M/s Crosseas Capital Services Pvt. Ltd., Kolkata V. DCIT, Circle -6, Kolkata, Kolkata

CO 57/KOL/2012

• Counselvise Citation: [2015] 123 COUNSELVISE.COM (IT) 1483 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 4 month(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 07-10-2015
• Appeal Filed By: Assessee
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 07-06-2012
• Court: TRIBUNAL
• Department Lawyers: S M SURANA
• Assessee Lawyers: SANJIT KR DAS
• Keywords: Business income; Business expenditure; Transactions in derivatives; Earning of tax free income; Condonation of delay
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: KOL KATA [BEFORE SHRI MAHAVIR SINGH, JM & SHRI WASEEM AHMED , AM] I.T.A NO.639/KOL/2012 ASSESSMENT YEAR: 2008-09 DEPUTY COMMISSIONER OF INCOME-TAX VS. M/S. CROSSES CAPITAL SERVICES PVT. LTD. CIRCLE-6, KOLKATA. (PAN:AACCC5470H) ( APPELLANT ) ( RESPONDENT ) & CO NO. 57/KOL/2012 IN I.T.A NO.639/KOL/2012 ASSESSMENT YEAR: 2008-09 M/S. CROSSES CAPITAL SERVICES PVT. LTD. VS. DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-6, KOLKATA. (CROSS OBJECTOR) (RESPONDENT) DATE OF HEARING: 17.09.2015 DATE OF PRONOUNCEMENT: 07.10.2015 FOR THE APPELLANT: SHRI SANJIT KR. DAS, JCIT, SR . DR FOR THE RESPONDENT: SHRI S. M. SURANA, ADVOCATE ORDER PER SHRI MAHAVIR SINGH, JM: THIS APPEALS BY REVENUE AND CROSS OBJECTION BY ASSE SSEE ARE ARISING OUT ORDER OF CIT(A)-VI, KOLKATA IN APPEAL NO. 130/CIT(A)-VE/R-6/ 10-11/KOL DATED 23.12.2011. ASSESSMENT WAS FRAMED BY ADDL. CIT, RANGE-6, KOLKAT A U/S. 143(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) FO R AY 2008-09 VIDE ITS ORDER DATED 27.12.2010. 2. AT THE OUTSET, IT IS NOTICED THAT THIS APPEAL BY REVENUE IS TIME BARRED BY 21 DAYS AND FOR CONDONATION OF DELAY A PETITION DATED 20.04 .2012 IS PLACED IN FILE. WHEN THE PETITION WAS CONFRONTED TO LD. COUNSEL FOR THE ASSE SSEE, HE FAIRLY CONCEDED THAT THE CAUSE SHOWN BY REVENUE IS REASONABLE AND HENCE, DEL AY MAY BE CONDONED. IN TERM OF THE ABOVE, WE CONDONE THE DELAY AND ADMIT THE APPEA L. 3. THE FIRST COMMON ISSUE IN THIS APPEAL OF REVENUE AND CO OF THE ASSESSEE IS AS REGARDS TO THE ORDER OF CIT(A) IN RESTRICTING THE D ISALLOWANCE AT RS.27,235/- AS AGAINST THE DISALLOWANCE MADE BY AO AT RS.11,47,078/- QUA E XEMPTED INCOME BY INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D OF I. T. RULES, 1962 (HEREINAFTER REFERRED TO AS THE RULES). FOR THIS, REVENUE HAS RAISED THE FOLLOWING GROUND NO.1 AND ASSESSEE HAS RAISED FOLLOWING GROUND NO.2: 2 I TA NO.639/KOL/2012 & CO 57/K/2012 M/S. CROSSES CAPITAL SERVICES PVT. LTD. AY 2008-09 REVENUES GROUND: 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. CIT(A) ERRED IN LAW IN DELETING THE DISALLOWANCE OF RS.11,47,078/- MADE U/ S. 14A OF THE I. T. ACT AND THE ORDER OF THE CIT(A) SHOULD BE SET ASIDE AND THE ORDER OF THE ASSESSING OFFICER SHOULD BE RESTORED. ASSESSEES GROUND: 2. FOR THAT THE LD. CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS.27,235/- AS EXPENSES RELATED TO THE EARNING OF EXEMPTED INCOME WHEN THE LD. AO DID NOT RECORD ANY SATISFACTION ABOUT THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE AND IN ANY CASE THE DISALLOWANCE RETAINED BY THE LD. CIT(A) IS EXCESSIV E. 4. BRIEFLY STATED FACTS ARE THAT THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED FROM THE ACCOUNTS OF THE ASSESSEE THAT IT H AS EARNED EXEMPT INCOME I.E. DIVIDEND INCOME OF RS.2,73,349/- BUT HAS NOT DISALLOWED ANY EXPENDITURE IN REGARD TO THIS INCOME U/S. 14A OF THE ACT READ WITH RULE 8D OF THE RULES. THE AO MADE DISALLOWANCE OF INADMISSIBLE EXPENSES OF DEPOSITORY CHARGES OF RS.3 ,76,973/-, DISALLOWANCE OF INTEREST RELATABLE TO EXEMPT INCOME AT RS.6,02,009/- AND % OF AVERAGE VALUE OF INVESTMENT AT RS.1,68,096/-. ACCORDINGLY, HE MADE DISALLOWANCE A T RS.11,47,078/-. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO RESTRI CTED THE DISALLOWANCE AT RS.27,235/- QUA THE EARNING OF DIVIDEND INCOME OF RS.2,72,349/- BY OBSERVING IN PARAS 4 AND 5 AS UNDER: 4. I HAVE CAREFULLY CONSIDERED THE OBSERVATIONS O F THE ASSESSING OFFICER AND SUBMISSIONS OF THE ASSESSEE. THE ASSESSEE DOES NOT HAVE ANY INV ESTMENTS AND ALL THE SHARES ARE TAKEN IN HIS ONE ACCOUNT I.E., SHARE TRADING. THE ASSESSE E HAS SUBMITTED THAT DIVIDEND INCOME IS INCIDENTAL TO HIS BUSINESS ACTIVITIES AND THERE IS NO DIRECT OR INDIRECT EXPENDITURE INCURRED IN RELATION TO EARNING OF DIVIDEND INCOME. THE APPE LLANT HAS SHOWN TAXABLE INCOME AT AN AMOUNT OF RS.10,55,98,040/- WHILE THE NET RECEIPT F ROM SHARE TRADING AND BROKING INCOME ETC. IS RS.15,39,12,042/-. THE ASSESSING OFFICER HA S NOWHERE SAID THAT HE WAS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE EXPENDITURE ALTHOUGH THE ASSESSEE HAS ALSO NOT SHOWN ANY SUCH EXPENDITURE INCURRED ON DIV IDEND. 5. LOOKING INTO THE TRADING ACTIVITIES OF THE APPEL LANT AND THE INCOME EARNED ON DIVIDEND, IT IS CLEAR THAT THE APPELLANT HAS NOT MADE INVESTM ENTS FOR THE PURPOSE OF EARNING OF DIVIDEND. THE DETAILS OF THE DIVIDEND RECEIPT SHOWS , IT HAS BEEN RECEIVED IN ALL THE TWELVE MONTHS RANGING FROM RS. 5/- TO RS. 42,350/-. THE TR ADING PATTERN OF THE ASSESSEE SHOWS THAT IT HAS NOT INVESTED THE MONEY WITH THE PRIME M OTIVE OF EARNING OF DIVIDEND. THE ASSESSEE HAS SUBMITTED THAT THERE IS NO LOSS U/S 94 (7) OF THE I. T. ACT, 1961. THE INTENTION OF THE ASSESSEE AND THE BUSINESS OF THE ASSESSEE CL EARLY SHOW THAT THE EARNING OF DIVIDEND IS INCIDENTAL TO BUSINESS. THERE ARE NO DIRECT EXPE NSES INCURRED FOR IT. THE FUNDS HAVE NOT BEEN BORROWED AT ANY POINT OF TIME FOR MAKING INVES TMENTS TO EARN DIVIDEND FROM EXEMPTED INCOME AS SUBMITTED BY ASSESSEE. THE ASSES SEE HAS RELIED UPON A NUMBER OF JUDGMENTS. THE SAID JUDGMENTS ARE NOT DIRECTLY APPL ICABLE SINCE ALL OF THEM WERE PRONOUNCED BY THE HON'BLE APPELLATE AUTHORITIES BEF ORE THE COMMENCEMENT OF RULE 8D OF THE I. T. ACT, 1961 WHICH IS APPLICABLE FROM THE AS STT. YEAR 2008-09. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, IT IS HELD THAT THE ASSE SSEE HAS NOT MADE ANY INVESTMENTS OR DIRECT EXPENDITURE FOR EARNING DIVIDEND AND THE EAR NING OF DIVIDEND IS INCIDENTAL TO THE 3 I TA NO.639/KOL/2012 & CO 57/K/2012 M/S. CROSSES CAPITAL SERVICES PVT. LTD. AY 2008-09 MAIN BUSINESS OF THE ASSESSEE. HOWEVER, THERE ARE E XPENSES WHICH CANNOT BE QUANTIFIED EXACTLY BUT BY ESTIMATION 10% OF THE EXEMPTED INCOM E IS DISALLOWED AS EXPENSES PERTAINING TO EARNING OF DIVIDEND (EXEMPTED) INCOME . THEREFORE, THE DISALLOWANCE OF RS.27,235/- FOR EARNING DIVIDEND OF RS.2,72,349/- I S UPHELD. THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED ON THIS GROUND. AGGRIEVED, NOW ASSESSEE AND REVENUE BOTH ARE IN APP EAL BEFORE TRIBUNAL. 5. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE ARGU ED THAT THERE IS NO SATISFACTION RECORDED BY THE AO FOR APPLICATION OF PROVISIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES. LD. COUNSEL FOR THE ASSESSEE STATED THAT THE AO HAS DISALLOWED THE SUM OF RS.11,47,078/- BY MECHANICALLY CALCULAT ING THE FIGURES SOLELY ON THE BASIS OF FORMULA PRESCRIBED UNDER RULE 8D OF THE RULES AND C IT(A) REDUCED THE SAME TO RS.27,235/- OF EXEMPT INCOME @ 10% OF THE EXEMPT I NCOME HOLDING THAT THE PROVISIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES ARE NOT APPLICABLE BUT ESTIMATED DISALLOWANCE IS TO BE MADE. LD. COUN SEL FOR THE ASSESSEE STATED THAT THIS POSITION IS STATED IN THE ORDER OF COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF REI AGRO LTD. VS. DCIT (2013) 144 ITD 141(KOL). LD. CO UNSEL ALSO ARGUED THAT THE ASSESSEE IS A DEALER IN SHARES AND ALL THE SHARES A RE STOCK IN TRADE, WHICH CAN BE VERIFIED FROM THE BALANCE SHEET OF THE ASSESSEE AND HENCE, T HE PROVISIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES DOES NOT APPLY T O THE CLOSING STOCK OF SHARES. ACCORDING TO LD. COUNSEL FOR THE ASSESSEE, THE DIVI DEND EARNED BY THE ASSESSEE IS ON SHARES KEPT IN CLOSING STOCK. LD. COUNSEL FOR THE ASSESSEE FOR THIS PROPOSITION RELIED ON THE DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF CII LTD. VS. JCIT (2012) 206 TAXMANN 563 (KAR), WHEREIN IT IS HELD THAT DISA LLOWANCE OF EXPENSES INCURRED ON BORROWINGS MADE FOR PURCHASE AND TRADING OF SHARES CANNOT BE MADE U/S. 14A OF THE ACT READ WITH RULE 8D OF THE RULES. ON THE OTHER HAND, LD. SR. DR SUPPORTED THE ORDER OF THE AO. 6. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ASSESSEE IS IN THE BUS INESS OF SHARE BROKING AND SHARE TRADING ACTIVITY. EARNING OF DIVIDEND INCOME IS INCIDENTAL TO SUCH BUSINESS ACTIVITY AND WHATEVER EXPENDITURE IS INCURRED I.E. FOR THE BUSIN ESS. THE ASSESSEE HAS EARNED TOTAL DIVIDEND INCOME DURING THE YEAR UNDER CONSIDERATION AT RS.2,72,349/- OUT OF THE TOTAL INCOME DECLARED AT RS.15,39,12,042/-, WHICH IS A ME AGRE 0.18% OF THE TOTAL INCOME. FURTHER, WE HAVE NOTICED FROM THE ASSESSMENT ORDER THAT THE AO HAS NOT RECORDED ANY 4 I TA NO.639/KOL/2012 & CO 57/K/2012 M/S. CROSSES CAPITAL SERVICES PVT. LTD. AY 2008-09 SATISFACTION FOR APPLICATION OF THE PROVISIONS OF S ECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES. IN FACT, THERE IS NO WHISPER OF A NY SATISFACTION IN THE ASSESSMENT ORDER THAT THE PROVISIONS OF SECTION 14A OF THE ACT ARE A PPLICABLE. WE FIND THAT THE AO MADE DISALLOWANCE MECHANICALLY CALCULATING THE FIGURES S OLELY ON THE BASIS OF RULE 8D OF THE RULES. HERE, THE COORDINATE BENCH OF ITAT IN THE C ASE OF REI AGRO LTD., SUPRA HAS HELD THAT FOR APPLICABILITY OF RULE 8D OF THE RULES , SATISFACTION OF THE AO ABOUT THE CORRECTNESS OF THE ACCOUNTS OF THE ASSESSEE IS NECE SSARY. THE TRIBUNAL IN REI AGRO LTD., SUPRA HAS HELD AS UNDER: 7.1 IN ANY CASE, THE WORKING OF THE DISALLOWANCE U NDER SUB-PART (II) OF SUBCLAUSE (2) OF RULE 8D AS MADE BY THE AO ALSO SUFFERS FROM A SUBST ANTIAL ERROR IN SO FAR AS IN THE SAID RULE IN REGARD TO THE NUMERATOR B, THE WORDS USED A RE THE AVERAGE VALUE OF THE INVESTMENT, INCOME FROM WHICH DOES NOT FORM OR SHAL L NOT FORM PART OF THE TOTAL INCOME AS APPEARING IN THE BALANCE-SHEET AS ON THE FIRST DAY AND IN THE LAST DAY OF THE PREVIOUS YEAR. HERE THE AO HAS TAKEN INTO CONSIDERATION THE INVEST MENT OF RS.103 CRORES MADE THIS YEAR, WHICH HAS NOT EARNED ANY DIVIDEND OR EXEMPT INCOME. IT IS ONLY THE AVERAGE OF THE VALUE OF THE INVESTMENT FROM WHICH THE INCOME HAS BEEN EA RNED WHICH IS NOT FALLING WITHIN THE PART OF THE TOTAL INCOME THAT IS TO BE CONSIDERED. THIS IS WHY THE QUESTION OF SATISFACTION IS PROVIDED IN SECTION 14A AND RULE 8D(1), THAT REL ATES TO THE ACCOUNTS OF THE ASSESSEE . THUS, IT IS NOT THE TOTAL INVESTMENT AT THE BEGINNI NG OF THE YEAR AND AT THE END OF THE YEAR, WHICH IS TO BE CONSIDERED BUT IT IS THE AVERAGE OF THE VALUE OF INVESTMENTS WHICH HAS GIVEN RISE TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME WHICH IS TO BE CONSIDERED. A QUESTION MAY ARISE AS TO WHY THE TERM AVERAGE OF THE VALUE OF INVESTMENT IS THEN USED. THE TERM AVERAGE OF THE VALUE OF INVESTMENT W OULD BE TO TAKE CARE OF CASES WHERE THERE IS THE ISSUE OF DIVIDEND STRIPING. IN ANY CAS E, AS WE HAVE ALREADY HELD THAT THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE BY WAY OF INTEREST DURING THE PREVIOUS YEAR, WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULA R INCOME, THE FINDINGS OF THE LD. CIT(A) ON THE ISSUE STAND CONFIRMED AND CONSEQUENTLY THE A PPEAL FILED BY THE REVENUE STANDS DISMISSED. IN VIEW OF THE ABOVE FACTS THAT THE AO HAS NOT RECO RDED ANY SATISFACTION AS REGARDS TO CORRECTNESS OF THE ACCOUNTS OF THE ASSESSEE, HENCE, RESPECTFULLY FOLLOWING THE COORDINATE BENCH DECISION IN THE CASE OF REI AGRO LTD., SUPRA, WE ALLOW THIS ISSUE OF ASSESSEES CO AND DISMISS THE GROUND OF APPEAL OF REVENUE. 7. FURTHER, ANOTHER ASPECT WAS EXAMINED BY HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CCI LTD., SUPRA WHEREIN IT IS HELD THAT NO DISALLOWANCE CAN BE MADE IN RESPECT TO THOSE UNSOLD SHARES WHICH HAVE YIELDED DIVIDEND, FO R WHICH THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE AT ALL, THOUGH THE DIVIDEN D INCOME IS EXEMPTED FROM PAYMENT OF TAX, IF ANY EXPENDITURE IS INCURRED IN EARNING T HE SAID INCOME, THE SAID EXPENDITURE ALSO CANNOT BE DEDUCTED. BUT IN THIS CASE, WHEN THE ASSESSEE HAS NOT RETAINED SHARES WITH THE INTENTION OF EARNING DIVIDEND INCOME AND THE DI VIDEND INCOME IS INCIDENTAL TO ITS 5 I TA NO.639/KOL/2012 & CO 57/K/2012 M/S. CROSSES CAPITAL SERVICES PVT. LTD. AY 2008-09 BUSINESS OF SALE OF SHARES, WHICH REMAINED UNSOLD B Y THE ASSESSEE, IT CANNOT BE SAID THAT THE EXPENDITURE INCURRED IN ACQUIRING THE SHARES HA S TO BE APPORTIONED TO THE EXTENT OF DIVIDEND INCOME AND THAT SHOULD BE DISALLOWED FROM DEDUCTIONS. IN THAT VIEW OF THE MATTER, THE APPROACH OF THE AUTHORITIES IS NOT IN C ONFORMITY WITH THE STATUTORY PROVISIONS CONTAINED UNDER THE ACT. ACCORDINGLY, HONBLE HIGH IN THIS CASE HAS HELD AS UNDER: WHEN NO EXPENDITURE IS INCURRED BY THE ASSESSEE IN EARNING THE DIVIDEND INCOME, NO NOTIONAL EXPENDITURE COULD BE DEDUCTED FROM THE SAID INCOME. IT IS NOT THE CASE OF THE ASSESSEE RETAINING ANY SHARES SO AS TO HAVE THE BENEFIT OF DIVIDEND. 6 3 PER CENT OF THE SHARES, WHICH WERE PURCHASED, ARE SOLD AND THE INCOME DERIVED THEREFROM IS OFFERE D TO TAX AS BUSINESS INCOME. THE REMAINING 37 PER CENT OF THE SHARES ARE RETAINED. IT HAS REMAINE D UNSOLD WITH THE ASSESSEE. IT IS THOSE UNSOLD SHARES WHICH HAVE YIELDED DIVIDEND, FOR WHICH THE A SSESSEE HAS NOT INCURRED ANY EXPENDITURE AT ALL. THOUGH THE DIVIDEND INCOME IS EXEMPTED FROM PA YMENT OF TAX, IF ANY EXPENDITURE IS INCURRED IN EARNING THE SAID INCOME, THE SAID EXPENDITURE ALSO CANNOT BE DEDUCTED. BUT IN THIS CASE, WHEN THE ASSESSEE HAS NOT RETAINED SHARES WITH THE INTENTION OF EARNING DIVIDEND INCOME AND THE DIVIDEND INCOME IS INCIDENTAL TO ITS BUSINESS OF SALE OF SHA RES, WHICH REMAINED UNSOLD BY THE ASSESSEE, IT CANNOT BE SAID THAT THE EXPENDITURE INCURRED IN ACQ UIRING THE SHARES HAS TO BE APPORTIONED TO THE EXTENT OF DIVIDEND INCOME AND THAT SHOULD BE DISALL OWED FROM DEDUCTIONS. IN THAT VIEW OF THE MATTER, THE APPROACH OF THE AUTHORITIES IS NOT IN C ONFORMITY WITH THE STATUTORY PROVISIONS CONTAINED UNDER THE ACT. THEREFORE, THE IMPUGNED ORDERS ARE N OT SUSTAINABLE AND REQUIRE TO BE SET ASIDE. SIMILAR ARE THE FACTS OF THE PRESENT CASE BEFORE US THAT THE ASSESSEE UNDISPUTEDLY DEALING IN THE SHARES AND SECURITIES AS ADMITTED BY AO ITSE LF WHILE MENTIONING THE NATURE OF BUSINESS AS DEALING IN SHARES AND SECURITIES. TH IS EARNING OF DIVIDEND ON SUCH SHARES IS MERELY INCIDENTAL TO SUCH BUSINESS ACTIVITIES. ACCORDINGLY, ON THIS ASPECT ALSO THE ASSESSEE SUCCEEDS. HENCE, THIS ISSUE OF ASSESSEES CO IS ALLOWED AND REVENUES GROUND IS DISMISSED. 8. THE NEXT COMMON ISSUE IN THIS APPEAL OF REVENUE AND THAT OF THE CROSS OBJECTION OF THE ASSESSEE IS AS REGARDS TO THE ORDER OF CIT(A ) IN RESTRICTING THE REBATE U/S. 88E OF THE ACT TO THE EXTENT OF RS.2,69,69,781/- AS AGAINS T THE CLAIM OF THE ASSESSEE AT RS.3,16,79,411/- ON STT PAYMENTS PERTAINING TO THE BUSINESS OF THE ASSESSEE. FOR THIS, REVENUE HAS RAISED FOLLOWING GROUND NO. 2 AND ASSES SEE HAS RAISED FOLLOWING GROUND NO.3: REVENUES GROUND 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E, LD. CIT(A) ERRED IN LAW IN DIRECTING THAT THE REBATE U/S. 88E OF THE I. T. ACT SHOULD BE ALLOWED AFTER ALLOCATING EXPENSES AND AFTER DEDUCTING THE FULL AMOUNT OF THE STT PAID. T HE ORDER OF THE CIT(A) SHOULD BE CANCELLED AND ORDER OF THE AO SHOULD BE RESTORED. ASSESSEES GROUND: 3. FOR THAT THE LD. CIT(A) ERRED IN RESTRICTING TH E TAX REBATE U/S. 88E TO RS.2,69,69,781/- ONLY IGNORING THE CLAIM OF THE ASS ESSEE WHICH WAS RS.3,16,79,411/- AS 6 I TA NO.639/KOL/2012 & CO 57/K/2012 M/S. CROSSES CAPITAL SERVICES PVT. LTD. AY 2008-09 PER THE RETURN AND ON THE FACTS AND CIRCUMSTANCES O F THE CASE AND TAKING INTO ACCOUNT THE INCOME EARNED FROM SHARE BUSINESS AS WELL AS SH ARE BROKERAGE BUSINESS WHICH WAS PART OF SHARE BUSINESS THE ENTIRE CLAIM SHOULD HAVE BEEN ALLOWED. 9. BRIEFLY STATED FACTS ARE THAT THE AO WHILE COMPUTIN G RELIEF U/S. 88E OF THE ACT ON STT TRANSACTIONS, THE AO ALLOWED RELIEF ONLY TO THE INCOME RELATING TO STT TRANSACTIONS OF THE ASSESSEE AND HE COMPUTED THE REBATE AS UNDER : INCOME RELATING TO STT TRANSACTIONS LEAST OF THE FOLLOWING TWO ITEMS: (1) STT PAID RS. 3,32,34,833/- (2) 30% OF INCOME FROM STT RELATED TRANSACTIONS I.E. RS . 1,78,55,901/- THEREFORE, REBATE U/S. 88E IS ALLOWED FOR RS.1,78,5 5,901/- AGGRIEVED AGAINST THE ORDER OF AO, ASSESSEE PREFERR ED APPEAL BEFORE CIT(A). THE ASSESSEE BEFORE THE CIT(A) CONTENDED THAT THE AO HA S NOT ALLOWED EXPENDITURE RELATING TO BUSINESS OF SHARE BROKING. THE CIT(A) REQUESTED THE ASSESSEE TO SUBMIT CALCULATION OF APPORTIONMENT OF EXPENSES ON THE BASIS OF TURNOV ER OF SHARE TRADING AND BROKERAGE BUSINESS SEPARATELY. ACCORDINGLY, ASSESSEE SUBMITT ED THE CALCULATION. THE CIT(A) DIRECTED THE AO TO TAKE THE PROPORTIONATE EXPENSES PERTAINING TO SHARE TRADING INCLUDING F&O INCOME AND BROKERAGE INCOME ON THE BASIS OF TUR NOVER AND INCOME BASIS AS PER THE COMPUTATION SUBMITTED BY THE ASSESSEE. FOR THIS, C IT(A) HELD IN PARA 11, 12, 13 AND 14 AS UNDER: 11. I HAVE DULY CONSIDERED THE OBSERVATIONS OF T HE ASSESSING OFFICER IN THE ASSESSMENT ORDER AND WRITTEN SUBMISSIONS OF THE ASSESSEE. THE ASSESSING OFFICER HAS CALCULATED REBATE U/S. 88E OF THE INCOME-TAX ACT, 1961, BY TAK ING THE NET INCOME FROM STT TRANSACTIONS AT AN AMOUNT OF RS.10,70,66,490/- AND REDUCED THE GROSS INCOME SHOWN UNDER THE HEAD 'BROKERAGE, DIVIDEND AND INTEREST' A MOUNTING TO RS.75,46,819/-. IN THIS MANNER, THE ASSESSING OFFICER HAS CALCULATED THAT T HE INCOME RELATING TO STT TRANSACTIONS AMOUNTS TO RS.5,95,19,671/- ONLY. THE ASSESSEE, ON THE OTHER HAND, SUBMITTED THAT THE ENTIRE EXPENDITURE OF THE P/L A/C THEREBY HAS BEEN DEDUCTED FROM THE INCOME RELATING TO STT TRANSACTIONS. HE HAS SUBMITTED THAT THE EXPENSE S ARE TO BE APPORTIONED FROM THE GROSS INCOME ORIGINATING TO THE ASSESSEE FROM BROKE RAGE AND SHARE TRANSACTIONS BUSINESS OF THE ASSESSEE INCLUDING F&O. IT IS RIGHT THAT THE EXPENSES IN THE P/L A/C ARE INCURRED FOR EARNING OF THE AL1 THE THREE TYPES OF INCOME I.E., BROKERAGE, SHARE TRADING AND INTEREST. SINCE DIVIDEND IS OF A VERY SMALL AMOUNT AND THE EX PENSES FOR EARNING INTEREST INCOME ARE MINIMAL, THEREFORE, THE EXPENSES ARE TO BE APPORTIO NED AMONG THE INCOME EARNED FROM THE BUSINESS OF BROKERAGE, SHARE TRADING OF THE APP ELLANT AND INTEREST INCOME. THE APPELLANT HAS APPORTIONED THE EXPENDITURE RELATING TO SALARY, TELEPHONE, INTEREST, SEBI TURNOVER, FREE CASH MARKET AND SEBI TURNOVER FEES F &O ON THE BASIS OF TURNOVER OF THE BROKERAGE BUSINESS AND SHARE TRADING BUSINESS SINCE THESE ARE INCURRED DUE TO THE VOLUME OF TRANSACTIONS OF THE BUSINESS. THE SAID APPORTION MENT IS UPHELD AS CORRECT METHOD OF DETERMINING THE EXPENSES RELATING TO BOTH THE BUSIN ESSES. SIMILARLY, THE REST OF THE EXPENSES HAVE BEEN APPORTIONED ON THE BASIS OF NET RECEIPT FROM THE BUSINESS OF BROKERAGE AND SHARE TRADING. THE SHARE TRADING BUSI NESS ACCOUNTS FOR 68.83% OF THE TOTAL INCOME AS PER THE ASSESSEE. THEREFORE, THE EXPENSES ON THE BASIS OF THIS APPORTIONMENT 7 I TA NO.639/KOL/2012 & CO 57/K/2012 M/S. CROSSES CAPITAL SERVICES PVT. LTD. AY 2008-09 BASIS AMOUNTS TO RS. 1,62,25,924/- AS PERTAINING TO SHARE TRADING BUSINESS AND BALANCE AMOUNT PERTAINS TO BUSINESS OF BROKERAGE AS PER THE CALCULATION SUBMITTED BY ASSESSEE. THE ASSESSING OFFICER WILL ALLOCATE EXPENSES PERTAI NING TO SHARE TRADING INCLUDING F & 0 INCOME AND BROKERAGE INCOME ON THE BASIS OF TURNOVE R AND INCOME BASIS AS DETERMINED BY THE ASSESSEE IN THE CALCULATION SUBMITTED DURING APPELLATE PROCEEDINGS. 12. THE A.R OF THE ASSESSEE HAS RELIED UPON THE CAS E OF DCIT, CIRCLE-1, KOLKATA VS M/S ASHIKA STOCK BROKING LTD (2011) 44 SOT 556 (KOL) WH EREIN IT HAS BEEN HELD BY THE HON'BLE JURISDICTIONAL TRIBUNAL THAT IF THERE IS A NET SURPLUS FROM SHARE DEALING OF CAPITAL MARKET SEGMENT AND FUTURE OPTION SEGMENT TAKEN TOGE THER AND THERE IS A NET PROFIT THEREFROM, THE ASSESSEE IS ENTITLED FOR A REBATE OF STT PAID THEREON AS PER SECTION 88E OF THE INCOME-TAX ACT, 1961 (PARE-15) 13. THEREFORE, THE ENTIRE AMOUNT OF STT PAID (AMOUN T ON WHICH STT HAS BEEN PAID AND INCOME IS TAXABLE I.E. SHARE TRADING AND F&O), IS T O BE TAKEN FOR THE PURPOSES OF CALCULATION OF REBATE U/S 88E TO BE ALLOWED TO THE ASSESSEE. HOWEVER, THE SIT PAID ON BROKERAGE INCOME IS NOT TO BE TAKEN IN TO ACCOUNT S INCE IT DOES NOT PERTAIN TO ASSESSEE AS IT IS PAID ON BEHALF OF CLIENTS. THE CALCULATION OF THE REBATE U/S. 88E TO BE ALLOWED HAS BEEN SUBMITTED BY ASSESSEE, WHICH IS AS UNDER: - GROSS INCOME FROM SHARE TRADING BUSINESS RS. 1 0,61,25,194/- LESS: EXPENSES RS. 1,62,25,924/- RS. 8,98,99,270/- STT PAID RS. 3,32,34,833/- 30% OF INCOME FROM STT RELATING TRANSACTION RS . 2,69,69,781/- AGGRIEVED, REVENUE AS WELL AS ASSESSEE BOTH CAME IN APPEAL BEFORE TRIBUNAL. 10. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FA CTS AND CIRCUMSTANCES OF THE CASE. ADMITTEDLY, ASSESSEE IS A DEALER IN SHARES H AVING LARGE TURNOVER IN BUSINESS OF BROKERAGE. THE ASSESSEE IS A REGISTERED BROKER WIT H NSE. THE AO WHILE COMPUTING THE INCOME FROM DIFFERENT BUSINESS SEGMENTS APPORTIONED THE BUSINESS EXPENSES ON THE BASIS OF PROPORTIONATE INCOME UNDER DIFFERENT BUSINESS SE GMENTS AND ACCORDINGLY, COMPUTED THE INCOME FROM OPERATIONS FOR THE PURPOSE OF DETER MINING INCOME FROM SHARE BUSINESS SEGMENTS FOR THE PURPOSE OF COMPUTATION OF REBATE U /S. 88E OF THE ACT. FURTHER, CIT(A) RESTRICTED REBATE U/S. 88E OF THE ACT AFTER APPORTI ONING THE EXPENSES AS NOTED ABOVE (THE FINDINGS OF CIT(A) ARE REPRODUCED AS IT IS). WE FIN D THAT THE CIT(A) REQUIRED THE ASSESSEE TO GIVE CALCULATION OF THE TURNOVER IN DIF FERENT BUSINESS SEGMENTS AND FOUND THAT THE TURNOVER OF SHARE BUSINESS SEGMENT TO THE GROSS TURNOVER WAS 5.87% UNDER THE HEAD OWN BUSINESS TURNOVER IN TERM OF % OF TOTAL TURNOVE R. THEREFORE CIT(A) APPORTIONED THE EXPENSES ON SHARE SEGMENTS AND SOME OF THE EXPENSES WERE APPORTIONED @ 5.87% AND SOME OF THE EXPENSES I.E. BALANCE OTHER EXPENSES ON INCOME BASIS AS PER CALCULATION C @68.83%. WE FIND THAT REVENUE HAS NOT DISPUTED THE PROPORTIONATE DETERMINATION ON TURNOVER BASIS BUT HAS CONTESTED THE AOS METHOD TO BIFURCATE THE EXPENSES ON PROPORTIONATE OF INCOME BASIS. ACCORDING TO ASSESS EE, ALL THE EXPENSES SHOULD BIFURCATED 8 I TA NO.639/KOL/2012 & CO 57/K/2012 M/S. CROSSES CAPITAL SERVICES PVT. LTD. AY 2008-09 IN PROPORTION TO TURNOVER OF SHARE BUSINESS SEGMENT TO THE GROSS TURNOVER. WE FIND THAT QUA THE EXPENSES, THE PLEA OF THE ASSESSEE THAT ALL THE EXPENSES SHOULD BE BIFURCATED IN PROPORTION TO TURNOVER OF SHARE BUSINESS SEGMENT TO THAT OF THE GROSS TURNOVER IS QUITE REASONABLE. THEREFORE, THE PART OF THE EXPENSES, W HICH WERE BIFURCATED BY THE CIT(A) ON INCOME BASIS IS DIRECTED TO BE DETERMINED ON THE BASIS OF PERCENTAGE OF TURNOVER OF OWN BUSINESS @ 5.87%. WE FIND THAT SIMILAR ISSUE W AS DEALT WITH BY THE MUMBAI BENCH OF ITAT IN THE CASE OF RUIA STUD & AGRICULTUR AL FARMS VS. ITO (1985) 14 ITD 429 (MUM) WHEREIN THE APPORTIONMENT OF COMMON EXPEN SES ARE EXPLAINED TO BE DEALT WITH AS UNDER: 13. ON THE LAST QUESTION OF APPORTIONMENT OF COMMO N EXPENSES BETWEEN AGRICULTURAL AND NON-AGRICULTURAL BUSINESS, WE HAVE NO HESITATIO N IN ACCEPTING THE ASSESSEES CLAIM. IF, AS A MATTER OF FACT, THE ACTUAL EXPENDITURE OUT OF THE COMMON EXPENDITURE PERTAINING TO EACH OF THE BUSINESS COULD BE WORKED OUT, ADOPTING THAT FIGURE WOULD BE THE MOST CORRECT METHOD OF ALLOCATION. IN THE ABSENCE OF THESE DETA ILS A ROUGH AND READY METHOD OF APPORTIONMENT WOULD BE ON THE BASIS OF THE TURNOVER IN THE DIFFERENT BUSINESSES. WE FIND THAT APPORTIONING THE EXPENDITURE ON THE BASIS OF T HE GROSS PROFIT IS POSITIVELY INCORRECT SINCE THERE ARE SEVERAL VARIABLES THE APPLICABILITY OF WHICH IS TO BE CONSIDERED IN WORKING OUT THIS COMPUTATION. THE ASSESSEES CLAIM IS ACCE PTED ON THIS POINT ALSO. 11. SIMILARLY, HON'BLE DELHI HIGH COURT IN THE CASE OF CONTROL & SWITCHGEAR CO. LTD. VS. DCIT (2012) 66 DTR 161 (DEL.) HAS CONSIDERED T HE ISSUE OF COMMON ISSUE HOW TO BE DEALT WITH AS UNDER: 10. THE TRIBUNAL HAS RECORDED THE FOLLOWING FINDIN GS : '5.5 COMING TO ADJUSTMENT ON ACCOUNT OF COMMON EXPE NSES, WE MAY GAINFULLY REFER TO THE PROVISION CONTAINED IN SUB- SECTION(5), WHICH MANDA TES THAT THE SAME HAVE TO BE COMPUTED AS IF ELIGIBLE BUSINESS WAS THE ONLY SOURC E OF INCOME OF THE ASSESSEE DURING THE PREVIOUS YEAR. SEEN IN THIS CONTEXT, IF CERTAIN EXP ENSES INCURRED BY HEAD OFFICE LEAD TO BENEFIT TO THE ELIGIBLE BUSINESS ALSO, THE EXPENSES WILL HAVE TO BE APPORTIONED TO IT. THIS HAS NOT BEEN DONE. THEREFORE, SUCH AN APPORTIONMENT WAS NECESSARY TO WORK OUT ELIGIBLE PROFITS FOR DEDUCTION. THE ASSESSEE HAS NOT FURNISH ED UNIT-WISE DETAILS WITH NARRATION TO FIND OUT WHICH EXPENSES COULD BE ALLOCATED TO ELIGI BLE BUSINESS FROM THE HEAD OFFICE. IN ABSENCE THEREOF, THE LD. CIT(APPEALS) CORRECTLY CAM E TO THE CONCLUSION THAT COMMON EXPENSES HAVE TO BE ALLOCATED TO THE ELIGIBLE BUSIN ESS IN THE RATIO OF TURNOVER OF THE ELIGIBLE BUSINESS TO THE TOTAL TURNOVER. HE HAS ALS O ADEQUATELY JUSTIFIED THE REASONS FOR CALCULATING FINANCIAL EXPENSE FOR THE PURPOSE OF AL LOCATION. THE ASSESSEE HAD FURNISHED DETAILS OF SOME EXPENSES, WHICH COULD NOT BE CONSID ERED FOR ALLOCATION FOR THE REASON THAT THOSE CONTAINED PROPOSED DIVIDEND, PROPOSED DIVIDEN D TAX, COURT FEE FOR OLD CASES AND EXPENSES RECOVERED FROM THE RESPECTIVE UNITS, BEING RS.4,53,401/- FROM OTHER UNITS AND RS.12,26,065/ FROM ELIGIBLE UNIT. WE DO NOT FIND TH E NECESSITY OF MAKING ANY INTERFERENCE WITH THESE FINDINGS AS THESE ARE BASED ON SOUND LOG IC. HE HAS ALSO GRANTED RELIEF TO THE ASSESSEE TO CALCULATE THE DISALLOWANCE FOR THE PERI OD 23.10.2005 TO 31.3.2006 AS THE 9 I TA NO.639/KOL/2012 & CO 57/K/2012 M/S. CROSSES CAPITAL SERVICES PVT. LTD. AY 2008-09 ELIGIBLE UNIT WAS SET UP ON 23.10.2005 AND NOT ON 1 .10.2005. THERE SEEMS TO BE NO SCOPE FOR ANY FURTHER RELIEF IN THIS MATTER ALSO. ACCORDI NGLY, IT IS HELD THE LD. CIT(APPEALS) WAS RIGHT IN DISALLOWING RS.69,67,762/- FROM THE DEDUCT ION SUBJECT TO SOME ADJUSTMENT TO BE MADE BY AO ON VERIFICATION. THUS, THIS GROUND IS DI SMISSED.' 12. IN VIEW OF THE ABOVE FACTUAL DISCUSSION AND PRECEDE NCE RELIED UPON, WE DISMISS THE ISSUE OF REVENUES APPEAL ALLOW THAT OF THE ASS ESSEES CROSS OBJECTION. 13. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISS ED AND ASSESSEES CO IS ALLOWED. 14. ORDER IS PRONOUNCED IN THE OPEN COURT ON 07.10. 2015 SD/- SD/- (WASEEM AHMED) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 07TH OCTOBER, 2015 JD. SR. P.S COPY OF THE ORDER FORWARDED TO: 1 . APPELLANT DCIT, CIRCLE-6, KOLKATA. 2 RESPONDENT M/S. CROSSES CAPITAL SERVICES PVT. LTD ., 1, R. N. MUKHERJEE ROAD, 5 TH FLOOR, SUIT-37, KOLKATA-700 001. 3 . THE CIT(A), KOLKATA 4. 5. C IT KOLKATA DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, ASSTT. REGISTRAR .