CHURU TRADING COMPANY P.LTD, MUMBAI V. ITO CIR 6(2)(1), MUMBAI

ITA 5372/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9572 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 20-11-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 15-07-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A C TEJPAL
• Assessee Lawyers: B S SHARMA
• Keywords: Speculation loss; Notional interest
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C, MUMBAI BEFORE SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER ITA NO. 5372/MUM/2011 (ASSESSMENT YEAR: 2006-07) M/S CHURU TRADING COMPANY P. LTD. 135, CONTINENTAL BLDG., DR. A.B. ROAD, WORLI, MUMBAI -400 020 PAN AAACC 4853 G VS ITO CIR 6(2)(1) AAYKAR BHAVAN, M.K. ROAD, MUMBAI 400 020 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI DALPAT SHAH & SHRI B.S. SHARMA RESPONDENT BY : SHRI A.C. TEJPAL DATE OF HEARING: 20.11.2012 DATE OF PRONOUNCEMENT: 20.11.2012 O R D E R PER VIVEK VARMA, JM: THE INSTANT APPEAL ARISE FROM THE ORDER OF THE CIT(A) 12 , MUMBAI, DATED 23.02.2011, WHEREIN, THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : 1. THE HONBLE COMMISSIONER OF INCOME TAX (APPEALS) 1 2, MUMBAI (HEREINAFTER REFERRED TO AS THE CIT-A) HAS ERRED IN LAW, ON FA CTS AND IN THE CIRCUMSTANCES OF THE CASE IN DIRECTING THE LD. ASSE SSING OFFICER TO CALCULATE THE DISALLOWANCES OF INTEREST UNDER SECTIONS 36(1)( III) AS PER THE METHODOLOGY ACCEPTED/ ADOPTED AND AS CONCLUDED BY THE HONBLE C IT(A)-VI IN HIS ORDER DT. 28.12.2007 FOR ASSESSMENT YEAR 2004-05, INSTEAD OF AS WORKED OUT AT RS.2,72,36,122. 2. THE HONBLE CIT(A) HAS ERRED IN LAW, ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN TREATING BUSINESS LOSS AS SPECULATION LOSS PROPORTIONATE NOTIONAL INT EREST OF RS. 3,91,43,184/- UNDER EXPLANATION TO SECTION 73 OF THE ACT ON FUNDS USED FOR TRADING OPERATIONS IN EQUITY SHARES. 3. THE LEARNED CIT(A) ALSO ERRED IN LAW, ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE IN CONFIRMING THE ACTION OF THE LD. ASSESS ING OFFICER FOR DISALLOWANCE OF EXPENSES AND INTEREST OF RS. 3,78,5 6,062/- UNDER SECTION 14A OF THE ACT BUT DIRECTING HIM TO RESTRICT SUCH D ISALLOWANCES TO 10% OF THE ITA NO. 5372/MUM/2011 M/S CHURU TRADING COMPANY P. LTD. 2 DIVIDEND EARNED OF RS. 2,85,05,858/- BOTH ON STOCK OF SHARES AND INVESTMENTS, DURING THE YEAR. 4. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER, MO DIFY, DELETE AND/OR CHANGE ALL OR ANY OF THE ABOVE GROUNDS ON OR BEFORE THE DATE OF HEARING. 2. FROM THE GROUND ITSELF, IT IS SEEN THAT THE CIT(A) HAS D IRECTED THE AO TO WORK THE DISALLOWANCE U/S 36(1)(III). 3. AT THE TIME OF HEARING THE AR POINTED OUT THAT IMPUG NED ISSUE HAS BEEN RESTORED TO THE FILE OF THE AO BY THE COORDINA TE BENCH IN ITA NOS. 933/MUM/2006 & 1912/MUM/2008 AND 1494/MUM/2005 & 4682/MUM/2007, WHEREIN IT WAS OBSERVED, IN PARA 8 ON PAGE 17, IT IS HELD AS UNDER IN THE A PPELLATE ORDER FOR A.Y. 2003- 04 THE ASSESSING OFFICER IS DIRECTED TO EXAMINE THE NE XUS WITH THE BORROWED FUNDS ON WHICH INTEREST WAS CLAIMED TO THE UTILIZATION OF FUNDS EITHER IN INVESTMENT ACTIVITY OR IN BUSINESS ACTIVITY AND DISALLOW AMOUN T ACCORDINGLY UNDER SECTION 36(1)(III) AND CONSIDER WHETHER IT IS ALLOWABLE WHI LE WORKING OUT CAPITAL GAIN, ETC. WITH THESE DIRECTIONS THE ISSUE IN THIS GROUND IS R ESTORED TO THE FILE OF THE ASSESSING OFFICER. 4. THE DR, RELYING ON THE DECISIONS OF THE REVENUE AUTH ORITIES, ACCEPTED THE FACT THAT THE IMPUGNED ISSUE HAS BEEN RESTORED TO TH E AO. 5. ON GOING THROUGH THE GROUNDS OF APPEAL AND THE ORD ER OF THE COORDINATE BENCH, THE IMPUGNED ISSUE HAS BEEN RESTORED TO THE FILE OF THE AO. IN THESE CIRCUMSTANCES, WE ALSO FEEL, THAT IN THE INTEREST OF JUSTICE AND FOR GETTING THE CONSISTENCY, THE ISSUE MUST BE RESTORED TO THE FILE OF THE AO IN THE CURRENT YEAR AS WELL, AS DIRECTED BY THE CIT(A). THIS OBSERVATION OF THE CIT(A), WE ENDORSE. THE GROUND, IS THEREFORE, TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 6. GROUND NO. 2 IS ON TREATMENT OF BUSINESS LOSS OF RS. 3,91,46,184. AT THE TIME OF HEARING, THE AR SUBMITTED THAT : ITA NO. 5372/MUM/2011 M/S CHURU TRADING COMPANY P. LTD. 3 ON IDENTICAL GROUND, THE NOTIONAL INTEREST ALLOCAT ED TO STOCK-IN-TRADE OF SHARES HAS BEEN CONFIRMED AS SPECULATION LOSS BY THE HONB LE ITAT D BENCH, MUMBAI IN THE CASE OF SISTER CONCERN, M/S GANJAM TRADING C O. PVT. LTD. VS DCIT (ITA NO. 3724/MUM/2005) A/Y 2001-02, (ITA NO. 932/MUM/20 06) A/Y 2002-03 AND (ITA NO. 1382/MUM/2007) A/Y 2003-04 VIDE ORDER DATED 20/07/2012 (AT PARA 3) AT PAGES 22 TO 26. IN PARA 3.4 ON PAGE 25, IT IS HELD AS UNDER IN THE APPELLATE ORDER : WE SEE NO INFIRMITY IN THE CONCLUSION DRAWN BY THE AUTHORITIES BELOW THAT PROVISIONS OF EXPLANATION TO SECTION 73, ARE APPLIC ABLE IN THE CASE OF ASSESSEE AND THE LOSS FROM TRADING IN SHARES HAS TO BE TREAT ED AS SPECULATION LOSS. THE AUTHORITIES ARE ALSO JUSTIFIED IN ALLOCATING INTERE ST EXPENSES TOWARDS THE LOSS ARISING FROM TRADING OF SHARES AS WHILE COMPUTING P ROFIT OR LOSS FROM TRADING OF SHARES ALL EXPENSES HAVE TO BE CONSIDERED. WE THEREFORE, CONFIRM THE ORDER OF THE LEARNED CIT( A) IN TREATING THE INTEREST LOSS AS SPECULATION LOSS. 7. SINCE THE ISSUE IS COVERED AGAINST THE ASSESSEE IN GAN JAM TRADING CO. PVT. LTD. (SUPRA), BEING THE GROUND CONCERN, TH E AR SUBMITTED THAT A CONSIDERED DECISION BE TAKEN. 8. THE DR RELIED ON THE DECISIONS OF THE REVENUE AUTHORITIES. 9. ON GOING THROUGH THE ORDER OF THE COORDINATE BENCH IN GANJAM TRADING CO. PVT. LTD. (SUPRA), ON IDENTICAL ISSUE, WE DO NOT FIND ANY REASON TO DEVIATE FROM THE DECISION OF THE CIT(A), WHO HAS CONFIRMED THE OBSERVATION OF THE AO IN TREATING BUSINESS LOSS AS SPECULATION LOSS . 10. THE GROUND IS, REJECTED. 11. GROUND NO. 3 IS AGAINST THE DISALLOWANCE U/S 14A. IT WA S POINTED OUT BY THE AR THAT, THE DISALLOWANCE RESTRICTED BY THE LD. CITA(A) @ 1 0% OF THE DIVIDEND INCOME IS UNJUSTIFIED. ON IDENTICAL GROUND IN THE DEPARTMENTAL APPEAL FOR A/Y 2006-07 IN THE APPELLANTS CASE, THE HONBEL ITA TRIBUNAL C BENC H (ITA NO. 5274/MUM/2011) VIDE ORDER DATED 31/05/2012 HAS REST ORED THE MATTER BACK TO THE AO TO WORK OUT THE DISALLOWANCE U/S 14A ON S OME REASONABLE BASIS AND NOT UNDER RULE 8D AFTER ALLOWING REASONABLE OPPORTU NITY OF BEING HEARD TO THE ASSESSEE. 12. THE AR SUBMITTED THAT THE DISALLOWANCE CONFIRMED BY TH E CIT(A) @ 10% OF THE DIVIDEND INCOME IS VERY HIGH AND PRAYED THAT IF THE ITA NO. 5372/MUM/2011 M/S CHURU TRADING COMPANY P. LTD. 4 DISALLOWANCE HAS TO BE MADE, IT SHOULD BE RESTRICTED TO 2 % OF THE DIVIDEND INCOME. 13. THE DR RELIED ON THE ORDERS OF THE REVENUE AUTHORITY. 14. ON GOING THROUGH THE ORDER OF THE COORDINATE BENCH , WE FEEL THAT THE COORDINATE BENCH HAS TAKEN A VERY REASONABLE APPR OACH TO WORK OUT THE DISALLOWANCE ON A REASONABLE BASIS IN THE CURRENT YEAR, WHERE THE DEPARTMENT HAD GONE IN APPEAL AGAINST THE DISALLOWANC E RESTRICTED TO 10%. WE, FULLY ENDORSE THE VIEW TAKEN BY THE COORDINA TE BENCH, AND WE ALSO DIRECT THE AO TO WORKOUT DISALLOWANCE ON REASONABLE BASIS. 15. THE GROUND IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 16. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 20/11/2012. SD/- ( RAJENDRA SINGH ) ACCOUTANT MEMBER SD/- ( VIVEK VARMA ) JUDICIAL MEMBER MUMBAI, DATE: 20/11/2012 COPY TO : 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A)- 22 , MUMBAI. 4) THE CIT 10, MUMBAI, 5) THE D.R. C BENCH, MUMBAI. 6) COPY TO GUARD FILE. BY ORDER ASSTT. REGISTRAR I.T.A.T., MUMBAI