CENTURN BROKING LTD ( FORMERLY CENTRUM BROKING P LTD, MUMBAI V. ACIT 4(1), MUMBAI

ITA 3081/MUM/2012

• Counselvise Citation: 308119914 RSA 2012
• Duration Of Justice: 2 year(s) 9 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-02-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 30-12-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 04-05-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PREMANAND J
• Assessee Lawyers: J D MISTRY
• Keywords: Business income; Reasonable cause; Speculation loss
• Section: 14A; 43(5)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE HONBLE S/SHRI H.L. KARWA, PRESIDENT AND B. R.BASKARAN (AM) . . , . . , ./I.T.A. NO.3081/MUM/2012 ( / ASSESSMENT YEAR : 2008-09) CENTRUM BROKING LTD., (FORMERLY CENTRUM BROKING PVT.LTD.,), 5 TH FLOOR, SANTACRUZ (E), MUMBAI-400098 / VS. ASSTT. COMMISSIONER OF INCOME TAX,4(1), MUMBAI. ( / APPELLANT) .. ( / RESPONDENT) ./ !' ./PAN/GIR NO. :AABCA1498E # / APPELLANT BY SHRI J D MISTRY $ # / RESPONDENT BY SHRI PREMANAND J % & $ '( / DATE OF HEARING :30.12.2014 )* $ '( /DATE OF PRONOUNCEMENT : 20. 2.2015 / O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINS T THE ORDER DATED 01-12-2011 PASSED BY LD CIT(A)-9, MUMBAI AND IT REL ATES TO THE ASSESSMENT YEAR 2008-09. 2. THE APPEAL IS BARRED BY LIMITATION BY 52 DAYS. THE ASSESSEE HAS MOVED A PETITION REQUESTING THE BENCH TO CONDONE TH E DELAY. IT WAS STATED THEREIN THAT THE INCOME TAX APPEAL MATTERS WERE LOO KED AFTER BY AN OFFICIAL NAMED MR.HEMANT AGARWAL, WHO RESIGNED AFTER COMPLET ION OF HEARING WITH LD CIT(A). IT WAS FURTHER STATED THAT A STAFF NAMED BIPINKUMAR PATHAK, WHO IS IN-CHARGE OF DELIVERING OF LETTERS PLACED TH E APPELLATE ORDER IN THE TABLE OF MR.HEMANT AGARWAL AND HENCE THE SAME REMAI NED UNATTENDED. ITA. NO3081/MUM/2012 2 SUBSEQUENTLY, WHEN THE DIRECTOR MADE ENQUIRIES ABOU T THE APPELLATE ORDER, THE ABOVE FACTS CAME TO LIGHT AND IMMEDIATELY THERE AFTER, THE PRESENT APPEAL HAS BEEN FILED. WE HEARD LD D.R. HAVING REGA RD TO THE SUBMISSIONS MADE IN THE AFFIDAVIT, WE ARE OF THE VIEW THAT THER E WAS REASONABLE CAUSE FOR THE ASSESSEE IN FILING THIS APPEAL BELATEDLY. ACCORDINGLY, WE CONDONE THE DELAY AND ADMIT THE APPEAL FOR HEARING. 3. THE ASSESSEE IS DISPUTING FOLLOWING ADDITIONS C ONFIRMED BY THE LD CIT(A):- (A) DISALLOWANCE OF VSAT AND LEASE LINE CHARGES U/S 40(A)(IA) OF THE ACT. (B) DISALLOWANCE OF CLAIM OF SET OFF OF LOSS ARI SING IN CASH SEGMENT AGAINST THE PROFITS IN FUTURE & OPTIONS. (C) DISALLOWANCE OF MARK TO MARKET LOSS ON DERI VATIVES . (D) DISALLOWANCE MADE U/S 14A OF THE ACT. 4. THE ASSESSEE COMPANY IS A MEMBER OF BOMBAY STO CK EXCHANGE (BSE) AND NATIONAL STOCK EXCHANGE (NSE) AND IS ENGA GED IN THE BUSINESS OF SHARE TRADING AND STOCK BROKING. THE AO COMPLET ED THE ASSESSMENT BY MAKING VARIOUS ADDITIONS AND THE APPEAL FILED BY TH E ASSESSEE BEFORE LD CIT(A) WAS PARTLY ALLOWED. STILL AGGRIEVED, THE AS SESSEE HAS FILED THIS APPEAL BEFORE US. 5. THE FIRST ISSUE RELATES TO THE DISALLOWANCE OF VSAT AND LEASE LINE CHARGES MADE BY THE AO BY INVOKING THE PROVISIONS O F SEC. 40(A)(IA) OF THE ACT. THE PAYMENT MADE BY THE ASSESSEE FOR VSAT AND LEASE LINE CHARGES PAID TO BSE/NSE WAS TREATED AS FEE FOR TECHNICAL S ERVICES AND SINCE THE ASSESSEE DID NOT DEDUCT TAX AT SOURCE EITHER U/S 19 4C OR U/S 194J, THE AO DISALLOWED THE SAID CLAIM. THE LD CIT(A), BY PLAC ING RELIANCE ON THE DECISION OF HONBLE BOMBAY HIGH COURT RENDERED IN T HE CASE OF CIT VS. KOTAK SECURITIES LTD (340 ITR 333), HELD THAT THE A BOVE SAID PAYMENTS WOULD REQUIRE TAX DEDUCTION AT SOURCE U/S 194J OF T HE ACT AND ACCORDINGLY CONFIRMED THE DISALLOWANCE MADE U/S 40(A)(IA) OF TH E ACT. ITA. NO3081/MUM/2012 3 6. AT THE TIME OF HEARING, THE LD A.R SUBMITTED T HAT THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE JURISDICTI ONAL HIGH COURT IN THE CASE OF THE CIT VS. M/S THE STOCK AND BOND TRADING COMPANY (ITA NO.4117 OF 2010 DATED 14.10.2011). A PERUSAL OF TH E SAID ORDER SHOWS THAT THE HIGH COURT HAS FOLLOWED ITS EARLIER DECISI ON RENDERED IN THE CASE OF THE INCOME TAX COMMISSIONER, MUMBAI CITY-4 VS. ANG EL CAPITAL & DEBIT MARKET LTD IN INCOME TAX APPEAL (L) NO.475 OF 2011 DATED 28-07-2011 TO HOLD THAT THE THERE IS NO REQUIREMENT TO DEDUCT TAX AT SOURCE FROM THE PAYMENTS MADE TO NSE/BSE TOWARDS VSAT CHARGES AND L EASE LINE CHARGES. THE LD. AR SUBMITTED THAT IN THE CASE OF KOTAK SECURITIES LTD, THE BOMBAY HIGH COURT DID NOT CONSIDER VSAT AND LEA SE-LINE CHARGES ISSUE. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD C IT(A) ON THIS ISSUE AND DIRECT THE AO TO DELETE THIS ADDITION. 7. THE LD A.R SUBMITTED THAT THE ISSUE RELATING TO MARKET TO MARKET LOSS ON DERIVATIVES IS ALSO COVERED BY THE DECISIO NS RENDERED BY THE CO- ORDINATE BENCHES OF TRIBUNAL IN THE FOLLOWING CASES :- (A) DCIT VS. KOTAK MAHINDRA INVESTMENT LTD (35 TAXMANN.COM 225) (B) SHRI RAMESH KUMAR DAMAI VS. ADDL CIT (ITA NO.1443/MUM/2009) (C) EDELWEISS CAPITAL LTD VS. ITO (8 TAXMANN.COM 157)(MUM) A PERUSAL OF THE ABOVE SAID DECISIONS WOULD SHOW TH AT THE TRIBUNAL IS CONSISTENTLY HOLDING THAT THE MARKET TO MARKET LOSS ON DERIVATIVES CANNOT BE TREATED AS A CONTINGENT LIABILITY AND HENCE THE SAME IS TO BE ALLOWED AS DEDUCTION. ACCORDINGLY, WE SET ASIDE THE ORDER OF L D CIT(A) ON THIS ISSUE AND DIRECT THE AO TO DELETE THIS ADDITION. 8. WITH REGARD TO THE ISSUE RELATING TO THE DISALLO WANCE MADE U/S 14A OF THE ACT, THE LD A.R SUBMITTED THAT THE ASSESSEE S OWN FUNDS WERE FAR IN EXCESS OF INVESTMENTS AND HENCE THERE IS NO REQUIRE MENT TO MAKE ITA. NO3081/MUM/2012 4 DISALLOWANCE U/S 14A OF THE ACT IS REQUIRED TO BE M ADE. IN THIS REGARD, HE PLACED RELIANCE ON THE DECISION OF HONBLE BOMBAY H IGH COURT RENDERED IN THE CASE OF CIT VS. HDFC BANK LTD (ITA NO.330 OF 20 12). ON THE CONTRARY, THE LD D.R SUBMITTED THAT THE DECISION RE NDERED IN THE CASE OF HDFC BANK LTD WOULD APPLY ONLY IN RESPECT OF DISALL OWANCE OF INTEREST. THE LD D.R SUBMITTED THAT THE AO DID NOT DISALLOW A NY PORTION OF INTEREST EXPENDITURE AND HE HAS DISALLOWED ONLY ADMINISTRATI VE EXPENSES BY APPLYING THE PROVISIONS OF RULE 8D(2)(III) OF THE I T RULES. 9. ADMITTEDLY, THE AO HAS DISALLOWED A SUM OF RS.63 ,848/- IN RESPECT OF ADMINISTRATIVE EXPENSES BY APPLYING THE PROVISIO NS OF RULE 8D(2)(III) OF THE ACT. THE DECISION RENDERED BY THE JURISDICTION AL HIGH COURT IN THE CASE OF HDFC BANK LTD (SUPRA) WOULD COVER ONLY THE INTER EST DISALLOWANCE THAT IS REQUIRED TO BE MADE U/S 14A OF THE ACT. BEFORE TAX AUTHORITIES, IT APPEARS THAT THE ASSESSEE DID NOT MAKE ANY SPECIFIC SUBMISSIONS AGAINST DISALLOWANCE MADE U/S RULE 8D(2)(III) RELATING TO ADMINISTRATIVE EXPENSES. HENCE, WE CONFIRM THE ORDER OF LD CIT(A) ON THIS IS SUE. 10. THE REMAINING ISSUE RELATES TO THE DISALLOWANCE OF CLAIM OF SET OFF OF LOSS INCURRED IN CASH SEGMENT AGAINST THE PROFIT EA RNED IN F & O SEGMENT. THE ASSESSEE INCURRED A LOSS OF RS.38,54,655/- IN T HE CASH SEGMENT OF EQUITY MARKET AND CLAIMED SET OFF OF THE SAME AGAIN ST THE PROFIT EARNED IN FUTURE & OPTIONS SEGMENT. THE AO HELD THAT THE EXP LANATION GIVEN UNDER SEC 73 OF THE ACT SHALL OVERRIDE THE PROVISO TO SEC . 43(5) OF THE ACT. IT IS PERTINENT TO NOTE THAT THE PROVISIONS OF SEC. 43(5) DEFINE SPECULATIVE TRANSACTIONS AND THE PROVISO TO THAT SECTION PROVI DES CERTAIN EXCEPTIONS. THE EXPLANATION TO SEC. 73 PROVIDES THAT WHERE ANY PART OF THE BUSINESS OF A COMPANY CONSISTS IN THE PURCHASE AND SALE OF SHAR ES OF OTHER COMPANIES, SUCH COMPANY SHALL, FOR THE PURPOSES OF SEC. 73, BE DEEMED TO BE CARRYING ON A SPECULATION BUSINESS TO THE EXTENT TO WHICH TH E BUSINESS CONSISTS OF ITA. NO3081/MUM/2012 5 THE PURCHASE AND SALE OF SHARES. THE ABOVE SAID EX PLANATION GIVEN IN SE. 73 SHALL NOT APPLY TO THE FOLLOWING CASES:- (A) THE COMPANY WHOSE GROSS TOTAL INCOME CONSISTS MAINLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEADS INTERES T ON SECURITIES, INCOME FROM HOUSE PROPERTY, CAPITAL GAINS AND INCOME FROM OTHER SOURCES. (B) THE COMPANY WHOSE PRINCIPAL BUSINESS IS THE BU SINESS OF BANKING OR GRANTING OF LOANS AND ADVANCES. WE HAVE ALREADY NOTICED THAT THE AO EXPRESSED THE V IEW THAT THE EXPLANATION GIVEN IN SEC. 73 SHALL OVERRIDE THE PRO VISO SEC, 43(5) OF THE ACT AND ACCORDINGLY HELD THAT THE LOSS INCURRED IN THE CASH SEGMENT OF SHARE TRADING SHOULD BE TREATED AS SPECULATION LOSS. A CCORDINGLY, HE REJECTED THE CLAIM OF SET OFF CLAIMED BY THE ASSESSEE. 11. THE LD CIT(A) UPHELD THE DECISION OF THE AO BY OBSERVING THAT THE ASSESSEE HAS DELIBERATELY MANAGED THE INCURRING OF EXPENSES IN ORDER TO REDUCE THE BUSINESS INCOME TO LOWER THAN THE AMOUNT OF DIVIDEND INCOME, EVEN THOUGH THE DIVIDEND INCOME WAS OFFERED UNDER T HE HEAD BUSINESS. HE FURTHER PLACED RELIANCE ON THE DECISION OF THE T RIBUNAL IN THE CASE OF KNC SHARES & SECURITIES (P) LTD (ITA NO.7420 & 6782 /M/03 DATED 22.8.2006), WHERE IN IT WAS HELD THAT THE ASSESSEE WAS NOT ENTITLED TO SET OFF LOSS ARISING FROM PURCHASE AND SALE OF SHARES A GAINST INCOME FROM BROKERAGE. 12. THE LD A.R SUBMITTED THAT THE LOSS INCURRED BY THE ASSESSEE IN CASH SEGMENT IS COVERED BY THE EXCEPTION GIVEN IN CLAUSE (C) GIVEN IN THE PROVISO TO SEC. 43(5) OF THE ACT. HE FURTHER SUBMI TTED THAT THE PROFIT EARNED IN F & O SEGMENT IS COVERED BY THE EXCEPTION GIVEN IN CLAUSE (D) OF THE PROVISO TO SEC. 43(5) OF THE ACT. HE FURTHER S UBMITTED THAT AN IDENTICAL ISSUE WAS CONSIDERED BY THE KOLKATTA BENCH OF TRIBU NAL IN THE CASE OF ITO VS. M/S ARENA TEXTILES & INDUSTRIES LTD (ITA NO. 10 19/KOL/2011 DATED 29.12.2011) AND THE TRIBUNAL HAS HELD THAT THE TRAN SACTIONS DONE BY DELIVERY AS WELL AS THE TRANSACTIONS OF DERIVATIVES ARE NOT HIT BY SECTION ITA. NO3081/MUM/2012 6 43(5) OF THE ACT. THE TRIBUNAL FURTHER HELD THAT T HE AGGREGATION OF SHARE TRADING LOSS AND PROFIT FROM DERIVATIVE TRANSACTION S SHOULD BE DONE BEFORE THE APPLICATION OF THE EXPLANATION TO SECTION 73 OF THE ACT. 13. THE LD A.R FURTHER SUBMITTED THAT THE HONBLE BOMBAY HIGH COURT HAS ALSO HELD IN THE CASE OF CIT VS. DARSHAN SECURI TIES (P) LTD THAT THE WHILE COMPUTING THE GROSS TOTAL INCOME, THE NORMAL PROVISIONS OF THE ACT MUST BE APPLIED AND IT IS ONLY THEREAFTER, THAT IT HAS TO BE DETERMINED AS TO WHETHER THE GROSS TOTAL INCOME SO COMPUTED CONSISTS MAINLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEADS REFERRED TO IN THE EXPLANATION TO SEC. 73 OF THE ACT. THE LD A.R SUBMITTED THAT THE VIEW EXPRESSED BY THE KOLKATTA BENCH OF TRIBUNAL WITH REGARD TO THE APPLI CATION OF EXPLANATION TO SEC. 73 HAS BEEN THUS UPHELD BY THE JURISDICTIONAL BOMBAY HIGH COURT. 14. THUS, WE NOTICE THAT THE HONBLE BOMBAY HIGH COURT HAS HELD THAT THE EXPLANATION TO SEC. 73 CAN BE APPLIED AFTER COM PUTING THE GROSS TOTAL INCOME, MEANING THEREBY, THE SAME SHALL NOT OVERRID E THE PROVISO TO SEC. 43(5) OF THE ACT. HENCE, AS PER THE DECISION OF KO LKATTA BENCH OF TRIBUNAL IN THE CASE OF M/S ARENA TEXTILES & INDUSTRIES LTD (SUPRA), THE LOSS FROM CASH SEGMENT CAN BE SET OFF AGAINST THE PROFIT FROM DERIVATIVES. THUS, AFTER COMPUTING THE GROSS TOTAL INCOME IN THE ABOVE SAID MANNER, THE APPLICATION OF PROVISIONS OF EXPLANATION TO SEC.73 IS REQUIRED TO BE EXAMINED. 15. IN VIEW OF THE ABOVE, THE APPROACH OF THE AO A S WELL AS THE LD CIT(A) CANNOT BE UPHELD. HENCE, IN OUR VIEW, THE APPLICAT ION OF EXPLANATION TO SEC. 73 NEEDS TO BE EXAMINED AFRESH BY DULY CONSIDE RING THE METHODOLOGY DISCUSSED ABOVE AT THE END OF THE AO. BEFORE US, T HE LD A.R RAISED A FRESH CONTENTION, VIZ., THE TRANSACTIONS OF PURCHASE AND SALE OF SHARES IN CASH SEGMENT HAS BEEN CARRIED OUT MERELY AS A HEDGE AGAI NST THE TRANSACTIONS CARRIED OUT IN F & O SEGMENT. ACCORDINGLY, HE CONT ENDED THAT THE MERE HEDGING CANNOT BE CONSIDERED AS THE BUSINESS OF BUY ING AND SELLING OF ITA. NO3081/MUM/2012 7 SHARES. ACCORDINGLY HE CONTENDED THAT THE PROVISIO NS OF EXPLANATION TO SEC. 73 SHALL NOT APPLY TO HEDGING TRANSACTIONS. WE ARE UNABLE TO AGREE WITH THE SAID CONTENTIONS OF THE LD A.R. IN OUR VIE W, THE INCOME TAX ACT IS NOT CONCERNED WITH THE PURPOSE OR THE OBJECTIVE OF THE ASSESSEE IN CARRYING THE TRANSACTIONS IN CASH SEGMENT. WHAT WE SEE IS THAT THE ASSESSEE HAS PURCHASED AND SOLD THE SHARES ON DELIV ERY BASIS. ACCORDING TO THE LD A.R, THE SAME FALLS IN THE CATEGORY OF A RBITRAGE AND HENCE IT WILL NOT FALL IN THE CATEGORY OF SPECULATIVE TRANS ACTIONS AS DEFINED IN SEC. 43(5) OF THE ACT DUE TO EXCEPTION GIVEN IN CLAUSE ( C) OF THE PROVISO TO SEC. 43(5). HOWEVER, EXPLANATION TO SEC. 73 IS A DEEMIN G PROVISION AND HENCE ITS APPLICABILITY HAS TO BE NECESSARILY TESTED IN T HE INSTANT CASE. 16. ACCORDINGLY, WE MODIFY THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THE MATTER OF APPLICABILITY OF EXPLANATION TO SEC. 73 TO THE FILE OF THE AO WITH THE DIRECTION TO EXAMINE THIS MATTER AF RESH IN THE LIGHT OF DISCUSSIONS MADE SUPRA. 17. IN THE RESULT, THE APPEAL FILED BY THE ASSES SEE IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 20TH FEB, 2015 . )* % + ,- ./ 20TH FEB, 2015 * $ 0& 1 SD SD ( . . /H.L.KARWA) ( . . /B.R.BASKARAN) /JUDICIAL MEMBER / ACCOUNTANT MEMBER , % & MUMBAI: 20TH FEB,2015. . . ./ SRL , SR. PS ITA. NO3081/MUM/2012 8 !' #'$ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. % 3' ( ) / THE CIT(A)- CONCERNED 4. % 3' / CIT CONCERNED 5. 450 '6 , ( 6 , , % & / DR, ITAT, MUMBAI CONCERNED 6. 07 8& / GUARD FILE. 9 % / BY ORDER, TRUE COPY : ! (ASSTT. REGISTRAR) ( 6 , , % & /ITAT, MUMBAI