SARANG RAKESHKUMAR WADHAWAN, MUMBAI V. ACIT CEN CIR 5(4), MUMBAI

ITA 4201/MUM/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6723 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-06-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2009-2010
• Appeal Filed On: 20-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ABHIJIT PATANKAR
• Assessee Lawyers: RAHUL K HAKANI
• Keywords: Salary income; Transactions in derivatives
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'G' BENCH, MUMBAI BEFORE SHRI B.R. BASKARAN, ACCOUNTANT MEMBER AND SHRI AMARJIT SINGH, JUDICIAL MEMBER ITA NO. 4201/MUM/2016 (ASSESSMENT YEAR: 2009-10) SHRI SARANG RAKESHKUMAR WADHAWAN 203, CAPRI, OPP. HDIL TOWERS ANANT KANEKAR MARG BANDRA (E), MUMBAI 400051 VS. ACIT, CENTRAL CIRCLE - 5(4) MUMBAI PAN AAAPW2530R APPELLANT RESPONDENT APPELLANT BY: SHRI RAHUL K. HAKANI RESPONDENT BY: SHRI ABHIJIT PATANKAR DATE OF HEARING: 26.06.2018 DATE OF PRONOUNCEMENT: 26.06.2018 O R D E R PER B.R. BASKARAN, AM THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 26.02.2016 PASSED BY THE LEARNED CIT(A)-53, MUMBAI AND IT RELATES TO A.Y. 2009-10. 2. THE ASSESSEE IS AGGRIEVED BY THE DECISION OF THE LE ARNED CIT(A) IN PARTIALLY CONFIRMING THE DISALLOWANCE MADE BY THE A O UNDER SECTION 14A OF THE INCOME TAX ACT (HEREINAFTER THE ACT). 3. THE FACTS RELATING TO THE ISSUE ARE STATED IN BRIE F. THE ASSESSEE HAS DECLARED SALARY INCOME FROM M/S. HOUSING DEVELOPMEN T INFRASTRUCTURE LTD., INTEREST AND OTHER INCOME UNDER THE HEAD INCOME FR OM OTHER SOURCES AND ALSO SHOWN LOSS FROM F&O TRADING. THE AO NOTICED TH AT THE ASSESSEE HAS RECEIVED DIVIDEND INCOME OF ` 289.78 LAKHS AND CLAIMED THE SAME TO BE EXEMPT. HOWEVER, THE ASSESSEE DID NOT MAKE ANY DISA LLOWANCE UNDER SECTION 14A OF THE ACT. THE AO TOOK THE VIEW THAT T HE ASSESSEE COULD NOT ITA NO. 4201/MUM/2016 SHRI SARANG RAKESHKUMAR WADHAWAN 2 HAVE EARNED INCOME WITHOUT INCURRING ADMINISTRATIVE EXPENSES. ACCORDINGLY HE DISALLOWED A SUM OF ` 31.31 LAKHS AS PER RULE 8D(2)(III) OF THE I.T. RULE S. 4. THE LEARNED CIT(A) NOTICED THAT THE ASSESSEE HAS C LAIMED ADMINISTRATIVE EXPENSES ONLY TO THE TUNE OF ` 27,282/-. ACCORDINGLY HE TOOK THE VIEW THAT THE DISALLOWANCE OF ` 31.31 LAKHS MADE BY THE AO TOWARDS ADMINISTRATIVE EXPENSES UNDER RULE 8D(2)(III) IS FA R IN EXCESS OF ACTUAL EXPENSES. ACCORDINGLY HE RESTRICTED THE DISALLOWANC E OF ADMINISTRATIVE EXPENSES TO 50% OF THE ACTUAL EXPENSES, I.E. 50% OF ` 27,282/- WHICH WORKED OUT TO ` 13,641/-. THE LEARNED CIT(A) ALSO NOTICED THAT THE ASSESSEE INCURRED DMAT EXPENSES TOWARDS PURCHASE AND SALE OF SHARES AND ACCORDINGLY ALLOCATED 50% THEREOF TO DIVIDEND INCOM E UNDER RULE 8D(2)(I) OF THE I.T. RULES. WITH REGARD TO DISALLOWANCE OUT OF INTEREST EXPENDITURE AS PER RULE 8D(2)(II) OF THE I.T. RULES, THE LEARNED C IT(A) COMPUTED THE AVERAGE VALUE OF INVESTMENT BY TAKING ONLY THOSE SHARES WHI CH YIELDED TAX FREE INCOME AND ACCORDINGLY DISALLOWED A SUM OF ` 27.47 LAKHS OUT OF INTEREST EXPENDITURE. THE ASSESSEE IS STILL AGGRIEVED. 5. THE LEARNED A.R. SUBMITTED THAT THE ASSESSEE HAS BO RROWED FUNDS FOR SPECIFIC PURPOSE OF CARRYING OUT F&O ACTIVITY AND H ENCE THE LEARNED CIT(A) WAS NOT JUSTIFIED IN MAKING DISALLOWANCE UNDER RULE 8D(2)(II) OUT OF INTEREST EXPENDITURE. HE SUBMITTED THAT THE INTERES T EXPENSES ARE DIRECTLY RELATED TO F&O ACTIVITY AND IT SHOULD NOT HAVE BEEN TAKEN FOR COMPUTING DISALLOWANCE UNDER SECTION 14A OF THE ACT. 6. ON THE CONTRARY, THE LEARNED CIT-DR SUBMITTED THAT THE LEARNED CIT(A) HAS FAIRLY COMPUTED THE DISALLOWANCE OUT OF INTEREST EXPENDITURE BY CONSIDERING ONLY THOSE INVESTMENTS WHICH HAVE YIELD ED DIVIDEND INCOME DURING THE YEAR UNDER CONSIDERATION. IN THIS REGARD THE LEARNED CIT-DR INVITED OUR ATTENTION TO PARA 5.3.3 OF THE ORDER PA SSED BY THE LEARNED CIT(A). 7. IN REJOINDER THE LEARNED A.R. SUBMITTED THAT UNDER THE PROVISIONS OF RULE 8D(2)(II), INTEREST EXPENDITURE CAN BE DISA LLOWED ONLY IF THE USER OF BORROWED FUNDS WAS MIXED ONE AND NEXUS COULD NOT BE ESTABLISHED. ITA NO. 4201/MUM/2016 SHRI SARANG RAKESHKUMAR WADHAWAN 3 HE SUBMITTED THAT, IN THE INSTANT CASE, THE ASSESSE E WOULD BE IN A POSITION TO ESTABLISH THE NEXUS BETWEEN BORROWED FU NDS AND ITS USES FOR F&O ACTIVITY. ACCORDINGLY HE SUBMITTED THAT THE INT EREST EXPENDITURE WHICH IS DIRECTLY RELATED TO F&O ACTIVITY SHOULD NO T BE CONSIDERED FOR COMPUTING DISALLOWANCE UNDER SECTION 14A OF THE ACT . 8. HAVING HEARD THE RIVAL SUBMISSIONS WE NOTICED THAT THE ASSESSEE IS NOT AGGRIEVED BY THE DECISION RENDERED BY LEARNED C IT(A) IN RESPECT OF DISALLOWANCE MADE UNDER RULE 8D(2)(I) TO 8D(2)(III) OF THE I.T. RULES. HE IS AGGRIEVED WITH THE INTEREST DISALLOWANCE COMPUTED B Y THE LD CIT(A) UNDER RULE 8D(2)(II) OF THE I T RULES. THE CONTENTION OF THE ASSESSEE IS THAT BORROWED FUNDS HAVE BEEN USED FOR F&O ACTIVITY AND THE ASSESSEE COULD PROVE THE SAME BY ESTABLISHING NEXUS BETWEEN BORROW INGS AND ITS USE. IF THE ASSESSEE IS ABLE TO ESTABLISH THE BORROWINGS WI TH ITS USE FOR F&O ACTIVITY, IN OUR VIEW, THE INTEREST EXPENDITURE PER TAINING TO THOSE LOANS SHOULD BE CONSIDERED AS DIRECTLY RELATED TO F&O ACT IVITY. ACCORDINGLY THE SAME SHOULD NOT BE CONSIDERED FOR COMPUTING DISALLO WANCE UNDER RULE 8D(2)(II) OF THE I.T. RULES. HOWEVER, THE CLAIM OF THE ASSESSEE NEEDS EXAMINATION BY THE AO. ACCORDINGLY WE SET ASIDE THE ORDER OF THE LEARNED CIT(A) IN RESPECT OF DISALLOWANCE COMPUTED UNDER RU LE 8D(2)(II) OF THE I.T. RULES AND RESTORE THE SAME TO THE FILE OF THE AO FO R EXAMINING IT AFRESH IN THE LIGHT OF THE DISCUSSION MADE SUPRA. AFTER CONSI DERING THE INFORMATION AND EXPLANATION FURNISHED BY THE ASSESSEE THE AO MA Y TAKE APPROPRIATE DECISION IN ACCORDANCE WITH LAW. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH JUNE, 2018. SD/ - SD / - (AMARJIT SINGH) (B.R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 26 TH JUNE, 2018 ITA NO. 4201/MUM/2016 SHRI SARANG RAKESHKUMAR WADHAWAN 4 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) -53, MUMBAI 4. THE PR. CIT - CENTRAL-3, MUMBAI 5. THE DR, G BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.