HARESH MADHAVJI HINDOCHA, MUMBAI V. ITO WD 22(1)(2), NAVI MUMBAI

ITA 2306/MUM/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79267 (ITAT-MUMBAI)
• Duration Of Justice: 2 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 02-06-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 07-04-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ADGIRI
• Keywords: Transactions in derivatives; Earning of tax free income; Tax effect
• Section: 14A

Judgement Text

, , , , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, SMC MUMBAI .., BEFORE SHRI I.P.BANSAL, JUDICIAL MEMBER. ITA NO.2306/MUM/2014: ASST.YEAR 2009-10 HARESH MADHAVJI HINDOCHA, 8, RISHABHDEV, VALLABH BAUG LANE EXTN., GHATKOPAR (E), MUBAI 400 077. THE ITO WARD 22(1)-2, 4 TH FLOOR, TOWER NO.6, VASHI RLY. STATION COMPLEX, VASHI, NAVI MUMBAI 400 703. ( ! / // / APPELLANT) # # # # / VS. ( $% !/ RESPONDENT) APPELLANT BY : SHRI VIMAL PUNMIYA RESPONDENT BY : SHRI. B.YADGIRI # & '() / / / / DATE OF HEARING : 26.06.2014 *+, & '() / DATE OF PRONOUNCEMENT : 26.06.2014 - - - - / / / / O R D E R PER I.P.BANSAL (JM) : THIS IS AN APPEAL FILED BY THE ASSESSEE AND IT IS DIRECTED AGAINST THE ORDER PASSED BY LD. CIT(A)-7, MUMBAI DATED 13/1/2014 FOR ASSESSMENT YEAR 2009-10. GROUNDS OF APPEAL READ AS UNDER: 1. A. THE LEARNED CIT (A) ERRED ON FACTS AND IN LAW IN CONFIRMING DISALLOWANCE MADE BY THE ASSESSING OFFICER U/S 14A R.W. RULE 8D OF INCOME TAX RULES,1962 OF RS.1,97,L55/-, BEING 0.50% OF THE AVERAGE VALUE OF INVESTMENTS, WHEN EXPENDITURE INCURRED IN RESPECT OF SHARES INVESTMEN T WHICH YIELDED EXEMPT INCOME WERE DEBITED TO CAPITAL ACCOUNT AND NOT TO T HE PROFIT & LOSS ACCOUNT. IN THE ABSENCE OF EXPENDITURE HAVING BEEN INCURRED / CLAIMED IN RESPECT OF SHARES INVESTMENT WHICH YIELDED EXEMPT INCOME, DISA LLOWANCE U/S 14A SHOULD BE PROPORTIONATE AMOUNT OF INDIRECT EXPENSE OF RS47 ,81 7/- B. THE LEARNED CIT (A) ERRED ON FACTS AND IN LAW IN NOT FOLLOWING THE DECISION OF CIT (A) -33 PASSED FOR A.Y. 2008-09 TO CONSIDER DIS ALLOWANCE U/S 14A IN THE LIGHT OF THE DECISION OF THE HONORABLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD (SUPRA). 2. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND ANY WORD, PHRASE, SENTENCE, CLAUSE AND / OR ANY OF THE GROUNDS OF APPEAL. ITA NO.2306/MUM/2014: ASST.YEAR 2009-10 2 2. AS IT CAN BE SEEN FROM THE GROUNDS OF APPEAL, TH E ONLY GRIEVANCE OF THE ASSESSEE IS REGARDING DISALLOWANCE MADE UNDER SECT ION 14A R.W.S. RULE 8D OF THE INCOME TAX ACT, 1961(THE ACT). THIS ISSUE HAS BEEN CONSIDERED BY THE AO IN PARA-7 OF THE ASSESSMENT ORDER, WHERE HE HAS NOTICED THAT THE ASSESSEE HAS RECEIVED EXEMPTED DIVIDEND INCOME OF RS.11,96,067/- AND DID NOT DISALLOW ANY EXPENDITURE FOR EARNING EXEMPTED INCOME. NOT SATISFIED WITH TH E REPLY OF THE ASSESSEE THE DISALLOWANCE UNDER RULE 8D R.W.S. 14A OF THE ACT W AS WORKED OUT AT RS.1,97,155/-. IN THE STATEMENT OF FACTS FILED BEFORE LD. CIT(A) VIDE SL.NO.2, IT WAS SUBMITTED AS UNDER: 2. EXPENDITURE AS CONTEMPLATED UNDER SUB RULE (2) (III) OF RULE 8D FOR THE PURPOSE OF DISALLOWANCE U/S.14A HAS BEEN DEBITED T O CAPITAL ACCOUNT & NOT TO P&L A/C. 3. LD. CIT(A) REFERRING TO THE OBSERVATIONS OF AO A ND SOME DECISIONS HAS UPHELD THE ACTION OF AO WITHOUT ADDRESSING TO THE CONTENTI ON OF THE ASSESSEE STATED IN THE STATEMENT OF FACTS THAT THE EXPENSES INCURRED ON AC COUNT OF EARNING OF EXEMPTED INCOME WERE NOT DEBITED TO PROFIT AND LOSS ACCOUNT BUT WERE DEBITED TO CAPITAL ACCOUNT. THE ASSESSEE IS AGGRIEVED BY SUCH DISALLO WANCE MADE BY LD. CIT(A). 4. IN THE GROUNDS OF APPEAL IT HAS BEEN CLEARLY ME NTIONED THAT THE EXPENSES HAVE BEEN DEBITED TO CAPITAL ACCOUNT AND NOT TO PROFIT AND LOSS ACCOUNT. LD. AR TO SUBSTANTIATE SUCH STATEMENT HAS REFERRED TO PAGE-22 OF THE PAPER BOOK, WHERE THE COPY OF CAPITAL ACCOUNT HAS BEEN FURNISHED AND A S UM OF RS.2,41,356/- HAS BEEN SHOWN TO BE INCURRED ON ACCOUNT OF SHARE TRANSACTIO N EXPENSES AND DEBITED TO THE CAPITAL ACCOUNT. IT WAS FURTHER SUBMITTED BY LD. A R THAT SIMILAR WAS ALSO THE POSITION IN RESPECT OF A.Y 2008-09, WHERE LD. CIT(A ) VIDE PARA 4.3 IN HIS ORDER DATED 29/11/2011 HAD REMANDED BACK THE MATTER TO THE FIL E OF AO AS PER PARA 4.3, WHICH READ AS UNDER: 4.3 I HAVE GONE THROUGH THE SAME. AS REGARDS EXP ENSES INCURRED FOR THE PURPOSE OF F&O TURNOVER THEY ARE S.DUTY TRANSACTION CHARGES & SERVICE TAX- RS.5,99,509/-, AUDITORS REMUNERATION RS.19,101/-, AND SO THEY CA NNOT BE TAKEN AS LINKED TO DIVIDEND INCOME. AS REGARDS DEMAT CHARGES AND ACCO UNTS WRITING CHARGES THEY CAN AT THE MOST LINKED TO DIVIDEND INCOME. SINCE THE APPE LLANT HAS SUBMITTED THAT ALL OTHER EXPENSES INCLUDING STT HAVE BEEN DEBITED TO CAPITA L ACCOUNT AND NOT CLAIMED UNDER ANY HEAD OF THE INCOME, IT CANNOT BE SAID THAT ANY OTHER EXPENSES ARE RELATED TO EARNING OF DIVIDEND INCOME. IN VIEW OF THIS AT THE MOST DEMAT CHARGES, BANK CHARGES AND ACCOUNTS WRITING CHARGES CAN BE SAID TO HAVE IM MEDIATE APPROXIMATE RELATION WITH EARNING OF THE DIVIDEND AND HENCE PROPORTIONATE DIS ALLOWANCE OF EXPENSES I.E. F&O TURNOVER TO TURNOVER OF DELIVERY BASED SHARE TRANSA CTIONS SHOULD BE APPLIED. IN VIEW OF THIS A.O IS DIRECTED TO VERIFY THESE FIGURES FROM T HE P&L ACCOUNT AND ACCORDINGLY WORK ITA NO.2306/MUM/2014: ASST.YEAR 2009-10 3 OUT DISALLOWANCE OF EXPENSES ON PROPORTIONATE BASIS INSTEAD OF APPLYING RULE 8D. ACCORDINGLY, GROUND NO.2 IS PARTLY ALLOWED. 4.1 COPY OF ORDER OF LD. CIT(A) FOR A.Y 2008-09 HAS BEEN FILED AT PAGES 26 TO 34 OF THE PAPER BOOK. LD. AR SUBMITTED FURTHER SUBMITTE D THAT THE SAID ORDER OF LD. CIT(A) HAS BECOME FINAL AS DEPARTMENTAL APPEAL AG AINST THE IMPUGNED ORDER HAS BEEN DISMISSED BY THE TRIBUNAL VIDE ORDER DATED 30/ 04/2012 IN ITA NO.629/MUM/2012 ON ACCOUNT OF LOW TAX EFFECT. LD. AR, THEREFORE, SUBMITTED THAT AS LD. CIT(A) DID NOT CONSIDER THE ISSUE IN RIGHT P ERSPECTIVE AND THE MATTER IS REQUIRED TO BE RESTORED BACK TO THE FILE OF AO IN T HE LINE THE MATTER IS RESTORED BACK BY LD.CIT(A) TO THE FILE OF AO IN RESPECT OF A.Y 20 08-09. 5. ON THE OTHER HAND, LD. DR RELIED UPON THE ORDER PASSED BY AO & LD. CIT(A). 6. I HAVE HEARD BOTH THE PARTIES AND THEIR CONTENTI ONS HAVE CAREFULLY BEEN CONSIDERED. THE ORDER OF LD. CIT(A) IS SILENT OVER THE CONTENTION OF THE ASSESSEE THAT EXPENSES PERTAINING TO EARNING OF DIVIDEND INCOME HAVE BEEN DEBITED TO CAPITAL ACCOUNT INSTEAD OF PROFIT AND LOSS ACCOUNT. EVEN D ISALLOWANCE MADE BY AO UNDER RULE 8D IS LESS THAN THE EXPENSES SHOWN TO HAVE BEE N INCURRED BY THE ASSESSEE. IN THIS VIEW OF THE SITUATION, I AM OF THE OPINION THA T IT WILL SERVE THE INTEREST OF JUSTICE IF THE MATTER IS RESTORED BACK TO THE FILE OF AO WI TH A DIRECTION TO READJUDICATE THE ISSUE IN THE LIGHT OF DIRECTIONS GIVEN BY LD. CIT(A ) IN RESPECT OF ASSESSMENT YEAR 2008-09. NEEDLESS TO MENTION THAT AO SHALL PROVID E REASONABLE AND SUFFICIENT OPPORTUNITY TO THE ASSESSEE WHILE RE-ADJUDICATING T HIS ISSUE IN PURSUANCE TO ABOVE DIRECTIONS. 7. IN THE RESULT, FOR STATISTICAL PURPOSES, THE APP EAL FILED BY THE ASSESSEE IS TREATED TO BE ALLOWED IN THE MANNER AFORESAID. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 26 TH JUNE, 2014. - & *+, .#/ 26/06/2014 + & 5 SD/- (I.P.BANSAL) / JUDICIAL MEMBER MUMBAI; .# DATED : 26 TH JUNE, 2014. VM. ITA NO.2306/MUM/2014: ASST.YEAR 2009-10 4 - & $'6 76,' - & $'6 76,' - & $'6 76,' - & $'6 76,'/ COPY OF THE ORDER FORWARDED TO : 1. ! / THE APPELLANT 2. $% ! / THE RESPONDENT. 3. 8() / THE CIT, MUMBAI. 4. 8 / CIT(A)-13, MUMBAI 5. 6;5 $'# , , / DR, ITAT, MUMBAI 6. 5< = / GUARD FILE. -# -# -# -# / BY ORDER, %6' $' //TRUE COPY// > >> >/ // /? @ ? @ ? @ ? @ (DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI