Income Tax Appellate Tribunal - Ahmedabad
Ulhas Securities Pvt. Ltd.,, Ahmedabad vs The Income Tax Officer, Ward-4(1)(4),, ... on 20 March, 2018
आयकर अपील य अ धकरण, अहमदाबाद यायपीठ 'एस. एम. सी', अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL "SMC" BENCH, AHMEDABAD सव ी द प कुमार के डया, लेखा सद य एवं महावीर साद, या यक सद य के सम ।
BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMBER आयकर अपील सं./I.T.A. No.2364/Ahd/2016 ( नधा रण वष / Assessment Year : 2012-13) Ulhas Securities Pvt.Ltd. बनाम/ The ITO Q-202, Coral Parshwanath Vs. Ward-4(1) Atlantis Park, Nr.Agora Mall Ahmedabad S.P. Ring Road Ahmedabad-382 424 थायी ले खा सं . /जीआइआर सं . / PAN/GIR No. : AAACU 6130 E (अपीलाथ& /Appellant) .. ( 'यथ& / Respondent) अपीलाथ& ओर से / Appellant by : Ms.Urvashi Shodhan, AR 'यथ& क) ओर से/Respondent by : Shri Antony Pariath, Sr.DR ु वाई क) तार ख / सन Date of Hearing 07/03/2018 घोषणा क) तार ख /Date of Pronounce ment 20/ 03 /2018 आदे श / O R D E R PER PRADIP KUMAR KEDIA - AM:
The captioned appeal is filed at the instance of the assessee against the appellate order of the Commissioner of Income Tax(Appeals)-8, Ahmedabad [CIT(A) in short] dated 11/07/2016 arising in the assessment order passed under s.143(3) of the Income Tax ITA No.2364/Ahd/2016 Ulhas Securities P.Ltd. vs. ITO Asst.Year -2012-13 -2- Act, 1961 (hereinafter referred to as "the Act") dated 03/03/2015 relevant to Assessment Year (AY) 2012-13.
2. The assessee has raised two substantive grounds of appeal which read as under:-
1. In law and in the facts and circumstances of the appellant's case, the Ld.CIT(A) has erred in confirming addition of Rs.25,61,008/- under Section 14A of the Act without appreciating the facts that the provisions of Section 14A of the Act is not applicable when the Appellant is carrying on share trading activity as business activity.
2. In law and in the facts and circumstances of the appellant's case, the Ld.CIT(A) has erred in upholding addition of Rs.25,61,008/- under Section 14A of the Act while computing book profit u/s.115JB of the Act. The Ld.CIT(A)is not justifying by upholding disallowance of expenditure in section 115JB by presuming such expenditure on notional basis as relating to income exempt u/s.10 of the Act.
3. The first challenge concerns addition of Rs.25,61,008/- made under s.14A of the Act.
4. Briefly stated, the assessee, a private limited company, is engaged in the business of trading in shares and bonds as well as investment in shares. For the relevant assessment year, the assessee filed its return of income declaring loss of Rs.2,20,259/-. The case was subjected to scrutiny assessment. In the course of the scrutiny assessment, the Assessing Officer (AO) observed that the assessee has accounted ITA No.2364/Ahd/2016 Ulhas Securities P.Ltd. vs. ITO Asst.Year -2012-13 -3- Rs.78,67,227/- towards dividend income received from equity investments which is claimed as exempt income. The AO also found that the assessee has not made any disallowance of expenses incurred in relation to tax-free income as mandated under s.14A of the Act r.w.Rule 8D of the Income Tax Rules, 1962. The AO accordingly invoked section 14A of the Act and computed disallowance of Rs.3,162,792/- as per formula prescribed under Rule 8D of the I.T.Rules. Corresponding adjustments were made also while computing book profit as per section 115JB of the Act.
5. Aggrieved, the assessee preferred appeal before the CIT(A).
6. The CIT(A) granted partial relief and reduced the disallowance under s.14A to Rs.25,61,008/- owing to some calculation error by the AO. Thus, the CIT(A) approved the action of the AO in principle.
Corresponding adjustments made in the book profit for the purposes of 115JB of the Act was also simultaneously upheld at the revised figure.
7. Aggrieved, the assessee preferred appeal before the Tribunal.
8. The Ld.AR for the assessee, at the outset, submitted that the AO as well as CIT(A) misdirected themselves in law in invoking section 14A of the Act in the facts of the present case. The Ld.AR referred to the ITA No.2364/Ahd/2016 Ulhas Securities P.Ltd. vs. ITO Asst.Year -2012-13 -4- financial statements of the relevant financial year as well as the computation of income filed by the assessee to contend that although the assessee has earned dividend income (tax-free) from equity shares held by it, the equity shares were however, held in the ordinary course of business as trading asset which can be vouched from the action of the assessee that the income arising on sale of shares were declared as business income and accepted as such by the revenue. On a query posed by the bench, the Ld.AR submitted that the shares for trading purposes were wrongly declared by the assessee as capital investments in its financial statements. However, in the same vain, the ld.AR submitted that the income arising from sale of shares have exclusively returned under the head 'business income' notwithstanding a wrong disclosure made in the financial statement as capital asset instead of trading asset. The Ld.AR next contended that the question therefore arises for consideration is whether disallowance under s.14A of the Act can be made towards expenses incurred in relation to tax-free dividend income arising from shares essentially held as stock-in-trade. The Ld.AR submitted that in view of the decision of Hon'ble Karnataka High Court in the case of CCI Ltd. vs. Jt.CIT 20 taxamann.com 196 (Kar.) and Pr.CIT vs. State Bank of Patiala 391 ITR 298 (P&H), the dividend arising on shares held as trading assets cannot be reckoned for the purposes of applicability of section 14A of the Act. The Ld.AR vehemently reiterated that the AO having admitted the income arising on ITA No.2364/Ahd/2016 Ulhas Securities P.Ltd. vs. ITO Asst.Year -2012-13 -5- sale of shares as business income has no mandate to apply the provisions of section 14A of the Act in view of the law evolved by the judicial precedents cited above.
8.1. As regard adjustments in book profit towards disallowance under s.14A of the Act, the Ld.AR relied upon the decision of the Special Bench in the case of ACIT vs. Vireet Investment(P) Ltd. 165 ITD 27 (Delhi)[SB] and DCIT vs. Reliance Natural Resources 166 ITD 385 (Mum.).
8.2. The Ld.AR thus submitted that the directions of the revenue authorities require to be set aside in respect of the grievances of the assessee.
9. The Ld.DR, on the other hand, referred to the order of the CIT(A) and submitted that the CIT(A) has given a clear finding that the assessee does not deny expenses made to earn exempt income and therefore disallowance made under s.14A of the Act read with Rule 8D of the IT Rules, 1962 cannot be faulted. The Ld.DR also submitted that the benefit of netting off of interest etc has been taken into account by the CIT(A) while coming to the conclusion towards maintainability of disallowance. Adverting to the computation of book profit under s.115JB of the Act having regard to the disallowance under s.14A, the Ld.DR referred to clause(f) of Explanation below 115JB(2) of the Act and submitted that in ITA No.2364/Ahd/2016 Ulhas Securities P.Ltd. vs. ITO Asst.Year -2012-13 -6- view of the express statutory mandate, the addition to book profit towards disallowance made under s.14A derived on a rational basis has been rightly been made by the revenue authorities. In conclusion, the Ld.DR relied upon the order of the CIT(A).
10. We have carefully considered the rival submissions and perused the orders of the authorities below, case-laws cited and material relied upon in terms of Rule-18(6) of the ITAT Rules, 1963.
11. The first issue concerns maintainability of disallowance under s.14A of the Act towards exempt income earned from equity shares. It is the case of the assessee that the income derived from sale of equity shares have been disclosed as business income of the assessee and therefore in view of the judicial precedents, section 14A cannot be applied to the dividend income. We fail to understand the rationale for such plea. We take note from the pleadings before the lower authorities that assessee itself has stated to be engaged in trading in shares as also in investment in shares. It is well settled that an assessee can parallelly maintain two portfolios; one towards capital investments and other towards trading investments. There is a qualitative difference between profits arising from sale of capital assets and that of trading assets under the Act. Capital assets and trading assets or stock in trade are treated differently under the scheme of the Act. They bear different characters ITA No.2364/Ahd/2016 Ulhas Securities P.Ltd. vs. ITO Asst.Year -2012-13 -7- and cannot be compared on par with each other as a similar class of assets. The capital assets, in certain situations enjoy concessional tax treatment. Therefore, shares and securities treated as capital assets in the books and financial statement cannot be given different manifestations casually on oral utterances disowning financial statement showing the position taken the assessee itself in this regard. On facts, we note from the audited balance-sheet of the company approved by the Board of Directors as well as the statutory auditors that the shares were held at the beginning and at the end of the year are in the nature of capital investments (non-current investments). Such declarations made by the assessee are to be ordinarily seen as sacrosanct unless there is a compelling reason to deviate therefrom. We do not see any such reason. The dividend income is admittedly tax-free income and therefore expenditure attributable to dividend income calls for disallowance in terms of section 14A of the Act.
12. Besides, there is no material on record to establish that huge dividend income has arisen from shares already sold, the income wherefrom has been shown as business income. It is quite possible that an assessee may enjoy dividend from share held as capital assets while doing business in other items of equity simultaneously. Thus, merely because a stream of income from trading in shares has been returned under head 'business income' does not give any inference that the shares ITA No.2364/Ahd/2016 Ulhas Securities P.Ltd. vs. ITO Asst.Year -2012-13 -8- held in possession of the assessee also bear the attributes of trading asset. Therefore, in the absence of pertinent facts to support the plea, we do not find any warrant for examining the issue with reference to the judicial precedents cited by the assessee. As per facts on record, it is plain and simple case where the assessee has declared investments in shares etc. as capital asset and no disallowance has been made suo motu towards expenditure attributable to such income. Therefore, the AO was well within its right to apply the provisions of section 14A of the Act r.w.Rule 8D of the IT Rules, 1962. The CIT(A) has given his indulgence and corrected the arithmetical formula as suggested on behalf of the assessee in the first appellate proceedings. The formula under Rule 8D is with reference to the investments held and not with reference to the business income. Thus, we find no merit in the plea of the assessee for deletion of disallowance under s.14A of the Act.
13. In the result, Ground No.1 of the appeal of the assessee is dismissed.
14. Now we shall turn to Ground No.2 of assessee's appeal concerning the maintainability of the adjustments made in book profit computed for the purpose of section 115JB of the Act.
ITA No.2364/Ahd/2016Ulhas Securities P.Ltd. vs. ITO Asst.Year -2012-13 -9-
15. We straight away refer to the decision of the Coordinate Bench of Tribunal in the case of Arvind Ltd. vs. DCIT in ITA No.1816/Ahd/2011 order dated 08/03/2018 where identical issue arose for adjudication (one of us is a party to the decision). The relevant operative para adjudicating the issue is reproduced hereunder:-
"5. We have carefully considered the rival submissions and perused the orders of the authorities below and also several judicial precedents cited. In the present case, we are concerned with the limited controversy as to whether, for the purposes of computation of 'book profit' under s.115JB, the AO is entitled to increase 'book profit' by the equivalent amount of disallowances as found attributable to exempt income under normal provisions or not. While it is the case of the assessee that in view of long line of judicial precedents, such adjustment in 'book profit' is not permissible, it is the case of revenue that in view of codified law in this regard, the 'book profit' under 115JB has been rightly increased by the revenue.
6. We notice that issue is evolved and developed by certain judicial precedents. We find at the first instance that the identical issue came up for consideration before the Hon'ble Gujarat High Court in the case of Alembic Ltd. (supra) where the substantial question of law on the point as to whether adjustment made on account of disallowance under s.14A of the can be similarly made for the purposes of computation of 'book profit' under s.115JB of the Act was answered against the Revenue and in favour of the assessee. We also take note of decision of the Special Bench rendered in ACIT vs. Vireet Investment Pvt.Ltd. & Anr. 165 ITD 27 (Delhi)[SB] where it was held that the AO was not entitled to tinker with book profits contemplated under s.115JB towards disallowance made under s.14A of the Act. We similarly find that judgement of Hon'ble Bombay High Court in CIT vs. Bengal Finance and Investments Pvt.Ltd. in ITA No.337 of 2013 order dated 10/02/2015 also complements the issue. Thus, seen on the anvil of the judicial fiat available squarely on the issue, we are disposed to assign merits to the contentions on behalf of the assessee. At this juncture, we pause to note the concern of ITA No.2364/Ahd/2016 Ulhas Securities P.Ltd. vs. ITO Asst.Year -2012-13
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revenue seeking to plead possible redundancy of clause(f) to Explanation to s.115JB in the event of disagreement with the action of AO. We are alive to such concerns. However, as noted, we are governed by the superior wisdom available in this regard. Hence, remedy to revenue, if any, perhaps lies elsewhere. Accordingly, respectfully following the decisions governing the field, we direct the AO to delete the adjustments made on account of estimated disallowance determined under s.14A of the Act while computing 'book profit' under u/s.115JB of the Act."
16. In view of the position noted above, we find merit in the grievance of the assessee for adjustments in the book profit under s.115JB of the Act qua 14A disallowance.
17. In the result, Ground No.2 of assessee's appeal is allowed.
18. In the result, appeal of the assessee is partly allowed.
This Order pronounced in Open Court on 20/ 03 /2018
Sd/- Sd/-
(महावीर
साद) (
द प कुमार के डया)
या यक सद य ले खा सद य
( MAHAVIR PRASAD ) ( PRADIP KUMAR KEDIA )
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad; Dated 20/ 03 /2018
ट .सी.नायर, व. न.स./T.C. NAIR, Sr. PS
ITA No.2364/Ahd/2016
Ulhas Securities P.Ltd. vs. ITO
Asst.Year -2012-13
- 11 -
आदे श क त!ल"प अ#े"षत/Copy of the Order forwarded to :
1. अपीलाथ& / The Appellant
2.
'यथ& / The Respondent.
3. संबं6धत आयकर आयु8त / Concerned CIT
4. आयकर आय8
ु त(अपील) / The CIT(A)-8, Ahmedabad
5. 9वभागीय
त न6ध, आयकर अपील य अ6धकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाड फाईल / Guard file.
आदे शानुसार/ BY ORDER, स'या9पत त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad
1. Date of dictation .. 8.3.18 (dictation-pad 22-pages attached at the end of this appeal-file)
2. Date on which the typed draft is placed before the Dictating Member ...8.3.18
3. Other Member...
4. Date on which the approved draft comes to the Sr.P.S./P.S.................
5. Date on which the fair order is placed before the Dictating Member for pronouncement......
6. Date on which the fair order comes back to the Sr.P.S./P.S.......20.3.18
7. Date on which the file goes to the Bench Clerk.....................20.3.18
8. Date on which the file goes to the Head Clerk..........................................
9. The date on which the file goes to the Assistant Registrar for signature on the order..........................
10. Date of Despatch of the Order..................