VISARIA SECURITIES P.LTD, MUMBAI V. DCIT 4(2)(1), MUMBAI

ITA 6710/MUM/2018

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 3525 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-02-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2012-2013
• Appeal Filed On: 27-11-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAMATHA MULLAMUDI
• Keywords: Opportunity of being heard; Earning of tax free income; Rule 8D
• Section: 14A

Judgement Text

1 ITA 6710/MUM/2018 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH F, MUMBAI BEFORE SHRI PAWAN SINGH (JM) & SHRI S.RIFAUR RAHMA N (A.M.) ITA NO. 6710/MUM/2018(ASSESSMENT YEAR : 2012-13) M/S VISARIA SECURITIES PVT LTD, 3B2, CNERGY APPASAHEB MARATHE MARG PRABHADEVI, MUMBAI-400 025 PAN : AAACV7721L VS THE ACIT-4(2), MUMBAI APPELLANT RESPONDEDNT A PP ELLANT BY SHRI NIRAJ SHETH AR RESPONDENT BY MISS. SAMATHA MULLAMUDI (SR. DR) DATE OF HEARING 18-02-2020 DATE OF PRONOUNCEMENT 18-02-2020 O R D E R PER PAWAN SINGH, JM : 1. THIS APPEAL BY ASSESSEE IS DIRECTED AGAINST THE ORD ER OF CIT(A)-2, MUMBAI DATED 27-09-2018 FOR ASSESSMENT YEAR 2012-13 . THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL :- GROUND NO. 1: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT(A) GROSSLY ERRED IN CONFIRMING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER OF RS. 39,84,277/- U/S.14A OF THE I.T.ACT A S AGAINST THE SUO MOTO DISALLOWANCE MADE BY THE APPELLANT AT RS.5,56,283/- . THE SUO MOTO DISALLOWANCES MADE BY THE APPELLANT ON THE SIMILAR FACTS AS PREVALENT IN AYS. 2008-09, 2009-10, 2010-11 AND 2011-12 HAVE BEE N UPHELD BY THE HON'BLE ITAT, MUMBAI. SINCE THERE IS NO MATERIAL CH ANGE IN THE FACTS, THE LD. CIT(A) FOLLOWING THE SAID DECISIONS OF THE ITAT OUGHT TO HAVE ACCEPTED THE SUO MOTO DISALLOWANCE MADE BY THE APPE LLANT. IT IS THEREFORE PRAYED THAT THE SUO MOTO DISALLOWANCE OFFERED BY TH E APPELLANT MAY KINDLY BE UPHELD AND DISALLOWANCE MADE BY THE AO MAY PLEAS E BE DISALLOWED. 2 ITA 6710/MUM/2018 GROUND NO. 2: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, AND WITHOUT PREJUDICE TO CONTENTIONS AS PER GROUND NO.L, THE LD . AO ERRED IN TAKING THE VALUE OF THE STOCK-IN-TRADE WHILE CALCULATING THE D ISALLOWANCE U/S.!4A R.W.R. 8D. THE STOCK-IN-TRADE IS A BUSINESS ASSET AND QUIT E DISTINCT AND DIFFERENT FROM THE INVESTMENTS AND THEREFORE, VALUE OF THE ST OCK-IN-TRADE SHOULD NOT HAVE BEEN CONSIDERED WHILE CALCULATING THE DISALLOW ANCE UNDER RULE 8D(2)(II) AND (III) OF I.T.RULES. UNDER THIS RULE, VALUE OF INVESTMENT ALONE IS CONSIDERED FOR DISALLOWANCE U/S.14A R.W.R. 8D AN D NOT STOCK-IN-TRADE. IT IS THEREFORE PRAYED THAT AO MAY BE DIRECTED TO EXCL UDE THE VALUE OF STOCK- IN-TRADE WHILE CALCULATING THE DISALLOWANCE U/S.14A R.W.R. 8D. GROUND NO. 3: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, AND WITHOUT PREJUDICE TO CONTENTIONS AS PER GROUND NOS. 1 AND 2 , THE AO WHILE CALCULATING THE DISALLOWANCE U/S.!4A R.W.R. 8D HAS TAKEN INTO ACCOUNT INTEREST EXPENDITURE OF RS.38,69,013/- WITHOUT CONS IDERING THE FACT THAT THE APPELLANT HAS INTEREST INCOME OF RS.41,77,612/-. IN TEREST INCOME IS MORE THAN THE EXPENDITURE. THE AO SHOULD HAVE CONSIDERED NETTING OF INTEREST AS HELD BY VARIOUS COURTS BEFORE CONSIDERING THE DISAL LOWANCE UNDER RULE 8D(2)(II) AND (III) OF I.T.RULES. IT IS PRAYED THAT AO MAY BE DIRECTED TO ALLOW THE NETTING OF INTEREST TO THE APPELLANT WHIL E MAKING THE DISALLOWANCE. GROUND NO. 4: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, IT IS PRAYED THAT THE LD., CIT(A) HAS NOT ALLOWED THE NATURAL JU STICE TO THE APPELLANT AND PASSED THE APPELLATE ORDER IN A HASTY MANNER. THE M ATTER WAS FIXED FOR HEARING ON 26.09.2018 WHICH WAS ADJOURNED TO 28.09. 2018 WHEREAS THE APPELLATE ORDER WAS PASSED ON 27.09.2018. THE LD. C IT(A) SHOULD HAVE CONSIDERED THE WRITTEN SUBMISSION OF THE APPELLANT AND AN OPPORTUNITY OF BEING HEARD SHOULD HAVE BEEN GIVEN BEFORE PASSING T HE APPELLATE ORDER. THIS HAS NOT BEEN DONE. APPROPRIATE RELIEF IN THE MATTER MAY KINDLY BE ALLOWED. 2. FURTHER, VIDE APPLICATION DATED 17-02-2020, THE ASS ESSEE HAS RAISED THE FOLLOWING ADDITIONAL GROUNDS OF APPEAL:- 3 ITA 6710/MUM/2018 GROUND NO. 1: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE APPELLANT SUBMITS THAT IN COMPUTING THE DISALLOWANCE UNDER SE CTION 14A READ WITH RULE 8D, THE INVESTMENTS ON WHICH DIVIDEND HAS NOT BEEN RECEIVED OUGHT NOT TO BE TAKEN INTO ACCOUNT. GROUND NO. 2: ON THE FACTS AND CIRCUMSTANCE OF THE CASE AND IN LA W, THE APPELLANT SUBMITS THAT NO DISALLOWANCE UNDER SECTION 14A OF THE ACT R EAD WITH CLAUSE (I) AND (II) OF RULE 8D, CAN BE MADE IN THE PRESENT CASE AS THE APPELLANT'S OWN FUNDS ARE SUFFICIENT TO COVER THE INVESTMENTS YIELD ING TAX FREE INCOME. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS EN GAGED IN THE BUSINESS OF SHARE BROKING AND INVESTMENT, FILED ITS RETURN O F INCOME FOR ASSESSMENT YEAR (AY) 2012-13 DECLARING NIL INCOME. IN THE COMPUTATION OF INCOME, THE ASSESSEE HAS SHOWN EXEMP T INCOME OF RS.37,47,996/-. THE ASSESSEE MADE SUO MOTU DISALLO WANCE UNDER SECTION 14A OF RS.5,56,283/-. DURING THE ASSESSMEN T, THE AO ISSUED SHOW CAUSE NOTICE AS TO WHY DISALLOWANCE U/S 14A BE NOT MADE IN ACCORDANCE WITH RULE 8D. THE AO MADE DISALLOWANCE OF RS.29,31,010/- UNDER RULE (U/R) 8D(2)(II) OF RS. 29 ,31,010/- (INTEREST DISALLOWANCE) AND DISALLOWANCE U/R 8D(2)(III) OF RS .16,09,550/- (INDIRECT DISALLOWANCE) . THE AO, AFTER GRANTING S ET OFF OF SUO MOTU DISALLOWANCE MADE, NET DISALLOWANCE OF RS.39,842,77 /-. ON APPEAL BEFORE CIT(A), THE DISALLOWANCE WAS RESTRICTED TO T HE EXEMPT INCOME 4 ITA 6710/MUM/2018 I.E. RS. 37,47,996. THUS, FURTHER AGGRIEVED, THE A SSESSEE HAS FILED THE PRESENT APPEAL BEFORE US. 4. WE HAVE HEARD THE SUBMISSION OF LEARNED AUTHORISED REPRESENTATIVE (LD.AR) OF THE ASSESSEE AND THE LEARNED DEPARTMENTA L REPRESENTATIVE ( LD. DR) FOR THE REVENUE AND PERUSED THE MATERIAL AV AILABLE ON RECORD. THE LD.AR OF THE ASSESSEE SUBMITS THAT THE AO WHILE PASSING THE ASSESSMENT ORDER, MADE DISALLOWANCE U/R 8D(2)(II) O F RS.29,31,010/-. THE LD.AR FOR ASSESSEE SUBMITS THAT ASSESSEE HAS SU FFICIENT INTEREST FREE FUNDS AVAILABLE AS ON 31-03-2012. NO INTEREST BEARING FUNDS WERE UTILISED FOR MAKING INVESTMENT FOR EARNING EXEMPT I NCOME. THE LD.AR OF THE ASSESSEE FILED A COPY OF BALANCE-SHEET AS ON 31-03-2012. THE SHARE CAPITAL OF ASSESSEE IS RS.3.00 CRORES AND RESERVES AND SURPLUS OF RS.34,19,86,042/-. THE LD. AR FOR THE A SSESSEE SUBMITS THAT THE RESERVES AND SURPLUS OF THE ASSESSEE IS MORE TH AN THE INVESTMENT MADE DURING THE YEAR. THUS, NO INTEREST DISALLOWAN CE IS WARRANTED. FOR OTHER DISALLOWANCE, I.E. DISALLOWANCE U/R 8D(2) (III), THE LD.AR SUBMITS THAT AS PER THE DECISION OF SPECIAL BENCH O F DELHI TRIBUNAL IN ACIT VS VIREET INVESTMENT (P) LTD (2017) 82 TAXMANN .COM 415 (DEL)(SB), ONLY THOSE INVESTMENTS, ARE TO BE CONSID ERED FOR COMPUTING AVERAGE VALUE OF INVESTMENTS, WHICH YIELDED EXEMPT INCOME DURING THE YEAR. THE LD.AR OF THE ASSESSEE SUBMITS THAT A PPROPRIATE 5 ITA 6710/MUM/2018 DIRECTION MAY BE GIVEN TO THE AO TO MAKE THE FRESH COMPUTATION OF DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D. 5. ON THE OTHER HAND, THE LD. SR. DR FOR REVENUE SUPPO RTED THE ORDER OF LOWER AUTHORITIES. THE LD. DR FURTHER SUBMITS THAT ASSESSEE, FOR THE FIRST TIME, BEFORE THE TRIBUNAL, HAS RAISED AN ALTO GETHER NEW CONTENTION, THEREFORE, THE MATTER MAY BE RESTORED T O THE AO TO DECIDE THE ISSUE AFRESH. 6. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PART IES, PERUSED THE RECORD. SO FAR AS DISALLOWANCE U/R 8D(2)(II) IN RE SPECT OF INTEREST DISALLOWANCE IS CONCERNED, WE HAVE NOTED THAT NEITH ER THE AO NOR THE LD.CIT(A) EXAMINED THE ISSUE AS PER THE CONTENTION RAISED BY THE LD.AR OF THE ASSESSEE THAT THE ASSESSEE OWNS INTERE ST FREE FUNDS WHICH ARE IN EXCESS OF INVESTMENT MADE DURING THE YEAR. SIMILARLY FOR INDIRECT EXPENSES U/R 8D(2)(III), THE ASSESSEE HAS RAISED AN ALTOGETHER CONTENTION BY MAKING RELIANCE ON THE DECISION OF SP ECIAL BENCH OF DELHI TRIBUNAL IN ACIT VS VIREET INVESTMENT (P) LTD (SUPRA) THAT ONLY THOSE INVESTMENTS SHOULD BE CONSIDERED FOR COMPUTIN G AVERAGE VALUE OF INVESTMENTS WHICH YIELDED EXEMPT INCOME DURING T HE YEAR. THEREFORE, CONSIDERING THE SUBMISSION OF LD.AR OF T HE ASSESSEE, THE ISSUE IS RESTORED BACK TO THE FILE OF AO TO EXAMINE THE FACT THAT IN CASE THE INTEREST FREE FUNDS ARE IN EXCESS OF INVESTMENT S MADE BY THE 6 ITA 6710/MUM/2018 ASSESSEE FOR EARNING EXEMPT INCOME, THEN NO INTERES T DISALLOWANCE BE MADE. SIMILARLY, FOR MAKING DISALLOWANCE OF INDIRE CT EXPENDITURE, ONLY THOSE INVESTMENTS WHICH YIELDED EXEMPT INCOME BE CONSIDERED FOR MAKING COMPUTATION. NEEDLESS TO ORDER BEFORE P ASSING THE ORDER, THE AO SHALL GRANT OPPORTUNITY OF HEARING TO THE AS SESSEE. IN THE RESULT, THE GROUNDS OF APPEAL INCLUDING ADDITIONAL GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSE. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED, F OR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 18-02-2020. SD/- SD/- (S RIFAUR RAHMAN) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIALMEMBER MUMBAI, DT : 18 TH FEBRUARY, 2019 PK/- COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI