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Income Tax Appellate Tribunal, MUMBAI BENCH “C”, MUMBAI
Before: SHRI R.C.SHARMA & SHRI PAWAN SINGH
O R D E R
PER PAWAN SINGH, JM:
This appeal is filed by the Revenue against the order of CIT(A)-8, Mumbai dated 18.07.2013 in respect of Assessment Year (AY) 2010-11 on the following grounds of appeal:
1"On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in directing the A.O. to consider only net interest paid, for working disallowance u/s.14A erroneously relying that the same were allowed in the previous year by his predecessor which is factually incorrect. 2. "On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the penalty on account of payment made to Stock Exchange without taking into account the fact that penalties which are mentioned as technical defaults are not merely compensatory but penalizing". 3. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of loss on unexpired contract on account of mark to market valuation of open positions in respect of futures incorrectly interpreting that the same have already been credited in the P&L Account. 4. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of the expenses at clubs stating it to be for the interest of the business without taking into consideration the personal element involved". 5. "On the facts and in the circumstances of the case and in law, the impugned order of the Ld.CIT(A) is contrary to law and consequently merits to be set aside and that of the Assessing Officer be restored".
Brief facts of the case are that the assessee filed his return of income on 28.09.2010 declaring total income of Rs. 1,52,24,770/-. The return of income was selected for scrutiny and after affording the opportunity of hearing, the AO made an addition of Rs. 33,39,367/- u/s 14A, Rs. 22,700/- on account of stock-exchange penalty, Rs. 76,613/- u/s 94(7) of the Act, Rs. 9,593/- on account of notional loss in respect of open position in F & O, and further disallowed a sum of Rs. 2,39,820/- on account of expenses incurred at club, in its order dated 08.02.2013.
3. Against the assessment order, the assessee filed an appeal before the CIT(A). The ld. CIT(A) in its order dated 18.07.2013 restricted the claim of disallowance at Rs. 19,97,092/-, deleted the addition of stock-exchange penalty, upheld the addition u/s 94(7), deleted the notional loss in respect of open position in the F & O and further deleted the addition of expenses incurred at club made by AO, against which the present appeal is filed by the Revenue before this Tribunal.
We have heard the Departmental Representative (DR) and Authorised Representative (AR) of the assessee and perused the material available on record.
While restricting the disallowance made u/s 14A r.w. Rule 8D of the Income-tax Act, the CIT(A) observed as under:
I have considered the facts of the case. I find that similar issue was there in A.Y. 2009-10 where my predecessor has directed the AO as under: “The amount of such expenditure is, therefore, required to be determined as per provisions of Rule 8D. However, in disallowing such expenses, the AO has considered gross interest of Rs. 41,51,351/-. It is seen that the appellant also received interest of Rs. 37,70,474/- and as such the appellant paid net interest of Rs. 3,80,877/-. In the case of Morgan Stanley India Securities Pvt. Ltd. (ITA No. 5072/M/2005 and 6774/M/2008, it is held that net interest should be considered for disallowing proportionate part of interest. Hence, I direct the AO to consider net interest of Rs. 3,80,877 for disallowance u/s 14A which works out to Rs. 2,01,728/-. Thus, the disallowable part of expenses u/s. 14A works out to Rs. 11,22,440/- (i.e. Rs. 2,01,728/- + Rs. 9,20,712/-. Consequently, the appellant gets relief of Rs. 19,97,092 out of disallowance of Rs. 31,19,442/-. In view of above discussion, the addition is partly allowed.” It is seen that my predecessor has directed the AO to consider net interest paid for disallowance u/s 14A. Following my predecessor’s order as mentioned in preceding para, the AO is directed to consider only net interest paid for working disallowance u/s 14A of the Act. This ground of appeal is, thus, partly allowed.
4. The next ground which was raised before the CIT(A) was an addition of Rs. 22,700/- on account of penalty paid to stock exchange and while dealing with this issue the CIT(A) observed as under:
“I have considered the facts of the case. It is seen that identical issue was there in AY 2009-10 where my predecessor vide order No.CIT(A)- 8/Cir.4/172/2010-11 dated 30/12/2011 had allowed the appeal of the appellant holding that the penalties / fine paid to BSE, NSE are on account of non-collection of margin charge, procedure failure to follow bye-laws, rules/ regulations of the Stock Exchange. These expenses are in the nature of payments towards violating the prescribed Rules/ Regulations, short/ partial collection of margins, non-maintenance of complete records, delay in payments of funds and securities, incomplete KYC forms, etc. which are main breach of contractual liability and non-adherence to proper procedure laid down by the Stock Exchanges, and are not for any infringement or infraction of any statutory law, and therefore, are not hit by Explanation to sec.37(1) of the Act. Further, BSE & NSE are not statutory bodies and hence, fines and penalties levied by BSE & NSE cannot be equated with statutory Rule or Law. Since, the facts and circumstances of this year are similar to that of AY 2009-10, I have no reason to differ with view taken by my predecessor. Hence, the penalty disallowed by the AO is deleted. This ground of appeal is allowed.”
5. The next ground raised before the CIT(A) was disallowance made u/s 94(7) of the Act, however, during the proceedings before the First Appellate Authority (FAA) on 17.07.2013, the ground of this addition was withdrawn and the same was confirmed by the FAA/ CIT(A)
6. The next issue which was raised before the CIT(A) was an addition of Rs. 9,593/- in respect of notional loss open position in the F & O, and the CIT(A) while considering this ground observed as under:
I have considered the facts of the case. In find from the P & L A/c that the appellant had already credited the amount of Rs. 9,593/- to the P & L account. Thus, by adding the same amount again in the computation of income, the AO has taxed twice the same amount, I, therefore, direct the AO to delete this addition of Rs. 9,593/- on account of F & O transaction. This ground of appeal is allowed.
7. We have further seen that while dealing with the ground of addition in respect of expenses at club, the ld. CIT(A) observed as under:
I have considered the fact of the case. I find that the payment has been made to club where the appellant has regular meetings with arbitrage clients, other brokers and the people who forecast markets by scientific method of charts in order to decide course of action next day. I also find that such meeting and discussion are held every day in club after office hours. In view o above and considering the case laws cited upon by the appellant, the addition made by the Ld. AO is unjustified and hence deleted. This ground of appeal is allowed.
8. The learned AR of the assessee relied upon the judgment of co-ordinate bench of ITAT, Mumbai in titled as Morgan Stanley India Securities Pvt. Ltd. Vs. ACIT dated 13.04.2011 wherein it was held as net interest considered for disallowing proportionate part of interest and following the same way, the ld. CIT(A) calculated the same and partly allowed the disallowance made u/s 14A r.w.r. 8D of the Act. So far as the deletion of penalty paid to the stock exchange is concerned, the same was paid by the assessee only for certain procedure failure to follow the bye-laws of Rule/Regulation. The penalty was infact not levied on account of any action prohibited by law and the same was rightly deleted by the ld.
CIT(A). While dealing with the issue of addition of Rs. 9593 in respect of notional loss open position in F & O, the ld. CIT(A) correctly unearth the double addition in computation and deleted the same.
The Hon’ble Delhi High Court in CIT(A) vs. Nestle India reported by 296 ITR 682(Del) held that (Even though there was no specific finding that the payment was made by the assessee for improving its business there was an implicit acknowledgement that expenses incurred by the assessee were for business purposes. The assessee was entitled to deduction as claimed).
Hence the addition made on account of club expenses which was deleted by ld. CIT(A) is also does not require any interference and the same is reasoned one.
The above narrated discussion, we do not find any infirmity in the order of CIT(A), the order of the CIT(A) is based upon the reasoning and does not call any interference.
As a result, appeal filed by the Revenue is dismissed.
Order pronounced in the open court on this day 16th of October, 2015.