ENAM SECURITIES P. LTD, MUMBAI V. ADDL CIT 4(1), MUMBAI

ITA 888/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88007 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-01-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 12-11-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 01-02-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Bad and doubtful debts
• Section: 143(3); 14A

Judgement Text

E IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER & SHRI R.C. SHARMA, ACCOUNTANT MEMBER ./ I.T.A. NO.1545 / MUM/2012 ( / ASSESSMENT YEAR : 2008-2009 DY. COMMISSIONER OF INCOME TAX 4(1), R. NO. 640, 6 TH FLOOR, AAYAKAR BHAVAN, MUMBAI 400 020. / VS. M/S ENAM SHARES AND SECURITIES PVT. LTD., 24, B.D. RAJABAHADUR COMPOUND, AMBALAL DOSHI MARG, FORT, MUMBAI 400 023. ./ PAN : AABCE6756F ( / APPELLANT ) .. ( / RESPONDENT ) /C.O. NO. 59/MUM/2013 ARISING OUT OF ITA NO.1545/MUM/2012 M/S ENAM SECURITIES PVT. LTD., 24, B.D. RAJABAHADUR COMPOUND, AMBALAL DOSHI MARG, FOR, MUMBAI 400 023. / VS. ASSTT. COMMISSIONER OF INCOME TAX 4(1), R. NO. 640, 6 TH FLOOR, AAYAKAR BHAVAN, MUMBAI 400 020. ./ PAN : AABCE6756FE CROSS OBJECTOR .. RESPONDENT ) ./ I.T.A. NO. 1775 /MUM/2012 ( / ASSESSMENT YEAR : 2008-2009 M/S ENAM SECURITIES PVT. LTD., 24, B.D. RAJABAHADUR COMPOUND, AMBALAL DOSHI MARG, FORT, MUMBAI 400 023. / VS. ADDL. COMMISSIONER OF INCOME TAX 4(1), R. NO. 640, 6 TH FLOOR, AAYAKAR BHAVAN, MUMBAI 400 020. ./ PAN : AABCE6756F ( / APPELLANT ) .. ( / RESPONDENT ) 2 ITA 1775/M/12, ITA 1545/M/12, ITA 888/M/13 AND C.O. 59/ MUM/12 ./ I.T.A. NO. 888 /MUM/2013 ( / ASSESSMENT YEAR : 2009-2010 M/S ENAM SECURITIES PVT. LTD., 24, B.D. RAJABAHADUR COMPOUND, AMBALAL DOSHI MARG, FORT, MUMBAI 400 023. / VS. ADDL. COMMISSIONER OF INCOME TAX 4(1), R. NO. 640, 6 TH FLOOR, AAYAKAR BHAVAN, MUMBAI 400 020. ./ PAN : AABCE6756F ( / APPELLANT ) .. ( / RESPONDENT ) REVENUE BY SHRI SACHCHIDANAND DUBE ASSESSEE BY SHRI SANJIV M. SHAH !' # $ / DATE OF HEARING : 17-12-2014 %&' # $ / DATE OF PRONOUNCEMENT : 14-01-2015 () / O R D E R PER R.C. SHARMA, A.M . : THESE ARE THE CROSS APPEALS FILED BY THE ASSESSEE A ND REVENUE ARE DIRECTED AGAINST THE ORDER OF LD. CIT(A) -9, MUMBAI DATED 16-12-2011 FOR A.Y. 2008-09 AND APPEAL FILED BY THE ASSESSEE IN ITA NO. 888/MUM/2013 IS DIRECTED AGAINST THE ORDER OF LD. CIT(A) -8, MUMBAI DATED 22 -11-2012 AND THE C.O. FILED BY THE ASSESSEE IN THE MATTER OF ORDER PASSED U/S 143( 3) OF THE INCOME TAX ACT, 1961. 2. THE GROUNDS TAKEN BY THE REVENUE IN A.Y. 2008-0 9 READ AS UNDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING HE AMOUNT OF RS. 1 9,15,027/- ON ACCOUNT OF BAD DEBTS. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE IMPUGNED ORDER OF THE LD. CIT(A) IS CONTRARY TO LAW TO BE SET ASID E AND HAT OF THE ASSESSING OFFICER BE RESTORED. 3. THE GROUNDS TAKEN BY THE ASSESSEE READ AS UNDER FOR A.Y. 2008-09 :- 1A. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED ADDITIONAL COMMISSIONER OF INCOME TAX (HEREINAFTER 3 ITA 1775/M/12, ITA 1545/M/12, ITA 888/M/13 AND C.O. 59/ MUM/12 REFERRED TO AS THE A.O.) HAS ERRED IN INVOKING THE PROVISIONS OF SECTION 14A(2) AND DISALLOWING EXPENSES INCURRED IN RELATI ON TO EXEMPT INCOME UNDER SECTION 14A(2) READ WITH RULE 8D OF RS. 54,77 ,610/- AND THE HONBLE COMMISSIONER OF INCOME TAX (APPEAL) (HEREIN AFTER REFERRED TO AS CIT (A) HAS ERRED IN CONFIRMING THE ACTION OF THE L EARNED A.O. THE LEARNED A.O. BE DIRECTED NOT TO DISALLOW THE EXPENS ES OF RS. 54,77,610/- UNDER SECTION 14A(2) READ WITH RULE 8-D AND REDUCE THE TOTAL INCOME ACCORDINGLY. 1B. WITHOUT PREJUDICE TO THE ABOVE, ASSUMING WITHO UT ACCEPTING THAT THE LEARNED A.O. HAS RIGHTLY INVOKED THE PROVISIONS OF SECTION 14A(2), ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED A.O. HAS ERRED IN WRONGLY CALCULATING THE AMOUNT OF DISALLOWANCE OF EXPENSES UNDER SECTION 14A READ WITH RULE 8D AND TH E HONBLE CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE LEARNED A .O. THE LEARNED A.O. BE DIRECTED TO CALCULATE THE AMOUNT OF DISALLOWANCE OF EXPENSES AS PER SECTION 14A READ WITH RULE 8D AND REDUCE THE TOTAL INCOME ACCORDINGLY. 1C. WITHOUT PREJUDICE TO THE ABOVE, ASSUMING WITHO UT ACCEPTING THAT THE AMOUNT OF RS. 54,77,610/- BEING DISALLOWANCE OF EXPENSES AS WORKED OUT BY THE LEARNED A.O. UNDER SECTION 14A RE AD WITH RULE 8D IS ACCEPTED, THE LEARNED A.O. HAS ERRED IN NOT REDUCIN G FROM RS. 54,77,610/- A SUM OF RS. 6,01,703/- BEING DISALLOWA NCE OF EXPENSES ALREADY OFFERED BY THE APPELLANT-COMPANY IN THE RET URN OF INCOME. HE HONBLE CIT(A) IN THE ORDER PASSED HAS DIRECTED THE LEARNED A.O. TO VERIFY THE SAME WITH THE RELEVANT RETURN OF INCOME AND COM PUTATION OF INCOME FURNISHED ALONG WITH THE RETURN OF INCOME AND IF FO UND CORRECT, THEN REDUCE RS. 6,01,703/- FROM RS. 54,77,610/- WHICH WO RKS OUT TO RS. 48,75,907/-. THE LEARNED A.O. BE DIRECTED TO REDUC E RS. 6,01,703/- FROM RS. 54,77,610/- AND DISALLOW BALANCE AMOUNT OF RS. 48,75,907/- ONLY U/S 14A R.W. RULE 8D AND REDUCE THE TOTAL INCO ME ACCORDINGLY. 4. THE GROUNDS TAKEN BY THE ASSESSEE READ AS UNDER FOR A.Y. 2009-10 :- 1A. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED ADDITIONAL COMMISSIONER OF INCOME TAX (HEREINAFTER REFERRED TO AS THE A.O.) HAS ERRED IN INVOKING THE PROVISIONS OF SECTION 14A(2) AND DISALLOWING EXPENSES INCURRED IN RELATI ON TO EXEMPT INCOME UNDER SECTION 14A(2) READ WITH RULE 8D OF RS. 78,32 ,082/- AND THE HONBLE COMMISSIONER OF INCOME TAX (APPEAL) (HEREIN AFTER REFERRED TO AS CIT (A) HAS ERRED IN CONFIRMING THE ACTION OF THE L EARNED A.O. THE LEARNED A.O. BE DIRECTED NOT TO DISALLOW THE EXPENS ES OF RS. 78,32,082/- UNDER SECTION 14A(2) READ WITH RULE 8-D AND REDUCE THE TOTAL INCOME ACCORDINGLY. 1B. WITHOUT PREJUDICE TO THE ABOVE, ASSUMING WITHO UT ACCEPTING THAT THE LEARNED A.O. HAS RIGHTLY INVOKED THE PROVISIONS OF SECTION 14A(2), ON 4 ITA 1775/M/12, ITA 1545/M/12, ITA 888/M/13 AND C.O. 59/ MUM/12 THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE DISALLOWANCE OF RS. 78,32,082/- IS SUBSTANTIALLY ON HIGHER SIDE AND THE SAME BE REDUCED DRASTICALLY BY COMPUTING THE SAME O N A SCIENTIFIC AND REASONABLE BASIS. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE LEARNED A.O. HAS ERRED IN GIVING TDS CREDI T OF RS. 4,98,43,600/- OUT OF RS. 5,34,07,780/- CLAIMED IN THE RETURN OF I NCOME I.E. SHORT TDS CREDIT OF RS. 35,64,180/- AND THE HONBLE CIT(A) HA S DIRECTED THE A.O. TO VERIFY THE RECORDS AND ALLOW CREDIT FOR TDS OF 3 5,64,180/- AFTER VERIFICATION. THUS THE LEARNED A.O. BE DIRECTED TO ALLOW DS CREDIT OF RS. 35,64,180/- AND REDUCE THE TOTAL INCOME TAX DEMAND ACCORDINGLY. 4. RIVAL CONTENTIONS HAVE BEEN HEARD AND PERUSED T HE RECORD. FACTS IN BRIEF ARE THAT THE ASSESSEE COMPANY IS A CORPORATE MEMBER OF THE NSE AND BSE AND IS ENGAGED IN THE BUSINESS OF BROKING IN SHARES AND SECURITIES. IT FILED ITS RETURN OF INCOME FOR A.Y. 2008-09 ELECTRONICALLY ON SEPTEMBER 30 TH 2008 WHICH WAS SUBSEQUENTLY REVISED ON NOVEMBER 5TH, 2009 DECL ARING TOTAL INCOME AT RS. 1,56,99,93,144/-. THE A.O. COMPLETED THE ASSESSMEN T U/S 143(3) OF THE INCOME TAX ACT, 1961 DETERMINING THE TOTAL INCOME AT RS. 1 ,58,07,92,700/- ON 27-12- 2010. 5. DURING THE COURSE OF SCRUTINY ASSESSMENT FOR TH E A.Y. 2008-09, THE A.O. DISALLOWED AN AMOUNT OF RS. 54,77,610/- U/S 14A OF THE ACT BY OBSERVING THAT THE ASSESSEE HAS NOT ALLOCATED ANY EXPENSES TOWARDS EARNING OF EXEMPT INCOME. BY THE IMPUGNED ORDER OF THE LD. CIT(A) DIRECTED TH E A.O. TO RESTRICT THIS DISALLOWANCE TO RS. 48,75,907/- AFTER OBSERVING THA T RS. 6,01,703/- HAVE ALREADY BEEN OFFERED BY THE ASSESSEE IN THE RETURN OF INCOM E. ASSSSEE IS IN FURTHER APPEAL BEFORE US. 6. RIVAL CONTENTIONS HAVE BEEN HEARD AND PERUSED T HE RECORDS AND FOUND THAT THE DISALLOWANCE HAVE WORKED OUT BY THE A.O. A S PER RULE 8-D. WE FOUND THAT THE ASSESSEE HAS EARNED MAJORITY OF DIVIDEND I NCOME FROM LIQUID PLUS FUND WHERE DIVIDEND IS REINVESTED THEREBY ENTAILING INCU RRENCE OF MINIMAL/BARE EXPENDITURE. WE ALSO FOUND THAT MOST OF THE MONEY BORROWED BY THE ASSESSEE 5 ITA 1775/M/12, ITA 1545/M/12, ITA 888/M/13 AND C.O. 59/ MUM/12 ARE EMPLOYED IN BROKERAGE BUSINESS IN ITS CAPACITY AS A MEMBER OF STOCK EXCHANGES TO FULFILL AND MEETS OF OBLIGATIONS CONCE RNING MARGIN AND OTHER FUND REQUIREMENTS IN RESPECT OF SHARES AND DERIVATIVE TR ANSACTIONS UNDERTAKEN BY ITS CUSTOMERS. THUS, THESE FUNDS WERE PURELY EMPLOYED F OR CARRYING ON INTERMEDIARY INCOME WHICH LIABLE TO TAX. THERE IS NO DISPUTE TO THE PROPOSITION THAT IF INTEREST EXPENDITURE IS TRACEABLE TO TAXABLE INCOME FOR THE PURPOSE OF COMPUTING DISALLOWANCE U/S RULE 8-D OF THE INCOME TAX RULES, 1962, THEN SUCH PORTION CANNOT BE RECKONED. THE LD. COUNSEL FOR THE ASSESSE E ALSO DRAWN OUR ATTENTION TO THE ASSESSEES OWN FUNDS AND INTEREST FREE FUNDS AV AILABLE TO THE EXTENT OF RS. 215,34,95,272/- WHICH WAS EXCEEDING INVESTMENTS OF RS. 138,39,65,503/-. UNDER THESE CIRCUMSTANCES, IT WAS CONTENDED BY THE LD. COUNSEL FOR THE ASSESSEE THAT NO DISALLOWANCE IS CALLED FOR AND IN SUPPORT O F THIS CONTENTION, HE RELIED UPON THE DECISIONS IN THE CASE OF CIT VS. HDFC BANK , 366 ITR 505 (BOM) FOLLOWING CIT VS. RELIANCE UTILITIES, 313 ITR 340 ( BOM). IT WAS ALSO CONTENDED BY THE LD. COUNSEL FOR THE ASSESSEE THAT INVESTMENT IN SUBSIDIARIES AMOUNTING TO RS. 19,68,85,175/- WAS NOT MADE WITH A VIEW TO EARN DIVIDEND OR CAPITAL GAINS BUT WITH AIM AND OBJECTIVE OF ACQUIRING CONTROLLING INTEREST, STRATEGIC GOALS AND BUSINESS EXPEDIENCY WHEREAS EARNING DIVIDEND WAS JU ST INCIDENTAL THEREFORE SUCH INVESTMENT SHOULD NOT BE TAKEN INTO CONSIDERAT ION WHILE COMPUTING DISALLOWANCE U/S 14A OF THE ACT. FOR THIS PROPOSIT ION, RELIANCE WAS PLACED ON THE DECISION OF EIH ASSOCIATED HOTELS VS. DCIT (CHENNAI ) ORDER DATED 17-7-2013 AND IN THE CASE OF CIT VS. ORIENTAL STRUCTURAL ENGINEER S (DEL) ORDER DATED 15-01- 2013. IT WAS ALSO SUBMITTED THAT INVESTMENT TO THE EXTENT OF RS. 67,30,07,016/- HAD NOT YIELDED ANY EXEMPT INCOME U/S 14A READ WITH RULE 8-D. IT WAS ALSO BROUGHT TO OUR NOTICE THAT INVESTMENTS OF RS. 6,18, 95,398/- PERTAINING TO HINDALCO INDUSTRIES WAS AS A BUSINESS NECESSITY AND THE SAME CANNOT BE RECKONED FOR THE PURPOSE OF CALCULATING AVERAGE IN VESTMENTS UNDER RULE 8-D. KEEPING IN VIEW THE INTEREST FREE FUNDS AVAILABLE V IS--VIS THE ASSESSEES CONTENTION REGARDING ASSESSES INVESTMENT IN SUBSID IARIES NOT AIMED FOR EARNING 6 ITA 1775/M/12, ITA 1545/M/12, ITA 888/M/13 AND C.O. 59/ MUM/12 DIVIDEND OR CAPITAL GAIN, WE RESTORE THE MATTER BAC K TO THE FILE OF A.O. FOR DECIDING THE DISALLOWANCE WARRANTED U/S 14A OF THE ACT AFRESH KEEPING IN VIEW THE PROPOSITION LAID DOWN BY THE TRIBUNAL IN THE J UDICIAL PRONOUNCEMENTS AS DISCUSSED ABOVE. WE DIRECT ACCORDINGLY. 7. IN REVENUES APPEAL FOR A.Y. 2008-09, THE ACTIO N OF THE LD.CIT(A) FOR DELETING THE DISALLOWANCE OF BAD DEBTS AMOUNTING TO RS. 19,15,027/- WAS DISPUTED BY THE REVENUE. 8. WE HAVE CONSIDERED THE RIVAL CONTENTION AND FOU ND THAT THE LD. CIT(A) HAS DELETED THE DISALLOWANCE BY OBSERVING AS UNDER: - IT INVOLVES BAD DEBTS WRITTEN OFF OF RS. 19,15,027 /-. THE LAR VEHEMENTLY ARGUED THAT IN THE PRESENT CASE, THE IMPUGNED BAD D EBTS WERE INCIDENTAL TO THE BROKING BUSINESS OF THE APPELLANT AND THE BROKERAGE EARNED FROM SUCH TRANSACTIONS WERE TAKEN INTO ACCOUNT IN COMPUTING T AXABLE INCOME OF THE EARLIER ASSESSMENT YEARS/CURRENT ASSESSMENT YEAR. IT WAS NOT DISPUTED THAT SUCH DEBTS HAVE BEEN WRITTEN OFF IN THE BOOKS OF TH E APPELLANT DURING FY 2007- 08 RELEVANT TO THE AY 2008-09. HAVING REGARD TO FACTS AND CIRCUMSTANCES, IT IS HEL D THAT THE MONEY RECEIVABLE BY THE APPELLANT FROM ITS CLIENTS AGAINST PURCHASE OF SHARES HAS TO BE TREATED AS A DEBT AND SINCE THE BROKERAGE PAYABLE BY THE CL IENT WAS A PART OF THAT DEBT AND THAT PART WAS TAKEN INTO ACCOUNT N THE COMPUTAT ION OF INCOME, HENCE DEDUCTION U/S 36(1)(VII) R.W.S. 36(2) OF THE ACT IS ALLOWABLE BECAUSE THE SAID DEBT HAD BECOME BAD AND HAD BEEN WRITTEN OFF IRRECO VERABLY SO BY THE APPELLANT DURING THE FINANCIAL YEAR 2007-08 RELEVAN T TO ASSESSMENT YEAR 2008- 09. 9. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND CAR EFULLY GONE THROUGH THE ORDERS OF AUTHORITIES BELOW AND FOUND THAT IN VIEW OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF TRF LTD. VS. CIT (2010 ), 323 ITR 397 (SC), WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT( A) FOR DELETING THE DISALLOWANCE OF BAD DEBTS. THE C.O. WAS FILED BY THE ASSESSEE I N SUPPORT OF THE ACTION OF LD. CIT(A) IN DELETING THE DISALLOWANCE MADE BY THE A.O . AS WE HAVE ALREADY UPHELD THE DECISION OF LD. CIT(A), THE C.O. FILED B Y THE ASSESSEE HAS BECOME INFRUCTUOUS. 7 ITA 1775/M/12, ITA 1545/M/12, ITA 888/M/13 AND C.O. 59/ MUM/12 10. FOLLOWING THE REASONING GIVEN IN PARA 6, WE RES TORE THE DISALLOWANCE MADE U/S 14A OF THE ACT IN THE A.Y. 2009-10 TO THE FILE OF A.O. FOR DECIDING AFRESH IN TERMS OF DIRECTION GIVEN IN THE A.Y. 2008 -09. 11. WITH REGARD TO TDS CREDIT NOT GIVEN BY A.O., WE DIRECT THE A.O. TO VERIFY THE RECORD AND CONSIDER ALLOWABILITY OF TDS OF RS. 35,64,180/-. WE DIRECT ACCORDINGLY. 12. IN THE RESULT, ASSESSEES APPEALS IN ITA NO. 17 75/MUM/2012 FOR A.Y. 2008-09 AND ITA NO. 888/MUM/2013 FOR A.Y. 2009-10 A RE ALLOWED IN PART FOR STATISTICAL PURPOSES WHEREAS THE REVENUES APPEAL I N ITA NO. 1545/MUM/2012 IS DISMISSED AND C.O. FILED BY THE AS SESSEE IS ALSO DISMISSED AS INFRUCTUOUS. ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH JANUARY, 2015. () # %&' *(!+ 14-01-2015 & # , SD/ - SD/- (JOGINDER SINGH) (R.C. SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; *(! DATED 14-01-2015 ' . -! . ./ RK , SR. PS 8 ITA 1775/M/12, ITA 1545/M/12, ITA 888/M/13 AND C.O. 59/ MUM/12 () # -$./ 0/'$ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. 1$ ( ) / THE CIT(A) CONCERNED, MUMBAI 1$ / CIT CONCERNED, MUMBAI 5. /'2, -$-! , , / DR, ITAT, MUMBAI E BENCH 6. ,34 5 / GUARD FILE. ()! / BY ORDER, /$ -$ //TRUE COPY// 6 / 7 8 (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI