DCIT, Circle -6 Kolkata, Kolkata V. M/s Wall Street Capital Markets (P) Ltd., Kolkata

ITA 804/KOL/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 70448 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 7 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-12-2013
• Appeal Filed By: Department
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 18-05-2012
• Court: TRIBUNAL
• Department Lawyers: R P NAG
• Assessee Lawyers: S JHAJHARIA
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

, B , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: KOL KATA () BEFORE , /AND , ! ) [BEFORE SHRI MAHAVIR SINGH, JM & SHRI SHAMIM YAHYA, AM] ' ' ' ' / I.T.A NO. 804/KOL/201 2 #$ %& #$ %& #$ %& #$ %&/ // / ASSESSMENT YEAR: 2008-09 DEPUTY COMMISSIONER OF INCOME-TAX, VS. M/S. WALL STREET CAPITAL MARKETS (P) LTD. CIRCLE-6, KOLKATA. (PAN: AAACW2842B) (() /APPELLANT ) (*+()/ RESPONDENT ) DATE OF HEARING: 26.12.2013 DATE OF PRONOUNCEMENT: 26.12.2013 FOR THE APPELLANT: SHRI R. P. NAG, JCIT, SR. DR. FOR THE RESPONDENT: S/SHRI S. JHAJHARIA & SUJOY SEN / ORDER PER SHRI SHAMIM YAHYA, AM: THIS APPEAL BY REVENUE IS DIRECTED AGAINST THE ORDE R OF CIT(A) DATED 13.02.2012 AND PERTAINS TO AY 2008-09. 2. THE ISSUE RAISED IS THAT CIT(A) ERRED IN DELETIN G THE DISALLOANCE OF RS.48,50,808/- MADE U/S. 14A OF THE I. T. ACT. 3. IN THIS CASE, THE AO NOTED THAT ASSESSEE HAS EAR NED DIVIDEND INCOME OF RS.17,300/-. AO FOUND THAT THE EXPENSES RELATABLE TO ABOVE EXEMPT I NCOME HAS NOT BEEN INCLUDED BACK TO THE TOTAL INCOME FOR TAXATION. AO NOTED THAT ASSESSEE HAD DIRECT EXPENSES AS DEMAT CHARGES FOR RS.17,287/- WHICH IS ADDED BACK AS PER RULE 8D. AO FURTHER NOTED THAT ASSESSEE PAID INTEREST FOR RS.1,81,47,891/-. HENCE, AS PER POINT 2 OF RUL E 8D RS.48,50,808/- WAS DISALLOWED. THE ASSESSEE SUBMITTED A CALCULATION ON RULE 8D FOR DIS ALLOWANCE, HOWEVER THE SAME DID NOT CONSIDER THE STOCK-IN-TRADE IN THE COMPUTATION. HE NCE, AO WORKED OUT DISALLOWANCE AS SECTION 14A READ WITH RULE 8D OF THE I. T. ACT AS UNDER: OPENING VALUE OF INVESTMENT : RS.500000/- CLOSING VALUE OF INVESTMENT : RS.500000/- AVERAGE INVESTMENT : RS.500000/- 2 ITA NO. 804/K/2012 M/S. WALL STREET CAPITAL MARKETS (P) LTD. AY:2008 -09 % OF AVERAGE INVESTMENT : RS. 2500/- OPENING VALUE OF STOCK-IN-TRADE : RS.220397172/- CLOSING STOCK-IN-TRADE : RS. 33083199/- AVERAGE STOCK-IN-TRADE : RS.126740186/- % OF AVERAGE STOCK-IN-TRADE : RS. 6,33,701/- TOTA ADDITION U/S. 14A RS.55,04,296/- (2500+633701 /-)+48,50,808/-. 4. BEFORE THE LD. CIT(A) ASSESSEE SUBMITTED THAT RU LE 8D IS NOT APPLICABLE ON THE VALUE OF STOCK-IN-TRADE SINCE THESE ARE NOT INVESTMENTS IT WAS SUBMITTED THAT RULE 8D(II) IS NOT APPLICABLE SINCE THE ASSESSEE HAS INVESTMENT ONLY O F RS.5,00,000/- WHILE THE SHARE CAPITAL AND RESERVE AND SURPLUS WERE OF RS.13.15 CR. LD. CIT(A ) OBSERVED THAT ASSESEE IS A SHARE TRADER WITH A VERY SMALL INVESTMENT OF RS.5,00,000/-. HE ESTIMATED THAT EXPENSE RELATING TO EARNING OF DIVIDEND U/S. 14A OF THE ACT SHOULD BE DONE ON REAS ONABLE METHOD. LD. CIT(A) OPINED THAT THE EXPENSES ON THE TOTAL AMOUNT OF STOCK @ 0.5% WAS CO NSIDERED TO BE FAIR AND REASONABLE. THE LD. CIT(A) MADE THE COMPUTATION AND CONCLUDED AS UN DER: CALCULATION OF AVERAGE VALUE OF INVESTMENT FROM W HICH EXEMPT INCOME IS EARNED AY 08-09 AY 07-08 INVESTMENTS 500,000 500,000 STOCK 33,083,199 220,397,172 33,583,199 220,897,172 AVERAGE INVESTMENT = RS.127,240,186/- 7. THEREFORE, 0.5% OF AVERAGE INVESTMENT OF RS.127, 240,186/- COMES TO AN AMOUNT OF RS.6,36,201/-. THE DISALLOWANCE OF RS.6,36,201/- I S UPHELD AS EXPENDITURE RELATING TO EARNING OF DIVIDEND INCOME IN ADDITION TO THE DIREC T EXPENSES OF DEMAT CHARGES OF RS.17,287/-. THEREFORE, TOTAL DISALLOWANCE OF RS.6 ,53,488/- IS UPHELD AS EXPEDITURE RELATING TO EARNING OF DIVIDEND/EXEMPTED INCOME. T HE APPELLANT HAS RECEIVED DIVIDENDS AMOUNTING TO RS.12,22,072/- ONLY AND DISALLOWANCE O F RS.6,53,488/- ON THE EARNING OF THE SAME IS FAIR AND REASONABLE AND THAT TOO WHEN THE D IVIDEND INCOME HAS BEEN EARNED FROM SHARE TRADING BUSINESS. THEREFORE, THE ADDITION OF RS.48,50,808/- IS DELETED OUT OF RS.55,04,296/-. THE NET ADDITION ON ACCOUNT OF DIS ALLOWANCE OF EXPENDITURE RELATING TO EXEMPTED DIVIEND INCOME IS UPHELD AT RS.6,53,488/- ONLY. AGAINST THE ABOVE ORDER REVENUE IS IN APPEAL BEFORE US. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE R ECORDS. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE INVOLVED IS SQUARELY COVER ED IN FAVOUR OF THE ASSESSEE BY VARIOUS DECISIONS INCLUDING THE DECISION OF ITAT, KOLKATA B ENCH. IN THIS REGARD, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE SHARES HELD BY THE ASSE SSEE WERE STOCK-IN-TRADE AND HENCE, 3 ITA NO. 804/K/2012 M/S. WALL STREET CAPITAL MARKETS (P) LTD. AY:2008 -09 DISALLOWANCE AS PER RULE 8D(II) AND (III) READ WITH SECTION 14A OF THE ACT CANNOT BE INVOKED IN RESPECT OF DIVIDEND INCOME ON SHARES HELD BY ASSESS EE AS STOCK-IN-TRADE. LD. COUNSEL FOR THE ASSESSEE IN THIS REGARD REFERRED TO THE DECISION OF THIS TRIBNAL IN ITA NO. 666/KOL/2012 IN THE CASE OF DCIT VS. GULSHAN INVESTMENTS CO. LTD. VIDE ORDER DATED 11.03.2013. LD. DR, ON THE OTHER HAND, COULD NOT CONTRADICT THIS SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE. HOWEVER, HE SUBMITTED THAT THE NATURE OF SHARES HELD BY THE ASSESSEE IN THIS CASE NEEDS TO BE EXAMINED AT THE LEVEL OF AO AS TO WHETHER THE SAME IS STOCK-IN- TRADE OR INVESTMENT. 6. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AND PERUSED THE RECORDS. WE FIND THAT IN THE DECISION CITED ABOVE, THE TRIBUAL HAS HELD AS U NDER: 9. SO FAR AS THE CASE BEFORE US IS CONCERNED, AS W ILL BE CLEARLY DISCERNIBLE FROM THE OBSERVATIONS OF THE LEARNED CIT(A) EXTRACTED EARLIE R IN THIS ORDER, LEARNED CIT(A) HAS UPHELD DISALLOWANCE UNDER SECTION 14 A IN RESPECT O F EVEN INDIRECT EXPENDITURE, BUT HE HAS MERELY HELD THAT THE PROVISIONS OF RULE 8 D DON OT COME INTO PLAY IN THIS CASE AS THE SHARES ARE NOT HELD AS INVESTMENTS. AS LEARNED CO UNSEL RIGHTLY CONTENDS THE PROVISIONS OF RULE 8D CAN NEVER BE APPLIED IN A CASE WHERE EXE MPT INCOME YIELD ASSETS ARE NOT HELD AS INVESTMENTS, AND THAT THE RELATED ASSETS, I.E. S HARES, HAVING BEEN HELD AS STOCK IN TRADE ALL ALONG, THERE IS NO OCCASION TO INVOKE RULE 8 D. THERE IS NO INFIRMITY IN THIS APPROACH, NOR DO REVENUE AUTHORITIES STAND TO LOSE ANYTHING B Y THIS APPROACH CANVASSED BY THE ASSESSEE. QUITE TO THE CONTRARY OF WHAT LEARNED DEP ARTMENTAL REPRESENTATIVE PERCEIVES TO BE ADVANTAGEOUS TO THE ASSESSING OFFICER, IN CAS E THE APPLICATION OF RULE 8D WAS TO BE UPHELD, THERE WOULD HAVE BEEN NO DISALLOWANCE AT AL L SINCE NOT ONLY THAT NO INVESTMENTS WERE HELD BY THE ASSESSEE, ADMITTEDLY THERE ARE NO DIRECT EXPENSES ARE INCURRED ON EARNING OF THE DIVIDENDS AND AS SUCH IN ALL THE THR EE SEGMENTS OF DISALLOWANCE UNDER RULE 8D(2) I.E. 8D (2) (I), (II) AND (III), THERE W ILL BE ZERO DISALLOWANCE. AS AGAINST THIS ZERO DISALLOWANCE UNDER RULE 8D, THE CIT(A) HAS UPH ELD DISALLOWANCE TO THE EXTENT OF RS 1,57,227 IN RESPECT OF INDIRECT EXPENSES ATTRIBUTED TO THE EARNING OF DIVIDENDS, AND IT HAS EVEN THE CASE OF REVENUE THAT THIS DISALLOWANCE FOR INDIRECT EXPENSES IS UNFAIR OR UNREASONABLE. 10. IN VIEW OF THE ABOVE DISCUSSIONS, WHILE UPHOLD THE CONCLUSIONS ARRIVED AT BY THE LEARNED CIT(A), WE ALSO MAKE IT CLEAR THAT, IN OUR HUMBLE UNDERSTANDING, THE PROVISIONS OF SECTION 14A ARE INDEED ATTRACTED WHETHER OR NOT THE SHARES ARE HELD AS STOCK IN TRADE OR AS INVESTMENTS, EVEN THOUGH THE PROVISIONS OF RU LE 8D(2)(II) AND (III) CANNOT BE INVOKED IN SUCH A CASE , AND EVEN THOUGH THE PROVIS IONS OF RULE 8 D(2)(I) ARE MUCH NARROWER IN SCOPE THAN THE SCOPE OF SECTION 14 A SI MPLICTOR. WITH THESE OBSERVATIONS, WE CONFIRM THE CONCLUSIONS OF THE LEARNED CIT(A) AN D DECLINE TO INTERFERE IN THE MATTER. THUS, WE FIND THAT THERE IS COGENCY IN THE SUBMISSI ON OF THE LD. COUNSEL FOR THE ASSESEE THAT PROVISION OF RULE 8D(II) AND (III) READ WITH SECTIO N 14A OF THE ACT CANNOT BE INVOKED IN RESPECT OF DIVIDEND INCOME ON SHARES HELD BY THE ASSESSEE A S STOCK-IN-TRADE. HOWEVER, AS REFERRED ABOVE, THIS ASPECT NEEDS FACTUAL EXAMINATION. ACCO RDINGLY, WE REMIT THIS ISSUE RAISED BY THE 4 ITA NO. 804/K/2012 M/S. WALL STREET CAPITAL MARKETS (P) LTD. AY:2008 -09 REVENUE TO THE FILE OF AO. AO IS DIRECTED TO EXAMI NE THE NATURE OF SHARES HELD BY THEM AND MAKE THE COMPUTATION AS PER LAW. 7. IN THE RESULT, APPEAL OF REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 8. ORDER IS PRONOUNCED IN THE OPEN COURT. SD/- SD/- , , ! (MAHAVIR SINGH) (SHAMIM YAHYA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 26TH DECEMBER, 2013 ,- #./ 0 JD.(SR.P.S.) 1 *2 3 2%4- COPY OF THE ORDER FORWARDED TO: 1 . () / APPELLANT DCIT, CIRCLE-6, KOLKATA 2 *+() / RESPONDENT M/S. WALL STREET CAPITAL MARKETS (P) LTD., 2A, G. C. AVENUE, KOL-700 013. 3 . # ( )/ THE CIT(A), KOLKATA 4. 5. # / CIT KOLKATA 2:; *# / DR, KOLKATA BENCHES, KOLKATA +2 */ TRUE COPY, #