SUDHANVA INVESTMENTS & TRADING CO. P.LTD, MUMBAI V. DCIT 8(3), MUMBAI

ITA 7639/MUM/2011

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1059 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 5 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-04-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 09-07-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 11-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B S BIST
• Keywords: Opportunity of being heard
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E MUMBAI BEFORE SHRI JOGINDER SINGH (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 7639/MUM/2011 ASSESSMENT YEAR: 2008-09 SUDHANVA INVESTMENTS & TRADING CO. VS. DCIT 8(3) PVT. LTD. ROOM NO. 204, 2 ND FLOOR 202/203 MAGNUM OPUS SHANTINAGAR INDL. M.K. ROAD ESTATE, VAKOLA SANTACRUZ (E) MUMBAI 400020 MUMBAI - 400055 PAN NO. AAACS6353D (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI NIRAJ SHETH, AR REVENUE BY: SHRI B.S. BIST, DR DATE OF HEARING : 16/0 2/2017 DATE OF PRONOUNCEMENT: 24/04/2017 ORDER PER N.K. PRADHAN, AM THIS IS AN APPEAL FILED BY THE ASSESSEE. THE RELEVA NT ASSESSMENT YEAR IS 2008-09. THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)- 18, MUMBAI AN D ARISES OUT OF THE ORDER U/S 143(3) OF THE INCOME TAX ACT,1961 (TH E ACT). 2. THE GROUNDS OF APPEAL FILED BY THE ASSESSEE READ AS UNDER:- I. THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN L AW IN CONFIRMING THE DISALLOWANCE OF RS. 1,89,07,310/- U/S 14A OF TH E INCOME TAX ACT, 1961 IN ADDITION TO DISALLOWANCE OF RS. 76,29,734/- AS ADMITTED BY THE APPELLANT ITSELF. ITA NO. 7639/MUM/2011 2 II. HE FAILED TO APPRECIATE THAT MECHANICAL DISALLOWANC E AS MADE BY AO U/S 14A R.W.R. 8D WITHOUT CONSIDERING THE FACTS OF THE CASE IS TOTALLY UNJUSTIFIED. III. THE APPELLANT PRAYS THAT THE DISALLOWANCE U/S 14A A S COMPUTED BY THE AO MECHANICALLY FOLLOWING RULE 8D IS UNJUSTIFIED AN D THE ADDITION MADE ON THIS ACCOUNT OUGHT TO BE DELETED. 3. THE ASSESSEE IS A NON-BANKING FINANCIAL COMPANY (NBFC) ENGAGED IN THE BUSINESS OF SYNDICATING FINANCE, TRA DING IN SHARES AND SECURITIES. IT HAD EARNED DIVIDEND INCOME OF RS.1,5 1,69,132/- WHICH IT CLAIMED AS EXEMPT. IN ITS COMPUTATION OF INCOME, TH E ASSESSEE- COMPANY ITSELF DISALLOWED A SUM OF RS.76,29,734/- U /S 14A OF THE ACT. THE ASSESSING OFFICER (AO) FOLLOWED THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. LTD. 328 ITR 81 (BOM) AND MADE A DISALLOWANCE OF RS.2,65,37,044/- U /S 14A R.W.R. 8D OF THE INCOME TAX RULES, 1962. HE CALCULATED THE DI SALLOWANCE AS UNDER: (I) THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME AS DISCUSSED IN CLAUSE (X) OF PARA 3.6 ABOVE RS. 5,96,472/- (II) PROPORTIONATE OF INTEREST EXPENDITURE COMPUTED IN ACCORDANCE WITH THE FORMULA GIVEN IN RULE 8D(2)(II) AS DISCUSSED IN CLAUSE (IX) OF PARA 3.6 ABOVE RS. 2,47,64,986/- (III) AMOUNT EQUAL TO ONE-HALF PERCENT OF THE AVERAGE OF THE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR. AS DISCUSSED IN CLAUSE (XI) OF PARA 3.6 ABOVE RS. 11,75,586/- TOTAL EXPENDITURE DISALLOWED U/S 14A RS. 2,65,37,04 4/- 4. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE F ILED AN APPEAL BEFORE THE LD. CIT(A). WE FIND THAT THE LD. CIT(A) HAS FOLLOWED THE ITA NO. 7639/MUM/2011 3 DECISION IN THE CASE OF GODREJ & BOYCE MFG. LTD. (SUPRA) AND DISMISSED THE APPEAL FILED BY THE ASSESSEE. 5. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE FILED A PAPER BOOK CONTAINING INTER ALIA (I) PROFIT AND LOSS A/C DERIVED FROM THE LEDGER ACCOUNTS OF TRADING ACTIVITY, (II) PROFIT AND LOSS A/C DERIVED FROM THE LEDGER ACCOUNTS OF INVESTMENTS ACTIVITY, (III) COPY OF INTEREST EXPENSE LEDGER RELATED TO INVESTMENTS, (IV) COPY OF INTERES T EXPENSES LEDGER RELATED TO TRADING ACTIVITY, (V) DETAILS OF PURCHAS ES OF ASIAN PLAINTS LTD. SHARES AS INVESTMENTS, (VI) DETAILS OF PURCHAS ES OF ASIAN PLAINTS LTD. SHARES AS STOCK- IN- TRADE, (VII) COPY OF BOMB AY HIGH COURT MERGER ORDER DATED 14.03.2008 FOR MERGER OF ASHWIN HOLDINGS PVT. LTD. RELIANCE WAS PLACED BY HIM ON THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. INDIA ADVANTAGE SECURITIES LTD. [ITA NO. 1131 OF 2013 DATED 17.03.2015]. 6. PER CONTRA THE LD. DR RELIED ON THE ORDER OF THE LD. CIT(A) CONFIRMING THE DISALLOWANCE OF RS.2,65,37,044/- MAD E BY THE A.O. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IN THE CASE OF INDIA ADVANTAGE SECURITIES LTD. (SUPRA) , THE HON'BLE BOMBAY HIGH COURT HAS HELD THAT DISAL LOWANCE, IF ANY, TO BE MADE U/S 14A R.W.R. 8D SHOULD ONLY BE MA DE WITH REGARD TO INVESTMENTS AND NOT WITH REGARD TO SHARES HELD AS S TOCK-IN-TRADE. THIS DECISION HAS BEEN FOLLOWED BY THE CO-ORDINATE BENCH IN THE CASE OF DEVKANT SYNTHETICS (INDIA) (P.) LTD. (ITA NOS 2663 TO 2665/MUM/2015 DATED 28.10.2015 FOR A.Y. 2009-10 TO2 011-12) WHEREIN AT PARA 12 AND 13 THEREOF IT HAS BEEN HELD AS UNDER: '12. WE HEARD THE PARTIES AND PERUSED THE RECORD. W E NOTICE THAT THE HON'BLE KARNATAKA HIGH COURT HAS HELD IN THE CASE OF CCI LTD. ( SUPRA ) THAT THE SHARES ITA NO. 7639/MUM/2011 4 HELD AS STOCK IN TRADE SHOULD BE EXCLUDED FOR THE P URPOSE OF COMPUTING DISALLOWANCE U/S 14A OF THE ACT, SINCE THEY CANNOT BE SAID TO BE 'INVESTMENT' MADE FOR THE PURPOSE OF EARNING DIVIDEND INCOME. IN THE CASE OF INDIA ADVANTAGE SECURITIES LTD. ( SUPRA ), THE HON'BLE BOMBAY HIGH COURT HAS NOTICED THAT THE CIT(A) TOOK INTO ACCOUNT THE WORDS OF THE RULE AND FOUND THAT THE FIGURES AS DERIVED BY THE ASSESSING OFFICE R CANNOT BE TAKEN INTO CONSIDERATION. THE LD CIT(A) HAD OBSERVED THAT, ONE CAN AT BEST DISALLOW THE EXPENSES WHICH ARE INCURRED FOR EARNING DIVIDEND IN COME AND FOR THAT PURPOSE, THE FIGURES UNDER THE HEAD 'INVESTMENT' CO ULD BE TAKEN AND SOME CHARGES APPORTIONED FOR THE PURPOSE OF COMPUTING EX PENSES. THE DECISION RENDERED BY THE TRIBUNAL IN THE CASE OF INDIA ADVANTAGE SECURITIES LTD. ( SUPRA ) WAS FOUND TO BE NEITHER PERVERSE NOR VITIATED BY ANY ERROR OF LAW APPARENT ON THE FACE OF RECORD BY HON'BLE BOMBAY HI GH COURT. WE FURTHER NOTICE THAT THE DECISION RENDERED IN THE CASE OF CCI LTD ( SUPRA ) HAS BEEN FOLLOWED BY THE CO-ORDINATE BENCHES OF TRIBUNAL IN THE CASE OF INDIA ADVANTAGE SECURITIES LTD (ITA NO.6711/MUM/2011 AND GANJAM TRADING CO. PVT LTD ( SUPRA ). 13. IN THE CASE OF GANJAM TRADING CO. P. LTD. ( SUPRA ), THE TRIBUNAL TOOK NOTE OF THE DECISION RENDERED BY THE SPECIAL BENCH OF THE T RIBUNAL IN THE CASE OF ITO V. DAGA CAPITAL MANAGEMENT (P.) LTD. [2009] 117 ITD 169 (MUM.)(SB) ALSO. HOWEVER, FOLLOWING THE DECISION OF HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CCI LTD. ( SUPRA ), THE TRIBUNAL HELD THAT THE DISALLOWANCE OF INTEREST IN RELATION TO DIVIDEND RECEIVED FROM S HARES HELD AS STOCK-IN-TRADE CANNOT BE MADE.' IT IS THE CONTENTION OF THE LEARNED COUNSEL THAT TH E ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING IN SHARES AND SE CURITIES AND ALSO IN INVESTMENT ACTIVITY. WE FIND THAT THE DOCUMENTS MEN TIONED AT PARA 5 HERE-IN-ABOVE HAS NOT BEEN EXAMINED EITHER BY THE A O OR THE LD. CIT(A). IN VIEW OF THE ABOVE, THE ORDER OF THE LD. CIT(A) IS SET ASIDE AND THE SAME IS RESTORED TO THE FILE OF THE AO WITH A DIRECTION TO MAKE A FRESH ASSESSMENT AS PER PROVISIONS OF THE ACT AFT ER GIVING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. THE AO WOULD TAKE INTO CONSIDERATION THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF INDIA ADVANTAGE SECURITIES LTD. (SUPRA) AND THE ORDER OF THE CO-ORDINATE BENCH IN DEVKANT SYNTHETICS (INDIA) (P.) LTD. (SUPRA). THE ASSESSEE IS DIRECTED TO FILE THE RELE VANT DETAILS BEFORE THE AO. ITA NO. 7639/MUM/2011 5 8. IN THE RESULT, APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 24/04/2017 SD/- SD/- (JOGINDER SINGH) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTAN T MEMBER MUMBAI: DATED: 24/04/2017 RAHUL, SR. P.S. 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