SHANTI SARUP RENIWAL, MUMBAI V. DCIT CIR 38, MUMBAI

ITA 8380/MUM/2011

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9173 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 3 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-03-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 04-03-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 09-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NEIL PHILIPDR
• Assessee Lawyers: REEPAL G TRALSHAWALA
• Section: 14A

Judgement Text

, E IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI . , ! '# $ %, & ' BEFORE SHRI D.KARUNAKARA RAO, AM AND SHRI AMIT SHUK LA, JM . / ITA NO. 8380/MUM/2011 ( / ASSESSMENT YEAR : 2008-09 ) SHRI SHANTI SARUP RENIWAL 302, SYLVERTON BUILDING, COLABA MUMBAI 400 005 .. / APPELLANT V/S D CIT - 38, AAYAKAR BHAVAN, M.K. RD. MUMBAI 400020 .... / RESPONDENT . / PERMANENT ACCOUNT NUMBER AABCE3092Q !' # $ / ASSESSEE BY : SHRI REEPAL G. TRALSHAWALA (AR) % # $ / REVENUE BY : SHRI NEIL PHILIP (DR) & ' # '( / DATE OF HEARING 11.03.2015 )* +, # '( / DATE OF ORDER 25.03.2015 $ / ORDER '# $ %, & (! / PER AMIT SHUKLA, J.M. THE AFORESAID APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST ORDER DATED 21 ST SEPTEMBER 2011, PASSED BY THE LEARNED COMMISSIONER (APPEALS)41, MUMBAI, FOR THE QUANTUM OF ASSESSMENT SHRI SHANTI GROUP RENIWAL 2 PASSED UNDER SECTION 143(3), FOR THE ASSESSMENT YEAR 2008-09. THE ASSESSEE IS MAINLY AGGRIEVED BY DISALLOWANCE U/S.14 A R.W. RULE 8D, ON FOLLOWING GROUNDS OF APPEAL: IN LAW AND AS PER THE FACTS AND IN THE CIRCUMSTANCE S OF THE APPELLANTS CASE, THE HONBLE CIT(A) ERRED IN CONFIRMING DISALL OWANCE MADE BY THE LD. A.O. ON ACCOUNT OF INTEREST EXPENDITURE OF RS.5 1,71,522/-, UNDER SECTION 14A OF THE I.T. ACT, R.W.R. 8D. THE SAME DE SERVE TO BE CANCELLED. 2. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANTS CASE THE HONBLE CIT(A) FAILED TO APPRECIATE THE FACT THAT, THE APPELLANT WAS HAVING HUGE OWNED INTEREST FREE FUNDS. FURTHER, THE HONBLE CIT(A) ALSO ERRED IN OBSERVING THAT, THE APPELLANT FAILED TO PROVE THE DIRECT NEXUS BETWEEN THE OWNED FUNDS UTILIZED FOR INVESTME NT AND ACCORDINGLY, RELYING ON THE SPECIAL BENCH DECISION OF DELHI ITAT IN CHEMINVEST LTD. VS ITO 124 TTJ 577, CONCLUDED THAT, THE DISALLOWANCE MADE BY THE LD. A.O. IS CORRECT AND DOES NOT CALL F OR ANY INTERFERENCE. 2. THE BRIEF FACTS OF THE CASE ARE THAT, THE ASSESSEE IS AN INDIVIDUAL ENGAGED IN THE BUSINESS OF SHARE TRADING INCLUDING DERIVATIVE TRADING, AND FINANCING. THE ASSESSEE IN THE COMPUTATION OF INC OME HAD CLAIM LONG TERM CAPITAL GAIN ON SALE OF SHARES OF RS.1,08, 49,663/- AND DIVIDEND INCOME OF RS.10,70,393/-, AS EXEMPT U/S.10 (33). FOR THE PURPOSE OF DISALLOWANCE U/S.14A, THE ASSESSEE HAD OF FERED DISALLOWANCE OF RS.7,15,849/-. THE ASSESSEE OFFICER HELD THAT SUCH A WORKING OF DISALLOWANCE WAS NOT IN ACCORDANCE WITH TH E RULE 8D, THE ASSESSEE HAD ONLY TAKEN THE SHARES FROM WHICH DIVIDE ND HAS BEEN SHRI SHANTI GROUP RENIWAL 3 RECEIVED, ACCORDINGLY, HE WORKED THE DISALLOWANCE U NDER THE METHOD PRESCRIBED IN RULE 8D AND COMPUTED THE DISALLOWANCE OF RS.51,71,522/-. 3. BEFORE, THE CIT(A), THE ASSESSEE SUBMITTED THE D ETAILS OF HIS OWN FUNDS AVAILABLE IN THE CAPITAL ACCOUNT FOR MAKING THE INVESTMENT. FURTHER THE ASSESSEES INTEREST INCOME WAS EARNED FROM FINANCING BUSINESS FOR WHICH THE ASSESSEE HAD UTILIZED INTEREST BEARING LOANS (WHICH HAS IN THE FORM OF WITHDRAWAL FACILITY) AND O THER LOANS FOR GRANTING LOAN TO VARIOUS PARTIES. THUS, THE ASSESSEE H AS EARNED INTEREST ON SUNDRY LOANS TO THE TUNE OF RS.1,45,38,8 47/- AND HAVE PAID INTEREST ON LOAN OF RS.1,88,81,328/- AND BANK CHARG ES OF RS.4,38,233/-. THUS, THERE IS A DIRECT NEXUS BETWEEN T HE INTEREST INCOME AND INTEREST EXPENDITURE AND THEREFORE, ONLY THE NET INTEREST HAS TO BE TAKEN INTO ACCOUNT IN THE FORMULA GIVEN RULE 8D. HOWEVER, THE CIT(A) CONFIRMED THE SAID DISALLOWANCE MADE UNDER RULE 8D AFTER FOLLOWING DECISION OF BOMBAY HIGH COURT IN THE CASE OF GODREJ BOYCE MFG. CO. 328 ITR 81, AND HELD THAT THE RULE 8D IS MA NDATORY. 4. BEFORE US, THE LD. COUNSEL SUBMITTED THAT THE BENEF IT OF NETTING OF INTEREST HAS TO BE ALLOWED BECAUSE THE ASSESSEES MA JOR INTEREST PAYMENT IS ON LOAN WHICH HAS BEEN UTILIZED FOR EARNI NG OF INTEREST INCOME, THEREFORE, THERE WAS A DIRECT NEXUS. HENCE, THE ENTIRE SHRI SHANTI GROUP RENIWAL 4 PAYMENT CANNOT BE TAKEN INTO CONSIDERATION FOR THE PURP OSE OF DISALLOWANCE UNDER RULE 8D. IN SUPPORT OF HIS CONTE NTION, HE RELIED UPON THE DECISION OF VARIOUS TRIBUNAL DECISIONS. 5. ON THE OTHER HAND, LD. DR STRONGLY RELIED UPON THE ORDER OF AO AS WELL AS CIT(A). 6. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND ON PE RUSAL OF THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDER AS WEL L AS MATERIAL PLACED ON RECORD, WE FIND THAT THE ASSESSEE HAD SHOWN INTERE ST INCOME OF RS.1,45,38,847/- AND HAS DEBITED INTEREST AND FINANC E CHARGES OF RS.19,319,561/-. THE ASSESSEE HAS SECURED LOAN AS O N 31 ST MARCH 2008 AT RS.10,56,84,574/- AND UNSECURED LOAN AT RS.2 2,85,99,918/-, OUT OF WHICH LOAN ADVANCE TO OTHERS STOOD AT RS.19,84, 51,162/-. THUS, THERE APPEARS TO BE DIRECT NEXUS OF THE INTEREST BEARIN G LOAN UTILIZED FOR ADVANCING LOAN TO THE PARTIES AND EARNING OF IN TEREST. IN SUCH A CASE SET OFF OR NETTING OF INTEREST HAS TO BE TAKEN I NTO CONSIDERATION TO WORK OUT THE DISALLOWANCE OF INTEREST COMPONENT. THI S IS MORE SO IN THIS CASE, AS THE ASSESSEE HAS HUGE SURPLUS FUNDS IN THE FORM OF HIS CAPITAL. UNDER THESE FACTS, THE MATTER IS RESTORED BACK TO THE FILE OF THE AO TO LOOK INTO THE SET OFF OR NETTING OFF OF INTEREST AND EXAMINE OTHER RELEVANT FACTORS, WHILE CALCULATING THE DISALLOWANCE OF INTEREST EXPENSES UNDER RULE 8D. WHILE DOING SO HE WILL ALSO GIVE OPPORTUNITY TO SHRI SHANTI GROUP RENIWAL 5 THE ASSESSEE TO EXPLAIN HIS CASE. ACCORDINGLY, GROUN D RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWE D FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH DAY OF MARCH 2015. SD/- SD/- SD/ - . D. KRUNAKARA RAO ACCOUNTANT MEMBER SD/ - '# $ % & AMIT SHUKLA JUDICIAL MEMBER MUMBAI, )* DATED: 25 .03.2015 PATEL )* # '-. /.' / COPY OF THE ORDER FORWARDED TO : (1) !' / THE ASSESSEE; (2) % / THE REVENUE; (3) & 0'( ) / THE CIT(A); (4) & 0' / THE CIT, MUMBAI CITY CONCERNED; (5) .34 '5, ( 5, & ' / THE DR, ITAT, MUMBAI; (6) 4 7' / GUARD FILE. . ' ' / TRUE COPY )* & / BY ORDER 8 / 9 % / (DY./ASSTT. REGISTRAR) ( 5, & ' / ITAT, MUMBAI