M/s. Cosmos International Ltd., New Delhi V. ITO, New Delhi

ITA 6059/DEL/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 4548 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 9 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-09-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2012-2013
• Appeal Filed On: 09-11-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRAVAN GOTRU
• Assessee Lawyers: ASHISH CHADHA
• Keywords: Business income; Business expenditure; Earning of tax free income
• Section: 143(3); 142(1); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D, NEW DELHI BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER I.T.A. NO. 6059/DEL/2015 A.Y. : 2012-13 M/S COSMOS INTERNATIONAL LTD., 1, ARADHANA COLONY, SECTOR-13, R.K. PURAM, NEW DELHI (PAN: AACCC7895A) VS. ITO, WARD 6(3), NEW DELHI (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. VED JAIN, ADV. & SH. ASHISH CHADHA, CA DEPARTMENT BY : SH. SHRAVAN GOTRU, SR. DR ORDER PER H.S. SIDHU : JM ASSESSEE HAS FILED THIS APPEAL AGAINST THE IMPUGNE D ORDER DATED 24.8.2015 PASSED BY THE LD. CIT(A)-2, NEW DELHI RE LEVANT TO ASSESSMENT YEAR 2012-13 ON THE FOLLOWING GROUNDS:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE. CASE, THE ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) [CIT(A)] IS BAD, BOTH IN THE EYE OF L AW AND ON THE FACTS. 2. (I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW I N PASSING AN ORDER WITHOUT GIVING ASSESSEE AN OPPORTU NITY 2 OF BEING HEARD IN CLEAR VIOLATION OF PRINCIPLE OF N ATURAL JUSTICE. (II) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LEARNED CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW I N PASSING AN ORDER EX-PARTE DESPITE THE FACT THAT THE ASSESSEE WAS PREVENTED FROM APPEARING BECAUSE OF TH E REASONS BEYOND THE CONTROL OF THE ASSESSEE. 3. (I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED, BOTH ON FACTS AND IN LAW, IN CONFIRMING THE ACTION OF THE AO IN MAKING DISALLOWA NCE OF AN AMOUNT OF RS.37,500/- INVOKING THE PROVISION OF SECTION 14A OF THE ACT. (II) THAT THE SAID DISALLOWANCE HAS BEEN CONFIRMED IGNORING THE FACT THAT THERE BEING NO TAX FREE INCO ME EARNED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. 4. (I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED, BOTH ON FACTS AND IN LAW, IN CONFIRMING THE DISALLOWANCE OF RS.29,82,952/- MADE BY THE AO ON ACCOUNT OF LOSS ON SALE OF MUTUAL FUNDS B Y HOLDING THE SAME TO BE A CAPITAL LOSS AS AGAINST BU SINESS LOSS. (II) THAT THE SAID DISALLOWANCE HAS BEEN CONFIRMED DESPITE THE FACT THAT THE LOSS IS REVENUE IN NATURE , INCURRED DURING THE NORMAL COURSE OF BUSINESS OF TH E ASSESSEE. 5. THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALTE R ANY OF THE GROUNDS OF APPEAL. 3 2. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE HA D FILED THE RETURN DECLARING INCOME OF RS. 27,84,690/- ON 29.9.2012. T HE CASE OF THE ASSESSEE WAS PROCESSED U/S. 143(1) OF THE INCOME TA X ACT, 1961 (HEREINAFTER REFERRED AS THE ACT) AND WAS TAKEN UP FOR SCRUTINY. ACCORDINGLY, NOTICE U/S. 143(2) OF THE ACT DATED 8. 8.2013 AND SUBSEQUENTLY NOTICE U/S. 142(1) OF THE ACT ALONGWIT H QUESTIONNAIRE WERE ISSUED AND SERVED UPON THE ASSESSEE. IN RESPONSE TO THE SAME, THE AR OF THE ASSESSEE ATTENDED THE PROCEEDINGS FROM TIME TO TIME. BOOKS OF ACCOUNT WERE ALSO PRODUCED AND THE SAME HAVE BEEN E XAMINED ON TEST CHECK BASIS. DURING THE YEAR UNDER CONSIDERATION, A SSESEE COMPANY WAS ENGAGED IN THE BUSINESS OF EXPORTS OF SEVERAL ITEMS AND ALSO DOING COMMODITY BUSINESS IN FUTURE TRADING. DURING THE CO URSE OF ASSESSMENT PROCEEDINGS, IT WAS OBSERVED THAT THE ASSESSEE COMP ANY HAS MADE INVESTMENT IN MUTUAL FUNDS. ASSESSEE WAS ASKED TO PROVIDE THE DETAILS OF DISALLOWANCE U/S. 14A READ WITH RULE 8D OF THE I.T. RULES, 1962. IN ITS REPLY DATED 5.3.2015, ASSESSEE SIMPLY STATED THAT N O INCOME HAS BEEN EARNED ON INVESTMENTS AND THE ADDITIONS MADE ON SIM ILAR GROUNDS HAS BEEN DELETED BY THE HIGHER AUTHORITIES AND HENCE, N O DISALLOWANCE U/S. 14A SHOULD BE MADE. AO AFTER CONSIDERING THE REPLY OF THE ASSESSEE, OBSERVED THAT SINCE THE ASSESSEE HAS MADE INVESTMEN T OF EARN THE DIVIDEND INCOME AND CAPITAL GAINS, REQUIRED TO DISA LLOWANCE U/S- 14A READ WITH RULE 8D. AO FURTHER OBSERVED THAT SINCE THE A SSESSEE HAS CLAIMED THAT NO EXPENSES ARE REQUIRED TO BE DISALLOWED U/S. 14A READ WITH RULE 4 8D, HENCE, HE INVOKED THE PROVISION OF SECTION 14A AND ADDITION OF RS. 37,500/- WAS MADE U/S. 14A OF THE ACT. 2.1 THE AO FURTHER OBSERVED THAT ON PERUSAL OF BALA NCE SHEET FILED BY THE ASSESSEE COMPANY, IT WAS OBSERVED THAT THE ASSE SSEE WAS HAVING INVESTMENT IN MUTUAL FUND AMOUNTING TO RS. 1,50,00, 000/- AT ON 31.3.2011 WHICH WERE SOLD DURING THE YEAR AND ON WH ICH LOSS OF RS. 29,82,952/- HAS BEEN INCURRED AND CLAIMED BY THE AS SESSEE AS REVENUE EXPENSES. ASSESSEE WAS ASKED TO PROVIDE THE DETAI LS OF EXPENSES CLAIMED IN P&L ACCOUNT IN EXCESS OF RS. 1 LAC WITH EVIDENCE OF TDS DEDUCTED THEREON. IN REPLY TO THE SAME, THE ASSESS EE HAS SUBMITTED THAT DETAILS OF OTHER EXPENSES BUT NO DETAILS WERE FILED FOR THE LOSS CLAIMED ON SALE OF INVESTMENT. SINCE THE LOSS INCURRED BY THE ASSESSEE COMPANY ON SALE OF MUTUAL FUNDS WHICH WERE HELD AS INVESTMENT IS OF THE NATURE OF CAPITAL LOSS AND HAS TO BE ASSESSED AS INCOME FROM CAPITAL GAINS / LOSS, THE SAME WAS DISALLOWED AS BUSINESS EXPENSES CLAIME D BY THE ASSESSEE COMPANY AND WAS ADDED TO ITS INCOME AND ASSESSED TH E INCOME AT RS. 58,05,140/- U/S. 143(3) OF THE ACT VIDE ORDER DATED 13.3.2015. 3. AGGRIEVED WITH THE ASSESSMENT ORDER DATED 13.3.2 015, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A), WHO VIDE IMPUGNED ORDER DATED 24.8.2015 HAS DISMISSED THE APPEAL OF THE ASS ESSEE. 4. AGAINST THE IMPUGNED ORDER DATED 24.8.2015, ASS ESSEE HAS FILED THE APPEAL BEFORE THE TRIBUNAL. 5 5. AT THE TIME OF HEARING, LD. COUNSEL OF THE ASSES SEE WITH REGARD TO DISALLOWANCE OF RS. 37,500/- MADE U/S. 14A HAS STA TED THAT THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF THE HONBLE JU RISDICTION HIGH COURT IN THE CASE OF CHEMINVEST LTD. VS. CIT [2015] 378 ITR 33 (DEL.), BECAUSE THERE IS NO EXEMPT INCOME EARNED BY THE ASSESSEE D URING THE YEAR CONSIDERATION. HENCE, HE REQUESTED THAT THE ADDIT ION IN DISPUTE MAY BE DELETED. 5.1 WITH REGARD TO ADDITION OF RS. 29,82,952/- IS C ONCERNED, LD. COUNSEL OF THE ASSESSEE HAS STATED THAT THIS ISSUE IS ALSO SQUARELY COVERED BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. COCANADA RADHASWAMI BANK LTD. (1965) 57 ITR 306 (SC), BECAUS E THE ENTIRE INCOME OF THE ASSESSEE INCLUDE INTEREST ON SECURITI ES. HE FURTHER STATED THAT IN EARLIER YEARS AND IN SUCCEEDING YEARS, THE RE IS NO ADDITION MADE BY THE AO. THUS, THE ADDITION MADE BY THE AO AND C ONFIRMED BY THE LD. CIT(A) MAY BE DELETED. 6. ON THE CONTRARY, LD. DR RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE R ECORDS ESPECIALLY THE IMPUGNED ORDER. WE FIND THAT IN THIS APPEAL AS SESSEE HAS CHALLENGED THE TWO ADDITIONS, FIRSTLY DISALLOWANCE OF RS. 37,5 00/- BY INVOKING THE PROVISIONS OF SECTION 14A AND A SUM OF RS. 29,82,95 2/- ON ACCOUNT OF LOSS ON SALE OF MUTUAL FUNDS BY HOLDING THE SAME TO BE A CAPITAL LOSS AS AGAINST BUSINESS LOSS CLAIMED BY THE ASSESSEE. WE F URTHER FIND THAT AS 6 REGARDS TO DISALLOWANCE OF RS. 37,500/- UNDER SECTI ON 14A, IS CONCERNED, THE LD. CIT(A) WHILE CONFIRMING THE SAME PLACED REL IANCE UPON THE JUDGMENT OF THIS ITAT IN THE CASE OF CHEMINVEST LTD . VS ITO [2009] 121 ITO 318 (DEL) (S8), STATING THAT EVEN IF THERE IS N O EXEMPT INCOME, DISALLOWANCE U/S 14A HAS TO BE MADE. WE ARE OF THE CONSIDERED VIEW THAT THE ABOVE SAID JUDGMENT HAS SINCE BEEN OVERRULED BY HON'BLE JURISDICTION HIGH COURT IN THE CASE OF CHEMINVEST LTD. VS CIT [2 015] 378 ITR 33 (DEL), HENCE, THE ISSUE IN DISPUTE IS SQUARELY COVE RED IN FAVOUR OF ASSESSEE, IN VIEW OF THE FACT THAT THERE IS NO EXEM PT INCOME EARNED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. R ESPECTFULLY FOLLOWING THE PRECEDENT, AS AFORESAID, WE DELETE THE ADDITION IN DISPUTE AND ALLOW THE GROUND RAISED BY THE ASSESSEE. 7.1 AS REGARDS TO THE DISALLOWANCE OF RS. 29,82,952 /- IS CONCERNED, WE NOTE THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF TR ADING IN SECURITIES AND SHARES. IN THE YEAR UNDER CONSIDERATION THE ASSESSE E SUFFERED A LOSS OF RS. 29,82,952/- ON THE SALE OF MUTUAL FUND WHICH WA S HELD AS STOCK IN TRADE AND AS SUCH CLAIMED AS BUSINESS LOSS. THE ISS UE IN THIS CASE IS WHETHER THE AMOUNT OF RS 29,82,952/- ON ACCOUNT OF LOSS ON SALE OF MUTUAL FUNDS CAN BE TREATED AS CAPITAL LOSS AS HELD BY THE AO AS AGAINST BUSINESS LOSS SHOWN BY THE ASSESSEE. IT IS UNDISPUT ED FACT THAT THE LOSS HAS BEEN INCURRED DURING THE NORMAL COURSE OF THE B USINESS. SINCE THE ASSESSEE'S ONLY SOURCE OF INCOME WAS HIS INTEREST A ND IN THIS VIEW THE LOSS INCURRED ON THE SALE OF MUTUAL FUND HAS TO BE HELD AS BUSINESS LOSS. THEREFORE, THIS ISSUE IS COVERED BY THE JUDGMENT OF THE HON'BLE SUPREME 7 COURT IN THE CASE OF CIT VS COCANADARADHASWAMI BAN K LTD. (1965) 57 ITR 306 (SC), WHEREIN IT WAS HELD THAT SINCE THE EN TIRE INCOME OF THE ASSESSEE INCLUDE INTEREST ON SECURITIES, THE ASSESS EE WAS ENTITLED TO SET OFF SUCH LOSSES OUT OF ITS BUSINESS INCOME. WE ALSO NOTE THAT AO CANNOT DISPUTE THAT THE LOSS ARISING FROM SALE OF INVESTME NT WILL BE CAPITAL GAIN AS AGAINST BUSINESS LOSS CLAIMED BY THE ASSESSEE. THE SAME STAND WAS FOLLOWED BY THE ASSESSEE IN THE EARLIER YEARS AND T HERE IS NO ADDITION MADE BY THE AO IN THE EARLIER AND SUCCEEDING YEARS. THUS, RESPECTFULLY FOLLOWING THE PRECEDENT, AS AFORESAID, THE ADDITION MADE BY THE AO AND CONFIRMED BY THE LD. CIT(A) IS HEREBY DELETED AND A CCORDINGLY, WE ALLOW THE GROUND RAISED BY THE ASSESSEE. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 06/09/2017. SD/- SD/- [PRASHANT MAHARISHI] [H.S. SIDHU] ACCOUNTANT MEMBER JUDICIAL MEMBER DATE 06/09/2017 SRBHATNAGAR COPY FORWARDED TO: - 1. APPELLANT - 2. RESPONDENT - 3. CIT 4. CIT (A) 5. DR, ITAT ASSISTANT REGISTRAR, ITAT, DELHI BENCHES