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TMI Blog2013 (8) TMI 361X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 (12) TMI 6 - SUPREME Court] - Decided against assessee. Disallowance u/s 14A - CIT confirmed disallowance - Held that:- AO has stated in the assessment order that he is not satisfied with the correctness of the claim of the assessee in respect of expenditure, in respect of exempt income - Because of movement or otherwise in the investments of the assessee company as per which investment in three mutual funds were sold, one such investment was retained and two such investment were increased, it is clear that sufficient time was devoted by the top management of the assessee company to monitor the investment and therefore, it is not acceptable that no expenditure was incurred by the assessee company for earning dividend income. Once it is found that the claim of the assessee is not correct regarding not incurring of expenditure for earning dividend income or any other exempt income, Rule 8D has to be applied and the AO had done the same - Following decision of DCIT Vs. Ashish Jhunjhunwala [2013 (6) TMI 545 - ITAT KOLKATA] - Decided against assessee. - Vadodara Stock Exchange Limited Versus ACIT Circle-4, Baroda - - - Dated:- 26-7-2013 - Shri G. C. Gupta And Shri A. K. Garodia, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is in further appeal before us. 5. It is submitted by learned AR of the assessee that as per the report of Justice M.H. Kania Committee on Corporatisation and Demutualization of Stock Exchanges, it was recommended that there should be changes in the management and ownership structure of Stock Exchanges and after that, the Government of India amended the Securities Contract Regulation Act, 1956 in the year 2004 paving way for Corporatization and Demutualization of Stock Exchange in India. He further submitted that one of the key measures of the demutualization exercise is to ensure induction of non-trading shareholders to the extent of 51% of aggregate equity capital of the exchange post demutualization. He further submitted that any step taken by any Stock Exchange to fulfill these requirements has to be accepted as a step under the business activity and the expenditure incurred thereon should be allowed as Revenue expenditure. He further submitted that the detailed note on demutualization process of the assessee is available at pages 57 to 61 of the paper book. He also submitted that Hyderabad Stock Exchange Limited who had failed to dilute at least 51% of its equity shares cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ital has gone to the non-trading share holders besides other changes stated by the appellant in its submission mentioned above. The Calcutta High Court in Brooke Bond India Ltd.'s case, 140 ITR 272 held that where the object of incurring an expenditure is to affect the capital structure as a result of which certain incidental advantage flows, the expenditure will be of capital nature. It is not the acquisition of a right of a permanent character alone, the creation of which is a condition for the carrying on of the business, that could be rightly treated as an expenditure on the capital account. Capita! expenditure can be incurred after a company is floated or it started business, if it resulted in bringing about capital advantage. This view was approved by Hon'ble Supreme Court in its decision in the case, of 93 TAXMAN S (SC), Punjab State Industrial Development Corpn. Ltd. In this decision the Supreme Court has held as follows: "7. We do not consider it necessary to examine all the decisions in extenso because we are of the opinion that the fee paid to the Registrar for expansion of the capital base of the company was directly related to the capital expenditure incurred by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther area in view of the restriction on lease of mining operation near area occupied by railway and such expenses were held to be revenue in nature on this basis that such expenses were for removal of disability and, therefore, it is revenue expenditure. In our considered opinion, the facts of that case are different. In that case, apart from removal of disability, there was no creation of any capital asset whereas in the present case, the paid up share capital of assessee has gone up many fold because of these expenditure and therefore, this judgment is not applicable in the facts of the present case. 8. The second decision cited by learned AR of the assessee is also the judgment of Hon'ble Apex Court rendered in the case of Empire Jute Company Limited (supra). In our considered opinion, this judgment is also not applicable in the present case because the facts are different. In that case, the members of association agreed themselves to work their loom for fixed loom hours every week and one member purchased loom hours from another member and the price paid for such purchase of loom hour was held to be revenue expenditure. In that case, the reasoning given by Hon'ble Apex Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the telephone, infrastructure, home resources being important one in this regard and everything." It was also pointed out that it is specifically stated by the AO in the same paragraph of the assessment order that he is not satisfied with the correctness of the claim of the assessee in relation to such expenditure, in relation to the exempt income and, therefore, he has proceeded to compute the disallowance to be made as per Rule 8D. In reply, learned AR of the assessee had nothing to say about this finding of the AO in the assessment order but he placed reliance on the following two Tribunal's decisions:- (a) DCIT Vs. Ashish Jhunjhunwala in ITA No.1809/Kol/2012 dated 14.05.2013. (b) Kamal Madmohan Mangaldas Vs. ITO in ITA No.2839/Ahd/2011 dated 31.5.2012. 12. He submitted a copy of both the Tribunal's decision. He also submitted that in the Tribunal's order of Kolkata Bench, the Tribunal has also reproduced the Tribunal's decision of Mumbai Bench rendered in the case of J.K. Investors (Bombay) Ltd. Vs. ACIT in ITA No.7858/Mum/2011 dated 13.03.2013. 13. Learned D.R. of the Revenue supported the order of the learned CIT(A). 14. We have considered the rival submissions, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tness of the claim of the assessee and without the same he invoked the Rule 8D of the Rules. While rejecting the claim of the assessee with regard to expenditure or no expenditure, as the case may be, in relation to exempted income, the AO has to indicate cogent reasons for the same. From the facts of the present case it is noticed that the AO has not considered the claim of the assessee and straight away embarked upon computing disallowance under Rule 8D of the Rules on presuming the average value of investment at % of the total value. In view of the above and respectfully following the coordinate bench decision in the case of J.K. Investors (Bombay) Ltd. supra, we hold the order of learned CIT(A). This appeal of revenue is dismissed." 17. From the above paragraph of the Tribunal order, it is seen that in that case, it is noted by the Tribunal that no satisfaction was recorded by the AO about the correctness of the claim of the assessee and Rule 8D was invoked in that case without such satisfaction but in the present case, satisfaction has been recorded by the AO in paragraph 4.1 of the assessment order that he is not satisfied with the correctness of the claim of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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