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Income Tax Appellate Tribunal, MUMBAI BENCHES “A”, MUMBAI
Before: SHRI G.S.PANNU (AM) & SHRI RAM LAL NEGI (JM)
PER RAM LAL NEGI, JM
This appeal has been preferred by the appellant/assessee against order dated 08/09/2011 passed by the Ld. CIT(Appeals)-17, Mumbai, for the Asst. year 2008-09.
2. Brief facts of the case are that the appellant/assessee, a limited company, filed its return of income for the assessment year 2008-09 declaring the total income of Rs. 10,28,48,393/-. However, vide assessment order dated 28.12.2010, passed u/s 143(3) of the Income Tax Act, 1961 (the Act for short) the AO assessed the total income at Rs. 10,83,43,060/- after making disallowance of Rs. 7,44,643/-u/s 14A read with Rule 8D of the Income Tax Rules and disallowance of Rs. 47,50,000/- under section 80G of the Act. In appeal the Ld. CIT(A) confirmed both the disallowances.
3. The assessee is in appeal before this Tribunal against the impugned order on the following effective grounds:- I. DISALLOWANCE U/S 14A r.w.r 8D:-
“1. The Learned CIT(A) erred in confirming the disallowance u/s 14A r. w. Rule 8D.
2. The Learned CIT(A) failed to appreciate the fact that (i) The appellant is doing share trading & F& O business and there is only stocks and no investments.
(ii) The disallowance cannot exceed the expenses claimed.
3. The Learned CIT(A) ought not to have confirmed disallowance u/s 14A r. w. Rule 8D.
The disallowance of u/s 14A r.w. Rule 8D requires to be deleted.
II. DENIAL OF DEDUCTION OF Rs. 47,50,000/- U/S 80G:-
1). The Learned CIT(A) erred in confirming the denial of deduction of Rs. 47,50,000 u/s 80G claimed by the appellant.
The Learned CIT(A) ought not to have confirmed denial of the deduction u/s 80G of Rs. 47,50,000/-
Deduction of Rs. 47,50,000/- u/s 80G requires to be allowed to the appellant.”
4. Before us, the Ld. Counsel for the assessee submitted that the Ld. CIT(A) has wrongly upheld the disallowance made by the AO under section 14A of the Act r/w Rule 8D as the findings are contrary to the decision dated 14.9.2012, rendered by the Mumbai ITAT in DCIT vs. M/s Advantage Securities Ltd. in which the identical issue has been decided in favour of the assessee and against the revenue. The appellant/assessee is only undertaking share trading and not investments, and thus such shares are to be excluded for computing disallowance u/s 14A of the Act. The Ld. Counsel further submitted that assessee’s case is covered by the DCIT vs. M/s Advantage Securities Ltd. (supra).
Per contra the Ld. departmental representative (DR) relying on the concurrent findings of the authorities below, submitted that as per law every case is to be decided on its own merit and the Ld. CIT(A) has confirmed the findings of the AO keeping in view the issues raised by the assessee, therefore, there is no scope to interfere with the impugned order.
We have heard the rival submissions and perused the material on record including the decision relied upon by the assessee. The coordinate Bench of the Tribunal following the decision rendered by Hon’ble Karnataka High Court in CCL Ltd. vs. JCIT( 250 CTR 291), has decided the identical issue in the case of M/s Advantage Securities Ltd(supra) holding as under:-
“6. However, the Hon’ble High Court of Karnataka has recently considered the disallowance of expenses incurred on borrowings made for purchase of trading shares u/s.14A of the I.T. Act in case of CCL Ltd. vs. JCIT (supra). The assessee in that case was distributor of state lotteries and a dealer in shares and securities. The assessee had taken loans for the purchase of certain shares and it had incurred expenditure for broking the loans which had been disallowed under Rule 8D by the A.O. and confirmed by the Ld.CIT(A). The Tribunal agreed with the authorities below that the expenditure relatable to earning of dividend income though incidental to the trading in shares was also to be disallowed u/s.14A of the I.T. Act. The Tribunal however, had observed that the entire broking commission was not relatable to earning of dividend income as the loan had been utilised for the purchase of shares and the profit shown from the sale of shares had been offered as business income. The Tribunal, therefore, directed the A.O. to bifurcate the expenditure proportionately. The order of the Tribunal was however, not upheld by the Tribunal. The High Court noted that 63% of shares which were purchased were sold and income derived was offered to tax as business income. The remaining 30% of shares which remained unsold had reverted to dividend income for which the assessee had not incurred any expenditure at all. The High Court also observed that the assessee had not retained the shares with the intention of earning dividend income which was incidental due to his sale of shares which remained unsold by the assessee. The High Court, therefore, did not uphold the order of the Tribunal disallowing the expenditure in relation to the dividend from shares. Thus there being a direct judgment of a Hon’ble High Court on this issue, the same has to be followed in preference to the decision of the Special Bench of the Tribunal in the case of M/s. Daga Capital Management P. Ltd. (supra). Infact, we note that the Tribunal in the case of Ganjam Treading Co. Ltd. (supra) has already considered this situation and held that in view of the judgment of Hon’ble High Court of Karnataka in the case of CCL Ltd. Vs. JCIT (supra) the disallowance of interest in relation to the dividend received from trading shares cannot be made. We, therefore, see no infirmity in the order of the Ld. CIT(A) in deleting the disallowance u/s.14A computed by the A.O. in relation to the stock-in-trade. The order of the Ld.CIT(A) is accordingly upheld.
The Revenue assailed the said findings of the Mumbai Tribunal before the Hon’ble Bombay High Court in Income Tax Appeal No 1131of 2013, CIT vs. India Advantage Securities Ltd. The Hon’ble Court dismissed the appeal of the revenue and confirmed the findings of the Tribunal vide judgment dated 17.3.2015. In view of the findings of the coordinate Bench confirmed by the Hon’ble Bombay High Court, in the identical issue, we set aside the findings of the Ld. CIT(A) on the issue involved in this ground of the appeal and allow this ground of appeal
of the assessee.
8. As regards ground No 2 of the appeal, the Ld. Counsel for the assessee submitted that the findings of the AO are based on the general statement of witness which is not corroborated by any documentary evidence and the Ld. CIT(A) has wrongly confirmed the same. Therefore, the impugned order is liable to be set aside. The Ld. DR, on the other hand relying upon the concurrent findings of the authorities below submitted that the evidence on record is sufficient to deny the deduction claimed by the assessee.
9. In the light of the contentions of the parties, we have perused the material on record. Appellant/assessee has claimed deduction of Rs. 47,50,000/- under section 80G of the Act on the ground that it had made payment of Rs. 95,00,000/- as donation to South Indian Education Society (SIES). AO has disallowed the claim of the assessee on the basis of report dated 22.12.2010 of the investigation wing of the department, which revealed that during the relevant period SIES used to issue bogus certificates u/s 80G of the Act in favour of various assesses. As per the report SIES used to accept capitation fee in cash from the students and record in the books of account as donation in the name of different corporate entities. These corporate entities used to issue cheques in favour of SIES. In return, SIES used to issue certificates u/s 80G/35/(1)(ii) and also return the proceeds of cheques to the so called donors.
Since SIES had disclosed the said modus operandi during investigation before the investigation wing, the AO during assessment proceeding, summoned SIES. In response thereof, SIES vide letter dated 23.10.2010 confirmed having received donation from the appellant/assessee. The Ld. Counsel for the assessee has contended that a general statement made by SIES before the investigating officer, is not sufficient to hold that the appellant/assessee has received back the amount paid to SIES as donation. In our considered view, there is force in the contention of the assessee. Since SIES has not specifically stated that the amount received from the assessee was returned back as per the aforesaid modus operandi, it cannot be held conclusively that either no donation was paid by the assessee to SIES or the amount paid by the assessee was returned by SIES. Hence, the Ld. CIT(A) has wrongly confirmed the disallowance in question made by the AO based on wrong assumption. We, therefore set aside the finding of the Ld. CIT(A) and allow this ground of appeal of the assessee. In the result, the appeal filed by the assessee for the A.Y. 2008-09 is allowed. Order pronounced in the open court 20th July, 2016.