ACIT CIR 4(2), MUMBAI V. WALLFORT FINANCIAL SERVICES P. LTD, MUMBAI

ITA 464/MUM/2011

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71327 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-09-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 19-09-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 17-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BEHARILAL
• Assessee Lawyers: C P PATHAK
• Keywords: Business income; Opportunity of being heard; Earning of tax free income
• Section: 14A

Judgement Text

G IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI .. , !'# $ $ $ $ %&. !.'.. $( ) !'# !* BEFORE SHRI P.M. JAGTAP, AM AND DR. S.T.M. PAVALAN, JM !./ I.T.A. NO. 8794/MUM/2010 ( )( , $-, )( , $-, )( , $-, )( , $-, / / / / ASSESSMENT YEAR : 2007-08 WALLFORT FINANCIAL SERVICES LTD., 205, GUNDECHA CHAMBERS, NAGINDAS MASTER ROAD, FORT, MUMBAI 400 001. ( ( ( ( / VS. ASSTT. COMMISSIONER OF INCOME TAX- RG. 4(2), AAYAKAR BHAVAN, MUMBAI 400 020. #. !./ PAN : AAACWO 617L ( ./ / // / APPELLANT ) .. ( 01./ / RESPONDENT ) !./ I.T.A. NO. 464/MUM/2011 ( )( , $-, )( , $-, )( , $-, )( , $-, / / / / ASSESSMENT YEAR : 2007-08 ASSTT. COMMISSIONER OF INCOME TAX- RG. 4(2), AAYAKAR BHAVAN, MUMBAI 400 020. ( ( ( ( / VS. WALLFORT FINANCIAL SERVICES LTD., 205, GUNDECHA CHAMBERS, NAGINDAS MASTER ROAD, FORT, MUMBAI 400 001. #. !./ PAN : AAACWO 617L ( ./ / // / APPELLANT ) .. ( 01./ / RESPONDENT ) ASSESSEE BY SHRI BEHARILAL ASSESSEE BY : SHRI C.P. PATHAK !($ 2 / // / DATE OF HEARING : 19-09-2013 34- 2 / DATE OF PRONOUNCEMENT : 25-09-2013 [ ITA 8794/M/10 & 464/M/11 2 '5 / O R D E R PER P.M. JAGTAP, A.M . : .. , !'# THESE TWO APPEALS, ONE FILED BY THE ASSESSEE BEING ITA NO. 8794/MUM/2010 AND THE OTHER FILED BY THE REVENUE BE ING ITA NO. 464/MUM/2011 ARE CROSS APPEALS WHICH ARE DIRECTED A GAINST THE ORDER OF LD. CIT(A) -8, MUMBAI DATED 10-11-2010. 2. THE ISSUE RAISED IN GROUND NO. 1 OF THE ASSESSEE S APPEAL RELATES TO ITS CLAIM OF PROFITS FROM PURCHASE AND SALE OF SHARES B EING SHORT TERM CAPITAL GAIN WHICH HAS BEEN TREATED BY THE A.O. AS WELL AS BY THE LD. CIT(A) AS BUSINESS INCOME. 3. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. AS SUBMITTE D BY THE LD. COUNSEL FOR THE ASSESSEE, A SIMILAR ISSUE INVOLVED IN ASSESSEES OW N CASE FOR THE IMMEDIATELY PRECEDING YEAR I.E. A.Y. 2006-07 HAS BEEN SENT BACK BY THE TRIBUNAL TO THE FILE OF THE LD. CIT(A) FOR FRESH ADJUDICATION FOR THE FO LLOWING REASONS GIVEN IN PARA 3 OF ITS ORDER DATED 27-5-2011 PASSED IN ITA NO. 73 /MUM/2010:- 3. AFTER HEARING BOTH THE SIDES, WE FIND THE LD. C IT(A) FOLLOWING HIS ORDER FOR THE A.Y. 2005-06, UPHELD THE ACTION OF THE A.O. IN TREATING THE INCOME OF ` 18,38,01,254/- AS BUSINESS INCOME AS AGAINST SHO RT TERM CAPITAL GAIN DECLARED BY THE ASSESSEE. BOTH THE PARTIES FAIRLY AGREED THAT THE ISSUE HAS TO GO BACK TO THE FILE OF THE LD. CIT(A) SINCE HE HAS NOT PASSED A SPEAKING ORDER AND HAS NOT CONSIDERED THE VARIOUS SUBMISSIONS FILE D BEFORE HIM BY THE ASSESSEE. HE HAS ALSO FAILED TO CONSIDER THE SUBMI SSIONS DATED 22.10.09 FILED BEFORE HIM JUSTIFYING THE INCOME OF ` 18,38,01,254/- AS SHORT TERM CAPITAL GAIN AS AGAINST BUSINESS INCOME TREATED BY THE A .O. WE FIND THE ASSESSEE AT PARA NO. 4 OF THE SUBMISSIONS FILED BEFORE THE C IT(A) HAS TRIED TO EXPLAIN THE MOTIVE OF TAKING ADVANTAGE OF CONCESSIONAL TAX RATE WITH EFFECT FROM 1 ST OCTOBER 2004. THE LD. CIT(A), HOWEVER, HAS NOT AT ALL CONSIDERED THE WRITTEN SUBMISSION FILED BEFORE HIM AND HAS DECIDED THE ISS UE SIMPLY IN TWO LINES BY FOLLOWING HIS ORDER FOR THE PRECEDING ASSESSMENT YE AR. UNDER THESE CIRCUMSTANCES, WE DEEM IT PROPER TO RESTORE THE ISS UE TO THE FILE OF THE LD. CIT(A) FOR FRESH ADJUDICATION AND IN ACCORDANCE WIT H LAW AFTER GIVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE HOL D AND DIRECT ACCORDINGLY. GROUND NO. 1 OF ASSESSEES APPEAL IS ACCORDINGLY TR EATED AS ALLOWED FOR STATISTICAL PURPOSE. ITA 8794/M/10 & 464/M/11 3 4. ALTHOUGH, THE LD. D.R. HAS AGREED THAT THE LD. C IT(A) HAS NOT PASSED A SPEAKING ORDER EVEN FOR THE YEAR UNDER CONSIDERATIO N I.E. A.Y. 2007-08 DEALING WITH THE VARIOUS SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE, HE HAS POINTED OUT THAT THE LD. CIT(A) HAS FOLLOWED THE ORDER OF T HE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2005-06 WHICH WAS IN FAVOUR OF THE RE VENUE ON THE SIMILAR ISSUE. KEEPING IN VIEW THE POSITION EMERGING FROM THE ORDERS OF THE TRIBUNAL FOR THE EARLIER YEARS, WE CONSIDER IT JUST AND PROP ER TO REMIT THIS ISSUE TO THE FILE OF THE A.O. FOR DECIDING THE SAME AFRESH AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AS WELL AS THE RELEVANT FACTS INVOL VED IN THE YEAR UNDER CONSIDERATION IN THE LIGHT OF THE DECISION OF THE T RIBUNAL RENDERED IN A.Y. 2005-06. GROUND NO. 1 OF ASSESSEES APPEAL IS ACCOR DINGLY TREATED AS ALLOWED FOR STATISTICAL PURPOSE. 5. GROUND NO. 2 RAISED BY THE ASSESSEE RELATING TO THE DISALLOWANCE U/S 14-A OF THE INCOME TAX ACT, 1961 MADE BY THE A.O. A ND PARTLY SUSTAINED BY THE LD. CIT(A) HAS NOT BEEN PRESSED BY THE LD. COUN SEL FOR THE ASSESSEE AT THE TIME OF HEARING BEFORE US. THE SAME IS ACCORDINGLY DISMISSED AS NOT PRESSED. 6. IN GROUND NO. 1 OF ITS APPEAL, THE REVENUE HAS C HALLENGED THE ACTION OF THE LD. CIT(A) IN DELETING THE ADDITION MADE BY THE A.O. U/S 14-A READ WITH RULE 8-D OF THE INCOME TAX RULES, 1962. 7. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL AVAILABLE ON RECORD, IT IS OBSERVED THAT T HE ISSUE RELATING TO DISALLOWANCE MADE BY THE A.O. U/S 14-A OF THE ACT A PPLYING RULE 8-D HAS BEEN DECIDED BY THE LD. CIT(A) VIDE PARA NO. 2. 2 T O 2.5 OF HIS IMPUGNED ORDER WHICH READ AS UNDER:- 2.2. IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. [ PTA NO.626/2010], THE HONBLE BOMBAY HIGH COURT HAD HELD THAT RULE 8D WAS APPLICABLE ONLY FROM A Y 2008-09 AND THAT FOR THE PERIOD PRIOR TO A Y 2008-09, THE AMOUNT OF EXPENDITURE ALLOCABLE FOR EARNING OF EXEM PT INCOME HAS TO BE DETERMINED ON REASONABLE BASIS AND DISALLOWED TO EN FORCE THE PROVISIONS OF SECTION 14A. THUS, NO ADDITION OF THE AMOUNT DETERMINED ITA 8794/M/10 & 464/M/11 4 AS PER RULE 8D CAN BE MADE FOR THE CURRENT YEAR I.E . A Y 2006-07. THE ADDITION OF RS.57,13,128/- IS, THEREFORE, DELETED. HOWEVER, THE AMOUNT OF EXPENDITURE INCURRED FOR EARNING OF EXEMPT INCOM E IS REQUIRED TO BE DETERMINED ON REASONABLE BASIS AND DISALLOWED AS PE R THE PROVISIONS OF SECTION 14A. 23. THE APPELLANTS CONTENTION THAT NO EXPENDITURE HAD BEEN INCURRED TO EARN EXEMPT INCOME IS NOT ACCEPTABLE FOR THE REA SON THAT THE ASSESSEE BEING A SHARE BROKER AND TRADER, UNDERTAKE S TRANSACTIONS OF SHARE WHICH INCLUDES THOSE TRANSACTIONS WHICH SUBSE QUENTLY YIELDED DIVIDEND WHICH WAS EXEMPT. THE EXPENSES DEBITED TO P & L ACCOUNT HAD BEEN INCURRED FOR UNDERTAKING TRANSACTIONS OF S HARES WHICH ALSO INCLUDED SUCH TRANSACTIONS WHICH YIELDED EXEMPT DIV IDEND. THEREFORE, THE EXPENSES DEBITED TO P&L ACCOUNT INCLUDE EXPENDI TURE INCURRED FOR UNDERTAKING TRANSACTIONS OF SHARES WHICH YIELDED EX EMPT INCOME. APPARENTLY, ANY EXPENDITURE INCURRED FOR UNDERTAKIN G TRANSACTIONS FOR SHARES WHICH SUBSEQUENTLY YIELDED EXEMPT INCOME IS REQUIRED TO BE TREATED AS EXPENDITURE INCURRED FOR EARNING OF EXEM PT DIVIDEND INCOME. THEREFORE, THE ASSESSEES CONTENTION THAT NO EXPENDI TURE HAD BEEN INCURRED FOR EARNING OF EXEMPT INCOME IS NOT ACCEPT ABLE. THE ASSESSEE HAS HOWEVER, NOT MAINTAINED ANY DETAILS OF EXPENSES INCURRED FOR UNDERTAKING TRANSACTIONS OF SHARES WHICH HAVE YIELD ED EXEMPT INCOME. THE AMOUNT OF SUCH EXPENDITURE IS, THEREFORE, REQUI RED TO BE DETERMINED ON A REASONABLE BASIS. 2.4. THE ASSESSEE HAD NOT SEPARATELY MAINTAINED THE DETAILS OF EXPENSES INCURRED FOR UNDERTAKING TRANSACTIONS WHICH HAD YIE LDED DIVIDEND INCOME WHICH WAS CLAIMED AS EXEMPT. IN VIEW OF THIS , A REASONABLE BASIS OR METHODOLOGY HAS TO BE ADOPTED TO ASCERTAIN THE QUANTUM OF SUCH EXPENDITURE WHICH RELATES TO EARNING OF THE EX EMPT INCOME TO ENFORCE THE PROVISIONS OF SECTION 14A, AS HAS BEEN DECIDED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF M/S GODREJ & BOYCE MANUFACTURING CO. LTD. (SUPRA). I FIND THAT IT WILL BE REASONABLE TO DETERMINE THE QUANTUM OF THE AMOUNT OF EXPENDITURE INCURRED FOR EARNING OF EXEMPTED INCOME AT THE RATIO OF THE TOTA L EXPENDITURE DEBITED TO P & L ACCOUNT IN PROPORTION THAT THE VALUE OF TR ANSACTION IN SHARES WHICH HAS YIELDED EXEMPT INCOME BEARS TO THE VALUE OF TOTAL TRANSACTIONS IN SHARE AS UNDER: AMOUNT OF EXPENDITURE ALLOWCABLE TO EARNING OF EXEM PT INCOME = TOTAL EXPENDITURE DEBITED TO P&L A/C (DIRECT & INDI RECT) X VALUE OF TRANSACTION IN SHARE YIELDING EXEM PT INCOME VALUE OF TOTAL TRANSACTIONS IN SHARE. 2.5. THE AMOUNTS SO DETERMINED SHALL BE DISALLOWED AS PER THE PROVISIONS OF SECTION 14A, BEING EXPENDITURE INCURR ED FOR EARNING OF EXEMPT INCOME. THE ASSESSING OFFICER IS DIRECTED T O DETERMINE THE QUANTUM OF SUCH EXPENDITURE BY APPLYING THE RATIO A S MENTIONED ABOVE AND DISALLOW THE SAME AS PER THE PROVISIONS OF SECT ION 14A. THE ASSESSEE HAS HOWEVER, ITSELF DISALLOWED RS. 5,15,97 6/-. IN VIEW OF THIS, IF THE AMOUNT TO BE DISALLOWED COMPUTED AS PER DIRE CTION ABOVE IS LESS THAN RS. 5,15,976/-, THE DISALLOWANCE SHALL BE RS. 5,15,976/-. ITA 8794/M/10 & 464/M/11 5 HOWEVER, IF THE AMOUNT TO BE DISALLOWED COMPUTED AS PER DIRECTION ABOVE IS MORE THAN RS. 5,15,976/- THE DISALLOWANCE SHALL BE OF THE AMOUNT OF DIFFERENCE BETWEEN THE AMOUNT SO COMPUTED AND RS. 5,15,976/-. THE APPEAL ON THIS GROUND IS ACCORDING LY, DISPOSED OFF WITH THESE DIRECTIONS. THE DISALLOWANCE MADE BY THE A.O . BY APPLYING RULE 8D AT RS. 51,97,152/- IS THUS, DELETED IN RESPECTFU L COMPLIANCE OF THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF GODREJ & BOYCE MANUFACTURING CO. LTD. (SUPRA). THE APPEAL O N THIS GROUND IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 8. IN THE CASE OF GODREJ AND BOYCE MFG. CO. LTD. VS . DCIT (2010) 328 ITR 81 (BOM.), THE HONBLE BOMBAY HIGH COURT HAS HELD T HAT RULE 8-D IS APPLICABLE ONLY FROM A.Y. 2008-09 AND THIS POSITION HAS NOT BEEN DISPUTED EVEN BY THE LD. D.R AT THE TIME OF HEARING BEFORE U S. WE, THEREFORE, FIND NO INFIRMITY IN THE IMPUGNED ORDER OF THE LD. CIT(A) D ELETING THE DISALLOWANCE MADE BY THE A.O. U/S 14A OF THE ACT BY APPLYING RUL E 8-D OF THE INCOME TAX RULES, 1962. AS FURTHER HELD BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE MFG. CO. LTD. (SUPRA), THE DIS ALLOWANCE U/S 14-A OF THE ACT FOR THE YEARS PRIOR TO A.Y. 2008-09 WAS REQUIRE D TO BE MADE ON SOME REASONABLE BASIS. IN THIS REGARD, IT IS OBSERVED T HAT THE FORMULA GIVEN BY THE LD. CIT(A) IN HIS IMPUGNED ORDER TO WORK OUT THE EX PENSES INCURRED IN RELATION TO EARNING OF EXEMPT INCOME ON PROPORTIONATE BASIS FOR THE PURPOSE OF MAKING DISALLOWANCE U/S 14A OF THE ACT IS QUITE FAIR AND R EASONABLE IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE LD. D.R. HAS NOT BEEN ABLE TO PUT FORTH ANY CONTENTION TO DISPUTE THE SAME. WE, THEREFORE, FIN D NO INFIRMITY IN THE IMPUGNED ORDER OF THE LD. CIT(A) DIRECTING THE A.O. TO RECOMPUTE THE DISALLOWANCE TO BE MADE U/S 14A BY APPLYING THE SAI D FORMULA. THE IMPUGNED ORDER OF THE LD. CIT(A) ON THIS ISSUE IS T HEREFORE UPHELD DISMISSING GROUND NO. 1 OF REVENUES APPEAL. 9. AS REGARDS THE ISSUE RAISED IN GROUND NO. 2 OF R EVENUES APPEAL RELATING TO DISALLOWANCE OF RS. 2,43,881/- MADE BY THE A.O. ON ACCOUNT OF PENALTY IMPOSED ON THE ASSESSEE FOR VIOLATION OF THE BYE-LA WS OF THE STOCK EXCHANGE WHICH STANDS DELETED BY THE LD. CIT(A), THE LD. REP RESENTATIVES OF BOTH THE ITA 8794/M/10 & 464/M/11 6 SIDES HAVE AGREED THAT THIS ISSUE IS SQUARELY COVER ED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL RENDERED IN ASSESSE ES OWN CASE FOR A.Y. 2006- 07 (SUPRA) WHEREIN A SIMILAR ISSUE WAS DECIDED IN F AVOUR OF THE ASSESSEE FOR THE FOLLOWING REASONS GIVEN IN PARA 6.1:- 6.1 AFTER HEARING BOTH THE SIDES, WE FIND THE A.O . DISALLOWED AN AMOUNT OF ` 4,34,950/-ON THE GROUND THAT THE SAME HAS BEEN PAI D TO STOCK EXCHANGE AS PENALTY FOR INFRINGEMENT OF LAW. HE ALSO REJECTED THE ALTERNATE CLAIM OF THE ASSESSEE THAT IT BE TREATED AS COMPENSATION TO THE STOCK EXCHANGE ON THE GROUND THAT NO TDS HAS BEEN D EDUCTED BY THE ASSESSEE FOR SERVICES PROVIDED BY THE STOCK EXCHANG E TO THE MEMBERS. WE FIND THE LD. CIT(A) DELETED THE ADDITION BY FOLL OWING THE DECISION OF THE TRIBUNAL IN THE CASE OF KOTAK SECURITIES VS. AD DL. CIT REPORTED IN 25 SOT 440. WE FIND THE VIEW TAKEN BY THE LD. CIT(A) IS IN CONFORMITY WITH THE CONSISTENT VIEW TAKEN BY THE CO-ORDINATE BENCHE S OF THE TRIBUNAL. WE DO NOT FIND ANY FORCE IN THE SUBMISSION OF THE L D. D.R. THAT THE CO- ORDINATE BENCHES OF THE TRIBUNAL HAVE NOT CONSIDERE D THE DECISION RELIED ON BY THE A.O. ACCORDINGLY, THE ABOVE GROUND S RAISED BY THE REVENUE ARE DISMISSED. 10. RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNA L FOR A.Y. 2006-07, WE UPHOLD THE IMPUGNED ORDER OF THE LD. CIT(A) GIVING RELIEF TO THE ASSESSEE ON THIS ISSUE AND DISMISS GROUND NO. 2 OF REVENUES AP PEAL. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS TREATE D AS PARTLY ALLOWED FOR STATISTICAL PURPOSE AND THE APPEAL OF THE REVENUE I S DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH SEPTEMBER, 2013. . '5 2 34- 6'(7 25-09-2013 4 2 SD/- SD/- (DR. S.T.M. PAVALAN) (P.M. JAGTAP ) ) !'# JUDICIAL MEMBER !'# / ACCOUNTANT MEMBER MUMBAI ; 6'( DATED 25-09-2013 $.)(.!./ RK , SR. PS ITA 8794/M/10 & 464/M/11 7 '5 2 0)89 :9- '5 2 0)89 :9- '5 2 0)89 :9- '5 2 0)89 :9-/ COPY OF THE ORDER FORWARDED TO : 1. ./ / THE APPELLANT 2. 01./ / THE RESPONDENT. 3. ; () / THE CIT(A)8, MUMBAI. 4. ; / CIT 4,, MUMBAI 5. 9$> 0))( , , / DR, ITAT, MUMBAI G BENCH 6. %, ? / GUARD FILE. '5(! '5(! '5(! '5(! / BY ORDER, !19 0) //TRUE COPY// @ @ @ @/ // /!A !A !A !A ( DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI