TMI Blog2020 (12) TMI 392X X X X Extracts X X X X X X X X Extracts X X X X ..... hough the assessee was not the owner of such vehicles - AO disagreed with the contention of the assessee by observing that the assessee failed to substantiate based on documentary evidence that it had dominion over the vehicles and such vehicles were used for the purpose of the business - HELD THAT:- Exclusive possession, right to exclude others from enjoyment of the assets, full control over the assets, right to retain possession and defend the same are some of the basic and important characteristics of the ownership which would entitle a person to claim benefit of depreciation allowance under Section 32 of the Act. Admittedly, the assessee enjoys all such benefits with respect to such vehicles. It is because the assessee has incurred the cost for the purchase of the vehicles, it is paying the instalments of the car loans, regularly paying the wealth tax on such vehicles, bearing the running and maintenance expenses. Assessee cannot be denied the benefit of depreciation merely on the reasoning that it is not the legal owner of such vehicles. we note that the assessee has claimed repair and maintenance expenses with respect to such vehicles which were also allowed by the Revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S LIMITED. [ 2003 (8) TMI 169 - ITAT CALCUTTA-C] Addition of bad debts as the conditions specified under Section 36 (2) - AO disregarded the contention of the assessee by observing that the deduction on account of bad debts can be admitted only upon the fulfilment of the condition specified under Section 36(1) (vii) r.w.s 36(2) - HELD THAT:- These entries are mainly in the nature of vatav kasar. Some of them are less than of ₹ 10,000/- even. The Assessing Officer observed that there was no material on record to prove the same to have been actually become bad. And also that the assessee had offered only brokerage sums as its income u/s 36(2) of the Act in profit and loss account. He accordingly made the impugned disallowance of this bad debts claim. Addition on account of Saudafer loss - HELD THAT:- Loss does not relate to the activity of sale/purchase of shares by the assessee for itself, then the provisions of explanation to Section 73 of the Act cannot be applied. Hence, the ground of appeal of the Revenue is dismissed whereas the ground of appeal of the assessee is allowed. Re-compute the capital gain with indexation from the FY 2005- 06 - assessee acquired ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect to shares acquired by the assessee upon the conversion of both membership cards of the BSE - AR has not brought anything on record suggesting that the assessee has accept the indexation benefit from AY 2006-07 on account of misunderstanding of the provisions of law or wrong advice of the consultant or it was against the spirit of the provisions of law. Accordingly, we decline to interfere in the order of the ld. CIT-A. Hence, the grounds of appeal of the revenue and the assessee are dismissed. Addition made by the AO on account of mismatch in ITS/26AS - HELD THAT:- The onus lies upon the assessee to justify based on the documentary evidence that it has not received any income from M/s Rajyog Share and stockbrokers Ltd for ₹ 8,678/- but the assessee failed to discharge its onus. Thus in the absence of any documentary evidence, we do not find any infirmity in the order of the authorities below. Hence, the ground of appeal of the assessee is dismissed. Expenses incurred on the purchase of the mobiles - Revenue or capital expenditure - revenue has treated the mobile phones as part of the plant and machinery and accordingly it allowed the depreciation thereon a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices rendered by such brokerage. Besides the above, the payment was made against the violation of the rules of the SEBI, therefore we are of the view that payment is not eligible for deduction under the provisions of Section 37 of the Act. Accordingly we uphold the finding of the Ld. CIT (A). Hence, the ground of appeal of the assessee is dismissed. Disallowance of the expenses under Section 14A read with rule 8D cannot exceed the amount of exempted income. Hence, the ground of appeal filed by the revenue is dismissed. - ITA No(s) 413/Ahd/2016, 445/Ahd/2016, 268/Ahd/2016, 318/Ahd/2016, 446/Ahd/2016 - - - Dated:- 3-12-2020 - Shri Justice P.P. Bhatt, Hon ble President And Shri Waseem Ahmed, Accountant Member For the Assessee(s) : Shri Vartik Chokshi, AR For the Revenue : Shri Dileep Kumar, Sr. DR ORDER PER WASEEM AHMED, ACCOUNTANT MEMBER: In this bunch of appeals two appeals have been filed by the Assessee and two appeals have been filed by the Revenue for A.Ys. 2010-11, 2011-12 2012-13 which are arising from the order of the CIT(A)-10, Ahmedabad orders dated 11.12.2015, in the assessment proceedings under Section 143(3) of the Income Tax Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s rightly computed the Capital Gain as per provision of Section 48 of the I. T. Act, 1961 for indexing the cost from F.Y. 2005-06 when the BSE shares were allotted and first held by the assessee. 3. The first issue raised by the Revenue is that Learned CIT(A) erred in deleting the addition made by the AO for ₹ 79/- on account of depreciation claimed under Section 32 of the Act on the membership card despite the conditions for claiming the depreciation were not satisfied. 4. The facts in brief are that the assessee in the present case is a limited company and engaged in the business of stock broking. The AO during the assessment proceedings found that the membership card of the stock exchange held by the assessee has been demutualized/corporatized into the shares in the earlier year 2005-06. As such the assessee was not in the possession of stock exchange card in the year under consideration. Accordingly, the AO was of the view that the depreciation claimed by the assessee on the intangible asset being membership card of the stock exchange is not allowable under the provisions of Section 32 of the Act. Accordingly, the AO disallowed the same and added to the total inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant's own case., disallowance of depreciation made by Assessing Officer for ₹ 79 is deleted. This ground of appeal is allowed . 6. Being aggrieved by the order of the Learned CIT-A, the Revenue is in appeal before us. 7. The Learned DR before us vehemently supported the order of the AO whereas the Learned AR before us filed a Paper Book running from pages 1 to 231 and submitted that the Tribunal in the own case of the assessee has allowed the depreciation in ITA No. 1718/AHD/2011 vide order dated 6-11- 2015 for the assessment year 2008-09. The Learned AR vehemently supported the order of the Learned CIT (A). 8. We have heard the rival contentions of both the parties and perused the materials available on record. At the outset we note that the Tribunal in the own case of the assessee in ITA No. 1718/AHD/2011 for the Assessment Year 2008-09 vide order dated 6th November 2015, involving identical issue has decided the matter in favor of the assessee. The relevant extract of the order is reproduced as under: 13. The assessee s next ground raised in the instant appeal challenges disallowance of depreciation on Ahmedabad Stock Exchange card of ₹ 141/- m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Revenue is unable to dispute correctness thereof. We accordingly remit this issue back to the Assessing Officer for carrying out necessary verification regarding related payments having been taken into account by the concerned payees in computing their income. The assessee s other arguments disputing applicability of TDS provision shall be re-adjudicated as per law. This ground is treated as allowed for statistical purposes. This assessee s appeal ITA No.1718/Ahd/2011 is partly allowed. 9. The Learned DR at the time of hearing has not brought anything on record contrary to the finding of the ITAT, as discussed above, suggesting that there was the change in the facts and circumstances or under the provisions of law. Hence, there being is no change in the facts and circumstances viz a viz under the provisions of law, we confirm the order of the ld. CIT-A in view of the order of this tribunal in the own case of the assessee (supra) . Accordingly we direct the AO to delete the addition made by him. Hence the ground of appeal of the Revenue is dismissed. 10. The next issue raised by the Revenue is that the Learned CIT-A erred in deleting the addition made by the AO amounti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the vehicles vest with it and these cars were used for the purpose of the business. Accordingly, the depreciation allowance, insurance and interest expenses cannot be denied to it. 15. The Learned CIT (A) after considering the submission of the assessee found that assessee has used its own funds for the purchase of the vehicles viz a viz the repayment of the loan obtained for the purchase of the vehicles was made by it and these vehicles were duly reflected in the balance sheet as assets. Similarly, running and maintenance expenses on such vehicles were incurred by the assessee which were also allowed by the revenue. Thus what is suggested is that the vehicles were used for the purpose of the business. The Learned CIT (A) also found that the assessee is paying the wealth tax on such cars which evidences that the assessee is the beneficial owner of these cars. Accordingly, the Learned CIT (A) was of the view that the assessee cannot be denied the benefit of depreciation, insurance and interest expenses incurred on the vehicles merely on the reasoning that these vehicles were registered in the name of the individual directors. Accordingly the Learned CIT (A) allowed the g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ession and defend the same are some of the basic and important characteristics of the ownership which would entitle a person to claim benefit of depreciation allowance under Section 32 of the Act. Admittedly, the assessee enjoys all such benefits with respect to such vehicles. It is because the assessee has incurred the cost for the purchase of the vehicles, it is paying the instalments of the car loans, regularly paying the wealth tax on such vehicles, bearing the running and maintenance expenses. Thus in our considered view the assessee cannot be denied the benefit of depreciation merely on the reasoning that it is not the legal owner of such vehicles. In holding so we draw support and guidance from the order of this tribunal in case ITO vs. Electro Ferro Alloys Ltd. reported in 25 taxmann.com 458 where it was held as under:- 22. 2 In the present case it is not disputed that investment was made by the assessee in purchase of the motor car. It is shown as asset in the balance-sheet of the company. If expenditure for running the vehicle was incurred by the assessee, the assessee is de facto owner of the vehicle. It is not disputed that it was used for the purpose of busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harging any interest on such advances. Accordingly, the AO proposed to make the disallowance attributable to such loans and advances. 25. The assessee in response to show cause notice vide letter dated 22nd March 2013 submitted that the loans and advances were given to the sister concerns in the course of the business. Similarly in some of the cases, there was no advance provided to the sister concern in the year under consideration. The assessee, without prejudice to the above, also submitted that its own fund as on 31st March 2010 exceeds the amount of loans and advances. Therefore, it can be presumed that the assessee has provided interest free loans and advances to the sister concern out of its own fund without using any interest-bearing fund. 26. In view of the above the assessee contended that there cannot be any disallowance on the amount of loans and advances provided to the sister concerns without charging any interest thereon. 27. However, the AO disregarded the contention of the assessee by observing that the assessee failed to substantiate the fact that it has provided loans and advances for the purpose of its business activities. Accordingly, the AO worked ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... restoring that of the Income Tax Appellate Tribunal. It is observed that during the year under consideration the Appellant has own funds of ₹ 81,80,68,508 as against interest free advances of ₹ 36,63,056 hence following the decision of Hon'ble Ahmedabad ITAT and decision of Hon'ble Supreme Court referred supra, disallowance made by Assessing Officer under Section 36(1)(iii) for ₹ 1,12,972 is deleted. This ground of appeal is allowed. 29. Being aggrieved by the order of the Ld. CIT-A, the Revenue is in appeal before us. 30. Before us, both the Learned DR and the AR vehemently supported the order of the authorities below as favourable to them. 31. We have heard the rival contentions of both the parties and perused the materials available on record. At the outset we note that the Tribunal in the own case of the assessee in ITA No. 1718/AHD/2011 for the Assessment Year 2008-09 vide order dated 6th November 2015, involving identical issue has decided the matter in favor of the assessee. The relevant extract of the order is reproduced as under: 3. We come to the lower appellate proceedings now. The CIT (A) prepares a party-wise tabulation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing that the borrowed fund has not been utilized in the impugned investments. Accordingly, the AO invoked the provisions of Section 14A read with rule 8D of income tax rule and made the disallowance as under: Direct expenses Nil Interest expenses ₹ 18,16,250/- Administrative expenses ₹ 10,80,131/- Total ₹ 28, 96381/- 36.1 Thus, the AO disallowed a sum of ₹ 28,96,381/- and added to the total income of the assessee. 37. Aggrieved assessee preferred an appeal to the Learned CIT-A who allowed the appeal of the assessee in part by observing as under: 11.4 On careful consideration of entire facts it is observed that issue regarding disallowance of proportionate interest is covered in favour of Appellant by decision of Hon ble Ahmedabad ITAT in Appellant s own case for A.Y. 2008-09 (ITA No. 1531/Ahd/2011) wherein Hon ble ITAT vide its order dated 6th November, 2015 has held as under: 10. The Assesses states in the course of hearing that its interest free funds as on 31.03.2008 are of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1-1-2008 by order of Hon'ble Gujarat High Court. It is also observed that due to this amalgamation Appellant has filed revised Return of Income on 10th September, 2012 and same is considered while assessing total income by the Assessing Officer. As subsidiary company is merged with Appellant Company and revised annual accounts nullifies the effect of investment made in such company, amount of ₹ 13.19 crores cannot be considered as part of average investment while computing proportionate disallowance under Rule 8D(2)(iii). Considering these facts, investment as on 1st April, 2010 is considered at ₹ 10.75 crores and investment as on 31st March, 2010 at ₹ 6.06 crores hence average investment is worked out at ₹ 8.41 crores. The disallowance of administrative expenditure under Rule 8D(2)(iii) is reworked at ₹ 4,20,414 being 0.5% of average investment as against disallowance made by Assessing Officer for ₹ 10,80,131. In nutshell, aggregate disallowance under Section 14A is restricted at ₹ 4,20,414. It is also observed that similar disallowance has been made by Assessing Officer while computing book profit under Section 115JB of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, which is much more than the amount of investments as on 31st March 2010 at ₹ 10.75 crores. Thus, in such a situation, a presumption can be drawn that the assessee had utilized its own fund in such investments. Accordingly, we hold that the disallowance of interest expenses is not warranted under the given facts and circumstances. 40.1 Coming to the administrative expenses, we find that the disallowance has been correctly made under the provisions of Rule 8D(2)(iii) of the Income Tax Rule after considering the average investments. Furthermore, both the Learned AR and the DR have not brought anything on record contrary to the finding of the Learned CIT (A). Hence, we do not find any infirmity in the order of the Learned CIT (A). 41. We also note that the Tribunal in the own case of the assessee in ITA No. 1531/AHD/2011 for the Assessment Year 2008-09 vide order dated 6th November 2015, involving identical issue has decided the matter partly in favor of the assessee. The relevant extract of the order is reproduced as under: 10. The Assessee states in the course of hearing that its interest free funds as on 31.03,2008 are of ₹ 1,25,83,17,836/- in the nature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levied on account of delay in complying the procedures of the Bombay stock exchange and National stock exchange. Accordingly, the assessee claimed that such expenses were incurred in the course of the business and therefore the same are allowable as deduction under Section 37 of the Act. 45. However, the AO found that similar penalties were disallowed by his predecessor for the Assessment Year 2006-07. Accordingly the AO disallowed the same and added to the total income of the assessee. 46. Aggrieved assessee preferred an appeal to the Learned CIT (A) who deleted the addition made by the AO by observing as under: 12.3 I have carefully considered the Assessment Order and submission filed by Appellant. The Assessing Officer has observed that Appellant has paid penalty of ₹ 1,43,232 to NSE and ₹ 7,969 to NSDL which has been levied by the Exchange for violation of its by-laws. The Assessing Officer has relied upon Assessment Order for A.Y. 2006-07 and held that such expenditure cannot be allowed as deduction as per Explanation - 1 to Section 37 of the Act. On the other hand, Appellant has argued that penalty levied by NSE or NSDL does not tantamount to infraction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter in favor of the assessee. The relevant extract of the order is reproduced as under: 2. We come to Revenue's appeal ITA No.l531/Ahd/2014. Its first ground challenges the lower appellate order deleting disallowance/addition of NSE penalty of ₹ 74,515/-. The assessee is a limited company in stock broking business. It paid the impugned sum to the National Stock Exchange for non-compliance of its bye-laws. The assessee's case was that this penalty sum pertained to procedural delay in filing compliance report to the exchange. And the delay caused was in payment of dues and other obligations. The Assessing Officer disallowed this claim as a business deduction by following an identical finding in preceding Assessment Year 2007-08. The CIT(A) follows case-law 88 TTJ 352 (Kol), ITO vs. GDB Share and Stock Broking Services Ltd., in deciding the very issue in assessee's favour. The Revenue fails to point out any distinction on facts or law before us. It does not quote any case law to the contrary. This first ground accordingly fails. 50. The Learned DR at the time of hearing has not brought anything on record contrary to the finding of the ITAT as discusse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. 55. Aggrieved assessee preferred an appeal to the Learned CIT-A, who deleted the addition made by the AO by observing as under:- On careful consideration of entire facts it is observed that issue regarding disallowance of proportionate interest is covered in favour of Appellant by decision of Hon'ble Ahmedabad ITAT in Appellant's own case for A.Y. 2008-09 (ITA No. 1531/Ahd/2011) wherein Hon'ble ITAT vide its order dated 6th November, 2015 has held as under: 5. The CIT(A) deletes this bad debts disallowance after quoting case law of TRF Ltd. Vs. CIT, 323 ITR 397 (SC) to the fact that it is not necessary to prove the same to have actually become bad as per the relevant law amended from 01.04.1989. The CIT(A) comes to latter aspect (supra). The assessee submitted in the lower appellate proceedings that it had already credited its brokerage income in profit and loss account thereby offering it for taxation. It clarified that sale/purchase price of shares had been credited in the respective accounts. The CIT(A) follows special bench decision of the tribunal (2010) 5 ITR (Trib) 1 (Bom.) DCIT vs. Shreyas S. Morakhia as upheld in (2012) 342 ITR 285 (Bom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in deleting the addition made by the AO for ₹ 17,02,013/- on account of Saudafer loss. 61. The assessee during the assessment proceedings submitted that it has made certain mistakes while carrying out transactions of purchases and sales of securities on behalf of the clients which has resulted loss of ₹ 38,40,074/- only. As per the assessee such loss should be allowed as deduction under Section 28 (1) of the Act as it did not occur in its own account and the same should not be treated as speculative loss under explanation to Section 73 of the Act. 62. The assessee further contended that had such loss been debited in the account of the clients, but such clients would not have paid for such losses as the loss was incurred due to the mistake of the assessee. In such a situation, the loss was allowable as deduction either under Section 36(1) as bad debts or as a business loss under Section 28(1) of the Act. 63. However, the AO disagreed with the contention of the assessee by observing that the assessee has not furnished the details of the mistake committed by it, such as clients in whose accounts the transaction was entered, non-delivery of the shares to the excha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nation to Section 73 of the Act. Accordingly, the Learned CIT (A) deleted the addition made by the AO for such loss of ₹ 17,02,013.00. Thus, the Learned CIT (A) allowed the ground of appeal of the assessee in part. 70. Being aggrieved by the order of the Learned CIT (A) both the Revenue and the assessee are in appeal before us. The Revenue is in appeal against the deletion of the addition made by the AO for ₹ 17,02,013/- treating such loss relating to future option segment which was carried out through the recognized stock exchange whereas the assessee is in appeal against the confirmation of the addition of ₹ 21,38,061/- which was treated by the Learned CIT (A) as speculative in nature in pursuance to the explanation to Section 73 of the Act. The ground No. 4 of appeal filed by the assessee in ITA No. 268/AHD/2016 reads as under: 4. In law and in the facts and circumstances of the appellant s case, the learned CIT(A) has grossly erred in sustaining the Ld. AO s action of treating what was normal business los [Saudafer loss] as speculation loss to the extent of ₹ 21,38,061 [out of ₹ 38,40,074 so treated by the Ld. A.O.]. 71. The Learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ates to the accounts of its clients. Accordingly, we conclude that the provisions of explanation to Section 73 of the Act cannot be applied to the case on hand. In holding so we find support and guidance from the order of this Tribunal in the case of Parker securities Ltd versus DCIT reported in 102 TTJ 235 wherein it was held as under: Explanation to Section 73 provides that where any part of the business of a company (other than certain specified companies as mentioned in the Explanation) consists in the purchase and sale of shares of other companies, such company shall, for the purposes of this Section, be deemed to be carrying on a speculation business to the extent to which the business consists of the purchase and sale of such shares. It is clear from the said provision that sale and purchase of shares of other companies, within the ambit of the Explanation, must be carried out as an activity of business. The term business has been defined in Section 2(13). Noting the definition of business from the view point of Explanation to Section 73, it has been observed by the Karnataka High Court in the case of Mysore Rolling Mills (P.) Ltd. v. CIT [1992] 195 ITR 404/ 63 Taxm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,30,000 31-03-1996 27-01-2010 4,22,50,000 2,75,01,000 6,18,52,784 (1,96,02,783) 78. The assessee has worked out the index cost of acquisition from the year 1995-96 while working out the long-term capital gain. 79. Similarly, the assessee also acquired another BSE membership card in the year 2000-01 at ₹ 2,52,11,102/- and claimed depreciation till the Assessment Year 2009-10. As such the assessee has shown opening written down value of such card at ₹ 93,06,442/-in its balance sheet as on 1st April 2009. Such BSE membership card was also demutualised in the Financial Year 2005-06. In other words, the membership card was converted into the shares of Bombay stock exchange in the year 2005-06. The assessee sold such shares in the year under consideration and claimed long-term capital gain at ₹ 2,77,63,125/-. It was worked out as under: No of shares Purchase date Sale date Sales value (Rs.) Cost of acquisition (Rs.) Indexed cost (Rs.) LTCG (Rs.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apital gain on sale of BSE Shares ₹ 37694562/- b. Less Long term capital loss on sale of Arvind Shares (-)₹ 48054605/- Allowable long term capital loss ₹ 10360043/- 82. In view of the above the AO worked out the excessive long-term capital loss at ₹ 2,95,34,220/- and disallowed the same by adding to the total income of the assessee. 83. Aggrieved assessee preferred an appeal to the Learned CIT (A), and submitted that the provisions of Explanation-1 (ha) of Section 2(42A) requires that the period prior to demutualisation of shares shall be included in the period of holding. Thus, the indexation benefit should be granted from the year of acquisition. 84. The assessee by way of filing the additional ground of appeal also contended that the cost of acquisition of the membership card of BSE acquired in the FY 2000-01 should be taken the original cost instead of WDV as on 1st April 2005 as mandated under Section 55(2)(ab) of the Act. The assessee in this connection further submitted that it has inadvertently taken the WDV as on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ab) of the Act. Similarly, the assessee should also be allowed the benefit of indexation from the year of acquisition of respective membership cards as per the provisions of Explanation 1(ha) to Section 2(42A) of the Act. 89. Both the Learned DR and the AR relied on the order of the respective authorities to the extent favourable to them. 90. We have heard the rival contentions of both the parties and perused the materials available on record. The facts of the case are not in dispute which have been elaborated in the preceding paragraph. Therefore, we are not inclined to repeat the same for the sake of brevity and convenience. From the preceding discussion the following question arises for our consideration. (a) Whether the cost of acquisition of the BSE shares should be calculated in accordance with the original cost of acquisition of the BSE membership card under Section 55(2)(ab) or the written down value be adopted under Section 50 of the Act ? (b) Whether the relevant year for calculating indexed cost of acquisition should be the year of original acquisition of the BSE membership, i.e., year 1995-96/2000-01 or the year of allotment of shares in the BSE in lieu of m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2000-01, we note that the assessee has claimed depreciation thereon. Therefore, it appears that the same is subject to the provision of Section 50 of the Act i.e. special provision for computation of capital gain in case of depreciable assets which provides that written down value of the block of assets at the beginning of the previous year shall be reduced from the sale consideration. However, we note that what has been sold in the year under consideration are the shares of BSE which were not depreciable assets upon the conversion membership card as shares in the year 2005-06. Thus, the present membership card in the year under consideration was no longer depreciable assets. Therefore, we are of the view that the provisions of Section 50 of the Act cannot be applied for the year under consideration. Indeed, the assessee is availing double benefit, firstly, by way of depreciation and secondly by way of claiming the deduction of the original cost of acquisition of the membership card under Section 55(2)(ab) of the Act. But the issue before us is limited to the cost of acquisition of the membership card as provided under section 55(2)(ab) of the Act. As per this section, the origi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome to that extent shown by ITS/26AS as having been paid by some parties to the appellant had not been included in the appellant's return. 3. In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred in sustaining disallowance of ₹ 4,20,414 made u/s. 14A read with Rule 8D(2)(iii) on account of administrative expenses [even as he had directed the quantum of the disallowance on this account to be reduced from ₹ 10,80,131 to ₹ 4,20,414 after appreciating that the applicant's investments in shares of its subsidiary which had been amalgamated with the appellant, cannot be taken into account for the purposes of arriving at the quantum of disallowance under the said Rule]. He ought to have appreciated, inter-alia, that in the peculiar and eminent facts of the appellant's case, the Ld. A.O. had got to be satisfied with the appellant's claim that it had not incurred any administrative expenditure in relation to income not forming part of its total income and that therefore, the Ld. A.O. could not have assumed jurisdiction u/s. 14A(2) to make any disallowance on this account. 4. In law and in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umstances of the appellant's case, the learned CIT(A) has grossly erred in upholding the learned A.O.'s action of holding that the appellant's long term gain/loss on the sale of shares of the Bombay Stock Exchange Ltd. allotted to it in financial year 2005-06 have to be computed on the basis of the cost inflation index pertaining to the financial year 2005-06 instead of on the basis of the cost inflation index pertaining to the financial years 1995-96 and 2000-01 during which the appellant had acquired the respective Membership Cards of the Bombay Stock Exchange in lieu whereof the shares of the Bombay Stock Exchange Ltd. in question had been allotted to it upon demutualization/corporatization of the Bombay Stock Exchange. 10.1 In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred in summarily dismissing the ground No. 20 of the appellant's appeal reading as under:- 20.1 In law and in the facts and circumstances of the appellant's case, the learned Assessing Officer has grossly erred in levying interest amounting to ₹ 98,15,678 u/s. 234B. He ought to have appreciated, inter alia, that quite a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment proceedings observed certain difference in the amount of income shown between ITS/26AS viz-a-viz income accounted in the books of accounts of the assessee. Such difference was of ₹ 6,94,288/- which was not shown as income by the assessee in its books of accounts. On question by the AO, the assessee could not furnish any suitable reply for reconciling such difference. Thus the AO in the absence of any information, treated such difference aggregating to ₹ 6,94,288/- as income and added to the total income of the assessee. 100. Aggrieved assessee preferred an appeal to the Learned CIT (A) who deleted the addition made by the AO in part by observing as under: The Assessing Officer has made addition on the ground that Appellant has not offered income received from following four parties: Name of Tax Deductor Income from which TDS deducted Manish Kumar Goyel 1,36,356 Rajyog Share and Stock Brokers ltd. 8,678 IL FS Securities Services Ltd. 45,484 Indian Bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is that the Learned CIT-A erred in upholding the addition in part amounting to ₹ 4,20,414/- under the provisions of Section 14A read with Rule 8D(2)(iii) of Income Tax Rule. 106. The issue raised by the assessee has already been disposed of by us along with the appeal filed by the Revenue bearing ITA No. 413/AHD/2016 vide paragraph number 40-42 of this order. As such, the ground of appeal of the assessee has already been dismissed. For the detailed discussion, please refer the relevant paragraph. Hence, the ground of appeal of the assessee is dismissed. 107. The next issue raised by the assessee in ground No. 4 is that the Learned CIT-A erred in confirming the addition in part of ₹ 21,38,061/- out of the total addition made by the AO at ₹ 38,40,074/- by treating the normal business loss as speculation loss. 108. The issue raised by the assessee has already been disposed of by us along with the appeal filed by the Revenue bearing ITA No. 413/AHD/2016 vide paragraph number 74 75 of this order. As such, the ground of appeal of the assessee has already been allowed. For the detailed discussion, please refer the relevant paragraph. Hence, the ground of app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allow depreciation on cell phones treated as capital expenditure. This ground of appeal is partly allowed. 113. Being aggrieved by the order of the Learned CIT (A) the assessee is in appeal before us. 114. The Learned AR before us reiterated the submission as made before the Learned CIT (A) whereas the Learned DR vehemently supported the order of the authorities below. 115. We have heard the rival contentions and perused the materials available on record. From the preceding discussion, we note that the assessee has treated the expenses incurred by it on the purchase of mobile expenses as revenue in nature whereas the revenue has treated the same as capital in nature. Accordingly, the claim of the assessee was disallowed but after allowing the depreciation at the rate of 15% treating the same as plant and machinery. A capital expenditure represents the expenses incurred by the person to purchase, upgrade, or extend the life of an asset. Capital expenditures are designed to be used to invest in the long-term financial health of the company. Capital expenditures are a long-term investment, meaning thereby the assets purchased have a useful life of more than a year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. (1) Subject to the provisions of sub-rule (2), the allowance under clause (ii) of sub- section (1) of section 32 in respect of depreciation of any block of assets shall be calculated at the percentages specified in the second column of the Table in Appendix I to these rules on the written down value of such block of assets as are used for the purposes of the business or profession of the assessee at any time during the previous year: 115.7. Now to determine the rate of depreciation we need to refer the appendix-1 of the Act as applicable to the mobile phones. However, on perusal of the appendix-1, we find no entry for the rate applicable to the mobile phones. However, the revenue has treated the mobile phones as part of the plant and machinery and accordingly it allowed the depreciation thereon at the rate of 15%. Now the question arises whether the mobile phones are machinery. The word plant' according to section 43(3) includes ships, vehicles, boats, scientific apparatus and surgical equipment. Nowhere, does it specify mobile phones. Of course, it may be argued that plant is an inclusive definition, not an exhaustive one. But, then plant would include anythin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, 2012 wherein it is stated that such charges are not subject to provisions of TDS but notification is applicable from 1st January, 2013 hence it cannot have retrospective effect. Considering these facts, it is held that Appellant has failed to deduct TDS on payment made to HDFC Bank hence disallowance under Section 40(a)(ia) is required to be upheld subject to legal issue regarding applicability of Finance Act, 2012, as discussed herein under. (ii) So far as subscription and membership fees paid to exchange are concerned, it is observed that same are paid for obtaining various facilities as provided by exchange for carrying out screen based trading transactions on behalf of clients. The exchanges have provided managerial services which are in nature of technical services as mentioned in Section 194J the decision of Bombay High Court relied upon by Appellant is on the issue whether payment5 of lease-line charges and VSAT charges are subject to TDS under Section 194J of the Act or not and they are dealing with payment referred hereinabove hence same cannot be made applicable while adjudicating present issue. Thus, non-deduction TDS would lead to disallowance under Section 40(a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Section 194J of the Act cannot be applied on the payment made by the assessee for the membership subscription and transaction charges. 121. On the other hand, the Learned DR vehemently supported the order of the authorities below. 122. We have heard the rival contentions of both the parties and perused the materials available on record. For attracting the provisions of TDS under Section 194J of the Act, the payment as 'fees for technical services' should have been paid in consideration of rendering by the recipient of payment of any (a) managerial service, (b) technical or consultancy services. The stock exchanges merely provide facility to its members to purchase and sell shares, securities, etc., within the framework of its bye laws. In the event of dispute it provides for mechanism for settlement of dispute. It regulates conditions subject to which a person can be a member and as to when and in what circumstances membership can be transferred, cancelled, suspended, etc. The exchange provides a place where the members can meet and transact business. The membership subscription /transaction fee paid is on the basis of volume of transaction effected by a memb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Exchange to deal with special situations faced by such a member(s) or the special needs of such member(s) in the conduct of business in the Stock Exchange. In other words, there is no exclusivity to the services rendered by the Stock Exchange and each and every member has to necessarily avail of such services in the normal course of trading in securities in the Stock Exchange. Such services, therefore, would undoubtedly be appropriate to be termed as facilities provided by the Stock Exchange on payment and does not amount to technical services provided by the Stock Exchange, not being services specifically sought for by the user or the consumer. It is the aforesaid latter feature of a service rendered which is the essential hallmark of the expression technical services as appearing in Explanation 2 to Section 9(1)(vii) of the Act. 10. For the aforesaid reasons, we hold that the view taken by the Bombay High court that the transaction charges paid to the Bombay Stock Exchange by its members are for 'technical services' rendered is not an appropriate view. Such charges, really, are in the nature of payments made for facilities provided by the Stock Exchange. No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated 28.07.2011)(Bom) (ii) CIT-4, Vs. M/s. The Stock and Bond Trading Company Ltd. (ITA No. 4177 of 2010, dated 14.10.2011)(Bom). We find that the Hon ble Jurisdictional high Court in the aforesaid judgments had clearly held that VSAT and lease line charges paid by the assessee to stock exchange are merely in the nature of reimbursement of the charges paid/payable by the stock exchange to the department of the telecommunication, and thus in the absence of any element of income involved in the said payments, the issue as regards deduction of tax at source on the same does not arise at all. We are of the considered view that in the backdrop of the aforesaid judgment of the Hon ble Jurisdictional High Court, the order of the CIT(A) treating the assessee as being in default u/s. 201(1)/201(1A) in respect of failure to deduct tax at source as regards the payments made towards lease line charges, cannot be sustained, and is thus set aside. The Ground of appeal No. 2 raised by the assessee before us is allowed. 128.1 In view of the above, we hold that the assessee was not subject to the provisions of TDS under Section 194-I of the Act as alleged by the authorities below. Accordingly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e quantum of business given by the broker AO viz a viz the violation of the provisions of law. Accordingly the Learned CIT (A) confirmed the order of the AO. 133. Being aggrieved by the order of the Learned CIT (A), the assessee is in appeal before us. 134. The Learned AR before us reiterated the submission as made before the Learned CIT (A) whereas the Learned DR vehemently supported the order of the authorities below. 135. We have heard the rival contentions of both the parties and perused the materials available on record. The amount of brokerage expenses can be claimed as deduction provided it was incurred in the course of the business. The Learned AR at the time of hearing has not brought anything on record suggesting the nature of services rendered by such brokerage. 135.1 Besides the above, the payment was made against the violation of the rules of the SEBI, therefore we are of the view that payment is not eligible for deduction under the provisions of Section 37 of the Act. Accordingly we uphold the finding of the Ld. CIT (A). Hence, the ground of appeal of the assessee is dismissed. 136. The next issue raised by the assessee in ground No. 9 is that the Le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Income Tax Rule. 143.1 Similarly, the Assessee further contended that the dividend has been directly credited in the bank account and therefore it has not incurred any administrative expenses for the earning of such dividend income. 143.2 However, the AO disregarded the contention of the assessee by observing that the assessee has not furnished any day to day fund flow statement suggesting that the borrowed fund has not been utilized in the impugned investments. Accordingly, the AO invoked the provisions of Section 14A r.w.r 8D and made the disallowance as under: Direct expenses nil Interest expenses 8,51,466.00 Administrative expenses 9,50,183.00 Total 18,01,649.00 143.3 Thus, the AO disallowed a sum of ₹ 18,01,649/- and added to the total income of the assessee. 144. Aggrieved assessee preferred an appeal to the Learned CIT-A, who partly allowed the appeal of the assessee. 145. Being aggrieved by the order of the Learned CIT-A, both the Revenue and the assessee are in appeal b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act which reads as under: Expenditure incurred in relation to income not includible in total income. 14A. For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred88 by the assessee in relation to88 income which does not form part of the total income88 under this Act.] The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed89, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act. 147.1 The above provision requires to make the disallowance of the expenses in relation to the income which does not form part of the total income under this Act. The term used under Section 14A of the Act amount of expenditure incurred in relation to such income implies that the expenditure cannot exceed the amount of exempted income. 148. In holding so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income Tax vs. Corrtech Energy Pvt Ltd. reported in 372 ITR 97. 3. Tax appeal is, therefore, dismissed. 148.2 We also note that the Hon ble Apex court has also confirmed the principles laid down by the Hon ble High Court as discussed above in the case of CIT vs. State Bank of Patiala reported in 99 taxmann.com 286 by dismissing the Special Leave petition. 149. In view of the above, we hold that the disallowance of the expenses under Section 14A read with rule 8D cannot exceed the amount of exempted income. Hence, the ground of appeal filed by the revenue is dismissed whereas the ground of appeal filed by the assessee is partly allowed. 150. The third issue raised by the Revenue is that Learned CIT-A erred in deleting the addition made by the AO for ₹ 42,700/- by disallowing the expenditure representing the penalty. 150.1 At the outset, we note that the identical issue has been decided by us in the own case of the assessee in ITA No. 413/AHD/2016 vide Para No. 49 to 50 of this order against the Revenue. For the detailed discussion please refer the relevant paragraphs. Respectfully, following the same, we dismiss the grounds of appeal of the Revenue. 151. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.2 Without prejudice to the foregoing, in law and in the facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred in failing to appreciate that in any case, the quantum of disallowance u/s. 14A could not exceed the quantum of income not forming part of the appellant's total income this year viz. ₹ 24,324. 3. In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred in sustaining disallowance of deduction of ₹ 19,38,207 in respect of deposits made by the appellant with landlords of rented properties which the appellant was unable to recover and which it had written off to its Profit Loss Account this year and which was deductible as a business loss in any case. 4.1 In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred in sustaining the learned A.O's action of treating what was normal business loss [Saudafer loss] of ₹ 19,68,177 as speculation loss. 4.2 Without prejudice to the foregoing, in law and in the facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred in omi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal either before or during the course of hearing of the appeal. 153. The first issue raised by the assessee in ground No. 1 is general in nature and, therefore, no separate adjudication is required. Accordingly, we dismiss the same. 154. The second issue raised by the assessee is that the Learned CIT (A) erred in upholding the order of the AO in part by sustaining the disallowance of ₹ 2,76,400/- under the provisions of Section 14A read with Rule 8D(2)(iii) of income tax rule. 155. The issue raised by the assessee has already been disposed of by us along with the appeal filed by the Revenue bearing ITA No. 445/AHD/2016 vide paragraph number 147 to 149 of this order. As such, the ground of appeal of the assessee has already been allowed in part. For the detailed discussion, please refer the relevant paragraph. Hence, the ground of appeal of the assessee is partly allowed. 156. The next issue raised by the assessee in ground No. 3 is that the Learned CIT (A) erred in confirming the order of the AO by sustaining the disallowance of ₹ 19,38,202/- with respect to the deposits made with the landlords for the rented properties. 157. The AO during the assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 5 is that the Learned CIT (A) erred in holding that the expenses incurred on the purchase of the mobiles are in the nature of capital expenditure. 164. At the outset, we note that the identical issue has been decided by us in the own case of the assessee in ITA No. ITA No. 268/Ahd/2016 for A.Y. 2010-11 vide Para No. 115 of this order against the Revenue and in favor of the assessee. For the detailed discussion please refer the relevant paragraph. Respectfully, following the same, the ground of appeal of the assessee is allowed. 165. The next issue raised by the assessee is that the Learned CIT-A erred in confirming the disallowance made by the AO on the payment made to the BSNL and stock exchange for ₹ 14,22,831/- on account of VSAT and lease line charges. 166. At the outset, we note that the identical issue has been decided by us in the own case of the assessee in ITA No. ITA No. 268/Ahd/2016 for A.Y. 2010-11 vide Para No. 128 to 129 of this order against the Revenue and in favor of the assessee. For the detailed discussion please refer the relevant paragraphs. Respectfully, following the same, the ground of appeal of the assessee is allowed. 167. The issues ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re not satisfied in the assessee s case. (5) That the ld.CIT(A) erred in law and on the facts by deleting addition of ₹ 20,29,917/- made by the AO u/s.40(a)(ia) without appreciating the fact that the conditions of provisions u/s.40(a)(ia) are not fulfilled by the assessee and had upheld disallowance in assessee s own case for payment made for VSAT charges and lease line charges in AY 2007-08. 171. At the time of dictation, it was noticed that the tax effect in the impugned appeal filed by the Revenue is less than ₹50 lakhs. Therefore, the same is not maintainable in view of the recent circular issued by the CBDT bearing No. 17/2019 dated 8th August 2019. The relevant extract of the circular issued dated 8 August 2019 reads as under: 2. As a step towards further management of litigation. it has been decided by the Board that monetary limits for filing of appeals in incometax cases be enhanced further through amendment in Para 3 of the Circular mentioned above and accordingly. the table for monetary limits specified in Para 3 of the Circular shall read as follows: S.No. Appeals/SLPs in Income-tax matters ..... X X X X Extracts X X X X X X X X Extracts X X X X
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