DCS INFOTECH P.LTD, MUMBAI V. DCIT 8(1), MUMBAI

ITA 8156/MUM/2010

• Counselvise Citation: 815619914 RSA 2010
• Duration Of Justice: 2 year(s) 10 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-09-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 17-09-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 25-11-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SALMAN KHAN
• Assessee Lawyers: S V JOSHI
• Keywords: Earning of tax free income; Cost of acquisition
• Section: 14A

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI - D BENCH. . .. . . .. . , ,, , !'# !'# !'# !'# , ' ' ' ' BEFORE S/SH. I.P. BANSAL,JUDICIAL MEMBER & RAJENDRA ,ACCOUNTANT MEMBER /. ITA NO.8156/MUM/2010 , $ $$ $ % % % % / ASSESSMENT YEAR-2005-06 DCS INFOTECH P. LTD. OFFICE NO. 5, 1 ST FLOOR, KAMDAR SHOPPING CENTRE, V.S. KHANDEKAR MARG, VILE PARLE(E) MUMBAI-400057 VS. DCIT 8(1) AAYAKAR BHAVAN, M.K.ROAD, MUMBAI- 400020 PAN:AABCD0536C ( &' / APPELLANT) ( ()&' / RESPONDENT) &' &' &' &' * * * * ' '' ' / APPELLANT BY : SHRI S.V.JOSHI ()&' + * ' / RESPONDENT BY : SHRI SALMAN KHAN $ $ $ $ + ++ + , , , , / DATE OF HEARING : 17-09-2013 -.% + , / DATE OF PRONOUNCEMENT : 25-09-2013 PER RAJENDRA, AM: '/ / O R D E R CHALLENGING THE ORDER DATED 16.09.2010 OF THE CIT(A )-16,MUMBAI ASSESSEE HAS FILED FOLLOWING GROUNDS OF APPEAL: 1).THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS)- 16 MUMBAI HEREINAFTER REFERRED TO AS THE LEARNED COMMISSIONER (APPEALS) ERRED IN CONFIRMING THE DISA LLOWANCE OF INTEREST OF RS.6,07,562/- PAID ON FUNDS BORROWED BY THE APPELLANT FOR INVESTMENT IN EQUITY SHARES OF HINDUSTAN OIL EXPLORATION LTD. (HOEC LTD. ) WHILE COMPUTING CAPITAL GAIN ARISING ON SALE OF SHA RES OF HOEC LTD. 2).THE LEARNED COMMISSIONER (APPEALS) ERRED IN HOLD ING THAT THERE IN NO NEXUS BETWEEN FUNDS BORROWED AND INVESTMENT MADE IN EQUITY SHARES OF HOEC LTD. A ND THEREFORE, INTEREST PAID ON FUNDS BORROWED WAS NOT ALLOWABLE WHILE COMPUTING SHORT TERM CAPITAL GA IN ON SALE OF EQUITY SHARES OF HOEC LTD. 3).THE LEARNED COMMISSIONER (APPEALS) ERRED CONFIRM ING THE FINDING OF THE ASSESSING OFFICER THAT INTER EST RECEIVED ON LOAN GIVEN BY THE APPELLANT IS ASSESSED AS INCOME FROM OTHER SOURCES AND NOT AS BUSINES S INCOME. 4).THE APPELLANT CRAVES LEAVE TO, ADD TO, ALTER, DE LETE OR MODIFY ANY OF THE ABOVE GROUNDS OF APPEAL. ASSESSEE-COMPANY, ENGAGED IN THE BUSINESS OF SOFTWA RE MANAGEMENT AND CONSULTANCY FILED ITS RETURN OF INCOME ON 31.10.2005 DECLARING TOTAL INCO ME AT RS. 1,00,44,980/-.ASSESSING OFFICER (AO)FINALISED THE ASSESSMENT U/S.143(3) OF THE ACT ON 30.11.2007,DETERMINING THE TOTAL INCOME OF THE ASSESSEE AT RS.1,01,28,640/-. 2. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AO FOUN D THAT DURING THE PERIOD MAY-AUGUST, 2004,ASSESSEE HAD PURCHASED 185000 SHARES OF HINDUS TAN OIL EXPLORATION CO.LTD. (HOECL) FOR RS.78, 86,185/- AND HAD SOLD THE SAME ON 11/02/2005 FOR RS.1,79,66,475/-,THAT IT RESULTED IN SHORT TERM CAPITAL GAIN OF RS.1,00,80,290/-, THAT THE ASS ESSEE HAD BORROWED RS.2,25,00,000/- FROM 2 ITA NO. 8156/MUM/2010 DCS INFOTECH P. LTD. M/S.ETCOTELECOM LTD.(ETL) AND PART OF THE FUNDS WER E UTILISED FOR PURCHASE OF HOECL SHARES.AO OBSERVED THAT THE ASSESSEE DID NOT CLAIM ANY EXPENDITURE IN EARNING CAPITAL GAIN IN ITS ORIGINAL RETURN OF INCOME,THAT SUBSEQUENTLY,DURING THE COURSE OF ASSESSMENT PROCEEDINGS,IT STATED THAT IT HAD PAID RS.12,91, 644/- AS INTEREST ON THI S LOAN OF WHICH RS.6,07,562/- WAS ATTRIBUTABLE TO PURCHASE OF HOECL SHARES ,THAT THE BALANCE OF RS.6, 84,082/- WAS ATTRIBUTABLE TO LOAN GIVEN TO M/S. STOREWELL CREDITS & CAPITAL PVT. LTD. (SCCPL)O N WHICH INTEREST OF RS.8,26,003/- WAS EARNED.BUT,AO DISALLOWED THE CLAIM ON THE GROUND TH AT THERE IS NO PROVISION IN ACT PERMITTING SUCH DEDUCTION. HE FURTHER HELD THAT SUCH EXPENDITU RE WAS ALSO NOT ALLOWABLE U/S. 14A OF THE ACT. 2.1. ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPEL LATE AUTHORITY(FAA). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE ORDER OF THE AO , HE HELD THAT ASSESSEE HAD BORROWED A LONE OF RS. 2.25 CRORES FROM ETL, THAT IT HAD RECEIVED THE SAID LOAN ON FOUR DIFFERENT DATES, THAT IT HAD GIVEN A LOAN OF RS. 3.25 CRORES TO SCCPL THAT THE C LOSING BALANCE AT THE END OF THE YEAR WAS RS. 2.7 CRORES, THAT DURING THE YEAR UNDER CONSIDERATIO N SCCPL RETURNED ABOUT RS. 65 LACS TO THE ASSESSEE, THAT THE ENTIRE AMOUNT WAS ROUTED THROUGH THE CURRENT ACCOUNT MAINTAINED WITH THE STATE BANK OF INDIA, BOMBAY, THAT LOAN FROM ETL WAS GIVEN TO SCCPL ON THE SAME DATE, THAT IN JUNE, JULY ASSESSEE HAD RECEIVED RS. 1.25 CRORES FROM ETL AS LOAN, THAT SHARES OF HOECL WERE PURCHASED DURING MAY-AUGUST, THAT THE FUND FLOW STA TEMENT DID NOT BRING OUT THE FACT THAT AMOUNT OBTAINED FROM ETL WAS UTILISED FOR PURCHASE OF SHAR ES IN QUESTION, THAT THE FINDING OF THE AO WAS CORRECT THAT THE FUNDS BORROWED BY THE ASSESSEE WER E NOT USED FOR PURPOSE OF BUYING THE SHARES OF HOECL, THAT AO HAD ALSO HELD THAT SUCH EXPENDITURE WAS ALSO NOT ALLOWABLE U/S. 14A OF THE ACT, THAT THE INTEREST PAID FOR ACQUISITION OF SHARES WA S ACTUALLY A PART OF THE COST OF ACQUISITION. FINALLY, CONFIRMING THE ORDER OF THE AO, HE DISMISS ED THE APPEAL FILED BY THE ASSESSEE. 2.2. BEFORE US,(AR) SUBMITTED THAT THE AO HAD ERRED IN HOLDING THAT SUCH DEDUCTION COULD NOT BE CLAIMED IGNORING PROVISION OF SEC. 48 R.W.SEC. 45., THAT INTEREST PAID ON FUNDS BORROWED AND USED FOR ACQUIRING SHARES HAD TO BE TREATED AS COST OF A CQUISITION AS SAME WAS NOT CLAIMED AGAINST ANY OTHER INCOME, THAT THERE WAS DIRECT NEXUS BETWEEN T AKING LOANS AND PURCHASING OF SHARES,THAT THERE WAS NO DISPUTE ABOUT THE FACT THAT INTEREST AMOUNT OF RS.6,07, 562/- WAS NOT CLAIMED AS A DEDUCTION UNDER ANY OTHER PROVISIONS OF THE ACT,THA T AO DID NOT DOUBT THE PURCHASE OF SHARES, THAT PROVISIONS OF SECTION 14A WERE APPLICABLE IN THE CA SE UNDER CONSIDERATION,THAT THE ASSESSE HAD SHOWN DIVIDEND INCOME OF RS.1.85 CRORES,THAT ASSESS EE HAD SHORT TERM CAPITAL GAIN OF MORE THAN A CRORE RUPEES DURING THE YEAR.(DR) SUBMITTED THAT THE ASSESSEE HAD NOT PROVED THE NEXUS BETWEEN THE BORROWING AND THE INVESTMENT. 2.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORED.IT IS FOUND THAT ASSESSEE HAD SUBSTANTIAL INCOME FROM DIVIDEND AND S HORT TERM CAPITAL GAINS,THAT AO HAD NOT DISPUTED THE PURCHASE OF SHARES.IF ASSESSES HAD EAR NED EXEMPT INCOME AND HAD SUBMITTED THAT EXPENDITURE INCURRED UNDER THE HEAD INTEREST PAID S HOULD BE ALLOWED, AO HAS TO DECIDE THE ISSUE IN LIGHT OF THE PROVISIONS OF SECTION 14A OF THE ACT. WE ARE OF THE OPINION THAT ISSUE OF DETERMINING NEXUS BETWEEN BORROWING OF FUNDS AND PURCHASE OF SH ARES HAS TO BE INVESTIGATED FURTHER.THEREFORE,IN THE INTEREST OF JUSTICE,WE ARE RESTORING BOTH THE ISSUES TO THE FILE OF THE AO FO R FRESH ADJUDICATION. HE IS DIRECTED TO AFFORD REASON ABLE OPPORTUNITY OF HEARING TO THE ASSESSEE AND ASSESSEE IS DIRECTED TO FURNISH NECESSARY DOCUMENTA RY EVIDENCE BEFORE THE AO TO SUBSTANTIATE ITS CLAIM. EFFECTIVE GROUND OF APPEAL IS DECIDE D IN FAVOUR OF THE ASSESSEE,IN PART. AS A RESULT, APPEAL FILED BY TH E ASSESSEE STANDS PARTLY ALLOWED. 1 2 $1, 3 4 / 5, + !, 67. 3 ITA NO. 8156/MUM/2010 DCS INFOTECH P. LTD. ORDER PRONOUNCED IN THE OP EN COURT ON 25 TH SEPTEMBER, 2013. '/ + -.% ' 8 FNUKAD NUKAD NUKAD NUKAD 25.09.2013 . + 9. SD/- SD/- ( . .. . . .. . , ,, , / I.P.BANSAL ) ( !'# !'# !'# !'# / RAJENDRA) / JUDICIAL MEMBER ' ' ' ' /ACCOUNTANT MEMBER / MUMBAI, :$ /DATE: 25.09.2013 SK '/ '/ '/ '/ + ++ + (,; (,; (,; (,; <';%, <';%, <';%, <';%, / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / &' 2. RESPONDENT / ()&' 3. THE CONCERNED CIT(A)/ = > , 4. THE CONCERNED CIT / = > 5. DR D BENCH, ITAT, MUMBAI / ;?9 (,$ . , . . . 6. GUARD FILE/ 9 @ );, (, //TRUE COPY// '/$ / BY ORDER, A / 6 ! DY./ASST. REGISTRAR , /ITAT, MUMBAI