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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Per B.R.BASKARAN:
All the three appeals filed by the assessee are directed against the orders passed by Ld CIT(A)-8, Mumbai for assessment years 2009-10 to 2011-12. All these three appeals were heard together and are being disposed of by this common order, for the sake of convenience.
The facts relating to the case are that the assessee is an investor and trader in shares. The assessing officer completed the assessments of all the three years under consideration by making certain additions and they were also confirmed by Ld CIT(A). Hence the assessee has filed these appeals before us.
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We shall first take up the appeal filed for assessment year 2009-10, wherein the assessee is challenging the addition made u/s 36(1)(iii)of the Act. The assessing officer noticed that the assessee has given interest free advances to certain parties, where as it has availed interest bearing loans and was paying interest. The assessee submitted that the interest free advances were given to purchase shares. However, the AO noticed that the said advances have been returned back. Hence, the AO took the view that the explanation about purchase of shares is unreliable and accordingly disallowed a sum of Rs.28.86 lakhs out of interest expenditure. It was confirmed by Ld CIT(A) and hence the assessee took the matter to the ITAT. The Tribunal, vide its order dated 20-12-2013 passed in ITA No.720/M/2013, restored the matter to the file of Ld CIT(A). In the set aside proceedings, the Ld CIT(A) held that the decision rendered by the Hon’ble Bombay High Court in the case of Reliance Utilities & Power Ltd (313 ITR 340) is not applicable to the facts of the instant case and accordingly confirmed the addition again.
We heard the parties on this issue and perused the record. At the time of hearing, the Ld A.R invited our attention to pages 102 to 106 of the paper book wherein the details of utilization of loans taken by the assessee are given. The Ld A.R submitted that the unsecured loans have been fully utilized for the purposes of business only. It was further submitted that the assessee has also availed interest free unsecured loans from M/s MW infra holding Pvt Ltd to the tune of Rs.7.60 crores; from M/s Triveni Management consultancy services Ltd to the tune of Rs.31 lakhs and from M/s Global Absolute Research Pvt Ltd to the tune of Rs20.00 lakhs. He submitted the above said interest free funds along with interest free own funds have also been used for running the business. He further submitted that the assessee had given advances only to purchase the 3 ITA N o. 2 66 3 t o 2 6 6 5/ M/ 2 0 1 5
shares and hence the tax authorities are not justified in rejecting the claim without bringing any other material on record. On the contrary, the Ld D.R placed strong reliance on the order passed by Ld CIT(A).
Having heard rival contentions, we find that there is merit in the submissions made by Ld A.R. First of all, the assessee’s claim that the interest free advances were given in connection with the purchase of shares was not disproved with any material. It is an admitted fact that the assessee’s business consisted of investing and trading in shares. Hence, the explanations furnished by the assessee should not have been rejected without bringing any material on record. Secondly, we notice that the Ld CIT(A) has not considered the interest free unsecured loans availed by the assessee. We notice that the interest free unsecured loans along with the own funds available in the form of share capital, share application money and reserves and surplus are sufficient enough to cover the interest free advances given by the assessee, even if the said advances were not considered to be for the purposes of business of the assessee. We notice that the interest free advances noticed by the AO were Rs.5.75 crores, whereas the assessee has availed interest free unsecured loans to the tune of Rs.8.10 crores. Besides the above, the assessee is having own funds also. Hence, in our view, the decision rendered by the Hon’ble Bombay High Court in the case of Reliance Utilities and Power Ltd (supra) is applicable to the facts of the present case. Since the interest free funds available with the assessee is more than the alleged interest free advances, we are of the view that the tax authorities are not justified in disallowing interest claim. Accordingly, we set aside the order of Ld CIT(A) on this issue and direct the AO to delete the disallowance made out of interest expenditure.
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We shall now take up the appeal filed for assessment year 2010-11, wherein following issues are agitated:- (a) Disallowance of interest u/s 36(1)(iii) (b) Disallowance made u/s 14A of the Act.
In this year also, the assessing officer noticed that the assessee has paid interest expenditure of Rs.48,92,738/- on the unsecured loans taken by it. The AO examined about the utilization of loan and took the view that the interest to the extent of Rs.43,72,880/- is related to the business of purchase of shares. However, the AO noticed that the assessee has given interest free advances to the tune of Rs.1.90 crores. The AO computed interest on the above said interest free advances under product method and the same worked out to Rs.40,04,575/- and the same was disallowed. The Ld CIT(A) confirmed the same.
We heard the parties on this issue and perused the record. During the year under consideration also, the assessee has furnished the details of utilization of loans in pages 47 to 49 of the paper book. A perusal of the same shows that the assessee has used major portion of the loans for purchasing shares and giving interest bearing advances. With regard to the interest free advances of Rs.1.90 crores given by the assessee, we notice that the assessee is having following funds as explained in page 112 of the paper book. Own Funds in the form of Share holders’ fund Less accumulated losses 109.97 lakhs Interest free unsecured loans:- Hydragen Infrastructures Pvt Ltd 50.00 Sofkit Educom Pvt Ltd 400.00 ------------ 450.00 lakhs ------------ 559.97 lakhs ======
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In view of the availability of interest free funds, the disallowance of interest made by the tax authorities is liable to deleted in view of the decision of Hon’ble Bombay High Court in the case of Reliance Utilities & infrastructre Ltd (supra). Accordingly, we set aside the order of Ld CIT(A) on this issue and direct the AO to delete the disallowance made out interest expenditure.
The next issue relates to the disallowance made u/s 14A of the Act. In this year, the assessee earned dividend income of Rs.2,52,781/-, but did not make any disallowance u/s 14A of the Act. However, the assessing officer worked out the disallowance as per the provisions of Rule 8D of I.T rules at Rs.55,46,090/- and added the same. The Ld CIT(A) also confirmed the said addition.
The Ld A.R submitted that the assessee is a trader in shares and hence he has held the shares as stock in trade only. He further submitted that the disallowance as per rule 8D is required to be made only if the shares are held as investments. In support of this proposition, he placed his reliance on the following case law:- (a) CCI Ltd Vs. JCIT (2012)(250 CTR 291) (b) CIT Vs. India Advantage Securities Ltd (ITA No.1131 of 2013 dated 17-03-2015 of Bombay High Court) (c) Ganjam Trading Co. P Ltd Vs. DCIT (ITA No.1384/Mum/2007 dated 20-07-2012)
The Ld A.R further submitted that the assessing officer, in the case of India Advantage Securities Ltd (supra) had worked out disallowance as per Rule 8D for the assessment year 2008-09 at Rs.48,73,485/-, but the Ld CIT(A) computed the disallowance by excluding the shares held as stock in trade. Accordingly the Ld CIT(A) computed the disallowance at Rs.47,247/- and the same was upheld by the Tribunal by following the 6 ITA N o. 2 66 3 t o 2 6 6 5/ M/ 2 0 1 5
decision of Hon’ble Karnataka High Court rendered in the case of CCI Ltd (supra). The order of the Tribunal was found by Hon’ble High Court of Bombay to be neither perverse nor vitiated by any error law apparent on the face of the record. Accordingly, the Ld A.R prayed that the shares held as stock in trade should be excluded for computing the disallowance u/s 14A of the Act.
On the contrary, the Ld D.R placed strong reliance on the order of Ld CIT(A) on this issue.
We heard the parties and perused the record. We notice that the Hon’ble Karnataka High Court has clearly held in the case of CCI Ltd (supra) that the shares held as stock in trade should be excluded for the purpose of computing disallowance u/s 14A of the Act, since they can not be said to be the “investment” made for the purpose of earning dividend income. In the case of India Advantage Securities Ltd (supra), the Hon’ble Bombay High Court has noticed that the CIT(A) took into account the words of the Rule and found that the figures as derived by the Assessing officer cannot be taken into consideration. The Ld CIT(A) had observed that, one can at best disallow the expenses which are incurred for earning dividend income and for that purpose, the figures under the head “Investment” could be taken and some charges apportioned for the purpose of computing expenses. We further notice that the decision rendered in the case of CCI Ltd (supra) has been followed by the co- ordinate benches of Tribunal in the case of India Advantage Securities Ltd (ITA No.6711/Mum/2011 and Ganjam Trading Co. Pvt Ltd (supra). The decision rendered by the Tribunal in the case of India Advantage Securities Ltd (supra) was found to be neither perverse nor vitiated by any error of law apparent on the face of record by Hon’ble Bombay High Court.
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We notice that the Tribunal in the case of India Advantage Securities Ltd (supra) has also noted the fact that the decision rendered by the Hon’ble Karnataka High Court in the case of CCI Ltd (supra) has already been followed by the Tribunal in the case of Ganjam Trading Co.P.Ltd (supra) and also the Special Bench of the Tribunal in the decision rendered in ITO V/s.Daga Capital Management (P.) Ltd. [2009] 117 ITD 169 (MUM.) (SB). However, following the decision of Hon’ble Karnataka High Court in the case of CCI Ltd (supra), the Tribunal held that the disallowance of interest in relation to dividend received from shares held as stock-in-trade cannot be made.
In the result, the appeal filed for AY 2009-10 is allowed and the appeals filed for AY 2010-11 and 2011-12 are partly allowed. Pronounced accordingly on 28th Oct, 2015. घोषणध खुरे न्मधमधरम भें ददनधंकः 28th Oct, 2015 को की गई । (LALIT KUMAR) ( B.R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER भुंफई Mumbai: 28th Oct, 2015. व.नन.स./ SRL , Sr. PS आदेश की प्रतिलऱपप अग्रेपिि/Copy of the Order forwarded to : अऩीरधथी / The Appellant 1. प्रत्मथी / The Respondent. 2. आमकय आमुक्त(अऩीर) / The CIT(A)- concerned 3. आमकय आमुक्त / CIT concerned 4. ववबधगीम प्रनतननधध, आमकय अऩीरीम अधधकयण, भुंफई /
DR, ITAT, Mumbai concerned गधर्ा पधईर / Guard file. 6. आदेशधनुसधय/ BY ORDER, सहधमक ऩंजीकधय (Asstt.