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Income Tax Appellate Tribunal, F BENCH, MUMBAI
IN THE INCOME TAX APPELLATE TRIBUNAL "F" BENCH, MUMBAI SHRI B.R. BASKARAN, ACCOUNTANT MEMBER SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER Jignesh Jaswantrai Mehta, 402, Shreeji Tower, Rajawadi, Ghatkopar-East, Mumbai - 400077 [PAN:AIVPM4759M] ……………… Appellant Vs Assistant Commissioner of Income-Tax 27(1), Mumbai, Room No. 415, 4th Floor, Tower-6, Vashi Railway Station Complex, Vashi, Navi Mumbai - 400703 ……………. Respondent Appearances For the Appellant/Assessee : Shri Satyaprakash Singh For the Respondent/Department : Ms. Vranda U Matkari Date of conclusion of hearing : 28.06.2022 Date of pronouncement of order : 26.09.2022 O R D E R Per Rahul Chaudhary, Judicial Member: 1. By way of the present appeal the Appellant/Assessee has challenged the order, dated 21.03.2022, passed by the Ld. Commissioner of Income Tax (Appeals)-54, Mumbai [hereinafter referred to as „the CIT(A)‟] for the Assessment Year 2012-13, whereby the Ld. CIT(A) had dismissed the appeal filed by the Appellant against the Assessment Order, dated 02.03.2015 passed under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as „the Act‟). Assessment Year: 2012-13
The Appellant has raised the following grounds of appeal:
“1. The order dated 21/03/2022 bearing No. ITBA/APL/S/250/2021-22/1041124466[1] by the CITIA]-54, Mumbai is arbitrary, against natural justice, unlawful, against the provisions of Income Tax Act, 1961, invalid and therefore liable to be quashed.
2. On facts and circumstances of the case and in law, the Hon. C.I.T.(A) has erred in confirming the addition of Rs.51,30,398/- on account of disallowance under section 14A of Income Tax Act, 1961.
On facts and circumstances of the case and in law, the Hon. C.I.T.(A) has erred in observing in para 5.3 on page 10 as under: - "it is a fact that the Appellant has given the working of disallowance u/s. 14A before the AO it was accepted by the AO. Therefore, during the appellate proceedings, the appellant cannot go back from what was accepted during the assessment proceedings. Further, case laws relied upon by the Appellant are not relevant to the facts of the case of the Appellant. In view of the above discussion, the disallowance of Rs.51,30,398/- made by the AO. u/s. 14 is confirmed."
4 On facts and circumstances of the case and in law, the Hon. C.I.T.(A) ought to have appreciate the fact that, the working of disallowance of 14A given by the Appellant vide letter dated 06/02/2015 [copy enclosed] without prejudice and appellant has never confirm about the disallowances.
5. On facts and circumstances of the case and in law, the Hon. C.I.T.(A) has erred in confirming the addition of Rs.4,70,975/- on account of disallowance of interest on loan, ignoring the fact that the Appellant had sufficient Assessment Year: 2012-13 interest free fund available for making the aforesaid investment in loan.
The appellant craves to alter, add, delete, substitute, or modify and other grounds of appeal
.”
3. The Appellant is a resident individual engaged in the business of trading in shares. The Appellant filed return of income for the Assessment Year 2012-13 on 28.09.2012 declaring total income of INR 1,00,71,580/-. The case of the Appellant was selected for scrutiny. The Assessing Officer completed the assessment under Section 143(3) of the Act at total income of INR 1,57,23,360/- after making disallowance of INR 51,30,398/- under Section 14A read with Rule 8D of the Income Tax Rules, 1962 (hereinafter referred to as „the Rules‟) and a disallowance of INR 4,70,975/- under Section 36(1)(iii) of the Act.
Being aggrieved, the Appellant preferred appeal before the CIT(A) which was dismissed vide order dated 21.03.2022. The Appellant is now in appeal before us challenging the additions made by the Assessing Officer and confirmed by CIT(A) on the grounds reproduced in paragraph 2 above. Ground No. 1 and 6 raised by the Appellant are general in nature and does not require adjudication. Ground Nos. 2 to 5 are taken up herein under in seriatim.
Ground No. 2 to 4
Ground No. 2 to 4 are directed against the disallowance of INR 51,30,398/- made under Section 14A of the Act read with Rules 8D of the Rules. Assessment Year: 2012-13
6. During the assessment proceedings, the Assessing Officer noted that the Appellant received exempt dividend income of INR 14,77,470/- and therefore, the Appellant was asked to explain the applicability of Section 14A of the Act and Rule 8D of the Rules. As per the assessment order, vide letter dated 06.02.2015, the Appellant submitted working computing disallowance at INR 51,30,398/-. Accepting the same, the Assessing Officer made a disallowance of INR 51,30,398/- under Section 14A of the Act read with Rule 8D of the Rules. Before CIT(A) it was contended by the Appellant that no disallowance should have been made under Section 14A of the Act. However, the CIT(A) rejected the contention of the Appellant holding as under: “5.3 The findings of the AO in the assessment order and the submission of the Appellant has been considered. xx xx The AO has not given any working as to how the disallowance of Rs. 51,30,398/ has been arrived at. Even the appellant has also not given the working of disallowance of u/s 14A r.w.Rule 8D which was given to the AO. The appellant has not provided the copy of profit and loss account from which the nature expenditure incurred in relation to investment in the shares could to be identified. The appellant has submitted the copies of balance sheet as on 31.03.2010, 31.03.2011 and 31.03.2012. As per the balance sheet dated 31.03.2012, the appellant has closing stock of shares of Rs. 13,65,48,707/- and the closing stock of shares as on 31.03.2011 was Rs.18,07,97,502/-. The appellant has not given the complete details of investments in the shares from which dividend was earned in earlier year or during the year. Further, the appellant had not given the exact position of the investment in the current assets but has given the details of only non business assets and tried to explain that Assessment Year: 2012-13 the interest free funds are more than total of non business assets. It is a fact that the appellant has given the working of disallowance u/s 14A before the AQ and it was accepted by the AO. Therefore, during the appellate proceedings, the appellant cannot go back from what was accepted during the assessment proceedings, Further, case laws relied upon by the appellant are not relevant to the facts of the case of the appellant. In view of the above discussion, the disallowance of Rs.51,30.398/- made by the AO u/s 14A is confirmed.”
During the appellate proceedings before us, the Ld. Authorised Representative for the Appellant placed reliance on the written submissions filed before the CIT(A) placed at page 1 to 15 of the paper-book and submitted that the for the Assessment Year 2010-11, similar disallowance was deleted by the First Appellant Authority vide order dated 16.03.2016. Further, for the relevant assessment year Assessee‟s own funds and non- interest bearing funds were more than the investment made in tax free securities and therefore no disallowance under Section 14A of the Act was warranted. Without prejudice to the aforesaid he submitted that as per the judgment of Hon‟ble Supreme Court in the case of Maxopp Investment Ltd. vs. CIT [402 ITR 640] only expenditure which were related to earning dividend income could have been disallowed under Section 14A of the Act in case where such shares were held as stock-in- trade.
Per contra, the Ld. Departmental Representative placed reliance upon submissions dated 27.06.2022. She submitted that the first contention of the Appellant that he is in the Assessment Year: 2012-13 business of share trading and the shares & securities were held as stock-in-trade as business assets and therefore, provisions of Section 14A of the Act would not be attracted is not acceptable. The Appellant has cited the decision of the Apex Court in the case of Maxopp Investment Ltd. vs. CIT: 402 ITR 640 in his favour. As per this decision, disallowance under Section 14A of the Act is called for in respect of expenditure incurred for earning exempt income from shares held as stock- in-trade. Further, she supported the order passed by CIT(A) by placing reliance on the amendment to Section 14A introduced by the Finance Act, 2022 submitting that the same would apply to the assessment year before us being retrospective in operation.
We have heard the rival contention and perused the material on record including the judicial precedents cited during the course of hearing. We are not inclined to accept the contention of the Revenue that the amendment introduced by way of Finance Act, 2022 would apply to the assessment year before us in view of the judgment of the Hon‟ble Delhi High Court in the case of Principal Commissioner of Income-Tax (Central) -2 Vs. M/s Era Infrastructure India Ltd: [ITA No. 204 of 2022, decided on 20.07.2022] and the decisions of the Mumbai Bench of the Tribunal in the case of Assistant Commissioner of Income Tax- Circle 3(1)(1) Vs Bajaj Capital Ventures (P.) Ltd.: [2022] 140 taxmann.com 1 (Mumbai - Trib.)[29-06-2022] and Assistant Commissioner Of Income Tax Vs. K Raheja Corporate Services Private Limited [ITA No. 2521 to 2527] wherein it has been held that the amendments to Section 14A of the Act introduced by the Finance Act 2022 shall apply from Assessment Year: 2012-13 Assessment Year 2022-23. As rightly pointed out by the Ld. Departmental Representative that the Hon‟ble Supreme Court has, in the case of Maxopp Investment Ltd. (supra), held that the provisions of Section 14A of the Act would apply even if the shares were held by an assessee as stock-in-trade. Therefore, the contention of the Appellant that the provisions of Section 14A of the Act would not apply to the Appellant since he is holding share as stock-in-trade is rejected. As regards computation of disallowance in terms of Rule 8D of the Rules, while the Appellant has contended that the Appellant has sufficient own/interest free funds available, we note that the Appellant has failed to file relevant documents supporting the same before the Assessing Officer and the CIT(A). This fact has been recorded by the CIT(A) in paragraph 5.3 of the order impugned. The CIT(A) has stated that the Appellant has not provided copy of Profit & Loss Account to enable determination of nature of expenditure incurred in relation to investments made in shares held as stock-in-trade. The assessment order is also silent as regards computation of disallowance as per Rule 8D is concerned. The Assessing Officer has made the disallowance by simply accepting the computation/working filed by the Appellant. The CIT(A) has also confirmed the disallowance stating that the Appellant cannot go back from what was accepted during the assessment proceedings whereas the Appellant has disputed the addition made before CIT(A) on identical grounds as raised before us. There is nothing on record to show the actual computation of disallowance. In view of the aforesaid, we deem it appropriate to remand the issue for fresh adjudication to the file of the Assessing Officer with the following directions. The Appellant is 7 ITA. No. 536/Mum/2022 Assessment Year: 2012-13 directed to produce the financial statements and the relevant details of the expenditure before the Assessing Officer. The Assessing Officer is directed to compute the disallowance as per law after giving the Appellant a reasonable opportunity of being heard. The Assessing Officer is directed to restrict the amount of disallowance so computed to the amount of exempt income of INR 14,77,470/- earned by the Appellant during the relevant previous year as per the judgment of the Hon‟ble Bombay High Court in the case of Nirved Traders Pvt. Ltd.vs. DCIT, Circle 1(2), Mumbai [ITA No. 149 of 2017, decided on 23.04.2019]. In view of the above of aforesaid direction the issue remanded to the file of Assessing Officer and Ground No. 2 to 4 raised by the Appellant are allowed for statistical purposes.
Ground No. 5
Ground No. 5 is directed against the disallowance of INR.4,70,975/- made under Section 36(1)(iii) of the Act.
During the course of assessment proceedings, the Assessing Officer observed that the Appellant has advanced loan of INR 32,89,879/- and INR 6,35,000/- to Shri Paresh J. Mehta and Shri Jayshree P. Mehta, respectively, who are close relatives of the Appellant. However, interest has not been charged on the aforesaid loan amount. Therefore, the Assessing Officer made a disallowance of INR 4,70,975/- being 12% of the aggregate loan amount of INR 39,24,789/-. The CIT(A) dismissed the appeal of the Appellant on this issue and therefore, the Appellant has carried the issue in appeal before us. Assessment Year: 2012-13
The Ld. Authorised Representative for the Appellant submitted that interest bearing funds were not utilized for granting the loan amount of INR 39,24,789/-. The loans have been carried forward from earlier years and no disallowance of interest had been made in respect of the same in the earlier assessment years. Per contra, Ld. Departmental Representative relied upon the order passed by the CIT(A) and submitted that the Appellant has failed to establish any relation between interest free funds and the utilization of the same for granting the aforesaid loans. Therefore, the Assessing Officer was justified in making the disallowance.
We have heard the rival contention and perused the material on record including the judicial precedents cited during the course of hearing. We are not inclined to accept the contention of the Appellant that merely because no disallowance has been made in earlier years, no disallowance can be made during the assessment year before us. The judgments in the case of CIT vs. Sridev Enterprises 192 ITR 165 (Kar) and CIT vs. Virendra R Gandhi (Tax Appeal No. 20 of 2004) on which reliance has been placed by the Ld. Authorised Representative for the Appellant are not applicable to the facts of the present case as the aforesaid judgment pertained to cases where interest paid on loans were allowed as deduction in preceding assessment years and since there was no change in the terms and conditions, the disallowance of interest made during the assessment proceedings was deleted. In the present case it is the contention of the Appellant that interest free funds available with the Appellant were more than the loans granted which facts requires verification by the Assessing Officer. In 9 Assessment Year: 2012-13 view of the aforesaid, we remand this issue back to the file of Assessing Officer for fresh adjudication after granting Appellant a reasonable opportunity of being heard and taking into consideration such other documents/details as may be filed by the Appellant before the Assessing Officer. Ground No. 5 raised by the Appellant is allowed for statistical purposes.
In result, the present appeal is allowed for statistical purposes.