ACIT, New Delhi V. M/s. Consolidated Securities Ltd., New Delhi

ITA 2165/DEL/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 82210 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-12-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 18-12-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 07-05-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PARWINDER KAUR
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B NEW DELHI BEFORE SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER AND SHRI A.T. VARKEY : JUDICIAL MEMBER ITA NO. 2165/DEL/2012 A.Y. 2007-O8 ACIT, CIRCLE 3(1), VS. CONSOLIDATED SECURITIES LTD., NEW DELHI. 8/19, 3 RD FLOOR, WEA PUSA LANE, KAROL BAGH, NEW DELHI. PAN: AAACC 0122 C ( APPELLANT ) ( RESPONDENT ) APPELLANT BY : SMT. PARWINDER KAUR SR. DR RESPONDENT BY : SHRI ANIL SHARMA ADV. DATE OF HEARING : 18-12-2014 DATE OF ORDER : _____-12-2014. O R D E R PER S.V. MEHROTRA, A.M:- THIS APPEAL, PREFERRED BY THE DEPARTMENT, IS DIR ECTED AGAINST THE ORDER DATED 03-02-2012, PASSED BY THE CIT(APPEALS) -VI, NEW DELHI IN APPEAL NO. 262/09-10 FOR A.Y. 2007-08. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY, IN THE RELEVANT ASSESSMENT YEAR, WAS ENGAGED IN THE BUSINESS OF IN VESTMENT AND TRADING OF SHARES/ WARRANT/ DEBENTURES. IT HAD FILED ITS RETUR N OF INCOME, DECLARING INCOME OF RS. 16,61,02,474/-. THE AO NOTICED THAT D URING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD CLAIMED DIVIDEND INC OME OF RS. 10,34,966/- 2 AND LONG TERM CAPITAL GAIN OF RS. 49,50,180/- AS E XEMPT INCOME. APPLYING RULE 8D, THE AO COMPUTED THE DISALLOWANCE U/S 14A A T RS. 24,34,442/- FOR EARNING THE DIVIDEND INCOME OF RS. 10,34,966/- AND LONG TERM CAPITAL GAIN OF RS. 49,50,180/-. HE, THEREFORE, DETERMINED THE TOTA L INCOME AT RS. 16,85,36,916/-. 3. BEFORE LD. CIT(A), THE ASSESSEE HAD ADVANCED FOL LOWING SUBMISSIONS: (I) AO WRONGLY APPLIED THE PROVISIONS OF RULE 8D READ W ITH SECTION 14A. THE AO HAD NOT FOUND ANY EXPENDITURE DEBITED I N THE P&L A/C, WHICH WAS DIRECTLY OR INDIRECTLY ATTRIBUTABLE TO THE EARNING OF DIVIDEND INCOME AND THE LONG TERM CAPITAL GAIN. (II) THE AO, IN PARA 3.4 OF THE ASSESSMENT ORDER, HAS HE LD THAT EXPENSES DIRECTLY ATTRIBUTABLE FOR EARNING THE EXEM PT INCOME WAS NIL. LD. CIT(A) HAS OBSERVED THAT THE SUBMISSIONS MADE B Y ASSESSEE WERE FORWARDED FOR EXAMINATION OF THE AO, WHO, IN HIS RE MAND REPORT, STATED THAT INTEREST WAS PAID BY THE ASSESSEE COMPANY ON THE MO NEY FINANCED BY FINANCIAL INSTITUTION, WHICH WAS UTILIZED IN THE B USINESS OF TRADING IN SHARES. THE AO FURTHER POINTED OUT THAT THE ASSESSEE COMPAN Y HAD FAILED TO ATTEND THE PROCEEDINGS BEFORE HIM. 3 4. A COPY OF THE REMAND REPORT WAS PROVIDED TO THE ASSESSEE COMPANY, WHO, IN REPLY, POINTED OUT THAT AO HAD WRONGLY STAT ED THAT THE ASSESSEE COMPANY HAD ADMITTED IN ITS SUBMISSION THAT THE INT EREST WAS PAID ON THE MONEY FINANCED BY THE FINANCIAL INSTITUTION TO THE ASSESSEE COMPANY, WHICH WAS UTILIZED IN THE BUSINESS OF TRADING IN SHARES. THE CORRECT POSITION WAS THAT INTEREST HAD BEEN PAID ON THE MONEYS FINANCED BY THE FINANCIAL INSTITUTION FOR A SHORT TERM, WHICH HAD BEEN UTILIZ ED IN THE REGULAR BUSINESS ACTIVITY OF TRADING IN SHARES. 5. LD. CIT(A) OBSERVED THAT THE ASSESSEE COMPANY H AD PAID INTEREST OF RS. 92.84 LACS TO VARIOUS FINANCIAL INSTITUTIONS SU CH AS DSP MERRIL LYNCH CAPITAL LTD., RAJASTHAN GLOBAL SECURITIES LTD. HDFC BANK ETC. THE INTEREST PAID TO HDFC BANK WAS FOR CAR LOAN. THE INTEREST PA ID TO DSP MERRIL LYNCH CAPITAL LTD. AND RAJASTHAN GLOBAL SECURITIES LTD., WAS FOR PROVIDING FINANCE TO INVEST IN THE IPOS OF CERTAIN COMPANIES FOR A L IMITED PERIOD. THESE WERE DIRECTLY RELATED TO THE TRADING ACTIVITIES OF THE A SSESSEE COMPANY IN SHARES. HE FURTHER OBSERVED THAT THE SHARES OF MADHAV MARBL ES, ON WHICH THE LONG TERM CAPITAL GAIN OF RS. 4950180/- ACCRUED TO THE A SSESSEE, WAS HELD BY THE ASSESSEE COMPANY AS INVESTMENT. THE SOURCE OF INVES TMENT IN THE SHARES OF MADHAV MARBLES WAS ASSESSEES OWN FUND. HE, THEREF ORE, CONCLUDED THAT NO PART OF THE INTEREST, WHICH WAS PAID BY THE ASSESSE E COMPANY, WAS FOUND TO 4 BE RELATING EITHER DIRECTLY OR INDIRECTLY TO THE DI VIDEND INCOME OR THE LONG TERM CAPITAL GAINS. HE, FURTHER OBSERVED THAT RULE 8D WAS WRONGLY INVOKED BY AO AS THE SAME WAS APPLICABLE FROM ASSTT. YEAR 2 008-09. HE, THEREFORE, RESTRICTED THE DISALLOWANCE TO RS. 1 LAKH BEING ON ACCOUNT OF MISC. ADMINISTRATIVE AND RELATED EXPENSES FOR EARNING THE DIVIDEND INCOME. 6. LD. DR SUBMITTED THAT THE FINDING OF LD. CIT(A) THAT THE SOURCE OF INVESTMENT IN THE SHARES OF MADHAV MARBLES WAS ASSE SSEES OWN FUND, HAS NO BASIS. 7. LD. COUNSEL FOR THE ASSESSEE REFERRED TO PAGE 6 OF THE PB WHEREIN THE LEDGER ACCOUNT OF INTEREST PAID IS CONTAINED, IN WH ICH ALL THE DETAILS HAVE BEEN GIVEN IN REGARD TO INTEREST PAYMENTS. HE REFER RED TO THE INTEREST OF RS. 25,13,700/- PAID TO DSP MERRIL LYNCH CAPITAL LTD., WHERE IT IS STATED THAT THE SAME WAS FOR FUNDING AMOUNT. 8. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE P ARTIES AND HAVE PERUSED THE RECORD OF THE CASE. LD. CIT(A) HAD CALL ED FOR A REMAND REPORT FROM THE AO. IN THE WRITTEN SUBMISSIONS MADE BEFORE LD. CIT(A), THE ASSESSEE, INTER ALIA, SUBMITTED AS UNDER: IN ANY CASE AND WITHOUT PREJUDICE TO THE ABOVE, IT IS SUBMITTED THAT THE LD AO HAS HELD INTEREST EXPENSES AMOUNTING TO RS. 22,84,564/-, OUT OF TOTAL INTEREST EXPENSES OF RS. 92,84,846/-, AS ATTRIBUTABLE TO EARNING OF EXEMPTED INCOME FOR THE PURPOSES OF SECTION 14A R/W RULE 8D. IT IS SUBMITTED THAT T HE ABOVE ACTION IS WHOLLY UNJUSTIFIED IN AS MUCH AS THE LD. AO HAS FAI LED TO 5 APPRECIATE THAT NO PART OF THE INTEREST PAID BY THE ASSESSEE PERTAINED TO DIVIDEND INCOME OR LONG TERM CAPITAL G AIN. A COPY OF LEDGER ACCOUNT OF INTEREST EXPENSES IS ENCLOSED, WHICH SHOWS THAT I. INTEREST HAS PAID TO A. HDFC BANK ON CAR LOAN B. DSP MERRIL LYNCH CAPITAL LTD., C. SOBHA DEVELOPERS LTD., D. MOHIB N KHARICHA, E. SURBHI MERCANTILE PVT. LTD., F. HAGURU ENGINEERING PVT. LTD.; AND G. RAJASTHAN GLOBAL SECURITIES LTD. IT IS SUBMITTED THAT THE INTEREST PAID TO ABOVE CON CERNS HAS NO CONNECTION WHATSOEVER WITH THE EARNING OF DIVIDEND INCOME OR LONG TERM CAPITAL GAINS. THE AFORESAID INTEREST HAS BEEN PAID ON THE MONIES FINANCED BY THE PARTIES AT (B) TO (G) TO THE ASSESSEE COMPANY FOR A SHORT TERM, WHICH HAS BEEN UTILIZED I N THE BUSINESS OF TRADING IN SHARES, WHICH IS A REGULAR B USINESS ACTIVITY. IT IS SUBMITTED THAT WHEN AN IPO IS OPENE D AND THE ASSESSEE DID NOT HAVE SUFFICIENT FUNDS, THE ABOVE P ARTIES LISTED AT (B) TO (G) ADVANCED FUNDS TO THE ASSESSEE ON SHORT TERM BASIS AND CHARGED INTEREST ON SUCH FINANCES. THE AMOUNT O F RS. 92,84,845/- PERTAINS ONLY TO SUCH FINANCES AND TO C AR LOAN. IT IS NOTHING TO DO WITH THE SHARES/ INVESTMENTS ON WHICH DIVIDEND HAS BEEN RECEIVED AND THE ASSETS SOLD ON WHICH LONG TERM CAPITAL GAIN HAS BEEN DECLARED. 9. FROM THE ABOVE SUBMISSIONS, IT IS EVIDENT THAT ASSESSEE HAD TAKEN A SPECIFIC PLEA BEFORE LD. CIT(A) THAT NO INTEREST WA S PAID TOWARDS EARNING OF DIVIDEND INCOME OR LONG TERM GAIN. THEREFORE, CONS IDERING THE ASSESSEES SUBMISSIONS AND THE REMAND REPORT FILED BY AO, LD. CIT(A), INTER ALIA, CONCLUDED THAT THE SOURCE OF INVESTMENT IN THE SHAR ES OF MADHAV MARBLES WAS OUT OF ASSESSEES OWN FUNDS. HOWEVER, CONSIDERI NG THE FACT THAT THE 6 ASSESSEE WAS IN THE BUSINESS OF SHARES, THEREFORE, IT CANNOT BE DENIED THAT SOME DIVIDEND INCOME MUST HAVE BEEN EARNED FROM THE SHARES TRADED BY ASSESSEE. CONSIDERING THE ENTIRETY OF THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE OPINION THAT IT WOULD MEET THE ENDS O F JUSTICE IF THE DISALLOWANCE IS RESTRICTED TO RS. 1,50,000/- OUT O F THE TOTAL ADDITION OF RS. 24,34,442/- AS AGAINST RS. 1 LAKH CONFIRMED BY CIT( A). WE ORDER ACCORDINGLY. 10. IN THE RESULT, REVENUES APPEAL IS PARTLY ALLOW ED. ORDER PRONOUNCED IN OPEN COURT ON 30-12-2014. SD/- SD/- ( A.T. VARKEY ) ( S.V. MEHROTRA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 30-12-2014. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR