CREATIVE GLOBAL STOCK BROKING P.LTD,MUMBAI vs. DCIT 4(1), MUMBAI

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ITA 3977/MUM/2016Status: DisposedITAT Mumbai21 December 2016AY 2011-124 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal directed the Assessing Officer to exclude shares held as stock-in-trade and investments in immovable property from the disallowance calculation. It also excluded strategic investments in sister concerns/group companies based on previous rulings.

What were the facts?

The assessee, a stock broking firm, challenged the disallowance of expenses under Section 14A read with Rule 8D(2)(iii). The Assessing Officer included shares held as stock-in-trade, strategic investments, and investments in immovable property in the disallowance calculation.

What were the issues?

Whether shares held as stock-in-trade, strategic investments, and immovable property investments should be included for calculating disallowance under Section 14A.

Which sections of the Income-tax Act were involved?

Section 14A

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “SMC”, BENCH MUMBAI

Before: SHRI R.C.SHARMA, AM

For Appellant: Shri Rajiv Khandelwal
For Respondent: Shri S.R.Kirtane
Hearing: 20/12/2016Pronounced: 21/12/2016

आदेश / O R D E R PER R.C.SHARMA (A.M): This is an appeal filed by the assessee against the order of CIT(A) for the assessment year 2011-12. 2. The only grievance of assessee relates to disallowance of expenses by invoking provisions of Section14A read with Rule 8D(2)(iii) amounting to Rs.12,48,394/-. 3. It was argued by learned AR that while computing disallowance under Rule 8D(2)(iii), AO has taken into account the shares held as stock in trade, strategic investment and investment in immovable property. Reliance was placed on the decision of Bombay High Court in the case of India Advantage Securities Limited in support of proposition that stock in trade should be excluded while computing disallowance u/s.14A. Learned M/s. Creative Global Stock Broking Pvt. Ltd., AR also placed on record the order of the Co-ordinate Bench in assessee’s own case for the assessment year 2006-07 to 2009-10 order dated 29/06/2016, wherein strategic investments were excluded for computing disallowance under Rule 8D read with Section 14A of the IT Act.

4.

As per learned AR investment in immovable property does not earn any dividend or exempt income, therefore, should be excluded while computing the disallowance u/s.14A.

5.

I have considered rival contentions and carefully gone through the order of the authorities below. From the record I found that the assessee is a broker at the BSE and the NSE and is engaged in the business of share broking, investing and trading in shares and securities, mutual fund distribution, arbitrage activity on equity and derivative segment, providing financial consultancy services. While computing disallowance u/s.14A, AO has taken into account the shares which were held as stock in trade and on which no dividend income was earned. In view of the decision of Jurisdictional High Court in case of India Advantage Securities Limited in order dated 14/09/2012, I direct the AO to exclude the shares held as stock in trade.

6.

No disallowance is attracted in relation to strategic investments made in the sister concerns/group companies where the assessee holds substantial stake is concerned, I find that the identical issue has been raised and decided by the co-ordinate bench of the Tribunal in the case of M/s. Creative Global Stock Broking Pvt. Ltd., "Kotak Mahindra Capital Co. Ltd. vs. DCIT" in and 248/M/2013 for A.Ys. 2008-09 & 2009-10 respectively, decided on 21.01.2015 wherein the Tribunal has made the following observations:

1.

"3. Rival contentions have been heard and perused the records. The A.O. has made the disallowance u/s 14A r.w. Rule 8-D at 0.5% of administrative expenses. There was no disallowance on account of interest while working out the disallowance u/s 14A of the Income Tax Act, 1961. It was argued by the learned A.R. that the assessee has investments in companies which are its group companies where the assessee holds substantial stake. The Id. A.R. submits that strategic investments, per se do not require any day today monitoring as they are inherently long term in nature. No expenditure on day- to-day basis is incurred for managing those investments. Therefore, strategic investment should be excluded for attributing administrative expenses for making disallowance u/s 14A of the Act. The ld. A.R. has placed reliance on the following decisions:- i) HSBC Securities and Capital Markets (I) P. Ltd. - ii) Zenstar Technologies Ltd. - ITA No. 4538/M/05 iii) Shri Bhalchandra R. Sule - ITA No. 3684/M/05 iv) EIH Associated Hotels vs. DCIT - ITA No. 1503/Mad/12 v) Interglobe Enterprises Ltd. vs. DCIT - ITA No. 1362 & 1032/De1/13 vi) JM Financial Limited vs. ACIT - ITA No. 4521/M/12 vii) CIT vs. Oriental Structural Engineers P. Ltd. - ITA 605 of 2012(HC) viii) ACIT vs. Oriental Structural Engineers P. Ltd. ITA No. 4245/De1/2011 ix) Garware Wall Ropes Ltd. vs. ACIT - ITA No. 5408/M/2012 7. In view of the above judicial pronouncements, I direct the A.O. to exclude the investments made in foreign subsidiaries and investment made in companies which are strategic in nature while computing the disallowance u/s 14A of the Act in respect of administrative expenses.

8.

Investment made in the immovable property also does not earn any exempt income. Accordingly, I direct the AO to exclude the investment in M/s. Creative Global Stock Broking Pvt. Ltd., the immovable property amounting to Rs.1,45,78,820/- while computing disallowance under Rule8D.

9.

In the result, appeal of the assessee is allowed in part in terms indicated herein above.

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