TMI Blog2016 (10) TMI 344X X X X Extracts X X X X X X X X Extracts X X X X ..... Certificates. However, it seems that there was no occasion for the assessee to produce necessary ledger account for AY 2005-06 in which the impugned interest amount of ₹ 5,78,899/- has been disclosed and offered to tax. Under these circumstances, it would be justified if this issue is remitted back to the file of ld.AO. There is no objection on the part of the Revenue in this regard. Accordingly, we remit this issue to the file of AO who will provide reasonable opportunity of being heard to the assessee. Needless to say that the assessee will furnish complete details and evidence, if any for FAY 2005-06, i.e. for AY 2006-07 to establish that the income of ₹ 5,78,899/- has formed part of total income. Thus, this ground of assessee’s appeal is allowed for statistical purposes. TDS u/s 194I - Non deduction of tds on Rent expenses - nature of payment - bifurcation of payment - Held that:- Payment to ACBPL does not fall under the Rent expenses because ACBPL is a business developer appointed by the assessee and as per the agreement ACBPL is providing multiple services relating to stock market and working on behalf of the assessee and more so, most of the expense incurred o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot exceed the exempt income earned by the assessee and looking to the fact that one cannot ignore that some elements of expenditure ought to have been incurred for earning exempt income and also making regular investments during the year as observed by us from the financial statements of the assessee that lot of transactions have taken place in the investment account. We are, therefore, of the view that out of the disallowance confirmed by the ld.CIT(A) of ₹ 1,69,229/-, we hereby delete the proportionate disallowance of interest at ₹ 23,929/- and confirm ₹ 1,45,300/- as disallowance u/s.4A of the Act. Accordingly, ground of assessee’s and Revenue’s appeal are partly allowed. Transaction of shares - STCG v/s business income -.AO for treating the STCG as business income meaning thereby not allowing the benefit of exemption of tax on LTCG and benefit of special rate of tax with STCG - Held that:- As the appellant has separately maintained the details of investments and equity shares and has been able to show the transactions of capital gain and investments distinctively from the other business activity carried out during the year and, accordingly, capital gain off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ough an outstanding amount of ₹ 1,04,210/- was due to be received on 01/04/2007. This facts shows that there was no dealing of assessee with this impugned parties for purchase of sale and shares in order to earn brokerage income, rather assessee himself has advanced money to this party. We are, therefore, of the view that the facts of the case in the year under appeal, are not the same to the facts dealt by us while adjudicating the appeal for AY 2007-08 and we are of the view that the ld.AR has rightly disallowed the claim of bad debts of ₹ 2,89,121/- and, accordingly, we allow the ground of the Revenue Whether the revised computation income can be accepted by the AO during the course of assessment proceedings or not - Held that:- As decided in ACIT Ahmedabad vs. Amrapali Capital & Financial Services Ltd [2015 (6) TMI 713 - ITAT AHMEDABAD] the CIT(A) has accepted the assessee's revised computation as per section 55(2)(ab) of the Act. The Assessing Officer had refused the very relief by quoting the case law of Goetze (India) Ltd. (2006 (3) TMI 75 - SUPREME Court ) and also the fact that the time limit for filing revised return had already elapsed. This is not the Rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and got part relief from the ld.CIT(A). Therefore, now the Revenue and Assessee are both in appeals before us. 3.1. In assessee s appeal, the assessee raised ground No.1, which reads as under:- 1. The Ld.CIT(A) has erred in law and on facts in confirming addition of ₹ 5,78,899/- on the basis of TDS certificates, without appreciating the fact that the interest is already offered in the year 2005-06 as Accrued interest as per mercantile system of accounting. It is therefore prayed that the additions so made may kindly be deleted. 4. During the course of assessment proceedings, the ld.AO observed that the assessee has shown interest income from Canara Bank at 70,14,087/- and from HDFC Bank at ₹ 42,05,468/- and when the ld.AO compared the interest income shown by the assessee with the TDS Certificates issued by Canara Bank HDFC Bank, it was observed that the amount of interest on which TDS has been deducted by Canara Bank and HDFC Bank has shown respectively at ₹ 74,82,545/- and ₹ 43,15,909/-. Accordingly, he calculated that the assessee has shown interest income less by ₹ 5,78,899/-. During the course of assessment proceedings itself, it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ifference figure of ₹ 5,78,899/- originated which the ld.AO has added to the income of the assessee. We further observed that appellant has given detailed working before lower authorities showing the reconcilement of interest income from both the case and HDFC bank and has commenced the reconcilement statement by showing the amount of interests credited in the books of account and has arrived to the interest income comparing TDS Certificates. However, it seems that there was no occasion for the assessee to produce necessary ledger account for AY 2005-06 in which the impugned interest amount of ₹ 5,78,899/- has been disclosed and offered to tax. Under these circumstances, it would be justified if this issue is remitted back to the file of ld.AO. There is no objection on the part of the Revenue in this regard. Accordingly, we remit this issue to the file of AO who will provide reasonable opportunity of being heard to the assessee. Needless to say that the assessee will furnish complete details and evidence, if any for FAY 2005-06, i.e. for AY 2006-07 to establish that the income of ₹ 5,78,899/- has formed part of total income. Thus, this ground of assessee s appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referred to as ACBPL ) towards fees for professional charges and reimbursement of expenses on which TDS u/s.194-J of the Act and 194-C of the Act has been deducted respectively. However, on examination of the agreement between the assessee and ACBPL, the ld.AO was of the view that the payment of ₹ 68,32,451/- has been paid towards rent expenses because in the agreement it was mentioned that the premises of ACBPL will be solely used in carrying on the business activity of assessee and, accordingly, TDS was required to be deducted u/s.194I of the Act. Similarly, on examining the expenditure of ₹ 7,76,690/- paid towards lease line expenses and V-Set charges on which the assessee had deducted TDS @ 2% u/s.194-C of the Act, ld.AO was of the view that the payment of ₹ 7,76,690/- is towards rent of plant, machinery, and equipment and, accordingly, TDS was deductible u/s.194-I of the Act. After framing up this view that payment of ₹ 68,32,451/- and ₹ 7,76,690/- were subject to TDS vs. 194-I of the Act and the assessee has wrongly deducted TDS u/s.194-J and 194-C respectively, the ld.AO made disallowance u/s.40(a)(ia) of the I.T.Act, 1961 for not correctly de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thing is that the assessee has been making two types of payment to the stock exchange first in respect of each and every transaction made by the assessee called transaction charges and second the VSAT charges and lease line charges which are quarterly or annual payments made for the use of equipment which consists of lease line, dish, satellite link, IDE box, etc. The second type of charges are dependent upon the bandwidth taken by the appellant and not on the transactions made by the appellant for the purchase and sale of shares. Over and above these quarterly/annual payments the appellant is making payment for each and every transaction of share purchase and also of share sale. These are transaction charges. Therefore, the VSAT charges and lease line charges are definitely nothing but rent for the various equipment, which does not belong to the assessee but belongs to either the stock exchange or the service provider, who manages this facility. All these equipment including dish IDE box will have to returned when the connection is surrendered. Therefore, these payments are nothing but rental payments on which TDS should have been deducted under section 194I. The appellant has t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re paid towards connectivity charges for internet services, i.e. telephone and intra-services and payment has been made to ICEW-NET, BSNL , U-Telecom , etc. During the year under appeal, total lease line expenses were incurred at ₹ 4,49,275/- out of which amount of ₹ 1,40,036/- paid to Tulip IT Services Ltd. was subject to TDS and the same was deducted u/s.194C of the Act. As regards, V-Set expenses which have been paid to National Stock Exchange, Bombay Stock Exchange, for connectivity charges. TDS u/s.194-C of the Act has been duly deducted and further these expenses are not in the nature of rent as provided under the explanation to section 194I of the Act and, therefore, no disallowance is called for u/s.40(a)(ia) of the IT Act. Moresoever, no addition is called from u/s.40(a)(ia) of the Act merely on the ground that TDS has been deducted under a wrong head. In support of this contention, ld.AR relied the decision of the Coordinate Bench (ITAT D Bench Ahmedabad) in ITA No.2825/Ahd/2010 for AY 2007-08, dated 9/04/2014, decided in favour of assessee and which has been upheld by the Hon ble Jurisdictional High Court. He also relied on judgement of Hon ble High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee to M/s. Elecon Information Technology Ltd. (EITL) and M/s. Akaaish Mechatonics Ltd. (AML) these was short deduction of tax and therefore the ratio of the Tribunal in the case of Apollo Types Ltd. v. DCIT and UE Trade Corporation (India) Ltd is directly applicable to the facts of this case. In the case of UE Trade Corporation v. DCIT, the Hon'ble Tribunal in similar facts has held as under: 6. We have heard both the parties and gone through the material available on record. We have also gone through the Tax Audit Report in Form No. 3CD placed at pages 20 to 49 of the Paper Book. Annexure-XIV of the Tax Audit report gives the details of tax deductible under various sections of the Act. Page 1 of Annexure-XIV gives the details of payments on which tax has not been deducted at all. The total amount of expenditure is at ₹ 7,32,827/-. Pages 2 to 6 of Annexure-XIV give the details where there is a shortfall due to lesser deduction than required to be deducted. The total amount of expenses is at ₹ 20,24,4557/- on which shortfall of tax at ₹ 3,26,011/- has been worked out by the tax auditors: Page 3 of the Annexure gives the details where tax has been deducte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owever, in our view, payment of ₹ 68,32,4521/- to ACBPL does not fall under the Rent expenses because ACBPL is a business developer appointed by the assessee and as per the agreement ACBPL is providing multiple services relating to stock market and working on behalf of the assessee and more so, most of the expense incurred on the office premises of ACBPL are reimbursed by the assessee. Certainly, such kind of arrangement does not fall within the ambit of rent expenses and, therefore, assessee has rightly deducted TDS by bifurcating the payments made to ACBPL under the head brokerage, fees for providing technical services and reimbursement of expense and has duly deducted TDS on all these payments under the correct provisions of Income Tax Act. Similarly, payment of ₹ 7,76,690/- incurred on lease line expenses and V-Set charges also do not fall under the category of rent expenses because the machineries and equipments used for providing these services are shared by many stock-brokers and, therefore, the assessee has rightly deducted TDS u/s.194-C. We are, therefore, of the view that the ld.AO erred in observing that the assessee has not deducted TDS u/s.194-I of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the disallowance u/s.14A of the Act at ₹ 1,69,229/-, by observing as under:- 7.3. I have considered the submission made by the appellant and observation of the AO. The provisions of section 14A and the Rule 8D has been upheld by the Hon. Mumbai High Court recently in the case of Godrej Boyce Mfg Co Ltd, the Hon. Mumbai High Court has stated that for assessment year prior to A.Y. 2008-09 Rule 8D is not applicable but the AO can make reasonable disallowance. As per the provisions of section 14A as well as the recent rulings it is clear that if the appellant is unable to show a direct nexus then even if the assessee claims that there is no expenditure involved in earning the exempt income still the disallowance can be made under the main provision of section 14A. In view of the above against the earning of exempted dividend income of ₹ 14.53 lakh the disallowance of proportionate interest worked out by the AO of ₹ 23929/- further disallowance of 10% of dividend amounting to ₹ 1,45,300/- as part of other expenses would be reasonable. Hence the disallowance is restricted to ₹ 1,69,229/- is quite reasonable. The grounds of appeal are therefore, par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eed the exempt income earned by the assessee and looking to the fact that one cannot ignore that some elements of expenditure ought to have been incurred for earning exempt income and also making regular investments during the year as observed by us from the financial statements of the assessee that lot of transactions have taken place in the investment account. We are, therefore, of the view that out of the disallowance confirmed by the ld.CIT(A) of ₹ 1,69,229/-, we hereby delete the proportionate disallowance of interest at ₹ 23,929/- and confirm ₹ 1,45,300/- as disallowance u/s.4A of the Act. Accordingly, ground of assessee s and Revenue s appeal are partly allowed. 11. Now, we take up the last ground No.5 of assessee s appeal, which reads as under:- 5. The Ld. CIT(A) has erred in law and on facts in confirming the long-term Capital gain of ₹ 18,43,793/- as business income, without appreciating the facts of the case, submission of the appellant and overruling the specific provisions of S. 10(38), which is brought in the statute w.e.f. A.Y. 2005-2006, where on LTCG on shares there is no levy of tax, It is therefore prayed that the A.O. may be direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seen that the assessee has utilized substantial fund in sale and purchase of shares/securities. From the explanation given by the assessee it can be seen that the assessee itself has agreed that the investment in mutual funds has been done in order to maximize the return i.e. for profit motive and not for investment purpose. Such periodical activity of sale and purchase of mutual funds definitely constitute business activity. The motive of the assessee in trading shares is profit motive and not to make the investment in shares and securities. The activity of the purchase and sale of shares by the assessee has been viewed in the following perspectives: (i) whether the purchases have been made solely with the Intention of resale at a profit or for long term appreciation. (ii) Whether the scale of activity is substantial. (iii) Whether transactions have been entered into continuously and regularly during the year. (iv) Whether the object of trading in share is mentioned in Memorandum and Article of Association of the company. (v) Holding period of the securities brought or sold. 9.3.2 In the case of the assessee company the assessee! Is regularly engaged in trading ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s income, it was not necessary that surplus should have been resulted from such a course of dealing securities as by itself would amount to the carrying: on of business or if the realization of the securities is a normal step in carrying on the assessee's business. The. Supreme Court observed that the principle applicable in an such cases was well settled and the question always w whether the sales which produced the surplus were so connected with the carrying on of the assessee's business that it could fairly be said that the surplus was the profit and! gains of such business. On the facts of this case it was held that the surplus resulting of sale of shares and securities constituted business income. * In the case of Karam Chand Thapar and Brothers P Ltd. vs. CIT reported in 83 ITR 899 it was held by the Supreme court that the circumstances that the assessee has show! certain shares as investment in books as well as its balance sheet was by itself not a conclusive circumstances, though it it was a relevant circumstance. 9.3.4 In view of the above reasons the decision of the Hon'ble Gujarat High Court in the case of Rewashanker A Kothari supra is against the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es is forming part of balance-sheet as on 3132007 31/03/2008. 12.1. We further observe that the Hon ble Apex Court in the case of CIT vs. Associated Industrial Development Co.(P) Ltd. reported at (1971) 82 ITR 556, wherein the Hon ble Apex Court held that Whether a particularly holding of shares is by way of investment or forms part to the stock in trade is a matter which is within the knowledge of the assessee who hold the shares and which are, in normal circumstances be in a position to produce evidence from its records as to whether it has maintained any distinction between those shares which are stock in trade and those which are held by way of investment. 12.2. Further, we observe that the CBDT Circular No.6/2016 dated 29/02/2017 adding further to previous Circular No.4 of 2007 dated 15/06/2007 and Instruction No.1/08/2007 dated 31/08/1989, has mentioned that in respect of such listed shares and securities held for a period of more than 12 months immediately preceding the date of its transfer if the assessee treating the income arising from the transfer thereof as capital gain, the same was not to be put to dispute by the AO. 12.3. We further find that similar iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eing an investor and claiming short terms capital gains and the activity of transactions were related to 5 scrips and the transactions were delivery based. He has further given a finding that it is not a case where the Assessee has done the transactions of sale and purchase on every day basis. He has further noted that the shares were considered by the Assessee as investment in its books of accounts, had not borrowed any finance to acquire the shares and out of the total gains earned by the Assessee, around 2/3 of the profits were earned from shares which were held for over 60 days. He thereafter relying on the ratio of the decision rendered by the Hon ble Bombay High Court in the case of Gopal Purohit reported in 228 CTR 582 (Bom) held that only short term capital gains to the extent of ₹ 27,193/- earned on the transactions which were not transacted through Demat account is to be attributed to the business of share trading. Before us, Revenue has not placed any material on record to controvert the findings of ld. CIT(A). Further, it is also a fact that in the earlier assessment years, Assessee had offered the profits as short terms capital gains and the same was also accepte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c criteria stipulated by the Hon ble Jurisdictional High Court in the case of CIT vs. Ahmedabad Electricity Co.(supra) and, accordingly, disallowed the claim of bad debts of ₹ 12 lacs. Further, ld.AO did not accept the alternative argument made by the assessee that if the bad debt is not allowable u/s.36(1)(vii) of the IT Act, 1961, then the said bad debts is otherwise allowable as a business loss u/s.28 of the Act and thereby taking a cogent view that if a special provision has been made on certain matter, then the matter is excluded from the general provisions of the Act and it is well settled law in India, and, therefore, as the bad debts is specifically covered under the separate section, then, there remains no reason to allow such type of expenses under other heads of Income Tax Act. 14.2. Aggrieved assessee, went in appeal before ld.CIT(A), who has allowed the ground and addition of ₹ 12 lacs was deleted. Aggrieved Revenue, now is in appeal before us. 14.3. Aggrieved assessee, is now in appeal before the Tribunal. Ld.AR submitted the Section 36(2)(i) of the Act provides that a deduction on account of a bad debt can be allowed only where such debt or part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ehalf which had become irrecoverable. The Hon ble High Court of Mumbai upheld the decision of the Special Bench of Tribunal and dismissed the appeal of the Revenue by observing as under:- 14. The value of the shares transacted by the assessee as a stock broker on behalf of its client is as much a part of the debt as is the brokerage which is charged by the assessee on the transaction. The brokerage having been credited to the profit and loss account of the assessee, it is evident that a part of the debt is taken into account in computing the income of the assessee. The fact that the liability to pay the brokerage may arise, as contended by the Revenue, at a point in time anterior to the liability to pay the value of the shares transacted would not make any material difference to the position. Both constitute a part of the debt which arises from the very same transaction involving the sale or as the case may be purchase of shares. Since both form a component part of the debt, the requirements of section 36(2)(i) are fulfilled where a part thereof is taken into account in computing the income of the assessee. Before concluding, we again take note of the fact that in paragraph ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NSE/BSE for connectivity charges on which TDS was made u/s.194C and ₹ 485,638/- being lease line/interest charges paid to Reliance Communication Ltd, on the alleged ground that the payment made is Rent and tax was required to be deducted u/s.194-I of the Act, as tax is deducted under other section, the disallowance is made u/s.40(a)(ia) of the Act, whereas app company has deducted TDS wherever required and /or no TDS is required to be deducted on such disallowances It is therefore prayed that the additions so made may kindly be deleted. 17. From going through both these grounds, we observe that we have adjudicated similarl grounds while disposing of ground Nos.2 3 in assessee s own case in ITA No. 633/Ahd/2011 for AY 2007-08, wherein we have held that the assessee has deducted TDS under the correct head of provisions of Income Tax Act and no disallowance u/s.40(a)(ia) was called for. Applying the same decision for AY 2008-09, we are of the view that the payment of ₹ 63 lacs made to M/s.Ashwin Chinubhai Broking Pvt.Ltd. on account of office management and maintenance expenses do not fall under the head of rent expenditure and the assessee has rightly deducted TDS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We further observe that while dealing with ground No.1 of assessee s appeal for AY 2008-09 in ITA No.3134/2011, we allowed the ground of the assessee by deciding that ₹ 63 lacs was not rent expenditure but falls under the categories of fees for providing professional and technical services and assessee had rightly deducted TDS u/s.194-J of the Act and no disallowance is called for u/s.40(a)(ia) of the Act on ₹ 63 lacs. We further observe that so far as making payment of ₹ 37,43,705/- (Rs.1,00,43,705 ₹ 63,00,000) which is towards reimbursement of expenses , we find that Hon ble Jurisdictional High Court in the case of CIT vs. Gujarat Narmada Valley Fertilizers Co.Ltd. reported at (2013) 35 taxmann.com 638 (Guj.) while confirming the order of the Tribunal dismissed the Revenue s appeal by holding that no disallowance is called for u/s.40(a)(ia) of the Act on reimbursement of expenses as the obligation to deduct the TDS on payment of the expenditure are to be complied with the agent to admit payment on its behalf. Respectfully following the decision of the Hon ble Jurisdictional High Court, we are of the view that no disallowance is called for u/s.40(a)(ia) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bad debts of ₹ 2,89,121/- was deleted by ld.CIT(A) by relying on the judgement High Court of Bombay in the case of CIT vs. Shreyas S. Morakhia reported at (2012) 342 ITR 285 (Mum.) wherein the Hon ble High Court have deleted the addition. However, in the year under appeal, we find that the facts are not same. In Asst.Year 2007-08, the amount of ₹ 12 lacs was outstanding to be received since AY 200102 and finally, in AY 2007-08 it was claimed as bad debts which proved that a sufficient time was taken by the assessee for making efforts in recovering the said outstanding debts. However, in the year under appeal, on the basis of observing the ledger account at page No.211 212 of the paper-book which shows the ledger account of Aneel Bhargavjeebhai Lalcha and Manesh Maheshbhai and we find that some transactions were entered into with these parties, even during the year under appeal. We, further find that an amount of ₹ 64,000/- has been paid to Aneel Bhargavbhai Lalcha on 24/08/2007, eventhough an outstanding amount of ₹ 1,04,210/- was due to be received on 01/04/2007. This facts shows that there was no dealing of assessee with this impugned parties for purchas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n by the ld.AR. In this ground, the question is whether the revised computation income can be accepted by the AO during the course of assessment proceedings or not. We find that the issue before us is squarely covered by the decision of the aforesaid Coordinate Bench in favour of assessee in the case of ACIT Ahmedabad vs. Amrapali Capital Financial Services Ltd.(supra), wherein the Tribunal held as under:- 4. We have heard both sides and gone through the relevant findings. Admitted facts of the case stand narrated hereinabove. The CIT(A) has accepted the assessee's revised computation as per section 55(2)(ab) of the Act. The Assessing Officer had refused the very relief by quoting the case law of Goetze (India) Ltd. (supra) and also the fact that the time limit for filing revised return had already elapsed. This is not the Revenue's case that the assessee is not otherwise entitled for the relief in question under the provisions of the Act in seeking the impugned recomputation. It only contends that once there was no time left for filing a revised return, the impugned relief ought not to have been granted. A perusal of the case law hereinabove itself clarifies that the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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