DCIT CIR. 4(3)(2), MUMBAI V. LATIN MANHARLAL SECURITIES PVT. LTD., MUMBAI

ITA 5989/MUM/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8479 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-11-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 07-10-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income
• Section: 142(1); 14A; 12

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE SHRI G.S. PANNU , AM AND SHRI AMARJIT SINGH , JM I.T.A. NO S . 5989 /M/201 6 & 5990 /M/201 6 ASSESSMENT YEAR S : 2011 - 12 & 2012 - 13 DCIT CIR,4(3)(2) ROOM NO. 649,6 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD MUMBAI. PIN: 400 020 VS. LATIN MANHARLAL SECURITIES PVT. LTD. 5 TH FLOOR, VIRAJ, S. V. ROAD, KHAR (W) MUMBAI PIN: 400052 ./ ./ PAN/GIR NO. : AAACL 2767 L ( APPELLANT ) .. ( RESPONDENT ) DATE OF HEARING : 17 .0 8 .2017 DATE OF PRONOUNCEMENT : 08 .11 .2017 O R D E R PER AMARJIT SINGH, JM: THE REVENUE HAS FILED THE ABOVE MENTIONED APPEA LS AGAINST THE DIFFERENT ORDER DATED 05.07.2016 PASSED BY THE COMMIS S IONER OF INCOME TAX (APPEALS) - 9 , MUMBAI [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO THE ASSESSMENT YEAR S 2011 - 12 & 2012 - 13 . ITA NO.5989 /M/201 6 : - 2. THE REVENUE HAS FILED THE PRESENT A PPEAL AGAINST THE ORDER DATED 05 .0 7 .201 6 PASSED BY THE COMMISS IONER OF INCOME TAX (APPEALS) - 9 MUMBAI, [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO THE ASSESSMENT YEARS 2011 - 12 . ASSESSEE BY: SHRI RAJEEV WAGLAY (AR) DEPARTMENT BY: SHRI SAURABH DESPANDE (DR) ITA. NO.5989/M/16 & 5990/M/16 A.Y. 2011 - 12 &2012 - 13 2 3 . THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: - 1 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS NOT JUSTIFIED IN DIRECTING AO TO RESTRICT THE DISALLOWANCE U/S 14A READ WITH RULE 8D (2)(II) & 8D(2)(III) TO RS.1,52,050/ - ? 2. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 4 . THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME ON 29.09.2011 DECLARING TOTAL INCOME TO THE TUNE OF RS.NIL. T HEREAFTER , THE CASE WAS SELECTED FOR SCRUTINY. NOTICE U/S 143(2) OF THE ACT DATED 10.09.2012 WAS ISSUED AND SERVED UPON THE ASSESSEE. THEREAFTER, THE NOTICE U/S 143(2) & 142(1) OF THE ACT WERE ISSUED AND SERVED UPON THE ASSESSEE ON 17 .09.2013. THE ASSESSEE COMPANY W AS ENGAGED IN THE BUSINESS OF BROKING & TRADING IN SHARES & SECURITIES INCLUDING DERIVATIVES. THE ASSESSEE RECEIVED THE DIVIDEND INCOME TO THE TUNE OF RS.38,02,744/ - . THEREFORE, THE ASSESSING OFFICER APPLIED THE PROVISION U/S 14A R.W. RULE 8D OF THE ACT AN D ASSESSED THE EXPENDITURE TO EARN THE EXEMPT INCOME TO THE TUNE OF RS. 35,30,630/ - . FEELING AGGRIEVED, THE ASSESSEE FILED AN APPEALS BEFORE THE COMMISSIONER OF INCOME TAX APPEAL - 9 WHO RESTRICTED THE EXPENDITURE INCURRED TO EARN THE EXEMPT INCOME IN VIEW O F THE PROVISION U/S 14A R.W. RULE 8D OF THE ACT TO THE TUNE OF RS.1,52,050/ - FEELING AGGRIEVED, THE REVENUE HAS FILED THE PRESENT APPEAL BEFORE US. ISSUE NO.1: - ITA. NO.5989/M/16 & 5990/M/16 A.Y. 2011 - 12 &2012 - 13 3 5 . WE HAVE HEARD THE ARGUMENT ADVANCED BY THE LD. REPRESENTATIVE OF THE PARTIES AND PERUSED THE RECORD. THE LD. REPRESENTATIVE OF THE REVENUE HAS ARGUED THAT THE CIT(A) HAS WRONGLY DELETED THE ADDITION RAISED IN VIEW OF THE PROVISION U/S 14A R.W. RULE 8D OF THE ACT AND RESTRICTED TO THE EXTENT OF 1,52,050/ - WRONGLY AND ILLEGALLY, THEREFORE, IN THE SAID CIRCUMSTANCES, THE FINDING OF THE CIT(A) IS WRONG AND AGAINST LAW AND FACTS AND IS LIABLE TO BE SET ASIDE. HOWEVER, ON THE OTHER HAND, THE LD. REPRESENTATIVE OF THE ASSESSEE HAS STRONGLY RELIED UPON THE ORDER PASSED BY THE CIT(A) IN QUESTION. BEFORE GOING FURTHER IT IS NECESSARY TO ADVERT THE FINDING OF THE CIT(A) ON RECORD.: - 6.3.1. I HAVE CONSIDERED THE STAND OF THE AO AS WELL AS WRITTEN SUBMISSION MADE BY THE APPELLANT ALONG WITH THE DECISIONS RELIED UPON BY THE APPELLANT. IN THI S REGARD, IT IS NOTED THAT THE APPELLANT HAD PAID INTEREST ON CAR LOAN OF RS.5,16,420/ - AND THAT BEING FOR SPECIFIC PURPOSE HAS BEEN RIGHTLY DEDUCTED BY THE AO WHILE CONSIDERING THE INTEREST EXPENDITURE. 6.3.2. A FAR AS INTEREST EXPENDITURE IS CONCERNED, THE AO HAS TAKEN THE SAME AT RS.53,27,743/ - . THE APPELLANTS CONTENTION IS THAT THE AGAINST THE SAID INTEREST EXPENDITURE, IT HAS ALSO EARNED INTEREST ON BANK FD AND OTHERS AMOUNTING TO RS.1,22,33,620/ - AS STATED IN PARA 4 OF THEIR WRITTEN SUBMISSIONS AND HENCE, NIL FIGURE SHOULD BE TAKEN SINCE THE INTEREST EARNED BY THE APPELLANT WAS MORE THAN THE INTEREST PAID. THE LD. AR HAS SUBMITTED THAT THE ISSUE IS COVERED IN FAVOUR OF THE APPELLANT BY THE JUDICIAL PRONOUNCEMENT OF HONBLE JURISDICTIONAL ITAT MUMBAI IN THE CASE OF MUMBAI ITAT DECISION IN MORGAN STANLEY INDIA SECURITIES PVT. LTD. V/S ACIT - 2011 55 DTR 177, THE COPY OF WHICH HAS BEEN PLACED ON RECORD BY THE AR FOR THE APPELLANT. I HAVE GONE THROUGH THE RELEVANT JUDGMENT. THE HO N BLE ITAT IN PARA 4 TO 7 HAS DISCUSSED THE ISSUE AND DECIDED AS UNDER: - ITA. NO.5989/M/16 & 5990/M/16 A.Y. 2011 - 12 &2012 - 13 4 4. A.Y. 2001 - 02: - THE FIRST GROUND RELATES TO THE DISALLOWANCE OF INTEREST UNDER SECTION 14A OF THE ACT. THIS ISSUE IS DEALT WITH IN PARAGRAPH 1 OF THE ASSESSMENT ORDER AND PARAGRAPHS 1 TO 5 OF THE ORDER OF THE CIT(A). THE ASSESSEE ITSELF DISALLOWED INTEREST OF RS.3,40,56,528 U/S 14A OF T HE ACT. IN CALCULATING THE DISALLOWANCE, THE ASSESSEE REDUCED THE INTEREST RECEIVED FROM THE INTEREST PAID AND THE DISALLOWANCE WAS ALSO WORKED OUT ON NET BASIS. THE AO TOOK OBJECTION TO THIS. HE ALSO FOUND THAT WHILE CALCULATING THE DISALLOWANCE THE ASSESSEE HAS WORKED OUT THE AVERAGE FOUNDS AVAILABLE AS ON 31.03.2000 AND 31.03.2001 AND COMPUTED THE DISALLOWANCE ACCORDINGLY. THE AO ALSO TOOK OBJECTION TO THIS METHOD OF CALCUL ATING THE DISALLOWABLE INTEREST. HE TOOK THE VIEW THAT THE AVERAGING, OF THE AVAILABLE FUNDS ON THESE TWO DATES WAS NOT PROPER AND PROCEEDED TO CALCULATE THE AVERAGE COST OF CAPITAL WITH REFERENCE TO THE TOTAL ASSETS AS ON 31.03.2001, WHICH WAS THE LAST DA TE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION ACCORDINGLY, THE DISALLOWABLE INTEREST CAME TO RS.3,90,21,257/ - . ON APPEAL THE CIT(A) UPHELD THE METHOD ADOPTED BY THE AO. 5. THE CONTENTION OF THE ASSESSEE IN THE FURTHER APPEAL BEFORE US IS THAT SINCE THE AC TUAL INTEREST DEBITED TO THE PROFIT AND LOSS ACCOUNT IS ON NET BASIS, THE DISALLOWANCE U/S 14A WAS ALSO COMPUTED BY IT ON NET BASIS AND THE OBJECTION TAKEN BY THE AO WAS NOT SOUND. AS REGARDS THE AVERAGING OF THE FUNDS AVAILABLE ON 31.03.2000 AND 31.03.200 1, IT WAS SUBMITTED THAT INTEREST WAS PAID ON FUNDS UTILIZED DURING THE ENTIRE PREVIOUS 3 ITA NO. 5072/M/2005 ITA NO. 6774/M/2008 YEAR AND NOT ONLY ON THE FUNDS AVAILABLE ON THE LAST DAY O F THE YEAR, I . E. ON 31.03.2001 AND THAT THE AO WAS NOT RIGHT IN REJE CTING THE AVERAGING METHOD ADOPTED BY THE ASSESSEE. IT IS FURTHER SUBMITTED THAT THOUGH RULE 8D OF THE I.T RULES IS NOT APPLICABLE TO THE YEAR UNDER CONSIDERATION THE SAID RULE ALSO RECOGNIZED THE AVERAGING METHOD ADOPTED BY THE ASSESSEE AND, THEREFORE , IN FAIRNESS THE AMOUNT OF INTEREST DISALLOWED BY THE ASSESSEE ITSELF IN THE COMPUTATION OF THE INCOME SHOULD BE CONSIDERED ADEQUATE AND APPROPRIATE. 6.ON BEHALF OF THE REVENUE STRONG RELIANCE WAS PLACED ON THE DECISION OF THE CIT(A) IN PARAGRAPH 4 OF HIS ORDER AND THE REASONING GIVEN THEREIN. ITA. NO.5989/M/16 & 5990/M/16 A.Y. 2011 - 12 &2012 - 13 5 6 . ON APPRAI SAL OF THE ABOVE MENTIONED FINDING , WE NOTICED THAT THE ISSUE IN QUESTION HAS BEEN DECIDED BY THE CIT(A) ON THE BASIS OF THE DECISION OF ITAT BOMBAY IN THE CASE OF MORGAN STANLEY INDIA SECURITIES PVT. LTD . VS. ACIT - 2011 55 DTR 177 AND ON THE BASIS OF THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF CIT VS. INDIA ADVANTAGE SECURITIES LTD. (ITA. NO. 1131 OF 2013) DECIDED ON 13.04.2015 . BOTH THE ORDERS HAVE RIGHTLY BY APPLIED BY CIT(A) WHO DISALLOWED THE INTEREST EXPENSES BECAUSE THE ASSESSEE REDUCED THE INTEREST RECEIVED FROM THE INTEREST PAID AND THE DISALLOWANCE WAS ALSO WORKED OUT ON NET BASIS . . SO FAR AS THE DECISION OF THE BOMBAY HIGH COURT IS CONCERNED IT HAS BEEN SPECI FICALLY HELD THAT THE SHARE HELD AS STOCK IN TRADE CANNOT BE TREATED AS INVESTMENT AND ARE REQUIRED TO BE EXCLUDED FOR THE PURPOSE OF RULE 8D OF THE ACT. IN VIEW OF THE SAID DECISION THE CIT(A) HAS RESTRICTED THE ADDITION IN VIEW OF THE PROVISION U/S 14A R .W. RULE 8D OF THE ACT TO THE TUNE OF RS. 1,52,050/ - RIGHTLY. THE FACTS ARE NOT DISTINGUISHABLE AT THIS STAGE. NO LAW CONTRARY THE SAID LAW HAS BEEN PRODUCED BEFORE US. THEREFORE, TAKEN INTO ACCOUNT OF ALL THE FACTS AND CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE CIT(A) HAS PASSED THE ORDER JUDICIOUSLY AND CORRECTLY WHICH IS NOT REQUIRED TO BE INTERFERE WITH AT THIS APPELLATE STAGE. ACCORDINGLY, THESE ISSUES ARE DECIDED IN FAVOUR OF THE ASSESSEE AGAINST THE REVENUE. 7 . IN RESULT , APPEAL FILED BY THE REVENUE I S HEREBY ORDERED TO BE DISMISSED. ITA. NO.5989/M/16 & 5990/M/16 A.Y. 2011 - 12 &2012 - 13 6 I TA NO.5990 /M/201 6 : - 8 . THE REVENUE HAS FILED THE PRESENT A PPEAL AGAINST THE ORDER DATED 05 .0 7 .2016 PASSED BY THE COMMIS SIONER OF INCOME TAX (APPEALS) - 9 , MUMBAI [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVAN T TO THE ASSESSMENT YEAR 2012 - 13 . 9 . THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: - 1 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS NOT JUSTIFIED IN DIRECTING AO TO RESTRICT THE DISALLOWANCE U/S 14 R.W. RULE 8D (2)(II) & 8D (2 )(III) TO RS.2,33,197/ - 2 . THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 10 . THE FACTS OF THE PRESENT CASE ARE THAT QUITE SIMILAR TO THE FACTS OF THE CASE AS NARRATED IN THE ABOVE M ENTIONED APPEAL BEARING NO. 5989 /M/2016 FOR THE A.Y.201 1 - 1 2 . HOWEVER, THE FIGURES ARE DIFFERENT. THE CLAIM OF THE ASSESSEE I N VIEW OF THE PROVISION U/S 14 R.W. RULE 8D (2)(II) & 8D(2)(III) OF THE ACT, 1961 HAS ALREADY BEEN DECIDED IN FAVOUR OF THE ASSESSEE AGAINST THE RE VE NUE WHILE DECIDING THE APPEAL BEARING NO. 5989/M/2016 FOR THE A.Y.2011 - 12 . THEREFORE, THE PRESENT APPEAL OF THE REVENUE IS HEREBY ORDERED TO BE DISMISSED IN VIEW OF THE TERMS OF FINDING OF THE ITA. NO. 5989 /M/2016. 11 . IN THE RESULT , ALL THE APPEALS FILED BY THE REVENUE ARE HEREBY ORDERED TO BE D ISMISSED . ITA. NO.5989/M/16 & 5990/M/16 A.Y. 2011 - 12 &2012 - 13 7 ORDER P RONOUNCED IN THE OPEN COURT ON 08.11 . 2017 SD/ - SD/ - ( G.S. PANNU ) (AMARJIT SINGH) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; DATED : . 08.11. 2017 V.P. SINGH / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. / BY ORDER, //TRUE COPY// / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI