CHANDRAVADAN DESAI,KOLKATA vs. D.C.I.T., CIRCLE - 32(1), KOLKATA

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ITA 1010/KOL/2026Status: DisposedITAT Kolkata13 July 2026AY 2018-20195 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the bank guarantee commission and transaction charges were directly related to the assessee's derivative trading business and thus allowable. The invocation of Rule 8D by the AO was deemed unjustified.

What were the facts?

The assessee, engaged in share and derivatives trading, had debited expenses in its P&L account. The assessee voluntarily disallowed certain expenses under Section 14A, but the AO invoked Rule 8D and made a further disallowance.

What were the issues?

Whether the disallowance made by the AO under Section 14A read with Rule 8D was justified when the assessee had already disallowed certain expenses and the remaining expenses were directly related to the business.

Which sections of the Income-tax Act were involved?

Section 14A,Section 37(1)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “A” BENCH: KOLKATA

Before: Shri Rajesh Kumar& Shri Pradip Kumar Choubey]

आयकर अपील�य अ�धकरण, कोलकाता पीठ “ए’’, कोलकाता IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH: KOLKATA �ी राजेश कुमार, लेखा सट�य एवं �ी �द�प कुमार चौबे, �या�यक सद�य के सम� [Before Shri Rajesh Kumar, Accountant Member& Shri Pradip Kumar Choubey, Judicial Member] I.T.A. Nos. 1010/Kol/2026 Assessment Years: 2018-19 Chandravadan Desai Vs. DCIT, Circle-32(1), Kolkata

(PAN: AFQPD 8487 F) ( अपीलाथ� ) Respondent / ��यथ� Appellant / Date of Hearing / सुनवाई 07.07.2026 क� �त�थ Date of Pronouncement/ 13.07.2026 आदेश उ�घोषणा क� �त�थ For the Appellant/ Shri Akkal Dudhwewala, FCA �नधा�रती क� ओर से For the Respondent/ Shri Manas Mondal, Sr. DR राज�व क� ओर से

ORDER / आदेश Per Rajesh Kumar, AM: This is an appeal preferred by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals)-NFAC, Delhi (hereinafter referred to as the “Ld. CIT(A)”] dated 23.01.2026 for the AY 2018-19. 2. The sole issue involved in this appeal relates to the further disallowance of Rs.59,07,487/- made by the ld. AO u/s 14A read with Rule 8D.

2 I.T.A. No.1010/Kol/2026 Assessment Year: 2018-19 Chandravadan Desai 3. The facts in brief are that the assessee is an individual who is engaged the business of trading in shares & derivatives and also making investments. The assessee had filed return of income u/s 139(1) on 26.10.2018 declaring total income of Rs.3,56,19,420/-. The assessee had debited expenditure of Rs.74,52,712/- in the Profit & Loss Account. The assessee had voluntarily disallowed the STT charges of Rs.11,22,581/- and further expenditure of Rs.15,45,225/- u/s 14A of the Act, both of which aggregated to Rs.26,67,806/-. The ld. AO in the course of assessment required the assessee to explain as to why the disallowance u/s 14A should not be computed in the manner laid down in Rule 8D. The explanation offered by the assessee did not find favour with the ld. AO and he invoked Rule 8D and computed disallowance of Rs.99,85,814/-. Since the assessee had already disallowed sum of Rs.15,45,225/- and the disallowance so computed exceeded the quantum of total expenditure itself, the ld. AO held that the entire expenses were disallowable and thus made further addition of Rs.59,07,487/- [Rs.74,52,712(–)Rs.15,45,225]

4.

In the appellate proceedings, the ld. CIT(A) confirmed the action of the ld. AO. The ld. CIT(A) observed that, Rule 8D had introduced a statutory deeming fiction to address the complexity of books of accounts and that the disallowance computed as per Rule 8D was to ensure fair and consistent treatment across taxpayers and thus the disallowance made by the ld. AO was held to be unjustified.

5.

The ld. AR, appearing for the assessee, argued that, all the common administrative expenditure incurred during the year which were debited to the P&L A/c had already been disallowed by the assessee suo moto, u/s 14A of the Act and therefore the further disallowance made by the AO was notional in nature and thus unsustainable. He took us through Page 2 along with Page 7 of the paper book which contained the Profit & Loss Account and the computation of income to show that, all items of expenses had been disallowed, except bank guarantee commission & transaction charges. The ld. AR argued that, these two item of expenses were not common

3 I.T.A. No.1010/Kol/2026 Assessment Year: 2018-19 Chandravadan Desai expenditure but directly related to the business of derivative trading of the assessee which yielded profit of Rs.4,14,83,549/- during the year. He submitted that, the bank guarantee commission of Rs.29,56,566/- was exclusively paid for placing margins to undertake derivative trades, for which he also placed a confirmation from the broker affirming this fact. The ld. AR thereafter pointed out that the transaction charges were exclusively related to all the F&O trades, whose summary report was placed at Page 48 of paper book. Apart from the foregoing two items of expenses, which according to ld. AR, were directly relatable to earning of taxable income, he reiterated that, all other items of expenses had already been added back and disallowed in the computation of income. The details of expenses in the following chart submitted by the assessee makes the position clear:-

Nature of expense Amount (Rs.) Remarks (A) Expenditure already disallowed and added back to the total income Audit Fees 14,520 Appeal Fees 2,000 Common Administrative Expenses not specifically Bank Charges 147 attributable to any income Professional Fees 1,57,310 and therefore disallowed out Profession Tax 2,500 of abundant caution u/s 14A of the Act Other Charges 5,048 Printing & Stationery 1,750 Transaction Charges Direct Expenses incurred in (incl. ST & TT) 13,61,950 relation to investments and (relatable to investment) therefore disallowed u/s 14A of the Act STT 11,22,581 Sub-Total…..………….(A) 26,67,806 (B) Expenditure disallowed separately u/s 37 of the Act Not related to business and Donation 50,000 therefore disallowed u/s 37(1) Sub-Total…..………….(B) 50,000 (C) Expenditure directly related business of derivatives & shares taxable under the head ‘Business Income’

4 I.T.A. No.1010/Kol/2026 Assessment Year: 2018-19 Chandravadan Desai Bank Guarantee 29,56,566 Directly related to business Commission of trading in Transaction Charges derivatives/shares 17,78,340 (relatable to business) Sub-Total…………….(C) 47,34,906 TOTAL…....(A) + (B) + 74,52,712 (C)

6.

In view of the above, the ld. AR submitted that, there was no item of expense left to be disallowed and thus prayed to delete the further disallowance made by the AO.

7.

Per contra, the ld. DR appearing for the Revenue supported the order of the lower authorities.

8.

After hearing the rival submissions and perusing the material placed on record, it is seen that the total sum of expenses debited in the Profit & Loss Account was Rs.74,52,712/-, out of which, the assessee had suo moto disallowed and added back expenses of Rs.26,67,806/- comprising of STT of Rs.11,22,581/- and disallowance of remaining items of common expenses of Rs.15,45,225/-. The assessee is also noted to have disallowed the donation of Rs.50,000/- u/s 37(1) of the Act. We thus find that, the balance expenditure of Rs.47,34,906/- comprised of Bank Guarantee Commission and Transaction Charges. After going through the confirmation issued by the broker along with the ‘levies report’ placed in the paper book and the relevant ledgers, we find merit in the submission of the ld. AR that both these items of expenses were inextricably linked with the business of derivative trading which was taxed at normal rates and therefore the corresponding expenses were allowable as deduction while computing the profits of the business. Therefore , no further item of common or administrative expense remains which could have otherwise been disallowed by the Revenue u/s 14A of the Act. In our considered view , the disallowance offered by the assessee u/s 14A in the return of income is found to be fair and reasonable and the invocation of Rule 8D,

5 I.T.A. No.1010/Kol/2026 Assessment Year: 2018-19 Chandravadan Desai in the given facts of the case, is held to be unjustified. For these reasons, we direct the ld. AO to delete the disallowance of Rs.59,07,487/- made u/s 14A of the Act.

9.

In the result, the appeal of the assessee is allowed.

Order is pronounced in the open court on 13th July, 2026

Sd/- Sd/-

(Pradip Kumar Choubey /�द�प कुमार चौबे) (Rajesh Kumar/राजेश कुमार) Judicial Member/�या�यक सद�य Accountant Member/लेखा सद�य Dated: 13th July, 2026 SM, Sr. PS

Copy of the order forwarded to: 1. Appellant- Chandravadan Desai, 37, SB Tower, Shakespeare Sarani, Minto Park, Kolkata-700017 2. Respondent – DCIT, Circle-32(2), Kolkata 3. Ld. CIT(A)- NFAC, Delhi 4. Ld. Pr. CIT- , Kolkata 5. DR, Kolkata Benches, Kolkata

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