ITO, UDAIPUR V. M/s. Solaris, UDAIPUR

ITA 280/JODH/2013

• Counselvise Citation: 28023314 RSA 2013
• Duration Of Justice: 1 year(s) 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-07-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 21-05-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 06-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N A JOSHI
• Keywords: Capital asset; Business income; Depreciation; Speculation loss; Bad and doubtful debts
• Section: 40A(3); 43(5); 37

Judgement Text

IN THE INCOME TAX APPELALTE TRIBUNAL : JODHPUR BENCH : JODHPUR BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K. SAINI, ACCOUNTANT MEMBER. ITA NO S . 279 & 280 /JODH/2013 (A.Y S . 200 7 - 08 & 2008 - 09 ) IT O , WARD - 2(2) , VS. M/S. SOLARIS, UDAIPUR. 405 DOULAT CHAMBERS , OPP. M.G. COLLEGE, UDAIPUR. PAN NO. AAVFS 9863 L (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI AMIT KOTHARI . DEPARTMENT BY : SHRI N.A. JOSHI - D.R. DATE OF HEARING : 21 / 0 5 /201 4 . DATE OF PRONOUNCEMENT : 23 /0 7 /201 4 . O R D E R PER N.K. SAINI, A.M TH ESE TWO APPEAL S BY THE DEPARTMENT ARE DIRECTED AGAINST THE SEPARATE ORDER S OF THE L D . CIT(A), UDAIPUR DATED 19/02/2013 & 30/04/2013 FOR THE A.Y. 2007 - 08 & 2008 - 09 RESPECTIVELY . MAJOR ISSUES INVOLVED IN THESE APPEALS ARE COMMON AND THE APPEALS WERE HEARD TOGETHER, SO , THESE ARE BEING DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE . 2 2 FIRST WE WILL DEAL WITH I.T.A.NO. 279/ JODH/2013 FOR THE A.Y. 2007 - 08 . THE FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPEAL: - ON THE FACTS AND IN THE PRESENT CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN 1. DELETING THE DISALLOWANCE OF RS. 2,13,571/ - MADE BY THE AO TREATING LOSS FROM FUTURES & OPTION AS LOSS FROM SPECULATION BUSINESS TRANSACTION WHICH IS NOT ALLOWABLE TO BE SET OFF AGAINS T OTHER BUSINESS INCOME IGNORING THE PROVIS I ON OF SECTION 43(5) OF THE I.T. ACT. 2. DELETING THE DISALLOWANCE OF RS. 25,18,541/ - MADE BY THE AO TREATING THE SAME AS NEITHER BA D DEBTS OR OTHER TYPE OF EXPENDITURE ALLOWABLE AGAINST INCOME FROM BUSINESS DESPITE THE FACT THAT THE CONDITIONS PROVIDED IN THE I.T. ACT FOR ALLOWABLITY OF RS. 25,18,541/ - AS BAD DEBTS OR ANY OTHER EXPENDITURE HAS NOT BEEN FULFILLED BY THE ASSESSEE. THAT THE APPELLANT CRAVES TO ADD, AMEND, ALTER DELETE OR MODIFY ANY OR ALL THE ABOVE GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING. 3. THE FIRST ISSUE VIDE GROUND NO. 1 RELATES TO THE DELETION OF DISALLOWANCE OF RS. 2,13,571/ - MADE BY THE ASSESSING OFFICER BY TREATING THE LOSS FROM FUTURES & OPTION AS LOSS OF SPECULATION BUSINESS . 4. FACTS RELATING TO THIS ISSUE, IN BRIEF, ARE THAT THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION HAD CLAIMED TOTAL LOSS OF RS. 5,86,664/ - AS PER APPROPRIATION OF PROFIT & LOSS ACCOUNT. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD CLAIMED LOSS ON ACCOUNT OF FUTURES & OPTION AT RS. 2,13 , 571/ - THEREBY REDUCED ITS PROFIT BY THIS AMOUNT . HE ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE ABOVE FUTURES & OPTION LOSS BE NOT 3 TREATED AS SPECULATIVE LOSS . IN RE S PONSE, THE ASSESSEE SUBMITTED THAT AS PER CLAUSE (AC) OF SECTION 2 OF THE SECURITIES CONTRACT (REGULATION) ACT , IT IS NOT A SPECULATIVE TRANSACTION . IT WAS FURTHER SUBMITTED THAT DEALING IN FUTURE & TRANSA C TION IS COVERED U/S 43(5) OF THE I.T. ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT IN SHORT) AND NOT A SPECULATIVE TRANSACTION. THE ASSESSING OFFICER, HOWEVER, DID NOT FIND MERIT IN THE SUBMISSIONS OF THE ASSESSEE BY OBSERVING THAT FUTURES & OPTION LOSS W AS CERTAINLY IN THE NATURE OF SPECULATION LOSS AND IT COULD ONLY BE SET OFF AGAINST THE SPECULATION INCOME/RECEIPT. ACCORDINGL Y, THE LOSS OF RS. 2,13, 57 1/ - WAS DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE . 5. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND SUBMITTED THAT THE SPECULATION TRANSACTIONS ARE DEFINED U/S 43(5) OF THE ACT AND THAT THE TRANSACTION WERE CARRIED OUT IN FUTURES & OPTION BY THE ASSESSEE THROUGH SHAREKHAN GROUP AND AT NSE & BSE STOCK EXCHANGE IN ELECTRONIC MEDIA . IT WAS FURTHER STATED THAT THE TRANSAC TIONS CARRIED OUT BY THE ASSESSEE W ERE NOT FALLING UNDER THE SPECULATION TRANSACTIONS CATEGORY AND LOSS FROM THOSE WERE ELIGIBLE FOR SET OFF AGAINST PROFIT AND GAINS OF NON - SPECULATIVE BUSINESS . RELIANCE WAS PLACED ON THE DECISION OF ITAT JAIPUR BENCH IN THE CASE OF P.S. KAPUR VS. ACIT REPORTED AT (2009) 120 TTJ 422 . 4 6 . THE LD. CIT(A), AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, OBSERVED THAT THE LOSS CLAIMED BY THE ASSESSEE IN DER IV ATIVE TRANSACTION WAS ALLOWABLE AS A BUSINESS LOSS IN VIEW OF THE PROVISION OF I.T. ACT AND THE SECURITY CONTRACT (REGULATION) ACT 1951 AND THE DECISION OF THE ITAT JAIPUR BENCH IN THE CASE OF P.S. KAPUR VS. ACIT (SUPRA) WHEREIN IT HAS BEEN HELD AS UNDER: - CLAUSE (D) INSERTED IN PROVISO TO SUB - SECTION (5) OF SECTION 4 BY THE FINANCE ACT 2005 W.E.F. 1 ST APRIL 2006 IS RETROSPECTIVE IN APPLICATION, LOSS CLAIMED BY THE ASSESSEE IN DERIVATIVE TRANSACTION IS ALLOWABLE AS A BUSINESS LOSS AS THE SAME IS NOT COVERED BY SECTION 43(5). ACCORDINGLY , THE ASSESSIN G OFFICER WAS DIRECTED TO ASSESS THE LOSS OF RS. 2,13, 571/ - FROM FUTURES & OPTION AS BUSINESS LOSS . NOW THE DEPARTMENT IS IN APPEAL. 7 . LEARNED D.R. , ALTHOUGH , SUPPORTED THE ORDER OF THE ASSESSING OFFICER , BUT COULD NOT REBUT THE FINDINGS GIVEN BY THE LD. CIT(A) . 8 . IN HIS RIVAL SUBMISSIONS, LEARNED COUNSEL F OR THE ASSESSEE SUBMITTED THAT THE LD. CIT(A) DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY FOLLOWING THE DECISION OF ITAT JAIPUR BENCH. THEREFORE, THE SAME DESERVE S TO BE UPHELD . 5 9 . WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. IN THE PRESENT CASE , IT IS NOTICED THAT THE ISSUE HAS BEEN DECIDED BY THE LD. CIT(A) BY FOLLOWING THE DECISION OF THE ITAT JAIPUR BENCH AND NO CO NTRARY DECISION WAS BROUGHT TO OUR KNOWLEDGE . THEREFORE, WE DO NOT SEE ANY INFIRMITY IN THE IMPUG N ED ORDER PASSED BY THE LD. CIT(A) . 10 . THE NEXT ISSUE VIDE GROUND NO. 2 RELATES TO THE DELETION OF DISALLOWANCE OF RS. 25,18,541/ - MADE BY THE ASSESSING OFFICER TREATING THE SAME AS NEITHER BAD DEBTS N OR OTHER TYPE OF EXPENDITURE ALLOWABLE AGAINST INCOME FROM BUSINESS. 11 . FACTS RELATING TO THIS ISSUE, IN BRIEF, ARE THAT DURING THE YEAR, A SUM OF RS. 25,18,441/ - WAS RECOVERED BY M/S. S.S. KANTILAL ISHWARLAL SECURITIES LTD. (NSE - FNO) ON ACCOUNT OF DEFAULT MADE BY ONE OF THE CLIENT INTRODUCED BY THE ASSESSEE . THE ASSESSING OFFICER DISALLOWED THE AFORESAID RECOVERY OF CLIENTS DEBTS FROM THE ASSESSEE AS IN HIS OPINION THIS CLIENT DEBIT CHARGES RECOVERED BY THE MEMBER BROKER WAS IN THE NATURE OF BAD DEBTS WHICH COULD NOT BE ALLOWED UNTIL AND UNLESS IT WAS EXPLAINED THAT TO SUCH EXTENT INCOME / RECE I P TS HAD FIRSTLY BOOKED BY THE ASSESSEE . THE RELEVANT FINDINGS AR E GIVEN BY THE ASSESSING OFFICER AT PAGES 5 TO 7 OF THE ASSESSMENT ORDER WHICH READ AS UNDER: - 6 1. THE ASSESSEE HAS NEVER ROUTED THE AMOUNT, CLAIMED TO HAVE BEEN WRITTEN OFF NOW, THROUGH ITS TRADING OR P&L A/C. THIS IS THE PRIMARY CONDITION FOR WRITING OFF THE DEBTORS. TECHNICALLY THE AMOUNT WRITTEN OF F DOES NOT FALL OR NEVER FELL EARLIER IN THE CATEGORY OF TRADE DEBTORS OF THE ASSESSEE. THEREFORE, THESE ENTRIES ARE NOT LIABLE TO BE WRITTEN OFF AS PER THE PROVISIONS OF SECTION 36 OF THE I. T. ACT . 2. ALTERNATIVELY, THE CLAIM OF THE ASSESSEE MAY BE CONSIDERED AS A CASE WHERE SOME CAPITAL HAS BECAME BAD AND NEEDS TO BE WRITTEN OFF IS PERMITTED ONLY IN THE CASE OF BANKING COMPANY AND NOT IN THE CASE OF ANY OTHER ASSESSEE. 3. AS PER THE AGREEMENT NO AUTHORITY HAS BEEN GIVEN TO THE ASSESSEE TO RECOVER THE WRITTEN OFF AMOUNT. AS PER THE PROVISIONS OF THE I.T. ACT NO LIABILITY CAN BE IMPOSED MERELY BY AN AGREEMENT WHICH IS NEITHER RECOVERABLE NOR CLAIMABLE FROM THE RELATED PERSON. CLAUSES OF SUCH A ONE SIDED AGREEMENT CANNOT RESULT IN REDUCTION OF ASSESSEE'S ACTUAL INCOME BY WAY OF CLAIM OF EXPENDITURE WITH WHICH THE ASSESSEE IS NOT CONNECTED. 4. THIS IS NOT CLEAR AS TO WHY THE MEMBER BROKER CONTINUED TO PERMIT A SINGLE DEFAULTING CLIENT I. E. SHRI ARUN JAIN TO DO THE BUSINESS BEYOND HIS SECURITY OR EVEN HIS FINANCIAL CAPABILITY. THE ASSESSEE HAS NOT BROUGHT ANYTHING ON RECORD TO SATISFY THIS QUERY. IT IS STRANGE TO NOTE THAT VIDE REPLY DATED 10 - 12 - 2009 THE MEMBER BROKER HAS CON FIRMED THAT THE DEFAULTING CLIENT, WHOSE RECEIVABLE HAVE BEEN TREATED AS BAD DEBTS IS STILL DEALING WITH THE MEMBER BROKER. IT IS BEYOND IMAGINATION THAT A RECEIVABLE OF DEFAULTING CLIENT STILL IN BUSINESS WITH THE MEMBER BROKER THROUGH THE ASSESSEE COULD BE TREATED AS BAD DEBTS. 5. IT IS MADE CRYSTAL CLEAR HERE THAT THIS IS NOT A CASE OF THE ASSESSEE THAT RECEIVABLE WRITTEN OFF WERE INCURRED BY THE ASSESSEE FOR THE PURPOSE OF HIS BUSINESS BECAUSE BUSINESS OF THE ASSESSEE IS ONLY TO EARN BROKERAGE. T HE RECEIVABLE BECAME BAD ONLY AS PER THE DECISION OF THE MEMBER BROKER AND NOT IN THE BUSINESS OF THE ASSESSEE. THE ASSESSEE HAS CLAIMED THE SAME AS WRITE OFF SIMPLY BECAUSE A PARTICULAR TRANSACTION, IN TERMS OF ONE SIDED AGREEMENT, BOOKED THIS EXPENDITURE ON THE ASSESSEE. 6. AS PER MEMBER BROKER REFERRED SUPRA CONFIRMED AS UNDER: 'REASONS OF DEBITING TO M/S SOLARIS - AS PER AGREEMENT WITH M/S SOLARIS (SUB BROKER/AUTHORISED PERSON) HE HAD TO BEAR THE ENTIRE CLIENT RISK AND UNDERTAKE TO INDEMNIFY MEMBER BR OKER FOR ANY LOSSES AND BAD DEBTS INCURRED BY MEMBER BROKER WHILE DEALING WITH ANY CLIENT INTRODUCED BY THE SUB BROKER/AUTHORIZED PERSON.' 7 THE PLAIN READING OF THE ABOVE CONDITION REVEALED THAT THE AMOUNT IN QUESTION AS NEVER WRITTEN IN THE BOOKS OF MEMBER BROKER, RATHER IT WAS SIMPLY DEBITED THE A/C OF THE ASSESSEE. C OPY OF ASSESSEE'S A/C IN THE BOOK S OF MEMBER BROKER IS MADE PART OF THE ORDER AS ANNEXURE 'A'. THUS WHAT HAS NOT BEEN WRITTEN O F F IN THE BOOKS OF MEMBER BROKER, CANNOT BE TREATED AS BED DEBTS AS PER BOOKS OF MEMBER BROKER. THEREFORE, EVEN IN VIEW OF ONE SIDED AGREEMENT, ASSESSEE IS NOT LIABLE TO BEAR THIS BURDEN IN HIS OWN BOOKS AS BAD DEBTS/CLIENT DEBIT CHARGES. UNDER THESE FACTS AND CIRCUMSTANCES, THE AMOUNT OF RS. 25,18,541/ - DEBITED BY THE ASSESSEE IN THE P&L A/C IS DISALLOWED TREATING THE SAME AS AMOUNT OF NON BUSINESS LOSS AS ON THESE LOSS THE ASSESSEE NEITHER HAVE RECEIVED ANY BROKERAGE NOR HAVING ANY RIGHT TO RECOVER THIS LOSS AS PER THE CLAUSES OF THE AGREEMENT WITH THE MEMBER BROKER.' 12. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND THE SUBMISSIONS MADE AS INCORPORATED AT PAGES 8 TO 15 OF THE IMPUGNED ORDER ARE REPRODUCED VERBATIM AS UNDER: - ' IN LIGHT OF ABOVE, WE WOULD LIKE TO CLARIFY ABOUT VARIOUS OBSERVATIONS MADE BY THE LEARNED AO AS UNDER : 1. WHETHER IT CAN BE ALLOWED U/S 37 AS BAD DEBTS IN THE HANDS OF APPELLANT? NO, SINCE THE DUE AMOUNT OF CLIENT IS NOT WRITTEN AS DEBT DUE IN THE BOOKS OF APPELLANT. 2. WHETHER THE SAM E IS CAPITAL LOSS SUFFERED BY APPELLANT CLIENT DEBIT OR AMOUNT DUE FROM CAPITAL IS NOT A CAPITAL ASSET OF THE APPELLANT, IT IS NOT THE CASE THAT APPELLANT ALLOWED LONG TERM FUNDING TO THE CLIENT DIRECTLY OR INDIRECTLY. NOR THE APPELLANT HAS RIGHT OR ACTIONABLE CLAIM AGAINST CLIENT WHICH CEASE TO EXIST IN THE HANDS OF APPELLANT. HENCE SAME CANNOT BE TREATED AS CAPITAL LOSS. 3. WHETHER THE AGREEMENT IS SELF SERVING, ONE SIDED , INCOMPLETE AND FOR APPELLANT? MUTUAL BENEFIT OF SOLARIS & SSKI ? 8 SIR, AGREEMENT ENTERED INTO SOLARIS AND SSKI IS BASED ON THE MODEL AGREEMENT PRESCRIBED BY THE SECURITY TRANSACTIONS ACT AND NATIONAL STOCK EXCHANGE. FURTHER AS PER GUIDELINES PRESCRIBED BY THE STOCK EXCHANGE THESE AGREEMENT ARE REQUIRED TO BE REGISTERED WITH THEM. AGREEMENT IS STRICTLY IN LINES FRAMED BY SEBI, AND PROVIDED FOR ALL RIGHTS AND DUTIES OF MEMBER BROKER & SUB BROKER. FURTHER THESE AGREEMENT CANNOT B E TERMED AS MUTUAL BENEFIT AGREEMENT SOLARIS AND SSKI SINCE BOTH DO NOT HAVE ANY COMMON OBJECT OR BENEFIT WHICH SHALL BE SHARED BY THEM. FURTHER ENTIRE STOCK EXCHANGE TRANSACTIONS ARE FRAMED WITH A VIEW TO ENCOURAGE PARTICIPATION AT LARGE SCALE AND IN TRANSPARENT VIEW AND TO AVOID FRAUD BY MEMBER BROKER WITH THEM. MEMBER BROKER IS ANSWERABLE TO SE BI AND MANY OTHER REGULATORY AGENCIES ABOUT ALL OF ITS ACTIVITIES AND LIABLE FOR SEVERE PUNISHMENT AND PENALTIES. FURTHER IT IS NOT THE CASE OF TWO CLOSELY RELATED ENTITIES ENTERED INTO SELF SERVING AGREEMENT DRAFTED WITHOUT ANY CONTROL OVER IT. IN OUR HUMBLE SUBMISSION, AFORE OBSERVATIONS WERE DEVOID OF FACTS. 4. WHETHER CREDIT ALLOWED B Y SSKI IS AT ITS OWN RISK AND SSKI HAS NEITHER WRITTEN IN THE DEBT NOR WRITTEN OFF IN ITS BOOKS? IT IS WRONG TO SAY THAT SSKI ALLOWED CREDIT AT ITS OWN RISK WITHO UT ASCERTAINING STRENGTH OF THE CLIENT. STOCK EXCHANGE PROVIDED A MECHANISM OF ALLOWING CREDIT ON THE BASIS OF HOLDING AND MARGIN PROVIDED BY CLIENT. EACH CLIENT HAS A RIGHT TO CARRY TRANSACTION MORE THAN WHAT HE PAID BY WAY OF MARGIN AS DECIDED BY STOCK E XCHANGE TIME TO TIME. HOWEVER MEMBER BROKER SHALL BE LIABLE TO MAKE GOOD OF LOSSES SUFFERED BY HIM, IRRESPECTIVE OF THE FACT THAT CLIENT DID NOT MAKE ANY PAYMENT TO HIM. FURTHER IT IS WRONG TO SAY THAT SSKI HAS NOT RAISED DEBTS IN ITS BOOKS. THE OBSERVATI ON IS MADE WITHOUT ANY BASIS. EACH TRANSACTION HAS DOUBLE EFFECT AND AS AND WHEN TRANSACTION OF SALE IS MADE, THEN DEFINITELY ONE ACCOUNT HAS TO DEBITED. 5. TRANSACTION IS CARRIED OUT FOR LOSS OF REVENUE TO THE DEPARTMENT? 9 SIR, IT IS WRONG TO SAY TH AT BY SUCH TYPE OF TRANSACTION REVENUE OF DEPARTMENT IS LOST. SIR, IF THE AMOUNT IS RECOVERED FROM APPELLANT'S ACCOUNT THAN SSKI CAN CLAIM LOSS AT ITS OWN HAND. NOW AS SSKI'S INCOME IS INCREASED BY THE SAME EXTENT BY WHICH APPELLANT'S INCOME IS REDUCED. 6 . TRANSACTION IS NOT RELATED WITH THE BUSINESS OF APPELLANT? SIR, THE LEARNED AO CONCLUDED THAT ABOUT RECOVERY BY SSKI IS NOT ON ACCOUNT OF BUSINESS TRANSACTION. SIR, RELATION BETWEEN APPELLANT AND SSKI AND CLIENT AGAINST DEBIT RECOVERED WAS GOVERNED BY AN AGREEMENT. IN PURSUANCE OF THIS AGREEMENT APPELLANT IS AUTHORIZED TO CARRY ON SHARE BROKERING BUSINESS ON BEHALF OF THE SSKI. WITHOUT THIS AGREEMENT FIRM COULD NOT CARRY OUT THIS BUSINESS. DURING THE YEAR FIRM RECEIVED BROKERAGE AMOUNTING TO RS. 46.79 LACS. IT IS RUNNING A CENTER AS APPROVED BY NSE/BSE WITH ALL MODERN EQUIPMENTS AND FACILITIES AND HAS MORE THAN 500 CLIENTS DEALING THROUGH IT. SSKI IS ALLOWING CREDIT LIMIT OF CRORES OF RUPEES TO THE CLIENT INTRODUCED BY IT ACCORDING TO FRAME WORK OF STOCK EXCHANGE. RELATION BETWEEN CLIENT AND SSKI IS ONLY BUSINESS RELATION AND LIMIT EXTENDED TO HIM IS ALSO ON ACCOUNT OF PROVIDING OF MARGIN MONEY BY HIM. UNDER CONTRACTUAL OBLIGATION SSKI IS ALSO BOUND TO MAKE PAYMENT TO THE STOCK EXCHANGE AND IN TURN APPELLANT IS BOUND TO INDEMNIFY IT ON ACCOUNT OF SUCH LOSS SUFFERED BY IT. THUS ENTIRE TRANSACTION IS ON ACCOUNT OF BUSINESS ACTIVITY OF THE APPELLANT AND ALLOWABLE AGAINST INCOME EARNED BY IT. SIR, HERE WE WOULD LIKE TO SUBMIT CASE OF DEL CREDITOR COMMISSION AGENT, WHO UNDERTAKE RESPONSIBILITY FOR COLLECTING DEBT FROM THE DEBTOR OF HIS PRINCIPAL. LOSS SUFFERED BY HIM SHALL ALSO BE TREATED AS HIS REVENUE LOSS. IN VIEW OF ABOVE WE REQUEST YOUR GOODSELF TO DELETE THE ADDITION MADE ON T HIS ACCOUNT AND OBLIGE. CONSIDERING THE ABOVE FACTS, WE HUMBLY REQUEST YOUR HONOUR TO KINDLY DELETE THE ADDITION MADE ON THIS ACCOUNT AND OBLIGE.' 10 FURTHER THE LD. AR VIDE HIS LETTER DATED 24.12.2012 HAS SUBMITTED THE DETAIL NOTE ON THE FUNCTIONING AND OPE RATION OF THE SHARE MARKET, BROKERS , SUB - BROKERS, AUTHORISED PERSONS AND THE CLIENTS AS UNDER : - 'IT IS SUBMITTED BEFORE PROCEEDING FURTHER WE WOULD LIKE TO SUBMIT IN BRIEF DETAILS ABOUT THE OPERATION OF STOCK EXCHANGE/SHARE MARKET AS THE ENTIRE MATTER IS RELATED WITH THE NATURE & MODUS OPERANDI OF THESE TRANSACTIONS. OPERATION OF STOCK EXCHANGE 3.0 WITH THE INVENTION OF JOINT STOCK COMPANIES IN BUSINESS WORLD A CONCEPT OF JOINT OWNERSHIP BY LARGE NUMBER OF PERSON WAS EMERGED. THESE JOINT STOCK COMP ANIES ARE OWNED BY NUMBER OF PERSONS, MANAGED BY THE ELECTED/NOMINATED REPRESENTATIVE OF THESE STACK HOLDERS. OWNERSHIP OF COMPANY IS DIVIDED BETWEEN SMALL DENOMINATION OF AMOUNT TERMED AS SHARE AND HOLDER OF SHARES WERE CALLED AS SHAREHOLDER. SUBJECT TO S OME RESTRICTIONS IMPOSED BY THE COMPANY THESE SHARES WERE TRANSFERABLE FREELY IN PUBLIC. INITIALLY THESE SHARE WERE USED TO BE TRANSFERRED DIRECTLY BY THE EXISTING SHAREHOLDERS AND PROSPECTIVE SHAREHOLDERS ON THE TERMS AND CONDITIONS DECIDED BETWEEN THEM. LATER ON VOLUME OF TRANSACTION AND AREA WAS EXPANDED BEYOND THE REACH OF DIRECT APPROACH AND SHARE BROKER EMERGED. JOB OF SHARE BROKER WAS TO ARRANGE SHARES FROM THE PERSON WHO WANTS TO SELL/TRANSFER THEM AND FIND THE PERSON WHO WANTS TO PURCHASE THESE SH ARES. FOR RENDERING THIS SERVICE, BROKER WAS GETTING A SMALL AMOUNT OF BROKERAGE FROM BOTH THE PARTIES. INITIALLY OPERATIONS OF COMPANIES AS WELL AS BROKERS WERE CONTROLLED /REGULATED THROUGH SELF FRAME RULES AND GUIDELINES. LATER ON LOOKING TO INCREASE I N LEVEL OF TRANSACTIONS AND DISPUTES BETWEEN THE STACK HOLDERS, GOVERNMENT STARTED FRAMING RULES AND REGULATION. COMPANIES ACT, SECURITY TRANSACTIONS ACT ETC ARE FEW OF CONTROLLING ACTS. FURTHER TO FACILITATE TRANSACTIONS BY BROKER, STOCK EXCHANGES WERE F ORMED WHERE BROKER CAN BECOME MEMBER AND CARRY OUT TRANSACTION ON BEHALF OF THE CLIENT. WITH INVENTION OF ELECTRONIC STOCK EXCHANGE NOW ONE CAN CARRY OUT BUYING AND SELLING OF SHARES THROUGH MEMBER BROKERS OF STOCK EXCHANGE EVEN AT HIS 11 HOME. AS EACH STOCK EXCHANGE HAS LIMIT ED NO . OF MEMBER BROKER, A SYSTEM OF APPOINTMENT OF SUB BROKERS CAME INTO OPERATION. IN ORDER TO UNDERSTAND THESE JARGON WE MUST KNOW SOME BASIC TERMS LIKE MEMBER BROKER, CLIENT AND SUB BROKER. MEMBER BROKER IS SEBI APPROVED MEMBER OF STOCK EXCHANGE WHO CAN DEAL DIRECTLY AT STOCK EXCHANGE ON BEHALF OF HIS CLIENT. HE WILL BE FULLY RESPONSIBLE FOR DISCHARGING LIABILITY OF TRANSACTION WHICH HE UNDERTOOK ON BEHALF OF HIS CLIENTS IRRESPECTIVE OF THE FACTS WHETHER THE CLIENT HAS PAID OR NOT O R DEFAULTED IN DISCHARGING HIS OBLIGATION. SUB BROKER OR AUTHORISED PERSON ARE THE PERSONS APPOINTED BY MEMBER BROKER TO REACH PUBLIC AT LARGE IN DIFFERENT PART OF THE COUNTRY ON BEHALF OF THE MEMBER BROKER. THESE AUTHORIZED PERSON DO NOT HAVE ANY RIGHT T O CARRY OUT TRANSACTION AT THE STOCK EXCHANGE DIRECTLY ON BEHALF OF THE CLIENTS PROCURED BY THEM. TRANSACTION SHALL BE CARRIED OUT ONLY BY MEMBER BROKER. DUTIES OF SUB BROKER ARE TO IDENTIFY THE PROSPECTIVE CLIENTS, INTRODUCE THEM TO MEMBER BROKER AND PROV IDE SPACE AND OTHER FACILITIES TO THE CLIENT FOR CARRYING OUT TRANSACTION AND COLLECT DUES FROM THEM AND DEPOSIT THE SAME IN MEMBER BROKER ACCOUNT AND TO DISBURSE PAYMENT TO CLIENTS DUE FROM MEMBER BROKER. FOR RENDERING ABOVE SERVICES, SUB BROKER GETS BROK ERAGE FROM MEMBER BROKER ON THE BASIS OF VOLUME OF TRANSACTION CARRIED OUT BY THE CLIENTS INTRODUCED BY HIM. CLIENT IS SELF EXPLAINED TERM. STOCK EXCHANGE ALLOWS MEMBER BROKER SOME TIME TO DISCHARGE HIS LIABILITY ON THE BASIS OF STANDING AND WORTH OF MEMBER BROKER AND MEMBER ALLOWS THIS LINE OF CREDIT TO ITS CLIENTS ACCORDING TO THEIR WORTH AND PORTFOLIO HELD BY THEM. IN THIS ENTIRE SCHEME OF THINGS MEMBER BROKER ARE DIRECTLY RESPONSIBLE FOR DISCHARGING THEIR RESPONSIBILITIES IN STOCK EXCHANGE. TO INDE MNIFY THEMSELVES FROM BAD DEBTS ON ACCOUNT OF FAILURE OF THEIR CLIENT THEY ASK TO SUB BROKER TO BEAR THESE CLIENT RISK AS SUB BROKER IS PEN ON WHO KNOWS CLIENT. THIS SYSTEM WORKS NORMALLY SMOOTH AS THE CREDIT EXTENDED BY MEMBER BROKER TO THEIR CLIENT NORM ALLY FIXED ON THE BASIS OF VALUE OF SCRIPTS HELD BY 12 HIM AS WELL AS MARGIN PROVIDED BY HIM. NORMALLY MARGIN IS KEPT IN A WAY THAT IT COVERS NORMAL FLUCTUATION IN MARKET. HOWEVER IN EXTREME VOLATILE CONDITIONS MARGIN PROVIDED BY CLIENT BECAME INSUFFICIENT T O HIS EXPOSURE AND LIABILITY DWELL ON THE MEMBER BROKER. 3.1 SIR, NOW ALL THESE SYSTEM IS GOVERNED BY THE RULES AND REGULATION FRAMED BY SE B I, STOCK EXCHANGE AND GOVERNMENT. RULES & REGULATIONS ARE FRAMED TO DEFINE AND REGULATE DEALING BETWEEN STOCK EXCHA NGE AND MEMBER BROKER, MEMBER BROKER AND SUB BROKER, SUB BROKER AND CLIENT, MEMBER BROKER AND CLIENT. MEMBER BROKER IS REQUIRED TO REGISTER AGREEMENT BETWEEN HIMSELF AND SUB - BROKER WITH CONCERN STOCK EXCHANGE. RULES SPECIFIED THE TERMS AND CONDITIONS WHICH SHOULD BE IN THE AGREEMENT AND RIGHTS AND DUTIES OF BOTH OF THEM ARE ALSO DEFINED THEREIN. IN CONCLUSION WE WOULD LIKE TO SUBMIT THAT RELATIONS, RIGHTS AND DUTIES BETWEEN MEMBER BROKER, SUB BROKER AND CLIENT IS GOVERNED BY THE ACT AND REGULATION FRAMED B Y GOVERNMENT OF INDIA. 3.2 M/S SOLARIS IS AUTHORISED PERSON OF S S KANITLAL ISHWARLAL SECURITIES PVT. LTD (MEMBER BROKER) AND SHAREKHAN LTD. (MEMBER BROKER). FOR YOUR READY REFERENCE WE ARE ENCLOSING COPY OF AGREEMENT EXECUTED BETWEEN S S KANITLAL ISHWARL AL SECURITIES PVT. LTD & M/S SOLARIS FOR CASH SEGMENT NSE ENTERED ON 21 S T JULY 2003. SIMILAR AGREEMENTS WERE ALSO ENTERED FOR VARIOUS SEGMENTS LIKE BSE CASH, BSE FUTURE & OPTION, NSE (F& O ), BSE MCX ETC. AS PER THIS AGREEMENT M/S SOLARIS IS AUTHORISED PERS ON OF S S KANITLAL ISHWARLAL SECURITIES PVT. LTD. TO SOLICIT AND MANAGE BUSINESS FOR MEMBER BROKER. AS AN AUTHORISED PERSON OF MEMBER BROKER IT HAS TO IDENTIFY CLIENT AND REFER THEM TO MEMBER BROKER. MEMBER BROKER WILL REGISTER CLIENT ONLY ON APPROVAL GIV EN BY THE AUTHORISED PERSON AND AFTER MAKING SOME ADDITIONAL REFER E NCE CHECKING. FURTHER THE AUTHORIZED PERSON SHALL MAKE AVAILABLE SPACE FOR SETTING UP OF TRADING TERMINALS, V SETS ETC AND REQUIRED OFFICE AREA FOR CARRYING OUT TRADING ACTIVITIES. 13 FURTHER AUTHORISED PERSON WILL BEAR THE ENTIRE CLIENT RISK AND UNDERTAKE TO INDEMNIFY MEMBER BROKER FOR ANY LOSSES OR BAD DEBTS INCURRED BY MEMBER FOR ANY LOSSES OR BAD DEBTS INCURRED BY MEMBER BROKER WHILE DEALING WITH ANY CLIENTS UNDER THE SUPERVISION OF THE AU THORISED PERSON OR IN ANY OTHER MANNER. AUTHORISED PERSON IS BOUND TO MAKE PAYMENT FORTHWITH ON DEMAND TO THE MEMBER BROKER ANY LOSS OR BAD DEBTS INCURRED BY THE MEMBER BROKER DURING COURSE OF BUSINESS CARRIED ON BY THE MEMBER BROKER UNDER SUPERVISION OF A UTHORIZED PERSON. THE STATEMENT OF LOSSES PREPARED BY THE MEMBER BROKER WILL BE CONCLUSIVE PROOF AND FINAL AND BINDING ON THE AUTHORISED PERSON. (CLAUSE 16.1 OF THE AGREEMENT). FURTHER ALL DEALING IS MADE BY THE CLIENTS DIRECTLY WITH MEMBER BROKER, SOLARIS IS NOT EXTENDING ANY CREDIT DIRECTLY TO ANY PERSON, NEITHER HAS IT HAD ANY RIGHT TO RECOVER THE SAID BAD DEBTS FROM DEFAULTER. AS PER LEGAL FRAME WORK OF SEBI, ONLY MEMBER BROKER IS AUTHORIZED TO COLLECT FUNDS FROM THE CLIENTS, AUTHORISED PERSON ( SUB BROKER) HAS NO RIGHT TO RECEIVE ANY REMUNERATION, FEE ETC DIRECTLY FROM CLIENTS. COPY OF LATEST CIRCULAR DATED 6.11.2009 ALONG WITH COPY OF DRAFT AGREEMENT BETWEEN MEMBER BROKER & AUTHORISED PERSON IS ENCLOSED. FURTHER AGREEMENT BETWEEN MEMBER BROKER & AUTHORISED PERSON IS ALSO PART OF MANDATORY DOCUMENTS TO BE SUBMITTED TO CONCERN STOCK EXCHANGE FOR GETTING AUTHORIZED PERSON APPROVED. (COPY OF CHECKLIST FOR APPOINTMENT OF AUTHORISED PERSON IS ENCLOSED)'. 13 THE LEARNED CIT(A), AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, HELD THAT THE RECOVERY AMOUNTING TO RS. 25,18,541/ - WAS THE BUSINESS LOSS IN VIEW OF THE FOLLOWING RELEVANT FACTS , MENTIONED AT PAGES NO. 15 & 16 OF THE IMPUGNED ORDER : - I) AS PER THE OPERATION OF STOCK EXCHANGE THE APPELLANT IS THE AUTHORIZED PERSON OF SHAREKHAN LTD. AND SSKI BEING A FRANCHISEE OF THESE CONCERNS ENGAGED IN TRADING OF SHARES AND RECEIVED BROKERAGE FROM THEM. 14 II) AGREEMENT BETWEEN MEMBER BROKER & AUTHORISED PERSON IS ALSO PART OF MANDATORY DOCUMENTS TO BE SUBMI TTED TO CONCERN STOCK EXCHANGE FOR GETTING AUTHORIZED PERSON APPROVED. I II ) COPY OF LATEST CIRCULAR DATED 6.11.2009 ALONG WITH COPY OF AGREEMENT BETWEEN MEMBER BROKER & AUTHORISED PERSON HAVE BEEN SUBMITTED BY THE APPELLANT. IV) THE AGREEMENT ENTERED INTO M/S SOLARIS, THE APPELLANT AND M/S SSKI IS BASED ON THE MODEL AGREEMENT PRESCRIBED BY THE SECURITY TRANSACTIONS ACT AND NATIONAL STOCK EXCHANGE. FURTHER AS PER GUIDELINES PRESCRIBED BY THE STOCK EXCHANGE THESE AGREEMENT ARE REQUIRED TO BE REGISTERED WITH T HEM. AGREEMENT IS STRICTLY IN LINES FRAMED BY THE SEBI, AND PROVIDED FOR ALL RIGHTS AND DUTIES OF MEMBER BROKER & SUB BROKER. FURTHER THE AGREEMENT CANNOT B E TERMED AS MUTUAL BENEFIT AGREEMENT BETWEEN SOLARIS AND SSKI SINCE BOTH DO NOT HAVE ANY COMMON OBJE CT OR BENEFIT WHICH SHALL BE SHARED BY THEM. V) THE AUTHORISED PERSON WILL BEAR THE ENTIRE CLIENT RISK AND UNDERTAKE TO INDEMNIFY MEMBER BROKER FOR ANY LOSSES OR BAD DEBTS INCURRED BY MEMBER FOR ANY LOSSES OR BAD DEBTS INCURRED BY MEMBER BROKER WHILE DEALI NG WITH ANY CLIENTS UNDER THE SUPERVISION OF THE AUTHORISED PERSON OR IN ANY OTHER MANNER. AUTHORISED PERSON IS BOUND TO MAKE PAYMENT FORTHWITH ON DEMAND TO THE MEMBER BROKER ANY LOSS OR BAD DEBTS INCURRED BY THE MEMBER BROKER DURING COURSE OF BUSINESS CAR RIED ON BY THE MEMBER BROKER UNDER SUPERVISION OF AUTHORIZED PERSON. THE STATEMENT OF LOSSES PREPARED BY THE MEMBER BROKER WILL BE CONCLUSIVE PROOF AND WHICH IS FINAL AND BINDING ON THE AUTHORISED PERSON. (CLAUSE 16.1 OF THE AGREEMENT). VI) ALL DEALING IS MADE BY THE CLIENTS DIRECTLY WITH MEMBER BROKER, SOLARIS IS NOT EXTENDING ANY CREDIT DIRECTLY TO ANY PERSON, NEITHER HAS IT HAD ANY RIGHT TO RECOVER THE SAID BAD DEBTS FROM DEFAULTER. VII) AS PER LEGAL FRAME WORK OF SEBI, ONLY MEMBER BROKER IS AUTHORIZED T O COLLECT FUNDS FROM THE CLIENTS, AUTHORISED PERSON (SUB BROKER) HAS NO RIGHT TO RECEIVE ANY REMUNERATION, FEE ETC DIRECTLY FROM CLIENTS. VIII) THE LD. AR HAS GIVEN CLARIFICATION /EXPLANATION ON EACH AND EVERY FINDING & OBSERVATION OF THE LD. AO WHICH PROVE THAT THE SAID RECOVERY IS A ALLOWABLE BUSINESS LOSS OF THE APPELLANT. 15 ACCORDINGLY, THE ADDITION OF RS. 25,18,541/ - MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLOWANCE TREATING THE SAME AS AMOUNT OF NON - BUSINESS LOSS WAS DELETED . NOW THE DEPA RTMENT IS IN APPEAL. 14 LEARNED D.R. SUPPORTED THE ORDER OF THE ASSESSING OFFICER AND FURTHER SUBMITTED THAT THE ASSESSEE HAD NOT ROUTED THE IMPUGNED AMOUNT THROUGH ITS TRADING ACCOUNT OR PROFIT & LOSS ACCOUNT . THEREFORE, WRITTEN OFF AMOUNT DID NOT FALL IN THE CATEGORY OF TRADE DEBTORS AND THE ASSESSING OFFICER WAS RIGHTY DISALLOWED THE CLAIM OF THE ASSESSEE . 15 IN HIS RIVAL SUBMISSIONS, LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND STRONGLY SUPPORTED THE IMPUG N ED ORDER PASSED BY THE LD. CIT(A) . 16 WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. IN THE PRESENT CASE, IT IS AN ADMITTED FACT THAT T HE ASSESSEE WAS THE AUTHORIZED PERSON OF M/S. M/S. S.S. KANTILAL ISHWARLAL SECURITIES LTD. BEING A FRANCHISE OF THE SAID CONCERN , IT WAS ENGAGED IN TRADING OF SHARES AND RECEIVED BROKERAGE FROM THEM. THE AGREEMENT WAS ENTERED IN BETWEEN THE ASSESSEE AND M/S. S.S. KANTILAL ISHWARLAL SECURITIES LTD. ON THE BASIS OF MODEL 16 AGREEMENT PRESCRIBED BY THE SECURITY TRANSACTION ACT AND NATIONAL STOCK EXCHANGE . THE SAID AGREEMENT WAS STRICTLY IN LINES FRAMED BY THE SEBI AND PROVIDED FOR ALL RIGHTS AND DUTIES OF MEMB ER BROKER . THE SAID AGREEMENT CAN NOT BE TERMED AS MUTUAL BENEFIT AGREEMENT BETWEEN ASSESSEE AND M/S. S.S. KANTILAL ISHWARLAL SECURITIES LTD. SINCE BOTH OF THEM DID NOT HAVE ANY COMMON OBJECT OR BENEFIT WHICH SHALL BE SHARED BY THEM. THE AMOUNT IN QUESTION WAS RECOVERED BY M/S. S.S. KANTILAL ISHWARLAL SECURITIES LTD. FROM THE ASSESSEE, SO IT WAS DIRECTLY RELATED TO THE BUSINESS CONDUCTED BY THE ASSESSEE BECAUSE THE AMOUNT WAS RECOVERED ON ACCOUNT OF DEFAULT MADE BY ONE OF THE CLIENT IN TRODUCED BY THE ASSESSEE WHO WAS ACTING AS AUTHORIZED REPRESENTATIVE OF THE MEMBER BROKER I.E. M/S. S.S. KANTILAL ISHWARLAL SECURITIES LTD. THEREFORE, THE AMOUNT IN QUESTION WAS TO BE ALLOWED AS A BUSINESS LOSS AND THE LD. CIT(A) RIGHTLY DIRECTED THE ASSE SSING OFFICER TO DO SO. WE DO NOT SEE ANY MERIT IN THIS GROUND OF THE DEPARTMENTAL APPEAL. 17 NOW WE WILL DEAL WITH I.T.A.NO. 280/JODH/ 2013 FOR THE A.Y. 2008 - 09. THE FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPEAL: - ON THE FACTS AND IN THE PRESENT CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN : - 1. DELETING THE DISALLOWANCE TO THE EXTENT OF RS. 2,43,462/ - (RS. 25,540/ - + 2,17,922/ - ) MADE BY THE AO TREATING LOSS FROM SHARES, 17 FUTURES & OPTION AS LOSS FROM SPEC ULATION BUSINESS TRANSACTION WHICH IS NOT ALLOWABLE TO BE SET OFF AGAINST OTHER BUSINESS INCOME IGNORING THE PROVISION OF SECTION 43(5) OF THE I.T. ACT. 2. DELETING DISALLOWANCE OF RS. 16,48,120/ - MADE BY THE AO TREATING THE SAME AS NEITHER BAD DEBTS OR OTHER TYPE OF EXPENDITURE ALLOWABLE AGAINST INCOME FROM BUSINESS DESPITE THE FACT THAT THE CONDITIONS PROV I DED IN I.T. ACT. FOR ALLOWABILITY AS BAD DEBTS OR ANY OTHER EXPENDITURE HAS NOT BEEN FULFILLED BY THE ASSESSEE . 3. DELETING THE DISALLOWANCE OF RS. 1 7,553/ - MADE BY THE AO OUT OF AUDIT FEE WITHOUT APPRECIATING THE FACTS THAT THE ASSESSEE WAS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING AND THE EXPENDITURE DO NOT PERTAIN TO THE PREVIOUS YEAR RELEVANT TO A.Y. 2008 - 09 . 4. REDUCING THE DISALLOWANCE TO RS. 10,000/ - INSTEAD OF RS. 39,655/ - MADE BY THE AO ON ACCOUNT OF CASH PAYMENT FOR CAR REPAIRING EXPENSE AND PERSONAL USE OF VEHICLE BY PARTNERS IGNORING THE PROVI S I ONS OF RULE 6DD OF THE I.T. RULES AND THE POSSIBILITY OF VEHICLE BEING USED FOR PERSONAL PURP OSE BY THE PARTNERS. 5. DELETING THE DISALLOWANCE OF RS. 32,342/ - OUT OF DEPRECIATION ON CAR IGNORING THE FACT OF THE CASE THAT THE VEHICLE WAS BEING USED FOR PERSONAL PURPOSE BY THE PARTNERS. THAT THE APPELLANT CRAVES TO ADD, AMEND, ALT ER DELETE OR MODIFY ANY OR ALL THE ABOVE GROU N DS OF APPEAL BEFORE OR AT THE TIME OF HEARING. 18 GROUND NOS. 1 & 2 ARE SIMILAR TO THE GROUND NOS . 1 & 2 RAISED IN I.T.A.NO. 279/JODH2013 (SUPRA) AND THE FACTS ARE IDENTICAL. THEREFORE, OUR FINDINGS GIVEN IN THE FORMER PART OF THIS ORDER WHILE DECIDING THE APPEAL FOR THE A.Y. 2007 - 08 IN I.T.A.NO. 279/JODH/2013 SHALL APPLY MUTATIS - MUTANDIS FOR THIS YEAR ALSO . 19 VIDE GROUND NO. 3, THE GRIEVANCE OF THE DEPARTMENT RELATES TO THE DELETION OF DISALLOWANCE OF RS . 17,553/ - . 18 20 FACTS RELATING TO THIS ISSUE, IN BRIEF, ARE THAT THE ASSESSING OFFICER DISALLOWED A SUM OF RS. 17,553/ - OUT OF AUDIT FEE OF RS.35,072/ - FOR THE REASON THAT THE SAID AMOUNT WAS RELATED TO THE A.Y. 2007 - 08 AND THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. 21 BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND SUBMITTED THAT THE BILL FOR AUDIT FEE WAS RECEIVED BY THE ASSESSEE ON 31/03/2008 , THEREFORE, THE EXPENDITURE WAS CLAIMED IN THE YEAR UNDER CONSIDERATION . THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE OBSERVED THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN DISALLOWING RS. 17,553/ - OUT OF THE TOTAL AUDIT FEE OF RS. 35,072/ - AS THE SAME WAS ALLOWABL E IN THE YEAR UNDER CONSIDERATION . NOW THE DEPARTMENT IS IN APPEAL. 22 AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PARTIES AND THE MATERIAL ON RECORD, IT APPEARS TH A T THE ASSESSEE RECEIVED BILL FOR AUDIT FEE AMOUNTING TO RS. 35,072/ - ON 31/03/2008 AS SUCH THE LIABILITY CRYSTALLIZED IN THE YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. SO, IT WAS ALLOWABLE IN THIS YEAR AND THE ASSESSING OFFICER 19 WAS NOT JUSTIFIED IN DISALLOWING THE SAME. I N THAT VIEW OF THE MATTER, WE DO N O T SEE ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) ON THIS ISSUE. 23 THE NEXT ISSUE VIDE GROUND NO. 4 RELATES TO THE RELIEF ALLOWED BY THE LD. CIT(A) OUT OF DISALLOWANCE MADE BY THE ASSESSING OFFICER ON ACCOUNT OF CASH PAYMENT FOR CAR REPAIRING EXPENSES. 24 FACTS RELATING TO THIS ISSUE, IN BRIEF, ARE THAT THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS, NOTICED THAT THE ASSESSEE CLAIMED EXPENSES OF RS. 74,081/ - ON ACCOUNT OF REPAIRS AND MAINTENANCE AND THE DETAILS OF THOSE EXPENSES REVEALED THAT THE ASSESSEE HAD MADE CASH PAYMENT OF RS. 4,352/ - AND RS. 29,303/ - TOTALING TO RS. 33,655/ - ON 19/01/2008 TO M/S. AUTOVISTA. ACCORDING TO HIM, THIS AMOUNT WAS IN CONTRAV ENTION OF PROVISIONS OF SECTION 40A(3) OF THE ACT AND DISALLOWED THE SAME . HE FURTHER OBSERVED THAT THE PERSONAL USE OF VEHICLE BY THE PARTNERS COULD NOT BE RULED OUT. HE ALSO DISALLOWED ANOTHER AMOUNT OF RS. 6,000/ - ON ESTIMATE BASIS . ACCORDINGLY DISALLOWANCE OF RS. 39,655/ - (RS. 3 3,65 5 / - + RS. 6,000) WAS MADE. 25 BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND SUBMITTED THAT THE CAR GOT AN ACCIDENT AND FRONT GLASS WAS BROKEN AT 20 JAIPUR , SO IT WAS NOT POSSIBL E FOR THE ASSESSEE TO MAKE THE PAYMENT BY CHEQUE OR DD BECAUSE THE COMPANY I.E. M/S. AUTOVISTA MOTORS PVT. LTD. JAIPUR DID NOT ALLOW THE CREDIT OF BILL OR NOT ACCEPTED ANY OUT STATION CHEQUE , HENCE, IN UNAVOIDABLE SITUATION, THE ASSESSEE FIRM MADE PAYMENT. AS REGARDS PERSONAL USE OF CAR, IT WAS SUBMITTED THAT THE CAR WAS EXCLUSIVELY USED FOR BUSINESS PURPOSE ONLY AND PARTNERS WERE HAVING OTHER VEHICLES IN THEIR INDIVIDUAL CAPACITIES AND NO ADDITION WAS MADE IN ANY OTHER ASSESSMENT YEAR. 26 THE LEARNED CIT(A), AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, OBSERVED THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN MAKING THE ADDITION OF RS. 33,655/ - OUT OF CAR EXPENSES, HOWEVER, THE LD. CIT(A) CONSIDERED IT FAIR AND REASONABLE IF THE DISAL LOWANCE WAS RESTRICTED TO RS. 10,000/ - . NOW THE DEPARTMENT IS IN APPEAL. 27 AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PARTIES WE ARE OF THE OPINION THAT IN SUCH TYPE OF CASES PERSONAL USE OF VEHICLE BY THE PARTNERS CANNOT BE RULED OUT. THEREFORE, LD. CIT(A) WAS JUSTIFIED IN RESTRICTING THE DISALLOWANCE OF RS. 10,000/ - INSTEAD OF RS. 39,655/ - MADE BY THE ASSESSING OFFICER. ACCORDINGLY, WE DO NOT SEE ANY MERIT IN THIS GROUND OF THE DEPARTMENTAL APPEAL . 21 28 THE LAST ISSUE VIDE GROUND NO. 5 RELATES TO THE DELETION OF DISALLOWANCE OF RS. 32,342/ - MADE BY THE ASSESSING OFF ICER OUT OF DEPRECIATION ON CAR . 29 FACTS RELATING TO THIS ISSUE, IN BRIEF, ARE THAT THE ASSESSEE CLAIMED DEPRECIATION OF RS. 1,61,710/ - . THE ASSESSING OFFICER DISALLOWED 20% OF THE DEPRECIATION TREATING THE SAME AS PERSONAL EXPENSES. THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND SUBMITTED THAT THE CAR WAS EXCLUSIVELY USED FOR BUSINESS PURPOSES AND THE PARTNERS WERE HAV ING OTHER VEHICLES IN THEIR INDIVIDUAL CAPACITIES. LD. CIT(A) DELETED THE ADDITION BY OBSERVING THAT THE DEPRECIATION ON VEHICLE WAS STATUTORY ALLOWANCE UNDER THE PROVISIONS OF ACT. NOW THE DEPARTMENT IS IN APPEAL. 30. LEARNED D.R. SUPPORTED THE ORDER O F THE ASSESSING OFFICER AND THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW . 31. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PARTIES AND THE MATERIAL ON RECORD, WE ARE IN AGREEMENT WITH THIS OBSERVATION OF THE LD. CIT(A) THAT THE DEPRECIATION IS A STATUTORY ALLOWANCE. FURTHERMORE, THE ASSESSING OFFICER MADE THE DISALLOWANCE WITHOUT ANY BASIS BUT ONLY ON 22 ESTIMATE. WE THEREFORE, DO NOT SEE ANY VALID GROUND TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A) ON THIS ISSUE. 32. IN THE RESULT, BOTH THE APPEAL S OF THE DEPARTMENT ARE DISMISSED . ( ORDER PRONOUNCED IN THE COURT ON 23 RD JULY , 201 4) . SD/ - SD/ - ( HARI OM MARATHA ) (N.K.SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 23 RD JULY , 201 4 . VR/ - COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE LD. CIT 4. THE CIT(A) 5. THE D.R ASSISTANT REGISTRAR, ITAT, JODHPUR .