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TMI Blog2024 (12) TMI 248X X X X Extracts X X X X X X X X Extracts X X X X ..... r MAT liability by resorting to section 115JB of the Act. Disallowance to Investors Service Fund (ISF), which is 20% of the listing fees received for Investors Service Fund (ISF) - HELD THAT:- SEBI s circular depicts the manner in which such funds are to be utilized primarily for the promotion of investor education and investor awareness programme. Through seminars, lectures, workshops, publications, training programmes, etc. for enhancing securities market literacy. According to this circular, in case the assessee company is wound up or derecognized, than the balance in the above fund lying unutilized could be transferred to the similar funds of SEBI. CIT(A) has thus rightly held that the contribution and utilization of the funds is mandatory for aforesaid purposes, which are directly related to the business activity of the appellant, hence allowable u/s. 37(1) - Decided in favour of the assessee. Disallowance of club entrance fees and subscriptions - Addition made as such expenses are not specified or clarified to be linked with assessee s business activities and further on the basis, that the appellant s auditor has qualified such expenses as being personal in nature - HELD THAT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 353858/- u/s. 115JB of the Act. The case was selected for complete scrutiny under CASS. Statutory notices u/s. 143(2) and 142(1) of the Act were issued and served upon the assessee. Assessee submitted details through ITBA portal. After considering the submissions of the assessee, learned assessing officer made additions of Rs 17,83,25,426/- u/s. 14A of the Act, disallowed Rs. 3,83,99,537/- as Investor Service Fund (ISF), disallowed Rs. 19,35,782/- as club entrance fees and subscriptions and disallowed interest of Rs. 2,22,377/- u/s. 201(1A) r.w.s 206 C(7) debited to P L account. 3. Aggrieved, assessee filed an appeal before learned CIT(A) who partly allowed assessee's appeal, confirming disallowance of Rs. 178325426/- worked out under rule 8D of the IT Rules 1962 but rejected assessee s plea of adjustments of the amount u/s. 14A while calculating book profit u/s. 115JB of the Act, but for statistical purposes. However, learned CIT(A) deleted the disallowance of set aside amount of Rs. 3,83,99,537/- to Investor's Service Fund (ISF) u/s. 37(1) of the Act. Learned CIT(A), further deleted disallowance of club entrance fees and subscriptions of Rs. 19,35,782. 4. Aggrieved by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Rs. 17,83,25,426/- u/s 14A while calculating book profit u/s 115]B of the Income Tax Act, 1961. 3) The Learned CIT(A), NFAC erred in directing the assessing officer to recalculate the Interest u/s.234C after giving effect to his order. Your appellants submits that interest u/s. 234C has to be charged on the basis of returned income. As per the return of income filed by your appellants interest u/s.234C comes to Rs. Nil since taxes paid were higher than tax payable, whereas as per the Tax Computation Form, interest u/s.234C is charged at Rs. 2,23,29,352/-. Therefore interest u/s.234C is chargeable only on the basis of returned income and deserves to be cancelled on the facts and circumstances of the case. 5. Perused the records and heard learned representative for the assessee and learned DR for the revenue. 6. At the very outset it is pertinent to mention that learned representative for the assessee has not pressed aforestated ground no.3. Hence, ground no.3 stands dismissed as not pressed. 7. The following points are to be determined under appeal: i) Whether the disallowance of Rs. 17,83,25,426/- as expenditure attributable to the exempt income in respect of profits earned by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd to be satisfactory. The expenditure incurred cannot be exactly ascertained from the books of accounts and the submissions made. Thus, the calculation mechanism provided in Rule 8D of I.T. Rules, 1962 needs to be applied for working out the quantum of disallowance u/s.14A of the Income Tax Act, 1961. The working of disallowance u/s. 14A r/w rule 8D is as under .. 11. The aforesaid observations of learned assessing officer were treated by learned CIT(A) as AO s non-satisfaction recorded before adopting the method as provided under rule 8D of the IT rules 1962. 12. It is pertinent to mention that, co-ordinate bench of this Tribunal in assessee s own case vide aforesaid common order dated 02.06.2016 in ITA Nos. 8095/M/2010 for A.Y. 2007-08, 4408/M/2012 for A.Y. 2008-09 and in ITA No. 1836/M/2013 for A.Y. 2009-10, vide para 4, 5 6 held as under: 4. At outset, the Id. counsel of the assessee submitted before us that in assessee's own case for immediately preceding year in ITA No.7586/Mum/2010 for AY-2006-07 dated 30.10.2015, the Tribunal, on exactly identical facts deleted the disallowance on the issue of non-recording of satisfaction and also on merits by observing as under: 2. 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction of sub-section (2) to section 14A, the Assessing Officer is required to record his satisfaction regarding correctness of assessee's claim. In the present case, on a perusal of the assessment order, it is very much clear that the Assessing Officer has not recorded any such satisfaction regarding the correctness of assessee's claim with regard to its books of account. On reading of the assessment order, it is patent and obvious that the Assessing Officer has rejected assessee's computation of disallowance under section 14A, simply for the reason that it is not in terms with the method prescribed under rule 8D. In view of the aforesaid, we have no hesitation in holding that satisfaction recorded by Assessing Officer with regard to correctness of assessee's claim is without valid reasons. Now, coming to the merits of the disallowance worked out by the assessee as well as the Assessing Officer, it is observed that the assessee has worked out the disallowance by taking Into consideration the direct expenditure relating to salary paid to three employees in-charge of treasury department and interest expenditure of Rs. 6,11,913 and Rs. 2,62,158 respectively. As far as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, direct the Assessing Officer to restrict the disallowance to that amount. In view of our decision as above, the issue raised by the assessee in ground no.2(iii) becomes redundant. Grounds are partly allowed. 5. The Id. Counsel for the assessee, in view of the above facts, stated that in the present year also there is no satisfaction recorded by the AO for the reasons that the assessee himself has made out disallowance of the amount as noted by the AO in his assessment order at page 1 amounting to Rs. 28,28,635/-. The Id. counsel for the assessee took us through para 5.2 of the assessment order and stated that the AO has simply applied the decision of the Special Bench of the Tribunal in the case of Daga Capital Management Pvt. Ltd(supra) and has not recorded any satisfaction in this year also. 6. When this facts were confronted to the Ld.Sr.DR, whether the AO has recorded satisfaction in this year. The Ld.Sr.DR took us through on the same para 5.2 and 5.3 as referred by the Id. AR also, but we find that there is no such satisfaction recorded by the AO for rejecting the disallowance claimed by the assessee and correctness of the same. We find that this issue now stands covered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... second point of determination, is with regard to the adjustments of disallowance of Rs. 17,83,25,426/-, worked out u/s. 14A of the Act r/w rule 8D of the IT rules for the purpose of section 115JB of the Act. 16. Section 115 JB of the Act reads as under: 115JB. (1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee, being a company, the income-tax, payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the Ist day of April, [2012], is less than 49 [eighteen and one-half per cent] of its book profit, [such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income-tax at the rate of [eighteen and one-half per cent]]: Provided that for the previous year the relevant to the assessment year commencing 1st day of April, 2020, the provisions of this sub-section shall have affect asat for the words eighteen and one-hall per cent occurring at both the or after place the words fifteen per cent had been substituted.] (2) Every assessee,- (a) ... (b) Provided Pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;ble Supreme Court rendered in Apollo Tyres Ltd. Vs. CIT [255 ITR 273] which held that the Assessing Officer did not have the jurisdiction to go behind the net profit shown in the Profit Loss Account except to the extent provided in Explanation to Section 115J. Similar view has been expressed by our jurisdictional Bombay High Court rendered in CIT Vs. JSW Energy Limited [2015 60 Taxmann.com 303], CIT v. Essar Teleholdings Ltd. [ITA No. 438 of 2012, dated 07/08/2014] CIT Vs. Bengal Finance Investments Pvt. Limited [ITA No. 337 of 2013 dated 10/02/2015). Therefore, respectfully following the catena of judgment in assessee's favour, we hold that adjustment of disallowance u/s 14A was not required to be made in Book Profits for the purpose of Section 115JB. The ground of assessee's appeal stands allowed to that extent. 18. In view of the decisions rendered by special bench in Vireet(Supra) and coordinate bench in Radha Madhav (Supra), we hold that the adjustment of disallowance u/s.14A of the Act r/w rule 8D of the IT rules, was not required to be made in the book profit for MAT liability by resorting to section 115JB of the Act. This second point is accordingly determined in f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Whether learned CIT(A) erred in deleting the disallowance of club entrance fees and subscriptions amounting to Rs. 19,35,782/-? 19. We shall, first take up first point for determination. Assessee s claim for this disallowance is based on SEBI s circular no. ref.SE/10118 dated 12.10.1992. Appellant assessee s claim is that the contribution to ISF is being made by it since the year 1992 onwards and has been claimed as expense u/s. 37 of the Act. The said claim has been allowed and accepted by the department in the past. There is no change in the fact and circumstances as compared to earlier years. The year wise details from A.Y. 2006-2007 to 2015-16 have been tabulated in the impugned order. The relevant paras 6.3 and 6.4 of the impugned order read as under: 6.3 Before adjudicating the issue on merit, it is felt pertinent to mention the relevant part of the SEBI circular on this issue vide Ref SE/10118 dated October 12, 1992, as under. II. Investor Services Fund of Stock Exchanges i. The stock exchange shall set aside at least 20% of the listing fees received for ISF for providing services to the investing public. ii. In order to have better management and control on the contributio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purpose of investors education, which is directly related to the business activity of the appellant. 3. The unutilized part of the fund would never be the part of the reserve of the appellant, even after is existence. 20. The aforesaid SEBI s circular depicts the manner in which such funds are to be utilized primarily for the promotion of investor education and investor awareness programme. Through seminars, lectures, workshops, publications, training programmes, etc. for enhancing securities market literacy. According to this circular, in case the assessee company is wound up or derecognized, than the balance in the above fund lying unutilized could be transferred to the similar funds of SEBI. Learned CIT(A) has thus rightly held that the contribution and utilization of the funds is mandatory for aforesaid purposes, which are directly related to the business activity of the appellant, hence allowable u/s. 37(1) of the Act. The aforesaid first point is accordingly determined against the revenue and in favour of the assessee. 21. The second point under consideration in this revenue s appeal, is in respect of the disallowance of club entrance fees and subscriptions of Rs. 19,35,7 ..... 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