TaxTMI 
TaxTMI 
2016 (9) TMI 649
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....sions of the Act and Rs. 139,986,801/- as deemed income u/s 115JB of the Act. During the year under consideration, the assessee company was a member of National Stock Exchange and Bombay Stock Exchange and derived income from the sale and purchase of shares mostly on its own account. The assessment order was passed on 22/12/08 after making the following additions/disallowances: 1. Disallowance u/s 14A - Rs. 333,821/-; 2. Disallowance of loss u/s 94(7) - Rs. 1,295,487/-; 3. Addition on account of late payment of PF & ESI dues u/s 2(24)(x) - Rs. 6,255/-; 4. Addition on account of difference in valuation of closing stock - Rs. 200,099/-; 5. Disallowance of interest charges - Rs. 1,863,226/-; 6. Disallowance of excess claim of depreciation on computer peripherals/accessories - Rs. 863,806/-. Apart from this the AO also disallowed the claim of rebate u/s 88E on Rs. 6,383,106/- being brokerage income, interest income, interest on income tax refund and miscellaneous income. Further the deemed income us/ 115JB of the Act was worked out at Rs. 140,584,867/-. 3. Aggrieved the assessee preferred an a....
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....unds of ITA No. 2901/D/2010: 1. "The ld. CIT (A) has erred on facts and in law in deleting the addition of Rs. 1861445/- out of total disallowance of Rs. 1863226/- made by the AO on account of disallowance of interest expenses, completely ignoring the fact that the said disallowances related to interest on borrowed funds used for "donations", "investments" and "interest free loan to sister concern". 2. The ld. CIT (A) has erred on facts and in law in deleting the addition of Rs. 863806/- made by the AO on account of extra depreciation claimed on computer peripheral/accessories ignoring the fact that as per IT Rules only the computers and computer software are eligible for depreciation @ 60% and the same cannot be extended to computer accessories. 3. The ld. CIT (A) has erred on facts and in law in directing the AO to allow rebate u/s 88E to the assessee with respect to tax payable on brokerage income, interest income, interest on IT Refund and Miscellaneous income. 4. The ld. CIT (A) has erred on facts and in law in holding that provisions of sec. 115JB are not applicable in the case of the assessee ignoring the fact that specific category of ass....
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....ails had been furnished (details at pages of the paper book 185- 197 of the Paper book). In view thereof, the enhancement by Rs. 2,00,099/- is entirely untenable. Without prejudice and in the alternative, it was submitted that the AO be directed to adopt such value of opening stock of the succeeding year. 6.2 In respect of ground no 4 of the departmental appeal, it was submitted that the Assessing officer has grossly erred in computing the tax payable on book profit at Rs. 1,18,30,217/-. In doing so he has erred and failed to appreciate that there was no justification on his part, firstly in proceeding to compute the book profit for the purposes of section 115 JB of the Act, and secondly in not giving credit from such tax as had been determined, being the tax payable on deemed income u/s 115JB of the amount of Securities Transaction Tax (STT) paid by assessee company. 6.2.1 It was submitted that from the perusal of Page no. 19 of the order of assessment it would be seen that the AO has computed the total income of the assessee company at Rs. 54,66,59,030/-, whereas he has computed book profit at 14,05,84,869/-. It is thus evident that the tax payable on income computed under ....
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....he Ld. AR that that in the instant case, the AO has held that the assessee is liable to pay tax on book profit u/s 115JB of the Act failing to appreciate that the 7.5% of the book profit is less than the tax payable under the normal provisions of the Act, as such, assessee is not liable for the MAT. It was submitted that in the instant case, AO has committed gross error while computing the tax payable under the normal provisions of the Act as the word 'tax payable', in respect of 'income tax payable on the total income', does not mean the ultimate or net amount which is payable under the Act. The Ld. AR further submitted that for the purpose of the applicability of provisions of section 115JB of the Act, the income tax payable on the total income computed under the normal provisions of the Income Tax Act and is to be compared with 7.5 per cent of the book profits, and if the tax payable on the normal provisions of the Act is less than the 7.5% of the Book profits, then the assessee is liable to pay tax under section 115JB of the Act. The Ld. AR also submitted that the assessee seeks to place reliance on the following orders of the Tribunal wherein it has been held that tax payable ....
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..../- 15,32,58,192/- 38,29,48,300/- 4. Tax on income from sources other than income on which securities transaction tax has been paid 21,48,553/- 67,61,810/- 1,34,31,734/- 5. Book profit 14,05,84,869/- 7,29,27,487/- 44,29,53,774/- 6. Tax on book profit 1,18,30,217/- 81,82,465/- 4,96,99,412/- 6.2.7 The Ld. AR submitted that in view of the aforesaid submissions, Ground no. 4 of the department's appeal ought to be dismissed. 6.3 With respect to ground no 3 of the departmental appeal, the Ld. AR submitted that in the aforesaid ground of appeal, grievance of the revenue is with regard to the allowance of rebate under section 88E of the Act in respect of tax payable on the brokerage income, interest income, interest on income tax refund and miscellaneous income. The Ld. AR submitted that the AO, in his order of assessment in para 9, has held that deduction under section 88E of the Act is not allowable on the income arising other than from income from taxable securities transaction and hence tax payable on the brokerage income, interest income, interest on income tax refund and miscellaneous income was not considered for the ....
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....oses of computation of taxable income, has included the interest income for the purposes of computation of income tax but has held that the rebate under section 88 E of the Act is to be restricted only to the extent of income on which securities transaction tax has been paid. In other words, in his opinion the assessee was to pay tax on Rs. 63, 83, 106/-. But the same is not eligible for rebate under section 88E of the Act, as the same is the interest income from FDR's. The Ld. AR submitted that such FDRs on which interest of a sum of Rs. 65, 30, 310/- has been earned represented margin money kept with stock exchanges in order to enable the assessee company to participate in the business of trading in shares. 6.3.3 It was submitted that it would be seen that there is no net income from (a) brokerage income, (b) miscellaneous income, (c) interest on refund (which is a negative sum) and thus, no such income has been included in the income of Rs. 56, 10, 20, 522/-. In fact, during the course of the assessment proceedings, assessee itself has conceded that rebate u/s 88E is not eligible for deduction in respect of tax payable on Brokerage Income, Misc. Income and Interest on Income ....
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....ble High Court has kept in view the real distinction to decide whether the said income is income from business as income from other sources. The assessee submits that the ratio of the aforesaid judgment is fully applicable on the facts of the assessee - respondent. The Ld. AR submitted that in view of the aforesaid, finding of the learned CIT(A) deserves to be upheld as the interest earned on FD kept as margin money is "Income under the head Business" and ground of appeal raised by the revenue deserves to be dismissed. 7. The Ld. DR relied on the assessment order in the department's appeal and supported the order of the Ld. CIT (A) in the case of assessee's appeal. 8. We have heard the rival submissions and have perused the material on record. As far as the issue of disallowance u/s 14A is concerned, it is true that the authorities below have erred in applying Rule 8D to the year under appeal i.e. AY 2006-07 whereas Rule 8D has been held by various judicial pronouncements to be applicable prospectively from AY 2008-09. Further, on a perusal of the orders of the authorities below, it is seen that the AO as well as the Ld. CIT (A) have not recorded any finding as to how the dis....
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....tisfied with the correctness of the claim of the assessee in respect of such expenditure or no expenditure, as the case may be, cannot embark upon a determination of the amount of expenditure in accordance with any prescribed method, as mentioned in sub-section (2) of Section 14A of the said Act. It is only if the Assessing Officer is not satisfied with the correctness of the claim of the assessee, in both cases, that the Assessing Officer gets jurisdiction to determine the amount of expenditure incurred in relation to such income which does not form part of the total income under the said Act in accordance with the prescribed method. The prescribed method being the method stipulated in Rule 8D of the said Rules. While rejecting the claim of the assessee with regard to the expenditure or no expenditure, as the case may be, in relation to exempt income, the Assessing Officer would have to indicate cogent reasons for the same." 8.01 Similarly, the Hon'ble High Court of Punjab & Haryana in the case of CIT-II vs Hero Cycles Ltd. in I.T.A. No. 331 of 2009 (O&M) has held in para 4 of the judgment that, "the contention of the Revenue that directly or indirectly some expenditure is ....
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.... to agree with the stand of the department on this issue. We, accordingly, set aside the order of the Ld. CIT (A) on this issue and direct the AO to delete this addition. Ground no. 2 of the assessee's appeal stands allowed. 8.2 In the result, the appeal of the assessee stands allowed. 9. As far as ground no. 1 of the department's appeal is concerned, it is seen that the ld. CIT(A's) has discussed an adjudicated the issue at length on pages 11 & 12 of the impugned order. The relevant portions are being reproduced for a ready reference as under: "I have examined the submission of the appellant and it is found that the Share Capital and Free Reserves amounted to Rs. 78 crores and the income of the company for the current year as for revised return was in excess of Rs. 54 crores. There is nothing wrong in the making one donation out of various donations from the overdraft account. For all other donations, there was enough balance in the bank account of the appellant. Further, the advancing of loans to subsidiaries and sister concerns is stated to be out of commercial expediency, and the interest has been charged from M/s BLB Commodities (P) Ltd. @ 6.50% as has been paid....
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.... "As is noticeable from the stipulations in the agreement, the performance guarantee by way of bank guarantee was required for faithful performance of its obligations. The non submission of the guarantee would have entailed in termination of the agreement and NHAI would have been at liberty to appropriate bid security. That apart, the release of such performance security dependent upon certain conditions. Thus, it is clearly evincible that the bank guarantee was furnished as a condition precedent to entering the contract and further it was to be kept alive to fulfill the obligations. Quite apart from the above, the release of the same was dependent on the satisfaction of certain conditions. Thus, the present case is not one where the assessee had made the deposit of surplus money lying idle with it in order to earn interest; On the contrary, the amount of interest was earned from fixed deposit which was kept in the Bank for furnishing the bank guarantee. It had an inextricable nexus with securing the contract. The view express by the Tribunal cannot be found fault with. The Tribunal was therefore, justified in holding that the interest earned by the assessee on the FDRs has i....