2015 (1) TMI 1224 - AT - Income Tax

Disallowance made u/s. 14A r.w. Rule 8D - Held that - t is an undisputed fact that the assessee is having own funds at 1.16 crores and the investment is only 30.44 lakhs. Thus it can be safely concluded that the investments have come out of own funds. Even the Hon ble Jurisdictional High Court of Bombay has held in the case of Reliance Utilities and Power Ltd. 2009 (1) TMI 4 - HIGH COURT BOMBAY that where both own funds and loan funds are utilized by the assessee the presumption is that the investments have come from the own funds. However at the same time we cannot deny that no expenditures have been incurred for earning the dividend income. Considering the facts of the case in totality and in the interest of justice and fair play we direct the AO to restrict the disallowance to 11, 565/- being the amount of dividend received during the year and delete the balance amount. - Decided in favour of assessee in part. Membership fee paid - capital expenditure or business expenditure - Held that - In the decisions of the Hon ble Supreme Court in the case of Techno Shares 5.05 lakhs as a capital expenditure we restore this issue to the file of the AO to decide the claim of depreciation - Decided in favour of assessee in part for statistical purpose. Credit of TDS - Held that - We find that the Ld. CIT(A) has directed the AO to allow credit of TDS after due verification as per law. We therefore do not find any reason to interfere with the findings of the Ld. CIT(A).

Summary

Issues:
1. Disallowance under section 14A of the Act r.w. Rule 8D.
2. Treatment of membership fee as business expenditure or capital expenditure.
3. Allowance of depreciation on the membership fee.
4. Credit of TDS not given by the Assessing Officer.

Issue 1: Disallowance under section 14A of the Act r.w. Rule 8D:
The assessee, a member of Multi Commodity Exchange, showed income from operations of &8377;3,25,65,994 with a net profit of &8377;39,01,789. The Assessing Officer disallowed &8377;1,42,894 under section 14A r.w. Rule 8D, considering interest on borrowed funds and a one-time admission fee paid as capital expenditure. The ITAT noted that the investments were made from the assessee's own funds, leading to a partial relief by directing the AO to restrict the disallowance to the actual dividend income received, i.e., &8377;11,565.

Issue 2: Treatment of membership fee as business expenditure or capital expenditure:
The Revenue authorities treated the membership fee of &8377;5.05 lakhs paid to M/s. National Spot Exchange Ltd as capital expenditure due to enduring benefit and trading entitlement. The ITAT, after considering judicial decisions, upheld the fee as capital expenditure but directed the AO to allow depreciation on it, citing the precedent set by the Hon'ble Supreme Court in the case of Techno Shares & Stocks Ltd.

Issue 3: Allowance of depreciation on the membership fee:
The ITAT supported the claim for depreciation on the membership fee based on the Supreme Court's decision in Techno Shares & Stocks Ltd., treating the fee as a capital expenditure. The AO was instructed to decide the depreciation claim in line with the law, leading to the dismissal of ground No. 2 and allowing ground No. 3 for statistical purposes.

Issue 4: Credit of TDS not given by the Assessing Officer:
The Ld. CIT(A) directed the AO to allow credit of TDS after verification as per law. The ITAT found no reason to interfere with this decision and dismissed ground No. 4 accordingly.

In conclusion, the ITAT partly allowed the appeal filed by the assessee for statistical purposes, providing relief on the disallowance under section 14A and directing the treatment and allowance of depreciation on the membership fee in accordance with relevant legal precedents and provisions.