GILL & CO. P.LTD, MUMBAI V. ADDL CIT CIR 2(1), MUMBAI

ITA 5837/MUM/2011

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4296 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 4 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-01-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 14-12-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 18-08-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Earning of tax free income
• Section: 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI . . , , BEFORE S/SHRI B.R.BASKARAN, ACCOUNTANT MEMBER AND SHRI SANDEEP GOS AIN, JUDICIAL MEMBER ./ I.T.A. NO. 5837 /MUM/ 201 1 ( / ASSESSMENT YEAR : 20 08 - 09 ) GILL AND CO.PVT.LTD., NTC HOUSE, NARROTTAM MORARJI MARG, BALLARD ESTATE, MUMBAI - 400038 / VS. ADDL. COMMISSIONER OF INCOME TAX CIRCLE 2(1) AAYAKAR BHAVAN, M K ROAD, MUMBAI - 400020 ./ PAN : ( / APPELLANT ) .. ( / RESPONDENT ) ./ ./PAN. : AAACG3743M / APPELLANT BY : SHRI NITESH JOSHI , / RESPONDENT BY : SHRI KAILASH KANOJIYA / DATE OF HEARING : 14 .12. 2015 / DATE OF PRONOUNCEMENT : 1. 1. 201 6 O R D E R PER B.R.BASKARAN,AM : THE APPEAL FILED BY THE ASSESSEE IS DIREC TED AGAINST THE ORDER DATED 17 - 06 - 2011 PASSED BY LD CIT(A) - 4, MUMBAI AND IT RELATES TO THE ASSESSMENT YEAR 2008 - 09. THE ASSESSEE IS IN APPEAL IN RESPECT OF THE FOLLOWING ISSUES: - ( A ) DISALLOWANCE U/S 14A OF THE ACT. ( B ) ASSESSMENT OF GAINS ARISING ON SALE OF SH ARES AS BUSINESS INCOME. 2. WE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING IN COTTON BALES AND SEEDS. BESIDES THAT, IT IS ALSO HAVING COMMISSION INCOME, INVESTMENT INCOME FROM ITA NO. 5837 / MUM/ 20 11 2 MUT UAL FUNDS & SHARES. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE DECLARED SHORT TERM CAPITAL GAIN OF RS.183.85 LAKHS FROM SALE OF SHARES. THE AO TREATED THE SAME AS BUSINESS INCOME OF THE ASSESSEE. FURTHER, THE ASSESSEE HAD RECEIVED DIVIDEND INCOME OF RS.23.63 LAKHS FROM MUTUAL FUNDS AND SHARES. SINCE IT WAS CLAIMED AS EXEMPT, THE ASSESSEE ITSELF MADE A DISALLOWANCE OF RS.89.32 LAKHS U/S 14A OF THE ACT. IN THE TAX AUDIT REPORT, THE TAX AUDITOR HAD WORKED OUT THE DISALLOWANCE U/S 14A OF THE ACT AT RS.101.50 LAKHS. HOWEVER, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE GAVE A REVISED WORKING OF DISALLOWANCE U/S 14A, WHEREIN THE SAME WAS WORKED OUT RS.39.44 LAKHS. THE AO DID NOT DISCUSS ABOUT THE REVISED WORKINGS GIVEN BY THE ASSESSEE, BU T CHOSE TO DISALLOW THE SUM OF RS.89.32 LAKHS ORIGINALLY DISALLOWED BY THE ASSESSEE IN THE RETURN OF INCOME. THE LD CIT(A) ALSO CONFIRMED THE SAME. 3. THE LD A.R CONTENDED THAT THE TAX AUTHORITIES ARE NOT JUSTIFIED IN NOT CONSIDERING THE REVISED WORKIN GS GIVEN BY THE ASSESSEE. THE LD A.R FURTHER SUBMITTED THAT THE ASSESSEE IS HAVING SUFFICIENT INTEREST FREE FUNDS, WHICH ARE MORE THAN THE AMOUNT OF INVESTMENTS AND HENCE THERE IS NO REQUIREMENT OF MAKING ANY DISALLOWANCE OF INTEREST U/S 14A OF THE ACT AS HELD BY THE HONBLE JURISDICTIONAL BOMBAY HIGH COURT IN THE CASE OF HDFC BANK (ITA NO.330 OF 2012 DATED 23 - 07 - 2014). HE FURTHER SUBMITTED THAT THE HONBLE DELHI HIGH COURT HAS HELD IN THE CASE OF JOINT INVESTMENTS PVT LTD VS. CIT (ITA 117/2015 DATED 25.0 2.2015) THAT THE DISALLOWANCE U/S 14A OF THE ACT SHOULD NOT EXCEED THE AMOUNT OF EXEMPT INCOME. THE HONBLE DELHI HIGH COURT HAS FURTHER HELD IN THE CASE OF CHEMINVEST LTD (ITA NO.749/2014 DATED 02 - 09 - 2015) THAT THE PROVISIONS OF SEC. 14A SHALL BE ATTRACT ED ONLY IF THERE IS ACTUAL RECEIPT OF EXEMPT INCOME. IT FURTHER HELD THAT THE DECISION RENDERED BY HONBLE SUPREME COURT IN THE CASE OF RAJENDRA PRASAD MOODY (115 ITR 519)(SC) CANNOT BE APPLIED FOR WORKING OUT DISALLOWANCE U/S 14A OF THE ACT. HE FURTHER SUBMITTED THAT THE CO - ITA NO. 5837 / MUM/ 20 11 3 ORDINATE BENCH OF THE TRIBUNAL HAS CONSIDERED AN IDENTICAL ISSUE IN THE ASSESSEES OWN CASE IN ITA NO.6666/MUM/2010 AND THE TRIBUNAL, VIDE ITS ORDER DATED 26.06.2013, HAS RESTORED THE MATTER TO THE FILE OF THE AO WITH THE DIRECTION TH AT THE AO SHOULD KEEP IN MIND THAT THE ASSESSEE HAS MADE INVESTMENT OUT OF ITS OWN FUNDS ANDNOT OUT OF BORROWED FUNDS AS HAS BEEN ACCEPTED BY THE LD CIT(A). ACCORDINGLY, HE PRAYED THAT THE ISSUE OF SEC. 14A DISALLOWANCE REQUIRES FRESH EXAMINATION IN THE LI GHT OF VARIOUS PRINCIPLES CONTENDED BY HIM AND ACCORDINGLY PRAYED THAT IT MAY BE SET ASIDE TO THE FILE OF THE AO. THE LD D.R DID NOT OBJECT TO THE PLEA PUT FORTH BY LD A.R. 4. A PERUSAL OF THE CONTENTIONS OF THE LD A.R SHOWS THAT THIS ISSUE REQUIRES FRE SH EXAMINATION, SINCE THE FACTUAL ASPECTS RELATING TO INTEREST EXPENDITURE, AVAILABILITY OF INTEREST FREE FUNDS ETC., NEED TO BE EXAMINED IN THE LIGHT OF THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF HDFC BANK (SUPRA). THE ASSESSEE HAS ALSO REI TERATED CERTAIN PROPOSITIONS BY PLACING RELIANCE ON THE DECISIONS RENDERED BY HONBLE DELHI HIGH COURT. SINCE THESE CONTENTIONS ARE NEW CONTENTIONS, WE ARE OF THE VIEW THE SAME ALSO REQUIRES FRESH CONSIDERATION AT THE END OF THE AO. ACCORDINGLY, WE SET A SIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTION TO EXAMINE THIS ISSUE AFRESH BY CONSIDERING VARIOUS CONTENTIONS OF THE ASSESSEE AS DISCUSSED SUPRA. 5. THE NEXT ISSUE RELATES TO THE ASS ESSMENT OF GAINS ARISING ON SALE OF SHARES AS BUSINESS INCOME OF THE ASSESSEE. THE LD A.R SUBMITTED THAT THE LD CIT(A) HAS CONFIRMED THE ORDER OF THE AO BY FOLLOWING HIS DECISION RENDERED IN THE IMMEDIATELY PRECEDING YEAR, I.E., AY 2007 - 08. THE LD A.R SU BMITTED THAT THIS ISSUE CAME TO THE CONSIDERATION OF THE CO - ORDINATE BENCH OF TRIBUNAL IN THE CASE OF ASSESSEE IN AY 2007 - 08 AND IT HAS DIRECTED THE AO TO ASSESS THE GAINS ARISING ON SALE OF SHARES AS CAPITAL ITA NO. 5837 / MUM/ 20 11 4 GAINS. HE FURTHER SUBMITTED THAT THE ORDER OF THE TRIBUNAL PASSED FOR AY 2007 - 08 WAS FOLLOWED IN AY 2009 - 10 ALSO. HE FURTHER SUBMITTED THAT THE ASSESSING OFFICER HIMSELF HAS ASSESSED THE GAINS ARISING ON SALE OF SHARES AS CAPITAL GAINS IN AY 2010 - 11 AND 2011 - 12 IN THE ASSESSMENT ORDERS PASSED U/S 14 3(3) OF THE ACT. 6. ON THE CONTRARY, THE LD D.R SUBMITTED THAT THE VOLUME OF TRANSACTIONS CARRIED ON BY THE ASSESSEE IN THE PURCHASE AND SALE OF SHARES WAS HIGH AND MOST OF THE SHARES HAVE BEEN HELD FOR VERY SHORT PERIOD. 7. IN THE REJOINDER, THE LD A.R SUBMITTED THAT THE ASSESSEE HAS EARNED A SHORT TERM CAPITAL GAIN OF RS.2.10 CRORES ON SALE OF ONE SCRIP NAMED M/S DLF LTD, WHICH HAS BEEN SOLD WITHIN 7 DAYS OF ITS PURCHASE DUE TO ABNORMAL INCREASE IN THE PRICE. THE ASSESSEE DECIDED TO SELL IMMEDIA TELY DUE TO HUGE PROFIT MADE BY IT IN ORDER TO AVOID POSSIBLE LOSS ARISING ON ACCOUNT OF FALL IN THE PRICES OF SHARES. HE SUBMITTED THAT THE ASSESSEE HAS SUFFERED LOSS OF RS.74.05 LAKHS ON THE SHARES HELD FOR A LONGER PERIOD. ACCORDINGLY HE SUBMITTED THA T THE INTENTION OF THE ASSESSEE WAS TO HOLD THE SHARES AS INVESTMENTS ONLY. 8. HAVING HEARD RIVAL CONTENTIONS, WE FIND MERIT IN THE SUBMISSIONS MADE BY THE LD A.R. WE NOTICE THAT THE ASSESSEE HAS MADE A HUGE PROFIT OF RS.2.10 CRORES ON SALE OF ONE SC RIP, NAMED M/S DLF LTD AND THE ASSESSEE HAS ALSO SUFFERED LOSS IN OTHER SCRIPS. THE NET SHORT TERM CAPITAL GAIN DECLARED BY THE ASSESSEE WAS RS.1.75 CRORES. UNDER THESE SET OF FACTS, WE ARE OF THE VIEW THAT THE ASSESSEE HAS TAKEN A CONSCIOUS DECISION TO SELL THE SHARES OF M/S DLF LTD DUE TO ABNORMAL RISE IN THE SHARE PRICE OF THAT COMPANY. THE ASSESSEE HAS ALSO CONTENDED THAT IT HAS USED ONLY ITS OWN FUNDS FOR MAKING INVESTMENTS AND THE SAID SUBMISSION HAS NOT BEEN CONTROVERTED. THE ASSESSEE HAS SHOWN T HE PURCHASE OF SHARES AS ITS ITA NO. 5837 / MUM/ 20 11 5 INVESTMENTS IN ITS BOOKS OF ACCOUNT. IN OTHER YEARS, THE ASSESSEE HAS BEEN ACCEPTED AS AN INVESTOR AND IT WAS NOT SHOWN TO US THAT THERE IS CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. UNDER THESE SET OF FACTS, WE ARE OF THE VIEW THAT THE LD CIT(A) WAS NOT JUSTIFIED IN UPHOLDING THE ORDER OF THE AO ON THIS ISSUE. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO ASSESS THE PROFIT OR LOSS ARISING ON SALE OF SHARES AS CAPITAL GAINS. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 1ST JANUARY , 201 6 SD SD ( / SANDEEP GOSAIN ) ( . . / B.R.BASKARAN) / JUDICIAL MEMBER /ACCOUNTANT MEMBER MUMBAI ; DATED . 1ST JAN DEC,201 6 . . ./ SRL , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - CONCERNED 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI CONCERNED 6. / GUARD FILE. / BY ORDER, TRUE COPY (ASSTT. REGISTRAR) , /ITAT, MUMBAI