N. KUMAR DIAMOND EXPORTS LTD, MUMBAI V. ITO 5(2)(1), MUMBAI

ITA 4176/MUM/2012

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8993 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 6 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-01-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 02-01-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 14-06-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SUMAN KUMAR
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B, MUMBAI BEFORE SHRI JASON P. BOAZ ACCOUNTANT MEMBER AND SHRI RAM LAL NEGI, JUDICIAL MEMBER ITA NO. 4176/MUM/2012 (ASSESSMENT YEAR : 2009-10) N.KUMAR DIAMOND EXPORTS LTD., 1511, PRASAD CHAMBERS, TATA ROAD, NO.2, OPERA HOUSE, MUMBAI 400004 PAN:AAACN 3449B ... APPELLANT VS. THE ITO 5(2)(1), 5 TH FLR.AAYKAR BHAVAN, MK ROAD, MUMBAI 400 020 .... RESPONDENT APPELLANT BY : NONE RESPONDENT BY : SHRI SUMAN KU MAR DATE OF HEARING : 02/01/2017 DATE OF PRONOUNCEMENT : 11/01/2017 ORDER PER JASON P. BOAZ, A.M: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE CIT(A) -9, MUMBAI DATED 11/04/2012 FOR AY 2009-10. 2. THE FACTS OF THE CASE, BRIEFLY STATED, ARE AS UN DER:- 2.1 THE ASSESSEE, A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURE AND EXPORT OF DIAMONDS AND OTHER ORNAMENTS, FILED I TS RETURN FOR ASSESSMENT YEAR 2009-10 ON 29/08/2009 DECLARING IN COME OF RS.10,43,200/-. THE RETURN WAS PROCESSED UNDER SE CTION 143(1) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) AND THE C ASE WAS SUBSEQUENTLY 2 ITA NO. 4176/MUM/2012 (ASSESSMENT YEAR : 2009-10) TAKEN UP FOR SCRUTINY. THE ASSESSMENT WAS COMPLETE D UNDER SECTION 143(3) OF THE ACT VIDE ORDER DATED 11/11/2011, WHER EIN THE ASSESSEES INCOME WAS DETERMINED AT RS.15,43,200/-, IN VIEW OF THE DISALLOWANCE OF RS.5,00,011/- UNDER SECTION 14A R.W. RULE 8D. O N APPEAL, THE CIT(A) DISMISSED THE ASSESSEES APPEAL VIDE THE IMPUGNED O RDER DATED 11/4/2012. 3. THIS APPEAL WAS FIXED FOR HEARING ON SEVERAL O CCASIONS FROM 15/07/2013 ONWARDS AND ON EACH OF THESE DATES NEITH ER WAS ANYONE PRESENT FOR THE ASSESSEE NOR WAS ADJOURNMENT OF HEA RING SOUGHT FOR. ON A COUPLE OF OCCASIONS WHEN THE BENCH DID NOT FUN CTION, DATE OF FURTHER HEARING WAS INTIMATED THROUGH DISPLAY ON NO TICE BOARD. EVEN ISSUE OF NOTICE BY RPAD DID NOT ELICIT ANY COMPLIAN CE FROM THE ASSESSEE. ON 02/01/2017 WHEN THE CASE WAS CALLED F OR HEARING, NONE WAS PRESENT FOR THE ASSESSEE NOR WAS ANY ADJOURNME NT OF HEARING SOUGHT ON ITS BEHALF. HOWEVER, THE LD. DEPARTMENTA L REPRESENTATIVE WAS PRESENT AND READY TO ARGUE REVENUES CASE. IN THE CIRCUMSTANCES, AS NARRATED ABOVE, WE ARE OF THE OPINION THAT THE A SSESSEE IS NOT INTERESTED IN PURSUING THIS APPEAL SERIOUSLY AND, T HEREFORE, WE PROCEED TO DISPOSE OFF THIS APPEAL EX-PARTE ON MERITS WITH THE ASSISTANCE OF THE LD. DEPARTMENTAL REPRESENTATIVE AND THE MATERIAL O N RECORD. 4.1 IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOL LOWING GROUNDS OF APPEAL:- ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW: 1. THE LEARNED CIT (A) HAS ERRED IN CONFIRMING THE DISALLOWANCE U/S 14A OF THE INCOME TAX ACT, 1961 (THE ACT). 2. THE LEARNED CIT (A) HAS ERRED IN NOT APPRECIATI NG THE FAST THAT NO EXPENDITURE HAVE BEEN INCURRED FOR EARNING A SMALL DIVIDEND OF RS. 120/-. 3 ITA NO. 4176/MUM/2012 (ASSESSMENT YEAR : 2009-10) 3. THE LEARNED CIT (A) HAS FURTHER ERRED IN NOT RES TRICTION THE DISALLOWANCE U/S. 14A TO THE EXTENT OF EXEMPT DIVIDEND I.E. RS.1 20/-. 4. THE APPELLANT CRAVES YOUR LEAVE TO ADD, TO ALTE R, TO AMEND OR TO WITHDRAW ANY OR ALL THE GROUNDS OF APPEAL ON OR BEFORE THE H EARING. 4.2 ACCORDING TO THE LD. DEPARTMENTAL REPRESENTATIV E, IN THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER(A. O) NOTICED THAT EVEN THOUGH THE ASSESSEE HAD EARNED DIVIDEND INCOME, NO EXPENSE WAS DISALLOWED TOWARDS EARNING OF EXEMPT INCOME. AFTER CALLING FOR THE ASSESSEES EXPLANATION IN THE MATTER, THE AO PROC EEDED TO DISALLOW AN AMOUNT OF RS.5,00,011/- UNDER SECTION 14A R.W. RULE 8D(2)(III) OF THE RULES. IT IS SUBMITTED THAT ON APPEAL THE CIT(A) U PHELD AND SUSTAINED THE AFORESAID DISALLOWANCE AS HE WAS OF THE VIEW THAT THE ASSESSEE COULD NOT CATEGORICALLY ESTABLISH BY MATERIAL EVIDE NCE THE NEXUS BETWEEN THE ENTIRE CAPITAL BEING INVESTED IN SECURI TIES, WITHOUT A PART OF THE SAME BEING UTILIZED IN ITS BUSINESS. IT IS PRA YED THAT SINCE NO MATERIAL HAS BEEN BROUGHT ON RECORD BY THE ASSESSEE IN THIS APPEAL TO CONTROVERT THE FINDINGS OF THE CIT(A, THE ASSESSEE S APPEAL MAY BE DISMISSED. 4.3.1 WE HAVE HEARD THE LD. DEPARTMENTAL REPRESENTA TIVE AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. T HE CIT(A) AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AND THE MATERIAL ON RECORD UPHELD THE DISALLOWANCE MADE BY THE ASSESSING OFFIC ER UNDER SECTION 14A R.W. RULE 8D(2)(III) OF THE RULE HOLD AS UNDER AT PARA 5.1 TO 5.2.4 OF THE IMPUGNED ORDER:- 5.1 I HAVE CAREFULLY AND DISPASSIONATELY CONSIDER ED THE FACTS AND CIRCUMSTANCES OF THE CASE, STATEMENT OF FACTS, RELE VANT ASSESSMENT 4 ITA NO. 4176/MUM/2012 (ASSESSMENT YEAR : 2009-10) ORDER, WRITTEN SUBMISSION AND THE ARGUMENTS MADE BY THE LAR BEFORE THE UNDERSIGNED. 5.2 GROUNDS OF APPEAL NO.1 AND 2: IT IS HELD THAT THE MANDATE OF SECTION 14A OF THE ACT IS TO PREVENT CLAIMS OF DEDUCTION OF EXPENDITURE INCURRED IN RELATION TO TH E INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME OF THE ASSESSEE. 5.2.1 IN THE PRESENT CASE, THE APPELLANT COULD NOT ESTABLISH THE NEXUS BETWEEN THE ENTIRE CAPITAL BEING INVESTED IN SECURI TIES AND THAT IT WAS IMPOSSIBLE TO BELIEVE THAT OUT OF THE COMMON HATCH PATCH OF THE FUNDS, THE ENTIRE CAPITAL WOULD HAVE GONE INTO THE INVESTMENT IN SHARES WITHOUT A PART OF THE SAME GOING TO THE BUSINESS, ALSO IT WAS NOT POSSIBLE THAT THE ENTIRE INCOME WOULD HAVE BEEN INVESTED IN SHARES AND DEBEN TURES AND SHARE APPLICATION MONEY ESPECIALLY WHEN THE APPELLANT HIM SELF WAS NOT CATEGORICAL AS TO HOW MUCH OF THE SUM HAD BEEN INVESTED IN BUSI NESS. 5.2.2 THE HON'B!E CALCUTTA HIGH COURT IN THE CASE O F DHAPA & SONS VS CIT REPORTED IN [(2011) 54 DTR (CAL) 345J HAS HELD THAT MERE FACT THAT SHARES WERE OLD AND NOT ACQUIRED RECENTLY IS IMMATERIAL. I T WAS FOR THE APPELLANT TO SHOW BY PRODUCTION OF MATERIAL THAT THE SHARES WERE ACQUIRED FROM THE FUNDS AVAILABLE IN ITS HANDS AT RELEVANT POINT OF TIME WI THOUT TAKING ANY BENEFIT OF ANY LOAN OR THAT THE LOAN HAD ALREADY BEEN REPAID A ND THAT NO INTEREST WAS PAID BY IT FOR ACQUIRING SHARES IN THE RELEVANT YE AR. IN THE ABSENCE OF ANY SUCH MATERIAL INTEREST PAYABLE BY THE APPELLANT WAS TO BE DISALLOWED UNDER SECTION. 14A OF THE ACT HAVING REGARD TO INVESTMENT S IN SHARES AND TOTAL INTEREST BEARING FUNDS, FURTHERMORE, THE HONBLE K ERALA HIGH COURT IN THE CASE OF CIT VS. SMT LEENA RAMACHANDRAN REPORT IN [( 2010) 45 DTR(KER) 372] HELD THAT IN A CASE WHERE ASSESSEE RECEIVED A DIVID END OF RS.36,81,596/- AND NO OTHER BENEFITS WAS DERIVED FROM THE COMPANY FOR THE BUSINESS CARRIED OUT BY THE ASSESSEE AS THE ENTIRE FUNDS WAS UTILIZED FO R ACQUISITION OF SHARES THE ENTIRE INTEREST PAID ON BORROWED FUNDS WAS HELD TO BE CORRECTLY DISALLOWED U/S.14A OF THE ACT. 5.2.3 SECONDLY, EVEN THE APPELLANT HAD NOT GIVEN A NY DETAILS TO WORK OUT THE DIRECT NEXUS OF THE INTEREST EXPENDITURE RELATED TO THE EXEMPTED INCOME WHICH WAS NOT INCLUDED IN THE TOTAL TAXABLE INCOME. THE APPELLANT'S PRESENT CASE IS COVERED BY SUB SECTION (3) OF SECTION 14A O F THE ACT BECAUSE THE APPELLANT HAD CLAIMED BEFORE THE LAO THAT NO EXPEND ITURE WAS INCURRED BY IT IN RELATION TO THE EXEMPTED INCOME WHICH DID NOT FO RM PART OF TOTAL INCOME. THE APPELLANT'S CLAIM IS ALSO COVERED BY SUB SECTIO N (2) OF SECTION 14A OF THE ACT BECAUSE THE LAO WAS NOT SATISFIED WITH THE CORR ECTNESS OF THE CLAIM OF 5 ITA NO. 4176/MUM/2012 (ASSESSMENT YEAR : 2009-10) THE APPELLANT IN RESPECT OF SUCH EXPENDITURE AS NOT ED BY THE LAO IN PARA 4. ACCORDINGLY, I AGREE WITH THE LAOS VIEW THAT IN VIE W OF THE CLEAR CUT DECISION OF THE HON'BLE SPECIAL BENCH IN THE CASE OF DAGA CA PITAL MANAGEMENT REPORTED ;N (2008) 26 SOT 603 (MUM) FOR THE PURPOSE OF DISALLOWANCE, THE REFERENCE IN RULE 8D(2)(II) IS 'VALUE OF INVESTMENT ' AND NOT THE SHARE HELD AS INVESTMENT. THEREFORE, EVEN THE SHARES HELD AS STOC K IN TRADE SHALL BE CONSIDERED FOR THE PURPOSE OF DISALLOWANCE. IT IS F URTHER HELD THAT IN THE FORMULA PRESCRIBED UNDER RULE 8D(2)(II) 'A X B/C ' . 'B' DENOTES AVERAGE VALUE OF INVESTMENT , INCOME FROM WHICH IT DOES NOT OR S HALL NOT FORM PART OF THE TOTAL INCOME AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE ON THE FIRST DATE AND THE LAST DATE OF THE PREVIOUS YEAR; 'C' INCLUDES THE AVERAGE OF THE TOTAL ASSETS AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DATE AND THE LAST DATE OF THE PREVIOUS YEAR. THE A PPELLANT HAS INCLUDED STOCK IN TRADE WHILE FURNISHING E DETAILS OF 'C' WHICH IS THE DENOMINATOR. THEREFORE, IT SHOULD INCLUDE VALUE 0& STOCK-IN-TRADE WHILE FUR NISHING THE DETAILS OF 'B' ALSO WHICH IS THE NUMERATOR IN THIS CASE. THE SAME IS AMPLY CLEAR IN THE RULE 8(2)(II) OF IT RULES, 1962. GROUND 0 APPEAL NO.2 CA NNOT BE ALLOWED BECAUSE THE DISALLOWANCE HAS TO BE WORKED OUT IN ACCORDANCE WITH THE PROVISIONS OF RULE 8D OF THE IT RULES, 1962. 5.2.4 HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE, THE DISALLOWANCE OF RS.5,00,011/- AS WORKED OUT AND DIS ALLOWED BY THE LAO IN THE RELEVANT ASSESSMENT ORDER IS CONFIRMED. THEREFO RE, GROUNDS OF APPEAL NO.1 AND 2 ARE DISMISSED. 4.3.2 SINCE THIS APPEAL IS BEING DECIDED EX-PARTE ON THE BASIS OF MATERIAL ON RECORD, WE FIND THAT THE ASSESSEE HAS NOT BROUGHT ON RECORD ANY MATERIAL EVIDENCE TO CONTROVERT THE FIND INGS OF THE CIT(A),(SUPRA), WE FIND NO REASON TO INTERFERE THER EIN AND, THEREFORE, UPHOLD THE FINDING ON THIS ISSUE IN THE ORDER OF T HE CIT(A) . CONSEQUENTLY, GROUNDS 1 TO 4 RAISED BY THE ASSESSEE ARE DISMISSED. 5. IN THE RESULT, THE ASSESSEES APPEAL FOR AY 2009 -10 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 11/01/2017 SD/- SD/- (RAM LAL NEGI) (JASON P. BOAZ) JUDICIAL MEMBER ACCOUNTANT ME MBER MUMBAI, DATED 11/01/2017 6 ITA NO. 4176/MUM/2012 (ASSESSMENT YEAR : 2009-10) 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 COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI VM , SR. PS