AJMERA ASSOCIATES LTD,MUMBAI vs. DCIT RG 4(1), MUMBAI

The only issue in the appeal of the Assessee is in respect of disallowance made u/s 14A r.w.r. 8D of the I.T. Rules.

Briefly stated, the facts are that the Assessing Officer while completing the assessment disallowed Rs.8,25,037/- u/s 14A r.w.r.8D of the Act. This amount comprises the disallowance u/s 8D2(i) i.e. direct expenditure being the DEMAT charges and disallowance under rule 8D(2)(iii) of Rs.5,28,936/- being 0.5% of the average investments towards administrative expenses. The Assessing Officer also noticed that Assessee has shown dividend income of Rs.10,09,241/- and claimed as exemption. However, 5% of such dividend income was disallowed by the Assessee as expenditure incurred in relation to earning such dividend income. The Assessing Officer observing that the disallowance made by the Assessee is without any basis and the working submitted by the Assessee to exclude stock-in-trade while computing the average investments is rejected and disallowed Rs.8,25,037/- after excluding 5% adhoc disallowance of Rs.50,462/- made by the Assessee. On appeal, the Ld. CIT (Appeals) sustained the disallowance referring to the decision of third member of Mumbai Bench in the case of DH Securities Pvt. Ltd. observing that even stock-in-trade should be considered for the purpose of computing disallowance u/s 14A.

Before us, the Ld. Counsel for the Assessee in so far as DEMAT charges are concerned submits that the DEMAT charges debited to the accounts are not on account of Assessee’s investments, but they are in respect of investments made on behalf of the clients. The Ld. Counsel submits that DEMAT charges collected from the clients were paid to the Exchanges, therefore, the same should not be considered as direct expenses under Rule 8D2(i). Coming to the exclusion of stock-in-trade for the purpose of computing average investments under Rule 8D2(iii), the Ld. Counsel placed

(A.Y.2010-11) M/s Ajmera Associates Ltd. reliance on the decision of the Hon’ble Punjab & Haryana High Court in the case of Pr.CIT Vs. State Bank of Patiala [(2017) 78 taxman.com 3.]

The Ld. DR placed reliance on the orders of the authorities below.

We have heard the rival submissions, perused the orders of the authorities below and the decision relied on. In so far as the DEMAT charges are considered, we are of the view that DEMAT charges collected by the Assesse its from clients on investments made on behalf of the clients shall not be disallowed as direct expenses since these amounts were collected and paid to the Exchanges. However at the same time it can not be ruled out of Assessee incurring DEMAT charges on the transactions relating to the Assessee’s investments, as the Assessee is into trading of shares as well as stock broker. Therefore, we are of the view that the Assessing Officer shall find out the DEMAT charges on account of Assessee’s investments and consider the same for disallowance under Rule 8D(2)(i) as direct expenses. Hence this issue is restored to the file of the Assessing Officer for fresh adjudication.

Coming to stock-in-trade, the Hon’ble Punjab & Haryana High Court in the case of Pr.CIT Vs.State Bank of Patiala (supra) held that stock-in-trade is not an investment and therefore while computing the average value of investments under Rule 8D(2)(iii) shares held as stock-in-trade should be excluded. Before there are no details of the investments held as stock-in- trade. Hence, we set aside the issue to the file of the Assessing Officer who shall examine the accounts of the Assessee and ascertain the investments which are held as stock in trade and decide the issue in the light of the (A.Y.2010-11) M/s Ajmera Associates Ltd.

In the result, the appeal of the Assessee is partly allowed for statistical purpose.