M/s. Edelweiss Financial Advisors Ltd., Ahmedabad V. The ACIT.,Circle-3, Ahmedabad

ITA 1583/AHD/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1937 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 8 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-04-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 13-01-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 19-07-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MRS SONIA KUMAR
• Assessee Lawyers: VIJAY RANJAN
• Keywords: Depreciation; Earning of tax free income; Cost of acquisition; Initiation of penalty proceedings; Bad and doubtful debts; Assessment record; Commercial expediency; Onus to prove
• Section: 143(3); 14A; 37

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER ./ ITA NO. 1583/AHD/2012 / ASSESSMENT YEAR: 2009-10 EDELWEISS FINANCIAL ADVISORS LIMITED, [ON BEHALF OF AMALGAMATING COMPANY EDELWEISS STOCK BROKING LTD] ANAGRAM HOUSE, DARSHAN SOCIETY, NR. H.L. COMMERCE SIX ROADS, NAVRANGPURA, AHMEDABAD PAN : AABCA 2916K VS. ACIT, CIRCLE-3, AHMEDABAD / (APPELLANT) / (RESPONDENT) ASSESSEE BY : SHRI VIJAY RANJAN, AR REVENUE BY : MRS. SONIA KUMAR, SR.DR ! ' #$ / DATE OF HEARING : 13/01/2016 / DATE OF PRONOUNCEMENT: 01/04/2016 %&/ O R D E R PER MANISH BORAD, ACCOUNTANT MEMBER: THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-6,AHMEDABAD, DATED 23.05.2012 IN APPEAL NO. CIT(A)- VI/ACIT.CIR.3/288/11-12 FOR ASSESSMENT YEAR 2009-10 . ASSESSMENT WAS FRAMED U/S 143(3) OF IT ACT, 1961 (IN SHORT THE ACT) ON 27.12.2011 BY ACIT, CIRCLE-3, AHMEDABAD. 2. THE ASSESSEE HAS RAISED FOLLOWING CONCISE GROUND S OF APPEAL:- 1. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANTS CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN REFUS ING TO CONSIDER AND ADJUDICATE UPON GROUND NO.1 OF THE APP ELLANTS APPEAL CHALLENGING THE VERY VALIDITY OF THE ASSESSM ENT ORDER IMPUGNED BEFORE HIM, OBSERVING THAT IT WAS GENERAL IN NATURE AND THEREFORE NOT REQUIRED TO BE ADJUDICATED UPON. ITA NO. 1583/AHD/2012 EDELWEISS FINANCIAL ADVISORS LTD VS. ACIT FOR AY: 2009-10 2 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE DEPARTMENTAL AUTHORITIES HAVE ERRED IN REJECTING AS SESSEES CLAIM FOR DEPRECIATION ON STOCK EXCHANGE CARD OF RS.31,02,147/-. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE DEPARTMENTAL AUTHORITIES HAVE ERRED IN CONSIDERING IT A CASE FIT FOR ANY DISALLOWANCE IN PURSUANCE OF SECTION 14A AN D HAVE FURTHER ERRED IN QUANTIFYING THAT DISALLOWANCE IN A SUM OF RS.4,48,960. 4. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANTS CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN UPHOL DING THE DISALLOWANCE OF DEDUCTION FOR PENALTY OF RS.30,73 4/-. 5. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANTS CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN UPHOL DING THE DISALLOWANCE OF INTEREST EXPENSE U/S 36(1)(III) OF RS.52,24,886/- CORRESPONDING TO AN ADVANCE MADE BY THE APPELLANT TO AN ASSOCIATE CONCERN. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE DEPARTMENTAL AUTHORITIES HAVE ERRED IN DISALLOWING ASSESSEES CLAIM FOR BROKERAGE REFUND OF RS.4,37,669/-. 7. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANTS CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN DISMI SSING GROUND NO.9 OF THE APPELLANTS APPEAL BEFORE HIM CH ALLENGING THE INITIATION OF PENALTY PROCEEDINGS U/S 271(1)(C) , AS PREMATURE. 8. THE APPELLANT CRAVES LEAVE TO ADD TO, ALTER, AME ND AND/OR WITHDRAW ANY GROUND OR GROUNDS OF APPEAL EITHER BEF ORE OR DURING THE COURSE OF HEARING OF THE APPEAL. 3. BRIEFLY STATED FACTS OF THE CASE, AS CULLED OUT FROM THE ASSESSMENT RECORDS, ARE THAT THE ASSESSEE IS A LIMI TED COMPANY, PREVIOUSLY KNOWN AS ANAGRAM STOCK BROKING LTD. FILE D ITS RETURN OF INCOME FOR ASST. YEAR 2009-10 ON 28.09.2009 DECLARI NG TOTAL INCOME AT ITA NO. 1583/AHD/2012 EDELWEISS FINANCIAL ADVISORS LTD VS. ACIT FOR AY: 2009-10 3 RS.44,61,340/-. THE CASE WAS SELECTED FOR SCRUTINY ASSESSMENT AND NOTICE U/S 143(2) OF THE ACT WAS ISSUED ON 27.8.201 0 AND DULY SERVED. ASSESSMENT WAS COMPLETED AFTER MAKING FOLLOWING ADD ITIONS :- ADD: DISALLOWANCE OF STOCK EXCHANGE CARD DEPRECIATI ON 31,02,147 ADD: DISALLOWANCE OF BAD DEBT 11,55,972 ADD: DISALLOWANCE U/S.14A 4,48,960 ADD: DISALLOWANCE OF NSDL PENALTY 30,734 ADD: DISALLOWANCE OF INTEREST U/S. 36(1)(III) 52,24,886 ADD: DISALLOWANCE OF BROKERAGE REFUND 4,37.669 AFTER MAKING ADDITION OF RS.1,04,00,368/- INCOME OF THE ASSESSEE WAS ASSESSED AT RS.1,48,61,710/-. 4. AGGRIEVED, ASSESSEE WENT IN APPEAL BEFORE LD. CI T(A) WHO DELETED ADDITION OF RS.11,55,972/- TOWARDS DISALLOW ANCE OF BAD DEBTS AND CONFIRMED REMAINING ADDITIONS OF RS.92,44,396/- . 5. AGGRIEVED, ASSESSEE IS NOW IN APPEAL BEFORE THE TRIBUNAL. 6. GROUND NOS.1, 7 & 8 ARE GENERAL IN NATURE WHICH NEED NO ADJUDICATION. 7. FIRST WE TAKE UP GROUND NO.2 WHICH READS AS UNDE R :- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE DEPARTMENTAL AUTHORITIES HAVE ERRED IN REJECTING AS SESSEES CLAIM FOR DEPRECIATION ON STOCK EXCHANGE CARD OF RS .31,02,147/- . 8. AT THE OUTSET LD. AR OF THE ASSESSEE SUBMITTED T HAT THE ISSUE RAISED IN THIS GROUND IS SQUARELY COVERED BY THE DE CISION OF THE CO- ORDINATE BENCH IN ASSESSEES OWN CASE IN ITA NO.116 8/AHD/2011 FOR ITA NO. 1583/AHD/2012 EDELWEISS FINANCIAL ADVISORS LTD VS. ACIT FOR AY: 2009-10 4 ASST. YEAR 2006-07 DATED 11//7/2014 DEALING WITH DE PRECIATION ON THE MEMBERSHIP CARD OF STOCK EXCHANGE AND HAS OBSERVED AS UNDER :- 6. GROUND NO.2 IS AGAINST DISALLOWANCE OF DEPRECIAT ION ON THE MEMBERSHIP OF THE STOCK EXCHANGE CARD. THE LD.COUNSEL FOR THE ASSESSEE REIT ERATED THE SUBMISSIONS AS WERE MADE IN THE STATEMENT OF FACTS-CUMSYNOPSIS. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IS SQUARELY COVERED BY THE JUDGEMENT OF COORDINATE BENCH (ITAT MUMBAI G BENCH AHMEDABAD) RENDERED IN THE CASE OF M/S.GRISHMA SECU RITIES 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.COUNSEL FOR THE ASSESSEE. THE LD.CIT(A) HAS DECI DED THIS ISSUE IN PARA-8 OF HIS ORDER BY OBSERVING AS UNDER:- 8. THE TRADING RIGHTS WHICH HAVE BEEN CONFERRED UP ON THE ERSTWHILE CARD HOLD OF BSE AFTER ITS CORPORATIZATION AND DEMUTUALIZATION H AS NO VALUE IS EVIDENT FROM THE PROVISIONS OF PROVISO TO SECTION 55(2)(AB) OF THE A CT WHICH HAS BEEN BROUGHT ON A STATUE BY THE FINANCE ACT 2003 W.E.F. 01/04/2004. I N PRESENT CASE UNDER CONSIDERATION, IT IS ADMITTED FACT THAT THE ASSESSE E HAS BEEN ALLOTTED EQUITY SHARES UNDER THE BSE CORPORATIZATION AND DEMUTULIZATION SC HEME 2005 AND SAME IS EVIDENT FROM THE BALANCE SHEET WHERE UNDER THE HEAD INVESTMENT OF RS.10000 EQUITY SHARES OF BSE LIMITED HAS BEEN REFLECTED. ONCE THE ASSESSEE HAS BEEN ALLOTTED EQUITY SHARES OF BSE LIMITED UNDER SCHEME THEN AS PER PROV ISIONS OF SECTION 55(2)(AB), THE COST OF ACQUISITION OF TRADING AND CLEARING RIGHT S HALL BE DEEMED TO BE NIL HENCE DEPRECIATION CANNOT BE ALLOWED. CONSIDERING THE SAM E, DISALLOWANCE MADE BY 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.LTD. VS. ITO (SU PRA), HAS HELD AS UNDER:- 2. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE REC ORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING ALLOWABILITY OF DEPRECIATION ON A STOCK EXCHANGE CARD. UNDER THE PROVISIONS OF SECTION 32(1)(II) DEP RECIATION IS ALLOWABLE ON CERTAIN INTANGIBLE ASSETS SUCH AS KNOW HOW, PATENTS, COPY R IGHTS AND LICENSE ETC. EARLIER THE HON'BLE HIGH COURT OF MUMBAI IN CASE OF TECHNO SHAR ES AND STOCK LTD. (SUPRA) HAD HELD THAT STOCK EXCHANGE CARD WAS NOT COVERED U NDER SECTION 32(1)(II) AND THEREFORE DEPRECIATION WAS NOT ALLOWABLE. HOWEVER T HE SAID JUDGMENT OF THE BOMBAY HIGH COURT HAS RECENTLY BEEN CONSIDERED BY T HE HON'BLE SUPREME COURT IN THE SAME CASE AND IT WAS HELD THAT STOCK EXCHANGE C ARD IS AKIN TO A LICENSE AND THEREFORE IT IS COVERED UNDER SECTION 32(1)(II) AND DEPRECIATION IS ALLOWABLE. 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. ITA NO. 1583/AHD/2012 EDELWEISS FINANCIAL ADVISORS LTD VS. ACIT FOR AY: 2009-10 5 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 TO T AKE A DIFFERENT VIEW THAN TAKEN BY THE COORDINATE BENCH IN THE CASE OF M/S. GRISHMA SECURI TIES PVT. LTD.(SUPRA). THUS, THIS GROUND OF ASSESSEES APPEAL IS ALLOWED. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. 9. LD. AR ALSO SUBMITTED THAT THE SAME ISSUE ALSO C AME UP BEFORE THE CO-ORDINATE BENCH IN ASSESSEES OWN CASE IN ITA NO.1924 & 2065/AHD/2011 FOR ASST. YEAR 2008-09 WHEREIN ITA NO .2065/AHD/2011 FOLLOWING GROUND WAS RAISED BY THE ASSESSEE:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE DEPARTMENTAL AUTHORITIES HAVE ERRED IN REJECTING AS SESSEES CLAIM FOR DEPRECIATION ON STOCK EXCHANGE CARD IN A SUM OF RS.41,36,396/-. 10. THE CO-ORDINATE BENCH HAS ALLOWED THE GROUND OF THE ASSESSEE BY GIVING FOLLOWING DECISION :- 7. NOW, WE TAKE UP ASSESSEE'S APPEAL IN ITA NO.2065/AH D/2011. 7.1 FIRST GROUND IS WITH RESPECT TO CLAIM OF DEPREC IATION ON STOCK EXCHANGE CARD. ASSESSING OFFICER ON PERUSING THE DETAILS FUR NISHED BY THE ASSESSEE NOTICED THAT ASSESSEE HAS CLAIMED DEPRECIATION OF R S.41,36,3967- ON STOCK EXCHANGE CARD. ASSESSING OFFICER WAS OF THE VIEW TH AT AFTER THE IMPLEMENTATION OF CORPORATIZATION AND DEMUTUALIZATION SCHEME, 2005 , THE MEMBERSHIP CARD DOES NOT EXIST AS THE SAME STANDS CANCELLED AND THE REFORE, NO DEPRECIATION CAN BE ALLOWED ON THE SAME. HE, ACCORDINGLY, DISALLOWED THE. CLAIM OF DEPRECIATION. 7.2 AGGRIEVED BY' THE ORDER OF ASSESSING OFFICER, A SSESSEE CARRIED THE MATTER BEFORE THE CIT(A) WHO FOLLOWING THE ORDER OF ITS PR EDECESSORS FOR A.Y. 2006-07 UPHELD THE DISALLOWANCE MADE BY THE ASSESSING OFFIC ER BY HOLDING AS UNDER: 3.3 I AGREE WITH THE AFORESAID FINDING OF THE CIT( A), GANDHINAGAR GIVEN IN APPELLANT'S OWN CASE FOR THE A.Y. 2006-07. NO DEPRE CIATION ON THE BSE MEMBERSHIP-CARD IS AVAILABLE TO THE APPELLANT AFTER THE BSE (CORPORATISATION AND DEMUTUALIZATION) SCHEME 2005. THE SHARES OF BS E LTD. HAVE BEEN ALLOTTED ON A CONCESSIONAL PRICE ON BSE M EMBERSHIP CARD. THE TRADING RIGHTS WHICH HAVE BEEN CONFERRED UPON THE ERSTWHILE CARD HOLDERS OF BSE AFTER ITS CORPORATISATION AND DEMUTUALIZATION HAS NO VALUE AS IS EVIDENT FROM THE PROVISO TO SECTION 55(2)(AB) OF THE ACT AS HAS BEEN BROUGHT ON STATUTE BY THE FINANCE ACT 2003 W.E.F. 01-04-2004. IN VIEW OF THE 1 FINDING GIVEN IN APPELLANT'S OWN CASE .IN THE APPELLATE ORDER DATED 31 01.2011 FOR THE A.Y. 2006- ITA NO. 1583/AHD/2012 EDELWEISS FINANCIAL ADVISORS LTD VS. ACIT FOR AY: 2009-10 6 07, IT IS HELD THAT THE ASSESSING OFFICER WAS JUSTI FIED IN DISALLOWING THE DEPRECIATION OF RS. 41,36,396/-. HIS AFORESAID FINDING IS SUSTAI NED AND THE ADDITION MADE ON ACCOUNT OF DISALLOWANCE OF DEPRECIATION IS CONFIRME D, THE SECOND GROUND OF APPEAL IS ACCORDINGLY DISMISSED.' 7.3 AGGRIEVED BY THE ORDER OF CIT(A), ASSESSES IS N OW IN APPEAL BEFORE US. LD. A.R. AT THE OUTSET SUBMITTED THAT IDENTICAL ISSUE A ROSE IN THE CASE OF ASSESSEE IN A.Y.2005-06. THE HON'BLE TRIBUNAL WHILE DECIDING TH E ISSUE IN ITA NO.1168/AHD/2011, ORDER DATED 11.07.2014 AND AFTER FOLLOWING THE DECISION OF CO- ORDINATE BENCH IN THE CASE OF M/S. GRISHMA SECURITI ES PVT. LTD. VS. ITO IN ITA NO.6098/M/2010 DECIDED THE ISSUE IN FAVOUR OF ASSES SEE. HE PLACED ON RECORD A COPY OF THE AFORESAID DECISION. HE, THEREFORE, SUBM ITTED THAT SINCE THE ISSUE IN THE PRESENT CASE IS IDENTICAL TO THE FACTS OF THE CASE IN A.Y. 2006-07 AND SINCE IN A.Y. 2006-07 THE ISSUE HAS BEEN DECIDED IN FAVOUR OF ASS ESSEE BY THE CO-ORDINATE BENCH OF TRIBUNAL, THE PRESENT GROUND OF THE ASSESS EE NEEDS TO BE ALLOWED. LD. D.R., ON THE OTHER HAND, SUPPORTED THE ORDER OF ASS ESSING OFFICER AND CIT(A). 7.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT ISSUE OF DEPRECIATION OF STOCK EXCHANGE C ARD WAS BEFORE THE CO-ORDINATE BENCH IN ASSESSEE'S OWN CASE IN A.Y. 2006-07 WAS DE CIDED IN FAVOUR OF ASSESSEE BY HOLDING AS UNDER: '6. GROUND NO.2 IS AGAINST DISALLOWANCE OF DEPRECIA TION ON THE MEMBERSHIP OF THE STOCK EXCHANGE CARD. THE ID.COUNSEL FOR THE ASSESSE E REITERATED THE SUBMISSIONS AS WERE MADE IN THE STATEMENT OF FACTS-CUM- SYNOPSI S. THE ID.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IS SQUARELY COVER ED BY THE JUDGEMENT OF COORDINATE BENCH (ITAT MUMBAI 'G' BENCH AHMEDABAD) RENDERED IN THE CASE OF M/S.GRISHMA SECURITIES PVT.LTD. VS. ITO IN ITA NO.6 098/M/2010 FOR AY2007-08, DATED 29/03/2011. 6.1. ON THE CONTRARY, ID.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 AUTHORITI ES BELOW AS WELL AS THE DECISION RELIED UPON BY THE ID.COUNSEL FOR THE ASSE SSEE. ITA NO. 1168/AHD/2011 EDELWEISS STOCK BROKING LTD. VS. ADDL.CIT ASST.YEAR - 2006-07 THE ID.CIT(A) HAS DECIDED THIS ISSUE IN PAR A-8 OF HIS ORDER BY OBSERVING AS UNDER- '8. THE TRADING RIGHTS WHICH HAVE BEEN CONFERRED UP ON 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 CONSIDERAT ION, 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. ON CE THE ASSESSEE HAS BEEN ALLOTTED EQUITY SHARES OF BSE LIMITED UNDE R SCHEME THEN AS PER PROVISIONS OF SECTION 55(2)(AB), THE COST OF AC QUISITION OF TRADING AND CLEARING RIGHT SHALL BE DEEMED TO BE NIL HENCE DEPR ECIATION CANNOT BE ITA NO. 1583/AHD/2012 EDELWEISS FINANCIAL ADVISORS LTD VS. ACIT FOR AY: 2009-10 7 ALLOWED. CONSIDERING THE SAME, DISALLOWANCE MADE BY 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.LTD. 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 REG ARDING ALLOWABILITY 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 STOCK LTD. (SUPRA) HAD HELD THAT STOCK EXCHANGE CARD WAS NOT COVERED UNDER SECTION 32(1)(II) AND THEREFORE DEPRECIATION WAS NOT ALLOWABLE. HOWEV ER THE SAID JUDGMENT OF THE BOMBAY HIGH COURT HAS RECENTLY BEEN CONSIDERED BY THE HON'BLE SUPREME COURT IN THE SAME CASE AND IT W AS HELD THAT STOCK EXCHANGE CARD IS AKIN TO A LICENSE AND THEREFORE IT IS COVERED UNDER SECTION 32(1 )(II) AND DEPRECIATION IS ALLOWABLE. W E 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 ID. SR. D R, WE HAVE NO REASON ITA NO.1168/AHD/2011 EDELWEISS STOCK BROKING LTD. VS. A DDL.CIT ASST. YEAR - 2006-07 TO TAKE A DIFFERENT VIEW THAN TAKEN BY THE COORDINATE BENCH IN THE CASE OF M/S.GRISHMA SECURITIES PVT.LTD.(SUPRA). THU S, THIS GROUND OF ASSESSEE'S APPEAL IS ALLOWED. SINCE THE FACTS OF THE CASE IN YEAR UNDER APPEAL AR E IDENTICAL TO THAT OF A.Y. 2006-07 THEREFORE, WE RESPECTFULLY FOLLOWING THE DE CISION OF CO-ORDINATE BENCH IN CASE OF ASSESSEE AND FOR SIMILAR REASONS, HOLD THAT ASSESSEE IS ELIGIBLE FOR DEPRECIATION OF STOCK EXCHANGE CARD. T HUS, THIS GROUND OF ASSESSEE'S APPEAL IS ALLOWED. 11. FROM GOING THROUGH THE ORDERS OF THE TRIBUNAL I N ASSESSEES OWN CASE IN ITA NO.1168/AHD/2011 DT.11.07.2014 AND IN I TA NOS.1924 & 2065/AHD/2011 FOR ASST. YEAR 2008-09 DATED 8.1.2016 WE FIND THAT THE GROUND RAISED IN THE APPEAL BEFORE US ARE VERBATIM SIMILAR TO THE GROUNDS RAISED IN THE APPEALS DECIDED BY THE CO-ORD INATE BENCH. WE, THEREFORE, RESPECTFULLY FOLLOWING THE DECISIONS OF THE CO-ORDINATE BENCH ALLOW THIS GROUND OF ASSESSEE TOWARDS CLAIM OF DEPR ECIATION OF RS.31,02,147/- ON STOCK EXCHANGE CARD. ITA NO. 1583/AHD/2012 EDELWEISS FINANCIAL ADVISORS LTD VS. ACIT FOR AY: 2009-10 8 12. NOW WE TAKE GROUND NO.3 WHICH READS AS UNDER :- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE DEPARTMENTAL AUTHORITIES HAVE ERRED IN CONSIDERING IT A CASE FIT FOR ANY DISALLOWANCE IN PURSUANCE OF SECTION 14A AN D HAVE FURTHER ERRED IN QUANTIFYING THAT DISALLOWANCE IN A SUM OF RS.4,48,960. 13. DURING THE COURSE OF ASSESSMENT PROCEEDINGS LD. ASSESSING OFFICER OBSERVED THAT ASSESSEE HAS SHOWN INCOME FRO M DIVIDEND AT RS.6 LACS IN ITS RETURN OF INCOME AND ALSO THERE ST OOD AN INVESTMENTS OF RS.1.41 CRORES IN EQUITY SHARES. ACCORDINGLY ASS ESSEE WAS ASKED TO FURNISH WORKING OF DISALLOWANCE U/S 14A OF THE ACT IN REPLY TO WHICH ASSESSEE SUBMITTED THAT THERE ARE NO FRESH INVESTME NT DURING THE YEAR AND ASSESSEE HAS SUFFICIENT INTEREST FREE FUNDS AVA ILABLE IN THE FORM OF RESERVE AND SURPLUS TO THE TUNE OF RS.27.61 CRORES AND ALSO SUBMITTED THAT ASSESSEE HIMSELF HAS DISALLOWED SUM AT RS.75,0 00/- TOWARDS DISALLOWANCE U/S 14A OF THE ACT FOR ADMINISTRATIVE EXPENSES. HOWEVER, ASSESSING OFFICER WAS NOT CONVINCED WITH THE REPLY OF ASSESSEE AND WENT AHEAD TO APPLY RULE 8D OF THE IT RULES, 1962 A ND CALCULATED A SUM OF RS.5,23,960/- AS DISALLOWANCE U/S 14A OF THE ACT AND AFTER REDUCING THE AMOUNT OF RS.75,000/- SHOWN BY ASSESSE E IN ITS COMPUTATION OF INCOME MADE ADDITION OF RS.4,48,960/ - FOR DISALLOWANCE U/S 14A OF THE ACT. 14. ON APPEAL BEFORE LD. CIT(A) AGAINST ADDITION U/ S 14A OF THE ACT, ASSESSEE COULD NOT GET ANY RELIEF AND LD. CIT(A) CO NFIRMED THE ADDITION BY OBSERVING AS UNDER :- 5.3 I HAVE CONSIDERED THE FACTS OF THE CASE; ASSESS MENT ORDER AND APPELLANT'S WRITTEN SUBMISSION. ASSESSING OFFICER MADE DISALLOW ANCE OF EXPENSE RELATING TO EXEMPT INCOME. SUCH DISALLOWANCE WAS CONSIDERED NEC ESSARY SINCE APPELLANT DID ITA NO. 1583/AHD/2012 EDELWEISS FINANCIAL ADVISORS LTD VS. ACIT FOR AY: 2009-10 9 NOT DISALLOW ANY PART OF COMMON INTEREST AND OTHER EXPENSES TREATING THE SAME AS RELATING TO INVESTMENT RESULTING IN EXEMPT INCOME. NOW RULE 8D IS HELD TO BE APPLICABLE WITH EFFECT FROM ASSESSMENT YEAR 2008-09 BY BOMBAY HIGH COURT, THE DISALLOWANCE OF EXPENSES RELATING TO EXEMPT INCOME ARE TO BE MADE BY THE METHOD PRESCRIBED IN THE SAID RULE. IT IS NOT IN DISPUTE THAT APPELLANT MADE INVESTMENT OF RS 160.26 LACS WHICH CAN ONLY RESULT IN EXEMPT INCOME IN THE FORM OF DIVIDEND. APPELLANT PAID INTEREST OF RS 310.74 L ACS ON BORROWED FUNDS USED FOR BUSINESS PURPOSES AS WELL AS MAKING INVESTMENTS. AP PELLANT INCURRED OTHER ADMINISTRATIVE EXPENSES, PART OF WHICH MAY RELATE T O INVESTMENT ONLY RESULTING IN EXEMPT INCOME. SIMILARLY PAYMENT OF INTEREST WILL A LSO PARTLY RELATE TO INVESTMENT RESULTING IN EXEMPT INCOME THEREFORE DISALLOWANCE U NDER SECTION 14 A ON ACCOUNT OF INTEREST AND OTHER EXPENSES ARE NECESSARY. THE D ECISIONS RELIED UPON BY THE APPELLANT ARE PRIOR TO ASSESSMENT YEAR 2008-09 WHEN THE RULE 8D WAS NOT APPLICABLE. ACCORDINGLY, THESE DECISIONS ARE NOT AP PLICABLE TO THIS ASSESSMENT YEAR WHEN THE DISALLOWANCE IS TO BE MADE AS PER THE FORMULA G IVEN IN RULE 8D. COMING TO THE METHOD OF COMPUTATION OF DISALLOWANCE UNDER SECTION 14 A, ASSESSING OFFICER DISALLOWED EXPENSES RELATABLE TO EXEMPT INCOME AS PER RULE 8D WHICH IS MANDATORY FROM ASSESSMENT YEAR 2008-09. FO R INTEREST, PROPORTIONATE EXPENSE IS DISALLOWABLE WHEREAS FOR OTHER EXPENSES .5% OF AVERAGE INVESTMENT VALUE IS DISALLOWABLE. CONSIDERING THE FACT THAT AP PELLANT CLAIMED HUGE ADMINISTRATIVE AND OTHER EXPENSES, THE DISALLOWANCE OF ADMINISTRATIVE EXPENSES MADE BY THE ASSESSING OFFICER @.5% OF INVESTMENT RESULTING (N EXEMPT INCOME IS AS PER THE FORMULA GIVEN IN RULE 8D WHICH IS MANDAT ORY FOR MAKING DISALLOWANCE. IN VIEW OF THIS THE ADDITION .5% OF INVESTMENT RESULTING IN EXEMPT INCOME MADE BY THE ASSESSING OFFICER IS CONFIRMED. AS REGARDS INTEREST, APPELLANT HAD BORROWED FUNDS O N WHICH INTEREST WAS PAID. WHILE MAKING INVESTMENTS, BOTH BORROWED FUNDS AS WELL AS OWN FUNDS WERE USED HENCE ONE CANNOT SAY THAT BORROWED FUNDS WERE USED ONLY FOR BUSINESS PURPOSE AND OWNED CAPITAL WAS ONLY USED FO R INVESTMENT. ADMITTEDLY NO SEPARATE ACCOUNTS ARE MAINTAINED FOR BUSINESS AND INVESTMENT ACTIVITIES THEREFORE APPELLANT'S CLAIM IS NOT JUSTI FIED THAT BORROWED FUNDS WERE NOT USED IN MAKING INVESTMENT. THEREFORE IN THE ABSENCE OF CLEAR CUT DETAILS OF UTILIZATION OF FUNDS, THE FORMULA GIVEN IN RULE 8D WHICH IS MANDATORY THIS YEAR IS TO BE APPLIED. IT IS WRONG ON THE PART OF THE APPELLANT TO CLAIM THAT IN VESTMENTS WERE MADE FROM WORKING CAPITAL. WORKING CAPITAL CON SISTS OF CURRENT LIABILITIES WHICH CANNOT BE USED FOR MAKING LONG-TE RM INVESTMENTS. APPELLANT ALSO SUBMITTED THAT IT HAS RECEIVED SUBSTANTIAL INT EREST AND THAT INTEREST IS RECEIVED THEREFORE NO DISALLOWANCE OF INTEREST SHOULD BE MAD E. SINCE INTEREST EXPENSES WERE NOT INCURRED FOR THE PURPOSE OF EARNING INTERE ST INCOME AND THEREFORE THERE IS NO DIRECT NEXUS BETWEEN INTEREST EARNING AND INTERE ST EXPENSES. AS PER THE FORMULA GIVEN IN RULE 8D (II), GROSS INTEREST PAID IS TO BE TAKEN AND NOT THE NET INTEREST. THEREFORE DECISION RELIED UPON BY THE APPELLANT IS NOT APPLICABLE TO THIS YEAR WHEN RULE 8D IS MANDATORY. SINCE ASSESSING OFF ICER WORKED OUT INTEREST DISALLOWANCE AS PER RULE 80, THE INTEREST DISALLOWA NCE IS CONFIRMED. 15. AGGRIEVED, ASSESSEE IS NOW IN APPEAL BEFORE THE TRIBUNAL. 16. LD. AR SUBMITTED AS UNDER :- ITA NO. 1583/AHD/2012 EDELWEISS FINANCIAL ADVISORS LTD VS. ACIT FOR AY: 2009-10 10 (I) OLD INVESTMENT ONLY IN THE SHARES OF ARVIND MIL LS RS.1.40 CR., DIVIDEND INCOME RS.6 LACS. RELIANCE IS PLACED ON DECISION OF HON. GUJARAT HIGH COURT IN CASE OF CIT-III VS. GUJARAT NARMADA VALLEY FERTILIZ ERS CO. LTD. DATED 10.01.2014 (TAX APPEAL NO.1151 OF 2013 WITH 1 152 OF 2013) (II) NO SATISFACTION OF THE ASSESSING OFFICER IN TH E ORDER A. MAXXOPP INVESTMENTS (347 ITR 272; B. ITAT AHMEDABAD IN THE CASE OF M/S DYNEMIC PRODUC TS LTD. ITA NO.2769/AHD/2011 DATED 22.5.2015. C. ITAT AHMEDABAD IN THE CASE OF M/S SIRHIND STEEL LTD. VS. ACIT ITA NO.362/AHD/2012 DATED 29.09.2015. (III) OWN INTEREST FUNDS RS.78.29 CR. A. GUJARAT HC IN CASE OF CIT VS. TORRENT POWER LTD. [2014] 44 TAXMANN.COM 441 B. RELIANCE UTILITIES (313 ITR 340). (IV) REGARDING ADMINISTRATIVE EXPENSES DISALLOWANCE U/S 14A RELIANCE IS PLACED ON DECISION OF BOMBAY HC IN CASE OF CIT VS. RELIANCE INDUSTRIES LTD. (2011) 339 ITR 632. 17. LD. AR ALSO REFERRED AND RELIED ON THE DECISION OF CO-ORDINATE BENCH IN ASSESSEES OWN CASE IN ITA NO.1168/AHD/201 1 FOR ASST. YEAR 2006-07 AND IN ITA NO.1924 & 2065/AHD/2011 FOR ASST . YEAR 2008-09. 18. ON THE OTHER HAND, LD. DR RELIED ON THE ORDERS OF LOWER AUTHORITIES. 19. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE ONLY ISSUE IN THIS GROUND IS AGAINST DI SALLOWANCE OF RS. 4,48,960/- U/S 14A OF THE ACT CONFIRMED BY LD. CIT( A). FROM PERUSAL OF THE RECORD, WE OBSERVE THAT INVESTMENTS AS ON 31.3. 2009 ARE IN ITA NO. 1583/AHD/2012 EDELWEISS FINANCIAL ADVISORS LTD VS. ACIT FOR AY: 2009-10 11 RELATION TO EQUITY SHARES HELD BY ASSESSEE AND THEY ARE BROUGHT FORWARD FROM PREVIOUS YEAR AND THERE IS NO FRESH IN VESTMENT DURING THE YEAR AND WE ALSO OBSERVE THAT ASSESSEE IS HAVING IN TEREST FREE FUNDS IN THE FORM OF SHARE CAPITAL AND RESERVE AND SURPLU S AT RS.27.61 CRORES AS ON 31.3.2009 AND ASSESSEE AT ITS OWN MADE DISALL OWANCE OF RS.75,000/- ON ACCOUNT OF ADMINISTRATIVE EXPENSES U NDER THE PROVISIONS OF SECTION 14A AND THE TOTAL EXEMPTED IN COME EARNED BY THE ASSESSEE IS AT RS.6 LACS. WE FURTHER OBSERVE TH AT THE CO-ORDINATE BENCH IN ITA NO.1168/AHD/2011 FOR ASST. YEAR 2006-0 7 HAS DEALT WITH DISALLOWANCE U/S 14A AND DECIDED THE SAME BY OBSERV ING AS UNDER :- 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 COUNSEL FOR THE ASSESSEE. THE CONTENTION OF THE ASS ESSEE IS THAT INTEREST INCOME OF RS.7.54 CRORCS IS MORE THAN THE TOTAL INTEREST OUTGO OF RS. 2.29 CRORES AND THUS THERE IS NET INTEREST INCOME OF RS.5.25 CRORES. THEREFORE, IT CANNOT BE S AID THAT THE ASSESSEE HAS CLAIMED ANY EXPENDITURE ON INTEREST THIS IS SO BECAUSE IN ASSES SEE'S CASE THERE IS A COMMON POOL OF INTEREST INCOME AND INTEREST OUTGO. THE AO INVOKED THE PROVISIONS OF SECTION 14A OF THE ACT ON THE BASIS THAT THE ASSESSEE HAS SHOWN DIVIDE ND INCOME OF RA.1,25,000/- AND CLAIMED THE SAME AS EXEMPT INCOME, NO AMOUNT HAS BEEN OFFER ED FOR DISALLOWANCE U/S.!4A OF THE ACT, BY THE ASSESSEE. THE AO APPLIED RULE-8D AND MA DE DISALLOWANCE OF RS.4,83,284/- BEING TOTAL OF INTEREST EXPENSES AND ADMINISTRATIVE EXPENSES. THE LD.CTT(A) RESTRICTED THE SAME TO THE EXTENT OF RS.2,10,000/- OUT OF WHICH RS .L,60,000/- WAS AGAINST THE INTEREST EXPENSES AND RS.50.000/- WAS TOWARDS THE ADMINISTRA TIVE EXPENSES. THE RELIANCE HAS BEEN PLACED BY THE LD COUNSEL FOR THE ASSESSES ON THE JU DGEMENT OF HON'BLE KERALA HIGH COURT IN THE CASE OF CTT VS. CATHOLIC SYRIAN BANK LTD.(SUPRA), W HEREIN THE HON'BLE KERALA HIGH COURT HAS HELD THAT SO FAR AS THE DISALLOWANCE OF ADMINISTRAT IVE EXPENDITURE IS CONCERNED, WE FEEL CONSIDERING THE FACT THAT THERE IS NO PRECISE FORMULA FOR PROPORTIONATE DISALLOWANCE, NO DISALLOWANCE IS CALLED FOR, FAR PROPORTIONATE ADMIN ISTRATIVE COST ATTRIBUTABLE TO EARNING OF TAX FREE INCOME UNTIL RULE 8D CAME INTO FORCE. WE, THER EFORE, DISPOSE OF THE APPEALS BY SETTING ASIDE THE ORDERS OF THE TRIBUNAL AND THAT OF THE FI RS: APPELLATE AUTHORITY ON THIS ISSUE AND REMAND ALL THE ASSESSMENTS BACK TO THE ASSESSING OF FICER FOR REWORKING DISALLOWANCE UNDER SECTION 14A IN THE CASE OF EACH ASSESSEE FOR EACH A SSESSMENT YEAR. THE PROPORTIONATE DISALLOWANCE UNDER SECTION 14A SHOULD BE LIMITED TO ONLY INTEREST LIABILITY AND NOT OVERHEADS OR ADMINISTRATIVE EXPENDITURE; WHICH SHOULD BE CONS IDERED FOR DISALLOWANCE UNDER RULE 8D FROM 2007-08 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/- AS SUSTAINED BY THE LD.CIT( A). 5.1. IN RESPECT OF THE DISALLOWANCE ON INTEREST POR TION, THE LD. COUNSEL FOR THE ASSESSEE HAS DRAWN OUR ATTENTION TOWARDS BALANCE-SHEET, WHEREIN 'THE ASSESSEE HAS SUFFICIENT INTEREST-FREE FUNDS FOR MAKING INVESTMENTS INTO LIE ASSETS FROM W HICH THE ASSESSEE HAS EARNED EXEMPT INCOME. SINCE THE ASSESSEE WAS HAVING SUFFICIENT IN TEREST-FREE FUNDS, THEREFORE THE DISALLOWANCE OF INTEREST PART IS NOT JUSTIFIED IN THE LIGHT O TH E JUDGEMENT OF HON'BLE APEX COURT RENDERED IN ITA NO. 1583/AHD/2012 EDELWEISS FINANCIAL ADVISORS LTD VS. ACIT FOR AY: 2009-10 12 THE CASE OF MUNJAL SALES CORPORATION VS. CTT REPORT ED AT (2008) 298 ITR 298 (SC) DECISION OF COORDINATE BENCH (TTAT 'A' BENCH AHMEDA BAD) RENDERED IN THE CASE OF TORRENT .FINANCIERS VS. ACJT REPORTED AT (2001 )73 TTJ 624 AND THE JUDGEMENT OF HON'BLE BOMBAY HIGH COURT RENDERED IN THE CASE OF CTT VS. R ELIANCE UTILITIES & POWER LTD. REPORTED AT (2009) 313 ITR 340 (BOM.)-THEREFORE, WE DIRECT THE AO TO DELETE THE ADDITION MADE ON THE INTEREST EXPENSES AMOUNTING TO RS.1,50, 000/-. THUS, THIS GROUND OF ASSESSEE'S APPEAL IS ALLOWED 20. WE FURTHER OBSERVE THAT SIMILAR GROUND WAS ADJU DICATED BY THE CO-ORDINATE BENCH IN ITA NO.1924 & 2065/AHD/2011 FO R ASST. YEAR 2008-09 DATED 28.1.2016 AS UNDER :- 8.5 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT IN THE PRESENT CASE, ASSESSING OFFICER HAS MADE DISALLOWANCE U/S.14A OF RS.4,86,456/- WHICH COMPRIS ES OF DISALLOWANCE OF INTEREST OF RS.4,16,122/- AND ADMINISTRATIVE EXP ENDITURE OF RS.70,434/- AS FAR AS DISALLOWANCE ON ACCOUNT OF INTEREST IS CO NCERNED, IT IS UNDISPUTED FACT THAT THE INTEREST FREE FUNDS IN THE FORM OF CAPITAL AND RESERVES ARE FAR IN EXCESS OF INVESTMENTS AND FURTH ER IT IS ALSO A FACT THAT THERE IS NO CHANGE IN INVESTMENTS FROM 31 ST MARCH, 2005 TO 31 ST 2008. IN SUCH A SITUATION, FOLLOWING THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES AND POWER LT D, 313 ITR 340 (BOM), WE ARE OF THE VIEW THAT NO DISALLOWANCE ON ACCOUNT OF INTEREST COULD BE MADE. AS FAR AS THE DISALLOWANCE ON ACCOUNT OF ADMI NISTRATIVE EXPENSES IS CONCERNED, WE ARE OF THE VIEW THAT CONSIDERING T HE FACT THAT ASSESSMENT YEAR BEING 2008-09 AND THE PROVISIONS OF RULE 8D BEING MANDATORY AND THE ASSESSES HAVING EARNED DIVIDEND I NCOME OF RS.14.53 LACS AND IN THE ABSENCE OF ANY EVIDENCE OF NOT INCURRING ADMINISTRATIVE EXPENSES, WE ARE OF THE VIEW THAT NO INTERFERENCE TO THE DISALLOWANCE MADE ON ACCOUNT OF ADMINISTRATIVE EXPE NSES OF RS.70,434/- IS CALLED FOR. THUS, THIS GROUND OF ASS ESSEE'S APPEAL IS PARTLY ALLOWED. 21. FROM GOING THROUGH THE DECISIONS OF THE CO-ORDI NATE BENCH, WE UNDERSTAND THAT DISALLOWANCE ON ACCOUNT OF ADMINIST RATIVE EXPENSES CALCULATED AS PER RULE 8D OF THE IT RULES, 1962 HAV E BEEN CONFIRMED IN THE CASE OF ASSESSEE. APPLYING THE SAME DECISION S TO THE FACTS OF THE CASE OF ASSESSEE FOR THE YEAR UNDER APPEAL WE F IND THAT SUM OF RS.80,133/- IS WORKED OUT TO BE THE ADMINISTRATIVE EXPENSES BY APPLYING HALF PER CENT OF THE AVERAGE INVESTMENT OF RS.16,26,791/-AND ITA NO. 1583/AHD/2012 EDELWEISS FINANCIAL ADVISORS LTD VS. ACIT FOR AY: 2009-10 13 OUT OF THIS CALCULATED SUM AT RS.80,133/- ASSESSEE HAS ALREADY SHOWN RS.75,000/- AS DISALLOWANCE U/S 14A TOWARDS ADMINIS TRATIVE EXPENSES THE DIFFERENCE REMAINS AT RS.5,133/- WHICH IS SUSTA INED OUT OF THE TOTAL DISALLOWANCE OF RS.4,48,960/-. ACCORDINGLY THIS GRO UND OF ASSESSEE IS PARTLY ALLOWED. 22. GROUND NO.4 READS AS UNDER - IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE AP PELLANTS CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN UPHOL DING THE DISALLOWANCE OF DEDUCTION FOR PENALTY OF RS.30,73 4/-. 23. DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS OBSERVED BY ASSESSING OFFICER THAT ASSESSEE DEBITED RS.30,73 4/- AS NSDL PENALTY FOR VIOLATION OF BY-LAWS OF STOCK EXCHANGE AND THE SAME WAS POINTED OUT BY THE AUDITOR IN THEIR AUDIT REPORT BU T WAS NOT DISALLOWED BY THE ASSESSEE BY ADDING IT BACK TO THE NET PROFIT AND LD. ASSESSING OFFICER WAS OF THE VIEW THAT PENALTY WAS NOT TO BE ALLOWED AND SO HE ADDED THE SAME TO THE INCOME OF THE ASSESSEE AND HI S VIEW WAS CONFIRMED BY LD. CIT(A) IN HIS APPELLATE ORDER. 24. AGGRIEVED, ASSESSEE IS NOW IN APPEAL BEFORE THE TRIBUNAL. 25. LD. AR REFERRED AND RELIED ON THE DECISION OF C O-ORDINATE BENCH IN THE CASE OF H. NYALCHAND FINANCIAL SERVICES LTD. VS. DCIT IN ITA NO.2848/AHD/2010 FOR ASST. YEAR 2005-06 DATED 13.5. 2011. 26. ON THE OTHER HAND LD. DR SUPPORTED THE ORDERS O F LOWER AUTHORITIES. 27. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD, ORDERS OF LOWER AUTHORITIES AND THE JUDGMEN T CITED BY LD. AR. ITA NO. 1583/AHD/2012 EDELWEISS FINANCIAL ADVISORS LTD VS. ACIT FOR AY: 2009-10 14 FROM GOING THROUGH THE DECISION OF CO-ORDINATE BENC H REFERRED TO BY LD. AR IN THE CASE OF H. NYALCHAND FINANCIAL SERVICES L TD. (SUPRA), THE FACT WAS RELATING TO PAYMENT MADE BY THE ASSESSEE T O NATIONAL STOCK EXCHANGE (NSE) ON ACCOUNT OF LOW SUBMISSIONS OF DET AILS IN RESPECT OF CFCL WHEREAS IN THE CASE OF ASSESSEE THE IMPUGNED P ENALTY RELATES TO PAYMENT TO HYDERABAD MUNICIPAL AUTHORITY FOR NOT OBTAINING PERMISSION FOR PUTTING SIGN BOARD. IN THE CASE OF ASSESSEE FACTS ARE DIFFERENT FROM THE FACTS DISCUSSED IN THE CASE OF H . NYALCHAND FINANCIAL SERVICES (SUPRA) REFERRED BY THE ASSESSEE . 28. IN OUR VIEW PENALTY IS GENERALLY IMPOSED FOR VI OLATION OF ANY RULE OR PROCEDURE. THE ASSESSEE BEING A LIMITED COMPANY WAS HITHERTO BOUND TO COMPLY WITH VARIOUS STATUTORY DUTIES REQUI RED BY VARIOUS LAWS OF THE COUNTRY. CERTAINLY IT IS A LAW OF THE LOCAL MUNICIPAL AUTHORITIES THAT A PERSON HAS TO TAKE PERMISSION BEFORE PUTTING A SIGN BOARD IN PUBLIC AREA AND THE SAME WAS NOT COMPLIED WITH AND, THEREFORE, ASSESSEE COMMITTED AN OFFENCE WHICH WAS PROHIBITED BY LAW AND, THEREFORE, SUCH PENALTY CANNOT BE LINKED WITH AN EX PENDITURE FOR BUSINESS PURPOSES AND WAS THEREFORE, RIGHTLY ADDED BACK BY THE LD. ASSESSING OFFICER TO THE TOTAL INCOME OF ASSESSEE. WE THEREFORE, FIND NO INFIRMITY IN THE ORDER OF LD. CIT(A) AND UPHOLD THE SAME. THIS GROUND OF ASSESSEE IS DISMISSED. 29. GROUND NO.5 READS AS UNDER - IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE AP PELLANTS CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN UPHOLDING T HE DISALLOWANCE OF INTEREST EXPENSE U/S 36(1)(III) OF RS.52,24,886/- CORRESPONDING TO AN ADVANCE MADE BY THE APPELLANT T O AN ASSOCIATE CONCERN. 30. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, LD. ASSESSING OFFICER OBSERVED THAT ASSESSEE HAS DEBITED INTEREST OF RS.3,10,74,729/- IN THE PROFIT AND LOSS ACCOUNT AND IN THE BALANCE ITA NO. 1583/AHD/2012 EDELWEISS FINANCIAL ADVISORS LTD VS. ACIT FOR AY: 2009-10 15 SHEET INTEREST FREE ADVANCES TO ASSOCIATE COMPANY A ND OTHERS WERE APPEARING. ASSESSEE GAVE DETAILED SUBMISSIONS BEFOR E THE ASSESSING OFFICER THAT SUFFICIENT INTEREST FREE FUNDS WERE AV AILABLE WITH THE COMPANY WHICH WERE SUFFICIENT TO TAKE CARE OF THE I NTEREST FREE ADVANCES AND MORE SO SUCH INTEREST FREE ADVANCES HA VE BEEN GIVEN FOR THE BUSINESS EXPEDIENCY AND THERE ARE REGULAR B USINESS TRANSACTIONS WITH THESE PARTIES. LD. ASSESSING OFFI CER WAS NOT CONVINCED WITH THE REPLY OF THE ASSESSEE AND SPECIF ICALLY POINTED OUT THAT THE ADVANCES GIVEN TO ANAGRAM KNOWLEDGE ACADEM Y LTD. AT RS.4,35,40,556/- AND AS PER HIS OBSERVATION NO INTE REST WAS CHARGED ON THIS ADVANCE AND HE ACCORDINGLY CALCULATED THE D EEMED INTEREST @ 12% AT RS. 52,24,886/- AND DISALLOWED THE INTEREST EXPENDITURE TO THIS EXTENT. 31. AGGRIEVED, ASSESSEE WENT IN APPEAL BEFORE LD. C IT(A) WHO SUPPORTED THE VIEW OF LD. ASSESSING OFFICER BUT REM ITTED BACK THE ISSUE FOR CALCULATION OF INTEREST AMOUNT FOR THE EXACT PE RIOD FOR WHICH INTEREST FREE LOAN REMAINED OUTSTANDING BY OBSERVING AS UNDE R :- 7.3 I HAVE CONSIDERED THE FACTS OF THE CASE; ASSESS MENT ORDER AND APPELLANT'S WRITTEN SUBMISSION. ASSESSING OFFICER DISALLOWED IN TEREST ON BORROWED FUNDS ON ACCOUNT OF INTEREST FREE ADVANCES GIVEN TO THE ASSO CIATE CONCERN. IT IS NOT IN DISPUTE THAT THE LOAN GIVEN TO ASSOCIATE CONCERN WA S WITHOUT SPECIFIC BUSINESS PURPOSE AND THEREFORE BORROWED FUNDS DIVERTED TO GI VE LOAN WILL ATTRACT DISALLOWANCE OF INTEREST. APPELLANT SUBMITTED THAT IT WAS HAVING SUBSTANTIAL CURRENT LIABILITIES OF 81.88 CRORES AND THEREFORE IT HAD SU FFICIENT INTEREST FREE FUNDS. CURRENT LIABILITIES ARE TEMPORARY AND SHORT DURATION FUNDS FOR DAY-TO-DAY BUSINESS REQUIREMENTS. CURRENT LIABILITIES CANNOT BE CONSIDE RED FOR GIVING LOANS AND ADVANCES. THEREFORE IT WILL NOT BE CONSIDERED WHILE COMPUTING AVERAGE RATE OF INTEREST. AFTER REMOVING CURRENT LIABILITIES, THE I NTEREST RATE WORKS OUT TO MORE THAN 12% AND THEREFORE DISALLOWANCE OF INTEREST MADE BY THE ASSESSING OFFICER AT 12% IS JUSTIFIED AND DOES NOT REQUIRE ANY INTERFERENCE. APPELLANT ALSO OBJECTED THE COMPUTATION OF DISALLOW ANCE ON THE GROUND THAT ADVANCE TO THE SISTER CONCERN WAS GIVEN FOR THE PAR T OF THE YEAR WHEREAS ASSESSING OFFICER MADE DISALLOWANCE FOR ENTIRE 12 M ONTHS. I-AGREE WITH THE APPELLANT THAT DISALLOWANCE OF INTEREST CAN BE MADE ONLY WITH REFERENCE TO THE PERIOD OF INTEREST FREE LOAN. APPELLANT SUBMITTED T HE DATE ON WHICH LOANS WERE ITA NO. 1583/AHD/2012 EDELWEISS FINANCIAL ADVISORS LTD VS. ACIT FOR AY: 2009-10 16 GIVEN AND ALSO SUBMITTED THAT IT HAS CHARGED INTERE ST @4% WHICH IS SHOWN AS INCOME. ASSESSING OFFICER IS DIRECTED TO VERIFY THE APPELLA NT'S CLAIM AND RESTRICT THE DISALLOWANCE OF INTEREST FOR THE PERIO D OF INTEREST FREE LOAN REMAINING OUTSTANDING DURING THE YEAR AND REDUCE TH E INTEREST INCOME ON SUCH LOAN DISCLOSED BY THE APPELLANT. THE DISALLOWA NCE WORKED OUT AS PER THIS WORKING IS CONFIRMED.. 32. AGGRIEVED, ASSESSEE IS NOW IN APPEAL BEFORE THE TRIBUNAL. 33. LD. AR SUBMITTED THAT THE IMPUGNED INTEREST FRE E ADVANCES ON WHICH INTEREST EXPENDITURE HAS BEEN DISALLOWED RELA TES TO FOLLOWING :- PARTICULARS AMOUNT AS ON 31/3/09 PURPOSE DUE FROM ASSOCIATE COMPANIES ANAGRAM KNOWLEDGE ACADEMY LTD. 4,35,40,556 THE COMPANY IS A FELLOW SUBSIDIARY OF ASSESSEE, THE FUND IS GIVEN FOR BUSINESS PURPOSE. DUE FROM OTHERS ARVIND MURJANI BRANDS PVT. LTD. 2,66,993 NO TRANSACTIONS DURING THE YEAR. ARVIND BRANDS LTD. 1,72,101.67 DEBIT NOTES RAISED BY THE ASSESSEE COMPANY FOR EXPENDITURE INCURRED. VF ARVIND BRANDS LTD. 62,389 DEBIT NOTES RAISED BY THE ASSESSEE COMPANY FOR EXPENDITURE INCURRED ARVIND FASHIONS LTD. 53,000 NO TRANSACTIONS DURING THE YEAR ARVIND MILLS LTD. 27,000 DEBIT NOTES RAISED BY THE ASSESSEE COMPANY FOR EXPENDITURE INCURRED ARVIND CLOTHING LTD. 11,13,495.91 NO TRANSACTIONS DURING THE YEAR 34. IN THE LIGHT OF ABOVE CHART LD. AR SUBMITTED TH AT THE PIVOTAL ADVANCE TO WHICH LD. ASSESSING OFFICER HAS REFERRED TO IS IN RELATION TO ADVANCE OF RS.4,35,40,556/- GIVEN TO ARVIND KNOWLED GE ACADEMY LTD. AND IN RELATION TO THIS ADVANCE LD. AR SUBMITTED TH AT ON 21 ST MARCH, 2009 AMOUNT OF RS.4.35 CRORES WAS GIVEN AND ON 31 ST MARCH, 2009 ITA NO. 1583/AHD/2012 EDELWEISS FINANCIAL ADVISORS LTD VS. ACIT FOR AY: 2009-10 17 INTEREST OF RS.40,556/- HAS BEEN CHARGED AND THE CL OSING BALANCE ON 31 ST MARCH, 2009 WAS SHOWN AT RS.4,35,40,556/-. WHEREAS LD. ASSESSING OFFICER HAS WORKED OUT INTEREST @ 12% ON THIS COMPLETE AMOUNT EVEN WHEN ASSESSEE COMPANY HAS CHARGED INTER EST OF RS.40,556/- FOR 11 DAYS AS THE LOAN WAS GIVEN ON 21 ST MARCH, 2009 AND, THEREFORE, NO DISALLOWANCE OF INTEREST IS CALL ED FOR. 35. AS FAR AS REMAINING ADVANCES OF RS.16,94,978/- EITHER THERE HAS BEEN NO TRANSACTION ENTERED INTO WITH SOME PARTIES AS OPENING BALANCE HAS BEEN CARRIED FORWARD AND IN THE REMAINING THERE ARE REGULAR BUSINESS TRANSACTIONS. LD. AR ALSO SUBMITTED THAT I NTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE COMPANY AS ON 31 ST MARCH, 2009 STOOD AT RS.27.61 CRORES AND WERE SUFFICIENT TO TAKE CARE OF THE INTEREST FREE ADVANCES OF RS.16,94,978/-. LD. AR ALSO REFERRED AN D RELIED ON THE DECISION OF CO-ORDINATE BENCH IN THE CASE OF SISTER CONCERN, ACIT VS. ANAGRAM SECURITIES LTD. IN ITA NO.1890/AHD/2007 FO R ASST. YEAR 2004-05 VIDE ORDER DATED 19.12.2008. 36. ON THE OTHER HAND, LD. DR SUPPORTED THE ORDERS OF LOWER AUTHORITIES. 37. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE RAISED IN THIS GROUND IS IN RELAT ION TO DISALLOWANCE OF INTEREST EXPENDITURE TO THE EXTENT OF RS.52,24,886/ - ON ACCOUNT OF NON- CHARGING OF INTEREST BY THE ASSESSEE ON THE INTERES T FREE LOANS AND ADVANCES. FROM GOING THROUGH THE SUBMISSIONS OF LD. AR AS WELL AS ASSESSMENT ORDER, WE UNDERSTAND THAT THE MAIN REASO N BEHIND CALLING FOR THIS ADDITION WAS THE OBSERVATION OF LD. ASSESS ING OFFICER THAT NO INTEREST HAS BEEN CHARGED ON THE LOANS GIVEN TO ASS OCIATE COMPANY M/S ANAGRAM KNOWLEDGE ACADEMY LTD. AT RS. 4,35,40,5 56/-. THIS VERY BASIS TAKEN BY THE ASSESSING OFFICER SEEMS TO HAVE BEEN TAKEN ON A ITA NO. 1583/AHD/2012 EDELWEISS FINANCIAL ADVISORS LTD VS. ACIT FOR AY: 2009-10 18 WRONG FOOTING LOOKING TO THE LEDGER ACCOUNT OF ANAG RAM KNOWLEDGE ACADEMY LTD. IN THE BOOKS OF ASSESSEE. FROM GOING T HROUGH THIS LEDGER ACCOUNT WE FIND THAT FIRSTLY THIS ADVANCE OF RS.4.35 CRORES WAS GIVEN JUST FEW DAYS BEFORE THE CLOSE OF THE YEAR I. E. ON 21 ST MARCH, 2009 AND SECONDLY ASSESSEE HAS CHARGED INTEREST OF RS.40,556/- FOR 11 DAYS. 38. AS FAR AS REMAINING INTEREST FREE ADVANCES OF R S. 16,94,978/- WE GATHER FROM THE FINANCIAL STATEMENT OF THE ASSESSEE THAT ASSESSEE COMPANY WAS HAVING INTEREST FREE FUNDS IN THE SHAPE OF SHARE CAPITAL AND RESERVE AND SURPLUS AT RS.27.98 CRORES AS ON 31 ST MARCH, 2008 AND RS.27.61 CRORES AS ON 31.3.2009, WHICH SEEMS TO BE SUFFICIENT TO COVER UP SMALL AMOUNT OF INTEREST FREE LOANS AND AD VANCES AT RS. 16,94,978/- MOST OF WHICH ARE BROUGHT FORWARD BALAN CES FROM LAST YEAR OR DEBIT BALANCE REMAINING AT THE END OF THE YEAR A RE AFTER ENTERING INTO REGULAR BUSINESS TRANSACTIONS DURING THE YEAR. WE A LSO FIND THAT LD. AR REFERRED AND RELIED ON THE DECISION OF CO-ORDINATE BENCH IN THE CASE OF ACIT VS. ANAGRAM SECURITIES LTD. IN ITA NO.1890/AHD /2007 FOR ASST. YEAR 2004-05 DATED 19.12.2008 WHICH HAPPENS TO BE A SISTER CONCERN OF THE ASSESSEE COMPANY AND SIMILAR ISSUE CAME UP B EFORE THE CO- ORDINATE BENCH WHEREIN ADDITION WAS MADE BY ASSESSI NG OFFICER BY WAY OF DISALLOWING OF INTEREST EXPENDITURE BECAUSE NO INTEREST WAS CHARGED ON THE DEBIT BALANCE IN THE NAME OF SISTER CONCERN AND THE CO- ORDINATE BENCH DISMISSED THE REVENUES APPEAL BY RE LYING ON THE DECISION OF HON. SUPREME COURT IN THE CASE OF S.A. BUILDERS LTD. VS. CIT 288 ITR 1 (SC) BY OBSERVING AS UNDER :- ITA NO. 1583/AHD/2012 EDELWEISS FINANCIAL ADVISORS LTD VS. ACIT FOR AY: 2009-10 19 5. WE HAVE HEARD BOTH THE PARTIES AND CAREFULL Y GONE THROUGH THE IMPUGNED ORDERS OF THE AUTHORITIES BELOW. IN THE CA SE OF S.A.BUILDERS LTD., V. CIT 288 ITR 1 (SC), HON'BLE SUPREME COURT HAS HELD AS UNDER : ' TO CONSIDER WHETHER ONE SHOULD ALLOW DEDUCTION UNDE R SECTION 36(L)(III) OF INTEREST PAID BY THE ASSESSES ON AMOUNT BORROWED BY IT FOR ADVANCING TO A SISTER CONCERN, THE AUTHORITIES AND THE COURTS SHOULD EXAM INE THE PURPOSE FOR WHICH THE ASSESSEE THE MONEY AND WHET THE SISTER CONCERN DID WITH THE MONEY. THAT THE BORROWED' AMOUNT IS NOT UTILIZED BY THE ASSESSEES OWN BUSINESS BUT HAD BEEN ADVANCED ITS INTEREST FREE LOAN TO SISTER CONCERN I S NOT RELEVANT. WHAT IS RELEVANT IS WHETHER THE AMOUNT WAS ADVANCED AS A MEASURE OF COMMERCIAL EXPEDIENCY AND FROM T HE POINT OF VIEW WHETHER THAT AMOUNT WAS ADVANCED F OR EARNING PROFIT. ONCE IT IS ESTABLISHED THAT THERE WAS NEXUS BETWEEN THE EXPENDITURE AND PURPOSE OF THE BUSINESS WHICH NEED NOT NECESSARILY BE THE B USINESS OF THE ASSESSEE ITSELF, THE REVENUE CANNOT JUSTIFIABLY CLAIM TO PUT ITSELF IN THE ARM CHAIR OF THE BUSINESSMAN OR IN THE POSITION OF THE BOARD OF DIRE CTORS AND ASSUME THE ROLE TO DECIDE HOW MUCH IS REASONABLE EXPENDITURE HAVING RE GARD TO THE CIRCUMSTANCES OF THE CASE. NO BUSINESSMAN CAN BE COMPELLED TO MAX IMIZE HIS PROFITS. IN ORDER TO DECIDE WHETHER INTEREST ON FUNDS BORROW ED BY THE ASSESSEE TO GIVE AN INTEREST FOR LOAN TO A SISTER CONCERN (E .G. A SUBSIDIARY OF THE ASSESSEE) SHOULD BE ALLOWED AS A DEDUCTION UNDER SE CTION 36(1)(III) OF THE INCOME-TAX ACT, 1961 ONE HAS TO ENQUIRE WHETHER THE LOAN WAS GIVEN BY THE ASSESSEE AS A MEASURE OF COMMERCIAL EX PEDIENCY. THE EXPRESSION COMMERCIAL EXPEDIENCY IS ON OF WIDE IM PORT AND INCLUDES SUCH EXPENDITURE AS A PRUDENT BUSINESS MAN INCURS F OR THE PURPOSE OF BUSINESS. THE EXPENDITURE MAY NOT HAVE BEEN INCURRE D UNDER ANY LEGAL OBLIGATION, BUT YET IT IS ALLOWABLE AS BUSINESS EXP ENDITURE IF IT WAS INCURRED ON GROUNDS OF COMMERCIAL EXPEDIENCY. DECISIONS RELATING TO SECTION 37 WILL ALSO BE APPL ICABLE TO SECTION 36(1)(III) BECAUSE IN SECTION 37 ALSO THE EXPRESSIO N USED IS FOR THE PURPOSE OF THE BUSINESS. FOR THE PURPOSE OF BUSINES S INCLUDES EXPENDITURE VOLUNTARILY INCURRED FOR COMMERCIAL EXP EDIENCY AND IT IS IMMATERIAL IF A THIRD PARTY ALSO BENEFITS THEREBY. IN THE PRESENT CASE ON HAND, THE LD. DR DID NOT DIS PUTE THE FINDINGS OF THE LD. CIT(A) THAT DURING THE YEAR UNDER CONSIDERATION THE RE ARE NUMBER OF DEBIT AND CREDIT TRANSACTIONS WITH THE FIVE ASSOCIATED CONCER NS AND SUCH ADVANCES TO SISTER CONCERNS WERE FOR BUSINESS PURPOSE AND DUE T O BUSINESS NEED AND BUSINESS EXPEDIENCY. NOTHING COULD BE BROUGHT ON RE CORD BY THE LEARNED DR TO NEGATE SUCH FINDING OF THE LEARNED CIT(A). THERE FORE, CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE WE ARE OF THE CONSIDE RED VIEW THAT THE LD. ITA NO. 1583/AHD/2012 EDELWEISS FINANCIAL ADVISORS LTD VS. ACIT FOR AY: 2009-10 20 CIT(A) IS PERFECTLY JUSTIFIED IN DELETING THE IMPUG NED DISALLOWANCE OUT INTEREST EXPENDITURE BY RELYING ON THE DECISION OF HON. SUPREME COURT IN THE CASE OF S.A. BUILDERS LTD. VS. CIT 288 ITR 1 (SC). WE THEREFORE, UPHOLD THE ORDER OF THE LD. CIT(A) AND DISMISS THE APPEAL OF T HE REVENUE. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. 39. APPLYING THIS DECISION IN THE CASE OF ACIT VS. ANAGRAM SECURITIES LTD.(SUPRA) TO THE FACTS OF THE CASE OF ASSESSEE, AS WELL AS REFERRING TO OUR DISCUSSION MADE ABOVE, WE ARE OF T HE VIEW THAT AS THE ASSESSEE HAS CHARGED INTEREST ON THE MAJOR PORTION OF THE IMPUGNED LOANS AND ADVANCES WHICH HAPPENED TO HAVE BEEN GIVE N AT THE CLOSE OF THE FINANCIAL YEAR, NO ADDITION WAS CALLED FOR B Y WAY OF DISALLOWANCE OF INTEREST BY THE LD. ASSESSING OFFICER. WE DELETE THE SAME AND ALLOW THE GROUND OF ASSESSEE. 40. GROUND NO.6 READS AS UNDER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE DEPARTMENTAL AUTHORITIES HAVE ERRED IN DISALLOWING ASSESSEES CLAIM FOR BROKERAGE REFUND OF RS.4,37,669/-. 41 DURING THE COURSE OF ASSESSMENT PROCEEDINGS LD. ASSESSING OFFICER OBSERVED THAT ASSESSEE HAS CLAIMED EXPENSES ON ACCOUNT OF BROKERAGE AT RS.4,37,669/- BUT THE JUSTIFICATION GI VEN BY THE ASSESSEE IN SUPPORT OF BROKERAGE REBATE REFERRED TO SEBI CIR CULAR DATED 28.10.2003 WAS NOT ACCEPTED BY THE ASSESSING OFFICE R AND HE WAS OF THE VIEW THAT LOSS HAS BEEN INCURRED BY THE CLIENT AND NOT BY THE ASSESSEE AND THEREFORE, THERE WAS NO REASON FOR COM PENSATING THE LOSS INCURRED BY THE CLIENTS BECAUSE THERE WAS NO C ONTRACTUAL LIABILITY ON THE PART OF ASSESSEE AND ACCORDINGLY LD. ASSESSI NG OFFICER WENT AHEAD TO MAKE ADDITION OF RS.4,37,669/-. ITA NO. 1583/AHD/2012 EDELWEISS FINANCIAL ADVISORS LTD VS. ACIT FOR AY: 2009-10 21 42. AGGRIEVED, ASSESSEE WENT IN APPEAL BEFORE LD. C IT(A) WHO TOO BY KEEPING IN MIND THE ORDER OF HIS PREDECESSOR FOR ASST. YEAR 2007-08 DATED 8.8.2011 CONFIRMED THE ADDITION MADE BY ASSES SING OFFICER BY OBSERVING AS BELOW :- 8.3 I HAVE CONSIDERED THE FACTS OF THE CASE; ASSES SMENT ORDER AND APPELLANT'S WRITTEN SUBMISSION. THIS GROUND IS COVERED AGAINST THE APPE LLANT BY THE ORDER OF RNY LEARNED PREDECESSOR IN ASSESSMENT YEAR 2007-08 BY ORDER DAT ED 8-08-201 1 . THE RELEVANT EXTRACT OF THIS ORDER IS AS UNDER- 'APPELLANT CLAIMED BROKERAGE REBATE EXPENSE BY MAKING GENERAL STATEMENT THAT IT WAS GIVEN TO THE CLIENT TO COMPENSATE THEM FOR HIGH TURNOVER OR DUE TO EXCESS BROKERAGE CHARGED. HOWEVER APPELLANT DID NOT GIVE DETAILS OF THE CLIENTS WITH SPECIFIC REASONS FOR GIVING SUCH BROKE RAGE REBATE. IN ABSENCE OF ANY DETAILS, THE CLAIM OF APPELLANT FOR THE PURPOSE OF BUSINESS CANNOT BE EXAMINED. THE ONUS TO PROVE ANY EXPENSES WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS IS OF THE APPELLANT AND APPELLA NT DID NOT DISCHARGE ITS ONUS. IN THE REBATE IS GRANTED FOR GENUINE BUSINESS CONSIDERATIONS, THE SAME MAY BE ALLOWABLE BUT IF IT IS WITHOUT ANY BASI S AND AD HOC THEN THE BUSINESS PURPOSE OF THE SAME IS NOT ESTABLISHED. ME RELY MAKING PAYMENT BY CHEQUE AFTER CREDITING ACCOUNTS IS NOT ENOUGH. APPELLANT HAS TO PROVE THE BUSINESS PURPOSE OF SUCH CLAIM WHICH CANNOT BE ALLOWED IN THE ABSENCE OF IT. NONE OF THE DECISIONS RELIED UPON BY THE APP ELLANT APPLIES IN THE PECULIAR FACTS OF THE CASE. ACCORDINGLY THE ADDITIO N MADE BY THE ASSESSING OFFICER IS CONFIRMED.' SINCE THE FACTS ARE IDENTICAL DURING THIS YEAR ALSO AS APPELLANT DID NOT SUBMIT THE SPECIFIC REASONS FOR GIVING SUCH BROKERAGE REBATE, THE EXPENSES IS NOT ALLOWABLE. APPELLANT SUBMITTED DETAILS OF BROKERAGE REBATE GRANTED BUT SPECIFIC PURPOSE AND REASONS WERE NOT GIVEN AND THEREFORE TH E BUSINESS PURPOSE CANNOT BE ESTABLISHED. RESPECTFULLY FOLLOWING THE AFORESAID D ECISION, THE ADDITION OF BROKERAGE REBATE IS CONFIRMED. 43. AGGRIEVED, ASSESSEE IS NOW IN APPEAL BEFORE THE TRIBUNAL. 44. LD. AR SUBMITTED THAT BROKERAGE REBATE OF RS. 4 ,37,669/- WAS GIVEN TO ITS CLIENTS IN VIEW OF SEBI GUIDELINES AS THE ASSESSEE WAS ENGAGED IN THE STOCK BROKING BUSINESS AND THE REFUN D OF BROKERAGE TO THE CLIENTS ARISE MAINLY ON THE FOLLOWING REASONS : - I) HIGHER RATE OF BROKERAGE CHARGED THAN WHAT HAS B EEN AGREED; ITA NO. 1583/AHD/2012 EDELWEISS FINANCIAL ADVISORS LTD VS. ACIT FOR AY: 2009-10 22 II) REDUCTION IN THE BROKERAGE RATES IN ORDER TO RE TAIN CLIENTS AND TO FACE CUT THROAT COMPETITION; III) REDUCTION OF BROKERAGE RATES FOR ASSESSEE HAPP ENS TO GIVE HIGHER BUSINESS VOLUME THAN EXPECTED. THE LD. AR ALSO SUBMITTED THAT THE TOTAL BROKERAGE REBATE PAID TO CLIENTS DURING THE YEAR WAS RS.4,37,669/- AS AGAINS T TOTAL BROKERAGE INCOME EARNED AT RS.22,09,71,029/- AND THE BROKERAG E REBATE HAPPENED TO BE JUST AT 0.2% OF THE TOTAL BROKERAGE EARNED AND THEREFORE, NO DISALLOWANCE SHOULD HAVE BEEN CALLED FOR IN REGARD TO GENUINE BROKERAGE REBATE EXPENDITURE. 45. ON THE OTHER HAND, LD. DR SUPPORTED THE ORDERS OF LOWER AUTHORITIES. 46. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THIS GROUND RELATES TO BROKERA GE REBATE EXPENDITURE OF RS. 4,37,669/-. FROM THE PERUSAL OF RECORDS WE GATHER THAT THE ASSESSEE IS A LIMITED COMPANY ENGAGED IN T HE BUSINESS OF STOCK BROKING AND IS MEMBER OF STOCK EXCHANGE AND G ROSS REVENUE FOR THE YEAR UNDER APPEAL SHOWN AT RS.28.71 CRORES WHICH INCLUDES BROKERAGE EARNED AT RS.22.09 CRORES. IN THE PROCESS OF CARRYING ON NORMAL BUSINESS ACTIVITY AS A STOCK BROKER, THERE G ENERALLY HAPPENS TO BE INCIDENCES WHEN THE ASSESSEE HAS TO REVISE THE R ATE OF BROKERAGE BEING CHARGED TO THE CLIENTS WHICH KEEPS ON CHANGIN G ON THE BASIS OF BUSINESS VOLUME GIVEN BY THE CLIENTS OR TO RETAIN T HE CLIENTS IN THE COMPETITIVE MARKET. FROM PERUSAL OF PAPER BOOK FROM PAGES 22 TO 59 RELATING TO THE BROKERAGE REFUND A/C AS WELL AS PAR TY WISE DETAIL OF BROKERAGE REFUND GIVEN WE OBSERVE THAT REGULAR BUSI NESS TRANSACTIONS HAVE BEEN ENTERED THROUGHOUT THE YEAR WITH THESE CL IENTS AND BROKERAGE REFUND HAS BEEN DULY SHOWN IN THIS ACCOUN T. LD. ASSESSING ITA NO. 1583/AHD/2012 EDELWEISS FINANCIAL ADVISORS LTD VS. ACIT FOR AY: 2009-10 23 OFFICER OUGHT TO HAVE APPRECIATED THE BUSINESS VOLU ME OF THE ASSESSEE AND THE NATURE OF EXPENDITURE CLAIMED BY A SSESSEE WHICH IN THE GIVEN CIRCUMSTANCES PURELY SPEAKS OUT THAT ASSE SSEE HAS JUST CLAIMED BROKERAGE REBATE THAT TOO THROUGH ITS REGUL AR BOOKS OF ACCOUNTS DEALING EACH AND EVERY TRANSACTION AT RS.4 ,37,669/- AS AGAINST VOLUMINOUS BROKERAGE EARNED AT RS.22.09 CRO RES. IN VIEW OF THIS FACT WE ARE INCLINED TO BELIEVE THE GENUINENES S OF THE EXPENDITURE CLAIMED BY THE ASSESSEE AND WE DO NOT FIND ANY SUBS TANCE IN THE ADDITION MADE BY LD. ASSESSING OFFICER WHILE DISALL OWING BROKERAGE REFUND AND EXPENDITURE ON RS. 4,37,669/-. WE DELETE THE ADDITION AND ALLOW THE GROUND OF ASSESSEE. 47. IN THE RESULT, APPEAL OF ASSESSEE IS PARTLY ALL OWED. ORDER PRONOUNCED IN THE COURT ON 01/04/016 AT AHMED ABAD. Z S S S SD/- (RAJPAL YADAV) JUDICIAL MEMBER SD/- (MANISH BORAD) ACCOUNTANT MEMBER DATED 01/04/2016 MAHATA/- ITA NO. 1583/AHD/2012 EDELWEISS FINANCIAL ADVISORS LTD VS. ACIT FOR AY: 2009-10 24 %& ' '#() *%)+# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ! ' # / CONCERNED CIT 4. ' # ( ) / THE CIT(A) 5. $%& ! , ! , '() ) / DR, ITAT, AHMEDABAD 6. &* +, / GUARD FILE. %& / BY ORDER, TRUE COPY ,- (ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION- 28/29/3/2016 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER 29/3/16, OTHER MEMBER . 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 TH E DICTATING MEMBER FOR PRONOUNCEMENT .. 5. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 1.4.16 6. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 7. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER.. 8. DATE OF DESPATCH OF THE ORDER