MUDRA SECURITIES, MUMBAI V. ITO 24(2)(4), MUMBAI

ITA 810/MUM/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8126 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 17-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T A KHAN
• Assessee Lawyers: SUNIL KIRAWAT
• Keywords: Question of law
• Section: 142(1); 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL BENCH B MUMBAI BEFORE SHRI D.T.GARASIA , JM AND SHRI RAJESH KUMAR, AM I.T.A. NO. 810 AND 811 /MUM/20 1 6 ( / ASSESSMENT YEAR : 2 0 1 0 - 11 AND 2011 - 12 ) M/S MUDR A SECURITIES, 401/402, BUSINESS CLASSIC, CHINCHOLI BUNDER ROAD, M A LAD (W), MUMBAI - 400064 / VS. INCOME TAX OFFICER 24(2)(4), C - 13, ROOM NO.513, 5TH FLOOR, PRATYAKSHAKAR BHAVAN, B K C, BANDRA,(E0, MUMBAI - 400051 ./ PAN : AAHFM503 5E ( / APPELLANT) : ( / RESPONDENT ) / APPELLANT BY : SHRI SUNIL KIRAWAT / RE SPONDENT BY : SHRI T A KHAN / DATE OF HEARING : 7 .12.2017 / DATE OF PRONOUNCEMENT : 18. 1 2 . 201 7 / O R D E R PER RAJESH KUMAR, A. M: THESE TWO APPEALS BY THE ASSESSEE ARE DIRECTED AGAINST THE COMMON ORDER DATED 9.12.2015 PASSED BY THE LD.CIT(A) - 41 , MUMBAI WHEREIN THE ASSESSEE HAS CHALLENGED THE APPLICABILITY OF RULE 8D OF THE I NCOME TAX RULES, 1962 AND ALSO CONFIRMATION OF DISALLOWANCE OF RS.43,00,862/ - R.W.R 8D OF THE RULES. 2 I.T.A. NO . 810 AND 811/MUM/2016 ITA NO.810/MUM/2016 2. THE ONLY ISSUE RAISED BY THE ASSESSEE IN VARIOUS GROUNDS OF APPEAL IS AGAINST THE CONFIRMATION OF DISALLOWANCE OF RS.43,00,862 / - CONFIRMED BY THE ASSESSEE AS MADE BY THE AO UNDER SECTION 14A R.W.R 8D OF THE RULES. 3. FACTS OF THE CASE ARE THAT THE ASSESSEE FILED RETURN OF INCOME ON 31.9.2010 DECLARING NIL INCOME WHICH WAS PROCESSED UNDER SECTION 143(1) OF THE ACT. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY UNDER CASS AND ACCORDINGLY STATUTORY NOTICES U/S 143(2) AND 142(1) WERE ISSUED AND SERVED UPON THE ASSESSEE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT THE ASSESSEE HAS EARNED DIVIDEND INCO ME AND NO CORRESPONDING DISALLOWANCE OF EXPENSES WAS MADE BY THE ASSESSEE . ACCORDINGLY, THE AO ASKED THE ASSESSEE TO FURNISH THE DETAILS OF SUCH EXPENSES WHICH WAS REPLIED BY THE ASSESSEE VIDE LETTER DATED 6.5.2012 BY SUBMITTING THAT THE ASSESSEE WA S ENGAGED IN THE BUSINESS OF TRADING IN SHARES AND DERIVATIVES OF SHARES AND COMMODITIES, SUB - BROKING ETC IT WAS SUBMITTED THAT ALL THE SHARES WERE HELD AS STOCK - IN - TRADE AND NOT AS INVESTMENT S AS INVESTOR AND THEREFORE PROVISIONS OF SECTION 14A WE RE N OT APPLICABLE TO THE CASE OF THE ASSESSEE . THE ASSESSEE SUBMITTED BEFORE THE AO THAT THE AMOUNT OF DIVIDEND RECEIVED FROM SHARES IS ANCILLARY T O THE TRADING OF SHARES AND SECURITIES BY THE ASSESSEE FIRM. IN SUPPORT OF ASSESSEES CONTENTIONS, THE ASSESSEE SOUGHT SUPPORT FROM THE DECISIONS IN THE CASE OF 3 I.T.A. NO . 810 AND 811/MUM/2016 CIT V/S WALFORT SHARES AND STOCK BROKERS PVT LTD REPORTED IN (2008) 219 CTR 9 (BOM) 409 AND THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT V/S HINDUSTAN CO - OP SOCIETY SERVICES CO. LTD REPORTED IN 2008, 170 TAXMAN 458(DEL). THE REPLY OF THE ASSESSEE DID NOT FIND FAVOUR OF THE ASSESSING OFFICER AND HE INVOK ED THE PROVISIONS OF SECTION 14A R.W.R.8D AND WORKED OUT THE DISALLOWANCE AT RS.43,00,862/ - COMPRISING OF RS.40,29,913/ - UNDER RULE 8D(2)(II) AND RS.2,70,948/ - UNDER RULE 8D(2)(III) . IN THE APPELLATE PROCEEDINGS, THE LD.CIT(A) DISMISSED THE APPEAL OF THE ASSESSEE BY OBSERVING AND HOLDING AS UNDER: 6. SPECI AL BENCH OF THE ITAT MUMBAI HAD TAKEN A VIEW IN THE CASE OF ITO V.DAGA CAPITAL M A NA GEMENT (P.) LTD. [2009] 117 ITD 169 THAT DISALLOWANCE IS TO BE MADE IN RESPECT OF SHARES AS STOCK - IN - TRADE ALSO. 6.1 IN THE CASE OF D. H. SECURITIES PVT. LTD. V. DCIT[2014] 146 ITD 1 (MUM.) (TM), THE THIRD M EMBER BENCH OF THE TRIBUNAL HELD THAT SECT ION 14A R.W. RULE BD DISALLOWANCE CAN BE MADE IN R ESPECT OF TAX - FREE SECURITIES HELD AS STOCK - IN - TRADE. 6.2 THE ITAT MUMBAI IN CASE OF DOUBLEDOT FINANCE LTD. VS. DCIT [2014] 49 TAXMANN.COM 291 HAS HELD THAT SECTION 14A IS ATTRACTED EVEN IN THE CASE OF DI VIDEND INCOME FROM SHARES HELD AS STOCK - IN - TRADE. IN THIS DECISION, IT IS MENTIONED THAT THE ISSUE OF DISALLOWANCE UNDER SECTION 14A IN RELATION TO SHARES HELD AS STOCK - IN - TRADE WAS DISCUSSED BY THE CO - ORDINATE BENCH OF MUMBAI TRIBUNAL IN THE CASE OF D.H.S ECURITIES (P) LTD. VS. CIT [2014] 41 TAXMANN.COM 352/146 ITD 1 (TM) AND THE MATTER WAS REFERRED TO THIRD MEMBER. THE DECISION OF THE KARNATAKA HIGH COURT IN THE CASE OF CCL LTD. WAS REFERRED TO AND DISCUSSED BEFORE THE TRIBUNAL AND IT WAS HELD THAT IN VIEW OF DECISION OF JURISDICTIONAL HIGH COURT IN CASE OF GODREJ & BOYCE MFG. CO. LTD. AND KOLKATA HIGH COURT IN CASE OF DHANUKA & SONS V.CIT [2011] 339 ITR 319, SECTION 14A IS ATTRACTED EVEN IN CASE OF DIVIDEND INCOME FROM SHARES HELD AS STOCK IN TRADE. 4 I.T.A. NO . 810 AND 811/MUM/2016 6.3. THE BOMBAY HIGH COURT IN THE CASE OF INDIA ADVANTAGE SECURITIES LTD. (ITA NO.1131 OF 2013) VIDE ORDER DATED 13 APRIL 2015 HAS DISMISSED THE APPEAL OF REVENUE ON THE GROUND THAT IT DOES NOT RAISE ANY SUBSTANTIAL QUESTION OF LAW. I DO NOT FIND ANY DECISION BY THE HON'BLE HIGH COURT THAT DISALLOWANCE U/ 14A R.W.R.BD CANNOT BE MADE IN CASE OF SHARES HELD AS STOCK IN TRADE. 6.4 IN VIEW OF ABOVE, IT IS CLEAR THAT THE ISSUE HAS NOT ATTAINED FINALITY AND CONFLICTING DECISIONS ARE COMING ON THIS ISSUE. RESPECTFUL LY, FOLLOWING THE DECISION OF MUMBAI TRIBUNAL IN CASE OF D.H.SECURITIES (P) LTD. VS. CIT [2014] 41 TAXMANN.COM 352/146 ITD 1 (TM), ITO VS. DAGA CAPITAL MANAGEMENT (P.) LTD. [2009] 117 ITD 169 AND DOUBLEDOT FINANCE LTD. VS. DCIT [2014] ON SHARES HELD AS STO CK - IN - TRADE. THEREFORE, GROUND NO.2 IS ALSO DECIDED AGAINST THE APPELLANT AND DISALLOWANCE OF RS.43,00,862/ - U/S 14A R.W.R.8D IS SUSTAINED 4 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL PLACED BEFORE US INCLUDING THE IMPUGNED ORDERS . W E FIND THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING IN SHARES AND DERIVATIVES OF SHARES AND COMMODITIES, SUB - BROKING ETC . WE FIND FROM THE ORDERS OF AUTHORITIES BELOW THAT THE EARNING OF THE DIVIDEND BY THE ASSESSEE FROM THE SHARES AND SECURI TIES HELD AS STOCK - IN - TRADE WAS ONLY ANCILLARY. THE LD. AR PLACED BEFORE THE BENCH, A COPIES OF BALANCE SHEET FOR THE FINANCIAL YEARS 2009 - 10, 2009 - 10 AND 2010 - 11 TO PROVE THAT THE ASSESSEE IS CARRYING ON THE BUSINESS IN SHARES TRADING AND THE SAID SE CURITIES WERE HELD AS STOCK - IN - TRADE. IN OUR OPINION, SINCE THE ASSESSEE IS DOING THE BUSINESS OF TRADING IN SHARES AND SECURITIES AND WAS NOT MAKING ANY INVESTMENT S IN THE SECURITIES AS INVESTOR, THEREFORE, SECTION 14A R.W.R 8D CANNOT BE APPLIED TO THE C ASE OF THE ASSESSEE. THE CASE OF THE ASSESSEE IS SUPPORTED BY THE A NUMBER OF DECISIONS OF THE TRIBUNAL 5 I.T.A. NO . 810 AND 811/MUM/2016 TAKING A VIEW THAT NO DISALLOWANCE IS ATTRACTED IN CASE OF TRADERS OF SHRES AND SECURITIES. IN THE CASES OF CIT VS INDIA ADVANTAGE SECURITIES LTD IT A NO 6711 (MUM) DATED 14.09.2012 AND CIT VS GULSHAN INVESTMENTS CO LTD (2013) 31 TAXMAN.COM 113 (KOL) THE TRIBUNALS HAVE TAKEN A VIEW THAT IN CASE OF BUSINESS OF TRADING IN SHARES AND SECURITIES , THE PROVISIONS OF SECTION 14A ARE NOT TO BE INVOKED. THE L D CIT(A) HAS RELIED ON SOME DECISIONS AS HAVE BEEN MENTIONED IN THE FINDINGS OF THE CIT(A) HEREINABOVE BUT THE THE MAJORITY DECISIONS HAVE TAKEN A CONTRARY VIEW AND THEREFORE WE ARE IN AGREEMENT WITH THE CONCLUSION OF THE CIT(A) ON THE ISSUE. THUS, RESPEC TFULLY FOLLOWING THE ORDER OF THE CO - ORDINATE BENCH ES OF THE TRIBUNAL IN THE CASE S CITED SUPRA, WE SET ASIDE THE ORDER OF THE LD.CIT(A) AND DIRECT THE AO TO DELETE THE DISALLOWANCE AS MADE UNDER SECTION 14A R.W.R 8D OF THE RULES. RESULTANTLY, THE APPEAL OF THE ASSESSEE IS ALLOWED . I.T.A. NO.811/MUM/2016 5. THE ISSUE RAISED IN THIS APPEAL IS IDENTICAL TO THAT OF ISSUE DECIDED BY US IN ITA NO.810/M/2016 AND HENCE THE DECISION TAKEN THEREIN WOULD MUTATI MUTA NDIS WOULD APPLY TO THIS APPEAL ALSO. ACCORDINGL Y, THIS APPEAL ALSO ALLOWED . 6 I.T.A. NO . 810 AND 811/MUM/2016 6 . IN THE RESULT, THE APPEAL S OF THE ASSESSEE ARE ALLOWED . ORDER PRONOUNCED ON 18TH DEC, 2017. S D SD ( D.T.GARASIA ) ( RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : . 18. 1 2 .2017 SR.PS:SRL: / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / TH E CIT(A) 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, T RUE COPY / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI