INCOME TAX OFFICER 13(3)(3), MUMBAI V. MANOJ VASUDEV WADHWA, MUMBAI

ITA 325/MUM/2018

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6726 (ITAT-MUMBAI)
• Duration Of Justice: 5 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-06-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2007-2008
• Appeal Filed On: 12-01-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N HEMALATHA
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'G' BENCH, MUMBAI BEFORE SHRI B.R. BASKARAN, ACCOUNTANT MEMBER AND SHRI AMARJIT SINGH, JUDICIAL MEMBER ITA NO. 358/MUM/2018 (ASSESSMENT YEAR: 2007-08) SHRI MANOJ VASUDEV WADHWA 11 HAPPY HOME 244, WATERFIELD ROAD BANDRA (W), MUMBAI 400050 VS. A C I T - 19(3) PIRAMAL CHAMBER LOWER PAREL MUMBAI 400007 PAN AALPW0303K APPELLANT RESPONDENT ITA NO. 325/MUM/2018 (ASSESSMENT YEAR: 2007-08) INCOME TAX OFFICER - 13(3)(3 ROOM NO. 227, 2 ND FLOOR AAYAKAR BHAVAN, M.K. ROAD MUMBAI 400020 VS. SHRI MANOJ VASUDEV WADHWA 11 HAPPY HOME 244, WATERFIELD ROAD BANDRA (W), MUMBAI 400050 PAN AALPW0303K APPELLANT RESPONDENT ASSESSEE BY: SHRI NITESH JOSHI REVENUE BY: MS. N. HEMALATHA DATE OF HEARING: 26.06.2018 DATE OF PRONOUNCEMENT: 26.06.2018 O R D E R PER B.R. BASKARAN, AM THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER DATED 25.10.2017 PASSED BY LEARNED CIT(A) -33, MUMBAI AND THEY RELAT E TO THE ASSESSMENT YEAR 2007-08. BOTH THE PARTIES ARE AGGRIEVED BY TH E DECISION RENDERED BY LEARNED CIT(A) ON THE ADDITION MADE UNDER SECTION 1 4A OF THE INCOME TAX ACT (HEREINAFTER THE ACT). 2. WE HEARD THE PARTIES AND PERUSED THE RECORD. THIS IS SECOND ROUND OF PROCEEDING. IN THE ORIGINAL ASSESSMENT PROCEEDING, THE AO HAD COMPUTED DISALLOWANCE U/S 14A OF THE ACT BY APPLYING THE PRO VISIONS OF RULE 8D OF ITA NOS. 358 & 325/MUM/2018 SHRI MANOJ VASUDEV WADHWA 2 THE I.T RULES. SINCE THE HONBLE BOMBAY HIGH COURT HAS HELD IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD (328 ITR 81) THAT THE P ROVISIONS OF RULE 8D SHALL APPLY PROSPECTIVELY FROM AY 2008-09, THE MATT ER OF DETERMINATION OF DISALLOWANCE U/S 14A WAS RESTORED TO THE FILE OF TH E AO BY THE ITAT. IN THE SET ASIDE PROCEEDINGS, THE AO MADE THE VERY SAME DI SALLOWANCE OF RS.135.60 LAKHS, HOWEVER, WITHOUT REFERRING TO THE PROVISIONS OF RULE 8D. IN THE APPELLATE PROCEEDINGS, THE LD CIT(A) RESTRIC TED THE DISALLOWANCE TO THE AMOUNT OF EXEMPT INCOME OF RS.39,28,114/- BY FO LLOWING THE DECISION RENDERED BY HONBLE DELHI HIGH COURT IN THE CASE OF JOINT INVESTMENTS LTD VS. CIT (ITA NO.117/2015). 3. THE REVENUE IS AGGRIEVED BY THE DECISION OF L D CIT(A) IN GRANTING PARTIAL RELIEF TO THE ASSESSEE, WHILE THE ASSESSEE IS AGGRIEVED BY THE DECISION OF LD CIT(A) IN PARTIALLY SUSTAINING THE A DDITION U/S 14A. 4. WE SHALL FIRST TAKE UP THE APPEAL FILED BY TH E REVENUE. THE EXEMPT INCOME RECEIVED BY THE ASSESSEE DURING THE YEAR UND ER CONSIDERATION WAS RS.39,28,114/- AND WE NOTICE THAT THE LD CIT(A) HAS FOLLOWED THE DECISION RENDERED BY HONBLE DELHI HIGH COURT IN THE CASE OF JOINT INVESTMENTS LTD (SUPRA). SINCE THE LD CIT(A) HAS FOLLOWED THE DECI SION OF HONBLE DELHI HIGH COURT, WE DO NOT FIND MERIT IN THE APPEAL OF T HE REVENUE. 5. WE SHALL NOW TAKE UP THE APPEAL FILED BY THE ASSESSEE. THE LD A.R SUBMITTED THAT THE ASSESSEE IS ENGAGED IN TRADING O F SHARES, DERIVATIVES ETC. HE SUBMITTED THAT THE COMMON EXPENSES INCURRE D BY THE ASSESSEE WAS RS.8,19,504/-. HE SUBMITTED THAT, IF THE ABOVE SAID EXPENDITURE IS APPORTIONED IN THE RATIO OF RECEIPTS OF VARIOUS INC OME, THE EXPENDITURE ALLOCABLE TO THE EXEMPT INCOME WORKS OUT TO RS.7,03 0/- ONLY. HOWEVER, ON A PERUSAL OF THE PROFIT AND LOSS ACCOUNT, WE NOTICE THAT THE ASSESSEE HAS NOT CONSIDERED CERTAIN EXPENSES LIKE SECURITIES TRA NSACTION TAX, SERVICE TAX, BROKERAGE ON LOAN, INTEREST EXPENSES ETC. HEN CE WE ARE UNABLE TO AGREE WITH THE WORKINGS GIVEN BY THE ASSESSEE. 6. IN THE CASE OF GODREJ & BOYCE MANUFACTURING C O. LTD (SUPRA), THE HONBLE BOMBAY HIGH COURT HAS HELD THAT THE DISALLO WANCE U/S 14A FOR THE ITA NOS. 358 & 325/MUM/2018 SHRI MANOJ VASUDEV WADHWA 3 ASSESSMENT YEARS PRIOR TO THE AY 2008-09 SHOULD BE COMPUTED ON REASONABLE BASIS. IN THE INSTANT CASE, THE MAIN OB JECTIVE OF THE ASSESSEE WAS TO MAKE GAINS IN TRADING IN SHARES IN RESPECT O F SHARES HELD AS STOCK IN TRADE AND ACCORDINGLY IT WAS SUBMITTED THAT THE RECEIPT OF DIVIDEND INCOME WAS INCIDENTAL. WE NOTICE THAT THE ASSESSEE HAS HELD CERTAIN SHARES AS ITS INVESTMENTS ALSO. 7. THE HONBLE SUPREME COURT HAS HELD IN THE CAS E OF MAXOPP INVESTMENTS LTD (402 ITR 640) THAT THE EXEMPTION CL AIMED ON DIVIDEND INCOME WOULD TRIGGER THE PROVISIONS OF SEC. 14A OF THE ACT. IT WAS ALSO HELD THAT THE OBJECTIVE TO HAVE CONTROLLING INTEREST IN MAKING INVESTMENTS IS ALSO NOT RELEVANT FOR COMPUTING DISALLOWANCE U/S 14A OF THE ACT. WE NOTICE THAT THE ASSESSEE HAS TAKEN CERTAIN GROUNDS RELATIN G TO STRATEGIC INVESTMENTS AND SHARES HELD AS STOCK IN TRADE. THE LD A.R FAIRLY CONCEDED THAT THOSE GROUNDS GO AGAINST THE ASSESSEE IN VIEW OF THE DECISION RENDERED BY HONBLE SUPREME COURT IN THE CASE OF MAXOPP INVE STMENTS LTD (SUPRA). 8. IN THE INSTANT CASE, WE NOTICE THAT THE ASSESS EES CAPITAL IS IN NEGATIVE, MEANING THEREBY, THE ENTIRE SHARE TRADING ACTIVITY HAS BEEN CARRIED OUT OF LOAN FUNDS ONLY. HENCE A PORTION OF INTEREST EXPEN SES SHOULD ALSO BE ALLOCATED TO THE EXEMPT INCOME, WHICH CONSTITUTED M AJOR PORTION OF THE TOTAL EXPENSES. WE HAVE NOTICED THAT THE ASSESSEE I S HAVING LONG TERM INVESTMENTS, TRADE INVESTMENTS AND STOCK IN TRADE O F SHARES. THE DIVIDEND EARNED ON INVESTMENTS CANNOT BE SAID TO BE INCIDENT AL. 9. WE NOTICE THAT THE TOTAL LOAN FUNDS OF THE AS SESSEE STAND AT RS.3369.29 LAKHS AND THE VALUE OF INVESTMENTS STAND AT RS.256.72 LAKHS. WE HAVE NOTICED THAT THE ASSESSEE IS HAVING NEGATIV E CAPITAL AND HIS ENTIRE ACTIVITY HAS BEEN FINANCED BY LOAN FUNDS ONLY. WE NOTICE THAT THE ASSESSEE HAS INCURRED INTEREST EXPENSES OF RS.201.20 LAKHS. HENCE INTEREST EXPENDITURE RELATING TO INVESTMENTS WHICH YIELDED D IVIDEND INCOME IS REQUIRED TO BE DISALLOWED. HENCE, ON A CONSPECTUS OF THE MATTER, WE ARE OF THE VIEW THAT THE DISALLOWANCE U/S 14A MAY BE RESTR ICTED TO 30% OF THE DIVIDEND INCOME AND, IN OUR VIEW, THE SAME WOULD ME ET THE REQUIREMENTS ITA NOS. 358 & 325/MUM/2018 SHRI MANOJ VASUDEV WADHWA 4 OF THE PROVISIONS OF SEC. 14A OF THE ACT. ACCORDIN GLY WE SET ASIDE THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO RESTRICT THE DISALLOWANCE U/S 14A TO 30% OF THE DIVIDEND INCOME RECEIVED BY THE ASSESSEE. 8. IN THE RESULT, THE APPEAL FILED BY THE REVENU E IS DISMISSED AND THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH JUNE, 2018. SD/ - SD/ - (AMARJIT SINGH) (B.R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 26 TH JUNE, 2018 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) -33, MUMBAI 4. THE PR. CIT - 23, MUMBAI 5. THE DR, G BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.