PIVOTAL SECURITIES P.LTD, MUMBAI V. DCIT 2(2), MUMBAI

ITA 5047/MUM/2011

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0781 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 11 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-06-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 23-12-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 27-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GOLI SRINIWAS RAODR
• Keywords: Capital asset; Business income; Opportunity of being heard; Principle of natural justice; Earning of tax free income
• Section: 14A; 11

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C, MUMBAI , ! ..'(),*!,+ BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER ITA NO.5047/MUM/2011 ASSESSMENT YEAR: 2008-09 PIVOTAL SECURITIES PVT. LTD. 14 TH FLOOR, MAKER CHAMBER IV, NARIMAN POINT, MUMBAI-400021 / VS. D.C.I.T, CIRCLE-2(2), 5 TH FLOOR, AAYAKAR BHAVAN, MUMBAI-400020 / ASSESSEE / REVENUE P.A. NO. AAACP3754F ITA NO.6425/MUM/2011 ASSESSMENT YEAR: 2008-09 D.C.I.T, CIRCLE-2(2), 5 TH FLOOR, AAYAKAR BHAVAN, MUMBAI-400020 / VS. PIVOTAL SECURITIES PVT. LTD. 14 TH FLOOR, MAKER CHAMBER IV, NARIMAN POINT, MUMBAI-400021 / ASSESSEE / REVENUE P.A. NO.AAACP3754F ,- / ASSESSEE BY SHRI HIRO RAI ,- / REVENUE BY SHRI GOLI SRINIWAS RAO-DR / DATE OF HEARING 04/06/2015 / DATE OF ORDER: 22/06/2015 ITA NO.5047 AND 6245/MUM/2011 PIVOTAL SECURITIES PVT. LTD. 2 / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) THESE ARE CROSS APPEALS PREFERRED BY THE ASSESSEE AS WELL AS BY THE REVENUE WHICH ARE ARISING OUT OF THE IMPUGNED ORDER DATED 15/06/2011 OF THE LD. FIRST AP PELLATE AUTHORITY, MUMBAI. 2. FIRST WE SHALL TAKE UP APPEAL OF THE REVENUE (I TA NO.6245/MUM/2011), WHEREIN, THE ONLY EFFECTIVE GROU ND RAISED PERTAINS TO HOLDING THAT PROFIT FROM SALE OF SHARES IS TO BE ASSESSED INCOME UNDER THE HEAD CAPITAL GAINS INSTEAD OF PROFIT AND GAINS OF BUSINESS AND PROFESSION OP INED BY THE ASSESSING OFFICER. 2.1. DURING HEARING OF THIS APPEAL, AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE, SHRI HIRO ROY, CLAIME D THAT THE IMPUGNED ISSUE IS COVERED BY THE DECISION OF THE TR IBUNAL IN THE CASE OF ASSESSEE ITSELF FOR ASSESSMENT YEARS 20 05-06 TO 2007-08 (ITA NOS. 2815/MUM/2009, ITA NO.4507/MUM /2009 AND ITA NO.187/MUM/2011), ORDER DATED 28/01/2015. THIS FACTUAL MATRIX WAS NOT CONTROVERT ED BY G. SRINIWAS RAO, LD. DR. 2.2. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN VIEW O F THE ABOVE, WE ARE REPRODUCING HEREUNDER THE RELEVANT PO RTION ITA NO.5047 AND 6245/MUM/2011 PIVOTAL SECURITIES PVT. LTD. 3 FROM THE AFORESAID ORDER OF THE TRIBUNAL DATED 28/0 1/2015 FOR READY REFERENCE AND CONSIDERATION:- THE REVENUE IS IN APPEAL FOR ASSESSMENT YEAR 2005-06 TO 2007-08 CHALLENGING THE RESPECTIVE ORDER S OF THE LD. FIRST APPELLATE AUTHORITY, MUMBAI, DATED 13/02/2009, 25/05/2009 AND 21/10/2010. 2. FOR ASSESSMENT YEAR 2005-06 (ITA NO.2815/MUM/2009), THE FIRST GROUND RAISED PERTAINS TO HOLDING THAT THE PROFIT FROM SALE OF SHARES IS TO B E ASSESSED AS INCOME UNDER THE HEAD CAPITAL GAINS INSTEAD OF THE PROFIT AND GAINS OF BUSINESS AND PROFESSION AS ASSESSED IN THE ASSESSMENT ORDER. T HE CRUX OF ARGUMENT ADVANCED BY SHRI J. PREMANAND, LD. DR AND MS. PARMINDER KAUR, LD. CIT-DR IS IDENTICAL TO THE GROUND RAISED I.E. IN SUPPORT TO THE ASSESSMENT ORD ER. IT WAS ALSO SUBMITTED THAT IT WAS A BUSINESS INCOME AN D WAS ALSO A NON-DELIVERY TRANSACTIONS. 2.1. ON THE OTHER HAND, SHRI HIRO RAI, LD. COUNSEL FOR THE ASSESSEE, DEFENDED THE CONCLUSION ARRIVED AT IN THE IMPUGNED ORDER BY SUBMITTING THAT THE ASSESSEE IS A INVESTOR FOR WHICH OUR ATTENTION WAS INVITED TO PAR A 9.1 OF THE IMPUGNED ORDER. 2.2. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACT S, IN BRIEF, ARE THAT THE ASSESSEE COMPANY IN ITS MEMORAN DUM OF ASSOCIATION HAS ITS PRIMARY OBJECT TO INVEST IN SHARES ITA NO.5047 AND 6245/MUM/2011 PIVOTAL SECURITIES PVT. LTD. 4 AND SECURITIES. THE INVESTMENT SO MADE WAS CATEGORICALLY YEAR MARKED, IN ITS BOOKS OF ACCOUNTS , AS INVESTMENT AND EVEN SIMILAR IN ITS ACCOUNTS. THE ASSESSEE IN A SEPARATE SCHEDULE OF INVESTMENT ALSO SHOWED THE SAME AS INVESTMENT. WE NOTE THAT EVEN T HE ASSESSING OFFICER IN EARLIER YEARS HAS ACCEPTED THE INVESTMENT AS INCOME FROM SHARES BY HOLDING THE SAM E UNDER THE HEAD CAPITAL GAINS. THERE IS CATEGORIC AL FINDING IN THE IMPUGNED ORDER THAT THE LD. COMMISSI ONER OF INCOME TAX (APPEALS) EXAMINED THE DOCUMENTS/EVIDENCES, FILED BY THE ASSESSEE BEFORE H IM, AND FOUND THAT THEY WERE ONLY TWO TRANSACTION OF LO NG TERM CAPITAL GAINS AND 26 TRANSACTIONS OF SHORT TER M CAPITAL GAINS AND THE LONG TERM CAPITAL GAINS WERE HELD FOR MORE THAN TWELVE MONTHS. THE LD. COMMISSIONER O F INCOME TAX (APPEALS) FURTHER FOUND THAT MAJORITY OF THE SHARES UNDER THE HEAD SHORT TERM CAPITAL GAINS WERE HELD FROM FOUR MONTHS TO ELEVEN MONTHS. IT IS ALSO NOTE D THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS AL READY CONSIDERED THE CBDT CIRCULAR, WHICH STATES THAT THE ASSESSING OFFICER HAS TO EXAMINE THE SHARES AND IS EXPECTED TO EXAMINE WHETHER THE SHARES WERE HELD AS INVESTMENT OR STOCK IN TRADE. EVEN THERE IS NO BAR IN MAINTAINING TWO PORTFOLIOS I.E. AS INVESTMENT PORTF OLIO, COMPRISING OF SECURITIES, WHICH ARE TREATED TO BE C APITAL ASSET AND TRADING PORTFOLIO FOR STOCK IN TRADE, WHI CH IS TO BE TREATED AS TRADING ASSET. THE DECISION OF SHRI J ANAK S. RANGBALA VS ACIT (ITA NO.1163/MUM/2004) AND MOTILAL OSWAL (ITA NO.3860 TO 3863/MUM/2001), WHICH IS ON ITA NO.5047 AND 6245/MUM/2011 PIVOTAL SECURITIES PVT. LTD. 5 IDENTICAL FACT, HAS ALREADY BEEN CONSIDERED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IN THE IMPUGNE D ORDER, WHEREIN IT WAS HELD THAT INTENTION OF THE AS SESSEE HAS TO BE SEEN REGARDING NATURE OF TRANSACTION. EVE N OTHERWISE, IN THE CASE OF ASSESSEE ITSELF, THE DEPA RTMENT HAD BEEN ACCEPTING THE CLAIM OF THE ASSESSEE IN THE PAST, THUS, THE INCOME FROM SALE OF SHARES OUT OF INVESTM ENT HAS TO BE TREATED AS LONG TERM CAPITAL GAINS/SHORT TERMS CAPITAL GAINS, AS THE CASE MAY BE AND NOT AS A BUSI NESS INCOME. EVEN OTHERWISE, THE CASE OF THE ASSESSEE IS COVERED BY THE RATIO LAID DOWN IN GOPAL PUROHIT VS JCIT (2009)(122 TTJ (MUM. TRIBUNAL) 87) AND CIT VS GOPAL PUROHIT (2011) 336 ITR 287 (BOM.) FROM HONBLE JURISDICTIONAL HIGH COURT, WHEREIN IT WAS HELD THAT TWO SEPARATE PORTFOLIOS ARE PERMISSIBLE. THUS, WE FIND NO INFIRMITY IN THE DIRECTION OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS).HIS STAND IS AFFIRMED. 2.3. SO FAR AS, (GROUND NO.2) DIRECTING THE ASSESSI NG OFFICER TO ALLOW SET OFF OF BROUGHT FORWARD UNABSOR BED CAPITAL LOSSES, AGAINST THE PROFIT OF SUCH SALE OF SHARES, ASSESSED UNDER THE HEAD PROFIT AND GAINS OF BUSINE SS AND PROFESSION BY THE ASSESSING OFFICER IS CONCERN ED, SINCE, WE HAVE DECIDED THE AFORESAID GROUND IN FAVO UR OF THE ASSESSEE, THEREFORE, IT IS CONSEQUENTIAL IN NAT URE MORE SPECIFICALLY WHEN WE HAVE HELD THAT ASSESSEE IS A INVESTOR AND THERE IS NOTHING ON RECORD TO SUGGEST THAT SAME SCRIPS WERE TRANSACTED AGAIN AND AGAIN. THIS GROUND OF THE REVENUE IS ALSO DISMISSED. ITA NO.5047 AND 6245/MUM/2011 PIVOTAL SECURITIES PVT. LTD. 6 3. NOW WE SHALL TAKE UP THE APPEAL OF THE REVENUE FOR ASSESSMENT YEAR 2006-07 (ITA NO.4507/MU/2009), WHEREIN, IDENTICAL GROUND HAS BEEN RAISED AND THE L D. COMMISSIONER OF INCOME TAX (APPEALS) HAS RELIED UPO N THE EARLIER ASSESSMENT YEAR I.E. 2005-06. IN VIEW OF T HE OUR AFORESAID ORDER FOR ASSESSMENT YEAR 2005-06, THIS A PPEAL OF THE REVENUE IS AUTOMATICALLY DISPOSED OFF, CONSEQUENTLY, DISMISSED. 4. IDENTICAL IS THE SITUATION FOR ASSESSMENT YEAR. 2007-08 (ITA NO.187/MUM/2011), THEREFORE, ON THE REASONING CONTAINED IN THE IMPUGNED ORDER, WE FIND NO INFIRMITY, CONSEQUENTLY, THE STAND OF THE LD. COMMI SSIONER OF INCOME TAX (APPEALS) IS UPHELD. FINALLY, ALL THESE APPEALS OF THE REVENUE ARE DISMISSED. 2.3. WE HAVE PERUSED THE RECORD AND FOUND THAT THE WHOLE ADDITION WAS MADE BY THE ASSESSING OFFICER ON THE BASIS OF EARLIER ASSESSMENT YEARS LIKE 2005-06, WHI CH HAS BEEN CONSIDERED BY THE TRIBUNAL IN THE AFORESAID OR DER, FURTHER THE LD. FIRST APPELLATE AUTHORITY ITSELF GR ANTED RELIEF TO THE ASSESSEE WHICH WAS FURTHER AFFIRMED BY THE T RIBUNAL. THERE IS UNCONTROVERTED FINDING IN THE ORDER OF THE TRIBUNAL THAT THE ASSESSING OFFICER ITSELF FOR EARLIER YEARS ACCEPTED THE INVESTMENT AS INCOME FROM SHARES BY HOLDING THE SAM E AS ITA NO.5047 AND 6245/MUM/2011 PIVOTAL SECURITIES PVT. LTD. 7 UNDER THE HEAD CAPITAL GAINS. THE TRIBUNAL IN TH E AFORESAID ORDER HAS ALREADY CONSIDERED THE DECISION OF THE TR IBUNAL SHRI JANAK S. RANGWALA VS ACIT (ITA NO.1163/MUM/200 4) AND MOTILAL OSWAL (ITA NO. 3860 TO 3863/MUM/2001) W HICH ARE IDENTICAL ON FACTS ALONG WITH THE DECISION FROM HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS GOP AL PUROHIT (2011) 336 ITR 287 (BOM.), THUS, WE AFFIRM THE STAN D OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS), RESULTING INTO DISMISSAL OF APPEAL OF THE REVENUE. 3. NOW, WE SHALL TAKE UP THE APPEAL OF THE ASSESSE E (ITA NO.5047/MUM/2011), WHEREIN, THE MAIN GROUND PERTAINS TO ADDITION TO RS.57,61,186/- U/S 14A ATTR IBUTING THE SAME TOWARDS DIVIDEND INCOME HOLDING THE SAME A S INCURRED FOR EARNING EXEMPT INCOME. WITHOUT PREJUD ICE, THE LD. COUNSEL CONTENDED THAT AT BEST THE DISALLOWANCE MAY BE RESTRICTED TO THE AMOUNT OF EXPENSES CLAIMED AT RS.2,27,564/-. 3.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE NOTE THAT THE LD. ASSESSING OFFICER STATE WAY APPLIED RULE 8D OF THE RULES BY HOLDING THAT THE PROFIT MOTIVE WAS MAIN INTENTIO N BEHIND SUCH TRANSACTION OF SHARES AND CONCLUDED THAT IN VI EW OF PROVISION OF SECTION 14A READ WITH RULE 8D OF THE R ULES. HE DISALLOWED THE AMOUNT OF RS.56,61,186/- UNDER SECTI ON 14A OF THE ACT. ON APPEAL, BEFORE THE LD. COMMISSIONER OF ITA NO.5047 AND 6245/MUM/2011 PIVOTAL SECURITIES PVT. LTD. 8 INCOME TAX (APPEALS), THE PLEA OF THE ASSESSEE WAS CONSIDERED AND FINALLY UPHELD THE STAND OF THE LD. ASSESSING OFFICER. THE ASSESSEE EARNED INCOME BY WAY OF DIVI DEND OF RS.74,14,151/- BY MAKING THE INVESTMENT OF RS.122,61,60,583/-. THE STAND OF THE ASSESSEE IS T HAT INVESTMENT WAS MADE WITH A VIEW TO EARN APPRECIATIO N IN THE VALUE AND EARN DIVIDEND. WE FIND THAT THE ISSUE HA S BEEN FINALLY SETTLED BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ AND BOYCE MANUFACTURING COMPANY LTD. VS DCIT VIDE ORDER DATED 12/08/2010, HOLDING THAT THE PROVISION OF RULE 8D SHALL APPLY WITH EFFECT FROM 2 008-09. THE PRESENT APPEAL BEFORE US ALSO PERTAINS TO AY 20 08-09, THEREFORE, AFORESAID DECISION FROM HONBLE JURISDIC TIONAL HIGH COURT IS APPLICABLE. WE FIND THAT THE ASSESSEE SHO WED LONG TERM CAPITAL GAINS OF SALE OF SHARES OF RS.22,55,96 ,751/- (NET OF LOSS) AND SHORT TERM CAPITAL GAIN ON SALE O F SHARES (- RS.5,71,57,260/-). THE BUSINESS PROFILE OF THE ASS ESSEE CLEARLY INDICATES THAT ITS MAIN ACTIVITY IS DEALING IN SHARES. SECTION 111A WAS INTRODUCED BY THE LEGISLATURE TO T AX SHORT TERM CAPITAL GAINS ARISING FROM TRANSFER OF SHORT T ERM CAPITAL ASSET BEING ANY EQUITY SHARE OF IN A COMPANY OR A U NIT OF AN EQUITY ORIENTED FUND AT THE RATE OF 10%, INSTEAD OF 30% WHICH WAS A PREVAILING RATE TILL ASSESSMENT YEAR 20 04-05. SUCH TAX CONCESSION WAS BROUGHT INTO THE STATUTE FO R THE BENEFIT OF SMALL SCALE RETAIL INVESTOR WHO INVEST I N FEW SHARES ONLY FOR THE PURPOSE OF APPRECIATION. IT WAS NOT F OR THE BENEFIT OF THOSE WHO ARE MAINLY IN THE BUSINESS OF DEALING IN ITA NO.5047 AND 6245/MUM/2011 PIVOTAL SECURITIES PVT. LTD. 9 SHARES HAVING ONLY INTENTION TO EARN PROFIT BY TAKI NG ADVANTAGE OF STOCK MARKET FLUCTUATION. THE TOTALIT Y OF FACTS CLEARLY INDICATES THAT HUGE TRANSACTIONS WERE MADE BY THE ASSESSEE WHICH ARE REPRODUCED HEREUNDER FOR READY REFERENCE:- STATEMENT OF LONG TERM CAPITAL GAINS(LOSS) ON WHICH STT IS PAID FOR THE YEAR ENDED 31.3.2008 SL. NO. SCRIP NAME QUANTITY AMOUNT (RS.) 1. BILL CARE LTD 12500 12369770.59 2. BRUSHMAN(I) LTD. 100000 7749458.5 3. CAMSON BIO TECHNOLOGY 9592 1338948.94 4. CHAMPAGNE IG 10000 6301631.65 5. ELDER PHARMACEUTICAL 25000 9835851.85 6. ESSDEE ALUMINIUM LT 115324 70452287.51 7. HARYANA CAPFIN LTD. 62700 521996167 8. ISMI LTD. 355000 43597391.35 9. KOTAK M. FINANCE 160000 204120158.3 10. MCDOWELL HOLDINGS LTD. 13400 4470869.55 11. PRAJ INDUSTIRES 70082 16939520.22 12. SHILPA MEDICARE LTD. 5539 2240387.51 13. SUN PHARMA ADVANCED 20000 2741602.55 14. SUN PHARMA 20000 22160225.55 15. TANEJA AEROSPACE 197000 35638094.64 16. TERA SOFT 250000 20059186.4 17. TVEIGHTEEN 190000 70738948.5 TOTAL 16,16,137 105,27,68,501 STATEMENT OF SHORT TERM CAPITAL GAIN(LOSS) ON WHICH STT IS PAID FOR THE YEAR ENDED 31.03.2008 SL. NO. SCRIP NAME QUANTITY AMOUNT (RS.) 1. AKS OPTIFIBRE 104432 8414030.36 2. BHARAT EARTH 14233 17511556.5 3. CENTRAL BANK OF INDIA 7618 895025.14 4. DEVIS LAB 15000 63510227.04 5. EDELWEISS CAPITAL LTD. 385 587172.5 6. ELDER PHARMACEUTICAL 25000 10635250 7. EMCO LTD. 55360 43382900.57 8. ESSAR OIL 100000 19966685.75 9. FUTURE CAPITAL HOLDINGS LTD. 247000 133105830 10. IFCI LTD. 100000 8250800.85 11. ISMT LTD. 100000 12424000 12. JAIPRAKASH ASSOCIATE 100000 37068090.55 ITA NO.5047 AND 6245/MUM/2011 PIVOTAL SECURITIES PVT. LTD. 10 13. JINDAL DRILLING 54875 28616651.05 14. MTNL DMAT 250000 40367332.45 15. MCDOWELL HOLDINGS LTD 7000 2335480 16. MIC ELECTRONICS LTD. 4756 1474619.68 17. MOLD TEK PLASTICS 680000 54386400 18. MOSERBAER 60000 17088124.7 19. MUNDRA PORT 1375 1337627.35 20. PRAJ INDUS 73918 17866023.33 21. PVR LTD 240000 40948800 22. RADICO KHAIT 100000 14732000 23. SASKEN COMM TECH LTD. 117000 41423743.08 24. SHASUN CHEMICALS 105000 10862203.2 25. SHILPA MEDICARE LTD 2437 965298.64 26. SHREYAS SHIPPING 500100 53077211.98 27. SIMPLEX PROJECTS TLD. 2392 657680.4 28. SPICEJET LTD. 240000 11070147.4 29. TANEJA AEROSPACE 68000 12173811 30. TV EIGHTEEN 20000 7446200 31. VISHAL RETAILS LTD. 585 437444.75 TOTAL 33,96,466 71,30,18,368.3 3.2. THE CIRCULAR ISSUED BY CBDT VISUALIZES BOTH SITUATIONS WHERE AN ASSESSEE HOLDS THE SHARE AS INV ESTMENT OR STOCK IN TRADE. THE LEGISLATURE BY THE FINANCE ACT, 2002 INSERTED A NEW PROVISO IN THE FORM OF SECTION 14A. THE SCOPE AND EFFECT OF SUCH INSERTION HAS BEEN ELABORATED BY THE DEPARTMENTAL CIRCULAR NO.8 OF 2002 DATED 27/08/2002 . THE SCOPE AND EFFECT OF AMENDMENT MADE IN SECTION 14A W AS ELABORATED BY THE DEPARTMENTAL CIRCULAR NO.14 OF TH E 2006 DATED 28/12/2006, WHICH SPEAKS ABOUT METHOD FOR ALLOCATING EXPENDITURE IN RELATION TO EXEMPT INCOME . SECTION 14A OF THE INCOME TAX ACT, PROVIDES THAT FOR THE PU RPOSES OF COMPUTING THE TOTAL INCOME UNDER CHAPTER IV OF THE ACT, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITUR E INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHIC H DOES NOT FORM PART OF TOTAL INCOME UNDER THE ACT. IN THE EXISTING ITA NO.5047 AND 6245/MUM/2011 PIVOTAL SECURITIES PVT. LTD. 11 SECTION 14A OF THE ACT, HOWEVER, NO METHOD OF COMPU TING THE EXPENDITURE INCURRED IN RELATION TO INCOME WHIC H DOES NOT FORM PART OF THE TOTAL INCOME HAS BEEN PROVIDED FOR, CONSEQUENTLY, THERE WAS A CONSIDERABLE DISPUTE BETW EEN THE TAX PAYER AND THE DEPARTMENT ON THE METHOD OF DETER MINING OF SUCH EXPENDITURE. TO SETTLE DOWN THE DISPUTE A NEW SUB- SECTION (2) WAS INSERTED IN SECTION 14A SO AS TO PR OVIDE THAT IT WOULD BE MANDATORY FOR THE ASSESSING OFFICER TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO S UCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME IN ACCORDANCE WITH SUCH METHOD AS MAY BE PRESCRIBED. HOWEVER, THE ASSESSING OFFICER SHALL FOLLOW THE PRE SCRIBE METHOD, IF, HAVING REGARD TO THE ACCOUNTS OF THE AS SESSEE, HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF THE EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. THUS, PROVISION OF SUB-SECTION (2), WILL ALSO BE APPLICAB LE IN RELATION TO A CASE WHERE AN ASSESSEE CLAIMS THAT NO EXPENDITURE INCURRED BY HIM IN RELATION TO INCOME W HICH DOES NOT FORM PART OF THE TOTAL INCOME. EVEN WHERE THE ASSESSEE CLAIMED THAT NO EXPENDITURE HAS BEEN INCUR RED IN RELATION TO INCOME WHICH DOES NOT PART FORM OF TOTA L INCOME, THE ASSESSING OFFICER WILL HAVE TO VERIFY THE CORRE CTNESS OF SUCH CLAIM. IN CASE, THE ASSESSING OFFICER IS SATI SFIED WITH THE CORRECTNESS THE CLAIM OF THE ASSESSEE WITH REGA RD TO THE EXPENDITURE OR NO EXPENDITURE, AS THE CASE MAY BE, THE ASSESSING OFFICER IS TO ACCEPT THE CLAIM OF THE ASS ESSEE IN SO ITA NO.5047 AND 6245/MUM/2011 PIVOTAL SECURITIES PVT. LTD. 12 FAR AS THE QUANTUM OF DISALLOWANCE UNDER SECTION 14 A IS CONCERNED. IN SUCH EVENTUALITY, THE ASSESSING OFFI CER CANNOT EMBARK UPON A DETERMINATION OF THE AMOUNT OF THE EXPENDITURE FOR THE PURPOSES OF SECTION 14A(1) OF T HE ACT. IN ITS ALTERNATE GROUND THE ASSESSEE MERELY SUGGESTED THAT AT BEST THE DISALLOWANCE CAN BE RESTRICTED TO THE EXPE NSES CLAIMED AT RS.2,27,564/-. HOWEVER, THE ASSESSING O FFICER MADE ADDITION OF RS.57,61,186/- U/S 14A OF THE ACT ATTRIBUTING THE SAME TOWARDS DIVIDEND INCOME AND HO LDING THE SAME AS INCURRED FOR EARNING EXEMPT INCOME. THU S, WE ARE OF THE VIEW THAT THE ISSUE REQUIRES RECONSIDERA TION BY THE LD. ASSESSING OFFICER TO EXAMINE THE CLAIM OF THE A SSESSEE IN THE LIGHT OF THE DECISION FROM HONBLE JURISDICTION AL HIGH COURT IN GODREJ & BOYCE MANUFACTURING COMPANY LTD. VS DCIT (2010) 328 ITR 81 (BOM.). THE LD. ASSESSING O FFICER MAY ALSO CONSIDER THE RATIO LAID DOWN IN CIT VS GUJ ARAT STATE FERTILIZER AND CHEMICAL LTD. (2013) 358 ITR 3 23 (GUJ.) AND CIT VS SIEL HOLDINGS LTD. (2012) 348 ITR 447 (D EL.), MAX-OPP INVESTMENT LTD. VS CIT 347 ITR 272(DEL.) AN D CIT VS MACHINO PLASTIC LTD. 348 ITR 523 (DEL.). THEREFO RE, KEEPING IN VIEW, THE PRINCIPLE OF NATURAL JUSTICE A ND FAIR PLAY AND ALSO THAT NO PREJUDICE IS CAUSED TO EITHER SIDE , WE REMAND THIS ISSUE TO THE FILE OF THE LD. ASSESSING OFFICER TO EXAMINE THE CLAIM OF THE ASSESSEE AND AFTER ASCERTA INING THE CORRECT FACT, DECIDE IN ACCORDANCE WITH LAW. THE A SSESSEE BE GIVEN OPPORTUNITY OF BEING HEARD, THUS, THIS APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES ONLY. ITA NO.5047 AND 6245/MUM/2011 PIVOTAL SECURITIES PVT. LTD. 13 FINALLY, THE APPEAL OF THE REVENUE IS DISMISSED AND THAT OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PUR POSES. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT ON 22 ND JUNE 2015. SD/- SD/- ( N.K. BILLAIYA ) (JOGINDER SINGH) *! / ACCOUNTANT MEMBER ! / JUDICIAL MEMBER MUMBAI; DATED : 22/06/2015 F{X~{T? P.S / ,0 123241 / COPY OF THE ORDER FORWARDED TO : 1. ! / THE APPELLANT 2. '#$ ! / THE RESPONDENT. 3. %$ %$ & ( ) / THE CIT, MUMBAI. 4. %$ %$ & / CIT(A)- , MUMBAI 5. )*+$ ' , %$ $ - , / DR, ITAT, MUMBAI 6. +. / / GUARD FILE. / BY ORDER, #$) ' //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI