The Ahmedabad Stock Exchange Ltd., Ahmedabad V. The Dy.CIT.,Circle-1, Ahmedabad

ITA 1029/AHD/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 89754 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 3 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-07-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 14-07-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 08-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P L KUREEL
• Assessee Lawyers: M G PATEL
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

I.T.A. NO.: 1029/AHD/2011 ASSESSMENT YEAR: 2007-08 PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABADD BENCH, AHMEDABAD [CORAM: PRAMOD KUMAR AM AND KUL BHARAT JM] I.T.A. NO.: 1029/AHD/2011 ASSESSMENT YEAR: 2007-08 AHMEDABAD STOCK STOCK EXCHANGE LTD., KAMDHENU COMPLEX, OPP: SAHAJANAND COLLEGE, PANJARAPOLE, AMBAWADI, AHMEDABAD ....................APPELLANT PAN AAFCA 4919E VS. DY. COMMISSIONER OF INCOME-TAX, CIRCLE-1, AHMEDABAD . .RESPONDENT APPEARANCES BY: M. G. PATEL......FOR THE APPELLANT P. L. KUREEL...... F OR THE RESPONDENT DATE OF CONCLUDING THE HEARING: JULY 14, 2015 DATE OF PRONOUNCING THE ORDER: JULY 23, 2015 O R D E R PER PRAMOD KUMAR, AM: BY WAY OF THIS APPEAL, THE ASSESSEE APPELLANT HAS CHALLENGED CORRECTNESS OF ORDER DATED 19.1.2011 PASSED BY THE LEARNED CIT(A) IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) OF THE IN COME-TAX ACT, 1961 FOR THE ASSESSMENT YEAR 2007-08. 2. IN THE FIRST AND SECOND GROUNDS OF APPEAL, THE A SSESSEE HAS RAISED THE FOLLOWING GRIEVANCES : 1. THE LD. CIT(A) VI, AHMEDABAD HAS ERRED IN LAW A S WELL AS ON FACTS OF THE CASE BY CONFIRMING THE ADDITION MADE BY THE LEA RNED ASSESSING OFFICER ON THE BASIS THAT THE AMOUNT OF RS.63,97,55 2/- DEDUCTED FROM I.T.A. NO.: 1029/AHD/2011 ASSESSMENT YEAR: 2007-08 PAGE 2 OF 5 GROSS INTEREST FOR TRANSFER TO OTHER FUNDS IS NOT A LLOWABLE DEDUCTION AND THE SAME IS TO BE TREATED AS INCOME OF THE APPELLAN T. 2. THE APPELLANT, THEREFORE, PRAYS THAT ADDITION OF RS.63,97,552/- MADE BY THE LD. A.O. BY DISALLOWING DEDUCTION CLAIMED IN RE SPECT OF INTEREST TRANSFERRED TO OTHER FUNDS BE DELETED FULLY. 3. LEARNED REPRESENTATIVES FAIRLY AGREE THAT THE IS SUE IS SQUARELY COVERED BY A DECISION DATED 23 RD JANUARY, 2015 OF THIS TRIBUNAL, IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2007-08, WHEREBY T HE COORDINATE BENCH HAS REMITTED THE MATTER TO THE FILE OF THE ASSESSIN G OFFICER WITH THE FOLLOWING OBSERVATIONS :- 7 WE HAVE HEARD BOTH THE SIDES AT SOME LENGTH. WE HAVE PERUSED THE COMPILATION FILED BEFORE US IN THE LIGHT OF THE CAS E LAWS CITED. WE ARE ABLE TO TRACE AN ACCOUNT IN THE COMPILATION PERTAINED TO BROKERS CONTINGENCY FUND IN WHICH THE ASSESSEE HAS CREDITED THE INTEREST ON LOAN AS GRANTED BY THE ASSESSEE AS WELL AS DEBITED AN AMOUNT GIVEN AS LOAN TO MEMBERS. REST OF THE ACCOUNTS WERE NOT FOUND IN THE COMPILATION ALTH OUGH IT WAS SPECIFICALLY ASKED TO REFER BUT LEARNED AR HAS FAILED TO INDICAT E THAT ACCOUNT. THE ISSUE HAS TO BE DECIDED IN THE LIGHT OF THE FACTS THAT IF THERE WAS AN OVERRIDING TITLE OF SEBI THEN THE ACCRUAL INTEREST CANNOT BE TAXED F ROM THE ASSESSEE. THE ASSESSEE IS EXPECTED TO PLACE ON RECORD THE SEBI GU IDELINES TO SUBSTANTIATE THE CREATION OF THE FUND. THE ASSESSEE IS THEREFORE DIRECTED TO PLACE ALL THE THREE ACCOUNTS TO ESTABLISH THAT THE INTEREST WAS M ADE PART AND PARCEL OF THE FUND AND NO PART OF THE INTEREST SO ACCRUED WAS THE INCOME OF THE ASSESSEE. THE ASSESSEE IS ALSO DIRECTED TO PLACE ON RECORD TH E SEBI GUIDELINES. WE, THEREFORE, RESTORE THIS ISSUE BACK TO THE STAGE OF THE AO TO CONSIDER ALL THESE THREE ACCOUNTS AND IF IT IS DEMONSTRATED THAT THE I NTEREST IS ACCRUED BUT FUNDS WERE TAKEN OUT FOR THE PURPOSE OF THE BENEFIT OF TH E MEMBERS AND THE ASSESSEE HAS NO BENEFIT OF ACCRUAL OF INTEREST THEN NATURALLY IN THE ABSENCE OF THE ELEMENT OF INCOME THE ADDITIONS SO MADE DESERVES TO BE DELETED. 7.1 WITH THESE REMARKS THE GROUNDS MAY BE TREATED A S ALLOWED BUT FOR STATISTICAL PURPOSE BEING RESTORED BACK FOR DE NOVO CONSIDERATION BY THE AO. 4. WE SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAKEN BY THE COORDINATE BENCH. RESPECTFULLY FOLL OWING THIS ORDER DATED 23 RD JANUARY, 2015, WHICH IS DEEMED TO BE ATTACHED AND F ORMING PART OF THIS ORDER AS WELL, WE REMIT THE MATTER TO THE FILE OF THE ASS ESSING OFFICER. THE OBSERVATIONS AND DIRECTIONS GIVEN IN THE SAID ORDER WILL APPLY MUTATIS MUTANDIS TO THIS ASSESSMENT YEAR AS WELL. I.T.A. NO.: 1029/AHD/2011 ASSESSMENT YEAR: 2007-08 PAGE 3 OF 5 5. GROUND NO.1 IS THUS ALLOWED FOR STATISTICAL PURP OSE. 6. IN GROUND NO.3, THE ASSESSEE HAS RAISED THE FOLL OWING GRIEVANCE : 3. THE LD. CIT(A)-VI, AHMEDABAD HAS ERRED IN LAW AS WELL AS ON FACTS OF THE CASE BY CONFIRMING THE DISALLOWANCE OF RS.2,00,000/ - MADE BY THE LD. A.O. BY INVOKING PROVISIONS OF SECTION 14A OF THE I.T. ACT. , 1961. 7. BRIEFLY STATED, THE MATERIAL FACTS ARE LIKE THIS . DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFI CER NOTICED THAT THE ASSESSEE HAS EARNED DIVIDEND INCOME OF RS.5,20,150/ - FROM IT SUBSIDIARY NAMELY ASE CAPITAL MARKETS LTD. THE ASSESSING OFFIC ER DID TAKE NOTE OF THE ASSESSEES CONTENTION THAT NO EXPENDITURE WAS INCUR RED TO EARN THIS INCOME, BUT, FOLLOWING THE PRESCRIPTION OF RULE 8D, THOUGH NOT STATING IT IN SO MANY WORDS, COMPUTED THE DISALLOWANCE AS FOLLOWS:- I. CALCULATION OF AVERAGE VALUE OF INVESTMENTS DETAILS OPENING CLOSING INVESTMENTS 4,00,00,000 4,00,00,000 AVERAGE VALUE OF INVESTMENTS 4,00,00,000 II. DIRECT EXPENSES INCURRED NIL III. DISALLOWANCE OF INTEREST NIL IV. DISALLOWANCE OF OTHER EXPENSES: 4,00,00,000 @ 0.50% = 2,00,000 TOTAL 2,00,000 HENCE, DISALLOWANCE U/S 14A OF THE I.T. ACT IS OF RS.2,00,000/- (DISALLOWANCE OF RS.2,00,000) 8. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BUT WITHOUT ANY SUCCESS. LD. CIT(A) CONFIRMED THE DISALLOWANCE BY S TATING AS FOLLOWS:- 4.3. I HAVE CONSIDERED THE FACTS OF THE CASE; ASS ESSMENT ORDER AND APPELLANTS SUBMISSION. IT IS SEEN THAT APPELLANT H AS SUBSTANTIAL INCOME EXEMPT FROM TAX. THIS IS ON INVESTMENTS MADE. APPEL LANT DID NOT HAVE ANY MAJOR BUSINESS OPERATIONS. IT WAS RECEIVING LISTING FEES, INTEREST AND DIVIDEND AND COLLECTION AND FACILITATION CHARGES FOR MEMBERS . AGAINST THESE INCOMES APPELLANT SPENT MORE THAN RS.2.5 CRORES AS ADMINIST RATIVE EXPENSE. THESE EXPENSES ARE FOR EMPLOYEES AND OTHER BUSINESS EXPEN SES. FOR EARNING DIVIDEND AND MANAGING INVESTMENTS ALONG WITH OTHER ACTIVITIES, APPELLANT INCURRED ADMINISTRATIVE AND OTHER EXPENSES. SINCE E XPENSES ARE COMMON, I.T.A. NO.: 1029/AHD/2011 ASSESSMENT YEAR: 2007-08 PAGE 4 OF 5 THE SAME CANNOT BE WORKED OUT WITH RESPECT TO EACH INCOME THEREFORE THE SAME HAS TO BE ALLOCATED TO THE VARIOUS INCOMES. SI NCE EXPENSES RELATING TO EXEMPT INCOME ARE NOT ALLOWABLE UNDER SECTION 14A, DISALLOWANCE OF SUCH EXPENSES RELATING TO DIVIDEND AND INVESTMENT IS REQ UIRED. ASSESSING OFFICER DISALLOWED RS.2 LAKHS AS AGAINST TOTAL EXPENSE OF R S.250 LAKHS. EVEN WITHOUT APPLYING RULE 8D, THE DISALLOWANCE OF EXPENSES RELA TING TO EXEMPT INCOME IS JUSTIFIED. SINCE THERE IS NO MERIT IN APPELLANTS A RGUMENT THAT THERE WAS NO EXPENSES IN MANAGING INVESTMENT AND EXEMPT INCOME, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER WHICH IS QUITE REASON ABLE CONSIDERING THE OVERALL EXPENSES CLAIMED, IS CONFIRMED. 9. THE ASSESSEE IS NOT SATISFIED AND IS IN FURTHER APPEAL BEFORE US. 10. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED TH E MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. 11. WE HAVE NOTED THAT THE INVESTMENT IS IN A SUBSI DIARY COMPANY AND IT IS NOT EVEN CASE OF THE ASSESSING OFFICER THAT THERE A RE ANY DIRECT EXPENSES INCURRED IN EARNING THIS DIVIDEND INCOME. AS THE OF FICE AND MANAGEMENT IS COMMON, NO INDIRECT EXPENSES CAN ALSO BE ATTRIBUTED TO EARNING OF THIS DIVIDEND INCOME. THE YEAR BEFORE US IS AN YEAR PRIO R TO RULE 8D COMING INTO EFFECT. IN VIEW OF THESE FACTS, AND FOLLOWING THE V IEW EXPRESSED BY A COORDINATE BENCH IN THE CASE OF GARWARE WALL ROPES LTD. VS. ACIT [(2014) 46 TAXMAN.COM 18 (MUMBAI TRIBUNAL)], WE ARE OF THE CON SIDERED VIEW THAT THE IMPUGNED DISALLOWANCE DESERVES TO BE DELETED. WE DO SO. 12. GROUND NO.2 IS THUS ALLOWED. 13. GROUND NO.4 BEING GENERAL IN NATURE DOES NOT CA LL FOR ANY ADJUDICATION. 14. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED TO-DAY IN THE OPEN COURT ON 23 RD DAY OF JULY, 2015. SD/- SD/- KUL BHARAT PRAMOD KUMAR (JUDICIAL MEMBER) (AC COUNTANT MEMBER) AHMEDABAD, THE 23RD DAY OF JULY, 2015 I.T.A. NO.: 1029/AHD/2011 ASSESSMENT YEAR: 2007-08 PAGE 5 OF 5 COPIES TO: (1) THE APPELLANT (2) THE RESPON DENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ETC ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD