INFOLINK SOLUTIONS P. LTD, MUMBAI V. DCIT 1(2), MUMBAI

ITA 1685/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83651 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 5 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 01-07-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 01-03-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Speculation loss
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH I, MUMBAI BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND DR. S.T.M. PAVALAN, JUDICIAL MEMBER ITA NO. 1685/MUM/2011 ASSESSMENT YEAR: 2007-08 M/S. INFOLINK SOLUTIONS PVT. LTD. 67/2900, GANDHINAGAR JALKIRAN CHS LTD. GANDHINAGAR, BANDRA (E) MUMBAI 400 051 PAN: AAACI 9120 N VS. DCIT-1(2) MUMBAI (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI K. SHIVRAM & RAHUL HAKANI REVENUE BY : SHRI SUNIL AGRAWAL DATE OF HEARING : 01.07.2014 DATE OF PRONOUNCEMENT : 28.08.2014 O R D E R PER DR. S.T.M. PAVALAN, JM: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF THE LD.CIT(A)-2, MUMBAI DATED 06.02.2010 FOR THE ASSESS MENT YEAR 2007-08. 2. IN GROUND NO. 1, THE ASSESSEE HAS AGITATED THE D ECISION OF THE LD.CIT(A) CONFIRMING THE DISALLOWANCE OF RS.1,12,647/- MADE B Y THE AO U/S 14A OF THE INCOME-TAX ACT READ WITH RULE 8D OF THE INCOME-TAX RULES. 2.1 BRIEFLY STATED, DURING THE YEAR UNDER CONSIDERA TION, THE ASSESSEE HAD EARNED A DIVIDEND INCOME OF RS.4,284/- AND CLAIMED THE SAME AS EXEMPT INCOME AND NO EXPENSE WAS ASSIGNED TO SUCH EXEMPT INCOME. IN THE ASSESSMENT FRAMED, THE AO OBSERVED THAT THE INVESTMENT AS ON 01.04.2006 WAS R S.78,45,995/- AND THE ASSESSEE HAD SHARE CAPITAL AND RESERVE OF RS.21.99 LAKHS ONLY, THE ASSESSEE HAD LOAN FUNDS OF RS.2.73 CRORES WHICH ACCORDING TO THE AO CLEARLY SHOWED THAT BORROWED FUNDS WERE UTILIZED IN ACQUISITION OF SHAR ES. THEREFORE, THE AO HELD THAT THE ASSESSEE HAD INCURRED DIRECT AND INDIRECT EXPEN SES IN EARNING THE DIVIDEND ITA NO. 1685/MUM/2011 M/S. INFOLINK SOLUTIONS PVT. LTD. ASSESSMENT YEAR: 2007-08 2 INCOME. ACCORDINGLY, THE AO APPLIED RULE 8D AND THE REBY DISALLOWED THE IMPUGNED EXPENSES OF RS.1,12,647/-. ON APPEAL, THE LD.CIT(A) UPHELD THE ACTION OF THE AO. AGGRIEVED BY THE IMPUGNED DECISION, THE ASSESSEE HA S RAISED THIS GROUND IN THE APPEAL BEFORE US. 2.2 HAVING HEARD BOTH THE SIDES AND PERUSED THE MAT ERIAL ON RECORD, IT IS A FACT THAT THE RELEVANT ASSESSMENT YEAR 2007-08 UNDER CON SIDERATION IS OUTSIDE THE SCOPE OF PROVISIONS OF RULE 8D. THE SAID PROVISIONS CANNO T BE TREATED AS APPLICABLE TO THE A.Y.2007-08 UNDER CONSIDERATION INDIRECTLY WHEN THE SAME IS PRECLUDED BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DCIT, [(2010) 328 ITR 81(BOM)] . ALSO, THE HON'BLE BOMBAY HIGH COURT, IN THE CASE OF CIT VS. M/S. GODREJ AGROVET LTD VIDE INCOME TAX APPEAL NO. 934 OF 2011, DATED 8.1.2013, HAS HELD THAT PERCENTAGE OF THE EXEMPT IN COME CAN CONSTITUTE A REASONABLE ESTIMATE FOR MAKING THE DISALLOWANCE IN THE YEARS EARLIER TO THE ASSESSMENT YEAR 2008-09. THE RELEVANT PORTION OF TH E SAID JUDGMENT OF THE BOMBAY HIGH COURT (SUPRA) READS AS UNDER: 'SO FAR AS QUESTION (B) IS CONCERNED, THE TRIBUNAL IN ITS IMPUGNED ORDER DATED 17.9.2010 WHILE APPLYING THE DECISION OF THIS COURT IN THE MATTER OF GODREJ (SUPRA) HAS DISALLOWED THE EXPENDITURE ON LY TO THE EXTENT OF 2% OF THE TOTAL EXEMPT INCOME EARNED BY THE RESPOND ENT-ASSESSEE ON THE BASIS ITS ORDER DATED 27.2.2009 FOR THE ASSESSM ENT YEAR 2002-2003 AND ORDER DATED 10.9.2009 FOR THE ASSESSMENT YEARS 2003-2004 AND 2004-2005 WHEREIN DISALLOWANCE WAS RESTRICTED TO 2% OF THE EXEMPT INCOME. FURTHER; THE TRIBUNAL HAS REMANDED THE MATT ER TO THE AO TO VERIFY THE DISALLOWANCE CLAIMED AND RESTRICT THE DI SALLOWANCE ONLY TO THE EXTENT TO 2% OF THE TOTAL EXEMPT INCOME. WE FIND NO FAULT WITH THE ORDER OF THE TRIBUNAL. ' CONSIDERING THE SAID DECISION, WE DIRECT THE AO TO QUANTIFY THE DISALLOWANCE IN THE LIGHT OF THE AFORESAID JUDGMENTS OF THE HON'BLE BOM BAY HIGH COURT. ACCORDINGLY, THE ISSUE RAISED IN GROUNDS NO.1 TO 3 STANDS PARTLY ALL OWED. 3. IN GROUNDS NO. 2 AND 3, THE ASSESSEE HAS AGITATE D THE DECISION OF THE LD.CIT(A) IN HOLDING THE LOSS OF RS.29,73,363/- FRO M SALE OF SHARES ASSESSABLE AS INCOME FROM BUSINESS ACTIVITY. ITA NO. 1685/MUM/2011 M/S. INFOLINK SOLUTIONS PVT. LTD. ASSESSMENT YEAR: 2007-08 3 3.1 THE RELEVANT FACTS ARE THAT DURING THE YEAR UND ER CONSIDERATION, THE ASSESSEE HAD A LOSS OF RS.1.03 CRORES IN FUTURE AND OPTIONS TRANSACTIONS AND THE ASSESSEE HAD DISCLOSED RS.29,73,363/- AS LOSS ON SALE OF SHARES WHICH HAD BEEN CLAIMED AS A SHORT TERM CAPITAL LOSS. ACCORDING TO THE AO, THE SAID TR ANSACTIONS IN SHARES HAD THE CHARACTERISTICS OF TRADING AND NOT INVESTMENTS. ACC ORDINGLY, THE AO TREATED THE SAID LOSS AS SPECULATIVE LOSS AND THEREBY HELD NOT ALLOW ED TO ADJUST THE SAME AGAINST ANY OTHER INCOME BUT ONLY BE ALLOWED TO BE CARRIED FORW ARD AND TO SET OFF AGAINST SPECULATIVE INCOME IN THE NEXT YEAR. ON APPEAL, THE LD.CIT(A) UPHELD THE DECISION OF THE AO TREATING THE LOSS ON SALE OF SHARES AS A BUS INESS LOSS AND FURTHER UPHELD THE DECISION OF THE AO THAT THE LOSS ON SALE OF SHARES WAS TO BE HELD AS SPECULATION LOSS NOT ALLOWED TO BE SET OFF AGAINST ANY OTHER INCOME. AGGRIEVED BY THE IMPUGNED DECISION, THE ASSESSEE HAS RAISED THESE GROUND IN A PPEAL BEFORE US. 3.2 HAVING HEARD BOTH THE SIDES AND PERUSED THE MAT ERIAL ON RECORD, IT IS NOTED THAT THE ASSESSEES MAIN BUSINESS IS NOT DEALING IN SHARES AND DURING THE RELEVANT ASSESSMENT YEAR, THE ASSESSEE HAS DEALT WITH ONLY T HREE SCRIPS, NAMELY GTL, CREST ANIMATION AND RCVL. THE TOTAL NUMBERS OF SALE TRANS ACTIONS ARE ONLY 13 OUT OF 3 SCRIPS, TWO SCRIPS HAVE BEEN ACCEPTED AS INVESTMENT IN EARLIER YEAR. AS FAR AS GTL IS CONCERNED, PRICE OF THE SHARES INCREASED BY MORE TH AN RS.10 IN ONE DAY AND HENCE THE ASSESSEE HAS SOLD THE SAME IMMEDIATELY. HOWEVER , LATER ON THE PRICE OF THE SHARE KEPT ON DECLINING, THE ASSESSEE HELD SOME SHA RES FOR MORE THAN 30 DAYS. AS SHARE PRICES KEPT ON FALLING, THE ASSESSEE HELD ALL THE SHARES. IN THIS CONNECTION, WE ARE INCLINED TO ACCEPT THE CONTENTION OF THE ASSESS EE THAT ONLY PERIOD OF HOLDING CANNOT BE THE CRITERIA AND THE ENTIRE ACTIVITY IS T O BE SEEN AS A WHOLE. MOREOVER, IT IS PERTINENT TO MENTIONED THAT THE SHARES ARE HELD AS INVESTMENT BY THE ASSESSEE AND EXPLANATION TO SECTION 73 CANNOT INVOKED AND GAINS/ LOSSES HAVE TO BE TREATED AS CAPITAL GAIN/LOSSES. THE SAID PROPOSITION IS SUPPOR TED BY VARIOUS DECISION IN THE CASES OF STERLITE INDUSTRIES (INDIA) LTD. VS. ACIT 2006 (6SO T 497) (MUM) , KRISHNA LAXHMI MULTI TRADE PVT. LTD. VS. ACIT (2011) 130 ITD 584 ( AHM) . IT IS ALSO RELEVANT TO STATE THAT IN THE A.Y. 2008-09, IN THE ASSESSMENT COMPLET ED U/S 143(3) READ WITH 153(C), THE AO HAS ALLOWED SET OFF OF THE LOSS AS SHORT TER M CAPITAL LOSS. IN VIEW OF THAT MATTER, WE ARE OF THE CONSIDERED VIEW THAT THE AUTH ORITIES BELOW ARE NOT JUSTIFIED IN ITA NO. 1685/MUM/2011 M/S. INFOLINK SOLUTIONS PVT. LTD. ASSESSMENT YEAR: 2007-08 4 TREATING THE IMPUGNED LOSS AS SPECULATION LOSSES. T HUS, GROUND NO 2 & 3 ARE ALLOWED. 4. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS TREATED AS PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 28 TH DAY OF AUGUST, 2014. SD/- SD/- (N.K. BILLAIYA) (DR. S.T.M. PAVALAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 28.08.2014 *SRIVASTAVA COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR I BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.