2016 (6) TMI 1164 - AT - Income Tax

TDS u/s 194J - non deduction of TDS on payment of transaction charges paid to the Bombay Stock Exchange - Held that - In view of the decision of CIT vs. Kotak Securities Ltd 2016 (3) TMI 1026 - SUPREME COURT no disallowance is attracted in relation to the transaction charges paid to the stock exchange. The issue is thus covered in favour of the assessee on merits by the decision of the Hon ble Supreme Court (supra). This issue is accordingly decided in favour of the assessee. Disallowance u/s 14A read with rule 8D - Held that - We direct the AO to verify the claim of the assessee regarding the strategic investments and exclude the strategic investments while calculating the disallowance under rule 8D for the purpose of section 14A of the Income Tax Act. Hence, the matter is referred back to the AO to decide it afresh. Apportionment of expenses in relation to the share transaction activity by treating the same as speculative activity of the assessee under the provisions of explanation to section 73 - Held that - Interest of justice will be well served, if opportunity is granted to the assessee to agitate the said ground before the Ld. CIT(A) and the Ld. CIT(A) decide the said ground on merits. We accordingly restore this issue to the file of the Ld. CIT(A) with a direction to decide this issue afresh

Summary

Issues:
1. Reopening of assessment under section 147 for A.Y. 2006-07.
2. Disallowance under section 40(a)(ia) for non-deduction of TDS on transaction charges.
3. Disallowance under section 14A read with rule 8D for A.Y. 2009-10.
4. Disallowance of expenses related to delivery-based share transaction activity under the explanation to section 73 of the Act for A.Y. 2009-10.

Issue 1: Reopening of assessment under section 147 for A.Y. 2006-07:
The assessee challenged the reopening of assessment under section 147 for A.Y. 2006-07. The disallowance under section 40(a)(ia) for non-deduction of TDS on transaction charges was a key point of contention. The lower authorities had disallowed the expenditure based on the decision of the Hon'ble Bombay High Court. However, the assessee relied on a subsequent decision of the Hon'ble Supreme Court in a similar case, where it was held that transaction charges paid to the stock exchange were not for technical services but for facilities provided. Consequently, the disallowance was not applicable. As the issue was covered in favor of the assessee by the Supreme Court decision, the reopening of assessment became academic, leading to the dismissal of the second ground of appeal.

Issue 2: Disallowance under section 14A read with rule 8D for A.Y. 2009-10:
In this issue, the assessee contested the disallowance made under section 14A read with rule 8D for A.Y. 2009-10. The disallowance was related to tax-exempt dividend income earned from investments in shares and securities. The assessee argued that the investments were strategic and not made for earning tax-exempt income, with such income being incidental. The strategic investments were primarily in group companies for control purposes. The assessee presented evidence to support this claim. The Tribunal referred to previous decisions and held that strategic investments did not require day-to-day monitoring and should be excluded from the disallowance calculation under rule 8D. Citing relevant judicial pronouncements, the Tribunal directed the Assessing Officer to reevaluate the claim of the assessee regarding strategic investments and exclude them from the disallowance calculation under rule 8D.

Issue 3: Disallowance of expenses related to delivery-based share transaction activity under the explanation to section 73 of the Act for A.Y. 2009-10:
The assessee raised a ground of appeal regarding the disallowance of expenses related to delivery-based share transaction activity under the explanation to section 73 of the Act for A.Y. 2009-10. The assessee contended that the ground was agitated before the CIT(A) and written submissions were filed, contrary to the CIT(A)'s assertion that the ground was not pressed. The Tribunal, considering the submissions and affidavit of the assessee's representative, decided to grant an opportunity to the assessee to agitate the said ground before the CIT(A) for a fresh decision on merits. The issue was restored to the CIT(A) for a reevaluation, and the appeal of the assessee was treated as allowed for statistical purposes.

This detailed analysis of the legal judgment from the Appellate Tribunal ITAT Mumbai covers the issues of reopening of assessment, disallowance under section 40(a)(ia), disallowance under section 14A read with rule 8D, and disallowance of expenses related to delivery-based share transaction activity under the explanation to section 73 of the Act for the respective assessment years.