IN THE INCOME TAX APPELLATE TRIBUNAL,
MUMBAI BENCH "I", MUMBAI
BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER
AND DR. S.T.M. PAVALAN, JUDICIAL MEMBER
ITA No. 1685/Mum/2011
Assessment Year: 2007-08
M/s. Infolink Solutions Pvt. DCIT-1(2)
Ltd. Mumbai
67/2900, "Gandhinagar
Vs.
Jalkiran CHS Ltd."
Gandhinagar, Bandra (E)
Mumbai 400 051
PAN: AAACI 9120 N
(Appellant) (Respondent)
Assessee by Shri K. Shivram & Rahul
:
Hakani
Revenue by : Shri Sunil Agrawal
Date of hearing : 01.07.2014
Date of Pronouncement : 28.08.2014
ORDER
PER Dr. S.T.M. PAVALAN, JM:
This appeal filed by the Assessee is directed against the order of the
Ld.CIT(A)-2, Mumbai dated 06.02.2010 for the Assessment Year 2007-08.
2. In Ground No. 1, the assessee has agitated the decision of the Ld.CIT(A)
confirming the disallowance of Rs.1,12,647/- made by the AO u/s 14A of the
Income-tax Act read with Rule 8D of the Income-tax Rules.
2.1 Briefly stated, during the year under consideration, the assessee had earned a
dividend income of Rs.4,284/- and claimed the same as exempt income and no
expense was assigned to such exempt income. In the assessment framed, the AO
observed that the investment as on 01.04.2006 was Rs.78,45,995/- and the
assessee had share capital and reserve of Rs.21.99 lakhs only, the assessee had
loan funds of Rs.2.73 crores which according to the AO clearly showed that
borrowed funds were utilized in acquisition of shares. Therefore, the AO held that
the assessee had incurred direct and indirect expenses in earning the dividend
ITA No. 1685/Mum/2011
2 M/s. Infolink Solutions Pvt. Ltd.
Assessment Year: 2007-08
income. Accordingly, the AO applied Rule 8D and thereby disallowed the impugned
expenses of Rs.1,12,647/-. On appeal, the Ld.CIT(A) upheld the action of the AO.
Aggrieved by the impugned decision, the assessee has raised this ground in the
appeal before us.
2.2 Having heard both the sides and perused the material on record, it is a fact
that the relevant assessment year 2007-08 under consideration is outside the scope
of provisions of Rule 8D. The said provisions cannot be treated as applicable to the
A.Y.2007-08 under consideration indirectly when the same is precluded by the
Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. Vs. DCIT,
[(2010) 328 ITR 81(Bom)]. Also, the Hon'ble Bombay High Court, in the case of CIT
vs. M/s. Godrej Agrovet Ltd vide Income Tax Appeal No. 934 of 2011, dated
8.1.2013, has held that percentage of the exempt income can constitute a
reasonable estimate for making the disallowance in the years earlier to the
assessment year 2008-09. The relevant portion of the said judgment of the Bombay
High Court (supra) reads as under:
"So far as question (b) is concerned, the Tribunal in its impugned order
dated 17.9.2010 while applying the decision of this court in the matter
of Godrej (supra) has disallowed the expenditure only to the extent of
2% of the total exempt income earned by the respondent-assessee on
the basis its order dated 27.2.2009 for the assessment year 2002-2003
and order dated 10.9.2009 for the Assessment Years 2003-2004 and
2004-2005 wherein disallowance was restricted to 2% of the exempt
income. Further; the Tribunal has remanded the matter to the AO to
verify the disallowance claimed and restrict the disallowance only to the
extent to 2% of the total exempt income. We find no fault with the
order of the Tribunal. "
Considering the said decision, we direct the AO to quantify the disallowance in the
light of the aforesaid judgments of the Hon'ble Bombay High Court. Accordingly, the
issue raised in grounds No.1 to 3 stands partly allowed.
3. In Grounds No. 2 and 3, the assessee has agitated the decision of the
Ld.CIT(A) in holding the loss of Rs.29,73,363/- from sale of shares assessable as
income from business activity.
ITA No. 1685/Mum/2011
3 M/s. Infolink Solutions Pvt. Ltd.
Assessment Year: 2007-08
3.1 The relevant facts are that during the year under consideration, the assessee
had a loss of Rs.1.03 crores in future and options transactions and the assessee had
disclosed Rs.29,73,363/- as loss on sale of shares which had been claimed as a short
term capital loss. According to the AO, the said transactions in shares had the
characteristics of trading and not investments. Accordingly, the AO treated the said
loss as speculative loss and thereby held not allowed to adjust the same against any
other income but only be allowed to be carried forward and to set off against
speculative income in the next year. On appeal, the Ld.CIT(A) upheld the decision of
the AO treating the loss on sale of shares as a business loss and further upheld the
decision of the AO that the loss on sale of shares was to be held as speculation loss
not allowed to be set off against any other income. Aggrieved by the impugned
decision, the assessee has raised these ground in appeal before us.
3.2 Having heard both the sides and perused the material on record, it is noted
that the assessee's main business is not dealing in shares and during the relevant
assessment year, the assessee has dealt with only three scrips, namely GTL, Crest
Animation and RCVL. The total numbers of sale transactions are only 13 out of 3
scrips, two scrips have been accepted as investment in earlier year. As far as GTL is
concerned, price of the shares increased by more than Rs.10 in one day and hence
the assessee has sold the same immediately. However, later on the price of the
share kept on declining, the assessee held some shares for more than 30 days. As
share prices kept on falling, the assessee held all the shares. In this connection, we
are inclined to accept the contention of the assessee that only period of holding
cannot be the criteria and the entire activity is to be seen as a whole. Moreover, it is
pertinent to mentioned that the shares are held as investment by the assessee and
explanation to section 73 cannot invoked and gains/losses have to be treated as
capital gain/losses. The said proposition is supported by various decision in the cases
of Sterlite Industries (India) Ltd. Vs. ACIT 2006 (6SOT 497) (Mum), Krishna Laxhmi
Multi Trade Pvt. Ltd. Vs. ACIT (2011) 130 ITD 584 (Ahm). It is also relevant to state
that in the A.Y. 2008-09, in the assessment completed u/s 143(3) read with 153(C),
the AO has allowed set off of the loss as short term capital loss. In view of that
matter, we are of the considered view that the authorities below are not justified in
ITA No. 1685/Mum/2011
4 M/s. Infolink Solutions Pvt. Ltd.
Assessment Year: 2007-08
treating the impugned loss as speculation losses. Thus, Ground No 2 & 3 are
allowed.
4. In the result, the appeal filed by the Assessee is treated as partly
allowed.
Order pronounced in the open court on this 28th day of August, 2014.
Sd/- Sd/-
(N.K. BILLAIYA) (Dr. S.T.M. PAVALAN)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated: 28.08.2014
*Srivastava
Copy to: The Appellant
The Respondent
The CIT, Concerned, Mumbai
The CIT(A) Concerned, Mumbai
The DR "I" Bench
//True Copy//
By Order
Dy/Asstt. Registrar, ITAT, Mumbai.
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