JM FINANCIAL SERVICES P.LTD, MUMBAI V. ADDL CIT RG 4(3), MUMBAI

ITA 3458/MUM/2012

• Counselvise Citation: 345819914 RSA 2012
• Duration Of Justice: 1 year(s) 9 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: J
• Next Hearing Date: 30-12-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 16-05-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S D SRIVASTAVA
• Assessee Lawyers: DR K SHIVARAM; SANJAY R PAREKH
• Keywords: Depreciation; Earning of tax free income; Revenue expenditure; Capital expenditure
• Section: 143(3); 14A; 37

Judgement Text

J IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH, MUMBAI .. , # %, & # ' BEFORE SHRI P.M. JAGTAP, AM AND SHRI SANJAY GARG, J M ./ I.T.A. NO.3458 /MUM/2012 ( &% % / ASSESSMENT YEAR : 2008-2009 M/S JM FINANCIAL SERVICES PRIVATE LIMITED, 141, MAKERS CHAMBERS III, NARIMAN POINT, MUMBAI 400 021. / VS. ADDL. COMMISSIONER OF INCOME TAX RG. 4(3), AAYAKAR BHAVAN, M.K. MARG, MUMBAI.20 . / PAN : AAACJ5977A ( / APPELLANT ) .. ( / RESPONDENT ) A PPELLANT BY DR. K. SHIVARAM & SHRI SANJAY R. PAREKH R E SPONDENT BY : SHRI S.D. SRIVASTAVA / DATE OF HEARING : 30-12-13 / DATE OF PRONOUNCEMENT : 28-02-14 [ / O R D E R PER P.M. JAGTAP, A.M . : .. , THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF LD. CIT(A) 8, MUMBAI DATED 29-2-2012. 2. THE FIRST ISSUE RAISED IN GROUND NO. 1 RELATES T O THE DISALLOWANCE OF RS. 7,33,327/- MADE BY THE A.O. AND CONFIRMED BY THE LD . CIT(A) ON ACCOUNT OF ASSESSEES CLAIM FOR DEPRECIATION ON BSE AND NSE ME MBERSHIP CARD. ITA 3458/M/12 2 3. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WH ICH IS ENGAGED IN THE BUSINESS AS A PRIMARY AND SECONDARY MARKET SHARE BR OKER. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED B Y IT ON 29-9-2008 DECLARING TOTAL INCOME OF RS. 39,71,22,319/-. IN T HE SAID RETURN, DEPRECIATION OF RS. 73,33,327/- WAS CLAIMED BY THE ASSESSEE ON I NTANGIBLE ASSET BEING MEMBERSHIP OF BSE/NSE MEMBERSHIP CARD. IN THE ASSES SMENT COMPLETED U/S 143(3) OF THE INCOME TAX ACT, 1961, THE A.O. DISALL OWED THE CLAIM OF THE ASSESSEE FOR DEPRECIATION ON BSE AND NSE CARD FOLLO WING THE STAND TAKEN IN THE ASSESSMENTS COMPLETED IN ASSESSEES OWN CASE FO R THE EARLIER YEARS. ON APPEAL, THE LD. CIT(A) CONFIRMED THE DISALLOWANCE M ADE BY THE A.O. ON THIS ISSUE FOLLOWING THE ORDER OF THE TRIBUNAL IN THE CA SE OF SINO SECURITIES PVT. LTD. VS. ITO RENDERED VIDE ITS ORDER DATED 23-11-20 11 IN ITA NO. 6264 & 6394/MUM/2009. 4. AT THE TIME OF HEARING, THE LD. REPRESENTATIVES OF BOTH THE SIDES HAVE AGREED THAT THE ISSUE INVOLVED IN GROUND NO. 1 OF A SSESSEES APPEAL RELATING TO ITS CLAIM FOR DEPRECIATION ON BSE AND NSE CARD IS S QUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL RENDERED IN ASSESSEES OWN CASE FOR A.Y. 2007-08 VI DE ITS ORDER DATED 28-6-2013 PASSED IN ITA NO. 3112 & 3117/MUM/2011 WH EREIN A SIMILAR CLAIM OF THE ASSESSEE FOR DEPRECIATION ON BSE AND N SE CARD HAS BEEN ALLOWED BY THE TRIBUNAL FOLLOWING THE DECISION OF THE HONB LE SUPREME COURT IN THE CASE OF TECHNO SHARES AND STOCK LTD. VS. CIT REPORT ED IN 327 ITR 323 (SC). RESPECTFULLY FOLLOWING THE SAID DECISION OF THE CO- ORDINATE BENCH OF THIS TRIBUNAL, WE DELETE THE DISALLOWANCE MADE BY THE A. O. AND CONFIRMED BY THE LD. CIT(A) ON ACCOUNT OF ASSESSEES CLAIM FOR DEPRE CIATION ON BSE AND NSE MEMBERSHIP CARD AND ALLOW GROUND NO. 1 OF ASSESSEE S APPEAL. ITA 3458/M/12 3 5. THE ISSUE INVOLVED IN GROUND NO. 2 RELATES TO TH E DISALLOWANCE OF RS. 26,54,970/- MADE BY THE A.O. AND CONFIRMED BY THE L D. CIT(A) U/S 14A READ WITH RULE 8D OF THE INCOME TAX RULES, 1962. 6. IN THE YEAR UNDER CONSIDERATION, THE ASSESSEE HA D RECEIVED DIVIDEND INCOME OF RS. 1,22,37,640/- WHICH WAS CLAIMED TO BE EXEMPT IN ITS RETURN OF INCOME. IN THE COMPUTATION OF TOTAL INCOME, THE DI SALLOWANCE OF RS. 3,44,668/- WAS OFFERED BY THE ASSESSEE ON ACCOUNT O F EXPENSES INCURRED IN RELATION TO THE EARNING OF EXEMPT INCOME AS PER THE PROVISIONS OF SECTION 14A OF THE ACT. IT WAS SUBMITTED BEFORE THE A.O. ON BEH ALF OF THE ASSESSEE THAT THE SAID DISALLOWANCE WAS WORKED OUT AFTER TAKING INTO CONSIDERATION THE COMPENSATION COST OF THE EMPLOYEE HANDLING THE MUTU AL FUND INVESTMENT ACTIVITY, THE RELEVANT INFRASTRUCTURE COST AND THE TIME SPENT FOR CARRYING OUT THE SAID ACTIVITY. IT WAS CLAIMED THAT THE DISALLO WANCE OFFERED U/S 14A THUS WAS FAIR AND REASONABLE. THIS CLAIM OF THE ASSESSE E WAS NOT FOUND ACCEPTABLE BY THE A.O. ACCORDING TO HIM, NO DISALLOWANCE ON AC COUNT OF INTEREST EXPENDITURE WAS OFFERED BY THE ASSESSEE AS PER CLAU SE (II) OF RULE 8-D ON THE GROUND THAT THE ENTIRE INTEREST COST WAS INCURRED F OR THE PURPOSE OF SECONDARY MARKET OPERATION. HE HELD THAT THE BORROWED FUNDS W ERE DIRECTLY OR IN-DIRECTLY UTILIZED BY THE ASSESSEE FOR THE PURPOSE OF MAKING INVESTMENT AND THEREFORE THE DISALLOWANCE ON ACCOUNT OF INTEREST EXPENDITURE WAS REQUIRED TO BE MADE AS SECTION 14A READ WITH RULE 8-D. HE ALSO HELD TH AT THE EFFORTS AND WORKING HOURS SPENT BY THE DIRECTORS FOR DECIDING THE INVES TMENT WHICH WOULD FETCH GOOD RETURN AND THEREAFTER FOLLOWED BY THE EXECUTIV ES AND STAFF FOR MAINTENANCE KEEPING IN TRACK OF RECORD OF SUCH INVE STMENT COULD NOT BE RULED OUT. HE ALSO HELD THAT THE DECISION WAS ALSO REQUIR ED TO BE TAKEN FOR DISPOSAL OF SAID SCRIPTS WHEREVER NEEDED AND ALL THESE INVOL VED USE OF OFFICE AND MANPOWER. HE, THEREFORE, RECORDED HIS DISSATISFACTI ON REGARDING THE DISALLOWANCE OFFERED BY THE ASSESSEE U/S 14A OF THE ACT AND WORKED SUCH DISALLOWANCE BY APPLYING RULE 8-D AGGREGATING TO RS . 29,99,638/-. ITA 3458/M/12 4 ACCORDINGLY, THE DIFFERENCE OF RS. 26,54,970/- WAS ADDED BY THE A.O. TO THE TOTAL INCOME OF THE ASSESSEE ON ACCOUNT OF FURTHER DISALLOWANCE U/S 14A OF THE ACT. 7. THE DISALLOWANCE MADE BY THE A.O. U/S 14A OF THE ACT WAS DISPUTED BY THE ASSESSEE IN THE APPEAL FILED BEFORE THE LD. CIT (A) AND AFTER CONSIDERING THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE AND THE MATERIAL AVAILABLE ON RECORD, THE LD. CIT(A) CONFIRMED THE DISALLOWANCE M ADE BY THE A.O. U/S 14A READ WITH RULE 8-D FOR THE FOLLOWING REASONS GIVEN IN PARA 4.3 TO 4.5:- 4.3 1 HAVE CONSIDERED THE ARGUMENTS OF THE AO AS W ELL AS OF THE LD. A.R. I FIND THAT THE AO HAS JUSTIFIABLY INVOKED THE PROVISIONS OF RULE 8D TO DETERMINE THE QUANTUM OF EXPENSES WHICH HAS TO B E DISALLOWED U/S.14A WITH RESPECT TO EARNING OF EXEMPT INCOME. T HE ASSESSEE HAD NOT MAINTAINED SEPARATE ACCOUNTS OF EXPENSES INCURR ED FOR EARNING OF EXEMPT INCOME. FURTHER, AS THE ASSESSEE HAD NOT MAI NTAINED ANY SEPARATE RECORDS ON ACCOUNT OF EXPENDITURE HAVING B EEN INCURRED FOR EARNING OF DIVIDEND INCOME THE AO BLINDLY CANNOT BE FASTENED WITH ANY BURDEN TO DISCOVER SUCH EXPENDITURE OF ESTABLISH NE XUS OF SUCH EXPENDITURE WITH EXEMPT INCOME. IT IS UNDER SUCH CI RCUMSTANCES, IN ABSENCE OF RELEVANT DETAILS OF SUCH EXPENDITURE WHE N IT WILL NOT BE POSSIBLE TO DIRECTLY DETERMINE THE AMOUNT OF EXPEND ITURE HAVING BEEN INCURRED FOR EARNING OF EXEMPT INCOME, THAT THE PRO VISIONS OF RULE 8D COME INTO PLAY. THE APPELLANTS CONTENTION THAT THE PROVISIONS OF SECTION 14A DOES NOT PROVIDE FOR APPORTIONMENT OF EXPENSES IS NOT SUSTAINABLE IN VIEW OF INSERTION OF SUB-SECTION (2) OF SECTION I 4A WITH EFFECT FROM 0 1.04.2007 REQUIRING THE AO TO DETERMINE SUCH AMOUNT II ACCORDANCE WITH SUCH METHOD AS HAS BEEN PRESCRIBED. SUCH METHO D AS MENTIONED IN SUB-SECTION (2) OF SECTION 14A HAS BEEN PRESCRIB ED AS PER RULE 8D. I, THEREFORE, HOLD THAT THERE IS NO MERIT IN THE APPEL LANTS CONTENTION THAT THE PROVISIONS OF SECTION 14A DOES NOT PROVIDE FOR APPORTIONMENT OF EXPENSES UNLIKE SECTION 80H1-IC. THE APPELLANTS CO NTENTION THAT IT HAD NOT UTILIZED ANY BORROWED FUND FOR INVESTMENT IN SE CURITIES THAT EARNED DIVIDEND INCOME BECAUSE THE BALANCE SHEET AS ON 31. 03.2008 SHOWS CERTAIN BALANCE OF OWN AND OUTSTANDING BORROWED FUN D IS ERRONEOUS BECAUSE MERELY FROM BALANCE OF OWN FUND IN THE BALA NCE SHEET, IT CANNOT BE SAID THAT NO BORROWED FUND HAD EVER BEEN UTILIZED FOR THE PURPOSE OF MAKING INVESTMENT OR UNDERTAKING TRANSA CTIONS WHICH HAVE YIELDED DIVIDEND INCOME WHICH HAS BEEN CLAIMED AS E XEMPT. THE APPELLANT HAS FAILED TO PRODUCE ANY CASH FLOW STATE MENT OR ANY OTHER MATERIAL WHICH CAN ESTABLISH THAT BORROWED FUND HA D NOT BEEN UTILIZED FOR EARNING OF EXEMPT INCOME IN AS MUCH AS NO SUCH FUND HAD BEEN ITA 3458/M/12 5 UTILIZED FOR MAKING INVESTMENT FROM WHICH DIVIDEND HAD BEEN RECEIVED. MERELY, ON THE BASIS OF BALANCE OF OWN FUND AND BOR ROWED FUND AS ON THE DATE OF THE BALANCE SHEET, IT CANNOT BE PRESUME D THAT BORROWED FUND HAD NOT BEEN UTILIZED FOR EARNING OF EXEMPT IN COME. 4.4 IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. [IT A NO.636/20101, THE HONBLE BOMBAY HIGH COURT HAD HELD THAT RULE 8D WAS APPLICABLE ONLY FROM A.Y. 2008-09. THUS, ADDITION OF THE AMOUN T DETERMINED AS PER RULE 8D HAS TO BE MADE FOR THE CURRENT YEAR I.E . A.Y.2008-09 AS AMOUNT OF EXPENDITURE INCURRED FOR EARNING OF EXEMP T INCOME. THE RECENT SPECIAL BENCH JUDGMENT IN THE CASE OF M/S. D AGA CAPITAL MANAGEMENT PVT. LTD. (2008) REPORTED IN 26 SOT 603 SUPPORTS THE VIEW THAT THE AO HAS RIGHTLY MADE THE DISALLOWANCE ULS.1 4A. 4.5 I HAVE CONSIDERED THE ARGUMENTS OF ME AO AS WEL L AS OF THE LD. AR. IT IS VERY CLEAR THAT FOR CALCULATING THE DISAL LOWANCE U/S.14A FOR EARNING TAX FREE INCOME, FROM A.Y.2008-09, THE A.O. MAY TAKE RECOURSE TO THE CALCULATION AS SUBSCRIBED IN RULE 8D. THIS C ONTENTION HAS BEEN UPHELD BY THE HONBLE MUMBAI HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING (A. LTD. VS. DUT 328 ITR 81. A S THE ASSESSING OFFICER AS NOT SATISFIED WITH THE WORKING OF THE D ISALLOWANCE WORKED OUT BY THE ASSESSEE. HE HAS RIGHTLY PROCEEDED TO WORK O UT THE DISALLOWANCE AS PER SEC.14A RULE SD. HENCE, I FIND THAT THE A.O. HAS RIGHTLY APPLIED THE PROVISIONS OF SEC.14A READ WITH RULE SD. HENCE, THIS GROUND OF APPEAL OF THE APPELLANT IS DISMISSED. 8. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE FIRST C ONTENTION RAISED BY THE LD. COUNSEL FOR THE ASSESSEE IS THAT THE DISALLOWANCE U /S 14A OF THE ACT HAS BEEN MADE IN THE CASE OF THE ASSESSEE BY APPLYING RULE 8 -D WITHOUT RECORDING ANY DISSATISFACTION BY THE A.O. AS REGARDS THE DISALLOW ANCE OFFERED BY THE ASSESSEE U/S 14A OF THE ACT. RELYING INTER ALIA ON THE DECI SION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING C O. LTD. VS. DCIT (328 ITR 81), HE HAS CONTENDED THAT IN THE ABSENCE OF AN Y DISSATISFACTION RECORDED BY THE A.O. REGARDING THE WORKING OF DISALLOWANCE O FFERED BY THE ASSESSEE U/S 14A OF THE ACT, RULE 8-D CANNOT BE INVOKED FOR MAKI NG ANY FURTHER DISALLOWANCE U/S 14A OF THE ACT. WE ARE UNABLE TO A CCEPT THIS CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE. AS RIGHTLY POINTE D OUT BY THE LD. D.R. FROM THE RELEVANT PORTION OF THE ASSESSMENT ORDER, A SPE CIFIC DISSATISFACTION WAS RECORDED BY THE A.O. IN THE ASSESSMENT ORDER REGARD ING THE CORRECTNESS OF THE ITA 3458/M/12 6 DISALLOWANCE OFFERED BY THE ASSESSEE U/S 14A OF THE ACT AND EVEN THE REASONS FOR THE SAME WERE GIVEN BY THE A.O. THE LD. COUNSE L FOR THE ASSESSEE HAS ALSO CONTENDED THAT NEITHER THE A.O. NOR THE LD. CIT(A) HAS POINTED OUT ANY SPECIFIC EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO THE EARNING OF THE RELEVANT EXEMPT INCOME. HE HAS ALSO POINTED OUT THAT A SIMIL AR ADDITIONAL DISALLOWANCE MADE IN ASSESSEES CASE BY THE A.O. IN A.Y. 2007-08 WAS DELETED BY THE TRIBUNAL. IT IS, HOWEVER, NOTED THAT RULE 8-D WAS NOT APPLICABLE IN A.Y. 2007- 08 WHEN THE ADDITIONAL DISALLOWANCE MADE U/S 14A OF THE ACT BY APPLYING THE SAID RULE WAS DELETED BY THE TRIBUNAL WHEREAS THE S AID RULE IS SQUARELY APPLICABLE TO A.Y. 2008-09 INVOLVED IN THE PRESENT APPEAL. AS PER RULE 8D, IF THE A.O. IS NOT SATISFIED WITH THE DISALLOWANCE COM PUTED BY THE ASSESSEE U/S 14A OF THE ACT, HE CAN COMPUTE THE DISALLOWANCE TO BE MADE U/S 14A OF THE ACT BY APPLYING THE RULE AND THERE IS NOTHING TO SU GGEST THAT EITHER THE A.O. OR THE LD. CIT(A) IS REQUIRED TO POINT OUT ANY SPEC IFIC EXPENDITURE INCURRED FOR EARNING THE DIVIDEND INCOME IN ORDER TO MAKE A DISA LLOWANCE U/S 14A READ WITH RULE 8-D OF THE INCOME TAX RULES, 1962. WE, T HEREFORE, FIND NO MERIT IN GROUND NO. 2 RAISED BY THE ASSESSEE AND UPHOLDING T HE IMPUGNED ORDER OF THE LD. CIT(A) CONFIRMING THE DISALLOWANCE MADE BY THE A.O. U/S 14A OF THE ACT, WE DISMISS THE SAME. 9. THE ISSUE INVOLVED IN GROUND NO. 3 RELATES TO TH E DISALLOWANCE OF RS. 34,21,651/- MADE BY THE A.O. AND CONFIRMED BY THE L D. CIT(A) ON ACCOUNT OF EXPENDITURE CLAIMED BY THE ASSESSEE ON LEASE RENT P AID FOR VEHICLES. 10. DURING THE YEAR UNDER CONSIDERATION, THE ASSESS EE COMPANY HAD PAID LEASE RENT FOR CARS TAKEN ON LEASE FROM M/S ORIX IN FRASTRUCTURE SERVICES PRIVATE LIMITED. IN ITS BOOKS OF ACCOUNT, THE ASSES SEE COMPANY HAD CAPITALIZED THE VALUE OF VEHICLES TAKEN ON LEASE AS PER ACCOUNT ING STANDARD -19 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA AND CLAIMED DEPRECIATION THEREON. IN THE COMPUTATION OF TOTAL INCOME, THE AS SESSEE, HOWEVER, DISALLOWED AND ADDED BACK THE DEPRECIATION CLAIMED ON LEASE VEHICLES. THE ITA 3458/M/12 7 ASSESSEE ALSO DISALLOWED FINANCE CHARGES IN RESPECT OF LEASE VEHICLES AND CLAIMED ONLY LEASE RENT AMOUNTING TO RS. 34,21,651/ -. THE A.O., HOWEVER, DISALLOWED THE CLAIM OF THE ASSESSEE FOR DEDUCTION ON ACCOUNT OF LEASE RENT FOLLOWING THE ASSESSMENT ORDER PASSED IN ASSESSEES OWN CASE FOR A.Y. 2007- 08. HE ALSO DID NOT ACCEPT THE ALTERNATE CLAIM OF THE ASSESSEE FOR DEPRECIATION AND FINANCE CHARGES ON THE LEASE ASSETS. ON APPEAL , THE LD. CIT(A) UPHELD THE ACTION OF THE A.O. ON THIS ISSUE FOLLOWING HIS APPE LLATE ORDER IN ASSESSEES OWN CASE FOR A.Y. 2007-08. 11. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS OBSERV ED THAT A SIMILAR ISSUE WAS INVOLVED IN ASSESSEES OWN CASE FOR A.Y. 2007-08 AN D THE TRIBUNAL VIDE ITS ORDER DATED 28-6-2013 (SUPRA) HAS RESTORED THE SAME TO THE FILE OF THE A.O. FOR THE FOLLOWING REASONS GIVEN IN PARA NO. 13:- 13. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENT IONS, PERUSED RELEVANT FINDINGS OF THE ASSESSING OFFICER AS WELL AS THE LEARNED COMMISSIONER (APPEALS) AND THE MATERIAL PLACED ON R ECORD. FROM THE FACTS DISCUSSED FROM PAGES 8 TO 11 OF THE LEARNED C OMMISSIONER (APPEALS) ORDER, IT IS SEEN THAT THE SAME HAS NOT B EEN DISCUSSED OR DEALT WITH BY THE ASSESSING OFFICER. SUCH AN APPRECIATION OF FACTS BY THE LEARNED COMMISSIONER (APPEALS) HAS ALSO BEEN DISPUT ED BEFORE US. FURTHER, THE HONBLE SUPREME COURT IN IDCS LTD. (SU PRA) HAS ALSO LAID DOWN THE LAW RELATING TO ALLOWANCE OF DEPRECIATION ON LEASED VEHICLES AND WHETHER IT IS FOR THE BUSINESS PURPOSE OR NOT. THEREFORE, IN THE INTEREST OF JUSTICE, WE ARE OF THE CONSIDERED OPINI ON THAT THE ENTIRE ISSUE SHOULD HE RESTORED BACK TO THE FILE OF THE ASSESSIN G OFFICER FOR DENOVO ADJUDICATION. CONSEQUENTLY, WE SET ASIDE THE IMPUGN ED ORDER PASSED BY THE LEARNED COMMISSIONER (APPEALS) AND RESTORE THE ENTIRE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJU DICATION IN THE LIGHT OF THE JUDICIAL PRONOUNCEMENTS OF THE HONBLE SUPREME COURT IN IDCS LTD. (SUPRA). 12. AS THE ISSUE INVOLVED IN THE YEAR UNDER CONSIDE RATION AS WELL AS ALL THE MATERIAL FACTS RELEVANT THERETO ARE SIMILAR TO A.Y. 2007-08, WE RESPECTFULLY FOLLOW THE DECISION OF THE CO-ORDINATE BENCH OF THI S TRIBUNAL FOR A.Y. 2007-08 AND RESTORE THIS ISSUE TO THE FILE OF THE A.O. FOR DECIDING THE SAME AFRESH AS ITA 3458/M/12 8 PER THE SAME DIRECTION AS GIVEN BY THE TRIBUNAL IN A.Y. 2007-08. GROUND NO. 3 OF ASSESSEES APPEAL IS ACCORDINGLY TREATED AS AL LOWED FOR STATISTICAL PURPOSE. 13. AS REGARDS THE ISSUE RAISED IN GROUND NO. 4 REL ATING TO ASSESSEES ALTERNATE CLAIM FOR DEPRECIATION ON VEHICLES AND FI NANCE CHARGES PAID ON LEASE FINANCE ASSETS, IT IS OBSERVED THAT A SIMILAR ISSUE HAS ALSO BEEN RESTORED BY THE TRIBUNAL TO THE FILE OF THE A.O. VIDE ITS ORDER DATED 28-6-2013 (SUPRA) FOR A.Y. 2007-08 ALONG WITH THE MAIN ISSUE RELATING TO THE ASSESSEES CLAIM FOR DEDUCTION ON ACCOUNT OF LEASE RENT. ACCORDINGLY, TH IS ISSUE INVOLVED IN THE YEAR UNDER CONSIDERATION IS ALSO RESTORED TO THE FI LE OF THE A.O. FOR DECIDING THE SAME AFRESH ON THE SIMILAR LINE AS IN A.Y. 2007 -08. GROUND NO. 4 OF ASSESSEES APPEAL IS ACCORDINGLY TREATED AS ALLOWED FOR STATISTICAL PURPOSE. 14. THE ISSUE INVOLVED IN GROUND NO. 5 RELATES TO T HE DISALLOWANCE OF RS. 33,90,000/- MADE BY THE A.O. AND CONFIRMED BY THE L D. CIT(A) ON ACCOUNT OF ENTRANCE FEES PAID TO THE CLUB FOR CORPORATE MEMBER SHIP. 15. IN ITS PROFIT AND LOSS ACCOUNT FILE ALONG WITH THE RETURN OF INCOME, ENTRANCE FEE OF RS. 33,99,000/- AND SUBSCRIPTION OF RS. 30,800/- PAID TO THE CRICKET CLUB OF INDIA WAS DEBITED BY THE ASSESSEE. ACCORDING TO THE A.O., THE ASSESSEE HOWEVER COULD NOT ESTABLISH THAT THE PAYME NT OF THE CLUB MEMBERSHIP HAS RESULTED IN PROMOTION OF ITS BUSINES S WITH ANY COGENT EVIDENCE. HE HELD THAT THE MEMBERSHIP OF THE CLUB W AS PERSONAL PRIVILEGE ENTITLING THE MEMBER TO USE AND ENJOY THE PROPERTY OF THE CLUB AND ALL OTHER AMENITIES, BENEFITS AND FACILITIES PROVIDED THEREIN . HE HELD THAT THERE WAS NOTHING BROUGHT ON RECORD BY THE ASSESSEE TO SHOW T HAT THE CLUB FEE WAS PAID FOR BUSINESS CONSIDERATION. HE THEREFORE HELD THAT THE EXPENDITURE ON PAYMENT OF CLUB FEE WAS NOT WHOLLY AND EXCLUSIVELY INCURRED BY THE ASSESSEE FOR THE PURPOSE OF ITS BUSINESS AND THE SAME ACCORD INGLY WAS DISALLOWED BY HIM. ON APPEAL, THE LD. CIT(A) CONFIRMED THE DISALL OWANCE MADE BY THE A.O. ON THIS ISSUE TO THE EXTENT OF RS. 33,90,000/- BEIN G THE ENTRANCE FEE PAID TO ITA 3458/M/12 9 THE CLUB RELYING ON THE DECISION OF HONBLE KERALA HIGH COURT IN THE CASE OF FRAMATONE CONNECTOR OEN LTD. 294 ITR 559 (KER) WHER EIN ENTRANCE FEE PAID TO THE CLUB FOR CORPORATE MEMBERSHIP WAS HELD TO BE AN EXPENDITURE OF CAPITAL NATURE. 16. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE LD. COUN SEL FOR THE ASSESSEE HAS RELIED ON THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF DEVELOPMENT CREDIT BANK LTD. VS. DY/ASSTT. CIT REPO RTED IN 26 ITR (TRIB.) 209 WHEREIN THE DISALLOWANCE MADE BY THE A.O. ON AC COUNT OF ENTRANCE FEE PAID TO THE CRICKET CLUB OF INDIA FOR CORPORATE MEM BERSHIP TREATING THE SAME AS CAPITAL EXPENDITURE WAS DELETED BY THE TRIBUNAL RELYING INTER ALIA ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. SAMTEL COLOR LTD., 326 ITR 425. IN THE SAID CASE, THE CORPORATE MEMBE RSHIP FEE PAID TO THE CLUB WAS HELD TO BE DEDUCTIBLE AS REVENUE EXPENDITURE BY THE HONBLE DELHI HIGH COURT U/S 37 OF THE ACT HOLDING THAT THE FACT THAT AN EXPENDITURE GIVES ENDURING BENEFIT IS BY ITSELF NOT CONCLUSIVE AS REG ARDS THE NATURE OF THE EXPENDITURE. IT WAS HELD BY THE HONBLE DELHI HIGH COURT THAT THE TRUE TEST FOR QUALIFICATION OF EXPENDITURE U/S 37 OF THE INCOME T AX ACT, 1961 IS THAT IT SHOULD BE INCURRED WHOLLY AND EXCLUSIVELY FOR THE P URPOSES OF BUSINESS AND THE EXPENDITURE SHOULD NOT BE TOWARDS CAPITAL ACCOU NT. THE DECISION OF THE HONBLE KERALA HIGH COURT IN THE CASE OF FRAMATONE CONNECTOR OEN LTD. (SUPRA) RELIED UPON BY THE LD. CIT(A) IN HIS IMPUGN ED ORDER WAS ALSO CITED ON BEHALF OF THE REVENUE BEFORE THE HONBLE DELHI HIGH COURT. IN THIS REGARD, IT WAS NOTED BY THE HONBLE DELHI HIGH COURT THAT THE RELIANCE WAS PLACED BY THE HONBLE KERALA HIGH COURT ON THE JUDGMENT OF HO NBLE SUPREME COURT IN THE CASE OF PUNJAB STATE INDUSTRIAL DEVELOPMENT COR PORATION LTD. VS. CIT (1997) 225 ITR 792 (SC) WHEREIN THE ISSUE INVOLVED WAS WITH REGARD TO THE FEE PAID TO THE REGISTRAR OF COMPANIES FOR INCREASE OF AUTHORIZED CAPITAL. IT WAS HELD BY THE HONBLE DELHI HIGH COURT THAT THE RATIO OF THE SAID JUDGMENT OF ITA 3458/M/12 10 HONBLE SUPREME COURT IS NOT APPLICABLE TO THE EXPE NSES INCURRED ON AN ADMISSION FEE FOR CORPORATE MEMBERSHIP OF CLUB AND ACCORDINGLY DISAGREEING WITH THE DECISION OF HONBLE KERALA HIGH COURT IN T HE CASE OF FRAMATONE CONNECTOR OEN LTD. (SUPRA), THE HONBLE DELHI HIGH COURT DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE FOLLOWING THE DECISION IN THE CASE OF CIT VS. NESTLE INDIA LTD. (2008) 296 ITR 682 (DELHI) AND IN THE CA SE OF OTIS ELEVATOR CO. (INDIA) LTD. VS. CIT (1992 195 ITR 682 (BOM.).RESPE CTFULLY FOLLOWING THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF SAMTEL COLOR LTD. (SUPRA) AS WELL AS THE DECISION OF CO-ORDINATE BENCH OF THI S TRIBUNAL IN THE CASE OF DEVELOPMENT CREDIT BANK LTD. (SUPRA), WE DELETE THE DISALLOWANCE MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT(A) ON ACCOUNT OF ENTRANCE FEE PAID BY THE ASSESSEE FOR CORPORATE MEMBERSHIP OF CRICKET CL UB OF INDIA AND ALLOW GROUND NO. 5 OF ASSESSEES APPEAL. 17. AS REGARDS THE ISSUE INVOLVED IN GROUND NO. 6 R ELATING TO DISALLOWANCE MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT(A) ON ACCOUNT OF REGISTRATION EXPENSES OF RS. 8,17,961/- INCURRED ON REGISTRATION OF LEASED VEHICLES, THE LD. REPRESENTATIVES OF BOTH THE SIDES HAVE AGREED THAT THE SAME IS CONSEQUENTIAL TO THE MAIN ISSUE INVOLVED IN GROUND NO. 3 OF THE A SSESSEES APPEAL. SINCE THE ISSUE INVOLVED IN GROUND NO. 3 OF THE ASSESSEES AP PEAL IS RESTORED BY US TO THE FILE OF THE A.O., WE RESTORE THIS CONSEQUENTIAL ISSUE ALSO TO THE FILE OF THE A.O. FOR DECIDING THE SAME AFRESH DEPENDING ON THE FINAL OUTCOME OF THE MAIN ISSUE INVOLVED IN GROUND NO. 3. GROUND NO. 6 OF THE ASSESSEES APPEAL IS ACCORDINGLY TREATED AS ALLOWED FOR STATISTICAL PURP OSE. 18. THE ISSUE INVOLVED IN GROUND NO. 7 RELATES TO T HE ALLOCATION OF INDIRECT EXPENSES FOR THE PURPOSE OF COMPUTING REBATE U/S 88 E OF THE ACT. 19. IN THE RETURN OF INCOME FILE FOR THE YEAR UNDER CONSIDERATION, REBATE OF RS. 1,22,36,132/- WAS CLAIMED BY THE ASSESSEE U/S 8 8E OF THE ACT BEING TAX PAYABLE AT THE RATE OF 29.10% ON RS. 4,20,42,399/-. DURING THE COURSE OF ITA 3458/M/12 11 ASSESSMENT PROCEEDING, IT WAS NOTED BY THE A.O. ON PERUSAL OF THE P&L ACCOUNT THAT GROSS INCOME FROM TRADING OPERATIONS W AS SHOWN BY THE ASSESSEE AT RS.4,11,81,210/- AND WHILE COMPUTING RE BATE U/S 88E OF THE ACT, INDIRECT EXPENSES INCURRED TOWARDS THE TRADING OPER ATIONS LIABLE TO STT WERE NOT ALLOCATED. IN THIS REGARD, THE EXPLANATION OFF ERED BY THE ASSESSEE BEFORE THE A.O. WAS THAT IT HAD ALREADY REDUCED THE COST O F SALES FROM THE TRADING INCOME AND NO FURTHER EXPENSES ARE REQUIRED TO BE D EDUCTED FOR THE PURPOSE OF COMPUTING THE REBATE U/S 88E OF THE ACT. WITHOUT PREJUDICE TO THIS MAIN CONTENTION, IT WAS ALSO SUBMITTED ON BEHALF OF THE ASSESSEE BEFORE THE A.O. THAT INDIRECT EXPENSES ONLY TO THE EXTENT OF RS. 22 ,10,259/- COULD BE ALLOCATED TO THE TRADING ACTIVITY FOR THE PURPOSE OF COMPUTIN G REBATE U/S 88E OF THE ACT. THE MAIN CONTENTION OF THE ASSESSEE FOR NON-ALLOCAT ION OF INDIRECT EXPENSES TOWARDS TRADING ACTIVITY FOR THE PURPOSE OF COMPUTI NG REBATE U/S 88E OF THE ACT WAS NOT FOUND ACCEPTABLE BY THE A.O. ACCORDING TO HIM, THE TRADING OPERATION OF THE ASSESSEE COULD NOT HAVE BEEN CARRI ED OUT WITHOUT ANY INFRASTRUCTURE INVOLVING VARIOUS EXPENSES. HE HELD THAT EVEN THE ALLOCATION MADE BY THE ASSESSEE OF EXPENSES RS. 22,10,259/- TO WARDS TRADING ACTIVITIES WAS NOT SUFFICIENT. HE NOTED THAT THE TRADING ACTIV ITIES OF THE ASSESSEE COMPANY WERE CARRIED OUT BY ITS DIRECTOR AND THE RE MUNERATION OF RS. 2,03,95,268/- PAID TO THEM WAS CERTAINLY ATTRIBUTAB LE TO THE TRADING ACTIVITIES ALSO. HE ACCORDINGLY ALLOCATED 30% OF THE REMUNERAT ION PAID TO THE DIRECTORS AMOUNTING TO RS.61,18,580/-TO THE SHARE TRADING ACT IVITY AND ALSO ALLOCATED FURTHER SUM OF RS. 20 LACS OUT OF EXPENSES CLAIMED BY THE ASSESSEE UNDER VARIOUS OTHER HEADS. ACCORDINGLY, THE TOTAL INDIRE CT EXPENDITURE TO THE EXTENT OF RS. 1,03,28,259/- WAS ALLOCATED BY THE A.O. TOWA RDS THE SHARE TRADING ACTIVITY AND THE CLAIM OF THE ASSESSEE FOR REBATE U /S 88E OF THE ACT WAS RESTRICTED BY HIM TO RS. 89,78,208/-. 20. THE MATTER WAS CARRIED BEFORE THE LD. CIT(A) AN D AFTER CONSIDERING THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE AS WELL AS THE MATERIAL AVAILABLE ITA 3458/M/12 12 ON RECORD, THE LD. CIT(A) DECIDED THIS ISSUE VIDE P ARA 8.3 OF HIS IMPUGNED ORDER AS UNDER:- 8.3 I HAVE GONE THROUGH THE SUBMISSIONS OF THE APP ELLANT AND THE ASSESSMENT ORDER. IT IS NO DOUBT TRUE THAT CERTAIN PORTION OF COMMON EXPENSES LIKE ELECTRICITY, SALARY AND OTHER ITEMS M UST HE ATTRIBUTABLE TO THE SHARE TRADING INCOME. IT WOULD BE INCORRECT TO SAY THAT NO PORTION OF INDIRECT EXPENSES IS ATTRIBUTABLE TOWARDS THE SHARE TRADING INCOME. CONSIDERING THE CIRCUMSTANCES, I AM OF THE OPINION THAT A SUM OF RS.22,L0,259/- ALLOCATED BY THE APPELLANT SHOULD BE CONSIDERED TOWARDS THE INDIRECT EXPENSES FOR EARNING TRADING INCOME AN D A FURTHER SUM OF RS. 10,00,000/- CAN BE REASONABLY ALLOCATED AS EXPE NSES THE SHARE TRADING INCOME. ACCORDINGLY, THE INDIRECT EXPENSES TO BE ATTRIBUTED TO EARNING SHARE TRADING INCOME IS DETERMINED AT RS. 3 2,10,259/-, IS CONSIDERED AS INDIRECT EXPENSES FOR EARNING SHARE T RADING INCOME. THE AO IS DIRECTED TO REWORK THE REBATE U/S. 88E AFTER REDUCING THE SHARE TRADING INCOME DECLARED BY THE APPELLANT BY RS. 32, 10,259/-. THIS GROUND OF APPEAL IS, THUS, PARTLY ALLOWED. 21. THE LD. CIT(A) THUS HELD THAT THE INDIRECT EXPE NDITURE TO THE EXTENT OF RS. 32,10,259/- WAS ATTRIBUTABLE TO EARNING OF SHAR E TRADING INCOME AS AGAINST RS. 22,10,259/- AND RS. 1,03,28,259/- ALLOC ATED BY THE ASSESSEE AND THE A.O. RESPECTIVELY. 22. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL PLACED ON RECORD. THE ONLY CONTEN TION RAISED BY THE LD. COUNSEL FOR THE ASSESSEE BEFORE US IS THAT THE ALLO CATION OF INDIRECT EXPENSES BY THE ASSESSEE AT RS. 22,10,259/- FOR THE PURPOSE OF COMPUTING REBATE U/S 88E OF THE ACT WAS FAIR AND REASONABLE AND THE LD. CIT(A) WAS NOT JUSTIFIED IN ALLOCATING THE ADDITIONAL EXPENDITURE OF RS. 10 LAC S ON ADHOC BASIS TO THE TRADING ACTIVITY. HE, HOWEVER, WAS UNABLE TO EXPLAI N ANY BASIS ON WHICH THE INDIRECT EXPENDITURE TO THE EXTENT OF RS. 22,10,259 /- WAS ALLOCATED BY THE ASSESSEE TO THE TRADING ACTIVITY. IT IS THUS CLEAR THAT THE ALLOCATION OF INDIRECT EXPENSES TOWARDS TRADING ACTIVITY AS MADE BY THE AS SESSEE WAS WITHOUT ANY BASIS AND KEEPING IN VIEW OF THE SAME AS WELL AS OT HER FACTS OF THE CASE, WE ARE OF THE VIEW THAT SUCH ALLOCATION OF INDIRECT EX PENSES MADE BY THE LD. ITA 3458/M/12 13 CIT(A) ON ESTIMATED BASIS CANNOT BE DISTURBED BEING FAIR AND REASONABLE. IN OUR OPINION, THE LD. CIT(A) HAS ALREADY GIVEN PROPE R AND SUFFICIENT RELIEF TO THE ASSESSEE ON THIS ISSUE AND THERE IS NO CASE WARRANT ING ANY FURTHER RELIEF. WE, THEREFORE, UPHOLD THE ORDER OF THE LD. CIT(A) ON TH IS ISSUE AND DISMISS GROUND NO. 7 OF THE ASSESSEES APPEAL. 23. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 2 8 TH FEBRUARY, 2014. . ( ) * 28-02-2014 SD/- SD/- (SANJAY GARG) (P.M. JAGTAP ) (- JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; * DATED 2810212014 [ .-../ RK , SR. PS , -&./ 0/ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. 5 () / THE CIT(A)8, MUMBAI. 4. 5 / CIT 4, MUMBAI 5. 8 --: , : , / DR, ITAT, MUMBAI J BENCH 6. = / GUARD FILE. / BY ORDER, 8 - //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI