MANISH D. INNANI, MUMBAI V. ASST CIT RG 4(1), MUMBAI

ITA 861/MUM/2012

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8203 (ITAT-MUMBAI)
• Duration Of Justice: 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-08-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 09-02-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P C MAURYA
• Assessee Lawyers: SANJIV M SHAH
• Keywords: Earning of tax free income; Speculation loss
• Section: 234B; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B MUMBAI BEFORE SHRI B.R. MITTAL, JUDICIAL MEMBER AND SHRI RAJENDRA, ACCOUNTANT MEMBER ITA NO. 861/MUM/2012 ASSESSMENT YEAR 2008-09 SHRI MANISH D. INNANI C-803, AVON MAJESTY, DATTA PADA ROAD, OPP. TATA SSL, BORIVALI (EAST), MUMBAI-400 066 PAN NO. AABPI 4219 C VS. ACIT, RANGE 4(1), 640, 6 TH FLOOR, AAYAKAR BHAVAN, M. K. ROAD, MUMBAI-400 020 (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SANJIV M. SHAH REVENUE BY : SHRI P. C. MAURYA DATE OF HEARING : 26-06-2012 DATE OF PRONOUNCEMENT : 01-08-2012 ORDER PER RAJENDRA, A.M. FOLLOWING GROUNDS OF APPEAL WERE FILED BY THE ASSE SSEE CHALLENGING THE ORDER DTD.12.12.2011 OF THE CIT(A)-8, MUMBAI. (1)THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) [CIT(A)] ERRED IN SUBSTANTIALLY CONFIRMING THE DISALLOWANCE UNDER SEC TION 14A OF THE INCOME TAX ACT, 1961 [ACT] READ WITH RULE 8D OF THE INCOME TAX RULES, 1961 [RULES] (2)THE CIT(A) FURTHER ERRED IN THIS CONNECTION IN RELYING ON DECISIONS REPORTED AS GODREJ AND BOYCE MFG CO V. DCIT 328 ITR 81 (BOM) AND ITO V. DAGA CAPITAL MANAGEMENT 26 SOT 603 (MUM) (SB) (3) THE CIT(A) FURTHER ERRED IN THIS CONNECTION IN HOLDING THAT: A)THE APPELLANT HAS NOT MAINTAINED SEPARATE RECORDS FOR EXPENSES INCURRED FOR EARNING EXEMPT INCOME; B) THE BURDEN IS NOT ON THE ASSESSING OFFICER [AO] TO ESTABLISH NEXUS OF THE EXPENDITURE WITH EXEMPT INCOME; ITA NO. 861/MUM/2012 SHRI MANISH D. INNANI 2 C) THE APPELLANTS CONTENTION THAT SECTION 14A DOES NOT PROVIDE FOR APPORTIONMENT OF EXPENSES IS NOT SUSTAINABLE; D ) THE APPELLANT HAS FAILED TO PRODUCE ANY CASH FL OW STATEMENT TO SHOW THAT BORROWED FUND HAS NOT BEEN UTILIZED FOR MAKING INVE STMENT; AND E) THE APPELLANTS CONTENTION THAT IT HAS INCURRED NO EXPENDITURE TO EARN THE EXEMPT INCOME IS NOT ACCEPTABLE. (4) THE CIT(A) ERRED IN SUSTAINING THE COMPUTATION OF THE REBATE BY THE AO UNDER SECTION 88E AT RS.75,07,274/- AS AGAINST RS.1 ,01,87,300/- CLAIMED BY THE APPELLANT. (5) THE CIT(A) ERRED IN NOT DISPOSING GROUND CONCE RNING LEVY OF INTEREST UNDER SECTIONS 234B AND 234C. (6) THE APPELLANT CRAVES LEAVE TO ADD TO AND/OR AM END AND/OR DELETE AND/OR MODIFY AND/OR ALTER THE AFORESAID GROUNDS OF APPEAL AS AND WHEN THE OCCASION DEMANDS. (7) ALL THE AFORESAID GROUNDS OF APPEAL ARE INDEPE NDENT, IN THE ALTERNATIVE AND WITHOUT PREJUDICE TO ONE ANOTHER. THE ASSESSEE, AN INDIVIDUAL, ENGAGED IN THE BUSINES S OF TRADING IN DERIVATIVES AND MUTUAL FUNDS, FILED HIS RETURN OF INCOME DECLARING TOTAL INCOME OF RS.5.94 CRORES. 2. DURING THE ASSESSMENT PROCEEDING THE AO FOUND THAT THE ASSESSEE HAD SHOWN DIVIDEND INCOME OF RS.5,60,809/- WHICH WAS CLAIMED AS EXEMPT. AO FOUND THAT THE ASSESSEE HAD NOT ALLOCATED ANY EXPENDITURE INCURRED BY HIM TOWARDS EARNING OF THE TAX-EXEMPT-DIVIDEND-INCOME. AFTER OBTAINING EXPLAN ATION FROM THE ASSESSEE AO MADE AN ADDITION AMOUNTING TO RS.19.34 LAKHS U/S.14 A R.W.S. 8-D. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTH ORITY (FAA). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE HE HELD THAT THE ASSESS EE HAD NOT MAINTAINED SEPARATE ACCOUNTS OF EXPENSES INCURRED FOR EARNING OF EXEMPT INCOME, THAT THE ASSESSEE HAD NOT MAINTAINED SEPARATE ACCOUNTS OF EXPENSES INCURRED F OR EARNING OF EXEMPT INCOME, THAT ASSESSEE HAD ALSO NOT MAINTAINED ANY SEPARATE RECOR DS ON ACCOUNT OF EXPENDITURE HAVING BEEN INCURRED FOR EARNING OF DIVIDEND INCOME , THAT THE APPELLANT HAD FAILED TO PRODUCE ANY CASH FLOW STATEMENT OR ANY OTHER MATERI AL WHICH COULD ESTABLISH THAT BORROWED FUND HAD NOT BEEN UTILISED FOR EARNING OF EXEMPT INCOME, THAT MERELY ON THE BASIS OF BALANCE OF OWN FUND AND BORROWED FUND AS O N THE DATE OF THE BALANCE SHEET IT COULD NOT BE PRESUMED THAT BORROWED FUND HAD NOT BE EN UTILIZED FOR EARNING OF EXEMPT INCOME, THAT THE APPELLANTS CONTENTION THAT NO EXP ENDITURE HAD BEEN INCURRED TO EARN EXEMPT INCOME WAS NOT ACCEPTABLE, THAT THE ASSESSEE BEING A SHARE TRADE UNDERTOOK TRANSACTIONS OF SHARE WHICH SUBSEQUENTLY YIELDED DI VIDEND OF CAPITAL GAIN AND SAME WAS EXEMPT, THAT THE EXPENSES INCLUDING INTEREST AN D ADMINISTRATIVE EXPENSES DEBITED TO PROFIT AND LOSS ACCOUNT INCLUDED EXPENDITURE INC URRED FOR UNDERTAKING TRANSACTIONS OF SHARES WHICH YIELDED EXEMPT INCOME. FAA PARTLY A LLOWED THE APPEAL FILED BY THE ASSESSEE. ITA NO. 861/MUM/2012 SHRI MANISH D. INNANI 3 3. BEFORE US, AUTHORISED REPRESENTATIVE(AR) SUBMITTED THAT ASSESSEE WAS A INVESTOR IN DERIVATIVES, THAT INVESTMENT WAS NOT RE LATED TO INTEREST, THAT IN EARLIER YEARS NO DISALLOWANCE WAS MADE, THAT DISALLOWANCE SHOULD NOT HAVE EXCEEDED THE DIVIDEND INCOME, THAT NO INFIRMITY WAS IN THE WORKING SUBMIT TED BY THE ASSESSEE WAS POINTED OUT BY THE AO. HE RELIED UPON THE CASES OF WINSOME TEXTILE INDUSTRIES LTD.(319ITR204) AND HERO CYCLES LTD.(324ITR518). AL TERNATIVELY, IT WAS SUBMITTED THAT DISALLOWANCE SHOULD BE RESTRICTED TO RS.2.2 LA KHS. DEPARTMENTAL REPRESENTATIVE (DR) SUBMITTED THAT AO HAD RIGHTLY INVOKED RULE 8D, THAT DECISIONS CITED BY THE AR RELATED TO THE PERIOD PRIOR TO AY 2008-09. 4. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MATERI AL AVAILABLE ON RECORD. WE ARE OF THE OPINION THAT WHILE DEALING WITH THE I SSUE AO HAS NOT CONSIDERED VARIOUS FACTORS AND HAS NOT GIVEN ANY FINDING ABOUT THEM. ASSESSEE HAD CLAIMED THAT BORROWED FUND OF RS.3.5 CRORES WERE NOT USED FOR IN VESTING IN SHARES, THAT LOANS ADVANCED TO VARIOUS PERSONS WERE NOT CONNECTED WITH ACQUISITION OF SHARES. WE FIND THAT THESE ARE CRUCIAL ISSUES FOR DECIDING DISALLOW ANCE U/S. 14 A OF THE ACT. ASSESEE HIMSELF HAS MADE AN ALTERNATE PLEA THAT EVEN IF DIS ALLOWANCE HAS TO BE MADE IT HAS TO RESTRICTED TO CERTAIN AMOUNT WHICH IS MUCH LOWER TH AN THE ACTUAL DISALLOWANCE MADE BY THE AO. CONSIDERING THE ABOVE WE ARE OF THE OPINION THAT MA TTER SHOULD BE RESTORED BACK TO AO. HE IS DIRECTED TO MAKE FRESH CALCULATION AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE. GROUND NO.1 IS PARTLY ALLOWED. 5. NEXT GROUND IS RELATED WITH REBATE AVAILABLE U/S. 8 8E OF THE ACT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED BY THE AO TO SUBMIT THE WORKING OF REBATE CLAIMED IN RESPECT OF SECURITIES TRANSACTION TAX AMOUNTING TO RS.1,01,87,300/-. HE FOUND THAT THOUGH THE ASSESSE E HAD APPLIED AVERAGE RATE ON INCOME, BUT THE AVERAGE RATE WAS ADOPTED BEFORE SET TING OFF BUSINESS LOSS OF EARLIER YEARS. WITH REGARD TO REBATE CLAIMED U/S.88E OF TH E ACT, THE AO HELD AS UNDER : IN THE INSTANT CASE, THE ASSESSEES TOTAL INCOME O F RS.5,94,71,620/- INCLUDES ONLY RS.3,34, 49,474/- (AFTER SETTING OF BUSINESS L OSS OF RS.1,62,36,858/- B/F FROM A.Y. 2007-08) WHICH IS CHARGEABLE UNDER THE HE AD PROFIT AND GAINS OF BUSINESS OR PROFESSION ARISING FROM TAXABLE SECURI TIES TRANSACTIONS. THEREFORE, THE ASSESSEE IS ENTITLED TO GET REBATE U /S.88E ON THE INCOME OF RS.3,34,49,474/- BUT NOT ON RS.4,95,93,132/-. ADOPTING AN AVERAGE RATE OF 21.31%, HE HELD THAT TH E ASSESSEE WAS ENTITLED TO TAX REBATE OF RS.75.07 LAKHS AS AGAINST THE REBATE CLAI MED BY THE ASSESSEE AMOUNTING TO RS.1.01 CRORES. IN THE APPELLATE PROCEEDING, THE F AA HELD THAT AO HAD RIGHTLY WORKED THE AVERAGE RATE OF TAX AS PER THE PROVISION S OF SECTION 88E OF THE ACT. 6. BEFORE US, AR SUBMITTED THAT RELIEF U/S. 88E WAS AV AILABLE ON THE INCOME BEFORE SETTING OFF OF LOSSES, THAT CALCULATION MADE BY THE ASSESSEE WAS AS PER LAW. HE RELIED UPON THE CASE OF ASHIKA STOCK BROKING LTD.(4 4 SOT556).DR SUBMITTED THAT ITA NO. 861/MUM/2012 SHRI MANISH D. INNANI 4 88E-RELEIF WAS AVAILABLE AFTER SET OFF OF LOSS OF E ARLIER YEARS. HE RELIED UPON THE DECISION OF OASIS SECURITIES LTD. DELIVERED BY THE C BENCH OF MUMBAI ITAT(ITA NO.2534/MUM/2009 AY 2006-07 DTD.30.09.2010). 6.1. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSI NG THE MATERIAL BEFORE US WE ARE OF THE OPINION THAT THE ASSESSEE IS ENTITLED TO REBATE RS.1.01 CRORES U/S. 88E OF THE ACT, AS AGAINST THE REBATE OF RS.75.07 LAKHS-ALLOWE D BY THE AO. AMOUNT TO BE ALLOWED UNDER THIS SECTION HAS TO BE CALCULATED IN BACKGROUND OF THE PROVISIONS OF SEC. 87(2) OF THE ACT AS DISCUSSED IN NEXT PARAGRAPH. WE HAVE CONSIDERED THE CASE LAWS CITED BEFORE US. I N THE CASE OF OASIS SECURITIES FACTS WERE AS UNDER : DURING THE COURSE OF ASSESSMENT PROCEEDINGS AO NOTE D THAT THE ASSESSEE HAD INCOME OF RS.1.92 CRORES FROM SPECULATION BUSINESS IN RESPECT OF WHICH STT WAS PAID, THAT SAID INCOME WAS SET OFF AGAINST BROUGHT FORWARD SPECULATION LOSSES LEAVING NO TAXABLE INCOME FROM SECURITY TRANSACTIONS. CONS IDERING THESE FACTS HE HELD THAT REBATE U/S. 88E WAS NOT ALLOWABLE. FAA UPHELD THE O RDER OF THE AO. HIS ORDER WAS CHALLENGED BEFORE THE TRIBUNAL. AFTER CONSIDERING THE ISSUE AT LENGTH ITAT HELD: 14.IT IS SIMPLE AND PLAIN THAT REBATE CAN BE ALLOW ED ONLY WHEN THERE IS SOME LIABILITY TO INCOME TAX. IF THERE IS NO SUCH LIABIL ITY, ACCORDING TO THE RELEVANT PROVISIONS, THE OTHERWISE ELIGIBLE REBATE BECOMES U NAVAILABLE. THIS POSITION CAN BE VIEWED FROM ANOTHER ANGLE ALSO. SECTION 88,W HICH ALSO FALLS UNDER PART A OF THE SAME CHAPTER PROVIDES FOR REBATE ON LIFE I NSURANCE PREMIUM AND CONTRIBUTION TO PROVIDENT FUND ETC. UNDER THIS SECT ION AN ASSESSEE IS ENTITLED TO DEDUCTION OF AN AMOUNT EQUAL TO 20% OF THE PAYMENT OF ELIGIBLE SUMS SUBJECT TO RS. 1 LAKH. THIS REBATE IS ALLOWABLE AGAINST TH E AMOUNT OF INCOME TAX ON THE TOTAL INCOME OF THE ASSESSEE. THIS PROVISION I S SIMILAR TO SECTION 88E, TO THE EXTENT OF PROVIDING REBATE AGAINST THE AMOUNT O F INCOME TAX. TAKE A SITUATION IN WHICH ALBEIT THE ASSESSEE HAS PAID LIF E INSURANCE PREMIUM ETC., WHICH OTHERWISE ENTITLE HIM TO REBATE UNDER SECTION 88E,BUT THERE IS NO INCOME CHARGEABLE TO TAX. IN SUCH A CASE, THERE IS NO POSS IBILITY TO ALLOW ANY REBATE NOTWITHSTANDING THE FACT THAT LIFE INSURANCE PREMIU M WAS PAID BY THE ASSESSEE ON WHICH REBATE IS OTHERWISE AVAILABLE UNDER SECTIO N 88E OF THE INCOME TAX ACT. 15.IN THE FINAL ANALYSIS, WE APPROVE THE VIEW TAKEN BY THE LEARNED CIT(A) THAT THE AMOUNT OF STT IS NOT ELIGIBLE FOR REBATE UNDER SECTION 88E FOR THE REASON THAT THERE IS NIL INCOME FROM THE TRANSACTIONS WHIC H SUFFERED STT.AS NO AMOUNT OF INCOME TAX IS PAYABLE IN RESPECT OF SUCH TRANSACTIONS, THE QUESTION OF GRANTING ANY DEBATE UNDER SECTION 88E DOES NOT A RISE. THE GROUND FAILS. CLEARLY, THE FACTS OF THE CASE UNDER CONSIDERATION ARE DIFFERENT FROM THE FACTS OF OASIS SECURITIES LTD (SUPRA). 7. IN THE CASE OF ASHIKA STOCK BROKING LTD. (SUPRA) IT WAS HELD THAT ONCE THERE WAS A NET SURPLUS FROM SHARE DEALING OF MARKET SEGM ENT AND FUTURE AND OPTION SEGMENTS TOGETHER AND IF THERE WAS A NET PROFIT THE REFROM THE ASSESSEE WAS ENTITLED FOR ITA NO. 861/MUM/2012 SHRI MANISH D. INNANI 5 REBATE OF ENTIRE STT. IN THE CASE UNDER CONSIDERA TION SURPLUS FROM SHARE DEALING FROM MARKET SEGMENT/ FUTURE AND OPTION SEGMENT IS NOT TH ERE, BUT THERE IS NET INCOME AFTER SETTING OFF OF LOSSES. WE ARE OF THE OPINION THAT O NCE THERE WAS OVERALL PROFIT FOR THE AY UNDER CONSIDERATION, REBATE UNDER SECTION 88E OF THE ACT HAD TO BE ALLOWED. FOLLOWING THE ORDER OF ASHIKA (SUPRA) WE HOLD THAT SECTION 88E DOES NOT ENVISAGE ANY RESTRICTION FOR ALLOWING REBATE U/S.88E TILL POSITI VE INCOME IS FILED BY THE AN ASSESSEE. WE FIND THAT WHILE PASSING THE ASSESSMENT ORDER THE AO HAS NOT GIVEN ANY FINDING ABOUT APPLICABILITY OR OTHERWISE OF SECTION 87(2) O F THE ACT. WE ARE OF THE OPINION THAT IF THE PROVISION OF SAID SECTION ARE NOT COMIN G IN WAY TO ALLOW THE REBATE TO THE ASSESSEE, SAME SHOULD BE ALLOWED AT THE RATE CALCUL ATED BY THE ASSESSEE. FOR THIS LIMITED PURPOSE WE REMIT THE MATTER BACK TO THE FIL E OF THE AO TO DECIDE THE ISSUE AFRESH. GROUND NO.2 IS PARTLY ALLOWED. APPEAL FILED BY THE ASSESEE STANDS ALLOWED IN PART. ORDER PRONOUNCED IN THE OPEN COURT ON 1 ST AUGUST, 2012. SD/- SD/- (B.R. MITTAL) (RAJENDRA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATE 1 ST AUGUST, 2012 ROSHANI COPY TO: 1. APPELLANT 2. RESPONDENT 3. THE CONCERNED CIT (A) 4. THE CONCERNED CIT 5. DR B BENCH, ITAT, MUMBAI 6. GUARD FILE (TRUE COPY) BY ORDER ASST. REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI