RATILAL VERSHI SHAH,MUMBAI vs. ITO 12(1)(4), MUMBAI

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ITA 2288/MUM/2015Status: DisposedITAT Mumbai28 October 2016AY 2010-114 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal deleted the disallowance under Section 14A, holding that no such disallowance can be made when shares are held as stock-in-trade. However, the 20% disallowance on car insurance and telephone expenses for personal use was upheld.

What were the facts?

The assessee, a share trader, earned exempt dividend income but claimed no expenditure. The Assessing Officer disallowed expenditure under Section 14A, which was upheld by the CIT(A) with a reduced amount. Additionally, a 20% disallowance was made on car insurance and telephone expenses for personal use.

What were the issues?

Whether disallowance under Section 14A is applicable to exempt income earned from shares held as stock-in-trade, and whether a disallowance for personal use of car and telephone expenses is justified.

Which sections of the Income-tax Act were involved?

Section 14A

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “K” BENCH, MUMBAI

Before: SHRI RAJENDRA & SHRI SAKTIJIT DEY

For Appellant: Shri Sanjeev Lalan
For Respondent: Shri Sujit Banger

आयकर अपीऱीय अधिकरण, म ुंबई न्यायपीठ ‘के’ म ुंबई IN THE INCOME TAX APPELLATE TRIBUNAL “K” BENCH, MUMBAI श्री राजेंद्र, ऱेखा सदस्य एवुं श्री शक्तिजीि दे, न्याययक सदस्य के समक्ष BEFORE SHRI RAJENDRA, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER आयकर अऩीऱ सं. / ITA no. 2288/Mum./2015 (ननधधारण वषा / Assessment Year : 2010–11) Shri Ratilal Vershi Shah 1ST Floor, Ratnadeep …….………. अऩीऱधथी / 34, Maruti Lane, Fort Appellant Mumbai 400 001 PAN – AADPS6100N v/s Income Tax Officer ..…….………. प्रत्यथी / Ward–12(1)(4), Aayakar Bhawan Respondent 101, M.K. Road, Mumbai 400 020 ननधधाररती की ओर से / Assessee by : Shri Sanjeev Lalan रधजस्व की ओर से / Revenue by : Shri Sujit Banger सुनवधई की तधरीख / आदेश घोषणध की तधरीख / Date of Hearing – 18.01.2016 Date of Order – 28.10.2016 आदेश / ORDER शक्तिजीि दे, न्याययक सदस्य के द्वारा / PER SAKTIJIT DEY, J.M.

Captioned appeal at the instance of the assessee is directed against the order dated 1st January 2015, passed by the learned Commissioner (Appeals)–28, Mumbai, for the A.Y. 2010–11.

2 Shri Ratilal Vershi Shah 2. Ground no.1, relates to disallowance of an amount of ` 1,77,104 under section 14A of the Income Tax Act, 1961 (for short "the Act").

3.

Brief facts are, the assessee an individual is engaged in the business of trading in shares. During the assessment proceedings, the Assessing Officer noticed that in the relevant previous year, assessee derived exempt income by way of dividend from mutual fund and equity shares amounting to ` 1,78,145, whereas, it has not shown any expenditure for earning such exempt income. Being of the view that assessee must have incurred some expenditure for earning exempt income, the Assessing Officer by applying the provisions of rule 8D, disallowed an amount of ` 7,47,169 under section 14A towards expenditure attributable towards earning of exempt income. Being aggrieved, assessee preferred appeal before the learned Commissioner (Appeals). However, the learned Commissioner (Appeals) sustaining the disallowance. Of–course, the learned Commissioner (Appeals) restricted the disallowance to ` 1,77,104.

4.

The learned Authorised Representative submitted before us, the assessee is a trader in shares and the shares are held as stock–in– trade, therefore, no disallowance under section 14A can be made. He submitted, in assessee’s own case, the Tribunal has decided the issue in favour of the assessee for assessment year 2008–09. He, therefore, submitted, disallowance made should be deleted.

3 Shri Ratilal Vershi Shah 5. Learned Departmental Representative relied upon the observations of the learned Commissioner (Appeals).

6.

We have considered the submissions of the parties and perused the material available on record. Undisputedly, the assessee is involved in trading in shares and shares are held as stock–in–trade. In fact, the Assessing Officer himself accepted this factual position. That being the case, no disallowance under section 14A can be made in respect of the exempt income earned by way of dividend from mutual funds and shares. In fact, the co–ordinate bench of the Tribunal in assessee’s own case for assessment year 2008–09 in ITA no.336/Mum./2012 dated 23rd January 2013, has expressed same view. In view of the aforesaid, we delete the addition of ` 1,77,104.

7.

In ground no.2, relates to ad–hoc disallowance made out of car insurance and telephone expenditure towards personal use.

8.

In the course of assessment proceedings, the Assessing Officer observing that the assessee must have used the car and telephone for personal use, disallowed 20% out of the depreciation claimed on car, car insurance and telephone expenses.

9.

The learned Commissioner (Appeals) while allowing depreciation claimed on car, sustained the disallowance @ 20% out of car insurance and telephone expenditure for personal use.

4 Shri Ratilal Vershi Shah 10. We have considered the submissions of the parties and perused the material available on record. As could be seen, 20% out of car expenses and telephone expenses was made considering the fact that there must have been some personal use by the assessee. In our view, when the assessee has not been able to conclusively prove with supporting evidence that the entire expenditure claimed was towards the purpose of business disallowance made is justified. Accordingly, we uphold the same. Ground no.2 is dismissed.

11.

In the result, appeal is partly allowed. Order pronounced in the open Court on 28.10.2016

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