INDIA ADVANTAGE SECURITES P.LTD,MUMBAI vs. DCIT RG 4(1), MUMBAI

This appeal is filed by the assessee against the order of CIT(A)-9, Mumbai dated 2.1.2015 for the Assessment Year 2010-11 arising out of 2 India Advantage Securities Ltd. assessment order dated 30.11.2012 passed u/s 143(3) of the Income Tax Act, 1961 (in short ‘the Act’).

The first issue in the appeal of assessee is that CIT(A) erred in law and in fact in confirming the disallowance made u/s 14A of the Act amounting to Rs.7,21,725/-. Briefly stated, the facts are that the Assessing Officer while completing the assessment noticed that assessee has shown Dividend income of Rs.26,66,404/- and claimed this as exempt income. He required the assessee to explain as to why proportionate expenses relating to such exempt income should not be disallowed. Assessee submitted that the Dividend income is incidental to carrying on business of trading in shares & securities and hence there should not be any disallowance u/s 14A of the Act. Not convinced with the submissions of assessee, the Assessing Officer applying Rule 8D of the Income Tax Rules arrived at the disallowance of Rs.7,21,725/-. This consists of disallowance under Rule 8D(2)(i) of Rs.11,466/- and disallowance under Rule 8D(2)(iii) at Rs.7,10,258/-. The assessee preferred an appeal before the CIT(A) and the CIT(A) upheld the action of Assessing Officer observing that in view of the decision of jurisdictional High Court in the case of Godrej & Boyce Mfg. Co. Ltd. vs. DCIT, 234 DTR 1, even in case of composite and indivisible business it would be necessary to apportion the expenditure incurred by assessee.

The learned counsel for assessee submits that there is no justification for sustaining the disallowance of Rs.7,21,725/-. The learned counsel submits that the amount of Rs.11,466/- which was disallowed under Rule 8D(2)(i) is on account of 10% of bank charges and 3 India Advantage Securities Ltd.

The ld. DR vehemently supports the orders of the authorities below.

We have heard the rival submissions, perused the orders of the authorities below and the case laws relied on. Admittedly, the provisions of Rule 8D applies to the assessment year under consideration, therefore, the Assessing Officer is justified in computing the disallowance by applying the provisions of Sec. 14A r.w.r 8D. However, coming to the calculation of 0.5% of average investments for the purpose of disallowance, the stock-in-trade of assessee, who is a stock broker, should be excluded as was held in assessee’s own case for Assessment Year 2008-09 in dated 14.9.2012 supra. Thus, respectfully following the said decision, we direct the Assessing Officer to exclude the stock-in-trade for the purpose of computing the disallowance under Rule 8D(2)(iii), i.e., 0.5% of average investments. Thus, the first issue in appeal of assessee is partly allowed.

The next issue in the appeal of assessee is that CIT(A) erred in law and in fact in confirming the disallowance of Rs.1,04,426/- on account

The ld. Counsel for assessee submits that the contentions of CIT(A) that since the bad debts were not offered as income, they should not be allowed as deduction is not justified. The learned counsel submits that if the bad debts are not allowed u/s 36(1)(iii), the lower authorities should have considered the claim of assessee u/s 28 of the Act and should have allowed it as a business loss. He placed reliance on the decision of the coordinate Bench of Tribunal in the case of Forstar

The ld. DR supports the orders of the authorities below.

We have heard the rival submissions, perused the orders of the authorities below and the case laws relied on. We find from the assessment order that the Assessing Officer rejected the claim of bad debts in the absence of details furnished by the assessee. Assessee’s submission is that the claim, if not allowed u/s 36(1)(iii) of the Act, should be allowed u/s 28 of the Act as a business loss. The contentions of assessee since not examined by the lower authorities, and also since assessee has not furnished the complete details before the Assessing Officer, we are of the considered view that this matter should go back to the Assessing Officer for afresh adjudication. Thus, we restore this matter to the file of Assessing Officer with the direction to examine this issue afresh after providing adequate opportunity of hearing to the assessee.

In the result, appeal of assessee is partly allowed for statistical purposes.