M/s. K. Lall (HUF), New Delhi V. DCIT, New Delhi

ITA 1566/DEL/2014

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 6975 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 4 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 31-07-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 14-03-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S L ANURAGI
• Keywords: Opportunity of being heard; Cost of acquisition
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH SMC , NEW DELHI BEFORE S H. R. K. PANDA , ACCOUNTANT MEMBER ITA NO. 1566 /DEL/201 4 ASSESSMENT YEAR: 20 08 - 09 K. LALL (HUF) H - 8, MAHARANI BAGH, NEW DELHI. PAN ADHK5198Q VS DCIT CIRCLE - 22(1 ) NEW DELHI (APPELLANT) (RESPONDENT) APPELLANT BY SH. K. V. S. R. KRISHNA, CA RESPONDENT BY S H . S.L. ANURAGI, SR. DR DATE OF HEARING: 1 8 / 07 / 2018 DATE OF PRONOUNCEMENT: 31 / 0 7 /2018 ORDER PER R.K. PANDA, AM: 1. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 0 7.0 1201 4 OF THE CIT(A) - I X , NEW DELHI RELATING TO A. Y. 20 08 - 09 . 2. GROUND NO.1 OF THE APPEAL BY THE ASSESSEE READS AS UNDER : - THE LD. CIT (A) HAS ERRED IN LAW AND ON FACTS IN UPHOLDING THE DISALLOWA NCE OF RS.2,03,068/ - ALLEGING IT AS NOT ALLOWABLE. THE APPELLANT CONTENDS THAT BEING PORTFOLIO MANAGEMENT FEES, THE ASSESSING OFFICER SHOULD HAVE ALLOWED THE SAME AS COST OF SHARES AND MUTUAL FUNDS 2 PURCHASED WHILE CALCULATING THE SHORT TERM GAINS SINCE IT IS DIRECTLY RELATED TO THE PURCHASE OF SHARES AND MUTUAL FUNDS. 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE IS A HUF AND FILED ITS RETURN OF INCOME ON 21.11.2009 DECLARING TOTAL INCOME OF RS.40,66,904/ - . DURING THE COURSE OF ASSESSMENT PROC EEDINGS T HE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS CLAIMED THE DEDUCTION OF RS.2,03,068/ - ON ACCOUNT OF PORTFOLIO MANAGEMENT FEE. SINCE THE ASSESSEE WAS NOT CARRYING OUT ANY BUSINESS ACTIVITIES AND HAS MADE INVESTMENT IN SECURITIES BUT HAD CLAIME D THIS DEDUCTION OUT OF INCOME FROM OTHER SOURCES , T HE ASSESSING OFFICER DISALLOWED THE SAME AND ENHANCED T HE INCOME FROM OTHER SOURCES BY RS.2,03,068/ - . 4. BEFORE CIT(A) IT WAS SUBMITTED THAT THE ASSESSEE HA S PAID AN AMOUNT RS.2,03,068/ - TO HDFC A SSET M ANAGEMENT C OMPANY FOR MANAGING THE PORTFOLIO OF THE ASSESSEE COMPR I SING OF SHARES AND MUTUAL FUNDS . THEREFORE, THE SAME SHOULD BE ALLOWED AS PART OF THE COST OF THE SHARES/ MUTUAL FUN D S PURCHASED AND SHOULD BE CONSIDERED AS EXPENSES INCURRED IN RELATION TO PURCHASE OF SHARES AND MUTUAL FUNDS. 5. HOWEVER, THE LD. CIT(A) WAS NOT SATISFIED WITH THE ARGUMENTS ADVANCED BY THE ASSESSEE AND CONFIRM ED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER BY OBSERVING AS UNDER : - 4.3 THE REASON GIVEN BY THE ASSESSIN G OFFICER AND THE SUBMISSION OF THE APPELLANT ARE CONSIDERED. SINCE THERE IS NO BUSINESS ACTIVITY DURING THE YEAR, THE EXPENSES ON PORTFOLIO MANAGEMENT FEES IS RELATED TO INVESTMENT IN SHARES WHICH IS A DIRECT EXPENDITURE ON THE INVESTMENT, INCOME FROM WH ICH ARE NOT TAXABLE. THUS, THE AMOUNT IS DISALLOWANCE U/S 14A OF THE ACT. THERE IS NO REASON WHY THE EXPENSES CAN BE CLAIMED AGAINST INCOME FROM OTHER SOURCES WHEN THE EXPENSES ARE RELATABLE TO EXEMPTED INCOME. THE EXPENSES ARE DIRECTLY RELATED TO INV ESTMENT, INCOME FROM WHICH IS NOT TAXABLE. THUS, UNDER LIMB (I) OF RULE 8D, SUCH DIRECT EXPENSES ARE LIABLE TO BE DISALLOWED. THE APPELLANT ALSO CLAIMED THAT SUCH EXPENSES SHOULD BE TREATED AS COST OF SHARES/ MUTUAL FUNDS AND HENCE SHOULD NOT BE DISALLOWE D. THIS ARGUMENT OF THE APPELLANT IS NOT 3 ACCEPTABLE AS SUCH EXPENSES ARE NOT ALLOWED IN COMPUTATION OF CAPITAL GAIN WHEN THE SHARES ARE SOLD. IN VIEW OF THIS, THE ADDITION MADE ON THIS ACCOUNT IS CONFIRMED AND THIS GROUND OF APPEAL IS DISMISSED. 6 . AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 7 . THE LD. COUN S EL FOR THE ASSESSEE REFERRING TO THE COMPUTATION STATEMENT , THE COPY OF WH ICH IS PLACED AT PAGE I OF THE PAPER BOOK , SUBMITTED THAT NO ONE HA S SEEN TH E COMPUTATION STATEMENT FOR WHICH T HEY HAVE DISALLOWED THE EXPENDITURE. HE ALSO RELIED ON THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN KRA HOLDINGS AND THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. FRITZ D. SILVA AND SUBMITTED THAT SUCH EXPENDITURE IS AN ALLOWABLE DEDUCTION. 8 . THE LD. DR ON THE OTHER HAND HEAVILY RELIED ON THE ORDER OF THE CIT(A). 9 . AFTER HEARING BOTH THE SIDES AND IN VIEW OF THE SUBMISSIONS OF THE LD. COUN S EL FOR THE ASSESSEE THAT THE COMPUTATION STATEMEN T HAS NOT BEEN CONSIDERED BY EITHER OF THE AUTHORITIES BELOW , I DEEM IT PROPER TO RESTORE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECT ION TO RE - CONSIDER THE ISSUE IN THE LIGHT OF THE COMPUTATION STATEMENT FILED BY THE ASSESSEE. NEEDLESS T O SAY THE ASSESSING OFFICER SHALL DECIDE THE ISSUE AS PER FACT AND LAW AFTER GIVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. I HOLD AND DIRECT ACCORDING LY . THE GROUND NO.1 IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSE. 10 . G ROUND S OF APPEAL NO. 2 AND 3 OF BY ASSESSEE READ AS UNDER : - 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN UPHOLDING DISALLOWANCE O F INTEREST COST OF RS.3,30,852/ - . THE ASSESSEE CONTENDS THAT THE LOANS IS TAKEN FOR THE PURPOSE OF MAKING THE INVESTMENT IN SHARES AND MUT UAL FUNDS PURCHASED AND IT SHOULD FORM PART OF COST OF SHARES AND 4 MUTUAL FUNDS PURCHASED. THEREFORE, THERE SHOULD BE ALLOWED AS DEDUCTION WHILE CALCULATING THE SHORT TERM CAPITAL GAINS. 3. THE ASSESSEE CONTENDS THAT THE INTEREST ON LOAN SHOULD FORM PART OF THE COST OF SHARES AND MUTUAL FUNDS PURCHASED AND SHOULD BE ALLOWED AS DEDUCTION WHILE CALCULATING THE SHORT TERM CAPITAL GAINS. 1 1 . FACTS OF THE CASE, IN BRIEF ARE THAT THE ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN THE BANK INTEREST AND INTERE ST COST WHICH WAS CLAIMED BY THE ASSESSEE AS DEDUCTION WHILE CALCULATING THE STCG ON SHARES. THE ASSESSEE EXPLAIN ED THAT IT HAS INCURRED INTEREST EXPENDITURE OF RS.3,30,852/ - WHICH WAS PAID TO HDFC BANK FOR USE OF ITS FUNDS FOR PURCHASE OF SHARES AND MUTU AL FUNDS. IT WAS EXPLAINED THAT THE ASSESSEE HAS REFLECTED FULL INTEREST OF RS.7,46,857/ - AS INCOME FROM INTEREST UNDER THE HEAD INCOME FROM OTHER SOURCES AND CLAIMED RS.3,30,852/ - AS INTEREST CHARGED BY THE BANK AS PART OF COST OF ACQUISITION OF EQUITY S HARES. 1 2 . HOWEVER, THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE ARGUMENTS ADVANCED BY THE ASSESSEE AND HELD THAT ONLY THE INTEREST PORTION FOR THE PERIOD PERTAINING TILL THE ACQUISITION OF THE ASSETS IS CAPITALISABLE AND IN THIS CASE THE BANK WOULD CHARGE THE INTEREST ONLY AFTER THE ASSET IS ACQUIRED BY THE ASSESSEE. REJECTING THE EXPLANATION GIVEN BY THE ASSESSEE, THE ASSESSING OFFICER HELD THAT THE INTEREST CLAIMED BY THE ASSESSEE IS NOT ALLOWABLE AND ACCORDINGLY MADE ADDITION OF RS.3,30,852/ - TO THE SHORT TERM CAPITAL GAIN CLAIMED BY THE ASSESSEE. 1 3 . BEFORE CIT(A) IT WAS ARGUED THAT THERE IS DIRECT NEXU S BETWEEN THE LOAN TAKEN AND THE SHARES AND MUTUAL FUNDS PURCHASED. THEREFORE, THE INTEREST ON LOAN SHOULD FOR M PART OF THE COST OF SHARE AND M UTUAL FUNDS PURCHASED AND SHOULD BE ALLOWED AS DEDUCTION WHILE CALCULATING THE SHORT TERM CAPITAL GAIN. 5 14 . HOWEVER, THE LD. CIT(A) WAS NOT SATISFIED WITH THE ARGUMENTS ADVANCED BY THE ASSESSEE AND UPHELD THE ACTION OF THE ASSESSING OFFICER BY OBSERVING AS UNDER : - 5.3 THE REASON GIVEN BY ASSESSING OFFICER AND THE SUBMISSION OF THE APPELLANT ARE CONSIDERED. THE APPELLANT HAS NOT BEEN ABLE TO EXPLAIN WHY THE INTEREST CHARGED BY THE BANK SHALL BE A PART OF COST OF ACQUISITION OF THE SHARES. WHILE CALCU LATING THE CAPITAL GAIN ONLY THE COST OF INDEXATION IS ALLOWED ON THE INITIAL COST OF ACQUISITION. ANY COST INCURRED AFTER THE ACQUISITION OF THE ASSET IS NOT DEDUCTABLE FROM THE SALE PROCEEDS. MOREOVER, INTEREST ON BORROWED CAPITAL FOR INVESTMENT, INCOME FROM WHICH IS NOT TAXABLE IS A DIRECT EXPENDITURE AND LIABLE TO BE DISALLOWED UNDER LIMB (I) OF RULE 8D. THE INTENTION OF INVESTMENT IN SHARES WAS TO EARN DIVIDEND AND SINCE THE DIVIDEND INCOME HAPPENED TO BE EXEMPT, ANY EXPENDITURE IN THAT REGARD HAD NO T TO BE ALLOWED AS PER SECTION 14A OF THE ACT. SINCE, THE INTEREST WAS NOT PART OF THE COST ON THE DATE OF PURCHASE, IT WAS OUT OF THE AMBIT OF THE SECTION 48 OF THE ACT. IN VIEW OF THIS, THE ADDITION MADE BY THE ASSESSING OFFICER IS CONFIRMED AND THE GRO UND OF THE APPEAL IS DISMISSED. 1 5 . AGGRIEVED WITH SUCH ORDER OF THE CIT (A), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 1 6 . THE LD. COUNSEL FOR THE ASSESSEE REFERRING TO THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. SHRI FRITZ D. SILVA VIDE ITA NO.236/MUM/2010 DATED 08.05.2015 DREW THE ATTENTION OF THE BENCH TO THE SAME AND SUBMITTED THAT INTEREST PAID FOR ACQUISITION OF SHARES WOULD PART AKE THE CHARACTER OF COST OF SHARES AND, THEREFORE, THE SAME WAS RIGHTLY CAPITALIZED ALONG WITH COST OF ACQUISITION OF SHARES . W HILE HOLDING SO THE TRIBUNAL HAD RELIED ON THE DECISION OF HON BLE DELHI HIGH COURT IN THE CASE OF CIT VS. MITHLESH KUMARI REPORTED IN 92 ITR 09 (DEL) AND THE DECISION OF HON BLE MADRAS HIGH COURT IN THE CASE OF T RISHUL INVEST MENTS LTD. REPORTED IN 305 ITR 434 (MADRAS). HE ACCORDINGLY SUBMITTED THAT THE CIT(A) WAS NOT JUSTIFIED IN REJECTING THE CLAIM OF THE ASSESSEE. 6 1 7 . THE LD. DR ON THE OTHER HAND HEAVILY RELIED ON ORDERS OF THE AUTHORITIES BELOW. 1 8 . I HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. I AM OF THE OPIN ION THAT THE MATTER NEEDS RE - ADJUDICATION BY THE ASSESSING OFFICER IN THE LIGHT OF THE DECISION OF THE MUMBAI BENCH TRIBUNAL IN THE CASE OF DCIT VS. SHRI FRITZ D. SILVA (SUPRA) WHERE IT HAS BEEN HELD THAT INTEREST PAID FOR ACQUISITION OF SHARES WOULD PART AKE THE CHARACTER OF COST OF SHARES AND ASSESSEE CAN CAPITALIZE THE INTEREST ALONGWITH COST OF ACQUISITION FOR THE PURPOSE OF COMPUTING CAPIT AL GAINS. THE ASSESSING OFFICER SHALL DECIDE THE ISSUE AS PER FACT AND LAW AFTER GIVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. I HOLD AND DIRECT ACCORDINGLY. THE GROUND S RAISED BY THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSE. 1 9 . GROUND NO. 4 AND 5 OF THE APPEAL OF THE ASSESSEE BEING GENERAL IN NATURE ARE DISMISSED. 20 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER P RONOUNCED IN THE OPEN COURT ON 31 .0 7 .2018. SD/ - ( R.K. PANDA ) ACCOUNTANT MEMBER *NEHA* DATE: - 31 .0 7 .2018 COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(APPEALS) 5 . DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI 7 DATE OF DICTATION 26.07.2018 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 30.07.2018 DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS/PS 31.07.2018 DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 31.07.2018 DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/ PS 31.07.2018 DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT 31.07.2018 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 31.07.2018 DATE ON WHICH FILE GOES TO THE HEAD CLERK. THE DATE ON WHICH FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER 8