2015 (11) TMI 1368 - AT - Income Tax

Addition of NSE penalty - CIT(A) deleted the addition - Held that - CIT(A) follows case law of ITO vs. GDB Share and Stock Broking Services Ltd. 2003 (8) TMI 169 - ITAT CALCUTTA-C in deciding the very issue in assessee s favour. The Revenue fails to point out any distinction on facts or law before us. It does not quote any case law to the contrary. This first ground accordingly fails. - Decided against revenue Section 36(1)(iii) interest disallowance - CIT(A) deleted the addition - Held that - It transpires from the case file that assessee s interest free funds as on 31.03.2008 read a figure of ₹ 1,25,83,17,835/- in the nature of share capital, reserves and surplus etc. It files tribunal s order in its own case for AY 2004-05 decided on 19.12.2008 deciding the very issue in its favour in identical circumstances. We follow suit in these facts and reject this Revenue s ground as well.- Decided against revenue Bad debt disallowance - CIT(A) deleted the addition - Held that - Sale/purchase price of shares had been credited in the respective accounts. The CIT(A) follows special bench decision of DCIT vs. Shreyas S. Morakhia 2010 (7) TMI 455 - ITAT MUMBAI that value of the share transacted by a broker-assessee on behalf of the concerned client is very much allowable as bad debts. The Revenue fails to rebut this legal position.- Decided against revenue Brokerage rebate disallowance - CIT(A) deleted the addition - Held that - Assessee s gross brokerage income is of ₹ 59,23,26,790/-. The corresponding brokerage refund figure in question is @ 0.59% of this gross income. The relevant segments are cash and F&O of ₹ 9,06,412.88 and ₹ 25,61,094.25; respectively. Pages 93 to 102 contain list of assessee s clients alongwith codes and amounts refunded in all cases. The Revenue is unable to rebut correctness thereof. We hold in these facts that assessee s claim of brokerage rebate in question does not lack genuineness element. It has come on record that it is in stock broking business. It has accordingly offered the impugned rebate of ₹ 34,67,507/- in business expediency. We do not find any ground to interfere with the lower appellate findings under challenge. - Decided against revenue Section 14A disallowance - Held that - When there is no net interest expenditure upon setting off interest credited to P&L account, no part of interest debited is to be disallowed as attributable to earning of exempt income. The Revenue does not point out any exception thereto. We accordingly delete the interest disallowance under Rule 8D(2)(ii) of ₹ 13,81,198/- (supra). Coming to administrative expenses disallowance of ₹ 1,68,877/- under Rule 8D(2)(iii), the assessee fails to dispute correctness thereof since the impugned assessment year is 2008- 09. This latter disallowance figure is confirmed. - Decided partly in favour of assessee. Disallowance of provision made for leave encashment u/s 43B(f) - Held that - . The assessee submits to have paid leave encashment of ₹ 19,439/- as on 04.09.2008 and ₹ 19,661/- on 24.09.2008. There is no dispute about the above stated facts as well as the legal background of the issue. We follow the hon ble apex court Bharat Earth Movers vs. CIT, 2000 (8) TMI 4 - SUPREME Court order in these facts and direct the assessing authority in the same terms as indicated therein. - Decided in favour of assessee for statistical purposes.. Disallowance of depreciation on Ahmedabad Stock Exchange card - Held that - co-ordinate bench of the tribunal in case of assessee s sister concern s case M/s. Edelweiss Stock Broking Ltd. 2015 (10) TMI 917 - ITAT AHMEDABAD grants identical depreciation relief. We also draw support therefrom for allowing the impugned depreciation claimed. This ground is accepted. - Decided in favour of assessee. Disallowance u/section 40(a)(ia) - non-deduction of TDS qua payments made of NSE lease line charges, NSE VSAT charges and MTNL expenses - Held that - In recent decision of CIT vs. Ansal Landmark Townships Pvt Ltd, (2015 (9) TMI 79 - DELHI HIGH COURT) held that when a deductor-assessee is not an assessee in default u/s 201(1), it is deemed that it has deducted and paid the tax on such sums on the date of filing of return of income by the concerned payee as referred in the above stated proviso. We accordingly remit this issue back to the Assessing Officer for carrying out necessary verification regarding related payments having been taken into account by the concerned payees in computing their income. The assessee s other arguments disputing applicability of TDS provision shall be readjudicated as per law. - Decided in favour of assessee for statistical purposes..

Summary

Issues involved:
1. Disallowance of NSE penalty
2. Disallowance of interest under section 36(1)(iii)
3. Bad debt disallowance
4. Brokerage rebate disallowance
5. Section 14A disallowance
6. Provision for leave encashment disallowance
7. Depreciation on Stock Exchange card
8. Section 40(a)(ia) disallowance

1. Disallowance of NSE penalty:
The Revenue challenged the deletion of NSE penalty disallowance by the CIT(A). The penalty was imposed for non-compliance with NSE bye-laws. The Assessing Officer disallowed the claim as a business deduction, citing lack of distinction in facts or law. The CIT(A) ruled in favor of the assessee, following relevant case law. The Tribunal upheld the CIT(A)'s decision, stating that the Revenue failed to provide any contrary case law. Therefore, the Revenue's appeal on this ground was dismissed.

2. Disallowance of interest under section 36(1)(iii):
The second ground involved the restoration of interest disallowance under section 36(1)(iii). The Assessing Officer disallowed interest expenditure on loans to associate companies and share investments without business purpose. The CIT(A) found the loans to be for business purposes, citing relevant case law. The Tribunal rejected the Revenue's appeal, upholding the CIT(A)'s decision based on the business expediency element in the loans.

3. Bad debt disallowance:
The Revenue contested the deletion of bad debt disallowance by the CIT(A). The Assessing Officer disallowed the bad debt claim due to lack of proof of actual bad debts. The CIT(A) allowed the claim, referring to legal amendments. The Tribunal upheld the CIT(A)'s decision, stating that the value of share transactions by a broker-assessee is allowable as bad debts. The Revenue's appeal on this ground was rejected.

4. Brokerage rebate disallowance:
The Revenue sought to restore brokerage rebate disallowance. The Assessing Officer disallowed the rebate for lack of evidence of return to clients. The CIT(A) considered the explanation genuine and deleted the disallowance. The Tribunal upheld the CIT(A)'s decision, noting the genuineness of the rebate claim and its business expediency. The Revenue's appeal on this ground was dismissed.

5. Section 14A disallowance:
The assessee challenged the disallowance under Section 14A for exempt income from dividends. The Assessing Officer disallowed the expenditure, invoking Rule 8D(2)(ii) and (iii). The CIT(A) upheld the disallowance. The Tribunal allowed the appeal partially, deleting the interest disallowance but confirming the administrative expenses disallowance.

6. Provision for leave encashment disallowance:
The second substantive ground challenged the disallowance of provision for leave encashment under Section 43B(f). The Assessing Officer disallowed the claim as the payment was pending. The CIT(A) upheld the disallowance. The Tribunal allowed the ground for statistical purposes, following the apex court order regarding leave encashment.

7. Depreciation on Stock Exchange card:
The assessee challenged the disallowance of depreciation on the Stock Exchange card. The lower authorities held the card not eligible for depreciation under Section 32. The Tribunal allowed the depreciation claim, citing a co-ordinate bench decision supporting identical depreciation relief for a similar case.

8. Section 40(a)(ia) disallowance:
The last substantive ground involved the disallowance under Section 40(a)(ia) for non-deduction of TDS on certain payments. The Tribunal remitted the issue back to the Assessing Officer for verification, considering the retrospective application of the relevant proviso. The appeal was partly allowed for statistical purposes.

In conclusion, the Revenue's appeal was dismissed, while the assessee's appeal was partly allowed, addressing various disallowances and provisions in the assessment.