Span Overseas Private Limited, Pune V. Deputy Commissioner of Income tax, Pune

ITA 409/PUN/2017

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 7649 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 5 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-07-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 15-05-2019
• Assessment Year: 2012-2013
• Appeal Filed On: 17-02-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Rule of consistency; Earning of tax free income; TDS; Rule 8D
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUNE . , , , BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO . 409 /PUN/201 7 / ASSESSMENT YEAR : 20 12 - 13 SPAN OVERSEAS PRIVATE LIMITED, (ERSTWHILE KNOWN AS SPAN OVERSEAS LIMITED), OFFICE NO. 5, AMAR AVINASH CORPORATE CITY, BUND GARDEN ROAD, PUNE 411001 PAN : AABCS4214N ....... / APPELLANT / V/S. DY. COMMISSIONER OF INCOME TAX, CIRCLE 6, PUNE / RESPONDENT . / ITA NO . 693 /PUN/201 7 / ASSESSMENT YEAR : 20 12 - 13 DY. COMMISSIONER OF INCOME TAX, CIRCLE 6, PUNE ....... / APPELLANT / V/S. M/S. SPAN OVERSEAS LIMITED, OFFICE NO. 5, 3 RD FLOOR, AMAR AVINASH CORPORATE CITY, 11, BUND GARDEN ROAD, PUNE 411001 PAN : AABCS4214N / RESPONDENT ASSESSEE BY : SHRI KETAN VED REVENUE BY : SHRI SUDHENDU DAS / DATE OF HEARING : 1 5 - 05 - 2019 / DATE OF PRONOUNCEMENT : 19 - 0 7 - 2019 2 ITA NO S.409 & 693/PUN/2017, A.Y. 2012 - 13 / ORDER PER VIKAS AWASTHY, JM : TH ESE CROSS APPEALS BY THE ASSESSEE AND THE REVENUE ARE DIRECTED AGAINST THE ORDER OF COMMI SSIONER OF INCOME TAX (APPEALS) - 4, PUNE DATED 28 - 10 - 2016 FOR THE ASSESSMENT YEAR 20 12 - 13. FIRST, WE WILL TAKE THE APPEAL OF ASSESSEE FOR ADJUDICATION. ITA NO. 409 /PUN/201 7 , (ASSESSEES APPEAL) 2. THE ASSESSEE HAS ASSAILED THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) IN DISALLOWING LOSS ON DERIVATIVES RS.38,73,473/ - AND DISALLOWANCE U/S. 14A R.W. RULE 8D. 3. THE BRIEF FACTS OF THE CASE AS EMANATING FROM RECORDS ARE: THE ASSESSEE COMPANY IS I NDENTING COMMISSION AGENT. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR ON 20 - 11 - 2012 DECLARING TOTAL INCOME OF RS.1,91,07,337/ - . IN SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER MADE FOLLOWING ADDITIONS IN THE INCOME RETURNED BY THE ASSESSEE : I . DISALLOWANCE OF COMMISSION EXPENSES RS.1,67,48,273/ - . II . DISALLOWANCE OF SET OFF OF LOSS ON DERIVATIVE TRANSACTIONS RS.38,73,473/ - . III . DISALLOWANCE U/S. 14A R.W. RULE 8D RS.13,00,000/ - . AGGRIEVED AGAINST THE ADDITIONS MA DE IN ASSESSMENT ORDER DATED 17 - 03 - 2015 PASSED U/S. 143(3) OF THE ACT, THE ASSESSEE FILED APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). IN FIRST APPELLATE PROCEEDINGS, THE COMMISSIONER OF INCOME TAX (APPEALS) GRANTED RELIEF TO THE ASSESSEE IN 3 ITA NO S.409 & 693/PUN/2017, A.Y. 2012 - 13 R ESPECT OF COMMISSION EXPENSES. HOWEVER, THE COMMISSIONER OF INCOME TAX (APPEALS) CONFIRMED THE DISALLOWANCE IN RESPECT OF LOSS ON TRADING OF DERIVATIVES HOLDING IT TO BE SPECULATIVE TRANSACTION AND DISALLOWANCE U/S. 14A R.W. RULE 8D. AGAINST THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 4. SHRI KETAN VED APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE GROUND NOS. 1 TO 3 OF THE APPEAL BY THE ASSESSEE ARE AGAINST THE DISALLOWANCE OF RS.38,73,473/ - REJECTING ASSESSEES CLAIM OF SET OFF OF LOSS ON DERIVATIVES. THE LD. AR POINTED THAT THE ASSESSEE HAS SUFFERED LOSSES IN TRADING OF DERIVATIVES WHICH WAS SET OFF AGAINST THE NORMAL BUSINESS INCOME OF ASSESSEE DURING THE ASSESSMENT YEAR UND ER APPEAL. THE ASSESSEE HAD ALSO EARNED PROFITS ON SALE OF SHARES DECLARED AND MUTUAL FUND AS CAPITAL GAIN AND PROFIT ON INTRADAY SALE OF SHARES DECLARED AS SPECULATIVE TRANSACTION . THE LD. AR ASSERTED THAT THE COMMISSIONER OF INCOME TAX (APPEALS) WHILE EXAMINING THIS ISSUE HAS ERRED IN HOLDING THAT THE LOSS ON TRADING IN DERIVATIVES IS A SPECULATIVE TRANSACTION AND HENCE CAN BE SE T OFF AGAINST INCOME FROM SPECULATIVE BUSINESS ONLY. THESE FINDINGS GIVEN BY THE COMMISSIONER OF INCOME TAX (APPEALS) ARE CON TRARY TO THE FACTS. 4.1 IN RESPECT OF GROUND NOS. 4 TO 7 OF THE APPEAL RELATING TO DISALLOWANCE U/S. 14A R.W. RULE 8D , THE LD. AR SUBMITTED THAT THE ASSESSEE HAS EARNED EXEMPT INCOME OF RS.25,73,234/ - . THE ASSESSEE MADE SUO - MOTO DISALLOWANCE OF RS. 13,0 0,000/ - UNDER RULE 8D(2)(III). THE ASSESSEE HAS OWN FUNDS MUCH MORE THAN THE INVESTMENT , MADE HENCE , NO DISALLOWANCE IN RESPECT OF INTEREST EXPENDITURE WAS WARRANTED. IN SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER TREATED THE SUO - MOTO DISALLOW ANCE MADE BY ASSESSEE TOWARDS THE DIRECT EXPENDITURE UNDER RULE 8D(2)(I). THE 4 ITA NO S.409 & 693/PUN/2017, A.Y. 2012 - 13 ASSESSING OFFICER FURTHER MADE DISALLOWANCE IN RESPECT OF INTEREST EXPENDITURE UNDER RULE 8D(2)(II) RS.2,53,083/ - AND DISALLOWANCE UNDER RULE 8D(2)(III) RS.8,06,832/ - . THUS, TH E TOTAL DISALLOWANCE MADE BY ASSESSING OFFICER U/S. 14A R.W. RULE 8D WAS RS.23,59,915/ - . 5. ON THE OTHER HAND SHRI SUDHENDU DAS REPRESENTING THE DEPARTMENT VEHEMENTLY DEFENDED THE IMPUGNED ORDER AND PRAYED FOR DISMISSING THE APPEAL OF ASSESSEE. 6. BOTH SIDES HEARD. ORDERS OF THE AUTHORITIES BELOW PERUSED. THE FIRST ISSUE RAISED IN THE APPEAL BY THE ASSESSEE IN GROUND NOS. 1 TO 3 OF THE APPEAL IS AGAINST THE ACTION OF COMMISSIONER OF INCOME TAX (APPEALS) IN NOT ALLOWING SET OFF OF LOSS SUFFERED BY ASSESSEE IN TRADING O F DERIVATIVES. THE CONTENTIONS OF THE ASSESSEE ARE THAT THE LOSS IN TRADING OF DERIVATIVES IS A BUSINESS LOSS AND HENCE, THE ASSESSEE IS ELIGIBLE TO CLAIM SET OFF OF SUCH LOSSES AGAINST BUSINESS INCOME . A PERUSAL OF ASSESSMENT OR DER SHOWS THAT THE FINDINGS GIVEN BY THE ASSESSING OFFICER ON THIS ISSUE ARE SKETCHY AND NO REASON FOR DISALLOWING THE CLAIM OF ASSESSEE IS CLEARLY EMERGING. IN FIRST APPELLATE PROCEEDINGS THE COMMISSIONER OF INCOME TAX (APPEALS) WHILE GIVING HIS DECISION IN PARA 7.3.2 HAS OBSERVED THAT THE LOSS ON SALE OF DERIVATIVES IS OUTCOME OF SPECULATIVE TRANSACTION AND HENCE, THE SAME CANNOT BE ALLOWED TO BE SET OFF AGAINST CAPITAL GAINS. THE FINDINGS GIVEN BY THE COMMISSIONER OF INCOME TAX (APPEALS) ARE CONTRARY T O THE FACTS PLACED BEFORE US BY THE LD. AR. IN THE ABSENCE OF CLEAR FACTS , WE DEEM IT APPROPRIATE TO RESTORE THIS ISSUE BACK TO THE FILE OF ASSESSING OFFICER FOR DE - NOVO ADJUDICATION AFTER AFFORDING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE, IN AC CORDANCE WITH LAW. ACCORDINGLY, GROUND NOS. 1 TO 3 OF THE APPEAL ARE ALLOWED FOR STATISTICAL PURPOSE. 5 ITA NO S.409 & 693/PUN/2017, A.Y. 2012 - 13 7. IN GROUND NOS. 4 TO 7 OF THE APPEAL THE ASSESSEE HAS ASSAILED DISALLOWANCE U/S. 14A R.W. RULE 8D. THE CONTENTION OF THE ASSESSEE IS THAT THE ASSES SEE HAS MADE SUO - MOTO DISALLOWANCE OF RS.13,00,000/ - UNDER RULE 8D(2)(III). UNDISPUTEDLY, THE ASSESSEE HAS EARNED DI VIDEND INCOME OF RS.25,73,234/ - EXEMPT FROM TAX. THE ASSESSING OFFICER HAS MADE DISALLOWANCE U/S. 14A R.W. RULE 8D AS UNDER : RULE 8D (2) ( I ) D IRECT EXPENDITURE RS.13,00,000/ - ( II ) INTEREST EXPENDITURE RS.2,53,083/ - ( III ) % OF AVERAGE VALUE OF INVESTMENTS RS.8,06,832/ - _________________ TOTAL RS.23,59,915/ - THE CONTENTION OF THE ASSESSEE IS THAT THE ASSESSEE IS HAVING OWN FUNDS MUCH MOR E THAN THE INVESTMENTS MADE , T HEREFORE, NO DISALLOWANCE IN RESPECT OF INTEREST EXPENDITURE IS WARRANTED. IN THE LIGHT OF DECISION RENDERED BY HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. HDFC BANK LTD. REPORTED AS 366 ITR 505, WE FIND MERIT IN THE CONTENTION S OF THE ASSESSEE. HOWEVER, AVAILABILITY OF FUNDS REQUIRE VERIFICATION. WE DEEM IT APPROPRIATE TO RESTO RE THIS ISSUE BACK TO THE FILE OF ASSESSING OFFICER FOR THE PURPOSE OF VERIFICATION OF AVAILABILITY OF FUNDS WITH ASSESSEE DURING RELEVANT PERIOD FOR MAKING INVESTMENTS AND ALSO TO RE - EXAMINE THE HEAD UNDER RULE 8D WHERE SUO - MOTO DISALLOWANCE MADE BY THE A SSESSEE IS TO BE ALLOCATED. THE ASSESSING OFFICER WHILE RE - ADJUDICATING THIS ISSUE SHALL GRANT REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE, IN ACCORDANCE WITH LAW. THUS, GROUND NOS. 4 TO 7 OF THE APPEAL ARE ALLOWED FOR STATISTICAL PURPOSE IN THE TE RMS AFORESAID. 8. THE GROUND NOS. 8 AND 9 OF THE APPEAL BY THE ASSESSEE ARE GENERAL IN NATURE, HENCE, REQUIRE NO ADJUDICATION. 6 ITA NO S.409 & 693/PUN/2017, A.Y. 2012 - 13 9. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. ITA NO. 693 /PUN/201 7, (REVENUES APPEAL) 10. THE REVENUE IN APPEAL HAS ASSAILED THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) IN DELETING THE DISALLOWANCE OF COMMISSION EXPENDITURE RS.1,67,48,273/ - . THE LD. AR SUBMITTED THAT THE ASSESSEE HAS PAID COMMISSION TO ITS SUB - AGENTS FOR PROCURING INDEN TING BUSINESS. D ISALLOWANCE OF COMMISSION FOR SIMILAR REASONS WAS MADE IN THE ASSESSMENT YEAR 2010 - 11. THE COMMISSIONER OF INCOME TAX (APPEALS) GRANTED RELIEF TO THE ASSESSEE. THE DEPARTMENT CARRIED THE ISSUE IN APPEAL BEFORE THE TRIBUNAL IN ITA NO. 396 /PUN/2015 FOR THE ASSESSMENT YEAR 2010 - 11 . THE TRIBUNAL VIDE ORDER DATED 16 - 06 - 2017 UPHELD THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE. 11. ON THE OTHER HAND LD. DR VEHEMENTLY DEFENDED THE ASSESSMENT ORDER IN DISALLOWING ASSESSE ES CLAIM OF COMMISSION EXPENDITURE. 12. BOTH SIDES HEARD. ORDERS OF THE AUTHORITIES BELOW EXAMINED. THE SOLITARY ISSUE RAISED BY THE DEPARTMENT IS AGAINST DELETING THE DISALLOWANCE OF COMMISSION EXPENDITURE. WE FIND THAT THE IDENTICAL ISSUE WAS RAIS ED BY THE DEPARTMENT IN THE APPEAL BEFORE THE TRIBUNAL IN ASSESSMENT YEAR 2010 - 11 (SUPRA). THE CO - ORDINATE BENCH OF TRIBUNAL DECIDED THIS ISSUE AGAINST THE REVENUE BY OBSERVING AS UNDER : 14. THE ONLY GROUND LEFT FOR ADJUDICATION IN THE APPEAL OF THE DEP ARTMENT IS GROUND NO. 3. IN GROUND NO. 3 THE DEPARTMENT HAS ASSAILED THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) IN DELETING THE ADDITION MADE BY ASSESSING OFFICER ON ACCOUNT OF COMMISSION PAID BY THE ASSESSEE TO SUB - AGENTS IN RESPECT OF ITS INDE NTING BUSINESS. THE ASSESSEE HAS MADE COMMISSION PAYMENTS TO SUB AGENTS THROUGH CHEQUE AFTER DEDUCTING TAX AT SOURCE. THE PAYMENT OF COMMISSION HAS NOT BEEN DISPUTED BY THE DEPARTMENT. THE ONLY ISSUE RAISED BY THE DEPARTMENT IS THE NATURE IN WHICH THE I NDENTING BUSINESS IS CARRIED OUT BY THE ASSESSEE. THE LD. AR OF THE 7 ITA NO S.409 & 693/PUN/2017, A.Y. 2012 - 13 ASSESSEE HAS STATED AT THE BAR THAT IN THE SUBSEQUENT ASSESSMENT YEARS AND THE EARLIER ASSESSMENT YEARS THE DEPARTMENT HAS ACCEPTED AND ALLOWED THE PAYMENT OF SUCH COMMISSION. THE ASSESS MENT YEAR UNDER APPEAL IS THE FIRST YEAR WHERE THE PAYMENT OF COMMISSION HAS BEEN DISALLOWED. THE LD. AR PLACED ON RECORD COPY OF THE ASSESSMENT ORDERS FOR ASSESSMENT YEARS 2003 - 04 TO 2014 - 15. EXCEPT FOR THE ASSESSMENT YEAR 2011 - 12 THE ASSESSMENTS IN THE CASE OF ASSESSEE WERE COMPLETED U/S. 143(3) OF THE ACT. THE ASSESSING OFFICER HAS DISALLOWED PAYMENT OF COMMISSION IN TWO ASSESSMENT YEARS I.E. ASSESSMENT YEARS 2010 - 11 I.E. ASSESSMENT YEAR UNDER APPEAL AND ASSESSMENT YEAR 2012 - 13. IN ALL OTHER ASSESSME NT YEARS THE ASSESSING OFFICER ACCEPTED AND ALLOWED THE PAYMENT OF COMMISSION. THE LD. DR HAS NOT BEEN ABLE TO SHOW ANY CHANGE IN THE FACTS AND CIRCUMSTANCES IN THE ASSESSMENT YEAR UNDER APPEAL. THE PAYMENT OF COMMISSION HAS NOT BEEN DISPUTED. THE RULE OF CONSISTENCY HAS TO BE FOLLOWED FOR ALLOWING OR DISALLOWING ANY EXPENDITURE WHEN THERE IS NO SUBSTANTIAL CHANGE IN THE FACTS AND CIRCUMSTANCES. FURTHER, THE COMMISSIONER OF INCOME TAX (APPEALS) HAS CATEGORICALLY OBSERVED IN THE ORDER THAT THE ASSESSEE H AS FURNISHED ALL DETAILS REQUISITIONED BY THE ASSESSING OFFICER, VIZ. NAMES, ADDRESS, PAN, COPY OF INVOICES RAISED BY SUB - AGENTS, CONFIRMATIONS FROM SOME OF SUB - AGENTS. THE ASSESSEE HAS MADE PAYMENT OF COMMISSION THROUGH BANKING CHANNELS AFTER APPROPRIATE TDS U/S. 194H AND TDS CHALLANS HAVE BEEN FURNISHED, THERE SHOULD BE NO REASON FOR DISALLOWING SUCH EXPENDITURE ON MERE SUSPICION. THUS, IN VIEW OF THE DOCUMENTS ON RECORD, WE DO NOT FIND ANY ERROR IN THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS). THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE ARE UPHELD. ACCORDINGLY, THE GROUND NO. 3 RAISED IN THE APPEAL BY THE DEPARTMENT IS DISMISSED. 13. THE REVENUE HAS NEITHER CONTROVERTED THE FINDINGS OF CO - ORDINATE BENCH ON THIS ISSUE NOR ANY MATERIAL HAS BEEN BROUGHT ON RECORD TO SHOW ANY DIFFERENCE IN THE FACTS AND THE NATURE OF PAYMENT OF COMMISSION. THUS, WE FIND NO REASON TO DEVIATE FROM THE VIEW ALREADY TAKEN BY THE CO - ORDINATE BENCH ON IDENTICAL SET OF FACTS IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2010 - 11. FOR THE PARITY OF REASONS GIVEN IN ASSESSMENT YEAR 2010 - 11 , THE GROUND NO. 1 OF THE APPEAL BY THE REVENUE IS DISMISSED BEING DEVOID OF ANY MERIT. 14. THE GROUND NOS. 2 AND 3 OF THE APPEAL BY THE REVENUE ARE GENERAL IN NATURE, HENCE, REQUIRE NO ADJUDICATION. 8 ITA NO S.409 & 693/PUN/2017, A.Y. 2012 - 13 15. IN THE RESULT, THE APPEAL BY THE REVENUE IS DISMISSED. 16. TO SUM UP, THE APPEAL OF ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE AND THE APPEAL OF REVENUE IS DISMISSED. ORDER PRONOUNCED ON FRIDAY, THE 19 TH DAY OF JU LY, 2019. SD/ - SD/ - ( . /D. KARUNAKARA RAO ) ( / VIKAS AWASTHY) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE; / DATED : 19 TH JU LY, 2019 RK / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4, PUNE 4. THE PR. COMMISSIONER OF INCOME TAX - 3, PUNE 5. , , , / DR, ITAT, B BENCH, PUNE. 6. / GUARD FILE. / / // TRUE COPY// / BY ORDER, / PRIVATE SECRETARY, , / ITAT, PUNE