TMI Blog2021 (4) TMI 948X X X X Extracts X X X X X X X X Extracts X X X X ..... guments taken by the ld.AR of the assessee on the issue of satisfaction. Accordingly, we reject the same. Disallowance computed by the AO under Rule 8D(2) - Interest disallowance under Rule 8D(2)(ii) - As gone through the explanation furnished by the assessee in light of schedule of financial charges appeared in the financial statement and find that interest expenditure incurred for the year are relatable to specific loans borrowed for acquisition of assets, interest paid on Client Margin Money and interest paid u/s.234C of the Act. Further, there is no specific interest has been paid on any loan which has been used for investing in dividend yielding shares or securities. Therefore, unless the AO makes out a case that interest bearing funds have been used for making investments in shares and securities which yield income, no interest disallowance can be made under Rule 8D(2) of the IT Rules, 1962. Therefore, we direct the AO to delete additions made towards disallowance of interest under Rule 8D(2)(ii) of IT Rules 1962. Disallowance of expenses under Rule 8D(2)(iii) - We find that the ITAT, Special Bench of Delhi in the case of ACIT vs. Vireet Investments (P) Ltd., [ 2017 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - ITA No. 482/CHNY/2019 - - - Dated:- 21-4-2021 - SHRI V. DURGA RAO, JUDICIAL MEMBER AND SHRI G. MANJUNATHA, ACCOUNTANT MEMBER Appellant by : Smt. Nithya Sankaran, CA Respondent by : Shri Suresh Periasamy, JCIT ORDER Per G. MANJUNATHA, AM: This appeal filed by the assessee is directed against order of learned Commissioner of Income Tax (Appeals)-11, Chennai, dated 13.12.2018 and pertains to assessment year 2013-14. 2. The assessee has raised the following grounds of appeal:- 1. For that the order of the Commissioner of Income Tax (Appeals) is contrary to law, facts and circumstances of the case to the extent prejudicial to the interests of the appellant and is opposed to the principles of equity, natural justice and fair play. 2. For that the Commissioner of Income Tax (Appeals) failed to appreciate that the order of the Assessing Officer is without jurisdiction. 3. For that the Commissioner of Income Tax (Appeals) failed to appreciate that the Assessing Officer erred in disallowing a sum of ₹ 8,58,818i- u/s.14A r.w Rule 8D. 4. For that the Commissioner of Income Tax (Appeals) failed to appreciate that the provisions of sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld.CIT(A) but could not succeed. The ld.CIT(A) for the reasons stated in his appellate order dated 13.12.2018 confirmed additions made by the AO towards disallowance of expenses u/s.14A of the Act and has also confirmed findings of the AO in disallowance of membership fees paid to MCX Exchange Ltd. Aggrieved by the ld.CIT(A) order, the assessee is in appeal before us. 4. The first issue that came up for our consideration from Ground Nos.1 to 9 of assessee appeal is disallowance of expenses in relation to exempt income u/s.14A of the Act. 4.1 The ld.AR for the assessee submitted that the ld.AO has erred in disallowance of expenses u/s.14A without recording satisfaction as required under sub-section 2 of section 14A of the Act, having regard to the books of accounts of the assessee that disallowance if any made by the assessee is incorrect. Unless such satisfaction is recorded, the AO cannot mechanically invoke Rule 8D to compute disallowance. The ld.AR further submitted that the assessee has not incurred any expenditure to earn exempt income. Unless there is a direct nexus between expenses including interest on borrowed funds and investments made, no disallowance can be made u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t us come to disallowance computed by the AO under Rule 8D(2) of the IT Rules, 1962. The AO has computed interest disallowance of ₹ 5,93,126/- under Rule 8D(2)(ii) of IT Rules, 1962. We have gone through the explanation furnished by the assessee in light of schedule of financial charges appeared in the financial statement and find that interest expenditure incurred for the year are relatable to specific loans borrowed for acquisition of assets, interest paid on Client Margin Money and interest paid u/s.234C of the Act. Further, there is no specific interest has been paid on any loan which has been used for investing in dividend yielding shares or securities. Therefore, unless the AO makes out a case that interest bearing funds have been used for making investments in shares and securities which yield income, no interest disallowance can be made under Rule 8D(2) of the IT Rules, 1962. Therefore, we direct the AO to delete additions made towards disallowance of interest under Rule 8D(2)(ii) of IT Rules 1962. 4.5 Coming back to disallowance of expenses under Rule 8D(2)(iii) of IT Rules, 1962. The AO has computed disallowance of ₹ 2,65,692/- at the rate of 0.5% of averag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of membership fee paid to MCX Exchange Ltd., by holding that said expenditure is in the nature of intangible asset and does not qualify to be a revenue expenditure. Therefore, there is no reason to deviate from the reason given by the ld.CIT(A) to confirm addition made by the AO. 5.4 We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. Admittedly, membership fee paid to any stock exchange including MCX Exchange Ltd., is for acquiring a right in membership of exchanges for trading in shares and securities. Further membership rights in any stock exchange including MCX Exchange Ltd., is a transferable right. Therefore, said right is definitely a right in the nature of any commercial right of similar nature which falls under section 32(1)(ii) of the Act. Once amount paid is in the nature of an intangible asset, then same cannot be treated as revenue expenditure. This view is supported by decision of Hon ble Supreme Court in the case of M/s. Techno Shares and Stocks vs. CIT in Civil Appeal No.7780 to 7781 of 2010 dated 09.09.2010, where the Hon ble Supreme Court clearly held that membership card would constitu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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