9911796707
TMI Blog2016 (9) TMI 649X X X X Extracts X X X X X X X X Extracts X X X X ..... Hence, we set aside the findings of the Ld. CIT (A) on this issue and restore the matter to the file of the AO for fresh adjudication after due verification of the claim of the assessee Addition on account of alleged difference in valuation of stock - Held that:- The assessee has been consistently valuing the stock of shares on FIFO basis and the it is undisputed that the department has accepted this method of valuation in preceding as well as subsequent assessment years. The AO has not been able to justify the need for the change in valuation and the Ld. CIT (A) has also confirmed the action of the AO in this regard. However, even in the arguments before us, the Ld. DR could not give a cogent reason that warranted a change in the method of valuation especially when the method was accepted by the department in earlier as well as subsequent years. It is also seen that due credit for the difference in valuation of closing stock in the year under appeal has also not been incorporated by the department in the valuation of opening stock by the department in AY 07- 08. Hence, we find that the stock valuation figure has been disturbed without any basis whatsoever and we find ourselves una ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o a limited extent, credit in tax on account of security transaction tax already borne by him in respect of the business carried out by him in dealing in securities. This rebate would be equally applicable to tax as computed under section 115JB of the Act as under the normal provisions of the Act X X X X Extracts X X X X X X X X Extracts X X X X ..... e to the facts of the case and as such the disallowance of interest of ₹ 3,33,821/- was not justified; 2. The ld. CIT (Appeals) erred in confirming the addition of ₹ 2,00,099/- on account of under valuation of closing stock on the facts and circumstances of the case. As a matter of fact, the ld. AO did not appreciate that the Appellant had valued the stock at cost or market price whichever was earlier on FIFO basis and as such the valuation of closing stock was correct on the facts and circumstances of the case and no addition was called for on the facts of the case; 3. The ld. CIT(Appeals) failed to appreciate that the Appellant was following the same method of valuation of closing stock year after year which was accepted by the department year after year and no defect whatsoever had been found either by the AO or by the CIT(Appeals) and in this view of the matter, the addition of ₹ 2,00,099/- on account of valuation of closing stock was not justified; 4. The appellant craves leave to add, alter or raise any ground of appeal at the time of hearing or any time before that." 5. In cross appeal the Revenue has raised the following grounds of appeal: Grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... invoking Rule 8D (2) without appreciating the provisions under rule 8D(1). The Ld. AR submitted that in absence of any finding, the said rule cannot be applied and unless he is not satisfied with the correctness of the disallowances made by the assessee. It was submitted that in the instant case, the AO has not recorded any such finding and that in fact the AO has admitted that the only expenditure in relation to income not forming part of total income is of interest expenditure of an amount of ₹ 31,89,080/-. It wass thus submitted that the AO has erred in making a disallowance in excess of ₹ 32,875/-. 6.1 In respect of ground no 2 of the assessee's appeal, it was submitted that the learned AO has committed a gross error in adopting the average method of valuing closing stock as against the correct method adopted by the assessee in accordance with the guidelines issued by the Institute of Chartered Accountants of India and further such a method has constantly been adopted and followed by it year after year. It was submitted that the Assessing Officer, in enhancing the value of closing stock, has failed to adopt the rate on lot wise basis, in respect whereof lot wise d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s suffered STT, it must be saddled with the liability u/s 115JB of the Act and that in any case, the calculation of tax payable on deemed income U/s 115JB has not been properly determined. 6.2.3 The learned AR further submitted that the AO has recorded a finding that the assessee is a stock broker and that the Ld. CIT (A) has erred in ignoring the said fact. It was submitted that as per the provision of sub section 6 of section 115JB, the provisions of the said section are inapplicable only in cases where an income accrues or arises from a business carried on or services rendered by an entrepreneur or a developer in a unit or special economic zone as the case may be. It was further submitted that the aforesaid issue is no longer res- integra as the Hon'ble High Court of Delhi by its judgment in ITA no.1181/2011 dated 17/05/2013 has held that the provisions of section 87 & 88E of the Act apply to the total income computed under section 115JB of the Act and that the assessee would be entitled to a deduction to the extent of securities transaction tax borne by him during the course of business in the relevant previous year. 6.2.4 On ground No. 4 of the Department's appeal, it was fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also drew attention to a chart and submitted that on perusal of the chart it would be seen that the book profit is far less than the total income and thus, the provisions of section 115JB do not get triggered and as such, the tax on book profit levied is also untenable. It was submitted that the income tax payable on the total income as computed under the Act is not less than 7.5% of its book profit, and as such the provisions of section 115JB are not applicable as is the situation in the instant case. In fact, when income tax payable on the total income as computed under the Act is less than 7.5% of its book profit then only can an assessee be liable to be taxed u/s 115JB of the Act whereas the tax payable on total income in the instant case is far higher than 7.5% of Book Profit. The chart is reproduced under for a ready reference - S.No. Particulars As per AO AY 2006-07 AY 2007-08 AY 2008-09 1. Total income 54,66,59,030/- 51,08,60,641/- 127,88,04,351/- 2. Income from sources other than income on which securities transaction tax has been paid 63,83,106/- 2,00,88,565/- 3,99,76,353/- 3. Tax on total income 16,83,06,156/- 15,32,58,192/- 38,29,48,300/- 4. Tax o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . STT has been paid and as no STT has been paid on (a) brokerage income, (b) interest on FDR (c) miscellaneous income, (d) interest on refund, rebate u/s 88E of the Act i.e. of STT paid could not be allowed. 6.3.2 It was further submitted that the AO, for the purposes of computation of taxable income, has included the interest income for the purposes of computation of income tax but has held that the rebate under section 88 E of the Act is to be restricted only to the extent of income on which securities transaction tax has been paid. In other words, in his opinion the assessee was to pay tax on ₹ 63, 83, 106/-. But the same is not eligible for rebate under section 88E of the Act, as the same is the interest income from FDR's. The Ld. AR submitted that such FDRs on which interest of a sum of ₹ 65, 30, 310/- has been earned represented margin money kept with stock exchanges in order to enable the assessee company to participate in the business of trading in shares. 6.3.3 It was submitted that it would be seen that there is no net income from (a) brokerage income, (b) miscellaneous income, (c) interest on refund (which is a negative sum) and thus, no such income has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elhi reported in 335 ITR 132, it would be seen that it has been held that where interest income has been earned on fixed deposits kept as margin money, the same has to be held as business income and not income from any other head. It was submitted that in arriving at such a conclusion, the Hon'ble High Court has kept in view the real distinction to decide whether the said income is income from business as income from other sources. The assessee submits that the ratio of the aforesaid judgment is fully applicable on the facts of the assessee - respondent. The Ld. AR submitted that in view of the aforesaid, finding of the learned CIT(A) deserves to be upheld as the interest earned on FD kept as margin money is "Income under the head Business" and ground of appeal raised by the revenue deserves to be dismissed. 7. The Ld. DR relied on the assessment order in the department's appeal and supported the order of the Ld. CIT (A) in the case of assessee's appeal. 8. We have heard the rival submissions and have perused the material on record. As far as the issue of disallowance u/s 14A is concerned, it is true that the authorities below have erred in applying Rule 8D to the year under appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive amount of expenditure in relation to income which does not form part of the total income under the said Act and sub-section (3) applies to cases where the assessee asserts that no expenditure had been incurred in relation to exempt income. In both cases, the Assessing Officer, if satisfied with the correctness of the claim of the assessee in respect of such expenditure or no expenditure, as the case may be, cannot embark upon a determination of the amount of expenditure in accordance with any prescribed method, as mentioned in sub-section (2) of Section 14A of the said Act. It is only if the Assessing Officer is not satisfied with the correctness of the claim of the assessee, in both cases, that the Assessing Officer gets jurisdiction to determine the amount of expenditure incurred in relation to such income which does not form part of the total income under the said Act in accordance with the prescribed method. The prescribed method being the method stipulated in Rule 8D of the said Rules. While rejecting the claim of the assessee with regard to the expenditure or no expenditure, as the case may be, in relation to exempt income, the Assessing Officer would have to indicate co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of closing stock in the year under appeal has also not been incorporated by the department in the valuation of opening stock by the department in AY 07- 08. Hence, we find that the stock valuation figure has been disturbed without any basis whatsoever and we find ourselves unable to agree with the stand of the department on this issue. We, accordingly, set aside the order of the Ld. CIT (A) on this issue and direct the AO to delete this addition. Ground no. 2 of the assessee's appeal stands allowed. 8.2 In the result, the appeal of the assessee stands allowed. 9. As far as ground no. 1 of the department's appeal is concerned, it is seen that the ld. CIT(A's) has discussed an adjudicated the issue at length on pages 11 & 12 of the impugned order. The relevant portions are being reproduced for a ready reference as under: "I have examined the submission of the appellant and it is found that the Share Capital and Free Reserves amounted to ₹ 78 crores and the income of the company for the current year as for revised return was in excess of ₹ 54 crores. There is nothing wrong in the making one donation out of various donations from the overdraft account. For all other d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 3 of the Department's appeal regarding rebate u/s 88E is concerned, we find that the case of the assessee is squarely covered by the decision of the Hon'ble Jurisdictional High Court in CIT vs. Jaypee DSC Ventures Limited (supra), wherein the Hon'ble Delhi High Court held as under: "As is noticeable from the stipulations in the agreement, the performance guarantee by way of bank guarantee was required for faithful performance of its obligations. The non submission of the guarantee would have entailed in termination of the agreement and NHAI would have been at liberty to appropriate bid security. That apart, the release of such performance security dependent upon certain conditions. Thus, it is clearly evincible that the bank guarantee was furnished as a condition precedent to entering the contract and further it was to be kept alive to fulfill the obligations. Quite apart from the above, the release of the same was dependent on the satisfaction of certain conditions. Thus, the present case is not one where the assessee had made the deposit of surplus money lying idle with it in order to earn interest; On the contrary, the amount of interest was earned from fixed deposit which ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
