R.B.K. SHARE BROKING LTD, MUMBAI V. ITO 4(2)(3), MUMBAI

ITA 5882/MUM/2013

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0606 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-04-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 04-10-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AKHILENDRA P YADAV
• Assessee Lawyers: PRAKASH K JOTWANI
• Keywords: Capital asset
• Section: 14A; 10

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE S/SHRI B.R.BASKARAN (AM) AND AMIT SHUKLA, (JM) . . , , ./ I.T .A. NO. 6932/MUM/2012 & ITA NO. 5882 / MUM/20 1 3 ( / ASSESSMENT YEAR S : 2009 - 10 & 20 10 - 11 ) R B K SHARE BROKING LTD, 1A, ALLI CHAMBERS, 1 ST FLOOR, MEDOWS STREET, FORT, MUMBAI - 400023 / VS. INCOME TAX OFFICER, WARD 4 ( 2 )(3), 6 TH FLOO R, AAYAKAR BHAVAN, M K ROAD, MUMBAI - 400020 ( / APPELLANT ) .. ( / RESPONDENT ) ./ ./PAN/GIR NO. : AAACR5488A / APPELLANT BY SHRI PRAKASH K JOTWANI / RE SPONDENT BY SH RI AKHILENDRA P YADAV / DATE OF HEARING : 26 .3.2015 / DATE OF PRONOUNCEMENT : 22. 4.2015 / O R D E R PER B.R. BASKARAN (AM) BOTH T HE APPEALS FILED BY THE ASSESS EE ARE DIRECTED AGAINST THE ORDER PASSED BY LD . CIT(A) - 8 ,MUMBAI AND THEY RELATE TO THE ASSESSMENT YEAR S 2009 - 10 AND 20 10 - 11 . 2. IN BOTH THE APPEALS, THE ASSESSEE IS AGGRIEVED BY THE DECISION OF LD. CIT(A) IN CONFIRMING THE DISALLOWANCE MADE BY ASSESSING O FFICER UNDER RULE 8D(2)(III) OF IT RULES READ WITH SECTION 14A OF INCOME TAX ACT, 1961 (THE ACT). I.T.A. NO. 5882 / MUM/ 201 3 & ITA NO.6932/MUM/2012 2 SINCE BOTH THE APPEALS WERE HEARD TOGETHER, THEY ARE BEING DISPOSED OF BY THIS COMMON ORDER , FOR THE SAKE OF CONVENIENCE. 3. WE HEARD THE PARTIES AND PERUSED THE RECORD. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF SHARE BROKING , TRADING IN SHARES AND ALSO MAKING INVESTMENT IN SHARES. THE ASSESSEE RECEIVED DIVIDEND INCOME DURING THE YEAR S UNDER CONSIDERATION AS UNDER : ASSESSMENT YEAR - 2009 - 10 RS.27.55 LAKHS ; ASSESSMENT YEAR - 2010 - 11 RS.24.79 LAKHS . IN THE RETURN OF INCOME FILE FOR THE ABOVE SAID YEARS, THE ASSESSEE DID NOT MAKE ANY DISALLOWANCE OUT OF EXPENDITURE AS PER T HE PROVISIONS OF SECTION 14A OF THE ACT. BEFORE THE AO, THE ASSESSEE SUBMITTED THAT THE PROVISIONS OF SECTION 14A OF THE ACT ARE NOT APPLICABLE TO IT, SIN C E IT IS A SHARE BROKER AND TRADER IN SHARES. THE AO DID NOT ACCEPT THE SAME. ACCORDINGLY, HE COMPUTED THE DISALLOWANCE UNDER RULE 8D(2)(III) OF THE IT R U LES READ WITH S EC. 14A OF THE ACT IN BOTH THE YEARS AT 0.5% OF AVERAGE VALUE OF INVESTMENT S. ACCORDINGLY, HE DISALLOWED A SUM OF RS. 8.51 LAKHS IN ASSESSMENT YEAR 2009 - 10 AND RS.9.98 LAKHS IN ASSESSMENT YEAR 2010 - 11. BOTH THE ABOVE SAID ADDITIONS WERE CONFIRMED BY THE LD. CIT(A) I N THE APPEAL S FILED BY THE ASSESSEE FOR BOTH THE YEARS. AGGRIEVED , THE ASSESSEE HAS FILED THESE APPEALS BEFORE US. 4. THE LD. COUNSEL APPEARING FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEES MAIN ACTIVITY CONSISTS OF SHARE BROK ING AND TRADING IN SH ARES . I NVESTMENT ACTIVIT Y FORMS ONLY MIN O R PORTION OF ITS OVERALL ACTIVITIES. HE FURTHER SUBMITTED THAT THE ASSESSEE IS REQUIRED TO MAINTAIN INFRASTRUCTURE AND INCUR ALL THE ADMINISTRATIVE EXPENSES IN ORDER TO RUN ITS SHARE TRADING AND BROKING BUSINESS AC TIVITY , EVEN IF THERE IS NO INVESTMENT ACTIVITY. HE SUBMITTED THAT THE OBJECT OF THE ASSESSEE IN THE ACTIVITY OF TRADING IN SHARES IS TO MAKE PROFIT AND NOT TO EARN DIVIDEND AND HENCE DIVIDEND RECEIVED FROM TRADING SHARES IS ONLY AN INCIDENTAL INCOME ARIS ING OUT OF SHARE TRADING. A CCORDINGLY , HE CONTENDED THAT THE I.T.A. NO. 5882 / MUM/ 201 3 & ITA NO.6932/MUM/2012 3 PROVISIONS OF SEC. 14A ARE NOT APPLICABLE TO THE ASSESSEE AND HENCE THERE WAS NO REQUIREMENT TO MAKE ANY DISALLOWANCE OUT OF GENERAL AND ADMINISTRATIVE EXPEN SES AS REQUIRED U/S 14A OF THE ACT. 5. THE LD. AR FURTHER SUBMITTED THAT THE TRANSACTIONS CARRIED ON BY THE ASSESSEE IN RESPECT OF EXEMPTED INCOME WERE ONLY FEW DURING THE YEARS UNDER CONSIDERATION. THE TRANSACTIONS IN CONNECTION WITH LONG TERM CAPITAL GAIN WERE ONLY TWO IN ASSESSMENT Y EAR 2009 - 10 AND 77 IN ASSESSMENT YEAR 2010 - 11. HE FURTHER SUBMITTED THAT DIVIDEND INCOME S ARE DIRECTLY CREDITED TO THE BANK ACCOUNT S OF THE ASSESSEE AND HENCE, NO EXPENDITURE WAS INCURRED IN REALIZING THE DIVIDEND INCOME. ACCORDINGLY HE SUBMITTED THAT TH E DISALLOWANCE COMPUTED UNDER RULE 8D(2)(III) WORKS TO HIGHER AMOUNT, WHICH IS DISPROPORTIONATE TO THE EXPENDITURE, IF ANY, INCURRED IN EARNING THE EXEMPTED INCOME. ACCORDINGLY, HE SUBMITTED THAT THE LD CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE DISALLOWA NCE MADE AS PER RULE 8D(2)(III) OF THE IT RULES. IN THE ALTERNATIVE, HE SUBMITTED THAT THE DISALLOWANCE MAY BE ESTIMATED ON A REASONABLE BASIS CONSIDERING THE NUMBER OF TRANSACTIONS CARRIED ON BY THE ASSESSEE. IN THIS REGARD, HE PLACED RELIANCE ON THE DE CISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF RELIANCE CAPITAL ASSET MANAGEMENT LTD. V/S DCIT IN ITA NO.8625/MUM/2010 (AY - 2007 - 08) DATED 17.10.2014 WHEREIN THE TRIBUNAL HAD MADE ADHOC DISALLOWANCE WITH THE OBSERVATIONS THAT THAT THERE IS NO NECESSI TY TO APPLY THE FORMULA PRESCRIBED IN RULE 8D(2)(III) OF THE INCOME TAX RULES, 1962 IN VIEW OF THE FEWER NUMBER OF TRANSACTIONS. 6 . ON THE CONTRARY, THE LD. DR PLACED STRONG RELIANCE ON THE ORDERS OF TAX AUTHORITIES AND SUBMITTED THAT THE ORDER OF THE LD.CIT(A) SHOULD NOT BE INTERFERED WITH SINCE THE DISALLOWANCE HAS BEEN COMPUTED IN ACCORDANCE WITH RULE 8D OF THE RULES. 7 . IT IS AN ADMITTED FACT THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING IN SHARES AND SHARES BROKING. HENCE, THERE IS SO ME MERIT IN THE I.T.A. NO. 5882 / MUM/ 201 3 & ITA NO.6932/MUM/2012 4 CONTENTIONS OF THE ASSESSEE THAT IT IS REQUIRED TO MAINTAIN INFRASTRUCTURE AND INCUR ADMINISTRATIVE/GENERAL EXPENSES EVEN IF THERE IS NO INVESTMENT ACTIVITY. WE NOTICE THAT IN THE ASSESSMENT YEAR 2009 - 10, THE ASSESSEE HAS INDULGED ONLY IN TWO TRANSACTIONS IN RESPECT OF LONG TERM CAPITAL GAINS DECLARED BY IT. THE DIVIDEND INCOME RECEIVED DURING THE ABOVE SAID YEAR CONSISTED OF 68 TRANSACTIONS. IN ASSESSMENT YEAR 2010 - 11 , THE TOTAL NUMBER OF TRANSACTIONS RESULTING INTO LONG TERM CAPITAL GAI N WAS 77 AND TOTAL NUMBER OF TRANSACTIONS RESULTING INTO DIVIDEND INCOME WAS 50. HOWEVER, WE NOTICE THAT THE ASSESSEE HAS FAILED TO FURNISH THE DETAILS OF MOVEMENTS FOUND IN THE I NVESTMENT PORTFOLIO . A PERUSAL OF THE B ALANCE S HEET FILED BY THE ASSESSE E SHOWS THAT THE AMOUNT OF INVESTMENT MADE IN SHARES HAS INCREASED FROM RS.13.6 CRORES AS ON 31.2.2008 TO RS.19 CRORES AS ON 31.2.2009 AND IT HAS COME DOWN TO RS.17.8 CRORES AS ON 31.3.2010. THUS, IT CAN BE SEEN THAT APART FROM THE TRANSACTIONS RELATING TO DIVIDEND INCOME AND LTCG , THERE HAS BEEN PURCHASES AND SALE OF SHARES IN THE INVESTMENT PORTFOLIO . IN VIEW OF THE ABOVE, WE ARE NOT ABLE TO ACCEPT THE CONTENTION S OF THE LD. AR THAT NO DISALLOWANCE IS CALLED FOR U/S 14A OF THE ACT. AT THE SAME TIME, THERE IS MERIT IN THE CONTENTION OF THE ASSESSEE THAT THE APPLICATION OF RULE 8D(2)(III) IS RESULTING IN DISALLOWANCE OF HIGHER AMOUNT VIS - - VIS THE TRANSACTIONS CARRIED OUT IN RESPECT OF EXEMPTED INCOME, PARTICULARLY IN VIEW OF THE FACT THAT THE ASSESSEE IS OTHERWISE TO INCUR ALL THE EXPENSES IN CONNECTION WITH RUNNING OF ITS BUSINESS ACTIVITY. SINCE A PART OF THE SAID EXPENDITURE CAN BE ATTRIBUTED TO THE INVESTMENT ACTIVITY AND EXEMPTED INCOME, IN OUR VIEW, THE DISALLOWANCE U/S 14A SHOULD BE ESTIMATED O N REASONABLE BASIS. IN THE CASES UNDER CONSIDERATION, WE HAVE ALREADY EXAMINED THE DETAILS OF TRANSACTIONS RELATING TO EXEMPTED INCOME AND INVESTMENTS. ACCORDINGLY, WE ARE OF THE VIEW THAT THIS MAT T ER WOULD MEET ENDS OF JUSTICE , IF THE DISALL OW ANCE U/S 1 4A IS DETERMINED AT RS. 4.00 LAKHS FOR THE ASSESSMENT YEAR 2009 - 10 AND AT RS. 5.00 LAKHS FOR THE ASSESSMENT YEAR 2010 - 11 . WE ORDER ACCORDINGLY. ACCORDINGLY, WE MODIFY THE ORDER OF LD.CIT(A) AND DIRECT THE AO TO RESTRICT THE DISALLOWANCE AS DISCUSSED ABOVE . I.T.A. NO. 5882 / MUM/ 201 3 & ITA NO.6932/MUM/2012 5 8 . IN THE RESULT, THE APPEAL S FILED BY THE ASSESSEE ARE PARTLY ALLOWED. THE AB OVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 22ND APRIL 2015 . 22ND APRIL , 2015 SD SD ( / AMIT SHUKLA ) ( . . / B.R. BASKARAN) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI: 22ND APRIL ,2015 . . . ./ 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