M/s Elite Wealth Advisors ltd., New Delhi V. DCIT, New Delhi

ITA 5384/DEL/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86759 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 3 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-02-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 16-12-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 22-10-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: PARWINDER KAUR
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B : NEW DELHI BEFORE SHRI S. V. MEHROTRA , ACCOUNTANT MEMBER AND SHRI A. T. VARKEY, JUDICIAL MEMBER ITA NO. 5384 /DEL/ 2012 (ASSESSMENT YEAR: 2009 - 10 ) ELITE WEALTH ADVISORS LTD, (FORMERLY KNOWN AS ELITE STOCK MANAGEMENT LTD.), S - 8, DDA SHOPPING COMPLEX, MAYUR VIHAR, PHASE - I, NEW DELHI PAN:AAACE0759K VS. DCIT CIRCLE - 11(1), NEW DELHI (APPELLANT) (RESPONDENT) APPELLANT BY : NONE RESPONDENT BY : PA R WINDER KAUR, SR. DR. O R D E R PER A. T. VARKEY, JUDICIAL MEMBER THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF THE LD CIT(A), III, NEW DELHI DATED 06.08.2012 RELATES TO ASSESSMENT YEAR 2009 - 10. 2. THE SOLITARY ISSUE IS THAT RS.77,216/ - DISALLOWED U/S 14A OF THE INCOME T AX ACT, 1961(HEREIN AFTER THE ACT). 3. BRIEF FACTS OF THE CASE AS NOTED BY THE LD CIT(A) IS THAT THE APPELLANT COMPANY WAS ENGAGED IN THE BUSINESS OF SHARE BROKING, SHARE TRADING AND PROVIDING DEPOSIT SERVICES. DURING THE YEAR, THE APPELLANT HAS RECEIVE D EXEMPT INCOME IN THE FORM OF DIVIDEND FROM INVESTMENTS MADE IN SUBSIDIARY AND ASSOCIATE COMPANIES AND FROM SHARES . AFTER TAKING NOTE OF THE REPLY OF THE ASSESSEE, THE AO WAS OF THE OPINION THAT ASSESSEE HAD INCURRED EXPENSES TO MANAGE ITS INVESTMENT WH ICH YIELDED EXEMPT INCOME AND HAS OBSERVED THAT THE ASSESSEE HAS FAILED TO CALCULATE SUCH EXPENSES TO ASCERTAIN THE CALCULATION IN RESPECT OF EARNING OF EXEMPT INCOME. THEREAFTER HE INVOKED RULE 8D AND DISALLOW ED OF SUM OF RS. 77,216/ - . 5. AGGRIEVED BY THE SAID ORDER OF THE AO THE ASSESSEE PREFERRED AN APPEAL BEFORE LD CIT(A) , WHO WAS PLEASED TO DISMISS THE SAME BY OBSERVING AS UNDER: - PAGE 2 OF 3 I HAVE CONSIDERED THE SUBMISSION OF THE APPELLANT AND OBSE RVATION OF THE AO . IT IS SEEN THAT APPELLANT HAS RECEIVED DIVIDEND INCOME OF RS. 4,12,019/ - DURING THE YEAR. THESE DIVIDENDS ARE EXEMPT FROM TAX AND SUCH INCOME DOES NOT FORM PART OF TOTAL INCOME. IT IS ALSO SEEN THAT APPELLANT HAS SHOWN TOTAL AVERAGE INVESTMENTS OF RS. 86 ,94,148/ - ON WHICH EXEMPT INCOME IN THE FORM OF DIVIDEND AND LONG TERM CAPITAL GAIN WAS RECEIVABLE TO THE APPELLANT. IT IS OBSERVED THAT EARNING OR EXEMPT INCOME IS NOT A PASSIVE ACTIVITY. IN THE PRESENT AGE OF MAKING OF INVESTMENT, MAINTAINING OR CONTINUI NG WITH INVESTMENT AND TIME OF EXIT FROM THE INVESTMENT ARE WELL INFORMED AND WELL COORDINATED MANAGEMENT DECISION INVOLVING NOT ONLY INPUTS FROM VARIOUS SOURCES BUT ALSO ACUMEN OF SENIOR MANAGEMENT FUNCTIONARIES. THEREFORE, COST IS INBUILT EVEN IN SO CALL ED PASSIVE INVESTMENT. THERE ARE INCIDENTAL EXPENDITURE OF COLLECTION, TELEPHONE AND FOLLOW UP ETC. THEREFORE, EXPENSES RELATED TO EARNING OF EXEMPT INCOME ARE EMBEDDED IN THE EXPENSES DEBITED TO PROFIT AND LOSS ACCOUNT. IT IS SEEN THAT THE COST OF THE FUNDS WHICH HAVE BEEN INVESTED IN EARNING EXEMPT INCOME HAS BEEN DEBITED TO THE PROFIT AND LOSS ACCOUNT. SIMILARLY THE EXPENDITURE ON ADMINISTRATION AND ON INVESTMENT IS EMBEDDED IN THE EXPENDITURE DEBITED TO THE PROFIT AND LOSS ACCOUNT. IT IS ALSO SEEN THAT FUNDS BORROWED BY THE APPELLANT WERE PUT IN A COMPOSITE ACCOUNT AND IT IS NOT ASCERTAINABLE FROM THE RECORDS WHETHER INVESTMENT WAS MADE OUT OF OWN FUNDS OR OUT OF FUNDS BORROWED DURING THE F. Y. 2008 - 09. NO SEPARATE ACCO UNT IS MAINTAINED FOR THE INVESTMENT PURPOSES WHICH COULD PROVE THAT FUNDS USED WERE NOT FROM THE INTEREST BEARING LOANS OBTAINED BY THE APPELLANT IN 2008 - 09. SINCE NO SUCH EVIDENCE HAS BEEN BROUGHT ON RECORD BY THE APPELLANT, THEREFORE THE CONTENTION OF T HE APPELLANT THAT INVESTMENT OF RS.86,94,148/ - IN THE SHARES AND SECURITIES WERE MADE OUT THE NON INTEREST BEARING FUNDS CANNOT BE BELIEVED. THEREFORE, THE PROVISIONS OF SECTION 14A READ WITH RULE 8D OF IT RULE 1962 ARE CLEARLY APPLICABLE IN THE CASE OF APP ELLANT FOR THE YEAR UNDER CONSIDERATION. FURTHER FOR APPLICABILITY OF THE PROVISIONS OF SECTION 14A READ WITH RULE 8D IT IS NOT NECESSARY THAT DIVIDEND INCOME HAS TO BE EARNED. IT IS SO HELD BY THE SPECIAL BENCH ITAT DELHI IN THE CASE OF CHEMINVEST LTD. VS . ITO (2009) 317 ITR (AT) 86 (DELHI). IN VIEW OF THE FACTS STATED ABOVE IT IS ESTABLISHED THAT INVESTMENT IN THE SHARES MADE BY THE APPELLANT IN FINANCIAL YEAR 2008 - 09 WERE OUT OF THE FUNDS AVAILABLE IN COMMON ACCOUNT AND THERE IS NO EVIDENCE THAT THESE IN VESTMENTS WERE MADE FROM THE NON INTEREST BEARING FUNDS. THE CONTENTION OF THE APPELLANT THAT APPELLANT IS DEALING SHARE TRADING AND SHARE BROKING, THEREFORE, PROVISIONS OF SECTION 14A READ WITH RULE 8D IS NOT APPLICABLE ON THE APPELLANT IS NOT CORRECT TH E SECTION 14A DOES NOT MAKE ANY SUCH DISTINCTION. THESE PROVISIONS ARE APPLICABLE WHEREVER THE EXEMPT INCOME IS EARNED AND COMMON EXPENSES ARE INCURRED FOR EARNING SUCH EXEMPT INCOME. IN VIEW OF THE ABOVE THE ASSESSING OFFICER HAS RIGHTLY APPLIED THE PROV ISIONS OF SECTION 14A READ WITH RULE 8DANDTHE DISALLOWANCE OF EXPENSES OF RS. 77,216/ - HAS BEEN RIGHTLY MADE. THEREFORE, THE ADDITION MADE BY THE ASSESSING OFFICER IS SUSTAINED. 6. HAVING CONSIDERED THE RIVAL SUBMISSION AND AFTER CAREFULLY PERUSING THE RECORDS OF THE CASE, WE FIND THAT THE ASSESSEE HAS BORROWED FUNDS AND THE SAME PAGE 3 OF 3 HAS BEEN PUT IN A COMPOSITE ACCOUNT AND SO IT COULD NOT BE ASCERTAINED FROM THE RECORDS WHETHER INVESTMENT WAS MADE OUT OF OWN FUNDS OR OUT OF FUNDS BORROWED DURING THE FINANCIA L YEAR 2008 - 09. THE LD CIT(A) HAS RECORDED A FINDING THAT NO SEPARATE ACCOUNT WAS MAINTAINED FOR THE INVESTMENT PURPOSES WHICH COULD PROVE THAT FUNDS USED WERE NOT FROM THE INTEREST BEARING LOAN OBTAINED BY THE APPELLANT IN THE FINANCIAL YEAR 2008 - 09 . BEFO RE US ALSO THE LD AR COULD NOT BRING TO OUR NOTICE ANYTHING CONTRARY TO THE FINDING OF THE LD CIT(A) AND THEREFORE THE CONTENTION OF THE APPELLANT THAT INVESTMENT OF RS.86,94,148/ - IN THE SHARES AND SECURITIES WERE MADE OUT OF NON INTEREST B E ARING FUNDS COULD NOT BE PROVED. SINCE THE AO HAS RECORDED SATISFACTION AS ENVISAGED U/S 14A(2) AND HAS RIGHTLY INVOKED RULE 8D. THE LD AR COULD NOT POINT OUT ANY MISTAKE IN THE COMPUTATION AS PER RULE 8D, THEREFORE WE ARE INCLINED TO CONFIRM THE ORDER OF THE LD CIT(A) AND DISMISS THE APPEAL OF THE ASSESSEE. 7. IN THE RESULT THE APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 3 . 0 2 . 2 0 1 5 . - S D / - - S D / - ( S. V. MEHROTRA ) (A. T. VARKE Y) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 1 3 . 0 2 . 2 0 1 5 A K KEOT COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI