Ito Rg 3(2)(4), Mumbai vs Department Of Income Tax

सव[ौी जोगींि िसंह, Ûयाियक सदःय एवं नरे Ûि कुमार ǒबãलैáया, लेखा सदःय के सम¢

BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND

SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER

आयकर अपील सं./I.T.A. No. 4904/Mum/2012 आयकर अपील सं./I.T.A. No. 2008/Mum/2013 िनधा[रण वष[ / Assessment Years : 2008-09 & 2009-10 (िनधा[

M/s. Puja Impex Pvt. Ltd., बनाम The ITO, Range-3(2)(4), बनाम/ 161, Atlanta Premises Co. Aayakar Bhavan, Vs. Op. Soc. Ltd., Mumbai-400 020 Nariman Point, Mumbai-400 021 ःथायी ले खा सं . /जीआइआर सं . /PAN/GIR No. : AABCP 1659A (अपीलाथȸ /Appellant) .. (ू×यथȸ / Respondent) अपीलाथȸ ओर से/ Appellant by: Shri Sunil Nahta Shri Trushit Shah ू×यथȸ कȧ ओर से/Respondent by: Shri Akhilendra Yadav

सुनवाई कȧ तारȣख / Date of Hearing :20.01.2015 घोषणा कȧ तारȣख /Date of Pronouncement :22.01.2015

आदे श / O R D E R

PER N.K. BILLAIYA, AM:

ITA No. 4904/M/2012 filed by the assessee is directed against the order of the Ld. CIT(A)-4, Mumbai dt.21.5.2012 pertaining to A.Y.2008- 09 and ITA No.2008/M/13 is also an appeal by the assessee preferred 2 ITA No. 2008/M/2013

against the order of the Ld. CIT(A)-4 Mumbai dt. 3.1.2013 pertaining to A.Y. 2009-10. As common issues are involved in both these appeals, they were heard together and dispose of by this common order for the sake of convenience and brevity.

ITA No. 4904/M/2012 - A.Y. 2008-09 2. The assessee is trading in securities and also in the business of advisory service, finance leasing and investment in securities. The return for the year was selected for scrutiny assessment. During the course of the scrutiny assessment proceedings, the Assessing Officer noticed that the assessee has earned dividend income of Rs. 16,92,522/- and long term capital gain of Rs. 85,74,072/-, both were claimed as exempt u/s. 10(34) and 10(38) of the Act respectively. The AO observed that the assessee has disallowed demat charges of Rs. 49,269/- and securities transaction charges of Rs. 2,03,107/- and Rs. 8,463/- being 0.5% of dividend. The AO simply observed that the disallowance computed by the assessee is not in accordance with Rule 8D. The AO proceeded by computing the disallowance and computed the same at Rs.5,23,235/. Since the assessee has already disallowed Rs. 2,60,839/-, the AO proceeded by disallowing Rs. 2,62,396/-.

3. Aggrieved by this, the assessee carried the matter before the Ld. CIT(A) but without any success.

4. Before us, the Ld. Counsel for the assessee stated that the assessee itself had disallowed Rs. 2,60,839/- and the AO has not pointed out any specific defect in the computation of the disallowance made by the 3 ITA No. 2008/M/2013

assessee, therefore, the disallowance made by the AO is against the relevant provisions of the law.

6. The Ld. Departmental Representative supported the order of the First appellate authority.

7. We have carefully perused the orders of the authorities below. It is an undisputed fact that the assessee itself has offered 0.5% of dividend income on account of other expenses. It is also an undisputed fact that the AO has not pointed out any defect in the calculation made by the assessee nor AO has recorded any dissatisfaction with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income. Considering all these facts in the light of the provisions of Sec. 14A of the Act, we set aside the findings of the Ld. CIT(A) and direct the AO to delete the addition of Rs. 2,60,839/-. Ground No. 1 is accordingly allowed.

8. Ground No. 2(a) and 2(b) are consequential to our finding to ground No.1, therefore, ground No. 2(a) and 2(b) are treated as allowed in view of our findings given for ground No. 1.

9. Ground No. 3 relates to the addition of Rs. 2,03,107/- being securities transaction tax to the book profit computed u/s. 115JB.

10. A perusal of the assessment order shows that the addition has been made as per the explanation 1(f) of Sec. 115 JB of the Act. The said provision shows that it refers the amount of expenditure relatable to any income to which Sec. 10 other than the provisions contained in clause-38 thereof or section 11 or section 12 apply. In the case in hand the assessee has claimed exemption u/s. 10(38) of the Act therefore the assessee is 4 ITA No. 2008/M/2013

covered by the exclusion provided in clause (f) to explanation-1 to Sec. 115JB of the Act. Therefore, we direct the AO to exclude Rs. 2,03,107/- from the book profit. Ground No. 3 is accordingly allowed.

11. Ground No. 4 relates to the addition of Rs. 6,72,108/- wrongly accounted in the books of account of the assessee being charged to book profit u/s. 115JB.

12. Facts on record show that the assessee has inadvertently credited in the P&L account as speculation gain amounting to Rs. 6,72,108/-. The said mistake was realized during the assessment proceedings and the assessee immediately filed revised computation of income vide letter dt. 3.12.2010. The AO did not accept the said revision as the claim was not made in the return of income.

13. The Ld. CIT(A) allowed the relief to the assessee from the normal computation of total income. However, the Ld. CIT(A) declined to give relief for the purpose of book profit u/s. 115JB of the Act. It is not in dispute that the assessee has made book entries of speculation gain which it has not actually earned during the year. Since the speculation gains were credited to the profit and loss account, it can be said that the profit and loss account are not prepared in accordance with part-II of Schedule- VI and for the purpose of Sec. 115JB. Every company has to prepare its accounts in the manner provided in part-II and Part-III of Schedule-VI to the Companies Act 1956. Since the assessee's profit and loss account is not prepared in accordance with the relevant provisions of the Companies Act, the notional profit shown by the assessee has to be reduced while computing the book profit u/s. 115JB of the Act. Similar view has been taken by the Tribunal in the case of M/s. Bombay Diamond Co. Ltd in ITA No. 7488/M/07 wherein the Tribunal has held as under: 5 ITA No. 2008/M/2013

"The various other decisions relied on by the Ld. CIT(A) in his order are also not applicable. In none of the case it has been held that even where the accounts are not prepared in the manner provided as per Part II and Part III of Schedule VI to the Companies Act, 1956 the Assessing Officer has no power to go beyond the book profit as per the audited accounts. In our opinion, the AO cannot go beyond the book profits as per the audited accounts provided they are prepared as per the manner provided in Part II and Part III of Schedule VI to the Companies Act, 1956 and are adopted in the AGM. However, in the instant case, admittedly the accounts are not prepared in the manner provided in Part II and Part III of Schedule VI to the Companies Act, 1956 since the profit on sale of investments amounting to Rs. 10,38,13,765/- which is a material amount, has not been routed through the profit and loss A/c. Therefore, the AO, in our opinion has the power to re-work the book profit by recasting the accounts in the manner provided as per Part II and Part III of Schedule VI to the Companies Act, 1956. In this view of the matter, the order of the CIT(A) on this issue is set aside and that of the AO is restored."

Respectfully following the decision of the Co ordinate Bench, we direct the AO to re-work the Book Profit by excluding Rs. 6,72,108/-. Ground No. 4 is accordingly allowed.

14. In the result, the appeal filed by the assessee for A.Y. 2008-09 is allowed.

ITA No. 2008/M/2013 - A.Y. 2009-10 15. The only ground in this appeal relates to the disallowance of Rs. 5,29,673/- u/s. 14A of the Act.

16. Facts and issues are identical to the facts considered by us in ITA No. 4904/M/2012 qua ground No. 1 of that appeal. Following our own 6 ITA No. 2008/M/2013

findings given in the said appeal, we direct the AO to delete the addition made by him. This ground is accordingly allowed.

17. In the result, both the appeals filed by the assessee are allowed.

Order pronounced in the open court on 22nd January, 2015

Sd/- Sd/-

(JOGINDER SINGH ) (N.K. BILLAIYA) Ûयाियक सदःय/JUDICIAL MEMBER लेखा सदःय / ACCOUNTANT MEMBER मुंबई Mumbai; Ǒदनांक Dated : 22nd January, 2015 व.िन.स./ RJ , Sr. PS

आदे श कȧ ूितिलǒप अमेǒषत/Copy षत of the Order forwarded to :

1. अपीलाथȸ / The Appellant

2. ू×यथȸ / The Respondent.

3. आयकर आयुƠ(अपील) / The CIT(A)-

4. आयकर आयुƠ / CIT

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

6. गाड[ फाईल / Guard file.

आदे शानुसार/ ार BY ORDER, स×याǒपत ूित //True Copy// उप/सहायक उप सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण, अिधकरण मुंबई / ITAT, Mumbai