SHAREKHAN LTD, MUMBAI V. ASST CIT CEN CIR 22, MUMBAI

ITA 5470/MUM/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 7924 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 7 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-03-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2009-2010
• Appeal Filed On: 14-08-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VISHWAS MUNDE
• Keywords: Depreciation; Earning of tax free income; Speculation loss; Bad and doubtful debts
• Section: 14A; 28

Judgement Text

, INCOME-TAX APPELLATE TRIBUNAL -EBENCH MUMBAI , , BEFORE S/SH.RAJENDRA,ACCOUNTANT MEMBER AND AMARJIT SINGH,JUDICIAL MEMBER ./I.T.A./5470/MUM/2013, / ASSESSMENT YEAR: 2009-10 ./I.T.A./2729/MUM/2014, / ASSESSMENT YEAR: 2010-11 M/S.SHAREKHAN LTD. LODHA I, THINK TECHNO CAMPUS 10TH FLOOR, BETA BUILDING, OFF JVLR KANJURMARG (E),MUMBAI-400 002. PAN:AAECS 5096 H VS. ASST. CIT-, CC-22 403, AAYAKAR BHAVAN, 4TH FLOOR M.K. ROAD, MUMBAI-400 020. ( /APPELLANT ) ( / RESPONDENT) ./I.T.A./5581/MUM/2013, /ASSESSMENT YEAR: 2009-10 ./I.T.A./3027/MUM/2014, /ASSESSMENT YEAR: 2010-11 ASST. CIT-, CC-22 M.K. ROAD, MUMBAI-400 020. VS. M/S.SHAREKHAN LTD. MUMBAI-400 002. ( /APPELLANT ) ( / RESPONDENT) / REVENUE BY: SHRI VISHWAS MUNDE-CIT-DR /ASSESSEE BY: SHRI HIRO RAI / DATE OF HEARING: 21/03/2017 / DATE OF PRONOUNCEMENT: 24.03.2017 PER RAJENDRA, AM - CHALLENGING THE ORDERS DTD.27.06.2013 AND 14.02.201 4,OF THE CIT(A)-39,MUMBAI THE ASSESSING OFFICER(AO)AND THE ASSESSEE HAVE FILED CR OSS APPEALS FOR THE ABOVE MENTIONED TWO ASSESSMENT YEARS(AY.S.).CONSIDERING THE FACT THAT T HE ISSUES INVOLVED IN BOTH THE APPEALS ARE ALMOST IDENTICAL,WE ARE ADJUDICATING THEM BY A SING LE COMMON ORDER FOR THE SAKE OF CONVENIENCE.ASSESSEE-COMPANY IS ENGAGED IN THE BUSI NESS OF SHARE BROKING.DETAILS OF DATES OF FILING OF RETURNS,RETURNED INCOMES,DATES OF ASSE SSMENTS ETC.CAN BE SUMMARISED AS UNDER: AY. ROI FILED ON RETURNED INCOME ASST.DATE ASSESSE D INCOME 2009-10 29.09.2009 37.94CRORE 23.12.2011 49.25CRORE 2010-11 06.10.2010 150.44CRORE 26.03.2013 156.99CRO RE ITA/5581/MUM/2013,AY.-2009-10: 2. FIRST GROUND OF APPEAL FILED BY THE AO DEALS WITH D ELETING THE ADDITION, AMOUNTING TO RS. 5. 48 CRORE,MADE BY HIM TOWARDS BAD DEBTS. DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE HAD MADE A CLAIM OF RS.5,48,62,84 5/- UNDER THE HEAD BAD DEBTS CLAIMING THAT THE AMOUNT WAS RECEIVABLE FROM THE CLIENTS IN THE C OURSE OF THE BUSINESS CARRIED OUT. IT WAS FURTHER CLAIMED THAT DUE TO DISPUTES WITH THE CLIEN TS AMOUNT IN QUESTION WAS NO MORE RECEIVABLE AND WAS WRITTEN OFF AS BAD DEBTS. HOWEVE R THE AO WAS NOT CONVINCED AND HELD THAT THE AMOUNT CLAIMED AS BAD DEBT HAD NEVER BEEN TAKEN INTO ACCOUNT FOR COMPUTING THE 5470+3/M/ (09-10&10-11) M/S. SHAREKHANLTD. 2 INCOME OF THE ASSESSEE, THAT SAME DID NOT FULFILL T HE CONDITIONS SET FORTH IN THE SECTION 36 (2) OF THE ACT.FINALLY,HE DISALLOWED THE CLAIM MADE BY THE ASSESSEE. 2.1. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA)AND MADE ELABORATE SUBMISS IONS BEFORE HIM. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AND THE ASSESSMENT ORDER , HE REFERRED TO THE CASE OF SHREYAS S MORAKHIYA(342 ITR 285) OF THE HONORABLE BOMBAY HIGH COURT AND ALLOWED THE CLAIM MADE BY THE ASSESSEE. 2.2. DURING THE COURSE OF HEARING BEFORE US, REPRESENTA TIVES OF BOTH THE SIDES ARGUED THAT WHILE DECIDING THE APPEALS FOR THE TWO EARLIER ASSE SSMENT YEARS I.E.2007- 08(ITA/9065/MUM/2010-&ITA/1027/MUM/2011-AY.2007-08, DTD.15.05.2015) AND 2008-09 (ITA.S.6350 AND 6999/ MUM/2011-AY.2008-09,DTD.30/09 /2016.),THE TRIBUNAL HAD DECIDED THE ISSUE AGAINST THE AO. WE WOULD LIKE TO REPRODUCE THE RELEVANT PORTION OF THE ORDER OF THE TRIBUNAL FOR THE AY. 2007 -08(SUPRA), AND IT READS AS UNDER: 6. APROPOS GROUND NO.1, THE ONLY GRIEVANCE OF THE R EVENUE IN THIS GROUND IS THAT LD. CIT(A) HAS ERRED IN ALLOWING RELIEF ON THE BASIS OF DECISI ON IN THE CASE OF SHREYAS S. MORAKHIA SPECIAL BENCH (MUM) AS THE SAME IS NOT ACCEPTED BY THE DEPARTMENT. NOW IT IS THE CASE OF LD. AR THAT HONBLE BOMBAY HIGH COURT HAS UPHELD THE SA ID DECISION OF SPECIAL BENCH IN THE APPEAL FILED BY THE REVENUE AND REFERENCE WAS MADE TO THE DECISION IN THE CASE OF CIT VS. SHREYAS S.MORARKIA, 342 ITR 285(BOM). 6.1 LD. AO DISALLOWED A SUM OF RS.1,18,82,970/-, RS .90,035 AND RS.52,283/-,WHICH WERE CLAIMED AS BAD DEBTS WRITTEN OFF IN THE P&L ACCOUNT . LD. CIT(A) ALLOWED THE SAME ON THE BASIS OF SPECIAL BENCH DECISION IN THE CASE OF SHRE YAS S. MORARKHIA (SUPRA). AGAINST THE AFOREMENTIONED DECISION OF SPECIAL BENCH, THE REVEN UE TOOK UP THE MATTER IN FURTHER APPEAL BEFORE HONBLE BOMBAY HIGH COURT AND IT WAS HELD TH AT THE VALUE OF THE SHARES TRANSACTED BY THE ASSESSEE AS STOCK BROKER ON BEHALF OF HIS CLIEN TS WAS AS MUCH A PART OF THE DEBT AS WAS CHARGED BROKERAGE BY THE ASSESSEE ON THE TRANSACTIO N. THE BROKERAGE HAVING BEEN CREDITED TO THE P&L ACCOUNT OF THE ASSESSEE, IT WAS EVIDENT THA T A PART OF THE DEBT WAS TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE. THE FACT T HAT THE LIABILITY TO PAY BROKERAGE MAY ARISE AT A POINT IN TIME ANTERIOR TO THE LIABILITY TO PAY THE VALUE OF THE SHARES TRANSACTED WOULD NOT MAKE ANY MATERIAL DIFFERENCE TO THE POSITION. BOTH CONSTITUTE A PART OF THE DEBT WHICH ARISES FROM SAME TRANSACTION INVOLVING THE SALE OR, AS THE CASE, PURCHASE OF SHARES. SINCE BOTH FORM A PART OF COMPONENT OF DEBT, THE REQUIREMENT OF SEC TION 36(2)(I) ARE FULFILLED, WHERE A PART THEREOF IS TAKEN INTO ACCOUNT IN COMPUTING THE INCO ME OF THE ASSESSEE. THEREFORE, IT WAS HELD THAT ASSESSEE IS ENTITLED TO DEDUCTION BY WAY OF BA D DEBT UNDER SECTION 36(1)(VIII) R.W.S. 36(2) IN RESPECT OF AMOUNT WHICH COULD NOT BE RECOVERED F ROM ITS CLIENTS IN RESPECT OF TRANSACTIONS EFFECTED BY HIM ON BEHALF OF HIS CLIENTS. 7. IN THIS VIEW OF THE SITUATION, AFTER HEARING BOT H THE PARTIES, WE FOUND NO INFIRMITY IN THE RELIEF GRANTED BY LD. CIT(A), THEREFORE, GROUND NO. 1 OF THE REVENUES APPEAL IS DISMISSED. RESPECTFULLY,FOLLOWING THE ABOVE ORDER,WE DECIDE FI RST GROUND OF APPEAL AGAINST THE AO. 3. NEXT GROUND OF APPEAL IS ABOUT DELETING THE ADDITIO N OF RS. 1.92 CRORE THAT WAS TREATED AS SPECULATIVE LOSS,UNDER SECTION 73 OF THE ACT, BY TH E AO. DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUND THAT ASSESSEE HAD CLAIMED SETTLEMENT L OSS OF RS.1,92,57,672/-. HE DIRECTED THE 5470+3/M/ (09-10&10-11) M/S. SHAREKHANLTD. 3 ASSESSEE TO SHOW CAUSE AS TO WHY THE SAME SHOULD NO T BE TREATED AS SPECULATION LOSS. IN ITS REPLY THE ASSESSEE CONTENDED THAT LOSS WAS ON ACCOU NT OF A TRADE,THAT DUE TO DISPUTES WITH THE CLIENTS FOR THE TRANSACTIONS IT DID NOT CHANGE THE RELATION PRINCIPLE, THAT ASSESSEE FOR BUSINESS CONSIDERATION CHOSE NOT TO RECOVER THE LOSSES, THAT THE LOSSES WERE IN THE COURSE OF BUSINESS AND SHOULD BE ALLOWED AS SUCH UNDER SECTION 28 OF T HE ACT. HOWEVER, THE AO REJECTED THE CLAIM MADE BY THE ASSESSEE AND TREATED THE TRANSACT ION AS SPECULATION TRANSACTION IN VIEW OF THE EXPLANATION TO SECTION 73 OF THE ACT AND MADE A DISALLOWANCE OF RS. 1.92 CRORE. 3.1. AGGRIEVED BY THE ORDER OF THE OF THE AO, THE ASSESS EE PREFERRED AN APPEAL BEFORE THE FAA.AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESS EE AND THE ASSESSMENT ORDER, THE FAA HELD THAT THE ASSESSEE HAD INCURRED LOSSES DUE TO T HE FACT THAT CERTAIN CLIENTS DID NOT OWN UP THE PURCHASE OF SHARES, THAT IT HAD TO TAKE DELIVER Y AND TO SELL THE SAME, THAT THE LOSS HAD RISEN FROM SUCH INCIDENTS, THAT SUCH LOSS DID NOT ARISE F ROM ANY PURCHASE OF THE SHARES MADE BY THE ASSESSEE FOR ITSELF,THAT THERE WAS NO DOUBT ABOUT T HE GENUINENESS OF THE LOSSES. REFERRING TO THE ORDER OF HIS PREDECESSOR FOR THE ASSESSMENT YEA R 2008 09, HE ALLOWED THE APPEAL FILED BY THE ASSESSEE. 3.2. DURING THE COURSE OF HEARING BEFORE US, THE AUTHORI SED REPRESENTATIVE(AR) AND THE DEPARTMENTAL REPRESENTATIVE(DR) AGREED THAT ISSUE S TANDS DECIDED AGAINST THE AO BY THE ORDERS OF THE TRIBUNAL FOR THE A.Y.S 2007-08 AND 20 08-09(SUPRA).WE ARE REPRODUCING THE RELEVANT PORTION OF THE ORDER FOR THE ASSESSMENT YE AR 2007-08 THAT DEALS WITH THE ISSUE BEFORE US AND IT READS AS UNDER: 8. XXX.. APPLYING EXPLANATION TO SECTION 73 OF THE ACT LD. A O HAS HELD SUCH TRANSACTION AS SPECULATION TRANSACTION AND IN THIS MANNER A SUM OF RS.2,32,77, 523/- WAS DISALLOWED. WHILE ALLOWING THE RELIEF LD. CIT(A)HAS TAKEN INTO CONSIDERATION THE F ACT THAT THE ASSESSEE IS ONE OF THE DOMINANT RETAIL STOCK BROKING HOUSE IN INDIA AND IS HAVING A NET WORK OF 159 OWN BRANCHES AND 1000 PLUS BUSINESS PARTNERS ACROSS THE COUNTRY. THE CLIE NTAL OF THE ASSESSEE IS OVER TEN LACS RETAIL CUSTOMERS AND HAS A DP CLIENTAL OF APPROXIMATELY TE N LACS CLIENTS AND IT EMPLOYS 3500 PERSONNEL OPERATING IN 360 CITIES NATIONWIDE. IN VI EW OF THESE FACTS, LD. CIT(A) HAS OBSERVED THAT THERE ARE CHANCES OF MISTAKE WHICH RESULTED IN TO DISOWN BY THE PERSON IN WHOSE ACCOUNT SUCH TRANSACTION HAS BEEN ENTERED . KEEPING IN VIEW ALL THESE FACTS LD. CIT(A) HAS HELD THAT EXPLANATION TO SECTION 73 WOULD NOT BE APPLICABLE I N VIEW OF THE DECISION OF ITAT IN THE CASE OF M/S. PARKER SECURITIES LTD. VS. DCIT, 102 TTJ 23 5. LD. CIT(A) HAS REPRODUCED THE RELEVANT PORTION FROM THE SAID DECISION AND HAS GRANTED IMPU GNED RELIEF TO THE ASSESSEE. THE REVENUE IS AGGRIEVED, HENCE, HAS FILED AFOREMENTIONED GROUN D. 8.1 LD. DR RELIED UPON THE ORDER PASSED BY AO, AS A GAINST THAT LD. AR HAS RELIED UPON THE FOLLOWING DECISIONS: 1. ITA NO.3756/MUM/2012 IN ASST. CIT VS. IDFC SSKI SEC. LTD. 2.102 TTJ 235 (AHD-TIB) PARKAR SECURITIES LTD. VS. DY. CIT 3. 91 TTJ 57 (DEL-TRIB) ASST. CIT VS. SUBHASH CHAND SHOREWALA 8.2 IT WAS CONTENDED THAT LD. CIT(A)DID NOT COMMIT ANY ERROR IN GRANTING THE RELIEF TO THE ASSESSEE AND AFOREMENTIONED DECISIONS SUPPORT THE C ASE OF THE ASSESSEE. 5470+3/M/ (09-10&10-11) M/S. SHAREKHANLTD. 4 9. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTENT IONS HAVE CAREFULLY BEEN CONSIDERED. IN THE CASE OF ACIT VS. IDFC SSKI SECURITIES LTD. (SUP RA), SIMILAR GROUND WAS RAISED BY THE REVENUE. THE GROUND RAISED IN THAT CASE READ AS UND ER: 1.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD.CIT(A) ERRED IN ALLOWING THE LOSS OF RS.2,36,36,821/- AS B USINESS LOSS EVEN WHEN THE SAME IS SPECIFICALLY COVERED UNDER SECTION 73 OF TH E ACT. 2. THE APPELLANT CRAVES TO LEAVE TO ADD, TO AMEND A ND/OR ALTER ANY OF THE GROUNDS OF APPEAL, IF NEED BE 9.1 THE ASSESSEE PLACED RELIANCE UPON FOLLOWING DEC ISIONS: 1. ITO VS. GDV SHARE & STOCK BROKING SERVICES LTD., 88 TTJ (CAL) 352 2. M/S.PARKER SECURITIES LTD. VS. DCIT, 102 TTJ (AH D) 235. 3.33 CCH 124 (MUM-TRIB) HSBC SECURITIES & CAPITAL M ARKETS INDIA P. LTD., VS. ACIT 4.139 R 149 (AP), CIT VS. SHAH PRATAPCHAND NOWPAJI 5. 91TTJ 57 (DEL-TRIB) ACIT VS. SUBHASH CHANDRA SHO REWALA. 6.50 SOT 592 (AHD-TRIB) ITO VS. RAJIV SECURITIES P. LTD. AFTER CONSIDERING THESE DECISIONS THE TRIBUNAL HAS HELD AS UNDER: 5. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTEN TIONS HAVE CAREFULLY BEEN CONSIDERED. RIGHT FROM THE ASSESSMENT PROCEEDINGS I T WAS THE CASE OF THE ASSESSEE THAT THE IMPUGNED LOSS HAS OCCURRED TO THE ASSESSEE IN R ESPECT OF ERROR TRADE. DUE TO DISPUTE WITH THE CLIENTS, FOR THE TRANSACTION, IT D OES NOT CHANGE THE RELATION OF PRINCIPAL AND THE AGENT. THE ASSESSEE FOR BUSINESS CONSIDERAT ION CHOOSES NOT TO RECOVER THE LOSSES. THESE LOSSES ARE IN THE COURSE OF BUSINESS AND SHOULD BE ALLOWED AS SUCH UNDER SECTION 28 OF THE ACT. ALL THESE CONTENTIONS OF THE ASSESSEE HAVE BEEN RECORDED IN THE ASSESSMENT ORDER IN PARA 3.3. THE AO HAS NOT BROUGH T ANY MATERIAL ON RECORD TO SUGGEST THAT THESE CONTENTIONS OF THE ASSESSEE ARE EITHER FALSE OR INCORRECT. NO MATERIAL HAS ALSO BEEN BROUGHT ON RECORD THAT THESE LOSSES A RE ON ACCOUNT OF ASSESSEES OWN TRADING IN SHARES. IF IT IS SO, THE LOSS ACCRUED TO THE ASSESSEE WILL BE GOVERNED BY THE AFOREMENTIONED DECISIONS OF TRIBUNAL WHERE CONSISTE NT VIEW HAS BEEN TAKEN THAT LOSS OCCURRED TO SHARE BROKER ON ACCOUNT OF CLIENT DISOW NING TRANSACTION IS BUSINESS LOSS AND NOT SPECULATIVE LOSS. THEREFORE, WE ARE OF THE OPINION THAT LD. CIT(A) DID NOT COMMIT ANY ERROR IN ACCEPTING THE CLAIM OF THE ASSE SSEE. ACCORDINGLY, WE DECLINE TO INTERFERE AND DEPARTMENTAL APPEAL ON THIS GROUND IS DISMISSED. 5.1 BEFORE PARTING OF THE DEPARTMENTAL APPEAL IT MA Y BE MENTIONED THAT AMOUNT STATED BY THE DEPARTMENT IN ITS GROUNDS OF APPEAL IS WRONG LY MENTIONED AS RS.2,36,36,821/-, WHEREAS THE SAME IS RS.2,65,07,464/-. IN VIEW OF THE ABOVE DISCUSSIONS THE DEPARTMENTAL A PPEAL IS DISMISSED. IN THE AFOREMENTIONED DECISION BOTH OF US ARE PARTIES. THEREFORE, FOLLOWI NG THE AFOREMENTIONED VIEW WE HOLD THAT LD. CIT(A) HAS RIGHTLY DECIDED THE ISSUE AND WE DECLINE TO INTERFERE AND THIS GROUND OF THE REVENUE IS DISMISSED. RESPECTFULLY, FOLLOWING THE ABOVE ORDER, WE DISMISS SECOND GROUND RAISED BY THE AO. 4. LAST GROUND OF APPEAL IS ABOUT DISALLOWANCE MADE BY THE AO UNDER SECTION 14 A OF THE ACT. IN THE ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT THE ASSESSEE HAD BOTH TAXABLE AS WELL AS EXEMPT INCOME, THAT IT MAINTAINED CONSOLIDATED ACCO UNTS PRECLUDING THE POSSIBILITY OF ESTABLISHING ONE-TO-ONE NEXUS BETWEEN THE EXPENDITU RE AND EXEMPT INCOME, THAT THE ASSESSEE ITSELF HAD DISALLOWED RS.13.25 LAKHS.HE DIRECTED TH E ASSESSEE TO SHOW CAUSE AS TO WHY DISALLOWANCE UNDER SECTION 14 A OF THE ACT READ WIT H RULE 8D OF THE INCOME TAX RULES, 1962 (RULES) SHOULD NOT BE MADE. ACCORDINGLY, HE COMPUTE D THE DISALLOWANCE AT RS.4,00,52,243/-, THEREBY ADDING BACK RS. 3.87 CRORE (RS. 4 CRORE (-) RS. 13.25 LAKHS). 5470+3/M/ (09-10&10-11) M/S. SHAREKHANLTD. 5 4.1. THE ASSESSEE CHALLENGED THE ORDER OF THE AO BEFORE THE FAA AND STATED THAT INVESTMENTS IN SHARES WAS FINANCED OUT OF THE INTEREST-FREE FUN D AVAILABLE AT ITS DISPOSAL, THAT THERE WAS NOT CREDIT IN INCOME UNDER THE HEAD INTEREST, THAT INTE REST-BEARING FUNDS WERE RAISED ONLY FOR FINANCING THE CLIENTS, THAT SUCH INTEREST EXPENDITU RE WAS ALLOWABLE UNDER SECTION 36(1) OF THE ACT,THAT PROVISIONS OF RULE 8D(2)(III) WERE NOT APP LICABLE, THAT ALL THE EXPENSES DEBITED TO THE PROFIT AND LOSS ACCOUNT WERE INCURRED FOR EARNING T AXABLE INCOME ONLY, THAT IT HAD MADE INVESTMENT IN SUBSIDY COMPANIES, THAT THE INVESTMEN TS IN RESEARCH STUDIES WERE MADE BETWEEN THE ASSESSMENT YEAR 2006-07, THAT IT HAD ALREADY DI SALLOWED A SUM OF RS. 13.25 LAKHS. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AN D THE ASSESSMENT ORDER, THE FAA REFERRED TO THE ORDER FOR THE ASSESSMENT YEAR 2008-09 OF THE THEN FAA. IN THAT MATTER IT WAS HELD THAT THE ASSESSEE HAD INVESTED ITS SURPLUS FUND FOR MAKI NG INVESTMENTS, THAT THE BORROWED FUNDS WERE NOT BORROWED FOR THE PURPOSE OF INVESTING A MU TUAL FUNDS,THAT INTEREST-BEARING FUNDS WERE BORROWED FOR ITS BUSINESS PURPOSES AND WERE US ED IN THE BUSINESS OPERATIONS ONLY. HE DIRECTED THE AO TO VERIFY THE WORKING GIVEN BY THE ASSESSEE ABOUT INVESTMENT IN EXEMPT INCOME AND TO DECIDE THE DISALLOWANCE OF INTEREST.H E HELD THAT DISALLOWANCE MADE BY THE ASSESSEE OF RS.13.25 LAKHS WAS TOWARDS THE INTEREST WITH RESPECT TO INVESTMENT IN CASE OF SHARES OF SUBSIDIARY.HE UPHELD THE DISALLOWANCE MAD E BY THE AO UNDER RULE 8D (2) (III) OF THE RULES. 4.2. BEFORE US, THE AR ARGUED THAT THE RESERVES AND SUR PLUS(RS. 653.59 CRORE) WAS GREATER THAN THE INVESTMENT MADE DURING THE YEAR (RS.12.26 CRORE ),THAT THERE WAS NET CREDIT IN THE INTEREST ACCOUNT,THAT THE ASSESSEE HAD ESTABLISHED DIRECT NE XUS BETWEEN INTEREST RECEIVED AND INTEREST PAID, THAT DIVIDEND DISTRIBUTION TAX HAD BEEN PAID IN RESPECT OF DIVIDEND EARNED, THAT THE DIVIDENDS OR NOT EXEMPT INCOME.HE REFERRED TO THE C ASES OF HDFC BANK LTD (383 ITR 529), JIVRAJKA ASSOCIATES PRIVATE LTD.(40CCH 424). 4.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL BEFORE US. WE FIND THAT THE AO HAD DISALLOWED AND AMOUNT OF RS. 4,00,52, 243/-( UNDER THE HEAD INTEREST-2.84 CRORE AND UNDER THE HEAD 0.5% OF INVESTMENT-RS. 1.15 CRORE), THAT THE FAA,REFERRING TO THE ORDER FOR THE ASSESSMENT YEAR 2008-09,HAD UPHELD THE DISALLOWANCE OF RS.1.15 CRORE, THAT HE HAD DIRECTED THE AO TO RECOMPUTE THE DISALLOWANCE MADE UNDER THE HEAD INTEREST EXPENDITURE.WE FIND THAT SIMILAR ISSUE HAD ARISEN IN THE AY.2008-09 (SUPRA)A LSO.THE TRIBUNAL HAD DEALT THE ISSUE AS UNDER - 19. THE AO HAS ALSO MADE DISALLOWANCE UNDER SECTIO N 14A BY INVOKING RULE 8D. BY THE IMPUGNED ORDER CIT(A) DELETED THE DISALLOWANCE ON A CCOUNT OF INTEREST, HOWEVER, HE HAS CONFIRMED THE DISALLOWANCE UNDER RULE 8D 2 (III) . . 5470+3/M/ (09-10&10-11) M/S. SHAREKHANLTD. 6 20. AGAINST THE ABOVE ORDER OF CIT(A) ASSESSEE AND REVENUE ARE IN APPEAL BEFORE US. THE REVENUE IS AGGRIEVED FOR DELETING THE DISALLOWANCE OF INTEREST WHEREAS ASSESSEE IS AGGRIEVED FOR UPHOLDING ADDITION UNDER RULE 8D(2)(III). 21. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND CA REFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND FOUND FROM RECORD THAT THE CI T(A) HAS GIVEN A DETAILED FINDING WITH REGARD TO DISALLOWANCE OF INTEREST UNDER SECTION 1 4A. THE FINDING RECORDED BY CIT(A) HAS NOT BEEN CONTROVERTED BY LEARNED DR BY BRINGING ANY POSITIVE MATERIAL ON RECORD, ACCORDINGLY WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF CIT(A) FOR DELETING THE DISALLOWANCE ON ACCOUNT OF INTEREST EXPENDITURE. 21. WITH REGARD TO DISALLOWANCE MADE UNDER RULE 8D (2)(III) IN RESPECT OF THE ADMINISTRATIVE EXPENSES, LEARNED AR DREW OUR ATTENTION TO THE FACT THAT ONLY ONE PERSON WAS EXCLUSIVELY ENGAGED IN THE WORK OF MONITORING THE INVESTMENT, A CCORDINGLY DISALLOWANCE SHOULD BE RESTRICTED TO THE SALARY PAID TO THAT PERSON. FOR T HESE PURPOSES, OUR ATTENTION WAS INVITED TO THE LETTER FILED BEFORE THE AO. HOWEVER, WITHOUT CO NTROVERTING THIS FACT, THE AO HAS ROUTINELY MADE DISALLOWANCE UNDER RULE 8D(2)(III). IN THE IN TEREST OF JUSTICE AND FAIR PLAY WE RESTORE THE ISSUE REGARDING DISALLOWANCE UNDER RULE 8D(2)(I II) TO THE FILE OF AO FOR DECIDING AFRESH AS PER LAW. RESPECTFULLY,FOLLOWING THE SAME WE HOLD THAT THERE WAS NO JUSTIFICATION IN MAKING DISALLOWANCE U/S. 14A OF THE ACT ,UNDER THE HEAD IN TEREST PAID .GROUND NO.3 IS DECIDED AGAINST THE AO. ITA/5470/MUM/2013-AY.2009-10: 5. FIRST GROUND OF APPEAL FILED BY THE ASSESSEE IS ABO UT DISALLOWANCE OF DEPRECIATION ON BSE CARD OF RS.2.35 LAKHS.DURING THE COURSE OF HEARING BEFORE US,THE AR FAIRLY CONCEDED THAT THE ISSUE STANDS DECIDED AGAINST THE ASSESSEE BY THE OR DER OF THE TRIBUNAL FOR THE AY.2007-08 (SUPRA).WE FIND THAT THE TRIBUNAL HAD HELD AS UNDER : 2. GROUND NO.1 IS AGAINST THE ADDITION UPHELD BY LD . CIT(A) IN RESPECT OF DEPRECIATION CLAIMED ON BSE MEMBERSHIP CARD. DURING THE COURSE O F HEARING, IT WAS FAIRLY CONCEDED BY LD. AR THAT THIS ISSUE IS COVERED AGAINST THE ASSES SEE BY THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. TECHNO SHARES AND STOC K LTD. & OTHERS, 323 ITR 69, WHEREIN HONBLE BOMBAY HIGH COURT HAS HELD THAT DEPRECIATIO N IS NOT ALLOWABLE ON THE BSE MEMBERSHIP CARD AS IT DOES NOT FALL IN ANY OF THE C ATEGORIES SPECIFIED IN SECTION 32(1) OF THE INCOME TAX ACT 1961 (THE ACT). THEREFORE, AFTER HEA RING BOTH THE PARTIES WE DISMISS GROUND NO.1 FILED BY THE ASSESSEE. RESPECTFULLY,FOLLOWING THE ABOVE,WE DECIDE FIRST GR OUND OF APPEAL AGAINST THE ASSESSEE. 6. NEXT TWO GROUNDS OF APPEAL ARE ABOUT DISALLOWANCE M ADE U/S. 14 A OF THE ACT.WE HAVE NARRATED THE FACTS OF THE CASE IN THE EARLIER PART OF THE ORDER.WE HAVE HELD THAT THERE WAS NO JUSTIFICATION FOR MAKING DISALLOWANCE UNDER THE HEA D INTEREST EXPENDITURE.FOLLOWING THE SAME WE DECIDE GROUND NO.2 IN FAVOUR OF THE ASSESSEE. AS FAR AS GROUND NO.3 I.E. DISALLOWANCE UNDER RULE 8D(2)(III)IS CONCERNED IT IS FOUND THAT THE TRIBUNAL HAS RESTORED BACK THE ISSUE TO THE FILE OF THE AO FOR FRESH ADJUDICATION WHILE DECIDING THE APPEAL FOR THE AY.2008-09(SUPRA).FOLLO WING THE SAME WE DIRECT THE AO TO DECIDE THE ISSUE AFRESH,AFTER AFFORDING A REASONABL E OPPORTUNITY OF HEARING TO THE ASSESSEE. GROUND NO.3 IS DECIDED IN FAVOUR OF THE ASSESSEE,IN PART. 5470+3/M/ (09-10&10-11) M/S. SHAREKHANLTD. 7 ITA/3027/MUM/2014-AY.2010-11: 7. BOTH THE EFFECTIVE GROUNDS OF APPEAL,RAISED BY THE AO,ARE IDENTICAL TO THE FIRST TWO GROUNDS OF THE EARLIER YEAR.FOLLOWING OUR ORDER FOR THAT YE AR,WE DISMISS BOTH THE GROUNDS. ITA/2729/MUM/2014-AY.2010-11: 8. FIRST GROUND OF APPEAL IS ABOUT DISALLOWANCE UNDER SECTION 14 A OF THE ACT. FOLLOWING OUR ORDER FOR THE EARLIER YEARS WE HOLD THAT NO DISALLO WANCE SHOULD BE MADE UNDER THE HEAD INTEREST EXPENDITURE.WE WOULD LIKE TO RESTORE BACK THE MATTER TO THE FILE OF THE AO FOR DECIDING THE ISSUE OF DISALLOWANCE TO BE MADE UNDER RULE 8D (2) (III) OF THE RULES. HE WOULD AFFORD A REASONABLE OPPORTUNITY OF HEARING TO THE A SSESSEE. FIRST GROUND IS DECIDED IN FAVOUR OF THE ASSESSEE, IN PART. 9. THE ASSESSEE DID NOT PRESS 2 ND GROUND OF APPEAL, HENCE, SAME STANDS DISMISSED AS NOT PRESSED. 10. NEXT GROUND OF APPEAL IS ABOUT DISALLOWANCE OF EDUC ATION CESS UNDER SECTION 40A(II) OF THE ACT,AMOUNTING TO RS.1.48 CRORE. BEFORE US,THE AR AR GUED THAT ASSESSEE HAD NOT MADE ANY CLAIM IN THE RETURN, THAT A LETTER IN THAT REGARD W AS FURNISHED BEFORE THE AO. 10.1. DURING THE APPELLATE PROCEEDINGS, THE FAA HELD THAT THE ALLOWABLITY OR OTHERWISE OF ANY SUM WAS SUBJECT TO THE PROVISIONS AS STIPULATED IN THE ACT, THAT THERE WAS NO PROVISION IN THE ACT TO ALLOW THE SAID CLAIM OF DEDUCTION.FINALLY,HE UPHELD THE ADDITION OF THE DISPUTED AMOUNT. 10.2. BEFORE US,THE AR STATED THAT EVEN IF THE AMOUNT IN QUESTION WAS TO BE DISALLOWED THERE SHOULD NOT BE ANY ADDITION THAT HAD BEEN MADE BY TH E AO AT PAGE 12 OF HIS ORDER. THE DR LEFT THE ISSUE TO THE DISCRETION OF THE BENCH. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE ARE OF THE OPINION THAT THE AO WAS NOT JUSTIFIED IN MAKING THE ADDITION. WE DECIDE THE 3 RD GROUND ACCORDINGLY. 11. LAST GROUND OF APPEAL DEALS WITH DISALLOWANCE OF LE ASE PROVISION, UNDER SECTION 40A (IA) OF THE ACT, AMOUNTING TO BE 76.34 LAKHS.THE AR STATED THAT DETAILS OF RENT WERE FILED BEFORE THE AO ON 19/10/2012,THAT HE DID NOT CALL FOR FURTHER D ETAILS REGARDING TAX DEDUCTED AT SOURCE, THAT TAX DEDUCTED WERE PAID WITHIN DUE DATE OF FILI NG OF RETURN, THAT ASSESSEE WAS READY TO GO BACK TO THE AO. THE DR STATED THAT MATTER COULD BE DECIDED ON MERITS. CONSIDERING THE ABOVE FACTS,WE ARE OF THE OPINION T HAT MATTER SHOULD BE RESTORED BACK TO THE FILE OF THE AO FOR FRESH ADJUDICATION. HE WOULD DEC IDE THE ISSUE AFTER AFFORDING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. THE ASSESS EE WOULD SUBMIT THE NECESSARY DETAILS BEFORE THE AO. LAST GROUND IS DECIDED IN FAVOUR OF THE ASSESSEE, IN PART. 5470+3/M/ (09-10&10-11) M/S. SHAREKHANLTD. 8 AS A RESULT,APPEALS FILED BY THE AO FOR BOTH THE AY .S.ARE DISMISSED AND BOTH THE APPEALS OF THE ASSESSEE STAND PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH MARCH ,2017. 24 ,2017 SD/- SD /- ( / AMARJIT SINGH ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; /DATED : 24.03.2017. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ . //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.