ACIT 16.3, MUMBAI vs. NEW GROWTH COMTRADE PVT. LTD, MUMBAI

2. The Ld. CIT(A)'s order is contrary in law and on facts and deserves to be set aside.

3. The appellant prays that the order of Ld. Cit(A) on the above grounds be set aside and that of the AO restored. The appellant craves leave to amend or alter any ground or add a new ground that may be necessary at the time of hearing.

3. From the above, ground No.1 to 3 relates to disallowance made u/s.14A r.w.r. 8D of Rs.67,89,407/-. Ground No.4 and 5 relate to disallowance of Rs.1,57,24,156 towards claim of referral fees as deduction by the assessee, paid by it during the year.

S. No. Particulars Amount Remarks (Rs.) 1. Dividend Income from 1,12,047 Claimed as exempt mutual Fund units of IIFL under section Liquid Fund-Regular Plan 10(35) of the Act

2. Dividend Income from 9,02,277 Claimed as exempt mutual Fund units of under section Reliance Liquid Fund 10(35) of the Act

Total 10,14,324 4.1. Assessee furnished details of investments held during the year to demonstrate that it earned exempt dividend income only from two Mutual Funds i.e., i) IIFL Liquid Fund - Regular Plan – Div Reinvestment ii) Reliance Liquid Fund Treasury Daily Dividend. Details of investment is tabulated as under:

4.2. Assessee claimed that it did not incur any administrative cost nor any direct expenditure for earning this exempt dividend income. In respect of the disallowance made, assessee contented that –

A. The disallowance u/s 14A read with Rule 8D made in the order u/s 143(3) is unreasonable and uncalled for. B. The AO has failed to record satisfaction, with cogent reasons, for rejecting the claim of the appellant that no expenditure has been incurred in relation to income which does not form part of the taxable income as per the provisions of the Act. C. The AO has failed to exclude investments which did not yield exempt income during the year, while computing average investments for the purposes of working out disallowances u/s 14A read with Rule 8D. D. The AO has failed to appreciate that dis-allowance u/s 14A cannot exceed the amount of exempt income earned.

4.3. Assessee got relief from ld. CIT(A) on the ground that ld. Assessing Officer did not record his satisfaction as to correctness of the claim of assessee regarding expenditure to be disallowed u/s.14A. According to ld. CIT(A), action of ld. Assessing Officer could not be upheld for want of recording of satisfaction before invoking provisions of section 14A r.w.r. 8D. Revenue is in appeal before the Tribunal.

5. We have heard both the parties and perused the material on record. It is an undisputed fact that assessee earned dividend income of Rs.10,14,324/- from investments in Mutual Funds which is exempt u/s.10. It is also a fact on record that assessee did not disallow any expense u/s.14A suo moto, since it claims that no expenditure has been incurred by it for earning the said dividend income. We note that relief granted by ld. CIT(A) is solely on the basis of ld. Assessing Officer not recording satisfaction for resorting to making disallowance u/s.14A r.w.r. 8D. In this respect, it is to be noted that sub-section (2) of 14A comes into role in a situation where assessee has made certain suo moto disallowance u/s.14A for which ld. Assessing Officer has to satisfy himself about the correctness of the claim so made, by having regard to the accounts of the assessee, for such expenditure. In absence of any suo moto disallowance by the assessee against the exempt dividend income earned during the year, claim by the assessee of recording of satisfaction having regards to its accounts for making disallowance by the ld. Assessing Officer is not tenable.

5.1. However, we are in agreement with the contention of the assessee that ld. Assessing Officer ought to have excluded investments which did not yield exempt income during the year while computing average investments for the purpose of working out disallowance u/s.14A r.w.r. 8D(2)(iii). Our consensus on these contentions find force from the decision of Hon'ble Special Bench of ITAT in the case of ACIT vs. Vireet Investments Pvt. Ltd., [2017]58 (ITR Trib) 313. Accordingly, we, direct the ld. Assessing Officer to recompute the disallowance u/r. 8D(2)(iii) by taking into consideration, the investments which yielded exempt income during the year, details of which are already tabulated above. Accordingly, grounds taken by Revenue on this issue are partly allowed.

04/02/2015 Pune E Stock 32,24,156 3,22,416 Broking Pvt. Ltd.

07/02/2015 Pune E Stock 20,83,333 2,08,333 Broking Pvt. Ltd.

GRAND TOTAL 2,07,24,156 20,72,416 6.1. Ld. Assessing Officer noted certain discrepancies in payments made by assessee towards referral fees which is as under: “1. M/s Pune E Stock Broking has raised advice in the name of M/s IIFL Wealth Management Limited and Not in the name of the Assessee.

6.2. In this respect, assessee clarified its stance by making the following submission-

“The assessing officer failed to appreciate that the appellant has paid referral fees to M/s Pune E Stock Broking Private Limited and to M/s Roister Properties Private Limited for separate transactions and not for the same transaction. The said referral fees were paid to M/s Pune E Stock Broking Private Limited on account of the following transactions of the appellant. Please find enclosed copies of the invoice and details of the invoice raised by the said Pune E Stock Broking Private Limited along with reply to notice u/s 133(6) by them to the assessing officer. The assessing officer failed to appreciate that the invoices by the said Pune E Stock Broking Private Limited have been raised on the appellant

The assessing office failed to appreciate that in respect of the following transaction through Pune E Stock Broking Private Limited as broker, the appellant is the buyer of securities by the name of Shining Metal Trust Gold PTC on 30/09/2014.

The referral fees were paid to M/s Roister Properties Private Limited on account of the following transactions of the appellant -

The assessing office failed to appreciate that in respect of the following transaction through Roister Properties Private Limited as broker, the appellant is the seller of securities by the name of Shining Metal Trust Gold PTC on 01/10/2014 and as such, both the transactions done by the appellant through

Pune E Stock Broking Private Limited and Roister Properties Private Limited as broker are separate and distinct transactions done on different dates.

The assessing officer failed to appreciate that the appellant has provided all documentary evidences in the course of assessment proceedings in support of the said expenses. The assessing officer failed to appreciate that M/s Pune E Stock Broking Private Limited has filed reply to notice u/s 133(6), confirming the transaction for referral fees paid to it The assessing officer failed to appreciate that the referral fees paid to M/s Pune E Stock Broking Private Limited are in the course of the normal operations of the appellant and are valid and genuine transactions.

6.3. From the perusal of observations of ld. CIT(A) in para 5.2 while deleting the addition made by ld. Assessing Officer in respect of referral fees paid to Pune E Stock Broking Pvt. Ltd., it is noted that on the discrepancy relating to issue of bills on holidays, he observed that ld. Assessing Officer could have made enquiries with the brokers, as to how the bill were prepared on holidays and as to how they were bogus. On these observations, he held that simply preparation of bills on holiday cannot disregard the transaction. In our considered view, conclusion arrived at by ld. CIT(A) despite observing that ld. Assessing Officer could have made enquiries on the aspect of bills having issued on holidays, needs examination at the end of Assessing Officer, so as to arrive at correct fact on the issue before allowing the claim. Accordingly, we find it proper to remit the matter back to the file of ld. Assessing Officer on this issue, so as to make proper enquiries in respect of bills which forms basis of making the claim for which ld. Assessing Officer has observed that they have been issued on holidays. Ld. Assessing Officer after having satisfied on this account may allow the claim of the assessee in accordance with the provisions of law. Needless to say, assessee be given reasonable opportunity of being heard in this respect. Further, assessee is also directed to be diligent in furnishing all the required details and assist the ld. Assessing Officer in completing the required compliance. Thus, grounds raised by the Revenue in this respect are partly allowed for statistical purposes.