IHP FINVEST LTD,MUMBAI vs. DCIT 2(2), MUMBAI

This appeal has been filed by the assessee against order dated 09.03.2015 passed by the Ld. Commissioner of Income Tax (Appeals)-5, Mumbai, for the assessment year 2010-11, whereby the Ld. CIT (A) has partly allowed the appeal filed by the assessee against assessment order passed u/s 143 (3) of the Income Tax Act, 1961 (for short ‘the Act’).

Brief facts of the case are that the assessee company filed its return of income for the assessment year under consideration declaring the total income of Rs. 75,05,636/-. The case was selected for scrutiny and the AO issued notices u/s 143 (2) and 142(1). In response thereof the authorized representative of the assessee being attended the proceedings from time to time and filed details. It was noticed that the assessee had shown net long term capital gain of Rs. 15,30,455/-. The assessee was accordingly asked as to why 2 Assessment Year: 2010-11 the income from such transaction should not be treated as business income. After hearing the assessee in the light of the written submissions, the AO treated the said amount as business income. It was further noticed that the assessee had earned dividend income of Rs. 3,06,11,135/- and had claimed the same as exempt u/s 10 of the I.T. Act. The assessee was asked to explain as to why the expenses related to this income should not be disallowed as per the provisions of section 14A read with Rule 8D. The assessee submitted that it had already made disallowance u/s 14A to the tune of Rs. 2,77,469/. After hearing the submissions of the assessee, the AO determined the total disallowance under section 14A read with Rule 8D at Rs. 5,14,958/- and after giving benefit of disallowance already made by the assessee, addition of Rs. 2,37,489/- was made and determined the total income of the assessee at Rs. 92,73,850/-.

Aggrieved by the assessment order, the assessee challenged the same before the Ld. CIT (A). The Ld. CIT (A) partly allowed the appeal of the assessee, however, directed the AO to include the shares held as stock-in-trade holding that the AO while working out the average investments for the purpose of rule 8D (2), the AO has not included the same. The assessee is in appeal against the said findings of the Ld. CIT (A).

The assessee has preferred this appeal before the Tribunal on the following effective grounds:-

At the very outset, the Ld. Counsel for the assessee submitted that vide impugned order, the Ld. CIT (A) has directed the AO to enhance the disallowance u/s 14A read with rule 8D(2)(iii) by directing the AO to include the share held by the assessee as stock-in-trade. However, no opportunity was given to the assessee before passing the order in question. The Ld. Counsel further submitted that since the order passed by the Ld. CIT (A) is contrary to the expressed provisions of law, the same is liable to be set aside.

On the other hand, the Ld. Departmental Representative (DR) submitted that the ITAT, Mumbai ‘I’ Bench has already decided this issue against the assessee in assessee’s own case, for the A.Y. 2008- 09. Therefore, the appeal of the assessee is liable to be dismissed being devoid of merit. In rejoinder, the Ld. Counsel submitted that the issue involved for the A.Y. 2008-09 was different from the issue involved in the assessment year under consideration.

We have heard the rival submissions and also carefully perused the documents placed on record. The only issue raised by the assessee is that the Ld. CIT (A) has erred in not giving opportunity of being heard while issuing directions to the AO to enhance the disallowance of expenses u/s 14A read with Rule 8D(2)(iii) by including the shares held by the assessee as stock-in- trade. We further notice that the Ld. CIT (A) has directed the AO to include the shares held by the assessee as stock-in-trade by relying upon the decision of the order of ITAT, Mumbai in the case of D.H. Securities Pvt. Ltd. vs. DCIT 2014 146 ITD 1, which amounts to enhancement of addition.