Appeal details
Counselvise Citation
[2018] 121 COUNSELVISE.COM (IT) 7943 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s) 3 month(s) 23 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
19-09-2018
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
Not Allotted
Assessment Year
2012-2013
Appeal Filed On
26-05-2016
Judgement Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES G, MUMBAI BEFORE SHRI B.R. BASKARAN (AM) AND SHRI RAM LAL NEGI (JM) ITA NO. 3659/MUM/2016 ASSESSMENT YEAR: 2012 - 13 M/S MULTIPLIER SHARES & STOCK ADVISORS PRIVATE LIMITED, 401 - B, AVIHARI BUILDING, S.V. ROAD, NEAR SIMPOLI SIGNAL, BORIVALI (W), MUMBAI - 400092 PAN: AADCM6646A VS. THE DCIT - 4(3)(2), AAYAKARBHAVAN, M.K. ROAD, MUMBAI - 400020 (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI HIRO RAI (ADVOCATE) REVENUE BY : SHRI V. VIDHYADHAR (SR. DR) DATE OF HEARING: 16/07/2018 DATE OF PRONOUNCEMENT: 19 /0 9 /2018 O R D E R PER RAM LAL NEGI, JM THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST ORDER DATED 30.03.2016 PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) (FOR SHORT THE CIT (A)) - 9, MUMBAI, FOR THE ASSESSMENT YEAR 2012 - 13, WHEREBY THE LD. CIT (A) HAS DISMISSED THE APPEA L FILED BY THE ASSESSEE AGAINST ASSESSMENT ORDER PASSED U/S 143 (3) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT) AND FURTHER ENHANCED THE TOTAL INCOME OF THE ASSESSEE FROM RS. 63,03,160/ - TO RS. 4,02,00,000/ - 2. BRIEF FACTS OF THE CASE ARE THAT THE A SSESSEE COMPANY ENGAGED IN THE BUSINESS OF TRADING IN SHARES AND DERIVATIVES SEGMENT, FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION DECLARING THE TOTAL INCOME OF RS. 37,33,010/ - AND CURRENT YEARS SPECULATION LOSS OF RS. 29,03,962/ - . THE CASE 2 . WAS SELECTED FOR SCRUTINY . IN RESPONSE TO NOTICE U/S 143 (2) AND 142 (1) OF THE ACT , T HE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE ATTENDED THE PROCEEDINGS FROM TIME TO TIME AND FURNISHED THE DETAILS CALLED FOR. SINCE, IT WAS FOUND THAT THE ASSE SSEE HAD RECEIVED DIVIDEND INCOME OF RS. 7,49,417/ - DURING THE ASSESSMENT YEAR UNDER CONSIDERATION. THE ASSESSEE HAD MADE SUO MOTO DISALLOWANCE OF RS. 74,942/ - U/S 14A. THE AO HOLDING THAT THE DISALLOWANCE MADE BY THE ASSESSEE IS NOT IN ACCORDANCE WITH THE PROVISIONS UNDER RULE 8D OF THE INCOME TAX RULES, 1963 (RULES). THE ASSESSEE WAS ACCORDINGLY ASKED TO EXPLAIN AS TO WHY THE DISALLOWANCE SHOULD NOT BE MADE U/S 14A OF THE ACT IN ACCORDANCE WITH THE COMPUTATION PRESCRIBED UNDER RULE 8D OF THE RULES . THE A SSESSEE CONTENDED THAT RULE 8D IS NOT APPLICABLE TO THE CASE OF SHARES WHICH ARE HELD AS STOCK IN TRADE, NO DISALLOWANCE IS REQUIRED TO BE MADE OUT OF INTEREST EXPENSES AND THE AO REJECTING THE CONTENTION OF THE ASSESSEE WORKED OUT THE DISALLOWANCE U/S 14A READ WITH RULE 8D (2)(II) AND (III) OF THE RULES AND DETERMINED THE TOTAL DISALLOWANCE AT RS. 26,45,091/ - AND GIVING BENEFIT TO THE SELF DISALLOWANCE ALREADY MADE ADDED RS. 25,70,149/ - TO THE INCOME OF THE ASSESSEE. 3. THE ASSESSEE CHALLENGED THE ASSESS ME NT ORDER BEFORE THE LD. CIT (A) . THE LD.CIT (A) AFTER HEARING THE ASSESSEE DISMISSED THE APPEAL AND CONFIRMED THE ADDITION MADE BY THE AO U/S 14A READ WITH RULE 8D. ON THE SECOND ISSUE, VIDE WHICH THE ASSESSEE CHALLENGED THE ASSESSMENT ORDER ON THE GROUND THAT THE SAME HAS NOT BEEN PASSED IN VIOLATION OF THE PRINCIPAL OF NATURAL JUSTICE. THE LD. CIT (A) DISMISSED THE SAID GROUND. 4. DURING THE APPELLATE PROCEEDINGS, THE ASSESSEE WAS DIRECTED TO FILE COPY OF AUDIT ACCOUNTS AND ANNUAL REPORTS. ACCORDINGLY, THE ASSESSEE SUBMITTED THE SAME AND AFTER GOING THROUGH THE SAID DETAILS THE ASSESSEE WAS DIRECTED TO FILE COPY OF SUBMISSION BEFORE AO IN RESPONSE TO NOTICE U/S 142 (1). IT WAS NOTICED THAT THE APPELLANT HAD TAKEN LOAN AND GIVEN TO THE PERSON U/S 40A (2)(B) OF THE ACT. THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE PROVISIONS OF SECTION 2 (22) (E) OF THE ACT SHOULD NOT BE INVOKED. THE ASSESSEE SUBMITTED THE WRITTEN REPLY AND CONTENDED THAT THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT CANNOT BE 3 APPLIED IN THE CASE OF APPELLANT IN RESPECT OF LOAN AMOUNTS RECEIVED AS PER ANNEXURE - D OF TAX AUDIT REPORT AND THE AMOUNT CANNOT BE TAXED AS DEEMED DIVIDEND. HOWEVER, THE LD. CIT (A) REJECTED THE CONTENTION OF TH E ASSESSEE AND ENHANCED THE INCOME OF THE ASSESSEE TO RS. 4,02,00,000/ - . THE ASSESSEE IS IN APPEAL AGAINST THE SAID FINDINGS OF THE LD. CIT (A). 5 . T HE ASSESSEE HAS CHALLENGED THE IMPUGNED ORDER PASSED BY THE LD. CIT (A) BY RAISING THE FOLLOWING EFFECTIVE GROUNDS: - 1. UNDER THE FACTS AND IN LAW, THE HON. COMMISSIONER OF INCOME TAX (A) [CIT(A)], ERRED IN CONFIRMING ADDITION OF RS. 2,570,149/ - U/S 14A R.W. RULE 8D OF THE INCOME TAX ACT, 1961. 1.01 THE LEARNED CIT (A) FAILED TO APPRECIATE THE SUBMISSION MADE BY THE APPELLANT DURING THE COURSE OF APPEAL PROCEEDINGS. 1.02 THE LEARNED CIT (A) FAILED TO APPRECIATE THE FACT THAT THE APPELLANT IS IN THE BUSINESS OF TRADING IN SHARES AND SECURITIES AND SHARES A RE BEING HELD AS STOCK IN TRADE BY THE APPELLANT AND PROVISION OF RULE 8D CANNOT BE APPLIED ON THE SHARES HELD AS STOCK IN TRADE BY THE APPELLANT. 1.03 THE LEARNED CIT (A) ERRED IN STATING THAT THE APPELLANT HAD FAILED TO PROVE THE ENTIRE SHARES HAVE BEEN HELD AS STOCK IN TRADE BY THE APPELLANT. 1.04 THE LEARNED CIT (A) ERRED IN STATING THAT THE APPELLANT HAD FAILED TO DISCHARGE ITS ONUS THAT AS TO HOW THE BO RROWED FUNDS WERE UTILIZED FOR THE PURPOSE OF BUSINESS. 1.05 THE LEARNED CIT (A) ERRED IN STATING THAT THE APPELLANT HAS INHERENTLY ADMITTED THAT DISALLOWANCE U/S 14A R.W. RULE 8D(2)(II) & 8D(2)(III) CAN BE MADE AND SUSTAINED TO THE EXTENT OF RS. 749,417/ - . 1.06 THE VARIOUS OBSERVATIONS MADE BY THE LEARNED CIT (A) WHILE CONFIRMING THE ADDITION MADE U/S 14A ARE MERELY ON THE BASIS OF PRESUMPTION, SURMISES AND CONJECTURE AND INCONSISTENT WITH THE LAW SETTLED BY THE JURISDICTIONAL HIGH COURT. 4 . 2. UNDER THE FACTS AND IN LAW , THE LEARNED CIT (A) ERRED IN ENHANCING THE INCOME OF THE APPELLANT BY RS. 40,200,000/ - BY INVOKING THE PROVISION OF THE SECTION 2(22)(E) OF THE INCOME TAX ACT, 1961, IN RESPECT OF LOAN RECEIVED BY THE APPELLANT FROM ONE OF ITS SHAREHOLDER DIRECTOR MR. CH ETAN R SHAH. 2.0 THE ADDITION MADE IS BAD IN LAW, AS MUCH AS THE SAME IS MADE WITHOUT ISSUING STATUTORY NOTICE U/S 251 OF THE INCOME TAX ACT, 1961. 2.02 THE LEARNED CIT (A) FAILED TO APPRECIATE THE FACT THAT PROVISION OF SECTION 2(22)(E) CANNOT BE APPLIE D IN THE PRESENT CASE OF THE APPELLANT, WHEREIN, THE APPELLANT HAS TAKEN LOAN FROM ITS DIRECTOR. 2.03 THE FACTS OF THE HON. SUPREME COURTS DECISION IN THE CASE OF SMT. TARULATASHYAM V. CIT 108 ITR 345 RELIED UPON BY THE LEARNED CIT (A) ARE MISUNDERSTOOD AND ERRONEOUSLY PLACE RELIANCE ON IT. 2.04 THE LEARNED CIT (A) FAILED TO APPRECIATE THE FACT, THAT THE PROVISION OF SECTION 2(22)(E) IS DEEMING PROVISION, WHICH NEEDS TO BE STRICTLY INTERPRETED, AND CANNOT BE LOOSELY APPLIED IGNORING THE FACTS OF THE APPEL LANT. 2.05 THE ADDITION MADE IS BAD IN LAW AND AGAINST THE PRINCIPAL OF NATURAL JUSTICE AND EQUITY. 6. THE FIRST GROUND OF APPEAL PERTAINS TO DISALLOWANCE U/S 14A READ WITH RULE 8D (2) OF THE INCOME TAX RULES. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE SAID GROUND IS COVERED IN FA V OUR OF THE ASSESSEE BY THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF JOINT INVESTMENTS PVT. LTD. VS. CIT 372 ITR 694 (DEL) . THE ASSESSEE EARNED THE EX EMPT INCOME AMOUNTING TO RS. 7,49,417/ - AGAINST WHICH THE AO COMPUTED THE ADDITION AT RS. 25,70,149/ - . AS PER THE JUDGMENT OF THE HONB LE DELHI HIGH COURT, THE AMOUNT OF DISALLOWANCE CANNOT SUSTAIN MORE THAN THE EXEMPT INCOME EARNED BY THE ASSESSEE. 7. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESENTATIVE (DR) RELYING ON THE FINDINGS OF THE AUTHORITIES BELOW SUBMITTED THAT THE AUTHORITIES BELOW 5 HAVE DETERMINED THE DISALLOWANCE IN ACCORDANCE WITH THE PROVISIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE INCOME TAX RULES. THEREFORE, THERE IS NO INFIRMITY IN THE FINDINGS OF THE LD. CIT (A) TO INTERFERE WITH. 8. WE HAVE PERUSED THE MATERIAL ON RECORD IN THE LIGHT OF THE RIVAL SUBMISSION AND ALSO GONE THROUGH THE CASES RELIED UPON BY THE PARTIES. THE HONBLE DELHI HIGH COURT HAS HELD IN THE CASE OF JOINT INVESTMENT PVT. LTD. VS. CIT (SUPRA) HAS DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE HOLDING THAT THE WINDOW FOR DISALLOWANCE IS INDICATED IN SECTION 14A WHICH IS PERMISSIBLE ONLY TO THE EXTENT OF DI SALLOWING EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO THE EXEMPT INCOME. THIS PROPOSITION OR PORTION OF THE EXEMPT INCOME CANNOT SWALLOW THE ENTIRE AMOUNT. IN VIEW OF THE FINDINGS OF THE HONBLE DELHI HIGH COURT, WE ARE OF THE CONSIDERED VIEW THAT THIS GROUND OF APPEAL IS SQUARELY COVERED BY THE SAID ORDER. HENCE, FOLLOWING THE RATIO LAID DOWN BY THE HON BLE DELHI HIGH COURT, WE RESTRICT THE ADDITION TO THE EXTENT OF EXEMPT INCOME EARNED BY THE ASSESSEE DURING THE YEAR RELEVANT TO THE ASSESSMENT YEA R UNDER CONSIDERATION AND PARTLY ALLOW THIS GROUND OF APPEAL. 9 . THE SECOND GROUND PERTAINS TO ENHANCEMENT OF INCOME OF THE ASSESSEE BY INVOKING THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT IN RESPECT OF LOAN RECEIVED BY THE ASSESSEE FROM MR. CHETAN R SHAH , DIRECTOR OF THE ASSESSEE COMPANY . THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT SINCE THE ASSESSEE HAS TAKEN LOAN IN QUESTION FROM AN INDIVIDUAL WHO IS THE DIRECTOR OF THE ASSESSEE COMPANY, THE LD. CIT(A) HAS WRONGLY APPLIED THE SECTION 2(22)(E) OF THE ACT . THIS SECTION APPLIES WHERE A CLOSELY - HELD COMPANY MAKES PAYMENT OF ANY SUM BY WAY OF LOAN OR ADVANCE TO A SHARE HOLDER, WHO IS THE BENEFICIAL OF THE SHARE S HOL DING NOT LESS THAN 10 % OF THE VOTING POWER OR ANY CONCERN IN WHICH SUCH SHARE HOLDE R IS A MEMBER OR A PARTNER IN WHICH HE HAS A SUBSTANTIAL INTEREST. IN THE PRESENT CASE, THE ASSESSEE HAS NOT RECEIVED THE LOAN IN QUESTION FROM ANY COMPANY BEING A SHAREHOLDER BUT RECEIVED LOAN FROM AN INDIVIDUAL DIRECTOR . HENCE, THE PROVIS I ONS OF SECTION 2(22)(E) ARE NOT AT ALL APPLICABLE IN THE PRESENT CASE. 6 . ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESENTATIVE (DR) RELYING ON THE FINDINGS OF THE LD. CIT (A) SUBMITTED THAT SINCE THE LD. CIT (A) HAS DECIDED THIS ISSUE IN THE LIGHT OF THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF SMT. TARULATA SHYAM VS . CIT 108 ITR 345 (SC), THERE IS NO MERIT IN THE APPEAL OF THE ASSESSEE. 1 1 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PERUSED THE MATERIAL ON RECORD INCLUDING THE CASE LAW RELIED UPON BY THE LD. CIT(A) IN THE LIGHT OF THE RIVAL SUBMISSIONS. SECTION 2(22)(E) OF THE ACT READS AS UNDER: (E) ANY PAYMENT BY A COMPANY, NOT BEING A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED OF ANY SUM (WHETHE R AS REPRESENTING A PART OF THE ASSETS OF THE COMPANY OR OTHERWISE) [MADE AFTER THE 31 ST DAY OF MAY, 1987, BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER, BEING A PERSON WHO IS THE BENEFICIAL OWNER OF SHARES (NOT BEING SHARES ENTITLED TO A FIXED RATE OF DIVIDE ND WHETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN PROFITS) HOLDING NOT LESS THAN TEN PER CENT OF THE VOTING POWER, OR TO ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTEREST (HEREAFTER IN THIS CLAUSE REFERRED TO AS THE SAID CONCERN] OR ANY PAYMENT BY ANY SUCH COMPANY ON BEHALF, OR FOR THE INDIVIDUAL BENEFIT, OF ANY SUCH SHAREHOLDER, TO THE EXTENT TO WHICH THE COMPANY IN EITHER CASE POSSESSES ACCUMULATED PROFITS .. 12. AS IT IS CLEAR FROM THE PROV ISIONS OF SECTION 2(22)(E) OF THE ACT THAT IN ORDER TO APPLY THE PROVISIONS UNDER THE SAID SECTION , T HE ASSESSEE SHOULD HA VE RECEIVED ANY LOAN OR ADVANCE FROM THE COMPANY IN WHICH THE ASSESSEE HOLDS SUBSTANTIAL INTEREST I.E. NOT LESS THAN 10% OF THE VOTING POWER. HOWEVER, IN THE PRESENT CASE, THE ASSESSEE HAS RECEIVED LOAN FROM SHRI CHETAN R SHAH, THE DIRECTOR OF THE ASSESSEE COMPANY. THE LOAN TAKEN BY THE ASSESSEE FROM AN INDIVIDUAL IS NOT HIT BY PROVISIONS OF SECTION 2( 22)(E) OF THE ACT. THE LD. CIT (A) HAS DECIDED THE ISSUE IN THE LIGHT OF THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF TARULATA SHYAM VS. CIT (SUPRA), HOWEVER, THE FACTS OF THE PRESENT CASE ARE DIFFERENT FROM THE FACTS OF THE CASE RELIED UPON BY THE LD. CIT 7 (A). THE HONBLE SUPREME COURT HAS HELD IN THE SAID CASE THAT IF O THER CONDITIONS OF S ECTION 2(6A)(E) (CORRESPONDING SECTION 2(22)(E), ARE SATISFIED, LOAN ADVANCED TO SHAREHOLDER DURING THE RELEVANT PREVIOUS YEAR BY THE COMPANY IS CHARGEABLE A S DEEMED DIVIDEND EVEN THOUGH THE LOAN DOES NOT REMAIN OUTSTANDING AS ON THE LAST DAY OF THE PREVIOUS YEAR. 13. IN THE INSTANT CASE , THE LD. CIT (A) HAS APPLIED THE SECTION MERELY ON THE GROUND THAT SINCE SHRI CHETAN R SHAH IS THE DIRECTOR OF THE ASSESSEE COMPANY, THE TRANSACTION OF LOAN AMOUNTS TO DEEMED DIVIDEND WITHIN THE MEANING OF SECTION 2(22)(E) OF THE ACT . WE ARE THEREFORE OF THE CONSIDERED VIEW THAT THE LD. CIT (A) HAS WRONGLY APPLIED THE AFORESAID SECTION AND MADE ADDITION OF THE AMOUNT IN QUES TION. ACCORDINGLY, WE SET ASIDE THE FINDINGS OF THE LD. CIT (A) AND ALLOW THIS GROUND OF APPEAL OF THE ASSESSEE AND DELETE THE ADDITION MADE BY THE LD. CIT(A). IN THE RESULT, APPEAL FILED BY THE A SSESSEE FOR ASSESSMENT YEAR 2012 - 2013 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH SEPTEMBER , 2018. SD/ - SD/ - ( B.R. BASKARAN ) (RAM LAL NEGI) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; DATED: 19 / 0 9 / 2018 ALINDRA, PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 8 . 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . / BY ORDER, //TRUE COPY// / (DY./ ASSTT.REGISTRAR) , / ITAT, MUMBAI
