A K P Associates, Pune V. Deputy Commissioner of Income-tax,

ITA 1559/PUN/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 0730 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 1 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-09-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 11-08-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUN E , , !'!! # , $ % BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM / ITA NO. 1557/PN/2014 $& ' !(' / ASSESSMENT YEAR : 2008-09 AKP ASSOCIATES, S. NO. 1A, IRANI MARKET COMPOUND, YERAWADA, PUNE-411006 PAN : AAMFA2406N ....... / APPELLANT )& / V/S. ADDL. COMMISSIONER OF INCOME TAX, RANGE 2, PUNE / RESPONDENT / ITA NOS. 1558 & 1559/PN/2014 $& ' !(' / ASSESSMENT YEARS : 2009-10 & 2010-11 AKP ASSOCIATES, S. NO. 1A, IRANI MARKET COMPOUND, YERAWADA, PUNE-411006 PAN : AAMFA2406N ....... / APPELLANT )& / V/S. DY. COMMISSIONER OF INCOME TAX, CIRCLE - 2, PUNE / RESPONDENT ASSESSEE BY : SHRI C.H. NANIWADEKAR REVENUE BY : SHRI RAJEEV KUMAR / DATE OF HEARING : 26-09-2016 / DATE OF PRONOUNCEMENT : 28-09-2016 2 ITA NOS. 1557, 1558 & 1559/PN/2014, A.YS. 2008-09, 2009-10 & 2010-11 * / ORDER PER VIKAS AWASTHY, JM : THESE APPEALS BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-II, PUNE DATED 30-0 4-2014 COMMON FOR THE ASSESSMENT YEARS 2008-09, 2009-10 AND 2010-11 . THE SOLITARY ISSUE RAISED BY THE ASSESSEE IN ALL THE THREE APPEALS IS AGAINST THE ADDITIONAL DISALLOWANCE MADE U/S. 14A OF THE I NCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) R.W. RULE 8D IN RESPECT OF DIVIDEND INCOME EARNED BY THE ASSESSEE ON SHARES AND M UTUAL FUNDS HELD AS STOCK-IN-TRADE. 2. THE BRIEF FACTS OF THE CASE AS EMANATING FROM RECORD S ARE: THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING AND DEALING OF SHARES, MUTUAL FUNDS, BONDS AND DERIVATIVES. DURING THE IMPUGNED ASSESSMENT YEARS THE ASSESSEE RECEIVED DIVIDEND INCOME ON SHARES HELD AS STOCK-IN-TRADE. ASSESSMENT YEAR DIVIDEND INCOME 2008 - 09 ` 92, 55,832/ - 2009 - 10 ` 46,06,943/ - 2010 - 11 ` 45,28,366/ - THE ASSESSEE MADE DISALLOWANCE U/S. 14A IN THREE IMPUGNED ASSESSMENT YEARS AS FOLLOWS : 3 ITA NOS. 1557, 1558 & 1559/PN/2014, A.YS. 2008-09, 2009-10 & 2010-11 ASSESSMENT YEAR D ISALLOWANCE U/S. 14A 2008 - 09 ` 15,592/ - 2009 - 10 ` 45,000/ - 2010 - 11 ` 18,000 THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS MADE DISALLOWANCE UNDER THE PROVISIONS OF SEC TION 14A R.W. RULE 8D AS UNDER : ASSESSMENT YEAR DI SALLOWANCE U/S. 14A R.W. RULE 8D MADE BY A.O. 2008 - 09 ` 8,61,690/ - 2009 - 10 ` 7,69,897/ - 2010 - 11 ` 8,60,942/ - AGGRIEVED BY THE ADDITIONAL DISALLOWANCE MADE BY THE ASSES SING OFFICER, THE ASSESSEE PREFERRED APPEALS BEFORE THE COMMISS IONER OF INCOME TAX (APPEALS) FOR THE RESPECTIVE ASSESSMENT YEARS . THE COMMISSIONER OF INCOME TAX (APPEALS) UPHELD THE FINDINGS OF A SSESSING OFFICER. NOW, THE ASSESSEE IS IN SECOND APPEAL BEFORE THE TRIBUNAL. 3. SHRI C.H. NANIWADEKAR APPEARING ON BEHALF OF THE ASSESS EE SUBMITTED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING IN SHARES, MUTUAL FUNDS, BONDS AND DERIVATIVES. THE ASSESSEE PURCHASE AND SELL SHARES ON DELIVERY AS WELL AS NON-DELIVERY BASIS. D URING THE PERIOD RELEVANT TO THE ASSESSMENT YEARS UNDER APPEAL, THE ASSESSEE RECEIVED DIVIDEND INCOME ON THE SHARES HELD AS STOCK-IN-T RADE. THE 4 ITA NOS. 1557, 1558 & 1559/PN/2014, A.YS. 2008-09, 2009-10 & 2010-11 DIVIDEND INCOME RECEIVED BY THE ASSESSEE IS INCIDENTAL TO T HE BUSINESS OF TRADING IN SHARES. THE HON'BLE BOMBAY HIGH COURT IN THE CASE O F CIT VS. INDIA ADVANTAGE SECURITIES LTD. REPORTED AS 380 ITR 471 HAS HELD THAT NO DISALLOWANCE U/S. 14A IS TO BE MADE ON SHARES HELD AS STOCK-IN- TRADE. THE LD. AR FURTHER SUBMITTED THAT THE MUMBAI BEN CH OF THE TRIBUNAL IN THE CASE OF FIDUCIARY SHARES & STOCK (P.) LTD. VS . ASSISTANT COMMISSIONER OF INCOME TAX REPORTED AS 159 ITD 554 HAS REITERATED THE LAW LAID DOWN BY THE HON'BLE JURISDICTIONAL HIGH COURT. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN UPHOLDING THE FINDINGS OF ASSESSING OFFICER BY PLACING RELIANCE ON THE DECISION IN THE CASE OF DCIT VS. D.H. SECURITIES (P.) LTD. REPORTED AS 99 DTR (MUMBAI) (TM) 298. THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CCI LTD. VS. JCIT REPORTED AS 71 DTR 141 AND THE HON'BLE ALLAHABAD HIGH COUR T IN THE CASE OF ADDITIONAL COMMISSIONER OF INCOME TAX VS. M/S . DHAMPUR SUGAR MILL REPORTED AS 370 ITR 194 HAVE HELD T HAT NO DISALLOWANCE U/S. 14A IS TO BE MADE WHERE SECURITIES AND S HARES ARE HELD AS STOCK-IN-TRADE OR INVESTMENT IS MADE FOR BUSINESS PURPOSE. 4. ON THE OTHER HAND SHRI RAJEEV KUMAR REPRESENTING T HE DEPARTMENT VEHEMENTLY SUPPORTED THE FINDINGS OF COMMISSIO NER OF INCOME TAX (APPEALS) AND PRAYED FOR DISMISSING THE APPEA LS OF THE ASSESSEE. 5. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESEN TATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORIT IES BELOW. THE ONLY ISSUE RAISED IN ALL THE THREE APPEALS IS ADDITIONAL DISA LLOWANCE MADE U/S. 14A R.W. RULE 8D IN RESPECT OF DIVIDEND INCOME O N SHARES 5 ITA NOS. 1557, 1558 & 1559/PN/2014, A.YS. 2008-09, 2009-10 & 2010-11 AND MUTUAL FUNDS HELD BY ASSESSEE AS STOCK-IN-TRADE. IT IS AN UNDISPUTED FACT THAT THE SHARES AND MUTUAL FUNDS HELD BY THE ASSESSEE ARE FOR TRADING PURPOSE AND ARE STOCK-IN-TRADE OF THE A SSESSEE. IT IS NOT THE CASE OF REVENUE THAT ANY PART OF SHARES, MUTUAL FUND S ETC. ARE HELD BY ASSESSEE AS INVESTMENT. THE ASSESSEE HAS EARNED D IVIDEND INCOME ON SHARES AND MUTUAL FUNDS HELD AS STOCK-IN-TRADE. 6. WE FIND THAT THE ISSUE RAISED IN THE PRESENT SET OF AP PEALS IS IDENTICAL TO ONE ADJUDICATED BY THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF KUNAL POLYMERS PVT. LTD. VS. DY. COMMISSIONER OF INCOME TAX IN ITA NO. 1859/PN/2012 FOR ASSESSMENT YEAR 2008-0 9 DECIDED ON 15-07-2015. THE RELEVANT EXTRACT OF THE FINDINGS OF THE T RIBUNAL ARE AS UNDER : 10. THE FIFTH GROUND RAISED IN THE APPEAL BY THE A SSESSEE IS WITH RESPECT TO DISALLOWANCE MADE U/S. 14A R.W. RULE 8D ON SHARES HELD AS STOCK-IN-TRADE. THE ASSESSEE HAS OFFERED DIVIDEND INCOME FROM THE SHARES HELD AS STOCK-IN-TRADE AS BUSINESS INCOME. THE TREATMENT GIVEN BY THE ASSESSEE TO THE DIVIDEND INCOME IS AGAINST T HE PROVISIONS OF SECTION 10(23F). THE DIVIDEND INCOME HAS BEEN SPEC IFICALLY EXCLUDED IN THE ACT, THUS, IT DOES NOT FORM PART OF TOTAL INCOM E. THE QUESTION BEFORE US IS : WHETHER DISALLOWANCE U/S. 14A IS TO BE MADE ON DIV IDEND RECEIVED ON SHARES HELD AS STOCK IN TRADE? IT IS AN UNDISPUTED FACT THAT THE SHARES ARE HELD B Y THE ASSESSEE AS STOCK-IN-TRADE. THE ASSESSEE HAS EARNED DIVIDEN D INCOME ON SUCH SHARES. THE ASSESSEE HAS NOT HELD THE SHARES FOR E ARNING DIVIDEND INCOME. DIVIDEND INCOME IS INCIDENTAL TO THE SHARE TRADING BUSINESS OF THE ASSESSEE. THUS, NO DISALLOWANCE U/S. 14A IS WA RRANTED ON DIVIDEND EARNED ON SHARES HELD AS STOCK-IN-TRADE. OUR VIEW IS FORTIFIED BY THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN ITA NO. 6711/MUM/2011 IN THE CASE OF DCIT VS. M/S. INDIA ADVANTAGE SECURITIE S LTD. FOR THE ASSESSMENT YEAR 2008-09 DECIDED ON 14-09-2012. IN THE SAID CASE, THE ASSESSEE HAD RECEIVED DIVIDEND INCOME OF RS.1,40,85 9/- ON SHARES 6 ITA NOS. 1557, 1558 & 1559/PN/2014, A.YS. 2008-09, 2009-10 & 2010-11 SHOWN AS STOCK-IN-TRADE IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. THE ASSESSEE HAD NOT MADE ANY DISALLOWANCE OF EXPENSES RELATING TO EXEMPT INCOME. THE ASSESSING OFFICER MADE DISALLOWANCE U/ S. 14A R.W. RULE 8D. THE COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT DISALLOWANCE UNDER RULE 8D COULD BE MADE ONLY WITH RESPECT TO IN VESTMENT AND NOT IN STOCK-IN-TRADE. THE REVENUE PREFERRED APPEAL BEFOR E THE TRIBUNAL AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS). THE TRIBUNAL BY PLACING RELIANCE ON THE JUDGMENT OF HON'BLE KARNATA KA HIGH COURT IN THE CASE OF CCI LTD. VS. JCIT REPORTED AS 250 CTR 291 H ELD THAT NO DISALLOWANCE U/S. 14A IS TO BE MADE IN RELATION TO SHARES HELD AS STOCK- IN-TRADE. THE ORDER OF THE TRIBUNAL WAS CHALLENGED BY THE DEP ARTMENT BEFORE THE HON'BLE BOMBAY HIGH COURT IN INCOME TAX APPEAL NO. 1131 OF 2013. THE HON'BLE HIGH COURT DISMISSED THE APPEAL OF THE REVENUE VIDE ORDER DATED APRIL 13, 2015 THUS, CONFIRMING THE FIN DINGS OF THE TRIBUNAL. IN VIEW OF THE FACT THAT THE HON'BLE JURISDICTIONAL HIGH COURT HAS UPHELD THE VIEW TAKEN BY THE TRIBUNAL THAT PROVISIONS OF S ECTION 14A R.W. RULE 8D WOULD NOT APPLY ON THE SHARES HELD AS STOCK-IN-T RADE, THE DISALLOWANCE U/S. 14A IN THE PRESENT CASE WOULD NOT SUSTAIN. ACCORDINGLY, WE ACCEPT THIS GROUND OF APPEAL OF THE ASSESSEE AND DIRECT THE ASSESSING OFFICER TO DELETE DISALLOWANCE MADE U /S. 14A OF THE ACT. 7. THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CCI L TD. VS. JCIT (SUPRA) HAS HELD THAT WHEN NO EXPENDITURE HAS BEE N INCURRED BY THE ASSESSEE IN EARNING THE DIVIDEND INCOME NO NOTIONAL E XPENDITURE COULD BE DEDUCTED FROM THE SAID INCOME. THE HON'BLE HIGH COURT FURTHER HELD THAT WHEN THE ASSESSEE HAS NOT RETAINED S HARES WITH THE INTENTION OF EARNING DIVIDEND AND THE DIVIDEND INCOME IS INCIDE NTAL TO BUSINESS OF SALE OF SHARES NO DISALLOWANCE U/S. 14A OF THE A CT IS TO BE MADE. 7 ITA NOS. 1557, 1558 & 1559/PN/2014, A.YS. 2008-09, 2009-10 & 2010-11 8. THUS, IN VIEW OF THE UNDISPUTED FACTS OF THE CASE AND T HE LAW LAID DOWN BY THE HON'BLE JURISDICTIONAL HIGH COURT, THE IMPUGNED ORDER IS SET ASIDE AND THE APPEALS OF THE ASSESSEE ARE ALLOWED. 9. IN THE RESULT, THE APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED ON WEDNESDAY, THE 28 TH DAY OF SEPTEMBER, 2016. SD/- SD/- ( . . / R.K. PANDA) ( ! ' / VIKAS AWASTHY) #' / ACCOUNTANT MEMBER $ % #' / JUDICIAL MEMBER / PUNE; &# / DATED : 28 TH SEPTEMBER, 2016 RK *+,$-.'/'(- / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ' () / THE CIT(A)-II, PUNE 4. ' / THE CIT-II, PUNE 5. !*+ %%,- , ,- , . /01 , / DR, ITAT, A BENCH, PUNE. 6. + 2 34 / GUARD FILE. // ! % // TRUE COPY// #5 / BY ORDER, %6 ,1 / PRIVATE SECRETARY, ,- , / ITAT, PUNE