BAIJNATH MANIRAM, MUMBAI V. ASST CIT 14(3), MUMBAI

ITA 6340/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 84643 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 02-12-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 16-10-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PREMANAND J
• Assessee Lawyers: DHIRENDRA M SHAH
• Keywords: Business income; Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH B, MUMBAI BEFORE SHRI D. KARUNAKAR RAO, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NO. 6340/MUM/2012 ASSESSMENT YEAR: 2009-10 M/S. BAIJNATH MANIRAM C/O MANGALDAS D. SHAH & CO. 506, LOTUS HOUSE, 5 TH FLOOR, 33-A, NEW MARINE LINES MUMBAI 400 021 PAN:AAAFB 8365 P VS. ACIT 14(3) MUMBAI (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI DHIRENDRA M. SHAH REVENUE BY : SHRI PREMANAND J. DATE OF HEARING : 02 . 1 2 . 2014 DATE OF ORDER : 19.12.2014 O R D E R PER AMIT SHUKLA, JM: THE AFORESAID APPEAL HAS BEEN PREFERRED BY THE ASS ESSEE AGAINST ORDER DATED 29.06.2012, PASSED BY THE LD.CIT(A)-25, MUMBAI, FOR THE QUANTUM OF THE ASSESSMENT PASSED U/S 143(3) FOR THE A.Y. 2009-10 ON THE FOLLOWING GROUNDS:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS.36,93 ,307/- MADE U/S 14A BY THE INCOME TAX OFFICER WHICH IS BAD IN L AW AND CONTRARY TO THE FACTS AND EVIDENCE ON RECORD WHICH BE DELETED. THE LEARNED CIT(A) ERRED IN OBSERVING THAT, LOSS IN FURTHER AND OPTIONS IN TRADING ACCOUNT IS AN EXPENSE, WITHOUT APPRECIATION ITA NO. 6340/MUM/2012 M/S. BAIJNATH MANIRAM ASSESSMENT YEAR: 2009-10 2 TRUE NATURE OF TRANSACTIONS AND ERRED IN STATING TH AT, LOSS IN DERIVATIVES HAS NEXUS WITH UNDERLYING STOCK OF SHAR ES AND THAT IS AN EXPENSE. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) ERRED IN NOT APPRECIATING THAT, THE ASSESSIN G OFFICER HAS NOT SPECIFIED WHICH OF THE EXPENDITURE RELATES TO T HE EXEMPT DIVIDEND INCOME. THE LEARNED CIT(A) ERRED IN NOT APPRECIATING THAT T HE DISALLOWANCE CANNOT BE MORE THAN TOTAL EXPENDITURE ;CLAIMED. WITHOUT PREJUDICE, THE APPELLANT PRAYS THAT THE DISALLOWANCE/ADDITION CANNOT BE MORE THAN EXPENDITU RE CLAIMED. 2. THIS APPEAL IS BARRED BY LIMITATION BY 3 DAYS. I N SUPPORT OF CONDONATION DELAY, THE ASSESSE HAS FILED AFFIDAVIT OF THE KARTA, STATING THAT HE WAS THE MAIN PERSON LOOKING FOR THE INCOME TAX MATTER AND HE WAS OUT OF STATION FOR SOME URGENT MATTER. THE APPE AL WAS REQUIRED TO BE FILED ON 13.10.2012, HOWEVER 14.10.2012 BEING SA TURDAY AND NEXT DAY WAS SUNDAY, THE ASSESSE COULD NOT FILE THE REQU ISITE CHALLAN FOR FEES THE SAME WAS FILED ON 15.10.2013 AND APPEAL WAS FIL ED ON THE NEXT DAY ON 16.10.2013. IN VIEW OF THE AFORESAID REASON, WE CONDONE THE DELAY OF 3 DAYS. 3. THE ASSESSEE IS A PARTNERSHIP FIRM, ENGAGED IN T HE BUSINESS OF SHARE TRADING AND INVESTMENT IN SHARES. THE ASSESSI NG OFFICER NOTED THAT, THE ASSESSE HAS SHOWN DIVIDEND INCOME OF RS.3 7,43,437/-, WHICH WAS DIRECTLY CREDITED TO THE PARTNERS CAPITAL ACCO UNT. SINCE NO DISALLOWANCE WAS OFFERED BY THE ASSESSE U/S 14A, HE PROCEEDED TO MAKE THE DISALLOWANCE UNDER RULE 8D AND WORKED OUT THE D ISALLOWANCE AT RS.36,93,307/- BY TAKING 0.5% OF AVERAGE VALUE OF INVESTMENT. 4. BEFORE THE LD.CIT(A) THE ASSESSE SUBMITTED THAT NO EXPENSES HAVE BEEN INCURRED BY THE ASSESSE FOR EARNING THE EXEMPT INCOME AS THE ITA NO. 6340/MUM/2012 M/S. BAIJNATH MANIRAM ASSESSMENT YEAR: 2009-10 3 ASSESSEE HAS NEITHER BORROWED ANY FUNDS NOR ANY FRE SH INVESTMENT WAS MADE DURING THE YEAR. ALL THE EXPENSES DEBITED IN T HE P&L ACCOUNT WAS FOR THE PURPOSE OF EARNING OF THE BUSINESS INCOME. WITHOUT PREJUDICE, IT WAS SUBMITTED THAT DISALLOWANCE SHOULD NOT EXCEED T HE TOTAL EXPENSES DEBITED BY THE ASSESSEE, WHICH WAS AT RS.6,83,066/- . HOWEVER THE LD.CIT(A) REJECTED THE ASSESSEES CONTENTION AND AF TER DETAILED DISCUSSION AND REFERRING TO VARIOUS CASE LAWS HELD THAT DISALLOWANCE HAS TO BE MADE AS PER RULE 8D, WHICH IS APPLICABLE FROM A.Y. 2008-09. ACCORDINGLY, HE CONFIRMED THE DISALLOWANCE MADE BY THE AO. 5. BEFORE US, THE LEARNED COUNSEL SUBMITTED THAT TH E ASSESSE HAS DEBITED TOTAL EXPENDITURE OF RS.6,86,066/- IN THE P &L ACCOUNT. OUT OF THE SAID EXPENDITURE MAJOR EXPENSES RELATES TO SALA RY AND BONUS, LEGAL PROFESSIONAL FEES AND THE REST OF THE OTHER EXPENSE S WERE ALSO DIRECTLY ATTRIBUTABLE TO THE ASSESSEES BUSINESS. NO EXPENDI TURE CAN BE SAID TO BE ATTRIBUTABLE FOR THE EARNING OF THE DIVIDEND INCOME . THE LD.CIT(A) HAS OBSERVED THAT ASSESSE HAS DEBITED RS.80,12,600/- IN TRADING ACCOUNT UNDER THE HEAD FUTURE AND OPTION, WITHOUT CORRESPON DING REVENUE RECEIPTS AND THEREFORE, LOSS IN FUTURE AND OPTION IS AN EXPENSE. SUCH A FINDING OF THE LD.CIT(A) IS WHOLLY INCORRECT. LOSS IN FUTURE AND OPTIONS CANNOT BE TREATED AS EXPENSE AS THEY HAVE NO CORREL ATION ON ACCOUNT OF INDIRECT EXPENSES. FURTHER, THE ASSESSING OFFICER W AS REQUIRED TO EXAMINE THE ACCOUNTS OF THE ASSESSE AND ONLY AFTER BEING SATISFIED ABOUT THE CORRECTNESS OF THE ASSESSEES CLAIM THAT NO EXP ENDITURE HAS BEEN INCURRED, THEN ONLY THE AO CAN PROCEED TO MAKE A DI SALLOWANCE U/S 14A. HOW THE INDIRECT EXPENSES CAN BE MORE THAN TOTAL EX PENDITURE DEBITED BY THE ASSESSEE. ITA NO. 6340/MUM/2012 M/S. BAIJNATH MANIRAM ASSESSMENT YEAR: 2009-10 4 6. ON THE OTHER HAND, LD. DR STRONGLY RELIED UPON T HE ORDER OF THE LD.CIT(A) AND SUBMITTED THAT, RULE 8D IS MANDATORY FOR COMPUTING THE DISALLOWANCE U/S 14A, IF THE ASSESSEE HAS EARNED EX EMPT INCOME AND ALSO CLAIMED CERTAIN EXPENDITURES. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PER USED THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDER. FROM THE PERUS AL OF P&L ACCOUNT OF THE ASSESSE, IT IS EVIDENT THAT ASSESSE HAS DEBI TED TOTAL EXPENSES OF RS.6,83,066/-. OUT OF THE SAID EXPENSES, THERE ARE CERTAIN EXPENSES WHICH ARE DIRECTLY ATTRIBUTABLE TO THE BUSINESS OF THE ASSESSE. SOME OF THE EXPENSES CAN BE SAID TO BE ATTRIBUTABLE FOR THE EARNING OF THE EXEMPT INCOME. ASSESSING OFFICER IS REQUIRED TO EXA MINE THE ACCOUNT OF THE ASSESSE AND HAVING REGARD TO SUCH ACCOUNTS AND THE EXPENDITURE CLAIMED, HE IS REQUIRED TO SATISFY HIMSELF ABOUT TH E CORRECTNESS OF THE CLAIM AND THEN ONLY HE CAN PROCEED TO MAKE A DISALL OWANCE. IN ANY CASE WHILE MAKING A DISALLOWANCE ON ACCOUNT OF INDIRECT EXPENSES, THE DISALLOWANCE U/S 14A CANNOT BE EXCEED OVERALL EXPEN SES CLAIMED BY THE ASSESSE IN ITS P&L ACCOUNT. THE PURPOSE OF SECTION 14A AS PROVIDED IN SUB-SECTION 1 IS THAT, WHILE COMPUTING THE TOTAL IN COME, NO DEDUCTION SHOULD BE ALLOWED IN RESPECT OF EXPENDITURE INCURRE D BY THE ASSESSE IN RELATION TO THE EXEMPT INCOME. THE PHRASE EXPENDIT URE INCURRED HAS TO BE RECKONED WITH THE EXPENDITURE CLAIMED BY THE ASS ESSE. THUS THE ENTIRE MATTER IS RESTORED BACK TO THE FILE OF THE A O, TO EXAMINE THE ACCOUNTS OF THE ASSESSE AND THEN AFTER HAVING BEEN SATISFIED ON THE NATURE OF EXPENDITURE SHOULD PROCEED TO MAKE THE DI SALLOWANCE U/S 14A. IT IS MADE CLEAR THAT WHILE MAKING THE DISALLOWANCE , THE SAME SHOULD NOT EXCEED THE OVERALL OF INDIRECT EXPENDITURE DEBI TED BY THE ASSESSEE. ITA NO. 6340/MUM/2012 M/S. BAIJNATH MANIRAM ASSESSMENT YEAR: 2009-10 5 THUS, THE GROUND RAISED BY THE ASSESSEE IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 19 TH DAY OF DECEMBER, 2014. SD/- SD/- (D.KARUNAKAR RAO) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 19.12.2014 *SRIVASTAVA COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR B BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.