SUNIDHI SECURITIES & FINANCE LTD,MUMBAI vs. ACIT 4(2), MUMBAI

The assessee has raised the following issues in the appeal for the A.Y.2010-11:- “1. The Ld. C.I.T.(Appeals) erred in confirming the action of Ld. Addl. C.I.T. of disallowing Rs.14,95,643/- out of expenses attributing the same towards earning of exempt income u/s.14A read with Rule 8D. 2. The Ld. C.I.T. (Appeals) erred in confirming the action of Ld. Addl.C.I.T. of disallowing the set off of Long Term Capital Gain against Long Term Capital Loss and differentiating between capital gains on the basis of Security Transaction Tax (paid and not paid). 3. The Ld. C.I.T. (Appeals) further erred in not allowing the carry forward of Long Term Capital Loss on which STT was paid.

The assessee company is engaged in the business of stock broking as well as trading. The Assessing Officer disallowed certain amount in all the three years in view of the section 14A read with Rule 8D of the Income Tax Act, 1961 ( in short “the Act”) and did not carry forwarded the Long Term Capital Loss as mentioned in the each assessement of each years and disallowed the depreciation upon membership card which was confirmed by the learned CIT(A). Therefore, the assessee has filed the present appeal before us.

In all the three cases the assessee has challenged the disallowance of Rs.23,73,814/- for A.Y.2008-09, Rs.23,28,214/- for A.Y.2009-10 and Rs.14,95,643/- for A.Y.2010-11 u/s. 14A read with rule 8D of the Act. The learned representative of the assessee has A.Y.2008-09, 2009-10 &2011-12 argued that the assessee has made the strategic investment for the purpose of business wherein the sole intention of the assessee was to carry out the business of the appellant company, therefore, in the said circumstances no disallowance of any kind is liable to be made in view of the provision u/s.14A read with rule 8D of the Act. In support of this contention the learned representative of the assessee has placed reliance upon the order passed by the Income Tax Appellate Tribunal, Mumbai Bench in and others Asst. CIT Vs. M/s. Smart Chip Ltd. and 65 SOT 86 (Mum-Trib) Garware Wall Ropes Ltd. Vs. Addl. CIT and Mumbai Bench in ITA Nos. 1752 to 1754/Mum/13 and others M/s.Twinkle Enviro Tech. Ltd. Vs. DCIT. It is also argued that the shares which did not earn any dividend income is not also liable to be included for the purpose to calculate the expenditure towards to earn the exempt income and placed reliance upon the law settled in M/s.Twinkle Enviro Tech. Ltd.(Supra). However, on the other hand the learned departmental representative has strongly relied upon the order in question. According to the assessee, the investment was made as strategic investment for the purpose of business wherein the sole activity to carry out the business of the assessee. Now in the said circumstances and in view of the law relied by the learned representative of the assessee in a case decided by the Income Tax Appellate Tribunal, Mumbai Bench in ITA No.1923/M/12 and others Asst. CIT Vs. M/s. Smart Chip Ltd. and 65 SOT 86 (Mum-Trib) Garware Wall Ropes Ltd. Vs. Addl. CIT and A.Y.2008-09, 2009-10 &2011-12 Mumbai Bench in to 1754/Mum/13 and others M/s.Twinkle Enviro Tech. Ltd. Vs. DCIT. We are of the view that strategic investment should be excluded from the value of investments for the purpose of Rule 8D. Therefore in the said circumstances the matter of controversy is require to be reconsider afresh by the Assessing Officer to determine the such kind of investment and to deal with this kind of investment in view of the observation made above. The second point which has been raised in this issue also is in connection with the exclusion of the shares which did not earn the dividend income. The assessee placed reliance on the law settled in 144 ITD 141 (Kol-Trib) REI Agro Ltd. Vs. DCIT and Cochin Bench in ITA Nos. 230 to 232/Cochin/2015 South India Corporation Ltd. Vs. JCIT and Mumbai bench in ITAT No.8581/Mum/2011 Sylvex Cable Co. P. Ltd.. No doubt the above said decisions speak that those shares which did not earn any dividend income are to be excluded from the value of investments for the purpose of Rule 8D. However, we notice that the provisions of Rule 8D(2)(ii) defines the clause B as the “average value of investments, income from which does not or shall not form part of total income….” Similarly, the Rule 8D(2)(iii) also uses the expression “does not or shall not”. The expression “does not” refers to the dividend received but exempt, where as the expression “shall not” refers to dividend that may be received and would not be included. We notice that the decisions did not consider the fine distinction between the above said expressions. In view of A.Y.2008-09, 2009-10 &2011-12 the above, we are of the view that the investments which did not yield dividend should not be excluded for computing disallowance under Rule 8D(2)(ii) and (iii) of the I.T Rules. Accordingly we reject this plea of the assessee. However, we have held that this matter requires fresh examination and hence the matter is remanded to the file of Assessing Officer to decide the matter afresh in view of the above said observations in accordance with law.

The second issue is in connection with the disallowance of depreciation on member ship card exchange u/s.32(1)(ii) of the Act which has been raised in all the three appeals. The order passed by the learned CIT(A) in question has been perused who has decided the issue on the basis of the decision in case of Income Tax Appellate Tribunal in the case of Sino Securities Pvt. Ltd. Vs. ITO and 6294/Mum/2009 dated 23.11.2011 for the A.Y.2006-07. No distinguishable facts have been produced before us. No any case laws contrary to the above said decisions have been produced. In view of the said circumstances, we are of the view that the learned CIT(A) has passed the order on the basis of the judgment Sino Securities Pvt. Ltd.(Supra) judiciously and correctly which does not required to be interfere with at this appellate stage. Therefore the finding of the learned CIT(A) is hereby upheld. Hence, this issue is decide in favour of the revenue against the assessee. A.Y.2008-09, 2009-10 &2011-12 ISSUE NO.3:-

Under the issue no.3 the assessee has challenged the action of learned CIT(A) to not to carry forward the Long Term Capital Loss for subsequent assessment years in the appeal for the A.Y.2008-09 and 2010-11. In support of this contention the learned representative of the assessee has placed reliance on 69 SOT 383 (Mum-Trib) in case of Raptakos Brett & Co. Ltd. Vs. DCIT. The order perused which speaks about the facts that Long Term Capital Loss on sale of shares attractive STT can be set off against Long Term Capital Gain on sale of land in accordance with section 70(3) of the Act. Accordingly, by honoring the judgement passed by the ITAT in case Raptakos Brett & Co. Ltd (Supra) we set aside the finding on this issue and allowed this issue in favour of the assessee on the above stated terms. Accordingly this issue is decided in favour of the assessee against the revenue.

In result all the appeals filed by the assessee are partly allowed.