MONICA BIMAL SHAH, MUMBAI V. ASST CIT CIR 22(1), NAVI MUMBAI

ITA 2307/MUM/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 101248 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-09-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 07-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N RAJAN
• Keywords: Transactions in derivatives; Earning of tax free income; Tax effect
• Section: 14A

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI B BENCH , , BEFORE S/SH. RAJENDRA,ACCOUNTANT MEMBER & SAKTIJIT DEY ,JUDICIAL MEMBER /. ITA NO. 2307/MUM/2014 , / ASSESSMENT YEAR - 2009 - 10 MONICA BIMAL SHAH 1401 - F, KUKREJA PALACE VALLABH BAUG LANE EXTN. GHATKOPAR (E) , MUMBAI - 400 077. PAN: AAQPS 4225 F VS ASSTT. CIT - CIRCLE - 22(1) 4 TH FLOOR, TOWER 6, VASHI RAILWAY STATION COMPLEX VASHI, NAVI MUMBAI - 400 703. ( / APPELLANT ) ( / RESPONDENT ) /ASSESSEE BY : SHRI VIMAL PUNMIYA / REVENUE BY : SHRI N. RAJAN - D R / DATE OF HEARING : 29 - 09 - 2015 / DATE OF PRONOUNCEMENT : 29 - 0 9 - 2015 , 1961 254 ( 1 ) ORDER U/S.254(1)OF THE INCOME - TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDE R DTD.06/01/2014 OF CIT(A) - 7,MUMBAI, THE ASSESSEE HAS RAISED THE F OLLOWING GROUNDS OF APPEAL: 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 T AX RULES,1962 OF RS.2,81,539/ - , BEING 0.50% OF THE AVERAGE VALUE OF INVESTMENTS, WHEN EXPENDITURE INCURRED IN RESPECT OF SHARES INVESTMENT WHICH YIELDED EXEMPT INCOME WERE DEBITED TO CAPITAL ACCOUNT AND NOT TO THE PROFIT & LOSS ACCOUNT. IN THE ABSENCE OF EXPENDITURE HAVING BEEN INCURRED/CLAIMED IN RESPECT OF SHARES INVESTMENT WHICH YIEL DED EXEMPT INCOME, DISALLOWANCE U/S 14A SHOULD BE PROPORTIONATE AMOUNT OF INDIRECT EXPENSE OF RS.19,585/ - 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 DISALLOWANCE 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). ASSESSEE,AN INDIVIDUAL,FILED HER RETURN OF INCOME ON 25. 0 9.20 0 9,DECLARING TOTAL INCOME AT RS.( - ) 1.26 CRORES. THE ASSESSING OFFICER( A O ) COM PLETED THE ASSESSMENT ON 05.12.2011 ,U/S.143(3)OF THE ACT, DETERMINING HE R INCOME AT RS. 1, 2 3,73,665/ - . 2 .EFFECTIVE GROUND OF APPEAL IS ABOUT DISALLOWANCE MADE BY THE AO U/S.14A OF THE ACT.DURING THE ASSESSMENT PROCEEDINGS,HE FOUND T HAT THE ASSESSEE HAD EARNED DIVIDEND INCOME OF RS.13.23 LAKHS, THAT HER BUSINESS RELATED TO TRADING OF F&O AND SHARES,THAT CONSIDERING HER ACCOUNTS IT WAS NOT POSSIBLE TO CLEARLY DEMARK THE EXPENSES RELATING TO EARNING DIVIDEND INCOME,THAT PROVISIONS OF SE CTION 14 A WERE APPLICABLE.HE ASKED THE ASSESSEE TO FILE WORKING AS PER PROVISIONS OF SECTION 14A.SHE CALCULATED DISALLOWANCE AT RS.420/ - AS PER RULE 8D R.W.S.14A OF THE ACT.AS PER THE AO THE ASSESSEE HAD NOT WORKED OUT THE 0.5% OF AVERAGE VALUE OF INVESTM ENT.HE CALCULATED THE DISALLOWANCE AT RS.2,81,539/ - . 3 .AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA).BEFORE HIM,IT WAS CONTENDED THAT SHE HAD NOT INCURRED/CLAIMED ANY EXPENSES IN RESPECT OF INVE STMENTS OTHER THAN THOSE SPECIFIED,THAT DISALLOWANCE COULD BE MADE U/S.14A OF THE ACT,THAT DISALLOWANCE COULD BE MADE IF THERE WAS IMMEDIATE CONNECTION BETWEEN THE EXPENDITURE ITA/ 2307/14 ,AY. 0 9 - 10 MONICA 2 I NCURRED AND THE EXEMPTED INCOME.THE ASSESSEE RELIED UPON THE CASES OF GODREJ & BOYCE MFG. CO.LTD., HERO CYCLE.AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AND THE ASSESSMENT ORDER,THE FAA HELD THAT THE AO HAD MENTIONED THAT IT WAS NOT POSSIBLE TO DEMARK EXPENSES RELATING TO EARNING DIVIDEND INCOME,THAT THE CASE OF THE ASSESSEE WAS DISTINGUISHABLE FROM THE CASES RELIED UPON BY HER.HE REFERRED TO THE CASES OF GODREJ BOYCE MFG.CO.LTD.(321ITR81), MAXOPP INVESTMENT(247CTR162) AND KALPTARU CONSTRUCTION OVERSEAS(P).LTD.(13SOT194)AND UPHELD THE ORDER OF THE AO. 4 .BEFORE US,THE AUTHORISED REPRESENTATIVE(AR)ARGUED THAT THE ASSESSEE HAD NOT INCURRED ANY EXPENDITURE IN THE P&L A/C.WITH REGARD TO THE EXEMPT INCOME,THAT EXPENSES WERE DEBITED TO THE CAPITAL ACCOUNT OF THE ASSESSEE HE REFERRED TO THE PAGES NO.20 AND 21 OF THE PAPER BOOK.HE FURTHER STATED THAT SIMILAR ISSUE HAD ARISEN IN ONE OF THE GROUP CASES NAMELY HARESH MADHAVJI HINDOCHA(ITA/ 2306/MUM/2014/AY.2009 - 10 DATED.26.06.2014)AND THE TRIBUNAL HAD ALLOWED THE APPEAL FILED BY THE ASSESSEE. DEPARTMENTAL REPRESENTATIVE(DR)LEFT THE ISSUE TO THE DISCRETION OF THE BENCH. 5 .WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE ASSESSEE HAD NOT CLAIMED ANY EXPENDITURE IN THE P &L ACCOUNT,THAT EXPENDITURE RELATED TO EXEMPT INCOME ARE PART OF THE CAPITAL ACCOUNT.WE W OULD LIKE TO REPRODUCE THE G ROUND OF APPEAL AND THE ORDER OF THE HARESH MADHAVJI HINDOCHA(SUPRA). 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. R ULE 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 INVESTMENT WHICH YIELDED EXEMPT INCOME WERE DEBITED TO CAPITAL ACCOUNT AND NOT TO THE PROFIT & LOSS ACCOUNT. I N THE ABSENCE OF EXPENDITURE HAVING BEEN INCURRED / CLAIMED IN RESPECT OF SHARES INVESTMENT WHICH YIELDED EXEMPT INCOME, DISALLOWANCE U/S 14A SHOULD BE PROPORTIONATE AMOUNT OF INDIRECT EXPENSE OF RS47,81 7/ - B. THE LEARNED CIT (A) ERRED ON FACTS AND IN LA W IN NOT FOLLOWING THE DECISION OF CIT (A) - 33 PASSED FOR A.Y. 2008 - 09 TO CONSIDER DISALLOWANCE 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 AD D, ALTER, AMEND ANY WORD, PHRASE, SENTENCE, CLAUSE AND / OR ANY OF THE GROUNDS OF APPEAL. 2. AS IT CAN BE SEEN FROM THE GROUNDS OF APPEAL, THE ONLY GRIEVANCE OF THE ASSESSEE IS REGARDING DISALLOWANCE MADE UNDER SECTION 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 I NCOME. NOT SATISFIED WITH THE REPLY OF THE ASSESSEE THE DISALLOWANCE UNDER RULE 8D R.W.S. 14A OF THE ACT WAS 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 CO NTEMPLATED UNDER SUB RULE (2) (III) OF RULE 8D FOR THE PURPOSE OF DISALLOWANCE U/S.14A HAS BEEN DEBITED TO CAPITAL ACCOUNT & NOT TO P&L A/C. 3. LD. CIT(A) REFERRING TO THE OBSERVATIONS OF AO AND SOME DECISIONS HAS UPHELD THE ACTION OF AO WITHOUT ADDRE SSING TO THE CONTENTION OF THE ASSESSEE STATED IN THE STATEMENT OF FACTS THAT THE EXPENSES INCURRED ON ACCOUNT OF EARNING OF EXEMPTED INCOME WERE NOT DEBITED TO PROFIT AND LOSS ACCOUNT BUT WERE DEBITED TO CAPITAL ACCOUNT. THE ASSESSEE IS AGGRIEVED BY SUC H DISALLOWANCE MADE BY LD. CIT(A). ITA/ 2307/14 ,AY. 0 9 - 10 MONICA 3 4. IN THE GROUNDS OF APPEAL IT HAS BEEN CLEARLY MENTIONED 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 SUM OF RS.2,41,356/ - HAS BEEN SHOWN TO BE INCURRED ON ACCOUNT OF SHARE TRANSACTION EXPENSES AND DEBITED TO THE CAPITAL ACCOUNT. IT WAS FURTHER SUBMITTED BY LD. AR THAT SIMILAR WAS ALS O 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 FILE OF AO AS PER PARA 4.3, WHICH READ AS UNDER: 4.3 I HAVE GONE THROUGH THE SAME. AS REGARDS EXPENSES INCURRED F OR 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 CANNOT BE TAKEN AS LINKED TO DIVIDEND INCOME. AS REGARDS DEMAT CHARGES AND ACCOUNTS WRITING CHARGES THEY CAN AT THE MOST LINKED TO DIVIDEND INCOME. SINCE THE APPELLANT HAS SUBMITTED THAT ALL OTHER EXPENSES INCLUDING STT HAVE BEEN DEBITED TO CAPITAL ACCOUNT AND NOT CLAIMED UNDER ANY HEAD OF THE INCOME, IT CANNOT BE SAID THAT ANY OTHER EXPENSES ARE RELATED TO EA RNING OF DIVIDEND INCOME. IN VIEW OF THIS AT THE MOST DEMAT CHARGES, BANK CHARGES AND ACCOUNTS WRITING CHARGES CAN BE SAID TO HAVE IMMEDIATE APPROXIMATE RELATION WITH EARNING OF THE DIVIDEND AND HENCE PROPORTIONATE DISALLOWANCE OF EXPENSES I.E. F&O TURNO VER TO TURNOVER OF DELIVERY BASED SHARE TRANSACTIONS SHOULD BE APPLIED. IN VIEW OF THIS A.O IS DIRECTED TO VERIFY THESE FIGURES FROM THE P&L ACCOUNT AND ACCORDINGLY WORK OUT DISALLOWANCE OF EXPENSES ON PROPORTIONATE BASIS INSTEAD OF APPLYING RULE 8D. ACC ORDINGLY, 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 SUBMITTED THAT THE SAID ORDER OF LD. CIT(A) HAS BECOME FINAL AS DEPARTMENTAL APPEAL AGAINST 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 PERSPECTIVE AND THE MATTE R IS REQUIRED TO BE RESTORED BACK TO THE FILE OF AO IN THE LINE THE MATTER IS RESTORED BACK BY LD.CIT(A) TO THE FILE OF AO IN RESPECT OF A.Y 2008 - 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 CONTENTIONS 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 ACC OUNT. EVEN DISALLOWANCE MADE BY AO UNDER RULE 8D IS LESS THAN THE EXPENSES SHOWN TO HAVE BEEN INCURRED BY THE ASSESSEE. IN THIS VIEW OF THE SITUATION, I AM OF THE OPINION THAT IT WILL SERVE THE INTEREST OF JUSTICE IF THE MATTER IS RESTORED BACK TO THE FI LE OF AO WITH 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 PROVIDE REASONABLE AND SUFFICIENT OPPORTUNITY TO THE ASSESSEE WHILE RE - ADJUDICATIN G THIS ISSUE IN PURSUANCE TO ABOVE DIRECTIONS. 7. IN THE RESULT, FOR STATISTICAL PURPOSES, THE APPEAL FILED BY THE ASSESSEE IS TREATED TO BE ALLOWED IN THE MANNER AFORESAID. AS THE ISSUE DEALT BY THE TRIBUNAL IN THE ABOVE MATTER IS SIMILAR TO THE ISSUE D EALT BY US,SO, RESPECTFULLY FOLLOWING THE SAME,WE DECIDE EFFECTIVE GROUND IN FAVOUR OF THE ASSESSEE AS A RESULT,APPEAL FILED BY THE A SSESSEE STANDS ALLOW ED. . ORDER PRONO UNCED IN THE OPEN COURT ON 29 TH ,SEPTEMBER,2015. 29 , 201 5 SD/ - SD/ - ( / SAKTIJIT DEY ) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / MUMBAI, /DATE:29 .09. 2015 . . . JV . SR.PS. ITA/ 2307/14 ,AY. 0 9 - 10 MONICA 4 / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR A BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , / ITAT, MUMBAI.