MGL Holdings Private Limited, CHENNAI V. ITO, CHENNAI

ITA 1471/CHNY/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8397 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-09-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 24-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUPRIYO PAL
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI . . . , . !'# ! ,% !& BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ ITA NO. 1471/MDS/2016 ( )( / ASSESSMENT YEAR : 2012-13 M/S.MGL HOLDINGS PRIVATE LTD., M/S.RAMESH AND RAMACHANDRAN, CHARTERED ACCOUNTANTS, NEW NO.39, OLD NO.29/3, VISWANATHAPURAM MAIN ROAD, KODAMBAKKAM, CHENNAI 600 024. PAN NO.AAACM5269L V. THE INCOME TAX OFFICER, COMPANY WARD IV, CHENNAI. (+,/ APPELLANT) (-.+,/ RESPONDENT) +, / 0 / APPELLANT BY : SHRI Y.SRIDHAR, C.A. -.+,/0 / RESPONDENT BY : SHRI SUPRIYO PAL, JCIT 1 /2% / DATE OF HEARING : 09.08.2016 3') /2% / DATE OF PRONOUNCEMENT : 23.09.2016 2 I.T.A. NO.1471/MDS/2016 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF CIT(A) -8, CHENNAI DATED 10.02.2016 AND PERTAINS TO ASSESSMENT YEAR 2012-13. 2. THE FIRST ISSUE ARISES FOR CONSIDERATION IS DISA LLOWANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 14A OF THE ACT. THE LEARNED REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE INVESTED IN THE CAPITAL MARKET IN TWO PORTFOLIOS. ONE PORTFOLIO IS INVESTMENT AND ANOTHER PORT FOLIO IS FOR TRADING. THE EXPENDITURE DIRECTLY RELATED TO SHARE TRADING ACTIVITY IS RS.30,881/-. SINCE THE ASSESSEE WAS TRADING IN SHARES, THE PROVISIONS OF SECTION 14A IS NOT APPLICABLE AT ALL. THE DIVIDEND EARNED BY THE ASSESSEE IN THE COURSE OF TRADING IN SHARES IS INCIDENTAL TO THE ACTIVITY. THEREFORE, THE PROVISIONS OF SECTION 14A CANNOT BE APPLIED IN RESPECT OF TRADING ACTIVITY. 3. REFERRING TO THE INVESTMENT PORTFOLIO, THE LEARN ED DEPARTMENT REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER EXCEEDS THE ACTUAL EXPENDITUR E INCURRED BY THE ASSESSEE WHICH IS DIRECTLY ATTRIBUTABLE TO INVESTME NT. REFERRING TO THE 3 I.T.A. NO.1471/MDS/2016 DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CAS E OF ACIT VS. IQBAL M CHAGALA (ITATMUMBAI) IN ITA NO.877/MUM/2013 , THE LEARNED REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE PROVISIONS OF RULE 8D CANNOT AND SHOULD NOT BE APPLIED IN A MECHANICAL WA Y. DISALLOWANCE MADE BY THE ASSESSING OFFICER CANNOT EXCEED THE EXP ENDITURE CLAIMED BY THE ASSESSEE IN RELATION TO EXEMPT INCOME. REFER RING TO LOSS ON SALE OF SHARES, THE LEARNED REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE MAIN BUSINESS OF THE ASSESSEE IS INVESTMENT. THEREF ORE, THE PROVISIONS OF SECTION 73 ARE NOT APPLICABLE AT ALL. 4. THE LEARNED REPRESENTATIVE FOR THE ASSESSEE FURT HER SUBMITTED THAT THE TRANSACTION MADE ELECTRONICALLY WHICH ARE SUBJECT TO SERVICE TAX, SALES TAX, ETC. CANNOT BE TREATED AS SPECULATIVE BU SINESS EVEN THOUGH THE SETTLEMENT WAS MADE WITHOUT ACTUAL DELIVERY. IN CAS E OF ELECTRONIC TRADING, THERE CANNOT BE ANY PHYSICAL DELIVERY OF T HE DERIVATIVES AND THE SHARES WILL BE CREDITED ONLY IN DEMAT ACCOUNT. THER EFORE, THE CONCEPT OF PHYSICAL DELIVERY OF SHARES CANNOT BE PUT INTO SERV ICE WHEN THE ASSESSEE TRADED IN ELECTRONIC MODE. THEREFORE, THE REPRESENT ATIVE FOR THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER IS NOT JUSTIFI ED IN TREATING THE LOSS CLAIMED BY THE ASSESSEE AS FROM SPECULATIVE TRANSAC TION. 5. ON THE CONTRARY, THE LEARNED DEPARTMENT REPRESEN TATIVE SUBMITTED THAT THE FACT THAT THE ASSESSEE WAS MAINTAINING TWO PORT FOLIOS, ONE FOR 4 I.T.A. NO.1471/MDS/2016 INVESTMENT AND ANOTHER FOR SHARE TRADING WAS NOT BR OUGHT TO THE NOTICE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER FOUND THAT THE ASSESSEE INVESTED FUNDS IN THE SHARES AND EARNED EXEMPTED IN COME. THEREFORE, THE EXPENDITURE CLAIMED BY THE ASSESSEE HAS TO BE D ISALLOWED. REFERRING TO THE LOSS FROM SALE OF SHARES, THE LEARNED DEPART MENT REPRESENTATIVE SUBMITTED THAT THE PRINCIPAL BUSINESS OF THE ASSESS EE IS PLYING BUSSES AND NOT INVESTMENT. THE LOSSES CLAIMED BY THE ASSES SEE RESULTED IN SHARE TRADING. REFERRING EXPLANATION TO SECTION 73 OF INCOME TAX ACT, MORE PARTICULARLY, EXPLANATION 2, THE LEARNED DEPAR TMENT REPRESENTATIVE SUBMITTED THAT THE LOSS SUFFERED BY THE ASSESSEE IS RS.26,94,968/- IS FROM SPECULATIVE BUSINESS. THEREFORE, THE SAME CAN BE SE T OFF AGAINST THE SPECULATIVE INCOME. HENCE, THE CIT(A) HAS RIGHTLY C ONFIRMED THE ORDER OF THE ASSESSING OFFICER. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ASSES SEE CLAIMS THAT THE MAIN BUSINESS IS INVESTMENT AND MAINTAINING TWO POR TFOLIOS. ONE PORTFOLIO IS INVESTMENT AND ANOTHER PORT FOLIO IS FOR TRADING . THIS FACTUAL ASPECT WAS NOT BROUGHT TO THE NOTICE OF EITHER THE ASSESSING O FFICER OR THE CIT(A). THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINI ON, THAT THE MATTER NEEDS TO BE RE-EXAMINED BY THE ASSESSING OFFICER AF TER CONSIDERING THE TRANSACTION MADE BY THE ASSESSEE. ACCORDINGLY, THE ORDERS OF LOWER AUTHORITIES ARE SET ASIDE AND THE ISSUE ON DISALLOW ANCE MADE BY THE 5 I.T.A. NO.1471/MDS/2016 ASSESSING OFFICER UNDER SECTION 14A IS REMITTED BAC K TO THE FILE OF THE ASSESSING OFFICER. THE AO SHALL RE-EXAMINE THE MATT ER AFRESH AND FIND OUT THE PRINCIPAL BUSINESS OF THE ASSESSEE AND THE DIFFERENT KINDS OF PORTFOLIOS MAINTAINED BY THE ASSESSEE AND THEREAFTE R DECIDE THE ISSUE IN ACCORDANCE WITH LAW AND THERE AFTER GIVING REASONAB LE OPPORTUNITY TO THE ASSESSEE. 7. THE NEXT ISSUE IS LOSS OF SHARES. THE LEARNED RE PRESENTATIVE FOR THE ASSESSEE CLAIMED THAT THE ASSESSEES MAIN BUSIN ESS IS INVESTMENT AND THE TRANSACTIONS ARE TO BE MADE ELECTRONICALLY. THEREFORE, THE PROVISIONS OF SECTION 73 ARE NOT APPLICABLE AT ALL. THIS ASPECT WAS ALSO NOT EXAMINED BY THE AO. THE AO HAS TO FIND OUT THE PRINCIPAL BUSINESS OF THE ASSESSEE AND EXAMINE THE TRANSACTIONS SAID T O BE MADE ELECTRONICALLY AND FIND OUT WHETHER THE PURCHASE AN D SALE OF SHARES WERE MADE WITHOUT PHYSICAL DELIVERY OF DERIVATIVES / SHARES. 8. ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE AND THE ENTIRE ISSUE OF LOSS IN SHARE TRANSACTIONS IS R EMITTED BACK TO THE FILE OF AO. THE AO SHALL RE-EXAMINE THE MATTER AFRESH WI TH REGARD TO TRANSACTIONS OF SHARES AND THEREAFTER DECIDE THE IS SUE IN ACCORDANCE WITH LAW AND THERE AFTER GIVING REASONABLE OPPORTUN ITY TO THE ASSESSEE. 6 I.T.A. NO.1471/MDS/2016 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 23 RD SEPTEMBER, 2016 AT CHENNAI. SD/- SD/- (. !'# ! ) ( . . . ) (A. MOHAN ALANKAMONY) (N.R.S. GANESAN) % / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 5 /DATED, THE 23 RD SEPTEMBER, 2016. SP. / -267 87)2 /COPY TO: 1. +, /APPELLANT 2. -.+, /RESPONDENT 3. 1 92 () /CIT(A) 4. 1 92 /CIT, 5. 7: -2 /DR 6. ;( < /GF.