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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: SHRI D. KARUNAKARA RAO & SHRI PAWAN SINGH
सुनवाई की तायीख / Date of Hearing : 17.11.2016 घोषणा की तायीख /Date of Pronouncement : 13.01.2017 आदेश / O R D E R
PER D. KARUNAKARA RAO, AM:
This appeal filed by the assessee on 17.12.2012 is against the order of the CIT (A)-8, Mumbai dated 10.10.2012 for the assessment year 2009-2010. In this appeal, assessee raised the following grounds which read as under:- “1. The CIT (A) erred in confirming the action of the AO treating the trading loss of Rs. 11,40,21,054/- on the units of Principal Index Mutual Fund (PIF) as Short Term Capital Loss as against business loss claimed by the appellant.
2. The CIT (A) erred in confirming the disallowance of Rs. 1,81,19,132/- being interest paid to M/s. Kotak Mahindra Prime Limited (KMPL) for non-deduction of tax at source u/s 194A of the IT Act.
3. (a) The CIT (A) erred in confirming the disallowance of Rs. 4,55,00,856/- u/s 14A of the Act r.w. Rule 8D of the IT Rules, 1962. (b) The CIT (A) erred in confirming the action of the AO of invoking the Rule 8D(2) of IT Rules without recording his dissatisfaction with respect claim of the appellant and books of account of the appellant.
4. The CIT (A) erred in restricting the claim of Bad Debt to the extent of Rs. 9,93,193/- after being satisfied that the entire claim of Rs. 60,96,332/- as claimed by the appellant satisfies the conditions stipulated in section 36(2)(i) and the appellant is entitled to deduction u/s 36(1)(vii).”
2. At the outset, Ld Counsel for the assessee submitted that Ground no.4 is not pressed. After hearing the Ld DR the said ground is dismissed as not pressed.
Ground no.1 relates to the proper head of income for taxing the gains earned on sale of certain Mutual Funds. Assessee offered the gains under the head „business income‟ and the same is in tune with the principle of consistency followed by the assessee. However, AO thrust on the assessee the head „capital gains‟ and finalised the assessment for the AY 2009-2010. CIT (A) confirmed the same and therefore, the assessee is in appeal before us. Giving the facts and justifying the arguments raised by the assessee before the lower authorities, Ld Counsel for the assessee fairly submitted that this issue needs to revisit the file of the CIT (A) for the reason of following and complying with the contents of CBDT Circular 6/2016, dated 29.2.2016. After hearing both the parties, we find merit in the Ld AR‟s argument and remand this issue to the file of the CIT (A) for applying the contents of para 3(a) of the said Circular (supra). The relevant paras 3(a) of the said Circular 6/2016 (supra) is extracted and placed here as under:- “3..... (a) Where the assessee itself, irrespective of the period of holding the listed shares and securities, opts to treat them as stock-in-trade, the income arising from transfer of such shares/securities would be treated as its business income, (b)...... (c).......”
There is a need for honouring the above prayer by the assessee. We have taken the similar view on the identical issue in the case of Surjit Singh Bagga HUF vs. ITO in (AY 2006-07), dated 18.11.2016, wherein one us (AM) is a part to the said Tribunal‟s order. Considering the same, the issue is remanded and we direct the CIT (A) to pass a speaking order as per the provisions of section 256 of the Act after allowing a reasonable opportunity of being heard to the assessee. Accordingly, Ground no.1 is allowed protanto.
Ground no.2 relates to the disallowance connected to the non-deduction of tax u/s 194A on the interest payments. On this issue, Ld Representatives of both the parties explained the facts and submitted that the Board Circular No.6/2016, dated 17.06.2016 was not appreciated by the CIT (A). It was fairly submitted that the said Circular was issued recently before the finalization or adjudication of the issues by the CIT (A). Ld AR also brought our attention to the decisions of the Tribunal in the assessee‟s own case for the AY 2010-2011 in ITA No.6943 & 7199/Mum/2013 dated 15.7.2015 and ITA No.5939/M/2011 (AY 2008-2009), dated 13.8.2014 and submitted that these orders of the Tribunal were also not available to the CIT (A) at the relevant point of time. Considering the subsequent development, we find, the issue raised in ground no.2, in principle, is allowed. However, for examining the facts of the case, we remand this issue to the file of the CIT (A) to decide the issue afresh after affording a reasonable opportunity of being heard to the assessee. Accordingly, ground no.2 is allowed for statistical purposes.
Ground no.3 relates to the issue relating to the disallowance u/s 14A read with Rule 8D(2)(iii) of the Income Tax Rules 1962 (the Rules).
Before us, at the outset, Ld Counsel for the assessee submitted that the CIT (A) erred in applying the provisions of clause (iii) of Rule 8D(2) of the Rules on the entire average investment of the assessee without realising the fact that the same should be applied only on the dividend yielding investment of the assessee. Ld AR also submitted that the AO should have restricted the disallowance to some percentage of the exempt income and not to apply the 0.5% of the average investment.
After hearing both the parties, we find, it is a settled legal proposition at our level that the average investment desires exclusion of the non-dividend yielding investments in view of the decisions in the cases of (i) ACB India Limited vs. DCIT in (Del. HC); (ii) M/s. Edelwiess Securities Limited vs. DCIT [ITA No. 7235/M/2011]; (iii) Coal India Limited [ITA No. 1032/Kol/2012]. Therefore, in our opinion, the assessee is entitled to relief on this argument. Accordingly, the relevant grounds raised
by the assessee are required to be allowed in principle. We order accordingly and direct the AO to re-calculate the disallowance under Rule 8D(2)(iii) of the Rules. Thus, ground no.3 raised by the assessee is allowed for statistical purposes.