TMI Blog2015 (11) TMI 1013X X X X Extracts X X X X X X X X Extracts X X X X ..... le 8D of the Rules, satisfaction of the AO about the correctness of the accounts of the assessee is necessary - Decided in favour of assessee. Disallowance in respect to those unsold shares which have yielded dividend - Held that: - As the assessee undisputedly dealing in the shares and securities as admitted by AO itself while mentioning the nature of business as “dealing in shares and securities”. This earning of dividend on such shares is merely incidental to such business activities. Accordingly, on this aspect also the assessee succeeds. Hence, this issue of assessee’s CO is allowed and revenue’s ground is dismissed. - Decided in favour of assessee. Rebate u/s. 88E - CIT(A) restricted the rebate - whether the rebate u/s. 88E of the I. T. Act should be allowed after allocating expenses and after deducting the full amount of the STT paid? - Held that:- CIT(A) required the assessee to give calculation of the turnover in different business segments and found that the turnover of share business segment to the gross turnover was 5.87% under the head own business turnover in term of % of total turnover. Therefore CIT(A) apportioned the expenses on share segments and some of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at on the facts and in the circumstances of the case, Ld. CIT(A) erred in law in deleting the disallowance of ₹ 11,47,078/- made u/s. 14A of the I. T. Act and the order of the CIT(A) should be set aside and the order of the Assessing Officer should be restored. Assessee s ground: 2. For that the Ld. CIT(A) erred in confirming the addition of ₹ 27,235/- as expenses related to the earning of exempted income when the Ld. AO did not record any satisfaction about the correctness of the claim of the assessee and in any case the disallowance retained by the Ld. CIT(A) is excessive. 4. Briefly stated facts are that the AO during the course of assessment proceedings noticed from the accounts of the assessee that it has earned exempt income i.e. dividend income of ₹ 2,73,349/- but has not disallowed any expenditure in regard to this income u/s. 14A of the Act read with Rule 8D of the Rules. The AO made disallowance of inadmissible expenses of depository charges of ₹ 3,76,973/-, disallowance of interest relatable to exempt income at ₹ 6,02,009/- and % of average value of investment at ₹ 1,68,096/-. Accordingly, he made disallowance at &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee. However, there are expenses which cannot be quantified exactly but by estimation 10% of the exempted income is disallowed as expenses pertaining to earning of dividend (exempted) income. Therefore, the disallowance of ₹ 27,235/- for earning dividend of ₹ 2,72,349/- is upheld. The appeal of the assessee is partly allowed on this ground. Aggrieved, now assessee and revenue both are in appeal before Tribunal. 5. At the outset, Ld. Counsel for the assessee argued that there is no satisfaction recorded by the AO for application of provisions of section 14A of the Act read with Rule 8D of the Rules. Ld. Counsel for the assessee stated that the AO has disallowed the sum of ₹ 11,47,078/- by mechanically calculating the figures solely on the basis of formula prescribed under Rule 8D of the Rules and CIT(A) reduced the same to ₹ 27,235/- of exempt income @ 10% of the exempt income holding that the provisions of section 14A of the Act read with Rule 8D of the Rules are not applicable but estimated disallowance is to be made. Ld. Counsel for the assessee stated that this position is stated in the order of Coordinate Bench of this Tribunal in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch does not form or shall not form part of the total income as appearing in the balance-sheet as on the first day and in the last day of the previous year. Here the AO has taken into consideration the investment of ₹ 103 crores made this year, which has not earned any dividend or exempt income. It is only the average of the value of the investment from which the income has been earned which is not falling within the part of the total income that is to be considered. This is why the question of satisfaction is provided in section 14A and rule 8D(1), that relates to the accounts of the assessee . Thus, it is not the total investment at the beginning of the year and at the end of the year, which is to be considered but it is the average of the value of investments which has given rise to the income which does not form part of the total income which is to be considered. A question may arise as to why the term average of the value of investment is then used. The term average of the value of investment would be to take care of cases where there is the issue of dividend striping. In any case, as we have already held that the assessee has not incurred any expenditure by way of int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntention of earning dividend income and the dividend income is incidental to its business of sale of shares, which remained unsold by the assessee, it cannot be said that the expenditure incurred in acquiring the shares has to be apportioned to the extent of dividend income and that should be disallowed from deductions. In that view of the matter, the approach of the authorities is not in conformity with the statutory provisions contained under the Act. Therefore, the impugned orders are not sustainable and require to be set aside. Similar are the facts of the present case before us that the assessee undisputedly dealing in the shares and securities as admitted by AO itself while mentioning the nature of business as dealing in shares and securities . This earning of dividend on such shares is merely incidental to such business activities. Accordingly, on this aspect also the assessee succeeds. Hence, this issue of assessee s CO is allowed and revenue s ground is dismissed. 8. The next common issue in this appeal of revenue and that of the Cross Objection of the assessee is as regards to the order of CIT(A) in restricting the rebate u/s. 88E of the Act to the extent of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e observations of the Assessing Officer in the assessment order and written submissions of the assessee. The Assessing Officer has calculated rebate u/s. 88E of the Income-tax Act, 1961, by taking the net income from STT transactions at an amount of ₹ 10,70,66,490/- and reduced the gross income shown under the head 'brokerage, dividend and interest' amounting to ₹ 75,46,819/-. In this manner, the Assessing Officer has calculated that the income relating to STT transactions amounts to ₹ 5,95,19,671/- only. The assessee, on the other hand, submitted that the entire expenditure of the P/L A/c thereby has been deducted from the income relating to STT transactions. He has submitted that the expenses are to be apportioned from the gross income originating to the assessee from brokerage and share transactions business of the assessee including F O. It is right that the expenses in the P/L A/c are incurred for earning of the al1 the three types of income i.e., brokerage, share trading and interest. Since dividend is of a very small amount and the expenses for earning interest income are minimal, therefore, the expenses are to be apportioned among the income earned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 8,98,99,270/- STT Paid ₹ 3,32,34,833/- 30% of income from STT relating transaction ₹ 2,69,69,781/- Aggrieved, revenue as well as assessee both came in appeal before Tribunal. 10. We have heard rival submissions and gone through facts and circumstances of the case. Admittedly, assessee is a dealer in shares having large turnover in business of brokerage. The assessee is a registered broker with NSE. The AO while computing the income from different business segments apportioned the business expenses on the basis of proportionate income under different business segments and accordingly, computed the income from operations for the purpose of determining income from share business segments for the purpose of computation of rebate u/s. 88E of the Act. Further, CIT(A) restricted rebate u/s. 88E of the Act after apportioning the expenses as noted above (the findings of CIT(A) are reproduced as it is). We find that the CIT(A) required the assessee to give calculation of the turnover in different business segments and found that the turnover of share business s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contained in sub- section(5), which mandates that the same have to be computed as if eligible business was the only source of income of the assessee during the previous year. Seen in this context, if certain expenses incurred by head office lead to benefit to the eligible business also, the expenses will have to be apportioned to it. This has not been done. Therefore, such an apportionment was necessary to work out eligible profits for deduction. The assessee has not furnished unit-wise details with narration to find out which expenses could be allocated to eligible business from the head office. In absence thereof, the ld. CIT(Appeals) correctly came to the conclusion that common expenses have to be allocated to the eligible business in the ratio of turnover of the eligible business to the total turnover. He has also adequately justified the reasons for calculating financial expense for the purpose of allocation. The assessee had furnished details of some expenses, which could not be considered for allocation for the reason that those contained proposed dividend, proposed dividend tax, court fee for old cases and expenses recovered from the respective units, being ₹ 4,53,40 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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