ACIT(OSD), New Delhi V. M/s RMP Holding Pvt. Ltd., Delhi

ITA 2744/DEL/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 7032 (ITAT-DELHI)
• Duration Of Justice: 4 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-10-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC 2
• Next Hearing Date: 28-09-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 13-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B RAMANJANEYULU
• Keywords: Earning of tax free income; Speculation loss
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH SMC-II NEW DELHI BEFORE SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER ITA NO. 2744/DEL/2016 ASSTT. YR: 2011-12 ACIT (OSD), WARD-20(3), VS. M/S RMP HOLDING PVT. LT D., NEW DELHI. 138-C, BLOCK B, GROUP-4, DILSHAD GARDEN, DELHI-110095 PAN: AAACR 5533 N ( APPELLANT ) (RESPONDENT) APPELLANT BY : SHRI B. RAMANJANEYULU SR. DR RESPONDENT BY : SHRI SURESH KUMAR GUPTA CA DATE OF HEARING : 29/09/2016. DATE OF ORDER : 4/10/2016. O R D E R PER S.V. MEHROTRA, A.M: THIS IS DEPARTMENTS APPEAL AGAINST THE ORDER DAT ED 29.02.2016, PASSED BY THE LD. CIT(A)-7, NEW DELHI IN APPEAL NO. 650/CIT(A)-7/DEL/14- 15, RELATING TO A.Y. 2011-12. 2. BRIEF FACTS OF THE CASE ARE THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE COMPANY WAS ENGAGED IN THE BUSINESS OF TRA DING OF SHARES AND INVESTMENT FINANCE. IT HAD FILED ITS RETURN OF INCO ME, DECLARING LOSS OF RS. 2 20,53,019/-. THE ASSESSMENT WAS COMPLETED AT A TOTA L INCOME OF RS. 20,06,714/- AFTER MAKING FOLLOWING TWO ADDITIONS: (I) TREATING THE BUSINESS LOSS CLAIMED BY ASSESSEE AS SPECULATIVE LOSS AS PER EXPLANATION TO SECTION 73 RS. 40,01,814 (II) DISALLOWANCE U/S 14A RS. 57,990/- 3. LD. CIT(A) WHILE PARTLY ALLOWING THE ASESSEES A PPEAL, DELETED THE AFOREMENTIONED DISALLOWANCES. BEING AGGRIEVED, THE DEPARTMENT IS IN APPEAL BEFORE THE TRIBUNAL AND HAS TAKEN FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE PRINCIPAL BUSI NESS OF THE ASSESSEE IS GRANTING OF LOAN AND ADVANCE AND THEREF ORE EXPLANATION TO SECTION 73 DOES NOT APPLY, DESPITE T HE FACT THAT THE ASSESSEE IS ADMITTEDLY NOT A NBFC. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 57 ,9191- MADE BY AO IN ACCORDANCE WITH THE PROVISIONS OF LIB-RULE 8D R.W.S. 14A OF THE INCOME TAX ACT, 1961. 3. THE APPELLANT CRAVES, TO BE ALLOWED TO ADD ANY F RESH GROUNDS(S) OF APPEAL AND/OR DELETE OR AMEND ANY OF THE GROUND(S) OF APPEAL 4. BRIEF FACTS APROPOS GROUND NO. 1 ARE THAT ASSESS EE HAD SHOWN A LOSS OF RS. 40,01,814/- FROM SHARE TRANSACTIONS. THE AO SHO W CAUSED THE ASSESSEE AS TO WHY THIS LOSS SHOULD NOT BE TREATED AS LOSS F ROM SPECULATIVE BUSINESS AS PER EXPLANATION TO SECTION 73. THE ASSESSEE REPLIED THAT ITS MAIN BUSINESS 3 WAS OF GRANTING LOANS AND ADVANCES TO CORPORATE AND OTHER PARTIES AND ALSO IN PURCHASE/ SALE OF SHARES. IT WAS FURTHER SUBMITTED THAT ALMOST 99% OF THE ASSESSEE COMPANYS TOTAL INCOME COMPRISED OF INTERE ST INCOME ON LOANS AND ADVANCES. THUS, IT WAS SUBMITTED THAT PRIMARILY TH E BUSINESS OF THE ASSESSEE WAS THAT OF PROVIDING LOANS AND ADVANCES AND EARNIN G OF INTEREST INCOME AND, THEREFORE, THE ASSESSEES CASE FELL WITHIN THE AMBI T OF SECOND EXCEPTION TO SECTION 73 OF THE ACT AND, THEREFORE, THIS COULD NO T BE TREATED AS LOSS FROM SPECULATIVE BUSINESS. THE ASSESSEE HAD PLACED RELIA NCE ON FOLLOWING DECISIONS: - ITO VS. BIJAY PAPER TRADERS & INVESTMENT LTD. 38 SOT 578 (DELHI ITAT) - USHA POLITEX LTD. VS. ITO (2013) (ALLAHABAD HIGH COURT) 33 TAXMAN.COM.432 - VASHULINGA FINANCE PVT. LTD. VS. DEPARTMENT OF IN COME TAX (ITA NO. 3537/DEL/2012 DATED 28.06.2013) 5. THE AO POINTED OUT THAT AS PER COPY OF MEMORANDU M OF ASSOCIATION, FILED BY THE ASSESSEE VIDE LETTER DATED 15.7.2013, THE MAIN OBJECT TO BE PURSUED BY THE ASSESSEE ON ITS INCORPORATION, NO WH ERE INDICATED THAT THE MAIN BUSINESS OF THE COMPANY WAS BANKING OR GRANTIN G OF LOANS AND ADVANCES. FURTHER, THE ASSESSEE COMPANY WAS NOT REG ISTERED AS NBFC AND MAINLY DEALT IN TRADING OF SHARES. HE, THEREFORE, H ELD THAT DEEMING PROVISIONS OF SECTION 73 WERE CLEARLY ATTRACTED. ACCORDINGLY, HE TREATED THE LOSS AS SPECULATIVE BUSINESS LOSS AND MADE THE ADDITION OF RS. 40,01,814/-. 6. LD. CIT(A) DELETED THE ADDITION, INTER ALIA, OBS ERVING THAT IT IS NOT THE REQUIREMENT OF LAW THAT COMPANY IS TO BE REGISTERED AS A NBFC TO BE 4 COVERED UNDER THE SECOND EXCEPTION. HE FURTHER POIN TED OUT THAT AS PER ITEM 5 OF THE MEMORANDUM OF ASSOCIATION, ONE OF THE MAIN OBJECTS WAS TO CARRY ON THE BUSINESS OF ARRANGING, ORGANIZING, EXECUTING AL L KIND OF FINANCIAL SERVICES AND AS PER CLAUSE 16 OF THE INCIDENTAL OBJECTS OF T HE MEMORANDUM OF ASSOCIATION, THE ASSESSEE COMPANY COULD ADVANCE MON EY EITHER WITH OR WITHOUT SECURITY TO SUCH PERSONS AS MAY DEEM FIT. H E FURTHER OBSERVED AS UNDER: THE MATERIAL ISSUE, WHICH MISSED THE ATTENTION OF THE AO TO DETERMINE WHETHER THE APPELLANT COMPANY IS MAINLY E NGAGED IN THE BUSINESS OF GRANTING OF LOANS AND ADVANCES WAS THE NATURE OF ACTIVITIES OF THE APPELLANT AS REFLECTED IN THE BALANCE SHEET AND P & L A/C FOR THE YEAR INTEREST I NCOME DISCLOSED, AMOUNT OF LOANS AND ADVANCES REPORTED AN D THE CAPITAL DEPLOYMENT, AS BROUGHT IN PARA 3.6 ABOVE SH OWS THAT PRINCIPAL BUSINESS OF THE APPELLANT IS OF GRANTING OF LOANS AND ADVANCES . 7. HE, THEREFORE, HELD THAT THE ASSESSEES CASE WAS COVERED BY THE SECOND EXCEPTION TO THE EXPLANATION TO SECTION 73 AND CONS EQUENTLY THE ADDITION OF RS. 40,01,814/- MADE BY THE AO BY TREATING THE LOSS INCURRED BY THE ASSESSEE COMPANY AS SPECULATIVE LOSS WAS DELETED. 8. I HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PA RTIES AND HAVE PERUSED THE RECORD OF THE CASE. LD. CIT(A) HAS OBSE RVED IN PARA 3.6 AS UNDER: 3.6. IN THE CASE OF THE APPELLANT, IT IS APPARENT THAT THE PRINCIPAL BUSINESS IS OF GRANTING LOANS AND ADVANCE S TO CORPORATE AND OTHER PARTIES. THE P & L A/C AND BALA NCE SHEET OF THE APPELLANT COMPANY DISCLOSES MAJOR INCOME ON ACCOUNT OF INTEREST ON LOANS AND ADVANCES. IN THE F . Y. 2009-10 LOAN AND ADVANCES WERE TO THE TUNE OF RS.10,71,85,6 88/- WHICH INCREASED TO RS.16,12,93,451/- DURING THE YEAR. SIM ILARLY, 5 INTEREST INCOME ON LOANS AND ADVANCES WAS DISCLOSED AT RS.66,20,236/- IN THE LAST YEAR AND AT RS. 64,05,26 8/- IN THE CURRENT YEAR. EVEN FROM THE ANGLE OF CAPITAL DEPLOY MENT, IT IS OBSERVED FROM THE BALANCE SHEET HIGHEST FUNDS ARE D EPLOYED IN THE BUSINESS OF GRANTING OF LOANS AND ADVANCES . 8.1. ON THE BASIS OF AFOREMENTIONED FACTS, LD. CIT( A) HAS CONCLUDED THAT THE MAIN BUSINESS OF THE ASSESSEE WAS OF GRANTING O F LOANS AND ADVANCES. WHEN 99% OF ASSESSEES INCOME WAS DERIVED FROM INTE REST ON LOANS AND ADVANCES, THEREFORE, MERELY BECAUSE IT WAS NOT REGI STERED AS A NBFC, IT COULD NOT BE CONCLUDED THAT THE PRINCIPAL BUSINESS OF THE ASSESSEE WAS NOT OF GRANTING LOANS AND ADVANCES. 8.2. LD. CIT(A) HAS ALSO REFERRED TO ITEM 5 OF THE MEMORANDUM OF ASSOCIATION, AS PER WHICH, ONE OF THE MAIN OBJECTS WAS TO CARRY ON THE BUSINESS OF ARRANGING, ORGANIZING, EXECUTING ALL KI ND OF FINANCIAL SERVICES AND HE HAS ALSO REFERRED TO CLAUSE 16 OF THE INCIDE NTAL OBJECTS OF MEMORANDUM OF ASSOCIATION, AS NOTED EARLIER. IN THE BACKDROP OF THESE FACTUAL FINDINGS, IT CANNOT BE SAID THAT ASSESSEE W AS NOT PRIMARILY IN THE BUSINESS OF GRANTING OF LOANS AND ADVANCES. I, THER EFORE, DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDING OF LD. CIT(A). THIS GROUND IS DISMISSED. 9. APROPOS GROUND NO. 2 LD. COUNSEL POINTED OUT THA T TOTAL DIVIDEND INCOME RECEIVED BY THE ASSESSEE WAS RS. 38/- AND TH E SAME HAD BEEN OFFERED FOR TAXATION IN THE RETURN OF INCOME. THEREFORE, TH ERE WAS NO AMOUNT WHICH COULD BE SUBJECTED TO DISALLOWANCE U/S 14A. LD. CIT (A) FOLLOWING THE DECISION IN THE CASE OF JOINT INVESTMENT (P) LTD. V S. CIT 2015/(3) TMI 155, 6 GAVE A RELIEF OF RS. 57,881/- AS THE DISALLOWANCE U /S 14A COULD NOT EXCEED THE EXEMPT INCOME. 10. HAVING HEARD BOTH THE PARTIES I DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A) AND, THEREFORE, THIS G ROUND IS DISMISSED. 11. IN THE RESULT, DEPARTMENTAL APPEAL IS DISMISSED . ORDER PRONOUNCEMENT IN OPEN COURT ON 4/10/2016. SD/- (S.V. MEHROTRA) ACCOUNTANT MEMBER DATED: 4/10/2016. *MP* COPY OF ORDER TO: 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR, ITAT, NEW DELHI.