M/S BHANDARI HEALTH CARE PVT. LTD.,JAIPUR vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-6, JAIPUR

PER VIJAY PAL RAO, J.M.

This appeal by the assessee is directed against the order dated 29th May,

2017 of ld. CIT (A) for the assessment year 2012-13. The assessee has raised the

following grounds :-

“ 1. Under the facts and circumstances of the case, the ld. CIT (Appeals)-2, Jaipur has erred in not quashing the assessment order passed by DCIT, Circle-6, Jaipur u/s 143(3) of the I.T. Act, 1961 which is illegal and bad in law.

2 ITA No. 665/JP/2017 M/s. Bhandri Health Care Pvt. Ltd., Jaipur.

claim that a sum of Rs. 3,45,357/- should have been treated as Capital Gain as against considering the same as business income. She has erred in not admitting the assessee’s contention that inadvertent mistake of assessee while filing the return of income should have been corrected by the assessing officer while making the assessment of total income. She has erred in holding that the claim has right not been allowed by the Assessing Officer.

assessee does not press ground no. 1 of the assessee’s appeal and the same may be

dismissed as not pressed. The ld. D/R has not objected if the ground no. 1 of the

assessee’s appeal is dismissed. Accordingly, ground no. 1 of the assessee’s appeal is

dismissed as not pressed.

Ground No. 2 is regarding disallowance of Rs. 11,413/- under

section 14A of the IT Act.

The AO noted that the assessee had made certain investments during the period

under consideration to generate exempt income and also claimed some expenses

which were shown as deductions from the taxable income of the assessee. The AO

has also noted that the assessee has also earned exempt income during the year.

Accordingly, the AO made a disallowance on account of indirect administrative

expenses being 0.5% of the average investment amounting to Rs. 11,413/-. The

assessee challenged the action of the AO before the ld. CIT (A), but could not

succeed.

3 ITA No. 665/JP/2017 M/s. Bhandri Health Care Pvt. Ltd., Jaipur.

not received any exempt income during the year under consideration. Further, the

capital gain arising from the sale of mutual funds in question is a taxable income

and, therefore, in the absence of any exempt income earned by the assessee, no

disallowance is called for under section 14A. In support of his contention he has

relied upon the decisions of Hon’ble Punjab & Haryana High Court in case of

Principal CIT vs. State Bank of Patiala, 78 taxmann.com 3, CIT vs. Hero Cycles Ltd.,

189 Taxman 50 and decision of Hon’ble Delhi High Court in case of Cheminvest Ltd.

vs. CIT, 378 ITR 33 (Delhi).

4.1. On the other hand, the ld. D/R has submitted that the AO has given a finding

that the assessee has earned exempt income during the year under consideration.

She has relied upon the orders of the authorities below.

record. We note that the only investment made by the assessee is in the mutual

funds which are debt fund and not equity fund and, therefore, until and unless the

AO has pointed out a specific item of income which is exempt, we do not find any

reason to presume that the assessee has earned tax free income during the year

under consideration. Further, we have examined the record and find that in the

return of income the assessee has offered the income from sale of mutual funds as

business income though subsequently the assessee claimed the same as Long Term

Capital Gain which is also not exempt from tax. Hence in the absence of any

exempt income earned or accrued during the year under consideration, the

provisions of section 14A cannot be invoked for disallowance of indirect

4 ITA No. 665/JP/2017 M/s. Bhandri Health Care Pvt. Ltd., Jaipur.

administrative expenses. The Hon’ble Delhi High Court in case of Cheminvest Ltd.

vs. CIT (supra) has held in para 22 and 23 as under :-

“ 22. In the impugned order, the ITAT has referred to the decision in Maxopp Investment Ltd. (supra) and remanded the matter to the AO for reconsideration of the issue afresh. The issue in Maxopp Investment Ltd. (supra)was whether the expenditure (including interest on borrowed funds) in respect of investment in shares of operating companies for acquiring and retaining a controlling interest therein was disallowable under Section 14 A of the Act. In the said case admittedly there was dividend earned on such investment. In other words, it was not a case, as the present, where no exempt income was earned in the year in question. Consequently, the said decision was not relevant and did not apply in the context of the issue projected in the present case. 23. In the context of the facts enumerated hereinbefore the Court answers the question framed by holding that the expression „does not form part of the total income‟ in Section 14A of the envisages that there should be an actual receipt of income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. In other words, Section 14A will not apply if no exempt income is received or receivable during the relevant previous year.”

Similar view has been taken by the Hon’ble Punjab & Haryana High Court in case of

Principal CIT vs. State Bank of Patiala (supra). Though the Hon’ble Supreme Court

in case of Maxopp Investment Ltd. vs. CIT, 402 ITR 640 (SC) held that the dominant

purpose of investment is not relevant for the disallowance of expenditure under

section 14A and upheld the rule of apportionment. However, the decisions of

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Hon’ble High Courts on the point that when no dividend income or exempt income

was earned during the year then no disallowance can be made under section 14A

has not been disturbed by the Hon’ble Supreme Court. Accordingly, the

disallowance made by the AO on account of indirect administrative expenditure in

the absence of any exempt income is not sustainable and the same is deleted.

Ground No. 3 is regarding the claim of Rs. 3,45,357/- as capital gain

which was offered to tax as business income.

offered the said amount of Rs. 3,45,357/- on account of sale of mutual funds as

business income whereas it is long term capital gain. Though the assessee has not

filed any revised return claiming the said amount as long term capital gain, however,

when the very nature of the income is capital gain and not business income then the

ld. CIT (A) ought to have accepted the claim of the assessee. The ld. A/R has

referred to the relevant computation and submitted that even the assessee has not

considered the index cost of mutual fund for computing the capital gain and if the

same is taken into consideration, the net result will be long term capital loss. Hence

he has submitted that the matter may be remanded to the record of the AO for

proper computation of income of the assessee. He further submitted that the AO

cannot take the advantage of ignorance of the assessee and he has to grant relief

which is available to the assessee as per law. In support of his contention he has

relied upon the decision of Hon’ble Delhi High Court in case of CIT vs. Sam Global

Securities Ltd. 360 ITR 682 (Delhi).

6 ITA No. 665/JP/2017 M/s. Bhandri Health Care Pvt. Ltd., Jaipur.

6.1. On the other hand, the ld. D/R has vehemently opposed to the contention of

the assessee and submitted that the assessee itself has offered the said income as

business income and, therefore, in the absence of revised return, the AO had no

jurisdiction to accept the claim of the assessee. She has relied upon the decision of

Hon’ble Supreme Court in the case of Goetze (India) Ltd. vs. CIT, 284 ITR 323 (SC).

Further, the ld. D/R has submitted that the assessee is trying to set up a new case

at this stage by claiming the index cost of mutual fund whereas the assessee has

never claimed so even while offering the said income as business income. The ld.

D/R has further submitted that the ground no. 3 of the assessee’s appeal is only

regarding the claim of capital gain of Rs. 3,45,357/- which cannot be revised to a

negative income from the sale of mutual funds. He has relied upon the orders of the

authorities below.

record. We find that as per return of income and computation of income, the

assessee has offered Rs. 3,45,357/- as business income under the head Other

Income. This amount of Rs. 3,45,357/- has been computed by the assessee as per

the cost of mutual fund and sale of mutual fund and, therefore, in the absence of

revised return, the claim of the assessee could not be considered by the AO.

However, when this plea was raised before the ld. CIT (A), the ld. CIT (A) could

have examined the issue whether the income arising from sale of mutual fund is a

capital gain or business income. In case the assessee is found to be indulged in

regular activity of sale and purchase of mutual funds and had considered the same

as trading activity, then having regard to the past history of the assessee the said

7 ITA No. 665/JP/2017 M/s. Bhandri Health Care Pvt. Ltd., Jaipur.

income can be considered as business income of the assessee. However, in the

absence of such enquiry or investigation and further in the absence of treatment of

any such income in the earlier assessment years, this issue cannot be decided

conclusively. As regards the objection of the ld. D/R by placing reliance on the

decision of Hon’ble Supreme Court in the case of Goetze (India) Ltd. vs. CIT (supra),

we find that the Hon’ble Supreme Court itself has taken into consideration the

decision in the case of National Thermal Power Company Ltd. vs. CIT, 229 ITR 383

(SC) and observed that it is open to the assessee to raise the point of law even

before the appellate authority. The question involved in this ground is the nature of

income whether it is capital gain or business income which is dependent upon the

treatment of the investment in the books of accounts as well as in the earlier

assessment years. Accordingly, in the facts and circumstances of the case, we set

aside this issue to the record of the AO for considering the claim of the assessee by

conducting a proper enquiry and verification of facts on this issue. Needless to say,

the assessee be given a proper opportunity of hearing before deciding the issue.

Order pronounced in the open court on 05/07/2018.

Sd/- Sd/- (foØe flag ;kno) (fot; iky jkWo ½ (VIKRAM SINGH YADAV ) (VIJAY PAL RAO) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Jaipur Dated:- 05/07/2018. Das/

8 ITA No. 665/JP/2017 M/s. Bhandri Health Care Pvt. Ltd., Jaipur.

आदेश की प्रतिलिपि अग्रेषित@ब्वचल वf जीम वतकमत वितूंतकमक जवरू

सहायक पंजीकार@ Aेेपेजंदज. त्महपेजतंत

9 ITA No. 665/JP/2017 M/s. Bhandri Health Care Pvt. Ltd., Jaipur.