Maruthi Securities Limited,, ... vs Assessee

These are cross appeals by assessee and Revenue on the order of the Commissioner of Income Tax(Appeals)-V, Hyderabad dated I.T.A. Nos. 1303 & 1345/Hyd/2014 :- 2 -: Maruti Securities Ltd.,

31-01-2014 giving partial relief on the two additions made by Assessing Officer (AO).

2. Briefly stated, assessee-company is engaged in the business of investment in Securities, filed its return of income for the AY.2007-08 on 30-10-2007 and declared a total income of Rs. 71,39,680/- under normal computation of Income Tax Act [Act]. Assessee-company filed revised return of income on 31-03-2009 revising the income and claiming loss at Rs.2,95,61,957/- under normal computation and book profit for the purpose of 115JB at NIL. The assessment was completed u/s. 143(3) by the AO on 31-03-2009 determining loss at Rs.2,37,51,957/- after making an addition of Rs.58,10,000/- towards notional interest on certain advances. Aggreived by the said order, assessee preferred an appeal before the CIT(A) and as the first appellate authority confirmed the order of the AO, has preferred further appeal to ITAT.

2.1 Subsequently, the CIT-IV, Hyderabad found the said assessment order to be erroneous and prejudicial to the interests of revenue, and accordingly passed order u/s. 263 on 26-03-2012. Assessee aggrieved by the said revisionary order has preferred an appeal before ITAT, Hyderabad vide ITA No.841/Hyd/2012.

2.2 Pursuant to the directions of CIT, the AO completed the assessment u/s. 143(3) r.w.s.263 of the Act determining the total income of assessee at Rs.3,14,29,958/- under normal provisions by making the following disallowances:

i. Disallowance u/s. 14A amounting to Rs.64,86,571/- ii. Addition on account of variation of closing stock amounting to Rs.4,86,94,344.

I.T.A. Nos. 1303 & 1345/Hyd/2014 :- 3 -: Maruti Securities Ltd.,

2.3 Aggrieved by the above assessment, assessee is in appeal.

3. Ld.CIT(A) after considering assessee's submissions deleted the addition u/s. 14A while confirming the addition on valuation of closing stock. Hence, cross appeals.

4. At the outset, it was submitted that the ITAT has considered the order of CIT u/s. 263 in ITA No.841 & 1176/Hyd/2012 dt. 03-12-2014, wherein the proceedings were upheld but the direction of Ld.CIT on issue of valuation of closing stock was not upheld, whereas on issue of Section 14A, the deduction was modified to consider 10% of such exempted income as expenditure u/s. 14A. Consequently, it submitted the order of Ld.CIT(A) requires modification.

5. On the issue of valuation of closing stock, the ITAT vide para 21 and 22 of the order did not uphold the direction of CIT. Therefore, in this consequential order, the addition cannot be sustained. Therefore, AO is directed to delete the same. CIT(A) order stand modified and assessee appeal on this issue is allowed.

6. On the issue of disallowance u/s. 14A, while upholding direction of CIT u/s. 263 to examine 14A, consistent with the order of ITAT in assessee's own case in ITA No. 468/Hyd/2009 and others dt. 05-09-

2014 for the AY. 2005-06 and 2006-07, we uphold disallowance of expenditure u/s. 14A at 10% of exempt income earned during the year. Consequently, on the issue also Ld.CIT(A) order stands modified and AO is directed to disallow 10% of the exempt income u/s. 14A as expenditure. Revenue's appeal is allowed partially.

I.T.A. Nos. 1303 & 1345/Hyd/2014 :- 4 -: Maruti Securities Ltd.,

7. In the result, assessee's appeal is allowed whereas Revenue's appeal is allowed partially.

Order pronounced in open Court on 17th April, 2015.

Sd/- Sd/- (SAKTIJIT DEY) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER

Hyderabad, Dated 17th April, 2015

TNMM

Copy to :

1. Maruti Securities Limited, Flat No.66, Ground Floor, Park View Enclave, Manovikas Nagar, Secunderabad.

2. Deputy Commissioner of Income Tax, Circle-16(2), Aayakar Bhavan, Hyderabad.

3. CIT(Appeals)-V, Hyderabad

4. CIT-IV, Hyderabad

5. D.R. ITAT, Hyderabad