ANVIL SHARE & STOCK BROKING PVT.LTD., MUMBAI V. ADDL. CIT., RANGE-4(1), MUMBAI

ITA 1429/MUM/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 70961 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 01-03-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MRS BHAVANA YASHROY
• Keywords: Earning of tax free income
• Section: 14A; 10

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI . . , . ! , '# ' $ BEFORE SHRI I.P. BANSAL, JM AND SHRI SANJAY ARO RA, AM ./ I.T.A. NO. 1429/MUM/2012 ( % % % % & & & & / ASSESSMENT YEAR: 2008-09 ANVIL SHARE & STOCK BROKING PVT. LTD., 19, BANK STREET CROSS LANE, NEAR VOLTAS, FORT, MUMBAI 400 023 % % % % / VS. THE ADDL. CIT ,RANGE 4(1), AAYKAR BHAVAN, MK ROAD, MUMBAI 400020 ' '# ./ ( ./ PAN/GIR NO. : AABCA8643D ( ') / APPELLANT ) .. ( *+') / RESPONDENT ) ') , ' / APPELLANT BY: S/SHRI K.SHIVRAM & AJAY SINGH *+') - , ' / RESPONDENT BY : MRS. BHAVANA YASHROY % - .# / DATE OF HEARING : 28/08/2013 / & - .# / DATE OF PRONOUNCEMENT : 28/08/2013 '0 / O R D E R PER I.P.BANSAL,J.M: THIS IS AN APPEAL FILED BY THE ASSESSEE. IT IS DI RECTED AGAINST THE ORDER PASSED BY LD. CIT(A)8, MUMBAI DATED 9/12/2011 FOR A SSESSMENT YEAR 2008-09. GROUNDS OF APPEAL READ AS UNDER: THE APPELLANT SUBMITS THE FOLLOWING GROUNDS OF APP EAL WHICH ARE SEPARATE / ALTERNATIVE AND WITHOUT PREJUDICE TO ONE ANOTHER: DISALLOWANCES OF RS.19,56.,521/- U/S. 14 A READ WIT H RULE 8D:- 1. THE LEARNED CIT (A) ERRED IN UPHOLDING THE DISAL LOWANCES OF RS.19,56,521/- (GROSS AMOUNT RS.23,91,539/- LESS ALREADY DISALLOWE D BY ASSESSEE IN COMPUTATION RS.4,3 5,018/- ) UNDER SECTION 1 4A OF THE ACT BY INVOKING RULE 8D OF ./ I.T.A. NO. 1429/MUM/2012 ( % % % % & & & & / ASSESSMENT YEAR: 2008-09 2 THE INCOME-TAX RULES, 1962 (THE RULES) WITHOUT AP PRECIATING THE FACT THAT THE APPELLANT HIMSELF HAS DISALLOWED AND ALREADY ADDED IN COMPUTATION OF INCOME A SUM OF RS.4,35.018/- (BEING 5% OF DIVIDEND INCOME O F RS.87,00,367/- ) AT THE TIME OF FILING RETURN OF INCOME ITSELF. 2. THE LEARNED CIT(A) ERRED IN NOT APPRECIATING THA T RULE 8D CANNOT BE INVOKED IN FACTS OF PRESENT CASE AS THE INVESTMENT IN SHARES O F RS. 54.19 CRORES WERE MADE OUT OF OWN FUNDS OF RS. 129.09 CRORES AND NO INTEREST E XPENDITURE WAS INCURRED, HOWEVER WITHOUT PREJUDICE THE ASSESSEE HAD OFFERED RS.4,35,018/- IN TAX AUDIT REPORT / RETURN OF INCOME BEING EXPENDITURE INCURRE D FOR EARNING EXEMPTED INCOME. THEREFORE THERE CANNOT BE ANY NOTIONAL DISALLOWANCE . 3. CAPITAL GAIN FROM UNQUOTED INVESTMENT NOT EXEMPT FROM TAX AND HENCE NO DISALLOWANCE UNDER SECTION L4A READ WITH RULE 8D (2):- THE LEARNED CIT (A) FAILED TO APPRECIATE THAT CAPIT AL GAIN ON SALE OF UNQUOTED INVESTMENT IS NOT EXEMPT UNDER SECTION 10(38) AND A S SUCH INCOME FROM SUCH INVESTMENT IS NOT EXEMPT FROM TAX AND THEREFORE SUC H INVESTMENT DOES NOT FALL WITHIN THE SCOPE AND AMBIT OF THE DISALLOWANCE PROV ISIONS OF SECTION 14A READ WITH RULE 8D OF THE RULES. THE APPELLANT THEREFORE PRAYS THAT SUCH INVESTMENT IN UNQUOTED SHARES BE EXCLUDED WHILE APPLYING THE DISALLOWANCE PROVISIONS OF SECTI ON 1 4A READ WITH RULE 8D OF THE RULES. THE APPELLANT THEREFORE, PRAYS THAT THE ADDITIONAL DISALLOWANCE OF RS. 19,56,521/- MADE U/S. 14A READ WITH RULE 8D BE DELETED. 2. THE ASSESSEE IN THE PRESENT CASE IS A SHARE AND STOCK BROKER. IT HAS EARNED DIVIDEND INCOME AMOUNTING TO RS.87,00,367/-, WHICH IS EXEMPT UNDER SECTION 10(38) OF THE INCOME TAX ACT, 1961 (THE A CT). THE AO INVOKED RULE 8D AND CALCULATED THE DISALLOWANCE UNDER SECTION 14A O F THE ACT AT A SUM OF RS.23,91,539/-. AFTER REDUCING THE DISALLOWANCE MA DE BY THE ASSESSEE IN THE RETURN OF INCOME AMOUNTING TO RS.4,35,018/-, NET A DDITION OF RS.19,56,521/- WAS MADE. WHILE CALCULATING DISALLOWANCE UNDER R ULE 8D AO DID NOT ATTRIBUTE ANY EXPENDITURE WHICH DIRECTLY RELATES TO EXEMPTED INCOME AND ALSO DID NOT INCLUDE ANY DISALLOWABLE INTEREST. THE AO HAS ONLY TAKEN AN AMOUNT EQUAL TO % OF THE AVERAGE OF THE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR WAS NOT FORM PART OF THE TOTAL INCOME AS APPEARING IN THE BALANCE SHEET ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR AS PER CO LUMN NO.3 OF THE PRESCRIBED FORMULA UNDER RULE 8D. THEREFORE, THE DISALLOWANC E IS ONLY IN RESPECT OF % OF THE AVERAGE VALUE OF SUCH INVESTMENT. ./ I.T.A. NO. 1429/MUM/2012 ( % % % % & & & & / ASSESSMENT YEAR: 2008-09 3 3. BEFORE LD. CIT(A) IT WAS THE SUBMISSION OF THE A SSESSEE THAT IT DID NOT MAKE ANY INVESTMENT IN SHARES FOR THE PURPOSE OF EARNING DIVIDEND INCOME WHICH IS AN INCIDENTAL RECEIPT. THE INTENTION OF THE ASSESSEE TO PURCHASE THE SHARE WAS TO SELL THE SAME. THEREFORE, IT WAS SUBMITTED THAT AO COULD NOT INVOKE RULE 8D WITHOUT IDENTIFYING ANY EXPENDITURE WHICH WERE INCU RRED TO EARN TAX FREE DIVIDEND INCOME. IT WAS FURTHER SUBMITTED THAT SECTION 14A /RULE 8D WERE NOT APPLICABLE AS NO EXPENDITURE HAS BEEN INCURRED TO EARN TAX FRE E DIVIDEND INCOME. THE ASSESSEE DID NOT USE INTEREST BEARING BORROWED FU NDS AND ITS ADMINISTRATIVE EXPENSES AND INTEREST EXPENDITURE HAVE BEEN INCURRE D NOT FOR THE PURPOSE OF EARNING DIVIDEND INCOME AND THEY ARE INCURRED ONLY TO RUN DAY TO DAY BUSINESS ACTIVITY. IT WAS SUBMITTED THAT EVEN IF DIVIDEND I NCOME IS NOT EARNED, THE ASSESSEE HAD TO INCUR SUCH EXPENDITURE. THUS, IT W AS CLAIMED THAT DISALLOWANCE MADE BY THE AO SHOULD BE DELETED. LD. CIT(A) HAS RE JECTED ALL SUCH CONTENTIONS OF THE ASSESSEE. HE OBSERVED THAT ASSESSEE DID NOT MA INTAIN ANY SEPARATE RECORD FOR EXPENDITURE INCURRED IN RESPECT OF EARNING OF D IVIDEND INCOME . THE ONUS WAS ON THE ASSESSEE AND NOT ON THE AO TO PROVE THAT S UCH EXPENDITURE HAVE BEEN INCURRED . IN ABSENCE OF RELEVANT DETAILS IT WAS N OT POSSIBLE TO DIRECTLY DETERMINE THE EXPENDITURE INCURRED FOR EARNING DIVIDEND INCO ME, THEREFORE, AO HAS RIGHTLY APPLIED PROVISIONS OF RULE-8D. LD. CIT(A) HAS REFE RRED TO THE PROVISIONS OF SECTION 14A(2) WHICH ARE APPLICABLE IN RESPECT OF ASSESSMEN T YEAR 2008-09, WHICH REQUIRE THE AO TO DETERMINE SUCH DISALLOWANCE IN AC CORDANCE WITH RULE-8D. LD. CIT(A) HAS ALSO REJECTED THE CONTENTION OF THE ASSE SSEE THAT NO BORROWED FUNDS WERE UTILIZED FOR INVESTMENT IN THE SHARES FROM WHI CH DIVIDEND INCOME HAS BEEN EARNED AS ASSESSEE HAS FAILED TO SHOW FROM ANY CAS H FLOW STATEMENT TO BE SUBMITTED IN THIS REGARD. BY RELYING UPON THE DEC ISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. COMPANY VS . DCIT, 328 ITR 81 (BOM) VIDE WHICH IT WAS HELD THAT RULE 8D IS APPLICABLE I N RESPECT OF A.Y 2008-09, LD. CIT(A) HAS UPHELD THE ACTION OF AO. THE ASSESSEE I S AGGRIEVED, HENCE, HAS FILED AFOREMENTIONED GROUNDS OF APPEAL. 4. AFTER NARRATING THE FACTS IT WAS SUBMITTED BY LD . AR THAT IN ASSESSMENT YEAR 2005-06 AND 2006-07 THE DEPARTMENT HAS ACCEPTE D THE DISALLOWANCE TO THE TUNE OF 5% OF THE DIVIDEND INCOME. THE INVESTMENT OF THE ASSESSEE IN SHARES IS ./ I.T.A. NO. 1429/MUM/2012 ( % % % % & & & & / ASSESSMENT YEAR: 2008-09 4 RS.54.19 CRORES WHICH ARE OUT OF OWN FUNDS AND NO INTEREST EXPENDITURE HAS BEEN INCURRED. THE DIVIDEND INCOME IS DIRECTLY CRE DITED TO THE BANK ACCOUNT OF THE ASSESSEE, THEREFORE, NO EXPENDITURE HAS BEEN IN CURRED. THUS LD. AR SUBMITTED THAT DISALLOWANCE OF 5% ON DIVIDEND INCOM E DISALLOWED BY THE ASSESSEE ITSELF SHOULD BE ACCEPTED AS REASONABLE AN D CORRECT. THE DEPARTMENT DID NOT PROVIDE ANY BASIS ON WHICH IT CAN BE SAID THAT DIRECT EXPENDITURE HAD BEEN INCURRED. IN THE ALTERNATIVE IT WAS SUBMITTED THAT CAPITAL GAIN ON SALE OF UNQUOTED INVESTMENT IS NOT EXEMPT UNDER SECTION 10 (38), THE INVESTMENT TO THAT EXTENT UNDER RULE 8D SHOULD BE EXCLUDED. FOR THIS PURPOSE LD. AR RELIED UPON THE FOLLOWING DECISIONS:- 1. SUNDARAM ASSET MANAGEMENT COMPANY LTD. VS. DCIT( MAD) (TRIB) IN ITA NO.1774/MAD/2012 , A.Y. 2008-09, ORDER DATED 19/7/ 2013. -- EXEMPT INCOME - SHORT TERM GAIN- RULE 8D DOES NOT APPLY TO SHORT TERM INVESTMENTS GAINS SINCE ASSESSEE IS PAYING CAPITAL GAIN TAX. 2. DCIT VS. ASHISH JHUNJHUNWALA, ITA NO.1809/KOL/2 012, A.Y. 2009-10, ORDER DATED 14/5/2013 - ASSESSING OFFICER HAS NOT EX AMINED THE ACCOUNTS NOR THERE IS SATISFACTION RECORDED BY THE ASSESSING OFFICER A BOUT THE CORRECTNESS OF THE CLAIM OF ASSESSEE AND WITHOUT THE SAME HE HAD INVOK ED RULE 8D. NO EXPENDITURE INCURRED. FOLLOWED J.K.INVESTORS (BOMBAY ) LTD. VS . ACIT (MUM) TRIB) 3. AUCHTEL PRODUCTS LTD. VS. ACIT (2012) 52 SOT 39 (MUM) (TRIB) A.Y 2008-09 -- DISALLOWANCE OF EXPENDITURE WITHOUT SHOWING HOW ASS ESSEES METHOD IS WRONG, DISALLOWANCE IS TO BE DELETED. 4. HONBLE BOMBAY HIGH COURT DECISION IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. (2010) 328 ITR 81(BOM) HELD THAT ASSESSING OF FICER HAS TO RECORD HIS SATISFACTION IN REGARDS TO BE WORKING OF ASSESSEES CLAIM. 4.1 LD. AR ALSO FURNISHED FOLLOWING CALCULATIONS WH ICH EXCLUDED INVESTMENT IN UNQUOTED SHARES: ./ I.T.A. NO. 1429/MUM/2012 ( % % % % & & & & / ASSESSMENT YEAR: 2008-09 5 CALCULATION OF DISALLOWANCE UNDER SECTION 14A (AFTER REDUCING THE VALUE OF INVESTMENT IN WHICH NO EXEMPT DIVIDEND OR LTCG EXEMPT U/S. 10(38) WAS EARNED) SR. NO. PARTICULARS 31-MAR-08 31-MAR-07 1 INVESTMENT AS PER BALANCE SHEET 414 ,742,871 541,872,615 2. A. I. II. B. I. II. III 3. LESS: INVESTMENT ON WHICH TAX FREE DIVIDEND OR EXEMPT CAPITAL GAIN WAS NOT EARNED PREFERENCE SHARES ALTITUDE INVESTMENTS PRIVATE LIMITED SOUND SECURITIES PRIVATE LIMITED EQUITY SHARES ANVIL WEALTH MANAGEMENT PRIVATE LIMITED BOC LIMITED NO DIVIDEND WAS EARNED ON SHARES OF BOC LIMITED DURING THE A.Y.2008-09. THE COMPANY EARNED STCG IN ON WHICH IT PAID TAX @ 30% AS STT WAS NOT PAID IN A.Y 2009-10 BOSCH CHASIS LIMITED NO DIVIDEND WAS EARNED ON SHARES OF BOC LIMITED DURING THE A.Y 2008-09. THE COMPANY DID NOT EARN LONG TERM CAPITAL GAIN ON THESE SHARES. VALUE OF INVESTMENT TO BE CONSIDERED FOR RULE 8D(2) AVERAGE INVESTMENTS (21,76,228 + 38,18,72,615) 2 DISALLOWANCE @ 0.5% OF AVERAGE INVESTMENTS 80,000,000 80,000,000 10,000,000 7,814,512 19,237,131 _____________ 217,691,228 80,000,000 80,000,000 - - - _____________ 381,872,615 299,781,922 ______________ 1,498,910 ============ 4.2 THUS IT WAS SUBMITTED BY LD. AR THAT APPROPRIAT E RELIEF SHOULD BE GIVEN TO THE ASSESSEE. ./ I.T.A. NO. 1429/MUM/2012 ( % % % % & & & & / ASSESSMENT YEAR: 2008-09 6 5. ON THE OTHER HAND, LD. DR RELIED UPON THE ORDER PASSED BY LD. AR AND LD. CIT(A). 6. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTENT IONS HAVE CAREFULLY BEEN CONSIDERED. UNDISPUTEDLY AS THE IMPUGNED ASSESSMEN T IS A.Y 2008-09 RULE 8D IS APPLICABLE AS PER THE DECISION OF HONBLE JURISD ICTIONAL HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG.CO. LTD. (SUPRA). IT CANNOT ALSO BE THE CASE OF THE ASSESSEE THAT IT DID NOT INCURRED ANY EXPENDITURE IN RESPEC T OF EARNING OF EXEMPTED DIVIDEND INCOME AS ASSESSEE ITSELF HAS DISALLOWED 5 % OF THE DIVIDEND INCOME EARNED UNDER THE PROVISIONS OF SECTION 14A. AS PE R MANDATE OF SECTION 14A(1) DEDUCTION CANNOT BE ALLOWED IN RESPECT OF EXPENDITU RE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. AS PER MANDATE OF SUB-SECTION (2) OF SECTION 14A, IF AO, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE, HE WIL L DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHI CH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE INCOME TAX ACT IN ACCORDANC E WITH SUCH METHOD AS MAY BE PRESCRIBED. THE METHOD PRESCRIBED IS UNDER RUL E-8D. IT IS NOT THE CASE OF ASSESSEE THAT DISALLOWANCE UNDER RULE 8D HAS BEEN INCORRECTLY CALCULATED. IT IS THE CASE OF THE ASSESSEE THAT UNQUOTED SHARES ARE NOT EXEMPTED TO TAX AS THEY ARE LIABLE FOR SHORT TERM CAPITAL GAIN, THEREFORE, AVERAGE INVESTMENT SHOULD BE CALCULATED ACCORDINGLY. 6.1 FOR THIS PURPOSE LD. AR HAS MAINLY RELIED UPON THE DECISION IN THE CASE OF SUNDARAM ASSET MANAGEMENT COMPANY LTD. VS. DCIT (SU PRA). WE DO NOT FIND ANY SUBSTANCE IN SUCH CLAIM MADE BY LD. AR, AS IN T HE SAID CASE IT WAS THE CONTENTION OF THE ASSESSEE THAT RULE-8D WILL NOT AP PLY TO SHORT TERM INVESTMENT AS CAPITAL GAIN ARISING THERE FROM IS TAXABLE. HOW EVER, IN THE PRESENT CASE EVEN INVESTMENT IN UNQUOTED SHARES DID NOT RESULT INTO S HORT TERM CAPITAL GAIN DURING THE YEAR. IF ANY DIVIDEND INCOME WAS EARNED THEREO N THE SAME WAS EXEMPT AS THE VALUE OF INVESTMENT IN UNQUOTED SHARES STOOD I NCLUDED AT THE LAST DAY OF THE FINANCIAL YEAR IN THE BALANCE SHEET. THEREFORE, FA CTS OF THE PRESENT CASE ARE ./ I.T.A. NO. 1429/MUM/2012 ( % % % % & & & & / ASSESSMENT YEAR: 2008-09 7 DIFFERENT FROM THE FACTS OF THAT CASE. IT CANNOT A LSO BE THE CASE OF THE ASSESSEE THAT AO DID NOT RECORD HIS SATISFACTION ABOUT THE INCORRECTNESS OF THE CLAIM OF THE ASSESSEE WHEREBY ASSESSEE HAD DISALLOWED 5% OF THE DIVIDEND INCOME UNDER SECTION 14A OF THE ACT. SUCH SATISFACTION OF THE A O HAS BEEN RECORDED IN THE ASSESSMENT ORDER IN PARA-4, WHERE HE REQUIRED THE A SSESSEE TO EXPLAIN THE SAME AND IT WAS FOUND THAT ASSESSEE IN AN ADHOC MANNER H AS DISALLOWED 5% OF THE DIVIDEND INCOME AS EXPENDITURE INCURRED TOWARDS EA RNING OF DIVIDEND INCOME. THUS, A.O HAS RECORDED HIS SATISFACTION. THERE BEI NG NO VALID BASIS ADOPTED BY THE ASSESSEE, THE AO WAS RIGHT IN REJECTING THE ME THOD ADOPTED BY THE ASSESSEE FOR DISALLOWANCE COMPUTED UNDER SECTION 14A OF TH E ACT. SINCE THERE IS NO DEFECT IN THE CALCULATION OF THE AO WHICH IS AS PER SECTION 14A R.W. RULE 8D, WE DECLINE TO INTERFERE IN THE DISALLOWANCE UPHELD BY LD. CIT(A). 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28/08/2013 . '0 - & #' 1 2%3 28/08/2013 - 4 SD/- SD/- ( SANJAY ARORA) (I.P.BANSAL) /ACCOUNTANT MEMBER '# /JUDICIAL MEMBER MUMBAI; 2% DATED 28/08/2013 '0 '0 '0 '0 - -- - *.56 *.56 *.56 *.56 7'6&. 7'6&. 7'6&. 7'6&. / COPY OF THE ORDER FORWARDED TO : 1. ') / THE APPELLANT 2. *+') / THE RESPONDENT. 3. 8 ( ) / THE CIT(A)- 4. 8 / CIT 5. 694 *.% , , / DR, ITAT, MUMBAI 6. 4: ; / GUARD FILE. '0% '0% '0% '0% / BY ORDER, +6. *. //TRUE COPY// < << < / = = = = (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI . % . .VM , SR. PS