KAMLESH KUMAR MAHESHWARI, MUMBAI vs. ASST CIT 3(3), MUMBAI

आदेश / O R D E R Per Joginder Singh (Judicial Member)

2.1. We have considered the rival submissions and perused the material available on record. Without going into much deliberation and since, the finding contained in para- 11 of the impugned order has been challenged with the support of an affidavit, in the interest of justice, we remand this file/issue to the file of the ld. Commissioner of Income Tax (Appeals) to examine the factual matrix and after providing due opportunity of being heard, decide in accordance with law. Thus, the appeal of the assessee is allowed for statistical purposes only.

3.1. The crux of argument, advanced on behalf of the assessee, is that the exempt income was earned which is incidental to the business of share trading, carried out by the assessee. It was explained that the income shown in the books of accounts is separate from business income carried on in the name of universal investment. The crux of the argument, is that the ld. Dy. Commissioner of Income Tax (Appeals) wrongly combined the exempt income in the personal books of the assessee and dividend income earned to the tune of Rs.20,000, shown as part of business income of universal investments. It was also explained that no expenses were claimed against the exempt income, thus, disallowance of a sum of Rs.2,90,290/- is patently incorrect. It was also contended that no satisfaction was recorded by the Assessing Officer, while making the disallowance. On the other hand, ld. DR, defended the disallowance by placing reliance upon the assessment order/impugned order.

3.2. We have considered the rival submissions and perused the material available on record. The facts, in brief, are that the assessee an individual, is regularly assess to tax having income from various sources, which is divided into two parts (a) business income from proprietory concern of M/s Universal Investment, which is carrying on trading in shares, securities, derivatives and commodity exchange (b) personal investment in property, public provident fund and interest income/dividend income. The assessee purchased shares and sold the same after some time, resulting into dividend income from some of the shares. The assessee received dividend to the tune of Rs.20,000/-. All type of income, received under different heads was separately shown in the books of accounts different from business income carried on in the name of universal investments. The ld. DCIT combined the exempt income in personal books to the dividend income shown as part of business income, by holding that all the exempt income has to be considered while applying provisions of section 14A of the Act. In his profit & loss account, the assessee has mentioned Rs.20,525 has debited expenses, which are directly attributable to exempt income (demat charges). However, the ld. Assessing Officer following the decision in Godrej & Boyce Mfg. Company Ltd., (325 ITR 81) from Hon’ble Bombay High Court calculated the disallowance at 0.5% of the average value of investment on the opening and closing day of the previous year, which comes to Rs.2,90,290/-, therefore, he made addition of this amount to the total income of the assessee. The business loss of Rs.40,76,425/- was adjusted in other income i.e. Rs.2,23,542/- and the remaining loss of Rs.38,52,885/- was allowed to be carried forward. The ld. Commissioner of Income Tax (Appeals), on appeal, affirmed the stand of the Assessing Officer, against which, the assessee is in further appeal before this Tribunal.

3.3. Considering the totality of facts, there is no dispute to the fact that the assessee has only claimed de- mat charges of Rs.20,525/-, which were directly attributable to earn the exempt income. No borrowed funds were utilized by the assessee while making the investment. Totality of facts, clearly indicates that section 14A r.w.r -8D is not universal application and facts of each case has to be considered. Though the investment is huge but a majority of the shares, there is a loss and the disallowance cannot be made more than the exempt income. We find that the only expenses incurred by the assessee are de-mat charges and no other expenses has been claimed by the assessee. In a later decision, Hon’ble Delhi High Court in the case of Joint Investment Pvt. Ltd. vs CIT (ITA No.117 of 2015) order dated 25/02/2015, wherein, the assessee was engaged in diverse investment activities, reported loss of Rs.52,56,197/- and inter-alia declared tax exempt income in the form of dividend to the tune of Rs.48,90,000/-. The assessee volunteered Rs.2,97,440/- as attributable u/s 14A for the purposes of disallowance. The Assessing Officer in his own understanding of Rule-8D disallowed a sum of Rs.52,56,197/- u/s 14A r.w.r-8D. The Hon’ble High Court considered the finding of the Tribunal and after considering the decision in CIT vs Taikisha Engineering India Ltd. (ITA No.115/2014) order dated 25/11/2014, wherein, it was found that there was no claim of expenditure incurred for earning exempt income held that by no stretch of imagination, for section 14A or Rule-8D, be interpreted so as to mean that the entire tax exempt income is to be disallowed. The window of disallowance is indicated in section 14A is only to the extent of disallowing expenditure “incurred by the assessee in relation to tax exempt income”. Therefore, considering the totality of facts, we find merit in the contention of the assessee and since, the assessee has earned exempt income to the tune of Rs.20,000/- only, therefore, there is no question of making disallowance of Rs.2,90,290/-. Our view further find support from the ratio laid down by Hon’ble jurisdictional High Court in CIT vs India Advantage Securities Ltd. (ITA No.1131/2013) order dated 17/03/2015, Cheminvest Ltd. vs CIT (Del.) (ITA No.749/2014) order dated 02/09/2015, etc. Thus, the appeal of the assessee is allowed.

Finally, the appeal of the assessee in is allowed for statistical purposes and is allowed.

This order was pronounced in the open in the presence of ld. representatives from both sides at the conclusion of the hearing on 17/03/2016.