2021 (10) TMI 869 - AT - Income Tax

Disallowance u/s 14A r.w. Rule 8D - As argued by assessee that its own funds is more than the investments, therefore, there should not be interest disallowance in accordance with law - HELD THAT - All these figures speaks that the own funds of the assessee is more than the investment. No interest disallowance is required in the interest of justice. Moreover, we found that the AO considered investment in Gold and Silver Coins while calculating expenditure to earn the exempt income but those investment which yielded the exempt income is liable to be considered while calculating the expenditure to earn the exempt income in view of the provisions u/s 14A r.w. Rule 8D(iii). In this regard, we also placed reliance upon the decision of ACIT Vs. Vireet Investments P. Ltd. 2017 (6) TMI 1124 - ITAT DELHI . Accordingly, we decide this issue in favour of the assessee against the revenue. TDS u/s 194J - disallowance of lease line payment to stock exchanges - Addition u/s 40(a)(ia) - HELD THAT - As transaction charges are in nature of payment made for facilities provided by stock exchange and no TDS was deductible u/s 194J of the Act. In view of the decision of the Hon ble Supreme Court in the case of Kotak Securities Ltd 2016 (3) TMI 1419 - SUPREME COURT , no doubt, the claim of the assessee is liable to be allowable, hence, we ordered accordingly. Accordingly, this issue is decided in favour of the assessee against the revenue. Calculation of the long term capital gain for the period w.e.f. allocation of shares - contention of the assessee is that the indexation to calculate the capital gain is liable to be reckoned w.e.f allotment of BSE card and not from the date of BSE equity shares issued to the appellants - HELD THAT - The Hon ble Third Member in case of M/s. Techno Shares Stock Ltd. 2019 (8) TMI 1770 - ITAT MUMBAI has held that the period of holding of shares of BSE Ltd. shall be reckoned from the date of original membership of BSE and not from date of allotment of shares in BSE Ltd. Now it is clear that for computing the capital gain, indexation is liable to be considered from the date of original membership of BSE and not from the date of allotment of shares in BSE Ltd. By honoring the decision of Hon ble ITAT Mumbai Tribunal (supra), we set aside the finding of the CIT(A) on this issue and allow the claim of the assessee and direct the AO to reckon the capital gain accordingly. Disallowance of sub-brokerage paid to various parties - difference between amount accounted for by appellant in its books of account and the amount accounted for by the recipients in connection with sub-brokerage - HELD THAT - No doubt, the confirmation is higher than disallowance. There is no need to disallowance the difference because the recipient has confirmed the higher sub-brokerage. The disallowance nowhere seems justifiable, therefore, we are of the view that the finding of the CIT(A) is not justifiable, hence, we set aside the finding of the CIT(A) on this issue and allow the claim of the assessee. Accordingly, this issue is decided in favour of the assessee against the revenue. Reduction of rebate u/s 88E - contention of the assessee is that the bad debt expenses and Telephone Expense nowhere rise in account trading share. The said disallowance is unjustifiable - HELD THAT - Working of the AO has been confirmed by CIT(A), the said working nowhere demonstrate about the bad debts expenses, therefore, in the said circumstances, we set aside the finding of the CIT(A) in question and restore the issue before the AO to recalculate the claim of the assessee by considering the bad debts expenses and Telephone Expense in accordance with law. Needless to say that an opportunity of being heard is liable to be given to the assessee. Accordingly, this issue is restored to the file of AO. TDS u/s 194J - disallowance of amount paid as transaction charges to Stock Exchange on the ground of that the assessee has failed to deduct the tax at source - HELD THAT - Such charges are nothing but payment made for facilities provided by Stock Exchange, therefore, no contention of such payment would, therefore, be deductible u/s 194J of the Act by relied upon the Hon ble Supreme Court in the case of CIT vs. Kotak Securities Ltd. 2016 (3) TMI 1419 - SUPREME COURT We set aside the finding of the CIT(A) on this issue and allowed the claim of the assessee accordingly.

Summary

Issues Involved:

1. Disallowance under Section 14A read with Rule 8D.
2. Disallowance of lease line payment to stock exchanges under Section 40(a)(ia).
3. Calculation of long-term capital gain and indexation.
4. Disallowance of sub-brokerage paid.
5. Reduction of rebate under Section 88E.
6. Disallowance of transaction charges paid to Stock Exchange under Section 40(a)(ia).

Issue-wise Detailed Analysis:

Issue No. 1: Disallowance under Section 14A read with Rule 8D

The assessee challenged the disallowance under Section 14A read with Rule 8D, arguing that its own funds exceeded the investments, negating the need for interest disallowance. The assessee cited the case of CIT Vs. Reliance Utilities and Power Ltd. and Maruti Udyog Ltd. Vs. Dy. CIT to support this claim. The balance sheet indicated that the assessee's own funds were indeed more than the investments. The Tribunal found that the Assessing Officer (AO) incorrectly included investments in Gold and Silver Coins while calculating the expenditure to earn exempt income. The Tribunal ruled in favor of the assessee, stating that only investments yielding exempt income should be considered, as per ACIT Vs. Vireet Investments P. Ltd.

Issue No. 2: Disallowance of lease line payment to stock exchanges under Section 40(a)(ia)

The AO disallowed the lease line payment, treating it as technical services under Section 194J. The CIT(A) upheld this view based on the Kotak Securities Ltd. case. However, the Supreme Court later reversed this decision, clarifying that transaction charges are payments for facilities provided by the stock exchange, not technical services. Consequently, the Tribunal ruled in favor of the assessee, allowing the claim.

Issue No. 3: Calculation of long-term capital gain and indexation

The assessee contended that the indexation for calculating capital gain should start from the date of allotment of the BSE card, not from the date of BSE equity shares issuance. The Tribunal referred to the Third Member decision in M/s. Techno Shares & Stock Ltd. Vs. ACIT, which established that the period of holding should be reckoned from the date of original membership of BSE. The Tribunal honored this decision and directed the AO to calculate the capital gain accordingly, setting aside the CIT(A)'s finding.

Issue No. 4: Disallowance of sub-brokerage paid

The assessee challenged the disallowance of sub-brokerage of ?1,40,611/-, arguing that the disallowance was unwarranted due to an opening balance and double deduction of tax at source. The Tribunal found that the recipients had confirmed higher sub-brokerage amounts than disallowed, making the disallowance unjustifiable. The Tribunal set aside the CIT(A)'s finding and allowed the assessee's claim.

Issue No. 5: Reduction of rebate under Section 88E

The assessee contested the reduction of rebate under Section 88E to ?23,33,544/- from ?31,39,647/-, arguing that the bad debt expenses and telephone expenses were not related to trading shares. The Tribunal found that the AO's working did not account for these expenses. The Tribunal set aside the CIT(A)'s finding and restored the issue to the AO to recalculate the rebate, considering the bad debt and telephone expenses.

Issue No. 6: Disallowance of transaction charges paid to Stock Exchange under Section 40(a)(ia)

The AO disallowed transaction charges of ?3,12,178/- paid to the Stock Exchange, citing non-deduction of tax at source under Section 194J. The CIT(A) upheld this disallowance based on the Kotak Securities Ltd. case. However, the Supreme Court later ruled that such charges are payments for facilities provided by the Stock Exchange and not subject to Section 194J. The Tribunal set aside the CIT(A)'s finding and allowed the assessee's claim.

Conclusion:

The appeal filed by the assessee was allowed for statistical purposes, with the Tribunal ruling in favor of the assessee on all contested issues. The Tribunal directed the AO to adjust calculations and disallowances in accordance with the detailed findings and legal precedents cited.