SUNIDHI SECURITIES & FINANCE LTD, MUMBAI V. ACIT 4(2), MUMBAI

ITA 1245/MUM/2012

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3287 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-06-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 01-09-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 23-02-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: ARE DIRECTED AGAINST DATED; PASSED
• Keywords: Depreciation; Earning of tax free income
• Section: 14A; 32

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI . . , , !' #$, % , & BEFORE SHRI B.R.BASKARAN, AM AND SHRI AMARJIT SINGH , JM / I.T.A. NO.1245/MUM/2012, 4983/MUM/2012 & 6135/MUM/2013 ( % ' (' / ASSESSMENT YEAR: 2008-09, 2009-10 & 2010-11) M/S. SUNIDHI SECURITIES & FINANCE LTD. MAKER CHAMBER IV, 14 TH FLOOR, NARIMAN POINT, MUMBAI - 400021 / VS. A.C.I.T. 4(2) AAYAKAR BHAVAN, MUMBAI ./ ./ PAN/GIR NO. : AADCS1657D ( / APPELLANT ) .. ( / RESPONDENT ) / DATE OF HEARING: 22.03.2016 !' /DATE OF PRONOUNCEMENT: 10.06.2016 #$ / O R D E R PER AMARJIT SINGH, JM: THE ABOVE MENTIONED THREE APPEALS FILED BY THE ASSE SSEE ARE DIRECTED AGAINST THE ORDER DATED 26.12.2011, 04.06. 2012 AND 19.08.2013 PASSED BY THE LEARNED COMMISSIONER OF IN COME TAX (APPEAL) 8, MUMBAI [HEREINAFTER REFERRED TO AS THE LEARNED CIT(A)] RELEVANT TO THE A.Y.2008-09, 2009-10 & 2010-11 RESP ECTIVELY. SINCE ASSESSEE BY: SHRI HIRO RAI DEPARTMENT BY: SHRI CHANDRAJIT SINGH ITA NO.1245&4983/MUM/12 & 6135/MUM/13 A.Y.2008-09, 2009-10 &2011-12 2 THE MATTER OF CONTROVERSY IN ALL THE APPEALS ARE SA ME WHICH CAN CONVENIENTLY BE ADJUDICATED BY A SINGLE ORDER, THE REFORE, ALL THESE APPEALS ARE BEING TAKEN UP TOGETHER FOR ADJUDICATIO N FOR THE SAKE OF CONVENIENCE. 2. THE ASSESSEE HAS RAISED THE FOLLOWING ISSUES IN THE APPEAL FOR THE A.Y.2008-09:- 1. THE LD. C.I.T.(APPEALS) ERRED IN CONFIRMING THE ACTION OF LD. A.C.I.T. OF DISALLOWING RS.23,73,814/- OUT OF E XPENSES ATTRIBUTING THE SAME TOWARDS EARNING OF EXEMPT INCO ME U/S.14A READ WITH RULE 8D. 2. THE LD. C.I.T.(APPEALS) ERRED IN CONFIRMING THE ACTION OF LD. A.C.I.T. OF DISALLOWING DEPRECIATION ON MEMBERS HIP CARD OF THE STOCK EXCHANGE AND FURTHER ERRED IN NOT HOLDING THE SAME AS PLANT ASSET WITHIN THE MEANING OF SECTION 32 OF THE INCOME TAX ACT, 1961. 3. THE LD. CIT (APPEAL) ERRED IN CONFIRMING THE ACT ION OF LD. ACIT OF NOT ALLOWING THE LONG TERM CAPITAL LOSSES O F RS.2,01,46,273/- TO BE CARRIED FORWARD TO SUBSEQUEN T YEARS. 3. THE ASSESSEE HAS RAISED THE FOLLOWING ISSUES IN THE APPEAL FOR THE A.Y.2009-10:- 1. THE LD. C.I.T. (APPEALS) ERRED IN CONFIRMING TH E ACTION OF LD. A.C.I.T. OF DISALLOWING RS.23,28,214/- OUT OF E XPENSES ATTRIBUTING THE SAME TOWARDS EARNING OF EXEMPT INCO ME U/S.14A READ WITH RULE 8D. 2. THE LD. C.I.T.(APPEALS) ERRED IN CONFIRMING THE ACTION OF LD. A.C.I.T. OF DISALLOWING DEPRECIATION ON MEMBERS HIP CARD OF THE STOCK EXCHANGE OF RS.1,47,823/- AND FUR THER ERRED IN NOT HOLDING THE SAME AS PLANT ASSET WITHIN THE MEANING OF SECTION 32 OF THE INCOME TAX ACT, 1961. ITA NO.1245&4983/MUM/12 & 6135/MUM/13 A.Y.2008-09, 2009-10 &2011-12 3 4. THE ASSESSEE HAS RAISED THE FOLLOWING ISSUES IN THE APPEAL FOR THE A.Y.2010-11:- 1. THE LD. C.I.T.(APPEALS) ERRED IN CONFIRMING THE ACTION OF LD. ADDL. C.I.T. OF DISALLOWING RS.14,95,643/- OUT OF EXPENSES ATTRIBUTING THE SAME TOWARDS EARNING OF EX EMPT INCOME U/S.14A READ WITH RULE 8D. 2. THE LD. C.I.T. (APPEALS) ERRED IN CONFIRMING THE ACTION OF LD. ADDL.C.I.T. OF DISALLOWING THE SET OFF OF LONG TERM CAPITAL GAIN AGAINST LONG TERM CAPITAL LOSS AND DIFFERENTIATING BETWEEN CAPITAL GAINS ON THE BASIS OF SECURITY TRANSACTION TAX (PAID AND NOT PAID). 3. THE LD. C.I.T. (APPEALS) FURTHER ERRED IN NOT AL LOWING THE CARRY FORWARD OF LONG TERM CAPITAL LOSS ON WHICH ST T WAS PAID. 5. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF STOCK BROKING AS WELL AS TRADING. THE ASSESSING OFFICER DISALLOWED CERTAIN AMOUNT IN ALL THE THREE YEARS IN VIEW OF THE SECTIO N 14A READ WITH RULE 8D OF THE INCOME TAX ACT, 1961 ( IN SHORT THE ACT) AND DID NOT CARRY FORWARDED THE LONG TERM CAPITAL LOSS AS MENTI ONED IN THE EACH ASSESSEMENT OF EACH YEARS AND DISALLOWED THE DEPRE CIATION UPON MEMBERSHIP CARD WHICH WAS CONFIRMED BY THE LEARNED CIT(A). THEREFORE, THE ASSESSEE HAS FILED THE PRESENT APPEA L BEFORE US. ISSUE NO.1:- 6. IN ALL THE THREE CASES THE ASSESSEE HAS CHALLENG ED THE DISALLOWANCE OF RS.23,73,814/- FOR A.Y.2008-09, RS. 23,28,214/- FOR A.Y.2009-10 AND RS.14,95,643/- FOR A.Y.2010-11 U/S. 14A READ WITH RULE 8D OF THE ACT. THE LEARNED REPRESENTATIVE OF THE ASSESSEE HAS ITA NO.1245&4983/MUM/12 & 6135/MUM/13 A.Y.2008-09, 2009-10 &2011-12 4 ARGUED THAT THE ASSESSEE HAS MADE THE STRATEGIC INV ESTMENT FOR THE PURPOSE OF BUSINESS WHEREIN THE SOLE INTENTION OF T HE ASSESSEE WAS TO CARRY OUT THE BUSINESS OF THE APPELLANT COMPANY, TH EREFORE, IN THE SAID CIRCUMSTANCES NO DISALLOWANCE OF ANY KIND IS LIABLE TO BE MADE IN VIEW OF THE PROVISION U/S.14A READ WITH RULE 8D OF THE ACT. IN SUPPORT OF THIS CONTENTION THE LEARNED REPRESENTATIVE OF TH E ASSESSEE HAS PLACED RELIANCE UPON THE ORDER PASSED BY THE INCOME TAX AP PELLATE TRIBUNAL, MUMBAI BENCH IN ITA NO.1923/M/12 AND OTHERS ASST. C IT VS. M/S. SMART CHIP LTD. AND 65 SOT 86 (MUM-TRIB) GARWARE WA LL ROPES LTD. VS. ADDL. CIT AND MUMBAI BENCH IN ITA NOS. 175 2 TO 1754/MUM/13 AND OTHERS M/S.TWINKLE ENVIRO TECH. LTD . VS. DCIT. IT IS ALSO ARGUED THAT THE SHARES WHICH DID NOT EAR N ANY DIVIDEND INCOME IS NOT ALSO LIABLE TO BE INCLUDED FOR THE PU RPOSE TO CALCULATE THE EXPENDITURE TOWARDS TO EARN THE EXEMPT INCOME AND P LACED RELIANCE UPON THE LAW SETTLED IN M/S.TWINKLE ENVIRO TECH. LT D.(SUPRA). HOWEVER, ON THE OTHER HAND THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS STRONGLY RELIED UPON THE ORDER IN QUESTION. ACC ORDING TO THE ASSESSEE, THE INVESTMENT WAS MADE AS STRATEGIC INVE STMENT FOR THE PURPOSE OF BUSINESS WHEREIN THE SOLE ACTIVITY TO CA RRY OUT THE BUSINESS OF THE ASSESSEE. NOW IN THE SAID CIRCUMSTANCES AND IN VIEW OF THE LAW RELIED BY THE LEARNED REPRESENTATIVE OF THE ASSESSE E IN A CASE DECIDED BY THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH IN ITA NO.1923/M/12 AND OTHERS ASST. CIT VS. M/S. SMART CH IP LTD. AND 65 SOT 86 (MUM-TRIB) GARWARE WALL ROPES LTD. VS. ADDL. CIT AND ITA NO.1245&4983/MUM/12 & 6135/MUM/13 A.Y.2008-09, 2009-10 &2011-12 5 MUMBAI BENCH IN ITA NOS. 1752 TO 1754/MUM/13 AND OT HERS M/S.TWINKLE ENVIRO TECH. LTD. VS. DCIT. WE ARE OF THE VIEW THAT STRATEGIC INVESTMENT SHOULD BE EXCLUDED FROM THE VA LUE OF INVESTMENTS FOR THE PURPOSE OF RULE 8D. THEREFORE IN THE SAI D CIRCUMSTANCES THE MATTER OF CONTROVERSY IS REQUIRE TO BE RECONSIDER A FRESH BY THE ASSESSING OFFICER TO DETERMINE THE SUCH KIND OF INV ESTMENT AND TO DEAL WITH THIS KIND OF INVESTMENT IN VIEW OF THE OB SERVATION MADE ABOVE. THE SECOND POINT WHICH HAS BEEN RAISED IN THIS ISSUE ALSO IS IN CONNECTION WITH THE EXCLUSION OF THE SHARES WHIC H DID NOT EARN THE DIVIDEND INCOME. THE ASSESSEE PLACED RELIANCE ON T HE LAW SETTLED IN 144 ITD 141 (KOL-TRIB) REI AGRO LTD. VS. DCIT AND COCHIN BENCH IN ITA NOS. 230 TO 232/COCHIN/2015 SOUTH INDIA CORP ORATION LTD. VS. JCIT AND MUMBAI BENCH IN ITAT NO.8581/MUM/2011 SYLV EX CABLE CO. P. LTD.. NO DOUBT THE ABOVE SAID DECISIONS SPE AK THAT THOSE SHARES WHICH DID NOT EARN ANY DIVIDEND INCOME ARE TO BE EX CLUDED FROM THE VALUE OF INVESTMENTS FOR THE PURPOSE OF RULE 8D. H OWEVER, WE NOTICE THAT THE PROVISIONS OF RULE 8D(2)(II) DEFINES THE C LAUSE B AS THE AVERAGE VALUE OF INVESTMENTS, INCOME FROM WHICH DO ES NOT OR SHALL NOT FORM PART OF TOTAL INCOME. SIMILARLY, THE R ULE 8D(2)(III) ALSO USES THE EXPRESSION DOES NOT OR SHALL NOT. THE E XPRESSION DOES NOT REFERS TO THE DIVIDEND RECEIVED BUT EXEMPT, WH ERE AS THE EXPRESSION SHALL NOT REFERS TO DIVIDEND THAT MAY BE RECEIVED AND WOULD NOT BE INCLUDED. WE NOTICE THAT THE DECISION S DID NOT CONSIDER THE FINE DISTINCTION BETWEEN THE ABOVE SAID EXPRESS IONS. IN VIEW OF ITA NO.1245&4983/MUM/12 & 6135/MUM/13 A.Y.2008-09, 2009-10 &2011-12 6 THE ABOVE, WE ARE OF THE VIEW THAT THE INVESTMENTS WHICH DID NOT YIELD DIVIDEND SHOULD NOT BE EXCLUDED FOR COMPUTING DISAL LOWANCE UNDER RULE 8D(2)(II) AND (III) OF THE I.T RULES. ACCORD INGLY WE REJECT THIS PLEA OF THE ASSESSEE. HOWEVER, WE HAVE HELD THAT T HIS MATTER REQUIRES FRESH EXAMINATION AND HENCE THE MATTER IS REMANDED TO THE FILE OF ASSESSING OFFICER TO DECIDE THE MATTER AFRESH IN VI EW OF THE ABOVE SAID OBSERVATIONS IN ACCORDANCE WITH LAW. ISSUE NO.2:- 7. THE SECOND ISSUE IS IN CONNECTION WITH THE DISAL LOWANCE OF DEPRECIATION ON MEMBER SHIP CARD EXCHANGE U/S.32(1) (II) OF THE ACT WHICH HAS BEEN RAISED IN ALL THE THREE APPEALS. TH E ORDER PASSED BY THE LEARNED CIT(A) IN QUESTION HAS BEEN PERUSED WHO HAS DECIDED THE ISSUE ON THE BASIS OF THE DECISION IN CASE OF INCOM E TAX APPELLATE TRIBUNAL IN THE CASE OF SINO SECURITIES PVT. LTD. V S. ITO ITA NO.6264 AND 6294/MUM/2009 DATED 23.11.2011 FOR THE A.Y.2006 -07. NO DISTINGUISHABLE FACTS HAVE BEEN PRODUCED BEFORE US. NO ANY CASE LAWS CONTRARY TO THE ABOVE SAID DECISIONS HAVE BEEN PROD UCED. IN VIEW OF THE SAID CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE LEARNED CIT(A) HAS PASSED THE ORDER ON THE BASIS OF THE JUDGMENT SINO SECURITIES PVT. LTD.(SUPRA) JUDICIOUSLY AND CORRECTLY WHICH DOES NO T REQUIRED TO BE INTERFERE WITH AT THIS APPELLATE STAGE. THEREFORE THE FINDING OF THE LEARNED CIT(A) IS HEREBY UPHELD. HENCE, THIS ISS UE IS DECIDE IN FAVOUR OF THE REVENUE AGAINST THE ASSESSEE. ITA NO.1245&4983/MUM/12 & 6135/MUM/13 A.Y.2008-09, 2009-10 &2011-12 7 ISSUE NO.3:- 8. UNDER THE ISSUE NO.3 THE ASSESSEE HAS CHALLENGED THE ACTION OF LEARNED CIT(A) TO NOT TO CARRY FORWARD THE LONG TER M CAPITAL LOSS FOR SUBSEQUENT ASSESSMENT YEARS IN THE APPEAL FOR T HE A.Y.2008-09 AND 2010-11. IN SUPPORT OF THIS CONTENTION THE LEA RNED REPRESENTATIVE OF THE ASSESSEE HAS PLACED RELIANCE ON 69 SOT 383 ( MUM-TRIB) IN CASE OF RAPTAKOS BRETT & CO. LTD. VS. DCIT. THE ORDER PERUSED WHICH SPEAKS ABOUT THE FACTS THAT LONG TERM CAPITAL LOSS ON SALE OF SHARES ATTRACTIVE STT CAN BE SET OFF AGAINST LONG TERM CAP ITAL GAIN ON SALE OF LAND IN ACCORDANCE WITH SECTION 70(3) OF THE ACT . ACCORDINGLY, BY HONORING THE JUDGEMENT PASSED BY THE ITAT IN CASE R APTAKOS BRETT & CO. LTD (SUPRA) WE SET ASIDE THE FINDING ON THIS IS SUE AND ALLOWED THIS ISSUE IN FAVOUR OF THE ASSESSEE ON THE ABOVE STATED TERMS. ACCORDINGLY THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE AGA INST THE REVENUE. 9. IN RESULT ALL THE APPEALS FILED BY THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH JUNE , 2016. SD/- SD/- (B.R.BASKARAN) (AMARJIT SINGH) # / ACCOUNTANT MEMBER %& # /JUDICIAL MEMBER ' ( MUMBAI; )# DATED : 10 TH JUNE, 2016 MP MP MP MP ITA NO.1245&4983/MUM/12 & 6135/MUM/13 A.Y.2008-09, 2009-10 &2011-12 8 * + ,%'#- .-(' / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. * ( ) / THE CIT(A)- 4. * / CIT 5. -./ &&01 , 01' , ' ( / DR, ITAT, MUMBAI 6. /34 5 / GUARD FILE. * / BY ORDER, - & //TRUE COPY// //$ ! /(DY./ASSTT. REGISTRAR) , ' ( / ITAT, MUMBAI