2015 (6) TMI 751 - AT - Income Tax

Disallowance of VSAT and Lease line charges u/s 40(a)(ia) - Held that - This issue has been decided in favour of the assessee in the case of The CIT Vs. M/s The Stock and Bond Trading Company (2011 (10) TMI 172 - BOMBAY HIGH COURT) wherein followed case of The Income tax Commissioner, Mumbai City-4 Vs. Angel Capital & Debit Market Ltd 2014 (5) TMI 584 - BOMBAY HIGH COURT to hold that the there is no requirement to deduct tax at source from the payments made to NSE/BSE towards VSAT charges and Lease line charges. - Decided in favour of assessee. Disallowance of claim of set off of Loss arising in Cash segment against the profits in Future & Options - Held that - Explanation to sec. 73 can be applied after computing the Gross total income, meaning thereby, the same shall not override the proviso to sec. 43(5) of the Act. Hence, as per the decision of Kolkatta bench of Tribunal in the case of M/s Arena Textiles & Industries Ltd (supra), the loss from cash segment can be set off against the profit from derivatives. Thus, after computing the Gross Total Income in the above said manner, the application of provisions of Explanation to sec.73 is required to be examined. Accordingly, we modify the order of Ld CIT(A) on this issue and restore the matter of applicability of Explanation to sec. 73 to the file of the AO with the direction to examine this matter afresh in the light of discussions made supra. - Decided in favour of assessee for statistical purposes. Disallowance of Mark to market loss on derivatives - Held that - As relying on DCIT Vs. Kotak Mahindra Investment Ltd 2013 (7) TMI 355 - ITAT MUMBAI , Shri Ramesh Kumar Damai Vs. Addl CIT (ITA No.1443/Mum/2009) and Edelweiss Capital Ltd Vs. ITO 2012 (10) TMI 223 - ITAT, MUMBAI it is held at the Tribunal is consistently holding that the Market to Market loss on derivatives cannot be treated as a contingent liability and hence the same is to be allowed as deduction. - Decided in favour of assessee. Disallowance made u/s 14A - Held that - AO has disallowed a sum of ₹ 63,848/- in respect of Administrative expenses by applying the provisions of Rule 8D(2)(iii) of the Act. The decision rendered by the jurisdictional High Court in the case of HDFC Bank Ltd (2014 (8) TMI 119 - BOMBAY HIGH COURT) would cover only the interest disallowance that is required to be made u/s 14A of the Act. Before tax authorities, it appears that the assessee did not make any specific submissions against disallowance made u/s Rule 8D(2)(iii) relating to administrative expenses. Hence, we confirm the order of Ld CIT(A) on this issue. - Decided against assessee.

Summary

Issues:
- Delay in filing appeal
- Disallowance of VSAT and Lease line charges
- Disallowance of set off of Loss in Cash segment against Future & Options profits
- Disallowance of Mark to Market loss on derivatives
- Disallowance u/s 14A of the Act

1. Delay in filing appeal:
The appeal was delayed by 52 days due to an administrative oversight. The assessee requested condonation of the delay, attributing it to a staff member placing the appellate order in an unattended location. The Tribunal, considering the reasonable cause shown, condoned the delay and admitted the appeal for hearing.

2. Disallowance of VSAT and Lease line charges:
The AO disallowed VSAT and lease line charges under sec. 40(a)(ia) for not deducting tax at source. The Ld CIT(A) confirmed the disallowance citing the need for tax deduction under sec. 194J. However, the Tribunal, referring to a High Court decision, ruled that no tax deduction was required for these charges and directed the AO to delete this addition.

3. Disallowance of Mark to Market loss on derivatives:
The Tribunal referred to previous decisions to rule that Market to Market loss on derivatives cannot be treated as a contingent liability and should be allowed as a deduction. The Tribunal directed the AO to delete this addition.

4. Disallowance u/s 14A of the Act:
The AO disallowed administrative expenses under Rule 8D(2)(iii) of the Act. The Tribunal upheld this disallowance as the assessee did not contest it before the tax authorities, and the High Court's decision only covered interest disallowance under sec. 14A.

5. Disallowance of set off of Loss in Cash segment against Future & Options profits:
The AO treated the loss in the cash segment as speculative loss, disallowing the set off against Future & Options profits. The Ld CIT(A) upheld this decision, alleging deliberate expense management by the assessee. However, the Tribunal, following High Court and Tribunal decisions, held that the loss from the cash segment could be set off against profits from derivatives. The matter of Explanation to sec. 73 was directed to be examined afresh by the AO.

In conclusion, the appeal was partly allowed for statistical purposes, with various additions disallowed or directed to be re-examined by the AO based on legal interpretations and precedents.