The ITO, Ward-4(2), Ahmedabad V. Shaishav Rakeshbhai Shah, Ahmedabad

ITA 2932/AHD/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 0630 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 8 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 04-08-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 11-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S N DIVATIA
• Keywords: Capital asset; Business income; Salary income; Earning of tax free income
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD , , BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER ./ I.T.A. NO.2932/AHD/2013 ( / ASSESSMENT YEAR : 2009-10) THE ITO WARD-4(2) AHMEDABAD / VS. SHAISHAV RAKESHBHAI SHAH E-37 AYOJANNAGAR NR.SHREYASH RAILWAY CROSSING PALDI, AHMEDABAD $ ./ ./ PAN/GIR NO. : AQMPS 3583 Q ( $& / APPELLANT ) .. ( '($& / RESPONDENT ) $&) / APPELLANT BY : SHRI JAMES KURIAN, SR.DR '($& *) / RESPONDENT BY : SHRI S.N. DIVATIA, AR +* / DATE OF HEARING 04/08/2016 ,-./* / DATE OF PRONOUNCEMENT 31/08/2016 / O R D E R PER SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-VIII, AHMEDABAD DATED 02/09/2013 FOR THE ASSESSMENT YEAR (AY) 2009-10. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERI ALS ON RECORD ARE AS UNDER:- ITA NO. 2932/AH D/2013 ITO VS. SHAISHAV RAKESHBHAI SHAH ASST.YEAR 2009-10 - 2 - 2.1. ASSESSEE IS AN INDIVIDUAL STATED TO BE DERIVIN G INCOME FROM SALARY, TRADING AND INVESTMENTS IN SHARES, DIVIDEND, INTERE ST, ETC. ASSESSEE FILED HIS RETURN OF INCOME FOR AY 2009-10 ON 29/09/2 009 DECLARING TOTAL INCOME OF RS.2,12,830/-. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER ASSESSMENT WAS FRAMED U/S.143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS 'THE ACT') VIDE OR DER DATED 23/12/2011 AND THE TOTAL INCOME WAS DETERMINED AT RS.2,12,830/ - WHEREIN DISALLOWANCE U/S.14A WAS MADE BY AO. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER (AO), ASSESSEE CARRIED THE MATTER BEFORE THE LD.CIT(A), WHO VIDE ORDER DATED 02/09/2013(IN APPEAL NO.CIT(A) - VIII/ITO/WD.4(2)/387/11-12) DECIDED THE ISSUE IN F AVOUR OF ASSESSEE. AGGRIEVED BY THE ORDER OF LD.CIT(A), REVENUE IS NOW IN APPEAL BEFORE US AND HAS RAISED FOLLOWING GROUND:- 1. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE MADE BY THE AO OF RS.75,10,403/- U/S.1 4A OF THE IT ACT R.W.R. 8D OF THE IT RULES, WITHOUT PROPERLY APPRECI ATING THE FACTS OF THE CASE AND THE MATERIAL BROUGHT ON RECORD. 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO NOTICED THAT ASSESSEE HAS EARNED DIVIDEND INCOME OF RS.3,50,076/ - AND LONG TERM CAPITAL GAIN (LTCG) OF RS.5,80,96,378/- WHICH WERE CLAIMED AS EXEMPT U/S.10 OF THE ACT. HE ALSO NOTICED THAT ASSESSEE H AD NOT DISALLOWED PROPORTIONATE EXPENDITURE INCURRED FOR EARNING THE EXEMPTED INCOME AS REQUIRED U/S.14A OF THE ACT. ASSESSEE WAS THEREFOR E SHOW-CAUSED AND ASKED AS TO WHY THE DISALLOWANCE OF EXPENSES SHOULD NOT BE MADE ITA NO. 2932/AH D/2013 ITO VS. SHAISHAV RAKESHBHAI SHAH ASST.YEAR 2009-10 - 3 - U/S.14A OF THE ACT TO WHICH ASSESSEE INTER-ALIA SUBMITTED THAT HE IS IN THE BUSINESS OF SHARES AND SECURITIES AND DIVIDEND INCO ME IS INCIDENTAL TO THE BUSINESS AND THEREFORE PROVISIONS OF SECTION 14A OF THE ACT DOES NOT APPLY. THE SUBMISSION OF THE ASSESSEE WAS NOT FOUN D ACCEPTABLE TO THE AO. HE THEREAFTER, FOLLOWING THE METHOD PRESCRIBED UNDER RULE 8D R.W.S.14A OF THE ACT WORKED OUT THE DISALLOWANCE OF EXPENSES AT RS.75,10,403/-. AGGRIEVED BY THE ORDER OF AO, ASS ESSEE CARRIED THE MATTER BEFORE THE LD.CIT(A) WHO DECIDED THE ISSUE B Y HOLDING AS UNDER:- 3.3 DECISION: I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, THE ASSESSMENT ORDER AND THE WRITTEN SUBMISSION OF THE APPELLANT. THE AO HAS MADE THE DISALLOWANCE BY APPLYING THE PROVISIONS OF RULE 8D AND SECTION 14 A. THE APPELLANT HAS SUBMITTED THAT HE WAS MAINTAINING TWO SETS OF ACCOUNT, THE PERSONAL AND FOR BUSINESS. HE WAS DOIN G BUSINESS OF TRADING IN SHARES. THE ACCOUNT OF THAT BUSINESS WER E SUBJECTED TO AUDIT AND THE TAX AUDIT REPORT UNDER SECTION 44AB WAS ALS O OBTAINED AND SUBMITTED DURING THE COURSE OF ASSESSMENT PROCEEDIN GS. FOR THE PURPOSE OF BUSINESS THE APPELLANT HAS SHOWN THE SHARES HELD AS STOCK IN TRADE. THE PERSONAL ACCOUNT THAT IS THE INVESTMENT PORTFOL IO CONTAINS THE CAPITAL ASSETS LIKE IMMOVABLE PROPERTY, SHARES AND SECURITIES AND OTHER INVESTMENT. A PERUSAL OF THE COMPUTATION OF INCOME SHOWN BY THE APPELLANT SHOW THAT IT HAS SHOWN INCOME FROM SALARY, INCOME FROM S ELF OCCUPIED HOUSE PROPERTY AND OTHER THAN SELF OCCUPIED HOUSE PROPERT Y, PROFITS AND GAINS OF BUSINESS OR PROFESSION, INCOME FROM SHARE IN PRO FIT OF FIRM, INCOME FROM SHORT-TERM CAPITAL GAINS AND INCOME FROM OTHER SOURCES. IT IS CLEAR FROM THE COMPUTATION OF INCOME THAT THE APPELLANT H AS NOT CLAIMED ANY DEDUCTION FROM ANY OTHER INCOME ON ACCOUNT OF MISCE LLANEOUS EXPENDITURE. FURTHER EXAMINATION OF THE ASSESSMENT ORDER AND THE COMPUTATION OF INCOME MADE BY THE AO IT IS NOTED TH AT THE AO HAS ITA NO. 2932/AH D/2013 ITO VS. SHAISHAV RAKESHBHAI SHAH ASST.YEAR 2009-10 - 4 - DISALLOWED THE CERTAIN EXPENSES ON ACCOUNT OF SECTI ON 14 A OUT OF THE BUSINESS INCOME(LOSS) CLAIMED BY THE APPELLANT. AFT ER EXAMINING ALL THE FACTS I AM OF THE CONSIDERED OPINION THAT THE DISAL LOWANCE UNDER SECTION 14A IS NOT WARRANTED IN THE CASE OF THE APPELLANT A S HE HAS SHOWN THE INCOME FROM TRADING OF SHARES AS A BUSINESS INCOME AND THE SHARES HAVE BEEN SHOWN AS THE CLOSING STOCK. THE APPELLANT HAS RIGHTLY RELIED ON THE JUDGEMENT OF KARNATAKA HIGH COURT IN THE CASE OF CC I LTD 20 TAXMAN.COM 196 WHEREIN IT HAS BEEN HELD THAT FOR TH E ASSESSEE WHO WAS A DEALER IN SHARES AND SECURITIES AND HE HAD NOT RE TAINED SHARES WITH INTENTION OF EARNING DIVIDEND AND DIVIDEND INCOME W AS INCIDENTAL TO HIS BUSINESS OF SALE OF SHARES WHICH REMAINED UNSOLD BY THE ASSESSEE THE DISALLOWANCE UNDER SECTION 14 A SHOULD NOT BE MADE. THE DECISION HAS FURTHER BEEN FOLLOWED BY THE JUDICIAL BENCH OF AHME DABAD ITAT IN THE CASE OF ETHIO PLASTICS PVT LTD. IN ITA NO. 848/AHD/ 2012 DATED 10/12/2012. WHILE DECIDING THE CASE AND THE HONOURA BLE BENCH HAS FOLLOWED THE DECISION OF KARNATAKA HIGH COURT AND T HE DECISION OF ITAT PUNE BENCH IN THE CASE OF APORVA PATNI 24 TAXMAN.CO M 223. THE FACTS OF THE APPELLANT HAS SHOWN THAT THE INCOM E FROM THE SALE AND PURCHASE OF SHARES AS TRADING AND BUSINESS AND HAS KEPT SEPARATE ACCOUNTS AND FURTHER IT IS NOT CLAIMED ANY EXPENDITURE OUT OF ANY OTHER INCOME ARE UNDISPUTED. THEREFORE, IN VIEW OF THE ABOVE MENTIONED DECISIONS AND THE FACTS OF THE CASE THE D ISALLOWANCE MADE BY THE AO UNDER SECTION 14 A READ WITH RULE 8D IS DIRE CTED TO BE DELETED. THE GROUND OF APPEAL IS ALLOWED. 3.1. AGGRIEVED BY THE ORDER OF THE ORDER OF THE LD. CIT(A), REVENUE IS NOW IN APPEAL BEFORE US. 4. BEFORE US, LD.SR.DR SUPPORTED THE ORDER OF AO. L D.AR ON THE OTHER HAND REITERATED THE SUBMISSIONS MADE BEFORE A O AND LD.CIT(A) AND FURTHER SUBMITTED THAT THE ISSUE IS ALSO COVERED IN FAVOUR OF ASSESSEE BY ITA NO. 2932/AH D/2013 ITO VS. SHAISHAV RAKESHBHAI SHAH ASST.YEAR 2009-10 - 5 - THE DECISION OF COORDINATE BENCH (ITAT C BENCH AH MEDABAD) IN THE CASE OF ANJALEE EXIM PRIVATE LIMITED VS. ACIT IN IT A NO.2386/AHD/11 FOR AY 2008-09, ORDER DATED 29 TH SEPTEMBER-2015. HE ALSO PLACED ON RECORD THE COPY OF THE AFORESAID DECISION. HE THUS SUPPORTED THE ORDER OF LD.CIT(A). 5. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE ISSUE IN THE PRESENT CASE IS WITH RESPECT TO DI SALLOWANCE OF EXPENDITURE U/S.14A OF THE ACT. IT IS AN UNDISPUTE D FACT THAT THE ASSESSEE IS DOING BUSINESS OF TRADING IN SHARES AND THE SHAR ES AT THE END OF THE YEAR ARE SHOWN AS STOCK-IN-TRADE AND THE INCOME FROM TRA DING OF SHARES HAS BEEN SHOWN AS BUSINESS INCOME BY THE ASSESSEE. WE FIND THAT THE LD.CIT(A), AFTER RELYING ON THE DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF CCI LTD. 20 TAXMANN.COM 196, HAS NOT ED THAT WHERE THE DIVIDEND INCOME WAS INCIDENTAL TO THE BUSINESS OF S ALES OF SHARES, NO DISALLOWANCE U/S.14A COULD BE MADE. WE FURTHER FIN D THAT COORDINATE BENCH IN THE CASE OF ANJALEE EXIM PRIVATE LIMITED VS. ACIT HAS SIMILARLY HELD THAT RULE 8D WILL HAVE NO APPLICATIO N WHEN THE SHARES ARE HELD AS STOCK-IN-TRADE. THE RELEVANT FINDINGS OF T HE COORDINATE BENCH ARE AS UNDER:- 4. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING P ERUSED THE MATERIAL ON RECORD, WE FIND THAT THE ISSUE IS COVER ED BY A COORDINATE BENCH DECISION IN THE CASE OF DCIT VS GULSHAN INVESTMENT CO LTD [(2013) 31 TAXMANN.COM 113 (KOL. - TRIB.)] INASMUCH AS EVEN IF THE ITA NO. 2932/AH D/2013 ITO VS. SHAISHAV RAKESHBHAI SHAH ASST.YEAR 2009-10 - 6 - PROVISIONS OF SECTION 14A ARE TO BE HELD APPLICABLE IN THIS CASE-AS WAS HELD THEREIN, COMPUTATION PROVISIONS UNDER RULE 8D2 (II) AND (III) WILL FAIL BECAUSE THE DIVIDEND YIELDING SHARES ARE HELD AS STOCK IN TRADE AND NOT AS INVESTMENTS, AND THE DISALLOWANCE UNDER RULE 8D(2)(I) WILL BE CONFINED TO ONLY DIRECT EXPENSES FOR EARNING THE TA X EXEMPT INCOME. IN THIS REGARD, FOLLOWING OBSERVATIONS MAY BE REFERRED TO: 5. WE CONSIDER IT APPROPRIATE TO BEGIN WITH REPRODU CING RULE 8 D OF THE INCOME TAX RULES, WHICH IS AS FOLLOWS: 'METHOD FOR DETERMINING AMOUNT OF EXPENDITURE IN RE LATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOME. 8D(1) WHERE THE ASSESSING OFFICER, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE OF A PREVIOUS YEAR, IS NOT SATISFIED WITH- (A) THE CORRECTNESS OF THE CLAIM OF EXPENDITURE MADE BY THE ASSESSEE; OR (B) THE CLAIM MADE BY THE ASSESSEE THAT NO EXPENDITURE HAS BEEN INCURRED, IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT FOR SUCH PREVIOUS YEAR, HE SHALL DETERMINE THE AMOUNT OF EXPENDITURE IN REL ATION TO SUCH INCOME IN ACCORDANCE WITH THE PROVISIONS OF SUB-RULE (2). (2) THE EXPENDITURE IN RELATION TO INCOME WHICH DOE S NOT FORM PART OF THE TOTAL INCOME SHALL BE THE AGGREGATE OF FOLLOWING AMOUNTS, NAMELY:- (I) THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCO ME WHICH DOES NOT FORM PART OF TOTAL INCOME; (II) IN A CASE WHERE THE ASSESSEE HAS INCURRED EXPENDITU RE BY WAY OF INTEREST DURING THE PREVIOUS YEAR WHICH IS NOT DIRECTLY ATTRIBUTABL E TO ANY PARTICULAR INCOME OR RECEIPT, AN AMOUNT COMPUTED IN ACCORDANCE WITH THE FOLLOWING FORMULA, NAMELY:- A X B C WHERE A = AMOUNT OF EXPENDITURE BY WAY OF INTEREST OTHER THAN THE AMOUNT OF INTEREST INCLUDED IN CLAUSE (I) INCURRED DURING THE PREVIOUS YEAR; B = THE AVERAGE OF VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE SH EET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR; C = THE AVERAGE OF TOTAL ASSETS AS APPEARING IN THE BALANCE SHEET OF THE ITA NO. 2932/AH D/2013 ITO VS. SHAISHAV RAKESHBHAI SHAH ASST.YEAR 2009-10 - 7 - ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR; (III) AN AMOUNT EQUAL TO ONE- HALF PER CENT OF THE AVERAGE OF THE VALUE OF INVEST MENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART O F THE TOTAL INCOME, AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR.' 3. FOR THE PURPOSES OF THIS RULE, THE 'TOTAL ASSETS ' SHALL MEAN, TOTAL ASSETS AS APPEARING IN THE BALANCE SHEET EXCL UDING THE INCREASE ON ACCOUNT OF REVALUATION OF ASSETS BUT IN CLUDING THE DECREASE ON ACCOUNT OF REVALUATION OF ASSETS.' 6. A PLAIN LOOK AT THE ABOVE RULE SHOWS THAT 8 D(2) (II) AND (III) CAN ONLY BE APPLIED IN THE SITUATIONS IN WHICH SHARES A RE HELD AS INVESTMENTS, AND THAT THIS RULE WILL NOT HAVE ANY A PPLICATION WHEN THE SHARES ARE HELD AS STOCK IN TRADE. IT IS SO FOR THE ELEMENTARY REASON THAT THE ONE OF THE VARIABLES ON THE BASIS O F WHICH DISALLOWANCE UNDER RULES 8D(2)(II) AND (III) IS TO BE COMPUTED IS THE VALUE OF 'INVESTMENTS, INCOME FROM WHICH DOES NOT O R SHALL NOT FORM PART OF TOTAL INCOME', AND, WHEN THERE ARE NO SUCH INVESTMENTS, THE RULE CANNOT HAVE ANY APPLICATION. WHEN NO AMOUNT CAN BE COMPUTED IN THE LIGHT OF THE FORMULA GIVEN IN RULE 8 D(II) AND (III), NO DISALLOWANCE CAN BE MADE UNDER RULE 8D (2)(II) AND (III) EITHER. AS HELD BY HON'BLE SUPREME COURT IN THE CASE OF CIT V. B C SRINIVASA SETTY [1981] 128 ITR 294, WHEN COMPUTATION PROVISIONS FAIL, THE CHARGING PROVISION S CANNOT BE APPLIED, AND BY THE SAME LOGIC, WHEN THE COMPUTATIO N PROVISIONS UNDER RULE 8 D (2) (II) AND (III) FAIL, DISALLOWANC E UNDER THE SAID PROVISIONS CANNOT BE MADE EITHER AS THE SAID PROVIS ION IS RENDERED UNWORKABLE. 5. IN VIEW OF THE ABOVE DISCUSSIONS, THE PLEA OF TH E ASSESSEE INDEED DESERVES TO BE UPHELD. WE DO SO, AND HAVING NOTED T HAT THERE ARE ADMITTEDLY NO DIRECTION EXPENSES INCURRED IN EARNIN G THE DIVIDENDS WHICH COULD QUALIFY FOR BEING COVERED BY RULE 8D2(I), WE DELETE THE IMPUGNED DISALLOWANCE OF RS 42,97,650. THE ASSESSEE GETS THE RELIEF ACCORDINGLY. ITA NO. 2932/AH D/2013 ITO VS. SHAISHAV RAKESHBHAI SHAH ASST.YEAR 2009-10 - 8 - 5.1. BEFORE US, REVENUE HAS NEITHER CONTROVERTED TH E FINDINGS OF LD.CIT(A) NOR HAS PLACED ANY CONTRARY BINDING DECI SION IN ITS SUPPORT. IN VIEW OF THE AFORESAID FACTS, WE SEE NO REASON TO IN TERFERE WITH THE ORDER OF THE LD.CIT(A) AND THUS THIS GROUND OF REVENUE IS DI SMISSED. 6. IN THE RESULT, REVENUES APPEAL STANDS DISMISSED . THIS ORDER PRONOUNCED IN OPEN COURT ON 31/08/2016 SD/- SD/- () () (RAJPAL YADAV) ( ANIL CHATURVEDI ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 31/ 08 /2016 3..,.../ T.C. NAIR, SR. PS !'#$#! / COPY OF THE ORDER FORWARDED TO : 1. $& / THE APPELLANT 2. '($& / THE RESPONDENT. 3. 456 7 / CONCERNED CIT 4. 7 ( ) / THE CIT(A)-VIII, AHMEDABAD 5. 89:'56 , 56/ , 4 / DR, ITAT, AHMEDABAD 6. :<=+ / GUARD FILE. / BY ORDER, (8' //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 4.8.16 (DICTATION-PAD 7+ P AGES ATTACHED AT THE END OF THIS APPEAL-FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 30.8.16 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.31.8.16 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 31.8.16 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER