Anmol Share Traders Ltd., Ahmedabad V. The ACIT.,Circle-1, Ahmedabad

ITA 2691/AHD/2011

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 0944 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 9 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-08-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 22-07-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 01-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH BEFORE: SHR I S. S. GODARA , JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER ANMOL SHARE TRADERS LTD, 101, AKASHGANGA BUILDING, NR. GUJARAT COLLEGE ROAD, ELLISBRIDGE, AHMEDABAD - 380006 PAN:AAMFA0485B (APPELLANT) VS THE ACIT, CIRCLE - 1, AHMEDABAD (RESPONDENT) REVENUE BY : S H RI SATIS H SOLANKI , SR. D . R. ASSESSEE BY: S MT. URVASHI SHODHAN , A.R. DATE OF HEARING : 22 - 07 - 2 016 DATE OF PRONOUNCEMENT : 19 - 08 - 2 016 / ORDER P ER : S. S. GODAR A , JUDICIAL MEMBER : - THIS ASSESSEE S APPEAL FOR A.Y. 2008 - 09 , AR IS ES FROM ORDER OF THE CIT(A) - 6, AHMEDABAD DATED 10 - 08 - 2011 IN APPEAL NO. CIT(A) - VI/A C IT.CIR - 1/169/10 - 11 , IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . I T A NO . 2691 / A HD/20 1 1 A SSESSMENT YEAR 200 8 - 09 I.T.A NO. 2691 /AHD/20 11 A.Y. 2008 - 09 PAGE NO ANMOL SHARE TRADERS LTD. VS. ACIT 2 2. THE ASSESSEE S SOLE SUBSTANTIVE GROUND CHALLENG ES SECTION 14A DISALLOWANCE OF R S. 23,75,438/ - AS MADE IN COURSE OF BOTH THE LOWER PROCEEDINGS. WE COME TO THE RELEVANT FACTS FIRST. THIS ASSESSEE COMPANY INVESTS AND TRADES IN SHARES, SECURITIES AND MUTUAL FUNDS. IT FILED RETURN ON 23 - 09 - 2008 STATING INCOME OF RS. 1,41,47,610/ - . THE ASSESSING OFFICER TOOK UP SCRUTINY. HE CAME ACROSS ASSESSEE S EXEMPT INCOME FROM DIVIDEND S AND SHARE OF ITS FIRM S PROFITS AMOUNTING TO RS. 1,43,32,335/ - AND RS. 6,83,011 / - ; AGGREGATING TO RS. 1,50,15,346/ - . THE ASSESSEE S INVESTMENTS IN EQUITY SHARES READ A SUM OF RS . 8,52,02,163/ - . CORRESPONDING FIGURES IN MUTUAL FUNDS ARE OF R S. 4,89,21,000/ - . THE ASSESSING OFFICER IN ASSESSMENT ORDER DATED 30 - 11 - 2010 INVOKED PROPORT IONATE INTEREST AND ADMINISTRATIVE DISALLOWANCE OF RS. 18,74,116/ - AND RS. 5,01,322/ - UNDER RULE 8D(2)(II) AND (III) ; RESPECTIVELY TOTALING TO RS. 23,75,438/ - IN QUESTION. 3. THE CIT(A) CONFIRMS ASSESSING OFFICER S ACTION ASUNDER: - 2.3 I HAVE CONSIDERE D THE FACTS OF THE CASE; ASSESSMENT ORDER AND APPELLANT'S SUBMISSION. IT IS NOT IN DISPUTE THAT APPELLANT HAD INVESTMENT IN PARTNERSHIP FROM AND ALSO IN SHARES AND MUTUAL FUND UNITS GENERATING DIVIDENDS. THE INCOME FROM THESE ACTIVITIES ARE SUBSTANTIALLY N OT TAXABLE AND EXEMPT THEREFORE DISALLOWANCE UNDER SECTION 14 A IS NECESSARY. ASSESSING OFFICER APPLIED RULE 8D AFTER HAVING SATISFIED THAT APPELLANT EARNED EXEMPT INCOME AND EXPENSES RELATING TO THE SAME HAVE NOT BEEN DISALLOWED AND QUANTIFIED BY THE APPE LLANT. APPELLANT MADE INVESTMENT OF RS 6.64 CRORES IN PARTNERSHIP FIRMS DURING THE YEAR, THE INCOME OF THE SAME IS EXEMPT FROM TAX. THIS INVESTMENT IS MADE FROM THE BUSINESS FUNDS WHICH ALSO INCLUDED BORROWED FUNDS THEREFORE INTEREST RELATABLE TO THIS INVE STMENT IS DISALLOWABLE AS PER RULES 8D. I.T.A NO. 2691 /AHD/20 11 A.Y. 2008 - 09 PAGE NO ANMOL SHARE TRADERS LTD. VS. ACIT 3 APART FROM THIS APPELLANT INVESTED IN MUTUAL FUND UNITS AND SHARES WHICH RESULTED IN SUBSTANTIAL DIVIDEND OF RS 1.43 CRORES. THIS INCOME IS ALSO EXEMPT FROM TAX AND ACCORDINGLY EXPENSES RELATING TO EARNING THIS INCO ME ARE DISALLOWABLE. APPELLANT ARGUED THAT IT WAS DEALER IN SHARES AND MUTUAL FUNDS AND INVESTMENT WAS KEPT AS STOCK IN TRADE AS AGAINST INVESTMENT THEREFORE AS PER KERALA HIGH COURT DECISION, NO DISALLOWANCE CAN BE MADE. IT IS NOT IN DISPUTE THAT APPELLAN T EARNED SUBSTANTIAL DIVIDEND INCOME WHICH IS EXEMPT UNDER SECTION 10 AND NO TAX IS PAID ON THE SAME. IT ALSO CANNOT BE SAID THAT SUCH HUGE DIVIDEND INCOME IS INCIDENTAL AND NO EXPENSES WERE INCURRED FOR THE SAME. SINCE APPELLANT BORROWED FUNDS FOR INVESTI NG IN MUTUAL FUNDS AND OTHER INVESTMENTS RESULTING IN EXEMPT INCOME ALSO, THE DISALLOWANCE UNDER SECTION 14 A IS REQUIRED TO BE MADE AS PER COMPUTATION UNDER RULE 8D. THE DECISIONS RELIED UPON BY THE APPELLANT ARE NOT APPLICABLE SINCE APPELLANT EARNED MORE DIVIDEND INCOME ON SUCH PURCHASES. ONCE ASSESSING OFFICER CONCLUDES THAT EXPENSES RELATING TO EXEMPT INCOME HAVE NOT BEEN DISALLOWED CORRECTLY, HE IS SUPPOSED TO COMPUTE THE DISALLOWANCE AS PER RULE 8D. FROM ASSESSMENT YEAR 2008 - 09 THE APPLICATION OF RULE 8D IS MANDATORY. ASSESSING OFFICER APPLIED THE FORMULA GIVEN IN RULE 8D. THEREFORE I DO NOT FIND ANY INFIRMITY IN THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AND ACCORDINGLY THE DISALLOWANCE IS CONFIRMED IN PRINCIPLE. APPELLANT FURTHER SUBMITTED THAT WHILE COMPUTING DISALLOWANCE OF INTEREST ASSESSING OFFICER ONLY CONSIDERED AVERAGE OF CURRENT ASSETS, LOANS AND ADVANCES AS AGAINST AVERAGE OF TOTAL ASSETS. I FIND THAT APPELLANT'S CLAIM IS CORRECT. ASSESSING OFFICER IS DIRECTED TO CONSIDER AVERAGE OF TOTA L ASSETS WHILE COMPUTING INTEREST DISALLOWANCE UNDER RULE 8D. THE DISALLOWANCE COMPUTED AFTER CONSIDERING THIS IS CONFIRMED. 4. WE HAVE HEARD BOTH THE PARTIES . THE ASSESSEE S ONLY ARGUMENT BEFORE US THAT IT IS A DEALER IN SHARES AND MUTUAL FUNDS AND STAT ED TO HAVE BEEN TREATING THE CORRESPONDING INVESTMENTS AS STOCK IN TRADE THROUGHOUT. THE CIT(A) DOES NOT DISAPPROVE THIS FACTUAL POSITION IN SPITE OF ASSESSEE S SPECIFIC CLAIM MADE IN THE COURSE OF THE LOWER APPELLATE PROCEEDINGS. WE NOTICE IN THIS FACTU AL BACKDROP I.T.A NO. 2691 /AHD/20 11 A.Y. 2008 - 09 PAGE NO ANMOL SHARE TRADERS LTD. VS. ACIT 4 THAT A CO - ORDINATE BENCH OF THE TRIBUNAL IN ITA 2386/AHD/2011 ANJALEE EXIM PVT. LTD. VS. ACIT DECIDED ON 29 - 09 - 2015 FOLLOWS ANOTHER CO - ORDINATE BENCH DECISION DCIT VS. GULSHAN INVESTMENTS LTD. (2013) 31 TAXMANN.COM 113 (KOL) TO HOLD THAT EVEN IF SECTION 14A IS APPLICABLE IN PECULIAR FACTS OF THE CASE, COMPUTATION PROVISION U N DER RULE 8D(2) ( II) AND (III) WILL FAIL SINCE THE SHARES IN QUESTION ARE TREATED AS STOCK IN TRADE AND NOT INVESTMENTS. HON BLE KARNATAKA HIGH COURT IN CASE OF CCI LTD VS. JCIT (2012) 20 TAXMANN.COM 196 ALSO REITE RATES THE VERY PROPOSITION. LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY ARGUES THAT HON BLE BOMBAY AND CALCUTTA HIGH COURT ; AS THEY THEN HAD DECIDED THIS PROPOSITION AGAINST THE ASSESSEE. BOTH PARTIES AGREE THAT HO N BLE JURISDICTIONAL HIGH COURT HAS NOT DECIDED THE INSTANT ISSUE TILL DATE. WE OBSERVE IN THESE PECULIAR FACTS THAT THE VIEW BENEFICIAL TO THE ASSESSEE DESERVES TO BE ADOPTED FOR DECIDING THE INSTANT ISSUE THAT SECTION 14 R.W. RULE 8D DOSE NOT APPLY IN C ASE OF EXEMPTION INCOME YIELDING SHARES/MUTUAL FUNDS BEING TREATED AS STOCK IN TRADE AND NOT INVESTMENTS. THE ASSESSEE SUCCEEDS ON THIS COUNT ALONE. WE DELETE THE IMPUGNED DISALLOWANCE U/S. 14A OF RS. 23,75,438/ - UNDER CHALLENGE. 5. THIS ASSESSEE S AP PEAL IS ALLOWED. ORDER PR ONOUNCED IN THE OPEN C OURT ON 19 - 08 - 201 6 SD/ - SD/ - ( MANISH BORAD ) ( S. S. GODARA ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD : DATED 19 /08 /2016 I.T.A NO. 2691 /AHD/20 11 A.Y. 2008 - 09 PAGE NO ANMOL SHARE TRADERS LTD. VS. ACIT 5 AK / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,