ENAM SHARES AND SECURITIES, MUMBAI V. ASST CIT 4(1), MUMBAI

ITA 711/MUM/2012

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0832 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 5 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 28-07-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 02-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S S RANA
• Assessee Lawyers: R V CHANIYARI
• Keywords: Earning of tax free income
• Section: 14A; 115JB

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI E BENCH . . , , , BEFORE S/SH. A.D. JAIN ,JUDICIAL MEMBER & RAJE NDRA,ACCOUNTANT MEMBER /. ITA NO. 711 /MUM/201 2 , / ASSESSMENT YEAR - 200 8 - 09 ENAM SHARES AND SECURITIES 24 BD, RAJBAHADUR COMPOUND AMBALAL DOSHI MARG, FORT MUMBAI - 400 023. PAN: AAACE 5146 N VS THE ACIT - 4(2) AAYAKAR BHAVAN MUMBAI - 400 020. ( / APPELLANT ) ( / RESPONDENT ) /ASSESSEE BY : SHRI R.V. CHANIYARI - AR / REVENUE BY : SHRI S.S. RANA - DR / DATE OF HEARING : 2 8 - 0 7 - 2015 / DATE OF PRONOUNCEMENT : 31 - 0 7 - 2015 , 1961 254 ( 1 ) ORDER U/S.254(1)OF THE INCOME - TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DATED 11.11.2011 OF THE CIT(A) - 9 , MUMBAI ,THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1. THAT ON THE FACTS AND IN THE CI RCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED ASSISTANT COMMISSIONER OF INCOME TAX (HEREINAFTER REFERRED TO AS THE ACIT) HAS ERRED IN INVOKING THE PROVISIONS OF SECTION 14A(2) READ WITH RULE 8D AND DISALLOWING EXPENSES INCURRED IN RELATION TO EXEMPT INCOME OF RS.14,05,004/ - WHILE WORKING OUT BOOK PROFIT U/S 115JB OF THE INCOME TAX ACT,1961. THE HONORABLE CIT (A) HAS ERRED IN CONFIRMING THE ACTION OF LEARNED ACIT AND DISALLOWED THE SAID EXPENDITURE OF RS.14,05,004/ - . THE LEARNED ACIT BE DIRECTED TO DELETE THE ADDITION OF RS.14,05,004/ - MADE TO THE BOOK PROFITS WORKED OUT AS PER PROVISION OF SECTION 14A(2) READ WITH RULE 8D AND REDUCE THE TOTAL INCOME U/S 115JB ACCORDINGLY. 2. THE APPELLANT - COMPANY HOLDS THE RIGHTS TO ADD, ALTER, AMEND AND DELETE ANY OF THE GROUND/S BEFORE OR DURING THE COURSE OF THE HEARING. 0 ASSESSEE - COMPANY,ENGAGED IN THE BUSINESS OF INVESTMENT IN SHARES,FURNISHED ITS RETURN OF INCOME ON 30.09.2008 DECLARING TOTAL INCOME OF RS.4,31,58,620/ - .BOOK PROFIT WAS DISCLOSED AT RS. 56, 94, 80,525/ - . THE ASSESSING OFFICER(AO) ASSESSED TOTAL INCOME U/S.143(3) OF THE ACT,WHEREAS TOTAL INCOME U/S. 115JB WAS DETERMINED AT RS.57,08,85,529/ - . 2. EFFECTIVE GROUND OF APPEAL IS ABOUT DISALLOWANCE MADE U/S.14A OF THE ACT,AMOUNTING TO RS. 14.05 LA KHS.DURING THE ASSESS MENT PROCEEDINGS,THE AO FOUND THAT THE ASSESSEE HAD SHOWN DIVIDEND INCOME OF RS.2.34 CRORES,THAT THE DIVIDEND INCOME WAS CLAIMED AS EXEMPT,THAT IT HAD NOT ALLOCATED ANY EXPENDITURE TOWARDS EARNING TAX FREE INCOME.HE ASKED THE ASSESSEE AS TO WHY DISALLOWANCE U/S.14A SHOULD NOT BE MADE.IN RESPONSE TO THE SAME,THE ASSESSEE SUBMITTED EXPLANATION AND WORKING OF DISALLOWANCE TO BE MADE.AS PER THE AO,THE ASSESSEE MADE ITA/ 711/MUM/12 ,AY. 0 8 09 - ESSPL 2 DISALLOWANCE OF RS.19.72 LAKHS.IT WAS OBSERVED BY THE AO THAT WHILE WORKING TAX COMPUTATION UNDER THE MAT PROVISIONS THE ASSESSEE HAD INCLUDED EXPENSES ATTRIBUTABLE TO EARNING OF TAX EXEMPT INCOME ONLY AT RS.5.67 LAKHS AS AGAINST DISALLOWANCE OF RS.19.72 LAKHS MADE AS PER THE PROVISIONS OF SECTION 14A OF THE ACT. HE MADE AN ADDI TION OF RS.14.05 LAKHS TO THE BOOK PROFIT OF THE ASSESSEE . 3. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA). BEFORE HIM THE ASSESSEE ARGUED THAT NO EXPENDITURE WAS INCURRED IN RELATION TO THE EAR NING OF DIVIDEND INCOME,THAT EVEN IF RULE 8D WAS APPLICABLE THE AO HAD ERRED IN WORKING OUT THE AVERAGE INVESTMENT BY INCLUDING THE INVESTMENT INCOME FROM WHICH WERE NOT EXEMPT FROM TAX. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND ASSESSMENT ORD ER,THE FAA HELD THAT THE MANDATE OF SECTION 14A OF THE ACT WAS TO PREVENT CLAIMS OF DEDUCTION OF EXPENDITURE INCURRED IN RELATION TO THE INCOME WHICH DID NOT FORM PART OF THE TOTAL INCOME OF THE ASSESSEE,THAT THE ASSESSEE COULD NOT ESTABLISH THE NEXUS BET WEEN THE ENTIRE CAPITAL BEING INVESTED IN SECURITIES AND THAT IT WAS IMPOSSIBLE TO BELIEVE THAT OUT OF THE COMMON HOTCH POTCH OF THE FUNDS THE ENTIRE CAPITAL WOULD HAVE GONE INTO THE INVESTMENT IN SHARES WITHOUT A PART OF THE SHARES GOING TO THE BUSINES S,THAT IT WAS ALSO NOT POSSIBLE THAT THE ENTIRE INCOME WOULD HAVE BEEN INVESTED IN SHARES AND DEBENTURES AND SHARE APPL ICATION MONEY ESPECIALLY WHEN THE ASSESSEE HIMSELF WAS NOT CATEGORICAL AS TO HOW MUCH OF THE SUM HAD BEEN EMPLOYED IN BUSINESS, THAT T HE ASSESSEE'S CASE WAS COVERED BY SUB SECTION (3) OF SECTION 14A OF THE ACT,THAT THE ASSESSEE HAD CLAIMED BEFORE THE AO THAT NO EXPENDITURE WAS INCURRED BY IT IN RELATION TO THE EXEMPTED INCOME WHICH DID NOT FOR PART OF TOTAL INCOME,THAT THE ASSESSEES CL AIM WAS ALSO COVERED BY SUB SECTION (2) OF SECTION 14A OF THE ACT BECAUSE THE AO WAS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE,HE REFERRED TO THE DECISION OF THE SPECIAL BENCH IN THE CASE OF DAGA CAPITA L MANAGEMENT REPORTED IN (26 SOT 603) AND HELD THAT EVEN IF THE SHARES WERE HELD AS STOCK IN TRADE SAME WOULD BE CONSIDERED FOR THE PURPOSE OF DISALLOWANCE.HE REFERRED TO THE JUDGMENT OF DHAPA & SONS OF THE HON'BLE CALCUTTA HIGH COURT (54 DTR 345)AND HELD THAT MERE FACT THAT SHARES WERE OLD AND NOT ACQUIRED RECENTLY WAS IMMATERIAL,THAT IT WAS FOR THE ASSESSEE TO SHOW BY PRODUCTION OF MATERIAL THAT THE SHARES WERE ACQUIRED FROM THE FUNDS AVAILABLE IN ITS HANDS AT RELEVANT POINT OF TIME WITHOUT TAKING AN Y BENEFIT OF ANY LOAN OR THAT THE LOAN HAD ALREADY BEEN REPAID AND THAT NO INTEREST WAS PAID BY IT FOR ACQUIRING SHARES IN THE RELEVANT YEAR.HE FURTHER HELD THAT IN THE ABSENCE OF ANY SUCH MATERIAL INTEREST PAYABLE BY THE ASSESSEE WAS TO BE DISALLOWED U/S.14A OF THE ACT HAVING REGARD TO THE INVESTMENTS IN SHARES AND TOTAL INTEREST BEARING FUNDS.HE ALSO RELIED UPON THE CASE OF LEENA RAMACHANDRAN(45 DTR372). FINALLY,HE CONFIRMED THE DISALLOWANCE MADE BY THE AO. 4. DURING THE COURSE OF HEARING B EFORE US, AU THORISED REPRESENTATIVE( A R) RELIED UPON CASES OF GOETZ INDIA LTD.(32SOT101), RADHA MADHAV INVESTMENT LTD.(ITA/3897/MUM/2012 - AY. 2008 - 09, DTD. 23.10.13), RELIANCE INDUSTRIAL INFRASTRUCTURE LTD.(ITA NO. 69 - 70/MUM/2009 - 5.4.2013), ITA/ 711/MUM/12 ,AY. 0 8 09 - ESSPL 3 ESSAR TELEHOLDING LTD.(ITA/385 0/MUM/2010 - 29.07.2011). DEPARTMENTAL REPRESENTATIVE(DR) STATED THAT THE MATTER MAY BE DECIDED ON MERITS. 5. WE HAVE PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE ISSUE OF DISALLOWANCE TO BE MADE U/S.14A OF THE ACT HAS BEEN DELIBERATED UPON BY THE VARIOUS B ENCHES OF THE TRIBUNAL IN THE CASES RELIED UPON BY THE AR.IN THE MATTER OF RADHA MADHAV INVESTMENT LTD.(SUPRA)THE ISSUE HAS BEEN DECIDED AS UNDER: 2.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT ISSUE OF DISALLOWA NCE U/S.14A OF THE ACT,WHILE CALCULATING BOOK PROFITS U/S. 115JB OF THE ACT,HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL IN THE CASES REFERRED ABOVE BY THE AR.WE FIND THAT FOLLOWING DECISIONS OF THE GOETZE INDIA LTD. (SUPRA) K BENCH OF MUMB AI TRIBUNAL IN THE CASE OF RELIANCE INDUSTRIES LTD.(SUPRA) HAS HELD THAT PRINCIPAL OF APPORTIONMENT AS PROVIDED U/S. 14A SHOULD NOT BE APPLIED WHILE COMPUTING THE BOOK PROFIT U/S. 115JB OF THE ACT. IN SO FAR AS DISALLOWANCE OF ADMINISTRATIVE EXPENSES U/S 14A OF THE ACT IS CONCERNED FOR EARNING EXEMPT INCOME OF RS. 345,69,24,696/ - , WE ARE OF THE CONSIDERED VIEW THAT BY FOLLOWING THE ORDER OF LD. CIT(A) FOR THE PRECEDING ASSESSMENT YEAR I.E. ASSESSMENT YEAR 2002 - 03, IT WILL BE FAIR AND REASONABLE TO RESTRIC T THE DISALLOWANCE TO 1 % OF THE EXEMPT INCOME WHICH WORKS OUT TO RS. 3,45,69,250/ - . HOWEVER, IN REGARD TO DISALLOWANCE U/S 14A FOR COMPUTING BOOK PROFIT U/S 115JB OF THE ACT, WE OBSERVE THAT SIMILAR ISSUE HAD COME UP BEFORE THE TRIBUNAL, MUMBAI BENCH IN T HE CASE OF RELIANCE INDUSTRIAL INFRASTRUCTURE LTD V/S ADDL. CIT IN ITA NOS. 69 AND 70/MUM/2009 (AY - 2005 - 06 AND 2006 - 07) AND TRIBUNAL VIDE ORDER DATED 5.4.2013 AFTER FOLLOWING THE DECISION OF DELHI BENCH OF TRIBUNAL IN GOETZE (INDIA) LTD (32 SOT 101) (DEL) AND THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN M/S BENGAL FINANCE AND INVESTMENT P. LTD. IN ITA NO. 5620/MUM/2010, DATED 31.07.2012 HAS HELD THAT WHILE COMPUTING BOOK PROFIT U/S 115JB OF THE ACT, PROVISIONS OF SECTION 14A CANNOT BE IMPORTED. THEREFORE , AMOUNT DISALLOWED U/S 14A OF THE ACT CANNOT BE CONSIDERED WHILE COMPUTING BOOK PROFIT U/S 115JB OF THE ACT. ACCORDINGLY, THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE. IN VIEW OF ABOVE GROUND NO.4 OF THE APPEAL TAKEN BY THE ASSESSEE IS ALLOWED IN PART BY RESTRICTING THE DISALLOWANCE TO RS. 3,45,69,250/ - TOWARDS ADMINISTRATIVE AND GENERAL EXPENSES U/S 14A OF THE ACT TOWARDS EARNING OF EXEMPT INCOME U/S 10(23G) OF THE ACT WHILE COMPUTING TOTAL TAXABLE INCOME UNDER THE NORMAL PROVISIONS OF ACT. HOWEVER, NO DISALLOWANCE UNDER SECTION 14A BE CONSIDERED WHILE COMPUTING BOOK PROFIT U/S 115JB OF THE ACT. CONSEQUENTLY, GROUND NO.4 TAKEN BY THE DEPARTMENT IS REJECTED. FOLLOWING THE ABOVE GROUND NO.3 IS DECIDED IN FAVOUR OF THE ASSESSEE. RESPECTFULLY,FOLLOWING THE ABOVE MENTIONED DECISIONS AT PARAGRAPH 4 OF THE ORDER , WE REVERSE THE ORDER OF THE FAA AND DECIDE EFFECTIVE GROU ND OF APPEAL IN FAVOUR OF THE ASSESSEE . AS A RESULT,APPEAL FILED BY THE ASSESSEE STANDS ALLOW ED. . ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST JU LY ,2015. 31 , 2015 SD/ - SD/ - ( . . / A.D. JAIN ) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER ITA/ 711/MUM/12 ,AY. 0 8 09 - ESSPL 4 / MUMBAI, /DATE: 31 .07. 2015 . . . JV. SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR A BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGIS TRAR , / ITAT, MUMBAI.