ITO, Ward-3(3), Kolkata, Kolkata V. M/s Beejay Investment & Financial Consultants Pvt. Ltd., Kolkata

ITA 1523/KOL/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1758 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 10 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-05-2017
• Appeal Filed By: Department
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 14-07-2014
• Court: TRIBUNAL
• Assessee Lawyers: MIRAJ D. SHAH
• Keywords: Earning of tax free income
• Section: 14A; 6

Judgement Text

1 ITA NO.1523/KOL/2014 BEEJAY INVESTMENT & FINANCIAL CONSULTANTS P. LTD., AY 2009-10 IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: KOL KATA [BEFORE SHRI A. T. VARKEY, JM & DR. A. L. SAINI, A M] I.T.A. NO. 1523/KOL/2014 ASSESSMENT YEAR: 2009-10 INCOME-TAX OFFICER, WD-3(3), KOLKATA. VS. BEEJAY IN VESTMENT & FINANCIAL CONSULTANTS PVT. LTD. (PAN:AABCB0832B) APPELLANT RESPONDENT DATE OF HEARING 09.05.2017 DATE OF PRONOUNCEMENT 24.05.2017 FOR THE APPELLANT SHRI NICHOLAS MURMU, JCIT, SR. DR FOR THE RESPONDENT SHRI MIRAJ D. SHAH, AR ORDER PER SHRI A.T.VARKEY, JM THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF LD. CIT(A)-1, KOLKATA DATED 09.05.2017 FOR AY 2009-10. 2. AT THE OUTSET, WE FIND THAT THE REVENUE HAS FILE D THIS APPEAL ON THE FOLLOWING SOLE GROUND: 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E THE LD. CIT(A) IS NOT JUSTIFIED IN DELETING DISALLOWANCE OF RS.62,27,815/- U/S. 14A OF THE I. T . ACT, 1961, READ WITH RULE 8D, OBSERVING THAT THE DISALLOWANCE U/S. 14A IS TO BE COMPUTED ON LY ON SHARES AND SECURITIES HELD AS INVESTMENT AND NOT APPLICABLE ON THE SAME BEING HEL D IN THE FORM OF STOCK IN TRADE. THE LD. CIT(A) HAS NOT CONSIDERED THE FACT THAT THE AO HAD RECORDED REASONS FOR DISSATISFACTION AFTER VERIFICATION OF THE ACCOUNTS PRODUCED BY THE ASSESS EE BEFORE APPLYING RULE 8D OF THE I. T. RULES FOR DISALLOWANCE U/S. 14A OF THE I. T. ACT, 1 961. 3. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE NOTE THAT THE ASSESSEE COMPANY MADE A DISALLOWANCE U/S. 14A OF THE INCOME- TAX ACT (HEREINAFTER REFERRED TO AS THE ACT) OF R S.30,000/- IN THE RETURN OF INCOME FILED BY IT. THE AO, HOWEVER, HELD THAT THE DISALLOWANCE U/ S. 14A OF THE ACT SHOULD BE MADE ON SHARES HELD AS STOCK IN TRADE, INVESTMENT IN SHARES AND ADVANCE GIVEN. HENCE, HE ADDED THE SUM OF RS.12,17,37,941/- BEING STOCK IN TRADE, RS.2 0,70,86,587/- AS ADVANCE GIVEN, RS.3,18,648/- AS INVESTMENT AS ON 31.03.2009 AND A SUM OF RS.49,53,13,564/- AS STOCK IN 2 ITA NO.1523/KOL/2014 BEEJAY INVESTMENT & FINANCIAL CONSULTANTS P. LTD., AY 2009-10 TRADE, 10,90,28,366/- AS ADVANCE GIVEN, RS.17,18,64 8/- AS INVESTMENT AS ON 31.03.2008. THE AO BASED ON THE SAID FIGURES MADE A TOTAL DISA LLOWANCE OF RS.62,27,815/- U/S. 14A READ WITH RULE 8D OF THE I. T. RULES, 1961. ON APP EAL PREFERRED BY THE ASSESSEE BEFORE THE LD. CIT(A) DELETED THE DISALLOWANCE MADE BY THE AO BY STATING THAT THE VALUE OF STOCK IN TRADE CANNOT BE CONSIDERED FOR THE PURPOSE OF DISAL LOWANCE U/S. 14A OF THE ACT. HE ALSO HELD THAT ENTIRE DIVIDEND EARNED I.E. RS.6,30,126/- WAS ARISING FROM THE SHARES HELD IN STOCK IN TRADE THUS NO DISALLOWANCE U/S. 14A OF THE ACT W AS CALLED FOR. HE FURTHER HELD THAT THE ASSESSEE HAD DISALLOWED RS. 30,000/- AS DISALLOWANC E U/S. 14A OF THE ACT. WE ALSO FIND THAT WHILE GIVING RELIEF TO THE ASSESSEE THE LD. CIT(A) VIDE PARA 3.2 OF HIS ORDER HAS HELD AS UNDER: 3.2. THE SUBMISSIONS OF THE APPELLANT HAVE BEEN CONSIDERED. THE SUBMISSIONS OF THE APPELLANT AS ABOVE HAVE BEEN CONSIDERED. IT IS SEE N THAT THE APPELLANT HAS RECEIVED DIVIDEND INCOME DURING THE YEAR RS.24,10,211/-. HOWEVER IT HAS BEEN CLAIMED IN APPEAL THAT THE DIVIDEND RECEIVED HAD ENTIRELY ACCRUED AS A RESULT OF TRADING DONE IN THE VARIOUS SHARES AND SECURITIES. IT HAS FURTHER BEEN EXPLAINED THAT THE INVESTMENT IN SHARES OF RS.17,18,648/- MADE DURING THE YEAR HAD BEEN MADE OUT OF NON-INTEREST B EARING FUND. IN VIEW OF THE DECISIONS IN CCI LTD. VS. JCIT 206 TAXMAN 563 (KAR) CIT VS, SMT. LEENA RAMACHANDRAN 339 ITR 296 (KER) IT IS SEEN THAT THE STOCK IN TRADE IS NOT TO BE CONSIDERED FOR THE DISALLOWANCE UNDER RULE 8D(2)(II) & (III).THIS VIEW HAS BEEN CLEARLY EXPRES SED BY THE JURISDICTIONAL TRIBUNAL IN DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE 6, KOLKAT A VS GULSHAN INVESTMENT CO. LTD [2013] 31 TAXMANN.COM 113 (KOLKATA - TRIB.) AND IT HAS BEEN HELD BY THE HON TRIBUNAL AS UNDER- '6. A PLAIN LOOK AT THE ABOVE RULE SHOWS THAT 8D(2) (II) AND (III) CAN ONLY BE APPLIED IN THE SITUATIONS IN WHICH SHARES ARE HELD AS INVES TMENTS, AND THAT THIS RULE WILL NOT HAVE ANY APPLICATION WHEN THE SHARES ARE HELD AS ST OCK IN TRADE. IT IS SO FOR THE ELEMENTARY REASON THAT THE ONE OF THE VARIABLES ON THE BASIS OF WHICH DISALLOWANCE UNDER RULES 8D(2)(II) AND (III) IS TO BE COMPUTED I S THE VALUE OF 'INVESTMENTS, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF TOTAL INCOME', AND, WHEN THERE ARE NO SUCH INVESTMENTS, THE RULE CANNOT HAVE ANY APPLICAT ION. WHEN NO ALL AMOUNT CAN BE COMPUTED IN THE LIGHT OF THE FORMULA GIVEN IN RULE 8D(II) AND (III), NO DISALLOWANCE CAN BE MADE UNDER RULE 8D(2)(II) AND (III) EITHER. AS HELD BY HON'BLE SUPREME COURT IN THE CASE OF CIT V. B C SRINIVASA SETTY [1981] 12 8 ITR 294/5 TAXMAN 1, WHEN COMPUTATION PROVISIONS FAIL, THE CHARGING PROVISION S CANNOT BE APPLIED, AND BY THE SAME LOGIC, WHEN THE COMPUTATION PROVISIONS UNDER R ULE 8D(2) (II) AND (III) FAIL, DISALLOWANCE UNDER THE SAID PROVISIONS CANNOT BE MA DE EITHER AS THE SAID PROVISION IS RENDERED UNWORKABLE.' THEREFORE, RESPECTFULLY FOLLOWING THE ABOVE DECISIO NS IT IS HELD THAT THE PROVISIONS OF SEC 14A ARE NOT APPLICABLE ON EXEMPT INCOME ARISING FROM SH ARES AND SECURITIES HELD IN THE FORM OF STOCK-IN-TRADE, BUT ONLY ON THE SAME BEING HELD AS AN INVESTMENT. IT IS HELD THAT THE DISALLOWANCE UNDER RULE 8D(2)(II) AND (III) IS TO B E CONSIDERED ONLY ON INVESTMENT ON WHICH EXEMPT INCOME HAS BEEN EARNED. FURTHERMORE, NO DISA LLOWANCE IN THIS RESPECT CAN BE MADE ON STOCK-IN-TRADE OR ADVANCES AND THE DISALLOWANCE IS TO BE RESTRICTED ON INVESTMENTS FROM WHICH EXEMPT INCOME HAS BEEN EARNED. THE APPELLANT HAS PROVIDED THE DETAILS OF DIVIDEND RECEIVED AND IT HAS BEEN CLAIMED THAT THE ENTIRE DI VIDEND IS ON SHARES HELD AS STOCK-IN-TRADE. 3 ITA NO.1523/KOL/2014 BEEJAY INVESTMENT & FINANCIAL CONSULTANTS P. LTD., AY 2009-10 EVEN OTHERWISE, THE APPELLANT HAS ALREADY MADE DISA LLOWANCE OF RS.30,199/- U/S 14A WHICH HAS NOT BEEN CONSIDERED BY THE AO. IT IS THEREFORE HELD THAT THE DISALLOWANCE MADE BY THE AO WAS NOT JUSTIFIED AND THE SAME IS DELETED. WE NOTE THAT THE LD. CIT(A) HAS GIVEN RELIEF TO THE ASSESSEE BY FOLLOWING THE DECISION OF TRIBUNAL IN GULSHAN INVESTMENT CO. LTD. (SUPRA) WHI CH VIEW HAS BEEN FOLLOWED BY THE TRIBUNAL IN DCIT VS. M/S. G. K. K. CAPITAL MARKETS (P) LTD. IN ITA NO.805/KOL/2012 FOR AY 2008-09 DATED 14.10.2014 WHEREIN THE TRIBUNAL HE LD IN PARA 6 THAT SECONDLY, THE ASSESSEE DOES NOT HAVE ANY INVESTMENT AND ALL THE S HARES ARE HELD AS STOCK-IN-TRADE, AS IS EVIDENT FROM THE ORDERS OF THE LOWER AUTHORITIES. ONCE THE ASSESSEE HAS KEPT THE SHARES AS STOCK-IN-TRADE, THE RULE 8D OF THE RULES WILL NOT A PPLY. THIS VIEW OF THE TRIBUNAL HAS BEEN UPHELD BY THE HONBLE CALCUTTA HIGH COURT IN CIT VS . G. K. K. CAPITAL MARKETS (P) LTD. IN GA NO. 1150 OF 2015, ITAT NO.52 OF 2015 DATED 10.02 .2017. THEREFORE, THIS ISSUE IS NO LONGER RES INTEGRA AND SO THE LD. CIT(A) HAS RIGHTL Y DECIDED THE ISSUE BY FOLLOWING THE ORDER OF THE TRIBUNAL. THE LD. DR AT THE TIME OF HEARING COULD NOT CONTROVERT THE AFORESAID FINDING OF THE LD. CIT(A) THAT THE DIVIDEND INCOME WAS NOT FROM INVESTMENT BUT FROM THE STOCK-IN- TRADE OF SHARES HELD BY THE ASSESSEE AND HENCE, WE ARE OF THE VIEW THAT THE CIT(A) HAS RIGHTLY DELETED THE ADDITION AND WE CONFIRM THE SAM E. THEREFORE, THE APPEAL OF REVENUE IS DISMISSED. 4. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER IS PRONOUNCED IN THE OPEN COURT ON 24.05.2017 SD/- SD/- (DR. A. L. SAINI) (ABY. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED :24TH MAY, 2017 JD.(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1 . APPELLANT ITO, WARD-3(3), KOLKATA. 2 RESPONDENT M/S. BEEJAY INVESTMENT & FINANCIAL CON SULTANTS PVT. LTD., 13 NO., B. B. GANGULY STREET, KOLKATA-700 012. 3 . THE CIT(A), KOLKATA 4. 5. CIT , KOLKATA DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, ASSTT. REGISTRAR .