ACIT, Ludhiana V. Smt. Sudershan Kumari Munjal, Ludhiana

ITA 658/CHANDI/2012

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 1608 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 year(s) 5 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 17-09-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 12-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Assessee Lawyers: SUBHASH AGGARWAL
• Keywords: Business income; Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI H.L. KARWA, HONBLE VICE PRESIDENT AND MS. ANNAPURNA MEHROTRA, ACCOUNTANT MEMBER ITA NOS.658/CHD/2012 ASSESSMENT YEARS:2008-09 THE ACIT VS. SMT. SUDERSHAN KUMARI MUNJAL CIRCLE V C/O M/S MUNJAL SALES CORPORATION LUDHIANA G.T. ROAD, HERO NAGAR LUDHIANA PAN NO. AIZPM7349D (APPELLANT) (RESPONDENT) APPELLANT BY : SH. S.K. MITTAL RESPONDENT BY : SH. SUBHASH AGGARWAL DATE OF HEARING : 17/09/2015 DATE OF PRONOUNCEMENT : 30/11/2015 ORDER PER ANNAPURNA MEHROTRA A.M. THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST T HE ORDER OF CIT(A)-II, LUDHIANA DATED 24.04.2012 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. (A) THE LD. CIT(A)-II, LUDHIANA, ON FACTS AS WEL L AS IN LAW, HAS ERRED IN DELETING THE DISALLOWANCE OF RS. 13,47,329/- MADE B Y THE A.O. U/S 14A OF THE INCOME TAX ACT, 1961. (B) THE LD. CIT(A)-II, LUDHIANA HAS FAILED TO APPRE CIATE THAT THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF M/S DHANUKA & S ONS VS. CIT(244 CTR 511) HAS ALSO HELD, IN PRINCIPLE, THAT WHERE THE ASSESSEE CA RRIES ON THE BUSINESS OF SALE & PURCHASE OF SHARE AND ACCORDINGLY EARNS DIVIDEND IN COME AS ITS BUSINESS INCOME, EXPENSES ATTRIBUTABLE TO EARNINGS OF SUCH INCOME AR E LIABLE TO BE DISALLOWED U/S 14A OF I.T. ACT. (C) THE LD. CIT(A)-II, LUDHIANA HAS FURTHER FAILED TO APPRECIATE THAT THE MANAGEMENT FEE AND OTHER CHARGES ARE DIRECTLY RELAT ED TO THE EARNING OF DIVIDEND AND FALL UNDER THE PROVISION OF SUB-CLAUSE (I) OF CLAUSE (2) OF RULE 8D OF THE I.T. RULES 1961. 2. THAT THE ORDER OF THE CIT(A)-II, LUDHIANA BE SET ASIDE AND THAT OF THE A.O. BE RESTORED. 2 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN PURCHASE AND SALE OF SHARES AND INVESTMENTS IN SHARES. DURING AS SESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTED THAT IN THE BALANCE SHEET F OR THE IMPUGNED ASSESSMENT YEAR, THE ASSESSEE HAD SHOWN INVESTMENT IN SHARES / MUTUAL FUNDS AMOUNTING TO RS. 6,88,66,794/- AND INVESTMENT THROUGH PMS AMOUNT ING TO RS. 99,21,316/-. THE ASSESSING OFFICER ALSO FOUND THAT THE ASSESSEE HAD EARNED DIVIDEND INCOME OF RS. 48,43,448/- AND RS. 1,47,334/- FROM THE ABOVE I NVESTMENT WHICH WAS TREATED AS EXEMPT BY THE ASSESSEE. FURTHER, IT WAS NOTICED THAT ASSESSEE HAD INCURRED AN EXPENDITURE OF RS. 12,47,863/- IN THE SCHEME ON PMS AND FURTHER INCURRED AN EXPENDITURE ON ACCOUNT OF SIT AMOUNTING TO RS. 99,4 76/- TO EARN DIVIDEND ON INVESTMENTS. THE ASSESSING OFFICER HELD THAT THE EN TIRE EXPENDITURE OF RS. 13,47,339/- (RS. 12,47,863 + RS. 99,476) WAS INCURR ED FOR THE PURPOSE OF EARNING EXEMPT INCOME AND DISALLOWED THE SAME U/S 14A OF TH E INCOME TAX ACT, 1961 VIDE HIS ORDER DATED 10.11.2010. THE MATTER WAS CAR RIED IN APPEAL BEFORE THE LD. CIT(A) WHO VIDE HIS ORDER DATED 24.04.2012 DELETED THE ADDITION MADE U/S 14A OF RS. 12,47,863/- BY HOLDING AT PARA 3.3 OF HIS OR DER AS FOLLOWS: 3.3. I HAVE CAREFULLY CONSIDERED THE APPELLANTS SU BMISSION. THE UNDISPUTED FACT IS THAT THE APPELLANT HAD SHOWN INCOME FROM PM S UNDER THE HEAD BUSINESS INCOME. THIS FACT HAS BEEN NOTED BY THE AO AND HAS BEEN REFERRED TO IN THE ASSESSMENT ORDER AS UNDER:- THE ASSESSEE HAS ALSO STATED IN PARA (A) OF HIS REPLY THAT INCOME FROM PMS HAS BEEN CONSIDERED UNDER THE HEAD BUSINESS IN COME. THE ASSESSEE HAS HOWEVER CLAIMED STT PAID OF RS. 29,665/- IN THE SEP ARATE P&L A/C OF PMS INVESTMENTS, WHICH IN ANYWAY IS NOT AN ALLOWABLE EX PENDITURE. THUS THE AO DID NOT DISPUTE THIS CONTENTION OF THE APPELLANT. HE HOWEVER DISALLOWED THE EXPENSES APPLYING SECTION 14A OF THE I.T. ACT. THE ISSUE WHICH NEEDS TO BE EXAMINED HERE IS WHETHER THE PROVISION OF SECTION 14A ARE APPLICABLE TO THE EXPENSES INCURRED BY THE APPELLAN T IN THE COURSE OF HIS BUSINESS OF SALE AND PURCHASE OF SHARES BECAUSE THE APPELLAN T IS ALSO HAVING DIVIDEND INCOME WHICH EXEMPTED FROM TAXATION. IN THIS REGARD , THE DETAILS SUBMITTED BY THE APPELLANT REGARDING ITS THREE PMS ACCOUNTS ARE AS UNDER: PMS SCHEME CODE INVESTMENTS TURNOVER BUSINESS INCOME ASSESSED DIVIDEND RECEIVED MANAGEMENT FEE / NSDL CHARGES S2M48 SHARES 4931 1830 0 127 QBEZ9 SHARES MUTUAL FUNDS 13969307 12246376 2664733 0 1013398 YIY02 MUTUAL FUNDS 9950310 -4199 147334 204673 TOTAL 36170924 2662364 147334 1218198 3 FROM THE FACTS SUBMITTED BY THE APPELLANT IT IS SEE N THAT THE TOTAL TURNOVER OF THE APPELLANT FROM PMS TRANSACTIONS IS RS. 3,61,70,924/ - AND TOTAL BUSINESS INCOME FROM THESE ACTIVITIES IS RS. 26,62,364/-. AS AGAINS T THIS, THE TOTAL DIVIDEND INCOME RECEIVED FROM THESE SHARES / MUTUAL FUNDS IS ONLY R S. 1,47,334/-. FURTHER FROM THE DETAILS SUBMITTED BY THE APPELLANT IT IS ALSO CLEAR THAT NO DIVIDEND HAS BEEN RECEIVED UNDER TWO SCHEMES OF PMS. FROM THESE FACTS IT IS APPARENT THAT THE APPELLANT IS PRIMARILY INVOLVED IN BUSINESS OF PURC HASE AND SALE OF SHARES AND IS NOT RETAINING THESE SHARES SO AS TO HAVE THE BENEFI T OF DIVIDEND. THE FACTS OF THE APPELLANTS CASE ARE SIMILAR TO THE FACTS OF CASE OF M/S CCI LTD. VS. JCIT REFERRED TO BY THE APPELLANT. IN THIS CASE THE HONBLE KARNA TAKA HIGH COURT HELD AS UNDER:- WHEN NO EXPENDITURE IS INCURRED BY THE ASSESEE IN EARNING THE DIVIDEND INCOME, NO NOTIONAL EXPENDITURE COULD BE DEDUCTED FROM THE SAID INCOME. IT IS NOT THE CASE OF THE ASSESSEE RETAINING ANY SHARES SO AS TO HAVE THE BENEFIT OF DIVIDEND. 63% OF THE SHARES, WHICH WERE PURCHASED, ARE SOLD A ND THE INCOME DERIVED THEREFROM IS OFFERED TO TAX AS BUSINESS INCOME. THE REMAINING 37% OF THE SHARES ARE RETAINED. IT HAS REMAINED UNSOLD WITH THE ASSES SEE. IT IS THOSE UNSOLD SHARES HAVE YIELDED DIVIDEND FOR WHICH, THE ASSESSEE HAS N OT INCURRED ANY EXPENDITURE AT ALL. THOUGH THE DIVIDEND INCOME IS EXEMPTED FROM PAYMENT OF TAX, IF ANY EXPENDITURE ALSO CANNOT BE DEDUCTED. BUT IN THIS CA SE, WHEN THE ASSESSEE HAS NOT RETAINED SHARES WITH THE INTENTION OF EARNING D IVIDEND INCOME AND THE DIVIDEND INCOME IS INCIDENTAL TO HIS BUSINESS OF SA LE OF SHARES, WHICH REMAINED UNSOLD BY THE ASSESSEE, IT CANNOT BE SAID THAT THE EXPENDITURE INCURRED IN ACQUIRING THE SHARES HAS TO BE APPORTIONED TO THE E XTENT OF DIVIDEND INCOME AND THAT SHOULD BE DISALLOWED FROM DEDUCTIONS. IN THAT VIEW OF THE MATTER, THE APPROACH OF THE AUTHORITIES IS NOT IN CONFORMITY WI TH THE STATUTORY PROVISIONS CONTAINED UNDER THE ACT. THEREFORE, THE IMPUGNED OR DERS ARE NOT SUSTAINABLE AND REQUIRE TO BE SET-ASIDE. (EMPHASIS SUPPLIED) KEEPING IN VIEW THE AFORESAID FACTUAL AND LEGAL POS ITION THE ADDITION MADE BY THE AO U/S 14A IS NOT SUSTAINABLE THE SAME IS THERE FORE DELETED. THESE GROUNDS OF APPEAL ARE ACCORDINGLY ALLOWED. FURTHER THE DISALLOWANCE OF STT PAID AMOUNTING TO R S. 99,476/- WAS DELETED BY THE LD. CIT(A) BY HOLDING THAT THE ASSESSEE HERSELF HAD NOT CLAIMED DEDUCTION OF THE SAME. 4. AGGRIEVED BY THE SAME THE REVENUE FILED THE PRES ENT APPEAL BEFORE US. 5. THE ISSUE BEFORE US IS REGARDING THE ALLOWABILIT Y OF EXPENSES INCURRED IN THE SCHEME OF PMS & STT EXPENSES IN VIEW OF THE PROVISI ONS OF SECTION 14A WHICH DISALLOWS EXPENDITURE INCURRED FOR THE PURPOSE OF E ARNING EXEMPT INCOME. 6. WE FIND THAT THE MAJORITY OF EXPENSES DISALLOWED IN THE PRESENT CASE PERTAIN TO EXPENSES INCURRED ON ACCOUNT OF INVESTME NTS MADE IN THE PMS SCHEME. WITH RESPECT TO THE SAME, LD. AR PLEADED TH AT THE INVESTMENTS IN SHARES THROUGH PMS WAS FOR THE PURPOSE OF CARRYING ON BUSINESS OF TRADING IN SHARES. LD. AR PLEADED THAT THIS FACT HAS BEEN ACCE PTED BY THE ASSESSING OFFICER ALSO BY VIRTUE OF FACT THAT PROFIT EARNED O N THIS ACCOUNT HAS BEEN 4 ASSESSED UNDER THE HEAD BUSINESS INCOME. LD. AR ALS O PLEADED THAT THE FACT THAT THE ASSESSEE HAD CONTRIBUTED HIS OWN CAPITAL I N THE PMS ACCOUNT ALSO GOES TO PROVE THAT THE ASSESSEE WAS CARRYING ON TRADING IN SHARES THROUGH THE PMS ACCOUNT. LD. AR FURTHER STATED THAT IN SUCH CIRCUMS TANCES THAT THE EXPENSES INCURRED IN CARRYING OUT THIS TRADING ACTIVITY ARE ALLOWABLE SINCE THEY ARE DIRECTLY ATTRIBUTABLE TO EARNING BUSINESS INCOME. THE LD. AR STATED THAT THE DIVIDEND INCOME EARNED WAS ONLY INCIDENTAL TO THE BUSINESS A CTIVITY OF PURCHASE AND SALE OF SHARES AND NO SEPARATE EFFORTS OR EXPENSES HAD I NCURRED FOR EARNING THE SAME. LD. AR STATED THAT THE SHARES IN THE PMS ACCO UNT MERELY REPRESENTED THE STOCK-IN-TRADE OF THE ASSESSEE. RELYING UPON THE JU DGMENTS IN THE CASE OF CCI LTD. V. JCIT AND SEVERAL OTHER JUDGMENTS WHEREIN IT WAS HELD THAT SECTION 14A WAS NOT ATTRACTED IN CASE OF SHARES HELD AS STOCK-I N-TRADE, LD. AR STATED THAT THE DISALLOWANCE MADE WAS TO BE DELETED. LD. DR ON THE OTHER HAND, RELYING UPON THE DECISION IN THE CASE OF CHEMINVEST LTD. VS. ITO 124 TTJ 577 (DELHI) AND DHANUKA & SONS VS. CIT 244 CTR (CAL) STATED THAT DI SALLOWANCE U/S 14A WAS WARRANTED EVEN IN THOSE CASES WHERE THE ASSESSEE CA RRIED ON THE BUSINESS OF SALE AND PURCHASE OF SHARES. WE FIND THAT THE UNDISPUTED FACTS IN THE PRESENT CA SE ARE THAT THE ASSESSEE ENGAGED IN THE PURCHASE AND SALE OF SHARES THROUGH THREE PMS ACCOUNTS THE TOTAL TURNOVER OF WHICH AMOUNTED TO RS. 3,61,70,924 /- DURING THE YEAR. THE TOTAL INCOME EARNED THROUGH THE ACTIVITY OF SALE & PURCHA SE OF SHARES AMOUNTED TO RS. 26,62,364/-. AS AGAINST THIS, DIVIDEND INCOME E ARNED BY THE ASSESEE AMOUNTED TO RS. 1,47,334/- THAT TOO FROM ONLY ONE P MS ACCOUNT. NO DIVIDEND INCOME WAS EARNED FROM THE OTHER TWO PMS ACCOUNTS. WE ALSO FIND THAT THE AO HAS ASSESSED INCOME FROM PMS AS BUSINESS INCOME. 7. AFTER GOING THROUGH THESE FACTS WE FIND, THAT TH E LD. CIT(A) HAS RIGHTLY HELD THAT THE ASSESSEE WAS CARRYING ON THE BUSINESS OF T RADING IN SHARES THROUGH THE 5 PMS AND THE DIVIDEND INCOME EARNED WAS ONLY INCIDEN TAL TO THE BUSINESS OF TRADING IN SHARES. THEREFORE, THE ONLY ISSUE WHICH REQUIRES CONSIDERAT ION IS WHETHER EXPENSES INCURRED IN THE COURSE OF TRADING IN SHARES, WHICH HAVE ALSO YIELDED DIVIDEND INCOME, ARE LIABLE TO BE DISALLOWED U/S 14A OF THE INCOME TAX ACT. IN SHORT, WHETHER PROVISIONS OF SECTION 14A ARE APPLICABLE TO ACTIVITIES OF TRADING IN SHARES WHERE THE SHARES ARE HELD AS STOCK-IN-TRADE AND NOT AS INVESTMENTS. 8. WE FIND THAT THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CCI LTD. V. JCIT (2012) 206 TAXMANN 563 HAS HELD THAT NO DISALL OWANCE U/S 14A COULD BE MADE IN THE CASE OF TRADING IN SHARES. THE HONBLE HIGH COURT HELD THAT THE PRIMARY PURPOSE OF MAKING INVESTMENT IN SUCH SHARES WAS TO EARN BUSINESS INCOME WHICH WAS LIABLE TO TAX. THE EXEMPT INCOME I N THE FORM OF DIVIDEND INCOME WAS ONLY INCIDENTAL TO THE BUSINESS OF SALE AND PURCHASE OF SHARES AND IN SUCH CIRCUMSTANCES IT COULD NOT BE SAID THAT EXP ENDITURE WAS INCURRED BY THE ASSESSEE FOR EARNING DIVIDEND INCOME AND THEREFORE NO DISALLOWANCE U/S 14A WAS TO BE MADE IN SUCH CIRCUMSTANCES. CONCURRING WI TH THIS VIEW THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. INDIA ADVAN TAGE SECURITIES IN ITA NO. 1131 OF 2013 DT. 17/03/2015 HELD THAT NO DISALLOWAN CE U/S 14A R.W.R 8D COULD BE MADE IN THE CASE OF SHARES HELD AS STOCK-IN-TRADE. THE DECISION OF THE CALCUTTA HIGH COURT IN THE CASE OF DHANUKA & SONS VS. CIT 33 9 ITR 319, RELIED UPON BY THE LD. DR, DOES NOT APPLY TO THE PRESENT CASE SINCE TH E ISSUE IS THAT CASE DID NOT RELATE TO DISALLOWANCE OF ASSESSEE U/S 14A IN CASE OF SHARE TRADING BUSINESS. IN VIEW OF THE AFORESAID LEGAL POSITION WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE. 9. WE THEREFORE UPHOLD THE ORDER OF THE LD. CIT(A) DELETING THE DISALLOWANCE MADE U/S 14 A TO THE EXTENT OF RS. 12,47,863/-. 6 10. ON THE ISSUE OF DELETION OF STT EXPENSES AMOUN TING TO RS. 99,476/-, LD. AR CLAIMED THAT THE SAME PERTAINED TO STT EXPENSES PAI D ON ACCOUNT OF TRANSACTIONS IN MUTUAL FUNDS WHICH WERE DISALLOWED BY THE ASSESSEE HERSELF IN HER RETURN OF INCOME. LD. AR PLEADED THAT HAVING DO NE SO THERE WAS NO CASE FOR MAKING ANY FURTHER DISALLOWANCE. LD. AR REFERRED TO THE FINDING OF THE LD. CIT(A) AT PARA 4.3 OF HIS ORDER WHEREIN, THE ABOVE FACT HA S BEEN AFFIRMED BY THE LD. CIT(A). 11. WE HAVE GONE THROUGH THE ORDER OF THE AUTHORITI ES BELOW AND THE DOCUMENTS PLACED BEFORE US AND ALSO HEARD THE ARGUM ENTS MADE BEFORE US. 12. WE FIND THAT THE LD. CIT(A) AFTER PERUSING THE RETURN FILED BY THE ASSESSEE, CONFIRMED THE FACT THAT THE IMPUGNED STT HAD NOT BE EN CLAIMED AS AN EXPENDITURE BY THE ASSESSEE. FURTHER A PERUSAL OF T HE COMPUTATION OF INCOME FOR THE IMPUGNED YEAR SHOWS THAT THE ASSESSEE HAS NOT C LAIMED STT AMOUNTING TO RS 99,476/- WHILE CALCULATING CAPITAL GAIN FROM TRANS ACTION IN MUTUAL FUNDS. IN VIEW OF THE FACTUAL POSITION THAT THE ASSESSEE HERSELF H AS DISALLOWED STT EXPENSES OF RS. 99,476/- WHILE CALCULATING INCOME FROM MUTUAL F UNDS, WE FIND NO REASON TO MAKE ANY FURTHER DISALLOWANCE IN THIS RESPECT AND U PHOLD THE ORDER OF THE LD. CIT(A) DELETING THE DISALLOWANCE MADE OF RS. 99,476 /-. 13. WE THEREFORE HOLD THAT THE LD. CIT(A) HAD CORRE CTLY DELETED THE DISALLOWANCE MADE U/S 14 A OF RS. 13,47,329/- (12,4 7,863/- 99,476/-). 14. THE APPEAL OF THE REVENUE IS THEREFORE DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON 30/11/2015 SD/- SD/- (H.L. KARWA) (ANNAPURNA MEHROTRA) VICE PRESIDENT ACCOUNTANT MEMBER DATED : 30/11/2015 AG COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT, TH E CIT(A), THE DR