ITO 3(1)(2), MUMBAI V. DEVKANT SYNTHETICS (I) P.LTD, MUMBAI

ITA 5445/MUM/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 1464 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-03-2019
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2014-2015
• Appeal Filed On: 24-08-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ABHI RAM KARTIKEYAN LD
• Assessee Lawyers: NEEL KHANDELWAL LD
• Keywords: Earning of tax free income; Tax effect; Revised return; Rule 8D
• Section: 143(3); 14A

Judgement Text

ITA NO.5445/MUM/2017 M/S. DEVKANT SYNTHETICS (INDIA) P.LTD. ASSESSMENT YEAR :2014-15 1 IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI , , BEFORE HONBLE SHRI MAHAVIR SINGH, JM AND HONBLE SHRI MANOJ KUMAR AGGARWAL, AM ./ I.T.A. NO.5445/MUM/2017 ( / ASSESSMENT YEAR:2014-15) INCOME TAX OFFICER - 3(1)(2) AAYKAR BHAVAN, M.K. ROAD MUMBAI-400 020. / VS. M/S. DEVKANT SYNTHETICS (INDIA) PVT.LTD. 1006, RAHEJA CENTRE, NARIMAN POINT MUMBAI-400 021. ./ ./PAN/GIR NO. AAACD-2102- K ( ! /APPELLANT ) : ( '#! / RESPONDENT ) A PPELLANT BY : ABHI RAM KARTIKEYAN - LD.DR R ESPONDENT BY : NEEL KHANDELWAL - LD.AR / DATE OF HEARING : 14/03/2019 / DATE OF PRONOUNCEMENT : 19/03/2019 / O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. AFORESAID APPEAL BY REVENUE FOR ASSESSMENT YEAR [IN SHORT REFERRED TO AS AY] 2014-15 CONTEST THE ORDER OF LD. COMMIS SIONER OF INCOME- TAX (APPEALS)-8, MUMBAI, [IN SHORT REFERRED TO AS CIT(A)], APPEAL NO. CIT(A)-8/IT-345/16-17 DATED 29/06/2017 QUA DELETION OF CERTAIN ADDITION U/S 14A. THE GROUNDS OF APPEAL READ AS UNDER: - ITA NO.5445/MUM/2017 M/S. DEVKANT SYNTHETICS (INDIA) P.LTD. ASSESSMENT YEAR :2014-15 2 1. WHETHER ON THE FACTS AND CIRCUMSTANCES AND IN L AW, THE LD.CIT(A) WAS RIGHT IN DELETING THE DISALLOWANCE DETERMINED UNDER-SECTION 14A READ WITH RULE 8D BY EXCLUDING THE BUSINESS INVESTMENT I.E. STOCK-IN-TRA DE OF SHARES, FOR THE PURPOSE OF DETERMINING DISALLOWANCE WHEN STOCK-IN-TRADE IS NOT HING BUT BUSINESS INVESTMENT. 2.THE HONABLE IT AT HAS GRANTED RELIEF UPON THE DE CISION OF THE BOMBAY HIGH COURT JUDGMENT IN THE CASE OF M/S INDIA ADVANTAGE SECURIT IES LTD. THE DEPARTMENT HAS NOT ACCEPTED THE DECISION OF THE BOMBAY HIGH COURT IN T HE CASE OF INDIA ADVANTAGE SECURITIES LTD, ON MERIT BUT ONLY BECAUSE OF THE SM ALLNESS OF TAX EFFECT INVOLVED ON APPEAL (SLP) HAS BEEN PLED AGAINST THE SAME. 2.1 THE ASSESSMENT FOR IMPUGNED AY WAS FRAMED BY LD . INCOME TAX OFICER-3(1)(2), MUMBAI [AO] U/S. 143(3) ON 30/12/20 16 WHEREIN THE INCOME OF THE ASSESSEE WAS DETERMINED AT RS.384.90 LACS AFTER DISALLOWANCE U/S 14A FOR RS.412.46 LACS AS AGAINST REVISED RETURNED LOSS OF RS.27.56 LACS. THE ASSESSEE BEING RESIDENT CORPORATE ENTITY IS STATED TO BE ENGAGED IN DEALING IN SHARES AND SECURITIES. THE DISALLOWANCE MADE BY LD. AO U/R 8D IS THE SOLE SUBJ ECT MATTER OF PRESENT APPEAL BEFORE US. 2.2 DURING ASSESSMENT PROCEEDINGS, IT TRANSPIRED TH AT THE ASSESSEE EARNED EXEMPT DIVIDEND INCOME OF RS.37.82 LACS AND DID NOT OFFER ANY DISALLOWANCE AGAINST THE SAME SINCE THE SHARES WERE HELD AS STOCK-IN- TRADE. THE ASSESSEE, VIDE REPLY DATED 30/11/2016 DEFENDED IT STAND AND ALSO DREW ATTENTION TO THE ORDER OF THIS TRIBUNAL I N ASSESSEES OWN CASE FOR AYS 2010-11 & 2011-12 AND THE ORDER OF FIRST AP PELLATE AUTHORITY FOR AYS 2012-13 & 2013-14 TO SUBMIT THAT THE DISALLOWAN CE MAY BE RESTRICTED TO 5% OF EXEMPT INCOME. HOWEVER, NOT SAT ISFIED, LD. AO NOTING THAT THE FUNDS WERE MIXED FUNDS, OPINED THAT THE DI SALLOWANCE WAS TO BE WORKED OUT IN TERMS OF RULE 8D IRRESPECTIVE OF THE FACT WHETHER THE SHARES WERE HELD AS STOCK-IN-TRADE OR AS AN INVESTM ENT. REJECTING THE ITA NO.5445/MUM/2017 M/S. DEVKANT SYNTHETICS (INDIA) P.LTD. ASSESSMENT YEAR :2014-15 3 ASSESSEES SUBMISSIONS VIDE PARA 6.6, LD. AO WORKED OUR AGGREGATE DISALLOWANCE AS PER RULE 8D(2) FOR RS.412.46 LACS W HICH COMPRISED-OFF OF INTEREST DISALLOWANCE U/R 8D(2)(II) FOR RS.380.2 4 LACS AND EXPENSE DISALLOWANCE U/R 8D(2)(III) FOR RS.32.21 LACS. THE LD. FIRST APPELLATE AUTHORITY, RELYING UPON THE DECISION OF THIS TRIBUN AL RENDERED FOR AYS 2009-10 TO 2011-12, RESTRICTED THE DISALLOWANCE TO 5% OF EXEMPT INCOME. AGGRIEVED, THE REVENUE IS IN FURTHER APPEAL BEFORE US WHEREIN LD. AR HAS SUBMITTED THAT THE ISSUE STOOD COVERED B Y THE ORDER OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR EARLIER YEARS V IDE ITA NOS. 2663- 2665/MUM/2015 DATED 28/10/2015. THE LD. DR SUPPORTE D THE WORKINGS MADE BY LD. AO. 3. WE HAVE CAREFULLY HEARD THE RIVAL SUBMISSIONS AN D PERUSED RELEVANT MATERIAL ON RECORD. THE UNDISPUTED POSITIO N THAT EMERGES IS THAT THE ASSESSEE HAS BEEN SADDLED WITH DISALLOWANCE U/R 8D ON ACCOUNT OF INTEREST AS WELL AS ADMINISTRATIVE EXPENDITURE. THE FIRST APPELLATE AUTHORITY HAS GRANTED RELIEF PRIMARILY BY RELYING U PON THE ORDER OF THIS TRIBUNAL PASSED ON 28/10/2015 AND RESTRICTED THE IM PUGNED DISALLOWANCE TO 5% OF EXEMPT INCOME. HOWEVER, THE P ERUSAL OF THE TRIBUNAL ORDER FOR EARLIER YEARS REVEAL THAT THE SA ID ORDER PRIMARILY DRAWS STRENGTH FROM THE FACT THAT THE SHARES HELD AS STOC K-IN-TRADE WERE NOT TO BE CONSIDERED WHILE WORKING OUT THE DISALLOWANCE U/ S 14A. 4. HOWEVER, WE FIND THAT THE AFORESAID PROPOSITION SHALL REQUIRE REVISIT IN VIEW OF THE RECENT JUDGMENT OF HONBLE APEX COUR T RENDERED IN MAXOPP INVESTMENT LTD. VS CIT [12/02/2018 91 TAXMAN N.COM 154] WHEREIN HONBLE COURT HAS APPROVED THE APPLICABILIT Y OF DISALLOWANCE TO SHARES HELD AS STOCK-IN-TRADE AS WELL. SINCE, THE SAID BINDING JUDICIAL ITA NO.5445/MUM/2017 M/S. DEVKANT SYNTHETICS (INDIA) P.LTD. ASSESSMENT YEAR :2014-15 4 PRECEDENTS SHALL HAVE DIRECT BEARING ON THE ISSUE A ND CERTAIN PERTINENT OBSERVATIONS HAVE BEEN MADE BY HONBLE COURT IN THE SAID JUDGMENT WHICH REQUIRE RE-APPRECIATION OF THE ISSUE, WE DEEM IT FIT TO REVERSE THE CONCLUSION OF FIRST APPELLATE AUTHORITY AND RESTORE THE MATTER BACK TO THE FILE OF LD. AO FOR FRESH ADJUDICATION, KEEPING ALL THE ISSUES OPEN. NEEDLESS TO ADD THAT REASONABLE OPPORTUNITY OF BEIN G HEARD SHALL BE GRANTED TO THE ASSESSEE, WHO, IN TURN, IS DIRECTED TO SUBSTANTIATE HIS STAND, IN THIS REGARD. 5. THE APPEAL STANDS ALLOWED FOR STATISTICAL PURPOS ES. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH MARCH, 2019. SD/- SD/- (MAHAVIR SINGH) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 19/03/2019 SR.PS, JAISY VARGHESE !'#$ # / COPY OF THE ORDER FORWARDED TO : 1. ! / THE APPELLANT 2. '#! / THE RESPONDENT 3. * ( ) / THE CIT(A) 4. * / CIT CONCERNED 5. +, '%- , - , / DR, ITAT, MUMBAI 6. ,./0 / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI.