M/s. BNK Capital Markets Ltd, Kolkata V. ACIT, Cir-10, Kolkata, Kolkata

CO 75/KOL/2012

• Counselvise Citation: [2014] 122 COUNSELVISE.COM (IT) 9596 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 9 month(s) 7 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 06-05-2014
• Appeal Filed By: Assessee
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 30-07-2012
• Court: TRIBUNAL
• Department Lawyers: SNEHANSHU BISWAS
• Assessee Lawyers: S K TULSIYAN
• Keywords: Business income; Earning of tax free income
• Section: 143(3); 14A; 28

Judgement Text

, A , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: KOL KATA () BEFORE , /AND , ! ) [BEFORE SHRI MAHAVIR SINGH, JM & SHRI SHAMIM YAHYA, AM] ' / I.T.A NO.557/KOL/2012 #$ %&/ ASSESSMENT YEAR: 2008-09 ASSISTANT COMMISSIONER OF INCOME-TAX, VS. B N K C APITAL MARKETS LTD. CIRCLE-10, KOLKATA. (PAN:AABCB4140N) (() /APPELLANT ) (*+()/ RESPONDENT ) & C.O. NO. 75/KOL/2012 IN ' / I.T.A NO.557/KOL/2012 #$ %&/ ASSESSMENT YEAR: 2008-09 B N K CAPITAL MARKETS LTD. VS. ASSISTANT COMMISS IONER OF INCOME-TAX, CIRCLE-10, KOLKATA. (CROSS OBJECTOR) (RESPONDENT) DATE OF HEARING: 06.05.2014 DATE OF PRONOUNCEMENT: 06.05.2014 FOR THE REVENUE : SHRI SNEHANSHU BISWAS, JCIT, SR. DR FOR THE ASSESSEE: SHRI S. K. TULSIYAN, ADVOCATE / ORDER PER SHRI MAHAVIR SINGH, JM: THIS APPEAL BY REVENUE AND CROSS OBJECTION BY ASSE SSEE ARE ARISING OUT OF ORDER OF CIT(A)-XIX, KOLKATA IN APPEAL NO. 110/CIT(A)-XIX/AD DL.CIT, RANGE-10/KOL/11-12 DATED 18.11.2011. ASSESSMENT WAS FRAMED BY ADDL. CIT, RA NGE-10, KOLKATA U/S.143(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS T HE ACT) FOR ASSESSMENT YEAR 2008-09 VIDE HIS ORDER DATED 22.12.2010. 2. THE ONLY ISSUE IN THIS APPEAL OF REVENUE IS AGAI NST THE ORDER OF CIT(A) IN HOLDING THAT PROFIT ARISING OUT OF SALE OF SHARES IS SHORT TERM CAPITAL GAIN AND NOT BUSINESS INCOME AS ASSESSED BY AO. FOR THIS, REVENUE HAS RAISED FOLLOWING GROU ND NO.1: 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, LD. CIT(A) IS JUSTIFIED IN HOLDING THAT PROFIT AMOUNTING TO RS.1,68,39,000/- I S SHORT TERM CAPITAL GAIN AND NOT THE BUSINESS INCOME, IN SPITE OF ASSESSEE HAVING FREQUE NT AND VOLUMINOUS TRANSACTIONS IN A SYSTEMATIC MANNER. 2 ITA NO. 557/K/2012 CO NO. 75/KOL/2012 BNK CAPITAL MARKETS LTD. AY 2008-09 3. BRIEFLY STATED FACTS ARE THAT THE AO DURING THE COU RSE OF ASSESSMENT PROCEEDINGS TREATED THE SHORT TERM CAPITAL GAINS (STCG) AND LONG TERM C APITAL GAINS (LTCG) DECLARED BY THE ASSESSEE AT RS.1.68 CR. AND RS.3.34 LAC AS INCOME F ROM BUSINESS OR PROFESSION. THE AO NOTED THAT AS PER TAX AUDIT REPORT THE AUDITOR IN FORM NO . 3CD DEFINED THE COMPANY AS INVESTMENT COMPANY IN THE STATUS OF NBFC. THE AO DURING THE C OURSE OF ASSESSMENT PROCEEDINGS REQUIRED THE ASSESSEE TO EXPLAIN AS TO WHY THE PROFIT FROM S ALE OF SHARES IS NOT TO BE TREATED AS BUSINESS INCOME AS AGAINST DECLARED LTCG AND STCG. THE ASSE SSEE BEFORE THE AO CONTENDED THAT IT IS AN INVESTMENT COMPANY AND SEPARATE ACCOUNTS ARE KEP T FOR SHARES PURCHASED FOR THE PURPOSE OF INVESTMENT. ACCORDING TO IT, THE GAIN ARISING OUT OF SALE OF SHARES HELD AS INVESTMENT FOR MORE THAN 12 MONTHS ARE TAKEN AS LTCG AND SHARES HELD FO R LESS THAN 1 YEAR, GAIN IN INVESTMENT IS TREATED AS STCG. THE LD. COUNSEL FOR THE ASSESSEE STATED THAT, BEFORE THE AO, ASSESSEE CONTENDED THAT FOR AY 2005-06 THE REVENUE ITSELF HA S ASSESSED THE LTCG AND STCG DECLARED BY THE ASSESSEE AS SUCH AND ASSESSMENT WAS COMPLETE D U/S. 143(3) OF THE ACT. HOWEVER, DURING ASSESSMENT YEAR 2006-07, AO TREATED THE CAPITAL GAI NS DECLARED BY ASSESSEE AS BUSINESS INCOME. HOWEVER, CIT(A) ACCEPTED THE CONTENTION OF ASSESSE E AND DIRECTED THE AO TO TREAT THE GAINS FROM SALE OF INVESTMENT IN SHARES AS LTCG OR STCG D EPENDING UPON HOLDING PERIOD. BUT THE AO WAS OF THE VIEW THAT IN THE CASE OF NBFC THE MAJ OR INCOME SHOULD HAVE BEEN FROM GRANTING OF LOANS OR ADVANCES BUT IN THE PRESENT CASE, THE M EAGRE INCOME IS SHOWN FROM INTEREST I./E. RS.51.67 LACS AS AGAINST THE INCOME FROM CAPITAL MA RKET OPERATIONS AT RS.3,15,97,000/-. IN THIS INCOME FROM CAPITAL MARKET OPERATION, THE STCG IS A T RS.1.68 CR. AND LTCG IS AT RS.3.34 LAC. THE ASSESSEE HAS ALSO EARNED DIVIDEND INCOME AT RS. 1,47,37,000/-. IN VIEW OF THIS, THE AO WAS OF THE VIEW THAT THE ASSESSEE HAS CARRIED OUT A SYS TEMATIC ACTIVITY FOR MAKING PROFITS FROM DEALING IN SHARES AND THEREBY HE TREATED THE SAME A S BUSINESS ACTIVITIES AND TREATED THE GAINS DECLARED UNDER LTCG AND STCG AS BUSINESS INCOME. 4. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT( A), WHO AFTER CONSIDERING THE VARIOUS CASE LAWS FINALLY ACCEPTED THE GAINS DECLARED FROM SALE OF SHARES AS LTCG OR STCG DEPENDING UPON HOLDING PERIOD BY OBSERVING IN PARA 4.2 AS UND ER: 4.2) I HAVE CONSIDERED THE SUBMISSION OF THE APPEL LANT AND PERUSED THE ASSESSMENT ORDER. I HAVE ALSO GONE THROUGH THE JUDICIAL PRONOUNCEMENT S RELIED UPON BY THE AO AS WELL AS THE APPELLANT. ON PERUSAL OF ASSESSMENT ORDER IT IS OBS ERVED THAT DURING THE RELEVANT PREVIOUS YEAR THE APPELLANT COMPANY HAD EARNED SHORT-TERM CA PITAL GAIN OF RS.1,68,39,000/- AND INCURRED LONG-TERM CAPITAL LOSS AT RS.3,34,000/-. ON EXAMINATION OF DETAILS OF SHORT- TERM CAPITAL GAIN, THE A.O. WAS OF THE OPINION THAT THE APPELLANT COMPANY WAS ENGAGED IN THE BUSINESS OF TRADNG OF SHARES AND HENCE THE INCOME OF RS.1,68,39,000/- WHICH HAS BEEN DECLARED UNDER THE HEAD SHORT-TERM CAPITAL GAIN IS LIABLE TO BE ASSESSED U/S. 28 OF THE ACT AS INCOME FROM BUSINESS OR PROFESSION. IN THE COURS E OF ASSESSMENT PROCEEDINGS IT WAS 3 ITA NO. 557/K/2012 CO NO. 75/KOL/2012 BNK CAPITAL MARKETS LTD. AY 2008-09 CONTENDED BEFORE THE AO THAT THE APPELLANT-COMPANY IS AN INVESTMENT COMPANY AND HAS MADE TRANSACTIONS IN SHARES FOR THE PURPOSE OF INVE STMENT AND THAT THE GAIN EARNED ON TRANSFER OF SUCH SHARES HAS CORRECTLY BEEN DECLARED UNDER THE CAPITAL GAINS. IT WAS ALSO EXPLAINED BEFORE THE AO THAT IN A.Y 2005-06, THE CO NTENTION OF THE APPELLANT WAS ACCEPTED IN THE ASSESSMENT COMPLETED U/S. 143(3) OF THE ACT AND THE INCOME WAS ASSESSED ON SALE OF SHARES AS INCOME FROM CAPITAL GAINS DEPENDING ON TH E PERIOD OF HOLDING. FURTHER, THOUGH, IN A.Y. 2006-07 THE AO CHANGED THE STANCE AND ASSES SED THE INCOME ON TRANSFER OF SHARES AS BUSINESS INCOME, BUT THE CIT(A)-XII, KOL. DIRECT ED THE AO TO ACCEPT THE CONTENTION OF THE APPELLANT-COMPANY AND HE WAS DIRECTED TO ASSESS THE INCOME AS SHORT- TERM CAPITAL GAIN. HOWEVER, AS MENTIONED ABOVE, THE AO DID NOT A CCEPT THE CONTENTION OF THE APPELLANT COMPANY AND IN THE YEAR UNDER APPEAL, HE TREATED TH E GAIN OF RS. L,68,39.000/- ON TRANSFER OF SHARES AS APPELLANTS BUSINESS INCOME. ON CAREFU L CONSIDERATION OF THE FACTS I AM OF THE OPINION THAT THE AO WAS NOT JUSTIFIED IN HOLDING TH AT THE INCOME EARNED BY THE APPELLANT COMPANY ON TRANSFER OF ITS INVESTMENT SHARES IS ASS ESSABLE UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION INSTEAD OF INCOME FROM CA PITAL GAINS. THE AO HAS MENTIONED THAT THE APPELLANT-COMPANY BEING A NON-BANKING FINA NCE COMPANY, SHOULD HAVE EARNED MAJORITY OF INCOME FROM GRANTING LOANS AND ADVANCES , BUT IN THE CASE OF APPELLANT COMPANY, THE INCOME DECLARED ON ACCOUNT OF INTERES T LOANS AND ADVANCES WAS MUCH LESS THAN THE INCOME DECLARED FROM CAPITAL MARKET OPERAT IONS. I AM OF THE OPINION THAT MERELY FOR THE REASON THAT THE INTEREST INCOME DECLARED BY THE APPELLANT COMPANY WAS LESS THAN THE INCOME SHOWN UNDER THE HEAD CAPITAL GAINS, IT D OES NOT MEAN THAT THE APPELLANT- COMPANY HAS NOT MADE INVESTMENT IN SHARES AND THAT IT WAS ENGAGED IN THE BUSINESS OF TRADNG OF SHARES. IN THE ASSESSMENT ORDER, THE AO HAS FURTHER MENTIONED THAT TRANSACTIONS IN SHARES THROUGH STOCK MARKET IS VERY RISKY BUSINESS AND HIGHLY TECHNICAL IN NATURE. ONE MUST HAVE KNOWLEDGE AND EXPERTISE TO VE NTURE INTO SHARE TRANSACTION THROUGH THE STOCK EXCHANGE. SINCE THE APPELLANT COMPANY IS A MEMBER OF STOCK EXCHANGE AND IS ENGAGED IN THE BUSINESS OF CAPITAL MARKET OPERATON FOR ITS CLENTS AND HENCE IT WAS HAVING EXPERTISE AND TECHNICAL KNOWLEDGE IN DEALING IN CAP ITAL MARKET AND THEREBY IT WAS INCLUDED IN TRADING OF SHARES IN ITS OWN ACCOUNT, B UT THE INCOME HAS BEEN DECLARED UNDER THE HAD CAPITAL GAIN INSTEAD OF BUSINESS INCOME. I AM OF THE OPINION THAT FOR THE REASON THAT THE APPELLANT COMPANY WAS MEMBER OF STOCK EXCH ANGE AND DEALING IN SHARES ON BEHALF OF ITS CLIENT AND HAVE EXPERTISE AND TECHNIC AL KNOWLEDGE N DEALING WITH CAPITAL MARKET OPERATIONS, IT DOES NOT MEAN THAT THE APPELL ANT-COMPANY WAS ONLY IN TRADNG OF SHARES IN ITS OWN ACCOUNT AND NO INVESTMENT AT ALL WAS MADE BY HIM IN SHARES. MERELY BECAUSE THE APPELLANT-COMPANY IS A MEMBER OF STOCK EXCHANGE AND HAS KNOWLEDGE REGARDING SHARE MARKET, THE TRANSACTIONS IN SHARE D O NOT BECOME AN ADVENTURE IN THE NATURE OF TRADE. THE AO HAS FURTHER MENTIONED THA T THE VOLUME OF TRANSACTIONS IN SHARES WAS HUGE WITH REGULAR FREQUENCY AND IN SOME CASES T HE HOLDING PERIOD WAS AS LESS 10 DAYS AND THAT THE CONDUCT OF THE ASSESSEE AND PATTERN OF INVESTMENT IN SHARES WAS NOT TO DERIVE INCOME BY WAY OF DIVIDEND OR BY WAY OF ACCRETION TO ITS INVESTMENT. ON CAREFUL CONSIDERATION OF THE FACTS, I AM OF THE OPINION THA T FOR THE AFORESAID REASONS, IT CANNOT BE HELD THAT THE APPELLANT-COMPANY WAS ENGAGED IN THE BUSINESS OF SHARE TRADING . IN THE CASE OF SMK SHARES & STOCK BROKING PVT. LTD. IN ITA NO.799/MUM/200 DT. 24.11.2010 IT IS OBSERVED AND HELD BY THE HONBLE ITAT MUMBAI, T HAT IT IS TRUE THAT VOLUME OF TRANSACTION IS AN IMPORTANT INDICATOR OF THE INTEN TION OF THE ASSESSEE WHETHER TO DEAL IN SHARES AS TRADING ASSET OR TO HOLD THE SHARES AS IN VESTOR, BUT CERTAINLY NOT THE SOLE CRITERIA. THE AOS CONCLUSION THAT SINCE SALE AND PURCHASE HA D BEEN DETERMINED BY THE VOLATILITY IN MARKET, THE SAME IS AGAINST THE BASIC FEATURE OF IN VESTOR, S NOT BASED ON SOUND RATIONAL REASONING. A PRUDENT INVESTOR ALWAYS KEEPS A WATCH IN THE MARKET TRENDS AND, THEREFORE, IS NOT BARRED UNDER LAW FROM LIQUIDATING HIS INVESTMEN TS IN SHARES. THE LAW ITSELF HAS RECOGNIZED THIS FACT BY TAXING THESE TRANSACTIONS U NDER THE HEAD SHORT-TERM CAPITAL GAINS. IF THE AOS REASONING IS ACCEPTED, THEN IT WOULD BE AGAINST THE LEGISLATIVE INTENT ITSELF. THE HONBLE SUPREME COURT IN THE CASE OF RAMESHWAR PRA SAD BAGLA, 87 ITR 421 (SC), HAS HELD THAT THE VOLUME OF THE SHARES PURCHASED AND SO LD CANNOT BE SOLE REASON FOR TREATING THE TRANSACTION AS ADVENTURE N THE NATURE OF TRADE . IT IS OBSERVED THAT IN THE CASE OF 4 ITA NO. 557/K/2012 CO NO. 75/KOL/2012 BNK CAPITAL MARKETS LTD. AY 2008-09 APPELLANT COMPANY, THERE IS NO DENIAL TO THE FACT T HAT IN THE YEAR UNDER APPEAL IT HAS EARNED SUBSTANTIAL AMOUNT OF DIVIDEND AS WELL AS AC CRETION TO ITS INVESTMENT. THE AMOUNT OF DIVIDEND EARNED BY THE APPELLANT COMPANY IS RS.1 ,47,37,000/-. HENCE, IT CANNOT BE SAID THAT THE APPELLANT COMPANY WAS ENGAGED IN THE BUSIN ESS OF SHARE TRADING AND THAT IT HAS NOT MADE INVESTMENT IN SHARES TO DERIVE INCOME BY W AY OF DIVIDEND AND BY WAY OF ACCRETION TO ITS INVESTMENT. IN THE ASSESSMENT ORDE R, THE AO HAS ALSO MENTONED THAT THE SALE AND PURCHASE OF SHARES BY THE APPELLANT COMPAN Y INDICATES A LARGE SYSTEMATIC ACTIVITY FOR MAKING PROFIT FROM DEALING IN SHARES. HOWEVER, I AM NOT INCLINED TO AGREE WITH THE VIEW OF THE AO THAT FOR THE AFORESAID REASON IT CAN BE HELD THAT THE APPELLANT COMPANY WAS DOING BUSINESS OF SHARE TRADING. IN THE PRESENT SCE NARIO, THERE IS AN UNPRECEDENTED BOOM IN THE STOCK MARKET WHEREBY FIIS HAVE INVESTED IN A BIG WAY. THESE FIIS ARE NOT TREATED AS TRADERS AND THEIR INCOME INSPTE OF HUGE VOLUME AND FREQUENCY IS TREATED AS CAPITAL GAINS. THE ACTVITIES CONDUCTED BY THE APPELLANT-COMPANY A RE MUCH LESS IN MAGNITUDE AND FREQUENCY IN COMPARISON TO TRANSACTIONS CARRIED OUT BY FIIS IN A LARGE SYSTEMATIC MANNER. IF IN THE CASE OF FIIS THE INCOME EARNED ON CAPITAL MARKET OPERATIONS COULD BE TREATED AS INCOME FROM CAPITAL GAIN, I AM OF THE OPINION THAT THERE IS NO REASON THAT IN THE CASE OF AN INDIAN ENTITY, THE INCOME SHOULD BE TREATED AS ADVE NTURE IN THE NATURE OF TRADE. ON PERUSAL OF MEMORANDUM OF ASSOCIATION AS WELL AS FINANCIAL S TATEMENTS IT IS OBSERVED THAT MAKING INVESTMENT IN SHARES AND SECURITIES IS ONE OF THE M AIN OBJECTS OF THE APPELLANT COMPANY AND THAT IN ITS FINANCIAL STATEMENTS THE APPELLANT COMPANY HAS SHOWN THESE SHARES UNDER THE HEAD INVESTMENTS VALUED AT COST. FURTHER, AS MENTIONED ABOVE, IN AY 2005-06, THE CONTENTION OF THE APPELLANT COMPANY WAS ACCEPTED BY THE AO HIMSELF AND IN A.Y. 2006-07, THE CIT(A)-XII, KOL. DIRECTED THE AO TO ASSESS THE INCOME ON TRANSFER OF SHARES UNDER THE HEAD SHORT-TERM CAPITAL GAIN. HENCE, IN THE YEAR UN DER APPEAL, I FIND NO REASON TO ASSESS THE SHORT TERM CAPTAL GAIN OF RS.1,68,39,000/- UND ER THE HEAD INCOME FROM BUSNESS OR PROFESSION. AGGRIEVED, REVENUE CAME IN APPEAL BEFORE US. 5. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ASSESSEE IS MAINTAINING SEPARATE A CCOUNTS FOR INVESTMENT AND TRADING. THE INVESTMENTS ARE DISCLOSED UNDER THE INVESTMENT HEAD AND GAINS ARISING FROM THE SAME I.E. GAINS ARISING FROM SALE OF SHARES IS DECLARED AS LTCG OR STCG, AS THE CASE MAY BE. EVEN IN THE ASSESSMENT U/S. 143(3) OF THE ACT I.E. SCRUTINY ASS ESSMENT, THE REVENUE FOR AY 2005-06 HAS ACCEPTED THE INCOME DECLARED BY THE ASSESSEE UNDER THE HEAD LTCG AND STCG ARISING FROM SALE OF SHARES. EVEN CIT(A) HAS ACCEPTED THE CLAIM OF THE ASSESSEE FOR AY 2006-07. IT IS A FACT THAT THESE INVESTMENTS ARE KEPT BY ASSESSEE AND HAS EARNED DIVIDEND INCOME TO THE TUNE OF RS.1,47,37,000/-, WHICH IS ENORMOUS. WE FIND THAT THE FACTS OF THE CASE ARE EXACTLY SIMILAR TO WHAT WAS IN THE CASE OF CIT VS. GOPAL PUROHIT (2010 ) 228 CTR 582 (BOM), WHEREIN HONBLE BOMBAY HIGH COURT HAS CONSIDERED THE ISSUE AS UNDER : THE ASSESSEE IS ENGAGED IN TWO DIFFERENT TYPES OF TRANSACTIONS NAMELY, INVESTMENT IN SHARES AND DEALING IN SHARES FOR THE PURPOSES OF BU SINESS AND HELD THAT THE DELIVERY BASED TRANSACTIONS ARE TO BE TREATED AS INVESTMENT TRANSACTIONS AND THE PROFIT RECEIVED THEREFROM IS TO BE TREATED AS SHORT TERM OR LONG TE RM CAPITAL GAIN DEPENDING ON THE PERIOD OF HOLDING OF SHARES AND THAT THERE OUGHT TO BE UNIFORMITY IN TREATMENT AND CONSISTENCY IN VARIOUS YEARS. 5 ITA NO. 557/K/2012 CO NO. 75/KOL/2012 BNK CAPITAL MARKETS LTD. AY 2008-09 IN VIEW OF OUR ABOVE SUBMISSIONS, YOU HONOUR IS REQ UESTED TO PLEASE DIRECT THE ASSESSING OFFICER TO ACCEPT THE PROFIT AGGREGATING TO RS.8767934 DERIVED BY THE APPELLANT ON TRANSFER OF INVESTMENTS IN SHARES AS C APITAL GAINS AND NOT SAME TO BE A BUSINESS INCOME. AS THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE A SSESSEE, WE FIND NO REASON TO DEVIATE FROM THE SAME. ACCORDINGLY, THIS ISSUE OF REVENUES APPEAL IS DISMISSED. 6. COMING TO THE CROSS OBJECTION OF ASSESSEE. THE ONLY ISSUE IN THIS CROSS OBJECTION OF ASSESSEE IS AGAINST THE ORDER OF CIT(A) CONFIRMING THE DISALLOWANCE OF EXPENSES RELATABLE TO EXEMPTED INCOME BY INVOKING THE PROVISIONS OF SECTI ON 14A READ WITH RULE 8D OF I. T. RULES, 1962 (HEREINAFTER REFERRED TO AS THE RULES). FOR THIS, ASSESSEE HAS RAISED FOLLOWING REVISED GROUND: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE OF RS.50,67,849 MADE ALLEGEDLY UND ER SECTION 14A OF THE I. T. ACT WITHOUT APPRECIATING THE FACT THAT NO 14A DISALLOWA NCE CAN BE MADE WITHOUT RECORDING SATISFACTION IN RELATION TO THE INCOME WHICH DOES N OT FORM PART OF TOTAL INCOME. 7. BRIEFLY STATED FACTS RELATING TO THE ABOVE ISSUE ARE THAT THE ASSESSEE COMPANY HAS EARNED DIVIDEND INCOME AT RS.1,47,37,000/- FROM DIFFERENT COMPANIES AND CLAIMED EXEMPT INCOME U/S. 10(34) OF THE ACT. ACCORDING TO AO, THE ASSESSEE H AS DEBITED EXPENSES IN THE P&L ACCOUNT UNDER THE HEAD INTEREST AND OTHER EXPENSES. AO NOT ED THAT THESE EXPENSES MIGHT HAVE BEEN INCURRED ON THE INVESTMENTS FROM WHERE DIVIDEND WAS EARNED. ACCORDINGLY, THE AO INVOKED THE PROVISIONS OF SECTION 14A READ WITH RULE 8D OF THE RULES BY REPRODUCING THE SAME AND BY OBSERVING IN PARA 6.1 AS UNDER: 6.1 IN RESPONSE SRI SHARMA, A/R OF THE ASSESSEE ON HIS APPEARANCE ON 03/12/2010 SUBMITTED HIS REPLY WITH CALCULATION OF DISALLOWANC E U/S. 14A BY APPLYING RULE 8D WHICH COMES TO RS.50,67,849/- AND IN THE COMPUTATION ITSE LF COMPANY HAS SUO MOTU DISALLOWED RS.2,98,794/- UNDER SECTION 14A AND ADDED BACK TO T HE TOTAL INCOME. THEREFORE, BALANCE AMOUNT OF RS.47,69,055/- BEING (RS.50,67,849/- RS.2 ,98,794/-) IS HEREBY DISALLOWED AND ADDED BACK TO THE TOTAL INCOME AS PER THE PROVISION OF SECTION 14A READ WITH RULE 8D. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A). 8. THE CIT(A) CONFIRMED THE ACTION OF AO VIDE PARA 6.2 OF HIS APPELLATE ORDER AS UNDER: I HAVE CONSIDERED THE SUBMISSION OF THE APPELLANT AND PERUSED THE ASSESSMENT ORDER. ON PERUSAL OF ASSESSMENT ORDER IT IS OBSERVED THAT IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE AR OF THE APPELLANT-COMPANY HIMSELF HAD FILED R ELY ALONG WITH CALCULATION OF DISALLOWANCE U/S. 14A BY APPLYING THE RULE 8D. THE A.R. OF THE APPELLANT COMPUTED THE DISALLOWANCE AT RS.50,67,849/- WHICH WAS ALREADY MA DE BY THE APPELLANT ITSELF. IN THE COURSE OF APPELLATE PROCEEDINGS THE APPELLANT HAS M ERELY STATED THAT THE CALCULATION IS NOT CORRECT AND DISALLOWANCE U/S. 14A SHOULD BE RS.45,4 5,023/- INSTEAD OF RS.50,67,849/-. HOWEVER, I AM NOT INCLINED TO AGREE WITH THE SUBMIS SION OF THE APPELLANT BECAUSE IT HAS 6 ITA NO. 557/K/2012 CO NO. 75/KOL/2012 BNK CAPITAL MARKETS LTD. AY 2008-09 NEITHER FILED THE CALCULATION SUBMITTED BEFORE THE A.O. NOR FILED THE CALCULATION OF RS.45,45,023/-. IT IS NOT KNOWN AS TO HOW THE DISA LLOWANCE SHOULD BE RS.45,45,023/- INSTEAD OF RS.50,67,849/-. SINCE THE A.O. HAS MADE THE DISALLOWANCE ON THE BASIS OF CALCULATION SUBMITTED BY THE APPELLANTS A.R. HIMSE LF AND, HENCE, THE DISALLOWANCE MADE BY THE AO IS CONFIRMED. THE GROUND NO. 5 IS DISMIS SED. AGGRIEVED, ASSESSEE HAS FILED THIS CROSS OBJECTION BEFORE ITAT. 9. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT AT THE ASSESSMENT STAGE ASSESSEE HAS F ILED FIRST COMPUTATION OF DISALLOWANCE U/S. 14A OF THE ACT READ WITH RULE 8D. THE TOTAL DISALL OWANCE MADE BY THE ASSESSEE ITSELF IN ITS FIRST COMPUTATION AT RS.50,67,849/-. IN SUBSEQUENT COMPUTATION I.E. THE REVISED COMPUTATION ASSESSEE HAS RESTRICTED THE DISALLOWANCE AT RS.45,4 5,023/-. THE ASSESSEE HAS FILED THE DETAILS AND COMPUTATION (WHICH IS ENCLOSED AT PAGE 171 OF T HE ASSESSEES PAPER BOOK) AND WHEN THIS WAS CONFRONTED TO LD. SR. DR, HE FAILED TO CONTROVE RT THE COMPUTATION OF DISALLOWANCE FILED BY ASSESSEE BY REVISING THE SAME. THIS REVISED COMPUT ATION OF DISALLOWANCE U/S. 14A OF THE ACT READ WITH RULE 8D OF THE RULES WAS AVAILABLE BEFORE THE LOWER AUTHORITIES I.E. THE AO AS WELL AS THE CIT(A). BOTH THE AUTHORITIES WITHOUT GOING INT O THE MERITS OF THE CASE SIMPLY ACCEPTED THE ORIGINAL COMPUTATION WITHOUT ANY BASIS. WE FIND NO REASON IN NOT TO ACCEPT THE REVISED COMPUTATION, WHICH WAS EXPLAINED BEFORE US. THE DI SALLOWANCE MADE IN REVISED COMPUTATION WAS AS UNDER: THE AMOUNT OF EXPENDITURE DIRECTLY RELATED TO INCOME WHICH DO NOT FORM PART OF TOTAL INCOME DEMAT CHARGES RS.1,28,000/- RS.1,28,000/- IN CASE WHERE ASSESSEE HAS INCURRED EXPENDITURE BY WAY OF INTEREST DURING THE PREVIOUS YEAR, WHICH DO NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT, AN AMOUNT COMPUTED AS FOLLOWS: A) AMOUNT OF EXPENDITURE BY WAY OF INTEREST (OTHER THAN THE AMOUNT OF INTEREST DIRECTLY RELATING TO INCOME, WHICH DO NOT FORM PART OF TOTAL INCOME) INCURRED DURING THE PREVIOUS YEAR. B) THE AVERAGE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME INTEREST PAID TO OTHERS. INTEREST RECEIVED FROM OTHERS CLOSING VALUE OF INVESTMENT OPENING VALUE OF INVESTMENT RS.1,06,86,000/- RS.51,67,000/- RS.29,67,42,000/- RS.22,71,26,000/- RS.55,19,000/- RS.26,19,34,000/- RS.31,07,853/- 7 ITA NO. 557/K/2012 CO NO. 75/KOL/2012 BNK CAPITAL MARKETS LTD. AY 2008-09 AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND LAST DAY OF THE PREVIOUS YEAR. C) THE AVERAGE OF TOTAL ASSETS AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND LAST DAY OF THE PREVIOUS YEAR. AN AMOUNT EQUAL TO 0.5% OF THE AVERAGE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE ON THE FIRST DAY AND LAST DAY OF THE PREVIOUS YEAR. TOTAL DISALLOWANCE U/S. 14A READ WITH RULE 8D AVERAGE CLOSING VALUE OF FIXED ASSETS FIXED ASSETS INVESTMENT CURRENT ASSETS OPENING VALUE OF ASSETS FIXED ASSETS INVESTMENT CURRENT ASSETS AVERAGE VALUE OF INVESTMENT RS.52,38,68,000/- RS.12,77,000/- RS.29,67,42,000/- RS.19,43,30,000/- RS.15,30,000/- RS.22,71,26,000/- RS.20,94,42,000/- RS.26,19,34,000/- RS.46,52,23,500/- RS.13,09,670/- RS.45,45,023/- 10. WE FIND THAT THERE IS NO DISCREPANCY IN THE ABO VE COMPUTATION AS THE ASSESSEE HAS PRODUCED EVERY EVIDENCE TO SUPPORT THE SAME AND THE SAME WAS NOT CONTROVERTED BY REVENUE. IN SUCH CIRCUMSTANCES, WE DIRECT THE AO TO RESTRICT THE DISALLOWANCE AT RS.45,45,023/- U/S. 14A OF THE ACT READ WITH RULE 8D OF RULES AS AGAINST TH E DISALLOWANCE MADE AT RS.50,67,849/-. WE DIRECT ACCORDINGLY. 11. IN THE RESULT, APPEAL OF REVENUE IS DISMISSED A ND CROSS OBJECTION OF ASSESSEE IS PARTLY ALLOWED. 12. ORDER IS PRONOUNCED IN THE OPEN COURT. SD/- SD/- , ! , (SHAMIM YAHYA ) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 6TH MAY, 2014 ./ #01 2 JD.(SR.P.S.) 8 ITA NO. 557/K/2012 CO NO. 75/KOL/2012 BNK CAPITAL MARKETS LTD. AY 2008-09 3 *4 5 4%6- COPY OF THE ORDER FORWARDED TO: 1 . () / APPELLANT ACIT, CIRCLE-10, KOLKATA 2 *+() / RESPONDENT B N K CAPITAL MARKETS LTD., 2, PALM A VENUE, KOLKATA- 19 3 . # ( )/ THE CIT(A), KOLKATA 4. 5. # / CIT KOLKATA 4:; *# / DR, KOLKATA BENCHES, KOLKATA +4 */ TRUE COPY, #