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per our considered view the assessee is now estopped from challenging the order passed on the submission made by assessee during the first appellate stage. Thus, this Ground of appeal
raised by assessee is dismissed.
5. Next Ground of appeal is for our consideration is disallowance u/s 14A of the Act
6. We have heard Ld. Authorised Representative (AR) for assessee and Ld. Departmental Representative (DR) for Revenue. AR of the assessee argued that during the year under consideration, the assessee has earned dividend on mutual fund unit of Rs. 3,12,859/-. In the segmental details submitted to the AO, the personal expenses of Rs. 14,38,195/- were shown and expenses under the head “Investment”. The details of functions of employee who were also rendering the services to the other business activities were also furnished, the order of AO for disallowance of Rs. 14,38,195/- as expenses for earning exempt income is not correct. AR of the assessee further relied upon the decision of Delhi High Court in case of Joint Investments Pvt. Ltd. vs. CIT in dated 25.02.2015, the decision of Punjab & Haryana High Court in case of CIT vs. Empire Packaging ITA No. 415/15 dated 12.01.2016 and further the order of Co-ordinate Bench in Daga Global Chemical vs. ACIT in ITA No. 5592/M/12, the Ld. AR of assessee prayed that in any case the disallowance should not exceed the exempt income and may be restricted equal to the dividend income. DR for Revenue supported the order of authorities below.
7. We have considered the rival contentions of the parties. We have seen that during the assessment proceeding, the AO observed that assessee has claimed personal expenses amounting to Rs. 14,38,195/-. The assessee earned dividend income of Rs. 3,12,859/- which is included in the income from investment segment. the AO show caused as to why the expenses attributable to earning of dividend income should not be disallowed u/s 14A of the Act. The assessee in its reply contended that the personal expenses amounting to Rs. 14,38,195/- was incurred on the salary of G.M. Finance and his Secretary. The AO instead of considering the other factor disallowed the personal expenses u/s 14A of the Act. During the appellate proceeding, it was contended that out of the total expenses of Rs. 14.38 lakhs, an amount of Rs. 12.06 lakhs were paid to Mr. Prakash Sood, who is General Manager, Finance. The General Manager controls all functions of the organization including the accounts and investment in finance and has job profile is not restricted in investment in mutual funds. An amount of Rs. 2.32 lakhs were paid to his Secretary Miss. Hoskatti and remaining amount was spent on staff welfare and canteen expenses. The Ld. CIT(A) after considering the contention of the assessee concluded that the additions were made on agreed basis in the assessment proceeding. The assessee has effectively stopped the AO from making investigation with regard to disallowance, and now the assessee cannot challenge the addition and dismissed the Ground of appeal
. During the assessment proceeding, the assessee merely submitted the personal expenses. The AO has not sought the computation of expenses attributable for earning the exempt income nor examined the accounts of the assessee. Ld. CIT(A) instead of giving any finding on the submission made before him and confirmed the addition holding that assessee has stopped the AO from making any investigation. The Hon’ble Delhi High Court in case of Joint Investment Pvt. Ltd. vs. CIT (supra) the Hon’ble Court considered ratio in case of CIT vs. Tiakisha Engineering Ltd. (ITA No. 115/14) decided on 25.11.2014 held as under:
9. In the present case, the AO has not firstly disclosed why the appellant/assessee's claim for attributing Rs. 2,97,440/- as a disallowance under Section 14A had to be rejected. Taikisha says that the jurisdiction to proceed further and determine amounts is derived after examination of the accounts and rejection if any of the assessee's claim or explanation. The second aspect is there appears to have been no scrutiny of the accounts by the AO - an aspect which is completely unnoticed by the CIT CA) and the ITAT. The third, and in the opinion of this court, important anomaly which we cannot be unmindful is that whereas the entire tax exempt income is Rs. 48,90,000/-, the disallowance ultimately directed works out to nearly 110% of that sum, i.e., Rs. 52,56,197/-. By no stretch of imagination can Section 14A or Rule 8D be interpreted so as to mean that the entire tax exempt income is to be disallowed. The window for disallowance is indicated in Section 14A, and is only to the extent of disallowing expenditure "incurred by the assessee in relation to the tax exempt income". This proportion or portion of the tax exempt income surely cannot swallow the entire amount as has happened in this case.”
Further, the Hon’ble Punjab & Haryana High Court in case of Principal CIT vs. M/s Empire Packaging Pvt. Ltd. (supra) while considering the almost identical facts held as under: “The income from dividend had been shown at Rs. 1,11,564/- whereas disallowance under Section 14A read with Rule SD of the Rules worked out by the Assessing Officer came to Rs. 4,09,675/-. Thus, the Assessing Officer disallowed the entire tax exempt income which is not permissible as per settled position of law. Consequently, the Tribunal remitted the matter to the Assessing Officer with a direction to decide the same afresh in accordance with law after affording due and reasonable opportunity of being heard to the assessee. The relevant finding recorded by the Tribunal reads thus:- "7. In the instant case, the income from dividend has been shown at Rs. 1,11,564/-, the disallowance under section 14A read with Rule S D worked out by the Assessing Officer comes to Rs. 4,09,675/-. Thus, it is clear that the AO has disallowed the entire tax exempt income which is not permissible in view of the judgment of the Hon'ble Delhi High Court referred to above. The Hon'ble Delhi High Court held that the window for disallowance is indicated in section 14A, and is only to the extent of disallowing expenditure "incurred by the assessee in relation to the tax exempt income". The disallowance under section 14A read with Rule 8D as worked out by the Assessing Officer is not in accordance with law and as such working is not sustainable.
In view of the above observations, I think it is appropriate to set aside the order of the learned CIT(A) on this issue and remit the matter to the file of AO with a direction to decide the issue afresh in accordance with law after affording due and reasonable opportunity of being heard to the assessee." Additionally, the tax effect involved is of Rs.1,26,589/- only.
The view adopted by the Tribunal being a plausible view based on factual position and the relevant case law on the point, does not warrant any interference by this Court. Learned counsel for the appellant-revenue has not been able to show any illegality or perversity in the impugned order. Thus, no substantial question of law arises. Consequently, the appeal stands dismissed.”
Further, the Co-ordinate Bench of this Tribunal in case of M/s Daga Global Chemicals Pvt. Ltd. (supra) held as under: “The Assessing Officer while framing the assessment invoke section 14A r.w. Rule 8D by contending that assessee claimed various expenses which are related to exempt income in its profit & loss account and disallowed Rs.14,58,412/-. On appeal, before the ld. Commissioner of Income tax (Appeals) broadly the stand taken in the assessment order was affirmed against which the assessee is in further appeal before this Tribunal. The totality of facts clearly indicates, as claimed by the assessee that no borrowed funds were utilized for earning the exempt income by the assessee and further the dividend were directly credited in the bank account of the assessee and no expenditure was claimed. What it may be, we find that the assessee only received Rs. l,82,362/- as dividend income, therefore, there is no question of disallowance of Rs.14,58.412/- by invoking section 14A r.w. Rule 8D under the facts available on record. It was also explained by the ld. counsel for the assessee that on identical fact in earlier years, no disallowance was made. In the present assessment year also, no borrowed funds were invested by the assessee for making investment in shares or for earning dividend income. At best, if any disallowance could be made that can be restricted to Rs. 1,485/-which were claimed as demat charges. Disallowance u/s 14A r.w. Rule 8D cannot exceed the exempt income. In view of this fact, we find merit in the claim of the assessee. The appeal of the assessee is therefore, allowed.”
8. Now turning to the facts of the present case, the assessee claimed the exempt income of Rs. 3,12,859/- and the Revenue authority disallowed Rs. 14,38,195/- u/s 14A which is admittedly about four times than the exempt income. Keeping in view the peculiarity of the fact of the present case, we restrict the disallowance to the equal of dividend income. With these observations, this Ground of appeal is allowed. Thus, the present appeal is partly allowed. ITA No. 6086/Mum/2012
The Revenue has raised only one Ground of appeal for reversing the action of AO for treating the STCG as business income of the assessee. We have considered the rival contentions of the parties and perused the material available on record. DR for Revenue argued that the assessee is engaged in the business of share and mutual funds. The total turnover of the assessee from investment business during the year is Rs. 6,57,53,398/- against the total turnover from all activities of his business are of Rs. 11,84,90,563/-. The major activities of the assessee’s business in share and mutual funds about 55.5% of total turnover of assessee and total investment of the assessee in investment of Rs. 142,34,84,962/- constitute 81% of total assets of the company and thus the real nature of activities of the assessee is in trading in units and not for investment and the AO rightly appreciated the fact of the case and treated the STCG as business income. AR of the assessee argued that during the preceding year, the department has accepted the assessee’s stand that loss from sales of units was assessable under the head “Capital Gain”. Ld. AR of the assessee further argued that during the assessment proceeding, the assessee submitted the reply dated 11.12.2009 and contended that the intention of assessee was not to carry out business but to hold the mutual funds unit as investment. The assessee has only 12 transactions during the year under consideration. The assessee has only redeemed two scripts of mutual funds i.e. ICICI Prudential (9 transactions) and UTI (3 transactions), the assessee has not borrowed any fund for making the investment. The average period of holding is 57 days. The assessee has shown the investment as stock-in-trade. Ld. AR of the assessee further argued that mutual fund units cannot be traded the units were redeemed, thus such unit cannot be considered for the purpose of business income and relied upon the decision of Mumbai Tribunal in Upendrabhai Patel vs. ACIT – decision of Delhi High Court in Yama Finance Ltd. vs. ACIT (2014) 46 taxmann.com 349 (Delhi) and decision of Chandigarh Tribunal in ACIT vs. M/s Hero Investment Pvt. Ltd. – ITA No. 910/Chd/2009.
We have considered the rival contentions of the parties and perused the material available on record. We have seen that during the year under consideration, the assessee made only 12 transactions. The holding period of units ranged from 7 days to 130 days, thus, the average holding period is 57 days. The assessee has sufficient capital account as on 31.03.2008 (PB 15). The assessee has shown the investment in mutual funds under the head “Investment”. The CIT(A) elaborately considered the fact relating to the Grounds under consideration and gave the following findings: “3.6 In the light of the above Instructions and decision of the Tribunal, it is important to consider the facts in the appellant's case. The total transactions made during the year are 12, pertaining to two scripts of mutual funds. The average period of holding is 57 days. No borrowed funds have been invested. In the balance sheet the said investment has not been shown as stock in trade. All the transactions are delivery based. Lastly, but not the least, in A.Y. 2007-08, this issue was raised by the AO in the course of 143(3) proceedings, vide notice dated 9.11.2009, as follows: "During the year the assessee company has carried out the business activity of running a fitness centre and I. T services, income from which is shown at Rs. 64,43,613/- (membership fees) and Rs. 23,30,300/- (Management & Consultancy IT Services, shown under the head other Income). However, looking in to the quantum of investments made and transactions of sale and purchase of units of mutual funds and, income/loss derived there from, it appears that the assessee company is running a regular business of purchase and sale of shares, unit and other investments. The assessee has also paid Rs. 30,29,233/- towards STT. In this background, please explain as to why the activity of purchase and sale of shares shall not be considered as business activity and income there from as 'Income from Business' instead of 'capital gains'. Please also furnish evidence of STT paid." After considering the reply of the appellant, as per letter dated 11.12.2009, the AO has accepted the capital gains returned by the appellant in that year. Therefore, keeping in view the above facts of the case and the ratio of the decision of the Bombay High Court in the case of Gopal Purohit, ITA 1121 of 2009, I am in agreement with the appellant that gains of Rs.1,15,51,039/- are assessable as short term capital gains. In the circumstances, the appellant is entitled to set off brought forward short term capital loss of Rs.1,09,06,483/- against the above income. These grounds of appeal are therefore allowed.”