NIPRA FINANCIAL SERVICES P.LTD, MUMBAI V. ASST CIT RG 4(2), MUMBAI

ITA 2207/MUM/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 1465 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-12-2016
• Appeal Filed By: Assessee
• Bench Allotted: J
• Assessment Year: 2011-2012
• Appeal Filed On: 15-04-2015
• Court: TRIBUNAL
• Assessee Lawyers: HETAL D MARU
• Section: 14A

Judgement Text

IN THE INCO ME TAX APPELLATE TRIBUNAL J BENCH, MUMBAI BEFORE SHRI B.R. BASKARAN, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER I.T.A. NO.2207/M/2015 (ASSESSMENT YEAR: 2011 - 2012 ) NIPRA FINANCIAL SERVICES PRIVATE LIMITED, 501, CORPORATE ARENA, D.P. PIRAMAL ROAD, GOREGAON (W), MUMBAI 400 062. / VS. ACIT - 4(2), MUMBAI. ./ PAN : AABCN1311K ( / APPELLANT) .. ( / RESPONDENT ) / APPELLANT BY : MS. HETAL D. MARU / REVENUE BY : SHRI VAIBHAV JAIN / DATE OF HEARING : 06 .12.2016 / DATE OF PRONOUNCEMENT : 23 .12.2016 / O R D E R PER AMIT SHUKLA, JM: THE AFORESAID APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST IMPUGNED ORDER DATED 21.1.2015 , PASSED BY LD CIT (A) - 9, MUMBAI FOR THE ASSESSMENT YEAR 2011 - 2012. IN THIS APPEAL, THE ASSESSEE IS MAINLY CHALLENGED THE DISALLOWANCE U/S 14A OF RS. 6,83,463/ - WHICH HAS BEEN MADE UNDER RULE 8D OF THE INCOME TAX RULES, 1962 (THE RULES). 2. BRIEF FACTS ARE THAT , THE ASSESSEE - COMPANY IS ENGAGED IN SUB - BROKING, ARBITRAGE AND TRADING IN SHARES AN DERIVATIVES AND PROVIDING PORTFOLIO MANAGEMENT SERVICES. DURING THE YEAR, ASSESSEE HAS EARNED TAX FREE DIVIDEND INCOME OF RS. 1,66,701/ - , WHICH HAS BEEN CLAIMED AS EXEMPT . IN THE COMPUTATION OF INCOME, F OR THE PURPOSE OF DISALLOWANCE U/S 14A OF THE ACT, THE ASSESSEE HAS SUO MOTO DISALLOWED RS. 18,408/ - . HOWEVER, LD ASSESSING OFFICER PROCEEDED TO MAKE THE DISALLOWANCE UNDER RULE 8D AND MADE DISALLOWANCE OF INTEREST EXPENDITURE UNDER RULE 8D (2)(II) OF RS. 5,40,388/ - AND DISALLOWANCE OF INDIRECT EXPENDITURE UNDER RULE 2 8D(2)(III) OF RS. 1,43,074/ - . AFTER SETTING OFF OF THE DISALLOWANCE MADE BY THE ASSESSEE, T HE NET DISALLOWANCE HAS WORKED OUT TO RS. 6,65,054/ - . 3. BEFORE THE LD CIT (A), THE DETAILED SUBMIS SIONS WERE MADE ON VARIOUS POINTS LIKE , THE ASSESSEE HAD SURPLUS / INTEREST FREE FUNDS FROM WHERE THE ASSESSEE HAD MADE INVESTMENT IN SECURITIES AND SECONDLY , CERTAIN INVESTMENTS MADE IN THE SHARES WERE STO CK - IN - TRADE, T HEREFORE, SAME SHOULD NOT FORM PART OF WORKING OF THE AVERAGE VALUE OF INVESTMENT UNDER RULE 8D(2)(III). THE ASSESS EES VARIOUS CONTENTIONS ON THIS ISSUE HAVE BEEN INCORPORATED IN DETAIL BY THE LD CIT (A) FROM PAGES 3 TO 12 OF THE APPELLATE ORDER. HOWEVER, CIT (A) CONFIRMED THE DISALLOWANCE MADE BY THE AO AND DIRECTED THE AO TO ONLY REMOVE THE INVESTMENTS WHICH ARE TA XABLE AND NOT TO INCLUDE THE INTEREST ON THE TERM LOAN WHICH HAS BEEN UTILISED FOR ACQUIRING OFFICE PREMISES. 4. BEFORE US, LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT SO FAR AS THE AVAILABILITY OF SURPLUS FUNDS ARE CONCERNED, THE ASSESSEE HAD FUNDS OF MORE THAN RS. 6.97 CRS IN THE FORM OF RESERVES & SURPLUS AND SHARE CAPITAL. AGAINST THE SAID FUNDS, THE INVESTMENT MADE IS ONLY RS. 35,77,702/ - . THUS, IN VIEW OF THE PRINCIPLE LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE S OF CIT VS. RELIANCE UTILITIES & POWER LTD [2009] 313 ITR 340 ; AND CIT VS. HDFC BANK LTD[2014] 366 ITR 505 , NO DISALLOWANCE OF INTEREST SHOULD BE MADE. AS REGARDS TO THE DISALLOWANCE OF INDIRECT EXPENDITURE, LD COUNSEL SUBMITTED THAT SOME OF THE SHARES WERE KEPT AS STOCK - IN - TRADE, WHICH WERE NOT FOR THE PURPOSE OF INVESTMENT OR FOR EARNING OF DIVIDEND INCOME AND THEREFORE SAME SHOULD NOT BE INCLUDED FOR THE PURPOSE OF DISALLOWANCE AND SECONDLY, NO REASONS HAS BEEN GIVEN BY THE AO AS TO WHY THE DISALLOWANCE OF FERED BY THE ASSESSEE WAS NOT CORRECT. 5. ON THE OTHER HAND, LD DR RELIED UPON BY THE ORDER OF THE CIT (A). 6. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND ON PERUSAL OF THE IMPUGNED ORDERS AS WELL AS THE RELEVANT MATERIAL PLACED ON RECORD, WE FIND THAT SO FAR AS THE DISALLOWANCE OF INTEREST EXPENDITURE UNDER RULE 8D(2)(II) IS CONCERNED , THE SAME CANNOT BE MADE IN THE LIGHT OF THE FACT THAT THE ASSESSEE HAD HUGE SURPLUS FUNDS WHICH FAR EXCEEDS THE INVESTMENTS MADE IN SHARES. THUS, IN VIEW OF THE RATIO LAID 3 DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF RELIANCE UTILITIES & POWER LTD (SUPRA) AND IN THE CASE OF HDFC BANK LTD (SUPRA), NO DISAL LOWANCE OF INTEREST CAN BE MADE. SO FAR AS THE DISALLOWANCE OF INDIRECT EXPENDITURE OF RS . 1,43,074/ - IS CONCERNED , WE FIND THAT THE LD CIT (A) HAS DIRECTED THE AO TO REMOVE THOSE INVESTMENTS WHICH ARE CAPABLE OF EARNING TAXABLE INCOME. A PART FROM THAT , WE FURTHER DIRECT THE AO TO REMOVE THE QUANTUM OF SHARES HELD AS STOCK - IN - TRADE FROM THE WORKING OF AVERAGE VALUE OF INVESTMENT FOLLOWING THE RATIO LAID DOWN BY THIS TRIBUNAL IN THE CASE OF DCIT VS. M/S. INDIA ADVANTAGE SECURITIES LTD VIDE ITA NO.6711/MUM/2011 (AY 2008 - 09), DATED 14.9.2012, WHICH HAS BEEN AF FIRMED BY T HE HONBLE BOMBAY HIGH COURT. THUS, WITH THESE DIRECTIONS, AO IS DIRECTED TO COMPUTE THE DISALLOWANCE ACCORDINGLY , UNDER RULE 8D(2)(III) . THUS, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 7. IN THE RESULT, APPEAL OF THE ASSESSE E IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED I N THE OPEN COURT ON 2 3 R D DECEMBER, 2016. S D / - S D / - ( B.R. BASKARAN ) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; 23 .12.2016 . . ./ OKK , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI