DCIT 4(2), MUMBAI V. TOWER CAPITAL & SECURTIES P. LTD, MUMBAI

ITA 6084/MUM/2010

• Counselvise Citation: 608419914 RSA 2010
• Duration Of Justice: 1 year(s) 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2012
• Appeal Filed By: Department
• Bench Allotted: E
• Assessment Year: 2006-2007
• Appeal Filed On: 06-08-2010
• Court: TRIBUNAL
• Department Lawyers: D S SUNDER SINGH
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E BEFORE SHRI B.R. MITTAL (JM) & SHRI J. SUDHAKAR RED DY (AM) I.T.A.NO. 6084/MUM/2010 (ASSESSMENT YEAR : 2006-07) ACIT CIRCLE 4(2) ROOM NO. 642, 6 TH FLOOR AAYAKAR BHAVAN M.K. ROAD MUMBAI-400 020. VS. M/S. TOWER CAPITAL & SECURITIES PVT. LTD. ABAN HOUSE, 2 ND FLOOR 25/31, ROPEWALK LANE OFF RAMPART ROAD MUMBAI-400 023. APPLICANT RESPONDENT PAN/GIR NO. : AAACT2154M ASSESSEE BY : NONE DEPARTMENT BY : SHRI D.S. SUNDER SINGH DATE OF HEARING : 22.12.2011 DATE OF PRONOUNCEMENT : ORDER PER J. SUDHAKAR REDDY (AM) :- THIS IS AN APPEAL FILED BY THE REVENUE DIRECTED A GAINST THE ORDER OF LEARNED CIT(A)-8, MUMBAI DATED 10.5.2010 FOR A.Y. 2 006-07. 2. NONE APPEARED ON BEHALF OF THE ASSESSEE DESPITE SERVICE OF NOTICE BY RPAD, ACKNOWLEDGMENT OF WHICH IS ON RECORD. UNDE R THE CIRCUMSTANCES, WE DISPOSE OF THE CASE EX-PARTE, QUA THE ASSESSEE AFTER HEARING LEARNED DEPARTMENTAL REPRESENTATIVE. 3. GROUNDS OF APPEAL OF THE REVENUE READ AS FOLLOWS : 1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, LEARNED CIT(A) ERRED IN DELETING THE ADDITION OF ` 5,76,216/- MADE U/S. 40A(2) OF THE I.T. ACT BY ASSESSING OFFICER. 2) (I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LEARNED CIT(A) ERRED IN DELETING THE DISALLOWANCE OF ` 13,62,255/- MADE U/S. 40(A)(IA) IN RESPECT OF VSAT AND LEASELINE CHA RGES PAID TO STOCK EXCHANGE, WITHOUT APPRECIATING THE FACTS THAT THESE WERE COMPOSITE CHARGES FOR PROFESSIONAL AND TECHNICAL SE RVICES RENDERED BY THE STOCK EXCHANGE TO ITS MEMBERS AND THE ASSESS EE HAS FAILED TO DEDUCT TDS THEREON. M/S. TOWER CAPITAL & SECURITIES PVT. LTD. 2 (II) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LEARNED CIT(A) ERRED IN IGNORING THE FACT THAT THESE SERVIC ES ARE ESSENTIAL IN NATURE AS THEY CAN ONLY BE AVAILED BY MEMBERS OF ST OCK EXCHANGE. (III) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LEARNED CIT(A) ERRED IN IGNORING THE FACTS THAT USE OF TECH NOLOGY AND ALGORITHMIC BASED PROGRAMS HAVE CONVERTED AN ERSTWH ILE PHYSICAL MARKET INTO A DIGITALLY OPERATED MARKET. (IV) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LEARNED 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 CARTER TO THE NEEDS OF THE BROKER COMM UNITY TO FACILITATE TRADING. (V) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LEARNED CIT(A) HAS OVERLOOKED THE FACT THAT THE BROKERS HAV E IN SUBSEQUENT YEARS THEMSELVES STARTED DEDUCTING THE TDS ON SUCH PAYMENTS AND THAT THERE IS NO REASON TO GIVE A DIFFERENT TREATME NT IN THIS YEAR. 3) (I) ON THE FACTS AND CIRCUMSTANCES OF THE C ASE AND IN LAW, LEARNED CIT(A) ERRED IN DELETING THE ADDITION MADE ON ACCOUNT OF P ENALTY OF ` 4,58,774/- ON VIOLATION OF THE BYE-LAWS OF THE STOC K EXCHANGE, WHICH ARE STATUTORY IN CHARACTER AND THUS AMOUNTED TO INF RINGEMENT OF LAW. (II) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LEARNED CIT(A) ERRED IN IGNORING THE FACT THAT THE PENALTY IS IMPOSED UNDER SEBI (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PE NALTY BY ADJUDICATING OFFICER) RULES 1995 WHICH HAS A BINDIN G CHARACTER. (III) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, LEARNED CIT(A) ERRED IN IGNORING THE FACTS THAT NON-ADHEREN CE TO STATUTORY PROVISIONS IS NOT AN ALLOWABLE EXPENDITURE. (IV) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, LEARNED CIT(A) ERRED IN APPRECIATING THAT IT WAS NOT ENOUGH THAT THE DISBURSEMENT WAS MADE IN THE COURSE OF TRADE, BUT W AS ALSO FOR THE LAWFUL PURPOSE OF TRADE. (V) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, LEARNED CIT(A) ERRED IN IGNORING THE FACT THAT THE PENALTY WAS IMPOSED BECAUSE THE BUSINESS WAS NOT CONDUCTED WITHIN THE F RAMEWORK OF LAW. 4) ON THE FACTS AND CIRCUMSTANCES OF THE CASE A ND IN LAW, LEARNED CIT(A) ERRED IN DELETING THE ADDITION OF ` 6,75,000/- MADE IN RESPECT OF MARK TO MARKET LOSSES OF OPEN INTEREST IN DERIVATIVE TRANSACTIONS AT THE END OF THE YEAR RELYING UPON THE SUPREME COURT OF INDIA IN THE CAS E OF CIT VS. WOODWARD GOVERNOR INDIA P.LTD., 312 ITR 254 (SC). M/S. TOWER CAPITAL & SECURITIES PVT. LTD. 3 5) ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE IMPU GNED ORDER OF LEARNED CIT(A) IS CONTRARY TO LAW TO BE SET ASIDE A ND THAT OF THE ASSESSING OFFICER BE RESTORED. 4. WE HEARD LEARNED DEPARTMENTAL REPRESENTATIVE. GR OUND NO. 2 IS ON THE DISALLOWANCE MADE U/S. 40(A)(IA). LEARNED CI T(A) APPLIED THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CAS E OF KOTAK SECURITIES LTD. VS. ADD.CIT, 25 SOT 440. THIS DECISION HAS BEE N REVERSED BY HON'BLE HIGH COURT IN IT APPEAL NO. 3111 OF 2009 VI DE JUDGEMENT DATED 11.8.2011. HON'BLE JURISDICTIONAL HIGH COURT HELD THAT THE TRANSACTION CHARGES PAID TO THE STOCK EXCHANGE IS FEES FOR TECH NICAL SERVICES U/S. 194J. AS THE NATURE OF CHARGE HAVE TO BE EXAMINED, WE SET ASIDE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR FRES H ADJUDICATION IN LINE WITH THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT I N THE CASE OF KOTAK SECURITIES LTD. (SUPRA). 5. GROUND NO. 3 IS ON THE ISSUE WHETHER PENALTY PAI D FOR VIOLATION OF BYE-LAWS OF STOCK EXCHANGE CAN BE DISALLOWED BY INV OKING EXPLANATION TO SECTION 37. THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE DECISION OF HON'BLE JURISDICTION AL HIGH COURT IN THE CASE OF M/S. STOCK AND BOND CREDIT CO. IN IT APPEAL NO. 4117 OF 2010 VIDE JUDGEMENT DATED 14.10.2011. HON'BLE JURISDICTI ONAL HIGH COURT HELD THAT THE PAYMENTS MADE BY THE ASSESSEE TO THE STOCK EXCHANGE FOR VIOLATION OF THE REGULATIONS ARE NOT ON ACCOUNT OF OFFENCE OR WHICH IS PROHIBITED BY LAW. HENCE, INVOCATION OF EXPLANATION TO SECTION 37 OF THE INCOME TAX ACT, 1961 IS NOT JUSTIFIED. RESPECTFULLY FOLLOWING THE SAME, WE DISMISS THIS GROUND OF THE REVENUE. 6. GROUND NO. 4 IS ON THE DELETION OF THE ADDITION MADE ON ACCOUNT OF MARK TO MARKET LOSSES. ASSESSEES CASE IS THAT T HE FUTURE CONTRACTS WERE ENTERED BY IT. THESE ARE IN THE NATURE OF FORW ARD CONTRACTS. RELIANCE WAS PLACE ON SUB-SECTION (C) OF 43(5). IT WAS CONTE NDED THAT A CONTRACT ENTERED INTO BY A MEMBER OF FORWARD MARKET OR A STO CK EXCHANGE IN THE COURSE OF ANY TRANSACTION IN THE NATURE OF JOBBING OR ARBITRAGE TO GUARD AGAINST LOSS WHICH MAY ARISES IN THE ORDINARY COURS E OF HIS BUSINESS IS ALLOWABLE U/S. 37(1). LEARNED CIT(A) ALLOWED THE CL AIM BY FOLLOWING THE M/S. TOWER CAPITAL & SECURITIES PVT. LTD. 4 SUPREME COURT DECISION IN THE CASE OF WOODWARD GOVE RNOR INDIA P. LTD., 312 ITR 254. LEARNED CIT(A) GAVE RELIEF BY OBSERVI NG THAT LOSS IS ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION. THIS IS FA CTUALLY INCONSISTENT WITH THE FACTS RECORDED BY THE ASSESSING OFFICER. H ENCE WE SET ASIDE HIS ORDER AND RESTORE THE MATTER TO THE FILE OF THE ASS ESSING OFFICER FOR FRESH ADJUDICATION. 7. GROUND NO. 1 IS ON THE DELETION OF THE ADDITION MADE U/S. 40A(2). LEARNED CIT(A) HAS FOLLOWED THE TRIBUNAL ORDERS IN ASSESSEES OWN CASE FOR EARLIER ASSESSMENT YEARS AND DELETED THE ADDITI ON. NO CONTRARY ORDER IS PLACED BEFORE US. THUS, WE UPHOLD THIS FINDING A ND DISMISS THIS GROUND OF THE REVENUE. 8. IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWED IN PART. ORDER HAS BEEN PRONOUNCED ON 13 TH DAY OF JANUARY, 2012. SD/- (B.R. MITTAL) JUDICIAL MEMBER SD/- (J.SUDHAKAR REDDY) ACCOUNTANT MEMBER DATED : 13 TH JANUARY, 2012. COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A)-CONCERNED. 4. THE CIT, CONCERNED. 5. THE DR CONCERNED, MUMBAI 6. GUARD FILE BY ORDER TRUE COPY ASSTT. REGISTRAR, ITAT, MUMBAI PS