DAM Capital Advisors Limited Vs DCIT (ITAT Mumbai)
ITAT Mumbai held that the finance costs having direct nexus with the business should be allowed as a deduction under section 36(1)(iii) of the Income Tax Act.
Facts- The assessee is a company engaged in the business of share broking and is a member of Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). The activities of the assessee include providing equity research and stock broking services to institutional clients. The assessee filed the return of income for A.Y. 2012-13 on 29/11/2012 declaring a loss of Rs.2,14,399/-. The case was selected for scrutiny and the statutory notices were duly served on the assessee.
AO made various disallowances/additions. Accordingly, AO completed the assessment u/s. 143(3) assessing the income of the assessee at Rs.9,71,70,100/-. CIT(A) gave marginal relief to the assessee with regard to the disallowances/additions. Being aggrieved, the present appeal is filed.
Conclusion- Held that the finance costs have a direct nexus with the business of the assessee, i.e. stock broking for institutional clients since it is incurred to meet margin requirements of trade executed for assessee’s clients. We further notice that the CIT(A), has given a categorical finding Therefore, we are of the considered view that the finance cost should be allowed as a deduction under section 36(1)(iii) of the Act.
Held that the depository charges are incurred for opening the Demat account which is a statutory requirement for the members of NSE / BSE. Therefore there is merit in the contention that the said expense is incurred in the normal course of broking business and accordingly we hold that the depository charges should not be disallowed under section 14A r.w.r. 8D(2)(i). With regard to disallowance under rule 8D(2)(iii), it is now a settled position that the investments that are yielding exempt income only should be considered for the purpose of disallowance. Therefore we direct the assessing officer to recomputed the disallowance under section 14A r.w.r 8D(2)(iii) taking into consideration only those investments which are earning tax free income and also take into account the suo moto disallowance made by the assessee.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal is filed against the order of the Commissioner of Income-tax (Appeals), National Faceless Appeal Centre, Delhi [in short, ‘the CIT(A)’] dated 08/07/2022 for A.Y. 2012-13.
2. The assessee raised the following grounds of appeal:-
“1 Under the facts and in law, National Faceless Appeal Centre (CIT(A)) erred in confirming disallowance of Rs. 56,50,7527- under section 36(1) (iii) of Income Tax Act, 1961 (the Act).
1.1. Under the facts and in law, the learned CIT(A) failed to appreciate
the submission made by the appellant.
1.2. Under the facts and in law, the learned CIT(A) erred in stating that the appellant has not raise any ground on the addition made by the assessing officer of Rs 51,39,418/-.
1.3. The Learned CIT(A) failed to appreciate the fact that all the borrowed funds have been direct utilized in the normal course of carrying on broking business of the assessee.
1.4. The Learned CIT(A) failed to appreciate the fact that out of total finance charges of F 5,650, 752, Rs 4,949,703/- is for Bank Guarantee Charges which is for giving guarantee to stock exchange and hence is directly related to the broking business of the appellant. It also include bank charges of Rs 189,715 which are also directly related to the Broking Business of the assessee.
2. Under the facts and in law, the learned CIT(A) erred in confirming disallowance of loss of F 15,48,6477- by alleging the same as speculation loss.
2.1 The learned CIT(A) failed to appreciate the fact that assessee has not undertaken any trading equity segment and derivatives segment on its own during the captioned assessment year.
3. Under the facts and in law, the learned CIT(A) erred in confirming disallowance of Bonus payment of Rs 3,50,00,000/-.
3.1 Under the facts and in law, the learned CIT(A) erred in stating that the appellant had filed the return of income beyond the due date and hence the Bonus paid is not allowable u/s 43B of the Income Tax Act, 1961. The learned CIT(A) failed to appreciate the fact that the appellant required to furnish report u/s 92E of the Income Tax Act, 1961 and hence due date for filing return of income for it was 30.11.2012 and it has furnished return of income on 29.11.2012.
3.2 The learned CIT(A) failed to appreciate the fact that out of above Rs 3,50,00,000/-, an amount of Rs 50,77,0007- has itself been disallowed in the return of income by the appellant u/s 43B of the Income Tax Act, 1961.
4. Under the facts and in law, the learned CIT(A) erred in confirming disallowance u/s 14A of the Income Tax Act, 1961 of Rs 30,58,891/- computed in accordance to provisions of Rule 8D(2)(iii).
5. Under the facts and in law, the learned CIT(A) erred in confirming disallowance of Rs 71,01,0007-being 20% of Staff Welfare, Repairs & Maintenance, Printing & Stationery, Postage, Telephone & Fax and Advertising & Publicity.
5.1 Under the facts and in law, the learned CIT(A) failed to appreciate the fact that there is no such provision of ad-hoc disallowance under the provisions of Income Tax Act, 1961.
6. Under the facts and in law, the learned CIT(A) erred in confirming Transfer Pricing adjustment made of Rs 2,87,62,981/-.
6.1 Under the facts and in law, the learned CIT(A) failed to appreciate the fact that the assessing officer cannot to transfer pricing adjustment without referring the matter to Transfer Pricing officer. Hence, the assessment order passed is bad in law to the extent of transfer pricing adjustment made by the assessing officer.
6.2 Under the facts and in law, the learned CIT(A) failed to appreciate the submission made by the appellant.
7. Under the facts and in law, the learned CIT(A) erred in confirming disallowance of provision of professional fees payment to IDFC Capital USA of Rs 1,28,75,981/-.
8. Under the facts and in law, the learned A. O. erred in charging Interest u/s 234B of the Income Tax Act, 1961 on higher side.
9. The appellant craves leave to add, alter or delete any of the above grounds of appeal.”
3. The assessee is a company engaged in the business of share broking and is a member of Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). The activities of the assessee include providing equity research and stock broking services to institutional clients. The assessee filed the return of income for A.Y. 2012-13 on 29/11/2012 declaring a loss of Rs.2,14,399/-. The case was selected for scrutiny and the statutory notices were duly served on the assessee. The Assessing Officer made the following disallowance:-
