M/s. Devata Tradelink Ltd., New Delhi V. ACIT, New Delhi

ITA 5606/DEL/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 2843 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 7 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-06-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 05-06-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 16-10-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: F R MEENA
• Assessee Lawyers: P K KAMAL
• Keywords: Business income; Rule of consistency; Earning of tax free income
• Section: 142(1); 14A

Judgement Text

1 ITA NO. 5606/DEL/2014 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: F NEW DELHI BEFORE SHRI O.P. KANT, ACCOUNTANT MEMBE R AND MS SUCHITRA KAMBLE, JUDI CIAL MEMBER I.T.A .NO.5606/DEL/20 14 (A.Y 2008-09) DEVATA TRADELINK LTD. M-62 & 63, 1 ST FLOOR, CONNAUGHT PLACE NEW DELHI AACCD7598M (APPELLANT) VS ACIT CIRCLE-10(1) NEW DELHI (RESPONDENT) APPELLANT BY SH. GAUTAM JAIN, ADV & SH. P. K. KAMAL, ADV RESPONDENT BY SH. F. R. MEENA, SR. DR ORDER PER SUCHITRA KAMBLE, JM THE APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORD ER DATED 9/7/2014 PASSED BY THE CIT(A)-IV, NEW DELHI. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- GROUND NO.1: THE CIT(A) HAS ERRED ON FACTS AND CIRCUMSTANCES OF THE CASE IN CONFIRMING THE ADDITION MADE BY THE ASSESSING OFFICER (HEREIN AFT ER REFERRED TO AS AO) AMOUNTING TO RS.5,06,73,874/- U/S 14A READ WITH RUL E 8D. DATE OF HEARING 05.06.2017 DATE OF PRONOUNCEMENT 15.06.2017 2 ITA NO. 5606/DEL/2014 GROUND NO.2: THE CIT(A) ERRED IN NOT APPRECIATING THAT THE INCOM E FROM PURCHASE AND SALE OF SHARES AMOUNTING TO RS.7.10 CRORES HAS BEEN ASSESSE D TO TAX AS INCOME FROM TRADING IN SHARES AND THE SAME WAS NOT INCOME WHIC H DOES NOT FROM PART OF TOTAL INCOME SO AS TO ATTRACT THE PROVISIONS OF SE CTION 14A OF ACT. GROUND NO.3: THE CIT(A) FURTHER ERRED IN NOT APPRECIATING THAT T HE EXPENDITURE WAS NOT INCURRED IN RELATION TO AN EXEMPT INCOME BUT FOR DERIVING PR OFITS FROM TRADING IN SHARES WHICH FORM PART OF TOTAL INCOME AND HAS BEEN ASSESS ED AS SUCH. GROUND NO.4: THE CIT(A) HAS ERRED ON FACTS AND CIRCUMSTANCES OF THE CASE IN CONFIRMING THE ADDITION MADE BY THE A.O U/S 14A READ WITH RULE 8D WITHOUT APPRECIATING THE FACT THAT THE LD. A.O PROCEEDED TO APPLY RULE 8D WI THOUT APPRECIATING THAT THE DISALLOWANCE WAS MADE BY THE APPELLANT ITSELF. GROUND NO.5: THE CIT(A) HAS ERRED ON FACTS AND CIRCUMSTANCES OF THE CASE IN CONFIRMING THE ADDITION MADE BY THE A.O U/S 14A READ WITH RULE 8D WITHOUT APPRECIATING THE FACT THAT TREATMENT GIVEN IN THE BOOKS OF ACCOUNT I S NOT CONCLUSIVE AND THE FACT THAT THE APPELLANT IS A TRADER HAS NOT BEEN DISPUTE D BY THE AO. 3. THE ASSESSEE IS CLOSELY HELD LIMITED COMPANY (A SUBSIDIARY OF INDIABULLS SECURITIES LTD.) DERIVING INCOME FROM THE BUSINESS OF DEALING IN DERIVATIVES. E- RETURN DECLARING TOTAL INCOME OF 3,09,18,400/- WAS FILED ON 29/5/2009 AND COPY OF THE SAME WAS FILED IN THIS CIRCLE ON 1/6/20 09. THE RETURN WAS PROCESSED U/S 143(1) OF THE I.T ACT, 1961. THE CASE WAS TAKEN UP FOR SCRUTINY AND SUBSEQUENTLY A NOTICE U/S 143(2) DATED 31/8/200 9 WAS ISSUED AND DULY SERVED UPON THE ASSESSEE. SUBSEQUENTLY NOTICE U/S 142(1) OF I.T ACT DATED 18/5/2010 ALONG WITH QUESTIONNAIRE OF SAME DATE WAS ISSUED WHICH WAS DULY SERVED. IN RESPONSE TO NOTICE ISSUED, THE AUTHORIZ ED REPRESENTATIVE OF THE COMPANY ATTENDED THE ASSESSMENT PROCEEDINGS FROM TI ME TO TIME AND FILED REQUIRED DETAILS AS ASKED DURING ASSESSMENT PROCEED INGS. DURING THE YEAR 3 ITA NO. 5606/DEL/2014 UNDER CONSIDERATION THE ASSESSEE CLAIMED A SUM OF R S.35347/- EXEMPT ON ACCOUNT OF DIVIDEND RECEIVED DURING THE YEAR. THE ASSESSEE COMPANY WAS ASKED BY THE AO TO PRODUCE THE CALCULATION OF DISAL LOWANCES AS PER RULE 8D READ WITH SECTION 14A OF I.T ACT VIDE QUESTIONNAIRE DATED 18/5/2010. THE ASSESSEE DID NOT PROVIDE ANY SPECIFIC DETAILS AS RE QUIRED. THUS THE AO HELD THAT IN VIEW OF THE PROVISIONS OF SECTION 14A OF TH E I.T ACT, THE ASSESSEE WAS REQUIRED TO PRODUCE CALCULATION FOR DISALLOWANCE AS PER RULE 8D REGARDING EXEMPT INCOME SO THAT THE DISALLOWANCE U/S 14A OF T HE I.T ACT SHOULD BE MADE. 4. THE CIT(A) HELD THAT THE A.O WAS FULLY JUSTIFIED IN MAKING THE DISALLOWANCE OF RS.5,06,73,874/- U/S 14A READ WITH RULE 8D. EVEN OTHERWISE, THE CLAIM OF THE ASSESSEE WAS NOT ALLOWABLE U/S 36( III) OF THE ACT AS THE INTEREST PAID IS IN RESPECT OF CAPITAL BORROWED WHICH HAS BE EN UTILIZED FOR INVESTMENT PURPOSES AND NOT FOR ANY BUSINESS PURPOSE. THEREFO RE, THE IMPUGNED ADDITION OF RS.5,06,73,874/- MADE BY THE A.O WAS UPHELD BY T HE CIT(A) AND REJECTED THE APPEAL OF THE ASSESSEE. 5. THE LD. AR SUBMITTED THAT THE ASSESSEE HAS GIVEN THE DETAILS OF THE PURCHASE AND SALE OF SHARES AND PROFITS, DECLARED A ND ASSESSED TO TAX ALONGWITH THE DETAILS OF THE MUTUAL FUND WHICH WAS ACCEPTED AS BUSINESS INCOME BY THE ASSESSING OFFICER. THUS, THE LD. AR S UBMITTED THAT ONCE THE INCOME FROM SHARES IS ASSESSED AS BUSINESS INCOME , NO DISALLOWANCE CAN BE MADE UNDER SECTION 14A OF THE ACT IN RESPECT OF THE SHARES AND AS SUCH DISALLOWANCE MADE BY INVOKING RULE 8D (2)(III) OF T HE RULES IN RESPECT OF SHARES IS EXFACIE MISPLACED. THE LD. AR RELIED UPON THE JU DGMENTS OF APEX COURT AND HIGH COURT WHICH ARE AS FOLLOWS: I. CIT VS WALFORT SHARE & STOCK BROKERS (P) LTD. 32 6 ITR 1 (SC) II. GODREJ & BOYCE MANUFACTURING CO. LTD. VS. DCIT 81 TAXMANN.COM 111(SC) III. PR.CIT VS. STATE OF PATIALA 391 ITR 218 (P&H) THE LD. AR FURTHER SUBMITTED THAT DISALLOWANCE CANN OT EXCEED THE EXEMPT INCOME OF RS. 35,347/- ((RELIANCE LIQUID FUND) AND SINCE DISALLOWANCE MADE 4 ITA NO. 5606/DEL/2014 BY THE ASSESSEE VOLUNTARILY OF RS. 87,442/- IS HIGH ER THAN THE EXEMPT INCOME NO FURTHER DISALLOWANCE IS OTHERWISE TOO TENABLE. T HE LD. AR RELIED UPON THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN CASE OF JOINT INVESTMENT PVT. LTD. VS. CIT 372 ITR 694 (DEL). THE LD. AR SUBMITTED THA T IN ABSENCE OF SATISFACTION U/S 14A(2) OF THE ACT READ WITH RULE 8D(1) OF THE I NCOME TAX RULES, 1962 DISALLOWANCE MADE OTHERWISE TOO IS UNTENABLE AS HEL D IN CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. BY THE APEX COURT. THE LD. AR FURTHER SUBMITTED THAT IN ABSENCE OF ANY IDENTIFIED/SPECIFIC EXPENDIT URE DISALLOWANCE IS UNTENABLE BY RELYING UPON THE JUDGMENT IN CASE OF M AXOPP INVESTMENT LTD. VS. CIT 347 ITR 272 (DEL HC). THE LD. AR SUBMITTED THAT RULE 8D APPLIED ONLY IN RESPECT OF SHARES ON WHICH EXEMPT INCOME HAS BEEN E ARNED DURING THE YEAR. THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME DURIN G THE YEAR. THE LD. AR FURTHER SUBMITTED THAT THERE WAS NO DISALLOWANCE IN THE SUCCEEDING YEAR, THUS THE PRINCIPLE OF CONSISTENCY WAS NOT FOLLOWED. NOME NCLATURE IN BOOKS OF ACCOUNT IS NOT CONCLUSIVE MORE PARTICULARLY WHEN TH E PROFIT ASSESSED AS BUSINESS INCOME. THEREFORE, THE LD. AR SUBMITTED TH AT THE APPEAL OF THE ASSESSEE BE ALLOWED. 6. THE LD. DR SUBMITTED THAT THE A.O WAS FULLY JUST IFIED IN MAKING THE DISALLOWANCE OF RS.5,06,73,874/- U/S 14A READ WITH RULE 8D. EVEN OTHERWISE, THE CLAIM OF THE ASSESSEE WAS NOT ALLOWABLE U/S 36( III) OF THE ACT AS THE INTEREST PAID IS IN RESPECT OF CAPITAL BORROWED WHICH HAS BE EN UTILIZED FOR INVESTMENT PURPOSES AND NOT FOR ANY BUSINESS PURPOSE. THEREFO RE, THE IMPUGNED ADDITION OF RS.5,06,73,874/- MADE BY THE A.O WAS RIGHTLY UPH ELD BY THE CIT(A). THE LD. DR COULD NOT DISTINGUISH THE JUDGMENTS SUBMITTED BY THE LD. AR DURING THE COURSE OF HEARING. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE R ECORDS. IT IS SEEN THAT THE ASSESSEE PURCHASE AND SALE SHARES OF MUTUAL FUN DS AND DECLARED THE PROFITS BEFORE THE ASSESSING OFFICER IN DETAIL AND THE ASSESSING OFFICER HIMSELF ACCEPTED THE TREATMENT OF THE ASSESSEE WHILE TAXABI LITY AS TO PROFIT AND GAINS 5 ITA NO. 5606/DEL/2014 FROM BUSINESS OR PROFESSION. ONCE THE ASSESSING OF FICER ACCEPTS THAT THE SAID INCOME IS FROM BUSINESS THEN THE PROVISIONS OF THE SECTION 14A OF THE ACT WILL NOT APPLY. IT IS ACCEPTED FACT THAT THE ASSESSEE IS CLOSELY HELD LIMITED COMPANY (A SUBSIDIARY OF INDIABULLS SECURITIES LTD.) DERIVI NG INCOME FROM THE BUSINESS OF DEALING IN DERIVATIVES. ONCE THE INCOME FROM SHARES IS ASSESSED AS BUSINESS INCOME, NO DISALLOWANCE CAN BE MADE UNDER SECTION 14A OF THE ACT IN RESPECT OF THE SHARES AND AS SUCH DISALLOWANCE MADE BY INVO KING RULE 8D (2)(III) OF THE RULES IN RESPECT OF SHARES IS NOT JUST AND PROPER. THE HONBLE APEX COURT IN CASE OF GODREJ & BOYCE (SUPRA) HELD THAT SUB-SECTIO NS (2) AND (3) OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES MERELY PR ESCRIBE A FORMULA FOR DETERMINATION OF EXPENDITURE INCURRED IN RELATION T O INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT IN A SI TUATION WHERE THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CLAIM OF THE ASSE SSEE. WHETHER SUCH DETERMINATION IS TO BE MADE ON APPLICATION OF THE F ORMULA PRESCRIBED UNDER RULE 8D OR IN THE BEST JUDGMENT OF THE ASSESSING OF FICER, WHAT THE LAW POSTULATES IS THE REQUIREMENT OF A SATISFACTION IN THE ASSESSING OFFICER THAT HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, AS P LACED BEFORE HIM, IT IS NOT POSSIBLE TO GENERATE THE REQUISITE SATISFACTION WIT H REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. IT IS ONLY THEREAFTER TH AT THE PROVISIONS OF SECTION 14A(2) AND (3) READ WITH RULE 8D OF THE RULES OR A BEST JUDGMENT DETERMINATION, AS EARLIER PREVAILING, WOULD BECOME APPLICABLE. THE HONBLE APEX COURT FURTHER HELD IN THAT CASE THAT THE ASSES SEE IS ENTITLED TO THE FULL BENEFIT OF THE CLAIM OF DIVIDEND INCOME WITHOUT ANY DEDUCTIONS. THE HONBLE DELHI HIGH COURT IN CASE OF JOINT INVESTMENT (SUPRA ) HELD THAT BY NO STRETCH OF IMAGINATION CAN SECTION 14A OR RULE 8D BE INTERPRET ED SO AS TO MEAN THAT THE ENTIRE TAX EXEMPT INCOME IS TO BE DISALLOWED. THE W INDOW FOR DISALLOWANCE IS INDICATED IN SECTION 14A, AND IS ONLY TO THE EXTENT OF DISALLOWING EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO THE TAX EX EMPT INCOME. THUS THE ORDER OF THE CIT(A) IS SET ASIDE AND THE APPEAL OF THE AS SESSEE IS ALLOWED. 6 ITA NO. 5606/DEL/2014 8. IN RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH JUNE, 2017 . SD/- SD/- (O. P. KANT) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEM BER DATED: 15/06/2017 R. NAHEED * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI DATE 1. DRAFT DICTATED ON 05/06/2017 PS 2. DRAFT PLACED BEFORE AUTHOR 05/06/2017 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER .2017 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 7 ITA NO. 5606/DEL/2014 5. APPROVED DRAFT COMES TO THE SR.PS/PS 16.06.2017 PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK 16.06.2017 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.