Span Caplease Pvt. Ltd., Ahmedabad V. The Jt.CIT, Ahmedabad Range-3, Ahmedabad

ITA 1867/AHD/2015

AI Insights

The case involves Span Caplease Pvt. Ltd., which appealed against the order of the Commissioner of Income Tax (Appeals) - 10, Ahmedabad, concerning various additions and disallowances made by the AO under the Income Tax Act, 1961 for the Assessment Year 2010-11. The primary issues revolved around the correctness of the additions made to the assessee's income, including unaccounted interest income, disallowances under section 14A, and other expenses where TDS was not deducted. The Tribunal examined the submissions, evidence, and relevant legal provisions, leading to a mixed outcome where some additions were upheld while others were deleted or set aside.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 135692 (ITAT-AHMEDABAD)
• Duration Of Justice: 7 year(s) 8 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-02-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: D
• Next Hearing Date: 28-12-2022
• Assessment Year: 2010-2011
• Appeal Filed On: 21-06-2015
• Other Referred Cases: PCIT vs. Nirma Credit & Capital (P.) Ltd., PCIT vs. Sherno Ltd, S.A. Builders Ltd. v. CIT(Appeals), CIT vs. Woodward Governor India (P.) Ltd., Dy. CIT vs. Bank of Bahrain and Kuwait, Techno Shares & Stocks Ltd. v. Commissioner of Income-tax-, CIT vs. GSRTC
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Principle of natural justice; Earning of tax free income; Non-deduction of tax; Speculation loss; Futures and options; TDS; Rule 8D; Set aside; FORM 26AS
• Section: 37; 139; 143(3); 14A; 40(a)(ia); 194C; 48; 194J; 194 I

Judgement Text

आयकरअपी आयकरअपीआयकरअपी आयकरअपीलीयअिधकरण लीयअिधकरणलीयअिधकरण लीयअिधकरण, अहमदाबाद यायपीठ अहमदाबाद यायपीठअहमदाबाद यायपीठ अहमदाबाद यायपीठ IN THE INCOME TAX APPELLATE TRIBUNAL, ‘’ D’’ BENCH, AHMEDABAD BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER And SHRI T. R. SENTHIL KUMAR, JUDICIAL MEMBER आयकरअपीलसं./ITA No.1867/AHD/2015 िनधा रणवष िनधा रणवष िनधा रणवष िनधा रणवष /Asstt. Year: 2010-11 Span Caplease Pvt. Ltd., 301, Sanidhya-A, Opp. Anand Nagar Shopping Centre, Satellite, Ahmedabad-380015 PAN: AADCS0309J Vs. Jt.JCIT, Range-3, Ahmedabad, (Applicant) (Respondent) Assessee by : Shri S.N. Divatia, & Shri Samir Vora, A.Rs Revenue by : Shri Atul Pandey, Sr. D.R सुनवाईक तारीख/Date of Hearing : 29/12/2022 घोषणाक तारीख/Date of Pronouncement: 24/02/2023 आदेश आदेशआदेश आदेश/O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: The captioned appeal has been filed at the instance of the assessee against the order of the Learned Commissioner of Income Tax (Appeals)-10, Ahmedabad, dated 23/03/2015 arising in the matter of assessment order passed under s. 143(3) of the Income Tax Act, 1961 (here-in-after referred to as "the Act") relevant to the Assessment Year 2010-11. 2. The assessee has raised following modified grounds of appeal: 1.1 The order passed u/s.250 on 23-3-2015 for A.Y. 2010-11 by CIT(A)-10 Ahmedabad confirming the additions/disallowance is wholly illegal, unlawful and against the principles of natural justice. ITA No.1867/AHD/2015 A.Y. 2010-11 2 1.2 The Ld.CIT(A) has grievously erred in not considering fully and properly the submission made and evidence produced by the appellant with regard to the impugned addition/disallowances. The observations made and conclusions reached by AO and confirmed by CIT(A) to the extent the same are contrary to the evidence on record are not admitted by the appellant. 2.1 The Ld. CIT(A) has grievously erred in law and or on facts in upholding the following additions /disallowances made by AO. (i) Disallowance of Interest exp. (ii) Disallowance u/s 36(l)(va). (iii) Disallowance u/s 14A (iv) Unrealised loss. (v) Depreciation of SE card (vi) Disallowance u/s 40(a)(ia) (vii) ROC expenses (viij] Long Term capital gain (ix) Set off of speculation loss Rs, 3,77,410 Rs. 20,807 Rs. 2,50,157 Rs. 64,97,480 Rs.6,06,538 Rs. 9,74,839 Rs. 4,000 Rs. 15,429 Rs.l, 37,941 3.2 That in the facts and circumstances of the case as well as in law the Id. CIT(A) ought not to have confirmed the above said addition /disallowances made by AO. It is therefore prayed that the impugned additions/disallowances may please be deleted or reduced 3. The first issue raised by the assessee is that the learned CIT(A) erred in confirming the addition of interest income of Rs. 3,77,410/- on the basis of form 26AS. 4. The facts in brief are that the assessee is a private limited company and engaged in the business of dealing in shares securities, broking and related activities. The AO during the assessment proceedings found that the assessee declared interest income from SBI at Rs. 8,16,007/- against which claimed TDS credit of Rs. 84,050/- whereas as per form 26AS, the SBI shown payment of interest of Rs. 11,93,417/- on which deducted TDS at Rs. 84,050/- only, thus leading to difference of Rs. 3,77,410/- which was not offered to tax. The AO further found that the assessee failed to explain the reason for short accounting of interest income from SBI whereas it has claimed credit of TDS on full amount. Therefore, the AO added such interest income of Rs. 3,77,410/- to the total income of the assessee. ITA No.1867/AHD/2015 A.Y. 2010-11 3 5. The aggrieved assessee preferred an appeal before the learned CIT(A). The assessee before the learned CIT(A) submitted that interest income from SBI was of Rs. 8,16,007/- only which is also supported by the copy of interest account and Form-16 issued by the bank. The amount reflected in Form-26AS at income tax portal is not in the control of assessee as it is generated on the basis of TDS return filed by the bank. The assessee cannot be made liable for any mistake committed in TDS return filed by the party. The assessee also submitted that the bank was required to deduct TDS at the rate of 10% on credit of interest and in its case TDS of Rs. 84,050/- only was deducted which means amount of interest is of Rs. 8,16,007/- only. 6. However the learned CIT(A) confirmed the addition made by the AO by observing as under: The rival submissions have been considered. It is a fact that Form 26AS shows that interest of Rs. 11,93,4171- has been paid to the appellant while as per Form 16A, the interest paid is Rs.8,16,007/-. SBI has not filed a revised IDS return to rectify the above mistake if there was one. Further, the IDS deducted by bank is Rs.84,050/- which is 10% of amount paid. Thus the interest should have been Rs.8,40,500/- which does not tally either with interest mentioned in Form 26AS or in Form No.16A. The certificate dated 4.9.14 from SBI filed by the appellant cannot be entertained since the same was not filed before the AO and the appellant has not filed any application j under Rule 46A of the Income Tax Rules 1962 for admitting additional; evidence. In view of discussion above, I hold that the AO was justified in making! addition of Rs.3,77,410/- on account of interest income received from SBI but| omitted to be included in the total income. Accordingly, addition of Rs.3,77,410/- is upheld and the same is confirmed. 7. Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us. 8. The learned AR before us filed a paper book running from pages 1 to 89 and contended that the actual amount of interest received by the assessee stands at Rs. 8,16,007.00 which can be verified from the bank statement of the assessee. Therefore, there cannot be made any addition to the total income of the assessee based on form 26 AS issued by the Department. ITA No.1867/AHD/2015 A.Y. 2010-11 4 9. On the contrary, the learned DR vehemently supported the order of the authorities below. 10. We have heard the rival contentions of both the parties and perused the materials available on record. The assessee in the present case has shown interest income of Rs. 8,16,007/- from the SBI bank and also claimed the credit of the TDS of Rs. 84,050/- deducted by the bank on such interest income. The assessee in support of such interest income has furnished Form-16A issued by the bank as well as the interest certificate from the bank which are placed on pages 47 & 48 of the paper book. However, the AO found that the interest income reported in Form-26AS was of Rs. 11,93,417/- leading to the under-reporting of interest income of Rs. 3,77,410/- only. Therefore, the AO added the sum of Rs. 3,77,410/- being the difference in the income declared by the assessee viz a viz the income reported in Form-26AS issued by the revenue. The addition made by the AO was also sustained by the learned CIT-A. 10.1 There is no dispute to the fact that the Form -26AS has been generated by the revenue based on the information furnished by the deductor i.e. the SBI bank in the present case in its TDS return. The assessee as such has no role as far as Form-26AS is concern. In the present case, the assessee has duly discharged the onus by submitting the Form-16A and the interest certificate issued by the bank. Now the onus has shifted upon the Revenue to disprove the contention of the assessee based on the documentary evidence. In fact, in our considered view, the income reported in Form- 26AS cannot be treated as the gospel truth that the assessee has earned so much of the income. Admittedly, the income reported in form 26AS can be a reason for suspicion/doubt about the actual income earned by the assessee in the income tax return in the event there is a mismatch. But it cannot be a sacrosanct document to hold the issue against the assessee. As such the revenue, was expected to carry out necessary verification from the bank before reaching to the conclusion that the assessee has suppressed the interest income especially in the given facts and circumstances. It is for the reason that ITA No.1867/AHD/2015 A.Y. 2010-11 5 the assessee in the given case has discharged the onus by furnishing Form-16A and interest certificate issued by the bank. Accordingly, we hold that the assessee cannot be held guilty merely on the basis of 3 rd party information until and unless it is cross verified. In view of the above, we are not inclined to uphold the finding of the authorities below. Accordingly, we set aside the finding of the learned CIT (A) and direct the AO to delete the addition made by him. Hence the ground of appeal of the assesse is hereby allowed. 11. The next issue raised by the assessee is that the learned CIT(A) erred in confirming the disallowances made under section 14A of the Act for Rs. 2,50,157/- only. 12. The AO during the assessment proceedings found that the assessee during the year has earned exempt income but no corresponding expense was disallowed as prescribed under section 14A of the Act. On question by the AO, the assessee submitted that no borrowed fund was utilized for making investments which are yielding exempted income. Therefore, no disallowance of interest expense was required to be made. But the assessee agreed to offer disallowance of Rs. 49,156/- on account of expenses. The AO being dissatisfied with the explanation and working of disallowances furnished by the assessee resorted to the provision of section 14A(2) read with rule 8D of Income Tax Rule and worked out the amount of disallowances at Rs. 2,50,157/- which includes interest expenses of Rs. 1,97,672- and administrative expenses of Rs. 52,485/- only. 13. On appeal by the assessee the learned CIT(A) also confirmed the addition made by the AO by observing as under: The rival submissions have been considered. I am inclined to agree with the AO that disallowance u/s 14A is warranted. The appellant has only given general explanation that it has not incurred any expenses for earning exempt income and that no borrowed funds have been used for making investments on which exempt income has been earned. The appellant has not given any cash-flow statement in support of this contention. In the absence of such cash flow statement, the claim of the appellant remains unsubstantiated. With due regard to ratio of judgments in the case laws relied on by the appellant, the same are not applicable in the present case as the facts are different. ITA No.1867/AHD/2015 A.Y. 2010-11 6 In view of discussion above, I hold that the AO was justified in making addition of Rs.2,50,157/- on account of disallowance u/s 14A of the Act. Accordingly, the addition of Rs.2,50,157/- is upheld and the same is confirmed. This ground of appeal is dismissed. 14. Being aggrieved by the order of the learned CIT(A) the assessee is in appeal before us. 15. The learned AR before us contended that the own fund of the assessee exceeds the amount of investments and therefore there cannot be any disallowance of interest expenses under the provisions of section 14-A read with rule 8D of Income Tax Rule. 16. On the contrary, the learned DR before us vehemently supported the order of the authorities below. 17. We have heard the rival contentions of both the parties and perused the materials available on record. Admittedly, the assessee during the earned exempted income against which the AO made disallowance of Rs. 2,50,157/- by invoking the provisions of section 14A read with rule 8D of Income Tax Rule. The disallowances were made on two folds being interest expenses of Rs. 1,97,672/- and administrative expense of Rs. 52,485/- only. As far as disallowances of administrative expense of Rs. 52,485/- is concerned, we note that the same has not disputed by the ld. AR of the assessee. Therefore, the order of the authorities below to the extent of disallowances of administrative expenses is confirmed. 17.1 Coming to the issue of disallowance of interest expenses of Rs. 1,97,672/-, in this regard we note that the learned AR for the assessee before us contended that during the year the assesse has incurred net interest expenses of Rs. 96,004/- only. In other words, the assessee on one hand incurred interest expenses of Rs. 47,23,474/- but on other hand has also earned interest income of Rs. 46,27,470/- only. Accordingly, it was contended that only net interest cost should be considered for disallowance. We find force in the contention of the ITA No.1867/AHD/2015 A.Y. 2010-11 7 assessee which is covered in its favor by the judgment of Hon’ble jurisdictional High Court in the case of PCIT vs. Nirma Credit & Capital (P.) Ltd. reported in 85 taxmann.com 72. 17.2 We further find that the assessee was having interest free/own fund in the form of capital and reserve at Rs. 11,65,02,192/- against the investment in shares of Rs. 1,06,67,432/- only. Thus, it is transpired that the assessee was having sufficient interest free fund to meet the requirement of investment which yielded exempted income. Therefore, presumption should be drawn that that the interest free/own fund were utilized for making the investment. Accordingly, no interest income is required to be disallowed under the provision of section 14A(2) r.w. rule 8D of the Act. In holding so, we also draw support and guidance from the judgment of Hon’ble Gujarat High court in case of PCIT vs. Sherno Ltd reported in [2019] 102 taxmann.com 129 (Guj.) The exposition of law made by the Supreme Court in case of S.A. Builders Ltd. v. CIT(Appeals) [2007] 158 Taxman 74/288 ITR 1 and observation made therein have been applied by this court on various occasions, particularly in connection with the disallowance to be made under section 14A of the Act. It has been held that if the assessee can demonstrate availability of surplus interest free funds for making investment generating tax free income, disallowance under section 14A of the Act would not be justified. [Para 12] 17.3 In view of the above and after considering facts in totality, we are hereby set aside the finding of the learned CIT(A) to the extent of disallowance of interest expense of Rs. 1,97,672/- and direct the AO to delete the same. Hence the ground of appeal of the assessee is hereby partly allowed. 18. The next issue raised by the assessee is that the learned CIT(A) erred in confirming the addition of Employee contribution of EPF/ESI under section 36(1)(va) of the Act. 19. The AO during the assessment proceedings found that assessee has deposited Employees contribution towards PF/ESI account after the due date prescribed under respective Act. The assessee has also not furnished any ITA No.1867/AHD/2015 A.Y. 2010-11 8 explanation of such late deposit. Therefore, the AO by invoking the provision of section 2(24)(x) r.w.s. 36(1)(va) of the Act made addition of Rs. 20,807/- being the employee’s contribution deposited after due dates. 20. On appeal by the assessee the learned CIT(A) also confirmed the addition made by the AO. 21. Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us. 22. The learned AR before us reiterated the submissions made before the authorities below. 23. On the other hand, the learned DR contended that the issue is covered against the assessee by the order of the Hon’ble Gujarat High Court. The learned DR vehemently supported the order of the authorities below. 24. We have heard the rival contentions of both the parties and perused the materials available on record. At the outset, we note that the issue in hand has been covered against the assessee by the judgment of Hon’ble Jurisdictional High Court in case of CIT vs. GSRTC reported in 366 ITR 170 where it was held as under: Consequently, it is held that the learned tribunal has erred in deleting respective disallowances being employees' contribution to PF Account / ESI Account made by the AO as, as such, such sums were not credited by the respective assessee to the employees' accounts in the relevant fund or funds (in the present case Provident Fund and/or ESI Fund on or before the due date as per the explanation to section 36(1)(va) of the Act i.e. date by which the concerned assessee was required as an employer to credit employees' contribution to the employees' account in the Provident Fund under the Provident Fund Act and/or in the ESI Fund under the ESI Act. 24.1 Respectfully following the finding of Hon’ble Jurisdictional High Court in the case cited above, we don’t find any infirmity in the order of the lower authorities. Hence, the ground of appeal of the assessee is hereby dismissed. ITA No.1867/AHD/2015 A.Y. 2010-11 9 25. The next issue raised by the assessee is that the learned CIT(A) erred in confirming the mark to market loss of Rs. 64,97,480/- only. 26. The assessee in the year under consideration has purchased shares in F & O segment, the settlement date of which was due after 31 March 2010 i.e. in the next financial year. However, the assessee has booked loss of ₹ 64,97,480/- representing mark to market loss with respect to the unsettled transaction in the year under consideration. As per the AO, the loss claimed by the assessee was unrealized loss and contingent/uncertain in nature. As such, the amount of loss claimed by the assessee represents the provision for the contingencies which is not allowable as deduction under the provisions of the Act. Thus, the AO disallowed the loss claimed of ₹ 64,97,480/- and added to the total income of the assessee. 27. Aggrieved assessee preferred an appeal to the learned CIT(A) who also confirmed the order of the AO by observing as under: The rival submissions have been considered. As per appellant's own admission, Rs. 64,97,480/- is a notional loss that it has debited to the P&L A/c. The notional loss has occurred on account of valuing the futures and options on "Marked to Market' basis. This is not allowed under the Income tax Act 1961. The CBDT has clarified the matter vide Instruction No. 3/2010 dated 23.3.10. The relevant portion is reproduced below:- "In cases where no sale or settlement has taken place and the loss on Marked to Market basis has resulted in reduction of book profits, such notional loss would be contingent in nature and cannot be allowed to be set off against taxable income. The same should therefore be added back for the purpose of computing taxable income of the assessee." Thus any provision on account of notional loss due to valuation on 'Marked to Market' basis has to be added back to the income, while computing taxable income. Further, the national loss is only a contingent liability and under the Income Tax Act there is no provision for claiming contingent liability. CBDT vide Instruction No. 17/2008 dated 26.11.08 has clarified as follows: "In a recent review of assessment of Banks carried out by C&AG, it has been observed that while computing the income of banks under the head 'Profit and Gains of Business & Profession', deductions of large amounts under different sections are being allowed by the Assessing Officers without proper verification, leading to substantial loss of revenue. It is, therefore, necessary that assessments in the cases of banks are completed with due care and after proper verification. In ITA No.1867/AHD/2015 A.Y. 2010-11 10 particular, deductions under the provisions referred to below should be allowed only after a thorough examination of the claim on facts and on law as per the provisions of the I.T. Act., 1961. ... {ix} Section 37 of the Act envisages that an amount debited in the P&L account in respect of an accrued or ascertained liability only is an admissible deduction, while any provision in respect of any unascertained liability or a liability which has not accrued, do not qualify for deduction However, it has been found that Banks are claiming provisions on different accounts, probably under the RB! guidelines [e.g. Provision for wage arrears for which negotiations are yet to be finalized, provision for standard asset etc...].A contingent liability cannot constitute deductible expenditure for the purposes of Income Tax Act. Thus, putting aside of money which may become expenditure on the happening of an event would normally not constitute an allowable expenditure under the Income Tax Act. The AOs should verify such claims as to whether these are admissible as per the Income Tax Act". (Emphasis supplied) Thus it is clear that a contingent liability does not constitute a deductible] expenditure and the same is not allowable u/s. 37 of the Act. With due regard ratio of judgment relied on by the appellant, the same is not applicable as the facts are different. In view of discussion above, and relying on CBDT Instruction 17/2008 dated 26.11.08 and CBDT Instruction No. 3/2010 dated 23.3.10, I hold that the AO was justified in disallowing Rs. 64,97,480/- claimed on account of notional loss on futures and options. Accordingly, addition of Rs. 64,97,480/-is upheld and the same is confirmed. This ground of appeal is dismissed. 28. Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us. 29. The learned AR before us submitted that the losses with respect to the unexpired future contracts are business losses and therefore the same are eligible for deduction. 30. On the other hand, the learned DR before us vehemently supported the order of the authorities below. 31. We have heard rival contention of both the parties and perused the materials available on record. In the present case, the assessee has recorded securities being future and option transactions at their market price on the date of the balance sheet. This is done to provide a realistic picture of the company's financial status on the basis of accounting principle of 'prudence'. When compared ITA No.1867/AHD/2015 A.Y. 2010-11 11 to the purchase price, if purchased during the year, or on the first day of accounting year, it may result into a gain or loss. While gain is not considered in the profit and loss account on the ground of prudence that no businessman will credit gain without it being realized, the loss so resulted is debited in the profit and loss account on the principle of cost price or net realizable value, whichever is lower. In the case of CIT v. Woodward Governor India (P.) Ltd. [2009] 179 Taxman 326/312 ITR 254 (SC) - In this case assessee claimed unrealized loss due to forex fluctuation in foreign currency transaction by valuing the currency as per market price on the balance sheet date. The AO disallowed the claim of the loss on the ground that it was not an ascertained liability but only a contingent liability. The Hon'ble Apex Court upheld the claim of the assessee for the reasons that in mercantile system of accounting the value of the asset on two different dates has to be compared to arrive at a profit for that period. Such loss was considered as allowable u/s 37 of the Act. 31.1 In the case of Dy. CIT v. Bank of Bahrain and Kuwait [2010] 41 SOT 290 (MUM.) (SB) - There was no dispute that if the date of maturity of the contract fell within the same financial year then the difference between the exchange rate as prevailing on the balance sheet date and contracted rate was an allowable deduction. In case of contracts maturing after balance sheet date also, such anticipated loss was allowable because: (i) as per the commercial principles of policy of prudence, all anticipated liabilities have to be accounted for but as per the Act, only that liability will be allowed which has actually accrued, (ii) if an anticipated liability is coupled with present obligation and only quantification can vary depending upon the terms of contract, then a liability is said to have crystallised on the balance sheet date. (iii) the anticipated losses on account of existing obligation as on 31st March are determinable with reasonable accuracy, (iv) Forward contracts have trappings of stock-in-trade. 31.2 In view of the above, we hold that the assessee is entitled for the losses incurred with respect to the unsettled contracts as on the balance sheet date. ITA No.1867/AHD/2015 A.Y. 2010-11 12 Thus, we set aside the order of the learned CIT-A and direct the AO to delete the addition made by him. Hence, the ground of appeal of the assessee is allowed. 32. The next issue raised by the assessee is that the learned CIT(A) erred in disallowing the depreciation claimed of ₹ 6,06,538/- on the membership card of ASE and BSE. 33. The AO during the assessment proceedings found that the assessee has claimed depreciation on the membership cost incurred for the acquisition trading rights of ASE and BSE. As per the AO the membership of ASE and BSE on demutualization was converted into the shares as per the direction of the SEBI. Thus, the membership of ASE and BSE were no longer in existent and therefore, the assessee was not entitled for the depreciation, treating the membership as intangible asset. The AO while holding so has made reference to the provisions of section 55(2) of the Act and the order of the Mumbai tribunal in the case of Sino Securities (P.) Ltd vs. ITO reported in 16 taxmann.com 354. 34. On appeal by the assessee, the learned CIT(A) also confirmed the order of the AO by observing as under: The rival submissions have been considered. It is observed that the appellant has not put forth a cogent and tenable argument. I am inclined to agree with the AO that the judgment of hon'ble ITAT, Mumbai in the case of Securities P ltd vs. ITO 16 taxmann.com 354(Mum) is squarely applicable in the present case, in this case, hon'ble ITAT after considering decision of hon'ble SC in Techno Shares and Stock Ltd. 193 Taxman 248, upheld the order of AO as confirmed by CIT(A) disallowing depreciation on membership card. In view of discussion above, addition of Rs. 6,06,538/- on account of disallowance of depreciation of BSE & ASE cards is upheld and the same is confirmed. This ground of appeal is dismissed. 35. Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us. 36. The learned AR before submitted that the assesse has acquired the membership rights from the open market in the earlier years on payment basis. Therefore, the assesse has been claiming depreciation on such membership right ITA No.1867/AHD/2015 A.Y. 2010-11 13 since the date of acquisition even after corporatization of stock exchange. The ld. AR in support of his contention drew our attention on pages 67 to 70 of the paper book where the details of the depreciation claimed by the assesse in earlier year was placed. 37. On the contrary, the learned DR before us vehemently supported the order of the authorities below. 38. We have heard rival contentions of both the parties and perused the materials available on record. Admittedly, the assesse has been claiming depreciation on the membership cards of the stock exchange since the last many years as evident from the details placed on pages 67 to 70 of the paper book. The shares allotted to the assesse on corporatization of stock exchange have been classified as investment by the assesse in its books of accounts separately and no depreciation of whatsoever was claimed on such investments. In other words, the cost incurred by the assesse on the acquisition of the membership cards of the stock exchange were classified as intangible assets by the assesse and accordingly depreciation was claimed which was accepted by the revenue in the earlier years. Accordingly, the principles of consistency need to be adopted in the given facts and circumstances. The Hon’ble Supreme Court in the case of Radhasoami Satsung Vs CIT reported in 193 ITR 321 wherein it has held as under: “We are aware of the fact that strictly speaking res judicata does not apply to income-tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assess ment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. “ 38.1 In view of the above discussion, we are inclined to hold that once the revenue has allowed the depreciation on the membership cards in the earlier years, then in subsequent year on same facts and circumstances principal of consistency should be applied. ITA No.1867/AHD/2015 A.Y. 2010-11 14 38.2 The Hon’ble SUPREME COURT OF INDIA in the case of Techno Shares & Stocks Ltd. v. Commissioner of Income-tax- reported [2010] 193Taxman248 (SC) has held as under: We answer the question at page 6 in the affirmative by holding that on the facts and circumstances of these cases the Tribunal was right in holding that depreciation was allowable on the cost of the membership card under section 32(1)(ii) of the 1961 Act. Accordingly, the impugned judgment(s) of the Bombay High Court is set aside and the appeal(s) filed by the nominated non-defaulting continuing member stands allowed with no order as to costs. 38.3 In view of the above and after considering the facts in entirety, we set aside the order of the learned CIT-A and direct the AO to delete the addition made by him. Hence the ground of appeal of the assesse is allowed. 39. The next issue raised by the assessee is that the learned CIT(A) erred in confirming the addition made by the AO for Rs. 9,74,839/- on account of non- deduction of TDS under the provisions of section 194C/, 194J and 194-I read with section 40(a)(ia) of the Act. 40. The AO during the assessment proceedings found that the assessee has incurred certain expenses which were subject to the provisions of TDS under section 194C, 194J and 194I of the Act but the assessee failed to do so. The details of the same stand as under: i) Non-deduction of TDS under the provisions of section 194C of the Act The assessee during the year has paid system maintenance charges of ₹1,31,000/- to M/s Bee Kay Technologies without deducting the TDS under the provisions of section 194C of the Act. Thus, the AO disallowed the same by resorting to the provision of section 40(a)(ia) of the Act and added the same to the total income of the assessee. ii) Non-deduction of TDS under the provisions of section 194J of the Act ITA No.1867/AHD/2015 A.Y. 2010-11 15 The AO during the assessment proceedings found that the assessee has incurred miscellaneous service charges aggregating to Rs. 30,611, Rs. 24,289/- and Rs. 78,639/- paid to ASE, BSE and NSE respectively. Likewise, the assessee also incurred an expense for an amount of Rs. 1,10,300/- on account of NSE annual subscription fees. The AO was of the view that all these payments to stock exchange were in the nature of fees for technical services on which assessee was required to deduct tax under section 194J of the Act but the assessee failed to do so. Therefore, the AO disallowed the same under the provisions of section 40(a)(ia) of the Act and added the same to the total income of the assessee. iii) Non-deduction of TDS under the provisions of section 194I of the Act The AO during the assessment proceedings found that the assessee has made payment of Rs. ₹ 72,000/- and ₹ 1,82,800/- to the BSE towards “MPS/ VPN Connectivity Charges and “lease Line Charges” respectively. As per the AO, these payments were in the nature of rent made for the use of Plant and Machinery or Equipment. Hence, the same attracts the provisions of section 194I of the Act but the assessee failed to deduct the TDS thereon under the provisions of section 194I of the Act. Therefore, the AO disallowed the same under the provisions of section 40(a)(ia) of the Act by adding to the total income of the assessee. 40.1 Likewise, the AO also found that the assessee has made payment of Rs. 3,10,200/- to the NSE towards “NSE VSAT Quarterly Charges”. As per the AO, the VSAT charges represents the rental charges and as per the amended provision of section 194I of the Act, the assessee was required to deduct tax on the same at 10%. However, the assessee deducted tax on the same @ 2.4% under the provisions of section 194C of the Act. Thus, the AO disallowed the same and added to the total income of the assessee under the provision of section 40(a)(ia) of the Act by holding that provision of TDS was not complied with. ITA No.1867/AHD/2015 A.Y. 2010-11 16 41. Aggrieved assessee preferred an appeal to the learned CIT-A who confirmed the order of the AO by observing as under: The AO disallowed Rs. 1,31,000/- on account of payment made to M/s. Bee Kay Technologies since TDS which was deductible u/s. 194 C was not deducted. During appeal proceedings, the appellant submitted that payment to M/s. Bee Kay was for replacing parts. Hence, no TDS was deductible. Though the appellant submitted as above yet no evidence in support of this contention was filed. Hence, I hold that the AO was justified in disallowing Rs. 1,31,000/- u/s. 40(a)(ia) of the Act. Accordingly, the addition of Rs. 1,31,000/-is upheld. (iii) The AO disallowed Rs. 1,33,539/- on account of charges paid to various Stock Exchanges in lieu of services provided by these stock exchanges. Out of these, Rs. 30,611/- have been paid to ASE, Rs.24,2897- have been paid to BSE, and Rs. 78,639/- have been paid to NSE. The AO disallowed this sum u/s. 40(a)(ia) since TDS was not deducted which was deductible u/s. 194J since the payments were in the nature of 'Fees for Professional or Technical Services. 1 On the same ground as above, the AO also disallowed Rs. 1,10,300/- paid to NSE on account of "NSE Annual Subscription Charges". The appellant merely submitted that in Wall Fort Financial Services vs Addl CIT, 48 DTR 138 it was held that transaction charges paid by brokers to the stock exchanges were not for any services provided by the stock exchange, hence provisions of sec. 40(a)(ia) are not applicable. After considering rival submissions, I hold that the AO was justified in disallowing Rs. 1,33,539/- and Rs. 1,10,300/- on account of payment made to stock exchanges as the payments have been made for providing professional/technical services. With due regard to ratio of judgment relied on by the appellant, the same is not applicable as the facts are different Accordingly, the additions of Rs.1,33,539/- and Rs. 1,10,300/-are upheld. (iv)The AO disallowed Rs. 3,10,200/- paid to NSE as VSAT charges. The AO observed that TDS on this payment was deducted at the rate of 2.4% while u/s. 194 I, TDS is to be deducted at the rate of 10% upto 30.9.09. As the payment was made before 30.9.09, there was a default u/s. 1941. The appellant merely relied on decision of hon'ble ITAT, Mumbai in DC1T vs NNM Securities in ITA No. 3686/Mum/2010 wherein it was held that on charges paid to stock exchanges, TDS is not deductible. After considering rival submissions, I hold that the AO was justified in disallowing Rs. 3,10,200/- u/s. 40(a)(ia) of the Act. The appellant has deducted TDS at the rate of 2.4%. That essentially shows that the appellant agrees that TDS is deductible on this payment. Since the TDS which was to be deducted at the rate of 10% has been deducted at the rate of 2.4%, there is violation of provisions of section 194J. With due regard to ratio of judgment relied on by the appellant, the same is not applicable as the facts are different Hence, the AO has rightly disallowed the amount u/s. 40(a)(ia). In view of discussion above, the addition of Rs. 3,10,200/- is upheld and the same is confirmed. (v) The AO further disallowed Rs. 72,000/- and Rs. 1,82,800/- paid to BSE as VPN connectivity charges and Lease Line charges respectively. The AO disallowed these ITA No.1867/AHD/2015 A.Y. 2010-11 17 amounts since TDS was not deducted, which was required to be deducted u/s. 194 I of the Act, The appellant merely relied on judgment of hon'ble ITAT, Mumbai in DCIT vs. NNM Securities Ltd (ITA No.3686/Mum/2010) where it is held that TDS is not deductible on payments made to stock exchanges. After considering rival submissions, I hold that the AO was justified in disallowing payments of Rs. 72,000/- and Rs. 1,82,800/- . These payments have been made for VPN Charges and Lease Line charges. These payments are clearly made for using the Virtual Private Network and Leased Lines provided by BSE. Thus these are payments essentially in the nature of rent. On payments of rent, TDS is deductible u/s. 194 I of the Act. With due regard to ratio of judgment relied on by the appellant, the same is not applicable as the facts are different. Accordingly, AO was justified in disallowing amount of Rs. 72,000/- and Rs.1,82,800/- u/s.40(a)(ia). Accordingly, the addition of Rs. 72,000/- and Rs.1,82,800/- is upheld and the same is confirmed. 4.7.1 In view of discussion above, out of addition of Rs. 9,74,839/- made u/s. 40(a)(ia) of the Act, addition of Rs. 9,39,839/- is upheld while addition of Rs, 35,000-/- is deleted. This ground of appeal is partly allowed. 42. Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us. 43. The learned AR before us submitted that the payments made by the assessee are not subject to the provisions of the TDS. Therefore, the assessee cannot be denied the deduction claimed by it. It was also submitted that there was short a deduction of TDS with respect to the payment made towards VSAT charges of Rs. 3,10,200.00. As per the learned AR there cannot be any disallowance in case of short deduction of TDS. 44. On the contrary, the learned DR before us vehemently supported the order of the authorities below. 45. We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion we note that the AO by invoking the provision of section 40(a)(ia) made disallowances of certain expenses for want of deduction of tax under section 194C, 194J and 194I of the Act, which were also confirmed by the learned CIT(A). For the sake of better ITA No.1867/AHD/2015 A.Y. 2010-11 18 appreciation of facts, we proceed to adjudicate the issue in the manner detailed below. i) Non-deduction of TDS under the provision of section 194C of the Act We note that the controversy relates whether the expense incurred by the assessee for ₹1,31,000/- which was paid to M/s Bee Kay Technologies represents the purchase of the product or it has been paid for availing the services. In this regard, we have referred the bill issued by the party namely M/s Bee Kay Technologies placed on page 71 of the paper book. On perusal of the same, we find that it relates to the purchase of “Fortigate FG300A”. The impugned product “Fortigate” refers to the item which provide antivirus firewall multi thread security for high performance, flexibility and security in the small and medium size enterprise. Thus, it appears that, the cost incurred by the assessee for ₹1,31,000/- represents the purchase of the product and the same therefore cannot be made subject to the provisions of TDS under section 194C of the Act. The provisions of section 194C of the Act are applicable to the payment made for carrying out any work including supply of labour in pursuance to a contract. In the given case, the payment in dispute has not been made for carrying out any work as envisaged under the provisions of section 194C of the Act. It is the payment made for the purchase of the product and therefore in our considered view, the same cannot be made subject to the provisions of section 194C of the Act. Hence we set aside the finding of the learned CIT(A) and direct the AO to delete the addition made by him on account of non-deduction of TDS as discussed above. ii) Non-deduction of TDS under the provisions of section 194J and 194-I of the Act 45.1 The issue for deducting the TDS on the payment made to the stock exchange on account of VSAT charges and lease line charges is no longer res- integra by virtue of the order of the ITAT Mumbai in the case of Destimoney ITA No.1867/AHD/2015 A.Y. 2010-11 19 Securities Private Ltd vs. ITO in ITA No. 4106 /MUM/2014, after relying the judgment of the Hon’ble Bombay High Court, wherein it was held as under: “12. We now take up the issue as regards the liability of the assessee to deduct tax at source on payments towards lease line charges. We find that the issue involved herein is no more res integra, as the same is squarely covered in favour of the assessee by the judgment of the Hon’ble High Court of Bombay in the case of:- (i) Income Tax Commissioner, Mumbai City-4 Vs. Angel Capital & Debit Market Ltd. (ITA (L) No. 475 of 2011, dated 28.07.2011)(Bom) (ii) CIT-4, Vs. M/s. The Stock and Bond Trading Company Ltd. (ITA No. 4177 of 2010, dated 14.10.2011)(Bom). We find that the Hon’ble Jurisdictional high Court in the aforesaid judgments had clearly held that VSAT and lease line charges paid by the assessee to stock exchange are merely in the nature of reimbursement of the charges paid/payable by the stock exchange to the department of the telecommunication, and thus in the absence of any element of income involved in the said payments, the issue as regards deduction of tax at source on the same does not arise at all. We are of the considered view that in the backdrop of the aforesaid judgment of the Hon’ble Jurisdictional High Court, the order of the CIT(A) treating the assessee as being in default u/s. 201(1)/201(1A) in respect of failure to deduct tax at source as regards the payments made towards lease line charges, cannot be sustained, and is thus set aside. The Ground of appeal No. 2 raised by the assessee before us is allowed.” 45.2 In view of the above, we hold that the assessee was not subject to the provisions of TDS under Section 194-J/194-I of the Act as alleged by the authorities below. Accordingly, no disallowance on account of non-deduction of TDS is warranted. It is also important to note that there cannot be disallowance of the expenses in the case of short deduction of TDS i.e. VSAT charges of Rs. 3,10,200.00 in respect of which TDS was deducted at the rate of 2.40% as against 10% up to 30 September 2009. Thus, we set aside the finding of the learned CIT- A and direct the AO to delete the addition made by him. Hence, the ground of appeal of the assessee is hereby allowed. 46. The next issue raised by the assessee is that the learned CIT(A) erred in confirming the disallowances of ROC expenses for Rs. 4,000/- and addition on account of long term capital gain for Rs. 15,249/- only. ITA No.1867/AHD/2015 A.Y. 2010-11 20 47. At the outset, we note that the learned AR for the assessee at the time of hearing conceded that he has been instructed by the assessee not to press the issue on hand due smallness of amount involved. Hence, the same is dismissed accordingly. 48. The last issue raised by the assessee is that the learned CIT(A) erred in confirming the disallowance of setoff of speculation loss of Rs. 1,37,941/- only. 49. The assessee in the return filed for the year under consideration under section 139 of the Act claimed setoff of brought forward speculative loss of Rs. 1,37,941/- only. However, the assessee during the assessment proceedings submitted that during the year earned speculative profit of Rs. 32,33,171/- and actual loss brought forwarded is of Rs. 3,01,533/- only which was wrongly claimed at Rs. 1,37,941.00. Therefore, the claim should be allowed accordingly. But the AO found that the assessee has neither shown such claim in the original return nor filed any revised return of income. Therefore, the AO by referring to the judgment of Hon’ble SC in Goetze (India order) Ltd reported in 284 ITR 323 did not entertain the fresh/additional claim of the assessee. 50. On appeal by the assessee, the learned CIT(A) confirmed the action of the AO by observing as under: The rival submissions have been considered. The appellant did not file any proof in support of his claim for brought forward speculation loss of Rs.3,01,533/- 'instead of s. 1,37,941/- Accordingly, I hold that the AO was justified in not allowing the claim of the appellant. This ground of appeal is dismissed. 51. Being aggrieved by the order of the learned CIT(A) the assessee is in appeal before us. 52. The learned AR before us contended that the necessary details with respect to the brought forward speculative losses were already available with the revenue Department which can easily be verified therefrom. Thus, the learned AR before ITA No.1867/AHD/2015 A.Y. 2010-11 21 us requested to restore the issue to the file of the AO for fresh adjudication as per the provisions of law. 53. On the other hand, the learned DR before us vehemently supported the order of the authorities below. 54. We have heard the rival contentions of both the parties and perused the materials available on record. Admittedly, the assessee has claimed brought forward losses from the activity of speculative loss for Rs. 1,37,941.00 against the speculative income in the income tax return. However, the assessee during the assessment proceedings contended that the actual amount of such brought forward loss stands at Rs. 3,01,533.00 and therefore the same should be allowed to be set off. But the AO disallowed the contention of the assessee on the reasoning that such claim was not made in the income tax return or revised income tax return. Subsequently, the learned CIT-A confirmed the order of the AO by holding that there was no documentary evidence furnished by the assessee on account of speculative loss of Rs. 301533.00. There is no dispute to the fact that the assessee during the assessment proceedings can make the fresh claim which was not made during in the return of income. Admittedly, the Hon’ble Supreme Court in the case of Goetze (India) Ltd (supra) has restricted the power of the AO to entertain the fresh claim of the assessee during the assessment proceedings which was not made in the return of income. But there was no such restriction to admit the fresh claim made by the assessee to the higher authorities. It is also a fact on record that the learned CIT-A has denied the claim of the assessee in the absence of necessary document. However, we note that the assessee before the AO during the assessment proceedings has filed the assessment order framed under section 143(3) of the Act pertaining to the assessment year 2009-10 to justify the brought forward losses. Furthermore, at the outset, we note that the learned AR for the assessee before us requested to set aside the issue to the file of AO for fresh adjudication and there was no objection raised by the learned DR appearing for the revenue. Therefore, in the interest of justice and fair play, we ITA No.1867/AHD/2015 A.Y. 2010-11 22 set aside the issue to the file of the AO to decide afresh as per the provisions of law and in the light of the discussion as stated above. Hence, the ground of appeal of the assessee is hereby allowed for statistical purposes. 55. In the result, appeal of the assessee is partly allowed for statistical purposes. Order pronounced in the Court on 24/02/2023 at Ahmedabad. Sd/- Sd/- (T. R. SENTHIL KUMAR) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 24/02/2023 Manish, Sr. PS TRUE COPY