DCIT CC 3(2) CEN RG 3, MUMBAI V. VIVEK MEHROTRA, MUMBAI

ITA 3029/MUM/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 4977 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-01-2019
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 27-04-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJEEV GUBGOTRA
• Keywords: Business income; Opportunity of being heard; Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH F MUMBAI BEFORE SHRI C.N. PRASAD (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 3029/MUM/2017 ASSESSMENT YEAR: 2011 - 12 DCIT CC 3(2), CENTRE RANGE - 3, ROOM NO. 1913, 19 TH F LOOR, AIR INDIA BUILDING, NARIMAN POINT, MUMBAI - 400021. VS. SHRI VIVEK MEHROTRA, 7, 1 ST F LOOR, NILAYAN HOUSING SOCIETY, PLOT NO. 231, OPP GTB NAGAR RAILWAY STATION, SION (E), MUMBAI - 400022 PAN NO. AAHPM4127B APPELLANT RESPONDENT REVENUE BY : MR. RAJEEV GUBGOTRA, DR ASSESSEE BY : MR. NITESH JOSHI , AR DATE OF HEARING : 25 /10/2018 DATE OF PRONOUNCEMENT : 21/01/2019 ORDER PER N.K. PRADHAN, AM THIS IS AN APPEAL FILED BY THE REVENUE . THE RELEVANT ASSESSMENT YEAR IS 2011 - 1 2 . THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) - 38 , MUMBAI [IN SHORT CIT(A)] AND ARISES OUT OF THE ASSESSMENT COMPLETED U/S 143(3) OF THE INCOME TAX ACT 1961, (THE ACT). SHRI VEVEK MEHROTRA ITA NO. 3029/MUM/2017 2 2. THE GROUND OF APPEAL READ S AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) E RRED IN DELETING THE DISALLOWANCE TO THE EXTENT OF RS.2,81,54,633/ - U/S 14A R.W. RULE 8D OF THE IT RULE. 3. IN A NUTSHELL, THE FACTS ARE THAT THE ASSESSEE FILED HIS RETURN OF INCOME FOR THE ASSESSMENT YEAR (AY) 2011 - 12 ON 29.09.2011 DECLARING TOTAL INCOME AT RS.10,67,92,460/ - . THE ASSESSEE HAS DECLARED INCOME FROM HOUSE PROPERTY, BUSINESS INCOME, SHORT TERM CAPITAL GAINS, LONG TERM CAPITAL GAINS AND INCOME FROM OTHER SOURCES. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS EARNED A DIVIDEND INCOME OF RS.3,54,15,176/ - ON SHARES AND CLAIMED IT AS EXEMPT U/S 10(34) OF THE ACT. IN RESPONSE TO A QUERY RAISED BY THE ASSESSING OFFICER ( AO ) TO EXPLAIN AS TO WHY DISALLOWANCE U/S 1 4A R.W. RULE 8D SHOULD NOT BE MADE ON CORRESPONDING EXPENSES, THE ASSESSEE SUBMITTED VIDE LETTER DATED 07.03.2014 THAT AS AGAINST THE EXEMPT INCOME CLAIMED, HE HAS ADDED BACK IN HIS COMPUTATION OF INCOME, A SUM OF RS.13,22,294/ - U/S 14A OF THE ACT. ALSO TH E ASSESSEE STATED IN HIS SUBMISSION BEFORE THE AO THAT : THE LD. CIT(A) AND THE HONBLE ITAT HAVE BOTH DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE FOR AY 2008 - 09 AND AY 2009 - 10. THE ASSESSEE IS ENGAGED IN TRADING OF SHARES AND SECURITIES AND HOLDING SHARES OF RS.102.88 CRORES AS STOCK - IN - TRADE AND IT IS A WELL S ETTLED LAW THAT THE PROVISIONS OF SECTION 14A ARE NOT APPLICABLE TO SHARES HELD AS STOCK - IN - TRADE, AS THE DIVIDEND INCOME IS ONLY OF AN INCIDENTAL NATURE AND THE ACTIVITY OF TRADING IN SHARES RESULT IN SHRI VEVEK MEHROTRA ITA NO. 3029/MUM/2017 3 TAXABLE INCOME PER SE. ALSO AS REGARDS THE PERSONAL BA LANCE SHEET OF THE ASSESSEE, NO EXPENDITURE HAS BEEN CLAIMED IN THE SAME SO AS TO ATTRACT THE PROVI SIONS OF SECTION 14A OF THE ACT . HOWEVER, THE AO WAS NOT CONVINCED WITH THE ABOVE EXPLANATION OF THE ASSESSEE FOR THE REASON THAT THE WORKING OF DISALLOWA NCE U/S 14A MADE BY THE ASSESSEE AT RS.13,22,294/ - HAS NOT BEEN DETERMINED AS PER RULE 8D OF THE INCOME TAX RULES, 1962 (THE RULES). THEREFORE, THE AO COMPUTED THE DISALLOWANCE AS PER RULE 8D WHICH COMES TO RS.2,94,76,927/ - . AS THE ASSESSEE HAD MADE A SUO MOTU DISALLOWANCE OF RS.13,22,294/ - , THE AO RESTRICTED THE DISALLOWANCE TO RS.2,81,54,633/ - (RS.2,94,76,927/ - MINUS RS.13,22,294/ - ). 4. AGGRIEVED BY THE ORDER OF THE AO THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A). WE FIND THAT THE LD. CIT(A), FOLLOW ING THE DECISION OF THE HIGH COURT IN CCI LTD. V. JCIT 206 TAXMAN 563 (KARN.), LEENA RAMCHANDRAN 2010 TIOL 541 (KER.) AND THE ORDER OF THE TRIBUNAL IN DAGA CAPITAL MANAGEMENT (P.) LTD ., INDIA ADVANTAGE SECURITIES LTD. (ITA NO. 3724/MUM/2005) AND ESQUARE PV T. LTD . (ITA NO. 5688/MUM/2011), HELD THAT SECTION 14A OF THE ACT IS NOT APPLICABLE IN RESPECT OF DIVIDEND INCOME RECEIVED FROM SHARES HELD AS STOCK - IN - TRADE. THE LD. CIT(A) FOUND THAT THE ISSUE OF DISALLOWANCE U/S 14A AND THE APPLICABILITY OF RULE 8D HAVE ALREADY BEEN DELIBERATED UPON BEFORE THE APPELLATE AUTHORITIES IN APPELLANTS OWN CASE AND ORDERS HAVE BEEN PASSED BY THE ITAT, MUMBAI FOR THE AYS 2008 - 09, 2009 - 10 AND 2010 - 11, UNDER SIMILAR CIRCUMSTANCES, ALLOWING THE APPEAL OF THE APPELLANT. SHRI VEVEK MEHROTRA ITA NO. 3029/MUM/2017 4 ALSO RELYI NG ON THE DECISION IN HDFC BANK LTD. V. DCIT [2016] 67 TAXMANN.COM 42 (BOM), THE LD. CIT(A) HELD THAT NO DISALLOWANCE OF EXPENDITURE CAN BE MADE U/S 14A OF THE ACT WITH RESPECT TO THE SHARES HELD BY THE TAXPAYERS AS STOCK - IN - TRADE. THUS THE LD. CIT(A) RE STRICTED THE DISALLOWANCE OF RS.2,81,54,633/ - MADE BY THE AO TO THE SUO MOTU DISALLOWANCE OF RS.13,22,204/ - DONE BY THE ASSESSEE. 5. BEFORE US, THE LD. DR SUBMITS THAT THE DISALLOWANCE U/S 14A R.W. RULE 8D CAN BE MADE IN CASE OF SHARES HELD BY TAXPAYERS A S STOCK - IN - TRADE, IN VIEW OF THE JUDGMENT OF THE HONBLE SUPREME COURT IN MAXOPP INVESTMENT LTD. V. CIT (2018) 402 ITR 640 (SC). THE LD. DR THUS SUPPORTS THE ORDER PASSED BY THE AO. 6. ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSESSEE FILES A PAPER BOOK (P/B) CONTAINING (I) COPY OF CONSOLIDATED FINANCIAL STATEMENT FOR FY 2010 - 11, (II) COPY OF BUSINESS SET FINANCIAL STATEMENT FOR FY 2010 - 11, (III) COPY OF PERSONAL SET FINANCIAL STATEMENT FOR FY 2010 - 11, (IV) COPY OF TAX AUDIT REPORT FOR FY 2010 - 11, (V) COP Y OF COMPUTATION OF INCOME FOR AY 2011 - 12, (VI) COPY OF WRITTEN SUBMISSION TO AO DT. 24.02.2014 ALONG WITH RELEVANT ANNEXURE AND (VII) COPY OF WRITTEN SUBMISSION TO CIT(A) DT. 07.12.2016 . THE LD. COUNSEL FILES A COPY OF THE ORDER OF THE TRIBUNAL IN ASSES SEES OWN CASE FOR AYS 2008 - 09, 2009 - 10 AND 2010 - 11 IN SUPPORT OF HIS ARGUMENT. SHRI VEVEK MEHROTRA ITA NO. 3029/MUM/2017 5 FURTHER THE LD. COUNSEL FILES A COMPUTATION SHEET MENTIONING (I) THE SUO MOTU DISALLOWANCE OF RS.13,22,294/ - MADE BY THE ASSESSEE AND NET ADDITION OF RS.2,81,54,633/ - MADE BY THE AO U/S 14A, (II) THE SUO MOTU DISALLOWANCE OF RS.13,22,294/ - MADE BY THE ASSESSEE AND NET ADDITION OF RS.94,28,114/ - AS PER THE ASSESSEE U/S 14A. WHILE ARRIVING AT THE ABOVE COMPUTATION, THE LD. COUNSEL HAS MENTIONED THE TOTAL VALUE OF NON - TAXABLE I NVESTMENT AS ON 31.03.2011 AND 01.04.2010. ALSO AS PER EXHIBIT - A, CLOSING STOCK AS ON 31.03.2011 ON WHICH DIVIDEND EARNED IN FY 2010 - 11 HAS BEEN MENTIONED. IN EXHIBIT - B, OPENING STOCK AS ON 01.04.2010 ON WHICH DIVIDEND EARNED IN FY 2010 - 11 HAS BEEN STA TED. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. THE REASONS FOR OUR DECISIONS ARE GIVEN BELOW. IN THE CASE OF MAXOPP INVESTMENT LTD . (SUPRA), IT HAS BEEN HELD THAT IN THOSE CASES, WHERE SHARES ARE HELD AS STOCK - IN - TRADE, MAIN PURPOSE IS TO TRADE IN THOSE SHARES AND EARN PROFITS THERE FROM , IN THE PROCESS, CERTAIN DIVIDEND IS ALSO EARNED, THOUGH INCIDENTALLY, WHICH IS ALSO AN INCOME. THIS TRIGGERS APPLICABILITY OF SECTION 14A WHICH IS BASED ON THEORY OF APPORTIONM ENT OF EXPENDITURE BETWEEN TAXABLE AND NON - TAXABLE INCOME. THEREFORE , TO THAT EXTENT, EXPENDITURE INCURRED IN ACQUIRING THOSE SHARES WILL HAVE TO BE APPORTIONED. WE OBSERVE THAT THE ASSESSEE HAS FILED A COMPUTATION WITH NET DISALLOWANCE OF RS.94,28,114/ - ALSO U/S 14A, HAVING CONSIDERED THE TOTAL VALUE OF NON - TAXABLE INVESTMENTS AS ON 31.03.2011 AND 01.04.2010. IT IS SHRI VEVEK MEHROTRA ITA NO. 3029/MUM/2017 6 SUPPORTED BY THE CLOSING STOCK AS ON 31.03.2011 ON WHICH DIVIDEND WAS EARNED IN FY 2010 - 11 AND OPENING STOCK AS ON 01.04.2010 ON WHICH DIVID END WAS EARNED IN FY 2010 - 11. IN THE CASE OF ACIT V. VIREET INVESTMENT (P) LTD. [2017] 82 TAXMANN.COM 415 (DELHI - TRIB ) (SB), IT HAS BEEN HELD BY THE SPECIAL BENCH THAT ONLY THOSE INVESTMENTS ARE TO BE CONSIDERED FOR COMPUTING AVERAGE VALUE OF INVESTMENT WHICH YIELDED EXEMPT INCOME DURING THE YEAR. THE LATEST COMPUTATION SHEET FILED BY THE LD. COUNSEL, WHEREIN NET ADDIT ION OF RS.94,28,114/ - ALSO HAS BEEN ARRIVED AT BY THE ASSESSEE , WAS NOT SUBMITTED EITHER BEFORE THE AO OR THE LD. CIT(A). WE ARE OF THE CONSIDERED VIEW THAT IN THE LIGHT OF THE DECISIONS MENTIONED HEREINABOVE, THE PRESENT MATTER MAY BE EXAMINED BY THE AO. THEREFORE, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE THE MATTER TO THE FILE OF THE AO TO MAKE A DE NOVO ORDER IN THE LIGHT OF THE DISCUSSION ABOVE, AFTER GIVING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE DIRECT THE ASSESSEE TO FIL E THE RELEVANT DOCUMENTS/EVIDENCE BEFORE THE AO. 8. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 21/01/2019. SD/ - SD/ - (C.N. PRASAD) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 21/01/2019 RAHUL SHARMA, SR. P.S. SHRI VEVEK MEHROTRA ITA NO. 3029/MUM/2017 7 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// (SR. PRIVATE SECRETARY) ITAT, MUMBAI