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2015 (11) TMI 1013 - ITAT KOLKATA

2015 (11) TMI 1013 - ITAT KOLKATA - TMI - Disallowance u/s. 14A - Held that:- We find that the assessee is in the business of share broking and share trading activity. Earning of dividend income is incidental to such business activity and whatever expenditure is incurred i.e. for the business. The assessee has earned total dividend income during the year under consideration at ₹ 2,72,349/- out of the total income declared at ₹ 15,39,12,042/-, which is a meagre 0.18% of the total inco .....

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I Agro Ltd. [2013 (9) TMI 156 - ITAT KOLKATA] has held that for applicability of Rule 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”. Thi .....

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e 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 expenses were apportioned @ 5.87% and some of the expenses i.e. balance other expenses on income basis as per calculation ‘c’ @68.83%. We find that revenue has not disputed the proportionate determina .....

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bifurcated by the CIT(A) on income basis is directed to be determined on the basis of percentage of turnover of own business @ 5.87%. - Decided in favour of assessee - I.T.A No.639/Kol/2012, CO No. 57/Kol/2012 - Dated:- 7-10-2015 - Shri Mahavir Singh, JM & Shri Waseem Ahmed, AM For The Appellant: Shri Sanjit Kr. Das, JCIT, Sr. DR For The Respondent: Shri S. M. Surana, Advocate ORDER Per Shri Mahavir Singh, JM: This appeals by revenue and cross objection by assessee are arising out order of .....

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ceded that the cause shown by revenue is reasonable and hence, delay may be condoned. In term of the above, we condone the delay and admit the appeal. 3. The first common issue in this appeal of revenue and CO of the assessee is as regards to the order of CIT(A) in restricting the disallowance at ₹ 27,235/- as against the disallowance made by AO at ₹ 11,47,078/- qua exempted income by invoking the provisions of section 14A of the Act read with Rule 8D of I. T. Rules, 1962 (hereinafte .....

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n 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 .....

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of ₹ 2,72,349/- by observing in paras 4 and 5 as under: 4. I have carefully considered the observations of the Assessing Officer and submissions of the assessee. The assessee does not have any investments and all the shares are taken in his one account i.e., share trading. The assessee has submitted that dividend income is incidental to his business activities and there is no direct or indirect expenditure incurred in relation to earning of dividend income. The appellant has shown taxable .....

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ose of earning of dividend. The details of the dividend receipt shows, it has been received in all the twelve months ranging from ₹ 5/- to ₹ 42,350/-. The trading pattern of the assessee shows that it has not invested the money with the prime motive of earning of dividend. The assessee has submitted that there is no loss u/s 94(7) of the I. T. Act, 1961. The intention of the assessee and the business of the assessee clearly show that the earning of dividend is incidental to business. .....

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of the case, it is held that the assessee has not made any investments or direct expenditure for earning dividend and the earning of dividend is incidental to the M/s. Crosses Capital Services Pvt. Ltd. AY 2008-09 main business of 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 dividen .....

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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 case of REI Agro Ltd. Vs. DCIT (2013) 144 ITD 141(Kol). Ld. Counsel also argue .....

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ase of CII Ltd. Vs. JCIT (2012) 206 Taxmann 563 (Kar), wherein it is held that disallowance of expenses incurred on borrowings made for purchase and trading of shares cannot be made u/s. 14A of the Act read with Rule 8D of the Rules. On the other hand, Ld. Sr. DR supported the order of the AO. 6. We have heard rival submissions and gone through facts and circumstances of the case. We find that the assessee is in the business of share broking and share trading activity. Earning of dividend income .....

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n fact, there is no whisper of any satisfaction in the assessment order that the provisions of section 14A of the Act are applicable. We find that the AO made disallowance mechanically calculating the figures solely on the basis of Rule 8D of the Rules. Here, the coordinate Bench of ITAT in the case of REI Agro Ltd., Supra has held that for applicability of Rule 8D of the Rules, satisfaction of the AO about the correctness of the accounts of the assessee is necessary. The Tribunal in REI Agro Lt .....

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ideration 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 .....

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ay of interest during the previous year, which is not directly attributable to any particular income, the findings of the ld. CIT(A) on the issue stand confirmed and consequently the appeal filed by the Revenue stands dismissed. In view of the above facts that the AO has not recorded any satisfaction as regards to correctness of the accounts of the assessee, hence, respectfully following the coordinate bench decision in the case of REI Agro Ltd., supra, we allow this issue of assessee s CO and d .....

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is case, when the assessee has not retained shares with the intention 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 contai .....

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t has remained unsold with the assessee. It is those unsold shares which have yielded dividend, for which the assessee has not incurred any expenditure at all. Though the dividend income is exempted from payment of tax, if any expenditure is incurred in earning the said income, the said expenditure also cannot be deducted. But in this case, when the assessee has not retained shares with the intention of earning dividend income and the dividend income is incidental to its business of sale of shar .....

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ee 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 t .....

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ocating expenses and after deducting the full amount of the STT paid. The order of the CIT(A) should be cancelled and order of the AO should be restored. Assessee s ground: 3. For that the Ld. CIT(A) erred in restricting the tax rebate u/s. 88E to ₹ 2,69,69,781/- only ignoring the claim of the assessee which was ₹ 3,16,79,411/- as per the return and on the facts and circumstances of the case and taking into account the income earned from share business as well as share brokerage busi .....

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ebate u/s. 88E is allowed Rs.1,78,55,901/- Aggrieved against the order of AO, assessee preferred appeal before CIT(A). The assessee before the CIT(A) contended that the AO has not allowed expenditure relating to business of share broking. The CIT(A) requested the assessee to submit calculation of apportionment of expenses on the basis of turnover of share trading and brokerage business separately. Accordingly, assessee submitted the calculation. The CIT(A) directed the AO to take the proportiona .....

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t 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 t .....

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, share trading of the appellant and interest income. The appellant has apportioned the expenditure relating to salary, telephone, interest, SEBI turnover, free cash market and SEBI turnover fees F&O on the basis of turnover of the brokerage business and share trading business since these are incurred due to the volume of transactions of the business. The said apportionment is upheld as correct method of determining the expenses relating to both the businesses. Similarly, the rest of the exp .....

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ing including F & 0 income and brokerage income on the basis of turnover and income basis as determined by the assessee in the calculation submitted during appellate proceedings. 12. The A.R of the assessee has relied upon the case of DCIT, Circle-1, Kolkata Vs M/s Ashika Stock Broking Ltd (2011) 44 SOT 556 (Kol) wherein it has been held by the Hon'ble Jurisdictional Tribunal that if there is a net surplus from share dealing of capital market segment and future option segment taken toget .....

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as it is paid on behalf of clients. The calculation of the rebate u/s. 88E to be allowed has been submitted by assessee, which is as under: - Gross income from share trading business ₹ 10,61,25,194/- Less: Expenses ₹ 1,62,25,924/- ₹ 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 .....

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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 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 an .....

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a of the assessee that all the expenses should be bifurcated in proportion to turnover of share business segment to that of the gross turnover is quite reasonable. Therefore, the part of the expenses, which were bifurcated by the CIT(A) on income basis is directed to be determined on the basis of percentage of turnover of own business @ 5.87%. We find that similar issue was dealt with by the Mumbai Bench of ITAT in the case of Ruia Stud & Agricultural Farms Vs. ITO (1985) 14 ITD 429 (Mum) wh .....

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ready method of apportionment would be on the basis of the turnover in the different businesses. We find that apportioning the expenditure on the basis of the gross profit is positively incorrect since there are several variables the applicability of which is to be considered in working out this computation. The assessee s claim is accepted on this point also. 11. Similarly, Hon'ble Delhi High Court in the case of Control & Switchgear Co. Ltd. Vs. DCIT (2012) 66 DTR 161 (Del.) has consi .....

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