ACIT, New Delhi v. M/s. Credential Stock Brokers Pvt. Ltd., New Delhi

ITA 1169/DEL/2012 | 2008-2009
Pronouncement Date: 25-04-2014 | Result: Dismissed

Appeal Details

RSA Number 116920114 RSA 2012
Assessee PAN AABCC1868L
Bench Delhi
Appeal Number ITA 1169/DEL/2012
Duration Of Justice 2 year(s) 1 month(s) 20 day(s)
Appellant ACIT, New Delhi
Respondent M/s. Credential Stock Brokers Pvt. Ltd., New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 25-04-2014
Appeal Filed By Department
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 25-04-2014
Date Of Final Hearing 20-11-2013
Next Hearing Date 20-11-2013
Assessment Year 2008-2009
Appeal Filed On 06-03-2012
Judgment Text
INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E: NEW DELHI BEFORE SHRI SHAMIM YAHYA ACCOUNTANT MEMBER AND SHRI A. T. VARKEY JUDICIAL MEMBER ITA NO. 1169 /DEL/2012 (ASSESSMENT YEAR: 2008 - 09 ) ACIT CIRCLE - 3 (1) NEW DELHI VS. CREDENTIAL STOCK BROKERS PVT. LTD D - 20 MANSAROVAR GARDEN NEW DELHI PAN AABCC1868L (APPELLANT) (RESPONDENT) C.O. 104 /DEL/ 2012 (IN ITA NO. 1169 /DEL/ 2012 ) (ASSESSMENT YEAR: 2008 - 09 ) CREDENTIAL STOCK BROKERS PVT. LTD D - 20 MANSAROVAR GARDEN NEW DELHI PAN AABCC1868L VS. ACIT CIRCLE - 3 (1) NEW DELHI (APPELLANT) (RESPONDENT) APPELLANT BY : NIDHI SRIVASTAVA DR RESPONDENT BY : R. S. SINGVI CA O R D E R PER A. T. VARKEY JUDICIAL MEMBER THIS APPEAL IS FILED BY THE REVENUE AND THE CROSS OBJECTION IS PREFERRED BY THE ASSESSEE ARE AGAINST THE ORDER OF LD CIT(A) - VI NEW DELHI DATED 30.12.2011 FOR THE ASSESSMENT YEAR 2008 - 09 . 2. THE GROUNDS RAISED BY THE REVENUE IS AS FOLLOWS: - 1. THE LD CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE ADDITION OF RS. 20 391/ - MADE BY THE A.O. ON ACCOUNT OF EXTRA DEPRECIATION CLAIMED BY THE ASSESSEE ON COMPUTER PERIPHERALS. 2. THE LD CIT(A) HAS ERRED ON FACTS AND IN LAW IN DEL ETING ADDITION OF RS. 47 41 042/ - MADE BY THE A.O. ON ACCOUNT OF NON DEDUCTION OF TDS ON PAYMENT MADE TO NSE. 3. THE LD CIT(A) HAS ERRED ON FACTS AND IN LAW IN HOLDING THAT REBATE U/S 88E HAS TO GIVEN TO ASSESSEE WHILE COMPUTING THE BOOK PROFIT PAGE NO. 2 U/S 115JB OF THE IT ACT AND IN FURTHER DIRECTING THE A.O. TO VERIFY THE STT DEDUCTED FROM THE ASSESSEE. 4. THE APPELLANT CRAVES LEAVE FOR RESERVING THE RIGHT TO AMEND MODIFY ALTER ADD OR FOREGO ANY GROUND(S) OF APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEAL. 3. THE GROUND RAISED IN THE CROSS - OBJECTION BY THE ASSESSEE IS AS FOLLOWS: - (I) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE CIT(A) WAS NOT JUSTIFIED IN CONFIRMING DISALLOWANCE TO THE EXTENT OF RS. 9 27 981/ - U/S. 14A READ WITH RULE 8D ON THE ALLEGED GROUND THAT THESE EXPENSES ARE RELATABLE TO EARNING OF DIVIDEND INCOME CLAIMED AS EXEMPT. (II) THAT IN THE ABSENCE OF ANY CLAIM OF EXPENSES RELATABLE TO EARNING OF DIVIDEND INCOME OR ANY SUCH FINDING IN THE ASSESSMENT ORDER THERE IS NO FA CTUAL OR LEGAL BASIS FOR ANY DISALLOWANCE. (III) THAT IN THE ABSENCE OF ANY SPECIFIC FINDING REGARDING DISALLOWANCE U/S 14A PROVISIONS OF RULE 8D ARE NOT APPLICABLE AND EVEN OTHERWISE SAME ARE NOT LEGAL AND VALID. (IV) THAT EVEN OTHERWISE INCOME OF THE ASSESSEE IN RESPECT OF SHARE ACTIVITIES WAS CONSIDERED UNDER THE HEAD BUSINESS AND DIVIDEND INCOME BEING INCIDENTAL THERE IS NO CASE OF ANY DISALLOWANCE U/S 14A READ WITH RULE 8D . 4. A PROPOS DELETION OF ADDITION OF RS. 20 391/ - MADE BY THE ASSESSING OFFICER ON ACCOUNT OF EXTRA DEPRECIATION CLAIMED BY THE ASSESSEE ON COMPUTER PERIPHERALS. 5. BRIEFLY STATED THE FACTS OF THE CASE IS THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY AND IS ENGAGED IN THE BUSINESS OF SHARE BROKING AS WELL AS SELF TRADING IN SHARE AND SECURITIES. THE APPELLANT COMPANY FILED ITS RETURN OF INCOME ON 30.09.2008 DECLARING AN INCOME OF RS. 7 15 42 030/ - . THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE INCOME TAX ACT 1961 (HEREIN AFTER THE ACT) AND THE ASSESSEE WAS REQUIRED TO PAY TAX U/S 115JB AND NOT ON THE NORMAL PROFIT AS PER THE ACT . AGGRIEVED BY THE VARIOUS ADDITIONS MADE DURING THE COURSE OF ASSESSMENT THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD CIT(A) WHO PARTIALLY ALLOWED THE APPEA L OF THE ASSESSEE. DURING THE COURSE OF ASSESSMENT THE ASSESSING OFFICER NOTICED THAT THE APPELLANT COMPANY HAD PURCHASED COMPUTER PERIPHERALS AND HAS CLAIMED DEPRECIATION OF RS. 52 140/ - @ 60% . HOWEVER THE ASSESSING OFFICER RESTRICTED THE DEPRECIATION UP TO 15% ONLY AND THE EXCESS DEPRECIATION OF RS. . 20 391/ - WAS DISALLOWED AS THE ASSESSING OFFICER WAS OF THE VIEW THAT COMPUTER ACCESSORIES ARE NOT ELIGIBLE FOR DEPRECIATION @ 60% LIKE COMPUTERS. PAGE NO. 3 FIRST WE WILL TAKE UP THE REVENUES APPEAL. 6. AGGRIEVED BY THE SAID ORDER THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD CIT(A) WHO WAS PLEASED TO ALLOW THE CLAIM OF THE ASSESSEE. ASSAILING THE SAID DECISION OF THE LD CIT(A) THE REVENUE IS BEFORE US. 7. ACCORDING TO THE LD DR THE ASSESSING OFFICER RIGHTLY DECIDED THAT THE DEPRECIATION IS APPLICABLE ONLY TO COMPUTERS AND COULD NOT BE ALLOWED ON THE PERIPHERALS. ON THE OTHER HAND THE LD AR SUPPORTED THE DECISION OF LD CIT(A) WHO HAS ALLOWED THE SAID CLAIM OF THE ASSESSEE FOLLOWING THE DECISION OF DELHI TRIBUNAL IN THE CASE OF CONTAINER CORPORATION OF INDIA LTD. IN ITA NO . 2753 3775 & 4477/DEL/2007 AND BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. BSES RAJDHANI POWERS LTD. (ITA NO. 1266/2010). 8 . WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE AND WE FIND THAT LD. CIT(A) HAS RIGHTLY ALLOWED THE DEPRECIATION CLAIMED BY THE ASSESSEE @ 60% AS THE SAME IS IN ACCORDANCE WITH THE AFOREMENTIONED DECISIONS OF THE TRIBUNAL. FOR THE SAKE OF CONVENIENCE THE OBSERVATIONS OF THE CO - ORDINATE BENCH OF TH E TRIBUNAL IN THE CASE OF CONTAINER CORPORATIONS OF INDIA VS. ACIT (SUPRA) ARE REPRODUCED BELOW: - 40. THE ACCESSORIES AND PERIPHERALS OF COMPUTERS PROVIDE INPUT PROCESSING STORAGE AND VARIOUS OUTPUT DEVICES. THE OUTPUT DEVICES SUCH AS PRINTER SCANNER ETC. ARE COMPUTER PERIPHERALS AND FORM ESSENTIAL PARTS OF PC. THESE OUTPUT DEVICES CANNOT WORK IN ISOLATION AND ALSO WORKING ON COMPUTER SYSTEM WITHOUT AN OUTPUT DEVICE SUCH AS PRINTER WOULD BE FUTILE. IN VIEW OF THE ABOVE THE CLAIM OF PAGE NO. 7 ITA NO. 2396/DEL/2011 DEPRECIATION AT 60% ON PRINTER SCANNER AND OTHER COMPUTER PERIPHERALS IS COMPLETELY JUSTIFIED. THE CLAIM OF DEPRECIATION OF 60 % FURTHER GETS JUSTIFIED IN VIEW OF THE FACT THAT EVEN COMPUTER SOFTWARE WHICH IS INSTALLED ON COMPUTER SYSTEM SUP PORTS THE COMPUTER HARDWARE AND IS ELIGIBLE FOR DEPRECIATION AT 60% PER CENT. 9 . WE RESPECTFULLY FOLLOW THE AFORESAID DECISION OF THE CO - ORDINATE BENCH AND THEREFORE WE FIND NO MERIT IN THE APPEAL FILED BY THE DEPARTMENT ON THIS GROUND AND THEREFORE WE CONFIRM THE ORDER PASSED BY THE LD CIT(A) ON THIS ISSUE. THIS GROUND OF THE REVENUE IS DISMISSED. 10. APROPOS DELETION OF ADDITION OF RS. 47 41 042/ - ON ACCOUNT OF NON DEDUCTION OF TDS ON PAYMENT MADE TO NSE. PAGE NO. 4 1 1 . BRIEFLY STATED THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY AND IS ENGAGED IN THE BUSINESS OF SHARE BROKING AS WELL AS SELF TRADING IN SHARE AND SECURITIES. THE APPELLANT COMPANY FILED ITS RETURN OF INCOME ON 30.09.2008 DECLARING AN INCOME OF RS. 7 15 42 030/ - . THE AS SESSMENT WAS COMPLETED U/S 143(3) OF THE INCOME TAX ACT 1961 (HEREIN AFTER THE ACT) AND THE ASSESSEE WAS REQUIRED TO PAY TAX U/S 115JB AND NOT ON THE NORMAL PROFIT AS PER THE ACT. 1 2 . DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS NOTICED BY THE AS SESSING OFFICER BY THE ASSESSING OFFICER THAT THE ASSESSEE COMPANY HAS MADE PAYMENT TO NATIONAL STOCK EXCHANGE (NSE) OF VARIOUS NATURES SUCH AS TRANSACTIONS CHARGES V - SAT CHARGES LEASE RENT CHARGE AND MISC CHARGES TO NSE. ON A QUERY FROM THE ASSESSING OFFICER AS TO WHY THE ADDITION BE MADE NOT FOR NON DEDUCTION OF TAX AT SOURCE OF PAYMENTS MADE TO NSE THE ASSESSEE REPLIED THAT THE TRANSACTIONS CHARGES TO NSE IS A PERCENTAGE OF THE TURN - OVER WHICH MAY BE TREATED AS BROKERAGE WHICH IS COVERED U/S 194H H OWEVER BY VIRTUE OF THE EXPLANATION APPENDED TO SECTION 194H SPECIFICALLY EXCLUDES COMMISSION ON SECURITIES RELATED TRANSACTION FROM THE P URVIEW OF THE TDS TRANSACTION CHARGES . THE ASSESSING OFFICER WAS NOT SATISFIED BY THE SAID REPLY AND ON THE STRENGTH O F A LETTER DATED 10.05.2007 OF THE CHAIRMAN OF ASSOCIATION OF NSE MEMBERS OF INDIA HE DISALLOWED THE TOTAL AMOUNT OF RS. 47 41 042/ - AND ADDED IT TO THE TOTAL INCOME OF THE ASSESSEE. AGGRIEVED BY THE SAID ORDER OF THE ASSESSING OFFICER THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE LD CIT(A) WHO WAS PLEASED TO DELETE THE SAID ADDITION. ASSAILING THE SAID ORDER OF THE LD CIT(A) THE REVENUE IS BEFORE US. 13. THE LD DR CONTENDED THAT THE DISALLOWANCES MADE BY THE ASSESSING OFFICER OF RS. 47 41 042/ - ON ACCOUNT OF VARIOUS PAYMENT MADE BY THE ASSESSEE COMPANY TO NATIONAL STOCK EXCHANGE BEING IN NATURE OF TRANSACTION CHARGES EXPENSES RECOVERY - V - SAT CHARGES LEASED LINE NETWORK CHARGES AND ANNUAL SUBSCRIPTION FEES AND RELIED ON AOS ORDER. 14. AT THE OUTSET THE LD. AR POINTED OUT THAT FOR AY 2006 - 07 IN ASSESSEES OWN CASE A COORDINATE BENCH OF THIS TRIBUNAL HAS HELD THAT THE PROVISION OF SECTION 14(A)(IA) CANNOT BE INVOKED WITH RESPECT TO THE PAYMENTS WHICH ARE PAGE NO. 5 ACTUALLY PAID DURING THE FINANCIAL YEAR BUT IT CAN BE INVOKED ONLY IN RESPECT THE PAYMENTS NOT ACTUALLY MADE F OLLOWING THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MERILYN SHIPPING & TRANSPORTS VS. ADDL. CIT 2012 (136) ITD 23 (VISH) (SB). WE FIND THAT I N ASSESSEES OWN CASE IN ITA NO. 4742/DEL/2010 FOR AY 2006 - 07 THE TRIBUNAL HELD AS FOLLOWS: 12. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENT RELIED UPON. WE FIND THAT LD. COMMISSIONER OF INCOME TAX (A) HAS NOTED THAT AS FAR AS THE ADVI SE OF NSE RELIED UPON BY THE ASSESSING OFFICER IS CONCERNED IT IS GENERAL IN NATURE AND THE MEMBERS HAVE BEEN ADVISED TO EVALUATE THE APPLICABILITY OF TAX PROVISIONS. LD. COMMISSIONER OF INCOME TAX (A) FURTHER FOUND THAT FOR ASCERTAINING THE LIABILITY OF TAX DEDUCTION AT SOURCE WITH REGARD TO VARIOUS PAYMENTS IT WOULD BE NECESSARY TO REFER TO THE RELEVANT STATUTORY PROVISIONS OF SECTION 194C OF THE ACT. LD. COMMISSIONER OF INCOME TAX (A) OPINED THAT THE SAID SECTION RELATES TO THE PAYMENTS MADE TO A CONTR ACTOR IN PURSUANCE OF A CONTRACT BETWEEN THE CONTRACTOR AND THE SPECIFIED PERSON. LD. COMMISSIONER OF INCOME TAX (A) FURTHER OBSERVED THAT NO MATERIAL HAS BEEN BROUGHT ON RECORD TO SHOW THAT THE PAYMENTS ON ACCOUNT OF TRANSACTION CHARGES V - SAT CHARGES LE ASE LINE CHARGES AND MISC. CHARGES WERE MADE IN PURSUANCE OF A CONTRACT . THESE PAYMENTS WERE MADE TO NSE IN THE NORMAL COURSE OF BUSINESS AND THESE PAYMENTS DO NOT FALL WITHIN THE SCOPE OF SECTION 194C OF THE ACT. 13. OVER AND ABOVE WE FIND THAT THE ISSU E INVOLVED IS ALSO SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MERILYN SHIPPING & TRANSPORTS VS. ADDL. CIT (SUPRA). IN THIS CASE IT WAS HELD THAT THE PROVISION OF SECTION 40(A)(IA) CANNOT B E INVOKED WITH RESPECT TO THE PAYMENTS WHICH ARE ACTUALLY PAID DURING THE FINANCIAL YEAR BUT IT CAN BE INVOKED ONLY WITH RESPECT TO THE PAYMENTS NOT ACTUALLY MADE. SINCE IN THIS CASE ALL THE PAYMENTS WERE MADE DURING THE YEAR AND NOTHING WAS PAYABLE AT TH E END OF THE YEAR NO PAGE NO. 6 DISALLOWANCE IS CALLED FOR. ACCORDINGLY IN THE BACKGROUND OF THE AFORESAID DISCUSSIONS AND PRECEDENT WE UPHOLD THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (A) AND DECIDE THE ISSUE IN FAVOR OF THE ASSESSEE. 15. RESPECTFULLY FOLL OWING THE ORDER OF THE COORDINATE BENCH IN ASSESSEES OWN CASE WE UPHOLD THE ORDER OF THE LD. CIT (A) AND CONFIRM THE SAME AND DISMISS THE APPEAL OF THE REVENUE. 16 . APROPOS REBATE U/S 88E HAS TO BE GIVEN TO ASSESSEE WHILE COMPUTING THE BOOK PROFIT U/S 115JB OF THE ACT. 17 . BRIEFLY STATED THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY AND IS ENGAGED IN THE BUSINESS OF SHARE BROKING AS WELL AS SELF TRADING IN SHARE AND SECURITIES. THE APPELLANT COMPANY FILED ITS RETURN OF INCOME ON 30.09.2008 DECLARING AN INCOME OF RS. 7 15 42 030/ - . THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE INCOME TAX ACT 1961 (HEREIN AFTER THE ACT) AND THE ASSESSEE WAS REQU IRED TO PAY TAX U/S 115JB AND NOT ON THE NORMAL PROFIT AS PER THE ACT. 18 . ASSESSING OFFICER RESTRICTED THE CLAIM TO THE EXTENT OF RS. 2 03 13 403/ - AS PER THE WORKING GIVEN IN THE ASSESSMENT ORDER. WHILE WORKING OUT THE CLAIM FOR THE REBATE U/S 88E THE A SSESSEE HA D CLAIMED REBATE AMOUNTING TO RS. 2 14 46 337/ - . HOWEVER ACCORDING TO THE ASSESSING OFFICER THE ASSESSEE COULD NOT BE PERMITTED REBATE ON THIS STT SUF FERED DURING THE PREVIOUS YEAR AND CONCLUDED THAT THE ASSESSEE WAS MAKING AN UNSUBSTANTIATED AND INCORRECT CLAIM FOR REBATE U/S 88E TO THE ASSESSEE . 19 . AGGRIEVED BY THE SAID ORDER OF THE ASSESSING OFFICER THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD CIT(A) WHO WAS PLEASED TO PARTLY ALLOW THIS GROUND AND OBSERVED THAT AN AMOUNT OF RS. 2 18 85 139 / - HAS BEEN DEDUCTED ON ACCOUNT OF SECURITY TRANSACTIONS TAX FROM THE ASSESSEE WHICH IS EVIDENT FROM FORM NO. 10DB OF THE AUDITORS REPORT. AND THEN THE LD CIT(A) DIRECTED THE ASSESSING OFFICER TO VERIFY THE STT DEDUCTED FROM THE ASSESSEE COMPANY AND THEN TO ALLOW THE REBATE U/S 88E WHILE COMPUTING THE BOOK PROFIT U/S 115JB AS DECIDED BY THE HONBLE HIGH COURT OF KARNATAKA IN THE PAGE NO. 7 CASE OF M/S HORIZON CAPITAL LIMITED. AGGRIEVED BY THE SAID ORDER OF THE LD CIT(A) THE REVENUE IS BEFORE US. 2 0 . THE LD DR SUPPORTED THE ORDER OF THE ASSESSING OFFICER AND CONTENDED THE BOOK PROFIT IN THE CASE OF ASSESSEE AS PER ITS E - FILED RETURN WORKS OUT TO RS. 7 10 65 299/ - AND THE ASSESSEE OUGHT TO HAVE PAID TAX U/S 115JB AT RS. 71 06 530/ - . HOWEVER THE ASSESSEE DID NOT PAY THE TAX ON THE SAID INCOME U/S 115JB ON ACCOUNT OF CLAIM OF REBATE U/S 88E. ACCORDING TO LD DR SECTION 115JB IS A COMPLETE CODE OF ITS OWN AND SECTION 88E IS A GENERAL PROVISION AND SECTION 115JB STARTS WITH A NON - OBSTANTE CLAUSE AND SECTION 88E REBATE CANNOT BE ALLOWED WHEN TAX IS CALCULATE U/S 115JB AND ACCORDINGLY THE ASSESSEE IS NOT ENTITLED TO STT CREDIT . ACCORDING TO THE LD DR THE REBATE U/S 88E IS APPLICABLE TO ALL THE ASSESSEE WHEREAS PR OVISION U/S 115JB IS APPLICABLE ONLY TO CORPORATE ASSESSEES. ACCORDING TO THE LD DR SECTION 115JB IS A DEEMING PROVISION AND IS NOT BENEFICIAL PROVISION. THEREFORE THE PROVISION OF SECTION 115JB NEEDS TO BE INTERPRETED STRICTLY AND NOT LIBERALLY. THE LD D R STRENUOUSLY ARGUED THAT STT CANNOT BE EQUATED WITH AND CANNOT BE EQUATED ON THE SAME PEDESTAL AS TDS OR ADVANCE TAX OR SELF ASSESSED TAX BECAUSE THE ASSESSEE IS NOT ENTITLED TO REFUNDS ON ACCOUNT OF STT BUT IS ENTITLED TO REFUND IN THE CASE OF TDS OR ADVANCE TAX OR SELF ASSESS ED TAX . THEREFORE ACCORDING TO THE LD DR THE ASSESSING OFFICER WAS RIGHT IN DISALLOWING THE REBATE U/S 88E AND HE PLEAD ED THAT THE ORDER OF THE LD CIT(A) MAY BE SET ASIDE AND THE ORDER OF THE ASSESSING OFFICER MAY B E RESTORED. ON THE OTHER HAND THE LD AR CONTENDED THAT ASSESSING OFFICER HAS NOT CORRECTLY WORKED OUT ELIGIBLE CLAIM IN RESPECT OF STT. AS PER STATUTORY CERTIFICATE OF CHARTERED ACCOUNTANT STT CREDIT WAS AVAILABLE TO THE EXTENT OF RS. 2 14 46 317/. HOWEV ER ASSESSING OFFICER HAS RESTRICTED THE CLAIM TO THE EXTENT OF RS. 2 03 13 403/ - AS PER WORKING GIVEN IN THE ASSESSMENT ORDER. THE LD AR FURTHER SUBMITTED THAT THE STT IS A RECOVERY OF TAX IN RESPECT OF SHARE TRANSACTIONS AND THEREFORE THE STT IS OF SAME NATURE AS TDS OR ADVANCE TAX OR SELF ASSESSMENT TAX AND AS SUCH CREDIT OF THE SAME IS TO BE ALLOWED. IN SUPPORT OF HIS CONTENTION THE LD AR PLACED RELIANCE ON THE CASE OF M/S HORIZON CAPITAL LIMITED ITA NO. 592(BNG)/10 WHEREIN THE ITAT BANGALORE HELD TH AT TAX REBATE IN RESPECT OF STT U/S 88E IS AVAILABLE EVEN AGAINST TAX LIABILITY U/S 115JB. THIS PAGE NO. 8 VIEW HAS BEEN FOLLOWED BY THE CO - ORDINATE BENCH OF THE THIS TRIBUNAL IN MBL SECURITIES PVT. LTD. AND THE HONBLE HIGH COURT OF KARNATAKA HAS UPHELD THE ORDER OF THE BANGALORE ITAT ON THIS ISSUE. THEREFORE ACCORDING TO THE LD AR IN VIEW OF THE PROVISIONS OF ACT AND DIRECT DECISION OF THE TRIBUNAL AND THE HONBLE HIGH COURT THE LD CIT(A)S ORDER TO THE ASSESSING OFFICER TO ALLOW CREDIT FOR STT IN ACCORDANCE WITH PROVISIONS OF SECTION 88E MAY NOT BE DISTURBED. 2 1 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RECORD S AND THE CASE LAWS CITED BY BOTH THE PARTIES. FROM A PERUSAL OF THE ASSESSMENT ORDER WE FIND THAT THE ASSESSING OFFICER HAS COMPUTED THE TA XABLE INCOME OF THE ASSESSEE COMPANY UNDER THE NORMAL PROVISIONS OF THE ACT AS WELL AS UNDER THE SPECIAL PROVISIONS OF SECTION 115JB OF THE ACT. WHILE COMPUTING THE BOOK PROFIT U/S 115 JB THE ASSESSING OFFICER HAS NOT ALLOWED THE REBATE ON ACCOUNT OF STT U/S 88E OF THE ACT FROM THE BOOK PROFIT OF THE ASSESSEE COMPANY. IN A DECISION IN THE CASE OF M/S HORIZON CAPITAL LIMITED THE ITAT BANGALORE (2011) 64 DTR (KAR) 306 HAS LAID DOWN THAT TAX REBATE IN RESPECT OF STT U/S 88E IS AVAILABLE EVEN AGAINST TAX LIAB ILITY U/S 115JB. 2 2 . IT IS FURTHER SEE N THAT A CO - ORDINATE BENCH OF THE TRIBUNAL HAS FOLLOWED THE AFORESAID DECISION IN THE CASE OF MBL SECURITIES PVT. LTD. AND HAS ALLOWED THE REBATE U/S 88E FROM THE BOOK PROFIT OF THE ASSESSEE WHILE COMPUTING THE BOOK PROFIT. IT IS ALSO SEEN THAT THE DECISION OF ITAT BANGALORE HAS FURTHER BEEN CONFIRMED BY THE HONBLE HIGH COURT OF KARNATAKA IN ITS ORDER DATED 24.10.2011 IN CIT VS. M/S. HORIZOAN CAPITAL LTD. ITA 434 OF 2010 WHEREIN THE HONBLE KARNATAKA HIGH COURT HELD THAT: 17. THEREFORE THE CONTENTION THAT THIS BENEFIT IS NOT AVAILABLE TO THE ASSESSEE WHO S E TOTAL INCOME IS ASSESSED U/S 115JB HAS NO SUBSTANCE. IN OTHER WORDS WHEN THE TOTAL INCOME IS ASSESSED AND THE TAX CHARGEABLE IS COMPUTED IT IS FROM THAT TAX WHICH IS CHARGEABLE IS COMPUTED IT IS FROM THAT WHICH IS CHARGEABLE THE TAX PAID U/S 88E IS GIVEN DEDUCTION BY WAY OF REBATE U/S 87 OF THE ACT. THIS IS THE LEGISLATIVE INTENT. THAT IS PROMISE TO GIVE DEDUCTI ON OF THE TAX ALREADY PAID. THIS IS THE MODE IN WHICH TAX ALREADY PAID IS HANDED BACK AT THE TIME OF FINAL COMPUTATION. THEREFORE THE JUDGMENT REFERRED BY THE TRIBUNAL IS STRICTLY IN ACCORDANCE WITH LAW AND DOES NOT SUFFER FROM ANY LEGAL INFIRMITY WHICH CALLED FOR INTERFERENCE. WE DO NOT SEE ANY SUBSTANTIAL QUESTION OF LAW PAGE NO. 9 INVOLVED IN THIS APPEAL WHICH MERITS ADMISSION. THE APPEAL IS DISMISSED. 2 3 . WE FIND IN THE APPELLATE ORDER IMPUGNED BEFORE US THE LD CIT(A) HAS RELIED ON THE RATIO IN M/S HORIZON CAPITAL LIMITED (SUPRA). WE FIND THAT A CO - ORDINATE BENCH OF THIS TRIBUNAL HAS FOLLOWED THIS DECISION IN THE CASE OF MBL SECURITIES PVT. LTD AND HAS ALLOWED THE REBATE U/S 88E FROM THE BOOK PROFIT. IN THE LIGHT OF THE AFORESAID DECISION S WE FIND NO LEGAL INFIRMITY IN THE ORDER PASSED BY THE LD CIT(A) AND THEREFORE WE CONFIRM THE SAME AND DISMISS THIS GROUND OF THE APPEAL OF THE REVENUE. 2 4 . IN THE RESULT THE REVENUES APPEAL IS DISMISSED. 2 5 . ASSESSEES CROSS OBJECTION NO. (I) & (IV) . 26 . COMING TO THE CR OSS - OBJECTION FILED BY THE ASSESSEE WE FIND THAT THE SOLE GROUND RAISED BY IT IS IN RESPECT TO DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D. 27 . APROPOS DISALLOWANCE U/S 14A READ WITH RULE 8D. 28 . THE LD AR SUBMITTED THAT ON THE FACTS AND CIRCUMSTAN CES OF THE CASE THE LD CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE DISALLOWANCE TO THE EXTENT OF RS. 9 27 981/ - U/S 14A READ WITH RULE 8D ON THE ALLEGED GROUND THAT THIS EXPENDITURE ARE RELATABLE TO EARNING OF DIVIDEND INCOME CLAIMED AS EXEMPT INCOME . ACCORDING TO LD AR IN THE ABSENCE OF ANY CLAIM OF EXPENDITURE RELATABLE TO EARNING OF DIVIDEND INCOME OR ANY SUCH FINDING IN THE ASSESSMENT ORDER THERE IS NO FACTUAL OR LEGAL BASIS FOR ANY DISALLOWANCE. THE LD AR CONTENDED THAT IN THE ABSENCE OF ANY SPE CIFIC FINDING REGARDING EXPENDITURE INCURRED FOR DIVIDEND INCOME DISALLOWANCES U/S 14A BY THE LD ASSESSING OFFICER BY INVOKING THE PROVISION OF RULE 8D ARE NOT APPLICABLE AND EVEN OTHERWISE THE SAME ARE NOT LEGAL AND VALID. ACCORDING TO THE LD AR THE INC OME OF THE ASSESSEE IN RESPECT OF SHARE ACTIVITIES WAS CONSIDERED UNDER THE HEAD BUSINESS AND DIVIDEND INCOME BEING INCIDENTAL THERE IS NO CASE OF ANY DISALLOWANCE U/S 14A READ WITH RULE 8D AND THEREFORE LD AR PLEADS THAT THE ORDERS OF THE LOWER AUTHOR ITIES MAY BE SET ASIDE AND THIS GROUND OF THE ASSESSEE BE ALLOWED. ON THE OTHER HAND THE LD DR CONTENDED THAT THE MANDATE OF SECTION 14A IS CLEAR. IT DESIRES TO CURB THE PRACTICE TO CLAIM DEDUCTION OF EXPENSES INCURRED IN RELATION TO EXEMPT INCOME AGAINST T AXABLE PAGE NO. 10 INCOME AND AT THE SAME TIME AVAIL THE TAX INCENTIVE BY WAY OF AN EXEMPTION OF EXEMPT INCOME WITHOUT MAKING ANY APPORTIONMENT OF EXPENSES INCURRED IN RELATION TO EXEMPT INCOME. ACCORDING TO THE LD DR IN THE CASE OF CIT VS. WALFORT SHARE AND STOCK BR OKERS P. LTD (2010) 326 ITR 1 (SC) THE HONBLE SUPREME COURT HAS CLEARLY HELD THAT IN THE CASE OF AN INCOME LIKE DIVIDEND INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME ANY EXPENDITURE/ DEDUCTION RETABLE TO SUCH (EXEMPT OR NON - TAXABLE ) INCOME EVEN IF IT IS OF THE NATURE SPECIFIED IN SECTIONS 15 TO 59 OF THE SAID ACT CANNOT BE ALLOWED AGAINST ANY OTHER INCOME WHICH IS INCLUDIBLE IN THE TOTAL INCOME. THE LD DR STATED THAT THE THEORY OF APPORTIONMENT OF EXPENDITURE BETWEEN TAXABLE AND NON - TAXABLE HAS IN PRINCIPLE BEEN NOW WIDENED U/S 14A. THE LD DR CONTENDED THAT IN MAXOPP INVESTMENT LTD. VS. CIT THE HONBLE DELHI HIGH COURT HELD THAT EVEN WHERE THE ASSESSEE CLAIMS THAT NO EXPENDITURE HAS INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF T HE TOTAL INCOME THE ASSESSING OFFICER WILL HAVE TO VERIFY THE CORRECTNESS OF SUCH CLAIM AND IF THE ASSESSING OFFICER REJECTED THE CLAIM HE CAN PROCEED AND CALCULATE THE DISALLOWANCE OF EXPENDITURE AS PER RULE 8D AND THEREFORE THE LD CIT(A) HAS CORRECTLY U PHELD THE ORDER OF THE ASSESSING OFFICER AND THEREFORE THE ORDER OF THE LD CIT(A) ON THIS GROUND NEED NOT BE DISTURBED. 29 . THE LD AR ANSWERED THE AFORESAID CONTENTION OF THE LD. DR AND FURTHER CO NTENTED THAT THE ASSESSING OFFICER HAS NOT PROPERLY APPRECIATED THE FACTS OF THE CASE AND HAS MECHANICALLY APPLIED RULE 8D IN THIS CASE. THE LD AR SUBMITTED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF THE SHARE BROKING AND TRADING IN SHARES. THEREFORE THE SHARES ARE HE LD A S STOCK IN TRADE AND NOT AS INVESTMENT. THE PARTICULARS OF INVESTMENTS REFERRED TO IN THE ASSESSMENT ORDER ARE IN FACT AS STOCK IN TRADE AND THIS POSITION IS SUPPORTED FROM SCHEDULE 6 OF BALANCE SHEET. ACCORDING TO THE LD AR PROFIT OR LOSS FRO M TRADING IN SHARES HAS BEEN CONSIDERED UNDER THE HEAD BUSINESS & PROFESSION AND NOT UNDER THE HEAD CAPITAL GAIN AND AS SUCH CLAIM OF EXPENSES ARE TO BE CONSIDERED UNDER THE BUSINESS AND PROVISIONS OF SECTION 14A AND RULE 8D ARE NOT APPLICABLE. THE LD AR RELIED ON THE DECISION OF THE COCHIN BENCH OF ITAT IN THE CASE OF STATE BANK OF TRAVANCORE 318 ITR 17 WHEREIN IT WAS DECIDED THAT ANY EXPENDITURE INCURRED BY THE ASSESSEE BANK PAGE NO. 11 FOR INVESTING IN THE BONDS EVEN TAX FREE WAS EXPENDITURE INCURRED FOR CARRYI NG ON ITS BUSINESS SO AS TO MAINTAIN THE REQUIRED STATUTORY LIQUIDITY RATIO AND TAX FREE INTEREST IS JUST AN INCIDENCE TO IT. ACCORDING TO LD AR SINCE THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE TO EARN THE SAID DIVIDEND INCOME THEREFORE NO EXPENDITUR E COULD BE ATTRIBUTED TO THE SAID DIVIDEND INCOME AND SAID EXPENDITURE CANNOT BE DISALLOWED AND THE ASSESSEE IS ENTITLED TO THE BENEFIT OF DEDUCTION OF THE ENTIRE EXPENDITURE INCURRED IN RESPECT OF PURCHASE OF SHARES. THUS ACCORDING TO THE LD AR SECTION 1 4A HAD NO APPLICATION IN THE CASE OF THE ASSESSEE. THE LD AR FURTHER CLARIFIED THAT IN THE PRESENT CASE OF THE ASSESSEE COMPANY THERE IS NO DIRECT EXPENSES WHICH CAN BE ATTRIBUTABLE TO THE DIVIDEND INCOME AND THIS POSITION IS ALSO SUPPORTED FROM WORKING OF ASSESSING OFFICER IN THE CONTEXT OF RULE 8D. THEREFORE ACCORDING TO THE LD AR THE WHOLE BASIS OF DISALLOWANCE IS ILL EGAL ARBITRARY & MISCONCEIVED AND THE LD AR CITED THE DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF M/S. CCI LTD. VS. THE JOINT COMMISSIONER OF INCOME TAX DATED 28 TH FEBRUARY 2012 FOR THE ASSESSMENT YEAR 2007 - 08. 3 0 . WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORDS AND HAS GONE THROUGH THE CASE LAWS CITED BY BOTH THE PARTIES. 3 1 . AS PER THE HONBLE DELHI HIGH COURT DECISION IN THE CASE OF MAXOPP INVESTMENT LTD. VS. COMMISSIONER OF INCOME - TAX (2012) 347 ITR 272 (DELHI ) IT HAS BEEN HELD THAT THE ASSESSING OFFICER IF NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE 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 ACT IN ACCORDANCE WITH THE PRESCRIBED METHOD. THE PRESCRIBED METHOD IS THE METHOD STIPULATED IN RULE 8D OF THE 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 COGENT REASONS FOR THE SAME. IT IS THEREFORE CLEAR THAT THE DETERMINATION OF THE AMOUNT OF EXPENDITURE IN RELATION TO EXEMPT INCOME UNDER RULE 8D WOULD ONLY COME INTO PLAY WHEN THE ASSESSING OFFICER REJECTS THE CLAIM OF THE ASSESSEE . THE REASONS CITED BY THE ASSESSING OFFICER TO INVOKE RULE 8D IS AS FOLLOWS: - PAGE NO. 12 FURTHER IT CANNOT BE DENIED THAT T O MONITOR THE INVESTMENT MADE BY THE ASSESSEE AND THE EXEMPT INCOME EARNED IN THE FORM OF DIVIDEND INCOME AND LONG TERM CAPITAL GAIN UNDOUBTEDLY MANAGEMENT/ ESTABLISHMENT EXPENSES AND OTHER OFFICE OVER HEADS MUST HAVE BEE N INCURRED TO TAKE CARE OF INCOME RECEIVED INVESTMENT MADE AND OTHER ALLIED ACTIVITIES INVOLVED. FURTHER THE BANK/ FINANCIAL INSTITUTION MUST ALSO HAVE LEVIED ITS CHARGES/ FEES. THUS THE REPLY OF THE ASSESSEE THAT NO EXPENSES WERE INCURRED FOR EARNING SU CH HUGE AMOUNT OF DIVIDEND CANNOT BE ACCEPTED. 3 2 . WE FIND THAT THEREAFTER THE ASSESSING OFFICER WENT AHEAD AND CALCULATED THE DISALLOWANCE APPLYING RULE 8D AND DISALLOWED U/S 14A RS. 9 27 981/ - AS EXPENSES IN EARNING DIVIDEND INCOME OF RS. 12 47 334/ - AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 3 3 . THE ASSE SSEES CONSISTENT CONTEN TION BEFORE US AND THE AUTHORITIES BELOW WAS THAT DIVIDEND INCOME WAS INCIDENTAL SINCE THE SHARE S WERE HELD AS STOCK - IN - TRAD E ; AND RULE 8D IS NOT APPLICABLE SINCE THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE TO EARN THE SAID DIVIDEND INCOME THEREFORE NO EXPENDITURE COULD BE ATTRIBUTED TO THE SAID DIVIDEND INCOME ; AND SAID EXPENDITURE CANNOT BE DISALLOWED AND THE ASSESSEE IS ENTITLED TO THE BENEFIT OF DEDUCT ION OF THE ENTIRE EXPENDITURE INCURRED IN RESPECT OF PURCHASE OF SHARES. 3 4 . ON SIMILAR FACTS THE KOLKATA BENCH OF THE ITAT ON THE QUESTION WHETHER THE DISALLOWANCE U/S 14A OF THE INCOME TAX ACT READ WITH RULE 8D OF THE INCOME TAX RULE IS APPLICABLE IN THE CASE OF A N ASSESSEE WHO HELD SHARES AS STOCK - IN - TRADE ANSWERED THE SAME AND HELD AS FOLLOWS: 5. WE CONSIDER IT APPROPRIATE TO BEGIN WITH REPRODUCING RULE 8D OF THE INCOME TAX RULES WHICH IS AS FOLLOWS: METHOD FOR DETERMINING AMOUNT OF EXPENDITURE I N RELATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOME. 8D(1) WHERE THE ASSESSING OFFICER HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE OF A PREVIOUS YEAR IS NOT SATISFIED WITH - (A) THE CORRECTNESS OF THE CLAIM OF EXPENDITURE MADE BY THE ASSESSEE; OR PAGE NO. 13 (B) TH E CLAIM MADE BY THE ASSESSEE THAT NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT FOR SUCH PREVIOUS YEAR HE SHALL DETERMINE THE AMOUNT OF EXPENDITURE IN RELATION TO SUCH INCOME IN ACCORDAN CE WITH THE PROVISIONS OF SUB - RULE (2). (2) THE EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME SHALL BE THE AGGREGATE OF FOLLOWING AMOUNTS NAMELY: - (I) THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT FO RM PART OF TOTAL INCOME; (II) IN A CASE WHERE THE ASSESSEE HAS INCURRED EXPENDITURE BY WAY OF INTEREST DURING THE PREVIOUS YEAR WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT AN AMOUNT COMPUTED IN ACCORDANCE WITH THE FOLLOWING FORMULA NAMELY: - A X B C WHERE A = AMOUNT OF EXPENDITURE BY WAY OF INTEREST OTHER THAN THE AMOUNT OF INTEREST INCLUDED IN CLAUSE (I) INCURRED DURING THE PREVIOUS YEAR; B = THE AVERAGE OF VALUE OF INVESTMENT INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR; C = THE AVERAGE OF TOTAL ASSETS AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR; (III) AN AMOUNT EQUAL TO ONE - HALF PER CENT OF THE AVERAGE OF THE VALUE OF INVESTMENT INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR. (3) FOR THE PURPOSES OF THIS RULE THE TOTAL ASSETS SHALL MEAN TOTAL ASSETS AS APPEARING IN THE BALANCE SHEET EXCLUDING THE INCREASE ON ACCOUNT OF REVALUATION OF ASSETS BUT INCLUDING THE DECREASE ON ACCOUNT OF REVALUAT ION OF ASSETS. 6. A PLAIN LOOK AT THE ABOVE RULE SHOWS THAT 8D(2) (II) AND (III) CAN ONLY BE APPLIED IN THE SITUATIONS IN WHICH SHARES ARE HELD AS INVESTMENTS AND PAGE NO. 14 THAT THIS RULE WILL NOT HAVE ANY APPLICATION WHEN THE SHARES ARE HELD AS STOCK IN TRADE. IT IS SO FOR THE ELEMENTARY REASON THAT THE ONE OF THE VARIABLES ON THE BASIS OF WHICH DISALLOWANCE UNDER RULES 8D(2)(II) AND (III) IS TO BE COMPUTED IS THE VALUE OF INVESTMENTS INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF TOTAL INCOME AND WHEN THERE ARE NO SUCH INVESTMENTS THE RULE CANNOT HAVE ANY APPLICATION. WHEN NO AMOUNT CAN BE COMPUTED IN THE LIGHT OF THE FORMULA GIVEN IN RULE 8D(II) AND (III) NO DISALLOWANCE CAN BE MADE UNDER RULE 8D(2) (II) AND (III) EITHER. AS HELD BY HONBLE SUPREME COURT IN THE CASE OF CIT V. B C SRINIVASA SETTY [1981] 128 ITR 294/5 TAXMAN 1 WHEN COMPUTATION PROVISIONS FAIL THE CHARGING PROVISIONS CANNOT BE APPLIED AND BY THE SAME LOGIC WHEN THE COMPUTATION PROVISIONS UNDER RULE 8D (2) (II) AND (III) FAIL DISALL OWANCE UNDER THE SAID PROVISIONS CANNOT BE MADE EITHER AS THE SAID PROVISION IS RENDERED UNWORKABLE. 7. HOWEVER THAT DOES NOT EXCLUDE THE APPLICATION OF RULE 8D(2) (I) WHICH REFERS TO THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT F ORM PART OF TOTAL INCOME. IN OTHER WORDS IN A CASE WHERE SHARES ARE H ELD AS STOCK IN TRADE AND NOT AS INVESTMENTS THE DISALLOWANCE EVEN UNDER RULE 8 D IS RESTRICTED TO THE EXPENDITURE DIRECTLY RELATABLE TO EARNING OF EXEMPT INCOME. CONSEQUENTLY WHILE S ECTION 14A WILL STILL APPLY IN THE CASES WHETHER SHARES ARE HELD AS STOCK IN TRADE OR AS INVESTMENTS AND THAT IS PRECISELY WHAT A SPECIAL BENCH OF THIS TRIBUNAL HAS HELD IN THE CASE OF ITO V. DAGA CAPITAL MANAGEMENT (P) LTD. [2009] 117 ITD 169 (MUM) THE DISALLOWANCE TO BE MADE UNDER SECTION 14A READ WITH RULE 8D WILL BE RESTRICTED TO DIRECT EXPENSES INCURRED IN THE EARNING OF DIVIDEND INCOME. 8. IT IS ALSO IMPORTANT TO BEAR IN MIND THE FACT THAT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. V. DY. CIT [2010] 328 ITR 81/194 TAXMAN 203 (BOM.)AND DEALING WITH A PERIOD WHEN RULE 8D WAS NOT APPLICABLE HONBLE BOMBAY HIGH COURT HAS NOT ONLY HELD THAT THE ASSESSING OFFICER HAS TO ENFORCE THE PROVISIONS OF SUB SECTION (1) OF SE CTION 14A AND FOR THAT PURPOSE THE ASSESSING OFFICER IS DUTY BOUND TO DETERMINE THE EXPENDITURE WHICH HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME UNDER THE ACT BUT FURTHER ADDED WHILE REMITTING THE MATTER TO THE AS SESSING OFFICER FOR COMPUTATION OF DISALLOWANCE UNDER SECTION 14A THAT THE ASSESSING OFFICER SHALL EXAMINE WHETHER ANY EXPENDITURE (DIRECT OR INDIRECT) [EMPHASIS BY UNDERLINING SUPPLIED BY US] IN RELATION TO EXEMPT INCOME IS INCURRED AND THAT DISALLOW T HE SAME. AS A COROLLARY TO THE ABOVE LEGAL POSITION SO FAR AS DISALLOWANCE UNDER SECTION 14A IN A SITUATION IN WHICH THE EXEMPT INCOME YIELDING ASSET SUCH AS SHARES IN QUESTION IS HELD AS STOCK IN TRADE AND NOT AS INVESTMENT THE DISALLOWANCE WILL BE O F RELATED DIRECT AND INDIRECT EXPENDITURE WHEREAS DISALLOWANCE UNDER RULE 8D WILL BE RESTRICTED TO DISALLOWANCE OF ONLY DIRECT EXPENSES. REVENUE THUS DERIVES NO ADVANTAGE FROM INVOKING RULE 8D IN SUCH CASES; ON THE CONTRARY THE SCOPE OF DISALLOWANCE IS O NLY MINIMIZED IN SUCH A SITUATION. 9. SO FAR AS THE CASE BEFORE US IS CONCERNED AS WILL BE CLEARELY DISCERNIBLE FROM THE OBSERVATIONS OF THE LEARNED CIT (A) EXTRACTED EARLIER IN THIS PAGE NO. 15 ORDER LEARNED CIT (A) HAS UPHELD DISALLOWANCE UNDER SECTION 14A IN RES PECT OF EVEN INDIRECT EXPENDITURE BUT HE HAS MERELY HELD THAT THE PROVISIONS OF RULE 8D DO NOT COME INTO PLAY IN THIS CASE AS THE SHARES ARE NOT HELD AS INVESTMENTS. AS LEARNED COUNSEL RIGHTLY CONTENDS THE PROVISIONS OF RULE 8D CAN NEVER BE APPLIED IN A CASE WHERE EXEMPT INCOME YIELD ASSETS ARE NOT HELD AS INVESTMENTS AND THAT THE RELATED ASSETS I.E. SHARES HAVING BEEN HELD AS STOCK IN TRADE ALL ALONG THERE IS NO OCCASION TO INVOKE RULE 8D. THERE IS NO INFIRMITY IN THIS APPROACH NOR DO REVENUE AUTHO RITIES STAND TO LOSE ANYTHING BY THIS APPROACH CANVASSED BY THE ASSESSEE. QUITE TO THE CONTRARY OF WHAT LEARNED DEPARTMENTAL REPRESENTATIVE PERCEIVES TO BE ADVANTAGEOUS TO THE ASSESSING OFFICER IN CASE THE APPLICATION OF RULE 8D WAS TO BE UPHELD THERE WO ULD HAVE BEEN NO DISALLOWANCE AT ALL SINCE NOT ONLY THAT NO INVESTMENTS WERE HELD BY THE ASSESSEE ADMITTEDLY THERE ARE NO DIRECT EXPENSES ARE INCURRED ON EARNING OF THE DIVIDENDS AND AS SUCH IN ALL THE THREE SEGMENTS OF DISALLOWANCE UNDER RULE 8D(2) I.E. 8D(2) (I) (II) AND (III) THERE WILL BE ZERO DISALLOWANCE. AS AGAINST THIS ZERO DISALLOWANCE UNDER RULE 8D THE CIT (A) HAS UPHELD DISALLOWANCE TO THE EXTENT OF RS.1 57 227 IN RESPECT OF INDIRECT EXPENSES ATTRIBUTED TO THE EARNING OF DIVIDENDS AND IT HAS EVEN THE CASE OF REVENUE THAT THIS DISALLOWANCE FOR INDIRECT EXPENSES IS UNFAIR OR UNREASONABLE. 10. IN VIEW OF THE ABOVE DISCUSSIONS WHILE UPHOLD ING THE CONCLUSIONS ARRIVED AT BY THE LEARNED CIT (A) WE ALSO MAKE IT CLEAR THAT IN OUR HUMBLE UNDERSTANDING THE PROVISIONS OF SECTION 14A ARE INDEED ATTRACTED WHETHER OR NOT THE SHARES ARE HELD AS STOCK IN TRADE OR AS INVESTMENTS EVEN THOUGH THE PROVISIO NS OF RULE 8D(2)(II) AND (III) CANNOT BE INVOKED IN SUCH A CASE AND EVEN THOUGH THE PROVISIONS OF RULE 8D(2)(I) ARE MUCH NARROWER IN SCOPE THAN THE SCOPE OF SECTION 14A SIMPLICIT E R. WITH THESE OBSERVATIONS WE CONFIRM THE CONCLUSIONS OF THE LEARNED CIT (A ) AND DECLINE TO INTERFERE IN THE MATTER. 3 5 . AN IDENTICAL ISSUE CAME UP BEFORE THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF M/S. CCI LTD. VS. THE JOINT COMMISSIONER OF INCOME TAX WHEREIN THE HONBLE HIGH COURT HELD BY AN ORDER DATED 28 TH FEBRUARY 2012 FOR THE ASSESSMENT YEAR 2007 - 08 . THE FACTS OF THE CASE IN BRIEF IS THAT THE ASSESSEE WAS A DEALER IN SHARES AND SECURITIES THE ASSESSEE HAD EARNED DIVIDEND INCOME OF RS. 46 67 190/ - FROM SHARES OF CERTAIN COMPANIES AND 93% OF SHARES OF M/S. KURLON LTD AND FURTHER THE ASSESSEE HAD PURCHASED 24 000/ - FULLY PAID SHARES FROM M/S KURLON LTD. AND CONVERTED ITS STOCK OF PARTLY PAID SHARES INTO FULLY PAID SHARE BY PAYING THE OUTSTANDING AMOUNT OF RS. 8/ - PER SHARE WHICH WORKED OUT TO RS. 5 27 97 0 16/ - . TO PAY FOR THE CONVERSION COST THE ASSESSEE HAS ENTERED INTO AGREEMENT WITH M/S KITCHEN APPLIANCES PVT. LTD. TO AVAIL INTEREST FREE LOAN OF RS. 14/ - CRORES AND HAD PAID RS. 28/ - LAKHS TO ONE SRI A. S. PAGE NO. 16 KRISHNA IYER FOR BROKERING THIS LOAN. THE ASSES SING OFFICER HELD THAT THIS EXPENDITURE WAS DIRECTLY ATTRIBUTABLE TO THE EARNING OF THE DIVIDEND INCOME AND DISALLOWED THE SAME. HE FURTHER CONSIDERED THE BUSINESS EXPENDITURE CLAIMED BY THE ASSESSEE AND ESTIMATED THE EXPENDITURE INCURRED BY THE ASSESSEE O N EARNING OF THE DIVIDEND INCOME AT RS. 27 24 330/ - UNDER RULE 8D OF THE INCOME TAX RULES AND DISALLOWED THE SAME AS RELATABLE TO EARNING OF THE EXEMPT INCOME. THE ORDER OF THE ASSESSING OFFICER WAS CONFIRMED BY THE LD CIT(A) ON APPEAL BY ASSESSEE THE TR IBUNAL FOUND THAT THE ASSESSING OFFICER ERRONEOUSLY ATTRIBUTED THE ENTIRE BROKING COMMISSION AS RE LA TABLE TO EARNING OF DIVIDEND INCOME . THE TRIBUNAL WAS OF THE VIEW THAT T HE LOAN HAS BEEN UTILIZED FOR THE PURCHASE OF SHARES AND THE PROFIT EARNED BY SALE O F THESE SHARES WAS OFFERED AS BUSINESS INCOME. THEREFORE THE BROKING EXPENDITURE HAS TO BE CONSIDERED AS BUSINESS EXPENDITURE AS WELL AND THE ASSESSING OFFICER WAS DIRECTED TO BIFURCATE ALL THE EXPENDITURE PROPORTIONALLY AND ALLOW THE EXPENDITURE IN ACCORDANCE WITH LAW. AGGRIEVED BY THE SAID ORDER OF THE TRIBUNAL THE ASSESSEE PREFERRED AN APPEAL BEFORE THE HONBLE KARNATAKA HIGH COURT WHICH ALLOWED THE APPEAL AND PASSED THE FOLLOWING ORD ER: - 5. WHEN NO EXPENDITURE IS INCURRED BY THE ASSESSEE IN EARNING THE DIVIDEND INCOME NO NOTIONAL EXPENDITURE COULD BE DEDUCTED FROM THE SAID INCOME. IT IS NOT THE CASE OF THE ASSESSEE RETAINING ANY SHARES SO AS TO HAVE THE BENEFIT OF DIVIDEND. 63% OF THE SHARES WHICH WERE PURCHASES ARE SOLD AND THE INCOME DERIVED THEREFROM IS OFFERED TO TAX AS BUSINESS INCOME. THE REMAINING 37% OF THE SHARES ARE RETAINED. IT HAS REMAINED UNSOLD WITH THE ASSESSEE. IT IS THOSE UNSOLD SHARES HAVE YIELDED DIVIDEND FOR W HICH THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE AT ALL. THOUGH THE DIVIDEND INCOME IS EXEMPTED FROM PAYMENT OF TAX IF ANY EXPENDITURE IS INCURRED IN EARNING THE SAID INCOME THE SAID EXPENDITURE ALSO CANNOT BE DEDUCTED. BUT I N THIS CASE WHEN THE ASSE SSEE HAS NOT RETAINED SHARES WIT H THE INTENTION OF EARNING DIVIDEND INCOME AND THE DIVIDEND INCOME IS INCIDENTAL TO HIS BUSINESS OF SALE OF SHARES WHICH REMAINED UNSOLD BY THE ASSESSEE IT CANNOT BE SAID THAT THE EXPENDITURE INCURRED IN ACQUIRING THE SHAR ES HAS TO BE APPORTIONED TO THE EXTENT OF DIVIDEND INCOME AND THAT SHOULD BE DISALLOWED FROM DEDUCTIONS. IN THAT VIEW OF THE MATTER THE APPROACH OF THE AUTHORITIES IS NOT IN CONFORMITY WITH THE STATUTORY PROVISIONS CONTAINED UNDER THE ACT. THEREFORE THE IMPUGNED ORDERS ARE NOT SUSTAINABLE AND REQUIRE TO BE SET ASIDE. ACCORDINGLY WE PASS THE FOLLOWING AND ALLOWED THE APPEAL OF THE ASSESSEE . PAGE NO. 17 36 . WE FIND THAT T HE LD CIT(A) HAS STATED THAT SINCE RULE 8D IS IN FORCE DURING THE RELEVANT ASSESSMENT YEAR 2008 - 09 AND IN THE ABSENCE OF ANY EXPLANATION REGARDING THE EXPENDITURE RELATING TO EARNING OF THE EXEMPT INCOME FROM THE ASSESSEE COMPANY THE ASSESSING OFFICER HAD NO OTHER OPTION BUT TO ESTIM ATE THE DISALLOWANCE RELATING TO GENERAL AND ADMINISTRATIVE EXPENSES STAFF AND PERSONAL EXPENSES AND INTEREST EXPENDITURE ETC. APPLYING RULE 8D; AND THEREFORE ADDITION MADE BY THE ASSESSING OFFICER WAS CONFIRMED. THE ASSESSING OFFICER HAS CALCULATED TH E DISALLOWANCE AS UNDER: (I) EXPENSES DIRECTLY ATTRIBUTABLE NIL (II) INTEREST EXPENSE A*B/C 490762 (III) .5% OF THE AVG. INVESTMENTS=.5% *B 437219 DISALLOWABLE EXPENSE 927981 A TOTAL INTEREST 540744 B OPENING VALUE OF INVESTMENT 58111358 CLOSING VALUE OF INVESTMENT 116776394 AVG. VALUE OF THE INVESTMENT 87443876 C OPENING VALUE OF THE ASSET 62761014 CLOSING VALUE OF THE ASSET 129938252 AVG. VALUE OF THE ASSET 963496633 THUS THE TOTAL DISALLOWANCE U/S 14A COMES TO RS.9 27 981/ - AS EXPENSES IN EARNING DIVIDEND INCOME OF RS.12 47 334/ - AS PER THE FORMULA PRESCRIBED BY THE BOARD IN ITS NOTIFICATION NO. 45 DATED 24.03.2008. THUS THE SUM OF RS.9 27 981/ - IS DISALLOWED AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. (ADDITION: - RS.9 27 981/ - ) 37 . SINCE THE ISSUE BEFORE US HAVE NOT BEEN DECIDED BY THE JURISDICTIONAL HIGH COURT AND THE JURISDICTIONAL HIGH COURT IN ALL INDIA LAKSHMI COMMERCIAL BANK OFFICERS UNION VS. UNION OF INDIA 150 ITR 1 (DEL) HAS HELD THAT IN CASE S WHERE JURISDI CTIONAL HIGH COURTS ORDER IS NOT EXISTING THEN THE TRIBUNAL MAY FOLLOW OTHER HIGH COURT S DECISION ON THE ISSUE AND WE ARE INCLINED TO FOLLOW PAGE NO. 18 THE KARNATAKA HIGH COURTS ORDER ON THE ISSUE IN HAND. THEREFORE WE CONCUR WITH THE KOLKATA BENCH DECISION CITED (SUPRA) IN THAT IT WAS HELD THAT WHEN THERE IS NO AMOUNT OF EXPENDITURE IS INCURRED DIRECTLY RELATING TO THE EXEMPT INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME RULE 8D(II) & (III) CANNOT BE APPLIED WHEN THE SHARES ARE HELD AS STOCK - IN - TRADE AND AS PER KARNATAKA HIGH COURT DECISION (SUPRA) NO NOTIONAL EXPENDITURE COULD BE DEDUCTED FROM THE SAID INCOME. AND T HE DIVIDEND INCOME IS INCIDENTAL TO ITS BUSINESS OF SALE OF SHARES WHICH REMAINED UNSOLD BY THE ASSESSEE. THEREFORE EXPENDITURE ESTIMATED INVOK ING RULE 8D ABOVE ARE SET ASIDE . 38 . IN THE RESULT THE CROSS - OBJECTION OF THE ASSESSEE IS ALLOWED . 39 . IN THE RESULT THE APPEAL OF THE REVENUE IS DISMISSED AND THE CO OF THE ASSESSEE IS ALLOWED . ORDER P RONOUNCED IN THE OPEN COURT ON 25 . 04 .2014. - SD / - - SD/ - ( SHAMIM YAHYA ) (A. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED 2 5 / 04 / 2014 A K KEOT COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT NEW DELHI