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TMI Blog2014 (1) TMI 1276X X X X Extracts X X X X X X X X Extracts X X X X ..... ar (A.Y.) 2008-09 vide order dated 30.11.2010. Assessee's Appeal (ITA No. 4842/Mum/2011) 2. The first issue, agitated by the assessee per its ground no. 1, is the disallowance u/s.14A in the sum of Rs.96,022/- effected by the Assessing Officer (A.O.) over and above the sum (Rs.98,939/-) disallowed by the assessee per its return of income. The working of the A.O.'s disallowance appears at pgs. 6 & 7 of the assessment order; the amount added by him being with reference to Rule 8D(2)(ii), i.e., in respect of interest, while that by the assessee itself is only in respect of the indirect expenses worked out in terms of rule 8D(2)(iii). The assessee's claim of having not incurred any interest expenditure, i.e., toward earning dividend income; t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ire net expenditure of Rs.4.38 lacs was adopted by the A.O. for computing the interest disallowable u/s.14A r/w r. 8D. 3.2 The ld. DR, on the other hand, would submit that these facts do not arise out of the orders of the authorities below and, therefore, at best the matter would need to be restored back for adjudication. 4. We have heard the parties, and perused the material on record. As abundantly clarified by the ld. CIT(A), the assessee has not been able to show the utilization of borrowed capital, on which interest stands paid/allowed, as exclusively for assets other than those yielding tax-free dividend income. As such, the prescription of proportionate disallowance, in terms of r. 8D(2)(ii), would apply, even as clarified by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in determining the profit on the securities transactions, i.e., which are entered into on own account, vis-a-vis the expenditure on the regular share transactions conducted on client account, for which the assessee receives brokerage income. The Revenue has apportioned the expenditure on the basis of the gross income from the two activities, i.e., at 35% for own transactions, while the assessee insists on the same being rightly allocable at 5% (of the total expenditure) only. 6. We have heard the parties, and perused the material on record. Even as clarified during the course of the hearing itself, the transactions for both types of the businesses, i.e., on own account and for the clients, being essentially the same, so that they entail th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d attained finality, at least in-so-far as the State of Maharashtra is concerned; the relevant decisions by the hon'ble high court being CIT v. Kotak Securities Ltd. [2012] 340 ITR 333 (Bom) and ITO vs. Angel Capital & Debit Market Ltd. (in ITA No.475 of 2011 dated 28.07.2011). It is, therefore, by now well settled that the TDS provision of section 194J would apply only in respect of transaction charges, and not to the VSAT and lease line charges. Accordingly, the Revenue succeeds in part, so that the disallowance would stand restricted to the amount of transaction charges paid to the Stock Exchange. We decide accordingly. 8. The second issue, raised per its ground no. 2 by the Revenue, is in respect of disallowance of non compliance charg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 350 (SC) and Indian Aluminium Co. Ltd. vs. CIT [1971] 79 ITR 514 (SC), holding that a penalty for a violation of the law is not an allowable expenditure as the same cannot be considered as an incident of the business. The Explanation to section 37(1), introduced by Finance (No.2) Act, 1998, w.r.e.f. 01.04.1962, further fortifies this legal position. The issue or the moot point, therefore, to be considered is whether the penalty/s levied on the assessee could be considered as arising in the course of the normal conduct of the business, i.e., as an incident of the trade, so as to constitute a deductible business expenditure. The apex court has further, per its decisions as in Prakash Cotton Mills (P.) Ltd. v. CIT [1993] 201 ITR 684 (SC) and S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... merely for the reason that it is for a procedural default, even as it appears the assessee has complied with the procedure. The ld. CIT(A) has merely relied on case law without examining facts and issuing relevant findings.
9.4 Under the circumstances, we only consider it fit and proper that the matter is restored back to the file of the first appellate authority to determine the issue arising afresh in accordance with the law, after hearing the parties, and by issuing specific findings of fact. We decide accordingly.
10. In the result, the assessee's appeal is allowed for statistical purposes and the Revenue's appeal is partly allowed and partly allowed for statistical purposes.
Order pronounced in the open court on July 24, 2013. X X X X Extracts X X X X X X X X Extracts X X X X
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