Mr. Ajay Chawla, New Delhi v. DCIT, New Delhi

ITA 6091/DEL/2015 | 2008-2009
Pronouncement Date: 18-10-2016 | Result: Allowed

Appeal Details

RSA Number 609120114 RSA 2015
Assessee PAN AADPC8542N
Bench Delhi
Appeal Number ITA 6091/DEL/2015
Duration Of Justice 11 month(s) 7 day(s)
Appellant Mr. Ajay Chawla, New Delhi
Respondent DCIT, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 18-10-2016
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted SMC 2
Tribunal Order Date 18-10-2016
Date Of Final Hearing 20-09-2016
Next Hearing Date 20-09-2016
Assessment Year 2008-2009
Appeal Filed On 10-11-2015
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH SMC-2 NEW DELHI BEFORE SHRI H.S. SIDHU JUDICIAL MEMBER I.T.A. NO. 6091/DEL/2015 A.Y. 2008-09 MR. AJAY CHAWLA H-11 LAJPAT NAGAR-II NEW DELHI 110 024 (PAN: AADPC8542N) VS. DCIT CIRCLE 32(1) NEW DELHI (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. VED JAIN ADV. SH. ASHISH CHADHA CA DEPARTMENT BY : SH. UMESH CHANDER DUBEY SR. DR ORDER PER H.S. SIDHU JM ASSESSEE HAS FILED THE APPEAL AGAINST THE ORDER DATED 1 6.9.2015 PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS)18 NEW DELHI PERTAINING TO ASSESSMENT YEAR 2008-09. 2. THE GROUNDS RAISED BY THE ASSESSEE READ AS UNDER:- 1. THAT THE LD. CIT(A) ERRED IN SUSTAINING THE ORDER PASSED U/S. 143(3)/263 OF THE INCOME TAX ACT BY AO WHICH IS BAD IN LAW AND ON THE FACTS OF THE CASE. 2. THAT THE LD. CIT(A) ERRED IN SUSTAINING THE DISALLO WANCE U/S. 14A R.W.R. 8D AMOUNTING TO RS. 10 74 056/- (RS. 11 24 056/- = RS. 50 000/-) 3. THAT THE LD. CIT(A) ERRED IN SUSTAINING THE INTER EST CHARGED U/S. 234A 234B 234C & 234D OF THE INCOME TAX ACT. ITA NO.6091/DEL/2015 2 3. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS AN IN DIVIDUAL ENGAGED IN THE BUSINESS OF SALE AND PURCHASE OF SHARES AND MUTUAL FUNDS. HE FILED HIS RETURN OF INCOME OF RS. 33 51 550/- ON 30.9.2008 A ND PROCESSED U/S. 143(1) OF THE I.T. ACT 1961 ON SAME INCOME. NOTICE U/ S. 143(2) OF THE I.T. ACT 1961 WAS ISSUED ON 8.9.2009 AND ASSESSMENT U/S. 143(3 ) WAS COMPLETED ON 3.12.2010 ON THE ASSESSED INCOME OF RS. 34 7 6 550/-. SUBSEQUENTLY THE LD. CIT DELHI-XI NEW DELHI VIDE HIS ORDER DATED 7.3.2013 AFTER EXAMINING THE FACTS OF THE CASE OBSERVED THAT THE ORDER DATED 3.12.2010 OF THE AO IS ERRONEOUS AND PREJUDICIA L TO THE INTEREST OF REVENUE AND SET ASIDE THE SAME FOR MAKING AFRESH ASSESSMENT . CONSEQUENT TO THE ORDER PASSED BY THE LD. CIT THE AO PASSED A FR ESH ASSESSMENT U/S. 143(3)/263 OF THE ACT ON 27.3.2014 ASSESSING THE INCOME OF THE ASSESSEE AT RS. 44 26 610/- AFTER MAKING AN ADDITION OF RS. 1 0 74 056/- U/S. 14A READ WITH RULE 8D. 4. AGAINST THE ASSESSMENT ORDER DATED 27.3.2014 ASSES SEE APPEALED BEFORE THE LD. CIT(A) WHO VIDE HIS IMPUGNED ORDER DATED 1 6.9.2015 HAS DISMISSED THE APPEAL OF THE ASSESSEE. 5. AGGRIEVED WITH THE AFORESAID ORDER OF THE LD. CIT (A) ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 6. DURING THE HEARING LD. COUNSEL OF THE ASSESSEE HAS ST ATED THAT THE INTEREST HAS BEEN PAID BY THE ASSESSEE TO THE FINANCIERS WH O HAVE FUNDED THE IPOS AS IS EVIDENT FROM PAGE NO. 54 & 65 OF THE PA PER BOOK AND THERE IS NO DIVIDEND INCOME FROM TRANSACTION. HE FURTHER STATED T HAT SINCE THE BUSINESS OF THE ASSESSEE IS SALE AND PURCHASE OF SHARES ALL THE INTEREST HAS BEEN PAID IN RELATION TO NORMAL BUSINESS INCOME AND CANNOT BE ALLOCATED FOR THE PURPOSE OF DISALLOWANCE U/S. 14A READ WITH RULE 8 D. HE FURTHER STATED THAT IT IS A SETTLED LAW THAT THE DISALLOWANCE U/S. 14A READ WITH RULE 8D SHOULD ONLY BE MADE WITH REGARD TO INVESTMENTS AND NOT WITH THE REGARD ITA NO.6091/DEL/2015 3 TO SHARE HELD AS STOCK-IN-TRADE. IT WAS THE FURTHER CON TENTION THAT THE ASSESSE IS IN THE BUSINESS OF SALE AND PURCHASE OF SHARES AND MU TUAL FUNDS. THE SHARES WERE HELD AS STOCK IN TRADE THEREFORE PROV ISIONS OF SECTION 14A READ WITH RULE 8D ARE NOT APPLICABLE. IN ORDER TO SU PPORT HIS CONTENTION HE RELIED UPON THE FOLLOWING CASE LAWS:- - ITAT DELHI BENCH DECISION IN THE CASE OF VIDYUT INVESTMENT LTD. VS. ITO (2006) 10 SOT 284 (DELHI). - ITAT MUMBAI DECISION IN THE CASE OF YATISH TRADING CO. (P) LTD. VS. ACIT (2011) 129 ITD 237 (MUMBAI). - ITAT MUMBAI IN THE CASE OF FIDUCIARY SHARES & STOCK (P) LTD. VS. ACIT (2016) 159 ITD 554 (MUMBAI) - DY. DIT (OSD) VS. SHREE DURGA CAPITAL LTD. MUMBA I ITA NO. 7405/MUM/2011 DATED 3.8.2015 ITAT MUMBAI - ITAT MUMBAI IN THE CASE OF DEVKANT SYNTHETICS (INDIA) LTD. VS. ITO IN ITA NO. 2663-2665/MUM/2015 DATED 28.10.2015) 7. ON THE CONTRARY LD. DR OPPOSED THE AFORESAID CONTE NTION OF THE LD. COUNSEL OF THE ASSESSEE AND RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND REQUESTED THAT THE SAME MAY BE UPHELD. 8. I HAVE HEARD BOTH THE PARTIES AND PERUSED THE RELE VANT RECORDS AVAILABLE WITH ME ESPECIALLY THE ORDERS PASSED BY THE REVENUE AUTHORITIES AND THE CASE LAWS CITED BY THE LD. COUNSEL OF THE ASSESSEE. I FIND THAT THE AO HAS MADE THE ADDITION BY DISREGARDING THE SUBMISSION S OF THE ASSESSEE ITA NO.6091/DEL/2015 4 THAT THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE IN OR DER TO EARN ANY EXEMPT INCOME. THE AO HAS FURTHER IGNORED THE EXPLAN ATION OFFERED BY THE ASSESSEE THAT THE INTEREST EXPENDITURE INCURRED BY THE ASSE SSEE IS IN RESPECT OF THE FUNDS BORROWED FOR THE IPOS. I NOTE THAT THE AO HAS INVOKED THE PROVISIONS OF RULE 8D HOLDING THAT THE IMPLICATION OF THE SAID RULE IS AUTOMATIC AND HAS NOTHING TO DO WITH THE EARNING OF I NCOME DURING THE YEAR UNDER CONSIDERATION. THEREAFTER THE LD. CIT(A) HAS F URTHER SUSTAINED THE ADDITION MADE BY THE AO BY HOLDING THAT EVEN IF TH E EXEMPT INCOME EARNED DURING THE YEAR IS INCIDENTAL TO THE MAIN OBJECTIVE O F THE BUSINESS OF THE ASSESSEE AND ALSO WHEN THE EXPENDITURE HAS NO DIRECT OR P ROXIMATE CONNECTION TO THE EXEMPT INCOME THE ADDITION U/S. 14A READ WITH RULE 8D IS REQUIRED TO BE MADE. THEREFORE THE LD. CIT(A) H AS UPHELD THE ADDITION MADE BY THE AO BY HOLDING THAT THE PROVISIONS OF SECT ION 14A ARE ALSO APPLICABLE IN CASE OF STOCK-IN-TRADE. I FIND THAT DURIN G THE YEAR UNDER CONSIDERATION ASSESSEE HAD A LONG TERM CAPITAL GAIN OF RS. 54 74 924/- ALONGWITH DIVIDEND INCOME ON MUTUAL FUNDS AND SHARES FO R RS. 46 55 903. I FURTHER NOTE THAT THE ASSESSEE HAS INCURRED BANK CHARGES A ND INTEREST EXPENSE AMOUNTING TO RS. 19 42 045.95 DURING THE YEAR UNDER CONSIDERATION COMPLETE DETAILS WERE FILED BY THE ASSESSEE BEFORE THE AO AS WELL AS LD. CIT(A) AND NO LOAN HAS BEEN TAKEN BY THE ASSESSEE DURING THE YEAR AS IS EVIDENT FROM THE BALANCE SHEET OF THE ASSESSEE. THE SAID INTEREST HAS BEEN PAID BY THE ASSESSEE TO THE FINANCIERS WHO HAVE FUNDED THE IPOS AS IS EVIDENT FROM THE RECORDS AND THERE IS NO DIVIDEN D INCOME FROM TRANSACTION. SINCE THE BUSINESS OF THE ASSESSEE IS SALE AND PU RCHASE OF SHARES ALL THE INTEREST HAS BEEN PAID IN RELATION TO NORMAL BUSINESS INCOME AND CANNOT BE ALLOCATED FOR THE PURPOSE OF DISALLOWANCE U/S. 14A READ WITH RULE 8D. I FIND CONSIDERABLE COGENCY IN THE CONTENTION OF THE LD. COUNSEL OF THE ASSESSEE THAT IT IS A SETTLED LAW THAT THE DISALLOWANCE U/S. 14A READ WITH RULE 8D SHOULD ONLY BE MADE WITH REGARD TO INVESTMEN TS AND NOT WITH THE ITA NO.6091/DEL/2015 5 REGARD TO SHARE HELD AS STOCK-IN-TRADE. I AM IN FURTH ER AGREEMENT WITH THE CONTENTION OF THE LD. COUNSEL OF THE ASSESSEE THAT THE ASSE SSE IS IN THE BUSINESS OF SALE AND PURCHASE OF SHARES AND MUTUAL FUNDS A ND THE SHARES WERE HELD AS STOCK IN TRADE THEREFORE PROVISIONS OF SECT ION 14A READ WITH RULE 8D ARE NOT APPLICABLE. MY AFORESAID VIEW IS FULL Y SUPPORTED BY THE FOLLOWING DECISIONS:- A) DELHI TRIBUNAL IN THE CASE OF VIDYUT INVESTMENT LTD . V. ITO [2006] 10 SOT 284 (DELHI) HAS HELD AS UNDER: 'THE DIVIDEND EARNED BY THE ASSESSEE WAS MERELY INCIDENTA L TO THE HOLDING OF SHARES FOR A PARTICULAR PERIOD WHEN THE DIVIDEND WAS DECLARED. AS PER THE ACCOUNTS THE STOCK OF SHARES HELD A S STOCK-IN-TRADE WAS MERELY RS. 21.27 LAKHS. THE SHARES WE RE PURCHASED MERELY FOR TRADING IN THE SAME AND NOT FOR EARNING DIVIDEND THEREON. THUS IT COULD NOT BE SAID THAT THE EXPENSES ON INTEREST WERE INCURRED OR THE DEPOSITORY/CUSTODIAL CHARG ES WERE INCURRED MERELY TO EARN DIVIDEND INCOME. THE INTENTIO N WAS TO EARN THE PROFIT ON SHARE TRADING AND NOT TO EARN DI VIDEND INCOME. THUS THE PROVISIONS OF SECTION 14A COULD NOT BE INVOKED TO HOLD THAT THE EXPENSES BY WAY OF INTEREST AND DEPOSITORY/CUSTO DIAL CHARGES WERE INCURRED IN RELATION TO DIVIDEND INCOME WH ICH DID NOT FORM PART OF THE TOTAL INCOME. [PARA 2.5]' B) ITAT MUMBAI IN THE CASE OF YATISH TRADING CO. (P.) LTD. V. ACIT [2011] 129 ITD 237 (MUMBAI) HAS HELD AS UNDER: 'IT IS PERTINENT TO NOTE THAT THE INTEREST ON BORROW ED FUNDS USED FOR TRADING ACTIVITY IS AN ALLOWABLE EXPENDITURE UNDE R SECTION 36(1)(III) AND THE SAME CANNOT BE TREATED AS AN EXPEND ITURE FOR ITA NO.6091/DEL/2015 6 EARNING THE DIVIDEND INCOME WHICH IS INCIDENTAL TO THE TRADING ACTIVITY. [PARA 34] THUS UNDISPUTEDLY WHEN THE REAL PURPOSE AND INTENT T O USE THE BORROWED FUNDS WAS FOR TRADING ACTIVITY AND IF INCIDENT ALLY IT RESULTED IN SOME DIVIDEND INCOME ON THE SHARES PURCHASED F OR TRADING THEN THE SAME WOULD NOT CHANGE THE PURPOSE N ATURE OR CHARACTER OF THE EXPENDITURE. THUS WHEN THE SAID EXPE NDITURE (INTEREST) WAS INCURRED FOR TRADING ACTIVITY THEN THE SA ME COULD NOT BE SAID TO HAVE BEEN INCURRED FOR EARNING THE DIV IDEND INCOME. AS PER THE BASIC PRINCIPLE OF TAXATION ONLY THE NET INCOME I.E. GROSS INCOME MINUS EXPENDITURE INCURRED IS T AXED. ACCORDINGLY THE EXPENDITURE WHICH WAS INCURRED FOR EARN ING THE TAXABLE BUSINESS INCOME HAD TO BE ALLOWED AGAINST THE TA XABLE INCOME AND THE QUESTION OF APPORTIONMENT OF THE SAID EXPENDITURE DOES NOT ARISE. THE EXPRESSION 'IN RELATION TO' USED IN SECTION 14A MEANS DOMINANT AND IMMEDIATE CONNECTION O R NEXUS. THUS IN ORDER TO DISALLOW THE EXPENDITURE UND ER SECTION 14A THERE MUST BE A LIVE NEXUS BETWEEN THE EXPENDITUR E INCURRED AND THE INCOME NOT FORMING THE PART OF THE T OTAL INCOME. AS HELD BY THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF ESCORT LTD. (SUPRA) DISALLOWANCE CANNOT BE MADE ON THE B ASIS OF PRESUMPTION AND ESTIMATION OF THE ASSESSING OFFICER. NO N OTIONAL EXPENDITURE CAN BE APPORTIONED FOR THE PURPOSE OF EAR NING INCOME UNLESS THERE IS AN ACTUAL EXPENDITURE 'IN RELATI ON TO' EARNING THE INCOME NOT FORMING THE PART OF THE TOTAL INCOME. IF THE EXPENDITURE IS INCURRED WITH A VIEW TO EARN TAXAB LE INCOME AND THERE IS APPARENT DOMINANT AND IMMEDIATE CONNECTIO N BETWEEN THE EXPENDITURE INCURRED AND TAXABLE INCOME T HEN NO DISALLOWANCE CAN BE MADE UNDER SECTION 14A MERELY BECAUSE ITA NO.6091/DEL/2015 7 SOME TAX EXEMPT INCOME IS RECEIVED INCIDENTALLY. IN CASE OF A DEALER IN SHARES AND SECURITIES THE PRIMARY OBJECT AND I NTENTION FOR ACQUISITION OF THE SHARES IS TO EARN PROFIT ON TRADI NG OF SHARES. THE INCOME ON SALE AND PURCHASE OF THE SHARES OF A DEALER IS CHARGEABLE TO TAX. THEREFORE IF THE SAID ACT IVITY OF PURCHASE AND SALE ALSO INCIDENTALLY YIELDS SOME DIVIDEND I NCOME ON THE SHARES HELD BY HIM AS. STOCK-IN-TRADE SUCH DIVIDE ND INCOME IS NOT INTENDED AT THE TIME OF PURCHASE OF SUCH SHA RES AND ACCORDINGLY THERE IS NO LIVE CONNECTION BETWEEN TH E EXPENDITURE INCURRED AND THE DIVIDEND INCOME. [PARA 3 5]' C) ITAT MUMBAI IN THE CASE OF FIDUCIARY SHARES & STOCK ( P.) LTD. V. ACIT [2016] 159 ITD 554 (MUMBAI - TRIB.) HAS HELD A S UNDER: 'THE ISSUE FOR ADJUDICATION IS AS TO WHETHER THE SHARES HE LD BY THE ASSESSEE-COMPANY UNDER THE HEAD 'STOCK-IN-TRADE' ARE T O BE CONSIDERED FOR MAKING DISALLOWANCE UNDER SECTION 14A REA D WITH RULE 8D. THE JURISDICTIONAL COURT IN THE CASE OF CIT V. INDIA ADVANTAGE SECURITIES LTD. IT APPEAL NO. 1131 OF 2013 DATED 17- 3-2015 HAS HELD THAT DISALLOWANCE IF ANY TO BE MADE UNDER SECTION 14A READ WITH RULE 80 SHOULD ONLY BE MADE WIT H REGARD TO INVESTMENTS AND NOT WITH REGARD TO SHARES HELD AS STOCK -IN- TRADE. [PARA 4.4.1] FOLLOWING THE DECISIONS OF THE BOMBAY HIGH COURT. IN T HE CASE OF INDIA ADVANTAGE SECURITIES LTD. (SUPRA) IT IS HELD THA T THE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D CAN NOT BE MADE IN RESPECT OF SHARES HELD AS STOCK-IN-TRADE AND THERE FORE THE ASSESSING OFFICER IS DIRECTED TO DELETE THE DISALLOWANCE MADE UNDER SECTION 14A READ WITH RULE 8D. [PARA 4.4.2] ITA NO.6091/DEL/2015 8 D) IN DEVKANT SYNTHETICS (INDIA) PVT. LTD. VERSUS ITO [ ITA NO. 2663 2664 AND 2665/MUM/2015 DATED: - 28 OCTOBER 201 5] ITAT MUMBAI HAS HELD AS UNDER:- 'WE NOTICE THAT THE HON'BLE KARNATAKA HIGH COURT HAS CLE ARLY HELD IN THE CASE OF CCI LTD (2012 (4) TMI 282 - KARNA TAKA HIGH COURT) THAT THE SHARES HELD AS STOCK IN TRADE SHOULD BE EXCLUDED FOR THE PURPOSE OF DISALLOWANCE OF THE ACT SIN CE THEY CANNOT BE SAID TO BE THE INVESTMENT' MADE FOR THE PUR POSE OF EARNING DIVIDEND INCOME. IN THE CASE OF INDIA ADVANTAG E SECURITIES LTD (2015 (6) TMI 140 - BOMBAY HIGH COURT) THE HON'BLE BOMBAY HIGH COURT HAS NOTICED THAT THE CIT(A) TOOK INTO ACCOUNT THE WORDS OF THE RULE AND FOUND THAT THE FIGUR ES AS DERIVED BY THE ASSESSING OFFICER CANNOT BE TAKEN INTO CONSIDERATION. THE LD CIT(A) HAD OBSERVED THAT ONE CAN AT BEST DISALLOW THE EXPENSES WHICH ARE INCURRED FOR EARNING DIV IDEND INCOME AND FOR THAT PURPOSE THE FIGURES UNDER THE HEA D 'INVESTMENT' COULD BE TAKEN AND SOME CHARGES APPORTIONE D FOR THE PURPOSE OF COMPUTING EXPENSES. THUS THE DISALLOWANCE OF INTEREST IN RELATION TO DIVIDEND RECEIVED FROM SHARES H ELD AS STOCK-IN-TRADE CANNOT BE MADE. ITA NO.6091/DEL/2015 9 8.1. IN THE BACKGROUND OF THE AFORESAID DISCUSSIONS AND RE SPECTFULLY FOLLOWING THE PRECEDENTS AS AFORESAID I DELETE THE A DDITION IN DISPUTE AND ACCORDINGLY DECIDE THE ISSUE IN DISPUTE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 9. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE STAN DS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 18/10/2016. SD/- [H.S. SIDHU] JUDICIAL MEMBER DATE:18/10/2016 SRBHATNAGAR COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR ITAT TRUE COPY BY OR DER ASSISTANT REGISTRAR ITAT DELHI BENCHES