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Income Tax Appellate Tribunal, MUMBAI BENCH “A”, MUMBAI
Before: Shri Joginder Singh & Shri G Manjunatha
Date of hearing 07-02-2018 Date of pronouncement 09-03-2018 O R D E R
Per G Manjunatha, AM :
This appeal filed by the assessee is directed against order of the CIT(A)-9, Mumbai dated 17-12-2011 and it pertains to AY 2008-09.
The brief facts of the case are that the assessee company is engaged in the business of trading in shares and securities, filed its return of income for the assessment year 2007-08 on 30-09-2008 declaring total income at Nil. The case has been selected for scrutiny and notices u/s 143(2) and 142(1) of the Act, were issued. In reponse to notices, Shri Bipin Bagadia, director of the assessee company attended
2 ITA 1723/Mum/2015 from time to time and explained the return of income. The assessment has been completed u/s 143(3) on 20-12-2009 determining total income at Rs.21,00,490, interalia making various disallowances. The assessee carried the matter in appeal before the CIT(A). The CIT(A), for the detailed reasons recorded in his order dated 07-12-2011 partly allowed appeal filed by the assessee, wherein he has deleted addition made by the AO towards disallowance of fines and penalties of Rs.3,06,333, disallowance of bad debts of Rs.1,44,489; however, confirmed addition made by the AO towards disallowance of ;VSAT and Lease Line charges of Rs.3,79,699 u/s 40(a)(ia) for failure to deduct tax u/s 194J of the Act, disallowance of STT paid u/s 40(a)(ib) of the Act, and disallowance of expenditure in relation to exempt income u/s 14A of the Act. Aggrieved by the order of CIT(A), the assessee is in appeal before us.
The first issue that came up for our consideration is disallowance of lease line charges and VSAT charges paid to stock exchange u/s 40(a)(ia), for failure to deduct tax at source u/s 194J of the I.T. Act, 1961. The AO disallowed VSAT charges and leas line charges on the ground that the assessee has failed to deduct tax at source u/s 194J, even though those payments are covered under ‘fees for technical services’ and the assessee ought to have deducted TDS as applicable u/s 194J of the Act. It is the contention of the assessee that VSAT
3 ITA 1723/Mum/2015 charges and lease line charges are levied by stock exchanges to its members for providing standard communication facility to the members of the Stock Exchange much like a normal telephone, mobile or satellite TV connection where the connection is between the exchange and the member and such payments are not covered u/s 194J for the purpose of TDS. In this regard, he relied upon the decision of ITAT, Mumbai, A- Bench in the case of DCIT Vs Angel Broking Ltd in dated 09-12-2009.
We have heard both the parties and perused the materials available on record. We find that the ITAT, Mumbai “A” Bench in the case of Angel Broking Ltd (supra), has considered the issue of disallowance of VSAT and lease line charges u/s 40(a)(ia) for failure to deduct tax u/s 194J and after considering relevant facts held that payment made to stock exchange for reimbursement of VSAT and leaseline charges could not be considered as fees for technical services within the ambit of section 194J for the purpose of tax deduction at source. Therefore, we are of the considered view that the AO has erred in disallowing VSAT and lease line charges u/s 40(a)(ia) for failure to deduct TDS. Hence, we direct the AO to delete the addition.
The next issue that came up for our consideration is disallowance of STT paid. The AO disallowed STT paid amounting to Rs.14,92,930, out of which Rs.5,92,362 pertains to AY 2006-07 and Rs.9,00,568 pertaining
4 ITA 1723/Mum/2015 to AY 2007-08. The AO disallowed STT paid on the ground that the assessee has claimed rebate u/s 88E towards STT paid for earlier years which cannot be allowed. It is the contention of the assessee that rebate claimed u/s 88E in respect of STT paid because the rebate allowed u/s 88E has been discontinued wef AY 2008-09 and hence, the assessee has claimed deduction u/s 37, as such STT paid is incurred wholly and exclusively for the purpose of business.
Having heard both the sides and considered material available on record, we do not find any merit in the arguments of the assessee for the reason that as per the provisions of sect6ion 40(a)(ib), STT paid is not a deductible expenditure. Therefore, the lower authorities were right in disallowing STT paid by the assessee. We further notice that the assessee has claimed deduction towards STT paid pertaining to AYs 2006-07 and 2007-08 as a business loss without any justification for claiming such STT as expenditure deductible u/s 37 of the Act, even though section 40(a)(ib) specifically bars claiming deduction towards such STT. Therefore, we are of the considered view that the CIT(A) was right in confirming addition made by the AO. We do not find any error or infirmity in the order of the CIT(A); hence, we are inclined to uphold the findings of the CIT(A) and reject ground raised by the assessee.
The next issue that came up for our consideration is disallowance of Rs.14,727 u/s 14A 14A r.w.r. 8D(2) on the ground that the assessee has 5 ITA 1723/Mum/2015 earned dividend income of Rs.895; however, failed to disallow any expenditure in relation to exempt income and accordingly worked out disallowance of Rs.14,727 by invoking Rule 8D(2)(ii) and (iii). It is the contention of the assessee that disallowance worked out by the AO by invoking Rule 8D(2) is more than exempt income earned by the assessee which is evidenced from the fact that it has earned dividend income of Rs.895, whereas the AO has worked out disallowance of Rs.14,727. The assessee further contended that if at all disallowance is required to be made, it may be restricted to the extent of exempt income earned for the year under consideration.
Having heard both the sides and considered material available on record, we find force in the arguments of the assessee for the reason that disallowance contemplated u/s 14A cannot swallow the entire exempt income earned for the year. This legal proposition is supported by the decision of Delhi High Court in the case of Joint Investments Pvt Ltd vs ACIT (2015) 372 ITR 694 (Del). In this case, the assessee has earned exempt income of Rs.895, whereas the AO has determined disallowance of Rs.14,727 which is more than the exempt income earned by the assessee. Therefore, we are of the view that disallowance contemplated u/s 14A shall not exceed the exempt income earned for the relevant financial year and accordingly, we direct the AO to restrict disallowance to the extent of exempt income earned for the 6 ITA 1723/Mum/2015 year. 9. In the result, the appeal filed by the assessee is partly allowed.
Order pronounced in the open court on 09th March, 2018.