HRIM FINANCE & SECURITIES P. LTD ( FORMLERY KNOWN AS PELF INVESTMENT P. LTD), MUMBAI V. ITO WD 4(2)(3),

CO 22/MUM/2011

• Counselvise Citation: [2011] 122 COUNSELVISE.COM (IT) 6455 (ITAT-MUMBAI)
• Duration Of Justice: 4 month(s) 22 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 12-08-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2006-2007
• Appeal Filed On: 21-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SU RENDRA KUMAR
• Keywords: Earning of tax free income; Question of law
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'C' BENCH, MUMBAI BEFORE SHRI D.K. AGARWAL, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 5499/MUM/2009 (ASSESSMENT YEAR: 2006-07) INCOME TAX OFFICER - 4(2)(3) M/S. PELF INVESTMENT P . LTD. ROOM NO. 642, 6TH FLOOR 177-179, LAXMI HOUSE AAYAKAR BHAVAN, M.K. ROAD VS. KALBADEVI ROAD, MUMBAI 400002 MUMBAI 400020 PAN - AAACP 6489 M APPELLANT RESPONDENT CO NO. 22/MUM/2011 (ASSESSMENT YEAR: 2006-07) M/S. HRIM FINANCE & SECURITIES P. LTD. INCOME TAX OFFICER - 4(2)(3) (FORMERLY KNOWN AS PELF INVESTMENT P. LTD.) ROOM NO. 642, 6TH FLOOR 177-179, LAXMI HOUSE VS. AAYAKAR BHAVAN, M.K. ROAD KALBADEVI ROAD, MUMBAI 400002 MUMBAI 400020 PAN - AAACP 6489 M CROSS OBJECTOR APPELLANT IN APPEAL ASSESSEE BY: SHRI SURENDRA KUMAR REVENUE BY: SHRI RAKESH JOSHI DATE OF HEARING: 22.07.2011 DATE OF PRONOUNCEMENT: 12.08.2011 O R D E R PER B. RAMAKOTAIAH, A.M. THE APPEAL BY THE REVENUE AND CROSS APPEAL BY ASSES SEE ARE AGAINST THE ORDER OF THE CIT(A) IV, MUMBAI DATED 10.07.2009 . REVENUE IS CONTESTING THE ALLOWANCE OF ` 17,70,604/- UNDER SECTION 40(A)(IA) BY THE CIT(A), WHICH WAS DISALLOWED BY THE A.O. ON THE REASON THAT THE A SSESSEE HAS NOT DEDUCTED TAX UNDER SECTION 194J OF THE I.T. ACT. AS SESSEE IS CONTESTING THE DISALLOWANCE U/S 14A. 2. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WHIC H IS ENGAGED IN THE BUSINESS OF SHARES AND STOCK BROKING. THE RETU RN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY IT ON 27.10.2006 D ECLARING A TOTAL INCOME OF ` 29,17,503/-. IN THE PROFIT AND LOSS ACCOUNT FILED ALONG WITH THE SAID ITA NO. 5499/MUM/09 & CO. 22/M/11 M/S. PELF INVESTMENT P. LTD. 2 RETURN, THE AMOUNT PAID TO STOCK EXCHANGE ON ACCOUN T OF V-SAT CHARGES, LEASE LINE CHARGES AND TRANSACTION CHARGES AGGREGAT ING TO ` 17,70,604/- WAS DEBITED BY THE ASSESSEE COMPANY. ACCORDING TO THE ASSESSING OFFICER, THE SAID CHARGES PAID BY THE ASSESSEE TO THE STOCK EXCH ANGE WERE FOR THE SERVICES IN THE NATURE OF TECHNICAL AND MANAGERIAL. HE, THEREFORE, HELD THAT DEDUCTION OF TAX AT SOURCE SHOULD HAVE BEEN MADE BY THE ASSESSEE COMPANY FROM THE PAYMENTS MADE TO THE STOCK EXCHANGE TOWARD S THE SAID SERVICES AS PER THE PROVISIONS OF SECTION 194J AND SINCE NO DED UCTION WAS MADE BY THE ASSESSEE, HE HELD THAT THE AMOUNT PAID FOR THE SAID SERVICES WITHOUT DEDUCTION TAX AT SOURCE WAS LIABLE TO BE DISALLOWED U/S 40(A)(IA). THE MATTER WAS CARRIED BEFORE THE LEARNED CIT (A), WHO, HOWEVE R, DELETED THE SAID DISALLOWANCE MADE RELYING INTER ALIA ON THE DECISION OF MUMBAI BENCH OF ITAT IN THE CASE OF KOTAK SECURITIES LTD REPORTED I N 25 SOT 440. AGGRIEVED BY THIS RELIEF ALLOWED BY LEARNED CIT (A), THE REVE NUE RAISED THIS ISSUE IN THE PRESENT APPEAL. 3. THE LEARNED D.R. RELIED ON THE ORDER OF THE A.O. WH EREAS THE ASSESSEE SUBMITTED THAT THIS ISSUE IS DECIDED IN FAVOUR OF T HE ASSESSEE BY THE ORDER OF THE ITAT IN ITA NO. 1223/MUM/2009 DATED 22.12.2009 IN ASSESSES OWN CASE. 4. WE HAVE CONSIDERED THE ISSUE. THE ISSUE IN THIS GRO UND IS COVERED BY THE ORDER OF THE ITAT IN THE PREVIOUS YEAR WHEREIN ON SIMILAR FACTS IT WAS HELD AS UNDER: - 4. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED TH AT THE ISSUE UNDER CONSIDERATION IS SQUARELY COVERED BY THE DECISION O F CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF KOTAK SECURITIES LTD ( SUPRA) WHEREIN IT WAS HELD THAT STOCK EXCHANGES DO NOT RENDER ANY MANAGER IAL OR TECHNICAL SERVICES TO THEIR MEMBERS AND, THEREFORE, PAYMENTS MADE FOR SUCH SERVICES TO THEM BY THE MEMBERS CANNOT BE SUBJECTED TO DEDUCTION OF TAX AT SOURCE U/S 194J. IT WAS HELD BY THE TRIBUNAL TH AT THE PROVISIONS OF SECTION 40(A)(IA) THEREFORE CANNOT BE INVOKED TO DI SALLOW ANY PAYMENT MADE TO STOCK EXCHANGE BY THE MEMBERS FOR THE SERVI CES RENDERED. THE DECISION OF THE TRIBUNAL IN THE CASE OF KOTAK SECUR ITIES LTD (SUPRA) THUS SQUARELY COVERS THE ISSUE IN FAVOUR OF THE ASSESSEE AND IN OUR OPINION, THE LEARNED CIT (A) WAS FULLY JUSTIFIED IN DELETING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON ACCOUNT OF V-SAT CHARGE S, LEASE LINE CHARGES AND TRANSACTION CHARGES U/S 40(A)(IA) BY FO LLOWING THE SAID ITA NO. 5499/MUM/09 & CO. 22/M/11 M/S. PELF INVESTMENT P. LTD. 3 DECISION. THE IMPUGNED ORDER OF LEARNED CIT (A) ON THIS ISSUE IS, THEREFORE, UPHELD DISMISSING GROUND NO.1 TO 7 OF RE VENUES APPEAL. 5. THE CIT(A) HAS FOLLOWED THE DECISION OF THE COORDIN ATE BENCH IN THE CASE OF KOTAK SECURITIES LTD. 25 SOT 440 AND ACCORD INGLY, WE ARE OF THE VIEW THAT THE PAYMENT MADE TO STOCK EXCHANGE DOES NOT AT TRACT THE PROVISIONS OF SECTION 194J AS FAR AS LEASE CHARGES, ETC. PAID BY THE ASSESSEE AND ACCORDINGLY THE ORDER OF THE CIT(A) IS UPHELD. THE ONLY GROUND IN REVENUE APPEAL IS DISMISSED. 6. THE LEARNED COUNSEL FOR THE RESPONDENT-ASSESSEE FIL ED A GROUND OF APPEAL IN REVENUES APPEAL BY WAY OF LETTER WHICH W AS AS UNDER: - DEPUTY COMMISSIONER OF INCOME TAX 4(2) MUMBAI .. PETITIONER VS. M/S. PELF INVESTMENT PVT. LTD. .. RESPONDENT WITH REFERENCE TO THE CAPTIONED APPEAL FIXED FOR HE ARING ON 10/01/2011, THE APPELLANT RESPECTFULLY SEEKS TO RAI SE THE FOLLOWING GROUND OF APPEAL, IN THE APPEAL FILED BY THE DEPART MENT. 1) THE LEARNED A O AS WELL AS LD CIT(A) ERRED WHILE APPLYING RULE 8D TO DISALLOW A SUM OF RS.538384/- U/S 14A OF THE I T ACT WITHOUT CONSIDERING THE FACT THAT THE SAME IS NOT A PPLICABLE PRIOR TO ASSESSMENT YEAR 2008-09 AS HELD BY THE HON'BLE H IGH COURT BOMBAY IN CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DCIT (234 CTR 1). THE ASSESSEE FURTHER REQUEST TO THE HON'BLE TRIBUNA L TO ALLOW TO RAISE THIS GROUND AS THE SAME IS TECHNICAL IN NATURE APPL YING THE RATIO LAID DOWN BY THE APEX COURT IN CASE OF NTPC LTD. VS. CIT (229 ITR 383) WHERE THE HONOURABLE COURT HAS HELD THAT THE TRIBUN AL HAS JURISDICTION TO EXAMINE A QUESTION OF LAW WHICH ARI SES FROM THE FACTS AS FOUND BY THE AUTHORITIES BELOW AND HAVING A BEAR ING ON THE TAX LIABILITY OF THE ASSESSEE. THE ASSESSEE COULD NOT F ILE CROSS OBJECTION AS THE DECISION OF JURISDICTIONAL HIGH COURT CAME LATE R ON. THEREFORE HON'BLE BENCH IS REQUESTED TO KINDLY ALLO W TO RAISE THIS GROUND OF APPEAL FOR THE SAKE OF EQUITY AND JUSTICE TO THE ASSESSEE. FOR M/S. SHAH & TAPARIA CHARTERED ACCOUNTS. SD/- PARTNER IT WAS POINTED THAT IT IS A REVENUE APPEAL AND ASSE SSEE CANNOT RAISE A GROUND OF APPEAL, AS THE ASSESSEE HAS NOT PREFERRED ANY APPEAL ON THE ITA NO. 5499/MUM/09 & CO. 22/M/11 M/S. PELF INVESTMENT P. LTD. 4 ISSUE OF ADDITION/DISALLOWANCE U/S 14A EITHER BY WA Y OF CROSS APPEAL OR EVEN A CROSS OBJECTION. 7. THE LEARNED COUNSEL WANTED TO ARGUE THE MATTER ON M ERITS ON THE ISSUE OF ADMISSION OF ASSESSES GROUND AND ACCORDIN GLY THE CASE WHICH WAS TAKEN UP ON 10.01.2011 WAS ADJOURNED TO 12.01.2 011 FOR DETAILED ARGUMENTS ON THIS ISSUE. ON THAT DAY THE LEARNED C OUNSEL FILED A COORDINATE BENCH DECISION IN THE CASE OF ACIT VS. T RIACE IN ITA NO. 2827/MUM/2004 IN SUPPORT OF THE ARGUMENT THAT ASSES SEE HAS MOVED THE APPLICATION UNDER RULE 27 OF ITAT RULES IN RAIS ING THE GROUND. THE LEARNED COUNSEL WAS OF THE OPINION THAT THEY HAVE T HE RIGHT TO RAISE THE GROUND UNDER RULE 27. IT WAS POINTED OUT THAT RULE 27 HAS A LIMITED APPLICATION ONLY IN SUPPORT OF THE ORDER OF THE CIT (A), WHEREAS THE ASSESSEE IS CONTESTING THE ORDER OF THE CIT(A) ON T HE ISSUE OF DISALLOWANCE U/S 14A WHICH WAS NOT AN ISSUE IN REVE NUE APPEAL. THE LEARNED COUNSEL REFERRED TO THE ORDER IN THE CASE O F THE ABOVE REFERRED ITAT ORDER (OF ACIT VS. TRIACE IN ITA NO. 2827/MUM/ 2004) AND SUPPORTED THE CLAIM. 8. THE LEARNED D.R. OBJECTED TO THE RAISING OF THE GRO UND. 9. AS RULE 27 OF ITAT RULES ALLOWS THE RESPONDENT TO D EFEND THE ORDER OF THE CIT(A) ON ANY GROUND WHICH WAS HELD AGAINST BY THE CIT(A) ONLY IN SUPPORT OF THE ORDER APPEALED AGAINST, THE BENCH WA S OF THE VIEW THAT THE ISSUE WAS NOT PROPERTY CONSIDERED OR ARGUED BY THE ASSESSEE. GROUND INVOKED UNDER RULE 27 ACTS ONLY AS A WEAPON OF DEFE NCE AGAINST APPEAL IF THE RESPONDENT HAS NOT HIMSELF TAKEN ANY PROCEEDING S TO CHALLENGE THE ORDER IN APPEAL, THE TRIBUNAL CANNOT SET ASIDE THE ISSUE NOT APPEALED AGAINST. THAT ORDER WOULD STAND AND WOULD HAVE FULL EFFECT IN SO FAR AS IT IS AGAINST THE RESPONDENT. THE ABOVE PRINCIPLES ESTABL ISHED BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF B.R. BAMSI VS. CIT (1972) 83 ITR 223 FOLLOWING THE JUDGEMENT IN THE CASE OF CIT VS. HAZARIMAL NAGJI & CO. 46 ITR 1168 (BOM) AND THE DECISION OF THE HON'BLE KERA LAL HIGH COURT IN THE CASE OF CIT VS. BPL SYSTEMS AND PROJECTS LTD 227 IT R 779 HAVE NOT BEEN ARGUED BEFORE THE BENCH. THEREFORE, AFTER HEARING T HE APPEAL ON 12.01.11, IT ITA NO. 5499/MUM/09 & CO. 22/M/11 M/S. PELF INVESTMENT P. LTD. 5 WAS FELT THAT THE ASSESSEE REQUIRE AN OPPORTUNITY T O ARGUE IN DETAIL CONSIDERING THE JUDGEMENTS OF THE HON'BLE BOMBAY HI GH COURT AND THE DECISION IN THE CASE OF ASSAM COMPANY (INDIA) LTD. VS. CIT 256 ITR 423 (GAUHATI). THEREFORE THE CASE WAS REFIXED FOR HEAR ING FOR GIVING DUE OPPORTUNITY TO ASSESSEE TO ARGUE IN DETAIL ON ADMIS SIBILITY OF ASSESSEES CONTENTION UNDER RULE 27. CONSEQUENTLY ASSESSEE FIL ED CROSS OBJECTION ON 23.03.2011 WITH A DELAY OF 246 DAYS WITH AN APPLICA TION FOR CONDONATION OF DELAY. IT WAS FURTHER SUBMITTED THAT CONSEQUENT TO THE JUDGEMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & B OYCE MFG. CO. LTD. VS. DCIT 328 ITR 81 WHEREIN IT WAS HELD THAT RULE 8D IS NOT APPLICABLE FOR ASSESSMENT YEARS PRIOR TO AY 2008-09 THE RESPONDENT RAISED THE GROUND UNDER RULE 27 OF THE APPELLATE TRIBUNAL RULES BUT T O BE ON A SAFER SIDE THEY ALSO FILED CROSS OBJECTION FOR THE SAKE OF JUSTICE AND EQUITY. IT WAS PRAYED THAT THE DELAY IN FILING THE APPEAL BE CONDONED AND CROSS OBJECTION BE ADMITTED. 10. SINCE THE CROSS OBJECTION WAS FILED WHILE APPEAL OF REVENUE WAS PENDING, AS PRAYED BY THE ASSESSEE THE ISSUE OF CON DONATION IN FILING BELATEDLY WAS TAKEN UP. AFTER CONSIDERING THE SUBMI SSION OF THE LEARNED COUNSEL FOR THE ASSESSEE AND THE OBJECTION OF THE L EARNED D.R. WE ARE OF THE OPINION THAT THE DELAY IN FILING THE CROSS OBJECTIO N CAN BE CONDONED AS THE ASSESSEE WAS PURSUING LEGAL REMEDY UNDER RULE 27. T HEREFORE THE DELAY IS CONDONED AND THE CROSS OBJECTION WAS ADMITTED. 11. IN THE CROSS OBJECTION ASSESSEE HAS RAISED THE FOLL OWING GROUND: 1. ON THE FACT AND CIRCUMSTANCES OF THE CASE AS W ELL AS IN LAW, THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ACTION O F LEARNED ASSESSING OFFICER IN APPLYING RULE 8D TO DISALLOW A SUM OF RS.5,38,384/- U/S. 14A OF THE INCOME TAX ACT, 1961 WITHOUT CONSIDERING THE FACTS THAT THE SAME IS NOT APPLICAB LE PRIOR TO A.Y. 2008-09 AS HELD BY THE HON'BLE HIGH COURT BOMBAY IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DCIT (234 CTR 1 ). 12. WE HAVE HEARD THE RIVAL ARGUMENTS, CONSIDERED THE ISSUE AND PERUSED THE RECORD. SINCE THE PROVISIONS OF RULE 8D WHICH W AS FOLLOWED BY THE A.O. AND THE LEARNED CIT(A) ARE NOT APPLICABLE TO THE AS SESSMENT YEAR UNDER CONSIDERATION AS HAS BEEN CONSIDERED AND DECIDED BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF AND GODREJ AND BOYCE MFG. CO. LTD. VS. DCIT 328 ITR ITA NO. 5499/MUM/09 & CO. 22/M/11 M/S. PELF INVESTMENT P. LTD. 6 81, THE A.O. HAS TO CONSIDER THE DISALLOWANCE OF A REASONABLE AMOUNT. THERE IS NO DISCUSSION WHETHER THE ASSESSEE INVESTE D ANY BORROWED FUNDS IN EARNING EXEMPT INCOME. THERE IS ALSO NO DISCUSSION ABOUT PAYMENT OF ANY INTEREST ON BORROWED FUNDS, IF ANY DIVERTED FOR INV ESTMENT. THERE IS INCOME TO THE EXTENT OF RS.4,04,179 BEING DIVIDEND CLAIMED AS EXEMPT IN THE YEAR UNDER CONSIDERATION. THE AO SIMPLY INVOKED RULE 8D AND DISALLOWED AN AMOUNT OF ` 5,38,384/- WITHOUT EXAMINING ANY OF THE ISSUES OR EVEN CLAIM OF EXPENDITURES. FOR THESE REASONS, THE DISALLOWANC E MADE BY THE A.O. IS SET ASIDE AND THE MATTER IS RESTORED BACK TO THE FILE O F THE A.O. WITH A DIRECTION TO CONSIDER IT AFRESH KEEPING IN MIND THE PRINCIPLE S ESTABLISHED BY THE ABOVE DECISION OF THE HONBLE BOMBAY HIGH COURT OR ANY OT HER JUDGMENT OF THE SUPERIOR JUDICIAL FORUM ON THE ISSUE. 13. IN THE RESULT, REVENUES APPEAL IS DISMISSED AND CROSS OBJECTION OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH AUGUST 2011. SD/- SD/- (D.K. AGARWAL) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 12 TH AUGUST 2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) IV, MUMBAI 4. THE CIT IV, MUMBAI CITY 5. THE DR, C BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.