M/s. Interface Brokerage & Research Ltd., Ahmedabad V. The Dy.CIT.,Circle-3, Ahmedabad

ITA 314/AHD/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6381 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2007-2008
• Appeal Filed On: 04-02-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: Y C SURTI
• Keywords: Depreciation; Earning of tax free income; Bad and doubtful debts; Revenue expenditure; Capital expenditure
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH SMC BEFORE SHRI D. K. TYAGI, JUDICIAL MEMBER I.T.A. NO.314 / AHD/2011 (ASSESSMENT YEAR 2007-08) INTERFACE BROKERAGE RESEARCH LTD., 201, 2 ND FLOOR, SHIVALIK TOWER, OPP: BAMK OF BARODA, NEAR CENTRAL MALL, PANCHWATI CROSS ROAD, NAVRANGPURA, AHMEDABAD VS. DCIT, CIRCLE 3, AHMEDABAD I.T.A.NO. 557/AHD/2011 (ASSESSMENT YEAR 2007-08) ACIT, CIRCLE 3, VS. INTERFACE BROKERAGE RESEARCH LTD., AHMEDABAD 201, 2 ND FLOOR, SHIVALIK TOWER, OPP: BAMK OF BARODA, NEAR CENTRAL MALL, PANCHWATI CROSS ROAD, NAVRANGPURA, AHMEDABAD PAN/GIR NO. : AAACI3615A (APPELLANT) .. (RESPONDENT) APPELLANT BY: SHRI SAKAR SHARMA, AR RESPONDENT BY: SHRI Y C SURTI, DR O R D E R THESE ARE CROSS APPEALS OF THE ASSESSEE AND THE RE VENUE AGAINST THE ORDER DATED 10.01.2011 OF CIT(A) XVI, AHMEDABAD FOR THE ASSESSMENT YEAR 2007-08. I.T.A.NO314,557/AHD/2011. 2 I.T.A.NO. 314/AHD/2011: (ASSESSEES APPEAL): 2. THE 1 ST GROUND RELATES TO AD HOC DISALLOWANCE OF RS.3 LACS BY DISALLOWING 10% OUT OF THE EXPENSES CLAIMED BY THE ASSESSEE. DURING THE ASSESSMENT PROCEEDINGS, THE A.O. FOUND THAT THERE W AS AN INCREASE IN THE EXPENSES OF TELEPHONE, COMPUTER, PRINTING & STATION ERY, CONVEYANCE AND TRAVELING, REPAIR & MAINTENANCE AND VEHICLE EXPENSE S EVEN THOUGH THERE WAS 50% DECREASE IN THE INCOME. THE A.O. THEREFORE, DI SALLOWED 10% OF THE ENTIRE EXPENDITURE AMOUNTING TO RS.3 LACS ON LUMP S UM BASIS. IT WAS ALSO MENTIONED BY THE A.O. IN HIS ASSESSMENT ORDER THAT THE ASSESSEE COMPANY FAILED TO PRODUCE THE BOOKS OF ACCOUNTS OR ANY EVID ENCE IN SUPPORT OF THE CLAIM OF THESE ITEMS IN P & L ACCOUNT. THE ACTION OF THE A.O. WAS CONFIRMED BY THE LD. CIT(A) WHEN AN APPEAL WAS FIL ED BEFORE HIM BY THE ASSESSEE. FURTHER AGGRIEVED NOW, THE ASSESSEE IS I N APPEAL BEFORE ME. 3. AT THE TIME OF HEARING LD. COUNSEL FOR THE ASSES SEE SUBMITTED THAT THE A.O. FAILED TO APPRECIATE THAT OVER ALL ADMINISTRAT IVE EXPENSES DURING THE YEAR WERE SUBSTANTIALLY LESS AT RS.47,06,448/- AGA INST RS.56,03,263/- IN THE IMMEDIATELY PRECEDING YEAR. THE INCURRING OF EXPEN DITURE IS COMMENSURATE WITH THE BUSINESS OF THE ASSESSEE AFTER TAKING INTO ACCOUNT BROKERAGE ACTIVITY WHEREIN BROKERAGE RATES ARE FALLING DAY BY DAY BUT EXPENDITURE REMAINED CONSTANT AND IS SUBJECT TO INFLATION. HE, THEREFOR E, REQUESTED THAT THE ADDITION MADE ON THIS ACCOUNT MAY KINDLY BE DELETED. 4. LD. D.R. ON THE OTHER HAND RELIED ON THE ORDERS OF AUTHORITIES BELOW. 5. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD. I FIND THAT THE A.O. HAS MADE THIS DISALLOWANCE ON AD-HOC BASIS @ 1 0% OF THE TOTAL EXPENSES CLAIMED BY THE ASSESSEE IN THE ABSENCE OF BOOKS OF ACCOUNT OR ANY OTHER EVIDENCE IN SUPPORT OF THE EXPENSES CLAIMED B Y THE ASSESSEE. IN SUPPORT OF HIS SUBMISSION BEFORE ME ALSO NO EVIDENC E WAS PRODUCED. I.T.A.NO314,557/AHD/2011. 3 THEREFORE, I FEEL NO NEED TO INTERFERE WITH THE ORD ER PASSED BY THE AUTHORITIES BELOW. THIS GROUND OF APPEAL TAKEN BY THE ASSESSEE STANDS DISMISSED. 6. THE 2 ND GROUND RELATES TO CONFIRMATION OF DISALLOWANCE OF RS.5,08,703/- BY THE LD. CIT(A) DURING THE ASSESSME NT PROCEEDINGS, THE A.O. OBSERVED THAT THE ASSESSEE HAS CLAIMED BAD DEB T OF RS.5,08,703/- IN THE P & L ACCOUNT. DURING THE ASSESSMENT PROCEEDINGS, ASSESSEE DID NOT GIVE ANY CLARIFICATION REGARDING THESE BAD DEBTS. IT WA S ALSO NOT CLEAR WHETHER THESE DEBTS HAVE BEEN WRITTEN OFF IN ITS BOOKS OF A CCOUNT AND WHETHER THEY ARE PART OF THE INCOME IN THE EARLIER YEAR OR NOT. THE A.O. THEREFORE DISALLOWED THE CLAIM AS CONDITIONS OF SECTION 36(2) WERE NOT SATISFIED. 7. BEFORE LD. CIT(A), THE ASSESSEE CONTENDED THAT O UT OF THE AMOUNT OF RS.5,08,703/-, AN AMOUNT OF RS. 5 LACS WAS DEPOSITE D WITH THE BOMBAY STOCK EXCHANGE WHICH HAS BEEN FORFEITED BY BOMBAY S TOCK EXCHANGE. THE ASSESSEE WAS REQUIRED TO GIVE RS. 1 CRORES AS DEPOS IT FOR MEMBERSHIP OF STOCK EXCHANGE AND FOR THIS PURPOSE 5% WAS GIVEN EA RLIER. AS THE ASSESSEE COULD NOT ARRANGE FOR THE BALANCE FUNDS THEREFORE, THIS AMOUNT WAS FORFEITED. THE ASSESSEE THEREFORE, SUBMITTED THAT THIS AMOUNT BE ALLOWED AS BAD DEBT OR BUSINESS LOSS. IN RESPECT OF THE REMAINING AMOUNT OF RS.8,703/-, IT WAS SUBMITTED THAT THE SAME BE ALLOWED AS BAD DEBT AS T HE ASSESSEE HAS DISCLOSED BROKING INCOME ON SUCH TRANSACTION AND THE AMOUNT U NREALIZED HAS BEEN WRITTEN OFF IN THEIR ACCOUNTS. THEREFORE, IT IS AL LOWABLE AS BAD DEBT IN VIEW OF THE DECISION OF HONBLE APEX COURT IN TRF LTD. 3 23 ITR 397. THIS EXPLANATION OF THE ASSESSEE WAS NOT ACCEPTABLE TO T HE LD. CIT(A) AND HE CONFIRMED THE ACTION OF THE A.O. BY OBSERVING AS UN DER: 6.3 I HAVE CONSIDERED THE SUBMISSION MADE BY THE A PPELLANT AND OBSERVATION OF THE A.O. THE APPELLANT HAD DEPOSITE D THIS AMOUNT OF RS.5 LAKHS WITH BOMBAY STOCK EXCHANGE AS DEPOSIT FO R OBTAINING MEMBERSHIP RIGHT, WHICH IS A CAPITAL ITEM. THE AMO UNT OF DEPOSIT IS THEREFORE CAPITAL EXPENDITURE AND NOT REVENUE EXPEN DITURE. THE I.T.A.NO314,557/AHD/2011. 4 DISALLOWANCE MADE BY THE A.O. IS THEREFORE CORRECT AND THIS GROUND OF APPEAL IS DISMISSED. 8. FURTHER AGGRIEVED, NOW THE ASSESSEE IS IN APPEAL BEFORE ME. 9. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE A SSESSEE REITERATED THE SAME SUB MISSIONS AS MADE BEFORE LD. CIT(A) AND REL IED ON THE ORDER OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS TEC HNO SHARES & STOCKS LTD. 323 ITR 69 (S.C.), TO MAKE THE SUBMISSION THAT EXPENDITURE INCURRED TO TAKE THE STOCK EXCHANGE MEMBERSHIP CARD CANNOT BE T REATED AS CAPITAL IN NATURE AS NO DEPRECIATION IS ALLOWABLE ON THIS AS C ARD DOES NOT FALL IN ANY OF THE CATEGORIES SPECIFIED IN SECTION 32(1)(II) OF TH E ACT. LD. D.R. ON THE OTHER HAND RELIED ON THE ORDERS OF AUTHORITIES BELOW. 10. AFTER HEARING BOTH THE PARTIES I FIND THAT THE RELIANCE OF THE LD. COUNSEL FOR THE ASSESSEE ON THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF TECHNO SHARES & STOCK LTD. IS MISPLACED AS THE S AME HAS BEEN REVERSED BY THE HONBLE APEX COURT AND DEPRECIATION ON STOCK EXCHANGE MEMBERSHIP CARD HAS BEEN ALLOWED BY HOLDING THAT THE STOCK BRO KERAGE MEMBERSHIP CARD IS INTANGIBLE ASSET OWNED BY THE ASSESSEE AND ON WHICH DEPRECIATION IS TO BE ALLOWED U/S 32(1)(II) OF THE ACT. THEREFORE, AS FAR AS THE DEPOSIT MADE WITH THE BOMBAY STOCK EXCHANGE OF RS.5 LACS IS CONC ERNED, I AM OF THE VIEW THAT THE LD. CIT(A) WAS JUSTIFIED IN TREATING THE SAME AS CAPITAL IN NATURE AND DISALLOWING THE SAME. SO FAR AS REMAINI NG AMOUNT OF RS.8,703/- IS CONCERNED, THE ASSESSEE HAS NOT GIVEN ANY EVIDEN CE TO SHOW THAT THIS AMOUNT WAS PART OF THE INCOME SHOWN BY THE ASSESSEE IN EARLIER YEAS. THEREFORE, I FEEL NO NEED TO INTERFERE WITH THE ORD ER PASSED BY LD CIT(A) ON THIS ISSUE AND THE SAME IS HEREBY UPHELD. THIS GRO UND OF ASSESSEES APPEAL IS ALSO DISMISSED. I.T.A.NO314,557/AHD/2011. 5 I.T.A.NO. 557/AHD/2011 (REVENUES APPEAL): 11. THE 1 ST GROUND OF REVENUES APPEAL RELATED TO DISALLOWANCE OF RS.5,490/- MADE U/S 14A OF THE ACT BY THE A.O. WHIC H HAS BEEN DELETED BY THE LD. CIT(A). THE BRIEF FACTS OF THE CASE IN RES PECT OF THIS GROUND ARE THAT DURING THE ASSESSMENT PROCEEDINGS, THE A.O. OBSERVE D THAT THE ASSESSEE HAS SHOWN INVESTMENT OF RS.10.97 LACS IN SHARES WHILE I N THE LAST YEAR IT WAS RS.10.87 LASS. THE ASSESSEE HAS ALSO CLAIMED EXEMP T INCOME OF RS.3,528/-. AS THE ASSESSEE HAD EXEMPT INCOME, THE A.O. WAS OF THE VIEW THAT DISALLOWANCE U/S 14A IS REQUIRED TO BE MADE, THEREF ORE, THE A.O. DISALLOWED THE AMOUNT OF RS.5,490/- BEING 0.5% OF THE INVESTME NT. THIS DISALLOWANCE WAS DELETED BY THE LD. CIT(A) RELYING ON THE DECISI ON OF HON'BLE HIGH COURT OF BOMBAY IN THE CASE OF GDOREJ & BOYCE LTD. HOLDING THAT RULE 8D IS NOT APPLICABLE DURING THE YEAR UNDER APPEAL. I FIND NO INFIRMITY IN THE ORDER PASSED BY LD. CIT(A) AND THE SAME IS HEREBY U PHELD, THIS GROUND OF THE REVENUE IS DISMISSED. 12. 2 ND GROUND RELATES TO DISALLOWANCE OF RS.8,75,000/- MA DE BY THE A.O. U/S 40A(2)(B) OF THE ACT. DURING THE ASSESSMENT PR OCEEDINGS, THE A.O. OBSERVED THAT THE ASSESSEE HAS PAID RS.8.75 LACS TO THE DIRECTORS AS PROFESSIONAL FEE. ASSESSEE FAILED TO GIVE ANY EVID ENCE AS TO WHAT TYPE OF SERVICES WERE PROVIDED BY THE DIRECTORS. THE A.O. WAS OF THE VIEW THAT NO SUCH PROFESSIONAL SERVICES WERE PAID IN THE IMMEDIA TELY PRECEDING YEAR TO THE DIRECTORS AND THERE IS NO APPARENT CHANGE IN TH E BUSINESS AND PROFESSION OF THE COMPANY FOR MAKING SUCH PAYMENT IN THE CURRE NT YEAR. THE A.O. ALSO POINTED OUT THAT BROKERAGE INCOME OF THE ASSESSEE W AS REDUCED BY ALMOST 50% IN THE CURRENT YEAR. HE, THEREFORE, DISALLOWED THIS CLAIM TREATING IT AS NOT FOR THE PURPOSE OF BUSINESS U/S 40A(2)(B) OF TH E ACT. I.T.A.NO314,557/AHD/2011. 6 13. BEFORE CIT(A), IT WAS ARGUE ON BEHALF OF THE AS SESSEE THAT PAYMENT OF PROFESSIONAL FEE TO THE DIRECTORS WAS ONE OF THE MO DE OF PAYMENT OF REMUNERATION TO THEM AND THE BUSINESS OF BROKERAGE REQUIRES EXPERT KNOWLEDGE, BOTH FOR CARRYING OUT TRADING ACTIVITIES AS WELL AS FOR KEEPING WITH THE REQUIREMENT OF SEBI AND STOCK EXCHANGE. I T WAS ALSO BROUGHT TO THE NOTICE OF LD. CIT(A) THAT ONE OF THE DIRECTORS SHRI VIMAL PARIKH WAS IIM GRADUATE AND HAD EXPERTISE IN STOCK BROKING RELATED MATTER AND HIS ADVICE WAS REQUIRED FOR MAKING COMPLIANCE TO THE STOCK EXC HANGE AND SEBI. IT WAS ALSO STATED THAT IN THE LAST YEAR ALSO THE PAYMENT WAS MADE TO THE EXTENT OF RS.11.95 LACS. TAKING THIS SUBMISSION OF THE ASSES SEE INTO CONSIDERAITON, LD. CIT(A) DELETED THIS ADDITION. AGGRIEVED BY THIS OR DER, NOW THE REVENUE IS IN APPEAL BEFORE US. 14. AT THE TIME OF HEARING LD. D.R. RELIED ON THE O RDER OF THE A.O. AND THE LD. A.R. RELIED ON THE ORDER OF LD. CIT(A). 15. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORDS, I FIND THAT THE A.O. HAS MADE THIS DISALLOWANCE ONLY ON THE BASIS T HAT NO PAYMENT WAS MADE TO DIRECTORS IN THE LAST YEAR AND THERE WAS DE CREASE IN THE INCOME OF THE ASSESSEE IN THE CURRENT YEAR AS COMPARED TO THE LAST YEAR, NO PAYMENT SHOULD HAVE BEEN MADE TO THE DIRECTORS DURING THIS YEAR ALSO. THIS FINDING OF THE A.O. WAS NOT FOUND CORRECT BY THE LD. CIT(A) AS THERE WAS PAYMENT OF RS.11.95 LACS TO THE DIRECTOR DURING THE PRECEDING YEAR ALSO. HE ALSO FOUND THAT THE REMUNERATION PAID TO THE DIRECTOR DURING T HE YEAR UNDER APPEAL WAS LESS THAN THE PAYMENT MADE IN THE LAST YEAR. IN VI EW OF THIS, I FIND NO REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A) DELETING THIS DISALLOWANCE AND THE SAME IS HEREBY UPHELD. THIS GROUND OF REVENUE IS A LSO DISMISSED. 16. THE 3 RD GROUND RELATES TO DISALLOWANCE OF RS.1,57,324/- MA DE ON ACCOUNT OF DEFERRED SOFTWARE EXPENSES. DURING THE ASSESSMENT PROCEEDINGS, I.T.A.NO314,557/AHD/2011. 7 THE A.O. FOUND THAT THE ASSESSEE HAS CLAIMED DEFERR ED SOFTWARE EXPENSE WRITTEN OFF AT RS.1,57,324/- AND NO DETAILS THEREOF WERE FURNISHED BY THE ASSESSEE. HE FURTHER OBSERVED THAT THE SOFTWARE EX PENSES WERE OF CAPITAL NATURE SINCE ANY SUCH EXPENDITURE WAS FOR LONG TERM ADVANTAGE AND ENDURING BENEFIT TO THE BUSINESS OF ASSESSEE. THEREFORE, TH IS CLAIM OF THE ASSESSEE WAS DISALLOWED AND A SUM OF RS.1,57,324/- WAS ADDED TO THE INCOME OF THE ASSESSEE. 17. BEFORE CIT(A), IT WAS ARGUED ON BEHALF OF THE A SSESSEE THAT ASSESSEE IN THE EARLIER YEARS HAD ACQUIRED SOFTWARE TOWARDS BROKING BUSINESS AND ACCOUNTED THE SAME AS DEFERRED REVENUE EXPENDITURE IN ITS BOOKS BY ESTIMATING ITS USEFUL LIFE. IN THE YEAR UNDER APPE AL, THIS AMOUNT WAS WRITTEN OFF AS WAS EVIDENT FROM THE BALANCE SHEET ENTRY AND NO NEW SOFTWARE WAS ACQUIRED DURING THE YEAR. THE DEDUCTION HAS BEEN C LAIMED ON THE BASIS OF ACTION IN THE EARLIER YEAR. THE LD. CIT(A) HAS DIR ECTED THE A.O. TO VERIFY THE CLAIM OF THE ASSESSEE THAT THIS EXPENDITURE PERTAIN S TO EARLIER YEARS AND HAD BEEN DEFERRED OVER SEVERAL YEARS. IF THIS CONTENTI ON OF THE ASSESSEE IS FOUND CORRECT, CLAIM BE ALLOWED AND IF IT IS NOT SO, THE DISALLOWANCE MADE BY THE A.O. STANDS CONFIRMED. I FIND NO NEED TO INTERFERE WITH SUCH DIRECTION OF LD. CIT(A) AND THE ORDER PASSED BY LD. CIT(A) IS HEREBY UPHELD. THIS GROUND OF REVENUES APPEAL IS ALSO DISMISSED. 18. IN THE RESULT, CROSS APPEALS FILED BY THE ASSES SEE AS WELL AS BY THE REVENUE ARE DISMISSED. 19. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH JUNE, 2011. SD./- (D.K.TYAGI) JUDICIAL MEMBER AHMEDABAD; DATED : 17 TH JUNE, 2011 SP I.T.A.NO314,557/AHD/2011. 8 COPY OF THE ORDER FORWARDED TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT (APPEALS) 5. THE DR, AHMEDABAD 6. THE GUARD FILE 1. DATE OF DICTATION 15/6/11 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 16/6/11 OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P .S./P.S. 16/6/11 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 17/6/11 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S. 17/6/11 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 17/6/11 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK .. 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER . 9. DATE OF DESPATCH OF THE ORDER. ..