ADDL CIT RG 4(3), MUMBAI V. MANGAL KESHAV SECURITIES LTD, MUMBAI

ITA 4372/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9467 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-12-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 27-11-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 30-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAKESH RANJA
• Assessee Lawyers: PRASHANT THAKKAR
• Keywords: Business expenditure; Bonafide belief; Bad and doubtful debts; Reason to believe
• Section: 37(1); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH B, MUMBAI BEFORE SHRI I.P.BANSAL,JUDICIAL MEMBER & SHRI SANJAY ARORA, ACCOUNTANT MEMBER ITA NO. 4372/MUM/2011(A.Y. 2005-06) THE DCIT 4(3), 6 TH FLOOR, ROOM NO.649, AAYKAR BHAVAN, MK ROAD, MUMBAI - 20. (APPELLANT) VS. M/S. MANGAL KESHAV SECURITIES LTD., 501, HERITAGE PLAZA, OPP. INDIAN OI8L NAGAR, J.P.ROAD, ANDHERI (WEST), MUMBAI 53. PAN: AAACM 8957F (RESPONDENT) APPELLANT BY : SHRI RAKESH RANJA RESPONDENT BY : S/SHRI NISHANT THAKKA R & PRASHANT THAKKAR DATE OF HEARING : 27/11/2012 DATE OF PRONOUNCEMENT : 05 /12/2012 ORDER PER I.P.BANSAL, J.M THIS IS AN APPEAL FILED BY THE REVENUE. IT IS DI RECTED AGAINST THE ORDER PASSED BY LD. CIT(A)-11, MUMBAI DATED 11/3/2011 FO R ASSESSMENT YEAR 2005- 06. GROUNDS OF APPEAL READ AS UNDER: 1.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT (A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.62, 08 ,874/- BEING BAD DEBTS WRITTEN OFF AND CLAIMED U/S. 36(1) (VII) R.W.S. 36(2) OF TH E ACT. 2. I. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) ERRED IN DELETING THE ADDITION MADE ON ACCOUNT OF P ENALTY OF RS.4,19,241/- ON VIOLATION OF THE BYE-LAWS OF THE STOCK EXCHANGE, WH ICH ARE STATUTORY IN CHARACTER AND THUS AMOUNTED TO INFRINGEMENT OF LAW. II. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW THE LD. CIT (A) ERRED IN IGNORING THE FACT THAT THE PENALTY IS IMPO SED UNDER SEBI [PROCEDURE FOR ITA NO. 4372/MUM/2011(A.Y. 2005-06) 2 HOLDING INQUIRY AND IMPOSING PENALTY BY ADJUDICATIN G OFFICER] RULES 1995 WHICH HAS A BINDING CHARACTER. III. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT (A) ERRED IN IGNORING THE FACTS THAT NON-ADHERENCE TO S TATUTORY PROVISIONS IS NOT AN ALLOWABLE EXPENDITURE IV. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) ERRED IN APPRECIATING THAT IT WAS NOT ENOUGH THAT T HE DISBURSEMENT WAS MADE IN THE COURSE OF TRADE, BUT WAS ALSO FOR THE LAWFUL PU RPOSE OF TRADE . V. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN IGNORING THE FACT THAT THE PENALTY WAS IMP OSED BECAUSE THE BUSINESS WAS NOT CONDUCTED WITHIN THE FRAMEWORK OF LAW. 3. (I) ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LD.CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS.56,69,167 MADE U/S.40(A)(IA) IN RESPECT OF VSAT, LEASE LINE CHARGES AND TRANSACTION CHARGES PAID TO STOCK EXCHANGE, WITHOUT APPRECIATING THE FACTS THAT THESE WERE COMP OSITE CHARGES FOR PROFESSIONAL AND TECHNICAL SERVICES RENDERED BY THE STOCK EXCHAN GE TO ITS MEMBERS AND THE ASSESSEE HAS FAILED TO DEDUCT TDS THEREON.. II. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN IGNORING THE FACT THAT THESE SERVICES ARE ESSENTIAL IN NATURE AS THEY CAN ONLY BE AVAILED BY MEMBERS OF STOCK EXCHANGE. III. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN IGNORING THE FACTS THAT USE OF TECHNOLOGY AND ALGORITHMIC BASED PROGRAMS HAVE CONVERTED AN ERSTWHILE PHYSICAL MARKET INTO A DIGITALLY OPERATED MARKET. IV. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) ERRED IN IGNORING THE FACT THAT THE SERVICES RENDER ED BY THE BROKERS ARE NOT STANDARD SERVICES BUT SERVICES THAT HAS BEEN DEVELO PED TO CATER TO THE NEEDS OF THE BROKER COMMUNITY TO FACILITATE TRADING. V. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) HAS OVERLOOKED THE FACT THAT THE BROKERS HAVE IN SU BSEQUENT YEARS THEMSELVES STARTED DEDUCTING THE TDS ON SUCH PAYMENTS AND THAT THERE IS NO REASON TO GIVE A DIFFERENT TREATMENT IN THIS YEAR. 4 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE IMPUGNED ORDER OF THE LD.CIT(A) IS CONTRARY TO LAW TO BE SET ASIDE AND TH AT OF THE ASSESSING OFFICER BE RESTORED. ITA NO. 4372/MUM/2011(A.Y. 2005-06) 3 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF SHARE AND STOCK BROKING AND IS A MEMBER OF BSE,NSE,DP FOR CDSL & NSDL AND MUTU AL FUNDS DISTRIBUTION. IT RETURNED ITS INCOME AT RS.7,72,64,367/- AND IS A SSESSED AT AN INCOME OF RS.8,95,61,559/- BY MAKING VARIOUS ADDITIONS TO THE RETURNED INCOME. 3. GROUND NO.1 RELATES TO ADDITION OF RS.62,08,784/ - BY DISALLOWING BAD DEBT CLAIMED BY THE ASSESSEE. THE AO DISALLOWED T HE CLAIM OF THE ASSESSEE ON THE GROUND THAT MAJORITY VIEW OF THE HONBLE HIGH C OURT IS THAT THE DEBT MUST BE ESTABLISHED TO HAVE BECOME BAD BEFORE IT IS WRI TTEN OFF UNDER SECTION 36(1)(VII) OF THE INCOME TAX ACT,1961(THE ACT). LD . CIT(A) HAS DELETED THIS ADDITION FOLLOWING THE DECISION OF HONBLE BOMBAY H IGH COURT IN THE CASE OF DIT VS. OMAN INTERNATIONAL BANK S.A.O.G, 313 ITR 128 ( BOM), WHEREIN IT HAS BEEN HELD THAT AFTER AMENDMENT IN SECTION IT IS NEITHER OBLIGATORY NOR IT IS BURDEN ON THE ASSESSEE TO PROVE THAT BAD DEBT WRITTEN OFF BY HIM IS INDEED A BAD DEBT AS LONG AS IT IS BONAFIDE AND BASED ON COMMERCIAL WI SDOM OR EXPEDIENCY. LD. CIT(A) ALSO REFERRED TO THE DECISION OF DCIT VS. SHREYAS S. MORAKHIA (2010) TIOL 390 (MUM SB) AND ALSO DECISION OF ITAT IN AS SESSEES OWN CASE IN RESPECT OF A.Y 2004-05 AND AFTER REFERRING TO THESE DECISIONS LD. CIT(A) HAS DIRECTED THE AO TO ALLOW THE CLAIM OF THE ASSESSEE COMPANY AFTER VERIFYING AS TO WHETHER BROKERAGE INCOME ARISING FROM THE SHARE TRA NSACTIONS MADE BY THE ASSESSEE THAT CREATED THE DEBTS HAS BEEN TAKEN INT O ACCOUNT IN COMPUTATION OF INCOME OF THE ASSESSEE OF THE RELEVANT PREVIOUS YEA R OR ANY EARLIER YEAR. HE ALSO DIRECTED THE AO TO QUANTIFY THE BAD DEBT FOR T HE PURPOSE OF ALLOWING DEDUCTION AFTER TAKING INTO CONSIDERATION ANY SECUR ITY AVAILABLE WITH THE ASSESSEE IN THE FORM OF MARGIN MONEY OR RELEVANT SH ARE PURCHASE MADE BY HIM ON BEHALF OF THE CLIENTS BUT REMAIN TO BE TRANSFER RED IN THEIR NAME. SUBJECT TO THESE ADJUSTMENTS, LD. CIT(A) HAS ALLOWED THE CLAIM OF THE ASSESSEE. ITA NO. 4372/MUM/2011(A.Y. 2005-06) 4 4. LD. D.R SUBMITTED THAT ASSESSEE IS A BROKER AND BAD DEBTS HAS BEEN CLAIMED IN RESPECT OF BROKERAGE INCOME AND, THEREFO RE, DEBT WAS NOT ALLOWABLE TO THE ASSESSEE. 5. ON THE OTHER HAND, IT WAS SUBMITTED BY LD. A.R RELYING UPON THE DECISION OF SPECIAL BENCH IN THE CASE OF DCIT VS.SHREYAS S. MORAKHIA. (SUPRA) AND ALSO RELYING UPON THE DECISION OF ITAT IN ASSES SEES OWN CASE PLEADED THAT THE LD. CIT(A) HAS RIGHTLY DECIDED THE ISSUE AND HIS ORDER SHOULD BE UPHELD. 6. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTENT IONS HAVE CAREFULLY BEEN CONSIDERED. LD. CIT(A) HAS FOLLOWED THE DECISION OF ITAT IN ASSESSEES OWN CASE, WHICH IS DATED 27/8/2010 IN RESPECT OF ASSESS MENT YEAR 2004-05 IN ITA NO.6438/MUM/2007, THE RELEVANT PORTION HAS ALSO BEE N REPRODUCED IN THE ORDER OF LD. CIT(A). THE DECISION OF SPECIAL BENCH IN THE CASE OF DCIT VS. SHREYAS S. MORAKHIA HAS ALSO BEEN CONFIRMED BY HON BLE JURISDICTIONAL HIGH COURT. THEREFORE, WE SEE NO INFIRMITY IN THE ORDER PASSED BY LD. CIT(A) AND WE DECLINE TO INTERFERE. IN VIEW OF THE ABOVE, GROUND NO.1 OF THE REVENUE IS DISMISSED. 7. APROPOS GROUND NO.2, AO NOTED THAT IN THE AUDIT REPORT IT WAS DESCRIBED THAT A SUM OF RS.4,19,241/- WAS CLAIMED BY THE ASSE SSEE AS EXPENDITURE INCURRED FOR ANY PURPOSE WHICH IS AN OFFENCE OR WH ICH IS PROHIBITED BY LAW. HE REQUIRED THE ASSESSEE TO EXPLAIN THE SAME. IT WAS SUBMITTED THAT THE AMOUNT PERTAINS TO PENALTY PAID TO STOCK EXCHANGES /SEBI FOR NORMAL DAY TO DAY LIMIT VIOLATIONS, SCRIP VIOLATIONS ETC. AND ARE NOT IN T HE NATURE OF PENALTY BUT IS IN THE NATURE OF LEVIES FOR EXCEEDING PRESCRIBED LIMIT S. THE AO DID NOT ACCEPT SUCH EXPLANATION OF THE ASSESSEE AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE. LD. CIT(A) DELETED THE SAME FOLLOWING V ARIOUS DECISIONS OF MUMBAI ITAT. THE DEPARTMENT IS AGGRIEVED, HENCE, IN APPEA L. ITA NO. 4372/MUM/2011(A.Y. 2005-06) 5 8. LD. DR RELIED UPON THE ORDER PASSED BY THE AO AS AGAINST THAT LD. AR RELIED UPON THE ORDER PASSED BY LD. CIT(A), IN WHIC H VARIOUS DECISIONS OF ITAT MUMBAI HAVE BEEN REFERRED. 9. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTENT IONS HAVE CAREFULLY BEEN CONSIDERED. THE DECISION RELIED UPON BY LD. CIT(A) WHILE DELETING THIS ADDITION ARE AS UNDER: 1. ITO VS. VRM SHARE BROKING (P) LTD., (2009) 27 S OT 469 (MUM) 2. GOLDCREST CAPITAL MARKETS LTD., VS. ITO, ITA NO S. 1240 & 1241/MUM/2006. IN THE ABOVE DECISIONS IT HAS BEEN HELD THAT EXPLAN ATION TO SECTION 37(1) IS NOT APPLICABLE TO SUCH TYPE OF PENALTY. THEREFORE, WE FIND NO INFIRMITY IN THE ORDER PASSED BY LD. CIT(A) ON THIS ISSUE. IT IS FURTHER OBSERVED THAT REVENUE HAD AGITATED THE DELETION OF SIMILAR PENALTY BEFORE HON BLE HIGH COURT IN THE CASE OF CIT VS. M/S. STOCK AND BOND TRADING COMPANY VI DE DECISION DATED 14/10/2011 IN INCOME TAX APPEAL NO.4117 OF 2010, TH E APPEAL FILED BY THE REVENUE, HAS DISMISSED THE SAME BY HOLDING THAT P AYMENT MADE BY THE ASSESSEE TO STOCK EXCHANGE FOR VIOLATION OF REGULAT IONS ARE NOT ON ACCOUNT OF AN OFFENCE WHICH IS PROHIBITED BY LAW. IT WAS HELD THAT INVOCATION OF EXPLANATION TO SECTION 37 IN SUCH CASE WAS NOT JUS TIFIED. IN THIS VIEW OF THE SITUATION WE DECLINE TO INTERFERE IN THE ORDER OF LD. CIT(A) AND THE SAME IS CONFIRMED. 10. APROPOS GROUND NO.3, THE ASSESSEE HAD CLAIMED F OLLOWING EXPENSES: (1) LEASE LINE CHARGES RS. 78,341/- (2) V-SAT CHARGES RS. 7,31,835/- (3) TRANSACTION CHARGES RS.48,58,991/- TOTAL: RS.56,69,167/- AS TDS WAS NOT DEDUCTED UPON THE ABOVE AMOUNTS THE SAME WAS DISALLOWED BY THE AO UNDER SECTION 40(A)(IA) OF THE ACT. LD. CIT(A) HAS DELETED THIS DISALLOWANCE FOLLOWING THE DECISIONS OF ITAT IN THE CASES OF KOTAK SECURITIES ITA NO. 4372/MUM/2011(A.Y. 2005-06) 6 LTD. VS. ADDL. CIT, 25 SOT 440 AND DCIT VS. ANGEL B ROKING LTD., 35 SOT 457 (MUM). 11. LD. D.R SUBMITTED THAT HONBLE BOMBAY HIGH COUR T IN THE CASE OF CIT VS. KOTAK SECURITIES LTD., 203 TAXAMANN 86 HAS BEEN H ELD THAT TRANSACTION CHARGES PAID BY THE ASSESSEE ARE IN THE NATURE OF FEE FOR TECHNICAL SERVICES, THEREFORE, LIABLE FOR DEDUCTION OF TAX. THUS IT W AS SUBMITTED BY LD. DR THAT DISALLOWANCE HAS WRONGLY BEEN DELETED BY LD. CIT(A) AND HIS ORDER ON THIS ISSUE SHOULD BE SET ASIDE AND THAT OF AO BE RESTORED. 12. ON THE OTHER HAND, IT WAS SUBMITTED BY LD. AR T HAT THE PRESENT CASE IS FOR A.Y 2005-06 AND IN THE SAME DECISION HONBLE HI GH COURT HAS HELD THAT IN RESPECT OF A.Y 2005-06 NO FAULT CAN BE FOUND WITH T HE ASSESSEE IN NOT DEDUCTING THE TAX AT SOURCE IN THE ASSESSMENT YEAR IN QUESTION, AND CONSEQUENTLY THE DISALLOWANCE MADE BY THE AO UNDER SECTION 40(A)(IA) IN RESPECT OF TRANSACTION CHARGES CANNOT BE SUSTAINED . LD. A.R DREW OUR ATTENTION TOWARDS PARA 31&32 OF THE SAID ORDER WHIC H READ AS UNDER: 31. THE OBJECT OF INTRODUCING SECTION 40(A)(IA) AS EXPLAINED IN THE CBDT CIRCULAR O.5, DATED 15/7/2005 IS TO AUGMENT COMPLIA NCE OF TDS PROVISIONS IN THE CASE OF RESIDENTS AND CURB BOGUS PAYMENTS. M OREOVER, THOUGH SECTION 1943 WAS INSERTED WITH EFFECT FROM 1/7/1995 , TILL THE ASSESSMENT YEAR IN QUESTION THAT IS Y 2005-06 BOTH THE REVENU E AND THE ASSESSEE PROCEEDED ON THE FOOTING THAT SECTION 194J WAS NOT APPLICABLE TO THE PAYMENT OF TRANSACTION CHARGES AND 4TCORDINGLY, DUR ING THE PERIOD FROM 1995 TO 2005 NEITHER THE ASSESSEE HAS DEDUCTED TAX AT SOURCE WHILE CREDITING THE TRANSACTION CHARGES TO THE ACCOUNT OF THE STOCK EXCHANGE NOR THE REVENUE HAS RAISED ANY OBJECTION OR INITIATED A NY PROCEEDINGS FOR NOT DEDUCTING THE TAX AT SOURCE. IN THESE CIRCUMSTANCES , IF BOTH THE PARTIES FOR NEARLY A DECADE PROCEEDED ON THE FOOTING THAT SECTI ON 194J IS NOT ATTRACTED, THEN IN THE ASSESSMENT YEAR IN QUESTION, NO FAULT CAN BE FOUND WITH THE ASSESSEE IN NOT DEDUCTING THE TAX AT SOURC E UNDER SECTION 1943 OF THE ACT AND CONSEQUENTLY, NO ACTION COULD BE TAKEN UNDER SECTION 40 (A)(IA) OF THE ACT. IT IS RELEVANT TO NOTE THAT FROM AY 200 6-07 THE ASSESSEE HAS BEEN DEDUCTING TAX AT SOURCE WHILE CREDITING THE TR ANSACTION CHARGES TO THE ACCOUNT OF THE STOCK EXCHANGE THOUGH NOT AS FEES FO R TECHNICAL SERVICES BUT AS ROYALTY. IT IS FURTHER RELEVANT TO NOTE THAT IT IS NOT THE CASE OF THE REVENUE THAT ON ACCOUNT OF THE FAILURE ON THE PART OF THE A SSESSEE TO DEDUCT TAX AT ITA NO. 4372/MUM/2011(A.Y. 2005-06) 7 SOURCE, THE REVENUE HAS SUFFERED PRESUMABLY BECAUSE , THE STOCK EXCHANGE HAS DISCHARGED ITS TAX LIABILITY FOR THE ASSESSMENT YEAR IN QUESTION. IN ANY EVENT, IN THE FACTS OF THE PRESENT CASE, IN VIEW OF THE UNDISPUTED DECADE OLD PRACTICE, THE ASSESSEE HAD BONA FIDE REASON TO BELIEVE THAT THE TAX WAS NOT DEDUCTIBLE AT SOURCE UNDER SECTION 194J OF THE ACT AND, THEREFORE, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN INVOKING SEC TION 40(A)(IA) OF THE AC AND DISALLOWING THE BUSINESS EXPENDITURE BY WAY OF TRANSACTION CHARGES INCURRED BY THE ASSESSEE. 32. ACCORDINGLY, WE HOLD THAT THE TRANSACTION CHARG ES PAID BY THE ASSESSEE TO THE STOCK EXCHANGE CONSTITUTE FEES FOR TECHNICAL SERVICES COVERED UNDER SECTION. 194J OF THE ACT AND, THEREFO RE, THE ASSESSEE WAS LIABLE TO DEDUCT TAX AT SOURCE WHILE CREDITING THE TRANSACTION CHARGES TO THE ACCOUNT OF THE STOCK EXCHANGE., HOWEVER, SINCE BOTH THE REVENUE AND THE ASSESSEE WERE UNDER THE BONA FIDE BELIEF FOR NEARLY A DECADE THAT TAX WAS NOT DEDUCTIBLE AT SOURCE ON PAYMENT OF TRANSACTION CHARGES, NO FAULT CAN BE FOUND WITH THE ASSESSEE IN NOT DEDUCTING THE TAX AT SOURCE IN THE ASSESSMENT YEAR IN QUESTION AND CONSEQUENTLY DISALL OWANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 40(A)(IA) OF THE AC T IN RESPECT OF THE TRANSACTION CHARGES CANNOT BE SUSTAINED. WE MAKE IT CLEAR THAT WE HAVE ARRIVED AT THE ABOVE CONCLUSION IN THE PECULIAR FAC TS OF THE PRESENT CASE, WHERE BOTH THE REVENUE AND THE ASSESSEE RIGHT FROM THE INSERTION OF SECTION 1 94J IN THE YEAR 1995 TILL 2005 PROCEEDED ON THE FOOTING THAT THE ASSESSEE IS NOT LIABLE TO DEDUCT TAX A SOURCE AND IN FACT IMMEDIATELY AFTER THE ASSESSMENT YEAR IN QUESTION I.E. FROM AY 2006- 07 THE ASSESSEE HAS BEEN DEDUCTING TAX AT SOURCE WHILE CREDITING THE T RANSACTION CHARGES TO THE ACCOUNT O THE STOCK EXCHANGE. 12.1 IT WAS SUBMITTED BY LD. AR THAT FROM ASSESSMEN T YEAR 2006-07 THE ASSESSEE HAS STARTED DEDUCING THE TAX, THEREFORE, T HE FACTS OF THE PRESENT CASE ARE IN AGREEMENT WITH THE CASE DECIDED BY THE HONB LE HIGH COURT. HE ALSO SUBMITTED THAT DEPARTMENT FOR THE FIRST TIME IN A. Y 2005-06, I.E. AFTER TEN YEARS, RAISE THE ISSUE OF FAILURE ON THE PART OF TH E ASSESSEE TO DEDUCT TAX AT SOURCE, THEREFORE, A BONAFIDE BELIEF THAT NO TAX W AS REQUIRED TO BE DEDUCTED PREVAILED IN THE CASE OF THE ASSESSEE. HE SUBMITT ED THAT IT IS ALSO NOT DISPUTED THAT STOCK EXCHANGES HAVE DISCHARGED ITS BURDEN OF TAX ON THESE RECEIPTS FROM THE ASSESSEE. THEREFORE, LD. AR SUBMITTED THAT GRO UND RAISED BY THE REVENUE SHOULD BE DISMISSED. ITA NO. 4372/MUM/2011(A.Y. 2005-06) 8 13. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTEN TIONS HAVE CAREFULLY BEEN CONSIDERED. THE RELIEF HAS BEEN GIVEN BY LD. CIT(A) ON THE BASIS OF AFOREMENTIONED TWO DECISIONS OF ITAT IN WHICH IT WA S HELD THAT TAX WAS NOT DEDUCTIBLE ON THESE PAYMENTS UNDER SECTION 194J AS STOCK EXCHANGES DID NOT RENDER ANY MANAGERIAL OR TECHNICAL SERVICES. HOWEV ER, JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. KOTAK SECURITIES LTD.( SUPRA) HAS HELD THAT THESE PAYMENTS ARE IN THE NATURE OF FEE FOR TECHNICAL SER VICES, THEREFORE, LIABLE FOR DEDUCTION OF TAX UNDER SECTION 194J OF THE ACT. TH EREFORE, IT HAS TO BE HELD THAT ASSESSEE WAS LIABLE FOR DEDUCTION OF TAX ON TH ESE PAYMENTS. HOWEVER, HONBLE JURISDICTIONAL HIGH COURT HAS ALSO OBSERVED THAT THE OBJECT OF SECTION 40(A)(IA) AS EXPLAINED IN CBDT CIRCULAR NO.5 DATED 15/7/2005 IS TO AUGMENT COMPLIANCE OF TDS PROVISIONS IN THE CASE OF RESIDEN T AND CURB BOGUS PAYMENTS THOUGH SECTION 194J WAS INSERTED W.E.F. 1/7/1995 BU T TILL THE ASSESSMENT YEAR IN QUESTION I.E. A.Y 2005-06, BOTH REVENUE AND ASSE SSEE PROCEEDED ON THE FOOTING THAT SECTION 194J WAS NOT APPLICABLE TO THE PAYMENTS OF TRANSACTION CHARGES. IT IS BECAUSE OF THAT REASON FROM 1995 T O 2005 NEITHER THE ASSESSEE HAS DEDUCTED TAX AT SOURCE WHILE CREDITING TRANSACT ION CHARGES TO THE ACCOUNT OF STOCK EXCHANGE NOR THE REVENUE HAS RAISED ANY OB JECTION OR INITIATED ANY PROCEEDINGS FOR NOT DEDUCTING TAX AT SOURCE. CONSI DERING THESE CIRCUMSTANCES HONBLE HIGH COURT HAS OBSERVED THAT IF BOTH THE PA RTIES HAVE NEARLY A DECADE PROCEEDED ON THE FOOTING THAT ONCE THAT SECTION 194 J IS NOT ATTRACTED, THEN IN THE ASSESSMENT YEAR IN QUESTION NO FAULT CAN BE FOU ND WITH THE ASSESSEE IN NOT DEDUCTING TAX AT SOURCE UNDER SECTION 194J OF THE ACT AND CONSEQUENTLY NO ACTION SHOULD BE TAKEN UNDER SECTION 40(A)(IA) OF T HE ACT. IT WAS ALSO CONSIDERED RELEVANT THAT FOR ASSESSMENT YEAR 2006-0 7 THE ASSESSEE HAD STARTED DEDUCTING TAX AT SOURCE WHILE CREDITING TRANSACTION S CHARGES TO THE ACCOUNT OF STOCK EXCHANGE. CONSIDERING THESE CIRCUMSTANCES AS PECULIAR FACTS THE DISALLOWANCE WAS HELD TO BE RIGHTLY DELETED. THE FACTS OF THE PRESENT CASE ARE SIMILAR. NOTHING HAS BEEN BROUGHT ON RECORD TO SHO W THAT ANY PROCEEDINGS WERE CARRIED OUT AGAINST THE ASSESSEE FOR NON-DEDUC TION OF TAX ON THESE PAYMENTS. THEREFORE, FOLLOWING THE DECISION OF HON BLE JURISDICTIONAL HIGH ITA NO. 4372/MUM/2011(A.Y. 2005-06) 9 COURT IN THE CASE OF CIT VS. M/S. KOTAK SECURITIES LTD.,(SUPRA) WE HOLD THAT DISALLOWANCE UNDER SECTION 40(A)(IA) COULD NOT BE MADE THOUGH THE DELETION IS BEING UPHELD ON THE GROUNDS DIFFERENT FROM THE GROUND TAKEN BY LD. CIT(A). THIS GROUND OF THE REVENUE IS ALSO DISMISSED. 14. IN THE RESULT, APPEAL FILED BY THE REVENUE IS D ISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 5 TH DAY OF DEC. 2012 SD/- SD/- (SANJAY ARORA ) (I.P.BANSAL) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 5 TH DEC. 2012 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.R B BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR, I TAT, MUMBAI BENCHES MUMBAI. VM. ITA NO. 4372/MUM/2011(A.Y. 2005-06) 10 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 27/11/2012 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 29/11/2012 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