DCIT, CHENNAI V. M/s. Turbo Energy Limited, CHENNAI

ITA 164/CHNY/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64666 (ITAT-CHENNAI)
• Duration Of Justice: 10 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-12-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 13-12-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 25-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R B NAIK
• Assessee Lawyers: K SRINIVASAN
• Keywords: Capital asset; Business income; Earning of tax free income; Speculation loss
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : CHENNAI [BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER] I.T.A.NOS.164 & 165/MDS/2012 ASSESSMENT YEARS : 2004-05 & 2006-07 THE DY. CIT LARGE TAXPAYER UNIT CHENNAI VS M/S TURBO ENERGY LIMITED STONEACRENO.67, CHAMIERS ROAD CHENNAI 600 028 [PAN - AAACT2916R] (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI R.B. NAIK, CIT/DR RESPONDENT BY : SHRI K. SRINIVASAN, CA DATE OF HEARING : 13-12-2012 DATE OF PRONOUNCEMENT : 17-12-2012 O R D E R PER N.S. SAINI, ACCOUNTANT MEMBER THESE ARE THE APPEALS FILED BY THE REVENUE AGAINST SEPARATE ORDERS OF THE CIT(A)-III, CHENNAI, DATED 2 9.11.2011. 2. THE COMMON ISSUE INVOLVED IN GROUND NO.2 & 3 OF ASSESSMENT YEAR 2004-05 AND GROUND NO.4 OF ASSESSME NT YEAR 2006- 07 IS THAT THE CIT(A) ERRED IN HOLDING THAT THE UNI TS OF MUTUAL FUNDS ARE STOCK-IN-TRADE OF THE ASSESSEE AND THAT THE LO SS IN TRADING OF UNITS OF MUTUAL FUNDS WAS ALLOWED AS BUSINESS LOSS AND NO T CAPITAL GAINS. THE OTHER ISSUE INVOLVED IN ASSESSMENT YEAR 2004-0 5 IS THAT THE I.T.A.NO. 164 & 165/2012 :- 2 -: CIT(A) ERRED IN HOLDING THE UNITS OF MUTUAL FUND AR E NOT SHARES FOR THE PURPOSES OF SECTION 73 AND THEREFORE, THE LOSS ON S ALE OF MUTUAL FUNDS ARE NOT SPECULATION LOSS AND THE ASSESSEES WOULD BE PERMITTED TO SET OFF SUCH LOSS AGAINST ITS OTHER INCOME. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, THE ASSESSEE CLAIMED LOSS ON SALE OF UNITS AS BUSINESS LOSS AND THE ASSESSING OFFICER TREATED THE SAME AS CAPITAL LOSS ON THE GROUND THAT THE UNITS WERE HELD AS INVESTMENT BY TH E ASSESSEE TILL THE PRECEDING ASSESSMENT YEAR AND ONLY IN THE ASSESSMEN T YEAR UNDER CONSIDERATION THE SAME WAS TREATED AS STOCK-IN-TRAD E BY THE ASSESSEE. THE CONVERSION OF INVESTMENT INTO STOCK-IN-TRADE SH OWN BY THE ASSESSEE WAS REJECTED BY THE ASSESSING OFFICER. 4. ON APPEAL, THE CIT(A) HELD THAT THE UNITS WERE TREA TED AS STOCK-IN-TRADE BY THE ASSESSING OFFICER IN THE ASSE SSMENT OF SUBSEQUENT ASSESSMENT YEAR 2005-06. THE CIT(A), TH EREFORE, DIRECTED TO TREAT THE LOSS ARISING OUT OF SALE OF UNITS AS B USINESS LOSS. 5. THE DR SUPPORTED THE ORDER OF THE ASSESSING OFFICER . THE DR COULD NOT POINT OUT ANY SPECIFIC ERROR IN THE OR DER OF THE CIT(A). IT IS OBSERVED THAT LOSS ARISING OUT OF UNITS HELD BY THE ASSESSEE IN THE ASSESSMENT OF ASSESSMENT YEAR 2006-07 WAS TREATED B Y THE ASSESSING I.T.A.NO. 164 & 165/2012 :- 3 -: OFFICER AS CAPITAL LOSS, BUT THE CIT(A), VIDE HIS O RDER DATED 29.11.2011 TREATED THE SAME AS BUSINESS LOSS. THUS, WE FIND T HAT THE CONVERSION OF UNITS IN STOCK-IN-TRADE WAS CONSISTENTLY FOLLOW ED BY THE ASSESSEE IN THE SUBSEQUENT ASSESSMENT YEARS. IN THE ABOVE FACT S AND CIRCUMSTANCES, WE DO NOT FIND ANY GOOD REASON TO IN TERFERE WITH THE ORDER OF THE CIT(A). IT IS CONFIRMED AND THIS PART OF GROUND OF APPEAL OF THE REVENUE FOR BOTH THE ASSESSMENT YEARS IS DIS MISSED. 6. IN THE OTHER PART OF THE GROUNDS OF APPEAL, THE REVENUE HAS CHALLENGED THE FINDING OF THE CIT(A) THAT INVES TMENT IN UNITS OF MUTUAL FUND IS NOT COVERED WITHIN THE MEANING OF SH ARES AS USED IN EXPLANATION TO SECTION 73 OF THE ACT. 7. WE FIND THAT THE ORDER OF THE CIT(A) ON THE ISSUE F INDS SUPPORT FROM THE DECISION OF THE HON'BLE SUPREME CO URT IN THE CASE OF APOLLO TYRES LTD VS CIT, [2002] 255 ITR 273(SC). T HEREFORE, THIS PART OF GROUND IS ALSO DISMISSED. 8. IN ASSESSMENT YEAR 2006-07, THE FIRST ISSUE INVOLVE D IN GROUND NO.2 IS THAT THE CIT(A) ERRED IN DELETING T HE DISALLOWANCE U/S 14A BY INVOKING THE PROVISIONS OF RULE 8D. 9. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER OBSERVED FROM THE PROFIT & LOSS ACCOUNT FILED BY TH E ASSESSEE THAT THE I.T.A.NO. 164 & 165/2012 :- 4 -: ASSESSEE HAS SHOWN INCOME BY WAY OF DIVIDEND FROM T HE MUTUAL FUND AND DOMESTIC COMPANIES TO THE TUNE OF ` 57.11 LAKHS. ACCORDING TO THE ASSESSING OFFICER, AS PER SECTION 14A, EXPENDIT URE INCURRED IN RELATION TO EXEMPT INCOME WAS TO BE EXCLUDED FROM T HE TOTAL INCOME UNDER THE INCOME-TAX ACT, 1961. HE, THEREFORE, DIS ALLOWED ` 22.10 LAKHS ON ACCOUNT OF INTEREST X AND ` 7.37 LAKHS ON ACCOUNT OF OTHER EXPENSES THEREBY MAKING THE DISALLOWANCE OF ` 29.47 LAKHS. 10. ON APPEAL, THE CIT(A) RESTRICTED THE DISALLOWANCE T O 2% OF THE DIVIDEND INCOME. 11. WE FIND THAT UNDER IDENTICAL SET OF FACTS IN ASSESS MENT YEAR 2005-06 IN ASSESSEES OWN CASE, THE TRIBUNAL IN I.T .A.NO. 907/MDS/2011 , VIDE ORDER DATED 12.8.2011, HAS CONF IRMED THE ORDER OF THE CIT(A) IN RESTRICTING THE DISALLOWANCE U/S 14A TO 2%. THE TRIBUNAL, WHILE DOING SO, HAS OBSERVED AS UNDER: 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. A PERUSAL OF THE ORDER OF THE LEARNED CIT(A) SHOWS THAT THE LEAR NED CIT(A) HAS CONSIDERED THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD., REFERRED TO SUPRA, WHEREIN IT HAS BEEN CLEARLY HELD THAT RULE 8 0 CAN BE APPLIED ONLY FROM THE ASSESSMENT YEAR 2008-09. IT I S FURTHER NOTICED THAT THE LEARNED CIT(A) HAS FOLLOWED THE DE CISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF TVS MOTOR COMPANY LTD., REFERRED TO SUPRA TO RESTRICT T HE DISALLOWANCE UNDER SECTION 14A TO 2%. THESE DECISIO NS STILL HOLD THE FIELD. IN THE CIRCUMSTANCES. AS IT IS NOTI CED THAT THE .LEARNED CIT(A) HAS ONLY FOLLOWED THE DECISION OF T HE HIGHER JUDICIAL FORUMS, WE ARE OF THE VIEW THAT THE FINDIN G OF THE LEARNED CIT(A) IS ON THE RIGHT FOOTING AND DOES NOT CALL FOR ANY I.T.A.NO. 164 & 165/2012 :- 5 -: INTERFERENCE. IN THE CIRCUMSTANCES, THE APPEAL OF T HE REVENUE STANDS DISMISSED. 12. RESPECTFULLY FOLLOWING THE SAME, WE CONFIRM THE ORD ER OF THE CIT(A) AND DISMISS THE GROUND OF APPEAL OF THE REVE NUE. 13. THE NEXT ISSUE INVOLVED IN GROUND NOS.3 OF THIS APP EAL RELATES TO DELETING THE DISALLOWANCE OF CONTRIBUTIO N MADE BY THE ASSESSEE TO THE TEMPLE. 14. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER DISALLOWED CONTRIBUTION MADE TO TEMPLE OF ` 1,51,000/- ON THE GROUND THAT IT WAS NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS AS THE TEMPLE WAS NOT SITUATED IN THE PLAN T PREMISES. 15. ON APPEAL, THE CIT(A), FOLLOWING THE ORDER OF THE T RIBUNAL FOR ASSESSMENT YEAR 2005-06, IN ASSESSEES OWN CASE, IN I.T.A.NO. 847/MDS/2011 AND 137/MDS/201, ORDER DATED 13.7.2011 , ALLOWED THE CLAIM OF THE ASSESSEE. 16. THE DR RELIED ON THE ORDER OF THE ASSESSING OFFICER AND THE A.R OF THE ASSESSEE SUPPORTED THE ORDER OF THE CIT(A). 17. WE FIND THAT THE TRIBUNAL IN ASSESSMENT YEAR 2005-0 6, IN ASSESSEES OWN CASE, VIDE ITS ORDER QUOTED ABOVE, H AS HELD AS UNDER: I.T.A.NO. 164 & 165/2012 :- 6 -: 3. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE A RE OF THE CONSIDERED OPINION THAT EVEN IF THE TEMPLE IS SITUA TED OUTSIDE THE PREMISES OF THE FACTORY BUILDING, THE CONTRIBUTION MADE TOWARDS A LOCAL TEMPLE WAS OBVIOUSLY FOR THE BENEFI T OF THE EMPLOYEES OF THE COMPANY AND IN THE END FOR THE BEN EFIT OF ASSESSEE'S BUSINESS. IT WOULD DEFINITELY ENHANCE SO CIAL RELATIONSHIP BETWEEN THE EMPLOYEES AND THE LOCAL PEOPLE. USUALLY, THE EMPLOYEES OF THE FACTOR Y TAKE RENTED ACCOMMODATION IN THE NEARBY LOCALITY WHEREFR OM THEY DAILY COME TO THE FACTORY BOTH IN DAY AND NIGHT TI ME. THIS IS A COMMON PLACE EXPERIENCE THAT IF GOOD RELATIONS ARE KEPT BY THE MANAGEMENT OF THE COMPANY WITH THE LOCALS, IT E NHANCES THE CONFIDENCE AND WORKING ABILITY OF THE EMPLOYEES , WHICH, IN TURN, HELPS THE BUSINESS OF THE ASSESSEE. THEREFORE , BY TREATING THIS EXPENSE TO HAVE BEEN INCURRED TOWARDS BUSINESS NECESSITY, WE ALLOW THIS EXPENDITURE AND ORDER TO D ELETE THE SAME FROM THE HANDS OF THE ASSESSEE. 18. THE DR COULD NOT POINT OUT ANY MISTAKE IN THE ORDE R OF THE CIT(A). HE COULD NOT BRING ANY MATERIAL TO SHOW TH AT THE ABOVE ORDER OF THE TRIBUNAL WAS VARIED IN APPEAL BY ANY HIGHER FORUM. HENCE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A ) AND THE SAME IS CONFIRMED. THUS, THE GROUND OF APPEAL OF THE REVEN UE IS DISMISSED. 19. THE LAST ISSUE INVOLVED IN GROUND NO.4 OF THIS APPE AL IS THAT THE CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO ALLOW REBATE U/S 88E OF THE ACT. 20. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER DISALLOWED THE CLAIM OF REBATE OF ` 88,894/- AS HE CONSIDERED THE UNITS OF MUTUAL FUNDS AS CAPITAL ASSETS AND THE ASSESSEE AS AN INVESTOR. SINCE THE CIT(A) HAS DECIDED THAT THE ASSESSEE WAS A TRADER AND NOT I.T.A.NO. 164 & 165/2012 :- 7 -: AN INVESTOR IN UNITS, THEREFORE, HE HELD THAT REBAT E U/S 88E SHOULD BE ALLOWED TO THE ASSESSEE. 21. THE DR RELIED ON THE ORDER OF THE ASSESSING OFFICER WHEREAS THE A.R OF THE ASSESSEE SUPPORTED THE ORDER OF THE CIT(A). 22. WE FIND THAT SECTION 88E OF THE ACT PROVIDES THAT WHERE THE TOTAL INCOME OF AN ASSESSEE IN A PREVIOUS YEAR INCL UDES ANY INCOME, CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUS INESS OR PROFESSION', ARISING FROM TAXABLE SECURITIES TRANSA CTIONS, IT SHALL BE ENTITLED TO A DEDUCTION, FROM THE AMOUNT OF INCOME- TAX ON SUCH INCOME ARISING FROM SUCH TRANSACTIONS, COMPUTED IN THE MANNER PROVIDED IN SUB-SECTION (2), OF AN AMOUNT EQUAL TO THE SECURITIES TRANSACTION TAX PAID BY IT IN RESPECT OF THE TAXABL E SECURITIES TRANSACTIONS ENTERED INTO IN THE COURSE OF ITS BUSI NESS DURING THAT PREVIOUS YEAR. WE FIND THAT THE ASSESSING OFFICER DISALLOWED THE REBATE CLAIMED BY THE ASSESSEE OF ` 88,894/- IN ASSESSMENT YEAR 2006-07 ON THE GROUND THAT HE HELD THE UNITS OF MUT UAL FUNDS AS INVESTMENT OF THE ASSESSEE AND INCOME FROM SALE OF UNITS AS INCOME FROM CAPITAL GAINS. THE CIT(A) HAS ALLOWED THE CL AIM OF THE ASSESSEE AS HE HELD THE TRANSACTION OF THE UNITS AS BUSINESS INCOME OF THE ASSESSEE. AS WE HAVE UPHELD THE FINDING OF THE CIT (A) THAT THE TRANSACTIONS IN UNITS ARE BUSINESS OF THE ASSESSEE , THEREFORE, WE I.T.A.NO. 164 & 165/2012 :- 8 -: CONFIRM THE ORDER OF THE CIT(A) AND DISMISS THE GR OUND OF APPEAL OF THE REVENUE. 23. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED ON MONDAY, THE 17 TH OF DECEMBER, 2012, AT CHENNAI. SD/- SD/- (CHALLA NAGENDRA PRASAD) JUDICIAL MEMBER (N.S.SAINI) ACCOUNTANT MEMBER DATED: 17 TH DECEMBER, 2012 RD COPY TO: APPELLANT/RESPONDENT/CIT(A)/CIT/DR