STARWAR COMTRADE P.LTD, MUMBAI V. ASST CIT CIR 3(3), MUMBAI

ITA 7291/MUM/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2267 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-07-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2010-2011
• Appeal Filed On: 08-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J SARAVANAN
• Keywords: Business income; Earning of tax free income
• Section: 14A; 115JB; 2

Judgement Text

1 , , , , INCOME-TAX APPELLATE TRIBUNAL -EBENCH MUMBAI , . . , BEFORE S/SH.RAJENDRA,ACCOUNTANT MEMBER AND C.N. PRASAD,JUDICIAL MEMBER ./ITA.S./7291-92/MUM/2014, /AY.S.2010-11 & 2011-12 M/S. STARWAR COMTRADE P. LTD. 11,12 1ST FLOOR, PALM SPRING HASTIKAR MARG, PRABHADEVI MUMBAI-400 025. PAN:AAFCS 6880 A VS. ACIT, RANGE- 3(3) AAYAKAR BHAVAN, 6TH FLOOR MUMBAI-400 020. ( /APPELLANT ) ( / RESPONDENT ) REVENUE BY: SHRI J. SARAVANAN -DR ASSESSEE BY: SHRI DHARMESH SHAH / DATE OF HEARING: 07.07.2016 / DATE OF PRONOUNCEMENT: 27.07.2016 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDERS,DATED 30/10/2014 OF THE CIT (A)-7,MUMBAI THE ASSESSEE HAS FILED THE APPEALS FOR THE ABOVE-MENTIONED ASSES SMENT YEARS(AY.S.).ISSUE INVOLVED IN ALL THE APPEALS IS ABOUT DISALLOWANCE M ADE U/S.14A OF THE ACT.SO,WE ARE ADJUDICATING BOTH THE APPEALS BY SINGLE ORDER. THE DETAILS OF DATES OF FILING OF RETURNS,RETURNED INCOMES AND ASSESSED INCOME ETC . CAN BE SUMMARISED AS UNDER IN THE TABULAR FORM: A.Y. ROI FILED ON RETURNED INCOME(RS.) ASSESSMENT DT. ASSESSED INCOME(RS.) 2010-11 20.09.2010 (-)RS.2.28 CRORES 28.12.2012 (-) 7,04,116/- 2011-12 16.09.2011 NIL - 2,61,14,570/- ITA/7291/MUM/2014-AY. 2010-11: 2. EFFECTIVE GROUND OF APPEAL IS ABOUT DISALLOWANCE MA DE UNDER SECTION 14 A OF THE ACT READ WITH RULE 8D OF THE INCOME TAX RULES, 1962 (RULES), AMOUNTING TO RS.2.21 CRORES.ASSESSEE-COMPANY IS ENGAGED IN THE B USINESS OF TRADING IN SHARES, SECURITIES, DERIVATIVES AND COMMODITIES. 2.1. DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT ASSESSEE HAD RECEIVED DIVIDEND INCOME OF RS. 17.60 LAKHS IN RESPECT OF TH E SHARES HELD BY IT,THAT IT HAD CLAIMED THE DIVIDEND INCOME AS EXEMPT FROM TAX.HE H ELD THAT THE PROVISIONS OF 7291/M/14STARWAR 2 SECTION 14A OF THE ACT WERE APPLICABLE FOR DISALLOW ANCE OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME.THE AO DIRECTED THE AS SESSEE TO FURNISH DETAILS OF EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DI D NOT FORM PART OF TOTAL INCOME AND TO EXPLAIN AS TO WHY DISALLOWANCE IN THA T REGARD SHOULD NOT BE MADE AS PER THE METHODOLOGY DIVIDED IN RULE 8D.IN ITS RE PLY, THE ASSESSEE CONTENDED THAT IT WAS INTO SHARE TRADING AND INVESTMENT ACTIV ITY, THAT IT HAD HELD THE SHARES AS STOCK IN TRADE, THAT DISALLOWANCE UNDER RULE 8D WAS NOT APPLICABLE. IT RELIED UPON THE CASE OF YATISH TRADING COMPANY PRIVATE LTD .(129ITD237). 2.2. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE TH E AO HELD THAT THE PROVISIONS OF SECTION 14A STIPULATED THAT DISALLOWA NCE OF EXPENSES INCURRED IN RELATION TO EXEMPT INCOME HAD TO BE MADE, THAT NO E XCEPTION, SUCH AS DIVIDEND BEING MEAN OR INCIDENTAL INCOME, HAD BEEN CARVED OU T IN THE PROVISION, THAT THE RELATION OF EXPENSES FOR DISALLOWANCE WAS WITH THE EXEMPT INCOME IRRESPECTIVE OF THE SOURCE OR NATURE OF THE EXEMPT INCOME, THERE WAS NO REASON TO HOLD THAT WHERE THE DIVIDEND INCOME WAS ARISING OUT OF THE ST OCK IN TRADE THE PROVISIONS OF SECTION 14A WOULD NOT BE APPLICABLE.INVOKING THE PROVISIONS OF RULE 8D OF THE RULES,THE AO MADE A DISALLOWANCE OF RS. 2, 21, 87, 808/-. 3. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA).BEFORE HIM, IT WAS ARGUED THAT ASSESSEE DID NOT DISALLOW ANY SOME UNDER SECTION 14A OF THE ACT,THAT IN RESPECT OF DIVIDEND AMOUNT OF RS.17.65 LAKHS IT DID NOT INCUR ANY EXPEN DITURE,THAT THE EXPENDITURE INCURRED BY IT WERE IN THE NATURE OF BUSINESS EXPEN DITURE, THAT IT WAS A TRADER IN SHARES AND SECURITIES, THAT THE DIVIDEND INCOME ARI SING TO IT WAS INCIDENTAL TO BUSINESS BEING IN THE NATURE OF EXEMPT INCOME. THE ASSESSEE RELIED UPON THE CASE OF YATISH TRADING COMPANY PRIVATE LTD.(SUPRA), CCI LTD.(250 CTR 291) AND LEENA RAMACHANDRAN(339ITR 296). IT WAS FURTHER ARGUED THAT THE STOCK IN TRADE HELD BY THE ASSESSEE COULD NEVER BE EQUATED W ITH THE INVESTMENT, THAT 7291/M/14STARWAR 3 STOCK IN TRADE WAS A BUSINESS ASSET, THAT THE INVES TMENTS WOULD BE FOR EARNING LONG-TERM BENEFIT INCLUDING APPRECIATION OF ASSETS, THAT NO DISALLOWANCE UNDER SECTION 14 A COULD BE MADE ON SHARES HELD AS STOCK IN TRADE. THE ASSESSEE FILED THE DETAILS OF DIVIDEND EARNED DURING THE YEAR AND STATED THAT NUMBER OF DIVIDEND RECEIVED WAS ONLY FIVE THAT TO PROVE ECS D IRECTLY, THAT THERE WAS ONLY ONE MAJOR DIVIDEND RECEIVED THAT WAS ON ACCOUNT OF SHARES OF ORBIT CORPORATION. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AN D THE ASSESSMENT ORDER, THE FAA HELD THAT RULE 8D (2) (II) WOULD APPLY TO SHARE S HELD AS STOCK IN TRADE AS WELL.REFERRING TO VARIOUS CASE LAWS,THE FAA UPHELD THE ORDER OF THE AO. 4. DURING THE COURSE OF HEARING BEFORE US,THE AUTHORIS ED REPRESENTATIVE(AR) STATED THAT ASSESSEE HAD NOT CLAIMED ANY EXPENDITUR E AGAINST THE EXEMPT INCOME, THAT THE DIVIDEND INCOME WAS RECEIVED FOR THE STOCK IN TRADE HELD BY THE ASSESSEE,THAT THE PROVISIONS OF SECTION 14A WERE AP PLICABLE TO THE SHARES HELD AS INVESTMENTS. WITH REGARD TO THE ADDITIONAL GROUNDS RAISED,HE STATED THAT THE AO HAD MADE THE DISALLOWANCE OF RS.2.12 CRORES UNDER T HE HEAD INTEREST EXPENDI - TURE,THAT THE ASSESSEE HAD NOT INCURRED ANY DISMISS EXPENDITURE TO OR EXEMPT INCOME.HE RELIED UPON THE CASES OF INDIA ADVANTAGE SECURITIES LTD. (380 ITR471),HDFC BANK LTD.(383 ITR 529).THE DEPARTMENTA L REPRESENTATIVE LEFT THE ISSUE TO THE DISCRETION OF THE BENCH. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT DURING THE YEAR UNDER CONSIDERATION THE A SSESSEE HAD AND EXEMPT INCOME OF RS. 17.60 LAKHS, THAT THE AO HAD MADE DIS ALLOWANCE UNDER THE HEAD INTEREST EXPENDITURE(RS.2.12 CRORES) AND TWISTED EV ENT OTHER EXPENDITURE (RS. 9.06 LAKHS),THAT THE ASSESSEE WAS HOLDING SHARES UN DER THE HEAD STOCK IN TRADE ALSO, THAT THE FAA HAD CONFIRMED THE DISALLOWANCE M ADE BY THE AO WHO HAD APPLIED THE RULE 8D OF THE RULES.IN OUR OPINION,BEF ORE MAKING ANY DISALLOW - ANCE INVOKING THE PROVISIONS OF SECTION 14 A THE FI RST THING TO BE DETERMINED IS 7291/M/14STARWAR 4 TO FIND OUT AS TO HOW MUCH EXPENDITURE WAS CLAIMED BY AN ASSESSEE TO OR EXEMPT INCOME.IF NO EXPENDITURE IS CLAIM BY THE ASS ESSEE TO EARN THE INCOME WHICH DOES NOT FORM PART OF THE TAXABLE INCOME,NO D ISALLOWANCE COULD BE MADE. THE BASIC PURPOSE TO INTRODUCE THE SECTION 14A OF T HE ACT WAS TO DENY THE ASSESSEE TO CLAIM DOUBLE BENEFIT IN THE FORM OF CLA IMING EXPENDITURE AGAINST THE EXEMPT INCOME.THEREFORE, FOR INVOKING THE PROVISION S OF SAID SECTION TWO BASIC FACTS HAVE TO BE ESTABLISHED I.E. EARNING OF EXEMPT INCOME AND INCURRING OF EXPENDITURE BY AN TO EARN SUCH INCOME. IN THE CASE UNDER CONSIDERATION THE AO HAS NOT GIVEN ANY DETAIL ABOUT THE EXPENDITURE INCU RRED BY THE ASSESSEE FOR EARNING DIVIDEND INCOME DURING THE INCOME UNDER APP EAL.SECONDLY, NO DISALLOWANCE U/S. 14A CAN BE MADE,IF THE EXEMPT INC OME IS PART OF THE BUSINESS INCOME IF IT IS ARISING OUT OF THE BUSINESS ASSETS. IN THE CASE UNDER CONSIDERATION THE ASSESSEE WAS HAVING INVENTORIES RS.16.28 CRORES AS ON 31.3.2010. THE AO HAS NOT BROUGHT ON RECORD AS TO HOW MUCH EXPENDITUR E WAS INCURRED BY THE ASSESSEE TO EARN DIVIDEND INCOME ON THE INVESTMENTS MADE BY IT. WE FIND THAT THE ISSUE OF NON TAXABILITY OF EXEMPT INCOME WITH R EGARD TO STOCK IN TRADE HAS BEEN DECIDED BY THE HON'BLE BOMBAY HIGH COURT IN T HE CASE OF ADVANTAGE SECURITIES LTD.(SUPRA),HAS HELD THAT DISALLOWANCE O F EXPENSES CAN BE MADE WHICH ARE INCURRED FOR EARNING DIVIDEND. FOR THAT P URPOSE, THE FIGURES UNDER THE HEAD INVESTMENT COULD BE TAKEN.SIMILAR VIEW HAVE BEEN EXPRESSED IN THE CASES RELIED UPON BY THE ASSESSEE.RESPECTFULLY FOLL OWING THE ABOVE JUDGMENTS, EFFECTIVE GROUND OF APPEAL IS DECIDED IN FAVOUR OF THE ASSESSEE. 6. SECOND GROUND OF APPEAL IS ABOUT SUSTAINING NOTIONA L DISALLOWANCE TO THE BOOK PROFIT COMPUTED U/S. 115JB OF THE ACT.TREATING THE SECOND GROUND AS CONSEQUENTIAL,WE ALLOW IT FOR STATISTICAL PURPOSES. 7291/M/14STARWAR 5 7. THE EFFECTIVE GROUND HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE, THEREFORE, WE ARE NOT ADJUDICATING THE ADDITIONAL GROUNDS RAISED BY THE ASSESSEE SEPARATELY. ADDITIONAL GROUNDS STAND ALLOWED FOR STATISTICAL PU RPOSES. ITA/7292/MUM/14 -AY.2011-12: 8 .FOLLOWING OUR ORDER FOR THE EARLIER YEAR, WE ALLOW THE APPEAL FILED BY THE ASSESSEE AS THE FACTS AND CIRCUMSTANCES OF THE CAS E ARE SIMILAR TO THE FACTS OF THE EARLIER YEAR-THE ONLY DIFFERENCE BEING THE AMOUNTS INVOLVED.DURING THE YEAR THE ASSESSEE HAD RECEIVED DIVIDEND INCOME OF RS.26.68 L AKHS AND THE AO HAD MADE THE DISALLOWANCE OF RS.2.37 CRORES U/S. 14A R.W.R. 8D OF THE RULES. EFFECTIVE GROUND OF APPEAL IS DECIDED IN FAVOUR OF THE ASSESS EE. GR.NO.2 AND THE ADDITIONAL GROUND RAISED BY THE ASSESSEE ARE ALLOWE D FOR STATISTICAL PURPOSE FOR THE AY.UNDER APPEAL ALSO. AS A RESULT APPEALS FILED BY THE ASSESSEE FO R BOTH THE AY.S. STAND ALLOWED. !'# $% .. & '()* +(,-. . ORDER PRONOUNCED IN THE OPEN COUR T ON 27 TH JULY,2016. +& / ( 27 , 2016 SD/- SD/- ( . . / C.N. PRASAD ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 27.07.2016. 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.