ANVIL FINTRADE P.LTD, MUMBAI V. DCIT CIR 2(1), MUMBAI

ITA 458/MUM/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 0027 (ITAT-MUMBAI)
• Duration Of Justice: 7 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 20-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V JUSTIN
• Assessee Lawyers: AJAY R SINGH
• Keywords: Opportunity of being heard; Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E, MUMBAI BEFORE SHRI G S PANNU, ACCOUNTANT MEMBER & SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NOS. 458 & 459/MUM/2017 ASSESSMENT YEARS : 2011-12 & 2012-13 ANVIL FINTRADE P LTD., 201, 2 ND FLOOR, KRISHNA KUNJ, PLOT NO.30, NAVYUG CHSL, V L MEHTRA ROAD, JVPD VILE PARLE(W) MUMBAI 400 056 PAN AABCA9882E VS DCIT CIRCLE 2(1) MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI AJAY R SINGH RESPONDENT BY : SHRI V JUSTIN DATE OF HEARING : 2 1 . 08 .2017 DATE OF PRONOUNCEMENT : 30 .0 8 .2017 O R D E R PER PAWAN SINGH, JUDICIAL MEMBER: THESE TWP APPEALS BY THE ASSESSEE U/S. 253 OF THE I T ACT, ARE DIRECTED AGAINST THE ORDERS OF THE CIT(A)-3, MUMBAI, DATED 2 3.12.2016 & 25.11.2016 FOR A YS 2011-12 AND 2012-13 RESPECTIVELY. SINCE T HE ISSUES INVOLVED IN BOTH THE APPEALS ARE COMMON, THEY WERE HEARD TOGETHER AN D ARE BEING DISPOSED OF BY THIS COMMON ORDER. 2. WE SHALL TAKE UP THE APPEAL IN ITA NO. 458/MUM/2 017 FOR A.Y. 2011- 12. BOTH THE PARTIES AGREED THAT THE DECISION TAKE N WILL ALSO APPLY TO THE APPEAL IN ITA NO.459/MUM/2017. ITA NOS.458 & 459 /MUM/2017 ANVIL FINTRADE PVT. LTD 2 THE GROUNDS RAISED READ AS UNDER: DISALLOWANCE U/S. 14A R.W. RULE 8D; 1. THE LEARNED CIT(A) ERRED IN NOT FOLLOWING THE JU DGMENT OF BOMBAY HIGH COURT IN THE CASE OF CIT VS. INDIA ADVA NTAGE SECURITIES LTD. ITA NO. 1131 OF 2013. DTD. 13/04/20 15 (BOM)(HC) IN WHICH IT WAS HELD THAT SECTION 14A IS NOT APPLIC ABLE TO SHARE TRADING INCOME / SHARES HELD AS STOCK-IN-TRADE. THE ORDER OF THE JURISDICTIONAL HIGH COURT IS BINDING ON THE APPELLA TE AUTHORITIES WHICH THE LEARNED CIT(A) HAS NOT FOLLOWED AND THE R EASONS ASSIGNED BY HIM FOR DOING SO ARE NOT BASED ON THE P ROVISIONS OF THE ACT AND RULES MADE THEREUNDER. 2. THE LEARNED CIT(A) ERRED IN NOT FOLLOWING THE OR DER OF HONBLE MUMBAI ITAT IN THE CASE OF APPELLANT ITSELF FOR THE A.Y.2010-11 [ ITA NO.6788/MUM/2012 ] IN WHICH IT WAS HELD THAT TH E SHARES AND SECURITIES HELD AS STOCK-IN-TRADE CANNOT BE CONSIDE RED FOR THE PURPOSES OF WORKING OUT THE DISALLOWANCE U/S 14A OF THE ACT R.W.S RULE 8D OF THE RULES. BASED ON THE RULE OF CONSISTE NCY, THE LEARNED CIT(A) SHOULD HAVE FOLLOWED THE ORDER PASSE D BY THE HONBLE TRIBUNAL FOR THE A.Y.2010-11 WHEN FACTS OF THE CASE ARE SIMILAR / IDENTICAL. 3. THE LEARNED CIT(A) ERRED IN PASSING THE ORDER BY DIRECTING THE AO TO ESTIMATE THE DISALLOWANCE U/S 14A MAY BE AT 2 0% OF THE DIVIDEND INCOME; I.E. BY ADOPTING AN ARBITRARY METH OD TO COMPUTE THE DISALLOWANCE U/S 14A OF THE ACT WITHOUT APPRECI ATING THAT NO DIRECT OR INDIRECT EXPENDITURE WAS ATTRIBUTABLE TO EARNING OF EXEMPT INCOME AS THE ASSESSEE WAS CARRYING ON BUSINESS OF TRADING IN SHARES AND SECURITIES. THIS ARBITRARY METHOD OF DI SALLOWING 20% OF DIVIDEND INCOME IS NOT PRESCRIBED BY THE PROVISIONS OF THE ACT AND RULES MADE THEREUNDER. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY IS ENGAGED IN THE BUSINESS OF DEALING IN SHARES AND SECURITIES. IT F ILED ITS RETURN OF INCOME ON 16.08.2011 DECLARING LOSS OF ` 3,60,04,980/-. THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS AND NOTICES U/S. 143(2) AND 142 (1) WERE ISSUED BY THE ASSESSING OFFICER. DURING THE COURSE OF ASSESSME NT PROCEEDINGS, THE ITA NOS.458 & 459 /MUM/2017 ANVIL FINTRADE PVT. LTD 3 ASSESSING OFFICER DISALLOWED A SUM OF ` 22,90,490/- U/S. 14A OF THE IT ACT. ON APPEAL BEFORE THE CIT(A), THE DISALLOWANCE WAS R ESTRICTED TO 20% OF THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. AGGRIE VED, THE ASSESSEE IS IN APPEAL BEFORE US. 4. BEFORE US, THE LEARNED AR ARGUED THAT THE CIT(A) RESTRICTED THE DISALLOWANCE ON THE BASIS OF THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF DOUBLE FINANCE LTD. VS. DCIT IN ITA NO. 2035/MUM/2013 FOR A.Y. 2009-10. IT WAS FURTHER ARGUED THAT IN ASSESSEES OWN CASE FOR A.Y. 2010-11, ON IDENTICAL FACTS, THE MATTER WAS RESTORED TO THE FILE OF THE ASSESSING OFFICER TO DECIDE THE ISSUE IN ACCORDANCE WITH THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. INDIA ADVANTAGE SECURI TIES LTD. 380 ITR 471(BOM). 5. THE LEARNED DR, ON THE OTHER HAND, RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. IT WAS ARGUED THAT THERE IS A C ONTRARY DECISION OF THE MUMBAI BENCHES OF THE TRIBUNAL IN FAVOUR OF THE REV ENUE. 6. WE HAVE HEARD BOTH THE PARTIES AND HAVE PERUSED THE MATERIAL AVAILABLE ON RECORD ALONG WITH THE ORDERS OF THE AU THORITIES BELOW. AS ARGUED, THE LEARNED DR COULD NOT BRING TO OUR NOTIC E ANY CONTRARY DECISION OF THE TRIBUNAL IN FAVOUR OF THE REVENUE. FURTHER, WE FIND THAT THE FACTS FOR THE YEAR UNDER CONSIDERATION ARE ALMOST SIMILAR TO THAT OF A.Y. 2010-11. THE CO- ORDINATE BENCH OF THE MUMBAI TRIBUNAL, VIDE ITS ORD ER DATED 09.11.2016, FOR ITA NOS.458 & 459 /MUM/2017 ANVIL FINTRADE PVT. LTD 4 A.Y. 2010-11 IN ITA NO.6788/MUM/2012, HAS RESTORED THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER WITH THE FOLLOWING OB SERVATIONS: 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. OSTENSIBLY, THE DISPUTE IN THE INSTANT APPEAL LIES IN A NARROW COMPASS, INASMUCH AS, THE PERTINENT GRIEVANCE OF THE ASSESSE E IS THAT FOR THE PURPOSES OF WORKING OUT THE N RULE 8D OF THE RULES, THE SHARES AND SECURITIES HELD AS STOCK-IN-TRADE ARE LIABLE TO BE EXCLUDED. ON THIS ASPECT, WE F ND THAT THE CIT(A) IN PARA 5.2.6 OF HI S ORDER HELD THAT EVEN THE SHARES CONSIDERED AS STOCK-IN-TRADE ARE LI ABLE TO BE CONSIDERED FOR THE PURPOSE OF DISALLOWANCE FOLLOWIN G THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF DA GA CAPITAL MANAGEMENT (PVT.) LTD., 117 ITD 169(SB). IN OUR C ONSIDERED OPINION, THE STAND OF THE CIT(A) ON THIS ASPECT IS NOT TENABLE IN VIEW OF THE SUBSEQUENT DECISION OF THE MUMBAI TRIBU NAL IN THE CASE OF DCIT VS. INDIA ADVANTAGE SECURITIES LTD. DATED 14/09/2011 FOR ASSESSMENT YEAR 2008-09. IN THE CASE OF IND IA ADVANTAGE SECURITIES LTD. (SUPRA), THE TRIBUNAL, AFTER RELY ING ON THE JUDGMENT OF THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CCI LTD. VS. JCIT, 250 CTR 291 (KAR) HELD THAT THE DISALLOWANCE UNDER SECTION 14A OF THE ACT COULD NOT BE MADE IN RESPECT OF EXEM PT INCOME RECEIVED ON SHARES HELD AS STOCK-IN-TRADE. THE TR IBUNAL ALSO CONSIDERED THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF DAGA CAPITAL MANAGEMENT (PVT.) LTD.,(SUPRA) AND SINCE IT WAS CONTRARY TO THE JUDGMENT OF THE HON'BLE KARNATA KA HIGH COURT IN THE CASE OF CCI LTD. (SURPA), THE DECISION OF TH E HON'BLE KARNATAKA HIGH COURT WAS FOLLOWED AND THE STAND OF THE ASSESSEE WAS UPHELD. IT IS ALSO NOTABLE THAT THE DECISION O F THE TRIBUNAL DATED 14/09/2011(SUPRA) HAS SINCE BEEN AFFIRMED BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE REPORTED AT CIT V. AD VANTAGE SECURITIES LTD ,380 ITR 471(BOM). SUBSEQUENTLY, T HE MUMBAI TRIBUNAL IN THE CASE OF R.R.CHOKHANI STOCK BROKERS PVT. LTD. (SUPRA) HAS ALSO A TAKEN A SIMILAR VIEW. FOLLOWING THE AFFI RMATION BY THE HON'BLE BOMBAY HIGH COURT OF THE DECISION OF THE TR IBUNAL IN THE CASE OF INDIA ADVANTAGE SECURITIES LTD.(SUPRA), WE HOLD THAT THE SHARES AND SECURITIES HELD AS STOCK-IN-TRADE CANNOT BE CONSIDERED FOR THE PURPOSES OF WORKING OUT THE DISALLOWANCE UN DER SECTION 14A OF THE ACT R.W.S. RULE 8D OF THE RULES. AS A CONSEQ UENCE, THE DISALLOWANCE UNDER SECTION 14A OF THE ACT QUANTIFIE D BY THE ASSESSING OFFICER AT RS.4,31,2507- IS UNTENABLE AND THE MATTER IS RESTORED BACK TO THE FILE OF ASSESSING OFFICER WHO SHALL REWORK THE DISALLOWANCE, IF ANY, AFTER CONSIDERING OUR AFORESA ID DECISION. ITA NOS.458 & 459 /MUM/2017 ANVIL FINTRADE PVT. LTD 5 NEEDLESS TO SAY, THE ASSESSING OFFICER SHALL ALLOW THE ASSESSEE A REASONABLE OPPORTUNITY OF BEING HEARD BEFORE PASSIN G AN ORDER AFRESH ON THIS LIMITED ASPECT AS PER LAW. RESPECTFULLY FOLLOWING THE DECISION OF THE CO-ORDIN ATE BENCH, WE RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER TO REWO RK THE DISALLOWANCE FOR BOTH THE ASSESSMENT YEARS UNDER APPEAL. 7. IN THE RESULT, BOTH THE APPEALS ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH DAY OF AUGUST, 2017. SD/- SD/- (G S PANNU) (PAWAN S INGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED: 30 TH AUGUST, 2017 SA COPY OF THE ORDER FORWARDED TO : 1. THE APP ELL ANT. 2. THE RESPONDENT. 3. T HE CIT(A), MUMBAI 4. THE CIT 5. DR, E BENCH, ITAT, MUMBAI BY ORDER, #TRUE COPY # ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI