ANGULAR TRADING P.LTD, MUMBAI V. DCIT 3(1), MUMBAI

ITA 5091/MUM/2012

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 7760 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 7 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-03-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 02-12-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 09-08-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJESH KUMAR YADAV
• Keywords: Business income; Transactions in derivatives; Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUM BAI , , BEFORE S/SHRI RAJENDRA, A.M. AND SANJAY GARG,J.M. ./ ././ ./ ITA NO.5091/MUM/2012 / ASSESSMENT YEAR: 2008-09 M/S. ANGULAR TRADING P.LTD. 111, MAKER BHAVAN, NO.3,21, NEW MARINE LINES,MUMBAI-400 020. PAN: AACCA 8291 Q VS. DCIT-3(1) MUMBAI. ( / // / APPELLANT ) ( / RESPONDENT ) ./ ././ ./ ITA NO.5191/MUM/2012 / ASSESSMENT YEAR: 2008-09 DCIT-3(1) MUMBAI. VS. M/S. ANGULAR TRADING P.LTD. MUMBAI-20. ( / // / APPELLANT ) ( / RESPONDENT ) REVENUE BY: SHRI RAJESH KUMAR YADAV ASSESSEE BY: SHRI ANUJ KISNADWALA / // / DATE OF HEARING: 24.01.2017 !'#$ / DATE OF PRONOUNCEMENT: 17.03.2017 , ,, , 1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) , ,, , -PER RAJENDRA,AM: CHALLENGING THE ORDERS,DATED OF THE CIT(A)-II,MUMB AI THE ASSESSING OFFICER (AO)AND THE ASSESSEE HAVE FILED CROSS-APPEALS FOR THE ABOVE-MEN TIONED ASSESSMENT YEAR(AY.) ASSESSEE- COMPANY,ENGAGED IN THE BUSINESS OF TRADING AND INVE STMENT IN SHARES AND IPO FUNDING,FILED ITS RETURN ON 28.09.2008,DECLARING INCOME OF RS.4.5 8 CRORES.THE AO COMPLETED THE ASSESSMENT ON 30/12/2010 UNDER SECTION 143 (3) OF T HE ACT, DETERMINING ITS INCOME AT RS.6.71 CRORES. ITA/5091/MUM/2012 : 2. SOLITARY GROUND OF APPEAL,RAISED BY THE AO,IS ABOUT DELETING THE DISALLOWANCE MADE UNDER SECTION 14A READ WITH THE RULE 8D OF THE INCOME TAX RULES, 1962(RULES).DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT THE ASSESS EE HAD SHOWN EXEMPT INCOME OF RS.12.90 LAKHS,THAT IT HAD NOT MADE ANY DISALLOWANC E U/S. 14A OF THE ACT.HE ASKED IT TO EXPLAIN AS TO WHY EXPENDITURE INCURRED FOR EARNING EXEMPT INCOME SHOULD NOT BE DISALLOWED AS PER THE PROVISIONS OF SECTION 14 A OF THE ACT.AF TER CONSIDERING THE SUBMISSION OF THE ASSESSEE DTD.15.11.2010,HE HELD THAT IT HAD NOT ONL Y INVESTED IN SHARES BUT HAD ALSO TRADED IN SHARES,THAT IT HAD USED INTEREST BEARING FUNDS FOR IPO FUNDING AND MAKING LOANS ALSO,THAT IT DID NOT PRODUCE CASH FLOW TO PROVE THAT NO INTEREST BEARING FUNDS FOUND WAY TO INVESTMENTS, 5091/M/12(08-09) M/S. ANGULAR TRADING P.LTD. 2 THAT IT HAD MIXED FUNDS,THAT SIGNIFICANT PORTION OF INTEREST BEARING FUNDS MUST HAVE FOUND ITS WAY INTO VARIOUS INVESTMENTS AND STOCK IN TRADE OF SHARES,THAT SOME ADMINISTRATIVE EXPENSES MUST HAVE BEEN INCURRED.REFERRING TO THE PROVISIONS OF SECTION 14A R.W.R.8D OF THE RULES,HE MADE A DISALLOWANCE OF RS. 2.12 CRORES(RS.2.07 CROR ES UNDER THE HEAD INTEREST EXPENDITURE AND RS.5.24 LAKHS ON ACCOUNT OF 0.05% OF AVERAGE IN VESTMENT ON THE FIRST AND LAST DAY OF THE YEAR UNDER APPEAL. 2.1. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA).BEFORE HIM,THE ASSESSEE AR GUED THAT IT HAD INCURRED INTEREST EXPENDITURE OF RS. 5.07 CRORES,THAT SAME WAS INCURR ED FOR BUSINESS PURPOSES OF FINANCING, TRADING IN SHARES AND FOR IPO APPLICATIONS,THAT MAJ OR INTEREST EXPENDITURE WAS ON ACCOUNT OF FINANCING ACTIVITIES,THAT GAINS ARISING OUT OF IPO ACTIVITIES WERE OFFERED FOR TAXATION UNDER THE HEAD BUSINESS INCOME,IT HAD PAID INTEREST AMOUNTING TO RS.3.08 CRORES FOR CARRYING OUT SHARE BUSINESS,THAT IT HAD OFFERED THE INCOME ARISING OUT OF IT FOR TAXATION AS A PART OF BUSINESS INCOME.IT FURNISHED THE DETAILS OF INTEREST PAID AN D RECEIVED FOR THE YEAR UNDER APPEAL.AFTER CONSIDERING THE AVAILABLE MATERIAL,THE FAA HELD THA T THE SUBMISSION MADE BY THE ASSESSEE THAT INTEREST EXPENDITURE DIRECTLY RELATED TO IPO L OAN AND F&O TRADING LOAN SHOULD BE EXCLUDED FROM THE WORKING OF THE DISALLOWANCE HAD F ORCE.REFERRING TO THE ORDER OF HIS PREDECESSOR FOR THE EARLIER AY.,WHERE HE HAD DELETE D THE INTEREST EXPENDITURE OF IPO FUNDING AND OTHER LAONS,HE DIRECTED THE AO TO EXCLUDE INTER EST ON IPO FUNDING (RS.13.85 LAKHS +1.49 CRORES)AND INTEREST ON TRADING LOAN(F&O SEGMENT OF RS.3.08 CRORES)FOR DISALLOWANCE PURPOSES U/S.14 A OF THE ACT.AS FAR AS BALANCE INTEREST OF R S. 34.94 LAKHS [GENERAL INTEREST(RS.33.73 LAKHS) AND OTHER INTEREST(RS.1.21LAKHS)] IS CONCERN ED,HE OBSERVED THAT IT PERTAINED TO GENERAL LOAN AND OTHER INTEREST AND THAT SAME HAD TO BE DIS ALLOWED UNDER RULE 8D(II)OF THE RULES.ACT.HE ALSO UPHELD THE WORKING OF DISALLOWANC E UNDER RULE8D(III)OF THE RULES. 2.2. DURING THE COURSE OF HEARING BEFORE US, THE DEPARTM ENTAL REPRESENTATIVE ( DR) SUPPORTED THE ORDER OF THE AO AND STATED THAT ASSESSEE HAD NO T FILED THE CASH FLOW STATEMENT. THE AUTHORISED REPRESENTATIVE(AR) SUPPORTED THE ORDER O F THE FAA.HE DID NOT OBJECT TO THE DISALLOWANCE OF RS. 5.24 LAKHS. 2.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERILAS BEFORE US.WE FIND THAT OUT OF THE TOTAL INTEREST EXPENDITURE OF RS.5.07 CRORES ,THE FAA HAD DELETED DISALLOWANCE OF RS.4.72CRORES(RS.3.06 CRORES+RS.1.49 CRORES+13.85 L AKHS), THAT THE ASSESSEE WAS ENGAGED IN BUSINESS OF FUNDING IPOS.IT HAD ALSO INCURRED INTER EST EXPENDITURE ON TRADING LOAN (F&O SHARES).INCOMES FROM BOTH THE ACTIVITIES WERE OFFER ED UNDER THE HEAD BUSINESS INCOME. 5091/M/12(08-09) M/S. ANGULAR TRADING P.LTD. 3 THUS,THE INTEREST PAYMENT TO THE EXTENT OF RS.4,72, 05,839/- WAS DIRECTLY RELATED TO THE REGULAR BUSINESS OF THE ASSESSEE-IT HAD DO NOTHING WITH INV ESTMENT MADE BY IT AND EARNING OF EXEMPT INCOME.BUSINESS RELATED EXPENSES HAVE TO BE ALLOWED FOR BUSINESS ACTIVITIES.THE AO HAS NOT BROUGHT ON RECORD ANYTHING TO PROVE THAT THE INTERE ST PAID BY THE ASSESSEE ON ACCOUNT OF IPO FUNDING OR TRADING OF SHARES IN F&O SEGMENT HAD ANY THING TO DO WITH ITS INVESTMENT ACTIVITIES.THEREFORE,IN OUR OPINION,THE FAA HAD RIG HTLY EXCLUDED THE INTEREST OF RS.4.72 CRORES FROM THE DISALLOWANCE MADE U/S.14A R.W.R 8D OF THE RULES.AS,THERE IS NO INFIRMITY IN THE ORDER OF THE FAA ABOUT DELETING THE DISALLOWANC E OF RS.4.72 CRORES,SO,CONFIRMING HIS ORDER,WE DECIDE THE EFFECTIVE GROUND OF APPEAL AGAI NST THE AO. ITA/5191/MUM/2012: 3. IN ITS APPEAL,THE ASSESSEE HAS ALSO RAISED ONLY ON E GROUND OF APPEAL AND IT ALSO DEALS WITH THE COMPUTATION OF DISALLOWANCE UNDER SECTION 14A R EAD WITH RULE 8D OF THE RULES. WHILE DEALING WITH THE APPEAL OF THE AO,WE HAVE ALR EADY DISCUSSED THE FACTS OF THE CASE AND REASONS FOR SUSTAINING THE ADDITION MADE BY THE AO. AS STATED EARLIER,THE FAA HAD HELD THAT OUT OF THE TOTAL INTEREST OF RS.5 07, 00, 615/- DEB ITED TO THE PROFIT AND LOSS ACCOUNT INTEREST PAID ON GENERAL LOAN, AMOUNTING RS.233.73 LAKHS AND OTHER INTEREST OF RS.1.21 LAKHS WAS TO BE CONSIDERED FOR DISALLOWANCE UNDER RULE 8D (2)(II) O F THE RULES.BESIDES,HE UPHELD THE DISALLOW -ANCE OF RS. 5.24 LAKHS UNDER RULE 8D (2) (III) ALS O. 3.1. BEFORE US,THE AR ARGUED THAT ASSESSEE S OWN FUNDS WERE SUFFICIENT FOR MAKING INVESTMENTS, THAT IT HAD RESERVES AND SURPLUS OF RS .4.37 CRORES, THAT INVESTMENTS WERE OF RS.2.48 CRORES ONLY. HE RELIED UPON THE CASES OF HD FC BANK LTD. (366ITR505) AND RELIANCE UTILITIES AND POWER LTD.(313ITR340). HE ALSO REFERRRED TO THE CASES OF TRADE APARTMENT LTD. (ITA/1277/KOL/2011-AY.2008-09,DATED 30/03/2012) AND ALSO REFERRED TO ASSESSEES OWN CASE FOR THE AY.2007-08 (ITA/46/MUM/2011,DATED 11/09/201 4). THE DR SUPPORTED THE ORDER OF THE FAA. 3.2. WE HAVE HEARD THE RIVAL SUBMISSIONS.WE FIND THAT TH E FAA HAS ALSO NOT CONSIDERED AVAILABILITY OF ASSESSEES OWN FUNDS DURING THE YEA R UNDER CONSIDERATION. THE ASSESSEE HAD OPENING BALANCE OF RS.4.33 CRORES OF RESERVES AND S URPLUS, THAT IT HAD MADE INVESTMENT OF RS. 54.40 LAKHS ONLY DURING THE YEAR UNDER CONSIDERATIO N. HONORABLE COURTS HAVE HELD THAT IF THE ASSESSEES OWN FUNDS WERE SUFFICIENT TO MAKE INVEST MENT THAN IT HAS TO BE PRESUMED THAT BORROWED FUNDS WERE NOT UTILISED FOR MAKING INVESTM ENTS.WE FIND THAT IN THE CASE BEFORE US FUNDS OWNED BY THE ASSESSEE FOR THE YEAR UNDER APPE AL WERE MORE THAN SUFFICIENT TO MAKE 5091/M/12(08-09) M/S. ANGULAR TRADING P.LTD. 4 INVESTMENTS AND THEREFORE THERE WAS NO JUSTIFICATIO N IN UPHOLDING THE INTEREST DISALLOWANCE. SECONDLY,THE FAA HAS NOT GIVEN ANY FINDING OF FACT ABOUT THE RELATION OF THE INTEREST PAID AND EARNING OF EXEMPT INCOME.UNTIL AND UNLESS IT IS PRO VED THAT AN ASSESSE HAS INCURRED SOME EXPENDITURE FOR EARNING EXEMPT INCOME, SAME CANNOT BE DISALLOWED U/S.14A OF THE ACT.THE ASSESSEE HAD NOT OBJECTED TO THE DISALLOWANCE CONFI RMED BY THE FAA UNDER RULE 8D (2) (III) OF THE RULES CONSIDERING THESE FACTS AND THE CASES RELIED UPON BY THE ASSESSEE,WE HOLD THAT FAA WAS NOT JUSTIFIED IN UPHOLDING THE ADDITION UND ER RULE8D (2) (II)OF THE RULES AND THAT HE HAD RIGHTLY CONFIRMED THE DISALLOWANCE OF RS. 5.24 LAKHS. AS A RESULT,APPEAL FILED BY THE AO STANDS DISMISSED AND THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH MARCH, 2017. 17 2017 SD/- SD/- ( /SANJAY GARG) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; /DATED : 17 .03.2017. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR E BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.