DCIT 9(3)(1), MUMBAI V. FAMILY INVESTMENT P.LTD, MUMBAI

ITA 4750/MUM/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8957 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2013-2014
• Appeal Filed On: 14-07-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: POOJA SWAROOP
• Assessee Lawyers: ANJUJ SISNADWALA
• Keywords: Business income; Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI BEFORE SHRI B.R. BASKARAN (AM) & SHRI RAVISH SOOD (JM) I.T.A. NO. 4750 /MUM/20 1 6 (ASSESSMENT YEAR 20 13 - 14 ) DCIT 9(3)(1) ROOM NO. 215 2 ND FLOOR AAYAKAR BHAVAN M.K. ROAD MUMBAI - 400 020. VS. M/S. FAMILY INVESTMENT PVT. LIMITED F.P. 145, RAM MANDIR ROAD, VILE PARLE EAST MUMBAI - 400 057. PAN : AAACF0520D ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY SHRI ANJUJ SISNADWALA DEPARTMENT BY MS. POOJA SWAROOP DATE OF HEARING 30 . 10 . 201 7 DATE OF PRON OUNCEMENT 30 . 10 . 201 7 O R D E R PER B.R. BASKARAN (AM) : - THE APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 29.4.2016 PASSED BY THE LEARNED CIT(A) - 16, MUMBAI AND IT RELATES TO A.Y. 2013 - 14. THE REVENUE AGGRIEVED BY THE DECISION OF THE LEARNED CIT(A) IN HOLDING THAT EXPENSES OF ` 2.21 CRORES INCURRED BY THE ASSESSEE TOWARDS PORTFOLIO MANAGEMENT SCHEME NEED NOT BE CONSIDERED FOR COMPUTING DISALLOWANCE U/S. 14A OF THE ACT. 2. WE HAVE HEARD THE P ARTIES AND PERUSED THE RECORD. T HE ASS ESSEE IS ENGAGED IN THE BUSINESS OF SHARES AND SECURITIES UNDER PORTFOLIO MANAGEMENT SERVICES SCHEME (PMS) . PROFIT EARNED FROM SHARE TRADING OPERATION WAS OFFERED BY THE ASSESSEE UNDER THE HEAD INCOME FROM BUSINESS. DURING THE YEAR UNDER CONSIDERATION TH E ASSESSEE EARNED DIVIDEND INCOME OF ` 28.38 LAKHS AND DISALLOWED A SUM OF ` 60,877/ - U/S. 14A OF THE ACT. THE ASSESSING OFFICER NOTICED THAT THE DISALLOWANCE MADE BY THE ASSESSEE RELATE D TO ADMINISTRATIVE EXPENSES ONLY. IT DID NOT CONSIDER PROFESSIONAL CH ARGES OF ` 1.63 LAKHS, LO S S FROM THE FIRM OF ` 2.93 LAKHS AND PMS RELATED TO EXPENDITURE OF ` 220.70 LAKHS. THE ASSESSING OFFICER TOOK THE VIEW THAT THE SHARES HELD AS STOCK IN M/S. FAMILY INVESTMENT PVT. LIMITED 2 TRADE SHO ULD ALSO BE CONSIDERED FOR WORKING OUT THE PROVISIONS OF SECTION 14A O F THE ACT , AS HELD BY HON'BLE KOLKATA HIGH COURT IN THE CASE OF DHANUKA & SONS VS. CIT (339 ITR 119). ACCORDINGLY, HE REJECTED WORKING OF THE ASSESSEE AND COMPUTED DISALLOWANCE U/R. 8D OF THE I.T. RULES AT ` 90.86 LAKHS. 3. THE LEARNED CIT(A) NOTICED THAT IDENTICAL ISSUE WAS CONSIDERED BY HIS PREDECESSOR IN A.Y. 2011 - 12, WHEREIN IT WAS HELD THAT PMS EXPENSES HAVE BEEN INCURRED IN RELATION TO BUSINESS OF DEALING IN SHARES THROUGH PMS AND THE SAME CANNOT BE TREATED AS EXPENDITURE INCURRED FOR EARNING DIVIDEN D INCOME, WHICH IS INCIDENTAL TO TRADING ACTIVITY. ACCORDINGLY , THE LEARNED CIT(A) HELD THAT EXPENDITURE RELATING TO PMS SHOULD NOT BE CONSIDERED FOR MAKING DISALLOWANCE U/S. 14A OF THE ACT. HOWEVER , THE LEARNED CIT(A) INCLUDED PROFESSIONAL FEES OF ` 1.63 LAKHS FOR COMPUTING DISALLOWANCE U/S. 14A OF THE ACT AND ACCORDINGLY COMPUTED DISALLOWANCE AT ` 2,24,866 ( ` 60,877 + ` 1,63,989). THE REVENUE IS AGGRIEVED BY THE DECISION OF THE LEARNED CIT(A) IN HOLDING THAT EXPENDITURE RELATING TO PMS IS NOT REQUIRED TO BE CONSIDERED FOR COMPUTING DISALLOWANCE U/S. 14A OF THE ACT. 4. WE NOTICED THAT THE DECISION RENDERED BY THE LEARNED CIT(A) IN A.Y. 2011 - 12 WAS CHALLENGED BEFORE THE TRIBUNAL. THE COORDINATE BENCH OF THE TRIBUNAL VIDE ITS ORDER DATED 25.1.2017 PASSED IN ITA NO. 2651/MUM/2015 HAS UPHELD THE DECISION RENDERED BY THE LEARNED CIT(A) IN THAT YEAR. SINCE, THE FACTS ARE IDENTICAL IN NATURE, WE EXTRACT BELOW THE OPERATIVE PORTION OF THE ORDER PASSED BY THE COORDINATE BENCH IN A.Y. 2011 - 12 : 6 . WE HAVE CON SIDERED THE SUBMISSIONS OF THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. AS COULD BE SEEN, THE ASSESSING OFFICER HAS DISALLOWED A PART OF PMS EXPENDITURE UNDER SECTION 14A R/W RULE SD ON THE REASONING THAT IT IS ATTRIBUTABLE TO EARNING OF EXEMP T INCOME BY WAY OF DIVIDEND. HOWEVER, THE LEARNED COMMISSIONER (APPEALS) HAS RECORDED A FINDING OF FACT THAT THE SHARES AND SECURITIES UNDER PNIS AMOUNTING TO Z 23,97,60,480 HAS BEEN HELD AS STOCK - IN TRADE BY THE ASSESSEE. FURTHER, HE HAS ALSO RECORDED A F INDING OF FACT THAT THE INCOME ON SALE OF SECURITIES UNDER THE PMS HAS BEEN OFFERED AS INCOME UNDER THE HEAD 'BUSINESS', THOUGH, THE DIVIDEND INCOME FROM SHARE M/S. FAMILY INVESTMENT PVT. LIMITED 3 UNDER PMS AMOUNTING TO Z 20,55,636, HAS BEEN CLAIMED AS EXEMPT INCOME. THE AFORESAID FINDING OF FACT RECORDED BY THE LEARNED COMMISSIONER (APPEALS) HAS NOT BEEN CONTROVERTED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE. THAT BEING THE CASE, AS THE SHARES AND SECURITIES UNDER PMS HAVE BEEN HELD AS STOCK - IN - TRADE BY THE ASSESSEE AND THE INCOME EARNED FRO M SALE OF SHARES AND SECURITIES AS BUSINESS INCOME, NO DISALLOWANCE UNDER SECTION 14A R/W RULE 8D CAN BE MADE IN VIEW OF THE PRINCIPLE LAID DOWN BY THE HON'BLE JURISDICTIONAL HIGH COURT IN CIT VS. INDIA ADVANTAGE SECURITIES LTD., ITA NO. 1131 OF 2013, ORD ER DATED 13 TH APRIL 2015. IN VIEW OF THE AFORESAID, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LEARNED COMMISSIONER (APPEAL) IN DELETING THE ADDITION OF ` 50,09,940. THUS, GROUND NO. 1,2 AND 3 ARE DISMISSED. 5. WE NOTICE THAT THE COORDINATE BENCH HA S HELD THAT THE LEARNED CIT(A) HAS GIVEN A FINDING THAT THE SHARES AND SECURITIES UNDER PMS HAVE BEEN HELD AS STOCK IN TRADE AND HENCE EXPENSES INCURRED UNDER PMS ARE RELATED TO SHARE TRADING ACTIVITIES AND ACCORDINGLY THE C O - ORDINATE BENCH, BY FOLLOWING T HE PRINCIPLES LAID DOWN BY HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. INDIA ADVANTAGE SECURITIES LTD. (SUPRA) DID NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY THE LEARNED CIT(A). SINCE SPECIFIC FINDING HAS BEEN GIVEN THAT PMS EXPENSES ARE D IRECTLY RELATED TO THE BUSINESS ACTIVITIES, CONSISTENT WITH THE VIEW TAKEN IN EARLIER YEARS BY THE COORDINATE BENCH, WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY THE LEARNED CIT(A) IN HOLDING THAT THE SAID EXPENSES NEED NOT BE CONSIDERED FOR THE PUR POSE OF MAKING DISALLOWANCE U/S 14A OF THE ACT . SINCE THE ASSESSEE HAS DISALLOWED ENTIRE OTHER EXPENSES, THERE WAS NO NECESSITY TO RESORT TO THE PROVISIONS OF RULE 8D OF THE I T RULES AND HENCE THE RELIANCE PLACED BY THE AO ON THE DECISION RENDERED BY HON BLE KOLKATTA HIGH COURT IN THE CASE OF DHANUKA & SONS (SUPRA) DOES NOT HAVE APPLICATION TO THE FACTS OF THE PRESENT CASE. IN VIEW OF THE FOREGOING DISCUSSIONS, WE UPHOLD THE ORDER PASSED BY LD CIT(A). M/S. FAMILY INVESTMENT PVT. LIMITED 4 6. IN THE RESULT, APPEAL FILED BY THE REVENU E IS DISMISSED. ORDER HAS BE EN PRONOUNCED IN THE COURT ON 30 . 10 .201 7. SD/ - SD/ - (RAVISH SOOD ) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 30 / 10 / 20 1 7 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. BY ORDER, //TRUE COPY// ( DY./ASSTT. REGISTRAR) PS ITAT, MUMBAI