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2017 (10) TMI 239 - AT - Income TaxAddition u/s 14A r.w.r.8D - proof of sufficiency of own funds - Held that The assessee has own available funds sufficient to cover the investments which yielded tax free income and therefore no disallowance is called for u/r 8D(2)(ii) of Rules. The assessee has share capital and reserves & surplus of ₹ 3.26 crores and ₹ 1.84 crores respectively as on 31.3.2010 whereas the investment were to the tune of ₹ 4.20 crores and thus the assessee s own tax fee funds were sufficient to cover the amount of investments from the assessee yielding income by way of dividend. As held in the case of CIT V/s HDFC BANK LTD. 2014 (8) TMI 119 - BOMBAY HIGH COURT where the mixed funds are available in the business both interest free funds as well as interest bearing funds and if the investments in the tax free securities are less than the tax free funds then the presumption would be drawn and that investments in the interest free security was made out of own funds. Accordingly, following the ratio laid down in the case of HDFC Bank (supra) we are inclined to delete the disallowance of ₹ 16,65,803/- by reversing the order CIT(A) on this issue. The AO is directed accordingly Disallowance on account of bad debts - Held that - Respectfully following the precedent laid down by the Co-ordinate Bench of the Tribunal in the assessee s own case, we direct the AO to allow the claim of the assessee as held assessee has satisfied the conditions stipulated in section 36(2)(i) since these are business debts which could not be recovered and written off. Following the principles laid down by the Special Bench in the case of Shreyas S. Morakhia (2010 (7) TMI 455 - ITAT MUMBAI ) we hold that assessee satisfied the conditions prescribed under section 36(2). - Decided in favour of assessee. Disallowance of research and processing fees - Held that - We find a similar issue arose in the assessment year 2009-10 in which the addition was made by the AO to the total income of the assessee but in the proceedings before the FAA, the ld. CIT(A) deleted the addition made by the AO and the revenue has not challenged the decision of ld.CIT(A) before the Tribunal. Therefore, revenue s plea cannot be raised at this juncture to rake up the same issue in the subsequent issue as the issue has been settled in the previous year. Moreover, even on merits the case of the assessee is very strong case as the payment is made to the same party viz M/s Key tone Corporate Solutions P. Ltd for providing data analysis and research on the stock market as well as commodity market. In view of the said facts and circumstances, we are inclined to direct the AO to delete the addition - Decided in favour of assessee. Addition on account of repairs and maintenance expenses - nature of expenditure - revenue or capital - Held that - The assessee has incurred an expenditure on repairs and maintenance and renovation of office premises and therefore the same cannot be treated as capital in nature. We are, therefore, in complete agreement with the ld.CIT(A) that the said expenses are admissible as revenue expenditure. Accordingly we uphold the order of CIT(A) dismissing the ground raised by the revenue. - Decided in favour of assessee. Disallowance treating the share trading loss as speculation loss u/s 73 - Held that - We find merit in the arguments of the ld.AR that if the income of the assessee is treated as speculation income in the trading division in terms of explanation (1) to section 73 of the Act then similar treatment has to be given to the income from F&O segment where the transactions are purely non-delivery based. The ld. CIT(A) has passed very detailed, comprehensive and reasoned order as has been reproduced herein in above. We are in agreement with the conclusion drawn by the ld.CIT(A) that set off of loss in cash division in shares trading from profit from F&O segment has to be allowed. Accordingly, we uphold the order of the ld.CIT(A) by dismissing the appeal of the revenue. - Decided in favour of assessee.
Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act, 1961 read with Rule 8D of the Income Tax Rules, 1962. 2. Disallowance of bad debts. 3. Disallowance of research and processing fees. 4. Deletion of disallowance of bad debts by CIT(A). 5. Deletion of disallowance of repairs and maintenance expenses by CIT(A). 6. Treatment of share trading loss under Section 73 of the Income Tax Act, 1961. Issue-wise Detailed Analysis: 1. Disallowance under Section 14A read with Rule 8D: The assessee contested the disallowance of ?16,65,803 under Section 14A read with Rule 8D. The AO computed the disallowance by applying these provisions, rejecting the assessee's contention that investments were made out of own funds. The CIT(A) upheld the AO's decision, stating that the assessee had not proven sufficient free funds for investments. However, the Tribunal found that the assessee had sufficient own funds to cover the investments, citing the case of CIT vs. HDFC Bank Ltd. Thus, the Tribunal deleted the disallowance and allowed the ground in favor of the assessee. 2. Disallowance of Bad Debts: The AO disallowed the assessee's claim of bad debts amounting to ?59,84,843, stating that the conditions under Section 36(1)(vii) read with Section 36(2) were not met. The CIT(A) partially allowed the appeal, recognizing efforts made to recover the debts and the nature of the business as a share broker. The Tribunal noted that the issue was covered by its earlier decision in the assessee’s favor and directed the AO to allow the bad debt claim, thus allowing the ground. 3. Disallowance of Research and Processing Fees: The AO disallowed ?11,75,000 claimed as research and processing fees, citing lack of evidence for the genuineness and exclusive business purpose under Section 37(1). The CIT(A) upheld this disallowance. However, the Tribunal found that a similar issue in the previous assessment year was decided in favor of the assessee by the CIT(A) and not challenged by the revenue. Thus, the Tribunal directed the AO to delete the addition, allowing the ground. 4. Deletion of Disallowance of Bad Debts by CIT(A): The revenue contested the CIT(A)'s deletion of the bad debt disallowance of ?59,84,843. The Tribunal, having already decided a similar issue in favor of the assessee, dismissed this ground of the revenue's appeal. 5. Deletion of Disallowance of Repairs and Maintenance Expenses by CIT(A): The AO treated ?23,83,275 incurred on repairs and maintenance as capital expenditure. The CIT(A) reversed this, treating it as revenue expenditure, noting no new asset of enduring nature was created. The Tribunal upheld the CIT(A)'s decision, agreeing that the expenses were revenue in nature, and dismissed the revenue’s ground. 6. Treatment of Share Trading Loss under Section 73: The AO treated the share trading loss of ?77,49,222 as speculation loss under Explanation 1 to Section 73, disallowing its set-off against F&O income. The CIT(A) allowed the set-off, interpreting that the loss from share trading could be set off against F&O income. The Tribunal upheld the CIT(A)'s decision, agreeing with the comprehensive and reasoned order, and dismissed the revenue’s appeal. Conclusion: The Tribunal allowed the appeals of the assessee on all grounds, directing the AO to delete the disallowances and additions contested. The revenue’s appeals were dismissed, upholding the CIT(A)’s decisions favoring the assessee. The order was pronounced in the open court on 29th September 2017.
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