M/S BLB LTD.,NEW DELHI vs. ACIT, NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: ‘A’ NEW DELHI

BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT & SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER

ITA No. 2126/Del/2010 (Assessment Year: 2006-07) M/s BLB Ltd. vs ACIT 4764/23A, Ansari Road, Circle 3(1) Darya Ganj, C.R. Building, I.P. Estate, New Delhi. New Delhi. AAACB0184H & ITA No. 2901/Del/2010 (Assessment Year: 2006-07) ACIT vs M/s BLB Ltd. Circle 3(1) 4764/23A, Ansari Road, C.R. Building, I.P. Estate, Darya Ganj, New Delhi. New Delhi. AAACB0184H

Assessee by Sh. C.S. Agarwal, Sr. Adv. Sh. R.P. Mall, Adv. Revenue by Sh. Sarabjeet Singh, DR

Date of Hearing 05.05.2016 Date of Pronouncement 05.08.2016

ORDER PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER: ITA No. 2126/Del/2010 has been preferred by the assessee against the

ITA Nos. 2126 & 2901/D/10 M/s BLB Ltd. Page 1 of 28

order dated 30/03/2010 passed by the ld. CIT(Appeals)-IV, New Delhi for

AY 2006-07, whereas ITA No. 2901/Del/2010 is the cross appeal preferred

by the Department for the same year. Since both these appeals were heard

together they are being disposed of through this common order.

income of Rs. 450,231,514/- as per the normal provisions of the Income Tax

Act, 1961 (the Act in short) and Rs. 139,986,801/- as deemed income u/s

115JB of the Act. Subsequently the assessee filed a revised return of

income declaring total income of Rs. 541,102,310/- under the normal

provisions of the Act and Rs. 139,986,801/- as deemed income u/s 115JB of

the Act. During the year under consideration, the assessee company was a

member of National Stock Exchange and Bombay Stock Exchange and

derived income from the sale and purchase of shares mostly on its own

account. The assessment order was passed on 22/12/08 after making the

following additions/disallowances:

ITA Nos. 2126 & 2901/D/10 M/s BLB Ltd. Page 2 of 28

200,099/-; 5. Disallowance of interest charges - Rs. 1,863,226/-; 6. Disallowance of excess claim of depreciation on computer peripherals/accessories - Rs. 863,806/-.

Apart from this the AO also disallowed the claim of rebate u/s 88E on Rs.

6,383,106/- being brokerage income, interest income, interest on income tax

refund and miscellaneous income. Further the deemed income us/ 115JB of

the Act was worked out at Rs. 140,584,867/-.

authority in which the ld. CIT (A) adjudicated the issues as under: 1. The disallowance of Rs. 333,821/- u/s14A of the Act was confirmed; 2. The addition of Rs. 200,099/- based on the difference of valuation of closing stock was confirmed; 3. Out of total disallowance of Rs. 1,863,226/- on account of interest paid only Rs. 1,781/- was confirmed; 4. Difference on account of depreciation rates on computer, peripherals and accessories was entirely deleted; 5. The ground for recalculation of rebate u/s 88E was set aside to the file of the AO for re-computation; 6. The assessee’s contentions regarding the applicability of provisions of sec. 115JB was also accepted.

ITA Nos. 2126 & 2901/D/10 M/s BLB Ltd. Page 3 of 28

cross appeals before us. The assessee has raised the following grounds of

appeal:

Grounds of ITA No. 2126/D/2010: 1. “The ld. CIT (Appeals) erred in confirming the addition of Rs. 3,33,821/- in terms of sec. 14A of the Act on the facts and circumstances of the case. As a matter of fact, the provisions of section 14A of the Act were not applicable to the facts of the case and as such the disallowance of interest of Rs. 3,33,821/- was not justified; 2. The ld. CIT (Appeals) erred in confirming the addition of Rs. 2,00,099/- on account of under valuation of closing stock on the facts and circumstances of the case. As a matter of fact, the ld. AO did not appreciate that the Appellant had valued the stock at cost or market price whichever was earlier on FIFO basis and as such the valuation of closing stock was correct on the facts and circumstances of the case and no addition was called for on the facts of the case; 3. The ld. CIT(Appeals) failed to appreciate that the Appellant was following the same method of valuation of closing stock year after year which was accepted by the department year after year and no defect whatsoever had been found either by the AO or by the CIT(Appeals) and in this view of the matter, the addition of Rs. 2,00,099/- on account of valuation of closing stock was not justified; 4. The appellant craves leave to add, alter or raise any ground of appeal at the time of hearing or any time before that.”

ITA Nos. 2126 & 2901/D/10 M/s BLB Ltd. Page 4 of 28

appeal:

Grounds of ITA No. 2901/D/2010: 1. “The ld. CIT (A) has erred on facts and in law in deleting the addition of Rs. 1861445/- out of total disallowance of Rs. 1863226/- made by the AO on account of disallowance of interest expenses, completely ignoring the fact that the said disallowances related to interest on borrowed funds used for “donations”, “investments” and “interest free loan to sister concern”. 2. The ld. CIT (A) has erred on facts and in law in deleting the addition of Rs. 863806/- made by the AO on account of extra depreciation claimed on computer peripheral/accessories ignoring the fact that as per IT Rules only the computers and computer software are eligible for depreciation @ 60% and the same cannot be extended to computer accessories. 3. The ld. CIT (A) has erred on facts and in law in directing the AO to allow rebate u/s 88E to the assessee with respect to tax payable on brokerage income, interest income, interest on IT Refund and Miscellaneous income. 4. The ld. CIT (A) has erred on facts and in law in holding that provisions of sec. 115JB are not applicable in the case of the assessee ignoring the fact that specific category of assessee as per provisions of sub-section 6 of section 115JB does not mention “stock broker”, therefore, assessee company cannot escape tax chargeable as per deeming provisions of the said section.

ITA Nos. 2126 & 2901/D/10 M/s BLB Ltd. Page 5 of 28

disallowances of expenses u/s 14A of Rs. 333,821/-. It was submitted that in

computing the total income of the assessee, the assessee company calculated

an expenditure incurred at Rs.32,875/- towards earning the income (which

income did not form part of total income of the assessee under the Act). For

the instant assessment year it was stated that the assessee had earned an

amount of Rs. 27,22,131/- as dividend & thus income did not form part of

total income. The assessing officer, however, without finding any fault with

the correctness of the claim proceeded to disallow the expenditure by

purportedly invoking Rule 8D (2) Of the Income Tax Rules and calculated

the disallowance at Rs.3,33,821/-. It was submitted that the AO has erred in

invoking Rule 8D (2) without appreciating the provisions under rule 8D(1).

The Ld. AR submitted that in absence of any finding, the said rule cannot be

applied and unless he is not satisfied with the correctness of the

disallowances made by the assessee. It was submitted that in the instant case,

the AO has not recorded any such finding and that in fact the AO has

admitted that the only expenditure in relation to income not forming part of ITA Nos. 2126 & 2901/D/10 M/s BLB Ltd. Page 6 of 28

total income is of interest expenditure of an amount of Rs. 31,89,080/-. It

wass thus submitted that the AO has erred in making a disallowance in

excess of Rs.32,875/-.

6.1 In respect of ground no 2 of the assessee’s appeal, it was submitted

that the learned AO has committed a gross error in adopting the average

method of valuing closing stock as against the correct method adopted by

the assessee in accordance with the guidelines issued by the Institute of

Chartered Accountants of India and further such a method has constantly

been adopted and followed by it year after year. It was submitted that the

Assessing Officer, in enhancing the value of closing stock, has failed to

adopt the rate on lot wise basis, in respect whereof lot wise details had been

furnished (details at pages of the paper book 185- 197 of the Paper book).

In view thereof, the enhancement by Rs. 2,00,099/- is entirely untenable.

Without prejudice and in the alternative, it was submitted that the AO be

directed to adopt such value of opening stock of the succeeding year.

6.2 In respect of ground no 4 of the departmental appeal, it was

submitted that the Assessing officer has grossly erred in computing the tax

payable on book profit at Rs. 1,18,30,217/-. In doing so he has erred and

ITA Nos. 2126 & 2901/D/10 M/s BLB Ltd. Page 7 of 28

failed to appreciate that there was no justification on his part, firstly in

proceeding to compute the book profit for the purposes of section 115 JB of

the Act, and secondly in not giving credit from such tax as had been

determined, being the tax payable on deemed income u/s 115JB of the

amount of Securities Transaction Tax (STT) paid by assessee company.

6.2.1 It was submitted that from the perusal of Page no. 19 of the order of

assessment it would be seen that the AO has computed the total income of

the assessee company at Rs. 54,66,59,030/-, whereas he has computed book

profit at 14,05,84,869/-. It is thus evident that the tax payable on income

computed under normal provisions of the Act is higher than the 7.5 % of

book profit and thus the applicability of the provisions of section 115JB has

been incorrectly applied.

6.2.2 It was further submitted that without prejudice to the above, the AO

has erred in computing the tax payable u/s 115JB at Rs. 1,18,30,217/-

without giving the credit of Securities Transactions Tax (STT). The

assessee company has suffered STT of Rs.25,74,87,293/-. It was submitted

that the AO ought to have granted rebate as provided U/s 88E of the Act.

The Ld. AR submitted that from the reading of the order of the AO from

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pages 11 to 17 it is seen that in his opinion after the assessee is granted a

rebate U/s 88E of the Act, despite the tax payable by the assessee was Rs.

16,83,06,156/-and since the assessee was not paying any income tax, the

provision of Minimum Alternate Tax can be invoked. It was submitted that

in fact, the tax payable by the assessee under the normal provisions of the

Income Tax Act was Rs.16,83,06,156/- which was far higher than that of

10% of book profit. It was submitted that the assessing officer has arbitrarily

held that as the tax to be paid remains nil after it has suffered STT, it must

be saddled with the liability u/s 115JB of the Act and that in any case, the

calculation of tax payable on deemed income U/s 115JB has not been

properly determined.

6.2.3 The learned AR further submitted that the AO has recorded a finding

that the assessee is a stock broker and that the Ld. CIT (A) has erred in

ignoring the said fact. It was submitted that as per the provision of sub

section 6 of section 115JB, the provisions of the said section are

inapplicable only in cases where an income accrues or arises from a business

carried on or services rendered by an entrepreneur or a developer in a unit or

special economic zone as the case may be. It was further submitted that the

aforesaid issue is no longer res- integra as the Hon’ble High Court of Delhi

ITA Nos. 2126 & 2901/D/10 M/s BLB Ltd. Page 9 of 28

by its judgment in ITA no.1181/2011 dated 17/05/2013 has held that the

provisions of section 87 & 88E of the Act apply to the total income

computed under section 115JB of the Act and that the assessee would be

entitled to a deduction to the extent of securities transaction tax borne by

him during the course of business in the relevant previous year.

6.2.4 On ground No. 4 of the Department’s appeal, it was further

submitted by the Ld. AR that that in the instant case, the AO has held that

the assessee is liable to pay tax on book profit u/s 115JB of the Act failing

to appreciate that the 7.5% of the book profit is less than the tax payable

under the normal provisions of the Act, as such, assessee is not liable for

the MAT. It was submitted that in the instant case, AO has committed

gross error while computing the tax payable under the normal provisions

of the Act as the word ‘tax payable’, in respect of ‘income tax payable on

the total income’, does not mean the ultimate or net amount which is

payable under the Act. The Ld. AR further submitted that for the purpose

of the applicability of provisions of section 115JB of the Act, the income

tax payable on the total income computed under the normal provisions of

the Income Tax Act and is to be compared with 7.5 per cent of the book

profits, and if the tax payable on the normal provisions of the Act is less

ITA Nos. 2126 & 2901/D/10 M/s BLB Ltd. Page 10 of 28

than the 7.5% of the Book profits, then the assessee is liable to pay tax

under section 115JB of the Act. The Ld. AR also submitted that the

assessee seeks to place reliance on the following orders of the Tribunal

wherein it has been held that tax payable under the normal provisions of

the Act should be computed before reducing the rebate u/s 88E of the Act-

- ITO vs Advent Stock Broking Pvt. Ltd in ITA No. 1276/Kol/2010

- DCIT vs E.Com Internet Services Pvt. Ltd in ITA No.

1524/Mum/2012

- DCIT vs Ori Finance Ltd in ITA No. 387/Kol/2011

6.2.5 The Ld. AR submitted that the provisions of section 115JB of the

Act are inapplicable to the facts of the instant case, as the tax payable

under the normal provisions of the Act are more than the 10% of the Book

profit, further, without prejudice to the aforesaid, if it be held that

provisions of section 115JB of the Act are applicable, then the assessee is

entitled to relief of rebate under section 88E of the Act from the tax

payable under section 115 JB of the Act. It was submitted that in support

of the aforesaid contention, assessee seeks to place reliance on the

following judicial pronouncements wherein it has been held that rebate

under section 88E of the Act has to be allowed from the tax payable under

ITA Nos. 2126 & 2901/D/10 M/s BLB Ltd. Page 11 of 28

section 88E of the Act:

- CIT vs MBL & Co. Ltd in ITA No. 1181/2011 (Delhi High Court)

- CIT vs Horizon Capital Ltd. 204 Taxman 59 (Kar)(Mag)

6.2.6 The Ld. AR also drew attention to a chart and submitted that on

perusal of the chart it would be seen that the book profit is far less than

the total income and thus, the provisions of section 115JB do not get

triggered and as such, the tax on book profit levied is also untenable. It

was submitted that the income tax payable on the total income as

computed under the Act is not less than 7.5% of its book profit, and as

such the provisions of section 115JB are not applicable as is the situation

in the instant case. In fact, when income tax payable on the total income

as computed under the Act is less than 7.5% of its book profit then only

can an assessee be liable to be taxed u/s 115JB of the Act whereas the tax

payable on total income in the instant case is far higher than 7.5% of Book

Profit. The chart is reproduced under for a ready reference -

ITA Nos. 2126 & 2901/D/10 M/s BLB Ltd. Page 12 of 28

S.No. Particulars AY AY 2007-08 AY 2006-07 2008-09 As per AO 1. Total income 54,66,59,030/- 51,08,60,641/- 127,88,04,351/- 2. Income from sources other 63,83,106/- 2,00,88,565/- 3,99,76,353/- than income on which securities transaction tax has been paid 3. Tax on total income 16,83,06,156/- 15,32,58,192/- 38,29,48,300/- 4. Tax on income from sources 21,48,553/- 67,61,810/- 1,34,31,734/- other than income on which securities transaction tax has been paid 5. Book profit 14,05,84,869/- 7,29,27,487/- 44,29,53,774/- 6. Tax on book profit 1,18,30,217/- 81,82,465/- 4,96,99,412/-

6.2.7 The Ld. AR submitted that in view of the aforesaid submissions,

Ground no. 4 of the department’s appeal ought to be dismissed.

6.3 With respect to ground no 3 of the departmental appeal, the Ld. AR

submitted that in the aforesaid ground of appeal, grievance of the revenue is

with regard to the allowance of rebate under section 88E of the Act in

respect of tax payable on the brokerage income, interest income, interest on

income tax refund and miscellaneous income. The Ld. AR submitted that the

AO, in his order of assessment in para 9, has held that deduction under

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section 88E of the Act is not allowable on the income arising other than

from income from taxable securities transaction and hence tax payable on

the brokerage income, interest income, interest on income tax refund and

miscellaneous income was not considered for the allowance of deduction u/s

88E of the Act. The Ld. AR submitted a chart extracted from pages 18 and

19 of the assessment order to demonstrate the working by the AO. The chart

is reproduced as under on the next page -

Asstt.Year 2006-07 (extracts from AO's order)

1 Non speculative business income from securities 243457170 transaction 2 Speculative business income from securities 317563352 transaction “A” 561020522 Others a. Brokerage Income 2999419 Less: Expenses Retail - 3569087 Less: Expenses DP -984451 -414789 b. Interest on FDR 6530310 c. Misc. Income 654380 6200233

4 182873 Interest on Income Tax refund “B” 6383106 Gross total income 567403628 Less: Deduction u/s 80G 20750000 Total Income 546659028

ITA Nos. 2126 & 2901/D/10 M/s BLB Ltd. Page 14 of 28

6.3.1 The Ld. AR submitted that it would thus be seen that the AO has

computed the total income of assessee at Rs. 54, 66,59, 028/-. i.e. A+B as

above less Deduction U/s 80G. It was submitted that the AO has duly

admitted that rebate u/s 88E (1) of the Act is ‘allowable’ in respect of tax

payable on income of Rs. 56,10,20,522/- i.e. item ‘A’ but has held that

no rebate is to be allowed on Rs. 63,83,106/- i.e. item ‘B’ since in his

opinion deduction u/s 88E of the Act, is allowable on the income on

which Securities Transaction Tax i.e. STT has been paid and as no STT

has been paid on (a) brokerage income, (b) interest on FDR (c)

miscellaneous income, (d) interest on refund, rebate u/s 88E of the Act

i.e. of STT paid could not be allowed.

6.3.2 It was further submitted that the AO, for the purposes of

computation of taxable income, has included the interest income for the

purposes of computation of income tax but has held that the rebate under

section 88 E of the Act is to be restricted only to the extent of income on

which securities transaction tax has been paid. In other words, in his

opinion the assessee was to pay tax on Rs. 63, 83, 106/-. But the same is

not eligible for rebate under section 88E of the Act, as the same is the

interest income from FDR’s. The Ld. AR submitted that such FDRs on

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which interest of a sum of Rs. 65, 30, 310/- has been earned represented

margin money kept with stock exchanges in order to enable the assessee

company to participate in the business of trading in shares.

6.3.3 It was submitted that it would be seen that there is no net income

from (a) brokerage income, (b) miscellaneous income, (c) interest on

refund (which is a negative sum) and thus, no such income has been

included in the income of Rs. 56, 10, 20, 522/-. In fact, during the course

of the assessment proceedings, assessee itself has conceded that rebate

u/s 88E is not eligible for deduction in respect of tax payable on

Brokerage Income, Misc. Income and Interest on Income Tax refund i.e.

on Rs. 29,99,419/-, Rs. 6,54,380/-, Rs. 1,82,873/- aggregating to Rs.

38,36,672/- and, thus, the only question which remains is whether the

assessee is entitled to claim a rebate of STT paid on the aforesaid income

of Rs.63, 83, 106/- which is from interest on FDR's from banks. The Ld.

AR submitted that the learned CIT (A) was legally & factually justified

in so holding that on the aforesaid income of Rs. 63,83,106/-, the

assessee was eligible for the claim of rebate of STT paid. In fact the

aforesaid income has a direct nexus with the income, on which the

assessee has paid the STT as there was no net income the and that there

ITA Nos. 2126 & 2901/D/10 M/s BLB Ltd. Page 16 of 28

was no dispute in respect thereof.

6.3.4 It was further submitted that the tax payable on interest income as

submitted above is eligible for tax rebate, as the interest income has been

earned on the margin money kept with Stock exchanges as per SEBI

guidelines for dealing in shares in respect of which it has paid STT is to

be allowed. It was submitted that under section 88E of the Act, it is

clearly provided that where the total income of the assessee includes any

income chargeable under the head Profits & Gains of Business or

Profession arising from taxable Securities Transaction Tax, the assessee

was entitled to a rebate from the amount of income tax on such income. It

was submitted that the interest on FDRs kept as margin money with stock

exchanges is thus, an income which arises from taxable securities

transactions. It was submitted that since interest on margin money kept

with the Stock exchanges as per SEBI guidelines is inextricably linked

with taxable securities transaction, as such, tax payable on interest income

is eligible for rebate u/s 88E of the Act.

6.3.5 The Ld. AR relied on the judgment of the Hon’ble High Court of

Delhi in CIT vs Jaypee DSC Ventures Ltd 335 ITR 132 (Del) wherein it

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has been held that where interest income is inextricably linked with the

business income, the same cannot be taxed as income from other sources.

The Ld. AR submitted that on perusal of the judgment of Hon’ble High

Court of Delhi reported in 335 ITR 132, it would be seen that it has been

held that where interest income has been earned on fixed deposits kept as

margin money, the same has to be held as business income and not

income from any other head. It was submitted that in arriving at such a

conclusion, the Hon’ble High Court has kept in view the real distinction to

decide whether the said income is income from business as income from

other sources. The assessee submits that the ratio of the aforesaid

judgment is fully applicable on the facts of the assessee - respondent. The

Ld. AR submitted that in view of the aforesaid, finding of the learned

CIT(A) deserves to be upheld as the interest earned on FD kept as margin

money is “Income under the head Business” and ground of appeal raised

by the revenue deserves to be dismissed.

and supported the order of the Ld. CIT (A) in the case of assessee’s appeal.

ITA Nos. 2126 & 2901/D/10 M/s BLB Ltd. Page 18 of 28

record. As far as the issue of disallowance u/s 14A is concerned, it is true

that the authorities below have erred in applying Rule 8D to the year under

appeal i.e. AY 2006-07 whereas Rule 8D has been held by various judicial

pronouncements to be applicable prospectively from AY 2008-09. Further,

on a perusal of the orders of the authorities below, it is seen that the AO as

well as the Ld. CIT (A) have not recorded any finding as to how the

disallowance of Rs. 32,875/- made by the assessee was incorrect. The

authorities below have also not pointed out the nexus between the

investments and the expenditure incurred. The Assessing Officer has

adopted the formula for estimating expenditure on the basis of investments

but the justification for calculating the disallowance is missing. The

Hon'ble Delhi High Court in the case of Maxopp Investment Ltd. vs CIT

(I.T.A. 687/2009) has opined in para 29 of the order as under:-

“29. Sub-section (2) of Section 14 A of the said Act provides the manner in which the Assessing Officer is to determine the amount of expenditure incurred in relation to income which does not form part of the total income. However, if we examine the provision carefully, we would find that the Assessing Officer is required to determine the amount of such expenditure only if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under the said Act. In other words, the requirement of the Assessing Officer embarking upon a determination of the amount of expenditure incurred in

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relation to exempt income would be triggered only if the Assessing Officer returns a finding that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. Therefore, the condition precedent for the Assessing Officer entering upon a determination of the amount of the expenditure incurred in relation to exempt income is that the Assessing Officer must record that he , is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. Sub-section (3) is nothing but an offshoot of sub-section (2) of Section 14A. Sub-section (3) applies to cases where the assessee claims that no expenditure has been incurred in relation to income which does not form part of the total income under the said Act. In other words, sub-section (2) deals with cases where the assessee specifies a positive amount of expenditure in relation to income which does not form part of the total income under the said Act and sub-section (3) applies to cases where the assessee asserts that no expenditure had been incurred in relation to exempt income. In both cases, the Assessing Officer, if satisfied with the correctness of the claim of the assessee in respect of such expenditure or no expenditure, as the case may be, cannot embark upon a determination of the amount of expenditure in accordance with any prescribed method, as mentioned in sub-section (2) of Section 14A of the said Act. It is only if the Assessing Officer is not satisfied with the correctness of the claim of the assessee, in both cases, that the Assessing Officer gets jurisdiction to determine the amount of expenditure incurred in relation to such income which does not form part of the total income under the said Act in accordance with the prescribed method. The prescribed method being the method stipulated in Rule 8D of the said Rules. While rejecting the claim of the assessee with regard to the expenditure or no expenditure, as the case may be, in relation to exempt income, the Assessing Officer would have to indicate cogent reasons for the same.”

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8.01 Similarly, the Hon'ble High Court of Punjab & Haryana in the case of

CIT-II vs Hero Cycles Ltd. in I.T.A. No. 331 of 2009 (O&M) has held in

para 4 of the judgment that, “the contention of the Revenue that directly or

indirectly some expenditure is always incurred which must be disallowed u/s

14A and the impact of expenditure so incurred cannot be allowed to be set

off against the business income which may nullify the mandate of section

14A, cannot be accepted. Disallowance u/s 14A requires finding of

incurring of expenditure. Where it is found that for earning exempted

income, no expenditure has been incurred disallowance u/s 14A cannot

stand.”

8.02 Mumbai ‘J’ Bench of the ITAT has held in the case of Justice Sam P.

Bharucha vs ACIT in I.T.A. No. 3889/Mum/2011 that no disallowance u/s

14A of the Act is called for when the assessee has not incurred and claimed

any expenditure for earning the exempt income.

8.03 Therefore, on an overall consideration of the facts of the case and

respectfully following the ratio of the judgments as aforementioned, we hold

that the disallowance u/s 14A was made without due deliberation and

analysis by the Assessing Officer and the Ld. CIT (A) was also patently

wrong in confirming the disallowance without testing the sustainability of

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the disallowance. Hence, we set aside the findings of the Ld. CIT (A) on this

issue and restore the matter to the file of the AO for fresh adjudication after

due verification of the claim of the assessee. Hence this ground is allowed

for statistical purposes.

8.1 As far as ground no. 2 of the assessee’s appeal regarding addition on

account of alleged difference in valuation of stock is concerned, it is seen

that the assessee has been consistently valuing the stock of shares on FIFO

basis and the it is undisputed that the department has accepted this method

of valuation in preceding as well as subsequent assessment years. The AO

has not been able to justify the need for the change in valuation and the Ld.

CIT (A) has also confirmed the action of the AO in this regard. However,

even in the arguments before us, the Ld. DR could not give a cogent reason

that warranted a change in the method of valuation especially when the

method was accepted by the department in earlier as well as subsequent

years. It is also seen that due credit for the difference in valuation of closing

stock in the year under appeal has also not been incorporated by the

department in the valuation of opening stock by the department in AY 07-

without any basis whatsoever and we find ourselves unable to agree with the

stand of the department on this issue. We, accordingly, set aside the order of

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the Ld. CIT (A) on this issue and direct the AO to delete this addition.

Ground no. 2 of the assessee’s appeal stands allowed.

8.2 In the result, the appeal of the assessee stands allowed.

that the ld. CIT(A’s) has discussed an adjudicated the issue at length on

pages 11 & 12 of the impugned order. The relevant portions are being

reproduced for a ready reference as under:

“I have examined the submission of the appellant and it is found that the Share Capital and Free Reserves amounted to Rs. 78 crores and the income of the company for the current year as for revised return was in excess of Rs. 54 crores. There is nothing wrong in the making one donation out of various donations from the overdraft account. For all other donations, there was enough balance in the bank account of the appellant. Further, the advancing of loans to subsidiaries and sister concerns is stated to be out of commercial expediency, and the interest has been charged from M/s BLB Commodities (P) Ltd. @ 6.50% as has been paid to the promoter/directors of the company during the year as also in all the earlier years. Since the appellant company had share capital and free reserves amounting to Rs. 78 crores and current income of the company was Rs. 54 crores, it could not be said that the donations/loans had been given out of borrowed fund. Section 36(1)(iii) of the Act simply lays down that, if a loan has been taken for the purpose of the business, the

ITA Nos. 2126 & 2901/D/10 M/s BLB Ltd. Page 23 of 28

deduction for payment of interest has to be allowed. No direct nexus has been established between the utilization of funds out of the borrowed amount on which interest has been paid. After having gone through the facts of the case, submission of the appellant and the case laws relied upon, I am of the opinion that the disallowance has been made by the Assessing Officer without establishing any nexus between borrowed and diverted funds. Further the AO has ignored the free reserves and share capital of Rs. 78 crores available with the appellant. Accordingly, the disallowance made out of interest paid should be deleted except disallowance of Rs. 1781/- on donation made out of overdraft account. This ground is treated as partly allowed.” 9.01 In view of the specific findings of the ld. CIT(A) which the ld. DR

could not controvert, we have no reason to interfere with the findings of the

ld. CIT(A) on this issue and we uphold the same.

9.02 In the result, ground no. 1 of the Department’s appeal is dismissed.

9.1 As far as ground no. 1 relating to deletion of addition of Rs. 863806/-

on account of extra depreciation claimed on computer peripherals and

accessories are concerned. It is seen that this issue has been settled in favour

of the assessee in a plethora of judicial pronouncements and the ld. CIT(A)

has also followed the reasoning that the computer is of no use if it does not

ITA Nos. 2126 & 2901/D/10 M/s BLB Ltd. Page 24 of 28

have any support of printer/mouse/UPS etc. Hence, on this issue also we

find no reason to interfere with the findings of the ld. CIT(A) and we uphold

the same.

9.1.2 In the result, ground no. 2 of the Department’s appeal is also

dismissed.

9.2 As far as ground no. 3 of the Department’s appeal regarding rebate u/s

88E is concerned, we find that the case of the assessee is squarely covered

by the decision of the Hon’ble Jurisdictional High Court in CIT vs. Jaypee

DSC Ventures Limited (supra), wherein the Hon’ble Delhi High Court held

as under:

“As is noticeable from the stipulations in the agreement, the performance guarantee by way of bank guarantee was required for faithful performance of its obligations. The non submission of the guarantee would have entailed in termination of the agreement and NHAI would have been at liberty to appropriate bid security. That apart, the release of such performance security dependent upon certain conditions. Thus, it is clearly evincible that the bank guarantee was furnished as a condition precedent to entering the contract and further it was to be kept alive to fulfill the obligations. Quite apart from the above, the release of the same was dependent on the satisfaction of certain

ITA Nos. 2126 & 2901/D/10 M/s BLB Ltd. Page 25 of 28

conditions. Thus, the present case is not one where the assessee had made the deposit of surplus money lying idle with it in order to earn interest; On the contrary, the amount of interest was earned from fixed deposit which was kept in the Bank for furnishing the bank guarantee. It had an inextricable nexus with securing the contract. The view express by the Tribunal cannot be found fault with. The Tribunal was therefore, justified in holding that the interest earned by the assessee on the FDRs has intrinsic and inseggregable nexus with the work undertaken and, therefore, the interest earned by the assessee is capital in nature and shall go towards adjustment against the project expenditure and the same cannot be assessed as income from other sources.”

9.2.1 Since the facts in the case of the assessee are identical, we are of the

opinion that the ld. CIT has rightly adjudicated the issue by directing the AO

to allow rebate u/s 88E of the Act and we find no reason to interfere with the

same.

9.2.2 In the result, ground no. 3 of the Department’s appeal is dismissed.

9.3 As far as ground no. 4 of the Department’s appeal is concerned, it is

seen that the Hon’ble Delhi High Court in the case of CIT vs. MBL &

Company Limited (supra) has held as under:

ITA Nos. 2126 & 2901/D/10 M/s BLB Ltd. Page 26 of 28

which is available u/s 88E of the Act to an assessee be not available on the tax as computed under the Minimum Alternate Tax Scheme as both section 115JB of the Act as well as the other provisions of the Act referred above have been enacted to provide the machinery for computing total income of an assessee which is exigible to Income Tax. The rebate u/s 88E of the Act provides for certain rebates available on the tax payable by an assessee. In our view, there would be no rationale to limit the plain words of sec. 88E of the Act to hold that the rebate in payment of the tax is only applicable to tax as determined under the normal provisions of the Act and not available with respect to Minimum Alternative Tax as computed u/s 115JB of the Act. The purpose of section 88E of the Act is to grant an assessee, to a limited extent, credit in tax on account of security transaction tax already borne by him in respect of the business carried out by him in dealing in securities. This rebate would be equally applicable to tax as computed under section 115JB of the Act as under the normal provisions of the Act. “

9.3.1 Respectfully following the ratio of the judgment laid down by the

Hon’ble Delhi High Court in the case of MBL & Company Limited (supra),

we find no reason to interfere with the findings of the ld. CIT(A) on this

issue.

9.3.2 Ground no. 4 of the Department’s appeal is accordingly, dismissed. ITA Nos. 2126 & 2901/D/10 M/s BLB Ltd. Page 27 of 28

of the Department is dismissed.

Order is pronounced in the open court on 05/08/2016

Sd/- Sd/- (G.D. AGRAWAL) (SUDHANSHU SRIVASTAVA) VICE PRESIDENT JUDICIAL MEMBER Dated: 05.08.2016 *Kavita Arora