TMI Blog2017 (10) TMI 1260X X X X Extracts X X X X X X X X Extracts X X X X ..... 399 - BOMBAY HIGH COURT ) it has been held that if assessee has written off debt as bad debt, that would satisfy purpose of section 36(1)(vii).We follow the above decisions which are squarely applicable to the present issue and delete the disallowance Addition u/s 14A - applicability of rule 8D - Held that:- Rule 8D was notified by CBDT by the IT (Fifth Amdt.) Rules 2008 w.e.f. 24.03.2008. Thus it is not applicable to the AY 2007-08. In such a case for AY 2005-06, the Hon’ble Bombay High Court in CIT vs. M/s Godrej Agrovet Ltd. (2014 (8) TMI 457 - BOMBAY HIGH COURT) has held the order of the Tribunal in restricting the disallowance only to the extent of 2% of the total exempt income as proper. We follow the above decision and direct the AO to restrict the disallowance only to the extent of 2% of the total exempt income. Thus the 4th ground of appeal is partly allowed. Disallowance @ 50% of client introduction fees paid to ICICI Securities (INC) (ISI) for non-USA based entities u/s 40(A)(2b) - Held that:- The payment made to ISI was genuine and in accordance with the terms of the agreement dated October 01, 2004.As per the main clause of the aforesaid agreement, ISI would int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration, the assessee-company had paid ₹ 48,65,79,000/- to ICICI Bank Ltd. towards client assistance charges. The client assistance charges comprise of: Sr. No. Particulars No. of employees/sessions Amount (Rs.) I. Deputed Staff Cost 1. Metro Locations 289 226,287,000 2. Urban Locations 241 169,182,000 3. Semi Urban Locations 120 66,960,000 4. Rural Locations 7 31,50,000 465,579,000 II. Session Cost 21,000,000 Total 486,579,000 The above client assistance charges were paid to ICICI Bank Limited (Service provider). Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... para 2.1 hereinabove. 2.4 We have heard the rival submissions and perused the relevant materials on record. We find that the instant issue is covered in favour of the assessee-company by the order of the ITAT I Bench in assessee s own case for the AY 2004-05 (ITA No. 6304/Mum/2008) and AY 2005-06 (ITA No. 6860/Mum/2008) Facts being similar, we follow the above order of the Co-ordinate Bench mentioned above and delete the disallowance of ₹ 48,65,79,000/- made by the AO. Thus the 1st ground of appeal is allowed. 3. The 2nd ground of assessee s appeal is against the disallowance of reimbursement expenses to ICICI Securities Limited (Now known ICICI Securities Primary Dealership Ltd. ISECPD of ₹ 12,00,97,937/-. The AO has disallowed the above sum reimbursed to ISECPD on account of expenses incurred by them on behalf of the assessee-company on the ground that no TDS was deducted while making such payment. 3.1 In appeal the Ld. CIT(A) has held that ISECPD was a contractor rendering professional and technical services through its employees for the assessee-company. Therefore, TDS was deductable u/s 194C and 194J of the Act. The Ld. CIT(A) has held that since TD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.1 In appeal, the Ld. CIT(A) confirmed the above disallowance of ₹ 59,06,659/- made by the AO on the ground that the assessee-company failed to file party-wise details and actual proof of write off in ledger account of a particular debtor. The Ld. CIT(A) has further directed the AO to verify the assessment record and rectify his assessment order to add back a further sum of ₹ 79,88,905/- which was claimed by the assessee-company as bad debts and subsequently withdrawn by it. 4.2 Before us, the Ld. counsel submits that the assessee-company need not prove that the debt has become bad, if the debt is written off as irrecoverable in the books of accounts as held in TRF Ltd. vs. CIT (323 ITR 397)(SC). He further submits that the assessee-company had claimed ₹ 1,38,95,564/- as bad debts for the captioned assessment year. Out of it, the IPO commission amounting to ₹ 79,88,905 was accrued as at March 31st, 2006 and was wrongly reversed to Bad debts account during the captioned assessment year. The same was offered for tax during the assessment year 2006-07. He further submits that an amount of ₹ 25,12,280/- was written off towards unrecoverable account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ividend income of ₹ 7,82,717/- as exempt. The AO resorted to section 14A r.w. Rule 8D and made a disallowance of ₹ 34,32,050/-. 5.1 In appeal, the Ld. CIT(A) found the disallowance of ₹ 34,32,050/- made by the AO as reasonable and confirmed it. 5.2 Before us, the Ld. counsel of the assessee submits that Rule 8D is effective from 24.03.2008 and thus is not applicable for the AY 2007-08. 5.3 On the other hand, the Ld. DR supports the order passed by the Ld. CIT(A). 5.4 We have heard the rival submissions and perused the relevant materials on record. Rule 8D was notified by CBDT by the IT (Fifth Amdt.) Rules 2008 w.e.f. 24.03.2008. Thus it is not applicable to the AY 2007-08. In such a case for AY 2005-06, the Hon ble Bombay High Court in CIT vs. M/s Godrej Agrovet Ltd. (ITA No. 934 of 2011) has held the order of the Tribunal in restricting the disallowance only to the extent of 2% of the total exempt income as proper. We follow the above decision and direct the AO to restrict the disallowance only to the extent of 2% of the total exempt income. Thus the 4th ground of appeal is partly allowed. 6. In the result, the appeal of the assessee for the AY 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lause of the aforesaid agreement, ISI would introduce to the assessee-company clients in USA and countries other than USA where permitted from time to time. c) The assessee-company would execute secondary trades of clients introduced by ISI on the National Stock Exchange and Bombay Stock Exchange. d) The assessee-company would pay to ISI client introduction fees as mutually decided between them. e) The assessee-company had earned substantial brokerage from the clients introduced and passed on only a certain percentage of brokerage earned as client introduction fees to ISI. f) The expenditure was incurred wholly and exclusively for the purpose of the business and in absence of any limitation put by the law the disallowance was unjustified and unwarranted. g) The provisions of section 40(A)(2)(b) of the Act do not cover the payments made to ISI, since ISI does not have any interest in the assessee-company. It is stated by him such disallowance was deleted by the Ld. CIT(A) in assessee s own case in AYs 2003-04, 2004-05, 2005-06 and 2006-07. The Ld. counsel also relies on the order dated 24.05.2016 of the ITAT I Bench, Mumbai in assessee s own case for the AY 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g similar, we follow the above decision and uphold the order of the Ld. CIT(A). The 2nd ground of appeal is thus dismissed. 9. The 3rd ground of Revenue s appeal is against the deletion by the Ld. CIT(A) of disallowances of ₹ 8,24,83,381/- made by the AO on account of transaction charges, VSAT and lease line charges made u/s 40(a)(ia) paid to Stock Exchanges. During the year under consideration, the assessee-company has debited ₹ 3,33,264/-, ₹ 3,11,479/- and ₹ 8,18,38,638/- on account of lease line charges, VSAT charges and transaction charges paid to Stock Exchanges respectively. These charges are payable on account of transactions entered in securities through these Exchanges. The AO has disallowed the aforesaid expenses on the grounds that these expenses are liable for deduction of tax at source (TDS) u/s 194J, since services rendered by Exchanges for which such payments are made are fees for technical services (FTS). Based on such observation, AO has disallowed aforesaid expenses u/s 40(ia) since assessee-company has not deducted TDS while making payments to the Exchanges. 9.1 In appeal, the Ld. CIT(A) followed the decision by ITAT in the case of M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and confirmed the disallowance made by the AO. 11.1 The client assistance charges were paid to ICICI Bank as per the service provider agreement dated April 25, 2007 (effective from April 1, 2006) along with the amendment thereto i.e. on July 13, 2007 and September 25, 2007. We have deleted similar disallowance made by the AO in A.Y.2007-08. We have given the reasons at para 2.4 hereinbefore. We follow the above reasons, delete the disallowance of ₹ 17,18,85,698/- made by the AO and allow the 1st ground of appeal. 12. The 2nd ground of assessee s appeal is against the disallowance of reimbursement of expenses to ISECPD of ₹ 1,92,05,859/-. The AO has disallowed the above sum on the ground that no TDS is deducted while making such payment. 12.1 We find that the reasons given by the AO, the Ld. CIT(A) are same as the one given for the AY 2007-08. The arguments of the Ld. counsel of the assessee and the Ld. DR are also the same as in AY 2007-08. 12.2 In view of the above, we delete the disallowance of ₹ 1,92,05,859/- made by the AO on the basis of our reasons recorded at para 3.4 hereinbefore and allow the 2nd ground of appeal. 13. The 3rd ground of ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st, no appeal has been preferred by the Revenue on the issue of invoking the principles laid down in Reliance Utilities Power Ltd. (supra) in its application to Section 14A of the Act. In view of the above decision, we delete the disallowance of ₹ 10,47,740/- made by the AO under Rule 8D(2) (ii). 13.3.1 In Godrej Boyce Mfg. Co. Ltd. vs. Dy. CIT (2010) 194 Taxman 203 (Bom.) the Hon'ble Bombay High Court has explained Rule 8D as under: As regard Rule 8D(2)(iii), it had been submitted that some mechanism or formula had to be adopted for attributing part of the administrative / managerial expenses to tax-exempt investment income. The administrative expenses attributable to tax-free investment income have a fixed component and a variable component. A view was taken that the disallowance should also be linked to the value of the investment rather than the amount of exempt income. Under Portfolio Management Schemes (PMS), the fee charged ranges between 2 and 2.5 per cent of the portfolio value which would be inclusive of a profit element for the portfolio manager. While the fixed administrative expenses were excluded on the ground that in the case of a la ..... X X X X Extracts X X X X X X X X Extracts X X X X
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