2010 (7) TMI 1206 - AT - Income Tax

Summary

Issues Involved:
1. Applicability of section 2(22)(e) of the Income Tax Act.
2. Addition towards share trading loans.
3. Disallowance on account of V-SAT charges, lease line, and transaction charges.
4. Addition on account of interest to SEBI.

Summary:

1. Applicability of section 2(22)(e) of the Income Tax Act:
The first common ground raised in these appeals pertains to section 2(22)(e) of the Act. The AO noticed that the assessee received loans from its sister concerns, YSPL and NFSPL, and treated these loans as deemed dividends u/s 2(22)(e). The CIT(A) confirmed the addition of Rs. 35,00,000/- from YSPL but deleted the addition of Rs. 14,00,000/- from NFSPL, stating that the latter was given in the ordinary course of business where lending money is a substantial part of the business. The ITAT, referencing the jurisdictional High Court's decision in Universal Medicare, held that section 2(22)(e) applies only to shareholders. Since the assessee company is not a shareholder of YSPL and NFSPL, the addition of Rs. 35,00,000/- was deleted.

2. Addition towards share trading loans:
The AO noticed that the assessee declared loans from trading (speculation in shares) amounting to Rs. 14,11,994/- but did not apportion expenses incurred for speculation activities. The AO estimated Rs. 1,00,000/- towards share trading activities, which was confirmed by the CIT(A). The ITAT upheld this addition, stating that expenses related to speculation transactions must be considered, and the assessee did not furnish any details to dispute the AO's estimate.

3. Disallowance on account of V-SAT charges, lease line, and transaction charges:
The AO made an addition of Rs. 2,92,328/- for payments made on account of V-SAT, lease line, and transaction charges, citing non-deduction of tax at source. The CIT(A) deleted the addition, observing that these charges are reimbursement for infrastructure and trading facilities provided by the stock exchange and do not fall under fees for technical services. The ITAT confirmed this decision, referencing the case of Kotak Securities Ltd. and CIT Vs. Bharati Cellular Ltd.

4. Addition on account of interest to SEBI:
The AO disallowed Rs. 30,984/- on the ground that it was a prior period payment. The CIT(A) deleted the addition, noting that the liability to pay interest to SEBI arose during FY 2004-05 under the SEBI Interest Liability Regularization Scheme, 2004. The CIT(A) relied on the Supreme Court decision in Mahalaxmi Mills Co. Vs. CIT, which held that interest payable on cess partakes the character of cess itself and is thus allowable on the basis of actual payment u/s 43B. The ITAT upheld this deletion.

Conclusion:
The appeal of the revenue is dismissed, and the appeal of the assessee is partly allowed.