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2017 (11) TMI 59 - AT - Income TaxTDS u/s 194H - non deduction of tds on brokerage payment - Held that - As relying on S.J. Investment Agencies Private Ltd 2011 (2) TMI 1427 - ITAT MUMBAI assessee has not violated the provisions of section 194H of the Income Tax Act so as to enable the AO to make addition / disallowance under section 40(ia) of the Income Tax Act on account of non-deduction of tax from the brokerage paid to various parties. - Decided in favour of assessee. Disallowance u/s 14A under the Rule 8D - Held that - No infirmity with order of Ld. CIT(A). He has only directed the AO to rework the disallowance u/s 14A r.w. Rule 8D in the light of the decision of the Jurisdictional High Court in the case of Maxopp (2011 (11) TMI 267 - Delhi High Court ). The decision of the Jurisdictional High Court is binding on the revenue. Therefore, the revenue should have no grievance. The ground raised by the revenue is accordingly dismissed.
Issues Involved:
1. Addition under Section 40(a)(ia) for non-deduction of TDS on brokerage payments. 2. Disallowance under Section 14A for expenses related to exempt income. Issue-wise Detailed Analysis: 1. Addition under Section 40(a)(ia) for Non-Deduction of TDS on Brokerage Payments: The assessee, a company involved in stock trading and brokerage, filed its income return declaring an income of ?3,48,590/-. During assessment, the AO noted that the assessee paid brokerage of ?2,39,64,252/- without deducting TDS as required under Section 194H of the Income Tax Act. The assessee argued that TDS was not applicable to brokerage payments related to securities transactions. However, the AO disagreed and added ?81,52,443/- and ?59,27,785/- to the assessee's income for non-deduction of TDS. The CIT(A) upheld the AO's decision, emphasizing that the agreement with J.V. Stock Broking Pvt. Ltd. indicated a work contract under Section 194C, necessitating TDS deduction. The CIT(A) also supported the AO's view that brokerage payments for introducing clients were subject to TDS under Section 194H. On appeal, the Tribunal considered the assessee's argument that Section 194H excludes transactions in securities from TDS requirements. The Tribunal cited several decisions from the Mumbai Bench, including ACIT vs. M/S S.J. Investment Agencies P. Ltd., Prayas Securities Pvt. Ltd., and Jain Investment vs. ITO, which supported the assessee's stance that brokerage related to securities transactions is not subject to TDS under Section 194H. Consequently, the Tribunal set aside the CIT(A)'s order and directed the AO to delete the addition. 2. Disallowance under Section 14A for Expenses Related to Exempt Income: The AO observed that the assessee earned ?66,00,000/- as exempt dividend income but did not disallow any amount under Section 14A. The AO calculated the disallowance at ?28,46,727/- using Rule 8D. The assessee contended that the investments were made from own funds and free reserves, not borrowed funds, and computed a disallowance of ?1,17,317/-. The CIT(A) directed the AO to recompute the disallowance in line with the Delhi High Court's decision in Maxopp Investment, considering only the interest directly attributable to taxable income and using the average of total assets, not net assets. The Tribunal upheld the CIT(A)'s directive, noting that the decision of the Jurisdictional High Court is binding on the revenue, and found no infirmity in the CIT(A)'s order. Conclusion: The Tribunal allowed the assessee's appeal regarding the addition under Section 40(a)(ia) and dismissed the revenue's appeal concerning the disallowance under Section 14A. The Tribunal's decision emphasized adherence to established legal precedents and proper interpretation of tax provisions related to TDS and disallowance of expenses.
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