SHANUDEEP P. LTD, MUMBAI V. ITO 3(3)1, MUMBAI

ITA 4108/MUM/2013

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 7036 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-06-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2004-2005
• Appeal Filed On: 22-05-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N A PATADE
• Assessee Lawyers: K K VED
• Keywords: Capital asset; Depreciation; Earning of tax free income
• Section: 14A

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI B.R. BASKARAN (AM) & SHRI PAWAN SINGH (JM) I.T.A. NO. 4108/MUM/2013 (ASSESSMENT YEAR 20 04 - 05 ) I.T.A. NO. 4109/MUM/2013 (ASSESSMENT YEAR 2006 - 07) M/S. SHANUDEEP PVT. LTD. VIJAYALAXMI MAFATL AL CENTRE 57 - A, DR. G. DESHMUKH MARG, MUMBAI - 400 026 PAN : AACCS0267J VS. ITO 3(3)(1) AAYAKAR BHVAN M.K. ROAD MUMBAI - 400 020. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY SHRI K.K. VED DEPARTMENT BY SHRI N.A. PATADE DATE OF HEARING 4 . 6 . 201 8 DATE OF PRONOUNCEMENT 4 . 6 . 201 8 O R D E R PER B.R. BASKARAN (AM) : BOTH THESE APPEALS FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDERS PASSED BY CIT(A) - 7, MUMBAI AND THEY RELATE TO A.YS. 2004 - 05 & 2006 - 07. 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING IN GOODS AND ALSO MAKES INVESTMENT S . WE SHALL FIRST TAKE UP THE APPEAL FILED FOR A.Y. 2004 - 05. FIRST ISSUE CONTESTED THEREIN RELATES TO DISALLOWANCE MADE U/S. 14A OF THE ACT. 3. THE ASSESSEE RECEIVED DIVIDEND INCOME OF RS. 77.30 LAKHS AND CLAI MED THE SAME AS EXEMPT. THE ASSESSEE DID NOT MAKE ANY DISALLOWANCE U/S. 14A OF THE ACT. THE AO NOTICED THAT THE ASSESSEE HAS CLAIMED A GGREGATE AMOUNT OF RS. 22.50 LAKHS AS EXPENSES AGAINST TOTAL RECEIPT OF RS. 685.44 LAKHS (INCLUDING DIVIDEND INCOME) . THE AO DISALLOWED PROPORTIONATE EXPENSES (PROPORTIONATE OF DIVIDEND INCOME TO THE TOTAL RECEIPTS) U/S. 14A OF THE ACT , WHICH AMOUNTED TO RS. 2.76 LAKHS. THE LD. CIT(A) ALSO CONFIRMED THE SAME. SHANUDEEP PVT. LTD. 2 4. THE LD AR SUBMITTED THAT THE TOTAL EXPENDITURE OF RS. 22.50 L AKHS CLAIMED BY THE ASSESSEE ARE ENTIRELY RELATED TO THE TRADING ACTIVIT IES CARRIED ON BY THE ASSESSEE AND HENCE NO DISALLOWANCE U/S. 14A OF THE ACT IS CALLED FOR. 5. ON THE CONTRARY, LD DR SUBMITTED THAT THE ASSESSEE HAS EARNED DIVIDEND INCOME OF RS. 77 .30 LAKHS BY USING INFRASTRUCTURE, STAFF AND OTHER FACILITIES O F THE ASSESSEE . A CCORDINGLY, THE LD DR SUBMITTED THAT THE DISALLOWANCE OF PROPORTIONATE EXPENSES DISALLOWED BY THE AO SHOULD BE UPHELD. 6. IN THE REJOINDER, THE LD AR SUBMITTED THAT THE YEAR U NDER CONSIDERATION BEING A.Y. 2004 - 05, THE PROVISIONS OF RULE 8D OF THE I.T. RU L ES SHALL NOT HAVE APPLICATION. HE SUBMITTED THAT HO N BLE BOMBAY HIGH COURT HAS CONSIDERED AN IDENTICAL ISSUE IN THE CASE OF CIT VS. GODREJ AGROVET LTD. (INCOME TAX APPEAL NO. 9 34 OF 2011 DATED 8.1.2013), WHEREIN THE HO N BLE BOMBAY HIGH COURT HAS CONFIRMED THE DISALLOWANCE TO 2% OF THE DIVIDEND INCOME SUSTAINED BY THE TRIBUNAL. 7. WE HAVE HEARD THE RIVAL CONTENTION S ON THIS ISSUE AND PERUSED THE RECORD. ADMITTEDLY, THE PROVISIO NS OF RULE 8D SHALL NOT BE APPLICABLE TO THE YEAR UNDER CONSIDERATION AS PER THE DECISION RENDERED BY HO N BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. (328 ITR 81). HOWEVER, DISALLOWANCE HAS TO BE MADE ON A REASONABLE BASIS A S PER THE DECISION CITED ABOVE. THE HO N BLE BOMBAY HIGH COURT HAS HELD IN THE CASE OF GODREJ AGROVET LTD. (SUPRA) THAT DISALLOWANCE OF 2% OF THE EXEMPT INCOME SUSTAINED BY THE TRIBUNAL COULD NOT BE FOUND FAULT WITH. ACCORDINGLY, BY FOLLOWING THE ABOVE SAID DECISION, WE SET ASIDE THE ORDER PASSED BY LD. CIT(A) ON THIS ISSUE AND DIRECT THE AO TO RESTRICT THE DISALLOWANCE U/S. 14A OF THE ACT TO 2% EXEMPT INCOME OF THE ASSESSEE. 8. THE N EXT ISSUE CONTESTED BY THE ASSESSEE IN A.Y. 2004 - 05 RELATES TO DISALLOWANC E OF GUEST HOUSE MAINTENANCE EXPENSES OF RS. 92, 154 AND R S . 1,66,130/ - INCURRED FOR MAHABALESHWAR AND LONAVALA BUNGALOWS RESPECTIVELY . SHANUDEEP PVT. LTD. 3 9. THE AO NOTICED THAT THE ASSESSEE HAS INCURRED EXPENDITURE ON GU E ST HOUSE LOCATED AT MAHABALESHWAR AND LONAVALA. THOUGH THE ASSESSEE SUBMITTED THAT THESE GUEST HOUSES WERE USED FOR THE PURPOSE OF BUSINESS, YET THE AO NOTICED THAT THE ASSESSEE DID NOT SPECIFY ANY DIRECT BUSINESS NEED TO VISIT MAHABALESHWAR . THE AO ALSO NOTICED THAT THE ASSESSEE HAS ALSO FAILED TO SHOW THAT THESE GUEST HOUSES WERE USED BY THE EMPLOYEES. ACCORDINGLY, THE AO DISALLOWED 50% OF THE EXPENSES CLAIMED TOWARDS MAHABALESHWAR AND LONAWALA BUNGALOWS . THE LD CIT(A) ALSO CONFIRMED THE SAME. 10. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE. BEFORE US, LD AR REITERATED THAT THESE GUEST HOUSES WERE USED BY THE EMPLOYEES DURING THEIR VACATION. HOWEVER, HE COULD NOT PRODUCE ANY EVIDENCE OR DOCUMENTS TO SUBSTANTIATE ABOVE SAID CLAIM. UNDER THESE SET OF FACTS, WE HAVE NO OTHER OPTION BUT TO CONFIRM THE ORDER PA SSED BY LD CIT(A) ON THIS ISSUE. 11. THE N EXT ISSUE CONTESTED BY THE ASSESSEE RELATES TO THE CLAIM OF LONG TERM CAPITAL LOSS ARISING ON REDUCTION OF THE FACE VALUE OF THE SHARES. THE ASSESSEE CLA IMED A SUM OF RS. 752.52 LAKHS AS LONG TERM CAPITAL LOSS AR ISING ON ACCOUNT OF REDUCTION IN FACE VALUE OF THE SHARES. THE AO DISALLOWED THE SAME ON THE REASONING THAT THERE IS TRANSFER OF CAPITAL ASSET S AS DEFINED U/S. 2(47) OF THE ACT AND HENCE LOSS SHOULD BE IGNORED . THE LD CIT(A) ALSO CONFIRMED THE SAME. 12. AT THE TIME OF HEARING, THE LD AR FAIRLY CONCEDED THAT THIS ISSUE HAS BEEN DECIDED AGAINST THE ASSESSEE BY THE DECISION RENDERED BY THE SPECIAL BENCH IN THE CASE OF BENNETT COLEMAN & CO. LTD. (2011) 141 TTJ 777. IN VIEW OF THE DECISION OF SPECIAL BENCH, R EFERRED ABOVE, THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE DOES NOT CALL FOR ANY INTERFERENCE . 13. WE SHALL NOW TAKE UP THE APPEAL FILED BY THE ASSESSEE FOR A.Y. 2006 - 07. SHANUDEEP PVT. LTD. 4 14. THE F IRST ISSUE RELATES TO DISALLOWANCE OF DEPRECIATION ON ASSETS USED FOR THE PURPOSE OF EARNING SERVICE INCOME. LD AR SUBMITTED THAT THE SERVICE INCOME HAS BEEN ASSESSED BY THE AO UNDER INCOME FROM OTHER SOURCES AND HENCE DEPRECIATION IS ALLOWABLE ON THOSE ASSETS U/S. 57(II) OF THE ACT. HE SUBMITTED THAT THE AO HAS REJECTED THE DEPRECIATION ON THE GROUND THAT SAME IS NOT RELATED TO THE SERVICE PROVIDED BY THE ASSESSEE. LD AR SUBMITTED THAT DEPRECIATION IS ALLOWABLE ON ASSETS IF THEY HAVE BEEN USED IN CONNECTION WITH THE ACTIVITY OF PROVIDING SERVICES. 15. LD DR SUPPORTED THE ORD ER PASSED BY LD CIT(A) ON THIS ISSUE. 16. HAVING HEARD THE RIVAL CONTENTION, WE FIND MERIT IN THE CONTENTION S OF THE ASSESSEE. IF A PARTICULAR ASSET HAS BEEN USED IN CONNECTION WITH THE PROVISION OF SERVICE AND IF SERVICE INCOME IS ASSESSED INCOME FROM O THER SOURCES, THEN THE ASSESSEE WOULD BE ENTITLED FOR DEPRECIATION U/S. 57(II) OF THE ACT. WHAT IS REQUIRED TO BE SEEN IN THE INSTANT CASE IS WHETHER THE CLAIM OF THE ASSESSEE THAT ASSETS WERE USED FOR PROVIDING SERVICES IS CORRECT OR NOT. WE NOTICED THAT THE AO HAS NOT EXAMINED THE ABOVE SAID CLAIM OF THE ASSESSEE . A CCORDINGLY, WE SET ASIDE THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE AO FOR EXAMINING THE CLAIM OF DEPRECIATION U/S. 57(II) OF THE ACT AFRESH. 17. THE N EXT ISSUE RELATES TO DISALLOWANCE MADE U/S. 14A OF THE ACT. THE LD AR SUBMITTED THAT THE AO HAS COMPUTED DISALLOWANCE U/S. 14A OF THE ACT BY APPLYING PROVISIONS OF RULE 8D OF THE I.T. RULES. THE LD AR SUBMITTED THAT THE ASSESSMENT YEAR UNDER CONSIDERATI ON IS A.Y. 2006 - 07 AND HENCE PROVISIONS OF RULE 8D SHALL NOT BE APPLICABLE TO THIS YEAR AS PER THE DECISION RENDERED BY HOBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. (328 ITR 81) . THE LD. AR SUBMITTED THAT A N IDENTICAL ISSU E WAS CONSIDERED BY THE COORDINATE BENCH IN ASSESSEES OWN CASE IN ITA NO. 4110/MUM/2013 DATED 26.4.2017 RELATING TO A.Y. 2007 - 08 AND THE TRIBUNAL SHANUDEEP PVT. LTD. 5 HAS RESTORED THE MATTER BACK TO THE FILE OF THE AO FOR EXAMINING THE SAME AFRESH. 18. WE HEARD LD DR ON THIS ISSUE AND PERUSED THE RECORD. WE NOTICED THAT THE COORDINATE BENCH OF THE TRIBUNAL HAS CONSIDERED AN IDENTICAL ISSUE IN A.Y. 2007 - 08 AND HAS RESTORED THE MATTER BACK TO THE FILE OF THE AO , SINCE THE AO HA D INVOKED PROVISIONS OF RULE 8D FOR COMPUTING DISAL LOWANCE U/S. 14A OF THE ACT, WHICH WAS CONTRARY TO THE DECISION RENDERED BY HOBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. (SUPRA). CONSISTENT WITH THE VIEW TAKEN IN A.Y. 2007 - 08 BY THE TRIBUNAL, WE SET ASIDE THE ORDER PASSED BY LD. CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE AO FOR EXAMINING THIS ISSUE AFRESH. 19. THE N EXT ISSUE CONTESTED BY THE ASSESSEE RELATES TO DISALLOWANCE OF EXPENSES INCURRED ON BUNGALOWS LOCATED AT MAHABALESHWAR AND LONAVALA. IDENTIC AL ISSUE WAS CONSIDERED BY US IN A.Y. 2004 - 05 (SUPRA) AND WE HAVE CONFIRMED THE DISALLOWANCE MADE BY THE AO. CONSISTENT WITH THE VIEW TAKEN THEREIN, WE CONFIRM THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE. 20. THE LAST ISSUE CONTESTED BY THE ASSESSEE RELA TES TO SET OFF BROUGHT FORWARD LONG TERM CAPITAL LOSS AGAINST LONG TERM CAPITAL GAIN EXEMPT U/S. 10(38) OF THE ACT. THE LD AR SUBMITTED THAT THE AO IS NOT CORRECT IN LAW IN SETTING OFF OF BROUGHT FORWARD LOSS ARISING ON SALE OF SHARES (NOT SUBJECTED TO SEC URITIES TRANSACTION TAX AND HENCE NOT EXEMPT ) AGAINST LONG TERM CAPITAL GAINS ARISING ON SALE OF SHARES, WHICH ARE EXEMPT U/S. 10(38) OF THE ACT. IN THIS REGARD, HE PLACED REL IANCE ON THE FOLLOWING CASE LAWS : - CIT VS. ANG SECURITIES LTD. (2013) 217 TAXMAN 210 (P&H) INDUCTOTHERM (INDIA) P. LTD. VS. DCIT (2017) 187 TTJ 525 (AHD) THE LD A.R SUBMITTED THAT IT HAS BEEN HELD IN THE ABOVE SAID CASES THAT THE LOSS ARISING ON SALE OF SHARES (WHOSE INCOME IS NOT EXEMPT) CANNOT BE SET OFF SHANUDEEP PVT. LTD. 6 AGAINST THE GAIN ARISING ON SALE OF SHARES (WHOSE INCOME IS EXEMPT U/S 10(38) OF THE ACT). 21. WE HAVE HEARD LD DR ON THIS ISSUE . IT IS THE CONTENTION OF THE ASSESSEE THAT ITS CLAIM IS COVERED BY THE DECISION OF HOBLE P&H HIGH COURT RENDERED IN THE CASE OF ANG SECURITIES LTD. (SUP RA) . ACCORDINGLY WE SET ASIDE THE ORDER PASSED BY LD. CIT(A) ON THIS ISSUE AND DIRECT THE AO TO FOLLOW THE DECISION RENDERED BY HOBLE P&H HIGH COURT IN THE CASE OF ANG SECURITIES LTD. (SUPRA) BY DULY EXAMINING THE FACTS RELATING TO THIS ISSUE. 22. IN THE RESULT, BOTH THE APPEALS FILED BY THE ASSESSEE ARE TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER HAS BE EN PRONOUNCED IN THE COURT ON 4 . 6 . 201 8 . SD/ - SD/ - (PAWAN SINGH ) (B.R.BASKARAN) J U DICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 4 / 6 / 20 1 8 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE C OPY// ( SENIOR P RIVATE S ECRETARY ) PS ITAT, MUMBAI