Vadodara Stock Exchange Limited, Baroda V. The ACIT.,Circle-4, Baroda

ITA 2836/AHD/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2171 (ITAT-AHMEDABAD)
• Duration Of Justice: 7 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-07-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 23-07-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 18-12-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: O P BATHEJA
• Assessee Lawyers: S N SOPARKAR; URVASHI SO
• Keywords: Capital asset; Earning of tax free income; Revenue expenditure; Capital expenditure
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI G.C. GUPTA, VICE PRESIDENT AND SHRI A.K . GARODIA, ACCOUNTANT MEMBER ITA NO. 2836/AHD/2012 A.Y: 2008-09 VADODARA STOCK EXCHANGE LIMITED, 3 RD FLOOR, FORTUNE TOWER, SAYAJIGANJ, VADODARA - 390005 PAN: AACCV3212E VS ACIT CIRCLE-4, BARODA (APPELLANT) (RESPONDENT) REVENUE BY : SHRI O.P. BATHEJA, SR.D.R. ASSESSEE(S) BY : SHRI S.N. SOPARKAR & MS. URVASHI SOPAN, A.R. / // / DATE OF HEARING : 23/07/2013 / DATE OF PRONOUNCEMENT: 26/07/2013 / O R D E R PER SHRI A.K. GARODIA: THIS APPEAL IS FILED BY THE ASSESSEE WHICH IS DIRE CTED AGAINST THE ORDER OF LEARNED CIT(A)III, BARODA, DATED 13.09.20 12 FOR THE ASSESSMENT YEAR 2008-09. 2. THE GROUND NO.1 RAISED BY THE ASSESSEE IS AS UND ER:- LD. CIT(A) ERRED IN LAW AND ON FACTS IN CONFIRMING ACTION OF AO IN TREATING DEMUTUALIZATION EXPENSES OF RS.13,80,837/- AS CAPIT AL IN NATURE. BOTH THE LOWER AUTHORITIES ERRED IN HOLDING THAT THE EXPENSE S INCURRED WERE MEANT FOR CHANGE IN SET UP OF ENTITY THAT WAS ENDURING IN NAT URE IGNORING THE SUBMISSIONS THAT AS IN LINE WITH GUIDELINE ISSUED B Y SEBI THE APPELLANT INCURRED THE EXPENSES TO COMPLETE THE PROCESS OF DE MUTUALIZATION WHEREBY NO NEW ASSET CAME INTO EXISTENCE. LD. CIT(A) OUGHT TO HAVE TREATED DEMUTUALIZATION EXPENSES AS REVENUE IN NATURE AS CL AIMED BY THE APPELLANT. ITA NO.2836/AHD/ 2012 VADODARA STOCK EXCHANGE LIMITED VS. ACIT, BARODA A.Y. 2008-09 - 2 - 3. BRIEF FACTS ON THIS ISSUE TILL ASSESSMENT STAGE ARE NOTED BY THE LEARNED CIT(A) IN PARAGRAPH 4 OF HIS ORDER, WHICH I S REPRODUCED BELOW: THE FIRST GROUND OF APPEAL IS DIRECTED AGAINST THE ACTION OF THE A.O . IN DISALLOWING THE DEMUTUALIZATION EXPENSES OF RS. 13, 80,837/- TREATING THE SAME AS CAPITAL EXPENDITURE. THE A.O. NOTED THAT THE APP ELLANT HAD DEBITED AN AMOUNT OF RS. 13,80,837/- AS DEMUTUALIZATION EXPENS ES WHICH INCLUDED EXPENSES INCURRED TOWARDS SHARES TRANSFER STAMP, CO MMITTEE MEETING, LEGAL AND CONSULTANCY, REGISTRATION FEE, ADVERTISEMENT EX PENSE ETC. THE A.O. ASKED THE APPELLANT TO EXPLAIN AS TO WHY THE DEMUTUALIZAT ION EXPENSES SHOULD NOT BE CAPITALIZED. THE APPELLANT SUBMITTED BEFORE THE A.O . THAT THE EXPENDITURE WAS INCURRED FOR THE PRESERVING THE CAPITAL OF THE COMP ANY AND SHOULD BE CONSIDERED AS REVENUE EXPENSES. THE A.O. DID NOT AC CEPT THE SUBMISSION OF THE APPELLANT. HE HELD THAT DEMUTUALIZATION REFERS TO C HANGE IN SET-UP OF THE MANAGEMENT THAT ARE ENDURING IN NATURE. BY VIRTUE O F THIS PROCESS THE NATURE AND SET-UP OF ORGANIZATION GETS COMPLETELY CHANGED AND THEREFORE, ANY EXPENDITURE INCURRED FOR THE OVERHAULING OF AN ENTI TY CANNOT BE REVENUE IN NATURE. THEREFORE, HE CAPITALIZED THE DEMUTUALIZATI ON EXPENSES AND ADDED TO THE TOTAL INCOME OF THE APPELLANT . 4. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LEARNED CIT(A) BUT WITHOUT SUCCESS AND NOW, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 5. IT IS SUBMITTED BY LEARNED AR OF THE ASSESSEE TH AT AS PER THE REPORT OF JUSTICE M.H. KANIA COMMITTEE ON CORPORATISATION AND DEMUTUALIZATION OF STOCK EXCHANGES, IT WAS RECOMMEN DED THAT THERE SHOULD BE CHANGES IN THE MANAGEMENT AND OWNERSHIP S TRUCTURE OF STOCK EXCHANGES AND AFTER THAT, THE GOVERNMENT OF INDIA A MENDED THE SECURITIES CONTRACT REGULATION ACT, 1956 IN THE YEA R 2004 PAVING WAY FOR CORPORATIZATION AND DEMUTUALIZATION OF STOCK EXCHAN GE IN INDIA. HE FURTHER SUBMITTED THAT ONE OF THE KEY MEASURES OF T HE DEMUTUALIZATION EXERCISE IS TO ENSURE INDUCTION OF NON-TRADING SHAR EHOLDERS TO THE EXTENT OF 51% OF AGGREGATE EQUITY CAPITAL OF THE EXCHANGE POST DEMUTUALIZATION. HE FURTHER SUBMITTED THAT ANY STEP TAKEN BY ANY STO CK EXCHANGE TO FULFILL ITA NO.2836/AHD/ 2012 VADODARA STOCK EXCHANGE LIMITED VS. ACIT, BARODA A.Y. 2008-09 - 3 - THESE REQUIREMENTS HAS TO BE ACCEPTED AS A STEP UND ER THE BUSINESS ACTIVITY AND THE EXPENDITURE INCURRED THEREON SHOUL D BE ALLOWED AS REVENUE EXPENDITURE. HE FURTHER SUBMITTED THAT THE DETAILED NOTE ON DEMUTUALIZATION PROCESS OF THE ASSESSEE IS AVAILABL E AT PAGES 57 TO 61 OF THE PAPER BOOK. HE ALSO SUBMITTED THAT HYDERABAD ST OCK EXCHANGE LIMITED WHO HAD FAILED TO DILUTE AT LEAST 51% OF IT S EQUITY SHARES CAPITAL TO PUBLIC OTHER THAN SHAREHOLDERS HAVING TRADING RI GHTS ON OR BEFORE THE STIPULATED DATED 28.8.2007, THE RECOGNITION GRANTED TO HYDERABAD STOCK EXCHANGE LTD HAD BEEN WITHDRAWN W.E.F. 29.8.2007. H E FURTHER SUBMITTED THAT UNDER THESE FACTS, THE EXPENSES INCURRED BY TH E ASSESSEE WERE ACTUALLY SUPPORTING AN EXISTING BUSINESS AND IT HAS NOT RESULTED INTO ACQUISITION OF ANY CAPITAL ASSET AND THEREFORE, THE TRADE EXPENSES ARE REVENUE IN NATURE. HE PLACED RELIANCE UPON A JUDGME NT OF HONBLE APEX COURT RENDERED IN THE CASE OF BIKANER GYPSUMS LTD. AS REPORTED IN 187 ITR 39 (SC) AND ALSO UPON ANOTHER JUDGMENT OF HONB LE APEX COURT RENDERED IN THE CASE OF EMPIRE JUTE CO. LTD. VS. CI T AS REPORTED IN (1980) 124 ITR 1. AT THIS JUNCTURE, A QUERY WAS RAI SED BY THE BENCH AS TO WHETHER THERE IS ANY INCREASE IN THE PAID UP SHARE CAPITAL OF THE ASSESSEE COMPANY IN THE PRESENT YEAR. IT WAS SUBMITTED IN RE PLY THAT BALANCE SHEET OF THE ASSESSEE COMPANY IS AVAILABLE AT PAGE NO.1 O F THE PAPER BOOK AS PER WHICH THE PAID UP SHARE CAPITAL WAS RS.29 LAC A S ON 31.3.2007 AND AT RS.145 LAC AS ON 31.3.2008. HE SUBMITTED THAT ALTHO UGH THERE IS INCREASE IN THE PAID SHARE CAPITAL OF THE ASSESSEE COMPANY B UT THE EXPENSES INCURRED WERE NOT FOR THIS PURPOSE BUT FOR DEMUTUAL IZATION AND HENCE, THE INCREASE IN THE PAID UP CAPITAL HAS NO RELEVANCE. A S AGAINST THIS, LEARNED D.R. OF THE REVENUE SUPPORTED THE ORDER OF LEARNED CIT(A). ITA NO.2836/AHD/ 2012 VADODARA STOCK EXCHANGE LIMITED VS. ACIT, BARODA A.Y. 2008-09 - 4 - 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIE S BELOW AND THE JUDGMENTS CITED BY LEARNED AR OF THE ASSESSEE. FIRS T OF ALL, WE WOULD LIKE TO POINT OUT THAT THIS ISSUE WAS DECIDED BY LEARNED CIT(A) AS PER PARAGRAPH 4.2 AND 4.3 OF HIS ORDER, WHICH ARE REPRO DUCED BELOW FOR THE SAKE OF READY REFERENCE: I HAVE CONSIDERED THE FACTS OF THE CAS E AS ALSO THE OBSERVATION OF THE AO. ADMITTEDLY, THESE EXPENSES HAVE BEEN INCUR RED FOR RESTRUCTURING OF THE CAPITAL STRUCTURE OF THE APPELLANT COMPANY. AFTER DEMUTUALIZATION THE CAPITAL BASE OF THE COMPANY HAS UNDER GONE COMP LETE CHANGE AND THE ERSTWHILE AOP HAS BECOME A COMPANY ELIGIBLE FOR DIS TRIBUTING DIVIDENDS. THE EXPENSES HAVE BEEN INCURRED FOR CORPORATELIZATION A ND DEMUTUALIZATION OF THE STOCK EXCHANGE. AS A RESULT OF SUCH ACTIONS, THE T RADING RIGHTS, OWNERSHIP AND MANAGEMENT OF THE EXCHANGE HAS BEEN SEGREGATED FROM EACH OTHER. 51% OF AGGREGATE EQUITY CAPITAL HAS GONE TO THE NON-TRADIN G SHARE HOLDERS BESIDES OTHER CHANGES STATED BY THE APPELLANT IN ITS SUBMIS SION MENTIONED ABOVE. THE CALCUTTA HIGH COURT IN BROOKE BOND INDIA LTD.'S CASE, 140 ITR 272 HELD THAT WHERE THE OBJECT OF INCURRING AN EXPENDITURE I S TO AFFECT THE CAPITAL STRUCTURE AS A RESULT OF WHICH CERTAIN INCIDENTAL A DVANTAGE FLOWS, THE EXPENDITURE WILL BE OF CAPITAL NATURE. IT IS NOT TH E ACQUISITION OF A RIGHT OF A PERMANENT CHARACTER ALONE, THE CREATION OF WHICH IS A CONDITION FOR THE CARRYING ON OF THE BUSINESS, THAT COULD BE RIGHTLY TREATED AS AN EXPENDITURE ON THE CAPITAL ACCOUNT. CAPITA! EXPENDITURE CAN BE INC URRED AFTER A COMPANY IS FLOATED OR IT STARTED BUSINESS, IF IT RESULTED IN B RINGING ABOUT CAPITAL ADVANTAGE. THIS VIEW WAS APPROVED BY HON'BLE SUPRE ME COURT IN ITS DECISION IN THE CASE, OF 93 TAXMAN S (SC), PUNJAB STATE INDU STRIAL DEVELOPMENT CORPN. LTD. IN THIS DECISION THE SUPREME COURT HAS HELD AS FOLLOWS: 7. WE DO NOT CONSIDER IT NECESSARY TO EXAMINE ALL THE DECISIONS IN EXTENSO BECAUSE WE ARE OF THE OPINION THAT THE FEE PAID TO THE REGISTRAR FOR EXPANSION OF THE CAPITAL BASE OF THE COMPANY WAS DIRECTLY REL ATED TO THE CAPITAL EXPENDITURE INCURRED BY THE COMPANY AND ALTHOUGH IN CIDENTALLY THAT WOULD CERTAINLY HELP IN THE BUSINESS OF THE COMPANY AND M AY ALSO HELP IN PROFIT- MAKING, IT STILL RETAINS THE CHARACTER OF A CAPITAL EXPENDITURE SINCE THE EXPENDITURE WAS DIRECTLY RELATED TO THE EXPANSION O F THE CAPITAL BASE OF THE COMPANY.' 4.3 HENCE ON THE BASIS OF THIS DECISION IT IS HELD THAT THE EXPENSES INCURRED BY THE APPELLANT FOR THE PURPOSES OF DEMUTUALIZATION A RE CAPITAL EXPENDITURE IN THE NATURE. ACCORDINGLY THE AO'S ACTION IS UPHELD A ND THIS GROUND OF APPEAL IS DISMISSED. ITA NO.2836/AHD/ 2012 VADODARA STOCK EXCHANGE LIMITED VS. ACIT, BARODA A.Y. 2008-09 - 5 - 7. FROM THE ABOVE TWO PARAGRAPHS OF THE ORDER OF LE ARNED CIT(A), WE FIND THAT THIS ISSUE HAS BEEN DECIDED BY LEARNED CI T(A) BY FOLLOWING THE JUDGMENT OF HONBLE CALCUTTA HIGH COURT RENDERED IN THE CASE OF BROOKE BOND INDIA LTD. (SUPRA) AND HONBLE APEX COURT RENDERED IN THE CASE OF PUNJAB STATE INDUSTRIAL DEVELOPMENT CORPORATION LTD . AS REPORTED IN 93 TAXMAN 5 (SC) . THIS DECISION WAS ON THIS BASIS THAT THE EXPENDITURE MAY HELP IN THE BUSINESS OF THE ASSESSE E COMPANY AND MAY ALSO HELP IN PROFIT MAKING BUT SINCE THE EXPENDITUR E WAS DIRECTLY RELATED TO THE EXPANSION OF THE CAPITAL BASE OF THE COMPANY , THE SAME IS CAPITAL EXPENDITURE. WE HAVE ALSO SEEN THAT THE PAID UP SHA RE CAPITAL OF THE ASSESSEE COMPANY HAS GROWN UP FROM RS.29 LACS AS ON 31.7.2007 TO RS. 145 LACS AS ON 31.3.2008. THE DILUTION OF 51% OF SH ARES OF THE ASSESSEE COMPANY TO OUTSIDERS WAS ACHIEVED BY RESORTING TO F URTHER ISSUES OF SHARE CAPITAL TO OUTSIDERS AND HENCE, THIS IS CORRECT THA T THE EXPENDITURE IS DIRECTLY RELATED TO EXPANSION OF THE CAPITAL BASE O F THE COMPANY. IT IS TRUE THAT SUCH EXPANSION OF THE CAPITAL BASE OF THE COMP ANY WAS REQUIRED TO FULFILL THE REQUIREMENTS OF SEBI BUT STILL THE FACT REMAINS THAT THE EXPENDITURE HAS RESULTED INTO EXPANSION OF THE CAPI TAL BASE OF THE ASSESSEE COMPANY AND, THEREFORE, IN OUR CONSIDERED OPINION, THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE REVENUE AND AGAINST THE AS SESSEE COMPANY BY THE JUDGMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF PUNJAB STATE INDUSTRIAL DEVELOPMENT CORPORATION LTD. (SUPR A) WHICH HAS BEEN FOLLOWED BY LEARNED CIT(A). REGARDING THE JUDG MENT OF HONBLE APEX COURT RENDERED IN THE CASE OF BIKANER GYPSUMS LTD. VS. CIT (SUPRA) UPON WHICH RELIANCE HAS BEEN PLACED BY LEARNED AR OF THE ASSESSEE, WE FIND THAT IN THAT CASE, THE ISSUE IN D ISPUTE WAS REGARDING REMOVAL OF RAILWAY STATION YARDS AND QUARTERS IN OT HER AREA IN VIEW OF ITA NO.2836/AHD/ 2012 VADODARA STOCK EXCHANGE LIMITED VS. ACIT, BARODA A.Y. 2008-09 - 6 - THE RESTRICTION ON LEASE OF MINING OPERATION NEAR A REA OCCUPIED BY RAILWAY AND SUCH EXPENSES WERE HELD TO BE REVENUE IN NATURE ON THIS BASIS THAT SUCH EXPENSES WERE FOR REMOVAL OF DISABILITY AND, T HEREFORE, IT IS REVENUE EXPENDITURE. IN OUR CONSIDERED OPINION, THE FACTS O F THAT CASE ARE DIFFERENT. IN THAT CASE, APART FROM REMOVAL OF DISA BILITY, THERE WAS NO CREATION OF ANY CAPITAL ASSET WHEREAS IN THE PRESEN T CASE, THE PAID UP SHARE CAPITAL OF ASSESSEE HAS GONE UP MANY FOLD BEC AUSE OF THESE EXPENDITURE AND THEREFORE, THIS JUDGMENT IS NOT APP LICABLE IN THE FACTS OF THE PRESENT CASE. 8. THE SECOND DECISION CITED BY LEARNED AR OF THE A SSESSEE IS ALSO THE JUDGMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF EMPIRE JUTE COMPANY LIMITED (SUPRA) . IN OUR CONSIDERED OPINION, THIS JUDGMENT IS ALSO NOT APPLICABLE IN THE PRESENT CASE BECAUSE THE FACTS ARE DIFFERENT. IN THAT CASE, THE MEMBERS OF ASSOCIATION AGREED THEMSE LVES TO WORK THEIR LOOM FOR FIXED LOOM HOURS EVERY WEEK AND ONE MEMBER PURCHASED LOOM HOURS FROM ANOTHER MEMBER AND THE PRICE PAID FOR SU CH PURCHASE OF LOOM HOUR WAS HELD TO BE REVENUE EXPENDITURE. IN THAT CA SE, THE REASONING GIVEN BY HONBLE APEX COURT WAS THIS THAT THE WORK TIME AGREEMENT TO DIFFERENT MILLS CONSTITUTED NOT A RIGHT CONFERRED B UT MERELY A CONTRACTUAL RESTRICTION ON THE RIGHT OF EVERY MILL, AND THEREFO RE, THE EFFECT OF RELAXING THE RESTRICTION ON THE OPERATION OF LOOMS TO THE EX TENT OF NUMBER OF WORKING HOURS PER WEEK TRANSFERRED TO DO SO, THE TR ANSFEREE MILL WOULD WORK ITS LOOM FOR LONG HOURS THAN PERMITTED UNDER T HE WORK TIME AGREEMENT AND INCREASE ITS PROFITABILITY. WE FIND T HAT BY PURCHASE OF THIS LOOM HOURS BY ONE COMPANY FROM ANOTHER COMPANY, NO ASSET CAME INTO EXISTENCE AND THE BUYER GOT THE PERMISSION TO WORK ON THEIR MILL FOR EXTRA ITA NO.2836/AHD/ 2012 VADODARA STOCK EXCHANGE LIMITED VS. ACIT, BARODA A.Y. 2008-09 - 7 - TIME WHEREAS IN THE PRESENT CASE, PAID UP CAPITAL H AS GONE UP AND THEREFORE, IN THE FACTS OF THE PRESENT CASE, THIS J UDGMENT OF HONBLE APEX COURT IS ALSO NOT APPLICABLE. 9. FROM THE ABOVE DISCUSSION, WE FIND THAT NONE OF THE DECISIONS CITED BY LEARNED AR OF THE ASSESSEE IS RENDERING ANY HELP TO THE ASSESSEE AND IN FACT, THE DECISION OF THE LEARNED CIT(A) IS SUPPORT ED BY THE JUDGMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF PSIDC (SUPRA) AND, THEREFORE, WE DECLINE TO INTERFERE IN THE ORDER OF LEARNED CIT(A) ON THIS ISSUE. THE GROUND NO.1 IS REJECTED. 10. GROUND NO.2 IS AS UNDER:- LD. CIT(A) ERRED IN LAW AND ON FACTS IN UPHOLDING THE ACTION OF AO IN DISALLOWING EXPENSES OF RS.9,26,795/- UNDER SECTION 14A OF THE ACT IN RESPECT OF EXEMPT DIVIDEND INCOME OF RS.18,48,712/- EARNED FROM MUTUAL FUND INVESTMENT THAT ENTAILED NO EXPENDITURE. LD. CIT(A) FAILED TO APPRECIATE THAT NEITHER ANY AMOUNT WAS BORROWED NOR ANY INTEREST WA S PAID FOR INVESTMENT EARNING EXEMPT INCOME. THIS UNILATERAL ACT OF LD. C IT(A) CONFIRMING DISALLOWANCE WITHOUT THERE BEING ANY NEXUS BETWEEN DIVIDEND EARNED AND EXPENSES ESTIMATED TO HAVE INCURRED DESERVES TO BE QUASHED. 11. IT WAS SUBMITTED BY LEARNED AR OF THE ASSESSEE THAT THE AO HAS APPLIED RULE 8 D STRAIGHT AWAY WHEREAS AS PER SUB R ULE 1 OF RULE 8D, A FINDING HAS TO BE GIVEN BY THE AO THAT HAVING REGAR D TO THE ACCOUNTS OF THE ASSESSEE, HE IS NOT SATISFIED WITH THE CLAIM MA DE BY THE ASSESSEE THAT NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO THE EXEMPT INCOME. AT THIS JUNCTURE, THE ATTENTION OF LEARNED A.R OF THE ASSESSEE WAS DRAWN BY THE BENCH TO PARAGRAPH 4.1 OF THE ASSESSMENT ORDER WHERE IT IS STATED BY THE AO THAT IT IS NOT POSSIBLE THAT THE ASSESSEE HAS NOT INCURR ED ANY EXPENSES IN THIS REGARD AS IT MIGHT HAVE USED THE T ELEPHONE, INFRASTRUCTURE, HOME RESOURCES BEING IMPORTANT ONE IN THIS REGARD AND ITA NO.2836/AHD/ 2012 VADODARA STOCK EXCHANGE LIMITED VS. ACIT, BARODA A.Y. 2008-09 - 8 - EVERYTHING. IT WAS ALSO POINTED OUT THAT IT IS SPECIFICALLY STA TED BY THE AO IN THE SAME PARAGRAPH OF THE ASSESSMENT ORDER TH AT HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE I N RELATION TO SUCH EXPENDITURE, IN RELATION TO THE EXEMPT INCOME AND, THEREFORE, HE HAS PROCEEDED TO COMPUTE THE DISALLOWANCE TO BE MADE AS PER RULE 8D. IN REPLY, LEARNED AR OF THE ASSESSEE HAD NOTHING TO SA Y ABOUT THIS FINDING OF THE AO IN THE ASSESSMENT ORDER BUT HE PLACED RELIAN CE ON THE FOLLOWING TWO TRIBUNALS DECISIONS:- (A) DCIT VS. ASHISH JHUNJHUNWALA IN ITA NO.1809/K OL/2012 DATED 14.05.2013. (B) KAMAL MADMOHAN MANGALDAS VS. ITO IN ITA NO.2839/AHD/2011 DATED 31.5.2012. 12. HE SUBMITTED A COPY OF BOTH THE TRIBUNALS DECI SION. HE ALSO SUBMITTED THAT IN THE TRIBUNALS ORDER OF KOLKATA B ENCH, THE TRIBUNAL HAS ALSO REPRODUCED THE TRIBUNALS DECISION OF MUMBAI B ENCH RENDERED IN THE CASE OF J.K. INVESTORS (BOMBAY) LTD. VS. ACIT IN ITA NO.7858/MUM/2011 DATED 13.03.2013. 13. LEARNED D.R. OF THE REVENUE SUPPORTED THE ORDE R OF THE LEARNED CIT(A). 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, WE FI ND THAT REGARDING THE FIRST OBJECTION OF THE LEARNED AR OF THE ASSESS EE THAT AS PER THE REQUIREMENT OF RULE 8D(1), SATISFACTION OF THE AO R EGARDING CORRECTNESS OF THE CLAIM OF THE ASSESSEE IS NOT THERE IN THE AS SESSMENT ORDER, THIS IS NOT FACTUALLY CORRECT BECAUSE IT IS STATED BY THE A O IN PARAGRAPH NO.4.1 OF ITA NO.2836/AHD/ 2012 VADODARA STOCK EXCHANGE LIMITED VS. ACIT, BARODA A.Y. 2008-09 - 9 - THE ASSESSMENT ORDER THAT HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF EXPENDITURE, IN RESPECT OF EXEMPT INCOME. HENCE, THIS REQUIREMENT OF RULE 8D(1) IS VE RY MUCH SATISFIED IN THE PRESENT CASE. 15. THIS WAS ALSO A SUBMISSION OF LEARNED AR OF THE ASSESSEE THAT AS PER THE DETAILS OF INVESTMENT AVAILABLE IN THE PAPE R BOOK AT PAGE NO.6, IT CAN BE SEEN THAT MAJOR INVESTMENT IS IN A SUBSIDIAR Y TO THE EXTENT OF RS.400 LACS OUT OF TOTAL INVESTMENT OF RS.1861.58 L AC. HE ALSO SUBMITTED THAT REMAINING INVESTMENT IS IN MUTUAL FUND AND THE RE IS NO EXPENDITURE INCURRED FOR MAKING SUCH INVESTMENT IN MUTUAL FUND AND THE INVESTMENT IN SUBSIDIARY IS OLD INVESTMENT. IN THIS REGARD, WE WOULD LIKE TO OBSERVE THAT WHETHER THE INVESTMENT IS AN OLD INVESTMENT OR WHETHER THE INVESTMENT IS A MUTUAL FUND OR OTHERWISE, IT HAS TO BE ACCEPTED THAT DECISION HAS TO BE TAKEN AS TO WHEN AND WHERE THE I NVESTMENT IS TO BE MADE AND IT HAS TO BE ANALYZED PERIODICALLY AS TO W HETHER THE INVESTMENT IS TO BE CONTINUED OR NOT AND IN THE PRESENT YEAR, THE ASSESSEE HAS SOLD THREE OLD INVESTMENTS IN MUTUAL FUNDS AND ADDED IN TWO OLD INVESTMENTS AND ONE INVESTMENT IN MUTUAL FUND WAS KEPT UNCHANGE D. THIS VERY PATTERN OF SELLING SAME INVESTMENTS IN MUTUAL FUNDS , MAINTAINING STATUS QUO IN ONE INVESTMENT IN MUTUAL FUND AND HAVING FUR THER AMOUNT IN TWO MUTUAL INVESTMENTS ITSELF SHOWS THAT REGULAR MONITO RING OF INVESTMENTS WAS DONE BY THE MANAGEMENT AND THEREFORE, THIS CLAI M OF THE ASSESSEE THAT NO EXPENDITURE WAS INCURRED ON ACCOUNT OF ADMI NISTRATIVE EXPENSES FOR EARNING DIVIDEND INCOME CANNOT BE ACCEPTED. ITA NO.2836/AHD/ 2012 VADODARA STOCK EXCHANGE LIMITED VS. ACIT, BARODA A.Y. 2008-09 - 10 - 16. REGARDING THE RELIANCE PLACED BY LEARNED AR OF THE ASSESSEE ON THE TRIBUNAL DECISION RENDERED IN THE CASE OF DCIT VS. ASHISH JHUNJHUNWALA (SUPRA) , WE FIND THAT IN THIS CASE, THE TRIBUNAL HAD DECIDED THE ISSUE AS PER PARAGRAPH 6, WHICH IS REPR ODUCED BELOW FOR THE SAKE OF READY REFERENCE:- WE FIND FROM THE FACTS OF THE ABOVE CASE THAT THE A O HAS NOT EXAMINED THE ACCOUNTS OF THE ASSESSEE AND THERE IS NOT SATISFACT ION RECORDED BY THE AO ABOUT THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE AND WITHOUT THE SAME HE INVOKED THE RULE 8D OF THE RULES. WHILE REJECTING T HE CLAIM OF THE ASSESSEE WITH REGARD TO EXPENDITURE OR NO EXPENDITURE, AS TH E CASE MAY BE, IN RELATION TO EXEMPTED INCOME, THE AO HAS TO INDICATE COGENT R EASONS FOR THE SAME. FROM THE FACTS OF THE PRESENT CASE IT IS NOTICED TH AT THE AO HAS NOT CONSIDERED THE CLAIM OF THE ASSESSEE AND STRAIGHT AWAY EMBARKE D UPON COMPUTING DISALLOWANCE UNDER RULE 8D OF THE RULES ON PRESUMIN G THE AVERAGE VALUE OF INVESTMENT AT % OF THE TOTAL VALUE. IN VIEW OF THE ABOVE AND RESPECTFULLY FOLLOWING THE COORDINATE BENCH DECISION IN THE CASE OF J.K. INVESTORS (BOMBAY) LTD. SUPRA, WE HOLD THE ORDER OF LEARNED C IT(A). THIS APPEAL OF REVENUE IS DISMISSED. 17. FROM THE ABOVE PARAGRAPH OF THE TRIBUNAL ORDER, IT IS SEEN THAT IN THAT CASE, IT IS NOTED BY THE TRIBUNAL THAT NO SATI SFACTION WAS RECORDED BY THE AO ABOUT THE CORRECTNESS OF THE CLAIM OF THE AS SESSEE AND RULE 8D WAS INVOKED IN THAT CASE WITHOUT SUCH SATISFACTION BUT IN THE PRESENT CASE, SATISFACTION HAS BEEN RECORDED BY THE AO IN PARAGRA PH 4.1 OF THE ASSESSMENT ORDER THAT HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF EXPENDITURE IN RELATI ON TO THE EXEMPT INCOME. THEREFORE, THE FACTS OF THE PRESENT CASE ARE DIFFER ENT THAN THE FACTS IN THE CASE OF ASHISH JHUNJHUNWALA (SUPRA) AND THEREFORE, THIS TRIBUNALS DECISION IS NOT APPLICABLE IN THE PRESENT CASE. WE HAVE ALSO SEEN THAT REGULAR MONITORING OF THE INVESTMENTS WAS DONE BY T HE ASSESSEE COMPANY IN THE PRESENT CASE BY SELLING THREE INVESTMENTS IN MUTUAL FUND AND TO RETAIN ONE SUCH INVESTMENT AND TO ADD FURTHER AMOUN T INTO TWO SUCH INVESTMENTS AND FORM THESE FACTS ALSO, IT GETS ESTA BLISHED THAT ITA NO.2836/AHD/ 2012 VADODARA STOCK EXCHANGE LIMITED VS. ACIT, BARODA A.Y. 2008-09 - 11 - MANAGEMENT WAS VERY MUCH DEVOTING TIME ABOUT THE IN VESTMENTS AND THEREFORE, THE AO IS JUSTIFIED IN REJECTING THE COR RECTNESS OF THE CLAIM OF THE ASSESSEE THAT NO EXPENDITURE WAS INCURRED FOR E ARNING THE DIVIDEND INCOME. NOW, WE EXAMINE THE APPLICABILITY OF SECOND TRIBUNAL DECISION RENDERED IN THE CASE OF KAMAL MADMOHAN MANGALDAS VS . ITO (SUPRA). IN THIS CASE ALSO, IN PARAGRAPH 11, THIS FINDING IS GI VEN BY THE TRIBUNAL THAT THE AO HAS NOT GIVEN ANY FINDING OF INCURRING OF EX PENSES. IT IS ALSO NOTED BY THE TRIBUNAL IN THAT CASE THAT AS PER SECT ION 14A(2), THE AO CAN DETERMINE THE AMOUNT OF EXPENSES INCURRED IN RELATI ON TO TAX FREE INCOME, IF HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, H E IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. IT IS ALSO NOTED BY THE TRIBUNAL IN THAT CASE THAT IN THAT CASE, THE AO HAD DIRECTLY INVOKED THE PROVISIONS OF RULE 8D WITHOUT RENDERING ANY OPINION ON THE CORRECTNESS OF THE ASSESSEES CLAIM. IN THE PRESENT CASE, WE HA VE SEEN THAT THE AO HAS GIVEN EXPLICIT FINDING THAT HE IS NOT SATISFIED WIT H THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE REGARDING EXPENDITURE INCURRE D BY THE ASSESSEE FOR EXEMPT INCOME AND BECAUSE OF THIS DIFFERENCE IN FAC TS, THIS TRIBUNALS DECISION IS ALSO NOT APPLICABLE IN THE PRESENT CASE . 18. AS PER ABOVE DISCUSSION, WE HAVE SEEN THAT NONE OF THE JUDGMENTS CITED BY THE LEARNED AR OF THE ASSESSEE IS RENDERIN G ANY HELP TO THE ASSESSEE IN THE PRESENT CASE. WE HAVE ALSO SEEN THA T BECAUSE OF MOVEMENT OR OTHERWISE IN THE INVESTMENTS OF THE ASS ESSEE COMPANY AS PER WHICH INVESTMENT IN THREE MUTUAL FUNDS WERE SOL D, ONE SUCH INVESTMENT WAS RETAINED AND TWO SUCH INVESTMENT WER E INCREASED, IT IS CLEAR THAT SUFFICIENT TIME WAS DEVOTED BY THE TOP M ANAGEMENT OF THE ASSESSEE COMPANY TO MONITOR THE INVESTMENT AND THER EFORE, IT IS NOT ITA NO.2836/AHD/ 2012 VADODARA STOCK EXCHANGE LIMITED VS. ACIT, BARODA A.Y. 2008-09 - 12 - ACCEPTABLE THAT NO EXPENDITURE WAS INCURRED BY THE ASSESSEE COMPANY FOR EARNING DIVIDEND INCOME. ONCE IT IS FOUND THAT THE CLAIM OF THE ASSESSEE IS NOT CORRECT REGARDING NOT INCURRING OF EXPENDITU RE FOR EARNING DIVIDEND INCOME OR ANY OTHER EXEMPT INCOME, RULE 8D HAS TO B E APPLIED AND THE AO HAD DONE THE SAME IN THE PRESENT CASE AND THEREF ORE, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF LEARNED CIT (A) ON THIS ISSUE BECAUSE HE HAS APPROVED THE STAND TAKEN BY THE AO O F APPLYING RULE 8D IN THE FACTS OF THE PRESENT CASE. THIS GROUND IS AL SO REJECTED. 20. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DI SMISSED. ORDER PRONOUNCED ON THE DATE MENTIONED ON CAPTION P AGE. SD/- SD/- (G.C. GUPTA) (A.K. GARODIA) VICE PRESIDENT ACCOU NTANT MEMBER AHMEDABAD; DATED 26 /07/2013 PRABHAT KR. KESARWANI, SR. P.S. TRUE COPY / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. !' / THE RESPONDENT. 3. #$#% ' '& / CONCERNED CIT 4. ' '&() / THE CIT(A)-III, AHMEDABAD 5. )*' %, ' ' % , ,-$ / DR, ITAT, AHMEDABAD 6. *./ 0 / GUARD FILE. / BY ORDER, 1 11 1/ // /,' #2 ,' #2 ,' #2 ,' #2 ( DY./ASSTT.REGISTRAR) ' ' % ' ' % ' ' % ' ' % , , , , ,-$ ,-$ ,-$ ,-$ / ITAT, AHMEDABAD