TMI Blog2013 (10) TMI 546X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the tax at source under section 194J of the Act and consequently, no action could be taken under section 40(a)(ia) of the Act - Following decision of Commissioner of Income-tax - 4(3) Versus Kotak Securities Ltd. [2011 (10) TMI 24 - Bombay High Court] - Decided in favour of assessee. Disallowance of penalty u/s 37 of the Act - Business expenditure - Held that:-penalty/payments made by the Assessee to the Stock Exchange for violation of their regulation, being risk management oriented, are not an account of an offence which is prohibited by law.Hence, the invocation of explanation to section 37 is not justified - Following decision of CIT Vs M/s. Stock and Bond Trading Co. [2011 (10) TMI 172 - BOMBAY HIGH COURT] - Decided against Revenue. Disallowance u/s 14A - Held that:- A perusal of the balance sheet of the assessee as exhibited at page-1 of the paper Book supports the contention of the Counsel that assessee has sufficient own funds to cover up the investments - where both own funds and loan funds are available with the assessee, the presumption is that the investment is made out of own funds - Following decision of The Commissioner of Income Tax Versus Reliance Utilitie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as not pressed. 3. Ground No. 1 relates to disallowance u/s. 14A at Rs. 24,66,986/- as against Rs. 1,27,335/- computed by the assessee. 4. The assessee is a share and stock broker. During the course of the scrutiny assessment proceedings, the Assessing Officer observed that the assessee has received dividend income of Rs. 79.20,978/- which is claimed as exempt u/s. 10(34) of the Act. The AO further noticed that the assessee has allocated an amount of Rs. 1,27,355/- only in earning the dividend income. The AO sought explanation from the assessee as to why expenditure incurred earning the dividend income should not be disallowed u/s. 14A r.w. Rule 8D. 4.1. In response, the assessee filed a detailed reply dt. 23.10.2009 and submitted that assessee has already disallowed a sum of Rs. 1,27,355/- in the computation of income therefore, no further expenditure needs to be disallowed. Interest debited to profit and loss account relates to banks for trading in debt securities. The assessee further explained that bank facilities were allowed to be taken only against debt securities and can only be utilized against purchase of debt securities. The assessee further submitted that even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2). Disallowance of the addition of Rs. 38,51,983/- made u/s. 14A r.w. Rule 8D of the Act by AO. (3). Deletion of the addition made on account of penalty of Rs. 53,010/- on violation of the bye-laws of the stock exchange. 11. So far as first grievance is concerned, it is now well settled that provisions of TDS are not applicable so far as VSAT and Leaseline charges paid to Mumbai Stock Exchange are concerned as held by Hon'ble Jurisdictional High Court in the case of CIT Vs M/s. Stock and Bond Trading Co. in ITA No. 4117 of 2010 and so far as transaction charges are concerned, the Hon'ble Jurisdictional High Court in the case of Kotak Securities Ltd 340 ITR 333 has held that liability of TDS exists u/s. 194J in respect of transaction charges only. (i) that the assessee was liable to deduct tax at source before crediting the transaction charges to the account of the stock exchange. (ii) That though section 194J was inserted with effect from July 1, 1995, till the assessment year in question that is assessment year 2005-06 both the Revenue and the assessee proceeded on the footing that section 194J was not applicable to the payment of transaction charges and accordingly, during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e expenditure incurred earning the dividend income should not be disallowed u/s. 14A r.w. Rule 8D. The assessee explained that it has already disallowed a sum of Rs. 1,75,883/- in the computation of income therefore no further expenditure need to be disallowed u/s. 14A of the Act. The assessee further explained that the interest expenditure debited in the Profit and loss account relates to interest paid to banks for trading in debt securities. 17.1. The assessee strongly submitted that the bank facilities were allowed to be taken only against debt securities and can only be utilized against purchase of debt securities. The assessee further explained that for the year under consideration, it has earned interest income on such debt securities amounting to Rs. 7,47,26,425/- and has also earned profit on purchase and sale of debt securities at Rs. 9,51,45,792/- in effect there is a profit of Rs. 3,44,35,470/- in debt securities after considering interest expenditure. Thereafter the assessee gave the working of the disallowance as per Rule 8D and computed the disallowance at Rs. 39,19,175/-. It was explained that since assessee has already disallowed a sum of Rs. 1,75,883/- if at all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and perused the orders of the lower authorities and the material evidences brought on record. A perusal of the balance sheet of the assessee as exhibited at page-1 of the paper Book supports the contention of the Counsel that assessee has sufficient own funds to cover up the investments. The Hon'ble Jurisdictional High Court in the case of CIT Vs Reliance Utilities Power ltd., 313 ITR 340 has held that where both own funds and loan funds are available with the assessee, the presumption is that the investment is made out of own funds. Respectfully following the decision of the Hon'ble Jurisdictional High Court, in our considerate view, the disallowance as computed by the assessee under Rule 8D at Rs. 39,19,175/- should meet the ends of justice. We, accordingly direct the AO to recomputed the disallowance as done by the assessee after giving a rebate of Rs. 1,75,883/- which has already been disallowed by the assessee in its computation of income. 23. In the result, the appeal filed by the Revenue is partly allowed. ITA No. 456/M/2012 - Assessee's appeal 24. The first ground relates to disallowance of mark to mark loss on derivatives of Rs. 5,96,510/- holding the loss as "not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the Supreme Court governs the facts of the present case. It is to the assessee's strength that the Institute of Chartered Accountants of India in its guidelines have also approved of the rule of prudence which really means that while anticipated losses can be taken note of while valuing the closing stock, anticipated profits cannot be recognized. The anticipated loss, in the light of the judgment of the Supreme Court cited above, cannot be treated as a contingent liability." Respectfully following the above judicial decision, ground No. 1 is allowed. 27. Since we have allowed ground No. 1, grievance raised in ground No. 2 become otiose. 28. The issue raised in ground No. 3 are identical to the issue raised by the Revenue in its appeal vide ground No. 1. As we have partly allowed this grievance of the Revenue, this ground of the appeal is accordingly disposed off in similar lines and for similar reasons. This ground is partly allowed. 29. Ground No. 4 become otiose vide decision as per ground No. 1. 30. In the result, the appeal filed by the assessee is partly allowed. 31. To sum up the appeals filed by the assessee as well as the Revenue is partly allowed. Order ..... X X X X Extracts X X X X X X X X Extracts X X X X
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