ANIL NANAVATI (HUF), MUMBAI V. ITO 12(1)(4), MUMBAI

ITA 2915/MUM/2013

• Counselvise Citation: 291519914 RSA 2013
• Duration Of Justice: 2 year(s) 4 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-09-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 23-07-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 15-04-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PREMAND J
• Keywords: Question of law
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A, MUMBAI BEORE SHRI G.S.PANNU, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER ITA NO. 2915 /MUM/2013 (ASSESSMENT YEAR : 2009-10) ANIL NANAVATI (HUF), 7 TH FLOOR, NANAVATI MAHALAYA, 18, HOMI MODI STREET, FORT, MUMBAI 400 023. PAN: AABHA 5410R ... APPELLANT VS. THE INCOME TAX OFFICER 12(1)(4), MUMBAI 400 013 .... RESPONDENT APPELLANT BY : SHRI SHEKHAR GUPTA RESPONDENT BY : SHRI PREMAND J. DATE OF HEARING : 23/07/2015 DATE OF PRONOUNCEMENT : 09/09/2015 ORDER PER G.S. PANNU,AM: THE CAPTIONED APPEAL BY THE ASSESSEE IS DIRE CTED AGAINST THE ORDER OF THE CIT(A)-23, MUMBAI DATED 04/02/2013 PERTAINING TO THE ASSESSMENT YEAR 2009-10, WHICH IN-TURN HAS ARISEN FROM AN ORDER PASSED BY THE ASSESSING OFFICER DATED 09/12/2011 UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 ( IN SHORT T HE ACT). 2. IN THIS APPEAL, THE ONLY ISSUE RELATES TO THE DI SALLOWANCE OF RS.4,74,965/- MADE BY THE INCOME TAX AUTHORITIES BY INVOKING THE 2 ITA NO. 2915 /MUM/2013 (ASSESSMENT YEAR : 2009-10) PROVISIONS OF SECTION 14A OF THE ACT ON THE GROUND THAT THE AFORESAID AMOUNT OF EXPENDITURE WAS INCURRED IN RELATION TO E XEMPT INCOME. 3. BEFORE US, LD. REPRESENTATIVE FOR THE ASSESSEE HAS NOT ASSAILED THE APPLICABILITY OF RULE 8D OF THE INCOME TAX RULE S, 1962( IN SHORT THE RULES) FOR COMPUTING THE DISALLOWANCE UNDER SECTIO N 14A OF THE ACT. THE ONLY DISPUTE IS WITH REGARD TO THE MANNER IN WH ICH THE DISALLOWANCE UNDER SECTION 14A OF THE ACT HAS BEEN COMPUTED. 4. THE APPELLANT IS A HUF, WHICH IS DERIVING INCOME FROM INVESTMENTS IN SHARES/MUTUAL FUNDS, AS ALSO BY WAY OF DIVIDENDS, WHICH ARE EXEMPT FROM TAX. THE LD. REPRESENTATIVE FOR TH E ASSESSEE EXPLAINED THAT THE INCOME DERIVED FROM INVESTMENTS FROM MUTUA L FUNDS/SHARES IS BY WAY OF OWN INVESTMENTS AS ALSO INVESTMENTS MADE THROUGH PORTFOLIO MANAGEMENT SERVICES (PMS). THE ASSESSING OFFICER A PPLIED THE PROVISION OF CLAUSE (III) OF RULE 8D(2) OF THE RULE S AND BY APPLYING THE RATE OF 0.5% ON THE AVERAGE VALUE OF INVESTMENTS OF RS.44,32,21,368/- THE DISALLOWANCE WAS COMPUTED AT RS.22,16,107/-, BU T THE SAME WAS RESTRICTED TO RS.4,74,965/- BEING THE EXTENT OF EXP ENSES CLAIMED. THE LD. REPRESENTATIVE FOR THE ASSESSEE REFERRED TO THE COMPUTATION OF INCOME WHICH ENUMERATES THE DETAILS OF CAPITAL GAIN S DECLARED DURING THE YEAR. THE LD. REPRESENTATIVE FOR THE ASSESSEE P OINTED OUT THAT SO FAR AS THE SHORT TERM CAPITAL GAIN EARNED EITHER BY WAY OF OWN INVESTMENTS OR THROUGH PMS ARE CONCERNED, THE SAME ARE TAXABLE AND, THEREFORE, THE CORRESPONDING EXPENDITURE CANNOT BE DISALLOWED IN TERMS OF SECTION 14A OF THE ACT. IT WAS ALSO POINTED OUT TH AT SO FAR AS THE EXPENSES PAID TO THE PMS MANAGER IS CONCERNED, THE SAME ARE DIRECT EXPENSES INCURRED AND, THEREFORE, ARE TO BE GOVERNE D BY CLAUSE (I) OF 3 ITA NO. 2915 /MUM/2013 (ASSESSMENT YEAR : 2009-10) RULE 8D(2) OF THE RULES AND THE ASSESSING OFFICER I S INCORRECT IN APPLYING CLAUSE(III) OF RULE 8D(2) OF THE RULES. IT HAS BEE N FURTHER POINTED OUT THAT SUCH EXPENSES, WHICH RELATE TO THE LONG TERM C APITAL GAIN CAN ALONE BE DISALLOWED BECAUSE SUCH INCOME IS EXEMPT FROM TA X. IN THIS CONTEXT, THE LD. REPRESENTATIVE FOR THE ASSESSEE REFERRED TO THE COMPUTATION OF INCOME TO POINT OUT THAT ONLY AN AMOUNT OF RS.1,10, 585/- PAID AS PMS MANAGER FEE RELATABLE TO THE LONG TERM CAPITAL GAIN EXEMPT FROM TAX, CAN ALONE BE SUBJECT TO DISALLOWANCE UNDER SECTION 14A OF THE ACT. THE BALANCE OF EXPENSE IS IN RELATION TO THE SHORT TE RM CAPITAL GAIN, WHICH IS CHARGEABLE TO TAX AND, THEREFORE, PROVISIONS OF SEC TION 14A OF THE ACT ARE NOT ATTRACTED. 5. THE AFORESAID PLEAS RAISED BY THE ASSESSEE ARE E MERGING FROM THE MATERIAL ON RECORD, NAMELY, THE COMPUTATION OF TOTA L INCOME AND NO INFIRMITY IN THE FACTUAL MATRIX WAS ASSERTED BY THE LD. DEPARTMENTAL REPRESENTATIVE APPEARING FOR THE REVENUE. 6. IN THIS BACKGROUND, WE, THEREFORE, HOLD THAT OUT OF THE DISALLOWANCE OF RS.4,74,965/- DETERMINED BY THE INC OME TAX AUTHORITIES, ONLY AN AMOUNT OF RS.1,10,585/- IS DISALLOWABLE AND THE BALANCE IS DIRECTED TO BE DELETED. THUS, ON THIS ASPECT ASSES SEE SUCCEEDS. 7. APART FROM THE AFORESAID, THE APPELLANT HAS RAIS ED AN ADDITIONAL GROUND OF APPEAL, WHICH WAS HITHERTO NOT RAISED BEF ORE LOWER AUTHORITIES:- THE LEARNED ASSESSING OFFICER HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN NOT CARRYING FORWARD LONG TERM CAPITAL LOSS OF RS. 47,15,814/-. 8. IN THIS CONTEXT, LD. REPRESENTATIVE FOR THE ASSE SSEE POINTED OUT THAT IN THE RETURN OF INCOME ASSESSEE HAD CLAIMED THAT LONG TERM 4 ITA NO. 2915 /MUM/2013 (ASSESSMENT YEAR : 2009-10) CAPITAL LOSS OF RS.47,15,814/- RELATING TO THE ASSE SSMENT YEAR UNDER CONSIDERATION WAS LIABLE TO BE CARRIED FORWARD AND SET OFF AGAINST THE TAXABLE INCOME OF THE FUTURE YEARS AS THE PRESCRIBE D SECURITIES TRANSACTION TAX(STT) WAS PAID. THE SAID CLAIM OF T HE ASSESSEE WAS DENIED BY THE ASSESSING OFFICER BY APPLYING THE RAT IO OF JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. H ARPRASAD & COMPANY PVT. LTD., 99 ITR 118 (SC). THE LD. REPRESENTATIVE FOR THE ASSESSEE CONTENDED THAT THEREAFTER THE MUMBAI TRIBUNAL IN TH E CASE OF RAPTAKOS BRETT & CO. LTD. VS. DCIT, ITA NO.3317/MUM/2009 & 1 692/MUM/2010 , A.Y. 2007-08 DT. 10/6/2015 HAS UPHELD THE PLEA THA T THE LONG TERM CAPITAL LOSS WAS AVAILABLE TO BE SET OFF AGAINST LO NG TERM CAPITAL GAIN IN ACCORDANCE WITH SECTION 70(3) OF THE ACT. THE LD. REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE SAID DECISION HAS BEEN RENDERED BY THE TRIBUNAL AFTER DULY CONSIDERING THE RATIO OF TH E JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. HARPRA SAD & COMPANY PVT. LTD.(SUPRA). IN THIS BACKGROUND, THE LD. REPR ESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE ADDITIONAL GROUND OF APPEAL NOW SOUGHT TO BE RAISED BE ADMITTED IN AS MUCH AS THE SAME IS A PURE QUESTION OF LAW AND IS INDEED SUPPORTED BY A RECENT DECISION OF THE MUMBAI TRIBUNAL IN THE CASE OF RAPTAKOS BRETT & CO. LTD. D T.10/6/2015(SUPRA). 9. THE LD. DEPARTMENTAL REPRESENTATIVE APPEARING F OR THE REVENUE POINTED OUT THAT THE AFORESAID GROUND, THOUGH DECID ED BY THE ASSESSING OFFICER AGAINST THE ASSESSEE, WAS NOT RAISED BEFORE THE CIT(A). 10. HAVING CONSIDERED THE RIVAL STANDS, IN OUR VIEW , THE ADDITIONAL GROUND OF APPEAL NOW SOUGHT TO BE RAISED BY THE ASS ESSEE INVOLVES A POINT OF LAW AND THE RELEVANT FACTS BEING AVAILABLE ON RECORD, THE SAME 5 ITA NO. 2915 /MUM/2013 (ASSESSMENT YEAR : 2009-10) DESERVES TO BE ADMITTED FOR ADJUDICATION FOLLOWING THE RATIO OF THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF NATIONAL THERMAL POWER COMPANY LTD. VS. CIT, 229 ITR 383(SC) . WE HOLD SO. SINCE THE AFORESAID ISSUE WAS NOT ADJUDICATED BY CI T(A), THE LD. REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE SAME BE REMANDED BACK TO THE FILE OF CIT(A) FOR ADJUDICATION ON MERI TS. IN THE BACKGROUND OF THE AFORESAID PLEA, WE DEEM IT FIT AND PROPER TO ADMIT THE AFORESAID ADDITIONAL GROUND OF APPEAL AND REMAND THE SAME BAC K TO THE FILE OF CIT(A) FOR ADJUDICATION AS PER LAW. THUS, ON THIS ASPECT, ASSESSEE PARTLY SUCCEEDS. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 09/09/20 15. SD/- SD/- (SANJAY GARG) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMB ER MUMBAI,DATED 09/09/2015 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, MUMBA I VM , SR. PS