M/S. INDSEC SECURITIES & FINANACE LTD, MUMBAI V. THE ACIT RG 4(1), MUMBAI

ITA 2486/MUM/2006

• Counselvise Citation: 248619914 RSA 2006
• Duration Of Justice: 5 year(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 06-04-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 21-04-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: AJIT KUMAR SINHA
• Keywords: Capital asset; Commercial expediency; Capital expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, B BENCH, MUMBAI. BEFORE SHRI N.V.VASUDEVAN, JUDICIAL MEMBER AND SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER I.T.A NO.2486/ MUM/2006 ASSESSMENT YEAR: 2003-04 INDSEC SECURITIES & FINANCE LTD. .. APPELLANT 116, FREE PRESS HOUSE, 215, FREE PRESS JOURNAL MARG , NARIMAN POINT, MUMBAI-21. PA NO.AAACI 1958 G VS ACIT RANGE 4(1) ,. RESPONDEN T AAYAKAR BHAVAN, M.K. ROAD, MUMBAI. APPEARANCES: VIJAY MEHTA, FOR THE APPELLANT AJIT KUMAR SINHA, FOR THE RESPONDENT O R D E R PER PRAMOD KUMAR: 1. THIS IS AN APPEAL FILED BY THE ASSESSEE IS DIREC TED AGAINST THE ORDER DATED 23.2.2006 PASSED BY THE CIT(A), IN THE MATTER OF AS SESSMENT UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961, FOR THE ASSESSMENT YE AR 2003-04. I.T.A NO.2486/ MUM/2006 INDSEC SECURITIES & FINANCE LTD 2 2. IN THE FIRST GROUND OF APPEAL, THE ASSESSEE HAS RAISED THE FOLLOWING GRIEVANCE: 3. THE RELEVANT MATERIAL FACTS ARE LIKE THIS. IN TH E COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER DISALLOWED RS 7, 42,240, INCURRED ON PURCHASE OF SOFTWARE, AS CAPITAL EXPENDITURE. IN DOING SO, HE O BSERVED THAT THE SOFTWARE PRODUCT PURCHASED BY THE ASSESSEE IS IN THE NATURE OF A CAPITAL ASSET AS IT IS LICENCE IN VIEW OF AMENDED PROVISO TO SECTION 32(1)(II) OF THE INCOME TAX ACT, AND RELIED UPON THE JUDGMENT OF HONBLE RAJASTHAN HIGH COURT I N THE CASE OF CIT VS ARAVALI CONSTRUCTIONS PVT LTD (259 ITR 30). AGGRIEVED, ASS ESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) BUT WITHOUT ANY SUCCESS. T HE ASSESSEE IS NOT SATISFIED AND IS IN FURTHER APPEAL BEFORE US. 4. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTUAL MATRIX OF THE CASE AS ALSO THE APPLICABLE LEGAL POSITION. 5. AS LEARNED REPRESENTATIVES FAIRLY AGREE, THIS IS SUE IS REQUIRED TO BE REMITTED TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJU DICATION IN THE LIGHT OF THE PRINCIPLES LAID DOWN BY SPECIAL BENCH IN THE CASE O F AMWAY INDIA ENTERPRISES VS DCIT (111 ITD SB 112). LEARNED COUNSEL FOR THE ASSE SSEE, HOWEVER, SUBMITS THAT THE ASSESSING OFFICER, WHILE SO ADJUDICATING THE MA TTER AFRESH, SHOULD NOT REMAIN CONFINED TO THE SAID SPECIAL BENCH DECISION AND MUS T ALSO TAKE INTO ACCOUNT AND DEAL WITH SUCH OTHER JUDICIAL PRECEDENTS FROM HONB LE COURTS ABOVE AS THE ASSESSEE MAY WISH TO RELY UPON. THERE IS MERIT IN THIS SUBMI SSION, AND, ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO DECIDE THE MATTER A FRESH IN THE LIGHT OF THE PRINCIPLES LAID DOWN BY, INTER ALIA, SPECIAL BENCH DECISION IN THE CASE OF AMWAY ENTERPRISES (SUPRA) AND OTHER BINDING PRECEDENTS AS MAY BE AVAI LABLE AT THE POINT OF TIME OF SO EXAMINING THE MATER AFRESH. WITH THESE DIRECTIONS, THE MATTER STANDS RESTORED TO THE FILE OF THE ASSESSING OFFICER. I.T.A NO.2486/ MUM/2006 INDSEC SECURITIES & FINANCE LTD 3 6. GROUND NO. 1 IS THUS ALLOWED FOR STATISTICAL PUR POSES IN THE TERMS INDICATED ABOVE. 7. IN GROUND NO. 2, THE ASSESSEE HAS RAISED THE FOL LOWING GRIEVANCE: THE AO HAS ERRED IN DISALLOWING AUCTION LOSS BY IG NORING THAT THE SAME IS INCIDENTAL TO AND IN THE COURSE OF BUSINESS ACTIVITY OF THE COMPANY AND THE LD CIT (A) ERRED IN CONFIRMING THE SAME. 8. AS FAR AS THIS GRIEVANCE OF THE ASSESSEE IS CONC ERNED, THE RELEVANT FACTS ARE AS FOLLOWS. THE ASSESSEE IS A SHARE BROKER WHO ENGA GES IN THE TRANSACTIONS ON BEHALF OF THE CLIENTS. HOWEVER, THE ASSESSEE CLAIME D A DEDUCTION OF RS 27,79,546 WHICH WAS STATED TO BE ON ACCOUNT OF DELAYS IN DELI VERY OF SHARES BY ASSESSEES CUSTOMERS. THE ASSESSING OFFICER TOOK NOTE OF ASSE SSEES CONTENTION TO THE EFFECT THAT THESE LOSSES, TERMED AS AUCTION LOSSES, ARE I N THE NATURE OF NORMAL BUSINESS LOSSES AND THE LOSS HAS BEEN BORNE BY THE COMPANY A S A MATTER OF COMMERCIAL EXPEDIENCY SINCE ITS CLIENTS ARE REGULAR CUSTOMERS OF THE ASSESSEE COMPANY. THE ASSESSING OFFICER DISCUSSED THE NATURE OF ASSESSEE S BUSINESS, NOTED THAT THE LOSS IS ON ACCOUNT OF LAPSES OF THE CUSTOMERS, THAT NO PRUD ENT BUSINESSMAN WILL ABSORB THESE LOSSES OF THE CLIENTS WHEN HE IS WORKING ON T HIN MARGINS OF PROFITS AS SHARE BROKERS WORK ON, AND THAT THE ASSESSEES CONTENTIO N THAT IN VIEW OF BUSINESS RELATIONS WITH ITS CLIENTS, THE COMPANY HAD TO ABSO RB THE AUCTION LOSS OF RS 21,79,545 IS UNACCEPTABLE. THE ASSESSING OFFICER F URTHER OBSERVED THAT THE ASSESSEE CANNOT BE UNDER ANY OBLIGATION TO MAKE GOO D SUCH LOSSES TO THE CLIENT, AND THAT, IN ANY EVENT, NO EVIDENCE TO SUGGEST SO HAS B EEN PLACED ON RECORD. IT WAS IN THIS BACKDROP THAT THE DEDUCTION OF RS 27,79,546 WA S DECLINED. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) BUT WITHOUT ANY SUCCESS. LEARNED CIT(A) ALSO HELD THAT THE DEDUCTION CLAIMED BY THE ASSESSEE IS IN RESPECT OF LOSSES INCURRED BY THE CLIENTS, AND THAT THE ASSESSEE WAS UNDER NO OBLIGATION TO INCUR THE SAID LOSS. THE ASSESSEE IS NOT SATISFIED AND IS IN FURTHER APPEAL BEFORE US. 9. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING PE RUSED THE MATERIAL ON RECORD, WE FIND THAT THIS ISSUE IS ALSO REQUIRED TO BE RE-EXAMINED BY THE ASSESSING OFFICER SINCE THERE IS NOTHING ON RECORD TO INDICAT E THE ACTUAL NATURE, AND THE FACT, OF THESE LOSSES AS THE CLAIM HAS BEEN REJECTED ON T HE THRESHOLD ITSELF ON A TECHNICAL I.T.A NO.2486/ MUM/2006 INDSEC SECURITIES & FINANCE LTD 4 GROUND. WE HAVE NO MATERIAL BEFORE US TO EVIDENCE THESE LOSSES, RELATE THE SAME TO THE CUSTOMERS AND EXAMINE THE SAME IN THE LIGHT OF THE FACTS OF THE CASE. NO DOUBT, AS LEARNED COUNSEL RIGHTLY POINTS OUT, IT IS NOT TH E ASSESSING OFFICERS CASE THAT THE ASSESSEE HAS RECEIVED THE REIMBURSEMENTS FOR THESE LOSSES FROM THE CUSTOMERS IN CASH AND WITHOUT ACCOUNTING FOR THE SAME IN BOOKS O F ACCOUNTS, BUT THAT DOES NOT MEAN THAT THE ASSESSEE IS NOT REQUIRED TO GIVE COMP LETE DETAILS OF THE EXPENSES, AND RELATED FACTS, FOR EXAMINATION. IN OUR CONSIDERED VIEW, THE ENDS OF JUSTICE WILL BE MET BY FRESH EXAMINATION OF THE CLAIM BY THE ASSESS ING OFFICER IN THE LIGHT OF THE ABOVE OBSERVATIONS. 10. GROUND NO. 2 IS ALSO ALLOWED FOR STATISTICAL PU RPOSES IN THE TERMS INDICATED ABOVE. 11. IN GROUND NO. 3, THE ASSESSEE HAS RAISED THE F OLLOWING GRIEVANCE: THE AO HAS ERRED IN IGNORING THAT REVENUE WAS CORR ECTLY RECOGNISED B Y THE APPELLANT AS PER AS 9 AND WAS NOT JUSTIFIED IN ADDING BACK SUCH UNREALISABLE DEPOSITORY INCOME TO THE INCOME O F THE APPELLANT. THE CIT (A) HAS ERRED IN CONFIRMING SUCH ADDITION. 12. SO FAR AS THIS GRIEVANCE IS CONCERNED, THE ISSU E IN APPEAL LIES IN A VERY NARROW COMPASS OF FACTS. IN THE COURSE OF THE ASSES SMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT WHILE ASSESSEE HAS D ISCLOSED TURNOVER OF RS 3,32,41,654 IN THE BOOKS OF ACCOUNTS, THE TURNOVER, AS PER SERVICE TAX RETURN, AMOUNTS TO RS 3,33,46,487. THE ASSESSEES EXPLANAT ION FOR THIS VARIATION OF RS 1,04,832 WAS THAT WHILE SERVICE TAX INCLUDED ALL TH E BILLING AMOUNTS, THE FIGURE SHOWN IN THE BOOKS OF ACCOUNTS WAS NET OF UNREALIZA BLE AMOUNTS IN RESPECT OF DEPOSITORY INCOME. NOT SATISFIED WITH THE EXPLANATI ON GIVEN BY THE ASSESSEE, THE ASSESSING OFFICER PROCEEDED TO BRING THE DIFFERENCE OF RS 1,04,832 TO TAX. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BU T WITHOUT ANY SUCCESS. THE ASSESSEE IS NOW IN FURTHER APPEAL BEFORE US. 13. PARTIES ARE HEARD AND RECORDS HAVE BEEN PERUSED . 14. WHILE WE AGREE WITH THE LEARNED COUNSEL THAT ME RELY BECAUSE THE FIGURE OF BROKERAGE INCOME IS DIFFERENT VIS--VIS THE BILLING DONE ON WHICH SERVICE TAX HAS BEEN PAID, NO ADDITION CAN BE MADE TO THE INCOME OF THE ASSESSEE, WE ALSO DEEM IT I.T.A NO.2486/ MUM/2006 INDSEC SECURITIES & FINANCE LTD 5 FIT AND PROPER TO REMIT THE MATTER TO THE FILE OF T HE ASSESSING OFFICER SO AS ENSURE THAT FACTUAL ELEMENTS EMBEDDED IN THE EXPLANATION O F THE ASSESSEE CAN BE VERIFIED. WE HAVE NOTED THAT IT IS CONTENTION OF THE ASSESSEE THAT CERTAIN AMOUNTS OF BILLING WERE NOT INCLUDED IN THE BOOKS OF ACCOUNTS AS THESE AMOUNTS WERE UNREALIZABLE, BUT THEN THE ASSESSEE HAS TO GIVE SPECIFIC DETAILS OF SUCH AMOUNTS TO THE ASSESSING OFFICER. FOR THIS LIMITED PURPOSE, THE MATTER IS RE STORED TO THE FILE OF THE ASSESSING OFFICER. 15. GROUND NO. 3 IS THUS ALLOWED FOR STATISTICAL PU RPOSES IN THE TERMS INDICATED ABOVE. 16. GROUND NO. 4 IS NOT PRESSED AND IS DISMISSED AS SUCH. 17. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES IN THE TERMS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT TODAY ON 27 TH DAY OF APRIL, 2011. SD/- (N.V.VASUDEVAN) JUDICIAL MEMBER SD/- (PRAMOD KUMAR) (ACCOUNTANT MEMBER) MUMBAI, DATED 27 TH APRIL, 2011 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS),IV, MUMBAI 4. COMMISSIONER OF INCOME TAX, 4 , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH B, MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI