NATIONAL SECURITIES CLEARING CORPORATION LTD, MUMBAI V. ADDL CIT RG 7(1), MUMBAI

ITA 3650/MUM/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4290 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 11 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-04-2016
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 19-02-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 09-05-2013
• Court: TRIBUNAL
• Assessee Lawyers: ARVIND SONDE
• Keywords: Depreciation; Business expenditure; Revenue expenditure; Capital expenditure
• Section: 143(3); 37(1); 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUM BAI BEFORE SHRI R.C. SHARMA, AM AND SHRI MAHAVIR SINGH, JM ITA NO. 3650/MUM/2013 (ASSESSMENT YEAR: 2007-08) NATIONAL SECURITIES CLEARING CORPORATION LTD. APPELLANT C-1, BLOCK-G, EXCHANGE PLAZA, BANDRA KURLA COMPLEX, BANDRA (EAST), MUMBAI-400 051. (PAN: AAACN2642L) VS. ADDL. COMMISSIONER OF INCOME-TAX, RANGE-7(1), AAYKAR BHAVAN, MUMBAI-400 020 RESPONDENT APPELLANT BY: ARVIND SONDE RESPONDENT BY: SANJEEV JAIN, DR DATE OF HEARING : 30.03.2016 DATE OF PRONOUNCEMENT : 15.04.2016 O R D E R PER MAHAVIR SINGH, JM: THIS APPEAL BY ASSESSEE IS DIRECTED AGAINST THE ORD ER OF CIT(A)-20, MUMBAI IN APPEAL NO. CIT(A)-20/ADDL.CIT-7(1)/IT-110 /09-10/2011-12 VIDE ORDER DATED 04.02.2013. ASSESSMENT WAS FRAMED BY ADDL.CIT, RANGE-7(1), MUMBAI U/S. 143(3) OF THE INCOME TAX AC T, 1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR AY 2007- 08 VIDE HIS ORDER DATED 24.11.2009. 2. THE FIRST ISSUE IN THIS APPEAL OF ASSESSEE IS AGAIN ST THE ORDER OF THE CIT(A) CONFIRMING THE DISALLOWANCE MADE BY AO O F SOFTWARE EXPENSES BY TREATING THE SAME AS CAPITAL IN NATURE. 3. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE HAS DEBI TED A SUM OF RS.65,53,250/- AS SOFTWARE EXPENSES IN ITS P&L ACCO UNT. THE ASSESSEE 2 ITA NO. 3650/MUM/2013 NATIONAL SECURITIES CLEARING CORPN.LTD. ASST. YEAR 2007-08 ITSELF HAS CAPITALIZED A SUM OF RS.55,52,783/- TO T HE FIXED ASSETS AND CLAIMED DEPRECIATION ON THE SAME. BALANCE SUM OF RS .10,00,467/- WAS CLAIMED AS REVENUE EXPENDITURE. THE AO CALLED FOR T HE DETAILS AND EXAMINED THE SAME. FROM THE DETAILS, THE AO NOTED THAT THIS AMOUNT CLAIMED AS REVENUE EXPENDITURE FOR A NUMBER OF ITEM S, WHICH RELATES TO PURCHASE OF VARIOUS SOFTWARE LICENCES. FOLLOWING A RE THE DETAILS OF SUCH LICENCES PURCHASED AND DEBITED AS REVENUE EXPENDITU RE: MFI EXPLORER USER LICENSE FEES & CONTENT CHARGES RENEWAL OF EXISTING SYMANTEC ANTIVIRUS DESKTOP LICE NSE RENEWAL OF EXISTING SYMANTEC ANTIVIRUS DESKTOP LICE NSE RENEWAL OF LOTUS NOTES LICENSE SUBSCRIPTION ADVANTAGE FOR CITRIX MAINFRAME XPA STA RTER SYSTEM (20 USER LICENSE) 3 YR. SOFTWARE SUBS FOR SECURITY SUITE PRODUCT TELERATE 8 EQUITIES PACKAGE RS.13,787 RS.1,50,430 RS.1,11,828 RS.1,54,937 RS.21,000 RS.46,361 RS.26,787 RS.5,25,130 ACCORDING TO AO, AS THE ASSESSEE HIMSELF HAS CLAIME D CAPITALIZATION OF SOFTWARE EXPENSES PARTLY AND PARTLY IT HAS CLAIMED AS REVENUE EXPENDITURE, IT IS DOUBLE STANDARD. ACCORDING TO A O, THESE ARE CAPITAL EXPENDITURE AND HE DISALLOWED THE CLAIM OF ASSESSEE AMOUNTING TO RS.5,25,130/-. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A). 4. CIT(A) RELYING ON THE DECISION OF TRIBUNAL IN ASSES SEES OWN CASE IN EARLIER YEARS CONFIRMED THE ACTION OF AO BY OBSE RVING IN PARA 6.3 AS UNDER: 6.3 I HAVE CONSIDERING THE ISSUE UNDER APPEAL. I FIND THAT ALL THESE EXPENSES REFERRED TO BY ASSESSING OFFICER ARE RELAT ED TO COMPUTER SOFTWARE. MFI EXPLORER USER LICENSE FEES IS DEFINIT ELY RELATED TO THE SOFTWARE SIMILARLY RENEWAL OF DESKTOP LICENSE AND L OTUS NOTE LICENSE IS RELATED TO SOFTWARE ITSELF HENCE IT HAS TO BE CA PITALIZED. THE SAME CANNOT BE CLAIMED AS REVENUE EXPENDITURE. SIMILAR I S THE FACT IN RESPECT OF SUBSCRIPTION ADVANTAGE FOR USE OF LICENS E AND THREE YEARS SOFTWARE SUBSCRIPTION FOR SECURITY SUIT PRODUCT IS ALSO FOUND TO BE RELATED TO SOFTWARE. THE FACT ON RECORD REVEALS THA T SOFTWARE EXPENSES ARE INCURRED BY NSEIL FOR COMMON BENEFIT O F NSEIL AND NSCCF (APPELLANT) THESE EXPENSES ARE SHARED BY THE BOTH THE COMPANIES NEVERTHELESS THE NATURE OF THE EXPENSES C ANNOT BE CHANGED WHEN IT IS RELATED TO SOFTWARE THEREFORE, I FIND FORCE IN THE 3 ITA NO. 3650/MUM/2013 NATIONAL SECURITIES CLEARING CORPN.LTD. ASST. YEAR 2007-08 ARGUMENT OF LD. ASSESSING OFFICER THAT IT IS CAPITA L EXPENDITURE. OBVIOUSLY APPELLANT CANNOT TAKE TWO STANDS, ONE IS IN RESPECT OF CAPITALIZATION OF SOFTWARE AND SECOND ONE IS IN RES PECT OF EXPENDITURE RELATING TO SOFTWARE. BOTH THE EXPENDIT URES ARE INTER- DEPENDENT AND INTER-MIXED, HENCE IT HAS TO BE CONSI DERED SIMULTANEOUSLY IN THE SAME BACKGROUND. THEREFORE, I FIND SUBSTANCE IN THE ARGUMENTS OF LD. ASSESSING OFFICER , THUS, DISALLOWANCE OF CLAIM OF REVENUE EXPENDITURE IS SUS TAINED. HOWEVER, THE RATE OF DEPRECIATION IS TO BED ALLOWED @ 60% AND NOT @ 25% AS HAS BEEN HELD BY THE HONBLE JURISDICTIONAL ITAT AS REFERRED TO EARLIER. THEREFORE, ASSESSING OFFICER IS DIRECT ED TO ALLOW DEPRECIATION @ 60% INSTEAD OF 25% ON SOFTWARE PURCH ASES EXPENSES OF RS.5,25,130/-. AGGRIEVED, ASSESSEE IS IN APPEAL BEFORE TRIBUNAL. 5. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FA CTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE EXPENS ES RELATE TO COMPUTER SOFTWARE. FROM THE DETAILS OF THE EXPENSES IT IS CLEAR THAT THESE SOFTWARE EXPENSES ARE INCURRED BY NSEIL FOR T HE COMMON BENEFIT OF NSEIL AND THE ASSESSEE AND BOTH HAVE SHARED THES E EXPENSES. WE FURTHER FIND THAT ALL SUCH EXPENSES ARE PERIODICAL IN NATURE AND MAINLY INCURRED FOR SOFTWARE UPGRADATION CHARGES, SUBSCRIP TION, ANNUAL LICENCE FEE ETC. THESE SOFTWARE EQUIPMENTS HAS SHORT LIFE S PAN HAVING NO ENDURING BENEFIT AND IT REQUIRES OFTEN CHANGE AND I N SUCH CIRCUMSTANCES, THE EXPENDITURE INCURRED FOR PURCHAS E OF THESE SOFTWARE IS CALLED AS REVENUE EXPENDITURE AND NOT CAPITAL IN NATURE. THIS ISSUE IS COVERED BY THE DECISION OF HONBLE BOMBAY HIGH COUR T IN THE CASE OF CIT VS. RAYCHEM RPG LTD. (2012) 346 ITR 138 (BOM), WHEREIN IT HAS BEEN HELD AS UNDER: HELD, (I) THAT THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2001-02 HAD ALLOWED THE SOFTWARE EX PENDITURE AS REVENUE EXPENDITURE FINDING THAT SOFTWARE DID NO T FORM PART OF THE PROFIT-MAKING APPARATUS OF THE ASSESSEE. FURTHE R, IT HELD THAT THE BUSINESS OF THE ASSESSEE WAS THAT OF MANUFACTUR ING OF TELECOMMUNICATION AND POWER CABLE ACCESSORIES AND T RADING IN OIL RETRACING SYSTEM AND OTHER PRODUCTS AND THE SOFTWAR E WAS AN ENTERPRISE RESOURCE PLANNING PACKAGE AND, HENCE, IT FACILITATED THE ASSESSEE'S TRADING OPERATIONS OR ENABLED THE MANAGE MENT TO CONDUCT THE ASSESSEE'S BUSINESS MORE EFFICIENTLY OR MORE PROFITABLY 4 ITA NO. 3650/MUM/2013 NATIONAL SECURITIES CLEARING CORPN.LTD. ASST. YEAR 2007-08 BUT IT WAS NOT IN THE NATURE OF PROFIT-MAKING APPAR ATUS. THEREFORE, THE EXPENDITURE WAS TO BE ALLOWED. IN VIEW OF THE ABOVE AND RESPECTFULLY FOLLOWING TH E DECISION CITED SUPRA, WE ALLOW THIS ISSUE OF ASSESSEES APPEAL. 6. THE NEXT ISSUE IN THIS APPEAL OF ASSESSEE IS AS REG ARDS TO THE ORDER OF CIT(A) CONFIRMING THE DISALLOWANCE OF EXCE SS LIABILITY WRITTEN BACK (DEBIT BALANCES) AMOUNTING TO RS.21,25,585/- B EING BUSINESS LOSS OCCURRED IN NORMAL COURSE OF ITS BUSINESS. FOR THI S, ASSESSEE HAS RAISED FOLLOWING GROUND NOS. 2.1 AND 2.2: 2.1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF EXCESS LIABILITY WRITTEN BACK (DEBIT BALANCE) AMOUNTING TO RS.21,25, 585/- WITHOUT APPRECIATING THE FACT THAT THE SAME REPRESENTS DIFF ERENTIAL LIABILITY ACCRUED TO THE APPELLANT IN THE NORMAL COURSE OF IT S BUSINESS ACTIVITY AND THAT THE SAME IS ALLOWABLE AS BUSINESS EXPENDIT URE/BUSINESS LOSS. 2.2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW THE LD. CIT(A) ERRED IN HOLDING THAT DIFFERENTIAL L IABILITY ON ACCOUNT OF MIS-MATCH WITH NCSS SYSTEM HAS NOT ACCRUED TO THE A PPELLANT WITHOUT APPRECIATING THAT ON REINSTATEMENT OF LIABI LITY BY THE APPELLANT THE SAME BEING PAYABLE TO MEMBERS IS AN A LLOWABLE BUSINESS EXPENDITURE U/S. 37(1) OF THE INCOME TAX A CT, 1961 OR AS A BUSINESS LOSS U/S. 28 OF THE INCOME TAX ACT, 1961. 7. BRIEFLY STATED FACTS ARE THAT THE AO DISALLOWED EXC ESS LIABILITY WRITTEN BACK BEING DEBIT BALANCES AMOUNTING TO RS.2 1,25,585/-. ACCORDING TO AO, THE ASSESSEE HAS DEBITED A NEGATIV E FIGURE UNDER THE HEAD OTHER INCOMES AND REDUCED THE TAXABLE INCOME. THE ASSESSEE BEFORE AO EXPLAINED THAT THIS EXPENDITURE IS ALLOWA BLE FOR THE REASON THAT SAME HAS BEEN CHARGED TO P&L ACCOUNT BY WAY OF DEBIT ENTRY UNDER THE HEAD OTHER INCOME. ACCORDINGLY, HE MADE CLAIM U/S. 41(1) OF THE ACT. BUT THE AO DISALLOWED THE CLAIM OF THE AS SESSEE BY HOLDING THAT THE SAME DOES NOT QUALIFY U/S. 41(1) OF THE AC T AS WELL AS U/S. 37(1) OF THE ACT. AGGRIEVED, ASSESSEE PREFERRED APPEAL B EFORE CIT(A), WHO ALSO CONFIRMED THE ACTION OF AO VIDE PARA 8.3 OF HIS APP ELLATE ORDER AS UNDER: 5 ITA NO. 3650/MUM/2013 NATIONAL SECURITIES CLEARING CORPN.LTD. ASST. YEAR 2007-08 8.3 I HAVE CONSIDERED THE FINDING OF THE ASSESSING OFFICER AND RIVAL SUBMISSION OF THE APPELLANT, CAREFULLY. I FIND THAT BY CREDITING NEGATIVE DEPOSITS OF RS.21,25,585/~ APPELLANT HAS SUPPRESSED THE TAXABLE INCOME BECAUSE THIS IS NOT AN EXPENDITURE WHICH IS TO BE A LLOWED. THE CLEARING MEMBERS OF THE APPELLANT ARE REQUIRED TO BRING IN S TIPULATED AMOUNT IN THE FORM OF INTEREST FREE SECURITY DEPOSITS AND SEC URITY DEPOSITS ARE AS A PART OF THEIR ADMISSION CONDITION. THE DAILY MARGIN S NOT MADE BY ADDITIONAL BASE CAPITAL NEVERTHELESS THAT LESS DEPO SITS CANNOT BE PART AND PARCEL OF REVENUE ACCOUNT BUT IS OF CAPITAL ACC OUNT. THE CLAIM THAT THIS LIABILITY WAS MORE IN NCSS SYSTEMS HENCE SAME IS BEING PAYABLE TO THE MEMBER IS ALLOWABLE EXPENDITURE, IS UNTENABLE B ECAUSE THAT IS NOT BUSINESS EXPENDITURE OF THE APPELLANT. SUCH DIFFERE NTIAL LIABILITY IS NOT ACCRUED TO THE APPELLANT IN RESPECT OF DAY TO DAY B USINESS ACTIVITY AND SAME CANNOT BE PRESUMED TO BE REVENUE IN NATURE. TH E AUDITOR HAS MENTION IN FORM NO.3CD, ANNEXURE 'H' THAT THIS IS P ROFIT CHARGEABLE TO TAX U/S.41 BUT THE FACT REVEALS THAT SUCH SECURITY DEPO SITS ARE NOT TAXABLE INCOME HENCE DIFFERENCES CANNOT BE PRESUMED TO BE C ESSATION OF LIABILITY OR TAXABLE INCOME OR ALLOWABLE EXPENDITURE. THEREFO RE, IN THE LIGHT OF THE ABOVE DISCUSSION, I FIND FORCE IN THE ARGUMENTS OF THE ASSESSING OFFICER. THE VARIOUS CASE LAWS REFERRED TO AND RELIED UPON B Y THE APPELLANT IN WRITTEN SUBMISSION ARE NOT APPLICABLE TO THE PECULI AR FACTS OF THE APPELLANT. IN THE CASE OF CIT VS. LAXMIVILAS BANK L TD. 220 ITR 305 (SC), IT HAS BEEN HELD THAT ASSESSEE BANK IN THE COURSE OF I TS BUSINESS PURCHASED SECURITIES FOR ITS CONSTITUENTS ON RECEIV ING CERTAIN PERCENTAGE OF FACE VALUE CALLED MARGIN MONEY IN DEPOSITS AND IF C ONSTITUENTS TADS TO PAY THE BALANCE, MARGIN MONEY IS FORFEITED AND SECU RITIES BECOMES PROPERTY OF THE ASSESSEE. SUCH MARGIN SO FORFEITED IS TAXABLE INCOME. HERE IS NOT THE CASE ALIKE. SIMILAR, IS THE SITUATI ON IN OTHER CITED CASES HENCE, I DO NOT SEE ANY MERIT IN THE ARGUMENTS ADVA NCED BY THE APPELLANT THROUGH WRITTEN SUBMISSION. THUS, IN VIEW OF THE AB OVE DISCUSSION I AM OF THE CONSIDERED OPINION THAT SUCH NEGATIVE DEBIT OF RS.21,25,585/- IS NOT AT ALL ALLOWABLE EXPENDITURE, HENCE, DISALLOWANCE M ADE BY THE ASSESSING OFFICER IS SUSTAINED. AGGRIEVED, ASSESSEE IS IN SECOND APPEAL BEFORE TRIB UNAL. 8. BEFORE US, LD. COUNSEL FOR THE ASSESSEE EXPLAINED T HE FACTS THAT THE ASSESSEE HAS COLLECTED STIPULATED AMOUNTS IN TH E FORM OF INTEREST FREE SECURITY DEPOSIT (IFSD) IN CASH AND SECURITY D EPOSITS IN CASH, BANK GUARANTEES, SECURITIES AND FDRS AS A PART OF THEIR ADMISSION AS A CLEARING MEMBER. THE MEMBERS ARE PROVIDED EXPOSURE BENEFITS ON THESE DEPOSITS AND MEMBERS ALSO BRING ADDITIONAL BASE CAP ITAL IN THE FORM OF CASH, BANK GUARANTEES, FDRS AND SECURITIES FOR ADDI TIONAL EXPOSURES AND ALSO FOR MEETING MARGIN REQUIREMENTS. HE ALSO EXPLAINED THAT DAILY MARGINS NOT MET BY ADDITIONAL BASE CAPITAL BUT IS C OLLECTED BY WAY OF 6 ITA NO. 3650/MUM/2013 NATIONAL SECURITIES CLEARING CORPN.LTD. ASST. YEAR 2007-08 CASH FROM MEMBERS THROUGH AN AUTOMATED PROCESS AT T HE END OF TRADING PLUS ONE DAY. HE ALSO EXPLAINED THAT IN SPECIFIC C ASES THERE COULD BE A COLLECTION OF AD HOC MARGINS ALSO. IN THIS WAY, HE EXPLAINED THAT THE IFSD IS REFUNDABLE ONLY AFTER THE MEMBER SURRENDERS HIS MEMBERSHIP AND MARGINS ARE RELEASED AUTOMATICALLY OR AT THE OP TION OF THE MEMBER. ACCORDING TO HIM, ASSESSEE MAINTAINS MEMBER WISE MA RGINS AND ADDITIONAL BASE CAPITAL COLLECTED AND ALSO AD HOC M ARGINS ARE LEVIED ON CERTAIN MEMBERS. HE EXPLAINED THAT IN THE ACCOUNTI NG RECORDS OF ASSESSEE THE MAIN ACCOUNT IS NOT REFLECTED MEMBER W ISE BUT WAS REFLECTED AS ONE CONSOLIDATED FIGURE IN RESPECT OF DAILY COLLECTION AND RELEASE OF TOTAL MARGINS. HE FURTHER EXPLAINED THA T IN INITIAL YEARS OF OPERATION BY ASSESSEE, THE ACCOUNTING ENTRIES WERE BEING PASSED ANNUALLY OR MONTHLY BASIS WHICH WAS LATER ON BEING MADE ON DAILY BASIS. IN SUBSEQUENT YEARS THE INTERFACE SYSTEM HA S BEEN AUTOMATED AND MADE SEAMLESS TO ENSURE THAT THE OUTPUT FROM TH E NCSS AUTOMATICALLY CREATES AN ENTRY FOR THE ACCOUNTING S YSTEM WITHOUT ANY MANUAL INTERVENTION. ACCORDINGLY, THERE WAS SOME O LD DIFFERENCES BETWEEN THE ACCOUNTING RECORDS AND MEMBER WISE RECO RDS MAINTAINED BY NCSS WITH RESPECT TO EARLIER YEARS WHEN THE INTE RFACE WAS MANUAL. HE EXPLAINED THAT THE ASSESSEE IN ITS BOARD MEETING FINALLY, AFTER RECONCILIATION OF FACTS AND FIGURES CAME TO KNOW TH AT AS ON 31.03.2007 AN AMOUNT OF RS.21.26 LACS IS TO BE WRITTEN OFF AS A ONE-TIME CORRECTIVE ACTION TO MATCH THE BALANCES OF MEMBER WISE RECORDS . LD. COUNSEL FOR THE ASSESSEE EXPLAINED THAT THIS EXCESS AMOUNT WAS RECONCILED WITH THE ACCOUNTS OF THE MEMBERS AND ONE-TIME PAYMENT WAS MA DE TO THEM AFTER FINDING THE RECONCILIATION. LD. COUNSEL FOR T HE ASSESSEE DREW OUR ATTENTION TO THE RECONCILIATION STATEMENT FILED AT PAGES 97 AND 98 OF ASSESSEES PAPER BOOK WHEREIN HE HAS RECONCILED THE ENTIRE FIGURE. LD. COUNSEL FOR THE ASSESSEE IN VIEW OF THESE FACTS STA TED THAT THIS IS NEITHER A CLAIM OF EXPENDITURE NOR REMISSION OF LIABILITY U /S. 41(1) OF THE ACT. LD. COUNSEL FOR THE ASSESSEE STATED THAT THIS IS CL EARLY A BUSINESS LOSS 7 ITA NO. 3650/MUM/2013 NATIONAL SECURITIES CLEARING CORPN.LTD. ASST. YEAR 2007-08 ALLOWABLE U/S. 28 OF THE ACT BEING DIFFERENTIAL LIA BILITY ON ACCOUNT OF MISMATCH WITH ASSESSEE AND NCSS SYSTEM AND THIS REI NSTATEMENT OF LIABILITY BY THE ASSESSEE BEING PAYABLE TO MEMBERS IS ALLOWABLE AS A BUSINESS LOSS U/S. 28 OF THE ACT. ACCORDING TO LD. COUNSEL, THIS DIFFERENTIAL LIABILITY IN THE DEBIT BALANCES OF THE ASSESSEE HAS OCCURRED IN THE NORMAL COURSE OF CARRYING ON BUSINESS AND IS IN CIDENTAL TO THE BUSINESS. ACCORDING TO HIM, THERE IS A DIRECT AND P ROXIMATE NEXUS BETWEEN THE BUSINESS OPERATION AND THE LIABILITY AN D THIS FACT THAT IT IS INCIDENTAL TO BUSINESS CANNOT BE DENIED BY ANY ONE. IN VIEW OF THIS, LD. COUNSEL FOR THE ASSESSEE RELIED ON THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF LORDS DAIRY FARM LTD. VS. CIT (1955) 27 ITR 700 (BOM) AND ALSO TRIBUNALS ORDER IN THE CASE OF ACIT VS. LORD KRISHNA BANK LTD. IN ITA NOS. 476, 581 & 716/COCH/2007 FOR AYS 2002-03 TO 2004-05 DATED 27.04.2012. 9. ON THE OTHER HAND, THE LD. SR. DR HEAVILY RELIED ON THE ORDERS OF THE CIT(A) AND ALSO THAT OF THE AO. 10. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FA CTS AND CIRCUMSTANCES OF THE CASE. WE FIND FROM THE FACTS O F THE CASE THAT THE ASSESSEE COLLECTED STIPULATED AMOUNTS IN THE FORM O F INTEREST FREE SECURITY DEPOSIT (IFSD) IN CASH AND SECURITY DEPOSI TS IN CASH, BANK GUARANTEES, SECURITIES AND FDRS AS A PART OF THEIR ADMISSION AS A CLEARING MEMBER. THE MEMBERS ARE PROVIDED EXPOSURE BENEFITS ON THESE DEPOSITS AND MEMBERS ALSO BRING ADDITIONAL BASE CAP ITAL IN THE FORM OF CASH, BANK GUARANTEES, FDRS AND SECURITIES FOR ADDI TIONAL EXPOSURES AND ALSO FOR MEETING MARGIN REQUIREMENTS. THE ASSE SSEE ALSO COLLECTED BY WAY OF CASH FROM MEMBERS THROUGH AN AUTOMATED PR OCESS AT THE END OF TRADING PLUS ONE DAY AS DAILY MARGINS, WHICH WAS NOT MEET BY BASE CAPITAL. IT IS CLEAR THAT THE IFSD IS REFUNDABLE ON LY AFTER THE MEMBER SURRENDERS HIS MEMBERSHIP AND MARGINS ARE RELEASED AUTOMATICALLY OR AT THE OPTION OF THE MEMBER. WE FIND FROM THE FACTS THAT ASSESSEE MAINTAINS MEMBER WISE MARGINS AND ADDITIONAL BASE C APITAL COLLECTED 8 ITA NO. 3650/MUM/2013 NATIONAL SECURITIES CLEARING CORPN.LTD. ASST. YEAR 2007-08 AND ALSO AD HOC MARGINS ARE LEVIED ON CERTAIN MEMBE RS. FACTUALLY, AS PER THE ACCOUNTING RECORDS OF ASSESSEE, THE MAIN AC COUNT IS NOT REFLECTED MEMBER WISE BUT WAS REFLECTED AS ONE CONS OLIDATED FIGURE IN RESPECT OF DAILY COLLECTION AND RELEASE OF TOTAL MA RGINS. AND IN INITIAL YEARS OF OPERATION, ACCOUNTING ENTRIES WERE BEING P ASSED ANNUALLY OR MONTHLY BASIS WHICH WAS LATER ON BEING MADE ON DAIL Y BASIS. IN SUBSEQUENT YEARS THE INTERFACE SYSTEM HAS BEEN AUTO MATED AND MADE SEAMLESS TO ENSURE THAT THE OUTPUT FROM THE NCSS AU TOMATICALLY CREATES AN ENTRY FOR THE ACCOUNTING SYSTEM WITHOUT ANY MANUAL INTERVENTION. ACCORDINGLY, THERE WAS SOME OLD DIFF ERENCES BETWEEN THE ACCOUNTING RECORDS AND MEMBER WISE RECORDS MAINTAIN ED BY NCSS WITH RESPECT TO EARLIER YEARS WHEN THE INTERFACE WAS MAN UAL. AS EXPLAINED BY LD. COUNSEL, THE ASSESSEE IN ITS BOARD MEETING FINA LLY, AFTER RECONCILIATION OF FACTS AND FIGURES CAME TO KNOW TH AT AS ON 31.03.2007 AN AMOUNT OF RS.21.26 LACS IS TO BE WRITTEN OFF AS A ONE-TIME CORRECTIVE ACTION TO MATCH THE BALANCES OF MEMBER WISE RECORDS , IT RECTIFIED THE SAME. WE ALSO FIND THAT THIS EXCESS AMOUNT WAS REC ONCILED WITH THE ACCOUNTS OF THE MEMBERS AND ONE-TIME PAYMENT WAS MA DE TO THEM AFTER FINDING THE RECONCILIATION. FOR THIS WE HAVE GONE THROUGH THE RECONCILIATION STATEMENT FILED AT PAGES 97 AND 98 O F ASSESSEES PAPER BOOK WHEREIN HE HAS RECONCILED THE ENTIRE FIGURE. I N VIEW OF THE ABOVE WE FIND THAT THE ASSESSEE MADE THIS CLAIM U/S 41(1) OF THE ACT. AS EXPLAINED BY LD. COUNSEL FOR THE ASSESSEE, IN VIEW OF THESE FACTS, THAT THIS IS NEITHER A CLAIM OF EXPENDITURE NOR REMISSIO N OF LIABILITY U/S. 41(1) OF THE ACT. LD. COUNSEL FOR THE ASSESSEE STA TED THAT THIS IS CLEARLY A BUSINESS LOSS ALLOWABLE U/S. 28 OF THE ACT BEING DIFFERENTIAL LIABILITY ON ACCOUNT OF MISMATCH WITH ASSESSEE AND NCSS SYSTEM, AND THIS REINSTATEMENT OF LIABILITY BY THE ASSESSEE BEING PA YABLE TO MEMBERS IS ALLOWABLE AS A BUSINESS LOSS U/S. 28 OF THE ACT. WE ARE OF THE VIEW THAT THIS DIFFERENTIAL LIABILITY IN THE DEBIT BALANCES O F THE ASSESSEE HAS OCCURRED IN THE NORMAL COURSE OF CARRYING ON BUSINE SS AND IS INCIDENTAL 9 ITA NO. 3650/MUM/2013 NATIONAL SECURITIES CLEARING CORPN.LTD. ASST. YEAR 2007-08 TO THE BUSINESS AND THIS HAS A DIRECT AND PROXIMATE NEXUS BETWEEN THE BUSINESS OPERATION AND THE LIABILITY. 11. THIS VIEW OF OURS IS SUPPORTED BY THE JUDGMENT OF H ONBLE BOMBAY HIGH COURT IN THE CASE OF LORDS DAIRY FARM LTD. VS. CIT (1955) 27 ITR 700 (BOM), WHEREIN IT IS HELD THAT THE DEDUC TIONS PERMISSIBLE U/S. 10(2) OF THE ACT (UNDER OLD ACT OF 1922), IF T HERE IS ANY LOSS WHICH FROM THE COMMERCIAL POINT OF VIEW CAN BE CONSIDERED TO BE A TRADING LOSS, THEN THAT LOST MUST BE DEDUCTED BEFORE THE TR UE PROFIT CAN BE ASCERTAINED. IF A LOSS CAUSED TO A BUSINESSMAN BY ANY REASON WHICH CAN BE PROVED BY EVIDENCE THAT THE CLAIM IS GENUINE , THEN ASSESSEE WOULD BE ENTITLED TO DEDUCT THAT LOSS ALTHOUGH SUCH A LOSS MAY NOT FALL WITHIN THE AMBIT OF ANY OF THE DEDUCTION MENTIONED IN SECTION 10(2) OF THE ACT. IT WAS FURTHER HELD BY HONBLE HIGH COURT THAT WHEN A BUSINESSMAN WRITES OFF AN AMOUNT AS A LOSS, THERE I S PRIMA FACIE EVIDENT THAT AMOUNT IS IRRECOVERABLE. THE DEPARTME NT CAN REBUT THE PRIMA FACIE INFERENCE BY DRAWING ATTENTION TO THE C IRCUMSTANCES OR BY LEADING SOME EVIDENCE TO SUGGEST THAT THE POSITION TAKEN UP BY THE ASSESSEE WAS NOT CORRECT. IN THE PRESENT CASE BEFO RE US, NO SUCH CIRCUMSTANCES WERE LED BY REVENUE. ACCORDINGLY, TH IS ISSUE IS COVERED BY THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF LORD DAIRY FARM LTD., SUPRA. THIS ISSUE OF ASSESSEES APPEAL IS ALLOWED. 12. IN THE RESULT, APPEAL FILED BY ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT 15TH APRIL, 2016 . SD/- SD/- (R.C. SHARMA) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 15TH APRIL, 2016 JD. SR. P.S. 10 ITA NO. 3650/MUM/2013 NATIONAL SECURITIES CLEARING CORPN.LTD. ASST. YEAR 2007-08 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. CIT(A) -20, MUMBAI 4. CIT- , MUMBAI 5. DR, B BENCH ITAT, MUMBAI 6. GUARD FILE. BY ORDER //TRUE COPY// (ASSTT. REGISTRAR) ITAT, MUMBAI