RHYTHM HOUSE P. LTD, MUMBAI V. ACIT 2(3), MUMBAI

ITA 3618/MUM/2010

• Counselvise Citation: 361819914 RSA 2010
• Duration Of Justice: 1 year(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-05-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2005-2006
• Appeal Filed On: 06-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SURENDER KUMAR
• Assessee Lawyers: MUDRA P GOHIL
• Keywords: Opportunity of being heard; Rule 8D
• Section: 142(1); 14A; 201; 143(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D MUMBAI BEFORE SHRI P.M. JAGTAP (AM) AND SMT. ASHA VIJAYARAGHAVAN (JM) ITA NO. 3618/MUM/2010 ASSESSMENT YEAR- 2005-06 RHYTHM HOUSE PVT. LTD., 40, RAMPART ROW, K. DUBHASH MARG, FORT, MUMBAI-400 023 PAN-AAACR 6515L VS. THE ACIT - 2(3), 40, RAMPART ROW, K. DUBHASH MARG, FORT, MUMBAI-400 023 (APPELLANT) (RESPONDENT) APPELLANT BY: MS. MUDRA P. GOHIL RESPONDENT BY: SHRI SURENDER KUMAR O R D E R PER ASHA VIJAYARAGHAVAN (JM) THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED A GAINST THE ORDER DATED 18.1.2010 PASSED BY THE LD. CIT(A)-6 FOR THE ASSESSMENT YEAR 2005-06. 2. THE ASSESSEE IS A RETAIL MERCHANT, TRADING IN AU DIO COMPACT DISC, VIDEO CDS, DVDS, AUDIO CASSETTES AND ACCESSORIES. N OTICES U/S. 143(2) WAS ISSUED ON 8.8.2006. SUBSEQUENTLY, NOTICES U/S. 143(2) AND 142(1) WERE ISSUED ON 4.7.2007 AND THE ASSESSMENT WAS COMP LETED U/S. 143(3). WHILE COMPLETING THE ASSESSMENT, THE ASSESSING OFFI CER DISALLOWED SHORT TERM CAPITAL LOSS U/S. 94(7)(B)(II) AND MADE A DISA LLOWANCE U/S. 14A. 3. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD RECEIVED DIVIDEND FROM MUTUAL FUND UNITS AMOUNTING TO RS. 6, 74,109/-. THE ITA NO. 3618/MUM/2010 2 ASSESSEE HAS FILED ACCOUNT STATEMENTS OF THE MUTUAL FUND PURCHASED ON 6.4.2004 AND SUBSEQUENTLY SOLD ON 6.12.2004. THE I SSUE RELATING TO SEC. 94(7) WAS EXAMINED AS THE UNITS WERE SOLD WITHIN TH E PERIOD OF 9 MONTHS AFTER THE DATE OF DECLARATION OF DIVIDEND. ON THIS MUTUAL FUND, THE ASSESSEE HAD CLAIMED SHORT TERM LOSS OF RS. 3,72,57 4/- AS PER THE DETAILS FILED VIDE LETTER DT. 6.8.2007. 4. CONSIDERING THE ABOVE FACTS, THE ASSESSEE WAS AS KED TO SHOW CAUSE AS TO WHY THE SHORT TERM CAPITAL LOSS ARISING ON AC COUNT OF PURCHASE AND SALE OF ABOVE UNITS SHOULD NOT BE DISALLOWED IN VIE W OF THE EXPLICIT PROVISION OF SEC.94(7) OF THE INCOME TAX ACT. IN RE SPONSE TO WHICH A MERE SUBMISSION DATED 19.9.2007 WAS FILED ON 21.09.2007 AND REPLY FOR OR AGAINST THE APPLICABILITY OF SECTION 94(7) WAS NOT MADE. 5. THE AO HELD THAT ON VERIFICATION OF FACTS, IT IS NOTICED THAT THE DIVIDEND WAS DECLARED ON 6.4.2004 TO 17.8.2004 AND AGAIN ON 30.11.2004 AND TABULATED THE DATE WHICH IS 9 MONTHS FROM THE RECORD DATE OF DIVIDEND. THE AO FURTHER HELD AS FOLLOWS: THEREFORE, THE ASSESSEES SUBMISSIONS ARE NOT TENAB LE. SECTION 94(7)(B)(II), CLEARLY STATES THAT THE UNITS SHOULD NOT BE SOLD WITHIN A PERIOD OF 9 MONTHS AFTER SUCH DATE. IN THE INSTAN T CASE, SUCH DATE WHICH IS THE RECORD DATE ON WHICH THE DIVIDEND IS D ECLARED ARE MENTIONED IN THE CHART ABOVE. HENCE 9 MONTHS FROM R ECORD DATE END ON AS MENTIONED IN THE CHART WHICH CLEARLY IMPLIES THAT THE UNITS SHOULD HAVE BEEN REDEEMED OR SOLD AFTER 10.01.2005 AND ONWARDS ACCORDINGLY. SINCE THE UNITS WERE SOLD ON 6.12.2004 ITSELF, THE ASSESSEES CASE IS HIT BY THE PROVISIONS OF SEC.94( 7)(B)(II). IN VIEW OF THE ABOVE FINDINGS, THE SHORT TERM LOSS OF RS.3,67,576/- (.. TO THE EXTENT SUCH LOSS DOES NO T EXCEED THE AMOUNT OF DIVIDEND.) CLAIMED ON THE ABOVE TRANSA CTION OF MUTUAL FUND IS DISALLOWED AND NO ADJUSTMENT TO THE SAME IN THE CURRENT YEAR AS WELL AS IN THE SUBSEQUENT YEAR(S) I S NOT ALLOWED. ITA NO. 3618/MUM/2010 3 IN VIEW OF THE ABOVE SHORT TERM CAPITAL LOSS ALLOWE D SHALL BE RS.3,72,574 (TOTAL LOSS)-RS.3,67,576 (DIVIDEND INCO ME RECEIVED AND REINVESTED) = RS.4,998/- (-) SHORT TERM CAPITAL GAI N OF RS.238 EARNED ON DIVIDEND. THEREFORE, THE TOTAL SHORT TERM CAPITAL LOSS ALLOWED WORKS OUT TO RS.4,760 + RS.4,443 (AS PER RE CORD) = RS.9,202/-. 6. AGGRIEVED ASSESSEE PREFERRED AN APPEAL BEFORE TH E LD. CIT(A). BEFORE THE LD. CIT(A), THE AR OF THE ASSESSEE SUBMI TTED AS FOLLOWS: DURING APPELLATE PROCEEDINGS, THE AR OF THE APPELL ANT SUBMITTED, INTER-ALIA, THAT LOSS WAS NOT ALLOWABLE U/S.94(7) ONLY TO THE EXTENT OF DIVIDEND RECEIVED WITHIN THREE MONTHS OF ACQUIRING OF UNITS. IT IS CLAIMED THAT ANY DIVIDEND RECEIVED AFT ER THREE MONTHS OF THE DATE OF ACQUISITION OF THE UNITS COULD NOT BE D ISALLOWED UNDER THE SAID SECTION. THE AR CLAIMED THAT THE THREE CONDITI ONS LAID DOWN U/S.94(7) HAD TO APPLY CUMULATIVELY WITH THE RESULT THAT ONLY DIVIDEND RECEIVED WITHIN THREE MONTHS OF ACQUIRING OF UNITS COULD BE DISALLOWED. 7. THE LD. CIT(A) HELD AS FOLLOWS: I HAVE CONSIDERED THE FACTS OF THE ISSUE AS WELL A S WRITTEN SUBMISSIONS FILED BY THE AR BUT DO NOT FIND MERIT I N THEM. WHILE THE CONTENTION OF THE APPELLANT THAT THE CONDITIONS LAI D DOWN IN SECTION 94(7) HAD TO APPLY CUMULATIVELY IS CORRECT, THEIR I NTERPRETATION PURPORTED TO BE GIVEN BY THE APPELLANT IS NOT CORRE CT. THE PROVISIONS OF SECTION 94(7) RELATE TO DIVIDEND STRIPPING SITUA TIONS. IN THE PRESENT CASE, IT IS ADMITTED BY THE AR THAT THE SAID UNITS WERE PURCHASED WITHIN THREE MONTHS OF THE RECORD DATE AND SOLD WIT HIN THE TIME FRAME STATED IN THE SAID SECTION. AFTER THESE TWO C ONDITIONS ARE SATISFIED, THE DIVIDEND RECEIVED IN RESPECT OF SUCH UNITS HAS TO BE SET-OFF AGAINST THE LOSSES AGAINST THE TRADING OF T HE SAID UNITS. HENCE, THE ACTION OF THE AO IN DISALLOWING THE SHOR T TERM CAPITAL LOSS OF RS.3,67,576/- IS UPHELD. THIS GROUND IS DISMISSE D. 8. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE U S. THE LD. COUNSEL FOR THE ASSESSEE MS. MUDRA P. GOHI REITERAT ED THE SUBMISSION MADE BEFORE THE LOWER AUTHORITIES. ITA NO. 3618/MUM/2010 4 9. THE LD. DEPARTMENTAL REPRESENTATIVE SHRI SURENDE R KUMAR POINTED OUT THAT THE LD. CIT(A) HAS TO VERIFY THE P URCHASE DATE IN ORDER TO FIND OUT WHETHER THE CONDITIONS OF SEC. 94(7) ARE S ATISFIED. 10. WE HEARD BOTH THE PARTIES AND PERUSED THE MATER IAL AVAILABLE ON RECORD. WE FIND THAT THE LD. CIT(A) HAS MERELY STA TED THAT IN THE PRESENT CASE , IT IS ADMITTED BY THE AR THAT THE SAID UNITS WERE P URCHASED WITHIN THREE MONTHS OF THE RECORD DATE AND SOLD WITHIN THE TIME FRAME STATED IN THE SAID SECTION. HOWEVER, THE LD. CIT(A) HAS NOT VERIFIED THE SAME. IN THESE CIRCUMSTANCES, WE DEEM IT FIT TO RESTORE THE ISSUE TO THE FILE OF THE LD. CIT(A) TO TAKE THE ENTIRE DATA FROM THE ASSESSE E WITH RESPECT TO THE PURCHASE DATE AND EXAMINE WHETHER THE CONDITIONS OF SEC. 94(7) ARE SATISFIED. 11. GROUND NO. 2 RAISED BY THE ASSESSEE READS AS FO LLOWS: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN CONFIRMING THE ACTION OF THE AO OF DISALLOWING RS. 75,000/- ON ESTIMATED BASIS ON THE ALLEGED GROUND T HAT THE SAME WERE INCURRED FOR EARNING TAX FREE INCOME. 12. THE ASSESSEE HAS EARNED RS.6,74,109/- AS DIVIDE ND FROM MUTUAL FUND DURING THE YEAR. AS PER SECTION 14A, ANY EXPEN DITURE, INCURRED FOR EARNING ANY INCOME NOT INCLUDED IN THE TOTAL INCOME , IS DISALLOWED. THE AR SUBMITTED THAT THE ASSESSEE HAS NOT TAKEN ANY LO ANS FOR THE INVESTMENT OF UNITS, HAS NOT INCURRED ANY SPECIFIC EXPENDITURE TO EARN THIS DIVIDEND INCOME. CONSIDERING THE ABOVE FACTS & SUBMISSIONS, THE AO DISALLOWED AN ADHOC AMOUNT OF RS.75,000/- AS EXPENS ES SPENT ON EARNING THE DIVIDEND INCOME. 13. AGGRIEVED ASSESSEE PREFERRED AND APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) HELD AS FOLLOWS: ITA NO. 3618/MUM/2010 5 I HAVE CONSIDERED THE FACTS OF THE ISSUE AS WELL A S WRITTEN SUBMISSIONS FILED BY THE AR. THE MAIN GROUND OF THE APPELLANT CAN NOT BE ALLOWED IN VIEW OF THE DECISION OF THE HON'B LE SPECIAL BENCH OF ITAT, MUMBAI IN THE CASE OF M/S. DAGA CAPITAL MA NAGEMENT. HOWEVER, THE WITHOUT PREJUDICE PLEA OF THE APPELLAN T IS ADMITTED. THE AO IS DIRECTED TO WORK OUT THE DISALLOWANCE U/S .14A AFRESH AFTER TAKING INTO ACCOUNT THE PROVISIONS OF RULE 8D . THIS GROUND IS PARTLY ALLOWED. 14. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS NOTED THAT THE QUESTION OF MAKING DISALLOWANCE U/S. 14A IS NO MORE RES INTEGRA IN VIEW OF THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN GODREJ & BOYCE LTD . MFG. CO. VS DCIT (2010) 238 ITR 81 (BOM) HOLDING THAT THE PROVI SIONS OF SEC. 14A ARE APPLICABLE IN CIRCUMSTANCES AS ARE PREVAILING PRESE NTLY AND THE DISALLOWANCE HAS TO BE WORKED OUT BY THE AO ON SOME REASONABLE BASIS AND NOT RULE 8D. UNDER SUCH CIRCUMSTANCES, WE SE T ASIDE THE IMPUGNED ORDER AND RESTORE THE MATTER TO THE FILE OF THE AO FOR DECIDING THE QUANTUM OF DISALLOWANCE, AS PER THE AFOR E-NOTED JUDGMENT, AFTER ALLOWING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 15. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 25 TH DAY OF MAY, 2011 SD/- SD/- (P.M. JAGTAP) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEM BER MUMBAI, DATED 25 TH MAY , 2011 RJ ITA NO. 3618/MUM/2010 6 COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR D BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI ITA NO. 3618/MUM/2010 7 DATE INITIALS 1 DRAFT DICTATED ON: 20 . 0 5 . 201 1 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 23 .05 .2011 ______ SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: _________ ______ JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: _________ ______ JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: _________ ______ SR. PS/PS 6. KEPT FOR PRONOUNCEMENT ON: _________ ______ SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: _________ ______ SR. PS/PS 8. 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK: DATE ON WHICH FILE GOES TO AR _________ ______ 10 . DATE OF DISPATCH OF ORDER: _________ ______