ACIT 10(1), MUMBAI V. NATIONAL COMMODITIES & DERIVATIVES EXCHANGE LTD, MUMBAI

ITA 4157/MUM/2012

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 0276 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 1 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-08-2017
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 24-02-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 13-06-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SUMAN KUMAR
• Assessee Lawyers: A V SONDE
• Keywords: Rectification of order; Diversion of income; Earning of tax free income; Revised return
• Section: 14A; 115JB; 37; 28; 10; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE S/ SHRI B.R. BASKARAN (AM) & AMARJIT SINGH (JM) I.T.A. NO. 1423 /MUM/20 1 1 (ASSESSMENT YEAR 20 07 - 0 8 ) I.T.A. NO. 8578/MUM/2011 (ASSESSMENT YEAR 2008 - 09) I.T.A. NO. 4157/MUM/2012 (ASSESSMENT Y EAR 2009 - 10) I.T.A. NO. 5908/MUM/2013 (ASSESSMENT YEAR 2010 - 11) DCIT/ ACIT RANGE 10(1) ROOM NO. 455 AAYAKAR BHAVAN M.K. ROAD MUMBAI - 400 020. VS. M/S. NATIONAL CO M MODITY & DERIVATIVES EXCHANGE LTD. AKRUTI CORPORATE PARK NEAR G.E. GARDEN, 1 ST FLOOR LBS ROAD, KANJUR MARG(W) MUMBAI - 400 079. ( APPELLANT ) ( RESPONDENT ) I.T.A. NO. 2272/MUM/2011 (ASSESSMENT YEAR 2007 - 08) I.T.A. NO. 8370/MUM/2011 (ASSESSMENT YEAR 2008 - 09) I.T.A. NO. 4229/MUM/2012 (ASSESSMENT YEAR 2009 - 10) I.T.A. NO. 6133/MUM/2013 (ASSESSMENT YEAR 2010 - 11) M/S. NATIONAL COMMODITY & DERIVATIVES EXCHANGE LTD. AKRUTI CORPORATE PARK NEAR G.E. GARDEN, 1 ST FLOOR LBS ROAD, KANJUR MARG(W) MUMBAI - 400 079. VS. ACIT RANGE 10(1) ROOM NO. 455 AAYAKAR BHAVAN M.K. ROAD MUMBAI - 400 020. ( APPELLANT ) ( RES PONDENT ) PAN NO . AABCN7696K ASSESSEE BY SHRI A.V.SONDE & SHRI SUNIL NAHTA DEPARTMENT BY SHRI SUMAN KUMAR DATE OF HEARING 1 2.6 . 201 7 DATE OF PRONOUNCEMENT 09 . 8 . 201 7 O R D E R PER B ENCH : - THESE CROSS APPEALS RELATE TO A.YS. 2007 - 08 TO 2 010 - 11 AND THEY ARE DIRECTED AGAINST THE ORDERS PASSED BY THE LEARNED CIT(A) - 21, MUMBAI. ALL THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER, FOR THE SAKE OF CONVENIENCE. M/S. NA TIONAL COMMODITY & DERIVATIVES EXCHANGE LTD. 2 2. THE ASSESSEE IS OPERATING COMMODITY AND DERIVATI VE EXCHANGE. 3. WE SHALL FIRST TAKE UP THE APPEAL FILED BY THE REVENUE FOR A.Y. 2007 - 08. FIRST ISSUE RELATES TO DISALLOWANCE OF ` 5.08 CROERS TRANSFERRED BY THE ASSESSEE TO INVESTORS P ROTECTION F UND. THE ASSESSEE HAD COLLECTED PENALTY AMOUNT AGGREGATING TO RS.5,08,10,000/ - FROM ITS MEMBE RS AS PER THE DIRECTION GIVEN BY THE FORWARD MARKET COMMISSION (FMC) . THE DETAILS OF PENALTY AMOUNT TO BE COLLECTED AND THE CAUSES WERE ALSO DETERMINED BY FMC. AS PER THE GUIDELINES ISSUED BY FMC , PENALTY SO COLLECTED IS REQUIRED TO BE TRANSFERRED TO A SEPARATE FUND CALLED INVESTORS PROTECTION FUND AFTER DEDUCTING 10% TOWARDS ADMINISTRATIVE EXPENDITURE. THE ASSESSEE INITIALLY CREDITED THE ABOVE SAID AMOUNT IN THE PROFIT AND LOSS ACCOUNT UNDER THE HEAD OTHER INCOME. HOWEVER, IT TRANSFERRED IT TO INVESTORS PROTECTION FUND ACCOUNT AND SHOWN THE SAME AS ITS LIABILITY IN THE BALANCE - SHEET. THE ASSESSING OFFICER NOTICED THAT THE ASSESSE E DID NOT K EEP THE ABOVE SAID AMOUNT IN A SEPARATE ACCOUNT AS PER THE GUIDELINES ISSUED BY THE FORWARD MARKET COMMISSION. HE ALSO NOTICED THAT THE INVESTORS PROTECTION FUND HAS NOT BEEN CONSTITUTED TILL 31.3.2007. ACCORDINGLY, THE ASSESSING OFFICER TOOK THE VIEW THAT THE ABOVE SAID PENALTY OF ` 5.08 CRORES SHALL CONSTITUTE INCOME OF THE ASSE SSEE AND ACCORDINGLY ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE . 4. THE LEARNED CIT(A) HOWEVER DELETED THE SAME AND HENCE THE REVENUE HAS FILED THIS APPEAL BEFORE US. 5. LEARNED DR SUBMITTED THAT THE GUIDELINE S ISSUED B Y FORWARD MARKET COMMISSIO N DO NOT OVERRIDE THE PROVISIONS OF THE INCOME TAX ACT. HE FURTHER SUBMITTED THAT THE ASSESSEE HAS NOT CREDITED INVESTORS PROTECTION FUND TILL THE END OF THE CURRENT ASSESSMENT YEAR AND IT HAS ALSO NOT DEPOSITED AMOUNT COLLECTED BY IT BY WAY OF PENALTY IN SEPARATE BANK ACCOUNT. ACCORDINGLY, HE SUBMITTED THAT THE LEARNED CIT(A) WAS NOT JUSTIFIED IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER. M/S. NA TIONAL COMMODITY & DERIVATIVES EXCHANGE LTD. 3 6. ON THE CONTRARY, LEARNED AR SUBMITTED THAT THE ASSESSEE HAS COLLECTED PEN ALTY AMOUNT AS PER THE DIRECTIONS G IVEN AND GUIDELINES ISSUED BY THE FORWARD MARKET COMMISSION, WHICH IS THE AUTHORITY CONSTITUTED BY THE GOVERNMENT TO REGULATE THE COMMODITY AND DERIVATIVE EXCHANGE. HE SUBMITTED THAT AS PER THE GUIDELINES, THE AMOUNT HAS TO BE TRANSFERRED TO INVESTORS PR OTECTION FUND AND SHOULD BE UTILISED FOR THE WELFARE OF THE INVEST ORS. HE SUBMITTED THAT INVESTORS PROTECTION TRUST WAS ULTIMATELY CONSTITUTED ON 25.6.2012. LEARNED AR SUBMITTED THAT THE PENALTY AMOUNT WAS COLLECTED BY THE ASSESSEE AS PER THE DIRECTION OF FORWARD MARKET COMMISSION AND HENCE IT WAS A CASE OF DIVERSION OF INCOME BY OVERRIDING TITLE. LEARNED AR FURTHER SUBMITTED THAT THE MONEY SO COLLECTED BY THE ASSESSEE WAS INVESTED IN MUTUAL FUNDS AND INCOME EARNED THERE FROM WAS ALSO EARMARKED TO INVESTORS PROTECTION FUND. HE FURTHER SUBMITTED THAT THE FMC HAS, VIDE ITS LETTER DATED16 - 02 - 2012, HAS MADE IT CLEAR THAT THE PENALTIES SO COLLECTED CANNOT BE A SOURCE OF INCOME FOR EXCHANGES. HE SUBMITTED THAT THE TRUST COULD NOT BE FORMED, SINCE THE EXCHANGES W ERE SEEKING CLARIFICATION FROM FMC AND IT WAS FINALLY FORMED IN 2012. ACCORDINGLY, HE SUBMITTED THAT THE ASSESSEE HAS COMPLIED WITH THE GUIDELINES ISSUED BY THE FORWARD MARKET COMMISSION AND HENCE THE LEARNED CIT(A) WAS JUSTIFIED IN DELETING THE IMPUGNED ADDITION MADE BY THE ASSESSING OFFICER. THE LD A.R ALSO RELIED UPON THE DECISION RENDERED BY HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. NEW HORIZON SUGAR MILL P LTD (244 ITR 738), WHEREIN THE AMOUNT SET APART TOWARDS MOLASSES STORAGE RESERVE FUND AS PER THE MOLASSES CONTROL ORDER WAS HELD TO BE EXCLUDED FROM THE TOTAL INCOME OF THE ASSESSEE. LEARNED AR ALTERNATIVELY CONTENDED THAT THE PENALTY AMOUNT, IF TREATED AS INCOME U/S. 28 OF THE ACT, AMOUNT TRANSFERRED BY THE ASSESSEE TO INVESTORS PROTECTION FUND SHOULD BE ALLOWED AS EXPENDITURE U/S. 37 OF THE ACT. 7. WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS ISSUE AND PERUSED THE RECORD. WE NOTICED THAT THE LEARNED CIT(A) DELETED THE ADDITION WITH THE FOLLOWING OBSERVA T IONS : - M/S. NA TIONAL COMMODITY & DERIVATIVES EXCHANGE LTD. 4 3.3. I HAVE CONSIDERED THE FACTS OF THE CASE. THE APPELLANT CREDITED AN AMOUNT OF RS.5.08 CRORES IN THE P&L ACCOUNT ON ACCOUNT OF PENALTY AMOUNT COLLECTED FROM THE MEMBERS. THE APPELLANT THEREAFTER TRANSFERRED THIS AMOUNT FROM P&L ACCOUNT TO INVESTORS PROTECTION FUND ACCOUNT. DURIN G ASSESSMENT PROCEEDINGS, THE APPELLANT FURNISHED ITS REPLY ALONGWITH GUIDELINES ISSUED BY FORWARD MARKET COMMISSION. THE A.O. HAS TREATED THE PENALTY AMOUNT OF RS.5.08 CRORES COLLECTED BY APPELLANT, AS INCOME OF THE APPELLANT STATING THAT NO EXPLANATION W AS FURNISHED IN RESPECT OF REDUCTION OF SUCH INCOME CREDITED TO P&L ACCOUNT. HOWEVER, IN THE ASSESSMENT ORDER THE A.O. HAS DISCUSSED IN DETAIL THE GUIDELINES ISSUED BY FORWARD MARKET COMMISSION. IN FACT THE ANSWER TO A.OS EVERY QUESTION WAS CONTAINED IN TH E GUIDELINES ISSUED BY FORWARD MARKET COMMISSION WHICH WERE DULY CONSIDERED BY THE A.O. THE FORWARD MARKET COMMISSION WAS A GOVERNMENT/STATUTORY BODY WHICH WAS CONTROLLING THE OPERATIONS/ACTIVITIES OF THE APPELLANT. AS PER STATUTORY GUIDELINES ISSUED BY CO MMISSION, THE APPELLANT COLLECTED PENALTY AMOUNTS TOTALING TO RS.5,08,10,000/ - FROM ITS MEMBERS FOR VIOLATION OF SUCH GUIDELINES BY THE MEMBERS. AS PER GUIDELINES ISSUED BY COMMISSION, THE APPELLANT WAS TO SET APART THIS AMOUNT OF PENALTY AMOUNT IN A SEPAR ATE ACCOUNT 'INVESTORS PROTECTION FUND' AND AS PER SUCH GUIDELINES WAS REQUIRED TO UTILIZE THIS AMOUNT FOR THE BENEFITS OF INVESTORS ONLY. IN THE FACTS AND CIRCUMSTANCES THE AMOUNT COLLECTED BY APPELLANT WAS NOT IN THE NATURE OF INCOME. THE APPELLANT ACTIN G AS A TRUSTEE COLLECTED THE SAID AMOUNT OF PENALTY FROM THE MEMBERS FOR ONWARD TRANSFER OF SAME TO THE FUND. THUS, THERE IS FORCE IN APPELLANT'S ARGUMENT THAT THE INCOME SO COLLECTED DIVERTED AT SOURCE ITSELF. THE APPELLANT'S OTHER ARGUMENT IS ALSO CORREC T THAT EVEN IF THIS PENALTY AMOUNT IS REQUIRED TO BE TREATED AS INCOME U/S. 28 OF THE ACT, THE AMOUNT SO TRANSFERRED TO 'INVESTORS PROTECTION FUND' WILL CONSTITUTE AN EXPENDITURE U/S. 37 OF THE ACT. 8. WE NOTICED THAT THE LEARNED CI T(A) HAS TAKEN CONSCI OUS VIEW OF THE MATTER AFTER CONSIDERING LEGAL POSITION AND FACTUAL ASPECTS . WE ALSO FIND MERIT IN THE CONTENTIONS OF THE ASSESSEE THAT THE PENALTY AMOUNT CANNOT BE CONSIDERED AS INCOME OF THE ASSESSEE AS IT HAS BEEN DIVERTED TO THE INVESTORS PROTECTION F UND BY OVERRIDING TITLE. THE CASE OF THE AO WA S THAT THE ASSESSEE DID NOT KEEP THE COLLECTIONS IN SEPARATE ACCOUNT. HOWEVER IT IS STATED BY THE ASSESSEE THAT THEY WERE KEPT IN A SEPARATE ACCOUNT IN THE BOOKS OF ACCOUNT AND W AS SHOWN AS LIABILITY. THE LD A .R ALSO STATED THAT THE SAID COLLECTIONS HAVE BEEN INVESTED IN MUTUAL FUNDS. THESE SUBMISSIONS O F LD A.R COULD NOT BE DISPROV ED BY THE REVENUE. THE LD A.R ALSO SUBMITTED THAT THE TRUST HAS M/S. NA TIONAL COMMODITY & DERIVATIVES EXCHANGE LTD. 5 ULTIMATELY BEEN FORMED. UNDER THESE SET OF FACTS, WE DO NOT FI ND ANY REASON TO INTERFERE WITH THE ORDER PASSED BY THE LEARNED CIT(A) ON THIS ISSUE. 9. NEXT ISSUE CONTESTED BY THE REVENUE RELATES TO DI S ALLOWAN C E MADE U/S. 14A OF THE ACT. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE EARNED DIVIDEND INCOME OF ` 18 .83 CRORES AND CLAIMED THE SAME AS EXEMPT U/S. 10 OF THE ACT. THE ASSESSEE DISALLOWED A SUM OF RS.8,33,541/ - U/S 14A OF THE ACT. THE ASSESSING OFFICER TOOK THE VIEW THAT THE DISALLOWANCE U/S. 14A SHOULD BE COMPUTED AS PER RULE 8D OF THE I.T. RULES. ACCORD INGLY, HE COMPUTED THE DISALLOWANCE AT ` 2.08 CRORES , WHICH CONSIST ED OF INTEREST DISALLOWANCE OF ` 63.34 LAKHS AND EXPENSES DISALLOWANCE OF ` 145.49 LAKHS. SUBSEQUENTLY, THE ASSESSING OFFICER PASSED A RECTIFICATION ORDER U/S. 154 OF THE ACT AND REVISED TH E DISALLOWANCE OF ` 158.51 LAKHS WHICH CONSIST ED OF DISALLOWANCE OF INTEREST EXPENDITURE OF ` 48.08 LAKHS AND ADMINISTRATIVE EXPENSES OF 1.10 LAKHS. 1 0 . IN THE APPELLATE PROCEEDINGS, THE LEARNED CIT(A) NOTICED THAT THE TOTAL AMOUNT OF INTEREST CLAIMED BY THE ASSESSEE IS ONLY ` 46.65 LAKHS WHEREAS THE ASSESSING OFFICER HA D COMPUTED THE DISALLOWANCE AT ` 48.08 LAKHS. ACCORDINGLY, HE TOOK THE VIEW THAT INTEREST OF JUSTICE SHALL BE ME T, IF THE DISALLOWANCE OF INDIRECT INTEREST EXPENDITURE IS REDUCED TO 50%. A CCORDINGLY, HE SUSTAINED THE DISALLOWANCE OUT OF INTEREST EXPENDITURE TO THE TUNE OF ` 24.08 LAKHS. THE LEARNED CIT(A) NOTICED THAT THE ASSESSING OFFICER HAS COMPUTED DISALLOWANCE OUT OF GENERAL AND ADMINISTRATIVE EXPENSES BY CONSIDERING AVERAGE VALUE OF T AXABLE AS WELL NON - TAXABLE INVESTM ENTS, WHEREAS RULE 8D PROVIDES FOR CONSIDER A TION OF ONLY NON - TAXABLE INVESTMENT. THOUGH, THE LEARNED CIT(A) HAS ACCEPTED THE PROVISIONS OF RULE 8D IS NOT APPLICABLE TO THE YEAR UNDER CONSIDERATION, YET HE TOOK THE VIEW T HAT FORMULA PRESCRIBED IN RULE 8D CAN BE ADOPTED. HOWEVER, HE RESTRICTED THE ADDITION OUT OF GENERAL AND ADMINISTRATIVE EXPENSES TO EXTENT OF 50%, I.E., AT ` 55 LAKHS. ACCORDINGLY, THE LEARNED CIT(A) CONFIRMED THE DISALLOWANCE US/.14A OF THE ACT TO THE EXT ENT OF ` 79.08 LAKHS WHICH CONSISTED OF INTEREST DISALLOWANCE OF ` 24.08 LAKHS AND M/S. NA TIONAL COMMODITY & DERIVATIVES EXCHANGE LTD. 6 INTEREST EXPENDITURE OF ` 55 LAKHS. THE REVENUE IS AGGRIEVED BY THE DECISION OF THE LEARNED CIT(A) IN REDUCING THE DISALLOWANCE U/S. 14A OF THE ACT. THE ASSESSEE HAS ALSO FI LED APPEAL SEEKING FURTHER RELIEF. 1 1. WE HEARD THE PARTIES ON THIS ISSUE. THE HONBLE JURISDICTIONAL HIGH COURT HAS HELD IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD (328 ITR 81) THAT THE PROVISIONS OF RULE 8D SHALL NOT B E APPLICABLE TO THE YEARS PRIOR TO AY 2008 - 09 AND HENCE THE DISALLOWANCE HAS TO BE COMPUTED ON A REASONABLE BASIS FOR EARLIER YEARS. HENCE THERE IS NO MERIT IN THE CONTENTIONS OF THE REVENUE THAT THE DISALLOWANCE SHOULD BE WORKED OUT AS PER RULE 8D FOR AS ST. YEAR 2007 - 08. HENCE THE GROUND URGED BY THE REVENUE ON THIS COUNT IS LIABLE TO BE DISMISSED. 12. THE LD A.R SUBMITTED THAT THE CO - ORDINATE BENCH HAS COMPUTED THE DISALLOWANCE U/S 14A OF THE ACT AT 1% OF THE DIVIDEND INCOME IN AY 2006 - 07 (ITA NO.2 923/MUM/2010 DATED 26.08.2011) . HE FURTHER SUBMITTED THAT THE ASSESSEE IS HAVING INTEREST FREE FUNDS OF RS.227 CRORES, WHICH IS MORE THAN THE VALUE OF AGGREGATE INVESTMENTS OF RS.150 CRORES, OUT OF WHICH NON - TAXABLE INVESTMENT WAS RS.95.00 CRORES. HE SUB MITTED THAT THE ASSESSEE HAS MADE INVESTMENTS MOSTLY IN MUTUAL FUNDS ONLY. ACCORDINGLY HE SUBMITTED THAT THE DISALLOWANCE OF RS.8.33 LAKHS WORKED OUT BY THE ASSESSEE IS REASONABLE. ON THE CONTRARY, THE LD D.R SUPPORTED THE ORDER PASSED BY THE AO. 13. WE HAVE GONE THROUGH THE ANNUAL REPORT FURNISHED BY THE ASSESSEE. WE NOTICE FROM THE SCHEDULE OF INVESTMENTS THAT THE ASSESSEE HAS INVESTED MAINLY IN MUTUAL FUNDS. THE OPENING BALANCE OF INVESTMENTS AND CLOSING BALANCE OF INVESTMENTS STAND AT RS. 286.98 CRORES AND RS.145.02 CRORES RESPECTIVELY. THE OTHER INVESTMENTS STAND AT RS.4.00 CRORES AND RS.5.71 CRORES RESPECTIVELY. BESIDES THE ABOVE, THE ASSESSEE HAS ALSO PURCHASED AND SOLD UNITS OF MUTUAL FUND DURING THIS YEAR. THE HONBLE JURISDICTIONAL HIGH C OURT HAS HELD IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD (SUPRA) THAT THE PROVISION OF RULE 8D SHALL NOT APPLY TO AY 2007 - 08 AND THE SAME HAS TO BE DETERMINED ON A REASONABLE BASIS. WE HAVE NO TICED THAT THE ASSESSEE HAS MAINLY DEALT IN MUTUAL FUNDS, M/S. NA TIONAL COMMODITY & DERIVATIVES EXCHANGE LTD. 7 WHICH DOES NOT REQUIRE MUCH ANALYSIS. WE HAVE ALSO NOTICED THAT THE CO - ORDINATE BENCH HAS DETERMINED THE DISALLOWANCE U/S 14A @ 1% OF THE DIVIDEND INCOME IN AY 2006 - 07. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE VIEW THAT THE DISALLOWANCE TO BE MADE U/S 14A OF THE ACT MAY BE FIXED AT THE SAME LEVEL OF 1% OF THE DIVIDEND INCOME FOR THIS YEAR ALSO, AS DETERMINED IN AY 2006 - 07 BY THE CO - ORDINATE BENCH. WE ORDER ACCORDINGLY. 14. THE NEXT GROUND URGED BY THE ASSESSEE RELATES TO THE CLAIM FOR DED UCTION OF RS.25.00 LAKHS, BEING THE AMOUNT CONTRIBUTED BY THE ASSESSEE TO INVESTOR PROTECTION FUND. EVEN THOUGH THE ASSESSEE HAS URGED THIS GROUND BEFORE LD CIT(A), THE FIRST APPELLATE AUTHORITY DID NOT ADMIT THE SAME ON THE GROUND THAT THE ASSESSEE DID N OT MAKE THIS CLAIM IN THE RETURN OF INCOME AS WELL AS BEFORE THE AO. 15. WE HEARD THE PARTIES ON THIS ISSUE. IN VIEW OF THE DECISION RENDERED BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF PRUTHVI BROKERS & SHAREHOLDERS P LTD (INCOME TAX APPEAL NO .3908 OF 2010 DATED 21 - 06 - 2012), WE ADMIT THIS GROUND AND RESTORE THE SAME TO THE FILE OF THE AO FOR ADJUDICATING THE SAME IN ACCORDANCE WITH THE LAW. 1 6 . THE ASSESSEE HAS ALSO RAISED TWO OTHER ADDITIONAL GROUNDS. THE FIRST ADDITIONAL GROUND RELATES TO THE CLAIM FOR DEDUCTION OF RS.21,08,461/ - , BEING THE AMOUNT DISALLOWED IN THE SUCCEEDING ASSESSMENT YEAR AS PRIOR PERIOD ITEM. THE ASSESSEE HAS RAISED A GROUND IN AY 2008 - 09 ALSO SEEKING DEDUCTION OF VERY SAME AMOUNT. THERE SHOULD NOT BE ANY DOUBT THA T THE DEDUCTION OF ALLOWABLE EXPENDITURE SHOULD BE ALLOWED IN THE YEAR TO WHICH IT PERTAIN TO. SINCE THIS MATTER REQUIRE S EXAMINATION, W E RESTORE THIS ISSUE TO THE FILE OF AO FOR HIS EXAMINATION. 17 . THE NEXT ADDITIONAL GROUND URGED BY THE ASSESSEE RE LATES TO THE APPLICABILITY OF SEC. 14A TO THE BOOK PROFIT COMPUTED U/S 115JB OF THE ACT , BEING EXPENSES RELATING TO EXEMPT INCOME. THIS ISSUE HAS SINCE BEEN DECIDED M/S. NA TIONAL COMMODITY & DERIVATIVES EXCHANGE LTD. 8 BY THE SPECIAL BENCH OF DELHI ITAT IN THE CASE OF ACIT VS. VIREET INVESTMENT P LTD (ITA NO .502/DEL/2012 DATED 16 - 06 - 2017). ACCORDINGLY WE RESTORE THIS ISSUE TO THE FILE OF THE AO WITH THE DIRECTION TO EXAMINE THIS ISSUE AFRESH AND DECIDE THE SAME BY FOLLOWING THE RATIO LAID DOWN BY THE HONBLE SPECIAL BENCH OF ITAT (REFERRED ABOVE). 18 . WE SHALL NOW TAKE UP THE APPEAL FILED BY THE REVENUE FOR AY 2008 - 09. THE ONLY ISSUE URGED BY THE REVENUE RELATES TO THE CHARGEABILITY OF PENALTY AMOUNT OF RS.3.31 CRORES COLLECTED BY THE ASSESSEE AS PER THE GUIDELINES ISSUED BY FMC. THIS ISSUE HAS BEEN DECI DED IN FAVOUR OF THE ASSESSEE IN THE PRECEDING PARAGRAPHS IN AY 2007 - 08 BY UPHOLDING THE VIEW TAKEN BY LD CIT(A). CONSISTENT WITH THE VIEW TAKEN IN THAT YEAR, WE UPHOLD THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE AND REJECT THE GROUNDS OF REVENUE. 19. WE SHALL NOW TAKE UP THE APPEAL FILED BY THE ASSESSEE FOR AY 2008 - 09. THE FIRST ISSUE RELATES TO THE DISALLOWANCE MADE U/S 14A OF THE ACT. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE EARNED DIVIDEND INCOME OF RS.22.86 CRORES AND COMPUTED DISALLOWAN CE U/S 14A AT RS.8,67,632/ - . THE AO COMPUTED THE DISALLOWANCE UNDER RULE 8D(2)(III) @ 0.5% OF AVERAGE VALUE OF INVESTMENTS, WHICH WORKED OUT TO RS.42,91,600/ - . BEFORE LD CIT(A), THE ASSESSEE CONTENDED THAT THE AVERAGE VALUE OF INVESTMENTS WORKED OUT BY A O INCLUDES BOTH TAXABLE AND NON - TAXABLE INVESTMENTS. HENCE THE LD CIT(A) DIRECTED THE AO TO COMPUTE THE DISALLOWANCE UNDER RULE 8D(2)(III) ON THE VALUE OF NON - TAXABLE INVESTMENTS ONLY. STILL AGGRIEVED, THE ASSESSEE HAS FILED THIS APPEAL BEFORE US. 20. THE LD A.R SUBMITTED THAT THE ASSESSEE HAS WORKED OUT THE DISALLOWANCE U/S 14A IN A SCIENTIFIC MANNER AND THE AO DID NOT CONSIDER THE SAME AND HE HAS ALSO FAILED TO RECORD HIS DISSATISFACTION. HOWEVER, WE NOTICE THAT THE AO HAS DISCUSSED AT LENGTH ABOU T THE DISALLOWANCE IN THE ASSESSMENT ORDER , WHICH MAKES IT CLEAR THAT HE WAS NOT SATISFIED WITH THE WORKINGS OF THE ASSESSEE. H ENCE WE ARE UNABLE TO AGREE WITH THE ASSESSEE IN THIS REGARD. WE M/S. NA TIONAL COMMODITY & DERIVATIVES EXCHANGE LTD. 9 NOTICE THAT THE ASSESSEE HAS MAINLY PURCHASED AND SOLD THE UNIT S OF MUTUAL FUNDS. FURTHER, DURING THE YEAR RELEVANT TO AY 2008 - 09, THE ASSESSEE HAS SOLD MOST OF THE UNITS OF MUTUAL FUNDS FROM OUT O F OPENING BALANCE. WE HAVE OBSERVED IN THE PRECEDING PARAGRAPH WHILE DEALING AN IDENTICAL ISSUE IN AY 2007 - 08 THAT THE I NVESTMENTS IN MUTUAL FUNDS DO NOT REQUIRE MUCH ANALYSIS. IN THIS SET OF FACTS, WE ARE OF THE VIEW THAT THERE IS NO REQUIREMENT OF APPLYING THE RULE 8D. WE HAVE ALSO GONE THROUGH THE DISALLOWANCE WORKED OUT BY THE ASSESSEE. WE NOTICE THAT THE ASSESSEE HAS ALLOCATED A PORTION OF SALARIES AND EXPENSES IN A STANDARD MANNER, WITHOUT HAVING REGARD TO THE VOLUME OF TRANSACTIONS CARRIED OUT DURING THE YEAR UNDER CONSIDERATION. WE HAVE ALREADY DISCUSSED ABOUT THE NATURE OF TRANSACTIONS CARRIED OUT BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. HENCE, ON A CONSPECTUS OF THE MATTER, WE ARE OF THE VIEW THAT THE DISALLOWANCE U/R 8D(2)(III) MAY BE DETERMINED AT RS.20.00 LAKHS AND IN OUR VIEW, THE SAME WOULD MEET THE REQUIREMENTS OF SEC. 14A. ACCORDINGLY WE MODI FY THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO RESTRICT THE DISALLOWANCE U/S 14A TO RS.20.00 LAKHS. 21. THE NEXT ISSUE CONTESTED BY THE ASSESSEE RELATES TO THE CLAIM FOR DEDUCTION OF RS.25.00 LAKHS. THE AO REJECTED THE SAID CLAIM ON THE REASONING THAT THE ASSESSEE DID NOT CLAIM THE SAME IN THE ORIGINAL RETURN AS WELL AS IN THE REVISED RETURN. THE LD CIT(A) ALSO CONFIRMED THE ORDER PASSED BY THE AO ON THE REASONING THAT THE ASSESSEE HAS FAILED TO FURNISH SATISFACTORY EXPLANA TION FOR NOT CLAIMING THE SAME IN THE RETURN OF INCOME. IN AY 2007 - 08, IDENTICAL CLAIM WAS MADE BY THE ASSESSEE AND WE HAVE RESTORED THE SAME TO THE FILE OF THE AO BY ADMITTING THE CLAIM OF THE ASSESSEE BY FOLLOWING THE DECISION RENDERED BY THE HONBLE BO MBAY HIGH COURT IN THE CASE OF PRUTHVI BROKERS AND SHAREHOLDERS P LTD (SUPRA). CONSISTENT WITH THE VIEW TAKEN THEREIN, WE RESTORE THIS ISSUE TO THE FILE OF THE AO WITH THE DIRECTION TO EXAMINE THE CLAIM OF THE ASSESSEE IN ACCORDANCE WITH THE LAW. M/S. NA TIONAL COMMODITY & DERIVATIVES EXCHANGE LTD. 10 22. THE NEXT ISSUE RELATES TO THE CLAIM OF PRIOR PERIOD EXPENSES OF RS.21,08,461/ - , WHICH WAS DISALLOWED IN THE SUCCEEDING YEAR. THE ASSESSEE HAS MADE AN I DENTICAL CLAIM IN AY 2007 - 08 FOR DEDUCTION OF VERY SAME AMOUNT AND WE RESTORED THE SAME TO THE FILE OF THE AO. SINCE THE CLAIM OF THE ASSESSEE CAN BE ALLOWED ONLY IN THE YEAR TO WHICH THE EXPENSES PERTAIN TO AND SINCE THE YEAR OF DEDUCTION REQUIRES EXAMINATION, WE RESTORE THIS ISSUE TO THE FILE OF THE AO WITH THE DIRECTION TO EXAMINE THE SAME IN ACCORDANC E WITH THE LAW. 23 . THE NEXT ISSUE RELATES TO THE ADDITION TO BE MADE TO THE BOOK PROFIT U/S 115JB IN RESPECT OF EXPENSES INCURRED ON EXEMPT INCOME. WE HAVE CONSIDERED AN IDENTICAL ISSUE IN AY 2007 - 08 AND WE HAVE RESTORED THE SAME TO THE FILE OF THE AO WITH THE DIRECTION TO EXAMINE THIS ISSUE AFRESH IN THE LIGHT OF DECISION RENDERED BY DELHI SPECIAL BENCH OF TRIBUNAL IN THE CASE OF VIREET INVESTMENT P LTD (SUPRA). CONSISTENT WITH THE VIEW TAKEN THEREIN, WE RESTORE THIS ISSUE ALSO TO THE FILE OF THE AO W ITH IDENTICAL DIRECTIONS. 2 4 . WE SHALL NOW TAKE UP THE APPEAL FILED BY THE REVENUE FOR AY 2009 - 10. THE ONLY ISSUE URGED BY THE REVENUE RELATES TO THE CHARGEABILITY OF PENALTY AMOUNT OF RS.1.79 CRORES COLLECTED BY THE ASSESSEE AS PER THE GUIDELINES ISSU ED BY FMC. THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN THE PRECEDING PARAGRAPHS IN AY 2007 - 08 BY UPHOLDING THE VIEW TAKEN BY LD CIT(A). CONSISTENT WITH THE VIEW TAKEN IN THAT YEAR, WE UPHOLD THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE AND RE JECT THE GROUNDS OF REVENUE. 2 5 . WE SHALL NOW TAKE UP THE APPEAL FILED BY THE ASSESSEE FOR AY 2009 - 10. THE FIRST ISSUE RELATES TO THE DISALLOWANCE MADE U/S 14A OF THE ACT. DURING THIS YEAR, THE ASSESSEE RECEIVED DIVIDEND INCOME OF RS.13.66 CRORES AN D COMPUTED DISALLOWANCE U/S 14A OF THE ACT AT RS.14,01,673/ - . THE AO COMPUTED THE DISALLOWANCE OUT OF INTEREST EXPENDITURE AT RS. 36,99,463/ - AS PER RULE 8D(2)(II) AND COMPUTED DISALLOWANCE OUT OF EXPENSES AS PER RULE 8D(2)(III) AT 0.5% OF THE AVERAGE VAL UE OF INVESTMENTS, WHICH WORKED OUT TO RS.26,21,065/ - . THUS THE AGGREGATE DISALLOWANCE MADE BY THE AO WORKED OUT M/S. NA TIONAL COMMODITY & DERIVATIVES EXCHANGE LTD. 11 TO RS.63,20,528/ - . BEFORE LD CIT(A), THE ASSESSEE CONTENDED THAT THE AO HAS COMPUTED INCORRECT FIGURE OF AVERAGE VALUE OF INVESTMENTS. HENCE THE LD CIT(A) DIRECTED THE AO TO COMPUTE CORRECT FIGURE OF AVERAGE VALUE OF INVESTMENTS AND ACCORDINGLY WORK OUT THE DISALLOWANCE. THE ASSESSEE ALSO CONTENDED THAT THERE IS NO REQUIREMENT TO MAKE ANY DISALLOWANCE OUT OF INTEREST EXPENSES, BUT THE SAME DID NOT FIND FAVOUR WITH THE LD CIT(A). 2 6 . WE HAVE HEARD THE PARTIES ON THIS ISSUE. THE LD A.R STRONGLY CONTENDED THAT THERE IS NO REQUIREMENT OF MAKING ANY DISALLOWANCE UNDER RULE 8D(2)(II) OUT OF INTEREST EXPENDITURE, AS THE ASSESSEE HAS NOT USED ANY BORROWED FUNDS FOR MAKING INVESTMENTS. HE ALSO RELIED UPON THE DECISION RENDERED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF HDFC BANK LIMITED (383 ITR 529). THE ASSESSEE HAS POINTED OUT THAT THE LOAN FUNDS HAVE BEEN USED FOR SPECIFIC PURPOSES. WE N OTICE THAT THE LD CIT(A) HAS NOT APPLIED THE RATIO OF THE DECISION RENDERED BY HONBLE BOMBAY HIGH COURT. WITH REGARD TO THE DISALLOWANCE MADE UNDER RULE 8D(2)(III) ALSO, WE NOTICE THAT THE ASSESSEE HAS MAINLY INVESTED IN UNITS OF MUTUAL FUND UNITS, WHICH FACT HAS NOT BEEN CONSIDERED BY THE TAX AUTHORITIES. ACCORDINGLY WE ARE OF THE VIEW THAT THIS ISSUE REQUIRES FRESH EXAMINATION AT THE END OF THE AO. ACCORDINGLY WE SET ASIDE THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE AO WITH THE DIRECTION TO EXAMINE THIS ISSUE AFRESH BY APPLYING THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF HDFC BANK LTD (SUPRA) AND ALSO BY CONSIDERING THE DECISION RENDERED BY US IN THE PRECEDING PARAGRAPHS ON THE IDENTICAL I SSUE URGED IN EARLIER YEARS. 2 7 . THE NEXT ISSUE RELATES TO THE ADDITION TO BE MADE TO THE BOOK PROFIT U/S 115JB IN RESPECT OF EXPENSES INCURRED ON EXEMPT INCOME. WE HAVE CONSIDERED AN IDENTICAL ISSUE IN AY 2007 - 08 AND WE HAVE RESTORED THE SAME TO THE FILE OF THE AO WITH THE DIRECTION TO EXAMINE THIS ISSUE AFRESH IN THE LIGHT OF DECISION RENDERED BY DELHI SPECIAL BENCH OF TRIBUNAL IN THE CASE OF VIREET INVESTMENT P M/S. NA TIONAL COMMODITY & DERIVATIVES EXCHANGE LTD. 12 LTD (SUPRA). CONSISTENT WITH THE VIEW TAKEN THEREIN, WE RESTORE THIS ISSUE ALSO TO THE FILE OF THE AO WITH IDENTICAL DIRECTIONS. 2 8 . THE ADDITIONAL GROUND URGED BY THE ASSESSEE IN AY 2009 - 10 RELATES TO THE REJECTION OF CLAIM FOR DEDUCTION OF RS.25.00 LAKHS, BEING THE CONTRIBUTION MADE TO INVESTOR PROTECTION FUND. EVEN THOUGH THE AO DIS ALLOWED THE CLAIM, YET THE LD CIT(A) ALLOWED THE SAME. HOWEVER, THE ASSESSEE CONTENDED BEFORE THE LD CIT(A) THAT THE AO HAS MADE THIS ADDITION TWICE AND THE SAID CONTENTION WAS NOT CONSIDERED BY LD CIT(A). SINCE IT IS A MATTER THAT REQUIRES VERIFICATION, WE RESTORE THIS ISSUE TO THE FILE OF THE AO FOR EXAMINING THE SAME. IF THE AO IS SATISFIED THAT THERE IS DOUBLE DISALLOWANCE OF SAME ITEM AS CONTENDED BY THE ASSESSEE, HE IS DIRECTED TO DELETE ONE ADDITION. 2 9 . WE SHALL NOW TAKE UP THE APPEAL FILED BY THE REVENUE FOR AY 2010 - 11. THE ONLY ISSUE URGED BY THE REVENUE RELATES TO THE CHARGEABILITY OF PENALTY AMOUNT OF RS.4.50 CRORES COLLECTED BY THE ASSESSEE AS PER THE GUIDELINES ISSUED BY FMC. THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN TH E PRECEDING PARAGRAPHS IN AY 2007 - 08 BY UPHOLDING THE VIEW TAKEN BY LD CIT(A). CONSISTENT WITH THE VIEW TAKEN IN THAT YEAR, WE UPHOLD THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE AND REJECT THE GROUNDS OF REVENUE. 30 . WE SHALL NOW TAKE UP THE APPEAL F ILED BY THE ASSESSEE FOR AY 2010 - 11. THE FIRST ISSUE RELATES TO THE DISALLOWANCE MADE U/S 14A OF THE ACT. WE HAVE SET ASIDE THIS ISSUE TO THE FILE OF THE AO IN AY 2009 - 10, SINCE THE ASSESSEE HAS CLAIMED THAT THE BORROWED FUNDS WERE NOT USED FOR MAKING INV ESTMENTS AND FURTHER ITS INVESTMENTS WERE MADE MAINLY IN MUTUAL FUNDS. THE FACTS, BEING SIMILAR IN THIS YEAR ALSO, WE RESTORE THIS ISSUE TO THE FILE OF THE AO WITH THE DIRECTION TO EXAMINE THIS ISSUE AFRESH BY FOLLOWING THE DIRECTIONS GIVEN BY US. 3 1 . THE NEXT ISSUE RELATES TO THE ADDITION TO BE MADE TO THE BOOK PROFIT U/S 115JB IN RESPECT OF EXPENSES INCURRED ON EXEMPT INCOME. WE HAVE CONSIDERED AN IDENTICAL ISSUE IN AY 2007 - 08 AND WE HAVE RESTORED THE SAME TO THE FILE OF M/S. NA TIONAL COMMODITY & DERIVATIVES EXCHANGE LTD. 13 THE AO WITH THE DIRECTION T O EXAMINE THIS ISSUE AFRESH IN THE LIGHT OF DECISION RENDERED BY DELHI SPECIAL BENCH OF TRIBUNAL IN THE CASE OF VIREET INVESTMENT P LTD (SUPRA). CONSISTENT WITH THE VIEW TAKEN THEREIN, WE RESTORE THIS ISSUE ALSO TO THE FILE OF THE AO WITH IDENTICAL DIRECT IONS. 3 2 . IN THE RESULT, THE APPEALS OF THE REVENUE FOR AY 2008 - 09 TO 2010 - 11 ARE DISMISSED. THE APPEAL OF THE REVENUE FOR AY 2007 - 08 IS TREATED AS PARTLY ALLOWED. ALL THE APPEALS OF THE ASSESSEE ARE TREATED AS ALLOWED. ORDER HAS BE E N PRONOUNCED I N THE COURT ON 9.8 .201 7. SD/ - SD/ - ( A MARJIT SINGH ) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 9 / 8 / 20 1 7 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( DY./ASSTT. REGISTRAR) PS ITAT, MUMBAI