Market Creators Ltd., Baroda V. The Income tax Officer, Ward-4(1), Baroda

ITA 1748/AHD/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 0058 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 5 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-11-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 07-11-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 13-06-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JAYANT JAVERI
• Keywords: Business income; Depreciation; Opportunity of being heard; Question of law
• Section: 234B

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI S.S. GODARA, JUDICIAL MEMBER ./ ITA NOS. 1746, 1747 & 1748/AHD/2013 / ASSESSMENT YEAR: 2007-08, 2009-10 & 2010-11 MARKET CREATORS LIMITED, CREATIVE CASTLE, 70, SAMPATRAO COLONY, PRODUCTIVITY ROAD, BARODA-7 PAN : AABCM 3439 R VS. ITO, WARD 4 (1), BARODA / (APPELLANT) / (RESPONDENT) ASSESSEE BY : SMT. URVASHI SHODHAN, AR REVENUE BY : SHRI JAYANT JAVERI, SR DR / DATE OF HEARING : 07/11/2016 / DATE OF PRONOUNCEMENT: 16/11/2016 / O R D E R PER N.K. BILLAIYA, ACCOUNTANT MEMBER: ITA NOS. 1746, 1747 & 1748/AHD/2013 ARE THREE APPE ALS BY THE ASSESSEE PREFERRED AGAINST THREE SEPARATE ORDERS OF THE CIT(A)-III, BARODA DATED 18.04.2013, 19.04.2013 AND 18.04.2013 PERTAIN ING TO AYS 2007-2008, 2009-2010 AND 2010-2011 RESPECTIVELY. SINCE ALL TH ESE APPEALS HAVE COMMON ISSUES, THEREFORE, THEY WERE HEARD TOGETHER AND ARE DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. ITA NO.1746/AHD/2013 : AY 2007-2008 2. THE FIRST GROUND RELATES TO THE TREATMENT OF RS. 2,41,866/- AS BUSINESS INCOME INSTEAD OF DIVIDEND INCOME AS CLAIMED BY THE ASSESSEE. 2.1 DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEE DINGS, THE AO NOTICED THAT THE ASSESSEE HAS CLAIMED RS.2,41,866/- AS EXEMPT BEING ITA NOS. 1746, 1747 & 1748 /AHD/2013 MARKET CREATORS LTD VS. ITO AYS : 2007-08, 2009-10 & 2010-11 2 DIVIDEND INCOME. THE ASSESSEE WAS ASKED TO JUSTIFY ITS CLAIM. THE ASSESSEE FILED THE COPY OF DIVIDEND RECEIVED ACCOUNT FROM WH ICH THE AO NOTICED THAT THERE WERE DEBIT AND CREDIT ENTRIES AND THE SURPLUS CREDIT OF RS.2,41,866/- HAS BEEN CLAIMED BY THE ASSESSEE AS DIVIDEND INCOME AND ACCORDINGLY CLAIMED THE EXEMPTION. THE AO WAS OF THE FIRM BELI EF THAT SINCE THE ASSESSEE WAS NOT HOLDING ANY INVESTMENT, THEREFORE, THERE IS NO QUESTION OF EARNING ANY DIVIDEND INCOME. THE AO TREATED RS.2,4 1,866/- AS INCOME OF THE ASSESSEE. 2.2 THE ASSESSEE CARRIED THE MATTER BEFORE THE CIT( A) AND REITERATED ITS CONTENTION BUT WITHOUT ANY SUCCESS. 2.3 BEFORE US, THE COUNSEL FOR THE ASSESSEE ONCE AG AIN CLAIMED THAT THE AMOUNT WAS RECEIVED AS DIVIDEND AND THEREFORE SHOUL D BE ALLOWED AS EXEMPT FROM TAX. THE DR STRONGLY SUPPORTED THE ORDE RS OF THE LOWER AUTHORITIES. 2.4 WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUT HORITIES BELOW. THE ASSESSEE IS DEALING IN SHARES AND SECURITIES, WHICH MEANS THAT IT IS BUYING AND SELLING SHARES FOR ITS CUSTOMERS. THE SHARES PU RCHASED, OFTEN, ARE KEPT BY THE ASSESSEE AND SUCH SHARES MAY HAVE BEEN PURCH ASED AS CUM DIVIDEND. THE ASSESSEE IS DUTY BOUND TO REMIT THE DIVIDEND AS AND WHEN RECEIVED TO THE PURCHASERS OF THE SHARES. THEREFORE, THERE ARE CREDIT AND DEBIT ENTRIES IN THE LEDGER ACCOUNT. AT TIMES, DUE TO THE IGNORANCE OF THE BUYERS WHO MAY NOT BE AWARE THAT THEY HAVE PURCHASED SHARES AS CUM DIVIDEND AND THEREFORE, DID NOT CLAIM THE DIVIDEND AMOUNT FROM T HE BROKER. BECAUSE OF SUCH IGNORANCE, THE AMOUNT REMAINED WITH THE ASSESS EE. THIS IS NOTHING BUT A BENEFIT DERIVED BY THE ASSESSEE FROM THE TRANSACT IONS DONE IN ITS ORDINARY COURSE OF BUSINESS. THEREFORE, SUCH SURPLUS HAS A D IRECT NEXUS WITH THE ITA NOS. 1746, 1747 & 1748 /AHD/2013 MARKET CREATORS LTD VS. ITO AYS : 2007-08, 2009-10 & 2010-11 3 BUSINESS OF THE ASSESSEE AND THEREFORE, AN INCOME O F THE ASSESSEE. THE REVENUE AUTHORITIES HAVE RIGHTLY TAXED THE SURPLUS AS INCOME OF THE ASSESSEE. WE, THEREFORE, DO NOT FIND ANY ERROR OR INFIRMITY IN THE FINDINGS OF THE CIT(A). GROUND NO.1 IS ACCORDINGLY DISMISSED. 3. WITH GROUND NO.2, THE ASSESSEE HAS CHALLENGED TH E DISALLOWANCE OF INTEREST EXPENSES OF RS.18,59,963/-, INVOKING PROVI SIONS OF SECTION 40A(2)(B) OF THE ACT. 3.1 WHILE SCRUTINIZING THE RETURN OF INCOME, THE AO FOUND THAT THE ASSESSEE HAS PAID INTEREST @ 24% TO RELATED PERSONS COVERED U/S 40A(2)(B) OF THE ACT; WHEREAS, AT THE SAME TIME, THE ASSESSEE HAS ALSO PAID INTEREST TO OTHERS @ 8% TO 12 %. THE ASSESSEE WAS ASKED TO JUS TIFY THE PAYMENTS OF INTEREST @ 24%. THE ASSESSEE SUBMITTED THAT THE NA TURE OF BUSINESS ACTIVITIES CARRIED ON BY IT IS SO VOLATILE AND RISKY THAT IT H AS TO PAY HIGHER RATE OF INTEREST TO SOME PARTIES. THIS CONTENTION OF THE AS SESSEE DID NOT FIND ANY FAVOUR WITH THE AO WHO WAS OF THE FIRM BELIEF THAT INTEREST PAYMENT @ 18% IS REASONABLE AND ACCORDINGLY RESTRICTED THE INTERE ST PAYMENT @ 18% AND DISALLOWED RS.18,59,963/-. 3.2 THE ASSESSEE CARRIED THE MATTER BEFORE THE CIT( A) BUT WITHOUT ANY SUCCESS. 3.3 BEFORE US, THE COUNSEL FOR THE ASSESSEE VEHEMEN TLY STATED THAT THE REVENUE AUTHORITIES HAS SIMPLY IGNORED THE BUSINESS EXIGENCIES OF THE ASSESSEE. THE COUNSEL FOR THE ASSESSEE ONCE AGAIN STATED THAT THE NATURE OF BUSINESS ACTIVITIES OF THE ASSESSEE IS SO VOLATILE THAT AT TIMES IT HAS TO PAY DIFFERENT RATE OF INTEREST TO DIFFERENT PARTIES AS PER THE NEEDS. THE DR STRONGLY SUPPORTED THE FINDINGS OF THE REVENUE AUTH ORITIES. ITA NOS. 1746, 1747 & 1748 /AHD/2013 MARKET CREATORS LTD VS. ITO AYS : 2007-08, 2009-10 & 2010-11 4 3.4 WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUT HORITIES BELOW. THE INTEREST PAYMENT MADE BY THE ASSESSEE CAN BE UNDERS TOOD FROM THE FOLLOWING CHART:- INTEREST PAYMENT COVERED UNDER 40A(2)(B) FY 2006-07 AY 2007-08 SR. NO. NAME OF PARTY AMOUNT RS. @ 24% AMOUNT RS. @ 18% DIFFERENCE 1 J.H. SHAH (HUF) 20,11,745 15,08,809 5,02,936 2 MANI MARKET CREATORS LTD 53,24,200 39,93,150 13,31,050 3 RAJ ACHARYA 1,03,906 77,930 25,977 TOTAL 74,39,851 55,79,889 18,59,963 3.5 WE HAVE ALSO THE BENEFIT OF THE RETURNED INCOME OF THE AFOREMENTIONED PAYEES. A PERUSAL OF THE RETURNED I NCOME OF THE PAYEES SHOWS THAT ALL THE PAYEES ARE ASSESSED AT THE HIGHE ST RATE OF TAX. SINCE BOTH, THE PAYER AND PAYEES, ARE ASSESSED AT THE SAME RATE OF TAX, IN OUR CONSIDERED OPINION, THERE IS NO BASIS OF ANY REVENUE LEAKAGE. OUR VIEW IS ALSO FORTIFIED BY THE DECISION OF HONBLE HIGH COURT OF GUJARAT IN THE CASE OF PWS ENGINEERS LIMITED IN TAX APPEAL NO. 209 OF 2015, WH EREIN THE HONBLE HIGH COURT HAD THE OCCASION TO CONSIDER THE FOLLOWING SU BSTANTIAL QUESTION OF LAW AND HELD AS UNDER:- '(II) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE TRIBUNAL WAS RIGHT IN LAW AND IN OVERLOOKING THE FACT THAT T HE ENTIRE EXERCISE WAS REVENUE NEUTRAL IN NATURE BECAUSE THE COMPANY AS WE LL AS THE DIRECTORS WERE TAXABLE AT THE SAME RATE AND THAT THE DIRECTORS HAD PAID OFF THE TAXES AND TAKING INTO CONSIDERATION IT OUGHT NOT TO HAVE CONF IRMED ANY PART OF THE DISALLOWANCE MADE BY THE AUTHORITIES ?' 6. WE HAVE HEARD LEARNED COUNSEL FOR THE PARTIES. T HE QUESTION OF APPLICABILITY OF SECTION40A(2) OF THE ACT TO THE RESTRICTED DISAL LOWANCE OF RS. 47,90,178/- IS ALREADY CONCLUDED BY THIS COURT BY THE SAID ORDE R DATED 31.3.2015. WE MAY THEREFORE, PROCEED ON THAT BASIS. DESPITE THIS, THE QUESTION THAT STILL SURVIVES IS WHETHER THE REVENUE CAN TAX THE SAME IN COME IN THE HANDS OF THE COMPANY ON WHICH THE DIRECTORS HAD ALREADY PAID THE TAX AT THE SAME RATE AT WHICH THE COMPANY WOULD HAVE BEEN LIABLE TO BE ASSE SSED. IN THIS CONTEXT, WE ITA NOS. 1746, 1747 & 1748 /AHD/2013 MARKET CREATORS LTD VS. ITO AYS : 2007-08, 2009-10 & 2010-11 5 MAY RECALL THAT CONSISTENTLY BEFORE ASSESSING OFFIC ER, CIT(APPEALS) AND TRIBUNAL, THE ASSESSEE HAD CANVASSED THAT ALL THE F OUR DIRECTORS WHO HAD RECEIVED SUCH REMUNERATION, WERE TAXED IN THE HIGHE ST BRACKET OF 30%; AT THE SAME RATE AT WHICH THE ASSESSEE COMPANY AT THE RELE VANT TIME WAS ASSESSED. IN FACT, THE ASSESSEE HAD DEMONSTRATED BEFORE CIT(A PPEALS) THAT THE TAX LIABILITY OF THE COMPANY ON SUCH DISPUTED REMUNERAT ION AMOUNT WAS EXACTLY THE SAME AS THE TAX THE FOUR DIRECTORS HAD PAID TO THE REVENUE. TO THESE FACTUAL ASPECTS, EVEN THE REVENUE HAS, AT NO STAGE RAISED ANY DISPUTE. WE MAY THEREFORE, PROCEED ON THE BASIS THAT THE ELEMEN T OF EXCESSIVE REMUNERATION REPRESENTS THAT INCOME OF THE COMPANY WHICH WAS EVENTUALLY TAXED IN THE HANDS OF THE DIRECTORS AT THE SAME RAT E AT WHICH; HAD IT NOT BEEN SO DISTRIBUTED; WOULD HAVE BEEN TAXED IN THE HANDS OF THE COMPANY. IN THAT VIEW OF THE MATTER, THE QUESTION OF REVENUE NEUTRAL ITY WOULD IMMEDIATELY ARISE. A CERTAIN INCOME HAS ALREADY BEEN TAXED IN T HE HANDS OF THE DIRECTORS. PERMITTING THE REVENUE TO TAX THE SAME INCOME AGAIN AT THE SAME RATE IN THE HANDS OF THE PRINCIPAL PAYER WOULD AMOUNT TO DOUBLE TAXATION. ONLY ON THIS COUNT, WE ANSWER QUESTION IN FAVOUR OF THE APPELLAN T-ASSESSEE AND AGAINST REVENUE, ALLOW THE APPEAL AND SET ASIDE THE ORDER O F THE TRIBUNAL. THE TAX APPEAL IS DISPOSED OF ACCORDINGLY. 3.6 RESPECTFULLY FOLLOWING THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT (SUPRA), WE SET ASIDE THE FINDINGS OF THE CIT (A) AND DIRECT THE AO TO DELETE THE ADDITION OF RS.18,59,963/-. GROUND NO.2 IS ACCORDINGLY ALLOWED. 4. GROUND NO.3 RELATES TO LEVY OF INTEREST U/S 234A , 234B AND 234C OF THE ACT. THE LEVY OF INTEREST IS MANDATORY THOUGH CONSEQUENTIAL. WE, THEREFORE, DIRECT THE AO TO LEVY THE INTEREST AS PE R THE PROVISIONS OF THE LAW. 5. GROUND NO.4 RELATES TO THE INITIATION OF PENALTY U/S 271(1)(C) OF THE ACT. THIS GROUND IS PREMATURE AND ACCORDINGLY DISM ISSED. 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ITA NO.1747/AHD/2013 : AY 2009-10 7. THE FIRST GROUND RELATES TO THE DISALLOWANCE OF TURNOVER CHARGES (TRANSACTION CHARGES) OF RS.38,56,887/- PAID TO THE STOCK EXCHANGE BY INVOKING PROVISIONS OF SECTION 40(A)(IA) OF THE ACT . ITA NOS. 1746, 1747 & 1748 /AHD/2013 MARKET CREATORS LTD VS. ITO AYS : 2007-08, 2009-10 & 2010-11 6 7.1 WHILE SCRUTINIZING THE RETURN OF INCOME, THE AO NOTICED THAT THE ASSESSEE HAS PAID TRANSACTIONS CHARGES OF RS.38,56, 887/- TO THE BOMBAY STOCK EXCHANGE/NATIONAL STOCK EXCHANGE ON WHICH NO TAX HAS BEEN DEDUCTED AT SOURCE. DRAWING SUPPORT FROM THE DECISI ON OF THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF CIT VS. KOTAK SECURI TIES LIMITED, [2012] 340 ITR 333 (BOM), THE AO MADE THE DISALLOWANCE. 7.2 THE ASSESSEE CARRIED THE MATTER BEFORE THE CIT( A) BUT WITHOUT ANY SUCCESS. 7.3 AGGRIEVED BY THIS, THE ASSESSEE IS BEFORE US. 7.4 WE FIND THAT THE AFORESAID DECISION OF THE HON BLE BOMBAY HIGH COURT HAS BEEN REVERSED BY THE HONBLE SUPREME COUR T VIDE ORDER DATED 29.03.2016 IN CIVIL APPEAL NO.3143 OF 2016 AND 3146 OF 2016. THE RELEVANT FINDINGS OF THE HONBLE SUPREME COURT READ AS UNDER :- 9. THERE IS YET ANOTHER ASPECT OF THE MATTER WHICH , IN OUR CONSIDERED VIEW, WOULD REQUIRE A SPECIFIC NOTICE. THE SERVICE MADE A VAILABLE BY THE BOMBAY STOCK EXCHANGE [BSE ONLINE TRADING (BOLT) SYSTEM] F OR WHICH THE CHARGES IN QUESTION HAD BEEN PAID BY THE APPELLANT ASSESSEE ARE COMMON SERVICES THAT EVERY MEMBER OF THE STOCK EXCHANGE IS NECESSARILY REQUIRED TO AVAIL OF TO CARRY OUT TRADING IN SECURITIES IN THE STOCK EXCHANGE. THE VIEW TAKEN BY THE HIGH COURT THAT A MEMBER OF THE STOCK EXCHANGE HAS AN OPTION OF TRADING THROUGH AN ALTERNATIVE MODE IS NOT CORRE CT. A MEMBER WHO WANTS TO CONDUCT HIS DAILY BUSINESS IN THE STOCK EXCHANGE HAS NO OPTION BUT TO AVAIL OF SUCH SERVICES. EACH AND EVERY TRANSACTION BY A MEMBER INVOLVES THE USE OF THE SERVICES PROVIDED BY THE STOCK EXCHANGE FOR WHICH A MEMBER IS COMPULSORILY REQUIRED TO PAY AN ADDITIONAL CHARGE ( BASED ON THE TRANSACTION VALUE) OVER AND ABOVE THE CHARGES FOR THE MEMBERSHI P IN THE STOCK EXCHANGE. THE ABOVE FEATURES OF THE SERVICES PROVIDED BY THE STOCK EXCHANGE WOULD MAKE THE SAME A KIND OF A FACILITY PROVIDED BY THE STOCK EXCHANGE FOR TRANSACTING BUSINESS RATHER THAN A TECHNICAL SERVIC E PROVIDED TO ONE OR A SECTION OF THE MEMBERS OF THE STOCK EXCHANGE TO DEA L WITH SPECIAL SITUATIONS ITA NOS. 1746, 1747 & 1748 /AHD/2013 MARKET CREATORS LTD VS. ITO AYS : 2007-08, 2009-10 & 2010-11 7 FACED BY SUCH A MEMBER(S) OR THE SPECIAL NEEDS OF S UCH MEMBER(S) IN THE CONDUCT OF BUSINESS IN THE STOCK EXCHANGE. IN OTHER WORDS, THERE IS NO EXCLUSIVITY TO THE SERVICES RENDERED BY THE STOCK E XCHANGE AND EACH AND EVERY MEMBER HAS TO NECESSARILY AVAIL OF SUCH SERVI CES IN THE NORMAL COURSE OF TRADING IN SECURITIES IN THE STOCK EXCHANGE. SUCH S ERVICES, THEREFORE, WOULD UNDOUBTEDLY BE APPROPRIATE TO BE TERMED AS FACILITI ES PROVIDED BY THE STOCK EXCHANGE ON PAYMENT AND DOES NOT AMOUNT TO TECHNIC AL SERVICES PROVIDED BY THE STOCK EXCHANGE, NOT BEING SERVICES SPECIFICA LLY SOUGHT FOR BY THE USER OR THE CONSUMER. IT IS THE AFORESAID LATTER FEATURE OF A SERVICE RENDERED WHICH IS THE ESSENTIAL HALLMARK OF THE EXPRESSION TECHNI CAL SERVICES AS APPEARING IN EXPLANATION 2 TO SECTION 9(1)(VII) OF THE ACT. 10. FOR THE AFORESAID REASONS, WE HOLD THAT THE VIE W TAKEN BY THE BOMBAY HIGH COURT THAT THE TRANSACTION CHARGES PAID TO THE BOMBAY STOCK EXCHANGE BY ITS MEMBERS ARE FOR 'TECHNICAL SERVICES' RENDERE D IS NOT AN APPROPRIATE VIEW. SUCH CHARGES, REALLY, ARE IN THE NATURE OF PA YMENTS MADE FOR FACILITIES PROVIDED BY THE STOCK EXCHANGE. NO TDS ON SUCH PAYM ENTS WOULD, THEREFORE, BE DEDUCTIBLE UNDER SECTION 194J OF THE ACT. 11. IN VIEW OF ABOVE CONCLUSIONS, IT WILL NOT BE NE CESSARY FOR US TO EXAMINE THE CORRECTNESS OF THE VIEW TAKEN BY THE BOMBAY HIG H COURT WITH REGARD TO THE ISSUE OF THE DISALLOWANCE UNDER SECTION 40(A)(I A) OF THE ACT. ALL THE APPEALS, THEREFORE, SHALL STAND DISPOSED IN THE LIG HT OF OUR VIEWS AND OBSERVATIONS AS INDICATED ABOVE. 7.5 SINCE THE DECISION OF HONBLE BOMBAY HIGH COURT RELIED UPON BY THE REVENUE AUTHORITIES HAS BEEN REVERSED BY THE HONBL E SUPREME COURT, WE SET ASIDE THE FINDINGS OF THE CIT(A) AND DIRECT THE AO TO DELETE THE ADDITION OF RS.38,56,887/-. GROUND NO.1 IS ACCORDINGLY ALLO WED. 8. GROUND NO.2 RELATES TO THE AD-HOC DISALLOWANCE @ 50% OF THE FINANCIAL CHARGES OF RS.9,37,500/- BY INVOKING PROV ISIONS OF SECTION 40A(2)(B) OF THE ACT. 8.1 WHILE SCRUTINIZING THE RETURN OF INCOME, THE AO NOTICED THAT THE ASSESSEE HAS PAID FINANCIAL CHARGES TO THE PERSONS SPECIFIED U/S 40A(2)(B) OF THE ACT AS UNDER:- ITA NOS. 1746, 1747 & 1748 /AHD/2013 MARKET CREATORS LTD VS. ITO AYS : 2007-08, 2009-10 & 2010-11 8 SR. NO. NAME OF THE PERSON RELATIONSHIP AMOUNT 1 H.D. SHAH (HUF) HUF IN WHICH DIRECTOR IS INTERESTED RS.5,25,000 2 J.H. SHAH (HUF) HUF IN WHICH DIRECTOR IS INTERESTED RS.7,50,000 3 KALPESH J. SHAH (HUF DIRECTOR RS.6,00,000 4 MILAN H. MERWANA BROTHER OF DIRECTOR, DR. J.H. SHAH RS.1,75,000 5 MINAL H. MERWANA BROTHER OF DIRECTOR, DR. J.H. SHAH RS.1,75,000 6 KALPANA M. MERWANA WIFE OF DIRECTORS BROTHER RS .2,62,500 7 YATISH H. SHAH BROTHER OF DIRECTOR, DR. J.H. SHAH RS.1,75,000 8 YATISH H. SHAH (HUF) BROTHER OF DIRECTOR, DR. J.H . SHAH RS.1,75,000 9 YESHA Y. SHAH WIFE OF DIRECTORS BROTHER RS.2,62 ,500 8.2 THE ASSESSEE WAS ASKED TO JUSTIFY ITS CLAIM OF FINANCIAL CHARGES. THE ASSESSEE FILED A DETAILED REPLY IN JUSTIFICATION OF ITS CLAIM WHICH WAS RUBBISHED BY THE AO. THE AO WAS OF THE FIRM BELIEF THAT 50% OF THE TOTAL PAYMENTS TO THREE PERSONS NAMELY H.D. SHAH (HUF), J .H SHAH (HUF) AND KALPESH J. SHAH (HUF) IS EXCESSIVE AND ACCORDINGLY MADE ADDITION OF RS.9,37,500/-. 8.3 THE ASSESSEE CARRIED THE MATTER BEFORE THE CIT( A) BUT WITHOUT ANY SUCCESS. 8.4 BEFORE US, THE COUNSEL FOR THE ASSESSEE STATED THAT ON IDENTICAL SET OF FACTS THE TRIBUNAL IN ITA NO.2590/AHD/2012 IN ASSES SEES OWN CASE HAS SET ASIDE THE MATTER TO THE FILES OF THE AO WITH SPECIF IC DIRECTION TO VERIFY THE DETAILS AS FURNISHED BEFORE THE TRIBUNAL. THE DR SI MPLY RELIED UPON THE FINDINGS OF THE CIT(A). ITA NOS. 1746, 1747 & 1748 /AHD/2013 MARKET CREATORS LTD VS. ITO AYS : 2007-08, 2009-10 & 2010-11 9 8.5 WE FIND FORCE IN THE CONTENTION OF THE LD. COUN SEL. THE CO-ORDINATE BENCH IN ITA NO.2590/AHD/2012 ON IDENTICAL ISSUE HA S HELD AS UNDER:- WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE M ATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITI ES BELOW. THE UNDISPUTED FACT REMAINS THAT THE PAYMENTS HAVE BEEN MADE TO TH E RELATED PARTIES. IT IS ALSO SETTLED POSITION OF LAW THAT FOR INVOKING THE PROVISIONS OF SECTION 40A(2), THE AO SHOULD FORM AN OPINION THAT THE CHARGES WHIC H HAVE BEEN PAID TO THE RELATED PARTIES ARE UNREASONABLE AND EXCESSIVE. IN THE PRESENT CASE, THE AO HAD DISALLOWED THE CLAIM ON THE BASIS THAT PAYMENTS OF FINANCIAL CHARGES AGGREGATING TO RS.20,70,000/- TO THE PERSONS SPECIF IED UNDER SECTION 40A(2)(B) OF THE ACT IS SOMEWHAT UNREASONABLE HAVIN G REGARD TO THE LEGITIMATE NEEDS OF THE ASSESSEE-COMPANY'S BUSINESS VIS-A-VIS THE BENEFITS DERIVED BY OR ACCRUING TO THE ASSESSEE-COMPANY AS A RESULT OF SUCH PAYMENTS OF FINANCIAL CHARGES BECAUSE THE BASIS OF QUANTIFIC ATION OF SUCH PAYMENTS ARE NOT CLEAR AND INSTANCES OF UTILIZATION OF SUCH SERV ICES DO NOT FULLY JUSTIFY THE PAYMENT THIS FINDING OF THE AO WAS CONFIRMED BY THE ID.CIT(A) ON THE BASIS THAT THE TOTAL BANK GUARANTEE FOR THE PERIOD 1.4.20 07 TO 31.3.2008 WAS RS.56,500,000/- 1% OF SUCH AMOUNT COMES TO RS.5,65, 000/-. THUS, THIS A REASONABLE AMOUNT TO BE PAID AS GUARANTEE COMMISSIO N TO THE RELATED PARTIES, ON THE BASIS OF SUCH PAYMENTS MADE BY THE APPELLANT ITSELF IN THE EARLIER YEAR. BALANCE AMOUNT ALLOWED BY THE A.O. AMOUNTING TO RS. 4,70,000/- CAN BE ATTRIBUTED TO THE AMOUNT PAID BY THE APPELLANT ON A CCOUNT OF INTEREST FREE FUND PROVIDED BY THE RELATED PARTIES FROM TIME TO T IME. IN PAGE-4 OF THE PAPER-BOOK NO.2, THE ASSESSEE HAS GIVEN THE UTILIZA TION OF SOURCES UNDER LLMS GUARANTEED BY THE PARTIES TO WHOM THE FINANCIA L CHARGES PAID. SINCE THIS INFORMATION WAS NOT BEFORE THE AUTHORITIES BEL OW, WE ARE OF THE CONSIDERED VIEW THAT THIS ISSUE IS TO BE RESTORED T O THE FILE OF THE AO TO DECIDE THE SAME AFRESH IN THE LIGHT OF THE INFORMATION FUR NISHED AT PAGE NO.4 OF THE PAPER-BOOK NO.2. THE AO IS DIRECTED TO DECIDE THIS ISSUE AFRESH, AFTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND VERIFYING THE DETAILS SUBMITTED BY THE ASSESSEE. THUS, THIS G ROUND OF ASSESSEE'S APPEAL IS ALLOWED FOR STATISTICAL PURPOSES ONLY. 8.6 RESPECTFULLY FOLLOWING THE FINDINGS OF THE CO-O RDINATE BENCH, WE RESTORE THIS ISSUE TO THE FILES OF THE AO WITH THE SAME DIRECTION FOR VERIFICATION SIMILAR IN LINES OF AY 2008-09. GROUND NO.2 IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ITA NOS. 1746, 1747 & 1748 /AHD/2013 MARKET CREATORS LTD VS. ITO AYS : 2007-08, 2009-10 & 2010-11 10 8.7. GROUND NO.3 RELATES THE DISALLOWANCE OF INTERE ST INVOKING PROVISIONS OF SECTION 40A(2)(B) OF THE ACT. AN IDENTICAL ISSU E HAS BEEN DECIDED BY US IN ITA NO.1746/AHD/2013 QUA GROUND NO.2 OF THAT APPEAL . FOR OUR DETAILED DISCUSSION THEREIN, WE DIRECT THE AO TO DELETE THE ADDITION OF RS.2,67,833/-. GROUND NO.3 IS ACCORDINGLY ALLOWED. 9. GROUND NO.4 RELATES TO THE DISALLOWANCE OF DEPRE CIATION ON ELECTRICAL FITTINGS AT RS.90,992/-. 9.1 ON VERIFICATION OF DEPRECIATION CHART, THE AO N OTICED THAT THE ASSESSEE HAS CLAIMED DEPRECIATION @ 15% ON ELECTRICAL INSTAL LATION. THE AO WAS OF THE OPINION THAT ON ELECTRICAL INSTALLATION DEPRECI ATION @ 10% IS ALLOWABLE AND ACCORDINGLY DISALLOWED DEPRECIATION OF RS.90,99 2/-. 9.2 THE ASSESSEE CARRIED THE MATTER BEFORE THE CIT( A) AND STRONGLY CONTENDED THAT DEPRECATION @ 15% HAS BEEN CLAIMED N OT ON ELECTRICAL FITTINGS BUT ON ELECTRICAL INSTALLATION WHICH IS PART OF PLA NT AND MACHINERY. THIS CONTENTION OF THE ASSESSEE DID NOT FIND ANY FAVOUR WITH THE CIT(A) WHO WAS OF THE FIRM BELIEF THAT SINCE THE ASSESSEE IS NOT A MANUFACTURING CONCERN BUT ONLY ENGAGED IN THE BUSINESS OF TRADING IN SHARES A ND SECURITIES; THEREFORE, THE ACTION OF THE AO IS JUSTIFIABLE AND ACCORDINGLY CONFIRMED THE DISALLOWANCE. 9.3 AGGRIEVED BY THIS, THE ASSESSEE IS BEFORE US. 9.4 THE COUNSEL FOR THE ASSESSEE REITERATED THE CLA IM OF DEPRECATION UNDER THE BLOCK PLANT AND MACHINERY. PER CONTRA, THE D R STRONGLY SUPPORTED THE FINDINGS OF THE REVENUE AUTHORITIES. ITA NOS. 1746, 1747 & 1748 /AHD/2013 MARKET CREATORS LTD VS. ITO AYS : 2007-08, 2009-10 & 2010-11 11 9.5 AFTER GIVING A THOUGHTFUL CONSIDERATION TO THE ORDERS OF THE AUTHORITIES BELOW VIS--VIS THE RIVAL CONTENTION, W E FIND THAT UNDER RULE 5 OF THE INCOME-TAX RULES, WHICH CONTAINS THE DEPRECIATI ON TABLE FOR VARIOUS BLOCK OF ASSETS AND UNDER PART A(II) DEPRECIATION O N FURNITURE AND FITTINGS IS @ 10%. IT HAS BEEN FURTHER EXPLAINED THAT 'ELECTRI CAL FITTINGS' INCLUDE ELECTRICAL WIRING, SWITCHES, SOCKETS, OTHER FITTING S AND FANS, ETC. IN THE LIGHT OF THE DEPRECIATION TABLE PROVIDED UNDER THE INCOME -TAX RULES, WE DO NOT FIND ANY ERROR OR INFIRMITY IN THE FINDINGS OF THE CIT(A). GROUND NO.4 IS ACCORDINGLY DISMISSED. 10. GROUND NO.5 RELATES THE LEVY OF INTEREST. LEVY OF INTEREST IS MANDATORY THOUGH CONSEQUENTIAL. THE AO IS DIRECTED TO CHARGE AS PER THE PROVISIONS OF THE LAW. 11. GROUND NO.6 RELATES TO THE INITIATION OF PENALT Y U/S 271(1)(C) OF THE ACT. THIS GROUND IS PREMATURE AND ACCORDINGLY DISM ISSED. 12 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ITA NO.1748/AHD/2013 : AY 2010-11 13. FIRST GROUND RELATES TO THE DISALLOWANCE OF RS. 19,83,919/- BEING TURNOVER CHARGES (TRANSACTION CHARGES) PAID TO THE STOCK EXCHANGES U/S 40(A)(IA) OF THE ACT. AN IDENTICAL ISSUE HAS BEEN DECIDED BY US IN ITA NO.1747/AHD/2013 QUA GROUND NO.1 OF THAT APPEAL. F OR OUR DETAILED DISCUSSION THEREIN, WE DIRECT THE AO TO DELETE THE ADDITION OF RS. 19,83,919 /- . GROUND NO.1 IS ACCORDINGLY ALLOWED. 14. GROUND NO.2 RELATES TO THE AD-HOC DISALLOWANCE @ 50% OF FINANCIAL CHARGES OF RS.3,15,000/-, INVOKING PROVISIONS OF SE CTION 40A(2)(B) OF THE ACT. AN IDENTICAL ISSUE HAS BEEN DECIDED BY US IN ITA NO .1747/AHD/2013 QUA ITA NOS. 1746, 1747 & 1748 /AHD/2013 MARKET CREATORS LTD VS. ITO AYS : 2007-08, 2009-10 & 2010-11 12 GROUND NO.2 OF THAT APPEAL. FOR OUR DETAILED DISCU SSION THEREIN, WE SET ASIDE THIS ISSUE TO THE FILES OF THE AO WITH SIMILA R DIRECTIONS. GROUND NO.2 IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 15. GROUND NO.3 RELATES TO THE DISALLOWANCE OF INTE REST EXPENSES OF RS.1,65,365/- BY INVOKING PROVISIONS OF SECTION 40A (2)(B) OF THE ACT. AN IDENTICAL ISSUE HAS BEEN DECIDED BY US IN ITA NO.17 46/AHD/2013 QUA GROUND NO.2 OF THAT APPEAL. FOR OUR DETAILED DISCU SSION THEREIN, WE DIRECT THE AO TO DELETE THE ADDITION OF RS.1,65,365/-. GR OUND NO.3 IS ALLOWED. 16. GROUND NO.4 RELATES TO THE DISALLOWANCE OF RS.9 0,163/- BEING DEPRECIATION CLAIMED ON ELECTRICAL FITTINGS. A SIM ILAR ISSUE HAS BEEN CONSIDERED AND DECIDED BY US IN ITA NO.1747/AHD/201 3 QUA GROUND NO.4 OF THAT APPEAL. FOR OUR DETAILED DISCUSSION THEREI N, WE DECLINE TO INTERFERE WITH THE FINDINGS OF THE CIT(A). GROUND NO.4 IS AC CORDINGLY DISMISSED. 17. GROUND NO.5 RELATES TO THE UPHOLDING OF THE DIS ALLOWANCE OF EXEMPTION CLAIMED ON DIVIDEND INCOME OF RS.33,739/- . A SIMILAR ISSUE HAS BEEN CONSIDERED AND DECIDED BY US IN ITA NO.1746/AH D/2013 QUA GROUND NO.1 OF THAT APPEAL. FOR OUR DETAILED DISCUSSION T HEREIN, WE DECLINE TO INTERFERE WITH THE FINDINGS OF THE CIT(A). GROUND NO.5 IS ACCORDINGLY DISMISSED. 18. GROUND NO.6 RELATES TO THE LEVY OF INTEREST WHI CH IS MANDATORY THOUGH CONSEQUENTIAL. THE AO IS DIRECTED TO LEVY I NTEREST AS PER THE PROVISION OF THE LAW. 19. GROUND NO.7 RELATES TO THE INITIATION OF PENALT Y PROCEEDINGS U/S 271(1)(C) OF THE ACT. THIS GROUND IS PREMATURE AND ACCORDINGLY DISMISSED. ITA NOS. 1746, 1747 & 1748 /AHD/2013 MARKET CREATORS LTD VS. ITO AYS : 2007-08, 2009-10 & 2010-11 13 20. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. 21. IN THE COMBINED RESULT, ALL THE APPEALS FILED B Y THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 16 TH NOVEMBER, 2016 AT AHMEDABAD. SD/- SD/- (S.S. GODARA) JUDICIAL MEMBER (N.K. BILLAIYA) ACCOUNTANT MEMBER AHMEDABAD; DATED 16/11/2016 BIJU T., PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ! # / CONCERNED CIT 4. # ( ) / THE CIT(A ) 5. & ! , ! , / D R, ITAT, AHMEDABAD 6. / GUARD FILE . / BY ORDER, TRUE COPY / ( DY./ASSTT.REGISTRAR) # $, / ITAT, AHMEDABAD