M/s. Rayfam Enterprises Pvt. Ltd., New Delhi V. ACIT, New Delhi

ITA 4143/DEL/2011

• Counselvise Citation: 414320114 RSA 2011
• Duration Of Justice: 3 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 15-11-2011
• Assessment Year: 2008-2009
• Appeal Filed On: 14-09-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRATIMA KAUSHIK
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F NEW DELHI BEFORE SHRI R.P. TOLANI AND SHRI K.D. RANJAN ITA NO. 4143/DEL/2011 ASSTT. YR. 2008-09 M/S RAYFAM ENTERPRISES PVT. LTD. VS. ACIT, CIR. 1 5(1), 303, SOUTHERN PARK, NEW DELHI. D-2, SAKET PLACE, NEW DELHI. PAN/GIR NO. AACCS0528C (APPELLANT) ( RESPONDENT ) APPELLANT BY : SHRI AJAY WADHWA ADV. RESPONDENT BY : SMT. PRATIMA KAUSHIK SR. DR O R D E R PER R.P. TOLANI, J.M : THIS IS ASSESSEES APPEAL AGAINST CIT(A)S ORDER DA TED 2-5- 2011RELATING TO A.Y. 2008-09. SOLE EFFECTIVE GROUND IS AS UNDER: 1. THAT ON FACTS AND IN LAW, THE LD. CIT(A) HAS ER RED IN CONFIRMING THE DISALLOWANCE MADE BY THE ASSESSING O FFICER UNDER SECTION 14A OF THE INCOME-TAX ACT, 1961 READ WITH RULE 8D OF INCOME-TAX RULES, 1962. E CHARGES. 2. LEARNED COUNSEL FOR THE ASSESSEE CONTENDS THAT A SSESSEES MAIN OBJECT IS TO DEAL IN TRADING IN EQUITY FUNDS/ MUTUAL FUND S AND THE EARNING OF DIVIDEND IS CONSEQUENTIAL ONLY. THE DIVIDEND INCOME IS A BUY PRODUCT OF ACTIVITIES AMOUNTING TO RS. 3,41,871/- ONLY, FOR WH ICH DISALLOWANCE OF RS. 20,07,606/- HAS BEEN MADE U/S 14A. 2.1. NO FUNDS WERE BORROWED IN THE YEAR UNDER CONSI DERATION. IN THE YEAR 2006-07, APPELLANT TOOK A LOAN AGAINST 6% CONVERTIB LE DEBENTURES, TO BE CONVERTED IN TO EQUITY SHARES OF RS. 10/- OR AT NAV +20% WHICHEVER IS ITA NO. 4143/DEL/11 M/S RAYFAM ENTERPRISES PVT. LTD. 2 HIGHER. IT WAS UTILIZED FOR DAY TODAY WORKING OF TH E ORGANIZATION. MAJOR FUNDS WERE UTILIZED IN TRADING ACTIVITIES ONLY AND THE PURPOSE WAS TO EARN TRADING PROFITS AND NOT DIVIDEND. NO MAJOR INVESTME NTS IN TAX FREE BONDS OR FUNDS WERE MADE AS EVIDENT FROM THE BALANCE SHEET O F THE APPELLANT. 2.2. ADEALER IN SHARES, DOES NOT ACQUIRE SHARES AND SECURITIES TO EARN DIVIDEND INCOME. THE DOMINANT AND IMMEDIATE OBJECT BEHIND ACQUISITION OF SHARES IS TO EARN PROFIT ON THE SALE OF SHARES AT T HE EARLIEST POINT OF TIME, WHICH IS DULY OFFERED UNDER INCOME TAX. THE DIVIDEN D ON THE SHARES IS EARNED AS A BY PRODUCT BY HOLDING THEM AS STOCK-IN-TRADE AND THE DIVIDEND INCOME THUS IS INCIDENTAL ONLY. 2.3. LD. AO HAS MADE A MISTAKE IN TAKING THE AVERAG E VALUE OF INVESTMENTS RS. 4,00,19,378/- FOR CALCULATING THE INTEREST UNDE R RULE 8D(2)(II), WHEREAS THE AVERAGE VALUE OF INVESTMENTS IS OF RS. (649090 +220000)/2=434545/-. THEREFORE, THE CORRECT AMOUNT AS COMPUTED IN ACCORD ANCE WITH THE PRESCRIBED METHOD UNDER RULE 8D WILL BE OF RS. 3759 569 X 434545/75650964 = 21595/- ONLY AS AGAINST CONSIDERE D BY AO AT RS. 19,88,808/- BY MISTAKENLY APPLYING THE FORMULA AS P ER RULE 8D OF INCOME TAX RULES. IT IS PLEADED THAT THE EXCESS AMOUNT OF DISALLOWANCE OF INTEREST WHICH IS RS. 19,67,213/- SHOULD BE DELETED AS THE S AME HAS BEEN WRONGLY COMPUTED. 2.4. LEARNED COUNSEL RELIES ON THE ORDER OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE 234 DTR 1 (BOM), HOLDING AS UNDER: FOR THE REASONS WHICH WE HAVE INDICATED, WE HAVE COME TO THE CONCLUSION THAT UNDER SECTION 14A(1) IT IS FOR THE ASSESSING ITA NO. 4143/DEL/11 M/S RAYFAM ENTERPRISES PVT. LTD. 3 OFFICER TO DETERMINE AS TO WHETHER THE ASSESSEE HAD INCURRED ANY EXPENDITURE IN RELATION TO THE EARNING OF INCOM E WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT AND IF SO TO QUANTIFY THE EXTENT OF THE DISALLOWANCE. THE ASSESS ING OFFICER WOULD HAVE TO ARRIVE AT HIS DETERMINATION AFTER FUR NISHING AN OPPORTUNITY TO THE ASSESSEE TO PRODUCE ITS ACCOUNT S AND TO PLACE ON THE RECORD ALL RELEVANT MATERIAL IN SUPPORT OF T HE CIRCUMSTANCES WHICH ARE CONSIDERED TO BE RELEVANT A ND GERMANE. FOR THIS PURPOSE AND IN LIGHT OF OUR OBSER VATIONS MADE EARLIER IN THIS SECTION OF THE JUDGMENT, WE DEEM IT APPROPRIATE AND PROPER TO REMAND THE PROCEEDINGS BACK TO THE AS SESSING OFFICER FOR A FRESH DETERMINATION. 2.5. LEARNED COUNSEL REFERRED TO THE BALANCE-SHEET FIGURES TO STRESS THAT THE CORRECT AVERAGE VALUE OF INVESTMENT BE RS. 4,34,545 /- AND THE EXPENDITURE DISALLOWABLE U/S 14A WILL COME ONLY TO RS. 21,595/- . THE IMPUGNED EXCESS DISALLOWANCE SHOULD BE DELETED. 3. LEARNED DR, ON THE OTHER HAND, RELIES ON THE ORD ER OF LOWER AUTHORITIES AND IN ALTERNATE CONTENDS THAT THE ISSUE MAY BE RES TORED BACK TO THE FILE OF AO TO DECIDE AFRESH THE AVERAGE VALUE OF INVESTMENT AND DECIDE THE ISSUE IN ACCORDANCE WITH LAW. 4. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH THE ENTIRE MATERIAL AVAILABLE ON RECORD. AS THE FACTS EMERGE, THE ASSES SEE HAS GIVEN SUFFICIENT MATERIAL TO WORK OUT THE AVERAGE VALUE OF INVESTMEN T, WHICH IS IN TABULATED CALCULATION GIVEN BY AO ON PAGE 4 OF HIS ORDER. IT IS IMPERATIVE TO WORK OUT THE AVERAGE VALUE OF INVESTMENT WHILE DEALING WITH SL. NO. 2 OF THE TABLE. IN OUR VIEW WHEN THE ASSESSEE HAS GIVEN PROPER DETAILS FOR WORKING OUT AVERAGE COST OF INVESTMENT, THE LOWER AUTHORITIES SHOULD HA VE CONSIDERED THE SAME. CONSEQUENTLY, WE ARE INCLINED TO SET ASIDE THE MATT ER BACK TO THE FILE OF AO ITA NO. 4143/DEL/11 M/S RAYFAM ENTERPRISES PVT. LTD. 4 TO WORK OUT THE DISALLOWANCE U/S 14A BY ADOPTING TH E AVERAGE VALUE OF INVESTMENT AND DECIDE THE ISSUE AFRESH IN ACCORDANC E WITH LAW. WE ORDER ACCORDINGLY. 5. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES ONLY. ORDER PRONOUNCED IN OPEN COURT ON 16-12-2011. SD/- SD/- ( K.D. RANJAN ) ( R.P. TOLANI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 16-12-2011. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR ITA NO. 4143/DEL/11 M/S RAYFAM ENTERPRISES PVT. LTD. 5