LOGUS REALTY P. LTD, MUMBAI V. ADDL CIT RG 8(2), MUMBAI

ITA 8529/MUM/2011

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2487 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 7 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-07-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 23-04-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 16-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: INDER SOLANKI
• Keywords: Business income
• Section: 143(3); 14A; 80G

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A, MUMBAI BEFORE SHRI G.S.PANNU (AM) AND SHRI RAM LAL NEGI (JM) ITA NO. 8529/MUM/2011 ASSESSMENT YEAR: 2008-09 M/S. LOGUS REALTY PVT. LTD., 201, KRISHNA KUNJ, V. L. MEHTA MARG, JUHU VILE PARLE (W), MUMBAI- 400 056. PAN: AABCL1016B VS. THE ADDL. CIT RANGE 8(2), AYAKAR BHAVAN, MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI. PARESH SHAPARIA RESPONDENT BY : SHRI. INDER SOLANKI DATE OF HEARING: 2 2/04/2016 DATE OF PRONOUNCEMENT: 20/07/20 16 O R D E R PER RAM LAL NEGI, JM THIS APPEAL HAS BEEN PREFERRED BY THE APPELLANT/ASS ESSEE AGAINST ORDER DATED 08/09/2011 PASSED BY THE LD. CIT(APPEALS)-17, MUMBAI, FOR THE ASST. YEAR 2008-09. 2. BRIEF FACTS OF THE CASE ARE THAT THE APPELLANT/A SSESSEE, A LIMITED COMPANY, FILED ITS RETURN OF INCOME FOR THE ASSESSM ENT YEAR 2008-09 DECLARING THE TOTAL INCOME OF RS. 10,28,48,393/-. HOWEVER, VI DE ASSESSMENT ORDER DATED 28.12.2010, PASSED U/S 143(3) OF THE INCOME TAX ACT , 1961 (THE ACT FOR SHORT) THE AO ASSESSED THE TOTAL INCOME AT RS. 10,83,43,06 0/- AFTER MAKING DISALLOWANCE OF RS. 7,44,643/-U/S 14A READ WITH RUL E 8D OF THE INCOME TAX RULES AND DISALLOWANCE OF RS. 47,50,000/- UNDER SE CTION 80G OF THE ACT. IN APPEAL THE LD. CIT(A) CONFIRMED BOTH THE DISALLOWAN CES. 2 ITA NO. 8529/MUM/2011 ASSESSMENT YEAR: 2008-09 3. THE ASSESSEE IS IN APPEAL BEFORE THIS TRIBUN AL AGAINST THE IMPUGNED ORDER ON THE FOLLOWING EFFECTIVE GROUNDS:- I. DISALLOWANCE U/S 14A R.W.R 8D:- 1. THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISA LLOWANCE U/S 14A R. W. RULE 8D. 2. THE LEARNED CIT(A) FAILED TO APPRECIATE THE FACT THAT (I) THE APPELLANT IS DOING SHARE TRADING & F& O BUS INESS AND THERE IS ONLY STOCKS AND NO INVESTMENTS. (II) THE DISALLOWANCE CANNOT EXCEED THE EXPENSES CL AIMED. 3. THE LEARNED CIT(A) OUGHT NOT TO HAVE CONFIRMED D ISALLOWANCE U/S 14A R. W. RULE 8D. 4. THE DISALLOWANCE OF U/S 14A R.W. RULE 8D REQUIRE S TO BE DELETED. II. DENIAL OF DEDUCTION OF RS. 47,50,000/- U/S 80G: - 1). THE LEARNED CIT(A) ERRED IN CONFIRMING THE DENI AL OF DEDUCTION OF RS. 47,50,000 U/S 80G CLAIMED BY THE APPELLANT. 2. THE LEARNED CIT(A) OUGHT NOT TO HAVE CONFIRMED D ENIAL OF THE DEDUCTION U/S 80G OF RS. 47,50,000/- 3. DEDUCTION OF RS. 47,50,000/- U/S 80G REQUIRES TO BE ALLOWED TO THE APPELLANT. 4. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE SUBM ITTED THAT THE LD. CIT(A) HAS WRONGLY UPHELD THE DISALLOWANCE MADE BY THE AO UNDER SECTION 14A OF THE ACT R/W RULE 8D AS THE FINDINGS ARE CONTRARY TO THE DECISION DATED 14.9.2012, RENDERED BY THE MUMBAI I TAT IN DCIT VS. 3 ITA NO. 8529/MUM/2011 ASSESSMENT YEAR: 2008-09 M/S ADVANTAGE SECURITIES LTD. ITA NO 6711/MUM/2011 IN WHICH THE IDENTICAL ISSUE HAS BEEN DECIDED IN FAVOUR OF THE A SSESSEE AND AGAINST THE REVENUE. THE APPELLANT/ASSESSEE IS ONLY UNDERTA KING SHARE TRADING AND NOT INVESTMENTS, AND THUS SUCH SHARES ARE TO BE EXCLUDED FOR COMPUTING DISALLOWANCE U/S 14A OF THE ACT. THE LD. COUNSEL FURTHER SUBMITTED THAT ASSESSEES CASE IS COVERED BY THE DC IT VS. M/S ADVANTAGE SECURITIES LTD. (SUPRA). 5. PER CONTRA THE LD. DEPARTMENTAL REPRESENTATIVE ( DR) RELYING ON THE CONCURRENT FINDINGS OF THE AUTHORITIES BELOW, S UBMITTED THAT AS PER LAW EVERY CASE IS TO BE DECIDED ON ITS OWN MERIT AN D THE LD. CIT(A) HAS CONFIRMED THE FINDINGS OF THE AO KEEPING IN VIEW TH E ISSUES RAISED BY THE ASSESSEE, THEREFORE, THERE IS NO SCOPE TO INTER FERE WITH THE IMPUGNED ORDER. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD INCLUDING THE DECISION RELIED UPON BY THE ASSESSEE. THE COORDINATE BENCH OF THE TRIBUNAL FOLLOWING THE DECI SION RENDERED BY HONBLE KARNATAKA HIGH COURT IN CCL LTD. VS. JCIT( 250 CTR 291), HAS DECIDED THE IDENTICAL ISSUE IN THE CASE OF M/S ADVA NTAGE SECURITIES LTD(SUPRA) HOLDING AS UNDER:- 6. HOWEVER, THE HONBLE HIGH COURT OF KARNATAKA HA S RECENTLY CONSIDERED THE DISALLOWANCE OF EXPENSES IN CURRED ON BORROWINGS MADE FOR PURCHASE OF TRADING SHARES U/S. 14A OF THE I.T. ACT IN CASE OF CCL LTD. VS. JCIT (SUPRA). THE ASSESSEE IN THAT CASE WAS DISTRIBUTOR OF STATE LOTTERIES AND A DEALER IN SHARES AND SECURITIES. THE ASSESSEE HAD TAKEN LOANS FOR THE PURCHASE OF CERTAIN SHARES AND IT HAD INCURRED EXPE NDITURE FOR BROKING THE LOANS WHICH HAD BEEN DISALLOWED UND ER RULE 8D BY THE A.O. AND CONFIRMED BY THE LD.CIT(A). THE TRIBUNAL AGREED WITH THE AUTHORITIES BELOW THAT THE EXPENDIT URE RELATABLE TO EARNING OF DIVIDEND INCOME THOUGH INCI DENTAL TO 4 ITA NO. 8529/MUM/2011 ASSESSMENT YEAR: 2008-09 THE TRADING IN SHARES WAS ALSO TO BE DISALLOWED U/S .14A OF THE I.T. ACT. THE TRIBUNAL HOWEVER, HAD OBSERVED TH AT THE ENTIRE BROKING COMMISSION WAS NOT RELATABLE TO EARN ING OF DIVIDEND INCOME AS THE LOAN HAD BEEN UTILISED FOR T HE PURCHASE OF SHARES AND THE PROFIT SHOWN FROM THE SA LE OF SHARES HAD BEEN OFFERED AS BUSINESS INCOME. THE TRI BUNAL, THEREFORE, DIRECTED THE A.O. TO BIFURCATE THE EXPEN DITURE PROPORTIONATELY. THE ORDER OF THE TRIBUNAL WAS HOWE VER, NOT UPHELD BY THE TRIBUNAL. THE HIGH COURT NOTED THAT 6 3% OF SHARES WHICH WERE PURCHASED WERE SOLD AND INCOME DE RIVED WAS OFFERED TO TAX AS BUSINESS INCOME. THE REMAININ G 30% OF SHARES WHICH REMAINED UNSOLD HAD REVERTED TO DIVIDE ND INCOME FOR WHICH THE ASSESSEE HAD NOT INCURRED ANY EXPENDITURE AT ALL. THE HIGH COURT ALSO OBSERVED TH AT THE ASSESSEE HAD NOT RETAINED THE SHARES WITH THE INTEN TION OF EARNING DIVIDEND INCOME WHICH WAS INCIDENTAL DUE TO HIS SALE OF SHARES WHICH REMAINED UNSOLD BY THE ASSESSEE. TH E HIGH COURT, THEREFORE, DID NOT UPHOLD THE ORDER OF THE T RIBUNAL DISALLOWING THE EXPENDITURE IN RELATION TO THE DIVI DEND FROM SHARES. THUS THERE BEING A DIRECT JUDGMENT OF A HON BLE HIGH COURT ON THIS ISSUE, THE SAME HAS TO BE FOLLOWED IN PREFERENCE TO THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNA L IN THE CASE OF M/S. DAGA CAPITAL MANAGEMENT P. LTD. (SUPRA). IN FACT, WE NOTE THAT THE TRIBUNAL IN THE CASE OF GANJAM TREADI NG CO. LTD. (SUPRA) HAS ALREADY CONSIDERED THIS SITUATION AND H ELD THAT IN VIEW OF THE JUDGMENT OF HONBLE HIGH COURT OF KARNA TAKA IN THE CASE OF CCL LTD. VS. JCIT (SUPRA) THE DISALLOWA NCE OF INTEREST IN RELATION TO THE DIVIDEND RECEIVED FROM TRADING SHARES CANNOT BE MADE. WE, THEREFORE, SEE NO INFIRM ITY IN THE ORDER OF THE LD. CIT(A) IN DELETING THE DISALLOWANC E U/S.14A COMPUTED BY THE A.O. IN RELATION TO THE STOCK-IN-TR ADE. THE ORDER OF THE LD.CIT(A) IS ACCORDINGLY UPHELD. 7. THE REVENUE ASSAILED THE SAID FINDINGS OF THE M UMBAI TRIBUNAL BEFORE THE HONBLE BOMBAY HIGH COURT IN INCOME TAX APPEAL NO 1131OF 2013, CIT VS. INDIA ADVANTAGE SECURITIES LTD. THE HONBLE COURT DISMISSED THE APPEAL OF THE REVENUE AND CONFIRMED T HE FINDINGS OF THE TRIBUNAL VIDE JUDGMENT DATED 17.3.2015. IN VIEW OF THE FINDINGS OF THE COORDINATE BENCH CONFIRMED BY THE HONBLE BOMBAY HI GH COURT, IN THE IDENTICAL ISSUE, WE SET ASIDE THE FINDINGS OF THE L D. CIT(A) ON THE ISSUE 5 ITA NO. 8529/MUM/2011 ASSESSMENT YEAR: 2008-09 INVOLVED IN THIS GROUND OF THE APPEAL AND ALLOW THI S GROUND OF APPEAL OF THE ASSESSEE. 8. AS REGARDS GROUND NO 2 OF THE APPEAL, THE LD. CO UNSEL FOR THE ASSESSEE SUBMITTED THAT THE FINDINGS OF THE AO ARE BASED ON THE GENERAL STATEMENT OF WITNESS WHICH IS NOT CORROBORATED BY A NY DOCUMENTARY EVIDENCE AND THE LD. CIT(A) HAS WRONGLY CONFIRMED T HE SAME. THEREFORE, THE IMPUGNED ORDER IS LIABLE TO BE SET ASIDE. THE L D. DR, ON THE OTHER HAND RELYING UPON THE CONCURRENT FINDINGS OF THE AU THORITIES BELOW SUBMITTED THAT THE EVIDENCE ON RECORD IS SUFFICIENT TO DENY THE DEDUCTION CLAIMED BY THE ASSESSEE. 9. IN THE LIGHT OF THE CONTENTIONS OF THE PARTIES, WE HAVE PERUSED THE MATERIAL ON RECORD. APPELLANT/ASSESSEE HAS CLAIMED DEDUCTION OF RS. 47,50,000/- UNDER SECTION 80G OF THE ACT ON THE GRO UND THAT IT HAD MADE PAYMENT OF RS. 95,00,000/- AS DONATION TO SOUT H INDIAN EDUCATION SOCIETY (SIES). AO HAS DISALLOWED THE CL AIM OF THE ASSESSEE ON THE BASIS OF REPORT DATED 22.12.2010 OF THE INVE STIGATION WING OF THE DEPARTMENT, WHICH REVEALED THAT DURING THE RELEVANT PERIOD SIES USED TO ISSUE BOGUS CERTIFICATES U/S 80G OF THE ACT IN FAVO UR OF VARIOUS ASSESSES. AS PER THE REPORT SIES USED TO ACCEPT CAPITATION FE E IN CASH FROM THE STUDENTS AND RECORD IN THE BOOKS OF ACCOUNT AS DONA TION IN THE NAME OF DIFFERENT CORPORATE ENTITIES. THESE CORPORATE ENTIT IES USED TO ISSUE CHEQUES IN FAVOUR OF SIES. IN RETURN, SIES USED TO ISSUE CERTIFICATES U/S 80G/35/(1)(II) AND ALSO RETURN THE PROCEEDS OF CHE QUES TO THE SO CALLED DONORS. 10. SINCE SIES HAD DISCLOSED THE SAID MODUS OPERAND I DURING INVESTIGATION BEFORE THE INVESTIGATION WING, THE AO DURING ASSESSMENT PROCEEDING, SUMMONED SIES. IN RESPONSE THEREOF, SIE S VIDE LETTER DATED 6 ITA NO. 8529/MUM/2011 ASSESSMENT YEAR: 2008-09 23.10.2010 CONFIRMED HAVING RECEIVED DONATION FROM THE APPELLANT/ASSESSEE. THE LD. COUNSEL FOR THE ASSESSE E HAS CONTENDED THAT A GENERAL STATEMENT MADE BY SIES BEFORE THE INVESTI GATING OFFICER, IS NOT SUFFICIENT TO HOLD THAT THE APPELLANT/ASSESSEE HAS RECEIVED BACK THE AMOUNT PAID TO SIES AS DONATION. IN OUR CONSIDERED VIEW, THERE IS FORCE IN THE CONTENTION OF THE ASSESSEE. SINCE SIES HAS N OT SPECIFICALLY STATED THAT THE AMOUNT RECEIVED FROM THE ASSESSEE WAS RETU RNED BACK AS PER THE AFORESAID MODUS OPERANDI, IT CANNOT BE HELD CONCLUS IVELY THAT EITHER NO DONATION WAS PAID BY THE ASSESSEE TO SIES OR THE AM OUNT PAID BY THE ASSESSEE WAS RETURNED BY SIES. HENCE, THE LD. CIT(A ) HAS WRONGLY CONFIRMED THE DISALLOWANCE IN QUESTION MADE BY THE AO BASED ON WRONG ASSUMPTION. WE, THEREFORE SET ASIDE THE FINDING OF THE LD. CIT(A) AND ALLOW THIS GROUND OF APPEAL OF THE ASSESSEE. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE FOR THE A.Y. 2008-09 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT 20 TH JULY, 2016. SD/- SD/- ( G.S.PANNU ) (RAM LAL NEGI) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED: 20/07/2016 7 ITA NO. 8529/MUM/2011 ASSESSMENT YEAR: 2008-09 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A)- 4. / CIT 5. !' , $ !'% , / DR, ITAT, MUMBAI 6. &' ( / GUARD FILE. / BY ORDER, ) //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI PRAMILA