ANVIL SHARE & STOCK BROKING P. LTD, MUMBAI V. DCIT 4(1), MUMBAI

ITA 6058/MUM/2013

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 3140 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 15-10-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S P WALIMBE
• Assessee Lawyers: K SHIVARAM
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

, ' INCOME TAX APPELLATE TRIBUNAL,MUMBAI - A,BENCH , , BEFORE S/SH. RAJEN DRA,ACCOUNTANT MEMBER & SANJAY GARG ,JUDICIAL MEMBER /. ITAS NO.6058/MUM/2013, / ASSESSMENT YEAR - 2010 - 11 M/S. ANVIL SHARE & STOCK BROKING P. LTD. 19, BANK STREET, CROSS LANE NEAR VOLTAS, FORT MUMBAI - 400 023. PAN:AABCA 8643 D V S DCIT - 4(1) MUMBAI. ( / ASSESSEE ) ( / RESPONDENT ) /ASSESSEE BY :SHRI K. SHIVARAM / REVENUE BY :SHRI S.P. WALIMBE / DATE OF HEARING : 10 - 09 - 2015 / DATE OF PRONOUNCEMENT : 30 - 09 - 2015 , 1961 254 ( 1 ) ORDER U/S.254(1)OF THE INCOME - TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDERS DT. 3 0.0 8 .2013 OF CIT(A) - 8 ,MUMBAI,THE ASSESSEE HAS FILED FOLLOWING GROUNDS OF APPEAL: DISALLOWANCE U/S. 14A OF RS.19,40,7 561 - 1) THE LEARNED CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE U/S. 14A R.W.S. RULE 8D(2) OF RS.19,40,756/ - (19,56,532/ - - 15,776/ - ) WITHOUT APPRECIATING THAT THE APPELLANT HAD ALREADY ADDED IN COMPUTATION OF INCOME A SUM OF RS.15,776/ - (BEING 1 % OF DIVIDEND INCOME OF RS.15,77,61 11 - ), THEREFORE, NO FURTHER DISALLOWANCE OUGHT TO BE MADE ON NOTIONAL BASIS. 2) THE ID. CIT(A) FAILED TO APPRECIATE THAT RULE 8D(2) CANNOT BE INVOKED IN FACTS OF PRESENT CASE AS THE SHARES ARE HELD AS INVESTMENT AMOUNTING TO RS.58.19 CRORES WHICH WAS OUT OF OWN FUNDS OF RS.147.67 CRORES AND NO INTEREST EXPENDITURE WAS INCURRED, THEREFORE THERE CANNOT BE ANY NOTIONAL DISALLOWANCE. 3) THE ID. CIT(A) FAILED TO APPRECIATE THAT CAPITAL GA IN ON SALE OF U NQUOTED INVESTMENT IS NOT EXEMPT U/S. 10(38) AND OF THE ACT THE INCOME FROM SUCH INVESTMENT IS NOT EXEMPT FROM TAX, SIMILAR THE INVESTMENT IN SHARES WHICH HAVE NOT YIELD DIVIDEND INCOME, THOSE THE 'INVESTMENT' DOES NOT FALL WITHIN THE AMBIT AND SCOPE OF DISALLOWING PROVISION OF SEC. 14A R.W. RULE 8D. 4) THE ID. CIT(A) FAILED TO APPRECIATE THAT THE INVESTMENT IN UNQUOTED SHARES WERE MADE OUT OF THE BUSINESS NECESSITY AND NOT FOR THE PURPOSE OF EARNING DIVIDEND INCOME, THEREFORE ON SUCH INVESTM ENT NO DISALLOWANCE U/S. 14A OUGHT TO BE MADE. 5) THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER OR DELETE ANY OF THE ABOVE GROUNDS OF APPEAL. ASSESSEE - COMPANY,ENGAGED IN THE BUSINESS OF SHARE BROKING,FILED ITS RET URN OF INCOME ON 20.09.2010,D ECLARING THE INCOME OF THE ASSESSEE AT RS.14.18 CRORES.THE ASSESSING OFFICER (AO) COMPLETED THE ASSESSMENT ON 26.12.2012,U/S.143(3)OF THE ACT,DETERMINING THE INCOME OF THE ASSESSEE AT RS.14.37 CRORES. 2. EFFECTIVE GROUND OF APPEAL DEALS WITH DISALLOWANCE MAD E U/S.14A OF THE ACT.DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT THE ASSESSEE HAD EARNED DIVIDEND INCOME OF RS.15.77 LAKHS AND HAD CLAIMED THE SAME AS EXEMPT,THAT IT HAD MAD E A DISALLOWANCE OF RS.15,776/ - ON ITS OWN.HE WAS NOT CONVINCED ABOUT DISALL OWANCE MADE,SO,HE ASKED THE ASSESSEE TO EXPLAIN AS TO WHY PROVISIONS OF SECTION 14A R.W.RULE 8D SHOULD NOT BE INVOKED.IN ITS REPLY,THE ASSESSEE STATED THAT IT HAD INVESTED ITS OWN FUND IN SHARES AND NO EXPENSE WAS 6 058/13 ANVIL SHARE 2 INCURRED FOR EARNING DIVIDEND INCOME.HOWEV ER,NOT BEING SATISFIED,HE CALCULATED THE DISALLOWANCE U/S.14A OF THE ACT R.W. RULE 8D AT RS. 19,40,756/ - . 3. DURING THE APPELLATE PROCEEDINGS,BEFORE THE FIRST APPELLATE AUTHORITY(FAA)THE ASSESSEE CONTENDED THAT THE ASSESSEE WAS A DEBT FREE COMPANY,THAT INVE STMENT IN SHARES,AMOUNTING TO RS.58.19 CRORES, (QUOTED SHARES 3.13 CRORES+UNQUOTED SHARES 55.06 CRORES) WAS MADE OUT OF ITS CAPITAL AND RESERVE OF RS.147.67 CRORES,THAT INVESTMENT WAS ONLY 40% OF THE AVAILABLE FUND,THAT IT HAD NOT INCURRED ANY INTEREST EXPE NDITURE,THAT OUT OF ITS RESERVES AND CAPITALS IT HAD KEPT PART OF IT WITH THE BANK AND HAD EARNED INTEREST OF RS.6.25 CRORES,THAT NO DISALLOWANCE WAS WARRANTED, THAT IT HAD EARNED STCG OF RS.77. 10 LAKHS AND HAD PAID TAX ON IT ,THAT OUT OF THE TOTAL INVESTME NT IT HAD INVESTED RS.54 CRORES IN THE SHARES OF GROUP COMPANIES ON WHICH IT HAD NOT EARNED ANY DIVIDEND ,THAT THOSE SHARES WOULD NOT YIELD DIVIDEND AS THEY WERE ISSUED BY THE PRIVATE COMPANIES AND WERE NOT QUOTED AT STOCK EXCHANGES. IT RELIED UPON THE DECI SION OF SUNDARAM ASSET MANAGEMENT COMPANY LTD. (ITA/ 1774/MDS/2012).AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE ASSESSMENT ORDER,HE HELD THAT IN EARLIER TWO AY.S.THE AO HAD MADE DISALLOWANCE U/S.14A OF THE ACT AND THE THEN FAA HAD DISMISSED T HE APPEAL FILED BY THE ASSESSEE .FOLLOWING THE O RDERS OF HIS PREDECESSORS, HE DISMISSED THE APPEAL FILED BY THE ASSESSEE . 4. BEFORE US,THE AUTHORISED REPRESENTATIVE(AR)STATED THAT INVESTMENT IN SHARES WAS MADE OUT OF ITS OWN INTEREST FREE FUND,THAT THERE HAS TO BE DIRECT NEXUS BETWEEN EXPENDITURE INCURRED AND EXEMPT ED DIVIDEND INCOME,THAT NO DISALLOWANCE COULD BE MADE U/S.14A OF THE ACT,THAT EVEN IF DISALLOWANCE WAS TO BE MADE IT SHOULD HAVE BEEN CALCULATED ONLY ON INVESTMENT WHICH HAD YIELDED EXEMPT LTCG/ EXEMPT DIVIDEND INCOME,THAT STCG OR THE INVESTMENT WHERE THE ASSESSEE HAD PAID TAX SHOULD HAVE BEEN EXCLUDED FROM AVERAGE VALUE OF INVESTMENTS.HE RELIED UPON THE CASE OF BNP PARIBAS SA(IT APPEAL NO.1776 OF 201 2)OF HONBLE MUMBAI HIGH COURT, SAM P BHARUCHA(I TA/3889/MUM/2011) .DEPARTMENTAL REPRESENTATIVE(DR)SUPPORTED THE ORDER OF THE FAA. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD.WE FIND THAT THE ASSESSEE HAD EARNED STCG OF RS.77.10 LAKHS ON WHICH IT HAD PAID TAX,THAT IT HAD NOT CLAIMED LTCG, THAT OUT OF THE TOTAL INVESTMENT OF RS.58.19 CRORES IT HAD INVESTED RS.54 CRORES IN THE GROUP COMPANIES,THAT IT HAD NOT EARNED DIVIDEND FROM SUCH INVESTMENT,THAT THOSE COMPAN IES WERE PRIVATE COMPANIES.SECTION 14A WAS BROUGHT ON THE STATUTE TO PREVENT THE DOUBLE BENEFIT BY THE ASSESSEES WHO WERE CLAIMING EXPENDITURE AGAINST THE EXEMPT INCOME.COURTS HAVE RECOGNIZED THE PRINCIPAL THAT IF AN ASSESSEE MAKES INVESTMENT IN THE SHARES GENERATING EXEMPT INCOME OUT OF HIS OWN INTEREST FREE FUNDS PROVISI ONS OF SECTION 14A OF THE ACT CANNOT BE INVOKED.IN THE CASE UNDER CONSIDERATION THE FAA HAS NOT DEALT WITH THE ISSUE.HE HAS SIMPLY FOLLOWED THE ORDER OF HIS PREDECESSOR WITHOUT DEALING WITH THE ARGUMENTS PUT BEFORE HIM AND THE DOCUMENTS PRODUCED BY THE ASS ESSEE .IN OUR OPINION,NO DISALLOWANCE CAN BE MADE U/S.14A R.W. RULE 8D UNTIL AND UNLESS DIRECT NEXUS OF EXEMPT INCOME AND EXPENDITURE IS ESTABLISHED. CONSIDERING VARIOUS PECULIAR FACTS OF THE CASE LIKE AVAILABILI TY OF OWN INTEREST FREE FUNDS , INVESTMENT IN GROUP COMPANIES,FAILURE OF THE AO TO ESTABLISH THE NEXUS BETWEEN EXEMPT INCOME AND EXPENDITURE,PARTIAL DISALLOWANCE MADE BY THE ASSESSEE ITSELF,WE ARE OF THE OPINION THAT THE ORDER OF THE AO AND FAA CANNOT BE ENDORSED. REVERSING THE ORDER OF THE FA A, WE DECI DE EFFECTIVE GROUND OF APPEAL IN FAVOUR OF THE ASSESSEE. AS A RESULT,APPEAL FILED BY THE ASSESSEE STANDS ALLOWED. . 6 058/13 ANVIL SHARE 3 ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH SEPT. 2015. 30 , 2015 SD/ - SD/ - ( / SANJAY GARG) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / MUMBAI, /DATE: 30 . 09 .2015 . . . JV. SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR A BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , / ITAT, MUMBAI.