ACIT 2(3), MUMBAI V. SURESH RATHI SECURITIES P. LTD, MUMBAI

ITA 6020/MUM/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49122 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-06-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 23-03-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 12-11-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K MAHAPATRA
• Assessee Lawyers: MRS SANJUKTA CHOWDHARY
• Keywords: Depreciation; Opportunity of being heard; Transactions in derivatives; Speculation loss; Bad and doubtful debts; Commercial expediency
• Section: 37; 28; 2

Judgement Text

1 ITA 6020 /M/2009 SUR ESH RATHI SECURITIES PVT. LTD.. IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E BEFORE SHRI D. MANMOHAN, V.P. AND SHRI R.K. PANDA, A.M. ITA NO. 6020/MUM/2009 ASSESSMENT YEAR 2005-06 ACIT 2(3), R. NO. 555, AAYKAR BHAWAN, M.K. ROAD, MUMBAI - 20. VS. M/S SURESH RATHI SECURITIES PVT. LTD., 9, PAREKH VORA CHAMBERS, 66, N.M. ROAD, FORT, MUMBAI.400023. PAN AABCS5554M APPELLANT RESPONDENT APPELLANT BY SHRI S.K. MAHAPATRA RESPONDENT BY MR. PRAMOD KUMAR PARID A & MRS. SANJUKTA CHOWDHARY ORDER PER R.K. PANDA A.M. THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DT. 21.08.2009 OF CIT(A)- XXX, MUMBAI RELATING TO A.Y. 2005-06. 2. GROUNDS OF APPEAL NO. 1 BEING GENERAL IN NATURE IS DISMISSED. 3. I N THE GROUNDS OF APPEAL NO. 2, THE REVENUE HAS CHAL LENGED THE ORDER OF THE LD. CIT(A) IN HOLDING THAT THE TRANSACTION CHAR GES OF ` 18,54,678/-, LEASE LINE CHARGES OF ` 1,93,704/- AND VSAT CHARGES OF ` 13,85,263/- ARE NOT LIABLE TO BE DISALLOWED U/S 40(A)(IA) OF THE I.T. ACT ON A CCOUNT OF THEIR BEING NOT IN THE NATURE OF TECHNICAL FEES WITHIN THE MEANING OF EXPL ANATION 2 OF SECTION 9(1)(VII) AND HENCE NOT COVERED BY THE SECTION 194 J OF THE ACT. 2 ITA 6020 /M/2009 SUR ESH RATHI SECURITIES PVT. LTD.. 3. AFTER HEARING BOTH THE SIDES, WE FIND THE ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE DECISIO N OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF KOTAK SECURITIES LTD . VS ADDL. CIT REPORTED IN [2008] 25 SOT 440 (MUM), DCIT VS. SONAL SHARES & ST OCK BROKERS (P) LTD. [2010] 38 SOT 150 (MUM) AND DCIT VS. ANGEL BROKING [2010] 3 ITR (TRIB) 294 (MUIM) WHEREIN IT HAS BEEN HELD THAT PAYMENT MADE T OWARDS VSAT CHARGES, LEASE LINE CHARGES ETC. ARE NOT FEES PAID FOR TECHN ICAL SERVICES U/S 194J. THEREFORE, NO DISALLOWANCE CAN BE MADE U/S 40(A)(IA ) OF THE ACT MERELY BECAUSE THE REVENUE HAS NOT ACCEPTED THE DECISION OF THE TR IBUNAL IN THE CASE OF KOTAK SECURITIES LTD. AND AN APPEAL HAS BEEN FILED BEFORE THE HONBLE BOMBAY HIGH COURT. IN ABSENCE OF ANY DECISION REVERSING ANY OF THE ABOVE DECISIONS BROUGHT TO OUR NOTICE BY THE LD. D.R. AND RESPECTFULLY FOLL OWING THE DECISIONS OF THE CO- ORDINATE BENCHES OF THE TRIBUNAL CITED SUPRA, WE FI ND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) IN DELETING THE DISALLOWANCE MADE BY THE A.O. U/S 40(A)(IA) OF THE ACT ON ACCOUNT OF TRANSACTION CHARGES, LEASE LI NE CHARGES AND VSAT CHARGES. GROUND NO. 2 RAISED BY THE REVENUE IS ACCO RDINGLY DISMISSED. 4. THE REVENUE IN THE GROUNDS OF APPEAL NO. 3 HAS C HALLENGED THE ORDER OF THE LD. CIT(A) IN DELETING THE EXPENDITURE OF ` 3,32,111/- MADE BY THE A.O. BEING PAYMENT PAID TO THE STOCK EXCHANGE ALLEGEDLY ON BEHALF OF THE CLIENTS. 4.1 FACTS OF THE CASE IN BRIEF ARE THAT FROM THE DE TAILS OF STOCK EXCHANGE EXPENSES FURNISHED BY THE ASSESSEE, THE A.O. NOTED THAT THE ASSESSEE HAS DEBITED ` 3,32,111/- TOWARDS WRONG TRANSACTION CHARGES. ON BEING QUESTIONED BY THE A.O. TO JUSTIFY THE SAME, IT WAS SUBMITTED T HAT SUCH TRANSACTION CHARGES INCLUDED THE LOSS ON ACCOUNT OF WRONG PURCHASE TRAN SACTIONS MADE BY THE COMPANY WHICH WAS NOT ACCEPTED BY THE CLIENTS. IT WAS SUBMITTED THAT LARGE NUMBER OF TRADE ORDERS ARE RECEIVED WHEN THE MARKET IS VOLATILE. IN SUCH SITUATION, CHANCES OF MAKING MISTAKE BY THE DEALER IN PURCHASE OF THE ORDER OCCURRED AND AS SUCH LOSS IS NOT ACCEPTED BY THE CL IENT. 3 ITA 6020 /M/2009 SUR ESH RATHI SECURITIES PVT. LTD.. 4.2 HOWEVER, THE A.O. WAS NOT CONVINCED WITH THE EX PLANATION GIVEN BY THE ASSESSEE. HE NOTED THAT THE ASSESSEE FAILED TO SUBS TANTIATE ITS CLAIM WITH EVIDENCE AND THE REPLY IS TOO GENERAL. ACCORDING T O THE A.O. IT IS NOTHING BUT IN THE NATURE OF SPECULATIVE LOSS WITHIN THE MEANING O F SECTION 73(5). 4.3 BEFORE THE LD. CIT(A), THE ASSESSEE SUBMITTED T HAT THIS TYPE OF LOSS SHOULD BE ALLOWED U/S 37 OR ALTERNATIVELY U/S 28 DUE TO WR ONG PUNCHING OF TRANSACTION IN COMPUTER AT THE INSTANCE OF CUSTOMERS ONLY WHICH ARE LATER ON DENIED OR ACCEPTED BY THEM. IT WAS SUBMITTED THAT WHEN THE A SSESSEE IS HAVING GROSS BROKERAGE INCOME OF ` 6.31 CRORES APPROXIMATELY IT WILL NOT CLAIM SPECUL ATION LOSS OF ` 3,32,111/- WHEN IT DOES NOT CARRY SPECULATION ACTI VITY IN ITS NAME. IT WAS SUBMITTED THAT THESE ARE RECURRING LOSES WHICH ARISE DURING THE COURSE OF ITS REGULAR BUSINESS RESULTING IN LOSS ON ACCOUNT O F WRONG PUNCHING OR WRONG EXECUTION OF TRANSACTIONS WHICH ARE NOT ACCEPTED B Y THE CLIENTS SUBSEQUENTLY. SINCE THESE LOSSES ARE INCURRED NOT DUE TO ITS OWN MISTAKE BUT DUE TO WRONG FEEDING OF DATA AND THE SAME ARRIVED IN THE NATURAL COURSE OF BUSINESS AND SINCE THERE IS NO PERSONAL ELEMENT INVOLVED, THE SA ME SHOULD BE ALLOWED AS NORMAL BUSINESS LOSS. 4.4 BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE , THE LD. CIT(A) DELETED THE ADDITION BY HOLDING THAT THE LOSS OR EXPENSES I NCURRED ARE PURELY OUT OF BUSINESS EXPEDIENCY WHICH IS ALLOWABLE U/S 37 AND E XPLANATION TO SECTION 73 COULD NOT BE INVOKED IN THIS CASE. AGGRIEVED BY SUC H ORDER OF THE LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 4.3 THE LD. D.R. SUBMITTED THAT THE ASSESSEE HAS NO T FURNISHED THE REQUISITE DETAILS TO SUBSTANTIATE ITS CLAIM DUE TO WRONG PUNC HING OF TRANSACTION IN COMPUTER AT THE INSTANCE OF CUSTOMERS. HE SUBMITTE D THAT THE LD. CIT(A) 4 ITA 6020 /M/2009 SUR ESH RATHI SECURITIES PVT. LTD.. DELETED THE ADDITION MERELY ON THE BASIS OF SUBMISS ION MADE BY THE ASSESSEE WITHOUT GOING TO THE FACTS OF THE CASE OR VERIFY TH E DETAILS. 5. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER H AND, DREW THE ATTENTION OF THE BENCH TO THE DETAILED SUBMISSION FILED BEFORE T HE LD. CIT(A) PLACED AT PAGE 24 & 25 OF THE PAPER BOOK. HE, HOWEVER, SUBMITTED THAT HE HAS NO OBJECTION IF THE MATTER IS RESTORED TO THE FILE OF THE A.O. WITH A DIRECTION TO VERIFY THE REQUISITE DOCUMENTS FILED BY THE ASSESSEE AND DECID E THE ISSUE IN ACCORDANCE WITH LAW. 6. AFTER HEARING BOTH THE SIDES, WE FIND THE ASSESS EE ADMITTEDLY HAS NOT FILED THE REQUISITE DETAILS BEFORE THE A.O. AND HAD MADE ONLY GENERAL SUBMISSIONS. WE FIND THE LD. CIT(A) ALSO ACCEPTED THE GENERAL SUBMISSION MADE BY THE ASSESSEE WITHOUT VERIFYING THE REQUISIT E DETAILS OF SUCH TRANSACTIONS WHICH WERE NEVER FURNISHED BEFORE THE A.O. UNDER THESE CIRCUMSTANCES, WE ARE OF THE OPINION THAT THE LD. C IT(A) WAS NOT JUSTIFIED IN DELETING THE ADDITION MADE BY THE A.O. HOWEVER, CON SIDERING THE TOTALITY OF THE FACTS OF THE CASE AND IN THE INTEREST OF JUSTICE, W E RESTORE THE ISSUE TO THE FILE OF THE A.O. WITH A DIRECTION TO GIVE ONE MORE OPPORTUN ITY TO THE ASSESSEE TO SUBSTANTIATE ITS CLAIM TO HIS SATISFACTION WITH SUP PORTING EVIDENCE. THE GROUND RAISED BY THE REVENUE IS ACCORDINGLY ALLOWED FOR ST ATISTICAL PURPOSE. 7. GROUNDS OF APPEAL NO. 4 BY THE REVENUE READS AS UNDER:- THE CIT(A) ERRED IN HOLDING THAT THE EXPENDITURE OF ` 9,84,358/- WERE IN THE NATURE OF CURRENT REPAIRS WITHOUT APPRE CIATING THE FACT THAT SUCH REPAIRS WERE HELD TO BE CAPITAL EXPENDITU RE AS PER THE DECISION OF THE SC IN THE CASE OF BALLIMAL NAVAL KI SHORE VS. CIT (1997) 224 ITR 41 (SC). 7.1 FACTS OF THE CASE IN BRIEF ARE THAT FROM THE DE TAILS FURNISHED BY THE ASSESSEE TOWARDS REPAIRS AND MAINTENANCE, THE A.O. NOTED THAT THE ASSESSEE 5 ITA 6020 /M/2009 SUR ESH RATHI SECURITIES PVT. LTD.. HAD INCURRED THE FOLLOWING EXPENSES AMOUNTING TO ` 9,84,358/- AND CLAIMED THEM AS CURRENT REPAIRS AND MAINTENANCE EXPENSES U/ S 31 OF THE ACT. 1. M/S SHRIRAM FURNITURE ` 1,58,280/- 2. M/S LAXMI HARDWARE ` 2,00,000/- 3. M/S LAXMI HARDWARE ` 3,55,912/- 4. CARPENTERS WORK ` 1,44,375/- 5. TILE PURCHASE ` 38,264/- 6. POLISH, GLASSWORK ETC. ` 23,377/- 7. DAILY PAYMENT OF PAINTERS ` 64,150/- ` 9,84,358/- 7.2 HE NOTED FROM THE DETAILS THAT THE ASSESSEE HAD MADE NEW FURNITURE AND FIXTURES OF ITS ANDHERI OFFICE FOR WHICH PLYWOOD, H ARDWARE MATERIAL, PAINTING MATERIAL, GLASS MATERIAL AND LABOUR WAS DEPLOYED. THEREFORE, HE WAS OF THE OPINION THAT THESE EXPENSES ARE OF CAPITAL IN NATUR E. HE ACCORDINGLY ADDED AN AMOUNT OF ` 9,84,358/- AND ALLOWED DEPRECIATION @ 10% OF THE S AME. 8. BEFORE THE LD. CIT(A), IT WAS SUBMITTED THAT THE ASSESSEE HAD MADE TOTAL CLAIM OF ` 17.29 LAKHS TOWARDS REPAIRS AND MAINTENANCE. IN TH E PRECEDING YEAR IT HAD CLAIMED ` 17.13 LAKHS. THE PERCENTAGE OF SUCH EXPENSES IS 2. 74% OF GROSS BROKERAGE EARNED BY THE ASSESSEE AS AGAINST 6 .44% RELATING TO EARLIER YEAR. IT WAS SUBMITTED THAT DURING THE YEAR, THE AS SESSEE HAD CARRIED OUT REPAIRS OF ITS EXISTING FURNITURES AND FIXTURES AT ITS JODHPUR OFFICE, BHAYANDER OFFICE ETC. AND THE A.O. WITHOUT ANY EXAMINATION TR EATED THE EXPENSES AS CAPITAL NATURE. IT WAS SUBMITTED THAT THE OBSERVAT ION OF THE A.O. IS ERRONEOUS AS THESE EXPENSES WERE INCURRED TO CARRY OUT REPAIR OF OLD FURNITURE. IT WAS SUBMITTED THAT THE ASSESSEE HAD PURCHASED ANDHERI O FFICE DURING THE YEAR AND THE AMOUNT SPENT FOR MAKING NEW FURNITURE HAS BEEN CAPITALIZED TO THE TUNE OF ` 9.31 LAKHS. THE AMOUNT DEBITED TO REPAIR AND MAIN TENANCE ACCOUNT RELATES TO REPAIR OF THE FURNITURES AND ITS REPLACEMENTS AT OTHER OFFICES SUCH AS AT JODHPUR, BHAYANDER ETC. IT WAS SUBMITTED THAT WHAT EVER WAS TO BE CAPITALIZED, THE SAME HAD ALREADY BEEN CAPITALIZED BY THE ASSESS EE AND THE BALANCE AMOUNT WAS REVENUE IN NATURE WHICH ARE INCURRED FOR SMOOTH CARRYING OF THE BUSINESS. 6 ITA 6020 /M/2009 SUR ESH RATHI SECURITIES PVT. LTD.. 8.1 THE LD. CIT(A) DELETED THE ADDITION TREATING TH E SAME AS REVENUE IN NATURE FOR WHICH THE REVENUE IS IN APPEAL BEFORE US . 8. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE MATERIAL AVAILABLE ON RECORD AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. OUT OF THE ADDITION OF ` 9,84, 358/-, WE FIND THE ASSESSEE IN ITS PAPER BOOK HAS FILED THE DETAILS OF EXPENDITURE AMOUNTING TO ` 1,58,280/- PAID TO SHIVAM FURNITURES VIDE BILL DATED 10.10.2004. A PERUSAL OF THE ABOVE BILL SHOWS THAT THE AMOUNT HAS BEEN PAID TOWARDS REPAIR OF VARIOUS ITEMS. THEREFORE, AN AMOUNT OF ` 1,58,280 PAID TOWARDS REPAIR AND MAINTENANCE OF BHAYANDER OFFICE CAN BE ALLOWED AS REVENUE EXPENDIT URE. SO FAR AS THE BALANCE AMOUNT IS CONCERNED, WE FIND NO BILLS AND VOUCHERS ARE FILED IN THE PAPER BOOK. EVEN THE LD. COUNSEL FOR THE ASSESSEE AT THE TIME O F HEARING SUBMITTED THAT THE ABOVE EXPENDITURE HAS BEEN INCURRED AT JODHPUR OFFI CE AND THE DETAILS ARE NOT AVAILABLE. THEREFORE WE ARE UNABLE TO ASCERTAIN THE NATURE OF EXPENDITURE I.E. WHETHER THE SAME IS REVENUE OR CAPITAL IN NATURE. W E FIND THE LD. CIT(A) MERELY ACCEPTED THE SUBMISSIONS MADE BY THE ASSESSEE. IF T HE BILLS OF JODHPUR OFFICE WERE SUBMITTED BEFORE HIM FOR EXAMINATION, NOTHING PREVENTED THE ASSESSEE TO FURNISH THE SAME EITHER BEFORE THE A.O. OR BEFORE U S. THEREFORE, THE EXPENDITURE INCURRED AT JODHPUR OFFICE CANNOT BE CONSIDERED AS REVENUE IN NATURE WITHOUT PROPER VERIFICATION ESPECIALLY WHEN HUGE AMOUNT HAS BEEN INCURRED TOWARDS REPAIRS AND MAINTENANCE. CONSIDERING THE TOTALITY O F THE FACTS OF THE CASE, OUT OF THE DISALLOWANCE OF ` 9,84,358/- BY THE A.O., AN AMOUNT OF ` 1,58,280/- PAID TO SHIVAM FURNITURE IS HELD AS REVENUE IN NATURE. F OR THE REMAINING AMOUNT, THE MATTER IS BEING RESTORED TO THE FILE OF A.O. WI TH A DIRECTION TO GIVE ONE MORE OPPORTUNITY TO THE ASSESSEE TO SUBSTANTIATE ITS CLA IM WITH EVIDENCE TO HIS SATISFACTION REGARDING THE REVENUE CHARACTER OF THE SAME. THE A.O. SHALL DECIDE THE ISSUE AFRESH AND IN ACCORDANCE WITH LAW AFTER G IVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE HOLD AND DIRECT ACC ORDINGLY. THE GROUND RAISED BY THE REVENUE IS ACCORDINGLY PARTLY ALLOWED FOR STATISTICAL PURPOSE. 7 ITA 6020 /M/2009 SUR ESH RATHI SECURITIES PVT. LTD.. 9. GROUNDS OF APPEAL NO. 5 BY THE REVENUE READS AS UNDER:- THE CIT(A) ERRED IN DELETING THE DISALLOWANCE OF ` 2,31,204/- ON ACCOUNT OF DIFFERENCE IN SERVICE AND STAMP DUTY NOT COLLECTED FROM THE INSTITUTIONAL CLIENTS WITHOUT APPRECIATING THE FACT THAT THE INSTITUTIONAL CLIENTS WERE HAVING CONTINUOUS DEALIN GS WITH THE ASSESSEE AND NON-COLLECTION OF THE AFORESAID AMOUNT S WAS NOT ON ACCOUNT OF ANY DISPUTE WITH THE CLIENTS OF RECOVERA BILITY THEREOF FROM THE CLIENTS. 9.1 FACTS OF THE CASE IN BRIEF ARE THAT FROM THE DE TAILS OF STOCK EXCHANGE EXPENSES FURNISHED BY THE ASSESSEE, THE A.O. NOTED THAT AN AMOUNT OF ` 2,04,453/- HAS BEEN INCURRED TOWARDS THE SERVICE TA X DIFFERENCE AND AN AMOUNT OF ` 26751/- TOWARDS STAMP DUTY DIFFERENCE BOTH TOTALIN G ` 2,31,204/-. ON BEING QUESTIONED BY THE A.O., THE ASSESSEE SUBMI TTED THAT INSTITUTIONAL CLIENTS PAY THE BROKERAGE INCLUSIVE OF SERVICE TAX AND STAMP DUTY. THE DIFFERENCE IS ON ACCOUNT OF SERVICE TAX AND STAMP D UTY NOT COLLECTED FROM THE INSTITUTIONAL CLIENTS. HOWEVER, IN ABSENCE OF FURNI SHING OF ANY DOCUMENTARY EVIDENCE IN THE FORM OF BILLS ISSUED TO INSTITUTION AL CLIENTS TO SUBSTANTIATE THAT SERVICE TAX AND STAMP DUTY ARE NOT CHARGED SEPARATE LY, THE A.O. DISALLOWED AN AMOUNT OF ` 2,31,204/-. 9.2 BEFORE THE LD. CIT(A), THE ASSESSEE REITERATED THE SAME SUBMISSIONS AS MADE BEFORE THE A.O. IT WAS SUBMITTED THAT SINCE TH E SERVICE TAX OF ` 2,04,453/- AND STAMP DUTY CHARGES OF ` 26,751/-WERE SHORT COLLECTED BY THE ASSESSEE AND THE ASSESSEE HAD SHOULDERED THE RESPON SIBILITY BY MAKING THE SAID PAYMENT, THE SAME SHOULD BE ALLOWED. THIS HAS BEEN DONE PURELY AS A MATTER OF COMMERCIAL EXPEDIENCY. FURTHER THESE PAYM ENTS ARE DIRECTLY RELATABLE TO BUSINESS AND ARISING DURING THE CURRENCY OF ITS BUSINESS CYCLE. TO SUPPORT ITS CONTENTION, THE ASSESSEE RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF J.K. WOLLEN MILLS VS. CIT 72 ITR 612. 9.3 BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE , THE CIT(A) DELETED THE ADDITION. WHILE DOING SO, HE NOTED THAT THE ASSESS EE HAD MADE THE PAYMENT PURELY OUT OF COMMERCIAL EXPEDIENCY WHICH REMAINS U NDISPUTED THAT THE 8 ITA 6020 /M/2009 SUR ESH RATHI SECURITIES PVT. LTD.. INSTITUTIONAL CLIENTS OF THE ASSESSEE PAY THE BROKE RAGE WHICH IS FIXED INCLUSIVE OF SERVICE TAX AND STAMP DUTY. THEY DO NOT PAY THE ADDITIONAL AMOUNT CHARGED BY THE STATUTORY AGENCIES. THE PAYMENTS ARE DIRECT LY INCURRED TO RETAIN CLIENTS ON A SUSTAINED BASIS. ACCORDING TO HIM, THE ASSESS EE INCURRED THESE PAYMENTS OTHERWISE IT WOULD BE LOSING ITS CLIENTS AND THEREB Y ITS BUSINESS. SINCE THE ASSESSEE HAD STATED IN ITS SUBMISSION BY WAY OF EXP LANATORY NOTE THAT BROKERAGE IS INCLUSIVE OF ALL CHARGES AND SINCE BRO KERAGE IS COLLECTED ON GROSS BASIS, THEREFORE, THE ASSESSEE IS JUSTIFIED IN CLAI MING THE PAYMENTS MADE TOWARDS DUTY AND TAX AS ALLOWABLE EXPENSES U/S 37. HE ACCORDINGLY ALLOWED THE CLAIM OF THE ASSESSEE AS AN ALLOWABLE EXPENDITU RE U/S 37 OF THE ACT. 9.2 AGGRIEVED BY SUCH ORDER OF THE LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 9.3 AFTER HEARING BOTH THE SIDES, WE FIND THE LD. C IT(A) WITHOUT GOING THROUGH THE DOCUMENTARY EVIDENCE IN THE FORM OF BILLS ISSUE D TO INSTITUTIONAL CLIENT CAME TO THE CONCLUSION THAT BROKERAGE IS INCLUSIVE OF ALL CHARGES AND SINCE BROKERAGE IS COLLECTED ON GROSS BASIS, THE ASSESSEE HAD NO ALTERNATIVE BUT TO TREAT THE PAYMENTS MADE TOWARDS DUTY AND TAX AS ALL OWABLE EXPENSE U/S 37. WITHOUT VERIFICATION OF THE REQUISITE DETAILS A FAC TUAL FINDING CANNOT BE GIVEN. THEREFORE, THE DECISION OF THE LD. CIT(A) IS ERRONE OUS AND CANNOT BE ACCEPTED. HOWEVER, CONSIDERING THE TOTALITY OF THE FACTS OF T HE CASE AND IN THE INTEREST OF JUSTICE, WE DEEM IT PROPER TO RESTORE THE MATTER TO THE FILE OF THE A.O. WITH A DIRECTION TO GIVE ONE MORE OPPORTUNITY TO THE ASSES SEE TO SUBSTANTIATE ITS CLAIM WITH EVIDENCE TO THE SATISFACTION OF THE A.O. THAT IT HAS NOT COLLECTED THE REQUISITE SERVICE TAX AND STAMP DUTY FROM THE INSTI TUTIONAL CLIENT FOR WHICH IT HAD TO BEAR THE EXPENSES. THE A.O. SHALL DECIDE TH E ISSUE AFRESH AND IN ACCORDANCE WITH LAW AFTER GIVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE GROUND RAISED BY THE REVENUE IS ACCO RDINGLY ALLOWED FOR STATISTICAL PURPOSE. 10. GROUND NO. 6 BY THE REVENUE READS AS UNDER:- 9 ITA 6020 /M/2009 SUR ESH RATHI SECURITIES PVT. LTD.. THE CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS 4,62,700/- BEING CLEARING CHARGES PAID TO OTHER BROKERS HOLDIN G THAT THE SAME WAS NOT COVERED BY THE SECTION 40(A)(IA), THE SAME NOT BEING IN THE NATURE OF COMMISSION OF BROKERAGE DEFINED IN THE EX PLANATION 2 OF SECTION 194H WHILE IN FACT THIS WAS COVERED BY THE SECTION 194H. 10.1 FACTS OF THE CASE IN BRIEF ARE THAT UNDER THE HEAD REMISIERS COMMISSION, THE ASSESSEE HAD CLAIMED EXPENSES IN THE NAME OF CM (CLEARING MEMBER). ON BEING ASKED BY THE A.O. TO EXPLAIN THE NATURE OF EX PENSES AND THEIR ALLOWABILITY, THE ASSESSEE SUBMITTED THAT IT HAS CA RRIED OUT THE SETTLEMENT ACTIVITIES THROUGH M/S NAVRATNA CAPITAL & SECURITIE S PVT. LTD., A MEMBER OF NSE F&O SEGMENT. IT WAS SUBMITTED THAT THE CLEARIN G MEMBER CHARGES BROKERAGE IN RESPECT OF SETTLEMENT ACTIVITIES DONE FOR EACH TRADING DAY FOR TRADING MEMBER. ACCORDING TO THE A.O., THE PAYMENT MADE TO M/S NAVRATNA CAPITAL & SECURITIES PVT. LTD. IS LIKE A BROKERAGE FOR TECHNICAL SERVICES WHICH ATTRACTS THE PROVISIONS OF SECTION 194 OF THE ACT. SINCE THE ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE, HE DISALLOWED THE EXPENDITU RE OF ` 4,62,700/- U/S 40(A)(IA) OF THE ACT. 10.2 BEFORE THE LD. CIT(A), IT WAS SUBMITTED THAT T HE CLEARING MEMBER CHARGES ARE PAID FOR EACH TRADING DAY AND FOR EACH TRADING MEMBER ON A SUSTAINED BASIS THROUGHOUT THE YEAR. SINCE THE TRADING MEMBE R CANNOT CARRY OUT SETTLEMENT RELATED ACTIVITIES, THE ASSESSEE CARRIED OUT THROUGH OTHERS FOR WHICH AND FOR EACH TRADING DAY, THE ASSESSEE HAS PAID BRO KERAGE TO THE THIRD PARTY. THEREFORE THE SAME HAD BEEN NETTED OFF TO SHOW THE CLEAR PICTURE OF THE REAL PROFITABILITY EARNED BY THE ASSESSEE. IT WAS SUBMI TTED THAT IN STRICT SENSE OF THE TERM, THESE ARE NOT PAYMENT FOR PROFESSIONAL SERVIC E RENDERED WHICH COULD BY ANY STRETCH OF IMAGINATION BE CALLED AS FEES FOR TE CHNICAL SERVICES WITHIN THE MEANING OF SECTION 194J R.W.S. 40(A)(IA) OF THE ACT . IT IS PURELY BROKERAGE CHARGE BY THE CLEARING MEMBER ON WHICH TDS IS NOT APPLICAB LE. 10 ITA 6020 /M/2009 SUR ESH RATHI SECURITIES PVT. LTD.. 10.3 BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSE E, THE LD. CIT(A) DELETED THE ADDITION BY HOLDING AS UNDER:- I HAVE GONE THROUGH THE ABOVE SUBMISSIONS VERY CAR EFULLY AND THE ORDER OF THE ASSESSING OFFICER. I FIND THAT THE AS SESSING OFFICER HAS WRONGLY INVOKED SEC. 194H. AS SUCH M/S NAVRATNA CA PITAL & SECURITIES PVT. LTD. HAS NOT RENDERED ANY TECHNICAL OR PROFESSIONAL SERVICES TO THE APPELLANT. NOR THE PAYMENT MADE TO THE SAID PARTY IS A CONTRACTUAL PAYMENT. THEREFORE, THE APPELLANT HA S NOT COMMITTED ANY DEFAULT IN VIOLATION OF THE PROVISIONS OF SECTI ON 194H. THE ACTION OF THE ASSESSING OFFICER TO MAKE DISALLOWANCE U/S 4 0(A)(IA) HAS NO LEG TO STAND. BESIDES, I FIND THAT THE APPELLANT IS NO T REQUIRED TO DEDUCT TDS IN VIEW OF THE PROVISIONS OF SEC. 194 R.W. ITS EXPLANATION 1. IN VIEW OF THE ABOVE, THE DISALLOWANCE OF ` 4,63,700/- MADE BY THE ASSESSING OFFICER IS DELETED. THIS GROUND OF APPEA L IS DECIDED IN FAVOUR OF THE APPELLANT. 10.4 AGGRIEVED WITH SUCH RELIEF GIVEN BY THE LD. CI T(A), THE REVENUE IS IN APPEAL BEFORE US. 10.5 AFTER HEARING BOTH THE SIDES, WE DO NOT FIND ANY IN FIRMITY IN THE ORDER OF THE LD. CIT(A). THE LD. D.R. COULD NOT CONTROVERT T HE FINDINGS OF THE LD. CIT(A) THAT THE PAYMENT MADE TO THE THIRD PARTY IS NOT A C ONTRACTUAL PAYMENT AND THERE IS NO VIOLATION OF SECTION 194J. THE LD. D.R . ALSO COULD NOT CONTROVERT THE FINDINGS OF THE LD. CIT(A) THAT THE ASSESSEE IS NOT REQUIRED TO DEDUCT THE TDS IN VIEW OF THE PROVISIONS OF SECTION 194. IN THIS VIE W OF THE MATTER AND IN VIEW OF THE DETAILED DISCUSSION BY THE LD. CIT(A) WHILE DEL ETING THE DISALLOWANCE, WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A). T HE SAME IS ACCORDINGLY UPHELD. THE GROUND RAISED BY THE REVENUE IS ACCORDINGLY DIS MISSED. 11. GROUND NO. 7 BY THE REVENUE READS AS UNDER:- THE CIT(A) ERRED IN DELETING THE DISALLOWANCE OF BA D DEBTS OF ` 3,62,111/- IGNORING THE FACT THAT THE ASSESSEE HAD NOT PRODUCED ANY 11 ITA 6020 /M/2009 SUR ESH RATHI SECURITIES PVT. LTD.. EVIDENCE TO SHOW THAT THE SAME WAS IRRECOVERABLE FR OM THE CONCERNED PARTIES FROM WHOM THE AMOUNTS WERE DUE. 11.1 AFTER HEARING BOTH THE SIDES, WE FIND THE A.O. DIS ALLOWED THE BAD DEBTS CLAIMED BY THE ASSESSEE AT ` 3,62,111/- ON THE GROUND THAT THE ASSESSEE HAD WRITTEN OFF THE BAD DEBT OF THE CURRENT PARTIES WHO ARE DOING BUSINESS WITH THE ASSESSEE IN THE CURRENT YEAR. THE ASSESSEE WAS NOT IN A POSITION TO ESTABLISH THAT THESE DEBTS ARE NOT RECOVERABLE OR HAD BECOME BAD. ALTHOUGH, THE ASSESSEE HAS WRITTEN OFF THESE DEBTS IN THE YEAR UN DER CONSIDERATION, THE DEBTS BEING NOT VERY OLD AND RECOVERABLE, THEREFORE, IT C ANNOT BE SAID AS IRRECOVERABLE. WE FIND THE LD. CIT(A) FOLLOWING THE DECISION OF SP ECIAL BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. OMAN INTERNATIONAL 100 ITD 285 (MUM-SB) AND A FEW OTHER DECISIONS, DELETED THE DISALLOWANCE. WE FIND THE IS SUE NOW STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONB LE SUPREME COURT IN THE CASE OF TRF LTD. WHEREIN IT HAS BEEN HELD THAT AFTER 1.4 .89 ASSESSEE HAS ONLY TO ESTABLISH THAT THE DEBT HAS BEEN WRITTEN OFF. THE ASSESSEE NEED NOT TO PROVE THAT THE DEBT HAS BECOME BAD. IN VIEW OF THE DECISI ON OF THE HONBLE SUPREME COURT, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) DELETING THE BAD DEBTS DISALLOWED BY THE A.O. THE GROUND RAISED BY THE REVENUE IS ACCORDINGLY DISMISSED. 12. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON 15.06.2011. SD/- SD/- (D. MANMOHAN) (R.K. PANDA) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI, DATED 15 TH JUNE, 2011. RK 12 ITA 6020 /M/2009 SUR ESH RATHI SECURITIES PVT. LTD.. COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) , MUMBAI 4. THE CIT - MUMBAI 5. THE DR BENCH, G 6. MASTER FILE // TUE COPY// BY ORDER DY/ASSTT. REGISTRAR ITAT, MUMBAI 13 ITA 6020 /M/2009 SUR ESH RATHI SECURITIES PVT. LTD.. DATE INITIALS 1 DRAFT DICTATED ON 6.6.11, SR. PS 2 DRAFT PLACED BEFORE THE AUTHOR 9.6.11 SR. PS 3 DRAFT PLACED BEFORE THE SECOND MEMBER 4 APPROVED DRAFT COMES TO THE SR. PS SR. PS 5 KEPT FOR PRONOUNCEMENT ON SR. PS 6 FILE SENT TO THE BENCH CLERK SR. PS 7 DATE ON WHICH FILE GOES TO THE HEAD CLERK 8 DATE ON WHICH FILE GOES TO THE AR 9 DATE OF DISPATCH OF ORDER