M/s Search Finvest Pvt. Ltd., New Delhi V. DCIT, New Delhi

CO 30/DEL/2011

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 6856 (ITAT-DELHI)
• Duration Of Justice: 11 month(s) 29 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 31-01-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 11-01-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 01-02-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Opportunity of being heard; Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH `G: NEW DELHI BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER AND SHRI K.D. RANJAN, ACCOUNTANT MEMBER I.T. A. NO.5836/DEL/2010 ASSESSMENT YEAR : 2007-08 DY. COMMISSIONER OF INCOME-TAX, M/S. SEARCH FINVES T PVT. LTD., CIRCLE 8(1), NEW DELHI. VS. B-45, INDERPURI, NEW DELHI. PAN: AABCS5432N C.O. NO.30/DEL/2011 ASSESSMENT YEAR : 2007-08 M/S. SEARCH FINVEST PVT. LTD., DY. COMMISSION ER OF INCOME-TAX, B-45, INDERPURI, NEW DELHI. VS. CIRCLE 8(1 ), NEW DELHI. PAN: AABCS5432N (APPELLANTS) (RESPONDE NTS) DEPARTMENT BY : SHRI ROHIT GARG, DR. RESPONDENT BY : SHRI SALIL AGG ARWAL, ADVOCATE SHR I SHILESH GUPTA, CA. O R D E R PER K.D. RANJAN, ACCOUNTAT MEMBER: THE APPEAL BY THE REVENUE AND CROSS OBJECTION BY TH E ASSESSEE ARISE OUT OF THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-XI, NEW DELHI. THE FIRST ISSUE FOR CONSIDERATION IN REVENU ES APPEAL RELATES TO ALLOWANCE OF REBATE UNDER SEC. 88E OF THE ACT. THE FACTS OF THE CASE STATED IN BRIEF ARE THAT THE ASSESSEE DURING THE YEAR UNDER C ONSIDERATION WAS ENGAGED 2 IN THE BUSINESS OF DEALING IN SHARES AND SECURITIES BOTH AS INVESTMENT AND STOCK IN TRADE FOR ITSELF AND ALSO FOR ITS CLIENTS. IN THE RETURN OF INCOME THE ASSESSEE CLAIMED RS.12,39,128/- AS REBATE UNDER SEC . 88E(1) OF THE INCOME- TAX ACT, 1961. THE ASSESSEE WAS ASKED TO FILE THE DETAILS OF SHARE TRADING INCOME GIVING SCRIP-WISE PROFIT OR LOSS. ON VERIFI CATION OF THESE DETAILS, IT WAS SEEN THAT THE ASSESSEE EARNED INCOME ON SCRIPS WHICH WERE NOT LISTED ON THE STOCK EXCHANGE OR TRADED IN SECURITIES BEFORE T HOSE WERE LISTED THEREBY IMPLYING THAT NO STT WAS PAID ON SUCH TRANSACTIONS. THE ASSESSEE SUFFERED LOSSES ON SHARES WHERE STT WAS PAID. TO A QUERY AS TO WHY STT REBATE UNDER SEC. 88E SHOULD NOT BE DISALLOWED, NO REPLY W AS SUBMITTED. THE ASSESSING OFFICER HAD MENTIONED IN THE ORDER THAT T HE LEARNED AUTHORIZED REPRESENTATIVE OF THE ASSESSEE AGREED TO SAID DISAL LOWANCE. ACCORDINGLY, THE ASSESSING OFFICER MADE DISALLOWANCE OF REBATE CLAIM ED BY THE ASSESSEE. 2. BEFORE THE CIT(A) IT WAS SUBMITTED THAT THE ASSE SSEE PAID TOTAL STT OF RS.16,79,205/-. OUT OF THIS, RS.1,10,668/- WAS PAI D ON BEHALF OF THE CLIENTS AND THE ASSESSEE NEVER CLAIMED THE SAID AMOUNT AS R EBATE. OUT OF THE BALANCE PAYMENT OF STT AT RS.15,68,537/- (RS.16,79,205 1, 10,668), THE ASSESSEE HAD NOT CLAIMED STT ON ENTIRE AMOUNT RATHER IT HAD CLAIMED ON PROPORTIONATE BASIS AS A RATIO OF TAX TO TOTAL INCOME WHICH COMES TO 30%. THEREFORE, THE ASSESSEE WAS ENTITLED FOR 30% OF STT PAYMENT WHICH COMES TO 3 RS.4,70,561/-. IT WAS THEREFORE, SUBMITTED THAT TH E AO SHOULD HAVE ALLOWED RS.4,70,561/- BUT THE AO HAD DISALLOWED ENTIRE PAYM ENT OF STT OF RS.16,79,205/-. IT WAS ALSO POINTED OUT THAT THE A SSESSEES CLAIM WAS ONLY RS.12,39,128/- WHICH WAS TAKEN BY THE AO AT RS.16,7 9,205/-. IT WAS ALSO SUBMITTED THAT THERE WAS BOTH PROFIT AND LOSS FROM STT TRANSACTIONS WHICH IS EVIDENT FROM THE ACCOUNTS. THE ASSESSEE HAD CALCUL ATED THE FIGURE AT RS.41,30,427/- AND APPLIED AVERAGE RATE OF TAX AS P ER SEC. 88E(2) WHICH COMES TO 30% AND THE TOTAL FIGURE COMES TO RS.12,3 9,128/-, WHICH WAS CLAIMED BY THE ASSESSEE IN THE RETURN OF INCOME. L EARNED CIT(A) ON CONSIDERATION OF ABOVE FACTS OBSERVED THAT THE ASSE SSEE HAD CLAIMED REBATE AVAILABLE UNDER SEC. 88E AT RS.12,39,128/- BUT THE AO HAD DISALLOWED ENTIRE STT PAYMENT OF RS.16,79,205/-. HE FURTHER OBSERVED THAT THE ASSESSEE SHOULD BE ENTITLED FOR 30% OF EFFECTIVE STT PAYMENT I.E. 30% OF RS.15,68,537/- (RS.16,79,205 1,10,668), WHICH COM ES TO RS.4,70,561/-. THE LEARNED CIT(A) THEREFORE, RESTRICTED THE DISALL OWANCE TO THE EXTENT OF RS.4,70,561/- AND ALLOWED THE RELIEF OF RS.12,08,64 1/-. 3. THE REVENUE IS AGGRIEVED BY RESTRICTING THE DISA LLOWANCE TO RS.4,70,561/- AS AGAINST RS.16,79,205/-. ON THE OT HER HAND, THE ASSESSEE HAS COME IN CROSS OBJECTION THAT REBATE OF RS.12,39,128 /- SHOULD BE ALLOWED 4 UNDER SEC. 88E AND NOT RS.16,79,205/- WHICH WAS THE ENTIRE STT PAID AND NOT STT CLAIMED UNDER SEC. 88E OF THE ACT. 4. BEFORE US, LEARNED SR. DR SUBMITTED THAT THE PRO FIT FROM STT TRANSACTIONS IS AT RS.41,58,232/-. HOWEVER, LEARNE D CIT(A) HAS GONE WRONG IN RESTRICTING THE DISALLOWANCE OF RS.4,70,561/- AS AGAINST RS.16,79,205/- WHICH WAS DISALLOWED BY THE ASSESSING OFFICER ON TH E GROUND THAT STT TRANSACTIONS DETAILS WERE NOT FURNISHED. LD. SR. D R ALSO SUBMITTED THAT THE ASSESSING OFFICER IN THE ASSESSMENT ORDER HAS STATE D THAT THE ASSESSEE HAD EARNED INCOME ON SCRIPS WHICH WERE NOT LISTED ON ST OCK EXCHANGE OR TRADED IN SECURITIES BEFORE THOSE WERE LISTED THEREBY IMPL YING THAT NO STT WAS PAID ON THOSE TRANSACTIONS. SINCE THE ASSESSEE HAD NOT FURNISHED DETAILS OF STT TRANSACTIONS, THE AO HAS RIGHTLY DISALLOWED THE PAY MENT OF STT AT RS.16,79,205/-. IT WAS ALSO SUBMITTED THAT THE LEA RNED CIT(A) HAS NOT GIVEN ANY FINDING IN RESPECT OF NON-STT TRANSACTIONS. ON THE OTHER HAND, THE LD. AR OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD NOT CLAIMED DEDUCTION ON ACCOUNT OF BROKERAGE AND COMMISSION. U/S 88E(2) TH E REBATE IS TO BE ALLOWED FROM THE TAX AND NOT FROM STT. THE ASSESSE E HAD WORKED OUT CLAIM OF RS.12,39,128/- AGAINST THE TAX PAID. THEREFORE, LEARNED CIT(A) AS WELL AS THE AO HAVE GONE WRONG IN ALLOWING THE REBATE UNDER SEC. 88E OF THE ACT. 5 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. UNDER SEC. 88E(1) WHERE TOTAL INCOME OF AN ASSESSEE IN A PREVIOUS YEAR INCLUDES ANY INCOME, CHARGEABLE UND ER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION, ARISING FROM TAXA BLE SECURITIES TRANSACTIONS, THE ASSESSEE SHALL BE ENTITLED TO A DEDUCTION, FROM THE AMOUNT OF INCOME-TAX ON SUCH INCOME ARISING FROM SUCH TRANSACTIONS, COMP UTED IN THE MANNER PROVIDED IN SUB-SEC. (2), OF AN EQUAL AMOUNT TO THE SECURITIES TRANSACTION TAX PAID BY HIM IN RESPECT OF TAXABLE SECURITIES TRANSA CTIONS ENTERED INTO IN THE COURSE OF HIS BUSINESS DURING THE PREVIOUS YEAR. F IRST PROVISO TO SEC. 88E(1) STATES THAT NO DEDUCTION UNDER SEC. 88E(1) SHALL BE ALLOWED UNLESS THE ASSESSEE FURNISHES ALONG WITH THE RETURN OF INCOME, EVIDENCE OF PAYMENT OF SECURITIES TRANSACTIONS TAX IN THE PRESCRIBED FORM. SECOND PROVISO TO SEC. 88E(1) PROVIDES THAT AMOUNT OF DEDUCTION UNDER THIS SECTION SHALL NOT EXCEED THE AMOUNT OF INCOME-TAX ON SUCH INCOME COMPUTED IN THE MANNER PROVIDED IN SUB-SEC.(1) OF SEC. 88E OF THE ACT. FROM THE LA NGUAGE OF SEC. 88E(1) IT IS CLEAR THAT REBATE IS TO BE ALLOWED FROM THE AMOUNT OF INCOME-TAX AND NOT FROM THE SECURITIES TRANSACTION TAX PAID BY THE ASS ESSEE. SUB-SEC. (2) OF SEC. 88E PRESCRIBES THE COMPUTATION OF RELIEF, WHICH REQ UIRES THE FOLLOWING STEPS TO BE FOLLOWED: 6 (A) INCOME-TAX PAYABLE ON THE INCOME FROM TAXABLE S ECURITIES TRANSACTION RECKONED AT AVERAGE RATE OF TAX PAYABLE. (B) SECURITIES TRANSACTION TAX. THE RELIEF WILL BE LESSER OF (A) AND (B) AS ABO VE. IN THE CASE BEFORE US, THE CONTENTION OF THE ASSESS EE IS THAT THE ASSESSEE HAS NOT CLAIMED THE REBATE IN RESPECT OF TRANSACTIONS W HICH HAVE NOT BEEN MADE THROUGH STOCK EXCHANGE. HOWEVER, ACCORDING TO THE AO, THE ASSESSEE HAD EARNED INCOME ON SCRIPS WHICH WERE NOT LISTED ON ST OCK EXCHANGE OR TRADED IN SECURITIES BEFORE THOSE WERE LISTED. THEREFORE, THE CONTENTION OF THE ASSESSEE HAS TO BE VERIFIED WHETHER THE ASSESSEE HA S CLAIMED THE REBATE IN RESPECT OF ANY TRANSACTION ON WHICH NO STT WAS PAID . SUBJECT TO VERIFICATION, THE AO IS DIRECTED TO ALLOW REBATE IN RESPECT OF INCOME-TAX PAYABLE ON THE INCOME FROM TAXABLE SECURITIES TRANS ACTIONS RECKONED AT AVERAGE RATE OF TAX PAYABLE OR SECURITIES TRANSACTI ON TAX, WHICHEVER IS LOWER. THE AO IS DIRECTED ACCORDINGLY. 6. NEXT ISSUE FOR CONSIDERATION IN REVENUES APPEAL RELATES TO THE DISALLOWANCE MADE UNDER SEC. 14A OF THE ACT. THE A SSESSEE EARNED DIVIDEND OF RS.4,34,179/- AND CLAIMED THE SAME TO BE EXEMPT UNDER SEC. 10(34) OF THE INCOME-TAX ACT, 1961. THE AO APPLIED RULE 8D OF TH E INCOME-TAX RULES, 1962 AND DISALLOWED THE AMOUNT OF RS.82,685/-. 7 7. BEFORE CIT(A) IT WAS SUBMITTED THAT DIVIDEND INC OME OF RS.4,34,179/- WAS EXEMPT FROM TAX UNDER SEC. 10(34) OF THE ACT. THE ASSESSEE DID NOT INCUR ANY EXPENDITURE TO EARN SUCH DIVIDEND INCOME. YET THE AO HAD INVOKED RULE 8D, WHICH IS NOT APPLICABLE FOR ASSESS MENT YEAR UNDER CONSIDERATION. HE PLACED RELIANCE ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. V S. DCIT (2010) 328 ITR 81 AND SUBMITTED THAT RULE 8D IS NOT APPLICABLE FOR ASSESSMENT YEAR PRIOR TO ASSESSMENT YEAR 2008-09. THE LD. CIT(A) O N CONSIDERATION OF FACTS HELD THAT IN VIEW OF DECISION OF HONBLE BOMBAY HIG H COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. (SUPRA) HELD THAT DISA LLOWANCE MADE BY THE AO UNDER RULE 8D WAS NOT SUSTAINABLE. HOWEVER, LD. CIT(A) RESTRICTED THE DISALLOWANCE TO THE EXTENT OF 10% OF DIVIDEND INCOM E I.E. RS.43,419/-. LD. CIT(A) THEREFORE, ALLOWED RELIEF OF RS.39,268/- AND CONFIRMED THE DISALLOWANCE OF RS.43,179/-. 8. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE IS IN APPEAL AGAINST RESTRICTING THE DISALLOWANCE TO THE EXTENT OF RS.43 ,179/- WHEREAS THE ASSESSEE IS IN CROSS OBJECTION AGAINST SUSTAINING THE ADDITI ON OF 10% OF EXEMPT INCOME. 9. BEFORE US, LD. AR OF THE ASSESSEE SUBMITTED THAT DECISION OF SPECIAL BENCH OF ITAT IN THE CASE OF DAGA CAPITAL MANAGEMEN T PVT. LTD., 117 ITD 8 169 (SB)(MUM.) HAS NOT BEEN APPROVED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. (SUPRA ). SINCE THE ASSESSMENT YEAR INVOLVED IS PRIOR TO ASSESSMENT YEAR 2008-09, RULE 8D OF INCOME-TAX RULES, 1962 CANNOT BE PRESSED IN SERVICE. HE ALSO SUBMITTED THAT THERE IS NO NEXUS BETWEEN THE EXEMPT INCOME AND DISALLOWANCE MA DE BY THE AO. HE ALSO OBJECTED TO DISALLOWANCE OF 10% OF EXEMPT INCO ME. ON THE OTHER HAND, LD. SR. DR SUPPORTED THE ORDER OF THE AO. 10. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. (SUPRA) HAS HELD THAT RULE 8D O F INCOME-TAX RULES, 1962 IS NOT APPLICABLE FOR ASSESSMENT YEAR 2007-08. HOWEVER, THE COURT HAS HELD THAT THE AO CAN MAKE DISALLOWANCE UNDER SE C. 14A IF THERE IS A DIRECT NEXUS BETWEEN THE EXPENDITURE INCURRED AND T HE EXEMPT INCOME. IN THE CASE BEFORE US, THE AO HAS MADE DISALLOWANCE UN DER RULE 8D WHICH IS NOT APPLICABLE FOR THE YEAR UNDER CONSIDERATION. L D. CIT(A) HOWEVER, HAS DISALLOWED 10% OF EXEMPT INCOME. WHILE ARRIVING AT THIS CONCLUSION, LD. CIT(A) HAS NOT ESTABLISHED ANY NEXUS BETWEEN THE EX EMPT INCOME AND EXPENDITURE INCURRED. IN THE LIGHT OF ABOVE DISCUS SION WE ARE OF THE CONSIDERED VIEW THAT PROVISIONS OF RULE 8D CANNOT B E APPLIED FOR THE ASSESSMENT YEAR 2007-08 WHICH IS UNDER CONSIDERATIO N. THEREFORE, THE AO 9 WAS NOT JUSTIFIED IN INVOKING THE PROVISIONS OF RUL E 8D OF THE INCOME-TAX RULES. AS REGARDS ESTIMATION OF DISALLOWANCE @ 10% OF EXEMPT INCOME, LEARNED CIT(A) HAS ESTIMATED DISALLOWANCE ON AD HOC BASIS WITHOUT ESTABLISHING ANY NEXUS BETWEEN THE EXPENDITURE INCU RRED AND THE EXEMPT INCOME. SINCE NEITHER THE AO NOR THE LD. CIT(A) HA S EXAMINED ANY NEXUS BETWEEN THE EXEMPT INCOME AND EXPENDITURE INCURRED, WE FEEL IT PROPER TO SET ASIDE THE ISSUE TO THE FILE OF THE ASSESSING OF FICER WITH THE DIRECTIONS THAT HE WILL CALL FOR NECESSARY DETAILS AND EXAMINE WHET HER THERE IS ANY NEXUS BETWEEN THE EXEMPT INCOME AND EXPENDITURE. THE EXP ENDITURE HAVING NEXUS WITH THE EXEMPT INCOME CAN ONLY BE DISALLOWED. THE AO IS DIRECTED TO DECIDE THE ISSUE ON MERITS AFTER PROVIDING THE ASSE SSEE A REASONABLE OPPORTUNITY OF BEING HEARD. 11. IN THE RESULT, APPEAL FILED BY THE REVENUE AND CROSS OBJECTION FILED BY THE ASSESSEE, ARE PARTLY ALLOWED FOR STATISTICAL PU RPOSES. 12. PRONOUNCED IN THE OPEN COURT ON 31-01-2012. SD/- SD/- (DIVA SINGH) (K.D. RANJAN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 31-01-2012. 10 ITA NO.5836/DEL/2010 & CO NO.30/DEL/2011 COPY OF THE ORDER FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR BY ORDER *MG DEPUTY REGISTRAR, ITAT.