S.S. BUILDCON P. LTD, MUMBAI V. ACIT CEN CIR 37, MUMBAI

ITA 2729/MUM/2011

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4230 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 10 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-02-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 04-08-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 07-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R A DHYANI
• Assessee Lawyers: V C SHAH
• Keywords: Business income; Business expenditure; Earning of tax free income
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI C.N. PRASAD, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER / I .T A NO. 2729/MUM/2011 ( / ASSESSMENT YEAR : 2007 - 08 M/S. S.S. BUILDCON PVT. LTD., 315, PAREKH MARKET, 39, J.S.S. ROAD, OPERA HOUSE, MUMBAI / VS. THE DCIT, CENTRAL CIRCLE - 37, AAYAKAR BHAVAN, MUMBAI - 400 020 ./ ./ PAN/GIR NO. AAICS 165G ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY: SHRI V.C. SHAH / RESPONDENT BY: SHRI R.A. DHYANI / DATE OF HEARING : 02 . 0 2 . 201 6 / DATE OF PRONOUNCEMENT : 10 . 0 2 .201 6 / O R D E R PER C.N. PRASAD, JM : THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD. CIT(A) - 4 1 , MUMBAI DATED 20 .0 1 .201 1 PERTAINING TO ASSESSMENT YEAR 200 7 - 0 8 . ITA NO. 2729/M/2011 2 2. THE FIRST ISSUE IN THE APPEAL OF THE ASSESSEE IS THAT THE LD. CIT(A) ERRED IN SUSTAINING THE DISALLOWANCE OF RS. 3,83,270/ - MADE BY THE AO U/S. 14A OF THE ACT. 2.1. THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT DISALLOWED RS. 3,94,345/ - U/S. 14A OF THE ACT BEING 0. 5% OF AVERAGE INVESTMENT VALUE . HOWEVER, THE DISALLOWANCE WAS RESTRICTED TO RS. 3,83,269/ - SINCE THE ASSESSEE HAS CLAIMED EXPENSES ONLY TO THE EXTENT OF RS. 3,83,269/ - . 3. ON APPEAL, THE LD. CIT(A) SUSTAINED THE DISALLOWANCE HOLDING TH AT THE AO ADOPTED REASONABLE BASIS FOR MAKING DISALLOWANCE. 4. THE LD. COUNSEL FOR THE ASSESSEE REFERRING TO PAGE - 8 OF THE COMPILATION SUBMITS THAT OUT OF TOTAL EXPENSES DEBITED TO PROFIT AND LOSS ACCOUNT I.E. RS. 3,79,84 4 / - UNDER ADMINISTRATIVE EXPENSE S, SERVICE TAX, SECURITY TRANSACTIO N TAX AND SHARE STAMP DUTY AMOUNTING TO RS. 2,68,625/ - HAS BEEN ADDED BACK BY THE ASSESSEE ITSELF AND NOT CLAIMED AS EXPENSES IN STATEMENT OF TOTAL INCOME . HE FURTHER SUBMITS THAT LOSS OF RS. 1,05,340/ - IS DEBITED TO AD MINISTRATIVE EXPENSES IS ON ACCOUNT OF LOSS ON F & O TRADING AND THIS IS NOT AN EXPENSE DEBITED TO P&L ACCOUNT. THEREFORE, HE SUBMITS THAT THE ASSESSEE CLAIMED EXPENSES AS DEDUCTION IN COMPUTING PROFIT FROM THE BUSINESS WAS ONLY RS.9,304/ - AND AT BEST T HE EXPENSES ATTRIBUTABLE FOR EARNING DIVIDEND INCOME WHICH CAN BE DISALLOWABLE SHOULD BE RESTRICTED TO RS. 9,304/ - . 5. THE LD. DEPARTMENTAL REPRESENTATIVE PLACED RELIANCE ON THE ORDERS OF THE LOWER AUTHORITIES. ITA NO. 2729/M/2011 3 6. ON HEARING BOTH SIDES, WE FIND CONSIDERABLE FORCE IN THE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE. FOR THIS ASSESSMENT YEAR RULE 8D OF THE I.T. RULES ARE NOT APPLICABLE AND THEREFORE ONLY THE REASONABLE EXPENSES ATTRIBUTABLE FOR EARNING EXEMPT INCOM E HAS TO BE DISALLOWED. WE FIND FROM SCHEDULE - I OF THE PROFIT & LOSS ACCOUNT WHICH IS THE ADMINISTRATIVE EXPENSES, THE TOTAL EXPENSES WAS DEBITED WERE RS. 3,79,844/ - . IN THE COMPUTATION OF INCOME THE ASSESSEE ADDED BACK SERVICE TAX OF RS. 91,492, SECURITY TRANSACTION CHARGES OF RS. 1,42,413/ - AND SHARE STAMP DUTY OF RS. 34,720/ - . APART FROM THAT AN AMOUNT OF RS. 1,05,339/ - WHICH WAS DEBITED UNDER ADMINISTRATIVE EXPENSES RELATES TO LOSS ON F& TRADING . THEREFORE, AS RIGHTLY SUBMITTED BY THE LD . AR, ALL THESE ITEMS SHOULD BE EXCLUDED AND IF IT IS EXCLUDED, WHAT WAS DEBITED BY THE ASSESSEE TOWARDS BUSINESS EXPENSES COULD BE ONLY RS. 9,304/ - TOWARDS AUDIT FEE, DEMAT CHARGES, BANK CHARGES, LEGAL EXPENSES, ROC FILING FEES AND PRELIMINARY EXPENSES. THEREFORE, THE DISALLOWANCE AT BEST SHOULD BE RESTRICTED TO RS. 9,304/ - . HOWEVER, IT CANNOT BE SAID THAT THIS ENTIRE EXPENSES CAN BE SAID TO BE INCURRED FOR EARNING EXEMPT INCOME. IN THE CIRCUMSTANCES , WE DIRECT THE AO TO RESTRICT THE DISALLOWANCE U/S. 14A OF THE ACT TO 5% OF THE DIVIDEND INCOME EARNED BY THE ASSESSEE. 7. THE LAST ISSUE IN THE APPEAL OF THE ASSESSEE IS THAT THE LD. CIT(A) ERRED IN CONFIRMING THE SUM OF RS, 13,07,762/ - AS INCOME FROM BUSINESS AND NOT A S SHORT TERM CAPITAL GAIN. 7.1. BRIEF FACTS ARE THAT THE ASSESSEE REPORTED SHORT TERM CAPITAL GAIN OF RS. 13,07,762/ - AND THIS WAS CLAIMED SET OFF FROM THE NET ITA NO. 2729/M/2011 4 PROFIT IN THE COMPUTATION OF INCOME AND CLAIMED REBATE U/S. 88E OF THE ACT. HOWEVER, THE ASSESSING OFFICER TREATED THE SHO RT TERM CAPITAL GAIN AS BUSINESS INCOME ON THE GROUND THAT THE ASSESSEE IS INTO SHARE TRADING BUSINE S S . 8. ON APPEAL, THE LD. CIT(A) SUSTAINED THE ACTION OF THE AO IN TREATING SHARE TRANSACTION S AS BUSINESS INCOME IN PLACE OF SHORT TERM CAPITAL GAIN BY DISMISSING THE APPEAL OF THE ASSESSEE. 9. THE LD. COUNSEL FOR THE ASSESSEE REFERRING TO PAGE - 7 OF THE PAPER BOOK WHICH IS THE PROFIT AND LOSS ACCOUNT SUBMITS THAT ASSESSEE IS IN THE BUSINESS OF SHARE TRADING AND ALSO INVESTMENTS. REFERRING TO SCHEDULE - H OF THE BALANCE SHEET SUBMITS THAT THE INCOME CONSISTS OF SHORT TERM CAPITAL GAIN AND PROFIT ON SHARE TRADING. HE FURTHER SUBMITS THAT EVEN THE AUDIT ED ACCOUNT S SHOWS THAT THE ASSESSEE IS HAVING INVESTMENTS AND ALSO SHARES TRADING BUSINESS SEPARATELY. HE SUBMITS THAT THE ASSESSEE IS MAINTAINING TWO PORTFOLIO S I.E. ONE FOR INVESTMENTS AND THE OTHER FOR SHARE TRADING THEREFORE THERE IS NO JUSTIFICATION IN TREATING THE SHORT TERM CAPITAL GAIN AS INCOME FROM BUSINESS. IN ALTERNATIVE, THE LD. COUNSEL SUBMITS THAT DEDUCTION U/S. 88E SHOULD BE ALLOWED TO THE EXTENT OF RS. 1,89,843/ - IN THE EVENT OF ASSESSING SHORT TERM CAPITAL GAIN AS BUSINESS INCOME. 10. THE LD. DR PLACED RELIANCE ON THE ORDER OF THE LOWER AUTHORITIES. 11. HEARD BOTH SIDES, PERUSED THE ORD ERS OF THE LOWER AUTHORITIES AND THE SUBMISSIONS MADE BEFORE US. ON PERUSAL OF THE ASSESSMENT ORDER, WE FIND THAT THE AO HAS NOT DISCUSSED ANYTHING AS TO WHY HE IS ITA NO. 2729/M/2011 5 TREATING THE SHORT TERM CAPITAL GAIN AS BUSINESS INCOME. THERE IS NOT EVEN A WHISPER ABOUT HIS ACTION IN TREATING THE SHORT TERM CAPITAL GAIN AS BUSINESS INCOME. THE LD. CIT(A) OBSERVED THAT THE ASSESSEE NEVER SHOWN THE INVESTMENTS IN THE BALANCE SHEET WHICH IS AGAIN A CONTRARY TO THE FACTS APPEARING IN THE BALANCE SHEET WHICH CLEARLY SHOWS TH AT THERE WERE INVESTMENTS TO THE EXTENT OF RS. 15,67,38,053/ - AND IT IS THE CONTENTION OF THE ASSESSEE THAT IT IS MAINTAINING TWO PORTFOLIOS ONE TOWARDS INVESTMENTS AND ONE TOWARDS TRADING , T HE INCOME FROM INVESTMENTS SHOWN AS UNDER CAPITAL GAINS AND INCOM E FROM TRADING ACTIVITY SHOWN AS BUSINESS INCOME. IN OUR CONSIDERED VIEW, SINCE THE AO HAS NOT EXAMINED THE ISSUE IN PROPER PERSPECTIVE AS WAS DONE BY THE LD. CIT(A) ALSO, WE CONSIDERED IT PROPER TO REMIT THE ISSUE TO THE FILE OF THE AO FOR FRESH ADJUDICA TION IN ACCORDANCE WITH LAW AFTER PROVIDING ADEQUATE OPPORTUNITY TO THE ASSESSEE. THUS, WE RESTORE THIS ISSUE TO THE FILE OF THE AO. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH FEBRUARY , 201 6 . SD/ - SD/ - ( RAJESH KUMAR ) ( C.N. PRASAD ) / ACCOUNTANT MEMBER /JUDICIAL MEMBER MUMBAI ; DATED : 10 TH FEBRUARY , 201 6 . . ./ RJ , SR. PS ITA NO. 2729/M/2011 6 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI