UNNATI RENIWAL, MUMBAI V. DCIT CIR 38, MUMBAI

ITA 452/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55192 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-09-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 02-08-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 19-01-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K NAYAK
• Assessee Lawyers: REEPAL G TRAISHAWALA
• Keywords: Opportunity of being heard

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI F BENCH BEFORE SHRI D.MANMOHAN, VICE PRESIDENT & SHRI T.R.SOOD, ACCOUNTANT MEMBER I.T.A.NO.452/MUM/2010 A.Y 2007-08 UNNATI RENIWAL, 302 SYLVERTON BUILDING, 102 WODE HOUSE ROAD, COLABA, MUMBAI 400 005. PAN: AGIPR 7831 C VS. COMMISSIONER OF I.T. (A)-41, MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : MR. REEPAL G. TRAISHAWALA. RESPONDENT BY : MR. A.K.NAYAK. DATE OF HEARING: 02/08/2011 DATE OF PRONOUNCEMENT: 07/09/2011 O R D E R PER T.R.SOOD, AM: IN THIS APPEAL VARIOUS GROUNDS HAVE BEEN RAISED BU T AT THE TIME OF HEARING LD. COUNSEL OF THE ASSESSEE SUBMITTED TH AT ONLY TWO DISPUTES ARE INVOLVED VIZ., [I] DISALLOWANCE OF INT EREST AND [II] DISALLOWANCE OF INTEREST U/S.14A. 2. DISPUTE NO.[I] : AFTER HEARING BOTH THE PARTIES, WE FIND THAT ASSESSEE HAD DERIVED INCOME FROM BUSINESS AND PROFE SSION AS WELL AS SHORT TERM CAPITAL GAINS. THE ASSESSEE HAD IN THE R ETURN DECLARED SHORT TERM CAPITAL GAINS OF RS.90.45,763/- AGAINST WHICH INTEREST EXPENDITURE OF RS.16,54,511/- WAS CLAIMED. ON ENQUIRY TO SUBSTA NTIATE THE CLAIM OF INTEREST, IT WAS SUBMITTED THAT INTEREST WAS ALLOWA BLE IF THE SAME WAS INCURRED FOR ACQUISITION OF SHARES IN VIEW OF THE D ECISION OF THE HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. TRISHUL IN VESTMENTS LTD. 215 ITA NO.452/MUM/10 2 CTR (MAD) 96. HOWEVER, AO WAS DID NOT AGREE WITH TH IS SUBMISSION BECAUSE ASSESSEE HAD DEBITED INTEREST OF RS.16,54,5 11/- FOR USING THE AMOUNT BORROWED FROM SHRI SHANTI SWARUP RENIWAL BY WAY OF A JOURNAL ENTRY 31-3-2007. THEREFORE, IN THE OPINION OF THE A O SAME WAS NOT ALLOWABLE. 3. ON APPEAL, LD. CIT(A) CONFIRMED THE DECISION OF THE AO BECAUSE ASSESSEE HAD NOT FILED SCRIP-WISE DETAILS AND FURTH ER SAME HAS BEEN RECEIVED IN ROUND FIGURE. 4. BEFORE US, LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT ON IDENTICAL FACTS IN THE CASE OF SANJEEV RENIWAL [HUF ] ASSESSEE FROM THE SAME GROUP, THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE ON PRINCIPLE AND IT WAS REMITTED BACK TO THE FILE OF T HE AO FOR VERIFICATION OF THE CALCULATION OF INTEREST. THIS DECISION WAS F OLLOWED AGAIN IN THE CASE OF SHRI SHANTI SURUP RENIWAL IN I.T.A.NOS. 453 ,456 & 456/M/10. 5. ON THE OTHER HAND, LD. DR STRONGLY SUPPORTED THE ORDERS OF THE AO AND THE CIT(A). 6. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIND AN IDENTICAL ISSUE CAME UP FOR CONSIDERATION OF THE TRIBUNAL IN THE CASE OF SANJEEV RENIWAL [HUF] VS. DCIT IN I.T.A.NOS451 & 457/M/10 A ND ULTIMATELY SAME WAS DECIDED VIDE PARA 7.1 WHICH IS AS UNDER: 7.1 HOWEVER, WE FIND MERIT IN THE SUBMISSION OF LE ARNED COUNSEL FOR THE ASSESSEE THAT SINCE THE ASSESSEE HAS PURCHA SED THE SHARES OUT OF THE BORROWINGS MADE FROM SHRI SHANTI SARUP RENIW AL AND IMMEDIATLEY ON SALE OF SUCH SHARES, THE AMOUNT HAS BEEN RETURNED TO SHRI SHANTI SARUP RENIWAL, THEREFORE, ATLEAST THE I NTEREST ATTRIBUTABLE TO SUCH SCRIP FOR THE NUMBER OF DAYS WHICH WAS HELD BY THE ASSESSEE SHOULD BE ALLOWED AS A DEDUCTION. FROM THE STATEMEN T OF STCG, WE FIND THE ASSESSEE HAS CALCULATED INTEREST OF RS.12, 81,220. HOWEVER, SUCH CALCULATION WAS NOT BEFORE THE ASSESSING OFFIC ER OR THE CIT(A). WE, THEREFORE, DEEM IT PROPER TO RESTORE THE MATTER TO THE FILE OF ITA NO.452/MUM/10 3 ASSESSING OFFICER WITH A DIRECTION TO VERIFY THE IN TEREST SO CALCULATED BY THE ASSESSEE ON THE BASIS OF THE UTILIZATION OF THE BORROWED FUND FOR THE NUMBER OF DAYS FROM THE DATE OF PURCHASE TI LL THE DATE OF SALE OF THE SHARES. NEEDLESS TO SAY, THE ASSESSING OFFIC ER SHALL AFFORD REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE WHILE VERIFYING SUCH CALCULATION, A COPY OF WHICH IS PLACED IN PAPE R BOOK PAGES 14 & 15. THE GROUND RAISED BY THE ASSESSEE ON THIS ISSUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. FOLLOWING THE ABOVE, WE HOLD THAT INTEREST FOR PURC HASE OF SHARES AGAINST WHICH GAINS HAVE BEEN ASSESSED AS SHORT TE RM CAPITAL GAINS IS AN ALLOWABLE EXPENDITURE. HOWEVER, SINCE CALCULATIO N OF INTEREST HAS NOT BEEN FILED BEFORE THE AO OR CIT(A), THEREFORE, FOLLOWING THE ABOVE DECISION, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE THE MATTER BACK TO THE FILE OF THE AO TO VERIFY THE CAL CULATION OF INTEREST AFTER PROVIDING AN ADEQUATE OPPORTUNITY TO THE ASSE SSEE AND THEN ALLOW THE SAME. 7. DISPUTE NO.[II] : DURING APPEAL PROCEEDINGS, LD. CIT(A) ENHANCED THE INCOME BY FURTHER OBSERVING THAT ASSESSEE HAS N OT EARNED DIVIDEND INCOME OF RS.2,35,355/-, THEREFORE, DISALLOWANCE U/ S.14A RULE 8D WAS REQUIRED TO BE MADE. 8. BEFORE US, LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT RULE 8D DOES NOT HAVE RETROSPECTIVE APPLICATION AND IN THIS REGARD RELIED ON THE DECISION OF GODREJ & BOYCE MFG. CO.LTD. VS. DCIT [3 28 ITR 81]. MOREOVER ASSESSEE HAS NOT BORROWED ANY FUNDS FOR EA RNING DIVIDEND, THEREFORE, DISALLOWANCE WAS NOT JUSTIFIED. 9. ON THE OTHER HAND, LD. DR SUBMITTED THAT IN THE CASE OF GODREJ & BOYCE MFG. CO.LTD. VS. DCIT [SUPRA] IT HAS BEEN F URTHER HELD THAT REASONABLE DISALLOWANCE CAN BE MADE BY THE AO. ITA NO.452/MUM/10 4 10. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIN D THAT THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG . CO.LTD. VS. DCIT [SUPRA] HAS HELD AS UNDER: HELD, THAT THE PROVISIONS OF RULE 8D OF THE RULES WHICH HAVE BEEN NOTIFIED W.E.F. 24TH MARCH, 2008 SHALL APPLY WITH E FFECT FROM ASSESSMENT YEAR 2008-09. EVEN PRIOR TO ASSESSMENT Y EAR 2008-09, WHEN RULE 8D WAS NOT APPLICABLE, THE ASSESSING OFFI CER HAS TO ENFORCE THE PROVISIONS OF SUB-SECTION (1) OF SECTION 14A. F OR THAT PURPOSE, THE ASSESSING OFFICER IS DUTY BOUND TO DETERMINE THE EX PENDITURE WHICH HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. THE ASSESSING OFFIC ER MUST ADOPT A REASONABLE BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT FACTS AND CIRCUMSTANCES AFTER FURNISHING A REASONABLE OPPORTU NITY TO THE ASSESSEE TO PLACE ALL GERMANE MATERIAL ON THE RECOR D. THE PROCEEDINGS FOR ASSESSMENT YEAR 2002-03 SHALL STAND REMANDED BACK TO THE ASSESSING OFFICER. THE ASSESSING OFFICER SHA LL DETERMINE AS TO WHETHER THE ASSESSEE HAS INCURRED ANY EXPENDITURE ( DIRECT OR INDIRECT) IN RELATION TO DIVIDEND INCOME/INCOME FROM MUTUAL F UNDS WHICH DOES NOT FORM PART OF THE TOTAL INCOME AS CONTEMPLATED U NDER S. 14A. THE ASSESSING OFFICER CAN ADOPT A REASONABLE BASIS FOR EFFECTING THE APPORTIONMENT. WHILE MAKING THAT DETERMINATION, THE ASSESSING OFFICER SHALL PROVIDE A REASONABLE OPPORTUNITY TO T HE ASSESSEE OF PRODUCING ITS ACCOUNTS AND RELEVANT OR GERMANE MATE RIAL HAVING A BEARING ON THE FACTS AND CIRCUMSTANCES OF THE CASE. THUS, IT IS CLEAR THAT RULE 8D IS APPLICABLE ONLY F ROM A.Y 2008-09 AND IS NOT APPLICABLE FOR A.YR. 2007-08 WHICH IS BEFORE US . THEREFORE, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND REMIT THE MAT TER BACK TO THE FILE OF THE AO TO RECOMPUTE THE DISALLOWANCE U/S.14A IN THE LIGHT OF THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CA SE OF GODREJ & BOYCE MFG. CO.LTD. VS. DCIT [SUPRA]. 11. IN THE RESULT, APPEAL IS ALLOWED FOR STATISTICA L PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 7 /9/2011. SD/- SD/- (D.MANMOHAN) (T.R.SOOD) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI: 7/9/2011.