DCIT CIR-8, KOLKATA, Kolkata V. M/s Meenakshi Tea Com. Ltd., Kolkata

ITA 1511/KOL/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 78344 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 8 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-07-2014
• Appeal Filed By: Department
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 18-10-2012
• Court: TRIBUNAL
• Assessee Lawyers: V N PUROHIT
• Keywords: Business income; Transactions in derivatives; Earning of tax free income; Reasonable cause; Speculation loss
• Section: 143(3); 14A

Judgement Text

, B , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: KOL KATA () BEFORE , /AND , ! ) [BEFORE SHRI MAHAVIR SINGH, JM & SHRI SHAMIM YAHYA, AM] ' / I.T.A NO.1511/KOL/2012 #$ %&/ ASSESSMENT YEAR: 2009-10 DEPUTY COMMISSIONER OF INCOME-TAX, VS. M/S. MEENAK SHI TEA CO. LTD. CIRCLE-8, KOLKATA. (PAN: AACCM2772Q) (() /APPELLANT ) (*+()/ RESPONDENT ) DATE OF HEARING: 19.06.2014 DATE OF PRONOUNCEMENT: 04.07.2014 FOR THE APPELLANT: SMT. MADHUMALTI GHOSH, JCIT, SR . DR FOR THE RESPONDENT: SHRI V. N. PUROHIT, FCA / ORDER PER SHRI MAHAVIR SINGH, JM : THIS APPEAL BY REVENUE IS ARISING OUT OF ORDER OF C IT(A)-VIII, KOLKATA IN APPEAL NO. 125/CIT(A)-VIII/KOL/11-12 DATED 11.07.2012. ASSESS MENT WAS FRAMED BY DCIT, CIRCLE-8, KOLKATA U/S. 143(3) OF THE INCOME-TAX ACT, 1961 (HE REINAFTER REFERRED TO AS THE ACT) FOR ASSESSMENT YEAR 2009-10 VIDE HIS ORDER DATED 27.10. 2011. 2. AT THE OUTSET, IT IS NOTICED THAT THIS APPEAL OF REVENUE IS BARRED BY LIMITATION BY 05 DAYS AND REVENUE HAS FILED CONDONATION PETITION ALONG WI TH AFFIDAVIT. LD. SR. DR ARGUED THAT THERE IS REASONABLE CAUSE FOR THE DELAY AND THIS IS A VERY S MALL DELAY OF ONLY 05 DAYS. WHEN THIS WAS CONFRONTED TO LD. COUNSEL, HE FAIRLY CONCEDED THAT THE DELAY CAN BE CONDONED AND THE APPEAL CAN BE ADMITTED. HENCE, WE CONDONE THE DELAY AND AD MIT THE APPEAL FOR HEARING. 3. THE FIRST ISSUE IN THIS APPEAL OF REVENUE IS AGA INST THE ORDER OF CIT(A) DELETING THE ADDITION MADE BY AO ON ACCOUNT OF DISALLOWANCE OF L OSS FROM PURCHASE AND SALE OF SHARES HOLDING THE SAME AS SPECULATIVE LOSS. FOR THIS, RE VENUE HAS RAISED FOLLOWING GROUND NO.1: 1. THAT, ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE ASSESSEE COMPANYS LOSS F ROM PURCHASE AND SALE OF SHARE TO THE TUNE OF RS.5,10,28,564/- WAS NOT COVERED BY THE EXP LANATION TO PROVISIONS OF SECTION 73 OF THE INCOME-TAX ACT, 1961 WHEREAS THE ASSESSEES GROSS TOTAL INCOME DID NOT CONSIST OF INCOME ON SECURITIES, INCOME FROM HOUSE PROPERTY , CAPITAL GAINS AND INCOME 2 ITA NO. 1511/K/2012 MEENAKSHI TEA CO. LTD. AY 2009-10 FROM OTHER SOURCES TO BE COVERED BY THE EXCEPTIONS TO THE EXPLANATION TO SECTION 73 OF I. T. ACT, 1961. 4 . WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FA CTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT ASSESSEES PRINCIPAL BUSINESS IS NOT THAT OF GRANTING OF LOANS AND ADVANCES AND HE HAD RESORTED TO OCCASIONALLY GRANTING OF SUCH LOANS AND ADVANCES IN ORDER TO MAINTAIN ITS CORPORATE STATUS OF NBFC. HE NOTED THAT IT IS EVIDENT FROM THE ACCOUNT S THAT THE ASSESSEES ACTIVITIES WERE THAT OF CAPITAL MARKET TRANSACTIONS I.E. SHARE TRADING AND DERIVATIVE TRANSACTIONS. ACCORDING TO HIM, THE ASSESSEES CASE IS NOT COVERED BY ANY OF THE EXCEPT ION MENTIONED IN EXPLANATION TO SECTION 73 OF THE ACT. HE NOTED THAT THE GROSS TOTAL INCOME O F THE ASSESSEE DOES NOT CONSIST MAINLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEAD INTEREST ON SECURITIES, INCOME FROM HOUSE PROPERTY, CAPITAL GAINS AND INCOME FROM OTHER S OURCES OR THE PRINCIPAL BUSINESS OF THE ASSESSEE IS NOT THAT OF BANKING AND GRANTING OF LOA NS AND ADVANCES. ACCORDINGLY, HE TREATED THE LOSS CLAIMED BY THE ASSESSEE AT RS.4,70,68,846/- AS SPECULATION LOSS AND ADDED TO THE RETURNED INCOME OF THE ASSESSEE. SIMILARLY, THE AO ALSO DISA LLOWED THE EXPENDITURE INCURRED DIRECTLY OR INDIRECTLY IN THE CONTEXT OF BUSINESS OF PURCHASE A ND SALE OF SHARES AND TREATED THE SAME AS SPECULATION BUSINESS LOSS TO THE EXTENT OF A SUM OF RS.35,62,078/- AND RS.3,97,640/-. THEREBY THE TOTAL SPECULATION INCOME TREATED BY ASSESSEE AN D ADDED TO THE RETURNED INCOME AT RS.5,10,28,564/-. AGGRIEVED, ASSESSEE PREFERRED AP PEAL BEFORE CIT(A) WHO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE NOTED THAT IT IS EN GAGED IN THE BUSINESS OF SHARE TRADING AND DERIVATIVES TRANSACTIONS AND ALSO CARRYING ON INVES TMENT ACTIVITY. 5. HE NOTED THE FACTUAL POSITION IN PARA (III) AND (IV), WHICH IS AS UNDER: (III) THE GROSS TOTAL INCOME OF THE APPELLANT IS W ORKED OUT UNDER THE HEADS PRESCRIBED IN SECTION 14 OF THE ACT AS UNDER: GROSS EARNINGS: (A) INCOME ASSESSABLE UNDER OTHER SOURCES: (I) INTEREST ON LOAN RS.4,03,28,324/- (II) DIVIDEND RS. 24,11,255/- (III) MISC. INCOME RS. 10,622/- RS. 42750201/- (IV) CAPITAL LOSS ON INVESTMENT (-) RS.1,22,81,66 2/- (C)BUSINESS INCOME DERIVATIVE TRANSACTIONS RS. 5,42,61,231/- LOSS ON SALE OF SHARE (-) RS.4,70,68,846/- RS.7192385/- 3 ITA NO. 1511/K/2012 MEENAKSHI TEA CO. LTD. AY 2009-10 (IV)AS PER THE GROSS TOTAL INCOME WORKED OUT ABOVE, THE BUSINESS INCOME OF THE APPELLANT WILL BE 11.55% OF TOTAL GROSS INCOME IF THE LOSS ON SALE OF INVESTMENT IS CONSIDERED SEPARATELY AND IF LOSS ON SALE OF INVESTMENT IS DEDUCTED FROM INCOME FROM OTHER SOURCE THAN THE PERCENTAGE OF BUSINESS INCOME OF THE APPELLANT WILL BE NEARLY 19. 09% OF GROSS TOTAL INCOME. TO SUM UP THE GROSS TOTAL INCOME OF THE APPELLANT WHEN COMPUTED I N ACCORDANCE WITH HONBLE SPECIAL BENCH DECISION IN THE CASE OF CONCORD COMMERCIALS (P) LTD . (SUPRA) IT WILL CONSIST MAINLY OF INCOME CHARGEABLE UNDER THE HEAD INTEREST ON SECURITIES, INCOME FROM HOUSE PROPERTY, CAPITAL GAIN AND INCOME FROM OTHER SOURCES HENCE THE EXP LANATION TO SECTION 73 WILL NOT BE APPLICABLE TO THE CASE OF THE APPELLANT AND ACCORDI NGLY THE LOSS ON TRADING OF SHARE CANNOT BE TERMED AS SPECULATION LOSS. HE RELYING ON THE DECISION OF ITAT MUMBAI SPECIAL B ENCH IN THE CASE OF ACIT VS. CONCORD COMMERCIALS (P) LTD. (2005) 95 ITD 117 (SB) NOTED T HAT IT IS NOT THE CASE OF THE AO THAT THE ASSESSEE COMPANY IS EITHER A COMPANY CONTROLLED BY BUSINESS HOUSE OR THE LOSS ON SALE OF SHARES ARE REGARDED TO REDUCE TAXABLE INCOME. FURTHER, HE NOTED THAT THE DEPLOYMENT OF FUND AND GROSS EARNING I.E. 89% FUND HAVING BEEN DEPLOYED IN INVES TMENT IN SHARES AS AGAINST ONLY 0.07% IN STOCK OF SHARES OR SALES OR PURCHASES. EVEN THE GR OSS INCOME AT RS.0,92,93,094/- AND OUT OF WHICH SPECIFIED INCOME WILL BE RS.5,50,31,864/- WHI CH IS MORE THAN HALF. HE COMPUTED THAT INTEREST ON LOAN AT RS.4,03,28,324/-, DIVIDEND INCO ME AT RS.24,11,255/- AND MISC. INCOME AT RS.10,622/- AND NEGATIVE FIGURE OF LOSS ON SALE OF INVESTMENT WHICH IS ASSESSABLE UNDER THE HEAD CAPITAL GAINS AT RS.1,22,81,663/- IS ADDED TH E TOTAL WILL BE RS.5,50,31,864/-. THUS, EVEN THE PRINCIPAL BUSINESS IS NOT THAT OF SHARES AND DE RIVATIVES, RATHER IT IS OF GRANTING OF LOANS AND ADVANCES BECAUSE INTEREST INCOME IS THE MAJOR PORTI ON. THE CIT(A) ALSO RELIED ON IN THE CASE OF AMAN PORTFOLIO (P) LTD. VS. DCIT (2005) 92 ITD 324. 6. WE FIND FROM THE RECORDS THE DEPLOYMENT OF POSIT ION OF THE FUNDS OF THE ASSESSEE- COMPANY, WHICH IS AS UNDER:- (RS.) PERCENTAGE OF OWN FUNDS (EXCLUDING BORROWING ) (A) (B) (C) (D) (E)(I) (II) (III) (IV) (F) FIXED ASSETS INVESTMENTS STOCK IN TRADE (SHARE) CASH & BANK BALANCE LOANS OTHER ADVANCE FOR TAX OTHER ADVANCES (TAX AND OTHER ADVANCE RS.3,56,36,369/-) 14862329 474556965 365089 1113008 35665656 1263299 35636369 48269368 ---- 2.72% 88.51% 0.07 0.20% 6.65% 2.36% 6.64% 6.00% ---- AS TO LOANS AND ADVANCES, DETAILS ABOUT TAX LIABILI TY GIVEN ABOVE MAY KINDLY BE CONSIDERED. 4 ITA NO. 1511/K/2012 MEENAKSHI TEA CO. LTD. AY 2009-10 GROSS EARNINGS: % OF GROSS INCOME (A) (B) (C) LOSS ON SALE OF SHARES INCOME ASSESSABLE UNDER OTHER SOURCES: (I)INTEREST ON LOAN RS.4,03,28,324/- (II)DIVIDEND RS. 24,11,255/- (III) MISC. INCOME RS. 10,622/- (IV)CAPITAL LOSS ON INVESTMENT RS.1,22,81,662/- BUSINESS INCOME DERIVATIVE TRANSACTIONS RS.4,70,68,846/- RS.5,50,31,863/- RS.5,42,61,231/- RS.15,63,61,940/- 30.10% 35.20% 34.70% FROM THE ABOVE POSITION, IT IS CLEAR THAT THE DEPLO YMENT OF FUNDS IS MORE IN THE BUSINESS OF MONEY LENDING FROM WHERE THE INTEREST WAS EARNED AN D FURTHER THE INCOME AS NOTED ABOVE IS ALSO FROM SOURCES OTHER THAN SHARE TRANSACTIONS. HE NCE, WE FIND NO REASONS TO INTERFERE IN THE ORDER OF THE CIT(A) AND SAME IS CONFIRMED. 7. THE NEXT ISSUE IN THIS APPEAL OF REVENUE IS AGAI NST THE ORDER OF CIT(A) DELETING THE DISALLOWANCE MADE BY AO BY APPLYING RULE 8D(2) OF T HE I. T. RULES, 1962 READ WITH SECTION 14A OF THE ACT FOR EXPENSES INCURRED FOR EARNING EX EMPT INCOME. FOR THIS, REVENUE HAS RAISED FOLLOWING GROUND NO.2: 2. THAT, ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.18,13,375/ - MADE BY THE AO APPLYING RULE 8D(2)(III) READ WITH SECTION 14A OF I. T. ACT, 1961 WHEREAS SUCH DECISION OF THE CIT(A) WAS UNJUSTIFIED WITHOUT ASSIGNING ANY FINDINGS AS R EGARDS IN APPLICABILITY OF THE PROVISIONS OF SECTION 14A READ WITH RULE 8D(2)(III) OF THE I. T. RULES, 1962 IN THE FACTS OF THE ASSESSEE COMPANY. 8. BRIEFLY STATED FACTS ARE THAT THE AO NOTED THAT THE ASSESSEE COMPANY HAS EARNED DIVIDEND INCOME TO THE TUNE OF RS.24,11,255/- OUT OF THE INV ESTMENT IN SHARES AND UNITS OF MUTUAL FUND. THE AO ADMITTED THAT THE ASSESSEE IS A NBFC DEPLOYI NG ABOUT 89 OF ITS CAPITAL AND RESERVE IN INVESTMENT ACTIVITY IN SHARES AND UNITS OF MUTUAL F UND. THE AO ISSUED SHOW CAUSE NOTICE FOR DISALLOWANCE OF EXPENSES FOR EARNING OF THIS EXEMPT INCOME AS THE ASSESSEE HAS NOT MADE ANY DISALLOWANCE QUA THIS ISSUE. HE PROPOSED THE DISAL LOWANCE AS UNDER: DIRECT EXPENSES DISALLOWABLE AS PER RULE 8D(2)(I) DEMAT CHARGES RS. 49,165/- SECURITIES TRANSACTION TAX RS.5,17,858/- STATUTORY DISALLOWANCE AS PER RULE 8D(2)(III) 5 ITA NO. 1511/K/2012 MEENAKSHI TEA CO. LTD. AY 2009-10 = 0.5% OF THE AVERAGE OF THE VALUE OF INVESTMENTS = 0.5% OF [RS.16,49,65,675/- + RS.47,45,56,965/- + RS.8,54,62,457/- + RS.3,65,089/-] = 0.5% OF RS.36,26,75,093/- = RS.18,13,375/- FINALLY, THE AO MADE DISALLOWANCE UNDER RULE 8D REA D WITH SECTION 14A OF THE ACT AT RS.23,80,398/- AS THE ASSESSEE HAS NOT MAINTAINED A NY SEPARATE DETAILS REGARDING MANAGEMENT, ESTABLISHMENT, ADMINISTRATIVE AND OTHER EXPENSES V IZ-A-VIZ VOLUMINOUS INVESTMENTS FROM WHERE IT IS EARNING EXEMPTED INCOME. WHEN THIS WAS CONFRONTED ASSESSEES COUNSEL STATED THAT HE SURRENDERING 10% OF DIVIDEND INCOME FOR ADDITION . BUT THE AO MADE DISALLOWANCE IN TERM OF RULE 8D OF THE RULES AT RS.23,80,398/-. AGGRIEV ED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A) WHO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESS EE DELETED THE DISALLOWANCE AT RS.18,13,375/- AND RETAINED THE DISALLOWANCE AT RS. 5,67,035/- BY OBSERVING AS UNDER: AFTER CAREFULLY GOING THROUGH THE SUBMISSION OF TH E APPELLANT ALONG WITH THE CASE LAWS RELIED UPON, PERUSING THE ENTIRE FACTS OF THE CASE INCLUDING THE IMPUGNED ASSESSMENT ORDER AND OTHER MATERIALS ON RECORD, FOR THE FOLLOW ING REASONS THIS GROUND OF APPEAL IS DECIDED PARTLY IN FAVOUR OF THE APPELLANT: I) THE APPELLANT COMPANY HAS INCURRED DEMAT CHARGES OF RS.49,165/- AND SECURITY TRANSACTION TAX OF RS.5,17,850/- IN RESEPECT OF DEA LING IN SHARES. DURING THE COURSE OF APPELLATE PROCEEDING THE LD. AR HAS NOT PUT FORTH A NY CONVINCING SUBMISSION TO SUPPORT THAT THE DEMAT EXPENSES AND SECURITY TRANSACTION TA X IS NOT COVERED UNDER SECTION 14A OF THE ACT. AS PER THE PROVISION OF INCOME TAX ACT THE DIVIDEND INCOME IS EXEMPT FROM TAX HENCE IT IS HELD THAT THE AO WAS FULLY JUSTIFIED IN DISALLOWING THESE EXPENSES UNDER RULE 8D(2)(I) OF INCOME TAX RULE AND ACCORDINGLY THESE D ISALLOWANCES OF RS. 5,67,035 /- IS CONFIRMED. (II) THE APPELLANT COMPANY HAS OFFERED RS. 2,41,126 /- BEING 10% OF DIVIDEND INCOME AS ADDITION UNDER SECTION 14A OF THE ACT AND THE AO HA S DISALLOWED RS. 8.13,375/- BY APPLYING THE PROVISION OF RULE 8D(2)(III) HOWEVER T HE AO HAS NOT POINTED OUT ANY REASON WHY HE IS NOT SATISFIED WITH THE CORRECTNESS OF CLA IM OF EXPENDITURE MADE BY THE APPELLANT. IT HAS HEEN HELD IN FOLLOWING CASES BY HONBLE HIGH COURTS THAT ONUS IN THIS MATTER IS ON THE AO: - CIT VS. HERO CYCLES LTD. (2010) 323 ITR 518 (P & H) - CIT VS WINSOME TEXTILE INDUSTRIES LTD. (2009) 319 ITR 204 (P & H) - C1I VS. PRINTERS HOUSE (P) LTD. (2010) 188 TAXMAN 70 (DEL) - CIT VS. SHAPOORJI PALLONJI AND CO. LTD. (2009) 31 8 ITR 417 (BOM). IN VIEW OF THE ABOVE DISCUSSED LEGAL AND FACTUA1 PO SITION, THE DISALLOWANCE OF RS. 18,13,375/- MADE BY THE A.O IS DELETED. AGGRIEVED, NOW REVENUE IS IN APPEAL BEFORE US. 9. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF CASE. WE FIND THAT ASSESSEE HAS NOT SPENT ANY AMOUNT ON I NTEREST ON BORROWING AS AT 01-04-2008 AND 6 ITA NO. 1511/K/2012 MEENAKSHI TEA CO. LTD. AY 2009-10 BORROWING TAKEN THIS YEAR WAS NOT UTILIZED IN INVES TMENT. ASSESSEE HAS EARNED BIG INCOME FROM DERIVATIVE TRANSACTIONS AT RS.5,42,61,231/- AND SUF FERED LOSS ON INVESTMENT AT RS.1,22,81,662/- I.E. TOTAL EXPENSES CLAIMED ARE ONLY RS.1,42,48,311 /-. DIVIDEND INCOME BEING ONLY 1.5% OF GROSS INCOME RS.2,13,724/- BEING L.5% OF EXPENSES C AN BE ATTRIBUTED TO DIVIDEND AGAINST WHICH THE COMPANY HAS OFFERED RS.241,126/-. FURTHER, THER E ARE DIRECT EXPENSES AT 56,023/- AS CALCULATED BY A.O. WILL APPLY IN VIEW OF THE PROVIS IONS OF SECTION 14A R.W,R 8D OF THE RULES. IN ASSESSEES CASE ONLY RULE 8D(2)(I) IS APPLICABLE AN D NOT 8D(2)(III). CLAUSE (II), WHICH CLEARLY PROVIDES THAT FORMULA GIVING THEREIN IS TO BE EVOKE D ONLY IN A CASE WHERE ASSESSEE HAS INCURRED EXPENDITURE BY WAY OF INTEREST DURING THE PREVIOUS YEAR WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT. IN THIS CASE INTEREST PAYMENT IS ONLY RS.4,801/-. THIS INTEREST IS ATTRIBUTABLE TO LOANS NOT UTILIZED FOR INVESTMENT B UT FOR GIVING LOANS TO SHAKTI SUGAR LTD I.E. RS. 3,00,000/- AND RS7,00,000/- PAID AS SECURITY DEPOSI T TO SKP SECURITIES. RS.37,00,000/- TAKEN FROM PARKVIEW PROPERTIES PVT. LTD. AND RS. 3 LACS A ND RS. 7 LACS FROM BIKANNA CORNMERCIAL PVT. LTD. AND SHAHJAHANPURE ELECTRIC CO. LTD. RESPE CTIVELY. IN VIEW OF THE ABOVE FACTS, WE HAVE NO ALTERNATIVE EXCEPT TO CONFIRM THE ORDER OF CIT(A ) AND THIS ISSUE OF REVENUES APPEAL IS DISMISSED. 10. IN THE RESULT, APPEAL OF REVENUE IS DISMISSED. 11. ORDER IS PRONOUNCED IN THE OPEN COURT 04.07.201 4 SD/- SD/- , ! , (SHAMIM YAHYA ) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 4 TH JULY, 2014 -. #/0 1 JD.(SR.P.S.) 2 *3 4 3%5- COPY OF THE ORDER FORWARDED TO: 1 . () / APPELLANT DCIT, CIRCLE-8, KOLKATA 2 *+() / RESPONDENT M/S. MEENAKSHI TEA CO. LTD., 7/1, LOR D SINHA ROAD, KOLKATA-700 071. 3 . # ( )/ THE CIT(A), KOLKATA 4. 5. # / CIT KOLKATA 3:; *# / DR, KOLKATA BENCHES, KOLKATA +3 */ TRUE COPY, #