JAIWANTI MERCANTILE P.LTD, THANE V. DCIT 5(2)(1), MUMBAI

ITA 831/MUM/2017

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 7838 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-12-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2012-2013
• Appeal Filed On: 06-02-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RAJEEV GUBGOTRA
• Keywords: Earning of tax free income; Futures and options
• Section: 143(3); 5(2); 14A; 37

Judgement Text

IN THE INC OME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI BEFORE HONBLE SH. SANDEEP GOSAIN , J M & HONBLE SH. MANOJ KUMAR AGGARWAL, AM ./ I.T.A. NO . 831 /MUM/201 7 ( / ASSESSMENT YEAR: 2012 - 13 ) M/S JAIWANTI MERCANTILE PVT. LTD. 105, SHREE ASHIRWAD CHS, BHAYNDAR (W), DIST - NR D MELLO HOTEDL, THANE, PIN - 401107 / VS. DCIT - 5(2) (1) , AAYAKAR BHAVAN, M. K. ROAD, MUMBAI - 400 020 ./ ./ PAN/GIR NO. A A CCJ5103C ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : NONE / RESPONDENTBY : SHRI RAJEEV GUBGOTRA , DR / DATE OF HEARING : 27/12 /201 8 / DATE OF PRONOUNCEMENT : 28/12/2018 / O R D E R PER SANDEEP GOSAIN, J UDICIAL MEMBER : THE P RESENT APPE AL FILED BY THE ASSESSEE IS AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) - 21 , MUMBAI, DATED 30.09.16 FOR AY 2012 - 13. 2 I.T.A. NO. 831 /MUM/201 7 M/S JAIWANTI MERCANTILE PVT. LTD. 2 . AT THE VERY OUTSET, IT IS NOTICED FROM THE NOTING OF THE REGISTRY THAT THERE IS A DELAY OF 3 DAYS IN FILING THE APPEAL. HOWEVER CONSIDERING THE SMALLNESS OF THE DELAY AND THE PRINCIPLES LAID DOWN BY HONBLE SUPREME COURT IN THE CASE OF SMT KITIZI VRS. LAND ACQUISITION COLLECTOR, AIR 1987, PAGE 1353 (SC), WE CONDONE THE DELAY AND ADMIT THE APPEAL FOR DECIDING THE SAME ON MER ITS. 3. TODAY NOBODY HAS APPEARED ON BEHALF OF ASSESSEE IN SPITE OF SEVERAL CALLS AND EVEN NO APPLICATION FOR ADJOURNMENT WAS MOVED . FROM THE RECORDS, WE ALSO NOTICED THAT NONE HAD APPEARED ON 13.11.18, 28.09.18, 09.08.18, 27.06.18. THE NOTICES IN THIS CASE WERE SENT TO THE ASSESSEE ON THE ADDRESS MENTIONED BY THE ASSESSEE IN FORM NO. 36, BUT THERE IS A REPORT OF THE POSTAL AUTHORITY D ATED 25.10.18 THAT ASSESSEE HAS REFUSED TO ACCEPT THE NOTICE. EVEN THEREAFTER ANOTHER NOTICE DATED 15.11.18 WAS AGAIN ISSUED, BUT EVEN THEN NOBODY APPEARED ON BEHALF OF THE ASSESSEE. ON THE OTHER HAND L D. DR IS PRESENT IN THE COURT AND IS READY WITH ARGUME NTS. THEREFORE WE HAVE DECIDED TO PROCEED WITH THE HEARING OF THE CASE EX - PA RTE WITH THE ASSISTANCE OF THE L D. DR AND THE MATERIAL PLACED ON RECORD. 3 I.T.A. NO. 831 /MUM/201 7 M/S JAIWANTI MERCANTILE PVT. LTD. 4 . AS PER THE FACTS OF THE PRESENT CASE, THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF TRADING IN SHAR ES AND SECURITIES, ETC. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS E - FILED ON 28.09.12 DECLARING TOTAL INCOME OF RS. 1,95,20,940 / - . SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY AND AFTER SERVING STATUTORY NOTICE AND SEEKING REPLY, ORDER OF ASSESSMENT U/S 143(3) WAS PASSED BY AO ON 31.03.15 THEREBY DETERMINING THE TOTAL INCOME AT RS. 3,46,64,173 / - . AGGRIEVED BY THE ORDER OF AO, ASSESSEE PREFERRED APPEAL BEFORE LD. CIT(A) AND LD. CIT(A) AFTER CONSIDERING THE CASE OF BOTH THE PARTIES, PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. NOW BEFORE US, THE ASSESSEE HAS PREFERRED THE APPEAL BY RAISING THE ABOVE GROUNDS. 5 . THE SOLITARY GROUND RAISED BY THE ASSESSEE RELATES TO CHALLENGING THE ORDER OF LD. CIT(A) IN CONFIRMING THE DISALLOWANCE U/S 14A R.W.R. 8D OF THE ACT. 4 I.T.A. NO. 831 /MUM/201 7 M/S JAIWANTI MERCANTILE PVT. LTD. 6 . WE HAVE HEARD LD. DR AND WE HAVE ALSO PERUSED THE MATERIAL PLACED ON RECORD AS WELL AS THE ORDERS PASSED BY REVENUE AUTHORITIES. WE FIND THAT LD. CIT(A) HAS DEALT WITH THE ABOVE GROUNDS RAISED BY THE ASSESSEE IN PARA NO. 4 O F ITS ORDER AND T HE OPERATIVE POR TION OF THE ORDER OF LD. CIT(A) IS CONTAINED IN PARA NO. 4.2, 4.2.1 & 4.2.2 , WHICH IS REPRODUCED BELOW: - 4 . 2 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSIONS OF THE L D AR HAVE ALSO NONE THROUGH THE DECISIO NS RETIED ON BY THE AO AND THE LD AR A S SEEN FROM THE FACTS OF THE CASES THE APPELLANT HAS MADE INVESTMENT IN EXEMPT INCOME EARNING AVENUES AND EARNED DIVIDEND INCOME OF RS 15, 59 , 610 / - DU RI NG THE YEAR BUT NO T MADE ANY DISALLOWANCE BY INVOK ING RU LE 8 D. AS SE EN FROM THE BALANCE SHEET THE OWN FUNDS AS ON 31/ 03/2012 ARE ONLY RS 1,4 CR4ORE AGAINST THE INVESTMENT OF RS 48.07 CRORE. THE SHORT TERM BORROWING, ON THE OTHER HAND , STAND AT RS.44.43 CR, IT IS THEREFORE EVIDENT FROM, THE ABOVE FINANCIAL DETAILS T HAT THE INVESTMENT WAS NOT SOURCED FROM OWN FUNDS.BUT WAS SOURCED FROM BOR ROWED FUNDS. ON THE OTHER HAND IT IS ALSO EVIDENT FROM FROM THE BALANCE SHEET THAT THE INVESTMENTS WERE SHOWN UNDER 'INVENTORIES AS THE COMP ANY IS INTO TRADING AND SHARES. AND SECURI TIES & FUTURES AND OPTIONS. NOW THE PERTINENT 5 I.T.A. NO. 831 /MUM/201 7 M/S JAIWANTI MERCANTILE PVT. LTD. QUESTION IS WHETHER DISAL LOWANCE U/S 14A IS CALLED FOR IF THE INVESTMENT IS TAKEN AS STOCK - IN - TRADE ? VA RIOUS BENCHES OF ITAT IN THE FOLLOWING CASES HAVE HELD THAT DISALLOWANCE U/S 14A HAS TO BE MADE EVEN IF TH EY INVESTMENT IS TAKEN AS STOCK - IN - TRADE. I) DH SECURI TIES PVTL LTD. - ITAT D BENCH MUMBAI - 41 TAXMAN.COM 352. II) DAMANI ESTATE & FINANCED P,LTD, ITAT MUMBAI D BENCH (2014)41 TAXMANN.COM 462 III) SANATAN TEXTRADE LTD. 1TAT MUM 'A BENCH - 2010 4 1TR (TRIB ) 693 IV) DAGA CAPITA L MANAGEMENT PVT.LTD.117 1TD 169(2008)(MUMBAI ITAT - SB ) 4.2.1. IT IS ALSO NOTICED FROM THE 3CD REPORT AT COLUMN NO. 17(I) THAT APPELLANT IS REQUIRED TO MAKE DISALLOWANCE U/S 14A OF RS. 2,04,750/ - . IT IS MENTIONED IN 3CD REPORT AT COLUMN (I) AS UNDER: - (I) AMOUNT OF DEDUCTION INADMISSIBLE IN TERMS OF SECTION 14A IN RESPECT OF THE EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. THERE WAS NO SUCH DISALLOWANCE' TRADE IN THE RETURN OF INCOME. HO WEVER, THE APPELLANT HAS DISALLOWED SIMILAR AMOUNT U/S 37 AS PER THE COMPUTATION STATEMENT. IT 6 I.T.A. NO. 831 /MUM/201 7 M/S JAIWANTI MERCANTILE PVT. LTD. APPEARS THAT THE APPELLANT HAS MADE DISALLOWANCE OF RS. 2 , 04,750 / - WRONGLY U/S 37 INSTE AD OF U/S 14A. THE AO IS DIRECTED TO GIVE CREDIT TO THE EXTENT OF RS.2,04, 750/ - U/S 14A SINCE THE AUDITORS HAVE CLEARLY POINTED OUT IN FORM NO3CD THAT THE APPELLANT I S LIABLE TO MAKE DISALLOWA NCE U/S 14A OF THE SAID AMOUNT . THE BALANCE ADDITION OF RS. 1,49, 38 ,483 (151,42 , 233, - 2,04 , 750) IS REQUIRED TO BE DISALLOWED AS WORKED OUT BY THE AO UNDER LIMB (II) AND LIMB(III) OF RULE 8D(2). THIS DISALLOWANCE, NO DOUBT, IS MORE THAN THE DIVIDEND INCOME EARNED DURING THE YEAR. BUT THAT DOES NOT MA TTER WHILE MAKING DISALLOWANCE U/S 14A SINCE THE SECTION 14A IS A DISALLOWANCE SECTION AND NOT A CHARGING SECTION AND THE WORDS U SED IN THE SECTION ARE 'RELATABLE TO'. THE SAME VIEW WAS ENDORSED BY THE BOARD'S CIRCULAR NO.5 OF 2014 DATED 11.2. 2014 . IN MY CONSIDERED OPINION, WHEN ALL OTHER CONDITIONS FULFIL L AND THERE IS A CLEAR NEXUS BETWEEN THE BORROWED FUNDS AND INVESTMENT, AS POINTED OUT ABOVE, THE EXPENDITURE RELATABLE TO EARNING OF EXEMPT INCOME NEEDS TO BE DISALLOWED BY INVOKING RULE 8D IN LETTER AND SPIRIT . AFTER HAVING GONE THROUGH THE ORDER PASSED BY LD. CIT (A), WE FIND THAT LD. CIT (A) HAD RIGHTLY APPRECIATED THE FACTS OF THE PRESENT CASE TO THE EFFECT THAT THE ASSESSEE HAD MADE INVESTMENT 7 I.T.A. NO. 831 /MUM/201 7 M/S JAIWANTI MERCANTILE PVT. LTD. IN EXEMPT INCOME EARNING AVENUES AND EARNED DIVIDEND INCOME DURING THE YEAR, BUT NOT MADE ANY DISALLOWANCE BY INVOKING RU LE 8D. FROM THE RECORDS OF BALANCE SHEET, THE ASSESSEES OWN FUNDS AS ON 31.03.12 WERE ONLY RS. 1.47 CRORES AGAINST THE INVESTMENT OF RS. 48.07 CRORES. THE SHORT TERM BORROWINGS STANDS AT RS. 44.43 CRORES AND THUS AFTER APPRECIATING THE DOCUMENTS, LD. CIT( A) RIGHTLY APPRECIATED THAT THE INVESTMENT WAS NOT SOURCED BY THE ASSESSEE FROM OWN FUNDS, BUT WAS SOURCED FROM BORROWED FUNDS. MOREOVER, N O NEW FACTS HAVE BEEN BROUGHT ON RECORD BEFORE US I N ORDER TO CONTROVERT OR REBUT THE FINDINGS SO RECORDED BY LD CIT (A) . THEREFORE, THE FINDINGS OF THE REVENUE AUTHORITIES WERE UN - REBUTTED AND THUS THERE ARE NO REASON S FOR US TO INTERFERE INTO OR DEVIATE FROM THE FINDINGS RECORDED BY THE LD. CIT (A). HENCE , WE ARE OF THE CONSIDERED VIEW THAT THE FINDINGS SO RECORDED BY THE LD. CIT (A) ARE JUDICIOUS AND ARE WE LL REASONED. THUS, WE FIND NO INFIRMITY IN THE ORDER UNDER CHALLENGE. THE SAME IS HEREBY UPHELD. RESUL TANTLY, THIS GROUND RAISED BY THE ASSESSEE STANDS DISMISSED . 8 I.T.A. NO. 831 /MUM/201 7 M/S JAIWANTI MERCANTILE PVT. LTD. 7 . IN THE NET RESULT, THE APPEAL FILED BY THE ASSESSEE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH DEC , 2018. SD/ - SD/ - (MANOJ KUMAR AGGARWAL ) ( SANDEEP GOSAIN) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI ; DATED : 28 . 12 .201 8 SR.PS . DHANANJAY / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F I LE / BY ORDER, . / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI