M/s. Span Securities Ltd., New Delhi V. ITO, New Delhi

ITA 3240/DEL/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 65681 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 3 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-10-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 21-08-2012
• Assessment Year: 2003-2004
• Appeal Filed On: 01-07-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SURJAN MOHANTY
• Assessee Lawyers: ASHOK MALIK
• Keywords: Business expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH G NEW DELHI) BEFORE SHRI I.C. SUDHIR, JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A. NO.3240/DEL/2010 ASSESSMENT YEAR : 2003-04 M/S SPAN SECURITIES LTD., ITO, B-23, IST FLOOR, WARD-9 (1), GK PART-I, NEW DELHI. V. NEW DELHI. (APPELLANT) (RESPONDENT) PAN /GIR/NO. PAN /GIR/NO. PAN /GIR/NO. PAN /GIR/NO.AAACS AAACS AAACS AAACS- -- -9770 9770 9770 9770- -- -Q QQ Q APPELLANT BY : SHRI ASHOK MALIK, FCA. RESPONDENT BY : SMT. SURJAN MOHANTY, SR. DR. ORDER PER TS KAPOOR, AM: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF LD CIT(A) DATED 27.3.2009. THE GROUNDS RAISED BY THE ASSESSEE ARE A S UNDER:- 1. THE LD CIT(A) HAS GROSSLY ERRED ON THE FACTS OF THE CASE AND IN LAW IN UPHOLDING THE FOLLOWING DISALLOWANCES MADE BY THE ASSESSING OFFICER: I) PAYMENT OF ` .99,808/- PAID TO NSE AS PENALTY FOR TRADING VIOLATION. II) DISALLOWANCE OF ` .42,493/- OUT OF TELEPHONE EXPENSES FOR PERSONAL USAGE. ITA NO3240/DEL/2010 2 III) DISALLOWANCE OF ` .22,123/- OUT OF BUSINESS PROMOTION EXPENSES ON AD HOC BASIS. 2. THE LD CIT(A) HAS GROSSLY ERRED ON THE FACTS OF THE CASE AND IN LAW IN UPHOLDING THE DISALLOWANCE OF THE HOUSE TAX PA ID AMOUNTING TO ` .2,21,014/- IN SPITE OF IT BEING ALLOWABLE AS PER PROVISO TO SECTION 23(1) OF THE INCOME TAX ACT, 1961 . 3. THE APPELLANT SEEKS LEAVE TO ADD OR TO AMEND THE FORE GOING GROUNDS OF APPEAL, IF IT BECOMES NECESSARY TO DO SO IN THE INTEREST OF JUSTICE. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMP ANY IS SHARE BROKER AND IS A MEMBER OF NATIONAL STOCK EXCHAN GE (NSE) AND AS PER ASSESSMENT ORDER DATED 22.3.2006 THE ASSESSEE IS MOSTLY D EALING ON ITS OWN BEHALF AND HAS A SMALL CLIENT BASE. THE RET URN OF INCOME FOR THE ASSESSMENT YEAR 2003-04 WAS FILED ON 28.11.2003 DECL ARING A LOSS OF ` .2,08,93,300/-. THE CASE WAS SELECTED FOR SCRUTINY AND DURING ASSESSMENT PROCEEDINGS VARIOUS DOCUMENTS/INFORMATION WERE FILED AS REQUIRED BY THE ASSESSING OFFICER. THE ASSESSING OFFICER M ADE THE FOLLOWING DISALLOWANCES:- 1. ` .99,808/- PAID TO NSE ON ACCOUNT OF VIOLATION OF TR ADING NORMS. 2. ` .42,493/- OUT OF TELEPHONE EXPENSES FOR PERSONAL USE. 3. ` .22,123/- OUT OF BUSINESS PROMOTION EXPENSES ON AD HOC B ASIS. 4. ` .2,21,014/- BEING HOUSE TAX PAID ON PROPERTY ALREADY SOLD. 3. AGGRIEVED THE ASSESSEE FILED APPEAL BEFORE LD CIT(A ). 4. THE LD CIT(A) AFTER GOING THROUGH THE SUBMISSIONS MA DE BY THE ASSESSEE THROUGH ITS LD AR UPHELD THE ADDITIONS MADE BY T HE ITA NO3240/DEL/2010 3 ASSESSING OFFICER. THE LD CIT(A) UPHELD THE ADDITION OF ` .99,808/- AS PAID TO NSE IN VIOLATION OF TRADING NORMS ON THE BASI S THAT THIS A PENALTY AND ASSESSEES PLEA THAT IT WAS FOR A TRADING OF FENCE AND WAS NOT AN OFFENCE AGAINST LAW WAS NOT ACCEPTED. THE DISAL LOWANCE OF ` .42,493/- OUT OF TELEPHONE EXPENSES WAS UPHELD BY LD C IT(A) AS THE ASSESSEE HAD NOT PRODUCED ANY LOG BOOK AND IN THE ABSENC E OF THE FACT THAT IT WAS NOT VERIFIABLE WHETHER ALL CALLS WERE MAD E FOR BUSINESS PURPOSES OR NOT. SIMILARLY, THE DISALLOWANCE OF ` .22,123/- WAS UPHELD AS THE DETAILS REGARDING PURPOSE, NUMBER OF PEOPLE AND RELATION TO BUSINESS ON WHOM HOTEL EXPENSES WERE INCURRED WAS NOT BRO UGHT BEFORE THE LD CIT(A). THE DISALLOWANCE OF ` .2,21,014/- WAS UPHELD BECAUSE THE TAX WAS PAID AFTER THE PROPERTY ON WHICH TAX WAS LEVIED HAS BEEN SOLD OUT. 5. DISSATISFIED WITH THE ORDER OF LD CIT(A), THE ASSESSEE FILED APPEAL BEFORE THIS TRIBUNAL. 6. AT THE OUTSET, THE LD AR TOOK US TO PAGE 13 & 14 O F PAPER BOOK WHEREIN THE DETAILS OF PENALTY IMPOSED BY NSE FROM TH E YEAR 1998-99 TO 2007-08 WAS PLACED. THE LD AR ARGUED THAT IN ALL THESE YEARS SIMILAR TYPE OF PENALTIES WERE IMPOSED BY NSE AND IN ALL THESE YEARS THESE WERE ALLOWED AS EXPENSES. HE FURTHER HIGHLIGHTED THAT ACTUALLY THESE WERE NOT IN THE FORM OF PENALTIES FOR VIOLATION OF A NY LAW BUT WERE IMPOSED FOR VIOLATION OF CERTAIN NORMS AND PROCEDURES WITH RESPECT TO DAILY MARGIN ETC. HE ALSO TOOK US TO PAGE 7 OF PAPER BOOK WHEREIN LD CIT(A) IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1996-97 HAD DELETED SIMILAR KIND OF PENALTY IMPOSED BY NSE. WITH RESPECT TO SECOND GROUND OF APPEAL, THE LD AR ARGUED THAT SINCE THE ASSE SSEE WAS A COMPANY AND DISALLOWANCE OF TELEPHONE EXPENSES FOR PER SONAL USAGE WAS NOT WARRANTED. HE RELIED UPON IN THE CASE OF DECI SION OF HON'BLE ITA NO3240/DEL/2010 4 DELHI BENCH B OF THE TRIBUNAL IN I.T.A. NO.2468/D EL/1997 WHEREIN HE HIGHLIGHTED THAT HON'BLE TRIBUNAL HAD DELETED THE D ISALLOWANCE OF TELEPHONE, POSTAGE, TELEX AND CAR EXPENSES ETC. IN THE CASE OF A COMPANY. RELIANCE WAS ALSO PLACED ON THE JUDGMENT OF HON'BLE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1998-99 WHEREIN 10% DISALLOWANCE IN RESPECT OF TELEPHONE EXPENSES WERE DELETED. IN RESPECT OF THIRD DISALLOWANCE OF ` .22,123/- ON AD HOC BASIS OUT OF BUSINESS PROMOTION EXPENSES, THE LD AR ARGUED THAT AD HO C DISALLOWANCE WAS NOT WARRANTED AS THE SAME WAS SPENT FOR BUSINESS PROMOTION EXPENSES. HE RELIED ON A DECISION OF JODHPUR BENCH OF THE TRIBUNAL IN I.T.A. NO.399/JODH/ WHEREIN HON'BLE TRI BUNAL HAD HELD THAT DISALLOWANCE WITHOUT POINTING OUT ANY SPECIFIC ITEM W AS NOT JUSTIFIED. IN RESPECT OF 4 TH DISALLOWANCE OF ` .2,21,014/- IN RESPECT OF HOUSE TAX PAID, THE LD AR SUBMITTED THAT THIS HOUSE TAX BELONGED TO TH E YEAR UNDER CONSIDERATION AND AS THE PROPERTY ON WHICH IT WAS IMPO SED HAD BEEN SOLD OUT AND ONE OF THE CONDITIONS SET OUT BY PURCHASER WAS THAT THIS LIABILITY OF HOUSE TAX WAS TO BE CLEARED BY THE ASSESSEE. THEREFORE, HE ARGUED THAT PAYMENT OF MUNICIPAL TAX WAS AN ALLOWABL E EXPENDITURE FOR THE PURPOSE OF CALCULATION OF INCOME FROM HOUSE P ROPERTY. 7. THE LD DR, ON THE OTHER HAND, ARGUED THAT ASSESSEE W AS ENGAGED IN THE BUSINESS OF SALE AND PURCHASE OF SHARES AND THERE WAS CONTRAVENTION OF LAW FOR WHICH THE ASSESSEE WAS PENALIZE D AND THEREFORE THE DISALLOWANCE OF PENALTY WAS JUSTIFIED. R ELIANCE WAS PLACED IN THE CASE OF RAJ WOOLLEN INDUSTRIES V. CIT 4 3 ITR 36. HE FURTHER ARGUED THAT NO LOG BOOK WAS MAINTAINED AND THERE WAS NO BIFURCATION FOR PERSONAL EXPENSES AND BUSINESS EXPENSES AND DISALLOWANCE WAS A VERY REASONABLE DISALLOWANCE. SIMILAR ARGUMENT WAS ADV ANCED FOR DISALLOWANCE OF PART OF BUSINESS PROMOTION EXPENSES. THE LD DR SUBMITTED THAT IT WAS NOT PROVED BEFORE ASSESSING OFFICER THAT ITA NO3240/DEL/2010 5 EXPENDITURE RELATED TO BUSINESS PROMOTION. ON THE LAST ADDITION OF HOUSE TAX, THE LD DR RELIED UPON THE ORDER OF ASSESSING OFFICER AND LD CIT(A). 8. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES A ND HAVE GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. AS RE GARDS DISALLOWANCE OF SO-CALLED PENALTY PAID TO NSE, WE HAVE GONE THROU GH THE PAPER BOOK PAGES 15 TO 17 WHEREIN VARIOUS FINES WERE IMPOSED TO TH E ASSESSEE ON ACCOUNT OF VIOLATION FOUND DURING INSPECTION OF BOOK S OF ACCOUNTS OF THE ASSESSEE. THE NATURE OF ASSESSEES BUSINESS IS THAT IT IS REGULA TED BY NSE AND NSE AS PART OF ITS EXERCISE TO KEEP CHECK ON M EMBERS KEEP ON CHECKING BOOKS OF ACCOUNTS FROM TIME TO TIME AND FOR VIOLATION OF PROCEDURE AND NORMS GENERALLY IMPOSES PENALTY, WHICH IN OUR OPINION, ARE NOT IN THE NATURE OF VIOLATION OF LAW AND HENCE CANNOT BE TERMED AS PENALTY. MOREOVER, THE ASSESSEE HAS BEEN PAYING THESE TYPES OF PENALTIES FROM 1998 ONWARDS TILL 2007-08 AND IN NONE OF THE YEARS THE SO-CALLED PENALTY WAS DISALLOWED. THEREFORE, WE ALLOW THE FIRST GROUND OF APPEAL WITH RESPECT TO PENALTY FOR TRADING VIOLAT ION. AS REGARDS THE DISALLOWANCE OF TELEPHONE EXPENSES AND BUSINESS PROMOTION EXPENSES AMOUNTING TO ` .42,493/- AND ` .22,123/- RESPECTIVELY WE OBSERVE THAT DISALLOWANCE OF TELEPHONE EXPENSES WAS MADE OF 20% OF T OTAL TELEPHONE EXPENSES WHICH INCLUDED TELEPHONE INSTALLED AT THE RESIDENCE OF A DIRECTOR AND PERSONAL USE OF THE TELEPH ONE CANNOT BE DENIED. THEREFORE, THE DISALLOWANCE OF 20% IS VERY RE ASONABLE DISALLOWANCE WHICH IS BASED UPON THE FACTS AND CIRCUMSTA NCES OF THE CASE. THE CASE LAW RELIED UPON BY LD AR DOES NOT SPECI FY WHETHER IN THAT CASE THE TELEPHONE WAS INSTALLED AT THE RESIDENCE OF DIRECTOR OR NOT. IN THE PRESENT CASE, IT IS CLEAR FROM THE FACTS OF THE CASE THAT THE TELEPHONE WAS INSTALLED AT THE RESIDENCE OF THE DIRECT OR AND ITS PERSONAL USE CANNOT BE DENIED. IN RESPECT OF THIRD DI SALLOWANCE WITH RESPECT TO BUSINESS PROMOTION, WE FIND FROM THE FACTS OF THE CASE THAT ITA NO3240/DEL/2010 6 ASSESSEE WAS GENERALLY ENGAGED IN TRADING OF SHARES ON ITS OWN ACCOUNT AND HAD SPENT AN AMOUNT OF ` .1,10,615/- AS BUSINESS PROMOTION EXPENSES, KEEPING IN VIEW THE FACTS OF THE CASE, THE DISALLOWANCE OF 20% IS REASONABLE ESPECIALLY KEEPING IN VIEW THE FACT THAT AS PER ASSESSMENT ORDER, THE ASSESSEE HAD VERY FEW CL IENTS. THE CASE LAW RELIED UPON BY LD AR RELATED TO DISALLOWANCE OF GENERAL EXPENSES WHICH WAS DIFFERENT FROM THE FACTS AND CIRCUMS TANCES OF THE PRESENT CASE. AS REGARDS LAST DISALLOWANCE OF MUNICIPAL TAX, WE FIND FROM PAGE 22 OF PAPER BOOK THAT PAYMENT WAS MADE BY THE ASSESSEE AND IT FELL IN THE YEAR UNDER APPEAL. GENERALLY, IT IS SEEN THAT AT THE TIME OF SALE OF PROPERTY, THE SELLER IS REQUIRED TO CL EAR ALL OUTSTANDING DUES OF MUNICIPAL TAXES IF ANY. THE ASSESSING OFFICER HAS MADE DISALLOWANCE ON THE BASIS THAT THE ASSESSEE HAD SOLD THE PROPERTY VIDE AGREEMENT TO SELL DATED 29.8.2002 AND WHEREAS THE DAT E OF TAX WAS 19.9.2002 I.E. AFTER THE DATE OF AGREEMENT TO SELL. HOWEVER, THE ASSESSING OFFICER HAS NOT APPRECIATED THE FACT THAT PAST ACCRUED TAXES AND LIABILITIES BEFORE THE DATE OF SALE HAS TO BE BORN E BY THE SELLER. NOR THE ASSESSING OFFICER HAS BROUGHT OUT ANY CONTRARY OBSERV ATION FROM THE AGREEMENT TO SELL FROM WHERE IT COULD BE SAID TH AT MUNICIPAL TAX WAS TO BE PAID BY THE PURCHASER. THEREFORE, IN OUR CO NSIDERED, OPINION, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AND UPHEL D BY THE LD CIT(A) WAS NOT JUSTIFIED. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PAR TLY ALLOWED. 10. ORDER PRONOUNCED IN THE OPEN COURT ON 12TH DAY OF OCTOBER, 2012. SD/- SD/- (I.C. SUDHIR) (T.S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DT. 12.10.2012. HMS ITA NO3240/DEL/2010 7 COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DEL HI. TRUE COPY. BY ORDER (ITAT, NEW DELHI). DATE OF HEARING 21.8.2012 DATE OF DICTATION 8.10.2012 DATE OF TYPING 8.10.2012 DATE OF ORDER SIGNED BY 12.10.2012 BOTH THE MEMBERS & PRONOUNCEMENT. DATE OF ORDER UPLOADED ON NET 15.10.2012 & SENT TO THE BENCH CONCERNED.