AAKANSHA SECURITIES P.LTD, MUMBAI V. ITO 8(1)(1), MUMBAI

ITA 4380/MUM/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 7997 (ITAT-MUMBAI)
• Duration Of Justice: 8 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2017
• Appeal Filed By: Assessee
• Bench Allotted: SMC
• Next Hearing Date: 08-02-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 22-06-2016
• Court: TRIBUNAL
• Department Lawyers: BEENA SANTOSH
• Keywords: Earning of tax free income; Speculation loss; Bad and doubtful debts
• Section: 143(3); 14A; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER ITA NO.4380 /M/2016 (AY 2011 - 2012) AAKANKSHA SECURITIES PVT LTD., C/O. M/S. SDBA & CO., CHARTERED ACCOUNTANTS, 601, A WING, AURUS CHAMBERS, BEHIND MAHINDRA TOWERS, S.S. AMRUTWAR MARG, WORLI, MUMBAI 40 013. / VS. INCOME TAX OFFICER - 8(1)(1), MUMBAI. ./ PAN : AAACA4814B ( / APPELLANT) .. ( / RESPONDENT ) / APPELLANT BY : SHRI AVINASH MEHTA / SHRI SANJEEV MEHTA / RESPONDENT BY : MS. BEENA SANTOSH, DR / DATE OF HEARING : 08.02.2017 / DATE OF PRONOUNCEMENT : 28 .02.2017 / O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE ASSESSEE ON 22.6.2016 IS AGAINST THE ORDER OF THE CIT (A) - 16, MUMBAI DATED 30.3.2016 FOR THE ASSESSMENT YEAR 2011 - 12. IN THIS APPEAL, ASSESSEE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: - 1. THE ORDER PASSED BY THE LD CIT (A) CONFIRMING THE ASSESSMENT ORDER PASSED U/S 143(3) OF THE ACT IS BOTH BAD IN LAW AND BAD IN FACTS. 2. THE LD CIT (A) ERRED IN LAW AS WELL AS IN FACTS IN CONFIRMING THE DISALLOWANCE OF RS. 31,85,887/ - MADE BY THE ASSESSING OFFICER U/ S 14A READ WITH RULE 8D(2) OF THE ACT. 2. IN THIS APPEAL, THE ONLY ISSUE RAISED BY THE ASSESSEE RELATES TO THE DISALLOWANCE OF EXPENDITURE U/S 14A READ WITH RULE 8D(2)(II) OF THE IT RULES, 1962. BRIEFLY STATED RELEVANT FACTS OF THE CASE OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF INVESTMENT IN SHARES, MUTUAL FUNDS ETC. ASSESSEE FILED THE RETURN OF INCOME DECLARING THE TOTAL INCOME OF RS. 2,17,460/ - . CONSIDERING THE APPLICABILITY OF THE SPECIAL PROVISIONS, THE ASSESSMENT WAS MADE U/S 115JB OF THE ACT DETERMINING THE TAXABLE BOOK PROFITS AT RS. 6.07 CRS (ROUNDED OF). APART FROM THIS, 2 AO MADE ADDITION OF RS. 31,85,887/ - U/S 14A READ WITH RULE 8D OF THE IT RULES, 1962. ON APPEAL, CIT (A) CONFIRMED THE SAME. AGGRIEVED WITH THE SAID ADDITION OF THE CIT (A), ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL . 3. BEFORE ME , EXPLAINING THE ABOVE DISALLOWANCE AND THE RELEVANT DETAILS, LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE INCURRED AN AMOUNT OF RS. 48,03,285/ - ON ACCOUNT OF INTE REST EXPENSES . AO APPLIED THE PROVISIONS OF CLAUSE (II) OF RULE 8D(2) OF THE RULES AN D QUANTIFIED THE DISALLOWANCE AT RS. 30,62,190/ - . IN ADDITION, AO ALSO QUANTIFIED 0.5% OF THE AVERAGE INVESTMENT AT RS. 1,23,697/ - UNDER CLAUSE (III) OF RULE 8D(2) OF T HE ACT. 4. IN CONNECTION WITH CLAUSE (II) AND ITS APPLICABILITY, LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AO IGNORED THE BASIC FACTS IN COMING TO THE ABOVE CONCLUSIONS. EXPLAINING THE SAME, LD COUNSEL FOR THE ASSESSEE MENTIONED THAT THE ASSESSEE B ORROWED LOANS FROM RELIANCE CAPITAL LTD AMOUNTING TO RS. 5 CRS (ROUNDED OF) ON 24.2.20 10 AND ABOVE SAID INTEREST AMOUNT OF RS. 48,03,285/ - WAS PAID TO RELIANCE CAPITAL LTD. THE SAID ENTIRE LOAN WAS GIVEN AS ADVANCE TO THE SISTER COMPANY NAMED ANKUR DRU GS AND PHARMA LTD AGAINST THE INTEREST AND RECEIVED INTEREST AMOUNT OF RS. 50,53,945/ - . THEREFORE, THERE IS A NEXUS BETWEEN THE LOAN BORROW ED AND ADVANCE GIVEN AND IT DEMANDS NETTING OF THE SAME THEREBY NO EXPENDITURE IS INCURRED IN THE PROCESS. IN FACT, THERE IS A GAIN OF RS. 2 , 50 , 660 / - (IE RS. 50,53,945 RS. 48,03,285). THIS INTEREST EXPENDITURE, IF ANY, HAS NO NEXUS TO THE EXEMPT INCOME EITHER DIRECTLY OR INDIRECTLY. JUSTIFYING THE SAME, LD COUNSEL FOR THE ASSESSEE SUBMITTED TH AT THE EXEMPT INCOME IE DIVIDEND OF RS.13,16,700/ - , WHICH IS EARNED OUT OF INVESTMENT IN ANKUR DRU GS AND PHARMA LTD HAS NO NEXUS TO THE ABOVE LOAN TRANSACTIONS I N ANY FORM. PRESSING THE TIMING OF THE SAID DIVIDEND YIELDED INVESTMENT IN ANKUR DRU GS AND PHARMA LTD, LD COUNSEL FOR THE ASSESSEE MENTIONED THAT SINCE THE SAID INVESTMENT DATES RELATABLE TO THE AY 2005 - 06, THEREFORE THE LOAN EXPENDITURE IS NOT EVEN INDI RECTLY CONNECTED TO THE EXEMPT INCOME IN QUESTION. IN THIS REGARD, LD COUNSEL FOR THE ASSESSEE RELIED ON THE CONTENTS OF PAGES 12, 13, 14, AND 15 OF THE PAPER BOOK. 5. ON THE OTHER HAND, LD DR FOR THE REVENUE RELIED ON THE ORDERS OF THE REVENUE AUTHORITIE S. 3 6. I HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE RE LEVANT MATERIAL PLACED BEFORE ME . AFTER HEARING BOTH THE PARTIES AND ON EXAMINING THE PAPERS PLACED BEFORE THE TRIBUNAL , I FIND, DIVIDEND YIELDED INVEST MENTS HAVE NO NEXUS EITHER DIRECTLY OR INDIRECTLY TO THE ENTIRE EXPENDITURE OF RS.48,03,285/ - . THEREFORE, I AM OF THE OPINION, THE ARGUMENTS OF THE LD COUNSEL FOR THE ASSESSEE SHOULD BE ACCEPTED. IN ANY CASE, THE INVESTMENT IN QUESTION WAS MADE IN THE AY 2005 - 06 WHEREAS THE INTEREST IN QUESTION DATES BACK TO FEBRUARY 2010 (AY 2010 - 11). ON THIS ACCOUNT ALSO, THE ARGUMENTS OF THE LD COUNSEL FOR THE ASSESSEE SHOULD BE ALLOWED AND THE MATTER SHOULD BE DECIDED IN FAVOUR OF THE ASSESSEE. THEREFORE, THE SAID I NTEREST EXPENDITURE SHOULD NOT BE RECKONED FOR THE PURPOSE OF APPLYING THE PROVISIONS OF CLAUSE (II) OF RULE 8D(2) OF THE RULES. THUS, THIS PART OF THE GROUNDS IS ALLOWED IN FAVOUR OF THE ASSESSEE. 7. REGARDING THE APPLICABILITY OF CLAUSE (III) OF RULE 8D( 2) OF THE RULES FOR DISALLOWED SUM OF RS. 1,23,692/ - IE 0.5% OF THE AVERAGE INVESTMENT, I FIND THE ARGUMENT OF THE LD COUNSEL FOR THE ASSESSEE THAT THE SAID DISALLOWANCE EXCEEDED TOTAL DEBITS I N T H E P & L A C C O U N T AFTER EXCLUDING UNRELATED ACCOUNTS VIZ INTEREST PAID ON LOAN, SH ORT TERM CAPITAL LOSS, SPECULATION LOSS AND BAD DEBTS. IN OTHER WORDS, THE DEBITS ON ACCOUNT OF BANK CHARGES, THE CUSTODIAN AND DEMAT CHARGES IF REMAINS TO BE CONSIDERED FOR WORKING OF THE TOTAL EXPENDITURE OF THE ASSESSEE FOR THE PURPOSE OF DISALLOWANCE UNDER CLAUSE (III) OF THE RULE 8D(2). IT IS A SETTLED LEGAL PROPOSITION THAT THE DISALLOWANCE UNDER CLAUSE (III) MUST NOT EXCEED THE TOTAL DEBITS. CONSIDERING THE SAME, I AM OF THE OPINION, IN PRINCIPLE, THE AOS DECISION TO DISALLOW A SUM OF RS. 1,23,69 2/ - IS NOT APPROVED. AO IS DIRECTED TO EXAMINE ALL THE ACCOUNTS APPEARING IN THE P&L ACCOU NT AND SEGREGATE THE UNRELATED ACCOUNTS TO THE EXEMPT INCOME BEFORE QUANTIFYING THE REASONABLE DISALLOWANCE UNDER CLAUSE (III) OF RULE 8D(2) OF THE RULES. WITH THES E DIRECTIONS, THIS ISSUE IS DECIDED PROTANTO. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONO UNCED IN THE OPEN COURT ON 2 8 T H FEBRUARY, 2017. S D / - (D. KARUNAKARA RAO) ACCOUNTANT MEMBER MUMBAI ; 28.02.2017 4 . . ./ OKK , SR. PS / 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 . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI