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TMI Blog2013 (6) TMI 889X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer noted that there are many charges like auction difference charges, NSCCL charges, non-settlement charges etc which according to him are allowable as business expenditure. However, the penalty charges amounting to ₹ 67,531/- was disallowed by the Assessing Officer. In appeal the Ld. CIT(A) upheld the action of the Assessing Officer on the ground that NSE is a public body which is regulated by SEBI and the rules framed for the functioning and governance are approved by SEBI and the violation of any such rule has to be treated as covered under Explanation to Section 37. 2.2 Aggrieved with such order of the CIT(A) the assessee is in appeal before us. 2.3 After hearing both the sides we find the issue stands covered in favour of the assessee by the decision of the Hon ble Delhi High Court in the case of CIT Vs. Prasad and Company 341 ITR 140 wherein the Hon ble High Court has upheld the order of the Tribunal holding that such penalty paid to the stock exchange were deductible as business expenditure, such payment has been made during the course of business and there was no infraction of law. Respectfully following the above decision, we set-aside the order of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Ld. CIT(A) upheld the action of the Assessing Officer. While doing so, he obtained a remand report from the Assessing Officer after confirmation letters were filed before him giving the names of the parties and amount of commission. The Assessing Officer in the remand report had objected for admission of the same on the ground that such extracts were not submitted before him and it is not known whether the persons to whom such discount has been given has at all shown the same in their return of income. According to the Ld. CIT(A) for charging brokerage from the clients SEBI only prescribes upper limits which is pegged at 2%. The broker is free to decide the rate within the given upper limit. Further, in this kind of business brokers charge lower rates of brokerage in respect of clients who have large volumes of business. Therefore, the submission of the assessee that it has refunded higher brokerage charged earlier on enhancement of volume looks in agreement to the market price. However, according to him it is not clear why the assessee has chosen to pass entry in a manner so that the netting off is hidden. It is not understood especially when the same is claimed to be genuine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .1 Facts of the case, in brief, are that the assessee is in the business of share trading and earned dividend of ₹ 32,92,183/- which it claimed as exempt. During the course of assessment proceedings the Assessing Officer asked the assessee to explain as to why 7.4% of the total administrative expenses of ₹ 2,68,45,147/- amounting to ₹ 19,86,467/- should not be disallowed u/s.14A(1) of the I.T. Act since the dividend is approximately 7.4% of total income. In absence of any satisfactory explanation given by the assessee the Assessing Officer applied the ratio of decision of the Special Bench of the Tribunal in the case of ITO Vs. M/s. Daga Capital Management Pvt. Ltd. and disallowed an amount of ₹ 16,67,340/- holding the same to be expenditure related to earning exempt income. In appeal the Ld. CIT(A) directed the Assessing Officer to compute the disallowance u/s.14A after bifurcating the direct and indirect expenses to the 2 different streams of business activities, i.e. agency business and own trading and thereafter allocate the direct and indirect expenses of own trading business to the dividend income in the ratio of dividend income to the trading income i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in a case when assessee has not retained shares with an intention of earning dividend and dividend income is incidental to the business of sale of shares, it cannot be said that the expenditure incurred in acquiring shares has to be apportioned to the extent of dividend income so as to be disallowed. Accordingly, the Tribunal has set-aside the order of the CIT(A) and directed to delete the disallowance made u/s.14A of the I.T. Act. 4.6 Respectfully following the decision of the Coordinate Bench of the Tribunal in the case of Smt. Apoorva Patni and others (Supra) and further considering the fact that the shares are held as stock in trade and the dividend received is an incidental income, we hold that no disallowance u/s.14A is warranted under the facts and circumstances of the case. We accordingly set-aside the order of the CIT(A) and direct the Assessing Officer to delete the addition. 5. In ground of appeal No.4 the assessee has challenged the order of the CIT(A) in confirming the addition of ₹ 53,00,631/- u/s.40(a)(ia) on the ground that the assessee had not paid the TDS on the various payments. 5.1 Facts of the case, in brief, are that the Assessing Officer disall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 he submitted that when the TDS was deposited to the credit of the Government Account before the due date of filing of the return, the disallowance u/s.40(a)(ia) is not warranted. He accordingly submitted that the disallowance made by the Assessing Officer and upheld by the CIT(A) should be deleted. 5.5 The Ld. Departmental Representative on the other hand heavily relied on the order of the CIT(A). 5.6 We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper book filed on behalf of the assessee. We have also considered the decision relied on by the Ld. Counsel for the assessee. There is no dispute to the fact that the assessee in the instant case has deposited the tax so deducted at source to the Government Account on 05-05-2006, i.e. before the due date of filing of the return, a fact stated before the Ld. CIT(A) and not controverted by the Ld. Departmental Representative. We find the Pune Bench of the Tribunal in the case of H.A. Developers (Supra) while deciding the issue has observed a under : 5. After hearing both the sides and perusing the material on record, we find the issue raised by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appeal of the Revenue is dismissed while the appeal of the assessee is allowed . 5.7 Since the assessee has deposited the TDS to the credit of the Central Government before the due date of filing of the return, therefore, respectfully following the decision of the Coordinate Bench of the Tribunal in the case of H.A. Developers (Supra) we hold that no disallowance u/s.40(a)(ia) is called for. This ground raised by the assessee is accordingly allowed. 6. The fifth ground raised by the assessee relates to the order of the CIT(A) in disallowing payment of ₹ 35 lakhs made to Sri Rajesh Kasat as excessive u/s.40A(2). 6.1 Facts of the case, in brief are that the Assessing Officer during the course of assessment proceedings noticed that the assessee has made payments to persons covered u/s.40A(2)(b) amounting to ₹ 37,40,000/-. From the details furnished by the assessee he noted that the assessee has paid regular remuneration of ₹ 20,000/- per month to its Director Sri Rajesh Kasat from April 2005 to February 2006. However, in the month of March 2006, the assessee suddenly has paid salary of ₹ 35,20,000/- to Mr. Rajesh Kasat. The Assessing Officer there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.3 In appeal, the Ld. CIT(A) upheld the action of the Assessing Officer on the ground that such increase in salary was very high as compared to the earlier years. While doing so, he relied on the decision of Hon ble Bombay High Court in the case of CIT Vs. Shatrunjay Diamonds reported in 261 ITR 258 wherein it has been held that in cases falling u/s.40A(2)(b) the burden of proof shifts to the assessee and in such cases it is the duty of the assessee to prove and discharge the burden by leading proper evidence about reasonableness. He also relied on the decision of the Pune Bench of the Tribunal in the case of ACIT Vs. C.G. Newage Electricals Ltd. He observed that the assessee undoubtedly has failed to discharge the onus cast on it u/s.40A(2)(b). There is no apparent reason for increasing the salary in the month of March 2006 by ₹ 35 lakhs especially when Mr. Kasat was engaged in his own activities as well as activity of own company in a substantial manner. Distinguishing the various decision cited before him the Ld. CIT(A) upheld the action of the Assessing Officer. 6.4 Aggrieved with such order of the CIT(A) the assessee is in appeal before us. 6.5 The Ld. Counsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertain directions. Therefore, the said decision is not applicable to the facts of the present case. He accordingly submitted that the order of the CIT(A) be set-aside and in view of the decision of the jurisdictional High Court in the case of Indo Saudi Services (Travel) Pvt. Ltd (Supra) the remuneration paid be allowed in full. 6.7 The Ld. Departmental Representative on the other hand heavily relied on the order of the CIT(A). She submitted that the assessee in the month of March 2006 has paid the excess amount of ₹ 35 lakhs as remuneration without any justification. She submitted that for allowing the excess remuneration the assessee has to establish the fair market value of the services rendered, the legitimate need of the same for assessee s business and the benefit derived by the assessee. However, all these factors are missing in the instant case. So far as the decision of the Hon ble Bombay High Court in the case of Indo Saudi Services (Travel) Pvt. Ltd (Supra) relied on by the Ld. Counsel for the assessee she submitted that in that case Revenue had allowed similar rate in earlier years paid to the sister concern and the sister concern had paid tax on higher rate fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... confirmed by the Ld. CIT(A). The Tribunal deleted the addition. On further appeal by the Revenue the Hon ble High Court held that (a) the assessee apart from paying handling charges @ 9.5% to its sister concern has paid handling charges at the same rates to the other agents (b) in the preceding assessment years the assessee had paid the handling charges @10% to the sister concern of the assessee and such charges paid were considered to be reasonable by the Revenue. However, in the instant case the assessee was paying remuneration of ₹ 20,000/- per month to the Managing Director Mr. Kasat. Only in the month of March 2006 it has paid an amount of ₹ 35,20,000/- as incentive/remuneration. The Ld. Counsel for the assessee could not establish as to whether similar remuneration has been paid or not in the subsequent assessment years and if so what is the fate of the same. Therefore, the decisions relied on by the Ld. Counsel for the assessee are not applicable to the facts of the present case. However, considering the totality of the facts of the case, we deem it proper to restore the issue to the file of the Assessing Officer with a direction to give one more opportunity to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s as per return of income was ₹ 5,99,86,611/- . The Assessing Officer asked the assessee to give the details of the closing stock and the basis of valuation of the same. From the details furnished by the assessee the Assessing Officer noted that assessee has valued the closing stock at weighted average cost or market value whichever is lower. He, therefore, asked the assessee to give the valuation of inventory, i.e. closing stock if FIFO method is adopted. From the valuation given by the assessee as per FIFO method the Assessing Officer noted that there is a difference of ₹ 11,26,375/- if FIFO method is adopted. He therefore asked the assessee to explain as to why the undervaluation of closing stock by ₹ 11,26,375/- should not be added to the total income of the assessee. It was submitted by the assessee that it is consistently following the average cost or market price whichever is lower for valuation of closing stock of shares and this method is also recommended by the Accounting Standard-2 for valuation of inventories. It was further submitted that in case the valuation of closing stock is changed then consequently the change of the value of closing stock of ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k also. For this proposition, he relied on the decision of Hon ble Delhi High Court in the case of Mahalaxmi Glass Works reported in 318 ITR 116. Referring to the decision of Pune Bench of the Tribunal in the case of Hirlekar Precision Engg. Pvt. Ltd. Vs. DCIT in ITA No.387/PN/1992 order dated 04-02-2000 he submitted that similar view has been taken by the Tribunal. He submitted that if the method is changed for valuation of opening stock it would result in relief for the assessee. He submitted that either the method followed by the assessee be adopted and in case the FIFO method as adopted by the Assessing Officer is accepted for the closing stock then similar valuation should be made for the opening stock also. 8.6 The Ld. Departmental Representative on the other hand heavily relied on the order of the CIT(A). 8.7 We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. There is no dispute to the fact that the assessee, who is a dealer in shares valued its closing stock of shares on weighted avera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dering the totality of the facts and considering the fact that the assessee is consistently following the valuation of shares on weighted average cost method or market value whichever is lower which has been accepted by the department and since the above method is also a recognised method, therefore, we find merit in the submission of the Ld. Counsel for the assessee that no deviation should have been made. We accordingly set-aside the order of the CIT(A) and direct the Assessing Officer to delete the addition. The ground raised by the assessee is accordingly allowed. 9. Ground of appeal No.8 by the assessee relates to the order of the CIT(A) in not allowing the set off of the carry forward loss of ₹ 3,71,640/-. 9.1 Facts of the case, in brief, are that the Assessing Officer in Para 11 of the assessment order has stated that speculation loss in respect of A.Y. 2004-05 amounting to ₹ 3,71,600/- is allowed to be carried forward as per section 73 of the I.T. Act. Before the CIT(A) it was submitted that the assessee is in business of sale purchase of shares for last many years, infact since inception of the company. During one such year (i.e. A.Y. 2004-05) the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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