ENAM SECURITIES P.LTD, V. ACIT 4(1),

CO 62/MUM/2013

• Counselvise Citation: [2015] 123 COUNSELVISE.COM (IT) 0585 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 6 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 17-04-2015
• Appeal Filed By: Assessee
• Bench Allotted: H
• Next Hearing Date: 26-11-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 11-03-2013
• Court: TRIBUNAL
• Department Lawyers: JEETENDRA KUMAR
• Assessee Lawyers: RAJNIKANT CHANIYARI
• Keywords: Capital asset; Bad and doubtful debts; Revenue expenditure
• Section: 14A; 37(1)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL H , BENCH MUMBAI . . , . . , BEFORE : SHRI I.P.BANSAL, JM & SHRI R.C.SHARMA , A M ./ ITA NO. 1084 / MUM/20 1 1 ( / ASSESSMENT YEAR : 200 7 - 200 8 ) ACIT - 4(1), MUMBAI - 20 VS. M/S ENAM SECURITIES PVT. LTD., 24 B. D .RAJA BAHADUR COMPOUND, 1 ST FLOOR, AMBALAL DOSHI MARG, MUMBAI - 400001 ./ ./ PAN/GIR NO. : A A ACE 5146 N ( / APPELLANT ) .. ( / RESPONDENT ) AND CROSS OBJECTION NO. 62 / MUM/20 1 3 ( / ASSESSMENT YEAR : 2007 - 2008 ) M/S ENAM SECURITIES PVT. LTD., 24 B. D . RAJA BAHADUR COMPOUND, 1 ST FLOOR, AMBALAL DOSHI MARG, FORT, MUMBAI - 400001 VS. ACIT - 4(1), MUMBAI - 20 ./ ./ PAN/GIR NO. : A AACE 5146 N ( / APPELLANT ) .. ( / RESPONDENT ) /REVENUE BY : SHRI JEETENDRA KUMAR /ASSESSEE BY : SHRI RAJNIKANT CHANIYARI / DATE OF HEARING : 4 TH FEBRUARY, 2015 / DATE OF PRONOUNCEMENT : 17/04 /2015 / O R D E R PER R.C.SHARMA ( A .M.) : T HE REVENUE HAS FILED THIS APPEAL AND THE ASSESSEE HAS FILED CROSS OBJECTION AGAINST THE ORDER OF CIT(A ), DATED 30 - 11 - 2010 FOR THE ASSESSMENT YEAR 2007 - 08 IN THE MATTER OF ORDER PASSED U/S.143(3) OF THE IT ACT. ITA NO . 1084/11 & CO NO. 62/1 3 2 2. THE REVENUE IN ITS APPEAL HAS RAISED THE FOLLOWING GROUNDS : - 1. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) E RRED IN DELETING THE ADDITION OF RS.1848392/ - MADE U/S. 14A R.W.RULE 8D OF THE INCOME - TAX ACT BY ASSESSING OFFICER.' 2. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LCL.CIT(A) ERRED IN DELETING THE ADDITION MADE ON ACCOUNT OF PENALT Y OF RS.1837770 / - ON VIOLATION OF THE BYE - LAWS OF THE STOCK EXCHANGE, WHICH ARE STATUTORY IN CHARACTER AND THUS AMOUNTED TO INFRINGEMENT OF LAW' . II. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN IGNORING THE FACT THAT THE PENALTY IS IMPOSED UNDER SEEI [PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTY BY ADJUDICATING OFFICER] RULES 1995 WHICH HAS A BINDING CHARACTER'. III. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN IGN ORING THE FACTS THAT NON - ADHERENCE TO STATUTORY PROVISIONS IS NOT AN ALLOWABLE EXPENDITURE' IV. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN APPRECIATING THAT IT WAS NOT ENOUGH THAT THE DISBURSEMENT WAS MADE IN T HE COURSE OF TRADE, BUT WAS ALSO FOR THE LAWFUL PURPOSE OF TRADE .' V. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN IGNORING THE FACT THAT THE PENALTY WAS IMPOSED BECAUSE THE BUSINESS WAS NOT CONDUCTED WITHIN THE FRAMEWORK OF LAW.' 3. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE ON ACCOUNT OF CLUB MEMBERSHIP FEES OF RS.806403 / - BY TREATING THE SAME AS REVENUE EXPENDITURE' 4. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF SUNDRY BALANCE WRITTEN OFF OF RS.411748/- WITHOUT APPRECIATING THE FACT THAT THE CONDITIONS OF SECTION 36(2) ARE NOT FULFILLED. ' 5. 'ON THE FACTS AND IN THE CI RCUMSTANCES OF THE CASE AND IN LAW, THE IMPUGNED ORDER OF LD. CIT(A) IS CONTRARY TO LAW AND CONSEQUENTLY MERITS TO BE SET ASIDE AND THAT OF ASSESSING OFFICER BE RESTORED. 3. THE ASSESSEE IN ITS CROSS OBJECTION, HAS RAISED THE FOLLOWING GROUNDS : - 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED ASSESSING OFFICER BE DIRECTED TO ALLOW THE EXPENSES OF RS.365,707 AND REDUCE THE INCOME TAX DEMAND ACCORDINGLY. 4 . R IVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. FACTS IN BRIEF ARE TH AT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF SHARES TRADING ITA NO . 1084/11 & CO NO. 62/1 3 3 AND DEALING IN SHARES SECURITIES AND INVESTMENT. THE ASSESSEE E ARNED DIVIDEND INCOME OF RS. 4, 86,684 WHICH IS EXEMPT U/S 10(34) OF THE ACT. THE A O NOTED THA T THE ASSESSEE CARRYING OF BUSINESS OF SHARE TRADING AND EARNING DIVIDEND INCOME BY UTILIZING THE ENTIRE INFRASTRUCTURE AVAILABLE TO IT WITH THE HELP OF EMPLOYEES. HOWEVER THE ASSESSEE HAS NOT ALLOCATED ANY EXPENDITURE INCURRED BY IT TOWARDS EARNING OF TAX EXEMPT DIVIDEND INCOME AS REQUIRED BY SECTION 14A OF THE ACT. THE A O THEREFORE RELYING ON DAGA CAPITAL MANAGEMENT PVT LTD (ITA8075/M/03) AND APPLYING RULE 8D READ WITH SECTION 14A OF THE ACT MADE THE DISALLOWANCE U/S 14A READ WITH RULE 8D AT RS.18,48,392. 5 . BY THE IMPUGNED ORDER, THE CIT(A) R ESTRICTED THE DISALLOWANCE TO RS.3,65,707/ - , AGAINST WHICH BOTH REVENUE AND ASSESSEE ARE IN APPEAL BEFORE US. 6 . RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. THE DISALLOWANCE HAS BEEN MADE BY THE AO BY APPLYING RULE 8D, HOWEVER, THE ASSESSMENT YEA R UNDER CONSIDERATION IS 2007 - 08 IN WHICH RULE 8D IS NOT APPLICABLE BUT DISALLOWANCE IS TO BE MADE ON REASONABLE BASIS. AFTER GIVING DETAILED FINDING WITH REGARD TO AVAILABILITY OF OWN FUNDS AND INTEREST FREE FUNDS, THE CIT(A) DELETED THE DISALLOWANCE ON A CCOUNT OF INTEREST. HOWEVER, WITH RESPECT TO ADMINISTRATIVE EXPENSES, THE CIT(A) ALSO APPLIED RULE 8D AND COMPUTED THE SAME AT RS. 3,65,707/ - . WE FOUND THAT THE DIVIDEND INCOME RECEIVED BY THE ASSESSEE DURING THE YEAR WAS RS. 4,86,684/ - , SINCE THE RELEVANT A SSESSMENT YEAR IS 2007 - 08, WHEREIN RULE 8D IS NOT APPLICABLE, KEEPING IN VIEW VARIOUS JUDICIAL PRONOUNCEMENTS CITED AT BAR BY THE LD. AR, WE DIRECT THE AO TO RESTRICT THE ITA NO . 1084/11 & CO NO. 62/1 3 4 DISALLOWANCE TO THE EXTENT OF 10% OF THE DIVIDEND INCOME. WE DIRECT ACCORDINGLY. 7 . T HE NEXT GRIEVANCE OF THE REVENUE RELATES TO DELETING THE DISALLOWANCE OF PENALTY OF RS. 18,37,770/ - LEVIED BY THE STOCK EXCHANGE. THE CIT(A) HAS DELETED THE SAME AFTER OBSERVING AS UNDER : - 2.3 I HAVE CONSIDERED THE FACTS AND PERUSED THE MATERIAL ON RECO RD. I FIND THAT THE PENALTIES /FINE PAID TO BSE ARE ON ACCOUNT NON COLLECTION OF MARGIN CHARGED AND PROCEDURAL FAILURE TO FOLLOW THE BYE LAWS, RULES /REGULATION OF STOCK EXCHANGE. THEREFORE, THE EXPENSES ARE IN THE NATURE OF PAYMENTS TOWARDS VIOLATING THE PRESCRIBED RULES/ REGULATION, SHORT /PARTIAL COLLECTION OF MARGINS, NON - MAINTENANCE OF COMPLETE RECORDS, DELAY IN PAYOUT OF FUNDS AND SECURITIES, INCOMPLETE KYC FORMS, ETC WHICH ARE MERE BREACH OF CONTRACTUAL LIABILITY AND ADHERE TO PROPER PROCEDURE AND NO T FOR INFRINGEMENT OR INFRACTION OF ANY STATUTORY LAW, THEREFORE NOT HIT BY EXPLANATION TO SECTION 37(1) OF THE ACT. THE ISSUE IS ALSO COVERED BY DECISION IN THE CASE OF DCLT V ENAM SECURITIES PVT LTD [ITA NO. 4178/MUM/2009 DATED 14 - 5 - 2010] AND GOLDCREST C APITAL MARKET LTD V ITA (2010) 36 DTR177(MUM) IN VIEW OF THESE FACTS, FOLLOWING THE DECISION OF JURISDICTIONAL TRIBUNAL, THIS GROUND OF APPEAL IS ALLOWED IN FAVOUR OF THE APPELLANT. 7 .1 WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND THAT EXACTLY SIMILAR ISSUE IS COVERED BY THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE AS MENTIONED BY THE CIT(A) IN HIS APPELLATE ORDER. RESPECTFULLY FOLLOWING THE SAME, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) FOR DELETING THE DISALLOWANCE OF PENALTY ALLEGED T O BE PAID TO STOCK EXCHANGE. 8 . THE NEXT GRIEVANCE OF THE REVENUE RELATES TO DELETING DISALLOWANCE OF SOFTWARE EXPENSES OF RS. 7,99,045/ - . THE AO HAS TREATED THE SAME AS CAPITAL IN NATURE. BY THE IMPUGNED ORDER, CIT(A) AFTER FOLLOWING THE ORDER OF ITAT SPE CIAL BENCH IN CASE OF AMWAY INDIA ENTERPRISES, 1 ITD 112 , DIRECTED THE AO TO ALLOW ANNUAL MAINTENANCE CHARGES AS REVENUE EXPENDITURE AND ALLOW DEDUCTION OF THE SAME AND TREAT THE SOFTWARE EXPENDITURE AS CAPITAL IN NATURE. IN VIEW OF DECISION OF SPECIAL BEN CH IN ITA NO . 1084/11 & CO NO. 62/1 3 5 CASE OF AMWAY INDIA ENTERPRISES (SUPRA) , WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A). 9 . THE AO HAS ALSO DISALLOWED THE CLUB MEMBERSHIP FEES OF RS.8,06,403/ - . BY THE IMPUGNED ORDER THE CIT(A) DELETED THE DISALLOWANCE AFTER OBSERVING AS UNDER : - 4.3 I HAVE CONSIDERED THE FACTS AND PERUSED THE MATERIAL ON RECORD. IT IS SEEN THAT THE NATURE, QUANTUM OR THE GENUINENESS OF THE EXPENDITURE HAS NOT BEEN DISPUTED BY THE AO. THE GUJARAT HIGH COURT IN THE CASE OF GUJARAT STATE EXPORT CORPORATION LTD V CIT (209 ITR 649) (GUJ) HAS ALLOWED THE DEDUCTION OF THE ENTRANCE FEES PAID TO SPORTS CLUB BY OBSERVING THAT THE ASSESSEE HAD NO INTENTION TO ACQUIRE ANY CAPITAL ASSET OR TO TAKE ADVANTAGE FOR THE ENDURING BENEFIT FO THE BUSINESS BY PAYING ENTRANCE FEES T O THE SPORTS CLUB. THE AR ALSO RELIED IN THE CASE OF CIT V SAMTEL COL OR LTD (210 TAXATION 395) (DELHI) WHEREIN THE. DELHI HIGH COURT HAS CLEARLY DISTINGUISHING THE DECISION OF KERALA HIGH COURT IN THE CASE OF FRAMESTONE CONNECTOR OEN LTD V DCIT (157 TAXME N 116) (KER) RELIED UPON BY THE AO HELD THAT THE RELIANCE BY THE KERALA HIGH COURT ON THE SUPREME COURT DECISION IN THE CASE OF PUNJAB STATE INDUSTRIAL DEVELOPMENT CORPORATION LTD V CIT (2 25 ITR 792) (SC) WAS MISPLACED. THE AR HAS ALSO RELIED IN THE CASE OF DCIT V BANK OF AMERICA SECURITIES (INDIA) PRIVATE LIMITED [201O - TIOL - 630 - ITAT - MUM) WHEREIN IT WAS HELD THE ADMISSION FEES PAID TOWARDS CORPORATE MEMBERSHIP FEES OF THE CLUB IS EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND N OT TOWARDS CAPITAL ACCOUNT AS IT ONLY FACILITATES THE SMOOTH AND EFFICIENT RUNNING OF A BUSINESS ENTERPRISE AND DOES NOT ADD TO THE PROFIT EARNING APPARATUS OF A BUSINESS ENTERPRISE. THE EXPENDITURE HAS NOT RESULTED IN TO CREATION OF ANY CAPITAL ASSET OR A CQUISITION OF ANY NEW SOURCE OF INCOME. IN VIEW OF THESE FACTS RESPECTFULLY FO LLOWING THE AFORESAID DECISIONS THIS GROUND OF APPEAL IS ALLOWED IN FAVOUR OF THE APPELLANT. 9 .1 WE HAVE CONSIDERED RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE UNDER CO NSIDERATION IS COVERED BY THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF OTIS & LUBRIZOL INDIA LTD., 37 TAXMANN.COM 294 . THE FIND ING RECORDED BY THE CIT(A) HAS NOT BEEN CONTROVERTED. RESPECTFULLY FOLLOWING THE DECISION OF THE JURISDIC TIONAL HIGH COURT IN THE CASE REFERRED ABOVE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A). ITA NO . 1084/11 & CO NO. 62/1 3 6 10 . THE LAST GRIEVANCE OF THE REVENUE RELATES TO DELETING THE DISALLOWANCE OF SUNDRY BALANCE WRITTEN OFF OF RS. 4,11,748/ - . 10 .1 WE FOUND THAT THE ASSESSEE I S ENGAGED IN THE BUSINESS OF SHARE BROKING AS A MEMBER OF THE BOMBAY STOCK EXCHANGE. THE ASSESSEE WRITTEN OFF BAD DEBTS OF RS.4, 11 , 748 AND CLAIMED DEDUCTION FOR THE SAME U/S.36 (1) (VII) OF THE ACT. HOWEVER. THE AO DISALLOWED BAD DEBTS AGGREGATING TO RS .4 , 11, 748/ - BY OBSERVING THAT SINCE ONLY BROKERAGE. WHICH IS ONLY A PART OF THE TOTAL DE BT IS TAKEN INTO ACCOUNT FOR COMPUTING THE INCOME OF A SHARE BROKER. ONLY THAT P ART OF THE DEBT SATISFIES THE CONDITION LAID DOWN U/S.36(2) OF THE ACT. THE AO. THEREFORE. HELD THAT THE WHOLE OF THE BAD DEBT F ELL OUTSIDE THE AMBIT OF S. 36( 1) (VII) OF THE ACT SINCE IT IS NOT TAKEN INTO CONSIDERATION IN COMPUTING THE ASSESSEES INCOME. THE AO FURTHER HELD THAT EVEN ALTERNATE CLAIM AS BUSINESS LOSS IS NOT ALLOWABLE. THEREFORE. THE AO DISALLOWED THE SUM OF RS.4,11,748/ - AND ADDED BACK TO THE TOTAL INCOME DECLARED BY THE ASSESSEE. 10 .2 BY THE IMPUGNED ORDER, THE CIT(A) DELETED THE DISALLOWANCE AFTER OBSERVING AS UNDER : - I HAVE CONSIDERED THE FACTS AND PERUSED THE MATERIAL ON RE CORD. I FIND THAT THE APPELLANT HAS CLAIMED DEDUCTION ON ACCOUNT OF BAD DEBTS ARISE ON ACCOUNT OF BROKERAGE BUSINESS AS THE AMOUNTS COULD NOT BE RECOVERED FROM THE CLIENTS WHO DEFAULTED IN PAYMENTS THAT THE APPELLANT HAS ACCOUNTED FOR THE SAID BROKERAGE IN COME IS' ITS BOOKS THEREFORE THE DEBT WAS INCURRED AS NORMAL INCIDENCE OF BUSINESS. FURTHER THE ISSUE STANDS COVERED BY SPECIAL BENCH DECISION IN THE CASE OF DELT V SHREYAS S. MORAKHIA [2010] 42 DTR (MUMBAI) (SB) (MUM) 320. CIT VS. DB (INDIA) SECURITIES PV T. LTD. [2009] 318 ITR 26 (DELHI) AND CIT VS. BONANZA PORTFOLIO LTD. [2010} 320 ITR 178 (DELHI). THEREFORE RESPECTFULLY FOLLOWING THE DECISION OF JURISDICTIONAL TRIBUNAL AND HIGH COURTS. THIS GROUND OF APPEAL IS ALLOWED IN FAVOUR OF THE APPELLANT. ITA NO . 1084/11 & CO NO. 62/1 3 7 10 .3 W E HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND THAT ASSESSEE HAS CLAIMED DEDUCTION ON ACCOUNT OF BAD DEBTS WHICH AROSE IN THE COURSE OF ITS BUSINESS OF BROKERAGE. AS THE AMOUNT COULD NOT BE RECOVERED FROM THE CLIENTS, WHO DEFAULTED IN PAYMENTS, THE ASSESSEE HAS ACCOUNTED FOR THE SAID BROKERAGE INCOME IN ITS BOOKS, THEREFORE, DEBT WAS INCURRED AS A NORMAL INCIDENCE OF BUSINESS. THERE IS NO REASON TO DISALLOW THE SAME EVEN AS BUSINESS LOSS. THE FINDING RECORDED BY THE CIT(A) HAS NOT BEEN CONTROVERT ED. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) FOR DELETING THE DISALLOWANCE. 11 . IN THE RESULT APPEAL OF THE REVENUE IS DISMISSED AND THE CROSS OBJECTION OF THE ASSESSEE IS ALLOWED IN PART. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 17/04 / 201 5 . 17/04 / 201 5 SD/ - SD/ - ( . . ) ( I.P.BANSAL ) ( . . ) ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBE R MUMBAI ; DATED 17/04/ 201 5 . . /PKM , . / PS / COPY OF THE ORDER FORWARDED TO : / BY ORDER, / ( ASSTT. REGISTRAR) , / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A), MUMBAI. 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. //TRUE COPY//