PARLE PET P. LTD.(NOW MERGED WITH M/S.PARLE AGRO PVT. LTD.), MUMBAI V. D.C.I.T.RG. 8(2), MUMBAI

ITA 6482/MUM/2012

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2309 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 9 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-07-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 28-01-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 23-10-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NAVEEN GUPTA
• Keywords: Business income; Business expenditure; Earning of tax free income; Question of law; Tax effect
• Section: 143(3); 14A

Judgement Text

, LH LHLH LH INCOME TAX APPELLATE TRIBUNAL,MUMBAI - C BENCH , IOU FLAG IOU FLAG IOU FLAG IOU FLAG BEFORE S/SH. RAJENDRA,ACCOUNTANT MEMBER & PAWAN SINGH,JUDICIAL MEMBER /.ITA NO.6482/MUM/2012, /ASSESSMENT YEAR-2008-09 M/S PARLE PET P. LTD. (NOW MERGED WITH M/S PARLE AGRO PVT. LTD.) 01, PARLE PET, WESTERN EXPRESS HIGHWAY, ANDHERI (E), MUMBAI-400099. PAN:AABCP9640D VS DCIT RANGE 8(2), ROOM NO. 209, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400020 ( / APPELLANT) ( / RESPONDENT) /.ITA NO.6086/MUM/2012, /ASSESSMENT YEAR-2008-09 DCIT RANGE 8(2), ROOM NO. 209216A, 2 ND FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400020 VS M/S PARLE PET P. LTD. (NOW MERGED WITH M/S PARLE AGRO PVT. LTD.) 01, PARLE PET, WESTERN EXPRESS HIGHWAY, ANDHERI (E), MUMBAI-400099. PAN:AABCP9640D ( / APPELLANT) ( / RESPONDENT) /.ITA NO.1825/MUM/2013, /ASSESSMENT YEAR-2009-10 M/S PARLE PET P. LTD. (NOW MERGED WITH M/S PARLE AGRO PVT. LTD.) 01, PARLE PET, WESTERN EXPRESS HIGHWAY, ANDHERI (E), MUMBAI-400099. PAN:AABCP9640D VS DCIT RANGE 8(2), ROOM NO. 209, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400020 ( / APPELLANT) ( / RESPONDENT) /ASSESSEE BY : SHRI YOGESH THAR (AR) / REVENUE BY : SHRI NAVEEN GUPTA (DR) ' / DATE OF HEARING : 21- 06 -2016 / DATE OF PRONOUNCEMENT : 22-07-2016 ORDER/ % & IOU FLAG IOU FLAG IOU FLAG IOU FLAG PER PAWAN SINGH, JM - THESE THREE APPEALS OUT OF WHICH TWO APPEALS FOR AS SESSMENT YEAR(AY)-2008-09, ONE BY ASSESSEE AND CROSS APPEAL FILED BY REVENUE. AND ITA NO. 1825/M/13 FILED BY ASSESSEE FOR AY 2009-10 WERE HEARD TOGETHER AND ARE BEING DECIDED BY COMMON ORDER 2 ITA NOS. 6482 & 6086/M/12 & 1825/M/13- M/S. PARLE P ET. PVT. LTD. AS SOME OF THE COMMON GROUNDS OF APPEAL ARE RAISED BY ASSESSEE FOR BOTH THE YEARS. IN ITA NO. 6482/M/12, THE ASSESSEE HAS RAISED THE FOLL OWING GROUNDS OF APPEAL: GROUND I: DISALLOWANCE OF COMMON EXPENSES OF RS 40, 26,867/- 1. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AN D IN LAW, THE ID COMMISSIONER OF INCOME TAX (APPEALS) ['THE CIT (A)'] ERRED IN PA RTLY UPHOLDING THE ACTION OF INCOME TAX OFFICER- 8(2)(4), MUMBAI ['THE AO'] IN D ISALLOWING COMMON EXPENSES OF RS 40,26,867 ON ALLEGED GROUND THAT CAN NOT BE ALLOCATED DIRECTLY TO ANY BUSINESS SEGMENT AND THEREFORE CANNOT CLAIMED A S A DEDUCTIBLE BUSINESS EXPENSES. 2. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AN D IN LAW, THE CIT (A) AND AO ERRED IN ALLOCATING EXPENSES TO RENTAL INCOME AND O THER INVESTMENT ACTIVITY. 3. THE ID CIT(A) AND AO FAILED TO APPRECIATE THE NA TURE OF EXPENSES WHICH WERE WHOLLY INCURRED TOWARDS EARNING OF BUSINESS INCOME. 4. THE ID CIT(A) AND AO FAILED TO APPRECIATE THAT T HE ALLOCATION OF EXPENSES WAS DONE WITHOUT ANY PROPER OR RATIONAL BASIS. 5. THE APPELLANT HUMBLY PRAYS THAT DISALLOWANCE OF EXPENSES OF RS 40,26,867/- BE DELETED. GROUND II: DISALLOWANCE U/S 14A OF RS 14,38,195/- L. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD CIT(A) ERRED IN UPHOLDING THE ACTION OF THE AO IN DISALLOW ING PERSONNEL EXPENSES OF RS 14,38,195/- U/S 14A OF THE ACT. 2. THE LD CIT(A) AND AO FAILED TO APPRECIATE THAT S UCH EXPENSES WERE IN NATURE OF SALARY PAID TO GENERAL MANAGER WHO CONTROLS ALL FUNCTIONS OF THE ORGANIZATION, AND HIS ROLE IS NOT RESTRICTED TO INV ESTMENT DIVISION. 3. THE APPELLANT HUMBLY PRAYS THAT THE DISALLOWANCE U/S 14A OF RS 14,38,195/- BE DELETED. GROUND III: GENERAL THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER AND /OR DELETE ANY/ALL OF THE ABOVE GROUNDS OF APPEAL. IN ITA NO. 6086/M/12, THE REVENUE HAS RAISED THE FO LLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN NOT UPHOLDING THE ACTION OF THE AO IN TREA TING THE SHORT TERM CAPITAL GAINS OF RS. 1,15,51,039/- AS BUSINESS INCOME IGNOR ING THAT THE ASSESSEE HAD CONDUCTED THE SHARE TRADING ACTIVITY IN A SUBSTANTI VE AND SYSTEMATIC MANNER WITH A PROFIT MOTIVE AND THEREFORE, THE SHARE TRADING CO NSTITUTED A BUSINESS ACTIVITY AND NOT AN INVESTMENT. 2. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE A.O. BE RESTORED. IN ITA NO. 1825/M/2013, FOR AY 2008-09 THE ASSESSEE RAISED THE FOLLOWING GROUNDS OF APPEAL: GROUND I: DISALLOWANCE OF COMMON EXPENSES OF RS 26, 26,413/- 1. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AN D IN LAW, THE ID COMMISSIONER OF INCOME TAX (APPEALS) ['THE CIT (A)'] ERRED IN PA RTLY UPHOLDING THE ACTION OF INCOME TAX OFFICER- 8(2)(4), MUMBAI ['THE AO'] IN D ISALLOWING COMMON EXPENSES OF RS 26,26,413/- ON ALLEGED GROUND THAT CANNOT BE ALLOCATED DIRECTLY TO ANY BUSINESS SEGMENT AND THEREFORE CANNOT CLAIME D AS A DEDUCTIBLE BUSINESS EXPENSES. 2. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AN D IN LAW, THE CIT (A) AND AO ERRED IN ALLOCATING EXPENSES TO RENTAL INCOME AND O THER INVESTMENT ACTIVITY. 3. THE ID CIT(A) AND AO FAILED TO APPRECIATE THE NA TURE OF EXPENSES WHICH WERE WHOLLY INCURRED TOWARDS EARNING OF BUSINESS INCOME. 3 ITA NOS. 6482 & 6086/M/12 & 1825/M/13- M/S. PARLE P ET. PVT. LTD. 4. THE ID CIT(A) AND AO FAILED TO APPRECIATE THAT T HE ALLOCATION OF EXPENSES WAS DONE WITHOUT ANY PROPER OR RATIONAL BASIS. 5. THE APPELLANT HUMBLY PRAYS THAT DISALLOWANCE OF EXPENSES OF RS 26,26,413/- BE DELETED. GROUND II: DISALLOWANCE U/S 14A OF RS 12,51,148/- L. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD CIT(A) ERRED IN UPHOLDING THE ACTION OF THE AO IN DISALLOW ING PERSONNEL EXPENSES OF RS 14,38,195/- U/S 14A OF THE ACT. 2. THE LD CIT(A) AND AO FAILED TO APPRECIATE THAT S UCH EXPENSES WERE IN NATURE OF SALARY PAID TO GENERAL MANAGER WHO CONTROLS ALL FUNCTIONS OF THE ORGANIZATION, AND HIS ROLE IS NOT RESTRICTED TO INV ESTMENT DIVISION. 3. THE APPELLANT HUMBLY PRAYS THAT THE DISALLOWANCE U/S 14A OF RS 12,51,148 /- BE DELETED. GROUND III: GENERAL THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER AND /OR DELETE ANY/ALL OF THE ABOVE GROUNDS OF APPEAL. 2. FIRST WE SHALL TAKE UP APPEAL ITA NO. 6482/M/12, F ILED BY ASSESSEE. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE, WHO IS ENGAGED IN THE B USINESS OF HEALTH AND FITNESS SERVICES, INVESTMENT IN SHARE/MUTUAL FUNDS AND I.T. SUPPORT S ERVICES, FILED RETURN OF INCOME FOR RELEVANT AY ON 30.09.2008. THE ASSESSMENT U/S 143(1 ) OF THE ACT WAS COMPLETED ON 31.05.2009 ACCEPTING THE RETURN OF INCOME FILED BY ASSESSEE. RETURN OF INCOME WAS SELECTED FOR SCRUTINY BY ISSUING NOTICE U/S 143(2) DATED 04.08.2009. WHILE FRAMING ASSESSMENT ORDER BESIDES THE OTHER DISALLOWANCE THE ASSESSING OFFICER (AO) TREATED THE SHORT TERM CAPITAL GAIN (STCG) AS BUSINESS INCOME O F ASSESSEE AND NOT ALLOWED THE CLAIM OF SET OFF OF SHORT TERM CAPITAL LOSS (STCL) OF EARLIER YEAR OF RS. 109,06,483/- AND FURTHER DISALLOWED A SUM OF RS. 14,38,195/- U/S 14A OF THE ACT IN ASSESSMENT ORDER DATED 12.11.2010 PASSED U/S 143(3) OF THE ACT. AGGR IEVED BY THE ORDER OF AO, THE ASSESSEE FILED APPEAL BEFORE THE CIT(A), WHEREIN CL AIM OF CAPITAL GAIN WAS ALLOWED AND DISALLOWANCE U/S 14A WAS UPHELD IN THE IMPUGNED ORD ER DATED 10.07.2012. AGGRIEVED BY THE ORDER OF LD. CIT(A), THE REVENUE HAS FILED T HE APPEAL AGAINST THE REVERSAL OF AOS ORDER FOR TREATING STCG AS BUSINESS INCOME AND THE ASSESSEE AGGRIEVED BY SUSTAINING THE DISALLOWANCE U/S 14A OF THE ACT. THE ASSESSEE HAS RAISED ONLY ONE GROUND OF APPEAL AGAINST THE DISALLOWANCE OF SECTIO N 14A OF THE ACT. 3. FIRST GROUNDS OF APPEAL RAISED IN THE PRESENT APPEA L IS WITH REGARD TO PARTLY UPHOLDING THE DISALLOWING COMMON EXPENSES OF RS 40,26,867/-. AR OF THE ASSESSEE ARGUED THAT THE AO ERRED IN DISALLOWING COMMON EXPENSES BY ALLOCATI NG THE SAME TO THE RENTAL INCOME, DIVIDEND INCOME AND CAPITAL GAIN ON THE BAS IS OF TURNOVER. THE AO WRONGLY ALLOCATED THE COMMON EXPENSES TO OTHER BUSINESS INC OME AS COMMON EXPENSES 4 ITA NOS. 6482 & 6086/M/12 & 1825/M/13- M/S. PARLE P ET. PVT. LTD. INCURRED FOR BUSINESS AND I.T. SERVICES & FITNESS S ERVICES CENTRE. LD. DR FOR REVENUE SUPPORTED THE ORDER OF AUTHORITIES BELOW. 4. WE HAVE CONSIDERED THE RIVAL CONTENTIONS OF THE PAR TIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE SEEN THAT DURING THE A SSESSMENT PROCEEDING, THE AO ASKED THE ASSESSEE TO FURNISH THE SEGMENT-WISE PROF ITABILITY OF ITS BUSINESS. THE ASSESSEE SUBMITTED ITS REPLY AND SUPPLIED THE SEGME NTAL INFORMATION IN RESPECT OF ALL BUSINESS ACTIVITIES CARRIED OUT BY THE ASSESSEE. FR OM THE SEGMENTAL INFORMATION PROVIDED BY ASSESSEE, THE AO CONCLUDED THAT FROM IN VESTMENT ACTIVITIES COMPRISED OF RENTAL INCOME 1,77,53,280/-, DIVIDEND ON INVESTMENT S OF RS. 3,12,859/- AND OTHER INCOME OF RS. 1,62,22,473/- AND INCOME FROM SALES O F UNIT/SHARE OF RS. 6,54,36,345/-. THE ASSESSEE CLAIMED DEDUCTION OF COMMON EXPENSES O F RS. 56,69,272/- AGAINST THE TOTAL TURNOVER OF RS. 11,84,90,620/- OF ALL BUSINES S ACTIVITIES WHICH IS NOT JUSTIFIABLE. THE AO FURTHER OBSERVED THAT THE ASSESSEE SHOWN THE RENTAL INCOME AND CLAIMED DEDUCTION U/S 24 OF THE ACT, THUS, NO FURTHER DEDUC TION CAN BE ALLOWED. THE EXPENDITURE RELATING TO EARNING OF DIVIDEND INCOME CANNOT BE CLAIMED AGAINST THE BUSINESS INCOME. FURTHER, THE ASSESSEE HAS NOT INCU RRED ANY EXPENDITURE ON SALE OF SHARE/UNIT. AS COMMON EXPENSES CANNOT BE ALLOCATED DIRECTLY TO ANY OF THE BUSINESS SEGMENT, AND BEING ALLOCATED ON THE BASIS OF TURNOV ER AND ACCORDINGLY, DISALLOWED THE PROPORTIONATE DISALLOWANCE OF COMMON EXPENSES AND W ORKED OUT AT RS. 4771584/-. THE CIT(A) CONSIDERED ALL SEGMENTAL ACTIVITIES OF T HE ASSESSEE AND ALSO CONSIDERED THE ADDITIONAL SUBMISSION MADE BEFORE HIM. THE ASSESSEE SUBMITTED THAT THE INTEREST ON THE LOAN AND OTHER INCOME OF RS. 15564389/- HAVE BEEN D ULY OFFERED TO TAX IN THE RETURN OF INCOME UNDER THE HEAD INCOME FROM BUSINESS & PROFE SSION, NO EXPENSES CAN BE DISALLOWED ON THE GROUND OF THE SAME BEING EXEMPT I NCOME. THE ASSESSEE FURNISHED THE CALCULATION OF COMMON EXPENSES IN THE FOLLOWING MANNER:- ACCORDINGLY, THE COMMON EXPENSES OF RS. 56,69,272/ - MAY, AT WORST, BE DISALLOWED IN THE FOLLOWING RATIO: RS. 56,69,272 * TURNOVER OTHER THAN FROM BUSINESS ( EXCLUDING INTEREST & OTHER INCOME)/TOTAL TURNOVER = RS. 56,69,272 * 8,41,60,569/1184,86,427 = RS. 40,26,867 AFTER CONSIDERING THE SUBMISSION, THE LD. CIT(A) CA ME IN AGREEMENT WITH ASSESSEE AND FOLLOWED THE CALCULATION OF ASSESSEE AND RESTRICTED THE DISALLOWANCE OF COMMON EXPENSES TO RS. 40,26,867/- (GRANTED PARTIAL RELIEF OF RS. 7,44,717/-). THE DISALLOWANCE OF COMMON EXPENSES WAS RESTRICTED BY LD. CIT(A) ON THE SUBMISSION OF ASSESSEE. AS 5 ITA NOS. 6482 & 6086/M/12 & 1825/M/13- M/S. PARLE P ET. PVT. LTD. PER OUR CONSIDERED VIEW THE ASSESSEE IS NOW ESTOPPE D FROM CHALLENGING THE ORDER PASSED ON THE SUBMISSION MADE BY ASSESSEE DURING TH E FIRST APPELLATE STAGE. THUS, THIS GROUND OF APPEAL RAISED BY ASSESSEE IS DISMISSED. 5. NEXT GROUND OF APPEAL IS FOR OUR CONSIDERATION IS D ISALLOWANCE U/S 14A OF THE ACT 6. WE HAVE HEARD LD. AUTHORISED REPRESENTATIVE (AR) FO R ASSESSEE AND LD. DEPARTMENTAL REPRESENTATIVE (DR) FOR REVENUE. AR OF THE ASSESSEE ARGUED THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS EARNED DIVIDE ND ON MUTUAL FUND UNIT OF RS. 3,12,859/-. IN THE SEGMENTAL DETAILS SUBMITTED TO T HE AO, THE PERSONAL EXPENSES OF RS. 14,38,195/- WERE SHOWN AND EXPENSES UNDER THE HEAD INVESTMENT. THE DETAILS OF FUNCTIONS OF EMPLOYEE WHO WERE ALSO RENDERING THE S ERVICES TO THE OTHER BUSINESS ACTIVITIES WERE ALSO FURNISHED, THE ORDER OF AO FOR DISALLOWANCE OF RS. 14,38,195/- AS EXPENSES FOR EARNING EXEMPT INCOME IS NOT CORRECT. AR OF THE ASSESSEE FURTHER RELIED UPON THE DECISION OF DELHI HIGH COURT IN CASE OF JO INT INVESTMENTS PVT. LTD. VS. CIT IN ITA NO. 117/15 DATED 25.02.2015, THE DECISION OF PU NJAB & HARYANA HIGH COURT IN CASE OF CIT VS. EMPIRE PACKAGING ITA NO. 415/15 DAT ED 12.01.2016 AND FURTHER THE ORDER OF CO-ORDINATE BENCH IN DAGA GLOBAL CHEMICAL VS. ACIT IN ITA NO. 5592/M/12, THE LD. AR OF ASSESSEE PRAYED THAT IN AN Y CASE THE DISALLOWANCE SHOULD NOT EXCEED THE EXEMPT INCOME AND MAY BE RESTRICTED EQUA L TO THE DIVIDEND INCOME. DR FOR REVENUE SUPPORTED THE ORDER OF AUTHORITIES BELOW. 7. WE HAVE CONSIDERED THE RIVAL CONTENTIONS OF THE PAR TIES. WE HAVE SEEN THAT DURING THE ASSESSMENT PROCEEDING, THE AO OBSERVED THAT ASSESSE E HAS CLAIMED PERSONAL EXPENSES AMOUNTING TO RS. 14,38,195/-. THE ASSESSEE EARNED D IVIDEND INCOME OF RS. 3,12,859/- WHICH IS INCLUDED IN THE INCOME FROM INVESTMENT SEG MENT. THE AO SHOW CAUSED AS TO WHY THE EXPENSES ATTRIBUTABLE TO EARNING OF DIVIDEN D INCOME SHOULD NOT BE DISALLOWED U/S 14A OF THE ACT. THE ASSESSEE IN ITS REPLY CONTE NDED THAT THE PERSONAL EXPENSES AMOUNTING TO RS. 14,38,195/- WAS INCURRED ON THE SA LARY OF G.M. FINANCE AND HIS SECRETARY. THE AO INSTEAD OF CONSIDERING THE OTHER FACTOR DISALLOWED THE PERSONAL EXPENSES U/S 14A OF THE ACT. DURING THE APPELLATE P ROCEEDING, IT WAS CONTENDED THAT OUT OF THE TOTAL EXPENSES OF RS. 14.38 LAKHS, AN AM OUNT OF RS. 12.06 LAKHS WERE PAID TO MR. PRAKASH SOOD, WHO IS GENERAL MANAGER, FINANCE. THE GENERAL MANAGER CONTROLS ALL FUNCTIONS OF THE ORGANIZATION INCLUDING THE ACC OUNTS AND INVESTMENT IN FINANCE AND HAS JOB PROFILE IS NOT RESTRICTED IN INVESTMENT IN MUTUAL FUNDS. AN AMOUNT OF RS. 2.32 LAKHS WERE PAID TO HIS SECRETARY MISS. HOSKATTI AND REMAINING AMOUNT WAS SPENT ON 6 ITA NOS. 6482 & 6086/M/12 & 1825/M/13- M/S. PARLE P ET. PVT. LTD. STAFF WELFARE AND CANTEEN EXPENSES. THE LD. CIT(A) AFTER CONSIDERING THE CONTENTION OF THE ASSESSEE CONCLUDED THAT THE ADDITIONS WERE MADE ON AGREED BASIS IN THE ASSESSMENT PROCEEDING. THE ASSESSEE HAS EFFECTIVELY STOPPED TH E AO FROM MAKING INVESTIGATION WITH REGARD TO DISALLOWANCE, AND NOW THE ASSESSEE C ANNOT CHALLENGE THE ADDITION AND DISMISSED THE GROUND OF APPEAL. DURING THE ASSESSME NT PROCEEDING, THE ASSESSEE MERELY SUBMITTED THE PERSONAL EXPENSES. THE AO HAS NOT SOUGHT THE COMPUTATION OF EXPENSES ATTRIBUTABLE FOR EARNING THE EXEMPT INCOME NOR EXAMINED THE ACCOUNTS OF THE ASSESSEE. LD. CIT(A) INSTEAD OF GIVING ANY FINDING ON THE SUBMISSION MADE BEFORE HIM AND CONFIRMED THE ADDITION HOLDING THAT ASSESSEE HA S STOPPED THE AO FROM MAKING ANY INVESTIGATION. THE HONBLE DELHI HIGH COURT IN CASE OF JOINT INVESTMENT PVT. LTD. VS. CIT (SUPRA) THE HONBLE COURT CONSIDERED RATIO IN C ASE OF CIT VS. TIAKISHA ENGINEERING LTD. (ITA NO. 115/14) DECIDED ON 25.11. 2014 HELD AS UNDER: 9. IN THE PRESENT CASE, THE AO HAS NOT FIRSTLY DIS CLOSED WHY THE APPELLANT/ASSESSEE'S CLAIM FOR ATTRIBUTING RS. 2,97 ,440/- AS A DISALLOWANCE UNDER SECTION 14A HAD TO BE REJECTED. TAIKISHA SAYS THAT THE JURISDICTION TO PROCEED FURTHER AND DETERMINE AMOUNTS IS DERIVED AFTER EXAM INATION OF THE ACCOUNTS AND REJECTION IF ANY OF THE ASSESSEE'S CLAIM OR EXPLANA TION. THE SECOND ASPECT IS THERE APPEARS TO HAVE BEEN NO SCRUTINY OF THE ACCOUNTS BY THE AO - AN ASPECT WHICH IS COMPLETELY UNNOTICED BY THE CIT CA) AND THE ITAT. T HE THIRD, AND IN THE OPINION OF THIS COURT, IMPORTANT ANOMALY WHICH WE C ANNOT BE UNMINDFUL IS THAT WHEREAS THE ENTIRE TAX EXEMPT INCOME IS RS. 48,90,0 00/-, THE DISALLOWANCE ULTIMATELY DIRECTED WORKS OUT TO NEARLY 110% OF THA T SUM, I.E., RS. 52,56,197/-. BY NO STRETCH OF IMAGINATION CAN SECTION 14A OR RUL E 8D BE INTERPRETED SO AS TO MEAN THAT THE ENTIRE TAX EXEMPT INCOME IS TO BE DIS ALLOWED. THE WINDOW FOR DISALLOWANCE IS INDICATED IN SECTION 14A, AND IS ON LY TO THE EXTENT OF DISALLOWING EXPENDITURE 'INCURRED BY THE ASSESSEE I N RELATION TO THE TAX EXEMPT INCOME'. THIS PROPORTION OR PORTION OF THE TAX EXEM PT INCOME SURELY CANNOT SWALLOW THE ENTIRE AMOUNT AS HAS HAPPENED IN THIS C ASE. FURTHER, THE HONBLE PUNJAB & HARYANA HIGH COURT IN CASE OF PRINCIPAL CIT VS. M/S EMPIRE PACKAGING PVT. LTD. (SUPRA) WHILE CONSIDERIN G THE ALMOST IDENTICAL FACTS HELD AS UNDER: THE INCOME FROM DIVIDEND HAD BEEN SHOWN AT RS. 1,1 1,564/- WHEREAS DISALLOWANCE UNDER SECTION 14A READ WITH RULE SD OF THE RULES WORKED OUT BY THE ASSESSING OFFICER CAME TO RS. 4,09,675/-. THUS, THE ASSESSING OFFICER DISALLOWED THE ENTIRE TAX EXEMPT INCOME WHICH IS NO T PERMISSIBLE AS PER SETTLED POSITION OF LAW. CONSEQUENTLY, THE TRIBUNAL REMITTE D THE MATTER TO THE ASSESSING OFFICER WITH A DIRECTION TO DECIDE THE SAME AFRESH IN ACCORDANCE WITH LAW AFTER AFFORDING DUE AND REASONABLE OPPORTUNITY OF BEING H EARD TO THE ASSESSEE. THE RELEVANT FINDING RECORDED BY THE TRIBUNAL READS THU S:- '7. IN THE INSTANT CASE, THE INCOME FROM DIVIDEND H AS BEEN SHOWN AT RS. 1,11,564/-, THE DISALLOWANCE UNDER SECTION 14A READ WITH RULE S D WORKED OUT BY THE ASSESSING OFFICER COMES TO RS. 4,09,675/ -. THUS, IT IS CLEAR THAT THE AO HAS DISALLOWED THE ENTIRE TAX EXEMPT INCOME WHIC H IS NOT PERMISSIBLE IN VIEW OF THE JUDGMENT OF THE HON'BLE DELHI HIGH COUR T REFERRED TO ABOVE. THE 7 ITA NOS. 6482 & 6086/M/12 & 1825/M/13- M/S. PARLE P ET. PVT. LTD. HON'BLE DELHI HIGH COURT HELD THAT THE WINDOW FOR D ISALLOWANCE IS INDICATED IN SECTION 14A, AND IS ONLY TO THE EXTENT OF DISALL OWING EXPENDITURE 'INCURRED BY THE ASSESSEE IN RELATION TO THE TAX EXEMPT INCOM E'. THE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D AS WORKED OUT B Y THE ASSESSING OFFICER IS NOT IN ACCORDANCE WITH LAW AND AS SUCH WORKING I S NOT SUSTAINABLE. 8. IN VIEW OF THE ABOVE OBSERVATIONS, I THINK IT IS APPROPRIATE TO SET ASIDE THE ORDER OF THE LEARNED CIT(A) ON THIS ISSUE AND REMIT THE MATTER TO THE FILE OF AO WITH A DIRECTION TO DECIDE THE ISSUE AFRESH IN A CCORDANCE WITH LAW AFTER AFFORDING DUE AND REASONABLE OPPORTUNITY OF BEING H EARD TO THE ASSESSEE.' ADDITIONALLY, THE TAX EFFECT INVOLVED IS OF RS.1,26 ,589/- ONLY. 5. THE VIEW ADOPTED BY THE TRIBUNAL BEING A PLAUSIB LE VIEW BASED ON FACTUAL POSITION AND THE RELEVANT CASE LAW ON THE POINT, DO ES NOT WARRANT ANY INTERFERENCE BY THIS COURT. LEARNED COUNSEL FOR THE APPELLANT-REVENUE HAS NOT BEEN ABLE TO SHOW ANY ILLEGALITY OR PERVERSITY IN T HE IMPUGNED ORDER. THUS, NO SUBSTANTIAL QUESTION OF LAW ARISES. CONSEQUENTLY, T HE APPEAL STANDS DISMISSED. FURTHER, THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN CASE OF M/S DAGA GLOBAL CHEMICALS PVT. LTD. (SUPRA) HELD AS UNDER: THE ASSESSING OFFICER WHILE FRAMING THE ASSESSMENT INVOKE SECTION 14A R.W. RULE 8D BY CONTENDING THAT ASSESSEE CLAIMED VARIOUS EXPENSES WHICH ARE RELATED TO EXEMPT INCOME IN ITS PROFIT & LOSS ACCOUNT AND D ISALLOWED RS.14,58,412/-. ON APPEAL, BEFORE THE LD. COMMISSIONER OF INCOME TAX ( APPEALS) BROADLY THE STAND TAKEN IN THE ASSESSMENT ORDER WAS AFFIRMED AGAINST WHICH THE ASSESSEE IS IN FURTHER APPEAL BEFORE THIS TRIBUNAL. THE TOTALITY O F FACTS CLEARLY INDICATES, AS CLAIMED BY THE ASSESSEE THAT NO BORROWED FUNDS WERE UTILIZED FOR EARNING THE EXEMPT INCOME BY THE ASSESSEE AND FURTHER THE DIVID END WERE DIRECTLY CREDITED IN THE BANK ACCOUNT OF THE ASSESSEE AND NO EXPENDITURE WAS CLAIMED. WHAT IT MAY BE, WE FIND THAT THE ASSESSEE ONLY RECEIVED RS. L,8 2,362/- AS DIVIDEND INCOME, THEREFORE, THERE IS NO QUESTION OF DISALLOWANCE OF RS.14,58.412/- BY INVOKING SECTION 14A R.W. RULE 8D UNDER THE FACTS AVAILABLE ON RECORD. IT WAS ALSO EXPLAINED BY THE LD. COUNSEL FOR THE ASSESSEE THAT ON IDENTICAL FACT IN EARLIER YEARS, NO DISALLOWANCE WAS MADE. IN THE PRESENT ASS ESSMENT YEAR ALSO, NO BORROWED FUNDS WERE INVESTED BY THE ASSESSEE FOR MA KING INVESTMENT IN SHARES OR FOR EARNING DIVIDEND INCOME. AT BEST, IF ANY DIS ALLOWANCE COULD BE MADE THAT CAN BE RESTRICTED TO RS. 1,485/-WHICH WERE CLAIMED AS DEMAT CHARGES. DISALLOWANCE U/S 14A R.W. RULE 8D CANNOT EXCEED THE EXEMPT INCOME. IN VIEW OF THIS FACT, WE FIND MERIT IN THE CLAIM OF THE ASS ESSEE. THE APPEAL OF THE ASSESSEE IS THEREFORE, ALLOWED. 8. NOW TURNING TO THE FACTS OF THE PRESENT CASE, THE A SSESSEE CLAIMED THE EXEMPT INCOME OF RS. 3,12,859/- AND THE REVENUE AUTHORITY DISALLO WED RS. 14,38,195/- U/S 14A WHICH IS ADMITTEDLY ABOUT FOUR TIMES THAN THE EXEMPT INCO ME. KEEPING IN VIEW THE PECULIARITY OF THE FACT OF THE PRESENT CASE, WE RESTRICT THE DI SALLOWANCE TO THE EQUAL OF DIVIDEND INCOME. WITH THESE OBSERVATIONS, THIS GROUND OF APP EAL IS ALLOWED. THUS, THE PRESENT APPEAL IS PARTLY ALLOWED. ITA NO. 6086/MUM/2012 8 ITA NOS. 6482 & 6086/M/12 & 1825/M/13- M/S. PARLE P ET. PVT. LTD. 9. THE REVENUE HAS RAISED ONLY ONE GROUND OF APPEAL FO R REVERSING THE ACTION OF AO FOR TREATING THE STCG AS BUSINESS INCOME OF THE ASSESSE E. WE HAVE CONSIDERED THE RIVAL CONTENTIONS OF THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. DR FOR REVENUE ARGUED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF SHARE AND MUTUAL FUNDS. THE TOTAL TURNOVER OF THE ASSESSEE FROM INVESTMENT BUSINESS DURING THE YEAR IS RS. 6,57,53,398/- AGAINST THE TOTAL TURNOVER FROM ALL A CTIVITIES OF HIS BUSINESS ARE OF RS. 11,84,90,563/-. THE MAJOR ACTIVITIES OF THE ASSESSE ES BUSINESS IN SHARE AND MUTUAL FUNDS ABOUT 55.5% OF TOTAL TURNOVER OF ASSESSEE AND TOTAL INVESTMENT OF THE ASSESSEE IN INVESTMENT OF RS. 142,34,84,962/- CONSTITUTE 81% OF TOTAL ASSETS OF THE COMPANY AND THUS THE REAL NATURE OF ACTIVITIES OF THE ASSESSEE IS IN TRADING IN UNITS AND NOT FOR INVESTMENT AND THE AO RIGHTLY APPRECIATED THE FACT OF THE CASE AND TREATED THE STCG AS BUSINESS INCOME. AR OF THE ASSESSEE ARGUED THAT DUR ING THE PRECEDING YEAR, THE DEPARTMENT HAS ACCEPTED THE ASSESSEES STAND THAT L OSS FROM SALES OF UNITS WAS ASSESSABLE UNDER THE HEAD CAPITAL GAIN. LD. AR OF THE ASSESSEE FURTHER ARGUED THAT DURING THE ASSESSMENT PROCEEDING, THE ASSESSEE SUBM ITTED THE REPLY DATED 11.12.2009 AND CONTENDED THAT THE INTENTION OF ASSESSEE WAS NO T TO CARRY OUT BUSINESS BUT TO HOLD THE MUTUAL FUNDS UNIT AS INVESTMENT. THE ASSESSEE H AS ONLY 12 TRANSACTIONS DURING THE YEAR UNDER CONSIDERATION. THE ASSESSEE HAS ONLY RED EEMED TWO SCRIPTS OF MUTUAL FUNDS I.E. ICICI PRUDENTIAL (9 TRANSACTIONS) AND UTI (3 T RANSACTIONS), THE ASSESSEE HAS NOT BORROWED ANY FUND FOR MAKING THE INVESTMENT. THE AV ERAGE PERIOD OF HOLDING IS 57 DAYS. THE ASSESSEE HAS SHOWN THE INVESTMENT AS STOC K-IN-TRADE. LD. AR OF THE ASSESSEE FURTHER ARGUED THAT MUTUAL FUND UNITS CANNOT BE TRA DED THE UNITS WERE REDEEMED, THUS SUCH UNIT CANNOT BE CONSIDERED FOR THE PURPOSE OF B USINESS INCOME AND RELIED UPON THE DECISION OF MUMBAI TRIBUNAL IN UPENDRABHAI PATEL VS . ACIT ITA NO. 1557/M/12, DECISION OF DELHI HIGH COURT IN YAMA FINANCE LTD. V S. ACIT (2014) 46 TAXMANN.COM 349 (DELHI) AND DECISION OF CHANDIGARH TRIBUNAL IN ACIT VS. M/S HERO INVESTMENT PVT. LTD. ITA NO. 910/CHD/2009. 10. WE HAVE CONSIDERED THE RIVAL CONTENTIONS OF THE PAR TIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE SEEN THAT DURING THE Y EAR UNDER CONSIDERATION, THE ASSESSEE MADE ONLY 12 TRANSACTIONS. THE HOLDING PER IOD OF UNITS RANGED FROM 7 DAYS TO 130 DAYS, THUS, THE AVERAGE HOLDING PERIOD IS 57 DA YS. THE ASSESSEE HAS SUFFICIENT CAPITAL ACCOUNT AS ON 31.03.2008 (PB 15). THE ASSES SEE HAS SHOWN THE INVESTMENT IN 9 ITA NOS. 6482 & 6086/M/12 & 1825/M/13- M/S. PARLE P ET. PVT. LTD. MUTUAL FUNDS UNDER THE HEAD INVESTMENT. THE CIT(A ) ELABORATELY CONSIDERED THE FACT RELATING TO THE GROUNDS UNDER CONSIDERATION AND GAV E THE FOLLOWING FINDINGS: 3.6 IN THE LIGHT OF THE ABOVE INSTRUCTIONS AND DEC ISION OF THE TRIBUNAL, IT IS IMPORTANT TO CONSIDER THE FACTS IN THE APPELLANT'S CASE. THE TOTAL TRANSACTIONS MADE DURING THE YEAR ARE 12, PERTAINING TO TWO SCRI PTS OF MUTUAL FUNDS. THE AVERAGE PERIOD OF HOLDING IS 57 DAYS. NO BORROWED F UNDS HAVE BEEN INVESTED. IN THE BALANCE SHEET THE SAID INVESTMENT HAS NOT BEEN SHOWN AS STOCK IN TRADE. ALL THE TRANSACTIONS ARE DELIVERY BASED. LASTLY, BUT NO T THE LEAST, IN A.Y. 2007-08, THIS ISSUE WAS RAISED BY THE AO IN THE COURSE OF 14 3(3) PROCEEDINGS, VIDE NOTICE DATED 9.11.2009, AS FOLLOWS: 'DURING THE YEAR THE ASSESSEE COMPANY HAS CARRIED O UT THE BUSINESS ACTIVITY OF RUNNING A FITNESS CENTRE AND I. T SERVICES, INCO ME FROM WHICH IS SHOWN AT RS. 64,43,613/- (MEMBERSHIP FEES) AND RS. 23,30,300 /- (MANAGEMENT & CONSULTANCY IT SERVICES, SHOWN UNDER THE HEAD OTHER INCOME). HOWEVER, LOOKING IN TO THE QUANTUM OF INVESTMENTS MADE AND T RANSACTIONS OF SALE AND PURCHASE OF UNITS OF MUTUAL FUNDS AND, INCOME/LOSS DERIVED THERE FROM, IT APPEARS THAT THE ASSESSEE COMPANY IS RUNNING A REGU LAR BUSINESS OF PURCHASE AND SALE OF SHARES, UNIT AND OTHER INVESTMENTS. THE ASSESSEE HAS ALSO PAID RS. 30,29,233/- TOWARDS STT. IN THIS BACKGROUND, PLEASE EXPLAIN AS TO WHY THE ACTIVITY OF PURCHASE AND SALE OF SHARES SHALL NOT B E CONSIDERED AS BUSINESS ACTIVITY AND INCOME THERE FROM AS 'INCOME FROM BUSI NESS' INSTEAD OF 'CAPITAL GAINS'. PLEASE ALSO FURNISH EVIDENCE OF STT PAID.' AFTER CONSIDERING THE REPLY OF THE APPELLANT, AS PE R LETTER DATED 11.12.2009, THE AO HAS ACCEPTED THE CAPITAL GAINS RETURNED BY THE A PPELLANT IN THAT YEAR. THEREFORE, KEEPING IN VIEW THE ABOVE FACTS OF THE C ASE AND THE RATIO OF THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF GO PAL PUROHIT, ITA 1121 OF 2009, I AM IN AGREEMENT WITH THE APPELLANT THAT GAI NS OF RS.1,15,51,039/- ARE ASSESSABLE AS SHORT TERM CAPITAL GAINS. IN THE CIRC UMSTANCES, THE APPELLANT IS ENTITLED TO SET OFF BROUGHT FORWARD SHORT TERM CAPI TAL LOSS OF RS.1,09,06,483/- AGAINST THE ABOVE INCOME. THESE GROUNDS OF APPEAL ARE THEREFORE ALLOWED. 11. WITH THE ABOVE OBSERVATIONS, WE DO NOT FIND ANY ILL EGALITY OR INFIRMITY IN THE ORDER PASSED BY CIT(A), THUS THE GROUND RAISED BY THE REV ENUE IN THE PRESENT APPEAL IS DISMISSED. ITA NO. 1825/MUM/2013 FOR AY-2009-10 12. THE ASSESSEE HAS RAISED TWO GROUNDS OF APPEAL. FIRS T GROUND IS WITH REGARD TO DISALLOWANCE OF COMMON EXPENSES. THIS GROUND IS IDE NTICAL TO THE GROUND NO.1 OF ASSESSEES APPEAL (ITA NO. 6482/M/2012) FOR AY 2008 -09 WHEREIN WE HAVE DECIDED THE SIMILAR GROUND AGAINST THE ASSESSEE. THE FACTS LEADING TO DISALLOWANCE AND RESTRICTING THE DISALLOWANCE BY LD. CIT(A) ARE IDEN TICAL, HENCE, THIS GROUND OF APPEAL IS DISMISSED ON SIMILAR LINES. 13. GROUND NO.2 RAISED IN THE PRESENT APPEAL IS WITH RE GARD TO DISALLOWANCE U/S 14A. THIS GROUND IS IDENTICAL TO GROUND NO.2 OF ITA NO. 6482/ M/2012 FOR AY-2008-09) WHICH WE HAVE ALREADY ALLOWED IN FAVOUR OF ASSESSEE. THUS , THIS GROUND OF APPEAL RAISED BY 10 ITA NOS. 6482 & 6086/M/12 & 1825/M/13- M/S. PARLE P ET. PVT. LTD. ASSESSEE IS ALLOWED. WE DIRECT THE AO TO RESTRICT T HE DISALLOWANCE U/S 14A TO THE EQUAL AMOUNT OF DIVIDEND INCOME. 14. IN THE RESULT, APPEALS OF ASSESSEE FOR AYS 2008-09 & 2009-10 IS PARTLY ALLOWED AND APPEAL OF REVENUE FOR AY-2008-09 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND JULY,2016. $ % &' ()* 22 TW TWTW TWYKBZ YKBZ YKBZ YKBZ ,20 16 ./ 0 SD/- SD/- ( /RAJENDRA) ( IOU FLAG IOU FLAG IOU FLAG IOU FLAG / PAWAN SINGH) & / ACCOUNTANT MEMBER / JUDICIAL MEMBER & % */ /MUMBAI, ()* /DATE: 22.07.2016 SK ' '() *) / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ *23 % 4 , 4. THE CONCERNED CIT / *23 % 4 5. DR C BENCH, ITAT, MUMBAI / 56. )73 , LH LHLH LH * , . . . & % */ 6. GUARD FILE/ . / 5 //TRUE COPY// $) % / BY ORDER, / * DY./ASST. REGISTRAR 73 , & % */ /ITAT, MUMBAI.