FOUR DIMENSIONS SECURITIES (INDIA) LTD, MUMBAI V. ADDL CIT RG 4(1), MUMBAI

ITA 322/MUM/2009

• Counselvise Citation: 32219914 RSA 2009
• Duration Of Justice: 6 year(s) 8 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-09-2015
• Appeal Filed By: Assessee
• Bench Allotted: F
• Next Hearing Date: 26-02-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 15-01-2009
• Court: TRIBUNAL
• Department Lawyers: R M MADHAVI DR
• Keywords: Depreciation; Business expenditure; Rule of consistency; Cost of acquisition; Reason to believe; Revenue expenditure; Capital expenditure
• Section: 143(3); 14A; 37; 28

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES F, MUMBAI , , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ITA NO.322/MUM/2009 ASSESSMENT YEAR: 2005-06 M/S FOUR DIMENSIONS SECURITIES (INDIA) LTD. 29, BANK STREET, 1 ST FLOOR, FORT, MUMBAI / VS. ADDL. COMMISSIONER OF INCOME TAX, RANGE-4(1), 6 TH FLOOR, AAYAKAR BHAVAN, MUMBAI-400020 ( ! ' /ASSESSEE) ( # / REVENUE) PAN. NO. AAA C F 1734F ITA NO.790/MUM/2009 ASSESSMENT YEAR: 2005-06 ADDL. COMMISSIONER OF INCOME TAX, RANGE-4(1), 6 TH FLOOR,AAYAKAR BHAVAN, MUMBAI-400020 / VS. M/S FOUR DIMENSIONS SECURITIES (INDIA) LTD. 29, BANK STREET, 1 ST FLOOR, FORT, MUMBAI ( # / REVENUE) ( ! ' /ASSESSEE) PAN. NO.AAACF1734F ITA NO.1011/MUM/2010 ASSESSMENT YEAR: 2006-07 M/S FOUR DIMENSIONS SECURITIES (INDIA) LTD. 29, BANK STREET, 1 ST FLOOR, FORT, MUMBAI / VS. ADDL. COMMISSIONER OF INCOME TAX, RANGE-4(1), 6 TH FLOOR, AAYAKAR BHAVAN, MUMBAI-400020 ( ! ' /ASSESSEE) ( # / REVENUE) PAN. NO.AAACF1734F FOUR DIMENSIONS SECURITIES INDIA PVT. LTD. ITA NO.322 & 790/MUM/2009 & ORS CASES 2 ITA NO.7252/MUM/2011 ASSESSMENT YEAR: 2005-06 M/S FOUR DIMENSIONS SECURITIES (INDIA) LTD. 29, BANK STREET, 1 ST FLOOR, FORT, MUMBAI / VS. ADDL. COMMISSIONER OF INCOME TAX, RANGE-4(1), 6 TH FLOOR, AAYAKAR BHAVAN, MUMBAI-400020 ( ! ' /ASSESSEE) ( # / REVENUE) PAN. NO.AAACF1734F # / REVENUE BY MS. R.M. MADHAVI -DR ! ' / ASSESSEE BY SHRI VIJAY MEHTA $ #% & ' ' / DATE OF HEARING : 22/09/2015 & ' ' / DATE OF ORDER: 28/10/2015 / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) THE ASSESSEE AS WELL AS THE REVENUE ARE IN APPEAL FOR ASSESSMENT YEAR 2005-06 AND 2006-07 CHALLENGING THE ORDERS OF THE LD. FIRST APPELLATE AUTHORITY, MUMBAI , DATED 12/11/2008, 20/11/2009 AND 29/09/2011 (ITA NO.7252/MUM/2011). 2. FIRST, WE SHALL TAKE UP APPEAL OF THE ASSESSEE (ITA NO.322/MUM/2009), WHEREIN, FIRST GROUND PERTAINS TO CONFIRMING THE DISALLOWANCE ON ACCOUNT OF LOSS ON P URCHASE AND SALE OF MUTUAL FUNDS UNIT AT RS.92,94,104/- INV OKING SECTION 94(7) OF THE INCOME TAX ACT, 1961 (HEREINAF TER THE ACT). THE CRUX OF ARGUMENTS ADVANCED BY SHRI VIJAY MEHTA, LD. COUNSEL FOR THE ASSESSEE, IS THAT IT IS A CASE OF DIVIDEND STRIPING TRANSACTION AND DIVIDEND IS TAX FREE. IT W AS CONTENDED THAT SECTION 94(7) OF THE ACT WAS INTRODU CED ON FOUR DIMENSIONS SECURITIES INDIA PVT. LTD. ITA NO.322 & 790/MUM/2009 & ORS CASES 3 01/04/2002 AND EVEN ASSESSING OFFICER SAYS, DIVIDEN DS WERE BOUGHT WITHIN THREE MONTHS PRIOR OF DECLARATION OF DIVIDEND, SO THE PROVISION OF SECTION 94(7) IS ATTRACTED. IT WAS CONTENDED THAT THE ASSESSEE SOLD WITHIN A PERIOD OF NINE MONTH FROM THE DATE OF DECLARATION OF DIVIDEND. RE LIANCE WAS PLACED UPON THE DECISION IN 326 ITR 1 (SC), WHEREIN , IT WAS HELD THAT PRIOR TO INSERTION, THIS PROVISION IS NOT APPLICABLE. THE UNITS WERE EXPLAINED TO BE STOCK IN TRADE, SOLD IN CURRENT YEAR ON A SALE CONSIDERATION OF RS.6.96 CRORES RESU LTING INTO LOSS OF RS.92,94,105/- AND TOTAL LOSS OF BOTH THE Y EARS WAS CLAIMED TO BE RS.37,01,938/- AND ALL UNITS WERE SOL D IN CURRENT YEAR. IT WAS POINTED OUT THAT IN A.Y. 2004 -05, LOSS WAS ALLOWED TO THE ASSESSEE WHILE PASSING ORDER U/S 143(3) OF THE ACT. IT WAS ARGUED THAT LATER ON ASSESSMENT WA S REOPENED BY SAYING THAT PROVISION OF SECTION 94(7) IS APPLICABLE, SO LOSS CANNOT BE ALLOWED. OUR ATTENTIO N WAS INVITED TO VARIOUS DATES WHEN THE UNITS WERE SOLD A FTER THREE MONTHS. OUR ATTENTION WAS INVITED TO ORDER OF THE TRIBUNAL OF EARLIER YEAR (ITA NO.7951/MUM/2010). THE CRUX OF A RGUMENT IS THAT ONCE THE TRANSACTION IS COMPLETED, WHICH IS IRREVERSIBLE, HOW THE ASSESSEE CAN COMPLY WITH LAW. RELIANCE WAS PLACED UPON THE DECISION IN 375 ITR 392 (SC) BY CLAIMING THAT THE CASE OF THE ASSESSEE IS MUCH BETT ER THAN THE RATIO LAID DOWN BY THE HONBLE APEX COURT AS EV EN THEORETICAL POSSIBILITY IS NOT THERE IN THE CASE OF THE ASSESSEE. 2.1. ON THE OTHER HAND, THE LD. DR, MS. R.M. MADH VI, STRONGLY DEFENDED THE CONCLUSION ARRIVED AT IN THE IMPUGNED ORDER BY CONTENDING THAT THE ASSESSEE WAS AWARE OF THE FOUR DIMENSIONS SECURITIES INDIA PVT. LTD. ITA NO.322 & 790/MUM/2009 & ORS CASES 4 PROVISION IN THE MONTH OF FEBRUARY AND THE PROVISIO N IS HAVING RETROSPECTIVE OPERATION. IT WAS CONTENDED T HAT THE SARKAR CASE IS NOT APPLICABLE TO THE PRESENT FACTS OF THE ASSESSEE AND SECTION 94(7), PRIOR TO SUBSTITUTION, REFERS THE PERIOD OF THREE MONTHS. THE ADDITION WAS CLAIMED T O BE WITHIN THE PARAMETER OF THE PROVISION. 2.2. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACTS , IN BRIEF, ARE THAT THE ASSESSEE COMPANY IS A CORPORATE MEMBER OF NATIONAL STOCK EXCHANGE (NSE) ENGAGED IN THE BUSINE SS OF BROKING OF SHARES AND SECURITIES, TRADING IN SHARES AND SECURITIES IN CASH AS WELL AS IN FUTURES AND OPTION S SEGMENTS. THE ASSESSEE DECLARED INCOME OF RS.6,50,75,610/- IN ITS RETURN FILED ON 30/10/2005, WHICH WAS PROCESSED U/S 143(1) OF THE ACT ON 04/05/2006, DETERMINING REFUND OF RS.50,72,948/-. THE LD. ASSESSING OFFICER MADE ADDITIONS/DISALLOWANCES U/S 94(7) ON PURCHASE AND S ALE OF SHARES, AMOUNTING TO RS.4,34,519/- AND ON PURCHASE AND SALE OF MUTUAL FUND UNITS AT RS.92,467/-(AGGREGATIN G DISALLOWANCES OF RS.5,26,918/-). THE ASSESSING OFFI CER ALSO DISALLOWED LOSS ARISING ON ACCOUNT OF REDEMPTION OF MUTUAL FUND UNITS WHICH WERE PURCHASE IN A.Y. 2004-05 BY I NVOKING THE PROVISION OF SECTION 94(7) OF THE ACT, THUS, TH E LOSSES DISALLOWED COMES TO RS.2,77,07,834/-. THE ALLEGED LOSSES WERE BIFURCATED AS UNDER:- ASSESSMENT YEAR LOSS BIFURCATED (AMOUNT IN RS.) 2005 - 06 RS.92,94,104/ - FOUR DIMENSIONS SECURITIES INDIA PVT. LTD. ITA NO.322 & 790/MUM/2009 & ORS CASES 5 2004 - 05 RS.1,84,13,730/ - IT IS NOTED THAT THE LOSS OF A.Y. 2004-05 WAS DISAL LOWED ON PROTECTIVE BASIS AND LOSS OF CURRENT YEAR (2005- 06) WAS DISALLOWED ON SUBSTANTIVE BASIS. 2.3. ON APPEAL, BEFORE THE LD. COMMISSIONER OF INC OME TAX (APPEALS), INVOCATION OF SECTION 94(7) OF THE A CT WAS AFFIRMED AND THUS THE DISALLOWANCE OF RS.92,94,104/ - WAS AFFIRMED. THE ASSESSEE IS IN FURTHER APPEAL BEFORE THIS TRIBUNAL. 2.4. IF THE OBSERVATION MADE IN THE ASSESSMENT ORD ER, LEADING TO ADDITION MADE TO THE TOTAL INCOME, CONCL USION DRAWN IN THE IMPUGNED ORDER, MATERIAL AVAILABLE ON RECORD, ASSERTIONS MADE BY THE LD. RESPECTIVE COUNSEL, IF K EPT IN JUXTAPOSITION AND ANALYZED, WE NOTE THAT SECTION 94 (7) OF THE ACT WAS INTRODUCED BY THE LEGISLATURE ON 01/04/200 2. THE STAND OF THE REVENUE IS THAT THE ASSESSEE INCURRED LOSS OF RS.2,07,59,835/- (PAGES 2 TO 7, PARA 4 OF THE ASSES SMENT ORDER) ON ACCOUNT OF SALE OF UNITS OF MUTUAL FUNDS. THE ASSESSING OFFICER CALCULATED THE LOSS AT RS.3,13,56 ,930/- (AS DETAILED AT PAGE 6 OF THE ASSESSMENT ORDER). THE AS SESSEE RECEIVED DIVIDEND ON THE SALE OF SAID UNITS AT RS.2 ,77,07,834/- AND THUS LOSSES WERE DISALLOWED INVOKING SECTION 94 (7) OF THE ACT. THE ASSESSING OFFICER BIFURCATED THE LOSS OF RS.2,77,07,834/- INTO TWO FIGURES I.E. RS.92,94,104 /- AND RS.1,84,13,730/- BY HOLDING THAT THE LOSS OF RS.92, 94,104/- IS HIT BY SECTION 94(7), WHEREAS, THE REMAINING LOSS O F FOUR DIMENSIONS SECURITIES INDIA PVT. LTD. ITA NO.322 & 790/MUM/2009 & ORS CASES 6 RS.1,84,13,730/- PERTAINS TO A.Y. 2004-05, FOR WHIC H NOTICE U/S 148/147 IS BEING ISSUED SEPARATELY, THUS, FOR T HE YEAR UNDER CONSIDERATION, LOSS OF RS.92,94,104/- WAS DIS ALLOWED U./S 94(7) OF THE ACT. BEFORE COMING TO ANY CONCLUS ION, WE ARE REPRODUCING HEREUNDER THE RELEVANT PROVISION OF THE ACT. (7) WHERE (A) ANY PERSON BUYS OR ACQUIRES ANY SECURITIES OR UNIT WITHIN A PERIOD OF THREE MONTHS PRIOR TO THE RECORD DATE; (B) SUCH PERSON SELLS OR TRANSFERS (I) SUCH SECURITIES WITHIN A PERIOD OF THREE MONT HS AFTER SUCH DATE; OR (II) SUCH UNIT WITHIN A PERIOD OF NINE MONTHS AFT ER SUCH DATE; (C) THE DIVIDEND OR INCOME ON SUCH SECURITIES OR U NIT RECEIVED OR RECEIVABLE BY SUCH PERSON IS EXEMPT, THEN, THE LOSS, IF ANY, ARISING TO HIM ON ACCOUNT O F SUCH PURCHASE AND SALE OF SECURITIES OR UNIT, TO THE EXTENT SUCH LOSS DOES NOT EXCEED THE AMOUNT OF DIVIDEND OR INCOME RECEIVED OR RECEIVABLE ON SUC H SECURITIES OR UNIT, SHALL BE IGNORED FOR THE PURPOSES OF COMPUTING HIS INCOME CHARGEABLE TO TAX. 2.5. AS PER SECTION 94(7)(B)(I), SUCH PERSON SELL S OR TRANSFERS SUCH SECURITIES WITHIN A PERIOD OF THREE MONTHS AFTER SUCH DATES OR (II) SUCH UNITS WITHIN A PERIOD OF NI NE MONTHS AFTER SUCH DATE. IT IS NOTED THAT SUBSTITUTION WAS MADE BY THE FINANCE (NO.2) ACT, 2004, WITH EFFECT FROM 01/04/20 05 AND PRIOR TO A SUBSTITUTION CLAUSE (B) READS AS UNDER:- (B) SUCH PERSON SELLS OR TRANSFERS SUCH SECURITIES OR UNITS WITHIN A PERIOD OF THREE MONTHS AFTER SUCH DATES. IT IS NOTED THAT THE DATE OF SALE IS 02/04/2004, WH ICH IS FALLING AFTER A PERIOD OF THREE MONTHS. FURTHER BILL WAS IN TRODUCED ON 08/07/2004 IN PARLIAMENT (SEE 268/ST./31) WHICH GOT THE ASCENT OF THE HONBLE PRESIDENT ON 10/09/2004, MEAN ING THEREBY, MUCH BEFORE THE BILL WAS INTRODUCED IN THE FOUR DIMENSIONS SECURITIES INDIA PVT. LTD. ITA NO.322 & 790/MUM/2009 & ORS CASES 7 PARLIAMENT, THE TRANSACTION WAS OVER, THEREFORE, ON CE THE TRANSACTION IS COMPLETE, WHICH IS IRREVERSIBLE, THE ASSESSEE IS NOT EXPECTED TO COMPLY WITH LAW BECAUSE VESTED INTE REST CANNOT BE TAKEN AWAY BY THE LEGISLATURE BY INTRODUC ING A LATER AMENDMENT. OUR VIEW IS FORTIFIED BY THE RATIO LAID DOWN BY HONBLE APEX COURT IN CIT VS SARKAR BUILDERS (2015) 375 ITR 392 (SC) BY HOLDING THAT CHANGE OF LAW W.E.F 01/04/ 2005 WHICH IS NOT APPLICABLE TO THE PROJECTS, WHERE APPR OVAL OF LOCAL AUTHORITY WAS GRANTED PRIOR TO 01/04/2005, EVEN IF THE PROJECT IS COMPLETED THEREAFTER. THUS, IT CAN BE SAID THAT THE CARDINAL PRINCIPLE OF TAX LAW THAT THE LAW IS TO BE APPLIED HAS TO BE THE LAW IN FORCE IN THE ASSESSMENT YEAR IS QUALIFIED BY THE EXCEPTION WHEN IT IS PROVIDED OTHERWISE EXPRESSLY O R BY NECESSARY IMPLICATION. THAT THE LAW WHICH IS IN FOR CE IN THE ASSESSMENT YEAR WOULD PREVAIL IS NOT AN ABSOLUTE PR INCIPLE AND EXCEPTION CAN BE EITHER EXPRESSED OR IMPLIED BY NECESSARY IMPLICATION. THE HONBLE APEX COURT WHILE COMING T O THE ABOVE CONCLUSION DULY CONSIDERED FOLLOWING DECISION S:- I. RELIANCE JUTE AND INDUSTRIES LTD. VS CIT (1979) 120 ITR 921 (SC) II. CIT VS HAPPY HOMES ENTERPRISES (2015) 372 ITR 1 (BO M.) III. CIT VS BRAHMA ASSOCIATES 333 ITR 289 (BOM.)(PARA-5) IV. CIT VS GOLD COIN HEALTH FOOD PVT. LTD. 304 ITR 308 (SC) V. CIT VS SHAH SADIQ & SONS 166 ITR 102 (SC) (PARA-9) VI. CIT VS VATIKA TOWNSHIP PVT LTD. (2014), 367 ITR 466 (SC)(PARA-9). FOUR DIMENSIONS SECURITIES INDIA PVT. LTD. ITA NO.322 & 790/MUM/2009 & ORS CASES 8 IT IS ALSO NOTED THAT THE CASE OF THE ASSESSEE IS SQUARELY COVERED BY THE RATIO LAID DOWN IN M/S KRISH ENTERPR ISES VS ACIT (ITA NO.5554/MUM/2014) ORDER DATED 05/01/2015 AND CIT VS CHD DEVELOPERS (ITA NO.2902 & 4694/DEL./2010 ) ORDER DATED 26/09/2012, WHICH WAS AFFIRMED BY HONBLE DEL HI HIGH COURT. THE CRUX OF THE DECISION IS THAT THE ASSESS EE IS NOT EXPECTED TO FULFILL THE CONDITIONS WHICH WERE NOT O N THE STATUTE BOOK WHEN THE TRANSACTION WAS COMPLETED AND THE VES TED RIGHT OF THE ASSESSEE CANNOT BE TAKEN AWAY BY A LATER AME NDMENT, WHICH IS UNLESS AND OTHERWISE MADE EFFECTIVE FROM RETROSPECTIVE DATE. 2.6. THE CASE OF THE ASSESSEE IS FURTHER FORTIFIED BY THE DECISION FROM HONBLE APEX COURT IN CIT VS WALFORT SHARE & STOCK BROKER PVT. LTD. (20100 326 ITR 1(SC) ORDER D ATED 06/07/2010 WITH RESPECT TO TRANSACTION IN SECURITIE S BY HOLDING THAT PURCHASE OF SECURITY AND SALE THEREOF, IF, WITHIN THREE MONTHS, LOSS HAS TO BE IGNORED AS PER SECTION 94(7) OF THE ACT. IN THAT CASE, THE DEPARTMENT DISALLOWED T HE SET OFF CLAIM. THE TRIBUNAL, ON APPEAL, DELETED THE DISALLO WANCE BY HOLDING THAT THE ASSESSEE WAS ENTITLED TO SET OFF T HE LOSS FROM THE TRANSACTION IN QUESTION AGAINST ITS OTHER INCOM E CHARGEABLE TO TAX. THIS VIEW WAS AFFIRMED BY HONBL E HIGH COURT. THE DEPARTMENT PREFERRED BEFORE THE HONBLE APEX COURT. THE HONBLE SUPREME COURT HELD AS UNDER:- HELD, AFFIRMING THE DECISION OF THE HIGH COURT, (I) THAT IT WAS ESTABLISHED THAT THERE WAS A SALE, THE ASSESSEE RECEIVED A DIVIDEND, AND THAT DIVIDEND WAS TAX-FREE . THE ASSESSEE HAD MADE USE OF THE PROVISIONS OF SECTION FOUR DIMENSIONS SECURITIES INDIA PVT. LTD. ITA NO.322 & 790/MUM/2009 & ORS CASES 9 10(33) AND SUCH USE COULD NOT BE SAID TO BE ABUSE OF LAW. EVEN ASSUMING THAT THE TRANSACTION WAS PRE- PLANNED, THERE WAS NOTHING TO IMPEACH THE GENUINENE SS OF THE TRANSACTION. IN THE CASE OF ASSESSMENTS BEFO RE APRIL 1, 2002-I.E., BEFORE THE INSERTION OF SECTION 94(7) LOSSES PERTAINING TO EXEMPTED INCOME COULD NOT BE DISALLOW ED. HOWEVER, AFTER APRIL 1, 2002, SUCH LOSSES TO THE EX TENT OF THE DIVIDEND RECEIVED BY THE ASSESSEE COULD BE IGNO RED BY THE ASSESSING OFFICER IN VIEW OF SECTION 94(7) . AP PLYING SECTION 94(7) TO CASES FOR ASSESSMENT YEARS FALLING AFTER APRIL 1, 2002, THE LOSS TO BE IGNORED WOULD BE ONLY TO THE EXTENT OF THE DIVIDEND RECEIVED AND NOT THE ENTIRE LOSS. IN OTHER WORDS, LOSSES OVER AND ABOVE THE AMOUNT OF RECEIVED WOULD STILL BE ALLOWED FROM WHICH IT FOLLO WED THAT PARLIAMENT HAD NOT TREATED THE DIVIDEND STRIPPING TRANSACTION AS SHAM OR BOGUS. AFTER APRIL 1, 2002, LOSSES OVER AND ABOVE THE DIVIDEND RECEIVED WOULD NOT BE IGNORED UNDER SECTION 94(7). (II) THAT SECTIONS 14A AND 94(7) OPERATED IN DIFFER ENT FIELDS. SECTION 14A DEALT WITH DISALLOWANCE OF EXPE NDITURE INCURRED IN EARNING TAX-FREE INCOME AGAINST THE PRO FITS; ON THE OTHER HAND, SECTION 94(7) DEALT WITH DISALLOWAN CE OF THE LOSS ON THE ACQUISITION OF AN ASSET. (III) THAT A MERE RECEIPT OF DIVIDEND SUBSEQUENT TO PURCHASE OF UNITS, ON THE BASIS OF A PERSON HOLDING UNITS AT THE TIME OF DECLARATION OF DIVIDEND ON THE RECOR D DATE, COULD NOT OFFSET THE COST OF ACQUISITION OF THE UNI TS. WHILE COMING TO THE AFORESAID DECISION, THE HONBLE APEX COURT AFFIRMED THE DECISION OF HONBLE BOMBAY HIGH COURT IN (2009) 310 ITR 421, WHILE CONSIDERING THE FOLLOWING JUDICIAL PRONOUNCEMENTS:- I. CIT V. INDIAN BANK LIMITED [1965] 56 ITR 77 (SC) (PARA 13) II. CIT V. WALFORT SHARE AND STOCK BROKERS P. LTD. [2009] 310 ITR 421 (BOM) (PARA 3) FOUR DIMENSIONS SECURITIES INDIA PVT. LTD. ITA NO.322 & 790/MUM/2009 & ORS CASES 10 III. MCDOWELL AND CO. LTD. V. CTO [1985] 154 ITR 148 (SC) (PARA 20) IV. RAJASTHAN STATE WAREHOUSING CORPORATION V. CIT [2000] 242 ITR 450 (SC) (PARA 13) V. UNION OF INDIA V. AZADI BACHAO ANDOLAN [2003] 263 ITR 706 (SC) (PARA 20) IF THIS ISSUE IS ANALYZED WITH THE PROVISION CONTAI NED IN THE INCOME TAX ACT ITSELF, SECTION 294 OF THE INCOM E TAX ACT, 1961 BY PROVIDING THAT IF ON THE FIRST DAY OF APRI L IN ANY ASSESSMENT YEAR, PROVISION HAS NOT YET BEEN MADE BY THE CENTRAL ACT FOR THE CHARGING THE INCOME TAX, FOR TH AT ASSESSMENT YEAR, THIS ACT SHALL NEVERTHELESS HAVE E FFECT UNTIL SUCH PROVISION IS SO MADE AS IF THE PROVISION IN FO RCE IN THE PRECEDING ASSESSMENT YEAR OR THE PROVISION PROPOSED IN THE BILL THEN IN THE PARLIAMENT, WHICHEVER IS MORE FAVO URABLE TO THE ASSESSEE, WERE ACTUALLY IN FORCE. SECTION 294 OF THE 1961 ACT CORRESPONDS TO SECTION 67B OF THE 1922 ACT. THE WORDS OR SUPER TAX WERE OMITTED BY THE FINANCE ACT, 1965 WH ICH INTEGRATED INCOME TAX ACT AND SUPER TAX IN TO ONE I NCOME TAX ACT. THIS PROPOSITION IS OTHERWISE SUPPORTED BY TH E RATIO LAID DOWN BY HONBLE APEX COURT IN CIT VS SARKAR BUILDER S (2015) 375 ITR 392 (SC) ORDER DATED 15/05/2015. IF TOTALI TY OF FACTS ARE ANALYZED, THE ASSESSEE COMPLETED THE TRANSACTIO N, WHICH WAS IRREVERSIBLE MUCH BEFORE THE BILL WAS INTRODUCE D IN THE PARLIAMENT ON 08/07/2004 AND GOT THE ASSENT BEFORE HONBLE PRESIDENT OF INDIA ON 10/09/2004, THUS, THE VESTED INTEREST, ALREADY ACCRUED TO THE ASSESSEE, CANNOT BE TAKEN BY THE LATER FOUR DIMENSIONS SECURITIES INDIA PVT. LTD. ITA NO.322 & 790/MUM/2009 & ORS CASES 11 LEGISLATIVE AMENDMENT. THIS GROUND OF THE ASSESSEE IS, THEREFORE, ALLOWED. 3. THE NEXT GROUND RAISED BY THE ASSESSEE PERTAINS TO DIRECTING THE ASSESSING OFFICER TO COMPUTE DISALLOW ANCE U/S 14A OF THE ACT AS PER RULE 8D OF THE RULES. THE CRU X OF ARGUMENT ADVANCED ON BEHALF OF THE ASSESSEE IS THAT THE SAID DIRECTION MAY BE SET ASIDE AS RULE 8D IS NOT APPLIC ABLE. IT WAS ALSO PRAYED THAT WHAT THE ASSESSING OFFICER HAS DON E MAY BE CONFIRMED AND THE DIRECTION OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) MAY BE DELETED. THE LD. DR CONTENDED THAT THE RULE 8D IS APPLICABLE. 3.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. UNCONTROV ERTEDLY, THE APPEAL TO BE ADJUDICATED BEFORE US PERTAINS TO ASSESSMENT YEAR 2005-06, THEREFORE, IN VIEW OF THE DECISION FR OM HONBLE JURISDICTIONAL HIGH COURT IN GODREJ & BOYCE, RULE 8 D IS NOT APPLICABLE, THEREFORE, WE AFFIRM THE STAND OF THE L D. ASSESSING OFFICER, THUS, THIS GROUND OF THE ASSESSEE IS DISPO SED OFF IN TERMS INDICATED HEREINABOVE. 4. THE NEXT GROUND PERTAINS TO CONFIRMING DISALLOWANCE OF SOFTWARE EXPENSES OF RS.53,897/- BY TREATING THE SAME AS CAPITAL EXPENDITURE. THE CRUX OF ARGUME NT ADVANCED ON BEHALF OF THE ASSESSEE IS THAT THE IMPU GNED AMOUNT IS NOTHING BUT ANNUAL MAINTENANCE CHARGES FO R WHICH OUR ATTENTION WAS INVITED TO PAPER BOOK PAGES 3 TO 16 BY FURTHER CONTENDING THAT SUCH SOFTWARE EXPENSES ARE FOR SPECIFIC PERIOD OF ONE YEAR, THEREFORE, THESE ARE R EVENUE IN FOUR DIMENSIONS SECURITIES INDIA PVT. LTD. ITA NO.322 & 790/MUM/2009 & ORS CASES 12 NATURE. THE LD. DR, THOUGH DEFENDED THE DISALLOWANC E, BUT COULD NOT CONTROVERT THE ASSERTION OF THE ASSESSEE. 4.1. ON PERUSAL OF RECORD AND AFTER HEARING THE RI VAL SUBMISSIONS, WE FIND THAT THE SOFTWARE EXPENSES ARE SPECIFICALLY FOR A PERIOD OF ONE YEAR AND SINCE THE SE ARE ANNUAL MAINTENANCE CHARGES AS IS EVIDENT FROM RECORD AND M ORE SPECIFICALLY PAGES 3 TO 16 OF THE PAPER BOOK, THESE ARE NOT OF ENDURING NATURE, THUS ARE HELD TO BE REVENUE EXPENS ES. THIS GROUND IS ALLOWED. 5. THE LAST GROUND, IN THIS APPEAL, PERTAINS TO CONFIRMING THE DISALLOWANCE OF RS.84,88,660/- MADE ON ACCOUNT OF KEYMAN INSURANCE PREMIUM. THE CRUX OF ARGUMENT ON BEHALF OF THE ASSESSEE IS THAT IMPUGNED ISSUE IS COVERED BY THE DECISION OF THE TRIBUNAL IN ITA NO.3694/MUM/2009 AND ITA NO.6016/MUM/2008. OUR ATTENTION WAS INVITED TO THE RESOLUTION PASSED BY T HE SHAREHOLDERS ON 29/03/2003, RESOLUTION WAS PASSED B Y THE BOARD OF DIRECTORS ON 11/03/2005, INVITING OUR ATTE NTION TO PARA 10 (PAGE 18) OF THE ASSESSMENT ORDER. ON THE O THER HAND, THE LD. DR, DEFENDED THE CONCLUSION ARRIVED AT BY T HE LD. ASSESSING OFFICER AS WELL AS COMMISSIONER OF INCOME TAX (APPEALS) BY CONTENDING THAT THE PAYMENT WAS MADE O N ACCOUNT OF INSURANCE COVER TAKEN FOR MR. ROHIT KOTH ARI, AN EMPLOYEE, DRAWING SALARY OF RS.80,000 PER MONTH. 5.1. IF THE OBSERVATION MADE IN THE ASSESSMENT ORD ER, LEADING TO ADDITION MADE TO THE TOTAL INCOME, CONCL USION FOUR DIMENSIONS SECURITIES INDIA PVT. LTD. ITA NO.322 & 790/MUM/2009 & ORS CASES 13 DRAWN IN THE IMPUGNED ORDER, MATERIAL AVAILABLE ON RECORD, ASSERTIONS MADE BY THE LD. RESPECTIVE COUNSEL, IF K EPT IN JUXTAPOSITION AND ANALYZED, THE UNDISPUTED FACT IS THAT MR. ROHIT KOTHARI IS AN EMPLOYEE OF THE ASSESSEE AND TH E SHARE HOLDERS PASSED A RESOLUTION ON 29/03/2003 APPOINTED MR. ROHIT KOTHARI, RELATIVE OF THE DIRECTOR OF THE COMP ANY TO HOLD AND CONTINUE AS CHIEF EXECUTIVE OFFICER IN TERMS OF CONDITIONS CONTAINED IN SERVICE AGREEMENT AND THE BOARD IN ITS MEETING HELD ON 11/03/2005 RECTIFIED AND TO TAKE KEYMAN IN SURANCE COVER FOR SHRI ROHIT KOTHARI, CEO OF THE ASSESSEE COMPANY. WITHOUT GOING INTO MUCH DELIBERATION, WE NOTE THAT THE IMPUGNED ISSUE IS COVERED BY THE DECISION OF THE TR IBUNAL IN THE CASE OF ACIT VS M/S BAADER SCHULZ LABORATORIES SHANTIVILLA SHANTIVAN CO-OP. HSG. SOC. (ITA NO. 622 4/MUM /2011), ORDER DATED 01/07/2015, WHICH IS REPRODUCED HEREUNDER FOR READY REFERENCE AND ANALYSIS:- THE REVENUE IS AGGRIEVED BY THE IMPUGNED ORDER DAT ED 20/06/2011 OF THE LD. FIRST APPELLATE AUTHORITY, MU MBAI, ON THE GROUND, DELETING THE ADDITION OF RS.31,25,000/- MADE ON ACCOUNT OF PAYMENT TOWARDS KEYMAN INSURANCE PREMIUM , TAKEN ON THE LIFE OF THE PARTNERS. 2. DURING HEARING OF THE APPEAL, DR. YOGESH KAMAT, LD. DR, CONTENDED THAT THE PARTNERS, IN RESPECT OF WHOM, THE INSURANCE PREMIUM WAS PAID, WERE NEITHER MANAGING PARTNERS NOR WORKING PARTNERS AS THEY DID NOT RECEI VE ANY PREMIUM FROM THE ASSESSEE FIRM, IGNORING THE FACT T HAT THE BENEFIT WOULD NOT ACCRUE TO THE ASSESSEE FIRM. ON T HE OTHER FOUR DIMENSIONS SECURITIES INDIA PVT. LTD. ITA NO.322 & 790/MUM/2009 & ORS CASES 14 HAND, SHRI PRADEEP D. SHAH, LD. COUNSEL FOR THE ASS ESSEE, DEFENDED THE CONCLUSION ARRIVED AT IN THE IMPUGNED ORDER. 2.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACTS , IN BRIEF, ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF MANUFACTURING OF POULTRY AND CATTLE FEE DS, FILED ITS RETURN DATED 30/09/2008. THE ASSESSEE COMPANY T OOK INSURANCE POLICY ON THE LIFE OF THE PARTNERS AND CL AIMED DEDUCTION ON THE PREMIUM PAID FOR SUCH POLICY. IT WAS CLAIMED BEFORE THE ASSESSING OFFICER THAT THE PREMI UM PAID TOWARDS KEYMAN INSURANCE POLICY IS DEDUCTIBLE BY PL ACING RELIANCE UPON CIRCULAR NO. 762 DATED 18/02/1998. TH E LD. ASSESSING OFFICER DENIED THE CLAIM AGAINST WHICH TH E ASSESSEE WENT IN APPEAL BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS). THE LD. COMMISSIONER OF INCO ME TAX (APPEALS) EXAMINED THE CLAIM AND FOUND THAT THE AMO UNT OF RS.31,25,000/- WAS PAID IN RESPECT OF ICICI PRUDENT IAL KEYMAN INSURANCE POLICIES (POLICY NO.01615183, 0161 5296 AND 01051293). THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DECIDED IN FAVOUR OF THE ASSESSEE AGAINST WHICH THE REVENUE IS IN APPEAL BEFORE THIS TRIBUNAL. WE FIND THAT THE PERSONS FOR WHOM THE KEYMAN INSURANCE POLICY WA S TAKEN AND CONSEQUENT PREMIUM WAS PAID ARE CLOSELY CONNECTED WITH THE BUSINESS OF THE ASSESSEE FIRM. K EYMAN INSURANCE POLICY MEANS A LIFE INSURANCE POLICY TAKE N BY A PERSON FOR THE LIFE OF ANOTHER PERSON WHO IS OR WAS THE EMPLOY OF THE FIRST MENTIONED PERSON OR IS WAS CONN ECTED IN ANY MANNER WHATSOEVER WITH THE BUSINESS OF THE FIRS T MENTION PERSONS, WHO IS PAYING FOR SUCH PERSON, WHO IS CLOSELY CONNECTED WITH THE BUSINESS OF THE PAYER. THE RATIO FOUR DIMENSIONS SECURITIES INDIA PVT. LTD. ITA NO.322 & 790/MUM/2009 & ORS CASES 15 LAID DOWN IN CIT VS B.N. EXPORTS (190 TAXMAN 325), THE HONBLE JURISDICTIONAL HIGH COURT HELD THAT THE KEY MAN INSURANCE PREMIUM PAID ONLY POLICIES OF THE LIVES O F THE PARTNERS IS AN ALLOWABLE DEDUCTION. IN THE PRESENT APPEAL, THE LD. ASSESSING OFFICER DID NOT ALLOW THE KEYMAN INSURANCE PREMIUM BROADLY ON TWO COUNTS (A) THE PARTNERS IN R ESPECT OF WHOM INSURANCE PREMIUM WAS PAID WERE NEITHER MANAGI NG PARTNERS NOR WORKING PARTNERS AS THEY DID NOT RECEI VE ANY REMUNERATION FROM THE FIRM AND (B) THE POLICIES WER E ASSIGNED TO THE PARTNERS AND THE BENEFIT WOULD NOT ACCRUE TO THE ASSESSEE FIRM. HOWEVER, IF IT IS ANALYZE, THE KEYM AN INSURANCE PREMIUM PAID IN RESPECT OF ANY PERSON, WH O IS CONNECTED WITH THE BUSINESS OF THE ASSESSEE WOULD B E TREATED AS KEYMAN. THERE IS NO REQUIREMENT, THAT S UCH PERSON SHOULD BE A WORKING PARTNER OR MANAGING PART NER. THE HONBLE DELHI HIGH COURT IN CIT VS RAJAN NANDA (2012) 349 ITR 8 (DEL.) HELD THAT PREMIUM ON KEYMAN INSURA NCE IS A DEDUCTIBLE BUSINESS EXPENDITURE U/S 37 OF THE ACT. THE RELEVANT PORTION OF THE ORDER IS REPRODUCED HEREUND ER FOR READY REFERENCE:- THE ASSESSEE TOOK KEYMAN INSURANCE POLICIES ON THE LIVES OF TWO EMPLOYEES/DIRECTORS IN DIFFERENT YEARS. AFTER PAYIN G PREMIA FOR A CERTAIN PERIOD, THEY WERE ASSIGNED TO THE TWO EMPLO YEES/DIRECTORS RECEIVING THE SURRENDER VALUE FROM THEM. FOR THE RE MAINING PERIOD OF THE POLICIES, THE INSURANCE PREMIA WERE PAID BY THE ASSIGNEES. THE ASSESSING OFFICER HELD THAT SINCE THE EXPENDITURE I NCURRED ON THE PREMIA PAID ON THE KEYMAN INSURANCE POLICIES WAS MU CH MORE THAN THE SURRENDER VALUE REALIZED BY THE ASSESSEE ON THE ASSIGNMENT OF THESE POLICIES TO THE EMPLOYEES/DIRECTORS, THE AMOUNT PAI D BY THE ASSESSEE AS PREMIA ON THE POLICIES COULD NOT BE TREATED AS EXPE NDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS PURPOSE OF THE ASSESSEE. THEREFORE, HE DISALLOWED THE PREMIA PAID IN DIFFERE NT YEARS WHICH WAS FOUR DIMENSIONS SECURITIES INDIA PVT. LTD. ITA NO.322 & 790/MUM/2009 & ORS CASES 16 CLAIMED AS BUSINESS EXPENDITURE. THE COMMISSIONER ( APPEALS) AND THE TRIBUNAL, HOWEVER, HELD THAT THE AMOUNT WAS DEDUCTI BLE. IN SO FAR AS THE EMPLOYEES/DIRECTORS WERE CONCERNED , THE QUESTION WAS WHETHER THE DIFFERENCE BETWEEN THE ACTUAL PREMIUM P AID AND THE SURRENDER VALUE GIVEN BY THEM WAS TO BE TREATED AS SALARY IN THEIR HANDS AND WAS TO BE TAXED ACCORDINGLY AND WHETHER T HE MATURITY VALUE RECEIVED BY THEM ON THE POLICY WAS TO BE TAXE D OR NOT. THE ASSESSING OFFICER HELD THAT THE DIRECTORS HAD TAKEN A SUBSTANTIAL BENEFIT BY PAYING ONLY THE SURRENDER VALUE AS AGAIN ST THE MUCH HIGHER AMOUNT OF PREMIA PAID BY THE ASSESSEE. THE DIFFEREN CE BETWEEN THE PREMIA PAID BY THE ASSESSEE AND THE SURRENDER VALUE PAID BY THEM WAS TREATED AS BENEFIT TO BE TAXED IN THEIR HANDS. THE TRIBUNAL HELD THAT MERELY BY ASSIGNMENT IN A PARTICULAR YEAR WHEN THE POLICY WAS STILL CONTINUING, NO TAXABLE EVENT HAD TAKEN PLACE AND, T HEREFORE, NO TAX COULD BE CHARGED. IT HAD ALSO HELD THAT THE AMOUNT IN QUESTION COULD NOT BE TAXED AS PERQUISITE SO AS TO FALL WITHIN THE SCOPE OF SECTION 17(3) . THE TRIBUNAL TOOK NOTE OF THE CERTIFICATE OBTAINE D BY THE ASSESSEE FROM THE LIC WHEREBY IT HAD CERTIFIED THAT A KEYMAN INSURANCE POLICY AFTER ASSIGNMENT ASSUMED THE STATUS OF AN ORDINARY INSURANCE POLICY. THE TRIBUNAL WHILE GIVING REQUISITE RELIEF BROUGHT TO TAX THE AMOUNT OF THE SURRENDER VALUE AT THE TIME OF ASSIGNMENT SUBJE CT TO VERIFICATION BY THE ASSESSING OFFICER. ON APPEAL TO THE HIGH COURT : HELD, DISMISSING THE APPEALS, (I) THAT THE DEPARTME NT HAD ITSELF ALLOWED THE EXPENDITURE INCURRED ON THE PREMIUM PAID FOR TH E KEYMAN INSURANCE POLICIES IN PREVIOUS YEARS AS BUSINESS EX PENDITURE UNDER SECTION 37 OF THE ACT. RIGHT FROM 1991-92 TO 1993-9 4 AND THEREAFTER EVEN IN RESPECT OF THE ASSESSMENT YEAR 1997-98, THE EXPENDITURE WAS ALLOWED. THEREAFTER, THE EXPENDITURE WAS DISALLOWED , BUT AGAIN THE CLAIM WAS ACCEPTED FOR THE ASSESSMENT YEARS 2001-02 AND 2002-03. THE PRINCIPLE OF CONSISTENCY WOULD, THEREFORE, BE A PPLICABLE IN SUCH A CASE. THE OBJECT OF A KEYMAN INSURANCE POLICY IS TO ENABLE BUSINESS ORGANIZATIONS TO INSURE THE LIFE OF A KEY MAN IN OR DER TO PROTECT THE BUSINESS AGAINST THE FINANCIAL LOSS WHICH MAY OCCUR IN THE LIKELY EVENTUALITY OF HIS PREMATURE DEATH. SUCH AN EXPENDI TURE IS TREATED AS BUSINESS EXPENDITURE BY THE DEPARTMENT AND RECOGNIS ED AS SUCH IN CIRCULAR DATED FEBRUARY 18, 1998. THE CIRCULAR IS B INDING ON THE INCOME-TAX DEPARTMENT, WHICH CATEGORICALLY STIPULAT ES THAT PREMIUM ON KEYMAN POLICY SHOULD BE ALLOWED AS BUSINESS EXPE NSES. MERELY BECAUSE THE POLICY WAS ASSIGNED AFTER SOME TIME THA T WOULD NOT MEAN FOUR DIMENSIONS SECURITIES INDIA PVT. LTD. ITA NO.322 & 790/MUM/2009 & ORS CASES 17 THAT THE EXPENDITURE INCURRED IN THE FIRST INSTANCE WOULD LOSE THE FLAVOUR OF BUSINESS EXPENDITURE. THE PREMIA WERE DEDUCTIBLE AS BUSINESS EXPENDITURE. (II) THAT THE EXPLANATION TO SECTION10(10D)GIVES TH E MEANING TO KEYMAN INSURANCE POLICY AND ONLY THAT SUM RECEIVE D UNDER THIS POLICY WOULD BE TREATED AS INCOME. SUB-CLAUSE(II)OF CLAUSE(3)OF SECTION17TAXES ANY SUM RECEIVED IN A KEYMAN INSURA NCE POLICY. THE WORD RECEIVED ASSUMES SIGNIFICANCE. THE LEGISLATU RE IN ITS WISDOM THOUGHT TO TAX ONLY THAT PAYMENT, WHICH IS RECEIVED BY THE EMPLOYEE- ASSESSEE UNDER THE KEYMAN INSURANCE POLICY. THE PUR PORT OF SUB- CLAUSE(II)IS ALTOGETHER DIFFERENT. SUCH AN AMOUNT D UE OR RECEIVED BY THE ASSESSEE HAS TO BE : (A) BEFORE JOINING ANY EMPLOYM ENT ; OR (B) AFTER CESSATION OF ITS EMPLOYMENT. NO SUCH CONTINGENCY OC CURRED WHEN THE KEYMAN INSURANCE POLICY WAS ASSIGNED BY THE COMPANY IN FAVOUR OF THE DIRECTOR-ASSESSEE. THE TAX EVENT DID NOT OCCUR, AS NO SUCH AMOUNT WAS RECEIVED AT THE TIME OF ASSIGNMENT OF THE POLICY BY THE COMPANY AS EMPLOYER TO THE DIRECTOR-ASSESSEE, AS EMPLOYEE. THE AMOUNTS WERE NOT TAXABLE IN THE HANDS OF THE DIRECTORS. (III) THAT THERE IS NO PROHIBITION ON THE ASSIGNMEN T OR CONVERSION OF KEYMAN INSURANCE UNDER THE ACT. ONCE THERE IS AN AS SIGNMENT, IT LEADS TO CONVERSION AND THE CHARACTER OF THE POLICY CHANG ES. THE INSURANCE COMPANY HAD ITSELF CLARIFIED THAT ON ASSIGNMENT, IT DOES NOT REMAIN A KEYMAN POLICY AND GETS CONVERTED INTO AN ORDINARY P OLICY. HENCE, THE POLICY IN QUESTION WAS NOT A KEYMAN INSURANCE POLIC Y AND WHEN IT MATURED, THE ADVANTAGE DRAWN THEREFROM WAS NOT TAXA BLE. IN ANOTHER CASE OF CIT VS GEM ART (2012) 208 TAXMAN 47 (GUJ.), WHEREIN, PREMIUM WAS PAID BY THE FIRM FOR P ARTNERS UNDER KEYMAN INSURANCE POLICY, THE HONBLE HIGH COU RT TREATED IT AS REVENUE EXPENDITURE. RESPECTFULLY FOL LOWING THE AFORESAID DECISIONS FROM HONBLE DELHI AND GUJARAT HIGH COURTS, WE AFFIRM THE STAND OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS), THUS, APPEAL OF THE REVENUE I S DISMISSED. FINALLY, THE APPEAL OF THE REVENUE IS DISMISSED. FOUR DIMENSIONS SECURITIES INDIA PVT. LTD. ITA NO.322 & 790/MUM/2009 & ORS CASES 18 5.2. IN VIEW OF THE ABOVE, WE ARE EXPECTED TO ANAL YSE THE PROVISION OF THE ACT. EXPLANATION TO SECTION10(10D) GIVES THE MEANING TO KEYMAN INSURANCE POLICY AND ONLY THAT SUM RECEIVED UNDER THIS POLICY WOULD BE TREATED AS INCO ME. SUB- CLAUSE(II)OF CLAUSE(3)OF SECTION17TAXES ANY SUM RE CEIVED IN A KEYMAN INSURANCE POLICY. THE WORD RECEIVED ASSUM ES SIGNIFICANCE. THE LEGISLATURE IN ITS WISDOM THOUGHT TO TAX ONLY THAT PAYMENT, WHICH IS RECEIVED BY THE EMPLOYEE-ASS ESSEE UNDER THE KEYMAN INSURANCE POLICY. THE PURPORT OF S UB- CLAUSE(II)IS ALTOGETHER DIFFERENT. SUCH AN AMOUNT D UE OR RECEIVED BY THE ASSESSEE HAS TO BE : (A) BEFORE JOI NING ANY EMPLOYMENT ; OR (B) AFTER CESSATION OF ITS EMPLOYME NT. NO SUCH CONTINGENCY OCCURRED WHEN THE KEYMAN INSURANCE POLI CY WAS ASSIGNED BY THE COMPANY IN FAVOUR OF THE DIRECTOR-A SSESSEE. THE TAX EVENT DID NOT OCCUR, AS NO SUCH AMOUNT WAS RECEIVED AT THE TIME OF ASSIGNMENT OF THE POLICY BY THE COMP ANY AS EMPLOYER TO THE DIRECTOR-ASSESSEE, AS EMPLOYEE. THE AMOUNTS WERE NOT TAXABLE IN THE HANDS OF THE DIRECTORS. IN THE CASE OF CIT VS GEM ART (2012) 208 TAXMAN 47 (GUJ.), WHEREIN, PREMIUM WAS PAID BY THE FIRM FOR P ARTNERS UNDER KEYMAN INSURANCE POLICY, THE HONBLE HIGH COU RT TREATED IT AS REVENUE EXPENDITURE. RESPECTFULLY FOL LOWING THE AFORESAID DECISIONS FROM HONBLE DELHI HIGH COURT ( DISCUSSED IN THE AFORESAID ORDER) AND GUJARAT HIGH COURT, WE FIND MERIT IN THE CONTENTION OF THE ASSESSEE. SO FAR AS, THE CONTENTION OF THE LD. DR THAT THE IMPUGNED ISSUE IS COVERED IN FA VOUR OF THE REVENUE IN TAPARIA TOOLS LTD. VS JCIT 260 ITR 102 (BOM.). THIS DECISION HAS BEEN REVERSED BY HONBLE APEX COU RT IN FOUR DIMENSIONS SECURITIES INDIA PVT. LTD. ITA NO.322 & 790/MUM/2009 & ORS CASES 19 TAPARIA TOOLS VS JCIT 372 ITR 605 (SC), ORDER DATED 23/03/2015, THUS, THIS GROUND OF THE ASSESSEE IS AL LOWED. 6. NOW, WE SHALL TAKE UP THE CROSS APPEAL RAISED B Y THE REVENUE (ITA NO.790/MUM/2009) (A.Y. 2005-06), W HEREIN, GROUNDS NO. 1 TO 7 PERTAINS TO DELETING THE DISALLO WANCE OF RS.41.32 LAKHS MADE IN RESPECT OF V-SAT, LEASELINE CHARGES AND TRANSACTION CHARGES AND NON-DEDUCTION OF TDS TH EREON. THE CRUX OF ARGUMENT ADVANCED ON BEHALF OF THE REVE NUE IS THAT THESE ARE COMPOSITE CHARGES AND NO TDS WAS DED UCTED BY THE ASSESSEE BY CONTENDING THAT THE LD. COMMISSIONE R OF INCOME TAX (APPEALS), WITHOUT APPRECIATING THE FACT S, GRANTED RELIEF TO THE ASSESSEE FOR WHICH OUR ATTENTION WAS INVITED TO PARA 2.2 (PAGE-7) OF THE IMPUGNED ORDER. ON THE OT HER HAND, THE LD. COUNSEL FOR THE ASSESSEE, CONTENDED THAT TH IS ISSUE IS COVERED BY THE DECISION FROM HONBLE JURISDICTIONA L HIGH COURT IN CIT VS ANGEL CAPITAL & DEBIT MARKET LTD. ( ITA NO.475 OF 2011) ORDER DATED 28/07/2011. THIS FACTUAL MATRI X WAS NOT CONTROVERTED BY THE REVENUE. 6.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE NOTE T HAT THE HONBLE JURISDICTIONAL HIGH COURT VIDE ORDER DATED 28/07/2011 (SUPRA) WITH RESPECT TO V-SAT AND LEASEL INE CHARGES, PAID BY THE ASSESSEE, TO STOCK EXCHANGE, W ERE HELD TO BE MERELY REIMBURSEMENT OF CHARGES PAID/PAYABLE BY THE STOCK EXCHANGE TO THE DEPARTMENT OF TELECOMMUNICATI ON AND SINCE THESE CHARGES, PAID BY THE ASSESSEE, DO NOT H AVE ANY FOUR DIMENSIONS SECURITIES INDIA PVT. LTD. ITA NO.322 & 790/MUM/2009 & ORS CASES 20 ELEMENT OF INCOME, NO QUESTION ARISES FOR DEDUCTING TDS, WHILE MAKING SUCH PAYMENTS. FOLLOWING THE DECISION FROM HONBLE HIGH COURT, WE DECIDE THE ISSUE OF LEASELIN E CHARGES IN FAVOUR OF THE ASSESSEE. 6.2. SO FAR AS TRANSACTION CHARGES ARE CONCERNED, THE ISSUE HAS BEEN SETTLED AGAINST THE ASSESSEE BY HON BLE HIGH COURT IN CIT VS KOTAK SECURITIES LTD. (2012) 340 I TR 333 (BOM.) ORDER DATED 21/10/2011. OUR ATTENTION WAS I NVITED TO ORDER OF THE TRIBUNAL IN ITO VS M/S GRISHMA SECURIT IES PVT. LTD. (ITA NO.6162/MUM/2010) ORDER DATED 30/11/2011, WHEREIN, IN VIEW OF THE GUIDELINES LAID DOWN BY HON BLE HIGH COURT, THE ASSESSING OFFICER WAS DIRECTED TO VERIFY THE STAND OF THE ASSESSEE FROM THE RELEVANT RECORD AND DECIDE AF RESH AFTER VERIFICATION IN THE LIGHT OF THE GUIDELINES LAID DO WN BY THE HONBLE HIGH COURT IN PARA 31. WE ARE REPRODUCING HEREUNDER THE RELEVANT PORTION OF THE AFORESAID ORDER OF THE TRIBUNAL DATED 30/11/2011 FOR READY REFERENCE:- THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST T HE ORDER OF LEARNED CIT(APPEALS)-8, MUMBAI DATED 07-06-2010 WHEREBY HE DELETED THE DISALLOWANCE OF RS.26,30,456 /- MADE BY THE AO U/S 40(A)(IA) ON ACCOUNT OF TRANSACTION C HARGES ETC. PAID BY THE ASSESSEE TO STOCK EXCHANGE FOR ITS FAILURE TO DEDUCT THE TAX AT SOURCE FROM THE PAYMENT THEREOF. 2. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WH ICH IS ENGAGED IN THE BUSINESS OF STOCK BROKING AS A MEMBE R OF BOMBAY STOCK EXCHANGE AND NATIONAL STOCK EXCHANGE. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION W AS FILED FOUR DIMENSIONS SECURITIES INDIA PVT. LTD. ITA NO.322 & 790/MUM/2009 & ORS CASES 21 BY IT ON 26-08-2007 DECLARING TOTAL INCOME OF RS.9, 08,490/-. IN THE PROFIT & LOSS ACCOUNT FILED ALONG WITH THE S AID RETURN, A SUM OF RS.26,30,456/- WAS DEBITED BY THE ASSESSEE O N ACCOUNT OF TRANSACTION CHARGES PAID TO THE STOCK EXCHANGE. ACCORDING TO THE AO, THE ASSESSEE WAS REQUIRED TO DEDUCT TAX AT SOURCE FROM THE PAYMENT OF TRANSACTION CHARGES MADE TO THE STOCK EXCHANGE AS PER THE PROVISIONS OF SECTION 194J. SIN CE NO SUCH DEDUCTION OF TAX AT SOURCE WAS MADE BY THE ASS ESSEE, HE DISALLOWED THE DEDUCTION CLAIMED BY THE ASSESSEE ON ACCOUNT OF TRANSACTION CHARGES BY INVOKING THE PROVISIONS O F SECTION 40(A)(IA). ON APPEAL, THE LEARNED CIT(APPEALS) DELE TED THE SAID DISALLOWANCE FOLLOWING THE DECISION OF THE MUM BAI BENCH OF ITAT IN THE CASE OF KOTAK SECURITIES VS. A DDL.CIT 25 SOT 440 WHEREIN IT WAS HELD THAT THE SERVICES RENDE RED BY STOCK EXCHANGE TO ITS MEMBERS NOT BEING IN THE NATU RE OF MANAGERIAL OR TECHNICAL SERVICES, TAX AT SOURCE WAS NOT DEDUCTIBLE FROM THE PAYMENT MADE BY THE ASSESSEE AS STOCK BROKER TO THE STOCK EXCHANGE ON ACCOUNT OF TRANSACT ION CHARGES. AGGRIEVED BY THE ORDER OF THE LEARNED CIT( APPEALS), THE REVENUE HAS PREFERRED THIS APPEAL BEFORE THE TR IBUNAL. 3. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSE RVED THAT THE DECISION OF THE TRIBUNAL IN THE CASE OF KOTAK S ECURITIES (SUPRA), RELIED UPON BY THE LEARNED CIT(APPEALS) IN HIS IMPUGNED ORDER WHILE GIVING RELIEF TO THE ASSESSEE ON THE ISSUE UNDER CONSIDERATION HAS BEEN SUBSEQUENTLY OVE RRULED BY THE HONBLE BOMBAY HIGH COURT VIDE ITS JUDGMENT DATED OCTOBER 21, 2011 PASSED IN ITA NO. 3111 OF 2009 WHE REIN IT IS HELD THAT WITH A VIEW TO REGULATE THE TRADING IN SECURITIES, FOUR DIMENSIONS SECURITIES INDIA PVT. LTD. ITA NO.322 & 790/MUM/2009 & ORS CASES 22 THE STOCK EXCHANGE PROVIDES RISK MANAGEMENT AND SURVEILLANCE TO THE STOCK BROKERS TO ENSURE THE SAF ETY OF THE MARKET. IT IS HELD THAT THE SURVEILLANCE FUNCTION I NVOLVES PRICE MONITORING, EXPOSURE OF THE MEMBERS, RUMOUR VERIFIC ATION ON A DAILY BASIS AND REMEDIAL ACTIONS LIKE REDUCTION O F FILTERS, IMPOSITION OF SPECIAL MARGIN, SUSPENSION OF SCRIPS / MEMBERS. IT IS HELD THAT THESE ARE SOME OF THE IDENTIFIED MA NAGERIAL SERVICES RENDERED BY THE STOCK EXCHANGE FOR WHICH TRANSACTION CHARGES ARE LEVIED AND THE ASSESSEE WHO IS A STOCK BROKER IS LIABLE TO DEDUCT TAX AT SOURCE BEFO RE CREDITING THE TRANSACTION CHARGES TO THE ACCOUNT OF THE STOCK EXCHANGE AS PER THE PROVISIONS OF SECTION 194J. THIS ISSUE T HUS NOW STANDS COVERED IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE BY THE DECISION OF HONBLE BOMBAY HIGH COU RT IN THE CASE OF KOTAK SECURITIES LTD. (SUPRA) AND THIS POSITION HAS BEEN ACCEPTED EVEN BY THE LEARNED COUNSEL FOR THE A SSESSEE IN SO FAR AS THIS ASPECT OF THE ISSUE IS CONCERNED. 4. THE LEARNED COUNSEL FOR THE ASSESSEE, HOWEVER, H AS CONTENDED THAT THE DECISION OF THE TRIBUNAL HOLDING THAT DISALLOWANCE MADE BY THE AO ON ACCOUNT OF TRANSACTI ON CHARGES U/S 40(A)(IA) WAS NOT SUSTAINABLE, HAS BEEN FINALLY UPHELD BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF KOTAK SECURITIES LTD. (SUPRA) ON THE GROUND THAT TH E ASSESSEE HAD BONAFIDE REASON TO BELIEVE THAT THE TAX WAS NOT DEDUCTIBLE AT SOURCE FROM THE PAYMENT OF TRANSACTIO N CHARGES U/S 194J AND THE AO, THEREFORE, WAS NOT JUSTIFIED I N DISALLOWING THE TRANSACTION CHARGES BY INVOKING SEC TION 40(A)(IA) IN THIS CONTEXT, HE HAS INVITED OUR ATTEN TION TO THE FOUR DIMENSIONS SECURITIES INDIA PVT. LTD. ITA NO.322 & 790/MUM/2009 & ORS CASES 23 RELEVANT OBSERVATIONS RECORDED BY THE HONBLE HIGH COURT IN PARAGRAPH NO. 31 OF THE JUDGMENT WHICH IS EXTRACTED BELOW : THE OBJECT OF INTRODUCING SECTION 40(A)(IA) AS EX PLAINED IN THE CBDT CIRCULAR NO. 5 DATED 15/7/2005 IS TO AU GMENT COMPLIANCE OF TDS PROVISIONS IN THE CASE OF RESIDEN TS AND CURB BOGUS PAYMENTS. MOREOVER, THOUGH SECTION 194J WAS INSERTED WITH EFFECT FROM 1/7/1995, TILL THE ASSESS MENT YEAR IN QUESTION THAT IS AY 2005-06 BOTH THE REVENUE AND THE ASSESSEE PROCEEDED ON THE FOOTING THAT SECTION 194J WAS NOT APPLICABLE TO THE PAYMENT OF TRANSACTION CHARGES AN D ACCORDINGLY, DURING THE PERIOD FROM 1995 TO 2005 NE ITHER THE ASSESSEE HAS DEDUCTED TAX AT SOURCE WHILE CREDI TING THE TRANSACTION CHARGES TO THE ACCOUNT OF THE STOCK EXC HANGE NOR THE REVENUE HAS RAISED ANY OBJECTION OR INITIAT ED ANY PROCEEDINGS FOR NOT DEDUCING THE TAX AT SOURCE. IN THESE CIRCUMSTANCES, IF BOTH THE PARTIES FOR NEARLY A DEC ADE PROCEEDED ON THE FOOTING THAT SECTION 194J IS NOT A TTRACTED, THEN IN THE ASSESSMENT YEAR IN QUESTION, NO FAULT C AN BE FOUND WITH THE ASSESSEE IN NOT DEDUCTING THE TAX AT SOURCE UNDER SECTION 194J OF THE ACT AND CONSEQUENTLY, NO ACTION COULD BE TAKEN UNDER SECTION 40(A)(IA) OF THE ACT. IT IS RELEVANT TO NOTE THAT FROM AY 2006-07 THE ASSESSEE HAS BEEN DEDUCTING TAX AT SOURCE WHILE CREDITING THE TRANSAC TION CHARGES TO THE ACCOUNT OF THE STOCK EXCHANGE THOUGH NOT AS FEES FOR TECHNICAL SERVICES BUT AS ROYALTY. IT IS F URTHER RELEVANT TO NOTE THAT IT IS NOT THE CASE OF THE REV ENUE THAT ON ACCOUNT OF THE FAILURE ON THE PART OF THE ASSESSEE TO DEDUCT TAX AT SOURCE, THE REVENUE HAS SUFFERED PRESUMABLY BECAUSE, THE STOCK EXCHANGE HAS DISCHARGED ITS TAX LIABILITY FOR THE FOUR DIMENSIONS SECURITIES INDIA PVT. LTD. ITA NO.322 & 790/MUM/2009 & ORS CASES 24 ASSESSMENT YEAR IN QUESTION. IN ANY EVENT, IN THE F ACTS OF THE PRESENT CASE, IN VIEW OF THE UNDISPUTED DECADE OLD PRACTICE, THE ASSESSEE HAD BONAFIDE REASON TO BELIEVE THAT TH E TAX WAS NOT DEDUCTIBLE AT SOURCE UNDER SECTION 194J OF THE ACT AND, THEREFORE, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN INVOKING SECTION 40(A)(IA) OF THE ACT AND, THEREFORE, THE AS SESSING OFFICER WAS NOT JUSTIFIED IN INVOKING SECTION 40(A) (IA) OF THE ACT AND DISALLOWING THE BUSINESS EXPENDITURE BY WAY OF TRANSACTION CHARGES INCURRED BY THE ASSESSEE. 5. THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMIT TED THAT THE RELEVANT FACT SITUATION INVOLVED IN THE PRESENT CASE IS SIMILAR TO THE ONE INVOLVED IN THE CASE OF KOTAK SE CURITIES LTD. (SUPRA) ON THE BASIS OF WHICH THE ASSESSEE IN THAT CASE WAS HELD TO HAVE BONAFIDE REASON TO BELIEVE THAT TA X WAS NOT DEDUCTIBLE AT SOURCE FROM THE PAYMENT OF TRANSACTIO N CHARGES U/S 194J. HE HAS CONTENDED THAT THIS PART OF THE JU DGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF KOTAK SECURITIES LTD. (SUPRA) THUS IS IN FAVOUR OF THE AS SESSEE IN THE PRESENT CASE AND THE IMPUGNED ORDER OF THE LEARNED CIT(APPEALS) GIVING RELIEF TO THE ASSESSEE BY DELET ING THE DISALLOWANCE MADE BY THE AO U/S 40(A)(IA) DESERVES TO BE UPHELD BY FOLLOWING THE SAME. HE HAS ALSO MADE AN A TTEMPT TO DEMONSTRATE THAT THE FACTS INVOLVED IN THE PRESE NT CASE ARE SIMILAR TO THE FACTS INVOLVED IN THE CASE OF KOTAK SECURITIES LTD. (SUPRA) WHICH FORMED THE BASIS OF THE RELIEF G IVEN BY THE HONBLE BOMBAY HIGH COURT. WE HAVE ALSO HEARD THE LEARNED DR ON THIS ISSUE. 6. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD, WE FIND MERIT IN THE C ONTENTION FOUR DIMENSIONS SECURITIES INDIA PVT. LTD. ITA NO.322 & 790/MUM/2009 & ORS CASES 25 OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE DI SALLOWANCE MADE BY THE AO ON ACCOUNT OF TRANSACTION CHARGES BY INVOKING SECTION 40(A)(IA) HAS BEEN FINALLY HELD TO BE UNSUSTAINABLE BY THE HONBLE BOMBAY HIGH COURT IN T HE CASE OF KOTAK SECURITIES LTD. (SUPRA) ON THE GROUND THAT THE ASSESSEE, IN THE FACTS AND CIRCUMSTANCES INVOLVED I N THAT CASE, HAD BONAFIDE REASON TO BELIEVE THAT THE TAX WAS NOT DEDUCTIBLE AT SOURCE FROM THE PAYMENT OF TRANSACTIO N CHARGES U/S 194J. ALTHOUGH THE LEARNED COUNSEL FOR THE ASSE SSEE HAS TRIED TO DEMONSTRATE BEFORE US THAT THE RELEVANT FA CTS INVOLVED IN THE PRESENT CASE ARE SIMILAR TO THE CASE OF KOTA K SECURITIES LTD. (SUPRA), WE ARE OF THE VIEW THAT THIS STAND OF THE ASSESSEE REQUIRES VERIFICATION SINCE THIS ASPECT OF THE MATT ER HAS COME UP FOR CONSIDERATION FOR THE FIRST TIME BEFORE THE TRIBUNAL. WE, THEREFORE, CONSIDER IT FAIR AND PROPER AND IN T HE INTEREST OF JUSTICE TO RESTORE THIS ISSUE TO THE FILE OF THE AO FOR VERIFYING THE STAND OF THE ASSESSEE FROM THE RELEVA NT RECORD AND DECIDE THE SAME AFRESH ON SUCH VERIFICATION IN THE LIGHT OF GUIDELINES LAID DOWN BY THE HONBLE BOMBAY HIGH COU RT IN PARAGRAPH NO. 31 OF THE JUDGMENT AS EXTRACTED ABOVE . 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS TREA TED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 30TH DAY OF NOV.,2011. 6.3. IN VIEW OF THE ABOVE, WE DIRECT THE LD. ASSES SING OFFICER TO EXAMINE WHETHER THERE WAS A BONA FIDE BE LIEF AND AFTER EXAMINING THE FACTS DECIDE IN ACCORDANCE WITH LAW IN THE LIGHT OF THE DIRECTION CONTAINED IN THE AFORESAID O RDER OF THE FOUR DIMENSIONS SECURITIES INDIA PVT. LTD. ITA NO.322 & 790/MUM/2009 & ORS CASES 26 TRIBUNAL DATED 30/11/2011, THUS, THIS GROUND OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES ONLY. 7. SO FAR AS, GROUNDS NO 8 TO 12 ARE CONCERNED, TH ESE WERE CLAIMED TO BE COVERED BY THE DECISION FROM HON BLE JURISDICTIONAL HIGH COURT IN CIT VS ANGEL CAPITAL & DEBIT MARKET LTD. (ITA NO.475 OF 2011) ORDER DATED 28/07/ 2011. THIS FACTUAL MATRIX WAS NOT CONTROVERTED BY LD. DR. 7.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND T HAT SO FAR AS DELETING THE ADDITION MADE ON ACCOUNT OF PENALTY OF RS.76,410/-, ON VIOLATION OF BYE-LAWS OF STOCK EXCH ANGE, PENALTY IMPOSED UNDER SEBI RULES 1995 IS CONCERNED, THE HONBLE HIGH COURT HELD THAT SUCH PAYMENTS WERE NOT ON ACCOUNT OF INFRACTION OF LAW, HENCE, ALLOWABLE AS B USINESS EXPENDITURE AND FURTHER EXPLANATION TO SECTION 37 O F THE ACT WILL NOT APPLY. THIS GROUND OF THE REVENUE, IS THE REFORE, HAS NO MERIT. 8. THE LAST GROUND PERTAINS TO DELETING THE DISALLOWANCE OF PROTECTIVE ADDITION AMOUNTING TO RS.1,84,13,370/-, THE LD. DR DEFENDED THE DISALLOWA NCE MADE BY THE ASSESSING OFFICER. ON THE OTHER HAND, THE L D. COUNSEL FOR THE ASSESSEE CLAIMED THAT SUBSTANTIVE ADDITION WAS MADE IN A.Y. 2004-05, THEREFORE, PROTECTIVE ADDITION CAN NOT SURVIVE. IN VIEW OF THE ASSERTION OF THE LD. COUNSEL FOR THE ASSESSEE THAT SUBSTANTIVE ADDITION WAS MADE IN A.Y. 2004-05, PROT ECTIVE FOUR DIMENSIONS SECURITIES INDIA PVT. LTD. ITA NO.322 & 790/MUM/2009 & ORS CASES 27 ADDITION MADE IN A.Y. 2005-06 CANNOT SURVIVE, THERE FORE, WE FIND NO MERIT IN THE GROUND RAISED BY THE REVENUE. 9. NOW, WE SHALL TAKE UP APPEAL OF THE ASSESSEE (I TA NO.7252/MUM/2011) WHICH PERTAINS TO PENALTY OF RS.66,99,993/-, IMPOSED U/S 271(1)(C) OF THE ACT. T HE LD. COUNSEL FOR THE ASSESSEE EXPLAINED THAT PENALTY WAS LEVIED ON THREE ADDITIONS (I) THE AMOUNT OF RS.4,34,519/- WIT H RESPECT TO ADDITION MADE U/S 94(7) OF THE ACT ON TRANSACTION I N SHARES, (II) RS.92,462/- U/S 94(7), TRANSACTION IN UNITS, A ND (III) RS.92,94,104/- U/S 94(7), WHICH WAS CLAIMED TO BE CONSEQUENTIAL. SO FAR AS, THE FIRST ADDITION OF RS.4,34,519/- IS CONCERNED, IT WAS EXPLAINED BY THE LD. COUNSEL THAT MOMENT IT WAS POINTED OUT TO THE ASSESSEE BY THE ASSESSING OF FICER, THE ASSESSEE ACCEPTED THE BONA FIDE MISTAKE AND PAID TA XES. IT WAS PLEADED THAT SIMILAR MISTAKE WAS COMMITTED BY T HE ASSESSEE IN A.Y. 2006-07, WHEREIN, ON IDENTICAL FAC TS AND CIRCUMSTANCES, PENALTY WAS DELETED (ITA NO.2542/MUM /2012) PAGE-2 (PARA-2), ITA NO.5352/MUM/2009 AND ITA NO.1625/MUM/2012. THIS FACTUAL MATRIX WAS NOT CONTROVERTED BY THE LD. DR AND MERELY RELIANCE WAS PLACED UPON ASSESSMENT ORDER/COMMISSIONER OF INCOME TAX (APPEALS). 9.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. SO FAR AS , IMPOSITION FOUR DIMENSIONS SECURITIES INDIA PVT. LTD. ITA NO.322 & 790/MUM/2009 & ORS CASES 28 OF PENALTY U/S 94(7) OF THE ACT ON THE AMOUNT OF RS.92,94,104/- IS CONCERNED, THIS ISSUE HAS BEEN DE LIBERATED UPON BY US WHILE DEALING WITH GROUND NO.1 OF ITA NO.322/MUM/2009 (SUPRA), DECIDING IN FAVOUR OF THE ASSESSEE, THEREFORE, IT IS CONSEQUENTIAL IN NATURE. 9.2. SO FAR AS, PENALTY ON ACCOUNT OF DISALLOWANCE MADE U/S 94(7) FOR REDUCTION IN CLAIM OF REBATE U/S 88E ETC ARE CONCERNED, THE TRIBUNAL FOR A.Y. 2006-07 (ITA NO.2542/MUM/2012) ORDER DATED 16/01/2015 CONSIDERIN G THE DECISION IN CITY GROUP GLOBAL MARKETS INDIA PVT . LTD. (ITA NO.5352/MUM/2009 ORDER DATED 13/12/2011 AND RAMESH DAMANI (ITA NO.1625/MUM/2012) ORDER DATED 22/08/201 4 DELETED THE PENALTY WITH REFERENCE TO PROVISIONS OF SECTION 94(7) OF THE ACT AND WITH RESPECT TO PENALTY IMPOSE D ON ADDITION MADE FOR LEGAL AND PROFESSIONAL FEE, THE I SSUE WAS RESTORED BACK BY THE COMMISSIONER OF INCOME TAX (AP PEALS) TO THE ASSESSING OFFICER WITH A DIRECTION TO VERIFY TH E NATURE OF EXPENDITURE, THUS, THE PENALTY SO IMPOSED WAS SET A SIDE TO THE FILE OF ASSESSING OFFICER TO DECIDE AFRESH. IN THE LIGHT OF THESE CASES, WE DIRECT THE ASSESSING OFFICER TO DECIDE IN ACCORDANCE WITH LAW IN THE LIGHT OF THE DECISION DATED 16/01/2 015 IN THE CASE OF ASSESSEE FOR A.Y. 2006-07. 10. THE LAST APPEAL IS OF THE ASSESSEE (ITA NO.1011/MUM/2010), WHEREIN, FIRST GROUND RAISED BY THE ASSESSEE PERTAINS TO ENHANCING THE ASSESSMENT BY RE STRICTING THE CLAIM OF DEPRECIATION ON UPS AT RS.12,678/-, AP PLYING THE FOUR DIMENSIONS SECURITIES INDIA PVT. LTD. ITA NO.322 & 790/MUM/2009 & ORS CASES 29 RENT OF 10%, AGAINST THE DEPRECIATION OF RS.31,695/ -, GRANTED BY THE ASSESSING OFFICER AT THE RATE OF 25%. THE CR UX OF ARGUMENT ON BEHALF OF THE ASSESSEE IS THAT THE IMPU GNED ISSUE IS COVERED BY THE DECISION OF THE DELHI BENCH OF TH E TRIBUNAL IN EXPEDITORS INTERNATIONAL (INDIA) PRIVATE LTD. VS ADDL. CIT (ITA NO.2684/DEL/2005; (2008) 118 TTJ (DEL.) 652 OR DER DATED 29/08/2008, WHICH WAS CLAIMED TO BE AFFIRMED BY HON BLE DELHI HIGH COURT. THIS FACTUAL MATRIX WAS NOT CONTR OVERTED BY LD. DR. 10.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND T HAT THE HONBLE DELHI HIGH COURT IN CIT VS BSES YAMUNA POWE RS LTD. (ITA NO.1267/2010) ORDER DATED 31/08/2010 EXACTLY ON IDENTICAL ISSUE AS CONTAINED IN PARA 2 (PAGE-2) OF THE ORDER OF THE HONBLE DELHI HIGH COURT HELD THAT SINCE COMPUT ER ACCESSORIES AND PERIPHERALS SUCH AS PRINTERS, SCANN ERS AND SERVER ETC FORMS AN INTEGRAL PART OF COMPUTER SYSTE M CONSEQUENTLY, THEY ARE ENTITLED TO DEPRECIATION AT HIGHER RATE OF 60%, THUS, FOLLOWING THE AFORESAID DECISIONS, WE DIRECT THE ASSESSING OFFICER TO DECIDE IN THE LIGHT OF THE AFO RESAID DECISIONS. 11. THE NEXT GROUND I.E. NO. 2, PERTAINS TO CONFIR MING DISALLOWANCE OF RS.1,69,37,876/- MADE BY ASSESSING OFFICER U/S 14A OF THE ACT AS EXPENSES ATTRIBUTABLE TO EXEM PT DIVIDEND INCOME. THE LD. COUNSEL FOR THE ASSESSEE C ONTENDED THAT RULE-8D IS NOT APPLICABLE. WE ARE IN AGREEMEN T WITH THE PROPOSITION OF THE LD. COUNSEL THAT RULE 8D IS NOT APPLICABLE, FOUR DIMENSIONS SECURITIES INDIA PVT. LTD. ITA NO.322 & 790/MUM/2009 & ORS CASES 30 BEING ASSESSMENT YEAR INVOLVED IS 2006-07, THEREFOR E, WE REMAND THIS ISSUE TO THE FILE OF THE ASSESSING OFFI CER TO EXAMINE THE CLAIM OF THE ASSESSEE AND DECIDE IN THE LIGHT OF THE DECISION FROM HONBLE JURISDICTIONAL HIGH COURT IN GODREJ & BOYCE. THIS GROUND OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 12. THE NEXT GROUND PERTAINS TO DISALLOWANCE MADE ON ACCOUNT OF KEYMAN INSURANCE PREMIUM AT RS.60,000/-. ON HEARING THE RIVAL SUBMISSIONS, WE FIND THAT THIS IS SUE HAS BEEN DELIBERATED UPON BY US IN PRECEDING PARA OF THIS OR DER, THEREFORE, IT IS CONSEQUENTIAL IN NATURE. 13. THE LAST GROUND PERTAINS TO CONFIRMING THE ALLOCATION OF KEYMAN INSURANCE PREMIUM DATA BASE AC CESS CHARGES, TRAVELLING, CONVEYANCE, LEGAL AND PROFESSI ONAL FEE TO SHARE TRADING BUSINESS FOR THE PURPOSES OF COMPUTIN G REBATE U/S 88E OF THE ACT. THE LD. COUNSEL FOR THE ASSESSE E INVITED OUR ATTENTION TO THE DIRECTION BY THE LD. COMMISSIO NER OF INCOME TAX (APPEALS) TO THE LD. ASSESSING OFFICER. IT WAS CONTENDED THAT THE ASSESSING OFFICER MAY BE DIRECTE D TO FOLLOW THE DIRECTIONS OF THE LD. COMMISSIONER OF INCOME TA X (APPEALS). THE LD. DR PLACED RELIANCE UPON THE ORD ER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS). 13.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT FROM PARA 7 ONWARDS (PAGE-5) OF THE ORDER OF THE LD. COM MISSIONER FOUR DIMENSIONS SECURITIES INDIA PVT. LTD. ITA NO.322 & 790/MUM/2009 & ORS CASES 31 OF INCOME TAX (APPEALS), THE ISSUE HAS BEEN DISCUSS ED AND FINALLY ASSESSING OFFICER WAS DIRECTED TO VERIFY TH E NATURE OF EXPENDITURE AND THEN ALLOCATE SUCH EXPENSES AND REC OMPUTED THE REBATE U/S 88E OF THE ACT. WE FIND NO INFIRMITY IN THE DIRECTION OF THE COMMISSIONER OF INCOME TAX (APPEAL S), THEREFORE, THE ASSESSING OFFICER IS DIRECTED TO FOL LOW THE DIRECTION OF THE LD. FIRST APPELLATE AUTHORITY AND DECIDE IN ACCORDANCE WITH LAW. 13.2. THE ADDITIONAL GROUNDS RAISED IN ITA NO.1011/MUM/2010 WERE NOT PRESSED BY THE LD. COUNSE L FOR THE ASSESSEE, THEREFORE, THE ADDITIONAL GROUNDS ARE DISMISSED AS NOT PRESSED. FINALLY, ALL THESE APPEALS ARE DISPOSED OFF IN TERM S INDICATED HEREINABOVE. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LD. REPRESENTATIVES FROM BOTH SIDES AT THE CONCLUSION OF THE HEARING ON 22/09/2015. SD/ - (RAMIT KOCHAR) SD/ - (JOGINDER SINGH) ' # / ACCOUNTANT MEMBER $ # / JUDICIAL MEMBER MUMBAI; ) DATED : 28/10/2015 F{X~{T? P.S/. .. !%$&'()(*& / COPY OF THE ORDER FORWARDED TO : 1. -. / THE APPELLANT 2. /0-. / THE RESPONDENT. 3. 1 1 2' ( ) / THE CIT, MUMBAI. 4. 1 1 2' / CIT(A)- , MUMBAI 5. 4#5/' , 1 ' 6 , / DR, ITAT, MUMBAI FOUR DIMENSIONS SECURITIES INDIA PVT. LTD. ITA NO.322 & 790/MUM/2009 & ORS CASES 32 6. 7 / GUARD FILE. ! / BY ORDER, 04'/' //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI