ITO 4(3)(1), MUMBAI V. JAMSON SECURITIES P.LTD, MUMBAI

ITA 6015/MUM/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71758 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-12-2013
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: J
• Assessment Year: 2009-2010
• Appeal Filed On: 03-10-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: O P SINGH
• Keywords: Business income; Earning of tax free income; Additional evidence
• Section: 143(3); 14A; 37(1)

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL MUMBAI - J BENCH MUMBAI , , / , BEFORE S/SH. VIJAY PAL RAO, JUDICIAL MEM BER & RAJENDRA,ACCOUNTANT MEMBER /. ITA NO. 6015/M/2012, ! ! ! ! ' ' ' ' / ASSESSMENT YEAR 2009-10 ITO 4(3)(1) R.NO. 648, 6 TH FLOOR, AAYAKAR BHAVAN, MUMBAI-400020 VS. JAMSON SECURITIES P. LTD. 305 REWA CHAMBERS, 31, NEW MARINE LINES, MUMBAI-400020 PAN: AAACJ3726F ( #$ / REVENUE ) ( %&#$ / RESPONDENT) #$ #$ #$ #$ ' ' ' ' / REVENUE BY : SHRI O.P.SINGH %&#$ ( ' / RESPONDENT BY : SHRI HIRO RAI ! ! ! ! ( (( ( )* )* )* )* / DATE OF HEARING : 02-12-2013 +,' ( )* / DATE OF PRONOUNCEMENT : 04- 12- 2013 ! ! ! ! , 1961 ( (( ( 254 (1) )-) )-) )-) )-) . . . . ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA,A.M: CHALLENGING THE ORDER DATED 11.07.2012 OF THE CIT(A )-8,MUMBAI,ASSESSING OFFICER(AO)HAS FILED FOLLOWING GROUNDS OF APPEAL : 1.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE EAS E AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE A.O. TO RECALCULATE THE DISALLOWANCE U/S.14A OF THE INCOME TAX ACT 1961 R.W.RULE 8D(II),AFTER CONSIDERING THE NET INTEREST OF RS.(-) RS.7,11,422/ -. THE DISALLOWANCE U/S.14A OUGHT TO BE MADE BY CONSIDERING THE INTEREST PAID OF RS.7,59,708/-. 2.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD.CIT(A) ERRED IN ALLOWING THE DISALLOWANCE OF EXPENSES OF RS.4,22,729/- OUT O F TOTAL DISALLOWANCE OF RS.4,26,322/- WHICH INCLUDES TRANSACTION CHARGES OF RS.L,L0,433/-. STOC K EXCHANGE STAMP DUTY RS.3.09,045/- AND SEBI 2 ITA NO. 6015/MUM/2012 JAMSON SECURITIES P. LTD. TURNOVER FEES OF RS.6,844/-. IN DOING SO, THE LD.CI T(A) HAS ERRED IN ADMITTING NEW EVIDENCE WITHOUT ALLOWING THE SAME TO BE VERIFIED BY THE A.O . 3.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE EAS E, THE IMPUGNED ORDER OF THE LD.CIT(A) IS CONTRARY TO LAW AND CONSEQUENTIAL MERITS TO HE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 4.THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 2. ASSESSEE-COMPANY,ENGAGED IN THE BUSINESS OF SHARE T RADING AND BROKING,FILED ITS RETURN OF INCO- ME ON 28.08.2009 DECLARING A TOTAL INCOME OF RS.7,6 6,723/-.AO FINALISED THE ASSESSMENT ON 28. 11.2011 U/S. 143(3) OF THE ACT DETERMINING THE TOTA L INCOME OF THE ASSESSEE AT RS. 29,00,035/-. FIRST GROUND OF APPEAL IS ABOUT DISALLOWANCE, AMOUN TING TO RS. 17.06 LACS, MADE U/S 14A OF THE ACT.DURING THE ASSESSMENT PROCEEDINGS, AO FOUND THA T ASSESSEE HAD EARNED EXEMPT INCOME OF RS. 40.51 LACS. HE DETERMINED THE AMOUNT OF EXPENDITURE AS PER THE PROVISIONS OF RULE 8D OF THE INCOME-TAX RULES,1962(RULES)AT RS. 17, 76,321/-,HOW EVER HE REDUCED THE EXPENSES AMOUNTING TO RS.69, 331/- WHILE FINALISING THE ASSESSMENT. 3 .ASSESSEE FILED AN APPEAL BEFORE THE FIRST APPELLAT E AUTHORITY(FAA).BEFORE HIM IT WAS SUBMITTED THAT ASSESSEE HAD NOT MADE ANY INVESTMENT IN SHARES FOR THE PURPOSE OF EARNING DIVIDEND, THAT DIVIDEND INCOME WAS INCIDENTAL RECEIPTS OF THE ASSE SSEE,THAT THE AO HAD INVOKED THE PROVISIONS OF RULE 8D WITHOUT GIVING ANY REASON AND WITHOUT IDENT IFYING ANY EXPENSES WHICH COULD HAVE BEEN INCURRED TO EARN TAX FREE DIVIDEND INCOME, THAT PRO VISIONS OF SECTION 14A R.W. RULE 8D WERE NOT APPLICABLE IN THE CASE UNDER CONSIDERATION AS NO EX PENDITURE HAD BEEN INCURRED, THAT ASSESSEE HAD NOT UTILISED ANY BORROWED FUNDS FOR ACQUISITION OF INVESTMENTS,THAT ADMINISTRATIVE EXPENSES AND INTEREST HAD BEEN INCURRED TO RUN DAY TO DAY BUSINE SS ACTIVITY AND NOT TO EARN DIVIDEND INCOME,THAT NET INTEREST SHOULD BE CONSIDERED FOR PURPOSE OF DI SALLOWANCE U/S. 14A AS THE INTEREST HAD A DIRECT CO-RELATION WITH THE INTEREST EXPENSES, THAT DURING THE YEAR THE ASSESSEE HAD INCURRED INTEREST OF RS. 7,59,708/-, THAT IT HAD RECEIVED INTEREST FROM BANK OF RS. 14,71,130/-, THAT THE AO HAD CONSIDERED THE INTEREST PAID OF RS. 7.95 LACS BUT IGNORED THE INTEREST RECEIVED AMOUNTING TO RS. 14.71 LACS FOR THE PURPOSE OF DISALLOWANCE MADE UNDER RULE 8D(II) OF THE ACT. 3 ITA NO. 6015/MUM/2012 JAMSON SECURITIES P. LTD. 4. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE A ND THE ASSESSMENT ORDER,FAA HELD THAT AO HAD JUSTIFIABLY INVOKED THE PROVISION OF RULE 8D TO DETERMINE THE QUANTUM OF EXPENSES WHICH HAD TO BE DISALLOWED U/S 14A OF THE ACT WITH RESPECT TO EARNING OF EXEMPT INCOME,THAT THE ASSESSEE HAD NOT MAINTAINED SEPARATE ACCOUNT OF EXPENSES INC URRED FOR EARNING EXEMPT INCOME, THAT THE ASSESSEES CONTENTION THAT THE PROVISIONS OF SECTIO N 14A DID NOT PROVIDE FOR APPORTIONMENT OF EXPENSES WAS NOT SUSTAINABLE W.E.F. 01.04.2007,THAT ASSESSEE HAD FAILED TO PRODUCE CASH FLOW STATEMENT OR ANY OTHER MATERIAL WHICH COULD ESTABLI SH THAT BORROWED FUNDS WERE UTILISED FOR EARNING EXEMPT INCOME WITH REGARD TO THE INTEREST E XPENDITURE. HE HELD THAT ONLY NET INTEREST HAD TO BE CONSIDERED FOR THE PURPOSE OF DISALLOWANCE U/ S 14A R.W. RULE 8D. RELYING UPON THE ORDER OF THE MUMBAI AND KOLKATA TRIBUNAL DELIVERED IN THE CA SES OF MORGAN STANLEY INDIA SECURITIES LTD. (55DTR (MUMBAI)(TRIB)-177 ) AND TRADE APARTMENT LTD,(ITA/1273/KOL/2011-DTD.30.0 3. 2012 ),HE DIRECTED THE AO TO VERIFY THE NET INTEREST FIGURE A ND TO RECALCULATE THE DISALLOWANCE UNDER RULE 8D(II) OR THE RULES. 5. BEFORE US, DEPARTMENTAL REPRESENTATIVE (DR) SUBMITT ED THAT ASSESSEE HAD NOT PROVED THE NEXUS BETWEEN THE INTEREST PAID AND INTEREST RECEIVED.AUT HORISED REPRESENTATIVE (AR) SUBMITTED THAT INTEREST WAS RECEIVED AND PAID TO FROM BANK,THAT IN TEREST RECEIVED FROM THE FIXED DEPOSIT RECEIPTS WAS ASSESSED AS BUSINESS INCOME,THAT INTEREST PAID WAS MORE THAN THE INTEREST RECEIVED. HE RELIED UPON THE CASES REFERRED TO BY THE FAA AND THE JUDGM ENT DELIVERED BY THE HONBLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF HERO CYCLES LTD. (323 ITR 518). 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT WHILE MAKING THE DISALLOWANCE U/S.14A OF THE ACT,AO HAD N OT RECORDED THE REASONS FOR INVOKING THE PROVISIONS OF RULE 8D(II) OF THE RULES.SECONDLY, HE DID NOT CONSIDER THE NET INTEREST AMOUNT. WE ARE OF THE OPINION THAT IF INTEREST HAS BEEN PAID A ND RECEIVED FOR THE SAME TRANSACTION THEN ONLY NET AMOUNT OF INTEREST HAS TO BE CONSIDERED FOR APPORTI ONMENT.IN OTHER WORDS,AO CANNOT IGNORE THE INTEREST PAID/RECEIVED WHILE MAKING DISALLOWANCE UN DER SECTION 14A R.W. RULE 8D. WE FIND THAT, 4 ITA NO. 6015/MUM/2012 JAMSON SECURITIES P. LTD. IN THE CASES RELIED UPON BY THE FAA, THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE. IN THE CASE OF MORGAN STANLEY INDIA SECURITIES LTD.(SUPRA) MUMBAI TRIBUNAL HAS HELD UNDER: .THERE COULD BE NO DISPUTE THAT SINCE THE AMOUN T OF INTEREST DEBITED TO THE PROFIT & LOSS ACCOUNT AS ON NET BASIS THE DISALLOWANCE OF INTERES T SHOULD ALSO BE MADE ONLY WITH REFERENCE TO THE NET INTEREST. RESPECTFULLY, FOLLOWING THE ORDERS OF THE COORDINAT ING BENCHES,WE DECIDE GROUND NO.1 AGAINST THE AO. 7. GROUND NO. 2 IS ABOUT DISALLOWANCE OF EXPENSES OF R S. 4.22 LACS CONSISTING OF TRANSACTION CHARGES(RS. 1,10,433/-)/STOCK EXCHANGE STAMP DUTY(R S. 3,09,045/-) AND SEBI TURNOVER FEES (RS. 6,844/-).DURING THE ASSESSMENT PROCEEDINGS,AO FOUND THAT ASSESSEE HAD CLAIMED EXPENSES AMOUNTING TO RS. 4.26 LACS U/S. 37(1) OF THE ACT. H E HELD THAT ASSESSEE HAD INCURRED THE EXPENSES IN RELATION TO SPECULATIVE AND INVESTMENT TRANSACTI ON OF THE COMPANY AND NOT TO ITS BROKING TRANSACTION.HE DISALLOWED THE SAID EXPENDITURE AND HELD THAT DUE CREDIT WOULD BE ALLOWED TO THE ASSESSEE UNDER INVESTMENT ACTIVITIES OF THE COMPANY , THAT EXPENDITURE INCURRED FOR SPECULATIVE AND INVESTMENT TRANSACTIONS COULD NOT ALLOWED. 8. ASSESSEE PREFERRED AN APPEAL BEFORE THE FAA AND SUB MITTED THAT EXPENDITURE INCURRED ON ACCOUNT OF TRANSACTION CHARGES/STAMP DUTY AND SEBI TURNOVER FEE.IT WAS SUBMITTED THAT THE EXPE -NDITURE WAS INCURRED PRIMARILY FOR EARNING BROKE RAGE INCOME, THAT EXPENSES WERE ALLOWABLE U/S. 37(1) OF THE ACT.IT WAS ADMITTED BEFORE THE FAA THA T SMALL MARGIN OF THESE EXPENSES WAS NOT ALLOWABLE U/S. 37(1) OF THE ACT. ASSESSEE FILED DET AILS IN THIS REGARD.TAKING INTO CONSIDERATION THE SUBMISSION OF THE ASSESSEE,HE HELD THAT OUT OF TOTA L EXPENDITURE AN AMOUNT OF RS. 35,093/- SHOULD BE DISALLOWED AS THE SAME WAS FOR PROPRIETARY TRADI NG OF THE ASSESSEE.FINALLY,HE GAVE RELIEF OF RS. 4.22 LACS TO THE ASSESSEE. 9. BEFORE US,DR SUBMITTED THAT DETAILS FURNISHED BY TH E ASSESSEE BEFORE THE FAA WAS NOT MADE AVAILABLE TO THE AO, THAT FAA SHOULD HAVE CALLED FO R A REMAND REPORT.AR SUBMITTED THAT ALL THE EXPENSES,BARRING A SMALL PORTION,WERE INCURRED FOR CARRYING OUT THE BUSINESS OF THE ASSESSEE, THAT AO HAD NOT CALLED FOR ANY DETAIL IN THIS REGARD,THA T DURING THE APPELLATE PROCEEDINGS ASSESSEE HAD 5 ITA NO. 6015/MUM/2012 JAMSON SECURITIES P. LTD. FILED NECESSARY DETAILS, THAT AO WAS NOT JUSTIFYING IN DISALLOWING ALL THE EXPENDITURE CLAIMED BY THE ASSESSEE,THAT ASSESSEE ITSELF HAD ADMITTED BEFO RE THE FAA THAT ONLY A SMALL PORTION OF THE EXPENDITURE WAS NOT RELATABLE TO THE BUSINESS CARRI ED OUT BY IT. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.IT IS FOUND THAT THE ASSESSEE ITSELF HAD ADMITTED BEFORE THE FAA THAT A CERTAIN PORTION OF THE EXPENDITURE WAS NOT INCURRED WHOLLY AND EXCLUSIVELY FOR CARRYING OUT IT S BUSINESS AND HENCE NOT ALLOWABLE.FAA HELD THAT BIFURCATION GIVEN BY THE ASSESSEE WAS TO BE AC CEPTED. WE ARE OF THE OPINION THAT FAA SHOULD HAVE NOT ADMITTED THE BIFURCATION GIVEN BY THE ASSE SSEE,WITHOUT OBTAINING A REPORT FROM THE AO. HERE THE QUESTION IS NOT OF SMALLNESS OF THE AMOUNT INVOLVED,BUT THE PROPRIETARY OF THE ACTION. FAA ,A SENIOR OFFICER OF THE HIERARCHY OF THE DEPAR TMENT IS SUPPOSED TO FOLLOW THE RULES PRESCRIBED BY THE ACT.HE CAN DIRECT THE AO TO SUBMIT A REMAND REPORT OR MAKE FURTHER INQUIRIES AND AO IS BOUND TO FOLLOW HIS INSTRUCTIONS.AO HAS SPECIFICALL Y TAKEN A GROUND ABOUT NOT GIVEN HIM AN OPPORTUNITY TO VERIFY THE CLAIM MADE FOR THE FIRST TIME BEFORE THE FAA.WE DO NOT AGREE WITH THE SUBMISSION OF THE AR THAT NO ADDITIONAL EVIDENCES W ERE FILED BEFORE THE FAA.IF THE ASSESSEE HAD NOT SUBMITTED ANY DOCUMENTS TO SUPPORT ITS CLAIM AB OUT INCURRING EXPENDITURE OF CERTAIN SUM,HOW FAA COULD HAVE DETERMINED THAT AMOUNT OF THE DISA LLOWANCE. WHATEVER WAS THE BASIS OF CALCULATION OF DISALLOWANCE IT SHOULD HAVE BEEN FOR WARDED TO THE AO,BECAUSE THE AO IS THE APPROPRIATE AUTHORITY TO LOOK IN THE PIECES OF EVID ENCES.FAA IS ENTITLED TO ADMIT NEW EVIDENCES AND DECIDE THE MATTER WITHOUT REFERRING TO THE AO B UT THOSE ARE EXTRA ORDINARY SITUATIONS.IN THE CASE UNDER CONSIDERATION THERE IS NOTHING ON RECORD TO PROVE THAT SUCH CONDITIONS EXISTED.SO,IN OUR OPINION,IN THE INTEREST OF JUSTICE,MATTER SHOULD BE RESTORED BACK TO THE FILE OF THE AO FOR FRESH ADJUDICATION.HE SHOULD AFFORD A REASONABLE OPPORTUN ITY OF HEARING TO THE ASSESSEE.GROUND NO.2 IS ALLOWED IN PART IN FAVOUR OF THE AO. AS A RESULT,APPEAL FILED BY T HE AO STANDS PARTLY ALLOWED. 0 1 !0) VF/KDKJH 2 3 ( - 4. 1 56 ( ) 78. 6 ITA NO. 6015/MUM/2012 JAMSON SECURITIES P. LTD. ORDER PRONOUNCED IN THE OPEN COURT ON 04 TH DECEMBER, 2013 . ( +,' : ;! 4 ; ,2013 , ( - < SD/- SD/- ( / VIJAY PAL RAO ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / MUMBAI, ;! / DATE: 04 DECEMBER, 2013 SK . . . . ( (( ( %) %) %) %) > ') > ') > ') > ') / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT/ #$ 2. RESPONDENT/ %&#$ 3. THE CONCERNED CIT(A)/ ? @ 4. THE CONCERNED CIT/ ? @ 5. DR J BENCH, ITAT, MUMBAI / A- %)! , . . . 6. GUARD FILE/ - B &) %) //TRUE COPY// .! .! .! .! / BY ORDER, C CC C / 7 7 7 7 DY./ASST. REGISTRAR , / ITAT, MUMBAI