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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Before: SHRI R. C. SHARMA, AM & SHRI SANDEEP GOSAIN, JM
Parag Parikh Financial Advisory Ltd. ITO 4(2)(1), Mumbai बिधम/ 103/108, Veena Chambers, 21-Dalal Vs. Street, Fort, Mumbai. स्थायी लेखा सं./जीआइआर सं./PAN/GIR No. AABCP9117F (अपीलाथी /Appellant) (प्रत्यथी / Respondent) : अपीलाथी की ओर से / Appellant by : Shri Kishor Chaudhary प्रत्यथी की ओर से/Respondent by : Ms Mohna Sarkar सुनवाई की तारीख / : 28/12/2016 Date of Hearing घोषणा की तारीख / : 11/01/2017 Date of Pronouncement आदेश / O R D E R
Per Sandeep Gosain, Judicial Member:
The Present Appeal has been filed by the assessee against the order of Commissioner of Income Tax (Appeals)-9, dated 21.01.2015 for AY 2010-11 on the grounds of appeal mentioned herein below.
1. The Commissioner of income Tax (Appeals) has erred in confirming addition of Rs. 9,80,095/- made u/s 14A to the book profit u/s 1 15JB.
(A.Y. 2010-11) Parag Parikh Financial Advisory Ltd.
The Commissioner of Income tax (Appeals) has erred in confirming disallowance of transaction charges of Rs. 3,18,719/- u/s 40(a) (ia).
The Commissioner of Income Tax (Appeals) has erred in confirming addition of Rs. 50,512/- to interest income.
The Commissioner of Income Tax (Appeals) has erred in not appreciating case law submitted at the time of hearing. The assessee craves leave to add to, alter, amend, modify or substitute the grounds of appeal.
2. The brief facts of the case are that the assesse e-filed its return of income for the AY 2010-11 on 29.09.10 declaring total income of Rs. 1,95,93,941/-. The assessment u/s 143(3) of the Act was completed on 30.01.13 determining net book profit u/s 115JB of the Act at Rs. 6,86,18,547. While completing the assessment, the AO made various disallowance like disallowance of transaction charges amounting to Rs. 3,18,719 and addition on account of interest income amounting to Rs. 50,512/- 3. Aggrieved by the order of AO, assessee filed the appeal before CIT(A) and the CIT(A) after considering the case of the parties had dismissed the appeal of the assesse and upheld the addition made by AO. 4. Aggrieved by the order of CIT(A), the assessee filed the present appeal before us on the grounds mentioned herein above.
(A.Y. 2010-11) Parag Parikh Financial Advisory Ltd. Ground No.1 5. The Ld. AR appearing on behalf of the assessee submitted that Ld. CIT(A) has erred in confirming addition of Rs. 9,80,095/- made u/s 14A to the book profit u/s 115JB. The Ld. AR reiterated the same arguments which were raised before CIT(A). In this respect our attention was drawn at para 2.1 and 2.2 of CIT(A) order where the arguments raised by assesse are reproduced. The Ld. AR submitted that the provisions of section 14A r.w.s rule 8D cannot be applied in a routine manner as has been done by the revenue authorities in the present case. It was further argued that before invoking the provisions of section u/s 14A, the revenue authorities have not recorded its satisfaction and have not examined the books of assessee. It was further argued that rule 8D is neither automatical nor it can be mechanically applied. It was further argued that the disallowance u/s 14A has also been wrongly calculated at Rs. 9,80,095 as it has no basis and the AO has not given any reasons for reaching the said amount. The Ld. AR further argued that rule 8D has been mechanically applied by the AO.
On the other hand Ld. DR appearing on behalf of the revenue relied upon the orders passed by the revenue authorities.
We have heard the counsel for both the parties and we have also perused the material placed on record as well as the orders passed by the revenue authorities. In (A.Y. 2010-11) Parag Parikh Financial Advisory Ltd. the facts and circumstances of the case, we have noticed that the Ld. CIT while dealing with the said ground has passed the order in para 2.6 & 2.7 of its order and the same is reproduced below:- “2.6 Respectfully following the proposition declared by the Hon'ble Supreme Court in the case of ICIT Vs. Rolta India Ltd. and in view of the fact that there is no exclusion of Section I15JB in the statutory disallowance of expenses to earn exempt income u/s. 14A of the Act read with Rule 8D of the I.T. Rules, 1962, it is held that statutory disallowance u/s. 14A of the Act read with Rule SD of the LT Rules is applicable to the facts of the present case. In view of the specific provisions in Section 115JB(5) to the effect that all other provisions of the Act shall apply to the MAT ,company, the statutory disallowance u/s. 14A r.w.r.8D is applicable in respect of working out the book profit u/s. 115JB of the Act. Therefore, the disallowance of Rs. 20,29,630/- (as debited to the P & L A/c, by the appellant) is confirmed. 2.7 To sum up, the AO is directed to adopt correct figure of business loss while computing book profit u/s. 115JB of the Act. As far as addition u/s. 14A made while computing book profit u/s. 115JB is concerned, the action of the AO is confirmed in view of the discussion made above. The ground of appeal is treated as dismissed.”
After hearing the counsels for both the parties and after perusal of the aforesaid order passed by the Ld. CIT, we found that the AO has not recorded its satisfaction regarding examination of books of the assesse and this is the pre- requisite for invoking the provisions of section 14A. It has been correctly held in (A.Y. 2010-11) Parag Parikh Financial Advisory Ltd. the case of Godrej & Boyce Manufacturing Company Ltd. Vrs. CIT 328 ITR 81 that before invoking the provision of section 14A r.w.s 8D, the AO has to record its satisfaction regarding the examination of the books of the assesse and as per the mandate of 14A(2), it is the bounded duty of the AO to record its satisfaction in respect of correctness of the claim of the assessee in respect of such expenditure in relation to income which does not confirm the part of total income. Since the order of the AO is lacking on this aspect, therefore in our considered view and while considering the interest of justice, we set aside the order of Ld. CIT(A) on this ground and remit the matter back to the file of AO with a direction to verify the calculation of disallowance made by assesse u/s 14A. It is made clear that our decision to restore this ground back to the file of AO shall in no way be construed as having any reflection or expression on the merits of the dispute, which shall be adjudicated by AO afresh in accordance with law. In the result, this ground is allowed for statistical purposes.
Ground No. 2. The Ld. AR appearing on behalf of the assesse submitted that the Ld. CIT(A) erred in confirming disallowance of transaction charges of Rs. 3,18,719/- u/s 40(a) (ia).
(A.Y. 2010-11) Parag Parikh Financial Advisory Ltd. We have heard the counsel for both the parties and we have also perused the material placed on record as well as the orders passed by the revenue authorities, we found that the Ld. CIT(A) while dealing with this ground has relied upon the judgment rendered by Hon’ble Bombay High Court in the case of “Kotak Securities” and while relying upon the said judgment, the Ld. CIT(A) had dismissed this ground raised by the assesse. But now we have noticed that the Supreme Court in the case of M/s Kotak Securities Ltd has held that view taken by Bombay High Court that the transaction charges paid to the Bombay Stock Exchange by it members are for “Technical services” rendered is not an appropriate view. It was further held that such charges, really, are in the nature of payments made for facilities provided by dthe Stock Exchage therefore, no TDS on such payments would therefore, be deductible u/s 194J of the Act. The operative para is reproduced as under:- “TDS u/s 194J - transaction charges paid by a member of the Bombay Stock Exchange to transact business of sale and purchase of shares - whether amounts to payment of a fee for 'technical services' rendered by the Bombay Stock Exchange? - Held that:- There is no exclusivity to the services rendered by the Stock Exchange and each and every member has to necessarily avail of such services in the normal course of trading in securities in the Stock Exchange. Such services, therefore, would undoubtedly be appropriate to be termed as facilities provided by the Stock Exchange on payment and does not amount to "technical services" provided by the Stock Exchange, not being services specifically sought for by the user or the 7. (A.Y. 2010-11) Parag Parikh Financial Advisory Ltd. consumer. It is the aforesaid latter feature of a service rendered which is the essential hallmark of the expression 'technical services" as appearing in Explanation 2 to Section 9(1 )(vii) of the Act. The view taken by the Bombay High court that the transaction charges paid to the Bombay Stock Exchange by its members are for 'technical services' rendered is not an appropriate view. Such charges, really, are in the nature of payments made for facilities provided by the Stock Exchange. No TDS on such payments would, therefore, be deductible under Section 194J of the Act.”
Keeping in view the above judgement, we hold that the transaction charges paid by its member are in the nature of payments made for facilities provided by the stock exchange and are not technical services, therefore no TDS on such payment would therefore be deductible u/s 194J of the Income Tax Act, therefore after following the judgment of Hon’ble Supreme Court, this ground of appeal raised by the assesse is allowed Further, no new facts or contrary judgments of higher court have been brought on record before us in order to controvert or rebut the findings recorded by learned CIT (A), and therefore, there are no reasons for us to deviate from the well reasoned findings recorded by the learned CIT (A). Therefore, after hearing the parties and analyzing the impugned order we are of the considered view, that the findings recoded by the learned CIT (A) are judicious and well reasoned. Accordingly, we uphold the same and dismiss this ground of appeal.