ASHVIN CHINUBHAI BROKING ( ) P.LTD, MUMBAI V. ITO 4(1) (1), MUMBAI

ITA 4785/MUM/2011

• Counselvise Citation: 478519914 RSA 2011
• Duration Of Justice: 4 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 14-06-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANTAM BOSE
• Assessee Lawyers: VIPUL JOSHI
• Keywords: Business expenditure
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A : MUMBAI BEFORE SHRI D.K. AGARWAL, ( JUDICIAL MEMBER) AND SHRI RAJENDRA SINGH,(ACCOUNTANT MEMBER) ITA NO.4785/MUM/2011 ASSESSMENT YEAR : 2008-09 M/S. ASHVIN CHINUBHAI BROKING (I) PRIVATE LIMITED 02 ND FLOOR, 44 BHUPEN CHAMBERS 9, DALAL STREET, FORT MUMBAI-400 001. ..( APPELLANT ) P.A. NO. (AABCA 3579 J) VS. INCOME TAX OFFICER WARD 4(1)(1) 6 TH FLOOR, AAYAKAR BHAVAN M.K. ROAD MUMBAI-400 020. ..( RESPONDENT ) APPELLANT BY : SHRI VIPUL JOSHI RESPONDENT BY : SHRI SH ANTAM BOSE DATE OF HEARING : 25.10.2011 DATE OF PRONOUNCEMENT : 31 ST OCTOBER, 2011 O R D E R PER RAJENDRA SINGH (AM). THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER D ATED 4.5.2011 OF CIT(A) FOR THE ASSESSMENT YEAR 2008-09. TH E ASSESSEE IN THIS APPEAL HAS RAISED DISPUTES ON FOUR DIFFERENT GROUN DS. 2. THE FIRST DISPUTE IS REGARDING ALLOWABILITY OF DEDU CTION OF RS.1,41,617/- BEING FINE IMPOSED BY STOCK EXCHANGE. THE ASSESSEE IS SUB-STOCK BROKER WHO WAS MAKING PURCHASES THROUGH MAIN BR OKER, A ITA NO.4785/M/11 A.Y:08-09 2 MEMBER OF STOCK EXCHANGE. THE STOCK EXCHANGE HAD IMPOSED PENALTY FOR MARGIN SHORTAGE AND FOR EXCEEDING POSITION, FROM T IME TO TIME WHICH HAD BEEN CLAIMED AS DEDUCTION BY THE ASSESSEE UNDER SE CTION 37(1) OF THE INCOME TAX ACT. THE ASSESSEE EXPLAINED TO THE AO THAT THE EXPENDITURE HAD BEEN INCURRED FOR THE PURPOSE OF BUSINESS AND IT WAS NOT PENALTY FOR ANY OFFENCE WHICH WAS PROHIBITED BY LAW. THE AO HOWEVER, DID NOT ACCEPT THE EXPLANATION AND DISALLOWED THE CLAIM TREATING THE SAME AS PENALTY FOR VIOLATION OF PROVISIO NS OF LAW. IN APPEAL THE ASSESSEE REITERATED THE SUBMISSIONS MADE EARLIE R AND ALSO POINTED OUT THAT THE PAYMENT HAD BEEN MADE TO THE M AIN BROKER FOR MARGIN SHORTAGE ETC. AND NOT TO THE STOCK EXCHANGE AND THEREFORE IT WAS A BUSINESS EXPENDITURE. CIT(A) HOWEVER FOLLOWING T HE DECISION OF THE TRIBUNAL IN CASE OF ACIT VS. SUBHASHCHANDRA SHOREWA LLA (91 TTJ 57)(DEL.) UPHELD THE ORDER OF AO LEVYING PENALTY AG GRIEVED BY WHICH THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 2.1 BEFORE US THE LD. AR FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE AUTHORITIES BELOW AND PLACED RELIANCE ON T HE DECISION OF MUMBAI BENCH OF TRIBUNAL IN THE CASE OF GOLD CREST CAPI TAL MARKET LTD. VS. ITO (2 ITR (TRIB) 355) IN WHICH IT HAS BEEN HELD T HAT THE VIOLATION OF RULES AND REGULATION OF STOCK EXCHANGE COULD NOT BE TREATED AS VIOLATION OF STATUTORY RULE OR LAW. THE LD. D.R ON THE OTHER HAND, PLACED RELIANCE ON THE ORDERS OF AUTHORITIES BELOW. ITA NO.4785/M/11 A.Y:08-09 3 2.2 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING ALLOWA BILITY OF EXPENDITURE OF RS.1,41,617/- PAID BY THE ASSESSEE TO THE MAIN BROKER FOR MARGIN SHORTAGE, INCREASE IN POSITION ETC. THE STO CK BROKER WHILE MAKING TRANSACTIONS THROUGH STOCK EXCHANGE IS REQUIRED TO MAINTAIN CERTAIN MARGIN ETC. AND PENALTIES ARE PRESCRIBED FOR MA KING ANY VIOLATIONS. IN THIS CASE SUCH PENALTIES HAVE BEEN PASSED O N TO SUB- BROKER. BY INCREASING THE POSITION OR BY RESORTING TO S HORT MARGIN. BROKERS/ SUB-BROKERS DERIVE SOME COMMERCIAL ADVANTAGE. THEREFORE, NATURE OF SUCH PAYMENTS TO STOCK EXCHANGE IS ONLY COMPENSA TORY IN NATURE. THE MUMBAI BENCH OF TRIBUNAL IN CASE OF GOLD CREST CAPITAL MARKET LTD.(SUPRA) AFTER DETAILED EXAMINATION OF SUCH PENALTIES HELD THAT THOUGH STOCK EXCHANGES ARE REGULATED BY SEBI UNDE R SEBI ENACTMENT BUT VIOLATION OF RULES AND REGULATIONS FRAME D BY SUCH STOCK EXCHANGES CANNOT BE PER-SE CONSIDERED AS VIOLATION OF SEB I. THE TRIBUNAL THEREFORE, HELD THAT FINES AND PENALTIES LE VIED FOR VIOLATION OF UNFAIR TRADING PRACTICE AS SPECIFIED IN REGULATION 4.6 O F NSE REGULATION AND UN BUSINESS LIKE CONDUCT AS SPECIFIED IN REGULAT ION (IV)(4)(E) OF NSE RULES CANNOT BE EQUATED WITH VIOLATION OF STAT UTORY RULE OR LAW. THE TRIBUNAL THEREFORE, DELETED THE PENALTY. THE V ARIOUS BENCHES OF MUMBAI TRIBUNAL HAVE BEEN FOLLOWING THE SAID DECISION . THEREFORE, ITA NO.4785/M/11 A.Y:08-09 4 RESPECTFULLY FOLLOWING THE SAME, WE SET ASIDE THE ORDER OF CIT(A) AND DELETE THE ADDITION MADE. 3. THE SECOND DISPUTE IS REGARDING DISALLOWANCE OF BAD D EBT OF RS.71,06,740/-. THE ASSESSEE HAD WRITTEN OFF THE SAID SUM PAYABLE BY CLIENT ON WHOSE BEHALF THE ASSESSEE HAD MADE PURCHASES. TH E AO TOOK THE VIEW THAT THE MONEY PAYABLE BY THE CLIENT H AD NOT BEEN TAKEN INTO ACCOUNT IN COMPUTATION OF THE INCOME OF THE ASSESSEE I N THE EARLIER YEAR AND THAT IT WAS NOT ESTABLISHED THAT THE AMOUNT HAD BECOME IRRECOVERABLE. HE, THEREFORE, DISALLOWED THE CLA IM OF BAD DEBT. THE ASSESSEE DISPUTED THE DECISION OF AO AND SUBMITTED BEF ORE CIT(A) THAT BROKERAGE INCOME IN RESPECT OF PURCHASES ON BEHALF O F THE CLIENT HAD BEEN SHOWN AS INCOME AND THEREFORE, THE CONDITION T HAT THE AMOUNT SHOULD HAVE BEEN TAKEN INTO ACCOUNT IN THE COMP UTATION OF EARLIER YEAR WAS SATISFIED. RELIANCE WAS PLACED ON THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF SHREYAS S. MORAKHIA (5 ITR (TRIB) 1) THE CIT(A) HOWEVER OBSERVED THAT THE ASSESSEE HAD NEITHER CONTENDED NOR PRODUCED ANY MATERIAL TO ESTABLI SH THAT THE AMOUNT OF BAD DEBT HAD BEEN ARRIVED AT AFTER ADJUSTM ENT OF SALE CONSIDERATION OF SHARES WHICH WERE BOUND TO REMAIN WITH THE ASSESSEE. HE, THEREFORE, CONFIRMED THE DISALLOWANCE MADE BY AO, A GGRIEVED BY WHICH THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. ITA NO.4785/M/11 A.Y:08-09 5 3.1 WE HAVE HEARD BOTH PARTIES, PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING ALLOWA BILITY OF CLAIM OF BAD DEBT IN RESPECT OF AMOUNT DUE TO THE ASSESSEE FROM CLI ENT ON WHOSE BEHALF THE ASSESSEE HAD PURCHASED SHARES. THE AO HAD DISALLOWED THE CLAIM ON THE GROUND THAT INCOME ON THAT ACCOUNT HAD NOT BEEN TAKEN INTO CONSIDERATION WHILE COMPUTING INCO ME IN THE EARLIER YEARS. IN ADDITION CIT(A) HAS HELD THAT THER E WAS NO MATERIAL TO ESTABLISH THAT SALE PRICE OF SHARES PURCHASED BY THE ASSE SSEE HAD BEEN ADJUSTED AGAINST AMOUNT RECEIVABLE FROM BROKER. THE ALLOWABILITY OF CLAIM OF AMOUNT RECEIVABLE FROM CLIEN T AS BAD DEBT HAD BEEN CONSIDERED BY THE SPECIAL BENCH OF THE TRIBUNAL IN CASE OF SHREYAS S. MORAKHIA (SUPRA) IN WHICH THE TRIBUNAL HEL D THAT IN CASE BROKERAGE INCOME IN RESPECT OF PURCHASE HAD BEEN OFFERED TO TAX IT WILL AMOUNT TO THE SUM HAVING BEEN CONSIDERED IN THE COMPUTA TION OF INCOME. IN THIS CASE WHETHER BROKERAGE INCOME IN RESPECT OF SUCH PURCHASE HAD BEEN DECLARED BY THE ASSESSEE IN THE RETURN OF INCOME OR NOT HAS NOT BEEN EXAMINED. FURTHER IT HAS ALSO NOT BE EN EXAMINED WHETHER SHARES PURCHASED HAVE BEEN SOLD BY THE ASSESSEE AND SALE PROCEEDS ADJUSTED AGAINST AMOUNT PAYABLE. WE, THER EFORE, SET ASIDE THE ORDER OF CIT(A) AND RESTORE THE MATTER BACK TO TH E FILE OF AO FOR PASSING A FRESH ORDER AFTER NECESSARY EXAMINATION AND AFT ER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. ITA NO.4785/M/11 A.Y:08-09 6 4. THE THIRD DISPUTE IS REGARDING ADDITION OF RS.2,57 ,950/- BY THE AO ON ACCOUNT OF SALARIES. THE AO NOTED FROM AUDITED ACCOUNTS THAT THE ASSESSEE HAD PAID SALARIES AMOUNTING TO RS.2,57,950/- ON WHICH TAX WAS TO BE DEDUCTED ON OR BEFORE 30.9.2008 BUT NO TAX HAD BEEN DEDUCTED. THE AO THEREFORE, DISALLOWED THE CLAIM AND ADDED TO THE TOTAL INCOME. IN APPEAL CIT(A) CONFIRMED THE ORDER O F AO, AGGRIEVED BY WHICH ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 4.1 BEFORE US THE LD. A.R FOR THE ASSESSEE SUBMITTED THAT THE SUM OF RS.2,57,950/- WAS ACCUMULATED BALANCE OF TAX DEDUCTED BY THE ASSESSEE AT SOURCE AND LYING UNPAID TO THE GOVERNMENT. T HE ASSESSEE HAD NOT MADE ANY CLAIM OF DEDUCTION OF RS.2,57,950/- O N ACCOUNT OF SALARIES AND THEREFORE, DISALLOWANCE WAS NOT JUSTIFIED. THE LD. D.R ON THE OTHER HAND PLACED RELIANCE ON THE ORDERS OF AUTHO RITIES BELOW. 4.2 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATTE R CAREFULLY. THE DISPUTE IS REGARDING ADDITION OF RS.2,5 7,950/- ON ACCOUNT OF SALARIES. THE AUTHORITIES BELOW HAD MADE TH E ADDITION ON THE BASIS OF AUDIT REPORT IN WHICH IT WAS MENTIONED THA T THE SAID AMOUNT REPRESENTED SALARIES ON WHICH TAX WAS REQUIRED T O BE DEDUCTED BEFORE 30.9.2008 BUT THE SAME WAS NOT DEDUCTED. THE A SSESSEE HAS ITA NO.4785/M/11 A.Y:08-09 7 HOWEVER CLAIMED THAT THE SAID AMOUNT REPRESENTED TAX DEDUCTED IN THE EARLIER YEAR AND LYING UNPAID TO THE GOVERNMENT. I N OUR VIEW THE MATTER REQUIRES FURTHER VERIFICATION AS EVEN IF AMOUNT REPRESENTED SALARY THERE IS NO PROVISION FOR DISALLOWANCE OF SALARY O N THE GROUND THAT TAX HAD NOT BEEN DEDUCTED AT SOURCE. WE SET ASIDE THE ORDER OF CIT(A) AND RESTORE THE MATTER BACK TO AO FOR PASSING A FRESH ORDER AFTER NECESSARY EXAMINATION AND AFTER ALLOWING OPPORT UNITY OF HEARING TO THE ASSESSEE. 5. THE FOURTH DISPUTE IS REGARDING SET OFF OF TAX CREDI T OF RS.1,60,179/- U/S. 115 JAA. THE AO HAS NOT GIVEN CREDI T WITHOUT MENTIONING ANY REASONS. THE ASSESSEE RAISED THE ISSUE BEFO RE CIT(A) WHO HELD THAT NO GROUND WAS RAISED IN THE MEMORANDUM OF APPEAL. HE, THEREFORE, REJECTED THE CLAIM AGGRIEVED BY WHICH THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 5.1 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATTE R CAREFULLY. THE DISPUTE IS REGARDING SET OFF OF TAX CRED ITED U/S. 115 JAA. IN CAE ANY TAX CREDIT IS AVAILABLE TO THE ASSESSEE UNDER SECTION 115 JAA THE CREDIT IS REQUIRED TO BE GIVEN BY THE AO. WE , THEREFORE, DIRECT THE AO TO CONSIDER THE CLAIM OF THE ASSESSEE IN ACCORDANCE W ITH LAW. ITA NO.4785/M/11 A.Y:08-09 8 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 31.10.2011. SD/- SD/- (D.K. AGARWAL) (RAJENDRA SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 31.10.2011. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.