DANI SHARES & STOCKS P.LTD, MUMBAI V. DCIT 4(1), MUMBAI

ITA 914/MUM/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 7786 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-12-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 24-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SANJAY R PARIKH
• Keywords: Earning of tax free income
• Section: 14A; 115JB; 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'D' BENCH, MUMBAI BEFORE SHRI P K BANSAL, VICE PRESIDENT AND SHRI RAVISH SOOD, JUDICIAL MEMBER ITA NOS. 914 & 915/MUM/2016 (ASSESSMENT YEARS: 2011-12 & 2012-13) M/S. DANI SHARES & STOCKS P . LTD. VS. DCIT, CIRCLE - 4(1) SATYANARAYAN PRASAD COMMERCIAL CENTRE, 7TH FLOOR, DAYALDAS ROAD OFF. NEHRU ROAD, VILE PARLE (E) MUMBAI 400057 AAYAKAR BHAVAN M.K. ROAD MUMBAI 400020 PAN AABCD7681A APPELLANT RESPONDENT APPELLANT BY: SHRI SANJAY R. PARIKH RESPONDENT BY: SHRI PURUSHOTTAM KUMAR DATE OF HEARING: 19.12.2017 DATE OF PRONOUNCEMENT: 22.12.2017 O R D E R PER P.K. BANSAL, VICE PRESIDENT BOTH THESE APPEALS HAVE BEEN FILED BY THE ASSESSEE AGAINST THE RESPECTIVE ORDERS OF THE CIT(A)-8, MUMBAI DATED 03. 11.2015 FOR ASSESSMENT YEARS 2011-12 & 2012-13 2. GROUNDS NOS. 1 TO 4 IN A.Y. 2011-12 AND GROUND NOS. 1 TO 3 IN A.Y. 2012-13 ARE COMMON AND BOTH THE PARTIES AGREED THAT GROUND NOS. 1 TO 3 FOR A.Y. 2012-13 SHALL BE DECIDED ON THE BASIS OF T HE FACTS RELATING TO A.Y. 2011-12 AND WHATEVER VIEW HIS TRIBUNAL MAY TAKE IN A.Y. 2011-12 IN RESPECT OF GROUND NOS. 1 TO 4 THE SAME VIEW MAY BE TAKEN IN RESPECT OF GROUND NOS. 1 TO 3 FOR A.Y. 2012-13. 3. GROUND NOS. 1 & 2 FOR A.Y. 2011-12 READS AS UNDER: - 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) 9, MUMBAI [HEREINAFTER REFERRED TO AS THE CIT(A)] ERRED ON FA CTS AND IN LAW IN UPHOLDING THE DISALLOWANCE MADE BY THE DEPUTY COMMI SSIONER OF INCOME TAX, 4(1), MUMBAI (AO) U/S. 14A READ WITH RULE 8D ITA NOS. 914 & 915/MUM/2016 M/S. DANI SHARES & STOCKS P. LTD. 2 WITH RESPECT TO INVESTMENT IN SHARES BY HOLDING THA T THE APPELLANTS OBJECTION IS ONLY WITH REGARD TO DISALL OWANCE RELATED TO SHARES HELD AS STOCK IN TRADE AND NOT ON SHARES HELD AS STOCK IN INVESTMENTS AND WITHOUT APPRECIATING THAT THE AO HAD NOT RECORDED ANY SATISFACTION AS TO WHY THE DISALLOWANC E COMPUTED BY THE APPELLANT U/S. 14A AT RS.7,76,504/- COULD NO T BE ACCEPTED. 2. THE APPELLANT PRAYS THAT THE AO HAVING INVOKED R ULE 8D WITHOUT RECORDING A SATISFACTION AS TO WHY THE DISALLOWANCE MADE BY THE APPELLANT U/S. 14A OF RS.7,76,504/- COULD NOT BE AC CEPTED, THE ADDITIONAL DISALLOWANCE AS MADE BY THE AO AND CONFI RMED BY THE CIT(A) MAY BE DELETED. 4. WE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY CONSI DERED THE SAME ALONG WITH THE ORDERS OF THE TAX AUTHORITIES BELOW. WE NOTED THAT THE ASSESSEE WHILE SUBMITTING THE RETURN FOR A.Y. 2011- 12 COMPUTED THE DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D AT ` 7,76,504/- IN THE FOLLOWING MANNER: - COMPUTATION OF DISALLOWANCES U/S 14A R.W. RULE 8D EXPENDITURE DIRECTLY RELATING TO INCOME WHICH DOES 1 NOT FORM PART OF TOTAL INCOME 0.00 AMOUNT OF INTEREST WHICH IS NOT DIRECTLY ATTRIBUTABLE 2 TO ANY PARTICULAR INCOME OR RECEIPT - AMOUNT OF INTEREST EXPENSES 22,831,091.00 - AMOUNT OF INTEREST INCOME 5,267,021.00 NET INTEREST EXPENSE A 17,564,070.00 AVERAGE VALUE OF INVESTMENT OPENING INVESTMENT 31,856,709.00 LESS : ASIAN PAINTS LTD. 16,623,682.00 15,233,027.00 LESS : INVT IN SUBSIDIARIES 1. EQUITY SHARES OF DANI COMMODITIES PVT. LTD. 9,9 94,000.00 2. EQUITY SHARES OF DANI PROPERTIES PVT. LTD. 98 ,000.00 OPENING INVESTMENT, INCOME FROM WHICH DO NOT FORM PART OF TOTAL INCOME 5,141,027.00 CLOSING INVESTMENT 31,936,685.00 LESS : ASIAN PAINTS LTD. 16,623,682.00 15,313,003.00 ITA NOS. 914 & 915/MUM/2016 M/S. DANI SHARES & STOCKS P. LTD. 3 LESS : INVT IN SUBSIDIARIES 1. EQUITY SHARES OF DANI COMMODITIES PVT. LTD. 9,9 94,000.00 2. EQUITY SHARES OF DANI PROPERTIES PVT. LTD. 98 ,000.00 CLOSING INVESTMENT, INCOME FROM WHICH DO NOT FORM PART OF TOTAL INCOME 5,221,003.00 AVERAGE INVESTMENT 5,181,015.00 AVERAGE VALUE OF TOTAL ASSET OPENING VALUE OF ASSET 152,132,219.00 CLOSING VALUE OF ASSET 181,943,614.00 AVERAGE VALUE OF TOTAL ASSET 167,037,916.50 A X B/C 544,784.75 3. 0.5% OF AVERAGE VALUE OF INVT. INCOME FORM WHICH DO NOT FORM PART OF TOTAL INCOME 231,719.55 STOCK IN TRADE 205,814.75 TOTAL DISALLOWANCES RW RULE 8D 776,504.30 5. THE AO INSTEAD OF GIVING ANY REASONS OR RECORDING SATISFACTION IN RESPECT OF THE DISALLOWANCE MADE BY THE ASSESSEE IN ITS RETURN OF INCOME ASKED THE ASSESSEE AS TO WHY PROVISIONS OF SECTION 14A R.W. RULE 8D IS NOT APPLICABLE IN THE CASE OF THE ASSESSEE AND ACCORDIN GLY THE AO RECOMPUTED THE DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D AT ` 58,97,015/- AND ACCORDINGLY MADE ADDITION OF ` 51,20,511/- AS UNDER: - AMOUNT (RS.) 1 AMOUNT OF EXPENSES DIRECTLY RELATED TO SUCH INCOME NIL 2 AMOUNT OF THE INTEREST EXPENSES INDIRECTLY ATTRIBUTABLE TO SUCH INCOME, IN ACCORDANCE WITH THE FORMULA AXB/C, WHERE A TOTAL INTEREST EXPENDITURE MINUS DIRECT INTEREST EXPENDITURE ON SUCH INCOME [65,82,293+44,20,163+1,18,19,928 =2,28,22,384 (A) B AVERAGE VALUE OF SUCH INVESTMENTS ON THE FIRST AND LAST DAY OF PREVIOUS YEAR AS AT 31.03.2011 = 31936685+53159103 AS AT 31.03.2010 = 31856709+29166637 = 6,63,68,988 B) ITA NOS. 914 & 915/MUM/2016 M/S. DANI SHARES & STOCKS P. LTD. 4 C AVERAGE OF TOTAL ASSETS ON FIRST AND LAST DAY OF THE PREVIOUS YEAR AS AT 3.103.2011=181943614+120743696 AS AT 31.03.2010=152132219+89529986 =27,21,74,758 (C) AXB/C = 55,65,170 3 0.5% OF THE B ABOVE 3,31,845 TOTAL DISALLOWANCE U/S. 14A R.W.R. 8D 58,97,015 5.16 AS THE ASSESSEE HAS ALREADY ALLOCATED EXPENSES OF RS.7,76,504/- TOWARDS EARNING EXEMPT INCOME, THEREFORE, THE BALA NCE EXPENSES TO THE EXTENT OF RS.51,20,511/- ARE DISALLOWED BY INVOKING THE PROVISIONS OF SECTION 14A R.W.R. 8D OF THE ACT. 6. WE HAVE GONE THROUGH THE ASSESSMENT ORDER AND WE NO TED THAT THE AO WITHOUT RECORDING SATISFACTION AS REQUIRED UNDER SECTION 14A(2) WITH REGARD TO THE ACCOUNTS OF THE ASSESSEE AND HOW HE H AS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RES PECT OF SUCH EXPENDITURE WITH REFERENCE TO THE INCOME EXEMPT UNDER SECTION 1 4A STRAIGHTAWAY WENT ON COMPUTING DISALLOWANCE UNDER RULE 8D. RECORDING OF SATISFACTION WITH REGARD TO THE INCORRECT CLAIM OF THE ASSESSEE BEFOR E COMPUTING DISALLOWANCE BY THE AO UNDER RULE 8D IS NECESSARY I N VIEW OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING COMPANY LTD. 394 ITR 449. SINCE THE AO BEFORE APPLY ING RULE 8D HAS NOT RECORDED SATISFACTION AS TO WHY THE DISALLOWANCE MA DE BY THE ASSESSEE UNDER SECTION 14A COULD NOT BE ACCEPTED. WE, RESPEC TFULLY FOLLOWING THE DECISION OF THE HON'BLE SUPREME COURT (SUPRA), DELE TE THE DISALLOWANCE. THUS, GROUND NOS. 1 & 2 OF THE ASSESSEE ARE ALLOWED . 7. GROUND NOS. 3 TO 6 TAKEN BY THE ASSESSEE RELATE TO THE ALTERNATE GROUNDS RAISED BY THE ASSESSEE BEFORE THE CIT(A) IN RESPECT OF COMPUTATION OF DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D AND THE ASSESSEE HAS TAKEN THESE GROUNDS ONLY, IN CASE, AS IS APPARENT F ROM GROUND NO. 7, THE TRIBUNAL TAKE A VIEW RELATING TO THE ADDITION DISAL LOWANCE MADE BY THE AO UNDER SECTION 14A R.W. RULE 8D AGAINST ASSESSEE. SI NCE WE HAVE ALREADY DELETED THE DISALLOWANCE MADE BY THE AO UNDER SECTI ON 14A R.W. RULE 8D BY ALLOWING GROUND NOS. 1 & 2 OF THE ASSESSEE, THER EFORE THESE GROUNDS HAVE BECOME INFRUCTUOUS AND WE DISMISS THE SAME AS INFRUCTUOUS. ITA NOS. 914 & 915/MUM/2016 M/S. DANI SHARES & STOCKS P. LTD. 5 8. GROUND NOS. 8 & 9 RELATE TO ENHANCING OF THE INCOME OF THE CIT(A) BY MAKING DISALLOWANCE ON ACCOUNT OF PENALTY LEVIED BY THE NSC AND BSC. 9. AFTER HEARING THE RIVAL SUBMISSIONS AND GOING THROU GH THE ORDERS OF THE TAX AUTHORITIES BELOW WE NOTED THAT THIS ISSUE IS DULY COVERED BY THE DECISION OF THE E BENCH OF THIS TRIBUNAL IN ITA N O. 3325/MUM/2011 IN THE CASE OF KISAN RATILAL CHOKSEY SHARES AND SECURI TIES P. LTD. VS. ADDL. CIT 41 ITR (TIRB) 114 (MUM) IN WHICH THIS TRIBUNAL UNDER PARA 12 OF ITS ORDER HELD AS UNDER: - 12. THE NEXT ISSUE RELATES TO DISALLOWANCE OF PENA LTY OF RS.2,63,945/- PAID TO THE STOCK EXCHANGE FOR VIOLATION OF ITS BYE -LAWS. THE LD.CIT(A) NOTICED THAT MUMBAI BENCH OF THE TRIBUNAL IN THE CA SE OF ITO V/S VRM SHARE BROKING (P) LTD REPORTED IN 27 SOT 569 AND GO LDCREST CAPITAL MARKETS LTD. V/S ITO [2010] 2 ITR (TRIB) 355 (ITAT[ MUM]) HAVE HELD THAT EXPLANATION TO SEC 37(1) ARE NOT APPLICABLE TO THE PENALTY PAID ON CONTRAVENTION OF BYE-LAWS OF THE STOCK EXCHANGE. AC CORDINGLY, HE ALLOWED THE CLAIM OF THE ASSESSEE. THE LD. AR POINT ED OUT THAT THE CO- ORDINATE BENCH OF THE TRIBUNAL HAS CONSIDERED AN ID ENTICAL ISSUE IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2005-06 PASSED IN ITA NOS.4347/MUM/2009 AND 4033/MUM/2009 DATED 4.6.2010. WE NOTICE THAT THE CO-ORDINATE BENCH OF THE TRIBUNAL H AS DELETED AN IDENTICAL DISALLOWANCE MADE IN THE ASSESSMENT YEAR 2005-06 BY FOLLOWING THE DECISION RENDERED IN THE CASE OF VRM SHARE BROKING (P) LTD (SUPRA). UNDER THESE SET OF FACTS, WE DO NOT FI ND ANY INFIRMITY IN THE DECISION OF LD. CIT(A) ON THIS ISSUE. SINCE THE COORDINATE BENCH HAS CONSIDERED IDENTICA L ISSUE AND HELD EXPLANATION TO SECTION 37(1) IS NOT APPLICABLE TO T HE PENALTY PAID THE EXCHANGES, RESPECTFULLY FOLLOWING THE SAID DECISION WE DELETE THE DISALLOWANCE OF ` 9,40,480/- BEING PENALTY LEVIED BY NSC AND BSC. ASSESSMENT YEAR 2012-13 10. GROUND NOS. 1 & 2 ARE SIMILAR TO THE GROUND NOS. 1 & 2 TAKEN IN A.Y. 2011-12. SINCE BOTH THE PARTIES AGREED THAT WH ATEVER VIEW THIS TRIBUNAL MAY TAKE IN DISPOSING OFF GROUND NOS. 1 & 2 FOR A.Y. 2011-12 THE SAME VIEW MAY BE TAKEN IN THIS ASSESSMENT YEAR ALSO . WE, THEREFORE, FOLLOWING OUR FINDING FOR A.Y. 2011-12 WHILE DISPOS ING OFF GROUND NOS. 1 & 2 DELETE THE ADDITIONAL DISALLOWANCE MADE BY THE AO UNDER SECTION 14A ITA NOS. 914 & 915/MUM/2016 M/S. DANI SHARES & STOCKS P. LTD. 6 R.W. RULE 8D AS THE FACTS INVOLVED IN THIS YEAR ARE ALSO SIMILAR TO THE FACTS INVOLVED IN A.Y. 2011-12. 11. GROUND NOS. 3 TO 6, AS AGREED BY BOTH THE PARTIES, ARE ALTERNATE GROUNDS RAISED BY THE ASSESSEE IN CASE THE ADDITION AL DISALLOWANCE MADE BY THE AO UNDER SECTION 14A R.W. RULE 8D IS NOT DEL ETED. SINCE WE HAVE ALREADY DELETED THE ADDITIONAL DISALLOWANCE MADE BY THE AO UNDER SECTION 14A R.W. RULE 8D, THESE GROUNDS, IN OUR OPINION, HA S BECOME INFRUCTUOUS AND ACCORDINGLY WE DISMISS THE SAME. 12. GROUND NO. B TAKEN BY THE ASSESSEE READS AS UNDER: - THE LEARNED CIT(A) ERRED IN NOT DECIDING THE GROUN D THAT IN COMPUTING THE BOOK PROFIT U/S 115JB OF THE ACT, THE DISALLOWA NCE MADE U/S. 14A R.W. RULE 8D OF THE ACT IS NOT TO BE ADDED BACK AS PER EXPLANATION 1 TO SECTION 115JB(2) OF THE ACT. 13. AFTER HEARING THE RIVAL SUBMISSIONS AND GOING THROU GH THE ORDERS OF THE TAX AUTHORITIES BELOW WE NOTED THAT THIS GROUND HAS ALSO BECOME INFRUCTUOUS IN VIEW OF THE FACT THAT THE ADDITIONAL DISALLOWANCE MADE BY THE AO UNDER SECTION 14A R.W. RULE 8D HAS BEEN DELETED BY US WHILE DISPOSING OF GROUND NOS. 1 & 2. WE, THEREFORE, DISMISS THIS G ROUND AS SUCH. 14. GROUND NOS. 7 & 8 ARE CONCERNED THEY ARE SIMILAR TO GROUND NOS. 8 & 9 FOR A.Y. 2011-12 WITH REGARD TO DISALLOWANCE ON A CCOUNT OF PENALTY PAID TO NSC AND BSC EXCEPT CHANGE IN FIGURE. SINCE WE HAVE ALREADY DELETED THE SAID DISALLOWANCE UNDER SIMILAR FACTS AND CIRCUMSTA NCES WHILE DISPOSING OFF GROUND NOS. 8 & 9 FOR A.Y. 2011-12, FOLLOWING OUR F INDING IN A.Y. 2011-12 WE DELETE THE SAID DISALLOWANCE IN THE IMPUGNED ASS ESSMENT YEAR. 15. IN THE RESULT, BOTH THE APPEALS FILED BY THE ASSESS EE STAND ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND DECEMBER, 2017. SD/ - SD/ - (RAVISH SOOD) (P.K. BANSAL) JUDICIAL MEMBER VICE PRESIDENT MUMBAI, DATED: 22 ND DECEMBER, 2017 ITA NOS. 914 & 915/MUM/2016 M/S. DANI SHARES & STOCKS P. LTD. 7 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) -9, MUMBAI 4. THE CIT - 4, MUMBAI 5. THE DR, D BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.