VINOD KESHAVDEO NEVATIA,MUMBAI vs. ITO 4(2)(2), MUMBAI

This appeal by the assessee is directed against the order of the CIT(A)-8, Mumbai dated 05.11.2012 for A.Y. 2009-10.

Shri Vinod Keshavdeo Nevatia “2.2 In this respect, appellant’s elaborate submission has been considered. It is noticed that similar addition was made in AY 2008-09 and my predecessor vide order No. CIT(A)-8/Cir.4/393/2010-11 dated 12/1/2012 had dismissed the appellant’s appeal. Since the facts and circumstances are identical to that of AY 2008-09, I have no reason to differ with the view taken by my predecessor. Accordingly, for the reasons discussed in the above referred appellate order, the addition made by the AO is sustained and the ground of appeal is dismissed.”

3. Aggrieved by the order of the CIT(A)-8, Mumbai dated 05.04.2012 for A.Y. 2009-10, the assessee has preferred this appeal raising the following grounds: - “1. That on the facts and in the circumstances of the appellants case and in law learned CIT(A) has erred in confirming the disallowance of Rs. 11,22,001/- made by the assessing officer under section 14A of the act.

2. That on the facts and in the circumstances of the appellant's case and in law learned CIT(A) has erred in not appreciating that the appellant had held the shares for the purpose of the business and not for earning dividend which is merely incidental to the appellant's business in shares.

3. That on the facts and in the circumstances of the appellant's case and in law learned CIT(A) has erred in not appreciating that the appellant has maintained separate account for his investment, Broking and share trading activities.

4. Your appellant states and submit that entire investment in shares yielding tax free dividend and long term capital gain has been made by him out of his own capital of Rs. 26,46,42460/- and interest free finances by way of internal accrual from sale of shares, long term capital gain of Rs.1,09,79,764/- dividend income of Rs. 41,52,932/- and trading and other income of Rs.5.92,072/- which is far in excess of the average value of investments amounting to Rs.6,15,70,074/-. There is no material relied upon by Assessing Officer to draw the inference of utilization of interest bearing borrowed funds.

5. Appellant rely on his submission to the Assessing Officer as under:- "We are of the opinion that no expenditure is incurred for earning non taxable income. The only income which is not taxed is dividends. In this tax is collected by way of dividend distribution tax. Dividends has been received on share held in business. This income is incidental to the main business and no cost can be assigned to earning it. Dividend are also received from mutual fund where surplus funds are parked from day to day basis. One can say part of Shri Vinod Keshavdeo Nevatia these fund can be attributed to loans on which interest has been paid. You will see from the Profit & Loss account. Interest paid Rs.1436299/- Interest earned Rs.1334682 (difference Rs.101617) To settle the matter we offer without prejudice this difference Rs.101617/- may be disallowed u/s. 14A."

6. The impugned order being contrary to law, evidence and facts of the case may be set aside, amended Or modified in the light of the grounds deduced above.

at or before the time of hearing.”

4. Hearings in this case were afforded to the assessee on a number of occasions. When the Bench did not function, the case was adjourned through intimation in the Notice Board. At the other hearings on 15.01.2015, 27.08.2015, 08.12.2015 and 21.02.2016 the learned A.R. for the assessee sought adjournment. Today, i.e. 16.05.2016 when the case was called, none was present for the assessee but the learned D.R. was present and ready for the Department. In these circumstances, we are of the opinion that the assessee is not interested in pursuing this appeal seriously and we therefore proceed to dispose off this appeal with the help of the assessee and the material on record.

5. The grounds at S.Nos. 6 & 7 are general in nature and therefore no adjudication is called for thereon.

6. Grounds 1 to 5B - Disallowance of `11,22,001/- under section 14A r.w. Rule 8D 6.1 The learned D.R. for Revenue was heard and he strongly supported the orders of the authorities below in confirming the disallowance of `11,22,001/- made by the Assessing Officer (AO) under section 14A r.w. Rule 8D since the facts and circumstances of the case in this year were identical to that of the immediately preceding A.Y. 2008-09 where the similar disallowance under section 14A r.w. Rule 8D was made and confirmed by the learned CIT(A). The learned D.R., however, fairly brought to the notice of the Bench that the Coordinate Bench of this Tribunal in the assessee’s own case for A.Y. 2008-09 in its order in ITA No.

Shri Vinod Keshavdeo Nevatia 2398/Mum/2012 dated 23.09.2014 has dealt with the very same issue and therefore the issue may be decided accordingly. 6.2 We have heard the learned D.R. for Revenue and perused and carefully considered the material on record including the grounds raised (supra). We find that the assessee has filed a paper book (pages 1 to 17). On a perusal thereof, we find that the assessee has put forward written submissions dated 07.12.2015 on this issue which are extracted hereunder: - 2.1 Your appellant made submission to Assessing Officer on disallowance u/s. 14A as under, "We are of the opinion that no expenditure is incurred for earning non taxable income. The only income which is not taxed is dividend. In this tax is collected by way of dividend distribution tax. Dividends have been received on share held in business. This income is incidental to the main business and no cost can be assigned to earning it. Dividends are also received from mutual fund where surplus fund are parked from day to day basis. One can say part of these funds can be attributed to loans on which interest has been paid. You will see from the Profit and Loss Account. Interest Paid Rs.1436299/- Interest Earned Rs.1344683 (Differences of Rs.101617) To settle the matter we offer without prejudice this difference Rs.101617/- may be disallowed u/s. 14A." Your appellant pray that the disallowance offered be accepted. 2.2 Without prejudice your appellant also pray that since your appellant hold shares both by way of Investment and Stock in trade, also having separate demat account and very fact that income on sale of shares by way of Short Term Capital Gain & Long Term Capital Gain are accepted by the assessing Officer. Interest disallowance under rule 8D(2) separately for shares hold as investment and stock in trade and restrict the disallowance relatable to the latter to twenty per cent as per the order for AY. 2008-2009. 3.1 Your appellant prays that the addition of Rs. 1122001/- u/s. 14(A) read with rule 8D be deleted.” 6.3 As submitted by the learned D.R. and also in the assessee’s submissions, we find that a Coordinate Bench of this Tribunal in the assessee’s own case for A.Y. 2008-09 in its order in ITA No.

Shri Vinod Keshavdeo Nevatia 2398/Mum/2012 dated 23.09.2014 has considered the very same issue of disallowance under section 14A r.w. Rule 8D and held as under at para 5 thereof: - “5. We have heard the parties, and perused the material on record. We firstly find the arguments by the ld. CIT(A) in meeting the assessee’s case, as made before him, as unexceptional. In fact, the assessee before us did not raise any of the issues he did before the first appellate authority. Coming to the assessee’s case, i.e., as made before us, we find it as untenable both on facts and in law. Earning of income is not a condition precedent for the claim of expenditure, either u/ss. 36(1)(iii) and 37(1), i.e., qua business income, or s.57(iii), i.e., qua income from other sources. As such, the extent of income, or even it being at nil, would not be a relevant consideration for the purpose of allowance of expenditure and, thus, for its disallowance u/s.14A where it is in relation to income/s not forming part of the total income, even as clarified by the tribunal per its larger bench decision in Cheminvest Ltd. (supra) applying CIT vs. Rajendra Prasad Moody [1978] 115 ITR 519 (SC). This would also at once resolve the issue of s. 14A being inapplicable on account of some shares being held as stock-in-trade, or as also so, i.e., apart from as investment, as was also the case in Cheminvest Ltd. (supra). The assessee’s claim of the dividend earned being on shares held as stock-in-trade, which does not appear to have been made before the authorities below in-as-much as there is no finding thereon by them, is thus of no consequence. Expenditure, whether on administration/management or on interest, is incurred on the basis of and with reference to investment/holding, and is therefore allowed or disallowed, as the case may be, in computing the total income, on that basis. The statutory disallowance u/s.14A, i.e., qua income not forming part of the total income, would therefore again be on that basis. Why, if expenditure were to be incurred only on the income being earned, i.e., is a function of income, there would be no occasion to and, thus, incurring of loss and, rather, income would stand to earned at a predetermined level (i.e., vis-à-vis the expenditure incurred), even as explained by the tribunal in D. H. Securities (P.) Ltd. (supra) and Damani Estates & Finance (P.) Ltd. (supra). It is thus immaterial whether the dividend income stands earned on shares held as stock-in-trade or as investment or as both; it being decidedly an incident of share-holding, the nature of which (holding) is relevant only for determining the classification of income that inures on their sale, i.e., as ‘capital gains’ or as ‘business income’. The assessee’s next argument is of section 14A being not attracted as the shares yielding dividend income, or part thereof, are held as stock-in-trade in view of the decision in CCI Ltd. (supra) and Leena Ramachandran (supra), which would take precedence over the decisions by the tribunal. The argument is not without merit. However, Shri Vinod Keshavdeo Nevatia even as pointed out during the hearing itself, the question examined by the tribunal in D. H. Securities (P.) Ltd. (supra) was if the decision by the hon’ble jurisdictional high court in Godrej & Boyce Mfg. Co. Ltd. (supra), explaining the principles of apportionment governing the application of section 14A, would cover a case where shares yielding exempt dividend income were held as stock-in-trade of the assessee’s business. This was confirmed as so by the third member; rather, holding the issue as squarely covered by the decision in Godrej & Boyce Mfg. Co. Ltd. (supra), as also by, following it, Dhanuka & Sons vs. CIT [2011] 339 ITR 319 (Cal), even as was found earlier by the tribunal in Damani Estates & Finance (P.) Ltd. (supra). We are under the circumstances unable to observe any controversy, at-least in-so-far as this tribunal is concerned. The decision in the case of CCI Ltd. (supra) and Leena Ramachandran (supra) stood rendered without noticing the decision in Godrej & Boyce Mfg. Co. Ltd. (supra), even as observed by the third member. The assessee’s said argument thus fails. So, however, as also observed during hearing, the tribunal in D. H. Securities (P.) Ltd. (supra) as well as in Damani Estates & Finance (P.) Ltd. (supra), has held that the disallowance of interest u/s.14A qua shares yielding tax exempt income would be at twenty per cent (20%) of the interest attributable thereto, i.e., in terms of rule 8D(2), where the shares are held as stock-in-trade. This, it was explained, is for the reason that the said shares yield both income forming part of the total income (by way of share trading income) as well as that not forming part thereof (by way of dividend income), so that ascribing the entire interest referable to such share-holding to dividend income would imply no interest expenditure against share trading income and, thus, be against the very principles of apportionment which s. 14A and, thereby, r. 8D, stand by and seek to mandate. The relevant discussion is at pgs. 697- 698 of the reports in Damani Estates & Finance (P.) Ltd. (supra). The ld. AR would, upon this, signify his acceptance of the said decisions. In the facts of the instant case, in-so-far as it appears to us, the assessee holds shares both by way of investment and stock-in-trade, even as contended by him per ground # 3 of its appeal. Maintenance of two portfolios by the assessee, which he is well entitled to, would imply classifying all the shares into one or the other category, i.e., as investment or stock-in-trade, on acquisition. Though the ld. AR was unable to exhibit the same before us, the very fact that the assessee returns income on sale of shares also by way of capital gains – both short-term and long-term, which stands accepted by the Revenue, clearly indicates so. The trading account of the assessee’s proprietary firm, M/s. Gaurav Trading Co., for the relevant accounting period shows an opening and closing stock (of shares and debentures) at Rs.195.76 lacs and Rs.65.72 lacs respectively as on 31.03.2008, the year-end (PB pg.12), yielding an average holding of Rs.130.74 lacs. The same, however, does not agree with the total value of investment (Rs.700.40 lacs) and stock-in-trade (at Rs. 531 lacs) held by the