DCIT 9(1), MUMBAI V. ENVISION INVESTMENT & FINANCE P. LTD, MUMBAI

ITA 2322/MUM/2011

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4266 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 9 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-01-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 06-04-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 22-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJUNATH R SWAMY
• Assessee Lawyers: S C TIWARI
• Keywords: Business income; Earning of tax free income; Tax effect; Revised return
• Section: 143(3); 14A

Judgement Text

1376/11 &2322/11(07-08)-ENVISION 1 , INCOME TAX APPELLATE TRIBUNAL,MUMBAI E BENCH , ,, , , BEFORE S/SH. RAJENDRA,ACCOUNTANT MEMBER & S ANDEEP GOSAIN,JUDICIAL MEMBER /.ITA NO.2322/MUM/2011, /ASSESSMENT YEAR-2007-08 ACIT-RANGE-9(1) ROOM NO.223, AAYAKAR BHAVAN M.K. ROAD MUMBAI-400 020. VS ENVISION INVESTMENT & FINANCE PVT. LTD. 402, 4 TH FLOOR, VYAPAR BHAVAN 386/370, NARSI NATHA STREET MASJID (W) MUMBAI-400 009. PAN: AAACE 2990 G ( / APPELLANT) ( / RESPONDENT) /.ITA NO.1376/MUM/2011, /ASSESSMENT YEAR-2007-08 ENVISION INVESTMENT & FINANCE PVT. LTD., MASJID (W) MUMBAI-400 009. VS ACIT-RANGE-9(1) MUMBAI-400 020. ( / APPELLANT) ( / RESPONDENT) '# /ASSESSEE BY : SHRI S.C. TIWARI & MS. RUTUJA N.PAWAR / REVENUE BY : SHRI MANJUNATH R. SWAMY / DATE OF HEARING : 04-11 -2015 / DATE OF PRONOUNCEMENT : 01.01.2016 ,1961 254(1) %&# ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DATED 22.12.2010 OF THE CIT (A)-19,MUMBAI,THE ASSESSEE AND THE ASSESSING OFFICER(AO)HAVE FILED CROSS-APPEALS FOR A BOVE MENTIONED ASSESSMENT YEAR(AY.). ITA/ 1376 /MUM/2011-AY.-2007-08: DURING THE COURSE OF HEARING BEFORE US,THE AUTHORIS ED REPRESENTATIVE (AR) STATED THAT CONSIDERING THE SMALLNESS OF TAX EFFECT THE ASSESSE E WAS NOT INTERESTED IN PRESSING GROUND NO.3. HENCE,SAME STANDS DISMISSED AS NOT PRESSED. 2. ASSESSEE-COMPANY,ENGAGED IN THE BUSINESS OF SHARE T RADING, FILED ITS RETURN OF INCOME ON 31.10.2007 DECLARING TOTAL INCOME OF RS.32.06. CROR ES.LATER ON, A REVISED RETURN,DISCLOSING INCOME OF RS.31.94 CRORES WAS FILED ON 07.10.2009.T HE AO COMPLETED THE ASSESSMENT ON 14. 12.2009, U/S 143(3) OF THE ACT,DETERMINING THE INCO ME OF THE ASSESSEE AT RS.36,63,16,260/-. 2.1. FIRST GROUND OF APPEAL IS ABOUT TREATING THE GAIN O N TRANSFER OF SHARES UNDER THE HEAD BUSINESS INCOME IN PLACE OF SHORT TERM CAPITAL GAIN S(STCG).DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT ASSESSEE HAS SHOWN ST CG OF RS.20.91 CRORES AFTER DEDUCTING TRANSACTION TAX (STT)OF RS.14.13 LAKHS, THAT THE CO MPANY WAS TRADING IN SHARES IN SECURITIES TILL 31.03.2006, ON LAST DAY OF MARCH,2006 IT HAD C LOSING STOCK OF SHARES WORTH RS.60.07 CRORES,THAT IT CONVERTED STOCK IN TRADE INTO INVEST MENT W.E.F 01.04.2006, THAT ALL PURCHASES OF SHARES MADE ON OR AFTER 01.04.2006 WERE TREATED AS PURCHASE OF INVESTMENTS, THEN PROFIT LOSS ARISING OUT OF INTRA-DAY PURCHASE-SALE OF SHARES AN D DEALING DERIVATES WERE SHOWN UNDER THE HEAD BUSINESS INCOME,THAT PROFIT ARISING ON SALE OF STOCK OF 31.03.2006 WAS CLAIMED AS CAPITAL 1376/11 &2322/11(07-08)-ENVISION 2 GAINS.AFTER CONSIDERING THE ABOVE FACTS,THE AO HELD THAT THE ASSESSEE WAS A DEALER IN SHARES, IT HAD OFFERED ITS INCOME UNDER THE HEAD INCOME FROM B USINESS OR PROFESSION, THAT UPTO 31.03.2006 IT HAD SHOWN THE INCOME FROM SHARE TRADI NG AS BUSINESS INCOME,THAT IT HAD CONVERTED ITS STOCK IN TRADE INTO INVESTMENTS TO PA Y TAXES AT LOWER RATE, THAT NOMENCLATURE GIVEN TO ACTIVITY IN THE BOOKS OF ACCOUNTS DID NOT REFLECT THE ACTUAL NATURE OF ACTIVITY, THAT BY CONVERTING THE STOCK INTO INVESTMENTS IN THE BOOKS OF ACCOUNTS DID NOT MAKE TRADER TO AN INVESTOR.HE DIRECTED THE ASSESSEE TO EXPLAIN AS TO WHY THE INCOME SHOWN AS STCG, LTCG SHOULD NOT BE TREATED AS INCOME FROM BUSINESS OF SH ARE TRADING.THE ASSESSEE FILE DETAILED REPLY IN THIS REGARD. AFTER CONSIDERING THE EXPLANATION OF THE ASSESSEE,T HE AO OBSERVED THAT THE ASSESSEES OWN CONVENIENT AND SELF CATEGORISES OF PORTFOLIO INTO T RADING INVESTMENT WOULD NOT AFFECT THE REALITY OF THE SITUATION.HE REFERRED TO THE CIRCULA R NO.4, 2007 DATED 15.10.2007 ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES ALONG WITH THE CASES OF ASSOCIATED INDUSTRIAL DEVELOPMENT COMPANY(PRIVATE LIMITED)(82 ITR 586),HOLCK LARSEN(1 60 ITR 67).HE FURTHER HELD THAT MOTIVE OF THE ASSESSEE WAS APPEARING FROM THE FACT THAT THE SHARES PURCHASED AND SOLD WERE PART OF HIS TRADE/BUSINESS, THAT IT HAS SOLD AND PU RCHASE SHARES IN VOLUMINOUS QUANTITY,THAT IT HAD TRADED IN 25.89 LAKHS SHARES OF FIVE COMPANIES( PURCHASE OF RS.70.39 LAKHS AND SALES OF RS.91.44 LAKHS),THAT UNDER THE HEAD LTCG IT TRADED IN 68,323 SHARES OF THREE COMPANIES (PURCHASE PRICE RS.29.25 LAKHS AND SALE RS.1.23 CRO RES),THAT ALL THESE SHARES WERE ORIGINAL PURCHASED AS STOCK IN TRADE,THAT SAME WERE CONVERTE D TO INVESTMENT LATER ON VIDE A BOOK ENTRY,THAT THE STCG AMOUNTING TO RS.20.91 CORRES WA S DERIVED FORM 49 TRANSACTIONS, THAT HOLDING PERIOD OF THE SHARES RANGE FROM ONE DAY TO SIX-SEVEN MONTHS,THAT MAJORITY OF SO CALLED STCG HAD BEEN EARNED ON SHARES HELD FOR 51-2 00 DAYS,THAT THE ENTIRE SHARES WERE SOLD WITHIN A PERIOD OF ONE YEAR,THAT THE HOLDING PERIOD SHOWED THAT SHARES WERE PORCHES TO EARN PROFIT AND NOT DIVIDEND, THAT THE ASSESSEE HAD BORR OWED INTEREST BEARING FUNDS FOR PURCHASING THE SHARES, THAT USE OF BORROWED FUNDS PROVED THAT ASSESSEE WAS TRADER IN SHARES AND NOT INVESTOR.FINALLY,HE HELD THAT ENTIRE AMOUNT OF 21.6 9 CRORES (STCG OF RS.21.05 CRORES +LTCG OF 64 LAKHS) THAT TO BE TAXED UNDER THE HEAD BUSINE SS INCOME. 2.2. AGGRIEVED BY THE ORDER OF THE AO THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA).BEFORE HIM,IT WAS ARGUED T HAT THERE WAS NO LEGAL BAR OR RESTRICTION ON CONVERSION OF INVESTMENT INTO STOCK IN TRADE OR VICE VERSA, THAT THE CREDIBILITY THE CONVERSION WAS ESTABLISHED BY ENTRIES IN THE BOOKS OF ACCOUNT, RESOLUTION OF THE BOARD OF DIRECTION AND THE AFFIDAVIT OF THE DIRECTORS,THAT I T WAS LEGITIMATE THE PLAN TAX PAYMENT,THAT AN ASSESSEE COULD POSSESS TRADE AND INVESTMENT PORTFOL IOS SIMULTANEOUSLY,THAT THE TAX AUDIT REPORT BROADLY MENTIONED THE NATURE AND CHARACTER O F THE BUSINESS,THAT THE VOLUME OF TRANSACTIONS COULD NOT FORM THE BASIS TO HOLD THE A SSESSEE A DEALER IN SHARES,THAT IT HAD RECEIVED DIVIDEND OF RS. 90.18 LAKHS,THAT THE ASSES SEE WAS MAINTAINING TWO PORTFOLIO AND THE BORROWED FUNDS HAD BEEN UTILISED FOR TRADING PURPOS ES AND NOT FOR INVESTMENT,THAT IT HAD ADEQUATE OWN CAPITAL FOR MAKING INVESTMENT IN SHARE S,THAT THE DOMINANT OBJECT AND PURPOSE OF PURCHASING OF SHARES WAS RETAIN THEM FOR CAPITAL APPRECIATION. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AN D THE ASSESSMENT ORDER, THE FAA HELD THAT THE NATURE OF TRANSACTIONS HAD TO BE DETERMINED ON THE BASIS OF VARIOUS FACTORS,THAT NO ONE SINGLE FACTOR COULD BE DETERMINATIVE, THAT TILL 31. 03.2006 THE ASSESSEE HAD A CLOSING STOCK OF SHARES WERE RS.60.70,THAT IT HAS CONVERTED THE STOC K IN TRADE INTO INVESTMENT, THAT THE ASSESSEE CONDUCTED ITSELF VERY MUCH IN THE SAME MANNER AS IN THE EARLIER YEARS WHILE ENTERING INTO SHARES TRANSACTIONS, THAT THE ASSESSEE HAD HELD THE SHARES UNDER THE STCG FOR A PERIOD LESS THAN ONE YEAR, THAT IT COULD BE SAFELY PRESUMED AT THE TIME OF PURCHASE OF SAID SHARES THE INTENTION WAS NOT TO HOLD THEN FOR A LONGER PERIOD, THAT NONE OF THE SHARES TRADED IN HAD NOT CONTRIBUTED TO DIVIDEND INCOME,THAT THE VOLUME OF T RANSACTIONS WAS FAIRLY HIGH, THAT IT HAD PURCHASED MORE THAN RS.25 LAKHS SHARES , THAT IT HA D USED BORROWED FUNDS, THAT THE ASSESSEE 1376/11 &2322/11(07-08)-ENVISION 3 DID NOT PRODUCE THE EVIDENT TO SHOW THAT IT HAD PUR CHASED SHARED FROM ITS OWN FUNDS, THAT IN EARLIER YEARS INCOME ARISING OUT OF SHARE TRANSACTI ONS WAS OFFERED AS BUSINESS INCOME,THAT THE ACCOUNTING ENTRIES WERE NOT IMPORTANT, THAT THE NAT URE OF ACTIVITY, INTENTION THE CONDUCT OF THE ASSESSEE WERE DECIDING FACTORS, THAT THE ASSESSEE W AS DEALING IN THE SHARES AS A TRADER ALSO, THAT THERE WAS NOT MERIT IN THE CONTENTION OF THE A SSESSEE THE SHARES WERE HELD FOR INVESTMENT PURPOSES, THAT IT HAD CONTINUED TO INDULGE IN THE S HARES TRADING LIKE EARLIER YEARS, THAT THE ACTION OF THE ASSESSEE IN PRESENTING IMPUGNED SHARE S IN THE BALANCE SHEET AS ON 31.03.2007 AS INVESTMENT WAS SMOKES CREAM TO CAMOUFLAGE THE REAL INTENT,THAT THE SURPLUS ARISING OUT OF STCG HAD TO BE ASSESSED AS BUSINESS INCOME. HE DIRE CTED THE AO TO VERIFY AND ALLOW THE REBATE U/S.88E OF THE ACT WITH REGARD TO STT PAID, AS PER THE PROVISIONS OF LAW.HE FURTHER HELD THAT SHARES HELD BY THE ASSESSEE FOR MORE THAN A PERIOD OF 12 MOTHS SHOULD BE ACCEPTED AS LTCG. 2.3. DURING THE COURSE OF HEARING BEFORE US,THE AR ARGUE D THAT LOWER RATE FOR STCG WAS EFFECTIVE FROM 01.04.2004,THAT THE STOCK IN TRADE W AS CONVERTED INTO INVESTMENT FORM 01.4. 2006,THAT THE ASSESSEE WAS OFFERING INCOME UNDER TH E HEAD BUSINESS ALSO, THAT INCOME ARISING OUT OF THEIR TRADING/DERIVATIVE WAS OFFERED FOR TAX ATION UNDER THE HEAD BUSINESS INCOME, THAT THE REST OF THE INCOME BY SHOWN AS STCG, THAT ASSES SEE HAD NOT BORROWED FUNDS FROM OUTSIDERS,THAT IT HAD TAKEN LOANS FROM SHAREHOLDERS ONLY,THAT BORROWING WAS LOWER THAN THE OVERALL INVESTMENTS, THAT NO MATERIAL ON RECORD PRO VED THAT BORROWING WAS FOR INVESTMENT AND NOT FOR BUSINESS.HE REFERRED TO CASE OF NIRAJ A. SU RTI (TAX APPEAL NO.836 OF 2009 OF HONBLE GUJARAT HIGH COURT.HE REFERRED PAGES NO.4,5,&6, 78, 79 OF THE PAPER BOOK. HE FURTHER ARGUED THAT THERE WAS CAPITAL APPRECIATION AND AS AN PRUDE NT INVESTOR THE ASSESSEE SOLD THE SHARES, THAT THE RATIO OF PURCHASE AND SALE HAD NOT BEEN SEEN,TH AT IT HAD NOT CARRIED OUT TRANSACTIONS IN SHARES IN THE AY.S.2010-11,2011-12 AND 2012-13,THAT IT HAD DEALT WITH DERIVATIVES ONLY IN THOSE YEARS,THAT EXCEPT THE SHARES OF RELIANCE INDU STRIES LTD., NONE OF THE SCRIPTS WERE COMMON WITH REGARD TO EARNING OF STCG/LTCG AND DAY TRADING.THE DEPARTMENTAL REPRESENTATIVE (DR) SUPPORTED THE ORDER OF THE FAA. 2.4. WE HAVE HEARD RIVAL SUBMISSION AND WE PERUSED THE R ECORD. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.IN O UR OPINION,NO SINGLE FACTOR CAN DECIDE THE ISSUE AS TO WHETHER A PARTICULAR TRANSACTION CAN BE ASSESSED UNDER THE HEAD BUSINESS OR CAPITAL GAINS AS FAR AS SHARE TRANSACTIONS ARE CONCERNED.JU DGMENTS AFTER JUDGMENTS HAVE HELD THAT THE ISSUE HAS TO DECIDED AFTER CONSIDERING VARIOUS FACT ORS LIKE VOLUME OF TRANSACTION,HOLDING PERIOD, MAGNITUDE OF PURCHASE OF SALES,RATIO BETWEE N PURCHASE AND SALES AND THE ACCOUNTING TREATMENT APPEARING THE BOOKS OF ACCOUNTS,USE OF BO RROWED FUNDS ETC.BUT,THE MOST IMPORTANT FACTOR IS INTENTION OF THE ASSESSEE AND THE INTENTI ON CAN BE GATHERED FROM THE DIFFERENT VARIABLES.IN SHORT,THERE IS NO READYMADE FORMULA TO DECIDE THE ISSUE AND EACH CASE HAS TO BE DECIDED ON ITS OWN FACTS.TREATMENT GIVEN TO SHARE T RANSACTIONS BY THE AO IN THE EARLIER AND SUBSEQUENT YEARS CAN BE ONE OF THE DECIDING FACTORS ,BUT IN ITSELF IT IS NOT THE CONCLUSIVE PROOF. UNLESS AND UNTIL IT IS NOT PROVED THAT THE FACTS OF A PARTICULAR AY.WERE IDENTICAL TO FACTS OF OTHER YEARS.COURTS HAVE HELD THAT A SINGLE TRANSACT ION CAN BE HELD AS BUSINESS TRANSACTION AND A SERIES OF TRANSACTIONS CAN BE HELD TO A CAPITAL G AIN TRANSACTION.IN SHORT THE FACTS OF A PARTICULAR YEAR HAVE TO BE TESTED ON THE TOUCHSTONE OF THE GENERAL PRINCIPLES LAID DOWN BY VARIOUS AUTHORITIES AND SUMMARISED IN THE CIRCULAR ISSUED BY THE CBDT. WE FIND THAT OUT OF THE TOTAL PROFIT OF 21.05 CRORE S THE ASSESSEE HAD EARNED PROFIT OF RS.20.09 CRORES FROM PURCHASE AND SALE OF ONE SCRIPT.IN CASE OF GLENMARK PHARMA LTD.,RELIANCE AND RCVL THERE ARE REPETITIVE TRANSACTIONS (PG.9-10 OF THE PAPER BOOK).THE SHARES OF RELIANCE WERE SOLD ON 19.04.2006 FOR THE FIRST TIME.ON 16.01 .2006 THE ASSESSEE PURCHASED 99,000 SHARES OF SAME COMPANY AND SAME WERE SOLD ON 19.05. 2006 AND 01.06.2006.SHARES OF GLENMARK WERE TRADED MORE THAN ONCE.THE VOLUME OF T HE SHARES AND REPETITIVE NATURE OF THE SALE AND PURCHASE OF SHARES INDICATE THE INTENTION OF THE ASSESSEE.IN OUR OPINION,THE ASSESSEE 1376/11 &2322/11(07-08)-ENVISION 4 WAS DEALING IN SHARES AS A TRADER RATHER THAN A INV ESTOR.CONSIDERING THE UPWARD SWING IN THE SHARE MARKET IT PURCHASED SHARES OF A PARTICULAR CO MPANY IN BULK AND WITHIN A SHORT SPAN OF TIME SOLD THEM AND EARNED A HUGE PROFIT.THE FAA HAD FOUND THAT THE ASSESSEE HAD PURCHASED SHARES WOTH RS.70.39 CRORES AND SOLD THE SHARES WOR TH RS.91.44 CRORES.THE SURROUNDING CIRCUMSTANCES CLEARLY PROVE THAT THE ASSESSEE WAS N OT MAKING INVESTMENT IN THESE SHARES.THESE WERE PURE AND SIMPLE BUSINESS TRANSACT IONS.WE HAVE ALSO CONSIDERED THE DIVIDEND EARNED BY THE ASSESSEE DURING THE YEAR UND ER APPEAL.IN OUR OPINION, FACTS OF THE CASE OF NIRAJ A. SURTI(SUPRA)ARE NOT APPLICABLE TO THE C ASE UNDER CONSIDERATION.THEREFORE,CONFIRMING THE ORDER OF THE FAA,WE DECIDE GROUND NO.1 AGAINST THE ASSESSEE. 3. NEXT GROUND IS ALTERNATE GROUND TO GROUND NO.1.AS P ER THE ASSESSEE THE FAA HAD NOT DIRECTED THE AO TO ALLOW REBATE U/S.88E OF THE ACT ON THE SUM OF RS.11,80,006/-RELATING TO STCG.IN OUR OPINION,REBATE FOR THE TAXES PAID CANNO T BE DENIED.THE AO IS DIRECTED TO ALLOW THE REBATE,AFTER VERIFICATION,AS PER THE PROVISIONS OF THE ACT.SECOND GROUND,RAISED BY THE ASSESSEE,STANDS ALLOWED FOR STATISTICAL PURPOSES. 4. LAST EFFECTIVE GROUND DEALS WITH ALLOWING REBATE U/ S.88E OF THE ACT ON SECURITY TRANSACTION TAX(STT)OF RS.3.65 CRORES PAID BY THE ASSESSEE.IN O UR OPINION,THE ASSESSEE IS ENTITLED TO REBATE FOR THE TAX PAID UNDER THE HEAD STT.WE DIREC T THE AO TO VERIFY THE CLAIM MADE BY THE ASSESSEE AND ALLOW THE REBATE TO IT,AS PER THE PROV ISIONS OF LAW.GROUND NO.4 IS ALLOWED FOR STATISTICAL PURPOSES. ITA 2322/MUM/2011-ASSESSMENT YEAR-2007-08 5. FIRST GROUND RAISED BY THE AO PERTAINS TO TREATMENT GIVEN BY THE AO TO THE GAINS ARISING OUT OF THE SHARES SOLD BY THE ASSESSEE UNDER THE HEAD L TCG.WHILE DEALING WITH THE GROUND NO.1 OF THE ASSESSEE WE HAVE DISCUSSED THE FACTS OF THE CASE.WE FIND THAT THE FAA HAD HELD THAT THE SHARES HELD BY THE ASSESSEE FOR A PERIOD OF MORE TH AN ONE YEAR SHOULD BE ASSESSED UNDER THE HEAD LTCG. 5.1. BEFORE US,THE DR STATED THAT THE ISSUE COULD BE DEC IDED ON MERITS AND THE AR SUPPORTED THE ORDER OF THE FAA. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL BEFORE US.IN THE CASE UNDER CONSIDERATION THE ASSESSEE HAD ACQUIRED SHARES OF R NRL,RELIANCE CAPITAL LTD.,RELIANCE COMMUNICATIONS LTD.AND RELIANCE INDUSTRIES LTD.AND THE PROFIT ARISING OUT OF SALE PROCEEDS OF THESE SHARES WAS SHOWN UNDER THE HEAD LTCG.SHARE S OF FIRST TWO COMPANIES AND THE LAST COMPANY (I.E.EXCEPT THE SHARES OF RELIANCE COMMUNIC ATIONS LTD.)WERE ACQUIRED IN THE MONTH OF JANUARY,2006 AND WERE SOLD IN THE MONTH OF SEPT. /JULY 2007AND FEBRUARY 2008 RESPECTIVELY. SHARES OF RELIANCE COMMUNICATIONS LTD . WERE PURCHASED IN MAY,2006 AND WERE SOLD ON 13.02. 2008.IN OUR OPINION,THE FAA HAD RIGH TLY HELD THAT THE SHARES WERE RIGHTLY OFFERED UNDER THE HEAD LTCG.THE PATTERN OF PURCHASE OF SALE AND HOLDING PERIOD CLEARLY PROVE THAT THE BEHAVIOR OF THE ASSESSEE WAS OF AN I NVESTOR AND NOT OF A BUSINESSMAN.IN OUR OPINION THE BASIC INGREDIENTS OF BUSINESS ARE MISSI NG IN THE ABOVE REFERRED TRANSACTIONS.THEREFORE, CONFIRMING THE ORDER OF THE FAA,WE DECIDE GROUND NO.1 AGAINST THE AO. 6. NEXT GROUND IS ABOVE DISALLOWED MADE U/S.14A OF THE ACT.THE AO FOUND THAT ASSESSEE HAD CREDIT IN DIVIDEND INCOME OF RS.90.18 LAKSHS IN ITS P&L ACCOUNT THAT IT HAD SHOWN AS EXEMPT U/S.10(34) OF THE ACT,WHILE COMPUTING TAXABLE INCOM E IT HAD NOT DISALLOWED ANY EXPENDITURE IN RESPECT OF THE EXEMPT INCOME. HE ASKED THE ASSES SEE TO EXPLAIN AS TO WHY DISALLOWANCE U/S.14A R.W.RULE 8D OF THE INCOME TAX RULES,1962,(R ULES).AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE THE AO REFERRED TO THE DECISION OF DAGA MANAGEMENT PRIVATE LIMITED ITA NO. 1376/11 &2322/11(07-08)-ENVISION 5 8057/MUM/2003, 20.10.2008-A.Y.2001-02.FINALLY,HE MA DE DISALLOWANCE OF RS.3.76 CORES U/S.14 R.W. RULE 8D OF THE RULES. 6.1. IN THE APPELLATE PROCEEDINGS, BEFORE THE FAA IT ARG UED THAT RULE 8D WAS NOT APPLICABLE FOR THE YEAR UNDER APPEAL AS HEARD BY THE HONBLE BOMBA Y HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO.LTD.(328 ITR 81),THAT THE DI SALLOWANCE WAS TO MADE ON A REASONABLE BASIS AS PROVISION OF SECTION 14A OF THE ACT. HE HELD THAT IN WOULD BE REASONABLE TO ALLOCATE THE EXPENSES IN PROPORTION TO THE INCOM E. 6.3. DURING THE COURSE OF HEARING BEFORE THE DR RELIED U PON THE ORDER OF THE AO AND THE AR SUPPORTED THE ORDER OF THE FAA. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE AO APPLIED THE RULE 8D OF THE RULES,WHILE MAKING THE D ISALLOWANCE,THAT THE FAA AHD HELD THAT THE PROVISIONS OF THE RULE WERE NOT APPLICABLE FOR THE YEAR UNDER APPEAL,THAT HE HAD DIRECTED THE AO TO ALLOCATE THE EXPENSES IN PROPORTION TO TH E INCOME.IN OUR OPINION,HIS ORDER DOES NOT SUFFER FROM ANY LEGAL INFIRMITY,THERFORE,CONFIRMING THE ORDER OF THE FAA,WE DECIDE GROUND NO.2 AGAINST THE AO. AS A RESULT APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED AND THE APPEAL OF THE AO STANDS DISMISSED ORDER PRONOUNCED IN TH E OPEN COURT ON 1 ST JANUARY, 2016. 01 , 2016 SD/- SD/- ( / SANDEEP GOSAIN) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /MUMBAI, /DATE: 01.01.2016 . . . .. . JV.SR.PS. (# ) # / 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.