ACIT CIR4(2), MUMBAI V. YUVRAJ PROERTIES & SECURITIES P. LTD, MUMBAI

ITA 5431/MUM/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 62659 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-07-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 04-07-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 02-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PRAKASH JOTHWANI
• Keywords: Business expenditure; Reason to believe
• Section: 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI G BENCH MUMBAI BENCHES, MUMBAI BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER & SHRI RAJENDRA, AM ITA NO. 5431/MUM/2010 (ASST YEAR 2007-08 ) THE ASST COMMR OF INCOME TAX CIR 4(2), MUMBAI VS YURAJ PROPERTIES & SECURITIES P LTD 24/26 CAMA BULDG, 1 ST FLOOR DALAL ST, FORT, MUMBAI (APPLICANT) (RESPONDENT) PAN NO. AAACY0146N ASSESSEE BY SH PRAKASH JOTHWANI REVENUE BY SH A K NAYAK DT.OF HEARING 4 TH JULY 2012 DT OF PRONOUNCEMENT 11 TH JULY 2012 PER VIJAY PAL RAO, JM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 20/4/2010 OF THE CIT(A) FOR THE ASSESSMENT YEAR 200708. 2 THE ONLY EFFECTIVE GROUND RAISED BY THE REVENUE I N THIS APPEAL IS AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A) ERRED IN DELETING THE DISALLOWANCE OF ` . 18,22,174/- MADE U/S 40(A)(IA) IN RESPECT OF TRANSACTION CHARGES PAID TO STOCK EXCHANGE , WITHOUT APPRECIATING T HE FACTS THAT THESE WERE COMPOSITE CHARGES FOR PROFE SSIONAL AND TECHNICAL SERVICES RENDERED BY THE STOCK EXCHANGE TO ITS MEMBER S AND THE ASSESSEE AHS FAILED TO DEDUCT TDS THEREON. 3 THE ASSESSING OFFICER DISALLOWED A SUM OF RS. 18, 22, 174/-UNDER SECTION 40(A)(IA) IN RESPECT OF TRANSACTIONS CHARGES PAID T O THE STOCK EXCHANGE. ON APPEAL ,THE CIT(A) DELETED THE ADDITION MADE BY THE ASSES SING OFFICER BY FOLLOWING THE DECISION OF THIS TRIBUNAL IN CASE OF KOTAK SECURITI ES VS ACIT REPORTED IN 25 SOT 440. 4 WE HAVE HEARD THE LD DR AS WELL AS THE LD AR OF T HE ASSESSEE AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE LEARNED AND D .R HAS SUBMITTED THAT THOUGH THE ITA NO.5413/M/2010 YURAJ PROPERTIES & SECURITIES P LTD 2 ISSUE IN SUBSTANCE HAS BEEN DECIDED AGAINST THE ASS ESSEE BY THE HONOURABLE JURISDICTIONAL HIGH COURT IN CASE OF COMMISSIONER O F INCOME-TAX V. KOTAK SECURITIES LTD. REPORTED IN 340 ITR 333; HOWEVER, ON THE ISSU E OF BONAFIDE CLAIM OF THE ASSESSEE, THE SAME IS REQUIRED TO BE EXAMINED BY T HE ASSESSING OFFICER. IN SUPPORT OF HIS CONTENTION, HE HAS RELIED UPON THE DECISION OF THIS TRIBUNAL DATED 13/1/2012 IN CASE OF ITO VS M/S AMU SHARES & SECURITIES LTD IN I TA NO. 6358/MUM/2010. 4.1 ON THE OTHER HAND, THE LD AR OF THE ASSESSEE H AS SUBMITTED THAT THE CLAIM OF THE ASSESSEE IS BONAFIDE BECAUSE THE ASSESSING OFFI CER DISALLOWED THE CLAIM OF THE ASSESSEE FOR THE FIRST TIME FOR THE ASSESSMENT YEAR 2006 07, WHICH WAS ALLOWED BY THE CIT(A) AND ON FURTHER APPEAL BY THE REVENUE, TH IS TRIBUNAL VIDE ITS ORDER DATED 29/10/2010 DECIDED THE ISSUE IN FAVOUR OF THE ASSES SEE. HE HAS FURTHER SUBMITTED THAT THE ASSESSEE FILED RETURN OF INCOME FOR THE AS SESSMENT YEAR 2007-08 ON 14/10/2007 BEFORE THE ASSESSMENT ORDER FOR THE ASSE SSMENT YEAR 2006-07 WAS PASSED. THUS, THE LD AR OF THE ASSESSEE HAS SUBMITTED THAT AT THE TIME OF FILING THE RETURN OF INCOME, THERE WAS NO DISALLOWANCE OF SUCH CLAIM OF THE ASSESSEE. HE HAS FURTHER SUBMITTED THAT EVEN IN THE CASE OF KOTAK SECURITIES LTD (SUPRA), THE HONOURABLE HIGH COURT HAS HELD THAT DISALLOWANCE IS NOT JUSTIFIED W HEN BOTH THE PARTIES WERE NOT CLEAR ABOUT THE NATURE OF PAYMENT AND EVEN THE DEPARTMENT WAS ALSO PROCEEDINGS ON THE FOOTING THAT NO TAX WAS DEDUCTIBLE. HENCE, THE LEARNED A.R OF THE ASSESSEE HAS SUBMITTED THAT WHEN THE ASSESSEE'S CLAIM FOR THE AS SESSMENT YEAR 2006-07 WAS ALLOWED BY THE CIT(A) AND FURTHER CONFIRMED BY THE THIS TRIBUNAL, THEN THE CLAIM OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2007-08 IS BON A FIDE. 5 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS CAREFULLY PERUSED THE RELEVANT RECORDS. THERE IS NO DISPUTE THAT PRIOR TO THE ASSESSMENT YEAR 2006-07, THERE WAS NO DISALLOWANCE ON ACCOUNT OF TRANSACTION CHARG ES UNDER SECTION 40 (A)(IA). ITA NO.5413/M/2010 YURAJ PROPERTIES & SECURITIES P LTD 3 THE HONOURABLE HIGH COURT IN CASE OF KOTAK SECURIT IES LTD (SUPRA) HAS OBSERVED IN PARA 31 AS UNDER: THE OBJECT OF INTRODUCING SECTION 40(A)(IA), AS EXP LAINED IN THE CENTRAL BOARD OF DIRECT TAXES CIRCULAR NO. 5, DATED JULY 15, 20 05-SEE [2005] 276 ITR (ST.) 151), IS TO AUGMENT COMPLIANCE WITH THE TDS P ROVISIONS IN THE CASE OF RESIDENTS AND CURB BOGUS PAYMENTS. MOREOVER, THOUGH S ECTION 194J WAS INSERTED WITH EFFECT FROM JULY 1, 1995, TILL THE ASS ESSMENT YEAR IN QUESTION THAT IS THE ASSESSMENT YEAR 2005-06 BOTH THE REVENUE AND THE ASSESSEE PROCEEDED ON THE FOOTING THAT SECTION 194J WAS NOT APPLICABLE TO THE PAYMENT OF TRANSACTION CHARGES AND ACCORDINGLY, DURING THE PERIO D FROM 1995 TO 2005 NEITHER THE ASSESSEE HAS DEDUCTED TAX AT SOURCE WHI LE CREDITING THE TRANSACTION CHARGES TO THE ACCOUNT OF THE STOCK EXC HANGE NOR THE REVENUE HAS RAISED ANY OBJECTION OR INITIATED ANY PROCEEDINGS FOR NOT DEDUCTING THE TAX AT SOURCE. IN THESE CIRCUMSTANCES, IF BOTH THE PARTIES FOR NEARLY A DECADE PROCEEDED ON THE FOOTING THAT SECTION 194J IS NOT A TTRACTED, THEN IN THE ASSESSMENT YEAR IN QUESTION, NO FAULT CAN BE FOUND W ITH THE ASSESSEE IN NOT DEDUCTING THE TAX AT SOURCE UNDER SECTION 194J 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 THE ASSESSMENT YEAR 2006-07 THE ASSES SEE HAS BEEN DEDUCTING TAX AT SOURCE WHILE CREDITING THE TRANSACTION CHARGES TO THE ACCOUNT OF THE STOCK EXCHANGE THOUGH NOT AS FEES FOR TECHNICAL SERV ICES 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 ASSESSEE T O DEDUCT TAX AT SOURCE, THE REVENUE HAS SUFFERED PRESUMABLY BECAUSE, THE ST OCK 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 UNDISP UTED DECADE OLD PRACTICE, THE ASSESSEE HAD BONA FIDE REASON TO BELIEVE THAT TH E TAX WAS NOT DEDUCTIBLE AT SOURCE UNDER SECTION 194J OF THE ACT AND, THEREFO RE, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN INVOKING SECTION 40(A)(IA) OF THE ACT AND DISALLOWING THE BUSINESS EXPENDITURE BY WAY OF TRANSACTION CHARGES INCURRED BY THE ASSESSEE. 5.1 IT IS CLEAR THAT THOUGH THE HONOURABLE HIGH COU RT HAS HELD THAT THE PAYMENT REGARDING TRANSACTIONS CHARGES ARE IN THE NATURE OF THE PAYMENT FOR TECHNICAL SERVICES AND LIABLE TO BE TDS; HOWEVER, IT WAS HELD THAT THE ASSESSEE HAD BONAFIDE REASON TO BELIEVE THAT TAX WAS NOT DEDUCTIBLE AT SO URCE FROM THE PAYMENT OF TRANSACTION CHARGES UNDER SECTION 194J. PRIOR TO T HE DECISION OF THE HONOURABLE JURISDICTIONAL HIGH COURT, THIS TRIBUNAL HAS BEEN T AKING A VIEW THAT THE PAYMENTS OF TRANSACTION CHARGES ARE NOT SUBJECTED TO TDS UNDER SECTION 194J. THEREFORE, EVEN ITA NO.5413/M/2010 YURAJ PROPERTIES & SECURITIES P LTD 4 THE REVENUE WAS ALSO PROCEEDINGS WITH A VIEW THAT N O TDS IS DEDUCTIBLE IN RESPECT OF PAYMENT OF TRANSACTION CHARGES PRIOR TO THE ASSESSM ENT YEAR 2005-06. 5.2 FURTHER WHEN THE ISSUE HAS BEEN DECIDED IN FAVO UR OF THE ASSESSEE BY THIS TRIBUNAL FOR THE ASSESSMENT YEAR 2006-07, THAN WE H AVE NO DOUBT ABOUT THE BONAFIDE OF CLAIM OF THE ASSESSEE THAT THE ASSESSEE WAS UNDER THE BELIEF THAT NO TAX AT SOURCE WAS REQUIRED TO BE DEDUCTED UNDER SECTION 194J. 6 IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CAS E AND THE DECISION OF HONOURABLE THE JURISDICTIONAL HIGH COURT IN CASE OF KOTAK SECURITIES LTD (SUPRA), WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT(A) ON THIS ISSUE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. 7 WE MAY CLARIFY THAT THE CLAIM OF BONA FIDE IS ACC EPTABLE ONLY FOR THE YEAR TILL THE ISSUE WAS SETTLED AND NOT FOR THE FUTURE YEARS. 8 IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMI SSED ORDER PRONOUNCED IN THE OPEN COURT ON THE 11 TH ,DAY OF JULY 2012. SD/- SD/- ( RAJENDRA ) ACCOUNTANT MEMBER ( VIJAY PAL RAO ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 11 TH , JULY 2012 RAJ* ITA NO.5413/M/2010 YURAJ PROPERTIES & SECURITIES P LTD 5 COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI