ITO 19 (2)(1), MUMBAI V. M/S. ASHOK INVESTMENT, MUMBAI

ITA 1684/MUM/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88180 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 10 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-01-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 30-12-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 01-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SACHIDANAND DUBEY
• Assessee Lawyers: V P KOTHARI
• Keywords: Business income; Depreciation; Business expenditure; Transactions in derivatives; Earning of tax free income; Speculation loss
• Section: 143(3); 14A; 43(5)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL I , BENCH MUMBAI , BEFORE SHRI R.C.SHARMA , A M & SHRI VIJAY PAL RAO , J M ITA NO. 2166 / MUM/20 1 1 ( ASSESSMENT YEAR : 200 6 - 0 7 ) M/S ASHOK INVESTMENT, 112, ARUN BAZAR, STATION ROAD, SANTACRUZ (WEST), MUMBAI - 54 VS. ITO, WARD - 19(2)(1), MUMBAI PAN/GIR NO. : A AGFA 8364 B ( APPELLANT ) .. ( RESPONDENT ) AND ITA NO. 1684/ MUM/20 11 ( ASSESSMENT YEAR :2006 - 07 ) ITO, WARD - 19(2)(1), MUMBAI VS. M/S ASHOK INVESTMENT, 112, ARUN BAZAR, STATION ROAD, SANTACRUZ (WEST), MUMBAI - 54 PAN/GIR NO. : A AGFA 8364 B ( APPELLANT ) .. ( RESPONDENT ) . /ASSESSEE BY : SHRI V.P.KOTHARI /REVENUE BY : SHRI SACHIDANAND DUBEY DATE OF HEARING : 30 TH DECE MBER,2014 DATE OF PRONOUNCEMENT : 21 ST JANUARY , 201 5 O R D E R PER R.C.SHARMA ( A .M.) : TH ESE ARE THE CROSS APPEALS FILED BY THE ASSESSEE AND REVENUE AGAINST THE ORDER OF CIT(A), FOR THE ASSESSMENT YEAR 200 6 - 0 7 , IN THE MATTER OF ORDER PASSED UNDER SECTION 143(3) OF THE I.T. ACT. ITA NO S . 2166&1684 /20 1 1 2 2 . THE ASSESSEE IN ITS APPEAL (I.E. ITA NO. 2166/MUM/2011 ) HAS TAKEN FOLLOWING GROUNDS : - 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE DISALLOWANCE OF THE ENTIRE BUSINESS EXPENSES OF RS.1,93,045/ - U/ S 14A R.W. RULE 8D OF THE INCOME TAX ACT,1961 WITHOUT PROPERLY CONSIDERING THE FACT THAT THE APPELLANT IS HAVING SUBSTANTIAL BUSINESS INCOME OF RS.78,48,948/ - AS COMPARED TO THE TAX FREE D IVIDEND INCOME OF RS.8,95,949/ - . 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE INTEREST INCOME OF RS.22,55 ,865/ - AS INCOME FROM OTHER SOURCES INSTEAD OF BUSINESS INCOME AS CLAIMED BY THE APPELLANT IN VIEW OF THE FACTS THAT THE APPELLANT IS CARRYING ON FINANCE BUSINESS AS PER PARTNERSHIP DEED. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE RE - COMPUTATIONS OF REMUNERATION TO PARTNERS AND RESTRICT ING THE SAME TO RS.12,91,855/ - INSTEAD OF RS.21,96,072/ - AS CLAIMED BY THE APPELLANT WHICH HAS ALREADY BEEN DECLARED AS INCOME OF THE PARTNERS IN THEIR PERSONAL RETURN AND HAVE PAID TAX @ 30% ON THE SAME. WHEREAS THE REVENUE IN ITS APPEAL (I.E ITA NO. 168 4/MUM/2011 ) HAS TAKEN FOLLOWING GROUNDS : - 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) WAS RIGHT IN HOLDING THAT THE LOSS SUFFERED BY THE ASSESSEE ON ACCOUNT OF THE FUTURE AND OPTIONS TRANSACTIONS HAS TO BE CONSIDERED AS BUSINESS LOSS AND NOT BE CONSIDERED AS SPECULATIVE LOSS. 2) THE APPELLANT PRAYS THAT THE ORDER OF THE CIT (A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE AO BE RESTORED. 3 . RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. FACTS IN BRIEF ARE THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF INVESTMENT AND TRADING IN SHARES. DURING THE COURSE OF ASSESSMENT, THE AO DISALLOWED BUSINESS EXPENSES OF RS. 1,93,052/ - U/S.14A R.W.R.8D. 4. BY THE IMPUGNED ORDER, THE CIT(A) CONFIRMED THE DISALLO WANCE. ITA NO S . 2166&1684 /20 1 1 3 5 . IT WAS CONTENDED BY LD. AR THAT EXPENSE DEBITED TO PROFIT AND LOSS A/C OF RS. 193052/ - DOES NOT HAVE DIRECT NEXUS THEY ARE GENERAL EXPENDITURE FOR RUNNING OF BUSINESS ALSO ASSESSEE HAS NOT INCURRED ANY INTEREST EXPENDITURE. THE ASSESSEE ALSO REL IES ON JUDGMENT OF M/S. VIDYUT INVESTMENT LIMITED VS. ITO , (2006) 10 SOT 284 DELHI ITAT, WHERE IN IT WAS HELD THAT WHERE THE SHARES WERE PURCHASED MERELY FOR TRADING IN THE SAME AND EARNING OF DIVIDEND INCOME WAS ONLY INCIDENTAL, NO PART OF INTEREST PAID O N INVESTMENT OR THE DEPOSITORY/ CUSTODIAL CHARGES COULD BE DISALLOWED BY INVOKING SECTION 14A - THE A O CANNOT MERELY ALLOCATE THE EXPENSES IN RELATION TO TRADING RESULTS BY PROPORTIONATELY DISALLOWING THE SAME. THE ASSESSEE FURTHER RELIES ON JUDGEMENT OF HO N'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE INDUSTRIES LTD.[2011] 39 ITR 632 (BOM). ON THE OTHER HAND, LD. DR RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. 6 . WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND THAT DURING THE YEAR ASSESSEE HAS R ECEIVED DIVIDEND INCOME OF RS. 8,95,949/ - , INTEREST INCOME OF RS. 22,55,865/ - AND OTHER INCOME OF RS. 4,352/ - . IN THE PROFIT AND LOSS ACCOUNT, ASSESSEE HAS CLAIMED FOLLOWING EXPENSES : - SL.NO. PARTICULARS AMOUNT NATURE 1. SALARY & WAGES 18,000.00 DIRECTLY RE LATED TO BUSINESS 2. PROFESSION FEES 49,025.00 STATUTORY COMPLIANCE & DIRECTLY RELATED TO BUSINESS 3. PRINTING & STATIONERY 735.00 DIRECTLY RELATED TO BUSINESS 4. TELEPHONE EXPENSES 16,624.84 DIRECTLY RELATED TO BUSINESS 5. BANK CHARGES 220.00 DIRECTLY RELATED TO BUSINESS 6. REPAIRS & MAINTENANCE 14,439.00 DIRECTLY RELATED TO BUSINESS 7. CONVEYANCE EXPENSES 4,451.00 DIRECTLY RELATED TO BUSINESS 8. ACCOUNT WRITING EXPENSES 18,000.00 DIRECTLY RELATED TO BUSINESS 9. AUDIT FEES 67,344.00 DIRECTLY RELAT ED TO BUSINESS 10. SUNDRY EXPENSES 3,451.00 DIRECTLY RELATED TO BUSINESS 11. DEPRECIATION 756.00 DIRECTLY RELATED TO BUSINESS 1,93,045.84 ITA NO S . 2166&1684 /20 1 1 4 BY APPLYING RULE 8D, THE AO HAD DISALLOWED THE ENTIRE BUSINESS EXPENDITURE ON THE PLEA THAT SAME WAS INCURRED FOR THE EARNING OF EXEMPT INCOME, IGNORING THE FACT THAT ASSESSEE WAS HAVING TAXABLE BUSINESS INCOME OF RS. 78,48,948/ - , AS COMPARED TO THE TAX FREE DIVIDEND OF RS. 8,95,949/ - . THE RELEVANT ASSESSMENT YEAR IS 2006 - 07, WHEREIN RULE 8D IS NOT APPLICABLE BUT AT THE VERY SAME TIME, REASONABLE DISALLOWANCE IS WARRANTED AS PER DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD., 328 ITR 81 . CONSIDERING THE AMOUNT OF EXPENDITURE INCURRED FOR EARNING THE TOTAL INCOME MAIN PAR T OF WHICH WAS TAXABLE I.E. RS. 78.48 LAKHS AS AGAINST EX EMPT INCOME OF RS.8.95 LAKHS, WE DEEM IT APPROPRIATE TO RESTRICT THE DISALLOWANCE TO THE EXTENT OF RS. 2 0,000/ - . ACCORDINGLY, THE AO IS DIRECTED TO RESTRICT THE DISALLOWANCE U/S.14A TO RS. 2 0,000/ - . 7. THE NEXT GRIEVANCE OF THE ASSESSEE RELATES TO TAXING THE BUSINESS INCOME EARNED IN THE FORM OF INTEREST AS INCOME FROM OTHER SOURCES. WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND THAT IN ADDITION TO THE SHARE BUSINESS ASSESSEE WAS ALSO CARRYING ON BUSIN ESS OF FINANCE AS PER THE CLAUSE 4 OF PARTNERSHIP DEED, WHEREIN ASSESSEE HAS EARNED INTEREST INCOME OF RS.22,55,865/ - . HOWEVER, THE AO HAS CONSIDERED IT AS INCOME FROM OTHER SOURCES ON THE PLEA THAT INTEREST IS ONLY INCIDENTAL TO THE MAIN BUSINESS OF SHARE TRADING WITHOUT CONSIDERING THE OBJECTS CLAUSE/NATURE OF BUSINESS AS PER PARTNERSHIP DEED. THERE IS NO DISPUTE TO THE FACT THAT THE MAIN PURPOSE/OBJECT OF FORMATION OF PARTNERSHIP BUSINESS WAS TRADING AND INVESTMENT IN SHARES AND SECURITIES AND FINANCE A ND BROKERAGE BUSINESS, AS PER CLAUSE 4 OF THE PARTNERSHIP DEED FILED BEFORE THE AO. LD. AR ALSO ITA NO S . 2166&1684 /20 1 1 5 RELIED ON THE JUDICIAL PRONOUNCEMENTS OF ITAT BANGALORE BENCH IN THE CASE OF JINDAL VIJAYANAGAR STEEL LTD., 87 ITD 630(BAN). AS PER OUR CONSIDERED VIEW, IF THE ASSESSEE IS ENGAGED IN THE BUSINESS OF FINANCING IN ADDITION TO THE BUSINESS OF TRADING IN SHARES , THE INTEREST EARNED ON LOANS AND ADVANCES ARE L IABLE TO TAX AS BUSINESS INCOME. HOWEVER , WHERE THE ASSESSEE IS HAVING INTEREST INCOME OUT OF THE SURPLUS FUND DEPLOYED WITH BANK OR PARTY, THE SAME IS LIABLE TO BE TAXED AS INCOME FROM OTHER SOURCES. IT IS NOT IN DISPUTE THAT ASSESSEE HAS SUBSTANTIALLY EARNED INTEREST INCOME OUT OF THE FINANCING BUSINESS UNDERTAKEN BY IT . A CCORDINGLY, WE DO NOT FIND ANY MERIT IN THE ACTION OF THE LOWER AUTHORITIES FOR TREATING THE INCOME EARNED IN ITS FINANCING BUSINESS AS INCOME FROM OTHER SOURCES. 8. THE ASSESSEE IS ALSO AGGRIEVED FOR REDUCING PARTNERS REMUNERATION BY EXCLUDING THE INTEREST INCOME FROM INCOME BY TREATING THE SA ME AS INCOME FROM OTHER SOURCES IN PLACE OF BUSINESS INCOME. WE HAVE CONSIDERED RIVAL CONTENTIONS. IN VIEW OF OUR FINDING GIVEN IN PARA 7 HEREINABOVE, WE DIRECT THE AO TO TREAT THE INTEREST INCOME AS BUSINESS INCOME AND TO RECOMPUTE ASSESSEES CLAIM OF PAR TNERS REMUNERATION ACCORDINGLY. 9. THE REVENUE IS AGGRIEVED BY ACTION OF CIT(A) FOR HOLDING THAT LOSS SUFFERED BY THE ASSESSEE ON ACCOUNT OF FUTURE AND OPTIONS TRANSACTIONS HAS TO BE CONSIDERED AS BUSINESS LOSS AND NOT BE CONSIDERED AS SPECULATION LOSS. W E HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND THAT THE AO IN THE ASSESSMENT ORDER OBSERVED AS UNDER : - ITA NO S . 2166&1684 /20 1 1 6 IT IS SEEN FROM THE COMPUTATION OF INCOME THAT ASSESSEE HAS SET OFF OF CARRIED FORWARD LOSS FOR A.Y.2003 - 04 AT RS.18, 36,430/ - AND OF A.Y.2005 - 06 AT RS.2 0,96,497/ - AND CONSIDER AS UNABSORBED BUSINESS LOSS. IN THIS REGARD THE ASSESSEE WAS ASKED TO EXPLAIN WHY THE CARRY FORWARD LOSSES HAVE BEEN SET OFF AS THE SAME ARE NOT ALLOWABLE. THE ASSESSEE'S REPRESENTATIVE VIDE PARA 1 OF LETTER DATED 14.11.08 HAS EXPLA INED THAT 'AS REGARDS THE SET OFF OF CARRIED FORWARD LOSSES, YOU HAVE STATED THAT THE SAME ARE NOT ALLOWABLE IN VIEW OF ITS NATURE OF SPECULATION LOSS. IN THIS CONNECTION, I WOULD LIKE TO STATE THAT AS PER THE AMENDED SECTION 43(5)(D) OF THE I. T.ACT 1961 THE FUTURE & OPTION TRANSACTIONS HAVE BEEN DELETED FROM THE DEFINITION OF SPECULATIVE BUSINESS TRANSACTION AND HENCE THE FUTURE & OPTION TRADING LOSS CANNOT BE CONSIDERED AS SPECULATIVE LOSS BUT, IT IS A NORMAL BUSINESS LOSS. THEREFORE, IT IS ALLOWABLE SET OFF AGAINST GROSS TOTAL INCOME OF THE CURRENT ASSESSMENT YEAR'. THE ABOVE EXPLANATION OF THE ASSESSEE IS NOT ACCEPTED AS FROM A. Y. 2006 - 07, SECTION 43(5) HAS BEEN AMENDED BY INSERTING THE CLAUSE D , CLARIFY THAT F&O TRADING IS NOT IN THE NATURE OF SPECULA TION. THE AUDITOR OF THE ASSESSEE HAS ALSO REPORTED IN NOTE TO ACCOUNT 3(1/1) THAT FIRM IS CARRYING ON BUSINESS OF SHARE TRADING INCLUDING F&O TREATING AND FILING RETURN OF INCOME DECLARING F&O TRADING UNDER THE HEAD BUSINESS INCOME. IN VIEW OF THIS THE EA RLIER YEAR LOSSES ARE TREATED AS SPECULATION AND NOT ALLOWED TO SET OFF AGAINST THE CURRENT YEARS INCOME UNDER THE HEAD BUSINESS INCOME.' 10. BY THE IMPUGNED ORDER, THE CIT(A) ALLOWED ASSESSEES CLAIM AFTER HAVING THE FOLLOWING OBSERVATIONS : - 6.4 I HA VE CAREFULLY GONE THROUGH THE ASSESSMENT ORDER, THE SUBMISSIONS MADE ON BEHALF OF THE APPELLANT AND THE FACTS OF THE CASE. THE LEARNED AR OF THE APPELLANT HAS DRAWN MY ATTENTION TO THE FACT THAT IN APPELLANT'S OWN CASE, THE HON. ITAT, 'A' BENCH, MUMBAI FOR A.Y. 2003 - 04 VIDE THEIR ORDER NO. ITA NO.3085MUM/06 DATED 30.01.2009 HAS HELD THAT THE FUTURE & OPTION TRADING LOSSES ARE TO BE TREATED AS BUSINESS LOSS ONLY AND NOT AS SPECULATIVE LOSS. A COPY OF THE AFORESAID ORDER HAS BEEN PLACED ON RECORD. IN VIEW OF THE ORDER OF THE HON'BLE ITAT IN APPELLANT'S OWN CASE, THE AO IS DIRECTED TO TAKE NECESSARY ACTION WITH REGARD TO THE SETTING OFF OF CARRY FORWARD LOSS OF A.Y. 2003 - 04 AND A.Y. 2005 - 06. THIS GROUND OF APPEAL IS ALLOWED FOR STATISTICAL PURPOSE. 11. WE HAV E CONSIDERED RIVAL CONTENTIONS AND FOUND THAT THE CIT(A) HAS RESTORED THE MATTER BACK TO THE FILE OF AO WITH A DI RECTION TO DECIDE THE ISSUE AS PER THE ORDER OF THE ITAT IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2003 - 04 AND TO ALLOW THE NECESSARY CARR Y FORWARD LOSS ITA NO S . 2166&1684 /20 1 1 7 AS PER LAW IF THE ASSESSEE IS ENTITLED FOR THE SAME. WE DO NOT FIND ANY INFIRMITY IN THE DIRECTION SO GIVEN BY THE CIT(A). 1 2 . IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLOWED IN PART, WHEREAS APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 21 ST JANUARY . 201 5 . 21 ST JAN,201 5 SD/ - SD/ - ( ) ( VIJAY PAL RAO ) ( ) ( R.C.SHARMA ) / J UDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED 21 / 01/201 5 /PKM , PS COPY OF THE ORDER FORWARDED TO : / BY ORDER, ( ASSTT. REGISTRAR) / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A) , MUMBAI. 4. / CIT 5. / DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//