SANGHVI BROS. BROKERAGE LTD, V. ACIT CIR 4(2),

CO 65/MUM/2013

• Counselvise Citation: [2013] 122 COUNSELVISE.COM (IT) 9098 (ITAT-MUMBAI)
• Duration Of Justice: 8 month(s) 11 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 22-11-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 18-11-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 12-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PITAMBER DAS
• Assessee Lawyers: FAROOKH IRANI
• Keywords: Capital asset; Depreciation; Earning of tax free income; Reasonable cause; Revenue expenditure; Capital expenditure
• Section: 14A; 154

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL E EE E BENCH, BENCH, BENCH, BENCH, MUMBAI MUMBAI MUMBAI MUMBAI , . . . !' !' !' !' , # # # # $% $% $% $% BEFORE BEFORE BEFORE BEFORE SHRI SHRI SHRI SHRI VIJAY PAL RAO, JM VIJAY PAL RAO, JM VIJAY PAL RAO, JM VIJAY PAL RAO, JM & & & & SHRI SHRI SHRI SHRI N. K. BILLAIYA N. K. BILLAIYA N. K. BILLAIYA N. K. BILLAIYA, AM , AM , AM , AM ./ I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1061 1061 1061 1061/MUM/201 /MUM/201 /MUM/201 /MUM/2011 11 1 ( & & & & ' ' ' ' / ASSESSMENT YEAR :2007-08) ACIT, CIR. 4(2) ROOM NO. 642, 6 TH FLOOR, AAYAKAR BHAVAN, M. K. ROAD, MUMBAI-400020 / VS. M/S SANGHAVI BROTHERS BROKERAGE LTD., VESTA B, 90, FEET ROAD, PANT NAGAR, GHATKOPAR (E) MUMBAI-400075 ( () / APPELLANT APPELLANT APPELLANT APPELLANT) .. ( *+() / RESPONDENT RESPONDENT RESPONDENT RESPONDENT) *+, / CROSS OBJECTION CROSS OBJECTION CROSS OBJECTION CROSS OBJECTION NO. NO. NO. NO. 65 6565 65/MUM/2013 /MUM/2013 /MUM/2013 /MUM/2013 ( & & & & ' ' ' ' / ASSESSMENT YEAR :2007-08) M/S SANGHAVI BROTHERS BROKERAGE LTD., VESTA B, 90, FEET ROAD, PANT NAGAR, GHATKOPAR (E) MUMBAI-400075 / VS. ACIT, CIR. 4(2) ROOM NO. 642, 6 TH FLOOR, AAYAKAR BHAVAN, M. K. ROAD, MUMBAI-400020 %( # ./ - ./ PAN/GIR NO. :AAECS5879A ( () / APPELLANT APPELLANT APPELLANT APPELLANT) .. ( *+() / RESPONDENT RESPONDENT RESPONDENT RESPONDENT) & && & ./ ./ ./ ./ 1 2 1 2 1 2 1 2 /ASSESSEE BY : SHRI FAROOKH IRANI % % % % 1 2 1 2 1 2 1 2 / REVENUE BY : SHRI PITAMBER DAS 1 11 1 /# /# /# /# / DATE OF HEARING : 18 TH NOVEMBER 2013 34' 34' 34' 34' 1 11 1/# /# /# /# /DATE OF PRONOUNCEMENT: 22 ND NOVEMBER 2013 $5 / O R D E R PER : , . . / VIJAY PAL RAO, JM THIS APPEAL BY THE REVENUE AND CROSS OBJECTION BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER DATED 19.11.2010 OF COMMISSIONER OF INCOME TAX(APPEALS) FOR THE ASSESSMENT YEARS 2007-0 8. ITA NO.1061/M/2011 & CO NO. 65/M/2013 SANGHAVI BROTHERS BROKERAGE LTD. 2 2. THE REVENUE HAS RAISED THE FOLLOWING EFFECTIVE G ROUNDS IN THIS APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWA NCE MADE IN RESPECT OF VSAT OF ` 3,83,877/- AND TRANSACTION CHA RGES OF ` 9,55,407/- U/S 40(A)(IA), WITHOUT APPRECIATING THE FACTS THAT THESE WERE COMPOSITE CHARGES FOR PROFESSIONAL AND T ECHNICAL SERVICES RENDERED BY THE STOCK EXCHANGE TO ITS MEMB ERS AND THE ASSESSEE HAS FAILED TO DEDUCT TDS THEREON. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF ` 1,25,931/- MADE U/S 14A READ WITH RULE 8D OF THE INCOME TAX AC T BY ASSESSING OFFICER. 3. GROUND NO. 1 REGARDING DISALLOWANCE U/S 40(A)(IA ) OF INCOME TAX ACT OF VSAT CHARGES AND TRANSACTION CHARGES PAID TO NATIONAL STOCK EXCHANGE. WE HAVE HEARD THE LD. D.R AS WELL AS LD. A.R AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET THE LD. A.R OF THE ASSESSEE HAS POINTED OUT AN IDENTICAL ISSUE HAS BEEN CONSIDE RED BY THIS TRIBUNAL IN THE CASE OF SISTER CONCERN OF THE ASSESSEE NAMELY M /S SANGHVI SAVLA STOCK BROKERS LTD. IN ITA NO. 9075/M/2010 AND C.O N O. 72/M/2013 VIDE ORDER DATED 10.10.2013. WE NOTE THAT THE CO-ORDINAT E BENCH OF THIS TRIBUNAL IN CASE OF M/S SANGHVI SAVLA STOCK BROKERS LTD. (SUPRA) AS DECIDED THIS ISSUE IN PARA 5 AS UNDER: 5. WE HAVE HEARD THE RIVAL CONTENTION, PERUSED THE RELEVANT FINDINGS OF THE AUTHORITIES BELOW AND THE MATERIAL AVAILABLE ON RECORD. IT IS NOT DISPUTED THAT, INSOFAR AS THE PAY MENT OF VSAT CHARGES ARE CONCERNED, THE SAME IS COVERED BY THE D ECISION OF THE BOMBAY HIGH COURT CITED SUPRA AND, THEREFORE, T HERE WAS NO REQUIREMENT FOR DEDUCTING THE TDS AND, CONSEQUENTLY , NO DISALLOWANCE UNDER SECTION 40(A)(IA) CAN BE MADE. R EGARDING TRANSACTION CHARGES, WE AGREE WITH THE CONTENTION O F THE LEARNED DEPARTMENTAL REPRESENTATIVE THAT, WHETHER T HE DISALLOWANCE HAS BEEN MADE FOR THE FIRST TIME AND N O SUCH ITA NO.1061/M/2011 & CO NO. 65/M/2013 SANGHAVI BROTHERS BROKERAGE LTD. 3 DISALLOWANCE WAS MADE IN THE EARLIER YEARS, IS NOT CLEAR FROM THE RECORDS, THEREFORE, ON THIS SCORE, WE SET ASIDE THE ISSUE OF TRANSACTION CHARGES TO THE FILE OF THE ASSESSING OF FICER, TO VERIFY, WHETHER IN THE EARLIER YEARS TRANSACTIONS CHARGES H AVE BEEN PAID AND ANY DISALLOWANCE HAS BEEN MADE IN THE EARL IER YEARS OR NOT. IF THE ASSESSEE HAS PAID THE TRANSACTION CH ARGES IN THE EARLIER YEARS AND NO DISALLOWANCE HAS BEEN MADE BY THE DEPARTMENT, THEN IN VIEW OF THE DECISION OF THE HON BLE JURISDICTIONAL HIGH COURT IN CASE OF KOTAK SECURITI ES LTD. (SUPRA), NO DISALLOWANCE SHOULD BE MADE IN THIS YEAR BECAUSE IN THAT WAY IT CONSTITUTE A REASONABLE CAUSE FOR NOT DEDUCT ING THE TDS IN THIS YEAR ALSO. WITH THIS DIRECTION, THE MATTER IS RESTORED TO THE FILE OF THE ASSESSING OFFICER. THUS, THE GROUND RAISED BY THE REVENUE IS TREATED AS PARTLY ALLOWED FOR STATISTICA L PURPOSES. 4. IT IS CLEAR THAT THE TRIBUNAL HAS DECIDED THE IS SUE BY FOLLOWING THE DECISION OF HONBLE JURISDICTION HIGH COURT IN CASE OF CIT VS ANGEL CAPITAL AND DEBIT MARKET LTD. DATED 27.7.2011 AS WELL AS IN CASE OF CIT VS KOTAK SECURITIES LTD. 340 ITR 333. THUS, AS FAR AS THE PA YMENT OF VSAT CHARGES ARE CONCERNED IN VIEW OF THE DECISION OF HONBLE JU RISDICTION HIGH COURT IN CASE OF CIT VS ANGEL CAPITAL AND DEBIT MARKET LTD. (SUPRA), TDS IS NOT REQUIRED TO BE DEDUCTED AND CONSEQUENTLY NO DISALLO WANCE CAN BE MADE U/S 40(A)(IA). SO FAR AS THE DISALLOWANCE IN RESPEC T OF TRANSACTION CHARGES THIS ISSUE IS SET ASIDE TO THE RECORD OF THE A.O TO VERIFY WHETHER THE DISALLOWANCE IN RESPECT OF TRANSACTION CHARGES HAS BEEN MADE FIRST TIME IN THIS YEAR OR IT WAS ALSO MADE IN THE EARLIER YEA RS AND ACCORDINGLY DECIDE THE ISSUE IN LIGHT OF THE DECISION OF HONBL E JURISDICTION HIGH COURT IN CASE OF CIT VS KOTAK SECURITIES LTD. (SUPRA). 5. GROUND NO. 2 REGARDING DISALLOWANCE U/S 14A. WE HAVE HEARD THE LD. D.R AS WELL AS LD. A.R AND CONSIDERED THE RELEV ANT MATERIAL ON RECORD. THE CIT(A) HAS DECIDED THIS ISSUE IN PARA 3 .1 AS UNDER: ITA NO.1061/M/2011 & CO NO. 65/M/2013 SANGHAVI BROTHERS BROKERAGE LTD. 4 3.1. FROM THE ASSESSMENT ORDER, I FIND THAT THE A. O HAS MENTIONED THAT TAX FREE DIVIDEND INCOME OF RS.73,72 2/- HAD BEEN CLAIMED AS EXEMPT. FROM THE COPY OF P & L ACCO UNT AND THE COMPUTATION OF INCOME FILED BY THE APPELLANT UN DER COVER OF ITS LETTER DATED 26.10.2010, I FIND THAT THE PROFIT BEFORE TAX AT RS.98,72,624/- INCLUDES DIVIDEND INCOME OF RS,73,72 2/. THE ASSESSEE HAS OFFERED FOR TAX THE SUM OF RS.85,41,56 4/- AS PROFIT OF BUSINESS/PROFESSION AFTER ADDING BACK DEPRECIATI ON (RS.16,91,305/-) DEBITED TO P & L ACCOUNT AND REDUC ING DEPRECIATION (RS.30,22,365/-) AS PER INCOME-TAX ACT . THUS, I FIND THAT THE AMOUNT OF RS.73,722/- BEING DIVIDEND INCOM E IS INCLUDED IN PROFIT OF BUSINESS / PROFESSION OFFERED FOR TAX AT RS.85,41,564/-. AS THE APPELLANT HAS ALREADY FILED AN APPLICATION U/S 154 BEFORE THE A.O., I FIND IT FIT TO DIRECT TH E A.O. TO DECIDE THE APPLICATION U/S 154 EXPEDITIOUSLY BY EXAMINING WHETHER THE DIVIDEND INCOME OF RS.73,722/- HAD BEEN CLAIMED AS EXEMPT BY THE ASSESSEE. IF THE DIVIDEND INCOME OF RS.73,722/- HAD NOT BEEN CLAIMED AS EXEMPT INCOME, NO DISALLOWANCE U/S 14A IS REQUIRED TO BE MADE THE APPEAL ON THIS GROUND IS AC CORDINGLY DECIDED WITH DIRECTIONS AS ABOVE. FOR STATISTICAL P URPOSE, THE APPEAL ON THIS GROUND I TREATED AS ALLOWED. 6. AS IT IS CLEAR FROM THE ORDER OF THE CIT(A) THAT THE ASSESSEE HAS CLAIMED THAT THE DIVIDEND INCOME HAS BEEN OFFERED T O TAX AS PART OF THE PROFIT OF BUSINESS AND PROFESSION AND ACCORDINGLY T HE CIT(A) DIRECTED THE A.O TO DECIDE THE APPLICATION OF THE ASSESSEE FILED U/S 154 BY EXAMINING THIS FACT. WHEN THE ASSESSEE HAS CLAIMED THAT THE D IVIDEND INCOME HAS BEEN OFFERED TO TAX THEN WITHOUT VERIFICATION OF TH E CLAIM OF THE ASSESSEE NO DISALLOWANCE CAN BE MADE U/S 14A. HENCE, WE SET ASIDE THIS ISSUE TO THE RECORD OF THE A.O TO VERIFY THIS FACT AND ACCOR DINGLY DECIDE THE ISSUE. C.O NO. 65/M/2013 C.O NO. 65/M/2013 C.O NO. 65/M/2013 C.O NO. 65/M/2013 7. THERE IS A DELAY OF 4 DAYS FOR FILING THE CROSS OBJECTION BY THE ASSESSEE. WE HAVE HEARD THE LD. A.R AS WELL AS LD. D.R AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE LD. A.R OF THE ASSESSEE HAS RELIED UPON THE DECISION OF HONBLE SUPREME COURT IN CASE OF N. BALAKRISHNAN ITA NO.1061/M/2011 & CO NO. 65/M/2013 SANGHAVI BROTHERS BROKERAGE LTD. 5 VS M. KRISHNAMURTHY 7 SSC 123. HAVING CONSIDERED TH E RIVAL SUBMISSIONS AND IN THE FACTS AND CIRCUMSTANCES OF THE CASE AS W ELL AS IN THE INTEREST OF JUSTICE WE CONDONE THE DELAY OF 4 DAYS FOR FILIN G THE CROSS OBJECTION BY THE ASSESSEE. 8. THE ASSESSEE HAS RAISED THE ONLY ISSUE IN THE CR OSS OBJECTION REGARDING DISALLOWING OF ` 1,50,000/- BEING COMPUTE R SOFTWARE PURCHASE AS CAPITAL EXPENDITURE. WE HAVE HEARD THE LD. A.R A S WELL AS LD. D.R AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE LD. A.R OF THE ASSESSEE HAS SUBMITTED THAT AN IDENTICAL ISSUE HAS BEEN CONS IDERED AND DECIDED BY THE TRIBUNAL IN THE CASE OF ASSESSEES SISTER CO NCERN NAMELY M/S SANGHVI SAVLA STOCK BROKERS LTD. (SUPRA). AS POINTE D OUT BY THE LD. A.R WE NOTE THAT IN THE CASE OF M/S SANGHVI SAVLA STOCK BROKERS LTD. THE TRIBUNAL HAS CONSIDERED THIS ISSUE IN PARA 12 AS UN DER: 12. WE HAVE HEARD THE RIVAL CONTENTION, PERUSED TH E RELEVANT FINDINGS OF THE AUTHORITIES BELOW AND THE MATERIAL AVAILABLE ON RECORD. THE ASSESSEE HAS INCURRED SOFTWARE EXPENSES FOR UPGRADING THE SOFTWARE PROGRAMMES LIKE BACK OFFICE SOFTWARE, DEBT MARKET SOFTWARE, ETC., RELATING TO ITS BUSINES S OF STOCK BROKING. THE ASSESSING OFFICER AS WELL AS THE LEARN ED COMMISSIONER (APPEALS) HAS DISALLOWED THESE EXPENSE S MAINLY ON THE GROUND THAT IN THE INCOME TAX RULES, APPENDI X-I, ITEM NO. 5, WHICH HAS BEEN BROUGHT IN INCOME TAX RULE W. E.F. ASSESSMENT YEAR 2006-07, MENTIONS THE RATE OF DEPRE CIATION ON COMPUTERS INCLUDING COMPUTER SOFTWARE @60%. FROM TH IS, THEY HAVE INFERRED THAT THE COMPUTER SOFTWARE IS NOTHING BUT CAPITAL ASSET ON WHICH DEPRECIATION HAS TO BE ALLOWED. IN O UR CONSIDERED OPINION, INCLUSION OF THE WORD COMPUTER SOFTWARE IN NEW APPENDIX-I, GIVING THE RATE OF DEPRECIATION, WILL NOT, PER- SE LEAD TO A CONCLUSIVE INFERENCE THAT FROM THE ASS ESSMENT YEAR 2006-07, COMPUTER SOFTWARE ARE TO BE HELD AS CAPITA L ASSET ONLY ON WHICH DEPRECIATION HAS TO BE ALLOWED AND ANY EXP ENSES ON SOFTWARE CANNOT BE HELD AS REVENUE EXPENDITURE. WHE THER ANY PARTICULAR EXPENSE FALLS IN THE CAPITAL FIELD OR RE VENUE FIELD HAS TO BE JUDGED, LOOK4NG TO THE NATURE OF EXPENSES AND VARIOUS ITA NO.1061/M/2011 & CO NO. 65/M/2013 SANGHAVI BROTHERS BROKERAGE LTD. 6 TESTS LAID DOWN BY THE COURTS FROM TIME IMMEMORIAL. IN THIS AGE OF COMPUTERIZATION, VARIOUS SOFTWARES ARE DEVELOPED FOR SMOOTH FUNCTIONING OF VARIOUS BUSINESS NEEDS THAT HELPS BU SINESS TO RUN EFFECTIVELY, EFFICIENTLY AND PROFITABLY. THE SOFTWA RES KEEP ON CHANGING AT A VERY FAST PACE WITH THE GROWING REQUI REMENT IN THE DAY-TO-DAY BUSINESS. MOST OF THE SOFTWARES BECA ME OBSOLETE IN SHORT SPAN AND NEW AND UPGRADED VERSION ARE REQU IRED FOR BETTER FUNCTIONING. UNLESS, IT HAS BEEN BROUGHT ON RECORD THAT THE SOFTWARE INSTALLED HAS A VERY LONG LASTING LIFE AND ENDURING BENEFIT ON A CAPITAL ASSET, THEN, PROBABLY IT CAN H E SAID THAT IT MAY NOT BE OF REVENUE IN NATURE. HOWEVER, THE SOFTW ARE APPLICATION, PER-SE, DO NOT, IN ANY MANNER, SUPPLAN TS THE SOURCE OF INCOME OR MAKE ANY ADDITION TO THE CAPITAL SIDE OF THE ASSESSEE. THUS, IN OUR OPINION, SOFTWARE APPLICATIO N EXPENSES ARE NOTHING, BUT UP-GRADATION OF EFFICIENT WORKING OF OPERATIONS THROUGH COMPUTERS IN THE DAY-TO-DAY BUSINESS MANAGE MENT, WHICH KEEPS ON CHANGING PERIODICALLY AND THUS ANY E XPENDITURE ON SUCH AN UP GRADATION OR BUYING OF SOFTWARE IS RE VENUE EXPENDITURE ONLY. THE DECISIONS AS RELIED UPON BY T HE LEARNED COUNSEL ALSO SUPPORTS OUR VIEW. EVEN THOUGH THE RUL ES HAVE PROVIDED RATE OF DEPRECIATION ON COMPUTER SOFTWARE, BUT THAT DOES NOT LEAD TO ANY KIND OF DRAWING LEGAL INFERENC E THAT ALL THE SOFTWARES HAVE TO BE CHARACTERISED AS CAPITAL ASSET . THUS, THE GROUNDS RAISED BY THE ASSESSEE IN THE CROSS OBJECTI ON ARE TREATED AS ALLOWED. 9. WE FURTHER NOTE THAT THE DISALLOWANCE HAS BEEN M ADE BY THE A.O BY VIRTUE OF INSERTION OF EXPRESSION COMPUTER INCLU DING COMPUTER SOFTWARE AT ITEM NO. 5 OF PART A/III OF NEW APPENDI X-I OF DEPRECIATION TABLE AND NOT ON THE BASIS OF THE REAL NATURE OF TH E EXPENDITURE. ACCORDINGLY, BY FOLLOWING THE DECISION OF THE CO-OR DINATE BENCH IN CASE OF M/S SANGHVI SAVLA STOCK BROKERS LTD. (SUPRA) WE DEC IDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND DELETE THE ADDITION MADE BY THE AUTHORITIES BELOW. ITA NO.1061/M/2011 & CO NO. 65/M/2013 SANGHAVI BROTHERS BROKERAGE LTD. 7 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS PAR TLY ALLOWED FOR STATISTICAL PURPOSES AND CROSS OBJECTION OF THE ASS ESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 22 ND DAY OF NOVEMBER 2013 SD/- SD/- ( . . !' ) # $% (N. K. BILLAIYA) ACCOUNTANT MEMBER ( ) & $% (VIJAY PAL RAO) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 22 ND NOVEMBER 2013 SUBODH COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI