ACIT, New Delhi V. BLB Ltd, New Delhi

ITA 2901/DEL/2010

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 4212 (ITAT-DELHI)
• Duration Of Justice: 6 year(s) 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-08-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 05-05-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 10-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: C S AGARWAL SR ADV SH R P MALL
• Keywords: Business income; Depreciation; Earning of tax free income; Deemed to accrue or arise in india; Commercial expediency; Revised return
• Section: 14A; 115JB; 80G; 6; 12

Judgement Text

ITA NOS. 2126 & 2901/D/10 M/S BLB LTD. PAGE 1 OF 28 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: A NEW DELHI BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT & SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA NO. 2126/DEL/2010 ( ASSESSMENT YEAR: 2006-07) M/S BLB LTD. 4764/23A, ANSARI ROAD, DARYA GANJ, NEW DELHI. AAACB0184H VS ACIT CIRCLE 3(1) C.R. BUILDING, I.P. ESTATE, NEW DELHI. & ITA NO. 2901/DEL/2010 ( ASSESSMENT YEAR: 2006-07) ACIT CIRCLE 3(1) C.R. BUILDING, I.P. ESTATE, NEW DELHI. VS M/S BLB LTD. 4764/23A, ANSARI ROAD, DARYA GANJ, NEW DELHI. AAACB0184H ASSESSEE BY SH. C.S. AGARWAL, SR. ADV. SH. R.P. MALL, ADV. REVENUE BY SH. SARABJEET SINGH, DR ORDER PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER : ITA NO. 2126/DEL/2010 HAS BEEN PREFERRED BY THE AS SESSEE AGAINST THE DATE OF HEARING 05.05.2016 DATE OF PRONOUNCEMENT 05.08.2016 ITA NOS. 2126 & 2901/D/10 M/S BLB LTD. PAGE 2 OF 28 ORDER DATED 30/03/2010 PASSED BY THE LD. CIT(APPEAL S)-IV, NEW DELHI FOR AY 2006-07, WHEREAS ITA NO. 2901/DEL/2010 IS THE CR OSS APPEAL PREFERRED BY THE DEPARTMENT FOR THE SAME YEAR. SINCE BOTH TH ESE APPEALS WERE HEARD TOGETHER THEY ARE BEING DISPOSED OF THROUGH THIS CO MMON ORDER. 2. THE ASSESSEE COMPANY HAD FILED THE RETURN OF INC OME DECLARING A TOTAL INCOME OF RS. 450,231,514/- AS PER THE NORMAL PROVI SIONS OF THE INCOME TAX ACT, 1961 (THE ACT IN SHORT) AND RS. 139,986,801/- AS DEEMED INCOME U/S 115JB OF THE ACT. SUBSEQUENTLY THE ASSESSEE FILED A REVISED RETURN OF INCOME DECLARING TOTAL INCOME OF RS. 541,102,310/- UNDER THE NORMAL PROVISIONS OF THE ACT AND RS. 139,986,801/- AS DEEM ED INCOME U/S 115JB OF THE ACT. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE COMPANY WAS A MEMBER OF NATIONAL STOCK EXCHANGE AND BOMBAY STOCK EXCHANGE AND DERIVED INCOME FROM THE SALE AND PURCHASE OF SHARES MOSTLY ON ITS OWN ACCOUNT. THE ASSESSMENT ORDER WAS PASSED ON 22/12/ 08 AFTER MAKING THE FOLLOWING ADDITIONS/DISALLOWANCES: 1. DISALLOWANCE U/S 14A - RS. 333,821/-; 2. DISALLOWANCE OF LOSS U/S 94(7) - RS. 1,295,487/- ; 3. ADDITION ON ACCOUNT OF LATE PAYMENT OF PF & ESI DUE S U/S 2(24)(X) - RS. 6,255/-; 4. ADDITION ON ACCOUNT OF DIFFERENCE IN VALUATION OF C LOSING STOCK - RS. ITA NOS. 2126 & 2901/D/10 M/S BLB LTD. PAGE 3 OF 28 200,099/-; 5. DISALLOWANCE OF INTEREST CHARGES - RS. 1,863,226/- ; 6. DISALLOWANCE OF EXCESS CLAIM OF DEPRECIATION ON COM PUTER PERIPHERALS/ACCESSORIES - RS. 863,806/-. APART FROM THIS THE AO ALSO DISALLOWED THE CLAIM OF REBATE U/S 88E ON RS. 6,383,106/- BEING BROKERAGE INCOME, INTEREST INCOME , INTEREST ON INCOME TAX REFUND AND MISCELLANEOUS INCOME. FURTHER THE DEEME D INCOME US/ 115JB OF THE ACT WAS WORKED OUT AT RS. 140,584,867/-. 3. AGGRIEVED THE ASSESSEE PREFERRED AN APPEAL BEFOR E THE FIRST APPELLATE AUTHORITY IN WHICH THE LD. CIT (A) ADJUDICATED THE ISSUES AS UNDER: 1. THE DISALLOWANCE OF RS. 333,821/- U/S14A OF THE ACT WAS CONFIRMED; 2. THE ADDITION OF RS. 200,099/- BASED ON THE DIFFEREN CE OF VALUATION OF CLOSING STOCK WAS CONFIRMED; 3. OUT OF TOTAL DISALLOWANCE OF RS. 1,863,226/- ON ACC OUNT OF INTEREST PAID ONLY RS. 1,781/- WAS CONFIRMED; 4. DIFFERENCE ON ACCOUNT OF DEPRECIATION RATES ON COMP UTER, PERIPHERALS AND ACCESSORIES WAS ENTIRELY DELETED; 5. THE GROUND FOR RECALCULATION OF REBATE U/S 88E WAS SET ASIDE TO THE FILE OF THE AO FOR RE-COMPUTATION; 6. THE ASSESSEES CONTENTIONS REGARDING THE APPLICABIL ITY OF PROVISIONS OF SEC. 115JB WAS ALSO ACCEPTED. ITA NOS. 2126 & 2901/D/10 M/S BLB LTD. PAGE 4 OF 28 4. BEING AGGRIEVED, BOTH THE ASSESSEE AS WELL AS TH E DEPARTMENT HAS FILED CROSS APPEALS BEFORE US. THE ASSESSEE HAS RAISED TH E FOLLOWING GROUNDS OF APPEAL: GROUNDS OF ITA NO. 2126/D/2010 : 1. THE LD. CIT (APPEALS) ERRED IN CONFIRMING THE ADDI TION OF RS. 3,33,821/- IN TERMS OF SEC. 14A OF THE ACT ON THE F ACTS AND CIRCUMSTANCES OF THE CASE. AS A MATTER OF FACT, TH E PROVISIONS OF SECTION 14A OF THE ACT WERE NOT APPLICABLE TO THE F ACTS OF THE CASE AND AS SUCH THE DISALLOWANCE OF INTEREST OF RS. 3,33,82 1/- WAS NOT JUSTIFIED; 2. THE LD. CIT (APPEALS) ERRED IN CONFIRMING THE ADDIT ION OF RS. 2,00,099/- ON ACCOUNT OF UNDER VALUATION OF CLOSING STOCK ON THE FACTS AND CIRCUMSTANCES OF THE CASE. AS A MATTER OF FACT , THE LD. AO DID NOT APPRECIATE THAT THE APPELLANT HAD VALUED THE STOCK AT COST OR MARKET PRICE WHICHEVER WAS EARLIER ON FIFO BASIS AND AS SU CH THE VALUATION OF CLOSING STOCK WAS CORRECT ON THE FACTS AND CIRCU MSTANCES OF THE CASE AND NO ADDITION WAS CALLED FOR ON THE FACTS OF THE CASE; 3. THE LD. CIT(APPEALS) FAILED TO APPRECIATE THAT THE APPELLANT WAS FOLLOWING THE SAME METHOD OF VALUATION OF CLOSING S TOCK YEAR AFTER YEAR WHICH WAS ACCEPTED BY THE DEPARTMENT YEAR AFTE R YEAR AND NO DEFECT WHATSOEVER HAD BEEN FOUND EITHER BY THE AO O R BY THE CIT(APPEALS) AND IN THIS VIEW OF THE MATTER, THE AD DITION OF RS. 2,00,099/- ON ACCOUNT OF VALUATION OF CLOSING STOCK WAS NOT JUSTIFIED; 4. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR RAISE A NY GROUND OF APPEAL AT THE TIME OF HEARING OR ANY TIME BEFORE THAT. ITA NOS. 2126 & 2901/D/10 M/S BLB LTD. PAGE 5 OF 28 5. IN CROSS APPEAL THE REVENUE HAS RAISED THE FOLLO WING GROUNDS OF APPEAL: GROUNDS OF ITA NO. 2901/D/2010 : 1. THE LD. CIT (A) HAS ERRED ON FACTS AND IN LAW IN D ELETING THE ADDITION OF RS. 1861445/- OUT OF TOTAL DISALLOWANCE OF RS. 1 863226/- MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF INTEREST EXPEN SES, COMPLETELY IGNORING THE FACT THAT THE SAID DISALLOWANCES RELAT ED TO INTEREST ON BORROWED FUNDS USED FOR DONATIONS, INVESTMENTS AND INTEREST FREE LOAN TO SISTER CONCERN. 2. THE LD. CIT (A) HAS ERRED ON FACTS AND IN LAW IN DE LETING THE ADDITION OF RS. 863806/- MADE BY THE AO ON ACCOUNT OF EXTRA DEPRECIATION CLAIMED ON COMPUTER PERIPHERAL/ACCESSORIES IGNORING THE FACT THAT AS PER IT RULES ONLY THE COMPUTERS AND COMPUTER SOFTWA RE ARE ELIGIBLE FOR DEPRECIATION @ 60% AND THE SAME CANNOT BE EXTEN DED TO COMPUTER ACCESSORIES. 3. THE LD. CIT (A) HAS ERRED ON FACTS AND IN LAW IN DI RECTING THE AO TO ALLOW REBATE U/S 88E TO THE ASSESSEE WITH RESPECT T O TAX PAYABLE ON BROKERAGE INCOME, INTEREST INCOME, INTEREST ON IT R EFUND AND MISCELLANEOUS INCOME. 4. THE LD. CIT (A) HAS ERRED ON FACTS AND IN LAW IN HO LDING THAT PROVISIONS OF SEC. 115JB ARE NOT APPLICABLE IN THE CASE OF THE ASSESSEE IGNORING THE FACT THAT SPECIFIC CATEGORY OF ASSESSE E AS PER PROVISIONS OF SUB-SECTION 6 OF SECTION 115JB DOES NOT MENTION STOCK BROKER, THEREFORE, ASSESSEE COMPANY CANNOT ESCAPE TAX CHARG EABLE AS PER DEEMING PROVISIONS OF THE SAID SECTION. ITA NOS. 2126 & 2901/D/10 M/S BLB LTD. PAGE 6 OF 28 5. THE APPELLANT CRAVES LEAVE FOR RESERVING THE RIGHT TO AMEND, MODIFY, ALTER, ADD OR FOREGO ANY GROUND(S) OF APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEAL. 6. THE LD. AR SUBMITTED THAT THE ASSESSEE IN ITS APPEAL HAS CHALLENGED THE DISALLOWANCES OF EXPENSES U/S 14A OF RS. 333,821/-. IT WAS SUBMITTED THAT IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE, THE ASS ESSEE COMPANY CALCULATED AN EXPENDITURE INCURRED AT RS.32,875/- TOWARDS EARN ING THE INCOME (WHICH INCOME DID NOT FORM PART OF TOTAL INCOME OF THE ASS ESSEE UNDER THE ACT). FOR THE INSTANT ASSESSMENT YEAR IT WAS STATED THAT THE ASSESSEE HAD EARNED AN AMOUNT OF RS. 27,22,131/- AS DIVIDEND & THUS INCOME DID NOT FORM PART OF TOTAL INCOME. THE ASSESSING OFFICER, HOWEVER, WITHO UT FINDING ANY FAULT WITH THE CORRECTNESS OF THE CLAIM PROCEEDED TO DISALLOW THE EXPENDITURE BY PURPORTEDLY INVOKING RULE 8D (2) OF THE INCOME TAX RULES AND CALCULATED THE DISALLOWANCE AT RS.3,33,821/-. IT WAS SUBMITTE D THAT THE AO HAS ERRED IN INVOKING RULE 8D (2) WITHOUT APPRECIATING THE PROVI SIONS UNDER RULE 8D(1). THE LD. AR SUBMITTED THAT IN ABSENCE OF ANY FINDING , THE SAID RULE CANNOT BE APPLIED AND UNLESS HE IS NOT SATISFIED WITH THE COR RECTNESS OF THE DISALLOWANCES MADE BY THE ASSESSEE. IT WAS SUBMITTE D THAT IN THE INSTANT CASE, THE AO HAS NOT RECORDED ANY SUCH FINDING AND THAT I N FACT THE AO HAS ADMITTED THAT THE ONLY EXPENDITURE IN RELATION TO I NCOME NOT FORMING PART OF ITA NOS. 2126 & 2901/D/10 M/S BLB LTD. PAGE 7 OF 28 TOTAL INCOME IS OF INTEREST EXPENDITURE OF AN AMOUN T OF RS. 31,89,080/-. IT WASS THUS SUBMITTED THAT THE AO HAS ERRED IN MAKING A DISALLOWANCE IN EXCESS OF RS.32,875/-. 6.1 IN RESPECT OF GROUND NO 2 OF THE ASSESSEES APP EAL, IT WAS SUBMITTED THAT THE LEARNED AO HAS COMMITTED A GROSS ERROR IN ADOPTING THE AVERAGE METHOD OF VALUING CLOSING STOCK AS AGAINST THE CORR ECT METHOD ADOPTED BY THE ASSESSEE IN ACCORDANCE WITH THE GUIDELINES ISSU ED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA AND FURTHER SUCH A M ETHOD HAS CONSTANTLY BEEN ADOPTED AND FOLLOWED BY IT YEAR AFTER YEAR. I T WAS SUBMITTED THAT THE ASSESSING OFFICER, IN ENHANCING THE VALUE OF CLOSIN G STOCK, HAS FAILED TO ADOPT THE RATE ON LOT WISE BASIS, IN RESPECT WHEREO F LOT WISE DETAILS HAD BEEN FURNISHED (DETAILS AT PAGES OF THE PAPER BOOK 185- 197 OF THE PAPER BOOK). IN VIEW THEREOF, THE ENHANCEMENT BY RS. 2,00,099/- IS ENTIRELY UNTENABLE. WITHOUT PREJUDICE AND IN THE ALTERNATIVE, IT WAS SU BMITTED THAT THE AO BE DIRECTED TO ADOPT SUCH VALUE OF OPENING STOCK OF TH E SUCCEEDING YEAR. 6.2 IN RESPECT OF GROUND NO 4 OF THE DEPARTMENTAL APPEAL, IT WAS SUBMITTED THAT THE ASSESSING OFFICER HAS GROSSLY ER RED IN COMPUTING THE TAX PAYABLE ON BOOK PROFIT AT RS. 1,18,30,217/-. IN DO ING SO HE HAS ERRED AND ITA NOS. 2126 & 2901/D/10 M/S BLB LTD. PAGE 8 OF 28 FAILED TO APPRECIATE THAT THERE WAS NO JUSTIFICATIO N ON HIS PART, FIRSTLY IN PROCEEDING TO COMPUTE THE BOOK PROFIT FOR THE PURPO SES OF SECTION 115 JB OF THE ACT, AND SECONDLY IN NOT GIVING CREDIT FROM SUC H TAX AS HAD BEEN DETERMINED, BEING THE TAX PAYABLE ON DEEMED INCOME U/S 115JB OF THE AMOUNT OF SECURITIES TRANSACTION TAX (STT) PAID BY ASSESSEE COMPANY. 6.2.1 IT WAS SUBMITTED THAT FROM THE PERUSAL OF PAG E NO. 19 OF THE ORDER OF ASSESSMENT IT WOULD BE SEEN THAT THE AO HAS COMPUT ED THE TOTAL INCOME OF THE ASSESSEE COMPANY AT RS. 54,66,59,030/-, WHEREAS HE HAS COMPUTED BOOK PROFIT AT 14,05,84,869/-. IT IS THUS EVIDENT THAT T HE TAX PAYABLE ON INCOME COMPUTED UNDER NORMAL PROVISIONS OF THE ACT IS HIGH ER THAN THE 7.5 % OF BOOK PROFIT AND THUS THE APPLICABILITY OF THE PROVI SIONS OF SECTION 115JB HAS BEEN INCORRECTLY APPLIED. 6.2.2 IT WAS FURTHER SUBMITTED THAT WITHOUT PREJUD ICE TO THE ABOVE, THE AO HAS ERRED IN COMPUTING THE TAX PAYABLE U/S 115JB AT RS. 1,18,30,217/- WITHOUT GIVING THE CREDIT OF SECURITIES TRANSACTION S TAX (STT). THE ASSESSEE COMPANY HAS SUFFERED STT OF RS.25,74,87,29 3/-. IT WAS SUBMITTED THAT THE AO OUGHT TO HAVE GRANTED REBATE AS PROVIDE D U/S 88E OF THE ACT. THE LD. AR SUBMITTED THAT FROM THE READING OF THE O RDER OF THE AO FROM ITA NOS. 2126 & 2901/D/10 M/S BLB LTD. PAGE 9 OF 28 PAGES 11 TO 17 IT IS SEEN THAT IN HIS OPINION AFTER THE ASSESSEE IS GRANTED A REBATE U/S 88E OF THE ACT, DESPITE THE TAX PAYABLE BY THE ASSESSEE WAS RS. 16,83,06,156/-AND SINCE THE ASSESSEE WAS NOT PAYING ANY INCOME TAX, THE PROVISION OF MINIMUM ALTERNATE TAX CAN BE INVOKED. IT WAS SUBMITTED THAT IN FACT, THE TAX PAYABLE BY THE ASSESSEE UNDER THE NORMAL PROVISIONS OF THE INCOME TAX ACT WAS RS.16,83,06,156/- WHICH WAS FAR HIGHER THAN THAT OF 10% OF BOOK PROFIT. IT WAS SUBMITTED THAT THE ASSES SING OFFICER HAS ARBITRARILY HELD THAT AS THE TAX TO BE PAID REMAINS NIL AFTER I T HAS SUFFERED STT, IT MUST BE SADDLED WITH THE LIABILITY U/S 115JB OF THE ACT AND THAT IN ANY CASE, THE CALCULATION OF TAX PAYABLE ON DEEMED INCOME U/S 115 JB HAS NOT BEEN PROPERLY DETERMINED. 6.2.3 THE LEARNED AR FURTHER SUBMITTED THAT THE AO HAS RECORDED A FINDING THAT THE ASSESSEE IS A STOCK BROKER AND THAT THE LD . CIT (A) HAS ERRED IN IGNORING THE SAID FACT. IT WAS SUBMITTED THAT AS PE R THE PROVISION OF SUB SECTION 6 OF SECTION 115JB, THE PROVISIONS OF THE SAID SECTION ARE INAPPLICABLE ONLY IN CASES WHERE AN INCOME ACCRUES OR ARISES FROM A BUSINESS CARRIED ON OR SERVICES RENDERED BY AN ENTREPRENEUR OR A DEVELOPER IN A UNIT OR SPECIAL ECONOMIC ZONE AS THE CASE MAY BE. IT WAS FU RTHER SUBMITTED THAT THE AFORESAID ISSUE IS NO LONGER RES- INTEGRA AS THE HONBLE HIGH COURT OF DELHI ITA NOS. 2126 & 2901/D/10 M/S BLB LTD. PAGE 10 OF 28 BY ITS JUDGMENT IN ITA NO.1181/2011 DATED 17/05/201 3 HAS HELD THAT THE PROVISIONS OF SECTION 87 & 88E OF THE ACT APPLY TO THE TOTAL INCOME COMPUTED UNDER SECTION 115JB OF THE ACT AND THAT TH E ASSESSEE WOULD BE ENTITLED TO A DEDUCTION TO THE EXTENT OF SECURITIES TRANSACTION TAX BORNE BY HIM DURING THE COURSE OF BUSINESS IN THE RELEVANT P REVIOUS YEAR. 6.2.4 ON GROUND NO. 4 OF THE DEPARTMENTS APPEAL, I T WAS FURTHER SUBMITTED BY THE LD. AR THAT THAT IN THE INSTANT CA SE, THE AO HAS HELD THAT THE ASSESSEE IS LIABLE TO PAY TAX ON BOOK PROFIT U/ S 115JB OF THE ACT FAILING TO APPRECIATE THAT THE 7.5% OF THE BOOK PROFIT IS L ESS THAN THE TAX PAYABLE UNDER THE NORMAL PROVISIONS OF THE ACT, AS SUCH, AS SESSEE IS NOT LIABLE FOR THE MAT. IT WAS SUBMITTED THAT IN THE INSTANT CASE, AO HAS COMMITTED GROSS ERROR WHILE COMPUTING THE TAX PAYABLE UNDER T HE NORMAL PROVISIONS OF THE ACT AS THE WORD TAX PAYABLE, IN RESPECT OF INCOME TAX PAYABLE ON THE TOTAL INCOME, DOES NOT MEAN THE ULTIMATE OR NE T AMOUNT WHICH IS PAYABLE UNDER THE ACT. THE LD. AR FURTHER SUBMITTED THAT FOR THE PURPOSE OF THE APPLICABILITY OF PROVISIONS OF SECTION 115JB OF THE ACT, THE INCOME TAX PAYABLE ON THE TOTAL INCOME COMPUTED UNDER THE NORMAL PROVISIONS OF THE INCOME TAX ACT AND IS TO BE COMPARED WITH 7.5 P ER CENT OF THE BOOK PROFITS, AND IF THE TAX PAYABLE ON THE NORMAL PROVI SIONS OF THE ACT IS LESS ITA NOS. 2126 & 2901/D/10 M/S BLB LTD. PAGE 11 OF 28 THAN THE 7.5% OF THE BOOK PROFITS, THEN THE ASSESSE E IS LIABLE TO PAY TAX UNDER SECTION 115JB OF THE ACT. THE LD. AR ALSO SUB MITTED THAT THE ASSESSEE SEEKS TO PLACE RELIANCE ON THE FOLLOWING O RDERS OF THE TRIBUNAL WHEREIN IT HAS BEEN HELD THAT TAX PAYABLE UNDER THE NORMAL PROVISIONS OF THE ACT SHOULD BE COMPUTED BEFORE REDUCING THE REBA TE U/S 88E OF THE ACT- - ITO VS ADVENT STOCK BROKING PVT. LTD IN ITA NO. 1 276/KOL/2010 - DCIT VS E.COM INTERNET SERVICES PVT. LTD IN ITA N O. 1524/MUM/2012 - DCIT VS ORI FINANCE LTD IN ITA NO. 387/KOL/2011 6.2.5 THE LD. AR SUBMITTED THAT THE PROVISIONS OF S ECTION 115JB OF THE ACT ARE INAPPLICABLE TO THE FACTS OF THE INSTANT CA SE, AS THE TAX PAYABLE UNDER THE NORMAL PROVISIONS OF THE ACT ARE MORE THA N THE 10% OF THE BOOK PROFIT, FURTHER, WITHOUT PREJUDICE TO THE AFORESAID , IF IT BE HELD THAT PROVISIONS OF SECTION 115JB OF THE ACT ARE APPLICAB LE, THEN THE ASSESSEE IS ENTITLED TO RELIEF OF REBATE UNDER SECTION 88E OF T HE ACT FROM THE TAX PAYABLE UNDER SECTION 115 JB OF THE ACT. IT WAS SUB MITTED THAT IN SUPPORT OF THE AFORESAID CONTENTION, ASSESSEE SEEKS TO PLAC E RELIANCE ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS WHEREIN IT HAS BE EN HELD THAT REBATE UNDER SECTION 88E OF THE ACT HAS TO BE ALLOWED FROM THE TAX PAYABLE UNDER ITA NOS. 2126 & 2901/D/10 M/S BLB LTD. PAGE 12 OF 28 SECTION 88E OF THE ACT: - CIT VS MBL & CO. LTD IN ITA NO. 1181/2011 (DELHI HIGH COURT) - CIT VS HORIZON CAPITAL LTD. 204 TAXMAN 59 (KAR)( MAG) 6.2.6 THE LD. AR ALSO DREW ATTENTION TO A CHART A ND SUBMITTED THAT ON PERUSAL OF THE CHART IT WOULD BE SEEN THAT THE BOOK PROFIT IS FAR LESS THAN THE TOTAL INCOME AND THUS, THE PROVISIONS OF SECTIO N 115JB DO NOT GET TRIGGERED AND AS SUCH, THE TAX ON BOOK PROFIT LEVIE D IS ALSO UNTENABLE. IT WAS SUBMITTED THAT THE INCOME TAX PAYABLE ON THE TO TAL INCOME AS COMPUTED UNDER THE ACT IS NOT LESS THAN 7.5% OF ITS BOOK PROFIT, AND AS SUCH THE PROVISIONS OF SECTION 115JB ARE NOT APPLIC ABLE AS IS THE SITUATION IN THE INSTANT CASE. IN FACT, WHEN INCOME TAX PAYA BLE ON THE TOTAL INCOME AS COMPUTED UNDER THE ACT IS LESS THAN 7.5% OF ITS BOOK PROFIT THEN ONLY CAN AN ASSESSEE BE LIABLE TO BE TAXED U/S 115JB OF THE ACT WHEREAS THE TAX PAYABLE ON TOTAL INCOME IN THE INSTANT CASE IS FAR HIGHER THAN 7.5% OF BOOK PROFIT. THE CHART IS REPRODUCED UNDER FOR A READY R EFERENCE - ITA NOS. 2126 & 2901/D/10 M/S BLB LTD. PAGE 13 OF 28 S.NO. PARTICULARS AY 2006-07 AY 2007-08 AY 2008-09 AS PER AO 1. TOTAL INCOME 54,66,59,030/- 51,08,60,641/- 127,8 8,04,351/- 2. INCOME FROM SOURCES OTHER THAN INCOME ON WHICH SECURITIES TRANSACTION TAX HAS BEEN PAID 63,83,106/- 2,00,88,565/- 3,99,76,353/- 3. TAX ON TOTAL INCOME 16,83,06,156/- 15,32,58,192/ - 38,29,48,300/- 4. TAX ON INCOME FROM SOURCES OTHER THAN INCOME ON WHICH SECURITIES TRANSACTION TAX HAS BEEN PAID 21,48,553/- 67,61,810/- 1,34,31,734/- 5. BOOK PROFIT 14,05,84,869/- 7,29,27,487/- 44,29,5 3,774/- 6. TAX ON BOOK PROFIT 1,18,30,217/- 81,82,465/- 4,9 6,99,412/- 6.2.7 THE LD. AR SUBMITTED THAT IN VIEW OF THE AFOR ESAID SUBMISSIONS, GROUND NO. 4 OF THE DEPARTMENTS APPEAL OUGHT TO BE DISMISSED. 6.3 WITH RESPECT TO GROUND NO 3 OF THE DEPARTMENTAL APPEAL, THE LD. AR SUBMITTED THAT IN THE AFORESAID GROUND OF APPEAL, G RIEVANCE OF THE REVENUE IS WITH REGARD TO THE ALLOWANCE OF REBATE UNDER SECTIO N 88E OF THE ACT IN RESPECT OF TAX PAYABLE ON THE BROKERAGE INCOME, INT EREST INCOME, INTEREST ON INCOME TAX REFUND AND MISCELLANEOUS INCOME. THE LD. AR SUBMITTED THAT THE AO, IN HIS ORDER OF ASSESSMENT IN PARA 9, HAS HELD THAT DEDUCTION UNDER ITA NOS. 2126 & 2901/D/10 M/S BLB LTD. PAGE 14 OF 28 SECTION 88E OF THE ACT IS NOT ALLOWABLE ON THE INCO ME ARISING OTHER THAN FROM INCOME FROM TAXABLE SECURITIES TRANSACTION AND HENCE TAX PAYABLE ON THE BROKERAGE INCOME, INTEREST INCOME, INTEREST ON INCOME TAX REFUND AND MISCELLANEOUS INCOME WAS NOT CONSIDERED FOR THE ALL OWANCE OF DEDUCTION U/S 88E OF THE ACT. THE LD. AR SUBMITTED A CHART EXTRAC TED FROM PAGES 18 AND 19 OF THE ASSESSMENT ORDER TO DEMONSTRATE THE WORKI NG BY THE AO. THE CHART IS REPRODUCED AS UNDER ON THE NEXT PAGE - ASSTT.YEAR 2006 - 07 (EXTRACTS FROM AO'S ORDER) 1 NON SPECULATIVE BUSINESS INCOME FROM SECURITIES TRANSACTION 243457170 2 SPECULATIVE BUSINESS INCOME FROM SECURITIES TRANSACTION 317563352 A 561020522 OTHERS A. BROKERAGE INCOME 2999419 LESS: EXPENSES RETAIL - 3569087 LESS: EXPENSES DP - 414789 - 984451 B. INTEREST ON FDR 6530310 C. MISC. INCOME 654380 6200233 4 INTEREST ON INCOME TAX REFUND 182873 B 6383106 GROSS TOTAL INCOME 567403628 LESS: DEDUCTION U/S 80G 20750000 TOTAL INCOME 546659028 ITA NOS. 2126 & 2901/D/10 M/S BLB LTD. PAGE 15 OF 28 6.3.1 THE LD. AR SUBMITTED THAT IT WOULD THUS BE SE EN THAT THE AO HAS COMPUTED THE TOTAL INCOME OF ASSESSEE AT RS. 54, 66 ,59, 028/-. I.E. A+B AS ABOVE LESS DEDUCTION U/S 80G. IT WAS SUBMITTED THAT THE AO HAS DULY ADMITTED THAT REBATE U/S 88E (1) OF THE ACT IS ALL OWABLE IN RESPECT OF TAX PAYABLE ON INCOME OF RS. 56,10,20,522/- I.E. ITEM A BUT HAS HELD THAT NO REBATE IS TO BE ALLOWED ON RS. 63,83,106/- I.E. ITEM B SINCE IN HIS OPINION DEDUCTION U/S 88E OF THE ACT, IS ALLOWABLE ON THE INCOME ON WHICH SECURITIES TRANSACTION TAX I.E. STT HAS BEEN PAID AND AS NO STT HAS BEEN PAID ON (A) BROKERAGE INCOME, (B) INTEREST ON FDR (C) MISCELLANEOUS INCOME, (D) INTEREST ON REFUND, REBAT E U/S 88E OF THE ACT I.E. OF STT PAID COULD NOT BE ALLOWED. 6.3.2 IT WAS FURTHER SUBMITTED THAT THE AO, FOR THE PURPOSES OF COMPUTATION OF TAXABLE INCOME, HAS INCLUDED THE INT EREST INCOME FOR THE PURPOSES OF COMPUTATION OF INCOME TAX BUT HAS HELD THAT THE REBATE UNDER SECTION 88 E OF THE ACT IS TO BE RESTRICTED ONLY TO THE EXTENT OF INCOME ON WHICH SECURITIES TRANSACTION TAX HAS BEEN PAID. IN OTHER WORDS, IN HIS OPINION THE ASSESSEE WAS TO PAY TAX ON RS. 63, 83, 106/-. BUT THE SAME IS NOT ELIGIBLE FOR REBATE UNDER SECTION 88E OF THE AC T, AS THE SAME IS THE INTEREST INCOME FROM FDRS. THE LD. AR SUBMITTED TH AT SUCH FDRS ON ITA NOS. 2126 & 2901/D/10 M/S BLB LTD. PAGE 16 OF 28 WHICH INTEREST OF A SUM OF RS. 65, 30, 310/- HAS BE EN EARNED REPRESENTED MARGIN MONEY KEPT WITH STOCK EXCHANGES IN ORDER TO ENABLE THE ASSESSEE COMPANY TO PARTICIPATE IN THE BUSINESS OF TRADING I N SHARES. 6.3.3 IT WAS SUBMITTED THAT IT WOULD BE SEEN THAT T HERE IS NO NET INCOME FROM (A) BROKERAGE INCOME, (B) MISCELLANEOUS INCOME , (C) INTEREST ON REFUND (WHICH IS A NEGATIVE SUM) AND THUS, NO SUCH INCOME HAS BEEN INCLUDED IN THE INCOME OF RS. 56, 10, 20, 522/-. IN FACT, DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, ASSESSEE ITSELF HAS CONCEDED THAT REBATE U/S 88E IS NOT ELIGIBLE FOR DEDUCTION IN RESPECT OF TAX PAYABLE ON BROKERAGE INCOME, MISC. INCOME AND INTEREST ON INCO ME TAX REFUND I.E. ON RS. 29,99,419/-, RS. 6,54,380/-, RS. 1,82,873/- AGGREGATING TO RS. 38,36,672/- AND, THUS, THE ONLY QUESTION WHICH REMA INS IS WHETHER THE ASSESSEE IS ENTITLED TO CLAIM A REBATE OF STT PAID ON THE AFORESAID INCOME OF RS.63, 83, 106/- WHICH IS FROM INTEREST ON FDR'S FROM BANKS. THE LD. AR SUBMITTED THAT THE LEARNED CIT (A) WAS LEGALLY & FACTUALLY JUSTIFIED IN SO HOLDING THAT ON THE AFORESAID INCOME OF RS. 6 3,83,106/-, THE ASSESSEE WAS ELIGIBLE FOR THE CLAIM OF REBATE OF ST T PAID. IN FACT THE AFORESAID INCOME HAS A DIRECT NEXUS WITH THE INCOME , ON WHICH THE ASSESSEE HAS PAID THE STT AS THERE WAS NO NET INCOM E THE AND THAT THERE ITA NOS. 2126 & 2901/D/10 M/S BLB LTD. PAGE 17 OF 28 WAS NO DISPUTE IN RESPECT THEREOF. 6.3.4 IT WAS FURTHER SUBMITTED THAT THE TAX PAYABLE ON INTEREST INCOME AS SUBMITTED ABOVE IS ELIGIBLE FOR TAX REBATE, AS THE INTEREST INCOME HAS BEEN EARNED ON THE MARGIN MONEY KEPT WITH STOCK EXCHANGE S AS PER SEBI GUIDELINES FOR DEALING IN SHARES IN RESPECT OF WHIC H IT HAS PAID STT IS TO BE ALLOWED. IT WAS SUBMITTED THAT UNDER SECTION 88E OF THE ACT, IT IS CLEARLY PROVIDED THAT WHERE THE TOTAL INCOME OF THE ASSESSEE INCLUDES ANY INCOME CHARGEABLE UNDER THE HEAD PROFITS & GAINS OF BUSINESS OR PROFESSION ARISING FROM TAXABLE SECURITIES TRANSACT ION TAX, THE ASSESSEE WAS ENTITLED TO A REBATE FROM THE AMOUNT OF INCOME TAX ON SUCH INCOME. IT WAS SUBMITTED THAT THE INTEREST ON FDRS KEPT AS MAR GIN MONEY WITH STOCK EXCHANGES IS THUS, AN INCOME WHICH ARISES FROM TAXA BLE SECURITIES TRANSACTIONS. IT WAS SUBMITTED THAT SINCE INTEREST ON MARGIN MONEY KEPT WITH THE STOCK EXCHANGES AS PER SEBI GUIDELINES IS INEXTRICABLY LINKED WITH TAXABLE SECURITIES TRANSACTION, AS SUCH, TAX P AYABLE ON INTEREST INCOME IS ELIGIBLE FOR REBATE U/S 88E OF THE ACT. 6.3.5 THE LD. AR RELIED ON THE JUDGMENT OF THE HON BLE HIGH COURT OF DELHI IN CIT VS JAYPEE DSC VENTURES LTD 335 ITR 132 (DEL) WHEREIN IT ITA NOS. 2126 & 2901/D/10 M/S BLB LTD. PAGE 18 OF 28 HAS BEEN HELD THAT WHERE INTEREST INCOME IS INEXTRI CABLY LINKED WITH THE BUSINESS INCOME, THE SAME CANNOT BE TAXED AS INCOME FROM OTHER SOURCES. THE LD. AR SUBMITTED THAT ON PERUSAL OF THE JUDGMEN T OF HONBLE HIGH COURT OF DELHI REPORTED IN 335 ITR 132, IT WOULD B E SEEN THAT IT HAS BEEN HELD THAT WHERE INTEREST INCOME HAS BEEN EARNED ON FIXED DEPOSITS KEPT AS MARGIN MONEY, THE SAME HAS TO BE HELD AS BUSINESS I NCOME AND NOT INCOME FROM ANY OTHER HEAD. IT WAS SUBMITTED THAT I N ARRIVING AT SUCH A CONCLUSION, THE HONBLE HIGH COURT HAS KEPT IN VIEW THE REAL DISTINCTION TO DECIDE WHETHER THE SAID INCOME IS INCOME FROM BUSIN ESS AS INCOME FROM OTHER SOURCES. THE ASSESSEE SUBMITS THAT THE RATIO OF THE AFORESAID JUDGMENT IS FULLY APPLICABLE ON THE FACTS OF THE AS SESSEE - RESPONDENT. THE LD. AR SUBMITTED THAT IN VIEW OF THE AFORESAID, FIN DING OF THE LEARNED CIT(A) DESERVES TO BE UPHELD AS THE INTEREST EARNED ON FD KEPT AS MARGIN MONEY IS INCOME UNDER THE HEAD BUSINESS AND GROUN D OF APPEAL RAISED BY THE REVENUE DESERVES TO BE DISMISSED. 7. THE LD. DR RELIED ON THE ASSESSMENT ORDER IN TH E DEPARTMENTS APPEAL AND SUPPORTED THE ORDER OF THE LD. CIT (A) IN THE C ASE OF ASSESSEES APPEAL. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE PER USED THE MATERIAL ON ITA NOS. 2126 & 2901/D/10 M/S BLB LTD. PAGE 19 OF 28 RECORD. AS FAR AS THE ISSUE OF DISALLOWANCE U/S 14A IS CONCERNED, IT IS TRUE THAT THE AUTHORITIES BELOW HAVE ERRED IN APPLYING R ULE 8D TO THE YEAR UNDER APPEAL I.E. AY 2006-07 WHEREAS RULE 8D HAS BEEN HEL D BY VARIOUS JUDICIAL PRONOUNCEMENTS TO BE APPLICABLE PROSPECTIVELY FROM AY 2008-09. FURTHER, ON A PERUSAL OF THE ORDERS OF THE AUTHORITIES BELOW , IT IS SEEN THAT THE AO AS WELL AS THE LD. CIT (A) HAVE NOT RECORDED ANY FINDI NG AS TO HOW THE DISALLOWANCE OF RS. 32,875/- MADE BY THE ASSESSEE W AS INCORRECT. THE AUTHORITIES BELOW HAVE ALSO NOT POINTED OUT THE NEX US BETWEEN THE INVESTMENTS AND THE EXPENDITURE INCURRED. THE ASSES SING OFFICER HAS ADOPTED THE FORMULA FOR ESTIMATING EXPENDITURE ON T HE BASIS OF INVESTMENTS BUT THE JUSTIFICATION FOR CALCULATING THE DISALLOWA NCE IS MISSING. THE HON'BLE DELHI HIGH COURT IN THE CASE OF MAXOPP INVE STMENT LTD. VS CIT (I.T.A. 687/2009) HAS OPINED IN PARA 29 OF THE ORDE R AS UNDER:- 29. SUB-SECTION (2) OF SECTION 14 A OF THE SAID ACT PROVIDES THE MANNER IN WHICH THE ASSESSING OFFICER IS TO DET ERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO I NCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. HOWEV ER, IF WE EXAMINE THE PROVISION CAREFULLY, WE WOULD FIND THAT THE ASSESSING OFFICER IS REQUIRED TO DETERMINE THE AMOU NT OF SUCH EXPENDITURE ONLY IF THE ASSESSING OFFICER, HAV ING REGARD TO THE ACCOUNTS OF THE ASSESSEE, IS NOT SATI SFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RES PECT OF SUCH EXPENDITURE IN RELATION TO INCOME WHICH DOES N OT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT. IN OTH ER WORDS, THE REQUIREMENT OF THE ASSESSING OFFICER EMBARKING UPON A DETERMINATION OF THE AMOUNT OF EXPENDITURE INCURRED IN ITA NOS. 2126 & 2901/D/10 M/S BLB LTD. PAGE 20 OF 28 RELATION TO EXEMPT INCOME WOULD BE TRIGGERED ONLY I F THE ASSESSING OFFICER RETURNS A FINDING THAT HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE I N RESPECT OF SUCH EXPENDITURE. THEREFORE, THE CONDITION PRECEDEN T FOR THE ASSESSING OFFICER ENTERING UPON A DETERMINATION OF THE AMOUNT OF THE EXPENDITURE INCURRED IN RELATION TO E XEMPT INCOME IS THAT THE ASSESSING OFFICER MUST RECORD TH AT HE , IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE. SUB-SECTION (3) IS NOTHING BUT AN OFFSHOOT OF SUB-SECTION (2) OF SECTION 14A. SUB- SECTION (3) APPLIES TO CASES WHERE THE ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SA ID ACT. IN OTHER WORDS, SUB-SECTION (2) DEALS WITH CASES WHERE THE ASSESSEE SPECIFIES A POSITIVE AMOUNT OF EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT AND SUB-SECTION (3) APPLI ES TO CASES WHERE THE ASSESSEE ASSERTS THAT NO EXPENDITUR E HAD BEEN INCURRED IN RELATION TO EXEMPT INCOME. IN BOTH CASES, THE ASSESSING OFFICER, IF SATISFIED WITH THE CORREC TNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITUR E OR NO EXPENDITURE, AS THE CASE MAY BE, CANNOT EMBARK UPON A DETERMINATION OF THE AMOUNT OF EXPENDITURE IN ACCOR DANCE WITH ANY PRESCRIBED METHOD, AS MENTIONED IN SUB-SEC TION (2) OF SECTION 14A OF THE SAID ACT. IT IS ONLY IF THE A SSESSING OFFICER IS NOT SATISFIED WITH THE CORRECTNESS OF TH E CLAIM OF THE ASSESSEE, IN BOTH CASES, THAT THE ASSESSING OFF ICER GETS JURISDICTION TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT IN ACCORDANCE WITH THE PRESCRIBED METHOD. THE PRESCRIBED METHOD BEING THE METHOD STIPULATED IN RULE 8D OF THE SAID RULES. WHILE REJE CTING THE CLAIM OF THE ASSESSEE WITH REGARD TO THE EXPENDITUR E OR NO EXPENDITURE, AS THE CASE MAY BE, IN RELATION TO EXE MPT INCOME, THE ASSESSING OFFICER WOULD HAVE TO INDICAT E COGENT REASONS FOR THE SAME. ITA NOS. 2126 & 2901/D/10 M/S BLB LTD. PAGE 21 OF 28 8.01 SIMILARLY, THE HON'BLE HIGH COURT OF PUNJAB & HARYANA IN THE CASE OF CIT-II VS HERO CYCLES LTD. IN I.T.A. NO. 331 OF 200 9 (O&M) HAS HELD IN PARA 4 OF THE JUDGMENT THAT, THE CONTENTION OF THE REVENUE THAT DIRECTLY OR INDIRECTLY SOME EXPENDITURE IS ALWAYS INCURRED WHIC H MUST BE DISALLOWED U/S 14A AND THE IMPACT OF EXPENDITURE SO INCURRED CANNO T BE ALLOWED TO BE SET OFF AGAINST THE BUSINESS INCOME WHICH MAY NULLIFY T HE MANDATE OF SECTION 14A, CANNOT BE ACCEPTED. DISALLOWANCE U/S 14A REQU IRES FINDING OF INCURRING OF EXPENDITURE. WHERE IT IS FOUND THAT F OR EARNING EXEMPTED INCOME, NO EXPENDITURE HAS BEEN INCURRED DISALLOWAN CE U/S 14A CANNOT STAND. 8.02 MUMBAI J BENCH OF THE ITAT HAS HELD IN THE C ASE OF JUSTICE SAM P. BHARUCHA VS ACIT IN I.T.A. NO. 3889/MUM/2011 THAT N O DISALLOWANCE U/S 14A OF THE ACT IS CALLED FOR WHEN THE ASSESSEE HAS NOT INCURRED AND CLAIMED ANY EXPENDITURE FOR EARNING THE EXEMPT INCOME. 8.03 THEREFORE, ON AN OVERALL CONSIDERATION OF THE FACTS OF THE CASE AND RESPECTFULLY FOLLOWING THE RATIO OF THE JUDGMENTS A S AFOREMENTIONED, WE HOLD THAT THE DISALLOWANCE U/S 14A WAS MADE WITHOUT DUE DELIBERATION AND ANALYSIS BY THE ASSESSING OFFICER AND THE LD. CIT ( A) WAS ALSO PATENTLY WRONG IN CONFIRMING THE DISALLOWANCE WITHOUT TESTIN G THE SUSTAINABILITY OF ITA NOS. 2126 & 2901/D/10 M/S BLB LTD. PAGE 22 OF 28 THE DISALLOWANCE. HENCE, WE SET ASIDE THE FINDINGS OF THE LD. CIT (A) ON THIS ISSUE AND RESTORE THE MATTER TO THE FILE OF THE AO FOR FRESH ADJUDICATION AFTER DUE VERIFICATION OF THE CLAIM OF THE ASSESSEE. HENC E THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 8.1 AS FAR AS GROUND NO. 2 OF THE ASSESSEES APPEAL REGARDING ADDITION ON ACCOUNT OF ALLEGED DIFFERENCE IN VALUATION OF STOCK IS CONCERNED, IT IS SEEN THAT THE ASSESSEE HAS BEEN CONSISTENTLY VALUING THE STOCK OF SHARES ON FIFO BASIS AND THE IT IS UNDISPUTED THAT THE DEPARTMENT HAS ACCEPTED THIS METHOD OF VALUATION IN PRECEDING AS WELL AS SUBSEQUENT ASS ESSMENT YEARS. THE AO HAS NOT BEEN ABLE TO JUSTIFY THE NEED FOR THE CHANG E IN VALUATION AND THE LD. CIT (A) HAS ALSO CONFIRMED THE ACTION OF THE AO IN THIS REGARD. HOWEVER, EVEN IN THE ARGUMENTS BEFORE US, THE LD. DR COULD N OT GIVE A COGENT REASON THAT WARRANTED A CHANGE IN THE METHOD OF VALUATION ESPECIALLY WHEN THE METHOD WAS ACCEPTED BY THE DEPARTMENT IN EARLIER AS WELL AS SUBSEQUENT YEARS. IT IS ALSO SEEN THAT DUE CREDIT FOR THE DIFF ERENCE IN VALUATION OF CLOSING STOCK IN THE YEAR UNDER APPEAL HAS ALSO NOT BEEN IN CORPORATED BY THE DEPARTMENT IN THE VALUATION OF OPENING STOCK BY THE DEPARTMENT IN AY 07- 08. HENCE, WE FIND THAT THE STOCK VALUATION FIGURE HAS BEEN DISTURBED WITHOUT ANY BASIS WHATSOEVER AND WE FIND OURSELVES UNABLE TO AGREE WITH THE STAND OF THE DEPARTMENT ON THIS ISSUE. WE, ACCORDIN GLY, SET ASIDE THE ORDER OF ITA NOS. 2126 & 2901/D/10 M/S BLB LTD. PAGE 23 OF 28 THE LD. CIT (A) ON THIS ISSUE AND DIRECT THE AO TO DELETE THIS ADDITION. GROUND NO. 2 OF THE ASSESSEES APPEAL STANDS ALLOWE D. 8.2 IN THE RESULT, THE APPEAL OF THE ASSESSEE STAND S ALLOWED. 9. AS FAR AS GROUND NO. 1 OF THE DEPARTMENTS APPEA L IS CONCERNED, IT IS SEEN THAT THE LD. CIT(AS) HAS DISCUSSED AN ADJUDICATED THE ISSUE AT LENGTH ON PAGES 11 & 12 OF THE IMPUGNED ORDER. THE RELEVANT PORTIONS ARE BEING REPRODUCED FOR A READY REFERENCE AS UNDER: I HAVE EXAMINED THE SUBMISSION OF THE APPELLANT AN D IT IS FOUND THAT THE SHARE CAPITAL AND FREE RESERVES AMOUNTED T O RS. 78 CRORES AND THE INCOME OF THE COMPANY FOR THE CURREN T YEAR AS FOR REVISED RETURN WAS IN EXCESS OF RS. 54 CRORES. THE RE IS NOTHING WRONG IN THE MAKING ONE DONATION OUT OF VARIOUS DON ATIONS FROM THE OVERDRAFT ACCOUNT. FOR ALL OTHER DONATIONS, TH ERE WAS ENOUGH BALANCE IN THE BANK ACCOUNT OF THE APPELLANT . FURTHER, THE ADVANCING OF LOANS TO SUBSIDIARIES AND SISTER C ONCERNS IS STATED TO BE OUT OF COMMERCIAL EXPEDIENCY, AND THE INTEREST HAS BEEN CHARGED FROM M/S BLB COMMODITIES (P) LTD. @ 6. 50% AS HAS BEEN PAID TO THE PROMOTER/DIRECTORS OF THE COMP ANY DURING THE YEAR AS ALSO IN ALL THE EARLIER YEARS. SINCE T HE APPELLANT COMPANY HAD SHARE CAPITAL AND FREE RESERVES AMOUNTI NG TO RS. 78 CRORES AND CURRENT INCOME OF THE COMPANY WAS RS. 54 CRORES, IT COULD NOT BE SAID THAT THE DONATIONS/LOANS HAD B EEN GIVEN OUT OF BORROWED FUND. SECTION 36(1)(III) OF THE ACT SI MPLY LAYS DOWN THAT, IF A LOAN HAS BEEN TAKEN FOR THE PURPOSE OF T HE BUSINESS, THE ITA NOS. 2126 & 2901/D/10 M/S BLB LTD. PAGE 24 OF 28 DEDUCTION FOR PAYMENT OF INTEREST HAS TO BE ALLOWED . NO DIRECT NEXUS HAS BEEN ESTABLISHED BETWEEN THE UTILIZATION OF FUNDS OUT OF THE BORROWED AMOUNT ON WHICH INTEREST HAS BEEN P AID. AFTER HAVING GONE THROUGH THE FACTS OF THE CASE, SU BMISSION OF THE APPELLANT AND THE CASE LAWS RELIED UPON, I AM O F THE OPINION THAT THE DISALLOWANCE HAS BEEN MADE BY THE ASSESSIN G OFFICER WITHOUT ESTABLISHING ANY NEXUS BETWEEN BORROWED AND DIVERTED FUNDS. FURTHER THE AO HAS IGNORED THE FREE RESERVE S AND SHARE CAPITAL OF RS. 78 CRORES AVAILABLE WITH THE APPELLA NT. ACCORDINGLY, THE DISALLOWANCE MADE OUT OF INTEREST PAID SHOULD BE DELETED EXCEPT DISALLOWANCE OF RS. 1781/- ON DON ATION MADE OUT OF OVERDRAFT ACCOUNT. THIS GROUND IS TREATED A S PARTLY ALLOWED. 9.01 IN VIEW OF THE SPECIFIC FINDINGS OF THE LD. CI T(A) WHICH THE LD. DR COULD NOT CONTROVERT, WE HAVE NO REASON TO INTERFER E WITH THE FINDINGS OF THE LD. CIT(A) ON THIS ISSUE AND WE UPHOLD THE SAME. 9.02 IN THE RESULT, GROUND NO. 1 OF THE DEPARTMENT S APPEAL IS DISMISSED. 9.1 AS FAR AS GROUND NO. 1 RELATING TO DELETION OF ADDITION OF RS. 863806/- ON ACCOUNT OF EXTRA DEPRECIATION CLAIMED ON COMPUTE R PERIPHERALS AND ACCESSORIES ARE CONCERNED. IT IS SEEN THAT THIS IS SUE HAS BEEN SETTLED IN FAVOUR OF THE ASSESSEE IN A PLETHORA OF JUDICIAL PRONOUNCE MENTS AND THE LD. CIT(A) HAS ALSO FOLLOWED THE REASONING THAT THE COMPUTER I S OF NO USE IF IT DOES NOT ITA NOS. 2126 & 2901/D/10 M/S BLB LTD. PAGE 25 OF 28 HAVE ANY SUPPORT OF PRINTER/MOUSE/UPS ETC. HENCE, ON THIS ISSUE ALSO WE FIND NO REASON TO INTERFERE WITH THE FINDINGS OF TH E LD. CIT(A) AND WE UPHOLD THE SAME. 9.1.2 IN THE RESULT, GROUND NO. 2 OF THE DEPARTMENT S APPEAL IS ALSO DISMISSED. 9.2 AS FAR AS GROUND NO. 3 OF THE DEPARTMENTS APPE AL REGARDING REBATE U/S 88E IS CONCERNED, WE FIND THAT THE CASE OF THE ASSE SSEE IS SQUARELY COVERED BY THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN CIT VS. JAYPEE DSC VENTURES LIMITED (SUPRA), WHEREIN THE HONBLE D ELHI HIGH COURT HELD AS UNDER: AS IS NOTICEABLE FROM THE STIPULATIONS IN THE AGRE EMENT, THE PERFORMANCE GUARANTEE BY WAY OF BANK GUARANTEE WAS REQUIRED FOR FAITHFUL PERFORMANCE OF ITS OBLIGATIONS. THE N ON SUBMISSION OF THE GUARANTEE WOULD HAVE ENTAILED IN TERMINATION OF THE AGREEMENT AND NHAI WOULD HAVE BEEN AT LIBERTY TO AP PROPRIATE BID SECURITY. THAT APART, THE RELEASE OF SUCH PERF ORMANCE SECURITY DEPENDENT UPON CERTAIN CONDITIONS. THUS, IT IS CLEARLY EVINCIBLE THAT THE BANK GUARANTEE WAS FURNISHED AS A CONDITION PRECEDENT TO ENTERING THE CONTRACT AND FURTHER IT W AS TO BE KEPT ALIVE TO FULFILL THE OBLIGATIONS. QUITE APART FROM THE ABOVE, THE RELEASE OF THE SAME WAS DEPENDENT ON THE SATISFACTI ON OF CERTAIN ITA NOS. 2126 & 2901/D/10 M/S BLB LTD. PAGE 26 OF 28 CONDITIONS. THUS, THE PRESENT CASE IS NOT ONE WHER E THE ASSESSEE HAD MADE THE DEPOSIT OF SURPLUS MONEY LYING IDLE WI TH IT IN ORDER TO EARN INTEREST; ON THE CONTRARY, THE AMOUNT OF I NTEREST WAS EARNED FROM FIXED DEPOSIT WHICH WAS KEPT IN THE BAN K FOR FURNISHING THE BANK GUARANTEE. IT HAD AN INEXTRICA BLE NEXUS WITH SECURING THE CONTRACT. THE VIEW EXPRESS BY THE TRI BUNAL CANNOT BE FOUND FAULT WITH. THE TRIBUNAL WAS THEREFORE, J USTIFIED IN HOLDING THAT THE INTEREST EARNED BY THE ASSESSEE ON THE FDRS HAS INTRINSIC AND INSEGGREGABLE NEXUS WITH THE WORK UND ERTAKEN AND, THEREFORE, THE INTEREST EARNED BY THE ASSESSEE IS C APITAL IN NATURE AND SHALL GO TOWARDS ADJUSTMENT AGAINST THE PROJECT EXPENDITURE AND THE SAME CANNOT BE ASSESSED AS INCOME FROM OTHE R SOURCES. 9.2.1 SINCE THE FACTS IN THE CASE OF THE ASSESSEE A RE IDENTICAL, WE ARE OF THE OPINION THAT THE LD. CIT HAS RIGHTLY ADJUDICATED TH E ISSUE BY DIRECTING THE AO TO ALLOW REBATE U/S 88E OF THE ACT AND WE FIND NO R EASON TO INTERFERE WITH THE SAME. 9.2.2 IN THE RESULT, GROUND NO. 3 OF THE DEPARTMENT S APPEAL IS DISMISSED. 9.3 AS FAR AS GROUND NO. 4 OF THE DEPARTMENTS APPE AL IS CONCERNED, IT IS SEEN THAT THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. MBL & COMPANY LIMITED (SUPRA) HAS HELD AS UNDER: 10. WE FIND THAT THERE IS NO REASON WHY THE REMIS SION IN TAX ITA NOS. 2126 & 2901/D/10 M/S BLB LTD. PAGE 27 OF 28 WHICH IS AVAILABLE U/S 88E OF THE ACT TO AN ASSESSE E BE NOT AVAILABLE ON THE TAX AS COMPUTED UNDER THE MINIMUM ALTERNATE TAX SCHEME AS BOTH SECTION 115JB OF THE ACT AS WELL AS THE OTHER PROVISIONS OF THE ACT REFERRED ABOVE HAVE BEE N ENACTED TO PROVIDE THE MACHINERY FOR COMPUTING TOTAL INCOME OF AN ASSESSEE WHICH IS EXIGIBLE TO INCOME TAX. THE REBA TE U/S 88E OF THE ACT PROVIDES FOR CERTAIN REBATES AVAILABLE ON T HE TAX PAYABLE BY AN ASSESSEE. IN OUR VIEW, THERE WOULD B E NO RATIONALE TO LIMIT THE PLAIN WORDS OF SEC. 88E OF T HE ACT TO HOLD THAT THE REBATE IN PAYMENT OF THE TAX IS ONLY APPLI CABLE TO TAX AS DETERMINED UNDER THE NORMAL PROVISIONS OF THE ACT A ND NOT AVAILABLE WITH RESPECT TO MINIMUM ALTERNATIVE TAX A S COMPUTED U/S 115JB OF THE ACT. THE PURPOSE OF SECTION 88E O F THE ACT IS TO GRANT AN ASSESSEE, TO A LIMITED EXTENT, CREDIT I N TAX ON ACCOUNT OF SECURITY TRANSACTION TAX ALREADY BORNE B Y HIM IN RESPECT OF THE BUSINESS CARRIED OUT BY HIM IN DEALI NG IN SECURITIES. THIS REBATE WOULD BE EQUALLY APPLICABL E TO TAX AS COMPUTED UNDER SECTION 115JB OF THE ACT AS UNDER TH E NORMAL PROVISIONS OF THE ACT. 9.3.1 RESPECTFULLY FOLLOWING THE RATIO OF THE JUDGM ENT LAID DOWN BY THE HONBLE DELHI HIGH COURT IN THE CASE OF MBL & COMPA NY LIMITED (SUPRA), WE FIND NO REASON TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A) ON THIS ISSUE. 9.3.2 GROUND NO. 4 OF THE DEPARTMENTS APPEAL IS AC CORDINGLY, DISMISSED. ITA NOS. 2126 & 2901/D/10 M/S BLB LTD. PAGE 28 OF 28 10. IN THE FINAL RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED AND THE APPEAL OF THE DEPARTMENT IS DISMISSED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 05/08/201 6 SD/- SD/- (G.D. AGRAWAL) (SUDHANSHU SRIVASTAVA ) VICE PRESIDENT JUDICIAL MEMBER DATED: 05.08.2016 *KAVITA ARORA COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI