OHM STOCK BROKER P. LTD, MUMBAI V. ADDL CIT 4(2), MUMBAI

ITA 673/MUM/2011

• Counselvise Citation: 67319914 RSA 2011
• Duration Of Justice: 2 year(s) 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-09-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 01-08-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 24-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R A
• Assessee Lawyers: S C TIWARI; NATASHA MANGAT
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH C , MUMBAI BEFORE SHRI RAJENDRA SINGH , ACCOUNTANT MEMBER AND SHRI SANJAY GARG , JUDICIAL MEMBER ITA NO. 673/MUM/11 ASSESSMENT YEAR: 2007 - 08 M/S. OHM STOCK BROKER PVT. LTD. C/O. V.J. SHAH & CO. 1 ST FLOOR, HIRA NIWAS, 46 MODY STREET, FORT, MUMBAI - 400 0 01 PAN: AA A C O 3 526E VS. THE ADDIL. COMMISSIONER OF INCOME TAX 4(2), ROOM NO. 6 42 , 6 TH FLOOR, AAYKAR BHAVAN, MUMBAI 400 020 (APPELLANT) (RESPONDENT) ITA NO. 2579 /MUM/1 2 ASSESSMENT YEAR: 200 8 - 0 9 M/S. OHM STOCK BROKER PVT. LTD. 301 - A, POONAM CHAMBERS, B WING, 3 RD FLOOR, DR. ANNIE BESENT ROAD, WORLI, MUMBAI - 400 018 PAN: AAACO3526E VS. THE ADDIL. COMMISSIONER OF INCOME TAX, RANGE 4(2), 669, AAYKAR BHAVAN, M.K. ROAD, MUMBAI 400 020 (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI S.C. TIWARI & MS. NATASHA MANGAT REVENUE BY : SHRI R.A. PANT (D.R.) DATE OF HEARING : 01 .0 8 .13 DATE OF PRONOUNCEMENT : 25.09.13 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: WITH THIS COMMON ORDER , WE WILL DI S POSE OFF ABOVE TITLED TWO APPEALS FILED BY THE ASSESSEE RELEVANT TO ASS ESSMENT YEAR S 2007 - 08 AND 2008 - 09 RESPECTIVELY. ITA NO. 673/MUM/2011 & 2579/MUM/12 M/S . OHM STOCK BROKERS PVT. LTD. 2 ITA NO. 673/M/2011 FOR A.Y. 2007 - 08 THE SOLE GROUND TAKEN IN THIS APPEAL IS RELATING TO THE CONFIRMATION OF DISALLOWANCE MADE UNDER SECTION 14 A OF THE INCOME TAX ACT. 2. THE BRIEF FACTS ARE THAT DURING THE RELEVANT ASSESSMENT YEAR , THE ASSESSEE HAD EARNED CERTAIN DIVIDEND INCOME AND LONG TERM CAPITAL GAIN , WHICH WAS CLAIMED EXEMPT FROM INCOME TAX . THE ASSESSE E HAD NOT ALLOCATED ANY EXPENDITURE FOR EARNING OF ABOVE SAID TAX FREE INCOME. T HE AO DETERMINED THE AMOUNT OF EXPENDITURE AS PER THE PROVISIONS OF RULE 8D AT RS. 1065080 / - AND ADDED BACK THE SAME INTO THE INCOME OF THE APPELLANT. 3. IN FIRST APPEAL, THE LD. CIT(A) RELYING UPON JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN GODREJ & BOYCE LTD. MFG. CO. VS. DCIT [(2010) 328 ITR 81 (BOM)] OBSERVED THAT R ULE 8 D WAS NOT APPLICABLE FOR A.Y. UNDER CONSIDERATION I.E. 2007 - 08 AND THAT THE DISALLOWANCE W AS TO BE WORKED OUT BY THE AO ON SOME REASON ABLE BASIS AND NOT AS PER R ULE 8D. 4. HOWEVER HE FURTHER OBSERVED THAT THE ASSESSEE HAD NOT MAINTAINED SEPARATE ACCOUNTS OF EXPENSES INCURRED FOR EARNING OF EXEMPT INCOME. HE FURTHER OBSERVED THAT THE ASSESSEE BEING A SHARE TRADER HAD UNDERTAKEN TRANSACTIONS IN SHARE S WHICH INCLUDE THOSE TRANSACTIONS WHICH SUBSEQUENTLY YIELDED DIVIDEND INCOME, WHICH WAS EXEMPT. THEREFORE, THE EXPENSES DEBITED TO P & L ACCOUNT INCLUDE EXPENDITURE INCURRED FOR UNDERTAKING TRANSACTIONS OF SHARES WHICH YIELDED EXEMPT INCOME. ANY EXPENDITURE INCURRED FOR UNDERTAKING TRANSACTIONS FOR SHARES WHICH SUBSEQUENTLY YIELDED EXEMPT INCOME WAS REQUIRED TO BE TREATED AS EXPENDITURE INCURRED FOR EARNING OF EXEMPT DIVIDEND INCOME. THE ASSESSEE HOWEVER, DID NOT MAINTAIN ANY DETAIL S OF EXPENSES INCURRED FOR UNDERTAKING TRANSACTIONS OF SHARES WHICH HAD YIELDED EXEMPT INCOME. THE ITA NO. 673/MUM/2011 & 2579/MUM/12 M/S . OHM STOCK BROKERS PVT. LTD. 3 AMOUNT OF SUCH EXPENDITURE WAS, THEREFORE, REQUIRED TO BE DETERMINED AS PER A REASONABLE METHODOLOGY. HOWEVER AFTER HOLDING SO, HE ADOPTED THE METHODOLOGY/ FORMULA TO DETERMINE THE EXPENDITURE INCURRED TO EARN THE EXEMPTED INCOME , WHICH INCIDENTALLY WAS ALMOST SIMILAR TO TH AT WHICH HAS BEEN PRESCRIBED UNDER R ULE 8 D OF THE I NCOME T AX R ULES. THE LD. CIT (A) THUS DIRECTED THE A.O. TO CALCULATE THE DISALLOWANC E ACCORDING TO THE FORMULA ADOPTED BY HIM . 5 . BEFORE US THE SUBMISSIONS OF THE LD. AR HA VE BEEN THAT THE ASSESSEE HAD NOT RETAINED THE SHARES WITH THE INTENTION OF EARNING DIVIDEND INCOME AND THE DIVIDEND INCOME WAS INCIDENTAL TO THE SALE OF SHARES WHICH REMAINED UNSOLD BY THE ASSESSEE. HIS FURTHER CONTENTION HAS BEEN THAT IT CANNOT BE SAID THAT THE EXPENDITURE INCURRED IN ACQUIRING THE SHARES HAS TO BE APPORTIONED TO THE EXTENT OF DIVIDEND INCOME AND THAT SHOULD BE DISALLOWED FROM DEDUCTION . HE FURTHER C ONTENDED THAT THE DISALLOWANCE OF EXPENDITURE IN RELATION TO DIVIDEND RECEIVED FROM TRADING OF SHARES CANNOT BE MADE. HIS FURTHER CONTENTION HAS BEEN THAT T HE PROVISIONS OF SECTION 14A READ WITH RULE 8D WERE NOT APPLICABLE IN THE CASE OF THE APPELLANT AS NO EXPENDITURE HAD BEEN INCURRED TO EARN TAX FREE DIVIDEND INCOME. ON THE OTHER HAND THE LD. DR HAS RELIED UPON THE AUTHORITIES BELOW. 6 . WE HAVE CONSIDERED THE SUBMISSIONS OF THE LD. REPRESENTATIVES OF THE PARTIES. IT MAY BE NOTED THAT THE HONBLE BOMBA Y HIGH COURT IN GODREJ & BOYCE LTD. MFG. CO. VS. DCIT [(2010) 328 ITR 81 (BOM)] HAS HELD THAT R ULE 8 D OF THE I NCOME TAX RULES FOR CALCULATING DISALLOWANCE UNDER SECTION 14A OF THE I.T. ACT IS APPLICABLE FROM A.Y.2008 - 09 ONWARDS . THE PRESENT CASE IS RELATING TO THE A.Y. 2007 - 08. IN SUCH YEAR, OBVIOUSLY R ULE 8D COULD NOT HAVE BEEN APPLIED, BUT THE DISALLOWANCE WAS REQUIRED TO BE WORKED OUT ON SOME REASONABLE BASIS. THE LD. CIT(A) DID NOT CONSIDER THE COMPUTATION MADE BY THE ASSES SEE WHILE ITA NO. 673/MUM/2011 & 2579/MUM/12 M/S . OHM STOCK BROKERS PVT. LTD. 4 ADOPTING HIS FORMULA TO CALCULATE THE DISALLOWANCE. HE ALSO DID NOT CONSIDER THE CONTENTION OF THE ASSESSE THAT THE ENTIRE SHARES WERE TAKEN AS STOCK IN TRADE AND THE DIVIDEND INCOME WAS JUST INCIDENTAL TO IT. 7 . AT THIS STAGE THE LD. DR HAS CO NTENDED THAT EVEN IN CASE OF INVESTMENT IN SHARES, SOME ADMINISTRATIVE EXPENSES WOULD HAVE BEEN INCURRED BY THE ASSESSEE FOR WHICH DISALLOWANCE HAS TO BE MADE. 8 . UNDER SUCH CIRCUMSTANCES, WE SET ASIDE THE IMPUGNED ORDER AND RESTORE THE MATTER TO THE F ILE OF THE AO FOR DECIDING THE QUANTUM OF DISALLOWANCE AFRESH , IN ACCORDANCE WITH LAW. THE ASSESSEE WILL BE AT LIBERTY TO RAISE I T S CONTENTIONS IN THIS RESPECT. THE A.O. WILL GIVE PROPER OPPORTUNITY TO THE ASSESSEE TO PRESENT ITS CASE AND PRODUCE DO CUMENT S, IF ANY. THE AO WILL BE AT LIBERTY TO CALL FOR ANY RECORD/EVIDENCES OR STATEMENT ETC. FROM THE ASSESSEE AS MAY BE REQUIRED BY HIM FOR DECIDING THE ISSUE UNDER CONSIDERATION. 9 . SUBJECT TO OUR OBSERVATIONS MADE ABOVE, THIS APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ITA NO. 2579/MUM/12 FOR A.Y. 2008 - 09 THE ONLY DISTINGUISHABLE FACT IN THIS APPEAL IS THAT THE SAME PERTAINS TO A.Y. 2008 - 09 AND AS PER THE LAW LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN GODR EJ & BOYCE LTD. MFG. CO. VS. DCIT(SUPRA) R ULE 8D IS APPLICABLE FOR THIS YEAR. 10 . THE CIT(A) IN THIS CASE CONFIRMED THE DISALLOWANCE MADE BY THE A.O. UNDER R ULE 8D OF THE INCOME TAX R ULES. ITA NO. 673/MUM/2011 & 2579/MUM/12 M/S . OHM STOCK BROKERS PVT. LTD. 5 11 . THE CONTENTION OF THE LD. AR HAS BEEN THAT THE AO WITHOUT RECORDING ANY DISSATISFACTION WITH REGARD TO THE COMPUTATION MADE BY THE ASSESSEE, STRA IGHTWAY APPLIED RULE 8D. HIS SECOND CONTENTION HAS BEEN THE SAME FOR THIS YEAR ALSO I.E. AUTHORITIE S BELOW F AILED TO CONSIDER THE FACT THAT THE SHARES WERE TAKEN AS STO CK IN TRADE AND THE DIVIDEND INCOME WAS INCIDENTAL. 1 2 . WE HAVE CONSIDERED THE SUBMISSIONS OF THE LD. REPRESENTATIVES OF THE PARTIES. IT MAY BE OBSERVED THAT UNDER SECTION 14A OF THE INCOME TAX ACT RESORT CAN BE MADE TO RULE 8D OF THE INCOME TAX RULES FOR DETERMINING THE AMOUNT OF EXPENDITURE IN RELATION TO EXEMPT INCOME, IF, THE AO IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM MADE BY THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE. HOWEVER, A PERUSAL OF THE ASSESSMENT ORDER REVEALS THAT THE AO WITHOUT RECORDING ANY DISSATISFACTION WITH REGARD TO THE CALCULATIONS AND COMPUTATION MADE BY THE ASSESSEE, STRAIGHTWAY APPLIED RULE 8D AGAINST THE MANDATE OF THE PROVISIONS OF SECTION 14A OF THE INCOME TAX ACT. WE MAY OBSERVE THAT NO DETAILS WERE CALLED FOR BY THE AO FROM THE ASSESSEE WHILE MAKING THE DISALLOWANCE UNDER CONSIDERATION. AS OBSERVED ABOVE, HE STRAIGHTWAY APPLIED R ULE 8D. 1 3 . THE LD. CIT(A) ALSO CONFIRMED THE DISALLOWANCE MADE BY THE A.O. WITHOUT CONSIDERING THE ABOVE ASPECT OF THE CASE IN HAND. THE AUTHORITIES BELOW ALSO DID NOT CONSIDER THE OTHER CONTENTION OF THE ASSESSEE THAT THE SHARES WERE HELD AS STOCK IN TRADE AND DIVIDEND INCOME WAS INCIDENTAL. T HE LD. DR HAS RELIED UPON AUTHORITIES BELOW AND HAS FURTHER CONT ENDED THAT EVEN IN CASE OF INVESTMENT IN SHARES, SOME ADMINISTRATIVE EXPENSES WOULD HAVE BEEN INCURRED BY THE ASSESSEE FOR WHICH DISALLOWANCE HAS TO BE MADE. 1 4 . SO KEEPING IN VIEW THE OVERALL FACTS AND CIRCUMSTANCES OF THE CASE, WE RESTORE TH E ISSUE FOR THIS YEAR ALSO TO THE FILE OF THE AO FOR MAKING ASSESSMENT ITA NO. 673/MUM/2011 & 2579/MUM/12 M/S . OHM STOCK BROKERS PVT. LTD. 6 AFRESH, WITH A DIRECTION THAT THE AO WILL EXAMINE THE COMPUTATION/CALCULATION MADE IN THIS REGARD BY THE ASSESSEE. THE A.O. WILL GIVE PROPER OPPORTUNITY TO THE ASSESSEE TO PRESENT ITS CASE AN D PRODUCE DOCUMENTS, IF ANY . THE AO WILL BE AT LIBERTY TO CALL FOR ANY RECORD/EVIDENCES OR STATEMENT ETC. FROM THE ASSESSEE AS MAY BE REQUIRED BY HIM FOR DECIDING THE ISSUE UNDER CONSIDERATION. AFTER GOING THROUGH THE DETAILS PROVIDED BY THE ASSESSEE, IF THE AO WILL BE SATISFIED WITH THE COMPUTATION/CALCULATIONS MADE BY THE ASSESSEE, THEN HE WILL ASSESS THE INCOME ACCORDINGLY. HOWEVER, IF THE AO DOES NOT AGREE WITH THE COMPUTATION MADE BY THE ASSESSEE, IN THAT EVENT HE WILL HAVE TO RECORD HIS DISSATISFAC TION WITH REASONING FOR THE SAME BY WAY OF A SPEAKING ORDER AND MAKE THE ASSESSMENT IN ACCORDANCE WITH LAW. 1 5 . SUBJECT TO OUR OBSERVATIONS MADE ABOVE, BOTH THE APPEA LS OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 25.09. 2013. SD/ - SD/ - (RAJENDRA SINGH) ( SANJAY GARG ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 2013. * KISHORE COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT ( A) CONCERNED, MUMBAI THE DR C BENCH //TRUE COPY// [ BY ORDER DY/ASSTT. REGISTRAR, I TAT, MUMBAI.