RAMCHAND K. POPLEY, MUMBAI V. DCIT 13(1)(2), MUMBAI

ITA 908/MUM/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8894 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-01-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 23-02-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: NIRAJ SHETHAR
• Keywords: Business income; Depreciation; Rule of consistency; Earning of tax free income
• Section: 143(3); 14A; 37; 10; 2

Judgement Text

, , , , INCOME-TAX APPELLATE TRIBUNAL GBENCH M UMBAI , , BEFORE S/SH. RAJENDRA,ACCOUNTANT MEMBER & PAWAN SINGH, JUDICIAL MEMBER ./I.T.A./908/MUM/2016 , /ASSESSMENT YEAR: 2012-13 MR. RAMCHAND K. POPLEY 188-A, TURNER ROAD, BANDRA (W) MUMBAI-400 050. PAN:AAKPP 6952 A VS. DCIT-13(1)(2) MUMBAI. ( /APPELLANT ) ( / RESPONDENT ) REVENUE BY: SHRI ARVIND KUMAR -DR ASSESSEE BY: SHRI NIRAJ SHETH-AR / DATE OF HEARING: 10.10.2016 / DATE OF PRONOUNCEMENT: 04.01.2017 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DATED 18/12/2015 OF THE CIT ( A)-21,MUMBAI, THE ASSESSEE HAS FILED THE PRESENT APPEAL.ASSESSEE,AN INDIVIDUAL, FILED HIS RE TURN OF INCOME ON 28/09/2012,DECLARING TOTAL INCOME AT RS.47.50 LAKHS.THE ASSESSING OFFICE R (AO) COMPLETED THE ASSESSMENT U/S. 143(3) OF THE ACT,ON 13/02/2015, DETERMINING THE IN COME OF THE ASSESSEE AT RS.47,50,000/-. 2. THE EFFECTIVE GROUND OF APPEAL IS ABOUT UPHOLDING T HE DISALLOWANCE OF RS.17.17 LAKHS MADE BY THE AO U/S.14A OF THE ACT READ WITH RULE 8D OF T HE INCOME TAX RULES, 1962 (RULES). DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUND THA T THE ASSESSEE WAS ENGAGED IN SHARE TRADING AND SPECULATIVE BUSINESS IN SHARES AND SECU RITIES, THAT IT HAD SHOWN LOSS UNDER THE HEAD BUSINESS INCOME AT RS. 5.49 CRORES, THAT HE HA D RETURNED SPECULATION BUSINESS OF RS. 63.31 LAKHS,THAT THE SAID INCOME WAS SET OFF AGAINS T THE BUSINESS LOSS,, THAT HE HAD EARNED DIVIDEND INCOME OF RS. 55.29 LAKHS FROM THE SHARE P URCHASED IN HIS TRADING BUSINESS. THE AO DIRECTED THE ASSESSEE TO FURNISH THE DETAILS OF DIS ALLOWANCE MADE, IF ANY U/S.14A R.W.RULE 8D OF THE RULES. AFTER CONSIDERING THE SUBMISSION OF T HE ASSESSEE, THE AO HELD THAT INVESTMENT AS SUCH WAS A COMPLEX PROCESS, THAT IT ALWAYS REQUIRED CONTINUOUS UNDERSTANDING TO INVEST THE AMOUNT IN ORDER TO THE INCOME EITHER IN NATURE OF D IVIDEND AND/OR PROFIT GAINS, THAT IT COULD NOT BE RULED OUT THAT ADMINISTRATIVE AND INDIRECT E XPENSES WERE REQUIRED TO BE USED FOR EARNING THE EXEMPT INCOME, THAT THE EXPENDITURE INC URRED TOWARDS EARNING COULD NOT BE LIMITED TO SALARY OF THE EMPLOYEES, THAT THE TERM E XPENDITURE, OCCURRING IN SECTION 14 A, WOULD NOT TAKE IN ITS SWEEP ONLY DIRECT EXPENSES,TH AT IT INCLUDED ALL FORMS OF EXPENDITURE, THAT 908/MUM/16-RAMCHAND K. POPLEY 2 THE SECTION WAS QUITE CLEAR THAT ANY EXPENDITURE IN CURRED BY THE ASSESSEE IN RELATION TO THE EXEMPT INCOME WAS TO BE DISALLOWED. ACCORDINGLY THE AO COMPLETED THE DISALLOWANCE U/S.14 A READ WITH RULE 8D AT RS.17, 17, 746/-. 3. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA). BEFORE HIM THE ASSESSEE ARGUED THAT HE HAD INCURRED AN EXPENDITURE OF RS.65.42 LAKHS FOR THE YEAR UNDER CO NSIDERATION UNDER THE HEADS STT (RS. 53.45 LAKHS) SERVICE TAX (RS. 4.88 LAKHS) STAMP DUT Y CHARGES (RS. 1.56 LAKHS),OTHER CHARGES (4.80 LAKHS), DEMAT CHARGES (RS.12,530),PORTFOLIO M ANAGEMENT EXPENSES(RS.39,186/-),AUDIT FEES (RS.20, 225/-), THAT THE EXPENDITURE CLAIMED, EXCEPT FOR AUDITORS FEE,WAS IN THE NATURE OF TRANSACTION COST INCURRED FOR PURPOSE OF BUYING AND SELLING THE SECURITIES,THAT THE EXPENDITURE INCURRED WAS FOR CARRYING OUT BUSINESS ACTIVITY AND WAS ALLOWABLE U/S.36 OR 37 OF THE ACT, THAT SAME COULD NOT BE DISALLOWED U/S.14 A OR RULE 8D, T HAT THE ASSESSEE DID NOT ACQUIRE SHARES AND SECURITIES TO EARN DIVIDEND INCOME,THAT THE DOM INANT OBJECTIVE WAS TO EARN PROFIT ON SALE OF THE SHARES,THAT THE DIVIDEND INCOME WAS ONLY INC IDENTAL,THAT THERE IS NO MENTION OF ANY EXPENSES HAVING BEEN INCURRED IN RELATION TO EXEMPT INCOME,THAT THE FAA, WHILE DECIDING THE APPEALS FOR THE ASSESSMENT YEARS 2009-10 AND 2011-1 2 HAD PARTLY ALLOWED THE APPEAL FILED BY THE ASSESSEE WHEREIN THE SAME ISSUE HAD BEEN AGITAT ED. 3.1. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AN D THE ASSESSMENT ORDER, THE FAA HELD THAT DIVIDEND WAS EARNED BY THE ASSESSEE FROM THE M UTUAL FUNDS, THAT AN AMOUNT OF RS. 3.11 CRORES WAS CLAIMED EXEMPT U/S.10 (35), THAT THE DIV IDEND ON SHARES, AMOUNTING TO RS.55.29 LAKHS, WAS CLAIMED EXEMPT U/S.10 (34), THAT THE TOT AL DIVIDEND RECEIVED BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION WAS RS.73.08 LAKHS, THAT O UT OF THE SAID AMOUNT THE ASSESSEE HAD REDUCED AND AMOUNT OF RS.17.79 LAKHS AS PER SECTION 94 (7), THAT RECEIPT FROM THE LIC, AMOUNTING TO RS. 23.13 LAKH WAS CLAIMED EXEMPT U/S. 10 (10 B), THAT TOTAL AMOUNT OF INCOME CLAIMED AS EXEMPT WAS RS.3.90 CRORES, THAT AGAINST THE SAID EXEMPT INCOME THE AO HAD DISALLOWED RS.17.71 LAKHS ONLY, THAT THE CLAIM OF T HE ASSESSEE WAS THAT IT HAD NO INTENTION OF EARNING AND THAT THE EXEMPT INCOME ON DIVIDENDS WER E INCIDENTAL,THAT THE ASSESSEE HAD EARNED EXEMPT INCOME, IF THE SAME WAS INCIDENTAL TO TRADIN G IN SHARES HE HAD TO OFFER SUCH INCOME AS BUSINESS INCOME, THAT THE ASSESSEE INTENDED TO TAKE ADVANTAGE OF EXEMPTION, THAT THE ASSESSEE HAD REINVESTED IN UTI TREASURY ADVANTAGES FUND, THA T THE AO WAS CORRECT IN HOLDING THAT THE CLAIM THAT NO EXPENSE WAS INCURRED IN EARNING EXEMP T INCOME WAS NOT ACCEPTABLE, THAT IF AN ACTIVITY GAVE RISE TO TWO STREAMS OF INCOME IT COUL D NOT BE LEFT TO THE DISCRETION OF THE ASSESSEE 908/MUM/16-RAMCHAND K. POPLEY 3 TO CLAIM THAT NO COST WAS INCURRED FOR ONE STREAM A ND COST WAS INCURRED ONLY FOR THE OTHER STREAM OF INCOME, THAT THE EXPENDITURE INCURRED WAS , AND FOR BOTH THE STREAMS, THAT THE DISALLOWANCE COMPUTED WAS ABOUT 5% OF THE EXEMPT IN COME, THAT IT WAS NOT UNREASONABLE OR EXCESSIVE. FINALLY HE UPHELD THE ORDER OF THE AO AN D DISMISSED THE APPEAL FILED BY THE ASSESSEE. 4. DURING THE COURSE OF HEARING BEFORE US, THE AUTHORI SED REPRESENTATIVE (AR) ARGUED THAT FACTS OF THE EARLIER ASSESSMENT YEAR AND THE SUBSEQ UENT ASSESSMENT YEARS WERE IDENTICAL, THAT THE FAA HAD NOT BROUGHT ON RECORD ANY DISTINGUISHIN G FEATURE FOR NOT FOLLOWING THE EARLIER YEARS ORDER OF HIS PREDECESSOR, THAT THE ASSESSEE HAD MADE A DISALLOWANCE OF RS.17.79 LAKHS AS PER THE PROVISIONS OF SECTION 94 (7) OF THE ACT. HE REFERRED TO THE PAGES 25- 32 OF THE PAPER BOOK.THE DEPARTMENTAL REPRESENTATIVE (DR) SUPPORTED THE ORDER OF THE FAA. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE AO HAD MADE THE DISALLOWANCE CONSIDERING T HE AVERAGE VALUE OF INVESTMENTS AT THE BEGINNING AND AT THE END OF THE YEAR, THAT HE HAD N OT ASSIGNED ANY REASON FOR MAKING THE DISALLOWANCE. IN OUR OPINION,DISALLOWANCE U/S. 14A R.W.RULE 8D OF THE RULES CAN BE MADE IF THE ASSESSEE CLAIMS EXPENDITURE AGAINST THE EXEMPT INCOME. IN THE CASE UNDER CONSIDERATION, THE ONLY EXPENDITURE CLAIMED BY THE ASSESSEE WITH R EGARD TO EXEMPT INCOME IS AUDITORS FEE. THE OTHER ITEMS OF EXPENDITURE ARE DIRECTLY RELATED TO THE BUSINESS ACTIVITIES OF THE ASSESSEE. PAYMENTS MADE UNDER THE HEAD STT PAID, DE-MAT CHARG ES, PM EXPENSES CANNOT BE HELD TO BE ITEMS OF EXPENDITURE THAT WERE IN ANY WAY RELATED T O THE EARNING OF EXEMPT INCOME. THE FAA HAD SURPRISINGLY OVER LOOKED THE BASIC FACT OF NON- INCURRING OF EXPENDITURE. HE HAS NOT GIVEN ANY REASON FOR NOT FOLLOWING THE ORDER OF HIS PREDE CESSORS FOR THE EARLIER YEAR. WE AGREE THAT PRINCIPLES OF RES-JUDICATA ARE NOT APPLICABLE IN IN COME TAX PROCEEDINGS.BUT,PRINCIPLE OF CONSISTENCY DEMANDS THAT UNTIL AND UNLESS THERE ARE DIFFERENT FACTS AND CIRCUMSTANCES REVENUE AUTHORITY SHOULD NOT TAKE A DIAGONALLY OPPOSITE STA ND AS COMPARED TO EARLIER YEARS. WE FIND THAT FACTS AND CIRCUMSTANCES OF EARLIER YEARS WERE IDENTICAL TO EARLIER YEARS AND IN EARLIER YEAR THE FAA HAD SUSTAINED DISALLOWANCE @ 10% OF THE AUD IT FEE, DEPRECIATION AND OTHER CHARGES. WE FIND THAT DURING THE YEAR UNDER CONSIDERATION TH E ASSESSEE HAS NOT CLAIMED DEPRECIATION THEREFORE, THE DISALLOWANCE HAS TO BE RESTRICTED TO TWO ITEMS ONLY I.E., AUDIT FEE AND OTHER CHARGES. THE AO IS DIRECTED TO RESTRICT THE DISALLO WANCE @ 10% ON THESE TWO ITEMS. PARTIALLY REVERSING THE ORDER OF THE FAA, WE DECIDE THE FIRST GROUND OF THE ASSESSEE IN PART. 908/MUM/16-RAMCHAND K. POPLEY 4 AS A RESULT, APPEAL FILED BY THE ASSESSEE STANDS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 04 TH JANUARY, 2017. 04 , 2017 SD/- SD/- ( ( ( ( /PAWAN SINGH) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 04 .01.2017. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR G BENCH, ITAT, MUMBAI / , , . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.