PHOENIX SHARE & STOCK BROKERS P.LTD, MUMBAI V. ITO 4(2)(4), MUMBAI

ITA 108/MUM/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3972 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 10-07-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 05-01-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: C TRIPURA SUNDARI
• Assessee Lawyers: S C TIWARI
• Keywords: Business expenditure

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI - C BENCH. . . , / , BEFORE S/SH. B.R. MITTAL, JUDICIAL MEMBER & RA JENDRA, ACCOUNTANT MEMBER ./ ITA NO.108/MUM/2012, ! ! ! ! ' ' ' ' / ASSESSMENT YEAR-2008-09 PHOENIX SHARE & STOCK BROKERS P. LTD., 2 KAMANWALA CHAMBERS, 3 RD FLOOR, SIR P.M. ROAD, FORT. MUMBAI-40001 VS. ITO 4(2)(4) AAYAKAR BHAVAN, M.K. ROAD MUMBAI- 400020 PAN: AABCP6371P ( #$ / APPELLANT ) ( %&#$ / RESPONDENT ) ./ ITA NO. 230/MUM/2012, ! ! ! ! ' ' ' ' / ASSESSMENT YEAR-2008-09 ITO 4(2)(4) AAYAKAR BHAVAN, M.K. ROAD MUMBAI - 400020 VS. PHOENIX SHARE & STOCK BROKERS P. LTD., 2 KAMANWALA CHAMBERS, 3 RD FLOOR, SIR P.M. ROAD, FORT. MUMBAI - 40001 PAN: AABCP6371P #$ #$ #$ #$ ' ' ' ' / APPELLANT BY : SHRI S.C.TIWARI %&#$ ( ' / RESPONDENT BY : MS. C. TRIPURA SUNDARI ! ! ! ! ( (( ( )* )* )* )* / DATE OF HEARING : 10-07-2013 +,' ( )* / DATE OF PRONOUNCEMENT : 24-07-2013 ! ! ! ! , 1961 ( (( ( 254(1) )-) )-) )-) )-) . . . . ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, A.M. CROSS APPEALS HAVE BEEN FILED BY THE ASSESSEE AND T HE ASSESSING OFFICER (AO) AGAINST THE ORDER DATED 09.11.2011 OF CIT(A)-9 MUMBAI. ITA/108/MUM/2012-AY.2008-09: GROUNDS OF APPEAL FILED BY THE ASSESSEE READ AS UND ER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - 9 ERRED IN LAW AND ON FACTS IN CONFIRMI NG THE DISALLOWANCE OF VSAT CHARGES OF RS.1,10,300/ - (VSAT CHARGES RS.1,10,300/- AND TRANSACTION CHARGES OF RS.1,00, 019/- AGGREGATING TO RS.210,319/-) PAI D BY THE APPELLANT TO NSE / BSE UNDER SECTION 40(A)(I A) READ WITH SECTION 194 J OF INCOME TAX ACT, 1961 . ON THE BASIS OF THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF CIT V. KOTAK SECURITIES LTD. IN ITA NO.3111 OF 2009. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE T HE LEARNED COMMISSIONER (APPEALS)-9 ERRED IN LAW AN D IN FACTS M RELYING ON THE DECISION OF THE BOMBAY HI GH COURT IN THE CASE OF CIT V. KOTAK SECURITIES LTD . IN ITA NO.3111 OF 2009 FOR UPHOLDING THE DISALLOWANCE MADE BY THE LEARNED AO IN RESPECT OF TRANSACTION CHARGESOFRS.1,00,019/-(TRANSACTION CHARGES OF RS.1, 00,019/-AND VSAT CHARGES RS.1,10,300/- AGGREGATING TO RS.210,319/-)WHEN THE SAID DECISION HAD NOT YET BECOME FINAL. 2 ITA NO.108/MUM/2012,(AY-2008-09) PHOENIX SHARE & STOCK BROKERS P. LTD. WITHOUT PREJUDICE TO THE ABOVE THAT ON THE FACTS AN D IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)9,MUMBA J HAS ERRED IN NOT GRANTING RELIEF TO THE APPELLANT IN ACCORDANCE WITH THE PROVISO TO SECTION 40(A)(IA) DISREGARDING THE PLEA OF THE APPELLANT THAT NSE / BSE HAD ALREADY PAID TAX ON THE TRANSACTION CHARGES AND THE DISALLOWANCE WOULD LEAD TO DOUBLE TAXATION. THAT THE IMPUGNED ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) 9, MUMBAJ IS CONTRARY TO THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IS BAD IN LAW AND THEREFORE MAY KINDLY BE SET ASIDE OR SUITABLY MODIFIED. THAT EACH OF THE ABOVE ENUMERATED GROUND OF APPEAL IS WITHOUT PREJUDICE TO EACH OTHER. ITA/230/MUM/2012-AY.2008-09 AO HAS FILED FOLLOWING GROUNDS OF APPEAL. 1 . ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE AMOUNTING TO RS.36, 7 8, 1 86/ ON ACCOUNT OF BUSINESS EXPENSES. 2.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE IMPUGNED ORDER OF THE LD.CIT(A) BEING CONTRA RY TO LAW MAY BE SET ASIDE AND THAT OF THE ASSESSING O FFICER BE RESTORED. 3.THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. ASSESSEE-COMPANY,ENGAGED IN THE BUSINESS OF STOCK B ROKING, FILED ITS RETURN OF INCOME ON 18.08.2008 DECLARING LOSS OF RS. 6.69 LACS.AO FINAL ISED THE ASSESSMENT U/S.143(3) OF THE ACT ON27. 12.2010, DETERMINING THE TOTAL INCOME OF THE ASSESS EE AT RS. 30.09 LACS. 2. EFFECTIVE GROUND OF APPEAL FILED BY THE ASSESSEE IS ABOUT DISALLOWANCE OF VSAT CHARGES OF RS. 1.1 LACS AND TRANSACTION CHARGES OF RS. 1 LAC PAID BY IT TO NSC/BSE. DURING THE ASSESSMENT PROCEEDINGS,AO FOUND THAT ASSESSEE HAD MADE PAYMENT S TOWARDS THE TRANSACTION AND VSAT CHARGES TO BSE AND NSC ON ACCOUNT OF SERVICES PROVI DED BY THEM WITH REGARD TO TRANSACTIONS IN SECURITIES THROUGH EXCHANGE.AO WAS OF THE VIEW THAT PROVISIONS OF SECTION 40(A)(IA) OF THE ACT WERE APPLICABLE IN THE CASE UNDER CONSIDERATION. VI DE HIS ORDER-SHEET NOTING DATED 29.11.2002, HE ASKED THE ASSESSEE AS TO WHY THE TRANSACTION CHARGE S SHOULD NOT BE TREATED AS FEE FOR TECHNICAL SERVICES WHICH WERE LIABLE FOR TDS, THAT WHY SAME S HOULD NOT BE DISALLOWED U/S 40(A)(IA) OF THE ACT. AFTER CONSIDERING THE LETTER OF THE ASSESSEE D ATED 16.12.2010, HE HELD THAT PAYMENT MADE FOR VSAT LINK HAD TO BE TREATED AS A FEE FOR TECHNICAL SERVICES AND THEREFORE WAS LIABLE FOR DEDUCTION OF TAX U/S 194J OF THE ACT. HE FURTHER HELD THAT TR ANSACTION CHARGES PAID BY THE ASSESSEE TO THE EXCHANGES WERE ALSO TECHNICAL SERVICES FALLING WITH IN THE PURVIEW OF SECTION 190J OF THE ACT, THAT SUCH PAYMENTS WERE LIABLE FOR DEDUCTION OF TAX. FIN ALLY, HE ADDED PAYMENT MADE ON ACCOUNT OF VSAT AND TRANSACTION CHARGES TO THE TOTAL INCOME OF THE ASSESSEE FOR NON-DEDUCTION OF TDS U/S 40(A)(IA). 2.1. ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPEL LATE AUTHORITY (FAA). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE ASSESSMENT ORDER, HE HELD THAT CHARGES PAID BY THE TRADING MEMBERS ON ACCOUNT OF VSAT/LEASELINE CHARGES WERE L EVIED BY BSE/NSC/EXCHANGE/CLEARING HOUSE TO RECOVER THE COST OF INFRASTRUCTURE AND FOR RENDERING TECHNICAL SERVICES TO ITS MEMBERS, THAT THESE CHARGES WERE FOR PROVIDING A PLATFORM OR A FACILITY OR INFRASTRUCTURE TO ENABLE ITS MEMBERS TO CONDUCT TRANSACTION IN SECURITIES.RELYIN G UPON THE ORDER OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF KOTAK SECURITIES LTD. ITA NO. 3111/2009),HE HELD THAT TRANSACTION CHARGES WERE PAID BY THE ASSESSEE TO THE STOCK EXCHANGE FOR RENDERING THE MANAGERIAL SERVICES WHICH CONSTITUTED FEES FOR TECHNICAL SERVICES U/S 194J OF THE ACT WERE APPLICABLE TO VSAT CHARGES, THE ASSESSEE HAD NOT DEDUCTED TAX AT SOURCE AS PER THE PROVISIONS OF THE SAID SECTION OF THE ACT WHILE MAKING THE PAYMENT, THAT PROVISIONS OF SECTION 40(A )(IA) OF THE ACT WERE APPLICABLE IN THE CASE UNDER CONSIDERATION.FINALLY, HE UPHOLD THE DISALLOW ANCE OF RS.2.1 LACS (1.10 LACS +1 LAC) U/S. 40(A)(IA) OF THE ACT MADE BY THE AO. 2.2. BEFORE US,AR SUBMITTED THAT ISSUE OF PAYMENT UNDER THE HEAD VSAT CHARGES WAS DECIDED BY 3 ITA NO.108/MUM/2012,(AY-2008-09) PHOENIX SHARE & STOCK BROKERS P. LTD. THE HONBLE HIGH COURT OF BOMBAY IN FAVOUR OF THE A SSESSEE, THAT NO DISALLOWANCE WAS MADE ON TRANSACTION CHARGES TILL 30.03.2008, IT WAS NOT A F EES FOR TECHNICAL SERVICES, THAT PROVISIONS OF SECTION 194J OF THE ACT WERE NOT APPLICABLE IN THE CASE UNDER CONSIDERATION, THAT THE NSC/BSE HAD PAID TAXES, THAT PROVISIONS OF SECTION 40(A)(IA) OF THE ACT WERE NOT APPLICABLE, THAT ASSESSEE SHOULD NOT BE TREATED OR CONSIDERED ASSESSEE-IN-DEFAULT.HE RELIED UPON THE ORDER OF HINDUSTAN COCA COLA DELIVERED BY THE HONBLE SUPREME COURT.HE ALSO RELI ED UPON THE UNREPORTED JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF ANJAL AND DEBT MAR KET. DR RELIED ON THE ORDER OF THE FAA.HE SUBMITTED THAT THE ISSUE OF NON-DISALLOWANCE OF THE EXPENDITURE WAS NOT RAISED BEFORE THE REVENUE AUTHORITIES, THAT HONBLE HIGH COURT OF BOMBAY HAD HELD THAT TRANSACTION CHARGES WERE TO BE TREATED AS FEES FOR TECHNICAL SERVICES FOR THE YEAR UNDER CONSIDERATION. 2.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT HONBLE JURISDICTIONAL HIGH COURT HAS HELD THAT PAYMENT MAD E UNDER VSAT CHARGES ARE NOT COVERED BY PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. RESPECTFULLY FOLLOWING THE ORDER OF THE BOMBAY HIGH COURT, WE DECIDE THE ISSUE OF VSAT PAYMENT IN FAVOUR OF THE ASSESSEE. 2.3.1. AS FAR AS TRANSACTION CHARGES ARE CONCERNED,WE FIND THAT WHILE DECIDING THE ISSUE FAA HAD NOT CONSIDERED THE SUBMISSIONS OF THE ASSESSEE ABOU T TAX PAID BY THE EXCHANGES AND TDS PAYMENT.IN OUR OPINION ISSUE NEEDS FURTHER VERIFICA TION BY THE FAA IN LIGHT OF THE PROVISIONS OF PROVISO TO SECTION 40(A)(IA).THEREFORE,IN THE INTER EST OF JUSTICE MATTER IS RESTORED BACK TO THE FILE OF THE FAA. EFFECTIVE GROUND OF APPEAL FILED BY THE ASS ESSEE IS ALLOWED IN ITS FAVOUR,IN PART. ITA/230/MUM/2012-AY.2008-09 3. EFFECTIVE GROUND OF APPEAL FILED BY THE AO IS ABOUT DELETING THE DISALLOWANCE OF RS. 36.78 LACS ON ACCOUNT OF BUSINESS EXPENSES.DURING THE ASSESSME NT PROCEEDINGS, AO FOUND THAT ASSESSEE HAD NOT CARRIED OUT SHARE TRADING BUSINESS FOR THE YEAR UNDER CONSIDERATION, THAT INCOME OF THE ASSESSEE CONSISTED OF INTEREST ON BANK DEPOSITS (27.28 LACS) , LONG TERM CAPITAL GAIN (4.68 LACS) DIVIDEND RS.1.32 LACS, INTEREST ON INCOME TAX REFUND 99,136/ -,COMMISSION RS. 114/- OTHER INCOME RS. 9,799/-,THAT THE ASSESSEE HAD DISCLOSED BROKERAGE I NCOME OF RS. 89/- AND OTHER INCOME OF RS. 34.39 LACS,THAT THE ASSESSEE HAD CLAIMED OPERATING AND ADMINISTRATIVE EXPENSES OF RS. 37.88 LACS. HE FURTHER HELD THAT THE NATURE OF INCOME DISCLOSED BY THE ASSESSEE WAS MORE OF UNEARNED INCOME,THAT NO SPECIAL EFFORT WAS REQUIRED TO EARN SAID INCOME, THAT FOR EARNING INCOME FROM OTHER SOURCES, ASSESSEE DID NOT REQUIRE ANY ESTABLISHMENT THAT VARIOUS EXPENSES INCURRED BY THE ASSESSEE DID NOT AT ALL DELETED TO EARNING OF THE INCOME DIS CLOSED BY THE ASSESSEE. VIDE HIS OFFICE LETTER DATED 10.12.2010 HE ISSUED A SHOW CAUSE NOTICE TO T HE ASSESSEE AS TO WHY THE OPERATING EXPENSES OF RS. 37.88 LACS SHOULD BE DISALLOWED.AFTER CONSID ERING THE SUBMISSIONS OF THE ASSESSEE DATED 13. 12.2010,HE HELD THAT ASSESSEE HAD EARNED BROKERAGE OF NOMINAL AMOUNT OF RS. 89/-, THAT DUE TO LEGAL PROCEEDINGS INITIATED AGAINST ONE OF THE DIRE CTORS THE BSE MEMBERSHIP CARD OF THE ASSESSEE WAS SUSPENDED SINCE 2006, THAT ASSESSEE WAS NOT CAR RYING ON ANY SHARE TRADING BUSINESS FOR THE YEAR UNDER CONSIDERATION.CONSIDERING THE ABOVE FACT S, EXPENSES CLAIMED BY THE ASSESSEE WERE NOT ALLOWED IN FULL BY THE AO.A SUM OF RS. 60,000/- INC URRED ON ACCOUNT OF AUDIT FEES WAS ALLOWED BY THE AO. BESIDES HE ALSO ALLOWED RS. 50,000/- ON ACC OUNT OF MISCELLANEOUS EXPENSES. AS A RESULT, AN ADDITION OF RS. 36.78 LACS WAS MADE TO THE TOTAL INCOME DECLARED BY THE ASSESSEE. 3.1. ASSESSEE PREFERRED AN APPEAL BEFORE THE FAA.AFTER C ONSIDERING THE SUBMISSIONS OF THE ASSESSEE-COMPANY,HE HELD THAT IF BUSINESS WAS SUSPE NDED TEMPORARILY, IT DID NOT MEAN THAT SAME CEASED TO EXIST,THAT BUSINESS EXPENSES INCURRED HAD TO BE ALLOWED,IF SAME WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS, THAT W HEREVER SPECIFIC INSTANCES OF DISALLOWANCES ON 4 ITA NO.108/MUM/2012,(AY-2008-09) PHOENIX SHARE & STOCK BROKERS P. LTD. ACCOUNT OF PAYMENT OF TRANSACTION CHARGES OR OTHER STATUTORY DISALLOWANCES WERE INVOLVED SAME HAVE TO BE DISALLOWED IN ACCORDANCE WITH THE PROVIS IONS OF THE ACT. 3.2. BEFORE US,AR SUBMITTED THAT EXPENDITURE WAS INCURRE D FOR CARRYING OUT THE BUSINESS, THAT THERE WAS TEMPORARY CESSATION IN THE BUSINESS OF THE ASSE SSEE, THAT SIGNIFICANT AMOUNT OF THE EXPENSES WERE TO THE STOCK EXCHANGE IN ORDER TO KEEP BUSINES S RUNNING, THAT NO DISALLOWANCE WAS MADE BY THE AO IN EARLIER YEARS, THAT EVEN IF ASSESSEE HAD NOT CARRIED OUT ANY BUSINESS IT WAS ENTITLED TO CLAIM BUSINESS EXPENDITURE, THERE WAS NO CHANGE IN THE INFRASTRUCTURE OR THE STAFF, THAT AO DID NOT ALLEGE THAT EXPENDITURE WAS NOT WHOLLY AND EXCLUSIV ELY FOR THE PURPOSE OF BUSINESS.DR SUBMITTED THAT NO BUSINESS WAS CARRIED OUT DURING THE YEAR UN DER CONSIDERATION,THAT EXPENDITURE CLAIMED TO HAVE BEEN INCURRED FOR NON-BUSINESS ACTIVITIES WAS NOT ALLOWABLE, THAT INCOME FROM OTHER SOURCES WAS NOT RELATED TO THE CARRYING OUT BUSINESS BY THE ASSESSEE, THAT NO EVIDENCE ABOUT LULL IN BUSINESS WAS PRODUCED BEFORE ANY OF THE AUTHORITIES. 3.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. AS THE ORDER OF THE AO HAS MERGED WITH THE ORDER OF THE FAA,SO,WE HAVE TO DECIDE THE ISSUE ON THE BASIS OF THE DECISION TAKEN BY THE FAA. WE FIND THAT FAA HAS DIR ECTED THAT IF THE EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS, SAME HAS T O BE ALLOWED WITH A RIDER THAT EXPENDITURE FOR STATUTORY DISALLOWANCE HAD TO BE DISALLOWED IN ACCO RDANCE WITH THE PROVISIONS OF THE ACT. IN OUR OPINION,THE ORDER OF THE FAA IS NOT AT ALL SPEAKING . HE HAS NOT HELD AS WHICH EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE AND HENCE ALLOWABLE. WE ARE NOT AWARE ABOUT DETAILS FILED BY THE ASSESSE E,IF ANY, PERTAINING TO BUSINESS-EXPENDITURE,IN QUESTION,BEFORE THE AO/FAA. IN THESE CIRCUMSTANCES,WE ARE OF THE OPINION THAT M ATTER NEEDS FURTHER VERIFICATION.THEREFORE, IN THE INTEREST OF JUSTICE MATTER IS RESTORED BACK TO THE FILE OF THE FAA TO PASS FRESH ORDER AND TO GIVE A CLEAR-CUT FINDING ABOUT ALLOWABLE/DISALLOWABLE IT EMS OF EXPENDITURE. EFFECTIVE GROUND OF APPEAL FI LED BY THE AO STANDS PARTLY ALLOWED. AS A RESULT,APPEAL FILED BY THE ASSESSEE AND THE AO STAND PARTLY ALLOWED. / )0 !/) 1 ! * 2 3 ( - 4 . 5 6 ( ) 78 . ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH JULY,2013 . . ( +,' 4 9! 24 , 2013 , ( - : SD/ SD/- ( . ; ; ; ; . . B.R.MITTAL ) ( / RAJENDRA ) / JUDICIAL MEMBER /ACCOUNTANT MEMBER / MUMBAI, 9! /DATE:24 TH JULY,2013 . . . . ( (( ( %)< %)< %)< %)< =<') =<') =<') =<') / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / #$ 2. RESPONDENT / %&#$ 3. THE CONCERNED CIT (A) / > ? 5 ITA NO.108/MUM/2012,(AY-2008-09) PHOENIX SHARE & STOCK BROKERS P. LTD. 4. THE CONCERNED CIT / > ? 5. DR C BENCH, ITAT, MUMBAI / <@- %)! , . . . 6. GUARD FILE/ - A &<) %) //TRUE COPY// .! / BY ORDER, B / 7 DY./ASST. REGISTRAR , /ITAT, MUMBAI