HARENDRA D. SHAH, MUMBAI V. ACIT 21(1), MUMBAI

ITA 4367/MUM/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4564 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-01-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Assessment Year: 2010-2011
• Appeal Filed On: 20-06-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Salary income
• Section: 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI BEFORE S/SHRI B.R.BASKARAN , AM AND AMARJIT SINGH , JM ./ I.T.A. NO . 4367 / MUM/20 14 ( / ASSESSMENT YEA R : 2010 - 2011 ) SHRI HARENDRA D SHAH, 60 - B, DOLAT, EAST WEST ROAD, ROAD NO.2, JVPD, VILE PAREL (W), MUMBAI - 400049 / VS. ASSTT. COMMISSIONER OF INCOME TAX21(1), PRATYAKSHAKAR BHAVAN, BANDRA - KURLA - COMPEX, MUMBAI - 400051 ( / APPELLANT ) .. ( / RESPONDENT ) ./ ./PAN. : AAFPS1912G / ASSESSEE BY SHRI RAJIV KHANDELWAL / REVENUE BY SHRI VIJAY KUMAR / DATE OF HEARING : 7.1.2016 / DA TE OF PRONOUNCEMENT: 7. 1.2016 / O R D E R P ER B R BASKARAN, AM : THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING THE ORDER DATED 19.5.2014 PASSED BY LD CIT(A) - 32, MUMBAI FOR THE ASSESSMENT YEAR 20 10 - 11 CONFIRMING THE ASSESSMENT OF RS.6,96,586 / - U/S 14A OF THE ACT . 2. WE HEARD THE PARTIES AND PERUSED THE RECORD . THE FACTS RELATING TO THE ISSUE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING IN DERIVATIVES, EQUITY AND COMMODITIES BESIDES DERIVES INCOME FROM SALARY RECEIVED FROM DOL AT INVESTMENT LTD AND RENTAL INCOME. T HE ASSESSEE DISCLOS ED A DIVIDEND INCOME OF RS.2000/ - DURING THE YEAR UNDER CONSIDERATION AND CLAIMED THE SAME AS EXEMPT. HOWEVER, T HE ASSESSEE ITA NO .4367 / MUM/ 2014 2 DID NOT MAKE ANY DISALLOWANCE U/S 14A OF THE ACT . THE ASSESSEE ALSO DECLA RED SHORT TERM CAPITAL GAINS (STCG) OF RS.12.10 LAKHS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, HE AGREED WITH THE AO THAT THE STCG MAY ALSO BE ASSESSED AS BUSINESS INCOME , MEANING THEREBY THE ASSESSEE ACCEPTED THAT HE IS A TRADER IN SHARES AND SECUR ITIES. 3. BEFORE THE AO, THE ASSESSEE SUBMITTED THAT NO D ISALLOWANCE U/S 14A IS REQUIRED TO BE MADE , SINCE AVERAGE VALUE OF INVESTMENT IS ZERO. HOWEVER, THE AO NOTICED THAT THE ASSESSEE HAS COMPUTED THE AVERAGE VALUE OF INVESTMENT BY CONSIDERING ONLY THO SE INVESTMENTS ON WHICH THE ASSESSEE HAD RECEIVED DIVIDEND. FURTHER, THE B ALANCE SHEET FILED BY THE ASSESSEE DISCLOSED THAT THE ASSESSEE IS HOLDING INVESTMENT S TO THE TUNE OF RS.7.20 CRORES. ACCORDINGLY , THE AO HELD THAT THE DISALLOWANCE U/S 14A IS REQUI RED TO BE COMPUTED AS PER RULE 8D OF THE IT RULES. ACCORDINGLY, THE AO COMPUTED THE DISALLOWANCE AS PER RULE 8D AT RS.6,96,586 / - AND ASSESSED THE SAME. THE LD. CIT(A) CONFIRMED THE ADDITION MADE BY THE AO AND HENCE, THE ASSESSEE HAS FILED THIS APPEAL B EFORE US. 4. THE LD. AR SUBMITTED THAT THE AO HAS NOT RECORDED THE SATISFACTION REQUIRED U/S 14A BEFORE REJECTING THE CLAIM MADE BY THE ASSESSEE . HOWEVER, ON A PERUSAL OF THE ASSESSMENT ORDER, WE NOTICE THAT THE AO HAS RECORDED HIS SATISFACTION IN PARA 5. 4 OF THE ASSESSMENT ORDER. ACCORDINGLY , WE REJECT THE ABOVE SAID CONTENTION OF THE ASSESSEE . 5. THE LD. AR FURTHER SUBMITTED THAT THE ASSESSEE HAS MADE 99.35% OF INVESTMENT ONLY IN GROUP COMPANIES AND HENCE THEY FALL IN THE CATEGOR Y OF STRATEGIC INVEST MENT. BY DRAWING SUPPORT FROM THE DECISION RENDERED BY THE CO - ORDINATE BENCH OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF J M FINANCIAL LIMITED V/S ACIT IN ITA NO.4521/MUM/2012, THE LD AR ITA NO .4367 / MUM/ 2014 3 SUBMITTED THAT NO DISALLOWANCE IS CALLED FOR U/S 14A, IN T HE CASE OF STRATEGIC INVESTMENT SINCE THE PURPOSE OF INVESTMENT IS TO H O LD CONTROLLING STAKE IN THE GROUP CONCERN S AND NOT FOR EARNING ANY DIVIDEND INCOME . THE LD. AR SUBMITTED THAT AN IDENTICAL ISSUE WAS EXPRESSED BY THE CO - ORDINATE BENCH OF TRIBUNAL IN T HE CASE OF GARWARE WALL ROPES LTD V/S CIT (2014) 65 SOT 86(MUMBAI). THE LD. AR FURTHER SUBMITTED THAT THE ASSESSEE IS DEALING IN TRADING IN DERIVATIVES, EQUITY AND COMMODITIES AND HENCE THE INVESTMENT HELD BY THE ASSESSEE FORMS PART OF HIS STOCK - IN - TR ADE. ACCORDINGLY, BY PLACING THE RELIANCE ON THE DECISION OF HONBLE JURISDICTIONAL BOMBAY HIGH COURT IN THE CASE OF CIT VS. INDIA ADVANTAGE SE CURITIES LTD , THE LD.AR SUBMITTED THAT NO DISALLOWANCE U/S 14A OF T HE ACT IS CALLED FOR. THE LD.AR FURTHER SUBM ITTED THAT THE ASSESSEE HAS RECEIVED DIVIDEND OF RS.2000 / - ONLY AND ACCORDINGLY, THE D ISALLOWANCE U/S 14A, IF ANY, SHOULD NOT EXCEED THE AMOUNT OF RS.2000/ - . 6. ON THE CONTRARY, THE LD. DR PLACED STRONG RELIANCE ON THE ORDER OF LD.CIT(A). 7. THE AS SESSEE HAS FURNISHED THE STATEMENT OF INVESTMENT MADE IN SHARES OF VARIOUS COMPANIES. WE NOTICE THAT THE TOTAL INVESTMENT HELD IN SHARES BY THE ASSESSEE IS RS. 6 .23 CRORES , OU T OF WHICH, THE INVESTM ENT MADE IN GROUP COMPANIES STAND AT RS.6.21 CRORES. THUS , WE NOTICE THAT THE ASSESSEE HAS MADE INVESTMENT OF RS.2 LAKHS ONLY IN OTHER COMPANIES. HENCE, THERE IS MERIT IN THE CONTENTION OF THE ASSESSEE THAT 99.35 % OF INVESTMENT HAVE BEEN MADE IN THE GROUP COMPANIES AS STRATEGIC INVESTMENT TO RETAIN CONTROL OVER THE S E COMPAN IES . FURTHER, WE NOTICE THAT THE ASSESSEE IS HAVING ITS OWN FUNDS OF ABOUT 4.27 CRORES AS ON AT THE YEAREND AS AGAINST THE TOTAL INVESTMENT OF RS.6.23 CRORES IN SHARES. HENCE, THE INVESTMENT OF RS.2 .00 LAKHS MADE IN OTHER COMPANIES IS SUFFIC IENTLY COVERED BY THE OWN FUNDS. FURTHER, THE ASSESSEE EARNED ITA NO .4367 / MUM/ 2014 4 DIVIDEND INCOME OF RS.2000 / - ONLY DURING THE YEAR UNDER CONSIDERATION. HENCE, BY FOLLOWING VARIOUS DECISIONS RELIED UPON BY THE ASSESSEE, THE DISALLOWANCE OUT OF INTEREST EXPENDITURE IS NOT CAL LED FOR. 8. U NDER THESE SET OF FACTS AND ON A CONSPECTUS OF THE MATTER, WE ARE OF THE VIEW THAT THE DISALLOWANCE MADE U/S 14A SHOULD BE RESTRICTED TO THE DIVIDEND INCOME OF RS.2000 / - . ACCORDINGLY, WE SET ASIDE THE ORDER OF LD. CIT(A) AND DIRECT THE AO TO RESTRICT THE DISALLOWANCE TO RS.2000/ - . 9 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED ACCORDINGLY ON 7 TH JAN, 2016 . 7 TH JAN, 2016 SD SD ( AMARJIT SINGH ) ( B.R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 7TH JAN, 2016 . . . ./ SRL , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - CONCERNED 4. / CIT CONCERNE D 5. , , / DR, ITAT, MUMBAI CONCERNED 6. / GUARD FILE. / BY ORDER, TRUE COPY (ASSTT. REGISTRAR) , /ITAT, MUMBAI