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Income Tax Appellate Tribunal, MUMBAI BENCH “C”, MUMBAI
Before: SHRI SANJAY GARG & SHRI RAJESH KUMAR
Per Sanjay Garg, Judicial Member:
The above titled appeals by the assessee relevant to A.Y. 2006-07 and 2009-10 have been preferred against the orders of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] dated 06.02.2013 and 19.10.2012 respectively. Since both the appeals are relating to the same assessee, hence these were heard together and are being disposed of by this common order. First we take appeal of the assessee for A.Y. 2006-07.
ITA No.6236/M/2013 (for A.Y. 2006-07) 2. The assessee, in this appeal, has taken two effective grounds of appeal. By way of first ground the assessee has agitated the reopening of the assessment under section 147 of the Act. In the second ground of appeal the assessee has agitated on merits the disallowance made under section 40(a)(ia)
2 ITA No.6236/M/2013 M/s. Creative Global Stock Broking Pvt. Ltd. to the tune of Rs.19,85,114/- for non deduction of tax at source. The Ld. A.R., at the outset, has stated that the issue on merits is now covered in favour of the assessee by the decision of the Hon’ble Supreme Court. The issue is relating to the non deduction of TDS on payment of transaction charges paid to the Bombay Stock Exchange. The lower authorities have disallowed the said expenditure while relying upon the decision of the Hon’ble Bombay High Court in the case of “Kotak Securities Ltd.” 340 ITR 333 wherein the Hon’ble Bombay High Court has held that the payment made to stock exchange was for managerial services that constitutes fees for technical services under section 194J of the Act and that TDS is required to be deducted on such payments and that non deduction of TDS on such payments attracted disallowance under section 40(a)(ia) of the Act. The Ld. A.R. of the assessee, however, has relied upon the decision of the Hon’ble Supreme Court in the case of “CIT vs. Kotak Securities Ltd.” in civil appeal No.3141 of 2016 & Others vide order dated 29.03.16 and has contended that the decision of the Hon’ble Bombay High Court (supra) has been reversed by the Hon’ble Supreme Court and the Hon’ble Supreme Court vide para No.10 of the order has concluded as under: “10. For the aforesaid reasons, we hold that 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.”
In view of the decision of the Hon’ble Supreme Court, no disallowance is attracted in relation to the transaction charges paid to the stock exchange. The issue is thus covered in favour of the assessee on merits by the decision of the Hon’ble Supreme Court (supra). This issue is accordingly decided in favour of the assessee. Since the sole issue taken by the assessee on merits is covered in his favour by the decision of the Hon’ble Supreme Court, hence under such circumstances both the Ld. Representatives of the parties agreed that the issue regarding the validity of reopening of the assessment at this stage
3 ITA No.6236/M/2013 M/s. Creative Global Stock Broking Pvt. Ltd. has become academic in nature as ultimately there will not be any resultant addition in view of the fact that the issue on merits is covered in favour of the assessee by the decision of the Hon’ble Supreme Court (supra). In view of this, ground No.2 is dismissed being rendered as academic in nature.
In view of our findings given vide ground No.1, the appeal of the assessee is treated as allowed.
Now coming to the appeal i.e. ITA No.182/M/2013 for A.Y. 2009-10.
ITA No.182/M/2013 for A.Y. 2009-10 6. The assessee in this appeal has taken two grounds of appeal. First ground is relating to the disallowance under section 14A read with rule 8D and the second ground is relating to the disallowance of Rs.15,00,000/- on account of apportionment of expenses in relation to the delivery based share transaction activity by way of deeming such activity as speculation activity in terms of provisions of explanation to section 73 of the Act.
Apart from that the assessee has taken an additional ground pleading that the Ld. CIT(A) has erred in stating that the assessee did not press ground No.2 of the appeal before him which was in relation to the application of provisions of explanation to section 73 of the Act.
Ground No.1 8. By way of this ground the assessee has agitated the disallowance of a sum of Rs.10,14,312/- made under section 14A read with rule 8D of the Income Tax Act. The AO noted that the assessee had made certain investments in shares and securities from which he erred tax exempt dividend income. He, therefore, applying rule 8D of the Income Tax Rules, calculated the disallowance under section 14A of the Act at Rs.10,14,312/- and
4 ITA No.6236/M/2013 M/s. Creative Global Stock Broking Pvt. Ltd. disallowed the same on account of expenditure incurred for earning of exempt income. The Ld. CIT(A) confirmed the said disallowance.
At the outset, the Ld. A.R. before us has stated that the assessee had strategic investments in the group companies for having control over them which was a business decision; that the investments were not made for earning of any tax exempt income; the tax exempt income earned, if any, was just incidental to the above activity.
At the outset, the Ld. A.R. of the assessee has invited our attention to page 11 of the paper book which is the detail of investments to show that 99.98% of the total investments were made in the group companies. The assessee has contended that the same were strategic investments for having control over the group companies. The Ld. A.R. of the assessee has further submitted that the investments so made were old investments and that no new investments were made during the year. He, therefore, has submitted that the strategic investments made by the assessee were not for the purpose of earning of exempt income but the same were relating to the business strategy of the assessee. He, therefore, has contended that while making out the disallowance under section 14A read with rule 8D of the Income Tax Rules, the strategic investments made in the group concerns should not be considered and be excluded while calculating the disallowance under rule 8D.
So far as the contention of the Ld. AR that no disallowance is attracted in relation to strategic investments made in the sister concerns/group companies where the assessee holds substantial stake is concerned, we find that the identical issue has been raised and decided by the co-ordinate bench of the Tribunal in the case of “Kotak Mahindra Capital Co. Ltd. vs. DCIT” in ITA Nos.5748/M/2012 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:
5 ITA No.6236/M/2013 M/s. Creative Global Stock Broking Pvt. Ltd. “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. - ITA No. 3186/M/08 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
In view of the above judicial pronouncements, the ld. A.R. prayed that the A.O. be directed 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.
On the other hand, the ld. D.R. relied on the orders of lower authorities.
We have considered the rival contentions, carefully gone through the orders of authorities below. We have also deliberated upon the judicial pronouncements cited with reference to the exclusion of investment made in the companies which are strategic in nature. As per the judicial pronouncements cited above, such investments should not be taken into account for working out the disallowance u/s 14A of the Act.”
The Ld. A.R. of the assessee has further brought our attention to the decision of the Hon’ble Bombay High Court in the case of “CIT, Panaji, Goa vs. Phil Corpn. Ltd.” (2011) 202 Taxman 368 wherein the Hon’ble Bombay High Court has held that where the investment in shares of sister/subsidiary company is made to have control over that company and further that such an investment was accordingly part of the business activity of the assessee, in that event the assessee is entitled to deduction of interest paid on the borrowed amount under section 36(1)(iii) of the Act. We, further find that recently the Hon’ble Delhi High Court in the case of “Eicher Goodearth Ltd. vs. CIT”
6 ITA No.6236/M/2013 M/s. Creative Global Stock Broking Pvt. Ltd. (2015) 60 taxman.com 268 (Del.) has held that if the expenditure is incurred for the purpose of promotion of business-more specifically to retain control or as part of his strategic investment of the assessee company, such expenses by way of interest out go would have to be treated as allowable under section 36(1)(iii) of the Act. In view of this, the strategic investment in group companies therefore cannot be held to be for investment purposes or with the object of earning of dividend/tax exempt income, but the same, in the light of above referred to Judicial decisions can safely be said to be related to the business activity of the assessee and no disallowance, therefore, is attracted on such an income u/s 14A of the Act.
In view of the above decisions and respectfully following the same, we direct the AO to verify the claim of the assessee regarding the strategic investments and exclude the strategic investments while calculating the disallowance under rule 8D for the purpose of section 14A of the Income Tax Act. Hence, the matter is referred back to the AO to decide it afresh.
Ground No.2 14. The Ld. A.R., at the outset, has stated that the ground No.2 relating to the issue of apportionment of expenses in relation to the share transaction activity by treating the same as speculative activity of the assessee under the provisions of explanation to section 73 of the Act was agitated before the Ld. CIT(A). That certain written submissions were also filed before him. However, the Ld. CIT(A) has dismissed the said ground as not pressed. The Ld. A.R. of the assessee Shri Rajiv Khandelwal has filed his own affidavit in this respect deposing that during the course of hearing before the Ld. CIT(A), he had separately filed written submissions together with relevant enclosures in respect of the above stated ground of appeal. That he had never stated before the Ld. CIT(A) that he did not press the ground, rather, the said ground was
7 ITA No.6236/M/2013 M/s. Creative Global Stock Broking Pvt. Ltd. very much agitated before the Ld. CIT(A). He has also raised additional ground in this respect.
Considering the above submissions of the Ld. A.R. and his affidavit on the file, in our view, interest of justice will be well served, if opportunity is granted to the assessee to agitate the said ground before the Ld. CIT(A) and the Ld. CIT(A) decide the said ground on merits. We accordingly restore this issue to the file of the Ld. CIT(A) with a direction to decide this issue afresh after giving a reasonable opportunity to the assessee of hearing and after duly considering the evidences, submissions, arguments and case laws, if any produced by the assessee in this respect.
In view of the findings given above, this appeal of the assessee is treated as allowed for statistical purposes.
Order pronounced in the open court on 29.06.2016.
Sd/- Sd/- (Rajesh Kumar) (Sanjay Garg) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated: 29.06.2016. * Kishore, Sr. P.S.
Copy to: The Appellant The Respondent The CIT, Concerned, Mumbai The CIT (A) Concerned, Mumbai The DR Concerned Bench //True Copy// [ By Order
Dy/Asstt. Registrar, ITAT, Mumbai.