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M/s Satco Capital Markets Ltd (Formerly Known As Securities And Financial Services Ltd) Versus Asstt. Commissioner of Income Tax

2015 (6) TMI 879 - ITAT MUMBAI

Disallowance made u/s 14A r.w.r 8D - Held that:- As relying on case of DCIT V/s Damani Estates and Finance Pvt. Ltd [2013 (8) TMI 457 - ITAT MUMBAI] we direct the assessing officer to restrict the disallowance to be made under Rule 8D(2)(ii) of the IT Rules to 20% of the amount computed under that Rule in respect of Shares held as ‘’stock in trade’’. The disallowance to be made under Rule 8D(2)(ii) in respect of Shares held as investment has to be computed in accordance with Rule 8D(2)(ii) only. .....

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the perusal of the submissions made by the assessee, it appears that there was a dispute between the assessee and land lord with regard to the quantum of rent. When the quantum of rent was finally settled between the parties, the arrear rent was deducted by the Land lord against the Rent deposit. Accordingly, the assessee has transferred the amount so deducted from the Rent deposit account to Rent expenditure account. We notice that, the tax authorities, without appreciating these factual aspect .....

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avour of assessee for statistical purposes.

Disallowance of retention money retained from sub-brokerage - Held that:- The liability is determined on the basis of contract between the assessee and the sub-brokers and accordingly, the assessee seems to have claimed the above said amount as expenditure. However, while making actual payment, the assessee has retained a part of liability as contingency fund in order to cover up possible bad debts. Thus, it is seen that the assessee has ret .....

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e income shown in the books of account and that shown in the service tax return - Held that:- Difference is a matter of reconciliation. If the assessee is able to show the mistake that occurred in the service tax return vis-ŕ-vis the books of account, this addition is not warranted. However, the assessee has failed to furnish any reconciliation statement or failed to show the mistake occurred in preparation of service tax return. Hence, we have no other option, but to confirm this addition.- Dec .....

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ce of irrecoverable amounts written off of. c) Addition of retention money retained from sub-brokerage d) Disallowance of difference in Service Tax. 3. Facts of the case are stated in brief. The assessee is engaged in Securities Broking business. The first issue relates to disallowance of made under section 14A of the Act. The assessee had received tax free dividend income of ₹ 2,00,745/- and it had made a disallowance of ₹ 1,50,696/- u/s 14A of the Act. The AO noticed that the asses .....

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worked out to ₹ 2,14,276/-. Accordingly, the AO made further addition of ₹ 63,580/- (Rs.2,14,276 - ₹ 1,50,696) u/s 14A of the Act. In the appellate proceedings, the ld.CIT(A) also confirmed the same. 4. Before us, the Ld A.R submitted that the assessing officer was not correct in including the value of shares held as "stock in trade" for computing the Average value of investments. However, we notice that an identical issue was considered by a Co-ordinate Bench of the .....

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enditure in r. 8D(2)(ii), however, presents a problem in a case as the instant case. This is as the sub-rule, as would be readily seen, seeks to quantify the interest on the investments, income from which is not taxable, on a proportionate basis, and which though is not only understandable, but is as appropriate and justifiable as a general formula could be. However, in the instant case, shares, which yield the tax exempt dividend income, interest qua which is to be disallowed, being held as sto .....

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o be scaled down, bifurcating the expenditure so arrived at between these two incomes. As regards the ratio of such scaling down, no hard and fast rule for the purpose would hold, each fact situation being different. However, considering that the dominant objective of the share holding, which in our view should be dispositive of the matter, is the share trading income, we propose a ratio of 20% toward the tax-exempt dividend income. One could argue that the percentage suggested by us is ad hoc o .....

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ention that though the average share-holding may be the same, the share composition, in view of the share trading activity, would vary continuously; the turnover for a year being easily in the range of 4 to 5 times the average shareholding. Accordingly, in arriving at the disallowance u/r. 8D, the amount as per r. 8D(2)(ii) qua shares held as stock-in-trade would stand to be restricted to 20% thereof. As regards the legal mandate for the adjustment aforesaid, we have already clarified of the man .....

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also violate the principle of only the net income (from any source) being subject to tax inasmuch as disallowance of the total interest as per r. 8D(2)(ii) would in effect bring the share trading income to tax without deduction of the interest expenditure allocable or attributable thereto. Needless to add that no adjustment would arise in respect of shares held as 'investments', so that the two parts would need to be separately computed, which is otherwise manifest in the computation its .....

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ii), the Co-ordinate bench has taken the view that the shares held as stock in trade should also be included in computing the Average value of investments. Hence, no interference is called for in the computation made by the AO under Rule 8D(2)(iii). In view of the above, the order of Ld CIT(A) shall stand modified in accordance with the discussion made supra. The assessing officer is accordingly directed to recompute the disallowance in terms of discussion made supra. 5. The next issue relates t .....

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holding the same as capital loss. The Ld CIT(A) also confirmed the same. 6. Before us, the Ld A.R placed reliance on the order dated 28-02-2007 passed by the co-ordinate bench in the case of Kanoria Securities & Financial Services (P) Ltd in ITA No.6292/Mum/2003 to contend that the claim of the assessee is allowable. From the perusal of the submissions made by the assessee, it appears that there was a dispute between the assessee and land lord with regard to the quantum of rent. When the qua .....

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was only adjustment of part of rent deposit towards arrear rent. However, the factual details relating to rent arrear, dispute and adjustment of rent deposit have not been examined by the tax authorities. Accordingly, we set aside the order of Ld CIT(A) on this issue and restore the same to the file of the assessing officer with the direction to examine this issue afresh. The assessee is also directed to furnish all the relevant documents to substantiate its claim on this issue. 7. The next issu .....

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ity pertaining to the amount retained by the assessee did not accrue and accordingly disallowed the amount of ₹ 9,56,564/- referred above. The Ld CIT(A) also confirmed the same. 8. We have heard the parties on this issue and perused the record. It is a fact that the assessee has claimed a sum of ₹ 1,61,41,616/- as subbrokerage/ commission income. The liability is determined on the basis of contract between the assessee and the sub-brokers and accordingly, the assessee seems to have c .....

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