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Income Tax Appellate Tribunal, “F”
Before: SHRI B. R. BASKARAN, AM & SHRI SANDEEP GOSAIN, JM
आदेश / O R D E R
Per Sandeep Gosain, Judicial Member:
The present seven appeals have been filed by the assessee as well as by the Revenue against the order of Commissioner of Income Tax (Appeals)-VI,Mumbai for A.Y. 2004-05, 2005-06, 2006-07 & 2007-08 respectivelyon the grounds of appeal mentioned herein below.
4 & 2596/Mum/2008, 3744 & 3416/Mum/2009, 3960 & 4747/Mum/2011 & 3961/Mum/2011 Briggs Trading Company Pvt. Ltd. Since the issue raised in these seven appeals are identical, therefore, for the sake of convenience, these appeals are clubbed, heard and disposed of by this consolidated order.
ITA No. 1911/Mum/2008 (AY 2004-05) 2. First of all we take up assessee’s appeal in for assessment year 2004-05. The grounds of appeal are mentioned herein below:-
1. The Commissioner of Income tax (Appeals) VI, Mumbai, has erred in law, on facts and in the circumstances of the case in restricting the disallowance of interest under section 14A136(l)(iii) aggregating to Rs. 15,79,96,77 1 /- of the total interest disallowed by the Assessing officer of Rs.23,16,63,605/-. The appellant submitted that the company has paid interest on borrowings, which have been applied in the which consist of giving of business advances and the whole of the funds were invested for the purpose of business. No part of any funds was used for any personal purposes and therefore the learned CIT(A) ought to have allowed the claim of the appellant for whole of the interest amount of Rs.23,16,63,605- as disallowed by A,O.
5 & 2596/Mum/2008, 3744 & 3416/Mum/2009, 3960 & 4747/Mum/2011 & 3961/Mum/2011 Briggs Trading Company Pvt. Ltd. 2. The appellant craves leave to add, amend, alter, modify, delete and/or change all or any of the above grounds on or before the date of hearing.
3. The brief facts of the case are that the assesse company is engaged in the business of trade and investment securities, etc. The return of income declaring total loss of Rs. 24,69,38,033 was filed by the assesse on 01.11.14. Subsequently, the case of assesse was selected for scrutiny and after serving statutory notices, it was held by AO that the assesse has earned dividend income of Rs. 197.29 lakhs. The AO had considered the additions of the assessee that assessee was having his own capital of Rs. 5187.18 lakhs whereas the borrowed funds is at Rs. 19517.19 lakhs. The AO further noted that the assesse has incurred total interest expenses of Rs. 2316.63 lakhs and accordingly the AO has come to conclusion that the entire investment in shares and securities, stock in trade and loans and advances are out of borrowed funds. It was further held by AO that interest expenses incurred by the assesse is held to be towards investment in shares and securities and is to be 6 & 2596/Mum/2008, 3744 & 3416/Mum/2009, 3960 & 4747/Mum/2011 & 3961/Mum/2011 Briggs Trading Company Pvt. Ltd. apportioned towards earning exempted income being dividend. After considering the aforementioned facts, the total interest expenses of Rs. 23,16,63,605/- is therefore treated as expenditure disallowable u/s 14A of the IT Act.
4. Aggrieved by the order of AO, assessee filed appeal before Ld. CIT(A) and the Ld. CIT(A) after considering the case of the parties had partly allowed the appeal of the assesse considering that an amount of Rs. 15,79,96,771/- was disallowed u/s 36(1)(iii) section 14A which is proportionate interest expenditure.
5. Aggrieved by the order of CIT(A), the assessee preferred the present appeal before us on the grounds mentioned herein above. Ground No. 1.
The Ld. AR appearing on behalf of the assessee submitted thatLd. CIT(A)erred in restricting the disallowance of interest under section 14A/36(l)(iii) aggregating to Rs. 15,79,96,77 1 /- of the total interest disallowed by the Assessing officer of Rs.23,16,63,605/-. Ld. AR further submitted that similar issue was also raised in earlier years i.e. AY 2001-02 to 2003-04 and 7 & 2596/Mum/2008, 3744 & 3416/Mum/2009, 3960 & 4747/Mum/2011 & 3961/Mum/2011 Briggs Trading Company Pvt. Ltd. the Hon’ble ITAT in ITA No. 3723/M/05, 3121/M/06, 4683/M/07 and 4681/M/07 has already decided this issue.
On the other hand Ld. DR appearing on behalf of the revenue relied upon the orders passed by the revenue authorities.
We have heard the counsels for both the parties and we have also perused the material placed on record as well as the orders passed by the revenue authorities. After considering the facts of the case, we have noted that the similar issues was raised in earlier years i.e. AY 2001-02 to 2003-04 and the Hon’ble ITAT in ITA No. 3723/M/05, 3121/M/06, 4683/M/07 and 4681/M/07 has already decided this issue and restored the matter back to the AO to examine the nexus of utilization of borrowed funds. The operative portion is reproduced below at para 27 of its order:- “27. The next issue relates to the disallowance of interest expenditure. Since the Ld. CIT(A) has granted partial relief to the assesse, both the parties are in appeal before us on this challenging the decision of Ld. CIT(A). Identical issue was considered by us in the preceding two years and the same was set aside to the file of the AO with direction to examine the same afresh. Consistent
8 & 2596/Mum/2008, 3744 & 3416/Mum/2009, 3960 & 4747/Mum/2011 & 3961/Mum/2011 Briggs Trading Company Pvt. Ltd. with the view taken in the preceding years, we set aside this issue to the file of the AO with similar direction. The order of Ld. CIT(A) on this stands set aside accordingly.”
After considering the aforementioned order on the ground of identical issue, we also set aside this ground to the file of AO with direction to examine afresh, consistent with the view taken in preceding year. Therefore, the order of Ld. CIT(A) on this issue stands set aside accordingly. Hence this ground of appeal is allowed for statistical purposes. Ground No. 2.
8. This ground is general in nature and requires no adjudication. In the net result, the appeal filed by the assesse is allowed for statistical purposes.
ITA No. 2596/Mum/2008 (AY 2004-05) 9. Now, we take up revenue’s appeal in for assessment year 2004-05. The grounds of appeal are mentioned herein below:-
9 & 2596/Mum/2008, 3744 & 3416/Mum/2009, 3960 & 4747/Mum/2011 & 3961/Mum/2011 Briggs Trading Company Pvt. Ltd. 1. "On the facts and in the circumstances of the case, the Ld. CIT(A) erred in Law, in restricrting the disallowance of Rs. 23,16,63,605/- made by the A.O. u/s. 14A/36(1)(iii) of the I.T. Act to Rs. 15,17,96,771/- only. 2. "On the facts and in the circumstances of the case, the Ld. CIT(A) erred in Law,in deleting the disallowance of Rs. 1 crore made by the A.O. on account of professional charges paid by the assessee to Ws. Gayatri Films." 3. "The appellant prays that the order of CIT(A) on the above grounds be setaside and that of the Assessing Officer be restored". 4. "The appellant craves leave to amend or alter any ground or add a new ground which may be necessary."
Ground No. 1 10. We have heard the counsels for both the parties and we have also perused the material placed on record as well as the orders passed by the revenue authorities. Since, we have already decided this ground of appeal in for the AY 2004-05 and in view of our order and findings which are applicable mutatis mutandis in this case also,for maintaining judicial consistency, we pass same orders in this ground of 10 I.T.A. No. 1911 & 2596/Mum/2008, 3744 & 3416/Mum/2009, 3960 & 4747/Mum/2011 & 3961/Mum/2011 Briggs Trading Company Pvt. Ltd. appeal. In the result this ground of appeal filed by the revenue is allowed for statistical purposes. Gound No. 2
11. Ld. DR appearing on behalf of the revenue submitted that the Ld. CIT(A) erred in Law, in deleting the disallowance of Rs. 1 crore made by the A.O. on account of professional charges paid by the assessee to M/sGayatri Films.
12. We have heard the counsels for both the parties and we have also perused the material placed on record as well as the orders passed by the revenue authorities. After considering the facts of the case, we found that Ld. CIT(A) has given his finding while dealing with this ground in para 5.3 of its order and the same is reproduced below:- “5.3 I have duly considered the submissions of the A.R. and I find that the assessee has incurred legal and professional charges in connection with the business of the assessee which is trading in shares and investment in shares and securities. Similarly, the stamp duty and demat charges were paid for acquiring the shares and dematting them. Hence, it cannot be said that the assessee incurred these expenses without any business connection. Since the assessee has provided the details 11 I.T.A. No. 1911 & 2596/Mum/2008, 3744 & 3416/Mum/2009, 3960 & 4747/Mum/2011 & 3961/Mum/2011 Briggs Trading Company Pvt. Ltd. and the supporting evidences, the disallowance is not called for. The A.O. is directed to delete this addition. This ground of appeal is allowed.”
After analyzing the aforesaid order, we found that Ld. CIT(A) has decided this ground in favour of assessee by considering the details and supporting evidence as mentioned in his order but at the same time, Ld. CIT has not specifically mentioned which details and supporting evidence and what was their connection with the business of the assessee. Even no remand report has been called for by the Ld. CIT(A) from the AO regarding the alleged supporting evidence before relying upon the same. Therefore, considering the interest of justice, we restored to the file of AO with a direction to verify the details and supporting evidence filed by the assesse and to pass fresh order, therefore this ground of appeal is allowed for statistical purposes. Ground No. 3 & 4.
13. These grounds are general in nature and requires no adjudication.
12 & 2596/Mum/2008, 3744 & 3416/Mum/2009, 3960 & 4747/Mum/2011 & 3961/Mum/2011 Briggs Trading Company Pvt. Ltd. 14. In the net result, the appeal filed by the revenue is allowed for statistical purposes.
ITA No. 3744/Mum/2009 (A.Y 2005-06) 15. Now, we take up assessee’s appeal in A.Y 2005-06.
Ground No. 1 & 2. 16. Since both the grounds raised by the assessee are inter- connected and inter-related pertaining to section 14A and 36(i)(iii), therefore we thought it fit to dispose off the same through the present common order.
17. We have heard the counsels for both the parties and we have also perused the material placed on record as well as the orders passed by the revenue authorities. After considering the facts of the present case, we found that in the assessment order, the AO had held that the interest expenses incurred by the assesse were held to be towards investment in shares and securities and is to be apportioned towards earning exempted income being dividend. As per the facts of the present case, the total interest 13 & 2596/Mum/2008, 3744 & 3416/Mum/2009, 3960 & 4747/Mum/2011 & 3961/Mum/2011 Briggs Trading Company Pvt. Ltd. expenses of Rs. 17,57,77,163/- is therefore treated as expenditure disallowable u/s 14A of the IT Act and subsequently, AO while applying the judgment of K. Somasundram& others Vrs. CIT 238 ITR 939 and made additions, therefore, Ld. CIT(A) had partly allowed the appeal.
18. We have heard the counsels for both the parties at length and after considering the facts of the present case, we have noted that the similar issues was raised in earlier years i.e. AY 2001-02 to 2003-04 and the Hon’ble ITAT in ITA No. 3723/M/05, 3121/M/06, 4683/M/07 and 4681/M/07 has already decided this issue at para 14, 15 & 27. “Now the question agitated before us relates to the disallowance made out of interest expenditure. We notice that the disallowance of Rs. 2.01 crores confirmed by Ld. CIT(a) includes the interest expenditure relating to (a) interest free loan, (b) interest on advance for purchase of shares, (c) interest on share application money and (b) interest on investments. Out of the above, the interest pertaining to interest free loan is outside the scope of disallowance made by the AO u/s 14A of the Act.
14 & 2596/Mum/2008, 3744 & 3416/Mum/2009, 3960 & 4747/Mum/2011 & 3961/Mum/2011 Briggs Trading Company Pvt. Ltd. In fact, the Ld CIT(A) had also specifically observed about it in his order. Hence, we are of the view that the interest pertaining to interest free loan needs to be deleted as the same is beyond the scope of sec. 14A of the Act.
The remaining three items of interest pertain to the purchase of shares. Out of the three, we are of the view that it is required to be ascertained as to what was the intention of the assessee in respect of the advance given for purchase of shares and share application money. If the intention was to hold them as "Investments", then the interest pertaining to the same requires to be disallowed. If they are intended to be held as stock in trade, then the related interest expenditure is required to be allowed u/s 36(1)(iii) as held by Ld C1T(A). Further, it is also required to be seen as to whether the assessee has actually allotted shares in the subsequent years. If the shares have not been allotted, then the claim of the assessee that the same represents share application money turns out to bé incorrect, in which case,the disallowance of interest may be justified. In view of the above, we are of the view that the disallowance of interest expenditure requires to be examined by considering the discussions made above. Accordingly, we set aside the order of Ld CIT(A) on this issue and restore the same to the file of
27. The next issue relates to the disallowance of interest expenditure. Since the Ld. CIT(A) has granted partial relief to the assessee, both the parties are in appeal before us on this challenging the decision of Ld. CIT(A). Identical issue was considered by us in the preceding two years and the same was set aside to the file of the AO with the direction to examine the same afresh. Consistent with the view taken in the preceding years, we set aside this issue to the file of the AO with similar directions. The order of Ld. CIT(A) on this issue stands set aside accordingly.
After considering the order passed by Hon’ble ITAT on identical issue, therefore consistent with the view taken by Hon’ble ITAT, we also set aside these grounds to the file of AO with similar directions to examine the same afresh as indicated in the orders of Hon’ble ITAT, therefore these grounds of appeal areallowed for statistical purposes.
16 & 2596/Mum/2008, 3744 & 3416/Mum/2009, 3960 & 4747/Mum/2011 & 3961/Mum/2011 Briggs Trading Company Pvt. Ltd. Ground No. 3 19. This ground is general in nature and requires no adjudication. In the net result, the appeal filed by the assessee is allowed for statistical purposes.
ITA No. 3416/Mum/2009 (A.Y 2005-06) 20. Now, we take up revenue’s appeal in for A.Y 2005-06. Ground No. 1 & 3. 21. Since both the grounds raised by the revenue are inter- connected and inter-related pertaining to disallow under section 14A, therefore we thought it fit to dispose off the same through the present common order. 22 We have heard the counsels for both the parties and we have also perused the material placed on record as well as the orders passed by the revenue authorities. Since we have already decided these grounds of appeal in assessee’s own case in ITA No. 3744/Mum/09 for AY 2005-06. Therefore after following our earlier orders passed in assessee’s own case on the ground of 17 I.T.A. No. 1911 & 2596/Mum/2008, 3744 & 3416/Mum/2009, 3960 & 4747/Mum/2011 & 3961/Mum/2011 Briggs Trading Company Pvt. Ltd. identical issue, we also restored these grounds to the file of AO with direction to examine afresh, therefore these grounds of appeal are allowed for statistical purposes. Ground No. 2 & 4.
21. Since both the grounds raised by the revenue are inter- connected and inter-related, therefore we thought it fit to dispose of the same through the present common order. We have heard the counsels for both the parties and we have also perused the material placed on record as well as the effective portion contained in the orders passed by the revenue authorities. Ld. AR submitted before us that they have already submitted bifurcation and necessary supporting documents before the Ld. CIT(A), therefore Ld. CIT(A) has correctly appreciated the same. After having heard the counsels for the parties at length, we find that Ld CIT(A) has not called for the remand report and moreover the details furnished by the assessee has not been verified /investigated by the AO. Since we have already restored the other grounds to the file of AO. Hence while setting aside the finding of Ld. CIT(A) on these ground, we restore these grounds 18 I.T.A. No. 1911 & 2596/Mum/2008, 3744 & 3416/Mum/2009, 3960 & 4747/Mum/2011 & 3961/Mum/2011 Briggs Trading Company Pvt. Ltd. to the file of AO with a direction to examine afresh, therefore these grounds of appeal are allowed for statistical purposes. Ground No. 5 & 6 23 These grounds are general in nature and requires no adjudication. In the net result, the appeal filed by the revenue is allowed for statistical purposes.
ITA No. 3960/Mum/2011(A.Y 2006-07) 24. Now, we take up assessee’s appeal in for A.Y 2006-07. Ground No. 1. 25 Ld. AR appearing on behalf of the assesse submitted that Ld. CIT(A) has erred in confirming the action of Ld. AO in treating notional interest of Rs. 1,11,01,569 on funds invested in Stock in trade of equity shares, as speculation loss under Explanation to section 73, instead of allowing as business loss. Ld. AR further submitted that Ld. CIT(A) has dealt with this ground in para no. 6 of its order. Ld. AR relied upon the judgment in the case of CIT Vrs. HDFC Bank Ltd 366 ITR 19 I.T.A. No. 1911 & 2596/Mum/2008, 3744 & 3416/Mum/2009, 3960 & 4747/Mum/2011 & 3961/Mum/2011 Briggs Trading Company Pvt. Ltd. 505 (Bombay) and CIT Vrs. Reliance Utilities & Power Ltd [2009] 313 ITR 340 (Bombay).
On the other hand Ld. DR relied upon the order passed by revenue authorities.
We have heard the counsels for both the parties and we have also perused the material placed on record as well as the orders passed by the revenue authorities. After considering the facts of the present case, we found that the AO as well as Ld. CIT(A) has not taken into consideration that there were neither any purchase nor sales during the year under consideration and even our attention was drawn to page no. 31 of paper book for AY 2006-07 wherein own source of funds, capital + reserve has been shown at Rs. 58.85 crores and the stock in trade has been shown at Rs. 11.1 crores. 28 We have also considered the judgment in the case of CIT Vrs. HDFC Bank Ltd 366 ITR 505 (Bombay) and CIT Vrs. Reliance Utilities & Power Ltd [2009] 313 ITR 340 (Bombay) and therefore, after considering the legal proposition, we set aside this ground to the file of AO with direction to examine 20 I.T.A. No. 1911 & 2596/Mum/2008, 3744 & 3416/Mum/2009, 3960 & 4747/Mum/2011 & 3961/Mum/2011 Briggs Trading Company Pvt. Ltd. afresh, therefore this grounds of appeal
is allowed for statistical purposes. Ground No. 2 to 4.
29. Since we have already decided this identical ground in assessee’s own case in ITA No. 3744/Mum/2009 for AY 2005-
06. Therefore, no new facts or contrary judgments have been brought on record before us by the learned DR.Therefore after following our earlier orders passed in assessee’s own case, we set aside these grounds to the file of AO with direction to examine afresh, therefore these grounds of appeal is allowed for statistical purposes.
Ground No. 5 30 This ground is general in nature and requires no adjudication. In the net result, the appeal filed by the assessee is allowed for statistical purposes.
ITA No. 4747/Mum/2011(A.Y 2006-07)
21 & 2596/Mum/2008, 3744 & 3416/Mum/2009, 3960 & 4747/Mum/2011 & 3961/Mum/2011 Briggs Trading Company Pvt. Ltd. 31. Now, we take up revenue’s appeal in ITA No. 4747/Mum/2011 for A.Y 2006-07. Ground No. 1 & 2. 32 Since both the grounds raised by the assessee are inter- connected and inter-related pertaining to section 14A of the Income Tax Act as well as rule
8. D, therefore we thought it fit to dispose of the same through the present common order.
33. We have heard the counsels for both the parties and we have also perused the material placed on record as well as the orders passed by the revenue authorities. After considering the facts of the present case, we found that Ld. CIT(A) has dealt these grounds in its order at para no. 8 and16. The operative portion is reproduced below;- “8. I have considered the submission of the appellant as well as the position of law. The applicability of Section 14A has been examined by the Jurisdictional High Court in the case of Godrej & Boyce Manufacturing Co. Ltd., reported in (2010) 234 CTR (Born)1 wherein the Hon'ble Court held (a) Provisions of Section 14A are just and fair and brought into the Statute Bookon the valid rationale that income needs to be taxed on net basis. Similarly
22. I.T.A. No. 1911 & 2596/Mum/2008, 3744 & 3416/Mum/2009, 3960 & 4747/Mum/2011 & 3961/Mum/2011 Briggs Trading Company Pvt. Ltd. expenditure incurred for earning exempt income needs to be disallowed. (b) The Rule 80 has been introduced in Assessment Year 2008-09. Therefore, it cannot have retrospective effect. For assessment year prior to A.Y. 2008-09 such disallowance has to be made on reasonable basis. (C) Once a proximate cause for disallowance is established - which is the relationship of the expenditure with income which does not form part of Total Income - a disallowance u/s 14A has to be effected In view of the ruling given by the Jurisdictional High Court, I hold that disallowance u/s 14A cannot be computed as per Rule 8D. However, at the same time, the Hon'ble Court has directed that such disallowance has to be made on a reasonable basis. In the present case, it is seen that the appellant has mainly derived income from Capital Gain and Dividend Income which is claimed to be exempt. It is further seen that disallowance relating to Interest portion is computed at Rs.1,09,22,888/- whereas disallowance relating to Overhead part comes to Rs.9,39,726/-. Considering the totality of the facts, I hold that disallowance relating to Interest portion in respect of Investment made in shares which has emanated exempt income needs to be made. Accordingly disallowance to the extent of Rs. 1,09,22,888/- is upheld and balance disallowance of 23. I.T.A. No. 1911 & 2596/Mum/2008, 3744 & 3416/Mum/2009, 3960 & 4747/Mum/2011 & 3961/Mum/2011 Briggs Trading Company Pvt. Ltd. Rs.9,39,726/- is deleted Thus the appellant gets a relief of Rs.9,39,726/-. This ground of appeal is, therefore, partly allowed.
Ground No.8 of grounds of appeal further elaborates the provisions of Section 14A as well as Rule 80 and its applicability on the appellants case as well as various observations made by Special Bench of Jurisdictional ITAT in the case of Daga Capital. Since the issue relating to disallowance u/s 14A has already been decided in Ground No.2 of grounds of appeal, this ground becomes academic only hence, dismissed.”
After analyzing the aforementioned order and after hearing both the counsels at length, we found that Ld. CIT(A) has dealt with these grounds by passing a well reasoned order that the assessee has derived income from capital gain and dividend income which is claimed to be examined and therefore after appreciating the facts of the present case, Ld. CIT(A) has rightly concluded that disallowance relating to interest in respect of investment made in shares which is emanated examined income needs to be made and therefore disallowance was restricted. Ld. 24 & 2596/Mum/2008, 3744 & 3416/Mum/2009, 3960 & 4747/Mum/2011 & 3961/Mum/2011 Briggs Trading Company Pvt. Ltd. CIT(A) has also considered the applicability of rule 8D in the case of assessee for AY 2006-07. No new facts or contrary judgments have been brought on record before us in order to controvert or rebut the findings recorded by the learned CIT (A) on the basis of the remand report. Moreover, there is no reason for us to deviate from the findings recorded by the learned CIT (A). Therefore, we are of the considered view that the findings recoded by the learned CIT (A) are judicious and are well reasoned. Accordingly, we uphold the same. Resultantly, these grounds raised by the Revenue stands dismissed. Ground No. 3 and 4.
34. These grounds are general in nature and requires no adjudication. In the net result, the appeal filed by the revenue is dismissed.
(A.Y 2007-08) 35. Now, we take up assessee’s appeal in for A.Y 2007-08.
25 & 2596/Mum/2008, 3744 & 3416/Mum/2009, 3960 & 4747/Mum/2011 & 3961/Mum/2011 Briggs Trading Company Pvt. Ltd. Ground No. 1 to 5. 36. Since all the grounds raised by the assessee are inter- connected and inter-related, therefore we thought it fit to dispose off the same through the present common order.
37. We have heard the counsels for both the parties and we have also perused the material placed on record as well as the orders passed by the revenue authorities. Since we have already decided these grounds of appeal in assessee’s own case in ITA No. 3744/Mum/09 for AY 2005-06. Therefore after following our earlier orders passed in assessee’s own case on the ground of identical issue, we also restored these grounds to the file of AO with direction to examine afresh, therefore these grounds of appeal are allowed for statistical purposes.
Ground No. 5 38 This ground is general in nature and requires no adjudication. In the result, the appeal filed by the revenue is allowed for statistical purposes.