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M/s. National Commodity & Derivatives Exchange Ltd. Versus The ACIT, Circle 10 (1) ,

2011 (8) TMI 1132 - ITAT MUMBAI

Nature of income - Held that:- Assessee has earned interest on bank deposit and share application money amounting to ₹ 14,39,68,000/-. The said income has declared as business income which the AO has treated as income from other sources being interest earned on surplus funds. We find that the assessee was not engaged in money lending business and the interest was earned by parking surplus funds in banks and with other (share application money). Hence the same cannot be chargeable under the .....

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IT(A)-21 for the Assessment Year 2006- 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 explai .....

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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 that it would have no objection if some amount was being disallowed on the basis of expenditure directly related to the earning of such income. 5. The Assessing Officer disallowed a sum of ₹ 1,20,17,380/- under provisions of Sec. 14A r.w. Rule 8D of the Act on a .....

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justified in invoking the provisions of Section 14A and making a disallowance as per formula provided under Rule 8 D of the Rules. The AO worked out disallowance as under : Disallowance u/s.14A r.w. Rule 8D i) Expenditure directly relating to exempt income NIL ii) Interest disallowable A = Interest = 51,49,000/- (4313000 + 836000) B = Average value of Investment = 14,711,91,500/- C =Average of Total Assets = 162,50,76,000/- Interest disallowable = A x B/C = 46,61,422/- iii) 0.5% of average valu .....

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457 (Mum), it was held that section 14A(I) is substantive and 14A(2)(3) are procedural in nature and applies to all pending matters, regardless they being 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 Sanch .....

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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.)(SB)(Trib.)/82 also decided various issues in respect to applicability of section 14A. After insertion of Rule 8D it is mandatory to work out th .....

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age of total asset and re-work out the disallowance as per Rule 8D after taking into consideration appellant s submissions in this regard. This ground of appeal is dismissed. 8. Aggrieved, assessee is in appeal before us. We have heard both the parties and have carefully perused the material on record. 9. We heard both the parties. We find that in the case of National Stock Exchange the ITAT Mumbai Bench B in ITA No. 9390/M/04 A.Y. 2001-02 has held as follows: The AO was of the view that for man .....

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aveled to the Tribunal and the Tribunal estimated the expenditure at 1% of such income. The Ld. Counsel of the assessee submitted that the issue may be decided in the light of the decision of the Tribunal for the A.Y. 1998- 99. On the other hand, Ld. DR supported the order of the AO. After considering the rival submissions carefully, we find that an identical issue came up for consideration of the Tribunal for the A.Y. 1998-99 and the same was decided by the Tribunal vide para-6 which is as unde .....

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eet 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 .....

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nder. 11. The AO had worked out the book profit under the provisions of Sec. 115JB of the Act. While doing so he added a sum of ₹ 1,20,17,380/- which represents the amount disallowed under the provisions of Sec. 14A r.w.Rule 8D of the Act . 12. The Ld. CIT(A) held as follows: I have considered the facts of the case. As per Clause (f) of Explanation 1 to Sec. 115JB the book profit was required to be increased by the amount or amounts of expenditure relatable to income to which Sec. 10 appli .....

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book profit u/s. 115JB of the Act. The AO s action has been confirmed by the CIT(A). Both the authorities have applied Rule 8D of the I.T. Rules while computing the amount of expenditure disallowable u/s. 14A of the Act. The provisions of Rule 8D are not applicable to the present assessment year under consideration. Therefore, disallowance of expenditure by applying Rule 8D is not justified. Further, no actual expenditure was debited in the profit & loss account relating to the earning of e .....

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been held that provisions of sub-sec. (2) & (3) of Sec. 14A cannot be imported into clause (f) of the Explanation to Sec. 115JA of the Act. In this view of the matter, we therefore, delete the disallowance of expenses confirmed by the CIT(A) while computing book profit u/s. 115JB of the Act. In other words, 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 .....

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ces 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 as to why .....

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ication money). There was nothing that the assessee produced to establish that the receipts were chargeable to tax under the head Income from Business & Profession . In the facts and circumstances, the AO treated the interest income as income from other sources. 19. Before the Ld. CIT(A) it was submitted by the assessee as follows: The appellant is an exchange which forms a platform for allowing legal trading in commodities. The Exchange was formed and governed by the rules of Govt. of India .....

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