PRABHUDAS LILADHAR P.LTD, MUMBAI V. ASST CIT 4(2), MUMBAI

ITA 2372/MUM/2015

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9826 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 31-05-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 27-04-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: R P MEENA; AJAY PRATAP SINGH
• Keywords: Business income; Depreciation; Earning of tax free income; Wholly owned subsidiary; Bad and doubtful debts; Deemed dividend; Revenue expenditure; Reassessment proceedings; Capital expenditure
• Section: 143(3); 14A; 194C

Judgement Text

ITA(S). NO. 2372, 2373, 2500 &2501/MUM/2015 PRABHUDAS LI L ADHER PVT. LIMITED. 1 IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE SHRI G.S. PANNU , AM AND SHRI RAVISH SOOD, JM ./ I.T.A. NO S . 2372 & 2373/MUM/2015 ( / ASSESSMENT YEAR S: 2008 - 09 & 2010 - 11 ) PRABHUDAS LILADHAR PVT. LTD. 3 RD FLOOR, SADHANA HOUSE, 570, P.B. MARG, WORLI, MUMBAI - 400 018 / VS. ACIT, CIRCLE - 4(2) AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400 020 ./ ./ PAN/GIR NO. AAACP2733Q ( / APPELLANT ) : ( / RESPONDENT ) ./ I.T.A. NO S . 2500 & 2501/MUM/2015 ( / ASSESSMENT YEAR: 2008 - 09 & 2010 - 11 ) D CIT, - 4(2) (1) ROOM NO. 642, 6 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400 020 / VS. PRABHUDAS LILADHAR PVT. LTD. 3 RD FLOOR, SADHANA HOUSE, 570, P.B. MARG, WORLI, MUMBAI - 400 018 ./ ./ PAN/GIR NO. AAACP2733Q ( / APPELLANT ) : ( / RESPONDENT ) / A PPELLANT BY : SHRI VIPUL JOSHI, A . R. / RESPONDENT BY : SHRI AJAY PRATAP SINGH & SHRI R.P. MEENA, D.R. / DATE OF HEARING : 31 /05/2017 / DATE OF PRONOUNCEMENT : 23 /08/2017 ITA(S). NO. 2372, 2373, 2500 &2501/MUM/2015 PRABHUDAS LI L ADHER PVT. LIMITED. 2 / O R D E R PER RAVISH SOOD, JUDICIAL MEMBER : THE PRESENT CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE ARE DIRECTED A GAINST THE ORDER S PASSED BY THE CIT (A) , MUMBAI, IN THE CASE OF THE ASSESSEE COMPANY FOR A.Y. 2008 - 09 AND A.Y. 2010 - 11, BOTH DATED 25.02.2015, WHICH IN ITSELF ARISES FROM THE RESPECTIVE ASSESSMENTS FRAMED BY THE A.O. UNDER SEC. 143(3) R.W.S 147 OF THE INCOME - TAX ACT, 1961 (FOR SHORT ACT) . THAT AS CERT AIN COMMON ISSUES ARE INVOLVED IN THE SAID APPEALS, THEREFORE, THEY ARE BEING TAKEN UP TOGETHER AND DISPOSED OF BY WAY OF A COMMON ORDER . WE FIRST ADVERT TO THE APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER PASSED BY THE CIT(A) FOR A.Y. 2008 - 09 , MARKED AS ITA NO. 2372/MUM/2015 . THE ASSESSEE ASSAILING THE ORDER OF THE CIT(A) HAD RAISED BEFORE US THE FOLLOWING GROUNDS OF APPEAL: - 1.1 THE LEARNED COMMISSIONER OF IN COME TAX (APPEALS) - 8, MUM BAI [LD. CIT (A) ], ERRED IN CONFIRMING THE ACTION OF THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE - 4 (2), MUMBAI ['THE A.O.'] OF REOPENING THE ASSESSMENT AND FRAMING THE ASSESSMENT U/S. 147 OF THE INCOME TAX ACT, 1961 ['THE ACT']. 1.2 IT IS SUBMITTED THAT IN THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW THE REASSESSMENT WAS REQUIRED TO BE HELD AS BAD IN LAW. WITHOUT PREJUDICE TO THE ABOVE 2.1 THE LD. CIT(A) ERRED IN CONFIRMING THE ACTION OF THE A.O IN DISALLOWING RS. 7,30,032/ - , BEING THE EXPENSES INCURRED BY THE APPELLANT ON ACCE S S CHARGES FOR SOFTWARE AND LICENCES. 2.2 IT IS SUBMITTED THAT IN THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, TH E EXPENSES WERE FULLY ALLOWABLE. WITHOUT PREJUDICE TO THE ABOVE ITA(S). NO. 2372, 2373, 2500 &2501/MUM/2015 PRABHUDAS LI L ADHER PVT. LIMITED. 3 3.1 THE LD. CIT(A) ERRED IN NOT DELETING THE ADDITION OF RS. 7,04,76,593/ - [BEING 2% OF THE AMOUNT APPEARING IN THE AIR INFORMATION ] , MADE BY THE A.O ON ACCOUNT OF ALLEGED NON RECONCILIATION OF AIR DATA. 3.2 THE LD. CIT(A) ERRED IN, INSTEAD, SETTING ASIDE T HE GROUND TO THE A.O FOR MAKING VERIFICATION. 3.3 IT IS SUBMITTED THAT IN THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, NO SUCH ACTION WAS CALLED FOR. 4.1 THE LD. CIT(A) ERRED IN CONFIRMING THE ACTION OF THE A.O IN MAKING DISALLOWANCE OF RS. 3 2,41,761/ - U/S 14A OF THE ACT. 4.2 IT IS SUBMITTED THAT IN THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, NO SUCH DISALLOWANCE WAS CALLED FOR. 4.3 WITHOUT PREJUDICE TO THE ABOVE, IN THE ALTERNATIVE, ASSUMING B UT NOT ADMITTING - THAT SOME DISALL OWANCE WAS CALLED FOR, THE QUANTIFICATION TH EREOF IS NOT IN ACCORDANCE WITH THE LAW, IS ARBITRARY AND EXCESSIVE. 5. THE APPELLANT CRAVES TO ADD, AMEND, ALTER, DELETE OR MODIFY ALL OR ANY OF THE ABOVE GROUND AT THE TIME OF HEARING. 2. BRIEFLY STATED, T HE FACTS OF THE CASE TO THE EXTENT THE SAME ARE RELEVANT TO THE PRESENT APPEAL ARE THAT THE ASSESSEE COMPANY WHICH IS ENGAGED IN THE BUSINESS OF SHARE BROKING & TRADING AND INVESTMENTS, HAD FILED ITS RETURN OF INCOME FOR A.Y. 2008 - 09 ON 27.10.2008, DECLA RING AN INCOME OF RS. 32,06,09,560/ - . THE RETURN OF INCOME FILED BY THE ASSESSEE WAS PROCESSED AS SUCH UNDER SEC. 143(1) OF THE ACT. THE A.O SUBSEQUENT THERETO WAS IN RECEIPT OF INFORMATION THAT THE ASSESSEE HAD DURING THE YEAR UNDER CONSIDERATION RECEIVED AN AMOUNT OF RS. 1,35,00,000/ - FROM ITS S ISTER CONCERN , VIZ. M/S PRABH U DAS LILADHER CAPITAL MARKETS PVT. LTD. THE A.O HOLDING A CONVICTION THAT IN THE BACKDROP OF THE FACT THAT BOTH THE COMPANIES WERE WHOLLY OWNED SUBSIDIARY COMPANIES OF THEIR COMMON HOLDING COMPANY, VIZ. M/S PRABHUDAS LILADHER ADVISORY PR IVATE LIMITED, WHEREIN THE LATTER HAD 100% SHAREHOLDING IN BOTH THE COMPANIES, THEREFORE, THE AMOUNT OF RS. 1,35,00,000/ - (SUPRA) RECEIVED BY THE ASSESSEE FROM M/S PRABHUDAS LILADHER CAPITAL MARKETS PVT. LTD. COULD SAFELY BE HELD AS DEEMED DIVIDEND UNDER SEC. 2(22) (E) IN THE HANDS OF THE ASSESSE. THE A.O THUS ON THE BASIS OF HIS AFORESAID CONVICTION REOPENED THE C ASE OF THE ASSESSEE UNDER SEC. 147 OF THE ACT. ITA(S). NO. 2372, 2373, 2500 &2501/MUM/2015 PRABHUDAS LI L ADHER PVT. LIMITED. 4 3 . THAT THE ASSESSEE DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS ASSAILED THE VALIDITY OF THE REOPENING OF ITS CASE UNDER SEC. 147 OF THE ACT. THE A.O HOWEVER DID NOT FIND FAVOR WITH THE CONTENTIONS OF THE ASSESSEE, TO THE EXTENT THE LATTER HAD ASSAILED THE VALIDITY OF THE ASSUMPTION OF JURISDICTION BY THE A.O UNDER SEC. 147, AS WELL AS THE F RAMING OF THE CONSEQUENTIAL ASSESSMENT IN THE HANDS OF THE ASSESSEE. THE A.O BEING OF THE CONSIDERED VIEW THAT AS IN THE CASE OF THE ASSESSEE COMPANY THE INITIATION OF THE REASSESSMENT PROCEEDINGS FOR THE YEAR UNDER CONSIDERATION WAS NOT PRECEDED BY ANY EA RLIER ASSESSMENT U/S 143(3) FOR THE SAID YEAR, THEREFORE, THE CLAIM OF THE ASSESSEE THAT IN THE ABSENCE OF ANY NEW FACTS THE A.O HAD EXCEEDED HIS JURISDICTION AND INITIATED REASSESSMENT PROCEEDINGS ON THE BASIS OF A CHANGE IN OPINION WAS LIABLE TO BE REJ ECTED. THE A.O ALSO DID NOT FIND FAVOR WITH THE CLAIM OF THE ASSESSEE THAT THE REASSESSMENT PROCEEDINGS WERE LIABLE TO BE RESTRICTED TO THE REASONS ON THE BASIS OF WHICH THE CASE HAD BEEN REOPENED. THE A.O THUS CONCLUDING THAT THE REASSESSMENT PROCEEDINGS HAD VALIDLY BEEN INITIATED , THEREIN PROCEEDED WITH THE SAME . 4 . THE A.O DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS OBSERVED THAT THE ASSESSEE HAD DEBITED UNDER THE HEAD REPAIRS & MAINTENANCE AN AMOUNT OF RS. 18,25,080/ - PAID TO M/S FINANCIAL TECHNOLOGIES (I) LTD. FOR PURCHASE OF ODIN LICENSE . THE A.O BEING OF THE VIEW THAT THE ASSESSEE HAD MADE THE AFORESAID PAYMENT FOR PURCHASING A DEPRECIABLE ASSET, VIZ. COMPUTER SOFTWARE, THEREFORE, DISALLOWED THE SAME AS A REVENUE EXPENDITURE , AS CLAIMED BY THE ASSESSEE, BUT HOWEVER ALLOWED DEPRECIATION @60% ON THE SAME. THE A.O THUS ALLOWING A DEDUCTION OF RS. 10,95,048/ - TOWARDS DEPRECIATION , THEREIN MADE AN ADDITION OF THE BALANCE AMOUNT OF RS. 7,30,032/ - [ I.E RS. 18,25,080/ - ( - ) RS. 10,95,048/ - ] I N THE HANDS OF THE ASSESSEE. ITA(S). NO. 2372, 2373, 2500 &2501/MUM/2015 PRABHUDAS LI L ADHER PVT. LIMITED. 5 5. THE A.O FURTHER OBSERVED THAT THE ASSESSEE COULD NOT RECONCILE THE AIR INFORMATION AS AGAINST THE TRANSACTIONS INCORPORATED IN ITS BOOKS OF ACCOUNTS. THE A.O THUS BEING OF THE VIEW THE FACT THAT THE ASSESSEE HAD FAILED T O RECONCILE THE COMPLETE DATA, THEREFORE, DISALLOWED ON AN ESTIMATE BASIS 2% OF THE VALUE OF TRANSACTIONS APPEARING IN THE AIR AND MADE A CONSEQUENTIAL ADDITION OF RS. 7,04,26,593/ - . 6. THE A.O OBSERVED THAT THE ASSESSEE WHO DURING THE YEAR UNDER CONSIDE RATION HAD EARNED TAX FREE DIVIDEND INCOME OF RS. 7,19,872/ - ,WHICH WAS CLAIMED AS EXEMPT, HAD HOWEVER FAILED TO ALLOCATE ANY EXPENSE INCURRED FOR EARNING OF THE SAID TAX FREE INCOME. THE A.O THUS PROCEEDED WITH AND ON THE BASIS OF THE METHODOLOGY CONTEMPLATED UNDER SEC. 14A R.W RULE 8D, THEREIN WORKED OUT A DISALLOWANCE AGGREGATING TO RS. 32,41,761/ - UNDER RULE 8D(2) (II) AND (I II) IN THE HANDS OF THE ASSESSEE. THE A.O THUS ON THE BASI S OF HIS AFORESAID OBSERVATIONS ASSESSED THE INCOME OF THE ASSESSEE AT RS. 40,74,98,064/ - 7. THE ASSESSEE BEING AGGRIEVED WITH THE ADDITIONS/DISALLOWANCES MADE BY THE A.O, THEREIN CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). THE CIT(A) AFTER DELIBERATING ON THE CONTENTIONS RAISED BY THE ASSESSEE BEFORE HIM, THEREIN CONCLUDED IN RESPECT OF THE V ARIOUS ADDITIONS MADE BY THE A.O, WHICH TO THE EXTENT ARE RELEVANT TO THE APPEAL FILED BY THE ASSESSEE BEFORE US ARE BRIEFLY CULLED OUT AS UNDER: - (A). VALIDITY OF REOPENING OF THE ASSESSMENT : THE ASSESSEE THOUGH HAD ASSAILED THE VALIDITY OF THE REOPENING OF THE ASSESSMENT BEFORE THE CIT(A), HOWEVER, DURING THE COURSE OF HEARING OF THE APPEAL THE ASSESSEE DID NOT PRESS BEFORE THE CIT(A) THE GROUNDS ASSAILING THE VALIDITY OF THE REASSESSMENT PROCEEDINGS . THE CIT(A) THUS IN THE BACKDROP OF THE CONCE SSION OF THE ASSESSEE, DISMISSED THE GROUND S OF APPEAL RAISED BY THE ASSESSEE ON THE SAID COUNT BEFORE HIM. ITA(S). NO. 2372, 2373, 2500 &2501/MUM/2015 PRABHUDAS LI L ADHER PVT. LIMITED. 6 (B). PAYMENT MADE TOWARDS ODIN LICENSE FEES : - THE CIT(A) AFTER DELIBERATING ON THE CONTENTIONS OF THE ASSESSEE TH AT THE EXPENDITURE INCURRED TOWA RDS ODIN LICENSE FEES REPRESENTED THE ANNUAL LICENSE CHARGES WHICH WERE PAID TO USE THE SOFTWARE, AND THE SAME BEING OF A RECURRING NATURE , WHICH THUS HAD TO BE INCURRED ANNUALLY, WERE THEREFORE TO BE ALLOWED AS A REVENUE EXPENDITURE, HOWEVER, DID NOT FI ND FAVOR WITH THE SAID CLAIM OF THE ASSESSEE. THE CIT(A) BEING OF THE VIEW THAT THE ASSESSEE HAD MADE THE PAYMENT TO FINANCIAL TECHNOLOGIES (I) LTD. FOR PURCHASE OF SOFTWARE LICENSES, THEREFORE THE SAME BEING IN THE NATURE OF A CAPITAL EXPENDITURE , COULD NOT BE ALLOWED AS AN EXPENDITURE IN THE HANDS OF THE ASSESSEE. THE CIT(A) THUS UPHELD THE ORDER OF THE A.O AND RESTRICTED THE ENTITLEMENT OF THE ASSESSEE TO THE EXTENT OF DEPRECIATION OF RS. 10,95,048/ - WORKED OUT @60% OF THE VALUE OF THE SAID ASSET. ( C ). ADHOC ADDITION IN RESPECT OF IRRECONCILED AIR DATA : - THE CIT(A) BEING OF THE CONSIDERED VIEW THAT THOUGH THE ASSESSEE HAD GIVEN THE RECONCILIATION OF THE AIR DATA IN TH E FORM OF A HARD COPY, HOWEVER, AS THE A.O HAD NOT AFFORDED SUFFICIENT OPPORTUNITY TO THE ASSESSEE TO RECONCILE THE AIR DATA, THEREFORE, IN ALL FAIRNESS RESTORED THE ISSUE TO THE FILE OF THE A.O FOR FRESH CONSIDERATION AFTER AFFORDING REASONABLE OPPORTUNITY TO THE ASS ESSEE TO RECONCILE THE SAME. (D). DISALLOWANCE UNDER SEC. 14A : THE CIT(A) AFTER DELIBERATING ON THE CONTENTIONS OF THE ASSESSEE, THER E IN OBSERVED THAT THE A.O HAD AS PER SEC. 14A R.W RULE 8D RIGHTLY DISALLOWED THE EXPENSES RELATABLE TO THE EXEMPT INCOME EARNED BY THE ASSESEEE. THE CIT(A) THUS NOT FINDING FAVOR WITH THE CONTENTIONS RAISED BY THE ASSESSEE BEFORE HIM, THEREIN UPHELD THE DISALLOWANCE OF RS. 32,41,761/ - (SUPRA) MADE BY THE A.O. ITA(S). NO. 2372, 2373, 2500 &2501/MUM/2015 PRABHUDAS LI L ADHER PVT. LIMITED. 7 8. THE ASSESSEE BEING AGGRIEVED WITH THE ORDER OF THE CIT(A), T O THE EXTENT THE LATTER HAD UPHELD THE ADDITIONS/DISALLOWANCES MADE BY THE A.O , THEREIN CARRIED THE MATTER IN APPEAL BEFORE US. THE CONTENTIONS RAISED BY THE AUTHORIZED REPRESENTATIVES BEFORE US AND OUR OBSERVATIONS AS REGARDS THE SAME, ARE BRIEFLY CULLED OUT AS UNDER: - (A). VALIDITY OF REOPENING OF THE ASSESSMENT : (I). THE LD. AUTHORIZED REPRESENTATIVE (FOR SHORT A.R) FOR THE ASSESSEE AT THE VERY OUTSET OF THE HEARING OF THE APPEAL HAD SUBMITTED THAT HE WAS NOT PRESSING GROUND OF APPEAL NO. 1.1 AN D GROUND OF APPEAL NO. 1.2. THAT IN THE BACKDROP OF T HE AFORESAID CONCESSION OF THE LD. A.R, THE GROUND OF APPEAL NO. 1.1 AND GROUND OF APPEAL NO. 1.2 ARE DISMISSED AS NOT PRESSED. (B). PAYMENT MADE TOWARDS ODIN LICENSE FEES : - (I). THE LD. A.R SUBMITTED THAT THE LOWER AUTHORITIES HAD ERRED IN CHARACTERIZING THE EXPENDITURE OF RS. 18,25,080/ - INCURRED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION TOWARDS ACCESS CHARGES FOR SOFTWARE & LICENSES. THE LD. A.R SUBMITTED THAT THE SAID EXPENDITURE WAS INCURRED BY IT TOWARDS ANNUAL LICENSE CHARGES TO USE ODIN LICENSE, WHICH IS A MULTI EXCHANGE, MULTI CURRENCY FRONT OFFICE TRADING AND RISK MANAGEMENT SYSTEM THAT MAKES TRADING ON MULTIPLE MARKETS EASIER THROUGH THE USE OF A SINGLE APPLICAT ION. THE LD. A.R SUBMITTED THAT THE LOWER AUTHORITIES LOOSING SIGHT OF THE NATURE OF THE EXPENDITURE INCURRED BY THE ASSESSEE AND THE FACT THAT THE SAME WAS IN THE NATURE OF A RECURRING EXPENDITURE, HAD THUS WRONGLY CHARACTERIZED THE SAME AS A CAPITAL EXP ENDITURE AND RESTRICTED THE ENTITLEMENT OF THE ASSESSEE ONLY IN RESPECT OF THE DEPRECIATION OF RS. 10,95,048/ - ON THE SAME. THE LD. A.R IN ORDER TO DRIVE HOME HIS CONTENTION THAT ANNUAL LICENSE CHARGES PAID TO USE ODIN LICENSE WAS ALLOWABLE AS A REVENU E EXPENDITURE RELIED ON THE ORDER OF A COORDINATE BENCH OF THE ITAT , MUMBAI I BENCH IN THE CASE OF ANGEL CAPITAL & DEBT MARKET LTD. VS. ITA(S). NO. 2372, 2373, 2500 &2501/MUM/2015 PRABHUDAS LI L ADHER PVT. LIMITED. 8 ACIT (2008) 118 TTJ 351 (MUM). IT WAS SUBMITTED BY THE LD. A.R THAT THE TRIBUNAL IN THE AFORESAID CASE HAD APPLIED THE TESTS LAID DOWN BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF AMWAY INDIA ENTERPRISES VS. DY. CIT (2008) 114 TTJ (DE)(SB) 476, AND OBSERVED THAT THE EXPENDITURE INCURRED FOR PURCHASE OF ODIN LICENSE DID NOT LEAD TO ANY ENDURING BENEFIT. IT WAS SUBMITTED BY THE LD. A.R THAT THE TRIBUNAL AFTER DELIBERATING ON THE NATURE OF T HE AFORESAID EXPENDITURE HAD CONCLUDED THAT THE SAME COULD NOT BE CHARACTE RIZED AS A CAPITAL EXPENDITURE, AND WAS ALLOWABLE AS A REVENUE EXPENDITURE, AS CLAIMED BY THE ASSESSEE . THE LD. A.R IN SUPPORT OF HIS AFORESAID CONTENTION ALSO RELIED ON THE ORDER OF THE ITAT , CHENNAI C , BENCH IN THE CASE O F UNIFI CAPITAL PVT. LTD. VS. ACIT (ITA NO. 1810 & 1811/MDS/2014) ; DATED. 26.02.2016 . IT WAS THUS AVERRED BY THE LD. A.R THAT THE EXPENDITURE OF RS. 18,25,080/ - INCURRED BY THE ASSESSEE IN RESPECT OF ODIN LICENSE WAS ALLOWABLE AS A REVENUE EXPENDITURE, AND HAD WRONGLY BEEN HELD BY THE LOWER AUTHORITIES AS A CAPITAL EXPENDITURE . PER CONT RA, THE LD. D.R RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. (II). WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE FACTS OF THE CASE AND ARE OF THE CONSIDERED VIEW THAT THE EXPENDITURE OF RS. 18,25,080/ - INCURRED BY THE ASSESSEE WAS IN THE NATURE OF CHA RGES PAID BY THE ASSESSEE FOR CLIENT ACCESS LICENSE OF A SOFTWARE CALLED ODIN. WE HAVE DELIBERATED ON THE NATURE OF THE PAYMENTS MADE BY THE ASSESSEE BY WAY OF ANNUAL CHARGES TO USE ODIN LICENSE, WHICH WE FIND IS A MULTI EXCHANGE, MULTI CURRENCY FRONT OFF ICE TRADING AND RISK MANAGEMENT SYSTEM AND MAKES TRADING ON MULTIPLE MARKETS EASIER THROUGH THE USE OF A SINGLE APPLICATION. WE FIND THAT BY MAKING THE PAYMENTS TOWARDS ANNUAL LICENSE CHARGES TO USE ODIN , THEREIN FACILITATES ACCESS TO CERTAIN SOFTWARE USED BY THE SHARE BROKERS FOR ACCESSING NSE AND CONTROLLING THEIR TRADING FUNCTIONS. WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE WHO IS I N THE BUSINESS OF SHARE BROKING , HAD INCURRED THE EXPENDITURE TOWARDS ANNUAL LICENSE CHARGES TO USE ODIN FOR ITS BUSINE SS PURPOSES ONLY. WE FURTHER FIND THAT BY INCURRING THE ITA(S). NO. 2372, 2373, 2500 &2501/MUM/2015 PRABHUDAS LI L ADHER PVT. LIMITED. 9 AFORESAID EXPENDITURE THE OWNERSHIP OF THE SOFTWARE WAS NOT TRANSFERRED TO THE ASSESSEE, AS THE SAME IS ONLY FOR FACILITATING CLIENT ACCESS LICENCE. WE ARE OF THE CONSIDERED VIEW THAT IN THE BACKDROP OF THE AFORESAID FACTS, IT CAN SAFELY BE CONCLUDED THAT THE ASSESSEE BY INCURRING THE AFORESAID EXPENDITURE HAD NOT ACQUIRED ANY ENDURING BENEFIT, BUT THE SAME HAD ONLY FACILITATED SMOOTH FUNCTIONING OF ITS BUSINESS. WE FIND OURSELVES TO BE IN AGREEMENT WI TH THE VIEW ARRIVED AT BY THE COORDINATE BENCH OF ITAT, MUMBAI IN THE CASE OF ANGEL CAPITAL & DEBT MARKET LTD. VS. ACIT (2008) 118 TTJ 351 (MUM) , AND THUS BEING OF THE VIEW THAT THE EXPENDITURE OF RS. 18,25,080/ - INCURRED BY THE ASSESSEE TOWARDS ANNUAL CHARGES OF ODIN LICENSE WAS ALLOWABLE AS A REVENUE EXPENDITURE IN THE HANDS OF THE ASSESSEE. WE THUS SET ASIDE THE ORDER OF THE CIT(A), WHEREIN THE LATTER TREATING THE SAID EXPENDITURE AS HAVING BEEN INCURRED IN THE CAPITAL FIELD , HAD THUS RESTRICTED THE E NTITLEMENT OF THE ASSESSEE ONLY IN RESPECT OF THE DEPRECIATION RELATABLE THERETO. THE GROUND OF APPEAL NO. 2.1 AND GROUND OF APPEAL NO. 2.2 RAISED BY THE ASSESSEE ARE ALLOWED. (C). ADHOC ADDITION IN RESPECT OF IRRECONCILED AIR DATA : - (I). THE LD. A.R SUBMITTED THAT AS THE RECTIFICATION APPLICATION FILED BY THE ASSESSEE ON THE AFORESAID ISSUE HAD BEEN ALLOWED BY THE A.O, THEREFORE, THE GRIEVANCE OF THE ASSESSEE NO MORE SURVIVES. THE LD. A.R HAD PLACED ON RECORD THE COPY OF THE ORDER PASSED BY THE A .O UNDER U/S 154, DATED. 26.12.2015. THE LD. A.R IN THE BACKDROP OF THE AFORESAID FACTS THUS SUBMITTED THAT THE GROUND OF APPEAL NO. 3.1 TO 3.3 ARE THUS NOT BEING PRESSED. THAT IN THE BACKDROP OF THE AFORESAID CONCESSION OF THE LD. A.R, THE GROUND OF APP EALS NO. 3.1 TO 3.3 ARE DISMISSED AS NOT PRESSED. (D). DISALLOWANCE UNDER SEC. 14A : (I). THE LD. A.R ADVERTING TO THE DISALLOWANCE OF RS. 32,41,761/ - MADE BY THE A.O UNDER SEC. 14A OF THE ACT, THEREIN SUBMITTED THAT THE ASSESSEE ITA(S). NO. 2372, 2373, 2500 &2501/MUM/2015 PRABHUDAS LI L ADHER PVT. LIMITED. 10 COMPANY WAS ENGAGED IN THE BUSINESS OF STOCK BROKING AND DEALING IN SHARE RELATED ACTIVITIES. THE A.O HAD WORKED OUT THE AFORESAID DISALLOWANCE OF RS. 32,41,761/ - UNDER SEC. 14A R.W RULE 8D, AS UNDER: - (I). DISALLOWANCE OF INTEREST EXPENDITURE [RULE 8D(2)( II)]: RS. 26,51,552/ - (I I ). DISALLOWANCE OF MISC. EXPENDITURE[RULE 8D(2)(III)]: RS. 5,90,208/ - TOTAL : RS. 32,41,761/ - (II). THAT THE INVESTMENTS IN THE SHARES WAS MADE BY THE ASSESSEE IN THE PRECEDING YEARS , WHICH APPEARED IN THE BALANCE S HEET OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION, AS UNDER: - PARTICULARS OF INVESTMENTS AMOUNT EQUITY SHARES IN KHANDWALA SECURITIES LTD. RS. 1,47,33,378/ - EQUITY SHARES IN BOMBAY STOCK EXCHANGE LTD. RS. 2,21,14,474/ - TOTAL RS. 3,68,47,852/ - (III). THAT THE ASSESSEE HAD DURING THE YEAR RECEIVED A TOTAL DIVIDEND OF RS. 7,19,872/ - , BIFURCATED DETAILS OF WHICH WAS AS UNDER: - PART I CULARS DIVIDEND AMOUNT DIVIDEND RECEIVED ON SHARES HELD BY THE ASSESSEE AS INVESTMENTS, VIZ. EQUITY SHARES IN BSE AND INVESTMENTS IN MUTUAL FUNDS. RS. 5,72,345/ - DIVIDEND RECEIVED ON SHARES HELD BY THE ASSESSEE AS STOCK IN TRADE. RS. 1,47,527/ - TOTAL RS. 7,19,8 72 / - (I V ). THE ASSESSEE HAD CLAIMED BEFORE THE LOWER AUTHORITIES THAT NO PART OF THE INTEREST EXPENDITURE AND THE FINANCE CHARGES AS STOOD DEBITED IN ITS P & LOSS A/C WAS INCURRED IN RELATION TO EARNING OF THE EXEMPT INCOME. THE ASSESSEE RELATING THE ENTIRE AMOUNT OF INTEREST EXPENDITURE AND THE ITA(S). NO. 2372, 2373, 2500 &2501/MUM/2015 PRABHUDAS LI L ADHER PVT. LIMITED. 11 FINANCE CHARGES INCURRED BY IT DURING THE YEAR UNDER CONSIDERATION TO THE SPECIFIC PURPOSE S FOR WHICH THE INTEREST BEARING FUNDS HAD B EEN RAISED, HAD SUBMITTED BEFORE THE CIT(A), AS UNDER: - PARTICULARS OF INTEREST AND FINANCE CHARGES. BRIEF DETAILS INTEREST PAID TO THE BANK FOR OVERDRAFT RS. 69,98,642/ - BANK OVERDRAFT FACILITY HAD BEEN AVAILE FOR FUNDING THE BUSINESS OPERATIONS OF THE COMPANY. ACCORDINGLY, THE SAME HAS NOT BEEN INCURRED TOWARDS EARNING THE EXEMPT INCOME. ALSO THE APPELLANT HAS NOT MADE ANY FRESH INVESTMENT DURING THE YEAR AND HENCE BANK OVERDRAFT FACILITY CANNOT BE SAID TO BE UTILIZED FOR MAKING INVESTMENT GENERATI NG TAX FREE INCOME. INTEREST ON LOAN RS. 1,38,80,898/ - THUS INTEREST IS INCURRED TOWARDS THE ICD TAKEN FROM THE HOLDING COMPANY PRABHUDAS LILADHER ADVISORY SERVICES PRIVATE LTD., TEXSPIN PVT. LTD AND THE DIRECTORS O THE COMPANY. THE SAME WAS TAKEN TO FI NANCE THE BUSINESS ACTIVITIES OF THE COMPANY AND HAD NOT BEEN INCURRED TOWARDS EARNING EXEMPT INCOME. WE ARE ENCLOSING HEREWITH COPY OF EXTRACT OF BANK STATEMENTS REFLECTIN THE USAGE OF ICDS RECEIVED FOR THE PURPOSE OF THE BUSINESS OF THE APPELLANT [PAPER BOOK PAGE NO. 69 108]. ON PERUSAL OF SAME YOUR HONOUR WILL FIND THAT THE ICDS RECEIVED HAVE BEEN TRANSFERRED TO VARIOUS BANK ACCOUNTS AND FINALLY HAS BEEN TRANSFERRED TO CLIENT SETTLEMENMT ACCOUNT AND UTILIZED FOR SETTLEMENT OF EXCHANGE DUES. HENCE THIS FUND ALSO CANNOT BE SAID TO BE UTILIZED FOR MAKING INVESTMENT BY THE APPELLANT. FACTORING CHARGES RS. 26,29,795/ - THESE CHARGES HAD BEEN INCURRED BY THE COMPANY ON ACCOUNT OF SELLING THE RECEIVABLES OF THE COMPANY. ACCORDINGLY, THESE CHARGES ARE NOT C ONNECTED WITH EARNING ANY EXEMPT INCOME. OTHERS RS. 12,313/ - THESE MISCELLANEOUS FINANCE EXPENSES HAVE BEEN INCURRED FOR THE BUSINESS ACTIVITIES OF THE COMPANY AND ARE NOT CONNECTED TOWARDS EARNING ANY EXEMPT INCOME. THE AMOUNT REFLECTS THE INTEREST AMOUNT PAID ON MARGIN MONEY KEPT BY THE CLIENTS IN COURSE OF THE BUSINESS. HENCE THIS AMOUNT PAID ALSO CANNOT BE SAID TO BE CONNECTED WITH MAKING INVESTMENT OR EARNING TAX FREE INCOME. ITA(S). NO. 2372, 2373, 2500 &2501/MUM/2015 PRABHUDAS LI L ADHER PVT. LIMITED. 12 THE LD. A.R IN THE BACKDROP OF THE AFORESAID FACTUAL POSITION, THERE IN AVERRED THAT NOW WHEN THE ENTIRE AMOUNT OF THE FUNDS TO WHICH THE INTEREST EXPENDITURE AND FINANCE CHARGES PERTAINED, WERE PROVED NOT TO HAVE BEEN UTILIZED FOR EARNING OF THE EXEMPT INCOME, THEREFORE, NO PART OF THE SAID INTEREST EXPENDITURE/FINANC E CHARGES COULD HAVE BEEN DISALLOWED UNDER SEC. 14A R.W RULE 8D. IT WAS FURTHER AVERRED BY THE LD. A.R THAT NOW WHEN IT WAS THE CLAIM OF THE ASSESSEE THAT NO EXPENDITURE HAD BEEN INCURRED BY IT FOR EARNING THE DIVIDEND INCOME, THE SAME THUS COULD NOT HAVE BEEN SUMMARILY SCRAPPED BY THE A.O, AS WAS SO DONE IN THE PRESENT CASE. THE ASSESSEE HAD IN SUPPORT OF ITS AFORESAID CONTENTION RAISED BEFORE THE CIT(A) , HAD PLACED RELIANCE ON THE JUDGMENTS OF THE HONBLE HIGH COURT OF PUNJAB & HARYANA IN THE CASE OF CIT VS. DEEPAK MITTAL (2013) 86 CCH 051 (P&H) AND CIT II VS. M/S HERO CYCLES LIMITED (ITA NO. 331 OF 2009) . IT WAS SUBMITTED BY THE LD. A.R THAT THE INVESTMENTS IN THE SHARES AND THE MUTUAL FUNDS WAS MADE OUT OF THE DIVIDEND PROCEEDS. THE L D. A.R FURTHER SUBMITTED THAT THE DISALLOWANCE MADE BY THE A.O U/S 14A IN RESPECT OF THE DIVIDEND INCOME EARNED ON THE SHARES HELD BY THE ASSESSEE AS STOCK IN TRADE, WAS BEYOND THE PURVIEW OF THE SAID STATUTORY PROVISION. THE ASSESSEE IN SUPPORT OF ITS A FORESAID CONTENTION RELIED ON THE ORDER OF ITAT, MUMBAI, IN THE CASE OF YATISH TRADING CO.. P. LTD. VS. ACIT (2011) 129 ITD 237 (MUM) . THE LD. A.R FURTHER SUBMITTED THAT THE DISALLOWANCE UNDER SEC. 14A AND APPLICATION OF RULE 8D IS NOT AUTOMATIC. IT WAS AVERRED BY THE LD. A.R THAT THE PROVISIONS OF SEC. 14A CA N NOT BE APPLIED UNLESS THERE IS A PROXIMATE CAUSE (DIRECT OR INDIRECT RELATION) FOR DISALLOWANCE. IT W A S THUS SUBMITTED BY THE LD. A.R THAT APPLICATION OF PROVISION S OF SUB - SECTION (2) & (3) OF SECT ION 14A AND RULE 8D IS NOT AUTOMATIC IN EACH AND EVERY CASE WHERE THERE IS INCOME NOT FORMING PART OF TOTAL INCOME. PER CONTRA, THE LD. D.R RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. (V). WE HAVE HEARD THE AUTHORIZED REPRESENTATIVES FOR BOTH THE PARTIES, PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON ITA(S). NO. 2372, 2373, 2500 &2501/MUM/2015 PRABHUDAS LI L ADHER PVT. LIMITED. 13 RECORD. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE FACTS OF THE CASE AND FIND SUBSTANTIAL FORCE IN THE CONTENTIONS RAISED BY THE ASSESSEE BEFORE US. WE FIND OURSELVES TO BE IN AGREEMENT WITH THE VIEW ARRIVED AT BY THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF YATISH TRADING CO. P. LTD. VS. ACIT (2011) 129 ITD 237 (MUM) THAT NO DISALLOWANCE UNDER SEC. 14A IS LIABLE TO BE MADE IN RESPECT OF THE DIVIDEND INCOME EARNED BY THE ASSESSEE ON THE SHARES HELD AS STOCK IN TRADE. WE FURTHER ARE ALSO NOT IMPRESSED BY THE MANNER IN WHICH THE A.O HAD PROCEEDED WITH AND WORKED OUT THE DISALLOWANCE UNDER SEC. 14A R.W RULE 8D IN THE HANDS OF THE ASSESSEE. WE ARE OF THE CONSIDERED VIEW THAT NOW WHEN IT REMAINS AS A MATTER OF FACT THAT THE ASSESSEE HAD ESTABLISHED THE UTILIZATION OF THE LAST OF PAISA OF THE INTEREST BEARING FUNDS FOR THE S PECIFIC PURPOSES FOR WHICH SUCH AMOUNTS WERE RAISED IN THE COURSE OF ITS BUSINESS, AND THUS HAD PROVED THAT NO PART OF THE SAID INTEREST BEARING FUNDS WERE USED FOR MAKING INVESTMENTS IN SHARES OR FUNDS WHICH WERE GENERATING EXEMPT INCOME, THEREFORE, THE L OWER AUTHORITIES COULD NOT HAVE WHIMSICALLY BYPASSED THE SAID EXHAUSTIVE SUBMISSIONS OF THE ASSESSEE, AS PER THEIR CONVENIENCE , AND THEREIN SUMMARILY WORKED OUT THE DISALLOWANCE OF INTEREST EXPENDITURE OF RS. 26,51,552/ - (SUPRA) UNDER RULE 8D(2)(II) IN THE HANDS OF THE ASSESSEE. WE ARE FURTHER OF THE CONSIDERED VIEW THAT NOW WHEN IT WAS THE CLAIM OF THE ASSESSEE THAT NO PART OF THE EXPENSES INCURRE D WERE RELATABLE TO THE EARNING OF THE EXEMPT DIVIDEND INCOME, THE A.O. HOWEVER WITHOUT PROVIDING ANY EXPLANATI ON OR JUSTIFICATION FOR NOT ACCEPTING THE SAID CLAIM OF THE ASSESSEE , HAD HOWEVER MADE THE AFORESAID DISALLOWANCE OF RS . 32,41,761/ - (SUPRA) UNDER SECTION 14A R.W.R. 8D IN THE HANDS OF THE ASSESSEE. WE ARE OF THE CONSIDERED VIEW THAT AS HELD BY THE HONBLE HIGH COURT OF DELHI IN THE CASE OF CHEM I NVEST LTD. VS. CIT (2015) 378 ITR 0033 (DEL) AND THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF CA N A RA BANK VS. ACIT (2015) 228 T AXMAN 212 (KAR) , BEFORE THE A.O TAKES RECOURSE TO DETERMINATION OF EXPENDITURE UNDER RULE 8D, HE REMAIN S UNDER A STATUTORY OBLIGATION TO RECORD HIS SATISFACTION THAT HAVING REGARD TO ITA(S). NO. 2372, 2373, 2500 &2501/MUM/2015 PRABHUDAS LI L ADHER PVT. LIMITED. 14 THE ACCOUNTS OF THE ASSESSEE, AS PLACED BEFORE HIM, IT IS NOT POSSIBLE FOR HIM TO GENERATE THE REQUISITE SATISFACTION WITH REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE . WE FIND THAT THE HONBLE SUPREME COURT IN THE CASE OF GODREJ & BOY CE MANUFACTURING CO. LTD. VS. DCIT & A NR. (CIVIL APPEAL NO.7020 OF 2011 ; DATED . 08 . 05 . 2017) , HAD CLEARLY HELD THAT WHERE AN A.O MAKES A DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D(II) , WITHOUT ARRIVING AT A SATISFACTION AS REGARDS THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE ON THE BASIS OF THE LATTERS ACCOUNTS, AS WERE PLACED BEFORE HIM, THE SAME WOULD NOT BE SUSTAINABLE IN THE EYES OF LAW . 10. WE HAVE GIVEN A THO UGHTFUL CONSIDERATION TO THE FACTS OF THE CASE AND ARE OF THE CONSIDERED VIEW THAT THE VERY PROCESS OF DETERMINATION OF THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME WOULD BE TRIGGERED, ONLY IF THE A.O. RETURNS A FINDING THAT HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE. WE ARE OF THE CONSIDERED VIEW THAT IT IS ONLY IF THE A.O. IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE THAT NO EXPENDITURE HAD BEEN INCURRED I N RELATION TO THE EXEMPT INCOME, THEREIN ONLY AFTER RECORDING COGENT REASONS AS REGARDS THE SAME THAT THE A.O. CAN EMBARK UPON THE DETERMINATION OF THE AMOUNT OF EXPENDITURE , IN ACCORDANCE WITH THE METHOD PRESCRIBED IN SECTION 14A R.W. RULE 8D. WE ARE OF T HE CONSIDERED VIEW THAT OUR AFORESAID VIEW STANDS FORTIFIED BY THE RECENT JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF : GODREJ & BOYCE MANUFACTURING COMPANY LIMITED (SUPRA) , WHEREIN THE HONBLE APEX COURT HAD HELD AS UNDER: - WHETHER SUCH DETERM INATION IS TO BE MADE ON APPLICATION OF THE FORMULA PRESCRIBED UNDER RULE 8D OR IN THE BEST JUDGMENT OF THE ASSESSING OFFICER, WHAT THE LAW POSTULATES IS THE REQUIREMENT OF A SATISFACTION IN THE ASSESSING OFFICER THAT HAVING REGARD TO THE ACCOUNTS OF THE A SSESSEE, AS PLACED BEFORE HIM, IT IS NOT POSSIBLE TO GENERATE THE REQUISITE SATISFACTION WITH REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ITA(S). NO. 2372, 2373, 2500 &2501/MUM/2015 PRABHUDAS LI L ADHER PVT. LIMITED. 15 ASSESSEE. IT IS ONLY THEREAFTER THAT THE PROVISIONS OF SECTION 14A(2) AND (3) READ WITH RULE 8D OF THE RULES OR A BE ST JUDGMENT DETERMINATION, AS EARLIER PREVAILING, WOULD BECOME APPLICABLE. WE ARE OF THE CONSIDERED VIEW THAT IN THE PRESENT CASE THE A.O HAD FAILED TO SATISFY THE FUNDAMENTAL REQUIREMENT OF ARRIV ING AT A SATISFACTION THAT HAVING REGARD TO THE ACCOUNTS O F THE ASSESSEE, AS PLACED BEFORE HIM, IT WAS NOT POSSIBLE FOR HIM GENERATE THE REQUISITE SATISFACTION WITH REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE THAT NO EXPENDITURE HAD BEEN INCURRED BY IT IN RESPECT OF THE EXEMPT INCOME. WE THEREFORE IN T HE BACKDROP OF OUR AFORESAID OBSERVATIONS ARE THUS UNABLE TO PERSUADE OURSELVES TO UPHOLD THE DISALLOWANCE OF 32,41,761/ - MADE BY THE A.O UNDER SECTION 14A R.W. RULE 8D , WHICH THEREAFTER HAD BEEN SUSTAINED BY THE CIT(A). WE THUS SET ASIDE THE ISSUE FOR FR ESH ADJUDICATION TO THE FILE O F THE A.O. THE A.O SHALL ADJUDICATE THE ISSUE AS REGARDS THE DISALLOWANCE UNDER SEC. 14A R.W RULE 8D , IN THE BACKDROP OF THE PARAMETERS LAID DOWN BY THE HONBLE APEX COURT IN THE CASE OF GODREJ & BOYCE MANUF ACTURING COMPANY LI MITED (SUPRA) , AS WELL AS KEEPING IN VIEW OUR AFORESAID OBSERVATIONS. THE GROUND S OF APPEAL NO. 4.1 TO 4.3 ARE THUS ALLOWED FOR STATISTICAL PURPOSES. 11. THAT AS THE GROUND OF APPEAL NO. 5 IS GENERAL IN NATURE, THEREFORE, THE SAME IS DISMISSED AS NOT PRESSED. 1 2 . THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED IN TERMS OF OUR AFORESAID OBSERVATIONS . ITA NO. 2500/MUM/2015 A.Y: 2008 - 09 (APPEAL OF THE DEPARTMENT) 13. WE NOW TAKE UP THE APPEAL OF THE REVENUE FOR A.Y. 2008 - 09, MARKED AS ITA NO. 2500/MUM/2015 . THE REVENUE AGGRIEVED WITH THE ORDER OF THE ITA(S). NO. 2372, 2373, 2500 &2501/MUM/2015 PRABHUDAS LI L ADHER PVT. LIMITED. 16 CIT(A), HAD CARRIED THE MATTER IN APPEAL BEFORE US, THEREIN RAISING THE FOLLOWING GROUND OF THE APPEAL BEFORE US: - 1. ON THE FAC TS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS RIGHT IN HOLDING THAT THE AMOUNT CONSIDERED AS DIVIDEND U/S. 2(22)(E) IS TO BE TAXED IN THE HANDS OF THE SHAREHOLDER OF THE LENDER COMPANY AND NOT IN THE HANDS OF THE ASSESSEE COMPANY E VEN AFTER CONSIDERATION THE AMENDMENTS MADE BY THE FINANCE ACT 1987 TO SECTION 2(22)(E) OF THE INCOME TAX ACT, 1961. 2. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 14 . BRIEFLY STATED, THE SOLE ISSUE INVOLVED IN THE PRESENT APPEAL OF THE REVENUE PERTAINS TO THE ADDITION OF AN AMOUNT OF RS. 1,35,00,000/ - MADE BY THE A.O UNDER SEC. 2(22)(E). THE A.O OBSERVED THAT BOTH THE ASSESSEE AND ITS SISTER CONCERN, VIZ. M/S PRABHUDAS LILADHER CAPIT AL MARKETS PVT. LTD. (FOR SHORT PLCMPL) WERE WHOLLY OWNED SUBSIDIARY COMPANIES OF THEIR COMMON HOLDING COMPANY, VIZ. M/S PRABHUDAS LILADHER ADVISORY PRIVATE LIMITED (FOR SHORT PLAPL), WHEREIN THE LATTER HAD 100% SHAREHOLDING IN BOTH OF THE AFORESAID COMPANIES. THE A.O THUS HOLDING A CONVICTION THAT AS THE ASSESSEE COMPANY AND ITS S ISTER CONCERN, VIZ. M/S PRABHUDAS LILADHER CAPITAL MARKETS PVT. LTD. HAD A COMMON 100% SHARE HOLDING, THEREFORE, THE AMOUNT OF RS. 1,35,00,000/ - RECEIVED BY THE ASSESSEE F ROM ITS AFORESAID SISTER CONCERN, VIZ. M/S PRABHUDAS LILADHER CAPITAL MARKETS PVT. LTD., COULD SAFELY BE CHARACTERIZED AS A DEEMED DIVIDEND UNDER SEC. 2(22)(E) IN THE HANDS OF THE ASSESSEE. THE CONTENTION OF THE ASSESSEE THAT AS THE AFORESAID AMOUNT WA S GIVEN BY THE SISTER CONCERN, VIZ. M/S PRABHUDAS LILADHER CAPITAL MARKETS PVT. LTD. AS A DERIVATIVE MARGIN TO ITS BROKER, I.E THE ASSESSEE COMPANY ON 21.01.2008 FOR MAKING INVESTMENTS IN THE DERIVATIVE SEGMENTS, THEREFORE, THE SAME BEING AN AMOUNT RECEI VED ON THE BASIS OF A COMMERCIAL TRANSACTION COULD NOT BE ASSESSED AS A DEEMED DIVIDEND UNDER SEC. 2(22)(E) IN THE HANDS OF THE ASSESSEE, HOWEVER, DID NOT FIND FAVOR WITH THE A.O WHO PROCEEDED WITH AND ITA(S). NO. 2372, 2373, 2500 &2501/MUM/2015 PRABHUDAS LI L ADHER PVT. LIMITED. 17 HELD THE AMOUNT OF RS. 1,35,00,000/ - AS DEEMED DI VIDEND IN THE HANDS OF THE ASSESSEE. THE A.O HOWEVER RESTRICTED THE ADDITION TO THE EXTENT OF THE RESERVES AND SURPLUS OF THE S ISTER CONCERN, VIZ. M/S PRABHUDAS LILADHER CAPITAL MARKETS PVT. LTD. AND RESTRICTED THE ADDITION UNDER SEC. 2(22)(E) IN THE HA NDS OF THE ASSESSEE COMPANY AT RS. 1,24,90,121/ - . 15. T HE ASSESSEE BEING AGGRIEVED WITH THE ASSESSMENT ORDER THER E IN CARRIED THE MATER IN APPEAL BEFORE THE CIT(A). THE CIT(A) DELIBERATING ON THE TREATING OF THE AMOUNT OF RS. 1,35,00,000/ - RECEIVED BY T HE ASSESSEE COMPANY FROM ITS SISTER CONCERN, VIZ. M/S PRABHUDAS LILADHER CAPITAL MARKETS PVT. LTD. AS A DEEMED DIVIDEND UNDER SEC. 2(22)(E) OF THE ACT BY THE A.O, LEADING TO A CONSEQUENTIAL ADDITION OF RS. 1,24,90,121/ - (I.E RESTRICTED UPTO THE AMOUNT OF ACCUMULATED PROFIT AVAILABLE WITH THE SISTER CONCERN), THEREIN OBSERVED THAT THE AFORESAID AMOUNT HAD BEEN TREATED BY THE A.O AS A DEEMED DIVIDEND , FOR THE REASON THAT BOTH THE COMPANIES WERE THE WHOLLY OWNED SUBSIDIARY (WOS) COMPANIES OF A CO MMON HOLDING COMPANY, VIZ. M/S PRABHUDAS LILADHER ADVISORY PRIVATE LIMITED (FOR SHORT PLAPL), WHEREIN THE LATTER HELD 100% SHAREHOLDING OF BOTH OF THE AFORESAID COMPANIES. THE CIT(A) AFTER DELIBERATING ON THE CONTENTIONS OF THE ASSESSEE RAISED BEFORE HIM IN THE BACKDROP OF THE FACTS OF THE CASE, THEREIN CONCLUDED AS UNDER: - ON LEGAL ISSUE : (I). THE CIT(A) OBSERVED THAT THE ASSESSEE COMPANY DURING THE YEAR UNDER CONSIDERATION WAS IN RECEIPT OF AN AMOUNT OF RS. 1,35,00,000/ - FROM ITS SISTER CONCERN, VIZ. M/S PRABHUDAS LILADHER CAPITAL MARKETS PVT. LTD. IT WAS FURTHER OBSERVED BY THE CIT(A) T HAT THE A.O HAD ASSESSED THE AFORESAID AMOUNT RECEIVED BY THE ASSESSEE COMPANY FROM ITS SISTER CONCERN AS DEEMED DIVIDEND, FOR THE REASON THAT BOTH THE COMPANIES WERE THE WHOLLY OWNED SUBSIDIARY (WOS) COMPANIES OF A COMMON HOLDING COMPANY, VIZ. M/S PRABHUDAS LILADHER ADVISORY PRIVATE LIMITED (FOR SHORT PLAPL), ITA(S). NO. 2372, 2373, 2500 &2501/MUM/2015 PRABHUDAS LI L ADHER PVT. LIMITED. 18 WHEREIN THE LATTER HELD 100% SHAREHOLDING OF BOTH OF THE AFORESAID COMPANIES. THE CIT(A) BEING OF THE VIEW THAT AS PER THE ORDER OF THE SPECIAL BENCH OF THE ITAT, MUMBAI IN THE CASE OF ACI T VS. BHAUMIK COLOR (P) LTD. (2009) 118 ITD 1 AND THE JUDGMENT OF THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF ACIT VS. BRITTO AMUSEMENT (P) LTD. (2014) 49 TAXMANN. COM 256 , THE AMOUNTS OR ADVANCES RECEIVED BY THE ASSESSEE COMPANY FROM ANOTHER COMPAN Y COULD NOT BE TREATED AS DEEMED DIVIDEND WHEN THE ASSESSEE COMPANY WAS NOT A SHAREHOLDER OF THE OTHER COMPANY. THE CIT(A) THUS BEING OF THE CONSIDERED VIEW THAT THOUGH IT REMAINED AS A MATTER OF FACT THAT BOTH THE ASSESSEE COMPANY AND ITS SISTER CONCER N VIZ. M/S PRABHUDAS LILADHER CAPITAL MARKETS PVT. LTD. WERE THE WOS OF A COMMON HOLDING COMPANY, VIZ. M/S PRABHUDAS LILADHER ADVISORY PRIVATE LIMITED, HOWEVER, AS THE ASSESSEE COMPANY WAS NOT HAVING ANY SHAREHOLDING IN ITS SISTER CONCERN, VIZ. M/S PRAB HUDAS LILADHER CAPITAL MARKETS PVT. LTD., THEREFORE , THE PRECONDITION FOR ASSESSING THE AMOUNT AS A DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE COMPANY WAS NOT SATISFIED. THE CIT(A) THUS TAKING SUPPORT OF THE ORDER OF THE SPECIAL BENCH OF THE ITAT, M UMBAI IN THE CASE OF BHAUMIK COLOR (P) LTD. (SUPRA) AND THE JUDGMENT OF THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF BRITTO AMUSEMENT (P) LTD. (SUPRA), THERE IN CONCLUDED THAT THE AMOUNT RECEIVED BY THE ASSESSEE COMPANY FROM ITS SISTER CONCERN, VIZ. M/S PRABHUDAS LILADHER CAPITAL MARKETS PVT. LTD., ON THE SAID GROUND ITSELF COULD NOT BE TREATED AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE UNDER SEC. 2(22)(E) OF THE ACT. ON FACTS : (II). THE CIT(A) FURTHER DELIBERATING ON THE FACTS OF THE CASE, THER E IN FOUND FAVOR WITH THE CONTENTION OF THE ASSESSEE THAT THE ASSESSEE COMPANY HAD RECEIVED THE AFORESAID AMOUNT OF RS. 1,35,00,000/ - (SUPRA) FROM ITS SISTER CONCERN, VIZ. M/S PRABHUDAS LILADHER CAPITAL MARKETS PVT. LTD., AS MARGIN ITA(S). NO. 2372, 2373, 2500 &2501/MUM/2015 PRABHUDAS LI L ADHER PVT. LIMITED. 19 MONEY FOR DERIVATIVE TRADING . THE CIT(A) THUS OBSERVED THAT AS THE AFORESAID AMOUNT WAS RECEIVED BY THE ASSESSEE IN THE COURSE OF ITS BUSINESS AS THAT OF A STOCK BROKER, THEREFORE, THE SAME COULD NOT BE CHARACTERIZED AS A DEEMED DIVIDEND IN THE HANDS OF THE A SSESSEE. THE CIT(A) WHILE ARRIVING AT THE AFORESAID VIEW TOOK SUPPORT OF THE JUDGMENT OF THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF CIT VS. NAGINDAS M. KAPADIA (177 ITR 393) . THE CIT(A) THUS ON THE BASIS OF HIS AFORESAID OBSERVATIONS HELD THAT TH E AMOUNT OF RS. 1,35,00,000/ - RECEIVED BY THE ASSESSEE FROM ITS SISTER CONCERN, VIZ. M/S PRABHUDAS LILADHER CAPITAL MARKETS PVT. LTD., COULD NOT BE TREATED AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE. THE CIT(A) THUS DELETED THE ADDITION OF RS. 1,2 4,90,121/ - (SUPRA) MADE BY THE A.O. 16. THE REVENUE BEING AGGRIEVED WITH THE ORDER OF THE CIT(A) HAD THEREIN CARRIED THE MATTER IN APPEAL BEFORE US. THE LD D.R PLACED HEAVY RELIANCE ON THE ORDER OF THE A.O. THE LD. D.R SUBMITTED THAT THE A.O AFTER DULY AP PRECIATING THAT ALL THE CONDITIONS CONTEMPLATED UNDER SEC. 2(22)(E) STOOD SATISFIED, HAD RIGHTLY TREATED THE AMOUNT OF RS. 1,35,00,000/ - RECEIVED BY THE ASSESSEE FROM ITS SISTER CONCERN, VIZ. M/S PRABHUDAS LILADHER CAPITAL MARKETS PVT. LTD. AS A DEEMED DIVIDEND. IT WAS SUBMITTE D BY THE LD. D.R THAT AS THE CIT(A) HAD FAILED TO APPRECIATE THE FACTS OF THE CASE IN CONTEXT OF THE ISSUE UNDER CONSIDERATION, IN THE RIGHT PERSPECTIVE, THEREFORE HIS ORDER ON THE SAID ISSUE WAS LIABLE TO BE VACATED. PER CONTRA, THE LD. A.R RELIED ON THE ORDER OF THE CIT(A). THE LD. A.R SUBMITTED THAT THE CIT(A) HAD RIGHTLY OBSERVED THAT THE AMOUNT RECEIVED BY THE ASSESSEE FROM ITS SISTER CONCERN, VIZ. M/S PRABHUDAS LILADHER CAPITAL MARKETS PVT. LTD. IN THE BACKDROP OF THE FACTS READ IN LIGHT OF THE SETTLED POSITION OF LAW, COULD NOT BE ASSESSED AS A DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE. THE LD. A.R IN ORDER TO DRIVE HOME HIS AFORESAID CONTENTION , THEREIN RELIED ON A JUDGMENT OF THE HONBLE HIGH COUT OF BOMBAY IN THE CASE OF CIT VS. ITA(S). NO. 2372, 2373, 2500 &2501/MUM/2015 PRABHUDAS LI L ADHER PVT. LIMITED. 20 UNIVERSAL MEDICARE (P) LTD. (2010) 190 TAXMAN 144 (BOM). THE LD. A.R TAKING SUPPORT OF THE AFORESAID JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT , THEREIN SUBMITTED THAT AN AMOUNT CAN ONLY BE ASSESSED AS DE EMED DIVIDEND IN THE HANDS OF A SHAREHOLDER. THE LD. A.R THUS AVERRED THAT THE CIT(A) DULY APPRECIATING THE FACTS OF THE CASE IN THE BACKDROP OF THE SETTLED POSITION OF LAW, HAD THEREIN RIGHTLY VACATED THE ADDITION MADE BY THE A.O AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE COMPANY. THE LD. A.R FURTHER SUBMITTED THAT EVEN OTHERWISE AS THE AMOUNTS WERE RECEIVED BY THE ASSESSEE IN THE NORMAL COURSE OF ITS BUSINESS AS A SHARE BROKER, AS A MARGIN MONEY FROM M/S PRABHUDAS LILADHER CAPITAL MARKETS PVT. L TD., FOR FACILITATING DERIVATIVE TRANSACTIONS , THEREFORE, THE SAME AS HAD RIGHTLY BEEN APPRECIATED BY THE CIT(A), COULD NOT BE CHARACTERIZED AS A DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE COMPANY. IT WAS THUS SUBMITTED BY THE LD. A.R THAT THE APPEAL O F THE REVENUE WAS BEREFT OF ANY MERIT AND WAS THUS LIABLE TO BE DISMISSED. 17. WE HAVE HEARD THE AUTHORIZED REPRESENTATIVES FOR BOTH THE PARTIES, PERUSED THE ORDERS OF T H E LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON RECORD. WE HAVE GIVEN A THOUGHT FUL CONSIDERATION TO THE FACTS OF THE CASE AND FIND OURSELVES TO BE IN AGREEMENT WITH THE OBSERVATIONS RECORDED BY THE CIT(A), BOTH ON THE LEGAL AND FACTUAL ISSUE, THAT THE AMOUNT OF RS. 1,35,00,000/ - RECEIVED BY THE ASSESSEE FROM M/S PRABHUDAS LILADHER CA PITAL MARKETS PVT. LTD. COULD NOT CHARACTERIZED AS A DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE. WE ARE OF THE CONSIDERED VIEW THAT THOUGH IT REMAINS AS A MATTER OF FACT THAT BOTH THE ASSESSEE AND ITS SISTER CONCERN, VIZ. M/S PRABHUDAS LILADHER CAPIT AL MARKETS PVT. LTD. WERE WHOLLY OWNED SUBSIDIARY COMPANIES OF THEIR COMMON HOLDING COMPANY, VIZ. M/S PRABHUDAS LILADHER ADVISORY PRIVATE LIMITED, WHEREIN THE LATTER HAD 100% SHAREHOLDING IN BOTH OF THE AFORESAID COMPANIES, HOWEVER, AS THE ASSESSEE COMPA NY WAS NOT A SHAREHOLDER IN M/S PRABHUDAS LILADHER CAPITAL MARKETS PVT. LTD.(SUPRA), THEREFORE, IRRESPECTIVE OF THE NATURE OF THE AMOUNT ITA(S). NO. 2372, 2373, 2500 &2501/MUM/2015 PRABHUDAS LI L ADHER PVT. LIMITED. 21 OF RS. 1,35,00,000/ - RECEIVED BY THE ASSESSEE FROM THE SAID COMPANY, VIZ. PRABHUDAS LILADHER CAPITAL MARKETS PVT. LTD., THE SAME COULD NOT BE TREATED AS A DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE UNDER SEC. 2(22)(E) OF THE ACT. WE FIND THAT FOR ASSESSING AN AMOUNT AS A DEEMED DIVIDEND U/S 2(22)(E), THE FUNDAMENTAL PRECONDITION IS THAT THE RECIPIENT SHOULD BE EITH ER A PERSON WHO IS THE BENEFICIAL OWNER OF SHARES (NOT BEING SHARES ENTITLE D TO A FIXED RATE OF DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN PROFITS) HOLDING NOT LESS THAN TEN PERCENT OF THE VOTING POWER, OR IS A CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS SUBSTANTIAL INTEREST OR ANY PAYMENT BY ANY SUCH COMPANY ON BEHALF, OR FOR THE INDIVIDUAL BENEFIT, OF ANY SUCH SHAREHOLDER. WE FIND THAT IN THE PRESENT CASE THE PAYMENT OF RS. 1,35,00,000/ - MADE BY M/S PRABHUDAS LILADHER CAPITAL MARKETS PVT. LTD. TO THE ASSESSEE COMPANY, IS NEITHER A PAYMENT TO A SHAREHOLDER, NOR TO A CONCERN IN WHIC H SUCH SHAREHOLDER IS A MEMBER OR A PARTNER, OR ON BEHALF OF OR FOR THE INDIVIDUAL BENEFIT OF SUCH SHAREHOLDER, THEREFORE, ON THE SAID COUNT ITSELF THE SAID AMOUNT CANNOT BE TREATED AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE. WE FIND THAT OUR AFORES AID VIEW STANDS FORTIFIED BY THE JUDGMENT OF THE HONBLE HIGH COURT OF BOMBAY IN THE FOLLOWING CASES: (I). CIT VS. UNIVERSAL MEDICARE (P) LTD.(2010) 190 TAXMAN 144 (BOM) (II). ACIT VS. BRITTO AMUSEMENT (P) LTD. (2014) 49 TAXMANN.COM 256 18. WE FURTHER AFTER DELIBERATING ON THE FACTS OF THE CASE, FIND OURSELVES TO BE IN AGREEMENT WITH T HE VIEW ARRIVED AT BY THE CIT(A) THAT AS THE AMOUNT OF RS . 1,35,00,000/ - (SUPRA) WAS GIVEN BY THE SISTER CONCERN, VIZ. M/S PRABHUDAS LILADHER CAPITAL MARKETS PVT. LTD. AS A DERIVATIVE MARGIN TO ITS BROKER, I.E THE ASSESSEE COMPANY ON 21.01.2008 FOR MAKING INVESTMENTS IN THE DERIVATIVE SEGMENTS, THEREFORE, THE SAME BEING AN AMOUNT RE CEIVED BY THE ASSESSEE IN THE NORMAL COURSE OF ITS BUSINESS OF SHARE BROKING, THUS COULD NOT BE ASSESSED AS A DEEMED DIVIDEND UNDER SEC. 2(22)(E) IN THE ITA(S). NO. 2372, 2373, 2500 &2501/MUM/2015 PRABHUDAS LI L ADHER PVT. LIMITED. 22 HANDS OF THE ASSESSEE. WE FIND THAT T HE FACT THAT THE AFORESAID AMOUNT WAS RECEIVED BY THE ASSESSEE IN THE COURSE OF ITS BUSINESS AS A SHARE BROKER, STANDS FORTIFIED FROM THE VERY FACT THAT THE SAID AMOUNT SO RECEIVED BY THE ASSESSEE FROM ITS SISTER CONCERN, VIZ. M/S PRABHUDAS LILADHER CAPITAL MARKETS PVT. LTD. WAS DEPOSITED IN THE CLIENT ACCOUNT AND N OT IN THE ACCOUNT OF THE ASSESSEE, WHICH THUS JUSTIFIES THE CLAIM OF THE ASSESSEE THAT THE SAID AMOUNT WAS RECEIVED FOR EXECUTION OF DERIVATIVES TRADING ON BEHALF OF M/S PRABHUDAS LILADHER CAPITAL MARKETS PVT. LTD. WE ARE THUS OF THE CONSIDERED VIEW THAT AS THE AFORESAID AMOUNT WAS RECEIVED BY THE ASSESSEE IN THE NORMAL COURSE OF ITS BUSINESS AS THAT OF A SHARE BROKER, THEREFORE, THE SAME COULD NOT BE HELD AS DEEMED DIVIDEND. WE FIND THAT OUR AFORESAID VIEW IS SUPPORTED BY THE FOLLOWING ORDERS: (I). CI T VS. NAGINDAS M. KAPADIA (1989) 177 ITR 393(BOM) (II). ACIT VS. SUNIL CHOPRA (2010) 2 ITR (T) 469 (DEL) (III). CIT VS. CREATIVE DYEING & PRINTING (P) LTD. 318 ITR 476 (DEL) WE THUS ON THE BASIS OF OUR AFORESAID OBSERVATIONS ARE OF THE CONSIDERED VIEW, THAT EVEN OTHERWISE ON MERITS , THE AMOUNT OF RS. 1,35,00,000/ - (SUPRA) RECEIVED BY THE ASSESSEE COMPANY FROM M/S PRABHUDAS LILADHER CAPITAL MARKETS PVT. LTD., IN THE NORMAL COURSE OF ITS BUSINESS OF A SHARE BROKER, THUS BEING AN AMOUNT RE CEIVED ON THE BASIS OF A COMMERCIAL TRANSACTION, ON THE SAID TOO COULD NOT BE ASSESSED AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE UNDER SEC. 2(22)(E). 19. THE GROUND OF APPEAL 1 RAISED BY THE REVENUE BEFORE US IS DISMISSED. 20. THAT AS THE GROUND OF APPEAL NO. 2 IS GENERAL IN NATURE, THEREFORE, THE SAME IS DISMISSED AS NOT PRESSED. 21 . THE APPEAL OF THE REVENUE IS DISMISSED. ITA(S). NO. 2372, 2373, 2500 &2501/MUM/2015 PRABHUDAS LI L ADHER PVT. LIMITED. 23 ITA NO. 2373/MUM/2015 A.Y: 2010 - 11 (APPEAL OF THE ASSESSEE) 22. WE NOW TAKE UP THE APP EAL OF THE ASSESSEE FOR A.Y. 20 10 - 11 , MARKED AS ITA NO. 2373 /MUM/2015 . THE ASSESSEE ASSAILING THE ORDER OF THE CIT(A) HAD THEREIN CARRIED THE MATTER IN APPEAL BEFORE US, RAISING THE FOLLOWING GROUNDS OF THE APPEAL BEFORE US: - 1.1 THE LEARNED COMM ISSIONER OF INCOME TAX (APPEALS) - 8, MUMBAI ['LD. CIT (A)'] ERRED IN NOT DELETING THE ADDITION OF RS. 6,11,208/ - , MADE BY THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE - 4 (2), MUMBAI ['THE A.O.'] ON ACCOUNT OF ALLEGED DIFFERENCE IN THE AMOUNT OF DIVIDEND EARNED BY THE APPELLANT. 1.2 THE LD. CIT (A) ERRED IN, INSTEAD, SETTING ASIDE THE GROUND TO THE A.O. FOR MAKING VERIFICATION. 1.3 IT IS SUBMITTED THAT IN THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, NO SUCH ACTION WAS CALLED FOR. 2.1 THE LD. CIT (A) ERRED IN NOT DELETING THE ADDITION OF RS. 97,77,824/ - , MADE BY THE A.O. ON ACCOUNT OF DISALLOWANCE OF DEDUCTION CLAIMED BY THE APPELLANT WITH RESPECT TO THE BALANCES WRITTEN OFF. 2.2 THE LD. CIT (A) ERRED IN, INSTEAD, SETTING ASIDE THE GROUND TO THE A.O, FOR MAKING VERIFICATION. 2.3 IT IS SUBMITTED THAT IN THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, NO SUCH ACTION WAS CALLED FOR. 3.1 THE LD. CIT(A) ERRED IN CONFIRMING THE ACTION OF THE A.O IN MAKING ADDITION OF RS. 46,77,377/ - , BEING THE EXPENSES CLAIMED BY THE APPELLANT ON ACCOUNT OF SOFTWARE EXPENSES. 3.2 IT IS SUBMITTED THAT IN THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN L AW, NO SUCH DISALLOWANCE WAS CALLED FOR. 4.1 THE LD. CIT(A) ERRED IN NOT DELETING THE ADDITION OF RS. 10,52,97,800/ - , [BEING 2% OF THE AMOUNT APPEARING IN THE AIR INFORMATION], MADE BY THE A.O ON ACCOUNT OF ALLEGED NON RECONCILIATION OF AIR DATA. 4.2 T HE LD. CIT(A) ERRED IN, INSTEAD, SETTING ASIDE THE GROUND TO THE A,O FOR MAKING VERIFICATION. ITA(S). NO. 2372, 2373, 2500 &2501/MUM/2015 PRABHUDAS LI L ADHER PVT. LIMITED. 24 4.3 IT IS SUBMITTED THAT IN THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, NO SUCH ACTION WAS CALLED FOR. 5.1 THE LD. CIT(A) ERRED IN CONFIRMING THE A CTION OF THE A.O IN MAKING DISALLOWANCE OF RS. 60,38,279/ - U/S 14A OF THE ACT. 5.2 IT IS SUBMITTED THAT IN THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, NO SUCH DISALLOWANCE WAS CALLED FOR. 5.3 WITHOUT PREJUDICE TO THE ABOVE, IN THE ALTERNATI VE, ASSUMING - BIT NOT ADMITTING - THAT SOME DISALLOWANCE WAS CALLED FOR, THE QUANTIFICATION T HEREOF IS NOT IN ACCORDANCE WITH THE LAW, IS ARBITRARY AND EXCESSIVE. 2 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE HAD FILED ITS RETURN OF INCOME FOR A.Y. 2010 - 11, DECLARING AN INCOME OF RS. 7,57,32,510/ - . THE ASSESSMENT IN THE CASE OF THE ASSESSEE WAS FRAMED ON 13.03.2013 AND THE INCOME OF THE ASSESSEE WAS ASSESSED AT RS. 24,76,83,830/ - AFTER MAKING CERTAIN ADDITIONS/DISALLOWANCES, WHICH TO THE EXTENT RELEVANT TO THE PRESENT APPEAL OF THE ASSESSEE, ARE CULLED OUT AS UNDER: - S.NO. PARTICULARS OF ADDITIONS/DISALLOWANCE AMOUNT 1. DIFFERENCE IN THE DIVIDEND INCOME RS. 6,11,208/ - 2. AMOUNT OF LOSS PERTAINING TO WRITING OFF OF BALANCES. RS. 97,77,824/ - 3. DISALLOWANCE BY TREATING THE EXPENSES INCURRED TOWARDS OBTAINING LICENCES, SOFTWARE ETC. AS CAPITAL EXPENSE. RS. 46,77,377/ - 4. AD - HOC ADDITION ON ACCOUNT OF ALLEGED NON - RECONCILIATION OF AIR DATA. RS. 10,52,97,800/ - 5. DISALLOWANCE U/S 14A R.W RULE 8D. RS. 60,38,279/ - 2 4. THE ASSESSEE BEING AGGRIEVED WITH THE AFORESAID ADDITIONS/DISALLOWANCE MADE BY THE A.O, THEREIN CARRIED THE MATTER IN ITA(S). NO. 2372, 2373, 2500 &2501/MUM/2015 PRABHUDAS LI L ADHER PVT. LIMITED. 25 APPEAL BEFORE THE CIT(A). THE OBSERVATIONS OF THE CIT(A) IN RESPECT OF THE VARIOUS DISALLOWANCES/ADDITIONS AFTER DELIBERATING ON THE VARIOUS CONTENTIONS OF THE ASSESSEE BEFORE HIM, ARE BRIEFLY CULLED OUT AS UNDER: - ( A). DIFFERENCE IN THE DIVIDEND INCOME : FACTS : (I) . THE A.O HAD DURING THE COURSE OF THE ASSESSMENT OBSERVED THAT WHILE FOR THE ASSESSEE HAD IN ITS COMPUTATION OF INCOME CLAIMED AN AMOUNT OF RS. 9,65,843/ - AS EXEMPTED DIVIDEND INCOME, HOWEVER, IN THE P & LOSS A/C THE DIVIDEND INCOME OF ONLY RS. 6,11,208/ - W A S REFLECTED. THE A.O FURTHER OBS ERVED THAT AS PER THE DETAILS FURNISHED BY THE ASSESSEE, THE DIVIDEND INCOME WAS SHOWN AT RS. 3,54,635/ - . T H E A.O THUS HOLDING A CONVICTION THAT AS TO WHAT EXTENT THE DIVIDEND INCOME WAS EARNED BY THE ASSESSEE COULD NOT BE ASCERTAINED , THUS RESTRICTED THE DIVIDEND INCOME AT RS. 3,54,635/ - AND ADDED THE REMAINING AMOUNT OF RS. 6,11,208/ - [ I.E RS. 9,65,843/ - ( - ) RS. 3,54,635/ - ] TO THE INCOME OF THE ASSESSEE COMPANY. (II). THE ASSESSEE SUBMITTED BEFORE THE CIT(A) THAT IT HAD DURING THE YEAR EARNED DIVIDEND INCOME OF RS. 9,65,843/ - . IT WAS SUBMITTED BY THE ASSESSEE THAT WHILE FOR THE DIVIDEND INCOME OF RS. 6,11,208/ - WAS GROUPED UNDER THE HEAD DIVIDEND INCOME AND WAS REFLECTED IN SCHEDULE 13 OTHER INCOME OF THE P & LOSS A/C, WH I LE FOR THE BALANCE DI VIDEND INCOME OF RS. 3,54,635/ - WAS GROUPED UNDER THE HEAD MISCELLANEOUS INCOME IN THE SAME SCHEDULE. THE ASSESSEE THUS IN THE BACKDROP OF THE AFORESAID FACTS AVERRE D THAT THE ENTIRE AMOUNT OF DIVIDEND INCOME OF RS. 9,65,843/ - BE TREATED AS EXEMPT. C ONCLUSION : (I). THE CIT(A) AFTER DELIBERATING ON THE CONTENTIONS OF THE ASSESSEE, THEREIN DIRECTED THE A.O TO VERIFY THE ACTUAL AMOUNT OF DIVIDEND RECEIVED BY ITA(S). NO. 2372, 2373, 2500 &2501/MUM/2015 PRABHUDAS LI L ADHER PVT. LIMITED. 26 THE ASSESSEE AND CREDITED IN ITS P & LOSS A/C. THE CIT(A) CLEARLY DIRECTED THE A.O THAT IN CASE THE CLAIM OF THE ASSESSEE, AS RAISED BEFORE HIM, WAS FOUND TO BE CORRECT, THEN THE ENTIRE ADDITION MADE IN ITS HANDS WAS TO BE DELETED. IT WAS AVERRED BY THE LD. A.R THAT NOW WHEN THE ASSESSEE HAD DULY RECONCILED AND ESTABLISHED THAT HE HAD EARNED THE DI VIDEND INCOME OF RS. 9,65,843/ - (SUPRA) DURING THE YEAR, THEREFORE, THE CIT(A) SHOULD HAVE DELETED THE ADDITION AND THERE WAS NO REASON TO SET ASIDE THE ISSUE TO THE FILE OF THE A.O. PER CONTRA, THE LD. D.R RELIED ON THE ORDER OF THE CIT(A). (I I ). WE HAVE DELIBERATED ON THE CONTENTIONS OF THE LD. A.R IN T H E BACKDROP OF THE FACTS OF THE CASE. WE FIND THAT THE ASSESSEE HAD IN THE COURSE OF RECONCILING THE DIVIDEND INCOME FURNISHED ITS EXPLANATION ALONGWITH SUPPORTING D OCUMENTS BEFORE THE CIT(A). WE ARE OF THE CONSIDERED VIEW THAT AS THE REFERENCE TO THE DOCUMENTS FILED BY THE ASSESSEE IN SUPPORT OF ITS EXPLANATION BEFORE THE CIT(A) COULD NOT BE SUMMARILY ACCEPTED ON THE VERY FACE OF IT, THEREFORE, THE CIT(A) HAD SET ASI DE THE ISSUE TO THE FILE OF T HE A.O, WITH A SPECIFIC DIRECTION THAT IN CASE THE CLAIM OF THE ASSESSEE, AS RAISED BEFORE HIM, WAS FOUND TO BE IN ORDER, THEN THE ADDITION MADE ON THE SAID COUNT IN THE HANDS OF THE ASSESSEE WAS TO BE DELETED. WE ARE OF THE CO NSIDERED VIEW THAT THE C IT(A) HAD IN ALL FAIRNESS RESTORED THE ISSUE TO THE FILE OF THE A.O FOR NECESSARY VERIFICATIONS, AND NO INFIRMITY DOES EMERGE FROM THE SAID ACT OF THE CIT(A). WE FIND IT BEYOND OUR COMPREHENSION AS TO HOW SUCH SETTING ASIDE OF T HE I SSUE TO THE FILE OF THE A.O FOR NECESSARY VERIFICATION WOULD BE TO THE PREJUDICE OF THE ASSESSEE. WE THUS UPHOLD THE SAID DIRECTION OF THE CIT(A) AND D I SMISS THE GROUND OF APPEAL NO. 1.1 TO 1.3 RAISED BY THE ASSESSEE BEFORE US. (B). LOSS PERTAINING TO AMOUNTS WRITTEN OFF : (I). THE ASSESSE E COMPANY HAD IN ITS BOOKS OF ACCOUNTS DEBITED AN AMOUNT OF RS. 98,61,159/ - ON ACCOUNT OF BALANCE S WRITTEN OFF . THAT ON BEING CALLED UPON BY THE A.O TO SUPPORT ITS CLAIM, THE ASSESSEE RELIED ON THE JUDGMENT ITA(S). NO. 2372, 2373, 2500 &2501/MUM/2015 PRABHUDAS LI L ADHER PVT. LIMITED. 27 OF T HE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF CIT VS. SHREYAS S. MORAKHIA (2012) 342 ITR 285 (BOM) , AS WELL AS RELIED O N THE ORDER OF T H E CIT(A) PASSED IN ITS CASE FOR A.Y. 2007 - 08 , WHERE AS PER THE ASSESSEE A SIMILAR CLAIM IN RESPECT OF BAD DEBTS WAS ALLOWED. THE A.O DELIBERATING ON THE FACTS OF THE CASE , THEREIN OBSERVED THAT THE RATIO OF THE JUDGMENT OF THE HONBLE HIGH COURT WAS NOT FOUND TO BE SATISFIED BY THE ASSESSEE. THE A.O THUS ON THE BASIS OF HIS AFORESAID OBSERVATIONS, FINDING THAT THE ASSESSEE HAD ALREADY DISALLOWED A SUM OF RS. 83,335/ - IN RESPECT OF BALANCE SUNDRY WRITTEN OFF (APPEARING AT S.NO. 12 OF THE LIST), THEREFORE, ADDED BACK THE BALANCE AMOUNT OF RS. 97,77,824/ - [ I.E RS. 98,61,159/ - ( - ) RS. 83,335/ - ] CLAIMED BY THE ASSESSEE AS DEBTS WRITTEN OFF , TO THE INCOME OF T HE ASSESSEE. (II). THE ASSESSEE BEING AGGRIEVED WITH THE AFORESAID ADDITION/DISALLOWANCE , THEREIN CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). THE ASSESSEE FURNISHED BEFORE THE CIT(A) A SUMMARIZED CHART REFLECTING THE DETAILS OF THE AMOUNTS WHICH WERE WRITTEN OFF BY THE ASSESSEE, AS UNDER: - S.NO PARTICULARS AMOUNT (RS.) 1. ARVIND KHIMJI BERAI 3,45,769/ - 2. VEE SHARE 13,11,445/ - 3. MANISH MITTAL 50,19,353/ - 4. HDFC BANK CHARGES F.Y. 2007 - 08 & 2008 - 09. 14,96,099/ - 5. CDSL CLIENT BALANCE WRITTEN OFF. 8,97,741/ - 6. BALANCES WRITTEN OFF (FIXED ASSETS) 83,335/ - 7. VARIOUS CLIENTS 7,07,417 / - TOTAL 98,61,159/ - (III). TH AT IT WAS SUBMITTED BEFORE THE CIT(A) THAT THE VARIOUS AMOUNTS WRITTEN OFF WERE NOT RECOVERABLE BY THE ASSESSEE. IT WAS CLAIMED BY THE ITA(S). NO. 2372, 2373, 2500 &2501/MUM/2015 PRABHUDAS LI L ADHER PVT. LIMITED. 28 ASSESSEE THAT PRIOR TO SUCH WRITING OFF OF THE AMOUNTS, THE DEBTS OR THE PART OF THE DEBTS WERE EARLIER OFFERED AS INCOME BY THE ASSESSEE. THE ASSESSEE TRIED TO DEMONSTRATE BEFORE THE CIT(A) THE FULFILLMENT OF THE PRECONDITION THAT THE DEBTS OR THE PART OF THE DEBTS PERTAINING TO THE AMOUNTS WRITTEN OFF BY IT DURING THE YEAR UNDER CONSIDERATION , WERE EARLIER OFFERED AS INCOME. (IV). T HE CIT(A) AFTER DELIBERATING ON THE AFORESAID CONTENTIONS OF THE ASSESSEE, THEREIN OBSERVED THAT AS PER THE DETAILS FURNISHED BY THE ASSESSEE, THE BROKERAGE INCOME RELATABLE TO THE VARIOUS CLIENTS AND SUB - BROKERS UNDER CONSIDERATION WAS OFFERED AS INCOME IN EARLIER YEARS. THE CIT(A) OBSERVED THAT THE JUDGMENT OF T HE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF CIT VS. SHREYAS S . MORAKHIA (2012) 342 ITR 285 (BOM) SQUARELY COVERED THE CASE OF THE ASSESSEE. THE CIT(A) FURTHER OBSERVED THAT AS THE CDS L CHARGES AND BANK CHARGES WHICH WERE WRITTEN OFF DURING THE YEAR WERE ALSO OFFERED AS INCOME BY THE ASSESSEE IN THE EARLIER YEARS, THEREFORE, THE WRITING OFF OF THE SAME WAS ALLOWABLE AS AN EXPENSE IN THE HANDS OF THE ASSESSEE. HOWEVER, THE CIT(A) AFTER SO CONCLUDING , THEREIN DIRECTED THE A.O TO VERIFY AS TO WHETHER THE ENTIRE AMOUNT OF BALANCE OF RS. 97,77,824/ - WRITTEN OFF BY THE ASSESSEE WAS OFFERED BY IT AS INCOME IN THE EARLIER YEARS, AND IF THAT BE SO, THEN TO THE EXTENT THE INCOME HAS BEEN OFFERED IN THE EARLIER YEARS, THE CLAIM OF THE ASSESSEE AS REGARDS WRITING OFF OF THE AMOUNT TO THE SAID EXTENT WAS TO BE ALLOWE D. (V). WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE FACTS OF THE CASE AND ARE PERSUADE D TO BE IN AGREEMENT WITH THE VIEW ARRIVED AT BY THE CIT(A). W E FIND THAT THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF CIT, CENTRAL III VS. SHREYAS MORAKHIA (2012) 3 42 ITR 285 (BOM) WHILE AFFIRMING THE ORDER OF THE SPECIAL BENCH OF THE TRIBUNAL , WHICH TOO WAS RENDERED IN CONTEXT OF A CASE OF A SHARE BROKER, HAD OBSERVED AS UNDER: - ITA(S). NO. 2372, 2373, 2500 &2501/MUM/2015 PRABHUDAS LI L ADHER PVT. LIMITED. 29 10. THE REQUIREMENT WHICH HAS BEEN IMPOSED BY PARLIAMENT IN SECTION 36(2)(I) IS THAT A DEDUCTION ON ACCOUNT OF A BAD DEBT CAN BE ALLOWED ONLY WHERE SUCH DEBT OR PART THEREOF HAS BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE OF THE PREVIOUS YEAR IN WHICH THE AMOUNT OF THE DEBT IS WRITTEN OFF. THE ASSESSEE IS A STOC K BROKER WHO ENGAGES IN TRANSACTIONS OF SALE AND PURCHASE OF SHARES FOR HIS CLIENTS. THE BILL RAISED ON THE CLIENT REFLECTS THE RATE, QUANTITY AND TOTAL VALUE OF THE SHARES TRANSACTED AS WELL AS THE BROKERAGE, APART FROM THE SECURITY TRANSACTION TAX AND TH E SERVICE TAX. THE BROKERAGE FROM THE TRANSACTION OF THE PURCHASE OF SHARES HAS BEEN TAXED IN THE HANDS OF THE ASSESSEE AS ITS BUSINESS INCOME. ONCE THAT IS SO, IT IS EVIDENT THAT WITHIN THE MEANING OF SECTION 36(2)(I) THE DEBT OR PART THEREOF HAS BEEN TAK EN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE. THE DEBT COMPRISES, INTER ALIA, OF THE VALUE OF THE SHARES TRANSACTED AND THE BROKERAGE PAYABLE BY THE CLIENT ON WHOSE BEHALF THE TRANSACTION TAKES PLACE. THE BROKERAGE AS WELL AS THE VALUE OF THE SH ARES CONSTITUTE A PART OF THE DEBT DUE TO THE ASSESSEE SINCE BOTH ARISE OUT OF THE SAME TRANSACTION. THE TEST IS WHETHER THE DEBT OR PART THEREOF HAS BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE. THE ANSWER TO THAT TEST HAS TO BE IN THE AFFIRMATIVE. THAT BEING THE POSITION, THE REQUIREMENTS OF SECTION 36(2)(I) ARE DULY FULFILLED. WE FIND THAT THE HONBLE HIGH COURT HAD IN ITS AFORESAID JUDGMENT CATEGORICALLY OBSERVED THAT THE TEST FOR ALLOWABILITY OF THE WRITING OFF OF THE DEBT PR ESUPPOSES THE SATISFACTION OF THE CONDITION THAT THE DEBT OR PART OF THE DEBT HAD BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE. WE ARE OF THE CONSIDERED VIEW THAT THE CIT(A) WHILE RELYING ON THE JUDGMENT OF THE HIGH COURT HAD CATEGORIC ALLY OBSERVED THAT THE CLAIM OF THE ASSESSEE AS RAISED BEFORE HIM WAS ALLOWABLE, HOWEVER, HE HAD IN ALL FAIRNESS DIRECTED THE A.O TO VERIFY AS TO WHETHER THE AMOUNT OF RS. 97,77,824/ - BEING BALANCE WRITTEN OFF BY THE ASSESSEE WAS OFFERED BY IT AS INCOME IN THE EARLIER YEARS, AND IF THAT BE SO, THEN TO THE EXTENT THE INCOME HAS BEEN OFFERED IN THE EARLIER YEARS, THE CLAIM OF THE ASSESSEE AS REGARDS WRITING OFF OF THE AMOUNT TO THE SAID EXTENT WAS TO BE ALLOWED. WE ARE UNABLE TO COMPREHEND THAT AS TO WHAT G RIEVANCE CAN BE THERE ON THE PART OF THE ASSESSEE TO THE SAID OBSERVATIONS OF THE CIT(A). THE CIT(A) HAD ONLY SOUGHT VERIFICATION OF THE FACT THAT THE FUNDAMENTAL REQUIREMENT THAT THE DEBT OR PART THEREOF HAD EARLIER BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE , OR NOT . WE ARE OF THE CONSIDERED VIEW THAT THE CIT(A) AFTER CONCLUDING THAT THE CLAIM OF THE ASSESSEE AS REGARDS ITA(S). NO. 2372, 2373, 2500 &2501/MUM/2015 PRABHUDAS LI L ADHER PVT. LIMITED. 30 ALLOWABILITY OF THE AMOUNTS UNDER CONSIDERATION AS A BAD DEBT WAS WELL IN ORDER, HAD THUS IN ALL FAIRNESS , IN ORD ER TO VERIFY THE GENUINENESS AND VERACITY OF THE FACTUAL POSITION AS WAS AVERRED BY THE ASSESSEE BEFORE HIM, THEREIN RESTORED THE MATTER TO THE FILE OF THE A.O. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ISSUE BEFORE US AND ARE OF THE VIEW THAT THE AS SESSEE BY ASSAILING THE DIRECTIONS OF THE CIT(A), HAD THEREIN SOUGHT OUR INDULGENCE FOR HOLDING THAT THE CIT(A) WAS BOUND TO ACCEPT THE FACTUAL POSITION AS WAS CLAIMED BY THE ASSESSEE BEFORE HIM. WE ARE NOT IMPRESSED BY THE CONTENTIONS OF THE ASSESSEE, A ND BEING OF THE CONSIDERED VIEW THAT THE CIT(A) AFTER ADJUDICATING THE ISSUE IN LIGHT OF THE SETTLED POSITION OF LAW, WAS RIGHT IN DIRECTING THE A.O TO VERIFY THE FACTUAL POSITION, WITH SPECIFIC DIRECTION THAT IF THE CLAIM OF THE ASSESSEE WAS FOUND TO BE I N ORDER, THEN THE CLAIM OF THE ASSESSEE AS REGARDS WRITING OFF OF THE AMOUNT TO THE SAID EXTENT WAS TO BE ALLOWED. WE THUS IN TERMS OF OUR AFORESAID OBSERVATIONS DISMISS THE GROUND OF APPEAL NO. 2.1 TO 2.3 RAISED BY THE ASSESSEE BEFORE US . (C). DISALLOWANCE OF SOFTWARE LICENSE EXPENSES : FACTS : (I). THE LD. A.R SUBMITTED THAT THE LOWER AUTHORITIES HAD ERRED IN CHARACTERIZING THE EXPENDITURE OF RS. 46,77,377/ - INCURRED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION TOWARDS ACCESS CHARGES FOR SOFTWARE & LICENSES. THE LD. A.R SUBMITTED THAT THE SAID EXPENDITURE WAS INCURRED BY IT PRIMARILY TOWARDS ANNUAL LICENSE CHARGES TO USE ODIN LICENSE FOR THE PERIOD 01/07/2009 TO 31/03/2010 (RS. 34,98,273/ - ); RENEWAL OF ANTIVIRUS SOFTWARE FOR THE PERIOD APR IL, 2009 TO MARCH 2010 (RS. 2,19,486/ - ); RENEWAL OF SYMANTEC BACKUP EXE . FOR A PERIOD OF ONE YEAR (RS. 27,575/ - ); DEVELOPM E NT OF ALGORITHMIC TRADING (RS. 75,000/ - ) ; SOFTWARE CUSTOMIZATION EXPENSES (RS. 16,092/ - ; AND SERVICE TAX ON ABOVE (RS. 7,725/ - ). THE LD. A.R SUBMITTED THAT THE LOWER AUTHORITIES LOOSING SIGHT OF THE NATURE OF THE ITA(S). NO. 2372, 2373, 2500 &2501/MUM/2015 PRABHUDAS LI L ADHER PVT. LIMITED. 31 EXPENSES INCURRED BY THE ASSESSEE , AND THE FACT THAT THE SAME WERE IN THE NATURE OF A RECURRING EXPENDITURE S , HAD THUS WRONGLY CHARACTERIZED THE SAME AS CAPITAL EXPENDITURE S AND RESTRICTED THE ENTITLEMENT OF THE ASSESSEE ONLY IN RESPECT OF THE DEPRECIATION OF RS. 27,76,781 / - ON THE SAME. THE LD. A.R IN ORDER TO DRIVE HOME HIS CONTENTION THAT ANNUAL LICENSE CHARGES PAID TO USE ODIN LICENSE WAS ALLOWABLE AS A REVENUE EXPEND ITURE, THEREIN RELIED ON THE ORDER OF A COORDINATE BENCH OF THE TRIBUNAL, MUMBAI I BENCH IN THE CASE OF ANGEL CAPITAL & DEBT MARKET LTD. VS. ACIT (2008) 118 TTJ 351 (MUM). IT WAS SUBMITTED BY THE LD. A.R THAT THE TRIBUNAL IN THE AFORESAID CASE WHILE D ELIBERATING ON THE ISSUE AS TO WHETHER THE EXPENDITURE INCURRED BY THE ASSESSEE WHO WAS IN THE BUSINESS OF SHARE BROKING , BY WAY OF ANNUAL LICENSE CHARGES PAID TO USE ODIN LICENSE WAS OF A CAPITAL NATURE, THEREIN APPLYING THE TESTS LAID DOWN BY THE SPECIA L BENCH OF THE TRIBUNAL IN THE CASE OF AMWAY INDIA ENTERPRISES VS. DY. CIT (2008) 114 TTJ (DE)(SB) 476, HAD OBSERVED THAT THE ASSESSEE BY INCURRING THE AFORESAID EXPENDITURE IN THE COURSE OF ITS BUSINESS DID NOT GET ANY ENDURING BENEFIT. IT WAS THUS SUBM ITTED BY THE LD. A.R THAT THE TRIBUNAL AFTER DELIBERATING ON THE NATURE OF T HE EXPENDITURE HAD CONCLUDED THAT AS THE SAME COULD NOT BE CHARACTERIZED AS A CAPITAL EXPENDITURE, THEREFORE, IT WAS ALLOWABLE AS A REVENUE EXPENDITURE, AS CLAIMED BY THE ASSESSE E. THE LD. A.R IN SUPPORT OF HIS AFORESAID CONTENTION ALSO RELIED ON THE ORDER OF THE ITAT , CHENNAI C , BENCH IN THE CASE O F UNIFI CAPITAL PVT. LTD. VS. ACIT (ITA NO. 1810 & 1811/MDS/2014) ; DATED. 26.02.2016. IT WAS THUS AVERRED BY THE LD. A.R THAT THE EXPENDITURE OF RS. 46,77,377/ - INCURRED BY THE ASSESSEE TO USE ODIN LICENSE AND OTHER SOFTWARES WITH A UTILITY PERIOD SPREAD OVER THE YEAR UNDER CONSIDERATION ONLY , WAS ALLOWABLE AS A REVENUE EXPENDITURE AND HAD WRONGLY BEEN HELD BY THE LOWER AUTHORITIES AS A CAPITAL EXPENDITURE. PER CONTRA, THE LD. D.R RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. ITA(S). NO. 2372, 2373, 2500 &2501/MUM/2015 PRABHUDAS LI L ADHER PVT. LIMITED. 32 CONCLUSION : (II). WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE FACTS OF THE CASE AND ARE OF THE CONSIDERED VIEW THAT THE EXPENDITURE OF RS. 46,77,377/ - INCURRED BY THE ASSESSEE WERE IN THE NATURE OF CHARGES PAID BY THE ASSESSEE FOR CLIENT ACCESS LICENSE OF A SOFTWARE CALLED ODIN AND USAGE OF CERTAIN OTHER SOFTWARES WHICH HAD A UTILITY PERIOD SPREAD OVER THE YEAR UNDER CONSIDERATION ONLY. WE HAVE DELIBE RATED ON THE NATURE OF THE PAYMENTS MADE BY THE ASSESSEE BY WAY OF ANNUAL CHARGES TO USE ODIN AND OTHER SOFTWARE LICENSES. WE FIND THAT WHILE F OR THE ODIN IS A MULTI EXCHANGE, MULTI CURRENCY FRONT OFFICE TRADING AND RISK MANAGEMENT SYSTEM AND MAKES TRADING ON MULTIPLE MARKETS EASIER THROUGH THE USE OF A SINGLE APPLICATION, WHILE FOR THE FEE S PAID TO HAVE ACCESS TO USAGE OF THE OTHER SOFTWARES, SAY ANTIVIRUS SOFTWARES WERE ONLY FOR THE PURPOSE OF FACILITATING SMOOTH AND UNINTERRUPTED FUNCTIONING OF THE BUSIN ESS OF THE ASSESSEE. WE FIND THAT BY MAKING THE PAYMENTS TOWARDS ANNUAL LICENSE CHARGES TO USE ODIN AND OTHER SOFTWARES, THEREIN FACILITATES ACCESS TO CERTAIN SOFTWARE USED BY THE SHARE BROKERS FOR ACCESSING NSE AND CONTROLLING THEIR TRADING FUNCTIONS. WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE WHO IS I N THE BUSINESS OF SHARE BROKING HAD INCURRED THE EXPENDITURE TOWARDS ANNUAL LICENSE CHARGES TO USE ODIN AND OTHER SOFTWARES FOR ITS BUSINESS PURPOSES ONLY. WE FURTHER FIND THAT BY INCURRING THE AFORESAID EXPENDITURE THE OWNERSHIP OF THE RESPECTIVE SOFTWARE S WAS NOT TRANSFERRED TO THE ASSESSEE, AS THE SAME WAS ONLY FOR THE LIMITED PURPOSE OF FACILITATING CLIENT ACCESS LICENCE. WE ARE OF THE CONSIDERED VIEW THAT IN THE BACKDROP OF THE AFORESAID FACTS, IT CAN SAFELY BE CONCLUDED THAT THE ASSESSEE BY INCURRING THE AFORESAID EXPENDITURE HAD NOT ACQUIRED ANY ENDURING BENEFIT, BUT THE SAME HAD ONLY FACILITATED SMOOTH FUNCTIONING OF ITS BUSINESS FOR A LIMITED PERIOD . WE FIND OURSELVES TO BE IN AGREEMENT WITH THE VIEW ARRIVED AT BY THE COORDINATE BENCH OF ITAT, MUMBA I IN THE CASE OF ANGEL CAPITAL & DEBT MARKET LTD. VS. ACIT (2008) 118 TTJ 351 (MUM) , AND ARE OF THE ITA(S). NO. 2372, 2373, 2500 &2501/MUM/2015 PRABHUDAS LI L ADHER PVT. LIMITED. 33 CONSIDERED VIEW THAT THE EXPENDITURE OF RS. 46,77,377/ - INCURRED BY THE ASSESSEE TOWARDS ANNUAL CHARGES OF ODIN LICENSE AND OTHER SOFTWARES WAS ALLOWABLE AS A REVENUE EXPENDITURE IN THE HANDS OF THE ASSESSEE. WE THUS SET ASIDE THE ORDER OF THE CIT(A), WHEREIN THE LATTER TREATING THE SAID EXPENDITURE AS HAVING BEEN INCURRED IN THE CAPITAL FIELD HAD THUS RESTRICTED THE ENTITLEMENT OF THE ASSESSEE ONLY IN RESP ECT OF THE DEPRECIATION RELATABLE THERETO. THE GROUND OF APPEAL NO. 3 .1 AND GROUND OF APPEAL NO. 3 .2 RAISED BY THE ASSESSEE ARE ALLOWED. (C). ADHOC ADDITION IN RESPECT OF IRRECONCILED AIR DATA : - (I). THE LD. A.R SUBMITTED THAT AS THE RECTIFICATION APPLICATION FILED BY THE ASSESSEE ON THE AFORESAID ISSUE HAD BEEN ALLOWED BY THE A.O, THEREFORE, THE GRIEVANCE OF THE ASSESSEE NO MORE SURVIVES. THE LD. A.R IN THE BACKDROP OF THE AFORESAID FACTS THUS SUBMITTED THAT THE GROUND OF APPEAL NO. 4 .1 TO 4 .3 ARE THUS NOT BEING PRESSED. THAT IN THE BACKDROP OF THE AFORESAID CONCESSION OF THE LD. A.R, THE GROUND OF APPEALS NO. 4.1 TO 4.3 ARE DISMISSED AS NOT PRESSED. (D). DISALLOWANCE UNDER SEC. 14A : (I). THE LD. A.R ADVERTING TO THE DISALLOWANCE OF RS. 60,3 8,279 / - MADE BY THE A.O UNDER SEC. 14A OF THE ACT, THEREIN SUBMITTED THAT THE ASSESSEE COMPANY WHICH WAS ENGAGED IN THE BUSINESS OF STOCK BROKING AND DEALING IN SHARE RELATED ACTIVITIES. THE A.O HAD WORKED OUT THE AFORESAID DISALLOWANCE OF RS. 60,38,279 / - UNDER SEC. 14A R.W RULE 8D, AS UNDER: - (I).DISALLOWANCE OF INTEREST EXPENDITURE [RULE 8D(2)(II)]: RS. 52,85,817 / - (II).DISALLOWANCE OF MISC. EXPENDITURE[RULE 8D(2)(III)]: RS. 7,52,462 / - TOTAL : RS. 60,38,279 / - (II). THAT THE INVESTMENTS IN THE SHARES WAS MADE BY THE ASSESSEE IN THE PRECEDING YEARS, WHICH APPEARED IN THE BALANCE SHEET OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION, AS UNDER: - ITA(S). NO. 2372, 2373, 2500 &2501/MUM/2015 PRABHUDAS LI L ADHER PVT. LIMITED. 34 PARTICULARS OF INVESTMENTS AMOUNT EQUITY SHARES IN KHANDWALA SECURITIES LTD. RS. 1,47,33,37 8/ - EQUITY SHARES IN BOMBAY STOCK EXCHANGE LTD. RS. 2,21,14,474/ - TOTAL RS. 3,68,47,852/ - (III). THAT IT WAS SUBMITTED BY THE ASSESSEE THAT IT HAD DURING THE YEAR RECEIVED A TOTAL DIVIDEND OF RS. 9,65,843 / - , BIFURCATED DETAILS OF WHICH WAS AS UNDER: - PARTICULARS DIVIDEND AMOUNT DIVIDEND RECEIVED ON SHARES HELD BY THE ASSESSEE AS INVESTMENTS, VIZ. EQUITY SHARES IN BSE AND INVESTMENTS IN MUTUAL FUNDS. RS. 6,11,208 / - DIVIDEND RECEIVED ON SHARES HELD BY THE ASSESSEE AS STOCK IN TRADE. RS. 3,54,635 / - TOTAL RS. 9,65,843/ - (IV). THE ASSESSEE HAD CLAIMED BEFORE THE LOWER AUTHORITIES THAT NO PART OF THE INTEREST EXPENDITURE AND THE FINANCE CHARGES AS STOOD DEBITED IN ITS P & LOSS A/C WAS INCURRED FOR EARNING OF THE EXEMPT INCOME. THE ASSESSEE RELATING THE ENTIRE AMOUNT OF INT EREST EXPENDITURE AND THE FINANCE CHARGES INCURRED BY IT DURING THE YEAR UNDER CONSIDERATION TO THE SPECIFIC PURPOSES FOR WHICH SUCH INTEREST BEARING FUNDS WERE RAISED , HAD EXHAUSTIVELY DELIBERATED ON THE SAID ISSUE BEFORE THE CIT(A), AS UNDER: - PARTI CULARS OF INTEREST AND FINANCE CHARGES. BRIEF DETAILS INTEREST PAID TO THE BANK FOR OVERDRAFT RS. 31,28,444/ - . BANK OVERDRAFT FACILITY HAD BEEN AVAILE D FOR FUNDING THE BUSINESS OPERATIONS OF THE COMPANY. ACCORDINGLY, THE SAME HAS NOT BEEN INCURRED TOW ARDS EARNING THE EXEMPT INCOME. INTEREST ON LOAN RS. 2,34,00,523/ - THUS INTEREST IS INCURRED TOWARDS THE ICD TAKEN FROM THE HOLDING COMPANY PRABHUDAS LILADHER ADVISORY SERVICES PRIVATE LTD., TEXSPIN PVT. LTD AND ITA(S). NO. 2372, 2373, 2500 &2501/MUM/2015 PRABHUDAS LI L ADHER PVT. LIMITED. 35 THE DIRECTORS O THE COMPANY. THE SAME WA S TAKEN TO FINANCE THE BUSINESS ACTIVITIES OF THE COMPANY AND HAD NOT BEEN INCURRED TOWARDS EARNING EXEMPT INCOME. WE ARE ENCLOSING HEREWITH COPY OF EXTRACT OF BANK STATEMENTS REFLECTIN G THE USAGE OF ICDS RECEIVED FOR THE PURPOSE OF THE BUSINESS OF THE APP ELLANT [PAPER BOOK PAGE NO. 335 TO 397 ]. ON PERUSAL OF SAME YOUR HONOUR WILL FIND THAT THE ICDS RECEIVED HAVE BEEN TRANSFERRED TO VARIOUS BANK ACCOUNTS AND FINALLY HAS BEEN TRANSFERRED TO CLIENT SETTLEMENT ACCOUNT AND UTILIZED FOR SETTLEMENT OF EXCHANGE DU ES. HENCE THIS FUND ALSO CANNOT BE SAID TO BE UTILIZED FOR MAKING INVESTMENT BY THE APPELLANT. FACTORING CHARGES RS. 21,09,709/ - THESE CHARGES HAD BEEN INCURRED BY THE COMPANY ON ACCOUNT OF SELLING THE RECEIVABLES OF THE COMPANY. ACCORDINGLY, THESE CHARGES ARE NOT CONNECTED WITH EARNING ANY EXEMPT INCOME. BANK COMMISSION RS. 1,28,81,629/ - THE EXPENSE HAS BEEN INCURRED BY THE COMPANY FOR ITS BUSINESS ACTIVITIES. IT IS NOT CONNECTED WITH EARNING EXEMPT INCOME. IT INCLUDES BANK GUARANTEE COMMISSION OF RS. 99,97,882/ - , WHICH IS PAID TO BANK FOR GUARANTEE GIVEN TO STOCK EXCHANGE . DETAILS OF SA ME ALONGWITH SUPPORTING DOCUMENTS ARE ENCLOSED HEREWITH ON SAMPLE BASIS FOR YOUR KIND REFERENCE [PAGE 398 TO 404 OF PAPER BOOK]. IT IS GUARANTEE GIVEN TO THE BANK IN RESPECT OF GUARANTEE GIVEN TO STOCK EXCHANGE DUES I.E THE SAME IS INCURRED IN CONNECTION W ITH THE BROKING BUSINESS OF THE APPELLANT AND IS NOT CONNECTED WITH MAKING INVESTMENTS OR EARNING EXEMPT INCOME. THE BALANCE SHEET IS TOWARDS BANK CHARGES CHARGED BY THE BANKS AND IS ALSO RELATED TO THE BROKING BUSINESS OF THE APPELLANT. OTHERS RS. 3, 78,231 / - THESE MISCELLANEOUS FINANCE EXPENSES HAVE BEEN INCURRED FOR THE BUSINESS ACTIVITIES OF THE COMPANY AND ARE NOT CONNECTED TOWARDS EARNING ANY EXEMPT INCOME. THE AMOUNT REFLECTS THE INTEREST AMOUNT PAID ON MARGIN MONEY KEPT BY THE CLIENTS IN COURSE OF THE BUSINESS. HENCE THIS AMOUNT PAID ALSO CANNOT BE SAID TO BE CONNECTED WITH MAKING INVESTMENT OR EARNING TAX FREE INCOME. THE LD. A.R IN THE BACKDROP OF THE AFORESAID FACTUAL POSITION, THEREIN AVERRED THAT NOW WHEN THE ENTIRE AMOUNT OF THE FUNDS TO WHICH THE INTEREST EXPENDITURE AND FINANCE CHARGES PERTAINED, WERE PROVED NOT TO HAVE BEEN ITA(S). NO. 2372, 2373, 2500 &2501/MUM/2015 PRABHUDAS LI L ADHER PVT. LIMITED. 36 UTILIZED FOR EARNING OF THE EXEMPT INCOME, THEREFORE, NO PART OF THE SAID INTEREST EXPENDITURE/FINANCE CHARGES COULD HAVE BEEN DISALLOWED UNDER SEC. 14A R.W RUL E 8D. IT WAS FURTHER AVERRED BY THE LD. A.R THAT NOW WHEN IT WAS THE CLAIM OF THE ASSESSEE THAT NO EXPENDITURE HAD BEEN INCURRED BY IT FOR EARNING THE DIVIDEND INCOME, THE SAME THUS COULD NOT HAVE BEEN SUMMARILY SCRAPPED BY THE A.O, AS WAS SO DONE IN THE P RESENT CASE. THE ASSESSEE HAD IN SUPPORT OF ITS AFORESAID CONTENTION HAD PLACED RELIANCE ON THE JUDGMENTS OF THE HONBLE HIGH COURT OF PUNJAB & HARYANA IN THE CASE OF CIT VS. DEEPAK MITTAL (2013) 86 CCH 051 (P&H) AND CIT II VS. M/S HERO CYCLES LIMITED (ITA NO. 331 OF 2009) . IT WAS SUBMITTED BY THE LD. A.R THAT THE INVESTMENTS IN THE SHARES AND THE MUTUAL FUNDS WERE MADE OUT OF THE DIVIDEND PROCEEDS. THE LD. A.R FURTHER SUBMITTED THAT THE DISALLOWANCE MADE BY THE A.O U/S 14A IN RESPECT OF THE DIVIDEND EA RNED ON THE SHARES HELD BY THE ASSESSEE ON THE SHARES HELD AS STOCK IN TRADE, WAS BEYOND THE PURVIEW OF THE SAID STATUTORY PROVISION. THE ASSESSEE HAD IN SUPPORT OF ITS AFORESAID CONTENTION RELIED ON THE ORDER OF ITAT, MUMBAI, IN THE CASE OF YATISH TRADI NG CO. P. LTD. VS. ACIT (2011) 129 ITD 237 (MUM) . THE LD. A.R FURTHER SUBMITTED THAT THE DISALLOWANCE UNDER SEC. 14A AND APPLICATION OF RULE 8D IS NOT AUTOMATIC. IT WAS AVERRED BY THE LD. A.R THAT THE PROVISIONS OF SEC. 14A CAN N OT BE APPLIED UNLESS THERE IS PROXIMATE CAUSE (DIRECT OR INDIRECT RELATION) FOR DISALLOWANCE. IT W A S THUS SUBMITTED BY THE LD. A.R THAT APPLICATION OF PROVISION OF SUB - SECTION (2) & (3) OF SECTION 14A AND RULE 8D IS NOT AUTOMATIC IN EACH AND EVERY CASE WHERE THERE IS INCOME NO T FORMING PART OF TOTAL INCOME. PER CONTRA, THE LD. D.R RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. (V). WE HAVE HEARD THE AUTHORIZED REPRESENTATIVES FOR BOTH THE PARTIES, PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON RECORD. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE FACTS OF THE CASE AND FIND SUBSTANTIAL FORCE IN THE CONTENTIONS RAISED BY THE ASSESSEE BEFORE US. WE FIND OURSELVES TO BE IN AGREEMENT WITH THE VIEW ARRIVED AT BY THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF YATISH TRADING CO. P. LTD. VS. ACIT ITA(S). NO. 2372, 2373, 2500 &2501/MUM/2015 PRABHUDAS LI L ADHER PVT. LIMITED. 37 (2011) 129 ITD 237 (MUM) THAT NO DISALLOWANCE UNDER SEC. 14A IS LIABLE TO BE MADE IN RESPECT OF THE DIVIDEND INCOME EARNED BY THE ASSESSEE ON THE SHARES HELD BY IT AS STOCK IN TRADE. WE FURTHER ARE NOT IMPRESSED BY THE MANNER IN WHICH THE A.O HAD PROCEEDED WITH AND WORKED OUT THE DISALLOWANCE UNDER SEC. 14A R.W RULE 8D IN THE HANDS OF THE ASSESSEE. WE ARE OF THE CONSIDERED VIEW THAT NOW WHEN IT REMAINS AS A MATTER OF FACT THAT THE ASSESSEE HAD ESTABLISH ED THE UTILIZATION OF THE LAST OF PAISA OF THE INTEREST BEARING FUNDS IN THE COURSE OF ITS BUSINESS, AND HAD THUS PROVED THAT NO PART OF THE SAID INTEREST BEARING FUNDS WERE USED FOR MAKING INVESTMENTS IN SHARES OR FUNDS WHICH WERE GENERATING EXEMPT INCOME , THEREFORE, THE LOWER AUTHORITIES COULD NOT HAVE WHIMSICALLY BYPASSED THE SAID EXHAUSTIVE SUBMISSIONS AS PER THEIR CONVENIENCE, AND THEREIN SUMMARILY WORKED OUT THE DISALLOWANCE OF INTEREST EXPENDITURE OF RS. 52,85,817 / - (SUPRA) UNDER RULE 8D(2)(II) IN THE HANDS OF THE ASSESSEE. WE ARE FURTHER OF THE CONSIDERED VIEW THAT NOW WHEN IT WAS THE CLAIM OF THE ASSESSEE THAT NO PART OF THE EXPENSES INCURRED WERE RELATABLE TO THE EARNING OF THE EXEMPT DIVIDEND INCOME, THE A.O. HOWEVER WITHOUT PROVIDING ANY EXPLANATI ON OR JUSTIFICATION FOR NOT ACCEPTING THE SAID CLAIM OF THE ASSESSEE HAD MADE THE AFORESAID DISALLOWANCE OF RS. 60,38,279 / - (SUPRA) UNDER SECTION 14A R.W.R. 8D IN THE HANDS OF THE ASSESSEE. WE ARE OF THE CONSIDERED VIEW THAT AS HELD BY THE HONBLE HIGH COUR T OF DELHI IN THE CASE OF CHEM I NVEST LTD. VS. CIT (2015) 378 ITR 0033 (DEL) AND THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF CA N A RA BANK VS. ACIT (2015) 228 T AXMAN 212 (KAR) , BEFORE THE A.O TAKES RECOURSE TO DETERMINATION OF EXPENDITURE UNDER RULE 8D, HE REMAIN S UNDER A STATUTORY OBLIGATION TO RECORD HIS SATISFACTION THAT HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, AS PLACED BEFORE HIM, IT IS NOT POSSIBLE FOR HIM TO GENERATE THE REQUISITE SATISFACTION WITH REGARD TO THE CORRECTNESS OF THE CLAIM O F THE ASSESSEE . WE FIND THAT THE HONBLE SUPREME COURT IN THE CASE OF GODREJ & BOY CE MANUFACTURING CO. LTD. VS. DCIT & A NR. (CIVIL APPEAL NO.7020 OF 2011 ; DATED . 08 . 05 . 2017) HAD CLEARLY HELD THAT WHERE AN A.O MAKES A ITA(S). NO. 2372, 2373, 2500 &2501/MUM/2015 PRABHUDAS LI L ADHER PVT. LIMITED. 38 DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D(II) , WITHOUT ARRIVING AT A SATISFACTION AS REGARDS THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE ON THE BASIS OF THE ACCOUNTS OF THE ASSESSEE, AS WERE PLACED BEFORE HIM, THE SAME WOULD NOT BE SUSTAINABLE IN THE EYES OF LAW. 25 . WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE FACTS OF THE CASE AND ARE OF THE CONSIDERED VIEW THAT THE VERY PROCESS OF DETERMINATION OF THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME WOULD BE TRIGGERED, ONLY IF THE A.O. RETURNS A FINDIN G THAT HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE. WE ARE OF THE CONSIDERED VIEW THAT IT IS ONLY IF THE A.O. IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE THAT NO EXPENDITURE HA D BEEN INCURRED IN RELATION TO THE EXEMPT INCOME, THEREIN ONLY AFTER RECORDING COGENT REASONS AS REGARDS THE SAME THAT THE A.O. CAN EMBARK UPON THE DETERMINATION OF THE AMOUNT OF EXPENDITURE IN ACCORDANCE WITH THE METHOD PRESCRIBED IN SECTION 14A R.W. RULE 8D. WE ARE OF THE CONSIDERED VIEW THAT OUR AFORESAID VIEW STANDS FORTIFIED BY THE RECENT JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF : GODREJ & BOYCE MANUFACTURING COMPANY LIMITED (SUPRA) , WHEREIN THE HONBLE APEX COURT HAD HELD AS UNDER: - WHET HER SUCH DETERMINATION IS TO BE MADE ON APPLICATION OF THE FORMULA PRESCRIBED UNDER RULE 8D OR IN THE BEST JUDGMENT OF THE ASSESSING OFFICER, WHAT THE LAW POSTULATES IS THE REQUIREMENT OF A SATISFACTION IN THE ASSESSING OFFICER THAT HAVING REGARD TO THE AC COUNTS OF THE ASSESSEE, AS PLACED BEFORE HIM, IT IS NOT POSSIBLE TO GENERATE THE REQUISITE SATISFACTION WITH REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. IT IS ONLY THEREAFTER THAT THE PROVISIONS OF SECTION 14A(2) AND (3) READ WITH RULE 8D OF TH E RULES OR A BEST JUDGMENT DETERMINATION, AS EARLIER PREVAILING, WOULD BECOME APPLICABLE. WE ARE OF THE CONSIDERED VIEW THAT IN THE PRESENT CASE THE A.O HAD FAILED TO SATISFY THE FUNDAMENTAL REQUIREMENT OF ARRIVING AT A SATISFACTION THAT ITA(S). NO. 2372, 2373, 2500 &2501/MUM/2015 PRABHUDAS LI L ADHER PVT. LIMITED. 39 HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, AS PLACED BEFORE HIM, IT WAS NOT POSSIBLE FOR HIM GENERATE THE REQUISITE SATISFACTION WITH REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE THAT NO EXPENDITURE HAD BEEN INCURRED BY HIM IN RESPECT OF THE EXEMPT INCOME. W E THEREFORE IN THE BACKDROP OF OUR AFORESAID OBSERVATIONS ARE THUS UNABLE TO PERSUADE OURSELVES TO UPHOLD THE DISALLOWANCE OF 60,38,279/ - MADE BY THE A.O UNDER SECTION 14A R.W. RULE 8D , WHICH THEREAFTER HAD BEEN SUSTAINED BY THE CIT(A). WE THUS SET ASIDE THE ISSUE FOR FRESH ADJUDICATION TO THE FILE OF THE A.O. THE A.O SHALL ADJUDICATE THE ISSUE AS REGARDS THE DISALLOWANCE UNDER SEC. 14A R.W RULE 8D , IN THE BACKDROP OF THE PARAMETERS LAID DOWN BY THE HONBLE APEX COURT IN THE CASE OF GODREJ & BOYCE MANUFACT URING COMPANY LIMITED (SUPRA) AS WELL AS KEEPING IN VIEW OUR AFORESAID OBSERVATIONS. THE GROUNDS OF APPEAL NO. 5 .1 TO 5 .3 ARE THUS ALLOWED FOR STATISTICAL PURPOSES. 26 . THAT AS THE GROUND OF APPEAL NO. 6 IS GENERAL IN NATURE, THEREFORE, THE SAME IS DISMIS SED AS NOT PRESSED. 27 . THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED IN TERMS OF OUR AFORESAID OBSERVATIONS. I TA NO . 2501 /MUM/2015 A.Y: 2010 - 11 (REVENUES APPEAL) WE NOW TAKE UP THE APPEAL OF THE REVENUE FOR A.Y. 2010 - 11, MARKED AS ITA NO. 2501 /MUM/2015, THE REVENUE ASSAILING THE FOLLOWING GROUNDS OF THE APPEAL BEFORE US: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT PAYMENT MADE BY THE ASSESSEE COMPANY TO JOBBERS/ARBITRAGERS WAS ALLOWABLE AS A DEDUCTION FROM TAXABLE INCOME EVEN THOUGH THE ASSESSEE COMPANY HAD FAILED TO DEDUCT TDS THEREON AS REQUIRED U/S 194C OF THE INCOME TAX ACT, 1961. ITA(S). NO. 2372, 2373, 2500 &2501/MUM/2015 PRABHUDAS LI L ADHER PVT. LIMITED. 40 2. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 28 . BRIEFLY STATED, THE FACTS RELATABLE TO THE ISSUE UNDER CONSIDERATION IN THE PRESENT APPEAL OF THE REVENUE ARE THAT THE ASSESSEE HAD DEBITED AN AMOUNT OF RS. 4,82,62,605/ - BEING PROFESSIONAL FEES PAID FOR CARRYING OUT ITS PROPRIETARY TRADES. THE ASSESSEE ON BEING CALLED UPON BY THE A.O TO FURNISH PARTY WISE DETAILS OF THE SAID EXPENSES ALONGWITH COPY OF SUPPORTING DOCUMENTS, THEREIN FURNISHED T H E COPIES OF SAMPLE AGREEMENTS ENTERED INTO BY IT WITH VARIOUS PERSONS (INDIVIDUALS). THE A.O CALLED FOR THE INFOR MATION FROM THE RESPECTIVE PARTIES U/S 133(6). THAT THOUGH 4 PARTIES DID NOT FILED ANY REPLY, HOWEVER, THE REPLIES RECEIVED FROM 11 PARTIES REVEALED THAT THE AMOUNT WAS OFFERED BY SOME OF THEM FOR TAX AS PROFESSIONAL FEES, WHILE FOR TH E OTHERS HAD SHOWN IT AS THEIR COMMIS S ION & BROKERAGE INCOME. THE A.O PERUSED THE SAMPLE AGREEMENTS AND AFTER DELIBERATING AT LENGTH ON THE RESPECTIVE TERMS AND CONDITIONS CONTEMPLATED THEREIN , CONCLUDED THAT THE ASSESSEE HAD MADE DISGUISED PAYMENTS TO ITS EMPLOYEES IN VIOLATION OF PROVISION OF SEC. 36(1)(II). THE A.O FURTHER OBSERVED THAT THE ASSESSEE HAD MADE A PROVISION OF R S . 72,32,989/ - AND CLAIMED IT UNDER THE HEAD OF PROFESSIONAL SERVICES. THE A.O HELD A CONVICTION THAT A MERE PROVISION WAS NOT ALLOWABLE UNDER THE ACT. ALTERNATIVELY, THE A.O OBSERVED THAT THOUGH THE ASSESSEE HAD CONSIDERED THE RESPECTIVE SUMS AS PROFESSIONAL FEES, HOWEVER, THE ASSESSEE HAD DEDUCTED THE TAX AT SOURCE ONLY AFTER ALLOWING ADJUSTMENT OF LOSSES AGAINST THE AMOUNTS OF PROFITS. THE A.O OBSERVED THAT THE ASSESSEE REMAINED UNDER A STATUTORY OBLIGATION TO DEDUCT TAX AT SOURCE ON THE INCOME AND NOT ON THE NET INCOME CHARGEABLE TO TAX. THE A.O THUS BEING OF THE VIEW THAT THE ASSESSEE BY ADOPTING THE AFORESAID METHODOLOGY OF DEDUCTING TAX AT SOURCE ON NET PAYMENT BASIS, HAD THUS CLEARLY VIOLATED THE PROVISIONS OF SEC. 194J OF THE ACT. THE A.O THUS IN THE BACKDROP OF HIS AFORESAID OBSERVATIONS , THUS HELD THAT THE AFORESAID AMOUNT WAS LIABLE TO BE ITA(S). NO. 2372, 2373, 2500 &2501/MUM/2015 PRABHUDAS LI L ADHER PVT. LIMITED. 41 DISALLOWED UNDER SEC. 40(A)(IA). THE A.O THUS IN THE BACKDROP OF HIS AFORESAID OBSERVATIONS DISALLOWED THE AMOUNT OF RS. 4,82,62,605/ - CLAIMED BY THE ASSESSEE AS A PROFESSIONAL FEES AND ADDED BACK THE SAME TO THE INCOME OF THE ASSESSEE. 29 . THE ASSESSEE BEING AGGRIEVED WITH THE AFORESAID ADDITIO N MADE BY THE A.O, THEREIN ASSAILED THE SAME BEFORE THE CIT(A). THE CIT(A) AFTER DELIBERATING ON THE FACTS OF THE CASE , THEREIN OBSERVED THAT AS PER T HE PROVISIONS OF S EC. 36(1)(II) , ANY SUM PAID TO AN EMPLOYEE AS BONUS OR COMMISSION FOR SERVICES RENDERED, WHERE SUCH SUM COULD NOT HAVE BEEN PAYABLE TO HIM AS PROFIT OR DIVIDEND, IF IT HAD NOT BEEN PAID AS BONUS OR COMMISSION, IS TO BE TREATED AS AN ALLOWABLE DEDUCTION. THE CIT(A) BEING OF THE CONSIDERED VIEW THAT AS THE BASIS FOR APPLICABILITY OF SEC. 36(1)( II) W A S MISSING IN THE CASE OF THE ASSESSEE COMPANY, THEREFORE, NO DISALLOWANCE ON THE SAID COUNT WAS CALLED FOR IN THE HANDS OF THE ASSESSEE. THE CIT(A) DELIBERATING ON THE FINDING S OF THE A.O THAT AS THE ASSESSEE BY DEDUCTING TAX AT SOURCE ON NET PAYME NT BASIS HAD VIOLATED THE PROVISIONS OF SEC. 194J OF THE ACT, THEREFORE , THE SAID AMOUNT WAS LIABLE TO BE DISALLOWED UNDER SEC. 40(A)(IA), THER E IN OBSERVED THAT AS THE RELATION BETWEEN THE BROKER AND THE JOBBERS WAS THAT OF A PR INCIPAL TO PRINCIPAL, THE REFORE, THE PAYMENTS INVOLVED THER E IN WERE NOT LIABLE FOR ANY DEDUCTION OF TAX AT SOURCE. THE CIT(A) THUS ON THE BASIS OF HIS AFORESAID OBSERVATIONS CONCLUDED THAT NO DISALLOWANCE UNDER SEC. 40(A)(IA) WAS CALLED FOR IN THE HANDS OF THE ASSESSEE . THE CIT(A ) THUS IN THE BACKDROP OF HIS AFORESAID OBSERVATIONS CONCLUDED THAT AS NEITHER THE PROVISIONS OF SEC. 36(1)(II) NOR SEC. 40(A)(IA) WERE APPLICABLE IN RESPECT OF THE PAYMENTS MADE BY THE ASSESSEE TO THE JOBBERS, THEREFORE, THE DISALLOWANCE MADE BY THE A.O C OULD NOT BE SUSTAINED. 30 . THE REVENUE BEING AGGRIEVED WITH THE AFORESAID ORDER OF THE CIT(A) HAD THEREIN CARRIED THE MATER IN APPEAL BEFORE US. THE LD. D.R RELIED ON THE ITA(S). NO. 2372, 2373, 2500 &2501/MUM/2015 PRABHUDAS LI L ADHER PVT. LIMITED. 42 ORDER OF THE A.O, AND TO DRIVE HOME HIS CONTENTION THAT THE PAYMENTS MADE BY THE ASSESSEE WERE LIABLE TO BE DISALLOWED UNDER SEC. 36(1)(II) AND SEC. 40(A)(IA) , THEREIN DREW OUR ATTENTION TO THE FINDINGS OF THE A.O RECORDED IN THE ASSESSMENT ORDER . PER CONTRA, THE LD. A.R SUBMITTED THAT NO EMPLOYER AND EMPLOYEE RELATIONS DID EXIST BETWE EN THE ASSESSEE AND THE JOBBERS /ARBITRAGERS , THEREFORE, THE APPLICATION OF THE PROVISIONS OF SEC. 36(1)(II) STOOD CLEARLY EXCLUDED. THE LD. A.R IN SUPPORT OF HIS CONTENTION THEREIN AVERRED THAT THE ASSESSEE COMPANY WAS NOT CONTROLLING THE ACTIVITIES OF THE SERVICE PROVIDERS. THE LD. A.R DREW OUR ATTENTION TO THE VARIOUS CLAUSES OF THE SAMPLE COPY OF THE AGREEMENT BETWEEN THE ASSESSEE AND THE JOBBERS . THE LD. A.R TOOK US TO THE INTERNAL PAGE 8 OF THE AGREEMENT AND DREW OUR ATTENTION TO THE SERVICE PROVIDE RS STATUS AT PARA 5 ,WHICH CLEARLY PROVIDED THAT THERE WAS NO EMPLOYER EMPLOYEE RELATION BETWEEN THE ASSESSEE COMPANY AND T HE SERVICE PROVIDER. THE LD. A.R FURTHER TOOK US TO PARA 6 PAGE 8 OF THE AGREEMENT, WHICH WAS THE INDEMNITY CLAUSE REGULATING TH E RELATIONS BETWEEN THE PARTIES. THE LD. A.R SUBMITTED THAT THE SERVICE PROVIDER REMAINED UNDER AN OBLIGATION TO INDEMNIFY THE ASSESSEE COMPANY AGAINST ALL LOSS, DAMAGES, CHARGES, FINES, PENALTIES, COMPENSATION, EXPENSES, FINANCIAL LIABILITY OR ANY OTHER L IABILITY, CLAIMS, DISPUTES, LEGAL ACTIONS ETC . ARISING OUT OF ANY OMISSION, COMMISSION OR LOSS THAT MAY BE SUFFERED BY THE ASSESS EE COMPANY DUE TO ANY ERRORS ON THE PART OF THE SERVICE PROVIDERS IN EXECUTING TRADES OR OPERATING THE TRADING WORKSTATION OF N SE/BSE. THE LD. A.R FURTHER TOO US THROUGH PAGE 2 PARA 3 - 4 , PAGE 4 PARA 3.6 3.7 AND PAGE 6 PARA 3.20 OF THE AGREEMENT, IN ORDER TO FORTIFY HIS CLAIM THAT NO EMPLOYER AND EMPLOYEE RELATIONS DID EXIST BETWEEN THE ASSESSEE COMPANY AND THE VARIOUS JOBBERS. THE LD. A.R FINALLY TOOK US TO PAGE 7 PARA 4 WHICH REVEALED THAT THE NET PROFIT/LOSS AFTER CONSIDERING THE AGREED EXPENSES WERE TO BE SHARED BETWEEN THE SERVICE PROVIDER AND THE ASSESSEE COMPANY IN THE RATIO OF 55 :45. THE LD. A.R FURTHER DREW OUR ATTENTION TO PAGE 6 PARA 3.17 , AS PER WHICH THE SERVICE ITA(S). NO. 2372, 2373, 2500 &2501/MUM/2015 PRABHUDAS LI L ADHER PVT. LIMITED. 43 PROVIDER WAS TO BE SOLELY RESPONSIBLE FOR ANY NEGLIG ENCE OR ANY ACT OR OMISSION ON HIS PART IN CARRYING OUT ITS DUTIES UNDER THE AGREEMENT, AND WAS TO COMPENSATE THE ASSESSEE COMPANY FOR THE SAME. THE LD. A.R FURTHER PLACED RELIANCE ON AN EARLIER ORDER OF THE BENCH PASSED IN THE CASE OF DCIT 4(1), MUMBAI VS . ASSET ALLIANCE SECURITIES PVT. LTD. (ITA NO. 1488/MUM/2009); DATED. 16.07.2010 , AND THE ORDER OF THE HIGH COURT OF PUNJAB & HARYANA IN THE CASE OF CIT (TDS), CHANDIGARH VS. IVY HEALTH LIFE SCIENCES (P) LTD. 31 . WE HAVE HEARD THE AUTHORIZED REPRESENTATIVES FOR BOTH THE PARTIES , PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON RECORD, IN CONTEXT OF THE ISSUE UNDER CONSIDERATION. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE FACTS OF THE CASE AND FIND OURSELVES TO BE IN AGREEMENT WITH THE VIEW ARRIVED AT BY THE CIT(A) THAT AS THE TRANSACTIONS BETWEEN THE ASSESSE E AND THE SERVICE PROVIDERS DO NOT FALL WITHIN THE SWEEP OF EITHER SEC. 36(1)(II), NOR CAN BE HELD TO HAVE FAILED TO DEDUCT TAX AT SOURCE, LEADING TO A CONSEQUE NTIAL DISALLOWANCE UNDER SEC. 40(A)(IA) IN ITS HANDS, THUS, NO DISALLOWANCE IN RESPECT OF THE AMOUNT OF RS. 4,82,62,605/ - WAS CALLED FOR IN THE HANDS OF THE ASSESSEE. 32 . WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ISSUE BEFORE US AND ARE OF THE CONSIDERED VIEW THAT THE PROVISIONS OF SEC. 36(1)(II) CAN BE INVOKED IN A CASE OF PAYMENT OF BONUS OR COMMISSION TO AN EMPLOYEE, WHO IS ALSO THE SHAREHOLDER OF THE COMPANY, SINCE PROFIT OR DIVIDEND CAN BE PAID TO THE SHAREHOLDER ONLY. WE FIND THAT THE DISA LLOWABILITY CONTEMPLATED UNDER THE AFORESAID STATUTORY PROVISION IS LIABLE TO BE RESTRICTED ONLY TO THE PAYMENTS MADE TO PARTNERS OR SHAREHOLDERS, AS ONLY IN THAT CASE, PROFIT OR DIVIDEND CAN BE PAID. WE FIND THAT AS IN THE CASE BEFORE US THE PERSONS TO WH OM THE SUMS HAVE BEEN BY THE ASSESSEE COMPANY ARE NOT THE SHAREHOLDERS OF THE ASSESSEE COMPANY, THEREFORE, THE VERY BASIS OF APPLYING THE PROVISIONS OF SEC. 36(1)(II) IS FOUND TO BE MISSING. WE FURTHER FIND THAT ITA(S). NO. 2372, 2373, 2500 &2501/MUM/2015 PRABHUDAS LI L ADHER PVT. LIMITED. 44 THE PROVISIONS OF SEC. 36(1)(II) CAN BE APPL IED IN RESPECT OF SUMS WHICH HAVE BEEN PAID AS EITHER BONUS OR COMMISSION TO AN EMPLOYEE, WHICH MATERIAL REQUIREMENT IS ALSO FOU ND MISSING IN THE CASE BEFORE US. WE HAVE DELIBERATED ON THE FACTS OF THE CASE, CLAUSES OF THE SAMPLE AGREEMENT BETWEEN THE AS SESSEE COMPANY AND THE JOBBERS, AND ARE PERSUADED TO OBSERVE THAT THE SAME CLEARLY REVEALS THAT THE ASSESSEE HAD MADE PAYMENTS TO THE JOBBERS TOWARDS THEIR SHARE OF PROFIT IN RESPECT OF TRADING CARRIED OUT BY THEM. WE HAVE PERUSED THE CLEARLY WORDED AGREEM ENT BETWEEN THE ASSESSEE AND THE JOBBERS, WHICH REVEALS BEYOND ANY SCOPE OF DOUBT THAT THE RELATIONSHIP BETWEEN THE ASSESSEE AND THE JOBBERS IS ON PRINCIPAL TO PRINCIPAL BASIS AND NOT IN THE NATURE OF EMPLOYER AND EMPLOYEE. WE THUS FIND OURSELVES TO BE IN AGREEMENT WITH THE VIEW ARRIVED AT BY THE CIT(A), AND THUS BEING OF THE CONSIDERED VIEW THAT KEEPING IN VIEW THE TERMS OF THE AGREEMENT BETWEEN THE ASSESSEE AND THE JOBBERS AND THE PREVAILING TRADE PRACTICE IN THE SHARE BROKING INDUSTRY, IT CAN SAFELY BE C ONCLUDED THAT THE TRANSACTIONS UNDER CONSIDERATION ARE IN THE NATURE OF JOINT VENTURE, I.E PRINCIPAL TO PRINCIPAL BASIS. WE THUS BEING OF THE VIEW THAT AS THE TRANSACTIONS UNDER CONSIDERATION BETWEEN THE ASSESSEE COMPANY AND THE JOBBERS DO NOT FALL WITHIN THE SWEEP OF SEC. 36(1)(II), THEREFORE, NO DISALLOWANCE ON THE SAID COUNT WAS LIABLE TO BE MADE IN THE HANDS OF THE ASSESSEE. WE THUS IN LIGHT OF OUR AFORESAID OBSERVATIONS UPHOLD THE ORDER OF THE CIT(A) , WHEREIN THE LATTER HAD CONCLUDED THAT NO DISALLOWAN CE U/S 36(1)(II) WAS CALLED FOR IN THE HANDS OF THE ASSESSEE COMPANY. 33 . WE HAVE FURTHER DELIBERATED ON THE FINDING OF THE A.O THAT AS THE ASSESSEE HAD FAILED TO DEDUCT TAX AT SOURCE IN TERMS OF SEC. 194J, THEREFORE, AS PER HIM THE AMOUNT PAID TO THE JOBBERS WAS LIABLE TO BE DISALLOWED U/S 40(A)(IA). WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE FACTS OF THE CASE AND ARE UNABLE TO PERSUADE OURSELVES TO ACCEPT THE AFORESAID VIEW OF THE A.O. WE ARE OF THE CONSIDERED VIEW THAT NOW WHEN IT STANDS ESTABLISHED THAT THE TRANSACTIONS BETWEEN THE ASSESSEE COMPANY ITA(S). NO. 2372, 2373, 2500 &2501/MUM/2015 PRABHUDAS LI L ADHER PVT. LIMITED. 45 AND THE JOBBERS IS IN THE NATURE OF JOINT VENTURE, I.E PRINCIPAL TO PRINCIPAL BASIS, THEREFORE, THE ASSESSEE REMAINED UNDER NO OBLIGATION TO DEDUCT TAX AT SOURCE IN RESPECT OF THE PAYMENTS MADE IN LIEU OF SUCH AN ARRANGEMENT. WE FIND THAT OUR AFORESAID VIEW IS FORTIFIED BY AN E ARLIER ORDER OF THIS BENCH IN THE CASE OF DCIT 4(1), MUMBAI VS. ASSET ALLIANCE SECURITIES PVT. LTD. (ITA NO. 1488/MUM/2009); DATED. 16.07.2010. WE FIND THAT THE TRIBUNAL WHILE ADJUDICATING THE APPEAL OF THE ASSESSEE WHO WAS ENGAGED IN THE BUSINESS OF SHAR E BROKING, HAD HELD THAT THE AMOUNTS PAID TO THE JOBBERS OR ARBITRAGERS DID NOT REALLY REPRESENTED THE EXPENSE OF THE ASSESSEE COMPANY, BUT WERE PAYMENTS OF THE SHARE OF THE JOBBERS/ARBITRAGERS UNDER THE AGREEMENT ENTERED INTO WITH THEM. THE TRIBUNAL HAD T HUS CONCLUDED THAT AS THE RELATIONS BETWEEN THE ASSESSEE COMPANY AND THE JOBBERS/ARBITRAGERS WAS NOT OF PRINCIPAL AND AGENT , BUT WAS THAT OF PRINCIPAL AND PRINCIPAL, BOTH OF WHOM HAD AGREED TO EMBARK UPON A JO I NT VENTURE TO TRADE IN SHARES AND SECURITIES I N THE STOCK EXCHANGE AND TO SHARE THE PROFIT/LOSS EQUALLY, THEREFORE, THERE WAS NO OBLIGATION ON THE ASSESSEE COMPANY TO DEDUCT ANY TAX AT SOURCE ON THE PAYMENTS MADE IN RESPECT OF TRANSACTIONS PURSUANT TO SUCH ARRANGEMENT . WE THUS FINDING OURSELVES TO BE IN AGREEMENT WITH THE AFORESAID VIEW OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF ASSET ALLIANCE SECURITIES PVT. LTD. (SUPRA) , AND IN THE BACKDROP OF OUR AFORESAID OBSERVATIONS, THUS ARE OF THE CONSIDER E D VIEW THAT AS THE ASSESSEE WAS UNDER NO ST ATUTORY OBLIGATION TO DEDUCT ANY TAX AT SOURCE IN RESPECT OF THE PAYMENTS MADE TO THE JOBBERS/ARBITRAGERS, THEREFORE , THE SAME COULD NOT BE DISALLOWED UNDER SEC. 40(A)(IA) BY TREATING THE ASSESSEE AS BEING IN DEFAULT IN RESPECT OF DEDUCTION OF TAX AT SOURC E U/S 194J. WE THUS FINDING OURSELVES AS BEING IN AGREEMENT WITH THE VIEW ARRIVED AT BY THE CIT(A), THUS UPHOLD HIS ORDER IN CONTEXT OF THE AFORESAID ISSUE . 34 . T HE APPEAL FILED BY THE REVENUE IS DISMISSED. ITA(S). NO. 2372, 2373, 2500 &2501/MUM/2015 PRABHUDAS LI L ADHER PVT. LIMITED. 46 34. THAT IN TERMS OF OUR AFORESAID OBSERVATIONS, THE APPEAL S OF THE ASSESSEE FOR A.Y. 2008 - 09 AND A.Y. 2010 - 11, MARKED AS ITA NO. 2372/MUM/2015 AND ITA NO. 2373/MUM/2015 , RESPECTIVELY, ARE PARTLY ALLOWED, WHILE FOR THE APPEALS OF THE REVENUE FOR A.Y. 2008 - 09 AND A.Y. 2010 - 11, MARKED AS ITA NO. 2500/MUM/2015 AND ITA NO. 2501/MUM/2015, RESPECTIVELY, ARE DISMISSED. ORDER PRON OUNCED IN THE OPEN COURT ON 23 /08/2017. SD/ - SD/ - (G.S. PANNU) (RAVISH SOOD) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; 23 .08.2017 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI ITA(S). NO. 2372, 2373, 2500 &2501/MUM/2015 PRABHUDAS LI L ADHER PVT. LIMITED. 47