2011 (12) TMI 506 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of depreciation on Stock Exchange Card.
2. Protective addition on account of the demutualization scheme of the Bombay Stock Exchange.
3. Addition u/s 14A.

Summary:

1. Disallowance of depreciation on Stock Exchange Card:
The assessee appealed against the disallowance of Rs. 6,63,422 as depreciation on the Stock Exchange Card. The Tribunal referenced the decision in Sino Securities Pvt. Ltd., ITA no.6264/Mum./2009, where it was established that after the demutualization and corporatization of BSE, the rights conferred upon members changed significantly. The erstwhile BSE membership card was split into ownership rights and trading rights. The Tribunal concluded that the previous rights of a BSE membership cardholder were extinguished, and new rights were acquired. Consequently, the claim for depreciation on the written-down value of the BSE membership card was denied. The Tribunal upheld the order of the Assessing Officer and the Commissioner (Appeals) denying the depreciation.

2. Protective addition on account of the demutualization scheme of the Bombay Stock Exchange:
The assessee contested the protective addition made by the Assessing Officer on account of the demutualization scheme. The Tribunal, referencing the decision in Sino Securities Pvt. Ltd., ITA no.5538/Mum./2009, for assessment year 2006-07, found that the apprehension of the AO regarding the computation of capital gains on the sale of shares acquired through demutualization was erroneous. The Tribunal noted that the assessee had already computed capital gains correctly in a subsequent year. Consequently, the Tribunal set aside the impugned order passed by the Commissioner (Appeals) and allowed the grounds raised by the assessee.

3. Addition u/s 14A:
The assessee challenged the addition of Rs. 2,86,795 u/s 14A. The Commissioner (Appeals) had followed the Mumbai Special Bench decision in ITO v/s Daga Capital Management P. Ltd., which was partly reversed by the Hon'ble Jurisdictional High Court in Godrej & Boyce Mfg. Co. Ltd. v/s DCIT. The Tribunal deemed it appropriate to set aside the impugned order and remanded the issue back to the Assessing Officer for denovo adjudication in line with the propositions laid down by the High Court. The Assessing Officer was instructed not to apply Rule-8D for the impugned assessment year. This ground was allowed for statistical purposes.

Conclusion:
The Tribunal dismissed the ground regarding the disallowance of depreciation on the Stock Exchange Card, allowed the grounds related to the protective addition, and remanded the issue of addition u/s 14A back to the Assessing Officer for fresh adjudication. The assessee's appeal was partly allowed.