INVESTOR SERVICES OF INDIA LTD, NAVI MUMBAI V. ACIT 10(3), MUMBAI

ITA 221/MUM/2010

• Counselvise Citation: 22119914 RSA 2010
• Duration Of Justice: 1 year(s) 3 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-04-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 09-11-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 08-01-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VANDANA SAGAR
• Assessee Lawyers: ANIL CHATURVEDI
• Keywords: Business expenditure
• Section: 143(3); 37(1); 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, I, MUMBAI BEFORE SHRI R V EASWAR, PRESIDENT AND SHRI B RAMAKOTAIAH, ACCOUNTANT MEMBER I T A NO: 221/MUM/2010 (ASSESSMENT YEAR: 2006-07) INVESTOR SERVICES OF INDIA LIMITED, NAVI MUMBAI APPELLANT (PAN: AABCI4040E) VS ASSISTANT COMMISSIONER OF INCOME TAX 10(3) RESPON DENT MUMBAI APPELLANT BY: MR ANIL CHATURVEDI RESPONDENT BY: MS VANDANA SAGAR O R D E R R V EASWAR, PRESIDENT: THIS IS AN APPEAL BY THE ASSESSEE RELATING TO THE ASSESSMENT YEAR 2006-07. THE ASSESSEE IS A COMPANY PROVIDING SERVICES IN THE FIELD OF MERCHANT BANKING, SHARE AND STOCK BROK ING, ETC. THE APPEAL ARISES OUT OF THE ASSESSMENT ORDER DATED 30. 09.2008 PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961. 2. THE ONLY ISSUE IN THE APPEAL IS WHETHER THE DEPA RTMENTAL AUTHORITIES WERE JUSTIFIED IN DISALLOWING THE EXPEN SES OF ` 5,65,483/-. 3. THE ASSESSEE CLAIMED DEDUCTION IN RESPECT OF AN AMOUNT OF ` 5,65,514/- UNDER THE HEAD IDBI NOT RECOVERABLE. THE AMOUNT CONSISTED OF THE FOLLOWING: - SR. NO. SCHEME AMOUNT (RS.) 1. IDBI FLEXIBONDS 21 31 2. IDBI FLEXIBONDS 96 66,780 3. IDBI FLEXIBONDS 18 1,665 4. IDBI OMNI BONDS SCHEME 4,92,803 5. SIDBI 4,235 TOTAL 5,65,514 ITA NO: 221/MUM/2010 2 THE ASSESSING OFFICER SIMPLY OBSERVED THAT THE AMOU NT REPRESENTED PENALTY ON ACCOUNT OF LOSS OF INTEREST TO IDBI IN RESPECT OF DOUBLE ALLOTMENT OF BONDS TO AN INVESTOR AND THE REFORE CANNOT BE ALLOWED AS A DEDUCTION. ON APPEAL, THE CIT(A) HELD THAT ONLY THE AMOUNT OF ` 31/- WAS ALLOWABLE AS DEDUCTION AND THE BALANCE OF ` 5,64,483/- REPRESENTED PENALTY WHICH CANNOT BE ALLO WED AS A DEDUCTION. HENCE THE PRESENT APPEAL. 4. THE ALLOWABILITY OF THE EXPENSES DEPENDS UPON TH E NATURE OF THE PAYMENT WHETHER IT IS PENALTY IN WHICH CASE I T IS NOT ALLOWABLE UNDER SECTION 37(1) OR WHETHER IT IS A PAYMENT OF S OME OTHER NATURE WHICH COULD BE ALLOWED IF IT IS INCIDENTAL TO THE C ARRYING ON OF THE ASSESSEES BUSINESS. THE ASSESSEE IS ENGAGED IN TH E BUSINESS OF PROVIDING SERVICES IN THE FIELD OF MERCHANT BANKING AND SHARE AND STOCK BROKING. IN THE COURSE OF ITS BUSINESS IT HA S ACTED AS APPROVED REGISTRAR AND TRANSFER AGENT FOR THE SECUR ITIES / BONDS ISSUED BY IDBI. IT IS IN THIS BACKGROUND THAT WE H AVE TO EXAMINE THE FOUR ITEMS OF PAYMENT WHICH ARE DISPUTED BEFORE US. SO FAR AS THE AMOUNT OF ` 66,780/- IS CONCERNED, IT APPEARS THAT IDBI WHILE M AKING THE PAYMENT OF OUTSTANDING BILLS TO THE ASSESSEE, D EDUCTED THE SAID AMOUNT ON ACCOUNT OF DELAYED PAYMENTS. A COPY OF T HE LETTER OF IDBI DATED 30.06.2005 IS AVAILABLE AT PAGE 95 OF TH E PAPER BOOK. FROM THIS IT IS SEEN THAT THE ASSESSEE RAISED CERTA IN BILLS FOR THE MONTHS OF APRIL AND MAY 2005 ON IDBI FOR FOLIO MAIN TENANCE, REDEMPTION PROCESSING, OUT OF POCKET EXPENSES, MAIL ING EXPENSES, ETC. IN AN AMOUNT OF ` 1,33,802/-. IDBI PAID ONLY ` 67,022/-. THE BALANCE OF ` 66,780/- WAS NOT PAID AND IT WAS SHOWN IN THE LETTE R AS ITA NO: 221/MUM/2010 3 ADJUSTMENT. IN THE SAME LETTER IT WAS CLARIFIED THAT A SUM OF ` 62,657/- WAS ADJUSTED IN RESPECT OF INTEREST ON DEL AYED PAYMENT CASES, THE DETAILS OF WHICH HAD BEEN PROVIDED TO TH E ASSESSEE EARLIER. THE BALANCE OF ` 4,123/- REPRESENTED AN AMOUNT PAID TO SHRI SHARAD KUMAR NAHAR. THE LETTER SHOWS THAT IDB I DID NOT PAY THE AMOUNT OF ` 66,780/- AND FROM THE DETAILS GIVEN IN THE LETTER I T SEEMS THAT THE DEDUCTION WAS ON ACCOUNT OF SOME DEL AY IN RESPECT OF THE PAYMENTS. CONSIDERING THE ASSESSEES BUSINE SS, IT APPEARS THAT SUCH DELAY IS INCIDENTAL TO THE SAME. WE THER EFORE CONSIDER THAT THE AMOUNT OF ` 66,780/- IS ALLOWABLE AS BUSINESS EXPENDITURE. 5. AS REGARDS THE AMOUNT OF ` 1,665/- IT APPEARS THAT ONE OF THE CUSTOMERS FILED A CASE AGAINST THE ASSESSEE BEFORE THE CONSUMER COURT FOR NON RECEIPT OF AMOUNT DUE ON THE DISCOUNT BONDS OF IDBI. THE ASSESSEE PAID UP ` 12,598/- BUT COULD RECOVER ONLY ` 10,933/- FROM IDBI AND HAD TO WRITE OFF THE BALANCE OF ` 1,665/-. THIS ALSO APPEARS TO US TO BE AN EXPENDITURE ARISING IN THE C OURSE OF THE ASSESSEES BUSINESS AND HENCE ALLOWABLE. AS REGARD S THE PAYMENT OF ` 4,235/-, IT APPEARS TO BE OF THE SAME NATURE SINCE THIS AMOUNT ALSO COULD NOT BE RECOVERED FROM IDBI / SIDBI. THE ASSESSEE HAD TO PAY THE CONSUMER ` 14,235/- AS PER DIRECTIONS OF THE CONSUMER COURT AND COULD RECOVER ONLY ` 10,000/- FROM THE INVESTOR AND COULD NOT RECOVER THE BALANCE. IN OUR VIEW THIS AMOUNT I S ALSO ALLOWABLE AS ARISING IN THE COURSE OF THE ASSESSEES BUSINESS . 6. WE NOW COME TO THE AMOUNT OF ` 4,92,803/-. THIS RELATES TO THE IDBI OMNI BONDS SCHEME. DUE TO SOME MISTAKE, T HE AVADH GRAMIN BANK WAS ALLOTTED THE BONDS TWICE AND INTERE ST ALSO WAS ITA NO: 221/MUM/2010 4 PAID TWICE. THE INTEREST WAS SOUGHT TO BE RECOVERE D FROM THE AVADH GRAMIN BANK. IDBI CLAIMED TO RECOVER ` 83,71,378/- BUT COULD ULTIMATELY RECOVER ONLY ` 78,78,575/-. THE BALANCE OF ` 4,92,803/- COULD NOT BE RECOVERED AND THE ASSESSEE WAS HELD LIABLE FOR THE SAME. IN ITS LETTER DATED 27.01.200 6 (PAGE 98 OF THE PAPER BOOK) IDBI HAD INFORMED THE ASSESSEE THAT THE AMOUNT OF ` 4,92,803/- WAS BEING ADJUSTED AGAINST THE ASSESSEE S BILL RAISED ON IDBI FOR SERVICES. HOWEVER, WHAT HAS BEEN FOUND OBJECTIONABLE BY THE INCOME TAX AUTHORITIES IS THAT IN THE SAID L ETTER IDBI HAS CHARACTERIZED THE PAYMENT AS PENALTY. WHEN WE LOOK AT THE CALCULATIONS AT PAGE 99, WHICH IS TITLED CALCULATI ON FOR THE ADJUSTMENT OF PENALTY, WE FIND THAT WHAT IDBI DONE IS TO SIMPLY DEDUCT THE AMOUNT OF ` 4,92,803/- AS AN ADJUSTMENT FROM THE TOTAL BILL FOR ` 5,45,046/- RAISED BY THE ASSESSEE. WE ARE OF THE V IEW THAT THE IDBI HAS WRONGLY CHARACTERIZED THE ADJUSTMENT A S A PENALTY. IT IS NOT A STATUTORY BODY EMPOWERED TO LEVY PENALTIES . THE MERE DESCRIPTION OF THE ADJUSTMENT OF THE AMOUNT WHICH I DBI COULD NOT RECOVER FROM THE AVADH GRAMIN BANK AND WHICH WAS SO UGHT TO BE ADJUSTED AGAINST THE ASSESSEES BILL, AS PENALTY CA NNOT BE DECISIVE OF THE NATURE OF THE PAYMENT. IN THE LETTER IDBI H AS REMARKED THAT THE ASSESSEE HAS ALSO TO BE MADE ACCOUNTABLE FOR TH E MISTAKE IN DOUBLE ALLOTMENT OF THE BONDS TO AVADH GRAMIN BANK. THE ASSESSEE WAS MERELY DENIED THE FULL PAYMENT OF ITS BILL AND THE LOSS INCURRED BY IDBI WAS SOUGHT TO BE RECOVERED FROM TH E ASSESSEE. WE ARE SATISFIED THAT IT HAS BEEN LOOSELY TERMED AS PENALTY. IT ITA NO: 221/MUM/2010 5 ACTUALLY REPRESENTS A LOSS ARISING TO THE ASSESSEE IN THE COURSE OF ITS BUSINESS AND HENCE ALLOWABLE. 7. IN THE RESULT, THE ENTIRE AMOUNT OF ` 5,65,483/- IS ALLOWED AS A DEDUCTION. THE APPEAL IS ALLOWED WITH NO ORDER AS TO COSTS. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH APRIL 2011. SD/- SD/- (B RAMAKOTAIAH) (R V EASWAR) ACCOUNTANT MEMBER PRESIDE NT MUMBAI, DATED 20 TH APRIL 2011 SALDANHA COPY TO: 1. INVESTOR SERVICES OF INDIA LIMITED IDBI BUILDING, A WING, 2 ND FLOOR RAJIV GANDHI MARG, SECTOR 11 CBD BELAPUR, NAVI MUMBAI 400 614 2. ACIT 10(3), MUMBAI 3.CIT-10, MUMBAI 4. CIT(A)-22, MUMBAI 5.DR I BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI