DCIT CEN CIR 3(3) , MUMBAI V. SHAREKHAN LTD, MUMBAI

ITA 6930/MUM/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 7332 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-04-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2014-2015
• Appeal Filed On: 07-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHAUDHARY ARUN KUMAR SINGH
• Keywords: Earning of tax free income; Speculation loss; Rule 8D
• Section: 14A; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH G, MUMBAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO.6930/M/2017 ASSESSMENT YEAR: 2014-15 DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-3(3), ROOM NO.1923, AIR INDIA BUILDING, 19 TH FLOOR, NARIMAN, MUMBAI - 400021 VS. M/S. SHAREKHAN LTD., 10 TH FLOOR, BETA BLDG., LODHA 1-THINK PARK, OFF JVLR, OPP. KANJURMARG STATION, KANJURMARG (E), MUMBAI 400 042 PAN: AAECS 5096H (APPELLANT) (RE SPONDENT) PRESENT FOR: ASSESSEE BY : SHRI HIRO RAI, A.R. REVENUE BY : SHRI CHAUDHARY ARUN KUMAR SINGH, D. R. DATE OF HEARING : 18.04.2019 DATE OF PRONOUNCEMENT : 26.04.2019 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE REVEN UE AGAINST THE ORDER DATED 15.09.2017 OF THE COMMISSIO NER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS TH E CIT(A)] RELEVANT TO ASSESSMENT YEAR 2014-15. 2. THE REVENUE HAS RAISED FOUR GROUNDS OF APPEAL. THE ISSUE RAISED IN GROUND NO.1 IS AGAINST THE ORDER OF LD. C IT(A) DIRECTING THE AO TO TREAT THE LOSS OF RS.61,01,334/- AS SETTL EMENT LOSS INSTEAD OF SPECULATION LOSS IGNORING THE FACT THAT THE SAID LOSS HAS ARISEN OUT OF TRANSACTIONS OF SHARES CARRIED OU T BY THE ASSESSEE AND IS COVERED BY THE EXPLANATION TO SECTI ON 73 OF THE ACT. ITA NO.6930/M/2017 M/S. SHAREKHAN LTD. 2 3. AT THE OUTSET, THE LD. COUNSEL OF THE ASSESSEE S UBMITTED BEFORE THE BENCH THAT THE ISSUE IS COVERED AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE BY THE DECISION OF TH E CO-ORDINATE BENCH OF THE TRIBUNAL IN THE ASSESSEES OWN CASE IN A.Y. 2007- 08, 2009-10 & 2010-11. THE LD. A.R. ALSO SUBMITTED THAT THE APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF TR IBUNAL IN A.Y. 2007-08 HAS BEEN DISMISSED BY THE HONBLE BOMBAY HI GH COURT, A COPY OF WHICH IS ALSO PLACED AT PAGE NO.12 AND 13 OF THE PAPER BOOK. THE LD. A.R. SUBMITTED BEFORE THE BENCH THAT THE FIRST APPELLATE AUTHORITY HAS DECIDED THE ISSUE IN FAVOU R OF THE ASSESSEE BY FOLLOWING THE DECISION OF HIS PREDECESS OR IN A.Y. 2011-12 TO 2013-14 AND ALSO THE DECISION OF THE CO- ORDINATE BENCH OF THE TRIBUNAL IN 2009-10 AND 2010-11. THE LD. A.R. THEREFORE PRAYED THAT THE GROUND RAISED BY THE REVE NUE MAY BE DISMISSED. 4. THE LD. D.R., ON THE OTHER HAND, RELIED ON THE G ROUNDS OF APPEAL AND ORDER OF AO. 5. AFTER HEARING BOTH THE PARTIES AND PERUSING THE MATERIAL ON RECORD, WE OBSERVE THAT THE ISSUE IS RECURRING IN N ATURE AND HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE RIGHT FROM T HE ASSESSMENT YEAR 2007-08, 2009-10 AND 2010-11 BY THE CO-ORDINAT E BENCHES OF THE TRIBUNAL. THE APPEAL FILED BY THE REVENUE A GAINST THE ORDER OF REVENUE IN A.Y. 2007-08 HAS ALSO BEEN DISM ISSED BY THE HONBLE BOMBAY HIGH COURT VIDE ORDER DATED 03.12.20 18. THEREFORE, IN OUR OPINION, THE ISSUE IS SQUARELY CO VERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE DEC ISIONS OF THE CO-ORDINATE BENCHES OF THE TRIBUNAL IN ASSESSEES O WN CASE. ITA NO.6930/M/2017 M/S. SHAREKHAN LTD. 3 THE RELEVANT PORTION FROM THE SAID ORDER IN ITA NO. 1027/MUM/AY 2007-08 IS REPRODUCED BELOW: 9. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTEN TIONS HAVE CAREFULLY BEEN CONSIDERED. IN THE CASE OF ACIT VS. IDFC SSKI SECUR ITIES LTD. (SUPRA), SIMILAR GROUND WAS RAISED BY THE REVENUE. THE GROUND RAISED IN THA T CASE READ AS UNDER: '1.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD.CIT(A) ERRED IN ALLOWING THE LOSS OF RS.2,36,36, 821/- AS BUSINESS LOSS EVEN WHEN THE SAME IS SPECIFICALLY COVERED UNDER SECTION 73 OF THE ACT. 2. THE APPELLANT CRAVES TO LEAVE TO ADD, TO AMEND A ND/OR ALTER ANY OF THE GROUNDS OF APPEAL, IF NEED BE' 9.1 THE ASSESSEE PLACED RELIANCE UPON FOLLOWING DEC ISIONS: 1. ITO VS. GDV SHARE & STOCK BROKING SERVICES LTD ., 88 TTJ (CAL) 352 2. M/S.PARKER SECURITIES LTD. VS. DCIT, 102 TTJ (AH D) 235. 3.33 CCH 124 (MUM-TRIB) HSBC SECURITIES & CAPITAL M ARKETS INDIA P. LTD., VS. ACIT 4.139 R 149 ( AP), CIT VS. SHAH PRATAPCHAND NOWPAJI 5. 91TTJ 57 (DEL-TRIB) ACIT VS. SUBHASH CHANDRA SHO REWALA. 6.50 SOT 592 (AHD-TRIB) ITO VS. RAJIV SECURITIES P. LTD. AFTER CONSIDERING THESE DECISIONS THE TRIBUNAL HAS HELD AS UNDER: 5. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTENT IONS HAVE CAREFULLY BEEN CONSIDERED. RIGHT FROM THE ASSESSMENT PROCEEDINGS I T WAS THE CASE OF THE ASSESSEE THAT THE IMPUGNED LOSS HAS OCCURRED TO THE ASSESSEE IN RESPECT OF ERROR TRADE. DUE TO DISPUTE WITH THE CLIENTS, FOR T HE TRANSACTION, IT DOES NOT CHANGE THE RELATION OF PRINCIPAL AND THE AGENT. THE ASSESSEE FOR BUSINESS CONSIDERATION CHOOSES NOT TO RECOVER THE LOSSES. TH ESE LOSSES ARE IN THE COURSE OF BUSINESS AND SHOULD BE ALLOWED AS SUCH UN DER SECTION 28 OF THE ACT. ALL THESE CONTENTIONS OF THE ASSESSEE HAVE BEE N RECORDED IN THE ASSESSMENT ORDER IN PARA 3.3. THE AO HAS NOT BROUGH T ANY MATERIAL ON RECORD TO SUGGEST THAT THESE CONTENTIONS OF THE ASS ESSEE ARE EITHER FALSE OR INCORRECT. NO MATERIAL HAS ALSO BEEN BROUGHT ON REC ORD THAT THESE LOSSES ARE ON ACCOUNT OF ASSESSEE'S OWN TRADING IN SHARES. IF IT IS SO, THE LOSS ACCRUED TO THE ASSESSEE WILL BE GOVERNED BY THE AFOREMENTIONED DECISIONS OF TRIBUNAL WHERE CONSISTENT VIEW HAS BEEN TAKEN THAT LOSS OCCU RRED TO SHARE BROKER ON ACCOUNT OF CLIENT DISOWNING TRANSACTION IS BUSINESS LOSS AND NOT SPECULATIVE LOSS. THEREFORE, WE ARE OF THE OPINION THAT LD. CIT (A) DID NOT COMMIT ANY ERROR IN ACCEPTING THE CLAIM OF THE ASSESSEE. ACCOR DINGLY, WE DECLINE TO INTERFERE AND DEPARTMENTAL APPEAL ON THIS GROUND IS DISMISSED. 5.1 BEFORE PARTING OF THE DEPARTMENTAL APPEAL IT MA Y BE MENTIONED THAT AMOUNT STATED BY THE DEPARTMENT IN ITS GROUNDS OF A PPEAL IS WRONGLY MENTIONED AS RS.2,36,36,821/-, WHEREAS THE SAME IS RS.2,65,07,464/-. IN VIEW OF THE ABOVE DISCUSSIONS THE DEPARTMENTAL APPE AL IS DISMISSED. ITA NO.6930/M/2017 M/S. SHAREKHAN LTD. 4 IN THE AFOREMENTIONED DECISION BOTH OF US ARE PARTI ES. THEREFORE, FOLLOWING THE AFOREMENTIONED VIEW WE HOLD THAT LD. CIT(A) HAS RIG HTLY DECIDED THE ISSUE AND WE DECLINE TO INTERFERE AND THIS GROUND OF THE REVENUE IS DISMISSED. SINCE THE FACTS IN THE CURRENT YEAR ARE MATERIALLY SAME TO THE FACTS IN A.Y. 2007-08 WHICH HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL AND AFFIRMED BY THE HO NBLE BOMBAY HIGH COURT , WE ACCORDINGLY UPHOLD THE ORDE R OF LD. CIT(A) ON THIS ISSUE BY DISMISSING THE GROUND RAISE D BY THE REVENUE. 6. THE COMMON ISSUE RAISED IN GROUND NO.2 TO 4 IS A GAINST THE ORDER OF LD. CIT(A) IN DIRECTING THE DELETION OF DI SALLOWANCE MADE BY THE AO UNDER SECTION 14A READ WITH RULE 8D2(II) TOWARDS INTEREST TO THE TUNE OF RS.1,95,69,126/-. 7. THE FACTS IN BRIEF ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT ASSESSEE HAS RECE IVED EXEMPT INCOME BY WAY OF DIVIDEND TO THE TUNE OF RS.21,09,5 7,577/- FROM INVESTMENTS IN MUTUAL FUNDS AND DISALLOWED SUO MOTT O ONLY A SUM OF RS.7,28,000/- UNDER SECTION 14A OF THE ACT. ACCORDINGLY, THE AO ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE A S TO WHY THE PROVISIONS OF SECTION 14A READ WITH RULE 8D SHOULD NOT BE INVOKED WHICH WAS REPLIED BY THE ASSESSEE BY SUBMIT TING THAT THE INVESTMENTS IN THE MUTUAL FUNDS AND SHARES WERE MADE OUT OF THE OWN FUNDS AND NOT OUT OF THE BORROWED FUNDS. ACCORDING TO THE AO , THE ASSESSEE COULD NOT ESTABLISH THE LI NKAGE BETWEEN OWN FUNDS AND INVESTMENTS IN THE MUTUAL FUNDS AND F INALLY APPLIED THE PROVISIONS OF SECTION 14A READ WITH RUL E 8D BY RELYING ON THE DECISION OF THE GODREJ & BOYCE MANU FACTURING CO. LTD. VS. DCIT [(2010) 328 ITR 81 (BOM)] AND CAL CULATED THE DISALLOWANCE AT RS.2,27,68,626/- COMPRISING 1,95,69 ,126/- ITA NO.6930/M/2017 M/S. SHAREKHAN LTD. 5 UNDER RULE 8D2(II) AND RS.31,99,500/- UNDER RULE 8D 2(III) AND AFTER ALLOWING THE DEDUCTION TOWARDS SUO MOTTO DISA LLOWANCE OF RS.7,28,000/- , A NET ADDITION OF RS.2,20,40,626/- WAS MADE. 8. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) DEL ETED THE DISALLOWANCE MADE UNDER SECTION 14A READ WITH RULE 8D2(II) WHILE THE DISALLOWANCE UNDER RULE 8D2(III) WAS REST ORED TO THE FILE OF THE AO TO BE CALCULATED AFRESH AS PER LAW. SO N OW THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST TH E DELETION OF ADDITION UNDER RULE 8D(2)(II) ONLY. 9. AFTER HEARING BOTH THE PARTIES AND PERUSING THE MATERIAL ON RECORD, WE OBSERVE THAT LD. CIT(A) HAS DELETED THE DISALLOWANCE UNDER RULE 8D2(II) BY FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE IN A.Y . 2008-09. THE LD. CIT(A) ALSO NOTED THAT IN A.Y. 2009-10 AND 2010-11 THE ISSUE HAS BEEN DECIDED BY FOLLOWING THE DECISION OF THE CO- ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CA SE IN A.Y. 2008-09. THE LD. A.R. AT THE TIME OF HEARING SUBMI TTED BEFORE THE BENCH THAT THE OWN FUNDS WERE FAR MORE THAN THE INVESTMENTS MADE BY ASSESSEE IN THE MUTUAL FUNDS/SH ARES WHICH YIELDED EXEMPT INCOME AND THEREFORE THE PRES UMPTION HAS TO BE MADE THAT SAID INVESTMENTS WERE MADE OUT OF OWN INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE AN D THUS THE DISALLOWANCE UNDER RULE 8D2(II) WAS RIGHTLY DELETED BY THE LD. CIT(A). THE LD. A.R. PLACED BEFORE THE BENCH A COP Y OF THE BALANCE SHEET WHEREFROM WE OBSERVE THAT THE SHARE C APITAL, RESERVES AND SURPLUSES WERE TO THE TUNE OF RS.710 C RORES WHEREAS THE INVESTMENTS IN MUTUAL FUNDS AND SHARES WERE TO THE EXTENT OF RS.193 CRORES. THUS, WE FIND MERITS IN THE ITA NO.6930/M/2017 M/S. SHAREKHAN LTD. 6 CONTENTIONS OF THE LD. A.R. THAT LD CIT(A) HAS COR RECTLY DELETED THE DISALLOWANCE. THE CASE OF THE ASSESSEE IS ALSO SQUARELY COVERED BY THE DECISION OF HONBLE JURISDICTIONAL B OMBAY HIGH COURT IN THE CASE OF CIT VS. HDFC BANK LTD. (2014) 366 ITR 505 (BOM) AND CIT VS. RELIANCE INDUSTRIES LTD. (2019) 4 10 ITR 466 (SC). WE, THEREFORE, RESPECTFULLY FOLLOWING THE DE CISION OF THE APEX COURT IN THE CASE OF CIT VS. RELIANCE INDUSTRI ES LTD. AND ALSO THE HONBLE JURISDICTIONAL BOMBAY HIGH COURT I N THE CASE OF CIT VS. HDFC BANK LTD. (SUPRA), HOLD THAT THE DISAL LOWANCE UNDER RULE 8D2(II) WAS RIGHTLY DELETED BY THE LD. C IT(A) AND THE GROUND NOS.2 TO 4 ARE HEREBY DISMISSED. 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 26.04.2019. SD/- SD/- (MAHAVIR SINGH) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 26.04.2019. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY /ASSTT. REGISTRAR, ITAT, MUMBAI.