AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2015 (12) TMI 141
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....ereafter, the case was reopened u/s 148 of the Income Tax Act, for allowing inaccurate rebate of claim u/s 88E. The AO in the assessment order u/s. 147/143(3) dated 31-12-09 of the Act has observed that the STT paid income of Rs. 4,91,73,037/- was computed by assessee by debiting expenses of Rs. 65,15,839/- from STT income of Rs. 5,56,88,876/- (as per assessee). He noted that assessee had allocated total expenses of Rs. 1,66,63,904/- in the ratio of 25% / 75% basis between STT income of Rs. 55,688,876/- and non- STT income of Rs. 1,07,31,720/-. He observed that assessee failed to explain logic of such expense allocation to arrive at the STT income for the purpose of rebate u/s. 88E calculation and, therefore, reopening was made. 2.2. Brief facts leading to reopening are like this: The original assessment was completed as under:- Rs. Rs. Net Profit as per P & L A/c paid 3,17,75,642/- Add; 1] STT 1,80,13,120/- 2] Depreciation [to be considered separately] 4,86,205/- 3] Preliminary Exp 10,702/- 4] Donation 3,000/- Add: As discuss....
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....accept the assessee's plea, inter alia, observing that Assessing Officer had disposed off the objection by pointing out defect in original assessment. On merits, assessee explained the calculation u/s. 88E as under:- "The detail of appellant returned income is as below: Business Amount Share Trading 4605962 Jobbing, arbitrage dealings 2856925 F/O profit 53939839 Brokerage/others 10731720 Expenses as per Returned of Income (16663904) Returned income 49756692 The expenses were bifurcated on overall business and actual in the under mentioned basis Particulars Own Client Total Remarks Transactions charges 7464182 2488061 99522443 75:25 Terminal operating chgs. 1095649 365216 1460865 75:25 Depository charges 184060 61353 245413 75:25 Electricity charges 64857 21619 86476 75:25 Fees & subscription 283391 94464 377855 75:25 Depreciation 276102 225901 502003 55:45 Others (as per P/L & computation etc.) 4523 4034526 4039049 Actual 9372764 7291140 16663904 The app....
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....nditures. Expenses are allocate done the basis of overall business and actual for rebate u/s. 88E." 4. The second dispute was in regard to loss of Rs. 28,56,925/- from jobbing and arbitrage dealings which had been set off by assessee against non-STT income on the ground that it was non STT income. Ld. CIT(A) did not accept this plea observing as under:- However, it is seen that the jobbing and arbitrage transactions of the assessee very much involve payment of SIT by the assessee. Therefore, there is no doubt that the income/ loss from jobbing and arbitrage dealing is a part of the SIT related transactions. Therefore, the loss of Rs. 28,56,925/- from these dealings have to be considered in the calculation of STT related income. 4.1. Thus, Ld. CIT(A) observed that allocation as done in an arbitrary manner. During appeal proceedings assessee was required to provide details about the volume of transactions done by the assessee on its own account and on account of its client's from which it transpired as under:- Own transactions Rs.249141541578.47 Client transactions Rs.51113102336.90 4.2. He, accordingly, observed that 83% of the transactions we....
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....ng the provision of section 70 and settled law and facts and appellant/s contentions while calculating STT business income/non STT business income and rebate u/s 88E." 7. Vide ground No.1 assessee challenges the validity of initiation of proceedings u/s. 147 of the Act Ld. Counsel referred to page 21 of paper book wherein reasons for reopening dated 12-11-2009 are contained and pointed out that the same does no refer to any escapement of income but allowing of excess rebate. Ld. Counsel submitted that rebate u/s 88E depends on income determined. He submitted that assessee's income remains unaltered and, therefore, there was no 4escapement of income. He referred pages 29 and 30 of the Paper Book filed by assessee wherein the Form No. 10DB is contained to demonstrate that STT was paid on assessee's own transactions. He relied the following case laws:- a) Baijnath Saboo And Others v. ITO And Others 113 ITR 303 (Cal) b) CIT v. Birla Jan Kalyan Trust 190 ITR 351 (Cal) c) CIT v. Bombay Gas Co. Ltd 120 ITR 822 (Bom) 7.1 Ld. Counsel further pointed out that it is a case of clear change of opinion. 8. Ld. DR referred to Explanation-2 clause(e) of (iii) / (iv) to Section 14....
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....see. Before, we proceed to consider this aspect, we may point out that assessee has not taken any ground on this issue, but in course of hearing ld. Senior counsel raised this issue. Since the issue arises from ld. CIT(A)'s order and all facts are there on record, we proceed to decide this issu9e under rule 27 of the ITAT Rules. The assessee's claim was that establishment expenses were mainly incurred on behalf of clients from whom the non-STT income was earned and, therefore, the expenses had been allocated towards non-STT income whereas Ld. CIT(A) has allocated 83% of expenses towards STT transactions, which were on assessee's own account, after considering the ratio of turnover of STT transactions to non-STT transactions. Ld. Sr. Counsel for the assessee pointed out that in subsequent year the AO himself has allocated only 15% of the establishment expenses towards own transactions resulting into STT income. 10.1 Ld. DR has submitted that merely because in subsequent year the AO has accepted 15% expenses towards STT transactions that can not automatically be applied for current year. After considering submissions of both the parties and taking into consideration the explanatio....
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....on shall not exceed the amount of income-tax on such income computed in the manner provided in sub-section (2). (2) For the purposes of sub-section (1), the amount of income-tax on the income arising from the taxable securities transactions, referred to in that sub-section, shall be equal to the amount calculated by applying the average rate of income- tax on such income. [(3) No deduction under this section shall be allowed in, or after, the assessment year beginning on the 1st day of April, 2009.] Explanation.-For the purposes of this section, the expressions, "taxable securities transaction" and "securities transaction tax" shall have the same meanings respectively assigned to them under Chapter VII of the Finance (No 2) Act, 2004.] 12.1. A bare perusal makes it clear that the Section has following ingredients (a) total income of assessee includes the income chargeable under the head profit and gains of business (b) such income is arising from taxable securities transactions; (c) deduction under the section is allowable from the amount of income tax on such income arising from such transaction. Thus, the total income used in this section cannot be given a general mea....