TMI Blog2016 (9) TMI 649X X X X Extracts X X X X X X X X Extracts X X X X ..... for fresh adjudication after due verification of the claim of the assessee Addition on account of alleged difference in valuation of stock - Held that:- The assessee has been consistently valuing the stock of shares on FIFO basis and the it is undisputed that the department has accepted this method of valuation in preceding as well as subsequent assessment years. The AO has not been able to justify the need for the change in valuation and the Ld. CIT (A) has also confirmed the action of the AO in this regard. However, even in the arguments before us, the Ld. DR could not give a cogent reason that warranted a change in the method of valuation especially when the method was accepted by the department in earlier as well as subsequent years. It is also seen that due credit for the difference in valuation of closing stock in the year under appeal has also not been incorporated by the department in the valuation of opening stock by the department in AY 07- 08. Hence, we find that the stock valuation figure has been disturbed without any basis whatsoever and we find ourselves unable to agree with the stand of the department on this issue. We, accordingly, set aside the order of the Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of the business carried out by him in dealing in securities. This rebate would be equally applicable to tax as computed under section 115JB of the Act as under the normal provisions of the Act - ITA No. 2126/Del/2010, ITA No. 2901/Del/2010 - - - Dated:- 5-8-2016 - SHRI G.D. AGRAWAL, VICE PRESIDENT AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER For The Assessee : Sh. C.S. Agarwal, Sr. Adv., Sh. R.P. Mall, Adv. For The Revenue : Sh. Sarabjeet Singh, DR ORDER PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER: ITA No. 2126/Del/2010 has been preferred by the assessee against the order dated 30/03/2010 passed by the ld. CIT(Appeals)-IV, New Delhi for AY 2006-07, whereas ITA No. 2901/Del/2010 is the cross appeal preferred by the Department for the same year. Since both these appeals were heard together they are being disposed of through this common order. 2. The assessee company had filed the return of income declaring a total income of ₹ 450,231,514/- as per the normal provisions of the Income Tax Act, 1961 (the Act in short) and ₹ 139,986,801/- as deemed income u/s 115JB of the Act. Subsequently the assessee filed a revised return of income dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oth the assessee as well as the department has filed cross appeals before us. The assessee has raised the following grounds of appeal: Grounds of ITA No. 2126/D/2010: 1. The ld. CIT (Appeals) erred in confirming the addition of ₹ 3,33,821/- in terms of sec. 14A of the Act on the facts and circumstances of the case. As a matter of fact, the provisions of section 14A of the Act were not applicable to the facts of the case and as such the disallowance of interest of ₹ 3,33,821/- was not justified; 2. The ld. CIT (Appeals) erred in confirming the addition of ₹ 2,00,099/- on account of under valuation of closing stock on the facts and circumstances of the case. As a matter of fact, the ld. AO did not appreciate that the Appellant had valued the stock at cost or market price whichever was earlier on FIFO basis and as such the valuation of closing stock was correct on the facts and circumstances of the case and no addition was called for on the facts of the case; 3. The ld. CIT(Appeals) failed to appreciate that the Appellant was following the same method of valuation of closing stock year after year which was accepted by the department year after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... instant assessment year it was stated that the assessee had earned an amount of ₹ 27,22,131/- as dividend thus income did not form part of total income. The assessing officer, however, without finding any fault with the correctness of the claim proceeded to disallow the expenditure by purportedly invoking Rule 8D (2) Of the Income Tax Rules and calculated the disallowance at ₹ 3,33,821/-. It was submitted that the AO has erred in invoking Rule 8D (2) without appreciating the provisions under rule 8D(1). The Ld. AR submitted that in absence of any finding, the said rule cannot be applied and unless he is not satisfied with the correctness of the disallowances made by the assessee. It was submitted that in the instant case, the AO has not recorded any such finding and that in fact the AO has admitted that the only expenditure in relation to income not forming part of total income is of interest expenditure of an amount of ₹ 31,89,080/-. It wass thus submitted that the AO has erred in making a disallowance in excess of ₹ 32,875/-. 6.1 In respect of ground no 2 of the assessee s appeal, it was submitted that the learned AO has committed a gross error in ado ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee was ₹ 16,83,06,156/-and since the assessee was not paying any income tax, the provision of Minimum Alternate Tax can be invoked. It was submitted that in fact, the tax payable by the assessee under the normal provisions of the Income Tax Act was ₹ 16,83,06,156/- which was far higher than that of 10% of book profit. It was submitted that the assessing officer has arbitrarily held that as the tax to be paid remains nil after it has suffered STT, it must be saddled with the liability u/s 115JB of the Act and that in any case, the calculation of tax payable on deemed income U/s 115JB has not been properly determined. 6.2.3 The learned AR further submitted that the AO has recorded a finding that the assessee is a stock broker and that the Ld. CIT (A) has erred in ignoring the said fact. It was submitted that as per the provision of sub section 6 of section 115JB, the provisions of the said section are inapplicable only in cases where an income accrues or arises from a business carried on or services rendered by an entrepreneur or a developer in a unit or special economic zone as the case may be. It was further submitted that the aforesaid issue is no longer re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act from the tax payable under section 115 JB of the Act. It was submitted that in support of the aforesaid contention, assessee seeks to place reliance on the following judicial pronouncements wherein it has been held that rebate under section 88E of the Act has to be allowed from the tax payable under section 88E of the Act: - CIT vs MBL Co. Ltd in ITA No. 1181/2011 (Delhi High Court) - CIT vs Horizon Capital Ltd. 204 Taxman 59 (Kar)(Mag) 6.2.6 The Ld. AR also drew attention to a chart and submitted that on perusal of the chart it would be seen that the book profit is far less than the total income and thus, the provisions of section 115JB do not get triggered and as such, the tax on book profit levied is also untenable. It was submitted that the income tax payable on the total income as computed under the Act is not less than 7.5% of its book profit, and as such the provisions of section 115JB are not applicable as is the situation in the instant case. In fact, when income tax payable on the total income as computed under the Act is less than 7.5% of its book profit then only can an assessee be liable to be taxed u/s 115JB of the Act whereas the tax payable on total i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear 2006-07 (extracts from AO's order) 1 Non speculative business income from securities transaction 243457170 2 Speculative business income from securities transaction 317563352 A Others a. Brokerage Income 2999419 Less: Expenses Retail - 3569087 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opinion the assessee was to pay tax on ₹ 63, 83, 106/-. But the same is not eligible for rebate under section 88E of the Act, as the same is the interest income from FDR s. The Ld. AR submitted that such FDRs on which interest of a sum of ₹ 65, 30, 310/- has been earned represented margin money kept with stock exchanges in order to enable the assessee company to participate in the business of trading in shares. 6.3.3 It was submitted that it would be seen that there is no net income from (a) brokerage income, (b) miscellaneous income, (c) interest on refund (which is a negative sum) and thus, no such income has been included in the income of ₹ 56, 10, 20, 522/-. In fact, during the course of the assessment proceedings, assessee itself has conceded that rebate u/s 88E is not eligible for deduction in respect of tax payable on Brokerage Income, Misc. Income and Interest on Income Tax refund i.e. on ₹ 29,99,419/-, ₹ 6,54,380/-, ₹ 1,82,873/- aggregating to ₹ 38,36,672/- and, thus, the only question which remains is whether the assessee is entitled to claim a rebate of STT paid on the aforesaid income of ₹ 63, 83, 106/- which is from in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Ld. AR submitted that in view of the aforesaid, finding of the learned CIT(A) deserves to be upheld as the interest earned on FD kept as margin money is Income under the head Business and ground of appeal raised by the revenue deserves to be dismissed. 7. The Ld. DR relied on the assessment order in the department s appeal and supported the order of the Ld. CIT (A) in the case of assessee s appeal. 8. We have heard the rival submissions and have perused the material on record. As far as the issue of disallowance u/s 14A is concerned, it is true that the authorities below have erred in applying Rule 8D to the year under appeal i.e. AY 2006-07 whereas Rule 8D has been held by various judicial pronouncements to be applicable prospectively from AY 2008-09. Further, on a perusal of the orders of the authorities below, it is seen that the AO as well as the Ld. CIT (A) have not recorded any finding as to how the disallowance of ₹ 32,875/- made by the assessee was incorrect. The authorities below have also not pointed out the nexus between the investments and the expenditure incurred. The Assessing Officer has adopted the formula for estimating expenditure on the basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Section 14A of the said Act. It is only if the Assessing Officer is not satisfied with the correctness of the claim of the assessee, in both cases, that the Assessing Officer gets jurisdiction to determine the amount of expenditure incurred in relation to such income which does not form part of the total income under the said Act in accordance with the prescribed method. The prescribed method being the method stipulated in Rule 8D of the said Rules. While rejecting the claim of the assessee with regard to the expenditure or no expenditure, as the case may be, in relation to exempt income, the Assessing Officer would have to indicate cogent reasons for the same. 8.01 Similarly, the Hon'ble High Court of Punjab Haryana in the case of CIT-II vs Hero Cycles Ltd. in I.T.A. No. 331 of 2009 (O M) has held in para 4 of the judgment that, the contention of the Revenue that directly or indirectly some expenditure is always incurred which must be disallowed u/s 14A and the impact of expenditure so incurred cannot be allowed to be set off against the business income which may nullify the mandate of section 14A, cannot be accepted. Disallowance u/s 14A requires finding of incu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee stands allowed. 9. As far as ground no. 1 of the department s appeal is concerned, it is seen that the ld. CIT(A s) has discussed an adjudicated the issue at length on pages 11 12 of the impugned order. The relevant portions are being reproduced for a ready reference as under: I have examined the submission of the appellant and it is found that the Share Capital and Free Reserves amounted to ₹ 78 crores and the income of the company for the current year as for revised return was in excess of ₹ 54 crores. There is nothing wrong in the making one donation out of various donations from the overdraft account. For all other donations, there was enough balance in the bank account of the appellant. Further, the advancing of loans to subsidiaries and sister concerns is stated to be out of commercial expediency, and the interest has been charged from M/s BLB Commodities (P) Ltd. @ 6.50% as has been paid to the promoter/directors of the company during the year as also in all the earlier years. Since the appellant company had share capital and free reserves amounting to ₹ 78 crores and current income of the company was ₹ 54 crores, it could not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the agreement and NHAI would have been at liberty to appropriate bid security. That apart, the release of such performance security dependent upon certain conditions. Thus, it is clearly evincible that the bank guarantee was furnished as a condition precedent to entering the contract and further it was to be kept alive to fulfill the obligations. Quite apart from the above, the release of the same was dependent on the satisfaction of certain conditions. Thus, the present case is not one where the assessee had made the deposit of surplus money lying idle with it in order to earn interest; On the contrary, the amount of interest was earned from fixed deposit which was kept in the Bank for furnishing the bank guarantee. It had an inextricable nexus with securing the contract. The view express by the Tribunal cannot be found fault with. The Tribunal was therefore, justified in holding that the interest earned by the assessee on the FDRs has intrinsic and inseggregable nexus with the work undertaken and, therefore, the interest earned by the assessee is capital in nature and shall go towards adjustment against the project expenditure and the same cannot be assessed as income from o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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