SHREEPATI HOLDING & FINANCE P. LTD, MUMBAI V. ADDL CIT RG 4(3), MUMBAI

ITA 6127/MUM/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 1600 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-12-2016
• Appeal Filed By: Assessee
• Bench Allotted: E
• Assessment Year: 2011-2012
• Appeal Filed On: 01-10-2014
• Court: TRIBUNAL
• Department Lawyers: T A KHAN
• Keywords: Opportunity of being heard; Principle of natural justice; Earning of tax free income; Question of law
• Section: 143(3); 14A

Judgement Text

, , E, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E, MUMBAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.6127/MUM/2014 ASSESSMENT YEAR: 2011-12 SHR EEPATI HOLDING & FINANCE P. LTD. 401, 4 TH FLOOR, MEHTA MAHAL, 15 TH MATHEW RD. OPERA HOUSE, MUMBAI-400004 / VS. ADDL. CIT RG 4(2) AAYAKAR BHAVAN, 6 TH FLOOR, MUMBAI- ( APPELLANT ) (RESPONDENT ) P.A. NO. AAACS8111R APPELLANT BY SHRI DHARMESH SHAH ( A R) REVENUE BY SHRI T.A KHAN (DR) / DATE OF HEARING: 28/11/2016 / DATE OF ORDER: 15/12/2016 / O R D E R PER ASHWANI TANEJA (ACCOUNTANT MEMBER): THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST ORDER OF LD. COMMISSIONER OF INCOME TAX(APPEALS), MUMBAI- 8 (IN SHORT CIT(A)}, DATED 22.09.2014 PASSED ORDER AGAI NST U/S 143(3) OF THE ACT, DATED 24.12.2013 FOR ASSESSMENT YEAR 2011- 12 ON THE FOLLOWING GROUNDS: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) LEGALLY ERRED IN CONFIRMING THE ACTION OF TH E AO IN SHRIPATI HOLDING & FINANCE 2 MAKING A DISALLOWANCE U/S 14A OF THE ACT R.W.R. 8D AMOUNTING TO RS.34,63,107/-. 1.1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, WITHOUT PREJUDICE, THE CIT(A) ERRED IN NOT EXCLUDIN G THE INTEREST PAID AMOUNTING TO RS.2,34,09,649 ON TERM L OANS, OVERDRAFTS, CASH CREDITS AND CAR LOANS TAKEN SPECIF ICALLY FOR BUSINESS PURPOSES WHILE COMPUTING THE DISALLOWA NCE U/S 14A R.W.R. 8D. 1.2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, WITHOUT PREJUDICE, WITHOUT ADMITTING AND IN THE ALTERNATIVE THE CIT(A) ERRED IN NOT DIRECTING THE A O TO NET-OFF THE INTEREST RECEIVED ON FIXED DEPOSITS AMO UNTING TO RS.1,45,57,164 AGAINST THE INTEREST PAID ON THE VARIOUS SPECIFIC LOANS TAKEN AGAINST THE SAID FIXED DEPOSITS AMOUNTING TO RS.2,34,09,649. 1.3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, WITHOUT PREJUDICE, WITHOUT ADMITTING AND IN THE ALTERNATIVE THE CIT(A) ERRED IN NOT DIRECTING THE A O TO RESTRICT THE EXCESSIVE DISALLOWANCE COMPUTED U/S 14 A R.W.R. 8D AMOUNTING TO RS.34,63,107 TO A REASONABLE AMOUNT AS COMPARED TO THE DIVIDEND EARNED AMOUNTING TO RS.7,81,165/- IN VIEW OF THE DECISION OF THE DELHI TRIBUNAL IN THE CASE OF SAHARA INDIA CORPORATION LTD. (163 T TJ 257). 1.4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT THE SHARE CAPITAL AND RESERVES & SURPLUS OF THE APPELLANT PLA CED AT RS.3,299.98 LACS WAS FAR IN EXCESS OF THE INVESTMENTS IN SHARES AND SECURITIES HELD AS STOCK IN TRADE PLACED AT 994.98 LACS AND THEREFORE NO INTERE ST BEARING FUNDS WERE UTILIZED FOR INVESTMENT PURPOSES AND NO DISALLOWANCE U/S 14A R.W.R. 8D WAS WARRANTED. 1.5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT THE NO DISALLOWANCE U/S 14A R.W.R. 8D WAS CALLED FOR AS NO EXEMPT INCOME WAS EARNED DURING THE YEAR AS HELD BY THE JURISDICTIONAL BOMBAY HIGH COURT IN THE CASE OF DELITE ENTERPRISES (NO.110/2009). 1.6. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E CIT(A) ERRED IN CONFIRMING THE ACTION OF THE AO IN CONSIDERING SHARES AND SECURITIES HELD AS STOCK IN TRADE FOR PURPOSE OF COMPUTING THE DISALLOWANCE U/S 14A R .W.R. SHRIPATI HOLDING & FINANCE 3 8D. 2. DURING THE COURSE OF HEARING, ARGUMENTS WERE MADE BY SHRI DHARMESH SHAH, AUTHORISED REPRESENTATIVES (AR) ON BEHALF OF THE ASSESSEE AND BY SHRI T.A KHAN, DEPART MENTAL REPRESENTATIVE (CIT-DR) ON BEHALF OF THE REVENUE. 3. THE BRIEF FACTS ARE THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF SHARE BROKER, TRADER AND INVESTOR OF SH ARES & SECURITIES. DURING COURSE OF HEARING, IT WAS NOTED BY THE AO THAT THE ASSESSEE HAD EARNED TAX FREE DIVIDEND OF RS.7,81,165/-, BUT THE SAME WAS NOT CLAIMED AS EXEM PT. IT WAS FURTHER SUBMITTED THAT SINCE DIVIDEND INCOME HA S NOT BEEN CLAIMED AS EXEMPT, THERE WAS NO QUESTION OF MA KING DISALLOWANCE OF U/S 14A. IT WAS ALSO SUBMITTED THAT ASSESSEE NEVER HELD ANY SHARES AS PART OF INVESTMENT, AND EN TIRE SHARES & SECURITIES HAVE BEEN HELD AS STOCK-IN-TRADE. THE ASSESSEE COMPANY BEING TRADER IN SHARES, THE INCOME FROM PUR CHASE AND SALE OF SHARES HAS BEEN ASSESSED AS BUSINESS IN COME. BUT, LD. AO DID NOT AGREE WITH THE SUBMISSIONS OF T HE ASSESSEE AND COMPUTED THE INTEREST AND ADMINISTRATIVE EXPENS ES DISALLOWABLE UNDER RULE 8D(2)(II) & 8D(2)(III) FOR AN AMOUNT AGGREGATING TO RS.42,44,272/-, AND AFTER DEDUCTING DIVIDEND INCOME, THE NET DISALLOWANCE WAS COMPUTED OF RS.34, 63,107/. 4. IN THE APPEAL BEFORE THE LD. CIT(A), IT WAS SUBMIT TED THAT INTEREST HAS BEEN PAID ON ACCOUNT OF SECURED LOANS SUCH AS TERMS LOANS, VEHICLE LOANS AND WORKING CAPITAL LOAN S WHICH HAVE BEEN UTILIZED WHOLLY AND EXCLUSIVELY FOR THE P URPOSE OF BUSINESS. VARIOUS SUBMISSIONS WERE MADE TO CONTEST DISALLOWANCE. BUT, LD. CIT(A) DID NOT AGREE WITH TH E SUBMISSIONS OF THE ASSESSEE AND RELYING UPON HIS OR DER PASSED SHRIPATI HOLDING & FINANCE 4 IN THE ASSESSEES OWN CASE IN A.Y. 2010-11, THE DIS ALLOWANCE MADE BY THE AO WAS CONFIRMED. 5. DURING THE COURSE OF HEARING, IT WAS SUBMITTED BY THE LD. COUNSEL THAT SINCE THE FACTS ARE IDENTICAL, THEREFO RE DECISION GIVEN BY THE TRIBUNAL IN A.Y. 2010-11, SHOULD BE AP PLIED HERE. LD. DR ALSO DID NOT HAVE ANY OBJECTION IN THIS REGA RD. 6. WE HAVE GONE THROUGH THE ORDERS PASSED BY THE LOWE R AUTHORITIES AS WELL AS ORDER PASSED BY THE TRIBUNAL . IT IS NOTED THAT THE TRIBUNAL IN ITS ORDER DT 2-11-2016 FOR A.Y . 2010-11 IN ITA NO. 6577/MUM/2013 OBSERVED AS UNDER: 2. THE ONLY ISSUE RAISED IN THIS APPEAL RELATES TO THE DISALLOWANCE U/S 14A OF THE ACT. BRIEF FACTS RELEV ANT FOR ADJUDICATION OF THE SAID ISSUE INCLUDES THAT THE AS SESSEE EARNED DIVIDEND INCOME OF RS. 6,08,318/-. ASSESSEE SUO MOTO DISALLOWED SUM OF RS.30,000/- AS EXPENDITURE DISALLOWABLE U/S 14A OF THE ACT. HOWEVER, IN THE ASSESSMENT MADE U/S 143(3) OF THE ACT, AO MECHANICA LLY APPLIED THE FORMULA LAID DOWN IN RULE 8D(2) OF THE IT RULES, 1962 (THE RULES) READ WITH SECTION 14A OF TH E ACT. ACCORDINGLY, AO DISALLOWED SUM OF RS. 24,83,628/- U NDER RULE 8D(2)(II) AND RS. 4,53,425/- UNDER RULE 8D(III ) OF THE RULES. THUS, NET DISALLOWANCE, AFTER REDUCING RS. 3 0,000/- (SUPRA), WORKS OUT TO RS. 29,37,054/- AND THE SAME IS THE SUBJECT MATTER OF ADJUDICATION BEFORE US. 3. AT THE OUTSET, LD COUNSEL FOR THE ASSESSEE, ON T HE ABOVE ISSUE OF DISALLOWANCE, BROUGHT OUR ATTENTION TO PAGE 5 OF THE PAPER BOOK IE SCHEDULES-VI AND VII OF THE BALANCE SHEET AND SUBMITTED THAT THE DIVIDEND YIELDED SHARE S SHRIPATI HOLDING & FINANCE 5 WERE THE STOCK-IN-TRADE (REFERENCE SCHEDULE VII-A R ELATING TO THE CURRENT ASSETS) OF RS. 8,77,52,726.75 AND THE SHARE INVESTMENT IS NIL (SCHEDULE VI RELATING TO TH E INVESTMENTS IS RELEVANT). RELYING ON THE ABOVE BOO K ENTRIES, LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE NEVER HAD SHARES AS INVESTMENTS AND DIV IDEND YIELDED SHARES WERE HELD AS STOCK-IN-TRADE CONSIST ENTLY OVER THE YEARS. TO SUM UP HIS ARGUMENTS, THE CASE OF THE ASSESSEE IS THAT THE PROVISIONS OF SECTION 14A READ WITH RULE 8D ARE NOT TO BE INVOKED IN THE CASES OF EXEMP T INCOME EARNED OUT OF THE SHARES HELD AS STOCK-IN-TR ADE. FOR THIS PROPOSITION, LD COUNSEL FOR THE ASSESSEE R ELIED ON THE BINDING JUDGMENT OF THE HONBLE HIGH COURT IN T HE CASE OF DCIT VS. INDIA ADVANTAGE SECURITIES LTD [2016] 3 80 ITR 471 (BOM). FURTHER, HE ALSO BROUGHT OUR ATTENTION TO THE SERIES OF THE ORDERS OF THE ITAT, MUMBAI BENCH FOR THE PROPOSITION THAT NO DISALLOWANCE CAN BE MADE UNDER RULE 8D(2)(II) & (III) OF THE RULES. 4. ON HEARING BOTH THE PARTIES, WE FIND, THE ARGUME NT OF THE LD COUNSEL FOR THE ASSESSEE HAS MERITS AND THE ADDITIONS MADE BY THE AO ARE REQUIRED TO BE DELETED . FOR THE SAKE OF COMPLETENESS OF THIS ORDER, RELEVANT PA RAS FROM THE SAID ORDER OF THE TRIBUNAL IN THE CASE OF DCIT VS. INDIA ADVANTAGE SECURITIES LTD IN ITA NO.3759 & 3576/MUM/2014), DATED 10.2.2016 FOR THE AY 2009-10 ARE EXTRACTED AS UNDER:- 10. AT THE OUTSET, LD COUNSEL FOR THE ASSESSEE MEN TIONED THAT IN THE ORDER OF THE REVENUE THERE IS AN ERROR BY WAY OF SHRIPATI HOLDING & FINANCE 6 INCLUSION OF STOCK-IN-TRADE FOR THE PURPOSE OF DETE RMINING THE DISALLOWABLE U/S 14A OF THE ACT. IN THIS REGAR D, LD COUNSEL FOR THE ASSESSEE MENTIONED THAT SUCH INCLUS ION OF STOCK-IN-TRADE IS NOT APPROVED BY THE JURISDICTIONA L HIGH COURT IN ASSESSEES OWN CASE IN INCOME TAX APPEAL NO.1131 OF 2013, DATED 13 TH APRIL, 2015. IN SUPPORT, ASSESSEE FILED THE TRIBUNAL ORDER IN ITA NO.6711/M/ 2011 (AY 2008-2009), DATED 14.9.2012. PARA 6 OF THE SAI D TRIBUNALS ORDER (SUPRA) IS RELEVANT IN THIS REGARD AND THE RELEVANT LINES FROM THE SAID PARA 6 ARE EXTRACTED A S UNDER:- 6.......WE, THEREFORE, SEE NO INFIRMITY IN THE ORD ER OF THE LD CIT (A) IN DELETING THE DISALLOWANCE U/S 14A COMPUT ED BY THE AO IN RELATION TO THE STOCK-IN-TRADE...... 11. LD COUNSEL FOR THE ASSESSEE ALSO SUBMITTED THAT IN THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT ( SUPRA) DATED 13.4.2015, WHICH IS AGITATED BY THE REVENUE, THE HIGH COURT HELD THAT NO SUBSTANTIAL QUESTION OF LAW ARISES OUT OF THE ORDER OF THE TRIBUNAL ON THE ABOVE ISSUE . IT IS THE SUBMISSION OF THE LD COUNSEL THAT CONSIDERING THE S AME, ASSESSES CASE MAY BE ALLOWED. 12. WE HAVE HEARD LD REPRESENTATIVES OF BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AS WE LL AS THE CITED JUDGMENT OF THE HONBLE JURISDICTIONAL HI GH COURT (SUPRA) AND THE ORDER OF THE TRIBUNAL (SUPRA) DATED 14.9.2012. CONSIDERING THE SAME, WE DIRECT THE AO TO COMPLY WITH THE SAID TRIBUNALS ORDER AS WELL AS TH E JUDGMENT OF THE JURISDICTIONAL HIGH COURT FOR THE A Y 2008- SHRIPATI HOLDING & FINANCE 7 2009 AND DECIDE THE ISSUE AFRESH. THE ARGUMENTS RELATING TO THE APPLICABILITY OF THE HIGH COURT JUD GMENT IN THE CASE RELIANCE UTILITIES AND POWER LIMITED [2009 ] 313 ITR 340 (BOM) IS ALSO REMANDED TO THE FILE OF THE A O FOR SIMILAR ADJUDICATION. AO SHALL GRANT A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AS PER T HE SET PRINCIPLES OF NATURAL JUSTICE. ACCORDINGLY, GROUND S RAISED BY THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSE S. 5. FURTHER, WE FIND IT RELEVANT TO EXTRACT THE RELE VANT PARA FROM THE SAID JUDGMENT OF THE HONBLE JURISDIC TIONAL HIGH COURT IN THE CASE OF INDIA ADVANTAGE SECURITIE S LTD (SUPRA) AND THE SAME READS AS UNDER:- IT IS THIS REVISED DISALLOWANCE WHICH HAS BEEN ACC EPTED BY THE TRIBUNAL. WE DO NOT FIND THAT BOTH THE QUES TIONS OF LAW CAN BE TERMED AS SUBSTANTIAL SIMPLY BECAUSE THE FIRST ONE IS COVERED AGAINST THE REVENUE BY A JUDGMENT OF THIS COURT IN THE CASE OF GODREJ AND BOYCE MFG. CO. LTD VS. DCIT IN ITA NO.626 OF 2010 AND WRIT PETITION NO.758 OF 2010 [2010] 328 ITR 81 (BOM). THE QUESTIONS HAVE B EEN DECIDED BY THIS COURT BOTH THE AUTHORITIES IN THIS CASE HAVE FOLLOWED THIS JUDGMENT AND APPLIED SECTION 14A OF THE ACT AND THE RULE 8D OF THE INCOME TAX RULES, 19 62. THEY HAVE BEEN APPLIED CORRECTLY. THE FIRST QUESTI ON IS, THEREFORE, NOT A SUBSTANTIAL QUESTION OF LAW. 6. CONSIDERING THE ABOVE SETTLED POSITION OF THE IS SUE, WE ARE OF THE OPINION THAT THE ASSESSEE IS ENTITLED TO RELIEF AND THEREFORE, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED. SHRIPATI HOLDING & FINANCE 8 7. IT WAS JOINTLY STATED BY BOTH SIDES BEFORE US THAT FACTS IN THIS ARE ALSO IDENTICAL. THUS, AS A MATTER OF CONSI STENCY, FOLLOWING THE ORDER OF THE TRIBUNAL, AO IS DIRECTED TO DELETE THE DISALLOWANCE. IN THE RESULT, THE APPEAL OF THE ASSE SSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH DECEMBER, 2016. SD/- (MAHAVIR SINGH ) SD/- (ASHWANI TANEJA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 15/12/2016 CTX? P.S/. .. !'#$%&%'# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT, MUMBAI. 4. / CIT(A)- , MUMBAI 5. #$% &' , &' ) , / DR, ITAT, MUMBAI 6. %*+ , / GUARD FILE. / BY ORDER, # //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI