M/s Inditrade Capital Limited(Formerly known as JRG Securities Ltd), Cochin V. The ITO, Cochin

ITA 211/COCH/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8498 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2016
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 16-06-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 06-04-2015
• Court: TRIBUNAL
• Department Lawyers: A DHANARAJ
• Assessee Lawyers: BALAKRISHNAN K
• Section: 43B; 14A; 37

Judgement Text

ITA NO.211/COCH/2015 1 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI B P JAIN, AM ITA NO.211/COCH/2015 (ASST YEAR : 2009-10) M/S. INDITRADE CAPITAL LIMITED, (FORMERLY KNOWN AS JRG SECURITIES LIMITED), XXXVI-202, J.J. COMPLEX, DAIRY METHANAM ROAD, EDAPPALLY, KOCHI-682 024 THE INCOME TAX OFFICER, WARD- 1(1), KOCHI. ( ASSESSEE APPELLANT) VS (REVENUE -RESPONDENT) PAN NO. AAACJ 7327G] ASSESSEE BY SHRI BALAKRISHNAN K., CA REVENUE BY SHRI A. DHANARAJ, SR. DR DATE OF HEARING 23/06/2016 DATE OF PRONOUNCEMENT 24/06/2016 ORDER PER B.P. JAIN, AM: THIS APPEAL OF THE ASSESSEE ARISES FROM THE O RDER OF THE LD. CIT(A)I, KOCHI DATED 09-01-2012 FOR THE ASSESSMENT YEAR 200 9-10. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS)-I (CIT(A)) HA S ERRED IN DISALLOWING AN AMOUNT OF RS.463,500 TOWARDS PROVISI ON FOR GRATUITY U/S. 40A(7) OF THE INCOME TAX ACT, 1961. (THE ACT), WI THOUT CONSIDERING THE PROVISIONS OF SECTION 40A(7) OF THE ACT READ WI TH SECTION 43B OF THE ACT. ITA NO.211/COCH/2015 2 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED CIT(A) HAS ERRED IN DISALLOWING AN AMOUNT OF RS.211 ,115 REPRESENTING THE SETTLEMENTS PAYABLE TO THE CLIENTS DUE TO CLERI CAL ERRORS COMMITTED BY THE COMPANY UNDER THE HEAD TRADING ERRORS WITHOU T CONSIDERING THE PROVISIONS OF SECTION 37 OF THE ACT. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN INCORRECTLY INVOKING THE PROVIS IONS OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE INCOME TAX RULES, 1962 AND DISALLOWING AN AMOUNT OF RS.584,851, EVEN WHEN NO E XPENDITURE HAS BEEN INCURRED BY THE APPELLANT FOR EARNING THE EXEM PT INCOME. 3. THE LD. COUNSEL FOR THE ASSESSEE, AT THE OUTSE T, DID NOT PRESS GROUND NO. 3 AND ACCORDINGLY, THE SAME IS DISMISSED AS NOT PRESSED. THE OTHER GROUND NOS. 1 & 2 ARE REPRODUCED HEREINBELOW: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS)-I (CIT(A)) HA S ERRED IN DISALLOWING AN AMOUNT OF RS.463,500 TOWARDS PROVISI ON FOR GRATUITY U/S. 40A(7) OF THE INCOME TAX ACT, 1961. (THE ACT), WI THOUT CONSIDERING THE PROVISIONS OF SECTION 40A(7) OF THE ACT READ WI TH SECTION 43B OF THE ACT. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED CIT(A) HAS ERRED IN DISALLOWING AN AMOUNT OF RS.211 ,115 REPRESENTING THE SETTLEMENTS PAYABLE TO THE CLIENTS DUE TO CLERI CAL ERRORS COMMITTED BY THE COMPANY UNDER THE HEAD TRADING ERRORS WITHOU T CONSIDERING THE PROVISIONS OF SECTION 37 OF THE ACT. 4. AS REGARDS GROUND NO. 1, THE BRIEF FACTS OF THE CASE ARE THAT ON VERIFICATION OF THE ANNUAL ACCOUNTS AND REPORT OF T HE ASSESSEE, THE ASSESSING OFFICER OBSERVED THAT THE PROVISION FOR G RATUITY CREATED IN THE ACCOUNTS FOR THE PERIOD RELEVANT TO A.Y. 2009-10 WA S RS.9,60,939/- AS ITA NO.211/COCH/2015 3 AGAINST RS.4,97,439/- MENTIONED AND DISALLOWED IN T HE RETURN OF INCOME. THE BALANCE AMOUNT OF RS.4,63,500/- OMITTED TO BE A DDED BACK WAS, THEREFORE, DISALLOWED BY THE ASSESSING OFFICER. TH E LD. CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER . 5. I HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. THE PROVISION FOR GRATUITY AS SUBMITTED BY THE ASSE SSEE IS AS FOLLOWS:- SR. NO. PARTICULARS PROVISION FOR GRATUITY 1. OPENING BALANCE AS ON 1 APRIL, 2008 18,28,019 2. PROVISION MADE DURING THE FY 2008-09 11,59,607 3. AMOUNT CLAIMED AS DEDUCTION ON PAYMENT U/S. 43B ON PAYMENT BASIS IN THE CURRENT YEAR 18,28,019 4. AMOUNT CLAIMED ON LAST YEAR FY - 5. AMOUNT REVERSED DURING THE FY 2008-09 2,29,294 6. CLOSING BALANCE AS ON 31 ST MAR 2009 9,30,313 7. AMOUNT PAID AFTER THE BALANCE SHEET DATE BUT BEFORE THE DUE DATE FOR FILING THE RETURN OF INCOME 4,32,874 DISALLOWANCE MADE AS PER COMPUTATION OF TOTAL INCOME 4,97,439 THE CIT(A) HAS GIVEN A CORRECT FINDING THAT THE PRO VISION MADE DURING THE YEAR IS A SUM OF RS.11,59,607/- OUT OF WHICH A SUM OF RS.2,29,294/- IS THE AMOUNT WHICH HAS BEEN REVERSED DURING THE YEAR. HE NCE, THE NET PROVISION STANDS AT RS.11,59,607 (-) RS.2,29,294 = RS.9,30,313/-. THE PROVISION OF SECTION 40A(7) SAYS THAT NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF ANY PROVISION MADE BY THE ASSESSEE IN THE PAYMENT O F GRATUITY TO HIS EMPLOYEES OR ANY PROVISION TOWARDS CONTRIBUTION TO GRATUITY FUND UNLESS ITA NO.211/COCH/2015 4 THE FUND IS AN APPROVED GRATUITY. IN THE INSTANT C ASE, THE GRATUITY FUND IS NOT AN APPROVED GRATUITY, HENCE ANY PROVISION MADE IN THIS RESPECT IS NOT AN ALLOWABLE EXPENDITURE U/S. 40A(7) OF THE ACT. T HE ASSESSEE THEMSELVES HAVE DISALLOWED A SUM OF RS.4,97,439/- ON ACCOUNT O F THE PROVISION FOR GRATUITY AND ADDED TO THE TOTAL INCOME IN THEIR COM PUTATION OF INCOME. HOWEVER, THE BASIS FOR THE AMOUNT CONSIDERED BY THE ASSESSEE IS NOT CORRECT. THE ASSESSEE HAS CONSIDERED THE CLOSING B ALANCE AS ON 31/03/2009 AND HAS REDUCED THE AMOUNT OF RS.4,32,87 4/- BY TREATING THE AMOUNT PAID AFTER BALANCE SHEET DATE. AS SUCH, THE INTENT TO SECTION 40A(7) APPLIES TOWARDS THE PROVISION FOR GRATUITY W HICH IS NOT AN APPROVED GRATUITY FUND. 6. IN THE CIRCUMSTANCES AND FACTS OF THE CASE, I DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) WHO HAS RIGHTLY CONFIRM ED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. THUS GROUND NO. 1 O F THE ASSESSEE IS DISMISSED. 7. AS REGARDS GROUND NO. 2 OF THE ASSESSEE, THE BRIEF FACTS OF THE CASE ARE THAT IN THE PROFIT AND LOSS ACCOUNT, THE ASSES SEE HAS DEBITED A SUM OF RS.6,18,340/- UNDER THE HEAD TRADING EXPENSES WITH THE NARRATION TRADING ERROR. THE NATURE AND NECESSITY OF SUCH EXPENSE W AS NOT EXPLAINED BY THE ASSESSEE DURING THE COURSE OF HEARING OF THE CA SE. AS THE SAID ITA NO.211/COCH/2015 5 EXPENSE WAS NOT PROVED TO BE ACTUALLY INCURRED AND THE SAME WAS LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY IN CONNECTIO N WITH THE BUSINESS, THE ASSESSING OFFICER DISALLOWED THE SAME AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. THE LD. CIT(A) CONFIRMED THE ACTI ON OF THE ASSESSING OFFICER. 8. I HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE FACTS OF THE CASE. THE FINDINGS OF THE LD. CIT(A) ARE THAT THE CONTENT IONS RAISED BY THE ASSESSEE HAVE BEEN VERIFIED AND IT IS FOUND THAT TH E AMOUNT PAID TO VARIOUS CLIENTS; FOR THE TRADING ERROR COMMITTED DU RING THE YEAR, IS GROUPED UNDER DIFFERENT HEADINGS SUCH AS (1) AMOUNT PAID TO THE CLIENTS FOR THE TRADING ERROR COMMITTED DURING THE YEAR RS.1,69,675 /- FOR WHICH COPY OF THE BANK STATEMENT FOR THE PAYMENT MADE DURING THE YEAR HAS BEEN SUBMITTED (2) AMOUNT OF TRADING ERROR TRANSFERRED T O RESPECTIVE CLIENTS ACCOUNT, SUBSEQUENTLY PAID FROM CLIENT ACCOUNT OR A DJUSTED RS.2,11,115/- FOR WHICH AN EXTRACT OF THE LEDGERS OF THE RESPECTI VE CLIENT ACCOUNTS HAS BEEN PRODUCED (3) BALANCE TRADING ERROR CREDITED BA CK TO THE PROFIT AND LOSS ACCOUNT IN THE AY 2010-11 RS.2,37,550/- FOR WH ICH THE EXTRACT OF THE LEDGER HAS BEEN PRODUCED. IT MEANS THAT OUT OF THE TOTAL SUM OF RS.6,18,340/-, A SUM OF RS.2,37,550/- AS THE AMOUNT PAYABLE TO THE CLIENTS, ON ACCOUNT OF TRADING ERRORS, HAS ALREADY BEEN OFFE RED AS INCOME IN AY 2010-11. A SUM OF RS.1,69,675/- HAS BEEN PAID WHIC H IS VERIFIABLE FROM ITA NO.211/COCH/2015 6 BANK STATEMENT, BUT A SUM OF RS.2,11,115/- WHICH I S CLAIMED TO BE TRANSFERRED TO RESPECTIVE CLIENTS ACCOUNT AND SUBSE QUENTLY, PAID FROM CLIENTS ACCOUNT OR ADJUSTED DOES NOT GIVE ANY CLEAR PICTURE THAT AS TO ON WHAT OCCASION AND UNDER WHAT CIRCUMSTANCES SUCH ADJ USTMENTS HAVE BEEN MADE. ACCORDINGLY, THE DISALLOWANCE IS RESTRIC TED TO A SUM OF RS.2,11,115/- AND THEREFORE, THE ASSESSEE GETS A PA RTIAL RELIEF. 9. IN THE CIRCUMSTANCES AND FACTS OF THE CASE, I FIND THE FINDINGS OF THE LD. CIT(A) AS A REASONED ONE AND ACCORDINGLY, I FIN D NO INFIRMITY IN THE ORDER OF THE LD. CIT(A). THUS GROUND NO. 2 OF THE ASSESSEE IS DISMISSED. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN I.T.A. NO. 211/COCH/2015 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 24- 06-2016 SD/- (B.P. JAIN) ACCOUNTANT MEMBER PLACE : COCHIN DATED: 24TH JUNE , 2016 GJ COPY TO: 1. M/S. INDITRADE CAPITAL LIMITED, (FORMERLY KNOWN AS JRG SECURITIES LIMITED), XXXVI-202, J.J. COMPLEX, DAIRY METHANAM ROAD, EDAPPALLY, KOCHI -682 024 2. THE INCOME TAX OFFICER, WARD-1(1), KOCHI. 3. THE COMMISSIONER OF INCOME-TAX(APPEALS)-I, KOCHI . ITA NO.211/COCH/2015 7 4. THE COMMISSIONER OF INCOME-TAX, KOCHI. 5. THE DR/ITAT, COCHIN BENCH. 6. GUARD FILE. BY ORDER ASSISTANT REGISTRAR ITAT, COCHIN