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Income Tax Appellate Tribunal, DELHI BENCH “D ”: NEW DELHI
Before: SHRI KULDIP SINGH & SHRI PRASHANT MAHARISHI
INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “D ”: NEW DELHI BEFORE SHRI KULDIP SINGH, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA No. 4267/Del/2011 (Assessment Year: 2008-09) Victory Portfolio Ltd, Vs. DCIT, 209, Gupta Towers, Azardpur Circle-17(1), Commercial Complex, New Delhi New Delhi PAN: AAAFV9634K (Appellant) (Respondent)
ITA No. 4500/Del/2011 (Assessment Year: 2008-09) DCIT, Vs. Victory Portfolio Ltd, Circle-17(1), 209, Gupta Towers, Azardpur New Delhi Commercial Complex, New Delhi PAN: AAAFV9634K (Appellant) (Respondent)
Assessee by : Shri Ved Jain, Adv Shri Nischay Kantoor, CA Revenue by: Smt Naina Soin Kapil, Sr. DR Date of Hearing 27/08/2019 Date of pronouncement 25112019
O R D E R PER PRASHANT MAHARISHI, A. M. 1. These are the two appeals the filed by the assessee and the revenue against the order of the ld CIT (A)-XIX, New Delhi dated 25.07.2011 for the Assessment Year 2008-09. 2. The assessee has raised the following grounds of appeal:- “1. That the ld CIT(A) is not justified in confirming the addition of Rs. 1263849/- which was made by the ld Assessing Officer on account of Expenses towards Interest incurred by the appellant and claimed as deduction u/s 36/37 of the Income Tax Act, 1961. The confirmation of the addition of Rs. 1263849/- towards interest expenses made by the ld CIT(A) is based on surmises and conjectures and also contrary to the fact and provisions of law. As such addition so confirmed is liable to be deleted. 2. That the ld CIT(A) has erred on the facts and law by confirming the addition of Rs. 225174/- u/s 14A read with Rule 8D which is contrary to be facts and provisions of law. Hence, the disallowance/ addition so made is liable to be deleted.” 3. The revenue has raised the following grounds of appeal:- Page | 1
“1. That the action of the Ld. AO in calculating the tax liability of the assessee for MAT u/s 115JB of the Income Tax Act, 1961 on book profit of Rs.20047802/- and not allowing credit of rebate u/s 88E is perverse unjustified erroneous on facts and on law with is liable to be reversed. 2. That the Ld. AO has erred and in not justified in making an addition of Rs. 1263849/- on account of disallowance of interest paid on loan, which is erroneous on facts and on law and as such liable to be deleted. 3. That the Ld. AO has erred and in not justified in making an addition of Rs.16071237/- on account of disallowance of interest paid on loan, which is erroneous on facts and on law and as such liable to be deleted. 4. That the Ld. AO has erred and in not justified in making an addition of Rs.50000/- on account of disallowance of charges paid to NSE treating the same as penalty for violation of law, which is erroneous on facts and on law and as such liable to be deleted. 5. That the Ld. AO has erred and unjustified in denial of rebate u/s 88E of the Income Tax Act, 1961 to the extent of Rs.267208/- which is against the facts and on law and as such should be allowed. 6. That the Ld. AO is unjustified in making addition of Rs. 1961579/- on account of disallowance of expenses u/s 40(a)(ia) of the Income Tax Act 1961 by treating the amount paid by the assessee to NSE for NSE transaction charges, as Fees paid for Professional and Technical Services which is erroneous on facts and on law and as such liable to be deleted. 7. That the Ld. AO is unjustified in making addition of Rs.225174/- on account of disallowance u/s 14A of the Income Tax Act, 1961 which is contrary to the facts and provisions of law and as such liable to be deleted.” 4. Assessee is a company, furnished its return of income declaring total income of INR 2 0163140/–. It is carrying on the business is a share broker of the National stock exchange. The assessment u/s 143 (3) of the income tax act was passed by the learned assessing officer on 29/12/2010 determining total income of the assessee of INR 39734979/–. The learned assessing officer made certain disallowances/addition to the returned income of the assessee which were contested by assessee before the learned CIT – A. The learned CIT – A by passing an order dated 25/7/2011 partly allowed the appeal of the assessee and therefore both the parties are in appeal before us. 5. The tabulated metrics of such disallowances contested by both the parties are as under:- serial particulars amount amount ground number disallowed by confirmed/deleted number of the learned by the learned appeal of the assessing CIT (A) respective officer parties denial of rebate 6048942 deleted ground 1 under section 88E number 1 of of the income tax AO act
disallowance of 1263849 confirmed ground 2 interest number 1 of the appeal of assessee
Interest expenses 16071237 Deleted Ground 3 disallowed number 3 of AO
charges paid to 50000 deleted ground 4 National stock number 4 of exchange AO
denial of rebate 267208 allowed ground 5 u/s 80 8D number 5 of assessing officer
disallowance under 1961579 deleted ground 6 section 40 (a) (ia) number 6
disallowance u/s 225174 confirmed ground 7 14 A of the act number 2 of the appeal of assessee and ground number 7 of AO
As per Ground no 1 of the AO’s appeal, of granting of rebate u/s 88E while calculating the tax liability of the assessee for minimum alternative tax under section 115JB of the income tax act on the book profit of INR 20047802/–. The assessee has claimed rebate of INR 6048942/– paid securities transaction tax as rebate under that section while computing its tax liability under section 115 JB of the income tax act. The learned assessing officer disallowed the above credit holding that as per the provisions of section 115 JB of the income tax act if the income tax payable on total income is less than 10% of the book profit, the assessee is required to pay such tax as minimum tax. He further stated that provisions of section 115JB are clearly attracted because according to that section it is an overriding effect overall other provisions of the income tax act. The learned AO noted that in case of this assessee the income tax payable is reduced to nil due 3
to claiming rebate under that section. The assessee carried this issue in appeal before the learned CIT – A who held that the issue is squarely covered by the decision of the coordinate bench in case of 4 as on capital Ltd in ITA number 592 (B) 10 wherein on identical facts and circumstances the credit has been granted to the assessee. This is challenged by the learned assessing officer as per ground number 1 of the appeal. 7. On hearing of the parties it is apparent that above issue is squarely covered in favour of the assessee by the decision of the honourable Karnataka High Court in [2012] 17 taxmann.com 8 (Karnataka)/[2012] 204 Taxman 59 (Karnataka)(MAG.)/[2011] 245 CTR 601 (Karnataka) in CIT V Horizon Capital Limited as under :- 6. Section 115JB provides that if the tax payable on the total income is less than 7.5% of the book profit, the tax payable under this provision shall be the amount of income tax at the rate of 7.5% of book profit. In other words, if computation of income is done under the provisions of the Act and if the tax payable is less than 7.5% of the book profit and the assessee is a company, then the minimum tax payable by such a company is 7.5% of the book profit. Except to that extent, all other provisions in the Act are applicable in respect of both type of assessment. 7. Sections 87 and 88E provides for rebate. It reads as under;- "87. Rebate to be allowed in computing income tax.-(l) In computing the amount of Income tax on the total income of an assessee with which he is chargeable for any assessment year, there shall be allowed from the amount of income tax (as computed before allowing the deductions under this Chapter), in accordance with and subject to the provisions of [sections 88, 88A, 88B, 88C, 88D and 88E], the deductions specified in those sections. 2. The aggregate amount of the deductions under section 88 or section 88A [or section 88B] [or section 88C] [or section 88D or section 88E] shall not, in any case, exceed the amount of income-tax (as computed before allowing the deductions under this Chapter) on the total income of the assessee with which he is chargeable for any assessment year. 88F. Rebate in respect of securities transaction tax.-(i) Where the total income of an assessee in a previous year includes any income, chargeable under the head "Profits and gains of business or profession'', arising from taxable securities transactions, he shall be entitled to a deduction, from the amount of income-tax on such income arising from such transactions, computed in the manner provided in sub-section (2), of an amount equal to the securities transaction tax paid by him in respect of the taxable securities transactions entered into in the course of his business during that previous year; Provided that no deduction under this sub-section shall be allowed unless the assessee furnishes along with the return of income, evidence of payment of securities transaction tax in the prescribed form : Provided further that the amount of deduction under this sub-section shall not exceed the amount of income-tax on such income computed in the manner provided in sub-section (2).
(2) For the purposes of sub-section (1), the amount of income tax on the income arising from the taxable securities transactions, referred to in that sub-section, shall be equal to the amount calculated by applying the average rate of income-tax on such income. Explanation:- For the purposes of this section, the expressions "taxable securities transaction" and "securities transaction tax" shall have the same meanings respectively assigned to them under Chapter VII of the Finance (No.2) Act, 2004." 8. As is clear from the aforesaid sections, the said provision does not give any indication as to its applicability to the computation of amount of income tax on the total income of an assessee under any particular provision of law under the Act. If after such computation of the amount of the income tax payable on the total income of the assessee under the Act, if such an assessee has paid tax under the aforesaid provisions mentioned in the said section to the extent of the tax paid under that Section is deductable as rebate. 9. The word rebate has been defined under the Act, The Apex Court in the case of CIT v. Anant Rao B.Kamat [1964] 53 ITR 307 held as under:- "The word "rebate" is an apt word to use in respect of a remission. ** ** The word "rebate" is not qualified and is wide enough to include any rebate which may be granted by other statutory orders. The form of the certificate referred to us which mentions reduction of rate cannot change the meaning of the word "rebate"." 10. The word rebate in the Dictionary of English Law by Jewitt at page 1480 is defined as: "Rebate, discount; reducing the interest of money in consideration of prompt payment or otherwise; a deduction made from a payment." 11. In Black's Law Dictionary, Second Edition, the meaning assigned to the word rebate is: "Discount; reducing the interest of money in consideration of prompt payment. Also a deduction from a stipulated premium on a policy of insurance, in pursuance of an antecedent contract and also a deduction or drawback from a stipulated payment, charge, or rate not taken out in advance of payment, but handed back to the payer after he has paid the full stipulated sum." 12. Corpus Juris Secundum defines the word rebate as "The etymological or dictionary meaning of the term includes any discount or deduction from a stipulated payment, charge, or rate not taken as in advance of payment, but handed back to the payer after he has paid the stipulated sum, even when such discount or deduction is equally applied to all from whom such payment is demandable," 13. The Kerala High Court in the case of Deputy Commissioner of Sales Tax v. Travancore Rayons Ltd. [1961] 12 STC 178 after considering the aforesaid definitions held as under:- "Rebate means relinquishing part of the liability by a person entitled to with a view to persuade a person liable to follow a particular conduct which such person was not otherwise compelled." 5
The Bombay High Court in the case of Someshwar Sahakari Sakhar Karkhana Ltd., v. Union of India 1988 (34) ELT 522 held as under:- "Rebate means deduction from the sum to be paid, discount, or partial refund. To give back (part of the amount), to make deduction from a bill. Therefore, in substance rebate, is a deduction from the sum to be paid or partial refund. Refund or deduction could from the amount paid or payable." 15. Under Section 88E, where the total income of an assessee in a previous year includes any income, chargeable under the head "Profits and gains of business of profession", arising from taxable securities transactions, he shall be entitled to a deduction, from the amount of income-tax on such income arising from such transactions. Section also provides the limit to which deductions shall be given. 16. Therefore, it is dear that, the assessee is liable to pay securities transaction tax when he enters into securities transaction. Tax is payable simultaneously after realizing the consideration. However, if that transaction is included in the total income of the assessee where the total income is assessed either under the provisions of the Act or under Section 115JB when tax chargeable on such income is arrived at, he is given the benefit of tax deductions of the amount, which he has paid under section 88E by virtue of Section 87. When under Section 82A, the assessee is made liable to pay tax with an assurance that it will be deducted and section 87 of the Act gives effect to such promise made under the statute. That is the reason why the word used is rebate. The amount paid is handed back to the assessee. In other words, payment of tax twice on the same income is avoided. 17. Therefore, the contention that this benefit is not available to the assessee whose total income is assessed under Section 115JB has no substance. In other words, when the total income is assessed and the tax chargeable is computed, it is from that tax which is chargeable, the tax paid under Section 88E is given deduction, by way of rebate, under Section 87 of the Act. This is the legislative intent. That is a promise to give deduction of the tax already paid. This is the mode in which tax already paid is handed back at the time of final computation. Therefore, the judgment referred by the Tribunal is strictly in accordance with law and does not suffer from any legal infirmity, which called for interference. We do not see any substantial question of law involved in this appeal, which merits admission. The appeal is dismissed. In view of this, we dismiss ground number 1 of the appeal of the learned assessing officer. 8. Ground number 2 of the appeal of the learned assessing officer is with respect to the disallowance of INR 1 263849/– on account of disallowance of interest paid on loan. In fact on reading para number 12 of the order of the learned CIT – A the ultimate result is that the learned CIT – A has confirmed the disallowance of interest expenditure of INR 1 263849/–. Therefore this ground of appeal is wrongly taken by the learned assessing officer as revenue could not have been aggrieved with the order of the learned CIT – A where the disallowance has been confirmed. In fact, the assessee is in appeal against that order as per ground number 1 of its appeal. Thus, Ground no 2 is dismissed.
Per Ground no 1 of the appeal of the assessee connected with the above ground of AO appeal, appellant has challenged the confirmation of disallowance of interest expenditure of INR 1 263849 on the ground that the certain loan amount was utilized for acquiring the property. The assessee has paid and interest on home loan utilized by the assessee to acquire the property at shop number ground floor as 3, Ansal Plaza, greater Noida which is shown in the balance sheet as investment in answer Plaza shop. The learned assessing officer noted that that same is not allowable as deduction u/s 36 (1) (iii) as assessee has not placed any document on record to establish that it was in connection with the expansion of its business in 34 –. The learned CIT – A also noted that assessee has debited the profit and loss account by an expenditure of INR 1 7335086 towards the interest paid. This amount was borrowed by the assessee from ICICI bank by taking a loan of Rs. 1 crore in financial year 2006 – 07. Interest on such loan was paid of INR 1 263849 which was included in the total interest expenditure. As the assessee has utilized the above sum for the purchase of a shop was not for the business purpose therefore the learned CIT – A also confirmed the above addition. 10. The learned authorised representative submitted that it is the settled law that assessee is free to use its own fund the way it wants and the revenue cannot compel the assessee to do a performer use its funds in a particular manner. It is also settled law that when own funds are more than the funds utilised towards interest free advances, there cannot be any disallowance. No disallowance can be made of expenses which has not been claimed by the assessee. Therefore where interest free advances given out of interest free funds, there is no need for assessee to prove the business expediency. To show this he referred the annual accounts of the assessee placed at page number 11 of the paper book wherein the issued subscribed and paid-up capital of the assessee was INR 1 9705200 and reserve and surpluses of INR 6 8624247/–. He therefore submitted that investment in shop is out of interest free funds. Thus no disallowance can be made. 11. The learned departmental representative reiterated findings of the lower authorities. 12. We have carefully considered the rival contentions and perused the orders of the lower authorities. This issue is squarely covered in favour of the assessee by the decision of the honourable Supreme Court in case of [2019] 102 taxmann.com 52 (SC) Commissioner of Income Tax v. Reliance Industries Ltd. that interest free funds were available to assessee which were sufficient to meet its investment in subsidiaries, appellate authorities were justified in allowing assessee's claim for deduction. In the present case the assessee has issued subscribed and paid-up share capital of 19705200/– and reserves and surplus of INR 6 8624247/– which 7
is far more than investment in the answer Plaza shop of INR 1 9009105. Thus following the decision of the honourable Supreme Court, the above addition cannot be sustained. Hence, we direct the learned assessing officer to delete the same. Accordingly, ground number 1 of the appeal of the assessee is allowed.
Ground number 3 of the appeal of the learned assessing officer is against the addition of INR 1 6071237/– because of disallowance of interest paid on loan deleted by the learned CIT – A. During the year it was found that assessee has given in advance to a builder for a space amounting to INR 1 01750000/– which is admittedly not related to the existing business of the assessee. The learned assessing officer noted that merely because there was a clause in the memorandum of association in the object clause of the real estate business same cannot be allowed. The learned CIT – A deleted the same. 14. The learned departmental representative vehemently supported the order of the learned assessing officer. 15. The learned authorised representative vehemently supported the order of the learned CIT – A and stated that every item of the interest expenditure have been verified by the learned CIT – A. Therefore he submitted that no fault can be found with the order of the learned CIT – A. 16. We have carefully considered the rival contention and perused the orders of the lower authorities. During the year the assessee has made total investment of INR 4 7400000 as appearing in the balance sheet of the assessee and has made the business advances amounting to INR 1 01750000/–. The AO and let that the entire amount of 149150000 is a non-interest bearing advances not for the purposes of the business and therefore he made the addition of INR 1 6071237/–. The learned CIT – A in para number 17.1 onwards considered the whole claim of the assessee as under:-
17.1 The appellant debited interest expenditure of Rs. 1,73,35,096. The AO noticed that certain amount were invested as detailed below: Investment in equity shares of victory buildwell Pvt. Ltd. For Rs. 2,49,00,000/- Investment in equity shares of Mania shree properties (P) Ltd. For Rs. 2.25.00.000/- Advances to Builders for space as per Sch. K of the balance sheet Rs. 10,17,50,000/- 17.2 According to the AO there is diversion of business funds to the extent of Rs. 14,91,50,000 as mentioned above. The AO worked out disallowable interest for Rs. 1,78,98,000 @ 12% on the invested amount ofRs. 14,91,50,000 (as mentioned above in Para 17.1) which is higher than the amount debited to P&L A/cfor Rs. 1,73,35,086, Since the AO had already disallowed interest
expense ofRs. 12,63,849 as stated in earlier paras, the balance disallowable interest was Rs. 1,60,71,237 which was disallowed. 17.3 The AR furnished the following details of utilization of funds:
S Interest debited to Particulars No. profit and loss A/c. 1. 3777201/- This interest was paid to Birla Global Finance Co. Ltd. For loan of Rs. 10 Crore sanctioned by them against the shares and securities therefore interest on this loan is directly related to the shares business of the assessee. (As a proof loan sanction letter enclosed at page 2 of Paper Book II 2. 4200564/- This interest was paid to Kotak Mahendro Prime Ltd for loan of Rs. 5 Crore sanctioned by them against the shares/ mutual find financing therefore interest on this loan is directly related to the shares business of the assessee. (As a proof loan sanction letter enclosed at page % of Paper Book II 3. 4196354/- This interest was paid to IL&FS Ltd for loan of Rs. 10 Crore sanctioned by them against the shares and securities therefore interest on this loan is directly related to the shares business of the assessee. (As a proof Copy of account of ILFS and account statement enclosed at page 8-17 of paper Book II 4. 1263849/- This interest was paid ICICI bank for purchase of shop at ansa! plaza which was for the share business of the company hence it is directly related to the share business of the assessee. 5. 39024/- This interest was paid to kotak Mahindra prime ltd. For interest on car loan (loan agreement no.CF4314922 copy enclosed at page no. 120 of the paper book.) 6. 39024/- This interest was paid to kotak mahindara prime ltd. For interest on car loan, (loan agreement no. CF4314960 copy enclosed at page no. 123 of the paper book.) 7. 305017 This interest is debited to P& L Account for business overdraft account with HDFC Bank this bank account was used 9
for normal business working of shares as a proof copy of interest bank account enclosed. So these are the funds primarily utilized for the share business of the assessee. ( at page 18-19 of Paper Book II) 8. 1449335/- This interest is paid to Kotak Mahindra bank ltd. Loan for Rs. 2.40 Crore which was received on 29th Oct 2007 and at the time of receipt was utilized for payment made to stock exchange for F & 0 segment of share market transaction as follows Amount received Rs.23808000 on 29th Oct 2007 Payment made Rs. 3914000 to NSE Mumbai for F & O Dt. 31.10.07 Rs. 100000/- to NSE, F& O Dt. 31.10.07 Rs. 2500000/- to HDFC Bank, NSE settlement Account Dt.31.10.07 Rs. 7000000/- to FIDFC Bank, NSE settlement Account St.31.10.07 Rs.2500000/- to NSE, F & 0 Dt.31.10.07 Rs. 4500000/- to transferred to HDFC Account No. 14283 Rs. 500000/- transferred to HDFC Account No. 14283 Which was utilized to repay the loan taken By TT Limited (which was utilized to repay the loan of ILFS (at page of Paper Book II) 15270368/- TOTAL
17.4 It is further seen that the gain of Rs. 124.50 lacs on the sale of investment in the shares of M/s Victory Buildwell Pvt Ltd. was offered for taxation as business income in A.Y.2009-10. Hence investment of Rs. 2,49,00,000 in the shares of M/s Victory Buildwell Pvt Ltd naturally requires to be excluded while working out the funds diverted for non-business purpose. The value of non-business investment is Rs. 12,42,50,000(14,91,50,000-2,49,00,000). The disallowable interest works out to Rs. 1,49,10,000. Since Rs. 12,63,849 was disallowed already, the expenditure to be disallowed works out to Rs. 1,36,46,151 (1,49,10,000 - 12,63,849) which is lesser than the interest expenditure worked out by the AR on the funds utilized for business purpose as detailed in the table given above.” 17. In view of the fact that the learned CIT – A has considered each and every item of the interest expenditure and held that same is related to the business of the 10
assessee and further the learned departmental representative could not point out any of the expenditure of interest which is on account of diversion of fund and not for the purposes of the business, we uphold the order of the learned CIT – A. Accordingly, ground number 3 of the appeal of the revenue is dismissed. 18. Ground number 4 of the appeal of the AO is with respect to the disallowance of INR 50,000 on account of charges paid to National stock exchange and securities and Board of India treated as the same being penal in nature. The learned CIT – A has deleted the above addition relying upon the decision of the coordinate bench in case of Goldcrest capital markets Ltd vs ITO and held that charges paid by the assessee are not hit by explanation to section 37 (1) of the income tax act. 19. On hearing both the parties we find that the above issue is squarely covered in favour of the assessee by the decision of the coordinate bench in Goldcrest capital markets Ltd vs ITO 2 ITR 355 (tribunal) and 51 taxmann.com 215 in case of ITO vs Reliance share and stockbrokers private limited. Thus, we find no infirmity in the order of the learned CIT – capital and deleting the above addition. Accordingly, ground number 4 of the appeal of the learned assessing officer is dismissed. 20. Ground number 5 of the appeal is with respect to the denial of rebate of Rs 2 67208 u/s 88E on the interest income of INR 8 90 692. The brief fact shows that the assessee has made fixed deposits with banks pledged with National stock exchange, which is the statutory requirement as per the law for the carrying on of the business of the assessee. Therefore, same is closely linked with the business of the assessee company as a stockbroker of National stock exchange. The AO has disallowed the rebate treating the same as ineligible for rebate u/s 88E of the act. The learned assessing officer worked out 30% of the interest income of INR 8 90692/– as ineligible sum for rebate. The learned CIT – A deleted the above addition and directed the learned assessing officer to grant rebate giving a finding and relying upon the judgment of Kerala High Court in case of CIT vs Producin private limited 290 ITR 598. Therefore, assessee officer is in appeal before us. 21. The learned departmental representative vehemently supported the order of the learned assessing officer and stated that when the interest income is earned on fixed deposit with the stock exchange it is chargeable to tax as income from other sources and cannot be a business income. 22. The learned authorised representative relied upon the order of the learned CIT – A. 23. We have carefully considered the rival contentions. Assessee has earned the interest income of INR 8 90692 earned on bank fixed deposit receipts on which no security transaction taxes suffered and paid by the assessee, therefore the learned assessing officer computed the disallowance of the rebate at the rate of 30% of the interest income. The CIT – A has allowed the claim of the assessee based on the 11
decision of the honourable Kerala High Court in 290 ITR 598 which has been reversed by the honourable Supreme Court in 322 ITR 270. Therefore we set aside whole issue back to the file of the learned CIT – A to re-examine the claim of the assessee in view of the decision of the learned assessing officer on the merits in accordance with the law. Accordingly ground number 5 of the appeal of the learned assessing officer is set aside to the file of the learned CIT – A. Thus this ground of appeal is allowed with above direction. 24. The ground number 6 of the appeal is with respect to the disallowance of INR 1 961579 under section 40 (a) (ia) of the income tax act on account of payment to National stock exchange of security exchange Board of India charges paid by the assessee for non-deduction of tax. According to the learned assessing officer, the provisions of section 194J of the income tax act are applicable as such charges are paid for professional and technical services. Thus, disallowance was made as no tax has been deducted by the assessee on the same. The learned CIT – A allowed the claim of the assessee holding that assessee has a membership of National stock exchange and Sebi charges are mandatory to be paid as transaction charges along with we set charges any charges as and when demanded by Sebi. The assessee company debited the same to the profit and loss account. The learned CIT – A held that above issue has been squarely considered by the coordinate benches in case of DCIT vs Angel broking Ltd 35 SOT 457 and DCIT vs Sonal shares and stockbrokers private limited 38 SOT 457. Therefore, AO is in appeal before us. 25. The learned departmental representative vehemently supported the order of the learned assessing officer and submitted that the above charges are professional fees paid by the assessee and therefore the tax is required to be deducted thereon. The assessee has failed to deduct the tax and source and therefore the learned assessing officer has correctly disallowed the same. He submitted that the learned CIT – A has not considered whether this expenditure are in the nature of the professional fees or not. He therefore submitted that the order of the learned CIT – A deserves to be reversed. 26. The learned authorised representative submitted that the above issue has been squarely covered by the decision of the honourable Supreme Court in CIT vs Kotak securities Ltd 383 ITR 1, wherein it has been held that Service made available by Bombay Stock Exchange [BSE Online Trading (BOLT) System] for which transaction charges are paid by members of BSE are common services that every member of Stock Exchange is necessarily required to avail of to carry out trading in securities in Stock Exchange; such services do not amount to 'technical services' provided by Stock Exchange, not being services specifically sought for by user or consumer and, therefore, no TDS would be deductible under section 194J on 12
payments made for such services. In view of this we do not find any merit in ground number 6 of the appeal of the learned assessing officer hence same is dismissed. 27. Ground number 7 is with respect to disallowance u/s 14 A of the income tax act. This issue is decided in favour of the learned assessing officer but assessing officer has preferred this ground of appeal, which is grossly incorrect as the AO cannot be held to be aggrieved when the learned CIT – A has upheld the disallowance. Accordingly this ground of appeal is dismissed. 28. Now we come to the ground number 2 of the appeal of assessee where the disallowance made by the learned assessing officer u/s 14 A of the income tax act of INR 2 25174 confirmed by the learned CIT – A contested. The fact shows that during the year the assessee has earned dividend income of INR 1 39200. As the assessee is a share broker and his business of dealing in shares, the assessee has claimed exempt income on account of such dividend income but has not disallowed any such expenditure u/s 14 A of the income tax act. Therefore the learned assessing officer asked assessee to show cause and compute the disallowance as per method prescribed in rule 8D and show cause why the disallowance thereof should not be made u/s 14 A of the income tax act. The assessee submitted that assessee has not used any separate funds in the shares to on dividend income and all the dividend income earned is on account of his funds employed in the trading of shares. Therefore there is no disallowance according to the assessee. The learned assessing officer considered the explanation of the assessee and held that it is not acceptable. He held that as assessee is engaged in the business of share and stockbrokers the provision would apply as there is no exemption u/s 14 A of the income tax act. As assessee has not made any disallowance, he worked out the disallowance under the provisions of rule 8D of INR 2 25174/–. The above disallowance was contested before the learned CIT – A but he confirmed the same. 29. The learned authorised representative submitted that the learned assessing officer should have recorded the satisfaction that the claim made by the assessee that it has not incurred any expenditure for earning exempt income but he has not recorded. Therefore in absence of any such satisfaction note disallowance u/s 14 A of the act can be made. He alternatively submitted that the disallowance under rule 8D (2) (iii) can only be made in respect of those investments which have yielded the dividend income. He further stated that in the present case the exempt income is only INR 1 39200/– whereas the addition made by the learned assessing officer is INR 2 25174 which is exceedingly exempt income earned by the assessee. He further stated that in view of the decision of the honourable jurisdictional High Court in case of Joint Investments Private Limited Vs CIT , the above disallowance 13
cannot exceed the exempt income. Thus, he contested the disallowance on 3 points. 30. The learned departmental representative vehemently supported the orders of the lower authorities and submitted that the proper satisfaction has been recorded by the assessing officer, as assessee has not claimed that it has not incurred any expenditure. He read the para number 7.1 of the assessment order and stated that the only claim of the assessee before the assessing officer that assessee is a share broker and he has not used any separate funds in the shares to on dividend income. He further referred to the order of the learned assessing officer and stated that there is no exemption to the share broker. He therefore submitted that the proper satisfaction has been recorded by the learned assessing officer. With respect to the other arguments of the learned A.R. he relied upon the orders of the lower authorities. 31. We have carefully considered the rival contention and perused the orders of the lower authorities. Admittedly the assessee has earned the exempt income of INR 1 39200 as dividend income which is claimed as exempt income. The learned assessing officer computed the average value of investment of INR 4 5034783 and considered only 0.50 percentage thereon as disallowable expenditure u/s 14 A of the income tax act applying the provisions of rule 8D. The learned assessing officer has not disallowed any sum because of interest expenditure. The explanation of the assessee was with respect to the interest expenditure only stating that it is not used any separate funds. The learned assessing officer has accepted the explanation of the assessee and has not disallowed any interest expenditure applying the provisions of rule 8D of the income tax rules u/s 14 A of the income tax act. Therefore it cannot be said that the learned assessing officer has not recorded any satisfaction with respect to the disallowance. In fact there is no explanation of the assessee with respect to the administrative expenditure incurred by the assessee. Further the claim of the assessee is that only investment yielding the exempt income should be considered to workout the average value of investment for the purpose of disallowance of the expenditure. Before us the assessee has submitted the opening and closing balance of investments which yielded dividend income which are placed at page number 38 of the paper book and the assessee has worked out the total disallowance of INR 1 0404/-thereon. The above details were not available with the assessing officer and therefore we direct the assessee to submit the above details before the assessing officer, who may verify and consider the argument of the assessee that only the investments which have yielded the exempt income should be included for the purpose of working out disallowable expenditure as per rule 8D of the income tax rules under 14
section 14 A. Such is the mandate of the honourable Delhi High Court in case of CIT vs Inter Global Enterprises Ltd ITA 456/2016 dated 19/8/2016. Accordingly, ground number 2 of the appeal of the assessee is allowed with above direction. 32. Accordingly, appeal of the assessee and revenue is partly allowed with above directions. Order Pronounced in the open court on 25/11/2019 -Sd/- -Sd/- (KULDIP SINGH) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 25/11/2019 A K Keot Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi