PATANI SECURITIES P. LTD, MUMBAI V. ITO 4(2)(2), MUMBAI

ITA 2716/MUM/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 8038 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-03-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2006-2007
• Appeal Filed On: 08-04-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: O P SHARMA
• Assessee Lawyers: UPENDRA SHAH
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH C, MUMBAI BEFORE SHRI N.V.VASUDEVAN(J.M) & SHRI RAJENDRA SIN GH (A.M) ITA NO.2716/MUM/2010(A.Y. 2006-07) M/S. PATNI SECURITIES PVT. LTD. CRECENT CHAMBERS, TAMARIND LANE, FORT, MUMBAI 400 020. PAN:AAACP 7182P (APPELLANT) VS. THE I.T.O. 4(2)(2), MUMBAI. (RESPONDENT) APPELLANT BY : SHRI UPENDRA SHAH RESPONDENT BY : SHRI O.P. SHARMA ORDER PER N.V.VASUDEVAN, J.M, THIS IS AN APPEAL FILED BY THE REVENUE AGAINST TH E ORDER DATED 11/2/2010 OF CIT(A)-8, MUMBAI RELATING TO ASSESSMEN T YEAR 2006-07. THE ONLY ISSUE IN THIS APPEAL BY THE ASSESSEE IS WITH R EGARD TO DISALLOWANCE MADE BY THE AO BY INVOKING PROVISIONS OF SECTION 14A OF THE ACT. 2. THE ASSESSEE IS A PRIVATE LIMITED COMPANY CARRYI NG ON THE BUSINESS OF TRADING IN THE PURCHASE AND SALES OF SHARES AND OT HER SECURITIES INCLUDING INVESTING IN SECURITIES FOR LONG TERM BENEFITS. TH E ASSESSEE IS A MEMBER OF THE BOMBAY STOCK EXCHANGE AND CARRYING OUT BROKERA GE TRANSACTIONS IN NSE. IN THE COURSE OF ASSESSMENT PROCEEDINGS THE AO HAS HELD THAT AMOUNT OF RS. 7,14,026/- IS REQUIRED TO BE DISALLOW ED AND ADDED BACK TO INCOME THOUGH ALL THE DETAILS WERE PRODUCED BY THE ASSESSEE BEFORE THE AO. THE AO HAS NOT CONSIDERED THE VALIDITY OF APPLICATI ON OF SECTION 14A AND RULE 8D FOR THIS PURPOSE. THE LD. CIT(A) CONFIRME D THE ACTION A.O. ITA NO.2716/MUM/2010(A.Y. 2006-07) 2 3. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASESSE E IS IN APPEAL BEFORE THE TRIBUNAL. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE LD. A. R REITERATED THE SUBMISSIONS AS WERE MADE BEFORE THE LD. CIT(A), WHI LE LD. D.R SUPPORTED THE ORDERS OF THE REVENUE AUTHORITIES. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSION. THE HON BLE BOMBAY HIGH COURT IN INCOME TAX APPEAL NO.626 OF 2010 IN THE C ASE OF GODREJ & BOYCE MFG.CO.LTD. MUMBAI. VS. DY. COMMISSIONER OF I NCOME TAX,RANGE 10(2), MUMBAI & ANR. AND W.P. 758/10 GODREJ & BOYCE MFG.CO.LTD. MUMBAI. VS.DY. COMMISSIONER OF INCOME TAX RANGE 10( 2), MUMBAI & ORS. BY JUDGMENT DATED 12-8-2010 HAS DEALT WITH THE DISA LLOWANCE THAT CAN BE MADE U/S.14-A OF THE ACT. THE HONBLE COURT ALSO D EALT WITH THE DECISION OF THE SPECIAL BENCH OF THE ITAT IN THE CASE OF DAGA C APITAL MANAGEMENT PVT.LTD. 117 ITD 169 (MUM) (SB) AND HAS LAID DOWN T HE FOLLOWING PROPOSITION: I) DIVIDEND INCOME AND INCOME FROM MUTUAL FUNDS FAL LING WITHIN THE AMBIT OF SECTION 10(33) OF THE INCOME TAX ACT 1961, AS WAS A PPLICABLE FOR ASSESSMENT YEAR 2002-03 IS NOT INCLUDIBLE IN COMPUTING THE TOT AL INCOME OF THE ASSESSEE. CONSEQUENTLY, NO DEDUCTION SHALL BE ALLOWED IN RESP ECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT, BY VIRTUE O F THE PROVISIONS OF SECTION 14A(1); II) THE PAYMENT BY A DOMESTIC COMPANY UNDER SECTION 115O(1) OF ADDITIONAL INCOME TAX ON PROFITS DECLARED, DISTRIBUTED OR PAID IS A CHARGE ON A COMPONENT OF THE PROFITS OF THE COMPANY. THE COMPAN Y IS CHARGEABLE TO TAX ON ITS PROFITS AS A DISTINCT TAXABLE ENTITY AND IT PAYS TAX IN DISCHA RGE OF ITS OWN LIABILITY AND NOT ON BEHALF OF OR AS AN AGENT FOR ITS SHAREHOLDER S. IN THE HANDS OF THE SHAREHOLDER AS THE RECIPIENT OF DIVIDEND, INCOME BY WAY OF DIVIDEND DOES NOT FORM PART OF THE TOTAL INCOME BY VIRTUE OF THE PROV ISIONS OF SECTION 10(33). INCOME FROM MUTUAL FUNDS STANDS ON THE SAME BASIS; ITA NO.2716/MUM/2010(A.Y. 2006-07) 3 III)THE PROVISIONS OF SUB SECTIONS (2) AND (3) OF S ECTION 14A OF THE INCOME TAX ACT 1961 ARE CONSTITUTIONALLY VALID; IV)THE PROVISIONS OF RULE 8D OF THE INCOME TAX RULE S AS INSERTED BY THE INCOME TAX (FIFTH AMENDMENT) RULES 2008 ARE NOT ULT RA VIRES THE PROVISIONS OF SECTION 14A, MORE PARTICULARLY SUB SECTION (2) A ND DO NOT OFFEND ARTICLE 14 OF THE CONSTITUTION; V) THE PROVISIONS OF RULE 8D OF THE INCOME TAX RULE S WHICH HAVE BEEN NOTIFIED WITH EFFECT FROM 24 MARCH 2008 SHALL APPLY WITH EFFECT FROM ASSESSMENT YEAR 2008-09; VI)EVEN PRIOR TO ASSESSMENT YEAR 2008-09, WHEN RULE 8D WAS NOT APPLICABLE, THE ASSESSING OFFICER HAS TO ENFORCE THE PROVISIONS OF SUB SECTION (1) OF SECTION 14A. FOR THAT PURPOSE, THE ASSESSING OFFICE R IS DUTY BOUND TO DETERMINE THE EXPENDITURE WHICH HAS BEEN INCURRED I N RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. THE ASSESSING OFFICER MUST ADOPT A REASONABLE BASIS OR METHOD CON SISTENT WITH ALL THE RELEVANT FACTS AND CIRCUMSTANCES AFTER FURNISHING A REASONABLE OPPORTUNITY TO THE ASSESSEE TO PLACE ALL GERMANE MATERIAL ON TH E RECORD; VII)THE PROCEEDINGS FOR ASSESSMENT YEAR 2002-03 SHA LL STAND REMANDED BACK TO THE ASSESSING OFFICER. THE ASSESSING OFFICER SHA LL DETERMINE AS TO WHETHER THE ASSESSEE HAS INCURRED ANY EXPENDITURE (DIRECT O R INDIRECT) IN RELATION TO DIVIDEND INCOME / INCOME FROM MUTUAL FUNDS WHICH DO ES NOT FORM PART OF THE TOTAL INCOME AS CONTEMPLATED UNDER SECTION 14A. THE ASSESSING OFFICER CAN ADOPT A REASONABLE BASIS FOR EFFECTING THE APPO RTIONMENT. WHILE MAKING THAT DETERMINATION, THE ASSESSING OFFICER SHALL PROVIDE A REASONABLE OPPORTUNITY TO THE ASSESSEE OF PRODUCING ITS ACCOUNTS AND RELEV ANT OR GERMANE MATERIAL HAVING A BEARING ON THE FACTS AND CIRCUMSTANCES OF THE CASE. 6. IN VIEW OF THE AFORESAID DECISION OF THE HO NBLE BOMBAY HIGH COURT THE ISSUE WITH REGARD TO DISALLOWANCE UNDER S ECTION 14A HAS TO BE MADE IN ACCORDANCE WITH THE PRINCIPLE LAID DOWN BY THE HONBLE BOMBAY HIGH COURT. RULE 8D SHOULD NOT BE APPLIED AND THE AO HAS TO ADOPT A REASONABLE BASIS OR METHOD CONSISTENT WITH ALL RELE VANT FACTS AND ITA NO.2716/MUM/2010(A.Y. 2006-07) 4 CIRCUMSTANCES AND AFTER AFFORDING REASONABLE OPPORT UNITY TO THE ASSESSEE TO PLACE ALL GERMANE MATERIAL ON THE RECORD. WE, THER EFORE, REMIT THE ISSUE TO THE A.O FOR FRESH CONSIDERATION AS STATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON THE 16 TH DAY OF MARCH, 2011. SD/- SD/- (RAJENDRA SINGH) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED. 16 TH MARCH.2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3 . THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.RC BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR, I TAT, MUMBAI BENCHES MUMBAI. VM. ITA NO.2716/MUM/2010(A.Y. 2006-07) 5 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 10/3/2011 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 11/3/2011 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER