TMI Blog2011 (8) TMI 1132X X X X Extracts X X X X X X X X Extracts X X X X ..... 6- 07. 2. The assessee, National Commodity Derivates Exchange Ltd. (NCDEX) is the premiere Commodity Exchange in India providing a world class platform for market to trade in range of commodities. The exchange is an online real time electronic exchange. 3. The assessee has earned a dividend income of ₹ 2,83,48,515/- from various Mutual Funds, which is exempted under the provisions of Section 10(35) of the Act. The assessee was called upon to explain, why the provisions of Section 14-A read with Rule 8-D of the Act and Rules be applied for the disallowance of expenses incurred on earning an exempted income. 4. The assessee offered an explanation stating that the Dividend has been earned on the Investment made on short term basis and there is hardly any element of expenses incurred in earning such income as once the application is made in various Funds, the allotment thereof follows and dividend thereafter required are in terms of time for depositing the dividend warrant into the bank and keeping records of such Investments from time to time. This may involve the salary of one person from the finance department who looks after such Investments. The assessee submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g direct or indirect, fixed or variable, managerial or financial expenses. It has been held in various decisions that provisions of section 36(1)(iii) and section 57(iii) are subject to section 14A. it has also been held in various cases that provisions of section 14A are applicable whether the exempt income is received or not. In case of Sanchayta Mercantile (2008) 25 SOT 57 (Mum), it was held that disallowance u/s.14A could exceed the exempt income. The Special Bench of Mumbai ITAT in case of Daga Capital management reported in (2009) 117 ITD 169 held that subsection (2) (3) of section 14A were procedural in nature and were applicable retrospectively, provisions of section 14A applies to all direct and indirect expenses, the section 14A would apply whether the shares were held as investment or stock in trade, the provisions of section 14A are applicable with respect of dividend income earned by the assessee engaged in the business of dealing with shares and securities, on the shares held as stock in trade when earning of such dividend income is incidental to the trading in shares. Thereafter, the Special bench, Delhi in case of Chiminvest Ltd, reported in (2009) 27 DTR (Del.)(S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the expenditure whereas the CIT(A) restricted it to 0.5%. On the very same issue the Revenue is also in appeal in ground No.3 of the Revenue s appeal. Considering the nature of the and the orders of the authorities we are of the opinion that disallowance of 1% would meet the end of justice. Assessee s ground about the disallowance of 0.5% is rejected. Following the above order, we hold that expenditure in respect of interest on tax free bonds should be estimated at 1% and AO is directed to make disallowance of only 1%. Accordingly this ground is partly allowed. Respectfully following the above order, we hold that expenditure in respect of interest on tax free bonds should be estimated at 1% and AO is directed to make disallowance of only 1%. Accordingly this ground is partly allowed for statistical purposes. 10. The second ground raised by the assessee reads as follows: On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in sustaining the AO s action of adding an additional sum of ₹ 1,20,17,380.0 being the amount of expense disallowed by him u/s. 14A to the book profit for the purpose of Sec. 115JB of the I.T. Act, 1061 which i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rds, no addition to the book profit shall be made on account of alleged expenditure incurred to earn exempt income while computing income u/s. 115JB of the Act. Thus, this ground is decided in favour of the assessee. 15. The third ground raised by the assessee reads as follows: On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the Ld. AO s action of charging income of ₹ 14,39,68,000/- received on account of share application money and interest income as Income from other sources instead of Income from Business as offered by the appellant and the reasons assigned by him for doing so are wrong and contrary to the facts and circumstances of the case, provisions of the I.T. Act, 1961 and Rules made thereunder 16. Before the Ld. CIT(A) the assessee submitted that the AO erred in treating the interest earned on bank deposit as income from other sources as against business income as shown by the assessee. 17. The facts of the case were that the assessee received income of ₹ 8,36,000/- on share application money and interest income of ₹ 14,31,32,000/- from bank deposits. The AO asked the assessee to explain ..... X X X X Extracts X X X X X X X X Extracts X X X X
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