CHIMANLAL MANEKLAL SECURITIES P.LTD, MUMBAI V. ASST CIT 4(1), MUMBAI

ITA 705/MUM/2012

• Counselvise Citation: 70519914 RSA 2012
• Duration Of Justice: 1 year(s) 6 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-08-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 31-07-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 02-02-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: R A
• Assessee Lawyers: MANDAR VAIDYA IZRFKHZ DH LS
• Keywords: Business income; Earning of tax free income
• Section: 14A

Judgement Text

M/S CHIMANLAL MANEKLAL SECURITIES PVT. LTD. M/S CHIMANLAL MANEKLAL SECURITIES PVT. LTD. M/S CHIMANLAL MANEKLAL SECURITIES PVT. LTD. M/S CHIMANLAL MANEKLAL SECURITIES PVT. LTD. . - 1 - VK;DJ VIHYH; VF/KDJ.K LH U;K;IHB EQACBZ ESAA VK;DJ VIHYH; VF/KDJ.K LH U;K;IHB EQACBZ ESAA VK;DJ VIHYH; VF/KDJ.K LH U;K;IHB EQACBZ ESAA VK;DJ VIHYH; VF/KDJ.K LH U;K;IHB EQACBZ ESAA IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUM BAI JH JKTSUNZ FLAG YS[KK LNL; ,OA JH LAT; XXZ U;KF;D LNL; DS LE{K JH JKTSUNZ FLAG YS[KK LNL; ,OA JH LAT; XXZ U;KF;D LNL; DS LE{K JH JKTSUNZ FLAG YS[KK LNL; ,OA JH LAT; XXZ U;KF;D LNL; DS LE{K JH JKTSUNZ FLAG YS[KK LNL; ,OA JH LAT; XXZ U;KF;D LNL; DS LE{K BEFORE SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER AND SHRI SANJAY GARG JUDICIAL MEMBER VK; VK;VK; VK;DJ VIHY LA[;K DJ VIHY LA[;K DJ VIHY LA[;K DJ VIHY LA[;K /ITA NO.705/MUM/2012 FU/KKZJ.K O'KZ FU/KKZJ.K O'KZ FU/KKZJ.K O'KZ FU/KKZJ.K O'KZ @ @@ @ ASSESSMENT YEAR:- 2008-09 M/S CHIMANLAL MANEKLAL SECURITIES PVT. LTD. A-11, RAJABAHADUR BUILDING 45, M.P. SHETTY MARG FORT MUMBAI:- 400023. CUKE@ VS. ASSISTANT COMMISSIONER OF INCOME TAX -4(1) ROOM NO. 640, 6 TH FLOOR, AAYAKAR BHAVAN M.K. ROAD MUMBAI;- 400020 PAN:- AAACC1892P VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VIHYKFKHZ DH VKSJ LS @ APPELLANT BY SHRI MANDAR VAIDYA IZR;FKHZ DH VKSJ LS @ RESPONDENT BY SHRI R.A PANT VKNS'K@ ORDER PER RAJENDRA SINGH, AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 9.11.11 OF CIT(A) FOR THE ASSESSMENT YEAR 2008-09. THE ASSESSE E IN THIS APPEAL HAS RAISED DISPUTES ON TWO DIFFERENT GROUNDS WHICH RELATE TO D ISALLOWANCE OF EXPENSES U/S 14A AND COMPUTATION OF REBATE U/S 88E OF THE INCOME TAX ACT. 2. WE FIRST TAKE UP THE DISPUTE RELATING TO DISALLO WANCE OF EXPENSES U/S 14A. AO NOTED THAT THE ASSESSEE HAD RECEIVED DIVIDE ND INCOME OF RS. 1904741/-. THE AO, THEREFORE, ASKED THE ASSESSEE TO EXPLAIN AS TO WHY EXPENSES RELATING TO DIVIDEND INCOME SHOULD NOT BE DISALLOWED. THE ASSESSEE SUBMITTED THAT IT HAD NOT INCURRED ANY EXPENDITURE RELATING TO EXEMPT INCOME. AO HOWEVER OBSERVED THAT THE ASSESSEE USED THE INFR ASTRUCTURE AVAILABLE LQUOKBZ DH RKJH[K@ DATE OF HEARING 31-7-2013 ?KKS'K.KK DH RKJH[K@ DATE OF PRONOUNCEMENT 7-8-2013 M/S CHIMANLAL MANEKLAL SECURITIES PVT. LTD. M/S CHIMANLAL MANEKLAL SECURITIES PVT. LTD. M/S CHIMANLAL MANEKLAL SECURITIES PVT. LTD. M/S CHIMANLAL MANEKLAL SECURITIES PVT. LTD. . - 2 - INCLUDING THE EMPLOYEES FOR EARNING THE DIVIDEND IN COME. HE THEREFORE DID NOT ACCEPT THE CLAIM OF THE ASSESSEE AND PROCEEDED TO M AKE DISALLOWANCE AS PER RULE 8D, WHICH CAME T RS. 318951/-. THE AO HAS NOT DISALLOWED ANY INTEREST BUT DISALLOWANCE HAD BEEN MADE ONLY IN RESPECT OF O FFICE EXPENSES AS PROVIDED UNDER RULE AT THE RATE OF .5% ON AVERAGE INVESTMENT S. IN APPEAL CIT(A) CONFIRMED THE ORDER OF AO, AGGRIEVED BY WHICH THE A SSESSEE IS IN APPEAL BEFORE TRIBUNAL. 3. WE HAVE HEARD BOTH THE PARTIES PERUSED THE RECOR DS AND CONSIDERED MATTER CAREFULLY. THE DISPUTE IS REGARDING DISALLOW ANCE OF EXPENSES IN RELATION TO EXEMPT INCOME. THERE IS NO DISPUTE THAT RULE 8D IS APPLICABLE FROM ASSESSMENT YEAR 2008-09 WHICH IS UNDER CONSIDERATIO N. THE AO HAS COMPUTED THE DISALLOWANCE AS PER RULE 8D. THE AO HAS NOT DIS ALLOWED ANY INTEREST EXPENDITURE AND THE DISALLOWANCE HAS BEEN MADE ONLY TOWARDS ESTABLISHMENT EXPENSES AT THE RATE OF .5% ON AVERAGE INVESTMENTS WHICH GAVE THE DISALLOWANCE OF RS. 3,18,951/-. THE LEARNED AR FOR THE ASSESSEE SUBMITTED THAT THE DISALLOWANCE IS EXCESSIVE. HOWEVER WE NOTE THAT THE AVERAGE INVESTMENT IS RS. 6.37 CRORE. THIS INVESTMENT REQUIRES PROPER MONITOR ING AND SUPERVISION BY SENIOR OFFICERS AS WELL AS USE OF INFRASTRUCTURE FA CILITIES FOR ACCOUNTING ETC. THE EXPENDITURE DISALLOWED COMES TO ABOUT RS. 25,000/- PER MONTH WHICH IN OUR VIEW IS REASONABLE. IN ANY CASE THE DISALLOWANCE HA S BEEN MADE AS PER PRESCRIBED RULE. WE, THEREFORE, SEE NO INFIRMITY IN THE ORDER OF CIT(A) IN CONFIRMING THE DISALLOWANCE AND THE SAME IS THEREFO RE UPHELD. 4. THE SECOND DISPUTE IS REGARDING COMPUTATION OF R EBATE U/S 88E OF THE INCOME TAX ACT. AS PER THE PROVISIONS OF SECTION 88 E, WHERE TOTAL INCOME OF THE ASSESSEE INCLUDES BUSINESS INCOME ARISING FROM TAXA BLE SECURITIES THEN THE ASSESSEE IS ENTITLED FOR DEDUCTION OF INCOME TAX ON SUCH BUSINESS INCOME ARISING FROM SUCH SECURITY TRANSACTIONS AND THE DED UCTION HAS TO BE COMPUTED BY APPLYING AVERAGE RATE OF INCOME TAX ON SUCH BUSI NESS INCOME. THE ASSESSEE HAD ADOPTED THE AVERAGE RATE OF 33.99%. THE AO HOWE VER ADOPTED THE AVERAGE RATE OF 27.97%. HE COMPUTED THE AVERAGE RATE ON THE BASIS OF TOTAL TAX PAYABLE ON THE TOTAL INCOME OF THE ASSESSEE DETERMINED FOR THE YEAR. THE ASSESSEE WHILE COMPUTING THE INCOME FROM SHARING TRANSACTION HAD A LLOCATED COMMON M/S CHIMANLAL MANEKLAL SECURITIES PVT. LTD. M/S CHIMANLAL MANEKLAL SECURITIES PVT. LTD. M/S CHIMANLAL MANEKLAL SECURITIES PVT. LTD. M/S CHIMANLAL MANEKLAL SECURITIES PVT. LTD. . - 3 - EXPENSES AT THE RATE OF 10%. THE ASSESSEE IN ADDITI ON TO COMMON TRADING WAS ALSO DOING TRANSACTION ON BEHALF OF CLIENTS. THE AO NOTED THAT TURNOVER OF THE ASSESSEE IN RESPECT OF COMMON TRADING WAS RS. 1726. 75 CRORE. HE ALSO NOTED THAT THE ASSESSEE HAD SHOWN BROKERAGE INCOME OF RS. 1.34 CRORE IN RESPECT OF CLIENT BUSINESS. HE, THEREFORE, ALLOCATED 40% OF TH E COMMON EXPENSES TOWARDS THE TRADING INCOME AND THUS COMPUTED THE INCOME FRO M SHARE TRADING AT RS. 1,45,72,307/- AGAINST THE INCOME OF RS. 1,67,22,941 /-. CLAIMED BY THE ASSESSEE. 5. IN APPEAL CIT(A) HELD THAT THE AO HAD CORRECTLY COMPUTED THE AVERAGE RATE OF TAX ON THE BASIS OF TOTAL TAX PAYABLE TO TO TAL INCOME DECLARED BY THE ASSESSEE. AS REGARDS THE ALLOCATION OF COMMON EXPEN SES CIT(A) OBSERVED THAT RATIO OF PROPRIETARY TRADE INCOME OF THE BROKERAGE INCOME WAS 1: .4. CIT(A) THEREFORE OBSERVED THAT ONLY 40% OF EXPENSES SHOUL D HAVE BEEN ALLOCATED TO BROKERAGE INCOME AND 60% TOWARDS TRADING INCOME. TH E AO, THEREFORE, WAS MORE THAN REASONABLE. CIT(A), THEREFORE CONFIRMED T HE ORDER OF AO. AGGRIEVED BY THE DECISION OF CIT(A) THE ASSESSEE IS IN APPEAL BE FORE TRIBUNAL. 6. WE HAVE HEARD BOTH THE PARTIES PERUSED THE RECOR DS AND CONSIDERED MATTER CAREFULLY. THE ASSESSEE ADVANCED THE SAME SU BMISSION AS MADE BEFORE LOWER AUTHORITIES. WE FIND THAT THE AVERAGE RATE OF INCOME TAX APPLIED BY THE AUTHORITIES BELOW HAS BEEN COMPUTED ON THE BASIS OF TOTAL TAX PAYABLE DIVIDED BY TOTAL INCOME. THE AVERAGE RATE HAS BEEN COMPUTED CORRECTLY AND, THEREFORE, WE DO NOT FIND ANY ERROR IN THE ORDERS. AS REGARDS THE ALLOCATION OF EXPENSES, WE FIND THAT TRADING TURNOVER OF THE ASSESSEE WAS 1726 .75 CRORE. THE ASSESSEE HAD EARNED BROKERAGE INCOME OF RS. 1.34 CRORE. THE LEAR NED AR FOR THE ASSESSEE SUBMITTED THAT THE BROKERAGE HAD BEEN CHARGED AT TH E RATE OF 1% WHICH MEANS THE TURNOVER OF THE CLIENT BUSINESS WAS RS. 1340 CR ORE. THEREFORE, EVEN IF WE COMPUTE THE ALLOCATION EXPENSES IN THE RATIO OF TUR NOVER OF TWO BUSINESS, ALLOCATION OF EXPENSES TOWARDS THE TRADING BUSINESS WILL COME TO MORE THAN 50%. THE AO HAS ALLOCATED 40% OF COMMON EXPENSES TO WARDS THE TRADING BUSINESS WHICH IS QUITE REASONABLE. WE, THEREFORE S EE NO INFIRMITY IN THE ORDER OF CIT(A) CONFIRMING THE ORDER OF AO AND THE SAME I S ACCORDINGLY UPHELD. M/S CHIMANLAL MANEKLAL SECURITIES PVT. LTD. M/S CHIMANLAL MANEKLAL SECURITIES PVT. LTD. M/S CHIMANLAL MANEKLAL SECURITIES PVT. LTD. M/S CHIMANLAL MANEKLAL SECURITIES PVT. LTD. . - 4 - 7. IN THE RESULT APPEAL OF THE ASSESSEE IS DISMISSE D. ORDER PRONOUNCED ON 7-8-2013 SD/- SD/- (SANJAY GARG) (RAJENDRA SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER SKS SR. P.S, MUMBAI DATED 7.8.2013 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, C BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI