SUSHILA N. RUNGTA, MUMBAI V. I.T.O.12(1)(2), MUMBAI

ITA 4546/MUM/2012

• Counselvise Citation: 454619914 RSA 2012
• Duration Of Justice: 1 year(s) 7 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-02-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 05-02-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 05-07-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ASHOK SURI
• Assessee Lawyers: NISHIT GANDHI
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI . . , , , BEFORE SHRI N.K. SAINI , ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , JUDICIAL MEMBE R . / ITA NO. 4546 / MUM./ 2012 ( / ASSESSMENT YEAR : 20 0 8 09 ) MRS. SUSHILA N. RUNGTA 32, RAJA BAHADUR MANSION MUMBAI SAMACHAR MARG, MUMBAI .. / APPELLANT V/S INCOME TAX OFFICER WARD 12(1)(2), MUMBAI .... / RESPONDENT . / PERMANENT ACCOUNT NUMBER AACPR0258H / ASSESSEE BY : MR. NISHIT GANDHI / REVENUE BY : MR. ASHOK SURI / DATE OF HEARING 05 . 0 2 .201 4 / DATE OF ORDER 12.02.2014 / ORDER , / PER AMIT SHUKLA , J.M. THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSESSEE CHALLENGING THE IMPUGNED ORDER DATED 10 TH APRIL 2012 , PASSED BY THE COMMISSIONER (APPEALS) X XI I I , MUMBAI, FOR THE QUANTUM OF ASSESSMENT PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 MRS. SUSHILA N. RUNGTA 2 (FOR SHORT 'THE ACT' ) FOR THE ASSESSMENT YEAR 20 0 8 09 , ON THE FOLLOWING GROUNDS: 1. THE LEARNED CIT(A) ERRED IN CONFIRMING THE OR DER OF THE ASSESSING OFFICER DISALLOWING A SUM OF ` 2,69,572 UNDER SECTION 14A OF THE ACT. 2. THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE WITHOUT APPRECIATING THAT THE ASSESSING OFFICER HAD NOT REJECTED THE PLEA OF THE AS BEFORE APPLYING THE P ROVISIONS OF RULE 8D(2) AS PRESCRIBED. 2 . T HE ASSESSEE IS AN INDIVIDUAL ENGAGED IN THE BUSINESS OF SHARE BROKING AND DEALING IN SHARES AND SECURITIES. THE ASSESSEE HAS RECEIVED EXEMPT INCOME IN THE FORM OF DIVIDEND TO THE TUNE OF ` 5,05,682. AGAINST SUCH IN COME, THE ASSESSEE HAS NOT ATTRIBUTED ANY EXPENDITURE FOR THE PURPOSE OF DISALLOWANCE UNDER SECTION 14A. IN RESPONSE TO THE SHOW CAUSE NOTICE, THE ASSESSEE SUBMITTED THAT ITS MAJOR ACTIVITIES WERE IN RELATION TO TRADING IN SHARES AND SECURITIES AND IT HAS CLASSIFIED ITS TRADING ACTIVITIES AND INVESTMENTS SEPARATELY . IT WAS SUBMITTED THAT FOR THE PURPOSE OF INVESTMENT AND SECURITIES, THE ASSESSEE HAS INTEREST FREE FUNDS IN THE FORM OF CAPITAL AT ` 88,61,340. THE ASSESSEE HAS ALSO RECEIVED FUNDS IN THE FORM O F CAPITAL GAINS WHICH WAS TAXABLE AND WERE UTILIZED FOR THE PURPOSE OF INVESTMENT IN SHARES AND MUTUAL FUNDS TO THE EXTENT OF ` 80,60,000 . THUS, NO DISALLOWANCE UNDER SECTION 14A IS CALLED FOR. 3 . T HE ASSESSING OFFICER REJECTED THE ASSESSEES CONTENTION AND DISALLOWED THE PROPORTIONATE EXPENDITURE AS PER THE WORKING OF RULE 8D WHICH WAS DETERMINED AT ` 2,69,572. THE LEARNED COMMISSIONER (APPEALS) CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER WHICH WAS MADE ON THE BASIS OF RULE 8D. 4 . T HE LEARNED COU NSEL FOR THE ASSESSEE SUBMITTED THAT NO DISALLOWANCE OF INTEREST EXPENDITURE CAN BE MADE UNDER THE FORMULA OF MRS. SUSHILA N. RUNGTA 3 RULE 8D , BECAUSE THE ASSESSEE HAD INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE AND INTEREST BEARING FUNDS WERE UTILIZED ONLY FOR PURCHASE OF SH ARES USED FOR BUSINESS ACTIVITIES. REGARDING OTHER DISALLOWANCE OF 0.5% OF THE AVERAGE INVESTMENT, HE SUBMITTED THAT THE ASSESSING OFFICER HAS TAKEN THE AVERAGE OF CLOSING STOCK AND NOT THE AVERAGE OF INVESTMENT. THE FIGURES OF STOCK GIVEN BY HIM IN THE AS SESSMENT ORDER WHILE WORKING OF THE DISALLOWANCE UNDER SECTION RULE 8D ARE FACTUALLY INCORRECT. HE SUBMITTED THAT THIS CONTENTION OF THE ASSESSEE CAN BE VERIFIED BY THE ASSESSING OFFICER. LASTLY, HE SUBMITTED THAT IF THE SHARES ARE HELD IN STOCK IN TRADE, THEN NO DISALLOWANCE SHOULD BE MADE UNDER SECTION 14A. 5 . THE LEARNED DEPARTMENTAL REPRESENTATIVE, O N THE OTHER HAND , STRONGLY RELIED UPON THE FINDINGS OF THE LEARNED COMMISSIONER (APPEALS). 6 . WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE FINDINGS OF THE A UTHORITIES BELOW AS WELL AS THE MATERIAL AVAILABLE ON RECORD. T HE ASSESSEES MAIN CONTENTION BEFORE US AS WELL AS BEFORE THE AUTHORITIES BELOW WAS THAT THE ASSESSEE HAS MADE INVESTMENT IN SHARES AND MUTUAL FUNDS OUT OF INTEREST FREE FUNDS. THIS VITAL PLEA OF THE ASSESSEE HAS NEITHER BEEN EXAMINED BY THE ASSESSING OFFICER NOR CONSIDERED BY THE LEARNED COMMISSIONER (APPEALS). IT IS QUITE A SETTLED PROPOSITION THAT IF THE ASSESSEE HAD INTEREST FREE FUNDS AVAILABLE FOR MAKING THE INVESTMENT, THEN INTEREST EXPEN DITURE CANNOT BE DISALLOWED IN THE WORKING OF THE RULE 8D IN VIEW OF THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN CIT V/S RELIANCE UTILITIES AND POWER LTD., [2009] 313 ITR 340 (BOM.) AND OTHER CATENA OF DECISIONS . THE LEARNED COUNSEL HAS ALSO P OINTED OUT THAT THERE IS SOME DISPUTE WITH REGARD TO THE FIGURES TAKEN BY THE ASSESSING OFFICER WHILE WORKING OUT THE MRS. SUSHILA N. RUNGTA 4 DISALLOWANCE ON ACCOUNT OF AVERAGE INVESTMENT AS THE ASSESSING OFFICER HAS TAKEN THE FIGURE OF AVERAGE OF THE CLOSING STOCK. LOOKING TO TH ESE FACTS AND CIRCUMSTANCES, WE ARE OF THE OPINION THAT THIS ENTIRE ISSUE NEEDS TO BE RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER . CONSEQUENTLY, WE SET ASIDE THE IMPUGNED ORDER PASSED BY THE LEARNED COMMISSIONER (APPEALS) AND RESTORE THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER AND DIRECT HIM TO CONSIDER THE AVAILABILITY OF INTEREST FREE FUNDS FOR THE PURPOSE OF INVESTMENT AFTER FOLLOWING THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN CIT V/S RELIANCE UTILITIES AND POWER LTD., [2009] 313 ITR 340 (BOM.) . THE ASSESSING OFFICER IS ALSO DIRECTED TO VERIFY THE FIGURES TAKEN BY HIM ON ACCOUNT OF VALUE OF AVERAGE INVESTMENT. THE ASSESSING OFFICER WILL ALSO CONSIDER OTHER CONTENTIONS OF THE ASSESSEE AFTER EXAMINING THE RECORDS AND DECIDE THE ISSUE AFRESH IN ACCORDANCE WITH THE PROVISIONS OF LAW AND AFTER PROVIDING DUE AND EFFECTIVE OPPORTUNITY OF HEARING TO THE ASSESSEE. THUS, THE GROUND RAISED BY THE ASSESSEE IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 7 . 7. IN THE RESULT, ASSESSEES APPEAL IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 12 TH FEBRUAR Y 2014 ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH FEBRUAR Y 2014 SD / - . . N.K. SAINI ACCOUNTANT MEMBER SD / - AMIT SHUKLA JUDICIAL MEMBER MUMBAI, DATED : 12 TH FEBRUAR Y 2014 MRS. SUSHILA N. RUNGTA 5 / COPY OF THE ORDER FORWARDED TO : ( 1 ) / THE ASSESSEE ; ( 2 ) / THE REVENUE; ( 3 ) ( ) / THE CIT(A ) ; ( 4 ) / THE CIT, MUMBAI CITY CONCERNED ; ( 5 ) , , / THE DR, ITAT, MUMBAI ; ( 6 ) / GUARD FILE . / TRUE COPY / BY ORDER . / PRADEEP J. CHOWDHURY / SR. PRIVATE SECRETARY / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI