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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: S/SHRI B.R.BASKARAN & AMARJIT SINGH
Assessee by: Shri Aaditya Maheshwari Department by: Shri Manoj Kumar सुनवाई क" तार"ख / Date of Hearing: 06.01.2016 घोषणा क" तार"ख /Date of Pronouncement: 11.05.2016 आदेश / O R D E R PER AMARJIT SINGH, JM:
This is an appeal filed by the assessee against the order dated 13.12.2011 passed by the Commissioner of Income Tax (Appeals)-9, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the assessment year 2008-09. A.Y.2008-09
2. The assessee filed its return of income for the A.Y.2008-09 on 30.09.2008 declaring total income to the tune of Rs.1,47,67,329/-. The return so filed was processed u/s.143(1) of the Income Tax Act, 1961( in short “the Act”) on 14.07.2009. The case was selected for scrutiny and notice u/s. 143(2) of the Act was issued on 23.09.2009 and duly served upon the assessee. Thereafter the notice u/s. 142(1) was also issued calling certain details. The assessee is limited company and is a trading member of National Stock Exchange. The assessee is also in the business of Share Broking and investment into share and other securities and brokerage income. The Assessing Officer completed the assessment by assessing the income to the tune of Rs.1,69,21,560/-. The Assessing Officer disallowed the Vsat/ Lease Line charges and also disallowed the expenditure incurred to earn the exempt income u/s. 14A of the Act which was confirmed by the learned CIT(A) hence the assessee filed the present appeal before us.
3. In brief the assessee has taken the following two grounds:-
1. That on the facts and circumstances of the case, the learned Commissioner of Income Tax (Appeals) has erred in disallowing VSAT and Lease line charges of Rs.4,73,530/- u/s. 40(a)(ia) of Income Tax Act, 1961.
2. That on the facts and circumstances of the case, the learned Commissioner of Income Tax (Appeals) has erred in disallowing Rs.14,57,014/- on account of interest by applying rule 8D read with section 14A. A.Y.2008-09 ISSUE NO.1:-
4. The assessee has challenged the confirmation of disallowance of Vsat / Lease Line charges to the tune of Rs.4,73,530/- u/s. 40(a)(ia) of the Act. The learned representative of the assessee has argued that this issue has duly been covered by the judgement of jurisdictional High Court of Bombay in case of Income Tax Commissioner Mumbai City 4 Vs. Angel Capital & Debit Market Ltd., in of 2011 dated 28.07.2011. The finding of the said judgement is hereby mentioned below for ready reference.
Three questions of law raised by the Revenue in this appeal, which reads thus:
“(A) Whether on the facts and in the circumstances of the case and in law the Hon’ble Tribunal was justified in holding that VSAT and Lease Line Charges paid to the Stock Exchange by the assessee company were allowable as a deduction from taxable income even though the assessee company had failed to deduct TDS thereon?
(B) Whether on the facts and in the circumstances of the case and in law the Hon’ble Tribunal was justified in holding that VSAT and A.Y.2008-09 Lease Line charges paid to the stock exchange by the assessee company were not paid in consideration of technical services rendered by the stock exchange within the meaning of section 194J read with explanation 2 to section 9(1)(vii) of the Income Tax Act?
(C) Whether on the facts and in the circumstances of the case and in law the Hon’ble Tribunal was justified in deleting the disallowance made by the Assessing Officer of claim of the assessee company for a deduction of payment of Rs.6,51,240/- towards penalty paid to stock exchange even though such penalty payment was clearly disallowable under explanation to section 37(1) of the Income Tax Act?
As regards first two questions are concerned, the findings of the fact recorded by the ITAT is that VSAT and Lease Line charges paid by the assessee to stock exchange were merely reimbursement of the charges paid/payable by the stock exchange to the department of Telecommunication. Since VSAT and Lease Line charges paid by the assessee do not have any element of income, deducting tax while making such payments do A.Y.2008-09 not arise. Hence, question Nos. (A) to (B) cannot be entertained.
As regards question (C) is concerned the finding of the fact recorded by the ITAT is that the amount paid as penalty was on account of irregularities committed by the assessee’s clients. Such payments were not on account of any infraction of law and hence allowable as business expenditure. In such as case the explanation to section 37 could not apply. Accordingly question (C) raised by the revenue cannot be entertained.
In the result the appeal is dismissed with no order as to costs.
No new facts were brought into the light before us contrary to the above mentioned finding by the Departmental Representative. The matter of controversy has duly been answered in favour of assessee in the case of Angel Capital and Debit Market Ltd., (Supra). In view of the above said judgement, we are of the view that VSAT / Lease Line charges to the tune of Rs.4,73,530/- u/s. 40(a)(ia) of the Act is not liable to be disallowed therefore the same is hereby allowed and accordingly this issue is decided in favour of the assessee and against the revenue.
ISSUE NO.2:- A.Y.2008-09
According to issue no.2 the assessee has challenged the expenditure incurred to earn the exempt income to the tune of Rs.14,57,014/- in view of the provision contained in section 14A read with rule 8D of the Act. The contention of the assessee is that the assessee did not raise any loan to earn the exempt income. Moreover, the assessee was having the sufficient fund with him therefore the investment made by the assessee is liable to be treated as with his own fund and the expenditure incurred to earn the exempt income is not liable to be disallowed in view of the provision section 14A read with rule 8D. In support of the contention the learned representative of assessee place reliance upon the order passed by Income Tax Appellate Tribunal in India Advantage Securities Ltd. dated 14.09.2012. It is also argued that in view of the balance the source of fund for reserve and surplus of the company i.e. interest free fund of the company, therefore in the said circumstances the provision u/s.14A read with rule 8D is not applicable. The account book speaks about the investment in shares to the tune of Rs.1,40,53,000/- out of sale proceeds of investments sold amounting to Rs.1,46,89,815/- during the year. It is specifically contended that the provision of section 14A read with rule 8D of the Act is not applicable to the share stock in trade and in this regard the learned representative of the assessee has placed reliance upon the order passed by the Income Tax Appellate Tribunal in India Advantage Securities Ltd. ITA No.6711/Mum/2011 dated 14.09.2012. A.Y.2008-09 In the case of India Advantage Fund, 10% of dividend income is disallowed towards administration expenses. Accordingly, we restrict the disallowance u/s. 14A to 10% dividend income
In result the appeal of the assessee is hereby partly allowed.
Order pronounced in the open court on 11th May, 2016 (AMARJIT SINGH) (B.R.BASKARAN) लेखा सद"य / ACCOUNTANT MEMBER "या"यक सद"य/JUDICIAL MEMBER मुंबई Mumbai; "दनांक Dated : 11th May, 2016 MP MP MP MP