Vedika Securities Pvt. Ltd., Kolkata V. DCIT, CC-3(3), KOLKATA, Kolkata

ITSSA 62/KOL/2016

• Counselvise Citation: [2017] 122 COUNSELVISE.COM (IT) 3356 (ITAT-KOLKATA)
• Duration Of Justice: 8 month(s) 25 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 02-06-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 08-05-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 07-09-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G MALLIKARJUNA
• Assessee Lawyers: ARVIND AGARWAL
• Keywords: Business income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH C KOLKATA BEFORE SHRI N.V.VASUDEVAN, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER IT (SS) A NO. 62 - 64 / KOL / 2016 ASSESSMENT YEARS :2010-11 TO 2012-13 VEDIKA SECURITIES PVT. LTD. C/O. G.P. AGRAWAL & ASSOCIATES, 7A, KIRAN SHANKAR RAY ROAD, 2 ND FLOOR, KOLKATA-01 [ PAN NO. AAACV 8839 R ] V/S . DCIT, CC-3(3), KOLKATA (ERSTWHILE DCIT, CC- XVIII), AAYAKAR BHAVAN PURVA, 4 TH FLOOR, 110, SHANTIPALLY, KOLKATA-107 /APPELLANT .. / RESPONDENT /BY ASSESSEE SHRI ARVIND AGARWAL, ADVOCATE /BY REVENUE SHRI G. MALLIKARJUNA, DR /DATE OF HEARING 08-05-2017 ! /DATE OF PRONOUNCEMENT 02-06-2017 / O R D E R PER BEMCH:- THESE THREE APPEALS BY SAME ASSESSEE ARE DIRECTED AGAINST THE SEPARATE ORDER OF COMMISSIONER OF INCOME TAX (APPEA LS)-21,KOLKATA DATED 19.07.2016. ASSESSMENTS WERE FRAMED BY DCIT, CC-XVIII, KOLKATA U/S 153C/143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTE R REFERRED TO AS THE ACT) VIDE HIS ORDERS DATED 19.03.2014 FOR ASSESSMENT YEA RS 2010-11 TO 2012-13 RESPECTIVELY. IT(SS)A NO. 62-64/KOL/2016 A.YS. 2010- 11 TO 2012-13 VEDIKA SECURITIES PVT LTD. VS. DCIT CC-3(3) KOL . PAGE 2 SHRI ARVIND AGARWAL, LD. ADVOCATE APPEARED ON BEHAL F OF ASSESSEE AND SHRI G. MALLIKARJUNA, LD. DEPARTMENTAL REPRESENTATIVE RE PRESENTED ON BEHALF OF REVENUE. 2. AS THE ISSUES RAISED IN ALL THE APPEALS ARE ALMO ST IDENTICAL EXCEPT VARIANCE IN AMOUNT, THEREFORE, FOR THE SAKE OF CONV ENIENCE, WE ARE ADJUDICATING THESE APPEALS BY SINGLE COMMON ORDER. FIRST WE WOULD LIKE TO REPRODUCE THE GROUNDS OF APPEAL RAISED BY ASSESSEE IN IT(SS)A NO. 62/KOL/2016 AS LEAD CASE AS UNDER:- 1. BECAUSE THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) WAS ERRED IN LAW AS WELL AS IN FACTS IN CONFIRMING THE DISALLOWANCE OF RS.2,11,931/- AS MADE BY THE LD. DCIT,CC-3(3), U/S 14A READ WITH RULE 8D, AND HIS SUCH DISALLOWANCES ARE BASED ON HIS SUR MISES AND CONJUNCTURES AND HENCE NOT GOOD IN LAW AND RE GROSS LY UNJUSTIFIED, ERRONEOUS AND UNSUSTAINABLE, AND ARE CONTRARY TO TH E FACTS AND MATERIAL ON RECORD. 2. BECAUSE THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) WAS ERRED IN LAW AS WELL AS IN FACTS, IN RELYING ON THE REMAND REPORT OF THE LD. DCIT,CC-3(3), WHICH IS INCORRECT AND AS SUCH HIS DI SALLOWANCE IS GROSSLY UNJUSTIFIED, ERRONEOUS AND UNSUSTAINABLE AN D ARE CONTRARY TO THE PROVISIONS OF LAW. 3. BECAUSE THAT UNDER THE FACTS AND CIRCUMSTANCES O F THE CASE AND PROVISIONS OF LAW THE LD. COMMISSIONER OF INCOME TA X (APPEALS) OUGHT TO HAVE ACCEPTED THE APPELLANTS CONTENTION AND THE ADDITION MADE OF RS.2,11,931/- U/S 14A READ WITH RULE 8D, OUGHT TO H AVE BEEN DELETED. 3. ONLY INTER-CONNECTED ISSUE RAISED BY ASSESSEE IN THIS APPEAL IS THAT LD. CIT(A) ERRED IN CONFIRMING THE ORDER OF ASSESSING O FFICER BY SUSTAINING THE DISALLOWANCE OF 2,11,931/- UNDER THE PROVISION OF SECTION 14A R.W.S . RULE 8D OF THE IT RULES, 1962 (HEREINAFTER REFERRED TO AS THE RULE). 4. BRIEFLY STATED FACTS ARE THAT ASSESSEE IS A PRIV ATE LIMITED COMPANY AND ACTING AS A SHARE BROKER AND DEALING IN SHARES. THE ASSESSEE IN THE YEAR UNDER CONSIDERATION HAS EARNED DIVIDEND INCOME OF 10,42,539/- WHICH WERE CLAIMED TO BE EXEMPTED U/S. 10(34) OF THE ACT. DURI NG THE COURSE OF ASSESSMENT PROCEEDINGS, AO OBSERVED THAT NO DISALLO WANCE IN RESPECT OF INTEREST EXPENSE WAS MADE BY ASSESSEE AS PER THE PR OVISION OF SEC.14A R.W.S. 8D(2)(II) OF THE RULES. ON QUESTION BY THE A O ASSESSEE FOR THE NON- IT(SS)A NO. 62-64/KOL/2016 A.YS. 2010- 11 TO 2012-13 VEDIKA SECURITIES PVT LTD. VS. DCIT CC-3(3) KOL . PAGE 3 DISALLOWANCE OF INTEREST EXPENSES, IT WAS SUBMITTED THAT THE PRINCIPAL BUSINESS OF ASSESSEE IS A SHARE BROKING AND THE DIVIDEND INC OME IS THE ONLY INCIDENTAL ACTIVITY. THE ASSESSEE ALSO SUBMITTED THAT A SUM OF 1,21,845/- HAS BEEN DISALLOWED AS PER THE PROVISION OF RULE 8D OF THE R ULES. HOWEVER, THE AO DISREGARDED THE CONTENTION OF THE ASSESSEE BY OBSER VING THAT THE INTEREST EXPENSES IS TO BE DISALLOWED AS PER THE PROVISION O F SEC. 14A R.W.S. 8D(2)(II) OF THE RULES AND ACCORDINGLY DISALLOWED A SUM OF 2,11,931/- AND ADDED IT TO THE TOTAL INCOME OF ASSESSEE. 5. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE L D. CIT(A) WHO CONFIRMED THE ORDER OF AO BY OBSERVING AS UNDER:- A COPY OF THE REMAND REPORT WAS PROVIDED TO THE L D. AR OF THE APPELLANT. THE LD. AR SUBSEQUENTLY APPEARED AND FIL ED A SUBMISSION. THE SUBMISSION IS EXAMINED BUT THERE IS NO MERIT IN THE ARGUMENT THAT THE REMAND REPORT IS NOT CORRECT. THE MATTER IS DIS CUSSED WITH THE LD AR/. IN VIEW OF THE GIVEN FACTS AND CIRCUMSTANCES, IT IS APPARENT THAT THE APPELLANT HAS FAILED TO SUBSTANTIATE THE CLAIM AS M ADE IN THE GROUND OF APPEAL AND THEREFORE THE APPEAL ON THIS GROUND IS D ISMISSED. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) ASSESSE E CAME IN SECOND APPEAL BEFORE US. 6. LD. AR BEFORE US FILED PAPER BOOK WHICH IS RUNNI NG PAGES FROM 1 TO 50 AND SUBMITTED THAT ASSESSEE IS A SHARE BROKER OF NS C/BSE AND THERE IS NO INVESTMENT IN THE SHARES SHOWN BY THE ASSESSEE IN T HE BOOKS OF ACCOUNT. ALL THE INVESTMENTS IN SHARES ARE HELD AS STOCK-IN-TRAD E. AS THE DIVIDEND INCOME IS INCIDENTAL TO THE PRINCIPAL OF THE BUSINESS OF A SSESSEE, THEREFORE, NO DISALLOWANCE U/S 14A R.W.S. RULE 8D IS REQUIRED TO BE MADE. LD. AR ALSO SUBMITTED THAT THERE WAS SUFFICIENT OWN FUND AVAILA BLE WITH THE ASSESSEE TO MAKE INVESTMENT IN THE SHARES HELD AS STOCK-IN-TRAD E. THUS, THERE WAS NO BORROWED FUND UTILIZED IN THE INVESTMENT HELD AS ST OCK-IN-TRADE. ON THE OTHER HAND, LD. DR SUBMITTED THAT IT IS THE DUTY OF THE ASSESSEE TO SHOW WHETHER BORROWED FUND HAS BEEN UTILIZED IN THE INVESTMENT IN SHARES HELD AS STOCK-IN-TRADE AND IN THE ABSENCE OF ANY DO CUMENTARY EVIDENCE, IT(SS)A NO. 62-64/KOL/2016 A.YS. 2010- 11 TO 2012-13 VEDIKA SECURITIES PVT LTD. VS. DCIT CC-3(3) KOL . PAGE 4 REVEALS THAT BORROWED FUND HAS BEEN UTILIZED IN THE INVESTMENT OF SHARES HELD AS STOCK-IN-TRADE. LD. DR VEHEMENTLY RELIED ON THE ORDER OF AUTHORITIES BELOW. 7. WE HAVE HEARD RIVAL CONTENTIONS OF BOTH THE PART IES AND PERUSED AND CAREFULLY CONSIDERED THE MATERIALS ON RECORD; INCLU DING THE JUDICIAL PRONOUNCEMENTS CITED AND PLACED RELIANCE UPON. THE ISSUE IN THE INSTANT CASE REVOLVES TO THE DISALLOWANCE MADE BY THE AO ON ACCO UNT OF INTEREST EXPENSES UNDER THE PROVISION OF SECTION 14A R.W.S. RULE 8D O F THE RULES. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE INTEREST EXPENSES NEED TO BE DISALLOWED IN PURSUANCE TO THE PROVISION OF RULE 8D(2)(II) OF THE IT RULES WHICH HAS NOT BEEN MADE BY THE AO. THE VIEW OF AO WAS UPHELD BY L D. CIT(A) IN HIS APPELLATE ORDER. 7.1 ADMITTEDLY, THE ASSESSEE IS A SHARE BROKER OF N SC/BSE AND ALL THE INVESTMENTS IN SHARES ARE HELD AS STOCK-IN-TRADE AS EVIDENT FROM THE AUDITED BALANCE-SHEET OF THE ASSESSEE WHICH IS PLACED ON PA GES 35 TO 50 OF THE PAPER BOOK. THE CLAIM OF THE LD. AR INTER ALIA STATES THAT THE PRINCIPAL BUSINESS OF ASSESSEE IS TO CARRY OUT SALE-PURCHASE ACTIVITY OF THE SHARES AND DIVIDEND INCOME IS MERELY INCIDENTAL TO IT. THEREFORE, NO DI SALLOWANCE OF WHATSOEVER IS WARRANTED UNDER THE PROVISION OF SECTION 14A OF THE ACT. IN EXACTLY IDENTICAL FACTS, THE HON'BLE JURISDICTIONAL HIGH COURT VIDE I TS ORDER DATED 10.02.2017 HAS DECIDED THE ISSUE IN FAVOUR OF ASSESSEE IN THE CASE OF CIT VS. G.K.K. CAPITAL MARKET PVT. LTD. REPORTED IN 392 ITR 196 (CAL).THE RELEVANT EXTRACT OF THE HEAD NOTE OF THE JUDGMENT IS REPRODUCED BELOW:- SECTION 14A OF THE INCOME-TAX ACT, 1961, READ WITH RULE 8D OF THE INCOME-TAX RULES, 1962 - EXPENDITURE INCURRED IN RELATION TO I NCOME NOT INCLUDIBLE IN TOTAL INCOME (APPLICABILITY OF) - ASSESSMENT YEAR 2008-20 09 - WHETHER WHERE IN CASE OF ASSESSEE-COMPANY, ENGAGED IN BUSINESS OF SH ARE TRADING, DIVIDEND INCOME WAS TREATED AS BUSINESS INCOME AND SHARES HE LD BY ASSESSEE WERE TREATED AS STOCK IN TRADE, AO COULD NOT PROCEED TO MAKE DISALLOWANCE UNDER SECTION 14A BY APPLYING RULE 8D - HELD, YES THE PRINCIPLE LAID DOWN BY HON'BLE JURISDICTIONAL H IGH CURT IS SQUARELY APPLICABLE TO THE INSTANCE FACTS OF THE CASE. IN TH E INSTANT CASE, BEFORE US, THE ASSESSEE IS A TRADER IN SHARE MARKET AND ALL THE IN VESTMENTS IN SHARES ARE HELD AS STOCK-IN-TRADE. THEREFORE RELYING IN THE CA SE OF G.K.K. CAPITAL MARKET IT(SS)A NO. 62-64/KOL/2016 A.YS. 2010- 11 TO 2012-13 VEDIKA SECURITIES PVT LTD. VS. DCIT CC-3(3) KOL . PAGE 5 PVT. LTD. (SUPRA) WE HOLD THAT THE ASSESSEE IS A SHARE TRADE R AND THEREFORE NO DISALLOWANCE OF WHATSOEVER WILL BE MADE UNDER THE P ROVISION OF SECTION 14A R.W.S. 8D OF THE RULES. HENCE, WE REVERSE THE ORDER OF LD. CIT(A) IN THIS REGARD AND DIRECT THE AO TO DELETE THE ADDITION. TH E INTER-CONNECTED ISSUE OF ASSESSEES APPEAL IS ALLOWED. 8. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. 9. AS STATED EARLIER, THE INTER-CONNECTED COMMON IS SUE IN THESE YEARS IS SAME AS THAT OF THE LAST YEAR. THE ONLY DIFFERENCE IS THAT AMOUNT INVOLVED. SINCE THE FACTS ARE EXACTLY IDENTICAL, BOTH PARTIES ARE GREED WHATEVER VIEW TAKEN IN THE ABOVE APPEAL IN IT(SS)A NO.62/KOL/2016 OF ASSESSEE MAY BE TAKEN IN THESE APPEALS (IT(SS)A NO.63-64/KOL/2016 O F ASSESSEE ALSO, WE HOLD ACCORDINGLY. 10. IN COMBINE RESULT, ALL THE APPEALS OF ASSESSEE STAN D ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT 02/ 06/2017 SD/- SD/- (#$) () (N.V.VASUDEVAN) (WASEEM AHMED) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) KOLKATA, *DKP, SR.P.S &'(- 02 / 06 /201 7 / COPY OF ORDER FORWARDED TO:- 1. /ASSESSEE-VEDIKA SECURITIES PVT. LTD. C/O G.P. AGRA WAL & ASSOCIATES, 7A, KIRAN SHANKAR RAY ROAD, 2 ND FLOOR, KOLAKATA-001 2. /REVENUE-DCIT, CC-3(3), AAYAKAR BHAWAN PURVA, 4 TH FL, 110 SHANTIPALLY, KOL-107 3.'0'12 3 / CONCERNED CIT KOLKATA 4. 3- / CIT (A) KOLKATA 5.6 78$$12, 12!, / DR, ITAT, KOLKATA 6.8;<=> / GUARD FILE. BY ORDER/ , /TRUE COPY/ SR. PRIVATE SECRETARY, HEAD OF OFFICE/DDO 12!,