Sri. MAHESH KUMAR DAMANI, MUMBAI V. ACIT - 4(3), MUMBAI

ITA 1199/MUM/2006

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 6262 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-11-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 11-08-2010
• Assessment Year: 2002-2003
• Appeal Filed On: 17-02-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MAHUA SARKAR
• Keywords: Earning of tax free income
• Section: 14A; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I BEFORE SHRI D. MANMOHAN (VP) & SHRI P.M. JAGTAP (AM ) I.T.A.NO. 1199/MUM/2006 (ASSESSMENT YEAR : 2002-03) MAHESH KUMAR DAMANI 4 TH FLOOR, SURYA MAHAL 5, BURJORIJI BHARUCHA MARG FORT, MUMBAI-400 023. VS. ACIT 4 (3) AAYAKAR BHAVAN M.K.ROAD MUMBAI 400 020 APPELLANT RESPONDENT PAN/GIR NO. : AAEPD9125D ASSESSEE BY : SHRI HIRO RAI DEPARTMENT BY : MS. MAHUA SARKAR ORDER PER D. MANMOHAN, VP :- THIS APPEAL IS DIRECTED AGAINST THE ORDER OF LEARN ED CIT(A)-XIV, MUMBAI AND IT PERTAINS TO A.Y. 2002-03. 2. FOLLOWING GROUNDS WERE URGED BY THE ASSESSEE :- 1) THE LEARNED CIT (A) ERRED CONFIRMING THE ADDITIONS MADE BY THE ACIT BY DISALLOWING INTEREST OF RS.15,51,117/- FOR THE REASON THAT THE SAME WAS NOT ATTRIBUTABLE TO BUSINESS. 2) THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDITION MADE BY THE ACIT OF RS.18,30,310/- BEING 5% OF THE EXEMPT INCOME (DIVIDEND) U/S. 14A OF THE INCOME TAX ACT AS EXPENDITURE ATTRIBUTABLE TO EARNING TAX FREE DIVIDEND INCOME. 3) THE LEARNED CIT (A) ERRED IN CONFIRMING THE ADDITIO N MADE BY THE ACIT BY DISALLOWING EXPENSES AMOUNTING TO RS.50,000/- FOR THE REASON THAT THE SAME INCURRED FOR VIOLATION OF LAW THUS PENAL IN NATURE. 4) THE APPELLANT RESERVES THE RIGHT TO ADD, TO ALTER A ND TO AMPLIFY THE GROUNDS OF APPEAL. MAHESH KUMAR DAMANI 2 3. FACTS NECESSARY FOR DISPOSAL OF THE APPEAL ARE S TATED IN BRIEF. THE ASSESSEE WHO IS ENGAGED IN THE BUSINESS OF SHARE BR OKING/SHARE TRADING HAS FOLLOWED MERCANTILE SYSTEM OF ACCOUNTING AND IN RESPECT OF THE YEAR UNDER CONSIDERATION HE DECLARED TOTAL INCOME OF RS. 4.82 CRORES. SINCE CASE WAS TAKEN-UP FOR SCRUTINY THE A.O. EXAMINED TH E BOOKS AND OTHER DETAILS AND NOTICED THAT THE ASSESSEE HAS DEBITED A N AMOUNT OF RS.36,74,376/- IN THE PROFIT AND LOSS ACCOUNT AS IN TEREST REFERABLE TO THE LOAN TAKEN FOR THE PURPOSE OF INVESTMENT IN SHARES AND RELIEF BONDS, INCOME OF WHICH IS EXEMPT FROM INCOME TAX. PROPORTI ONATE INTEREST REFERABLE TO THE INVESTMENT IN SUCH SHARES, THE INC OME OF WHICH IS EXEMPT, WORKED OUT TO RS.15,51,117/- AND THE SAME W AS DISALLOWED, PRESUMABLY U/S. 14A. 4. THE CASE WAS THAT THE INTEREST PAID HAD NO NEXUS WITH INVESTMENTS MADE IN SHARES ON WHICH ASSESSEE EARNED EXEMPT INCOME. IT WAS ALSO CONTENDED THAT THESE INVESTMENTS IN SHARES WERE MADE WITH A VIEW TO GAIN BENEFIT BY WAY OF APPRECIATION AND NOT FOR EARNING EXEMPT INCOME. INVESTMENTS WERE ALSO OLD AND THERE WAS NO NEXUS BETWEEN THE INTEREST PAID AND INVESTMENT. 5. LEARNED CIT(A), HOWEVER, OBSERVED THAT THE ASSES SEE HAD MADE INVESTMENTS TO THE TUNE OF RS.3,27,50,000/- AND FAI LED TO PROVE THAT SUCH INVESTMENT WAS NOT MADE BY UTILIZING THE BORRO WED FUNDS. LEARNED CIT (A) UPHELD THE ADDITION MADE BY THE ASSESSING O FFICER HENCE, ASSESSEE IS IN FURTHER APPEAL BEFORE THE TRIBUNAL. 6. SIMILARLY, THE ASSESSING OFFICER DISALLOWED A SU M OF RS.50,000/- BY OBSERVING IN PARAGRAPH 6 AS UNDER : PENALTIES AND FINES : THE ASSESSEE HAS DEBITED RS.50,000/- IN THE P & L ACCOUNT AS PENALTIES AND F INDS. THE AUDIT REPORT MENTIONS THAT THE EXPENDITURE BY W AY OF PENALTY/FINE INCURRED FOR VIOLATION OF LAW. THEREFO RE, THE SAME IS DISALLOWED. MAHESH KUMAR DAMANI 3 7. LEARNED COUNSEL SUBMITTED BEFORE US THAT IN THE LIGHT OF THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE O F GODREJ & BOYCE MANUFACTURING CO. LTD. ITA. NO. 626 OF 2010 DATED 1 2-8-2010, THE MATTER REQUIRES TO BE RECONSIDERED IN ACCORDANCE WI TH LAW. LEARNED DR HAS NOT RAISED ANY OBJECTION IN THIS REGARD. 8. CONSIDERING THE FACTUAL MATRIX, WE DEEM IT FAIR AND REASONABLE TO SET ASIDE THE ISSUE TO THE FILE OF THE ASSESSING OF FICER WHO IS DIRECTED TO RECOMPUTE THE AMOUNT DISALLOWABLE U/S. 14A IN LINE WITH THE DECISION TAKEN BY HONBLE BOMBAY HIGH COURT (SUPRA). 9. AS REGARDS CLAIM OF DEDUCTION OF RS.50,000/- THE CASE OF THE ASSESSEE WAS THAT IT WAS NOT A PAYMENT IN CONNECTIO N WITH INFRACTION OF LAW AND HENCE, IT IS ALLOWABLE AS BUSINESS EXPENDIT URE. RELIANCE WAS PLACED UPON THE DECISION OF THE ITAT, MUMBAI BENCH IN THE CASE OF CLASSIC SHARES & STOCK BROKING SERVICES LTD. VS. DC IT, CENTRAL CIR. 40, MUMBAI 92007) 11 SOT 377 (MUM.) 10. ON THE OTHER HAND, LEARNED DR RELIED UPON THE O RDERS PASSED BY THE TAX AUTHORITIES. 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE RECORD. NO MATERIAL WAS FILED BY THE REVENUE IN SUPPORT OF HIS CONTENTION THAT THE AMOUNT PAID IN THE FORM OF PENALTY WAS IN THE N ATURE OF STATUTORY PENALTY IMPOSED ON ACCOUNT OF INFRACTION OF LAW. SI NCE IDENTICAL ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE IN THE DECISI ON OF THE ITAT CITED (SUPRA) WE ARE OF THE VIEW THAT THE AMOUNT OF RS.50 ,000/- DEBITED TO THE P & L ACCOUNT DESERVES TO BE ALLOWED AS BUSINESS EX PENDITURE UNDER SECTION 37 (1) OF THE ACT. THE A.O. IS DIRECTED ACC ORDINGLY. ORDER HAS BEEN PRONOUNCED ON 24 TH DAY OF NOVEMBER, 2010. SD/- (P.M. JAGTAP) ACCOUNTANT MEMBER SD/- (D. MANMOHAN) VICE PRESIDENT DATED 24 TH NOVEMBER, 2010 MAHESH KUMAR DAMANI 4 COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A)-CONCERNED. 4. THE CIT, CONCERNED. 5. THE DR CONCERNED, MUMBAI 6. GUARD FILE BY ORDER TRUE COPY ASSTT. REGISTRAR, ITAT, MUMBAI PS