2011 (5) TMI 987 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of depreciation on Bombay Stock Exchange Membership Card.
2. Disallowance of SEBI fees.
3. Disallowance u/s 14A of the Act.
4. Computation of rebate u/s 88E of the Act.
5. Disallowance of penalty paid to Stock Exchanges.
6. Deletion of notional loss on futures and options.

Summary:

1. Disallowance of Depreciation on Bombay Stock Exchange Membership Card:
The Assessing Officer (AO) made a protective addition, arguing that the demutualization of the stock exchange card results in a benefit u/s 55(2)(av) and is taxable u/s 28(1)(iv). The Tribunal held that since no transfer occurred during the year, section 55(2)(av) does not apply. The Tribunal followed the decision in HDFC Securities Ltd. v/s ACIT, ITA no.5858 & 5937/Mum./2009, and deleted the addition, allowing the assessee's ground.

2. Disallowance of SEBI Fees:
The issue related to fees and interest payable to SEBI for earlier years, which crystallized in assessment year 2007-08. Both parties agreed, and the Tribunal dismissed the ground, allowing the liability in the correct assessment year.

3. Disallowance u/s 14A of the Act:
The Tribunal set aside the issue to the AO for denovo adjudication in line with the judgment of Hon'ble Jurisdictional High Court in Godrej & Boyce Mfg. Co. Ltd. v/s DCIT & Anr., 328 ITR 081 (Bom.).

4. Computation of Rebate u/s 88E of the Act:
The AO reduced the expenditure from the income relatable to transactions on which STT was paid. The Tribunal held that all expenditure related to earning such income should be deducted from gross sale receipts. The Tribunal rejected the assessee's contention and upheld the AO's calculation, dismissing the ground.

5. Disallowance of Penalty Paid to Stock Exchanges:
The Tribunal upheld the Commissioner (Appeals)'s decision, stating that penalties paid to Stock Exchanges are not for infraction of law and are allowable as expenditure. The Tribunal followed various co-ordinate bench decisions, including Kaira Can Company Ltd. v/s DCIT and Goldcrest Capital Market Ltd. v/s ITO, dismissing the Revenue's ground.

6. Deletion of Notional Loss on Futures and Options:
The Tribunal followed the decision in Edelweiss Capital Ltd. v/s ITO, ITA no.5324/Mum./2007, and the principles laid down by the Hon'ble Supreme Court in CIT v/s Woodward Governor India Pvt. Ltd., 312 ITR 254 (SC). The Tribunal upheld the Commissioner (Appeals)'s order, allowing the notional loss as expenditure and dismissing the Revenue's ground.

Conclusion:
The assessee's appeal was allowed in part, and the Revenue's appeal was dismissed.