2018 (2) TMI 1624 - AT - Income Tax

Disallowance made u/s 14A - Held that - The assessee had given workings under Rule 8D(2)(i) of the Rules at ₹ 1,57,976/- . We find that the CIT-A had given direction to the ld AO to make proportionate disallowance of direct expenses based on the turnover in trading and investment activity in shares and securities of the assessee. We do not find any infirmity in the said direction of the ld CITA. Hence there cannot be any grievance for the revenue in this regard. With regard to disallowance under Rule 8D(2)(iii), the ld CITA had rightly directed the AO to include only dividend bearing investments in tune with the decision of this tribunal supra. No infirmity in the said direction of the ld CITA. Accordingly, the Grounds 1 & 2 raised by the revenue are dismissed. Loss on account of commodity trading claimed - AO treated the loss as bogus loss and disallowed the same - Held that - Admittedly, the assessee is not an interested party with either the Director or the broker company M/s Marigold Vanijya Pvt Ltd. In such a scenario, it is quite unusual that the said broker had carried out commodity trading transactions for and on behalf of the assessee without collecting any margin money. We find that the Director of broker company M/s Marigold Vanijya Pvt Ltd had filed a sworn affidavit before the ld AO which had been rejected without assigning any reasons in the assessment order. We find that the ld AO had not verified the transactions by summoning the broker u/s 131 of the Act or obtaining information from them. Hence the order of the ld AO suffers from various deficiencies. However, in the interest of justice, we deem it fit and appropriate, to remand this issue to the file of the ld AO, to decide this issue afresh in accordance with law.

Summary

Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act.
2. Legitimacy of the loss claimed from commodity trading.

Issue-wise Detailed Analysis:

1. Disallowance under Section 14A of the Income Tax Act:

The first issue is whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in deleting the disallowance made under Section 14A of the Income Tax Act. The assessee, a Non-Banking Finance Company (NBFC), had filed its return for the Assessment Year 2012-13, declaring a total income of ?52,01,417/-. The assessee had voluntarily disallowed ?87,766/- under Section 14A. However, the Assessing Officer (AO) observed that the assessee earned exempt income of ?1,59,609/- and recomputed the disallowance under Rule 8D to ?10,42,300/-. After accounting for the voluntary disallowance, the AO disallowed an additional ?9,54,534/-.

The CIT(A) agreed with the application of Rule 8D but directed the AO to compute the disallowance by considering only dividend-bearing investments as per the decision in REI Agro Ltd vs. DCIT. The CIT(A) also directed the AO to make a proportionate disallowance of direct expenses based on the turnover related to the assessee's business. The Tribunal found no infirmity in the CIT(A)'s directions and dismissed the revenue's grounds on this issue.

2. Legitimacy of the Loss Claimed from Commodity Trading:

The second issue is whether the CIT(A) was justified in deleting the loss claimed from commodity trading amounting to ?41,55,088/-. The AO alleged that the loss was bogus since no margin money was charged by the broker, Shri Saraf, which is mandatory as per MCX rules. The AO did not accept the affidavit provided by the broker's director, stating the transaction was genuine.

The assessee argued that the AO did not dispute the genuineness of the documents submitted and that the absence of margin money does not render the transaction bogus. The assessee cited the Bombay High Court's decision in Bonanza Commodities Brokers Pvt Ltd vs. Mrs. Roshanara Bhinder, which stated that non-compliance with margin money requirements does not invalidate trades.

The CIT(A) observed that charging margin money is directory, not compulsory, and deleted the disallowance. However, the Tribunal noted that the AO did not verify the transactions by summoning the broker or obtaining additional information. Therefore, the Tribunal remanded the issue to the AO for fresh consideration, allowing the revenue's grounds for statistical purposes.

Conclusion:

The Tribunal dismissed the revenue's grounds regarding the disallowance under Section 14A but remanded the issue of the commodity trading loss back to the AO for further examination. The appeal was partly allowed for statistical purposes.