CAMELOT ENTERPRISES P. LTD, MUMBAI V. JT CIT (OSD) CEN CIR 39, MUMBAI

ITA 537/MUM/2017

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 0360 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-11-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2009-2010
• Appeal Filed On: 24-01-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: HIMANSHU SHARMA
• Keywords: Transactions in derivatives; Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INC OME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE HONBLE SH. R. C. SHARMA , AM & HONBLE SH. SANDEEP GOSAIN, JM ./ I.T.A. NO . 537 /MUM/2017 ( / ASSESSMENT YEAR: 2009 - 10 ) M/S CAMELOT ENTERPRISES PVT. LTD. C/O - KARNAVAT & CO. 2A KITAB MAHAL, 1 ST FLOOR, 192, DR. D. N. ROAD, MUMBAI - 400001 / VS. JCIT (OSD), CENTRAL CIRCLE - 39, [NOW DCIT - CENT. CIR 6 (4)], 19 TH FLOOR, AIR INDIA BUILDING, NARIMAN POINT, MUMBAI - 400 021 ./ ./ PAN NO. A A BCC6796M ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : NONE / RESPONDENTBY : SHRI HIMANSHU SHARMA , D R / DATE OF HEARING : 27 .09 .2018 / DATE OF PRONOUNCEMENT : 22.11.2018 / O R D E R PER SANDEEP GOSAIN, J UDICIAL MEMBER : THE P RESENT APPE AL FILED BY THE ASSESSEE IS AGAINST THE ORDER OF LD. CIT (APPEAL) 54 , MUMBAI DATED 10.10.16 F OR AY 20 09 - 10 ON THE GROUNDS MENTIONED HEREIN BELOW: - 2 I.T.A. NO. 537 /MUM/201 7 M/S CAMELOT ENTERPRISES PVT. LTD. 1. ON FACTS AND IN LAW, THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) [HEREINAFTER REFERRED TO AS 'LD. CIT(A)'] HAD ERRED IN CONFIRMING THE DISALLOWANCE OF INTEREST/CHARGES PAID TO BROKERS A MOUNTING TO RS.39,35,951/ - U/S.14 A. UNDER THE FACTS AND CIRCUMSTANCES OF THE MATTER, HE OUGHT TO HAVE DELETED THE S AID DISALLOWANCE OF RS.39,35 ,951/ - AS NOT DISALLOWABLE U/S.14 A. 2. ON FACTS AND IN LAW, THE LD. CIT(A) HAD ERRED IN CONFIRMING THE DISALLOWANCE OF INTEREST PAID TO BROKERS AMOUNTING TO RS.39,35,951/ - UNDER RULE 8D(2)(II) WITHOUT APPRECIATING THE FACT THAT THE APPELLANT HAD PAID THE INTEREST/CHARGES FOR TRADING/F&O IN SHARES, THE INCOME OF WHICH IS NOT EXEMPT FROM TAX. UNDER THE FACTS AND CIRCUMSTANCES OF THE MATTER, HE OUGHT TO HAVE DELETED THE SAID DISALLOWANCE OF RS.39,35,951/ - . 3. ON FACTS AND IN LAW, THE LD. CIT(A) HAD ERRED IN INCLUDING THE VALUE OF SHARES HELD AS STOCK - IN - TRADE WHILE COMPUTING DISALLOWANCE AS PER RULE 8D R.W.S. 14A OF THE I.T. ACT. UNDER THE FACTS AND CIRCUMSTANCES OF THE MATTER, HE OUGHT TO HAVE EXCLUDED THE SHARES HELD AS STOCK - IN - TRADE FO R THE PURVIEW OF RULE 8D R.W.S. 14A. 3 I.T.A. NO. 537 /MUM/201 7 M/S CAMELOT ENTERPRISES PVT. LTD. 4. ON FACTS AND IN LAW, THE LD. CIT(A) HAD FAILED TO AP PRECIATE THAT DISALLOWANCE U/S.14 A R.W. RULE 8D COMES TO RS.68,856/ - AND NOT RS.47,75,676/ - AS COMPUTED BY THE ASSESSING OFFICER. UNDER THE FACTS AND CIRCUMSTANCES OF THE MATTER, THE DISALLOWANCE U/S.HA SHOULD BE RESTRICTED TO RS.68,856/ - . 5. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, VARY, OMIT, SUBSTITUTE OR AMEND THE ABOVE GROUNDS OF APPEAL, AT ANY TIME BEFORE OR AT, THE TIME OF HEARING OF THE APPEAL, SO AS TO ENABLE THE HON. ITAT TO DECIDE THIS APPEAL ACCORDING TO LAW. 2. AT THE VERY OUTSET, IT IS NOTICED THAT NONE HAS APPEARED ON BEHALF OF ASSESSEE IN SPITE OF SEVERAL CALLS AND EVEN NO APPLICATION FOR ADJOURNMENT WAS MOVED. ON THE OTHER HAND L D. DR IS PRESENT IN THE CO URT AND IS READY WITH ARGUMENTS. THEREFORE WE HAVE DECIDED TO PROCEED WITH THE HEARING OF THE CASE EX - PA RTE WITH THE ASSISTANCE OF THE L D. DR AND THE MATERIAL PLACED ON RECORD. 3. THE BRIEF FACTS OF THE CASE ARE THAT T HE RETURN OF INCOME WAS FILED ON 24.09.09 DECLARING TOTAL INCOME AT RS. NOL AND 4 I.T.A. NO. 537 /MUM/201 7 M/S CAMELOT ENTERPRISES PVT. LTD. CLAIMING CURRENT YEARS LOSS OF RS. 35,74,39,613/ - . SUBSEQUENTLY THE CASE WAS SELECTED FOR SCRUTINY AND AFTER SERVING STATUTORY NOTICES AND PROVIDING OPPORTUNITY OF HEARING, ASSES SMENT ORDER U/S 143(3) OF THE I.T. ACT WAS PASSED BY AO ON 28.12.11 THEREBY ASSESSED TOTAL LOSS OF RS. 35,26,51,431/ - . AGGRIEVED BY THE ORDER OF AO, ASSESSEE PREFERRED APPEAL BEFORE LD. CIT(A) AND LD. CIT(A) AFTER CONSIDERING THE CASE OF BOTH THE PARTIES, PARTLY ALLOWED THE APPEAL OF THE ASSESSEE . NOW BEFORE US, THE ASSESSEE HAS PREFERRED THE PRESENT APPEAL BY RAISING THE ABOVE GROUNDS. GROUND NO. 1 TO 4 4 . SINCE ALL THESE GROUND S RAISED BY THE ASSESSEE ARE INTER CONNECTED AND INTER RELATED AND RELATES TO CHA LLENGING THE ORDER OF LD. CIT(A) IN CONFIRMING THE ACTION OF AO IN MAKING DISALLOWANCE U/S 14A R.W.R. 8D OF THE I.T. ACT, THEREFORE WE THOUGH IT FIT TO DISPOSE OF THE SAME BY THIS COMMON ORDER. 5 I.T.A. NO. 537 /MUM/201 7 M/S CAMELOT ENTERPRISES PVT. LTD. 5 . WE HAVE HEARD LD. DR AND WE HAVE ALSO PERUSED THE MAT ERIAL PLACED ON RECORD , JUDGMENT CITED BY THE PARTY AS WELL AS THE ORDERS PASSED BY REVENUE AUTHORITIES. WE FIND FROM THE RECORDS THAT AO AFTER HAVING GONE THROUGH THE FACTS OF THE PRESENT CASE, WAS NOT SATISFIED WITH THE CORRECTNESS OF THE ASSESSEES CLAI M THAT NET EXPENDITURE HAS BEEN INCURRED BY IT IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME UNDER THE ACT, THEREFORE AO SOUGHT COMPLETE DETAILS OF TRANSACTIONS/INVESTMENTS FROM THE ASSESSEE WHICH IT HAD DERIVED THE EXEMPT INCOME AND RELAT ED EXPENSES THEREOF. THE AO CARRIED OUT INVESTIGATION AND PASSED ORDER OF ASSESSMENT U/S 14A R.W.R 8D. 6. THE AO HAS DEALT WITH THE ABOVE GROUNDS IN PARA NO. 3 (3.1 TO 3.6) OF ITS ORDER. THE OPERATIVE PORTION OF THE ORDER OF AO IS CONTAINED IN PARA NO. 3 .4 OF ITS ORDER, WHICH IS REPRODUCED BELOW: - 3.4 THE SUBMISSIONS OF THE ASSESSEE HAVE BEEN CONSIDERED. FIRST OF ALL, IT IS MENTIONED THAT INTEREST CAN BE EXCLUDED WHEN THE ASSESSEE ESTABLISHES ITS DIRECT NEXUS WITH EARNING OF SOME OTHER INCOME. NO 6 I.T.A. NO. 537 /MUM/201 7 M/S CAMELOT ENTERPRISES PVT. LTD. SUCH DIRECT NEXUS HAS BEEN ESTABLISHED BY THE ASSESSEE ALONG WITH SUPPORTING DOCUMENTS. THE PROVISIONS OF SECTION 14A AND RULE 8D ARE REPRODUCED HEREUNDER - (I) THE PROVISION OF SECTION 14A ARE AS UNDER - '[(!)] FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME UNDER THIS CHAPTER, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT.] 1(2) THE ASSESSING OFFICER SHALL DETERMINE THE AMOUNT OF EXPEND ITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT IN ACCORDANCE WITH SUCH METHOD AS MAY BE PRESCRIBED, IF THE ASSESSING OFFICER, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, IS NOT SATISFIED WITH THE CO RRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. (3) THE PROVISIONS OF SUB - SECTION (2) SHALL ALSO APPLY IN RELATION TO A CASE WHERE AN ASSESSEE CLAIMS T HAT NO EXPENDITURE HAS BEEN INCURRED BY HIM IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT:]' 7 I.T.A. NO. 537 /MUM/201 7 M/S CAMELOT ENTERPRISES PVT. LTD. RULE 8D PRESCRIBES A VERY COMPREHENSIVE FORMULA FOR DETERMINATION OF AMOUNT OF EXPENDITURE IN RELATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOME I.E. IN RELATION TO EXEMPT INCOME. THE PROVISIONS OF RULE 8D ARE AS UNDER - '[METHOD FOR DETERMINING AMOUNT OF EXPENDITURE IN RELATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOME. 8D. (1) WHERE THE ASSESSING OFFICER, HAVING REGARD TO THE ACCO UNTS OF THE ASSESSEE OF A PREVIOUS YEAR, IS NOT SATISFIED WITH (A) THE CORRECTNESS OF THE CLAIM OF EXPENDITURE MADE BY THE ASSESSEE; OR (B) THE CLAIM MADE BY THE ASSESSEE THAT NO EXPENDITURE HAS BEEN INCURRED, IN RELATION TO INCOME WHICH DOES NOT FORM PAR T OF THE TOTAL INCOME UNDER THE ACT FOR SUCH PREVIOUS YEAR, HE SHALL DETERMINE THE AMOUNT OF EXPENDITURE IN RELATION TO SUCH INCOME IN ACCORDANCE WITH THE PROVISIONS OF SUB - RULE (2). (2) THE EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME SHALL BE THE AGGREGATE OF FOLLOWING AMOUNTS, NAMELY : (I) THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME; 8 I.T.A. NO. 537 /MUM/201 7 M/S CAMELOT ENTERPRISES PVT. LTD. (II) IN A CASE WHERE THE ASSESSEE HAS INCURRED EXPENDITURE BY WAY OF INTEREST DURING THE PREVIOUS YEAR WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT, AN AMOUNT COMPUTED IN ACCORDANCE WITH THE FOLLOWING FORMULA, NAMELY : A X B/C WHERE A AMOUNT OF EXPENDITURE BY WAY OF INTEREST OTHER THAN THE = AMOUNT OF I NTEREST INCLUDED IN CLAUSE (I) INCURRED DURING THE PREVIOUS YEAR; B THE AVERAGE OF VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT = OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND TH E LAST DAY OF THE PREVIOUS YEAR; C THE AVERAGE OF TOTAL ASSETS AS APPEARING IN THE BALANCE SHEET OF = THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR; (III ) AN AMOUNT EQUAL TO ONE - HALF PER CENT OF THE AVERAGE OF THE VALUE OF INVES TMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR. 9 I.T.A. NO. 537 /MUM/201 7 M/S CAMELOT ENTERPRISES PVT. LTD. (3) FOR THE PURPOSES OF THIS RULE, THE 'TOTAL ASSETS' SHALL MEAN, TOTAL ASSETS AS APPEARING IN THE BALANCE SHEET EXCLUDING THE INCREASE ON ACCOUNT OF REVALUATION OF ASSETS BUT INCLUDING THE DECREASE ON ACCOUNT OF REVALUATION OF ASSETS.]' 7. THE LD. CIT(A) AFTER DISCUSSING THE ENTIRE FACTS HAD DIRECTED THE AO TO RE - COMPUTE TH E DISALLOWANCE UNDER RULE 8D (2)(III) AS 0.5% OF AVERAGE VALUE OF INVESTMENT. THE OPERATIVE PORTION OF THE ORDER OF LD. CIT(A) IS CONTAINED IN PARA NO. 6.4.8 OF ITS ORDER AND THE SAME IS REPRODUCED BELOW: - 6.4.8. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE LAW LAID DOWN BY THE HON'BLE THIRD MEMBER BENCH, ITAT MUMBAI (SUPRA), NOW THE QUESTION ARISES AS TO WHAT WILL BE THE QUANTUM OF DISALLOWANCE UNDER RULE 8D(2)(II). THE FACTS AVAILABLE ON RECORDS SUG GEST THAT THE APPELLANT IS HOLDING SHARES BOTH AS INVESTMENTS AND STOCK IN TRADE, DIVIDEND INCOME FROM WHICH IS EXEMPT. HENCE THE COMPUTATION OF DISALLOWANCE UNDER RULE 8D(2)(II) HAS TWO BE MADE SEPARATELY FOR SHARES HELD AS INVESTMENTS AND SHARES HELD AS STOCK IN TRADE. SINCE, THE TOTAL INTEREST EXPENDITURE OF RS.39,35,951/ - , PAID TO BROKERS NEED TO 10 I.T.A. NO. 537 /MUM/201 7 M/S CAMELOT ENTERPRISES PVT. LTD. BE APPORTIONED BETWEEN THE SHARES HELD AS INVESTMENT AND THE SHARES WHICH ARE HELD AS STOCK IN TRADE, THE LD. IS DIRECTED TO BIFURCATE THE SAID INTEREST BETWEE N SHARES HELD AS INVESTMENTS AND SHARES HELD AS STOCK IN TRADE, IN THEIR RESPECTIVE PROPORTIONS, AND THEN COMPUTE THE DISALLOWANCE UNDER RULE 8D(2)(II) SEPARATELY IN RESPECT OF SHARES HELD AS STOCK IN TRADE AND SHARES HELD AS INVESTMENTS. FURTHER THE DISAL LOWANCE SO WORKED OUT UNDER RULE 8D(2)(II) IN RESPECT OF SHARES HELD AS STOCK IN TRADE, RESPECTFULLY FOLLOWING THE RATIO LAID DOWN BY THE HON'BLE THIRD MEMBER BENCH, ITAT, MUMBAI (SUPRA), THE LD. AO IS DIRECTED TO RESTRICT THE SAME TO 20%. THUS THE DISALLO WANCE UNDER RULE 8D(2)(II) SHALL BE AGGREGATE OF DISALLOWANCE COMPUTED SEPARATELY AS PER DIRECTIONS CONTAINED HEREIN IN RESPECT OF SHARES HELD AS INVESTMENTS AND SHARES HELD AS STOCK IN TRADE. IN RESPECT OF DISALLOWANCE UNDER RULE 8D(2)(III), THE ACTION OF THE LD. AO IN DISALLOWING 0.5% OF AVERAGE VALUE OF INVESTMENTS (INCLUDING BOTH INVESTMENTS MADE IN SHARES AND IN CLOSING STOCK OF SHARES) STANDS CONFIRMED. HOWEVER, SINCE THE AO HAS BEEN DIRECTED ABOVE TO RE - COMPUTE THE AVERAGE VALUE OF INVESTMENTS AFTER EXCLUDING THE VALUE OF CLOSING STOCK OF PAINTING/SCULPTURE, SO THE LD. AO IS DIRECTED TO RE - COMPUTE THE DISALLOWANCE UNDER RULE 8D(2)(III) AT 0.5% OF AVERAGE VALUE OF INVESTMENTS AS RECOMPUTED 11 I.T.A. NO. 537 /MUM/201 7 M/S CAMELOT ENTERPRISES PVT. LTD. AND DIRECTED HEREIN. IN RESULT THE LD. AO SHALL RE - COMPUTE THE DISALLOWANCE UNDER SECTION 14A RW RULE 8D AS PER ABOVE DIRECTIONS. ACCORDINGLY THE GROUND NOS. 1 AND 2 RAISED IN APPEAL ARE PARTLY ALLOWED. AFTER HAVING GONE THROUGH THE ORDERS PASSED BY REVENUE AUTHORITIES AND CONSIDERING THE FACTS AS DISCUSSED ABOVE, WE FIND THAT LD. CIT(A) HAS RIGHTLY UPHELD THE ORDER OF AO AND PASSED ITS REASONED ORDER. EVEN BEFORE US, N O NEW FACTS O R CONTRARY JUDGMENTS HAVE BEEN BROUGHT ON RECORD BEFORE US I N ORDER TO CONTROVERT OR REBUT THE FINDINGS SO RECORDED BY LD . CIT(A). THEREFORE, THERE ARE NO REASON S FOR US TO INTERFERE INTO OR DEVIATE FROM THE FINDINGS SO RECORDED BY THE LD.CIT(A). HENCE , WE ARE OF THE CONSIDERED VIEW THAT THE FINDINGS SO RECORDED BY THE LD. CIT (A) ARE JUDICIOUS AND ARE WE LL REASONED. RESULTANTLY, THES E GROUND S RAISED BY THE ASSESSEE STANDS DISMISSED . GROUND NO. 5 8 . THIS GROUND RAISED BY THE ASSESSEE IS GENERAL IN NATURE, THUS REQUIRES NO SPECIFIC ADJUDICATION. 12 I.T.A. NO. 537 /MUM/201 7 M/S CAMELOT ENTERPRISES PVT. LTD. 9 . IN THE NET RESULT , THE APPEAL FILED BY THE ASSESSEE STANDS DISMISSED WITH NO ORDER AS TO COST. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND NOV , 2018 SD/ - SD/ - ( R. C. SHARMA ) (SANDEEP GOSAIN) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI ; DATED : 22 . 11 .201 8 SR.PS . DHANANJAY / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F I LE / BY ORDER, . / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI