TMI Blog2012 (12) TMI 121X X X X Extracts X X X X X X X X Extracts X X X X ..... ee has to be verified whether the assessee has claimed the rebate in respect of any transaction on which no STT was paid. Subject to verification, the AO is directed to allow rebate in respect of Income-tax payable on the income from taxable securities transactions reckoned at average rate of tax payable or securities transaction tax, whichever is lower Disallowance made under sec. 14A of the Act – Held that:- AO can make disallowance under sec. 14A if there is a direct nexus between the expenditure incurred and the exempt income - AO has made disallowance under Rule 8D which is not applicable for the year under consideration - AO was not justified in invoking the provisions of Rule 8D of the Income-tax Rules. As regards estimation of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... implying that no STT was paid on such transactions. The assessee suffered losses on shares where STT was paid. To a query as to why STT rebate under sec. 88E should not be disallowed, no reply was submitted. The Assessing Officer had mentioned in the order that the learned Authorized Representative of the assessee agreed to said disallowance. Accordingly, the Assessing Officer made disallowance of rebate claimed by the assessee. 2. Before the CIT(A) it was submitted that the assessee paid total STT of Rs.16,79,205/-. Out of this, Rs.1,10,668/- was paid on behalf of the clients and the assessee never claimed the said amount as rebate. Out of the balance payment of STT at Rs.15,68,537/- (Rs.16,79,205 1,10,668), the assessee had not claime ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rebate of Rs.12,39,128/- should be allowed under sec. 88E and not Rs.16,79,205/- which was the entire STT paid and not STT claimed under sec. 88E of the Act. 4. Before us, learned Sr. DR submitted that the profit from STT transactions is at Rs.41,58,232/-. However, learned CIT(A) has gone wrong in restricting the disallowance of Rs.4,70,561/- as against Rs.16,79,205/- which was disallowed by the Assessing Officer on the ground that STT transactions details were not furnished. Ld. Sr. DR also submitted that the Assessing Officer in the assessment order has stated that the assessee had earned income on scrips which were not listed on Stock Exchange or traded in securities before those were listed thereby implying that no STT was paid on tho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions tax in the prescribed form. Second Proviso to sec. 88E(1) provides that amount of deduction under this section shall not exceed the amount of income-tax on such income computed in the manner provided in sub-sec.(1) of sec. 88E of the Act. From the language of sec. 88E(1) it is clear that rebate is to be allowed from the amount of income-tax and not from the securities transaction tax paid by the assessee. Sub-sec. (2) of sec. 88E prescribes the computation of relief, which requires the following steps to be followed: (a) Income-tax payable on the income from taxable securities transaction reckoned at average rate of tax payable. (b) Securities transaction tax. The relief will be lesser of (a) and (b) as above. In the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vs. DCIT (2010) 328 ITR 81 and submitted that Rule 8D is not applicable for Assessment Year prior to Assessment Year 2008-09. The ld. CIT(A) on consideration of facts held that in view of decision of Hon ble Bombay High Court in the case of Godrej Boyce Mfg. Co. Ltd. (supra) held that disallowance made by the AO under Rule 8D was not sustainable. However, ld. CIT(A) restricted the disallowance to the extent of 10% of dividend income i.e. Rs.43,419/-. Ld. CIT(A) therefore, allowed relief of Rs.39,268/- and confirmed the disallowance of Rs.43,179/-. 8. Aggrieved by the order of CIT(A), the Revenue is in appeal against restricting the disallowance to the extent of Rs.43,179/- whereas the assessee is in cross objection against sustaining t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the Assessment Year 2007-08 which is under consideration. Therefore, the AO was not justified in invoking the provisions of Rule 8D of the Income-tax Rules. As regards estimation of disallowance @ 10% of exempt income, learned CIT(A) has estimated disallowance on ad hoc basis without establishing any nexus between the expenditure incurred and the exempt income. Since neither the AO nor the ld. CIT(A) has examined any nexus between the exempt income and expenditure incurred, we feel it proper to set aside the issue to the file of the Assessing Officer with the directions that he will call for necessary details and examine whether there is any nexus between the exempt income and expenditure. The expenditure having nexus with the exempt inc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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