DCIT 9(2), MUMBAI V. KISMET EXPORTS & INVESTMENTS P. LTD, MUMBAI

ITA 8699/MUM/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88046 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-01-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 26-11-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 23-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASGHAR ZAIN
• Keywords: Business income; Rule of consistency; Earning of tax free income
• Section: 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL A B ENCH, MUMBAI . . , !! ' BEFORE SHRI R.C. SHARMA, AM AND SHRI SANJAY GARG, JM ./ I.T.A. NO.8699/MUM/2011 ( # # # # $ $ $ $ / ASSESSMENT YEAR :2008-09 THE DCIT-9(2), AAYAKAR BHAVAN, MUMBAI-400 020 M/S. KISMET EXPORTS & INVESTMENTS PVT. LTD., 6901/603, KISMET NORTH AVENUE, SANTACRUZ (W), MUMBAI-400 054 ./ I.T.A. NO.8870/MUM/2011 ( # # # # $ $ $ $ / ASSESSMENT YEAR :2008-09 M/S. KISMET EXPORTS & INVESTMENTS PVT. LTD., 6901/603, KISMET NORTH AVENUE,SANTACRUZ (W), MUMBAI-400 054 THE DCIT-9(2), AAYAKAR BHAVAN, MUMBAI-400 020 (APPELLANT) .. (RESPONDENT) % ./ & ./PAN/GIR NO. : AACCK 2895C ( %' /APPELLANT ) .. ( ()%' / RESPONDENT ) %' * / REVENUE BY : ` SHRI ASGHAR ZAIN ()%' + * /ASSESSEE BY : SHRI PRAKASH JOTWANI # + ,- / DATE OF HEARING : 26.11.2014 ./$ + ,- / DATE OF PRONOUNCEMENT : 14.01.2015 / O R D E R PER SANJAY GARG, JM: THE ABOVE TITLED CROSS APPEALS ONE BY THE REVENUE A ND THE OTHER BY THE ASSESSEE DIRECTED AGAINST THE ORDER DATED 28 .10.2011 OF THE COMMISSIONER OF INCOME TAX (APPEALS) [ HERE IN AFTE R REFERRED TO AS ITA NO.8870/M/2011 2 CIT(A)] ARE TAKEN TOGETHER FOR DISPOSAL BY THIS CO MMON ORDER. FIRST WE TAKE UP REVENUES APPEAL IN ITA NO. 8699/MUM/2011 2. THE REVENUE THROUGH ITS GROUNDS OF APPEAL HAS AG ITATED THE ACTION OF THE CIT(A) IN TREATING THE PROFIT OF RS. 49875149/- EARNED ON REDEMPTION OF MUTUAL FUNDS AS LONG TERM CAPITAL GAI NS(LTCG) AS AGAINST BUSINESS INCOME TREATED BY THE AO. THE CONT ENTION OF THE REVENUE IS THAT SINCE THE ASSESSEE IS PRIMARILY AN INVESTMENT COMPANY, SO THE INCOME EARNED SHOULD BE TREATED AS BUSINESS INCOME. WE FIND THAT THIS ISSUE HAS BEEN DEALT BY THE LD. CIT(A) IN PARA 4 OF HIS ORDER. THE LD . CIT(A) AFTER DETAILED DISCUSSION OF THE MA TTER HAS OBSERVED THAT THE ASSESSEE COMPANY HAD EARNED LONG TERM CAPI TAL GAINS ON REDEMPTION OF MUTUAL FUNDS HELD FOR MORE THAN 1 YEA R. IT HAD BEEN CONSISTENTLY SHOWING THE SAME AS INVESTMENTS AND AS SESSED AS SUCH FOR THE LAST COUPLE OF YEARS. THERE WAS NOTHING ON THE RECORD THAT THE ASSESSEE HAD TRADED IN THE SAID MUTUAL UNITS. FOLLO WING THE PRINCIPLE OF CONSISTENCY AND IN THE ABSENCE OF ANY EVIDENCE THAT THE ASSESSEE HAD ACTED AS A TRADER IN THE REDEMPTION OF MUTUAL FUNDS , HE HELD THE ASSESSEE AS INVESTOR AND DIRECTED THE ASSESSING OFF ICER TO TREAT THE SAME AS LTCG. WE ARE UNABLE TO AGREE WITH THE CON TENTION OF THE REVENUE THAT SINCE THE ASSESSEE IS PRIMARILY AN INV ESTMENT COMPANY, SO THE INCOME EARNED SHOULD BE TREATED AS BUSINESS INC OME. LAW HAS BEEN NOW SETTLED ON THE POINT THROUGH VARIOUS JUDIC IAL DECISIONS THAT EVEN A COMPANY HAVING BUSINESS IN TRADING IN SHARES OR SECURITIES CAN ALSO MAINTAIN A SEPARATE INVESTMENT PORTFOLIO. WE THEREFORE DO NOT FIND ANY REASON TO INTERFERE WITH THE WELL REASON ORDER OF THE CIT(A) ON THIS ISSUE. THE APPEAL OF THE REVENUE, THUS HAVING NO ME RIT IS THEREFORE DISMISSED. 3. NOW WE TAKE UP THE ASSESSEES APPEAL IN ITA NO. 8870/MUM/2011 ITA NO.8870/M/2011 3 4. THE ASSESSEE VIDE GROUND NO.1 HAS AGITATED THE A CTION OF THE LOWER AUTHORITIES IN TREATING THE LOSS OF RS. 16,09 ,558/- IN SALE AND PURCHASE TRANSACTION OF SHARES AS BUSINESS LOSS AS AGAINST THE CLAIM OF SHORT TERM CAPITAL LOSS. 5. THE ASSESSEE DURING THE YEAR PURCHASED SHARES OF 19 LISTED COMPANIES AGGREGATING TO RS. 5,24,53,139/- AND SOLD SHARES OF JUST ONE SCRIP I.E. KOTAK MAHINDRA BANK LTD. AT A LOSS. THE SCRIPS OF OTHER LISTED COMPANIES HAD NOT BEEN SOLD AND WERE SHOWN UNDER TH E HEAD INVESTMENTS IN THE BALANCE SHEET. THE ASSESSEE COM PANY HAD APPOINTED KOTAK SECURITIES LTD AS INVESTMENT MANAGE R AND ALL THE TRANSACTIONS WERE CARRIED OUT BY THEM. IT WAS SUBMI TTED ON BEHALF OF THE ASSESSEE COMPANY THAT THE SINGLE TRANSACTION OF SAL E OF 12000 SHARES OF KOTAK MAHINDRA BANK LTD WAS EXECUTED ON A SINGLE DATE 13.3.2008 THROUGH SINGLE CONTRACT NOTE AND IT WAS THEREFORE C ONTENDED THAT THE SAME BE TREATED AS SHORT TERM CAPITAL LOSS. THE AO HOWEVER TREATED THE SAME AS BUSINESS LOSS. 6. THE LD. CIT(A) ALSO CONFIRMED THE FINDINGS OF TH E AO ON THIS ISSUE OBSERVING THAT IN THIS CASE BOTH PURCHASE AND SALE TRANSACTIONS HAD BEEN EXECUTED ON A SIGNAL DAY AND THEREFORE IT REPR ESENTS THE TRADING ACTIVITY. 7. THE ASSESSEE BEFORE US HAS SUBMITTED THAT THE TR ANSACTIONS WERE CARRIED OUT THROUGH INVESTMENT MANAGER. IT WAS SUBM ITTED BY THE ASSESSEE COMPANY THAT 13,000 SHARES OF THE KOTAK S ECURITIES LTD WERE DIRECTED TO BE PURCHASED TO THE INVESTMENT MANAGER, HOWEVER, MISTAKENLY 25000 SHARES WERE PURCHASED BY IT. IT WA S IMMEDIATELY DIRECTED TO RESTRICT THE PURCHASE TO 13000 SHARES A ND REST OF THE 12000 SHARES WERE SOLD ON THE SAME DAY BY INCURRING LOSS. THE ASSESSEE DID NOT CARRY OUT ANY OTHER SHARE TRANSACTION DURING TH E YEAR. THIS WAS THE SINGLE TRANSACTION DONE BY THE ASSESSEE DURING THE YEAR. THE SHARES OF ITA NO.8870/M/2011 4 OTHER COMPANIES PURCHASED WERE HELD AS INVESTMENT. IN VIEW OF THE ABOVE EXPLANATION GIVEN BY THE ASSESSEE, IN OUR VIE W, THE ACTION OF THE LOWER AUTHORITIES IN TREATING THE SAID LOSS RESULTI NG FROM SINGLE TRANSACTION OF SALE OF SHARES FOR WHICH THE ASSESSE E HAS GIVEN THE PLAUSIBLE EXPLANATION, CANNOT BE HELD TO BE JUSTIF IED. THIS ISSUE IS ACCORDINGLY DECIDED IN FAVOUR OF THE ASSESSEE AND I T IS DIRECTED THAT THE SAID LOSS TO BE TREATED AS SHORT TERM CAPITAL LOSS . 8. THE NEXT ISSUE IS RELATING TO DISALLOWANCE U/S. 14A. 9. THE AO NOTED THAT THE ASSESSEE HAD RECEIVED DIVI DEND INCOME OF RS. 50,26,984/- DURING THE YEAR UNDER CONSIDERATION WHICH WAS CLAIMED AS EXEMPT. THE AO CALCULATED THE DISALLOWANCE U/S. 14A BY WAY OF APPLYING RULE 8D AT RS. 37,18,573/-. 10. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A). 11. THE LD. CIT(A) UPHELD THE ORDER OF THE AO ON TH IS ISSUE. 12. THE LD. AR OF THE ASSESSEE BEFORE US HAS SUBMIT TED THAT THE AO HAS IGNORED THE WORKING SUBMITTED BY THE ASSESSEE A ND THAT THE AO HAD NOT ESTABLISHED NEXUS BETWEEN THE EXPENDITURE A ND THE EXEMPT INCOME. 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE LD. REPRESENTATIVES OF THE PARTIES. IT MAY BE OBSERVED THAT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. 328 ITR 81 , THE HON'BLE BOMBAY HIGH COURT HAS HELD THAT RULE 8D R.W.S. 14A(2) IS NOT ARBITRAR Y OR UNREASONABLE AND ALSO NOT RETROSPECTIVE AND APPLIES FROM A.Y. 2008-0 9. IT HAS BEEN FURTHER HELD THAT UNDER SECTION 14A OF THE INCOME TAX ACT, RESORT CAN BE MADE TO RULE 8D OF THE INCOME TAX RULES FOR DETERMINING THE AMOUNT OF ITA NO.8870/M/2011 5 EXPENDITURE IN RELATION TO EXEMPT INCOME, IF, THE A O IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM MADE BY THE ASSESSEE I N RESPECT OF SUCH EXPENDITURE. THE SATISFACTION OF THE ASSESSING OFFI CER HAS TO BE ARRIVED AT, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. SUB SECTION (2) DOES NOT IPSO FACTO ENABLE THE ASSESSING OFFICER TO APPLY TH E METHOD PRESCRIBED BY THE RULES STRAIGHTAWAY WITHOUT CONSIDERING WHETHER THE CLAIM MADE BY THE ASSESSEE IN RESPECT SUCH EXPENDITURE IS CORRECT. TH E SATISFACTION OF THE ASSESSING OFFICER MUST BE ARRIVED AT ON AN OBJECTIV E BASIS. IN A SITUATION WHERE THE ACCOUNTS OF THE ASSESSEE FURNISH AN OBJEC TIVE BASIS FOR THE ASSESSING OFFICER TO ARRIVE AT A SATISFACTION IN RE GARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE, THERE WOULD BE NO WARRAN T FOR TAKING RECOURSE TO THE METHOD PRESCRIBED BY THE RULES. AN OBJECTIVE SA TISFACTION CONTEMPLATES A NOTICE TO THE ASSESSEE, AN OPPORTUNI TY TO THE ASSESSEE TO PLACE ON RECORD ALL THE RELEVANT FACTS INCLUDING HI S ACCOUNTS AND RECORDING OF REASONS BY THE ASSESSING OFFICER IN THE EVENT TH AT HE COMES TO THE CONCLUSION THAT HE IS NOT SATISFIED WITH THE CLAIM OF THE ASSESSEE. 12. HOWEVER, A PERUSAL OF THE ASSESSMENT ORDER REVE ALS THAT THE AO HAS NOT FOLLOWED THE GUIDELINES OF OBJECTIVE SATISFACTI ON AS LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & B OYCE (SUPRA) WHILE MAKING THE DISALLOWANCE. HE WITHOUT RECORDING ANY R EASONING FOR HIS DISSATISFACTION WITH REGARD TO THE WORKING/CLAIM OF THE ASSESSEE, STRAIGHTWAY APPLIED RULE 8D AGAINST THE MANDATE OF THE PROVISIONS OF SECTION 14A OF THE INCOME TAX ACT. THE LD. CIT(A) A LSO IGNORED THE MANDATE OF THE PROVISIONS OF SECTION 14 A, WHILE CO NFIRMING THE DISALLOWANCE. 13. SO KEEPING IN VIEW OF THE OVERALL FACTS AND C IRCUMSTANCES OF THE CASE, WE RESTORE THIS ISSUE BACK TO THE FILE OF THE AO WITH A DIRECTION THAT THE AO WILL GIVE OPPORTUNITY TO THE ASSESSEE TO PLA CE ON RECORD ALL THE ITA NO.8870/M/2011 6 RELEVANT FACTS INCLUDING ITS ACCOUNTS AND THEN EXAM INE THE COMPUTATION/CALCULATION MADE IN THIS REGARD BY THE ASSESSEE HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. THE AO WIL L BE AT LIBERTY TO CALL FOR ANY RECORD/EVIDENCES OR STATEMENT ETC. FROM THE ASSESSEE AS MAY BE REQUIRED BY HIM FOR DECIDING THE ISSUE UNDER CONSID ERATION. AFTER GOING THROUGH THE DETAILS PROVIDED BY THE ASSESSEE, IF TH E AO WILL BE SATISFIED WITH THE CLAIM/CALCULATION MADE BY THE ASSESSEE, TH EN HE WILL ASSESS THE INCOME ACCORDINGLY. HOWEVER, IF THE AO DOES NOT AGR EE WITH THE COMPUTATION MADE BY THE ASSESSEE AND IN THAT EVENT, HE WILL HAVE TO RECORD HIS DISSATISFACTION WITH REASONING FOR THE S AME BY WAY OF A SPEAKING ORDER, THEN HE WILL BE AT LIBERTY TO RESOR T TO THE PROVISIONS OF RULE 8D. NEEDLESS TO SAY, THE ASSESSEE WILL CO-OPER ATE AND PROMPTLY SUPPLY THE NECESSARY DETAILS ETC. TO THE AO FOR DEC IDING THE ISSUE UNDER CONSIDERATION. 14. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED AND THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATIST ICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 14.01.2015 . + /$ 0 1#2 14.01.2015 / + ! SD/- SD/- (R.C. SHARMA) (SANJAY GARG ) / ACCOUNTANT MEMBER /JUDICIAL MEMBER MUMBAI; 1# DATED 14 TH JANUARY, 2015 . # . ./ RJ , SR. PS ITA NO.8870/M/2011 7 + ++ + (,3 (,3 (,3 (,3 43$, 43$, 43$, 43$, / COPY OF THE ORDER FORWARDED TO : 1. %' / THE APPELLANT 2. ()%' / THE RESPONDENT. 3. 5 ( ) / THE CIT(A)- 4. 5 / CIT 5. 36! (,# , , / DR, ITAT, MUMBAI 6. !7 8 / GUARD FILE. # # # # / BY ORDER, )3, (, //TRUE COPY// 9 99 9 / : : : : (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI