M/s. Shah Investors Home Ltd., Ahmedabad V. The Jt.CIT.,Range-3, Ahmedabad

ITA 633/AHD/2011

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1604 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 2 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-05-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 08-03-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 28-02-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PARIN SHAH ARS SH
• Keywords: Business income; Opportunity of being heard; Rule of consistency; Earning of tax free income; Question of law; Bad and doubtful debts; Benefit of exemption; Revised return
• Section: 143(3); 14A; 194C

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER SL. NO(S) ITA NO(S) ASSESSMENT YEAR(S) [AY] APPEAL(S) BY APPELLANT VS. RESPONDENT APPELLANT RESPONDENT 1. 633/AHD/2011 2007 - 08 SHAH INVESTORS HOME LTD. SIHI HOUSE OPP. AMBAVADI JAIN TEMPLE NEHRUNAGAR CROSS ROAD AHMEDABAD- 380 015 PAN: AAFCS 4436 C THE JOINT COMMISSIONER OF INCOME TAX RANGE-3 ASHRAM ROAD AHMEDABAD 2. 534/AHD/2011 2007 - 08 ACIT CICLE-3, AHMEDABAD SHAH INVESTORS HOME LTD. PAN: AAFCS 4436 C 3. 3134/AHD/2011 2008 - 09 SHAH INVESTORS HOME LTD. AHMEDABAD ACIT CIRCLE-3 AHMEDABAD 4. 3032/AHD/2011 2008 - 09 ACIT CIRCLE-3 AHMEDABAD SHAH INVESTORS HOME LTD., AHMEDABAD ASSESSEE BY : SHRI S.N.SOPARKAR & SHRI PARIN SHAH, ARS REVENUE BY : SHRI NARENDRA SINGH, SR.DR / DATE OF HEARING 08/03/2016 / DATE OF PRONOUNCEMENT 03/05/2016 ITA NOS.633,534 ,3134& 3032/AHD/ 2011 SHAH INVESTORS HOME LTD. VS. JCIT (CROSS-APPEALS) ASST.YEARS 2007-08 & 2008-09 - 2 - / O R D E R PER SHRI MANISH BORAD, ACCOUNTANT MEMBER : THESE FOUR CROSS-APPEALS FOR ASST.YEARS 2007-08 AN D 2008-09 ARE DIRECTED AGAINST SEPARATE ORDERS OF THE COMMISSIONE R OF INCOME TAX(APPEALS)-XIV/6 DATED 29/12/2010 AND DATED 05/10 /2011 RESPECTIVELY. SINCE SOME COMMON ISSUES (EXCEPT QUA NTUM) AND FACTS ARE INVOLVED IN THESE APPEALS, THESE ARE BEING DISPOSED OF BY WAY OF THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2. FIRST, WE SHALL TAKE UP THE CROSS-APPEALS, ITA NO.633/AHD/2011 & ITA NO.533/AHD/11, WHEREIN ASSESSMENT FOR AY 200 7-08 WAS FRAMED U/S. 143(3) OF THE IT ACT, 1961 (HEREINAFTER REFERR ED TO AS THE ACT) ON 30/12/2009 BY THE JCIT 3. BRIEFLY STATED FACTS AS CULLED OUT FROM THE REC ORDS ARE THAT THE ASSESSEE IS A LIMITED COMPANY ENGAGED IN THE BUSINE SS OF SHARE AND STOCK BROKER AND DEPOSITORY PARTICIPANT. ITS RETU RN OF INCOME HAS BEEN FILED FOR AY 2007-08 ON 25/10/2007 DISCLOSING TOTA L INCOME OF RS.6,50,28,099/-. THE CASE WAS SELECTED FOR SCRUTIN Y ASSESSMENT AND NOTICE U/S.143(2) OF THE ACT DATED 23/07/2008 WAS I SSUED AND DULY SERVED UPON THE ASSESSEE. THE CASE WAS DISCUSSED AND NEC ESSARY DETAILS WERE FILED AND THE ASSESSMENT WAS COMPLETED BY ASSESSING AN INCOME AT ITA NOS.633,534 ,3134& 3032/AHD/ 2011 SHAH INVESTORS HOME LTD. VS. JCIT (CROSS-APPEALS) ASST.YEARS 2007-08 & 2008-09 - 3 - RS.7,82,42,838/-, AFTER MAKING ADDITION OF RS.2,28 ,45,977/-, WHICH INCLUDED OF RS.1,14,75,031/- ON ACCOUNT OF TREATIN G THE SHORT TERM CAPITAL GAIN (STCG) AND LONG TERM CAPITAL GAIN (STC G) FROM TRANSACTIONS OF PURCHASE/SALE OF EQUITY SHARES DISC LOSED BY THE ASSESSEE AS BUSINESS INCOME. AGGRIEVED ASSESSEE, THEREAFTER, WENT IN APPEAL AND GOT PART RELIEF FROM THE LD.CIT(A). THEREFORE, NOW THE REVENUE AND ASSESSEE ARE BOTH IN APPEALS BEFORE US. 3.1. IN ASSESSEES APPEAL, THE ASSESSEE RAISED G ROUND NO.1, WHICH READS AS UNDER:- 1. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING ADDITION OF RS.5,78,899/- ON THE BASIS O F TDS CERTIFICATES, WITHOUT APPRECIATING THE FACT THAT TH E INTEREST IS ALREADY OFFERED IN THE YEAR 2005-06 AS ACCRUED INTE REST AS PER MERCANTILE SYSTEM OF ACCOUNTING. IT IS THEREFO RE PRAYED THAT THE ADDITIONS SO MADE MAY KINDLY BE DELETED. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE LD.AO OBSERVED THAT THE ASSESSEE HAS SHOWN INTEREST INCOME FROM CA NARA BANK AT 70,14,087/- AND FROM HDFC BANK AT RS.42,05,468/- AN D WHEN THE LD.AO COMPARED THE INTEREST INCOME SHOWN BY THE ASSESSEE WITH THE TDS CERTIFICATES ISSUED BY CANARA BANK & HDFC BANK, IT WAS OBSERVED THAT THE AMOUNT OF INTEREST ON WHICH TDS HAS BEEN DEDUCT ED BY CANARA BANK AND HDFC BANK HAS SHOWN RESPECTIVELY AT RS.74,82,54 5/- AND RS.43,15,909/-. ACCORDINGLY, HE CALCULATED THAT TH E ASSESSEE HAS SHOWN ITA NOS.633,534 ,3134& 3032/AHD/ 2011 SHAH INVESTORS HOME LTD. VS. JCIT (CROSS-APPEALS) ASST.YEARS 2007-08 & 2008-09 - 4 - INTEREST INCOME LESS BY RS.5,78,899/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS ITSELF, IT WAS SUBMITTED BY THE ASSESSE E THAT THE REASON FOR DIFFERENCE OF INCOME SHOWN IN THE BOOKS OF ACCOUNTS AND INCOME SHOWN TO BE RECEIVED AS PER TDS CERTIFICATE HAS ARISEN, B ECAUSE THE DIFFERENTIAL AMOUNT OF INTEREST HAD ALREADY BEEN OFFERED FOR TAX DURING AY 2006-07 AND ALSO FILED RECONCILIATION SUBMISSION SEPARATELY FOR CANARA BANK AND HDFC BANK DEMONSTRATING THAT INTEREST OF RS.5,78,89 9/- HAS BEEN OFFERED TO TAX DURING THE AY 2006-07 IN THE REGULAR BOOKS OF ACCOUNTS. HOWEVER, THE LD.AO WAS NOT CONVINCED WITH THE REPLI ES SUBMITTED BY THE ASSESSEE AND WENT AHEAD TO MAKE ADDITION ON ACCOUNT OF UNDISCLOSED INTEREST INCOME AT RS.5,78,899/-. AGGRIEVED AS SESSEE, WENT IN APPEAL BEFORE LD.CIT(A), WHO ALSO CONFIRMED THE VIEW TAKEN BY THE LD.AO AND DISCUSSED THE GROUND OF APPEAL. AGGRIEVED ASSESSEE IS NOW IN APPEAL BEFORE THE TRIBUNAL. 4.1. THE LD.AR SUBMITTED THAT RECONCILIATION STATEM ENTS ABOUT INTEREST INCOME FROM CANARA AND HDFC BANKS WERE PLACED ON RE CORD BEFORE THE LOWER AUTHORITIES DEMONSTRATING THAT THE IMPUGNED I NTEREST INCOME OF RS.5,78,899/- WHICH WAS SHOWN AS INCOME FROM INTERE ST DURING AY 2006-07 AND THE SAME HAPPENED DUE TO VARIATION OF I NTEREST ACCRUED AND INTEREST RECEIVED BETWEEN THE ASSESSEE AND THE RESP ECTIVE BANKS. LD.AR FURTHER REQUESTED THAT IF THEY ARE GIVEN AN OPPORTU NITY, THEN THEY WILL FURNISH NECESSARY EVIDENCES AND DOCUMENTS PERTAININ G TO F.Y. 2005-06, ITA NOS.633,534 ,3134& 3032/AHD/ 2011 SHAH INVESTORS HOME LTD. VS. JCIT (CROSS-APPEALS) ASST.YEARS 2007-08 & 2008-09 - 5 - I.E. AY 2006-07 BEFORE THE AO, SO AS TO SATISFY HIM THAT THE IMPUGNED INTEREST OF RS.5,78,899/-HAS ALREADY SHOWN AS INCOM E DURING THE AY 2006-07 AND HAS BEEN OFFERED TO TAX. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE ISSUE RAISED IN THIS GROUND IS AGAINST THE ORDE R OF THE LD.CIT(A) CONFIRMING THE ADDITION OF UNDISCLOSED INTEREST INC OME OF RS.5,78,899/- ON ACCOUNT OF MISMATCH BETWEEN THE INTEREST SHOWN I N THE TDS CERTIFICATES WITH THE INTEREST INCOME SHOWN IN THE BOOKS OF ACCOUNTS. WE FIND THAT THE ASSESSEE HAS SHOWN INTEREST INCOME FROM CANARA BANK AT RS.70,14,087/- AND INTEREST FROM HFC BANK AT RS.42 ,05,468/-, WHEREAS IN THE TDS CERTIFICATES ISSUED BY BOTH THESE BANKS, THE INTEREST PAID/CREDITED IN THE ACCOUNT OF THE ASSESSEE WAS SH OWN AT RS.74,82,545/- AND AT RS.43,15,909/- RESPECTIVELY FROM CANARA BANK AND HDFC BANK. ON ACCOUNT OF THIS VARIATION, THE DIFFERENCE FIGURE OF RS.5,78,899/- ORIGINATED WHICH THE LD.AO HAS ADDED TO THE INCOME OF THE ASSESSEE. WE FURTHER OBSERVED THAT APPELLANT HAS GIVEN DETAILED WORKING BEFORE LOWER AUTHORITIES SHOWING THE RECONCILEMENT OF INTEREST INCOME FROM BOTH THE CASE AND HDFC BANK AND HAS COMMENCED THE RECONCILEM ENT STATEMENT BY SHOWING THE AMOUNT OF INTERESTS CREDITED IN THE BOOKS OF ACCOUNT AND HAS ARRIVED TO THE INTEREST INCOME COMPARING TDS CE RTIFICATES. HOWEVER, IT SEEMS THAT THERE WAS NO OCCASION FOR THE ASSESSE E TO PRODUCE NECESSARY ITA NOS.633,534 ,3134& 3032/AHD/ 2011 SHAH INVESTORS HOME LTD. VS. JCIT (CROSS-APPEALS) ASST.YEARS 2007-08 & 2008-09 - 6 - LEDGER ACCOUNT FOR AY 2005-06 IN WHICH THE IMPUGNED INTEREST AMOUNT OF RS.5,78,899/- HAS BEEN DISCLOSED AND OFFERED TO TAX . UNDER THESE CIRCUMSTANCES, IT WOULD BE JUSTIFIED IF THIS ISSUE IS REMITTED BACK TO THE FILE OF LD.AO. THERE IS NO OBJECTION ON THE PART O F THE REVENUE IN THIS REGARD. ACCORDINGLY, WE REMIT THIS ISSUE TO THE FI LE OF AO WHO WILL PROVIDE REASONABLE OPPORTUNITY OF BEING HEARD TO TH E ASSESSEE. NEEDLESS TO SAY THAT THE ASSESSEE WILL FURNISH COMPLETE DETA ILS AND EVIDENCE, IF ANY FOR FAY 2005-06, I.E. FOR AY 2006-07 TO ESTABLISH T HAT THE INCOME OF RS.5,78,899/- HAS FORMED PART OF TOTAL INCOME. THU S, THIS GROUND OF ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOS ES. 6. NOW, WE TAKE UP GROUND NOS.2 & 3 OF ASSESSEES A PPEAL FOR AY 2007-08 AND GROUND NO.1 & 2 OF REVENUES APPEAL FOR AY 2007-08 AND THE SAME READ AS UNDER:- [A] GROUND NOS.2 & 3 OF ASSESSEES APPEAL AY 20 07-08 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING DISALLOWANCE OF PAYMENT ON PROPORTIONATE BASES OF P AYMENT MADE TO M/S ASHWIN CHINUBHAI BROKING PVT. LTD, AS O FFICE MANAGEMENT AND MAINTENANCE EXPENSE ON WHICH TDS WAS MADE U/S 194J OF THE ACT, ALLEGING THE SAME TO BE RENT I NCOME AND TAX WAS REQUIRED TO BE DEDUCTED U/S 194-1 OF THE ACT, A S TAX IS DEDUCTED UNDER OTHER SECTION, THE DISALLOWANCE IS M ADE U/S. 40(A)(IA) OF THE ACT. IT IS THEREFORE PRAYED THAT T HE ADDITIONS SO MADE MAY KINDLY BE DELETED. ITA NOS.633,534 ,3134& 3032/AHD/ 2011 SHAH INVESTORS HOME LTD. VS. JCIT (CROSS-APPEALS) ASST.YEARS 2007-08 & 2008-09 - 7 - 3. THE LD. CIT(A) HAS ERRED IN LAW AND ON FAC TS IN CONFIRMING DISALLOWANCE OF PAYMENT OF RS. 1,40,037/- GIVEN TO TULIP IT SERVICES LTD. FOR INSTALLATION, SET UP AND MAINTENA NCE CHARGES ON WHICH TDS WAS MADE U/S 194J, AND V-SAT EXPENSES PAI D TO NSE & BSE FOR CONNECTIVITY CHARGES AS PER THEIR BIL L OF RS. 4,82,653/- AND RS. 1,54,000/- RESPECTIVELY ON WHICH TDS WAS MADE U/S 194C OF THE ACT, ALLEGING THE SAME TO BE R ENT INCOME AND TAX WAS REQUIRED TO BE DEDUCTED U/S 194-I OF TH E ACT, AS TAX IS DEDUCTED UNDER OTHER SECTION, THE DISALLOWANCE IS M ADE U/S. 40(A)(IA) OF THE ACT. IT IS THEREFORE PRAYED THAT T HE ADDITIONS SO MADE MAY KINDLY BE DELETED. [B] GROUND NOS.1 & 2 OF REVENUES APPEAL AY 20 07-08 1. THE LD CIT(A) ERRED IN LAW AND ON FACTS IN DIRECT ING THE AO TO GIVE CREDIT FOR TDS DEDUCTED U/S.194J INSTEAD OF SECTION 194I ACCORDINGLY RECALCULATE THE DISALLOWANCE ON TH E PROPORTIONATE BASIS OUT OF ADDITION OF RS.68,32,451 /- ON ACCOUNT OF DISALLOWANCE OF OFFICE MANAGEMENT EXPENS ES MADE U/S.40(A)(IA) OF HE IT ACT. 2. THE LD CIT(A) ERRED IN LAW AND ON FACTS IN DIRECTI NG THE AO TO GIVE CREDIT FOR TDS DEDUCTED U/S.194J INSTEAD O SECTION 194I ACCORDINGLY RECALCULATE THE DISALLOWANCE ON TH E PROPORTIONATE BASIS OUT OF ADDITION OF RS.1,40,037/ - ON ACCOUNT OF DISALLOWANCE OF LEASE LINE EXPENSES, RS .4,82,653/- PAID TO NSE AND RS.1,54,000/- PAID TO BSE MADE U/S.40(A)(IA) OF THE IT ACT. 6.1. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, T HE LD.AO OBSERVED THAT THE ASSESSEE MADE A PAYMENT OF RS.68,32,451/- TO M/S.AHWIN CHINUBHAI BROKING PVT.LTD. (HEREINAFTER REFERRED TO AS ACBPL) TOWARDS FEES FOR PROFESSIONAL CHARGES AND REIMBURSE MENT OF EXPENSES ON WHICH TDS U/S.194-J OF THE ACT AND 194-C OF THE ACT HAS BEEN DEDUCTED ITA NOS.633,534 ,3134& 3032/AHD/ 2011 SHAH INVESTORS HOME LTD. VS. JCIT (CROSS-APPEALS) ASST.YEARS 2007-08 & 2008-09 - 8 - RESPECTIVELY. HOWEVER, ON EXAMINATION OF THE AGREE MENT BETWEEN THE ASSESSEE AND ACBPL, THE LD.AO WAS OF THE VIEW THAT THE PAYMENT OF RS.68,32,451/- HAS BEEN PAID TOWARDS RENT EXPENSES BECAUSE IN THE AGREEMENT IT WAS MENTIONED THAT THE PREMISES OF ACB PL WILL BE SOLELY USED IN CARRYING ON THE BUSINESS ACTIVITY OF ASSESS EE AND, ACCORDINGLY, TDS WAS REQUIRED TO BE DEDUCTED U/S.194I OF THE AC T. SIMILARLY, ON EXAMINING THE EXPENDITURE OF RS.7,76,690/- PAID TOW ARDS LEASE LINE EXPENSES AND V-SET CHARGES ON WHICH THE ASSESSEE HA D DEDUCTED TDS @ 2% U/S.194-C OF THE ACT, LD.AO WAS OF THE VIEW T HAT THE PAYMENT OF RS.7,76,690/- IS TOWARDS RENT OF PLANT, MACHINERY, AND EQUIPMENT AND, ACCORDINGLY, TDS WAS DEDUCTIBLE U/S.194-I OF THE AC T. AFTER FRAMING UP THIS VIEW THAT PAYMENT OF RS.68,32,451/- AND RS.7,7 6,690/- WERE SUBJECT TO TDS VS. 194-I OF THE ACT AND THE ASSESSEE HAS WR ONGLY DEDUCTED TDS U/S.194-J AND 194-C RESPECTIVELY, THE LD.AO MADE D ISALLOWANCE U/S.40(A)(IA) OF THE I.T.ACT, 1961 FOR NOT CORRECTL Y DEDUCTING THE TDS UNDER THE PROVISIONS OF INCOME TAX ACT. 6.2. AGGRIEVED ASSESSEE, WENT IN APPEAL BEFORE LD.C IT(A), WHO HAS GIVEN PARTIAL RELIEF TO THE ASSESSEE, BY OBSERVING AS UNDER:- 3.3.5 THE AO STATED THAT FROM THE ABOVE IT CAN BE SEEN THAT CLAUSE (K) OF DEED DATED 1.4.2005 CLEARLY PROVIDES THAT THE PR EMISES OF M/S. ASH WIN CHINUBHAI BROKING PVT. LTD. WILL BE USED E XCLUSIVELY FOR THE BUSINESS OF ASSESSEE AND IT FURTHER PROHIBITS M/S . ASHWIN CHINUBHAI ITA NOS.633,534 ,3134& 3032/AHD/ 2011 SHAH INVESTORS HOME LTD. VS. JCIT (CROSS-APPEALS) ASST.YEARS 2007-08 & 2008-09 - 9 - BROKING PVT. LTD. FROM LETTING OR SUB-LETTING TO AN Y OTHER PERSONS. THIS CLEARLY SUGGESTS THAT THE ASSESSEE COMPANY HAD EFFE CTIVE CONTROL OVER THE DOMAIN OF THE ABOVE REFERRED PREMISES OF M/S. A SHWIN CHINUBHAI BROKING PVT. LTD. SIMILARLY, CLAUSE (S) OF DEED D ATED 1.4.2005 CLEARLY PROVIDES THAT M/S. ASHWIN CHINUBHAI BROKING PVT . LTD. WILL PROVIDES ITS OFFICE SPACE AT MUMBAI AND AHMEDABAD ALONG WITH INFRASTRUCTURE OF NET WORK, TRAINED AND SKILLED STAFF AS REFERRED THE REIN. HENCE, THE SAID AGREEMENT WAS IN EFFECT AN AGREEMENT FOR UTILIZATIO N OF THE PREMISES AND INFRASTRUCTURE BELONGING TO M/S. ASHWIN CHINUBHAI B ROKING PVT. LTD. THE SAID FACT WAS AGAIN RECONFIRMED VIDE ABOVE REFE RRED DEED OF ADDENDA DATED 01.12.2006 WHEREIN IT HAS BEEN RECO NFIRMED THAT THE ASSESSEE WILL BE PAYING ADHOC AMOUNT OF RS. 3,25,000/- PER MONTH FOR USAGE OF THE SAID INFRASTRUCTUR E OF M/S. ASHWIN CHINUBHAI BROKING PVT. LTD. THEREFORE, IN VIEW OF THE ABOVE DISCUSSION, AND THE DECISION OF F HONORABLE SUPREME COURT IN THE CASE OF SHAMBHU INVESTMENT, THE AO HAS RIGHTLY APPLIED THE PROVISIONS OF SECTION 1941. THE ASSESSEE WAS REQUI RED TO DEDUCT TDS UNDER SECTION 1941. HOWEVER, THE APPELLANT HAS DEDU CTED TDS BUT NOT UNDER SECTION 1941. THE AO IS THEREFORE DIRECTED TO GIVE CREDIT FOR THE TDS ALREADY DEDUCTED AND MAKE DISALLOWANC E ON PROPORTIONATE BASIS IN VIEW OF THE FACT THAT THE TDS SHOULD HAVE BEEN DEDUCTED UNDER SECTION 1941. IN VIEW OF THIS REASON, THE ACTION OF THE AO IN APPLYING THE PROVISIONS OF SECTION 1941 IS CONFIRMED BUT THE DIS ALLOWANCE IS REDUCED IN VIEW OF THE FACT THAT SOME TDS HAS BEEN DEDUCTED AND PAID IN TIME. THE AO WILL RECALCULATE THE DISALLOWANCE ON PROPORTIONATE BASIS. THIS GROUND OF APPEAL IS THEREFORE PART LY ALLOWED. ......... .. 4.3 I HAVE CONSIDERED THE SUBMISSION MADE BY THE AP PELLANT AND OBSERVATION OF THE AO. IN ADDITION TO WHAT THE A.O. HAS STATED IN PARAS 4.1.4 TO 4.1.6 ABOVE, THE MOST IMPORTANT THING IS T HAT THE ASSESSEE HAS BEEN MAKING TWO TYPES OF PAYMENT TO THE STOCK EXCHA NGE FIRST IN RESPECT OF EACH AND EVERY TRANSACTION MADE BY THE ASSESSEE CALLED TRANSACTION CHARGES AND SECOND THE VSAT CHARGES AND LEASE LINE CHARGES WHICH ARE QUARTERLY OR ANNUAL PAYMENTS MADE FOR THE USE OF EQ UIPMENT WHICH ITA NOS.633,534 ,3134& 3032/AHD/ 2011 SHAH INVESTORS HOME LTD. VS. JCIT (CROSS-APPEALS) ASST.YEARS 2007-08 & 2008-09 - 10 - CONSISTS OF LEASE LINE, DISH, SATELLITE LINK, IDE B OX, ETC. THE SECOND TYPE OF CHARGES ARE DEPENDENT UPON THE BANDWIDTH TAKEN B Y THE APPELLANT AND NOT ON THE TRANSACTIONS MADE BY THE APPELLANT F OR THE PURCHASE AND SALE OF SHARES. OVER AND ABOVE THESE QUARTERLY/ANNU AL PAYMENTS THE APPELLANT IS MAKING PAYMENT FOR EACH AND EVERY TRAN SACTION OF SHARE PURCHASE AND ALSO OF SHARE SALE. THESE ARE TRANSACT ION CHARGES. THEREFORE, THE VSAT CHARGES AND LEASE LINE CHARGES ARE DEFINITELY NOTHING BUT RENT FOR THE VARIOUS EQUIPMENT, WHICH D OES NOT BELONG TO THE ASSESSEE BUT BELONGS TO EITHER THE STOCK EXCHANGE O R THE SERVICE PROVIDER, WHO MANAGES THIS FACILITY. ALL THESE EQUI PMENT INCLUDING DISH & IDE BOX WILL HAVE TO RETURNED WHEN THE CONNECTION IS SURRENDERED. THEREFORE, THESE PAYMENTS ARE NOTHING BUT RENTAL PA YMENTS ON WHICH TDS SHOULD HAVE BEEN DEDUCTED UNDER SECTION 194I. T HE APPELLANT HAS THEREFORE VIOLATED THE PROVISIONS OF SECTION 194I A ND HENCE THE DISALLOWANCE HAS TO BE MADE UNDER SECTION 40(A)(IA) . HOWEVER, SINCE THE ASSESSEE HAS DEDUCTED SOME TDS THE AO IS DIRECT ED TO GIVE PROPORTIONATE BENEFIT OF THE TDS ALREADY DEDUCTED A ND PAID IN TIME AND DISALLOW THE BALANCE AMOUNT. 6.3. HOWEVER, THE LD.CIT(A), DIRECTED THE LD.AO TO GIVE PROPORTIONATE BENEFIT OF THE TDS ALREADY DEDUCTED AND PAID IN TIM E. NOW, THE ASSESSEE AND REVENUE BOTH ARE IN APPEAL BEFORE THE TRIBUNAL. IN RELATION TO DISALLOWANCE U/S.40(A)(IA) OF THE ACT, TOWARDS PAYM ENT TO ACBPL OF RS.68,32,451/-, LD.AR SUBMITTED THAT THE NATURE OF THE PAYMENT MADE TO THE SAID PARTY IS NOT OF RENT, BUT OF OFFICE MANAGE MENT AND MAINTENANCE EXPENSES AND ACBPL WAS APPOINTED AS A BUSINESS DEVE LOPER THROUGH WRITTEN AGREEMENT FOR DEVELOPING, PROMOTING AND EX PANDING THE BUSINESS AND DOING THE SAME ENTITY SHOULD HAVE THE RELEVANT EXPERIENCE AND EXPERIENCE IN THE CAPITAL MARKET AND TO POSSESS THOROUGH KNOWLEDGE OF THE DEALING IN SHARES AND SECURITIES, SETTLEMENT PROCEDURES OF THE STOCK ITA NOS.633,534 ,3134& 3032/AHD/ 2011 SHAH INVESTORS HOME LTD. VS. JCIT (CROSS-APPEALS) ASST.YEARS 2007-08 & 2008-09 - 11 - EXCHANGE AND FULLY CONVERSANT WITH THE RELEVANT SEC URITIES, STATUTORY- LAWS, BYE-LAWS, RULES AND REGULATIONS OF THE STOCK EXCHANGE(S). IT IS ALSO NECESSARY THAT SUCH BUSINESS DEVELOPER HAS FULLY DE VELOPED INFRASTRUCTURE AND OF NETWORK ALONG WITH GOOD OFFICE LOCATION, FUR NITURE WITH TRAINED AND SKILLED STAFF AND ALSO FINANCIAL SOUNDNESS IS A N INDISPENSABLE REQUIREMENT. THE LD.AR FURTHER SUBMITTED THAT TH REE TYPES OF PAYMENTS HAS BEEN PASSED ON TO ACBPL UNDER THE EXPENSES HEAD , NAMELY, BROKERAGE, FEES FOR PAYMENT OF TECHNICAL SERVICES, REIMBURSEMENT OF EXPENSES AND TAX HAS ALREADY BEEN DEDUCTED AT SOUR CE @ 5% ON THE BROKERAGE AS WELL AS PROFESSIONAL AND TECHNICAL FEE S U/S. 194H & 194-I OF THE IT ACT AND @ 2% ON REIMBURSEMENT OF OFFICE EXPE NSES U/S.194-C OF THE ACT AND IT WAS NOT CORRECT ON THE PART OF LOWE R AUTHORITIES TO TREAT THE COMBINED PAYMENTS OF OFFICE MANAGEMENT FEES AND REI MBURSEMENT OF EXPENSES AS RENT EXPENSES BECAUSE APART FROM PRIORI TY OF OFFICE LOCATION, THERE ARE MANY MORE SERVICES WHICH ARE TO BE PROVID ED BY THE BUSINESS DEVELOPER VIZ. ACBPL. 6.4. SIMILARLY, IN RELATION TO ADDITION OF RS.7,76, 690/- ON ACCOUNT OF DISALLOWANCE U/S.40(A)(IA) OF THE ACT FOR NOT DEDUC TING TDS UNDER CORRECT HEAD FOR PAYMENT TOWARDS LEASE LYING EXPENSES AND V -SET CHARGES, LD.AR SUBMITTED THAT LEASE LYING EXPENSES WERE PAID TOWAR DS CONNECTIVITY CHARGES FOR INTERNET SERVICES, I.E. TELEPHONE AND INTRA-SERVICES AND PAYMENT HAS BEEN MADE TO ICEW-NET, BSNL, U-TELECOM, ETC. DURING ITA NOS.633,534 ,3134& 3032/AHD/ 2011 SHAH INVESTORS HOME LTD. VS. JCIT (CROSS-APPEALS) ASST.YEARS 2007-08 & 2008-09 - 12 - THE YEAR UNDER APPEAL, TOTAL LEASE LINE EXPENSES WE RE INCURRED AT RS.4,49,275/- OUT OF WHICH AMOUNT OF RS.1,40,036/- PAID TO TULIP IT SERVICES LTD. WAS SUBJECT TO TDS AND THE SAME WAS D EDUCTED U/S.194C OF THE ACT. AS REGARDS, V-SET EXPENSES WHICH HAVE BEE N PAID TO NATIONAL STOCK EXCHANGE, BOMBAY STOCK EXCHANGE, FOR CONNECTI VITY CHARGES. TDS U/S.194-C OF THE ACT HAS BEEN DULY DEDUCTED AN D FURTHER THESE EXPENSES ARE NOT IN THE NATURE OF RENT AS PROVIDED UNDER THE EXPLANATION TO SECTION 194I OF THE ACT AND, THEREFORE, NO DISAL LOWANCE IS CALLED FOR U/S.40(A)(IA) OF THE IT ACT. MORESOEVER, NO ADDI TION IS CALLED FROM U/S.40(A)(IA) OF THE ACT MERELY ON THE GROUND THAT TDS HAS BEEN DEDUCTED UNDER A WRONG HEAD. IN SUPPORT OF THIS CONTENTION, LD.AR RELIED THE DECISION OF THE COORDINATE BENCH (ITAT D BENCH AH MEDABAD) IN ITA NO.2825/AHD/2010 FOR AY 2007-08, DATED 9/04/2014, D ECIDED IN FAVOUR OF ASSESSEE AND WHICH HAS BEEN UPHELD BY THE HONBL E JURISDICTIONAL HIGH COURT. HE ALSO RELIED ON JUDGEMENT OF HON BLE HIGH COURT OF CALCUTTA IN THE CASE OF CIT VS. S.K. TEKRIWAL REPOR TED AT (2014) 361 ITR 432 (CAL.) 6.5. ON THE OTHER HAND, LD.SR.DR SUPPORTED THE ORDE R OF THE LD.AO AND ALSO REFERRED TO THE JUDGEMENT OF HONBLE HIGH COUR T OF KERALA RENDERED IN THE CASE OF CIT VS. PVS MEMORIAL HOSPITAL LTD. R EPORTED AT (2015) 60 TAXMANN.COM 69 (KERALA). ITA NOS.633,534 ,3134& 3032/AHD/ 2011 SHAH INVESTORS HOME LTD. VS. JCIT (CROSS-APPEALS) ASST.YEARS 2007-08 & 2008-09 - 13 - 7. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED T HE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW AS WELL AS THE DECISION/JUDGEMENTS RELIED UPON BY THE PARTIES. THE GROUND RAISED BY THE ASSESSEE IS AGAINST THE ACTION OF THE LD.CIT(A) S IN CONFIRMING THE DISALLOWANCE U/S.40(A)(IA) OF THE ACT ON ACCOUNT OF DEDUCTION OF TAX AT SOURCE UNDER WRONG PROVISIONS OF THE ACT ON OFFICE EXPENSES AT RS.68,32,451/- PAID TO ACBPL AND DISALLOWANCE OF RS .7,76,690/- INCURRED ON LEASE LINE EXPENSES AND V-SET CHARGES, WHEREAS REVENUE IS AGGRIEVED BY THE ORDER OF LD.CIT(A) FOR ALLOWING T HE PROPORTIONATE BENEFIT OF THE TDS ALREADY DEDUCTED AND PAID. 7.1. FROM GOING THROUGH THE GROUNDS OF APPEAL OF AS SESSEE AND THE REVENUE, WE FIND THAT THE EXPENDITURE WHICH HAS BEE N DISALLOWED U/S.40(A)(IA) OF THE ACT IS BASED ON THE FINDING OF THE LD.AO THAT TDS HAS NOT BEEN DEDUCTED UNDER THE CORRECT PROVISION OF TH E ACT, MEANING THEREBY THAT THE IMPUGNED EXPENDITURE OF RS.68,32,4 51/- AND RS.7,76,690/- TOWARDS OFFICE EXPENSES AND LEASE LI NE AND V-SET CHARGES WHICH HAVE BEEN PAID/CREDITED AFTER DEDUCTION OF TD S U/S.194-J AND 194-C RESPECTIVELY (AND TO THIS EXTENT, THERE IS NO DISPUTE ON THE PART OF REVENUE) AND WERE ACTUALLY SUBJECT TO TDS U/S.194- I OF THE ACT WHICH RELATES TO DEDUCTION OF TDS ON PAYMENT BY WAY OF RE NT. WE FURTHER OBSERVE THAT THE HONBLE JURISDICTIONAL HIGH COURT CONFIRMING THE ORDER ITA NOS.633,534 ,3134& 3032/AHD/ 2011 SHAH INVESTORS HOME LTD. VS. JCIT (CROSS-APPEALS) ASST.YEARS 2007-08 & 2008-09 - 14 - OF COORDINATE BENCH AHMEDABAD IN THE CASE OF PRAY AS ENGINEERING LTD. VS. ADDL.CIT(SUPRA) DEALT WITH SIMILAR ISSUE AND OB SERVED AS UNDER:- 3. HEARD THE LEARNED ADVOCATE APPEARING FOR THE AP PELLANT-REVENUE AND CONSIDERED THE SUBMISSIONS. LEARNED ADVOCATE APPEAR ING FOR THE APPELLANT HAS CONTENDED THAT THE CIRCULAR ISSUED BY CBDT IS VERY CLEAR AND THE ISSUE IS GOVERNED BY SECTION 194 J. THE LEARNED ITAT, WHILE CONSIDERING THE QUESTION HAS OBSERVED IN PARA-17 AS UNDER: '17. AFTER HEARING BOTH THE PARTIES AND PERUSING TH E RECORD, WE FIND THAT THERE IS NO DISPUTE ABOUT THE FACT THAT IN RESPECT OF PAYMENT MADE BY ASSESSEE TO M/S. ELECON INFORMATION TECHNOLOGY LTD. (EITL) AND M/S. AKAAISH MECHATONICS LTD. (AML) THESE WAS SHORT DEDU CTION OF TAX AND THEREFORE THE RATIO OF THE TRIBUNAL IN THE CASE OF APOLLO TYPES LTD. V. DCIT AND UE TRADE CORPORATION (INDIA) LTD IS DIRECT LY APPLICABLE TO THE FACTS OF THIS CASE. IN THE CASE OF UE TRADE COR PORATION V. DCIT, THE HON'BLE TRIBUNAL IN SIMILAR FACTS HAS HELD AS UNDER : 6. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. WE HAVE ALSO GONE THROUGH THE TAX AUDIT REP ORT IN FORM NO. 3CD PLACED AT PAGES 20 TO 49 OF THE PAPER BOOK. ANNEXUR E-XIV OF THE TAX AUDIT REPORT GIVES THE DETAILS OF TAX DEDUCTIBLE UNDER VA RIOUS SECTIONS OF THE ACT. PAGE 1 OF ANNEXURE-XIV GIVES THE DETAILS OF PAYMENT S ON WHICH TAX HAS NOT BEEN DEDUCTED AT ALL. THE TOTAL AMOUNT OF EXPENDITU RE IS AT RS. 7,32,827/-. PAGES 2 TO 6 OF ANNEXURE-XIV GIVE THE DETAILS WHERE THERE IS A SHORTFALL DUE TO LESSER DEDUCTION THAN REQUIRED TO BE DEDUCTED. THE TOTAL AMOUNT OF EXPENSES IS AT RS. 20,24,4557/- ON WHICH SHORTFALL OF TAX AT RS . 3,26,011/- HAS BEEN WORKED OUT BY THE TAX AUDITORS: PAGE 3 OF THE ANNEXURE GIV ES THE DETAILS WHERE TAX HAS BEEN DEDUCTED BUT NOT PAID TO THE CREDIT OF THE CEN TRAL GOVERNMENT, THE ASSESSEE HAS ADDED BACK THE EXPENDITURE ON WHICH TA X WAS DEDUCTIBLE BUT NO TAX WAS DEDUCTED AT ALL AND ALSO WHERE TAX WAS DEDU CTED AT SOURCE BUT NOT PAID TO THE CREDIT OF CENTRAL GOVERNMENT AMOUNTING TO RS . 20,16,778/-. DETAILS OF SUCH EXPENDITURE IS GIVEN AT PAGE 1 AND PAGE 3 OF T HE ANNEXURE-XIV TO THE TAX AUDIT REPORT. THE LEARNED AR OF THE ASSESSEE HAS CL AIMED THE BENEFIT OF TWO ITA NOS.633,534 ,3134& 3032/AHD/ 2011 SHAH INVESTORS HOME LTD. VS. JCIT (CROSS-APPEALS) ASST.YEARS 2007-08 & 2008-09 - 15 - DECISIONS, ONE BY THE KOLKATA BENCH AND OTHER BY TH E MUMBAI BENCH OF ITAT. IN THE CASE OF DCIT VS. CHANDABHOY S JASSOBHOY (SUP RA) THE ASSESSEE MADE PAYMENT TO THE CONSULTANTS BY WAY OF SALARY AFTER D EDUCTION OF TAX AT SOURCE UNDER SEC. 192 AND CLAIMED THE DEDUCTION FOR THE SA ME. THOSE CONSULTANTS WERE WORKING FOR A PERIOD OF TWO YEARS WITH THE ASSESSEE . HOWEVER, THE AO APPLIED THE PROVISIONS OF SEC. 194-J. IN THIS CASE IT WAS H ELD THAT PROVISIONS OF SEC. 192 WERE APPLICABLE TO THE FACTS OF THE ASSESSEE'S CASE . ANOTHER DECISION REPLIED UPON BY THE ASSESSEE IS OF KOLKATA BENCH IN THE CAS E OF DCIT VS. S.K. TEKRIWAL (SUPRA). IN THIS CASE ALSO THE DIFFERENCE IN SHORTF ALL WAS DUE TO THE APPLICABILITY OF PROVISIONS. THE ASSESSEE HAS DEDUCTED TAX AT SOU RCE U/S. 194C WHEREAS ACCORDING TO THE ASSESSING OFFICER PROVISIONS OF SE CTION 1941 ARE APPLICABLE. THUS THE ASSESSEE'S CASE IS COVERED BY THE DECISION S OF THE TRIBUNAL REFERRED TO ABOUT. NO DOUBT ASSESSEE IS IN DEFAULT AS PER PROVI SIONS OF SEC. 201 BUT DISALLOWANCE OF THE EXPENDITURE IS NOT PERMISSIBLE U/S. 40(A)(IA), RESPECTFULLY FOLLOWING THE PRECEDENTS IT IS HELD THAT DISALLOWAN CE OF RS.20,24,455/- IS NOT JUSTIFIED. THE ASSESSING OFFICER IS DIRECTED TO DEL ETE THE ADDITION.' 4. IN VIEW OF THE ABOVE, THE ORDER PASSED BY LD. CIT(A) DELETING THE ADDITIONS OF RS. 60,60,9607- AND RS. 8,86,940/- IS HEREBY UPH ELD. BOTH THESE GROUNDS OF REVENUE ARE DISMISSED.' 4. IN THAT VIEW OF THE MATTER, THE SAME VIEW IS CON FIRMED BY THE TRIBUNAL IN ITS ORDER, AND THEREFORE, WE ARE IN COMPLETE AGREEMENT WITH THE ORDER PASSED BY THE TRIBUNAL. NO SUBSTANTIAL QUESTION OF LAW IS MAD E OUT AND THE APPEAL IS DEVOID OF ANY MERITS AND DESERVES TO BE DISMISSED. HENCE, THIS APPEAL IS DISMISSED. 7.2. WE FURTHER OBSERVE THAT THE BASIC REASON FOR D ISALLOWANCE MADE BY LD.AO RESTED UPON HIS OBSERVATION THAT THE ASSESSEE HAS NOT DEDUCTED TDS UNDER THE CORRECT PROVISIONS OF THE ACT. HOWEV ER, IN OUR VIEW, PAYMENT OF RS.68,32,4521/- TO ACBPL DOES NOT FALL U NDER THE RENT EXPENSES BECAUSE ACBPL IS A BUSINESS DEVELOPER APPO INTED BY THE ITA NOS.633,534 ,3134& 3032/AHD/ 2011 SHAH INVESTORS HOME LTD. VS. JCIT (CROSS-APPEALS) ASST.YEARS 2007-08 & 2008-09 - 16 - ASSESSEE AND AS PER THE AGREEMENT ACBPL IS PROVIDIN G MULTIPLE SERVICES RELATING TO STOCK MARKET AND WORKING ON BEHALF OF T HE ASSESSEE AND MORE SO, MOST OF THE EXPENSE INCURRED ON THE OFFICE PREM ISES OF ACBPL ARE REIMBURSED BY THE ASSESSEE. CERTAINLY, SUCH KIND O F ARRANGEMENT DOES NOT FALL WITHIN THE AMBIT OF RENT EXPENSES AND, THE REFORE, ASSESSEE HAS RIGHTLY DEDUCTED TDS BY BIFURCATING THE PAYMENTS MA DE TO ACBPL UNDER THE HEAD BROKERAGE, FEES FOR PROVIDING TECHNI CAL SERVICES AND REIMBURSEMENT OF EXPENSE AND HAS DULY DEDUCTED TDS ON ALL THESE PAYMENTS UNDER THE CORRECT PROVISIONS OF INCOME TAX ACT. SIMILARLY, PAYMENT OF RS.7,76,690/- INCURRED ON LEASE LINE EXP ENSES AND V-SET CHARGES ALSO DO NOT FALL UNDER THE CATEGORY OF RENT EXPENSES BECAUSE THE MACHINERIES AND EQUIPMENTS USED FOR PROVIDING THES E SERVICES ARE SHARED BY MANY STOCK-BROKERS AND, THEREFORE, THE ASSESSEE HAS RIGHTLY DEDUCTED TDS U/S.194-C. WE ARE, THEREFORE, OF THE VIEW THAT THE LD.AO ERRED IN OBSERVING THAT THE ASSESSEE HAS NOT DEDUCTED TDS U/ S.194-I OF THE ACT ON THE PAYMENTS OF RS.68,32,451/- AND R.7,76,690/- AS THE ASSESSEE HAS DEDUCTED AND DEPOSITED TDS UNDER THE CORRECT PROVIS IONS OF THE ACT, I.E. U/S.194-J & 194-C RESPECTIVELY AND, THEREFORE, NO DISALLOWANCE IS CALLED U/S.40(A)(IA) OF THE ACT. 8.GROUND NOS.1&2 OF REVENUES HAS BECOME INFRUCTUO US AND, THEREFORE, WE DISMISS THE SAME SINCE WE HAVE ALLOWED GROUNDS R AISED BY THE ASSESSEE AND HAS HELD THAT TDS HAS BEEN DEDUCTED AN D DEPOSITED UNDER ITA NOS.633,534 ,3134& 3032/AHD/ 2011 SHAH INVESTORS HOME LTD. VS. JCIT (CROSS-APPEALS) ASST.YEARS 2007-08 & 2008-09 - 17 - THE CORRECT PROVISIONS OF THE INCOME TAX ACT AND, T HEREFORE, NO DISALLOWANCE U/S.40(A)(IA) IS CALLED FOR. 9. NOW, WE TAKE UP GROUNDS NO.4 OF REVENUES APPEAL AND ASSESSEES APPEAL, WHICH READS AS UNDER:- [A] REVENUES APPEAL 4. THE LD CIT(A) ERRED IN LAW AND ON FACTS IN DE LETING THE ADDITION OF RS.2,10,788/- ON ACCOUNT OF DISALLOWANCE U/S.14A OF THE IT ACT. [B] ASSESSEES APPEAL 4. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS I N CONFIRMING DISALLOWANCE ON PROPORTIONATE BASIS OF AN AMOUNT OF RS.169,229/- OUT OF INTEREST EXPENSES U/S.14A READ WITH RULE 8D, WHE REAS THE APPELLANT IS HAVING POSITIVE INTEREST INCOME. IT IS THEREFORE P RAYED THAT THE ADDITIONS SO MADE MAY KINDLY BE DELETED. 9.1. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, T HE LD.AO OBSERVED THAT THE ASSESSEE HAS CLAIMED DIVIDEND INCOME WHICH IS EXEMPT FROM TAX AT RS.14,53,085/- AND THERE WAS AN INVESTMENT IN EQ UITY SHARES AT RS.2,47,33,247/- AS ON 31/03/2007 AND ALSO OBSERVED THAT NO AMOUNT WAS DISALLOWED BY ASSESSEE U/S.14A OF THE ACT TOWARDS E XPENSES RELATED TO SUCH EXEMPT INCOME/INVESTMENT. IN REPLY TO, THE QU ESTION RAISED BY THE LD.AO, APPELLANT SUBMITTED THAT NO SUCH EXPENDITURE WAS INCURRED FOR EARNING EXEMPT INCOME AND MORE SO ASSESSEE-COMPANY POSSESSED INTEREST-FREE FUNDS AT APPROXIMATE RS.21.55CRORES AS AGAINST INVESTMENTS ITA NOS.633,534 ,3134& 3032/AHD/ 2011 SHAH INVESTORS HOME LTD. VS. JCIT (CROSS-APPEALS) ASST.YEARS 2007-08 & 2008-09 - 18 - OF RS.2.47CRORES AND, THEREFORE, NO INFERENCE SHOUL D BE DRAWN THAT INTEREST-BEARING FUNDS HAVE BEEN UTILIZED FOR MAKIN G INVESTMENTS AND FURTHER INVESTMENTS HAVE COME DOWN TO RS.2.47CRORES AS ON 31.3.2006 FROM 5CRORES AS ON 31/03/2006. HOWEVER, LD.AR WAS NOT CONVINCED WITH THE REPLY OF ASSESSEE AND BY APPLYING RULE 8D OF THE IT RULES, 1962 READ WITH SECTION 14A OF THE IT ACT, 1961 CALCULATE D A SUM OF RS.2,10,788/- AND DISALLOWED THE SAME U/S.14A OF TH E ACT. 9.2. AGGRIEVED ASSESSEE, WENT IN APPEAL BEFORE THE LD.CIT(A), WHO PARTLY ALLOWED THE APPEAL BY RESTRICTING THE DISALL OWANCE U/S.14A OF THE ACT AT RS.1,69,229/-, BY OBSERVING AS UNDER:- 7.3. I HAVE CONSIDERED THE SUBMISSION MADE BY THE APPELLANT AND OBSERVATION OF THE AO. THE PROVISIONS OF SECTION 1 4A AND THE RULE 8D HAS BEEN UPHELD BY THE HON. MUMBAI HIGH COURT RECEN TLY IN THE CASE OF GODREJ & BOYCE MFG CO LTD, THE HON. MUMBAI HIGH COU RT HAS STATED THAT FOR ASSESSMENT YEAR PRIOR TO A.Y. 2008-09 RULE 8D IS NOT APPLICABLE BUT THE AO CAN MAKE REASONABLE DISALLOWANCE. AS PER THE PROVISIONS OF SECTION 14A AS WELL AS THE RECENT RULINGS IT IS CLE AR THAT IF THE APPELLANT IS UNABLE TO SHOW A DIRECT NEXUS THEN EVEN IF THE A SSESSEE CLAIMS THAT THERE IS NO EXPENDITURE INVOLVED IN EARNING THE EXE MPT INCOME STILL THE DISALLOWANCE CAN BE MADE UNDER THE MAIN PROVISION O F SECTION 14A. IN VIEW OF THE ABOVE AGAINST THE EARNING OF EXEMPTED D IVIDEND INCOME OF RS.14.53 LAKH THE DISALLOWANCE OF PROPORTIONATE INT EREST WORKED OUT BY THE AO OF RS.23929/- FURTHER DISALLOWANCE OF 10% OF DIVIDEND AMOUNTING TO RS.1,45,300/- AS PART OF OTHER EXPENSE S WOULD BE REASONABLE. HENCE THE DISALLOWANCE IS RESTRICTED T O RS.1,69,229/- IS QUITE REASONABLE. THE GROUNDS OF APPEAL ARE THEREF ORE, PARTLY ALLOWED. ITA NOS.633,534 ,3134& 3032/AHD/ 2011 SHAH INVESTORS HOME LTD. VS. JCIT (CROSS-APPEALS) ASST.YEARS 2007-08 & 2008-09 - 19 - 9.3. AGGRIEVED ASSESSEE AND REVENUE BOTH ARE IN APP EAL(S) BEFORE THE TRIBUNAL. LD.DR SUPPORTED THE ORDER OF THE AO AND LD.AR SUBMITTED THAT NO SPECIFIC EXPENDITURE WAS INCURRED FOR EARNING DI VIDEND INCOME AND ALSO ASSESSEE POSSESSED SUFFICIENT INTEREST-FREE FU NDS FOR MAKING INVESTMENTS AND MORE SO RULE 8-D OF THE IT RULES R. W.S.14A OF THE ACT CAME INTO ENACTMENT FROM ASSESSMENT YEAR 2008-09 AN D, THEREFORE, THE LD.AO HAS ERRED IN MAKING DISALLOWANCE U/S.14A AND FURTHER THE LD.CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE TO T HE EXTENT OF RS.1,69,229/-. THE ASSESSEE RELIED ON THE JUDGEMEN T OF HONBLE JURISDICTIONAL HIGH COURT RENDERED IN THE CASE OF C IT VS. TORRENT POWER LTD. REPORTED AT (2014) 363 ITR 474 (GUJ.). 10. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED TH E MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE JUDGEMENT RELIED UPON BY THE LD.AR. THE ONLY ISSUE IN THE APPEALS RELATE TO DISALLOWANCE U/S.14A OF RS.2,10,7 88/- MADE BY THE AO AND RESTRICTED BY THE LD.CIT(A) AT RS.1,69,229/-. FROM GOING THROUGH THE RECORDS, WE OBSERVE THAT THE ASSESSEE POSSESSED INTEREST-FREE FUNDS AS ON 31/03/2007 OF RS.21.55CRORES AND INVESTMENTS AS ON 31/3/2007 STOOD AT RS.2.47CRORES WHICH SHOWS THAT ASSESSEE HAD SUFF ICIENT INTEREST-FREE FUNDS FOR APPLICATION IN THE INVESTMENTS AND, THERE FORE, FOLLOWING THE JUDGEMENT OF CIT VS. TORRENT POWER LTD.(SUPRA), WHE REIN IT HAS BEEN HELD THAT NO DISALLOWANCE OF INTEREST EXPENSES IS C ALLED FOR U/S.14A OF THE ITA NOS.633,534 ,3134& 3032/AHD/ 2011 SHAH INVESTORS HOME LTD. VS. JCIT (CROSS-APPEALS) ASST.YEARS 2007-08 & 2008-09 - 20 - ACT , IF THE ASSESSEE POSSESSES SUFFICIENT INTEREST -FREE FUNDS TO COVER UP THE INVESTMENTS MADE AND, THEREFORE, WE FIND NO REA SON TO MAKE ANY DISALLOWANCE TOWARDS INTEREST EXPENSES DEEMED TO HA VE BEEN APPLIED FOR INVESTMENTS. FURTHER, WE ALSO OBSERVE THAT RULE-8 R.W.S. SECTION 14A OF THE ACT CAME INTO EXISTENCE FROM 01/04/2008 AND CER TAINLY IT WAS NOT APPLICABLE TO THE ASSESSEE FOR AY 2007-08 AND ALSO NO SATISFACTION HAS BEEN MADE BY THE LD.AO BY EXTRACTING NECESSARY DETA ILS FROM THE BOOKS OF ACCOUNT OF ASSESSEE TO PROVE THAT ANY SPECIFIC E XPENDITURE HAS BEEN INCURRED FOR EARNING DIVIDEND INCOME. HOWEVER, LOO KING TO THE TOTALITY OF THE FACT OF THE PRESENT CASE, WHEREIN THE ASSESS EE HAS EARNED DIVIDEND INCOME OF RS.14,53,085/- AND ALSO OBSERVING THAT IN VARIOUS JUDGEMENTS IT HAS BEEN HELD THAT DISALLOWANCE U/S.14A OF THE A CT SHOULD NOT EXCEED THE EXEMPT INCOME EARNED BY THE ASSESSEE AND LOOKIN G TO THE FACT THAT ONE CANNOT IGNORE THAT SOME ELEMENTS OF EXPENDITURE OUG HT TO HAVE BEEN INCURRED FOR EARNING EXEMPT INCOME AND ALSO MAKING REGULAR INVESTMENTS DURING THE YEAR AS OBSERVED BY US FROM THE FINANCIA L STATEMENTS OF THE ASSESSEE THAT LOT OF TRANSACTIONS HAVE TAKEN PLACE IN THE INVESTMENT ACCOUNT. WE ARE, THEREFORE, OF THE VIEW THAT OUT OF THE DISALLOWANCE CONFIRMED BY THE LD.CIT(A) OF RS.1,69,229/-, WE HER EBY DELETE THE PROPORTIONATE DISALLOWANCE OF INTEREST AT RS.23,929 /- AND CONFIRM RS.1,45,300/- AS DISALLOWANCE U/S.4A OF THE ACT. A CCORDINGLY, GROUND OF ASSESSEES AND REVENUES APPEAL ARE PARTLY ALLOWED. ITA NOS.633,534 ,3134& 3032/AHD/ 2011 SHAH INVESTORS HOME LTD. VS. JCIT (CROSS-APPEALS) ASST.YEARS 2007-08 & 2008-09 - 21 - 11. NOW, WE TAKE UP THE LAST GROUND NO.5 OF ASSESSE ES APPEAL, WHICH READS AS UNDER:- 5. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS I N CONFIRMING THE LONG-TERM CAPITAL GAIN OF RS. 18,43,793/- AS BUSINE SS INCOME, WITHOUT APPRECIATING THE FACTS OF THE CASE, SUBMISSION OF T HE APPELLANT AND OVERRULING THE SPECIFIC PROVISIONS OF S. 10(38), WH ICH IS BROUGHT IN THE STATUTE W.E.F. A.Y. 2005-2006, WHERE ON LTCG ON SHA RES THERE IS NO LEVY OF TAX, IT IS THEREFORE PRAYED THAT THE A.O. MAY BE DIRECTED TO TREAT THE GAIN AS LONG-TERM CAPITAL GAIN AND NOT TO TAX. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CON FIRMING THE SHORT- TERM CAPITAL GAIN FROM SHARES OF RS. 96,31,238/- AS BUSINESS INCOME, WITHOUT APPRECIATING THE FACTS OF THE CASE, SUBMISS ION OF THE APPELLANT AND OVERRULING THE SPECIFIC PROVISIONS OF S. 111 A, WHICH, IS BROUGHT IN THE STATUTE W.E.F. A.Y. 2005-2006, WHERE ON STCG ON SHARES THERE IS CONCESSIONAL RATE OF TAX, IT IS THEREFORE PRAYED TH AT THE A.O. MAY BE DIRECTED TO TREAT THE GAIN AS SHORT-TERM CAPITAL GA IN AND TO TAX AT THE RATE PRESCRIBED U/S. 111A OF THE ACT. 11.1 FROM GOING THROUGH THE FINANCIAL STATEMENT OF COMPUTATION OF INCOME, THE LD.AO OBSERVED THAT THE ASSESSEE HAS CLAIMED SH ORT TERM CAPITAL GAIN (STCG) AT RS.96,31,238/- AND LONG TERM CAPITAL GAIN (LTCG) AT RS.18,43,793/- FROM INCOME ON SALE AND PURCHASE OF EQUITY SHARES AND SECURITIES AND ON FURTHER PERUSAL OF RECORDS, AFTER OBSERVING THAT AS THE ASSESSEE WAS ENGAGED IN SYSTEMATIC ACTIVITIES OF PURCHASE A ND SALE OF SHARES AND ALSO CARRIED ACTIVITY IN SHARES AS STOCK-BROKER AND DEPO SITORY PARTICIPANT, WAS OF VIEW THAT INCOME FROM STCG AND LTCG HAS BEEN SHOWN JUST TO AVOID TAX ON LTCG AND TO PAY LOWER RATE OF INCOME TAX ON STCG, B UT ACTUALLY THERE ARE ITA NOS.633,534 ,3134& 3032/AHD/ 2011 SHAH INVESTORS HOME LTD. VS. JCIT (CROSS-APPEALS) ASST.YEARS 2007-08 & 2008-09 - 22 - PART OF BUSINESS INCOME AND ASSESSED INCOME BY TREA TING RS.1,14,75,031/- (STCG OF RS.96,31,239 + LTCG RS.18,43,793/-) AS BU SINESS INCOME. 11.2. AGGRIEVED ASSESSEE, WENT IN APPEAL BEFORE THE LD.CIT(A) WHO DISMISSED THE GROUND OF THE ASSESSEE BY OBSERVING A S UNDER:- 9.3.1 I HAVE CONSIDERED THE SUBMISSION MADE BY TH E APPELLANT AND OBSERVATION OF THE AO. THE ARGUMENTS OF THE APPELLA NT ARE NOT ACCEPTABLE IN VIEW OF THE LARGE VOLUME OF TRANSACTI ONS. FROM THE DETAILS OF SALE AND PURCHASE OF SHARES/SECURITIES SUBMITTED BY THE ASSESSEE IT IS OBSERVED THAT THE ASSESSEE HAS ENGAGED ITSELF IN SY STEMATIC ACTIVITY OF SALE AND PURCHASE OF MUTUAL FUNDS. FROM THE RECO RDS, IT CAN BE SEEN THAT D URING THE YEAR THE ASSESSEE HAS PURCHASED 288856 NU MBERS OF SCRIPTS IN MORE THAN 100 DIFFERENT SHARES TOTALING TO RS. 4,30,74,7427-. SIMILARLY, DURING THE YEAR THE ASSESSEE HAS SOLD 37 5579 SCRIPTS IN MORE THAN 100 DIFFERENT SHARES TOTALING TO RS.7,98,27,22 4/-. FURTHER, THE ASSESSEE HAS ENTERED INTO SALE AND PURCHASE OF SCRI PTS ON PERIODICAL OR REGULAR BASIS IN F.Y. 2006-07. HENCE, FROM THE SA ME IT CAN BE SEEN THAT THE ASSESSEE HAS UTILIZED SUBSTANTIAL FUND IN SALE AND PURCHASE OF SHARES/SECURITIES. FROM THE EXPLANATION GIVEN BY THE ASSESSEE IT CAN BE SEEN THAT THE ASSESSEE ITSELF HAS AGREED THAT THE I NVESTMENT IN MUTUAL FUNDS HAS BEEN DONE IN ORDER TO MAXIMIZE THE RETURN I.E. FOR PROFIT MOTIVE AND NOT FOR INVESTMENT PURPOSE. SUCH PERI ODICAL ACTIVITY OF SALE AND PURCHASE OF MUTUAL FUNDS DEFINITELY CONSTITUTE BUSINESS ACTIVITY. THE MOTIVE OF THE ASSESSEE IN TRADING SHARES IS PRO FIT MOTIVE AND NOT TO MAKE THE INVESTMENT IN SHARES AND SECURITIES. THE A CTIVITY OF THE PURCHASE AND SALE OF SHARES BY THE ASSESSEE HAS BEEN VIEWED IN THE FOLLOWING PERSPECTIVES: (I) WHETHER THE PURCHASES HAVE BEEN MADE SOLELY WITH THE INTENTION OF RESALE AT A PROFIT OR FOR LONG TERM A PPRECIATION. (II) WHETHER THE SCALE OF ACTIVITY IS SUBSTANTIAL. ITA NOS.633,534 ,3134& 3032/AHD/ 2011 SHAH INVESTORS HOME LTD. VS. JCIT (CROSS-APPEALS) ASST.YEARS 2007-08 & 2008-09 - 23 - (III) WHETHER TRANSACTIONS HAVE BEEN ENTERED INTO CONTINUOUSLY AND REGULARLY DURING THE YEAR. (IV) WHETHER THE OBJECT OF TRADING IN SHARE IS ME NTIONED IN MEMORANDUM AND ARTICLE OF ASSOCIATION OF THE COMPANY. (V) HOLDING PERIOD OF THE SECURITIES BROUGHT OR SOLD. 9.3.2 IN THE CASE OF THE ASSESSEE COMPANY THE ASSES SEE! IS REGULARLY ENGAGED IN TRADING OF THE SHARES OR MUTUAL FUNDS. T HE ASSESSEE IS HOLDING MAJORITY OF INVESTMENTS FOR A PERIOD OFF: L ESS THAN A YEAR. THE SCALE OF THE ACTIVITY IS ALSO SUBSTANTIAL. THE MAIN BUSINESS ACTIVITY OF THE ASSESSEE IS SHARE BROKING AND SHARE TRADING. THE AS SESSEE HAS EARNED SUBSTANTIAL INCOME FORM SHARE BROKING/ SHARE TRADIN G AND FROM MUTUAL FUNDS. IN VIEW OF THE ABOVE FACTS/ THE ACTIVITY OF PURCHASE AND SALE OF SHARES BY THE ASSESSEE IS BUSINESS ACTIVITY AND PRO FIT ARISING FROM SUCH ACTIVITY IS BUSINESS INCOME AND NOT CAPITAL GAIN. 9.3.3. IN THIS REGARD/ THE FOLLOWING DECISIONS A RE RELIED UPON: ** IN THE CASE OF G. VENKATSWAMY NAIDU & CO. VS. CIT 35 ITR; 594 (SC), THE HON'BLE SC HAS HELD THAT - 'IN CASE WHERE THE PURCHASE HAS BEEN MADE SOLELY AN D EXCLUSIVELY WITH THE INTENTION OF RESALE AT A PROFI T AND THE PURCHASER HAS NO INTENTION ' HOLDING THE PROPERTY F OR HIMSELF OR OTHERWISE ENJOYING IT OR USING IT THE PRESENCE O F SUCH INTENTION IS A RELEVANT FACTOR AND UNLESS IT IS OFF SET BY THE PRESENCE OF OTHER FACTORS, IT WOULD RAISE A STRONG PRESUMPTION THAT A TRANSACTIONS IS AN ADVENTURE IN THE NATURE O F TRADE'. * IN THE CASE OF H. MOHAMMAD & CO. VS. CIT 107 ITR 637, THE HON'BLE GUJARAT HIGH COURT OBSERVED THAT A STOCK- IN TRADE IS SOMETHING WITH WHICH HE DEALS. ACCORDING TO THE! HI GH COURT ONE OF ITA NOS.633,534 ,3134& 3032/AHD/ 2011 SHAH INVESTORS HOME LTD. VS. JCIT (CROSS-APPEALS) ASST.YEARS 2007-08 & 2008-09 - 24 - THE INDICATORS FOR DECIDING AS TO WHAT IS STOCK-IN- TRADE IS WHETHER A PARTICULAR ASSESSEE IS BUYING OR SELLING THE GOODS OR COMMODITY OR WHETHER HE HAS MERELY INVESTED HIS MONEY WITH A VIE W TO EARNING FURTHER INCOME OR WITH A VIEW TO EARNING FURTHER IN COME OR WITH A VIEW TO CARRYING ON HIS OTHER BUSINESS. IT WAS FURTHER HELD BY THE HUGH COURT THAT THE DISTINCTION BETWEEN STOCK-IN-TRADE A ND INVESTMENT IS THAT OF SELLING OUTRIGHT IN THE COURSE OF THE BUSINESS A CTIVITY AND DERIVING INCOME FROM EXPORTATION OF ONE'S OWN ASSET. * IN THE CASE OF SARDAR INDRA SINGH & SONS LT D. VS. CIT 24 ITR 415, THE SUPREME COURT WAS DEALING WITH THE CASE OF A COMPANY WHICH WAS INCORPORATED WITH THE OBJECT, INTER ALIA OF CAR RYING THE BUSINESS OF BANKERS, FINANCIERS, MANAGING AGENTS AND SECRETARIE S AND WAS ALSO EMPOWERED TO INVEST AND DEAL WITH THE MONIES OF THE COMPANY NOT IMMEDIATELY REQUIRED FOR ITS BUSINESS, UPON S UCH SECURITIES AND IN SUCH MATTERS AS MIGHT FROM TIME TO TIME BE, DETER MINED. IT WAS HELD BY THE SUPREME COURT IN THIS CASE THAT TO CONSTITUT E BUSINESS INCOME, IT WAS NOT NECESSARY THAT SURPLUS SHOULD HAVE BEEN RESULTED FROM SUCH A COURSE OF DEALING SECURITIES AS BY ITSELF WOULD A MOUNT TO THE CARRYING: ON OF BUSINESS OR IF THE REALIZATION OF T HE SECURITIES IS A F NORMAL STEP IN CARRYING ON THE ASSESSEE'S BUSINESS . THE. SUPREME COURT OBSERVED THAT THE PRINCIPLE APPLICABLE IN AN SUCH CASES WAS WELL SETTLED AND THE QUESTION ALWAYS W WHETHER THE SALE S WHICH PRODUCED THE SURPLUS WERE SO CONNECTED WITH THE CARRYING ON OF THE ASSESSEE'S BUSINESS THAT IT COULD FAIRLY BE SAID THAT THE SURP LUS WAS THE PROFIT AND! GAINS OF SUCH BUSINESS. ON THE FACTS OF THIS CASE I T WAS HELD THAT THE SURPLUS RESULTING OF SALE OF SHARES AND SECURITIES CONSTITUTED BUSINESS INCOME. * IN THE CASE OF KARAM CHAND THAPAR AND BROTHERS P LTD. VS. CIT REPORTED IN 83 ITR 899 IT WAS HELD BY THE SUPREME C OURT THAT THE CIRCUMSTANCES THAT THE ASSESSEE HAS SHOW! CERTAIN S HARES AS INVESTMENT IN BOOKS AS WELL AS ITS BALANCE SHEET WA S BY ITSELF NOT A CONCLUSIVE CIRCUMSTANCES, THOUGH IT IT WAS A RELEVANT CIRCUMSTANCE. 9.3.4 IN VIEW OF THE ABOVE REASONS THE DECISION OF THE HON'BLE GUJARAT ITA NOS.633,534 ,3134& 3032/AHD/ 2011 SHAH INVESTORS HOME LTD. VS. JCIT (CROSS-APPEALS) ASST.YEARS 2007-08 & 2008-09 - 25 - HIGH COURT IN THE CASE OF REWASHANKER A KOTHARI SUP RA IS AGAINST THE APPELLANT. IN VIEW OF THE ABOVE FACTS AND LEGAL POS ITION, THE ACTIVITY OF PURCHASE AND SALE OF SHARES OF THE ASSESSEE IS A B USINESS ACTIVITY AND INCOME EARNED FROM SUCH ACTIVITY OF PURCHASE AND SALE OF SHARES AND SECURITIES IS BUSINESS INCOME. IN VIEW OF THE ABOVE FACTS AND THE LEGAL PRINCIPLE IT IS HELD THAT THE ASSESSEE IS ENGAGED I TSELF IN BUSINESS OF SALE AND PURCHASE OF MUTUAL FUNDS AND HENCE THE INCOME A RISING THERE FROM AT RS. 96,31,238/- SHOWN AS SHORT TERM CAPITAL GAINS BY THE ASSESSEE AND RS. 18,43,793/- SHOWN AS LONG TERM CAP ITAL GAINS BY THE ASSESSEE TOTALING TO RS. 1,14,75,031/- HAS BEEN RIGHTLY TREATED AS INCOME OR PROFIT FROM BUSINESS OR PROFESSION AND TA XED ACCORDINGLY. THIS GROUND OF APPEAL IS THEREFORE DISMISSED. 11.3. THE LD.AR FURTHER SUBMITTED THAT IN ASSESSEE S OWN CASE SIMILAR ISSUE CAME UP BEFORE THE COORDINATE BENCH FOR AY 20 06-07 BY WAY OF ITA NO.1424/AH/2010 FOR AY 2006-07, WHEREIN THE APP EAL OF THE REVENUE HAS BEEN DISMISSED AND INCOME OFFERED BY TH E ASSESSEE OFFERED HAS BEEN ACCEPTED AS SHORT TERM & LONG TERM CAPITAL GAIN FROM PURCHASE/SALE OF SHARES. 11.4. THE LD.SR.DR SUPPORTED THE ORDER OF THE AUTH ORITIES BELOW. 12. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED TH E MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE ISSUE RAISED BY THE ASSESSEE IS AGAINST ACTION OF THE LD.CIT(A) CONFIRMING THE ORDER OF LD.AO FOR TREATING THE STC G OF RS. 18,43,793/- AD STCG OF RS.96,31,238/- AS BUSINE SS INCOME; MEANING THEREBY NOT ALLOWING THE BENEFIT OF EXEMPTION OF TA X ON LTCG AND ITA NOS.633,534 ,3134& 3032/AHD/ 2011 SHAH INVESTORS HOME LTD. VS. JCIT (CROSS-APPEALS) ASST.YEARS 2007-08 & 2008-09 - 26 - BENEFIT OF SPECIAL RATE OF TAX WITH STCG. FROM GOI NG THROUGH THE RECORDS, WE ARE ABLE TO OBSERVE THAT ASSESSEES MA IN BUSINESS IS TO PROVIDE SERVICE AS STOCK-BROKER AND DEPOSITORY PART ICIPANTS. ASSESSEES GROSS INCOME INCLUDES INCOME FROM BROKERAGE AT APPR OX 10.15CRORES., NSDL CHARGES AT RS.2.54CRORES AND OTHER INCOME INCL UDING INTEREST, DIVIDEND AND CAPITAL GAIN FROM SALE OF SHARES TOTAL LING TO RS.2.67CRORES. FROM GOING THROUGH P&L ACCOUNT OF THE ASSESSEE, WE OBSERVE THAT NEITHER THERE IS ANY TRADING OF SHARES CARRIED DUR ING THE YEAR AND NOR ANY CLOSING STOCK/INVENTORY OF EQUITY SHARES IS HELD AS ON THE YEAR END. WE FURTHER OBSERVE THAT THE ASSESSEE HAS DISCLOSED INV ESTMENTS IN GOVERNMENT SECURITY AND EQUITY SHARES UNDER THE HEAD INVESTME NTS AND SCRIP-WISE DETAILS OF INVESTMENT IN EQUITY SHARES IS FORMING P ART OF BALANCE-SHEET AS ON 3132007 & 31/03/2008. 12.1. WE FURTHER OBSERVE THAT THE HONBLE APEX CO URT IN THE CASE OF CIT VS. ASSOCIATED INDUSTRIAL DEVELOPMENT CO.(P) LT D. REPORTED AT (1971) 82 ITR 556, WHEREIN THE HONBLE APEX COURT H ELD THAT WHETHER A PARTICULARLY HOLDING OF SHARES IS BY WAY OF INVES TMENT OR FORMS PART TO THE STOCK IN TRADE IS A MATTER WHICH IS WITHIN THE KNOWLEDGE OF THE ASSESSEE WHO HOLD THE SHARES AND WHICH ARE, IN NORM AL CIRCUMSTANCES BE IN A POSITION TO PRODUCE EVIDENCE FROM ITS RECORDS AS TO WHETHER IT HAS MAINTAINED ANY DISTINCTION BETWEEN THOSE SHARES WHI CH ARE STOCK IN TRADE AND THOSE WHICH ARE HELD BY WAY OF INVESTMENT. ITA NOS.633,534 ,3134& 3032/AHD/ 2011 SHAH INVESTORS HOME LTD. VS. JCIT (CROSS-APPEALS) ASST.YEARS 2007-08 & 2008-09 - 27 - 12.2. FURTHER, WE OBSERVE THAT THE CBDT CIRCULAR NO.6/201 6 DATED 29/02/2017 ADDING FURTHER TO PREVIOUS CIRCULAR NO. 4 OF 2007 DATED 15/06/2007 AND INSTRUCTION NO.1/08/2007 DATED 31/08 /1989, HAS MENTIONED THAT IN RESPECT OF SUCH LISTED SHARES AN D SECURITIES HELD FOR A PERIOD OF MORE THAN 12 MONTHS IMMEDIATELY PRECEDING THE DATE OF ITS TRANSFER IF THE ASSESSEE TREATING THE INCOME ARISIN G FROM THE TRANSFER THEREOF AS CAPITAL GAIN, THE SAME WAS NOT TO BE PUT TO DISPUTE BY THE AO. 12.3. WE FURTHER FIND THAT SIMILAR ISSUE IN ASSESSE ES OWN CASE FOR AY 2006-07 IN ITA NO.1424/AHD/2010(SUPRA) CAME BEFORE THE COORDINATE BENCH AND THEY HAVE OBSERVED FOLLOWING WHILE ADJUD ICATING THE BELOW MENTIONED FACTS:- 6. BEFORE US, LD. D.R. POINTED TO THE VARIOUS FIND INGS AND OBSERVATIONS MADE BY THE A.O. HE FURTHER SUBMITTED THAT THE MAGN ITUDE OF TRANSACTIONS, VOLUME OF SHARES TRADED INDICATES THAT PURCHASE AND SALE OF SHARES WAS A BUSINESS ACTIVITY OF THE ASSESSEE AND NOT AN INVEST MENT ACTIVITY AND FURTHER SUBMITTED THAT THE DIVIDEND EARNED WAS ONLY RS. 4.2 7 LACS AS AGAINST THE GAINS OF RS. 1.81 CRORE EARNED ON THE TRADING OF SH ARES. HE FURTHER SUBMITTED THAT THE PRINCIPAL OF RES JUDICATA IS NOT APPLICABLE TO INCOME TAX MATTER AND EACH ASSESSMENT YEAR HAS TO BE CONSIDER ED INDEPENDENTLY. HE THUS SUPPORTED THE ORDER OF A.O. LD. A.R. ON THE OT HER HAND REITERATED THE SUBMISSIONS MADE BEFORE A.O AND LD. CIT(A) AND FURT HER SUBMITTED THAT IN EARLIER YEARS ALSO IN THE SCRUTINY ASSESSMENTS THE PROFITS ON SALE OF SHARES WERE HELD TO BE SHORT TERM CAPITAL GAINS. IT WAS AL SO SUBMITTED THAT THOUGH THE PRINCIPLE OF RES JUDICATA DO NOT APPLY TO TAX M ATTERS BUT THE RULE OF CONSISTENCY DOES APPLY. HE FURTHER SUBMITTED THAT A SSESSEE HAD NOT INDULGED INTO PURCHASE, SALE RE-PURCHASE AND RE-SAL E OF THE SAME SCRIPS ITA NOS.633,534 ,3134& 3032/AHD/ 2011 SHAH INVESTORS HOME LTD. VS. JCIT (CROSS-APPEALS) ASST.YEARS 2007-08 & 2008-09 - 28 - AGAIN AND AGAIN AND THAT ALL THE TRANSACTIONS WERE DELIVERY BASED AND THE INTENTION OF THE ASSESSEE WAS ALWAYS TO BE THE INVE STOR OF SHARES. IT WAS ALSO SUBMITTED THAT ASSESSEE HAD HARDLY TRANSACTED IN ABOUT 30 DAYS IN THE YEAR. HE ALSO POINTED TO THE SUMMARY OF PERIOD OF H OLDING OF THE SHARES WHICH HAVE BEEN REPRODUCED BY THE LD. CIT(A) AT PAG E 13 OF THE ORDER AND FROM IT HE SUBMITTED THAT THE SHORT TERM CAPITAL GA INS EARNED ON SALE OF SHARES SOLD WITHIN 30 DAYS WAS ONLY RS. 7,15,737/- AND THE BALANCE CAPITAL GAINS WAS EARNED WHERE THE HOLDING PERIOD WAS MORE THAN 30 DAYS. HE THEREFORE SUBMITTED THAT THE DECISION OF LD. CIT(A) CALLS FOR NO INTERFERENCE AND THUS SUPPORTED THE ORDER OF LD. CIT(A). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS WHETHER TH E PROFIT EARNED ON SALE OF SHARES IS REQUIRED TO BE TREATING AS CAPITAL GAINS OR BUSINESS INCOME. WE FIND THAT LD. CIT(A) WHILE DECIDING THE ISSUE IN FAVOUR OF THE ASSESSEE HAS HELD THE PROFIT EARNED TO BE AS CAPITAL GAINS AND HAS NOTED THAT ASSESSEE HAS HISTORY OF BEING AN INVESTOR AND CLAIM ING SHORT TERMS CAPITAL GAINS AND THE ACTIVITY OF TRANSACTIONS WERE RELATED TO 5 SCRIPS AND THE TRANSACTIONS WERE DELIVERY BASED. HE HAS FURTHER GI VEN A FINDING THAT IT IS NOT A CASE WHERE THE ASSESSEE HAS DONE THE TRANSACT IONS OF SALE AND PURCHASE ON EVERY DAY BASIS. HE HAS FURTHER NOTED T HAT THE SHARES WERE CONSIDERED BY THE ASSESSEE AS INVESTMENT IN ITS BOO KS OF ACCOUNTS, HAD NOT BORROWED ANY FINANCE TO ACQUIRE THE SHARES AND OUT OF THE TOTAL GAINS EARNED BY THE ASSESSEE, AROUND 2/3 OF THE PROFITS W ERE EARNED FROM SHARES WHICH WERE HELD FOR OVER 60 DAYS. HE THEREAFTER REL YING ON THE RATIO OF THE DECISION RENDERED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GOPAL PUROHIT REPORTED IN 228 CTR 582 (BOM) HELD THAT ONL Y SHORT TERM CAPITAL GAINS TO THE EXTENT OF RS. 27,193/- EARNED ON THE T RANSACTIONS WHICH WERE NOT TRANSACTED THROUGH DEMAT ACCOUNT IS TO BE ATTRI BUTED TO THE BUSINESS OF SHARE TRADING. BEFORE US, REVENUE HAS NOT PLACED AN Y MATERIAL ON RECORD TO CONTROVERT THE FINDINGS OF LD. CIT(A). FURTHER, IT IS ALSO A FACT THAT IN THE EARLIER ASSESSMENT YEARS, ASSESSEE HAD OFFERED THE PROFITS AS SHORT TERMS CAPITAL GAINS AND THE SAME WAS ALSO ACCEPTED BY THE REVENUE. IN VIEW OF THE AFORESAID FACTS, WE FIND NO REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A) AND THUS THE GROUND OF REVENUE IS DISMISSED. ITA NOS.633,534 ,3134& 3032/AHD/ 2011 SHAH INVESTORS HOME LTD. VS. JCIT (CROSS-APPEALS) ASST.YEARS 2007-08 & 2008-09 - 29 - 12.4. RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF THE COORDINATE BENCH TOGETHER WITH CBDT CIRCULARS(SUPRA), WE ARE O F THE VIEW THAT THE APPELLANT HAS SEPARATELY MAINTAINED THE DETAILS OF INVESTMENTS AND EQUITY SHARES AND HAS BEEN ABLE TO SHOW THE TRANSACTIONS O F CAPITAL GAIN AND INVESTMENTS DISTINCTIVELY FROM THE OTHER BUSINESS A CTIVITY CARRIED OUT DURING THE YEAR AND, ACCORDINGLY, CAPITAL GAIN OFFE RED BY ASSESSEE AS A LTCG AND STCG SHOULD HAVE BEEN ACCEPTED BY THE LOW ER AUTHORITIES AND, THEREFORE, THE LD.CIT(A) HAS ERRED IN ACCEPTIN G THE VIEW OF LD.AO FOR TREATING STCG AND LTCG CAPITAL GAIN AS BUSINESS INC OME. ACCORDINGLY, WE ALLOW THE GROUND OF THE ASSESSEE. 13. AS A RESULT, ASSESSEES APPEAL FOR AY 2007-08 I S PARTY ALLOWED FOR STATISTICAL PURPOSES. 14. NOW WE TAKE UP GROUND NO.3 OF REVENUES APPEA L FOR AY 2007- 08 AND THE GROUND READS AS UNDER:- 3.THE LD.CIT(A) ERRED IN LAW AND ON FACTS IN DELET ING THE ADDITION OF RS.12 LAKHS ON ACCOUNT OF CLAIM OF BAD DEBTS. 14.1. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT THE ASSESSEE HAS CLAIMED BAD DEBT OF RS.12 LAC S U/S. 36(2) OF THE ACT FOR NON-REALIZATION OF DEBT FROM M/S.NISHAD INV. & FINANCE CO.LTD. (HEREINAFTER REFERRED TO AS NIFCL). IN REPLY TO TH E QUESTION RAISED BY THE LD.AO, AS TO WHY THE BAD DEBTS OF CLAIM OF RS.12 LA CS MAY NOT BE ITA NOS.633,534 ,3134& 3032/AHD/ 2011 SHAH INVESTORS HOME LTD. VS. JCIT (CROSS-APPEALS) ASST.YEARS 2007-08 & 2008-09 - 30 - DISALLOWED, THE APPELLANT SUBMITTED THAT THEY HAVE BEEN ENTERING INTO REGULAR BUSINESS TRANSACTIONS WITH M/S. NIFCL AND W ERE EARNING REGULAR BROKERAGE INCOME FOR TRANSACTIONS ENTERED INTO STOC K MARKET AND RS.12LACS WHICH WAS RECOVERABLE FROM NIFCL WAS N OU TSTANDING AMOUNT PERTAINING TO FY 2000-01. HOWEVER, LD.AO WAS NOT S ATISFIED WITH THE REPLY GIVEN BY THE ASSESSEE AND RELYING ON THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. AHMEDABAD ELECT RICITY CO.LTD. REPORTED AT (2013) 262 ITR 97 (GUJ.) WAS OF THE VIE W THAT BEFORE CLAIMING ANY AMOUNT AS BAD DEBT CERTAIN STEPS NEEDS TO BE TAKEN BY ASSESSEE WHICH INCLUDES THE ISSUING OF REMINDERS, R ESTRUCTURING OF DEBT, RESCHEDULING OF DEBT STATEMENT, NEGOTIATION OR ARBI TRATION OF A DISPUTED DEBT, AND LEGAL ACTION, WHEREAS IN THE INSTANT CASE , THE ASSESSEE HAS FAILED TO PROVE THAT THEY HAVE COMPLIED TO ANY SPECIFIC C RITERIA STIPULATED BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CI T VS. AHMEDABAD ELECTRICITY CO.(SUPRA) AND, ACCORDINGLY, DISALLOWED THE CLAIM OF BAD DEBTS OF RS.12 LACS. FURTHER, LD.AO DID NOT ACCEPT THE A LTERNATIVE ARGUMENT MADE BY THE ASSESSEE THAT IF THE BAD DEBT IS NOT AL LOWABLE U/S.36(1)(VII) OF THE IT ACT, 1961, THEN THE SAID BAD DEBTS IS OTHERW ISE ALLOWABLE AS A BUSINESS LOSS U/S.28 OF THE ACT AND THEREBY TAKING A COGENT VIEW THAT IF A SPECIAL PROVISION HAS BEEN MADE ON CERTAIN MATTER, THEN THE MATTER IS EXCLUDED FROM THE GENERAL PROVISIONS OF THE ACT AND IT IS WELL SETTLED LAW IN INDIA, AND, THEREFORE, AS THE BAD DEBTS IS SPECI FICALLY COVERED UNDER THE ITA NOS.633,534 ,3134& 3032/AHD/ 2011 SHAH INVESTORS HOME LTD. VS. JCIT (CROSS-APPEALS) ASST.YEARS 2007-08 & 2008-09 - 31 - SEPARATE SECTION, THEN, THERE REMAINS NO REASON TO ALLOW SUCH TYPE OF EXPENSES UNDER OTHER HEADS OF INCOME TAX ACT. 14.2. AGGRIEVED ASSESSEE, WENT IN APPEAL BEFORE LD. CIT(A), WHO HAS ALLOWED THE GROUND AND ADDITION OF RS.12 LACS WAS D ELETED. AGGRIEVED REVENUE, NOW IS IN APPEAL BEFORE US. 14.3. AGGRIEVED ASSESSEE, IS NOW IN APPEAL BEFORE THE TRIBUNAL. LD.AR SUBMITTED THE SECTION 36(2)(I) OF THE ACT PROVID ES THAT A DEDUCTION ON ACCOUNT OF A BAD DEBT CAN BE ALLOWED ONLY WHERE SUC H DEBT OR PART THEREOF HAS BEEN TAKEN INTO ACCOUNT IN COMPUTING TH E INCOME OF THE ASSESSEE. THE DEBT COMPRISED OF THE VALUE OF THE SH ARES TRANSACTED AND THE BROKERAGE PAYABLE BY THE CLIENT. THE BROKERAGE AS W ELL AS THE VALUE OF THE SHARES CONSTITUTED A PART OF THE DEBT DUE TO THE AS SESSEE SINCE BOTH AROSE OUT OF THE SAME TRANSACTION. THE FACT THAT THE LIAB ILITY TO PAY BROKERAGE AROSE AT A POINT IN TIME ANTERIOR TO THE LIABILITY TO PAY THE VALUE OF THE SHARES TRANSACTED MAKES NO MATERIAL DIFFERENCE TO T HE POSITION. AS THE BROKERAGE FROM THE TRANSACTION OF THE PURCHASE OF S HARES HAD BEEN TAXED IN THE HANDS OF THE ASSESSEE AS BUSINESS INCOME, TH E DEBT OR PART THEREOF HAS BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE AND THE REQUIREMENTS OF SECTION 36(L)(VII) R.W.S. 36(2) WERE SATISFIED. ITA NOS.633,534 ,3134& 3032/AHD/ 2011 SHAH INVESTORS HOME LTD. VS. JCIT (CROSS-APPEALS) ASST.YEARS 2007-08 & 2008-09 - 32 - 14.4. THE LD.SR.DR SUPPORTED THE ORDER OF THE AO, W HEREAS LD.AR SUPPORTED THE ORDER OF THE LD.CIT(A). LD.AR SUBMIT TED THAT THE IMPUGNED AMOUNT OF RS.12 LACS RELATES TO OUTSTANDIN G AMOUNT RECEIVABLE FROM NIFCL WITH WHICH APPELLANT WAS HAVING REGULAR BUSINESS TRANSACTIONS AND NIFCL IS AN ACTIVE CLIENT OF THE A PPELLANT AND WAS INVOLVED IN TRADING IN STOCK MARKET AND BROKERAGE I NCOME WAS EARNED FROM THE NIFCL REGULARLY IN THOSE YEARS. LD.AR FUR THER RELIED ON THE JUDGEMENT OF THE HONBLE HIGH COURT OF MUMBAI IN TH E CASE OF CIT VS. SHREYAS S. MORAKHIA REPORTED AT (2012) 342 ITR 285 (MUM.), WHEREIN SPECIAL BENCH DECISION OF THE ITAT MUMBAI BENCH H AS BEEN CONFIRMED. 15. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED TH E MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND THE JUDGEMENT/DECISION RELIED UPON BY THE LD.CO UNSEL FOR THE ASSESSEE. THE REVENUE HAS RAISED GROUND AGAINST TH E ACTION OF THE LD.CIT(A) IN DELETING THE ADDITION OF RS.12 LACS ON ACCOUNT OF BAD DEBTS CLAIMED BY THE ASSESSEE. FROM GOING THROUGH THE RE CORDS, WE OBSERVE THAT THE ASSESSEE HAS CLAIMED BAD DEBTS OF RS.12 LA CS FOR NON-RECOVERY OF IFCL FOR OUTSTANDING AMOUNT OF FINANCIAL YEAR 2000- 01. WE FURTHER OBSERVE THAT THE HONBLE HIGH COURT OF MUMBAI IN TH E CASE OF CITVS. ITA NOS.633,534 ,3134& 3032/AHD/ 2011 SHAH INVESTORS HOME LTD. VS. JCIT (CROSS-APPEALS) ASST.YEARS 2007-08 & 2008-09 - 33 - SHREYAS S. MORAKHIA(SUPRA), HAS DEALT WITH SIMILAR ISSUE, WHEREIN THE ASSESSEE WAS A SHARE-BROKER, CLAIMED DEDUCTION U/S. 36(1)(VII) OF THE IT ACT FOR RS.28.24LACS AS A BAD DEBT TOWARDS THE AMOU NT DUE TO HIM BY HIS CLIENTS ON ACCOUNT OF TRANSACTIONS OF SHARES EFFECT ED BY THE ASSESSEE AT THEIR BEHALF WHICH HAD BECOME IRRECOVERABLE. THE H ONBLE HIGH COURT OF MUMBAI UPHELD THE DECISION OF THE SPECIAL BENCH OF TRIBUNAL AND DISMISSED THE APPEAL OF THE REVENUE BY OBSERVING AS UNDER:- 14. THE VALUE OF THE SHARES TRANSACTED BY THE ASSE SSEE AS A STOCK BROKER ON BEHALF OF ITS CLIENT IS AS MUCH A PART OF THE DEBT AS IS THE BROKERAGE WHICH IS CHARGED BY THE ASSESSEE ON THE T RANSACTION. THE BROKERAGE HAVING BEEN CREDITED TO THE PROFIT AND LO SS ACCOUNT OF THE ASSESSEE, IT IS EVIDENT THAT A PART OF THE DEBT IS TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE. THE FACT THAT THE LIABILITY TO PAY THE BROKERAGE MAY ARISE, AS CONTENDED BY THE REVENU E, AT A POINT IN TIME ANTERIOR TO THE LIABILITY TO PAY THE VALUE OF THE SHARES TRANSACTED WOULD NOT MAKE ANY MATERIAL DIFFERENCE TO THE POSIT ION. BOTH CONSTITUTE A PART OF THE DEBT WHICH ARISES FROM THE VERY SAME TRANSACTION INVOLVING THE SALE OR AS THE CASE MAY BE PURCHASE OF SHARES. SINCE BOTH FORM A COMPONENT PART OF THE DEBT, THE REQUIREMENTS OF SEC TION 36(2)(I) ARE FULFILLED WHERE A PART THEREOF IS TAKEN INTO ACCOUN T IN COMPUTING THE INCOME OF THE ASSESSEE. BEFORE CONCLUDING, WE AGAIN TAKE NOTE OF THE FACT T HAT IN PARAGRAPH 31 OF ITS IMPUGNED DECISION THE TRIBUNAL HAS LEFT THE ISSUE AS REGARDS THE VALUE OF THE SHARES WHICH REMAIN IN THE HANDS OF TH E ASSESSEE WHICH HAS TO BE ADJUSTED AGAINST THE AMOUNT RECEIVABLE FROM T HE CLIENT TO BE DETERMINED BEFORE THE REGULAR BENCH OF THE TRIBUNAL FOLLOWING THE VIEW OF THE SPECIAL BENCH. THE VIEW WHICH HAS BEEN TAKEN BY THE SPECIAL BENCH IS, WITH RESPECT, IN ACCORDANCE WITH LAW. WE ACCORDINGLY DISPOSE OF THE APPEAL BY ANSWERING THE QUESTION OF LAW AS F ORMULATED IN THE ITA NOS.633,534 ,3134& 3032/AHD/ 2011 SHAH INVESTORS HOME LTD. VS. JCIT (CROSS-APPEALS) ASST.YEARS 2007-08 & 2008-09 - 34 - AFFIRMATIVE AND IN FAVOUR OF THE ASSESSEE. THERE SH ALL BE NO ORDER AS TO COSTS. 15.1. RESPECTFULLY FOLLOWING THE JUDGEMENT OF THE H ONBLE HIGH COURT OF MUMBAI IN THE CASE OF . CIT VS. SHREYAS S. MORAK HIA, WE UPHELD THE DECISION OF THE LD.CIT(A) AND APPLYING THE FACTS OF THE CASE, WE FIND THAT INC THE CASE OF ASSESSEE WHO IS A SHARE-BROKER WAS PROVIDING SERVICES TO NIFCL UPTO FY 2000-01 AND WAS REGULARLY EARNING INC OME FROM BROKERAGE WHICH IS VERIFIABLE FROM THE LEDGER ACCOU NT OF NIFCL APPEARING AT PAGE NOS.181 TO 191 OF THE PAPER-BOOK OF THE ASSESSEE AND OUT OF THIS OUTSTANDING BALANCE, AFTER A LAPSE OF E IGHT YEARS, THE ASSESSEE HAS TRANSFERRED RS.12 LACS TO THE BAD DEBTS ACCOUNT AND THESE FACTS HAS NOT BEEN CONTROVERTED BY THE REVENUE BY PLACING ANY CON TRARY MATERIAL. THEREFORE, WE ARE OF THE OPINION THAT THE LD.CIT(A) HAS RIGHTLY DELETED THE ADDITION BY ALLOWING THE CLAIM OF BAD DEBTS OF RS.12 LACS AND, THEREFORE, NO INTERFERENCE IS CALLED FOR WITH THE O RDER OF THE LD.CIT(A), SAME IS HEREBY UPHELD. THUS, GROUND RAISED BY THE REVENUE IS DISMISSED. 16. NOW, WE TAKE UP THE ASSESSEES APPEAL IN ITA NO.3134/AHD/2011FOR AY 2008-09/ THE ASSESSEES HAS RAISED FOLLOWING TWO GROUNDS WHICH READ AS UNDER:- 1. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACT IN CONFIRMING DISALLOWANCE OF PAYMENT ON PROPORTIONATE BASIS OF P AYMENT MADE TO M/S.ASHWIN CHUBHAI BROKING PVT.LTD. AS OFFICE MA NAGEMENT AND MAINTENANCE EXPENSE OF RS.63,00,000/- ON WHICH TDS WAS ITA NOS.633,534 ,3134& 3032/AHD/ 2011 SHAH INVESTORS HOME LTD. VS. JCIT (CROSS-APPEALS) ASST.YEARS 2007-08 & 2008-09 - 35 - MADE U/S.194J OF THE ACT, ALLEGING THE SAME TO BE R ENT INCOME AND TAX WAS REQUIRED TO BE DEDUCTED U/S.194-I OF THE AC T, AS TAX IS DEDUCTED UNDER OTHER SECTION, THE DISALLOWANCE IS M ADE U/S.40(A)(IA) OF THE ACT. IT IS THEREFORE PRAYED T HAT THE ADDITIONS SO MADE BY MAY KINDLY BE DELETED. 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING DISALLOWANCE OF PAYMENT OF RS.640,762/- BEING V-SAT EXPENSES PAID TO NSE/BSE FOR CONNECTIVITY CHARGES ON WHICH T DS WAS MADE U/S.194C AND RS.485,638/- BEING LEASE LINE/INTEREST CHARGES PAID TO RELIANCE COMMUNICATION LTD, ON THE ALLEGED GROUN D THAT THE PAYMENT MADE IS RENT AND TAX WAS REQUIRED TO BE DED UCTED U/S.194-I OF THE ACT, AS TAX IS DEDUCTED UNDER OTHE R SECTION, THE DISALLOWANCE IS MADE U/S.40(A)(IA) OF THE ACT, WHER EAS APP COMPANY HAS DEDUCTED TDS WHEREVER REQUIRED AND /OR NO TDS IS REQUIRED TO BE DEDUCTED ON SUCH DISALLOWANCES IT I S THEREFORE PRAYED THAT THE ADDITIONS SO MADE MAY KINDLY BE DEL ETED. 17. FROM GOING THROUGH BOTH THESE GROUNDS, WE OBSER VE THAT WE HAVE ADJUDICATED SIMILARL GROUNDS WHILE DISPOSING OF GRO UND NOS.2 & 3 IN ASSESSEES OWN CASE IN ITA NO. 633/AHD/2011 FOR AY 2007-08, WHEREIN WE HAVE HELD THAT THE ASSESSEE HAS DEDUCTED TDS U NDER THE CORRECT HEAD OF PROVISIONS OF INCOME TAX ACT AND NO DISALLOWANCE U/S.40(A)(IA) WAS CALLED FOR. APPLYING THE SAME DECISION FOR AY 2008 -09, WE ARE OF THE VIEW THAT THE PAYMENT OF RS.63 LACS MADE TO M/S.ASH WIN CHINUBHAI BROKING PVT.LTD. ON ACCOUNT OF OFFICE MANAGEMENT AN D MAINTENANCE EXPENSES DO NOT FALL UNDER THE HEAD OF RENT EXPENDI TURE AND THE ASSESSEE HAS RIGHTLY DEDUCTED TDS U/S.194-J OF THE ACT AND, SIMILARLY, PAYMENT OF RS.6,40,762/- AND RS.4,85,638/- PAID TOWARDS V-SET CHARGES TO NSE/BSE ITA NOS.633,534 ,3134& 3032/AHD/ 2011 SHAH INVESTORS HOME LTD. VS. JCIT (CROSS-APPEALS) ASST.YEARS 2007-08 & 2008-09 - 36 - FOR CONNECTIVITY AND INTERNET EXPENSES ARE SUBJECT TO TDS U/S.194-C OF THE ACT AND ASSESSEE HAS RIGHTLY DEDUCTED TDS U/S.1 94-C AND, THEREFORE, LD.AO WAS NOT CORRECT IN OBSERVING OF THE PAYMENT O F RS.,6,40,762/- AND RS.4,85,638/- AS RENT EXPENDITURE (SUBJECT TO TDS U /S.194-I OF THE ACT). WE THEREFORE ALLOW GROUND NOS.1 & 2 RAISED BY THE A SSESSEE FOR AY 2008-09. 18. LASTLY, WE TAKE UP THE REVENUES APPEAL, I.E. ITA NO.3032/AHD/2011. REVENUES GROUND NO.1 READS AS UNDER:- 1. THE ID. CIT(A) HAS ERRED IN LAW AND ON FACTS I N DELETING THE DISALLOWANCE U/S. 40(A)(IA) PROPORTIONATELY IN RESP ECT OF OFFICE MANAGEMENT AND MAINTENANCE EXPENSES AMOUNTING TO RS .30,68,705 DISREGARDING FACTS THAT THE ASSESSEE HAS NOT APPLIE D PROPER COMPLIANCE OF TDS PROVISION AS PER LAW. MOREOVER, THERE IS NO PRO VISIONS FOR PROPORTIONATE DISALLOWANCE U/S. 40(A)(IA). 18.1. WE HAVE DEALT WITH SIMILAR ISSUE IN ITA NO. 534/AHD/2011 FOR AY 2007-08, WHEREIN WE HAVE DISMISSED THE GROUND OF RE VENUE AS THE ASSESSEES GROUND WAS ALLOWED IN FULL. FOR THE SAM E REASONING THIS GROUND OF THE REVENUE IS DISMISSED FOR THIS ASST.YE AR 2008-09. 19. REVENUES GROUND NO.2 READS AS UNDER:- 2. THE ID. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS.37,43,705 U/S. 40(A)(IA). CONSID ERING THAT IT IS A REIMBURSEMENT OF EXPENSES. THE ID. CIT(A) HAS DISRE GARDED THE FACT THAT THE PAYMENTS WAS MADE WITH ONE COMPOSITE AGREEMENT AND PAYMENTS ON MONTHLY BASIS OR LUMPSUM PAYMENT HAVE BEEN MADE. ITA NOS.633,534 ,3134& 3032/AHD/ 2011 SHAH INVESTORS HOME LTD. VS. JCIT (CROSS-APPEALS) ASST.YEARS 2007-08 & 2008-09 - 37 - 19.1. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE LD.AO OBSERVED THAT A TOTAL PAYMENT OF RS.1,00,43,705/- WAS MADE T O M/S.ASHWIN CHINUBHIA BROKING PVT.LTD. ( IN SHORT - ACBPL) IN T HE YEAR UNDER APPEAL. OUT OF WHICH, THE ASSESSEE DEDUCTED TDS U/S.194-J O F THE IT ACT, OF RS.63 LACS BEING TOWARDS FEES FOR PROFESSIONAL AND TECHNICAL SERVICES AND THE REMAINING AMOUNT, I.E. RS.37,43,705/- WAS REIMB URSEMENT OF EXPENDITURE BY THE ASSESSEE TO ACBPL AND NO TDS WAS DEDUCTED ON THIS AMOUNT. HOWEVER, WHILE FRAMING THE ASSESSMENT ORD ER, THE LD.AO TREATED THE AMOUNT OF RS.1,00,43,705/- AS RENT EXPE NDITURE SUBJECT TO TDS U/S.194-I OF THE ACT AND MADE DISALLOWANCE OF R S.1,00,43,705/- U/S.40(A)(IA) OF THE ACT FOR NON-DEDUCTION OF TDS. WE FURTHER OBSERVE THAT WHILE DEALING WITH GROUND NO.1 OF ASSESSEES A PPEAL FOR AY 2008-09 IN ITA NO.3134/2011, WE ALLOWED THE GROUND OF THE ASSESSEE BY DECIDING THAT RS.63 LACS WAS NOT RENT EXPENDITURE B UT FALLS UNDER THE CATEGORIES OF FEES FOR PROVIDING PROFESSIONAL AND T ECHNICAL SERVICES AND ASSESSEE HAD RIGHTLY DEDUCTED TDS U/S.194-J OF THE ACT AND NO DISALLOWANCE IS CALLED FOR U/S.40(A)(IA) OF THE ACT ON RS.63 LACS. WE FURTHER OBSERVE THAT SO FAR AS MAKING PAYMENT OF RS .37,43,705/- (RS.1,00,43,705 RS.63,00,000) WHICH IS TOWARDS RE IMBURSEMENT OF EXPENSES , WE FIND THAT HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. GUJARAT NARMADA VALLEY FERTILIZERS CO.LTD. REPORTED AT (2013) 35 TAXMANN.COM 638 (GUJ.) WHILE CONFIRMING THE ORDER O F THE TRIBUNAL ITA NOS.633,534 ,3134& 3032/AHD/ 2011 SHAH INVESTORS HOME LTD. VS. JCIT (CROSS-APPEALS) ASST.YEARS 2007-08 & 2008-09 - 38 - DISMISSED THE REVENUES APPEAL BY HOLDING THAT NO D ISALLOWANCE IS CALLED FOR U/S.40(A)(IA) OF THE ACT ON REIMBURSEMENT OF EX PENSES AS THE OBLIGATION TO DEDUCT THE TDS ON PAYMENT OF THE EXPE NDITURE ARE TO BE COMPLIED WITH THE AGENT TO ADMIT PAYMENT ON ITS BEH ALF. RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE JURISDICTIONA L HIGH COURT, WE ARE OF THE VIEW THAT NO DISALLOWANCE IS CALLED FOR U/S. 40(A)(IA) OF THE ACT ON REIMBURSEMENT OF EXPENSES OF RS.37,43,705/- AND LIA BILITY, IF ANY, WAS AS THE SHOULDERS OF ACBPL AND NOT THE APPELLANT AND, T HEREFORE, LD.CIT(A) HAS RIGHTLY DELETED THE SAME. THUS, THIS GROUND OF REVENUES APPEAL IS DISMISSED. 20. REVENUES THIRD GROUND READS AS UNDER:- 3. THE ID. CIT(A) HAS ERRED IN LAW AND ON FACTS I N TREATING THE BUSINESS INCOME IN RESPECT OF TRANSACTION IN SHARES AS LTCG AND STCG WHICH HAS BEEN TREATED BY AO AS BUSINESS INCOME. 20.1. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE LD.AO OBSERVED THAT THE ASSESSEE HAS DISCLOSED LTCG AND RS.68,14, 251/- AND STCG OF RS.1,95,556/- FROM TRANSACTIONS OF PURCHASE AND SAL E OF SHARES BUT WHILE FRAMING THE ASSESSMENT, ON THE BASIS OF HIS VIEW TH AT ASSESSEE IS DEALER IN SHARE THE AMOUNT OF RS.70,09,807/- (RS.68,14,251 + 1,95,556) AS BUSINESS INCOME. 20.2. ON APPEAL BEFORE THE LD.CIT(A), ASSESSEE GOT RELIEF AND NOW REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. ITA NOS.633,534 ,3134& 3032/AHD/ 2011 SHAH INVESTORS HOME LTD. VS. JCIT (CROSS-APPEALS) ASST.YEARS 2007-08 & 2008-09 - 39 - 20.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT WE HAVE DEALT WI TH SIMILAR ISSUE WHILE ADJUDICATING GROUND NO.5 OF ASSESSEES APPEAL FOR A Y 2007-08 IN ITA NO.633/AHD/2011(SUPRA) AND HAVE HELD THEREIN THAT A S THE ASSESSEE HAS SEPARATELY MAINTAINED THE RECORDS OF ITS INVESTMENT IN SHARES AND STCG AND LTCG IS BEING REGULARLY OFFERED FOR TAX BY ASSE SSEE IN PAST YEARS AND ALLOWED THE GROUND OF THE ASSESSEE. THEREFORE, BY APPLYING THE DECISION TAKEN BY US IN ITA NO.633/AHD/2011, WE ARE OF THE V IEW THAT ASSESSEE HAS RIGHTLY DISCLOSED INCOME FROM PURCHASE AND SALE OF SHARES AS LTCG AND STCG AT RS.68,14,251/- AND RS.1,95,556/- RESPEC TIVELY AND, THEREFORE SHOULD NOT BE TREATED AS BUSINESS INCOME. THUS, REVENUES GROUND IS DISMISSED. 21. REVENUES GROUND NO.4 READS UNDER:- 4. THE ID. CIT(A) HAS ERRED IN LAW AND ON FACTS I N DELETING THE ADDITION MADE ON ACCOUNT OF DISALLOWANCE OF BAD DEBTS OF RS. 2,89,121/-. 21.1 DURING THE COURSE OF HEARING THE LD.AO OBSERVE D THAT BAD DEBTS OF RS.2,89,121/-HAS BEEN CLAIMED IN THE P&L ACCOUNT, B UT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE WAS U NABLE TO PROVE THAT THE GENUINE EFFORTS WERE MADE TO RECOVER THE OUTSTA NDING DEBT AND, THEREFORE, DISALLOWANCE OF BAD DEBTS OF RS.2,89,121 /- WAS MADE. ITA NOS.633,534 ,3134& 3032/AHD/ 2011 SHAH INVESTORS HOME LTD. VS. JCIT (CROSS-APPEALS) ASST.YEARS 2007-08 & 2008-09 - 40 - 21.2. AGGRIEVED ASSESSEE WENT IN APPEAL BEFORE LD. CIT(A). THEREAFTER. DISALLOWANCE OF BAD DEBTS OF RS.2,89,121/- WAS DELE TED BY LD.CIT(A) BY RELYING ON THE JUDGEMENT HIGH COURT OF BOMBAY IN T HE CASE OF CIT VS. SHREYAS S. MORAKHIA REPORTED AT (2012) 342 ITR 285 (MUM.) WHEREIN THE HONBLE HIGH COURT HAVE DELETED THE ADDITION. HOWE VER, IN THE YEAR UNDER APPEAL, WE FIND THAT THE FACTS ARE NOT SAME. IN ASST.YEAR 2007-08, THE AMOUNT OF RS.12 LACS WAS OUTSTANDING TO BE RECE IVED SINCE AY 2001- 02 AND FINALLY, IN AY 2007-08 IT WAS CLAIMED AS BAD DEBTS WHICH PROVED THAT A SUFFICIENT TIME WAS TAKEN BY THE ASSESSEE FOR MAKING EFFORTS IN RECOVERING THE SAID OUTSTANDING DEBTS. HOWEVER, IN THE YEAR UNDER APPEAL, ON THE BASIS OF OBSERVING THE LEDGER ACCOUN T AT PAGE NO.211 & 212 OF THE PAPER-BOOK WHICH SHOWS THE LEDGER ACCOUN T OF ANEEL BHARGAVJEEBHAI LALCHA AND MANESH MAHESHBHAI AND WE FIND THAT SOME TRANSACTIONS WERE ENTERED INTO WITH THESE PARTIES, EVEN DURING THE YEAR UNDER APPEAL. WE, FURTHER FIND THAT AN AMOUNT OF R S.64,000/- HAS BEEN PAID TO ANEEL BHARGAVBHAI LALCHA ON 24/08/2007, EVE NTHOUGH AN OUTSTANDING AMOUNT OF RS.1,04,210/- WAS DUE TO BE RECEIVED ON 01/04/2007. THIS FACTS SHOWS THAT THERE WAS NO DEA LING OF ASSESSEE WITH THIS IMPUGNED PARTIES FOR PURCHASE OF SALE AND SHAR ES IN ORDER TO EARN BROKERAGE INCOME, RATHER ASSESSEE HIMSELF HAS ADVAN CED MONEY TO THIS PARTY. WE ARE, THEREFORE, OF THE VIEW THAT THE FAC TS OF THE CASE IN THE YEAR UNDER APPEAL, ARE NOT THE SAME TO THE FACTS DEALT BY US WHILE ADJUDICATING THE APPEAL FOR AY 2007-08 AND WE ARE OF THE VIEW TH AT THE LD.AR HAS ITA NOS.633,534 ,3134& 3032/AHD/ 2011 SHAH INVESTORS HOME LTD. VS. JCIT (CROSS-APPEALS) ASST.YEARS 2007-08 & 2008-09 - 41 - RIGHTLY DISALLOWED THE CLAIM OF BAD DEBTS OF RS.2,8 9,121/- AND, ACCORDINGLY, WE ALLOW THE GROUND OF THE REVENUE. T HUS. GROUND NO.4 OF REVENUES APPEAL IS ALLOWED. 22. REVENUES GROUND NO.5 READS AS UNDER:- 5. THE ID. CIT(A) HAS ERRED IN LAW AND ON FACTS IN ALLOWING REVISED WORKING OF CAPITAL GAINS IN RESPECT OF TRANSACTION OF BSE SHARES, WHICH WAS CLAIMED BY MAKING REVISED STATEMENT WITHOUT FIL ING OF REVISED RETURN OF INCOME. THE ID. CIT(A) HAS ERRED IN LAW AND ON FACT S IN DISREGARDING THE FACTS THAT THE ASSESSEE IS NOT ENTITLED TO FILE REV ISED STATEMENT OF INCOME IN VIEW OF THE DECISION OF HON'BLE SUPREME COURT IN TH E CASE OF GOETZE INDIA LTD. 22.1. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE LD.AO OBSERVED THAT THE ASSESSEE FILED REVISED COMPUTATION FOR CAL CULATION OF LTCG ON BY BACK OF RS.5,475/- SHARES OF BSE LTD., THEREBY SHOW ING CAPITAL GAIN LESS BY RS.8,43,750/- AS WAS SHOWN IN THE REVISED RETURN OF INCOME. LD.AO DID NOT ACCEPT THE REVISED CALCULATION OF LTCG OF B SE SHARES ON THE BASIS OF HIS VIEW THAT SUCH TYPE OF MISTAKE COULD H AVE BEEN RECTIFIED BY THE ASSESSEE ONLY BY WAY OF FILING REVISED RETURN O F INCOME AND THE STATUTORY TIME LIMIT FOR FILING THE RETURN OF INCOM E FOR AY 2008-09 EXPIRED ON 31/03/2010 AND THE ASSESSEE HAS SUBMITTE D THE REVISED COMPUTATION ON 16/12/2010 AND THE SAME WAS INADMISS IBLE. ITA NOS.633,534 ,3134& 3032/AHD/ 2011 SHAH INVESTORS HOME LTD. VS. JCIT (CROSS-APPEALS) ASST.YEARS 2007-08 & 2008-09 - 42 - 22.2. AT THE OUTSET, THE LD.AR SUBMITTED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF ASSESSEE. THE LD.CIT(A) DELE TED THE ADDITION BY RELYING ON THE JUDGEMENT OF APEX COURT RENDERED IN THE CASE OF GOETZE (IDIA) LTD. VS. CIT REPORTED AT (2006) 157 TAXMAN 1 (SC) WHICH WAS FOLLOWED BY THE COORDINATE BENCH (ITAT A BENCH AH MEDABAD) IN THE CASE OF ACIT AHMEDABAD VS. AMRAPALI CAPITAL & FINAN CIAL SERVICES LTD. FOR AY 2008-09, DECISION DATED 09/06/2015. 22.3. THE LD.SR.DR DID NOT CONTROVERT THE SUBMISSIO NS MADE BY THE LD.AR. 23. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED TH E MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE JUDGEMENT RELIED UPON BY THE LD.AR. IN THIS GROUND, THE QUESTION IS WHETHER THE REVISED COMPUTATION INCOME CAN BE ACCEPTED BY THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS OR NOT. WE FIND THAT THE ISSUE BEFORE US IS SQUARELY COVERED BY THE DECISION OF THE AFORESAID COORDINATE BENCH IN FAVOUR OF ASSESSEE IN THE CASE OF ACIT AHMEDABAD VS. AMRAPALI CAPITAL & FINANCIAL SERVICES LTD.(SUPRA), WHEREIN THE TRIBUNAL HELD AS UNDER:- 4. WE HAVE HEARD BOTH SIDES AND GONE THROUGH THE R ELEVANT FINDINGS. ADMITTED FACTS OF THE CASE STAND NARRATED HEREINABO VE. THE CIT(A) HAS ACCEPTED THE ASSESSEE'S REVISED COMPUTATION AS PER SECTION 55(2)(AB) OF ITA NOS.633,534 ,3134& 3032/AHD/ 2011 SHAH INVESTORS HOME LTD. VS. JCIT (CROSS-APPEALS) ASST.YEARS 2007-08 & 2008-09 - 43 - THE ACT. THE ASSESSING OFFICER HAD REFUSED THE VERY RELIEF BY QUOTING THE CASE LAW OF GOETZE (INDIA) LTD. (SUPRA) AND ALSO TH E FACT THAT THE TIME LIMIT FOR FILING REVISED RETURN HAD ALREADY ELAPSED . THIS IS NOT THE REVENUE'S CASE THAT THE ASSESSEE IS NOT OTHERWISE E NTITLED FOR THE RELIEF IN QUESTION UNDER THE PROVISIONS OF THE ACT IN SEEK ING THE IMPUGNED RECOMPUTATION. IT ONLY CONTENDS THAT ONCE THERE WAS NO TIME LEFT FOR FILING A REVISED RETURN, THE IMPUGNED RELIEF OUGHT NOT TO HAVE BEEN GRANTED. A PERUSAL OF THE CASE LAW HEREINABOVE ITSE LF CLARIFIES THAT THE SAME DOES NOT IMPINGE UPON THE JURISDICTION OF APPE LLATE AUTHORITIES UNDER THE ACT. THEREFORE, WE REFUSE TO AGREE WITH T HE REVENUE'S MERE TECHNICAL PLEA AND AFFIRM THE CIT(A) FINDINGS UNDER CHALLENGE. THE REVENUES GROUND FAILS. 23.1. THEREFORE, RESPECTFULLY FOLLOWING THE AFORE SAID DECISION OF THE TRIBUNAL, REVENUES THIS GROUND IS DISMISSED. 24. WE SUMMARIZE THE RESULT AS UNDERE:- (I) ASSESSEES APPEAL FOR AY 2007-08 IS PARTLY ALL OWED FOR STATISTICAL PURPOSES. (II) REVENUES APPEAL FOR AY 2007-08 IS PARTLY ALLO WED. (III) ASSESSEES APPEAL FOR AY 2008-09 IS ALLOWED. (IV) REVENUES APPEAL FOR AY 2008-09 IS PARTLY ALLO WED. ORDER PRONOUNCED IN THE COURT ON 3 RD DAY OF MAY, 2016 AT AHMEDABAD. SD/- SD/- ( RAJPAL YADAV ) ( MANISH BORAD ) JUDICIAL MEMBER ACC OUNTANT MEMBER AHMEDABAD; DATED 3 / 05 /2016 .. ,.../ T.C. NAIR, SR. PS ITA NOS.633,534 ,3134& 3032/AHD/ 2011 SHAH INVESTORS HOME LTD. VS. JCIT (CROSS-APPEALS) ASST.YEARS 2007-08 & 2008-09 - 44 - ! / COPY OF THE ORDER FORWARDED TO : 1. ! / THE APPELLANT 2. '# ! / THE RESPONDENT. 3. $%$&' ( / CONCERNED CIT 4. ( ( ) / THE CIT(A)-XIV/6 5. +,-'&' , &' , % / DR, ITAT, AHMEDABAD 6. -012 / GUARD FILE. / BY ORDER, #+' //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 27-28.4.16 (DICTATION-PAD 104+ PAGES ATTACHED AT THE END OF THIS FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER ..1.5.2016 3. OTHER MEMBER... 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.3.5.16 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 3.5.16 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER