Shri Gopalchand Pruthviraj Malu, ... vs Assessee

Shri Gopalchand Pruthviraj Malu, Joint Commissioner of 139, Tilak Road, Malegaon, Income Tax, Vs. Distt.-Nashik, Pin - 423203 Range-3, Nashik (Appellant) (Respondent) PAN No. AAUPM2687F

ITA No. 1083/PN/2012 Assessment Year : 2007-08

Shri Gopalchand Pruthviraj Malu, Dy. Commissioner of 139, Tilak Road, Malegaon, Income Tax, Vs. Distt.-Nashik, Pin - 423203 Circle-3, Malegaon (Appellant) (Respondent) PAN No. AAUPM2687F

Assessee By: Shri Sunil Ganoo Revenue By: Shri B.C. Malakar

Date of hearing : 11-05-2015 Date of pronouncement : 15-05-2015

ORDER

PER VIKAS AWASTHY, JM:-

ITA No. 1082/PN/2012 for the assessment year 2006-07 and ITA No. 1083/PN/2012 for the assessment year 2007-08 have been filed by

the assessee impugning the orders of Commissioner of Income Tax

(Appeals)-II, Nashik. Both orders are dated 14-03-2012. Since, the

issues involved in both the appeals are common, the appeals are taken

up together for adjudication.

2

ITA Nos. 1082 & 1083/PN/2012, A.Ys. 2006-07 & 2007-08

2. The brief facts of the case as emanating from records are : The

assessee is engaged in trading of shares and securities. The assessee

filed its return of income for the assessment year 2006-07 on

28-09-2006, declaring total income of Rs.22,19,960/- and for the

assessment year 2007-08 on 30-10-2007, declaring net loss of

Rs.(-)20,79,601/-. The returns of the assessee for both the assessment

years were selected for scrutiny. In this assessment year 2006-07 the

Assessing Officer inter alia made addition of Rs.98,124/- u/s. 14A r.w.

Rule 8D. The Assessing Officer held that the assessee has earned

dividend income. No separate accounts for trading portfolio and

investment portfolio are maintained. The assessee has not furnished

details of expenditure incurred for earning exempt income. In the

absence of separate accounts, apportionment of dividend income

between shares held as investment and shares held as stock-in-trade is

not possible. Therefore, addition u/s. 14A r.w. Rule 8D on entire

dividend income received by the assessee was made.

Aggrieved by the assessment order dated 23-12-2008, the assessee

preferred an appeal before the Commissioner of Income Tax (Appeals).

The Commissioner of Income Tax (Appeals) rejected the contentions of

the assessee and confirmed the findings of the Assessing Officer on the

issue.

3. In assessment year 2007-08 the assessee has impugned the

findings of the Commissioner of Income Tax (Appeals) on the following

grounds:

1). Addition made on account of charging of notional interest

Rs.1,23,389/-.

2). Disallowance made under section 14A at Rs.3,27,585/-. 3

ITA Nos. 1082 & 1083/PN/2012, A.Ys. 2006-07 & 2007-08

3). Without prejudice to relief claimed at item No. 2, restricting

disallowance under section 14A r.w. Rule 8D to Rs.74,061/-.

4. In assessment year 2007-08, the assessee earned exempt income

of Rs.3,27,585/- and claimed the entire income as exempt u/s. 10(34) of

the Act. For the reasons stated in assessment year 2006-07 the

Assessing Officer made addition of Rs.3,27,585/- u/s. 14A r.w. Rule 8D.

Apart from the above addition, the Assessing Officer made another

addition of Rs.6,17,197/- by disallowing interest expenditure. The

Assessing Officer observed that the assessee has paid total interest of

Rs.15,85,460/- on loan amount of Rs.1,74,35,318/-. The average rate of

interest paid by assessee is 9.09%. Part of interest bearing funds

(Rs.67,89,847/-) were utilized by the assessee for non-business

purposes. Accordingly, the Assessing Officer made proportionate

disallowance of interest on funds allegedly diverted for non-business

purpose.

Aggrieved by the assessment order dated 24-12-2009, the assessee

preferred an appeal before the Commissioner of Income Tax (Appeals).

The Commissioner of Income Tax (Appeals) sustained the addition of

Rs.3,27,585/- u/s. 14A r.w. Rule 8D. However, with regard to

disallowance of interest, the Commissioner of Income Tax (Appeals)

granted part relief by confirming addition to the extent of Rs.1,23,389/-

only.

5. Against the orders of First Appellate Authority for the respective

assessment years, the assessee has come in second appeal before the

Tribunal.

4

ITA Nos. 1082 & 1083/PN/2012, A.Ys. 2006-07 & 2007-08

6. Shri Sunil Ganoo appearing on behalf of the assessee submitted,

that the assessee is engaged in trading of shares. This fact has not been

disputed by the authorities below. The assessee has not having any

investment portfolio. The dividend income received by the assessee on

share is with respect to the share held by the assessee as stock-in-trade.

Since, the assessee is not maintaining any investment portfolio there is

no question of making any disallowance u/s. 14A. In order to support

his submissions the assessee placed reliance on the decision of Co-

ordinate Bench of the Tribunal in the case of DCIT Vs. Vishweshwar

Sahakari Bank Ltd. in ITA No. 358/PN/2014 decided on 24-04-2015.

With respect to disallowance of interest in assessment year

2007-08, the Ld. AR submitted that in statement of facts filed along with

the appeal before Commissioner of Income Tax (Appeals), the assessee

had given detailed calculation of interest paid. The Commissioner of

Income Tax (Appeals) without appreciating the same confirmed addition

to the extent of Rs.1,23,389/-. The entire addition made by the

Assessing Officer has to be deleted. So far as advances to Prithvi

Developers is concerned the Co-ordinate Bench of the Tribunal in the

assessee's own case in ITA No. 800/PN/2009 for the assessment year

2005-06 decided on 13-04-2011 has upheld the findings of

Commissioner of Income Tax (Appeals) in deleting the disallowance of

interest.

7. On the other hand Shri B.C. Malakar representing the Department

vehemently supported the findings of Commissioner of Income Tax

(Appeals). The Ld. DR submitted, that from the perusal of records it is

not clear that the dividend income received by the assessee is from the

shares held under investment portfolio or for trading purposes. So far as

disallowance of interest is concerned, the Commissioner of Income Tax 5 ITA Nos. 1082 & 1083/PN/2012, A.Ys. 2006-07 & 2007-08

(Appeals) after considering the submissions of the assessee and

calculation of interest given in statement of facts granted partial relief to

the assessee. The Ld. DR prayed for dismissing both the appeals of the

assessee.

8. We have heard the submissions made by the representatives of

both the sides and have perused the orders of the authorities below. We

have also considered the decisions on which the Ld. AR has placed

reliance. The common issue in both the appeals is addition u/s. 14A

r.w. Rule 8D in respect of dividend income received by the assessee. The

assessee has received dividend income of Rs.2,21,782/- in assessment

year 2006-07 and Rs.3,27,585/- in the assessment year 2007-08. It is

an undisputed fact that the assessee is engaged in trading of shares and

securities. As per the contentions of the assessee the dividend was

received on shares held as stock-in-trade. The assessee is not

maintaining any investment portfolio. The Revenue has not been able to

controvert the submissions of the assessee. The Revenue has not been

able to show either from books of account or from any other document

that the assessee was holding shares as investment. The assessee had

not retained shares with the intention of earning dividend income. The

dividend income earned by assessee is incidental to his business of

trading in shares and securities. In absence of any investment portfolio,

disallowance u/s. 14A cannot be made out. Moreover, in view of the

judgment of Hon'ble Bombay High Court rendered in the case of Godrej

& Boyce Mfg. Co. Ltd. Vs. CIT reported as 328 ITR 81 (Bom.) the

provisions of Rule 8D are not applicable in the impugned assessment

years. The Hon'ble High Court has held that the provisions of Rule 8D

shall be applicable from assessment year 2008-09. 6

ITA Nos. 1082 & 1083/PN/2012, A.Ys. 2006-07 & 2007-08

9. In the present case, since the shares were not held as investment

and dividend was received by the assessee on the shares held as

stock-in-trade in the course of business, there is no question of making

disallowance u/s. 14A of the Act. Similar view has been taken by the

Co-ordinate Bench of the Tribunal in the case of Vishweshwar Sahakari

Bank Ltd. (supra). Accordingly, this ground of appeal of the assessee in

both the assessment years is allowed.

10. In assessment year 2007-08 the assessee has also raised issue

with respect to disallowance of interest. The assessee has paid total

interest of Rs.15,85,460/- on borrowed funds. The Assessing Officer

disallowed interest expenditure to the extent of Rs.6,17,197/- being

loans/advances given from interest bearing funds to certain persons for

non-business purposes. Before, the Commissioner of Income Tax

(Appeals), the assessee gave detailed calculation with respect to total

interest paid, utilization of interest bearing funds and the rate of

interest. The Commissioner of Income Tax (Appeals) partly accepted the

contentions of the assessee and reduced the disallowance of interest to

Rs.1,23,389/-. The Commissioner of Income Tax (Appeals) also accepted

the rate of interest admitted by the assessee @ 7.58%. The grievance of

the assessee is that the Commissioner of Income Tax (Appeals) has not

properly appreciated the detailed interest calculations. We observe that

the detailed computation of interest which was filed by the assessee

before the Commissioner of Income Tax (Appeals) was not available

before the Assessing Officer. In our considered opinion this issue needs

a revisit to the Assessing Officer. Accordingly, the file is remitted back to

Assessing Officer with a direction to decide this issue afresh after taking

into consideration the interest computation filed by the assessee and 7 ITA Nos. 1082 & 1083/PN/2012, A.Ys. 2006-07 & 2007-08

information available in the books of account. This ground of appeal of

the assessee is allowed for the statistical purpose.

11. In the result, ITA No. 1082/PN/2012 for the assessment year

2006-07 is allowed and ITA No. 1083/PN/2012 for the assessment year

2007-08 is partly allowed.

Order pronounced on Friday, the 15th day of May, 2015

at Pune

Sd/- Sd/-

(R.K. PANDA) (VIKAS AWASTHY) ACCOUNTANT MEMBER JUDICIAL MEMBER

Pune, Dated: 15th May, 2015 RK/PS

Copy to

1 Assessee 2 Department 3 The CIT(A)-II, Nashik 4 The CIT-I, Nashik 5 The DR, ITAT, "B" Bench, Pune. 6 Guard file.

//True Copy//

By Order

Assistant Registrar, Income Tax Appellate Tribunal, Pune