Anagram Stock Broking Ltd., Ahmedabad V. The ACIT.,Circle-3, Ahmedabad

ITA 521/AHD/2005

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 9878 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 7 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-10-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 14-09-2010
• Assessment Year: 2001-2002
• Appeal Filed On: 17-02-2005
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K MADHUSUDAN SRDR
• Assessee Lawyers: P M MEHTA
• Keywords: Capital asset; Depreciation; Opportunity of being heard; Additional evidence; Speculation loss; Bad and doubtful debts; Deemed dividend; Onus to prove; Revenue expenditure; Capital expenditure; TDS; Set aside
• Section: 43B; 2(22)(e)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD B BENCH BEFORE SHRI G.D. AGARWAL, VICE-PRESIDENT (AZ) AND SHRI MAHAVIR SINGH, JUDICIAL MEMBER ITA NO.521 & 1001/AHD/2005 [ASSTT.YEAR: 2001-02] ANAGRAM STOCK BROKING LTD. -VS- ACIT, CIRCLE-3, 801, SAKAR-I, OPP. NEHRU BRIDGE, 5 TH FLOOR INSURANCE BLDG. ASHRAM ROAD, AHMEDABAD INCOME-TAX CIRCLE, ASHRAM RD. PAN NO.AABCA2916K AHMEDABAD-380014 ACIT, CIRCLE-3 -VS- ANAGRAM STOCK BROKING LTD. AHMEDABAD 801, SAKAR-I, OPP. NEHRU BRIDGE ASHRAM ROAD, AHMEDABAD (APPELLANT) (RESPONDENT) ITA NO.774/AHD/2006 & C.O. NO.134/AHD/2006 (A/O ITA NO.774/AHD/2006) [ASSTT. YEAR: 2002 -03] ACIT, CIRCLE-3 -VS- ANAGRAM STOCK BROKERING L TD. AHMEDABAD 901, SAKAR-I, OPP. GANDHIGRAM STATION, AHMEDABAD ANAGRAM STOCK BROKING LTD. VS- ACIT, CIRCLE- 3 901, SAKAR-I, OP. GANDHIGRAM AHMEDABAD RLY. STATION, AHMEDABAD (APPELLANT) (RESPONDENT) ITA NO.1889/AHD/2007 & C.O. NO.204/AHD/2007 (A/O ITA NO.1889/AHD /2007) [ASSTT YEAR: 20 04-05] ACIT, CIRCLE-3 -VS- ANAGRAM STOCK BROKING LTD . AHMEDABAD 901, SAKAR-I, OPP. GANDHIGRAM RLY. STATION, AHMEDABAD ITA NO.521 & 1001-02/AHD/05, 774/AHD/06 & 1889/AHD/07, 2315/A /06 &CO 134/AHD/06 & 204/AHD/07 & 282/AHD/06 A.YS. 01-02, 02-03 & 04 -05 ACIT CIR-3, ABD V. ANAGRAM STOCK BROKING LTD/ANAGRAM SEC URITIES LTD. PAGE 2 ANAGRAM STOCK BROKING LTD. VS- ACIT, CIRCLE- 3 NR. COMMERCE SIX ROADS, AHMEDABAD NAVRANGPURA, AHMEDABAD PAN NO.AABCA9956F (APPELLANT) (RESPONDENT) ITA NO.1002/AHD/2005 & CO NO.156/AHD/2005 (A/O. ITA NO.1002/AHD/2005) ITA NO.2315/AHD/2006 AND CO NO.282/AHD/2006 (A/O. ITA NO.2315/AH D/2006 [ASSTT.YEAR: 2001- 02] ACIT, CIRCLE-3 -VS- ANAGRAM SECURITIES LTD . AHMEDABAD 901, SAKAR-1, NR. GANDHIGRAM RLY. STATION, OPP. NEHRU BRIDGE, AHMEDABAD-380 009 PAN NO.AABCA2916K ANAGRAM SECURITIES LTD. VS- ACIT, CIRC LE-3 901, SAKAR-I,NR. GANDHIGRAM AHMEDABAD RLY. STATION, OPP. NEHRU BRIDGE, AHMEDABAD ACIT, CIRCLE-3, -VS- ANAGRAM STOCK BROKERING LTD . AHMEDABAD 901 SAKAR-I, OPP. GANDHIGRAM RLY. STATION, AHMEDABAD PAN NO.AABCA2916K ANAGRAM STOCK BROKING LTD. VS- ACIT, CIRCLE- 3, AHMEDABAD 901, SAKAR-I, OPP GANDHIGRAM RLY STATION, AHMEDABAD ITA NO.755/AHD/2007 [ASSTT. YEAR: 2003-04] ACIT, CIRCLE, 3 -VS- ANAGRAM STOCK BROKERS LTD . AHMEDABAD 901, SAKAR-1, OPP. GANDHIGRAM, RLY. STATION, AHMEDABAD PAN NO.AABCA2916K (APPELLANT) (RESPONDENT) REVENUE BY : SHRI K.MADHUSUDAN, SR-DR ASSESSEE BY: SHRI P.M. MEHTA, AR O R D E R ITA NO.521 & 1001-02/AHD/05, 774/AHD/06 & 1889/AHD/07, 2315/A /06 &CO 134/AHD/06 & 204/AHD/07 & 282/AHD/06 A.YS. 01-02, 02-03 & 04 -05 ACIT CIR-3, ABD V. ANAGRAM STOCK BROKING LTD/ANAGRAM SEC URITIES LTD. PAGE 3 PER BENCH;- OUT OF THESE SEVEN APPEALS SIX BY REVENUE, ONE A PPEAL AND FOUR CROSS OBJECTIONS (COS) BY ASSESSEE, ARE ARISING OUT OF ORDERS OF COMMISSIONER OF INCOME-TAX (APPEALS)-IX & VII, AHME DABAD IN APPEALS NOS. CIT(A)-IX/CIR-3/96/04-05, CIT(A)-VII/CIR-3/40, 187, 97, 58/2005-06/04 /05/ 2006-07 BY DIFFERENT DATES 03-01-2005, 04-01-2005, 22-08-2006 & 02-01- 2006. THE ASSESSMENTS WERE FRAMED BY ACIT CIRCLE-3, AHMEDABAD U/S.143(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE HIS ORDERS DATED 31-03-2004, 31-03-2005 AND 29 -12-2006 FOR ASSESSMENT YEARS 2001-02, 2002-03 AND 2004-05 RESPE CTIVELY. AT THE OUTSET, IT IS TO BE MENTIONED THAT THESE APP EALS WERE HEARD PARTLY ON 14- 09-2010 AND PARTLY ON 15-09-2010, ARISING OUT OF SA ME GROUP, HENCE, THESE ARE DECIDED BY THIS CONSOLIDATED ORDER. 2. FIRST COMMON ISSUE IN APPEAL AND COS OF ASSESSEE IN ITA NO.521/AHD/2005, CO NO.134 & 156/AHD/2006, IS AS REGARDS LOSS CLAIMED ON ACCOUNT OF DIMINUTION IN VALUE OF STOCK, LOSS ON SALE OF STOCK AND STOCK-IN- TRADE WRITTEN OFF. THE GROUND RAISED ARE COMMON IN ALL AND THE FACTS BEING IDENTICAL, WE WILL TAKE UP THE GROUND AS RAISED IN ITA NO.521/AHD/2005 FOR ASSESSMENT YEAR 2001-02, AND DECIDE THE ISSUE, WHIC H READS AS UNDER:- 1. IN LAW AND IN THE FACTS AS WELL AS CIRCUMSTANCE S OF THE APPELLANTS CASE, THE CIT(A) HAS GROSSLY ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER INVOKING THE EXPLANATION TO SECTI ON 73 AND MAKING THE ADDITION FOR THE LOSSES ARISING FROM THE FOLLOW ING TRANSACTIONS IS A SPECULATIVE LOSS:- (A) DIMINUTION IN VALUE OF STOCK IN TRADE RS.10,28, 423 (B) LOSS IN SALE OF STOCK IN TRADE RS. 2,29,730 STOCK IN TRADE WRITTEN OFF RS. 85,444 TOTAL: RS.13,43,597 ITA NO.521 & 1001-02/AHD/05, 774/AHD/06 & 1889/AHD/07, 2315/A /06 &CO 134/AHD/06 & 204/AHD/07 & 282/AHD/06 A.YS. 01-02, 02-03 & 04 -05 ACIT CIR-3, ABD V. ANAGRAM STOCK BROKING LTD/ANAGRAM SEC URITIES LTD. PAGE 4 3. THE BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE T HAT ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED T HAT THE ASSESSEE IS IN THE BUSINESS OF SHARE BROKING AND HAS CLAIMED LOSS ON ACCOUNT OF SAUDAFER TRANSACTION AND CLAIMED THIS LOSS AS INCIDENTAL TO THE BUSINESS AND NOT ACCRUED ON ACCOUNT OF ASSESSEES INVESTMENTS RATHER , IT ARISES OUT OF TRADE OF CLIENTS AND THE LOSS SHOULD NOT BE TREATED AS SPECU LATION LOSS BUT THE ASSESSING OFFICER NOTED THE FACT THAT THE ASSESSEE WAS HAVING STOCK-IN-TRADE OF RS.12.61 LAKH AT THE BEGINNING OF THE YEAR AND T HE CLOSING VALUE WAS AT RS.7.92 LAKH AND IN VIEW OF THIS, HE REJECTED THE C LAIM OF THE ASSESSEE AND IN THE ABSENCE OF ANY PROOF REGARDING CLIENTS ALLEGED DISPUTES AS REGARDS TO TREATING OF THIS LOSS AS ARISING FROM ASSESSEES TR ADING IN SHARES AND STOCK. THE ASSESSEE EXPLAINED THAT SECTION 73 OF THE ACT W OULD NOT BE APPLICABLE TO SUCH LOSSES. AGGRIEVED, ASSESSEE PREFERRED APPEAL B EFORE CIT(A) AND CIT(A) CONFIRMED THE ACTION OF ASSESSING OFFICER VIDE PARA-4.3 OF HIS APPELLATE ORDER, RELYING ON THE DECISION IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1998-99 AS UNDER:- 4.3 I HAVE CAREFULLY CONSIDERED THE ABOVE ISSUE. O N PERUSAL OF THE CLAIM, PROVISIONS OF SECTION 73 AND ITS EXPLANATION I FIND THAT APPELLANTS CASE IS CLEARLY ATTRACTING THE SAID PROVISIONS AND ACCORDINGLY THE ASSESSING OFFICER WAS JUSTIFIED IN HOLDING ABOVE TH REE AMOUNTS VIZ. DIMINUTION IN VALUE OF STOCK, LOSS ON SALE OF STOCK IN TRADE AND WRITE OFF OF STOCK IN TRADE AS SPECULATION LOSSES. THE APPELL ANTS BUSINESS IS THAT OF BROKERAGE OF SHARE AND THEREFORE, LOSS IN TRANSA CTION ARISING AS A RESULT OF PURCHASE AND SALE OF SHARES RESULTING INT O LOSSES TO THE APPELLANT WOULD BE CONSIDERED AS SPECULATION LOSSES IN VIEW OF THE ABOVE EXPLANATION TO SECTION 73. I ALSO FIND THAT T HIS ISSUE AROSE IN APPELLANTS OWN CASE FOR A.Y. 1998-99 AND LD. CIT(A )-VII VIDE ORDER DATED 31.1.2003, UPHELD THE ACTION OF THE A.O TO TR EAT THE LOSS AS SPECULATIVE. HE ALSO HELD THAT THIS LOSS COULD NOT BE ALLOWED TO BE SET OFF AGAINST OTHER INCOME. FOLLOWING THE APPELLATE ORDER FOR A.Y 98-99, THESE GROUNDS STAND DISMISSED. AGGRIEVED, NOW ASSESSEE CAME IN SECOND APPEAL BEFOR E THE TRIBUNAL. ITA NO.521 & 1001-02/AHD/05, 774/AHD/06 & 1889/AHD/07, 2315/A /06 &CO 134/AHD/06 & 204/AHD/07 & 282/AHD/06 A.YS. 01-02, 02-03 & 04 -05 ACIT CIR-3, ABD V. ANAGRAM STOCK BROKING LTD/ANAGRAM SEC URITIES LTD. PAGE 5 4. BEFORE US LD. COUNSEL FOR THE ASSESSEE, SHRI P.M . MEHTA STATED THAT THE AUTHORITIES BELOW HAVE FAILED TO APPRECIATE THAT TH ESE ITEMS RESULTING INTO LOSSES WERE ARISEN ON ACCOUNT OF SAUDAFER TRANSACTI ON AND THEREFORE IT WAS PART OF ASSESSEES BROKERAGE BUSINESS. ACCORDING TO HIM, THE LOSS ARISING FROM SAUDAFER TRANSACTION NOT AT ALL ATTRIBUTABLE TO THE SALE AND PURCHASE OF SHARES BY THE ASSESSEE-COMPANY AND THEREFORE EXPLANATION T O SECTION 73 IS NOT APPLIED. ON THE OTHER HAND, LD. SR-DR, SHRI K. MUDH USUDAN FULLY SUPPORTED THE ORDERS OF LOWER AUTHORITIES. 5. AFTER HEARING BOTH THE SIDES, WE FIND THAT NONE OF THE AUTHORITIES BELOW HAVE RECORDED THE FACTUAL FINDING IN RESPECT OF THE FACT THAT WHETHER THE TRANSACTIONS ON WHICH LOSS ARISING IS OUT OF ASSESS EES OWN ACCOUNT OF SHARES OR ON ACCOUNT OF CLIENTS ACCOUNT. IN THE ABSENCE O F ANY FACTUAL FINDING, WE SET ASIDE THIS ISSUE TO THE FILE OF ASSESSING OFFICER T O VERIFY THESE FACTS AND ACCORDINGLY DECIDE THE ISSUE AFRESH. SIMILAR ARE THE FACTS IN ALL ABOVEMENTIONED APPEAL AND COS, HENCE TAKING A CONSISTING VIEW, WE SET ASIDE THIS COMMON ISSUE IN ALL APPEAL AND COS, TO THE FILE OF ASSESSING OFFICER AS INDICATIVE ABOVE AND T HIS COMMON ISSUE OF ASSESSEES APPEAL AND COS ARE ALLOWED FOR STATISTIC AL PURPOSES. 6. THE NEXT COMMON ISSUE IN ASSESSEES APPEAL IN ITA NO.521/AHD/2005 AND CO NO.156/AHD/2005 IS AGAINST THE ORDER OF CIT( A) IN UPHOLDING THE PART OF DISALLOWANCE OF BAD DEBTS. SINCE THIS COMMON ISS UE IS ALSO ARISEN IN REVENUES APPEALS IN ITA NO.1001-1002/2005 FOR ASSESSMENT YEAR 2001-02, HENCE WHILE DEALING WITH THE REVENUES APPEALS, WE WILL DECIDE THIS COMMON ISSUE. 7. THE NEXT COMMON ISSUE IN ITA NO.521/AHD/2005 AND CO NO.156/AHD/2005 OF ASSESSEES AND REVENUES APPEAL IN ITA NO.1002/AHD/2005 IS AS REGARDS TO THE DISALLOWANCE OF CLAIM OF UNPA ID TURNOVER FEE PAYABLE TO STOCK EXCHANGE BOARD OF IND IA (SEBI IN SHORT) BY ITA NO.521 & 1001-02/AHD/05, 774/AHD/06 & 1889/AHD/07, 2315/A /06 &CO 134/AHD/06 & 204/AHD/07 & 282/AHD/06 A.YS. 01-02, 02-03 & 04 -05 ACIT CIR-3, ABD V. ANAGRAM STOCK BROKING LTD/ANAGRAM SEC URITIES LTD. PAGE 6 INVOKING THE PROVISION OF SECTION 43B OF THE ACT. F OR THIS, ASSESSEE HAS RAISED FOLLOWING GROUND NO.3:- 3. IN LAW AND IN THE FACTS AS WELL AS CIRCUMSTANCE S OF THE APPELLANTS CASE, THE CIT(A) HAS GROSSLY ERRED IN UPHOLDING THE DISALLOWANCE OF RS.34,84,933 BEING THE UNPAID TURNOVER FEES PAYABLE TO SEBI INVOKING THE PROVISIONS OF SECTION 43B OF THE I.T. ACT WHEN HE OUGHT TO HAVE DELETED THE A. IN NOT DOING SO, HE HAS FAILED TO AP PRECIATE THAT THE SEBI FEES ARE NOT TAXES COVEREDU/S.43B OF THE I.T. ACT. SINCE THE FACTS ARE IDENTICAL AND COMMON IN ALL THE SE APPEALS, WE WILL TAKE THE FACTS IN ASSESSMENT YEAR 2001-02 OF ASSESSEES APPE AL IN ITA NO.521/AHD/2005 AND DECIDE THE ISSUE. 8. THE BRIEF FACTS ARE THAT ASSESSING OFFICER DURIN G THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT THE ASSESSEE HA S DEBITED SEBI TURNOVER FEES AT RS.43,39,933/- BUT HAS NOT MADE PAYMENT AND TRANSFERRED THE SAME TO SEBI TURNOVER FEES PAYABLE ACCOUNT AT RS.37,29,832/ -. THE ASSESSEE CLAIMED THAT THIS AMOUNT HAS BEEN CLAIMED AS DEDUCTION IN V IEW OF PROVISION OF SECTION 43B OF THE ACT. THE ASSESSING OFFICER NOTED THAT TH E ASSESSEE HAS NOT MADE PAYMENT OF SEBI FEE TILL THE DATE OF FILING RETURN AT RS.34,84,933/- AND ACCORDINGLY HE DISALLOWED THE SAME. AGGRIEVED, ASSE SSEE PREFERRED APPEAL BEFORE CIT(A) AND CIT(A) CONFIRMED THE ACTION OF AS SESSING OFFICER BY GIVING FOLLOWING FINDING IN PARA-6.2 OF HIS APPELLATE ORDER:- 6.2 I HAVE CONSIDERED THE ABOVE SUBMISSIONS AND TH E OBSERVATIONS OF THE A.O. IN THE ASSESSMENT ORDER. IT IS NOT IN DISP UTE THAT SEBI IS A GOVERNMENT OR AUTHORITY WHICH CHARGES FROM THE BROK ERS TURNOVER FEES AND BROKERS ARE REQUIRED TO PAY THE SAME AS PER THE RULES AND REGULATIONS OF THE SEBI. UNDER THE CIRCUMSTANCES I AGREE WITH THE ASSESSING OFFICER THAT SUCH PAYMENT WOULD BE ALLOWE D IN TERMS OF SECTION 43B ON ACTUAL PAYMENT ONLY, WITHIN THE YEAR OR WITHIN THE PERIOD UPTO WHICH THE RETURN IS TO BE FILED. THE APPELLANT HAS RELIED UPON THE DECISION OF THE ITAT MUMBAI IN THE CASE OF RELIANCE SHARES AND STOCK BROKING PVT. LTD. BUT IN THE SAID CASE ALSO IT IS H ELD THAT RECOVERABLE PART OF THE SEBI FEES WOULD NOT ATTRACT SECTION 43B BUT THE REMAINING PORTION WOULD ATTRACT SECTION 43B OF THE ACT. THE APPELLANT COULD NOT FURNISH ANY EVIDENCE THAT SUCH FEES FORMS THE RECOVERABLE PART. UNDER THIS CIRCUMSTANCES THE ADDITION OF RS.3729832/- MADE U/S .43B BY THE ITA NO.521 & 1001-02/AHD/05, 774/AHD/06 & 1889/AHD/07, 2315/A /06 &CO 134/AHD/06 & 204/AHD/07 & 282/AHD/06 A.YS. 01-02, 02-03 & 04 -05 ACIT CIR-3, ABD V. ANAGRAM STOCK BROKING LTD/ANAGRAM SEC URITIES LTD. PAGE 7 ASSESSING OFFICER IS CONFIRMED AS THE SAME CAN BE A LLOWED ON PAYMENT BASIS ONLY. AGGRIEVED, NOW ASSESSEE IS IN SECOND APPEAL BEFORE TRIBUNAL. 9. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. WE ARE IN FULL AGREEMENT WITH THE LOWER AUTHORITIES THAT DEDUCTION OF SEBI TURNOVER FEE IS TO BE ALLOWE D ONLY ON ACTUAL PAYMENT. WE FIND THAT CIT(A) HAS GIVEN A CATEGORICAL FINDING THAT THE DEDUCTION OF PAYMENT U/S.43B ON ACCOUNT OF SEBI TURNOVER FEE IS ALLOWABLE ON ACTUAL PAYMENT BASIS ONLY. ACCORDINGLY, WE CONFIRM THE FIN DINGS OF LOWER AUTHORITIES BUT SUBJECT TO ONE DIRECTION THAT THIS IS ALLOWABLE IN THE YEAR OF ACTUAL PAYMENT. THE ASSESSING OFFICER WILL VERIFY THE SAME, AFTER P ROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO ASSESSEE. THIS COMMON ISSUE IS SET ASIDE TO THE FILE OF ASSESSING OFFICER AS INDICATED ABOVE AND AL LOWED FOR STATISTICAL PURPOSES. 10. THE NEXT COMMON ISSUE IN REVENUES APPEALS IN ITA NO.1001- 1002/AHD/2005 AS WELL AS ASSESSEES APPEAL IN ITA NO.521/AHD/2005 IS AS REGARDS THE FACTS ARE AS UNDER:- ITA NO.1001/AHD/2005 (REVENUES APPEAL) 1.THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN I) ALLOWING BAD DEBTS OF RS.26,46,875/- ITA NO.1002/AHD/2005 (REVENUES APPEAL) 1. THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN I) ALLOWING BAD DEBTS OF RS.3,88,722/- BUSINESS LOS S. ITA NO.521/AHD/2005 (ASSESSEES APPEAL) 2. IN LAW AND IN THE FACTS AS WELL AS CIRCUMSTANCES OF THE APPELLANTS CASE, THE CIT(A) HAS GROSSLY ERRED IN UPHOLDING THE DISALLOWANCE OF RS.1,89,327 UNDER THE HEAD BAD DEBTS WHEN NO SUCH D ISALLOWANCES IS CALLED FOR MORE PARTICULARLY WHEN COMPLETE DETAILS OF SUCH AMOUNT WRITTEN OFF HAS BEEN FURNISHED. THIS HONBLE TRIBUN AL MAY, THEREFORE, BE PLEASED TO HOLD THAT THERE IS NO JUSTIFICATION FOR UPHOLDING THE ITA NO.521 & 1001-02/AHD/05, 774/AHD/06 & 1889/AHD/07, 2315/A /06 &CO 134/AHD/06 & 204/AHD/07 & 282/AHD/06 A.YS. 01-02, 02-03 & 04 -05 ACIT CIR-3, ABD V. ANAGRAM STOCK BROKING LTD/ANAGRAM SEC URITIES LTD. PAGE 8 DISALLOWANCE OF RS.1,89,327 CLAIMED BY THE APPELLAN T AS BAD DEBTS AND DIRECT THE DELETION THEREOF. 11. THE FACTS BEING EXACTLY IDENTICAL IN THESE APPE ALS AND CO, WE WILL TAKE UP THE FACTS FROM REVENUES APPEAL IN ITA NO.1001/AHD/2005 . THE BRIEF FACTS ARE THAT THE ASSESSEE CLAIMED BAD D EBTS AMOUNTING TO RS.28,36,202/- AND ASSESSEE HAS FILED DETAILS IN RE SPECT OF BAD DEBTS AS UNDER:- SR.NO. NAME OF THE PARTIES AMOUNT RS. 1. ANAND C THAKKAR 5,85,882 2. AVINASH IYAPAN 1,30,034 3. VTVS RAJU 2,83,815 4. NAVMEE SECURITIES P. LTD. 16,96,781 5. OTHERS 8,55,606 35,52,118 THE ASSESSING OFFICER DURING THE COURSE OF ASSESSME NT PROCEEDINGS NOTED THAT IT IS DOING MAINLY BROKERAGE AND SPECULATING I N SHARES. HE FURTHER NOTED THAT THE ASSESSEE HAD OPENED MANY ACCOUNTS IN THE N AME OF ITS CLIENTS AND PURCHASERS AND ALSO SOLD SHARES IN THE NAMES OF CLI ENTS UNDER THE MEMBERSHIP CARD OF AHMEDABAD AND NATIONAL STOCK EXC HANGES AND CHARGED BROKERAGE ACCORDINGLY. THE AO FURTHER NOTED FROM TH E ACCOUNTS OF VARIOUS PERSONS IN THE BOOKS OF ASSESSEE THAT BAD DEBTS HAD ARISEN ON ACCOUNT OF EARNING OF BROKERAGE ONLY, AS IT IS NOT ENGAGED IN THE TRADING OF SHARES IN THESE ACCOUNTS. ACCORDING TO ASSESSING OFFICER, THE PURCHASE AND SALES OF TRANSACTION APPEARING IN THE LEDGERS WERE NOT THE S ALE AND PURCHASE OF THE ASSESSEE ITSELF BUT TRANSACTION OF SUCH PARTIES ON WHICH IT HAS EARNED INCOME BY WAY BROKERAGE ONLY. ACCORDINGLY HE HELD THAT THE CONDITIONS LAID DOWN AS PER PROVISION OF SEC.36(2) WERE NOT SATISFIED AND H E DISALLOWED THE CLAIM OF BAD DEBT. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFO RE CIT(A). BEFORE CIT(A) IT HAD FILED COMPLETE DETAILS AND IN VIEW OF DETAIL S, CIT(A) ALLOWED THE CLAIM OF ASSESSEE BY GIVING FOLLOWING FINDING IN PARA-5.2 OF HIS APPELLATE ORDER:- ITA NO.521 & 1001-02/AHD/05, 774/AHD/06 & 1889/AHD/07, 2315/A /06 &CO 134/AHD/06 & 204/AHD/07 & 282/AHD/06 A.YS. 01-02, 02-03 & 04 -05 ACIT CIR-3, ABD V. ANAGRAM STOCK BROKING LTD/ANAGRAM SEC URITIES LTD. PAGE 9 5.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPEL LANT ON THE ABOVE ISSUE. THE APPELLANT HAD CLAIMED AN AMOUNT OF RS.35 .52 LACS AS BAD DEBTS. THE ASSESSING OFFICER HAS REJECTED THE ABOVE CLAIM MAINLY FOR THE REASONS THAT THE IMPUGNED AMOUNT IS NOT CREDITED TO THE PROFIT AND LOSS ACCOUNT BUT ONLY AMOUNT CREDITED IS BROKERAGE INCOM E. HE HAS ALSO HELD THAT THE ALTERNATE CLAIM FOR ALLOWING THE AMOU NT AS BUSINESS LOSS U/S.28(1) IS NOT ADMISSIBLE IN RESPECT OF THE ITEMS DISALLOWED BY HIM, ON THE GROUND THAT THE ASSESSEE HAS TO PROVE THAT THE AMOUNT HAD BECOME NON-RECOVERABLE OR WAS NOT LIKELY TO BE RECOVERED I N FUTURE. ON THE OTHER HAND THE APPELLANT HAD CLAIMED THAT IT IS THE BUSINESS OF THE APPELLANT TO BUY AND SELL SHARES ON BEHALF OF T HE CLIENTS FROM WHICH IT EARNS INCOME BY WAY OF BROKERAGE. THUS, TRANSACTION S ARE CARRIED OUT IN THE COURSE OF BUSINESS. THE LOSS ARISING ON SUCH TR ANSACTION IS DIRECTLY ATTRIBUTABLE TO THE BUSINESS. IN SUPPORT OF THESE A RGUMENTS THE APPELLANT HAS RELIED UPON VARIOUS CASES WHICH ARE CONSIDERED. ON CONSIDERATION OF SUBMISSIONS I FIND THAT THE JUR ISDICTIONAL HIGH COURT DECISION IN THE CASE OF ABDUL RAZAK & COMPANY IS MOST RELEVANT IN THE SAID CASE WHEREIN IT WAS HELD AS UNDER:- HELD, ON THE FACTS, THAT THE TRIBUNAL HAD OVERLOOK ED THE STATEMENTS OF THE ASSESSEE AND THE DEBTOR-FIRM WHER E IT HAD BEEN CLEARLY STATED THAT THESE ADVANCES WERE ASKED FOR A ND MADE IN FACT, HAVING REGARD TO THE COMMERCIAL RELATIONS BET WEEN THE PARTIES AND THE COMMERCIAL RELATIONS WERE ADMITTEDL Y OF PRINCIPAL AND COMMISSION AGENTS. THE TRIBUNAL WAS NOT JUSTIFI ED IN HOLDING THAT THE ADVANCE TO M/S. M.P WAS NOT IN THE ORDINAR Y COURSE OF BUSINESS OF THE ASSESSEE-FIRM. THE DEBT OWED BY M/S . M.P. WAS ONE WHICH SPRANG DIRECTLY FROM THE BUSINESS OF THE ASSESSEE AND WAS ALLOWABLE AS A BAD DEBT AND CONSEQUENTLY, THERE FORE, AS A TRADING LOSS UNDER S.28(1). ITAT, AHMEDABAD IN THE CASE OF ASHOK KUMAR LALITKUM AR REPORTED IN 53 ITD PAGE 326 HAS CLEARLY HELD THAT I N THE CASE OF SHARE BROKERS, THE CLAIM OF BAD DEBT U/S.36 COULD N OT BE ALLOWED, BUT THE SAME CAN BE CONSIDERED AS BUSINESS/TRADING LOSS. THE A.OS ACTION IS UPHELD IN PRINCIPLE. ON PERUSAL OF THE DETAILS FILED I FIND THAT THE APP ELLANT HAD IN SO FAR AS THE AMOUNT RECEIVABLE FROM VTVS RAJU AND NAVMEE SECURITIES IS CONCERNED, SPECIFICALLY EXPLAINED THA T THE AMOUNT IS NOT RECOVERABLE AND THE APPELLANT HAD FILED CRIMINA L COMPLAINT FOR BOUNCE OF CHEQUES RECEIVED FROM THE VTVS RAJU. HOWE VER THE AMOUNT IS STILL NOT RECOVERED. SIMILARLY IN THE CAS E OF NAVMEE SECURITIES THE APPELLANT HAS INITIATED RECOVERY PRO CEEDINGS BUT THE ITA NO.521 & 1001-02/AHD/05, 774/AHD/06 & 1889/AHD/07, 2315/A /06 &CO 134/AHD/06 & 204/AHD/07 & 282/AHD/06 A.YS. 01-02, 02-03 & 04 -05 ACIT CIR-3, ABD V. ANAGRAM STOCK BROKING LTD/ANAGRAM SEC URITIES LTD. PAGE 10 SAID PARTY HAS NOT MADE THE PAYMENT. IN RESPECT OF THE SAID PARTY IN THE CASE OF ANAGRAM SECURITIES LTD. A GROUP CONC ERN OF THE APPELLANT, THE ASSESSING OFFICER HIMSELF HAS ALLOWE D THE CLAIM OF BUSINESS LOSS IN RESPECT OF THE AMOUNT RECOVERABLE FROM THE SAID PARTY. THEREFORE, THESE TWO AMOUNTS ARE CLEARLY ADM ISSIBLE AS BUSINESS LOSS AS FACTS OF THESE ARE IDENTICAL, AND THE ASSESSING OFFICER IS DIRECTED TO ALLOW DEDUCTION FOR THE SAID TWO AMOUNTS. IN SO FAR AS THE OTHER AMOUNTS OF RS.8,55,605/- RECOVE RABLE BY THE APPELLANT ARE CONCERNED, ON PERUSAL OF THE DETAILS MADE AVAILABLE I FIND THAT THESE ARE VERY SMALL AMOUNTS WHICH ARE NOT RECEIVED. WHEREVER THE AMOUNTS ARE RECEIVED IN THE SUBSEQUENT YEAR, IT IS A PAYMENT AND IT IS CREDITED BY THE APPELLANT IN THE RELEVANT ACCOUNTS. THEREFORE, SUCH AMOUNTS ARE ADMISSIBLE AS BUSINESS LOSS. SUCH AMOUNT IS OF RS.483415/-. THE BALANCE AM OUNT OF RS.3,72,189/- IS DEBIT BALANCES IN DIFFERENCE ACCOU NTS LIKE REPAIRS, ELECTRICITY EXPENSES ETC. WRITTEN OFF BY THE APPELL ANT AND THEREFORE THE SAME ARE ADMISSIBLE, EXCEPT THE AMOUNT OF LOANS OF RS.189327/- WRITTEN OFF BY THE APPELLANT FOR WHICH NO PROPER DETAILS ARE AVAILABLE. IN MY VIEW IT IS NOT THE BUS INESS FOR THE APPELLANT OF GRANTING OF LOANS. THEREFORE, TO THE E XTENT OF RS.1,89,327/- THE DISALLOWANCE IS CONFIRMED AND BAL ANCE DISALLOWANCE OF RS.26,46,875/- IS ALLOWED AS BUSINE SS LOSS. THE APPELLANT GETS RELIEF OF RS.26,46,875/-. AGGRIEVED, BOTH ASSESSEE AS WELL AS REVENUE CAME IN APPEAL BEFORE TRIBUNAL. 12. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUG H THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ASSESSE E HAS FILED COMPLETE DETAILS IN RESPECT OF DISALLOWANCE OF FOLLOWING BAD DEBTS:- I) VTVS RAJU 2,83,815 II) NAVMEE SECURITIES PVT. LTD. 16,96,781 III) OTHERS 8,55,606 TOTAL 28,36,202 THE ASSESSEE HAS FILED EXPLANATION IN RESPECT OF FI RST PARTY I.E. VTVS RAJU, WHO IS A REGISTERED CLIENT WITH HYDERABAD BRANCH OF ASSESSEE-COMPANY AND CARRYING ON BUSINESS OF PURCHASE & SALE OF SHARES T HROUGH ASSESSEE. THE ASSESSEE HAS SUBMITTED DETAILS OF AMOUNT OUTSTANDIN G, WHICH IS WRITTEN OFF AS IRRECOVERABLE AS UNDER:- DATE BILL SETTLEMENT NO. AMOUNT ITA NO.521 & 1001-02/AHD/05, 774/AHD/06 & 1889/AHD/07, 2315/A /06 &CO 134/AHD/06 & 204/AHD/07 & 282/AHD/06 A.YS. 01-02, 02-03 & 04 -05 ACIT CIR-3, ABD V. ANAGRAM STOCK BROKING LTD/ANAGRAM SEC URITIES LTD. PAGE 11 1-3-01 ZGA48 344016 23-3-01 ZGA51 38371 382387 LESS: AMOUNT RECEIVED 72172 CREDIT BALANCE IN ANAGRAM STOCK BROKING LTD. (ADJUSTED 3-3-01) 26400 NET AMOUNT WRITTEN OFF 283815 THE ASSESSEE HAS ALSO SUBMITTED LEDGER COPY OF ACCO UNT, WHICH CLEARLY REVEALS THAT PARTY HAS FAILED TO MAKE PAYMENT BEFOR E THE DATE OF PAYING TO BSE AND ASSESSEE HAS GIVEN VARIOUS REMINDERS BUT TH E CLIENT FAILED TO MAKE PAYMENT OF ASSESSEES DUES AND ON PERSISTENT FOLLOW UP THE CLIENT ALSO ISSUED CHEQUES DRAWN ON UTI BANK LTD. BEARING NO.419690 FO R RS.2,85,000/- ON 28- 02-2001 WHICH WAS RETURNED UNPAID. ACCORDINGLY, THE SAID AMOUNT OF RS.2,83,815/- WAS WRITTEN OFF AS BAD DEBTS ON 31-03 -2001 AFTER ADJUSTING THE CREDIT BALANCE IN ANAGRAM SECURITIES LTD., A GROUP COMPANY. AS REGARDS TO ANOTHER PARTY, NAVMEES SECURITIES PVT . LTD, WAS REGISTERED AS CLIENT WITH HYDERABAD BRANCH OF ASSESSEE-COMPANY AN D HAD BEEN CARRYING ITS BUSINESS OF PURCHASE & SALE OF SHARES THROUGH ASSES SEE-COMPANY AND PLACING ORDER FOR PURCHASE & SALE OF SHARES ON UNDE R CLIENT CODE 137099. THE SAME IS AS UNDER:- DATE BILL SETTLEMENT NO. AMOUNT 12-10-00 ZGA28 1846136 LESS: ZGA29 (19-10-00) 149355 NET AMOUNT WRITTEN OFF 1696781 THE ASSESSEE FILED LEDGER COPY OF THE ACCOUNT OF TH E PARTY AND FROM THE SAME IT IS NOTE THAT THE PARTY HAS FAILED TO MAKE PAYMEN T BEFORE THE DUE DATE AND THE ASSESSEE HAS TO PAY TO BSE AND SIMILARLY THE AS SESSEE HAS TRIED TO COVER THE SAID AMOUNT FROM THE SAID PARTY AND FOR THIS A LEGAL NOTICE WAS SERVED UPON THE CLIENTS THROUGH LD. COUNSEL SHRI HIMANSHU T PATEL DATED 19-12-2000 BUT THE PARTY HAS NOT MADE ANY PAYMENT AND IN RESPE CT OF OTHER BALANCE WRITTEN OFF THE ASSESSEES PLEA THAT ALL THE BALANC ES HAVE ARISEN DUE TO TRADING ITA NO.521 & 1001-02/AHD/05, 774/AHD/06 & 1889/AHD/07, 2315/A /06 &CO 134/AHD/06 & 204/AHD/07 & 282/AHD/06 A.YS. 01-02, 02-03 & 04 -05 ACIT CIR-3, ABD V. ANAGRAM STOCK BROKING LTD/ANAGRAM SEC URITIES LTD. PAGE 12 ACTIVITIES CARRIED OUT BY THE COMPANY ON INSTRUCTIO NS OF THE CLIENT IN THE NORMAL COURSE OF BUSINESS AND FILED COPIES OF LEDGER ACCOU NTS OF CLIENTS. THE AMOUNTS OF MARGINS HAVE BEEN ADJUSTED TO THE OUTSTANDING BA LANCES AND SHARES HELD AS MARGIN HAVE BEEN SOLD OFF BY THE COMPANY AND THE AMOUNT REALIZED HAS BEEN ADJUSTED AGAINST THE AMOUNT OUTSTANDING. ONLY THE BALANCE LEFT OVER HAS BEEN WRITTEN OFF AS IRRECOVERABLE. THE ADJUSTMENT O F MARGIN MONEY TOWARDS OUTSTANDING BALANCES ITSELF SUGGESTS THAT THE COMPA NY HAD MADE DUE EFFORTS FOR THE RECOVERY OF THE OUTSTANDING AMOUNT. HOWEVER , AMOUNTS OF NON- RECOVERY HAD BEEN WRITTEN OFF AS BAD DEBTS AND FOR THIS COPY OF DETAILED REPORTS OF THE BRANCH MANAGERS RECEIVED BY THE HEAD OFFICER THROUGH E-MAILS ARE MADE AVAILABLE TO LOWER AUTHORITIES. IN VIEW OF THE ABOVE SATED DETAILED SUBMISSIONS WITH NECESSARY EVIDENCES, IT IS CLEAR T HAT THE ASSESSEE HAD DISCHARGED ITS ONUS TO PROVE THE SAID CLAIM AS BAD DEBTS WHICH IS ALLOWABLE U/S.36(1)(VII) OF THE ACT. EVEN OTHERWISE THIS ISS UE IS NOW COVERED IN FAVOUR OF ASSESSEE BY THE JUDGMENT OF HONBLE SUPREME COURT I N THE CASE OF TRF LIMITED V CIT (2010) 323 ITR 397 (SC) AND IN THE CASE OF VIJAYA BANK V. CIT AND ANOTHER (2010) 323 ITR 166 (SUPREME COURT). WE FIND THAT T HE ASSESSING OFFICER HAD MADE THE DISALLOWANCE ON THE GROUND THAT THE AS SESSEE HAS NOT PRODUCED SUFFICIENT EVIDENCE TO SHOW THAT REASONABLE STEPS W ERE TAKEN TO RECOVER THE DEBT. HOWEVER, THERE IS NO DISPUTE THAT THE ABOVE AMOUNT WAS DULY WRITTEN OF IN THE ASSESSEES BOOKS OF ACCOUNT. ON THE ABOVE FACTS TH E DECISION OF HONBLE APEX COURT IN THE CASE OF T.R.F. LIMITED (SUPRA) WOULD B E SQUARELY APPLICABLE WHEREIN, THEIR LORDSHIPS 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 DED UCTION IN RELATION TO BAD DEBTS, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTA BLISH THAT THE DEBT, IN FACT, HAS BECOME IRRECOVERABLE : IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. AS REGARDS TO THE CLAIM OF THE ASSESSEE OF BAD DEBT S RS.1,89,327/-, THE CIT(A) HAS GIVEN A CATEGORICALLY FINDING THAT NO PR OPER DETAILS ARE MADE AVAILABLE AND MOREOVER THE BUSINESS OF THE ASSESSEE IS NOT THAT OF GIVING ITA NO.521 & 1001-02/AHD/05, 774/AHD/06 & 1889/AHD/07, 2315/A /06 &CO 134/AHD/06 & 204/AHD/07 & 282/AHD/06 A.YS. 01-02, 02-03 & 04 -05 ACIT CIR-3, ABD V. ANAGRAM STOCK BROKING LTD/ANAGRAM SEC URITIES LTD. PAGE 13 LOANS, THE BAD DEBTS CANNOT BE ALLOWED. ACCORDINGLY , WE CONFIRM THE ORDER OF CIT(A) AND THIS COMMON ISSUE OF BOTH THE PARTIES AR E DISMISSED. SIMILAR THE FACTS ARE IN REVENUES APPEAL IN ITA NO.1002/AHD/2005 AND ASSESSEES APPEAL IN ITA NO.521/AHD/2005 , HENCE, TAKING A CONSISTENT VIEW WE ALLOW THE CLAIM OF ASSESSEE. 13. THE NEXT COMMON ISSUE IN THESE APPEALS OF REVEN UE IN ITA NO.1001- 1002/AHD/2005 AND ITA NO.774/AHD/2006 IS AS REGARDS TO DISALLOWANCE OF SOFTWARE EXPENSES AS REVENUE EXPENSES DELETED BY CI T(A). THE FACTS AND CIRCUMSTANCES ARE EXACTLY IDENTICAL IN ALL THE TWO ASSESSMENT YEARS. WE WILL TAKE UP THE FACTS FROM THE REVENUES APPEAL IN ITA NO.1001/AHD/2005 WHICH IS A LEAD MATTER, AS UNDER:- ITA NO.2001/AHD/2005 REVENUES APPEAL II) ALLOWING SOFTWARE EXPENSES OF RS.73,10,170/- A S REVENUE EXPENSES. ITA NO.1002/AHD/2005 II) ALLOWING SOFTWARE EXPENSES OF RS.43,78,080/- AS REVENUE EXPENSES ITA NO.774/AHD/2006 2) THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN DELETING THAT SOFTWARE EXPENSES OF 1072400/-. 14. THE BRIEF FACTS ARE THAT THE ASSESSEE HAS CLAIM ED SOFTWARE EXPENSES AS REVENUE EXPENDITURE AT RS.73,10,170/- AND CLAIMED T HAT IT HAD INCURRED EXPENSES ON PURCHASE OF CTCL SOFTWARE AND TREATED T HE SAME AS REVENUE EXPENDITURE. THE ASSESSING OFFICER DURING THE COURS E OF ASSESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE TREATED THIS AS DEFERRED REVENUE EXPENDITURE IN ITS BOOKS OF ACCOUNT, WHEREAS CLAIME D THE SAME AS REVENUE EXPENDITURE WHILE FILING RETURN OF INCOME. THE ASSE SSING OFFICER HAS STATED THAT COMPUTER IS DEFINED VARIOUSLY AND HE HAS REPRO DUCED DEFINITIONS OF COMPUTER. HE STATED THAT PHYSICAL COMPONENT FROM WH ICH THE COMPUTER IS CONSTRUED IS HARDWARE AND CPU OF A COMPUTER NEEDS P ROGRAM (SOFTWARE) FOR ITA NO.521 & 1001-02/AHD/05, 774/AHD/06 & 1889/AHD/07, 2315/A /06 &CO 134/AHD/06 & 204/AHD/07 & 282/AHD/06 A.YS. 01-02, 02-03 & 04 -05 ACIT CIR-3, ABD V. ANAGRAM STOCK BROKING LTD/ANAGRAM SEC URITIES LTD. PAGE 14 THE COMPUTER. IT IS STATED THAT ANYTHING THAT CAN B E STORED ELECTRONICALLY IS SOFTWARE AND THE STORAGE DEVICES AND DISPLAYER DEVI CES ARE HARDWARE. HE HAS STATED THAT SOFTWARE IS OFTEN DIVIDED INTO TWO CATE GORIES I.E. SYSTEM SOFTWARE AND APPLICATION SOFTWARE AND THIS SOFTWARE IS NOTHI NG BUT LICENSE GRANTED BY THE CREATOR OF A PROGRAMMER, WHICH CAN BE DONE ON T HE COMPUTER FOR THE PURPOSE OF ARRIVING AT DESIRED RESULT. ACCORDING TO HIM, SECTION 32(1)(II) PROVIDES DEPRECIATION ON KNOW-HOW, PATENTS, COPY R IGHTS, TRADE MARKS, LICENSE, FRANCHISES OR ANY OTHER BUSINESS OR COMMER CIAL RIGHTS OF SIMILAR NATURE BEING INTANGIBLE ASSETS ACQUIRED ON OR AFTER FIRST APRIL 1998. THEREFORE ACCORDING TO HIM THERE IS NOT SCOPE FOR ANY OTHER I NTROSPECTION WITH REGARD TO SOFTWARE EXPENSES BEING IN THE NATURE OF LICENSE, O THER THAN BEING TREATED AS INTANGIBLE ASSETS. THEREFORE, THE SOFTWARE EXPENSES CLAIMED BY THE ASSESSEE ARE TREATED AS CAPITAL EXPENDITURE. HE HAS FURTHER REFERRED TO THE NATURE OF CTCL SOFTWARE AND STATED THAT IT IS COMPUTER TO CO MPUTER LOG ON AND ITS FUNCTION IS MERELY ESTABLISHING THE LINKAGE BETWEEN THE TWO FUNCTIONING HARD WARES AND THE PRICING OF THE SAME IS BASED ON NUMBE R OF USER LICENSE THAT A PURCHASER REQUIRES. IT IS STATED THAT BASICALLY IT IS A USER LICENSE AND THEREFORE, HELD THAT THE VARIOUS DECISIONS RELIED UPON THE ASS ESSEE ARE OF NO HELP. THE ASSESSING OFFICER HAS THEREFORE, DISALLOWED THE CLA IM FOR RS.73,10,170/- AND AT THE SAME TIME ALLOWED DEPRECIATION THEREON AT RS.11 ,23,236/-. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO ALLOWE D THIS EXPENDITURE AS REVENUE BY GIVING FOLLOWING FINDINGS IN PARA-7.2 OF HIS APPELLATE ORDER AS UNDER:- 7.2. I HAVE CONSIDERED THE ABOVE SUBMISSIONS AND T HE OBSERVATIONS OF THE A.O N THE ASSESSMENT ORDER. I FIND THAT SOFTWAR E PURCHASED ONLY AIDS IN BETTER MANAGEMENT AND CONDUCT OF BUSINESS A ND BECOMES PART OF EARRING PROCESS. THIS IN ITSELF IS NOT AN ADVANT AGE OF ENDURING NATURE CONSIDERING THE RAPID TECHNOLOGICAL ADVANCES BEING MADE. ANY EXPENDITURE WHICH DOES NOT HAVE PERMANCE AND IS INC URRED TO MET FAST CHANGING TECHNOLOGY, WOULD BE REVENUE IN NATURE AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF ALEMBIC CHEMIC AL WORKS LTD. VS. CIT 177 ITR PAGE 377. THE APEX COURT IN THE CASE OF EMPIRE JUTE CO. LTD. VS. CIT REPORTED IN 124 ITR PAGE 1 HAS HELD TH AT IF ADVANTAGE CONSISTS MERELY IN FACILITATING THE ASSESSEES TRAD ING OPERATIONS OR ENABLING THE MANAGEMENT AND CONDUCT OF BUSINESS TO BE CARRIED ON ITA NO.521 & 1001-02/AHD/05, 774/AHD/06 & 1889/AHD/07, 2315/A /06 &CO 134/AHD/06 & 204/AHD/07 & 282/AHD/06 A.YS. 01-02, 02-03 & 04 -05 ACIT CIR-3, ABD V. ANAGRAM STOCK BROKING LTD/ANAGRAM SEC URITIES LTD. PAGE 15 MORE EFFICIENTLY OR MORE PROFITABLY, WHILE LEAVING THE FIXED CAPITAL UNTOUCHED, THE EXPENDITURE WOULD BE REVENUE IN NATU RE. THUS, SOFTWARE EXPENSES OF THE APPELLANT WHO IS ENGAGED IN SHARE B ROKING BUSINESS HAS TO BE TREATED AS REVENUE EXPENDITURE IN VIEW OF THESE DECISIONS. THE BOMBAY ITAT IN THE CASE OF CEAT TYRES VS IAC IN ITA NO.6994/BOM/88 HAS HELD SOFTWARE EXPENSE TO BE REVE NUE IN NATURE. SIMILAR VIEW HAS BEEN TAKEN BY DELHI ITAT AND CHAND IGARH ITAT. A SIMILAR VIEW HAS BEEN TAKEN BY THE ITAT, AHMEDABAD BENCH IN THE CASE OF LUBI ELECTRICALS (P) LTD. IN ITA NO.122 OF 1992 DECIDED IN MARCH, 1997, WHERE SOFTWARE EXPENSES WERE ALLOWED AS REVEN UE EXPENDITURE. THEREFORE, I DIRECT THE ASSESSING OFFICER TO ALLOW THE CLAIM OF SOFTWARE EXPENSE OF RS.73,10,70/- AS REVENUE EXPENDITURE. AS A RESULT, DEPRECIATION GRANTED AT RS.11,23,2436/- IS DIRECTED TO BE WITHDRAWN. AGGRIEVED, REVENUE FILED APPEAL BEFORE TRIBUNAL. 15. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH TH E FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND FROM THE FACTS O F THE CASE THAT THE ASSESSEE HAS CLAIMED SOFTWARE EXPENSES AS REVENUE EXPENDITUR E AT RS.73,10,170/- AND CLAIMED THAT IT HAD INCURRED EXPENSES ON PURCHASE O F CTCL SOFTWARE. WE FIND THAT THE ASSESSING OFFICER HAS DISCUSSED THE COMPOS ITION OF COMPUTER BY STATING THAT PHYSICAL COMPONENT FROM WHICH THE COMP UTER IS CONSTRUED IS HARDWARE AND CPU OF A COMPUTER NEEDS PROGRAM (SOFTW ARE) FOR THE COMPUTER AND ANYTHING THAT CAN BE STORED ELECTRONICALLY IS S OFTWARE AND THE STORAGE DEVICES AND DISPLAYER DEVICES ARE HARDWARE. THE AO DIVIDED THE SOFTWARE INTO TWO CATEGORIES I.E. SYSTEM SOFTWARE AND APPLICATION SOFTWARE AND THIS SOFTWARE IS NOTHING BUT LICENSE GRANTED BY THE CREATOR OF A PROGRAMMER, WHICH CAN BE DONE ON THE COMPUTER FOR THE PURPOSE OF ARRIVING AT DESIRED RESULT. THE LD. SR-DR SUPPORTED THE ORDER OF THE AO BY STATING THAT SECTION 32(1)(II) PROVIDES DEPRECIATION ON KNOW-HOW, PATENTS, COPY RIGHTS, TR ADE MARKS, LICENSE, FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGH TS OF SIMILAR NATURE BEING INTANGIBLE ASSETS ACQUIRED ON OR AFTER FIRST APRIL 1998 AND THEREFORE SOFTWARE EXPENSES BEING IN THE NATURE OF LICENSE, OTHER THAN BEING TREATED AS INTANGIBLE ASSETS ARE TO BE TREATED AS CAPITAL EXPENDITURE. TH E LD-SR-DR FURTHER REFERRED TO THE NATURE OF CTCL SOFTWARE AND STATED THAT IT I S COMPUTER TO COMPUTER LOG ON AND ITS FUNCTION IS MERELY ESTABLISHING THE LIN KAGE BETWEEN THE TWO ITA NO.521 & 1001-02/AHD/05, 774/AHD/06 & 1889/AHD/07, 2315/A /06 &CO 134/AHD/06 & 204/AHD/07 & 282/AHD/06 A.YS. 01-02, 02-03 & 04 -05 ACIT CIR-3, ABD V. ANAGRAM STOCK BROKING LTD/ANAGRAM SEC URITIES LTD. PAGE 16 FUNCTIONING HARD WARES AND THE PRICING OF THE SAME IS BASED ON NUMBER OF USER LICENSE THAT A PURCHASER REQUIRES. IT IS STATE D THAT BASICALLY IT IS A USER LICENSE AND THEREFORE, HELD THAT THE VARIOUS DECISI ONS RELIED UPON THE ASSESSEE ARE OF NO HELP. WE FIND THAT THE ARGUMENT S MADE BY THE LD-SR-DR AND REASONS RECORDED BY THE AO IN THE ASSESSMENT OR DER WILL NOT HELP TO THE REVENUE AS THIS SOFTWARE PURCHASED BY THE ASSESSEE IS FOR THE PURPOSE OF SMOOTH RUNNING OF THE COMPUTERS AND BETTER MANAGEME NT AND CONDUCT OF BUSINESS. THIS EXPENDITURE WAS INCURRED FOR THE PUR CHASE OF SOFTWARE WHICH ONLY AIDS IN BETTER MANAGEMENT AND CONDUCT OF BUSINESS A ND BECOMES PART OF EARNING PROCESS. THIS IN ITSELF IS NOT AN ADVANTAGE, OF END URING NATURE CONSIDERING THE RAPID TECHNOLOGICAL ADVANCE BEING MADE. ANY EXPENDI TURE WHICH DOES NOT HAVE PERMANENCE AND IS INCURRED TO MEET FAST CHANGING TE CHNOLOGY AND THE SAME WOULD BE REVENUE IN NATURE. THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF THE DELHI BENCH OF ITAT IN THE CASE OF AMWAY INDIA ENTERPRISES V DCIT (2008) 301 ITR (AT) 1 (DELHI). WE FIND THAT IN THIS CASE THE ITAT HAS HELD AS UNDE R: THERE CANNOT BE ANY SPECIFIC OR PRECISE TEST, WHIC H CAN BE APPLIED CONCLUSIVELY OR UNIVERSALLY FOR DISTINGUISHING BETW EEN CAPITAL AND REVENUE EXPENDITURE. THE CARDINAL RULE IS THAT THE QUESTION WHETHER A CERTAIN EXPENDITURE IS ON CAPITAL OR REVENUE ACCOUNT SHOULD BE DECIDED FROM THE PRACTICAL AND BUSINESS VIEW POINT AND IN ACCORDANCE WITH SOUND ACCOUNTANCY PRINCIPLES AND THIS RULE IS OF SPECIAL SIGNIFICANCE IN DEALING WITH EXPENDITURE ON EXPANSION AND DEVELOPMENT OF BUSINESS. THREE TESTS GENERALLY APPLIED TO DECIDE THE NATURE OF EXPENDITURE AS TO WHETHER IT IS CAPITAL OR REVENUE, ARE THE TEST OF E NDURING BENEFIT, THE OWNERSHIP TEST AND THE FUNCTIONAL TEST. APPLYING THESE TESTS, EXPENDITURE IS TREATED AS CAPITAL EXPENDITURE EITHER WHEN IT RESULTS IN ACQUI SITION OF A CAPITAL ASSET BY THE ASSESSEE AS OWNER THEREOF OR WHEN IT RESULTS IN ACCRUAL OF AN ADVANTAGE OF ENDURING NATURE TO THE ASSESSEE IN THE CAPITAL FIEL D. IF THE EXPENDITURE RESULTS MERELY IN ACQUISITION OR CREATION OF ASSET WITHOUT THE ASSESSEE BECOMING THE OWNER THEREOF, IT CANNOT BE SAID THAT THE EXPENDITU RE IS A CAPITAL EXPENDITURE. THE COMING INTO EXISTENCE OF AN ASSET AS A RESULT O F INCURRING EXPENDITURE ALONE THUS IS NOT SUFFICIENT TO TREAT THE SAID EXPE NDITURE AS OF CAPITAL NATURE UNLESS THE ASSET COMING INTO EXISTENCE IS ALSO OWNE D BY THE ASSESSEE. EXPENDITURE CAN BE TREATED AS CAPITAL EXPENDITURE O NLY WHEN IT RESULTS IN ACCRUAL OF AN ADVANTAGE OF ENDURING NATURE TO THE A SSESSEE IN THE CAPITAL FIELD. THE RELEVANT TESTS APPLIED TO DETERMINE THE NATURE OF EXPENDITURE IN SUCH A SITUATION ARE THE FUNCTIONAL TEST AND THE TEST OF ENDURING BENEFIT. AN ADVANTAGE IS TO BE CONSIDERED AS OF ENDURING BENEFI T IF THE BENEFIT ACCRUING IS ITA NO.521 & 1001-02/AHD/05, 774/AHD/06 & 1889/AHD/07, 2315/A /06 &CO 134/AHD/06 & 204/AHD/07 & 282/AHD/06 A.YS. 01-02, 02-03 & 04 -05 ACIT CIR-3, ABD V. ANAGRAM STOCK BROKING LTD/ANAGRAM SEC URITIES LTD. PAGE 17 NOT OF A TRANSIENT NATURE BUT IS OF SUCH DURABILITY AS TO JUSTIFY IT BEING TREATED AS A CAPITAL ASSET. ON THE QUESTION WHETHER COMPUTER SOFTWARE WAS GOODS , THE SUPREME COURT IN TATA CONSULTANCY SERVICES [20041 271 1TR 401 TOOK I NTO ACCOUNT THE VIEW OF AMERICAN COURTS ON THE ISSUE AS WELL AS ITS OWN DEC ISION RENDERED IN THE CASE OF ASSOCIATED CEMENT CO. [2001] 124 STC 59 IN THE C ONTEXT OF 1 THE CUSTOMS ACT WHEREIN THE DEFINITION OF THE TERM 'GOODS' GIVE N WAS NOT AS WIDE OR EXHAUSTIVE AS THE DEFINITION OF THE TERM 'GOODS' IN THE A. P. TAX ACT, TO HOLD THAT SOFTWARE, WHETHER CUSTOMISED OR NON-CUSTOMISED , SATISFIES ALL THE ATTRIBUTES OF BEING A 'GOODS' AND AS SUCH, IS CAPAB LE OF BEING BOUGHT AND SOLD AND BECOMES AN OBJECT OF TRADE AND COMMERCE CAN ONL Y LEAD TO THE CONCLUSION THAT PURCHASE OF SUCH DISC IS ACQUIRING A TANGIBLE ASSET. IF THE DISC, TAPE OR FLOPPY OR OTHER ELECTRONIC MEDIUM IN WHICH THE SOFTWARE IS STORED IS BY ITSELF GOODS, THEN THE ASSESSEE WHO ACQUIRES THE SA ME, ACQUIRES A TANGIBLE ASSET. COMPUTER SOFTWARE HAS NOT .BEEN DEFINED IN T HE INCOME-TAX ACT, 1961, BUT IN NOTE 7 TO APPENDIX I TO THE INCOME-TAX RULES , 1962, IT HAS BEEN EXPLAINED TO INCLUDE COMPUTER PROGRAMME RECORDED ON ANY DISC, TAPE, PERFORATED MEDIA OR OTHER INFORMATION STORAGE DEVIC E. THEREFORE COMPUTER SOFTWARE (WHETHER IN CANNED FORM OR UN-CANNED FORM) IS GOODS AND A TANGIBLE ASSET BY ITSELF. THE QUESTION WHETHER AN ASSESSEE B Y PURCHASE OF A DISC CONTAINING SOFTWARE HAS PURCHASED A. CAPITAL ASSET OR NOT SHOULD NOT. THEREFORE, BE VIEWED FROM THE ANGLE OF ACQUISITION OF ANY COPYRIGHT OR ANY OF THE BUNDLE OF RIGHTS COMPRISED IN SUCH COPYRIGHT. A N ASSESSEE PURCHASING SUCH A SOFTWARE BECOMES THE OWNER THEREOF. TATA CONSULTAN CY SERVICES V. STATE OF ANDHRA PRAD ESH [2004] 137 STC 620; [2004] 271 ITR 401 (SC) FOLLOWE D. BUT THE QUESTION WHETHER EXPENDITURE FOR ACQUISITI ON OF COMPUTER SOFTWARE OR REVENUE CANNOT BE DECIDED ON THE BASIS OF THE OWNER SHIP TEST ALONE FROM THE POINT OF ITS UTILITY TO A BUSINESSMAN AND HOW IMPOR TANT AND OR FUNCTIONAL ROLE IT PLAYS IN HIS BUSINESS, BECAUSE OF THE PECULIAR NATU RE OF A COMPUTER SOFTWARE AND ITS POSSIBLE USE IN DIFFERENT AREAS OF BUSINESS . THE FACT THAT GENERALLY COMPUTER SOFTWARE IS ACQUIRED ON A LICENCE BY ITSEL F WILL NOT BE SUFFICIENT TO CONCLUDE THAT THE EXPENDITURE IS REVENUE EXPENDITUR E, IF IT IS FOUND THAT THE EXPENDITURE OPERATES TO CONFER A BENEFIT IN THE CAP ITAL FIELD. ON THE OTHER HAND, SOME COMPUTER SOFTWARE MAY HAVE A VERY ECONOMIC LIF E SO AS TO BE TREATED AS CAPITAL EXPENDITURE, THOUGH OWNED BY AN ASSESSEE. FOR ASCERTAINING AS TO WHETHER EXPENDITURE ON COMPU TER SOFTWARE GIVES AN ENDURING BENEFIT TO AN ASSESSEE, THE DURATION OF TI ME FOR WHICH THE ASSESSEE RIGHT TO USE THE SOFTWARE BECOMES RELEVANT; HAVING REGARD TO THE FACT THAT SOFTWARE BECOMES OBSOLETE WITH TECHNOLOGICAL INNOVA TION AND ADVANCEMENT WITHIN A SHORT SPAN OF TIME, IT CAN BE SAID THAT WH ERE THE LIFE OF THE COMPUTER SOFTWARE IS SHORTER (SAY LESS THAN 2 YEARS), IT MAY BE TREATED AS REVENUE EXPENDITURE. ANY SOFTWARE HAVING ITS UTILITY TO THE ASSESSEE FOR A PERIOD BEYOND TWO YEARS CAN BE CONSIDERED AS ACCRUAL OF BE NEFIT OF ENDURING NATURE. HOWEVER, THAT BY ITSELF WILL NOT MAKE THE EXPENDITU RE INCURRED ON SOFTWARE AS CAPITAL IN NATURE AND THE FUNCTIONAL TEST AS DISCUS SED ABOVE ALSO NEEDS TO BE ITA NO.521 & 1001-02/AHD/05, 774/AHD/06 & 1889/AHD/07, 2315/A /06 &CO 134/AHD/06 & 204/AHD/07 & 282/AHD/06 A.YS. 01-02, 02-03 & 04 -05 ACIT CIR-3, ABD V. ANAGRAM STOCK BROKING LTD/ANAGRAM SEC URITIES LTD. PAGE 18 SATISFIED. THE PERIOD OF ADVANTAGE IN THE CONTEXT O F COMPUTER SOFTWARE SHOULD NOT BE VIEWED FROM THE POINT OF VIEW OF DIFFERENT A SSETS OR ADVANTAGE LIKE TENANCY OR USE OF KNOW-HOW BECAUSE SOFTWARE IS A BU SINESS TOO ENABLING A BUSINESSMAN'S ABILITY TO RUN HIS BUSINESS. THE NATURE OF THE ADVANTAGE WHICH THE ASSESSES DERI VES HAS TO BE SEEN IN A COMMERCIAL SENSE. SOFTWARE NORMALLY FUNCTIONS AS A TOO ENABLING BUSINESS TO BE CARRIED ON MORE EFFICIENTLY. THE SCOPE, POWER, L ONGEVITY OF SUCH A TOOL AND ITS CENTRALITY TO THE FUNCTIONS OF THE BUSINESS WIL L ALL BEAR ON ITS TREATMENT. WHERE THE ASSESSEE-COMPANY IS ENGAGED IN THE BUSINE SS OF SOFTWARE DEVELOPMENT AS WELL AS RUNNING A TRAINING CENTRE TO IMPART SPECIALIZED TRAINING TO THE STUDENTS IN SOFTWARE TECHNOLOGY, F THE SOFTW ARE IS USED IN SUCH BUSINESS TO IMPART TRAINING TO THE STUDENTS, IT WOULD BE PAR T OF THE PROFIT-MAKING APPARATUS OF THE ASSESSEE AND CONSEQUENTLY EXPENDIT URE ON SOFTWARE, CAPITAL. WHERE THE SAID SOFTWARE HELPS IN COMPRESSION OF SIZ E OF E-MAILS AND IT INCLUDES LICENCES FOR 150 USERS AND IT IS LIMITED T O FACILITATE MERELY AN EFFECTIVE AND FAST COMMUNICATION IN ORDER TO INCREASE IN ITS ORGANIZATIONAL EFFICIENCY IT CANNOT BE TREATED AS FORMING PART OF THE PROFIT-MAK ING APPARATUS, OF THE ASSESSEE. ON THE OTHER HAND, IF SUCH SOFTWARE IS BE ING USED BY AN ASSESS ENGAGED IN THE BUSINESS OF PLACEMENT AGENCY WHERE T HE APPLICATIONS FROM PER- SONS SEEKING JOBS .ARE INVITED THROUGH E-MAIL AND ARE ALSO FORWARDED TO T CONCERNED CLIENTS THROUGH E-MAIL, IT MAY FORM PART OF THE PROFIT-MAKING APPARATUS OF THE ASSESSEE'S BUSINESS OF PLACEMENT A GENCY AND CAN BE TREATED AS CAPITAL ASSET. AS A GENERAL RULE THE MORE EXPENSIVE THE COMPUTER S OFTWARE THE MORE IT A LIKELY TO BE A CENTRAL TOO! OF THE BUSINESS AND THE MORE ENDURING IS LIKELY TO ITS EFFECT ADDING TO THE PROFIT EARNING APPARATUS, IF THERE IS ASSOCIATED CAP EXPENDITURE LIKE PURCHASE OF NEW COMPUTER EQUIPMENT FOR RUNNING THE WARE DEVELOPED UNDER A PROJECT, IT CAN BE CONSIDERED AS CAPITAL EXPENDITURE. THIS IS ESPECIALLY THE CASE WHERE THE NEW HARDWARE IS NOT MERELY DESIRABLE NECESSARY FOR THIS PURPOSE. SIMILARLY THE DEGREE OF CHANGE INTENDED IN THE WAY OPERATIONS ARE CARRIED OUT AS A RESULT OF THE COMPUTER SOFTWARE, FOR EXAMP LE, SAVINGS IN THE NUMBER, AND CHANGES IN THE LOCATION, OF STAFF USED TO 'PROVIDE SERVICES TO CUSTOMERS WILL HAVE A BEARING. THE MORE RADICAL THE CHANGES, THE MORE LIKELY THAT THE EXPENDITURE WILL BE CAPITAL. THESE CHANGES ARE LIKELY TO BE MOST RADICAL WHEN OPERATIONS PREVIOUSLY CARRIED ON MANUALLY ARE COMPUTERIZED. THE PRESENCE OF AN ELEMENT OF UPGRADING WILL NOT NE CESSARILY CAUSE THE EXPENDITURE IN QUESTION TO BE CAPITAL. WITH EFFECT FROM APRIL 1, 1999, COMPUTERS WERE TREA TED AS A DIFFERENT CLASS OF ASSET FALLING WITHIN THE DESCRIPTION OF PLANT AN D DEPRECIATION WAS ALLOWED AT 60 PER CENT. WITH EFFECT FROM APRIL 1, 2003, COM PUTER SOFTWARE WAS ALSO ITA NO.521 & 1001-02/AHD/05, 774/AHD/06 & 1889/AHD/07, 2315/A /06 &CO 134/AHD/06 & 204/AHD/07 & 282/AHD/06 A.YS. 01-02, 02-03 & 04 -05 ACIT CIR-3, ABD V. ANAGRAM STOCK BROKING LTD/ANAGRAM SEC URITIES LTD. PAGE 19 INCLUDED ALONG WITH COMPUTERS. THE AMENDMENT IS PRO SPECTIVE. IT IS NOT CLARIFICATORY FOR THE REASON THAT COMPUTER AND COMP UTER SOFTWARE ARE TWO DIFFERENT ITEMS OF ASSETS. IF THE LEGISLATURE WANTE D TO ALLOW DEPRECIATION AT 60 PER CENT, WITH EFFECT FROM APRIL 1, 1999, ON COM PUTER SOFTWARE, IT WOULD HAVE SAID SO SPECIFICALLY BY MAKING THE PROVISIONS RETROSPECTIVE. DEPRECIATION CAN BE ALLOWED AT 25 PER CENT, UNDER S ECTION 32W(I) READ WITH APPENDIX I, PART A, DIVISION 111(1) TO THE INCOME-T AX RULES, 1962 AND WITH EFFECT FROM APRIL 1, 2003, COMPUTER SOFTWARE HAVING BEEN CLASSIFIED AS A TANGIBLE ASSET UNDER THE HEADING 'PLANT' IN APPENDI X ITO THE RULES, IS ENTITLED TO DEPRECIATION AT 60 PER CENT. 16. WE FIND THAT THE REVENUE HAS RELIED ON THE DECI SION OF THIS TRIBUNAL DELHI BENCH IN THE CASE OF ESCORTS LTD. V. ACIT (2007) 104 ITD 427 (DEL), WHEREIN THE EXPENDITURE ON SOFTWARE IS CONSIDERED A S CAPITAL IN NATURE BY HOLDING THAT WHERE THE ASSESSEE ACQUIRES ERP BUSINE SS SOFTWARE WITH UNLIMITED USERS OF LICENCE AND EXPENDITURE INCURRED ON ACQUISITION OF SOFTWARE BY WAY OF OUTRIGHT PURCHASE IS TO BE CONSIDERED AS CAPITAL IN NATURE. BUT IN THE PRESENT CASE, THE FACTS ARE ENTIRELY DIFFERENT AND IT IS NOT THE ALLEGATION OF THE REVENUE FROM THE ASSESSING OFFICERS STAGE TILL NOW THAT THE ASSESSEE HAS ACQUIRED THIS SOFTWARE FOR UNLIMITED USER OF LICENC E AND THIS IS OUTRIGHT PURCHASE. THE REVENUE ALSO RELIED ON THE DECISION O F HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT V. ARAWALI CONSTRUCTIONS CO.(P) LTD. (2003) 259 ITR 30 (RAJ) BUT THE FACTS IN THAT CASE ARE ALSO IN REG ARD TO DISTINGUISHABLE AS IN THAT CASE THE SOFTWARE WAS AN OUTRIGHT PURCHASE OF COMPUTER PROGRAMME WHICH RELATES TO TECHNICAL KNOW-HOW. 17. WE FIND THAT THE ASSESSING OFFICER HAS NOT GIVE N ANY FINDING AS TO THE FACT THAT WHETHER EXPENDITURE ON COMPUTER SOFTWARE GIVES AN E NDURING BENEFIT TO AN ASSESSEE, THE DURATION OF TIME FOR WHICH THE ASSESS EE RIGHT TO USE THE SOFTWARE BECOMES RELEVANT. ACCORDINGLY WE ARE OF THE VIEW TH AT IN CASE THE SOFTWARE BECOMES OBSOLETE WITH TECHNOLOGICAL INNOVATION AND ADVANCEM ENT WITHIN A SHORT SPAN OF TIME, IT CAN BE SAID THAT WHERE THE LIFE OF THE COMPUTER SOFTWARE IS SHORTER OR SAY LESS THAN 2 YEARS, IT MAY BE TREATED AS REVENUE EXPENDITURE. HENCE, WE FIND THAT THE CIT(A) HAS RECORDED A CATEGORICAL FINDING THAT THE SOFTWAR E PROGRAMME WITHOUT WHICH THE COMPUTER CANNOT WORK AND WITH THE ADVANCEMENT OF TE CHNOLOGY, THE PROGRAMME ITA NO.521 & 1001-02/AHD/05, 774/AHD/06 & 1889/AHD/07, 2315/A /06 &CO 134/AHD/06 & 204/AHD/07 & 282/AHD/06 A.YS. 01-02, 02-03 & 04 -05 ACIT CIR-3, ABD V. ANAGRAM STOCK BROKING LTD/ANAGRAM SEC URITIES LTD. PAGE 20 CHANGES DURING SHORT PERIOD AND THIS CHANGE IS REQU IREMENT OF THE BUSINESS OF THE ASSESSEE I.E. SHARE BROKING. ACCORDINGLY, WE UPHOLD THE FINDINGS OF CIT(A) AND THIS ISSUE OF REVENUES APPEAL IS DISMISSED. SIMILAR ARE THE FACTS IN REVENUES APPEALS IN ITA NO.1002/AHD/2005 AND ITA NO.774/AHD/2006 , HENCE, TAKING A CONSISTENT VIEW WE DISMISS THE CO MMON ISSUE. 18. THE NEXT COMMON ISSUE IN REVENUES APPEAL IN ITA NO.1001/AHD/2005 IS AS REGARDS TO THE ORDER OF CIT(A) IN DELETING TH E ADDITION ON DEEMED DIVIDEND MADE BY ASSESSING OFFICER U/S.2(22)(E) OF THE ACT. FOR THIS, REVENUE HAS RAISED THE FOLLOWING GROUNDS NO.(III) & IV) :- III) IN HOLDING THAT THE ON OF RS.8,32,000/- IS NO T TAXABLE AS DEEMED DIVIDEND U/S.2(22)(E). IV) IN ADMITTING THE ADDITIONAL EVIDENCE WITHOUT FO LLOWING THE PROCEDURE PRESCRIBED IN RULE 46A. 19. THE BRIEF FACTS ARE THAT THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED FROM THE BALANCE-SHE ET FILED BY ASSESSEE THAT IT HAD RECEIVED UNSECURED LOAN OF RS.8.23 LAKH FROM M/S.LALBHAI REALITY LTD. ACCORDINGLY, THE ASSESSEE WAS REQUIRED TO EXPL AIN AS TO WHY THE SAME SHOULD NOT BE TREATED AS DEEMED DIVIDEND IN ITS HAN DS. ACCORDINGLY, AO MADE ADDITION ON DEEMED DIVIDEND U/S.2(22)(E) AMOUNTING TO RS.8.32 LAKH. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A). THE CIT(A) DELETED THE ADDITION BY GIVING FOLLOWING FINDING IN PARA-10.2 :- 10.2 I HAVE CONSIDERED THE ABOVE SUBMISSIONS. IT I S NOTICED THAT FOR CONSIDERING THE LOANS GIVEN BY THE COMPANY TO ITS S HAREHOLDERS OR DIRECTORS U/S. 2(22)(E) ONE HAS TO SEE THAT THE SHA REHOLDER OR DIRECTOR HOLDS STIPULATED PERCENTAGE OF SHARES OF THE COMPAN Y. ONLY AFTER THIS CONDITION IS SATISFIED SUCH LOANS CAN BE CONSIDERED AS DEEMED DIVIDEND IN THE CASE OF SHAREHOLDER. ON PERUSAL OF THE DETAI LS OF SHAREHOLDERS OF LALBHAI REALITY PVT. LTD IT IS SEEN THAT THE APPELL ANT DOES NOT HOLD ANY SHARE OF THE SAID COMPANY AND ACCORDINGLY SEC.2(22) (E) IS NOT APPLICABLE AND THEREFORE, THE ADDITION MADE BY THE ASSESSING OFFICER IS NOT JUSTIFIED AND IS DELETED. ITA NO.521 & 1001-02/AHD/05, 774/AHD/06 & 1889/AHD/07, 2315/A /06 &CO 134/AHD/06 & 204/AHD/07 & 282/AHD/06 A.YS. 01-02, 02-03 & 04 -05 ACIT CIR-3, ABD V. ANAGRAM STOCK BROKING LTD/ANAGRAM SEC URITIES LTD. PAGE 21 20. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE TH ROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT LD. COUNSEL FOR THE ASSESSEE STATED THAT ASSESSING OFFICER DURING THE COURSE OF ASSESSM ENT PROCEEDINGS ADDED A SUM OF RS.8.32 LAKH BY INVOKING THE PROVISIONS OF S ECTION 2(22)(E). WE FIND THAT THE ASSESSING OFFICER HAS REPRODUCED IN THE AS SESSMENT ORDER WHOLE PROVISION OF SECTION 2(22)(E) AND FROM THERE IT IS OBVIOUS THAT FOR BRING TO TAX AS DEEMED DIVIDEND MANY CONDITIONS AND PARAMETERS A RE LAID DOWN IN THE STATUTE ITSELF. IT IS UNFORTUNATE THAT WITHOUT SHOW ING THAT THESE CONDITIONS OR ANY ONE OF THEM APPLIES TO THE CASE THE ASSESSMENT ORDE R HAS STRAIGHT AWAY BROUGHT IT TO TAX. ACCORDING TO US THIS APPROACH AD OPTED IN THE ASSESSMENT ORDER IS TOTALLY UNWARRANTED AND INVOKING OF THIS D EEMING PROVISION AGAINST THE ASSESSEE THE STATUTORY PROVISIONS LAID DOWN IN THE PROVISIONS SHOULD BE SHOWN TO BE APPLICABLE TO THE CASE WITHOUT WHICH THE PROV ISIONS CANNOT BE APPLIED. WE FIND THE FACT THAT THE ASSESSEE-COMPANY HAD TAKE N UNSECURED LOAN OF RS.8.32 LAKH WHICH WAS INCORPORATED IN SCHEDULE-4 O F THE BALANCE-SHEET AS LOANS FROM ASSESSEE-COMPANY AND THE DETAILS OF LOAN ARE CONTAINED IN THE RELEVANT ENTRY SHOWING IT AS LOAN FROM LALBHAI REAL ITY FINANCE PVT. LTD. THE FIRST AND FOREMOST THING EMERGING FROM THE BALANCE- SHEET OF THE CREDITOR IS THAT IT HAS ABSOLUTELY NO RESERVES; ON THE OTHER HAND TH ERE IS AN OPENING DEBIT BALANCE OF MORE THAN RS.7.29 CRORES AND CLOSING BAL ANCE OF MORE THAN RS.8.19 CRORE IN THE PROFIT AND LOSS ACCOUNT. SO IT IS NOT A CASE OF THE ASSESSEE-COMPANY HAVING FREE RESERVES IN ITS BALANC E-SHEET FOR GIVING ANY LOAN. FURTHER EVEN THE OTHER CONDITION OF THE DEBTO R HAVING SUBSTANTIAL SHARE HOLDING IN THE CREDITOR COMPANY IS NOT SATISFIED IN SO FAR AS THE LIST OF THE EQUITY SHARE HOLDERS OF THE LALBHAI REALITY FINANCE PVT. L TD. FOR ASSESSMENT YEAR 2001-02 AS FOLLOWS. SR. NO. NAME OF SHAREHOLDERS NO. OF SHARES 1. ARPAN REALITY PVT. LTD. 3018020 2 TAPTI MACHINES PVT. LTD. 1004390 ITA NO.521 & 1001-02/AHD/05, 774/AHD/06 & 1889/AHD/07, 2315/A /06 &CO 134/AHD/06 & 204/AHD/07 & 282/AHD/06 A.YS. 01-02, 02-03 & 04 -05 ACIT CIR-3, ABD V. ANAGRAM STOCK BROKING LTD/ANAGRAM SEC URITIES LTD. PAGE 22 3 PELIGAN PACKERS PVT. LTD. 1004390 4 PAWAN SINGH 100 5 RAJENDER SING VERMA 100 TOTAL 5027000 THUS, THE ADDITION HAS BEEN MADE WITHOUT LOOKING IN TO THE FACTS AND FIGURES AND FURTHER MORE THE FACTS AND FIGURES SHOWS THAT T HE STATUTORILY PRESCRIBED CONDITIONS IN SECTION 2(22)(E) ARE NOT SATISFIED TH IS PARTICULAR ITEM OF RS.8.32 LAKH IS NOT AT ALL CAUGHT BY THE MISCHIEF OF SECTIO N 2(22)(E) OF THE ACT. ACCORDINGLY, THE CIT(A) HAS RIGHTLY DELETED THE ADD ITION AND WE CONFIRM THE DELETION. THIS COMMON ISSUE OF REVENUES APPEAL IS DISMISSED. 21. THE NEXT COMMON ISSUE IN REVENUES APPEALS IN ITA NO.774/AHD/2006, ITA NO.755/AHD/2007 AND ITA NO.1889/AHD/2007 IS AS REGARDS TO THE ORDER OF CIT(A) IN DELETING THE DISA LLOWANCE OF INTEREST. SINCE THE COMMON ISSUE IN ALL THE THREE APPEALS OF REVENU E ARE SIMILAR ON FACTS AND CIRCUMSTANCES, WE WILL DISCUSS THE COMMON ISSUE RAI SED BY REVENUE IN DEALING WITH ITA NO.774/AHD/2006 FOR ASSESSMENT YEAR 2002-03, WHICH IS A LEAD MATTER, AS UNDER:- 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN DELETING THAT DISALLOWANCE OF INTEREST OF RS.21,61,258/- 22. THE BRIEF FACTS RELATING TO THE COMMON ISSUE AR E THAT ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT THE ASSESSEE HAS MADE LOANS AND ADVANCES TO FOLLOWING CONCERNS. ACCO RDING TO ASSESSING OFFICER THESE ARE NON-INTEREST BEARING ADVANCES MAD E BY ASSESSEE:- (I) LOAN TO ASSOCIATE COMPANY : RS. 10,000,0 00/- (II) LOANS TO OTHER ASSOCIATE COMPANIES: RS.1,12,5 1,316/- (III) LOANS TO OTHERS : RS. 31,86,247/- BEFORE THE ASSESSING OFFICER, ASSESSEE CLAIMED THAT NO DISALLOWANCE CAN BE MADE ON ACCOUNT OF LOANS AND ADVANCES FOR NON INTER EST-BEARING FUNDS AS ALL THE LOANS WERE TAKEN FOR THE PURPOSE OF BUSINESS AN D EVEN INTEREST FREE FUNDS ITA NO.521 & 1001-02/AHD/05, 774/AHD/06 & 1889/AHD/07, 2315/A /06 &CO 134/AHD/06 & 204/AHD/07 & 282/AHD/06 A.YS. 01-02, 02-03 & 04 -05 ACIT CIR-3, ABD V. ANAGRAM STOCK BROKING LTD/ANAGRAM SEC URITIES LTD. PAGE 23 WERE AVAILABLE AND OUT OF THESE INTEREST FREE FUNDS ADVANCES WERE MADE. ACCORDING TO ASSESSING OFFICER, ASSESSEE HAS MADE A DVANCES OF RS.1.54 CRORES TO ASSOCIATE CONCERN, ON WHICH NO INTEREST W AS CHARGED. ACCORDINGLY, HE CALCULATING INTEREST @ 14% AND MADE DISALLOWANCE RELYING ON THE DECISION OF HONBLE KERALA HIGH COURT IN THE CASE OF CIT V. V.L. BABY AND CO. (2002) 254 ITR 248 (KEL). AGGRIEVED, ASSESSEE PREFERRED AP PEAL BEFORE CIT(A). 23. BEFORE CIT(A) ASSESSEE HAS EXPLAINED THAT ASSES SEE-COMPANY AND FOLLOWING INTEREST FUNDS AVAILABLE WITH IT AS UNDER :- AMOUNT (RS) SHARE CAPITAL 8,00,000,700 SHARE APPLICATION MONEY PENDING ALLOTMENT 3,50,00,000 RESERVES AND SURPLUS 3,00,00,000 TOTAL 13,50,00,700 LESS: DEBIT BALANCE OF PROFIT & LOSS ACCOUNT 3,31,56,141 GRAND TOTAL 10,18,44,556 LOANS TO GROUP CONCERNS AS MENTIONED BY AO. PARTICULARS 1,54,37,563 FURTHER, ASSESSEE ALSO EXPLAINED BEFORE CIT(A) THAT THE LOANS TO ASSOCIATE CONCERNS ARE FOR THE PURPOSE OF BUSINESS AS UNDER:- SR.NO PARTICULARS AMOUNT RS. 1. ARVIND MILLS LIMITED 14,585.00 2. ARVINID BRAND ONLINIE LIMITED 1,28,082.67 3. LALBHAI REALTY FIN 9,88,3.75 4. ENGRAM ONLINE LIMITED 27,61,516.76 5. ARVIND CLOTHING LIMITED 1,59,012.99 6. ODISSI SECURITIES LIMITED 23,000.00 7. ANGRAM SECURITIES LOAN ACCOUNT 81,55,236.71 TOTAL 1,21,51,317.88 ITA NO.521 & 1001-02/AHD/05, 774/AHD/06 & 1889/AHD/07, 2315/A /06 &CO 134/AHD/06 & 204/AHD/07 & 282/AHD/06 A.YS. 01-02, 02-03 & 04 -05 ACIT CIR-3, ABD V. ANAGRAM STOCK BROKING LTD/ANAGRAM SEC URITIES LTD. PAGE 24 THE ASSESSEE EXPLAINED THAT THE ADVANCES TO ARVIND MILLS LTD., ARVIND BRAND ONLINE LTD, LALBHAI REALTY AND ARVIND CLOTHING LIMI TED WERE DURING THE COURSE OF BUSINESS AND AS SUCH PAYMENTS WERE MADE ON BEHAL F OF THE SAID PARTIES FOR INCURRING EXPENSES AND FOR EXAMPLE, HE EXPLAINED TH AT ANAGRAM SECURITIES LOAN AS UNDER:- IN THIS CONNECTION APPELLANT SUBMITS THAT IT HAS BE EN DOING THE TRADING OF SHARES ON BEHALF OF CLIENTS ON THE BSF AND SAID CLI ENTS ARE ALSO DOING TRADING ON NSE THROUGH ANAGRAM SECURITIES LIMITED W HICH HOLDS MEMBERSHIP IN NATIONAL STOCK EXCHANGE (NSE), THE AP PELLANT HAS MAINTAINED DAY-TO-DAY ACCOUNT WITH ANAGRAM SECURITI ES LIMITED FOR THE TRANSACTIONS MADE WITH SAID PARTIES BECAUSE MANY TI MES CLIENTS MAKES SINGLE PAYMENTS TO EITHER APPELLANT OR ANAGRAM SECU RITIES FOR TRANSACTIONS MADE IN NSE AND BSE TERMINALS AND THER EBY EACH COMPANY TRANSFERS THE AMOUNT COLLECTED FROM CLIENTS ON BEHALF OF OTHER COMPANY PASSING NECESSARY JOURNAL ENTRIES THROUGH S AID ACCOUNT. IT CAN BE SEEN FROM THE SAID ACCOUNT THAT BALANCE OF RS.89 ,11,179 HAD BEEN CREATED BECAUSE APPELLANT HAD TRANSFERRED DEBIT BAL ANCES OF CLIENTS ACCOUNTS PERTAINING TO ANAGRAM SECURITIES LIMITED T O SAID PARTY ON 30/03/2002 AND 31/03/2002 BY PASSING JOURNAL ENTRIE S. FURTHER, ANAGRAM SECURITIES LIMITED HAD ALSO TRANSFERRED AMO UNT PERTAINING TO APPELLANT BY PASSING ENTRIES IN THE SAID ACCOUNTS. THE CIT(A) AFTER CONSIDERING THE EXPLANATION OF THE ASSESSEE DELETED THE ADDITION BY GIVING FOLLOWING FINDINGS IN PARA-4.2 OF HIS APPELLATE ORDER:- 4.2 I HAVE CONSIDERED THE SUBMISSIONS MADE AND I H AVE ALSO GONE THROUGH THE VARIOUS DETAILS FILED AND THE CASE LAWS ON THE SUBJECT. IF THE ENTIRE DETAILS OF THESE ADDITION ARE NOTICED, IT IS FOUND THAT OUT OF THESE A SUM OF RS.31,25,000 IS ON ACCOUNT OF STOCK EXCHANG E MARGIN WHICH THE ASSESSEE HAS TO PAY IF HE HAS TO CARRY ON THE BUSIN ESS OF STOCK BROKING. NATURALLY, ON THIS AMOUNT NO INTEREST WOULD BE PAYA BLE BY THE STOCK EXCHANGE AND THIS ADVANCE IS PURELY FOR RUNNING THE BUSINESS. SIMILARLY, THERE COULD BE NO INTEREST CHARGEABLE ON TDS RECOVE RABLE, ADVANCE FOR EXPENSES, SALARY PAYABLE AND OTHER RECEIVABLES ON A CCOUNT OF SHARE BROKING BUSINESS. THUS NO INTEREST AT ALL IS CHARGE ABLE ON THE ALLEGED LOAN TO OTHERS AMOUNTING TO RS.31,86,247/-. IT IS ALSO NOTICED THAT THE AO HAS WORKED OUT INTEREST ON THE LAST DAYS BALANC E WITHOUT REALIZING THE FACT THAT INTEREST SHOULD HAVE BEEN CALCULATED ON DAY TO DAY BALANCES. IF INTEREST IS WORKED OUT O THAT BASIS, T HE ASSESSEE WOULD HAVE TO PAY INTEREST TO ARVIND MILLS LTD. ARVIND BR AND ONLINE LIMITED, LALBHAI REALTY FINANCE, ARVIND CLOTHING LTD AND ANA GRAM ONLINE LTD INSTEAD OF RECEIVING ANY INTEREST. THE MAJOR AMOUNT OF ADVANCE IS IN ITA NO.521 & 1001-02/AHD/05, 774/AHD/06 & 1889/AHD/07, 2315/A /06 &CO 134/AHD/06 & 204/AHD/07 & 282/AHD/06 A.YS. 01-02, 02-03 & 04 -05 ACIT CIR-3, ABD V. ANAGRAM STOCK BROKING LTD/ANAGRAM SEC URITIES LTD. PAGE 25 RESPECT OF ANAGRAM SECURITIES LOAN ACCOUNT. SO FAR AS THE ACCOUNT OF ANAGRAM SECURITIES IS CONCERNED, THE BALANCE HAS AR ISEN ON ACCOUNT OF TRANSFER OF DEBIT BALANCE OF CLIENTS ACCOUNTS ON 30 .3.2001 AND 31.3.2002. THESE AMOUNTS ARE RECOVERABLE FROM ASSES SEES CLIENTS AND NORMALLY ON SUCH RECEIVABLES NO INTEREST IS CHARGED . THEREFORE, IF THESE ACCOUNTS ARE CONSIDERED IN PROPER PERSPECTIVE, IN F ACT NO INTEREST WAS CHARGEABLE BY THE ASSESSEE. APART FROM THAT IT IS N OTICED THAT NO NEXUS HAS BEEN MADE BETWEEN INTEREST BEARING LOANS AND TH ESE ADVANCES. AS AGAINST THAT ASSESSEE HAS INTEREST FEE FUNDS OF WEL L OVER RS.10 CRORES. IN SUCH CIRCUMSTANCES, THE ITAT AHMEDABAD BENCH IN THE CASE OF TORRENT FINANCES VS. ACIT HELD THAT PROPORTIONATE D ISALLOWANCE OF INTEREST COULD NOT BE MADE. CONSIDERING THE ABOVE F ACTS, DISALLOWANCE MADE BY THE AO IS DIRECTED TO BE DELETED. AGGRIEVED, REVENUE CAME IN APPEAL BEFORE TRIBUNAL. 24. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE TH ROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ASSESSE E WAS HAVING INTEREST FREE FUNDS AVAILABLE WITH IT TO THE TUNE OF RS.13,50,00, 700/- AS INTEREST FREE FUND IN THE SHAPE OF SHARE CAPITAL, SHARE APPLICATION MONEY PENDING ALLOTMENT AND RESERVES SURPLUS. THE ASSESSEE HAS ADVANCED AS ALLE GED BY THE ASSESSING OFFICER TO THE TUNE OF RS.1.54 CRORES AS INTEREST F REE ADVANCES, WHICH IS WITHOUT PREJUDICE TO OUR FURTHER DISCUSSION. WE FIN D THAT THE LOAN TO ASSOCIATE COMPANY AT RS.10 LAKH ON BEHALF OF ENGRAM ONLINE LI MITED. TO TATA CONSULTANCY SERVICES WAS FOR THE SERVICES AND SAME AMOUNT HAS BEEN DEBITED TO ADVANCES TO SISTER ENGRAM ONLINE LIMITED . THE ASSESSEE HAS FIELD COPIES OF AGREEMENT BEFORE US ALSO IN ASSESSEES PA PER BOOK AND THIS DEPOSIT / PAYMENT IS FOR THE BUSINESS PURPOSES AND AS PER B USINESS AGREEMENT MADE BETWEEN THE PARTIES. AS REGARDS TO THE BALANCES OF ARVIND MILLS LTD. ARBIND BRAND ONLINE LTD., LALBHAI REALITY AND ARVIND CLOTH ING LTD., THE ASSESSEE HAD INCURRED EXPENDITURE ON BEHALF OF THESE PARTIES AND DEBITED THEIR ACCOUNTS WITH RESPECTIVE AMOUNTS. WE FIND THAT NO BORROWED FUNDS WERE USED FOR SUCH PAYMENTS AND NO MONETARY LOANS HAD BEEN GIVEN TO MA KE SUCH PAYMENTS ON BEHALF OF THESE PARTIES RATHER THIS PAYMENT IS DURI NG THE COURSE OF BUSINESS AND NO DISALLOWANCE CAN BE MADE ON THIS ACCOUNT.. A S REGARDS TO ANAGRAM ITA NO.521 & 1001-02/AHD/05, 774/AHD/06 & 1889/AHD/07, 2315/A /06 &CO 134/AHD/06 & 204/AHD/07 & 282/AHD/06 A.YS. 01-02, 02-03 & 04 -05 ACIT CIR-3, ABD V. ANAGRAM STOCK BROKING LTD/ANAGRAM SEC URITIES LTD. PAGE 26 SECURITIES LOANS OF RS.89,11,179/-, THE ASSESSEE HA S BEEN DOING THE TRADING OF SHARES ON BEHALF OF CLIENTS WITH BSC AND NSC THROUG H ANAGRAM SECURITIES LTD., WHICH HOLDS MEMBERSHIP WITH NSC AND ASSESSEE MAINTAINED DAY-TO-DAY ACCOUNT WITH THESE CONCERNS FOR THE TRANSACTION MAD E WITH THE SAID PARTIES BECAUSE MANY A TIMES CLIENTS MAKE SINGLE PAYMENT FO R THE TRANSACTION MADE IN NSC AND BSC TERMINALS. ACCORDINGLY, BOTH THESE I .E. EACH COMPANY TRANSFERRED THE AMOUNT COLLECTED FROM THE CLIENTS O N BEHALF OF OTHER COMPANY PASSING NECESSARY JOURNAL ENTRIES IN THE ACCOUNTS. THIS IS A PURELY BUSINESS TRANSACTION AND REQUIREMENT OF BUSINESS AND NOT INT EREST FREE LOANS. AS REGARDS TO MARGIN CASH ON STOCK EXCHANGE AS THE ASS ESSEE IS ENGAGED IN THE STOCK BROKING ACTIVITY ON BSC AND AS PER THE REQUIR EMENT THE ASSESSEE HAS TO MARGIN DEPOSITS FOR MAKING TRANSACTIONS. THIS MARGI N DEPOSIT IS NOTHING BUT VALUE OF TRANSACTION ENTERED BY ASSESSEE ON BSC TO THE VALUE OF TRANSACTION ENTERED AS PER PRESCRIBED LIMIT. THIS IS A PURELY B USINESS TRANSACTION AND NOTHING TO DO WITH LOANS OR DEPOSITS. FURTHER, WE A RE IN FULL AGREEMENT WITH THE ORDER OF CIT(A) THAT NO INTEREST DISALLOWANCE CAN B E MADE ON THE ABOVE TRANSACTIONS AND ACCORDINGLY, WE CONFIRM THE ORDER OF CIT(A) DELETING THE ADDITION. THIS ISSUE OF THE REVENUES APPEAL IS DIS MISSED. SIMILAR ARE THE FACTS IN REVENUES APPEALS IN ITA NO.755/AHD/2007 AND ITA NO.1889/AHD/2007, HENCE, TAKING A CONSISTENT VIEW WE DISMISS THE COMM ON ISSUE. 25. THE ONLY ISSUE IN THIS APPEAL OF REVENUE IN ITA NO.2315/AHD/2006 IS AS REGARDS TO THE ORDER OF CIT(A) DELETING THE PENA LTY LEVIED BY ASSESSING OFFICER U/S.271(1)(C) OF THE ACT AMOUNTING TO RS.20 ,25,85/-. 26. WE FIND THAT THE ASSESSING OFFICER HAS LEVIED T HE PENALTY IN RESPECT OF FOLLOWING ITEMS:- A) BAD DEBT RS.26,46,875/- B) DEFERRED REVENUE EXPENSES ON SOFTWARE RS.73,10, 170/- ITA NO.521 & 1001-02/AHD/05, 774/AHD/06 & 1889/AHD/07, 2315/A /06 &CO 134/AHD/06 & 204/AHD/07 & 282/AHD/06 A.YS. 01-02, 02-03 & 04 -05 ACIT CIR-3, ABD V. ANAGRAM STOCK BROKING LTD/ANAGRAM SEC URITIES LTD. PAGE 27 C) UNSECURED LOAN TREATED AS DEEMED DIVIDEND RS.8, 32,000/- WE FIND THAT THESE ADDITIONS WERE DELETED BY CIT(A) AND NOW IN THIS ORDER WE HAVE CONFIRMED THE DELETION BY CIT(A) ON THE ABOVE THREE ITEMS, ON WHICH PENALTY WAS LEVIED. SINCE THE QUANTUM ADDITIONS HAV E BEEN DELETED BY THE TRIBUNAL NOW IN THIS ORDER, THE PENALTY UNDER DISPU TE U/S.271(1)(C) OF THE ACT CANNOT SURVIVE AND ACCORDINGLY THE ORDER OF CIT(A) DELETING THE PENALTY IS CONFIRMED. THE APPEAL OF REVENUE IS DISMISSED. 27. IN THE RESULT, ASSESSEES APPEAL IN ITA NO.521/AHD/2005 AND CO 134 & 156/AHD/2006 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. REVENUES APPEALS IN ITA NO.1001-1002/AHD/2005, ITA NO.774 & 2315/AHD/20 06 AND ITA NO.755 , & 1889/AHD/2007 ARE DISMISSED ORDER PRONOUNCED ON THIS DAY OF 1 ST OCT, 2010 SD/- SD/- ( G.D.AGARWAL ) ( MAHAVIR SINGH ) (VICE PRESIDENT) (JUDICIAL MEMBER) AHMEDABAD, DATED : 01/10/2010 *DKP COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)-IX, AHMEDABAD 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD