SHITANSHU BIPIN VORA, MUMBAI V. ACIT, CIRCLE - 12(1, MUMBAI

ITA 2585/MUM/2013

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 8139 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 14-08-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 04-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRAKASH L PATHADE
• Assessee Lawyers: VINOD Z VASA
• Section: 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, M UMBAI BEFORE S/SHRI B.R.BASKARAN (AM) AND SANJAY GARG, (JM) . . , , ./I.T.A. NO.2585/MUM/2013 ( ! ' # / ASSESSMENT YEAR :2009-10) SHITANSHU BIPIN VORA, PS-19, 2 ND FLOOR, ROTUNDA STOCK EXCHANGE BLDG, DALAL STREET, MUMBAI-400023. / VS. ASSTT. COMMISSIONER OF INCOME TAX CIRCLE 12(1), AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 ( $% / APPELLANT) .. ( &'$% / RESPONDENT) $ ./ ( ./ PAN/GIRNO.:AABPV4694A $% ) / APPELLANT BY : SHRI VINOD Z VASA &'$% * ) /RESPONDENT BY : SHRI PRAKASH L PATHADE + * , - / DATE OF HEARING : 21.8.2014 ./#' * , - /DATE OF PRONOUNCEMENT : 26.9.2014. / O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINS T THE ORDER DATED 1.1.2013 PASSED BY LD CIT(A)-23, MUMBAI AND IT RELA TES TO THE ASSESSMENT YEAR 2009-10. 2. THE ASSESSEE IS AGGRIEVED BY THE ORDER OF LD. CIT(A) IN CONFIRMING THE DISALLOWANCE OF RS.2,02,49,403/- MADE BY THE AO U/ S 14A OF THE INCOME TAX ACT, 1961(THE ACT). BESIDES, THE ASSESSEE IS ALSO A GGRIEVED BY HIS ORDER IN NOT ADJUDICATING THE GROUNDS NO.1.2 TO 1.6 AND GROUNDS NO.2 TO 5 THAT WERE URGED BEFORE HIM. 3. THE FACTS RELATING TO THE ABOVE SAID ISSUE ARE S TATED IN BRIEF. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING IN S HARES AND SECURITIES. BESIDES, THE ASSESSEE IS ALSO CARRYING ON THE BUSIN ESS OF OPERATING YARN LOOMS ON JOB WORK BASIS UNDER THE NAME AND M/S SHITANSHU FABRICS. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE EARNED DIVIDEND INCOME OF RS.13,77,715/- I.T.A. NO.2585/MUM/2013 2 AND INTEREST ON PPF OF RS.1,02,293/-. BOTH THE AB OVE SAID INCOMES WERE CLAIMED AS EXEMPT. THE AO NOTICED THAT THE ASSESS EE DID NOT MAKE ANY DISALLOWANCE AS REQUIRED U/S 14A OF THE ACT. AFTER CONSIDERING THE EXPLANATIONS FURNISHED BY THE ASSESSEE, THE AO COMPUTED THE DISA LLOWANCE U/S 14A OF THE ACT IN TERMS OF RULE 8D OF IT RULES. THE AO COMPUTED T HE DISALLOWANCE U/S RULE 8D(2)(II) OF THE RULES RELATING TO INDIRECT INTERES T EXPENDITURE AT RS.1,94,31,494/-. THE AO ALSO COMPUTED THE DISALLOWANCE UNDER RULE 8D (2)(III) OF THE RULES RELATING TO ADMINISTRATIVE EXPENSES AT RS.8,17,909/ -. THUS, IN AGGREGATE THE AO COMPUTED THE DISALLOWANCE AT RS.2,02,49,403/- AND A DDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. IN THE APPELLATE PROCEEDIN GS, THE LD. CIT(A) CONFIRMED THE ABOVE SAID DISALLOWANCE AND HENCE THE ASSESSEE HAS FILED THIS APPEAL BEFORE US. 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. FROM THE ASSESSMENT ORDER, WE NOTICE THAT THE ASSESSING OFFI CER HAS AGGREGATED THE VALUE OF INVESTMENTS AND STOCK IN TRADE (BOTH OPENING BALANCE AND CLOSING BALANCE) IN ORDER TO FIND OUT AVERAGE VALUE OF INVESTMENTS . FURTHER, WE NOTICE THAT THE AGGREGATE VALUE OF INVESTMENT IS WORKED OUT AT 1.45 TIMES OF AVERAGE OF TOTAL ASSETS. THERE SHOULD NOT BE DISPUTE THAT THE RATIO OF AGGREGATE VALUE OF INVESTMENT TO AVERAGE VALUE OF TOTAL ASSETS SHALL A LWAYS BE LESS THAN 1, SINCE THE VALUE OF INVESTMENTS ALSO FORMS PART OF THE VALUE O F TOTAL ASSETS. A PERUSAL OF THE WORKING MADE BY THE ASSESSING OFFICER SHOWS THAT TH E ASSESSING OFFICER HAS NOT ADOPTED THE GROSS VALUE OF CURRENT ASSETS, I.E., TH E AO HAS ADOPTED THE VALUE OF NET CURRENT ASSETS TO COMPUTE THE AVERAGE VALUE OF TOTAL ASSETS. THE CURRENT LIABILITIES DEDUCTED FROM THE CURRENT ASSETS NEEDS TO BE GROSSED UP TO ASCERTAIN THE VALUE OF TOTAL ASSETS. HENCE, THERE IS A FLAW IN THE SAID COMPUTATION MADE BY THE AO. 5. FURTHER, IN THE FACTS OF THE INSTANT CASE, WE A RE OF THE VIEW THAT THE PROCEDURE ADOPTED BY THE AO TO AGGREGATE THE VALUE OF INVESTMENTS AND THE STOCK IN TRADE IN ORDER TO FIND OUT AVERAGE VALUE O F INVESTMENTS DOES NOT APPEAR TO BE PROPER. THERE ARE TWO COMPONENTS OF SHARES, VIZ., ONE IF INVESTMENT AND ANOTHER ONE IS STOCK IN TRADE. FOR COMPUTING TH E DISALLOWANCE UNDER SEC. 14A FOR INVESTMENTS COMPONENT, THERE MAY NOT BE ANY PROBLEM, AS IT MAY BE COMPUTED IN TERMS OF SEC. 14A R.W. RULE 8D BY THE A SSESSING OFFICER, AFTER HAVING I.T.A. NO.2585/MUM/2013 3 REGARD TO THE ACCOUNTS OF THE ASSESSEE. WITH REGAR D TO THE COMPUTATION OF DISALLOWANCE IN RESPECT OF STOCK IN TRADE, THERE ARE ALWAYS DISPUTE BETWEEN THE ASSESSEE AND REVENUE. IN THIS REGARD, IN OUR VIEW, ONE HAS TO MAKE A REFERENCE TO THE DECISION RENDERED BY THE THIRD MEMBER IN THE CASE OF D.H. SECURITIES PVT LTD VS. DCIT (ITA NO.5724/MUM/2011 DATED 27.11.2013 )(146 ITD 1) AND ALSO THE DECISION RENDERED BY THE CO-ORDINATE BENCH IN T HE CASE OF DAMANI ESTATES & FINANCE PVT LTD (ITA NO.3029/MUM/2012 DATED 17.07.2 013). BEFORE US, THE LD A.R ALSO PLEADED THAT THE ASSESSING OFFICER HAS COM PUTED THE DISALLOWANCE WITHOUT CONSIDERING THE ABOVE SAID TWO DECISIONS. WE FIND MERIT IN THE SAID SUBMISSIONS. WE NOTICE THAT THE CO-ORDINATE BENCH IN THE CASE OF DAMANI ESTATES & FINANCE PVT LTD HAS HELD THAT THE DISALLO WANCE PRESCRIBED IN THE PROVISIONS OF RULE 8D(2)(II) HAS TO BE SCALED DOWN WHILE COMPUTING THE DISALLOWANCE IN RESPECT OF SHARES HELD AS STOCK IN TRADE. IN THE FACTS PREVAILING IN THE ABOVE SAID CASE, THE TRIBUNAL HELD THAT THE DIS ALLOWANCE UNDER RULE 8D(2)(II) OF THE IT RULES MAY BE COMPUTED BY TAKING 20% OF TH E INTEREST EXPENDITURE, I.E., 80% OF INTEREST EXPENDITURE IS TREATED AS RELATED T O TRADING ACTIVITIES AND 20% IS TREATED AS RELATED TO TAX FREE DIVIDEND INCOME. IN THE INSTANT CASE ALSO, THE INTEREST EXPENDITURE NEEDS TO BE BIFURCATED BETWEEN PROFITS AND GAINS OF BUSINESS AND TAX EXEMPT DIVIDEND INCOME. IT MAY BE MENTIONED THAT THE RATIO OF 80% : 20% IS NOT A STATIC FIGURE AND THE RATIO N EEDS TO BE ASCERTAINED BY CONSIDERING THE FACTS PREVAILING IN A PARTICULAR CA SE. IN THIS REGARD, BOTH THE PARTIES MAY ALSO REFER TO THE ORDER DATED 27.8.2014 PASSED BY MUMBAI D BENCH OF ITAT IN THE CASE OF RAMKUMAR VENUGOPAL INVESTMENT PVT. LTD. V/S ACIT IN ITA NO.6324/MUM/2012 RELATING TO ASSESSME NT YEAR 2009-2010. 6. IN VIEW OF THE ABOVE, THE APPROACH OF THE A SSESSING OFFICER IN COMPUTING THE DISALLOWANCE BY AGGREGATING THE VALUE OF INVESTMENT S AND STOCK IN TRADE IS NOT ACCEPTABLE TO US. 7. FURTHER THE LD A.R SUBMITTED BEFORE US THAT THE ACTUAL INTEREST EXPENDITURE WAS RS.56.47 LAKHS ONLY AND THE ASSESSING OFFICER H AS ADOPTED THE FIGURE OF RS.133.93 LAKHS. THE LD A.R SUBMITTED THAT THE BAL ANCE AMOUNT OF RS.77.46 LAKHS RELATE TO THE LATE PAYMENT CHARGES RELATING T O PURCHASE OF SHARES. THE SAID CONTENTION OF THE ASSESSEE ALSO NEEDS VERIFICATION. IT MAY BE NOTICED THAT THE ASSESSEE DID RAISE THIS CONTENTION BEFORE LD CIT(A) , BUT THE FIRST APPELLATE AUTHORITY HAS FAILED TO ADJUDICATE THE SAME. I.T.A. NO.2585/MUM/2013 4 8. FURTHER, ON A PERUSAL OF THE BALANCE SHEET FILED BY THE ASSESSEE WE NOTICE THAT THE ASSESSEE HAS GOT HUGE BORROWALS AND OWN FU NDS ARE VERY MUCH LESS VIS- -VIS BORROWED FUNDS. HENCE, THE INTEREST DISALLOW ANCE MAY ALSO FALL UNDER RULE 8D(2)(I) OF THE RULES. WE NOTICE THAT THE AO HAS C HOSEN TO MAKE DISALLOWANCE UNDER RULE 8D(2)(II) OF THE IT RULES. 9. IN VIEW OF THE FOREGOING DISCUSSIONS, WE ARE OF THE VIEW THAT THIS ISSUE REQUIRES EXAMINATION AFRESH. HENCE, WE PREFER TO SET ASIDE ALL THE MATTERS TO THE FILE OF AO. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) AND RESTORE ALL THE MATTERS TO THE FILE OF THE ASSESSING OFFICER WITH T HE DIRECTION TO EXAMINE THIS ISSUE AFRESH IN THE LIGHT OF DISCUSSIONS MADE SUPRA AND A LSO BY DULY CONSIDERING THE INFORMATION AND EXPLANATIONS FURNISHED BY THE ASSES SEE AND TAKE APPROPRIATE DECISION IN ACCORDANCE WITH THE LAW. 10. IN THE RESULT, THE APPEAL FILED BY THE ASS ESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN C OURT ON 26TH SEPT, 2014 . ./#' + 0 1 2 26TH SEPT , 2014 / * 3 SD SD ( /SANJAY GARG) ( . . / B.R. BASKARAN ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER + MUMBAI: 26TH SEPT ,2014. . . ./ SRL , SR. PS ! ' / COPY OF THE ORDER FORWARDED TO : 1. $% / THE APPELLANT 2. &'$% / THE RESPONDENT. 3. + 8, ( ) / THE CIT(A)- CONCERNED 4. + 8, / CIT CONCERNED 5. 6. 9: &,;! , - ;! ' , + / DR, ITAT, MUMBAI CONCERNED < = / GUARD FILE. > + / BY ORDER, ? (ASSTT. REGISTRAR) - ;! ' , + /ITAT, MUMBAI