2015 (11) TMI 1543 - AT - Income Tax

TDS u/s 194J - transaction charges paid to stock exchanges - disallowance u/s. 40(a)(ia) - Held that - The matter is restored to the file of the assessing authority who shall delete the disallowance u/s. 40(a)(ia) upon verification of the assessee s claim i.e. of payment of the tax on the impugned sum by BSE (payee) as the assessee in the present case has already furnished a certificate from BSE by including the same in its income offered to tax for the year. In other words that the condition of the amended section 40(a)(ia) stands met. Addition on account of brokerage income - Held that - The assessee claiming to have paid tax in a higher sum the onus to exhibit so is on it. The assessee s accounts having been since audited the (service) tax return as furnished subsequently would only be in conformity with the audited accounts reflecting the service tax as having been paid in excess by whatever amount. That is the validity of the assessee s claim would get proved with reference to its audited accounts and tax return/s. The matter cannot be decided on the basis of bald/unsubstantiated claims. The Revenue authorities ought to have called for the said returns. Under the circumstances it is considered only proper and in the interest of justice that the matter is restored back to the assessing authority to allow the assessee an opportunity to establish its claim/s. Disallowance u/s. 14A r/w rule 8D - Held that - Disallowance u/s. 14A is only of the expenditure incurred. However when the assessee claims to have not incurred any expenditure it is it on which the onus to exhibit the same lies. The law prescribes the said exhibition to be with reference to its accounts (section 14A(2) r/w s. 14A(3)) so that where not so done the prescription of rule 8D shall apply. In the present case the disallowance is not qua any direct expenditure or indirect interest expenditure but qua indirect administrative expenditure covered under rule 8D(2)(iii). No material has been led even before the tribunal to show that no administrative expenditure i.e. relating (directly or indirectly) to tax-exempt incomes stands incurred by the assessee for the relevant year. The presumption in law would under the circumstances hold. The Revenue has in my view rightly invoked the decision by the Hon ble jurisdictional High Court in Godrej & Boyce Mfg. Co. Ltd. (2010 (8) TMI 77 - BOMBAY HIGH COURT ) which is explicit on the point (refer paras 81 to 85 of the Reports). Decided accordingly and the Revenue succeeds. Charge of interest u/s.234 (implying sections 234A 234B and 234C in-as-much as there is no section 234) and initiation of penalty u/s.271(1)(c). The charge of interest is mandatory while the initiation of penalty proceedings is not appealable. The ground is accordingly dismissed.

Summary

Issues Involved:
1. Disallowance of transaction charges due to non-deduction of tax at source.
2. Addition on account of brokerage income.
3. Disallowance under section 14A r/w rule 8D.
4. Charge of interest u/s.234 and initiation of penalty u/s.271(1)(c).

Analysis:

Issue 1: Disallowance of transaction charges
The appeal contested the assessment u/s.143(3) of the Income Tax Act, 1961 for the assessment year 2010-11. The first ground raised was the disallowance of transaction charges due to non-deduction of tax at source. The Tribunal referred to the decision in CIT vs. Kotak Securities Ltd. where it was held that transaction charges paid to stock exchanges are subject to tax deduction at source u/s.194-J. However, the Tribunal considered the assessee's reliance on other cases and the subsequent amendment in the law. The Tribunal noted that the assessee had produced a certificate from the Bombay Stock Exchange stating that the tax on the transaction charges had been included in its income offered for tax. The Tribunal concluded that the disallowance u/s. 40(a)(ia) would be deleted upon verification of the assessee's claim, subject to a positive finding by the assessing authority.

Issue 2: Addition on account of brokerage income
The second ground of appeal related to an addition for brokerage income. The Assessing Officer observed that the assessee had paid service tax higher than required based on the brokerage income recorded in its books. The Tribunal noted that the assessee's claim of depositing tax ad hoc in excess pending audit was not substantiated. The matter was remanded to the assessing authority to allow the assessee to establish its claim with reference to audited accounts and tax returns.

Issue 3: Disallowance under section 14A r/w rule 8D
The third ground of appeal concerned the disallowance u/s. 14A r/w rule 8D. The Assessing Officer had worked out the disallowance based on tax-exempt incomes of dividend and long-term capital gain. The Tribunal upheld the Revenue's decision, stating that the onus was on the assessee to prove no expenditure was incurred, failing which rule 8D would apply. The Tribunal found that no material was presented to show that no administrative expenditure related to tax-exempt incomes was incurred, and hence, the disallowance was justified.

Issue 4: Charge of interest and penalty
The assessee challenged the charge of interest u/s.234 and the initiation of penalty u/s.271(1)(c). The Tribunal clarified that the charge of interest was mandatory, while the initiation of penalty proceedings was not appealable, leading to the dismissal of this ground.

In conclusion, the Tribunal partly allowed the assessee's appeal, with specific directions and considerations for each issue raised in the appeal.