PADMAKSHI FINANCIAL SERVICES LTD, MUMBAI V. ACIT CIR 4(2), MUMBAI

ITA 6132/MUM/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71954 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-12-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2006-2007
• Appeal Filed On: 05-10-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Non-deduction of tax
• Section: 14A; 194C

Judgement Text

C IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI .. , # %, & # ' BEFORE SHRI P.M. JAGTAP, AM AND SHRI SANJAY GARG, J M ./ I.T.A. NO.6034 /MUM/2012 ( &% % / ASSESSMENT YEAR : 2005-2006 THE ASSTT. COMMISSIONER OF INCOME TAX CIRCLE 4(2), R. NO. 642, 6 TH FLOOR, AAYAKAR BHAWAN, M.K. ROAD, MUMBAI 400 020. / VS. M/S PADMAKSHI FINANCIAL SERVICES LTD., 96-98, MAKER TOWER F, G.D. SOMANI MARG, CUFFE PARADE, MUMBAI 400 005. . / PAN : AABPC 2260K ( / APPELLANT ) .. ( / RESPONDENT ) ./ I.T.A. NO.6132 /MUM/2012 ( &% % / ASSESSMENT YEAR : 2006-2007 M/S PADMAKSHI FINANCIAL SERVICES LTD., 96-98, MAKER TOWER F, G.D. SOMANI MARG, CUFFE PARADE, MUMBAI 400 005. / VS. THE ASSTT. COMMISSIONER OF INCOME TAX CIRCLE 4(2), R. NO. 642, 6 TH FLOOR, AAYAKAR BHAWAN, M.K. ROAD, MUMBAI 400 020. ./ PAN : AABPC 2260K ( / APPELLANT ) .. ( / RESPONDENT ) ./ I.T.A. NO.6035 /MUM/2012 ( &% % / ASSESSMENT YEAR : 2006-2007 THE ASSTT. COMMISSIONER OF INCOME TAX CIRCLE 4(2), R. NO. 642, 6 TH FLOOR, AAYAKAR BHAWAN, M.K. ROAD, MUMBAI 400 020. / VS. M/S PADMAKSHI FINANCIAL SERVICES LTD., 96-98, MAKER TOWER F, G.D. SOMANI MARG, CUFFE PARADE, MUMBAI 400 005. ./ PAN : AABPC 2260K ( / APPELLANT ) .. ( / RESPONDENT ) ITA 6034,6132 & 6035 /M/12 2 ASSESSEE BY SHRI JITENDRA JAIN & SHRI RAVIKANT PATHAK RESPONDENT B Y : SHRI SANJEEV JAIN / DATE OF HEARING : 04-12-2013 / DATE OF PRONOUNCEMENT : 13#12#2013 [ / O R D E R PER P.M. JAGTAP, A.M . : .. , OUT OF THESE THREE APPEALS, TWO APPEALS BEING ITA N O. 6135/MUM/2012 (ASSESSEES APPEAL) AND ITA NO. 6034/MUM/2012 (REVE NUES APPEAL) ARE CROSS APPEALS FOR A.Y. 2006-07 WHILE THE THIRD APPEAL IS THE APPEAL BY THE DEPARTMENT FOR A.Y. 2005-06. SINCE COMMON ISSUES A RE INVOLVED IN THESE APPEALS WHICH ARE DIRECTED AGAINST A COMMON ORDER P ASSED BY THE LD. CIT(A) - 8, MUMBAI DATED 19-07-2012 FOR ASSESSMENT YEARS 200 5-06 AND 2006-07, THE SAME HAVE BEEN HEARD TOGETHER AND ARE BEING DISPOSE D OF BY A SINGLE CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2. THE SOLITARY GROUND RAISED BY THE REVENUE, WHICH IS IDENTICAL IN BOTH THE APPEALS, READS AS UNDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING THE DISALLOWANCE OF JO BBER COMMISSION U/S 40(A)(IA) OF RS. 43,89,541/- FOR A.Y. 2005-06 AND R S. 65,50,269/- FOR A.Y. 2006-07 FOR NON-DEDUCTION OF TAX AT SOURCE U/S 194C OF THE I.T. ACT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE IMPUGNED ORDER OF THE LD. CIT(A) IS CONTRARY TO LAW TO BE SE T ASIDE AND THAT THE OF THE ASSESSING OFFICER BE RESTORED. 3. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WH ICH IS ENGAGED IN THE BUSINESS OF TRADING AND INVESTMENT IN SHARES AND SE CURITIES. THE RETURNS OF INCOME FOR ASSESSMENT YEARS 2005-06 AND 2006-07 WER E FILED BY IT DECLARING ITA 6034,6132 & 6035 /M/12 3 TOTAL INCOME OF RS. 1,63,92,098/- AND RS. 4,70,65,8 66/- RESPECTIVELY. IN THE SAID RETURNS, DEDUCTION ON ACCOUNT OF COMMISSION PA ID TO JOBBERS AMOUNTING TO RS. 4389541/- AND RS. 65,50,269/- WAS CLAIMED BY THE ASSESSEE FOR ASSESSMENT YEARS 2005-06 AND 2006-07 RESPECTIVELY. ACCORDING TO THE A.O., THE SAID PAYMENTS WERE COVERED BY THE PROVISIONS OF SECTION 194-C OF THE INCOME TAX ACT, 1961 AND THE ASSESSEE THEREFORE WAS LIABLE TO DEDUCT THE TAX AT SOURCE FROM THE SAID PAYMENTS. SINCE NO SUCH DE DUCTION OF TAX AT SOURCE WAS MADE BY THE ASSESSEE, THE A.O. INVOKED THE PROV ISIONS OF SECTION 40(A)(IA) OF THE ACT AND MADE A DISALLOWANCE ON ACCOUNT OF JO BBERS COMMISSION AMOUNTING TO RS. 43,89,541/- AND RS. 65,50,269/- IN ASSESSMENT YEARS 2005-06 AND 2006-06 RESPECTIVELY. ON APPEAL, THE LD . CIT(A) DELETED THE SAID DISALLOWANCE MADE BY THE A.O. FOLLOWING THE ORDER O F MUMBAI BENCH OF ITAT IN THE CASE OF DCIT VS. PRAKASH K. SHAH SHARES AND SECURITIES P. LTD. (ITA NO. 214 AND 5528/MUM/2009) WHEREIN IT WAS HELD THAT THE PAYMENTS OF COMMISSION PAID TO JOBBERS DO NOT ATTRACT THE PROVI SIONS OF SECTION 194-C OF THE ACT AND THE ASSESSEE THEREFORE IS NOT LIABLE TO DEDUCT TAX THERE FROM. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE REVEN UE HAS FILED THIS APPEAL BEFORE THE TRIBUNAL. 4. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS OBSERV ED THAT THE COMMON ISSUE INVOLVED IN THESE APPEALS OF THE REVENUE IS SQUAREL Y COVERED BY THE DECISION OF THE TRIBUNAL RENDERED IN THE CASE OF PRAKASH K. SHAH SHARES AND SECURITIES P. LTD. (SUPRA) WHEREIN A SIMILAR ISSUE WAS DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE BY OBSERVING AS UNDER:- THE FACTS SHOW THAT THERE WERE SEPARATE JOINT VENT URES ENTERED INTO BY THE APPELLANT WITH SEVERAL JOBBERS/ARBITRAGES AND P AYMENTS HAVE BEEN MADE TO THEM UNDER SUCH AGREEMENT AND THE APPELLANT S SHARES IN THE PROFIT HAS BEEN TAKEN TO THE PROFIT & LOSS ACCOUNT. IN THESE CIRCUMSTANCES THE PROVISIONS OF SECTION 194-C ARE N OT ATTRACTED BECAUSE IN ESSENCE AND SUBSTANCE THE AMOUNTS PAID T O THE JOBBERS AND ARBITRAGES DID NOT IN REALTY REPRESENTS THE EXPENSE S OF THE APPELLANT ITA 6034,6132 & 6035 /M/12 4 COMPANY BUT REPRESENTED THE PAYMENT OF THE SHARE OF THE JOBBERS/ARBITRAGES UNDER THE AGREEMENT ENTERED INTO WITH THEM. IN SUCH A CASE THE APPELLANT IS RIGHT IN SAYING THAT T HERE WAS NO QUESTION OF DEDUCTING ANY TAX AT SOURCE. THE ABOVE FACTS AL SO ESTABLISHED THAT THE RELATIONSHIP BETWEEN THE APPELLANT AND THE JOBB ERS/ARBITRAGES WAS NOT A PRINCIPAL AND AGENT BUT THAT OF PRINCIPAL TO PRINCIPAL. BOTH HAD AGREED TO EMBARK UPON A JOINT VENTURE TO TRADE IN S HARES AND SECURITIES IN THE STOCK EXCHANGE AND TO SHARE THE PROFIT/LOSS EQUALLY. WE DO NOT SEE HOW SUCH PAYMENTS CAN BE TERMED AS PAYMENTS TO CONTRACTORS FOR ANY WORK TO BE CARRIED OUT BY THEM. WE THEREFORE U PHOLD THE FINDING OF THE CIT(A) THAT THESE PAYMENTS DO NOT ATTRACT SECTI ON 194C AND THE APPELLANT WAS NOT LIABLE TO DEDUCT TAX THEREFROM. ACCORDINGLY SECTION 40(A) (IA) ALSO NOT APPLICABLE. THE PAYMENTS IN OU R VIEW WERE RIGHTLY ALLOWED AS DEDUCTION BY THE CIT(A). THE GROUNDS 7 TO 10 ARE DISMISSED. 5. IT IS ALSO OBSERVED THAT IN THE CASE OF DCIT VS. ASSET ALLIANCE SECURITIES PVT. LTD. (ITA NO. 1488/MUM/2009 DATED 16-7-2010), A SIMILAR ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBU NAL AFTER CONSIDERING ALL THE RELEVANT ASPECTS OF THE CASE AND THE SAME HAS B EEN FOLLOWED BY THE TRIBUNAL IN THE CASE OF ADDL. CIT VS. TOTAL SECURIT IES LTD. (ITA NO. 5951/MUM/2009 DATED 13-05-2011) TO DECIDE A SIMILAR ISSUE IN FAVOUR OF HE ASSESSEE. RESPECTFULLY FOLLOWING THESE ORDERS OF TH E CO-ORDINATE BENCHES OF THIS TRIBUNAL, WE UPHOLD THE IMPUGNED ORDER OF THE LD. CIT(A) DELETING THE DISALLOWANCE MADE BY THE A.O. U/S 40(A)(IA) OF THE ACT ON ACCOUNT OF COMMISSION PAID BY THE ASSESSEE TO JOBBERS FOR ASSE SSMENT YEARS 2005-06 AND 2006-07 AND DISMISS BOTH THE APPEALS OF THE REV ENUE. 6. NOW, WE SHALL TAKE UP THE APPEAL OF THE ASSESSEE WHICH INVOLVES A SOLITARY ISSUE RELATING TO THE ADDITION MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT(A) ON ACCOUNT OF DISALLOWANCE OF RS. 12,43, 824/- MADE U/S 14A READ WITH RULE 8-D OF THE INCOME TAX RULES, 1962. 7. IN ITS RETURN OF INCOME FOR A.Y. 2006-07, DIVIDE ND INCOME OF RS. 5,21,445/- AND LONG TERM CAPITAL GAIN OF RS. 47,75, 259/- WAS CLAIMED TO BE EXEMPT FROM TAX BY THE ASSESSEE. NO DISALLOWANCE O N ACCOUNT OF EXPENSES ITA 6034,6132 & 6035 /M/12 5 INCURRED IN RELATION TO THE SAID EXEMPT INCOME, HOW EVER, WAS MADE BY THE ASSESSEE AS REQUIRED BY THE PROVISIONS OF SECTION 1 4-A OF THE ACT. THE A.O., THEREFORE, WORKED OUT SUCH EXPENSES INCURRED BY THE ASSESSEE IN RELATION TO EXEMPT INCOME OF RS. 12,43,824/- BY APPLYING RULE 8 -D OF THE INCOME TAX RULES, 1962 AND MADE A DISALLOWANCE TO THAT EXTENT U/S 14-A OF THE ACT. ON APPEAL, THE LD. CIT(A) CONFIRMED THE SAID DISALLOWA NCE MADE BY THE A.O. U/S 14A READ WITH RULE 8-D FOLLOWING THE DECISION OF MU MBAI BENCH OF ITAT IN THE CASE OF DAGA CAPITAL MANAGEMENT (P.) LTD. (2009) 11 7 ITD 169 (MUM)[SB]. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE ASSES SEE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 8. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS OBSER VED THAT THE DECISION OF MUMBAI SPECIAL BENCH OF ITAT IN THE CASE OF DAGA CA PITAL MANAGEMENT (P.) LTD. (SUPRA) HAS BEEN OVERRULED SUBSEQUENTLY BY TH E HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE MFG. CO. LTD. VS. DCIT (2010) 328 ITR 81 (BOM) HOLDING THAT RULE 8-D IS APPLICABLE ONLY P ROSPECTIVELY FROM A.Y. 2008-09. AS FURTHER HELD BY THE HONBLE BOMBAY HIG H COURT IN THE CASE OF GODREJ AND BOYCE MFG. CO. LTD. (SUPRA) THE DISALLOW ANCE U/S 14-A OF THE ACT FOR THE YEARS PRIOR TO A.Y. 2008-09 IS REQUIRED TO BE MADE ON SOME REASONABLE BASIS. IN THIS REGARD, THE LD. COUNSEL FOR THE ASS ESSEE HAS RELIED ON THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2007-08 RENDERED VIDE ORDER DATED 8-5-2013 PASSED IN ITA NO. 9093/MUM/201 0 WHEREIN IT WAS HELD THAT THE DISALLOWANCE U/S 14-A OF THE ACT TO THE EX TENT OF 5% OF EXEMPT INCOME WOULD BE FAIR AND REASONABLE. RESPECTFULLY FOLLOWING THE SAID DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN ASSESS EES OWN CASE FOR A.Y. 2007-08, WE DIRECT THE A.O. TO RESTRICT THE DISALLO WANCE U/S 14A OF THE ACT AT 5% OF THE EXEMPT INCOME. THE APPEAL OF THE ASSESSE E IS PARTLY ALLOWED. ITA 6034,6132 & 6035 /M/12 6 9. IN THE RESULT, APPEALS OF THE REVENUE ARE DISMIS SED WHEREAS THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH DECEMBER, 2013. . - . / 13-12-2013 SD/- SD/- (SANJAY GARG) (P.M. JAGTAP ) -2 JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; / DATED 13/12/2013 [ .2../ RK , SR. PS , -&./ 0/ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. 4 () / THE CIT(A)CONCERNED, MUMBAI. 4. 4 / CIT CONCERNED, MUMBAI 5. 7 229 , 9 , / DR, ITAT, MUMBAI E BENCH 6. < / GUARD FILE. / BY ORDER, 7 2 //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI