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2018 (5) TMI 2161 - ITAT AHMEDABADAllowable revenue/business expenses - penalty levied by the NSE/NSDL for committing irregularities in conduct of business having regard to Rules, Bye-laws and Regulations of Exchange - HELD THAT:- We find that the issue is no longer res integra. As in the case of CIT vs. The Stock and Bond Trading Company [2011 (10) TMI 172 - BOMBAY HIGH COURT] as held that payments made by the assessee to the Stock Exchanges for violation of their regulations are not akin to an offence which is prohibited by law, as contemplated in Explanation to section 37 - we are inclined to entertain the appeal of the assessee for admissibility of the expenditure on this score. Consequently, the addition/disallowance made by the Assessing Officer in this ground is directed to be deleted. Addition u/s 14A - Expenditure incurred on earning exempt income - HELD THAT:- As in its own case concerning A.Y. 2012-13 [2011 (10) TMI 172 - BOMBAY HIGH COURT] has restricted the amount of disallowance to the extent of exempt income earned. In parity, we restrict the disallowance under section 14A to the extent of exempt income. Nature of expenses - Annual Maintenance Charges incurred disallowed - HELD THAT:- Annual Maintenance charges incurred are in the nature of periodical renewal of licence for meeting day-to-day need concerning software used for carrying on the highly complex stock market transactions. We thus agree with the plea of the assessee that Annual Maintenance expenses of such nature corroborated by invoices/bills are revenue in nature in contrast to the capital expenditure held by the revenue. Thus, AO is directed to delete the addition on this score. Disallowance of Mark to Market Loss - loss has been incurred by the assessee in open contracts of futures and options segment and it is a case of the assessee that the loss in the open contracts has been booked as per accounting standard prescribed by ICAI and the accounting policy has been followed consistently - HELD THAT:- We find ourselves in agreement with the plea on behalf of the assessee that Mark to Market Loss on futures and options contract is not a notional loss and the loss has crystallised at the end of the year notwithstanding the continuance of the contract. We also note the plea of the assessee that it has made entries following accounting standard AS-11 of ICAI. As in the case of CIT vs. Woodward Governor India Pvt. Ltd, [2009 (4) TMI 4 - SUPREME COURT] has considered such loss as allowable and not of contingent in nature. In the light of the aforesaid, the Assessing Officer is directed to delete the disallowance towards Mark to Market Losses in open contracts of futures and options. Nature of expenses - software charges - revenue or capital expenditure - HELD THAT:- As claimed that ODIN software are application software which requires renewals and upgradation from time to time. This being so, in parity with the decision of co-ordinate bench of Mumbai Tribunal in the case of Emkay Share & Stock Brokers Limited [2012 (9) TMI 124 - ITAT, MUMBAI] on behalf of the assessee, we accept the plea of the assessee for allowability of such expenditure on application software as revenue expenditure. AO is accordingly required to cancel the aforesaid addition/disallowance. Short deduction of tds - Disallowance of various expenses u/s 40(a)(ia) - amount includes payment to NSDL for transaction charges and payment to Stock Exchange towards annual charges and others & VSAT charges Rs. 2,00,000/-. - HELD THAT:- While making all these payments towards various expenses, the assessee has, in fact, deducted TDS albeit at a lower rate as controverted on behalf of the revenue. Thus, there is no total failure to withhold TDS on such payments. A short deduction of tax at source by itself does not attract the provisions of section 40(a)(ia) of the Act. Section 40(a)(ia) can be invoked only when two conditions, namely (i) that tax is deductible at source and (ii) such tax has not been deducted, is satisfied. In a situation where tax has been deducted by the assessee under a wrong provision of TDS and there is a shortfall, section 40(a)(ia) disallowance cannot be made as consistently held in long line of judicial precedents including CIT vs. S.K. Tekriwal [2012 (12) TMI 873 - CALCUTTA HIGH COURT]. Therefore, this ground of appeal is allowed. AO is directed to delete the disallowance made by invoking section 40(a)(ia) of the Act.
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