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TMI Blog2016 (1) TMI 1350X X X X Extracts X X X X X X X X Extracts X X X X ..... r. 8D - Held that:- Taking a consistent view in the case of M/s Trade Apartment Ltd. (2012 (3) TMI 421 - ITAT KOLKATA) we restore this file to the AO for fresh adjudication as per law with the direction that :- i) Regarding the disallowance as per rule 8D(ii), the net figures of interest should be taken into consideration. ii) Regarding the disallowance as per rule 8D(iii), the disallowance should not exceed the total expenses claimed by the assessee. Hence, in terms of above, this ground of appeal of the assessee is allowed for statistical purposes. Treating the receipt as income from other sources - disallowing the depreciation - Held that:- In the instant case the activity of letting out the use of the trademark is to be seen whether it is business of the assessee or not. There is no bar under the Act that if the commercial asset is used by the third party then the income will not be treated as “business income”. In the instant case, the “commercial assets” is being exploited by the third party and the receipt arising from the exploitation of the commercial assets has been regarded as “business receipts”. Besides this, even otherwise the income from the exploitation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the submission of the Ld.AR we find that there was no speculation profit for set off in the immediate assessment year. We also observe from the order of AO that in the immediate preceding assessment year that there was no speculation profit. We reverse the order of the lower authorities and this ground of appeal of assessee is allowed. - ITA No.615/Kol /2013 - - - Dated:- 20-1-2016 - Shri Mahavir Singh, Judicial Member and Shri Waseem Ahmed, Accountant Member By Appellant Shri Sunil Surana, FCA By Respondent Md. Ghayas Uddin, JCIT-SR-DR ORDER Waseem Ahmed, Accountant Member:- This appeal by the assessee is arising out of order of Commissioner of Income Tax (Appeals)-XIV, Kolkata in appeal No.730.ctta-XIV/11-12 dated 15.02.2013. Assessment was framed by JCIT, Range-30, Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) vide his order dated 07.12.2011 for assessment year 2009-10. Assessee has raised the following grounds:- 1. For that the order of the Ld. ITO is arbitrary, illegal, excessive, perverse and bad in law. 2. For that the Ld. AO erred in not telescoping the interest expenditure of ₹ 43,10,083/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e from other sources. The assessee during the year has made fixed deposit for an amount of ₹ 5 crores for 181 days beginning from 13.10.2008 and earned interest income of ₹ 26,59,277/- which was shown as income from other sources. The assessee has also the loan liability on which the interest was paid for an amount of ₹ 43,10,083/-. The assessee has adjusted this interest expenses against the interest income. However the AO during the assessment proceedings observed that the borrowed fund is coming from the earlier year which was used for the investment in shares and mutual funds. In the immediate preceding year the interest on such borrowed fund has been claimed for an amount of ₹ 45,73,146/- as an expenditure against the income from capital gains. This borrowed fund was not repaid by the assessee during the year. Therefore the AO observed that the borrowed fund was utilized in investment in shares and mutual funds. There was also no evidence that the borrowed fund was utilized for the investment in fixed deposit. So after comparison of the old accounts with the current year the AO opined that prima facie the assessee borrowed fund was making the investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n his share trading activities. The same trend has continued during this year. The AO has also given findings that the assessee has not repaid any loan but as the same borrowed fund and it has been invested in share and mutual fund. I agree with the view of the Assessing Officer that there is no evidence to show that investment in fixed deposit was out of loan/borrowed fund. The comparison of accounts of earlier year and current year reveals that the assessee has borrowed fund for making investment in shares. I agree with the view of the Assessing Officer that the interest payable on such borrowed fund are not allowable as deduction on account of any income by way of capital gain. Since the interest expenditure claimed by the appellant is not allowable as deduction against the capital gain, the action of the Assessing Officer is confirmed on this ground. Besides, since the borrowed funds are not directly linked to the fixed deposit made by the appellant, the interest expenditure claimed by the appellant cannot be telescoped with the interest earned on fixed deposits. In the facts and circumstances of the case, I hold that the Assessing Officer was right in law and on facts in holdi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he tax liability. The AO also observed that the same borrowed fund was for the share investment business and there was no evidence to show that the same borrowed fund was utilized in the making the FD of ₹ 5.00 crores. However we find from the submission and records that the FD was made from the redemption of the mutual funds and recovery of the loans as per the details given below:- Statement of fixed deposit Date Fixed deposit Amount Source of fund Amount 10.10.08 State Bank of India, Ballygunge Br. 5,00,00,000 Redemption of Mutual Fund For 181 days (10.10.08 to 13.04.09) Reliance Medium Term Fund 2,55,40,057 HSBC Fixed term series 58 1,21,56,840 Refund of unsecured loan Adi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f interest paid on the borrowed fund was less than the rate of income from interest and share market. The assessee also submitted that the borrowed fund was invested for the relevant year in FD, equity shares, mutual fund and speculation profit. Thus the application of section 14A of the Act is not applicable. 6.2 The AO concluded from the facts and the submission of the assessee that the borrowed fund has been invested in the share market which has given rise to capital gain income and other income. So the provisions of section 14A are very much attracting to the assessee for the relevant year. Accordingly the AO applied rule 8D of Income Tax Rules and worked out the disallowance as under : i) Expenses directly relatable ₹ 31,290.00 ii) Interest expenses on borrowed fund ₹ 30,67,213.00 iii) % of average value of investment ₹ 5,71,648.00 Total disallowance ₹ 36,70,151.00 7. Aggrieved, assessee preferred an appeal before Ld. CIT(A) who upheld the action of AO by observing as under:- 5.1 As per findings given in the ground No.1 of the appeal it has been held that the interest expenditure had no direct nexus with the interest income earn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egards the disallowance under rule 8D(iii) of Income tax Rules 1962, the ld. AR submitted that the total expenses claimed by the assessee are of ₹ 1.06 lacs and out of this a sum of ₹ 0.31 lacs towards Demat charges has already been disallowed. For the balance expenses the ld. AR submitted that these are basic establishment maintenance expenses and should be allowed. However the ld. AR offered another expense of ₹ 1597.00 towards the bank charges for the disallowance under rule 8D(iii) of Income tax Rules 1962. 8.1 Form the aforesaid discussion we find that the AO has applied the provisions of rule 8D of Income tax Rules 1962 in terms of the provisions specified under section 14A of the Act. However we find that while applying the provisions of rule 8D(ii), the AO has taken entire amount of interest expenditure though the part of the borrowed fund was utilized to generate the income from other sources. So in our view only the net interest should be considered while making the disallowance under rule 8D(ii) of Income tax Rules 1962. Regarding the disallowances under rule 8D(iii) of Income tax Rules 1962, we find that the assessee incurred a sum of ₹ 1.06 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting it transferred in his name. The assessee had no business activity where the trade mark can be utilized. However the assessee has given back the trade for use to M/s Fermion Ltd. and received consideration for an amount of ₹ 4,40,730/- during the year. The assessee has declared such receipt as business income. Besides this assessee claimed depreciation on the purchase of trade mark for an amount of ₹ 55,000/- against the above business income. During the assessment proceedings, assessee did not give any specific reply to the query raised by the AO for not allowing the depreciation, but submitted the agreement copy for the assignment of Trade Mark and copies of the provision contained under section 32 of the Act. The AO disregarded the claim of the assessee by observing as under : 1) There was no business activity of the assessee where the trade mark can be used. 2) As per the provisions of section 32 of the Act, depreciation is allowed on the assets if it is used for the business carried on by the assessee. 3) As such the trade mark has been used by M/s SAF Fermion Ltd. in its business activity. 4) The assessee in the instant case is also a promoter dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion to page nos. 44 to 51 of the paper book where the deed of assignment of trade mark was placed. The same trade marks were allowed for use to M/s SAF Fermion Ltd. for the consideration in terms of agreement to use which is placed on page 40 to 42 of the paper book. The ld. AR also submitted that the confirmation from the party for charging the fees for the use of trademarks which is placed on page 34 of the paper book. Finally the AR prayed to treat the income charged from M/s Fermion Ltd. for the use of the trademarks as business income and also prayed for the allowance of depreciation on the trademarks. From the aforesaid discussion, we find that the AO has treated the receipt for allowing the use of trademarks as income from other sources as the assessee had no business activity and consequentially the depreciation was disallowed. 12.1 However, we find that the assessee has produced necessary documents for the purchase of trade mark and details of the fees charged from the party for the use of the trademarks. The assessee has treated such receipts as business receipts and claimed depreciation on the purchase of trademarks. Now in the instant case the activity of letting o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he above stated income. Since the AO has held that the assessee is in receipt of service charges without doing any activity, so all the expenses claimed by the assessee are disallowed except the expenses of ₹ 12 lakh paid to M/s S.R. Data Services Pvt. Ltd. and AO added the following expenses to the total income of the assessee as follows:- Sl No. Head of expenditure Amount (Rs) 1 Travelling and conveyance 424/- 2 Audit fees 18,000/- 3 Business promotion expenses 2,94,001/- 4 Generator maintenance charges 8,999/- 5 Lift maintenance charges 36,000/- 6 Maintenance charges 36,390/- 7 Salary 1,89,000/- 8 Repairs maintenance 33,000/- 9 Trade licence 1,375/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an expense of ₹ 18.34 lacs towards the maintenance activity. The above said expenses were inclusive of ₹ 12 lacs which were paid to the third party to whom the maintenance work was outsourced. The AO disallowed all the expenses except ₹ 12 lacs. Since the same income has been held as business income of the assessee in the immediate preceding assessment year, we are not inclined to treat the same as income from other sources. Therefore to maintain the consistency we reverse the order of the lower authorities and treat the same as income from business. Regarding the disallowance of the expenses we find that in the immediate preceding assessment year, the AO has disallowed the expenses to the tune of ₹ 3,16,752.00 only. Now to maintain the consistency in the order of lower authorities, we are inclined to restore this file to the AO with the direction to work out the disallowance of the expenses in the light of assessment order of the earlier year. Hence this ground of appeal is allowed for statistical purpose. 19. The next ground raised by assessee is that Ld. CIT(A) erred in confirming the order of the AO by disallowing an expense of ₹ 12 lakh on acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the paper book. We find from the aforesaid discussion that the assessee failed to deduct TDS on the maintenance expenses and therefore, the AO disallowed the same and added to the income of the assessee in terms of the provisions of section 40(a)(ia) of the Act. However we find that the party to whom the maintenance charges were paid, have duly disclosed the receipt in its return of income and paid the due taxes on it. Now as per the amended provisions of the Finance Act 2012, the assessee shall not be treated as assessee in default if the recipient of the income has duly shown in its return of income. Accordingly we reverse the order of the lower authorities, hence, ground raised by assessee is allowed. 22. The last ground raised by assessee is that Ld. CIT(A) erred in allowing the loss of future options for ₹ 3,29,661/- against the speculation income. During the assessment proceedings the AO found that the assessee has claimed the set off of the brought forward loss arising from intraday trading of shares for ₹ 3,29,661/- against the income of speculative transactions. However there was speculation profit in the immediate preceding year for an amount of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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