M/s. Dastur Investments Pvt Ltd., Bangalore V. DCIT-Circle-11(1), Bangalore

ITA 1518/BANG/2016

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 4161 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-02-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 22-08-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: B K MANJUNATH
• Keywords: Business income; Opportunity of being heard; Principle of natural justice; Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI B.R BASKARAN, ACCOUNTANT MEMBER ITA NO.1518/BANG/2016 ASSESSMENT YEAR : 2010-11 M/S DASTUR INVESTMENTS PVT. LTD., 7 TH FLOOR, RAHEJA TOWERS, 26/27, M.G ROAD, BENGALURU-560 001. PAN AAACD 5040J. VS. THE DY. COMMISSIONER OF INCOME-TAX, CIRCLE-11(1), BENGALURU. APPELLANT RESPONDENT APPELLANT BY : SHRI B.K MANJUNATH, C.A RESPONDENT BY : SHRI PRADEEP KUMAR, ADDL. CIT DATE OF HEARING : 28.01.2019 DATE OF PRONOUNCEMENT : 15.02.2019 O R D E R PER N.V. VASUDEVAN, VICE PRESIDENT THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDE R DATED 29/6/2016 OF CIT(A)-2, BENGALURU RELATING TO ASST. YEAR 2010-11. 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE REA DS AS FOLLOWS:- 1. THAT THE ORDER OF THE ASSESSING OFFICER/ CIT(AP PEALS) IN SO FAR AS IT IS AGAINST THE APPELLANT IS AGAINST TH E LAW, FACTS, CIRCUMSTANCES, NATURAL JUSTICE, EQUITY AND ALL OTHE R KNOWN PRINCIPLES OF LAW. 2. THAT THE TOTAL INCOME COMPUTED AND THE TOTAL TAX COMPUTED IS HEREBY DISPUTED. ITA NO.1518/BANG/2018 PAGE 2 OF 8 3. THE ENHANCEMENT NOTICES ISSUED BY THE CITA) IS W ITHOUT JURISDICTION AND CONTRARY TO THE POSITION OF LAW. 4. THE LEARNED CITA) ERRED IN ISSUING NOTICES FOR ENHANCEMENT IN A CASE WHICH HAS BEEN DECIDED BASED ON SATISFACTION OF THE AO AND THEREBY VIOLATED PRINCIP LES OF NATURAL JUSTICE. 5. THE LEARNED CITA) ERRED IN ISSUING A NOTICE OF ENHANCEMENT FOR DISALLOWING THE BUSINESS LOSS OF RS . 16,77,865/-. 6. THE LEARNED CIT-APPEALS ERRED IN UPHOLDING THE DISALLOWANCE U/S 14A OF THE ACT OF RS. 10,80,322/-. 7. THE AUTHORITIES BELOW ERRED IN INVOKING SEC. 14A WITHOUT RECORDING ANY REASONS. 8. FOR THE ABOVE AND OTHER GROUNDS AND REASONS WHIC H MAY BE SUBMITTED DURING THE COURSE OF HEARING OF TH IS APPEAL, THE ASSESSEE REQUESTS THAT THE APPEAL BE AL LOWED AS PRAYED AND JUSTICE BE RENDERED. 3. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINES S OF INVESTMENTS IN SHARES AND MUTUAL FUNDS. IN THE COURSE OF ASST. PR OCEEDINGS U/S 143(3) OF THE INCOME TAX ACT, 1961 (ACT), THE AO NOTICED THAT THE ASSESSEE RECEIVED DIVIDEND INCOME OF RS.5,28,695/- WHICH WAS EXEMPT U /S 10(34) OF THE ACT. IN VIEW OF THE PROVISIONS OF SEC. 14A OF THE ACT, THE AO DISALLOWED EXPENSES INCURRED IN EARNING EXEMPT INCOME BY INVOKING THE P ROVISOS OF RULE 8D OF THE INCOME-TAX RULES 1962 (RULES) RESULTING IN DISALLOW ANCE OF RS.10,80,322/- COMPUTED IN THE FOLLOWING MANNER. ITA NO.1518/BANG/2018 PAGE 3 OF 8 (I) THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME NIL (II) INTEREST EXPENSES NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT THEN A X B / C*, (RS.13,07,442 X RS.3,09,46,389/RS.4,37,13,296 RS.9,25,590/- (III) % OF OTHE AVERAGE OF THE VALUE OF INVESTMENTS, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME (1/2 % OF (RS.3,09,46,389/-) RS.1,54,732/- DISALLOWANCE AS PER RULE 8D RS.10,80,322/- WHERE A AMOUNT OF EXPENDITURE BY WAY OF INTEREST OT HER THAN THE AMOUNT OF INTEREST INCLUDED IN CALUSE (I) INCURRED DURING THE PREVIOUS YEAR (RS.13,07,442/-) B THE AVERAGE OF VALUE OF INVESTMENT, INCOME FROM W HICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME AS APPEARIN G INT EH BALANCE SHEET OF THE ASSESSEE ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR, (RS.4,91,44,313 + RS.127,48,466)/2] = RS.3,09,46,38 9/- C THE AVERAGE OF TOTAL ASSETSAS APPEARING IN THE BA LANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR, (RS.70,89,248 + RS.3,03,37,345/2) RS.4,37,13,296/-. 4. AGGRIEVED BY THE AFORESAID ORDER OF THE AO, ASSE SSEE FILED AN APPEAL BEFORE THE CIT(A). IN THE COURSE OF PROCEEDINGS BE FORE THE CIT(A), THE CIT(A) ISSUED A NOTICE FOR ENHANCEMENT OF THE INCOME OF THE ASSESSEE. 5. WE HAVE ALREADY STATED THAT THE ASSESSEE FILED R ETURN OF INCOME FOR ASST. YEAR 2010-11 DECLARING TOTAL INCOME OF RS.65,03,161 /-. THE SUM DECLARED BY THE ASSESSEE IN THE RETURN OF INCOME WAS ARRIVED AT IN THE FOLLOWING MANNER. ITA NO.1518/BANG/2018 PAGE 4 OF 8 COMPUTATION OF TOTAL INCOME PARTICULARS RS. RS. RS. RS. RS. INCOME FROM PROFIT/GAINS OF BUSINESS/PROFESSION INCOME FROM BUSINESS/PROFESSION 1. DASTUR INVESTMENTS PVT. LTD., NET PROFIT (LOSS) 2945530 ADD : DISALLOWABLE AND /ITEMS CONSIDERED SEPARATELY STT 89047 INTEREST U/S 201(1A) 64702 153749 LESS : ITEMS(S) TREATED SEPARATELY DIVIDEND FROM SHARES/MUTUAL FUND 528695 PROFIT ON SHARES/MUTUAL FUND UNITS 4248449 -4777144 -1677865 --------- --- --------------- - 1677865 II. INCOME FROM CAPITAL GAINS SHORT TERM 1. AS PER LIST OF SHARES/UNITS SOLD (SHORT TERM) (CAP. GAIN RS. 10000933 CAP. LOSS RS. 0 10000933 -------------- TOTAL SHORT TERM CAPITAL GAINS 10000933 LESS : BROUGHT FORWARD LOSS SETOFF -1819907 -------------- GROSS TOTAL INCOME 6503161 TOTAL INCOME 6503160 ---------------- ITA NO.1518/BANG/2018 PAGE 5 OF 8 6. THE SHORT TERM CAPITAL GAIN DECLARED BY THE ASSE SSEE ACCORDING TO THE CIT(A) HAD TO BE REGARDED AS BUSINESS INCOME BECAU SE THE ASSESEE WAS IN THE BUSINESS OF DEALING IN SHARES AND MUTUAL FUNDS. THE ASSESSEE FILED WRITTEN SUBMISSIONS IN RESPONSE TO SAID NOTICE DATED 22.9.2 015. THE CIT(A) AFTER CONSIDERING THE ABOVE REPLY ISSUED ANOTHER NOTICE O F ENHANCEMENT DATED 25/5/2016 IN WHICH THE CIT(A) TOOK THE VIEW THAT TH E ASSESSEE ARRIVED AT THE TOTAL INCOME DECLARED IN THE RETURN AFTER ARRIVING AT A LOSS FROM BUSINESS. ACCORDING TO THE CIT(A), THERE WAS NO BUSINESS WHAT SO EVER CONDUCTED BY THE ASSESSEE DURING THE PREVIOUS YEAR AND, THEREFORE, L OSS DECLARED BY THE ASSESSEE IN THE RETURN OF INCOME WHICH IS ONLY DUE TO EXPENSES DEBITED IN THE PROFIT AND LOSS ACCOUNT OF RS.16,77,865/- SHOULD BE DISALLOWED. THE ASSESSEE MADE SUBMISSIONS IN RESPONSE TO THE AFORESAID SHOW CAUSE NOTICE TAKING A STAND THAT THE ASSESSEE WAS IN THE BUSINESS OF FINA NCING, HIRE PURCHASE, LEASING, BILL DISCOUNTING ETC., AND ALSO MAKING INV ESTMENTS IN SHARES. THE ASSESSEE SUBMITTED THAT THE EXPENSES IN QUESTION WA S NECESSARILY REQUIRED TO BE INCURRED BY ANY COMPANY AND, THEREFORE, ABSENCE OF INCOME FROM BUSINESS SHOULD NOT BE THE CRITERIA IN DISALLOWING EXPENSES DEBITED IN THE P & L ACCOUNT. THE CIT(A) HOWEVER DID NOT AGREE WITH THE AFORESAID SUBMISSIONS AND SHE DISALLOWED THE EXPENSES DEBITED IN THE PROFIT AND L OSS ACCOUNT. THE CIT(A) HOWEVER ALSO DIRECTED THAT THE DISALLOWANCE MADE U/ S 14A OF THE ACT SHOULD BE DELETED BECAUSE NO EXPENSES ARE BEING ALLOWED. TH EREFORE, THE DISALLOWANCE U/S 14A OF RS.10,80,322/- WAS SUBSTITUTED BY AN BY AN ADDITION OF RS.16,77,865/- WHICH THE WAS THE EXPENSES DEBITED I N THE PROFIT AND LOSS ACCOUNT. 7. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESS EE IS IN APPEAL BEFORE THE TRIBUNAL. ITA NO.1518/BANG/2018 PAGE 6 OF 8 8. THE LD COUNSEL FOR THE ASSESSEE REITERATED THE S UBMISSION AS WERE MADE BEFORE THE CIT(A). THE LD DR RELIED ON THE ORDER O F THE CIT(A). AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE ARE OF THE VI EW THAT THE ISSUE WITH REGARD TO THE DISALLOWANCE OF EXPENSES DEBITED IN THE PRO FIT AND LOSS ACCOUNT AS WELL AS THE ISSUE OF DISALLOWANCE U/S 14A OF THE ACT REQ UIRES TO BE EXAMINED AFRESH BY THE CIT(A). IT IS THE PLEA OF THE ASSESEE THAT IT WAS ENGAGED IN FINANCING, LEASE AND HIRE PURCHASE AND BILL DISCOUNTING BUSINE SS. IT WAS ALSO PLEA OF THE ASSESSEE THAT DUE TO TEMPORARY LULL IN THE BUSINESS THE ACTIVITY OF BUYING AND SELLING SHARES ALONE TOOK PLACE. IT WAS ALSO SUBMI TTED THAT MANY OF THE EXPENSES DEBITED IN THE PROFIT AND LOSS ACCOUNT ARE WITH REFERENCE TO MAINTAINING THE CORPORATE STATUS OF THE ASSESSEE IN RESPECT OF CARRYING OUT ANY BUSINESS THOSE EXPENSES HAVE TO BE ALLOWED. WE ARE OF THE VIEW THAT SUCH A PLEA HAS TO BE SUBSTANTIATED WITH REQUIRED EVIDENCE REGARDING THE BUSINESS AS PER THE MEMORANDUM OF ASSOCIATION (MOA) OF THE ASSE SSEE AND AS TO HOW IN THE PAST BUSINESS WAS CARRIED ON BY THE ASSESSEE AN D OWING TO TEMPORARY LULL IN THE BUSINESS NO ACTIVITIES WERE CARRIED ON DURIN G THE PREVIOUS YEAR. THE ASSESSEE SHOULD ALSO POINT OUT THAT THERE WAS NO CL OSURE OF BUSINESS AND THAT THE ASSESSEE ALWAYS INTEND TO CARRY ON THE BUSINESS AS CONTEMPLATED IN ITS MOA. WITH THESE OBSERVATIONS, THE ORDER OF THE CIT (A) SET ASIDE AND THE ISSUE IN QUESTION REMANDED TO THE AO FOR FRESH CONSIDERAT ION AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 15 TH FEBRUARY, 2019 . SD/ - ( B.R BASKARAN) SD/ - ( N.V. VASUDEVAN) ACCOUNTANT MEMBER VICE PRESIDEN T BANGALORE, DATED, 15 TH FEBRUARY , 2019. / VMS / ITA NO.1518/BANG/2018 PAGE 7 OF 8 COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE. *