M/S. BALANCE EQUITY BROKING (INDIA) PVT. LTD, MUMBAI V. THE ACIT 4(1),

ITA 346/MUM/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 7204 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-03-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 25-03-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 16-01-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MOHAMMED USMAN
• Assessee Lawyers: K GOPAL SATENDRA PANDEY
• Keywords: Business income; Depreciation; Speculation loss; Set aside

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH I,MUMBAI BEFORE SMT.P.MADHAVI DEVI (J.M) & RAJENDRA SI NGH(A.M) ITA NO.346/MUM/08(A.Y. 2004-05) M/S. BALANCE EQUITY BROKING (INDIA) PVT. LTD. 21, MITTAL TOWERS, C-WING, NARIMAN POINT, MUMBAI 400 021. PAN: AABCB 6329B (APPELLANT) VS. THE ACIT 4(1), MUMBAI. (RESPONDENT) APPELLANT BY : S/SHRI K.GOPAL/ SATENDRA PANDEY RESPONDENT BY : SHRI MOHAMMED USMAN ORDER PER RAJENDRA SINGH, A.M, THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER DATED 21/11/2007 OF CIT(A) FOR THE ASSESSMENT YEAR 2004-05. IN THIS APPEAL THE ASSESSEE HAS RAISED DISPUTES ON THREE DIFFERENT GROUNDS. 2. THE FIRST DISPUTE IS REGARDING DISALLOWANCE OF L OSS OF RS.2,80,991/- CLAIMED BY THE ASSESSEE AS WRONG TRADE EXPENSES. THE ASSESSEE IS A SHARE BROKER. THE ASSESSEE EXPLAINED TO THE AO THAT THE WRONG TRADE EXPENSES W ERE THE LOSS ARISING ON ACCOUNT OF SQUARING UP OF PURCHASE AND SALE TRANSACTIONS OF TH E CLIENTS DUE TO MISTAKE IN EXECUTING THE ORDERS AS A RESULT OF WHICH THESE TRANSACTIONS WERE NOT OWNED UP BY THE CLIENTS AND THE ASSESSEE HAD TO ACCEPT THE LOSS. THE A.O WAS N OT SATISFIED WITH THE EXPLANATION. IT WAS OBSERVED BY HIM THAT VANDHA LOSS ARISING FROM WRONGLY EXECUTED TRADE ORDERS HAD BEEN ACCEPTED BY THE ASSESSEE WHO HAD OWNED UP THE LOSS AND ENTERED THE LOSS IN THE BOOKS OF ACCOUNT.. THEREFORE, THE A.O HELD THAT BAN DHA LOSS WAS IN THE NATURE OF TRADING LOSS INCURRED BY THE ASSESSEE ON ACCOUNT OF PURCHASE AND SALE OF SHARES AND ITA NO.346/MUM/08(A.Y. 2004-05) 2 THE PROVISIONS OF EXPLANATION TO SECTION 73 OF THE ACT WERE APPLICABLE AND ACCORDINGLY TREATED THE LOSS AS SPECULATION LOSS. IN APPEAL CI T(A) CONFIRMED THE ORDER OF THE AO, AGGRIEVED BY WHICH THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 2.1. BEFORE US LD. A.R SUBMITTED THAT THERE WAS NO DISPUTE THAT THE LOSS WAS VANDHA LOSS ARISING ON ACCOUNT OF WRONG EXECUTION OF ORDE RS PLACED BY THE CLIENTS AS THIS FACT HAD BEEN ACCEPTED EVEN BY THE AO. SUCH LOSS INCUR RED BY THE SHARE BROKER UNDER COMPULSION CANNOT BE TREATED AS SPECULATION LOSS UN DER THE PROVISIONS OF EXPLANATION TO SECTION 73 OF THE ACT. HE PLACED RELIANCE ON THE D ECISION OF THE AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF PARKER SECURITIES LTD. 102 TTJ 235 AND SOME OTHER DECISIONS OF THE TRIBUNAL. ACCORDINGLY IT WAS ARGUED THAT TH E ISSUE WAS COVERED IN FAVOUR OF THE ASSESSEE. THE LD. D.R ON THE OTHER HAND, SUPPORTED THE ORDERS OF REVENUE AUTHORITIES AND PLACED RELIANCE ON THE FINDINGS GIVEN IN THESE ORDERS. 2.2. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE ASSESSEE IS A SHARE BROKER WHO BUYS AND SELL SHARE S ON BEHALF OF THE CLIENTS. THE ASSESSEE DURING THE YEAR INCURRED VANDHA LOSS ARISI NG FROM WRONG EXECUTION OF ORDERS PLACED BY THE CLIENTS WHICH WERE NOT ACCEPTED BY TH E CLIENTS AND SUCH ORDERS HAD TO BE SQUARED UP AND THE LOSS OWNED BY THE ASSESSEE UNDER COMPULSION. THE ISSUE IS WHETHER SUCH LOSS CAN BE COVERED UNDER THE PROVISIO NS OF EXPLANATION TO SECTION 73 WHICH APPLIES WHEN PART OF BUSINESS OF ASSESSEE CON SISTS OF PURCHASE AND SALE OF SHARES OF OTHER COMPANIES. IN THIS CASE THE ASSESS EE HAD NOT DONE THE BUSINESS OF PURCHASE AND SALE OF SHARES. THE SHARE TRANSACTION S IN THIS CASE UNDERTAKEN ON BEHALF OF THE CLIENTS HAD TO BE SQUARED UP UNDER COMPULSIO N DUE TO MISTAKE IN EXECUTION OF ORDERS. SUCH LOSS ARISING, KNOWN AS VANDHA LOSS CA NNOT BE CONSIDERED AS LOSS ARISING FROM PURCHASE AND SALE OF SHARES BY THE ASSESSEE. THIS VIEW IS SUPPORTED BY THE ITA NO.346/MUM/08(A.Y. 2004-05) 3 DECISION OF THE TRIBUNAL IN THE CASE OF PARKER SECU RITIES LTD., 102 TTJ 235 , IN WHICH THE TRIBUNAL HELD THAT EXPLANATION TO SECTION 73 OF THE ACT IS ATTRACTED ONLY WHEN PART OF THE BUSINESS OF THE ASSESSEE COMPANY CONSISTS OF PURCHA SE AND SALE OF SHARES OF OTHER COMPANIES AND THE TRANSACTION IN SHARES UNDERTAKEN BY THE SHARE BROKER AS ITS OWN COMPULSION AFTER CERTAIN CLIENTS DISOWNED PART OF SUCH TRANSACTION DOES NOT CONSTITUTE BUSINESS OF THE ASSESSEE IN SHARE DEALING AND, THER EFORE, LOSS INCURRED IN SHARE TRANSACTION DOES NOT FALL WITHIN THE AMBIT OF EXPL ANATION TO SECTION 73 OF THE ACT.. THE ISSUE, THEREFORE, IS COVERED BY THE DECISION OF THE CO-ORDINATE BENCH AND NO CONTRARY DECISION OF ANY OTHER BENCH OR ANY HIGHER COURT HAS BEEN BROUGHT TO OUR NOTICE. THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF T RIBUNAL ( SUPRA), WE SET ASIDE THE ORDER OF THE CIT(A) AND ALLOW THE CLAIM OF THE ASSE SSEE. 3. THE SECOND DISPUTE IS REGARDING DISALLOWANCE OF SOFTWARE EXPENSES. THE ASSESSEE HAD INCURRED EXPENDITURE OF RS.8,85,045/- ON ACQUISITION OF SOFTWARE. THE A.O TREATED THE EXPENDITURE AS CAPITAL IN NATURE AN D DISALLOWED THE SAME. HE HOWEVER, ALLOWED THE DEPRECIATION AS PER RULES. IN APPEAL CIT(A) CONFIRMED THE ORDER OF AO, AGGRIEVED BY WHICH THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 3.1. AFTER HEARING BOTH THE APRTIES WE FIND THAT TH IS ISSUE IS COVERED BY THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF AM WAY INDIA ENTERPRISES, 111 ITD 112, IN WHICH THE SPECIAL BENCH AFTER CONSIDERING THE JU DGMENTS OF VARIOUS COURTS ON THE SUBJECT PRESCRIBED CERTAIN GUIDELINES FOR DETERMIN ING TRUE NATURE OF EXPENDITURE ON ACQUISITION OF SOFTWARE. BOTH THE PARTIES AGREED T HAT THE ISSUE MAY BE RESTORED TO THE AO FOR EXAMINATION OF THE CLAIM IN THE LIGHT OF DEC ISION OF THE SPECIAL BENCH. WE, THEREFORE, RESTORE THIS ISSUE TO THE FILE OF AO FOR FRESH DECISION AFTER NECESSARY ITA NO.346/MUM/08(A.Y. 2004-05) 4 EXAMINATION IN THE LIGHT OF THE DECISION OF THE SPE CIAL BENCH (SUPRA) AND AFTER ALLOWING OPPORTUNITY OF THE HEARING TO THE ASSESSEE. 4. THE THIRD DISPUTE IS REGARDING EXEMPTION OF DIVI DEND INCOME OF RS.41,652/- UNDER SECTION 10(34) OF THE I.T ACT. THE ASSESSEE HAD RE CEIVED DIVIDEND OF RS.41,652/- IN RESPECT OF SHARE PURCHASED ON BEHALF OF THE CLIENT S, WHICH REMAINED IN THE D-MAT ACCOUNT OF THE ASSESSEE ON THE RECORD DATE. THE AS SESSEE CLAIMED THE DIVIDEND AS EXEMPT UNDER SECTION 10(34) OF THE ACT. THE A.O O BSERVED THAT SUCH RECEIPT, AS THE ASSESSEE WAS NOT THE OWNER OF SHARES, HAD TO BE TRE ATED AS PART OF THE BUSINESS INCOME AND NOT DIVIDEND INCOME. ACCORDINGLY, HE DISALLOWE D THE CLAIM WHICH IN APPEAL WAS CONFIRMED BY CIT(A), AGGRIEVED BY WHICH THE ASSESSE E IS IN APPEAL BEFORE US. 4.1. BEFORE US. LD. A.R ARGUED THAT THE ASSESSEE HA D DIVIDEND INCOME ON ACCOUNT OF SHARES LYING IN ITS D-MAT ACCOUNT AND WHETHER THE DIVIDEND INCOME WAS ASSESSED AS BUSINESS INCOME OR INCOME FROM OTHER SOURCES, IT D ID NOT CHANGE THE CHARACTER OF INCOME AS DIVIDEND INCOME IN RESPECT OF WHICH TH E ASSESSEE WAS ENTITLED FOR EXEMPTION UNDER SECTION 10(34) OF THE ACT. THE LD. D.R ON THE OTHER HAND SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 4.2. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THERE IS NO DISPUTE THAT ASSESSEE HAD RECEIVED DIVI DEND FROM SHARES HELD BY IT IN THE D- MAT ACCOUNT ON THE RECORD DATE. THE DIVIDEND IS PA ID BY THE COMPANY TO A PERSON WHO IS A SHARE HOLDER ON THE RECORD DATE. UNDER THE P ROVISIONS OF SECTION 10(34), THE DIVIDEND RECEIVED BY THE ASSESSEE AS REFERRED TO IN SECTION 115O IS EXEMPT FROM TAX. SECTION 115O REFERS TO AMOUNT DECLARED, DISTRIBUTED OR PAID BY A DOMESTIC COMPANY AS DIVIDEND WHETHER OUT OF CURRENT PROFIT OR ACCUMULAT ED PROFIT. THERE IS NO DISPUTE THE DIVIDEND HAD BEEN DECLARED AND PAID BY A DOMESTIC C OMPANY TO THE ASSESSEE. ITA NO.346/MUM/08(A.Y. 2004-05) 5 THEREFORE, THE DIVIDEND INCOME WILL BE COVERED BY S ECTION 10(34) AND WILL BE EXEMPT FROM TAX. THE HEAD OF INCOME UNDER WHICH THE DIVID END INCOME MAY BE ASSESSED IN A PARTICULAR CASE DOES NOT ALTER THE CHARACTER OF INC OME AS DIVIDEND INCOME. THEREFORE, WE ARE OF THE VIEW THAT IRRESPECTIVE OF THE FACT WH ETHER THE DIVIDEND INCOME IS ASSESSED AS BUSINESS INCOME OR AS INCOME FROM OTHER SOURCES THE ASSESSEE WILL BE ENTITLED TO EXEMPTION UNDER SECTION 10(34) OF THE ACT. ACCORDI NGLY WE SET ASIDE THE ORDER OF THE CIT(A) AND ALLOW THE CLAIM OF THE ASSESSEE. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED IN TERMS OF THE ORDER ABOVE. ORDER PRONOUNCED ON THE 30 TH DAY OF MARCH, 2010. SD/- SD/- (P.MADHAVI DEVI) (RAJENDRA SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT. 30 TH MARCH, 2010 COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3 . THE CIT(A)CONCERNED 4. THE CIT,CITY -CONCERNED. 5. THE D.RI BENC H. (TRUE COPY) BY ORDER ASST. REGISTRAR, I TAT, MUMBAI BENCHES MUMBAI. VM. ITA NO.346/MUM/08(A.Y. 2004-05) 6 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER ITA NO.346/MUM/08(A.Y. 2004-05) 7 ITA NO.346/MUM/08(A.Y. 2004-05) 8