HRISHIKESH J THACKERSEY, MUMBAI V. ITO 12(1)(4), MUMBAI

ITA 2941/MUM/2013

• Counselvise Citation: 294119914 RSA 2013
• Duration Of Justice: 1 year(s) 10 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-03-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 04-09-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 16-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JITENDRA KUMAR
• Assessee Lawyers: K GOPAL; NEHA PARANJPE
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH F, MUMBAI , !' !' !' !' ''' ''' ''' '''# ## # $ $ $ $ BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER ITA NO. : 2941/MUM/2013 (ASSESSMENT YEAR: 2009-10) SHRI HRISHIKESH J THACKERSEY, 213, SIR VITHALDAS CHAMBERS, 16, MUMBAI SAMACHAR MARG, FORT, MUMBAI -400 023 .: PAN: ABZPT 8307 M VS INCOME-TAX OFFICER-12(1)(4), ROOM NO. 115, 1 ST FLOOR, AAYAKAR BHAVAN, M K ROAD, MUMBAI -400 020 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI K GOPAL & MS. NEHA PARANJPE RESPONDENT BY : SHRI JITENDRA KUMAR ! ' # $ /DATE OF HEARING : 08-01-2015 %&' # $ / DATE OF PRONOUNCEMENT : 04-03-2015 ORDER , , , , : :: : PER VIVEK VARMA, JM: THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) 23, MUMBAI, DATED 04.02.2013, WHEREIN, THE ONLY ISSUE PERTAINS TO THE SUSTAINING OF DISALLOWANCE U/S 14A TO THE EXTENT OF RS. 1,60,393/-. 2. THE AO WHILE CONDUCTING THE ASSESSMENT PROCEEDINGS FOUND OUT THAT THE ASSESSEE HAD DECLARED DIVIDEND INCOME ON EQUITY SHARES AS WELL AS UNITS OF MUTUAL FUNDS TO THE EXT ENT OF RS. 4,70,760/- OUT OF THE TOTAL INCOME DECLARED AT RS. 5,14,966/-. THE BRIEF FACTS OF THE CASE, ARE THAT THE ASS ESSEE IS ENGAGED IN THE TRADING AND INVESTMENT IN SHARES & SECUR ITIES AND ALSO UNITS OF MUTUAL FUNDS BY AVAILING PORTFOLIO MANAGEMEN T SHRI HRISHIKESH J THACKERSEY ITA 2941/M/2013 2 SERVICES THROUGH M/S PARAG PARIKH FINANCIAL ADVISORY SER VICES LTD. THE ASSESSEE ALSO DOES TRANSACTIONS IN THE DERIVAT IVES. THE AO WHILE EXAMINING THE AMOUNT OF DIVIDEND DECLARED BY THE ASSESSEE AND CLAIMED AS EXEMPT, SHOW CAUSED THE ASSESS EE AS TO WHY THE PROVISIONS OF SECTION 14A R.W. RULE 8D SHOULD NOT BE INVOKED AND A PRESCRIBED DISALLOWANCE BE NOT COMPUTED UN DER THESE PROVISIONS. 3. IN RESPONSE TO THIS, THE ASSESSEE FILED A DETAILED REPLY, A. THE ASSESSEE IS AN INDIVIDUAL WHO MAINTAINS TWO SEPARATE SET OF BOOKS OF ACCOUNTS. ONE SET FOR DEAL ING SHARES AND SECURITIES MANAGED BY PPFAS AND THE OTHE R SET FOR PERSONAL INVESTMENTS MADE IN SHARES AND MUT UAL FUNDS. B. ASSESSEE MAKES HIS PERSONAL INVESTMENTS IN SHARE S AND MUTUAL FUNDS FOR WHICH SEPARATE SET OF BOOKS OF ACCOUNTS ARE MAINTAINED. THE INCOME EARNED I.E. DIVIDEND INCOME (TAX-FREE INCOME) FROM THE ABOVE PERSONAL INVESTMENTS IS OFFERED TO TAX UNDER THE HE AD 'INCOME FROM OTHER SOURCES'. THE ASSESSES HAS INCUR RED DEMAT CHARGES (DRAWINGS A/C) OF RS. 1,686/- AND THE SOME HAS NOT BEEN CLAIMED WILE COMPUTING TOTAL INCOME. ALSO THE ASSESSEE HAS NOT SOLD ANY INVESTM ENTS DURING THE YEAR. THE ASSESSEE HAS PURCHASED 1000 SHARES OF SDI SMART BOX SOLUTION P. LTD. WHICH IS A NON LISTED SECURITIES AND THUS NO EXPENDITURE IS INCURR ED WITH RESPECT TO SAME. C. THUS NO DISALLOWANCE U/S 14A IS REQUIRED WITH RE SPECT TO THE DIVIDEND EARNED FROM PERSONAL INVESTMENTS AS NO EXPENDITURE IN RELATION TO SUCH EXEMPT INCOME IS CL AIMED IN COMPUTING TOTAL INCOME. D. THE ASSESSEE IS ALSO CARRYING ON BUSINESS OF BUY ING AND SELLING OF SHARES AND SECURITIES. THE SAME HAS MANAGED BY PPFAS A PORTFOLIO MANAGEMENT SERVICES. THE INCOME EARNED FROM PORTFOLIO MANAGED BY PPFAS I S OFFERED TO TAX UNDER THE HEAD PROFITS AND GAINS FR OM BUSINESS AND PROFESSION. THE DIVIDEND INCOME EARNE D IS INCIDENTAL TO THE BUSINESS OF DEALING IN SHARE A ND SECURITIES. THE PROFITS EARNED FROM PMS A/C ARE COR RECTLY OFFERED TO TAX UNDER THE APPROPRIATE HEAD. THE EXPE NSES CLAIMED IN PROFIT & LOSS A/C OF PMS ARE NECESSARY F OR RUNNING THE BUSINESS. THE MAIN OBJECT IS TO TRADE I N SHARES AND EARN PROFIT FROM TRADING. DIVIDEND INCOM E IS AN INCIDENTAL INCOME OF THE SAME BUSINESS. THUS THE RE ARISES NO QUESTION OF DISALLOWANCE U/S 14A. E. YOUR APPELLANT IS RELYING ON THE DECISION OF THE HONBLE TRIBUNAL IN THE CASE OF PAWAR KUMAR PARMESHWARLAL V ACIT 4(2) [ITA -530/MUM/2009/AY 05-06] AND SUNDHIR KAPADIA IN ITA NO. 7888/M/03 IN SUPPORT OF THE CLAI M THAT NO EXPENSES HAVE BEEN CLAIMED FOR THE PURPOSE OF EARNING EXEMPT INCOME. SHRI HRISHIKESH J THACKERSEY ITA 2941/M/2013 3 F. IN VIEW OF THE ABOVE FACTS AND LEGAL POSITION ON THE MATTER NO DISALLOWANCE IS WARRANTED UNDER THE PROVISIONS OF SECTION 14A OF THE INCOME TAX ACT, 19 61 4. THIS REPLY OF THE ASSESSEE DID NOT FIND FAVOUR WITH THE AO. HE, THEREFORE, COMPUTED THE DISALLOWANCE UNDER SECTION 14A AS PER THE PROVISIONS OF RULE 8D AT RS. 1,60,393/-. 5. AGGRIEVED, THE ASSESSEE APPROACHED THE CIT(A), BEFORE WHOM HE REITERATED THE SUBMISSIONS MADE BEFORE THE AO A ND PLEADED THAT THE DISALLOWANCE MADE U/S 14A R.W. RULE 8D W AS INAPPLICABLE. 6. THE CIT(A), ON GOING THROUGH THE SUBMISSIONS OF THE ASSESSEE RELIED ON THE DECISION OF ITAT CHENNAI IN THE CAS E OF LAKSHMI RING TRAVELLERS REPORTED IN TS-210-ITAT-2012 (CHNY.) WHEREIN IT WAS HELD THAT SECTION 14A IS A DEEMING PROVISION FOR PRESUMPTIVE DISALLOWANCE WHICH WOULD BE ATTRACTED BY THE FACE OF THE STATUTE EVEN WHEN THE ASSESSEE CLAIMS THAT NO EXPENDITURE INCURRED IN RELATION TO THE EXEMPT INCOME. ACCORDING TO HIM WHEN THE DEEMING PROVISION IS MADE ON TH E BASIS OF STATUTORY PRESUMPTION, THE REQUIREMENTS OF FACTUA L EVIDENCE GETS REPLACED AND IN THAT CASE THE AO HAS TO FOLLOW THE CONSEQUENCES AS PER THE STATUTE. HE, THEREFORE, SUSTAINE D THE DISALLOWANCE ON FURTHER RELIANCE ON THE DECISION OF CO-ORDINA TE BENCH AT MUMBAI IN THE CASE OF JV INDUSTRIES LTD. IN ITA 7088/MUM/2011. AGAINST THIS ORDER OF THE CIT(A), THE ASSES SEE IS IN APPEAL BEFORE THE ITAT. 7. BEFORE US THE AR REITERATED THE SUBMISSIONS MADE BY THE ASSESSEE BEFORE THE REVENUE AUTHORITIES AND SUBMITTED T HAT THE REVENUE AUTHORITIES HAVE MECHANICALLY PROCEEDED TO INVOK E THE PROVISIONS OF SECTION 14A AND COMPUTED THE DISALLOWANCE THEREON. THE PROVISIONS OF SECTION 14A(2) AND 14A(3) ARE VERY SPECIFIC IN THEIR OWN FIELDS WHEREIN THEY HAVE PROVIDED THAT THE SHRI HRISHIKESH J THACKERSEY ITA 2941/M/2013 4 DISALLOWANCE COULD BE MADE ONLY WHEN THE AO PROCEEDS TH E EXPENSE THROUGH THE BOOKS OF ACCOUNT, AS MAINTAINED BY THE ASSESSEE. 8. CONSEQUENT TO THIS, THE AO HAS TO PASS A SPEAKING ORDER AS TO WHY AND HOW THE COMPUTATION OF DISALLOWANCE IS BEING MADE. BUT HERE IS A CASE WHERE THE AO HAS COMPUTED TH E DISALLOWANCE ON A MECHANICAL BASIS. NOWHERE IN THE ORDERS OF THE REVENUE AUTHORITIES DO WE FIND THAT WHAT ARE THE EX ACT CONTENTS OF THE DIVIDEND TOTALING TO RS. 4,70,760/- AND NOW HERE IN THE ORDER OF THE AO DO WE FIND THAT ANY DESCRIPTION WIT H REGARD TO THE EXPENSES DEBITED TO THE P&L ACCOUNT HA VE BEEN DISCUSSED BY THE AO. 9. WHEN WE READ SECTION 14A(2), IT SAYS, THE ASSESSING OFFICER SHALL DETERMINE THE AMOUNT O F EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT IN ACCORDANCE WITH SUCH METHO D AS MAY BE PRESCRIBED, IF THE ASSESSING OFFICER, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS A CT. 10. THE WORDS THAT NEED REFERENCE IN THE SECTION ARE, IF THE AO, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM., WHICH MEANS THAT BEFORE GOING TO THE COMPUTATION, THE AO HAS TO CROSS THE BARR IER OF THE SATISFACTION WITH THE CORRECTNESS OF THE CLAIM, THEN, THE A O WOULD BE PERMITTED TO APPLY THE PROVISION UNDER RULE 8D . BUT ONCE, THE AO OBSERVES THAT THE REPLY OF THE ASSESSEE HAS BEEN CONSIDERED, THEN HE GETS THE LICENSE TO MOVE FORWARD AND COMPUTE THE DISALLOWANCE AS PER PRESCRIBED RULE. BUT, IN T HE INSTANT CASE, THE AO NEITHER DECIPHERED THE EXACT CONTE NTS OF THE DIVIDEND TOTALING TO RS. 4,70,760/- NOR DID HE BOTHER TO DIS SECT THE EXPENSES AS DEBITED TO THE P&L ACCOUNT. SHRI HRISHIKESH J THACKERSEY ITA 2941/M/2013 5 11. IN THE LIGHT OF THESE, PLACING RELIANCE ON THE DECISION OF J K INDUSTRIES AS IN ITA 7088/MUM/2011 FOR AY 2008-09 VIDE ORDER DATED 21.11.2012 (WHEREIN ONE OF US WAS A PARTY) HAVE HE LD THAT THE DISALLOWANCE COMPUTED IN A MECHANICAL MANNER CANNOT BE SUSTAINED, AS IT IS NOT ALLOWED BY THE STATUTE. IN ITA 7088/MUM/2011 IN THE CASE OF J K INDUSTRIES, THE TRIBUNA L HELD AS UNDER: WE HAVE HEARD THE RIVAL CONTENTIONS AND WE ARE OF T HE VIEW THAT ON BOTH THE COUNTS, I.E. THE APPLICATION OF THE RAT IO LAID DOWN BY THE BOMBAY HIGH COURT IN GODREJ & BOYCE MFR. CO. LT D., REPORTED IN 328 ITR 81 (BOM), WHERE THE HONBLE JURISDICTION AL HIGH COURT HAS HELD THAT RULE 8D SHALL BE APPLICABLE FROM ASSE SSMENT YEAR 2008-09 ONWARDS AND ALSO THE RATIO LAID DOWN BY THE SPECIAL BENCH OF THE HONBLE ITAT AT DELHI IN THE CASE OF C HEMINVEST LTD. VS ITO 317 ITR AT 86 (DEL-SB)), RELIED ON BY THE CIT(A), THE CASE IS AGAINST THE ASSESSEE. 12. WE THEREFORE ARE OF THE OPINION THAT THE REVENUE AUTHORITIES COMMITTED AN ERROR IN COMPUTING THE DISALLOWANC E MECHANICALLY. WE, THEREFORE, SET ASIDE THE ORDER OF THE CIT (A) AND DIRECT THE AO TO RECOMPUTE THE DISALLOWANCE IN ACCORDANC E WITH THE PROVISIONS OF SECTION 14A(2) & 14A(3) AND IN ACCORDANCE WITH THE DECIDED CASE LAWS, AS REFERRED TO BY US IN THE ORDER AND BY THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF GO DREJ AND BOYCE MFG. CO. LTD. VS DCIT, REPORTED IN 43 DTR 177(BOM). 13. IN THE RESULT, APPEAL IS TREATED AS ALLOWED FOR STATISTIC AL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 04/03/2015. SD/- SD/- ( ) ( ) + + + + , ' , ' , ' , ' + + + + (R.C. SHARMA) ( VIVEK VARMA ) ACCOUNTANT MEMBER J UDICIAL MEMBER MUMBAI, DATE: 04/03/2015 -/ COPY TO:- SHRI HRISHIKESH J THACKERSEY ITA 2941/M/2013 6 1) / THE APPELLANT. 2) / THE RESPONDENT. 3) THE CIT(A) -23, MUMBAI. 4) THE CIT-12, MUMBAI/CIT -12, MUMBAI. 5) / THE D.R. H BENCH, MUMBAI. 6) ./ 0 ' COPY TO GUARD FILE. 1+2 / BY ORDER / / TRUE COPY / / 3 / 1 -4' , 5' DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI *CHAVAN, SR.PS