ITI SECURITIES LTD, MUMBAI V. ADDL CIT 4(2), MUMBAI

ITA 6952/MUM/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6582 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-05-2014
• Appeal Filed By: Assessee
• Bench Allotted: I
• Next Hearing Date: 01-05-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 16-11-2012
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Bad and doubtful debts
• Section: 14A; 37(1); 37

Judgement Text

M/S ITI SECURITIES LIMITED 1 VK;DJ VIHYH; VF/KDJ.K VKBZ U;K;IHB EQACBZ ESAA IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, MU MBAI JH JH JH JH FOT; IKY JKO] U;KF;D LNL; ,OA JH JKTSUNZ] YS[KK LNL; DS LE{K FOT; IKY JKO] U;KF;D LNL; ,OA JH JKTSUNZ] YS[KK LNL ; DS LE{K FOT; IKY JKO] U;KF;D LNL; ,OA JH JKTSUNZ] YS[KK LNL ; DS LE{K FOT; IKY JKO] U;KF;D LNL; ,OA JH JKTSUNZ] YS[KK LNL ; DS LE{K BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI RAJENDRA, ACCOUNTANT MEMBER VK;DJ VIHY LA[;K /ITA NO.3872/MUM/2011 FU/KKZJ.K O'KZ @ ASSESSMENT YEAR:- 2008-09 M/S ITI SECURITIES LIMITED FORMERLY KNOWN AS M/S INTIME SPECTRUM SECURITIES LTD. 6 TH FLOOR, ORACLE POINT, 3 GURUNANAK ROAD, OPP BANDRA STATION, BANDRA(W) MUMBAI-400050 VS. ASST. COMMISSIONER OF INCOME TAX-4(2) AAYAKAR BHAVAN M.K. ROAD, MUMBAI. PAN: - AAACO0574E APPELLANT RESPONDENT VK;DJ VIHY LA[;K /ITA NO.4874/MUM/2011 FU/KKZJ.K O'KZ @ ASSESSMENT YEAR:- 2008-09 ASST. COMMISSIONER OF INCOME TAX-4(2) AAYAKAR BHAVAN M.K. ROAD, MUMBAI. V S. M/S INTIME SPECTRUM SECURITIES LTD. 6 TH FLOOR, ORACLE POINT, 3 GURUNANAK ROAD, OPP BANDRA STATION, BANDRA(W) MUMBAI-400050 PAN: - AAACO0574E APPELLANT RESPONDENT VK;DJ VIHY LA[;K /ITA NO.6952/MUM/2012 FU/KKZJ.K O'KZ @ ASSESSMENT YEAR:- 2009-10 M/S ITI SECURITIES LIMITED 4 TH FLOOR, KALPATARU HERITAGE, 127 M.G. ROAD, FORT, MUMBAI 400001. VS. ADDL. COMMISSIONER OF INCOME TAX-4(2) AAYAKAR BHAVAN M.K. ROAD, MUMBAI. PAN: - AAACO0574E APPELLANT RESPONDENT M/S ITI SECURITIES LIMITED 2 ASSESSEE BY/ FU/KKZFJRH DH VKSJ LS SHRI VIJAY MEHTA REVENUE BY/ JKTLP DH VKSJ LS SHRI SHEKHAR L. GAJBHIYE ORDER PER VIJAY PAL RAO, JM THESE CROSS APPEALS FOR THE A.Y. 2008-09 AND APPEAL OF THE ASSESSEE FOR A.Y. 2009-10 ARE DIRECTED AGAINST THE RESPECTIVE OR DERS OF CIT(A) DATED 4.4.2011 AND 21.9.2012. FOR A.Y. 2008-09 THE ASSESSEE HAS R AISED FOLLOWING GROUND:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONBLE CIT(A) ERRED IN UPHOLDING THE ADDITIONAL DI SALLOWANCE OF RS. 17,29,400/- (BEING RS. 20,69,704/- MINUS RS. 3,40,3 04/- DISALLOWED BY THE ASSESSEE) U/S 14A. THE SAID ARBITARY DISALLO WANCE COMPUTED IN ACCORDANCE WITH THE PROVISIONS OFHTE RULE 8D REA D WITH SECTION 14A OF THE INCOME TAX ACT, 1961 IS UNREASONABLE AND UNC ALLED FOR IN VIEW OF THE SPECIFIC CIRCUMSTANCES OF THE APPELLANTS BUS INESS . 2. DURING THE YEAR UNDER CONSIDERAITON THE ASSESSEE HAS EARNED DIVIDEND INCOME OF RS. 10,69,341/- WHICH HAS BEEN CLAIMED A S EXEMPT. THE AO FOUND THAT THE ASSESSEE ISELF HAS DISALLOWED A SUM OF RS. 3,40,304/- U/S 14A BY APPLYING RULE 8D WITHOUT ALLOCATION OF INTEREST EXP ENSES TOWARDS EARNING OF EXEMPT INCOME. THE AO MADE DISALLOWANCE UNDER RULE 8D WHICH RESULTED ADDITION OF RS. 20,69,704/- INCLUSIVE OF THE AMOUNT OF RS. 3,40,304/- DISALLOWED BY THE ASSESSEE U/S 14A. DATE OF HEARING 01.05.2014 DATE OF PRONOUNCEMENT 07.05.2014 M/S ITI SECURITIES LIMITED 3 2.1 ON APPEAL THE ASSESSEE CONTENDED BEFORE CIT(A) THAT IT HAS NOT INCURRED ANY INTEREST EXPENDITURE FOR EARNING DIVIDEND INCOM E BECAUSE IT HAD SUFFICIENT OWN FUNDS UPTO THREE TIMES OF THE INVESTMENT. THE A SSESSEE HAS PLACED RELIANCE ON THE DECISION OF HONBLE JURISDICTIONAL HIGH COUR T IN THE CASE OF CIT VS. RELIANCE UTILITIES & POWER LTD (313 ITR 340). THE C IT(A) DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND CONFIREMED THE DISAL LOWANCE MADE BY AO. 2.2 BEFORE US, THE LD AR OF THE ASSESSEE HAS SUBMIT TED THAT THE ASSESSE DOES NOT PRESS THE DISALLOWANCE ON ACCOUNT OF ADMINISTRA TIVE EXPENSES AND THE GRIEVANCE OF THE ASSESSEE IS CONFINED ONLY TO THE E XPENDITURE DISALLOWED U/S 14A ON ACCOUNT OF INTEREST EXPENDITURE. THE LD. AR OF T HE ASSESSEE HAS CONTENDED THAT THE ASSESSEES OWN FUNDS ARE MORE THAN SUFFICI ENT TO SOURCE THE INVESTMENT WHICH HAS RESULTED TAX FREEE INCOME. HE HAS REFERRE D THE BALANCE SHEET AND POINTED OUT THAT THE ASSESSEES OWN FUND IS RS. 45. 41 CRORES WHEREAS THE TOTAL INVESTMENT AS ON 31 ST MARCH 2008 IS RS. 15.81 CRORE WHICH IS MUCH LESS THAN THE ASSESSEES OWN FUND. THE LD. AR HAS FURTHER SUB MITTED THAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED AND DECIDED BY THIS TRIBU NAL IN ASSESSEES OWN CASE FOR A.Y. 2006-07 AND, THEREFORE, THIS ISSUE IS COVE RED IN FAVOUR OF THE ASSESSEE. 2.3 ON THE OTHER HAND THE LD. DR HAS SUBMITTED THAT THE ASSESSEE MADE FRESH INVESTMENT DURING THE YEAR TO THE TUNE OF RS. 13 CR ORE AND NO DETAILS HAVE BEEN FURNISHED TO SHOW THAT THESE INVESTMENTS WERE MADE FROM ASSESSEES OWN FUNDS. HE HAS RELIED UPON THE ORDERS OF AUTHORITIES BELOW. 3. HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON REOCRD, WE NOTE THAT AN IDENTICAL ISSUE WAS CONSIDE RED AND DECIDED BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2006-07 VI DE ORDER DATED 22.6.2012 IN ITA NO. 4500/MUM/2011 IN PARA 18 AND 19 AS UNDER:- 18. THE LD. DR SUPPORTED THE ORDER OF AO. THE LD. AR ARGUED THAT THE ASSESSEE HAS NOT INCURRED ANY EXPENSE FOR EARNING EXEMPTED I NCOME. IT WAS FURTHER POINTED M/S ITI SECURITIES LIMITED 4 OUT BY THE AR THAT ASSESSEE HAS SUBSTANTIALLY OWN F UND TO THE TUNE OF RS. 16,33,69,473/- AND BORROWED FUNDS ARE ONLY TO THE E XTENT OF RS. 22,13,822/-. THE LD. COUNSEL RELIED UPON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS RELIANCE UTILITIES & POWER LTD. 313 ITR 340. 19. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE ORDERS OF LOWER AUTHORITIES AND ALSO THE JUDGEMENT RELIED UPON BY T HE LD. COUNSEL. WE FIND THAT THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE O F CIT VS RELIANCE UTILITIES & POWER LTD. (SUPRA) DISMISSING THE APPEAL HAD THUS H ELD THAT IF THERE WERE FUNDS AVAILABLE BOTH INTEREST FREE AND OVER DRAFT AND/OR LOANS TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE IN TEREST FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST FREE FU NDS WERE SUFFICIENT TO MEET THE INVESTMENTS. 4. WE FURTHER NOTE THAT FOR THE YEAR UNDER CONSIDER ATION THE ASSESSEES OWN FUNDS AS ON 31 ST MARCH 2008 WAS RS. 45.41 CRORES WHEREAS THE TOTAL INVESTMENT AS ON 31 ST MARCH 2008 WAS RS. 15.81 CRORES, THEREFORE, THE ASSESSEE S OWN FUNDS ARE MORE THAN SUFFICIENT TO SOURCE THE INVESTMENT PARTICULARLY IN VIEW OF T HE FACT THAT THE LOAN DURING THE YEAR ARE REDUCED TO RS. 4,94,000/- FROM RS. 8,49,000/-. THER EFORE, WHEN THERE IS NO INCREASE IN THE LOAN DURING THE YEAR THEN THE USE OF BORROWED F UNDS FOR THE PURPOSE OF INVESTMENT DOES NOT BORNE OUT FROM THE FACTS OF THE CASE. ACCO RDINGLY WE ARE IN AGREEMENT WITH THE FINDING OF THIS TRIBUNAL FOR THE A.Y. 2006-07 AND H OLD THAT NO INTEREST EXPENDITURE CAN BE DISALLOWED U/S 14A AS THE ASSESSEE HAS ITS OWN FUND S SUFFICIENT TO SOURCE THE INVESTMENT IN QUESTION. 5. FOR THE A.Y. 2008-09 THE REVENUE HAS RAISED THE FOLLOWING GROUNDS:- 1 . 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE ON ACCOUNT OF PENALTY OF RS.11 ,29,599/ - ON VIOLATION OF THE BYE-LAWS OF THE STOCK EXCHANGE, WHICH ARE STATU TORY IN CHARACTER AND THUS MOUNTED TO INFRINGEMENT OF LAW'. II. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW THE LD. CIT(A) ERRED IN IGNORING THE FACT THAT THE PENALTY IS IMPOSED UN DER SEBI [PROCEDURE FOR HOLDING ENQUIRY AND IMPOSING PENALTY BY ADJUDICATING OFFICE R] RULES 1995 WHICH HAS A BINDING CHARACTER'. III. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN IGNORING THE FACTS THAT NON-ADHEREN CE TO STATUTORY PROVISIONS IS NOT AN ALLOWABLE EXPENDITURE' IV. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED M/S ITI SECURITIES LIMITED 5 IN APPRECIATING THAT IT WAS NOT ENOUGH THAT THE DIS BURSEMENT WAS MADE IN THE COURSE OF TRADE, BUT WAS ALSO FOR THE LAWFUL PURPOSE OF TR ADE .' V. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN IGNORING THE FACT THAT THE PENALTY WAS IMPOSED BECAUSE THE BUSINESS WAS NOT CONDUCTED WITHIN THE FRAMEWORK OF LAW.' 2 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A)ERRED IN DELETING THE DISALLOWANCE TOWARDS FO REIGN TRAVEL EXPENSES AMOUNTING TO RS.1,70,521 / - MADE BY THE AO.' 3. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE AMOUN TING TO RS 1,09,427 PAID TOWARDS SECURITY TRANSACTION CHARGES AS CAPITAL EXPENSES.' 4. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(AL HAS ERRED IN DELETING THE DISALLOWANCE OF CLAIM OF BAD DEBTS AMOUNTING TO RS 2,92,58,921/- .' 5. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE IMPUGNED ORDER OF THE LD.CIT(A) IS CONTRARY TO LAW TO BE SET ASIDE AND TH AT OF THE ASSESSING OFFICER BE RESTORED.' 5.1 GROUND NO. 1 IS REGARDING THE PENALTY PAID TO S TOCK EXCHANGES. 5.2 WE HAVE HEARD THE LD. DR AS WELL AS LD. AR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE AO DISALLOWED A SUM OF RS. 11,29,599/- ON ACCOUNT OF PENALTY PAID TO THE STOCK EXCHANGES DUE TO VIOLATIO N OF BY-LAWS OF STOCK EXCHANGES. THE CIT(A) HAS DELETED THE DISALLOWANCE BY FOLLOWING THE ORDER FOR A.Y. 2007-08. AT THE OUTSET WE NOTE THAT FOR THE A. Y. 2007-08, THE TRIBUNAL HAS DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE IN PAR A 8 AND 9 AS UNDER:- 8. THE LD. COUNSEL FOR THE ASSESSEE RELIED UPON TH E ORDER OF HONBLE JURISDICTIONAL HIGH COURT OF BOMBAY IN ITA NO. 4117 OF 2010 IN THE CASE OF CIT VS THE STOCK AND BOND TRADING CO. IN THAT CASE ANSWERING TO QUESTION NO. 2 WHETHER ON THE FACTS AND IN THE CIRCUMSTANCE S OF THE CASE AND IN LAW THE TRIBUNAL WAS JUSTIFIED IN DELETING THE ADDITIONS MADE BY THE AO UNDER PROVISO TO SECTION 37(1) OF THE I.T. ACT, 1961 BEING PENALTY IMPOSED BY THE NAT IONAL STOCK EXCHANGE ON THE ASSESSEE. 9. THE HONBLE HIGH COURT THUS HELD THAT AS REGARD S THE SECOND QUESTION M/S ITI SECURITIES LIMITED 6 IS CONCERNED THE FINDING OF FACT RECORDED BY THE CI T(A) AND UPHELD BY THE ITAT IS THAT THE PAYMENTS MADE BY THE ASSESSEE TO THE STOCK EXCHANGE FOR VIOLATION OF THEIR REGULATION ARE NOT ON ACCOUNT OF AN OFFENCE OR WHICH IS PROHIB ITED BY LAW AND THE INVOCATION OF EXPLANATION TO SEC. 37 OF THE I.T. ACT 1961 IS NOT JUSTIFIED AND ACCORDINGLY DECLINED TO ENTERTAIN THE SECOND QUESTION. RESPECTFULLY FOLLOWI NG THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE CITED ABOVE, WE DO NOT FIND ANY INFIRMITY IN THE FINDING OF LD. CIT(A) AND ACCORDINGLY THE FINDING OF CIT(A) IS CONFIRMED. 5.3 SINCE THE ISSUE IS NOW COVERED BY THE DECISION OF HONBLE HIGH COURT IN THE CASE OF CIT VS. STOCK AND BOND TRADING CO. WHIC H HAS BEEN FOLLOWED BY THE TRIBUNAL FOR A.Y. 2007-08, THEREFORE, FOLLOWING THE EARLIER ORDERS OF THIS TRIBUNAL, WE DECIDE THIS ISSUE AGAINST THE REVENUE AND IN FAV OUR OF THE ASSESSEE. THE ORDER OF CIT(A) IS UPHELD. 6 GROUND NO. 2 IS REGARDING DISALLOWANCE OF FOREIGN TRAVELLING EXPENSES. 6.1 WE HAVE HEARD THE LD. DR AS WELL AS LD. AR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE AO HAS DISALLOWED A SUM OF RS. 1,70,521/- TOWARDS FOREIGN TRAVEL EXPENSES ON THE GROUND THAT NO ACTUA L BENEFIT HAS ACCRUED TO THE ASSESSEE. ON APPEAL, THE CIT(A) HAS DELETED THE ADD ITION MADE BY THE AO BY FOLLOWING THE ORDERS FOR A.Y. 2002-03 AND 2007-08. WE FIND THAT THE EXPENDITURE IN QUESTION IS RELATED TO THE FOREIGN TRAVEL OF THE DIRECTORS OF THE ASSESSEE TO DUBAI AND AN IDENTICAL ISSUE WAS CONSIDERED BY THIS TRIBUNAL FOR A.Y. 2002-03 AND 2007-08. FOR A.Y. 2007-08 THE TRIBUNAL IN PARA 14 HELD AS UNDER:- 14. THE LD. DEPARTMENTAL REPRESENTATIVE RELIED UPO N THE FINDINGS OF AO. THE LD. COUNSEL FOR THE ASSESSEE POINTED OUT THAT O N SIMILAR FACTS AND CIRCUMSTANCES IN THE ASSESSMENT YEAR 2002-03 WHEREI N THE MATTER TRAVELLED UP TO THE TRIBUNAL IN ASSESSEES OWN CASE AND THE I TAT HAD DELETED THE ADDITIONS MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF FOREIGN TRAVEL. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN ITA NO. 3338/M/06 IN ASSESSEES OWN CASE, THE GROUND RAISED BY THE REVEN UE IS DISMISSED . 6.2 WE FURTHER NOTE THAT THE FACTS IN THE YEAR UNDE R CONSIDERATION ARE IDENTICAL TO THE FACT FOR THE A.Y. 2007-08, THEREFO RE, FOLLOWING THE EARLIER ORDERS OF M/S ITI SECURITIES LIMITED 7 THIS TRIBUNAL WE DECIDE THIS ISSUE AGAINST THE REVE NUE AND IN FAVOUR OF THE ASSESSEE. 7. GROUND NO. 3 IS REGARDING DISALLOWANCE OF STT (S ECURITY TRANSACTION TAX) AS CAPITAL EXPENSES. 7.1 THE ASSESSEE HAS CLAIMED THAT THE AMOUNT PERTAI NED TO NON RECOVERY OF STT CHARGES DUE TO THE REASON THAT THE SAME CANNOT BE CHARGED TO THE CLIENTS AS THE TRANSACTIONS ON THEIR BEHALF WERE ENTERED INADV ERTENTLY. THE CIT(A) HAS DELETED THE ADDITION MADE BY THE AO ON THE GROUND T HAT AN IDENTICAL ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE FOR THE A.Y. 2007 -08. 7.2 WE HAVE HEARD THE LD. DR AS WELL AS LD. AR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE LD. AR OF THE ASSESSEE HAS RELIED UPON THE DECISION OF THIS TRIBUNAL IN THE CASE OF M/S A.K. EQUITIES PVT. LTD. VS. ITO IN ITA NO. 5720/MUM/2008, WHEREIN THE TRIBUNAL CONSIDERED THE RELEVANT PROVISIONS OF SECTION 40(A)(IB) AS WELL AS SECTION 88E AND FINANC E ACT 2004, WHEREBY THE SECURITY TRANSACTION TAX WAS BROUGHT ON STATUTE. AF TER CONSIDERING THE RELEVANT PROVISIONS, THE TRIBUNAL HAS HELD IN PARA 6 AS UNDE R:- 6. UNDER CLAUSE 98, CHARGE OF SECURITIES TRANSACTI ON TAX IS FASTENED ON PURCHASE/SALE OF EQUITY SHARES IN A COM PANY OR AN UNIT OF EQUITY ORIENTED FUND, AS WELL AS SALE OF DERIVATIVE AND SALE OF UNI TS. IT CLEARLY STATES THAT THE TAX IS PAYABLE EITHER BY THE PURCHASER OR THE SELLER. THE ASS ESSEE IN THIS CASE IS NEITHER THE PURCHASER NOR THE SELLER. HE IS MERELY A COLLECTING AGENT OF STT ON BEHALF OF THE GOVERNMENT. THUS THE ASSESSEE HAS BOTH COLLECTED TH E AMOUNT AND PAID THE SAME TO THE GOVERNMENT. THE ASSESSEE BEING A BROKER HAS NEITHER PURCHASED SHARES ON ITS OWN NOR SOLD SHARES ON ITS OWN. IT WAS ONLY AN INTERMEDIARY . THUS IN OUR CONSIDERED OPINION, SECTION 40(A)(IB) OF THE ACT DOES NOT GET ATTRACTED IN THIS CASE NOR SECTION 88E BENEFIT CAN BE EXTENDED TO THE ASSESSEE IN THIS CASE. ONLY WHEN THE PURCHASER OR THE SELLER CLAIMS A DEDUCTION OF STT PAID, THEN ONLY 40(A)(IB) IS ATTRA CTED. THE OBSERVATIONS OF THE LEARNED CIT(APPEALS) THAT THIS IS TAX PLANNING OR A COLOURA BLE DEVICE, IN OUR CONSIDERED OPINION, IS DEVOID OF MERIT. 7.3 FOLLOWING THE DECISION OF THE TRIBUNAL (SUPRA) WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. M/S ITI SECURITIES LIMITED 8 8.1 GROUND NO. 4 IS REGARDING DISALLOWANCE OF BAD D EBTS. 8.2 THE ASSESSEE CLAIMED BAD DEBTS OF RS. 4,44,30,6 90/- COMPRISING OF 1,51,71,170/- ON ACCOUNT OF BROKERAGE AND BALANCE 2,92,58,921/- O N ACCOUNT OF NON BROKERAGE DUES AGAINST THE CLIENTS. THE AO DISALLOWED THE CLAIM OF BAD DEBT WITH RESPECT TO THE NON BROKERAGE DUES FROM THE DEBTORS. ON APPEAL CIT(A) H AS ALLOWED THE CLAIM OF THE ASSESSEE BY FOLLOWING THE DECISIONS OF SPECIAL BENC H OF THIS TRIBUNAL IN THE CASE OF DCIT VS. SHREYAS S. MORAKHIA (131 TTJ 641). 8.3 BEFORE US, THE LD. DR HAS SUBMITTED THAT THE AO HAS DISALLOWED THE CLAIM OF BAD DEBTS ON THE GROUND THAT THE ASSESSEE FAILED TO EST ABLISH THAT THE AMOUNT OF BAD DEBTS CLAIMED BY THE ASSESSEE HAS ARRIVED AFTER REDUCING THE RECOVERIES FROM THE CLIENTS. HE HAS RELIED UPON THE ORDERS OF THE AO. 8.4 ON THE OTHER HAND THE LD. AR HAS SUBMITTED THAT CIT(A) HAS EXAMINED THE ENTIRE RECORD PERTAINING TO BAD DEBTS. HE HAS FURTHER SUBM ITTED THAT THE ASSESSEE WRITTEN OFF THE AMOUNT PERTAINING TO OUTSTANDING RECEIVABLES AFTER CONSIDERING THE SALE OF CLIENTS HOLDING AND THE CIT(A) AFTER VERIFICATION OF THIS FACT FROM THE RECORD ALLOWED THE CLAIM. HE HAS FURTHER SUBMITTED THAT THE DECISION OF SPECIAL BENC H OF THIS TRIBUNAL IN CASE OF SHREYASH S. MORAKHIA (SUPRA) HAS BEEN UPHELD BY THE HONBLE HIGH COURT IN 342 ITR 285. 8.5 HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD, WE NOTE THAT THE AO HAS DISALLOWED THE PART CLAIM OF T HE ASSESSEE ON THE GROUND THAT THE CLAIM SHOULD BE AFTER ADJUSTING ALL RECEIVABLES BY THE ASSESSEE AGAINST THE CLIENTS BY SALE OF HOLDINGS BY THE ASSESSEE BELONGING TO THE CLIENT S. THE AO RELIED UPON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. D.B . (INDIA) SECURITIES LTD. ( 318 ITR 26). WE FURTHER NOTE THAT THE ASSESSEE HAS MADE THE CLAIM THAT THE AMOUNT WRITTEN OFF BY THE ASSESSEE PERTAINING TO THE OUTSTANDING RECEIVAB LES AFTER CONSIDERING ANY SALE OF CLIENTS HOLDING AND THIS FACT HAS BEEN EXAMINED B Y THE CIT(A). IT WAS FOUND BY THE CIT(A) THAT THE AMOUNT OF RS. 2.92 CRORES WAS THE B ALANCE AFTER RECOVERIES FROM THE M/S ITI SECURITIES LIMITED 9 MARGIN MONEY/SHARES OF THE DEBTORS AND NOTHING HAS BEEN BROUGHT ON RECORD BY THE AO TO REBUT THE SAID CLAIM OF THE ASSESSEE. ACCORDINGL Y FOLLOWING THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. SH REYAS S. MORAKHIA (SUPRA) WE UPHOLD THE ORDER OF CIT(A) QUA THIS ISSUE. 9. FOR A.Y. 2009-10 THE ASSESSEE HAS RAISED THE ONL Y GROUND AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONBLE CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 46, 17,785/- U/S 14A ON ACCOUNT OF THE EXPENSES ATTRIBUTABLE TO EARNING THE EXEMPT INC OME. THE APPELLANT PRAYS THAT THE DISALLOWANCE OF RS. 46,17,785/- MAY KINDLY BE D ELETED AS THE SAME IS BAD IN LAW. 9.1 THE LD. AR OF THE ASSESSEE HAS SUBMITTED THAT T HE GRIEVANCE OF THE ASSESSE IS ONLY WITH RESPECT TO THE DISALLOWANCE OF INTERES T EXPENDITURE U/S 14A. THIS GROUND IS COMMON TO THE GROUND INVOLVED IN THE ASSE SSEES APPEAL FOR A.Y. 2008- 09. 9.2 WE HAVE HEARD THE LD. AR AS WELL AS LD. DR AND CONSIDERED THE RELEVANT MATERIAL ON REOCRD. WE NOTE THAT THE ASSESSEES OWN FUND IS MORE THAN THE INVESTMENT IN QUESTION. THE ASSESSEE HAS ALSO RAISE D AN ADDITIONAL PLEA THAT THE INTEREST RECEIVED BY THE ASSESSEE IS MORE THAT THE INTEREST PAID, THEREFORE, NO DISALLOWANCE COULD BE MADE ON ACCOUNT OF INTEREST E XPENDITURE U/S 14A. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE FO LLOWING DECISIONS:- (I) PARESH K. SHAH VS. DCIT CENTRAL CIRCLE 17 & 18 (ITA NO. 8214/MUM/2011) (II) ADDITIONAL CIT 1 (3) VS. WEIZMANN LIMITED ( ITA NO . 6008/MUM/2012) (III) SHRI HARSHAD F. SHETH VS. ITO-16(2)(2) ( ITA NO. 4 208/MUM/2011) M/S ITI SECURITIES LIMITED 10 9.3 THE DISALLOWANCE OF INTEREST EXPENDITURE IS NOT WARRANTED IN VIEW OF THE FACT THAT THE ASSESSEES OWN FUND IS MORE THAN THE INVESTMENT IN QUESTION AND FURTHER THE INTEREST RECEIVED BY THE ASSESSEE IS MO RE THAN THE INTEREST PAID DURING THE YEAR WHICH ALSO SUGGEST THAT THE ASSESSE ES OWN FUND WHICH HAS GENERATED THE INTEREST IS MORE THAN THE INVESTMENT IN QUESITION. AN IDENTICAL ISSUE HAS BEEN CONSIDERED BY THIS TRIBUNAL IN NO. O F CASES AS RELIED UPON BY THE ASSESSEE AND MENTIONED ABOVE. IN THE CASE OF PARESH K. SHAH VS. DCIT (SUPRA), THE TRIBUNAL HAS DECIDED AN IDENTICAL ISSUE IN PARA 5 TO 5.2 AS UNDER:- 5 HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD, WE FIND THAT THE ASSESSEES OWN FUNDS COMPRISING SH ARE CAPITALS RESERVES AND SURPLUS IS RS. 4,48,47,798/-, WHICH IS EQUIVALENT TO THE COS T OF INVESTMENT IN THE SHARES. FURTHER, THERE IS NO FRESH INVESTMENTS DURING THE YEAR UNDER CONSIDERATION AND ALL THESE INVESTMENTS WERE MADE IN THE EARLIER YEAR; THEREFOR E, THERE IS NO QUESTION OF UTILIZATION OF THE BORROWED FUNDS DURING THE YEAR UNDER CONSIDERAT ION. 5.1 IT IS PERTINENT TO NOTE THAT WHEN THE ASSESSING OFFICER HAD NOT MADE ANY DISALLOWANCE U/S 14A ON ACCOUNT OF INTEREST EXP ENDITURE IN THE EARLIER YEAR; THEREFORE, IN THE ABSENCE OF FRESH INVESTMENT DURING THE YEAR, NO DISALLOWANCE CAN BE MADE ON ACCOUNT OF INTEREST BY APPLYING THE PROVISIONS OF SEC. 14A. FURTHER, THE ASSESSEE EARNE D THE INTEREST INCOME OF RS. 42,17,981/- AGAINST THE INTEREST & BROKERAGE EXPENDITURE OF RS.30,79,450/- . THIS NET INTEREST EXPENDITURE OFFE RED TO TAX BY THE ASSESSEE IS ` 11,38,531/- WHICH SHOW THAT INTEREST INCOME IS MORE THAN THE INTEREST EXPENDITURE AND THEREFORE, IT CANNOT B E PRESUMED THAT BORROWED FUND WAS UTILISED FOR THE PURPOSE OF MAKIN G THE INVESTMENTS IN THE SHARES. 5.2 IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COU RT IN THE CASE OF COMMISSIONER OF INCOME-TAX V. RELIANCE UTILITIES AN D POWER LTD. REPORTED IN 313 ITR 340, WE ARE OF THE OPINION THAT NO DISALLOWANCE IS CALLE D FOR U/S 14A ON ACCOUNT OF INTEREST EXPENDITURE. 9.4 IN VIEW OF THE ABOVE FACT AND CIRCUMSTANCES OF THE CASE AS WELL AS VARIOUS DECISIONS OF THIS TRIBUNAL (SUPRA) WE HOLD THAT NO DISALLOWANCE IS CALLED FOR ON ACCOUNT OF INTEREST EXPENDITURE WHEN THE ASSESSEES OWN FUND IS SUFFICIENT TO SOURCE THE INVESTMENT IN QUESTION. M/S ITI SECURITIES LIMITED 11 10. IN THE RESULT APPEALS OF THE ASSESSEE ARE ALLOW ED WHEREAS THAT BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT TODAY I.E 07-05-2014 SD/- SD/- ( RAJENDRA ) ( VIJAY PAL RAO ) (ACCOUNTANT MEMBER/ YS[KK LNL; YS[KK LNL; YS[KK LNL; YS[KK LNL; ) (JUDICIAL MEMBER/ U;KF;D U;KF;D U;KF;D U;KF;D LNL; LNL; LNL; LNL; ) MUMBAI DATED 07 -05-2014 SKS SR. P.S, COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, I BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI