GANDHI SECURITIES & INVESTMENTS P.LTD, MUMBAI V. DCIT 4(1), MUMBAI

ITA 3781/MUM/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 1494 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2016
• Appeal Filed By: Assessee
• Bench Allotted: G
• Next Hearing Date: 08-09-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 27-05-2014
• Court: TRIBUNAL
• Department Lawyers: PREMANAND J
• Assessee Lawyers: RAHUL KAPADIA
• Keywords: Business income; Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL G , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI PAWAN SINGH , JM ITA NO. 378 1 / MUM/201 4 ( ASSESSMENT YEAR : 20 11 - 1 2 ) M/S. GANDHI SECURITIES & INVESTMENTS PVT. LTD., 9, HAJI KASAM BUILDING, 2 ND FLOOR, TAMARIN D LANE, FORT, MUMBAI 400 001 VS. DCIT, TAX - 4(1)MUMBAI 400 020 PAN/GIR NO. AAACG2133P APPELLANT ) .. RESPONDENT ) ASSESSEE BY SHRI RAHUL KAPADIA REVENUE BY SHRI PREMANAND J DATE OF HEARING 1 7 / 1 0/2016 DATE OF PRONOUNCEMEN T 21 / 12 /2016 / O R D E R PER R.C.SHARMA (A.M) : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT (A) FOR THE ASSESSMENT YEAR 2011 - 201 2 . 2. FOLLOWING GROUNDS HAVE BEEN TAKEN BY THE ASSESSEE . 1.1 UNDER THE FACTS AND THE CIRCUMSTANCE S OF THE CASE, THE HON. CIT(A) HAS NOT JUSTIFIED IN CONFIRMING THE FURTHER DISALLOWANCE AMOUNTING TO RS. 43,09,513/- U/S 14A OF THE INCOME TAX ACT, MADE BY THE LD. ASSESSING OFFICER BY APPLYING RULE 80, WITHOUT CORRELATING EXPENSES TO THAT EXTENT, BEING IN CURRED TO EARN THE TAX FREE DIVIDEND INCOME BY THE APPELLANT, INSPITE OF THE FACT THAT THE APPELLANT ITSELF HAS DISALLOWED RS. 3,30,872/ - U/S. 14A OF THE INCOME TAX ACT. 1.2 UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE, THE HON. CIT(A) HAS NOT JUSTIFIED IN CONFIRMING THE DISALLOWANCE MADE BY THE LD. ASSESSING OFFICER TO THE EXTENT OF RS. 46,40,385/ - U/S.14A OF THE INCOME TAX ACT. ITA NO. 37 8 1/2014 M/S. GANDHI SECURITIES & INVESTMENTS PVT. LTD., 2 1.3 WITHOUT PREJUDICE, THE HON. CIT(A) IS NOT JUSTIFIED IN AGREEING WITH LD. ASSESSING OFFICER FOR INCLUDING STOCK IN TRADE, IN CALCUL ATING DISALLOWANCE UNDER RULE 8D OF THE INCOME TAX RULES. 2. THE APPELLANT CRAVES LEAVE FOR ANY ADDITION, DELETION AND AMENDMENTS IN GROUND OF APPEAL, TILL THE DISPOSAL OF THE APPEAL. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. 4. FACTS IN BRIEF ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT THE ASSESSEE HAS SHOWN DIVIDEND INCOME OF RS.66,17,432 AND LONG TERM CAPITAL GAIN (SIT PAID) OF RS.25,19,130 AND THE SAME WERE CLAIMED AS EXEMPT. THE ASSESSEE HAD DI SALLOWED ONLY AN AMOUNT OF RS.3,30,872 BEING 5% OF DIVIDEND INCOME TOWARD EARNING OF EXEMPT INCOME. THE AO FURTHER NOTED THAT THE ASSESSEE HAD EARNED LTCG OF RS.25,19,130 ON WHICH THE ASSESSEE HAS NOT DISALLOWED ANY PROPORTIONATE EXPENSE FOR EARNING SUCH E XEMPT INCOME AS PER SECTION 14A OF THE ACT. THEREFORE, THE AO AFTER GIVING A REASONABLE OPPORTUNITY TO THE ASSESSEE AND RELYING ON THE BOMBAY HIGH COURT'S DECISION IN THE CASE OF GODREJ & BOYCE MFG CO. LTD. VS. DCIT PROCEEDED TO RE - CALCULATE THE DISALLOWAN CE AS PER FORMULA GIVEN IN RULE 8D. AS PER THE CALCULATION, AN AMOUNT OF RS.46,40,385 WAS TREATED AS DISALLOWABLE AND AFTER REDUCING RS.3,30,872/ - WHICH WAS ALREADY ALLOWED BY THE ASSESSEE, AN AMOUNT OF RS.43,09,513/ - WAS DISALLOWED AND ADDED TO THE TOTAL INCOME U/ S. 14A R.W. RULE 8D. 5. BY THE IMPUGNED ORDER CIT(A) CONFIRMED THE DISALLOWANCE AGAINST WHICH ASSESSEE IS IN FURTHER APPEAL BEFORE US. ITA NO. 37 8 1/2014 M/S. GANDHI SECURITIES & INVESTMENTS PVT. LTD., 3 6. IT WAS CONTENDED BY LEARNED AR THAT ASSESSEE WAS HAVING SHARES HELD AS STOCK IN TRADE AND NOT AS INVESTMENT ON WHICH NO DISALLOWANCE IS WARRANTED IN VIEW OF THE DECISION OF BOMBAY HIGH COURT IN CASE OF INDIA ADVANTAGE SECURITIES LIMITED IN ITA NO.6711/MUM/2011 ORDER DATED 14/09/2012. 7. ON THE OTHER HAND, LEARNED DR RELIED ON THE ORDER OF THE LOWER AUTHORITIES AND CONTENDED THAT AO HAS CORRECTLY COMPUTED DISALLOWANCE AS PER VERDICT OF JURISDICTIONAL HIGH COURT IN CASE OF GODREJ & BOYCE MFG. CO. LTD., 8. WE HAVE CONSIDERED RIVAL CONTENTIONS AND CAREFULLY GONE THROUGH THE ORDER OF THE AUTHORITIES BELOW. WE FIND T HAT THE TRIBUNAL IN THE CASE OF 'DCIT VS. INDIA ADVANTAGE SECURITIES LTD.' IN ITA NO.6711/M/2011 VIDE ORDER DATED 14.09.2012 WHILE RELYING UPON THE DECISION OF THE HON'BLE KERALA HIGH COURT IN THE CASE OF 'CIT VS. SMT. LEENA RAMACHANDRAN (339 ITR 296) AND FURTHER ON THE DECISION OF THE HON'BLE HIGH COURT OF KARNATAKA IN THE CASE OF 'CCI LTD. VS. JCIT' 250 CTR 291 HAS HELD THAT DISALLOWANCE UNDER SECTION 14A IN RELATION TO DIVIDEND RECEIVED FROM TRADING S HARES CANNOT BE MADE. THE SAID FINDING OF THE TRIBUNAL HAS BEEN UPHELD BY THE HON'BLE JURISDICTIONAL BOMBAY HIGH COURT IN THE CASE OF ' CIT VS. INDIA ADVANTAGE SECURITIES LTD .' IN ITA NO.1131 OF 2013 V IDE ORDER DATED 17.03.2015 (SUPRA). THE SAID DECISION HOLDS BINDING PRECEDENT UPON THIS TRIBUNAL. MOREOVER THE ASSESSEE HAS ALREADY OFFERED ITA NO. 37 8 1/2014 M/S. GANDHI SECURITIES & INVESTMENTS PVT. LTD., 4 THE DIVIDEND INCOME EARNED ON THE SHARES HELD AS STOCK IN TRADE AS BUSINESS INCOME OF THE ASSESSEE. 9. IN VIEW OF TH E ABOVE DISCUSSION, WE RESTORE THE MATTER BACK TO THE FILE OF THE AO FOR RE - COMPUTING DISALLOWANCE BY EXCLUDING T HE SHARES HELD AS STOCK IN TRADE. WE DIRECT ACCORDINGLY. 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED IN PART FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 21 / 12 /2016 SD/ - ( PAWAN SINGH ) SD/ - (R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 21 / 12 /201 6 KA RUNA SR. PS COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//