SANKESH METALS P.LTD, MUMBAI V. ACIT CIR 1(3), MUMBAI

ITA 4781/MUM/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 93011 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 11 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 24-06-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 19-07-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIJAY KUMAR BORA
• Assessee Lawyers: JITENDRA SINGH
• Keywords: Earning of tax free income; Proportionate interest
• Section: 14A; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH E, MUMBAI BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER ITA NO.4781/M/2012 ASSESSMENT YEAR: 2008-09 M/S. SANKETH METAL PVT. LTD., 602-A, PRATHMESH TOWER, S.B. MARG, RAGHUWANSHI MILL, LOWER PAREL, MUMBAI 400 013 PAN: AACCS 5143D VS. ACIT, CIRCLE 1(3), 540, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020 (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI K. GOPAL, A.R. & SHRI JITENDRA SINGH, A.R. REVENUE BY : SHRI VIJAY KUMAR BORA, D.R. DATE OF HEARING : 24.06.2015 DATE OF PRONOUNCEMENT : 24.06.2015 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSES SEE AGAINST THE ORDER DATED 09.05.2012 OF THE COMMISSIONER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO ASSESSMENT Y EAR 2008-09. 2. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND CIRCUMSTANCES OF THE APPELLANT 'S CASE AND IN LAW, THE LD. CIT (A) HAS ERRED AND WAS NOT JUSTIFIED IN CONFIRMING THE DISALLOWANCE OF PROPORTIONATE INTEREST TO THE E XTENT OF RS.3,84,430/- U/S. 14A R.W. RULE 8D(2)(II) INCURRED FOR EARNING E XEMPT INCOME. THE SAID DISALLOWANCE WAS CONFIRMED WITHOUT APPRECIATING THE FACTS OF THE CASE I.E. INTEREST WA S INCURRED AND HAS DIRECT NEXUS WITH THE TRADING OF SHARES AND SEC URITIES AND DIVIDEND IS INCIDENTAL TO SUCH BUSINESS ACTIVITIES. THEREFORE QUESTION OF DISALLOWANCE OF PROPORTIONATE INTEREST AS AN INDIRE CT EXPENDITURE ITA NO.4781/M/2012 M/S. SANKETH METAL PVT. LTD. 2 U/S. 14A R. W. RULE 8D(2)(II) DOES NOT ARISE. HENC E DISALLOWANCE IS TO BE DELETED TOTALLY 2. THE APPELLANT CRAVES TO ADD. AMEND, ALTER OR WIT HDRAW ALL OR ANY OF THE GROUNDS OF APPEAL HEREINABOVE AT OR BEFORE THE HEAR ING OF THIS APPEAL. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E HAS FILED ITS RETURN OF INCOME, FOR THE YEAR UNDER CONSIDERATION, DECLARING TOTAL INCOME OF RS.42,68,102/-. THE ASSESSEE IS A TRADER IN SHARES AND SECURITIES. THE AO NOTED THAT THE ASSESSEE DURING THE YEAR HAD NOT PAID ANY INTEREST ON UNSECURED LOANS, BUT IT HAD PAID INTEREST TO THE BROKER FOR TRADING IN SHARES AND SECURITIES. HE THEREFORE WAS OF THE VIEW THAT THE DISALLOWANCE OF INTEREST EXPENDITURE WAS ATTRACTED AS THE SAID SHARES WERE PURCHASED FOR EAR NING OF TAX EXEMPT DIVIDEND INCOME ALSO. THE ASSESSEE, HOWEVER, SUBMITTED THAT SHARES WERE HELD AS STOCK IN TRADE AND NO AMOUNT OF INTEREST WAS PAID TO EARN EXEMPT INCOME, HENCE, NO INTEREST WAS TO BE DISALLOWED UNDER SECTION 14A OF THE INCOME TAX ACT. HOWEVER, THE ASSESSING OFFICER (HEREINAFTER REFERRE D TO AS THE AO) DID NOT ACCEPT THE ASSESSEES SUBMISSION AND HELD THAT THE DISALLOWANCE WAS REQUIRED TO BE COMPUTED UNDER RULE 8D(2) (II)OF THE INCOME T AX RULES AND ACCORDINGLY HE DISALLOWED AN AMOUNT OF RS.3,84330/- ON ACCOUNT INTEREST EXPENDITURE . BEING AGGRIEVED, THE ASSESSEE WENT IN APPEAL BEFORE THE LD. CIT(A) WHO CONFIRMED THE FINDINGS OF THE AO. HENCE, THE PRESE NT APPEAL. 4. BEFORE US, THE LD. A.R. OF THE ASSESSEE HAS STAT ED THAT THE AO HAS DISALLOWED THE INTEREST EXPENDITURE ON THE BORROWED FUNDS TREATING AS PROPORTIONATELY USED FOR THE INVESTMENT PURPOSES, H OWEVER THE BORROWED FUNDS WERE IN FACT USED FOR BUSINESS PURPOSES I.E. TRADIN G IN SHARES. THE DIVIDEND INCOME EARNED ON SHARES PURCHASED FOR TRADING PURPO SES AND HELD AS STOCK IN TRADE WAS INCIDENTAL TO THE BUSINESS ACTIVITY OF TH E ASSESSEE. HE FURTHER SUBMITTED THAT NO DIVIDEND INCOME HAS BEEN EARNED O N THE SHARES HELD AS AN ITA NO.4781/M/2012 M/S. SANKETH METAL PVT. LTD. 3 INVESTMENT. IN ORDER TO SUBSTANTIATE HIS CONTENTIO N THE LD. A.R. OF THE ASSESSEE HAS RELIED UPON THE DECISION OF THE HONBLE KARNATA KA HIGH COURT IN THE CASE OF CCI LTD. VS. JCIT IN ITA NO.359 OF 2011 AND AL SO THAT OF THE JURISDICTIONAL HIGH COURT OF BOMBAY IN THE CASE OF CIT VS. INDIA ADVANTAGE SECURITIES INCOME TAX APPEAL NO.1131 OF 2013 VIDE ORDER DATED 13.04.2015. THE LD. D.R. HAS HOWEVER REITERATED THE FINDINGS O F THE LD. CIT(A) AND HAS FURTHER RELIED UPON THE THIRD MEMBER DECISION OF TH IS TRIBUNAL IN THE CASE OF D.H. SECURITIES PVT. LTD. . 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND HAVE ALS O GONE THROUGH THE RECORDS. THE HONBLE KARNATAKA HIGH COURT IN THE CA SE OF CCI LTD. VS. JCIT IN ITA NO.359 OF 2011 HAS HELD THAT WHEN NO EXPENDI TURE IS INCURRED BY THE ASSESSEE IN EARNING DIVIDEND INCOME, NOTIONAL EXPEN DITURE CANNOT BE DISALLOWED UNDER SECTION 14A. THE ASSESSEE HAD NOT RETAINED SHARES WITH THE INTENTION OF EARNING DIVIDEND. THE DIVIDEND INCOME WAS INCIDENTAL TO THE BUSINESS OF SALE OF SHARES, WHICH REMAINED UNSOLD B Y THE ASSESSEE. IT CANNOT BE SAID THAT THE EXPENDITURE INCURRED IN ACQUIRING THE SHARES HAD TO BE APPORTIONED TO THE EXTENT OF DIVIDEND INCOME AND THAT SHOULD BE A DISALLOWANCE UNDER SECTION 14A. THE ABOVE DECISION HAS BEEN FOLLOWED BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF INDIA ADVANTAGE SE CURITIES IN ITA NO. 6711 VIDE ORDER DATED 14.9.2012. OUR JURISDICTIONAL HIGH COURT OF BOMBAY IN THE CASE OF CIT VS. INDIA ADVANTAGE SECURITIES (SUPRA ) HAS UPHELD THE ABOVE FINDINGS OF THE TRIBUNAL. WE ACCORDINGLY RESTORE TH E MATTER BACK TO THE AO TO EXAMINE AND VERIFY THE CONTENTIONS OF THE ASSESSEE THAT THE INTEREST EXPENDITURE WAS INCURRED ON SHARES HELD IN STOCK AND NOT ON THE INVESTMENT ACTIVITY OF THE ASSESSEE AND THAT NO DIVIDEND INCOME WAS EARNED ON THE SHARES HELD AS INVESTMENTS AND TO DECIDE THE ISSUE A FRESH IN ACCO RDANCE WITH LAW IN THE LIGHT ITA NO.4781/M/2012 M/S. SANKETH METAL PVT. LTD. 4 OF ABOVE DECISION OF THE JURISDICTIONAL HIGH COURT AND ALSO CONSIDERING THE OTHER CASE LAWS AS MAY BE AVAILABLE TO HIM. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS HER EBY TREATED AS ALLOWED FOR STATISTICAL PURPOSES. THE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 24.06 .2015. SD/- SD/- (R.C. SHARMA) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 07.10.2015. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.