CLASSIC SHARE & STOCK BROKING SERVICES LTD, MUMBAI V. DY. CIT CENT. CIR 7(1), MUMBAI

ITA 2425/MUM/2021

AI Insights

The case involves Classic Share & Stock Broking Services Ltd., which appealed against the disallowance of certain expenses by the Deputy Commissioner of Income-tax, Central Circle-7(1), Mumbai. The expenses in question were miscellaneous expenses amounting to Rs 8,24,666 and business development expenses of Rs 28,43,819. The primary contention was that these expenses were necessary for the company's operations, despite the fact that the company had ceased its broking activities following regulatory actions by the Securities and Exchange Board of India (SEBI). The Tribunal examined the submissions and evidence presented, including the company's financial statements and the nature of the expenses claimed, and concluded that the expenses were not justifiable as the company did not engage in any business activities during the relevant assessment year.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 123252 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-12-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 01-12-2022
• Assessment Year: 2012-2013
• Appeal Filed On: 22-12-2021
• Other Referred Cases: NH Securities Ltd. for Ay 2012-13, Security Appellate Tribunal order dated 04.05.2007
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Depreciation; Reassessment proceedings
• Section: 148; 139; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “C” MUMBAI BEFORE SHRI ABY T VARKEY (JUDICIAL MEMBER) AND SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) ITA No. 2425/MUM/2021 Assessment Year: 2012-13 Classic Share & Stock Broking Services Ltd., 121, Radha Bhuvan, 1 st floor, Nagindas Master Road, Fort, Mumbai-400023. Vs. DCIT, Central Circle-7(1), Aayakar Bhavan, M.K. Road, Mumbai-400020. PAN No. AACCC 5745 P Appellant Respondent Assessee by : Mr. Akash Kumar, AR Revenue by : Mr. P. Daniel, Special Counsel Date of Hearing : 02/12/2022 Date of pronouncement : 29/12/2022 ORDER PER OM PRAKASH KANT, AM This appeal by the assessee is directed against order dated 26.10.2021 passed by the Ld. Commissioner of Income-tax (Appeals)-49, Mumbai [in short ‘the Ld. CIT(A)’] for assessment year 2012-13, raising following grounds : 1. The Commissioner of Income-tax (Appeals) - 49, Mumbai (hereinafter referred to as the CIT(A)) erred in upholding the action of the Deputy Commissio Central Circle Assessing Officer) in disallowing Rs 8,24,666, being miscellaneous expenses, on the ground that the appellants have not carried out any business activity during the year under reference. The appellants contend that on the facts and in the circumstances of the case and in law, the CIT(A) ought not to have upheld the impugned disallowance inasmuch as the CIT(A) has not correctly appreciated the facts of the case in its entirety. 2. The CIT(A) erred in upholding the action of the Assessing Officer in disallowing Rs 28,43,819, being business development expenses, on the ground that the appellants have not carried out any business activity during the year under reference. The appella circumstances of the case and in law, the CIT(A) ought not to have upheld the impugned disallowance inasmuch as the CIT(A) has not correctly appreciated the facts of the case in its entirety. 2. Briefly stated, fact file its return of income u/s 139 of the Income short ‘the Act’) for the year under consideration and therefore, the Assessing Officer after recording reasons to believe that income escaped assessment, he issued notice u/s 148 of the Act on 15.07.2014. In response, the assessee filed its return of income on Classic Share & Stock Broking Services Ltd. the action of the Deputy Commissioner of Income Central Circle - 7(1). Mumbai (hereinafter referred to as the Assessing Officer) in disallowing Rs 8,24,666, being miscellaneous expenses, on the ground that the appellants have not carried out any business activity during the year reference. The appellants contend that on the facts and in the circumstances of the case and in law, the CIT(A) ought not to have upheld the impugned disallowance inasmuch as the CIT(A) has not correctly appreciated the facts of the case in its entirety. 2. The CIT(A) erred in upholding the action of the Assessing Officer in disallowing Rs 28,43,819, being business development expenses, on the ground that the appellants have not carried out any business activity during the year under reference. The appellants contend that on the facts and in the circumstances of the case and in law, the CIT(A) ought not to have upheld the impugned disallowance inasmuch as the CIT(A) has not correctly appreciated the facts of the case in its entirety. Briefly stated, facts of the case are that the assessee did not file its return of income u/s 139 of the Income-tax Act, 1961 (in short ‘the Act’) for the year under consideration and therefore, the Assessing Officer after recording reasons to believe that income ssment, he issued notice u/s 148 of the Act on 15.07.2014. In response, the assessee filed its return of income on Classic Share & Stock Broking Services Ltd. ITA No. 2425/M/2021 2 ner of Income-tax, 7(1). Mumbai (hereinafter referred to as the Assessing Officer) in disallowing Rs 8,24,666, being miscellaneous expenses, on the ground that the appellants have not carried out any business activity during the year The appellants contend that on the facts and in the circumstances of the case and in law, the CIT(A) ought not to have upheld the impugned disallowance inasmuch as the CIT(A) has not correctly appreciated the facts of the 2. The CIT(A) erred in upholding the action of the Assessing Officer in disallowing Rs 28,43,819, being business development expenses, on the ground that the appellants have not carried out any business activity nts contend that on the facts and in the circumstances of the case and in law, the CIT(A) ought not to have upheld the impugned disallowance inasmuch as the CIT(A) has not correctly appreciated the facts of the s of the case are that the assessee did not tax Act, 1961 (in short ‘the Act’) for the year under consideration and therefore, the Assessing Officer after recording reasons to believe that income ssment, he issued notice u/s 148 of the Act on 15.07.2014. In response, the assessee filed its return of income on 25.03.2016 declaring total loss of ( reassessment proceedings, the Assessing Officer observe was no Revenue from operations and other income of ₹91,475/ dividend income and other miscellaneous income. claimed expenses of determining loss of was no business activity by the assessee under consideration and therefore, he disallowed the claim of the assessee of operating other expenses of reassessment order pass 30.03.2016. 2.1 On further appeal before the Ld. CIT(A), the assessee submitted that assessee company was a member of National Stock Exchange of India Ltd. (NSE) He further submitted vide order dated 04.04.2001 any business of stock brokers by the assessee before the Security Appellate Tribunal ( the aforesaid order of the SEBI was also dismissed debarred/cancellation of certificate registration of the SEBI of the assessee company from carrying out any broking activity. The Ld. Counsel of the assessee submitted that though the broking activity remain discontinued however, there was no such order in respect of trading activity. He submitted that the assessee was Classic Share & Stock Broking Services Ltd. 25.03.2016 declaring total loss of (-) ₹6,51,970/ reassessment proceedings, the Assessing Officer observe from operations and only income was shown as 91,475/- which comprised of interest income and other miscellaneous income. claimed expenses of ₹62,69,967/- and depreciation of determining loss of ₹6,59,970/-. According to the assessee, there was no business activity by the assessee-company in the year under consideration and therefore, he disallowed the claim of the assessee of operating other expenses of ₹62,69,967/ reassessment order passed u/s 143(3) r.w.s. 147 of the Act on On further appeal before the Ld. CIT(A), the assessee submitted that assessee company was a member of National Stock Exchange of India Ltd. (NSE) and Bombay Stock Exchange (BSE). further submitted that Security Exchange Board of India order dated 04.04.2001 debarred the company stock brokers/merchant bankers. The appeal filed by the assessee before the Security Appellate Tribunal ( id order of the SEBI was also dismissed, debarred/cancellation of certificate registration of the SEBI of the assessee company from carrying out any broking activity. The Ld. Counsel of the assessee submitted that though the broking activity remain discontinued however, there was no such order in respect of trading activity. He submitted that the assessee was Classic Share & Stock Broking Services Ltd. ITA No. 2425/M/2021 3 6,51,970/-. During reassessment proceedings, the Assessing Officer observed that there only income was shown as which comprised of interest income, and other miscellaneous income. The assessee and depreciation of ₹52,97/- . According to the assessee, there company in the year under consideration and therefore, he disallowed the claim of the 62,69,967/-, in the ed u/s 143(3) r.w.s. 147 of the Act on On further appeal before the Ld. CIT(A), the assessee submitted that assessee company was a member of National Stock and Bombay Stock Exchange (BSE). that Security Exchange Board of India (SEBI), for undertaking The appeal filed by the assessee before the Security Appellate Tribunal (SAT) against , confirming the debarred/cancellation of certificate registration of the SEBI of the assessee company from carrying out any broking activity. The Ld. Counsel of the assessee submitted that though the broking activity remain discontinued however, there was no such order in respect of trading activity. He submitted that the assessee was having share worth of ₹3,575/- stock in trade in the year end which could be sold in the open market and therefore, according to him it said that no business was carried out during the year and he request for allowing expenses. However, the Ld. CIT(A) observed that there was no evidence in support of any trading activity carried out during the year and therefore he following predecessor in the case of namely NH Securities Ltd. for Ay 2012 assessment year 2013 expenses except expenses under the of ₹28,43,819/- and miscellaneous expenses of According to the Ld. CIT(A) maintaining the status allowable. Aggrieved with the disallowance sustained in respect of miscellaneous expenses and business development expenses, the assessee is in appeal (ITAT) raising, the grounds as repro 3. Before us, the Ld. Counsel of the assessee has filed a Paper Book containing pages 1 to 42. 4. We have heard rival submissions of the parties in-dispute and perused the relevant material on record. In ground No. 1, the assessee has challenged disallowance of miscellaneous expenses of at ₹8,24,668/ group company of Mr. Ketan Parikh wherein the SEBI Classic Share & Stock Broking Services Ltd. stock in trade in the year end which could be sold in the open market and therefore, according to him it said that no business was carried out during the year and he allowing expenses. However, the Ld. CIT(A) observed that there was no evidence in support of any trading activity carried out during the year and therefore he following the order of predecessor in the case of sister concern of the assessee namely NH Securities Ltd. for Ay 2012-13 and his own order ssessment year 2013-14 and 2014-15 allowed expenses except expenses under the head of business and miscellaneous expenses of According to the Ld. CIT(A) these expenses were not necessary for the status of the company and therefore same were not allowable. Aggrieved with the disallowance sustained in respect of miscellaneous expenses and business development expenses, the appeal before the Income-tax Appellate Tribunal (ITAT) raising, the grounds as reproduced above. Before us, the Ld. Counsel of the assessee has filed a Paper Book containing pages 1 to 42. We have heard rival submissions of the parties dispute and perused the relevant material on record. In ground ee has challenged disallowance of miscellaneous 8,24,668/-. We find that the assessee is one of the group company of Mr. Ketan Parikh wherein the SEBI Classic Share & Stock Broking Services Ltd. ITA No. 2425/M/2021 4 stock in trade in the year end which could be sold in the open market and therefore, according to him it could not be said that no business was carried out during the year and he allowing expenses. However, the Ld. CIT(A) observed that there was no evidence in support of any trading activity carried the order of his concern of the assessee-company his own order for 15 allowed all operating business development and miscellaneous expenses of ₹8,24,866/-. these expenses were not necessary for and therefore same were not allowable. Aggrieved with the disallowance sustained in respect of miscellaneous expenses and business development expenses, the tax Appellate Tribunal Before us, the Ld. Counsel of the assessee has filed a Paper We have heard rival submissions of the parties on the issue- dispute and perused the relevant material on record. In ground ee has challenged disallowance of miscellaneous . We find that the assessee is one of the group company of Mr. Ketan Parikh wherein the SEBI barred Shri Ketan Parikh and broking firm connected with th undertaking any fresh business as stock broker and merchant banker vide order dated 04.04.2001 and thereafter broking registration of the company was also cancelled by the SEBI vide order dated 10.03.2004. The cancellati the assessee company was also upheld by the Securities Appellate Tribunal vide order dated 04.05.2007. This restriction of the broking activity of the asessee company continued in the year under consideration also. The profit assessee is available on page 32 of the Paper Book. On perusal of the profit and loss account, it is ev earning from operations in the previous year corresponding to the assessment year as well as i income which has been shown interest on fixed deposit of and miscellaneous income of has disallowed the entire ope holding that there was no business activity by the assessee company. However, the Ld. CIT(A) has allowed the expenses for maintaining the corporate status of the company and sustained disallowance of expenses under the head and ‘business development expenses’. 5. Before us, the Ld. Counsel of the assessee has filed a detail of the miscellaneous expenses which is as under : Classic Share & Stock Broking Services Ltd. broking firms which were controlled by and connected with them, including assessee company undertaking any fresh business as stock broker and merchant banker vide order dated 04.04.2001 and thereafter broking registration of the company was also cancelled by the SEBI vide order dated 10.03.2004. The cancellation of all the the assessee company was also upheld by the Securities Appellate Tribunal vide order dated 04.05.2007. This restriction of the broking activity of the asessee company continued in the year under consideration also. The profit and loss account of the assessee is available on page 32 of the Paper Book. On perusal of the profit and loss account, it is evident that there is no Revenue operations in the previous year corresponding to the assessment year as well as in earlier assessment year. The only has been shown is other income which consist of interest on fixed deposit of ₹45,71,475/- dividend of and miscellaneous income of ₹80,00,000/-. The Assessing Officer has disallowed the entire operating expenses of holding that there was no business activity by the assessee company. However, the Ld. CIT(A) has allowed the expenses for maintaining the corporate status of the company and sustained disallowance of expenses under the head ‘miscellaneous expenses’ and ‘business development expenses’. Before us, the Ld. Counsel of the assessee has filed a detail of the miscellaneous expenses which is as under : Classic Share & Stock Broking Services Ltd. ITA No. 2425/M/2021 5 which were controlled by and including assessee company from undertaking any fresh business as stock broker and merchant banker vide order dated 04.04.2001 and thereafter broking registration of the company was also cancelled by the SEBI vide on of all the Registratrion of the assessee company was also upheld by the Securities Appellate Tribunal vide order dated 04.05.2007. This restriction of the broking activity of the asessee company continued in the year and loss account of the assessee is available on page 32 of the Paper Book. On perusal of ident that there is no Revenue or operations in the previous year corresponding to the n earlier assessment year. The only which consist of dividend of ₹5,20,000/- . The Assessing Officer rating expenses of ₹62,69,967/- holding that there was no business activity by the assessee company. However, the Ld. CIT(A) has allowed the expenses for maintaining the corporate status of the company and sustained ‘miscellaneous expenses’ Before us, the Ld. Counsel of the assessee has filed a detail of Miscellaneous expenses General expenses Demat charges Insurance expenses For Office premises Motor car expense Amount paid to Daulat Automobiles For petrol and parking charges Donation Amount paid to ISKON Total 5.1 During the course of hearing, the Ld. Counsel of the was asked to substantiate these expenses by way of relevant voucher. However, no vouchers in support of claim were filed by him before us. On perusal of expenses, we find that majority of the expenses pertains to motor car expenses and donation. I of any vouchers in support of expenses, the cla cannot be allowed. Accordingly, we uphold the disallowance sustained by the Ld. CIT(A). 6. The ground No. 2 of the appeal relates to disallowance of business development expenses of Counsel of the assessee submitted that mainly expenses pertains to hotels and credit cards. The assessee has filed ledger account of business development expenses along with supporting vouchers which are available on page 2 to page 24 of the Paper Book. The Ld. Counsel submitted that these expenses were incurred for meeting in relation to the ongoing support of claim are filed expenses mostly for Classic Share & Stock Broking Services Ltd. Miscellaneous expenses ₹8,24,666 General expenses 564 Demat charges 1,103 Insurance expenses For Office premises 644 Motor car expense Amount paid to Daulat Automobiles For petrol and parking charges 7,60,355 62,000 Amount paid to ISKON 8,24,666 During the course of hearing, the Ld. Counsel of the was asked to substantiate these expenses by way of relevant voucher. However, no vouchers in support of claim were filed by him before us. On perusal of expenses, we find that majority of the expenses pertains to motor car expenses and donation. I of any vouchers in support of expenses, the claim of the assessee cannot be allowed. Accordingly, we uphold the disallowance sustained by the Ld. CIT(A). The ground No. 2 of the appeal relates to disallowance of business development expenses of ₹28,43,819/-. Before us, the Ld. Counsel of the assessee submitted that mainly expenses pertains to hotels and credit cards. The assessee has filed ledger account of business development expenses along with supporting vouchers which are available on page 2 to page 24 of the Paper Book. The Ld. Counsel submitted that these expenses were incurred for meeting in relation to the ongoing litigations etc. However, no ev are filed. On perusal of the vouchers, we find that mostly for dining in Five Star Hotels. The assessee has Classic Share & Stock Broking Services Ltd. ITA No. 2425/M/2021 6 During the course of hearing, the Ld. Counsel of the assessee was asked to substantiate these expenses by way of relevant voucher. However, no vouchers in support of claim were filed by him before us. On perusal of expenses, we find that majority of the expenses pertains to motor car expenses and donation. In absence im of the assessee cannot be allowed. Accordingly, we uphold the disallowance The ground No. 2 of the appeal relates to disallowance of . Before us, the Ld. Counsel of the assessee submitted that mainly expenses pertains to hotels and credit cards. The assessee has filed ledger account of the business development expenses along with supporting vouchers which are available on page 2 to page 24 of the Paper Book. The Ld. Counsel submitted that these expenses were incurred for meeting etc. However, no evidence in . On perusal of the vouchers, we find that in Five Star Hotels. The assessee has failed to establish that these expenses were incurred wholly and exclusively for the purpose of business of the of the observation that no income from either trading or broking was shown in the profit and loss account, disallowance sustained by the Ld. CIT(A). 7. Before us, the Ld. Counsel of the assessee brought our attention to the order of the Tribunal in ITA No. 2424/M/2021 for the assessment year 2011 Tribunal has restored the disallowance of identical expenses to the file of the Ld. Assessing Officer. We find that in the year under consideration, details of the expenses being us, there was no requirement of restoring back to the file of the Assessing Officer and therefore, this contention of the Ld. Counsel of the assessee was accordingly rejected. 7.1 In the result, bot assessee are dismissed. 8. In the result, the appeal filed by the assessee is dismissed. Order pronounced in the open Court/under Rule 34(4) of the ITAT Rules, 1963 on Sd/- (ABY T VARKEY JUDICIAL MEMBER Mumbai; Dated: 29/12/2022 Classic Share & Stock Broking Services Ltd. failed to establish that these expenses were incurred wholly and exclusively for the purpose of business of the assessee. In the light of the observation that no income from either trading or broking in the profit and loss account, we uphold the disallowance sustained by the Ld. CIT(A). Before us, the Ld. Counsel of the assessee brought our o the order of the Tribunal in ITA No. 2424/M/2021 for the assessment year 2011-12 where the ‘SMC’ Bench of the Tribunal has restored the disallowance of identical expenses to the file of the Ld. Assessing Officer. We find that in the year under ion, details of the expenses being made available before here was no requirement of restoring back to the file of the Assessing Officer and therefore, this contention of the Ld. Counsel of the assessee was accordingly rejected. In the result, both the ground No. 1 & 2 of the appeal of the assessee are dismissed. In the result, the appeal filed by the assessee is dismissed. Order pronounced in the open Court/under Rule 34(4) of the ITAT Rules, 1963 on 29/12/2022. Sd/ ABY T VARKEY) (OM PRAKASH KANT JUDICIAL MEMBER ACCOUNTANT MEMBER Classic Share & Stock Broking Services Ltd. ITA No. 2425/M/2021 7 failed to establish that these expenses were incurred wholly and assessee. In the light of the observation that no income from either trading or broking we uphold the Before us, the Ld. Counsel of the assessee brought our o the order of the Tribunal in ITA No. 2424/M/2021 for 12 where the ‘SMC’ Bench of the Tribunal has restored the disallowance of identical expenses to the file of the Ld. Assessing Officer. We find that in the year under made available before here was no requirement of restoring back to the file of the Assessing Officer and therefore, this contention of the Ld. Counsel h the ground No. 1 & 2 of the appeal of the In the result, the appeal filed by the assessee is dismissed. Order pronounced in the open Court/under Rule 34(4) of Sd/- PRAKASH KANT) ACCOUNTANT MEMBER Rahul Sharma, Sr. P.S. 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// Classic Share & Stock Broking Services Ltd. Copy of the Order forwarded to : BY ORDER, (Sr. Private Secretary) ITAT, Mumbai Classic Share & Stock Broking Services Ltd. ITA No. 2425/M/2021 8 BY ORDER, (Sr. Private Secretary) ITAT, Mumbai