VALUELINE EQUITIES P.LTD ( FORMERLY KNOWN AS M.S, SB & T SECURITES P.LTD), MUMBAI V. ACIT CIR 4(2), MUMBAI

ITA 1733/MUM/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3539 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-05-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Assessment Year: 2008-2009
• Appeal Filed On: 13-03-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: O P MEENA
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES F MUMBAI . . , / BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER /AND . , SHRI D.KARUNAKAR RAO, ACCOUNTANT MEMBER . / ITA NO.1733/MUM/2012 ! ! ! ! ' ' ' ' / ASSESSMENT YEAR 2008-09 M/S.VALUELINE EQUITIES PVT. LTD., (FORMERLY KNOWN AS M/S. SB & T SECURITIES PVT. LTD.) 40,ONLOOKER BUILDING, SIR P.M.ROAD, FORT, MUMBAI 01. ! ! ! ! / VS. THE ACIT, CIRCLE 4(2), AAYKAR BHAVAN, MK ROAD, MUMBAI - 20. # ./ $% ./ PAN/GIR NO. : AAACS 6170Q ( #& / APPELLANT ) .. ( '(#& / RESPONDENT ) #& ) / APPELLANT BY: SHRI JITENDRA JAIN '(#& * ) / RESPONDENT BY : SHRI O.P.MEENA ! * + / DATE OF HEARING : 28/05/2013 ,-' * + / DATE OF PRONOUNCEMENT : 28/05/2013 . / O R D E R PER I.P.BANSAL, J.M: THIS IS AN APPEAL FILED BY THE ASSESSEE. IT IS DIRECTED AGAINST THE ORDER PASSED BY LD. CIT(A)-9 MUMBAI DATED 07/12/2011 FOR ASSESSMENT YEAR 2008- 09. THE GROUNDS OF APPEAL READ AS UNDER: . / ITA NO.6098/MUM/2011 ! ! ! ! ' ' ' ' / ASSESSMENT YEAR 2004-05 2 THE COMMISSIONER OF INCOME TAX(APPEALS)-9, MUMBAI [HEREINAFTER REFERRED AS CIT(A)] ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 4,49,211/- U/S.14A OF THE I.T. ACT R.W.RULE 8D OF THE I.T. RULES. YOUR APPELLANT SUBMITS THAT IT HAS NOT INCURRED ANY EXPENDITURE TO EARN DIVIDEND INCOME, HENCE THE ACIT SHALL BE DIRECTED TO DELETE DISALLOWANCE MADE U/S. 14A OF THE I.T.ACT. (B) IN THE ALTERNATIVE & WITHOUT PREJUDICE TO ABOV E GROUND, DIVIDEND EARNED BY APPELLANT IS ONLY RS.2,001/- AND HENCE DISALLOWANCE SHALL BE RESTRICTED TO THE EXTENT OF DIVIDEND RECEIVED. 2. THE ASSESSEE HAS EARNED TAX FREE DIVIDEND INCOM E OF RS.2001/-.APPLYING PROVISIONS OF SECTION 14A INCOME TAX ACT, 1961 (THE ACT) R.W. RULE 8D. THE A.O HAS COMPUTED THE DISALLOWANCE AT RS.4,49,211/-. LD. CIT(A) SUSTAINED THE DISALLOWANCE. THE ASSESSEE IS AGGRIEVED, HENCE, HA S FILED AFOREMENTIONED APPEAL. 3. IT IS THE CASE OF LD. A.R THAT A DETAILED REPLY WAS SUBMITTED TO THE AO TO CONTEND THAT ASSESSEE DID NOT INCUR ANY EXPENDITURE FOR EARNING THE DIVIDEND INCOME, HENCE, PROVISIONS OF SECTION 14A ARE NOT A PPLICABLE. HE IN THIS REGARD REFERRED TO THE NOTE ON DISALLOWANCE UNDER SECTION 14A SUBMITTED TO THE AO, COPY OF WHICH IS FILED AT PAGES 28 TO 29 OF THE PAP ER BOOK. THE SAID NOTE IS REPRODUCED BELOW: NOTE ON DISALLOWANCE U/S 14A OF THE I.T ACT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE CO MPANY HAS RECEIVED DIVIDEND INCOME OF RS.2,001/- AND THE SAME HAS BEEN CLAIMED AS EXEMPT U /S 10(34) OF THE I .T ACT AND NO DISALLOWANCE U/S 14 A OF THE I. T. ACT HAS BEEN WORKE D OUT WHILE CALCULATING THE TOTAL INCOME. WITH REFERENCE TO PROPOSED DISALLOWANCE U/S 1 4 A O F THE I.T. ACT R.W. RULE 8 D, WE SUBMIT THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF SHARE BROKING, INVESTMENT IN SHARES AND TRADING IN DERIVATIVES. THE ASSESSEE HAS BORROWED I NTEREST BEARING FUND OF RS. 1 8,00,000/- FROM N.K. INDUSTRIES IN F. Y. 2003- 04 TO CARRY OUT ITS BROKING BUSINESS. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS PAID INTEREST OF RS. 2,70,738/- ON THE ABOVE LOAN OUTSTANDING AS ON 31.03.2008. SINCE THE BORROWED FUND HAS BEEN UTI LIZED FOR EARNING THE TAXABLE INCOME THE SAME HAS BEEN CLAIMED AS DEDUCTIBLE BUSINESS EXPEND ITURE. IT IS ALSO EVIDENT FROM THE BALANCE SHEET THAT THE ASSESSEE HAS MADE INVESTMENT IN SHAR ES OF RS 6.73 CRORES (INCLUDING RS.1 .70 CRORES IN SUBSIDIARY COMPANY M/S SYSTEMATIK FINVEST PVT LTD) OUT OF ITS CAPITAL & INTERNAL ACCRUAL, DETAILS OF WHICH ARE AS UNDER :- . / ITA NO.6098/MUM/2011 ! ! ! ! ' ' ' ' / ASSESSMENT YEAR 2004-05 3 PARTICULARS AS ON 31 MAR 08 AS ON 31 MAR 07 NET WORTH (SHARE CAPITAL + RESERVE & SURPLUS)(A) 7, 22,22,922 6,56,37,410 LESS: INVESTMENTS 1) IN SUBSIDIARY COMPANY 1,70,00,000 1, 70,00,000 2) IN LISTED COMPANIES 28,06,223 27,74,603 3) IN UNLISTED COMPANIES (CLOSELY HELD) 4,75.23,000 3,83,30,500 (B) 6,73,29,223 5,81,05,103 EXCESS OF NET WORTH OVER INVESTMENTS (A)- (B) 48,93,699 75,32 ,307 ========== =========== FROM THE ABOVE IT IS CLEARLY EVIDENT THAT THE INVES TMENT WERE MADE BY THE ASSESSEE COMPANY OUT OF ITS OWN FUND (I.E. NETWORTH OF THE ASSESSEE COMP ANY). IN SUPPORT OF THE ABOVE, WE RELY ON THE JUDGMENT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD. F313 ITR 340(BOM) WHEREIN THE HONBLE BOMBAY HIGH CO URT HELD THAT IF INTEREST FREE FUNDS ARE AVAILABLE TO THE ASSESSEE SUFFICIENT TO MEET IT S I NVESTMENTS AND AT THE SAME TIME, THE ASSESSEE HAS RAISED A LOAN, IT CAN BE PRESUMED THAT INVESTME NTS WERE MADE FROM ITS INTEREST FREE FUNDS AVAILABLE. ATTENTION IS ALSO INVITED TO COMMISSIONER OF INCOME TAX - II VS M/S. HERO CYCLES LTD 1323 ITR 518J AND COMMISSIONER OF INCOME TAX - II VS M/S. WI NSOME TEXTILE INDUSTRIES LIMITED WHEREIN THE HONBLE PUNLAB & HARYANA HIGH COURT HELD THAT MERELY BECAUSE THE ASSESSEE HAS INCURRED INTEREST EXPENDITURE ON FUNDS BORROWED, IT WOULD NO T IPSO -FACTO INVITE THE DISALLOWANCE UNDER SECTION 1 4 A OF THE I. T. ACT UNLESS THERE IS EVIDEN CE TO SHOW THAT SUCH INTEREST BEARING FUNDS HAVE BEEN INVESTED IN THE INVESTMENT WHICH HAVE GEN ERATED THE EXEMPT INCOME. THE ABOVE TWO JUDGEMENTS HAS BEEN FOLLOWED AND AFFIRMED BY THE HO NBLE ITAT OF MUMBAI & DELHI IN THE CASE OF M/S. GODREJ AGROVET LTD [ITA NO. 1692 /M/09 & MINDA INVESTMENT LIMITED [ITA NO. 4046/DEL/2009] IN VIEW OF THE ABOVE FACT AND RELIED UPON THE JUDGE MENT / DECISION NO DISALLOWANCE SHOULD BE CALLED FOR UNDER SECTION 1 4A OF THE ACT. WITHOUT PREJUDICE TO THE ASSESSEE, WE ARE ENCLOSING HEREWITH WORKING OF DISALLOWANCE U/S 14 A OF THE IT ACT R.W. RULE 8 D. 3.1 HE FURTHER SUBMITTED THAT SIMILAR SUBMISSIONS WERE MADE BEFORE LD. CIT(A) BUT NEITHER A.O NOR LD. CIT(A) HAS APPLIED MIND UPON THOSE SUBMISSIONS. LD. A.R ALSO REFERRED TO THE OBSERVAT IONS OF THEIR LORDSHIPS IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DCIT (328 ITR 81), WHERE AT PAGE 120 OF THE REPORT THEIR LORDSHIPS HAVE OBSERVED THA T THE APPLICATION OF PRESCRIBED METHOD ARISES IN A SITUATION WHERE THE C LAIM MADE BY THE ASSESSEE IN RESPECT OF EXPENDITURE WHICH IS RELATABLE TO THE EARNING OF INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE AC T FOUND TO BE INCORRECT. HE SUBMITTED THAT BEFORE MAKING DISALLOWANCE THE AO H AS TO RECORD A SPECIFIC . / ITA NO.6098/MUM/2011 ! ! ! ! ' ' ' ' / ASSESSMENT YEAR 2004-05 4 FINDING THAT THE CLAIM OF THE ASSESSEE THAT NO EXPE NDITURE HAS BEEN INCURRED BY THE ASSESSEE TO EARN DIVIDEND INCOME HAS TO BE FOU ND TO BE INCORRECT. HE SUBMITTED THAT NO SUCH FINDING HAS BEEN RECORDED BY A.O DESPITE THE FACT THAT IT WAS SUBMITTED TO HIM THAT NO SUCH EXPENDITURE H AS BEEN INCURRED ON EARNING THE DIVIDEND INCOME. HE SUBMITTED THAT THE MATTER MAY BE RESTORED BACK TO THE FILE OF AO TO PASS A SPEAKING ORDER ON THOSE SUBMISSIONS OF THE ASSESSEE AND THEREAFTER RE-ADJUDICATE THE ISSUE RE GARDING DISALLOWANCE TO BE MADE UNDER SECTION 14A OF THE ACT. 4. ON THE OTHER HAND, LD. DR RELYING UPON THE ORDER S OF A.O AND LD. CIT(A) SUBMITTED THAT THE DISALLOWANCE HAS RIGHTLY BEEN IN ITIATED UNDER THE PROVISIONS OF SECTION 14A R.W.RULE 8D. 5. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS IN THE LIGHT OF MATERIAL PLACED BEFORE US. ACCORDING TO THE PROVIS IONS OF SECTION 14A(2) THE AO HAS TO FIRST SATISFY HIMSELF REGARDING THE CORRECTN ESS OF THE CLAIM OF THE ASSESSEE HAVING REGARD TO THE ACCOUNTS OF THE ASSES SEE AND SUCH SATISFACTION OF THE AO IS REQUIRED TO BE OBJECTIVELY ARRIVED AT ON THE BASIS OF THOSE ACCOUNTS AND AFTER CONSIDERING ALL RELEVANT FACTS AND CIRCUM STANCES. SUCH INTERPRETATION OF THE PROVISION IS SUPPORTED BY THE AFOREMENTIONED DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ & B OYCE MFG. CO. LTD. VS. DCIT(SUPRA). THE SUBMISSIONS MADE BY ASSESSEE HAV E NOT BEEN CONSIDERED BY THE AO AND IT HAS NOT BEEN SPECIFICALLY RECORDED BY HIM THAT THE CLAIM OF THE ASSESSEE THAT NO EXPENDITURE HAS BEEN INCURRED TO E ARN DIVIDEND INCOME IS INCORRECT. IN THIS VIEW OF THE SITUATION, WE CONSI DER IT JUST AND PROPER TO RESTORE THIS ISSUE TO THE FILE OF AO WITH A DIRECTION TO RE- ADJUDICATE THE ISSUE AS PER PROVISIONS OF LAW AS H AVE BEEN EXPLAINED IN THE . / ITA NO.6098/MUM/2011 ! ! ! ! ' ' ' ' / ASSESSMENT YEAR 2004-05 5 DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN T HE CASE OF M/S. GODREJ & BOYCE MFG. CO. LTD. VS. DCIT(SUPRA) AFTER GIVING TH E ASSESSEE A REASONABLE OPPORTUNITY OF HEARING. WE DIRECT ACCORDINGLY. 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS CONSID ERED TO BE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 28/05/2013 . * ,-' / 0!1 28/05/2013 - * 2 3 SD/- SD/- ( . / D.KARUNAKAR RAO ) ( . . / I.P. BANSAL ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; 0! DATED 28/05/2013 . . . . * ** * '+45 '+45 '+45 '+45 65'+ 65'+ 65'+ 65'+ / COPY OF THE ORDER FORWARDED TO : 1. #& / THE APPELLANT 2. '(#& / THE RESPONDENT. 3. 7 ( ) / THE CIT(A)- 4. 7 / CIT 5. 582 '+! , , / DR, ITAT, MUMBAI 6. 2 9 / GUARD FILE. .! .! .! .! / BY ORDER, (5+ '+ //TRUE COPY// : :: : / ; ; ; ; $ $ $ $ (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI . ! . ./ VM , SR. PS