SHRI SHIV KISHAN MOHTA,KOLKATA vs. DCIT, CENTRAL CIRCLE - XXVIII, KOLKATA, KOLKATA

O R D E R

Per Dr. Arjun Lal Saini, AM:

Assessee`s Appeal ITA No.1922/Kol/2012

Later on, the CIT u/s.263 of the I.T. Act, passed the order observing the followings :-

“On careful consideration of facts and circumstances of the case, I am of the opinion that the contentions of the assessee has no merit. It is evident from the records that the Assessing Officer has not at all enquired or verified the losses claimed by the assessee. The A.O. has accepted the assesses claim of F & O Loss at Rs.4,88,99,127/-, short term loss and long term loss without raising any query and without asking the assessee to file evidences to support the claims. This is evident from the copy of order sheet furnished by the A.R. of the assessee along with the written submission. The Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. (2000) 109 Taxman 66 has held that where Assessing Officer had accepted entry in statement of account filed by the assessee, in absence of any supporting material without making any enquiry, exercise of jurisdiction by Commissioner under Sec. 263(1) was justified. The aforesaid case law squarely fits in this case because the A.O. has accepted the losses claimed by the assessee without asking for details and without conducting any 3 Shri Shiv Kishan Mohta enquiry or verification. The contention of the A.R. of the assessee that the assessment order has merged with the order of CIT(A) and CIT has no jurisdiction u/s 263 of the I.T. Act is also without any merit. In the assessment order this issue was neither discussed nor any disallowance was made, hence this was not an issue before the CIT(A). Appeal was filed before the CIT(A) against the additions made by the A.O. in the assessment order. In view of the discussion in the preceding paragraph it is held that the order passed u/s 143(3) of the I.T. Act is erroneous and prejudicial to the interest of revenue. Hence the order is set aside u/s 263 with a direction to the Assessing Officer to complete it as per law, after affording proper opportunity of being heard to the assessee.”

1. That in the facts and circumstances of the case, the Id CIT erred in assuming jurisdiction u/s 263

2. Without prejudice that in the facts and circumstances of the case the Id CIT erred in setting aside the assessment without looking into the details of F & O and capital loss filed before him

3. That in the facts and circumstances of the case the appellant craves leave to add, alter, modify and/or submit further or more ground(s) of appeal either before or at any time during the hearing of the appeal.

5. Ld. AR for the assessee has submitted before us that the ld. CIT erred in assuming jurisdiction u/s.263 of the Act. He further submitted that ld. CIT has wrongly concluded that the AO did not look the details of future and options and capital loss filed by the assessee before him. The assessee has filed the details of future and option before the AO at the time of original assessment u/s.143(3). Based on the details and submissions filed by the assessee, the AO has reached to the conclusion that the assessee is entitled to carry forward the short term and long term capital loss to the extent of Rs.66,87,536/-. The assessee has submitted the detailed calculation of STCL & LTCL including future and options. the submissions and details of the assessee, the Assessing Officer arrived at the net figure at Rs.66,87,536/- which is to be carried forward in subsequent years. Therefore, the AO has examined and verified the details of the short term capital loss and long term capital loss and this is very much evident from the AO that the AO has written that the assessee is entitled to carry forward the loss of short term and long term capital loss. Therefore, the AO must have examined the detail filed by the assessee, and, therefore, the order passed by the AO is not prejudicial to the interest of revenue and it is not erroneous also. Therefore, the jurisdiction exercised by the CIT u/s.263 is not correct.

The submission of the assessee that the assessment year passed by the AO has been merged in the order of ld. CIT(A) is also not acceptable issue under consideration i.e. the issue under consideration has not been agitated by the assessee before ld. CIT(A) and the ld. CIT(A) has not adjudicated this issue. Therefore, this issue has not been touched by ld. CIT(A), hence, the CIT u/s.263 has rightly exercised his jurisdiction. The AO has accepted the assessee’s claim of future and option loss, i.e. STCL & LTCL without raising any enquiry or without asking assessee to file evidence to support the claim of the assessee. The AO did not demonstrate in his assessment order how he has arrived at the conclusion that net loss on account of STCL & LTCL is to be carried forward in the subsequent year. Therefore, the CIT has rightly exercised his jurisdiction u/s.263. The AO accepted the losses claimed by the assessee without asking any details and without conducting any enquiry or verification.

1. That in the facts and circumstances of the case, the Id CIT [A) erred in confirming/ disallowances / additions under sec 14A to the extent of Rs. 197570/ = OUT OF INTEREST Rs. 125705 out of general administrative expenses 2. That in the facts and circumstances of the case, the Id CIT (A) erred in confirming disallowance of Rs.2352 being demat charges and Rs.30332 being STT treating the same as "not an allowable" expenditure and not deleting the same 3. Without prejudice, that in the facts and circumstances of the case, the disallowance / additions aforesaid are highly excessive 4. That in the facts and circumstances of the case, the appellant craves leave to submit further more grounds, add, modify / edit / revise / alter grounds of appeal either before or at the time of hearing of appeal.

10. Against the addition made by the AO, the assessee preferred an appeal before the CIT(A) raising the issue regarding disallowance made u/s.14A, however, the CIT(A) confirmed the addition so made by the ld. AO observing that investment decisions always involve top management since it is very strategic. Whether to invest or not to invest and whether to retain the investment or to liquidate the same are very strategic decisions and top management is always involved. Therefore, proportionate while computing exempt income or dealing investment matter, accordingly the disallowance of Rs. 1,97,570/- on account of proportionate interest and Rs. 1,25,705/- out of general and administrative made by AO is confirmed.

3.1 I have carefully considered the submission of the L.d A.R . The A.O has disallowed direct expenditure of Demat charge of Rs. 2,352/, STT of Rs.30,332/- and STT (F & O) of Rs.2,89,139/- , interest component of Rs.1,97,570/- and General and administrative of Rs. 1,25,705/ under Rule 8D read with section 14A of the Act. As far as expenditure on account of Demat charge of Rs.2352 and STT of Rs. 30,332/- are concerned the same have not been incurred for the purpose of the business carried out by the assessee, hence even otherwise the same is not an allowable expenditure. Moreover the expenditure, demat charges has been duly claimed by the assessee against Capital Gain and Security transaction Tax is not an allowable expenditure against the income chargeable under the head Capital Gain as per provision to section 48 of the Act. However since the STT of Rs. 2,89,139/- has been paid in respect of F & 0 activities which are assessable as business income, the same is an allowable expenditure. Accordingly out of total disallowance under the head Direct expenses of Rs. 3,21,823/- made by the A.O disallowance of Rs. 32,684/- is confirmed.”

“6. We find from the facts of the above case that the AO has not examined the accounts of the assessee and there is no satisfaction recorded by the AO about the correctness of the claim of the assessee and without the same he invoked Rule 8D of the Rules. While rejecting the claim of the assessee with regard to expenditure or no expenditure, as the case may be, in relation to exempted income, the AO has to indicate cogent reasons for the same. From the facts of the present case it is noticed that the AO has not considered the claim of the assessee and straight away embarked upon computing disallowance under Rule 8D of the Rules on presuming the average value of investment at 0.5% of the total value. In view of the above and respectfully following the coordinate bench decision in the case of J.K.Investors (Bombay) ltd; supra, we uphold the order of CIT(A). This appeal of the revenue is dismissed.”

2. Mohan Exports (P) Ltd, 138 ITD 108(Delhi):

“There is no evidence on record to suggest that any investment in shares or units has been made in this year out of borrowed funds on which interest is payable by the assessee. The commissioner (appeals) has given a very specific finding that the examination of 9 Shri Shiv Kishan Mohta the bank account shows that such investment are out of interest free funds available with the assessee…..Therefore, the provision contained in rule 8D (2) (ii) cannot be invoked.”

As ld. AR pointed out before us that assessee has purchased the investments by using own funds. The own funds and accumulated profits of the assessee are more than the investments, therefore the disallowance of proportionate interest under Rule 8D(2) (ii) is not justified.

Regarding the disallowance of 0.50% of average investments, neither the Assessing Officer nor the assessee brought on record any evidence to justify that these expenditures are not incurred by the assessee. Whether to invest not to invest and whether to retain the investment or to liquidate the investment, the same are very strategic decisions and top management is always involved in the decision making process.

Therefore, the possibility of incurring some expenditure on that account cannot be ruled out.

The reliance placed by the ld AR on the judgment of Ashish Jhunjhunwala, (supra) is on separate footing because in this case the ld CIT(A) ( para 4 of the said order) held that the AO separately in the assessment order, therefore, it does not apply to the assessee under consideration.

Accordingly, we delete that addition of Rs. 1,97,570/- (proportionate interest) and confirm the addition of Rs. 1,25,705/-.

The Ld DR for the revenue has submitted before us that these expenses do not relate to the business of the assessee. Even ld.CIT(A) did not consider these expenses for the purpose of business of the assessee.

The Ld. CIT(A) observed the followings:

“………As far as expenditure on account of demat charge of Rs.2352/- and STT of Rs.30,332/- are concerned the same have not been incurred for the purpose of business carried out by the assessee, hence even otherwise the same is not an allowable expenditure. Moreover the expenditure demat charge has been duly claimed by the assessee against capital gain and Security transaction tax is not an allowable expenditure against the income chargeable under the head Capital Gain as per provisio to section 48 of the Act. However, since the STT of Rs. 2,89,139/- has been paid in respect of F &O activities which are assessable as business income, the same is an allowable expenditure. Accordingly, out of total disallowance under the head Direct expenses of Rs. 3,21,823/- made by the AO disallowance of Rs. 32,684/- is confirmed.”

The Ld AR for the assessee did not demonstrate before us whether the said expenditure relates to his assessee`s business or not.

Therefore, considering the factual position, we confirm the disallowance of Rs. 32,684/-