Ethio Plastics Pvt. Ltd., Baroda V. The Asstt. Commissioner of Income Tax, Circle-1(1)(2), Baroda

ITA 1854/AHD/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 8247 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 9 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-05-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 13-07-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SAURABH SINGH
• Keywords: Business income; Earning of tax free income; Initiation of penalty proceedings
• Section: 143(3); 14A; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH BEFORE: SHR I RAJPAL YADAV , JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ETHIO PLASTIC PVT. LTD. 61, KUNJ SOCIETY, ALKAPURI, BARODA - 390007 PAN: AAACE5487D (APPELLANT) VS THE ACIT, CIRCLE - 1(1)(2), BARODA (RESPONDENT) REVENUE BY : S H RI SAURABH SINGH , SR. D . R. ASSESSEE BY: MS. URVASHI SHODHAN , A.R. DATE OF HEARING : 09 - 04 - 2 018 DATE OF PRO NOUNCEMENT : 10 - 05 - 2 018 / ORDER P ER : AMARJIT SINGH, ACCOUNTANT MEMBER : - THIS ASSESSEE S APPEAL FOR A.Y. 2012 - 13 , ARIS ES FROM ORDER OF THE CIT(A) - 1, VADODARA DATED 26 - 05 - 2016 , IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: - 1. LD. CIT (A) ER RED IN LAW AND ON FACTS IN CONFIRMING DISALLOWANCE BY AO OF RS. 5, 57, 924/ - INVOKING PROVISIONS OF SECTION 14A R W RULE 8D OF THE ACT. LD. CIT (A) OUGHT TO HAVE DELETED DISALLOWANCE OF INTEREST AS THE APPELLANT HELD SHARES AS STOCK IN TRADE AND NOT AS AN INVESTMENT. 2. LD. CIT (A) ERRED IN LAW AND ON FACTS IN NOT APPRECIATING THE SUBMISSIONS THAT NO DISALLOWANCE DESERVES TO BE MADE U/S 14A OF THE ACT IN ABSENCE OF ANY EXEMPT INCOME CLAIMED BY THE APPELLANT. LD. CIT (A) OUGHT TO HAVE DELETED DISALLOWA NCE U/S 14A OF THE ACT AS HELD BY JURISDICTIONAL HIGH COURT IN CORRTECH ENERGY PVT. LTD. (372 ITR 97). I T A NO . 1854 / A HD/2 0 16 A SSESSMENT YEAR 2012 - 13 I.T.A NO. 1854 / AHD/2016 A.Y. 2012 - 13 PAGE NO ETHIO PLASTIC PVT. LTD. VS. ACIT 2 3. LD. CIT (A) FURTHER ERRED IN LAW AND ON FACTS IN FOLLOWING APPELLATE ORDER OF A Y 2010 - 11 FOR CONFIRMING DISALLOWANCE HOLDING THAT APPELLANT FAI LED TO SHOW THAT SHARES WERE HELD AS STOCK IN TRADE. LD. CIT (A) OUGHT TO HAVE DELETED DISALLOWANCE WHEN AUDITED ACCOUNTS FILED WITH RETURN OF INCOME CLEARLY CLASSIFIED SHARE HOLDING AS INVENTORY AND NOT AS AN INVESTMENT. 4. LD. CIT (A) ERRED IN LA W AND ON FACTS IN FOLLOWING APPELLATE ORDER OF EARLIER YEAR AND NOT DECISION OF HON'BLE ITAT IN APPELLANT'S OWN CASE FOR A Y 2008/09 ON IDENTICAL FACTS DELETING DISALLOWANCE MADE U/S 14A OF THE ACT. LD. CIT (A) OUGHT TO HAVE FOLLOWED BINDING DECISION OF TH E HON'BLE ITAT. 5. LEVY OF INTEREST U/S 234A, 234B, 234C AND 234D OF THE ACT IS UNJUSTIFIED. 6. INITIATION OF PENALTY PROCEEDINGS U/S 271 (1)(C) OF THE ACT IS UNJUSTIFIED. 3. THE FACTS IN BRIEF ARE THAT ON S CRUTINY IT WAS DISCERNED TO THE ASSESSING OFFICER THAT ASSESSEE HA D CLAIMED INTEREST ON HUGE INVESTMENT BUT NO DISALLOWANCE U/S. 14A OF THE ACT WAS MADE, THEREFORE, ASSESSING OFFICER HAS APPLIED PROVISION OF SECTION 14A R.W. RULE 8D OF THE IT RULE AND WORKED OUT RS. 5 , 57 , 924/ - AS DISA LLOWANCE U/S. 14A OF THE ACT. 4. AGGRIEVED ASSESSE FILED APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS UPHELD THE DISALLOWANCE ON THE GROUND THAT IN THE PRECEDING ASSESSMENT YEAR HIS PREDECESSOR HAS DISMISSED THE APPEAL OF THE ASSESSEE. 5. WE HAVE HEARS THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD CAREFULLY. WE HAVE PERUSED THE ORDER OF THE CO - ORDINATE BENCH OF THE ITAT ON THE IDENTICAL FACTS/ISSUE IN THE CASE OF THE ASSESSEE ITSELF FOR ASSESSMENT YEAR 2008 - 09 AND ASSESSMENT YEAR 20 10 - 11 VIDE ITA NO. 848/AHD/2002 AND ITA NO. 1031/AHD/2014 RESPECTIVELY. VIDE THE ABOVE CITED DECISION, THE IDENTICAL ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE. THE RELEVANT DECISION OF THE CO - ORDINATE BENCH FOR THE ASSESSMENT YEAR 2010 - 11 IS REPROD UCED AS UNDER: - 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORDS PLACED BEFORE US. SOLE ISSUE RAISED BY THE ASSESSEE IS AGAINST LEARNED CIT(A) ORDER SUSTAINING DISALLOWANCE U/S. 14A OF THE ACT AT RS. 17,50,855/ - . FROM PERUSAL OF THE DECISION OF CO - ORDINATE BENCH IN THE ASSESSEE S OWN CASE FOR ASSESSMENT YEAR 2008 - 09 IN ITA NO. 841/AHD/2012, WE OBSERVE THAT ASSESSEE IS CONSISTENTLY ENGAGED IN EXPORT OF GOODS AND TRADING IN SHARES AND SECURITY. AMOUNT INVESTED IN SHARES AND SECURITY IS SHOWN AS INVENTORY AND NOT INVESTMENT IN SHARES. DURING ASSESSMENT YEAR 2008 - 09 ALSO, ASSESSEE I.T.A NO. 1854 / AHD/2016 A.Y. 2012 - 13 PAGE NO ETHIO PLASTIC PVT. LTD. VS. ACIT 3 EARNED DIVIDEND INCOME OF RS. 59,79,502/ - AND DISALLOWANCE U/S. 14A WAS MADE AT RS. 36,99,760/ - . AS FAR AS YEAR UNDER APPEAL IS CONCERN I.E. ASSESSMENT YEAR 2010 - 11, AS SESSEE HAS EARNED DIVIDEND OF RS. 59,02,306/ - AND DISALLOWANCE U/S. 14A IS AT RS. 17,50,855/ - . WE THEREFORE FIND THAT THE FACTS FOR BOTH THE YEARS I.E. ASSESSMENT YEARS 2008 - 09 AND 2010 - 11 ARE SIMILAR. FURTHER WE OBSERVE THAT CO - ORDINATE BENCH DELETED THE DISALLOWANCE U/S. 14A OF THE ACT BY OBSERVING AS FOLLOWS: - 8. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD WE FIND THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF DEALING IN SHARES AND SECURITIES AND THERE IS NO DISPUTE ABOUT THE FACT THAT SHARES WE RE HELD BY THE ASSESSEE AS STOCK IN TRADE. THE INTENTION OF ASSESSEE WAS NOT TO EARN DIVIDEND INCOME AND THIS INCOME BEING INCIDENTAL TO BUSINESS OF SALE OF SHARES, NO NOTIONAL EXPENDITURE COULD BE DEDUCTED BY INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT. ON SIMILAR FACTS HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CCI LTD. VS. JT. CIT (SUPRA) HAS HELD AS UNDER: - 'WHEN NO EXPENDITURE IS INCURRED BY THE ASSESSEE IN EARNING THE DIVIDEND INCOME, NO NOTIONAL EXPENDITURE COULD BE DEDUCTED FROM THE SAID INCO ME. IT IS NOT THE CASE OF THE ASSESSEE RETAINING ANY SHARES SO AS TO HAVE THE BENEFIT OF DIVIDEND. 63 PER CENT OF THE SHARES, WHICH WERE PURCHASED, ARE SOLD AND THE INCOME DERIVED THERE FROM IS OFFERED TO TAX AS BUSINESS INCOME. THE REMAINING 37 PER CENT O F THE SHARES ARE RETAINED. IT HAS REMAINED UNSOLD WITH THE ASSESSEE. IT IS THOSE UNSOLD SHARES THAT HAVE YIELDED DIVIDEND, FOR WHICH, THE ASSESSEE HAS NOT INCURRED ANY N EXPENDITURE AT ALL. THOUGH THE DIVIDEND INCOME IS EXEMPTED FROM PAYMENT OF TAX, IF ANY EXPENDITURE IS INCURRED IN EARNING THE SAID INCOME, THE SAID EXPENDITURE ALSO CANNOT BE DEDUCTED. BUT IN THIS CASE, WHEN THE ASSESSEE HAS NOT RETAINED SHARES WITH THE INTENTION OF EARNING DIVIDEND INCOME AND THE DIVIDEND INCOME IS INCIDENTAL TO HIS BUSINE SS OF SALE OF SHARES, WHICH REMAINED UNSOLD BY THE ASSESSEE. IT CANNOT BE SAID THAT THE EXPENDITURE INCURRED IN ACQUIRING THE SHARES HAS TO BE APPORTIONED TO THE EXTENT OF DIVIDEND INCOME AND THAT SHOULD BE DISALLOWED FROM DEDUCTIONS. IN THAT VIEW OF THE M ATTER, THE APPROACH OF THE AUTHORITIES IS ; NOT IN CONFORMITY WITH THE STATUTORY PROVISIONS CONTAINED UNDER THE ACT.' AND IN THE DECISION OF THE ITAT PANE BENCH IN THE CASE OF APOORVA PATNI VS. ACIT (SUPRA) IT WAS HELD AS UNDER - 'EXPENDITURE INCURRED IN RE LATION TO INCOME NOT INDUDIBLE IN TOTAL INCOME - ASSESSMENT YEAR 2006 - 07 - ASSESSING OFFICER FOUND THAT ASSESSEE HAD EARNED EXEMPT DIVIDEND INCOME - ACCORDINGLY, BY INVOKING SECTION 14A, HE ATTRIBUTED CERTAIN EXPENDITURE BOTH IN RELATION TO DIVIDEND EARNED ON ACCOUNT OF SHARE TRADING BUSINESS AND ON SHARES KEPT UNDER PMS - COMMISSIONER (APPEALS) RETAINED EXPENDITURE ONLY IN RELATION TO DIVIDEND EARNED ON ACCOUNT OF SHARE TRADING BUS/NESS AND DELETED OTHER ONE - WHETHER WHEN ASSESSEE HAD NOT RETAINED SHARES WI TH INTENTION OF EARNING DIVIDEND INCOME BUT SUCH INCOME WAS INCIDENTAL TO BUSINESS OF SALE OF SHARES, NO NOTIONAL EXPENDITURE COULD BE DEDUCTED BY INVOKING SECTION 14A - HELD, YES - WHETHER, THEREFORE, ORDER OF COMMISSIONER (APPEALS) WAS TO BE SET ASIDE - HELD, YES [IN FAVOUR OF ASSESSEE].' 9. IN VIEW OF THE ABOVE, THE ADDITION MADE BY THE A.O. AND SUSTAINED BY ID, CIT(A) IN RESPECT OF DISALLOWANCE U/S 14A READ WITH RULE 8D IS HEREBY DELETED. 10. IN THE RESULT, ASSESSEE'S APPEAL IS ALLOWED. 7. F ROM GOING THROUGH THE ABOVE DECISION AND FURTHER REVENUE BEING UNABLE TO DIFFERENTIATE THE FACTS, WE IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE ARE OF THE I.T.A NO. 1854 / AHD/2016 A.Y. 2012 - 13 PAGE NO ETHIO PLASTIC PVT. LTD. VS. ACIT 4 VIEW THAT NO DISALLOWANCE WAS CALLED FOR U/S. 14A OF THE ACT AS THE ASSESSEE IS CONSISTENTLY INTO THE BUSINESS OF SHARE TRADING AND EARNING OF DIVIDEND INCOME WAS MERELY INCIDENTAL IN NATURE. WE THEREFORE DELETE THE IMPUGNED DISALLOWANCE U/S. 14A OF THE ACT AT RS. 17,55,855/ - . 8. AS REGARDS ADDITIONAL GROUND RAISED BY THE ASSESSEE SUBMITTING THAT LEARNED ASSESSING OFFICER ERRED IN LAW AND FACT IN ADDING DISALLOWANCE U/S. 14A OF THE ACT AT RS. 17,50,855/ - TO THE BOOK PROFITS FOR THE PURPOSES OF COMPUTING TAX U/S. 115JB OF THE ACT, WE FIND THAT WHILE ADJUDICATING THE FIRST ISSUE RAISED IN THE GROUN DS RAISED BY THE ASSESSEE RELATING TO DISALLOWANCE U/S. 14A OF THE ACT, WE HAVE ALLOWED THE GROUND IN FAVOR OF ASSESSEE BY FOLLOWING THE DECISION OF TRIBUNAL FOR ASSESSMENT YEAR 2008 - 09. AS WE HAVE ALREADY DELETED THE DISALLOWANCE, IT WOULD BE JUST ACADEMI C TO DEAL WITH THE ADDITIONAL GROUNDS RAISED BY THE ASSESSEE. WE ACCORDINGLY DISMISS THIS ADDITIONAL GROUNDS BEING INFRUCTUOUS RESPECTFULLY FOLLOWING THE DECISION OF THE CO - ORDINATE BENCH AS SUPRA, WE ARE NOT INCLINED WITH THE DECISION OF THE LD. CIT(A), THEREFORE, THE APPEAL OF THE ASSESSEE IS ALLOWED. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. 6. GROUND NO. 5 OF THE ASSESSEE REGARDING LEVY OF INTEREST U/S. 234A, 234B, 234C AND 234D IS OF GENERAL NATURE AND THE SAME IS DISMISSED AS THE INT EREST IS TO BE CHARGED MANDATORY AS PER LAW. GROUND NO. 6 OF THE ASSESSEE REGARDING INITIATION OF PENALTY U/S. 271(1)(C) IS PRE - MATURE AT THIS STAGE, THEREFORE, THE SAME IS DISMISSED. 7. IN THE COMBINED RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOW ED. ORDER PR ONOUNCED IN THE OPEN C OURT ON 10 - 05 - 201 8 SD/ - SD/ - ( RAJPAL YADAV ) ( AMARJIT SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD : DATED 10 /05 /2018 / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. I.T.A NO. 1854 / AHD/2016 A.Y. 2012 - 13 PAGE NO ETHIO PLASTIC PVT. LTD. VS. ACIT 5 BY ORDER/ , / ,