ACIT -3(1)(2), MUMBAI V. GOLDEN LIFE FINACIAL SERVICES PVT. LTD., MUMBAI

ITA 3053/MUM/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 7276 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-05-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 27-04-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJAT MITTAL
• Keywords: Business income; Earning of tax free income; Proportionate interest; Additional evidence; Question of law
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'C' BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER AND SHRI AMARJIT SINGH, JUDICIAL MEMBER ITA NO. 3053/MUM/2016 (ASSESSMENT YEAR: 2010-11) A C I T - 3(1)(2) ROOM NO. 607, 6TH FLOOR AAYAKAR BHAVAN MUMBAI 400020 VS. M/S. GOLDEN LIFE FINANCIAL SERVICES PVT. LTD. (FORMERLY LIFELINE INUSRANCE DISTRIBUTION CO. PVT. LTD.) 125-B, MITTAL COURT, NARIMAN POINT MUMBAI 400021 PAN AAACL8998D APPELLANT RESPONDENT APPELLANT BY: SHRI RAJAT MITTAL RESPONDENT BY: MS. KRUPA GANDHI DATE OF HEARING: 19.02.2018 DATE OF PRONOUNCEMENT: 02.05.2018 O R D E R PER SHAMIM YAHYA, AM THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST T HE ORDER OF THE CIT(A)-8, MUMBAI DATED 21.01.2016 AND PERTAINS TO A .Y. 2010-11. 2. REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - '1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN RESTRICTING THE DISALLOWANCE U/S.14 A R.W.R. 8D TO RS.4,69,605/- AS AGAINST RS.33,49,507/- MADE BY THE AO WITHOUT APPRECIATING THAT NOTHING IN THE PROVISIONS OF SEC.14A HAS BEEN PROVIDED THAT EXPENDITURE IN RELATION TO E ARNING EXEMPT INCOME CANNOT EXCEED EXEMPT INCOME. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) ERRED IN TREATING ,THE INCOME OF RS.1,70,31, 749/- ARISING FROM 'THE INVESTMENT PORTFOLIO' AS SHORT TERM CAPIT AL GAIN INSTEAD OF BUSINESS INCOME, WITHOUT APPRECIATING TH AT MAIN CHARACTERISTICS OF TRANSACTIONS NAMELY QUANTUM, FRE QUENCY, BORROWED FUNDS, PERIOD OF HOLDING SHOW THAT SHARES ARE TRADED AS BUSINESS TRANSACTION IN TERMS OF BOARD CIRCULAR NO.4/2007. ITA NO. 3053/MUM/2016 M/S. GOLDEN LIFE FINANCIAL SERVICES PVT. LTD. 2 3. THE APPELLANT PRAYS THAT THE ORDER OF CIT (A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF ASSESSING OFFICER BE RESTO RED.' 3. APROPOS GROUND NO.1: THE BRIEF FACTS OF THE ISSUE ARE THAT THE ASSESSEE IS INTO THE BUSINESS OF FINANCIAL SERVICES AND INVESTMENTS. THE APPELLAN T HAD FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2010-11 DECLARING TOTAL INCOME OF RS. 1,81,49,830/-. THE RETURN OF INCOME WAS PROCESSED U NDER SECTION 143(1) OF THE ACT AND NOTICE UNDER SECTION 143(2) OF THE ACT WAS ISSUED. THEREAFTER, THE CASE WAS TRANSFERRED AND A FRESH NOTICE UNDER S ECTION 143(2) OF THE ACT WAS ISSUED ON JULY 30, 2012 TO THE ASSESSEE. THE AO IN HIS ASSESSMENT ORDER UNDER SECTION 143(3) OF THE ACT MADE CERTAIN ADDITIONS/ DISALLOWANCES TO THE TOTAL INCOME DECLARED BY THE A SSESSEE IN THE RETURN OF INCOME. THE ASSESSING OFFICER IN HIS ASSESSMENT ORD ER HAS STATED THAT DURING THE YEAR CONSIDERATION, THE ASSESSEE EARNED DIVIDEND ON INVESTMENTS AMOUNTING TO ` 4,69,606/- WHICH WAS EXEMPT UNDER SECTION 10(34) OF THE ACT. DURING THE COURSE OF THE ASSESSM ENT PROCEEDINGS, THE ASSESSEE SUO-MOTO DISALLOWED AN AMOUNT OF ` 4,69,605/-: THE WORKING OF THE SAME AS UNDER: SR.NO. PARTICULARS AMOUNT ( ` ) WORKING OF DISALLOWANCE UNDER SECTION 14A R.W.R. 8D OF THE RULES 1. INVESTMENT AS ON MARCH 31 , 2009 9,262,853 2. CLOSING INVESTMENT AS ON MARCH 31, 2010 70,378,102 3. AVERAGE INVESTMENT 39,820,477 4 . OPENING TOTAL ASSETS AS ON MARCH 31 , 2009 17,020,048 5. CLOSING TOTAL ASSETS AS ON MARCH 31, 2010 74,111,802 6. AVERAGE TOTAL ASSETS 45,565,925 7. INTEREST PAID 3,539,716 (I) ACTUAL EXPENDITURE INCURRED - (II) INTEREST PAID * AVERAGE INVESTMENT AVERAGE TOTAL ASSETS 3,093,390 (III) ONE - HALF PERCENTAGE OF 199,102 AVERAGE INVESTMENT TOTAL DISALLOWANCE (I)+(II)+(III) 3,292,492 TOTAL DIVIDEND INCOME 469,605 AMOUNT OF DISALLOWANCE UNDER SECTION 14A RESTRICTED TO ` 4,69,605/- ITA NO. 3053/MUM/2016 M/S. GOLDEN LIFE FINANCIAL SERVICES PVT. LTD. 3 THE AO IN HIS ASSESSMENT ORDER DISALLOWED AMOUNTING TO ` 33,49,507/- UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF T HE INCOME-TAX RULES, 1962 BY DISALLOWING THE PROPORTIONATE INTEREST AMOU NTING TO ` 31,50,405/- AND 0.5% OF THE AVERAGE VALUE OF INVESTMENTS AMOUNT ING TO ` 1,99,102/-. 4. UPON ASSESSEES APPEAL THE LEARNED CIT(A) UPHELD T HE CONTENTION OF THE ASSESSEE. HE HELD THAT THE DISALLOWANCE UNDER S ECTION 14A CANNOT EXCEED THE DIVIDEND EARNED. AGAINST THIS ORDER THE REVENUE IS IN APPEAL BEFORE US. 5. WE HAVE HEARD BOTH THE COUNSELS AND PERUSED THE REC ORD. WE FIND THAT THE ISSUE STANDS COVERED IN FAVOUR OF THE ASSE SSEE BY THE FOLLOWING CASE LAW: - I) CHEMINVEST LTD. VS. CIT 281 CTR 447 II) HON'BLE BOMBAY HIGH COURT IN THE CASE OF PR. CIT VS . BALLARPUR INDUSTRIES LTD. IN ITA NO. 51 OF 2016 6. IN THESE DECISIONS IT WAS HELD THAT DISALLOWANCE UN DER SECTION 14A CANNOT EXCEED THE DIVIDEND INCOME EARNED. ACCORDING LY IN THE BACKGROUND OF AFORESAID PRECEDENTS WE DO NOT FIND ANY INFIRMIT Y IN THE ORDER OF THE LEARNED CIT(A) ON THIS ISSUE. ACCORDINGLY WE CONFIR M THE SAME. 7. APROPOS GROUND NO. 2: THE BRIEF ARE THAT DURING THE YEAR UNDER CONSIDERAT ION, THE ASSESSEE SOLD VARIOUS SHARES AND SECURITIES UNDER BOTH THE PORTFO LIOS. THE INCOME FROM 'INVESTMENT PORTFOLIO' WAS OFFERED TO TAX UNDER THE HEAD 'CAPITAL GAINS' AND THE INCOME FROM 'TRADING PORTFOLIO' WAS OFFERED , TO TAX UNDER THE HEAD 'INCOME FROM BUSINESS BY THE ASSESSEE. THE ASSESSE E EARNED SHORT TERM CAPITAL GAINS OF ` 1,70,31,688/- AND LONG TERM CAPITAL GAINS OF ` 4,38,758/- IN RESPECT OF THE INVESTMENT PORTFOLIO A ND ` 52,20,406/- AS BUSINESS PROFIT IN RESPECT OF THE TRADING PORTFOLIO (INCLUDING OTHER BUSINESS PROFIT) WHICH HAVE BEEN OFFERED TO TAX. THE ASSESSI NG OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS HELD THAT THE ASSE SSEE TO BE ONLY IN THE BUSINESS ACTIVITY OF SHARE TRADING RATHER THAN AN I NVESTOR IN SHARES AND SECURITIES. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS SHOWN ITA NO. 3053/MUM/2016 M/S. GOLDEN LIFE FINANCIAL SERVICES PVT. LTD. 4 SHORT TERM CAPITAL GAIN OF ` 1,70,31,749/- ON ACCOUNT OF SALES OF SHARES AND SECURITIES. THE ASSESSING OFFICER OBSERVED THAT THE RE WERE VOLUMINOUS AND REGULAR PURCHASE AND SALE TRANSACTIONS OF SHARES WH ICH WERE IN THE NATURE OF BUSINESS TRANSACTIONS. ON VERIFYING THE SAME, TH E ASSESSING OFFICER CONCLUDED THAT THE ASSESSEE IS NOT AN INVESTOR IN S ECURITIES BUT HAS BEEN ENGAGED IN THE BUSINESS ACTIVITY OF SHARE TRADING. THEREFORE, THE TOTAL INCOME FROM SHORT TERM SALES I.E. `1 ,70,31,688/- WAS TREATED AS BUSINESS INCOME OF THE ASSESSEE AND COMPUTATION WITH SPECIAL RATE WAS DISALLOWED BY THE ASSESSING OFFICER. 8. THE AO HAS INTER ALIA OBSERVED AS FOLLOWS IN PARA 6 .12 OF HIS ORDER: - 6.13 HUGE BORROWED FUNDS HAVE BEEN USED FOR THE TR ADING IN SHARES SHOWN AS INVESTMENT IN SHARES. THE SHARES CA TEGORIZED AS INVESTMENT HAVE BEEN PURCHASED IN THE CURRENT YEAR BOTH IN HUGE VOLUME & WITH HUGE AMOUNT OF MONEY. FURTHER THE USE OF BORROWED FUNDS OF RS.9.12 CRORES FROM CHHATISGADH INVESTMENT LTD., RS. 2.04 CRORES OBTAINED FROM SARDA ENERGY & MINERALS LTD. A ND RS.39,79 CRORES OBTAINED FROM M/S. J.M. FINANCIAL SERVICES S HOWS THAT THE ASSESSEE IS DOING BUSINESS OF SHARE HOLDING. THE AO HAS FURTHER NOTED THAT EXCEPT GIVING CAPTION S TO THE INVESTMENT PORTFOLIOS THE ASSESSEE HAS NOT GIVEN ANY COGENT PR OOF IN SUPPORT. 9. UPON ASSESSEES APPEAL THE LEARNED CIT(A) DELETED T HE ADDITION BY HOLDING AS UNDER: - 5.2.3 IN THE INSTANT CASE, I FIND THAT THE APPELLA NT HAS SUBMITTED EXPLANATION BEFORE THE AO THROUGH VARIOUS LETTER, P ARTICULARLY IN ITS LETTER DT. 26.02.2013 WHEREIN IT WAS INFORMED THAT SHARES AND SECURITIES UNDER THE INVESTMENT PORTFOLIO WERE CLAS SIFIED AS 'INVESTMENT IN THE AUDITED FINANCIAL STATEMENT AND THOSE IN TR ADING PORTFOLIO WERE CLASSIFIED AS 'STOCK IN TRADE' UNDER 'INVENTORIES'. IT HAS ALSO BEEN CONTENDED THAT THE SHARES AND SECURITIES IN INVESTMENT PORTFOLIOS WERE PURCHASED WITH THE INTENTION TO EAR N CAPITAL APPRECIATION. IT IS ALSO ASSERTED THAT INCOME FROM INVESTMENT PORTFOLIO WAS OFFERED TO CAPITAL GAINS AND THAT FROM TRADING PORTFOLIO WAS OFFERED TO TAX AS BUSINESS INCOME. THE APPELLANT HA D FURTHER REFERRED TO CBDT CIRCULAR NO. 4/2007 QUOTED ABOVE AND HENCE NOT REPEATED. 5.2.3 I FIND THAT IN HIS REMAND REPORT THE AO HAS NOWHERE ESTABLISHED THAT THE COPIES OF RELEVANT BOARD RESOL UTIONS WERE ASKED FOR TO SUPPORT THE CLAIM OF 'INTENTION' OF INVESTME NT BY THE APPELLANT. THE APPELLANT COULD NOT HAVE PRODUCED WHAT WAS NEVE R ASKED FOR; ITA NO. 3053/MUM/2016 M/S. GOLDEN LIFE FINANCIAL SERVICES PVT. LTD. 5 THEREFORE, I FIND THAT THE EXCEPTION (C) TO RULE 46 A AS MENTIONED ABOVE IS APPLICABLE IN THE INSTANT CASE. 5.2.4 I FIND THAT THE COPIES OF BOARD RESOLUTIONS DT. 02.07.2009, 02.10.2009, 02.01.2010, 02.04.2010, 04.07.2008, 04. 10.2008 AND 09.04.2009 FURNISHED AS ADDITIONAL EVIDENCE CLEARLY SHOW THAT THE BOARD HAS RESOLVED TO PLACE THE SHARES MENTIONED TH EREIN TO BE HELD IN INVESTMENT PORTFOLIO. I THEREFORE DEEM IT FIT TO ALLOW THE ADDITIONAL EVIDENCE AS IT GOES TO THE ROOT OF THE ISSUE. 5.2.5 COMING TO THE MERITS OF THE CASE, IT IS NOT IN DISPUTE THAT THE APPELLANT HAS BEEN MAINTAINING AN 'INVESTMENT PORTF OLIO' AND A 'TRADING PORTFOLIO' AS IS ALSO EVIDENT FROM COPIES OF THE LEDGER ACCOUNTS AND SCHEDULE 6 AND 7 TO THE BALANCE SHEET. FURTHER, IT IS SEEN THAT THE INVESTMENT HAS RECEIVED A DIVIDEND OF RS. 4,69,605/- DURING THE YEAR. IN FACT, THIS IS THE AMOUNT THAT W AS SUBJECT OF GROUND NO. 1 ABOVE. 5.2.6 I FIND THE DECISION OF THE HON'BLE ITAT MUMB AI IN GOPAL PUROHIT VS JCIT, 29 SOT 117 (MUM) IS APPLICABLE IN THE INSTANT CASE. IN THAT CASE, IT WAS HELD THAT DELIVERY BASED TRANS ACTIONS SHOULD BE TREATED AS OF NATURE OF INVESTMENT TRANSACTIONS. SI MILAR VIEW HAS BEEN UPHELD BY HON'BLE BOMBAY HIGH COURT IN THE SAME CAS E IN ITA 1121 OF 2009 CITED IN 188 TAXMAN 140 (BOM)(2010). 5.2.7 THE AO HAS NOT OFFERED ANY COGENT REASON EITH ER IN THE ASSESSMENT ORDER OR IN THE REMAND REPORT AS TO WHY HE IS NOT ACCEPTING THE SEPARATE INVESTMENT PORTFOLIO AND TRA DING PORTFOLIO. HE HAS REJECTED ANY EXPLANATION OR EVIDENCE OR COMPONE NTS OF AUDITED ACCOUNTS. HIS ONLY REASONS APPEAR TO BE THE VOLUME AND FREQUENCY OF TRANSACTIONS IN THE INVESTMENT PORTFOLIO AND THE LA CK OF PROOF OF INTENTION THAT THE IMPUGNED SHARES AND SECURITIES W ERE PART OF INVESTMENT. IN TERMS OF A COMPANY, DECISIONS/RESOLU TIONS OF THE BOARD OF DIRECTORS ARE REFLECTIONS OF INTENTIONS OR VIEWS OF THE COMPANY. THE AO HAS NOT SHOWN WHY THE ABOVE MENTIONED BOARD RESO LUTION DO NOT SATISFY HIS NEED FOR SEEING AN EVIDENCE OF THE INTE NTION FOR INVESTMENT. 5.2.8 IN VIEW OF THE ABOVE, THE AO IS DIRECTED TO T REAT IMPUGNED AMOUNT OF RS.1,70,31,749/- AS INCOME FROM SHORT TER M CAPITAL GAIN INSTEAD OF BUSINESS INCOME. THIS GROUND OF APPEAL I S ALLOWED. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEAL BE FORE US. 10. WE HAVE HEARD BOTH THE COUNSELS AND PERUSED THE REC ORD. WE FIND THAT ON THIS ISSUE THERE IS A DECISION OF THE HON'B LE BOMBAY HIGH COURT IN THE CASE OF GOPAL PUROHIT 188 TAXMAN 140 WHICH THE LEARNED CIT(A) HAS PURPORTEDLY APPLIED AND FOUND THAT THE SAID DECISIO N IS APPLICABLE ON THE FACTS OF THE CASE. IN THIS REGARD WE MAY GAINFULLY REFER TO THE VERY FIRST ITA NO. 3053/MUM/2016 M/S. GOLDEN LIFE FINANCIAL SERVICES PVT. LTD. 6 PARAGRAPH OF THE SAID ORDER OF THE HON'BLE BOMBAY H IGH COURT, WHICH READS AS UNDER: - 2. THE TRIBUNAL HAS ENTERED A PURE FINDING OF FACT THAT THE ASSESSEE WAS ENGAGED IN TWO DIFFERENT TYPES OF TRANSACTIONS. THE FIRST SET OF TRANSACTIONS INVOLVED INVESTMENT IN SHARES. THE SEC OND SET OF TRANSACTIONS INVOLVED DEALING IN SHARES FOR THE P URPOSES OF BUSINESS (DESCRIBED IN PARAGRAPH 8.3 OF THE JUDGMENT OF THE TRIBUNAL AS TRANSACTIONS PURELY OF JOBBING WITHOUT DELIVERY). T HE TRIBUNAL HAS CORRECTLY APPLIED THE PRINCIPLE OF LAW IN ACCEPTING THE POSITION THAT IT IS OPEN TO AN ASSESSEE TO MAINTAIN TWO SEPARATE PORT F OLIOS, ONE RELATING TO INVESTMENT IN SHARES AND ANOTHER RELATING TO BUS INESS ACTIVITIES INVOLVING DEALING IN SHARES. THE TRIBUNAL HELD THAT THE DELIVERY BASED TRANSACTIONS IN THE PRESENT CASE, SHOULD BE TREATE D AS THOSE IN THE NATURE OF INVESTMENT TRANSACTIONS AND THE PROFIT RE CEIVED THEREFROM SHOULD BE TREATED EITHER AS SHORT TERM OR, AS THE C ASE MAY BE, LONG TERM CAPITAL GAIN, DEPENDING UPON THE PERIOD OF THE HOLDING. A FINDING OF FACT HAS BEEN ARRIVED AT BY THE TRIBUNAL AS REGA RDS THE EXISTENCE OF TWO DISTINCT TYPES OF TRANSACTIONS NAMELY, THOSE BY WAY OF INVESTMENT ON ONE HAND AND THOSE FOR THE PURPOSES OF BUSINESS ON THE OTHER HAND. QUESTION (A) ABOVE, DOES NOT RAISE ANY SUBSTA NTIAL QUESTION OF LAW. 11. READING OF THE ABOVE MAKES IT CLEAR THAT THE TRANS ACTION IN THE AFORESAID DECISION BEFORE THE HONBLE BOMBAY HIGH C OURT WERE DELIVERY BASED TRANSACTION. IN THE PRESENT CASE NO WHERE THE ASSESSEE HAS CLAIMED THAT THESE TRANSACTIONS ARE DELIVERY BASED. DESPITE NOTING THE SAID FACTS IN THE HONBLE BOMBAY HIGH COURT DECISION, THE LEARNED CIT(A) HAS TOTALLY IGNORED THE SAME. ONLY THE ASPECT THAT ASSESSEE CAN MAINTAIN AN INVESTMENT AND TRADING PORTFOLIO HAS BEEN REFERRED BY THE LEARNED CIT(A) AND THE ISSUE DECIDED IN FAVOUR OF THE ASSESSEE PUR PORTEDLY ON THE GROUND THAT THE SAME IS IN ACCORDANCE WITH HONBLE BOMBAY HIGH COURT DECISION. IN OUR CONSIDERED OPINION LEARNED CIT(A) HAS TOTALL Y ERRED IN NOT EXAMINING THE FACTS OF THE CASE IN THE ENTIRETY AS TO WHETHER THEY WERE IN ACCORDANCE WITH THE FACTS OPERATING IN THE AFORESAID DECISION OF THE HONBLE BOMBAY HIGH COURT. MOREOVER LEARNED CIT(A) HAS NOT GIVEN A NY FINDING AS TO WHETHER THE TRANSACTION IN THE PRESENT CASE ARE DEL IVERY BASED ON NOT. FURTHERMORE THE OBSERVATION OF THE AO THAT ASSESSEE HAS OBTAINED HUGE AMOUNT OF LOAN TO MAKE THESE INVESTMENTS HAS ALSO N OT BEEN CONSIDERED BY THE LEARNED CIT(A). ITA NO. 3053/MUM/2016 M/S. GOLDEN LIFE FINANCIAL SERVICES PVT. LTD. 7 12. ACCORDINGLY IN THE BACKGROUND OF AFORESAID DISCUSSI ON AND PRECEDENT WE CONSIDER IT APPROPRIATE TO REMIT THE ISSUE THE F ILE OF THE LEARNED CIT(A). LEARNED CIT(A)IS DIRECTED TO CONSIDER THE ISSUE AFR ESH AND GIVE PROPER FINDING AS TO WHETHER THE ISSUE CAN BE SAID TO BE D ECIDED IN FAVOUR OF THE ASSESSEE ON THE BASIS OF THE RATIO EMANATING FROM T HE HONBLE BOMBAY HIGH COURT DECISION IN THE CASE OF GOPAL PUROHIT (S UPRA). NEEDLESS TO ADD THAT ASSESSEE SHOULD BE GRANTED ADEQUATE OPPORTUNIT Y OF BEING HEARD. 13. IN THE RESULT, THIS APPEAL BY THE REVENUE STANDS PA RTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 2 ND MAY, 2018. SD/ - SD/ - (AMARJIT SINGH) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 2 ND MAY, 2018 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) -8, MUMBAI 4. THE CIT - 3, MUMBAI 5. THE DR, C BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.