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2016 (9) TMI 649 - ITAT DELHI

2016 (9) TMI 649 - ITAT DELHI - TMI - Disallowances of expenses u/s 14A - Held that:- 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/- ma .....

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esting the sustainability of the disallowance. Hence, we set aside the findings of the Ld. CIT (A) on this issue and restore the matter to the file of the AO 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 .....

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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. CIT (A) on this issue and direct the AO to delete this addition. - Addition on account of extra depreciation claimed on computer perip .....

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Jurisdictional High Court in CIT vs. Jaypee DSC Ventures Limited [2011 (3) TMI 309 - Delhi High Court ] wherein held 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 other sources. CIT has rightly adjudicated the issue by directing the AO to allow r .....

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ion 115JB of the Act as well as the other provisions of the Act referred above have been enacted to provide the machinery for computing total income of an assessee which is exigible to Income Tax. The rebate u/s 88E of the Act provides for certain rebates available on the tax payable by an assessee. In our view, there would be no rationale to limit the plain words of sec. 88E of the Act to hold that the rebate in payment of the tax is only applicable to tax as determined under the normal provisi .....

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. 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 Depa .....

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sions of the Act and ₹ 139,986,801/- as deemed income u/s 115JB of the Act. During the year under consideration, the assessee company was a member of National Stock Exchange and Bombay Stock Exchange and derived income from the sale and purchase of shares mostly on its own account. The assessment order was passed on 22/12/08 after making the following additions/disallowances: 1. Disallowance u/s 14A - ₹ 333,821/-; 2. Disallowance of loss u/s 94(7) - ₹ 1,295,487/-; 3. Addition o .....

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ellaneous income. Further the deemed income us/ 115JB of the Act was worked out at ₹ 140,584,867/-. 3. Aggrieved the assessee preferred an appeal before the first appellate authority in which the ld. CIT (A) adjudicated the issues as under: 1. The disallowance of ₹ 333,821/- u/s14A of the Act was confirmed; 2. The addition of ₹ 200,099/- based on the difference of valuation of closing stock was confirmed; 3. Out of total disallowance of ₹ 1,863,226/- on account of interes .....

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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 val .....

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ar after year which was accepted by the department year after year and no defect whatsoever had been found either by the AO or by the CIT(Appeals) and in this view of the matter, the addition of ₹ 2,00,099/- on account of valuation of closing stock was not justified; 4. The appellant craves leave to add, alter or raise any ground of appeal at the time of hearing or any time before that. 5. In cross appeal the Revenue has raised the following grounds of appeal: Grounds of ITA No. 2901/D/201 .....

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of extra depreciation claimed on computer peripheral/accessories ignoring the fact that as per IT Rules only the computers and computer software are eligible for depreciation @ 60% and the same cannot be extended to computer accessories. 3. The ld. CIT (A) has erred on facts and in law in directing the AO to allow rebate u/s 88E to the assessee with respect to tax payable on brokerage income, interest income, interest on IT Refund and Miscellaneous income. 4. The ld. CIT (A) has erred on facts a .....

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this appeal. 6. The ld. AR submitted that the assessee in its appeal has challenged the disallowances of expenses u/s 14A of ₹ 333,821/-. It was submitted that in computing the total income of the assessee, the assessee company calculated an expenditure incurred at ₹ 32,875/- towards earning the income (which income did not form part of total income of the assessee under the Act). For the instant assessment year it was stated that the assessee had earned an amount of ₹ 27,22,13 .....

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nnot 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 grou .....

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rate on lot wise basis, in respect whereof lot wise details had been furnished (details at pages of the paper book 185- 197 of the Paper book). In view thereof, the enhancement by ₹ 2,00,099/- is entirely untenable. Without prejudice and in the alternative, it was submitted that the AO be directed to adopt such value of opening stock of the succeeding year. 6.2 In respect of ground no 4 of the departmental appeal, it was submitted that the Assessing officer has grossly erred in computing .....

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. 19 of the order of assessment it would be seen that the AO has computed the total income of the assessee company at ₹ 54,66,59,030/-, whereas he has computed book profit at 14,05,84,869/-. It is thus evident that the tax payable on income computed under normal provisions of the Act is higher than the 7.5 % of book profit and thus the applicability of the provisions of section 115JB has been incorrectly applied. 6.2.2 It was further submitted that without prejudice to the above, the AO ha .....

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sessee 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 liabi .....

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iness 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 res- integra as the Hon ble High Court of Delhi by its judgment in ITA no.1181/2011 dated 17/05/2013 has held that the provisions of section 87 & 88E of the Act apply to the total income computed under section 115JB of the Act and that the assessee would be entitled to a deduction to the extent of securit .....

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he instant case, AO has committed gross error while computing the tax payable under the normal provisions of the Act as the word tax payable , in respect of income tax payable on the total income , does not mean the ultimate or net amount which is payable under the Act. The Ld. AR further submitted that for the purpose of the applicability of provisions of section 115JB of the Act, the income tax payable on the total income computed under the normal provisions of the Income Tax Act and is to be .....

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ing Pvt. Ltd in ITA No. 1276/Kol/2010 - DCIT vs E.Com Internet Services Pvt. Ltd in ITA No. 1524/Mum/2012 - DCIT vs Ori Finance Ltd in ITA No. 387/Kol/2011 6.2.5 The Ld. AR submitted that the provisions of section 115JB of the Act are inapplicable to the facts of the instant case, as the tax payable under the normal provisions of the Act are more than the 10% of the Book profit, further, without prejudice to the aforesaid, if it be held that provisions of section 115JB of the Act are applicable, .....

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. 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 .....

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7,88,04,351/- 2. Income from sources other than income on which securities transaction tax has been paid 63,83,106/- 2,00,88,565/- 3,99,76,353/- 3. Tax on total income 16,83,06,156/- 15,32,58,192/- 38,29,48,300/- 4. Tax on income from sources other than income on which securities transaction tax has been paid 21,48,553/- 67,61,810/- 1,34,31,734/- 5. Book profit 14,05,84,869/- 7,29,27,487/- 44,29,53,774/- 6. Tax on book profit 1,18,30,217/- 81,82,465/- 4,96,99,412/- 6.2.7 The Ld. AR submitted tha .....

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ment in para 9, has held that deduction under section 88E of the Act is not allowable on the income arising other than from income from taxable securities transaction and hence tax payable on the brokerage income, interest income, interest on income tax refund and miscellaneous income was not considered for the allowance of deduction u/s 88E of the Act. The Ld. AR submitted a chart extracted from pages 18 and 19 of the assessment order to demonstrate the working by the AO. The chart is reproduce .....

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come 546659028 6.3.1 The Ld. AR submitted that it would thus be seen that the AO has computed the total income of assessee at ₹ 54, 66,59, 028/-. i.e. A+B as above less Deduction U/s 80G. It was submitted that the AO has duly admitted that rebate u/s 88E (1) of the Act is allowable in respect of tax payable on income of ₹ 56,10,20,522/- i.e. item A but has held that no rebate is to be allowed on ₹ 63,83,106/- i.e. item B since in his opinion deduction u/s 88E of the Act, is all .....

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is to be restricted only to the extent of income on which securities transaction tax has been paid. In other words, in his 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 .....

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c. 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 interest on FDR's from banks. The Ld. AR submitted that the learned CIT (A) was legally & factually justified in so holding that on the aforesaid income of ₹ 63,83,106 .....

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in respect of which it has paid STT is to be allowed. It was submitted that under section 88E of the Act, it is clearly provided that where the total income of the assessee includes any income chargeable under the head Profits & Gains of Business or Profession arising from taxable Securities Transaction Tax, the assessee was entitled to a rebate from the amount of income tax on such income. It was submitted that the interest on FDRs kept as margin money with stock exchanges is thus, an incom .....

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ked with the business income, the same cannot be taxed as income from other sources. The Ld. AR submitted that on perusal of the judgment of Hon ble High Court of Delhi reported in 335 ITR 132, it would be seen that it has been held that where interest income has been earned on fixed deposits kept as margin money, the same has to be held as business income and not income from any other head. It was submitted that in arriving at such a conclusion, the Hon ble High Court has kept in view the real .....

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ed 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, .....

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Hon'ble Delhi High Court in the case of Maxopp Investment Ltd. vs CIT (I.T.A. 687/2009) has opined in para 29 of the order as under:- 29. Sub-section (2) of Section 14 A of the said Act provides the manner in which the Assessing Officer is to determine the amount of expenditure incurred in relation to income which does not form part of the total income. However, if we examine the provision carefully, we would find that the Assessing Officer is required to determine the amount of such expend .....

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s not satisfied with the correctness of the claim of the assessee in respect of such expenditure. Therefore, the condition precedent for the Assessing Officer entering upon a determination of the amount of the expenditure incurred in relation to exempt income is that the Assessing Officer must record that he , is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. Sub-section (3) is nothing but an offshoot of sub-section (2) of Section 14A. Sub-section .....

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. In both cases, the Assessing Officer, if satisfied with the correctness of the claim of the assessee in respect of such expenditure or no expenditure, as the case may be, cannot embark upon a determination of the amount of expenditure in accordance with any prescribed method, as mentioned in sub-section (2) 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 jurisd .....

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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 findi .....

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y following the ratio of the judgments as aforementioned, we hold that the disallowance u/s 14A was made without due deliberation and analysis by the Assessing Officer and the Ld. CIT (A) was also patently wrong in confirming the disallowance without testing the sustainability of the disallowance. Hence, we set aside the findings of the Ld. CIT (A) on this issue and restore the matter to the file of the AO for fresh adjudication after due verification of the claim of the assessee. Hence this gro .....

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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 i .....

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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 .....

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₹ 78 crores and current income of the company was ₹ 54 crores, it could not be said that the donations/loans had been given out of borrowed fund. Section 36(1)(iii) of the Act simply lays down that, if a loan has been taken for the purpose of the business, the deduction for payment of interest has to be allowed. No direct nexus has been established between the utilization of funds out of the borrowed amount on which interest has been paid. After having gone through the facts of the .....

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eated as partly allowed. 9.01 In view of the specific findings of the ld. CIT(A) which the ld. DR could not controvert, we have no reason to interfere with the findings of the ld. CIT(A) on this issue and we uphold the same. 9.02 In the result, ground no. 1 of the Department s appeal is dismissed. 9.1 As far as ground no. 1 relating to deletion of addition of ₹ 863806/- on account of extra depreciation claimed on computer peripherals and accessories are concerned. It is seen that this issu .....

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E is concerned, we find that the case of the assessee is squarely covered by the decision of the Hon ble Jurisdictional High Court in CIT vs. Jaypee DSC Ventures Limited (supra), wherein the Hon ble Delhi High Court held as under: As is noticeable from the stipulations in the agreement, the performance guarantee by way of bank guarantee was required for faithful performance of its obligations. The non submission of the guarantee would have entailed in termination of the agreement and NHAI would .....

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it 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 .....

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