M/s. KNP SECURITIES P. LTD., MUMBAI V. ACIT - 4(3), MUMBAI

ITA 1865/MUM/2007

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8978 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 6 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-09-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 22-08-2012
• Assessment Year: 2002-2003
• Appeal Filed On: 02-03-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation
• Section: 2(14); 234B; 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI H BENCH MUMBAI BENCHES, MUMBAI BEFORE SHRI VIJAY PAL RAO, JM & SHRI RAJENDRA, AM ITA NO. 1865/MUM/2007 (ASST YEAR 2002-03 ) KNP SECURITIES PVT LTD BHUPEN CHAMBERS GROUNDE FLOOR 9 DALAL STREET FORT, MUMBAI 23 VS THE ASST COMMR OF INCOME TAX 4(3), MUMBAI (APPELLANT) (RESPONDENT) PAN NO. AAACK4712C ASSESSEE BY SHRI RAJIV KHANDELWAL REVENUE BY DR P DANIEL, SPL.COUNSEL DT.OF HEARING 22 ND AUG 2012 DT OF PRONOUNCEMENT 21 ST SEPT 2012 PER VIJAY PAL RAO, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 16.1.2007 OF THE COMMISSIONER OF INCOME TAX(APPEALS) FOR THE ASS ESSMENT YEAR 2002-03. 2 THE ASSESSEE HAS RAISED THE FOLLOWING EFFECTIVE G ROUNDS IN THIS APPEAL: 1. THE COMMISSIONER OF INCOME-TAX (APPEALS) XIV, M UMBAI (HEREINAFTER REFERRED TO AS THE CIT(A)) ERRED IN CONFIRMING THE AC TION OF THE ASSESSING OFFICER IN DISALLOWING DEPRECIATION OF RS 13,71,094 O N MEMBERSHIP RIGHTS OF THE STOCK EXCHANGE, MUMBAI (BSE). 2. THE CIT(A) ERRED IN UPHOLDING THE ACTION OF THE A SSESSING OFFICER IN MAKING AN ADDITION OF A SUM OF RS 7,26,67,345, BEING INTERE ST EXPENSE ON THE GROUND THAT BORROWINGS MADE BY THE APPELLANTS STOOD TOTALL Y UTILISED FOR NON-BUSINESS PURPOSES BY WAY OF ADVANCES TO SISTER CONCERNS. 3. THE CIT(A) ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN NOT ALLOWING A SUM OF RS 7,35,65,705 BEING INTEREST ON S ECURED LOAN FROM THE BANK FOR THE PERIOD AFTER 30TH SEPTEMBER, 2001 AS THE SAME IS NOT DEBITED BY THE BANK AND IN ANY CASE THE BORROWING IS NOT MADE FOR BU SINESS PURPOSES. ITA NO.1865/MUM/2007 KNP SECURITIES PVT LTD 2 4. THE CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE OF A SUM OF RS 1,03,578 BEING BUSINESS PROMOTION EXPENSES ON THE GROUND THAT THE APPELLANTS HAVE NOT PROVED THAT BUSINESS PROMOTION EXPENSES WERE NEED ED AND INCURRED FOR THE PURPOSE OF BUSINESS. 5. THE CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE OF A SUM OF RS 5,31,846 BEING TRAVELLING AND CONVEYANCE EXPENSES ON THE GRO UND THAT THE APPELLANTS HAVE NOT PROVED THAT THESE EXPENSES WERE NEEDED AND INCURRED EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. 6. THE CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE O F A SUM AGGREGATING RS 1,73,603, BEING 50% OF COMMUNICATION EXPENSES RS 2, 26,19 1 AND 50% OF MISCELLANEOUS EXPENSES RS 1,21,016 ON THE GROUND TH AT THE APPELLANTS HAVE NOT PROVED THAT THESE EXPENSES WERE NEEDED AND INCURR ED EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. 7. THE CIT(A) ERRED IN UPHOLDING THE ACTION OF THE A SSESSING OFFICER IN CHARGING INTEREST RS 7,40,2 10 UNDER SECTION 234B OF THE ACT. 3 GROUND NO.1 IS REGARDING DEPRECIATION ON BSE MEMB ERSHIP CARD. 3.1 DURING THE YEAR UNDER CONSIDERATION, THE ASSESS EE HAS CLAIMED DEPRECIATION OF `` 13,71,094/- ON BSE MEMBERSHIP CARD. THE ASSE SSING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE. 3.2 ON APPEAL, THE COMMISSIONER OF INCOME TAX(APPEA LS) HAS CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON THE G ROUND THAT THE ASSESSEE HAS ACQUIRED THE MEMBERSHIP ON 20.12.1997, WHICH IS PR IOR TO 1.4.1998 AND THEREFORE, THE AMENDED PROVISIONS OF SECTION 32 (1)(II) ARE NO T APPLICABLE IN THE CASE OF THE ASSESSEE. 4 WE HAVE HEARD THE LD AR OF THE ASSESSEE AS WELL A S THE LD DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE LD AR HAS SUB MITTED THAT THIS ISSUE IS COVERED BY THE EARLIER ORDER OF THIS TRIBUNAL IN ASSESSEES OW N CASE FOR THE ASSESSMENT YEAR 2000- 01. 4.1 ON THE OTHER HAND, THE LD DR HAS SUBMITTED THA T IN THE EARLIER YEAR, THE TRIBUNAL HAS NOT CONSIDERED THE FACT THAT THE ASSES SEE HAD ACQUIRED THE MEMBERSHIP PRIOR TO 1.4.1989; THEREFORE, THE AMEND ED PROVISIONS OF SEC. 32(1)(II) ARE ITA NO.1865/MUM/2007 KNP SECURITIES PVT LTD 3 NOT APPLICABLE. THE LD DR HAS SUBMITTED THAT IN T HE SUBSEQUENT DECISION IN THE CASE OF M/S TRIUMPH SECURITIES LTD, A GROUP CONCERN OF THE ASSESSEE IN ITA NO.2614/MUM/2004, THE TRIBUNAL, AFTER CONSIDERING T HE DECISION IN THE CASE OF THE ASSESSEE, HAS DECIDED THE ISSUE AGAINST THE ASSESSE E VIDE ORDER DATED 2.4.2009. HE HAS RELIED UPON THE ORDER OF THE COORDINATE BENCH O F THIS TRIBUNAL IN THE CASE OF M/S TRIUMPH SECURITIES LTD (SUPRA) AS WELL AS THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS). 5 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND CARE FULLY PERUSED THE ORDERS RELIED UPON BY THE PARTIES. THERE IS NO DISPUTE O N THE POINT THAT THE MEMBERSHIP WAS ACQUIRED BY THE ASSESSEE PRIOR TO 1.4.1998 AND THEREFORE, THE AMENDED PROVISIONS OF SEC. 32(1)(II) WOULD NOT APPLY IN THE CASE OF THE ASSESSEE. 5.1 FOR THE SAKE OF READY REFERENCE, WE QUOTE THE P ROVISIONS OF SEC. 32(1)(II) AS UNDER: 32. (1) [IN RESPECT OF DEPRECIATION OF (I)..; (II) KNOW-HOW, PATENTS, COPYRIGHTS, TRADE MARKS, LICEN CES, FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE, BEING INTANGIBLE ASSETS ACQUIRED ON OR AFTER THE 1ST DAY OF APRIL, 1998, OW NED, WHOLLY OR PARTLY, BY THE ASSESSEE AND USED FOR THE PURPOSES OF THE BUSINESS O R PROFESSION, THE FOLLOWING DEDUCTIONS SHALL BE ALLOWED] 5.2 THE CLAUSE (II) OF SUB. SEC.(1) OF SEC. 32 STIP ULATES THE CONDITIONS FOR ALLOWABILITY OF DEPRECIATION ON INTANGIBLE ASSETS, WHICH ARE AC QUIRED ON OR AFTER THE 1 ST DAY OF APRIL 1998. THUS, THERE IS EXCLUSION OF THE INTAN GIBLE ASSETS FROM THE AMBIT OF CLAUSE (II) OF SUB. SEC. (1) OF SEC.32, WHICH HAVE BEEN AC QUIRED PRIOR TO 1.4.1998. ITA NO.1865/MUM/2007 KNP SECURITIES PVT LTD 4 5.3 THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2000 -01 HAS CONSIDERED AND DECIDED THE ISSUE IN PARA 5 AS UNDER: 5 AFTER CONSIDERING THE SUBMISSIONS OF BOTH SIDES AND THE RELEVANT MATERIAL ON RECORD WE FIND THA1 THERE IS NO INFIRMITY IN THE FINDINGS OF THE ID C1T(A). FIRSTLY THE ID CIT(A) FOLLOWED THE EARLIER O RDER OF HIS PREDECESSOR AND THEN ALLOWED THE CLAIM OF THE ASSESSEE. NOTHING HAS BEEN BROUGHT ON RECORD AS TO WHAT HAPPENED IN RESPECT TO THE ORDER OF THE CIT (A) FOR EARLIER YEAR. SECONDLY, IT IS NOTICED THAT ON SIMILAR FACTS FOR AY 1999-00, THE MATTER WAS SENT TO THE FILE OF THE AO TO DECIDE THE SAME IN LIGHT O F THE DECISION OF THE SPECIAL BENCH IN THE CASE OF R M VALLIAPPAN VS ACIT IN 103 ITD 63 (CHENNAI) AND THE SPECIAL BENCH OF THE TRIBUNAL HAS ALLOWED THE CLAIM OF THE ASSESSEE. THE SPECIAL BENCH HAS HELD THAT MEMBERSHIP CARD OF STOC K EXCHANGE CAN BE SAID TO BE A CAPITAL ASSET WITHIN THE MEANING OF SE C. 2(14) OF THE ACT. THEREFORE, IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANC ES, WE SEC NO INFIRMITY IN THE FINDINGS OF THE ID CIT(A) IN THIS REGARD. ACCO RDINGLY, WE CONFIRM THE ORDER OF THE LD CIT(A). 5.4 IT IS CLEAR THAT IN THE EARLIER YEAR, THE TRIBU NAL HAS NOT CONSIDERED THIS ASPECT OF ALLOWABILITY OF DEPRECIATION ON INTANGIBLE ASSETS W HICH ARE ACQUIRED PRIOR TO 1.4.1998; BUT SIMPLY FOLLOWED THE EARLIER ORDER ON THE POINT THAT THE MEMBERSHIP CARD OF THE STOCK EXCHANGE CAN BE SAID TO BE A CAPI TAL ASSET WITHIN THE MEANING OF SEC. 2(14) OF THE I T ACT. 5.5 THERE IS NO DISPUTE ON THIS ASPECT THAT AFTER T HE AMENDMENT IN THE PROVISIONS OF SEC 32 THE MEMBERSHIP CARD IS A CAPITAL ASSET AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF TECHNO SHARES AND STOCKS LTD. V. COMMISSIONER OF INCOME-TAX REPORTED IN 327 ITR 323. HOWEVER, THE CLAIM OF DEPRECIATION IS ALLOWABLE ONL Y AFTER THE AMENDED OF PROVISIONS U/S 32(1)(II) BEING THE I NTANGIBLE ASSET ACQUIRED ON OR AFTER 1.4.1998. 5.6 IN THE SUBSEQUENT DECISION, THE COORDINATE BEN CH OF THIS TRIBUNAL IN THE CASE OF M/S TRIUMPH SECURITIES LTD, AFTER CONSIDERING THE DECISION OF THE SPECIAL BENC H ITA NO.1865/MUM/2007 KNP SECURITIES PVT LTD 5 OF THIS TRIBUNAL AS WELL AS IN THE CASE OF K N P SE CURITIES PVT LTD (THE ASSESSEE) HAS CONSIDERED AND DECIDED THE ISSUE IN PARA 10 AS UNDE R: 10 WE HAVE CONSIDERED THE SUBMISSIONS MADE BY BOTH PARTIES, MATERIAL ON RECORD AND ORDERS OF AUTHORITIES BELOW. IT IS NOTED T HAT IN THE CASE OF V N PAIEKH SECURITIES P LTD I WHEN THE TRIBUNAL PRONOUNCE D ITS ORDER, THE ORDER OF THE SPECIAL BENCH OF THE TRIBUNAL AND THE QUESTION REFERRED THEREIN WAS NOT ON RECORD AND NEITHER THE FACTUAL MATRIX OF THE EASE N OR PROVISIONS OF LAW WERE CONSIDERED BY THE BENCH IN THAT CASE AND, THEREF ORE, THE DECISION OF THE TRIBUNAL AS WELL AS ACTION OF THE ASSESSING OFFI CER CANNOT BE BINDING. SIMILARLY, IN THE CASE OF K N P SECURITIES PVT. LTD. (SUPRA) , NO SPECIFIC FINDING HAS BEEN GIVEN BY THE TRIBUNAL ON THE ASPECT I.E. WH ETHER ANY ASSET ACQUIRED PRIOR TO 1.4.98 WOULD BE ELIGIBLE FOR DEPRECIATION UND ER THE AMENDED PROVISIONS OF LAW OR NOT. HENCE, IN OUR HUMBLE VIEW THE SAID DECISION CAN ALSO NOT BE A BINDING PRECEDENT. IT IS AN UNDISPUTED FAC T THAT STOCK EXCHANGE CARD, IN THE PRESENT CASE, HAS BEEN ACQUIRED ON 31 DE CEMBER, L997, I.E. PRIOR TO 1.4.98 AND EVEN IN AY 1998-99, THE ASSESSEE HAS NOT CLAIMED ANY DEPRECIATION THEREON AND THIS FACT BY ITSELF SHOWS T HAT MEMBERSHIP CARD THOUGH MAY BE A CAPITAL ASSET BUT THE SAME DOES NOT FALL WITHIN THE AMBIT OF AMENDED PROVISIONS OF SECTION 32(1)(II). ACCORDINGLY , WE HOLD THAT ASSESSEE IS NOT ENTITLED FOR DEPRECIATION ON MEMBERSHIP CARD, HENC E, WE REJECT THIS GROUND OF THE ASSESSEE. 5.7 WHEN THERE ARE DECISIONS TAKING DIFFERENT VIEWS , THEN THE DECISION, WHICH HAS LAID DOWN THE LAW MORE ELABORATELY AND LOGICALLY AS PER THE PROVISIONS OF THE STATUTE HAS TO BE FOLLOWED. THE FULL BENCH OF THE HONBLE ANDHRA PRADESH HIGH COURT IN THE CASE OF USHODAYA VS CST, REPORTED IN 111 STC 8711 H AS OBSERVED THAT ON PRINCIPLE, THE HIGH COURT MUST FOLLOWED THE JUDGMENT WHICH APP EARS TO IT TO LAID DOWN THE LAW MORE ELABORATELY AND ACCURATELY. SINCE THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF M/S TRIUMPH SECURITIES LTD, (SUPRA) HAS BEEN PASSED AFTER CONSIDERING THE RELEVANT PROVISIONS OF STATUTE ON T HE POINT AND THEREFORE, IN OUR VIEW, THE SAME IS PROPER AND CORRECT VIEW ON THE POINT. ACCORDINGLY, WE ARE OF THE CONSIDERED VIEW THAT WHEN THE MEMBERSHIP CARD WAS A CQUIRED PRIOR TO 1.4.1998, THEN THE SAME DOES NOT FALL IN THE CATEGORY OF INTA NGIBLE ASSETS ENTITLE FOR DEPRECIATION AS PER SEC. 32(1)(II) OF THE ACT. ITA NO.1865/MUM/2007 KNP SECURITIES PVT LTD 6 6 GROUND NO.2 & 3 REGARDING ADDITION ON ACCOUNT OF INTEREST EXPENSES. 7 WE HAVE HEARD THE LD AR AS WELL AS THE LD DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, WE NOTE THAT TH IS ISSUE HAS BEEN CONSIDERED AND DECIDED BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE AY 2001-02. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS DEBITED AN AMOU NT OF ` . 7,26,67,345/- AS INTEREST ON LOANS BORROWED FROM MAHADHAVPURA MERCHNTILE COO P BANK LTD FOR A PERIOD OF 6 MONTHS UPTO 30.9.2001. FURTHER, THE ASSESSEE HAS NO T PROVIDED INTEREST FOR THE FURTHER PERIOD OF 6 MONTHS I.E. 1.10.2001 TO 31.3.2002 WHIC H COMES TO ` . 7,26,65,705 ON THE GROUND THAT THE SAME WAS NOT PROVIDED BY THE BANK. THE ASSESSING OFFICER FOUND THAT THE BORROWED FUND WAS NOT UTILISED FOR THE PUR POSE OF BUSINESS; BUT WAS DIVERTED TO GIVE INTEREST FREE LOANS TO THE THREE SISTER CONCERNS OF THE ASSESSEE I.E (I) PANTHER FIN CAP & MANAGEMENT SERVICES LTD; (II) CLASSIC CRE DITS LTD AND (III) N H SECURITIES LTD. THE ASSESSING OFFICER HAS OBSERVED THAT THE T OTAL OUTSTANDING FROM THE SISTER CONCERNS STOOD AT ` . 199.99 CRORES AS THE ASSESSEE HAS DONE AS SPOT TR ANSACTION ON BEHALF OF THE SISTER CONCERNS AND NEITHER BROKERAGE NOR INTEREST ON THE BALANCE DUE FROM THESE PARTIES HAVE BEEN CHARGED AS THE AMOUNT OF OUTSTANDING PENDING FROM SISTER CONCERNS HAS STOOD A FIGURE, WHICH IS HIGHER THAN THE BORROWING TAKEN FROM THE BANK. THE ASSESSING OFFICER DISALLOWED THE ENTIRE INTEREST CLAIMED BY THE ASSESSEE AT ` 7,26,67,345/-. FURTHER, SINCE THE AMOUNT OF ` 7,35,65,305/- WAS NOT PROVIDED AND DEBITED TO THE P&L ACCOUNT, THEREFORE, NO ADDITION WAS MADE ON THIS ACCOUNT BY THE ASSESSING OFFICER . 7.1 ON APPEAL, THE CIT(A) HAS CONFIRMED THE DISALLO WANCE MADE BY THE ASSESSING OFFICER ON THE GROUND THAT THERE IS NO B USINESS OPERATION DUE TO THE ORDER DATED 10.4.2001 BY SEBI, DEBARRING THE ASSESSEE F ROM UNDERTAKING ANY FRESH ITA NO.1865/MUM/2007 KNP SECURITIES PVT LTD 7 BUSINESS AND THEREFORE, UNDISPUTEDLY, THE BORROWED FUNDS HAVE BEEN REMAINED TOTALLY EMPLOYED FOR NON BUSINESS PURPOSES BY WAY OF ADVANCES TO THE SISTER CONCERNS. 7.2 AS REGARDS TO THE CLAIM OF THE ASSESSEE TOWARDS INTEREST EXPENSES FOR THE SUBSEQUENT PERIOD OF 6 MONTHS FROM 1.10.2001 TO 31. 3.2002, THE CIT(A) HAS HELD THAT SUCH CLAIM OF INTEREST EXPENSES IS NOT ALLOWABLE O N TWO GROUNDS; FIRSTLY , THE BANK HAD NOT DEBITED THE LOAN ACCOUNT OF THE ASSESSEE B Y THE AMOUNT OF INTEREST AND SECONDLY, THE BORROWINGS WERE NOT FOR BUSINESS PUR POSES. 8 BEFORE US, THE LD AR OF THE ASSESSEE HAS SUBMITTE D THAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED AND DECIDED BY THIS TRIBUNAL IN ASS ESSEES OWN CASE FOR THE AY 2001-02 WHEREIN THE ISSUE HAS BEEN SET ASIDE TO THE RECORD OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION. THE LD AR HAS FURTHER SUBM ITTED THAT AS REGARDS THE INTEREST, WHICH WAS NOT DEBITED BY THE ASSESSEE TO THE P&L AC COUNT BECAUSE THE BANK TREATED THE LOAN AS NPA AND DID NOT MAKE THE PROVIS ION FOR INTEREST; BUT THE ASSESSEE CLAIMED THE SAME IN THE REVISED COMPUTATION. THE L D AR HAS FURTHER SUBMITTED THAT THIS FACT WAS POINTED OUT BY THE ASSESSEE IN THE NO TES ON ACCOUNT NO. 7 WHEREIN IT HAS BEEN MENTIONED THAT THE ASSESSEE COMPANY HAS N OT PROVIDED THE INTEREST OF ` 7,35,65,705/- ON SECURED LOAN FROM A BANK FOR THE P ERIOD AFTER 30,9.2001. THE BANK HAS ALSO NOT PROVIDED FOR THE INTEREST AFTER THE SA ID DATE. THE LD AR HAS ALSO REFERRED THE BANK STATEMENT IN THIS RESPECT. THUS, THE LD AR HAS SUBMITTED THAT THE CLAIM OF INTEREST EXPENDITURE WOULD NOT DEPEND ON THE BOOK ENTRIES WHEN THE SAME IS OTHERWISE ALLOWABLE UNDER THE PROVISIONS OF STATUTE . HE HAS RELIED UPON THE ORDER OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF M/S CHAT COMPUTER PVT LTD , GROUP CONCERN OF THE ASSESSEE FOR THE AY 2002-03 AN D SUBMITTED THAT AN IDENTICAL ITA NO.1865/MUM/2007 KNP SECURITIES PVT LTD 8 ISSUE HAS BEEN CONSIDERED AND DECIDED BY THIS TRIB UNAL IN FAVOUR OF THE ASSESSEE VIDE ORDER DATED 30 TH DEC 2010 IN ITA NO. 4818/MUM/2007. 8.1 THE LD DR ON THE OTHER HAND HAS SUBMITTED THAT WHEN THE ASSESSING OFFICER HAS MADE OUT A CLEAR CASE THAT THE FUNDS BORROWED B Y THE ASSESSEE ARE NOT UTILISED BY THE ASSESSEE FOR THE PURPOSE OF BUSINESS BUT WAS UTILISED FOR GIVING ADVANCES TO THE SISTER CONCERNS AGAINST WHICH NO INTEREST WAS C HARGED OR EVEN NO BROKERAGE WAS CHARGED. THEREFORE, THE AUTHORITIES BELOW HAVE RIGH TLY DISALLOWED THE CLAIM OF THE ASSESSEE ON THE POINT THAT THE ASSESSEE HAS NOT UTI LIZED THE BORROWED FUNDS FOR THE PURPOSE OF ITS BUSINESS. HE HAS RELIED UPON THE ORD ERS OF THE AUTHORITIES BELOW. 9 WE HAVE CONSIDERED THE RIVAL CONTENTION S WELL AS THE RELEVANT MATERIAL ON RECORD. THE GROUND NOS 2 & 3 ARE INTER-LINKED AND THE GROUND NO.2 CANNOT BE ALLOWED, IF THE GROUND NO.1 IS DISALLOWED. THE INTE REST UPTO 30.9.2001 WAS DEBITED BY THE ASSESSEE IN THE BOOKS OF ACCOUNT AND AFTER 30.9 .2001, THE ASSESSEE DECIDED NOT TO DEBIT IN THE BOOKS OF ACCOUNT BECAUSE LOAN ITSEL F WAS CONSIDERED BY THE BANK AS NPA DUE TO DEFAULT ON THE PART OF THE ASSESSEE. BO TH THE CLAIMS ARE ON THE SAME LOAN AMOUNT FROM THE BANK AND WERE GIVEN TO THE SIS TER CONCERNS. THEREFORE, IF THE CLAIM OF THE ASSESSEE WITH RESPECT TO INTEREST, WHI CH WAS BOOKED IN THE BOOKS OF ACCOUNT, IS DECIDED TO BE ALLOWED, THEN ONLY THE CL AIM FOR THE INTEREST, WHICH IS NOT DEBITED IN THE BOOKS OF ACCOUNT, CAN BE CONSIDERED. SINCE THE CLAIM FOR THE YEAR 2001-02 ON ACCOUNT OF INTEREST EXPENSES ON THE SAME LOAN AMOUNT HAS BEEN SET ASIDE TO THE RECORD OF THE ASSESSING OFFICER; THERE FORE, TO MAINTAIN THE CONSISTENCY, WE SET ASIDE THE ENTIRE ISSUES TO THE RECORD OF THE ASSESSING OFFICER. ACCORDINGLY, GROUND NO.2 & 3 ARE ACCORDINGLY ALLOWED FOR STATIST ICAL PURPOSE. ITA NO.1865/MUM/2007 KNP SECURITIES PVT LTD 9 10 GROUND NO.4 IS REGARDING BUSINESS PROMOTION EXPE NSES. 10.1 THE ASSESSING OFFICER HAS DISALLOWED A SUM OF ` 1,03,578/- CLAIMED BY THE ASSESSEE AS BUSINESS PROMOTION EXPENSES. THE ASSESS ING OFFICER DISALLOWED THE AFORESAID AMOUNT ON THE GROUND THAT THE ASSESSEE HA S NOT CARRIED OUT ANY BUSINESS DURING THE YEAR. 10.2 ON APPEAL, THE COMMISSIONER OF INCOME TAX(APPE ALS) HAS CONFIRMED THE ACTION OF THE ASSESSING OFFICER ON THE SIMILAR REAS ONING BY NOTING THE FACT THAT THE ASSESSEES BUSINESS STOOD SUSPENDED BY SEBI ORDER DATED 10.4.2001 AND THEREFORE, NO BUSINESS OPERATIONS COULD BE CARRIED OUT BY THE ASSESSEE. 11 BEFORE US, THE LD AR OF THE ASSESSEE HAS SUBMITT ED THAT MOST OF THE EXPENSES ARE THE HOTEL CHARGES FOR THE ROOMS HIRED BY THE AS SESSEE FOR THE PURPOSE OF ITS BUSINESS AND DEFENDING THE CASES OF THE ASSESSEE. T HEREFORE, THOUGH THESE EXPENSES ARE CLAIMED UNDER THE HEAD BUSINESS PROMOTION EXPE NSES, IN FACT THE SAME ARE INCURRED FOR MEETING THE EXPENSES RELATING TO THE ASSESSEES BUSINESS AND OTHER LITIGATION. HE HAS REFERRED THE DETAILS OF THE EXP ENSE AT PAGE 10 OF THE PAPER BOOK. 11.1 ON THE OTHER HAND, THE LD DR HAS SUBMITTED THA T WHEN THE BUSINESS OF THE ASSESSEE WAS PROHIBITED BY SEBI, THEN THE CLAIM OF THE ASSESSEE IS NOT ALLOWABLE. HE HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW . 12 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. FROM THE DETAILS AT PAGE 10 OF THE PAPER BO OK, IT APPEARS THAT MOST OF THE EXPENSES ARE REGARDING HOTEL ROOM CHARGES; BUT THES E DETAILS ARE ONLY FOR FEW DAYS. THE ASSESSEE HAS NOT FURNISHED THE COMPLETE DETAILS OF EXPENSES. ACCORDINGLY, WE ITA NO.1865/MUM/2007 KNP SECURITIES PVT LTD 10 SET ASIDE THE ISSUE TO THE RECORD OF THE ASSESSING OFFICER TO VERIFY THE NATURE OF THE EXPENSES AND IF THE REAL NATURE OF THE EXPENSES IS NOT FOR PROMOTION OF THE BUSINESS; BUT FOR THE PURPOSE OF MEETING HELD IN HOTEL AND OT HER BUSINESS RELATED ACTIVITY OF THE ASSESSEE, THEN THE SAME MAY BE CONSIDERED AND D ECIDE AS PER LAW. 13 GROUND NO. 5 IS REGARDING TRAVELLING AND CONVEYA NCE. 13.1 THE ASSESSING OFFICER DISALLOWED A SUM OF ` 5,31,846/- CLAIMED BY THE ASSESSEE ON ACCOUNT OF TRAVELLING AND CONVEYANCE EX PENSES ON THE GROUND THAT THE ASSESSEE HAS NOT CARRIED ANY BUSINESS DURING THE YE AR. THE COMMISSIONER OF INCOME TAX(APPEALS) HAS CONFIRMED THE DISALLOWANCE ON SIMI LAR REASONING. 13.2 BEFORE US, THE LD AR OF THE ASSESSEE HAS SUBMI TTED THAT FOR THE ASSESSMENT YEARS 2003-04 AND 2004-05, THE TRIBUNAL HAS HELD TH AT THE ASSESSEES BUSINESS IS TO BE TREATED AS CARRIED OUT. HE HAS FURTHER SUBMITTED T HAT THE TRAVELLING AND CONVEYANCE EXPENSES WERE INCURRED BY THE ASSESSEE IN RELATION TO THE BUSINESS AND IN CONNECTION WITH THE LITIGATION; THEREFORE, THE SAME ARE ALLOWA BLE EXPENSES. 13.3 ON THE OTHER HAND, THE LD DR HAS RELIED UPON T HE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT WHEN NO BUSINESS WAS CARRI ED OUT BY THE ASSESSEE DURING THE YEAR, THE CLAIM OF THE ASSESSEE IS NOT ALLOWABL E. 14 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND REL EVANT MATERIAL ON RECORD. THE DETAILS OF THE TRAVELLING AND CONVEYANCE ARE GI VEN AT PAGE 11 OF THE PAPER BOOK. FROM THE DETAILS, IT IS EVIDENT THAT ALL THE VISITS THROUGH AIR ARE UNDERTAKEN BY SHRI PAREKH AND SOME FEW OCCASIONS MRS PAREKH HA D TRAVELLED. IN THE ABSENCE OF ITA NO.1865/MUM/2007 KNP SECURITIES PVT LTD 11 ANY SUPPORTING MATERIAL OR EVIDENCE SHOWING PURPOSE OF THESE VISITS UNDERTAKEN BETWEEN DIFFERENT PLACES OF THE COUNTRY, IT CANNOT BE SAID THAT ALL THESE VISITS ARE FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. THE A SSESSEE HAS NOT FILED ANY DETAILS OR EVIDENCE IN SUPPORT OF THE CLAIM THAT THESE VISITS ARE SOLELY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. 14.1 AS REGARDS THE DECISION FOR THE ASSESSMENT YE AR 2003-04 AND 2004-05, THE OBSERVATIONS OF THE TRIBUNAL WAS IN RESPECT OF THE EXPENDITURE WHICH WAS REQUIRED TO BE INCURRED FOR MAINTAINING THE ESTABLISHMENT OF THE ASSESSEE AND NOT FOR ANY OTHER ACTIVITY. THEREFORE, THE EXPENSES ON TRAVEL LING AND CONVEYANCE CANNOT BE SAID TO BE FOR MAINTAINING THE ESTABLISHMENT OF THE ASSESSEE WHEN NO BUSINESS WAS CARRIED OUT BY THE ASSESSEE AS IT WAS PROHIBITED BY SEBIS ORDER. FURTHER, WHEN THE ASSESSEE HAS NOT BROUGHT OUT ANY MATERIAL OR EVIDE NCE TO SHOW THAT THE VISITS THROUGH AIR ARE UNDERTAKEN FOR BUSINESS PURPOSE OF THE ASSESSEE. ACCORDINGLY, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE AUTHORITIES BELOW. 15 GROUND NO.6 IS REGARDING MISCELLANEOUS AND COMMU NICATION EXPENSES OF ` 2,26,191/- AND ` 1,21,016/- RESPECTIVELY. 15.1 AS REGADS OF MISCELLANEOUS AND COMMUNICATION E XPENSES THE ASSESSING OFFICER DISALLOWED 50% OF THE EXPENSES ON THE GROUN D THAT THE ASSESSEE HAS NOT DONE ANY BUSINESS DURING THE YEAR. 15.2 ON APPEAL, THE COMMISSIONER OF INCOME TAX(APPE ALS) HAS CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON THE G ROUND THAT 50% OF THE ITA NO.1865/MUM/2007 KNP SECURITIES PVT LTD 12 EXPENSES AS ALLOWED BY THE ASSESSING OFFICER MIGHT HAVE BEEN NEEDED UNDER THE HEADS FOR MAINTAINING THE OFFICE. 16 BEFORE US, THE LD AR OF THE ASSESSEE HAS SUBMITT ED THAT WHEN THE PART OF THE EXPENSES ARE ALLOWED BY THE AUTHORITIES BELOW, THEN THERE IS NO JUSTIFICATION IN DISALLOWING THE BALANCE 50% OF THE SAME. HE HAS R ELIED UPON THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE AYS 2003-04 AND 2004-05. 16.1 ON THE OTHER HAND, THE LD DR HAS RELIED UPON T HE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE AUTHORITIES BELOW HAVE ALREADY ALLOWED 50% OF THE EXPENSES AS REQUIRED FOR MAINTAINING THE OFFICE OF THE ASSESSEE. 17 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. THE DETAILS OF THE EXPENSES FILED BY THE A SSESSEE ARE AT PAGE 49 TO 60 OF THE PAPER BOOK. FROM THE DETAILS, IT IS CLEAR THAT THE EXPENSES AS CLAIMED BY THE ASSESSEE ARE REGARDING ADMINISTRATIVE EXPENSES, R ENT RATES AND TAXES, INTEREST PAID, PAPERS AND PERIODICALS, PF ETC., AND SOME OF THE EX PENSES ARE PAID TOWARDS SECURITY ARRANGEMENTS. THUS, IT IS CLEAR FROM THE NATURE OF THE EXPENSES THAT THESE EXPENSES ARE INCURRED BY THE ASSESSEE FOR MAINTAINING THE ES TABLISHMENT AND THEREFORE, WHEN THE DETAILS OF THE EXPENSES ARE GIVEN WITH SUPPORTI NG EVIDENCE THEN NO DISALLOWANCE IS CALLED FOR ON THIS ACCOUNT. ACCORDI NGLY, WE DELETE THE DISALLOWANCE MADE ON ACCOUNT OF MISCELLANEOUS AND COMMUNICATION EXPENSES. 18 GROUND NO.7 IS REGARDING LEVY OF INTEREST U/S 23 4B, WHICH IS CONSEQUENTIAL IN NATURE AND NO SPECIFIC FINDING IS REQUIRED. ITA NO.1865/MUM/2007 KNP SECURITIES PVT LTD 13 19 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 21 ST , DAY OF SEPT 2012. SD/- SD/- ( RAJENDRA ) ACCOUNTANT MEMBER ( VIJAY PAL RAO ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 21 ST , SEPT 2012 RAJ* COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI