Churu Trading Co. P.Ltd, Mumbai vs Assessee

आयकर अपीलीय अिधकरण, अिधकरण मुंबई IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES 'C' MUMBAI सव ौी आय.पी. बंसल, याियक सदःय एवं ौी चं पुजारी, लेखा सदःय के सम । BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER

ITA NO.4779/Mum/2012 (A.Y.2005-06)

M/s. Churu Trading Co. Pvt. Ltd. The Addl.CIT, Circle - 6(2), Continent Building Aayakar Bhavan, Mumbai-20. 135, Dr. A.B. Road, Worli Vs. (Respondent) Mumbai- 400 020. GIR No./PAN : AAACC 4853 G (Appellant )

ITA NO.4778/Mum/2012 (A.Y.2007-08)

M/s. Churu Trading Co. Pvt. Ltd. The Addl.CIT, Circle - 6(2), Mumbai- 400 020. Aayakar Bhavan, Mumbai-20. GIR No./PAN : AAACC 4853 G Vs. (Respondent) (Appellant )

ITA NO.5126/Mum/2012 (A.Y.2007-08)

The Addl.CIT , Circle - 6(2), M/s. Churu Trading Co. Pvt. Mumbai- 400 020. Ltd. (Appellant ) Vs. Mumbai- 400 020. GIR No./PAN : AAACC 4853 G (Respondent)

Assessee by : Shri B.S. Sharma - AR and Shri Dalpat Shah - AR Department by : Shri Premanand J. - DR

Date of hearing : 24/02/2015 Date of pronouncement : 24/02/2015

ORDER

2 ITA No.4778, 4779 & 5126/Mum/12

PER BENCH:

ITA No.4779/Mum/2012 is assessee's appeal and other two appeals in ITA No.4778/Mum/2012 and ITANo.5126/mum/2012 are cross appeals directed against order of CIT(A) for the assessment year 2005-06 and 2007-08 respectively. Since grounds in these appeals are common in nature, hence, these appeals are clubbed together, heard together and disposed of by this common order for the sake convenience.

2. First, we take up assessee's appeal in ITA No.4779/Mum/12 (Assessment Year :2005-06) 2.1 The first ground in ITA No. 4779/Mum/12 is as follows :-

"The ld. CIT(A)-XII, Mumbai has erred on facts, in law and in the circumstances of the case in partly disallowing the Interest Expenses u/s. 36(1)(iii) of the Income tax Act, 1961 to be calculated on the basis and as per the method specified in the appellate orders dated 30/3/2007 for assessment year 2003-04 and by the Order dated 28/12/2007 for the assessment year 2004-05 passed by the Ld. CIT(A)-VI instead of allowing the interest as claimed by the appellate."

2.2 After hearing both the parties, we are of the opinion that similar issue was considered by this Tribunal in assessee's own case in ITA No.933/Mum/2006, 1912/Mum/2008, 1494/Mum/2005 and 4682/Mum/2007 dated 24/12/2012 wherein it was held as follows:-

"8.1 Considering the arguments of the learned Counsel and the learned Departmental Representative, we are of the opinion that the issue is to be re- examined by the Assessing Officer in the light of the decisions taken in AY 2001-02 above. Unless there is a finding that assessee's investment is not business activity and the funds are not utilized for the purpose of business, disallowance under section 36(1)(iii) does not arise. There is no disallowance under section 14A in this year as the dividend income was taxable. Therefore, the interest disallowance has to be considered 3 ITA No.4778, 4779 & 5126/Mum/12

under section 36(1)(iii). If there is income or loss under the head "capital gains", the interest disallowance under section 36(1)(iii) pertaining to the investment activity is also to be considered as deduction, while working out the capital gain. Accordingly, the assessing Officer is directed to examine the nexus with borrowed funds on which interests was claimed to the utilization of funds either in investment activity or in business activity and disallow amount accordingly under section 36(1)(iii) and consider whether it is allowable while working our capital gain etc. In the case of advances Mr.Rishikumar Chakrapani and also to MPCC, consistent with the stand taken in the earlier years, the interest disallowance on the above amount has to be disallowed as there are already findings that the amounts are advanced for non business purposes. To that extent, the disallowance of interest stands confirmed. With these directions the issue in this ground is restored to the file of the Assessing Officer for fresh consideration after examining the facts and to decide according to law . Assessee should be given an opportunity to make submissions and furnishing the necessary details in this regard. With these directions the appeal is considered as partly allowed for statistical purposes."

2.3 Further, it is also brought on record by the ld. AR that similar issue was considered by this Tribunal for the assessment year 2006-07 in ITA 5372/Mum/2011 vide order dated 20/11/2012, in which it was held as follows:-

"5. On going through the grounds of appeal and the order of the coordinate Bench, the impugned issue has been restored to the file of the AO. In these circumstances, we also feel, that in the interest of justice and for getting the consistency, the issue must be restored to the file of the AO in the current year as well, as directed by the CIT(A).This observation of the CIT(A), we endorse."

2.4 Respectfully following the above order of the Tribunal we are inclined to restore the above grounds raised by the assessee in both the appeals to the file of the AO on similar direction. Accordingly, this ground in both the appeals is partly allowed for statistical purposes.

4 ITA No.4778, 4779 & 5126/Mum/12

3. The second ground in assessee's appeal in ITA No.4779/Mum/12 is as follows :-

"The ld. CIT(A)-XII, Mumbai erred on in law, on facts, in the circumstances of the case in confirming disallowance made u/s. 14A of the Act, by the Ld. ACIT(A)-6(2) but restricting the amount of disallowance to 10% of the dividend income earned instead of deleting the same or ought to have restricted disallowance to 1% of the dividend income u/s. 14A of the Act."

3.1 We find that the Tribunal has considered similar issue in ITA No.5372/11 for the assessment year 2006-07 vide order dated 20/11/2012 wherein it was held as follows:-

"14. On going through the order of the coordinate Bench, we feel that the coordinate Bench has taken a very reasonable approach to work out the disallowance on a reasonable basis in the current year, where the department had gone in appeal against the disallowance restricted to 10%. We, fully endorse the view taken by the coordinate Bench, and we also direct the AO to workout disallowance on reasonable basis."

3.2 In view of the above order of the Tribunal disallowance restricted to 10% of the dividend income earned for the current year is very reasonable and same is confirmed. This ground is rejected.

4. The third ground in ITA No.4779/Mum/2012 is as follows :-

"The ld. CIT(A), has erred on facts, in law and in the circumstances of the case in treating the loss of Rs.3,32,042/- on only sale of Equity Shares, though there was no purchase during the year and notional interest of Rs.3,91,45,295/- on funds used for trading operations in equity shares, as 'Speculation Loss' instead of "Business Loss" under explanation to Section 73 of the Act."

4.1 After hearing both parties we are of the opinion that this issue is fairly covered by the order of the Tribunal in ITA No.5372/Mum/22 vide order dated 20/11/2012 in assessee's own case wherein in the earlier order 5 ITA No.4778, 4779 & 5126/Mum/12

of the Tribunal in ITA No.3724/Mum/2005 for assessment year 2001-02 was followed, wherein it was observed as follows:-

"On identical ground, the notional interest allocted to stock-in-trade of shares has been confirmed as speculation loss by the Hon'ble ITAT 'D' Bench, Mumbai in the case of sister concern, M/s. Ganjam Trading Co. Pvt. Ltd. vs. DCIT (ITA No.3724/Mum/2005)A/Y 2001-02, (ITA No.932/Mum/2006) A/Y 2002-03 and (ITA No.1382/mum/2007) A/Y 2003-04 vide order dated 20/07/2012 (at para 3) at pages 22 to 26.

In para3, 4 on page 25, it is held as under in the appellate order:

We see no infirmity in the conclusion drawn by the authorities below that provisions of Explanation to section 73, are applicable in the case of the assessee and the loss from trading in shares has to be treated as speculation loss. The authorities are also justified in allocating interest expenses towards the loss arising from trading of shares as while computing profit or loss from trading of shares all expenses have to be considered.

We therefore, confirm the order of the ld. CIT(A) in treating the interest loss."

4.2 In view of the above order of the Tribunal we are inclined to confirm the order of the CIT(A) on this issue. This ground of the assessee is rejected in both the appeals.

5. Further the ld. AR has not pressed the following grounds in these appeals on account on smallness of the amount of addition.

"d. The ld. CIT(A) erred in law, on facts and in the circumstances of the case in confirming disallowance by the ld. AO, of interest u/s. 201(1A) of the Act of Rs.3,17,026/- as compensation and not penalty for delayed payment of Tax Deducted at Source."

"e. The ld. CIT(A) erred in law, on facts and in the circumstances of the case in confirming disallowance by the ld. AO, of interest paid u/s. 36(1)(iii) of the Act of Rs.36,23,471/- by considering interest as for prior period expenses, even though the liability crystallized during the year."

5.1 Thus above grounds are dismissed as not pressed.

6 ITA No.4778, 4779 & 5126/Mum/12

6. In the result, appeal of the assessee in ITA No.4779/Mum/12 is partly allowed for statistical purposes.

7. Now we take up assessee's appeal in ITA No.4778/Mum/2012(Assessment Year :2007-08):

7.1 Ground No.1 is as follows:-

"1.The ld. CIT(A), has erred on facts, in law and in the circumstances of the case in coming to the conclusion that the appellant is not covered by the exceptions to Explanation to Section 73 of the Income tax Act, 1961 and in treating Rs.3,91,46,184/- to be interest on funds deployed in stock-in-trade of equity shares and allowing the same to be carried forward as 'Speculation Loss' instead of "Business Loss" under Section 36(1)(iii) of the Act."

7.2 After hearing both parties we are of the opinion that as discussed in earlier para in assessment year 2005-06 with reference to Ground No.3 therein this ground is rejected.

7.3 The second ground in ITA No.4778/Mum/2012 is as follows :-

"2. The ld. CIT(A) has erred in law, on facts and in the circumstances of the case in partly disallowing the Interest Expenses u/s. 36(1)(iii) of the Act, to be calculated on the basis and as per the method specified in the appellate orders dated 30/3/2007 for assessment year 2003-04 and by the Order dated 28/12/2007 for the assessment year 2004-05 passed by the Ld. CIT(A)-VI instead of allowing the interest as claimed by the appellate."

7.4 As discussed in ground No.1 in ITA No.4779/Mum/2012 this ground is restored to the file of AO on similar directions.

7.5 The third ground in ITA No.4778/M/12 is as follows :-

"3. The ld. CIT(A) erred on in law, on facts, in the circumstances of the case in confirming disallowance made u/s. 14A of the Act, by the Ld. ACIT(A)-6(2) but restricting the amount of disallowance to 10% of the dividend income 7 ITA No.4778, 4779 & 5126/Mum/12

earned instead of deleting the same or ought to have restricted disallowance to 1% of the dividend income u/s. 14A of the Act."

7.6 As discussed in ITA No.4779/Mum/2012 with reference to ground No.2 therein this ground is rejected.

7.7 Further the ld. AR has not pressed the following grounds in these appeals on account on smallness of the amount of addition.

"4. The ld. CIT(A) erred in law, on facts and in the circumstances of the case is not considering the disallowance made by the appellant in computation of income u/s. 40(a)(ia) of the Act thereby disallowing interest more by that amount than actual amount debited to P&L Account."

7.8 The above ground is dismissed as not pressed.

8. In the result, appeal of the assessee in ITA No.4779Mum/12 & 4778/Mum/12 are partly allowed for statistical purposes.

9. Now coming to the revenue appeal in ITA No.5126/Mum/2012, the revenue has raised the following grounds :-

"1. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred I holding that for computation of the amount of disallowance to be made u/s. 14A, the prescribed computation under Rule 8D was not applicable for the assessment year 207-08."

9.1 In view of the findings in assessee's appeal in ITA No.4778/Mum/2012 with respect to ground No.2 therein this ground of the revenue has become infructuous, accordingly dismissed as infructuous.

10. In the result, appeal of the revenue in ITA No.5126/Mum/2012 is dismissed.

8 ITA No.4778, 4779 & 5126/Mum/12

Order pronounced in the open court on 24/02/2015 आदे श क घोषणा खुले यायालय म# $दनांकः 24/02/2015 को क गई ।

Sd/- Sd/- (आय.पी. बंसल / I.P. BANSAL) (चं पुजारी /CHANDRA POOJARI ) याियक सदःय / JUDICIAL MEMBER लेखा सदःय / ACCOUNTANT MEMBER मुंबई Mumbai; $दनांक Dated 24/02/2015 व.िन.स./Jv, Sr. PS.

आदे श क ूितिल*प अमे*षत/Copy षत of the Order forwarded to : 1. अपीलाथ- / The Appellant 2. ू.यथ- / The Respondent. 3. आयकर आयु/(अपील) / The CIT(A)- 4. आयकर आयु/ / CIT

5. *वभागीय ूितिनिध, आयकर अपीलीय अिधकरण, मुंबई / DR, ITAT, Mumbai

6. गाड फाईल / Guard file.

आदे शानुसार/ ार BY ORDER, स.या*पत ूित //True Copy//

उप/सहायक उप सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण, अिधकरण मुंबई / ITAT, Mumbai