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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Before: SHRI MAHAVIR SINGH, JM & SHRI RAJESH KUMAR, AM
O R D E R
PER RAJESH KUMAR, AM
This is an appeal filed by the revenue challenging the order of ld.CIT(A) - 8, Mumbai dated 17.9.2013 for the assessment year 2011-12.
Only issue raised in ground no.1 is against the partly allowing the appeal of the assessee against the disallowance of Rs.2,28,56,550/- under section 14A of the Income Tax Act, 1961 (hereinafter called the Act) comprising interest expenses of Rs.2,16,60,021/- under rule 8D (2)(ii) of the Income Tax Rules, 1962 (the Rules.) and Rs.11,96,529/- under rule 8D(2)(iii) of the rules.
Facts of the case are that the assessee company filed its return of income on 9.8.2011 declaring a total income of Rs.98,99,220/-, which was processed under section 143(1) of the Act. The case was selected for scrutiny and the statutory notices under section 143(2) and 142(1) of the Income Tax Act, 1961 were issued and served upon the assessee. During the course of assessment proceedings, the AO found that the assessee has received the dividend income of Rs.88,99,124/- which was claimed as exempt under section 10(34) of the Act and the assessee suo mottu disallowed a sum of Rs.11,96,529/- being 0.5% of the average investment under section 14A r.w.rule 8D(2)(iii) of the Rules. According to the AO the assessee did not make any disallowance qua interest expenses while calculating the disallowance under section 14A of the Act. Accordingly, the AO issued a show cause notice to the assessee as to why the disallowance should not be re-worked as per the provisions of section 14A of the Act r.w.r 8D of the rules which was replied by the assessee vide letter dated 11.3.2013 which is incorporated by the AO in the assessment order at page no 2 and 3 submitting therein that the assessee was broker and dealer in shares as Member of Bombay Stock Exchange which was being continued since its incorporation. It was also submitted that during the year the assessee earned income by way of brokerage, interest on deposits, share trading income and long term capital gains on sale of shares. The share capital of the assessee as on 31.3.2011 was Rs.1,44,01,000/- beside utilizing borrowed funds for the of trading in shares in its business. The total loan outstanding as on 31.3.2011 was to the tune of Rs.22,38,33,600/-. The closing stocks of shares was at Rs.24,33,49,057/- meaning thereby that all the borrowed money was used in the share trading business which was duly evidenced and corroborated by the stock-in-trade of shares at the year as on 31.3.2011. However, the AO was not convinced with the reply of the assessee and disallowed Rs.2,16,60,021/- on account of interest expenditure of u/s 14A read with rule 8D(2)(ii) whereas accepting the suo motto disallowance under section 14A r.w.r 8D(2) (iii) of the Rules at Rs.11,96,529/-. Accordingly an addition of Rs.2,16,60,021/- was made by the AO to the total income vide order dated 22.3.2013 passed under setion143(3) of the Act assessing the total income at Rs.3,15,59,240/-. Aggrieved by the order of the AO, the assessee preferred an appeal before the ld. CIT(A) who after considering the submissions of the assessee allowed the appeal of the assessee by observing and holding as under : “2.3 I have considered the facts of the case and the arguments of the appellant. I find that similar issue was involved in AY 2009-10 and the matter went upto IT.A.T. stage who vide order dated 28th March 2013 has held as under:- "The AR further pointed out the issue in question is covered by the case of DCIT vs. India Advantage Securities Ltd. ITA No.6711/Mum/2011 (wherein
one of us a party to the decision took the view that no disallowance could be made u/s 14A in respect of dividend income received from shares held as trading stock placing reliance on the decisions of CCL Ltd V/s JCIT reported in 250 CTR 291 (Kar) and in the case of Gajan Trading Co.Pct. Ltd ITA No.3724/Mum/2005. In this case, the coordinate Bench distinguished Special Bench in Daga Capital (supra) by holding that decision of Daga Capital was not applicable in the case of dividend received from trading shares (SIT). In the light of the above decision, we are inclined to allow grounds 1 and 2. We therefore, set aside the order of the CIT(A) and direct the AO to restrict the disallowance at Rs.3,46,390 as computed by the assessee and suo moto disallowed by it." On the basis of the above decision, I have decided the appellant's appeal for AY 2010-11 vide order dated 28/6/2013 as under: "I have considered the facts of the case as well as gone through the Tribunal's order and found that similar issue was there in AY. 2009-10 and the Hon'ble ITAT vide order dated 28th March 2013 has set aside the order of the CIT(A) and directed the AO to restrict the disallowance as computed by the appellant and suo moto disallowed by it. Following the above order of the ITAT, the AO is directed to restrict the disallowance as computed by the appellant. This ground of appeal is allowed." In view of the above decision of Hon'ble IT AT, the AO is directed not to make any disallowance in respect of dividend received from shares held as trading stock. AO is directed to re-compute the disallowance accordingly. The ground of appeal is, thus, partly allowed”.
4. The ld. DR while relying heavily relied on the order of assessing officer submitted that the ld. CIT(A) has passed order without properly understanding the facts of the case as the assessee has failed to disallow interest expenses on the borrowed funds, whereas the assessee has suo mottu disallowed the other expenses to the tune of Rs.11,96,528/- u/s 14A r.w. rule 8D(2)(iii) of the Rules which itself showed that the interest disallowance was required to be made and therefore, the AO has rightly worked out the disallowance and added the same to the total income of the assessee. Finally, the ld. DR prayed that the order of the ld. CIT(A) be set aside and that of AO be restored.
5. We have carefully considered the rival submissions and perused the material placed on record including the impugned order. The ld. AR vehemently submitted before us that the assessee was engaged in the business of share trading as Member of Bombay Stock Exchange Ltd. For the purpose of business the assessee has deployed its own fund as well as borrowed funds. We note that at the year end the amounts of own and borrowed capital and closing stocks of shares as appearing Balance Sheet are as under:- i) Share Capital Rs.1,44,01,000/- ii) Borrowed funds Rs.22,38,33,600/- iii) Closing stock-in trade of shares Rs.24,33,49,057/- From the above it is quite clear that no disallowance of interest was called for as the assessee was engaged in the share trading and not investment in shares .The FAA has relied on a number of decisions while allowing the appeal of the assessee as discussed above namely DCIT vs. India Advantage Securities Ltd. and CCL Ltd V/s JCIT reported in 250 CTR 291 (Kar). The ld. CIT(A) also discussed the decision of Calcutta Bench of the Tribunal in the case of M/s. Daga Capital Management Pvt. Ltd. (2008) reported in 26 SOT 603. We also find that the ld. CIT(A) already decided the issue in the assessment year 2010-11 by following the said decisions which is correct and as per the law. In view of the above discussions, we do not find any infirmity in the order of the ld. CIT(A) deleting the disallowance u/s 14A r.w.r 8D(2)(ii) of the Rules as made by the AO. The order of the ld.CIT(A) is upheld accordingly by dismissing the appeal of the revneue.