ACIT 2(3), MUMBAI V. URUDAVAN INVESTMENT & TRADING P.LD, MUMBAI

ITA 614/MUM/2014

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0984 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-07-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2010-2011
• Appeal Filed On: 24-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: C B R MURTHY
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI . . , , , BEFORE SHRI A.D. JAIN , JUDICIAL MEMBER AND SHRI N.K . BILLAIYA, A CCOUNTANT M EMBER / I .T.A. NO . 614/MUM/2014 ( / ASSESSMENT YEAR : 2010 - 11 THE ACIT - 2(3), AAYAKAR BHAVAN, MUMBAI - 400 020 / VS. M/S. URUDVAN INVESTMENT & TRADING PVT. LTD., 4 TH FLOOR, K.K. CHAMBERS, SIR PUROSHOTTAMDAS THAKURDAS MARG, FORT, MUMBAI - 400 001 ./ ./ PAN/GIR NO. : AAACU 1353M ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY: SHRI SUNIL KUMAR AGARWAL / RESPONDENT BY : SHRI C.B.R. MURTHY / DATE OF HEARING : 02 . 0 7 .2015 / DATE OF PRONOUNCEMENT : 02 .0 7 .2015 / O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL BY THE REVENUE IS PREFERRED AGAINST THE ORDER OF THE LD. CIT(A) - 6 , MUMBAI DT. 18.10 .201 3 PERTAINING TO ASSESSMENT YEAR 20 1 0 - 1 1 . 2. THE GRIEVANCES OF THE REVENUE READ AS UNDER: ITA. NO. 614/M/2014 2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, TH E LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 70,54,276/ - MADE ON ACCOUNT OF MARK TO MARKET LOSS CLAIMED ON ACCOUNT OF TRADING IN DERIVATIVE TRANSACTIONS, WITHOUT APPRECIATING THAT THE LOSS CLAIMED ON THE BASIS OF VALUE OF DERIVATIVES AS ON 31 ST MARCH IS MERELY A NOTIONAL LOSS, AND THE ACTUAL LOSS OR THE PROFIT IN RESPECT OF SUCH DERIVATIVE TRANSACTIONS WOULD GET CRYSTALLIZED ONLY AT THE TIME OF SETTLEMENT OF SUCH TRANSACTION. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE U/S. 14A AMOUNTING TO RS. 5,57,569/ - HOLDING THAT THE AO SHOULD CONSIDER THE NET AMOUNT OF INTEREST EXPENDITURE RELYING ON THE DECISION OF THE HONBLE TRIBUNAL IN THE CASE OF MORGAN STANLEY LTD. IN ITA NO. 5072/M/ 05 & 6774/M/08 WITHOUT APPRECIATING THAT THE ASSESSEE HAS ITSELF DEBITED THE INTEREST EXPENDITURE ON GROSS BASIS AND NOT ON NET BASIS. 3. AT THE VERY OUTSET, THE LD. COUNSEL FOR THE ASSESSEE STATED THAT THE GRIEVANCE RAISED VIDE GROUND NO. 1 HAVE BEEN D ECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2009 - 10 IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE IN ITA NO. 2450/M/2013. 4. THE LD. DEPARTMENTAL REPRESENTATIVE COULD NOT BRING ANY DISTINGUISHING DECISION IN FAVOUR OF THE REVENUE. 5. WE HAVE CAREFULLY GONE THROUGH THE DECISION OF THE CO - ORDINATE BENCH IN ASSESSEES OWN CASE IN ITA NO. 2450/MN/2013. WE FIND FORCE IN THE CONTENTION OF THE LD. COUNSEL. THE TRIBUNAL HAS DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE . RESPECTFULLY FOLLOWING THE DECISION OF THE CO - ORDINATE BENCH IN ASSESSEES OWN CASE, WE DECLINE TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). GROUND NO. 1 IS ACCORDINGLY ALLOWED. ITA. NO. 614/M/2014 3 6. THE SECOND GRIEVANCE OF THE ASSESSEE RELATES TO AGAINST THE DELE TION OF THE DISALLOWANCE MADE U/S. 14A OF THE ACT. 6.1. WHILE SCRUTINIZING THE RETURN, THE AO NOTICED THAT THE ASSESSEE IS HAVING AN EXEMPT INCOME OF RS. 2,09,43,092/ - . THE AO FURTHER FOUND THAT THE ASSESSEE HAS SUO MOTO DISALLOWED RS. 5,53,235/ - . HOWE VER, THE AO OBSERVED THAT THE DISALLOWANCE IS NOT AS PER RULE 8D AND ACCORDINGLY THE AO PROCEEDED TO COMPUTE THE DISALLOWANCE AND COMPUTED THE SAME AT RS. 14,05,096/ - AND AFTER DEDUCTING THE SUO MOTO DISALLOWANCE MADE BY THE ASSESSEE ADDITION OF RS. 5,57,5 69/ - WAS MADE. 7. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) AND STRONGLY CONTENDED THAT THE AMOUNT OF INTEREST TO BE CONSIDERED FOR THE PURPOSE OF MAKING DISALLOWANCE U/S. 14A R.W. RULE 8D SHOULD BE THE NET AMOUNT OF INTEREST I.E. THE AMOUNT OF INTEREST PAID REDUCED BY THE AMOUNT OF INTEREST RECEIVED. RELIANCE WAS PLACED ON THE DECISION OF THE TRIBUNAL, MUMBAI BENCH IN THE CASE OF MORGAN STANLEY INDIA SECURITIES IN ITA NOS. 5072/M/05 & 6774/M/08 AND IN THE CASE OF FOUR DIMENSIONS SECURITIES (INDIA) LTD VS ACIT IN ITA NO. 6935/M/2011. 7.1. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS THOUGH THE LD. CIT(A) WAS CONVINCED THAT DISALLOWANCE U/S. 14A R.W. RULE 8D SQUARELY APPLY ON THE FACTS OF THE CASE BUT ACCEPTED THE CONTENTION OF THE ASS ESSEE THAT THE DISALLOWANCE SHOULD BE OUT OF THE NET INTEREST. THE LD. CIT(A) FOUND THAT THE ASSESSEE HAS EARNED INTEREST AT RS. 1,46,53,979/ - AND HAS INCURRED INTEREST EXPENDITURE OF RS. 12,05,456/ - AS THE NET INTEREST , THE LD. CIT(A) HOLD THAT THERE W OULD BE NO DISALLOWANCE. 7.2. AGGRIEVED BY THIS, THE REVENUE IS BEFORE US. ITA. NO. 614/M/2014 4 7.3. THE LD. DR STRONGLY SUPPORTED THE FINDINGS OF THE AO. 8. PER CONTRA, THE LD. COUNSEL FOR THE ASSESSEE REITERATED WHAT HAS BEEN STATED BEFORE THE LD. CIT(A). 9. WE FIN D THAT THE LD. CIT(A) HAS FOLLOWED THE DECISION OF THE TRIBUNAL IN THE CASE OF MORGAN STANLEY (SUPRA) AND IN THE CASE OF FOUR DI MENSIONS (SUPRA), WE THEREFORE DO NOT FIND ANY REASON TO INTERFERE WI TH THE FINDINGS OF THE LD. CIT(A). 10. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. OR DER PRONOUNCED IN THE OPEN COURT ON 2 ND JU LY , 2015 SD/ - SD/ - ( A.D. JAIN ) (N.K. BILLAIYA) /JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED : 2 ND JU LY , 2015 . . ./ RJ , SR. PS / 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