Mrs. Ruchi Amitkumar Patni, Pune V. Dy. Comm. of Income-tax, Pune

ITA 1722/PUN/2011

• Counselvise Citation: [2012] 120 COUNSELVISE.COM (IT) 0059 (ITAT-PUNE)
• Duration Of Justice: 11 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-12-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 30-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VINITA MENON
• Keywords: Business income; Question of law
• Section: 14A

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI R.S. PADVEKAR, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO.1721/PN/2011 (ASSESSMENT YEAR 2005-06) APOORVA ASHOKKUMAR PATNI, S.NO.1A, IRANI MARKET COMPOUND, YERAWADA, PUNE PAN NO. AGUPP 5918J .. APPELLANT VS. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-2, PMT BUILDING, SWARGATE, PUNE. .. RESPO NDENT ITA NO.1722/PN/2011 (ASSESSMENT YEAR 2005-06) RUCHI AMITKUMAR PATNI, S.NO.1A, IRANI MARKET COMPOUND, YERAWADA, PUNE PAN NO. AARPP 6091R .. APPELLANT VS. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-2, PMT BUILDING, SWARGATE, PUNE. .. RESPO NDENT ASSESSEE BY : SRI C.H. NANIWADEKAR DEPARTMENT BY : SMT. VINITA MENON DATE OF HEARING : 19-12-2012 DATE OF PRONOUNCEMENT : 26-12-2012 ORDER PER BENCH : THE ABOVE 2 APPEALS FILED BY THE RESPECTIVE ASSESSE S ARE DIRECTED AGAINST THE SEPARATE ORDERS DATED 30-11-2011 OF THE CIT(A)-II, PUNE RELATING TO ASSESSMENT YEAR 2005-06. SINCE IDENTICAL GROUNDS HAVE BEEN TA KEN BY THE RESPECTIVE ASSESSEE IN THESE APPEALS, THEREFORE, THESE WERE HEARD TOGET HER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER. ITA NO.1721/PN/2011 (APOORVA A. PATANI) : 2. THE ONLY EFFECTIVE GROUND RAISED BY THE ASSESSEE READS AS UNDER : IN CONFIRMING THE DISALLOWANCE OF RS.1,99,701/- U/ S.14A IN RESPECT OF DIVIDEND EARNED WHICH IS INCIDENTAL IN THE PROPRIETARY BUSINESS OF TRADING IN SHARES. 2 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE, AN INDIVIDUAL, IS ENGAGED IN THE BUSINESS OF TRADING IN SHARES AND DERIVATIVES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTICED FROM THE PROFIT AND LOSS ACCOUNT THAT THE ASSESSEE HAS NOT MADE ANY DISALLOWANCE U/S.14A EVEN THOUGH HE HA S EARNED TAX FREE DIVIDEND OF RS.6 LAKHS. APPLYING THE PROVISIONS OF SECTION 14A R.W. RULE 8D THE AO DISALLOWED AN AMOUNT OF RS.3,66,213/- BEING 0.5% OF THE AVERAGE INVESTMENT OF THE FUNDS DEPLOYED IN THE EARNING OF SUCH DIVIDEND INCOME. 4. IN APPEAL THE LEARNED CIT(A) NOTED THAT THE DISA LLOWANCE SO CALCULATED BY THE AO INCLUDES AN AMOUNT OF RS.1,66,512/- ON ACCOU NT OF PMS AND RS.1,99,701/- ON ACCOUNT OF INVESTMENT IN SHARES. HE OBSERVED TH AT PROVISIONS OF RULE 8D IS NOT APPLICABLE FOR A.Y. 2005-06. HOWEVER, THE AO ADOPT ED THE SAME FOR CALCULATING THE DISALLOWANCE. HE NOTED THAT THE ASSESSEE HAS N OT CLAIMED ANY EXPENDITURE ON PMS AND THEREFORE IN ABSENCE OF CLAIM OF ANY EXPEND ITURE THE AO CANNOT INVOKE THE PROVISIONS OF SECTION 14A ON EARNING ON ACCOUNT OF PMS. ACCORDINGLY, HE DELETED THE DISALLOWANCE OF RS.1,66,512/- ON ACCOUN T OF PMS. THE REVENUE IS NOT IN APPEAL FOR THIS RELIEF BY THE CIT(A). 5. SO FAR AS THE DISALLOWANCE ON ACCOUNT OF INVESTM ENT IN SHARES IS CONCERNED THE LEARNED CIT(A) FOLLOWING THE ORDER OF HIS PREDE CESSOR IN THE CASE OF THE ASSESSEE FOR A.Y. 2006-07 UPHELD THE DISALLOWANCE M ADE BY THE AO. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSESSEE IS IN AP PEAL BEFORE US. 6. THE LEARNED COUNSEL FOR THE ASSESSEE FILED A COP Y OF THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2006-07 VIDE ITA NO.239/PN/2011 ORDER DATED 21-06-2012 AND SUBMITTED THAT THE TRIBUNAL HAS DELETED THE DISALLOWANCE MADE BY THE AO U/S.14A AND UPHELD BY THE CIT(A). THEREFORE, FACTS BEING SAME, THE GROUND RAISED BY T HE ASSESSEE HAS TO BE ALLOWED. 3 7. THE LEARNED DR ON THE OTHER HAND WHILE SUPPORTIN G THE ORDER OF THE CIT(A) FAIRLY CONCEDED THAT THE ISSUE HAS BEEN DECIDED AGA INST THE REVENUE AND IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL. 8. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF THE AO AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE FIND THE TRIBUNAL IN ASSESSEES OWN C ASE VIDE ITA NO.239/PN/2011 ORDER DATED 21-06-2012 FOR A.Y. 2006-07 HAS DECIDED THE ISSUE AND DELETED THE DISALLOWANCE U/S.14A MADE BY THE AO AND UPHELD BY T HE CIT(A) BY HOLDING AS UNDER : 29. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS. IN THE CASE OF M/S CCI LTD. (SUPRA), THE ASSESSEE WAS, INTER ALIA, A DEALER IN SHARES AND SECURITIES AND HAD EARNED DIVIDEND INCOME ON SHARES OF CERTAIN COMPANIES. THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAD RAISED INTEREST BEARING LOANS TO PART- FINANCE THE SHARES AND IT HAD ALSO INCURRED BROKERAGE FOR ARRANGING SUCH LOANS. THE AS SESSING OFFICER HELD THAT SUCH EXPENDITURE WAS DIRECTLY ATTRIBUTABLE TO THE EARNIN G OF DIVIDEND INCOME AND INVOKED SECTION 14A OF THE ACT READ WITH RULE 8D OF THE INC OME-TAX RULES, 1962, TO DISALLOW THE EXPENDITURE THE HONBLE HIGH COURT WAS SEIZED OF TH E FOLLOWING QUESTION IN THE ABOVE BACKGROUND: WHETHER THE PROVISIONS OF SECTION 14A OF THE ACT A RE APPLICABLE TO THE EXPENSES INCURRED BY THE ASSESSEE IN THE COURSE OF ITS BUSINESS MEREL Y BECAUSE THE ASSESSEE IS ALSO HAVING DIVIDEND INCOME WHEN THERE WAS NO MATERIAL BROUGHT TO SHOW THAT THE ASSESSEE HAD INCURRED EXPENDITURE FOR EARNING DIVIDEND INCOME WH ICH IS EXEMPTED FROM TAXATION? FOLLOWING DISCUSSION IN THE ORDER OF THE HONBLE HI GH COURT IS WORTHY OF NOTICE: 5. WHEN NO EXPENDITURE IS INCURRED BY THE ASSESSEE IN EARNING THE DIVIDEND INCOME, NO NOTIONAL EXPENDITURE COULD BE DEDUCTED FROM THE SAI D INCOME. IT IS NOT THE CASE OF THE ASSESSEE RETAINING ANY SHARES SO AS TO HAVE THE BEN EFIT OF DIVIDEND. 63% OF THE SHARES, WHICH WERE PURCHASED, ARE SOLD AND THE INCOME DERIV ED THEREFROM IS OFFERED TO TAX AS BUSINESS INCOME. THE REMAINING 37% OF THE SHARES AR E RETAINED. IT HAS REMAINED UNSOLD WITH THE ASSESSEE. IT IS THOSE UNSOLD SHARES HAVE Y IELDED DIVIDEND, FOR WHICH, THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE AT ALL. THOUGH THE DIVIDEND INCOME IS EXEMPTED FROM PAYMENT OF TAX, IF ANY EXPENDITURE IS INCURRED IN E ARNING THE SAID INCOME, THE SAID EXPENDITURE ALSO CANNOT BE DEDUCTED. BUT IN THIS CA SE, WHEN THE ASSESSEE HAS NOT RETAINED SHARES WITH THE INTENTION OF EARNING DIVID END INCOME AND THE DIVIDEND INCOME IS INCIDENTAL TO HIS BUSINESS OF SALE OF SHARES, WHICH REMAINED UNSOLD BY THE ASSESSEE IT CANNOT BE SAID THAT THE EXPENDITURE INCURRED IN ACQ UIRING THE SHARES HAS TO BE APPORTIONED TO THE EXTENT OF DIVIDEND INCOME AND TH AT SHOULD BE DISALLOWED FROM DEDUCTIONS. IN THAT VIEW OF THE MATTER, THE APPROAC H OF THE AUTHORITIES IS NOT IN CONFORMITY WITH THE STATUTORY PROVISIONS CONTAINED UNDER THE ACT. THEREFORE, THE IMPUGNED ORDERS ARE NOT SUSTAINABLE AND REQUIRE TO BE SET ASIDE. ACCORDINGLY, WE PASS THE FOLLOWING: ORDER I) APPEAL IS ALLOWED. II) IMPUGNED ORDERS ARE HEREBY SET ASIDE. 4 III) THE SUBSTANTIAL QUESTION OF LAW IS ANSWERED IN FAVO UR OF THE ASSESSEE AND AGAINST THE REVENUE. IN VIEW OF THE AFORESAID JUDGMENT, IT IS CLEAR THAT WHERE NO EXPENDITURE IS CANVASSED TO HAVE BEEN INCURRED BY THE ASSESSEE IN EARNING DIVID END INCOME, NO NOTIONAL EXPENDITURE CAN BE DEDUCTED BY INVOKING SECTION 14A OF THE ACT. FURTHER AS PER THE HONBLE HIGH COURT, IN A CASE WHEN ASSESSEE HAS NOT RETAINED SHA RES WITH THE INTENTION OF EARNING DIVIDEND INCOME AND DIVIDEND INCOME IS INCIDENTAL T O THE BUSINESS OF SALE OF SHARES, IT CANNOT BE SAID THAT THE EXPENDITURE INCURRED IN ACQ UIRING THE SHARES HAS TO BE APPORTIONED TO THE EXTENT OF DIVIDEND INCOME SO AS TO BE DISALLOWED. FOLLOWING THE AFORESAID JUDGMENT, WE SET ASIDE THE ORDER OF THE C OMMISSIONER OF INCOME-TAX (APPEALS) AND DIRECT THE ASSESSING OFFICER TO ALLOW APPROPRIA TE RELIEF TO THE ASSESSEE ON THIS COUNT. THUS, ON THIS GROUND THE ASSESSEE SUCCEEDS. 8.1 SINCE THE FACTS OF THE CASE OF THE ASSESSEE FOR THE IMPUGNED YEAR ARE IDENTICAL TO THAT OF THE FACTS IN ASSESSMENT YEAR 2006-07 AND SINCE THE CIT(A) WHILE SUSTAINING THE ADDITION MADE BY THE AO HAS FOLLOWED THE ORDER OF HIS PREDECESSOR FOR A.Y. 2006-07, THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2006-07 WE SET-ASIDE T HE ORDER OF THE CIT(A) ON THIS ISSUE AND DIRECT THE AO TO DELETE THE ADDITION MADE BY HIM. THE GROUND RAISED BY THE ASSESSEE IS ACCORDINGLY ALLOWED. ITA NO.1722/PN/2011 (MS. RUCHI AMITKUMAR PATNI) : 9. THE ONLY EFFECTIVE GROUND RAISED BY THE ASSESSEE READS AS UNDER : IN CONFIRMING THE DISALLOWANCE OF RS.1,09,407/- U/S .14A IN RESPECT OF DIVIDEND EARNED WHICH IS INCIDENTAL IN THE PROPRIETARY BUSINESS OF TRADING IN SHARES. 10. AFTER HEARING BOTH THE SIDES, WE FIND THE GROUN D RAISED BY THE ASSESSEE IS IDENTICAL TO THE GROUND RAISED IN ITA NO.1721/PN/20 11. WE HAVE ALREADY DECIDED THE ISSUE AND THE GROUND RAISED BY THE ASSESSEE HAS BEEN ALLOWED. FOLLOWING THE SAME RATIO, THE GROUND RAISED BY THE ASSESSEE IS AL LOWED. 11. IN THE RESULT, BOTH THE APPEALS FILED BY THE RE SPECTIVE ASSESSEES ARE ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS THE 26 TH DAY OF DECEMBER, 2012. SD/- SD/- (R.S. PADVEKAR) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE DATED: THE 26 TH DECEMBER 2012 SATISH 5 COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. CCIT, PUNE 4. THE D.R, B PUNE BENCH 5. GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY ITAT, PUNE BENCHES, PUNE