P.K. SHAH SHARES & SECURITIES P.LTD, MUMBAI v. ACIT 4(2) OR CIT CITY 4, MUMBAI

ITA 944/MUM/2015 | 2011-2012
Pronouncement Date: 30-09-2016 | Result: Partly Allowed

Appeal Details

RSA Number 94419914 RSA 2015
Assessee PAN AABCP3900A
Bench Mumbai
Appeal Number ITA 944/MUM/2015
Duration Of Justice 1 year(s) 7 month(s) 18 day(s)
Appellant P.K. SHAH SHARES & SECURITIES P.LTD, MUMBAI
Respondent ACIT 4(2) OR CIT CITY 4, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 30-09-2016
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted Not Allotted
Tribunal Order Date 30-09-2016
Assessment Year 2011-2012
Appeal Filed On 11-02-2015
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I MUMBAI BEFORE SHRI G.S. PANNU ACCOUNTANT MEMBER AND SHRI AMARJIT SINGH JUDICIAL MEMBER ITA NO. 944 /MUM/20 15 : (A.Y : 2011 - 12 ) M/S. PRAKASH K. SHAH SHARES & SECURITIES PVT. LTD. 8B RAJABAHADUR MOTILAL MANSION 11/43 TAMARIND LANE MUMBAI 400 023 ( APPELLANT ) PAN : AABCP3900A VS. ACIT - 4(2) MUMBAI (RESPONDENT) ASSESSEE BY : SHRI N.R. AGRAWAL REVENUE BY : SHRI A.K. KARDAM DATE OF HEARING : 21/07 /2016 DATE OF PRONOUNCEMENT : 30 / 09 /2016 O R D E R PER G.S. PANNU AM : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF CIT(A) - 9 MUMBAI DATED 01.01.2015 PERTAINING TO THE ASSESSMENT YEAR 2011 - 12 WHICH IN TURN HAS ARISEN FROM THE ORDER PAS SED BY THE ASSESSING OFFICER MUMBAI UNDER SECTION 143(3) OF THE INCOME TAX ACT 1961 (IN SHORT THE ACT). 2. IN THIS APPEAL THE SOLITARY GRIEVANCE OF ASSESSEE IS WITH REGARD TO DISALLOWANCE OF RS.31 68 225/ - MADE BY THE INCOME - TAX AUTHORITIES BY INVOKING SEC. 14A OF THE ACT. 2 M/S. PRAKASH K. SHAH SHARES & SECURITIES PVT. LTD. ITA NO. 944/MUM/2015 3. BRIEFLY PUT THE RELEVANT FACTS ARE THAT APPELLANT IS A COMPANY INCORPORATED UNDER THE PROVISIONS OF COMPANIES ACT 1956 AND IS INTER - ALIA ENGAGED IN THE BUSINESS OF SHARE AND STOCK BROKING. DURING THE YEAR UNDER CONSID ERATION ASSESSEE HAD EARNED DIVIDEND INCOME OF RS.15 68 512/ - WHICH WAS CLAIMED AS EXEMPT. IN THE RETURN OF INCOME ASSESSEE HAD MADE A SUO MOTU DISALLOWANCE OF RS.50 000/ - ON ACCOUNT OF EXPENSES INCURRED IN RELATION TO EARNING OF SUCH EXEMPT INCOME. T HE ASSESSING OFFICER HOWEVER APPLIED THE FORMULA CONTAINED IN RULE 8D OF THE INCOME TAX RULES 1962 TO COMPUTE THE DISALLOWANCE U/S 14A OF THE ACT. THE ASSESSING OFFICER COMPUTED DISALLOWANCE UNDER RULE 8D(2)(II) RS.28 42 790/ - OUT OF INTEREST EXPENDI TURE AND UNDER RULE 8D(2)(III) RS.3 75 435/ - OUT OF OTHER EXPENSES THEREBY TOTALLING TO RS.32 18 225/ - . AFTER REDUCING THE SUO MOTU DISALLOWANCE OF RS.50 000/ - MADE BY THE ASSESSEE BALANCE OF RS.31 68 255/ - WAS ADDED TO THE RETURNED INCOME. SUCH DISAL LOWANCE HAS ALSO BEEN SUSTAINED BY THE CIT(A) AGAINST WHICH ASSESSEE IS IN FURTHER APPEAL BEFORE US. 4. BEFORE US THE FIRST PLEA OF THE ASSESSEE IS THAT THERE WAS NO JUSTIFICATION FOR DISALLOWING ANY INTEREST EXPENDITURE SINCE THE SHARE CAPITAL AND R ESERVES & S URPLUS AVAILABLE WITH THE ASSESSEE WERE MORE THAN THE INVESTMENTS MADE AND THUS FOLLOWING THE RATIO OF JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF HDFC BANK LTD. 366 ITR 505 NO DISALLOWANCE IS CALLED FOR. APART THEREFROM IT WAS ALS O POINTED OUT THAT THE ASSESSEE IS AN INVESTOR AS WELL AS A TRADER IN SHARES AND THEREFORE SO FAR AS THE INVESTMENT S IN STOCK - IN - TRADE ARE CONCERNED SAME ARE TO BE EXCLUDED WHILE CALCULATING THE DISALLOWANCE U/S 14A OF THE ACT. AT THE TIME OF HEARING LEARNED REPRESENTATIVE FOR THE ASSESSEE 3 M/S. PRAKASH K. SHAH SHARES & SECURITIES PVT. LTD. ITA NO. 944/MUM/2015 ALSO REFERRED TO THE EARLIER DECISION OF THE TRIBUNAL IN THE CASE OF ASSESSEE FOR ASSESSMENT YEAR 2010 - 11 VIDE ITA NO. 5805/MUM/2013 DATED 16.10.2015 AS ALSO FOR ASSESSMENT YEAR 2007 - 08 VIDE ITA NO. 3339/MUM/2010 DAT ED 29.09.2011 WHEREIN THE DISALLOWANCE OF INTEREST EXPENDITURE U/S 14A OF THE ACT HAS BEEN DELETED ON THE GROUND THAT OWN FUNDS OF THE ASSESSEE ARE MORE THAN THE AMOUNT OF INVESTMENTS. IT WAS POINTED OUT ON THE BASIS OF THE BALANCE - SHEET FOR THE YEAR UND ER CONSIDERATION THAT THE FACT - SITUATION CONTINUES TO BE SAME AS THAT CONSIDERED BY THE TRIBUNAL IN THE EARLIER YEARS. 5. ON THE OTHER HAND THE LD. DR APPEARING FOR THE REVENUE HAS RELIED UPON THE ORDERS OF LOWER AUTHORITIES IN SUPPORT OF THE CASE OF REV ENUE. 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. IN THE PRESENT CASE THE DISPUTE REVOLVES AROUND THE ACTION OF ASSESSING OFFICER IN COMPUTING DISALLOWANCE U/S 14A OF THE ACT BY APPLYING THE FORMULA CONTAINED IN RULE 8D OF THE RULES. IN TE RMS OF FIRST LIMB OF THE DISALLOWANCE INTEREST OF RS. RS.28 42 790 HAS BEEN DISALLOWED. THE SAID DISALLOWANCE IS BEING RESISTED ON THE GROUND THAT THE AMOUNT OF SHARE CAPITAL AND R ESERVES & S URPLUS AVAILABLE WITH ASSESSEE IS MORE THAN THE INVESTMENTS WHICH HAVE YIELDED THE EXEMPT INCOME AND THEREFORE FOLLOWING THE RATIO OF JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITY 313 ITR 340 IT CAN BE PRESUMED THAT SUCH INVESTMENTS ARE OUT OF SUCH NON - INTEREST BEARING FUNDS. TH E SAID PROPOSITION IN THE CONTEXT OF APPLICATION OF SEC. 14A OF THE ACT HAS BEEN APPROVED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF HDFC 4 M/S. PRAKASH K. SHAH SHARES & SECURITIES PVT. LTD. ITA NO. 944/MUM/2015 BANK LTD. (SUPRA). FAC TUALLY SPEAKING THE SAID PROPOSITION IS CLEARLY ATTRACTED IN THE PRESENT CASE. IN THE STATEMENT OF FACTS ANNEXED TO THE GROUNDS OF APPEAL ASSESSEE HAS BROUGHT OUT THAT THE S HARE CAPITAL PLUS R ESERVES AND S URPLUS AS ON 1.4.2010 I.E. AT THE BEGINNING OF THE YEAR TOTALLED TO RS.29 07 33 531/ - WHEREAS THE I NVESTMENTS IN QUESTION STAND AT A MUCH LOWER FIGURE. THEREFORE UNDER THESE CIRCUMSTANCES IN OUR VIEW INVOKING OF RULE 8D(2)(II) TO DISALLOW THE INTEREST EXPENDITURE U/S 14A OF THE ACT IS UNTENABLE FOLLOWING THE RATIO OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF HDFC BANK LTD. (SUPR A) . 7. IN THE CONTEXT OF APPLICATION OF RULE 8D(2)(III) TO COMPUTE THE DISALLOWANCE OUT OF EXPENSES OF RS. 3 75 435/ - THE LEARNED REPRESENTATIVE SUBMITTED THAT IN A SOMEWHAT SIMILAR SITUATION IN THE CASE OF DEVKANT SYNTHETICS (INDIA) PVT. LTD. VIDE ITA N O. 2663 2664 AND 2655/MUM/2015 DATED 28.10.2015 READ WITH CORRIGENDUM DATED 16.11.2015 THE EXPENSES WERE DISALLOWED @ 5% OF SUCH EXEMPT INCOME. IT IS ALSO POINTED OUT THAT SO FAR AS THE SHARES HELD AS STOCK - IN - TRADE ARE CONCERNED THE SAME ARE EXCLUD I BL E FOR THE PURPOSE OF DISALLOWANCE U/S 14A OF THE ACT. THE SAID PROPOSITION ASSERTED BEFORE US HAS BEEN AFFIRMED BY OUR COORDINATE BENCH IN THE CASE OF DEVKANT SYNTHETICS (INDIA) PVT. LTD. (SUPRA) . IN COMING TO THE SAID DECISION THE TRIBUNAL REFERRING TO THE JUDGMENT OF HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CCI LTD. VS. JCIT (2012) 250 CTR 291 AS ALSO THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. INDIA ADVANTAGE SECURITIES LTD. (ITA NO. 1131 OF 2013 DATED 17.3.2015) . IN OUR CONSIDERED OPINION THE ASSESSING OFFICER HAS NOT FURNISHED ANY REASONS FOR REJECTING THE SUO MOTU DISALLOWANCE OF RS.50 000/ - COMPUTED BY THE 5 M/S. PRAKASH K. SHAH SHARES & SECURITIES PVT. LTD. ITA NO. 944/MUM/2015 ASSESSEE BEFORE INVOKING THE FORMULA CONTAINED IN RULE 8D(2)(III) TO COMPUTE THE DISALLOWANCE. NOTABLY THE PHRASEOLOGY OF SEC. 14A(2) OF THE ACT ITSELF SHOWS THAT THE COMPUTATION OF DISALLOWANCE PRESCRIBED IN RULE 8D OF THE RULES CAN BE RESORTED TO IF THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM MADE BY ASSESSEE. IN THE PRESEN T CASE THERE IS NO SATISFACTION ARRIVED AT BY THE ASSESSING OFFICER. BE THAT AS IT MAY FOLLOWING THE RATIO OF OUR COORDINATE BENCH IN THE CASE OF DEVKANT SYNTHETICS (INDIA) PVT. LTD. (SUPRA) THE DISALLOWANCE OF EXPENSES U/S 14A OF THE ACT IS RESTRICTED TO 5% OF THE EXEMPT INCOME. THE ASSESSING OFFICER IS DIRECTED TO RETAIN THE ADDITION TO THE EXTENT OF 5% OF EXEMPT INCOME AFTER ALLOWING CREDIT FOR THE SUO MOTU DISALLOWANCE OF RS.50 000/ - ALREADY MADE BY THE ASSESSEE. THUS ON THIS ASPECT ASSESSEE PAR TLY SUCCEEDS. 8. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AS ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 3 0 T H SEPTEMBER 2016. SD/ - SD/ - ( AMARJIT SINGH ) JUDICIAL MEMBER ( G.S. PANNU ) ACCOUNTANT MEMBER MUMBAI DATE : 3 0 T H SEPTEMBER 2016 * SSL * COPY TO : 1) THE APPELLANT 2) THE RESPONDENT 3) THE CIT(A) CONCERNED 6 M/S. PRAKASH K. SHAH SHARES & SECURITIES PVT. LTD. ITA NO. 944/MUM/2015 4) THE CIT CONCERNED 5) THE D.R I BENCH MUMBAI 6) GUARD FILE BY ORDER DY./ASSTT. REGISTRAR I.T.A.T MUMBAI