M/s. ARIHANT FINSEC LIMITED, Indore V. The DCIT 1(1), Indore

ITA 563/IND/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 5858 (ITAT-INDORE)
• Duration Of Justice: 1 year(s) 4 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 16-12-2015
• Assessment Year: 2011-2012
• Appeal Filed On: 25-08-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R R MEENA
• Keywords: Business income
• Section: 14A

Judgement Text

ITA NO.563 OF 2014 ARIHANT FINSEC 1 IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER AND SHRI B.C. MEENA, ACCOUNTANT MEMBER ITA NO. 563/IND/2014 A.Y. 2011-12 M/S. ARIHANT FINSEC LTD., INDORE PAN AAHCA 0334 P :: APPELLANT VS DCIT-1(1), INDORE :: RESPONDENT ASSESSEE BY SHRI AJAY TULSIYAN, CA RESPONDENT BY SHRI R.R. MEENA, DR DATE OF HEARING 6.1.2016 DATE OF PRONOUNCEMENT 6.1.2016 O R D E R PER SHRI B.C. MEENA, AM THIS APPEAL IS FILED BY THE ASSESSEE CHALLENGING T HE ORDER OF LD. CIT(A)-I, INDORE, DATED 10.6.2014. 2. THE FIRST ISSUE RAISED BY THE ASSESSEE IS WITH R EGARD TO CONFIRMATION OF THE ADDITION OF RS.25,13,307/- MADE ON ACCOUNT OF DISALLOWANCE U/S 14A OF THE I.T. ACT. FACTS, IN BRI EF, ARE THAT ON PERUSAL OF THE DETAILS, THE AO OBSERVED THAT THE AS SESSEE HAS SHOWN A DIVIDEND INCOME OF RS.13,48,040/- WHILE THE ASSESSEE HAS ITA NO.563 OF 2014 ARIHANT FINSEC 2 INCURRED VARIOUS EXPENSES INCLUDING INTEREST ON BOR ROWED FUNDS FOR CARRYING OUT BUSINESS ACTIVITIES OF TRADING IN SHAR ES AND SECURITIES, BY WHICH, THE ASSESSEE HAS EARNED NOT ONLY BUSINESS INCOME BUT ALSO DIVIDEND INCOME. THUS, THE AO DISALLOWED SUCH EXPENSES AT RS.25,13,307/-. THE ASSESSEE WAS ASKED TO CLARIFY T HE SAME. THE ASSESSEE, RELYING ON JUDICIAL PRONOUNCEMENTS, SUBMI TTED THAT EXPENSES WERE ATTRIBUTABLE TO THE ACTIVITY OF SHARE TRADING, THEREFORE, NO DISALLOWANCE COULD BE MADE U/S 14A AS INCOME FROM DIVIDEND WAS ONLY INCIDENTAL. HOWEVER, THE AO MADE DISALLOWANCE U/S 14A R.W. RULE 8-D. AGAINST THE SAME, THE ASSESS EE APPROACHED THE LD. CIT(A), WHO CONFIRMED THE ACTION OF THE AO. NOW, THE ASSESSEE IS BEFORE US. 2.1 BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE HAS REITERATED THE SUBMISSIONS MADE BEFORE THE REVENUE AUTHORITIES AND CONTENDED THAT LD. REVENUE AUTHORITIES DID NOT CONSIDER THE SUBMISSIONS AND CONFIRMED THE ADDITION. THE AO HAS, TAKING CUE FROM THE WORKING MADE IN TAX AUDIT REPORT, MADE DIS ALLOWANCE, WHICH IS NOT IN ACCORDANCE WITH SECTION 14A R.W. RU LE 8D AS THE SAME IS APPLICABLE ONLY WHEN THE AO IS NOT SATISFIE D WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF THE SUCH ITA NO.563 OF 2014 ARIHANT FINSEC 3 EXPENSES. THE ASSESSEE HAS NOT INVESTED ANY BORROWE D FUNDS IN THE INVESTMENT. IT HAS NOT INVESTED IN SHARES WITH THE INTENTION OF EARNING DIVIDEND. THE INVESTMENTS WERE MADE FROM OW N CAPITAL AND RESERVES. THE ASSESSEE HAD INVESTMENT WORTH RS.5 LA CS ONLY THROUGHOUT THE YEAR. IT HAS STOCK IN TRADE OF RS.9, 98,91,325/- AT THE BEGINNING OF THE YEAR AND RS.8,52,11,521/- AT THE E ND OF THE YEAR. THE ASSESSEE HAS EARNED THE DIVIDEND INCOME EARNED ON SHARES HELD AS STOCK IN TRADE. THE DIVIDEND WAS INCIDENTAL TO THE TRADING ACTIVITY, THE INCOME FROM WHICH WAS TAXABLE. THEREF ORE, THE DISALLOWANCE MADE BY THE AO UNDER THE PROVISIONS OF RULE 8D R.W.S. 14A IS NOT CORRECT. LEARNED COUNSEL FOR THE ASSESSE E ALSO DREW OUR ATTENTION TO THE JUDICIAL PRONOUNCEMENTS, WHICH ARE PLACED IN THE PAPER BOOK. ON THE OTHER HAND, LD. DR RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES. 2.2 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF BOT H THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON THE FILE . WE FIND THAT IN VIEW OF THE FACTS AND SUBMISSIONS THEREOF, AS NARRA TED ABOVE, THE MATTER REQUIRES RECONSIDERATION AT THE LEVEL OF THE AO. THE ASSESSEE HAS FILED A PAPER BOOK RUNNING INTO 46 PAG ES ALONG WITH WRITTEN SUBMISSIONS, WHEREIN, THE RELEVANT DOCUMENT S HAVE BEEN ITA NO.563 OF 2014 ARIHANT FINSEC 4 ANNEXED. ASSESSEE HAS AGITATED THAT THE DOCUMENTS H AVE NOT BEEN APPRECIATED BY THE REVENUE AUTHORITIES IN THE PROPE R PERSPECTIVE. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE HAS ALSO MADE SUBMISSION, AS NARRATED ABOVE. ALL THESE REQUIRE CO NSIDERATION OF THE AO. THEREFORE, WE SET ASIDE THE ORDERS OF THE R EVENUE AUTHORITIES ON THIS ISSUE. THE ISSUE IS RESTORED BA CK TO THE FILE OF THE LD. AO WITH DIRECTION TO VERIFY THE CLAIM OF THE AS SESSEE IN VIEW OF THE ABOVE DISCUSSION AND JUDICIAL PRONOUNCEMENTS. T HE AO SHALL DECIDE THE ISSUE AFTER GIVING DUE OPPORTUNITY OF HE ARING TO THE ASSESSEE. THE ASSESSEE SHALL BE AT LIBERTY TO FILE ANY FURTHER EVIDENCE, IF ANY, IN SUPPORT OF ITS CLAIM. THUS, T HE ISSUE IS ALLOWED FOR STATISTICAL PURPOSES. 3. SECOND I.E. LAST ISSUE RAISED BY THE ASSESSEE IS THAT LD. CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS.32,770/- MADE BY THE AO TREATING THE SHORT TERM CAPITAL GAIN FROM INVESTMEN T AS INCOME FROM BUSINESS ACTIVITY. THE AO HAS CONSIDERED IT AS BUSI NESS INCOME ON THE BASIS OF COMMENT OF AUDITOR IN CLAUSE 8(A) OF T HE AUDIT REPORT STATING THAT ASSESSEE WAS ENGAGED IN TRADING OF SEC URITIES. THE ASSESSEE PLEADED THAT SUCH GAIN WAS ON ACCOUNT OF S OLITARY TRANSACTION IN MUTUAL FUND WHICH WAS HELD AS INVEST MENT IN THE ITA NO.563 OF 2014 ARIHANT FINSEC 5 BALANCE-SHEET AND SOLD AFTER A PERIOD OF 6 MONTHS. HOWEVER, THE AO DID NOT ACCEPT THE PLEA OF THE ASSESSEE AND MADE THE ADDITION AT RS.32,770/-. LD. CIT(A) TOO CONFIRMED THE ACTION OF THE AO. NOW, THE ASSESSEE IS BEFORE US. 3.1 BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE REVENUE AUTHORITIES AND CONTENDED THAT GAIN WAS ON ACCOUNT OF SOLITARY TRANSACTION IN MUTUAL FUND WHICH WAS HELD FOR APPROXIMATELY 6 MONTHS, THEREFOR E, IT IS A SHORT TERM CAPITAL GAIN AND NOT BUSINESS INCOME. HE ALSO RELIED ON THE CIRCULAR NO.4/2007 DATED 15.6.2007 IN THIS REGARD. THE MUTUAL FUNDS PURCHASED WERE REFLECTED AS THE INVESTMENT IN THE B OOKS OF ACCOUNT AND ALSO IN THE BALANCE-SHEET OF THE ASSESSEE. HE A LSO DREW OUR ATTENTION TO CERTAIN JUDICIAL PRONOUNCEMENTS. ON TH E OTHER HAND, LD. DR RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES. 3.2 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF BOT H THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON THE FILE . WE FIND THAT ASSESSEE HAS EXPLAINED THE FACTUAL POSITION. REVENU E AUTHORITIES COULD NOT APPRECIATE THE FACT THAT GAIN WAS ON ACCO UNT OF SOLITARY TRANSACTION IN MUTUAL FUND WHICH WAS HELD FOR ABOUT 6 MONTHS. CBDT CIRCULAR NO.4/2007 DATED 15.6.2007 STATES THAT IT IS ITA NO.563 OF 2014 ARIHANT FINSEC 6 PERMISSIBLE FOR A TAX PAYER TO MAINTAIN TWO TYPES O F PORTFOLIOS I.E. AN INVESTMENT AND THE OTHER AS TRADING PORTFOLIO. THE ASSESSEE HAS ALSO MAINTAINED THE SAME, ONE FOR INVESTMENT AND TH E OTHER FOR BUSINESS ACTIVITY. THE MUTUAL FUNDS PURCHASED WERE REFLECTED AS THE INVESTMENT IN THE BOOKS OF ACCOUNT AND ALSO IN THE BALANCE-SHEET OF THE ASSESSEE. THE ASSESSEE HAS EARNED SHORT TERM CA PITAL GAIN ON THOSE MUTUAL FUNDS WHICH WERE ACQUIRED BY IT IN THE IMMEDIATELY PRECEDING YEAR, THEREFORE, THE ACTION OF THE ASSESS EE CANNOT BE TREATED AS AFTERTHOUGHT. A PERUSAL OF PAGE NO.15 OF THE PAPER BOOK, WHICH IS SCHEDULE OF BOOKS OF ACCOUNT, ASCERTAINS O UR OBSERVATIONS FACTUALLY. THEREFORE, REVENUE AUTHORITIES WERE NOT JUSTIFIED IN MAKING/CONFIRMING THE ADDITION. THE RATIO TAKEN IN THE FOLLOWING JUDICIAL PRONOUNCEMENTS FURTHER SUPPORTS THE CASE O F THE ASSESSEE: 1. GOPAL PUROHIT VS. JCIT, 122 TTJ (MUM) 87; 2. SARNATH INFRASTRUCTURE P. LTD. VS. ACIT, 120 TTJ (LUCK) 216; 3. JANAK RANGWALA VS. ACIT (2007) 011 SOT 627 (TBOM ). 3.3 ON CONSIDERATION OF ABOVE FACTS IN THE LIGHT OF THE JUDICIAL PRONOUNCEMENTS, WE DELETE THE ADDITION OF RS.32,770 /-. ACCORDINGLY, GROUND NO.2 OF THE APPEAL OF THE ASSES SEE IS ALLOWED. ITA NO.563 OF 2014 ARIHANT FINSEC 7 IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOW ED PARTLY. ORDER WAS PRONOUNCED IN THE OPEN COURT ON 06.1.2016 . SD/- ( D.T. GARASIA) JUDICIAL MEMBER SD/- (B.C. MEENA) ACCOUNTANT MEMBER DATED : 06.1.2016 !VYS! COPY TO: APPELLANT / RESPONDENT / CIT(A) / CIT / DR, INDORE