LABDHI STOCK & DERIVATIVES SERVICES P.LTD,MUMBAI vs. ITO 4(3)(3), MUMBAI

1 ITA 1723/Mum/2015 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “A”, MUMBAI Before Shri Joginder Singh (JUDICIAL MEMBER) AND Shri G Manjunatha (ACCOUNTANT MEMBER) I.T.A No.1723/Mum/2012 (Assessment year: 2008-09)

M/s Labdhi Stock & vs ITO- 4(3)(3), Mumbai Derivatives Services Pvt Ltd, 412, Kailash Plaza, 4th Floor, Vallabh Baug Lane, Ghatkopar (W), Mumbai 400 077 PAN : AAAACL7496C

Appellant by Shri Bipin Bagadia Revenue by Shri V Vidyadhar

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. 2. 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.

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 ITA

No.7031/Mum/2008 dated 09-12-2009.

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.

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.

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.

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.

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.

Sd/- sd/- (Joginder Singh) (G Manjunatha) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dt : 09th March, 2018 Pk/- Copy to : 1. Appellant 2. Respondent 3. CIT(A) 4. CIT 5. DR /True copy/ By order Sr.PS, ITAT, Mumbai