SUBHKAM STOCK & SHARES P. LTD, MUMBAI V. ITO 4(2)(3), MUMBAI

ITA 284/MUM/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3391 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-05-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 02-04-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 12-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: R C JAIN
• Keywords: Speculation loss
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E, MUMBAI BEFORE SHRI R S SYAL, ACCOUNTANT MEMBER & SHRI SANJAY GARG, JUDICIAL MEMBER ITA NO.:284/MUM/2011 ASSESSMENT YEAR: 2007-08 SUBHKAM STOCK & SHARES P. LTD., VS. THE ITO 4(2( 3) THE INTERNATIONAL HOUSE, MUMBAI 4 TH FLOOR, NEW MARINE LINES, CROSS ROAD NO.1, NEAR AMERICAN CENTRE, 16 MAHARSHI KARVE ROAD, CHURCHGATE- 400 020 PAN : AAACM7389K (APPELLANT) (RESPONDENT) APPELLANT BY : MR.R C JAIN RESPONDENT BY : MR.RAJARSHI DWIVEDY DATE OF HEARING : 02.04.2013 DATE OF PRONOUNCEMENT : 17.05.2013 ORDER PER SANJAY GARG, JM : THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE A GAINST THE ORDER OF THE LEARNED CIT(A) DATED 19.11.2010 RELEVANT TO A.Y. 2007-08. THE GROUNDS OF APPEAL TAKEN BY THE ASSESSEE ARE REPRODUCED AS UNDER: 1.THE LD. CIT(APPEALS) ERRED IN CONFIRMING THE DIS ALLOWANCE OF RS.6,76,973/- U/S 14A OF I.T.ACT 1961 READ WITH RULE 8D OF I.T.RULES, 1962 1.1 IN SO DOING HE ERRED IN HOLDING THAT NO SUBMISSI ON WERE MADE AND ON THE CONTRARY HE INFORMED THE APPELLANTS REPRESE NTATIVE ON THE DATE OF HEARING THAT HE WOULD DIRECT THE A.O. TO RECOMPU TED THE DISALLOWANCE IN PROPORTION TO TRANSACTIONS OF BROKE RAGE/DEALING IN ITA NO. 284/MUM/2011 AY : 2007-08 2 SHARES AND INVESTMENT OF WHICH THE INCOME WAS NOT I NCLUDIBLE IN TOTAL INCOME. 2. THE LD. CIT (APPEALS) ERRED IN NOT DISPOSING OF THE GROUND NO.5 WITH REGARD TO NON CARRY FORWARD OF SPECULATION LOSS OF RS.1,29,71,148/- AS COMPUTED IN THE ASSESSMENT ORDER BASED ON THE STATE MENT OF TOTAL INCOME SUBMITTED BY THE APPELLANT IN THE RETURN OF INCOME. 2.1 IN SO DOING HE OVERLOOKED THE STATEMENT OF FACT S TO THE MEMO OF APPEAL WITH REGARD TO CARRY FORWARD OF SPECULATION LOSS OF RS.1,29,71,148/- AS CLAIMED IN THE RETURN OF INCOME 2.2 THE LD. CIT(APPEALS) DID NOT APPRECIATE THAT HI S POWER IS COTERMINOUS WITH THAT OF THE ASSESSING OFFICER. 2.3 THE LD. CIT(APPEALS), IS NOT ADJUCATING THE GRO UND HIM DID NOT APPRECIATE THAT HAD INFORMED ITS REPRESENTATIVE AT THE TIME OF HEARING THAT NECESSARY DIRECTION WOULD BE GIVEN TO THE A.O. TO CARRY FORWARD THE LOSS AS PER LAW. FROM A BARE READING OF THE GROUNDS OF APPEAL TAKEN BY THE ASSESSEE IT CAN BE NOTICED THAT THE GRIEVANCE OF THE ASSESSEE IS MAINL Y RELATED TO TWO ISSUES I.E. I) DISALLOWANCE OF RS.6,76,973/- U/S. 14A OF THE I.T .ACT READ WITH RULE 8D OF THE I.T. RULES 1962 II) NON CARRY FORWARD OF SPECULATION LOSS OF 1,29,7 1,148/- AS CLAIMED IN THE RETURN OF INCOME. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY, ENGAGED IN THE BUSINESS OF SHARE BROKING, TRADING AND INVESTMENT I N SHARES AND SECURITIES CLAIMED TAX FREE INCOME IN THE FORM OF DIVIDEND AMOUNTING T O RS.3,26,804/- IN ITS RETURN OF INCOME. THE AO OBSERVED THAT AS PER SECTION 14A OF THE I.T.ACT, 1961 NO DEDUCTION WAS ALLOWABLE IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY DISALLOWANCE U/S. 14 A SHOULD NOT BE MADE IN RESPECT OF CLAIMED EXEMPT DIVIDEND INCOME. IN REPLY, THE A SSESSEE VIDE LETTER DATED 15.12.2009 GAVE AN ELABORATE EXPLANATION AND WORKIN G OF THE DISALLOWANCE U/S. 14A. HOWEVER, WITHOUT CONSIDERING THE EXPLANATION AND WO RKING GIVEN BY THE ASSESSEE ITA NO. 284/MUM/2011 AY : 2007-08 3 THE AO WORKED OUT THE DISALLOWANCE BY APPLYING RULE 8D OF THE I.T. RULES 1962. THUS, THE AO MADE THE DISALLOWANCE OF RS.6,76,973/- AND ADDED BACK THE SAID SUM TO THE INCOME OF THE ASSESSEE. THE LEARNED CIT(A) IN HIS VERY BRIEF ORDER UPHELD THE ACTIONS OF THE AO STATING THAT THE ASSESSEE HAD NOT MADE ANY FURTHER SUBMISSIONS IN THAT REGARD. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 3. IT MAY BE OBSERVED THAT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. 328 ITR 81 , THE HONBLE BOMBAY HIGH COURT HAS HELD THAT RULE 8D R.W.S. 14A(2) IS NOT ARBITRARY OR UNREASONABLE BUT CAN BE APPLIED ONLY IF THE ASSESSEES METHOD IS NOT SATISFACTORY. IT HAS BEEN FURTHER HEL D THAT RULE 8D IS NOT RETROSPECTIVE AND APPLIES FROM A.Y. 2008-09. FOR THE YEARS FOR W HICH RULE 8D IS NOT APPLICABLE AND IN THE EVENT THAT THE AO IS NOT SATISFIED WITH THE EXPLANATION/WORKING GIVEN BY THE ASSESSEE, DISALLOWANCE U/S. 14A HAS TO BE MADE ON A REASONABLE BASIS. ALMOST SIMILAR VIEW HAS BEEN EXPRESSED BY HONBLE DELHI HI GH COURT IN THE CASE OF MAXOPP INVESTMENT LTD. & OTHERS V. CIT 247 ITR 162 . 3.1 IT MAY BE OBSERVED THAT IN THE CASE IN HAND, IT HAS BEEN DULY MENTIONED BY THE AO THAT THE ASSESSEE HAD GIVEN ELABORATE EXPLAN ATION AND WORKING OF DISALLOWANCE U/S. 14A AND THAT THE ASSESSEE HAD CLA IMED THAT THERE CANNOT BE ANY DISALLOWANCE U/S. 14A. HOWEVER, THE AO TOTALLY IGN ORED THE WORKING GIVEN BY THE ASSESSEE AND APPLIED RULE 8D IN A MECHANICAL MANNER . AS PER THE LAW LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODRE J & BOYCE MFG. CO. LTD. (SUPRA) AND ALSO BY THE HONBLE DELHI HIGH COURT IN THE CAS E OF MAXOPP INVESTMENT LTD. (SUPRA), THE AO WAS REQUIRED TO INDICATE COGENT AND CONVINCING REASONS WHILE REJECTING THE WORKING/CALCULATIONS GIVEN BY THE ASS ESSEE. HE WAS REQUIRED TO EXAMINE THE ACCOUNTS OF THE ASSESSEE FIRST AND THEN IF HE WOULD NOT HAVE BEEN SATISFIED WITH THE CORRECTNESS OF THE CLAIM, ONLY T HEN, HE WAS REQUIRED TO WORK OUT THE DISALLOWANCE ON SOME REASONABLE BASIS. IN THE C ASE IN HAND, NO SUCH EXAMINATION WAS MADE OR SATISFACTION WAS RECORDED B Y THE AO. ITA NO. 284/MUM/2011 AY : 2007-08 4 3.2 SO, IN VIEW OF OUR ABOVE OBSERVATIONS, WE SET A SIDE THE DISALLOWANCE MADE BY THE CIT(A) AND REMAND THE MATTER BACK TO THE FILE O F THE AO WITH A DIRECTION TO DULY CONSIDER THE WORKING GIVEN BY THE ASSESSEE AND IF T HE AO WILL NOT BE SATISFIED WITH THE WORKING GIVEN BY THE ASSESSEE, HE WILL HAVE TO RECORD COGENT AND CONVINCING REASONS FOR THE SAME AND THEREAFTER TO CALCULATE TH E DISALLOWANCE ON SOME REASONABLE BASIS. 4. SO FAR AS SECOND GROUND RELATING TO NON CARRY FO RWARD OF SPECULATION LOSS IS CONCERNED, IT MAY BE OBSERVED THAT NO SUCH FINDING HAS BEEN GIVEN BY THE AO IN HIS ASSESSMENT ORDER. SINCE WE HAVE REMANDED THE CASE BACK TO THE AO FOR RECONSIDERATION RELATING TO DISALLOWANCE U/S. 14A, WE HEREBY DIRECT THE AO TO ALSO CONSIDER THE SUBMISSIONS OF THE ASSESSEE RELATING T O CARRY FORWARD LOSSES AND PASS APPROPRIATE ORDER IN THIS RESPECT. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLO WED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH MAY 2013. SD/- SD/- (R S SYAL) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DT : 17 TH MAY, 2013 SA COPY FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE C.I.T. CONCERNED MUMBAI 4. THE CIT (A) CONCERNED MUMBAI 5. THE DR, E - BENCH, ITAT, MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI