HINCON FINANCE LTD, MUMBAI v. ASST CIT CEN CIR 22, MUMBAI

ITA 6200/MUM/2011 | 2008-2009
Pronouncement Date: 03-07-2013 | Result: Dismissed

Appeal Details

RSA Number 620019914 RSA 2011
Assessee PAN AAACH2665M
Bench Mumbai
Appeal Number ITA 6200/MUM/2011
Duration Of Justice 1 year(s) 9 month(s) 25 day(s)
Appellant HINCON FINANCE LTD, MUMBAI
Respondent ASST CIT CEN CIR 22, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 03-07-2013
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted H
Tribunal Order Date 03-07-2013
Date Of Final Hearing 01-07-2013
Next Hearing Date 01-07-2013
Assessment Year 2008-2009
Appeal Filed On 08-09-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH MUMBAI .. ! '#$ % % % % &'. '.(.. %) * '#$ '+ BEFORE SHRI P.M. JAGTAP AM AND DR. S.T.M. PAVALAN JM './ I.T.A. NO. 6200/MUM/2011 ( *) - %.- *) - %.- *) - %.- *) - %.- / / / / ASSESSMENT YEAR : 2008-09) HINCON FINANCE LIMITED LBS MARG VIKHROLI (WEST) MUMBAI 400 083. ) ) ) ) / VS. ASSTT. COMMISSIONER OF INCOME TAX- CEN.CIR.22 4 TH FL. AAYAKAR BHAVAN M. K. MARG MUMBAI 400 020. $/ ! './ PAN : AAACH2665M ( /0 / // / APPELLANT ) .. ( 12/0 / RESPONDENT ) /0 3 4 ' / APPELLANT BY : SHRI H.P. MAHAJANI 12/0 3 4 ' / RESPONDENT BY : SHRI AJAY ')% 3 ! / // / DATE OF HEARING : 01-07-2013 56. 3 ! / DATE OF PRONOUNCEMENT : 03.07.2013 # 7 / O R D E R PER P.M. JAGTAP A.M . : .. ! '#$ THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF THE LD. CIT(A) -39 MUMBAI DTD. 17-06-2011 AND THE SOLITARY ISSUE ARISING OUT OF THE SAME RELATES TO THE DISALLOWANCE OF RS. 8 01 764/- MADE BY THE A.O. U/S 14-A OF THE INCOME TAX ACT 1961 (THE ACT) AND CONFIRMED BY THE LD. CIT(A). 2. THE ASSESSEE IN THE PRESENT CASE IS AN INVESTMEN T COMPANY ENGAGED IN THE BUSINESS OF TRADING IN SECURITIES. THE RETURN O F INCOME FOR THE YEAR UNDER ITA 6200/MUM/2011 2 CONSIDERATION WAS FILED BY IT ON 27-09-2008 DECLARI NG TOTAL INCOME OF RS. 2 46 65 737/-. IN THE SAID RETURN DIVIDEND INCOME OF RS. 1 56 89 016/- RECEIVED DURING THE YEAR UNDER CONSIDERATION WAS CL AIMED TO BE EXEMPT BY THE ASSESSEE. NO DISALLOWANCE ON ACCOUNT OF EXPENSES I NCURRED IN RELATION TO THE SAID EXEMPT INCOME HOWEVER WAS MADE BY THE ASSESS EE AS REQUIRED BY THE PROVISIONS OF SECTION 14-A OF THE ACT. SINCE THE A SSESSEE WAS FOUND TO HAVE MADE INVESTMENT FETCHING TAX FREE AS WELL AS THE TA XABLE INCOME IN RESPECT OF WHICH CONSOLIDATED ACCOUNTS WERE MAINTAINED THE A. O. REQUIRED THE ASSESSEE TO SHOW CAUSE AS TO WHY DISALLOWANCE U/S 14-A READ WITH RULE 8D OF THE INCOME RULES 1962 SHOULD NOT BE MADE. IN REPLY I T WAS SUBMITTED BY THE ASSESSEE THAT OUT OF THE TOTAL EXEMPT DIVIDEND INCO ME OF RS. 1 56 89 016/- RECEIVED BY IT THE SUM OF RS. 1 43 80 671/- WAS EA RNED FROM VERY OLD INVESTMENT AND THE BALANCE DIVIDEND INCOME WAS EARN ED FROM THE RE-INVESTMENT SCHEMES. IT WAS CONTENDED THAT THERE WERE ONLY FEW COMMON EXPENSES INCURRED BY THE ASSESSEE WHICH COULD BE AT TRIBUTED TO THE EARNING OF EXEMPT DIVIDEND INCOME AND ACCORDINGLY DISALLOWANCE OF RS. 3404/- WAS OFFERED BY THE ASSESSEE U/S 14-A OF THE ACT. THIS STAND OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE BY THE A.O. ACCORDING TO HIM IT WAS NOT POSSIBLE TO ESTABLISH ANY DIRECT NEXUS BETWEEN THE EXPENSES INC URRED BY THE ASSESSEE AND EXEMPT INCOME EARNED BY IT BECAUSE OF THE CONSO LIDATED ACCOUNTS MAINTAINED BY THE ASSESSEE. HE HELD THAT THERE WAS NO OBJECTIVE BASIS GIVEN BY THE ASSESSEE TO ESTABLISH THE CORRECTNESS OF ITS CLAIM FOR THE DISALLOWANCE OFFERED U/S 14-A OF THE ACT AND THERE WAS THUS NO A LTERNATIVE BUT TO COMPUTE THE DISALLOWANCE U/S 14-A OF THE ACT BY APPLYING RU LE 8-D OF THE INCOME TAX RULES 1962. ACCORDINGLY A DISALLOWANCE OF RS. 8 0 1 764/- WAS MADE BY THE A.O. U/S 14A BY APPLYING RULE 8-D. 3. THE DISALLOWANCE MADE BY THE A.O. U/S 14A READ W ITH RULE 8-D WAS CHALLENGED BY THE ASSESSEE IN AN APPEAL FILED BEFOR E THE LD. CIT(A). BEFORE THE LD. CIT(A) SEGMENTAL P&L ACCOUNT WAS PREPARED AND FURNISHED BY THE ITA 6200/MUM/2011 3 ASSESSEE SHOWING THEREIN THAT EXCEPT FOR AN AMOUNT OF RS. 3404/- BEING PROPORTIONATE SHARE OF SALARY AND OTHER CORPORATE E XPENSES NO EXPENDITURE COULD BE ATTRIBUTABLE FOR EARNING EXEMPT INCOME. A LTERNATIVELY IT WAS ALSO SUBMITTED ON BEHALF OF THE ASSESSEE THAT THE TOTAL EXPENSES WHICH COULD BE ATTRIBUTED TO THE EXEMPT DIVIDEND INCOME IN THE RAT IO OF INCOME EARNED ON INVESTMENT TO THE TOTAL INCOME WERE RS. 2 04 097/- AND DISALLOWANCE U/S 14- A COULD AT THE MOST BE SUSTAINED TO THAT EXTENT ONL Y. 4. THE LD. CIT(A) DID NOT FIND MERIT IN THE SUBMIS SIONS MADE ON BEHALF OF THE ASSESSEE AND CONFIRMED THE DISALLOWANCE OF RS. 8 01 764/- MADE BY THE A.O. FOR THE FOLLOWING REASONS GIVEN IN PARA 6 OF H IS IMPUGNED ORDER:- I HAVE GONE THROUGH THE ISSUE. INITIALLY THE APPEL LANT CLAIMED BEFORE THE A.O. THAT ONLY RS. 3404/- CAN BE CONSIDERED AS EXPENDITURE INCURRED IN RELATION TO THE EARNING OF EXEMPTED INC OME. THE A.O. HAS NOT ACCEPTED THE WORKING. CONSIDERING THE NATURE O F ACCOUNTS MAINTAINED BY THE ASSESSEE THE A.O. APPLIED RULE 8 D AND DETERMINED THE DISALLOWANCE AT RS. 8 01 764/-. THE APPELLANT WHILE ARRIVING AT THE ABOVE STATED FIGURE OF RS. 3404/- HAS TAKEN ONLY TH E OFFICE AND OTHER EXPENSES OF RS. 1 52 162/- FOR ALLOCATION. NO OTH ER ADMINISTRATIVE EXPENSE WAS CONSIDERED FOR ALLOCATION. SO THE WOR KING CARRIED OUT BY THE APPELLANT CANNOT BE CONSIDERED AS CORRECT. ONC E THE A.O. HAS COME TO THE CONCLUSION THAT THE WORKINGS ARRIVED AT BY T HE ASSESSEE IS NOT CORRECT THEN THE A.O. HAS NO OTHER OPTION EXCEPT TO DETERMINE THE DISALLOWANCE UNDER RULE 8D OF THE I.T. RULES (PL. S EE SECTION 14A(2) OF THE I.T. ACT.). AGGRIEVED BY THE ORDER OF THE LD. CIT(A) THE ASSESS EE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 5. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE LD. COUN SEL FOR THE ASSESSEE HAS REITERATED BEFORE US THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE BEFORE THE LD. CIT(A). HE HAS REFERRED TO THE SEGMENT-WIS E STATEMENT PLACED AT PAGE 2 OF HIS PAPER BOOK TO SUBMIT THAT HARDLY ANY EXPEN DITURE WAS INCURRED BY THE ASSESSEE IN RELATION TO THE EARNING OF EXEMPT D IVIDEND INCOME. IT IS HOWEVER OBSERVED THAT THE EXPENSES INCURRED BY THE ASSESSEE DURING THE YEAR ITA 6200/MUM/2011 4 UNDER CONSIDERATION AS SHOWN IN THE SAID STATEMENT WERE MOSTLY COMMON EXPENSES AND IT IS VERY DIFFICULT TO ACCEPT THAT TH E SAME HAD NOTHING TO DO WITH THE EARNING OF EXEMPT DIVIDEND INCOME. FOR IN STANCE THE EXPENDITURE OF RS. 12 50 000/- INCURRED BY THE ASSESSEE ON DIRECTO RS COMMISSION IN OUR OPINION CANNOT BE SAID TO BE NOT INCURRED IN RELAT ION TO THE INVESTMENT ACTIVITY YIELDING THE EXEMPT DIVIDEND INCOME AS CLA IMED BY THE ASSESSEE. INVESTMENT TO THE EXTENT OF ABOUT RS. 14 CRORES WAS MADE BY THE ASSESSEE IN SHARES WHICH CANNOT HAPPEN WITHOUT THE INVOLVEMENT OF DIRECTORS AND EVEN IF IT IS AGREED THAT SUBSTANTIAL INVESTMENT IN SHARES WAS MADE BY THE ASSESSEE IN THE EARLIER YEARS WE ARE OF THE VIEW THAT EVEN THE DECISION REMAIN INVESTED IN CERTAIN SHARES SHOULD HAVE INVOLVED THE BOARD OF DIRECTORS. AS REGARDS THE CLAIM OF THE ASSESSEE THAT THE COMMON EXPENSES ONLY TO THE EXTENT OF RS. 2 04 097 AT THE MOST CAN BE DISALLOWED U/S 14A OF THE ACT ON PROPORTIONATE BASIS WE FIND THAT THE WORKING MADE BY THE ASSESSEE FOR DETERMINING SUCH PROPORTION IS NOT CORRECT. IT HAS WORKED OUT THE INCOME FROM INVESTMENT ACTIVITY AT 12.89% OF THE TOTAL INC OME WHILE INCOME FROM SHARE TRADING BUSINESS IS TAKEN AT 75.47% BY TAKING INTO ACCOUNT THE VALUE OF SECURITIES SOLD WITHOUT EVEN DEDUCTING THE COST OF SECURITIES SOLD. IN OUR OPINION THE WORKING MADE BY THE ASSESSEE THUS IS N OT CORRECT. THE CLAIM OF THE ASSESSEE IN RESPECT OF EXPENDITURE INCURRED IN RELATION TO EXEMPT DIVIDEND INCOME THUS IS NOT ACCEPTABLE AS RIGHTLY HELD BY TH E A.O. AS WELL AS BY THE LD. CIT(A) AND WE FIND MERIT IN THE CONTENTION OF THE L D. D.R. THAT AFTER HAVING FOUND THEMSELVES NOT SATISFIED WITH THE CORRECTNESS OF THE ASSESSEES CLAIM THE A.O. AS WELL AS THE LD. CIT(A) IS FULLY JUSTIFI ED IN MAKING THE DISALLOWANCE U/S 14A BY APPLYING RULE 8D OF THE INCOME TAX RULES 1962. WE THEREFORE FIND NO MERIT IN THIS APPEAL FILED BY THE ASSESSEE AND CONFIRMING THE DISALLOWANCE MADE U/S 14A OF THE ACT WE DISMISS TH E SAME. ITA 6200/MUM/2011 5 5. IN THE RESULT APPEAL OF THE ASSESSEE IS DISMISS ED. 8 9 *) -8 3 !8 3 :; ORDER PRONOUNCED IN THE OPEN COURT ON 3 RD JULY.2013 . # 7 3 56. ! <#)9 3 RD JULY 2013 6 3 SD/- SD/- (DR. S.T.M. PAVALAN) (P.M. JAGTAP ) * '#$ JUDICIAL MEMBER ! '#$ / ACCOUNTANT MEMBER MUMBAI ; <#) DATED 3 RD JULY 2013 %.*).'./ RK SR. PS # 7 3 1*=> ? >. # 7 3 1*=> ? >. # 7 3 1*=> ? >. # 7 3 1*=> ? >./ COPY OF THE ORDER FORWARDED TO : 1. /0 / THE APPELLANT 2. 12/0 / THE RESPONDENT. 3. @ () / THE CIT(A)39 MUMBAI. 4. @ / CIT CENT. II MUMBAI 5. >%C 1**) / DR ITAT MUMBAI D BENCH 6. &- D / GUARD FILE. # 7)' # 7)' # 7)' # 7)' / BY ORDER '2> 1* //TRUE COPY// E E E E/ // /': ': ': ': ( DY./ASSTT. REGISTRAR) / ITAT MUMBAI