ADDL CIT RG 4(1), MUMBAI V. ICICI SECURITIES LTD ( FORMELRY ICIC BROKERAGE SERVICES LTD ), MUMBAI

ITA 4868/MUM/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 5039 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 3 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-09-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 17-07-2013
• Assessment Year: 2001-2002
• Appeal Filed On: 11-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K C P PATNAIK
• Keywords: Opportunity of being heard; Additional evidence; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH I , MUMBAI BEFORE SHRI P.M. JAGTAP , ACCOUNTANT MEMBER AND SHRI SANJAY GARG , JUDICIAL MEMBER ITA NO. 3423/MUM/10 ASSESSMENT YEAR: 2001 - 02 M/S. ICICI SECURITIES LTD. (FORMERLY KNOWN AS ICICI BROKERAGE SER VICES LTD.) ICICI CENTRE, H.T. PAREKH MARG, CHURCHGATE MUMBAI - 400 020 PAN: AA AC I0996E VS. THE ADDITIONAL COMMISSIONER OF INCOME TAX, CIRCLE 4 (1), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020 (APPELLANT) (RESPONDENT) ITA NO. 4868 /MUM/ 10 ASSESSMENT YEAR:200 1 - 0 2 THE ADDITIONAL COMMISSIONER OF INCOME TAX, CIRCLE 4(1), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020 VS. M/S. ICICI SECURITIES LTD. (FORMERLY KNOWN AS ICICI BROKERAGE SERVICES LTD.) M/S. ICICI CENTRE, H.T. PAREKH MARG, CHURCHGATE MUMBAI - 400 020 PAN: AAACI0996E (APPELLANT) (RESPONDENT) ITA NO. 6948/MUM/ 0 5 ASSESSMENT YEAR:200 2 - 0 3 THE ASSISTANT COMMISSIONER OF INCOME TAX, CI RCLE 4 (1), 6 TH FLOOR, R.NO.640, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400020 VS. ICICI BROKERAGE SERVICES LTD. 41/44, MINOO DESAI MARG, COLABA, MUMBAI - 400 00 5 PAN: AAACI0996E (APPELLANT) (RESPOND ENT) ASSESSEE BY : S/ SHRI SOLI E. DASTUR , NIRAJ SHETH , KRUPA R. GANDHI REVENUE BY : SHRI K.C.P. PATNAIK, D.R. DATE OF HEARING : 17.07.13 DATE OF PRONOUNCEMENT : 13.09.13 ITA NO. 3423/M/10 & 6948/M/05 M/S. ICICI SECURITIES LTD. 2 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THESE ARE THREE APPEALS OUT OF WHICH TWO APPEALS I.E. ONE FILED BY THE ASSESSEE AND THE OTHER FILED BY THE REVENUE HAVE BEEN PREFERRED AGAINST THE SINGLE ORDER OF THE CIT(A) DATED 15.3.2010 FOR ASSESSMENT YEAR 2001 - 2002. THE THIRD APPEAL HAS BEEN PREFERRED BY THE REVENUE AGAINST THE ORD ER OF THE CIT(A) DATED 7.10.2005 RELEVANT TO ASSESSMENT YEAR 2002 - 03. SINCE THE ISSUE S INVOLVED IN THESE APPEALS ARE SIMILAR IN NATURE AND EVEN ALL THE THREE APPEALS ARE RELATED TO THE SAME ASSESSEE, HENCE ALL THE THREE APPEALS , FOR THE SAKE OF CONVENIENCE , ARE DISPOSED OFF WITH THIS COMMON ORDER. ITA NO. 3423 /MUM/ 10 & ITA NO. 4868/MUM/10 ( RELEVANT TO A SSESSMENT Y EAR 2001 - 02 ) : IN THIS APPEAL THE ASSESSEE HAS ASSAILED THE RETENTION OF DISA LLOWANCE TO THE EXTENT OF 10% BY THE CIT(A) ON ACCOUNT OF BROKER AGE PAID BY THE APPELLANT TO ICICI CAPITAL SERVICES LTD. (I - CAP) ON ACCOUNT OF ISSUE OF ICICI SAFETY BONDS AMOUNTING TO RS.39,37,377/ - AND ALSO OF THE BROKERAGE PAID BY APPELLANT TO HUG HES TELECOM LTD. AMOUNTING TO RS. 2, 3 4 ,4 2 6/ - . 2. THIS IS A SECOND RO UND OF APPEAL BEFORE THIS TRIBUNAL. EARLIER THE ASSESSEE HAD FILED ITS RETURN OF INCOME DECLARING TOTAL INCOME OF RS.4,38,06,220/ - . THE AO DISALLOWED THE PAYMENT OF COMMISSION AMOUNTING TO RS.3,18,92,758/ - . THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A) . THE LD. CIT(A) UPHELD THE DISALLOWANCE AND FURTHER ENHANCED THE AMOUNT OF DISALLOWANCE TO RS.4,17,18,040/ - . THE ASSESSEE F ILED APPEAL BEFORE THE TRIBUNAL. THE TRIBUNAL VIDE ORDER DATED 30.12.05 SET ASIDE THE ORDER OF THE LD. CIT(A) AND REMANDED THE MA TTER BACK TO THE FILE OF THE AO. THE OPERATIVE PART OF THE ORDER PASSED BY THE TRIBUNAL VIDE ITA NO.258 0/M/04 DATED 30.12.05 IS REPRODUCED AS UNDER: 10. WE HAVE HEARD THE RIVAL SUBMISSION AND CONSIDERED THE MATERIAL ON RECORD. WE ARE OF THE VIEW TH AT, IF THE ADDITIONAL EVIDENCES ARE GENUINE, THEN THEY ARE VERY RELEVANT FOR THE DETERMINATION OF QUESTION AS TO WHETHER I - CAP HAD RENDERED SERVICES FOR PROCURING BUSINESS IN SAFETY BONDS. WE THEREFORE SET ASIDE THE ISSUE TO THE FILE OF AO TO CONSIDER AND EXAMINE THE EVIDENCE SUBMITTED BY LEARNED COUNSEL AS LISTED ABOVE AND DECIDE WHETHER I - CAP HAVE RENDERED SERVICES IN CONNECTION WITH ISSUE OF SAFETY BONDS. SIMILARLY THE QUESTION OF RENDERING SERVICES BY I - CAP IN CONNECTION WITH ISSUE OF HUGHES TELECOM L TD. SHOULD ALSO BE CONSIDERED AFRESH IN THE LIGHT OF EVIDENCE FURNISHED BY THE ASSESSEE. THE AO WILL ALSO KEEP IN MIND THE POINTS RAISED BY THE LEARNED DR AS POINTED OUT ABOVE WHILE DECIDING THE ISSUE AFRESH AND PROVIDE ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WHERE THE ASSESSING OFFICER FINDS THAT EVIDENCE FURNISHED BY THE ASSESSEE AS LISTED IN THIS ORDER AND TRANSACTION WITH I - CAP ARE GENUINE AND THE I - CAP HAS ACTUALLY RENDERED SERVICES IN ITA NO. 3423/M/10 & 6948/M/05 M/S. ICICI SECURITIES LTD. 3 PROCURING BUSINESS IN SAFETY BONDS, THEN BROKERAGE S O PAID TO I - CAP SERVICES WILL BE ALLOWED. 3. THEREAFTER CERTAIN ADDITIONAL EVIDENCES AS DIRECTED BY THE TRIBUNAL WERE PRODUCED BY THE ASSESSEE BEFORE THE AO. HOWEVER, THE AO WAS NOT SATISFIED WITH THE SAID EVIDENCES AND THUS OBS ERVED THAT THE ASS ESSEE HAD FAILED TO PROVE THAT ANY SERVICES WERE PROVIDED BY I - CAP TO THE ASSESSEE. HE THUS AGAIN DISALLOWED THE ENTIRE COMMISSION AMOUNT OF RS.3 , 93 , 73 , 77 5 / - RELATING TO ISSUE OF ICICI SAFETY BONDS AND RS.23,44,265/ - ON ACCOUNT OF ISSUE OF SHARES OF HUGHE S TELECOM LTD. THE ASSESSEE AGAIN FILED AN APPEAL BEFORE THE CIT(A). THE LD. CIT(A) CALLED FOR CERTAIN REMAND REPORTS FROM THE AO. AFTER GOING THROUGH THE REMAND REPORTS AS WELL AS EVIDENCES SUBMITTED BY THE ASSESSEE , THE LD. CIT(A) WAS SATISFIED WITH T HE SUBMISSION OF THE ASSESSE THAT THE SERVICES WERE ACTUALLY RENDERED BY THE I - CAP TO THE ASSESSEE . HOWEVER, HE DISALLOWED THE 10% OF THE COMMISSION RELATING TO BOTH THE COMMISSION PAYMENTS , AS MENTIONED ABOVE , AS REASONABLE DISALLOWANCE. THE ASSESSEE I S THUS IN APPEAL BEFORE US AGAINST THE RETENTION OF THE SAID 10% DISALLOWANCE BY THE LD. CIT(A). ON THE OTHER HAND THE REVENUE IS IN APPEAL AGAINST THE DELETION OF THE REMAINING 90% DISALLOWANCE OUT OF THE TOTAL DISALLOWANCE MADE BY THE A.O. RELATING TO BR OKERAGE PAID BY THE ASSESSEE. 4. WE HAVE HEARD THE LD. REPRESENTATIVE OF THE PARTIES AND HAVE ALSO GONE THROUGH THE RECORDS. 5. IT MAY BE OBSERVED THAT IN THE OPERATIVE PART OF THE TRIBUNALS ORDER DATED 30.12.05 WHICH IS REPRODUCED ABOVE , IT HAS BEEN CATEGORICALLY DIRECTED THAT IF THE AO WOULD FIND THAT THE TRANSACTIONS WITH I - CAP WERE GENUINE AND THE I - CAP HAD ACTUALLY RENDERED SERVICES IN PROCURING BUSINESS TO THE ASSESSEE THEN BROKERAGE SO PAID TO I - CAP WOULD BE ALLOWED. THE LD. CIT(A) AFTER CAREFU L OBSERVATION OF THE RECORD AND EVIDENCES HAS REACHED TO A DEFINITE CONCLUSION THAT THE OBSERVATIONS OF THE ASSESSEE WITH I - CAP WERE GENUINE AND THE SERVICES WERE ACTUALLY RENDERED BY THE I - CAP TO THE ASSESSEE. THEN UNDER SUCH CIRCUMSTANCES THE TOKEN DISA LLOWANCE OF 10% WAS NOT JUSTIFIED AGAINST THE SPECIFIC DIRECTIONS OF THE TRIBUNAL IN THE CASE IN HAND. EVEN T HE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF ASSISTANT COMMISSIONER OF INCOME TAX VS. ARTHUR ANDERSON & CO . [2006] 5 SOT 393 (MUM.) HAS OBSERVED THAT THE VERY CONCEPT OF TOKEN DISALLOWANCE IS BAD IN LAW BECAUSE SUCH A DISALLOWANCE IS INHERENTLY BASED ON SURMISES AND CONJECTURES AND DEVOID OF A LEGALLY SUSTAINABLE FOUNDATION. IT WOULD BE A CASE WHERE ONE ACCEPTS ALL THE CONTENTIONS BUT N OT THE ITA NO. 3423/M/10 & 6948/M/05 M/S. ICICI SECURITIES LTD. 4 CONSEQUENCES FLOWING FROM ACCEPTING THE SAME. EVEN OTHERWISE , IN THE CASE IN HAND , THERE WAS NO DIRECTION BY THE TRIBUNAL TO DISALLOW ANY REASONABLE TOKEN DISALLOWANCE. THE ACT OF THE LD. CIT(A) IN MAKING A TOKEN DISALLOWANCE OF 10% , IN OUR VIEW , I S IN VIOLATION OF THE SPECIFIC DIRECTIONS OF THE TRIBUNAL GIVEN VIDE ORDER DATED 30.12.05. ACCORDINGLY THE RETENTION OF DISALLOWANCE OF 10% MADE BY THE LD. CIT(A) IS HEREBY SET ASIDE. 6 . THE APPEAL OF THE ASSESSEE BEARING NO. 3423/M/10 IS HEREBY ALLOWED , AND T HAT OF REVENUE BEARING NO.4868/M /10 IS HEREBY DISMISSED ACCORDINGLY. ITA NO. 6948 /MUM/0 5 ( RELEVANT TO ASSESSMENT YEAR 200 2 - 03 ) : THE FIRST ISSUE RAISED IN THIS APPEAL IS SIMILAR TO THE ISSUE THAT WE HAVE DEALT IN ITA NO.3423/M/10. THE LD. CIT( A) DELETED THE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF PAYMENT OF COMMISSION AMOUNTING TO RS. 5,58,88,900/ - TO I - CAP . 7 . IT MAY BE OBSERVED THAT THE LD. CIT(A) AFTER EXAMINING THE FACTS AND EVIDENCES IN DETAIL , RECORDED HIS SATISFACTION THAT THE SERV ICES WERE RENDERED BY THE I - CAP TO THE ASSESSEE AND THAT THE TRANSACTIONS IN QUESTION WERE GENUINE. HE ACCORDINGLY DELETED THE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF PAYMENT OF BROKERAGE BY THE ASSESSEE TO THE I - CAP. 8 . THE LD. D.R. ON THE OTHER HAND HAS SUBMITTED THAT THE PAYMENT OF ENTIRE COMMISSION OF THE BROKERAGE BY THE ASSESSEE TO THE I - CAP WAS UNREASONABLE. HE HAS AGAIN INSISTED THAT CERTAIN PERCENTAGE AS REASONABLE TOKEN DISALLOWANCE WAS REQUIRED TO BE MADE. 9 . IN VIEW OF OUR FINDINGS GI VEN ABOVE WHILE DISPOSING OF F ITA NO.3423/M/10 , WE DO NOT FIND ANY MERIT IN THE CONTENTION OF THE LD. D.R. HENCE THIS ISSUE IS DECIDED AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE. 1 0 . THE SECOND ISSUE RAISED IN THIS APPEAL BY THE REVENUE IS REGARDIN G THE DELETION OF THE ADDITION OF RS.8,72,016/ - WHICH WAS MADE BY THE AO ON ACCOUNT OF SOFTWARE EXPENSES TREATING THE SAME AS CAPITAL IN NATURE. THE ASSESSEE ON THE OTHER HAND CLAIMED THE SAME TO BE AS REVENUE IN NATURE. 1 1 . DURING THE RELEVANT PREVIO US YEAR THE ASSESSEE HAD INCURRED CERTAIN EXPENDITURE TOWARDS CUSTOMIZATION OF COMPUTER SOFTWARE AND CLAIMED THE SAME AS REVENUE EXPENDITURE. THE CASE OF THE ASSESSEE IS THAT , THESE EXPENSES WERE INCURRED FOR KEEPING UP WITH CONSTANT MODERNIZATION FOR THE BETTER CONDUCT AND IMPROVEMENT OF THE EXISTING BUSINESS. THESE ITA NO. 3423/M/10 & 6948/M/05 M/S. ICICI SECURITIES LTD. 5 EXPENSES ENABLED THE MANAGEMENT TO CARRY ON THE BUSINESS MORE EFFICIENTLY AND PROFITABLY. THE LIFE CYCLE OF SUCH SOFTWARE IS EXTREMELY SHORT LEVIED AND DOES NOT RESULT IN ANY BENEFIT OF ENDU RING IN NATURE. ON THE OTHER HAND THE AO WAS OF THE VIEW THAT THE SAID EXPENDITURE WAS CAPITAL IN NATURE. 1 2 . LD. CIT(A) , AFTER APPRECIATION OF THE FACTS AND RELYING UPON CERTAIN CASE LAWS , HELD THAT THE SAID EXPENDITURE WAS OF REVENUE IN NATURE AND TH US DELETED THE DISALLOWANCE MADE BY THE AO. 1 3 . THE LD. A.R. BEFORE US HAS RELIED UPON AN AUTHORITY OF THE HONBLE DELHI HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. ASAHI INDIA SAFETY GLASS LTD. [2012] 346 ITR 329 (DELHI) WHEREIN , THE HON BLE DELHI HIGH COURT , WHILE DEALING WITH THE SIMILAR TYPE OF ISSUE OF SOFTWARE EXPENSES , HAS HELD THAT EXPENDITURE NOT TO CREATE ANY ASSET OR A NEW SOURCE OF INCOME BUT TO UPGRADE THE SYSTEM WHICH ENABLES THE PROFIT MAKING STRUCTURE TO WORK MORE EFFICIENT LY , LEAVING THE SOURCE OF THE PROFIT - MAKING STRUCTURE UNTOUCHED, WOULD BE AN EXPENSE IN THE NATURE OF REVENUE EXPENDITURE. THE HONBLE DELHI HIGH COURT FURTHER OBSERVED THAT THIS PRINCIPLE IS APPLICABLE IN CASES WHICH DEAL WITH TECHNOLOGY AND SOFTWARE APP LICATION WHICH DO NOT IN ANY MANNER SUPPLANT THE SOURCE OF INCOME OR ADDED TO TH E FIXED CAPITAL OF THE ASSESSEE. 1 4 . THE ISSUE UNDER CONSIDERATION IS IN OUR VIEW SQUARELY COVERED WITH THE LAW LAID DOWN BY THE HONBLE DELHI HIGH COURT IN THE ABOVE NOTED AUTHORITY . HENCE RESPECTFULLY FOLLOWING THE SAME, THE DELETION MADE BY THE LD. CIT(A) ON ACCOUNT OF SOFTWARE EXPENSES IS HEREBY UPHELD. 1 5 . IN THE RESULT THE APPEAL OF THE ASSESSEE BEARING ITA NO. 3423/M/10 IS HEREBY ALLOWED AND THE APPEAL S OF THE REVEN UE BEARING ITA NO.6948/M/05 AND ITA NO.4868/M/10 ARE HEREBY DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 13.09. 2013. SD/ - SD/ - ( P.M. JAGTAP ) ( SANJAY GARG ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 13.09. 2013. * KISHORE ITA NO. 3423/M/10 & 6948/M/05 M/S. ICICI SECURITIES LTD. 6 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT ( A) CON CERNED, MUMBAI THE DR C BENCH //TRUE COPY// [ BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.