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TMI Blog2012 (9) TMI 1038X X X X Extracts X X X X X X X X Extracts X X X X ..... basis. 3. Learned Commissioner of Income Tax (Appeals) erred in confirming the order of the Learned Assessing officer in adopting the gross income from SIT transaction at ₹ 9915737/- as against ₹ 7179060/- declared by Appellant on the plea that Appellant did not deny specifically that no deduction of STI paid ₹ 2736677/- has been made and it was alleged that there was no entry on the asset side of the balance sheet showing only amount on account of STT paid. 4. Learned Commissioner of Income Tax (Appeals) erred in confirming the addition made by Learned Assessing officer of SIT paid ₹ 2736677/- to Total Income on the plea that Appellant did not deny specifically that no deduction of STT paid ₹ 2736677/- has been made and it was alleged that there was no entry on the asset side of the balance sheet showing only amount on account of STT paid. 5. Learned Commissioner of Income Tax (Appeals) erred in giving erroneous direction of allowing deduction of ₹ 1237578/- only for the purpose of determining income from dealing in shares securities instead of also giving direction for deletion of said amount from Total Income of Appellant 2.1 The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in cash market are the components of arbitrage profit. 3.2 The ld AR has submitted that a trader also deliver all shares in short period till the expiry of the period within the month and therefore, the dividend income is only an incidental to business activity of the assessee. He has relied upon the decision of the Hon ble Karnataka High Court in the case of CCI Ltd vs JCITG reported in 250 CTR(Kar) 191 and submitted that no disallowance is called for u/s 14A when the shares are held by the assessee in his business of arbitrage. He has also relied upon the decision of the Tribunal in the case of Yatish Trading Co P Ltd vs ACIT reported in 129 ITD 237. 3.3 On the other hand, the ld DR of the assessee has relied upon the order of the CIT(A) and submitted that the formula adopted by the CIT(A) is a correct one to find out the reasonable basis of disallowance u/s 14A. 4 We have considered the rival submissions and perused the relevant material on record. There is no dispute that the dividend income derived by the assessee on the shares which were held by the assessee in its share arbitrage business activity. There is no allegation or indication in the assessment order as we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t has remained unsold with the assessee. It is those unsold shares have yielded dividend, for which, the assessee has not incurred any expenditure at all. Though the dividend income is exempted from payment of tax, if any expenditure is incurred in earning the said income, the said expenditure also cannot be deducted. But in this case, when the assessee has not retained shares with the intention of earning dividend income and the dividend income is incidental to his business of sale of shares, which remained unsold by the assessee, it cannot be said that the expenditure incurred in acquiring the shares has to be apportioned to the extent of dividend income and that should be disallowed from deductions. In that view of the matter, the approach of the authorities is not in conformity with the statutory provisions contained under the Act. Therefore, the impugned orders are not sustainable and require to be set aside. Accordingly, we pass the following. 5 Respectfully following the decision of the Hon ble Karnataka High Court (supra), no disallowance is called for when no actual expenditure has been incurred by the assessee for earning dividend income. 6 Ground nos 2 to 4 regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 12,31,251/-. 7 Before us, the ld AR has submitted that when the assessee has already taken into consideration the expenditure of ₹ 12,37,578/- specifically incurred for earning the income from the activity of share and securities, then no apportionment of the other expenditure is justified. In support of his contention, the ld AR has submitted that the assessee was running brokerage business since 1999 and hence set up a complete infrastructure in the said business; therefore, no new infrastructure has been set up in the arbitrage business, which was started by the assessee since Feb 2006. The ld AR has contended that the cost attached to the brokerage business and arbitrage business are identifiable to a large extent and no part of common expenditure can be allocated to the arbitrage business as the other business of the assessee was already in existence and the common establishment expenditure are incurred for the existing business and not for the new business undertaken by the assessee. In support of his contention, he has relied upon the following decisions: i)Commissioner of Income-tax v. Industrial Investment Trust Co. Ltd. -67 ITR 436 ii)Rajasthan State Ware ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tly revised the gross total income. He has relied upon the orders of the authorities below on this issue. 9 We have considered the rival submissions as well as the relevant material on record. As regards the apportionment of the expenditure is concerned, the first contention of the ld AR is that there should not be any apportionment of the common expenditure when the assessee has already taken into account, the expenditure exclusively incurred for the activity of dealing in shares and securities. We do not agree with the contention of the ld AR because there is no dispute that the assessee has used the same establishment for the existing business as well as for arbitrage business activity and therefore, the expenditure incurred on the common administration and establishment which is used for all business activities of the assessee shall be apportioned among the same. It is not the case that the assessee is using the administration and establishment for the main business activity and earned some exempt income in the form of dividend as incidental to the main business and in such a situation when the expenditure is incurred for the main business activity of the assessee cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess of dealing in shares and securities is prior to deduction of STT or after deduction of STT, the addition on account of STT paid is required to be considered. The Assessing Officer is directed to verify this aspect and if the gross income shown by the assessee is without deduction of tax, then no addition can be made for computation of rebate u/s 88E. 11 Similarly, the amount of STT paid of ₹ 27,36,677/- has to be considered for addition in the total income of the assessee. 12 Ground no.5 regarding deduction of ₹ 12,37,538/-, which is common to the ground raised in revenue s appeal as under: On the facts and in the circumstances of the case and in law, the ld CIT(A ) has erred in directing the Assessing Officer to allow deduction in respect of direct expenses incurred for business of dealing in shares without appreciating the facts narrated in the assessment order by the Assessing Officer. 12.1 At the time of apportionment of the expenditure towards STT income, the Assessing Officer has not adjusted the direct expenditure of ₹ 12,37,578/- already taken into account by the assessee against the income from business of dealing in shares and securitie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aling in shares and securities was taken at ₹ 71,79,060/- without reducing the direct expenditure. The amount reduced from the gross in come is only ₹ 59,41,482/-, which is shown by the assessee after reducing the direct expenditure is at ₹ 12,37,578/-. In this way the direct expenditure of ₹ 12,37,578/- was left out while the Assessing Officer recomputed the total income. 14.4 It is pertinent to mention that the Assessing Officer has taken the income as per P L account and thereafter added the items which were disallowed. But while adding the gross income relating to the business of dealing in shares and securities, the Assessing Officer has not taken into consideration the direct expenditure incurred in relation to the said income. Accordingly, we find that the CIT(A) has rightly held that deduction of ₹ 12,37,578/ is allowable. However, inadvertently, the direction was given to the Assessing Officer only with regard to the determination of the income related to STT in para 4 of his order as under: 4. The next ground of appeal (Ground no.5) is against not allowing deduction in respect of direct expenses incurred for business of dealing in shar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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