DCIT (OSD) 2(3), MUMBAI V. SUBHKAM VENTURES INDIA P.LTD, MUMBAI

ITA 6973/MUM/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8734 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-01-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2010-2011
• Appeal Filed On: 14-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BEENA SANTOSHDR
• Keywords: Business income; Depreciation; Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUM BAI , BEFORE SHRI RAJENDRA, A.M. AND SHRI PAWAN SINGH,J.M . ./ITA NO.6973/MUM/2014, / ASSESSMENT YEAR: 2010 11 DCIT(OSD)-2(3) ROOM NO.552, 5TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD MUMBAI-400 020 VS. M/S. SUBHKAM VENTURES INDIA PVT. LTD. THE INTERNATIONAL HOUSE 4TH FLOOE, 16, M.K. ROAD, CHURCHGATE MUMBAI-400 020. PAN: AAACW 1624 M ( /APPELLANT ) ( / RESPONDENT ) REVENUE BY: M/S. BEENA SANTOSH-DR ASSESSEE BY: SHRI SANJAY PARIKH / DATE OF HEARING: 12.01.2017 / DATE OF PRONOUNCEMENT: 18.01.2017 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) , / PER RAJENDRA A.M. - CHALLENGING THE ORDER OF THE DATED 12.08.14 OF CIT( A)-6, MUMBAI THE ASSESSING OFFICER (AO)HAS FILED THE PRESENT APPEAL.ASSESSEE-COMPANY,E NGAGED IN THE BUSINESS OF INVESTMENT AND TRADING IN SHARES AND SECURITIES FILED ITS RETU RN OF INCOME ON 05.10.2010 DECLARING LOSS AT RS.1.36 CRORES.THE AO COMPLETED THE ASSESSMENT U/S. 143(3) ON 28.03.13, DETERMINING ITS INCOME AT RS.(-)1,13,768/-. 2. EFFECTIVE GROUND OF APPEAL IS ABOUT RESTRICTING TH E DISALLOWANCE U/S.14A OF THE ACT TO RS.25.88 LAKHS.DURING THE ASSESSMENT PROCEEDINGS,TH E AO FOUND THAT THE ASSESSEE HAD EARNED EXEMPT INCOME OF RS.1.60 CRORES(RS.67.20 LAKHS DIVI DEND INCOME AND RS.93.45 LAKHS LTCG), THAT THE ASSESSEE ITSELF HAD MADE A DISALLO WANCE OF RS.25.09 LAKHS U/S.14A R.W. RULE 8D OF THE INCOME TAX RULES ,1962(RULES).THE AO DIRE CTED THE ASSESSEE TO FILE EXPLANATION IN THAT REGARD. AFTER CONSIDERING THE SUBMISSION OF TH E ASSESSEE THE AO HELD THAT THE WHOLE OF THE ADMINISTRATIVE EXPENSES,STT AND DEPRECIATION A GGREGATING TO RS.1.05 CRORES WAS DIRECTLY ATTRIBUTABLE TO THE EXEMPT INCOME, THAT WHOLE OF TH E INTEREST EXPENSES (RS.52.11 LAKHS) AND BANK CHARGES OF RS.17,493/- INCURRED BY THE ASSESSE E WERE DIRECTLY ATTRIBUTABLE TO EARNING OF EXEMPT INCOME.THUS,HE MADE AGGREGATE DISALLOWANCE OF RS.1.57 CRORES U/S.14A R.W.RULE 8D.WITHOUT PREJUDICE TO THE ABOVE THE AO COMPUTED T HE DISALLOWANCE U/S.14A R.W.RULE 8D (2)(III)AT RS.8.90LAKHS, THAT HE ALSO DISALLOWED CL AIM OF INTEREST OF RS.52.11 LAKHS U/S.36 (1) (III).HOWEVER IN THE ASSESSMENT ORDER THE AO MADE D ISALLOWANCE OF RS.1.57 CRORES ONLY (RS1.05 CRORES + RS.52.11LAKHS). 6973/M/14-SUBHKAM VENTURES 2 3. AGGRIEVED BY THE ORDER OF THE AO ASSESSEE PREFERRE D AN APPEAL BEFORE FIRST APPELLATE AUTHORITY (FAA) AND MADE ELABORATE SUBMISSION AND R ELIED UPON CERTAIN CASE LAWS. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE ASSESSMENT ORDER,HE HELD THAT THE INVESTMENT IN THE SHARES HAD REMAINED SAME AT RS.17 .61 CRORES IN THE BEGINNING AND END OF THE YEAR,THAT THE ASSESSEE HAD NOT CARRIED OUT ANY SUBSTANTIAL INVESTMENT ACTIVITY DURING THE YEAR,THAT THE INVESTMENTS HAD INFACT DECREASED, THA T THE AO WAS NOT JUSTIFIED IN MAKING DISALLOWANCE OF ALMOST WHOLE OF THE EXPENDITURE DEB ITED IN THE P&L ACCOUNT,THAT WHEN AN ASSESSEE WAS ENGAGED IN TRADING ACTIVITY IN SHARES IT HAD TO INCUR ADMINISTRATIVE AND OTHER EXPENSES NECESSARILY,THAT THE EXPENDITURE OF SUCH A CTIVITIES HAD TO BE ALLOWED,THAT TO MAINTAIN THE CORPORATE-EXISTENCE THE ASSESSEE WOULD BE COMPE LLED TO INCUR CERTAIN EXPENDITURE, THAT THERE WAS NO TRADING ACTIVITY DURING THE YEAR,THAT THE ASSESSEE HAD STILL MADE A DISALLOWANCE OF RS.25.09 LAKHS ON ITS OWN, U/S. 14A OF THE ACT. REF ERRING TO THE PROVISIONS OF SECTION 14A, HE OBSERVED THAT AO CAN MAKE THE DISALLOWANCE ONLY IF HE WAS NOT SATISFIED WITH THE CLAIM OF THE ASSESSEE REGARDING DISALLOWANCE, THAT THE AO'S DECI SION WAS PURELY SUBJECTIVE,THAT HE DID NOT CONSIDER THE FACTS FURNISHED BEFORE HIM DURING THE ASSESSMENT PROCEEDINGS.FINALLY,HE HELD THAT THE SUO-MOTU DISALLOWANCE MADE BY THE ASSESSEE APPEARED TO BE JUSTIFIED AND DIRECTED THE AO TO DELETE THE DISALLOWANCE. 4. DURING THE COURSE OF HEARING BEFORE US,THE DEPARTME NTAL REPRESENTATIVE (DR) SUPPORTED THE ORDER OF THE AO. THE AUTHORISED REPRESENTATIVE(AR)O F THE ASSESSEE CONTENDED THAT THE ASSESSEE HAS RESERVES AND SURPLUSES OF RS.162.78 CR ORES, THAT THE INVESTMENT WAS OF RS.145 CRORES ONLY, THAT THE EXEMPT INCOME EARNED BY THE A SSESSEE WAS RS.67.20, THAT THE AO HAD DISALLOWED ALMOST ALL THE EXPENDITURE CLAIMED BY TH E ASSESSEE. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE ASSESSEE ON ITS OWN HAD MADE A DISALLOWANCE OF RS.2 5.09 LAKHS, THAT DURING THE YEAR ASSESSEE HAD NOT CARRIED OUT ANY BUSINESS ACTIVITIES/INVESTM ENT ACTIVITIES,THAT INVESTMENTS HAD DECREASED BY RS.2 CRORES DURING THE YEAR UNDER APPE AL, THAT THE AO HAD NOT DENIED THE FACT THAT THE ASSESSEE WAS IN BUSINESS OF SHARES AND SEC URITIES.IN OUR OPINION, INTEREST EXPENDITURE HAD TO BE ALLOWED UNDER THE HEAD BUSINESS INCOME WH ERE AN ASSESSEE HOLDS THE SHARES AS STOCK 6973/M/14-SUBHKAM VENTURES 3 IN TRADE. THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF INDIA ADVANTAGE SECURITIES LTD. .HAS HELD THAT NO DISALLOWANCE U/S.14A IS TO BE MAD E,IF AN ASSESSEE HOLDS THE SHARES AS PART OF STOCK IN TRADE.WE ALSO FIND THAT THE AO HAS NOT REC ORDED HIS DISSATISFACTION WITH REGARD TO THE DISALLOWANCE MADE BY THE ASSESSEE ON ITS OWN.IN OUR OPINION THE FAA HAS RIGHTLY HELD THAT THE AO HAS TO REJECT THE DISALLOWANCE MADE BY THE A SSESSEE,IF HE IS NOT SATISFIED WITH THE CALCULATION.CONSIDERING THE ABOVE,WE ARE OF THE OPI NION THAT THE ORDER OF THE FAA DOES NOT SUFFER FROM ANY LEGAL OR FACTUAL INFIRMITY.SO,CONFI RMING THE SAME,WE DECIDE THE EFFECTIVE GROUND OF APPEAL AGAINST THE AO . AS A RESULT, APPEAL FILED BY THE AO STANDS DISMISSE D. . ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH JANUARY 2017. 18 , 2017 SD/- SD/- ( /PAWAN SINGH) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; /DATED : 18.01.2017. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR E BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.