2014 (9) TMI 1215

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.... 14A of the Income Tax Act and the order of the CIT(A) should be set aside and the order of the Assessing Officer should be restored on this issue. 2. That on the facts and circumstances of the case, Ld.CIT(A) erred in law in deleting the disallowance of Rs. 4,24,650/- under the head Penalty. The order oft eh CIT(A) should be set aside and the order of the Assessing Officer should be restored on this issue. 3. That the appellant craves for leave to add, delete or modify any of the grounds of appeal before or at the time of hearing." 3. Apropos : Disallowance u/s 14A of the Act : On this issue the AO observed that the assessee company derived dividend income of Rs. 12,37,120/-. AO computed the disallowance u/s 14A read with Rule 8D amou....

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....as relatable to exempt income. The ld. CIT(A) accepted the assessee's contention in this regard that the assessee was maintaining separate demat account for minor transactions of investment in securities. The ld. CIT(A) accordingly held as under :- "Thus, the disallowance u/s 14A is calculated as below :-       Amount (Rs.) 1. Amount of expenditure directly relating to income which does not form part of total income (demat charges)   2,530/- 2. Interest paid during the year A 42,88,500/-   Opening balance in investments of shares (as on 1.04.2007) 3,17,74,155/-     Closing balance in investments of shares (as on 31.03.2008) 10,61,28,290/-     Average of investments of shar....

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....those unsold shares which have yielded dividend, for which the assessee has not incurred any expenditure at all. Though the dividend income is exempted from payment of tax, if any expenditure is incurred in earning the said income, the said expenditure also cannot be deducted. But in this case, when the assessee has not retained shares with the intention of earning dividend income and the dividend income is incidental to its business of sale of shares, which remained unsold by the assessee, it cannot be said that the expenditure incurred in acquiring the shares has to be apportioned to the extent of dividend income and that should be disallowed from deductions. In that view of the matter, the approach of the authorities is not in conformity....

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....ed in page 770 of Maharashtra Law Journal 1995 (Vol.2), the Rules and Regulation of stock exchanges are statutory in character. The said Rules have the force of statute and are deemed to be incorporated as part of statute. Therefore, AO held that penalty charges paid to NSE is to be considered as infringement of law and thus, are in admissible expenses in terms of explanation below Section 37. Considering the above, the total sum of Rs. 5,73,839/- was disallowed. 7. Upon assessee's appeal the ld. CIT(A) observed that the assessee has submitted that the penalties are in the nature of compensatory expenses which is not for infringement of law but these may be for exceeding the limits for which some amount was to be paid to Stock Exchange as ....