KAMVAN CONSTRUCTION P. LTD, MUMBAI V. ITO 3(2)(1), MUMBAI

ITA 3084/MUM/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0836 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-04-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 22-04-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJESH KUMAR YADAV
• Keywords: Transactions in derivatives; Earning of tax free income
• Section: 143(3); 142(1); 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY , JM AND SHRI RAJESH KUMAR , AM ./ I.T.A. NO . 3084 /MUM/2013 ( / ASSESSMENT YEA R : 2 00 8 - 09 ) M/S KA MVAN CONSTRUCTION P.LTD., 403, MAKER BHAVAN NO.3, 21, NEW MARINE LINES, MUMBAI - 400020 / VS. INCOME TAX OFFICER 3(2) (1), AAYKAR BHAVAN, M K ROAD, MUMBAI - 4000 20 APPELLANT RESPONDENT PAN: AA ACK1994L / APPELLANT BY : SHRI ANUJ K ISNADWALA /R ESPONDENT BY : SHRI RAJESH KUMAR YADAV / DATE OF HEARING : 3 .4.2017 / DATE OF PRONOUNCEMENT : 26 .4. 2017 / O R D E R PER RAJESH KUMAR, A. M: THIS IS AN APPEAL FILED BY THE ASSES SEE CHALLENGING THE ORDER OF LD. CIT(A) - MUMBAI, DATED 1.6.2012 , PERTAIN ING TO THE ASSESSMENT YEAR 200 8 - 09. 2. THE ONLY ISSUE RAISED IN THE GROUNDS OF APPEAL IS AGAINST THE CONFIRMATION OF THE DISALLOWANCE BY THE LD. CIT(A) RS.29,54,392/ - AS MADE BY THE A O UNDER SECTION 14A OF THE INCOME TAX ACT, 1961 R.W.S.8D OF THE 2 I.T.A. NO. 3084 / MUM/ 201 3 INCOME TAX RULES, 1962 TOWARDS EXPENSES ATTRIBUTABLE TO EARNING THE EXEMPT INCOME. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED RETURN OF INCOME ON 28.9.2008 DECLARING A TOTAL LOS S OF RS.14,74,150/ - . THE RETURN WAS PROCESSED UNDER SECTION 143(1) OF THE INCOME TAX ACT. THEREAFTER THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND THE STATUTORY NOTICES U/S 143(2) AND 142(1) WERE ISSUED AND SERVED UPON THE ASSESSEE. WE FIND FROM THE RECORD THAT THE ASSESSEE HAS RECEIVED DIVIDEND INCOME OF RS.6,05,693/ - WHICH WAS CLAIMED AS EXEMPT UNDER THE PROVISIONS OF SECTION 10(23) / (34) OF THE ACT WHILE NOT DISALLOWING ANY EXPENDITURE ATTRIBUTABLE TO EARNING OF THIS EXEMPT INCOME. THE ASSE SSEE HAS TOTAL INVESTMENT IN SHARES AND MUTUAL FUNDS RS. 1,60,17,613/ - . THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS CAME TO THE CONCLUSION THAT THE ASSESSEE HAS RECEIVED EXEMPT INCOME WHEREAS FAILED TO DISALLOW EXPENSES ATTRIBUTABLE TO EARNING OF EX EMPT INCOME. ACCORDINGLY, THE AO, VIDE ORDERSHEET ENTRY DATED 23.11.2010 CALLED UPON THE ASSESSEE TO SHOW CAUSE AS TO WHY THE DISALLOWANCE U/S 14A R.W.R 8D OF THE RULES SHOULD NOT BE MADE, WHICH WAS REPLIED BY THE ASSESSEE BY SUBMITTING THAT NO EXPEN DITURES WERE INCURRED ON EARNING OF EXEMPT INCOME. ULTIMATELY, THE AO FRAMED THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT BY ASSESSING THE TOTAL INCOME OF THE ASSESSEE AT AN INCOME OF RS.14 , 82,731/ - BY MAKING DISALLOWANCE OF RS.29,54,392/ - BY APPLYIN G 0.5% OF THE AVERAGE 3 I.T.A. NO. 3084 / MUM/ 201 3 INVESTMENT UNDER SECTION 14A R.W.R.8D OF THE RULES WHICH WORKED OUT TO RS.80,023/ - AND INTEREST DISALLOWANCE OF RS.28,74,369/ - . AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY WHO AFTER CONSIDERING THE SUBMISSIONS AND DOCUMENTS AS SUBMITTED BY THE ASSESSEE ALSO DISMISSED THE APPEAL OF THE ASSESSEE BY OBSERVING AND HOLDING AS UNDER : 4. I HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS OF THE ASSESSEE. UNDISPUTEDLY THE I NVESTMENT HAS BEEN MADE IN TRADING OF SHARES AND F&O AND DIVIDEND INCOME FROM ALL SUCH INVESTMENTS IS EXEMPT FROM INCOME - TAX AND, THEREFORE, IT CANNOT BE SAID THAT THE BORROWED FUNDS HAVE NO NEXUS WITH THE DIVIDEND INCOME. IT IS IMMATERIAL WHETHER DIVIDEND FROM A PARTICULAR SHARE IS RECEIVED OR NOT, AS LONG AS THE INVESTMENT IS IN SUCH SECURITIES FROM WHICH IF ANY DIVIDEND IS RECEIVED AND THE SAME IS EXEMPT THEN THE INTEREST IS TO BE DISALLOWED ALONG WITH ANY OTHER RELATED EXPENDITURE AND, THEREFORE, A.O. H AS CORRECTLY DISALLOWED THE EXPENDITURE RELATING TO INTEREST PAID. ON ACCOUNT OF OTHER EXPENSES THE A.O. HAS CORRECTLY APPLIED RULE 8D AS THE SAME IS APPLICABLE FROM A.Y. 08 - 09 AS HAS BEEN HELD BY HON'BLE JURISDICTIONAL BOMBAY HIGH COURT IN THE CASE OF GOD REJ & BOYCE MFG. CO. LTD. VS. CIT 328 ITR 81. THEREFORE, THE GROUND OF APPEAL OF THE ASSESSEE IS REJECTED. 4 . THE LD. AR VEHEMENTLY SUBMITTED BEFORE US THAT THE DISALLOWANCE OF RS.29,54,392/ - CONFIRMED UNDER SECTION 14A R.W.R.8D OF THE RULES IS AGA INST THE SETTLED PROPOSITION OF LAW AS ENUNCIATED BY VARIOUS FORUMS OF LAW. THE LD.AR SUBMITTED THAT THE EXEMPT INCOME EARNED BY THE ASSESSEE DURING THE YEAR WAS RS.6,05,693/ - AND DISALLOWANCE OF EXPENSES U/S 14A R.W.R.8D COULD NOT BE MORE THAN THE EXE MPT INCOME WHEREAS THE LD.CIT(A) CONFIRMED THE DISALLOWANCE OF RS.29,54,392/ - WHICH SHOULD BE RESTRICTED TO RS.6,05,893/ - . 4 I.T.A. NO. 3084 / MUM/ 201 3 . IN DEFENCE OF HIS ARGUMENTS, THE LD.AR RELIED UPON THE FOLLOWING CASE LAWS: 1) INDUS VALLEY INVESTMENTS V. DCIT BEING ITA NO: 37 63/DE1/2013 FOR AY. 2009 - 10 DATED 29.04.2015 (COPY ENCLOSED) 2) M/S SLY VEX CABLE CO.PVT.LTD. V /S DY.CIT BEING ITA NO:8581/MUM/2011 FOR AY - 2008 - 09 DATED 24.02.2016 (COPY ENCLOSED) 3 ) MLS DAGA GLOBAL CHEMICALS V. ASST. CIT BEING ITA NO:5592/MUM/2012 DATE D 01.01.2015 4) M/S GLOBAL CAPITAL LTD V ACIT BEING ITA NO: 6586/DEL/2013 FOR AY. 2009 - 10 DATED 27.11.2015 5 ) DCIT V. DCM LTD BEING ITA NO: 4467/DE1/2012 FOR AY. 2009 - 10 DATED 01.09.2015 7) ESSAR PROPERTIES LTD V. DCIT (ITA NO: 423/MUM/2015) FOR AY. 2009 - 10 DATED 19.07.2016 8) JOINT INVESTMENTS V/S CIT (372 ITR 694) (DEL) 5. THE LD. DR, ON THE OTHER HAND, OBJECTED TO THE ARGUMENTS ADVANCED BY T HE LD.AR BY SUBMITTING THAT THE ASSESSEE HAS MADE HUGE INVESTMENTS IN THE MUTUAL FUNDS AND SHARES . T HEREFO RE , THE DISALLOWANCE MA D E BY THE AO AND UPHELD BY THE LD. CIT(A) DESERVED TO BE UPH E LD BY HEAVILY RELYING ON THE ORDERS OF AUTHORITIES BELOW. 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND MATERIAL PLACED BEFORE US INCLUDING THE IMPUGNED ORDERS OF LOWER AUTHORITIES AND CASE LAW RELIED UPON BY THE ASSESSEE. WE FIND THAT THE RATIO LAID DOWN IN THE AFORESAID DECISIONS , DISALLOWANCE U/S 14A R.W.RULE. 8D CANNOT EXCEED THE AMOUNT OF EXEMPT INCOME. IN THE PRESENT CASE THE INCOME RECEIVED IS RS.6,05,69 3/ - BY 5 I.T.A. NO. 3084 / MUM/ 201 3 WAY OF DIVIDEND WHICH HAS BEEN CLAIMED AS EXEMPT U/S 10 OF THE ACT AND THEREFORE THE DISALLOWANCE ON THE SAME AT THE MOST C OULD BE RS.6,05,593/ - . WE, THEREFORE, RESPECTFULLY FOLLOWING THE RATIO LAID DOWN IN THE ABOVE DECISIONS AND ALSO OUR OBSE RVATIONS HEREINABOVE, SET ASIDE THE ORDER OF THE LD.CIT(A) AND DIRECT THE AO TO RESTRICT THE DISALLOWANCE TO RS.6,05,693/ - U/S 14A R.W.R 8D OF THE RULES. 7. RESULTANTLY, THE APPEAL OF THE ASSESSEE STANDS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COUR T ON 26TH APRIL , 2017 S D SD ( SAKTIJIT DEY ) ( RAJESH KUMAR ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 26 .4 . 2017 SRL,SR.PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT CONCERN ED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, T RUE COPY / (DY./ASSTT. REGISTRAR) , / ITAT, M UMBAI