ACIT CIR 4(2), MUMBAI V. CITI GROUP GLOBAL MARKETS INDIA P.LTD, MUMBAI

ITA 550/MUM/2011

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 3172 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 8 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-09-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 22-01-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 20-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PREMANAND J
• Keywords: Capital asset; Depreciation; Earning of tax free income; Cost of acquisition; Revenue expenditure; Capital expenditure
• Section: 143(3); 14A

Judgement Text

CITI GROUP GLOBAL MARKETS INDIA P LTD . ITA NO. 550 /MUM/20 1 1 ITA NO. 829/MUM/2012 1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C , MUMBAI , , BEFORE SHRI G S PANNU , ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , JUDICIAL MEMBERITA ITA NO. : 550 /MUM/20 1 1 ( ASSESSMENT YEAR: 200 6 - 0 7 ) ACIT - CIRCLE 4(2), R. NO. 642, 6 TH FLOOR, AAYAKAR BHAVAN, MUMBAI - 400 0 20 VS CITI GROUP GLOBAL MARKETS INDIA P LTD , BAKHTAWAR, 4 TH FLOOR, NARIMAN POINT, MUMBAI - 400 021 (APPELLAN T) (RESPONDENT) APPELLANT BY : SHRI PREMANAND J RESPONDENT BY : SHRI GIRISH DAVE ITA NO. : 829 /MUM/20 12 ( ASSESSMENT YEAR: 2007 - 08 ) CITI GROUP GLOBAL MARKETS INDIA P LTD , MUMBAI - 400 021 .: PAN: AAECS 7234 F VS ACIT - CIRCLE 4(2), MUMBAI - 400 020 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI GIRISH DAVE RESPONDENT BY : SHRI PREMANAND J /DATE OF HEARING : 01 - 0 7 - 201 5 / DATE OF PRONOUNCEMENT : 28 - 09 - 201 5 ORDER , . . : PER AMIT SHUKLA, J M : THE A FORESAID APPEAL S HA VE BEEN FILED BY THE REVENUE AS WELL AS ASSESSEE , AGAINST SEPARATE IMPUGNED ORDERS PASSED BY CI T(A) - 10, MUMBAI DATED 29.10.2010 & 11.11.2011 F OR THE QUANTUM OF ASSESSMENT PASSED U/S 143(3) FOR AYS 2006 - 07 & 2007 - 08 RESPECTIVELY . WE WILL FIRST TAKE - UP REVENUES APPEAL BEING ITA NO. 550/MUM/2011 VIDE WHICH FOLLOWING GROUNDS HAVE BEEN RAISED : - CITI GROUP GLOBAL MARKETS INDIA P LTD . ITA NO. 550 /MUM/20 1 1 ITA NO. 829/MUM/2012 2 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS. 1,45,007/ - AND RS. 3,52,61,591/ - MADE U/S 40(A)(IA) IN RESPECT OF LEASELINE & VSAT CHARGES AND TRANSACTION CHARGES RESPECTIVELY PAID TO STO CK EXCHANGE, WITHOUT APPRECIATING THE FACTS THAT THESE WERE COMPOSITE CHARGES FOR PROFESSIONAL AND TECHNCIAL SERVICES RENDERED BY THE STOCK EXCHANGE TO ITS MEMBERS AND THE ASSESSEE HAS FAILED TO DEDUCT TDS THEREON. II. ON THE FACTS AND IN THE CIRCUMSTANC ES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN IGNORING THE FACT THAT THESE SERVICES ARE ESSENTIAL IN NATURE AS THEY CAN ONLY BE AVAILED BY MEMBERS OF STOCK EXCHANGE. III. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRE D IN IGNORING THE FACTS THAT USE OF TECHNOLOGY AND ALGORITHMIC BASED PROGRAMS HAVE CONVERTED AN ERSTWHILE PHYSICAL MARKET INTO A DIGITALLY OPERATED MARKET. IV. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN IGNORING THE FACT THAT THE SERVICES RENDERED BY THE BROKERS ARE NOT STANDARD SERVICES BUT SERVICES THAT HAS BEEN DEVELOPED TO CATER TO THE NEEDS OF THE BROKER COMMUNITY TO FACILTATE TRADING. V. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS OVERLOOKED THE FACT THAT THE BROKERS HAVE IN SUBSEQUENT YEARS THEMSELVES STARTED DEDUCTING THE TDS ON SUCH PAYMENTS AND THAT THERE IS NO REASON TO GIVE A DIFFERENT TREATMENT IN THIS YEAR. 2. I. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDTION MADE ON ACCOUNT OF PENALTY OF RS. 27,99,867/ - ON VIOLATION OF THE BYE - CITI GROUP GLOBAL MARKETS INDIA P LTD . ITA NO. 550 /MUM/20 1 1 ITA NO. 829/MUM/2012 3 LAWS OF THE STOCK EXCHANGE, WHICH ARE STATUTORY IN CHARACTER AND THUS AMOUNTED TO INFRINGEMENT OF LAW. II. ON THE FACTS AND I N THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN IGNORING THE FACT THAT THE PENALTY IS IMPOSED UNDER SEBI [PROCEDURE FOR HOLDING INQUIRY AND IMOSING PENALTY BY ADJUDICATING OFFICER] RULES 1995 WHICH HAS A BINDING CHARACTER. III. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN IGNORING THE FACTS THAT NON - ADHERENCE TO STATUTORY PROVISIONS IS NOT AN ALLOWABLE EXPENDITURE. IV. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN APPRECIATING THAT IT WAS NOT ENOUGH THAT THE DISBURSEMENT WAS MADE IN THE COURSE OF TRADE, BUT WAS ALSO FOR THE LAWFUL PURPOSE OF TRADE. V. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN IGNORING THE FACT T HAT THE PENLATY WAS IMPOSED BECAUSE THE BUSINESS WAS NOT CONDUCTED WITHIN THE FRAMEWORK OF LAW. 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN FOLLOWING THE RATIO OF THE HONBLE SUPREME COURT JUDGMENT IN THE CAS E OF M/S TECHNO SHARES PRIVATE LTD. VS CIT REPORTED IN THE ITR, WHEN THE FACTS HAVE SUBSTANTIALLY CHANGED PAST 2005. THE BSE CARD CEASED TO EXIST IN FY 2005 - 06 AFTER DEMUTUALIZATION. THE ENTIRE COST OF THE CARD GOT TRANSFERRED TO THE 10,000 SHARES OF BSE L TD ALLOTTED ON DEMUTUALIZATION, I.E. THE VALUE OF THE CARD BECAME NIL IN TERMS OF SECCTION 47(XIIIA) READ WITH SECTION 55(2)(AB). CITI GROUP GLOBAL MARKETS INDIA P LTD . ITA NO. 550 /MUM/20 1 1 ITA NO. 829/MUM/2012 4 2. THE BRIEF FACTS ARE THAT ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF RESEARCH BASED STOCK BROKING, TRADING OF SHARE S AND INVESTMENT BANKING. IT HAS DEBITED VSAT CHARGES OF RS. 1,45,007/ - AND TRANSACTION CHARGES OF RS. 3,52,61,591/ - WHICH WE RE PAYABLE TO STOCK EXCHANGE ON ACCOUNT OF SERVICES PROVIDED BY IT. THE AO NOTED THAT ASSESSEE HAS NOT DEDUCTED TDS EVE N THOUGH SUC H CHARGES FALL WITHIN THE AMBIT OF 194J AND ACCORDINGLY , AFTER DETAILED DISCUSSION HE DISALLOWED THE ENTIRE SUM OF RS. 3,54,06,595 U/S 40(A)(IA). 3. THE LD. CIT(A) FOLLOWING THE DECISION OF KOTAK SECURITIES LTD VS ADDL. CIT, REPORTED IN 124 TTJ 241 IN RES PECT OF TRANSACTION CHARGES AND DECISION OF DCIT VS ANGEL BROKING LTD, REPORTED IN 35 SOT 457 IN RESPECT OF VSAT CHARGES, DELETED THE SAID DISALLOWANCE ON THE GROND THAT NO TDS WAS REQUIRED TO BE DEDUCTED. 4. BEFORE US, THE LD. DR SUBMITTED THAT THE DECSI ON OF ITAT MUMBAI BENCH IN THE CASE OF KOTAK SECURITIES HAS NO W BEEN REVERSED AND THIS MATTER HAS BEEN DECIDED IN FAVOUR OF THE REVNEUE BY THE HONBLE BOMBAY HIGH COURT IN THE C ASE OF KOTAK SECURITIES LTD., REPORTED IN 340 ITR 333 AND, THEREFORE, THIS ISS UE SHOULD BE DECIDED AGAINST THE ASSESSEE. 5. ON THE OTHER HAND, LD. COUNSEL, SHRI GIRISH DAVE SUBMITTED THAT THOUGH THE ISSUE OF TRANSACTION CHARGES HAS BEEN DECIDED AGAINST THE ASSESSEE AND IN FAVOUR OF THE REVENUE BY THE HONBLE JURISDICTIONAL HIGH COU RT, HOWEVER, SO FAR AS VSAT CHARGES ARE CONCERNED, THE SAME ARE COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF ANGEL BROKING LTD. IN ANY CASE, HE SUBMITTED THAT THE BOMBAY HIGH COURT IN KOTAK SECURITIES ( SUPRA ) VIDE P ARA 31 & 32 HE L D THAT , IF IN THE EARLIER YEARS ASSESSEE HAS NOT DEDUCTED TDS AND REVENUE HAS ALSO ACCEPTED THE SAME POSITION , THEN ASSESSEE CAN BE SAID TO HAVE CITI GROUP GLOBAL MARKETS INDIA P LTD . ITA NO. 550 /MUM/20 1 1 ITA NO. 829/MUM/2012 5 BONA FIDE REASON O R BELIEVE TO THAT NO TAX HAS TO BE DEDUCTED AT SOURCE U/S 195J , THEREFORE, AO WAS NOT JUSTIFIED IN INVOKING THE DISALLOWANCE U/S 40(A)(IA) IN RESPECT OF TRANSACTION CHARGES. HERE IN ASSESSEES CASE ALSO IN ALL THE EARLIER YEARS THE ASSESSEE WAS UNDER A BONA FIDE BELIEF THAT NO TDS IS REQUIRED TO BE DEDUCTED ON SUCH PAYMENTS. EVEN TH E DEPARTMENT ALSO ACCEPTED THIS POSITION. IT WAS DUE TO THIS REASON THAT IN ASSESSMENT YEAR 2005 - 06 ASSESSEE HAS NOT DEDUCTED ANY TDS. THUS, FOLLOWING THE OBSERVATION AND RATIO LAID DOWN IN PARA 31 & 32 OF THE JURISDICTIONAL HIGH COURT, THIS ISSUE S HOULD B E DECIDED IN FAVOUR OF THE ASSESSEE. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PERUSED THE RELEVANT FINDING IN THE IMPUGNED ORDER. IT IS NOW SETTLED POSITION THAT TRANSACTION CHARGES PAID BY THE ASSESSEE TO THE STOCK EXCHANGE FOR TRADING TH OUGH PILO T SYSTEM CONSTITUTES FEES FOR TECHNICAL SERVICES COVERED WITHIN THE AMBIT OF SECTION 194J AND ACCORDINGLY, THE ASSESSEE WAS LIABLE TO DEDUCT TAX AT SOURCE WHILE CREDITING THE TRANSACTION CHARGES TO THE ACCOUNT OF THE STOCK EXCHANGE. THUS, IN PRINCIPL E TH IS ISSUE STANDS SETTLED IN FAVOUR OF THE REVENUE. HOWEVER, THE HONBLE HIGH COURT IN KOTAK SECURITIES ( SUPRA ) VIDE PARA 30 & 31 HELD THAT SINCE BOTH THE REVENUE AND ASSESSEE WERE UNDER A BONA FIDE BELIEF FOR LAST SEVERAL YEARS THAT TAX WAS NOT DEDUCTIBLE A T SOURCE ON PAYMENT OF TRANSACTION CHARGES, THEREFORE, NO FAULT CAN BE FOUND WITH THE ASSES S EE IN NOT DEDUCTING THE TAX AT SOURCE IN THE ASSESSMENT YEAR IN QUESTION AND CONSEQUENTLY, THE DISALLOWANCE U/S 40(A)(IA) CANNOT BE SUSTAINED. HERE IN THIS CASE ALS O, AS SUBMITTED BY THE LD. COUNSEL, BO T H ASSESSEE AS WELL AS REVENUE IN THE EARLIER YEARS WERE ENTERTAINING THE IMPRESSION / BELIEF THAT NO TAX WAS DEDUCTIBLE AT SOURCE ON SUCH PAYMENTS. MORE SO WHEN THERE WERE SEVERAL DECISIONS OF THE TRIBUNAL IN FAVOUR O F THE ASSESSEE. IMMEDIATELY AFTER THIS ASSESSMENT YEAR, THE ASSES S EE HA S STA R TED DEDUCTING TAX AT SOURCE ON SUCH PAYMENTS , THEREFORE, AS PER THE REASONING AND LOGIC GIVEN CITI GROUP GLOBAL MARKETS INDIA P LTD . ITA NO. 550 /MUM/20 1 1 ITA NO. 829/MUM/2012 6 BY JURISDICTIONAL HIGH COURT , W E ALSO HOLD THAT ASSESSEE CANNOT BE HELD TO BE IN DEFA ULT FOR NOT DEDUCTING THE TAX AT SOURCE IN THE IMPUGNED ASSESSMENT YEAR AND CONSEQUENTLY NO DISALLOWANCE U/S 40(A)(IA) IS CALLED FOR. THUS, ON THESE REASONS GROUND NO. 1 AS RAISED BY THE REVENUE IS TREATED AS DISMISSED. 7. REGARDING SECOND ISSUE, I.E. DEL ETION OF ADDITION OF RS. 27,99,867/ - ON ACCOUNT OF PENALTY FOR VIOLATION OF BYE LAWS OF STOCK EXCHANGE , THE LD. COUNSE L SUBMITTED THAT THIS ISSUE STANDS DECIDED IN FAVOUR OF THE ASSESSEE BY EARLIER ORDER OF THE TRIBUNAL . THE LD. AO NOTED THAT PENALTY OF RS . 27,99,867/ - HAS BEEN LEVIED ON THE ASSE S SEE BY THE STOCK EXCHANGE ON ACCOUNT OF NON - MAINTENANCE OF COMPLETE RECORDS , DELAY IN PAY OUT OF FUNDS AND SECURITIES, INCOMPLETE KYC FORMS, SHORT CLEARANCE OF MARGINS ETC. THE ASSES S EES CASE WAS THAT, SUCH PENALT IES ARE LEVIED TOWARDS CERTAIN DELAYS/TECHNICAL NON - COM P LIANCE AND ARE NOT HIT BY EXPLANATION TO SECTION 37(1), BECAUSE THERE IS NO OFFENCE COMMITTED BY THE ASSE S SEE OR NO EXPENDITURE HAS BEEN INCURRED WHICH IS PROHIBITED BY THE LAW. HOWEVER, THE AO RELYIN G UPON VARIOUS CASE LAWS, DISALLOWED THE SAID PAYMENT. THE LD. CIT(A) FOLLOWING THE DECISION OF ITAT MUMBAI BENCH IN THE CASE OF DCIT VS. ENAM SECURITIES P LTD IN ITA NO. 4178/MUM/2009 DATED 14.05.2010 AND OLD CREST MARKETS LTD VS ITO, REPORTED IN [2010] 3 6 DTR 177 ALLOWED THIS ISSUE IN FAVOUR OF THE ASSESSEE. 8. AFTER HEARING BOTH THE PARTIES AND ON PERUSAL OF THE IMPUGNED ORDERS, IT IS SEEN THAT THE CHARGES LEVIED BY THE STOCK EXCHANGE ON THE ASSESSEE IS NOT ON ACCOUNT OF ANY INFRINGEMENT OF LAW OR VIOLA TION OF STATUTORY LAW, BU T ARE LEVIED ON CERTAIN TECHNICAL NON - COMPLIANCE LIKE INCOMPLETE KYC FORM, SHORT CLE ARA N CE OF MA RG IN S , NON - MAINTENANCE OF COMPLETE RECORDS ETC. THESE PAYMENTS CANNOT BE SAID TO BE FOR ANY OFFENCE OR ANY PENALTY IN VIOLATION OF LAW OR ANY CHARGES PAID WHICH ARE PROHIBITED BY LAW. THUS, SUCH CHARGES CANNOT BE DISALLOWED BY INVOKING EXPLANATION CITI GROUP GLOBAL MARKETS INDIA P LTD . ITA NO. 550 /MUM/20 1 1 ITA NO. 829/MUM/2012 7 TO SECTION 37(1). FURTHER IT HAS ALSO BEEN POINTED OUT BY LD. COUNSEL THAT IN THE EARLIER YEARS, THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE A SSESSEE. ACCORDINGLY, WE UPHOLD THE ORDER OF THE CTI(A) ON THIS SCORE AND CONSEQUENTLY THE GROUND NO. 2 RAI S ED BY THE REVENUE IS DISMISSED. 9. REGARDING ISSUE RAISED IN GROUND NO. 3, THE BRIEF FACTS ARE THAT, THE ASSESSEE COMPANY HAS CLAIMED DEPRECIATION ON BSE CARD ACQUIRED BY IT ON THE GROUND THAT IT IS IN THE NATURE OF INTANGIBLE ASSET, WHICH ENTITLED THE ASSESSEE TO CARRY ON THE BUSINESS OF STOCK BROKING AT THE BSE FROM ASSESSMENT YEAR 2001 - 02 TO ASSESSMENT YEAR 2005 - 06 . THE ACCUMULATED DEPRECIATION WA S AT RS. 1,95,24,402/ - WHICH WAS ADDED BACK U/S 41(1)(A) OF THE ACT. THE AO NOTED THAT ASSESSEE HAS NOT CLAIMED DEPRECIATION DURING THE ASSESSMENT YEAR UNDER CONSIDERATION ON BSE CARD AS IT WAS DOING IN THE EARLIER YEARS , AS THE SAID ASSET HAS BEEN THE CON VERTED INTO SHARES ISSUED BY BSE. HE FURTHER OBSERVED THAT , THERE IS A SPECIAL PROVISION F OR TAXATION UNDER CAPITAL GAINS WHICH MAY ARIS E ON ACCOUNT OF DEMUTUALIZATION OF THE BSE , UNDER THE ACT . THE TRANSFER OF BSE CARD TO A COM P ANY FOR CONSIDERATION OF AL LOTMENT OF SHARES IS NOT TREATED AS TRANSFER. FURTHER, AS PER THE PROVISIONS OF SECTION 55(2)(AB) AND SECTION 50, COST OF ACQUISITION OF EQUITY SHARES ALLOTTED TO A SHAREHOLDERS OF BSE UNDER A SCHEME FOR DEMUTUALIZATION OR CORPORATIZATION APPROVED BY THE SEBI SHALL BE THE COST OF ACQUISITION OF ORIGINAL MEMBERSHIP OF THE EXCHANGE AND THE COST OF TRADING OR CLEARING RIGHTS OF THE RECOGNIZED STOCK EXCHANGE ACQUIRED BY SUCH A SHAREHO L DER, SHALL BE DEEMED TO BE NIL. THE STATUTE DOES NOT PROVIDE DOUBLE DEDUCTI ON IN RESPECT OF ANY EXPENSES INCURRED, THEREFORE, ON HARMONIOUS READING OF SECTION 55(2)(AB) AND SECTION 50, THE COST TO BE DEDUCTED AT THE TIME OF SALE OF SHAR E S SHOULD BE ON THE WDV OF THE BSE MEMBERSHIP RIGHT. HE FURTHER NOTED THAT WDV ON THE DATE OF EXCHANGE OF BSE CARD AND SHARES OF BSE AND BSE TRADING RIGHTS WAS AT RS. 74,75,098/ - . THE ASSESSEE GETS TO ENTITLED TO ORIGINAL CITI GROUP GLOBAL MARKETS INDIA P LTD . ITA NO. 550 /MUM/20 1 1 ITA NO. 829/MUM/2012 8 COST OF ACQUISITION OF THE MEMBERSHIP OF THE BSE I.E. RS. 2.07 CRORES AT THE TIME OF ALLOTTED SHARES ARE SOLD. THEREFORE, THERE ACCRUES AN EXCESSIVE BENEFIT TO THE EXTENT OF DEPRECIATION CLAIMED AND ALLOWED BY THE ITAT IN THIS YEAR, ALTHOUGH THIS WILL BE REALIZED IN THE YEAR IN WHICH SALE IS MADE . THUS, THIS TANTAMOUNTS T O RECOVERING BACK THE ALLOWANCE OF DEPRECIATION ALLOWED U/S 4 1(1)(A) OF RS. 1,95,24,902/ - (I.E. 2,70,00,000 74,75,098) . ACCORDINGLY, HE MADE A PROTECTI V E ADDITI O N OF RS. 1,95,24,902/ - ON THE GROUND THAT DEPRECATION CANNOT BE ALLOWED ON THE BSE MEMBERSHIP AND THE SAME SHALL BE ADDED ON SUBSTANTIVE BASIS IN CASE IT IS FINALLY H E LD THAT DEPRECIATION IS PERMISSIBLE TO THE ASSES S EE AND ASSESSEE CLAIMS THE ORIGINAL COST OF MEMBERSHIP OF BSE AS ITS COST OF ACQUISITION . 10. BEFORE THE CIT(A), RELIANCE WAS PLACED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF NECTAR BEVERAGES (P) LTD VS DCIT [2009] 314 ITR 314 AND CATENA OF OTHER DECISIONS, WHICH HAS BEEN DISCUSSED BY THE CIT(A) FROM PARA 4.30 TO 4.38. THE LD. CIT(A), DELETED THE ADDITION , FIRSTLY , BY HOLDING THAT HONBLE SUPREME COURT IN THE CASE OF TECHNO SH ARES AND STOCK LTD. VS CIT, 327 ITR 323 HELD THAT BSE CARD IS A CAPITAL ASSET AND DEPRECIATION HAS TO BE ALLOWED; SECONDLY, DEPRECIATION ALLOWED ON A CAPITAL ASSET IS NOT AN EXPENDITURE , LOSS OR TRADING LIABILITY AS CONTEMPLATED U/S 41(1) AND AS HELD BY HO NBLE SUPREME COURT IN THE CASE OF NECTAR BEVERAGES (P) LTD ( SUPRA ). FURTHER , NO BENEFIT IS ACCRUED TO THE ASSESSEE IN THIS YEAR, BECAUSE THERE IS NO SALE IN THIS YEAR. ACCORDINGLY, HE DIRECTED THE AO TO CONSIDER THE PROVISION OF SECTION 50A AS AND W H E N S ALE OF SHARES TAKE PL A CE. 11. AFTER HEARING BOTH THE PARTIES, WE FIND THAT SO FAR AS FINDING OF THE CIT(A) AS GIVEN IN PARA 4.4 TO PARA 4.4.1 IS FACTUALLY AND LEGALLY CORRECT. IN ANY CASE, IT IS AN ADMITTED FACT THAT NO BENEFIT IS ACCRUED TO THE ASSESSEE IN THIS YEAR AS THERE IS NO SALE OF THE BSE MEMBERSHIP CARD. THE LD. CIT(A) HAS ALREADY GIVEN A DIRECTION TO CITI GROUP GLOBAL MARKETS INDIA P LTD . ITA NO. 550 /MUM/20 1 1 ITA NO. 829/MUM/2012 9 THE AO THAT THE COST OF ACQUISITION OF THE SHARES ACQUIRED AS A RESULT OF DEMUTUALIZATION OR CORPORATIZATION WOULD BE CONSIDERED AT RS. 74,75,098/ - IN ACCORDANCE WITH THE PROVISIONS OF SECTION 50A OF THE ACT THAT I S , BEING WDV OF THE CARD AT THE TIME OF SALE OF SHARES AND NOT THE ORIGINAL VALUE OF CA R D AT RS. 2.20 CRORES. ACCORDING, THE AO HAS BEEN DIRECTED TO CONSIDER THE PROVISION OF SECTION 50A AS AND WHEN SALE OF SHARES TAKE PLACE. THUS, SUCH A DIRECTION OF THE CIT(A) IS AFFIRMED AND WE HOLD THAT AO HAS WRONGLY WITHDRAWN THE DEPRECATION ALLOWED TO THE ASSESSEE BY INVOKING SECTION 41(1)(A) IN VIEW OF THE DECISION IN THE CASE OF NECTAR BEVERAGES (P) LTD ( SUPRA ). THUS, GROUND RAISED BY THE REVENUE ON THIS SCORE IS DISMISSED. 12. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. 13. NOW, WE WILL TAKE ASSE S SEES APPEAL BEING ITA NO. 829/MUM/2012 FOR AY 2007 - 08. 14. IN GROUND NO. 1, THE ASSE S SEE HAS CHALLENGED THE DISALLOWANCE OF FEE S FOR TRANSACTION CHARGES OF RS. 1,97,76,326/ - PAID TO THE STOCK EXCHANGE ON THE GROUND THAT TAX HAS BEEN DEDUCTED AT SOURCE. U/S 194J. 15. THE LD. CIT(A) HAS CONFIRMED THE SAID ADDITION ON THE GROUND THAT THESE PAYMENTS ARE IN THE NATURE OF FEE FOR TECHNICAL SERVICES COVERED U/S 194J AND IN VIEW OF THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS KOTAK SECURI T S LTD. ( SUPRA) THIS ISSUE IS TO BE DECIDED AGAINST THE ASSESSEE. 16. BEFORE US THE LD. COUNSEL, S UBMITTED THAT FROM 01.07.2006 THE TDS HAS BEEN DEDUCTED BY THE ASSESSEE. IT WAS ONLY FOR BRIEF PERIOD OF THREE MONTHS THAT TDS HAS NOT BEEN DEDUCTED FOR THE REASON THAT THERE WERE TWO TRIBUNAL DECISIONS IN FAVOUR OF THE ASSESSEE OF MUMBAI BENCH. THEREFORE, ASSESSEE CANNOT HELD TO BE IN DEFAULT. FUR T HER TH IS IS A CASE OF SHORT DEDUCTION OF TDS, CITI GROUP GLOBAL MARKETS INDIA P LTD . ITA NO. 550 /MUM/20 1 1 ITA NO. 829/MUM/2012 10 THEREFORE, NO DISALLOWANCE U/S 40(A)(IA) CAN BE MADE . T HIS VIEW I S WELL SUPPORTED BY ITAT, KOLKATA BENCH IN THE CASE OF DC I T VS. S K TAKR I WAL, REPORTED IN 48 SOT 515 AND PFIZER LTD , REPORTED IN 55 SOT 277. ON THE OTHER HAND, LD. DR STRONGLY RELIED UPON THE ORDER OF THE CIT(A). 17. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND ON PERUSAL OF THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDERS, WE FIND THAT THE ASSE S SEE HAS DEDUCTED TDS ON PAYMENT OF TRANSACTION CHARGES FROM 01.07.2006. HOWEVER, FOR THE BRIEF PERIOD IT HAS NOT DEDUCTED TDS. THE ASSESSEES CASE HAS THAT THERE HAD BEEN SEVERAL DECISIONS OF THE MUMBAI TRIBUNAL EARLIER WHEREBY IT WAS HELD THAT NO TDS WAS REQUIRED TO BE DEDUCTED ON TRANSACTION CHARGES PAID TO BSE/NSE , HENCE THERE WAS A BONA FIDE BELIEF. THUS, IT IS MORE OF A CASE OF A SHORT - DEDUCTION OF TDS ON THE PAYMENT OF TRANSACTION CHARGES AND, THEREFORE, IN SUCH A SITUATION , THE DISALLOWANCE U/S 40(A)(IA) CAN NOT BE MADE IN VIEW OF THE DECISIONS OF THE CO - ORDINATE BENCH AS RELIED UPON BY THE LD. COUNSEL. W E AGREE WITH THIS CONTENTION OF THE ASSESSEE AND HOLD THAT THE DISALLOWANCE MADE ON ACCOUNT OF TRANSACTION CHARGES U/S 40(A)(IA) IS TO BE DELETED. 18. IN G R OUND NO. 2, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF EXPENDITURE INCURRED ON LEASEHOLD PREMISES OF RS. 3,05,87,169/ - BY HOLDING THE SAME TO BE CAPITAL IN NATURE. 19. THE ASSESSEE HAS TAKEN THE PREMISES ON LEASE FOR A PERIOD OF 33 MONTHS ON W H ICH IT HAS INCURRED EXPENDITURE FOR REPAIRS AND RENOVATION OF SUMS AGGREGATING RS. 3,05,87,169/ - . THE SAID EXPENDITURE HAS BEEN TREATED AS CAPITAL IN NATURE BY THE AO. 20. BEFORE THE CIT(A), THE ASSESSEE RELIE D UPON CATENA OF DECISIONS, LIST OF WHICH HAS BEEN INCORPORATED BY THE CIT(A) AT PAGE 7 OF THE APPELLATE ORDER. I T HAS BEEN CONTENDED BY THE ASSESSEE THAT AN EXPENDITURE INCURRED ON LEASE PREMISES OUGHT TO BE CITI GROUP GLOBAL MARKETS INDIA P LTD . ITA NO. 550 /MUM/20 1 1 ITA NO. 829/MUM/2012 11 ALLOWED AS DEDUCTION AS REVENUE EXPENDITURE U/S 37(1). HOWEVER, THE LD. CIT(A), REJECTED THE ASSES S EES CONTENTION AND HELD THAT RENOVATION/REPAIRS ARE ALLOWABLE UNDER SECTION 30 AND AO HAS RIGHTLY TREATED THE SAID EXPENDITURE AS CAPITAL IN NATURE. 21. BEFORE US, THE LD. COUNSEL SUBMITTED THAT, THE ASSESSEE IS NOT OWNING THE PREMISES AND THEREFORE , TH ERE IS NO ENDURING BENEFIT TO THE ASSESSEE. THE DETAILS OF EXPENDITURE INCURRED ON THE LEASEHOLD PREMISES WERE SEPARATELY FILED IN THE PAPER BOOK AT PAGE 1 ALONG WITH COPY OF LEASE AGREEMENTS. FROM THERE, IT WAS POIN T ED OUT TH AT THE NATURE OF EXPENSES ARE PURELY IN NATURE REPAIR WORKS AND THEREFORE , NO ASSET OF ENDURING BENEFIT WAS CREATED. ACCORDINGLY SUCH EXPENDITURE IS TO BE ALLOWED AS REVENUE EXPENDITURE. 22. ON THE OTHER HAND, LD. DR STRONGLY RELIED UPON THE ORDER OF THE AO AS WELL AS CIT(A). 23. AF TER CONSIDERING THE RIVAL SUBMISSIONS AND ON PERUSAL OF THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDER AS WELL AS MATERIAL PLACED ON RECORD, IT IS NOTICED FROM THE DETAILS OF EXPENDITURE INCURRED ON THE LEASEHOLD PREMISES, THAT THESE ARE IN THE NATURE OF ELECTRICAL WORKS, CIVIL WORK AND FEES PAID TO ARCHITECTS AND MUNICIPAL CHARGES. UNDOUBTEDLY THESE EXPENDITURE HAVE BEEN INCURRED ON A LEASED PREMISES WHICH WAS TAKEN FOR SHORT DURATION OF 33 MONTHS. ONCE THESE EXPENDITURES ARE PURELY IN THE NATURE OF REPA IR WORKS FOR MAKING THE OFFICE IN HABITABLE POSITION, SUCH AN EXPENDITURE CANNOT BE HELD TO BE CAPITAL IN NATURE. SIMPLY BECAUSE A BENEFIT OF REPAIR IS EXTENDED BEYOND THE PERIOD OF 1 YEAR THAT DOES NOT ENTAIL THAT IT IS GIVING ENDURING BENEFIT TO THE ASSE SSEE AND HENCE IS CAPITAL EXPENDITURE. THUS, WE AGREE WITH THE CONTENTION OF LD. COUNSEL THAT THE EXPENDITURE INCURRED ON LEASEHOLD PREMISES IS ALLOWABLE AS REVENUE EXPENDITURE AND ACCORDINGLY , THE FINDING OF CITI GROUP GLOBAL MARKETS INDIA P LTD . ITA NO. 550 /MUM/20 1 1 ITA NO. 829/MUM/2012 12 THE LD. CIT(A) IS SET ASIDE AND GROUND RAISED B Y THE ASSESSEE IS ALLOWED. 24. THE NEXT ISSUE RELATES TO DISALLOWANCE U/S 14A R.W. RULE 8D FOR SUMS AMOUNTING TO RS. 34,22,715/ - . 25. THE ASSES S EE HAS MADE INVESTMENTS IN SUBSIDIARY COMPANY FOR A SUM OF RS. 25 CRORES, 75 CRORES FOR 10,000 EQUITY SHARES O F BOMBAY STOCK EXCHANGE (BSE). IT HAS EARNED DIVIDEND INCOME OF RS. 73,200/ - WHICH WAS CLAIMED AS EXEMPT. 26. THE LD. CIT(A) COMPUTED THE DISALLOWANCE UNDER RULE 8D(2)(3) BY TAKING 0.5% OF AVERAGE VALUE OF INVESTMENT AS MOST REASONABLE METHOD AND ACCORDI NGLY , WORKED OUT THE DISALLOWANCE AT RS. 34,22,715/ - . THE LD. CIT(A) NOTED AND HAS MADE AN ENHANCEMENT FOR MAKING THIS ADDITION AS SAME WAS NOT MADE BY THE AO. 27. BEFORE US THE LD. COUNSEL SUBMITTED THAT, ADMITTEDLY RULE 8D IS NOT APPLICABLE IN AY 2007 - 08 THEREFORE DISALLOWANCE MADE BY APPLYING RULE 8D IS UNJUSTIFIED . LD. DR HAS ALSO ADMITTED THAT RULE 8D IS NOT APPLICABLE AND SOME REASONABLE BASIS HAS TO BE APPLIED/DERIVED. 28. AFTER CONSIDERATION THE RIVAL SUBMISSIONS AND PERUSAL OF THE ORDER, WE FIN D THAT THE LD. CIT(A) HAS PROCEEDED TO MAKE HUGE DISALLOWANCE OF RS.34,22,715/ - AFTER INVOKING THE FORMULA OF RULE 8D WHICH ADMITTEDLY IS APPLICABLE FROM AY 2008 - 09. AS HELD BY HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD., THAT PRIOR TO AY 2008 - 09 THE DISALLOWANCE U/S 14 A IF AT ALL TO BE MADE ON THE REASONABLE BASIS. LOOKING TO THE FACT THAT , FIRSTLY , ASSES S EE HAS EARNED EXEMPT INCOME OF RS. 73,200/ - ONLY; SECONDLY, THERE IS NO INTEREST EXPENDITURE ATTRIBUTABLE FOR THE PURPO SE OF DISALLOWANCE ; AND LASTLY, ENTIRE INVESTMENT HAS BEEN CITI GROUP GLOBAL MARKETS INDIA P LTD . ITA NO. 550 /MUM/20 1 1 ITA NO. 829/MUM/2012 13 MADE IN THE SUBSIDIARY COMPANY ; THEREFORE, IN THE INTEREST OF JUSTICE, WE FEEL THAT 10% OF THE EXEMPT INCOME WOULD BE A REASONABLE ALLOCATION OF COST FOR EARNIN G OF EXEMPT INCOME. THEREFORE DISALLO WANCE U/S 14A IS RESTRICTED TO 10% OF THE EXEMPT INCOME AND ACCORDINGLY GROUND NO. 3 IS TREATED AS PARTLY ALLOWED. 29. IN THE RESULT, APPEAL OF THE ASSESSEE IS TREATED AS PARTLY ALLOWED. TO SUM - UP: REVENUES APPEAL FOR AY 2006 - 07 STANDS DISMISSED ASSES SEES APPEAL FOR AY 2007 - 08 STAND PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH SEPTEMBER , 2015. SD/ - SD/ - ( ) ( ) ( G S PANNU ) ( AMIT SHUKLA ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 28 TH SEPTEMBER , 2015 / COPY TO: - 1 ) / THE APPELLANT. 2 ) / THE RESPONDENT. 3) THE CIT (A) - 10 , MUMBAI. 4 ) THE CIT 4 , MUMBAI. 5 ) , , / THE D.R. C BENCH, MUMBAI. 6 ) \ COPY TO GUARD FILE. / BY ORDER / / TRUE COPY / / / , DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI * . . *CHAVAN, SR.PS