PRAVIN SHAH STOCK BROKING P. LTD, MUMBAI V. DCIT CIR 4(2), MUMBAI

ITA 1983/MUM/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 8767 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-02-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2006-2007
• Appeal Filed On: 11-03-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P N DEVDASAN
• Assessee Lawyers: KANTILAL B PAREKH
• Keywords: Opportunity of being heard

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C BEFORE SHRI D.K. AGARWAL, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER. ITA NO.1983/MUM/10 (ASSESSMENT YEAR : 2006-07) M/S. PRAVIN V. SHAH STOCK BROKING P. LTD., 212, STPCC EXCHANGE TOWER, DALAL STREET, FORT, MUMBAI-400 001 PAN NO.AAACP6911C VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE 4(2), MUMBAI. APPELLANT. RESPONDENT. APPELLANT BY : SHRI KANTILAL B. PAREKH. RESPONDENT BY : SHRI P.N. DEVDASAN. O R D E R PER D.K. AGARWAL : THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 25.01.2010 PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) FOR THE ASSESSMENT YEAR 2006-07. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE A SSESSEE COMPANY, A MEMBER OF THE BOMBAY STOCK EXCHANGE (BSE), IS ENGAG ED IN THE BUSINESS OF SHARE BROKING. DURING THE YEAR UNDER CONSIDERATION , THE ASSESSEE COMPANY HAD BROKERAGE INCOME AND INCOME FROM TRADING IN SHARES. DURING THE COURSE OF ASSESSMENT, IT WAS INTER-ALIA OBSERVED BY THE ASSES SING OFFICER THAT THE ITA NO.1983/MUM//10 - 2 - ASSESSEE HAS NETTED OF SECURITIES TRANSACTION TAX ( STT) AMOUNTING TO RS.9,90,487 PERTAINING TO HIS CLIENTS FROM BROKING COMPANY. THIS STT HAS NOT BEEN ADDED TO THE COMPUTATION OF INCOME EVEN IF IT IS NOT AN ALLOWABLE EXPENDITURE U/S. 40(IB) OF THE INCOME TAX ACT, 1961 (THE ACT). THE ASSESSEE WAS ASKED AS TO WHY THE SAID AMOUNT SHOULD NOT BE A DDED. IT WAS EXPLAINED BY THE ASSESSEE THAT THE SAID AMOUNT PERTAINED TO CLI ENT ON WHOSE BEHALF THE ASSESSEE HAS EXECUTED THE SAUDAS AND THE STT PERTAI NING TO THOSE SAUDAS IS BORNE BY THE ASSESSEE. THE ASSESSEE HAS DEBITED TH IS AMOUNT WHICH IS A LAWFUL EXPENSE FOR PROCURING THE BUSINESS DURING THE YEAR 2005-06. HOWEVER, THE ASSESSING OFFICER WAS OF THE VIEW THAT SINCE THE ST T PAID IS SPECIFICALLY PROHIBITED UNDER THE ACT AS A DEDUCTION. THE CLAIM WITH REGARD TO REBATE COULD HAVE BEEN MADE BY THE CONCERNED CLIENTS. OR IF THE CLIENTS HAVE DECLARED CAPITAL GAINS SUCH A DEDUCTION IS SPECIFICALLY PROHIBITED B Y PROVISO 5 TO SECTION 48. HE FURTHER OBSERVED THAT NO EVIDENCE HAS BEEN BROUGHT ON RECORD BY THE ASSESSEE TO REFUTE THE CLAIM AND ACCORDINGLY HE DISALLOWED THE CLAIM OF STT OF RS.9,90,487 AND ADDED TO THE INCOME OF THE ASSESSEE. ON APPEAL , THE LEARNED CIT(A) OBSERVED THAT THE APPELLANT VIOLATED THE BASIC ACCO UNTING PRINCIPLE BY NOT INCLUDING THE AMOUNT RECEIVED BY IT IN THE TOTAL TU RN OVER. IN FACT, THE STT RECEIVED IS PART OF THE TOTAL TURN OVER AND STT PAI D IS ACTUALLY BEING CLAIMED BY ITA NO.1983/MUM//10 - 3 - THE ASSESSEE AS EXPENDITURE JUST LIKE TRADER DOES I N THE CASE OF SALES TAX IN THE TOTAL TURN OVER AND CLAIM SALES TAX AS EXPENDITURE. THE LEARNED CIT(A) AFTER CONSIDERING THE PROVISIONS OF SECTION 40(A)(IB) IN THE LIGHT OF SECTIONS 98 AND 100 OF STT ACT AND THE DECISION REPORTED IN 206 ITR 495 (BOM), 24 ITR 466 (BOM) AND 237 ITR 628 (BOM) HELD THAT IN VIEW OF TH E SPECIFIC PROVISIONS OF PROHIBITION OF ALLOWANCE OF DEDUCTION U/S.40(A)(IB) AND TAX REBATE U/S.88E, THE CLAIM OF DEDUCTION U/S.37 BY THE APPELLANT IS NOT V ALID AND ACCORDINGLY CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OF FICER. 3. BEING AGGRIEVED BY THE ORDER OF THE LEARNED CIT (A), THE ASSESSEE IS IN APPEAL BEFORE US TAKING THE FOLLOWING GROUND OF APPEAL : THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS) ERRED IN CONFIRMING THE ADDITION OF RS.9,90,487 MADE ON ACCO UNT OF SECURITIES TRANSACTIONS TAX INSPITE OF THE FACT THAT THE APPEL LANT COMPANY HAS NOT CLAIMED THE SAME AS EXPENDITURE BUT THE APPELLANT C OMPANY HAS WORKED AS CONDUIT TO COLLECT THE SAME FROM ITS ACCREDITED CLIENTS TO PAY ONWARD TO GOVERNMENT TREASURY THRU STOCK EXCHANGE. 4. AT THE TIME OF HEARING THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITS AS UNDER (PAGE 11 OF ASSESSEES PAPER BOOK) : 1. IT IS WELL KNOWN IN THE BROKERAGE BUSINESS TH AT THE BROKER HAS TO COLLECT STT FROM THEIR CLIENTS AND PAY TO THE GOVER NMENT. THUS THE BROKER WORKS AS A MIDDLEMAN A COLLECTOR OF TAX ON BEHALF OF THE GOVERNMENT. 2. DURING THE COURSE OF THE BUSINESS, THE BROKER S IN CASE OF SOME CLIENTS, DISTINCTLY AND SEPARATELY CHARGED STT IN THE INVOIC E. IN THE CASE OF SOME OF THE ACCREDITED CLIENTS, STT IS NOT SEPARATELY CH ARGED BUT IT IS INCLUDED IN ITA NO.1983/MUM//10 - 4 - THE BROKERAGE WHICH ON RECEIPT OF THE SAME, THE REL EVANT COMPONENT OF THE STT IS PAID TO THE GOVERNMENT. 3. IN OUR OWN CASE, WE HAVE ALREADY SUBMITTED TH E LIST OF THE CLIENTS FROM WHOM STT HAS NOT BEEN DISTINCTLY CHARGED BUT THE SA ME IS INCLUDED INTO THE CHARGE OF BROKERAGE AND ON RECEIPT OF THE BROKERAGE AMOUNT, THE RELEVANT CONCERNED STT IS PAID TO THE GOVERNMENT TREASURY. T HUS THE CASE IS JUST SIMILAR IN CASE OF CLIENTS TO WHOM STT IS DISTINCTL Y CHARGED AND PAID TO THE GOVERNMENT TREASURY AND IN THE SAME WAY THE STT IS INCLUSIVE IN BROKERAGE WHICH STT IS PAID TO THE GOVERNMENT TREAS URY THROUGH STOCK EXCHANGE ON RECEIPT OF THE SAME. 4. IT IS VERY DISTINCTLY BROUGHT ON RECORD THAT S TT HAS NEVER BEEN CLAIMED BY US AS AN EXPENDITURE AND HENCE THERE CANNOT BE A NY CASE OF A DISALLOWANCE THEREOF. WHAT WE HAVE DONE IS I) IN CASE OF THE CLIENTS WHEREIN WE HAVE CHARGED S TT DISTINCTLY. II) IN CASE OF THE CLIENTS WHEREIN WE HAVE NOT CHAR GED STT DISTINCTLY BUT INCLUDED INTO THE BROKERAGE. IN BOTH THE CASES, WE HAVE WORKED AS A MIDDLEMAN ON BEHALF OF THE GOVERNMENT TO COLLECT STT AND PAY TO THE GOVERNMENT TREASURY THROUGH THE STOCK EXCHANGE. 5. UNDER THE ABOVE SAID FACTS, CIRCUMSTANCES AND L EGALITY OF THE CASE, THERE CANNOT ARISE ANY QUESTION OF DISALLOWANCE OF STT AS CONTEMPLATED BY YOU. YOU CANNOT TAX US ON THE AMOUNT WHICH WE HAVE NEVER EARNED. THE AMOUNT WHAT I HAVE RECEIVED ON BEHALF OF THE GOVERN MENT, EITHER DISTINCTLY OR INCLUSIVELY HAVE BEEN PAID TO THE GOVERNMENT THR OUGH THE STOCK EXCHANGE AND IT NEVER FORMS A PART OF OUR INCOME DI RECTLY, INDIRECTLY OR FAR-FETCHEDLY. WE ONCE AGAIN REITERATE THAT WE HAV E NEVER CLAIMED ANY EXPENDITURE IN THE NAME OF STT. WE HAVE WORKED AS CONDUIT FOR COLLECTING STT AND PAYING THE SAME TO THE GOVERNMENT THROUGH T HE STOCK EXCHANGE. NO SECTION OF INCOME TAX ACT, 1961 ENVISAGE ANYWHER E WHEREIN TAX IS CHARGEABLE ON THE INCOME WHICH YOU HAVE NEVER EARNE D NOR THERE CAN BE ANY DISALLOWANCE OF EXPENDITURES WHICH YOU HAVE NEV ER CLAIMED AS EXPENDITURE. REFERRING TO THE LIST OF PARTIES IN WHOSE CASE STT IS NOT CHARGED SEPARATELY, SAMPLE COPIES OF BILLS WHEREIN STT IS INCLUDED IN T HE BROKERAGE AND STT NOT CHARGED SEPARATELY, ONE SAMPLE BILL OF A CLIENT IN WHICH STT IS CHARGED ITA NO.1983/MUM//10 - 5 - SEPARATELY, LEDGER ACCOUNT OF BROKERAGE RECEIVED RE FLECTING THE NECESSARY ENTRY I.E. DEBIT OF STT PAID AND LEDGER ACCOUNT OF STT AC COUNT APPEARING AT PAGES 1 TO 39 OF THE ASSESSEES PAPER BOOK, HE SUBMITS THAT ADDITION MADE BY THE ASSESSING OFFICER AND SUSTAINED BY THE LEARNED CIT( A) IS LIABLE TO BE DELETED. 5. ON THE OTHER HAND, THE LEARNED D.R. SUPPORTS TH E ORDER OF THE ASSESSING OFFICER AND THE LEARNED CIT(A). 6. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE F IND THAT THE CLAIM OF THE ASSESSEE IS THAT IN SOME CASES STT WAS CHARGED SEPA RATELY AND IN OTHER CASES THE STT WAS INCLUDED IN THE BROKERAGE BILL AND IN B OTH CASES THE ASSESSEE WORKED AS A MIDDLE MAN ON BEHALF OF GOVERNMENT TO C OLLECT STT AND PAID THE SAME TO THE GOVERNMENT TREASURY THROUGH STOCK EXCHA NGE, THEREFORE, THE STT COLLECTED BY THE ASSESSEE WHICH WAS SUBSEQUENTLY PA ID IS NEITHER THE INCOME OF THE ASSESSEE NOR THE EXPENDITURE AND HENCE THE SAME IS NOT LIABLE TO TAX. PER CONTRA THE CLAIM BY THE REVENUE IS THAT IN VIEW OF THE SPECIFIC PROVISIONS OF PROHIBITION OF ALLOWANCE OF DEDUCTION ON STT U/S.40 (A)(IB) AND TAX REBATE U/S.88E THE CLAIM OF DEDUCTION OF RS.9,90,487 U/S.3 7 IS NOT ALLOWABLE. FROM THE READING OF THE ASSESSMENT ORDER AND THE ORDER BY TH E LEARNED CIT(A), WE FIND THAT BOTH THE AUTHORITIES HAVE NOT EXAMINED THE FAC TS OF THE ASSESSEES CASE IN ITA NO.1983/MUM//10 - 6 - THE LIGHT OF MATERIAL AVAILABLE ON RECORD AND THE D ISALLOWANCE WAS MADE MERELY BY FOLLOWING THE PROVISIONS OF SECTION 40(A)(IB) OF THE ACT. THERE IS NO FINDING AS TO WHETHER THE ASSESSEE HAS COLLECTED STT ON BEH ALF OF CLIENTS AND THE SAME WAS PAID TO THE GOVERNMENT AS PROVIDED UNDER THE AC T. THIS BEING SO AND KEEPING IN VIEW THAT THE ASSESSEE HAS NOT FILED REL EVANT MATERIAL EXCEPT DETAILED NOTE BEFORE THE ASSESSING OFFICER AND ALL OTHER PAP ERS WERE FILED BEFORE THE LEARNED CIT(A), WE ARE OF THE VIEW THAT IN THE INTE REST OF JUSTICE THE MATTER SHOULD GO BACK TO THE FILE OF CIT(A) AND ACCORDINGL Y WE SET ASIDE THE ORDER PASSED BY THE REVENUE AUTHORITIES ON THIS ACCOUNT A ND SEND THE MATTER TO THE FILE OF CIT(A) WHO SHALL DECIDE THE SAME AFRESH IN THE L IGHT OF THE OBSERVATIONS HEREIN ABOVE AND ACCORDING TO LAW AFTER PROVIDING R EASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE GROUND TAKEN BY TH E ASSESSEE IS THEREFORE PARTLY ALLOWED FOR STATISTICAL PURPOSE. 7. IN THE RESULT THE ASSESSEES APPEAL IS PARTLY A LLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 03-02-2011. SD/- SD/- (R.K. PANDA) (D.K. AGARWAL) ACCOUNTANT MEMBER J UDICIAL MEMBER MUMBAI, DT.03-02-2011. *GPR ITA NO.1983/MUM//10 - 7 - TRUE COPY COPY TO : 1. THE ASSESSEE. 2. THE ASSESSING OFFICER. 3. CIT(APPEALS) 4. CIT 5. DEPARTMENTAL REPRESENTATIVE, ITAT, MUMBAI. BY ORDER DY./ASST.REGISTRAR, ITAT, MUMBAI ITA NO.1983/MUM//10 - 8 - DATE INITIALS 1. DRAFT DICTATED ON 03.02.2011 2. DRAFT PLACED BEFORE AUTHOR 3. DRAFT PROPOSED & PLACED BEFORE SECOND MEMBER 4. DRAFT DISCUSSED & APPROVED BY SECOND MEMBER 5. APPROVED DRAFT COMES TO SR.PS/PS 03.02.2011 6. KEPT FOR PRONOUNCEMENT ON 7. FILE SENT TO BENCH CLERK 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE ON WHICH FILE GOES TO A.R. 10. DATE OF DISPATCH OF ORDER.