2015 (10) TMI 2581 - AT - Income Tax

Restricting the disallowance made u/s 14A r.w. Rule 8D - Held that - It is seen that the predecessor has directed the AO to consider net interest paid for disallowance u/s 14A. Following the predecessor s order as mentioned in preceding para, the AO is directed to consider only net interest paid for working disallowance u/s 14A of the Act. This ground of appeal is, thus, partly allowed. Addition on account of penalty paid to stock exchange - Held that - The penalties / fine paid to BSE, NSE are on account of non-collection of margin charge, procedure failure to follow bye-laws, rules/ regulations of the Stock Exchange. These expenses are in the nature of payments towards violating the prescribed Rules/ Regulations, short/ partial collection of margins, non-maintenance of complete records, delay in payments of funds and securities, incomplete KYC forms, etc. which are main breach of contractual liability and non-adherence to proper procedure laid down by the Stock Exchanges, and are not for any infringement or infraction of any statutory law, and therefore, are not hit by Explanation to sec.37(1) of the Act. Further, BSE & NSE are not statutory bodies and hence, fines and penalties levied by BSE & NSE cannot be equated with statutory Rule or Law. Since, the facts and circumstances of this year are similar to that of AY 2009-10, I have no reason to differ with view taken by my predecessor. Hence, the penalty disallowed by the AO is deleted. This ground of appeal is allowed. Addition in respect of notional loss open position in the F & O - Held that - In find from the P & L A/c that the appellant had already credited the amount of ₹ 9,593/- to the P & L account. Thus, by adding the same amount again in the computation of income, the AO has taxed twice the same amount, I, therefore, direct the AO to delete this addition on account of F & O transaction. Addition in respect of expenses at club - Held that - The Hon ble Delhi High Court in CIT(A) vs. Nestle India reported by (2007 (4) TMI 180 - DELHI HIGH COURT) held that (Even though there was no specific finding that the payment was made by the assessee for improving its business there was an implicit acknowledgement that expenses incurred by the assessee were for business purposes. The assessee was entitled to deduction as claimed). Hence the addition made on account of club expenses which was deleted by ld. CIT(A) is also does not require any interference and the same is reasoned one.

Summary

Issues Involved:
1. Disallowance of expenses under section 14A of the Income-tax Act.
2. Penalty payment to Stock Exchange.
3. Addition under section 94(7) of the Act.
4. Notional loss on open position in F & O.
5. Disallowance of expenses incurred at clubs.

1. Disallowance of Expenses under Section 14A:
The appeal was filed by the Revenue challenging the CIT(A)'s order directing the AO to consider only net interest paid for working disallowance under section 14A of the Act. The CIT(A) relied on the precedent set in a previous year and directed the AO to consider only net interest paid, resulting in a partial allowance of the disallowance. The Tribunal upheld the CIT(A)'s decision, citing the reasoning based on the previous order and the principles established in the Morgan Stanley India Securities Pvt. Ltd. case.

2. Penalty Payment to Stock Exchange:
The Revenue contested the deletion of penalty on account of payment made to the Stock Exchange by the CIT(A). The CIT(A, following the precedent set in the previous year, concluded that penalties paid were not compensatory but penalizing in nature. The penalties were related to procedural failures and breaches of contractual obligations, not statutory violations. Therefore, the CIT(A) deleted the penalty disallowed by the AO, and the Tribunal upheld this decision based on the reasoning provided.

3. Addition under Section 94(7) of the Act:
The ground of addition under section 94(7) was withdrawn during the proceedings before the CIT(A), and the same was confirmed by the CIT(A). The Tribunal acknowledged this withdrawal and confirmation, indicating no further challenge or dispute regarding this addition.

4. Notional Loss on Open Position in F & O:
Regarding the addition of notional loss on open position in the F & O segment, the CIT(A) observed that the amount had already been credited to the Profit & Loss account. Therefore, the AO's double taxation of this amount was deemed unjustified, and the CIT(A) directed the AO to delete this addition. The Tribunal concurred with the CIT(A)'s reasoning and allowed this ground of appeal.

5. Disallowance of Expenses Incurred at Clubs:
The CIT(A) deleted the disallowance of expenses incurred at clubs, stating that these expenses were for the interest of the business, involving meetings with clients and market analysis discussions. The CIT(A) found the AO's addition unjustified and allowed this ground of appeal. The Tribunal upheld the CIT(A)'s decision, emphasizing the business-related nature of the expenses and the lack of personal elements involved.

In conclusion, the Tribunal dismissed the Revenue's appeal, finding no infirmity in the CIT(A)'s order. The Tribunal's decision was based on the reasoning provided by the CIT(A) and the established legal principles, resulting in the dismissal of the Revenue's appeal.