CHURU TRADING CO. P.LTD, MUMBAI V. ACIT CIR 6(2), MUMBAI

ITA 4779/MUM/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88452 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-02-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 18-12-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 19-07-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PREMANAND J
• Assessee Lawyers: B S SHARMA
• Keywords: Speculation loss; Notional interest
• Section: 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C MUMBAI . . , BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER ITA NO.4779/MUM/2012 (A.Y.2005-06) M/S. CHURU TRADING CO. PVT. LTD. CONTINENT BUILDING 135, DR. A.B. ROAD, WORLI MUMBAI- 400 020. GIR NO./PAN : AAACC 4853 G (APPELLANT ) VS. THE ADDL. CIT , CIRCLE 6(2) , AAYAKAR BHAVAN, MUMBAI-20. (RESPONDENT) ITA NO.4778/MUM/2012 (A.Y.2007-08) M/S. CHURU TRADING CO. PVT. LTD. MUMBAI- 400 020. GIR NO./PAN : AAACC 4853 G (APPELLANT ) VS. THE ADDL. CIT , CIRCLE 6(2) , AAYAKAR BHAVAN, MUMBAI-20. (RESPONDENT) ITA NO.5126/MUM/2012 (A.Y.2007-08) T HE ADDL. CIT , CIRCLE 6(2) , MUMBAI- 400 020. (APPELLANT ) VS. M/S. CHURU TRADING CO. PVT. LTD. MUMBAI- 400 020. GIR NO./PAN : AAACC 4853 G (RESPONDENT) ASSESSEE BY : SHRI B.S. SHARMA AR AND SHRI DALPAT SHAH - AR DEPARTMENT BY : SHRI PREMANAND J. - DR DATE OF HEARING : 24 /02/2015 DATE OF PRONOUNCEMENT : 24 /02/2015 ORDER 2 ITA NO.4778, 4779 & 5126/MUM/12 PER BENCH: ITA NO.4779/MUM/2012 IS ASSESSEES APPEAL AND OTHE R TWO APPEALS IN ITA NO.4778/MUM/2012 AND ITANO.5126/MUM/2012 ARE CROSS APPEALS DIRECTED AGAINST ORDER OF CIT(A) FOR THE ASSESSMENT YEAR 2005-06 AND 2007-08 RESPECTIVELY. SINCE GROUNDS IN THESE APPEAL S ARE COMMON IN NATURE, HENCE, THESE APPEALS ARE CLUBBED TOGETHER, HEARD TOGETHER AND DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE CONVE NIENCE. 2. FIRST, WE TAKE UP ASSESSEES APPEAL IN ITA NO.4779/MUM/12 (ASSESSMENT YEAR :2005-06) 2.1 THE FIRST GROUND IN ITA NO. 4779/MUM/12 IS AS FOLLOWS :- THE LD. CIT(A)-XII, MUMBAI HAS ERRED ON FACTS, IN LAW AND IN THE CIRCUMSTANCES OF THE CASE IN PARTLY DISALLOWING THE INTEREST EXPENSES U/S. 36(1)(III) OF THE INCOME TAX ACT, 1961 TO BE CALCUL ATED ON THE BASIS AND AS PER THE METHOD SPECIFIED IN THE APPELLATE ORDERS DATED 30/3/2007 FOR ASSESSMENT YEAR 2003-04 AND BY THE ORDER DATED 28/12/2007 FOR THE ASSESSMENT YEAR 2004-05 PASSED BY THE LD. CIT(A)-VI INSTEAD OF ALLO WING THE INTEREST AS CLAIMED BY THE APPELLATE. 2.2 AFTER HEARING BOTH THE PARTIES, WE ARE OF THE OPINION THAT SIMILAR ISSUE WAS CONSIDERED BY THIS TRIBUNAL IN ASSESSEES OWN C ASE IN ITA NO.933/MUM/2006, 1912/MUM/2008, 1494/MUM/2005 AND 4682/MUM/2007 DATED 24/12/2012 WHEREIN IT WAS HELD AS FOLLOWS:- 8.1 CONSIDERING THE ARGUMENTS OF THE LEARNED COUNSE L AND THE LEARNED DEPARTMENTAL REPRESENTATIVE, WE ARE OF THE OPINION THAT THE ISSUE IS TO BE RE- EXAMINED BY THE ASSESSING OFFICER IN THE LIGHT OF T HE DECISIONS TAKEN IN AY 2001-02 ABOVE. UNLESS THERE IS A FINDING THAT ASSES SEE'S INVESTMENT IS NOT BUSINESS ACTIVITY AND THE FUNDS ARE NOT UTILIZED FO R THE PURPOSE OF BUSINESS, DISALLOWANCE UNDER SECTION 36(1)(III) DOE S NOT ARISE. THERE IS NO DISALLOWANCE UNDER SECTION 14A IN THIS YEAR AS T HE DIVIDEND INCOME WAS TAXABLE. THEREFORE, THE INTEREST DISALLOWANCE H AS TO BE CONSIDERED 3 ITA NO.4778, 4779 & 5126/MUM/12 UNDER SECTION 36(1)(III). IF THERE IS INCOME OR LOS S UNDER THE HEAD 'CAPITAL GAINS', THE INTEREST DISALLOWANCE UNDER SECTION 36( 1)(III) PERTAINING TO THE INVESTMENT ACTIVITY IS ALSO TO BE CONSIDERED AS DED UCTION, WHILE WORKING OUT THE CAPITAL GAIN. ACCORDINGLY, THE ASSESSING OFFICER IS DIRECTED TO EXAMINE THE NEXUS WITH BORROWED FUNDS ON WHICH INTE RESTS WAS CLAIMED TO THE UTILIZATION OF FUNDS EITHER IN INVES TMENT ACTIVITY OR IN BUSINESS ACTIVITY AND DISALLOW AMOUNT ACCORDINGLY U NDER SECTION 36(1)(III) AND CONSIDER WHETHER IT IS ALLOWABLE WHI LE WORKING OUR CAPITAL GAIN ETC. IN THE CASE OF ADVANCES MR.RISHIKUMAR CHAKRAPANI AND ALSO TO MPCC, CONSISTENT WITH THE STAND TAKEN I N THE EARLIER YEARS, THE INTEREST DISALLOWANCE ON THE ABOVE AMOUNT HAS T O BE DISALLOWED AS THERE ARE ALREADY FINDINGS THAT THE AMOUNTS ARE ADV ANCED FOR NON BUSINESS PURPOSES. TO THAT EXTENT, THE DISALLOWANCE OF INTE REST STANDS CONFIRMED. WITH THESE DIRECTIONS THE ISSUE IN THIS GROUND IS RESTOR ED TO THE FILE OF THE ASSESSING OFFICER FOR FRESH CONSIDERATION AFTER EX AMINING THE FACTS AND TO DECIDE ACCORDING TO LAW . ASSESSEE SHOULD BE GIVEN AN OPPORTUNITY TO MAKE SUBMISSIONS AND FURNISHING THE NECESSARY DETAI LS IN THIS REGARD. WITH THESE DIRECTIONS THE APPEAL IS CONSIDERED AS P ARTLY ALLOWED FOR STATISTICAL PURPOSES. 2.3 FURTHER, IT IS ALSO BROUGHT ON RECORD BY THE LD . AR THAT SIMILAR ISSUE WAS CONSIDERED BY THIS TRIBUNAL FOR THE ASSESSMENT YEAR 2006-07 IN ITA 5372/MUM/2011 VIDE ORDER DATED 20/11/2012, IN WHIC H IT WAS HELD AS FOLLOWS:- 5. ON GOING THROUGH THE GROUNDS OF APPEAL AND THE ORDER OF THE COORDINATE BENCH, THE IMPUGNED ISSUE HAS BEEN RESTORED TO THE FILE OF THE AO. IN THESE CIRCUMSTANCES, WE ALSO FEEL, THAT IN THE INTEREST O F JUSTICE AND FOR GETTING THE CONSISTENCY, THE ISSUE MUST BE RESTORED TO THE FILE OF THE AO IN THE CURRENT YEAR AS WELL, AS DIRECTED BY THE CIT(A).THIS OBSERV ATION OF THE CIT(A), WE ENDORSE. 2.4 RESPECTFULLY FOLLOWING THE ABOVE ORDER OF THE T RIBUNAL WE ARE INCLINED TO RESTORE THE ABOVE GROUNDS RAISED BY THE ASSESSEE IN BOTH THE APPEALS TO THE FILE OF THE AO ON SIMILAR DIRECTION. ACCORDINGL Y, THIS GROUND IN BOTH THE APPEALS IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 4 ITA NO.4778, 4779 & 5126/MUM/12 3. THE SECOND GROUND IN ASSESSEES APPEAL IN ITA NO .4779/MUM/12 IS AS FOLLOWS :- THE LD. CIT(A)-XII, MUMBAI ERRED ON IN LAW, ON FAC TS, IN THE CIRCUMSTANCES OF THE CASE IN CONFIRMING DISALLOWANCE MADE U/S. 14A OF THE ACT, BY THE LD. ACIT(A)-6(2) BUT RESTRICTING THE AMOUNT OF DISALLOW ANCE TO 10% OF THE DIVIDEND INCOME EARNED INSTEAD OF DELETING THE SAME OR OUGHT TO HAVE RESTRICTED DISALLOWANCE TO 1% OF THE DIVIDEND INCOM E U/S. 14A OF THE ACT. 3.1 WE FIND THAT THE TRIBUNAL HAS CONSIDERED SIMILA R ISSUE IN ITA NO.5372/11 FOR THE ASSESSMENT YEAR 2006-07 VIDE ORD ER DATED 20/11/2012 WHEREIN IT WAS HELD AS FOLLOWS:- 14. ON GOING THROUGH THE ORDER OF THE COORDINATE B ENCH, WE FEEL THAT THE COORDINATE BENCH HAS TAKEN A VERY REASONABLE APPROA CH TO WORK OUT THE DISALLOWANCE ON A REASONABLE BASIS IN THE CURRENT Y EAR, WHERE THE DEPARTMENT HAD GONE IN APPEAL AGAINST THE DISALLOWANCE RESTRIC TED TO 10%. WE, FULLY ENDORSE THE VIEW TAKEN BY THE COORDINATE BENCH, AND WE ALSO DIRECT THE AO TO WORKOUT DISALLOWANCE ON REASONABLE BASIS. 3.2 IN VIEW OF THE ABOVE ORDER OF THE TRIBUNAL DIS ALLOWANCE RESTRICTED TO 10% OF THE DIVIDEND INCOME EARNED FOR THE CURRENT Y EAR IS VERY REASONABLE AND SAME IS CONFIRMED. THIS GROUND IS REJECTED. 4. THE THIRD GROUND IN ITA NO.4779/MUM/2012 IS AS FOLLOWS :- THE LD. CIT(A), HAS ERRED ON FACTS, IN LAW AND IN THE CIRCUMSTANCES OF THE CASE IN TREATING THE LOSS OF RS.3,32,042/- ON ONLY SALE OF EQUITY SHARES, THOUGH THERE WAS NO PURCHASE DURING THE YEAR AND NOTIONAL INTEREST OF RS.3,91,45,295/- ON FUNDS USED FOR TRADING OPERATIO NS IN EQUITY SHARES, AS SPECULATION LOSS INSTEAD OF BUSINESS LOSS UNDER EXPLANATION TO SECTION 73 OF THE ACT. 4.1 AFTER HEARING BOTH PARTIES WE ARE OF THE OPINIO N THAT THIS ISSUE IS FAIRLY COVERED BY THE ORDER OF THE TRIBUNAL IN ITA NO.5372/MUM/22 VIDE ORDER DATED 20/11/2012 IN ASSESSEES OWN CASE WHERE IN IN THE EARLIER ORDER 5 ITA NO.4778, 4779 & 5126/MUM/12 OF THE TRIBUNAL IN ITA NO.3724/MUM/2005 FOR ASSESSM ENT YEAR 2001-02 WAS FOLLOWED, WHEREIN IT WAS OBSERVED AS FOLLOWS:- ON IDENTICAL GROUND, THE NOTIONAL INTEREST ALLOCTE D TO STOCK-IN-TRADE OF SHARES HAS BEEN CONFIRMED AS SPECULATION LOSS BY THE HONB LE ITAT D BENCH, MUMBAI IN THE CASE OF SISTER CONCERN, M/S. GANJAM T RADING CO. PVT. LTD. VS. DCIT (ITA NO.3724/MUM/2005)A/Y 2001-02, (ITA NO.93 2/MUM/2006) A/Y 2002-03 AND (ITA NO.1382/MUM/2007) A/Y 2003-04 VIDE ORDER DATED 20/07/2012 (AT PARA 3) AT PAGES 22 TO 26. IN PARA3, 4 ON PAGE 25, IT IS HELD AS UNDER IN THE APPELLATE ORDER: WE SEE NO INFIRMITY IN THE CONCLUSION DRAWN BY THE AUTHORITIES BELOW THAT PROVISIONS OF EXPLANATION TO SECTION 73, ARE APPLICA BLE IN THE CASE OF THE ASSESSEE AND THE LOSS FROM TRADING IN SHARES HAS TO BE TREATED AS SPECULATION LOSS. THE AUTHORITIES ARE ALSO JUSTIFIED IN ALLOCAT ING INTEREST EXPENSES TOWARDS THE LOSS ARISING FROM TRADING OF SHARES AS WHILE CO MPUTING PROFIT OR LOSS FROM TRADING OF SHARES ALL EXPENSES HAVE TO BE CONSIDERE D. WE THEREFORE, CONFIRM THE ORDER OF THE LD. CIT(A) I N TREATING THE INTEREST LOSS. 4.2 IN VIEW OF THE ABOVE ORDER OF THE TRIBUNAL WE A RE INCLINED TO CONFIRM THE ORDER OF THE CIT(A) ON THIS ISSUE. THIS GROUND OF THE ASSESSEE IS REJECTED IN BOTH THE APPEALS. 5. FURTHER THE LD. AR HAS NOT PRESSED THE FOLLOWING GROUNDS IN THESE APPEALS ON ACCOUNT ON SMALLNESS OF THE AMOUNT OF AD DITION. D. THE LD. CIT(A) ERRED IN LAW, ON FACTS AND IN T HE CIRCUMSTANCES OF THE CASE IN CONFIRMING DISALLOWANCE BY THE LD. AO, OF INTERE ST U/S. 201(1A) OF THE ACT OF RS.3,17,026/- AS COMPENSATION AND NOT PENALTY FOR D ELAYED PAYMENT OF TAX DEDUCTED AT SOURCE. E. THE LD. CIT(A) ERRED IN LAW, ON FACTS AND IN T HE CIRCUMSTANCES OF THE CASE IN CONFIRMING DISALLOWANCE BY THE LD. AO, OF INTERE ST PAID U/S. 36(1)(III) OF THE ACT OF RS.36,23,471/- BY CONSIDERING INTEREST AS FO R PRIOR PERIOD EXPENSES, EVEN THOUGH THE LIABILITY CRYSTALLIZED DURING THE Y EAR. 5.1 THUS ABOVE GROUNDS ARE DISMISSED AS NOT PRESSE D. 6 ITA NO.4778, 4779 & 5126/MUM/12 6. IN THE RESULT, APPEAL OF THE ASSESSEE IN ITA NO .4779/MUM/12 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 7. NOW WE TAKE UP ASSESSEES APPEAL IN ITA NO.4778/MUM/2012(ASSESSMENT YEAR :2007-08): 7.1 GROUND NO.1 IS AS FOLLOWS:- 1.THE LD. CIT(A), HAS ERRED ON FACTS, IN LAW AND I N THE CIRCUMSTANCES OF THE CASE IN COMING TO THE CONCLUSION THAT THE APPELLANT IS NOT COVERED BY THE EXCEPTIONS TO EXPLANATION TO SECTION 73 OF THE INCOM E TAX ACT, 1961 AND IN TREATING RS.3,91,46,184/- TO BE INTEREST ON FUNDS D EPLOYED IN STOCK-IN-TRADE OF EQUITY SHARES AND ALLOWING THE SAME TO BE CARRIED F ORWARD AS SPECULATION LOSS INSTEAD OF BUSINESS LOSS UNDER SECTION 36(1 )(III) OF THE ACT. 7.2 AFTER HEARING BOTH PARTIES WE ARE OF THE OPINIO N THAT AS DISCUSSED IN EARLIER PARA IN ASSESSMENT YEAR 2005-06 WITH REFERE NCE TO GROUND NO.3 THEREIN THIS GROUND IS REJECTED. 7.3 THE SECOND GROUND IN ITA NO.4778/MUM/2012 IS AS FOLLOWS :- 2. THE LD. CIT(A) HAS ERRED IN LAW, ON FACTS AND I N THE CIRCUMSTANCES OF THE CASE IN PARTLY DISALLOWING THE INTEREST EXPENSES U/S . 36(1)(III) OF THE ACT, TO BE CALCULATED ON THE BASIS AND AS PER THE METHOD S PECIFIED IN THE APPELLATE ORDERS DATED 30/3/2007 FOR ASSESSMENT YEAR 2003-04 AND BY THE ORDER DATED 28/12/2007 FOR THE ASSESSMENT YEAR 2004-05 PASSED B Y THE LD. CIT(A)-VI INSTEAD OF ALLOWING THE INTEREST AS CLAIMED BY THE APPELLATE. 7.4 AS DISCUSSED IN GROUND NO.1 IN ITA NO.4779/MUM/ 2012 THIS GROUND IS RESTORED TO THE FILE OF AO ON SIMILAR DIRECTIONS . 7.5 THE THIRD GROUND IN ITA NO.4778/M/12 IS AS FOLL OWS :- 3. THE LD. CIT(A) ERRED ON IN LAW, ON FACTS, IN TH E CIRCUMSTANCES OF THE CASE IN CONFIRMING DISALLOWANCE MADE U/S. 14A OF THE A CT, BY THE LD. ACIT(A)-6(2) BUT RESTRICTING THE AMOUNT OF DISALLOWANCE TO 10% O F THE DIVIDEND INCOME 7 ITA NO.4778, 4779 & 5126/MUM/12 EARNED INSTEAD OF DELETING THE SAME OR OUGHT TO HAV E RESTRICTED DISALLOWANCE TO 1% OF THE DIVIDEND INCOME U/S. 14A OF THE ACT. 7.6 AS DISCUSSED IN ITA NO.4779/MUM/2012 WITH REFER ENCE TO GROUND NO.2 THEREIN THIS GROUND IS REJECTED. 7.7 FURTHER THE LD. AR HAS NOT PRESSED THE FOLLOWIN G GROUNDS IN THESE APPEALS ON ACCOUNT ON SMALLNESS OF THE AMOUNT OF AD DITION. 4. THE LD. CIT(A) ERRED IN LAW, ON FACTS AND IN TH E CIRCUMSTANCES OF THE CASE IS NOT CONSIDERING THE DISALLOWANCE MADE BY THE APP ELLANT IN COMPUTATION OF INCOME U/S. 40(A)(IA) OF THE ACT THEREBY DISALLOWIN G INTEREST MORE BY THAT AMOUNT THAN ACTUAL AMOUNT DEBITED TO P&L ACCOUNT. 7.8 THE ABOVE GROUND IS DISMISSED AS NOT PRESSED. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IN ITA NO.4779MUM/12 & 4778/MUM/12 ARE PARTLY ALLOWED FOR STATISTICAL PURP OSES . 9. NOW COMING TO THE REVENUE APPEAL IN ITA NO.5126/MUM/2012, THE REVENUE HAS RAISED THE FOLLOWING GROUNDS :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED I HOLDING THAT FOR COMPUTATION OF THE AMOUNT OF DISALLOWANCE TO BE MADE U/S. 14A, THE PRESCRIBED COMPUTATION UNDER RULE 8D WAS NOT APPLICABLE FOR THE ASSESSMENT YEAR 207-08. 9.1 IN VIEW OF THE FINDINGS IN ASSESSEES APPEAL IN ITA NO.4778/MUM/2012 WITH RESPECT TO GROUND NO.2 THERE IN THIS GROUND OF THE REVENUE HAS BECOME INFRUCTUOUS, ACCORDINGLY DI SMISSED AS INFRUCTUOUS. 10. IN THE RESULT, APPEAL OF THE REVENUE IN ITA NO.5126/MUM/2012 IS DISMISSED . 8 ITA NO.4778, 4779 & 5126/MUM/12 ORDER PRONOUNCED IN THE OPEN COURT ON 24/02/2015 !' # $%& 24/02/2015 ! ' SD/- SD/- ( . . / I.P. BANSAL) ( / CHANDRA POOJARI ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; $% DATED 24/02/2015 . % . ./JV, SR. PS. ()* ()* ()* ()* +*') +*') +*') +*') / COPY OF THE ORDER FORWARDED TO : 1. ,- / THE APPELLANT 2. (.,- / THE RESPONDENT. 3. / ( ) / THE CIT(A)- 4. / / CIT 5. *0' ()% , , / DR, ITAT, MUMBAI 6. '1 2 / GUARD FILE. % % % % / BY ORDER, .*) () //TRUE COPY// 3 33 3 / 4 4 4 4 5 5 5 5 (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI