D.C.I.T Cir - 1,kolkata, Kolkata V. M/s Teenlok Advisory Services Pvt Ltd, Mumbai

ITA 1351/KOL/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4721 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-06-2016
• Appeal Filed By: Department
• Bench Allotted: A
• Next Hearing Date: 08-04-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 17-05-2013
• Court: TRIBUNAL
• Department Lawyers: S S ALAM
• Keywords: Business income; Transactions in derivatives; Earning of tax free income; Question of law
• Section: 14A

Judgement Text

I.T.A. NO. 1351/KOL./2013 ASSESSMENT YEAR: 2009-2010 PAGE 1 OF 17 IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA A BENCH, KOLKATA BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI N.V. VASUDEVAN, JUDICIAL MEMBER I.T.A. NO. 1351/KOL/ 2013 ASSESSMENT YEAR: 2009-2010 DEPUTY COMMISSIONER OF INCOME TAX,................. ...............APPELLANT CIRCLE-1, KOLKATA, AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQUARE, KOLKATA-700 069 -VS.- M/S. TEENLOK ADVISORY SERVICES PVT. LIMITED,....... ...........RESPONDENT 102, WINDSOR, VIDYANAGRI ROAD, SANTACRUZ (EAST), MUMBAI-400 098 [PAN: AACCT 3123 E] APPEARANCES BY: SHRI S.S. ALAM, JCIT, SR. D.R., FOR THE DEPARTMENT SHRI SUBASH AGARWAL, ADVOCATE, FOR THE ASSESSEE DATE OF CONCLUDING THE HEARING : APRIL 08, 2016 DATE OF PRONOUNCING THE ORDER : JUNE 08, 2016 O R D E R PER SHRI P.M. JAGTAP :- THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX-(APPEALS)-XXIV, KOLKATA DATED 22.02.2013. 2. THE ISSUE RAISED IN GROUND NO. 1 RELATES TO THE DELETION BY THE LD. CIT(APPEALS) OF THE ADDITION OF RS.2,42,70,464/- MA DE BY THE ASSESSING OFFICER BY WAY OF DISALLOWANCE UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF THE INCOME TAX RULES, 1962. 3. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY, W HICH IS ENGAGED IN THE BUSINESS OF DEALING IN SHARES AND SECURITIES. T HE RETURN OF INCOME FOR I.T.A. NO. 1351/KOL./2013 ASSESSMENT YEAR: 2009-2010 PAGE 2 OF 17 THE YEAR UNDER CONSIDERATION WAS FILED BY IT ON 24. 09.2009 DECLARING TOTAL INCOME AT NIL. IN THE SAID RETURN, DIVIDEND INCOM E OF RS.92,64,034/- RECEIVED DURING THE YEAR UNDER CONSIDERATION WAS CL AIMED TO BE EXEMPT BY THE ASSESSEE AND A DISALLOWANCE OF RS.1,20,000/- WAS OFFERED UNDER SECTION 14A ON ACCOUNT OF EXPENDITURE INCURRED IN R ELATION TO THE SAID EXEMPT INCOME. THE ASSESSING OFFICER HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE WAS NOT SATISFIED ABOUT THE CORRECTNES S OF THE DISALLOWANCE OFFERED BY THE ASSESSEE UNDER SECTION 14A ON ACCOUN T OF EXPENDITURE IN RELATION TO EXEMPT INCOME. HE, THEREFORE, INVOKED R ULE 8D AND COMPUTED THE DISALLOWANCE TO BE MADE UNDER SECTION 14A ON AC COUNT OF EXPENDITURE INCURRED IN RELATION TO THE EXEMPT INCOME AT RS.2,4 3,90,464/-. ACCORDINGLY, THE DIFFERENCE OF RS.2,42,70,464/- (RS .2,43,90,464/- MINUS RS.1,20,000/-) WAS ADDED BY THE ASSESSING OFFICER T O THE TOTAL INCOME OF THE ASSESSEE. 4. THE DISALLOWANCE MADE BY THE ASSESSING OFFICER U NDER SECTION 14A READ WITH RULE 8D WAS CHALLENGED BY THE ASSESSEE IN THE APPEAL FILED BEFORE THE LD. CIT(APPEALS) AND AFTER CONSIDERING T HE SUBMISSIONS MADE BY THE ASSESSEE BEFORE HIM AS WELL AS THE CASE LAWS CITED IN SUPPORT, THE LD. CIT(APPEALS) DELETED THE SAID DISALLOWANCE MADE BY THE ASSESSING OFFICER FOR THE FOLLOWING REASONS GIVEN IN PARAGRAP H NO. 2.3 OF HIS IMPUGNED ORDER:- 2.3. I HAVE CAREFULLY CONSIDERED THE OBSERVATION O F THE ASSESSING OFFICER IN THE ASSESSMENT ORDER AND ALSO THE SUBMISSION OF THE LD. A.R. DURING THE COURSE OF THE APPELLATE PROCEEDINGS, THE LD. A.R. HAS EXPLAINED THAT THE AP PELLANT IS ENGAGED IN THE BUSINESS OF SHARE TRADING AND ALL TH E SHARES HAVE BEEN HELD BY THE APPELLANT AS STOCK-IN-TRADE. THE LD. A.R. HAS STATED THAT THE APPELLANT HAS RECEIVED DIV IDEND INCOME OF RS.92,64,034/- ON SHARES WHICH HAVE BEEN HELD AS STOCK-IN-TRADE. THE BALANCE-SHEET OF THE APPELLANT COMPANY REVEALS THAT IT HAD THE STOCK IN TRADE AMOUNTING TO RS.10,10,27,014/- AND RS.60,97,40,236/- AS AT 31.03 .2009 AND 31.03.2008 RESPECTIVELY. THE BALANCE SHEET ALSO REVEALS THAT ALL THE SHARES HELD BY THE APPELLANT HAS BEEN SHOWN AS STOCK-IN-TRADE. THE LD. A.R. HAS INFORMED THAT THE AO HAS CALCULATED THE DISALLOWANCE U/S 14A BY TREATING THE STOCK- IN-TRADE AS INVESTMENT IN SHARES. IN THIS REGARD, T HE LD. AR I.T.A. NO. 1351/KOL./2013 ASSESSMENT YEAR: 2009-2010 PAGE 3 OF 17 HAS RELIED ON THE DECISION OF THE KARNATAKA HIGH CO URT IN THE CASE OF CCI LIMITED VS.- JCIT [2012] 206 TAXMA N 563 (KER.). IN THIS CASE, THE HONBLE COURT HAS HELD TH AT WHEN THE ASSESSEE HAS NOT RETAINED THE SHARES WITH THE INTEN TION OF EARNING DIVIDEND AND THE DIVIDEND INCOME IS INCIDEN TAL TO HIS BUSINESS OF SALE OF SHARES, WHICH REMAINED UNSO LD, IT COULD NOT BE SAID THAT THE EXPENDITURE INCURRED IN ACQUIRING THE SHARES CAN BE APPORTIONED TO THE EXTENT OF DIVI DEND INCOME AND THAT CAN BE DISALLOWED UNDER SECTION 14A . THE LD. AR HAS ALSO RELIED ON THE DECISION OF THE HONB LE KERALA HIGH COURT IN THE CASE OF CIT VS.- SMT. LEENA RAMC HANDRAN [2011] 339 ITR 296 (KER.). THE HONBLE KERALA HIGH COURT HAS HELD THAT THE ASSESSEE WOULD BE ELIGIBLE FOR DE DUCTION U/S 36(1)(III) ON BORROWED FUND UTILIZED FOR ACQUIS ITION OF SHARES ONLY IF SHARES ARE HELD AS STOCK-IN-TRADE WH ICH ARISES ONLY IF THE ASSESSEE IS ENGAGED IN TRADING IN SHARE S. AS REGARDS THE ACQUISITION OF SHARES IN THE FORM OF IN VESTMENT, THE HONBLE HIGH COURT HAS HELD THAT THE ONLY BENEF IT DERIVED BY THE ASSESSEE IS DIVIDEND AND THE DISALLO WANCE U/S 14A IS ATTRACTED FOR ACQUISITION OF SHARES IN THE F ORM OF INVESTMENTS. THE LD. AR HAS EXPLAINED THAT THE APPE LLANT COMPANY IS INVOLVED IN TRADING IN SHARES AND THE SH ARES ARE HELD AS STOCK-IN-TRADE. THE LD. AR HAS ARGUED THAT THE AO HAS WRONGLY CALCULATED THE DISALLOWANCE U/S 14A REA D WITH RULE 8D BY TREATING THE STOCK-IN-TRADE AS INVESTMEN TS IN SHARES. THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CCI LTD. (SUPRA) AND ALSO THE DECISION OF THE HONBLE KERALA HIGH COURT IN THE CASE OF SMT. LEENA RAMCHANDRAN (SUPRA) ARE SQUARELY APPLICABLE TO THE FACTS OF THE CASE. THE APPELLANT COMPANY HAS ALREADY DISALLO WED A SUM OF RS.1,20,000/- U/S 14A IN RELATION TO THE DIV IDEND INCOME WHICH IS EXEMPT FROM TAX. CONSIDERING THE FA CTS OF THE CASE, I AM OF THE VIEW THAT THE APPELLANT HAS H ELD THE SHARES AS STOCK-IN-TRADE AND THE AO HAS WRONGLY TRE ATED ITS STOCK IN TRADE AS INVESTMENT IN SHARES AND COMPUTED THE DISALLOWANCE OF RS.2,43,90,464/- U/S14A READ WITH R ULE 8D. THE APPELLANT HAS ALREADY MADE A DISALLOWANCE OF RS.1,20,000/- U/S 14A. IN VIEW OF IT, THE AO IS DIR ECTED TO DELETE THE DISALLOWANCE OF RS.2,42,70,464/- U/S 14A . THIS GROUND OF APPEAL IS ALLOWED. 5. THE LD. D.R., AT THE OUTSET, SUBMITTED THAT THE ISSUE INVOLVED IN GROUND NO. 1 OF THE REVENUES APPEAL RELATING TO TH E DISALLOWANCE UNDER SECTION 14A ON ACCOUNT OF EXPENDITURE IN RELATION T O THE EARNING OF EXEMPT DIVIDEND INCOME RECEIVED ON SHARES HELD AS S TOCK-IN-TRADE IS SQUARELY COVERED IN FAVOUR OF THE REVENUE BY THE DE CISION OF THE HONBLE I.T.A. NO. 1351/KOL./2013 ASSESSMENT YEAR: 2009-2010 PAGE 4 OF 17 CALCUTTA HIGH COURT IN THE CASE OF DHANUKA & SONS VS.- CIT (2011) 339 ITR 319. HE CONTENDED THAT THE HONBLE MUMBAI BENCH OF THE ITAT IN ITS THIRD MEMBER DECISION RENDERED IN THE CASE OF DH SE CURITIES PVT. LTD. VS.- DCIT (2014) 41 TAXMANN.COM 352 HAS DECIDED A S IMILAR ISSUE IN FAVOUR OF THE REVENUE BY FOLLOWING THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF DHANUKA & SONS (SUPRA) BY HOLDING THAT THE SAME IS SQUARELY COVERED BY THE PRINCIPLES LAID DOW N BY THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF DHANUKA & SONS ( SUPRA). 6. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER H AND, STRONGLY SUPPORTED THE IMPUGNED ORDER OF THE LD. CIT(APPEALS ) HOLDING THAT SECTION 14A AND RULE 8D HAVE NO APPLICATION TO MAKE A DISALLOWANCE ON ACCOUNT OF EXPENDITURE IN RELATION TO THE EXEMPT DI VIDEND INCOME WHICH IS EARNED ON SHARES HELD AS STOCK-IN-TRADE AND NOT INVESTMENT. HE ALSO CITED BY THE DECISION OF THE HONBLE KERALA HIGH CO URT IN THE CASE OF CIT VS.- SMT. LEENA RAMACHANDRAN [339 ITR 296 (KER.)] R ELIED UPON BY THE LD. CIT(APPEALS) IN HIS IMPUGNED ORDER, WHEREIN IT WAS HELD THAT THE ASSESSEE WOULD BE ENTITLED FOR DEDUCTION OF INTERES T UNDER SECTION 36(1)(III) OF THE ACT ON THE FUNDS BORROWED AND UTI LIZED FOR THE ACQUISITION OF SHARES AS STOCK-IN-TRADE AND THE DIS ALLOWANCE UNDER SECTION 14A IS ATTRACTED ONLY WHEN THE ACQUISITION OF SHARES IS IN THE FORM OF INVESTMENT AND THE BENEFIT DERIVED BY THE ASSESS EE IS ONLY IN THE FORM OF DIVIDEND INCOME, WHICH IS EXEMPT FROM TAX. HE AL SO RELIED ON THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CCI LIMITED VS.- JCIT [206 TAXMAN 563], WHEREIN IT WAS HELD THA T WHEN THE ASSESSEE HAS NOT RETAINED SHARES WITH THE INTENTION OF EARNI NG DIVIDEND INCOME AND THE DIVIDEND INCOME IS INCIDENTAL TO HIS BUSINE SS OF SALE OF SHARES, WHICH REMAINED UNSOLD BY THE ASSESSEE, IT CANNOT BE SAID THAT THE EXPENDITURE INCURRED IN ACQUIRING THE SHARES HAS TO BE APPORTIONED TO THE EXTENT OF DIVIDEND INCOME AND THAT SHOULD BE DISALL OWED UNDER SECTION 14A. I.T.A. NO. 1351/KOL./2013 ASSESSMENT YEAR: 2009-2010 PAGE 5 OF 17 7. THE LD. COUNSEL FOR THE ASSESSEE ALSO CITED THE DECISION OF THE MUMBAI BENCH OF ITAT IN THE CASE OF CIT VS.- INDIA ADVANTAGE SECURITIES LIMITED (ITA NO. 6711/MUM/2011 DATED 14.09.2012), W HEREIN THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CCI LIMITED- VS.- JCIT (SUPRA) HAS BEEN FOLLOWED BY THE TRIBUNAL TO HOLD THAT THE DISALLOWANCE OF INTEREST IN RELATION TO THE DIVIDEN D RECEIVED FROM TRADING SHARES COULD NOT BE MADE. HE SUBMITTED THAT THE APP EAL FILED BY THE REVENUE AGAINST THE SAID ORDER OF THE TRIBUNAL PASS ED IN THE CASE OF INDIA ADVANTAGE SECURITIES LIMITED (SUPRA) HAS BEEN DISMI SSED BY THE HONBLE BOMBAY HIGH COURT VIDE ITS ORDER DATED APRIL 13, 20 15 PASSED IN ITA NO. 1131 OF 2013 BY HOLDING THAT THERE WAS NO SUBSTANTI AL QUESTION OF LAW INVOLVED. RELYING ON THE DECISION OF THE HONBLE GU JARAT HIGH COURT IN THE CASE OF NIRMA INDUSTRIES LIMITED REPORTED IN 283 IT R 402, HE CONTENDED THAT THE ORDER OF THE TRIBUNAL IN THE CASE OF INDIA ADVANTAGE SECURITIES LIMITED THUS HAS MERGED WITH THE ORDER OF THE HONB LE BOMBAY HIGH COURT AND THE THIRD MEMBER DECISION OF THE TRIBUNAL IN THE CASE OF DH SECURITIES PVT. LIMITED (SUPRA) RELIED UPON BY THE LD. D.R. STANDS IMPLIEDLY OVERRULED. HE ALSO RELIED ON THE LATEST D ECISION OF THE HONBLE BOMBAY HIGH COURT DATED 25.02.2016 RENDERED IN THE CASE OF HDFC BANK VS.- DCIT [67 TAXMANN.COM 42], WHEREIN THE ACTION OF THE TRIBUNAL IN NOT FOLLOWING THE DECISION OF ITS COORDINATE BENCH IN T HE CASE OF INDIA ADVANTAGE SECURITIES LIMITED (SUPRA) WAS DISAPPROVE D BY THE HONBLE BOMBAY HIGH COURT BY OBSERVING THAT WHEN THE APPEAL OF THE REVENUE AGAINST THE DECISION OF THE TRIBUNAL IN THE CASE OF INDIA ADVANTAGE SECURITIES LIMITED WAS DISMISSED BY THE HONBLE HI GH COURT, THE COORDINATE BENCHES OF THE TRIBUNAL WERE OBLIGED TO FOLLOW THE SAID DECISION. 8. AS REGARDS THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF DHANUKA & SONS (SUPRA) RELIED UPON BY THE L D. D.R., THE LD. COUNSEL FOR THE ASSESSEE CONTENDED THAT THE ISSUE INVOLVED IN THE SAID CASE BEFORE THE HONBLE HIGH COURT WAS IN REGARD TO APPLICABILI TY OF SECTION 14A WITH RESPECT TO INVESTMENT IN SHARES AND NOT STOCK-IN -TRADE. HE CONTENDED I.T.A. NO. 1351/KOL./2013 ASSESSMENT YEAR: 2009-2010 PAGE 6 OF 17 THAT ALTHOUGH THERE WAS A REFERENCE TO BUSINESS OF TRADING IN SHARES IN QUESTION NO. (II) REFERRED TO THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF DHANUKA & SONS (SUPRA), THE SAME WAS OF NO CONSE QUENCE AS IT WAS ONLY A PART OF ENTIRE INDIVISIBLE/COMPOSITE BUSINES S, WHICH ALSO INCLUDED GRANTING OF LOANS AND ADVANCES AND INVESTMENT IN SH ARES. HE CONTENDED THAT EVEN THOUGH IN THE THIRD MEMBER DECISION RENDE RED BY THE MUMBAI BENCH IN THE CASE OF D.H. SECURITIES (P) LIMITED, T HE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF DHANUKA & SONS WAS FOLLOWED TO DECIDE A SIMILAR ISSUE AGAINST THE ASSESSEE BY H OLDING THAT THE SAME IS SQUARELY COVERED BY THE SAID DECISION, THE THIRD ME MBER DECISION HAS ALREADY BEEN OVERRULED IMPLIEDLY BY THE DECISION OF THE HONBLE BOMBAY HIGH COURT RENDERED IN THE CASE OF INDIA ADVANTAGE SECURITIES (SUPRA). HE CONTENDED THAT THIRD MEMBER DECISION IN THE CASE OF D.H. SECURITIES (P) LIMITED EVEN OTHERWISE HAS WRONGLY READ THE DECISIO N OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF DHANUKA & SONS ( SUPRA). HE ALSO CONTENDED THAT THE HONBLE CALCUTTA HIGH COURT IN T HE CASE OF DHANUKA & SONS (SUPRA) HAD NO OCCASION TO CONSIDER THE APPLIC ABILITY OF RULE 8D OR EFFECT THEREOF AS THE SAME HAS COME INTO FORCE W.E. F. A.Y. 2008-09 WHEREAS THE ASSESSMENT YEAR INVOLVED IN THE SAID CASE WAS A .Y. 1998-99. 9. AS REGARDS THE APPLICABILITY OF RULE 8D, THE LD. COUNSEL FOR THE ASSESSEE PLACED RELIANCE ON THE DECISION OF THE COO RDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF DCIT VS.- GULSHAN INVESTME NT CO. LIMITED ( ITA 666/KOL/2012 DATED MARCH 11, 2013), WHEREIN IT WAS HELD THAT RULE 8D(2)(II) AND (III) CAN ONLY BE APPLIED IN THE SITU ATIONS IN WHICH SHARES ARE HELD AS INVESTMENTS AND THIS RULE WILL NOT HAVE ANY APPLICATION WHEN THE SHARES ARE HELD AS STOCK-IN-TRADE. IT WAS HELD THAT THE APPLICATION OF RULE 8D(2)(I), HOWEVER, IS NOT EXCLUDED AND IN A CA SE WHERE SHARES ARE HELD AS STOCK-IN-TRADE AND NOT AS INVESTMENTS, THE DISALLOWANCE EVEN UNDER RULE 8D IS RESTRICTED TO THE EXPENDITURE DIRE CTLY RELATABLE TO EARNING OF EXEMPT INCOME. IT WAS HELD THAT SECTION 14A THUS WILL STILL APPLY IN THE CASES WHERE SHARES ARE HELD AS STOCK-I N-TRADE BUT THE DISALLOWANCE TO BE MADE UNDER SECTION 14A READ WITH RULE 8D WILL BE I.T.A. NO. 1351/KOL./2013 ASSESSMENT YEAR: 2009-2010 PAGE 7 OF 17 RESTRICTED TO DIRECT EXPENSES INCURRED IN RELATION TO THE EARNING OF EXEMPT DIVIDEND INCOME. THE LD. COUNSEL FOR THE ASSESSEE C ONTENDED THAT EVEN IF SECTION 14A AND RULE 8D IS HELD TO BE APPLICABLE IN CASE OF EXPENDITURE INCURRED IN RELATION TO THE EARNING OF EXEMPT DIVID END INCOME ON SHARES HELD AS STOCK-IN-TRADE, THE COMPUTATION OF SUCH DIS ALLOWANCE HAS TO BE MADE STRICTLY AS PER THE LANGUAGE EMPLOYED IN RULE 8D. 10. WITHOUT PREJUDICE TO HIS MAIN ARGUMENT AND AS A N ALTERNATIVE, THE LD. COUNSEL FOR THE ASSESSEE CONTENDED THAT THE DIS ALLOWANCE UNDER SECTION 14A HAS BEEN WRONGLY WORKED OUT BY THE ASSE SSING OFFICER UNDER RULE 8D BY TAKING THE ENTIRE VALUE OF STOCK-IN-TRAD E INSTEAD OF TAKING THE VALUE OF SHARES, WHICH ACTUALLY YIELDED DIVIDEND IN COME DURING THE YEAR UNDER CONSIDERATION. IN THIS REGARD, HE RELIED ON T HE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF RE I AGRO LIMITED VS.- DCIT (ITA NOS. 1331 & 1423/KOL/2011 DATED 19.06.201 3), WHEREIN IT WAS HELD THAT THE VALUE OF ONLY THOSE SHARES ARE RE QUIRED TO BE CONSIDERED IN COMPUTATION AS PER RULE 8D, WHICH HAVE YIELDED D IVIDEND INCOME. HE POINTED OUT THAT THE SAID DECISION RENDERED BY THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF REI AGRO LIMITED HAS B EEN AFFIRMED BY THE HONBLE CALCUTTA HIGH COURT VIDE ITS ORDER DATED 19 .04.2014 IN ITAT NO. 220 OF 2013. HE CONTENDED THAT EVEN IF SECTION 14A READ WITH RULE 8D IS HELD TO BE APPLICABLE IN THE CASE OF THE ASSESSEE, THE ASSESSING OFFICER MAY BE DIRECTED TO COMPUTE THE DISALLOWANCE AS PER RULE 8D BY TAKING INTO CONSIDERATION ONLY THOSE SHARES, WHICH HAVE YI ELDED DIVIDEND INCOME IN THE YEAR UNDER CONSIDERATION. 11. IN THE REJOINDER, THE LD. D.R. INVITED OUR ATTE NTION TO THE PROVISIONS OF SECTION 14A AND SUBMITTED THAT SUB-SECTION (1) O F SECTION 14A SPELLS OUT IN UNAMBIGUOUS TERMS THAT THE EXPENDITURE INCUR RED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF T HE TOTAL INCOME OF THE ACT IS TO BE DISALLOWED. HE CONTENDED THAT THE REFE RENCE HERE IS TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOM E WITHOUT MAKING ANY FURTHER DISTINCTION BETWEEN THE SOURCE OF SUCH INCOME. ACCORDING TO I.T.A. NO. 1351/KOL./2013 ASSESSMENT YEAR: 2009-2010 PAGE 8 OF 17 HIM, WHETHER THE EXEMPT DIVIDEND INCOME IS EARNED F ROM THE PURCHASE OF SHARES FOR TRADING PURPOSE AND HELD AS STOCK-IN-TRA DE OR FROM THE PURCHASE OF SHARES FOR INVESTMENT PURPOSE, THEREFOR E, IS IMMATERIAL AND THE STIPULATION OF SECTION 14A(1) IS CLEAR IN THE S ENSE THAT IF THERE IS ANY EXEMPT INCOME, THE DISALLOWANCE OF EXPENDITURE UNDE R SECTION 14A IN RELATION TO SUCH INCOME IS AUTOMATIC. HE CONTENDED THAT EVEN THE WORD INVESTMENT USED IN RULE 8D REFERS TO THE MAKING O F PURCHASE OF SHARES AND WHEN THE DIVIDEND EARNED ON SUCH SHARES IS EXEM PT, THE PROVISIONS OF SECTION 14A READ WITH RULE 8D ARE CLEARLY APPLICABL E. 12. THE LD. D.R. CONTENDED THAT WHILE DECIDING THE ISSUE RELATING TO THE APPLICABILITY OF SECTION 14A READ WITH RULE 8D FOR MAKING DISALLOWANCE ON ACCOUNT OF EXPENDITURE IN RELATION TO THE EXEMPT DI VIDEND INCOME EARNED ON SHARES HELD AS STOCK-IN-TRADE, THE VERY PURPOSE OF INTRODUCING THE PROVISIONS OF SECTION 14A IN THE STATUTE NEEDS TO B E TAKEN INTO CONSIDERATION. IN THIS REGARD, HE INVITED OUR ATTEN TION TO THE EXPLANATORY NOTES GIVEN IN THE FINANCE BILL, 2001, WHEREIN THE PURPOSE OF INSERTING SECTION 14A WAS CLARIFIED AS UNDER:- CERTAIN INCOMES ARE NOT INCLUDIBLE WHILE COMPUTING THE TOTAL INCOME AS THESE ARE EXEMPT UNDER VARIOUS PROV ISIONS OF THE ACT. THERE HAVE BEEN CASES WHERE DEDUCTIONS HAVE BEEN CLAIMED IN RESPECT OF SUCH EXEMPT INCOME. THIS IN EFFECT MEANS THAT THE TAX INCENTIVE GIVEN BY WAY OF EXEMPTIONS TO CERTAIN CATEGORIES OF INCOME IS BEING USED TO REDUCE ALSO THE TAX PAYABLE ON THE NON-EXEMPT INCOM E BY DEBITING THE EXPENSES INCURRED TO EARN THE EXEMPT I NCOME AGAINST TAXABLE INCOME. THIS IS AGAINST THE BASIC P RINCIPLES OF TAXATION WHEREBY ONLY THE NET INCOME, I.E., GROS S INCOME MINUS THE EXPENDITURE, IS TAXED. ON THE SAME ANALOG Y, THE EXEMPTION IS ALSO IN RESPECT OF THE NET INCOME. EXP ENSES INCURRED CAN BE ALLOWED ONLY TO THE EXTENT THEY ARE RELATABLE TO THE EARNING OF TAXABLE INCOME. IT IS P ROPOSED TO INSERT A NEW SECTION 14A SO AS TO CLARIFY THE INTEN TION OF THE LEGISLATURE SINCE THE INCEPTION OF THE INCOME TAX A CT, 1961 THAT NO DEDUCTION SHALL BE MADE IN RESPECT OF ANY EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE INCOME TAX ACT. I.T.A. NO. 1351/KOL./2013 ASSESSMENT YEAR: 2009-2010 PAGE 9 OF 17 THE LD. D.R. ALSO RELIED ON CBDTS CIRCULAR NO. 5/20 04 DATED 11.02.2014, WHEREIN IT HAS BEEN FURTHER CLARIFIED AND EMPHASIZE D THAT LEGISLATIVE INTENT BEHIND INTRODUCTION OF SECTION 14A IS TO ALL OW ONLY THAT EXPENDITURE WHICH IS RELATABLE TO EARNING OF INCOME AND IT, THEREFORE, FOLLOWS THAT THE EXPENSES, WHICH ARE RELATABLE TO E XEMPT INCOME ARE TO BE CONSIDERED FOR DISALLOWANCE. 13. THE LD. D.R. FINALLY REITERATED THAT THE ISSUE UNDER CONSIDERATION IS SQUARELY COVERED BY THE DECISION OF THE HONBLE CAL CUTTA HIGH COURT IN THE CASE OF DHANUKA & SONS VS.- CIT (SUPRA) IN FAVOUR OF THE REVENUE AND SUBMITTED THAT ALTHOUGH THE LD. COUNSEL FOR THE ASS ESSEE HAS PLACED RELIANCE ON VARIOUS CASE LAWS IN SUPPORT OF THE ASS ESSEES CASE ON THIS ISSUE, THERE IS NO DECISION EITHER OF THE HONBLE S UPREME COURT OR THAT OF THE HONBLE CALCUTTA HIGH COURT RENDERED SUBSEQUENT LY TAKING A VIEW CONTRARY TO THE DECISION RENDERED IN THE CASE OF DH ANUKA & SONS. HE CONTENDED THAT EVEN THE MUMBAI BENCH OF THIS TRIBUN AL IN ITS THIRD MEMBER DECISION RENDERED IN THE CASE OF DH SECURITI ES PVT. LIMITED HAS HELD CATEGORICALLY THAT THE ISSUE UNDER CONSIDERATI ON IS SQUARELY COVERED BY THE PRINCIPLES LAID DOWN BY THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF DHANUKA & SONS. HE PLEADED THAT THE SAID THIRD M EMBER DECISION HAS A FORCE OF SPECIAL BENCH AND THIS DIVISION BENCH OF T HE TRIBUNAL, THEREFORE, HAS TO FOLLOW THE SAME AS A BINDING PRECEDENT. 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND AL SO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE ISSUE TH AT ARISES FOR OUR CONSIDERATION IN THE PRESENT CONTEXT IS WHETHER THE PROVISIONS OF SECTION 14A CAN BE INVOKED TO MAKE A DISALLOWANCE ON ACCOUN T OF EXPENDITURE INCURRED IN RELATION TO THE EXEMPT INCOME IN THE FO RM OF DIVIDEND RECEIVED BY THE ASSESSEE ON THE SHARES HELD AS STOC K-IN-TRADE. IN THIS REGARD, THE LD. D.R. HAS STRONGLY RELIED ON THE THI RD MEMBER DECISION OF THE TRIBUNAL IN THE CASE OF D.H. SECURITIES PVT. LI MITED (SUPRA), WHEREIN A SIMILAR ISSUE WAS INVOLVED AND WHILE DECIDING THE S AME, THE LD. ACCOUNTANT MEMBER TOOK A VIEW THAT SECTION 14A HAS APPLICATION EVEN IN I.T.A. NO. 1351/KOL./2013 ASSESSMENT YEAR: 2009-2010 PAGE 10 OF 17 THE CASE WHERE THE EXEMPT DIVIDEND INCOME IS RECEIV ED FROM THE SHARES HELD AS STOCK-IN-TRADE AND THE DISALLOWANCE ON ACCO UNT OF EXPENDITURE INCURRED IN RELATION TO SUCH EXEMPT INCOME CAN BE M ADE BY APPLYING THE SAID PROVISION. THE LD. JUDICIAL MEMBER, HOWEVER, D ID NOT AGREE WITH THIS VIEW OF THE LD. ACCOUNTANT MEMBER AND WROTE A DISSE NTING ORDER TAKING A CONTRARY VIEW THAT DISALLOWANCE UNDER SECTION 14A C ANNOT BE MADE WHERE DIVIDEND INCOME HAS BEEN EARNED ON THE SHARES HELD AS STOCK-IN-TRADE BY RELYING, INTER ALIA, ON THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CCI LIMITED (SUPRA), WHICH HAS BEEN REL IED UPON BY THE LD. CIT(APPEALS) IN HIS IMPUGNED ORDER WHILE DECIDING T HE ISSUE IN FAVOUR OF THE ASSESSEE. WHEN THE MATTER WAS REFERRED TO A THI RD MEMBER TO RESOLVE THE POINT OF DIFFERENCE, THE DECISION OF THE HONBL E KARNATAKA HIGH COURT IN THE CASE OF CCI LIMITED (SUPRA) AS WELL AS VARIO US OTHER JUDICIAL PRONOUNCEMENTS WERE CITED ON BEHALF OF THE ASSESSEE IN SUPPORT OF ITS CASE. THE LD. THIRD MEMBER, HOWEVER, HELD THAT THE ISSUE IS SQUARELY COVERED BY THE PRINCIPLES LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ BOYCEE MANUFACTURING COMPANY LIM ITED (SUPRA) AS ALSO BY THE JUDGMENT OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF DHANUKA & SONS (SUPRA). ACCORDINGLY, HE FOLLOWED THE SAME A ND CONCURRED WITH THE VIEW OF THE LD. ACCOUNTANT MEMBER THAT THE DISALLOW ANCE UNDER SECTION 14A CAN BE MADE IN CONFORMITY WITH LAW EVEN IN CASE S WHERE DIVIDEND INCOME HAS BEEN EARNED ON THE SHARES HELD AS STOCK- IN-TRADE. 15. AT THE TIME OF HEARING BEFORE US, THE FIRST CON TENTION RAISED BY THE LD. COUNSEL FOR THE ASSESSEE IS THAT THE DECISION O F THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF DHANUKA & SONS IS NOT DIR ECTLY APPLICABLE TO THE ISSUE UNDER CONSIDERATION AND THE SAME HAS WRONGLY BEEN READ BY THE LD. THIRD MEMBER IN THE CASE OF DH SECURITIES PVT. LIMI TED WHILE APPLYING THE SAME TO DECIDE THE ISSUE AGAINST THE ASSESSEE. HOWE VER, AS RIGHTLY CONTENDED BY THE LD. D.R., THE THIRD MEMBER DECISIO N IN THE CASE OF DH SECURITIES PVT. LIMITED (SUPRA) IS BINDING ON US HA VING THE FORCE OF A SPECIAL BENCH AND IT IS, THEREFORE, NOT PERMISSIBLE FOR US TO TAKE A DIFFERENT VIEW THAN THE ONE TAKEN IN THE THIRD MEMB ER DECISION RENDERED I.T.A. NO. 1351/KOL./2013 ASSESSMENT YEAR: 2009-2010 PAGE 11 OF 17 IN THE CASE OF DH SECURITIES PVT. LIMITED REGARDING THE APPLICABILITY OF THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF DHANUKA & SONS TO THE ISSUE UNDER CONSIDERATION. MOREOVER, A PERUS AL OF THE JUDGMENT PASSED BY THE HONBLE CALCUTTA HIGH COURT IN THE CA SE OF DHANUKA & SONS SHOWS THAT IT WAS CLEARLY MENTIONED IN QUESTION NO. 2 ITSELF REFERRED TO THE HONBLE CALCUTTA HIGH COURT THAT THE ENTIRE INT EREST EXPENDITURE WAS INCURRED BY THE ASSESSEE FROM ITS INDIVISIBLE BUSIN ESS OF TRADING OF SHARES, GRANTING OF LOANS AND ADVANCES AND INVESTIN G IN SHARES. IT WAS ALSO MENTIONED AS UNDISPUTED FACT IN PARAGRAPH NO. 8 OF THE JUDGMENT THAT PART OF THE INCOME OF THE ASSESSEE FROM ITS BUSINES S WAS FROM DIVIDEND, WHICH WAS EXEMPT FROM TAX. THE ASSESSEE IN THE CASE OF DHANUKA & SONS THUS WAS VERY MUCH INVOLVED IN THE BUSINESS OF TRAD ING IN SHARES AND THE UNDISPUTED FACT NOTED BY THE HONBLE HIGH COURT THA T PART OF INCOME RECEIVED IN THE FORM OF EXEMPT DIVIDEND INCOME WAS FROM SUCH BUSINESS OF THE ASSESSEE IS SUFFICIENT TO SHOW THAT DIVIDEND INCOME WAS RECEIVED BY THE ASSESSEE EVEN ON THE SHARES HELD AS STOCK-IN-TR ADE. SINCE THE APPLICABILITY OF SECTION 14A TO MAKE A DISALLOWANCE ON ACCOUNT OF EXPENSES INCURRED IN RELATION TO EXEMPT DIVIDEND IN COME WAS UPHELD BY THE HONBLE HIGH COURT AFTER TAKING NOTE OF ALL THE SE FACTS OF THE CASE, IT FOLLOWS THAT THE PRINCIPLES LAID DOWN BY THE HONBL E JURISDICTIONAL HIGH COURT IN THE CASE OF DHANUKA & SONS (SUPRA) ARE SQU ARELY APPLICABLE TO THE ISSUE UNDER CONSIDERATION AS RIGHTLY HELD BY TH E LD. THIRD MEMBER IN THE CASE OF DH SECURITIES PVT. LIMITED (SUPRA). 16. THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT THE HONBLE MUMBAI BENCH OF THIS TRIBUNAL IN THE CASE OF INDIA ADVANTAGE SECURITIES LIMITED (SUPRA) HAS DECIDED A SIMILAR VIEW IN FAVOU R OF THE ASSESSEE BY FOLLOWING THE DECISION OF THE HONBLE KARNATAKA HIG H COURT IN THE CASE OF CCI LIMITED (SUPRA) AND SINCE THE APPEAL FILED BY T HE REVENUE AGAINST THE ORDER OF THE TRIBUNAL PASSED IN THE SAID CASE HAS B EEN DISMISSED BY THE HONBLE BOMBAY HIGH COURT, THE ORDER OF THE TRIBUNA L HAS MERGED WITH THE ORDER OF THE HONBLE BOMBAY HIGH COURT THEREBY OVERRULING IMPLIEDLY THE THIRD MEMBER DECISION IN THE CASE OF DH SECURIT IES PVT. LIMITED. IN I.T.A. NO. 1351/KOL./2013 ASSESSMENT YEAR: 2009-2010 PAGE 12 OF 17 THIS REGARD, EVEN IF THE ORDER OF THE TRIBUNAL IN T HE CASE OF INDIA ADVANTAGE SECURITIES LIMITED (SUPRA) IS TAKEN AS ME RGED WITH THE ORDER OF THE HONBLE BOMBAY HIGH COURT PASSED IN THE SAID CA SE, WE ARE UNABLE TO COMPREHEND AS TO HOW THE HONBLE THIRD MEMBER DECIS ION OF THE TRIBUNAL IN THE CASE OF DH SECURITIES PVT. LIMITED GETS OVER RULED WHEN IT WAS NOT THE SUBJECT MATTER OF THE APPEAL BEFORE THE HONBLE BOMBAY HIGH COURT NOR EVEN THE SAME WAS CITED OR CONSIDERED BY THE HO NBLE BOMBAY HIGH COURT WHILE DISMISSING THE APPEAL FILED BY THE REVE NUE AGAINST THE ORDER OF THE TRIBUNAL IN THE CASE OF INDIA ADVANTAGE SECU RITIES LIMITED. BE THAT AS IT MAY, THE FACT THAT REMAINS TO BE SEEN IS THAT THE ISSUE UNDER CONSIDERATION IS SQUARELY COVERED BY THE PRINCIPLES LAID DOWN BY THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF DHANUKA & SONS (SUPRA) AS HELD BY THE LD. THIRD MEMBER IN THE CASE OF DH SECURITIE S PVT. LIMITED (SUPRA) AND AS FURTHER EXPLAINED BY US AND THERE IS NO DECI SION OF THE HONBLE SUPREME COURT OR THE DECISION OF THE HONBLE CALCUT TA HIGH COURT RENDERED SUBSEQUENTLY TAKING A DIFFERENT VIEW, WHIC H HAS BEEN BROUGHT TO OUR NOTICE. THE DECISION OF THE HONBLE CALCUTTA HI GH COURT IN THE CASE OF DHANUKA & SONS UPHOLDING THE APPLICABILITY OF SECTI ON 14A FOR MAKING A DISALLOWANCE ON ACCOUNT OF EXPENDITURE INCURRED IN RELATION TO THE EXEMPT INCOME IN THE FORM OF DIVIDEND EARNED BY THE ASSESSEE ON SHARES HELD AS STOCK-IN-TRADE THUS STILL HOLDS THE FIELD A ND RESPECTFULLY FOLLOWING THE SAID DECISION OF THE HONBLE JURISDICTIONAL HIG H COURT, WE HOLD THAT THE PROVISION OF SECTION 14A CAN BE INVOKED IN A CA SE OF EXEMPT DIVIDEND INCOME EARNED BY THE ASSESSEE FROM SHARES HELD AS S TOCK-IN-TRADE AND THE EXPENSES INCURRED IN RELATION TO SUCH INCOME CAN BE DISALLOWED BY APPLYING THE SAID PROVISION. THE IMPUGNED ORDER OF THE LD. CIT(APPEALS) TAKING A DIFFERENT VIEW ON THIS ISSUE IS ACCORDINGL Y SET ASIDE AND THAT OF THE ASSESSING OFFICER IS RESTORED BACK. 17. HAVING HELD THAT SECTION 14A IS APPLICABLE IN T HE PRESENT CASE WHERE THE EXEMPT DIVIDEND INCOME IS EARNED BY THE A SSESSEE FROM SHARES HELD AS STOCK-IN-TRADE, THE NEXT QUESTION THAT ARIS ES FOR OUR CONSIDERATION IS HOW TO COMPUTE THE DISALLOWANCE TO BE MADE UNDER SECTION 14A ON I.T.A. NO. 1351/KOL./2013 ASSESSMENT YEAR: 2009-2010 PAGE 13 OF 17 ACCOUNT OF EXPENSES INCURRED IN RELATION TO SUCH EX EMPT INCOME BY APPLYING RULE 8D. IN THIS REGARD, THE LD. COUNSEL F OR THE ASSESSEE HAS RELIED ON THE DECISION OF THE COORDINATE BENCH OF T HIS TRIBUNAL IN THE CASE OF GULSHAN INVESTMENT CO. LIMITED (SUPRA) TO CONTEN D THAT EVEN IF SECTION 14A READ WITH RULE 8D IS HELD TO BE APPLICABLE IN T HE CASE OF THE ASSESSEE, THE DISALLOWANCE ON ACCOUNT OF EXPENDITURE INCURRED IN RELATION TO THE EARNING OF EXEMPT DIVIDEND INCOME ON SHARES HELD AS STOCK-IN-TRADE CAN ONLY BE IN RESPECT OF EXPENDITURE DIRECTLY RELATABL E TO EARNING OF EXEMPT INCOME BY APPLYING THE RULE 8D(2)(I) AND NOT IN RES PECT OF INDIRECT EXPENSES AS PER RULE 8D(2)(I) AND 8D(2)(II), WHICH ARE NOT APPLICABLE. IT IS OBSERVED THAT A SIMILAR CONTENTION WAS RAISED ON BEHALF OF THE ASSESSEE BEFORE THE TRIBUNAL EVEN IN THE CASE OF DH SECURITI ES PVT. LIMITED (SUPRA) BY PLACING RELIANCE ON THE DECISION IN THE CASE OF GULSHAN INVESTMENT CO. LIMITED (SUPRA). THE LD. ACCOUNTANT MEMBER, WITH WH OM THE LD. THIRD MEMBER FINALLY CONCURRED, HOWEVER, DID NOT ACCEPT T HE SAME BY RELYING ON THE DECISION OF SPECIAL BENCH OF THE TRIBUNAL IN TH E CASE OF DAGA CAPITAL MANAGEMENT PVT. LIMITED (SUPRA), WHEREIN A SIMILAR CONTENTION WAS REJECTED BY THE TRIBUNAL BY OBSERVING THAT THE REFE RENCE IN RULE 8D IS TO THE VALUE OF INVESTMENT AND NOT TO THE ASSETS HE LD AS INVESTMENT. IT WAS HELD THAT A PERSON MAY MAKE INVESTMENT IN SHARE S AND THE SHARES SO PURCHASED MAY BE HELD EITHER AS STOCK-IN-TRADE OR I NVESTMENT. THE WORD INVESTMENT IN RULE 8D REFERS TO THE MAKING OF PUR CHASE OF SHARES AND NOT HOLDING IT AS INVESTMENT. THE APPLICABILITY OF RULE 8D TO COMPUTE THE DISALLOWANCE TO BE MADE UNDER SECTION 14A ON ACCOUN T OF EXPENDITURE IN RELATION TO THE EXEMPT DIVIDEND INCOME EARNED BY TH E SSESSEE FROM SHARES HELD AS STOCK-IN-TRADE THUS WAS UPHELD BY THE TRIBU NAL IN ITS THIRD MEMBER DECISION RENDERED IN THE CASE OF DH SECURITI ES PVT. LIMITED AND RESPECTFULLY FOLLOWING THE SAME, WE REJECT THE CONT ENTION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE DISALLOWANCE IN T HE CASE OF THE ASSESSEE CAN BE RESTRICTED ONLY TO DIRECT EXPENSES INCURRED IN RELATION TO THE EARNING OF EXEMPT DIVIDEND INCOME BY APPLYING RULE 8D(2)(I). I.T.A. NO. 1351/KOL./2013 ASSESSMENT YEAR: 2009-2010 PAGE 14 OF 17 18. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE HAS RAISED AN ALTERNATIVE CONTENTION THAT EVEN IF SECTION 14A READ WITH RULE 8D IS HELD TO BE APPLICABLE IN THE CASE OF THE ASSESSEE, THE ASSESSI NG OFFICER MAY BE DIRECTED TO COMPUTE THE DISALLOWANCE AS PER RULE 8D BY TAKING INTO CONSIDERATION ONLY THOSE SHARES WHICH HAVE YIELDED DIVIDEND INCOME IN THE YEAR UNDER CONSIDERATION. SINCE THIS ISSUE RAIS ED BY THE LD. COUNSEL FOR THE ASSESSEE AS AN ALTERNATIVE CONTENTION IS SQUARE LY COVERED IN FAVOUR OF THE ASSESESE BY THE DECISION OF THE COORDINATE BENC H OF THIS TRIBUNAL IN THE CASE OF REI AGRO LIMITED (SUPRA), WE DIRECT THE ASSESSING OFFICER TO COMPUTE THE DISALLOWANCE AS PER RULE 8D BY TAKING I NTO CONSIDERATION ONLY THOSE SHARES, WHICH HAVE YIELDED DIVIDEND INCO ME IN THE YEAR UNDER CONSIDERATION. THE ALTERNATIVE CONTENTION OF THE LD . COUNSEL FOR THE ASSESSEE IS ACCORDINGLY ACCEPTED. GROUND NO. 1 OF T HE ASSESSEES APPEAL IS THUS PARTLY ALLOWED. 19. IN GROUND NO. 2, THE REVENUE HAS CHALLENGED THE ACTION OF THE LD. CIT(APPEALS) IN TREATING THE INTEREST INCOME OF RS. 52,84,430/- AS BUSINESS INCOME OF THE ASSESESE INSTEAD OF INCOME F ROM OTHER SOURCES. 20. IN THE ASSESSMENT COMPLETED UNDER SECTION 143(3 ), INTEREST INCOME OF RS.52,84,426/- EARNED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION WAS BROUGHT TO TAX BY THE ASSESSING O FFICER UNDER THE HEAD INCOME FROM OTHER SOURCES INSTEAD OF BUSINESS IN COME AS CLAIMED BY THE ASSESSEE WITHOUT ASSIGNING ANY REASON AND WITHO UT EVEN DISCUSSING THE ISSUE IN HIS ORDER. ON APPEAL, THE LD. CIT(APPE ALS) ACCEPTED THE CLAIM OF THE ASSESSEE ON THIS ISSUE AND DIRECTED THE ASSE SSING OFFICER TO ASSESS THE INTEREST INCOME AS BUSINESS INCOME OF THE ASSES SEE INSTEAD OF INCOME FROM OTHER SOURCES AFTER DISCUSSING THE SUBMISSIONS MADE BY THE ASSESSEE AS WELL AS THE CASE LAWS RELIED UPON BY THE ASSESES E IN SUPPORT OF PARAGRAPH NO. 3.3 OF HIS IMPUGNED ORDER, WHICH READ S AS UNDER:- 3.3. I HAVE CAREFULLY CONSIDERED THE OBSERVATION O F THE ASSESSING OFFICER IN THE ASSESSMENT ORDER AND ALSO THE SUBMISSION OF THE LD. AR. IT HAS BEEN INFORMED THAT THE CLIENTS HAVE TO GIVE UPFRONT MARGIN OF AVERAGE 15% TO 35% I.T.A. NO. 1351/KOL./2013 ASSESSMENT YEAR: 2009-2010 PAGE 15 OF 17 OF THE EXPOSURE OR OUTSTANDING POSITION IN THE NATI ONAL STOCK EXCHANGE (NSE) IN ORDER TO TRADE IN FUTURE & OPTIONS (F&O). THE NSE DOES NOT ACCEPT FIXED DEPOSI TS AS MARGIN MONEY FROM THE CLIENTS DIRECTLY. THE CLIENT GIVES THE CHEQUE TO THE BROKER AND THE BROKER IN TURN TAK E OUT THE FDR AND GIVE TO THE EXCHANGE AS MARGIN MONEY FO R THAT PARTICULAR CLIENT. AS PER THE RULES PRESCRIBED BY T HE SEBI, THE BROKER CAN NOT UTILIZE THESE FDRS FOR ITS OWN B USINESS PURPOSE. IN THE PRESENT CASE, THE BROKER IS M/S. AN VIL SHARE & STOCK BROKING PVT. LTD. AND ITS CLIENT IS THE APP ELLANT I.E. M/ S. TEENLOK ADVISORY SERVICES PVT. LTD. IT HAS BE EN CLARIFIED THAT THE APPELLANT COMPANY HAD GIVEN THE CHEQUE TO ITS BROKER I.E. ANVIL SHARE & STOCK BRAKING PVT. LTD. WHICH TOOK OUT THE FDRS AND GAVE TO THE NSE AS MARG IN MONEY ON BEHALF OF THE APPELLANT. THE BANK HAD PAID INTEREST OF RS.52,84.426/- TO THE BROKER (I.E. M/S. ANVIL SHARE & STOCK BRAKING PVT. LTD.) ON FDS IN RESPECT OF ABOVE MARGIN MONEY. THE BROKER IN TURN PAID THE INTEREST OF RS.52,84,426/ - TO THE APPELLANT. THE ASSESSING OFF ICER HAS ASSESSED THE INTEREST INCOME OF RS.52,84,426/ - AS INCOME FROM OTHER SOURCES WITHOUT ASSIGNING ANY REASON. TH E LD. AR HAS RELIED ON THE DECISION OF THE HON'BLE SUPREM E COURT IN THE CASE OF CIT VS GOVINDA CHOUDHARY & SONS (SUP RA) WHEREIN IT HAS BEEN HELD THAT INTEREST CAN BE ASSES SED UNDER THE HEAD 'INCOME FROM OTHER SOURCES' ONLY IF IT CANNOT BE BROUGHT WITHIN ONE OR THE OTHER OF THE SP ECIFIC HEADS OF CHARGE AND THE INTEREST PAYABLE TO THE ASS ESSEE PARTAKES OF THE SAME CHARACTER AS THE RECEIPT FOR T HE PAYMENT OF WHICH HE WAS OTHERWISE ENTITLED UNDER TH E CONTRACT AND WHICH PAYMENT HAS BEEN DELAYED AS A RE SULT OF CERTAIN DISPUTES BETWEEN THEM. THE LD. A/R HAS R ELIED ON THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. KOSHIKA TELECOM LTD. [2006] 286 ITR 479 (DEL) WHEREIN IT HAS BEEN HELD THAT 'WHERE THE INCOME IN THE NATURE OF INTEREST FLOWS FROM DEPOSITS MADE BY THE ASSESSEE WHICH DEPOSITS ARE IN TURN INEXTRICABLY LINKED TO T HE BUSINESS OF THE ASSESSEE, THE INCOME DERIVED ON SUC H DEPOSITS CANNOT BE TREATED AS INCOME FROM OTHER SOU RCES. THEREFORE, INCOME FROM INTEREST ON DEPOSIT WAS BUSI NESS INCOME AND NOT INCOME FROM OTHER SOURCES.' THE LD. A/R HAS ALSO RELIED ON THE DECISION OF CIT VS. CHINNA NACHIMUTHU CONSTRUCTIONS [2008] 297 ITR 70 (KAR) WHEREIN THE HON'BLE KARNATAKA HIGH COURT HAS HELD T HAT AS THE INVESTMENT OF AMOUNT IN FIXED DEPOSITS BY T HE ASSESSEE WAS ONLY TO SECURE A BANK GUARANTEE TO BE OFFERED TO KPTCL IN ORDER TO ACQUIRE A CONTRACT WORK, IT CO ULD NOT, THEREFORE, BE TREATED AS AN INCOME FROM OTHER SOURC ES AND INTEREST OCCURRED ON SUCH FIXED DEPOSITS HAD TO BE TREATED AS BUSINESS INCOME ONLY. IN THE PRESENT CASE, THE APPELLANT I.T.A. NO. 1351/KOL./2013 ASSESSMENT YEAR: 2009-2010 PAGE 16 OF 17 HAD GIVEN THE CHEQUE TO ITS BROKER M/S. ANVIL SHARE & STOCK BROKING PVT. LTD. WHICH HAD TAKEN OUT THE FDRS AND GIVEN TO THE NSE AS MARGIN MONEY ON BEHALF OF THE APPELLA NT IN ORDER TO TRADE IN FUTURE & OPTION (F & 0). THE BANK HAD PAID THE INTEREST OF RS.52,84,426/- ON THE FDS TO T HE SAID BROKER IN RESPECT TO THE MARGIN MONEY GIVEN TO THE NSE AND THE BROKER IN TURN PAID THE ABOVE INTEREST OF RS.52,84,426J - TO THE APPELLANT COMPANY. THE DECIS IONS OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CHI NNA NACHIMUTHU CONSTRUCTIONS (SUPRA) AND THE DECISION O F THE HONBLE SUPREME COURT IN THE CASE OF GOVINDA CHOUD HARY & SONS (SUPRA) ARE SQUARELY APPLICABLE TO THE FACTS OF THE CASE. ACCORDINGLY, THE AO IS DIRECTED TO ASSESS THE INTEREST OF RS.52,84,426/- AS BUSINESS INCOME UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION INSTE AD OF TREATING IT AS INCOME FROM OTHER SOURCES. THIS GROU ND OF APPEAL IS ALLOWED. 21. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. AS SUBMITTED ON BEHALF OF THE ASSESSEE BEFORE THE LD. CIT(APPEALS) AS WELL AS BEF ORE US, THERE WAS A DIRECT NEXUS BETWEEN THE EARNING OF INTEREST INCOME IN QUESTION AS WELL AS THE BUSINESS INCOME OF THE ASSESSEE, INASMUCH AS THE SAME WAS EARNED ON FIXED DEPOSITS KEPT BY THE ASSESSEE AS MARGIN MO NEY WITH NSE THROUGH ITS BROKER IN ORDER TO ENABLE IT TO TRADE I N FUTURE & OPTIONS. THE INTEREST INCOME EARNED ON THE SAID FIXED DEPOSITS T HUS WAS DIRECTLY ATTRIBUTABLE TO THE BUSINESS OF THE ASSESSEE AND TH E LD. CIT(APPEALS), IN OUR OPINION, IS FULLY JUSTIFIED IN TREATING THE SAM E AS BUSINESS INCOME OF THE ASSESSEE INSTEAD OF INCOME FROM OTHER SOURCES B Y RELYING ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F GOVINDA CHOUDHURY & SONS (SUPRA) AS WELL AS THE DECISION OF THE HONB LE KARNATAKA HIGH COURT IN THE CASE OF CHINNA NACHIMUTHU CONSTRUCTION S (SUPRA). WE, THEREFORE, UPHOLD THE IMPUGNED ORDER OF THE LD. CIT (APPEALS) ON THIS ISSUE AND DISMISS GROUND NO. 2 OF THE REVENUES APP EAL. 22. IN THE RESULT, THE APPEAL OF THE REVENUE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON JUNE 8, 2016. SD/- SD/- (N.V. VASUDEVAN) (P.M. JAGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER KOLKATA, THE 8 TH DAY OF JUNE, 2016 I.T.A. NO. 1351/KOL./2013 ASSESSMENT YEAR: 2009-2010 PAGE 17 OF 17 COPIES TO : (1) DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1, KOLKATA, AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQUARE, KOLKATA-700 069 (2) M/S. TEENLOK ADVISORY SERVICES PVT. LIMITED, 102, WINDSOR, VIDYANAGRI ROAD, SANTACRUZ (EAST), MUMBAI-400 098 (3) COMMISSIONER OF INCOME TAX(APPEALS)-XXIV, KOLKA TA (4) COMMISSIONER OF INCOME TAX - ,KOLKATA (5) THE DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, KOLKATA BENCHES, KOLKATA LAHA/SR. P.S.