2016 (10) TMI 344 - AT - Income Tax

Addition of undisclosed interest income - mismatch between the interest shown in the TDS Certificates with the interest income shown in the books of accounts - Held that - We find that the assessee has shown interest income from Canara Bank at ₹ 70,14,087/- and interest from HFC Bank at ₹ 42,05,468/-, whereas in the TDS Certificates issued by both these Banks, the interest paid/credited in the account of the assessee was shown at ₹ 74,82,545/- and at ₹ 43,15,909/- respectively from Canara Bank and HDFC Bank. On account of this variation, the difference figure of ₹ 5,78,899/- originated which the ld.AO has added to the income of the assessee. We further observed that appellant has given detailed working before lower authorities showing the reconcilement of interest income from both the case and HDFC bank and has commenced the reconcilement statement by showing the amount of interests credited in the books of account and has arrived to the interest income comparing TDS Certificates. However, it seems that there was no occasion for the assessee to produce necessary ledger account for AY 2005-06 in which the impugned interest amount of ₹ 5,78,899/- has been disclosed and offered to tax. Under these circumstances, it would be justified if this issue is remitted back to the file of ld.AO. There is no objection on the part of the Revenue in this regard. Accordingly, we remit this issue to the file of AO who will provide reasonable opportunity of being heard to the assessee. Needless to say that the assessee will furnish complete details and evidence, if any for FAY 2005-06, i.e. for AY 2006-07 to establish that the income of ₹ 5,78,899/- has formed part of total income. Thus, this ground of assessee s appeal is allowed for statistical purposes. TDS u/s 194I - Non deduction of tds on Rent expenses - nature of payment - bifurcation of payment - Held that - Payment to ACBPL does not fall under the Rent expenses because ACBPL is a business developer appointed by the assessee and as per the agreement ACBPL is providing multiple services relating to stock market and working on behalf of the assessee and more so, most of the expense incurred on the office premises of ACBPL are reimbursed by the assessee. Certainly, such kind of arrangement does not fall within the ambit of rent expenses and, therefore, assessee has rightly deducted TDS by bifurcating the payments made to ACBPL under the head brokerage, fees for providing technical services and reimbursement of expense and has duly deducted TDS on all these payments under the correct provisions of Income Tax Act. Similarly, payment incurred on lease line expenses and V-Set charges also do not fall under the category of rent expenses because the machineries and equipments used for providing these services are shared by many stock-brokers and, therefore, the assessee has rightly deducted TDS u/s.194-C. We are, therefore, of the view that the ld.AO erred in observing that the assessee has not deducted TDS u/s.194-I of the Act on the payments as the assessee has deducted and deposited TDS under the correct provisions of the Act, i.e. u/s.194-J & 194-C respectively and, therefore, no disallowance is called u/s.40(a)(ia) of the Act. Addition u/s 14A - Held that - We observe that the assessee possessed interest-free funds as on 31/03/2007 of ₹ 21.55crores and investments as on 31/3/2007 stood at ₹ 2.47crores which shows that assessee had sufficient interest-free funds for application in the investments and, therefore, following the judgement of CIT vs. Torrent Power Ltd. (2014 (6) TMI 185 - GUJARAT HIGH COURT ), wherein it has been held that no disallowance of interest expenses is called for u/s.14A of the Act , if the assessee possesses sufficient interest-free funds to cover up the investments made and, therefore, we find no reason to make any disallowance towards interest expenses deemed to have been applied for investments. Further, we also observe that Rule-8 r.w.s. section 14A of the Act came into existence from 01/04/2008 and certainly it was not applicable to the assessee for AY 2007-08 and also no satisfaction has been made by the ld.AO by extracting necessary details from the books of account of assessee to prove that any specific expenditure has been incurred for earning dividend income. However, looking to the totality of the fact of the present case, wherein the assessee has earned dividend income of ₹ 14,53,085/- and also observing that in various judgements it has been held that disallowance u/s.14A of the Act should not exceed the exempt income earned by the assessee and looking to the fact that one cannot ignore that some elements of expenditure ought to have been incurred for earning exempt income and also making regular investments during the year as observed by us from the financial statements of the assessee that lot of transactions have taken place in the investment account. We are, therefore, of the view that out of the disallowance confirmed by the ld.CIT(A) of ₹ 1,69,229/-, we hereby delete the proportionate disallowance of interest at ₹ 23,929/- and confirm ₹ 1,45,300/- as disallowance u/s.4A of the Act. Accordingly, ground of assessee s and Revenue s appeal are partly allowed. Transaction of shares - STCG v/s business income -.AO for treating the STCG as business income meaning thereby not allowing the benefit of exemption of tax on LTCG and benefit of special rate of tax with STCG - Held that - As the appellant has separately maintained the details of investments and equity shares and has been able to show the transactions of capital gain and investments distinctively from the other business activity carried out during the year and, accordingly, capital gain offered by assessee as a LTCG and STCG should have been accepted by the lower authorities and, therefore, the ld.CIT(A) has erred in accepting the view of ld.AO for treating STCG and LTCG capital gain as business income Addition on account of claim of bad debts - Held that - Respectfully following the judgement of the Hon ble High Court of Mumbai in the case of CIT vs. Shreyas S. Morakhia 2012 (3) TMI 103 - BOMBAY HIGH COURT , we upheld the decision of the ld.CIT(A) and applying the facts of the case, we find that inc the case of assessee who is a share-broker was providing services to NIFCL upto FY 2000-01 and was regularly earning income from brokerage which is verifiable from the ledger account of NIFCL appearing at page Nos.181 to 191 of the paper-book of the assessee and out of this outstanding balance, after a lapse of eight years, the assessee has transferred ₹ 12 lacs to the bad debts account and these facts has not been controverted by the Revenue by placing any contrary material. Therefore, we are of the opinion that the ld.CIT(A) has rightly deleted the addition by allowing the claim of bad debts of ₹ 12 lacs and, therefore, no interference is called for with the order of the ld.CIT(A) TDS u/s 194J - rent expenditure - V-set charges to NSE/BSE for connectivity and internet expenses - Held that - Payment made to M/s.Ashwin Chinubhai Broking Pvt.Ltd. on account of office management and maintenance expenses do not fall under the head of rent expenditure and the assessee has rightly deducted TDS u/s.194-J of the Act and, similarly, payment paid towards V-set charges to NSE/BSE for connectivity and internet expenses are subject to TDS u/s.194-C of the Act and assessee has rightly deducted TDS u/s.194-C and, therefore, ld.AO was not correct in observing of the payment as rent expenditure (subject to TDS u/s.194-I of the Act). Disallowance u/s.40(a)(ia) on reimbursement of expenses - Held that - No disallowance is called for u/s.40(a)(ia) of the Act on reimbursement of expenses as the obligation to deduct the TDS on payment of the expenditure are to be complied with the agent to admit payment on its behalf. See CIT vs. Gujarat Narmada Valley Fertilizers Co.Ltd 2014 (4) TMI 235 - GUJARAT HIGH COURT Disallowance of bad debts - Held that - An amount of ₹ 64,000/- has been paid to Aneel Bhargavbhai Lalcha on 24/08/2007, eventhough an outstanding amount of ₹ 1,04,210/- was due to be received on 01/04/2007. This facts shows that there was no dealing of assessee with this impugned parties for purchase of sale and shares in order to earn brokerage income, rather assessee himself has advanced money to this party. We are, therefore, of the view that the facts of the case in the year under appeal, are not the same to the facts dealt by us while adjudicating the appeal for AY 2007-08 and we are of the view that the ld.AR has rightly disallowed the claim of bad debts of ₹ 2,89,121/- and, accordingly, we allow the ground of the Revenue Whether the revised computation income can be accepted by the AO during the course of assessment proceedings or not - Held that - As decided in ACIT Ahmedabad vs. Amrapali Capital & Financial Services Ltd 2015 (6) TMI 713 - ITAT AHMEDABAD the CIT(A) has accepted the assessee s revised computation as per section 55(2)(ab) of the Act. The Assessing Officer had refused the very relief by quoting the case law of Goetze (India) Ltd. (2006 (3) TMI 75 - SUPREME Court ) and also the fact that the time limit for filing revised return had already elapsed. This is not the Revenue s case that the assessee is not otherwise entitled for the relief in question under the provisions of the Act in seeking the impugned recomputation. It only contends that once there was no time left for filing a revised return, the impugned relief ought not to have been granted. A perusal of the case law hereinabove itself clarifies that the same does not impinge upon the jurisdiction of appellate authorities under the Act. Therefore, we refuse to agree with the Revenue s mere technical plea and affirm the CIT(A) findings under challenge.

Summary

Issues Involved:
1. Addition of undisclosed interest income
2. Disallowance of payments under Section 40(a)(ia) for incorrect TDS deduction
3. Disallowance under Section 14A for expenses related to exempt income
4. Classification of capital gains as business income
5. Disallowance of bad debts
6. Acceptance of revised computation of income without a revised return

Issue-wise Detailed Analysis:

1. Addition of Undisclosed Interest Income:
The assessee showed interest income from Canara Bank and HDFC Bank, which did not match the amounts on the TDS certificates. The AO added ?5,78,899/- as undisclosed interest income. The assessee argued that this amount was already offered for tax in AY 2006-07. The Tribunal remitted the issue back to the AO for verification, allowing the assessee to provide evidence that the interest was taxed in the previous year.

2. Disallowance of Payments under Section 40(a)(ia) for Incorrect TDS Deduction:
The AO disallowed payments to Ashwin Chinubhai Broking Pvt. Ltd. (ACBPL) and others, claiming TDS was deducted under incorrect sections. The Tribunal found that the payments to ACBPL were for office management and maintenance, not rent, and thus TDS under Section 194J was appropriate. Similarly, payments for V-Sat charges and lease line expenses were not rent but connectivity charges, thus TDS under Section 194C was correct. The Tribunal allowed the assessee's appeal, holding no disallowance under Section 40(a)(ia) was warranted.

3. Disallowance under Section 14A for Expenses Related to Exempt Income:
The AO disallowed ?2,10,788/- under Section 14A, which the CIT(A) reduced to ?1,69,229/-. The Tribunal observed that the assessee had sufficient interest-free funds and that Rule 8D was not applicable for AY 2007-08. The Tribunal deleted the interest disallowance of ?23,929/- but upheld the disallowance of ?1,45,300/- for other expenses, partly allowing both the assessee's and Revenue's appeals.

4. Classification of Capital Gains as Business Income:
The AO treated the assessee's Short Term Capital Gain (STCG) and Long Term Capital Gain (LTCG) from share transactions as business income. The CIT(A) upheld this view. The Tribunal, considering the assessee's history of treating such gains as capital gains and the CBDT Circular No.6/2016, ruled that the gains should be treated as STCG and LTCG, not business income, thus allowing the assessee's appeal.

5. Disallowance of Bad Debts:
The AO disallowed a bad debt claim of ?12 lakhs, questioning the efforts made for recovery. The CIT(A) allowed the claim, referencing the Mumbai High Court's decision in CIT vs. Shreyas S. Morakhia. The Tribunal upheld the CIT(A)'s decision, noting the long-standing business relationship and regular brokerage income from the debtor.

6. Acceptance of Revised Computation of Income without a Revised Return:
The AO rejected the revised computation for LTCG on BSE shares, citing the need for a revised return. The CIT(A) allowed the revised computation, supported by the Tribunal's decision in ACIT Ahmedabad vs. Amrapali Capital & Financial Services Ltd. The Tribunal upheld this view, dismissing the Revenue's appeal on this ground.

Summary of Results:
1. Assessee’s appeal for AY 2007-08 is partly allowed for statistical purposes.
2. Revenue’s appeal for AY 2007-08 is partly allowed.
3. Assessee’s appeal for AY 2008-09 is allowed.
4. Revenue’s appeal for AY 2008-09 is partly allowed.