ACIT Vs M/s Arihant Capital Markets Ltd. (ITAT Indore)
The assessee paid penalty of Rs.1,62,098/-levied by Stock Exchange for procedural defaults such a delay in submission of return, etc. but nowhere it has been mentioned that it is for infringement of any law. The learned Assessing Officer disallowed this expenditure. However, the learned Commissioner of Income Tax (Appeals) deleted the disallowance. From a perusal of the finding of the learned Commissioner of Income Tax (Appeals) as well as going through the submissions given by the assessee in the light of the judgment of the Hon’ble High Court of Bombay in the case of CIT vs The Stock & Bond Trading Company ITA No. 4117 of 2010 , we are of the considered view that the assessee made no offence prohibited by law which can be contemplated to be covered under Explanation to section 37 of the Act and, therefore, the payment of penalty made by the assessee to the Stock Exchange is a regular business expenditure and the impugned disallowance has rightly been deleted by the learned Commissioner of Income Tax (Appeals). We uphold the same.
FULL TEXT OF THE ITAT JUDGMENT
The revenue has filed the appeal whereas the assessee has filed the cross objection relating to the assessment year 2013-14 against the order of the learned Commissioner of Income Tax (Appeals)-I, Indore, dated 28.2.2017 arising out of the order u/s 143(3) of the Income Tax Act dated 15.3.2016 framed by the DCIT 1(1), Indore.
2. In its appeal, the revenue has taken the following grounds of appeal :-
(i) “On the facts and in the circumstances of the case, the learned CIT(Appeals) erred in restricting the disallowance made by A.O. u/s 14A of the Income Tax Act read with Rule 8D of the Income Tax Rules to 0.05% without appreciating the facts and evidences brought into light by the A.O. during assessment proceedings.
(ii) “On the facts and in the circumstances of the case, the learned CIT(Appeals) erred in deleting the addition made by the A.O. of Rs. 1,62,098/- on account of disallowance of penalty and Rs.15,508/- on account of disallowance of prior period expenses without appreciating the facts and evidences brought into light by the A.O. during assessment proceedings.”
In Cross Objection the assessee has taken the following grounds :-
“(i) The learned CIT(A) erred in confirming the addition u/s 14A to the extent of Rs. 5,77,013/-. That on the facts and in the circumstances of the case, the disallowance confirmed is wrong and uncalled for.
(ii) The learned CIT(A) erred in confirming the addition of Rs. 1,99,500/- out of prior period expenses made by the learned A.O. That on the facts and in the circumstances of the case, the disallowance confirmed is wrong and uncalled for.”
3. At the outset, the learned counsel for the assessee requested for not pressing both the grounds raised in cross objections. The learned DR has no objection. We, therefore, dismiss the grounds raised in cross objection of the assessee.
4. Now we are left with the revenue’s appeal. Apropos ground no. 1 relating to disallowance u/s 14A of the Act read with Rule 8D, briefly stated the facts are that the assessee declared income of Rs.3,14,87,710/- in the return of income filed for the assessment year 2013-14 on 26.9.2013. Case selected for scrutiny and necessary notices u/s 143(2) and 142(1) of the Act duly served upon the assessee. The Assessing Officer on going through the financial statements observed that the assessee has made investments in quoted/unquoted shares and also incurred expenditure on interest. However, no expenditure has been disallowed u/s 14A of the Act. The Assessing Officer accordingly applying the method provided under Rule 8D of the Income Tax Rules read with section 14A of the Act made disallowance of Rs. 52,26,627/- which comprised of interest disallowance of Rs. 42,64,143/- and disallowance for administrative expenses of Rs. 9,62,484/-.
5. Aggrieved with the findings of the Assessing Officer, the assessee went in appeal before the learned Commissioner of Income Tax (Appeals) and majorly succeeded as the learned Commissioner of Income Tax (Appeals) deleted total disallowance for interest expenditure and sustained administrative expenditure disallowance of Rs. 5,77,013/-.
6. Now the revenue is in appeal before us.
6. The learned DR vehemently argued supporting the order of the Assessing Officer and further heavily relied upon the judgment of the Hon’ble Apex Court in the case of Maxopp Investment Limited vs. CIT; 101 CCH 0092.
7. Per contra, the learned counsel for the assessee supported the findings of the learned Commissioner of Income Tax (Appeals) and further added that no expenditure was incurred in relation to earning exempt income. The investments were made out of the own capital and reserves and the assessee has no effective borrowing on the contrary it had huge bank balance. The assessee has earned net interest income at the close of the year and there is a direct nexus of interest expenditure with the earning of taxable income. It was also submitted that major investments were brought forward from earlier years and they majorly included unlisted shares of subsidiary companies which never yielded any income. The learned counsel for the assessee also differentiated the facts of the assessee’s case with the facts eminating in the case of Maxopp Investment Ltd. (supra) which mainly focused on the point that in the case of Maxopp Investment Ltd. (supra) case, the investments were made out of the borrowed funds on which interest expenditure was incurred whereas in the case of the assessee investments were made out of own capital and reserves and, hence, no interest was incurred in respect of such investment. Reliance was placed on the judgment of Hon’ble Bombay High Court in the case of CIT vs. Reliance Utilities & Power Limited; 313 ITR 340 and another judgment of Hon’ble Bombay High Court in the case of HDFC Bank Ltd.; 366 ITR 505. The learned counsel for the assessee further placed reliance on the following judgments :
