M/S. SVS SECURITIES PVT. LTD, MUMBAI V. THE ITO 4(2)(2), MUMBAI

ITA 3815/MUM/2006

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 3898 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-11-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 08-11-2010
• Assessment Year: 2002-2003
• Appeal Filed On: 15-06-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D SONGATE
• Assessee Lawyers: SANJAY PARIDA
• Keywords: Capital asset; Depreciation; Bad and doubtful debts; Capital expenditure; Set aside
• Section: 14A; 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E, MUMBAI BEFORE SHRI J. SUDHAKAR REDDY, A.M. AND SHRI V. DUR GA RAO, J.M. ITA NO. 3815/M/2006 ASSESSMENT YEAR: 2002-03 M/S SVS SECURITIES PVT. LTD., APPELLANT 32, KHATAU BUILDING, ALKESH DINESH MODI MARG, FORT, MUMBAI 400 023. (PAN AABCS5982K) VS. INCOME TAX OFFICER, 4(2)(2), RESPONDENT ROOM NO. 644, 6 TH FLOOR, AAYAKAR BHAVAN, MUMBAI 400 020. ITA NO. 4032/M/2006 ASSESSMENT YEAR: 2002-03 INCOME TAX OFFICER, 4(2)(2), APPELLANT ROOM NO. 644, 6 TH FLOOR, AAYAKAR BHAVAN, MUMBAI 400 020. VS. M/S SVS SECURITIES PVT. LTD., RESPONDENT 32, KHATAU BUILDING, ALKESH DINESH MODI MARG, FORT, MUMBAI 400 023. (PAN AABCS5982K) ASSESSEE BY : MR. SANJAY PARIDA REVENUE BY : MR. D. SONGATE ORDER PER V. DURGA RAO, J.M.: THESE ARE THE CROSS APPEALS DIRECTED AGAINST THE O RDER OF CIT(A)- IV, MUMBAI, PASSED ON 05/04/2006 FOR THE ASSESSMENT YEAR 2002-03. ITA NO. 3815 & 4032/M/06 SVS SECURITIES PVT. LTD.. 2 2. GROUND NO. A IS IN RESPECT OF DEPRECIATION ON NSE CARD FOR ` . 3,44,035/-. 3. THE ASSESSEE HAD CLAIMED DEPRECIATION OF ` . 3,44,035/- ON MEMBERSHIP RIGHT OF NSE, WHOSE OPENING W.D. V WAS ` . 13,76,141/-. AFTER EXAMINING THE ISSUE ELABORATELY IN THE ASSESS MENT ORDER, THE AO HELD THAT IT IS ABUNDANTLY CLEAR THAT THE MEMBERSHI P RIGHT IS NEITHER AN ASSET OF ANY FORM NOR THE OWNERSHIP VESTS WITH T HE ASSESSEE, THEREFORE, IT DOES NOT SATISFY THE CONDITIONS FOR T HE CLAIM OF DEPRECIATION AS PER PROVISIONS OF SECTION 32 OF THE ACT AND THE DEPRECIATION CLAIMED ON THIS RIGHT IS NOT ALLOWABLE . ACCORDINGLY, THE AO DISALLOWED THE DEPRECIATION CLAIM OF ` . 3,44,035/- ON NSE CARD. THE CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OF FICER. 4. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF TH E PARTIES AND PERUSED THE RECORD. WE FIND THAT THIS ISSUE IS SQUA RELY COVERED BY THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE O F TECHNO SHARES AND STOCKS LTD. V. CIT, 327 ITR 323 (SC) WHEREIN IT WAS HELD AS UNDER:- THE QUESTION WAS WHETHER THE ASSESSEE-COMPANY COULD CLAIM DEPRECIATION ON THE BOMBAY STOCK EXCHANGE MEMBERSHI P CARD HELD BY IT ON THE BASIS THAT IT WAS A LICENCE OR BUSINESS OR COMMERCIAL RIGHT OF A SIMILAR NATURE UNDER SECTION 32(1)(II) OF THE INCOME TAX ACT, 1961. THE AO AND THE CIT(A) HELD TH AT THE ASSESSEE COULD NOT CLAIM DEPRECIATION ON THE STOCK EXCHANGE MEMBERSHIP CARD; BUT THE APPELLATE TRIBUNAL HELD TH AT IT WAS AN INTANGIBLE ASSET AND THE ASSESSEE WAS ENTITLED TO D EPRECIATION THEREON UNDER SECTION 32(1)(II). THE HIGH COURT, ON APPEAL, HELD THAT THE BSE MEMBERSHIP CARD WAS ONLY A PERSONAL PR IVILEGE GRANTED TO A MEMBER TO TRADE IN SHARES ON THE FLOOR OF THE STOCK EXCHANGE AND THAT SUCH A PRIVILEGE WAS NOT A LICEN CE OR ANY OTHER BUSINESS OR COMMERCIAL RIGHT OF A SIMILAR NAT URE UNDER SECTION 32(1)9II). THE ASSESSEE APPEALED TO THE SUP REME COURT: HELD, REVERSING THE DECISION OF THE HIGH COURT, ON A CONSIDERATION OF THE BSE RULES, THAT THE RIGHT OF MEMBERSHIP WAS A BUSINESS OR COMMERCIAL RIGHT AND COULD BE SAID TO BE OWNED BY THE ASSESSEE AND USED FOR BUSINESS PURPOSES IN TERMS OF SECTION 32(1)(II). THE RIGHT OF MEMBERSHIP, WHICH INCLUDED THE RIGHT OF NO MINATION, WAS ITA NO. 3815 & 4032/M/06 SVS SECURITIES PVT. LTD.. 3 A LICENCE OR AKIN TO A LICENCE WHICH WAS ONE OF T HE ITEMS WHICH FELL IN SECTION 32(1)(II). THE RIGHT TO PARTICIPATE IN THE MARKET HAD AN ECONOMIC AND MONEY VALUE. IT WAS AN EXPENSE INCU RRED BY THE ASSESSEE WHICH SATISFIED THE TEST OF BEING A LICEN CE OR ANY OTHER BUSINESS OR COMMERCIAL RIGHT OF SIMILAR NATURE IN TERMS OF SECTION 32(1)(II). 5. IN VIEW OF THE RATIO LAID DOWN BY THE HONBLE SU PREME COURT IN THE CASE OF TECHNO SHARES AND STOCKS LTD. CITED SUP RA, WE SET ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE AO TO ALLOW THE DEPRECIATION CLAIM OF ` . ` . 3,44,035/- ON NSE CARD. THUS, THIS GROUND OF APP EAL OF THE ASSESSEE IS ALLOWED. 6. GROUND NO. B IS IN RESPECT OF DISALLOWANCE OF BA D DEBTS CLAIM OF ASSESSEE WITH RESPECT TO M/S KAILASH SECURITIES AMO UNTING TO ` . 3,34,830/- AND M/S FAIRDEAL INVESTMENT AMOUNTING TO ` . 4,21,449/-. 7. THE ASSESSEE HAD CLAIMED AN AMOUNT OF ` . 14,07,926/- ON ACCOUNT OF BAD DEBTS IN RESPECT OF THE FOLLOWING PA RTIES:- 1. IN RESPECT OF VARDHAMAN INVESTMENT AN AMOUNT OF ` . 6,51,646/- ON THE GROUND THAT THIS AMOUNT OUTSTANDI NG AS THE CLIENT ABSCONDING. THE ARBITRATION PROCEEDINGS LAUN CHED AGAINST THE CLIENT HAD TO BE COMPLETED EX-PARTE AS THE PART Y WAS NOT TRACEABLE. 2. IN RESPECT OF FAIRDEAL INVESTMENT AN AMOUNT OF ` . 4,21,449/- ON THE GROUND THAT LOSSES INCURRED BY THE CLIENT IN TRADES AND NON-HONOURING OF PAYMENT BY THE CLIENT. 3. IN RESPECT OF KAILASH SECURITIES AN AMOUNT OF ` . 3,34,830/- ON THE GROUND THAT CHEQUES GIVEN BY CLIENT STARTED BOUNCIN G. 8. THE EXPLANATION OF THE ASSESSEE BEFORE THE AO WA S THAT IT MADE EFFORTS TO COLLECT THE SAID AMOUNTS WHICH WERE OUTSTANDING FOR QUITE A LONG TIME BUT ULTIMATELY DECIDED NOT TO WASTE THEIR GOOD MONEY AF TER BAD MONEY AND WROTE OFF THE AMOUNTS. THE AO DID NOT ACCEPT THE EXPLANA TION OF THE ASSESSEE AND REJECTED THE CLAIM BY STATING THAT THE ONUS WAS ON THE ASSESSEE TO ESTABLISH ITA NO. 3815 & 4032/M/06 SVS SECURITIES PVT. LTD.. 4 THAT THE DEBT HAD BECOME BAD AND EVEN AFTER THE AME NDMENT IT WAS NOT SUFFICIENT TO CLAIM THE DEBT TO BE BAD MERELY ON TH E BASIS OF WRITING OFF OF THE DEBT IN THE BOOKS OF ACCOUNTS. BEFORE THE CIT(A), THE ASSESSEE CONTENDED THAT THE AO COMMITTED AN ERROR IN AS MUCH FACTS OF EACH CASE WOULD SHOW THAT THE ASSESSEE HAD CORRECTLY AND LEGALLY WRITTEN OF OUTSTANDING DEBTS. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE CIT(A) HELD THAT THE ISSUE HAD BEEN EXAMINED CAREFULLY AND FROM THE FACT S IT WAS APPARENT THAT NO EFFORT WAS MADE BY THE ASSESSEE TO RECOVER THE OUTS TANDING AMOUNT BOTH FROM M/S KAILASH SECURITIES AND M/S FAIRDEAL INVESTMENTS AND UNDER THE CIRCUMSTANCES THE AO WAS JUSTIFIED IN DISALLOWING T HE CLAIM OF BAD DEBT IN THE CASE OF M/S KAILASH SECURITIES AND M/S FAIRDEAL INVESTMENT AMOUNTING TO ` . 3,34,830/- AND ` . 4,21,449/- RESPECTIVELY. AS REGARDS THE CASE OF VARDHAMAN INVESTMENTS, THE CIT(A) HELD THAT FACTS I NDICATE THAT EFFORTS WERE INDEED MADE BY THE ASSESSEE TO RECOVER THE DUES BUT IN VAIN, THEREFORE, THE ASSESSEE IS ENTITLED TO THE ALLOWANCE OF BAD DEBT I N THIS CASE AND DIRECTED THE AO TO ALLOW THE CLAIM IN THE CASE OF VARDHAMAN INVE STMENTS. 9. AGGRIEVED BY THE ORDER OF CIT(A), BOTH THE ASSES SEE AND REVENUE FILED APPEALS ON THE GROUND THAT THE CIT(A) ERRED IN DISA LLOWING THE CLAIM IN RESPECT OF M/S KAILASH SECURITIES AND M/S FAIRDEAL INVESTMENT AMOUNTING TO ` . 3,34,830/- AND ` . 4,21,449/- RESPECTIVELY, BY THE ASSESSEE AND THE REVENUE (ITA NO. 4032/M/06) ON THE GROUND THAT THE CIT(A) E RRED IN ALLOWING THE CLAIM IN RESPECT OF VARDHAMAN INVESTMENTS. 10. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF TH E PARTIES AND PERUSED THE RECORD. WE FIND THAT THIS ISSUE IS COVERED BY T HE SPECIAL BENCH DECISION OF ITAT, MUMBAI BENCHES IN THE CASE OF DCIT VS. SHREYA S S. MORAKHIA IN ITA NO. 3374/MUM/2004 FOR ASSESSMENT YEAR 1998-99 VIDE ORDER DATED 16 TH JULY, 2010 WHEREIN THE BENCH HELD AS UNDER:- 32. KEEPING IN VIEW ALL THE FACTS OF THE CASE AND T HE LEGAL POSITION EMANATING FROM THE VARIOUS JUDICIAL PRONOUNCEMENTS AS DISCUSSED ABOVE, WE ARE OF THE VIEW THAT THE AMOUNT RECEIVABL E BY THE ASSESSEE, ITA NO. 3815 & 4032/M/06 SVS SECURITIES PVT. LTD.. 5 WHO IS A SHARE BROKER, FROM HIS CLIENTS AGAINST THE TRANSACTIONS OF PURCHASE OF SHARES ON THEIR BEHALF CONSTITUTES DEBT WHICH IS A TRADING DEBT. THE BROKERAGE/COMMISSION INCOME ARISING FROM SUCH TRANSACTIONS VERY MUCH FORMS PART OF THE SAID DEBT AND WHEN THE AMOUNT OF SUCH BROKERAGE/COMMISSION HAS BEEN TAKEN INTO ACCOUNT IN COMPUTATION OF INCOME OF THE ASSESSEE OF THE RELEVANT PREVIOUS YEA R OR ANY EARLIER YEAR, IT SATISFIES THE CONDITION STIPULATED IN SECT ION 36(2)(I) AND THE ASSESSEE IS ENTITLED TO DEDUCTION U/S 36(1)(VII) B Y WAY OF BAD DEBTS AFTER HAVING WRITTEN OF THE SAID DEBTS FROM HIS BOO KS OF ACCOUNT AS IRRECOVERABLE. WE, THEREFORE, ANSWER THE QUESTION R EFERRED TO THIS SPECIAL BENCH IN THE AFFIRMATIVE THAT IS IN FAVOUR OF THE ASSESSEE. 11. MOREOVER, THE ISSUE IS ALSO COVERED BY THE JUDG MENT OF THE HONBLE SUPREME COURT IN THE CASE OF TRF LTD. V. CIT, [2010 ] 323 ITR 397 (SC) WHEREIN THE APEX COURT HELD AS UNDER:- AFTER THE AMENDMENT OF SECTION 36(1)(VII) OF THE IN COME-TAX ACT, 1961, WITH EFFECT FROM APRIL 1, 1989, IN ORDER TO OBTAIN A DEDUCTION IN RELATION TO BAD DEBTS, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT, IN FACT, HAS BECOME IRRECOVERABLE, I T IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNT S OF THE ASSESSEE. THE SUPREME COURT ACCORDINGLY REMANDED THE MATTER T O THE AO TO EXAMINE, SOLELY TO THE EXTENT OF WRITE OFF, WHETHER THE DEBT OR PART THEREOF WAS WRITTEN OFF IN THE ACCOUNTS OF THE ASSE SSEE. 12. IN VIEW OF THE RATIOS LAID DOWN BY THE HONBLE SUPREME COURT AS WELL AS BY THE SPECIAL BENCH OF ITAT CITED SUPRA AN D BY TAKING INTO FACTS OF THE CASE UNDER CONSIDERATION, WE ARE OF TH E VIEW THAT IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DE BT, IN FACT, HAS BECOME IRRECOVERABLE, IT IS ENOUGH IF THE BAD DEBT IS WRIT TEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE AS HELD BY THE APEX CO URT IN THE CASE OF TRF LTD. THEREFORE, WE DIRECT THE AO TO ALLOW THE ENTIR E BAD DEBTS CLAIM OF ` . 14,07,926/- AND THE GROUND RAISED BY THE ASSESSEE I S ALLOWED AND THE GROUND RAISED BY THE REVENUE IS DISMISSED. 13. GROUND NO. C IS IN RESPECT OF DISALLOWANCE ON A CCOUNT OF SOFTWARE EXPENSES OF ` . 6,84,819/-. ITA NO. 3815 & 4032/M/06 SVS SECURITIES PVT. LTD.. 6 14. THE ASSESSEE HAD DEBITED AN AMOUNT OF ` . 7,35,819/- TO THE P&LA/C UNDER THE HEAD COMPUTER SOFTWARE EXPENSES. THE AO NOTICED THAT AN AMOUNT OF ` . 6,84,819/- WAS PAID TOWARDS PURCHASE OF SOFTWARE PRODUCTS FOR COMPUTER, THE DETAILS OF WHIC H WERE MENTIONED BY THE AO IN HIS ORDER AT PAGE 8 & 9. THE CONTENTIO N OF THE ASSESSEE WAS THAT THE PURCHASE OF SOFTWARE DOES NOT GIVE BEN EFIT OF ENDURING NATURE AND HENCE DOES NOT CREATE CAPITAL ASSETS. AF TER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE AO DISALLOWED THE AMOUNT OF ` . 7,35,819/- BEING CAPITAL IN NATURE ON THE GROUND TH AT THE SOFTWARE PRESCRIBED FOR THE BROKING MEMBERS BY THE STOCK EXC HANGE OR OTHERWISE HAS BEEN WITH A VIEW CONSIDERING THE CONT INUITY OF THE TRANSACTION OR USE OVER A PERIOD OF TIME AS THE PRO DUCT REMAINS USABLE FOR A PERIOD OF TIME AND GIVES BENEFIT OF ENDURING NATURE. THE CIT(A) CONFIRMED THE ACTION OF THE AO OBSERVING THAT THE A O HAS CORRECTLY SEGREGATED THE VARIOUS ITEMS OF EXPENDITURE AS EACH ITEM CLEARLY SHOWS THAT SOFTWARES ACQUIRED WERE ESSENTIAL FOR TH E SYSTEM TO FUNCTION AND ARE NOT APPLICATION PROCESS BASED SOFT WARE. 15. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF TH E PARTIES AND PERUSED THE RECORD. WE FIND THAT THIS ISSUE IS COVE RED BY THE SPECIAL BENCH DECISION OF ITAT, DELHI IN THE CASE OF AMWAY INDIA ENTERPRISES V. DCIT, 111 ITD 112 (DEL.) WHEREIN THE ITA HELD AS UNDER:- THE FOLLOWING FACTORS WOULD BE RELEVANT TO DETERMI NE WHETHER THE ADVANTAGE OPERATES IN THE CAPITAL FIELD OR REVENUE FIELD(I) NATURE OF BUSINESS OF THE ASSESSEE : IT IS NECESSAR Y TO OBTAIN AN UNDERSTANDING OF THE BUSINESS FUNCTION OR EFFECT OF A CONCERN S SOFTWARE. SOFTWARE NORMALLY FUNCTIONS AS A TOOL ENA BLING BUSINESS TO BE CARRIED ON MORE EFFICIENTLY. THE SCO PE, POWER, LONGEVITY OF SUCH A TOOL AND ITS CENTRALITY TO THE FUNCTIONS OF THE BUSINESS WILL ALL BEAR ON ITS TREATMENT. ONE OF THE ASSESSEES IN THE CASES REFERRED TO THE SPECIAL BENCH IS ENGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT AS WELL AS RUNNING A TRAINING CENTER TO IMPART SPECIALIZED TRAINING TO THE STUDEN TS IN SOFTWARE TECHNOLOGY. IF THE SOFTWARE WERE USED IN SUCH BUSIN ESS TO IMPART TRAINING TO THE STUDENTS, THEN THE SAME WOULD BE PA RT OF THE PROFIT MAKING APPARATUS OF THE ASSESSEE AND CONSEQUENTLY E XPENDITURE ON SOFTWARE, CAPITAL. SIMILARLY, EXAMPLE OF A TRAVE L AGENT CAN BE ITA NO. 3815 & 4032/M/06 SVS SECURITIES PVT. LTD.. 7 CITED HERE AS AN ILLUSTRATION WHEREIN THE EXPENDITU RE INCURRED ON ACQUISITION OF A SOFTWARE FOR THE PURPOSE OF ENABLI NG THE ASSESSEE TO MAKE BOOKING OF AIR TICKETS WOULD BE A CAPITAL E XPENDITURE BECAUSE SUCH A SOFTWARE CERTAINLY FORMS PART OF THE PROFIT MAKING APPARATUS OF THE TRAVEL AGENCY BUSINESS INASMUCH AS THE BUSINESS OF AIR TICKET BOOKING IS DONE WITH THE HEL P OF THAT SOFTWARE. ANOTHER EXAMPLE WHICH CAN BE CONSIDERED H ERE IS THAT OF ACQUISITION OF TURBO GOLD SOFTWARE FOR RS. 17.61 LAKHS BY ONE OF THE ASSESSEES IN THE PRESENT CASE. THE SAID SOFT WARE HELPS IN COMPRESSION OF SIZE OF E-MAILS SENT THROUGH THE LOT US NOTES MAILING SYSTEM AND IT INCLUDES LICENSES FOR 150 USE RS WHO ARE USING LOTUS NOTES MAILING SYSTEM AND SOFTWARE LICEN SE FOR RUNNING ON ITS SERVER. IF USE OF THIS SOFTWARE IN T HE BUSINESS OF THE ASSESSEE IS LIMITED TO FACILITATE MERELY AN EFF ECTIVE AND FAST COMMUNICATION IN ORDER TO INCREASE ITS ORGANIZATION AL EFFICIENCY, THE SAME CANNOT BE TREATED AS FORMING PART OF THE P ROFIT MAKING APPARATUS OF THE ASSESSEE. ON THE OTHER HAND, IF SU CH SOFTWARE IS BEING USED BY AN ASSESSEE ENGAGED IN THE BUSINESS O F PLACEMENT AGENCY WHERE THE APPLICATIONS FROM PERSONS SEEKING JOBS ARE INVITED THROUGH E-MAIL AND ARE ALSO FORWARDED TO TH E CONCERNED CLIENTS THROUGH E-MAIL, THE SAME MAY FORM PART OF P ROFIT MAKING APPARATUS OF THE ASSESSEE S BUSINESS OF PLACEMENT AGENCY AND CAN BE TREATED AS A CAPITAL ASSET. (II) AS A GENERA L RULE IT MAY BE STATED THAT THE MORE EXPENSIVE THE COMPUTER SOFTWAR E, THE MORE IT IS LIKELY TO BE A CENTRAL TOOL OF THE BUSINESS AND THE MORE ENDURING IS LIKELY TO BE ITS EFFECT ADDING TO THE P ROFIT EARNING APPARATUS. IF THERE ARE ASSOCIATED CAPITAL EXPENDIT URE LIKE PURCHASE OF NEW COMPUTER EQUIPMENT FOR RUNNING THE SOFTWARE DEVELOPED UNDER A PROJECT, THEN IT CAN BE CONSIDERE D AS CAPITAL EXPENDITURE. THIS IS ESPECIALLY THE CASE WHERE THE NEW HARDWARE IS NOT MERELY DESIRABLE BUT NECESSARY FOR THIS PURP OSE. (III) DEGREE OF ASSOCIATED ORGANISATIONAL CHANGE : SIMILARLY THE DEGREE OF CHANGE INTENDED IN THE WAY OPERATIONS ARE CARRIED O UT AS A RESULT OF THE COMPUTER SOFTWARE, FOR EXAMPLE, SAVINGS IN T HE NUMBER, AND CHANGES IN THE LOCATION, OF STAFF USED TO PROVI DE SERVICES TO CUSTOMERS WILL HAVE A BEARING. THE MORE RADICAL THE CHANGES, THE MORE LIKELY THE EXPENDITURE WILL BE CAPITAL. THESE CHANGES ARE LIKELY TO BE MOST RADICAL WHEN OPERATIONS PREVIOUSL Y CARRIED ON MANUALLY ARE COMPUTERISED. (IV) IT HAS TO BE BORNE IN MIND THAT COMPUTER SOFTWARE INDUSTRY IS OF A FAST CHANGING NA TURE. THEREFORE WHATEVER SOFTWARE PURCHASED BY AN ASSESSE E WOULD BECOME OUTDATED MUCH EARLIER THAN EXPECTED. THE ASS ESSEE HAS THEREFORE TO UPGRADE HIS SOFTWARE. AN ELEMENT OF UP GRADING DOES NOT AUTOMATICALLY MAKE THE EXPENDITURE CAPITAL. THE PRESENCE OF AN ELEMENT OF UPGRADING, THEREFORE, WILL NOT NECESS ARILY CAUSE THE EXPENDITURE IN QUESTION TO BE CAPITAL. 16. IN VIEW OF THE RATIO LAID DOWN BY THE SPECIAL B ENCH OF DELHI ITAT, WE REMIT THE MATTER BACK TO THE FILE OF THE A O WITH A DIRECTION TO ITA NO. 3815 & 4032/M/06 SVS SECURITIES PVT. LTD.. 8 DECIDE THE ISSUE IN THE LIGHT OF SPECIAL BENCH DECI SION IN THE CASE OF AMWAY INDIA ENTERPRISES (SUPRA). THUS, THIS GROUND OF APPEAL IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 17. GROUND NO. D IS IN RESPECT OF DISALLOWANCE U/S 14A OF THE ACT. 18. THE AO DISALLOWED A SUM OF ` . 15,000/- U/S 14A AS THE EXPENDITURE RELATABLE TO DIVIDEND INCOME OF ` . 2,27,160/-. THE CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER. 19. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF TH E PARTIES AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT THE DI SALLOWANCE U/S 14A SHOULD BE CALCULATED IN THE LIGHT OF LATEST JUD GMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ & B OYCE MANUFACTURING CO. LTD. VIDE INCOME TAX APPEAL NO. 626 OF 2010 AND W.P. OF 758 OF 2010, JUDGMENT DATED 12.08.2010. THEREFORE, WE REM IT THE MATTER BACK TO THE FILE OF THE AO WITH A DIRECTION TO COMP UTE THE DISALLOWANCE U/S 14A IN THE LIGHT OF THE JUDGMENT OF THE JURISDI CTIONAL HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD ., AFTER PROVIDING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE I N THE MATTER. 20. GROUND NO. E IS IN RESPECT OF ADDITION ON ACCOU NT OF DIFFERENCE IN BROKERAGE OF ` . 30,000/-. 21. ON BEING ASKED TO RECONCILE THE FIGURES OF GROS S BROKERAGE REPORTED IN THE SERVICE TAX RETURNS AND GROSS BROKE RAGE AS CREDITED TO P&L A/C, THE ASSESSEE FURNISHED THE RECONCILIATION WORKING OUT THE GROSS BROKERAGE AS PER BOOKS AT ` . 2,66,70,184/- AND GROSS BROKERATE AS PER SERVICE TAX RETURNS AT ` . 2,67,00,184/- LEADING TO DIFFERENCE OF ` . 30,000/-. THE SUBMISSION OF THE ASSESSEE FOR THIS DIFFERENCE IS THAT THE BROKERAGE AS PER SERVICE TAX RETURN WILL HAVE H IGHER FIGURE COMPARED TO WHAT IS SHOWN IN THE PROFIT AND LOSS AC COUNT. THE ACTUAL ITA NO. 3815 & 4032/M/06 SVS SECURITIES PVT. LTD.. 9 BROKERAGE REALIZED IS SHOWN ULTIMATELY IN THE BOOKS OF ACCOUNTS BY THE ASSESSEE AND BEING IN THE SAME IS REFLECTED IN THE PROFIT AND LOSS ACCOUNT. THE SUBMISSIONS OF THE ASSESSEE WERE NOT F OUND FAVOUR WITH THE AO, THEREFORE, HE MADE THE ADDITION OF DIFFEREN CE AMOUNT OF ` . 30,000/- BY HOLDING THAT THE PURPOSE OF MAINTAINING BOOKS OF ACCOUNT IS TO REFLECT TRUE & CORRECT PICTURE OF THE INCOME AS THE REDUCTION OF BROKERAGE CHARGED HAS NOT BEEN DONE THROUGH PASSING OF NECESSARY ENTRIES IN BOOKS OF ACCOUNT, THE ASSESEES CLAIM CA NNOT BE ENTERTAINED. BEFORE THE CIT(A) IT WAS ARGUED THAT IT IS A NORMAL BUSINESS PRACTICE TO BARGAIN FOR BROKERAGE AND IT W AS NOT CONSIDERED COST EFFECTIVE TO RECONCILE BROKERAGE AS PER BOOKS OF ACCOUNT AND AS PER THE SERVICE TAX RETURN. THE CIT(A) HELD AS UND ER:- THE ISSUE AT HAND HAS BEEN CAREFULLY EXAMINED AND T HE PLEA OF THE APPELLANT IS REJECTED. THE ONUS WAS ENTIRELY ON THE APPELLANT TO ESTABLISH NECESSARY EVIDENCES, AT LEAST IN SOME CASES, TO ESTABLISH THE FACT THAT THE BROKERAGE HAD BEEN REDU CED ON MUTUAL AGREEMENT, AND IN THE ABSENCE OF SUCH EVIDENCE IT I S HELD THAT THE AO WAS FULLY JUSTIFIED IN REJECTING THE CLAIM MADE DURING THE ASSESSMENT PROCEEDINGS. THE ADDITION OF ` . 30,000/- IS ACCORDINGLY SUSTAINED. 22. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF TH E PARTIES AND PERUSED THE RECORD. WE FIND THAT THE AO WHILE MAKIN G ADDITION THE AO HAS GIVEN A CATEGORICAL FINDING THAT THE PURPOSE OF MAINTAINING BOOKS OF ACCOUNT IS TO REFLECT TRUE AND CORRECT PICTURE O F THE INCOME AS THE REDUCTION OF BROKERAGE CHARGED HAS NOT BEEN DONE TH ROUGH PASSING OF NECESSARY ENTRIES IN BOOKS OF ACCOUNT AND THE FINDI NG OF WHICH HAS BEEN APPROVED BY THE CIT(A) AND CONFIRMED THE ACTIO N OF THE ASSESSING OFFICER. THEREFORE, WE DO NOT FIND ANY ERROR IN THE ORDER OF CIT(A), THEREFORE, THE ORDER OF CIT(A) IS HEREBY CONFIRMED ON THIS ISSUE. THUS, THIS GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. ITA NO. 3815 & 4032/M/06 SVS SECURITIES PVT. LTD.. 10 23. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 12 TH DAY OF NOVEMBER, 2010. SD/- SD/- (J. SUDHAKAR REDDY) (V. DURGA RAO) ACCOUNTANT MEMBER JUDI CIAL MEMBER MUMBAI, DATED: 12 TH NOVEMBER, 2010 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE, E BENCH, I.T .A.T., MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR, I.T.A.T., MUMBAI. KV