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Income Tax Appellate Tribunal, MUMBAI BENCH “H”, MUMBAI
Before: SHRI C.N. PRASAD & SHRI RAMIT KOCHAR
आदेश / O R D E R PER C.N.PRASAD (JM) These three appeals are filed by the Assessee against the orders of the Ld. CIT (Appeals) for the assessment years 2008-09, 2009-10 and 2010-11. Since in all these three appeals only one common issue is involved regarding disallowance u/s 14A of the Act, all these appeals are clubbed, heard and disposed off together by this common order for the sake of convenience.
2111/Mum/2015 and 2112/Mum/2015 (A.Ys.2008-09, 2009-10 and 2010-11 respectively) Shri Bharat Jayantilal Patel
Briefly stated the facts are that the Assessee is a share broker and member of Bombay Stock Exchange engaged in the business of share broking, trading and investment in shares. The Assessing Officer while completing the assessment for these three assessment years disallowed expenses attributable for earning exempt income by invoking Rule 8D r.w.s. 14A of the Act. He made disallowance under Rule 8D2(ii) and Rule 8D2(iii) towards interest and administrative expenses in these assessment years which the Ld. CIT (Appeals) sustained.
The Ld. Counsel for the Assessee at the outset submits that for the assessment year 2008-09, Assessee himself disallowed suo moto Rs.55,000/- in the return of income as expenses disallowable u/s 14A of the Act. The Ld. Counsel submits that the Assessing Officer invoked Rule 8D in all the three assessment years without recording proper satisfaction to the objections raised by the Assessee that there should not be any disallowance. The Ld. Counsel submits that Assessing Officer applied Rule 8D mechanically.
4.1 Coming to the merits of the case, so far as the disallowance under Rule 8D2(ii) i.e. in respect of interest is concerned, the Ld. Counsel inviting our attention to page 23 and 38 of the paper book submits that Assessee was having sufficient own funds for making investments and no borrowed funds were invested in purchasing shares and therefore in view of the decision of the jurisdictional High Court in the case of HDFC Bank Vs. DCIT,
2111/Mum/2015 and 2112/Mum/2015 (A.Ys.2008-09, 2009-10 and 2010-11 respectively) Shri Bharat Jayantilal Patel (67 taxman.com 42) he submits that no disallowance under Rule 8D2(ii) should be made.
4.2 Coming to the disallowance under Rule 8D2(iii) i.e. 0.5% of average investments, the Ld. Counsel submits that since the Assessee is a share broker, trader and investor, the stocks held by Assessee as sock-in-trade should be excluded while arriving at average investments. For this proposition, he places reliance on the decision of the Coordinate Bench in the case of DCIT Vs. India Advantage Securities Ltd. in dated 14.9.2012 which was affirmed by the Hon’ble Bombay High Court in CIT Vs. India Advantage Securities Ltd. in IT Appeal No.1131 of 2013 dated 13.4.2015 and the decision of the Hon’ble Karnataka High Court in the case of CCI Ltd. Vs. JCIT (20 taxman.com 196). Copies of the decisions are placed on record. The Ld. Counsel further submits that in the assessment year 2010-11, the Assessing Officer disallowed expenses u/s 14A which is more than the expenses incurred by the Assessee and submits that the disallowance should not exceed more than the expenses claimed/incurred by the Assessee.
The Ld.DR supported the orders of the authorities below.
We have heard the rival submissions, perused the orders of the authorities below and the case laws relied on. The claim of the Assessee before us is that he has sufficient own funds to meet the investments and no borrowed funds were utilized for investments and therefore the disallowance under Rule 8D2(ii) cannot be made. This submission of the Assessee is supported by the 2111/Mum/2015 and 2112/Mum/2015 (A.Ys.2008-09, 2009-10 and 2010-11 respectively) Shri Bharat Jayantilal Patel order of the Jurisdictional High Court in the case of HDFC Bank (supra). Following the jurisdictional High Court, we hold that if Assessee has sufficient own funds in the form of capital and reserves to meet the investments, the presumption is that the Assessee made investments from out of capital and reserves and no disallowance is required to be made under Rule 8D2(ii). However, the Assessing Officer shall examine this aspect i.e. whether the Assessee has sufficient own funds or not and therefore for the limited purpose, we restore the issue to the file of the Assessing Officer, who shall examine the contention of the Assessee that the capital and reserves are more than the investments. If it is proved that capital and reserves are more than the investments made, no disallowance is required to be made under Rule 8D2(ii), we order accordingly.
Coming to the disallowance under Rule 8D2(iii), the Assessee’s submission that stock-in-trade should not be considered for arriving at the average value of investments is supported by the decisions of jurisdictional High Court in the case of CIT Vs. India Advantage Securities Ltd. (supra). Hon’ble Karnataka High Court in the case of CCI Vs. JCIT (supra) held that interest expenses incurred on shares held as stock-in-trade should not be considered for disallowance u/s 14A of the Act. Following this judgement, the Tribunal in DCIT Vs. India Advantage Securities Ltd. directed to exclude the expenses in relation to shares held in stock-in-trade, which judgement was upheld by the Hon’ble High Court.
2111/Mum/2015 and 2112/Mum/2015 (A.Ys.2008-09, 2009-10 and 2010-11 respectively) Shri Bharat Jayantilal Patel 8. Further the Coordinate Bench of this Tribunal in the case of Ajmera Associates Ltd. Vs. DCIT in dated 27.4.2017 following the decision of the Hon’ble Punjab & Haryana High Court in the case of Pr. CIT Vs. State Bank of Patiala [78 taxman.com 3] held that shares held as stock-in- trade should be excluded while computing the average value of investments observing as under : “7. Coming to stock-in-trade, the Hon’ble Punjab & Haryana High Court in the case of Pr.CIT Vs.State Bank of Patiala (supra) held that stock-in-trade is not an investment and therefore while computing the average value of investments under Rule 8D(2)(iii) shares held as stock-in-trade should be excluded. Before there are no details of the investments held as stock-in-trade. Hence, we set aside the issue to the file of the Assessing Officer who shall examine the accounts of the Assessee and ascertain the investments which are held as stock in trade and decide the issue in the light of the decision passed by the Hon’ble Punjab & Haryana High Court after giving adequate opportunity of being heard. The Assessee is also required to provide necessary details for completion of the assessment.”
In view of the above decisions, we hold that shares held as stock- in-trade should be excluded while computing the average value of investments for the purpose of disallowance under Rule 8D2(iii). Therefore, we direct the Assessing Officer to recompute the disallowance accordingly. Further, the Assessee’s submission was that the disallowance should not exceed expenses incurred/claimed in the Profit & Loss account/Return of Income by the Assessee which has considerable force. Thus, we direct the Assessing Officer to restrict the disallowance only to the expenses incurred/claimed by the Assessee in the Profit & Loss account/Return of Income in case the disallowance computed is more than the expenses incurred/claimed by Assessee in the Profit & Loss Account /Return of Income.
2111/Mum/2015 and 2112/Mum/2015 (A.Ys.2008-09, 2009-10 and 2010-11 respectively) Shri Bharat Jayantilal Patel
Other grounds are not argued before us and hence not adjudicated by us.
In the result, appeals of the Assessee are allowed for statistical purpose. Order pronounced in the open court on the 19th day of May 2017.