PINNACLE BROCOM P.LTD, MUMBAI V. ACIT 10(3), MUMBAI

ITA 6247/MUM/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88200 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-01-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 01-01-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 11-10-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: J PREMANAND
• Keywords: Depreciation; Business expenditure; Revenue expenditure; Capital expenditure
• Section: 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL C BE NCH, MUMBAI , !' #$%& , '' ' ( BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER ./I .T.A. NO. 6247/MUM/2012 ( ! ! ! ! ) ) ) ) / ASSESSMENT YEAR : 2009-10 M/S. PINNACLE BROCOM PVT. LTD., 205/206 MARATHON MAXIMA, LBS ROAD, MULUND (W), MUMBAI-400 080 ! ! ! ! / VS. THE ACIT 10(3), MUMBAI * '' ./ + ./ PAN/GIR NO. : AADCP 8584C ( *, / APPELLANT ) .. ( -.*, / RESPONDENT ) *, / ' / APPELLANT BY: SHRI MEHUL SHAH -.*, 0 / ' / RESPONDENT BY: SHRI J. PREMANAND ! 0 12' / DATE OF HEARING :28.01.2015 3) 0 12' / DATE OF PRONOUNCEMENT :28.01.2015 '4 / O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL BY THE ASSESSEE IS PREFERRED AGAINST T HE ORDER OF THE LD. CIT(A)-22, MUMBAI DT. 6.8.2012 PERTAINING TO AS SESSMENT YEAR 2009- 10. 2. THE ASSESSEE HAS RAISED 4 SUBSTANTIVE GROUNDS OF APPEAL. GROUND NO. 1 IS AGAINST THE DISALLOWANCE MADE U/S. 14A OF THE ACT R.W. RULE 8D. ITA NO. 6247/M/2012 2 3. THE ASSESSEE IS A MEMBER OF MULTI COMMODITY EXCH ANGE. DURING THE YEAR UNDER CONSIDERATION INCOME FROM OPERATIONS WERE SHOWN AT RS. 3,25,65,994/- ON WHICH NET PROFIT IS COMPUTED AT RS . 39,01,789/-. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSES SING OFFICER NOTICED THAT THE ASSESSEE HAS SHOWN DIVIDEND INCOME OF RS. 11,565/-. THE ASSESSEE WAS ASKED TO EXPLAIN WHY DISALLOWANCE U/S. 14A R.W.RULE 8D SHOULD NOT BE MADE. THE ASSESSEE FILED A DETAILED REPLY CLAIMING THAT IT HAS NOT INCURRED ANY EXPENDITURE ON EARNING THE SA ID DIVIDEND INCOME, FURTHER, IT HAS NOT INVESTED ANY BORROWED FUNDS. 3.1. THE SUBMISSIONS OF THE ASSESSEE DID NOT FIND A NY FAVOUR WITH THE AO WHO PROCEEDED BY APPLYING RULE 8D AND COMPUTED T HE DISALLOWANCE U/S. 14A AT RS. 1,42,894/-. WHILE COMPUTING SUCH DI SALLOWANCE, THE AO CONSIDERED THE INTEREST ON BORROWED FUNDS AT RS. 31 ,09,479/-. PROCEEDING FURTHER, THE AO NOTICED THAT THE ASSESSEE HAS DEBIT ED ITS PROFIT AND LOSS ACCOUNT BY SUM OF RS. 5.05 LAKHS, WHICH WAS ONE TIM E ADMISSION FEE PAID TO M/S. NATIONAL SPOT EXCHANGE LTD FOR MEMBERSHIP. THE ASSESSEE WAS ASKED TO EXPLAIN WHY THE SAID PAYMENT SHOULD NOT BE TREATED AS CAPITAL EXPENDITURE. THE ASSESSEE EXPLAINED THAT THE SAID P AYMENT WAS MADE AS NON-REFUNDABLE ONE-TIME MEMBERSHIP FEE TO M/S. NAT IONAL SPOT EXCHANGE LTD AND, HENCE, CLAIMED AS BUSINESS EXPEND ITURE. THE AO DISMISSED THE CLAIM OF THE ASSESSEE AND TREATED THE SAID EXPENDITURE AS CAPITAL IN NATURE. 4. AGGRIEVED BY THESE DISALLOWANCES, THE ASSESSEE C ARRIED THE MATTER BEFORE THE LD. CIT(A) BUT WITHOUT ANY SUCCESS. 5. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE STAT ED THAT ON A DIVIDEND INCOME OF RS. 11,565/-, THE AO HAS DISALLO WED RS. 1,42,894/- ITA NO. 6247/M/2012 3 WHICH IN ITSELF IS ILLOGICAL AND ERRONEOUS. THE LD . COUNSEL FURTHER POINTED OUT THAT THE ASSESSEE WAS HAVING SUFFICIENT OWN FUNDS FOR MAKING THE INVESTMENT THEREFORE, THERE IS NO QUESTION OF C ONSIDERING THE INTEREST FOR THE PURPOSE OF DISALLOWANCE U/S. 14A OF THE ACT . 6. THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY REL IED UPON THE FINDINGS OF THE AO AND THE LD. CIT(A). 7. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTH ORITIES BELOW AND THE RELEVANT DOCUMENTARY EVIDENCES BROUGHT ON RECOR D BEFORE US. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE IS HAVING OWN FUN DS AT RS. 1.16 CRORES AND THE INVESTMENT IS ONLY RS. 30.44 LAKHS. THUS I T CAN BE SAFELY CONCLUDED THAT THE INVESTMENTS HAVE COME OUT OF OWN FUNDS. EVEN THE HONBLE JURISDICTIONAL HIGH COURT OF BOMBAY HAS HEL D IN THE CASE OF RELIANCE UTILITIES AND POWER LTD. 313 ITR 340 THAT WHERE BOTH OWN FUNDS AND LOAN FUNDS ARE UTILIZED BY THE ASSESSEE, THE PR ESUMPTION IS THAT THE INVESTMENTS HAVE COME FROM THE OWN FUNDS. HOWEVER, AT THE SAME TIME, WE CANNOT DENY THAT NO EXPENDITURES HAVE BEEN INCUR RED FOR EARNING THE DIVIDEND INCOME. CONSIDERING THE FACTS OF THE CASE IN TOTALITY AND IN THE INTEREST OF JUSTICE AND FAIR PLAY, WE DIRECT THE AO TO RESTRICT THE DISALLOWANCE TO RS. 11,565/- BEING THE AMOUNT OF DI VIDEND RECEIVED DURING THE YEAR AND DELETE THE BALANCE AMOUNT. THE ASSESSEE GETS PART RELIEF FOR GROUND NO. 1. 8. GROUND NO. 2 & 3 ARE INTER-LINKED. THE ASSESSEE CLAIMED RS. 5.05 LAKHS BEING MEMBERSHIP FEE PAID TO THE M/S. NATIONA L SPOT EXCHANGE LTD AS BUSINESS EXPENDITURE. THE REVENUE AUTHORITIES H AVE TREATED THE SAME AS CAPITAL EXPENDITURE AS THEY WERE OF THE OPINION THAT BY PAYING THIS ONE- TIME MEMBERSHIP FEE, THE ASSESSEE WOULD BE DERIVING ENDURING BENEFIT. ITA NO. 6247/M/2012 4 FURTHER, BY PAYING THIS MEMBERSHIP FEE, THE ASSESSE E IS ENTITLED TO TRADE IN THE M/S. NATIONAL SPOT EXCHANGE LTD. THEREFORE, TH E SAID MEMBERSHIP FEE IS NOTHING BUT A CAPITAL EXPENDITURE. 9. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE RELI ED UPON SEVERAL JUDICIAL DECISIONS. IN ALTERNATIVE, THE ASSESSEE C LAIMED THAT IF THE SAID EXPENDITURE IS TREATED AS CAPITAL EXPENDITURE, THEN DEPRECIATION ON THE SAME SHOULD BE ALLOWED. FOR THIS PROPOSITION, THE ASSESSEE RELIED UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CA SE OF TECHNO SHARES & STOCKS LTD. & ORS VS CIT 327 ITR 323. 10. WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF TH E AUTHORITIES BELOW AND THE DECISIONS RELIED UPON BY THE ASSESSEE. WE FIND FORCE IN THE CLAIM OF THE ALTERNATIVE PLEA OF THE ASSESSEE. IN THE DE CISIONS OF THE HONBLE SUPREME COURT IN THE CASE OF TECHNO SHARES & STOCKS LTD.,(SUPRA), THE STOCK EXCHANGE MEMBERSHIP CARD HAS BEEN TREATED AS A CAPITAL EXPENDITURE ON WHICH THE HONBLE APEX COURT HAS ALL OWED DEPRECIATION. THIS DECISION DIRECTLY GO TO THE ROOT OF THE FACT I N ISSUES IN HAND BEFORE US. THE DECISION RELIED UPON BY THE ASSESSEE FOR THE CL AIMS OF REVENUE EXPENDITURE DO NOT HOLD ANY GOOD. THE DECISION OF THE HONBLE SUPREME COURT TREATING THE STOCK EXCHANGE MEMBERSHIP FEE AS A CAPITAL EXPENDITURE SET AT REST THE ENTIRE CONTROVERSY UPHO LDING THE EXPENDITURE OF RS. 5.05 LAKHS AS A CAPITAL EXPENDITURE, WE RESTORE THIS ISSUE TO THE FILE OF THE AO TO DECIDE THE CLAIM OF DEPRECIATION IN THE L IGHT OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF TECHNO SHA RES & STOCKS LTD. (SUPRA). THE AO IS DIRECTED TO ALLOW DEPRECIATION AS PER PROVISIONS OF LAW. GROUND NO. 2 IS DISMISSED AND GROUND NO. 3 IS ALLOWED FOR STATISTICAL PURPOSE. ITA NO. 6247/M/2012 5 11. WITH GROUND NO. 4, THE ASSESSEE HAS CLAIMED THA T THE AO HAS NOT GIVEN CREDIT OF THE TDS. WE FIND THAT THE LD. CIT (A) HAS DIRECTED THE AO TO ALLOW CREDIT OF TDS AFTER DUE VERIFICATION AS PER LAW. WE, THEREFORE, DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). GROUND NO. 4 IS ACCORDINGLY DISMISSED. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT AT THE TIME OF H EARING ON 28 TH JANUARY, 2014 SD/- SD/- (JOGINDER SINGH ) (N.K. BILLAIYA) /JUDICIAL MEMBER '' / ACCOUNTANT MEMBER MUMBAI; 5! DATED : 28 TH JANUARY, 2014 . ! . ./ RJ , SR. PS '4 '4 '4 '4 0 00 0 -1# -1# -1# -1# 6'#)1 6'#)1 6'#)1 6'#)1 / COPY OF THE ORDER FORWARDED TO : 1. *, / THE APPELLANT 2. -.*, / THE RESPONDENT. 3. 7 ( ) / THE CIT(A)- 4. 7 / CIT 5. #8 -1! , , / DR, ITAT, MUMBAI 6. 9 : / GUARD FILE. '4! '4! '4! '4! / BY ORDER, .#1 -1 //TRUE COPY// ; ;; ; / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI