ACIT, Circle-16(3), Hyderabad V. M/s. Peninsular Investments Ltd., Kolkata

ITA 1263/HYD/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2778 (ITAT-HYDERABAD)
• Duration Of Justice: 8 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-05-2013
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 27-08-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: K R VASUDEVAN
• Keywords: Business income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B : HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA.NO.1263 & 1264/HYD/2012 ASSESSMENT YEARS 2006-2007 & 2007-2008 THE ACIT, CIRCLE 16(3) HYDERABAD VS. M/S. PENINSULAR INVESTMENTS LTD. KOLKATA 700 071. PAN AABCP2288F (APPELLANT) (RESPONDENT) FOR APPELLANT : SHRI GANGADHAR PANDA FOR RESPONDENT : SHRI K.R.VASUDEVAN DATE OF HEARING : 27.02.2013 DATE OF PRONOUNCEMENT : 10.05.2013 ORDER PER SMT. ASHA VIJAYARAGHAVAN, J.M. 1. THESE TWO APPEALS ARE FILED BY THE REVENUE AGAIN ST THE ORDER OF THE CIT (A)-V, HYDERABAD DATED 11.06.2012 FOR THE ASSESSMEN T YEARS 2006-2007 AND 2007-2008. 2. THE ASSESSEE-COMPANY IS ENGAGED IN THE BUSINESS OF INVESTMENT AND FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2006-2 007 ON 28.11.2006 ADMITTING A TOTAL LOSS OF RS.4,15,83,852/-. ASSESSM ENT UNDER SECTION 143(3) WAS COMPLETED DETERMINING TOTAL LOSS AT RS.3,62,389 /- BY MAKING AN ADDITION OF RS.4,09,51,463/- ON ACCOUNT OF DISALLOWANCE OF I NTEREST AMOUNT. 2 3. WE HAVE HEARD BOTH PARTIES, PERUSED THE RECORDS AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE I SSUE UNDER CONSIDERATION IS SQUARELY COVERED BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2003-04 IN ITA NO.506/HYD/2007 DATED 31.7.2008. THE TRIBUNAL IN ASSESSEES OWN CASE HAS HELD THAT THE ASSESSEE IS IN THE BUSIN ESS OF INVESTMENT OF SHARES. THOUGH THE SHARES WERE NOT HELD AS STOCK IN TRADE, THE METHOD OF VALUATION OF SHARES HAS BEEN SHOWN TO BE LOWER OF COST OR MARKET VALUE WHICH IS APPLICABLE TO BUSINESS STOCK ONLY. IT IS QUITE TRITE THAT ENTR IES IN THE BOOKS OF ACCOUNTS DOES NOT DETERMINE THE CHARACTER OF INCOME OR ASSET . THEREFORE, THE TRIBUNAL HELD THAT THE BUSINESS OF THE ASSESSEE IS TO INVEST IN SHARES AND THAT THE BORROWING WAS FOR THE PURPOSE OF BUSINESS, THE ENTI RE INTEREST HAS TO BE ALLOWED UNDER SEC. 36(1)(III) OF THE ACT. HOWEVER, THE ITAT , WHILE DIRECTING THE ALLOWANCE OF INTEREST PAID U/S. 36(1)(III) IN ENTIRETY WITHOU T ANY DISALLOWANCE, ALSO DIRECTED THAT PROFIT ON SALE OF SHARES IS TO BE ASSESSED AS BUSINESS INCOME. 4. THE CIT(A) FOLLOWED THE DECISION OF THE ITAT IN ASSESSEES OWN CASE FOR THE A.Y. 2003-04 (SUPRA) AND DELETED THE DISALLOWAN CE OF INTEREST OF RS.4,09,51,463/-. AS THERE IS NO CHANGE IN CIRCUMST ANCES BETWEEN 2003-04 AND THIS YEAR, RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2003-04 IN ITA.NO.506/HYD/2007 DATED 31.7.2008 CONFIRM THE ORDER OF THE CIT(A) DEL ETING THE DISALLOWANCE OF RS.4,09,51,463/- OF INTEREST PAYABLE BY THE ASSESSE E. 3 5. THE CIT(A) HAS NOT DISCUSSED THE ISSUE OF DISALL OWANCE. WE FIND THAT UNDER SECTION 14A WHICH WAS MADE BY THE ASSESSING O FFICER FOR BOTH THE YEARS UNDER APPEAL. THE LEARNED D.R. HAD RAISED THE ISSUE DURING THE COURSE OF HEARING BEFORE US THOUGH SPECIFIC GROUND IS NOT THE RE IN THE DEPARTMENTAL APPEAL THAT CIT(A) HAS ERRED IN NOT ADJUDICATING TH E ISSUE. WITH RESPECT TO THE ISSUE OF DISALLOWANCE UNDER SECTION 14A THE KARNATA KA HIGH COURT IN THE CASE OF CCI LTD. VS. JCIT 250 CTR 291 HAS HELD THAT WHEN NO EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE TO EARN DIVIDENDS, THERE C ANNOT BE ANY NOTIONAL EXPENDITURE CAN BE DEDUCTED FROM THE SAID INCOME. T HEY HAVE ALSO HELD THAT THE SHARES RETAINED BY THE ASSESSEE CANNOT BE SAID TO BE FOR THE PURPOSE OF EARNING DIVIDEND AND EARNING DIVIDEND INCOME IS INC IDENTAL TO THE BUSINESS OF SALE OF SHARES. IT CANNOT BE SAID THAT THE EXPENDIT URE INCURRED IN ACQUIRING SHARES HAS TO BE APPORTIONED TO THE EXTENT OF DIVID END INCOME AND THAT SHOULD BE DISALLOWED FROM DEDUCTIONS. FOLLOWING THIS DECIS ION THE MUMBAI TRIBUNAL I BENCH IN THE CASE OF DCIT VS. M/S. INDIA ADVANTAGE SECURITIES LTD. IN ITA.NO.6711/MUM/2011 FOR A.Y. 2008-09 DATED 14.9.20 12 HAS HELD THAT THERE CAN BE NO DISALLOWANCE U/S. 14A IN RESPECT OF SHARE S HELD FOR TRADING. THE SAME RATIO WILL ALSO APPLY TO THE ASSESSEES CASE H EREIN, WHERE THE PROFIT ON SALE OF SHARES IS ASSESSED AS BUSINESS INCOME. 6. HOWEVER, SINCE THE CIT(A) HAS NOT GIVEN A FINDIN G ON THIS ISSUE OF DISALLOWANCE UNDER SECTION 14A, WE REMIT THE SAME B ACK TO THE FILE OF CIT(A) TO DECIDE IN ACCORDANCE WITH LAW, AFTER AFFORDING A RE ASONABLE OPPORTUNITY OF BEING 4 HEARD TO THE ASSESSEE. HENCE, THE APPEAL OF THE REV ENUE IN ITA.1263/HYD/2012 FOR A.Y. 2006-07 IS ALLOWED FOR S TATISTICAL PURPOSES. 7. THE APPEAL FOR A.Y. 2007-08 IN ITA.1264/HYD/2012 IS ALSO ON THE IDENTICAL ISSUE OF DISALLOWANCE OF INTEREST PAYABLE OF RS.4,12,91,318/- ON BORROWED FUNDS. FOR THE REASONS STATED IN THE ASSES SEES OWN CASE FOR THE A.Y. 2006-07 IN ITA.NO.1263/HYD/2012, AT PARA 4 ABOVE, W E UPHOLD THE ORDER OF THE CIT(A) DELETING THE DISALLOWANCE OF INTEREST PA YABLE CLAIMED BY THE ASSESSEE. WITH RESPECT TO 14A DISALLOWANCE, OUR CON CLUSIONS AT PARAS 5 AND 6 (SUPRA) IN ITA.NO.1263/HYD/2012 IS TO BE FOLLOWED I N THE ITA.NO.1264/HYD/2012 FOR A.Y.2007-2008 BEFORE US. 8. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE A RE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT, ON 10 TH MAY, 2013. SD/- SD/- (CHANDRA POOJARI) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATE 10 TH MAY, 2013. VBP/- 5 COPY TO 1. THE ACIT, CIRCLE 16(3), 6 TH FLOOR, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD. 2. M/S. PENINSULAR INVESTMENTS LTD. C/O. RUSSEL CREDIT LIMITED, 37, JLN ROAD, VIRGINIA HOUSE, KOLKATA 700 071. PAN AABCP2 288F 3. THE CIT (A) - V , HYDERABAD 4. THE CIT-IV, HYDERABAD 5. D.R. B BENCH, I.T.A.T. HYDERABAD