING DECISIONS: - (I) PARESH K. SHAH VS. DCIT CENTRAL CIRCLE 17 & 18 (ITA NO. 8214/MUM/2011) (II) ADDITIONAL CIT 1 (3) VS. WEIZMANN LIMITED ( ITA NO. 6008/MUM/2012) (III) SHRI HAR SHAD F. SHETH VS. ITO - 16(2)(2) ( ITA NO. 4208/MUM/2011) 9.3 THE DISALLOWANCE OF INTEREST EXPENDITURE IS NOT WARRANTED IN VIEW OF THE FACT THAT THE ASSESSEES OWN FUND IS MORE THAN THE INVESTMENT IN QUESTION AND FURTHER THE INTEREST RECEIVED BY THE ASSESS EE IS MORE THAN THE INTEREST PAID DURING THE YEAR WHICH ALSO SUGGEST THAT THE ASSESSEES OWN FUND WHICH HAS GENERATED THE INTEREST IS MORE THAN THE INVESTMENT IN QUESTION . AN IDENTICAL ISSUE HAS BEEN CONSIDERED BY THIS TRIBUNAL IN NO. OF CASES AS RELIED UP ON BY THE ASSESSEE AND MENTIONED ABOVE. IN THE CASE OF PARESH K. SHAH VS. DCIT (SUPRA), THE TRIBUNAL HAS DECIDED AN IDENTICAL ISSUE IN PARA 5 TO 5.2 AS UNDER: - 5 HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD, WE FIND THAT THE ASSESSEES OWN FUNDS COMPRISING SHARE CAPITALS RESERVES AND SURPLUS IS RS. 4,48,47,798/ - , WHICH IS EQUIVALENT TO THE COST OF INVESTMENT IN THE SHARES. FURTHER, THERE IS NO FRESH INVESTMENTS DURING THE YEAR UNDER CONSIDERATION AND ALL THESE INVESTM ENTS WERE MADE IN THE EARLIER YEAR; THEREFORE, THERE IS NO QUESTION OF UTILIZATION OF THE BORROWED FUNDS DURING THE YEAR UNDER CONSIDERATION . 5.1 IT IS PERTINENT TO NOTE THAT WHEN THE ASSESSING OFFICER HAD NOT MADE ANY DISALLOWANCE U/S 14A ON ACCOUNT OF I NTEREST EXPENDITURE IN THE EARLIER YEAR; THEREFORE, IN THE ABSENCE OF FRESH INVESTMENT DURING THE YEAR, NO DISALLOWANCE CAN BE MADE ON ACCOUNT OF INTEREST BY APPLYING PROVISIONS OF SEC. 14A. FURTHER, THE ASSESSEE EARNED THE INTEREST INCOME OF RS. 4 2, 1 7,981 / - AS AGAINST THE INTEREST & BROKERAGE EXPENDITURE OF RS.30,79,450/ - . THIS NET INTEREST EXPENDITURE OFFERED TO TAX BY THE ASSESSEE IS RS. 11,38,531/ - WHICH SHOW THAT INTEREST INCOME IS MORE THAN T H E INTEREST EXPENDITURE AND THEREFORE, IT CANNOT BE PRESUM ED THAT BORROWED FUND WAS UTILISED FOR THE PURPOSE OF MAKING THE INVESTMENTS IN THE SHARES. ITA NO. 1154 /1 4 6 5.2 IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS THE DECISION OF THE HON B LE JURISDICTIONA L HIGH COURT IN THE CASE OF COMMISSIONER OF INC OME - TAX V. RELIANCE UTILITIES AND POWER LTD. REPORTED IN 313 ITR 340, WE ARE OF THE OPINION THAT NO DISALLOWANCE IS CALLED FOR U/S 14A ON ACCOUNT OF INTEREST EXPENDITURE. 9.4 IN VIEW OF THE ABOVE FACT AND CIRCUMSTANCES OF THE CASE AS WELL AS VARIOUS DECI SIONS OF THIS TRIBUNAL (SUPRA) WE HOLD THAT NO DISALLOWANCE IS CALLED FOR ON ACCOUNT OF INTEREST EXPENDITURE WHEN THE ASSESSEES OWN FUND IS SUFFICIENT TO SOURCE THE INVESTMENT IN QUESTION. IN VIEW OF THE ABOVE DISCUSSION AS WELL AS FOLLOWING THE DECISI ON OF THE TRIBUNAL AS WELL AS HON BLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD. (SUPRA) , WE DELETE DISALLOWANCE MADE BY THE AO U/S.14A HOLDING THAT THE ASSESSEES OWN FUNDS ARE SUFFICIENT TO COVER UP THE VALUE OF INVESTMENTS IN QUE STION. ACCORDINGLY, GROUND NO.1 OF THE APPEAL IS ALLOWED. 8 . IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 17/02 / 201 6 . SD/ - ( D.KARUNAKARA RAO ) SD/ - ( SANDEEP GOSAIN ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI ; DATED 17/02 /2016 . . /PKM , . / PS / COPY OF THE ORDER FORWARDED TO : . / B Y ORDER, / ( ASSTT. REGISTRAR) , / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A), MUMBAI. 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. //TRUE COPY//