Case Law Details

Case Name : M/s. Cosmos International Ltd. Vs ITO (ITAT Delhi)
Appeal Number : I.T.A. No. 6059/DEL/2015
Date of Judgement/Order : 06/09/2017
Related Assessment Year : 2012-13
Courts : All ITAT (5168) ITAT Delhi (1162)

Assessee has filed this Appeal against the impugned Order dated 24.8.2015 passed by the Ld. CIT(A)-2, New Delhi relevant to assessment year 2012-13 on the following grounds:-

1. On the facts and circumstances of the. case, the order passed by the learned Commissioner of Income Tax (Appeals) [CIT(A)] is bad, both in the eye of law and on the facts.

2. (i) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in passing an order without giving assessee an opportunity WWW.TAXSCAN.IN – Simplifying Tax Laws of being heard in clear violation of principle of natural
justice.

(ii) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in passing an order ex-parte despite the fact that the assessee was prevented from appearing because of the reasons beyond the control of the assessee.

3. (i) On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in confirming the action of the AO in making disallowance of an amount of Rs.37,500/- invoking the provision of section 14A of the Act.

(ii) That the said disallowance has been confirmed ignoring the fact that there being no tax free income earned by the assessee during the year under consideration.

4. (i) On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in confirming the disallowance of Rs.29,82,952/- made by the AO on account of loss on sale of mutual funds by holding the same to be a capital loss as against business loss.

(ii) That the said disallowance has been confirmed despite the fact that the loss is revenue in nature, incurred during the normal course of business of the assessee.

5. The appellant craves leave to add, amend or alter any of the grounds of appeal.

2. The brief facts of the case are that Assessee had filed the return declaring income of Rs. 27,84,690/- on 29.9.2012. The case of the assessee was processed u/s. 143(1) of the Income Tax Act, 1961 (hereinafter referred as the Act) and was taken up for scrutiny. Accordingly, notice u/s. 143(2) of the Act dated 8.8.2013 and subsequently notice u/s. 142(1) of the Act alongwith questionnaire were issued and served upon the assessee. In response to the same, the AR of the assessee attended the proceedings from time to time. Books of account were also produced and the same have been examined on test check basis. During the year under consideration, assesee company was engaged in the business of Exports of several items and also doing Commodity Business in Future Trading. During the course of assessment proceedings, it was observed that the assessee company has made investment in Mutual Funds. Assessee was asked to provide the details of disallowance u/s. 14A read with Rule 8D of the I.T. Rules, 1962. In its reply dated 5.3.2015, assessee simply stated that no income has been earned on investments and the additions made on similar grounds has been deleted by the higher authorities and hence, no disallowance u/s. 14A should be made. AO after considering the reply of the assessee, observed that since the assessee has made investment of earn the dividend income and capital gains, required to disallowance u/s- 14A read with rule 8D. AO further observed that since the assessee has claimed that no expenses are required to be disallowed u/s. 14A read with Rule 8D, hence, he invoked the provision of section 14A and addition of Rs. 37,500/- was made u/s. 14A of the Act.

2.1 The AO further observed that on perusal of balance sheet filed by the assessee company, it was observed that the assessee was having investment in Mutual Fund amounting to Rs. 1,50,00,000/- at on 31.3.2011 which were sold during the year and on which loss of Rs. 29,82,952/- has been incurred and claimed by the assessee as revenue expenses. Assessee was asked to provide the details of expenses claimed in P&L account in excess of Rs. 1 lac with evidence of TDS deducted thereon. In reply to the same, the assessee has submitted that details of other expenses but no details were filed for the loss claimed on sale of investment. Since the loss incurred by the assessee company on sale of mutual funds which were held as investment is of the nature of capital loss and has to be assessed as income from Capital gains / loss, the same was disallowed as business expenses claimed by the assessee company and was added to its income and assessed the income at Rs. 58,05,140/- u/s. 143(3) of the Act vide order dated 13.3.2015.

3. Aggrieved with the assessment order dated 13.3.2015, the assessee preferred an appeal before the Ld. CIT(A), who vide impugned order dated 24.8.2015 has dismissed the appeal of the assessee.

4. Against the impugned order dated 24.8.2015, assessee has filed the Appeal before the Tribunal.

5. At the time of hearing, Ld. Counsel of the assessee with regard to disallowance of Rs. 37,500/- made u/s. 14A has stated that this issue is squarely covered by the decision of the Hon’ble Jurisdiction High Court in the case of Cheminvest Ltd. vs. CIT [2015] 378 ITR 33 (Del.), because there is no exempt income earned by the assessee during the year consideration. Hence, he requested that the addition in dispute may be deleted.

5.1 With regard to addition of Rs. 29,82,952/- is concerned, Ld. Counsel of the assessee has stated that this issue is also squarely covered by the decision of the Hon’ble Supreme Court in the case of CIT vs. Cocanada Radhaswami Bank Ltd. (1965) 57 ITR 306 (SC), because the entire income of the assessee include interest on securities. He further stated that in earlier years and in succeeding years, there is no addition made by the AO. Thus, the addition made by the AO and confirmed by the Ld. CIT(A) may be deleted.

6. On the contrary, Ld. DR relied upon the orders of the authorities below.

7. We have heard both the parties and perused the records especially the impugned order. We find that in this appeal assessee has challenged the two additions, firstly disallowance of Rs. 37,500/- by invoking the provisions of section 14A and a sum of Rs. 29,82,952/- on account of loss on sale of mutual funds by holding the same to be a capital loss as against business loss claimed by the assessee. We further find that as regards to disallowance of Rs. 37,500/- under section 14A, is concerned, the Ld. CIT(A) while confirming the same placed reliance upon the judgment of this ITAT in the case of Cheminvest Ltd. Vs ITO [2009] 121 ITO 318 (Del) (S8), stating that even if there is no exempt income, disallowance u/s 14A has to be made. We are of the considered view that the above said judgment has since been overruled by Hon’ble Jurisdiction High Court in the case of Cheminvest Ltd. Vs CIT [2015] 378 ITR 33 (Del), hence, the issue in dispute is squarely covered in favour of assessee, in view of the fact that there is no exempt income earned by the assessee during the year under consideration. Respectfully following the precedent, as aforesaid, we delete the addition in dispute and allow the ground raised by the assessee.

7.1 As regards to the disallowance of Rs. 29,82,952/- is concerned, we note that assessee is engaged in the business of trading in securities and shares. In the year under consideration the assessee suffered a loss of Rs. 29,82,952/- on the sale of Mutual Fund which was held as stock in trade and as such claimed as business loss. The issue in this case is whether the amount of Rs 29,82,952/- on account of loss on sale of mutual funds can be treated as capital loss as held by the AO as against business loss shown by the assessee. It is undisputed fact that the loss has been incurred during the normal course of the business. Since the assessee’s only source of income was his interest and in this view the loss incurred on the sale of mutual fund has to be held as business loss. Therefore, this issue is covered by the judgment of the Hon’ble Supreme Court in the case of CIT vs Cocanada Radhaswami Bank Ltd. (1965) 57 ITR 306 (SC), wherein it was held that since the entire income of the assessee include interest on securities, the assessee was entitled to set off such losses out of its business income. We also note that AO cannot dispute that the loss arising from sale of investment will be capital gain as against business loss claimed by the assessee. The same stand was followed by the assessee in the earlier years and there is no addition made by the AO in the earlier and succeeding years. Thus, respectfully following the precedent, as aforesaid, the addition made by the AO and confirmed by the Ld. CIT(A) is hereby deleted and accordingly, we allow the ground raised by the assessee.

8. In the result, the Appeal filed by the Assessee stands allowed.

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