Ethio Plastics Pvt.Ltd., Baroda V. The Dy.CIT.,Circle-1(2), Baroda

ITA 3033/AHD/2010

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6956 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 1 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-12-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 10-12-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 04-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B KULSHRESTHA
• Keywords: Business income
• Section: 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD 0 0 , , BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER ./ ITA NO . 3033 / AHD/ 201 0 [ [ / ASSESSMENT YEAR : 20 0 6 - 0 7 ETHIO PLASTICS PRIVATE LIMITED, 61, KUNJ SOCIETY , ALKAPURI, BARODA PAN : AAACE 4587 D VS DCIT, CIRCLE 1(2) BARODA / (APPELLANT) / (RESPONDENT) ASSESSEE(S) BY : NONE REVENUE BY : SHRI B. KULSHRESTHA, SR. DR. / DATE OF HEARING : 10 / 12 /2014 / DATE OF PRONOUNCEMENT: 12 /1 2 /2014 / O R D E R PER SHRI N.S. SAINI, ACCOUNTANT MEMBER: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) - I , BARODA DATED 26 . 08.2010 FOR THE ASSESSMENT YEAR 20 0 6 - 0 7 . 2. THE GROUNDS OF APPEAL TAKEN BY THE ASSESSEE READ AS UNDER: - 1. THE L EARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF THE A.O. OF DISALLOWING RS.44,23,957/ - U/S 14A(2) & (3) OF THE ACT READ WITH RULE 8D ON THE GROUND THAT THESE PROVISIONS ARE APPLICABLE RETROSPECTIVELY AND ON THE PRIN CIPLE OF CONTEMPORANEOUS EXPOSITIO. EVEN OTHERWISE NO SUCH DISALLOWANCE IS CALLED FOR AND THE SAME BE DELETED. ITA NO. 3033/AHD/2010 ETHIO PLASTICS PRIVATE LIMITED FOR AY 2006 - 07 2 2. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF THE A.O. OF DISALLOWING RS.36,32,762/ - OF INTEREST EXPENDITURE, RS.6,91,195/ - OUT OF ADMINISTRATIVE AND OTHER EXPENSES AND AD HOC RS.1,00,000/ - OUT OF MISCELLANEOUS EXPENSES. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS SHOWN EXEMPT DIVIDEND INCOME OF RS.2,90,60,570/ - . HE ALSO OBSERVED THAT IN REPLY TO THE SHOW - CAUSE NOTICE OF THE ASSESSING OFFICER AS TO WHY DISALLOWANCE U/S 14A SHOULD NOT BE MADE FOR EXPENSES RELATING TO THE EARNING OF THE EXEMPT DIVIDEND INCOME, THE ASSESSEE SUBMITTED THAT THE BUSINESS OF THE ASSESSEE CONSISTS OF EXPORTING GOODS AND DEALING IN SHARES AND SECURITIES. HE FURTHER SUBMITTED THAT THEY REQUIRE SHARES FOR DEALING IN DERIVATIVES WHICH WAS THEIR MAJOR BUSINESS ACTIVITIES. THEREFORE, IT WAS SUBMITTED THAT SECTION 14A READ WITH RULE 8D COULD NOT BE APPLIED TO THEM. 4. THE ASSESSING OFFICER DID NOT FIND THE REPLY OF THE ASSESSEE CONVINCING AND HENCE, MADE DISALLOWANCE U/S 14A OF RS.53,92,005/ - . 5 . THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) WHO RESTRICTED THE DISALLOWANCE TO RS.44,23,957/ - . 6. BEING STILL AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 7. THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE HAS FILED ADJOURNMENT APPLICATION FOR ADJOURNMENT OF THE HEARING ON THE GROUND THAT MR. S.N. SOPARKAR, SENIOR ADVOCATE WHO HAS TO ARGUE THE APPEAL BEFORE THE HONBLE BENCH IS TRAVELLING TO MUMBAI FOR PROFESSIONAL WORK. ITA NO. 3033/AHD/2010 ETHIO PLASTICS PRIVATE LIMITED FOR AY 2006 - 07 3 THE REASON STATED IN THE ADJOURNMENT APPLICATION WAS NOT FOUND CONVINCING BY THE BENCH AND THEREFORE, THE ADJOURNMENT APPLICATION WAS REJECTED AND THE BENCH PROCEED ED TO DECIDE THE APPEAL ON MERIT ON THE BASIS OF THE MATERIAL AVAILABLE ON RECORD AND AFTER CONSIDERING THE SUBMISSIONS OF THE DE PARTMENTAL REPRESENTATIVE. 8. THE DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDER OF THE ASSESSING OFFICER. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIAL AVAILABLE ON RECORD. THE UNDISPUTED FACTS OF THE CASE ARE THAT THE ASSESSEE DURING THE YEAR UNDER APPEAL HAS SHOWN EXEMPT DIVIDEND INCOME OF RS.2,90,60,570/ - . THE ASSESSEE SUBMITTED BEFORE THE ASSESSING OFFICER THAT THE ASSESSEE WAS IN THE BUSINESS OF DERIVATIVES AND THEREFORE, HAD TO PURCHASE SHARES WHICH IS THE BUSINESS ACTIVITY OF THE ASSESSEE AND HENCE, THE PROVISIONS OF SECTION 14A READ WITH RULE 8D WERE NOT APPLICABLE TO IT. HOWEVER, THE ASSESSING OFFICER, NOT BEING SATISFIED WITH THE EXPLANATION OF THE ASSESSEE, MADE DISALLOWANCE U/S 14A OF 53,92,005/ - WHICH WAS RESTRICTED TO RS. 44,23,957/ - ON APPEAL BY THE CIT(A). 10. WE FIND THAT SIMILAR ISSUE HAD COME UP BEFORE THIS BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE IN THE ASSESSMENT YEAR 2008 - 09, WHEREIN THE TRIBUNAL VIDE ITS ORDER DATED 10.12.2012 PASSED IN ITA NO.848/AHD/2012 ALLOWED THE APPEAL OF THE ASSESSEE AND WHILE DOING SO, IT HELD AS UNDER: - 7. FURTHER AGGRIEVED NOW THE ASSESSEE CAME IN APPEAL BEFORE US AND AT THE TIME OF HEARING LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THERE IS NO DISPUTE ABOUT THE FACT THAT ASSESSEE WAS DEALING IN SHARES AND SECURITIES AND SHARES WERE HELD BY HIM IN STOC K IN TREAD AND THEREFORE IN VIEW OF THE DECISION OF KARNATAKA HIGH COURT IN THE CASE CCI LTD. VS. JT. CIT (KAT) REPORTED IN (2012) 71 ITA NO. 3033/AHD/2010 ETHIO PLASTICS PRIVATE LIMITED FOR AY 2006 - 07 4 DTR (KAR) 141 AND THE DECISION OF THE ITAT PANE BENCH IN THE CASE OF APOORVA PATNI VS. ACIT REPORTED N [2012] 24 TAXMANN.C OM 223 (PUNE) NO DISALLOWANCE U/S 14A OF THEINCOME TAX ACT WAS CALLED FOR IN THIS CASE. ON THE OTHER HAND LD. D.R. RELIED ON THE ORDER OF LOWER AUTHORITIES. 8. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD WE FIND THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF DEALING IN SHARES AND SECURITIES AND THERE IS NO DISPUTE ABOUT THE FACT THAT SHARES WERE HELD BY THE ASSESSEE AS STOCK IN TRADE. THE INTENTION OF ASSESSEE WAS NOT TO EARN DIVIDEND INCOME AND THIS INCOME BEING INCIDENTAL TO BUSINESS OF SALE OF SHARES, NO NOTIONAL EXPENDITURE COULD BE DEDUCTED BY INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT. ON SIMILAR FACTS HONBLE KARNATAKA HIGH COURT IN THE CASE OF CCI LTD. VS. JT. CIT (SUPRA) HAS HELD AS UNDER: - WHEN NO EXPENDITURE IS INCURRED BY THE A SSESSEE IN EARNING THE DIVIDEND INCOME, NO NOTIONAL EXPENDITURE COULD BE DEDUCTED FROM THE SAID INCOME. IT IS NOT THE CASE OF THE ASSESSEE RETAINING ANY SHARES SO AS TO HAVE THE BENEFIT OF DIVIDEND. 63 PER CENT OF THE SHARES, WHICH WERE PURCHASED, ARE SOLD AND THE INCOME DERIVED THEREFROM IS OFFERED TO TAX AS BUSINESS INCOME. THE REMAINING 37 PER CENT OF THE SHARES ARE RETAINED. IT HAS REMAINED UNSOLD WITH THE ASSESSEE. IT IS THOSE UNSOLD SHARES THAT HAVE YIELDED DIVIDEND, FOR WHICH, THE ASSESSEE HAS NOT IN CURRED ANY EXPENDITURE AT ALL. THOUGH THE DIVIDEND INCOME IS EXEMPTED FROM PAYMENT OF TAX, IF ANY EXPENDITURE IS INCURRED IN EARNING THE SAID INCOME, THE SAID EXPENDITURE ALSO CANNOT BE DEDUCTED. BUT IN THIS CASE, WHEN THE ASSESSEE HAS NOT RETAINED SHARES WITH THE INTENTION OF EARNING DIVIDEND INCOME AND THE DIVIDEND INCOME IS INCIDENTAL TO HIS BUSINESS OF SALE OF SHARES, WHICH REMAINED UNSOLD BY THE ASSESSEE. IT CANNOT BE SAID THAT THE EXPENDITURE INCURRED IN ACQUIRING THE SHARES HAS TO BE APPORTIONED TO T HE EXTENT OF DIVIDEND INCOME AND THAT SHOULD BE DISALLOWED FROM DEDUCTIONS. IN THAT VIEW OF THE MATTER, THE APPROACH OF THE AUTHORITIES IS NOT IN CONFORMITY WITH THE STATUTORY PROVISIONS CONTAINED UNDER THE ACT. AND IN THE DECISION OF THE ITAT PANE BENCH IN THE CASE OF APOORVA PATNI VS. ACIT (SUPRA) IT WAS HELD AS UNDER: - EXPENDITURE INCURRED IN RELATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOME ASSESSMENT YEAR 2006 - 07 ASSESSING OFFICER FOUND THAT ASSESSEE HAD EARNED EXEMPT DIVIDEND INCOME ITA NO. 3033/AHD/2010 ETHIO PLASTICS PRIVATE LIMITED FOR AY 2006 - 07 5 ACCORDING LY, BY INVOKING SECTION 14A, HE ATTRIBUTED CERTAIN EXPENDITURE BOTH IN RELATION TO DIVIDEND EARNED ON ACCOUNT OF SHARE TRADING BUSINESS AND ON SHARES KEPT UNDER PMS COMMISSIONER (APPEALS) RETAINED EXPENDITURE ONLY IN RELATION TO DIVIDEND EARNED ON ACCOUNT OF SHARE TRADING BUSINESS AND DELETED OTHER ONE WHETHER WHEN ASSESSEE HAD NOT RETAINED SHARES WITH INTENTION OF EARNING DIVIDEND INCOME BUT SUCH INCOME WAS INCIDENTAL TO BUSINESS OF SALE OF SHARES, NO NOTIONAL EXPENDITURE COULD BE DEDUCTED BY INVOKING SECTION 14A HELD, YES WHETHER, THEREFORE, ORDER OF COMMISSIONER (APPEALS) WAS TO BE SET ASIDE HELD, YES [IN FAVOUR OF ASSESSEE]. 9. IN VIEW OF THE ABOVE, THE ADDITION MADE BY THE A.O. AND SUSTAINED BY LD. CIT(A) IN RESPECT OF DISALLOWANCE U/S 14A R EAD WITH RULE 8D IS HEREBY DELETED. 11. AS THE FACTS IN THE PRESENT YEAR OF APPEAL ARE IDENTICAL TO THE FACTS IN THE ASSESSEES OWN CASE IN ASSESSMENT YEAR 2008 - 09, RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSMENT YEAR 2008 - 09, WE DELETE THE ADDITION OF RS.44,23,957/ - SUSTAINED BY THE CIT(A) AND ALLOW TH ESE GROUND S OF APPEAL OF THE ASSESSEE. 12 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE CO URT ON FRIDAY , THE 12 TH OF DECEMBER , 2014 AT AHMEDABAD. SD/ - SD/ - SD/ - SD/ - (KUL BHARAT) JUDICIAL MEMBER ( N.S. SAINI) ACCOUNTANT MEMBER AHMEDABAD; DATED 12 /1 2 /2014 BIJU T., PS ITA NO. 3033/AHD/2010 ETHIO PLASTICS PRIVATE LIMITED FOR AY 2006 - 07 6 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A) - I , BARODA 5. , , / DR, ITAT, AHMEDABAD 6. [ / GUARD FILE . / BY ORDER, TRUE COPY / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD