CAMELOT TRADING P.LTD, MUMBAI V. JCIT (OSD) CEN CIR 39, MUMBAI

ITA 3457/MUM/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8602 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-11-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2009-2010
• Appeal Filed On: 18-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T A KHAN
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY , JUDICIAL MEMBER AND SHR I RAMIT KOCHAR , ACCOUNTANT MEMBER ITA NO .3457 /MUM. / 2016 ( ASSESSMENT YEAR : 2009 10 ) CAMELOT TRADING PVT. LTD. C/O KARNAVAT & CO. 24, KITAB MAHAL, 1 ST FLOOR 192, DR. D.N. ROAD, FORT MUMBAI 400 001 AABCC1902B . APPELLANT V/S JT. COMMISSIONER OF INCOME TAX (OSD), CENTRAL CIRCLE 39, MUMBAI . RESPONDENT ASSESSE E BY : SHRI SUNIL HIRAWAT REVENUE BY : SHRI T.A. KHAN DATE OF HEARING 25.10.2017 DATE OF ORDER 09.11.2017 O R D E R PER SAKTIJIT DEY, J.M. IN THE A FORESAID APPEAL THE ASSESSEE CHALLENG ES THE ORDER DATED 2 ND FEBRUARY 2016, PASSED BY THE LEARNED COMMISSIONER (APPEALS) 54, MUMBAI, FOR THE ASSESSMENT YEAR 2009 10. 2 . THE GROUNDS RAISED BY THE ASSESSEE PERTAIN TO THE SOLITARY ISSUE OF DISALLOWANCE OF EXPENDITURE MADE UNDER SECTION 14A R/W RULE 8D. 2 CAMELOT TRADING PVT. LTD. 3 . BRIEF FACTS AR E, THE ASSESSEE A COMPANY IS ENGAGED IN THE BUSINESS OF SHARES AND SECURITIES. FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, THE ASSESSEE FILED ITS RETURN OF INCOME ON 17 TH SEPTEMBER 2009, DECLARING NIL INCOME AFTER CLAIMING LOSS OF ` 5,01,75,288. DURING TH E ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICING THAT IN THE RELEVANT PREVIOUS YEAR, THE ASSESSEE HAS EARNED EXEMPT INCOME BY WAY OF DIVIDEND AMOUNTING TO ` 9,357, WHEREAS , IT HAS NOT DISALLOWED ANY EXPENDITURE ATTRIBUTABLE TO SUCH INCOME CALLED UP ON THE ASSESSEE TO EXPLAIN WHY EXPENDITURE INCURRED RELATING TO EXEMPT INCOME SHOULD NOT BE DISALLOWED IN TERMS OF RULE 8D. THOUGH, IN RESPONSE TO THE SHOW CAUSE NOTICE THE ASSESSEE SUBMITTED THAT THERE IS NO INVESTMENT ACTIVITY BY ASSESSEE, HENCE, PROVISI ONS OF SECTION 14A ARE NOT APPLICABLE, HOWEVER, THE ASSESSING OFFICER REJECTING ASSESSEES CLAIM THAT THE SHARES WERE HELD AS STOCK IN TRADE PROCEEDED TO DISALLOW AN AMOUNT OF ` 4,56,800 BY APPLYING RULE 8D. THE ASSESSEE CHALLENGED THE DISALLOWANCE BEFORE THE FIRST APPELLATE AUTHORITY. 4 . BEFORE T HE LEARNED COMMISSIONER (APPEALS) ALSO, THE ASSESSEE SUBMITTED THAT , SINCE , THE SHARES FROM WHICH DIVIDEND INCOME WAS EARNED WERE HELD AS STOCK IN TRADE, NO DISALLOWANCE UNDER SECTION 14A CAN BE MADE. HOWEVER, THE LE ARNED COMMISSIONER (APPEALS) DID NOT FIND MERIT IN THE SUBMISSIONS OF THE ASSESSEE. FURTHER, THOUGH, THE 3 CAMELOT TRADING PVT. LTD. ASSESSEE CONTENDED THAT IT WAS HAVING SUFFICIENT INTEREST FREE FUNDS TO MAKE THE INVESTMENT IN SHARES , HENCE, NO DISALLOWANCE OF INTE REST EXPENDITURE S HOULD BE MADE, H OWEVER, THIS CONTENTION WAS ALSO REJECTED AND ULTIMATE LY LEARNED COMMISSIONER (APPEALS) CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER WITH REGARD TO DIRECT EXPENDITURE UNDER RULE 8D(2)(I) AND ADMINISTRATIVE EXPENSES UNDER RULE 8D (2)(III) WHILE PARTLY REDUCING THE DISALLOWANCE ON INTEREST EXPENDITURE UNDER RULE 8D(2)(II). 5 . LEARNED AUTHORISED REPRESENTATIVE SUBMITTED, THE SHARE TRANSACTION IS CARRIED ON BY THE ASSESSEE AS A TRADING ACTIVITY AND NOT AS INVESTMENT. HE SUBMITTED, THE ASSESSEE HAS SHOWN THE SHARES HELD A S ITS STOCK IN TRADE IN THE BOOKS OF ACCOUNT. THEREFORE, NO DISALLOWANCE UNDER SECTION 14A CAN BE MADE. THE NEXT CONTENTION OF THE LEARNED AUTHORISED REPRESENTATIVE IS , THE ASSESSEE HAS SUFFICIENT INTEREST FREE FUND AVAI LABLE WITH IT TO TAKE CARE OF THE INVESTMENTS MADE IN THE SHARES. THEREFORE, NO DISALLOWANCE O F INTEREST EXPENDITURE CAN BE MADE. WITHOUT PREJUDICE TO THE AFORESAID CONTENTION, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED, IN NO CASE, THE DISALLOWANCE U NDER SECTION 14A R/W RULE 8D CAN EXCEED THE EXEMPT INCOME EARNED BY THE ASSESSEE. 4 CAMELOT TRADING PVT. LTD. 6 . LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE OBSERVATIONS OF THE LEARNED COMMISSIONER (APPEALS). 7 . WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FIRST CONTENTION OF THE LEARNED AUTHORISED REPRESENTATIVE BEFORE US IS THE SHARES ARE HELD AS STOCK IN TRADE, H ENCE, NO DISALLOWANCE UNDER SECTION 14A CAN BE MADE. IN THIS CO NTEXT, WE HAVE EXAMINED THE BALANCE SHEET OF THE ASSESSEE AS AT 31 ST MARCH 2009, AND FOUND THAT THE SHARES AND SECURITIES HELD BY THE ASSESSEE ARE SHOWN AS STOCK IN TRADE. AS PER THE SETTLED LEGAL PRINCIPLE, SHARES AND SECURITIES HELD AS STOCK IN TRADE HAV E TO BE EXCLUDED FOR COMPUTING DISALLOWANCE UNDER SECTION 14A R/W RULE 8D. THEREFORE, WE DIRECT THE ASSESSING OFFICER TO EXAMINE THIS ASPECT AND EXCLUDE THE SHARES AND SECURITIES HELD AS STOCK IN TRADE FOR COMPUTING DISALLOWANCE UNDER SECTION 14A R/W RULE 8D. AS FAR AS THE DISALLOWANCE OF INTEREST EXPENDITURE UNDER RULE 8D(2)(II) IS CONCERNED, IT IS THE CONTENTION OF THE ASSESSEE THAT IT HAS SUFFICIENT INTEREST FREE FUND AVAILABLE WITH IT TO TAKE CARE OF INVESTMENT IN SHARES AND SECURITIES. CONSIDERING THE AFORESAID SUBMISSIONS OF THE ASSESSEE, WE DIRECT THE ASSESSING OFFICER TO VERIFY THIS ASPECT AND IF IT IS FO UND THAT THE INTEREST FREE FUND AVAILABLE WITH THE ASSESSEE IS SUFFICIENT TO TAKE CARE OF INVESTMENTS MADE IN THE SHARES AND SECURITIES , NO DISALLOWA NCE OF INTEREST EXPENDITURE UNDER RULE 8D(2)(II) SHOULD BE MADE. FURTHER, WE 5 CAMELOT TRADING PVT. LTD. DIRECT THE ASSESSING OFFICER , IN CASE , ANY DISALLOWANCE HAS TO BE MADE UNDER RULE 14A R/W RULE 8D, IT SHOULD NOT EXCEED THE EXEMPT INCOME EARNED BY THE ASSESSEE IN THE RELEVANT PR EVIOUS YEAR. WITH THE AFORESAID OBSERVATIONS, THE GROUNDS RAISED ARE ALLOWED FOR STATISTICAL PURPOSES. 8 . IN THE RESULT, ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 09.11. 2017 SD/ - RAMIT KOCHAR ACCOUNTANT MEMBER SD/ - SAKTIJIT DEY JUDICIAL MEMBER MUMBAI, DATED: 09.11.2017 COPY OF THE ORDER FORWARDED TO : ( 1 ) THE ASSESSEE; ( 2 ) THE REVENUE; ( 3 ) THE CIT(A); ( 4 ) THE CIT, MUMBAI CITY CONCERNED; ( 5 ) THE DR, ITAT, MUMBAI; ( 6 ) GUARD FILE . TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY (DY./ASSTT. REGISTRAR) ITAT, MUMBAI