G K P Associates, Pune V. Additional Commissioner of Income-tax,

ITA 1560/PUN/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9524 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-05-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 11-08-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUMITRA BANERJEE
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI RAJESH KUMAR , AM . / ITA NOS.1560 TO 1562/PUN/2014 / ASSESSMENT YEARS : 2008-09 TO 2010-11 GKP ASSOCIATES, S.NO.1A, MARKET COMPOUND, YERAWADA, PUNE 411 006 PAN : AAGFG4955Q . / APPELLANT VS. THE ADDITIONAL COMMISSIONER OF INCOME TAX, RANGE-2, PUNE . RESPONDENT / APPELLANT BY : SHRI C.H. NANIWADEKAR / RESPONDENT BY : MS. SUMITRA BANERJEE DATE OF HEARING : 01.05.2017 / DATE OF PRONOUNCEMENT: 03.05.2017 / ORDER PER SUSHMA CHOWLA, JM: THE CAPTIONED APPEALS FILED BY THE ASSESSEE ARE AGA INST CONSOLIDATED ORDER OF CIT(A)-II, PUNE, BOTH DATED 30.04.2014 REL ATING TO ASSESSMENT YEARS 2008-09 TO 2010-11 AGAINST ORDER PASSED UNDER SECTI ON 143(3) OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT). 2. THIS BUNCH OF THREE APPEALS RELATING TO SAME ASS ESSEE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLID ATED ORDER FOR THE SAKE OF CONVENIENCE. ITA NOS.1560 TO 1562/PUN/2014 2008-09 TO 2010-11 2 3. THE LD. AUTHORISED REPRESENTATIVE FOR THE ASSESS EE AT THE OUTSET POINTED OUT THAT THE ISSUE RAISED IN THE PRESENT AP PEALS IS AGAINST DISALLOWANCE UNDER SECTION 14A OF THE ACT IN RESPEC T OF THE SHARES HELD AS STOCK IN TRADE. HE FURTHER POINTED OUT THAT THE IS SUE STANDS COVERED BY THE ORDER OF THE PUNE BENCH OF THE TRIBUNAL IN THE SIST ER CONCERNS CASE. 4. THE FACTS AND ISSUE ARISING IN THE PRESENT APPEA LS ARE IDENTICAL AND FOR THE SAKE OF DISPOSAL OF THE APPEALS, REFERENCE IS BEING MADE TO THE FACTS AND ISSUE IN ITA NO.1560/PUN/2014 RELATING TO ASSES SMENT YEAR 2008-09. THE ASSESSEE IN ITA NO.1560/PUN/2014 HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 'IN THE FACT AND THE CIRCUMSTANCES OF CASE, AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-II, PUNE, ERRE D; 1. IN RESPECT OF DISALLOWANCE U/S.14A : A. IN CONFIRMING THE ADDITIONAL DISALLOWANCE OF RS. 8,53,739 MADE BY THE ASSESSING OFFICER, OVER AND ABOVE DISALLOWANCE OF RS.15,629/- MADE BY THE APPELLANT. B. IN NOT APPRECIATING THAT NO DISALLOWANCE U/S.14A IS REQUIRED IN RESPECT OF STOCK-IN-TRADE. C. IN NOT APPRECIATING THAT THE DIVIDEND EARNED IS IN RESPECT OF INVESTMENTS HELD AS STOCK-IN-TRADE AND IS INCIDENTA L TO THE TRADING ACTIVITY AND HENCE NO DISALLOWANCE IS REQUIRED U/S. 14A IN RESPECT OF SUCH DIVIDEND INCOME. 2. THE APPELLANT CRAVES LEAVE TO ADD, MODIFY OR WIT HDRAW ANY OF THE GROUNDS OF APPEAL AT THE TIME OF HEARING. 5. BRIEFLY IN THE FACTS OF THE CASE THE ASSESSEE FI RM WAS CARRYING ON THE BUSINESS OF DEALING IN SHARES, UNITS OF MUTUAL FUND S, BONDS AND DERIVATIVES. FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD FILED THE RETURN OF INCOME DECLARING TOTAL INCOME OF RS.1,81,11,170/- DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE TOTAL TURNOVER OF THE ASSESSEE WAS AROUND RS.169 CRORES WHICH MAJO RLY PERTAINED TO MUTUAL FUNDS. THE ASSESSEE HAD ALSO RECEIVED DIVID END INCOME OF RS.92.47 LAKHS, WHICH WAS CLAIMED AS EXEMPT IN THE RETURN OF INCOME FILED BY THE ITA NOS.1560 TO 1562/PUN/2014 2008-09 TO 2010-11 3 ASSESSEE. OUT OF THE TOTAL EXPENDITURE, THE ASSESS EE HAD MADE DISALLOWANCE UNDER SECTION 14A OF THE ACT AT RS.15, 629/-. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE COMPUTATION OF THE DISALLOWANCE UNDER SECTION 14A OF THE ACT WAS NOT CORRECT AS THE PROVI SIONS OF RULE 8D WERE NOT APPLIED. THE ASSESSEE WAS SHOWCAUSED IN THIS REGAR D AND AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE ASSESSING OFFI CER COMPUTED THE DISALLOWANCE UNDER SECTION 14A OF THE ACT AS PER RU LE 8D AT RS.8,69,368/-. SINCE THE ASSESSEE HAD ALREADY DISALLOWED SUM OF RS .15,629/- BALANCE SUM OF RS.8,53,739/- WAS ADDED AS INCOME OF THE ASSESSE E. 6. BEFORE CIT(A) THE CLAIM OF THE ASSESSEE WAS THAT DURING THE COURSE OF ITS BUSINESS ACTIVITY, IT HAD RECEIVED DIVIDEND AMO UNTING TO RS.92,47,708/- ON SHARES AND MUTUAL FUNDS HELD AS STOCK-IN-TRADE. TH E ASSESSEE HAD NO INVESTMENT AND HENCE NO DISALLOWANCE IS TO BE MADE UNDER SECTION 14A OF THE ACT. HOWEVER, THE CIT(A) RELYING ON THE THIRD MEMBER DECISION IN THE CASE OF DCIT VS. D.H. SECURITIES PVT. LTD. REPORTED IN (2014) 99 DTR (MUMBAI) (TM) (TRIB.) 298 DECIDED THE ISSUE AGAINST THE ASSESSEE. 7. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF C IT(A). 8. THE LD. AUTHORISED REPRESENTATIVE FOR THE ASSESS EE PLACED RELIANCE ON THE ORDER OF THE SISTER CONCERN OF THE ASSESSEE IN AKP ASSOCIATES VS. ADDL.CIT IN ITA NOS.1557,1558 & 1559/PN/2014 RELATI NG TO ASSESSMENT YEARS 2008-09 TO 2010-11 VIDE CONSOLIDATED ORDER DA TED 28-09-2016 AND ALSO THE DECISION OF HONBLE BOMBAY HIGH COURT IN C IT VS. INDIA ADVANTAGE SECURITIES LTD. REPORTED IN 380 ITR 471 (BOM.). 9. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE PLACED RELIANCE ON THE ORDER OF THE CIT(A). ITA NOS.1560 TO 1562/PUN/2014 2008-09 TO 2010-11 4 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE WHICH ARISES IN THE PRESENT APPEAL IS AGAINST THE DISALLOWANCE WORKED OUT BY THE AUTHORITIES BELOW UNDER SECTION 14A OF T HE ACT READ WITH RULE 8D OF THE INCOME TAX RULES. THE ASSESSEE HAD RECEIVED DIVIDEND INCOME ON SHARES IN INDIAN COMPANIES AND INVESTMENT IN MUTUAL FUNDS OF INDIAN COMPANIES, WHICH WERE HELD AS STOCK-IN-TRADE BY THE ASSESSEE. THE SAID SHARES IN INDIAN COMPANIES AND MUTUAL FUNDS WERE UN DISPUTEDLY HELD BY THE ASSESSEE AS STOCK-IN-TRADE, SINCE THE NATURE OF THE BUSINESS OF THE ASSESSEE WAS TRADING IN SHARES, MUTUAL FUNDS, BONDS AND DERI VATIVES. THE ASSESSEE ON ITS OWN MOTION HAD DISALLOWED A SUM OF RS.15,629 /- UNDER SECTION 14A OF THE ACT. HOWEVER, THE PLEA OF THE ASSESSEE BEFORE THE AUTHORITIES BELOW WAS THAT BOTH THE SHARES IN THE INDIAN COMPANIES AND MU TUAL FUNDS WERE HELD AS STOCK-IN-TRADE AND HENCE NO DISALLOWANCE IS TO BE M ADE UNDER SECTION 14A OF THE ACT. 11. SIMILAR ISSUE AROSE BEFORE THE TRIBUNAL IN THE CASE OF SISTER CONCERN OF THE ASSESSEE IN AKP ASSOCIATES VS. ADDL.CIT (SUPRA) AND THE TRIBUNAL IN TURN RELYING ON THE RATIO LAID DOWN IN THE CASE OF KUNAL POLYMERS PVT. LTD. VS. DCIT IN ITA NO.1859/PUN/2012 RELATING TO ASSESSMENT YEAR 2008-09 ORDER DATED 15-07-2015 ALLOWED THE CLAIM THE OF THE ASSES SEE BY OBSERVING AS UNDER : 6. WE FIND THAT THE ISSUE RAISED IN THE PRESENT S ET OF APPEALS 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 IN COME TAX IN ITA NO. 1859/PN/2012 FOR ASSESSMENT YEAR 2008-09 DECIDED ON 15-07-2015. THE RELEVANT EXTRACT OF THE FINDINGS OF THE TRIBUNAL AR E 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 DIVIDEN D INCOME FROM THE SHARES HELD AS STOCK-IN-TRADE AS BUSINESS INCOM E. THE TREATMENT GIVEN BY THE ASSESSEE TO THE DIVIDEND INCOME IS AGA INST THE PROVISIONS OF SECTION 10(23F). THE DIVIDEND INCOME HAS BEEN SPECIFICALLY EXCLUDED IN THE ACT, THUS, IT DOES NOT FORM PART OF TOTAL INCOME. THE QUESTION BEFORE US IS : ITA NOS.1560 TO 1562/PUN/2014 2008-09 TO 2010-11 5 '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 DIVIDEND IN COME ON SUCH SHARES. THE ASSESSEE HAS NOT HELD THE SHARES FOR EA RNING DIVIDEND INCOME. DIVIDEND INCOME IS INCIDENTAL TO THE SHARE TRADING BUSINESS OF THE ASSESSEE. THUS, NO DISALLOWANCE U/S. 14A IS WARRANTED ON DIVIDEND EARNED ON SHARES HELD AS STOCK-IN-TRADE. O UR VIEW IS FORTIFIED BY THE DECISION OF MUMBAI BENCH OF THE TR IBUNAL IN ITA NO. 6711/MUM/2011 IN THE CASE OF DCIT VS. M/S. INDIA AD VANTAGE SECURITIES LTD. FOR THE ASSESSMENT YEAR 2008-09 DEC IDED ON 14-09- 2012. IN THE SAID CASE, THE ASSESSEE HAD RECEIVED D IVIDEND INCOME OF RS.1,40,859/- ON SHARES ITA NOS. 1557, 1558 & 15 59/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. TH E COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT DISALLOWANCE UNDE R RULE 8D COULD BE MADE ONLY WITH RESPECT TO INVESTMENT AND NOT IN STOCK-IN-TRADE. THE REVENUE PREFERRED APPEAL BEFORE THE TRIBUNAL AG AINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS). THE TRIBUN AL BY PLACING RELIANCE ON THE JUDGMENT OF HON'BLE KARNATAKA 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 O F THE REVENUE VIDE ORDER DATED APRIL 13, 2015 THUS, CONFIRMING TH E FINDINGS OF THE TRIBUNAL. IN VIEW OF THE FACT THAT THE HON'BLE JURI SDICTIONAL HIGH COURT HAS UPHELD THE VIEW TAKEN BY THE TRIBUNAL THAT PROV ISIONS OF SECTION 14A R.W. RULE 8D WOULD NOT APPLY ON THE SHARES HELD AS STOCK-IN- TRADE, THE DISALLOWANCE U/S. 14A IN THE PRESENT CAS E WOULD NOT SUSTAIN. ACCORDINGLY, WE ACCEPT THIS GROUND OF APPE AL 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 LTD. VS. JCIT (SUPRA) HAS HELD THAT WHEN NO EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE IN EARNING THE DIVIDEND INCOME NO NOTIONAL EXPENDITURE COULD BE DEDUCTED FROM THE SAID INCOME. THE HON'BLE HIGH COU RT FURTHER HELD THAT WHEN THE ASSESSEE HAS NOT RETAINED SHARES WITH THE INTENTION OF EARNING DIVIDEND AND THE DIVIDEND INCOME IS INCIDENTAL TO B USINESS OF SALE OF SHARES NO DISALLOWANCE U/S. 14A OF THE ACT IS TO BE MADE. 8. THUS, IN VIEW OF THE UNDISPUTED FACTS OF THE CA SE AND THE LAW LAID DOWN BY THE HON'BLE JURISDICTIONAL HIGH COURT, THE IMPUGNED ORDER IS SET ASIDE AND THE APPEALS OF THE ASSESSEE ARE ALLOWED. 12. THE ISSUE ARISING IN THE PRESENT APPEAL IS IDEN TICAL TO THE ISSUE BEFORE THE TRIBUNAL IN AKP ASSOCIATES VS. ADDL.CIT (SUPRA) AND FOLLOWING THE SAME PARITY OF REASONING, WE HOLD THAT THERE IS NO MERIT IN MAKING ANY DISALLOWANCE UNDER SECTION 14A OF THE ACT AGAINST T HE DIVIDEND INCOME ITA NOS.1560 TO 1562/PUN/2014 2008-09 TO 2010-11 6 RECEIVED BY THE ASSESSEE FROM THE SHARES AND MUTUAL FUNDS HELD AS STOCK-IN- TRADE. THE FACT THAT ASSESSEE ON ITS OWN MOTION HA D DISALLOWED PART OF THE EXPENDITURE IN VIEW OF THE PROVISIONS OF SECTION 14 A OF THE ACT, SHALL NOT EFFECT THE CLAIM OF THE ASSESSEE THAT AGAINST THE S ECURITIES HELD AS STOCK-IN- TRADE, THERE IS NO MERIT IN THE APPLICATION OF PROV ISIONS OF SECTION 14A READ WITH RULE 8D OF THE INCOME TAX RULES. ACCORDINGLY, WE HOLD SO. THE ADDITION MADE BY THE ASSESSING OFFICER IN THIS REGA RD IS THUS DELETED. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE THUS A LLOWED. 13. THE FACTS AND ISSUE IN ITA NOS. 1561 & 1562/PUN /2014 ARE IDENTICAL TO THE FACTS AND ISSUE IN ITA NO. 1560/PUN/2014 AND OUR DECISION IN ITA NO. 1560/PUN/2014 SHALL APPLY MUTATIS MUTANDIS TO ITA N OS. 1561 & 1562/PUN/2014. 14. IN THE RESULT, THE APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED ON THIS 03 RD DAY OF MAY, 2017. SD/- SD/- (RAJESH KUMAR) (SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE; DATED : 03 RD MAY, 2017. SATISH / COPY OF THE ORDER IS FORWARDED TO : THE APPELLANT; THE RESPONDENT; ( ) THE CIT(A)-II, PUNE; / THE CIT - II , PUNE ; , , / DR A, ITAT, PUNE; / GUARD FILE. / BY ORDER // TRUE COPY // / ASSISTANT REGISTRAR, , / ITAT, PUNE