ASSOCIATE HOLDINGS PRIVATE LIMITED, MUMBAI V. DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 8(2), MUMBAI

ITA 4867/MUM/2018

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 0859 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2015-2016
• Appeal Filed On: 16-08-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S MICHAEL JERALDLD
• Assessee Lawyers: NEHA PARANJPE LD
• Keywords: Business income; Earning of tax free income; Rule 8D
• Section: 14A

Judgement Text

1 ITA NO.4867/MUM/2018 M/S. ASSOCIATE HOLDINGS PRIVATE LIMITED ASSESSMENT YEAR-2015-16 IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI , , BEFORE HONBLE SHRI VIKAS AWASTHY, JM AND HONBLE SHRI MANOJ KUMAR AGGARWAL, AM ./ I.T.A. NO.4867/MUM/2018 ( / ASSESSMENT YEAR: 2015-16) M/S. ASSOCIATE HOLDINGS P.LTD. 85-A, ASSOCIATE HOUSE SANT SAVTA MARG, MUSTAFA BAZAR MUMBAI-400 010. / VS. D CIT - CENTRAL CIRCLE - 8(2) EARNEST HOUSE, NARIMAN POINT MUMBAI. ./ ./PAN/GIR NO. AAACA-5289-N ( /APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : MS. NEHA PARANJPE- LD.AR / RESPONDENT BY : SHRI S. MICHAEL JERALD - LD. DR / DATE OF HEARING : 19/12/2019 / DATE OF PRONOUNCEMENT : 19/12/2019 / O R D E R MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER): - 1. AFORESAID APPEAL BY ASSESSEE FOR ASSESSMENT YEAR [IN SHORT REFERRED TO AS AY] 2015-16 CONTEST THE ORDER OF LD. COMMIS SIONER OF INCOME-TAX (APPEALS)-50, MUMBAI [IN SHORT REFERRED TO AS CIT( A)], APPEAL NO.CIT(A)- 2 ITA NO.4867/MUM/2018 M/S. ASSOCIATE HOLDINGS PRIVATE LIMITED ASSESSMENT YEAR-2015-16 50/IT-10125/2017-18 ORDER DATED 08/06/2018, ON FOLLOWING GROUNDS OF APPEAL: - BEING AGGRIEVED BY THE ORDER OF THE COMMISSIONER OF INCOME TAX, (APPEALS)-50 MUMBAI UPHOLDING THE ADDITION OF RS.3,36,58,084/- U NDER SECTION 14A OF THE ACT, THE APPELLANT PREFERS THIS APPEAL ON THE FOLLOWING AMON GST OTHER GROUNDS OF APPEAL. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE, AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-50, MUMBAI, ERRED IN UPHOLDING THE ADDITION OF RS.3,36,58,084/- UNDER THE PROVISIONS OF SECTION 14A OF THE INCOME T AX ACT, 1961 BY WRONGLY APPLYING THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF MAXOPP INVESTMENT LTD, WITHOUT CONSIDERING THAT ALTHOUGH, I) THE SUPREME COURT HELD THAT EVEN THOUGH THE ASSE SSEE MAY HAVE ACQUIRED SHARES IN ORDER TO GAIN CONTROL OVER THE I NVESTEE COMPANY, THE PORTION OF THE EXPENDITURE THAT IS ATTRIBUTABLE TO THE DIVIDEND INCOME EARNED OUT OF SUCH INVESTMENT SHOULD BE DISALLOWED UNDER SECTION 14A, WHEREAS IN THE CASE OF THE APPELLANT, IT HAS NOT EA RNED DIVIDEND ON SUCH SHARES WHICH HAVE BEEN ACQUIRED TO GAIN CONTROL OF THE 2 COMPANIES IN WHICH INVESTMENTS HAVE BEEN MADE. II) THE SUPREME COURT AGREED ON THE VIEW TAKEN BY P &H HC IN STATE BANK OF PATIALA CASE TO THE EXTENT IT RELIED ON THE CBDT CIRCULAR, DATED 02.11.2015 (THE 'CIRCULAR') AND STATED THAT IF THE MOTIVE BEHIND PURCHASE AND SALE OF SHARES IS TO EARN PROFIT, THEN THE INCOME EARNED WOULD BE TREATED AS TRADING PROFIT, HOWEVER, IF THE OBJECT IS TO EARN DIVIDEND INCOME, THEN THE TAXPAYER WOULD BE CONSIDERED TO HA VE MADE AN INVESTMENT INTO THE INVESTEE COMPANY WHEREAS IN THE APPELLANT'S CASE INVESTMENTS ARE ALSO MADE FOR TRADING PURPOSES; III) THE SUPREME COURT RULED THAT WHERE SHARES ARE HELD AS STOCK-IN-TRADE, IT BECOMES A BUSINESS ACTIVITY OF THE TAXPAYER AND REC EIPT OF ANY DIVIDEND INCOME IS IMMATERIAL. HENCE, ANY EXPENDITURE INCURR ED WITH RESPECT TO EARNING SUCH BUSINESS INCOME SHALL BE ALLOWED FOR D EDUCTION, AS IN THE APPELLANT'S CASE, THE SHARES ON WHICH DIVIDEND OF R S.1500/- IS RECEIVED ARE HELD AS STOCK IN TRADE. 2. HENCE, THE ADDITION OF RS.3,36,58,084/-UNDER THE PROVISIONS OF SECTION 14A OF THE ACT, BE DELETED. AS EVIDENT FROM GROUNDS OF APPEAL, THE SOLE ISSUE I NVOLVED IN THE APPEAL IS DISALLOWANCE U/S14A. 2. THE LD. AUTHORIZED REPRESENTATIVE FOR ASSESSEE ( AR), AT THE OUTSET, RELYING UPON THE ORDER OF THIS TRIBUNAL IN ASSESSEE S OWN CASE FOR AY 2011- 3 ITA NO.4867/MUM/2018 M/S. ASSOCIATE HOLDINGS PRIVATE LIMITED ASSESSMENT YEAR-2015-16 12, ITA NO.7255/MUM/2017 ORDER DATED 08/03/2019, PL EADED THAT DISALLOWANCE SHOULD BE RESTRICTED TO THE EXTENT OF EXEMPT INCOME EARNED BY THE ASSESSEE DURING THE YEAR. THE SAID ORDER HAS BE EN FOLLOWED BY COORDINATE BENCH OF THIS TRIBUNAL FOR AYS 2012-13 T O 2014-15, ITA NOS. 7073/MUM/2017 & OTHERS, COMMON ORDER DATED 08/05/20 19 TO TAKE SIMILAR VIEW. THE COPIES OF THE ORDERS HAVE BEEN PLACED ON RECORD. THE LD. DR SUBMITTED THAT THE DISALLOWANCE WAS TO BE COMPUTED IN TERMS OF RULE 8D, IRRESPECTIVE OF THE QUANTUM OF EXEMPT INCOME EARNED BY THE ASSESSEE. WE HAVE DULY CONSIDERED THE RIVAL SUBMISSIONS AND THE CITED ORDERS OF TRIBUNAL IN ASSESSEES OWN CASE. 3. FACTS ON RECORD WOULD REVEAL THAT THE ASSESSEE B EING RESIDENT CORPORATE ASSESSEE STATED TO BE ENGAGED IN TRADING OF SHARES / SECURITIES, WAS ASSESSED FOR YEAR UNDER CONSIDERATION U/S 143(3 ) ON 15/12/2017 WHEREIN THE ASSESSEE WAS SADDLED WITH DISALLOWANCE U/S 14A FOR RS.336.58 LACS IN VIEW OF THE FACT THAT IT HAD CLOSING INVEST MENTS OF RS.4770.16 LACS AND DEBITED INTEREST EXPENDITURE OF RS.484.98 LACS IN THE PROFIT & LOSS ACCOUNT. THE ASSESSEE, INTER-ALIA, SUBMITTED THAT SINCE THE BORROWING WERE IN THE COURSE OF SHARE TRADING BUSINESS, THE INTERE ST WAS AN ALLOWABLE EXPENDITURE U/S 36(1)(III). THE ATTENTION WAS DRAWN TO THE FACT THAT THE QUANTUM OF EXEMPT INCOME EARNED BY THE ASSESSEE WAS MERELY RS.1,500/- AND THEREFORE, THE DISALLOWANCE, AT THE MOST, COULD BE RESTRICTED TO THAT EXTENT. HOWEVER, NOT CONVINCED, LD.AO, INVOKING RUL E 8D, COMPUTED AGGREGATE DISALLOWANCE OF RS.336.58 LACS WHICH COMP RISED-OFF OF INTEREST DISALLOWANCE U/R 8D(2)(II) FOR RS. 313.92 LACS AND EXPENSE DISALLOWANCE U/R 4 ITA NO.4867/MUM/2018 M/S. ASSOCIATE HOLDINGS PRIVATE LIMITED ASSESSMENT YEAR-2015-16 8D(2)(III) FOR RS.22.65 LACS. THE STAND OF LD. AO, UPON CONFIRMATION BY LEARNED FIRST APPELLATE AUTHORITY, IS UNDER CHALLEN GE BEFORE US. 4. UPON DUE CONSIDERATION, WE FIND THAT THE ISSUE S TOOD SQUARELY COVERED IN ASSESSEES FAVOR BY THE ORDER OF COORDINATE BENC H OF THIS TRIBUNAL IN CROSS-APPEALS ITA NO.7255/MUM/2017 DATED 08/03/2019 WHEREIN THE BENCH HAS CONFIRMED THE STAND OF LD. CIT(A) IN REST RICTING THE DISALLOWANCE TO THE EXTENT OF EXEMPT INCOME EARNED BY THE ASSESS EE. RELYING UPON THE SAME, SIMILAR VIEW HAS BEEN TAKEN FOR AYS 2012-13 T O 2014-15 IN THE CITED ORDER OF THE TRIBUNAL. THEREFORE, RESPECTFULLY FOLL OWING CONSISTENT STAND OF TRIBUNAL, WE DIRECT LD. AO TO RESTRICT THE DISALLOW ANCE TO THE EXTENT OF EXEMPT INCOME EARNED BY THE ASSESSEE DURING THE YEA R UNDER CONSIDERATION. 5. THE APPEAL STANDS ALLOWED IN TERMS OF OUR ABOVE ORDER. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH DECEMBER,2019. SD/- SD/- (VIKAS AWASTHY) ( MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 19/12/2019 SR.PS:-JAISY VARGHESE / COPY OF THE ORDER FORWARDED TO : 1. ! / THE APPELLANT 2. '# ! / THE RESPONDENT 5 ITA NO.4867/MUM/2018 M/S. ASSOCIATE HOLDINGS PRIVATE LIMITED ASSESSMENT YEAR-2015-16 3. $ ( ) / THE CIT(A) 4. $ / CIT CONCERNED 5. %& ''( , ( , / DR, ITAT, MUMBAI 6. &*+, / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI.