STOCK TRADERS PRIVATE LIMITED,MUMBAI vs. ACIT OSD-2(3), MUMBAI

PER PAWAN SINGH, JUDICIAL MEMBER; 1. This appeal by assessee is directed against the order of ld. Commissioner

of Income-tax (Appeals)-6 [hereinafter referred as ld CIT (A)], Mumbai

dated 12.01.2011 for Assessment Year 2007-08. The assessee has raised

the following grounds of appeal:

Aggrieved by the order passed by the Commissioner of Income-tax (Appeals) - 6, Mumbai [hereinafter referred to as 'the CIT(A)'], under section 250 of the Income-tax Act, 1961 ('Act') and based on the facts and circumstances of the case and in law, Stock Traders Private Limited [hereinafter referred to as 'the Appellant'] respectfully submits that the learned CIT(A) erred in disposing the appeal of the Appellant, on the following grounds: Reclassification of interest income as income from other sources 1. erred in confirming the reclassification of interest income of Rs 96,90,280 under the head Income from Other Sources instead of Income from Profits and Gains of Business and Profession; 1

ITA No. 2254 Mum 2011-Stock Traders Private Ltd.

following additional grounds of appeal:

On the facts and in the circumstances of the case and in law, the Appellant prays that the disallowance under section 14A of the Act, if held to be applicable, may be made only in respect of those investments which have yielded dividend income during the year under consideration and the disallowance may be restricted to 0.5% of the average value of such investments. Without prejudice to the above additional ground, the Appellant prays that the disallowance under section 14A of the Act, if held to be applicable, may

ITA No. 2254 Mum 2011-Stock Traders Private Ltd.

be restricted to the exempt income earned during the year under consideration. 3. Brief facts of the case are that the assessee is a company engaged in the

business of financing and investing in various ventures, filed its return of

income for Assessment Year 2007-08 declaring income Nil income after

setting off of unabsorbed depreciation. The return of income was

selected for scrutiny. The assessment was completed under section

143(3) on 17.12.2009. The Assessing Officer while passing the

assessment order treated the interest income of Rs. 96,90,280/- as

“Income From Other Sources” instead of Income from ‘Profit & Gains

of Business and Profession’, disallowed professional fees of Rs.

3,98,12,647/-, disallowed Rs. 10,84,994/- on account of foreign

travelling expenses of wife of Director, disallowed Rs. 7,18,336/-

professional fees paid to Earnest and Young (E&Y), disallowed Car hire

expenses of Rs. 50,000/- due to non-deduction of TDS and disallowance

under section 14A of Rs. 7,08,369/-. On appeal before the ld. CIT(A), all

the additions/disallowance were upheld. Thus, further aggrieved by the

order of ld. CIT (A), the assessee has filed the present appeal before us. 4. We have heard the rival submission of ld. Authorized Representative

(AR) of the assessee and ld. Departmental Representative (DR) for the

revenue and have gone through the orders of authorities below. The ld.

AR of the assessee submits that he has raised the additional ground of

appeal with regard to disallowance under section 14A. The ld. AR of the 3

ITA No. 2254 Mum 2011-Stock Traders Private Ltd.

assessee further submits that no new facts is required to be brought on

record for additional grounds of appeal raised by assessee. The facts are

emanating from the order of authorities below. 5. On the other hand, the ld. DR for the revenue not seriously objected the

additional grounds of appeal raised by assessee. Considering the

submission of ld. AR of the assessee that no new facts are brought on

record and that the facts related to the additional ground of appeal are

emanating from the orders of lower authorities, the additional ground of

appeal raised by assessee is allowed. Even otherwise the additional

grounds of appeal relates to the disallowance under section 14A and the

assessee has already raised substantial ground to this disallowance vide

Ground No.7. Therefore, the additional grounds of appeal would be

taken along with the ground No.7. 6. Now, we shall proceed to discuss the main grounds of appeal. Ground

No.1 relates to treating the interest income of Rs. 96.90 Lakhs under the

head “Income from Other Sources” instead of “Income from Profit &

Gains of Business & Profession”. The ld. AR submits that two year prior

to the Assessment Year under consideration and two years subsequent to

this year, the assessment order was passed under section 143(3) and the

Interest Income was accepted/ allowed as income from “Business and

profession” to the assessee. The ld. AR of the assessee filed the copy of

Assessment Year 2005-06 dated 23.12.2009, Assessment Year 2006-07 4

ITA No. 2254 Mum 2011-Stock Traders Private Ltd.

dated 01.12.2008, Assessment Year 2008-09 dated 13.12.2011 and

Assessment Year 2009-10 dated 11.11.2011, the ld AR also drawn our

attention to the profit and loss account of the assessee for all the years

wherein the Interest Income was accepted as “Business and professions”.

The ld. AR of the assessee further submits that on same set of fact when

there was no material change in the facts, the revenue should accept the

Interest Income as ‘Business Income’ on the principle of consistency. In

support of his submission, the ld. AR relied upon the decision of Hon’ble

Bombay High Court in case of CIT vs. Gopal Purohit ITA No.

1121/2009 dated 06.01.2010 [2010] 228 CTR (Bom) 582]. 7. On the other hand, the ld. DR for the revenue submits that every year is

separate and independent year. The principal of res-judicata is not

applicable on the income tax proceedings. The ld. CIT(A) has brought

out the difference for the year under consideration. The ld. DR further

submits that case law relied by ld. AR in Gopal Purohit (supra) is not

applicable on the facts of the present case. 8. We have considered the submission of the parties and have gone through

the orders of authorities below. The Assessing Officer during the

assessment noted that assessee has charged interest only in respect of

single loan given by the assessee. The assessee was asked to substantiate

whether if the money has been advanced free of interest and also to

furnish the evidence that business purpose for which such advance was 5

ITA No. 2254 Mum 2011-Stock Traders Private Ltd.

given. The assessee filed its reply dated 15.09.2009. In the reply, the

assessee contended that the assessee is non-banking financial company

(NBFC) registered with Reserve Bank of India (RBI) and it had

advanced loan to its subsidiary, joint venture, group entities and had not

charged interest to certain subsidiaries. The assessee also contended that

routine loan advanced to sister concern does not constitute a business of

non-banking financial company which was given in accordance with

consistent rules and terms and conditions. The loan lending to select few

group companies but outsider customer as well. The contention of

assessee was not accepted by Assessing Officer. The Assessing Officer

concluded that the assessee’s status of non-banking financial company is

only on paper. The assessee has advanced the loan as per its convenience

which cannot make it a business activity. The Assessing Officer treated

the said interest income as “Income from Other Sources” in place of

“income from business and professions”. The ld. CIT(A) concurred the

finding of the assessing officer observing that the assessee-company

advanced loan of more that Rs. 16 Crore on which no interest has been

charged. The assessee has charged interest only from one group of

companies. The ld. CIT(A) concluded that there is merit in the finding of

Assessing Officer that the assessee is not in the business of making loans

and advances and the assessing officer correctly assessed its interest

income under the head “Income from Other Sources”. 6

ITA No. 2254 Mum 2011-Stock Traders Private Ltd.

year for Assessment Year 2005-06 & 2006-07 and two subsequent year

i.e. for Assessment Year 2008-09 & 2009-10, the interest income of

assessee was accepted by revenue as ‘Business Income’. The ld. AR of

the assessee also placed on record the assessment order passed under

section 143(3) for four Assessment Years. We have also noted that only

for the year under consideration, the interest income of assessee was

treated as ‘Income from Other Sources’. There is no dispute that assessee

is registered as a non-banking financial company with registered with

RBI. The Assessing Officer has not disputed the business activities of

the assessee except holding that assessee is a non-banking financial

company (NBFC) only on papers. The assessing officer has not brought

any material on record to show that the assessee is NBFC only on

papers. 10. The Hon’ble jurisdictional High Court in CIT vs. Gopal Purohit (supra)

held that there should be uniformity in treatment and consistency when

the facts and circumstances are identical particularly in assessee’s own

case and when the revenue did not furnish any justification for adopting

a divergent approach for the Assessment Year in question. The assessing

officer has not brought any material on record to differentiate the facts of

the year under consideration with the earlier year. We have further noted

that the ld CIT(A) confirmed the action of assessing officer vide its order 7

ITA No. 2254 Mum 2011-Stock Traders Private Ltd.

dated 12.01.2011. However, the assessing officer allowed the interest

income for assessment year 2008-09 as income from “business and

profession” in assessment order dated 13.12.2011 and for assessment

year 2009-10, vide assessment order dated 11.11.2011 passed under

section 143(3). The ld DR has not brought any facts to our notice that

the revenue has reverse the treatment of the same income by revising the

order under section263 of making re-opening of those assessment orders

for subsequent years. Therefore, respectfully following the decision of

Hon’ble jurisdictional High Court in Gopal Purohit (supra), we direct the

Assessing Officer to allow the Interest Income earned by assessee as

“Income from business”. 11. In the result, ground no.1 of the appeal is allowed. 12. Ground No.2 relates to granting deduction of expenses under section 57

of the Act. We have noted that this ground of appeal is in alternative to

the ground no.1 of the appeal, which we have allowed, therefore, the

discussion on this ground of appeal have become academic. 13. Ground No.3 relates to disallowance of Professional Fees and Ground

No.4 relates to Foreign Air Travel Expenses of wife of Director

amounting to Rs 10,84,994. The ld. AR of the assessee fairly submitted

that these grounds of appeal are covered against the assessee by the

decision of Tribunal in assessee’s own case for Assessment Year 1995-

96, 1996-97, 1997-98 in ITA No. 2802, 2803, 2804/Mum/2003 dated 8

ITA No. 2254 Mum 2011-Stock Traders Private Ltd.

05.04.2016. The ld. DR also confirmed that these grounds of appeal are

covered against the assessee and should be dismissed. Considering the

submission of ld. AR of the assessee, these grounds of appeal are also

dismissed by following the decision of the Tribunal for earlier years as

submitted by ld. AR for the assessee. 14. Ground No.5 relates to disallowance of professional fees. The ld. AR of

the assessee submits that the assessee incurred expenses for taking

advice for validity of sales by STPL to DLF as mutually agreed between

the parties. The assessee incurred expenses wholly and exclusively for

the purpose of business. The ld. AR of the assessee further submits that

invoices of the expenditure are filed as per page no.334 & 335 of the

Paper Book. In alternative, the ld. AR of the assessee submits that it

should be allowed as business expenses. 15. On the other hand, the ld. DR for revenue supported the order of ld.

CIT(A). The ld. DR submits that the assessee has offered the income

from sale of share under the head ‘Capital Gain’, therefore, the expenses

paid to E& Y cannot be allowed under the head ‘Business Income’. The

letter written by E&Y dated 11.08.2006 clearly states that the said fee

was paid on account of merger and acquisition and paid for advisory

services. 16. We have considered the rival submission of the parties and have gone

through the orders of authorities below. The Assessing Officer 9

ITA No. 2254 Mum 2011-Stock Traders Private Ltd.

disallowed the expenses holding that the income pertaining to the sale of

shares is offered under the head ‘Capital Gain’, the expenditure incurred

by assessee on taking advice for sale cannot be allowed under the head

‘Business Income’, since the same cannot be treated as expenditure

incurred for the purpose of business. The ld. CIT(A) confirmed the

action of Assessing Officer holding that in the letter dated 11.08.2006 by

E&Y to the Board of Director of Feedback Ventures Pvt. Ltd. filed

during the appellate proceeding also states that the fees was paid to E&Y

related to the merger and acquisition of advisory services. 17. We have noted that genuineness of payment is not disputed by the lower

authorities. The lower authorities disallowed the deduction of

professional fees on the ground that it was incurred for taking advisory

services for merger and acquisition of advisory services. In our view

once the genuineness of advisory fees is not disputed by the revenue, the

Assessing Officer is not justified in disallowing on the ground that it was

incurred under the head ‘Capital Gain’, without specifying that the same

expenses were claimed or not by assessee under that head of income.

Therefore, considering the facts of the case, we direct the Assessing

Officer to allow the professional fees paid to E & Y, after verification of

the fact that it was not claimed as a deduction of cost under the head

‘Capital Gain’. 18. In the result, this ground of appeal is allowed. 10

ITA No. 2254 Mum 2011-Stock Traders Private Ltd.

submits that the assessee was not liable to deduct TDS as the amount

was less than Rs. 1.20 Lakhs as the provisions of section 194C is not

applicable, rather section 194I is applicable. In support of his

submission, the ld. AR of the assessee relied upon the decision reported

in Three Star Granites (P.) Ltd. vs. ACIT [266 CTR 326 (Kerala)]. 20. On the other hand, the ld. DR for the revenue supported the order of

lower authorities. The ld. DR of the revenue further submits that section

194-C is applicable and not the section 194I. 21. We have considered the submission of the parties and have gone through

the orders of authorities below. The Assessing Officer discussed the

ground of appeal that disallowance of Car Hire Charges in para-6.1 of

the assessment order. The Assessing Officer noted that the assessee paid

Travelling Expenses of Rs. 51,301/- as Car Hire Charges to Auto Riders

International Ltd. The Assessing Officer further noted that no TDS was

paid on such payment. The Assessing Officer took the view that the said

exceed Rs. 50,000/- and disallowed by applying the provision of section

40(a)(ia). The ld. CIT(A) confirmed the action of Assessing Officer

holding that this is a case of contract for hiring of cars and provision of

section 194C are clearly applicable. The hiring of Car cannot be held to

the rent to which the provision of section 194-I would apply.

ITA No. 2254 Mum 2011-Stock Traders Private Ltd.

Granites (P.) Ltd. (supra) held that when the assessee entered into

agreement that a contractor for hiring the vehicles and made use of

vehicles and equipment and paid hire charges of number of hours under

section 194-I would be attracted and not section 194C. We have further

noted that the assessee had paid only a sum of Rs. 51,030/- during the

year on account of Car Hiring Charges. Therefore, respectively

following the decision of Hon’ble Kerala High Court in Three Star

Granites (P.) Ltd. (supra) wherein it was held that for use of vehicle and

equipment and paid hire charges on the basis of number of hours of use

section 194-I is applicable, therefore, respectfully following the said

decision, the Assessing Officer directed to delete the disallowance. 23. Ground No.7 and the additional grounds of appeal relate to disallowance

under section 14A. The ld. AR of the assessee submits that during the

year under consideration, the assessee earned exempt income of Rs.

6,13,789/- as dividend from equity share/mutual fund. The assessee

incurred no expenditure relating for earning the said exempt income. The

ld. AR of the assessee submits that disallowance under section 14A may

be restricted to the investment which yielded exempt income. In

alternative the ld. AR submits that the disallowances may be restricted to

.5% of the investment which yielded the exempt income during the year.

ITA No. 2254 Mum 2011-Stock Traders Private Ltd.

lower authorities. 25. We have considered the submission of both the parties and have gone

through the orders of authorities below. We have noted that during the

relevant period under consideration, the assessee has shown to have

earned exempt income of Rs. 6,13,789/-. The assessee has not offered

any suo-moto disallowance under section 14A. The Assessing Officer

issued a show-cause notice to the assessee as to why the expenditure

incurred in relation to the exempt income be not determined in

accordance with the provision of Rule 8D. The assessee filed its reply

dated 15.09.2009. In the reply, the assessee contended that no

expenditure has been incurred in relation to the earning of such dividend

income. The assessee does not have borrowed on which any interest

payments were made. The investment in mutual fund based on pre-

determined criteria and not over head expenditure including indirect

cannot said to be incurred for earning such dividend income. The

contention of assessee was not accepted by Assessing Officer. The

Assessing Officer invoked the provisions of Rule 8D and made

disallowance under Rule 8D(2)(iii) of Rs. 7,08,369/-. The Assessing

Officer worked out the disallowance on the basis of .5% of average value

of investment. The Assessing Officer disallowed .5% of Rs.

14,16,73,804/-. 13

ITA No. 2254 Mum 2011-Stock Traders Private Ltd.

under consideration. The Special Bench of Delhi Tribunal in ACIT Vs

Vireet Investment (P) ltd [2017] 82 taxmann.com 415 (SB Delhi Trib)

held that only those investment which have yielded dividend income

during the year under consideration be considered for disallowance

under section 14A. Therefore, considering the submission of the assessee

and the decision of Special Bench of Delhi Tribunal in Vireet Investment

(supra), we direct the Assessing Officer to work out the disallowance

under section 14A afresh by considering only those investments which

yielded dividend income during the year under consideration. Needless

to order that before making fresh disallowance, the Assessing Officer

shall grant opportunity to the assessee.

Order pronounced in the open court on 12/04/2019. Sd/- Sd/- G.S. PANNU PAWAN SINGH VICE-PRESIDENT JUDICIAL MEMBER Mumbai, Date: 12.04.2019 SK Copy of the Order forwarded to : 1. Assessee 2. Respondent 3. The concerned CIT(A) 4. The concerned CIT 5. DR “C” Bench, ITAT, Mumbai 6. Guard File

BY ORDER,

Dy./Asst. Registrar ITAT, Mumbai 14