Edelweiss Stock Broking Ltd., Ahmedabad V. The Addl.CIT.,Range-3, Ahmedabad

ITA 1168/AHD/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 76868 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 2 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-07-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 23-06-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 20-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P L KUREELSR
• Assessee Lawyers: VIJAY RANJAN
• Keywords: Depreciation; Earning of tax free income
• Section: 14A

Judgement Text

, , , , , , , , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD , ! ' #$ #$ #$ #$ %, ' BEFORE SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER $./ I.T.A. NO.1168/AHD/2011 ( ( )( ( )( ( )( ( )( / / / / ASSESSMENT YEAR : 2006-07) EDELWEISS STOCK BROKING LTD. ( FORMERLY KNOWN AS ANAGRAM STOCK BROKING LTD. ) ANAGRAM HOUSE NR.COMMERCE SIX ROAD STADIUM ROAD,NAVRANGPURA AHMEDABAD / VS. THE ADDL.CIT RANGE-3, AHMEDABAD '* ! $./+, $./ PAN/GIR NO. : AABCA 9956 F ( *- / // / APPELLANT ) .. ( ./*- / RESPONDENT ) *- 0 / APPELLANT BY : SHRI VIJAY RANJAN, AR ./*- 1 0 / RESPONDENT BY : SHRI P.L.KUREEL,SR.DR 2 1 ! / / / / DATE OF HEARING 23/06/2014 34) 1 ! / DATE OF PRONOUNCEMENT 11/07/2014 5 / O R D E R PER SHRI KUL BHARAT, JUDICIAL MEMBER : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE LD.COMMISSIONER OF INCOME TAX(APPEALS)-GANDHINAGAR (CIT(A) IN SHORT) DATED 31/01/2011 PERTAINING TO ASSESSMENT Y EAR (AY) 2006-07. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF A PPEAL:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) ERRED IN HOLDING THAT IT WAS A FIT CASE FOR EFFECTING SOM E DISALLOWANCE U/S.14A AND HAS FURTHER ERRED IN QUANTIFYING SUCH D ISALLOWANCE IN A SUM OF RS.2,10,000/-. ITA NO.1168/AHD /2011 EDELWEISS STOCK BROKING LTD. VS. ADDL.CIT ASST.YEAR 2006-07 - 2 - 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) ERRED IN UPHOLDING DISALLOWANCE OF DEPRECIATION O THE MEM BERSHIP OF THE STOCK EXCHANGE WHICH ENABLES THE ASSESSEE TO KEY-IN THE TRANSACTIONS ON THE SCREEN BASED PLATFORM OF THE ST OCK EXCHANGE. 3. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND AND /OR WITHDRAW ANY GROUND OR GROUNDS OF APPEAL EITHER BEFORE OR DU RING THE COURSE OF HEARING OF THE APPEAL. 2. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME DECLARING INCOME OF RS.11,56,61,350/-. THE CASE OF THE ASSESSEE WAS PICKED UP FOR SCRUTINY ASSESSMENT AND THE ASSESSMEN T U/S.143(3) OF THE INCOME TAX ACT,1961 (HEREINAFTER REFERRED TO AS TH E ACT) WAS FRAMED VIDE ORDER DATED 29/12/2008, THEREBY THE ASSESSING OFFICER (AO IN SHORT) MADE VARIOUS DISALLOWANCES INCLUDING THE DISALLOWAN CE U/S.14A OF THE ACT AND DEPRECIATION AMOUNTING TO RS.31,51,388/- ON BOMBAY STOCK EXCHANGE MEMBERSHIP CARD. AGAINST THIS, THE ASSES SEE FILED AN APPEAL BEFORE THE LD.CIT(A), WHO AFTER CONSIDERING THE SUB MISSIONS OF THE ASSESSEE, PARTLY ALLOWED THE APPEAL. WHILE ALLOWIN G THE APPEAL, THE LD.CIT(A) RESTRICTED THE DISALLOWANCE U/S.14A TO TH E EXTENT OF RS.2,10,000/- AND SUSTAINED THE DISALLOWANCE OF DEP RECIATION AMOUNTING TO RS.31,51,388/-. 3. FIRST GROUND IS AGAINST THE DISALLOWANCE MADE U/ S.14A OF THE ACT. THE LD.COUNSEL FOR THE ASSESSEE REITERATED THE SUBM ISSIONS AS WERE MADE IN THE STATEMENT OF FACTS-CUM-SYNOPSIS AND SUBMITTE D THAT THERE WERE SUFFICIENT INTEREST-FREE FUNDS. HE ALSO SUBMITTED THAT THE AO WRONGLY APPLIED RULE8-D SINCE THE ASSESSMENT IN QUESTION IS PERTAINING TO A.Y.2006-07. HE PLACED RELIANCE ON THE JUDGEMENT OF HONBLE KERALA HIGH COURT RENDERED IN THE CASE OF CIT VS. CATHOLIC SYRIAN BANK LTD. ITA NO.1168/AHD /2011 EDELWEISS STOCK BROKING LTD. VS. ADDL.CIT ASST.YEAR 2006-07 - 3 - REPORTED AT (2011 9 TAXMANN.COM 148 (KER.), DATED 2 1/0/2010, DECISION OF COORDINATE BENCH (ITAT A BENCH AHMEDABAD) REND ERED IN THE CASE OF M/S.E-INFOCHIPS LTD. VS. ADDL.CIT, DATED 31/12/2 013 AND DECISION OF THE COORDINATE BENCH (ITAT B BENCH AHMEDABAD) REN DERED IN THE CASE OF SAFAR REALITY P.LTD. VS. ACIT(OSD), DATED 2 9/11/2013. 4. ON THE CONTRARY, LD.SR.DR SUPPORTED THE ORDERS O F THE AUTHORITIES BELOW AND SUBMITTED THAT THEE IS NO INFIRMITY IN TH E ORDERS OF THE AUTHORITIES BELOW. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE DECISIONS RELIED UPON BY THE LD.COUN SEL FOR THE ASSESSEE. THE CONTENTION OF THE ASSESSEE IS THAT INTEREST INC OME OF RS.7.54 CRORES IS MORE THAN THE TOTAL INTEREST OUTGO OF RS.2.29 CRORE S AND THUS THERE IS NET INTEREST INCOME OF RS.5.25 CRORES. THEREFORE, IT C ANNOT BE SAID THAT THE ASSESSEE HAS CLAIMED ANY EXPENDITURE ON INTEREST. THIS IS SO BECAUSE IN ASSESSEES CASE THERE IS A COMMON POOL OF INTEREST INCOME AND INTEREST OUTGO. THE AO INVOKED THE PROVISIONS OF SECTION 14 A OF THE ACT ON THE BASIS THAT THE ASSESSEE HAS SHOWN DIVIDEND INCOME O F RS.1,25,000/- AND CLAIMED THE SAME AS EXEMPT INCOME, NO AMOUNT HAS BE EN OFFERED FOR DISALLOWANCE U/S.14A OF THE ACT BY THE ASSESSEE. T HE AO APPLIED RULE- 8D AND MADE DISALLOWANCE OF RS.4,83,284/- BEING TOT AL OF INTEREST EXPENSES AND ADMINISTRATIVE EXPENSES. THE LD.CIT(A ) RESTRICTED THE SAME TO THE EXTENT OF RS.2,10,000/- OUT OF WHICH RS.1,60 ,000/- WAS AGAINST THE INTEREST EXPENSES AND RS.50,000/- WAS TOWARDS THE A DMINISTRATIVE ITA NO.1168/AHD /2011 EDELWEISS STOCK BROKING LTD. VS. ADDL.CIT ASST.YEAR 2006-07 - 4 - EXPENSES. THE RELIANCE HAS BEEN PLACED BY THE LD.C OUNSEL FOR THE ASSESSEE ON THE JUDGEMENT OF HONBLE KERALA HIGH COURT IN TH E CASE OF CIT VS. CATHOLIC SYRIAN BANK LTD.(SUPRA), WHEREIN THE HONB LE KERALA HIGH COURT HAS HELD THAT SO FAR AS THE DISALLOWANCE OF A DMINISTRATIVE EXPENDITURE IS CONCERNED, WE FEEL CONSIDERING THE F ACT THAT THERE IS NO PRECISE FORMULA FOR PROPORTIONATE DISALLOWANCE, NO DISALLOWANCE IS CALLED FOR, FOR PROPORTIONATE ADMINISTRATIVE COST ATTRIBUT ABLE TO EARNING OF TAX FREE INCOME UNTIL RULE 8D CAME INTO FORCE. WE, THE REFORE, DISPOSE OF THE APPEALS BY SETTING ASIDE THE ORDERS OF THE TRIBUNAL AND THAT OF THE FIRST APPELLATE AUTHORITY ON THIS ISSUE AND REMAND ALL TH E ASSESSMENTS BACK TO THE ASSESSING OFFICER FOR REWORKING DISALLOWANCE UN DER SECTION 14A IN THE CASE OF EACH ASSESSEE FOR EACH ASSESSMENT YEAR. THE PROPORTIONATE DISALLOWANCE UNDER SECTION 14A SHOULD BE LIMITED TO ONLY INTEREST LIABILITY AND NOT OVERHEADS OR ADMINISTRATIVE EXPEN DITURE; WHICH SHOULD BE CONSIDERED FOR DISALLOWANCE UNDER RULE 8D FROM 2 007-08 ONWARDS. IN THIS CASE, THE ASSESSMENT YEAR INVOLVED IS 2006-07, THEREFORE THE DISALLOWANCE OF ADMINISTRATIVE EXPENSES IS NOT JUST IFIED. HENCE, THE AO IS DIRECTED TO DELETE THE ADDITION OF RS.50,000/- A S SUSTAINED BY THE LD.CIT(A). 5.1. IN RESPECT OF THE DISALLOWANCE ON INTEREST PO RTION, THE LD.COUNSEL FOR THE ASSESSEE HAS DRAWN OUT ATTENTION TOWARDS BA LANCE-SHEET, WHEREIN THE ASSESSEE HAS SUFFICIENT INTEREST-FREE FUNDS FOR MAKING INVESTMENTS INTO THE ASSETS FROM WHICH THE ASSESSEE HAS EARNED EXEMP T INCOME. SINCE THE ASSESSEE WAS HAVING SUFFICIENT INTEREST-FREE FUNDS, THEREFORE THE DISALLOWANCE OF INTEREST PART IS NOT JUSTIFIED IN T HE LIGHT O THE JUDGEMENT ITA NO.1168/AHD /2011 EDELWEISS STOCK BROKING LTD. VS. ADDL.CIT ASST.YEAR 2006-07 - 5 - OF HONBLE APEX COURT RENDERED IN THE CASE OF MUNJA L SALES CORPORATION VS. CIT REPORTED AT (2008) 298 ITR 298 (SC), DECIS ION OF COORDINATE BENCH (ITAT A BENCH AHMEDABAD) RENDERED IN THE CA SE OF TORRENT FINANCIERS VS. ACIT REPORTED AT (2001)73 TTJ 624 AN D THE JUDGEMENT OF HONBLE BOMBAY HIGH COURT RENDERED IN THE CASE OF C IT VS. RELIANCE UTILITIES & POWER LTD. REPORTED AT (2009) 313 ITR 3 40 (BOM.). THEREFORE, WE DIRECT THE AO TO DELETE THE ADDITION MADE ON THE INTEREST EXPENSES AMOUNTING TO RS.1,50,000/-. THUS, THIS GR OUND OF ASSESSEES APPEAL IS ALLOWED. 6. GROUND NO.2 IS AGAINST DISALLOWANCE OF DEPRECIAT ION ON THE MEMBERSHIP OF THE STOCK EXCHANGE CARD. THE LD.COUN SEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS AS WERE MADE IN THE STAT EMENT OF FACTS-CUM- SYNOPSIS. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTE D THAT THE ISSUE IS SQUARELY COVERED BY THE JUDGEMENT OF COORDINATE BEN CH (ITAT MUMBAI G BENCH AHMEDABAD) RENDERED IN THE CASE OF M/S.GR ISHMA SECURITIES PVT.LTD. VS. ITO IN ITA NO.6098/M/2010 FOR AY 2007- 08, DATED 29/03/2011. 6.1. ON THE CONTRARY, LD.SR.DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE DECISION RELIED UPON BY THE LD.COUNS EL FOR THE ASSESSEE. ITA NO.1168/AHD /2011 EDELWEISS STOCK BROKING LTD. VS. ADDL.CIT ASST.YEAR 2006-07 - 6 - THE LD.CIT(A) HAS DECIDED THIS ISSUE IN PARA-8 OF H IS ORDER BY OBSERVING AS UNDER:- 8. THE TRADING RIGHTS WHICH HAVE BEEN CONFERRED U PON THE ERSTWHILE CARD HOLD OF BSE AFTER ITS CORPORATIZATION AND DEMU TUALIZATION HAS NO VALUE IS EVIDENT FROM THE PROVISIONS OF PROVISO TO SECTION 55(2)(AB) OF THE ACT WHICH HAS BEEN BROUGHT ON A STATUE BY THE F INANCE ACT 2003 W.E.F. 01/04/2004. IN PRESENT CASE UNDER CONSIDERA TION, IT IS ADMITTED FACT THAT THE ASSESSEE HAS BEEN ALLOTTED EQUITY SHA RES UNDER THE BSE CORPORATIZATION AND DEMUTULIZATION SCHEME 2005 AND SAME IS EVIDENT FROM THE BALANCE SHEET WHERE UNDER THE HEAD INVESTM ENT OF RS.10000 EQUITY SHARES OF BSE LIMITED HAS BEEN REFLECTED. O NCE THE ASSESSEE HAS BEEN ALLOTTED EQUITY SHARES OF BSE LIMITED UNDER SC HEME THEN AS PER PROVISIONS OF SECTION 55(2)(AB), THE COST OF ACQUIS ITION OF TRADING AND CLEARING RIGHT SHALL BE DEEMED TO BE NIL HENCE DEPR ECIATION CANNOT BE ALLOWED. CONSIDERING THE SAME, DISALLOWANCE MADE B Y AO IS UPHELD AND RELATED GROUND OF APPEAL IS DISMISSED. 7.1. WE FIND THAT THE COORDINATE BENCH IN ITA NO.60 98/M/2010 FOR AY 2007-08 IN THE CASE OF M/S.GRISHMA SECURITIES PVT.L TD. VS. ITO (SUPRA), HAS HELD AS UNDER:- 2. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE REC ORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING ALLO WABILITY OF DEPRECIATION ON A STOCK EXCHANGE CARD. UNDER THE PR OVISIONS OF SECTION 32(1)(II) DEPRECIATION IS ALLOWABLE ON CERTAIN INTA NGIBLE ASSETS SUCH AS KNOW HOW, PATENTS, COPY RIGHTS AND LICENSE ETC. EAR LIER THE HON'BLE HIGH COURT OF MUMBAI IN CASE OF TECHNO SHARES AND S TOCK LTD. (SUPRA) HAD HELD THAT STOCK EXCHANGE CARD WAS NOT COVERED U NDER SECTION 32(1)(II) AND THEREFORE DEPRECIATION WAS NOT ALLOWA BLE. HOWEVER THE SAID JUDGMENT OF THE BOMBAY HIGH COURT HAS RECENTLY BEEN CONSIDERED BY THE HON'BLE SUPREME COURT IN THE SAME CASE AND I T WAS HELD THAT STOCK EXCHANGE CARD IS AKIN TO A LICENSE AND THEREF ORE IT IS COVERED UNDER SECTION 32(1)(II) AND DEPRECIATION IS ALLOWAB LE. WE THEREFORE RESPECTFULLY FOLLOWING THE SAID JUDGMENT OF HON'BLE SUPREME COURT, SET ASIDE THE ORDER OF CIT(A) AND ALLOWED THE CLAIM OF THE ASSESSEE. 7.2. SINCE THE FACTS ARE IDENTICAL AND NO CHANGE IN TO THE FACTS AND CIRCUMSTANCES HAS BEEN POINTED OUT BY THE LD.SR.DR, WE HAVE NO REASON ITA NO.1168/AHD /2011 EDELWEISS STOCK BROKING LTD. VS. ADDL.CIT ASST.YEAR 2006-07 - 7 - TO TAKE A DIFFERENT VIEW THAN TAKEN BY THE COORDINA TE BENCH IN THE CASE OF M/S.GRISHMA SECURITIES PVT.LTD.(SUPRA). THUS, THIS GROUND OF ASSESSEES APPEAL IS ALLOWED. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN COURT ON THE DATE MENTIONED HER EINABOVE AT CAPTION PAGE SD/- SD/- ( ) ( %) ! ' ' ( ANIL CHATURVEDI ) ( KUL BHARAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 11/ 07 /2014 8.., .../ T.C. NAIR, SR. PS 5 1 .9 : 9) 5 1 .9 : 9) 5 1 .9 : 9) 5 1 .9 : 9)/ COPY OF THE ORDER FORWARDED TO : 1. *- / THE APPELLANT 2. ./*- / THE RESPONDENT. 3. $$ ; / CONCERNED CIT 4. ;() / THE CIT(A)-GANDHINAGAR 5. 9%< . , , / DR, ITAT, AHMEDABAD 6. <=( >2 / GUARD FILE. 5 5 5 5 / BY ORDER, /9 . //TRUE COPY// ? ?? ?/ // / $+ $+ $+ $+ ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 03.07.14 (DICTATION-PAD 11- PAGES ATTACHED AT THE END OF THIS FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 04.07.14 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 5. DATE ON WHICH FAIR ORDER PLACED BEFORE OTHER MEMBER 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.11.7.14 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 11.7.14 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER