DCIT, Sirsa V. Sh. Arun Kumar Maheshwari, Sirsa

ITA 352/CHANDI/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5388 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 06-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ARUN KUMAR MAHESHWARI
• Keywords: Transactions in derivatives; TDS
• Section: 143(3); 40(a)(ia)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES B CHANDIGARH BEFORE SHRI D.K.SRIVASTAVA, ACCOUNTANT MEMBER AND MS SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO. 352/CHD/2011 ASSESSMENT YEAR: 2007-08 THE DCIT, VS. SHRI ARUN KUMAR MAHESHWARI, SIRSA PROP. M/S RANGOLI E-STOCK SIRSA PAN NO. AAXPM06701F (APPELLANT) (RESPONDENT) APPELLANT BY : SMT. SARITA KUMARI RESPONDENT BY: SHRI ARUN KUMAR MAHESHWARI ORDER PER SUSHMA CHOWLA, JM THE APPEAL BY THE REVENUE IS AGAINST THE ORDER OF C IT(A), ROHTAK DATED 24.1.2011 RELATING TO ASSESSMENT YEAR 2007-08 AGAINST THE ORDER PASSED UNDER SECTION 143(3) OF THE I.T. ACT, 1961. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 13,65,000/- MADE ON ACCOUNT OF UNREASONABLE EXPENSE S FOR SALARY AND ARBITRAGE COMMISSION. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 4,33,440/- MADE ON ACCOUNT OF EXPENSES DISALLOWED A S THE ASSESSEE HAD MADE THE PAYMENT UNDER THE HEAD 2 TECHNICAL ANALYSIS WITHOUT DEDUCTING THE TDS U/S 19 4J OF THE INCOME TAX ACT, 1961 AS PER PROVISIONS OF SECTION 40(A)(IA) OF THE INCOME TAX ACT, 1961. 3. THE ISSUE IS GROUND NO.1 RAISED BY THE REVENUE I S IN CONNECTION WITH DELETION OF RS. 13,65,000/-. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS ENGAGED IN THE BUSINESS OF SHARE TRADING INCLUDING SHARE FUTURE TR ADING. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD DEBITED AS SU M OF RS. 4,17,000/- ON ACCOUNT OF SALARY AND A SUM OF RS. 50,43,009/- ON A CCOUNT OF ARBITRAGE COMMISSION TO ITS PROFIT AND LOSS ACCOUNT. THE EXP LANATION OF THE ASSESSEE IN RESPECT OF THE ARBITRAGE COMMISSION WAS THAT IT WAS PAID TO THE OPERATOR WHO WORKS ON BEHALF OF THE ASSESSEE ON COM MISSION BASIS. THE CLAIM OF THE ASSESSEE WAS THAT SIMILAR COMMISSION W AS PAID TO THE ARBITRARIES DIRECTLY RELATING TO THE ARBITRAGE PROF IT. IT WAS AGREED UPON BY THE ASSESSEE THAT THE SAID OPERATORS WORK ON COMPUT ERS ON BEHALF OF THE ASSESSEE AND PURCHASE THE SHARES SPEEDILY AND ARE H IS EMPLOYEES AND ARE PAID SALARY IN THE SHAPE OF ARBITRAGE COMMISSION. THE ASSESSING OFFICER HELD THE ASSESSEE TO HAVE PAID SALARY TOTALING RS. 54,60,009/-. IT WAS FURTHER OBSERVED BY THE ASSESSING OFFICER THAT ASSE SSEE HAD NOT FURNISHED THE BASIS ON WHICH THE SAID ARBITRAGE COMMISSION WA S PAID TO THE EMPLOYEES. THE ASSESSING OFFICER FURTHER NOTED THA T THE ASSESSEE WAS CARRYING ON THE SHARE TRADING BUSINESS IN A COMMON PREMISES AT SIRSA FOR DIFFERENT CONCERNS AND THE ONLY DIFFERENCE AMONGST THEM WAS THE CODES ALLOTTED TO THEM BY THEIR BROKERS FOR SHARE TRADING . THE ASSESSING OFFICER FURTHER NOTED THAT THE SAID COMPUTERS WERE LYING UN DER THE SAME ROOF IN A COMMON HALL AND THE COMPUTER RELATING TO ONE CONCER N COULD BE OPERATED FOR DIFFERENT CODES AND OTHER PERSONS. THE ASSESSI NG OFFICER NOTED THAT 3 THE ASSESSEE HAD SHOWN HUGE EXPENSES ON ACCOUNT OF SALARY AND COMMISSION ALONGWITH OTHER CONCERNS. THE DETAILS OF THE ARBITRAGE COMMISSION PAID BY THE ASSESSEE ARE INCORPORATED UN DER PARA 4.1 AT PAGE 6 OF THE ASSESSMENT ORDER. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE ASSESSEE IN FIVE CONCERNS RELATED TO HIM HAD CLAIME D HUGE EXPENSES ON ACCOUNT OF SALARY AND ARBITRAGE COMMISSION, THOUGH HE WAS IN POSSESSION OF TWO COUNTERS / CABINS FOR RUNNING AND OPERATING THEIR BUSINESS OF SHARE TRADING AND COMMODITY TRADING. REJECTING THE EXPLA NATION OF THE ASSESSEE IN HOLDING THE EXPENSES ON ACCOUNT OF SALARY AND A RBITRAGE COMMISSION TO BE UNJUSTIFIED, ASSESSING OFFICER DISALLOWED 25% EX PENSES RESULTING IN ADDITION OF RS. 13,65,000/-. 5. THE EXPLANATION OF THE LD. AR FOR THE ASSESSEE B EFORE THE CIT WITH REGARD TO THE ARBITRAGE COMMISSION PAID BY THE ASSE SSEE WAS AS UNDER:- 5.2 ARBITRAGE COMMISSION HAS BEEN PAID TO THE ARBITRAGERS WHO WORK ON BEHALF OF THE ASSESSEE ON COMMISSION BASIS. THE ARBITRAGE BUSINESS IS DONE O N SHARING BASIS (COMMISSION) WITH THE ARBITRAGERS WHO HAVE CERTIFICATION ON NSE IN FINANCIAL MARKETS AND ARE EXPORTS IN SHARE MARKET HAVING HIGH LEVEL OF ANALYTICAL, LOGICAL ABILITIES AND COMPUTER SKILLS. THE ARBITRAGERS DEAL IN A PARTICULAR SHARE LISTED INDIFFERENT STOCK EXCHANGES AND HAVING DIFFERENT PRICES AT A POINT OF TIME AND MAKE PROFIT BY TAKING BENEFIT OF THE DIFFERENCE IN PRICE. HE HAS TO SPEE DLY PURCHASE THE SHARE IN ONE EXCHANGE AND SELL IT IN ANOTHER EXCHANGE FOR A HIGHER PRICE. COMMISSION IS OFFERED TO THE ARBITRAGERS TO MOTIVATE HIM AND EARN MORE PROFIT. THE ASSESSEE PROVIDES ONLY THE INFRACTURE AND INVESTMENT FOR DOING HIS BUSINESS. ON THE OTHER HAND, ARBITRAGER INVESTS HIS TIME AND ABI LITY IN THE BUSINESS AND EARNS PROFIT FOR THE ASSESSEE A ND FOR HIMSELF IN THE FORM OF COMMISSION. THE ASSESSE E PAID 33% I.E. RS.50.43 LACS ON THIS ACCOUNT AS COMMISSION AND EARNED ARBITRAGE PROFIT OF RS.152.84 LACS DURING THE YEAR. THE COMMISSION PAID TO THE ARBITRAGERS IS DIRECTLY RELATED TO THE ARBITRAGE PR OFIT AND WITHOUT EMPLOYING THE ARBITRAGERS, THIS PROFIT COULD NOT HAVE BEEN EARNED. COMPLETE DETAILS OF T HE 4 PERSONS TO WHOM THE COMMISSION WAS PAID ALOANGWITH PAN, CONFIRMATIONS AND COMPLETE ADDRESSES WERE FILE D WITH THE AO. FURTHER, A CHART CONTAINING THE BASIS OF PAYMENT OF COMMISSION WAS ALSO FILED. TDS WAS DEDUCTED AND DEPOSITED ON THE PAYMENT OF THIS COMMISSION. 5.3 THE ASSESSEE EARNED SUBSTANTIALLY HIGHER PROFIT IN THE CURRENT YEAR BY RESORTING TO ARBITRAGE DEALS IN A LARGE SCALE WHICH IS EVIDENT FROM THE TURNOVER ON F&O BEING RS.5575 CIRCUMSTANCES AND CASH TURNOVER BEING RS.1873 CIRCUMSTANCES. EACH ARBITRAGE OPERATOR WAS TRADING IN THE STOCK EXCHANGE ON HIS SEPARATE USER ID ALLOCATED BY THE BROKER M/S SMC GLOBAL SECURITIES LTD. TO THE ASSESSEE. 5.4 AS REGARDS THE CONTENTIONS OF THE AO THAT IT WAS N OT POSSIBLE FOR SO MANY OPERATORS TO SIT AND DO TRADIN G IN TWO CABINS, THE AR SUBMITTED THAT THE ASSESSEE W AS HAVING TWO ROOMS FOR HIS EXCLUSIVE USE. M/S SMC GLOBAL SECURITIES LTD., PRINCIPLE OF THE ASSESSEE T O WHOM AN AMOUNT OF RS.92.62 LACS HAS BEEN PAID ON ACCOUNT OF BROKERAGE BY THE ASSESSEE, WAS PROVIDING ALL THE FACILITIES TO THE ASSESSEE AS WERE BEING PROVIDED TO ANY OTHER CLIENT AND THESE FACILITIES INCLUDED SPACE, COMPUTERS ETC. THEREFORE, APART FR OM HIS OWN SPACE, THE ASSESSEE WAS USING THE SPACE OF BROKER AND THUS THE QUESTION OF NOT HAVING SUFFICIE NT SPACE DOES NOT ARISE. 6. THE SUBMISSIONS MADE BY THE LD. AR FOR THE ASSES SEE WERE FORWARDED TO THE ASSESSING OFFICER FOR HIS REPORT. IN THE REMAND PROCEEDINGS, THE ASSESSING OFFICER REPORTED THAT TH E ASSESSEE HAS SHIFTED BASE FROM SIRSA TO PANCHKULA AND THE PERSONS TO WHO M ARBITRAGE COMMISSION CLAIMED HAVE BEEN PAID WERE NOT AVAILABL E EVEN AT THE TIME OF COMPLETING OF THE ASSESSMENT, THEREFORE, THE ASSES SING OFFICER EXPRESSED HIS INABILITY TO CONDUCT THE NECESSARY ENQUIRIES. 7. THE CIT VIDE PARA 5.5 OBSERVED THAT IN VIEW OF T HE ABOVE, THE ASSESSEE WAS DIRECTED TO PRODUCE FOUR PERSONS ON A TEST CHECK BASIS ALONGWITH RELEVANT EVIDENCE TO WHOM ARBITRAGE COMMI SSION WAS PAID. THE REPLY OF THE ASSESSEE WAS THAT THE SAID PERSONS HAD LEFT THE JOB AND 5 WERE WORKING ELSEWHERE AS THE ASSESSEE HAD SHIFTED HIS BUSINESS FROM SIRSA TO PANCHKULA. HOWEVER, THE ASSESSEE FILED AF FIDAVIT OF FOUR PERSONS CONFIRMING THE RECEIPTS OF COMMISSION. IN ORDER TO EXAMINE THE GENUINENESS OF THE AFFIDAVITS FURNISHED BY THE LD. AR FOR THE ASSESSEE, SUMMONS WERE ISSUED TO THE SAID FOUR PERSONS TO FUR NISH DOCUMENTS / EVIDENCE AND TO PRESENT BEFORE THE CIT. IN RESPONS E TO WHICH THREE PERSONS ATTENDED AND FURNISHED ALL THE RELEVANT DOC UMENTS, CONFIRMED THE RECEIPT OF COMMISSION PAYMENT FROM THE ASSESSEE. T HE CIT THUS HELD AS UNDER:- 5.6 FFROM THE FACTS AS DISCUSSED ABOVE, IT IS EVID ENT THAT THE ASSESSEE HAS PAID ARBITRAGE COMMISSION TO THE ARBITRAGERS WHEREBY HE COULD SUBSTANTIALLY RAISE HI S PROFITS AND THE REQUISITE DETAILS, INCLUDING THE CONFIRMATI ONS, DEDUCTION ON TDS ETC WERE FURNISHED BEFORE THE ASSE SSING OFFICER. THE ACTION OF THE ASSESSING OFFICER IN DI SALLOWING 25% OF THE SALARY AND COMMISSION EXPENSES WITHOUT M AKING ENQUIRIES AND COLLECTING ADVERSE MATERIAL IS NOT IN ORDER. THEREFORE, THE DISALLOWANCE OF RS. 13,65,000/- MADE BY THE ASSESSING OFFICER IS DELETED AND THE GROUND OF APPE AL IS ALLOWED. 8. THE LD. DR FOR THE REVENUE HAS FAILED TO POINT OUT ANY CONTRARY EVIDENCE TO THE ORDER OF THE CIT. THE LD. AR FOR T HE ASSESSEE STRESSED THAT IN VIEW OF THE NATURE OF SALARY AND BUSINESS CARRIED ON BY THE ASSESSEE AND LOOKING INTO THE QUANTUM OF BUSINESS, THE AFORESAID EXPENDITURE INCURRED BY THE ASSESSEE IS FULLY ALLOW ABLE. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORDS. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, PART OF THE E XPENSES CLAIMED BY THE ASSESSEE ON ACCOUNT OF ARBITRAGE COMMISSION WERE DI SALLOWED THE ASSESSING OFFICER HOLDING THE SAME TO BE UNREASONAB LE AND UNJUSTIFIED. HOWEVER, ON TEST CHECK BASIS, PART OF THE EXPENSES WERE VERIFIED BY WAY 6 OF ISSUING OF SUMMONS TO THE SAID PARTIES, FOUR OF WHOM WERE PICKED UP ON TEST CHECK BASIS AND HAD FILED THEIR AFFIDAVITS CON FIRMING THE TRANSACTIONS AND THE RECEIPT OF PAYMENT. IN RESPONSE, THREE PER SONS APPEARED AND CONFIRMED RECEIPT OF PAYMENTS. IN THE ENTIRETY OF FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE IN CONFORMITY WITH THE ORDER OF THE CIT(A) IN ALLOWING THE CLAIM OF THE ASSESSEE IN ENTIRETY. THUS, THE GROUND NO. 1 RAISED BY THE REVENUE IS DISMISSED. 10. THE ISSUE RAISED IN GROUND NO.2 BY THE REVENUE IS ON ACCOUNT OF INVOKING THE PROVISIONS OF SECTION 40A(IA) OF THE A CT. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE EXPENDITURE OF RS. 4,33,440/- CLAIMED BY THE ASSESSEE ON ACCOUNT OF TECHNICAL ANALYSIS BEING PAID TO REUTERS INDIA (P) LTD WAS SUBJECT TO DEDUCTION AT SOURCE BEING CO VERED U/S 194J OF THE ACT. THE CLAIM OF THE ASSESSEE WAS THAT THE EXPENSE S FOR THE TECHNICAL SERVICES PROVIDED IN THE SHAPE OF DATA AND PRODUCTI ON RELATE TO SHARE MARKET. THE ASSESSING OFFICER REJECTING THE CLAIM OF THE ASSESSEE IN VIEW OF THE SERVICE TAX COLLECTED BY M/S RUTERS INDIA (P ) LTD HOLD THE ASSESSEE TO HAVE VIOLATED THE PROVISIONS OF SECTION 194J AN D IN VIEW OF THE PROVISIONS OF SECTION 40A(IA) OF THE ACT, THE SAID EXPENSES OF RS. 4,33,440/- WERE DISALLOWED. THE CIT VIDE PARA 4.1 HELD AS UNDER:- 4.1 I HAVE CONSIDERED THE ISSUE AND THE SUBMISSION S MADE BY THE AR. ADMITTEDLY, A REUTERS MAKES VARIOUS DAT A AVAILABLE ON LINE TO ITS CLIENTS. NO HUMAN INTERFA CE IS INVOLVED IN FURTHERING SUCH SERVICES. THEREFORE, A PPLYING THE RATIO OF CASE LAWS CITED BY THE AR, IT IS HELD THAT PAYMENTS TO REUTERS IS NOT COVERED UNDER THE PROVISIONS OF SECT ION 194J. IN VIEW OF THE ABOVE, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER U/S 40(A) (IA) IS DELETED AND THE GROUND OF APPEAL IS ALLOWED. 7 11. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORDS. THE ASSESSEE WHILE CARRYING ON HIS BUSINESS OF SHARE TR ADING AND FURTHER TRADING CLAIMS TO HAVE BEEN WORKING ON THE SYSTEM P ROVIDED BY M/S REUTERS INDIA (P) LTD WHICH IN TURN PROVIDES STOCK AND COMMODITY EXCHANGE DATA ONLINE BASIS AND EACH USER IS PROVIDE D WITH A USER ID AND PASSWORD THROUGH WHICH THE SAID DATA CAN BE DOWNLOA DED. THERE IS NO HUMAN INTERFACE IN PROVIDING THE ABOVE SAID DATA AN D THE SAID M/S REUTERS INDIA (P) LTD DO NOT PROVIDE ANY ANALYSIS OF THE DA TA, HENCE THE SAME IS NOT LIABLE TO THE DEDUCTION AT SOURCE. IN THE FA CTS AND CIRCUMSTANCES OF THE CASE, WE UPHOLD THE ORDER OF CIT IN HOLDING THA T SUCH PAYMENTS ARE NOT COVERED UNDER THE PROVISIONS OF SECTION 194J OF THE ACT AND ARE NOT LIABLE FOR TAX DEDUCTION. ACCORDINGLY, THE SAID EXPENSES ARE TO BE ALLOWED AS A DEDUCTION WHILE COMPUTING INCOME OF THE ASSESSEE. U PHOLDING THE ORDERS OF CIT(A), THE GROUND NO.2 RAISED BY THE REVENUE IS THUS DISMISSED 12. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 21 ST DAY OF JUNE, 2011. SD/- SD/- (D.K.SRIVASTAVA) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 21 ST JUNE, 2011 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR TRUE COPY BY ORDER ASSISTANT REGISTRAR, ITAT, CHANDIGARH 8