ALKA SECURITIES LTD, MUMBAI V. ACIT 4(1), MUMBAI

ITA 2764/MUM/2012

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3758 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-05-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 06-01-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 24-04-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: AADITYA MAHESHWARI
• Keywords: Earning of tax free income; Source of fund
• Section: 142(1); 14A; 37(1); 37

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI . . , !' , # , $ BEFORE S/SHRI B.R.BASKARAN, ACCOUNTANT MEMBER AND AMARJIT SINGH, JUDICIAL MEMBER / I .T.A. NO.2764/MUM/2012 ( # ' (' / ASSESSMENT YEAR: 2008-09) ALKA SECURITIES LIMITED MAITRI, PLOT NO.10, NUTAN LAXMI CHS LTD., N.S.ROAD NO.10, J.V.P.D., VILLE PARLE (WEST), MUMBAI - 400049 / VS. INCOME TAX OFFICER 4(1) ROOM NO.640, 6 TH FLOOR, AAYAKAR BHAVAN, M.K.ROAD, MUMBAI - 400020 ./ ./ PAN/GIR NO. : AAACA4835E ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY: SHRI AADITYA MAHESHWARI DEPARTMENT BY: SHRI MANOJ KUMAR / DATE OF HEARING: 06.01.2016 !' /DATE OF PRONOUNCEMENT: 11.05.2016 #$ / O R D E R PER AMARJIT SINGH, JM: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER DATED 13.12.2011 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS)-9, MUMBAI [HEREINAFTER REFERRED TO AS THE CIT(A)] RE LEVANT TO THE ASSESSMENT YEAR 2008-09. ITA NO.2764/MUM/12 A.Y.2008-09 2 2. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE A.Y.2008-09 ON 30.09.2008 DECLARING TOTAL INCOME TO THE TUNE OF RS .1,47,67,329/-. THE RETURN SO FILED WAS PROCESSED U/S.143(1) OF THE INCOME TAX ACT, 1961( IN SHORT THE ACT) ON 14.07.2009. THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE U/S. 143(2) OF THE ACT WAS ISSU ED ON 23.09.2009 AND DULY SERVED UPON THE ASSESSEE. THEREAFTER THE NOTICE U/S. 142(1) WAS ALSO ISSUED CALLING CERTAIN DETAILS. THE ASSES SEE IS LIMITED COMPANY AND IS A TRADING MEMBER OF NATIONAL STOCK E XCHANGE. THE ASSESSEE IS ALSO IN THE BUSINESS OF SHARE BROKING A ND INVESTMENT INTO SHARE AND OTHER SECURITIES AND BROKERAGE INCOME. T HE ASSESSING OFFICER COMPLETED THE ASSESSMENT BY ASSESSING THE I NCOME TO THE TUNE OF RS.1,69,21,560/-. THE ASSESSING OFFICER DISALLO WED THE VSAT/ LEASE LINE CHARGES AND ALSO DISALLOWED THE EXPENDIT URE INCURRED TO EARN THE EXEMPT INCOME U/S. 14A OF THE ACT WHICH WA S CONFIRMED BY THE LEARNED CIT(A) HENCE THE ASSESSEE FILED THE PRE SENT APPEAL BEFORE US. 3. IN BRIEF THE ASSESSEE HAS TAKEN THE FOLLOWING TW O GROUNDS:- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN DISALLOWING VSAT AND LEASE LINE CHARGES OF RS.4,73,530/- U/S. 40(A)(IA) OF INCOME TAX ACT, 1961. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN DISALLOWING RS.14,57,014/- ON ACCOUNT OF INTEREST BY APPLYING RULE 8D READ WITH SECTION 14A. ITA NO.2764/MUM/12 A.Y.2008-09 3 ISSUE NO.1:- 4. THE ASSESSEE HAS CHALLENGED THE CONFIRMATION OF DISALLOWANCE OF VSAT / LEASE LINE CHARGES TO THE TUNE OF RS.4,73 ,530/- U/S. 40(A)(IA) OF THE ACT. THE LEARNED REPRESENTATIVE OF THE ASSE SSEE HAS ARGUED THAT THIS ISSUE HAS DULY BEEN COVERED BY THE JUDGEMENT O F JURISDICTIONAL HIGH COURT OF BOMBAY IN CASE OF INCOME TAX COMMISSI ONER MUMBAI CITY 4 VS. ANGEL CAPITAL & DEBIT MARKET LTD., IN I. T.A. NO.475 OF 2011 DATED 28.07.2011. THE FINDING OF THE SAID JUD GEMENT IS HEREBY MENTIONED BELOW FOR READY REFERENCE. 1. THREE QUESTIONS OF LAW RAISED BY THE REVENUE IN THIS APPEAL, WHICH READS THUS: (A) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE HONBLE TRIBUNAL WAS JUSTIFIED IN HOLDING THAT VSAT AND LEASE LINE CHARGES PAID TO THE STOCK EXCHANGE BY THE ASSESSEE COMPANY WERE ALLOWABLE AS A DEDUCTION FROM TAXABLE INCOME EVEN THOUGH THE ASSESSEE COMPANY HAD FAILED TO DEDUCT TDS THEREON? (B) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE HONBLE TRIBUNAL WAS JUSTIFIED IN HOLDING THAT VSAT AND ITA NO.2764/MUM/12 A.Y.2008-09 4 LEASE LINE CHARGES PAID TO THE STOCK EXCHANGE BY THE ASSESSEE COMPANY WERE NOT PAID IN CONSIDERATION OF TECHNICAL SERVICES RENDERED BY THE STOCK EXCHANGE WITHIN THE MEANING OF SECTION 194J READ WITH EXPLANATION 2 TO SECTION 9(1)(VII) OF THE INCOME TAX ACT? (C) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE HONBLE TRIBUNAL WAS JUSTIFIED IN DELETING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER OF CLAIM OF THE ASSESSEE COMPANY FOR A DEDUCTION OF PAYMENT OF RS.6,51,240/- TOWARDS PENALTY PAID TO STOCK EXCHANGE EVEN THOUGH SUCH PENALTY PAYMENT WAS CLEARLY DISALLOWABLE UNDER EXPLANATION TO SECTION 37(1) OF THE INCOME TAX ACT? 2. AS REGARDS FIRST TWO QUESTIONS ARE CONCERNED, TH E FINDINGS OF THE FACT RECORDED BY THE ITAT IS THAT V SAT AND LEASE LINE CHARGES PAID BY THE ASSESSEE TO STOC K EXCHANGE WERE MERELY REIMBURSEMENT OF THE CHARGES PAID/PAYABLE BY THE STOCK EXCHANGE TO THE DEPARTMEN T OF TELECOMMUNICATION. SINCE VSAT AND LEASE LINE CHARGES PAID BY THE ASSESSEE DO NOT HAVE ANY ELEMEN T OF INCOME, DEDUCTING TAX WHILE MAKING SUCH PAYMENTS DO ITA NO.2764/MUM/12 A.Y.2008-09 5 NOT ARISE. HENCE, QUESTION NOS. (A) TO (B) CANNOT BE ENTERTAINED. 3. AS REGARDS QUESTION (C) IS CONCERNED THE FINDING OF THE FACT RECORDED BY THE ITAT IS THAT THE AMOUNT PA ID AS PENALTY WAS ON ACCOUNT OF IRREGULARITIES COMMITTED BY THE ASSESSEES CLIENTS. SUCH PAYMENTS WERE NOT ON ACCO UNT OF ANY INFRACTION OF LAW AND HENCE ALLOWABLE AS BUS INESS EXPENDITURE. IN SUCH AS CASE THE EXPLANATION TO SE CTION 37 COULD NOT APPLY. ACCORDINGLY QUESTION (C) RAISE D BY THE REVENUE CANNOT BE ENTERTAINED. 4. IN THE RESULT THE APPEAL IS DISMISSED WITH NO OR DER AS TO COSTS. 5. NO NEW FACTS WERE BROUGHT INTO THE LIGHT BEFORE US CONTRARY TO THE ABOVE MENTIONED FINDING BY THE DEPARTMENTAL REP RESENTATIVE. THE MATTER OF CONTROVERSY HAS DULY BEEN ANSWERED IN FAVOUR OF ASSESSEE IN THE CASE OF ANGEL CAPITAL AND DEBIT MA RKET LTD., (SUPRA). IN VIEW OF THE ABOVE SAID JUDGEMENT, WE ARE OF THE VIEW THAT VSAT / LEASE LINE CHARGES TO THE TUNE OF RS.4,73,530/- U/S . 40(A)(IA) OF THE ACT IS NOT LIABLE TO BE DISALLOWED THEREFORE THE SA ME IS HEREBY ALLOWED AND ACCORDINGLY THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. ISSUE NO.2:- ITA NO.2764/MUM/12 A.Y.2008-09 6 6. ACCORDING TO ISSUE NO.2 THE ASSESSEE HAS CHALLEN GED THE EXPENDITURE INCURRED TO EARN THE EXEMPT INCOME TO T HE TUNE OF RS.14,57,014/- IN VIEW OF THE PROVISION CONTAINED I N SECTION 14A READ WITH RULE 8D OF THE ACT. THE CONTENTION OF THE ASS ESSEE IS THAT THE ASSESSEE DID NOT RAISE ANY LOAN TO EARN THE EXEMPT INCOME. MOREOVER, THE ASSESSEE WAS HAVING THE SUFFICIENT FUND WITH HI M THEREFORE THE INVESTMENT MADE BY THE ASSESSEE IS LIABLE TO BE TRE ATED AS WITH HIS OWN FUND AND THE EXPENDITURE INCURRED TO EARN THE EXEMP T INCOME IS NOT LIABLE TO BE DISALLOWED IN VIEW OF THE PROVISION SE CTION 14A READ WITH RULE 8D. IN SUPPORT OF THE CONTENTION THE LEARNED REPRESENTATIVE OF ASSESSEE PLACE RELIANCE UPON THE ORDER PASSED BY IN COME TAX APPELLATE TRIBUNAL IN INDIA ADVANTAGE SECURITIES LT D. ITA NO.6711/MUM/2011 DATED 14.09.2012. IT IS ALSO ARGU ED THAT IN VIEW OF THE BALANCE THE SOURCE OF FUND FOR RESERVE AND S URPLUS OF THE COMPANY I.E. INTEREST FREE FUND OF THE COMPANY, THE REFORE IN THE SAID CIRCUMSTANCES THE PROVISION U/S.14A READ WITH RULE 8D IS NOT APPLICABLE. THE ACCOUNT BOOK SPEAKS ABOUT THE INVE STMENT IN SHARES TO THE TUNE OF RS.1,40,53,000/- OUT OF SALE PROCEED S OF INVESTMENTS SOLD AMOUNTING TO RS.1,46,89,815/- DURING THE YEAR. IT IS SPECIFICALLY CONTENDED THAT THE PROVISION OF SECTION 14A READ WI TH RULE 8D OF THE ACT IS NOT APPLICABLE TO THE SHARE STOCK IN TRADE A ND IN THIS REGARD THE LEARNED REPRESENTATIVE OF THE ASSESSEE HAS PLACED R ELIANCE UPON THE ORDER PASSED BY THE INCOME TAX APPELLATE TRIBUNAL I N INDIA ADVANTAGE SECURITIES LTD. ITA NO.6711/MUM/2011 DATE D 14.09.2012. ITA NO.2764/MUM/12 A.Y.2008-09 7 IN THE CASE OF INDIA ADVANTAGE FUND, 10% OF DIVIDEN D INCOME IS DISALLOWED TOWARDS ADMINISTRATION EXPENSES. ACCORD INGLY, WE RESTRICT THE DISALLOWANCE U/S. 14A TO 10% DIVIDEND INCOME 7. IN RESULT THE APPEAL OF THE ASSESSEE IS HEREBY P ARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH MAY, 2016 SD/- SD/- (B.R.BASKARAN) (AMARJIT SINGH) # / ACCOUNTANT MEMBER %& # /JUDICIAL MEMBER ' ( MUMBAI; )# DATED : 11 TH MAY, 2016 MP MP MP MP ) * +# !, -,( / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. * ( ) / THE CIT(A)- 4. * / CIT 5. -./ &&01 , 01' , ' ( / DR, ITAT, MUMBAI 6. /34 5 / GUARD FILE. ) / BY ORDER, - & //TRUE COPY// ./' (DY./ASSTT. REGISTRAR) , ' ( / ITAT, MUMBAI