TaxTMI 
TaxTMI 
2016 (10) TMI 344
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.... JCIT. 3. Briefly stated facts as culled out from the records are that the assessee is a Limited Company engaged in the business of Share and stock broker and depository participant. Its return of income has been filed for AY 2007-08 on 25/10/2007 disclosing total income of Rs. 6,50,28,099/-. The case was selected for scrutiny assessment and notice u/s.143(2) of the Act dated 23/07/2008 was issued and duly served upon the assessee. The case was discussed and necessary details were filed and the assessment was completed by assessing an income at Rs. 7,82,42,838/-, after making addition of Rs. 2,28,45,977/-, which included of Rs. 1,14,75,031/- on account of treating the Short Term Capital Gain (STCG) and Long Term Capital Gain (STCG) from transactions of purchase/sale of equity shares disclosed by the assessee as "business income". Aggrieved assessee, thereafter, went in appeal and got part relief from the ld.CIT(A). Therefore, now the Revenue and Assessee are both in appeals before us. 3.1. In assessee's appeal, the assessee raised ground No.1, which reads as under:- "1. The Ld.CIT(A) has erred in law and on facts in confirming addition of Rs. 5,78,899/- on the basis ....
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.... the AY 2006-07 and has been offered to tax. 5. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. The issue raised in this ground is against the order of the ld.CIT(A) confirming the addition of undisclosed interest income of Rs. 5,78,899/- on account of mismatch between the interest shown in the TDS Certificates with the interest income shown in the books of accounts. We find that the assessee has shown interest income from Canara Bank at Rs. 70,14,087/- and interest from HFC Bank at Rs. 42,05,468/-, whereas in the TDS Certificates issued by both these Banks, the interest paid/credited in the account of the assessee was shown at Rs. 74,82,545/- and at Rs. 43,15,909/- respectively from Canara Bank and HDFC Bank. On account of this variation, the difference figure of Rs. 5,78,899/- originated which the ld.AO has added to the income of the assessee. We further observed that appellant has given detailed working before lower authorities showing the reconcilement of interest income from both the case and HDFC bank and has commenced the reconcilement statement by showing the amount of interests credited ....
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....give credit for TDS deducted u/s.194J instead of section 194I accordingly recalculate the disallowance on the proportionate basis out of addition of Rs. 68,32,451/- on account of disallowance of office management expenses made u/s.40(a)(ia) of he IT Act. 2. The L'd CIT(A) erred in law and on facts in directing the AO to give credit for TDS deducted u/s.194J instead o section 194I accordingly recalculate the disallowance on the proportionate basis out of addition of Rs. 1,40,037/- on account of disallowance of lease line expenses, Rs. 4,82,653/- paid to NSE and Rs. 1,54,000/- paid to BSE made u/s.40(a)(ia) of the IT Act. 6.1. During the course of assessment proceedings, the ld.AO observed that the assessee made a payment of Rs. 68,32,451/- to M/s.Ahwin Chinubhai Broking Pvt.Ltd. (hereinafter referred to as "ACBPL") towards fees for professional charges and reimbursement of expenses on which TDS u/s.194-J of the Act and 194-C of the Act has been deducted respectively. However, on examination of the agreement between the assessee and ACBPL, the ld.AO was of the view that the payment of Rs. 68,32,451/- has been paid towards rent expenses because in the agreement it was ment....
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.... section 1941. However, the appellant has deducted TDS but not under section 1941. The AO is therefore directed to give credit for the TDS already deducted and make disallowance on proportionate basis in view of the fact that the TDS should have been deducted under section 1941. In view of this reason, the action of the AO in applying the provisions of section 1941 is confirmed but the disallowance is reduced in view of the fact that some TDS has been deducted and paid in time. The AO will recalculate the disallowance on proportionate basis. This ground of appeal is therefore partly allowed. ..... .......... 4.3 I have considered the submission made by the appellant and observation of the AO. In addition to what the A.O. has stated in paras 4.1.4 to 4.1.6 above, the most important thing is that the assessee has been making two types of payment to the stock exchange first in respect of each and every transaction made by the assessee called transaction charges and second the VSAT charges and lease line charges which are quarterly or annual payments made for the use of equipment which consists of lease line, dish, satellite link, IDE box, etc. The second typ....
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....technical services, reimbursement of expenses and tax has already been deducted at source @ 5% on the brokerage as well as professional and technical fees u/s. 194H & 194-I of the IT Act and @ 2% on reimbursement of office expenses u/s.194-C of the Act and it was not correct on the part of lower authorities to treat the combined payments of office management fees and reimbursement of expenses as rent expenses because apart from priority of office location, there are many more services which are to be provided by the business Developer viz. ACBPL. 6.4. Similarly, in relation to addition of Rs. 7,76,690/- on account of disallowance u/s.40(a)(ia) of the Act for not deducting TDS under correct head for payment towards lease lying expenses and V-Set charges, ld.AR submitted that lease lying expenses were paid towards connectivity charges for internet services, i.e. telephone and intra-services and payment has been made to ICEW-NET, BSNL, U-Telecom, etc. During the year under appeal, total lease line expenses were incurred at Rs. 4,49,275/- out of which amount of Rs. 1,40,036/- paid to Tulip IT Services Ltd. was subject to TDS and the same was deducted u/s.194C of the Act. As regards,....
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....194-I of the Act which relates to deduction of TDS on payment by way of rent. We further observe that the Hon'ble Jurisdictional High Court confirming the order of Coordinate Bench Ahmedabad in the case of Prayas Engineering Ltd. vs. Addl.CIT(supra) dealt with similar issue and observed as under:- "3. Heard the learned advocate appearing for the appellant-Revenue and considered the submissions. Learned advocate appearing for the appellant has contended that the circular issued by CBDT is very clear and the issue is governed by section 194 J. The learned ITAT, while considering the question has observed in para-17 as under: "17. After hearing both the parties and perusing the record, we find that there is no dispute about the fact that in respect of payment made by assessee to M/s. Elecon Information Technology Ltd. (EITL) and M/s. Akaaish Mechatonics Ltd. (AML) these was short deduction of tax and therefore the ratio of the Tribunal in the case of Apollo Types Ltd. v. DCIT and UE Trade Corporation (India) Ltd is directly applicable to the facts of this case. In the case of UE Trade Corporation v. DCIT, the Hon'ble Tribunal in similar facts has held as under: 6. W....
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....ustified. The Assessing Officer is directed to delete the addition." 4. In view of the above, the order passed by Ld. CIT(A) deleting the additions of Rs. 60,60,9607- and Rs. 8,86,940/- is hereby upheld. Both these grounds of revenue are dismissed." 4. In that view of the matter, the same view is confirmed by the Tribunal in its order, and therefore, we are in complete agreement with the order passed by the Tribunal. No substantial question of law is made out and the appeal is devoid of any merits and deserves to be dismissed. Hence, this appeal is dismissed. 7.2. We further observe that the basic reason for disallowance made by ld.AO rested upon his observation that the assessee has not deducted TDS under the correct provisions of the Act. However, in our view, payment of Rs. 68,32,4521/- to ACBPL does not fall under the Rent expenses because ACBPL is a business developer appointed by the assessee and as per the agreement ACBPL is providing multiple services relating to stock market and working on behalf of the assessee and more so, most of the expense incurred on the office premises of ACBPL are reimbursed by the assessee. Certainly, such kind of arrangement does not fal....
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....enditure was incurred for earning exempt income and more so assessee-company possessed interest-free funds at approximate Rs. 21.55crores as against investments of Rs. 2.47crores and, therefore, no inference should be drawn that interest-bearing funds have been utilized for making investments and further investments have come down to Rs. 2.47crores as on 31.3.2006 from 5crores as on 31/03/2006. However, ld.AR was not convinced with the reply of assessee and by applying Rule 8D of the IT Rules, 1962 read with section 14A of the IT Act, 1961 calculated a sum of Rs. 2,10,788/- and disallowed the same u/s.14A of the Act. 9.2. Aggrieved assessee, went in appeal before the ld.CIT(A), who partly allowed the appeal by restricting the disallowance u/s.14A of the Act at Rs. 1,69,229/-, by observing as under:- "7.3. I have considered the submission made by the appellant and observation of the AO. The provisions of section 14A and the Rule 8D has been upheld by the Hon. Mumbai High Court recently in the case of Godrej & Boyce Mfg Co Ltd, the Hon. Mumbai High Court has stated that for assessment year prior to A.Y. 2008-09 Rule 8D is not applicable but the AO can make reasonable disa....
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....ards interest expenses deemed to have been applied for investments. Further, we also observe that Rule-8 r.w.s. section 14A of the Act came into existence from 01/04/2008 and certainly it was not applicable to the assessee for AY 2007-08 and also no satisfaction has been made by the ld.AO by extracting necessary details from the books of account of assessee to prove that any specific expenditure has been incurred for earning dividend income. However, looking to the totality of the fact of the present case, wherein the assessee has earned dividend income of Rs. 14,53,085/- and also observing that in various judgements it has been held that disallowance u/s.14A of the Act should not exceed the exempt income earned by the assessee and looking to the fact that one cannot ignore that some elements of expenditure ought to have been incurred for earning exempt income and also making regular investments during the year as observed by us from the financial statements of the assessee that lot of transactions have taken place in the investment account. We are, therefore, of the view that out of the disallowance confirmed by the ld.CIT(A) of Rs. 1,69,229/-, we hereby delete the proportionate d....
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.... of transactions. From the details of sale and purchase of shares/securities submitted by the assessee it is observed that the assessee has engaged itself in systematic activity of sale and purchase of mutual funds. From the records, it can be seen that during the year the assessee has purchased 288856 numbers of scripts in more than 100 different shares totaling to Rs. 4,30,74,7427-. Similarly, during the year the assessee has sold 375579 scripts in more than 100 different shares totaling to Rs. 7,98,27,224/-. Further, the assessee has entered into sale and purchase of scripts on periodical or regular basis in F.Y. 2006-07. Hence, from the same it can be seen that the assessee has utilized substantial fund in sale and purchase of shares/securities. From the explanation given by the assessee it can be seen that the assessee itself has agreed that the investment in mutual funds has been done in order to maximize the return i.e. for profit motive and not for investment purpose. Such periodical activity of sale and purchase of mutual funds definitely constitute business activity. The motive of the assessee in trading shares is profit motive and not to make the investment in shares and....
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....etween stock-in-trade and investment is that of selling outright in the course of the business activity and deriving income from exportation of one's own asset. * In the case of Sardar Indra Singh & Sons Ltd. vs. CIT 24 ITR 415, the Supreme Court was dealing with the case of a company which was incorporated with the object, inter alia of carrying the business of bankers, financiers, managing agents and secretaries and was also empowered to invest and deal with the monies of the company not immediately required for its business, upon such securities and in such matters as might from time to time be, determined. It was held by the Supreme Court in this case that to constitute business income, it was not necessary that surplus should have been resulted from such a course of dealing securities as by itself would amount to the carrying: on of business or if the realization of the securities is a normal step in carrying on the assessee's business. The. Supreme Court observed that the principle applicable in an such cases was well settled and the question always w whether the sales which produced the surplus were so connected with the carrying on of the assessee's bus....
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....ess is to provide service as stock-broker and depository participants. Assessee's gross income includes income from brokerage at approx 10.15crores., NSDL charges at Rs. 2.54crores and other income including interest, dividend and capital gain from sale of shares totalling to Rs. 2.67crores. From going through P&L account of the assessee, we observe that neither there is any trading of shares carried during the year and nor any closing stock/inventory of equity shares is held as on the year end. We further observe that the assessee has disclosed investments in government security and equity shares under the head 'Investments' and scrip-wise details of investment in equity shares is forming part of balance-sheet as on 3132007 & 31/03/2008. 12.1. We further observe that the Hon'ble Apex Court in the case of CIT vs. Associated Industrial Development Co.(P) Ltd. reported at (1971) 82 ITR 556, wherein the Hon'ble Apex Court held that "Whether a particularly holding of shares is by way of investment or forms part to the stock in trade is a matter which is within the knowledge of the assessee who hold the shares and which are, in normal circumstances be in a position to produce evidenc....
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....s earned on sale of shares sold within 30 days was only Rs. 7,15,737/- and the balance capital gains was earned where the holding period was more than 30 days. He therefore submitted that the decision of ld. CIT(A) calls for no interference and thus supported the order of ld. CIT(A). 7. We have heard the rival submissions and perused the material on record. The issue in the present case is whether the profit earned on sale of shares is required to be treating as "capital gains" or "business income". We find that ld. CIT(A) while deciding the issue in favour of the Assessee has held the profit earned to be as "capital gains" and has noted that Assessee has history of being an investor and claiming short terms capital gains and the activity of transactions were related to 5 scrips and the transactions were delivery based. He has further given a finding that it is not a case where the Assessee has done the transactions of sale and purchase on every day basis. He has further noted that the shares were considered by the Assessee as investment in its books of accounts, had not borrowed any finance to acquire the shares and out of the total gains earned by the Assessee, around 2/3 of t....
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....cs which was recoverable from NIFCL was n outstanding amount pertaining to FY 2000-01. However, ld.AO was not satisfied with the reply given by the assessee and relying on the Hon'ble Jurisdictional High Court in the case of CIT vs. Ahmedabad Electricity Co.Ltd. reported at (2013) 262 ITR 97 (Guj.) was of the view that before claiming any amount as bad debt certain steps needs to be taken by assessee which includes the issuing of reminders, restructuring of debt, rescheduling of debt statement, negotiation or arbitration of a disputed debt, and legal action, whereas in the instant case, the assessee has failed to prove that they have complied to any specific criteria stipulated by the Hon'ble Jurisdictional High Court in the case of CIT vs. Ahmedabad Electricity Co.(supra) and, accordingly, disallowed the claim of bad debts of Rs. 12 lacs. Further, ld.AO did not accept the alternative argument made by the assessee that if the bad debt is not allowable u/s.36(1)(vii) of the IT Act, 1961, then the said bad debts is otherwise allowable as a business loss u/s.28 of the Act and thereby taking a cogent view that if a special provision has been made on certain matter, then the matter is e....
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....T(A) in deleting the addition of Rs. 12 lacs on account of bad debts claimed by the assessee. From going through the records, we observe that the assessee has claimed bad debts of Rs. 12 lacs for non-recovery of IFCL for outstanding amount of Financial Year 2000-01. We further observe that the Hon'ble High Court of Mumbai in the case of CITvs. Shreyas S. Morakhia(supra), has dealt with similar issue, wherein the assessee was a share-broker, claimed deduction u/s.36(1)(vii) of the IT Act for Rs. 28.24lacs as a bad debt towards the amount due to him by his clients on account of transactions of shares effected by the assessee at their behalf which had become irrecoverable. The Hon'ble High Court of Mumbai upheld the decision of the Special Bench of Tribunal and dismissed the appeal of the Revenue by observing as under:- "14. The value of the shares transacted by the assessee as a stock broker on behalf of its client is as much a part of the debt as is the brokerage which is charged by the assessee on the transaction. The brokerage having been credited to the profit and loss account of the assessee, it is evident that a part of the debt is taken into account in computing the i....
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....erred in law and on fact in confirming disallowance of payment on proportionate basis of payment made to M/s.Ashwin Chubhai Broking Pvt.Ltd. as office management and maintenance expense of Rs. 63,00,000/- on which TDS was made u/s.194J of the Act, alleging the same to be rent income and tax was required to be deducted u/s.194-I of the Act, as tax is deducted under other section, the disallowance is made u/s.40(a)(ia) of the Act. It is therefore prayed that the additions so made by may kindly be deleted. 2. The Ld. CIT(A) has erred in law and on facts in confirming disallowance of payment of Rs. 640,762/- being V-sat expenses paid to NSE/BSE for connectivity charges on which TDS was made u/s.194C and Rs. 485,638/- being lease line/interest charges paid to Reliance Communication Ltd, on the alleged ground that the payment made is Rent and tax was required to be deducted u/s.194-I of the Act, as tax is deducted under other section, the disallowance is made u/s.40(a)(ia) of the Act, whereas app company has deducted TDS wherever required and /or no TDS is required to be deducted on such disallowances It is therefore prayed that the additions so made may kindly be deleted." 1....
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.... to M/s.Ashwin Chinubhia Broking Pvt.Ltd. ( in short - ACBPL) in the year under appeal. Out of which, the assessee deducted TDS u/s.194-J of the IT Act, of Rs. 63 lacs being towards fees for professional and technical services and the remaining amount, i.e. Rs. 37,43,705/- was reimbursement of expenditure by the assessee to ACBPL and no TDS was deducted on this amount. However, while framing the assessment order, the ld.AO treated the amount of Rs. 1,00,43,705/- as rent expenditure subject to TDS u/s.194-I of the Act and made disallowance of Rs. 1,00,43,705/- u/s.40(a)(ia) of the Act for non-deduction of TDS. We further observe that while dealing with ground No.1 of assessee's appeal for AY 2008-09 in ITA No.3134/2011, we allowed the ground of the assessee by deciding that Rs. 63 lacs was not rent expenditure but falls under the categories of fees for providing professional and technical services and assessee had rightly deducted TDS u/s.194-J of the Act and no disallowance is called for u/s.40(a)(ia) of the Act on Rs. 63 lacs. We further observe that so far as making payment of Rs. 37,43,705/- (Rs.1,00,43,705 - Rs. 63,00,000) which is towards reimbursement of expenses , we find th....
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.... 4. The Id. CIT(A) has erred in law and on facts in deleting the addition made on account of disallowance of bad debts of Rs. 2,89,121/-. 21.1. During the course of hearing the ld.AO observed that bad debts of Rs. 2,89,121/-has been claimed in the P&L Account, but during the course of assessment proceedings the assessee was unable to prove that the genuine efforts were made to recover the outstanding debt and, therefore, disallowance of bad debts of Rs. 2,89,121/- was made. 21.2. Aggrieved assessee went in appeal before ld.CIT(A). Thereafter. disallowance of bad debts of Rs. 2,89,121/- was deleted by ld.CIT(A) by relying on the judgement High Court of Bombay in the case of CIT vs. Shreyas S. Morakhia reported at (2012) 342 ITR 285 (Mum.) wherein the Hon'ble High Court have deleted the addition. However, in the year under appeal, we find that the facts are not same. In Asst.Year 2007-08, the amount of Rs. 12 lacs was outstanding to be received since AY 200102 and finally, in AY 2007-08 it was claimed as bad debts which proved that a sufficient time was taken by the assessee for making efforts in recovering the said outstanding debts. However, in the year under appeal, on....
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....the judgement of Apex Court rendered in the case of Goetze (Idia) Ltd. vs. CIT reported at (2006) 157 Taxman 1 (SC) which was followed by the Coordinate Bench (ITAT "A" Bench Ahmedabad) in the case of ACIT Ahmedabad vs. Amrapali Capital & Financial Services Ltd. for AY 2008-09, decision dated 09/06/2015. 22.3. The ld.Sr.DR did not controvert the submissions made by the ld.AR. 23. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below as well as the judgement relied upon by the ld.AR. In this ground, the question is whether the revised computation income can be accepted by the AO during the course of assessment proceedings or not. We find that the issue before us is squarely covered by the decision of the aforesaid Coordinate Bench in favour of assessee in the case of ACIT Ahmedabad vs. Amrapali Capital & Financial Services Ltd.(supra), wherein the Tribunal held as under:- "4. We have heard both sides and gone through the relevant findings. Admitted facts of the case stand narrated hereinabove. The CIT(A) has accepted the assessee's revised computation as per section 55(2)(ab) of the Act. ....