ARJ SHARES & STOCK BROKERS PVT. LTD., MUMBAI V. D.C.I.T. RG. 4(3), MUMBAI

ITA 1473/MUM/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 3806 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 11 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-02-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 06-05-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 02-03-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation; Earning of tax free income; Cost of acquisition
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUM BAI BEFORE SHRI R.C. SHARMA, AM AND SHRI SANDEEP GOSAIN , JM ./ I.T.A. NO. 1473/MUM/2012 ( / ASSESSMENT YEAR: 2008-09) M/S. ARJ SHARES & STOCK BROKERS PVT. LTD. 21, KHATAU BUILDING, 40/48, BANK STREET, FORT, MUMBAI-400 001. / VS. DCIT, RANGE-4(3), ROOM NO. 649, 6 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI. ./ ./PAN/GIR NO. AAACJ 7576 M ( /APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI ANUJ KISNADWALA / RESPONDENT BY : SHRI MANOJ KUMAR / DATE OF HEARING : 29/12/2015 !'# / DATE OF PRONOUNCEMENT : 24/12/16 $% / O R D E R PER SANDEEP GOSAIN, J. M.: THE PRESENT APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF THE CIT(A)-8 DATED 18.01.2012 THEREBY PARTLY ALLOWING THE APPEAL OF THE ASSESSEE FILED AGAINST THE ORDER OF THE AO U/S 143(3) OF THE I.T. ACT, 196 1, DATED 14.12.2010 ON THE GROUNDS MENTIONED BELOW. 2 ITA NO. 1473/MUM/2012 (A.Y. 2008-09) M/S. ARJ SHARES & STOCK BROKERS PVT. LTD.VS.DCIT 1. COMM. OF INCOME TAX (A) ERRED IN LAW AND FACT IN CONFIRMING THE CALCULATION OF LONG TERM CAPITAL GAIN ON SALE OF SHARES OF BSE LTD AS MADE BY ASSESSING OFFICER & IGNORING CALCULATION MADE BY APPELLANT. 2. COMM. OF INCOME TAX (A) ERRED IN LAW AND FACT I N IGNORING THE PROVISIONS OF SECTION 55(2)(AB) OF THE ACT, WHEREIN THE MANNER IN WHICH COST OF SHARES SOLD IS ENACTED. 3. COMM. OF INCOME TAX (A) ERRED IN LAW AND FACT B Y CONFIRMING DISALLOWANCE OF RS. 57,732/- U/S 14A OF THE IT ACT, 1961. 4. COMM. OF INCOME TAX (A) ERRED IN LAW AND FACT B Y ACCEPTING THE CALCULATION OF DISALLOWANCE U/S 14A MADE BY AO AND IGNORING THE FA CT THAT INTEREST WAS PAID BY APPELLANT FOR BUSINESS OF TRADING IN SECURITIES AND NOT TO EARN EXEMPT INCOME. 5. THE APPELLANT PLEAD BEFORE YOUR HON'BLE TRIBUNA L TO DIRECT ASSESSING OFFICER TO: I. ALLOW CALCULATION OF LONG TERM CAPITAL GAIN ON SALE' OF SHARES OF BSE LTD. AS CLAIMED IN RETURN OF INCOME. II. DIRECT AO TO CALCULATE DISALLOWANCE U/S 14A AF TER IGNORING INTEREST PAID FOR BUSINESS ACTIVITY. 6. APPELLANT CRAVE FOR LEAVE OF HON'BLE TRIBUNAL T O ALTER OR AMEND ANY OR ALL GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING. 2. THE BRIEF FACTS OF THE CASE ARE THAT A RETURN OF IN COME WAS FILED ON 19/8/2008 DECLARING TOTAL INCOME OF RS. NIL. THE CASE WAS SEL ECTED UNDER COMPUTER ASSISTED SCRUTINY SCHEME (CASS) AND NOTICE U/S 143(2) WAS IS SUED AND SERVED UPON THE ASSESSEE. IN THE PRESENT CASE THE ASSESSEE IS A SHA RE BROKER. FOR THE AY 2008-09, 3 ITA NO. 1473/MUM/2012 (A.Y. 2008-09) M/S. ARJ SHARES & STOCK BROKERS PVT. LTD.VS.DCIT THE ASSESSEE HAD SHOWN LONG TERM CAPITAL GAINS OF R S.2,37,17,838/-. OUT OF THE SAME, RS.90,72,890/- HAS BEEN SHOWN AS GAINS ON SAL E OF SHARES OF BSE LTD. THE ASSESSEE HAD SOLD 4562 SHARES OF BSE LTD. FOR A CON SIDERATION OF RS. 2,37,17,838/- AGAINST WHICH IT HAS TAKEN INDEXED COST OF ACQUISIT ION OF RS.14649510/-. THE ASSESSEE WAS A HOLDER OF THE BSE MEMBERSHIP CARD WH ICH IT HAD ACQUIRED IN MAY 2000 FOR A VALUE OF RS.43661500/-. THE ASSESSEE HAD CLAIMED DEPRECIATION ON THE BSE CARD AS UNDER RS 10915375 FOR AY 2001-02 RS 8186531 FOR AY 2002-03 RS 6139899 FOR AY 2003-04 RS 4604924 FOR AY 2004-05 RS 3453693 FOR AY 2005-06 IN AUGUST 2005, THE B~E, WHICH WAS AN AOP BODY, UND ERWENT DEMUTUALIZATION AND CORPORATISATION. UNDER THE SAID SCHEME THE BSE CARD HOLDERS WERE ALLOTTED SHARES OF RS ONE EACH. THE ASSESSEE H AD OPTED FOR THE SCHEME AND WAS ALLOTTED 20,000 SHARES FOR A PRICE OF RS 20,000 /-. OUT OF THE SAME THE ASSESEE HAS SOLD THE 4562 SHARES BACK TO THE BSE ON 17/5/20 07. IT IS ON THESE SALES THAT THE ASSESEE HAS CLAIMED LONG TERM CAPITAL GAINS. WHILE COMPUTING THE LONG TERM CAPITAL GAINS, THE ASESSEE HAS TAKEN THE COST OF RS 43661500/- PLUS RS 20,000/- AS THE COST OF ACQUISITION OF 20000 SHARES WITH A INDE XATION FROM FY 2000-01. 4 ITA NO. 1473/MUM/2012 (A.Y. 2008-09) M/S. ARJ SHARES & STOCK BROKERS PVT. LTD.VS.DCIT THE REQUIRED NOTICES WERE ISSUED BY THE AO FOR WHIC H THE ASSESSEE FILED A DETAILED REPLY ON 1.1.10 WHICH FORM MENTIONED IN THE ASSESS MENT ORDER AND AFTER CONSIDERING THE REPLY AO PASSED THE ORDER OF ASSESS MENT U/S 143(3) OF THE INCOME- TAX ACT THEREBY COMPUTING THE TOTAL INCOME OF THE A SSESSEE. 3. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE F ILED APPEAL BEFORE THE CIT(A) AND THE CIT(A) PARTLY ALLOWED THE APPEAL BUT UPHELD THE DISALLOWANCE U/S 14A R.W. RULE 8D OF THE INCOME TAX ACT AND ALSO UPH ELD THE REJECTION OF APPELLANTS CLAIM OF LONG TERM CAPITAL CLAIM ON SAL E OF SHARES OF BSE. 3.1 AGGRIEVED BY THE ORDER OF THE CIT(A) THE ASSESS EE FILED THE PRESENT APPEAL BEFORE US ON THE GROUND MENTIONED HEREINABOVE. GROUND NO. 1&2 4. SINCE BOTH THE GROUND ARE INTER RELATED AND INTE RCONNECTED THEREFORE WE THOUGHT IT FIT TO DISPOSE OFF THE SAME BY COMMON OR DER. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSE HAS SOLD SHARES OF BSE L TD WHICH WERE ACQUIRED IN THE COURSE OF DEMUTUALIZATION OF STOCK EXCHANGE AND OFF ERED LONG TERM CAPITAL GAINS IN THE COMPUTATION OF INCOME. WHILE CALCULATING LONG T ERM CAPITAL GAINS THE ASSESSEE CLAIMED THE ORIGINAL COST OF BSE CARD AS PER THE PR OVISION OF SECTION 55(2)(AB) AND 5 ITA NO. 1473/MUM/2012 (A.Y. 2008-09) M/S. ARJ SHARES & STOCK BROKERS PVT. LTD.VS.DCIT ALSO CLAIMED INDEXATION ON THE SAME FOR AY 2001-02 I.E. DATE ON WHICH THE ASSESSEE ACQUIRED OWNERSHIP OF BSE CARD. 5. HOWEVER THE ASSESSING OFFICER WAS OF THE VIEW TH AT SINCE THE ASSESSEE HAS CLAIMED DEPRECIATION ON BSE CARD, THE ASSESEE WOULD NOT BE ALLOWED TO TAKE THE ORIGINAL COST OF ACQUISITION IN SPITE OF THE SPECIF IC PROVISIONS OF SECTION 55(2)(AB) OF THE ACT. IN ADDITION THE AO WAS OF THE VIEW THAT THE INDEXATION BENEFIT CANNOT BE GRANTED TO THE ASSESSEE SINCE THE ASSET WAS NOT IN EXISTENCE BEFORE A.Y. 2007-08. THEREFORE, THE ASSESSING OFFICER REJECTED THE WORKI NG OF LONG TERM CAPITAL GAINS MADE BY THE ASSESSEE AND DISALLOWED ORIGINAL COST O F ACQUISITION AND CONSEQUENTIAL DEDUCTION WERE MADE. 6. SUBSEQUENTLY, THE LD. CIT(A) ALSO UPHELD THE STA ND OF THE ASSESSING OFFICER. 7. IN ORDER TO CONTROVERT THE FINDINGS RECORDED BY THE REVENUE AUTHORITIES, LD. AR REPRESENTING THE ASSESSEE SUBMITTED THAT THE ISS UE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE HONBLE TRIBUNAL IN TH E CASE OF M/S PARAG PARIKH FINANCIAL SERVICES VS. ITO BEING ITA NO.3118/MUM/2 012 FOR A.Y. 2008-09 DATED 29.01.2014. WE HAVE ANALYSED THE FINDING RECO RDED BY THE HONBLE TRIBUNAL IN THE AFORESAID MENTIONED CASE AND THE OPERATIVE P ARAS ARE REPRODUCED BELOW. 6 ITA NO. 1473/MUM/2012 (A.Y. 2008-09) M/S. ARJ SHARES & STOCK BROKERS PVT. LTD.VS.DCIT 5) WITH REGARD TO THE APPLICABILITY OF S. 50 OF TH E ACT, IT IS SUBMITTED THAT THE PROVISIONS OF S. 50 OF THE ACT APPLY ONLY IN CASES WHERE THE APPELLANT HAS CLAIMED DEPRECIATION ON THE ASSET. IT IS SUBMITTED THAT THE APPELLANT HAS NEVER CLAIMED DEPRECIATION ON SHARES AND HENCE, THE PROVISIONS OF S. 50 OF THE ACT WILL NOT APPLY IN TH E PRESENT CASE. 6) IN VIEW OF THE SAME, IT IS HUMBLY SUBMITTED THAT DISALLOWANCE MADE BY THE ASSESSING OFFICER MAY KINDLY BE DELETED. 7) DURING THE YEAR UNDER CONSIDERATION, THE APPELLA NT HAS RECEIVED EXEMPT INCOME AMOUNTING TO RS.3,06,065/-. 8) THE ASSESSING OFFICER CALCULATED THE DISALLOWANC E U/S 14A READ WITH RULE 80 AT RS. 57,732/-. THE SAID DISALLOWANCE COMP RISES OF INTEREST AMOUNTING TO RS.46,067 AND ADMINISTRATIVE EXPENSES AMOUNTING TO RS.11,666/-. WHILE CALCULATING THE AVERAGE VALUE OF INVESTMENTS IN COMPUTATION OF RULE 8D, THE ASSESSING OFFICER HAS C ONSIDERED THE SHARES HELD AS STOCK IN TRADE ALSO. 9) THE LEARNED CIT (A) CONFIRMED THE DISALLOWANCE M ADE BY THE ASSESSING OFFICER. 10) IT IS SUBMITTED THAT WHILE COMPUTING THE DISA LLOWANCE U/S 14A OF THE ACT, THE AMOUNT OF SHARES HELD AS STOCK IN TRAD E SHOULD BE EXCLUDED. IN ORDER TO SUPPORT THE SAID CONTENTION, RELIANCE IS PLACED ON THE ORDER OF THE HON'BLE TRIBUNAL IN THE CASE OF CIT V. INDIA ADVANTAGE SECURITIES LTD (ITA NO: 6711/MUM/2011) DA TED 7 ITA NO. 1473/MUM/2012 (A.Y. 2008-09) M/S. ARJ SHARES & STOCK BROKERS PVT. LTD.VS.DCIT 14.09.2012 WHICH HAS BEEN SUBSEQUENTLY UPHELD BY TH E HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT V. INDIA ADVAN TAGE SECURITIES (ITA NO: 1131 OF 2013). RELIANCE IS ALSO PLACED ON THE ORDER OF THE HON'BLE TRIBUNAL IN CASE OF DY. CIT V. SHREE DURGA CAPITAL (ITA NO:7405/MUM/2011) DATED 03.08.2015. 11) WITHOUT PREJUDICE TO THE ABOVE, IT IS HUMBLY SU BMITTED THAT NO INTEREST DISALLOWANCE CAN BE MADE U/S 14A OF THE AC T SINCE OWN FUNDS OF THE ASSESSE I.E. SHARE CAPITAL + RESERVES ARE SU FFICIENT TO COVER UP THE VALUE OF INVESTMENTS. IN ORDER TO SUPPORT THE S AID CONTENTION, RELIANCE IS PLACED ON THE FOLLOWING DECISIONS. A) CIT V. RELIANCE UTILITIES [313 ITR 340 (BOM)] B) CIT V. HDFC BANK [366 ITR 505 (BOM)] C) M/S. ALCHEMIC FINANCILA SERVICES LTD. VS. ADDL. CIT IN ITA NO. 6349/MUM/11 FOR A.Y. 2008-09. 8. AFTER ANALYZING THE AFORE MENTIONED FINDINGS WE ARE OF THE VIEW THAT IT HAS BEEN RIGHTLY HELD THAT AS PER SPECIFIC PROVISIONS O F SECTION 55(2)(AB) OF THE ACT, THE COST OF ACQUISITION IN RELATION TO EQUITY SHARES AL LOTTED TO A SHAREHOLDER UNDER A SCHEME OF DEMUTUALIZATION OR CORPORATIZATION SHALL BE THE COST OF ACQUISITION OF HIS ORIGINAL MEMBERSHIP OF EXCHANGE. IT HAS ALSO BEEN R IGHTLY HELD THAT FOR DETERMINING THE HOLDING PERIOD OF CAPITAL ASSET BEING EQUITY SH ARES ALLOTTED IN PURSUANCE TO DEMUTUALIZATION OR CORPORATIZATION OF RECOGNIZED ST OCK EXCHANGE, THE PERIOD FOR 8 ITA NO. 1473/MUM/2012 (A.Y. 2008-09) M/S. ARJ SHARES & STOCK BROKERS PVT. LTD.VS.DCIT WHICH THE ASSESSEE WAS A MEMBER OF RECOGNIZED STOCK EXCHANGE PRIOR TO SUCH DEMUTUALIZATION OR CORPORATIZATION SHALL ALSO BE IN CLUDED AS PER CLAUSE (HA) TO EXPLANATION 1 TO SECTION 2(42A). THEREFORE, RESPECT FULLY FOLLOWING THE PRINCIPLES LAID DOWN BY THE HONBLE TRIBUNAL WE ALSO HOLD THAT FOR THE PURPOSE OF CALCULATING LONG TERM CAPITAL GAINS, THE COST OF ACQUISITION SH ALL BE THE ORIGINAL COST OF MEMBERSHIP OF EXCHANGE AND THE INDEXATION WOULD ALS O BE ALLOWED FOR THE PERIOD FROM WHICH THE ASSESSEE WAS A MEMBER OF STOCK EXCHA NGE. 8.1 NOW, COMING TO THE APPLICABILITY OF SECTION 50 OF THE ACT, WE HAVE NOTICED THAT THE PROVISIONS OF SECTION 50 OF THE ACT WOULD ONLY APPLY IN CASES WHERE THE ASSESSEE HAS CLAIMED DEPRECIATION ON THE ASSET, BUT IN THE PRESENT CASE THE ASSESSEE HAS NEVER CLAIMED DEPRECIATION ON SHARES AND THEREF ORE, THE PROVISIONS OF SECTION 50 OF THE ACT ARE NOT ATTRACTED IN THE PRESENT CASE AND HENCE, FROM THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE WE DELETE THE D ISALLOWANCE MADE BY THE AO AND CONFIRMED BY THE CIT(A). GROUND NO. 3&4 9. SINCE BOTH THE GROUNDS ARE INTER-CONNECTED AND I NTER-RELATED THEREFORE WE THOUGHT IT FIT TO DISPOSE OFF THE SAME BY THE COMMO N ORDER. 9 ITA NO. 1473/MUM/2012 (A.Y. 2008-09) M/S. ARJ SHARES & STOCK BROKERS PVT. LTD.VS.DCIT 9.1 IT IS ADMITTED IN THE CASE THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS RECEIVED EXEMPT INCOME AMOUNTING TO RS .3,06,065/-. THE ASSESSING OFFICER CALCULATED THE DISALLOWANCE U/S 14A R.W.RUL E 8D AT RS.57,732/- AND SAID DISALLOWANCE COMPRISES OF INTEREST AMOUNTING TO RS. 46,067/- AND ADMINISTRATIVE EXPENSES AMOUNTING TO RS.11,666/-. WHILE CALACULATI NG THE AVERAGE VALUE OF INVESTMENTS IN COMPUTATION OF RULE 8D, THE AO HAS C ONSIDERED THE SHARES HELD AS STOCK IN TRADE ALSO. 9.2 IN THIS RESPECT IT IS SUBMITTED BY THE LD. AR R EPRESENTING THE ASESSEE WHILE COMPUTING THE DISALLOWANCE U/S 14A OF THE ACT, THE AMOUNT OF SHARES HELD AS STOCK IN TRADE SHOULD BE EXCLUDED. IN ORDER TO SUPPORT TH E LD. AR RELIED ON THE ORDER OF THE HONBLE TRIBUNAL IN THE CASE OF CIT VS. INDIA ADVANTAGE SECURITIES LTD (ITA NO. 6711/MUM/2011) DATED 14.09.2012 WHICH HAS BEEN SUBSEQUENTLY UPHELD BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V S. INDIA ADVANTAGE SECURITIES LTD (ITA NO. 1131OF 2013). IN ADDITION LD. AR ALSO PLACED RELIANCE ON THE ORDER OF THE HOBBLE TRIBUNAL IN THE CASE OF DY . CIT VS. SHREE DURGA CAPITAL (ITA NO. 7405/MUM/2011) DATED 03.08.2015. 10 ITA NO. 1473/MUM/2012 (A.Y. 2008-09) M/S. ARJ SHARES & STOCK BROKERS PVT. LTD.VS.DCIT 9.3 WE HAVE ANLAYSED THE ORDER PASSED IN THE AFORES AID MENTIONED CASE BY THE HONBLE TRIBUNAL IN ITA NO. 6711/MUM/2011THE OPERAT IVE PORTION IS REPRODUCED BELOW. 5. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE R IVAL CONTENTION CAREFULLY. THE DISPUTE IS REGARDING THE DISALLOWANC E OF EXPENSES U/S.14A IN RELATION TO THE EXEMPT DIVIDEND INCOME RECEIVED FROM SHARES HELD ON TRADING ACCOUNT. THE A.O. DISALLOWED THE EXPENSES H OLDING THAT THE PROVISIONS OF SECTION 14A WERE APPLICABLE EVEN IN R ELATION TO THE DIVIDEND RECEIVED FROM THE TRADING SHARES. THE LD.C IT(A) HAS HOWEVER HELD THAT THE PROVISIONS OF SECTION 14A WILL NOT AP PLY TO THE SHARES HELD ON TRADING ACCOUNT. THE REVENUE HAS PLACED RELIANCE ON THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF M/S. AM ERICAN EXPRESS BANK LIMITED (SUPRA) IN WHICH THE TRIBUNAL HAS HELD THAT THE EXPENDITURE U / S.14A HAS TO BE DISALLOWED EVEN IN RESPECT OF D IVIDEND INCOME RECEIVED FROM TRADING SHARES. THE TRIBUNAL FOLLOWED THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF ITA VS . DAGA CAPITAL MANAGEMENT PVT. LTD. (SUPRA). THE ASSESSEE IN THAT CASE HAD RELIED ON THE JUDGMENT OF HON'BLE HIGH COURT OF KERALA IN THE CASE OF CIT VS. SMT. LEENA RAMACHANDRAN (339 ITR 296) TO ARGUE THAT THE DISALLOWANCE COULD NOT BE MADE IN RELATION TO THE DIVIDEND RECEI VED FROM TRADING SHARES. THE TRIBUNAL HAD HOWEVER, DISTINGUISHED THE SAID JUDGMENT OF HON'BLE HIGH COURT OF KERALA ON THE GROUND THAT IN THAT CASE THE ACQUISITION OF SHARES WITH THE BORROWED FUNDS WAS F OR THE PURPOSE OF CONTROLLING THE COMPANY. THEREFORE, EVEN THOUGH THE PURPOSE FOR ACQUIRING THE SHARES WAS BUSINESS, THE HIGH COURT H AD UPHELD THE DISALLOWANCE U/S.14A OF THE I.T. ACT. THE TRIBUNAL ALSO NOTED THAT THE 11 ITA NO. 1473/MUM/2012 (A.Y. 2008-09) M/S. ARJ SHARES & STOCK BROKERS PVT. LTD.VS.DCIT HIGH COURT IN THAT CASE HAD ONLY OBSERVED THAT THE INTEREST PAID ON BORROWED FUNDS UTILISED FOR ACQUIRING SHARES COULD BE ALLOWED AS DEDUCTION U/S.36(1)(III) ONLY IF SHARES WERE HELD A S STOCK-IN-TRADE. THESE OBSERVATIONS WERE ONLY OBITER DICTA AND NOT THE RAT IO DECIDED OF THE JUDGMENT. THE RATIO DECIDED OF THE JUDGMENT WAS DIS ALLOWANCE OF INTEREST U/S.14A WHICH HAD BEEN UPHELD BY THE TRIBU NAL. THE TRIBUNAL, THEREFORE, DID NOT ACCEPT THE ARGUMENTS BASED ON TH E JUDGMENT OF HON'BLE HIGH COURT OF KERALA IN THE CASE OF SMT. LE ENA RAMACHANDRAN (SUPRA) WHICH WAS NOT DIRECTLY ON THE ISSUE OF DISA LLOWANCE OF EXPENSES IN RELATION TO THE DIVIDEND INCOME RECEIVED FROM TR ADING IN SHARES. 6. HOWEVER, THE HON'BLE HIGH COURT OF KARNATAKA HAV E RECENTLY CONSIDERED THE DISALLOWANCE OF EXPENSES INCURRED ON BORROWINGS MADE FOR PURCHASE OF TRADING SHARES U/S.14A OF THE LT. A CT IN CASE OF CCL LTD. VS. JCIT (SUPRA). THE ASSESSEE IN THAT CASE WAS DIS TRIBUTOR OF STATE LOTTERIES AND A DEALER IN SHARES AND SECURITIES. TH E ASSESSEE HAD TAKEN LOANS FOR THE PURCHASE OF CERTAIN SHARES AND IT HAD INCURRED EXPENDITURE FOR BROKING THE LOANS WHICH HAD BEEN DISALLOWED UND ER RULE 8D BY THE A.O. AND CONFIRMED LD.CIT(A). THE TRIBUNAL AGREED W ITH THE AUTHORITIES BELOW EXPENDITURE RELATABLE TO EARNING OF DIVIDEND INCOME THOUGH INCIDENTAL THE TRADING IN SHARES WAS ALSO TO BE DIS ALLOWED U/S.14A OF THE I.T.ACT THE TRIBUNAL HOWEVER, HAD OBSERVED THAT THE ENTIRE BROKING COMMISSION WAS NOT RELATABLE TO EARNING OF DIVIDEND INCOME AS THE LOAN HAD BEEN UTILISED FOR THE PURCHASE OF SHARES AND TH E PROFIT SHOWN FROM THE SALE OF SHARES HAD BEEN OFFERED AS BUSINESS INC OME. THE TRIBUNAL, THEREFORE, DIRECTED THE A.O. TO BIFURCATE THE EXPEN DITURE PROPORTIONATELY. THE ORDER OF THE TRIBUNAL WAS HOWEVER, NOT UPHELD B Y THE TRIBUNAL. THE HIGH COURT NOTED THAT 63% OF SHARES WHICH WERE PURC HASED WERE SOLD 12 ITA NO. 1473/MUM/2012 (A.Y. 2008-09) M/S. ARJ SHARES & STOCK BROKERS PVT. LTD.VS.DCIT AND INCOME DERIVED WAS OFFERED TO TAX AS BUSINESS I NCOME. THE REMAINING 30% OF SHARES WHICH REMAINED UNSOLD HAD R EVERTED TO DIVIDEND INCOME FOR WHICH THE ASSESSEE HAD NOT INCU RRED ANY EXPENDITURE AT ALL. THE HIGH COURT ALSO OBSERVED TH AT THE ASSESSEE HAD NOT RETAINED THE SHARES WITH THE INTENTION OF EARNI NG DIVIDEND INCOME WHICH WAS INCIDENTAL DUE TO HIS SALE OF SHARES WHIC H REMAINED UNSOLD BY THE ASSESSEE. THE HIGH COURT, THEREFORE, DID NOT UP HOLD THE ORDER OF THE TRIBUNAL DISALLOWING THE EXPENDITURE IN RELATION TO THE DIVIDEND FROM SHARES. THUS THERE BEING A DIRECT JUDGMENT OF A HON 'BLE HIGH COURT ON THIS ISSUE, THE SAME HAS TO BE FOLLOWED IN PREFEREN CE TO THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF M/ S. DAGA CAPITAL MANAGEMENT P. LTD. (SUPRA). INFACT, WE NOTE THAT TH E TRIBUNAL IN THE CASE OF GANJAM TREADING CO. LTD. SUPRA) HAS ALREADY CONS IDERED THIS SITUATION AND HELD THAT IN VIEW OF THE JUDGMENT OF HORI'BLE HIGH COURT OF KARNATAKA IN THE CASE OF CCL LTD. VS. JCIT (SUPRA) THE DISALLOWANCE OF INTEREST IN RELATION TO THE DIVIDEND RECEIVED FROM TRADING SHARES CANNOT BE MADE. WE, THEREFORE, SEE NO INFIRMITY IN THE ORD ER OF THE LD. CIT(A) IN DELETING THE DISALLOWANCE U/S.14A COMPUTED BY THE A .O. IN RELATION TO THE STOCK-IN-TRADE. THE ORDER OF THE LD.CIT(A) IS ACCOR DINGLY UPHELD. 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. 9.4 THE AFORE MENTIONED ITA NO. 6711/MUM/2011 WERE ALSO CHALLENGED BEFORE THE HONBLE BOMBAY HIGH COURT AND THE HONBLE BOMBA Y HIGH COURT HAS DISMISSED THE APPEAL OF THE REVENUE AND THE OPERATI NG PARA WHILE UPHOLDING THE ORDER OF THE TRIBUNAL IS REPRODUCED BELOW: 13 ITA NO. 1473/MUM/2012 (A.Y. 2008-09) M/S. ARJ SHARES & STOCK BROKERS PVT. LTD.VS.DCIT 4. BEFORE US, THE ID. DR APPEARING FOR THE REVENUE ASSAILED THE ORDER OF THE LD.CIT(A). IT WAS SUBMITTED THAT THE PROVISI ONS OF SECTION 14A WERE APPLICABLE EVEN IN RELATION TO THE DIVIDEND IN COME RECEIVED FROM THE TRADING IN SHARES AS HELD BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF ITO VS. M/S. DAGA CAPITAL MANAGEMENT P. LTD . (117 ITD 169). HE ALSO REFERRED TO THE LATEST DECISION OF THE TRIB UNAL DATED 08.08.2012 IN ITA NO.5904 & 6022/MUM/2000 IN THE CASE OF M/S. AMERICAN EXPRESS BANK LIMITED. THE ID. AR FOR THE ASSESSEE, ON THE O THER HAND, SUBMITTED THAT ISSUE WAS COVERED IN FAVOUR OF THE ASSESSEE BY THE LATEST JUDGMENT OF THE HON'BLE HIGH COURT OF KARNATAKA IN THE CASE OF CCL LTD. VS. JCIT (250 CTR 291) IN WHICH IT HAS BEEN HELD THAT NO DIS ALLOWANCE COULD BE MADE U/S.14A IN RESPECT OF DIVIDEND INCOME RECEIVED FROM THE SHARES HELD AS TRADING STOCK. IT WAS POINTED OUT THAT FOLL OWING THE SAID JUDGMENT, THE MUMBAI BENCH OF THE TRIBUNAL IN THE C ASE OF GANJAM TREADING CO. P. LTD. IN THE ORDER DATED 20.07.2012 IN ITA NO.3724/MUM/2005 HAVE HELD THAT THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF M/ S. DAGA CAPITAL MANA GEMENT P. LTD. (SUPRA) WAS NOT APPLICABLE IN THE CASE OF DIVIDEND RECEIVED SHARES. THE ID. AR FOR THE ASSESSEE ALSO RELIED ON THE DECISION TRIBUNAL IN THE CASE OF YATISH TRADING CO. (P) LTD. VS. ACIT (129 ITD 237) AND THE DECISION IN THE CASE OF PRAKASH K. SHAH & SECURITIES P. LTD. VS . ACIT IN ITA NO.3339/MUM/2010. 10. FROM THE CO-JOINT READING OF ORDERS PASSED BY T HE HONBLE HIGH COURT AS WELL AS THE HONBLE TRIBUNAL IT IS CLEAR THAT WHILE COMPUTING DISALLOWANCE U/S 14A 14 ITA NO. 1473/MUM/2012 (A.Y. 2008-09) M/S. ARJ SHARES & STOCK BROKERS PVT. LTD.VS.DCIT OF THE ACT, AMOUNT OF SHARES HELD AS STOCK IN TRADE SHOULD BE EXCLUDED. THEREFORE RELYING UPON JUDGEMENT PASSED ABOVE WE ALSO HOLD AC CORDINGLY. 11. APART FROM THE ABOVE IT WAS ALSO ARGUED BY THE LD. AR THAT NO INTEREST DISALLOWANCE CAN BE MADE U/S 14A OF THE ACT SINCE T HE ASSSSEE WAS HAVING HIS OWN FUNDS I.E. SHARE CAPITAL, RESERVES ARE SUFFICIENT T O COVER UP THE VALUE OF INVESTMENT. IN ORDER TO SUPPORT HIS CONTENTION LD. AR RELIED IN THE CASE OF CIT VS. HDFC BANK [366 ITR 505 (BOM)]FURTHER IT HAS BEEN OBSERV ED THAT THE INTEREST INCOME IS MORE THAN INTEREST EXPENDITURE AND SINCE NET INTERE ST IS POSITIVE, NO INTEREST DISALLOWANCE CAN BE MADE U/S 14 A OF THE ACT. IN OR DER TO SUPPORT HIS CONTENTION, RELIANCE IS PLACED ON THE ORDER OF THE HONBLE TRIB UNAL IN THE CASE OF DCIT VS. TRADE APARTMENTS BEING (ITA NO. 1211/KOL/2011) DAT ED 30.03.2012 AND MORGAN STANLEY INDIA SECURITIES VS. ASST. CIT BEI NG (ITA NO. 5072/MUM/2005) DATED 13.04.2011. IT WAS ALSO SUBMITTED THAT NO INT EREST DISALLOWANCE CAN BE MADE U/S 14A OF THE ACT. IN ADDITION LD. AR ALSO SUBMITT ED THAT NO SATISFACTION HAS BEEN RECORDED WHILE REJECTING THE CLAIM OF THE ASSESSEE FOR MAKING DISALLOWANCE U/S 14A OF THE ACT. IT WAS ALSO SUBMITTED THAT THE AO HAS C ALCULATED THE DISALLOWANCE U/S 14A R.W.RULE 8D OF THE ACT WITHOUT CONSIDERING THE PRINCIPLES AND GUIDELINES LAID DOWN BY THE HIGH COURT IN THE CASE OF GODREJ & BOY CE VS. CIT (328 ITR 81). 12. ON THE OTHER HAND LD. DR RELIED UPON THE LOWER AUTHORITIES. 15 ITA NO. 1473/MUM/2012 (A.Y. 2008-09) M/S. ARJ SHARES & STOCK BROKERS PVT. LTD.VS.DCIT 13. WE HAVE HEARD THE COUNSELS OF BOTH THE PARTIES AND WE HAVE PERUSED THE MATERIAL ON RECORD AND THE ORDERS PASSED BY THE LOW ER AUTHORITIES. WE HAVE ALSO CONSIDERED THE JUDGEMENT REFERRED ABOVE AND AFTER C O-JOINT PROCEEDING OF THE JUDGMENT, WHILE LD. AR AS WELL AS KEEPING IN VIEW T HE LEGAL SAID PROSECUTION WE ARE OF THE CONSIDERED OPINION THAT IN THE PRESENT C ASE THE ASSESSING OFFICER HAS RECORDED NO SATISFACTION WHILE REJECTING THE CLAIM OF THE ASSESSEE FOR MAKING DISALLOWANCE U/S 14A OF THE ACT. IN THE PRESENT CAS E THE ASSESSEE HAVING HIS OWN FUNDS AND OUT OF THE TOTAL DISALLOWANCE CALCULATED U/S 14A R.W. RULE 8D OF THE ACT OF RS.57,732/-. THE SAID DISALLOWANCE COMPRISES OF INTEREST AMOUNTING TO RS.46,067/- AND ADMINISTRATIVE EXPENSES AMOUNTING TO RS.11,666/-. AFTER APPLYING THE PRINCIPLES LAID DOWN BY THE JURISDICTIONAL AUTH ORITIES, WE ARE OF THE CONSIDERED VIEW THAT NO AMOUNT ON ACCOUNT OF INTEREST CAN BE C ALCULATED WHEN THE ASSESSEE IS HAVING EITHER THE OWNED FUNDS AND THEREFORE WE REST RICT THE DISALLOWANCE OF RS.11,666/- U/S 14A R.W. RULE 8D AND IN THIS RESPEC T AO IS DIRECTED TO RECALCULATE AFTER MAKING DISALLOWANCE. THIS GROUND OF APPEAL IS PARTLY ALLOWED. 14. GROUND NO. 5 &6 ARE GENERAL IN NATURE AND NEEDS NO SEPARATE ADJUDICATION IN VIEW OF THE DECISION ON ABOVE GROUNDS. 16 ITA NO. 1473/MUM/2012 (A.Y. 2008-09) M/S. ARJ SHARES & STOCK BROKERS PVT. LTD.VS.DCIT 15. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH FEBRUARY, 2016 SD/- SD/- (R.C. SHARMA) (SANDEEP GOSAIN) $ / ACCOUNTANT MEMBER &' $ / JUDICIAL MEMBER ( ) MUMBAI; *$ DATED :24.02.2016 PS. ASHWINI / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. + ( ) / THE CIT(A) 4. + / CIT - CONCERNED 5. ./0 ''12 , 12# , ( ) / DR, ITAT, MUMBAI 6. 045 6 / GUARD FILE / BY ORDER, / !'# (DY./ASSTT. REGISTRAR) #$ %, ( ) / ITAT, MUMBAI