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TMI Blog2016 (11) TMI 743X X X X Extracts X X X X X X X X Extracts X X X X ..... ous deposits or FDR under lien or deposits out of sources as discussed supra and the interest expense accrued in favour of various banks on the money borrowed for the purpose of FDRs for security and also for bank guarantees to NSC. Accordingly, we set aside the order of ld.CIT(A) and direct the AO to allow deduction of interest of 2,74,88,000/- out of the interest received from the National Stock Exchange. Non allowance of credit of tax - rectification application - Held that:- e find that the assessee has not been allowed credit being TDS at source on behalf of the assessee by NSE/Banks and the ld. CIT(A) has just dismissed the ground by directing the assessee to file rectification application u/s 154 of the Act which is not correct in our view and hence we are of the view that it would meet ends of justice if the AO is directed to allow the credit of TDS after verifying the claim of the assessee after allowing reasonable opportunity of being heard to the assessee. Depreciation claim - Held that:- We find that the assessee has discontinued the business following the order of SEBI and therefore there was no activity during the year and the claim of the depreciation cannot be allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the bar imposed on the assessee from carrying on such business activities as broker and trader in shares. The order passed by the SEBI was appealed in the Security Appellate Tribunal (SAT) in the month of April, 2004 with no success and the appeal filed by the assessee before the SAT was dismissed by the Tribunal vide order dated 11.5.2007. Finally, the order of the SAT was also affirmed by the Hon'ble Apex Court and leading to discontinue/suspension of business of the assessee. In the return of income filed by the assessee , it claimed loss of ₹ 3328/- on account of decrease in valuation of stocks and also claimed business loss on account of various expenses such as operating and administrative expenses ₹ 4,03,818/-, Financial Expenses ₹ 8,59,63,585/-, Preliminary and misc. Exp. Written off ₹ 10,012/- and depreciation ₹ 179634/-. Besides these expenses, the assessee has earned interest income to the tune of ₹ 5,43,92,821/-. During the course of scrutiny proceedings, the AO observed that since the assessee has discontinued its business following an imbargo by the SEBI which was affirmed by the Hon'ble Supreme Court and therefore the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned by way of interest from National Stock Exchange and therefore, were clearly covered by the provision of section 57(iii) of the Act. The ld. CIT(A) dismissed the appeal of the assessee and additional plea taken by the assessee thereby upholding the order of AO of assessing the income from interest received from National Stock Exchange under the head of other sources instead of income from business and also not allowing the interest incurred to banks on the loans out of which the money was transferred to National Stock Exchange upon invoking of guarantees /excercing lien on FDRs from the said interest income as requested by the AR u/s 57(iii) of the Act. The ld CIT(A) relied on various decisions as discussed in para 5.7.7 to 5.7.27 that the additional evidence produced by the ld. AR did not bring any nexus between the interest incurred and interest earned. Accordingly dismissed the plea taken by the assessee. The ld. AR vehemently submitted that the assessee was doing business of stock brokering,merchant banking and trading in shares. In order to carry on the trading in shares and securities on behalf of the various parties, the assessee has to deposit and give security to the N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest incurred to banks has direct nexus and constituted input cost of funds lying with National Stock Exchange and hence the same may be allowed while assessing the income of interest under the head "income from other sources". 6. On the contrary, the ld. DR heavily relied on the orders of authorities below and submitted that the order passed by the ld.CIT(A) was very detailed and reasoned order which was passed after discussing various decisions of various Courts and has given clearcut findings. There was no nexus between the interest earned from NSE and interest incurred to various banks on loans and prayed that the finding of the ld. CIT(A) be upheld by dismissing the appeal of the assessee. 7. We have carefully considered the submissions of the parties, perused the material placed before us including the orders of authorities below and case laws relied upon by the parties. We find that the business of the assessee was discontinued following the order of SEBI which was upheld by the SAT and Apex Court also and thus the business of the assessee came to forced stand still. The assessee was doing business of security and stock broking and trading in shares. We find that foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of section 56 of the Act. We also find that the National Stock Exchange exercised lien on FDRs of ₹ 5 crores on 23.07.2002 (proceeds of FDRs ₹ 5,94,03,209/-)which was purchased on 19.07.2000 out of money borrowed from the Global Trust Bank and the assessee incurred interest on the said bank to the tune of ₹ 95.00 lakhs. Three other deposits out of interest bearing funds from Global Trust Bank were also given ₹ 2,00,000/- on 07.02.2000, ₹ 6,00,000/- on 21.09.2000 and ₹ 25,00,000/- on 18.10.2000 on which the assessee incurred interest of ₹ 6,27,000/-.Interest on bank guarantees invoked by the stock Exchange ₹ 3,15,00,000/- from Global Trust Bank , interest of ₹ 59,85,000/- was incurred and on ₹ 3,00,00,000/- from Centurian Bank out of which ₹ 2,11,00,000/- were interest bearing and interest incurred was at ₹ 33,76,000/-. Likewise assessee incurred interest of ₹ 80,00,000/- on the amount of invoked bank guarantee of ₹ 5,00,00,000/-from ICICI Bank.Thus the total amount of interest incurred to various banks on the borrowings comes to ₹ 2,74,88,000/- 8. Considering the above facts and ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on behalf of the assessee by NSE/Banks and the ld. CIT(A) has just dismissed the ground by directing the assessee to file rectification application u/s 154 of the Act which is not correct in our view and hence we are of the view that it would meet ends of justice if the AO is directed to allow the credit of TDS of ₹ 38,79,584/- after verifying the claim of the assessee after allowing reasonable opportunity of being heard to the assessee. This ground is allowed for statistical purposes. 12. The issue raised in respect of depreciation amounting to ₹ 1,79,634/- raised in ground No.2 not allowing the depreciation to the assessee. The ld. CIT(A) also rejected the ground of the assessee on the ground that business has ceased and therefore no deprecation was allowable in the current year or in the subsequent years. Aggrieved by the order of ld. CIT(A) the assessee in appeal before us. 13. After hearing the rival contentions and on perusal of the record, we find that the assessee has discontinued the business following the order of SEBI and therefore there was no activity during the year and the claim of the depreciation o f ₹ 1,79,634/- cannot be allowed as the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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