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Income Tax Appellate Tribunal, MUMBAI BENCHES “SMC”, MUMBAI
Before: Shri Shamim Yahya
O R D E R These are cross appeals by the Revenue and assessee arising out of the order of the learned CIT(A) dated 23.12.2016 and pertain to assessment year 2012-2013.
Revenue’s Appeal 2. The grounds of appeal raised by the Revenue read as under:-
"1. Whether on the facts and in the circumstances of the case and in Law, the Ld.CIT(A) was right in allowing deduction of Rs.50 lakhs u/s 54EC in two financial years despite the first proviso restricting the amount to Rs.50 lakhs?
2 & 1444/Mum/2017 Shri Jagdish U Thakersey. 2. For these and other grounds that may be urged at the time of hearing, the decision of the CIT(A) may be set aside and that of the AO restored." 3. Brief facts of the case are that during the course of assessment proceedings the Assessing Officer has observed that the assessee has claimed deduction u/s 54EC of Rs.1,00,00,000. After considering the submission of the assessee, the A.O. has invoked section 54EC(1) which reads as under:-
“Provided that the investment made on or after the 1st day of April, 2007 in the long term specified asset by an assessee during any Financial year does not exceed Rs.50,00,000/-.” Accordingly, the A.O. restricted the deduction to Rs.50 lakh. 4. Upon assessee’s appeal, the learned CIT(A) referred to the decision of the ITAT Jaipur Benches in the case of ACIT v. Shri Raj Kumar Jain & Sons (HUF) in which was in favour of the assessee. The leaned CIT(A) concluded as under:-
“6.5 I have carefully considered the rival submissions and the facts of the case. Prior to AY 2015-16, the appellant is eligible if he had invested the capital gains in long term specified assets within six months during two financial years. The Hon'ble Apex Court while deciding the case of Vikram Tyres Ld. Vs First ITO reported in 247ITR 821, has held that - "It is settled principle in law that the courts while construing Revenue Acts have to give a fair and reasonable construction to the language of a statute without leaning to one side or the other, meaning thereby that no tax or levy can be imposed on a subject by an Act of parliament without the words of the statute clearly 3 & 1444/Mum/2017 Shri Jagdish U Thakersey. showing an intention to lay the burden on the subject. In this process, the courts must adhere to the words of the statute and the so called equitable construction of those words of the statute is not permissible. The task of the court is to construe the provisions of the taxing enactments according to the ordinary and natural meaning of the language used and then to apply that meaning to the facts of the case and in that process if the taxpayer is brought within the net he is caught, otherwise he has to go free". 6.6 In view of the above judgment, clarified the implication of section 54EC, I am of the opinion that claim of the appellant is correct and entitled for deduction of Rs. 1,00,00,000/-, as the appellant had made investment in a specified long term asset in two different financial years within six months./In view of the above facts and circumstances of the case, Ground No. i is allowed.”
Against the above order, the Revenue is in appeal before the ITAT.
I have heard both the Counsel and perused the records.
Upon careful consideration, I find that identical issue was decided in favour of the assessee by the Hon’ble Madras High Court in the case of CIT v. Coromandel Industries Limited [(2015) 370 ITR 586 (Mad.)]. In the said case, the Hon’ble High Court expounded as under:- (Head Notes only)
“Section 54EC(1) of the Income-tax Act, 1961, restricts to six months the time limit for the period of investment after the property has been sold. There is no cap on the investment to be made in bonds. The first proviso to section 54EC(1) specifies the quantum of investment and it states that the investment so made on or after April 1,2007, in the long-term specified asset by an assesses during any financial year should not exceed fifty lakhs rupees, in other words, the time-limit for investment is six
4 & 1444/Mum/2017 Shri Jagdish U Thakersey. months and the benefit that flaws from the first proviso is that if the assessee makes the investment of Rs. 50 lakhs in any financial year, it would have the benefit of section 54EC(1). The time limit for investment is six months from the date of transfer and even if such investment falls under two financial years, the benefit claimed by the assessee cannot be denied. It would have made a difference, if the restriction on the investment in bonds to Rs. 50 lakhs is incorporated in section 54EC(1) itself. However, the ambiguity has been removed by the Legislature with effect from April 1, 2015, in relation to the assessment year 2015-16 and the subsequent year. The assessee sold the land and building for a total consideration of Rs. 1.75 crores and after adjusting the indexed cost of acquisition, declared total long-term capital gains at Rs. 1,09,98,256, of which it claimed Rs. 1 crore as deduction under section 54EC having invested Rs. 50 lakhs in REC bonds on March 31, 2009, and another Rs. 50 lakhs in REC bonds on April 31, 2009. The Assessing Officer restricted the deduction to Rs. 50 lakhs. The Commissioner (Appeals) confirmed the assessment made by the Assessing Officer. The Tribunal held that the exemption granted under the proviso to section 54EC(1) should be construed not transaction-wise but financial year- wise. If an assessee was entitled to invest a sum of Rs. 50 lakhs each in two different financial years, within a period of six months from the date of transfer of the capital asset, it could not be said to be inadmissible. On appeal: Held, dismissing the appeal, that Assessing Officer was not justified in restricting the deduction to Rs. 50 lakhs stating that the intention of the Legislature was to limit the investment in long-term specified asset to Rs. 50 lakhs only. The assessee was entitled to exemption.”
From the above case law, it is evident that the Hon’ble Madras High Court has decided similar issue in favour of the assessee. No contrary decision from the jurisdictional High Court has been cited before me.
In the result, the Revenue’s appeal stands dismissed.
Assessee’s Appeal :
Grounds of appeal raised by the assessee read as under:-
“1. The Ld. Commissioner of Income Tax (Appeals) erred in confirming the disallowance u/s 14A and reworking the same at Rs. 4,57,111/- against Rs. 2,71,600/- worked out by the Assessing Officer. Your appellants submit that: a) No disallowance u/s 14A is called for and the entire disallowance u/s 14A ought to be deleted. b) The additional disallowance of Rs. 4,57,111/- as worked out by the Ld. Commissioner of Income Tax (Appeals) on the basis of 20% of dividend received on shares held as stock in trade as against Rs. 2,71,600/- worked out by the Assessing Officer amounts to enhancement which is illegal, bad in law and void as the same is made is without giving notice of enhancement to the appellant. Your appellant submits that without prejudice to the contention that no disallowance u/s 14A is called for, the additional disallowance made as per the C1T(A) order is erroneous and be deleted.
Your appellant further reserve the rights to add, amend or alter the aforesaid grounds of appeal as they may think fit by themselves or by their representatives.”
6 & 1444/Mum/2017 Shri Jagdish U Thakersey.
Brief facts of the case are that during the course of assessment proceedings, the Assessing Officer has observed that the assessee has earned dividend income of Rs.21,28,688 and not included the same in the total income. However, the assessee has not computed any disallowance u/s 14A of the I.T.Act, 1961. After considering the submissions of the assessee, the A.O. has held that the disallowance u/s 14A is a statutory / mandatory in nature and governed completely by rule 8D(2) of the I.T.Rules, 1962. Since the A.O. was not satisfied with the computation of the assessee, he computed the disallowance u/s 14A read with Rule 8D(2)(iii) of Rs.2,71,600 and added to the total income of the assessee.
Before the learned CIT(A), the assessee submitted that the assessee is an individual having salary income, Income from business / profession, Capital gain and Other sources. It was submitted that no disallowance u/s 14A is called for as the shares and securities held by the assessee were not investment, but are stock-in-trade, as reflected in the profit and loss account.
The learned CIT(A) referred to several ITAT decisions and held as under:-
“In view of the fact that there is no finality with regard the disallowance under Section 14A of the IT Act, 1961 in relation to the shares held in stock in trade, various Tribunals and Courts had given different decisions in respect of this question, however, it conclusively held that section 14A of the IT Act, 1961 is applicable in case of dividend received shares held in stock in trade so long appellant claim as exempt. Under these circumstances, the AO is directed to estimate the disallowance may be at 20% of the Dividend income, which the appellant has claimed as incidental while dealing in stock-in-trade, instead of 7 & 1444/Mum/2017 Shri Jagdish U Thakersey. computing the disallowance under Rule 8D(2)(iii) of the IT Rules, 1962 as observed by the Hon’ble ITAT in abovementioned case. Thus disallowance of Rs.4,57,111/- that is 20% of Rs.21,28,688/- is confirmed.” 14. Against the above order, the assessee is in appeal before ITAT.
I have heard both the Counsel and perused the records. I find that identical issue was decided in favour of the assessee by the Hon’ble Karnataka High Court. In the said case, the Hon’ble High Court has expounded that when the assessee has not retained shares with the intention of earning dividend income and the dividend income is incidental to his business of sale of shares, which remained unsold by the assessee, it cannot be said that the expenditure incurred in acquiring the shares has to be apportioned to the extent of dividend income and that should be disallowed from deductions. Thus, from the above it is clear that the Hon’ble High Court has expounded that when the assessee is holding shares not for earning dividend income but as trading stock, disallowance u/s 14A is not permissible. No contrary decision from the jurisdictional High Court was cited before me. The learned Counsel of the assessee has further submitted that the ITAT Mumbai Benches in the case of DCIT v. M/s.India Advantage Securities Ltd. in vide order dated 14.09.2012 has followed the order of Karnataka High Court as above and has held that no disallowance of interest is permissible in relation to the dividend received from trading shares. The learned Counsel of the assessee has submitted that the above decision of the ITAT has also been upheld by the Hon’ble Karnataka High Court.
8 & 1444/Mum/2017 Shri Jagdish U Thakersey. 16. In view of the above discussion and the precedents, I set aside the order of the learned CIT(A) and decide the issue in favour of the assessee and hold that no disallowance should be made.
In the result, the appeal by the Revenue stands dismissed and that of the assessee stands allowed.