ACIT CIR 4(2), MUMBAI V. S.I. INVESTMENTS AND BROKING P. LTD, MUMBAI

ITA 7483/MUM/2010

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 100755 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 10 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-09-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 03-09-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 02-11-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Earning of tax free income
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI N.K . BILLAIYA, ACCOUNTANT MEMBER AND RAM L AL NEGI, JUDICIAL MEMBER / I .T.A. NO. 7483/MUM/2010 ( / ASSESSMENT YEAR : 2007 - 08 THE ACIT, CIRCLE - 4(2), AAYAKAR BHAVAN, MUMBAI - 400 020 / VS. M/S. S.I. INVESTMENTS & BROKING PVT. LTD., 402, ROTUNDA BLDG., B.S. MARG, FORT, MUMBAI - 400 001 / I .T.A. NO. 7695/MUM/2010 ( / ASSESSMENT YEAR : 2007 - 08 M/S. S.I. INVESTMENTS & BROKING PVT. LTD., 402, ROTUNDA BLDG., B.S. MARG, FORT, MUMBAI - 400 001 / VS. THE ACIT, CIRCLE - 4(2), AAYAKAR BHAVAN, MUMBAI - 400 020 ./ ./ PAN/GIR NO. : AABCS 5547A ( / APPELLANT ) .. ( / RESPONDENT ) / REVENUE BY: SHRI NITIN WAGHMODE / ASSESSEE BY: SHRI SUBHASH S. SHETTY / DATE OF HEARING : 0 2 .0 9 .2015 / DATE OF PRONOUNCEMENT : 02 .0 9 .2015 / O R D E R PER N.K. BILLAIYA, AM: TH ESE ARE CROSS APPEAL S BY THE REVENUE AND THE ASSESSEE AGAINST THE VERY SAME ORDER OF THE LD. CIT(A) - 8 , MUMBAI D ATED 24 . 8 .201 0 PERTAINING TO ASSESSMENT YEAR 200 7 - 0 8 . BOTH THESE ITA. NO. 7695 & 7483/M/10 2 APPEALS WERE HEARD TOGETHER AND ARE DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. ITA NO. 7483/M/2010 REVENUES APPEAL 2. THE FIRST GRIEVANCE OF THE REVENUE IS THAT THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 9,58,760/ - MADE U/S. 14A OF THE ACT. 2.1. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS EARNED TAX FREE DIVIDEND INCOME OF RS. 20,10,116/ - AND LONG TERM CAPITAL GAIN OF RS. 3,50,01,481/ - WHICH WERE CLAIMED AS EXEMPT. HOWEVER, THE AO FOUND THAT THE ASSESSEE HAS NOT ALLOCATED ANY EXPENSE INCURRED FOR EARNING OF SUCH TAX FREE INCOME. INVOKING THE PROVISIONS OF SEC. 14A R.W. RULE 8D, THE AO COMPUTED THE DISALLOWANCE AT RS. 9,58,760/ - . 3. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) AND IT WAS EXPLAINED THAT RULE 8D IS NOT APPLICABLE FOR THE YEAR UNDER CONSIDERATION. THE LD. CIT(A) WAS CONVINCED THAT APPLICABILITY OF RULE 8D IS FROM A.Y. 2008 - 09. HOWEVER, AT THE SAME TIME THE LD. CIT(A) DIRECTED THE AO TO COMPUTE THE DISALLOWANCE AS PER THE FORMULA GIVEN HERE UNDER: TOTAL EXPENDITURE (DIRECT & INDIRECT) X VALUE OF TRANSACTION YIELDI NG EXEMPT INCOME VALUE OF TOTAL TRANSACTIONS 4. AGGRIEVED BY THIS, THE REVENUE IS BEFORE US AND ASSESSEE IS ALSO IN APPEAL AGAINST THIS FINDING OF THE LD. CIT(A) QUA GROUND NO. 1 OF ITA NO. 7695/M/2010. 5. THE LD. DEPARTMENTAL REPRESENTATIVE SUPPORTED THE FINDINGS OF THE AO. ITA. NO. 7695 & 7483/M/10 3 6. PER CONTRA, THE LD. COUNSEL FOR THE ASSESSEE STATED THAT SINCE RULE 8D IS NOT APPLICABLE, THE ONLY PROPER COURSE IS TO DISALLOW A REASONABLE EXPENDITURE. 7. WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. IT IS NOW SETTLED THAT RULE 8D IS APPLICABLE FROM A.Y. 2008 - 09 BY THE DECISION OF THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF M/S. GODREJ & BOYCE MANUFACTURING CO. LTD. 328 ITR 81. HOWEVER, AT THE SAME T IME, THE HONBLE HIGH COURT HAS HELD THAT THERE SHOULD BE REASONABLE DISALLOWANCE. IN OUR CONSIDERED VIEW, DISALLOWANCE @5% OF THE DIVIDEND INCOME SHOULD MEET THE ENDS OF JUSTICE. WE, ACCORDINGLY DIRECT THE AO TO RESTRICT THE DISALLOWANCE TO 5% OF THE D IVIDEND INCOME. ACCORDINGLY GROUND NO. 1 OF THE REVENUE APPEAL AND THE ASSESSEES APPEAL ARE PARTLY ALLOWED. 8. GROUND NO. 2 RELATES TO THE DELETION OF THE DISALLOWANCE MADE U/S. 40(A)(IA) IN RESPECT OF VSAT CHARGES AND LEASELINE CHARGES PAID TO STOCK EXCHANGE. 9. AT THE VERY OUTSET, THE LD. COUNSEL FOR THE ASSESSEE STATED THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS ANGEL CAPITAL AND DEBIT MARKET LTD. IN IT APPEAL NO. 475 OF 2007 WHICH HAS BEEN FOLLOWED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN A.Y. 2005 - 06 IN ITA NO. 1497/M/09 AND ITA NO. 6444/M/09 FOR A.Y. 2006 - 07. 10. THE LD. DR COULD NOT BRING ANY DISTINGUISH DECISION IN FAVOUR OF THE R EVENUE. ITA. NO. 7695 & 7483/M/10 4 11. WE FIND FORCE IN THE CONTENTION OF THE LD. COUNSEL. THE ISSUES RAISED VIDE GROUND NO. 2 HAVE BEEN CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN A.Y. 2005 - 06 AND 2006 - 07 WHEREIN THE TRIBUNAL HAS FOLLOWED THE DECISION OF THE HONBLE BOM BAY HIGH COURT (SUPRA). RESPECTFULLY FOLLOWING THE DECISION OF THE CO - ORDINATE BENCH, GROUND NO. 2 IS DISMISSED. 12. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED. ITA NO. 7695/MUM/2010 - ASSESSEES APPEAL 13. AS MENTIONED ELSEWHERE , GROUND NO. 1 HAS BEEN DECIDED ALONGWITH GROUND NO. 1 OF REVENUES APPEAL AND IS PARTLY ALLOWED. 14. GROUND NO. 2 RELATES TO THE TREATMENT OF SHORT TERM CAPITAL GAIN AS BUSINESS INCOME. 15. WHILE SCRUTINIZING THE RETURN OF INCOME, THE AO NOTICED THAT THE ASSESSEE HAS PURCHASED AND SOLD THE SHARES AT SHORT DURATION. THEREFORE, THE ASSESSEE WAS ASKED TO EXPLAIN WHY THE SHORT TERM CAPITAL GAIN SHOULD NOT BE TREATED AS BUSINESS INCOME. THE ASSESSEE FILED A DETAILED REPLY CLAIMING THAT IT IS ONLY AN INVE STOR AND NOT A TRADER. THE SUBMISSIONS MADE BY THE ASSESSEE DID NOT FIND ANY FAVOUR WITH THE AO , WHO WAS OF THE FIRM BELIEF THAT THE ASSESSEE HAS MADE PURCHASE WITH THE INTENTION TO RESELL AT A PROFIT . DERIVING SUPPORT FROM THE ASSESSEES HISTORY IN A.Y 2005 - 06, THE AO FINALLY CONCLUDED BY TREATING THE ASSESSEE AS A TRADER AND NOT AS A INVESTOR FOR THE INCOME IN RESPECT OF SHORT TERM CAPITAL GAINS AND ACCORDINGLY TREATED STCG OF RS. 1,57,15,926/ - AS BUSINESS INCOME. ITA. NO. 7695 & 7483/M/10 5 16. THE ASSESSEE CARRIED THE MATTER B EFORE THE LD. CIT(A) BUT WITHOUT ANY SUCCESS. 17. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE STATED THAT IN EARLIER YEARS, THIS ISSUE TRAVELLED UPTO THE TRIBUNAL AND THE TRIBUNAL HAS DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE IN ITA NO. 1497/M/09. ONCE AGAIN THIS ISSUE AROSE IN A.Y. 2006 - 07 AND THE TRIBUNAL IN ITA NO. 644/M/09 FOLLOWING THE EARLIER ORDER OF THE TRIBUNAL IN A.Y. 2005 - 06 DIRECTED THE AO TO TREAT THE CAPITAL GAINS UNDER THE HEAD CAPITAL GAINS . AS NO DISTINGUIS HING DECISION HAS BEEN BROUGHT ON RECORD BY THE DR, RESPECTFULLY FOLLOWING THE DECISION OF THE CO - ORDINATE BENCH IN ASSESSEES OWN CASE (SUPRA), WE DIRECT THE AO TO TREAT THE SHORT TERM CAPITAL GAIN AS SUCH. GROUND NO. 2 IS ACCORDINGLY ALLOWED. 18. IN T HE RESULT, THE APPEALS FILED BY THE REVENUE AND THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 2 ND SEPTEMBER , 2015 SD/ - SD/ - ( RAM L AL NEGI ) (N.K. BILLAIYA) /JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED : 2 ND SEPTEMBER , 2015 . . ./ RJ , SR. PS ITA. NO. 7695 & 7483/M/10 6 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI