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Income Tax Appellate Tribunal, MUMBAI BENCHES “E”, MUMBAI
Before: Shri Mahavir Singh, & Shri Ashwani Taneja
आदेश / O R D E R
Per Ashwani Taneja (Accountant Member): This appeal has been filed by the Assessee against order of Ld. Commissioner of Income Tax(Appeals), Mumbai-8 (in short ‘CIT(A)’}, dated 22.09.2014 passed order against u/s 143(3) of the Act, dated 24.12.2013 for Assessment Year 2011- 12 on the following Grounds: “1. On the facts and circumstances of the case, the CIT(A) legally erred in confirming the action of the AO in 2 Shripati Holding & Finance making a disallowance u/s 14A of the Act r.w.r. 8D amounting to Rs.34,63,107/-. 1.1. On the facts and circumstances of the case, without prejudice, the CIT(A) erred in not excluding the interest paid amounting to Rs.2,34,09,649 on Term Loans, Overdrafts, Cash Credits and Car Loans taken specifically for business purposes while computing the disallowance u/s 14A r.w.r. 8D. 1.2. On the facts and circumstances of the case, without prejudice, without admitting and in the alternative the CIT(A) erred in not directing the AO to net-off the Interest received on Fixed Deposits amounting to Rs.1,45,57,164 against the Interest paid on the various specific Loans taken against the said fixed deposits amounting to Rs.2,34,09,649. 1.3. On the facts and circumstances of the case, without prejudice, without admitting and in the alternative the CIT(A) erred in not directing the AO to restrict the excessive disallowance computed u/s 14A r.w.r. 8D amounting to Rs.34,63,107 to a reasonable amount as compared to the dividend earned amounting to Rs.7,81,165/- in view of the decision of the Delhi Tribunal in the case of Sahara India Corporation Ltd. (163 TTJ 257). 1.4. On the facts and circumstances of the case, the CIT(A) erred in not appreciating the fact that the Share Capital and Reserves & Surplus of the Appellant placed at Rs.3,299.98 Lacs was far in excess of the Investments in shares and securities held as stock in trade placed at 994.98 Lacs and therefore no Interest bearing funds were utilized for investment purposes and no disallowance u/s 14A r.w.r. 8D was warranted. 1.5. On the facts and circumstances of the case, the CIT(A) erred in not appreciating the fact that the no disallowance u/s 14A r.w.r. 8D was called for as no exempt income was earned during the year as held by the Jurisdictional Bombay High Court in the case of Delite Enterprises (No.110/2009). 1.6. On the facts and circumstances of the case, the CIT(A) erred in confirming the action of the AO in considering shares and securities held as stock in trade for purpose of computing the disallowance u/s 14A r.w.r.
3 Shripati Holding & Finance 8D.”
During the course of hearing, arguments were made by Shri Dharmesh Shah, Authorised Representatives (AR) on behalf of the Assessee and by Shri T.A Khan, Departmental Representative (CIT-DR) on behalf of the Revenue.
The brief facts are that the assessee was engaged in the business of Share Broker, Trader and Investor of Shares & Securities. During course of hearing, it was noted by the AO that the assessee had earned tax free dividend of Rs.7,81,165/-, but the same was not claimed as exempt. It was further submitted that since dividend income has not been claimed as exempt, there was no question of making disallowance of u/s 14A. It was also submitted that assessee never held any shares as part of investment, and entire shares & securities have been held as stock-in-trade. The assessee company being trader in shares, the income from purchase and sale of shares has been assessed as business income. But, Ld. AO did not agree with the submissions of the assessee and computed the interest and administrative expenses disallowable under rule 8D(2)(ii) & 8D(2)(iii) for an amount aggregating to Rs.42,44,272/-, and after deducting dividend income, the net disallowance was computed of Rs.34,63,107/.
4. In the appeal before the Ld. CIT(A), it was submitted that interest has been paid on account of secured loans such as terms loans, vehicle loans and working capital loans which have been utilized wholly and exclusively for the purpose of business. Various submissions were made to contest disallowance. But, Ld. CIT(A) did not agree with the submissions of the assessee and relying upon his order passed 4 Shripati Holding & Finance in the assessee’s own case in A.Y. 2010-11, the disallowance made by the AO was confirmed.
During the course of hearing, it was submitted by the Ld. Counsel that since the facts are identical, therefore decision given by the Tribunal in A.Y. 2010-11, should be applied here. Ld. DR also did not have any objection in this regard.
We have gone through the orders passed by the lower authorities as well as order passed by the Tribunal. It is noted that the Tribunal in its order dt 2-11-2016 for A.Y. 2010-11 in observed as under: “2. The only issue raised in this appeal relates to the disallowance u/s 14A of the Act. Brief facts relevant for adjudication of the said issue includes that the assessee earned dividend income of Rs. 6,08,318/-. Assessee suo moto disallowed sum of Rs.30,000/- as expenditure disallowable u/s 14A of the Act. However, in the assessment made u/s 143(3) of the Act, AO mechanically applied the formula laid down in Rule 8D(2) of the IT Rules, 1962 (the Rules) read with section 14A of the Act. Accordingly, AO disallowed sum of Rs. 24,83,628/- under Rule 8D(2)(ii) and Rs. 4,53,425/- under Rule 8D(iii) of the Rules. Thus, net disallowance, after reducing Rs. 30,000/- (supra), works out to Rs. 29,37,054/- and the same is the subject matter of adjudication before us.
3. At the outset, Ld Counsel for the assessee, on the above issue of disallowance, brought our attention to page 5 of the paper book ie Schedules-VI and VII of the Balance Sheet and submitted that the dividend yielded shares 5 Shripati Holding & Finance were the stock-in-trade (reference Schedule VII-A relating to the ‘current assets’) of Rs. 8,77,52,726.75 and the share investment is NIL (Schedule VI relating to the investments is relevant). Relying on the above book entries, Ld Counsel for the assessee submitted that the assessee never had shares as ‘investments’ and ‘dividend yielded shares’ were held as stock-in-trade consistently over the years. To sum up his arguments, the case of the assessee is that the provisions of section 14A read with Rule 8D are not to be invoked in the cases of exempt income earned out of the shares held as stock-in-trade. For this proposition, Ld Counsel for the assessee relied on the binding judgment of the Hon’ble High Court in the case of DCIT vs. India Advantage Securities Ltd [2016] 380 ITR 471 (Bom). Further, he also brought our attention to the series of the orders of the ITAT, Mumbai Bench for the proposition that no disallowance can be made under Rule 8D(2)(ii) & (iii) of the Rules.
On hearing both the parties, we find, the argument of the Ld Counsel for the assessee has merits and the additions made by the AO are required to be deleted. For the sake of completeness of this order, relevant paras from the said order of the Tribunal in the case of DCIT vs. India Advantage Securities Ltd in & 3576/Mum/2014), dated 10.2.2016 for the AY 2009-10 are extracted as under:- “10. At the outset, Ld Counsel for the assessee mentioned that in the order of the Revenue there is an error by way of 6 Shripati Holding & Finance inclusion of stock-in-trade for the purpose of determining the disallowable u/s 14A of the Act. In this regard, Ld Counsel for the assessee mentioned that such inclusion of stock-in-trade is not approved by the jurisdictional High Court in assessee’s own case in Income Tax Appeal No.1131 of 2013, dated 13th April, 2015. In support, assessee filed the Tribunal order in (AY 2008-2009), dated 14.9.2012. Para 6 of the said Tribunal’s order (supra) is relevant in this regard and the relevant lines from the said para 6 are extracted as under:- “6.......We, therefore, see no infirmity in the order of the Ld CIT (A) in deleting the disallowance u/s 14A computed by the AO in relation to the stock-in-trade......”
Ld Counsel for the assessee also submitted that in the judgment of the Hon’ble jurisdictional High Court (supra) dated 13.4.2015, which is agitated by the Revenue, the High Court held that no substantial question of law arises out of the order of the Tribunal on the above issue. It is the submission of the Ld Counsel that considering the same, assesse’s case may be allowed.
We have heard Ld Representatives of both the parties and perused the orders of the Revenue as well as the cited judgment of the Hon’ble jurisdictional High Court (supra) and the order of the Tribunal (supra) dated 14.9.2012. Considering the same, we direct the AO to comply with the said Tribunal’s order as well as the judgment of the jurisdictional High Court for the AY 2008- 7 Shripati Holding & Finance 2009 and decide the issue afresh. The arguments relating to the applicability of the High Court judgment in the case Reliance Utilities and Power Limited [2009] 313 ITR 340 (Bom) is also remanded to the file of the AO for similar adjudication. AO shall grant a reasonable opportunity of being heard to the assessee as per the set principles of natural justice. Accordingly, grounds raised
by the assessee are allowed for statistical purposes.”
5. Further, we find it relevant to extract the relevant para from the said judgment of the Hon’ble jurisdictional High Court in the case of India Advantage Securities Ltd (supra) and the same reads as under:- “It is this revised disallowance which has been accepted by the Tribunal. We do not find that both the questions of law can be termed as substantial simply because the first one is covered against the Revenue by a judgment of this court in the case of Godrej and Boyce Mfg. Co. Ltd vs. DCIT in of 2010 and Writ Petition No.758 of 2010 [2010] 328 ITR 81 (Bom). The questions have been decided by this court both the authorities in this case have followed this judgment and applied section 14A of the Act and the Rule 8D of the Income Tax Rules, 1962. They have been applied correctly. The first question is, therefore, not a substantial question of law.”
6. Considering the above settled position of the issue, we are of the opinion that the assessee is entitled to relief and therefore, the ground raised by the assessee is allowed.”
8 Shripati Holding & Finance 7. It was jointly stated by both sides before us that facts in this are also identical. Thus, as a matter of consistency, following the order of the Tribunal, AO is directed to delete the disallowance. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 15th December, 2016.