SHRIYAM BROKING INTERMEDIARY LTD, MUMBAI V. ITO 4(2)(3), MUMBAI

ITA 5879/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 92848 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 25-06-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 03-10-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIJAY KUMAR BORA
• Keywords: Earning of tax free income; Cost of acquisition
• Section: 14A; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH E, MUMBAI BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER ITA NO.5879/M/2013 ASSESSMENT YEAR: 2010-11 M/S. SHRIYAM BROKING INTERMEDIARY LIMITED, 712-713, TULSIANI CHAMBERS, 212, NARIMAN POINT, MUMBAI 400 021 PAN: AAACS 8108E VS. INCOME TAX OFFICER -4(2)(3), AAYAKAR BHAVAN, MUMBAI - 400020 (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI ANUJ KISNADWALA, A.R. REVENUE BY : SHRI VIJAY KUMAR BORA, D.R. DATE OF HEARING : 25.06.2015 DATE OF PRONOUNCEMENT : 25.06.2015 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSES SEE AGAINST THE ORDER DATED 19.08.2013 OF THE COMMISSIONER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO ASSESSMENT Y EAR 2010-11. 2. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUND OF A PPEAL: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONBLE CIT(A) ERRED IN SUSTAINING DISALLOWANCE OF ENTIRE RS.16,34 ,000/- U/S 14A R.W.R. 8D(2)(III) OF THE INCOME TAX RULES AGAINST THE MEAGER DIVIDEND IN COME OF RS.5,80,447/- WHICH IS APPROXIMATELY 2.8 TIMES OF EXEMPT DIVIDEND EARNED W HICH IS ILLOGICAL, UNWARRANTED, ARBITRARY & UNJUSTIFIABLE. THE ASSESSEE PRAYS THAT AMOUNT OF RS.3,04,000/- SUE MOTO DISALLOWED BY ASSESSEE U/S 14A R.W.R. 8D MAY KINDLY BE CONSIDERED AND REMAINING DISALLOWANCE MAY KINDLY BE DELETED. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E EARNED TAX FREE DIVIDEND INCOME OF RS.5,80,447/- . THE ASSESSEE SUO MOTO MAD E A DISALLOWANCE OF RS. ITA NO.5879/M/2013 M/S. SHRIYAM BROKING INTERMEDIARY LIMITED 2 304000/- U/S 14A OF THE ACT IN RESPECT OF ABOVE STA TED EXEMPT INCOME. THE AO HOWEVER RE-CALCULATED THE DISALLOWANCE AS PER FORMU LA PRESCRIBED UNDER RULE 8D OF THE I.T. RULES AND DISALLOWED AN AMOUNT OF RS .16,89,000/ - U/ S. 14A R.W. RULE 8D. SINCE THE ASSESSEE HAD SUO-MOTO DISALLOWED A SUM OF RS.3,04,000/-, FURTHER DISALLOWANCE OF RS.13,85,000/ - WAS MADE BY THE AO. IN APPEAL BEFORE THE CIT(A), THE LD. AR OF THE ASSESSEE EXP LAINED THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE RECEIVED A DIVIDE ND OF RS.5,80,447/- WHICH HAD BEEN CLAIMED AS EXEMPT. MAJOR CHUNK OF DIVIDEN D HAD BEEN RECEIVED ON BOMBAY STOCK EXCHANGE AND RELIANCE INDUSTRIES LTD. WHICH WERE OLD INVESTMENT. THE SHARES OF BSE HAD BEEN ACQUIRED AS A PART OF DEMUTUALIZATION AND CORPORATIZATION IN LIEU OF BSE CARD. HENCE THE COST OF ACQUISITION OF BSE CARD WAS VERY LOW AS COMPARED TO TOTAL INVESTMENTS OF THE COMPANY. THE SHARES OF RELIANCE INDUSTRIES WERE ALSO AN OLD INVE STMENT. THE INVESTMENTS MADE WERE SOLELY OUT OF THE OWN FUNDS/SURPLUS FUNDS OF THE ASSESSEE COMPANY WHICH WERE GENERATED IN THE NORMAL COURSE OF BUSINE SS. THERE WAS NO ADDITIONAL EXPENDITURE INCURRED BY THE ASSESSEE TO EARN THE DIVIDEND INCOME. EVEN NO DISALLOWANCE UNDER RULE 8D(III) WAS WARRANT ED AS THE ASSESSEE COMPANY HAD NOT INCURRED ANY SUCH EXPENDITURE IN R ELATION TO THE EARNING OF THE DIVIDEND INCOME. IT HAS BEEN FURTHER SUBMITTED THAT THE ASSESSEE COMPANY HAD INCURRED EXPENDITURE ONLY TO THE EXTENT AS REQU IRED FOR CARRYING ON ITS BUSINESS AND PROFESSION AND THERE WOULD HAVE BEEN N O CHANGE IN THE TOTAL EXPENDITURE HAD THE ASSESSEE COMPANY NOT UNDERTAKEN THE INVESTING ACTIVITIES IN THE SHARES FROM WHICH THE DIVIDENDS HAVE BEEN RE CEIVED. EVEN THE INTEREST EXPENDITURE OF RS.0.80 LACS INCURRED BY THE ASSESSE E WAS DIRECTLY RELATED TO THE BROKING BUSINESS OF THE ASSESSEE COMPANY. IT IS FUR THER SUBMITTED THAT WHOLE OF THE INTEREST CHARGES DEBITED TO THE TUNE HAS THUS B EEN INCURRED PURELY FOR BUSINESS PURPOSES AND NOT FOR INVESTMENT AND THEREF ORE, THERE WAS NO JUSTIFICATION ON THE PART OF THE AO TO TREAT THE IN TEREST EXPENDITURE OF RS.0.80 ITA NO.5879/M/2013 M/S. SHRIYAM BROKING INTERMEDIARY LIMITED 3 LACS AS EXPENDITURE FOR INVESTMENT PURPOSES. IT HAS BEEN FURTHER SUBMITTED THAT DURING THE DEAR, THE ASSESSEE'S INVESTMENTS WERE TO THE TUNE OF RS.3,292.30 LACS AND IMMEDIATELY IN THE PRECEDING YEAR, THE INVESTME NT WAS TO THE TUNE OF RS.3,243.95 LACS. THE ASSESSEE HAD SUFFICIENT OWN INTEREST FREE FUNDS IN THE NATURE OF SHARE CAPITAL OF RS.L,000 LACS, RESERVES AND SURPLUS TO THE TUNE OF RS.3,103.02 LACS TOTALING TO RS.4,103.02 LACS WHERE AS THE INVESTMENT IS RS.3,292.30 LACS. THUS, THE INTEREST FREE FUNDS AVA ILABLE WITH THE ASSESSEE WERE MORE THAN THE INVESTMENT. IN SUCH A FACTUAL POSITIO N, THERE IS A PRESUMPTION THAT THE INVESTMENTS HAVE BEEN MADE OUT OF ITS OWN FUNDS AND NO BORROWED FUNDS HAVE BEEN UTILIZED. EVEN THE ASSESSEE DURING THE YE AR HAD RECEIVED INTEREST INCOME OF RS.23.51 LACS, WHEREAS INTEREST EXPENDITU RE TAKEN FOR CONSIDERATION FOR THE PURPOSE OF 14A R.W. RULE 8D IS RS.0.80 LACS . THE INTEREST INCOME WAS REQUIRED TO BE ADJUSTED AGAINST THE INCOME EXPENDIT URE AND THE RESULTANT NET EXPENDITURE IS TO BE CONSIDERED FOR THE PURPOSE OF COMPUTATION OF DISALLOWANCE U/S. 14A R.W. RULE 8D. THE ASSESSEE HAS FURTHER REL IED ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RE LIANCE UTILITIES & POWER LTD. 313 ITR 340 (BOM). THE LD. CIT(A), HOWEVER, OBSERVED THAT THE SIMILAR ISSUE WAS RAISED IN EARLIER ASSESSMENT YEAR AY 2009-10 AND IT WAS HELD THAT THE NET INTEREST SHOULD BE CONSIDERED FOR WORKING OF THE DISALLOWANCE IN RESPE CT OF INTEREST EXPENDITURE UNDER RULE 8D(II). HE OBSERVED THAT SINCE THE FACTS AND CIRCUMSTANCES FOR THE YEAR UNDER CONSIDERATION WERE IDENTICAL, HENCE FOLL OWING THE ORDER OF HIS PREDECESSOR FOR EARLIER ASSESSMENT YEAR, HE DIRECTE D THE AO TO RECALCULATE THE INTEREST DISALLOWANCE ACCORDINGLY. HE HOWEVER SUSTA INED THE DISALLOWANCE IN RESPECT OF ADMINISTRATIVE EXPENDITURE UNDER RULE 8D (III). BEING AGGRIEVED BY THE ABOVE ORDER OF THE CIT(A), THE ASSESSEE HAS COM E IN APPEAL BEFORE US. 4. WE HAVE HEARD THE RIVAL CONTENTIONS. THE LD. A. R., BEFORE US, HAS SUBMITTED THAT NO NEW INVESTMENTS HAD BEEN MADE DUR ING THE YEAR. THE ONLY ITA NO.5879/M/2013 M/S. SHRIYAM BROKING INTERMEDIARY LIMITED 4 TWO INVESTMENTS WERE IN RELATION TO INVESTMENTS IN BOMBAY STOCK EXCHANGE AND RELIANCE INDUSTRIES LTD. WHICH WERE OLD INVESTM ENTS. NEITHER ANY INTEREST EXPENDITURE WAS INCURRED DURING THE YEAR ON THESE INVESTMENTS NOR ANY ADMINISTRATIVE EXPENDITURE WAS INCURRED BY THE ASSE SSEE IN THIS BEHALF. HOWEVER, THE ASSESSEE SUO-MOTO HAD DISALLOWED THE A MOUNT OF RS.3,04,000/- U/S 14A. HE HAS FURTHER INVITED OUR ATTENTION TO T HE DECISIONS OF THE TRIBUNAL IN THE OWN CASE OF THE ASSESSEE FOR EARLIER ASSESSMENT YEARS. IN ASSESSMENT YEAR 2008-09, UNDER ALMOST IDENTICAL CIRCUMSTANCES, THE TRIBUNAL VIDE ORDER DATED 20.03.13 HAS DELETED THE ENTIRE DISALLOWANCE MADE B Y THE AO UNDER SECTION 14A OF THE ACT. FOR THE IMMEDIATE PRECEDING ASSESS MENT YEAR 2009-10, IN RELATION TO THE SAME INVESTMENTS, THE DIVIDEND EARN ED FROM WHICH IS THE SUBJECT MATTER OF DISALLOWANCE FOR THIS YEAR ALSO, THE TRIB UNAL, IN THE ASSESSEES OWN CASE IN ITA NO.4380/M/2012 DECIDED ON 17.10.14, AF TER CONSIDERING THE OVERALL FACTS AND CIRCUMSTANCES OF THE CASE, HAS RE STRICTED THE DISALLOWANCE UP TO THE AMOUNT OF RS.2.71 LAKHS WHICH WAS SUO-MOTO D ECLARED BY THE ASSESSEE. THE RELEVANT FINDINGS OF THE TRIBUNAL FOR THE SAKE OF REFERENCE ARE REPRODUCED AS UNDER: 6. WE HAVE CONSIDERED THE RIVAL CONTENTIONS. FROM THE ABOVE FACTUAL POSITIONS BROUGHT ON RECORD IT CAN BE SEEN THAT THE ASSESSEE HAD ITS OWN SUFFICIENT FUNDS IN COMPARISON TO THE INVESTMENTS MADE. THE MAJOR CHUNK OF DIVIDEND HAS BEEN RECEIVED FROM INVESTMENTS IN RELIANCE INDUSTRIES LTD. AND BOMBAY STOCK EXCHANGE WHICH WERE HOLD INVESTMENTS. THE HONBLE BOMBAY HIGH COURT IN THE C ASE OF THE CIT VS. RELIANCE UTILITY AND POWERS LTD. HAS HELD THAT IF THERE ARE FUNDS AVAILA BLE, BOTH INTEREST FREE AND OVER DRAFT AND/OR LOANS TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE INTEREST FREE FUND GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENT. THE LEARNED COUN SEL FOR THE ASSESSEE HAS FURTHER BROUGHT OUR ATTENTION TO THE DECISION OF THE TRIBUN AL IN THE OWN CASE OF THE ASSESSEE IN ITA NO. 1554/M/2012, ORDER DATED 20.03.2013 FOR THE A.Y . 2008-09, WHEREIN, WHEN FACED WITH THE ALMOST SIMILAR FACTS AND CIRCUMSTANCES, THE TRI BUNAL HAS HELD THAT NO DISALLOWANCE U/S ITA NO.5879/M/2013 M/S. SHRIYAM BROKING INTERMEDIARY LIMITED 5 14A WAS WARRANTED IN THE CASE OF THE ASSESSEE. THE RELEVANT FINDINGS OF THE TRIBUNAL ARE REPRODUCED AS UNDER:- WE HAVE EXAMINED THE RIVAL CONTENTIONS. AS EXPLAIN ED BY THE LEARNED COUNSEL THE ENTIRE FINANCIAL CHARGES DO PERTAINS TO THE BUSINESS ACTIVITY UNDERT AKEN BY ASSESSEE AS SHARE BROKER AND NONE OF IT CAN BE ATTRIBUTED TO THE EARNING OF EXEMPT INCOME. THER EFORE, NO INTEREST DISALLOWANCE IS REQUIRED OR WARRANTED UNDER RULE 8D(2)(II). THERE IS ALSO NO DI RECT EXPENDITURE INVOLVED IN EARNING THE DIVIDEND INCOME AS SUBMITTED. THERE IS ONLY TWO DIVIDEND INC OME OF RS.1301 EARNED ON TWO SCRIPS THAT TOO INCIDENTAL IN THE BROKING ACTIVITY OF ASSESSEE. THE MAJOR DIVIDEND IS EARNED ON THE MEMBERSHIP CARD HELD WITH THE BOMBAY STOCK EXCHANGE. IN VIEW OF THI S THERE CANNOT BE ANY DIRECT EXPENDITURE FOR EARNING THESE DIVIDEND INCOMES. AS SEEN FROM THE NA TURE OF THE ADMINISTRATIVE EXPENDITURE CLAIMED IN THE PROFIT & LOSS AI C THEY MOSTLY PERTAIN TO TH E BUSINESS ACTIVITY ONLY AND NONE OF IT CAN BE ATTRIBUTED TO OR EVEN ASSIGNED TO THE EXEMPT INCOME . ASSESSEE ALSO HAD ITS OWN FUNDS AND ONLY DURING THE YEAR INVESTMENTS HAVE BEEN MADE AND THER E IS A DIRECT NEXUS WITH ASSESSEE'S OWN FUNDS AS EXPLAINED BEFORE THE LEARNED CIT (A) BUT NOT TAKEN INTO CONSIDERATION. NOT ONLY THAT EVEN AO HAS WRONGLY CALCULATED THE DISALLOWANCE UNDER RULE 8D A ND ASSESSEE HAD FILED AN APPLICATION UNDER SECTION 154 VIDE LETTER DATED 29.10.2012'TO SUBMIT THAT EVEN THE WORKING AS PER RULE BD CAN ONLY BE RS.4.07 LAKHS AND NOT RS.30.66 LAKHS DISALLOWED BY AO. THERE SEEMS TO BE NO ACTION ON THIS APPLICATION AND FURTHER THE LEARNED CIT (A) ALSO DI D NOT CONSIDER THESE APPARENT MISTAKES IN HIS ORDER. TAKING INTO CONSIDERATION THE TOTALITY OF FA CTS, WE ARE OF THE VIEW THAT THERE IS NO NEED TO DISALLOW ANY AMOUNT BY INVOKING SECTION 14A(2) AND RULE 8D. IN VIEW OF THIS, WE DO NOT SEE ANY REASON TO UPHOLD ANY AMOUNT UNDER SECTION 14A AS A DISALLOWANCE. THE AO ALSO HAS NOT GIVEN ANY FINDING WHY 14A(2) AND RULE 8D WAS INVOKED. ACCORDI NGLY THE DISALLOWANCE MADE BY AO IS DELETED. 7. FOR THE YEAR UNDER CONSIDERATION, THE FACTS ARE ALMOST IDENTICAL. THE ASSESSEE ITSELF HAS DISALLOWED AN EXPENDITURE OF RS.2.71 LACS U/S 1 4A. THE ASSESSEE HAS ALSO GIVEN THE DETAILED CALCULATION/WORKING OF THE SAID DISALLOWAN CE AND HAS EVEN OFFERED EXPLANATION THAT IT HAS NOT INCURRED ANY INTEREST EXPENDITURE F OR INVESTMENT MADE. THE INVESTMENTS WERE MADE FROM ITSOWN FUNDS AND WERE OLD INVESTMENT S. THE ADMINISTRATIVE EXPENSES WERE ALSO MAINLY ON ACCOUNT OF BUSINESS ACTIVITY OF THE ASSESSEE AND EVEN THE DIVIDEND INCOME WAS INCIDENTAL TO THE BUSINESS ACTIVITY OF S HARE BROKING OF THE ASSESSEE. THE ASSESSING OFFICER HAS FAILED TO POINT OUT AS TO HOW THE WORKING GIVEN BY THE ASSESSEE WAS NOT JUSTIFIED. KEEPING IN VIEW THE OVER OF FACTS AN D CIRCUMSTANCES OF THE CASE WE HOLD THAT ITA NO.5879/M/2013 M/S. SHRIYAM BROKING INTERMEDIARY LIMITED 6 THE SUO MOTU DISALLOWANCE MADE BY THE ASSESSEE OF R S.2.71 LACS WAS APPROPRIATE AND NO FURTHER DISALLOWANCE IS REQUIRED TO BE MADE U/S 14A OF THE ACT. 8. IN VIEW OF OUR FINDINGS AND IN THE LIGHT OF THE DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE SIMILAR FACTS AND CIRCUMSTANCES IN THE OWN CASE OF THE ASSESSEE FOR A.Y. 2008-09, FURTHER DISALLOWANCE MADE BY THE LOWER AUT HORITIES AS AGAINST THE SUO MOTU DISALLOWANCE OF RS.2.71 LACS MADE BY THE ASSESSEE I S HEREBY ORDER TO BE DELETED. 5. THE FACTS FOR THE YEAR UNDER CONSIDERATION ARE E XACTLY IDENTICAL AND THE ASSESSEE HAS SUO-MOTO DECLARED A DISALLOWANCE OF RS .3,04,000/-. FOLLOWING THE DECISION OF THE TRIBUNAL IN THE OWN CASE OF THE ASSESSEE FOR THE EARLIER ASSESSMENT YEAR IN THE IDENTICAL CIRCUMSTANCES, THE DISALLOWANCE FOR THE YEAR UNDER CONSIDERATION IS ALSO RESTRICTED TO THE AMOUN T OF RS.3,04,000/- AS SUO- MOTO DECLARED BY THE ASSESSEE. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS HER EBY ALLOWED IN THE TERMS INDICATED ABOVE. THE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 25.0 6.2015 SD/- SD/- (R.C. SHARMA) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: .09.2015. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.