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2016 (4) TMI 704 - ITAT CHENNAI

2016 (4) TMI 704 - ITAT CHENNAI - TMI - Disallowance of fine paid to National Securities Clearing Corporation u/s.37(1) - AR submitted payment as fine is in lieu of non submission charges levied and partially collection of margin and argued that as per the terms of contract with NSCCL such payments are always compensatory in nature - Held that:- We are of the opinion on the basis of the debit note and debit advices though in debit advice it was referred as penalty for initial margin summary stat .....

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and considered B16,770/- and made an additional disallowance of B2,57,857/-. The ld. Authorised Representative reiterated his submissions and argued that the total exempted income received by the assessee is B88,252/- and assessee has voluntarily disallowed B16,770/- whereas the ld. Assessing Officer calculated disallowance under Rule 8D B2,57,857/- which is at higher side on comparison with income received and prayed deletion. We after considering the apparent facts and judicial decision of M/ .....

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G. PAVAN KUMAR, JUDICIAL MEMBER For The Appellant : Shri. N. Vijaykumar, C.A. For The Respondent : Shri. A.B. Koli, IRS, JCIT. ORDER PER G. PAVAN KUMAR, JUDICIAL MEMBER: The Appeals filed by the assessee are against different orders of the Commissioner of Income-tax (Appeals)-III, Chennai dt 28.02.2014 for the assessment years 2006-07 and 2010-2011 passed u/s.143(3) 274 and 250 of the Income Tax Act, 1961 (herein after referred to as the Act ). 2. First, we take up Appeal No ITA No.1810/Mds/201 .....

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s no expenditure has been incurred for earning exempt income whereas considering the judicial decision 2% of exempt income is to be treated as disallowance. (iii) The Commissioner of Income Tax (Appeals) erred in confirming the software expenses has not allowable as Revenue expenditure . 3. The Brief facts of the case that the assessee is in the business of providing portfolio management services, stock broking services, corporate advisory services, custodial services and dealing in shares and s .....

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c. The nature of fine is a contractual obligation between NSCCL and Trade member and not a statutory fine or penalty and same is allowable u/s.37(1) of the Act. But the Assessing Officer treated such expenditure as extraneous of law and disallowed. The assessee company has received B64,53,414/- as dividend income and claimed exempted income u/s.10(35) of the Act and no disallowance was made in respect of expenditure incurred in earning exempt income. The ld. Assessing Officer relied on judicial .....

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the assessee filed an appeal with the Commissioner of Income Tax (Appeals). 4. In the appellate proceedings the ld. Authorised Representative submitted that Assessing Officer disallowed B21,000/- treating the fine as violation of law and assessee filed written submissions before Commissioner of Income Tax (Appeals) considering the expenses as contractual in nature. The assessee received dividend income on investments and also no expenditure was incurred for earning exempted income. The ld. Asse .....

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ng income. On the third ground the assessee incurred expenditure on computer software expenses towards licence fees, anti virus, MS office licence, ODIN software licence and software upgrading and also CDSL software rental charges all aggregating to B2,70,795/-. The ld. Assessing Officer considered the expenses as capital expenditure having enduring benefit and allowed depreciation at 60% and disallowed excess claim B1,08,318/-. The ld. Authorised Representative reiterated his submissions that s .....

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eing 5% of exempted income. In the case of software expenses the ld.CIT(A) considered the functional test and usage and characteristics of a software and found MS Office licence software as capital in nature and directed the Assessing Officer to verify the claim and allow the same if it is Revenue or otherwise allow deprecation. Aggrieved by the order of the Commissioner of Income Tax (Appeals) the assessee assailed an appeal before the Tribunal. 5. Before Tribunal, the assessee reiterated his s .....

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ere is a delay in payment, interest is chargeable @18% per annum. Therefore, it is compensatory in nature and treated as Revenue expenditure and should be allowed under Sec.37(1) of the Act. On the issue of disallowance u/sec. 14A the ld. Authorised Representative submitted that company has not incurred any expenditure to earn dividend income of B64,53,414/-. The ld. AO relied on the jurisdictional Tribunal decision and disallowed 5% of exempted income at B3,22,670/- being higher side and prayed .....

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he ld. Authorised Representative submitted payment of B21,000/- as fine is in lieu of non submission charges levied and partially collection of margin and argued that as per the terms of contract with NSCCL such payments are always compensatory in nature. We are of the opinion on the basis of the debit note and debit advices though in debit advice it was referred as penalty for initial margin summary statement they take the characteristic of business transaction wholly and exclusively incurred i .....

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o.420/Mds/98, dated 14.04.2004 and made disallowance @5% of the exempted income. We rely on the decision of jurisdictional High Court in the case of Simpson and Co. Ltd vs. DCIT in Tax T.C.(A) No.2621 of 2006 decided on 15.10.2012 directed the Assessing Officer to disallow 2% of exempted income as disallowance u/s.14A of the Act. This ground of the assessee is partly allowed. 7.2 The assessee company incurred Computer Software expenses of B2,70,795/- as softwares have validity period of one year .....

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ing Officer completed assessment with disallowance alongwith disallowance on disputed issues. Aggrieved by the order of the Assessing Officer, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals). 9. The ld. Commissioner of Income Tax (Appeals) granted partial relief and confirmed the findings of the Assessing Officer. On the issue of disallowance of computer software expenses ld. Commissioner of Income Tax (Appeals) gave direction to Assessing Officer as in earlier y .....

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s and also circumstances of incurring loss directed the Assessing Officer to verify and pass order in accordance with law and partly allowed the ground. 10. During the year, the assessee received dividend income of B88,252/-. The ld. AO by applying provisions of Sec. 14A r.w.r. 8D calculated the disallowance whereas assessee suo-motu disallowed B16,770/- as expenditure incurred for earning such exempted income. The ld. Assessing Officer considering the disallowance by the assessee made additiona .....

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current assessment year and ld.CIT(A) upheld the order of the Assessing Officer. Aggrieved, the assessee assailed an appeal before the Tribunal. 11. Before the Tribunal, the ld. Authorised Representative argued and submitted paper book placing reliance on the investments made in subsidiaries and tabulation of disallowance u/Sec.14A excluding investments in group companies and also statement with details of software and prayed for allowing the appeal. 12. Contra, the ld. Departmental Representati .....

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2 of the order and partly allow the ground of the assessee. 14. The assessee company has made investments in the subsidiary companies. At the time of hearing, the ld. Authorised Representative submitted details of investments made in subsidiaries and others. The ld. Assessing Officer made calculation of disallowance Rule 8D(2)(iii) of the Act considering the average investments worked out at B2,74,627/- as against suo-motu disallowance of assessee B16,770/- the exempted income received B88,252/- .....

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