IDFC SECURITIES LTD, MUMBAI V. ACIT CEN CIR 22, MUMBAI

ITA 4241/MUM/2013

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9447 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-01-2015
• Appeal Filed By: Assessee
• Bench Allotted: I
• Next Hearing Date: 19-01-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 27-05-2013
• Court: TRIBUNAL
• Department Lawyers: VIJAY KUMAR BORA
• Keywords: Speculation loss
• Section: 14A; 28; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ./I.T.A. NO. 4241/M/2013 ( AY: 2009 - 20 10 ) IDFC SECURITIES LTD., FORMERLY KNOWN AS IDFC SSKI SECURITIES LTD, 501 NAMAN CHAMBERS, C - 32 G BLOCK, BKC, BANDRA (E), MUMBAI - 51. / VS. ACIT - CENTRAL CIRCLE 22, MUMBAI. ./ PAN : AAACK1586E ( / APPELLANT) .. ( / RESPONDENT ) ./I.T.A. NO. 4559/M/2013 ( AY: 2009 - 20 10 ) ACIT - CENTRAL CIRCLE 22, MUMBAI. / VS. IDFC SECURITIES LTD., FORMERLY KNOWN AS IDFC SSKI SECURITIES LTD, 501 NAMAN CHAMBERS, C - 32 G BLOCK,BKC, BANDRA (E), MUMBAI - 51. ./ PAN : AAACK1586E ( / APPELLANT) .. ( / RESPONDENT ) / ASSESSEE BY : SHRI HIRO RAI / REVENUE BY : SHRI VIJAY KUMAR BORA, DR / DATE OF HEARING :19.1.2015 / DATE OF PRONOUNCEMENT :19.1.2015 / O R D E R PER D. KARUNAKARA RAO, AM: THERE ARE TWO APPEALS UNDER CONSIDERATION AND THEY ARE CROSS APPEALS INVOLVING THE ASSESSMENT YEAR 2009 - 2010. THESE APPEALS ARE FILED AGAINST THE ORDER OF THE CIT (A) 21, MUMBAI DATED 1.4.2013. SINCE, THE ISSUES RAISED IN BOTH THE APPEALS ARE CONNECTED T HEREFORE, FOR THE SAKE OF CONVENIENCE THEY ARE CLUBBED, 2 HEARD COMBINEDLY AND DISPOSED OF IN THIS CONSOLIDATED ORDER. APPEAL WISE ADJUDICATION IS GIVEN IN THE FOLLOWING PARAGRAPHS OF THIS ORDER. 2. AT THE OUTSET, LD COUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO THE INSTANT APPEALS AND MENTIONED THAT THE ISSUES ARE MOSTLY COVERED IN FAVOUR OF THE ASSESSEE. BRINGING OUR ATTENTION TO THE APPEAL ITA NO.4241/M/2013, LD COUNSEL FOR THE ASSESSEE MENTIONED THAT THE ASSESSING OFFICER MADE A DISALLOWANCE U/S 14A AND THE DISALLOWANCE WORKED OUT TO RS.76,40,590/ - . THIS INCLUDES THE DISALLOWANCE ON ACCOUNT OF INTEREST UNDER RULE 8D(2)(II) AS WELL AS THE 0.5% DISALLOWANCE UNDER CLAUSE 8D(2)(III) OF IT RULES, 1962. CIT (A) GRANTED RELIEF TO THE ASSESSEE IN RESPEC T OF THE DISALLOWANCE UNDER RULE 8D(2)(II) AND CONFIRMED THE DISALLOWANCE MADE UNDER RULE 8D(2)(III). CONSIDERING THE ABOVE CONCLUSIONS OF THE CIT (A), ASSESSEE AS WELL AS THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 3. REFERRING TO THE INTEREST DISALL OWANCE OF RS. 54,58,325/ - UNDER RULE 8D ( 2 ) (II) WHICH WAS DELETED BY THE CIT (A) LD COUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO THE ORDER OF THE CIT (A) AND MENTIONED THAT THE CIT (A) GRANTED RELIEF BY CATEGORICALLY MENTIONING THAT THE APPELLANT HAD INV ESTED THIS TAX FREE AMOUNTS FROM THE OWNED FUNDS AND BROKERAGE INCOME AND NONE OF THE INVESTMENTS ARE MADE OUT OF BORROWED FUNDS, HENCE ASSESSING OFFICERS DISALLOWANCE UNDER RULE 8D(2)(II).WILL BE DELETED. (CONTENTS OF PARA 3.3 ON PAGE 7 OF THE CIT ( A)S ORDER ARE RELEVANT IN THIS REGARD). IN RESPONSE, LD DR COULD NOT CONTROVERT THE ABOVE FINDING OF THE CIT (A) THAT ANY OF THE INTEREST BEARING FUNDS ARE INVESTED IN THE SHARES. THE FACTS ABOUT THE CIT (A) DECIDING THE ISSUE IN FAVOUR OF THE ASSESSEE AND AFTER CONSIDERING THE BINDING JUDGMENT OF THE B O M B A Y HIGH COURT IN THE CASE OF RELIANCE UTILITIES & POWER LTD 313 ITR 3 40 (PARA 3.4 ON PAGE 6 OF THE IMPUGNED ORDER) WERE HIGHLIGHTED BY THE LD COUNSEL FOR THE ASSESSEE. CONSIDERING THE U S E O F EXCESS NON - INTEREST BEARING FUNDS OF THE ASSESSEE (PARA 3.2 ON PAGE 5 OF THE CIT (A)S ORDER) I N T H E I N V E S T M E N T S AND THE JUDICIAL PRONOUNCEMENTS ENLISTED ON PA GE 6, PARA 3.2 OF THE IMPUGNED ORDER, WE ARE OF THE OPINION THAT THE ABOVE REFERRED CIT (A)S FINDING IS FAIR AND REASONABLE AND IT DOES NOT CALL FOR ANY INTERFERENCE. ACCORDINGLY, GROUND NO.1 RAISED BY THE REVENUE IS DISMISSED. 3 4. REGARDING THE CONFIRMIN G OF THE DISALLOWANCE OF RS. 21,83,053/ - MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE CIT (A), LD COUNSEL FOR THE ASSESSEE FAIRLY MENTIONED THAT THE ISSUE STANDS COVERED AGAINST THE ASSESSEE VIDE ORDER OF THE TRIBUNAL ITA NO. 3756/M/2012 (AY 2008 - 2009 ), DATED 2.4.2014 AND CONTENTS OF PARA 9.1 ARE RELEVANT IN THIS REGARD. FOR THE SAKE OF COMPLETENESS OF THIS ORDER, WE REPRODUCE THE SAID PARA 9.1 AS UNDER: 9.1. ADMITTEDLY, ASSESSEE DID NOT MAINTAIN SEPARATE ACCOUNTS WHERE THE EXPENSES RELATING TO TAX F REE INCOME ARE ATTACHED. THE PROVISIONS OF RULE 8D(2)(III) READ AS UNDER: (III) AN AMOUNT EQUAL TO ONE - HALF PERCENT OF THE AVERAGE OF THE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST OF THE PREVIOUS YEAR. ACCORDING TO THE AFOREMENTIONED PROVISIONS THE THIRD COMPONENT TO COMPUTE THE DISALLOWANCE UNDER SECTION 14A AS DESCRIBED IN RULE 8D(2)(III) IS AN AMOUNT EQUAL TO % OF THE AVERAG E VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR WAS NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR. ACCORDING TO SUCH MECHANI SM THE THIRD COMPONENT WHICH IS TAKEN INTO CONSIDERATION WHILE CALCULATING THE DISALLOWANCE IS PRESCRIBED IN THE RULES. IN ABSENCE OF CONCRETE MATERIAL MADE AVAILABLE BY THE ASSESSEE TO SHOW THAT SUCH COMPONENT WAS NOT WARRANTED, THE CASE OF THE ASSESSEE CANNOT BE ACCEPTED. ACCORDING TO THE FACTS OF THE PRESENT CASE, NO SUCH CONCRETE MATERIAL HAS BEEN BROUGHT ON RECORD BY THE ASSESSEE TO COME OUT OF THE COMPONENT DESCRIBED IN RULE 8D(2)(III) TO CONTENT THAT THE SAME WAS NOT APPLICABLE. IN THIS VIEW OF THE SITUATION, WE DECLINE TO INTE RFERE IN THE FINDING RECORDED BY THE LD CIT (A) AND GROUND RAISED BY THE ASSESSEE IS DISMISSED. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS DISMISSED. 5. FROM THE ABOVE IT IS EVIDENT THAT THE TRIBUNAL HAS CONFIRMED THE DISALLOWANCE MADE BY THE ASSES SING OFFICER UNDER RULE 8D(2)(III) RELATING TO THE DISALLOWANCE OF AN AMOUNT EQUAL TO % OF THE AVERAGE OF THE VALUE OF INVESTMENT. CONSIDERING THE ABOVE COVERED NATURE OF THE ISSUE, WE DISMISS THE GROUND RAISED BY THE ASSESSEE IN ITS APPEAL. 6. WE HAVE SO FAR DEALT WITH THE DISALLOWANCES MADE BY THE ASSESSING OFFICER IN CONNECTION WITH RULE 8D(2)(II) AND (III). THAT LEAVES GROUND NO.2 OF THE REVENUES APPEAL ITA NO.4559/M/2013 ALLOWING B Y C I T ( A ) THE LOSS ON SALE OF MISDEAL STOCK AS BUSINESS LOSS OF THE ASSESSEE. ASSESSING OFFICER TREATED THE SAME AS SPECULATION LOSS AND INVOKED THE PROVISIONS OF SECTION 73 OF THE INCOME TAX ACT, 1961. BEFORE US, AT THE OUTSET, LD COUNSEL FOR THE ASSESSEE MENTIONED THAT AN IDENTICAL ISSUE CAME UP FOR 4 ADJUDICATION IN THE ASSESSEE S OWN CASE FOR THE AY 2008 - 2009 (SUPRA) AND THE SAID ISSUE WAS ADJUDICATED BY THE TRIBUNAL WHEREIN IT HAS HELD THAT THE LOSS IN QUESTION IS ALLOWABLE AS BUSINESS LOSS AND THE CONTENTS OF P AR A 2 TO 5 OF THE SAID ORDER OF THE TRIBUNAL ARE RELEVANT IN THIS R EGARD. FOR THE SAKE OF COMPLETENESS OF THIS ORDER, PARA 5 OF THE SAID ORDER OF THE TRIBUNAL DATED 2.4.2014 IS REPRODUCED AS UNDER: 5. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTENTIONS HAVE CAREFULLY BEEN CONSIDERED. RIGHT FROM THE ASSESSMENT PROCEEDINGS IT WAS THE CASE OF THE ASSESSEE THAT THE IMPUGNED LOSS HAS OCCURRED TO THE ASSESSEE IN RESPECT OF ERROR TRADE. DUE TO DISPUTE WITH THE CLIENTS, FOR THE TRANSACTION, IT DOES NOT CHANGE THE RELATION OF PRINCIPAL AND THE AGENT. THE ASSESSEE FOR BUSINESS CONSIDERATION CHOOSES NOT TO RECOVER THE LOSSES. THESE LOSSES ARE IN THE COURSE OF BUSINESS AND SHOULD BE ALLOWED AS SUCH UNDER SECTION 28 OF THE ACT. ALL THESE CONTENTIONS OF THE ASSESSEE HAVE BEEN RECORDED IN THE ASSESSMENT ORDER IN PARA 3.3. THE ASSESSING OFFICER HAS NOT BROUGHT ANY MATERIAL ON RECORD TO SUGGEST THAT THESE CONTENTIONS OF THE ASSESSEE ARE EITHER FALSE OR INCORRECT. NO MATERIAL HAS ALSO BEEN BROUGHT ON RECORD THAT THESE LOSSES ARE ON ACCOUNT OF ASSESSEES OWN TRADING SHARES. IF IT IS SO, THE LOSS ACCRUED TO THE ASSESSEE WILL BE GOVERNED BY THE DECISIONS OF THE TRIBUNAL WHERE CONSISTENT VIEW HAS BEEN TAKEN THE LOSS INCURRED TO SHARE BROKER ON ACCOUNT OF CLIENT DISOWNING TRANSACTION IN BUSINESS LOSS AND NOT SPECULATIVE LOSS. TH EREFORE, WE ARE OF THE OPINION THAT LD CIT (A) DID NOT COMMIT ANY ERROR IN ACCEPTING THE CLAIM OF THE ASSESSEE. ACCORDINGLY, WE DECLINE TO INTERFERE AND DEPARTMENTAL APPEAL ON THIS GROUND IS DISMISSED. 7. CONSIDERING THE ABOVE WHERE IN THE LOSS HELD AS BU SINESS LOSS U/S 28 OF THE ACT, WE ARE OF THE OPINION THAT THE FINDING OF THE CIT (A) IN THIS REGARD AS DISCUSSED IN PARA 4 TO 4.3 OF THE IMPUGNED ORDER IS FAIR AND REASONABLE AND IT DOES NOT CALL FOR ANY INTERFERENCE. ACCORDINGLY, GROUND NO.2 RAISED BY TH E REVENUE IS DISMISSED. 8. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE AS WELL AS THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH JANUARY, 2015. S D / - S D / - (AMIT SHUKLA) (D. KARUNAKARA RAO) JUDIC IAL MEMBER ACCOUNTANT MEMBER MUMBAI ; 19.1 .2014 . . ./ OKK , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 5 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI