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2017 (10) TMI 1260 - AT - Income TaxDisallowance paid towards client assistance charges - Held that - We find that the instant issue is covered in favour of the assessee-company by the order of the ITAT I Bench in assessee s own case for the AY 2004-05 and AY 2005-06, thus allowing the claim. Non deduction of tds on reimbursement expenses to ICICI Securities Limited - Held that - As decided in assess s own case no tax is deductable at source if payments are made merely towards reimbursement of expenses incurred on assessee s behalf by another entity. Disallowance of bad debts - assessee-company failed to file party-wise details and actual proof of write off in ledger account of a particular debtor - Held that - In the case of Oman International Bank (2009 (2) TMI 54 - BOMBAY HIGH COURT ) it has been held that after amendment to section 36(1)(vii), it is neither obligatory nor is there any burden on the assessee to proof that debt written off by him is indeed a bad debt as long as it is bona fide and is based on commercial wisdom or expediency.In the case of Star Chemicals (Bombay) Limited (2008 (2) TMI 399 - BOMBAY HIGH COURT ) it has been held that if assessee has written off debt as bad debt, that would satisfy purpose of section 36(1)(vii).We follow the above decisions which are squarely applicable to the present issue and delete the disallowance Addition u/s 14A - applicability of rule 8D - Held that - Rule 8D was notified by CBDT by the IT (Fifth Amdt.) Rules 2008 w.e.f. 24.03.2008. Thus it is not applicable to the AY 2007-08. In such a case for AY 2005-06, the Hon ble Bombay High Court in CIT vs. M/s Godrej Agrovet Ltd. (2014 (8) TMI 457 - BOMBAY HIGH COURT) has held the order of the Tribunal in restricting the disallowance only to the extent of 2% of the total exempt income as proper. We follow the above decision and direct the AO to restrict the disallowance only to the extent of 2% of the total exempt income. Thus the 4th ground of appeal is partly allowed. Disallowance @ 50% of client introduction fees paid to ICICI Securities (INC) (ISI) for non-USA based entities u/s 40(A)(2b) - Held that - The payment made to ISI was genuine and in accordance with the terms of the agreement dated October 01, 2004.As per the main clause of the aforesaid agreement, ISI would introduce to the assessee-company clients in USA and countries other than USA where permitted from time to time. The assessee-company would execute secondary trades of clients introduced by ISI on the National Stock Exchange and Bombay Stock Exchange. Thus the provisions of section 40(A)(2)(b) of the Act do not cover the payments made to ISI, since ISI does not have any interest in the assessee-company. Addition made on account of penalty for violation of the bye laws of the Stock Exchange - Held that - The amount paid were not on account of any infraction of law and hence allowable as business expenditure .See case of Angel Capital and Debit Market Ltd 2014 (5) TMI 584 - BOMBAY HIGH COURT Disallowance on account of transaction charges, VSAT and lease line charges made u/s 40(a)(ia) paid to Stock Exchanges - Held that - Assessee is not required to deduct tax at source u/s 194J in respect of lease line charges and VSAT charges paid to stock exchange. See The ACIT Cir. 4(2), Mumbai Versus M/s. Twenty First Century Shares & Securities Ltd. 2013 (5) TMI 785 - ITAT MUMBAI Disallowance of loss on future and option marked to market margin - Held that - Market to market loss on derivatives could not be treated as contingent liability and hence, same was to be allowed as deduction u/s 37(1) . See Edelweiss Capital Ltd. vs. ITO 2012 (10) TMI 223 - ITAT, MUMBAI
Issues Involved:
1. Disallowance of client assistance charges. 2. Disallowance of reimbursement expenses due to non-deduction of TDS. 3. Disallowance of bad debts. 4. Disallowance under Section 14A. 5. Disallowance of client introduction fees. 6. Disallowance of penalties paid to Stock Exchange. 7. Disallowance of transaction charges, VSAT, and lease line charges under Section 40(a)(ia). Issue-wise Detailed Analysis: 1. Disallowance of Client Assistance Charges: The assessee-company paid ?48,65,79,000/- to ICICI Bank Ltd. for client assistance charges, which were disallowed by the AO on the grounds that the payments were not laid out wholly and exclusively for business purposes. The CIT(A) confirmed the disallowance, citing that ICICI Bank Ltd. was the major beneficiary without any charge from the appellant company. However, the ITAT found the issue covered in favor of the assessee by previous ITAT orders for AY 2004-05 and AY 2005-06, and thus deleted the disallowance. 2. Disallowance of Reimbursement Expenses: The AO disallowed ?12,00,97,937/- reimbursed to ICICI Securities Limited due to non-deduction of TDS. The CIT(A) upheld the disallowance, stating TDS was deductible under sections 194C and 194J. The ITAT, however, followed precedents where reimbursements were not considered as having an income element embedded for TDS deduction, and thus deleted the disallowance. 3. Disallowance of Bad Debts: The AO disallowed ?59,06,659/- as bad debts due to lack of supporting details from the assessee. The CIT(A) confirmed the disallowance and directed the AO to add back a further sum of ?79,88,905/-. The ITAT, referencing Supreme Court and Bombay High Court decisions, held that it was sufficient if bad debts were written off in the books and deleted the disallowance. 4. Disallowance under Section 14A: The AO disallowed ?34,32,050/- under Section 14A r.w. Rule 8D, which was confirmed by the CIT(A). The ITAT noted that Rule 8D was not applicable for AY 2007-08 and directed the AO to restrict the disallowance to 2% of the total exempt income, following the Bombay High Court decision in CIT vs. Godrej Agrovet Ltd. 5. Disallowance of Client Introduction Fees: The AO disallowed 50% of client introduction fees paid to ICICI Securities Inc. (ISI) for non-USA clients, amounting to ?1,29,03,379/-, under Section 40A(2)(b). The CIT(A) deleted the disallowance, finding no excessive or unreasonable payment. The ITAT upheld the CIT(A)'s order, following previous ITAT decisions in favor of the assessee. 6. Disallowance of Penalties Paid to Stock Exchange: The AO disallowed ?16,02,024/- paid as penalties to the Stock Exchange, considering it penal in nature. The CIT(A) deleted the disallowance, stating that Explanation to Section 37(1) was not applicable. The ITAT upheld the CIT(A)'s decision, referencing the Bombay High Court ruling in Income Tax Commissioner vs. Angel Capital and Debit Market Ltd. 7. Disallowance of Transaction Charges, VSAT, and Lease Line Charges: The AO disallowed ?8,24,83,381/- paid to Stock Exchanges under Section 40(a)(ia) due to non-deduction of TDS, considering the payments as fees for technical services. The CIT(A) deleted the disallowance, relying on ITAT decisions in similar cases. The ITAT upheld the CIT(A)'s order, referencing the Supreme Court decision in CIT vs. Kotak Securities Ltd., which held that such charges were not fees for technical services requiring TDS deduction. Summary of Judgments: - Assessee's Appeal for AY 2007-08: Partly allowed. - Revenue's Appeal for AY 2007-08: Dismissed. - Assessee's Appeal for AY 2008-09: Partly allowed. - Revenue's Appeal for AY 2008-09: Dismissed. Order Pronounced: 15/09/2017.
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