2014 (4) TMI 662 - AT - Income Tax

Disallowance of claim for depreciation on BSE and NSE Membership Card Held that - The decision in JM FINANCIAL SERVICES PVT LTD Versus ADDL COMMISSIONER OF INCOME TAX. MUMBAI 2013 (8) TMI 821 - ITAT MUMBAI followed - the right of membership (including the right of nomination) vests in the Exchange only when a member commits default - Otherwise, he continues to participate in the trading session on the floor of the Exchange - by virtue of Explanation 3 to Section 32(1)(ii) the commercial or business right which is similar to a licence or franchise is declared to be an intangible asset - the right of membership, which includes right of nomination, is a licence or akin to a licence which is one of the items which falls in Section 32(1)(ii) of the Act - The right to participate in the market has an economic and money value - It is an expense incurred by the assessee which satisfies the test of being a licence or any other business or commercial right of similar nature in terms of Section 32(1)(ii) of the Act Decided in favour of Assessee. Disallowance u/s 14A r.w Rule 8D of the Rules Held that - A specific dissatisfaction was recorded by the AO in the assessment order regarding the correctness of the disallowance offered by the assessee u/s 14A of the Act and even the reasons for the same were given by the AO - Rule 8-D was not applicable in A.Y. 2007- 08 when the additional disallowance made u/s 14A of the Act - As per Rule 8D, if the AO is not satisfied with the disallowance computed by the assessee u/s 14A of the Act, he can compute the disallowance to be made u/s 14A of the Act by applying the Rule and there is nothing to suggest that either the AO or the CIT(A) is required to point out any specific expenditure incurred for earning the dividend income in order to make a disallowance u/s 14A read with Rule 8-D of the Income tax Rules, 1962 thus, there was no merit in the ground raised by the assessee Decided against Assessee. Disallowance of expenses on lease rent paid for vehicles Claim for depreciation on vehicles and finance charges paid on lease finance assets - Held that - The decision in JM FINANCIAL SERVICES PVT LTD Versus ADDL COMMISSIONER OF INCOME TAX. MUMBAI 2013 (8) TMI 821 - ITAT MUMBAI followed - The facts has not been discussed or dealt with by the AO - an appreciation of facts by the CIT(A) has also been disputed - the entire issue is remitted back to the AO for fresh adjudication Decided in favour of Assessee. Disallowance of entrance fees paid to the club for corporate membership Held that - The decision in CIT vs. Samtel Color Ltd 2009 (1) TMI 26 - DELHI HIGH COURT followed - the Corporate Membership fee paid to the club was held to be deductible as revenue expenditure u/s 37 of the Act holding that the fact that an expenditure gives enduring benefit is by itself not conclusive as regards the nature of the expenditure - the disallowance on account of entrance fee paid by the assessee for Corporate membership of Cricket Club of India is set aside Decided in favour of Assessee. Computation of rebate u/s 88E of the Act Allocation of indirect expenses Held that - Assessee was unable to explain any basis on which the indirect expenditure to the extent of Rs. 22,10,259/- was allocated by the assessee to the trading activity - the allocation of indirect expenses towards trading activity as made by the assessee was without any basis and keeping in view of the same as well as other facts of the case, allocation of indirect expenses made by the CIT(A) on estimated basis cannot be disturbed being fair and reasonable thus, there is no need to interfere in the order of the CIT(A) Decided against Assessee.

Summary

Issues Involved:
1. Disallowance of depreciation on BSE and NSE Membership Card.
2. Disallowance under Section 14A read with Rule 8D of the Income Tax Rules, 1962.
3. Disallowance of lease rent paid for vehicles.
4. Alternate claim for depreciation on vehicles and finance charges on lease finance assets.
5. Disallowance of entrance fees paid to the club for corporate membership.
6. Disallowance of registration expenses for leased vehicles.
7. Allocation of indirect expenses for computing rebate under Section 88E of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Disallowance of Depreciation on BSE and NSE Membership Card:
The assessee, a market share broker, claimed depreciation on BSE/NSE membership cards. The A.O. disallowed this based on previous assessments. The Tribunal noted that the issue was covered in favor of the assessee by its own decision for A.Y. 2007-08, which followed the Supreme Court ruling in Techno Shares and Stock Ltd. vs. CIT. Consequently, the Tribunal deleted the disallowance and allowed the appeal on this ground.

2. Disallowance under Section 14A read with Rule 8D:
The assessee received exempt dividend income and offered a disallowance for related expenses. The A.O. found this insufficient, invoking Rule 8D to disallow additional expenses. The CIT(A) upheld this, citing the absence of separate accounts for exempt income expenses. The Tribunal supported the A.O.'s recorded dissatisfaction with the assessee's disallowance and upheld the Rule 8D application, dismissing the appeal on this ground.

3. Disallowance of Lease Rent Paid for Vehicles:
The assessee claimed lease rent for vehicles, which the A.O. disallowed, following the previous year's assessment. The CIT(A) upheld this. The Tribunal noted that a similar issue was remanded to the A.O. in A.Y. 2007-08 for fresh adjudication. Following this precedent, the Tribunal restored the issue to the A.O. for fresh consideration, treating the appeal as allowed for statistical purposes.

4. Alternate Claim for Depreciation on Vehicles and Finance Charges:
The assessee's alternate claim for depreciation and finance charges on leased vehicles was also remanded to the A.O. in A.Y. 2007-08. The Tribunal restored this issue to the A.O. for fresh adjudication in line with the previous year's directions, treating the appeal as allowed for statistical purposes.

5. Disallowance of Entrance Fees Paid to the Club for Corporate Membership:
The A.O. disallowed the club entrance fee, treating it as a capital expenditure. The CIT(A) upheld this, relying on a Kerala High Court decision. The Tribunal, however, cited the Delhi High Court's ruling in CIT vs. Samtel Color Ltd., which treated such fees as revenue expenditure. Following this and a similar Tribunal decision, the Tribunal deleted the disallowance and allowed the appeal on this ground.

6. Disallowance of Registration Expenses for Leased Vehicles:
The representatives agreed that this issue was consequential to the lease rent disallowance. Since the lease rent issue was remanded to the A.O., the Tribunal also restored this issue to the A.O. for fresh consideration, treating the appeal as allowed for statistical purposes.

7. Allocation of Indirect Expenses for Computing Rebate under Section 88E:
The A.O. allocated indirect expenses to trading activities for computing rebate under Section 88E, which the CIT(A) partially upheld. The Tribunal found the CIT(A)'s allocation fair and reasonable, noting the lack of basis for the assessee's allocation. Thus, the Tribunal upheld the CIT(A)'s order and dismissed the appeal on this ground.

Conclusion:
The Tribunal partly allowed the appeal, providing relief on certain grounds while remanding some issues for fresh adjudication and upholding others. The order was pronounced on 28th February 2014.