DCIT 4(1), MUMBAI V. BRIJMOHAN SAGARMAL CAPITAL SERVICES P.LTD, MUMBAI

ITA 6942/MUM/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 2558 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 10 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-10-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 02-11-2015
• Assessment Year: 2011-2012
• Appeal Filed On: 28-11-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SACHIDANAND DUBE
• Assessee Lawyers: SHRI
• Section: 142(1); 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE SHRI MAHAVIR SINGH , JM AND SHRI RAJESH KUMAR, AM ./ I .T.A. NO. 6 942 /MUM/201 3 ( / ASSESSMENT YEAR : 20 11 - 12 ) THE DY. COMMISSIONER OF INCOME TAX - 4(1), ROOM NO. 640, 6 TH FLOOR, A A YAKAR BHAVAN, M.K.ROAD, MUMBAI - 400020 / VS. M/S BRIJMOHAN SANGARMAL CAPITAL SERVICES PVT.LTD., 412, STOCK EXCHANGE TOWER, DALAL STREE T , MUMBAI - 400023 ./ PAN : AA ACB7335E / REVENUE BY SHRI SACHIDANAND DUBE / ASSESSEE BY SHRI PANKAJ R TOPARANI / DATE OF HEARING : 3 0 .5.2016 / DATE OF PRONOUNCEMENT : 27. 10.2016 / O R D E R PER RAJESH KUMAR , A M THIS IS AN APPEAL FILED BY THE REVENUE CHALLENGING THE ORDER OF LD.CIT(A) - 8 , MUMBAI DATED 17.9.2013 FOR THE ASSESSMENT YEAR 20 11 - 12 . 2. ONLY ISSUE RAISED IN GROUND NO.1 IS AGAINS T THE PARTLY ALLOWING THE APPEAL OF THE ASSESSEE AGAINST THE DISALLOWANCE OF RS.2,28,56,550/ - UNDER SECTION 14A OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED THE ACT) COMPRISING INTEREST 2 ITA NO. 6942 / MUM/ 201 3 EXPENSES OF RS.2,16,60,021/ - UNDER RULE 8D (2)(II) OF THE INCOM E TAX RULES, 1962 (THE RULES.) AND RS.11,96,529/ - UNDER RULE 8D(2)(III) OF THE RULES. 3. FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY FILED ITS RETURN OF INCOME ON 9.8.2011 DECLARING A TOTAL INCOME OF RS.98,99,220/ - , WHICH WAS PROCESSED UNDER SE CTION 143(1) OF THE ACT. THE CASE WAS SELECTED FOR SCRUTINY AND THE STATUTORY NOTICES UNDER SECTION 143(2) AND 142(1) OF THE INCOME TAX ACT, 1961 WERE ISSUED AND SERVED UPON THE ASSESSEE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE HAS RECEIVED THE DIVIDEND INCOME OF RS.88,99,124/ - WHICH WAS CLAIMED AS EXEMPT UNDER SECTION 10(34) OF THE ACT AND THE ASSESSEE SUO MOTTU DISALLOWED A SUM OF RS.11,96,529/ - BEING 0.5% OF T HE AVERAGE INVESTMENT UNDER SECTION 14A R.W.RULE 8D (2)(III) OF THE RULES . ACCORDING TO THE AO THE ASSESSEE DID NOT MAKE ANY DISALLOWANCE QUA INTEREST EXPENSES WHILE CALCULATING T HE DISALLOWANCE UNDER SECTION 14A OF THE ACT . ACCORDINGLY, THE AO ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE AS TO WHY THE DI SALLOWANCE SHOULD NOT BE RE - WORKED AS PER THE PROVISIONS OF SECTION 14A OF THE ACT R.W.R 8D OF THE RULES WHICH WAS REPLIED BY THE ASSESSEE V IDE LETTER DATED 11.3.2013 WHICH IS INCORPORATED BY THE AO IN THE ASSESSMENT ORDER AT PAGE NO 2 AND 3 SUBMITT ING T HEREIN THAT THE ASSESSEE WAS BROKER AND DEAL ER IN SHA R ES AS MEMBER OF BOMBAY STOCK EXCHANGE WHICH WAS BEING CONTINUED SINCE ITS INCORPORATION. IT WAS ALSO SUBMITTED THAT DURING THE YEAR THE ASSESSEE EARNED 3 ITA NO. 6942 / MUM/ 201 3 INCOME BY WAY OF BROKERAGE , INTEREST ON DEPOSITS , SHARE TRADING INCOME AND LONG TERM CAPITAL GAINS ON SALE OF SHARES . THE SHARE CAPITAL OF THE ASSESSEE AS ON 31.3.2011 WAS RS.1,44,01,000/ - BESIDE UTILIZING BORROWED FUNDS FOR THE OF TRADING IN SHARES IN ITS BUSINESS. THE TOTAL LOAN OUTSTANDING AS O N 31.3.2011 W AS TO THE TUNE OF RS.22,38,33,600/ - . T HE CLOSING STOCK S OF SHARES W AS AT RS.24,33,49,057/ - MEANING THEREBY THAT ALL THE BORROWED MONEY WAS USED IN THE SHARE TRADING BUSINESS WHICH WAS DULY EVIDENCED AND CORROBORATED BY THE STOCK - IN - TRA DE OF SHARES AT THE YEAR AS ON 31.3.2011. HOWEVER, THE AO WAS NOT CONVINCED WITH THE REPLY OF THE ASSESSEE AND DISALLOWED RS.2,16,60,021/ - ON ACCOUNT OF INTEREST EXPENDITURE OF U/S 14A READ WITH RULE 8D(2)(II) WHERE AS ACCEPTING THE SUO MOTTO DISALL OWANCE UNDER SECTION 14A R.W.R 8D(2) (III) OF THE RULES AT RS.11,96,529/ - . A CCORDINGLY AN ADDITION OF RS.2,16,60,021/ - WAS MADE BY THE AO TO THE TOTAL INCOME VIDE ORDER DA T ED 22.3.2013 PASSED UNDER SETION143(3) OF THE ACT ASSESSING THE TOTAL INCOME A T R S.3,15,59,240/ - . AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A) WHO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE ALLOWED THE APPEAL OF THE ASSESSEE BY OBSERVING AND HOLDING AS UNDER : 2.3 I HAVE CONSIDERED T HE FACTS OF THE CASE AND THE ARGUMENTS OF THE APPELLANT. I FIND THAT SIMILAR ISSUE WAS INVOLVED IN AY 2009 - 10 AND THE MATTER WENT UPTO IT.A.T. STAGE WHO VIDE ORDER ITA NO.L738/MUM/2012 DATED 28TH MARCH 2013 HAS HELD AS UNDER: - 'THE AR FURTHER POINTED OU T THE ISSUE IN QUESTION IS COVERED BY THE CASE OF DCIT VS. INDIA ADVANTAGE SECURITIES LTD. ITA NO.67 11 /MUM/2011 (WHEREIN 4 ITA NO. 6942 / MUM/ 201 3 ONE OF US A PARTY TO THE DECISION TOOK THE VIEW THA T NO DISALLOWANCE COULD BE MADE U/S 14A IN RESPECT OF DIVIDEND INCOME RECEIVED FROM SHARES HELD AS TRADING STOCK PLACING RELIANCE ON THE DECISIONS OF CCL LTD V/S JCIT REPORTED IN 250 CTR 291 (KAR) AND IN THE CASE OF GAJAN TRADING CO.PCT. LTD ITA NO.3724/MUM/2005. IN THIS CASE, THE COORDINATE BENCH DISTINGUISHED SPECIAL BENCH IN DAGA CAPITAL (SUPRA) BY HOLDING THAT DECISION OF DAGA CAPITAL WAS NOT APPLICABLE IN THE CASE OF DIVIDEND RECEIVED FROM TRADING SHARES (SIT). IN THE LIGHT OF THE ABOVE DECISION, WE ARE INCLINED TO ALLOW GROUNDS 1 AND 2. WE THEREFORE, SET ASIDE THE ORDER OF T HE CIT(A) AND DIRECT THE AO TO RESTRICT THE DISALLOWANCE AT RS.3,46,390 AS COMPUTED BY THE ASSESSEE AND SUO MOTO DISALLOWED BY IT.' ON THE BASIS OF THE ABOVE DECISION, I HAVE DECIDED THE APPELLANT'S APPEAL FOR AY 2010 - 11 VIDE ORDER DATED 28/6/2013 AS UND ER: 'I HAVE CONSIDERED THE FACTS OF THE CASE AS WELL AS GONE THROUGH THE TRIBUNAL'S ORDER AND FOUND THAT SIMILAR ISSUE WAS THERE IN AY. 2009 - 10 AND THE HON'BLE ITAT VIDE ORDER ITA NO.1738/MUM/2012 DATED 28TH MARCH 2013 HAS SET ASIDE THE ORDER OF THE CIT( A) AND DIRECTED THE AO TO RESTRICT THE DISALLOWANCE AS COMPUTED BY THE APPELLANT AND SUO MOTO DISALLOWED BY IT. FOLLOWING THE ABOVE ORDER OF THE IT A T, THE AO IS DIRECTED TO RESTRICT THE DISALLOWANCE AS COMPUTED BY THE APPELLANT. THIS GROUND OF APPEAL IS AL LOWED.' IN VIEW OF THE ABOVE DECISION OF HON'BLE IT AT, THE AO IS DIRECTED NOT TO MAKE ANY DISALLOWANCE IN RESPECT OF DIVIDEND RECEIVED FROM SHARES HELD AS TRADING STOCK. AO IS DIRECTED TO RE - COMPUTE THE DISALLOW ANCE ACCORDINGLY. THE GROUND OF APPEAL IS, THUS, PARTLY ALLOWED . 4. THE LD. DR WHILE RELYING HEAVILY RELIED ON THE ORDER OF ASSESSING OFFICER SUBMITTED THAT THE LD. CIT(A) HAS PASSED ORDER WITHOUT PROPERLY UNDERSTANDING THE FACTS OF THE CASE AS THE ASSESSEE HAS FAILED TO DISALLOW INTEREST EXP ENSES ON THE BORROWED FUNDS, WHEREAS THE ASSESSEE HAS SUO MOTTU DISALLOWED THE OTHER EXPENSES TO THE TUNE OF RS.11,96,528/ - U/S 14A R.W. RULE 8D(2)(III) OF THE RULES 5 ITA NO. 6942 / MUM/ 201 3 WHICH ITSELF SHOWED THAT THE INTEREST DISALLOWANCE WAS REQUIRED TO BE MADE AND THEREFORE , THE AO HAS RIGHTLY WORKED OUT THE DISALLOWANCE AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE . FINALLY , THE LD. DR P R AYED THAT THE ORDER OF THE LD. CIT(A) BE SET ASIDE AND THAT OF AO BE RESTORED. 5 . WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS AND PERUSED THE MATERIAL PLACED ON RECORD INCLUDING THE IMPUGNED ORDER . THE LD. AR VEHEMENTLY SUBMITTED BEFORE US THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF SHARE TRADING AS MEMBER OF BOMBAY STOCK EXCHANGE LTD. F OR THE PURPOSE OF BUSINESS T HE A S SES SEE HAS DEPLOYED ITS OWN FUND AS WELL AS BORROWED FUNDS. WE NOTE THAT AT THE YEAR END THE AMOUNTS OF OWN AND BORROWED CAPITAL AND CLOSING STOCKS OF SHARES AS APPEARING BALANCE S HEET ARE AS UNDER: - I) SHARE CAPITAL RS.1,44,01,000/ - II) B O RROWED FUNDS R S.22,38,33,600/ - III) CLOSING S TOCK - IN TRADE OF SHARES RS.24,33,49,057/ - FROM THE ABOVE IT IS QUITE CLEAR THAT NO DISALLOWANCE O F INTEREST WAS CALLED FOR AS THE ASSESSEE WAS ENGAGED IN THE SHARE TRADING AND NOT INVESTMENT IN SHARE S . THE FAA HAS RELIED ON A NUMBER OF DECISIONS WHILE ALLOWING THE APPEAL OF THE ASSESSEE AS DISCUSSED ABOVE NAMELY DCIT VS. INDIA ADVANTAGE SECURITIES LTD. ITA NO.6711/MUM/2011 AND CCL LTD V/S JCIT REPORTED IN 250 CTR 291 (KAR). THE LD. CIT(A) ALSO DISCUSSED THE DECISION OF CALCUTTA BENCH OF THE TRIBUNAL IN 6 ITA NO. 6942 / MUM/ 201 3 THE CASE OF M/S. DAGA CAPITAL MANAGEMENT PVT. LTD. (2008) REPORTED IN 26 SOT 603. WE ALSO FIND THAT THE LD. CIT(A) ALREADY DECIDED THE ISSUE IN THE ASSESSMENT YEAR 2010 - 11 BY FOLLOWING THE SAID DECISION S WHICH IS CORRECT AND AS PER THE LAW. IN VIEW OF THE ABOVE DISCUSSIONS, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) DELETING THE DISALLOWANCE U/S 14A R.W.R 8D (2)(II) OF THE RULES AS MADE BY THE AO . THE ORDER OF THE LD.CIT(A) IS UPHELD ACCORDINGLY BY DISMISSING THE APPEAL OF THE REVNEUE . 6. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 27. 10.2016 . SD SD ( MAHAVIR SINGH ) ( RAJESH KUMAR ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 27 . 10 .2016 SR.PS:SRL: / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT( A) 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, TRUE COPY / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI