The ACIT,A'bad, Circle-3, Ahmedabad V. Anagram Capital Ltd., Ahmedabad

ITA 1181/AHD/2011

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 1253 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 5 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 09-09-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 21-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R P MAURYA
• Assessee Lawyers: P M MEHTA
• Keywords: Depreciation; Earning of tax free income
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD - , , BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER ./ I.T.A. NO.1181/AHD/2011 ( / ASSESSMENT YEAR : 2006-07) THE ACIT AHMEDABAD CIRCLE-3 AHMEDABAD / VS. ANAGRAM CAPITAL LTD. (FORMERLY KNOWN AS ANAGRAM SECURITIES LTD.) ANAGRAM HOUSE NR.COMMERCE SIX ROAD NAVRANGPURA, AHMEDABAD-9 $ ./ ./ PAN/GIR NO. : AABCA 2916 K ( $' / APPELLANT ) .. ( ()$' / RESPONDENT ) AND CO NO.158/AHD/2011 AY 2006-07 (IN ITA NO.1181/AHD/2011 AY 2006-07) EDELWEISS FINANCIAL ADVISORS LTD. .. THE ACIT (FORMERLY KNOWN AS ANAGRAM CAPITAL LTD.) AHMEDABAD CIRCLE-3 AHMEDABAD AHMEDABAD (CROSS OBJECTOR) VS. (RESPONDENT) REVENUE BY : SHRI R.P.MAURYA, SR.DR ASSESSEE BY : SHRI P.M. MEHTA, AR *+ , - / DATE OF HEARING 09/09/2015 ./ , - / DATE OF PRONOUNCEMENT 09/10/2015 / O R D E R PER SHRI KUL BHARAT, JUDICIAL MEMBER : THE REVENUE AND THE ASSESSEE HAVE CHALLENGED THE O RDER OF THE LD.COMMISSIONER OF INCOME TAX(APPEALS)-GANDHINAGAR CIT(A) IN ITA NO.1181/AHD/2011 (BY REVENUE) AND CO NO.158/AHD/2011 (BY ASSESSEE) ACIT VS. ANAGRAM CAPITAL LTD. ASST.YEAR 2006-07 - 2 - SHORT] DATED 31/01/2011 BY FILING THE APPEAL AND C ROSS OBJECTION RESPECTIVELY PERTAINING TO ASSESSMENT YEAR (AY) 200 6-07. 2. FIRST, WE TAKE UP THE REVENUES APPEAL IN ITA NO .1181/AHD/2011 FOR AY 2006-07. THE REVENUE HAS RAISED THE FOLLOWI NG GROUNDS OF APPEAL: 1. THE LD.CIT(A) ERRED IN LAW AND ON FACTS IN DELE TING THE ADDITION OF RS.2,38,675/- ON ACCOUNT OF DISALLOWANCE OF NSE PENALTY EXPENSES. 2. THE LD.CIT(A) ERRED IN LAW AND ON FACTS IN DELET ING THE ADDITION OF RS.1,82,398/- ON ACCOUNT OF DISALLOWANCE OF INTE REST. 3. THE LD.CIT(A) ERRED IN LAW AND ON FACTS IN RES TRICTING THE ADDITION TO RS.6,00,000/- OUT OF TOTAL ADDITION OF RS.44,42,330 MADE U/S.14A OF THE ACT TOWARDS INTEREST AND OTHER ADMINISTRATIVE EXPENSES. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFF ICER TO THE EXTENT MENTIONED ABOVE, SINCE THE ASSESSEE HAS FAILED TO D ISCLOSE HIS TRUE INCOME. THE APPELLANT PRAYS THAT THE ORDER OF CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE AO BE RESTORED. THE APPE LLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 2.1. BRIEFLY STATED FACTS ARE THAT THE CASE OF THE ASSESSEE WAS PICKED UP FOR SCRUTINY ASSESSMENT AND THE ASSESSMENT U/S.143( 3) OF THE INCOME TAX ACT,1961 (HEREINAFTER REFERRED TO AS THE ACT) WAS FRAMED VIDE ORDER DATED 29/12/2008, THEREBY THE ASSESSING OFFICER (AO IN SHORT) MADE DISALLOWANCE OF NSE PENALTY OF RS.2,38,675/-, DISAL LOWANCE OF LOSS OF ITA NO.1181/AHD/2011 (BY REVENUE) AND CO NO.158/AHD/2011 (BY ASSESSEE) ACIT VS. ANAGRAM CAPITAL LTD. ASST.YEAR 2006-07 - 3 - SALE STOCK-IN-TRADE TREATED AS DEEMED SPECULATION T RANSACTION OF RS.25,39,171/- DISALLOWANCE OF INTEREST OF RS.1,82, 398/-, DISALLOWANCE OF EXCESS DEPRECIATION OF RS.25,23,437/- AND DISALLOWA NCE BY INVOKING PROVISIONS OF SECTION 14A OF THE ACT OF RS.44,42,33 0/-. HENCE, THE AO COMPUTED TOTAL INCOME OF RS.8,29,48,340/- AS AGAINS T THE INCOME DECLARED BY THE ASSESSEE OF RS.7,30,51,672/-. THE ASSESSEE BEING AGGRIEVED BY THE ASSESSMENT ORDER, PREFERRED AN APP EAL BEFORE THE LD.CIT(A), WHO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE PARTLY ALLOWED THE APPEAL. THE LD.CIT(A) WHILE PARTLY ALL OWING THE APPEAL, DELETED THE ADDITION OF RS.2,38,675/- MADE ON DISA LLOWANCE IN RESPECT OF NSE PENALTY, DELETED THE ADDITION OF RS.25,39,171/- MADE ON DISALLOWANCE IN RESPECT OF SALE STOCK IN TRADE TREA TED AS DEEMED SPECULATION TRANSACTION, DELETED THE ADDITION OF RS .1,82,398/- MADE ON DISALLOWANCE IN RESPECT OF INTEREST AND CONFIRMED ADDITION OF RS.25,23,437/- MADE ON DISALLOWANCE IN RESPECT OF E XCESS DEPRECIATION AND ALSO RESTRICTED THE ADDITION OF RS.44,42,330/- MADE ON DISALLOWANCE U/S.14A OF THE ACT TO THE EXTENT OF RS.6 LACS. AGG RIEVED BY THE ORDER OF THE LD.CIT(A), THE REVENUE IS NOW IN APPEAL BEFORE US. 3. FIRST GROUND OF THIS APPEAL IS AGAINST THE DELET ION OF ADDITION OF RS.2,38,675/-. THE LD.SR.DR SUPPORTED THE ORDER OF THE AO AND SUBMITTED THAT THE LD.CIT(A) WAS NOT JUSTIFIED IN D ELETING THE ADDITION(S). ITA NO.1181/AHD/2011 (BY REVENUE) AND CO NO.158/AHD/2011 (BY ASSESSEE) ACIT VS. ANAGRAM CAPITAL LTD. ASST.YEAR 2006-07 - 4 - HE SUBMITTED THAT THE EXPENDITURE WAS CLAIMED BY TH E ASSESSEE AS A PENALTY LEVIED BY NSE. 3.1. ON THE CONTRARY, LD.COUNSEL FOR THE ASSESSEE S UPPORTED THE ORDER OF THE LD.CIT(A) AND SUBMITTED THAT THIS ISSUE IS COVE RED IN FAVOUR OF ASSESSEE BY THE DECISION OF THE TRIBUNAL AS RELIED UPON BY THE LD.CIT(A) RENDERED IN THE CASE OF GOLDCREST CAPITAL MARKETS LTD. VS. ITO REPORTED AT (2010) 130 TTJ (MUM) 446:: (2010) 36 DTR 177 (MU M.)(TRIB.). 4. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE LD.CIT(A) HAS DECIDED THE ISSUE BY OBSERVING AS UNDER:- 3.2. I HAVE CAREFULLY CONSIDERED THE ASSESSMENT OR DER AND SUBMISSION MADE BY THE APPELLANT. THE APPELLANT HA S MADE PAYMENT OF PENALTY TO NSE FOR VIOLATION OF ITS RULE S AND REGULATIONS. WHAT IS PROVIDED UNDER THE EXPLANATIO N 37 (1) IS THAT ANY PERSON WHO VIOLATES ANY LAW OF THE LAND OR WHO COMMITS AN OFFENCE WHICH IS PROHIBITED BY LAW, EXPENDITURE INCURRED IN CONNECTION WITH THIS VIOLATION OF LAW ARE NOT ALLOW ABLE. THE PENALTY PAYMENT TO NSE CANNOT BE TERMED AS VIOLATIO N OF LAW. WITH REGARDS TO THE DECISION OF HAJI AZIZ & ABDUL S HAKOOR BROS VS. CIT 41 ITR 350 RELIED UPON BY ASSESSING OFFICER , IT IS A CASE WHERE THAT ASSESSES IMPORTED DATE FROM IRAQ WHICH P ROHIBITED. THE PROVISIONS OF SEAS CUSTOMS ACT FOR THE VIOLATIO N OF THE RELEVANT PROVISIONS OF THE ACT AND THERE WAS NO QUE STION OF COMPENSATORY ELEMENT BEING PART OF SUCH PENALTY. EVEN, THE FACTS OF CIT VS. MADDI VENKATARANTNAM & CO. RELIED UPON B Y AO CANNOT BE APPLIED TO THE PRESENT CASE AS IN THAT CA SE PAYMENTS WERE MADE IN VIOLATION OF FERA PROVISIONS. ITA NO.1181/AHD/2011 (BY REVENUE) AND CO NO.158/AHD/2011 (BY ASSESSEE) ACIT VS. ANAGRAM CAPITAL LTD. ASST.YEAR 2006-07 - 5 - IN THE CASE OF APPELLANT, PAYMENT IS TOWARDS COMPEN SATION FOR DELAYED SUBMISSION OF COMPLIANCE REPORT TO NSE AND THAT TOO WHICH IS NOT AN OFFENCE OR TOWARDS INFRACTION OF LA W. IT VIEW OF AFORESAID FACTS, RATIO OF AFORESAID DECISION RELIED UPON BY AO IS NOT APPLICABLE TO THE FACTS OF CASE OF APPELLANT. THE CASE OF APPELLANT IS SQUARELY COVERED BY DECISION OF HONBL E MUMBAI I.T.A.T. IN CASE OF CREST CAPITAL MARKET VS. ITO RE FERRED SUPRA AND RESPECTFULLY FOLLOWING SAID ORDER, ADDITION MADE BY THE ASSESSING OFFICER IS DELETED. 4.1. WE FIND THAT THE LD.CIT(A) HAS FOLLOWED THE DE CISION OF THE COORDINATE BENCH (ITAT MUMBAI) PASSED IN ITA NOS .1240 & 1241/MUM/2006 IN THE CASE OF GOLDCREST CAPITAL MARK ETS LT. VS. ITO REPORTED AT (210) 36 DTR 177(MUM.)(TRIB.). THE LD. SR.DR COULD NOT POINT OUT AS TO HOW THE FACTS OF THIS CASE ARE DIFF ERENT. THEREFORE, IN VIEW OF THE DECISION OF THE COORDINATE BENCH-SUPRA, WE D O NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE LD.CIT(A), SAME IS HEREBY UPHELD. THUS, THIS GROUND OF REVENUES APPEAL IS REJECTED. 5. SECOND GROUND OF THIS APPEAL IS AGAINST THE DELE TION OF ADDITION OF RS.1,82,398/- MADE ON ACCOUNT OF DISALLOWANCE OF IN TEREST. THE LD.SR.DR SUPPORTED THE ORDER OF THE AO AND SUBMITTED THAT TH E LD.CIT(A) WAS NOT JUSTIFIED IN DELETING THE ADDITION. THE LD.SR.DR S UBMITTED THAT THE AO HAS GIVEN A FINDING ON FACT THAT THE ASSESSEE HAS G IVEN ADVANCES TO ITA NO.1181/AHD/2011 (BY REVENUE) AND CO NO.158/AHD/2011 (BY ASSESSEE) ACIT VS. ANAGRAM CAPITAL LTD. ASST.YEAR 2006-07 - 6 - ASSOCIATED-CONCERN ON WHICH NO INTEREST HAS BEEN CH ARGED, WHEREAS THE ASSESSEE HAS PAID THE INTEREST @12%. 5.1. ON THE CONTRARY, THE LD.COUNSEL FOR THE ASSESS EE SUPPORTED THE ORDER OF THE LD.CIT(A) AND SUBMITTED THAT THERE IS NO INF IRMITY IN THE ORDER OF THE LD.CIT(A). HE SUBMITTED THAT SIMILAR DISALLOWA NCE WAS MADE IN THE EARLIER YEARS. IN THE AY 2004-05, THE MATTER TRAV ELLED UPTO THE STAGE OF TRIBUNAL AND THE TRIBUNAL HAD DELETED THE DISALLOWA NCE AND THE DISALLOWANCE MADE IN AY 2005-06 WAS DELETED BY THE PREDECESSOR OF THE LD.CIT(A). 6. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE REVENUE HAS NOT POINTED OUT AS TO HOW THE FACTS ARE DIFFERENT IN THE ASSESSMENT YEAR UNDER APPEAL. THEREFORE, TAKING A CONSISTENT VIEW, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER O F THE LD.CIT(A), SAME IS HEREBY UPHELD. THUS, THIS GROUND OF REVENUES APP EAL IS REJECTED. 7. THIRD GROUND OF THIS APPEAL IS AGAINST RESTRICTI NG THE ADDITION TO RS.6 LACS OUT OF TOTAL ADDITION RS.44,42,330/- MADE U/S.14A OF THE ACT. THE LD.SR.DR VEHEMENTLY ARGUED THAT THE LD.CIT(A) W AS NOT JUSTIFIED IN RESTRICTING THE ADDITION. HE PLACED RELIANCE ON TH E ASSESSMENT ORDER. ITA NO.1181/AHD/2011 (BY REVENUE) AND CO NO.158/AHD/2011 (BY ASSESSEE) ACIT VS. ANAGRAM CAPITAL LTD. ASST.YEAR 2006-07 - 7 - 7.1. ON THE CONTRARY, THE LD.COUNSEL FOR THE ASSESS EE SUBMITTED THAT THE AO MADE DISALLOWANCE BY INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT AND APPLYING THE RULE 8D OF THE IT RULES, 1962, BUT THE ASSESSMENT ORDER IS INVOLVED IN THIS APPEAL IS AY 2006-07 AND, THEREFORE RULE 8D IN THIS YEAR IS NOT APPLICABLE. HE SUBMITTED THAT THE INTEREST INCOME OF RS.6.29 CRORES IS MORE THAN THE TOTAL INTEREST OUTG O OF RS.4.50 CRORES AND, THUS, THERE IS NET INTEREST INCOME OF RS.1.79 CRORE S. THEREFORE, IT CANNOT BE SAID THAT THE ASSESSEE HAS CLAIMED ANY EXPENDITU RE ON INTEREST. HE SUBMITTED THAT THIS IS SO BECAUSE IN ASSESSEES CAS E THERE IS A COMMON POOL OF INTEREST INCOME AND INTEREST OUTGO. THER EFORE, NETTING OF INTEREST IS REQUIRED IN THE LIGHT OF JUDGEMENT OF HONBLE AP EX COURT IN THE CASE OF KESHAVJI RAVJI & CO. VS. CIT REPORTED AT (1990) 18 3 ITR 01(SC). THIS JUDGEMENT OF THE HONBLE APEX COURT HAS BEEN APPLIE D BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. WI NTEX MILLS LTD. REPORTED AT (2000) 245 ITR 266 (GUJ.). FURTHER, L D.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE DIVIDEND INCOME EARNED IS OF RS.3 LACS. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT TH E RULE-8D IS NOT APPLICABLE IN THE YEAR UNDER APPEAL. THE LD.CIT(A) HAS DECIDED THIS ISSUE BY OBSERVING AS UNDER:- ITA NO.1181/AHD/2011 (BY REVENUE) AND CO NO.158/AHD/2011 (BY ASSESSEE) ACIT VS. ANAGRAM CAPITAL LTD. ASST.YEAR 2006-07 - 8 - 7.2 I HAVE CAREFULLY CONSIDERED THE SUBMISSION MA DE BY APPELLANT AND OBSERVATION MADE BY THE ASSESSING OFFICER. I FOLLOW THE DECISION OF HON'BLE MUMBAI HIGH COURT IN THE CASE OF GODREJ & B OYCE MFG. CO. LTD THAT RULE 8D IS NOT APPLICABLE FOR AY 2007-08. HOWEVER, THE EXPENSES WHICH ARE INCURRED IN RELATION TO EARNING SUCH INCOME WERE STILL TO BE APPORTIONED, AS HELD BY THE HON'BLE HIG H COURT. THE ASSESSEE'S CASE INVOLVES A NUMBER OF FADS AND CIRCU MSTANCES WHICH MAKES THE APPORTIONMENT OF INTEREST EXPENSES A VERY DIFFICULT TASK . THE FOLLOWING OBSERVATIONS ARE MADE REGARDING THE FUNDS BOTH SELF AND BORROWED AVAILABLE WITH .. A) THE ASSESSEE WAS GIVEN A TASK TO ESTABLISH DIREC T NEXUS WITH HIS OWN FUNDS OR BORROWED FUNDS ON THE DATE THE INVESTM ENTS ON WHICH NO INCOME IS TAXABLE WERE MADE. THE ASSESSEE COULD NOT ESTABLISH THIS. B) IT IS A FACT THAT THE ASSESSEE HAS SUBSTANTIAL O WN FUNDS AND LESSER BORROWED FUNDS. ALTHOUGH THEORETICALLY THE I NVESTMENTS IN THE PRESENT YEAR COULD BE CLAIMED TO BE MADE FROM O WN FUNDS, BUT THE POSSIBILITY OF BORROWED FUNDS BEING USED FO R THE PURPOSE CANNOT BE CATEGORICALLY RULED OUT. C) THE ASSESSEE HAD TOTAL 6.29 CRORES AS INTEREST I NCOME (1.40 CRORES FROM FDR AND 4.88 CRORES FROM DELAYED PAYMEN TS RECEIVED FROM CLIENTS OF BUSINESS); AND AGAINST THI S THE ASSESSEE HAD TOTAL INTEREST EXPENDITURE OF 4.50 CRORE (1.88 CRORES PAID TO CLIENTS OF BUSINESS, 2.20 CRORES PAID TO BANK AND 4 0 LACS TO OTHERS). IN THIS WAY THE ASSESSEE HAS ACTUALLY EARN ED NET INTEREST OF 1.79 CRORES. THE APPORTIONMENT OF INTEREST EXPENSES IN THE ABOVE CIRCUMSTANCES, CONSIDERING THE ABOVE FACTS WITH ASSESSEE HAVING CO NSIDERABLE SURPLUS OWN MONEY, NET INTEREST INCOME RATHER THAN EXPENSE, BUT NO DIRECT NEXUS PROVABLE ONE WAY OR THE OTHER; CAN BEST BE AN ESTIM ATE. 1.88 CRORES PAID TO CLIENTS OF BUSINESS IS WHOLLY AND 2.20 CROR ES PAID TO BANK IS MAINLY RELATED TO PAYMENT FOR DEPOSITING MARGIN MON EY'S WHICH HAS ITA NO.1181/AHD/2011 (BY REVENUE) AND CO NO.158/AHD/2011 (BY ASSESSEE) ACIT VS. ANAGRAM CAPITAL LTD. ASST.YEAR 2006-07 - 9 - BEEN MORE THAN OFFSET BY INTEREST INCOME FROM CLIEN TS. THE REMAINING INTEREST CAN BE SAID TO BE POSSIBLY PAID FOR PARTLY BUSINESS ASSETS AND PARTLY FOR INVESTMENTS, THAT TOO WHICH HAVE NOT BEE N MET FROM OWN FUNDS. IN TOTALITY OF CIRCUMSTANCES, PARTICULARLY L OOKING AT HUGE OWN FUNDS AND SURPLUS INTEREST INCOME; AND IN ABSENCE O F PROOF THAT BORROWED FUNDS HAVE AT ALL NOT BEEN USED FOR MAKING INVESTMENTS EARNING NON-TAXABLE INCOME; I CONSIDER IT REASONABL E TO APPORTION RS.4 LACS AS INTEREST COST TO BE DISALLOWED UNDER S ECTION 14 A. THE REMAINING ADDITION ON ACCOUNT OF DISALLOWANCE OF IN TEREST IS DELETED. FURTHER, A REASONABLE DISALLOWANCE HAS TO BE MADE T O FROM ADMINISTRATIVE EXPENSES EVEN IF THE APPELLANT DENIE S THAT EXPENDITURE WAS INCURRED FOR EARNING EXEMPTED INCOME. CONSIDERI NG THE INVESTMENTS MADE BY APPELLANT AND DIVIDEND THE DISALLOWANCE I S, THEREFORE, RESTRICTED TO RS.4,00,000/- FROM INTEREST EXPENDITU RE ND RS.2,00,000 FROM OTHER ADMINISTRATIVE EXPENSES AND THE GROUND O F APPEAL IS PARTLY ALLOWED. 8.1. SINCE THE RULE-8D OF I.T.RULES, 1962 IS NOT AP PLICABLE, THEREFORE IN OUR CONSIDERED VIEW THE AO WAS NOT JUSTIFIED IN APP LYING THE RULE 8D FOR MAKING DISALLOWANCE. THE LD.CIT(A) HAS GIVEN A FINDING THAT THE ASSESSEE WAS HAVING SUBSTANTIAL FUNDS AND LESSER BO RROWED FUNDS. THIS FINDING OF THE LD.CIT(A) IS NOT CONTROVERTED BY THE REVENUE BY PLACING ANY CONTRARY MATERIAL ON RECORD, THEREFORE, WE DO N OT SEE ANY REASON TO INTERFERE WITH THE FINDING OF THE LD.CIT(A), SAME I S HEREBY UPHELD. THUS, THIS GROUND OF REVENUES APPEAL IS REJECTED. 9. REMAINING GROUNDS OF REVENUES APPEAL ARE GENERA L IN NATURE WHICH REQUIRE NO INDEPENDENT ADJUDICATION. 10. AS A RESULT, REVENUES APPEAL IS DISMISSED. ITA NO.1181/AHD/2011 (BY REVENUE) AND CO NO.158/AHD/2011 (BY ASSESSEE) ACIT VS. ANAGRAM CAPITAL LTD. ASST.YEAR 2006-07 - 10 - 11. NOW WE TAKE UP ASSESSEES CROSS OBJECTION NO.15 8/AHD/2011 FOR AY 2006-07 (ARISING OUT OF ITA NO.1181/AHD/2011 FOR AY 2006-07- REVENUES APPEAL). THE ASSESSEE HAS RAISED FOLLOWI NG GROUNDS IN ITS CROSS-OBJECTION:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE CIT(A) ERRED IN CONFIRMING DISALLOWANCE OF EXCESS DEPRECIATION O N VSAT BY HOLDING THAT IT WAS NOT ENTITLED TO DEPRECIATION @ 60% WHIC H IS AVAILABLE FOR COMPUTERS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, 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 DISALLOWA NCE IN A SUM OF RS.6,00,000. 3. THE RESPONDENT CRAVES LEAVE TO ADD, ALTER, AMEN D AND/OR WITHDRAW ANY GROUND OR GROUNDS OF CROSS OBJECTIONS EITHER BE FORE OR DURING THE COURSE OF HEARING OF THE SAME. 12. AT THE OUTSET, LD.COUNSEL FOR THE ASSESSEE SUBM ITTED THAT HE DOES NOT WISH TO PRESS GROUND NO.1 OF CROSS-OBJECTION. THE LD.SR.DR HAS NO OBJECTION. THEREFORE, IN VIEW OF THE STATEMENT MAD E BY THE LD.COUNSEL FOR THE ASSESSEE, GROUND NO.1 OF CROSS-OBJECTION FILED BY THE ASSESSEE IS DISMISSED AS NOT PRESSED. 13. GROUND NO.2 IS AGAINST RESTRICTING THE DISALLOW ANCE TO THE EXTENT OF RS.6 LACS BY INVOKING THE PROVISIONS OF SECTION 14 A OF THE ACT. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE LD.C IT(A) WAS NOT JUSTIFIEID IN RESTRICTING THE DISALLOWANCE. THE LD.COUNSEL FO R THE ASSESSEE REITERATED ITA NO.1181/AHD/2011 (BY REVENUE) AND CO NO.158/AHD/2011 (BY ASSESSEE) ACIT VS. ANAGRAM CAPITAL LTD. ASST.YEAR 2006-07 - 11 - THE SUBMISSIONS AS WERE MADE IN ITA NO.1181/AHD/201 1-REVENUES APPEAL(SUPRA). THE LD.COUNSEL FOR THE ASSESSEE SUB MITTED THAT FOR APPLYING THE PROVISIONS OF SECTION 14A OF THE ACT, IT HAS BEEN REPEATEDLY HELD THAT THE DISALLOWANCE CANNOT BE MADE UNLESS IT IS SHOWN THAT SOME EXPENDITURE IS ACTUALLY INCURRED FOR EARNING EXEMPT INCOME. FURTHER, HE SUBMITTED THAT IF THE REVENUE DOES NOT FIND ANY NEX US BETWEEN INTEREST BEARING LOANS AND INVESTMENT IN THE ASSETS PRODUCIN G TAX EXEMPT INCOME NO PART OF INTEREST CLAIMED CAN BE DISALLOWED. I N SUPPORT OF THIS CONTENTION, THE LD.COUNSEL FOR THE ASSESSEE PLACED RELIANCE ON THE JUDGEMENT OF HONBLE HIGH COURT OF BOMBAY IN THE CA SE OF CIT VS. WALFORT SHARE & STOCK BROKERS (P) LTD. REPORTED AT (2009) 310 ITR 21 (BOM.). FURTHER, LD.COUNSEL FOR THE ASSESSEE SUBMI TTED THAT WHEREVER EXPENSE INCURRED HAS NO RELATIONSHIP WITH INCOME NO T INCLUDIBLE IN TOTAL INCOME, THERE CANNOT BE ANY OCCASION TO INVOKE DISA LLOWANCE U/S.14A, THEREFORE, IT IS FOR AO TO IDENTIFY THE EXPENDITURE WHICH CAN BE REASONABLY SAID TO HAVE BEEN INCURRED TO EARN A TAX EXEMPT INCOME BEFORE INVOKING DISALLOWANCE U/S.14A. RELIANCE IS PLACE D ON THE DECISION OF THE COORDINATE BENCH IN THE CASE OF DRESDNER BANK A G VS. ADDL.CIT REPORTED AT (2007) 11 SOT 158 :: 108 ITD 375 (MUM.- TRIBUNAL). FURTHER, LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT PROVISIONS OF SECTION 14A DO NOT CONFER POWER UPON THE AO TO DEEM OR ASSU ME CERTAIN EXPENDITURE TO HAVE BEEN INCURRED IN RELATION TO TA X-FREE INCOME, NOT ONLY INCURRING OF EXPENDITURE BUT ALSO ITS RELATIONSHIP WITH EXEMPTED INCOME ITA NO.1181/AHD/2011 (BY REVENUE) AND CO NO.158/AHD/2011 (BY ASSESSEE) ACIT VS. ANAGRAM CAPITAL LTD. ASST.YEAR 2006-07 - 12 - MUST BE CLEAR AND MUST BE CAPABLE OF BEING ASCERTAI NED. RELIANCE IS PLACED ON THE DECISION OF COORDINATE BENCH IN THE C ASE OF IMPULSE (INDIA) (P) LTD. VS. ASSTT.CIT REPORTED AT (2008) 22 SOT 36 8 (DELHI TRIBUNAL). FURTHER, LD.COUNSEL FOR THE ASSESSEE PLACED RELIANC E ON THE DECISION OF COORDINATE BENCH IN THE CASE OF ASST.CIT VS. EICHER LTD. REPORTED AT (2006) 101 TTJ (DELHI) 369. 13.1. ON THE CONTRARY, LD.SR.DR SUPPORTED THE ORDER OF THE AO. 14. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED TH E MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE DECISIONS/JUDGEMENTS RELIED UPON BY THE LD.COUNSEL FOR THE ASSESSEE. AS PER SECTION 14A(2) OF THE ACT, IT IS INCUMBENT UPON THE AO TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. THEREFORE, IN THE FIRST STEP, THE AO IS REQUIRED TO TAKE IS TO FIND OUT THE EXPENDITURE RELATED TO THE EXEMPT INCOME. IN THE C ASE IN HAND, THE LD.CIT(A) CONFIRMED THE ADDITION ON THE BASIS THAT APPORTIONMENT OF INTEREST EXPENSES BY CONSIDERING THE FACTS THAT THE ASSESSEE WAS HAVING CONSIDERABLE SURPLUS OWN-MONEY, NET INTEREST INCOME RATHER THAN EXPENSE, BUT NO DIRECT NEXUS PROVABLE ONE WAY OR TH E OTHER; CAN BEST BE AN ESTIMATE. HE FURTHER CONCLUDED THAT RS.1.88 CRO RES PAID TO CLIENTS OF BUSINESS IS WHOLLY AND RS.2.20 CRORES PAID TO BANK IS MAINLY RELATED TO PAYMENT FOR DEPOSITING MARGIN MONEYS WHICH HAS BEE N MORE THAN OFFSET ITA NO.1181/AHD/2011 (BY REVENUE) AND CO NO.158/AHD/2011 (BY ASSESSEE) ACIT VS. ANAGRAM CAPITAL LTD. ASST.YEAR 2006-07 - 13 - BY INTEREST INCOME FROM CLIENTS. THE REMAINING I NTEREST CAN BE SAID TO BE POSSIBLY PAID FOR PARTLY BUSINESS ASSETS AND PAR TLY FOR INVESTMENTS, THAT TOO WHICH HAVE NOT BEEN MET FROM OWN FUNDS. IN TO TALITY OF CIRCUMSTANCES, PARTICULARLY LOOKING AT HUGE OWN FUN DS AND SURPLUS INTEREST INCOME; AND IN ABSENCE OF PROOF THAT BORRO WED FUNDS HAVE AT ALL NOT BEEN USED FOR MAKING INVESTMENTS EARNING NON-TA XABLE INCOME. THE LD.CIT(A) DEEMED IT PROPER AND REASONABLE TO APPORT ION RS.4 LACS AS INTEREST COST TO BE DISALLOWED U/S.14A. THIS REASO NING OF THE LD.CIT(A) IS CONTRARY TO THE JUDICIAL PRONOUNCEMENTS AS RELIED U PON BY THE LD.COUNSEL FOR THE ASSESSEE. THEREFORE, WE ARE OF THE CONSI DERED VIEW THAT THE LD.CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THIS DISA LLOWANCE. HENCE, WE HEREBY DIRECT THE AO TO DELETE THIS DISALLOWANCE. IN RESPECT OF DISALLOWANCE OF RS.2 LACS PERTAINING TO THE ADMINIS TRATIVE EXPENSES, THE LD.SR.DR SUPPORTED THE ORDERS OF THE AUTHORITIES BE LOW AND SUBMITTED THAT FOR HANDLING THE EXEMPT INCOME, CERTAIN EXPENSES RE LATED TO EXEMPT INCOME TOWARDS ADMINISTRATIVE EXPENSES ARE REQUIRED TO BE DISALLOWED. HE SUBMITTED THAT BY NO STRETCH OF IMAGINATION, IT CAN BE INFERRED THAT WITHOUT INCURRING ANY EXPENDITURE, THE ASSESSEE CAN MANAGE AND EARN THE EXEMPT INCOME. 14.1. ON THE CONTRARY, LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AUTHORITIES BELOW WERE NOT JUSTIFIED IN MAKING DISA LLOWANCE. ITA NO.1181/AHD/2011 (BY REVENUE) AND CO NO.158/AHD/2011 (BY ASSESSEE) ACIT VS. ANAGRAM CAPITAL LTD. ASST.YEAR 2006-07 - 14 - 14.2. LOOKING TO THE TOTALITY OF THE FACTS AND CIRC UMSTANCES OF THE CASE, WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE HAS MADE INVESTMENT AND EARNED EXEMPT INCOME OF RS.3 LACS. THEREFORE, WE D O NOT SEE ANY REASON TO INTERFERE WITH THE FINDING OF THE LD.CIT(A) ON T HIS ISSUE BECAUSE IT CANNOT BE ASSUMED THAT THE EXEMPT INCOME HAS BEEN E ARNED WITHOUT INCURRING ANY ADMINISTRATIVE EXPENDITURE. THUS, GR OUND RAISED IN ASSESSEES CROSS-OBJECTION IS PARTLY ALLOWED. 15. GROUND NO.3 IS GENERAL IN NATURE WHICH REQUIRES NO INDEPENDENT ADJUDICATION. 16. IN THE COMBINED RESULT, REVENUES APPEAL IS DIS MISSED, WHEREAS ASSESSEES CROSS-OBJECTION IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON FRIDAY, THE 9 TH DAY OF OCTOBER, 2015 AT AHMEDABAD. SD/- SD/- ( ) ( ) ( MANISH BORAD ) ( KUL BHARAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 09/ 10 /2015 3-.., *.../ T.C. NAIR, SR. PS ITA NO.1181/AHD/2011 (BY REVENUE) AND CO NO.158/AHD/2011 (BY ASSESSEE) ACIT VS. ANAGRAM CAPITAL LTD. ASST.YEAR 2006-07 - 15 - !'#$%&' &$ / COPY OF THE ORDER FORWARDED TO : 1. $' / THE APPELLANT 2. ()$' / THE RESPONDENT. 3. 45 6 / CONCERNED CIT 4. 6 ( ) / THE CIT(A)-GANDHINAGAR 5. 7*8 (45 , - 45/ , / DR, ITAT, AHMEDABAD 6. 8:; <+ / GUARD FILE. ! / BY ORDER, )7 ( //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 5.10.15(DICTATION-PAD 24-P AGES ATTACHED AT THE END OF THIS FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER ..6/7.10.15 3. OTHER MEMBER... 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S.09.10.2015 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 09.10.2015 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