ITO 4(1)(2), MUMBAI V. ISE SECURITIES & SERVICES LTD, NAVI MUMBAI

ITA 6391/MUM/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 56330 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-12-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 22-12-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 11-12-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: AJAY R SINGH
• Keywords: Depreciation; Business expenditure; Rule of consistency; Non-deduction of tax
• Section: 194C; 37

Judgement Text

1 ISE SECURITIES & SERVICES LTD IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI MUMBAI MUMBAI MUMBAI I II I BENCH BENCH BENCH BENCH MUMBAI BENCHES, MUMBAI MUMBAI BENCHES, MUMBAI MUMBAI BENCHES, MUMBAI MUMBAI BENCHES, MUMBAI BEFORE SHRI BEFORE SHRI BEFORE SHRI BEFORE SHRI T R SOOD T R SOOD T R SOOD T R SOOD , ,, , AM & AM & AM & AM & SHRI SHRI SHRI SHRI VIJAY PAL RAO, JM VIJAY PAL RAO, JM VIJAY PAL RAO, JM VIJAY PAL RAO, JM ITA NO. ITA NO. ITA NO. ITA NO. 6391/MUM/2009 6391/MUM/2009 6391/MUM/2009 6391/MUM/2009 (ASST YEAR (ASST YEAR (ASST YEAR (ASST YEAR 2006 2006 2006 2006- -- -07 0707 07) )) ) THE INCOME TAX OFFICER WARD 4(1)(2), MUMBAI VS ISE SECURITIES & SERVICES LTD INTERNATIONAL INFOTECH PARK TOWER -7 5 TH FLOOR VASHI STATION COMPLEX SECTOR 30 VASHI, NAVI MUMBAI 703 (APPELLANT) (APPELLANT) (APPELLANT) (APPELLANT) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) PAN NO. PAN NO. PAN NO. PAN NO. AAACI6011L AAACI6011L AAACI6011L AAACI6011L ASSESSEE BY SH AJAY R SINGH REVENUE BY SH V V SHASTRI DT.OF HEARING 22 ND DEC 2011 DT OF PRONOUNCEMENT 30 TH , DEC 2011 ORDER ORDER ORDER ORDER PER PER PER PER VIJAY PAL RAO VIJAY PAL RAO VIJAY PAL RAO VIJAY PAL RAO, , , , JM JMJM JM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 16.9.2009 OF THE CIT(A) FOR THE AY 2006-07. 2 THE REVENUE HAS RAISED THE FOLLOWING EFFECTIVE GR OUNDS IN ITS APPEAL: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITION OF ` 6 9,45,623 MADE U/S. 40(A)(IA) HOLDING THAT AS PER THE CBDTS CIRCULAR N O. 715 DTD.8.8.1995 IF THE BILLS ARE SEPARATELY MAINTAINED FOR REIMBURSEMENT, THE PROVISIONS OF SECTION 194 C AND 194J OF THE ACT SHALL NOT BE APPLICABLE IGNORING THE FACT THAT THE ANSWER TO QUESTION NO. 30 OF THE SAID CIRCULAR ONLY MEANS THAT TDS HAS TO BE MADE U/S. 194C AND 194J OF THE ACT EVEN IF BILLS ARE RAISED F OR GROSS AMOUNT INCLUDING REIMBURSEMENT 2. I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE ON A CCOUNT OF PENALTY OF ` 6,02,511/- ON VIOLATION OF THE BYE-LAWS OF THE STOCK EXCHANGE, WHICH ARE STATUTORY IN CHARACTER AND THUS AMOUNTED TO INFRINGEMENT OF LAW. 2 ISE SECURITIES & SERVICES LTD II. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD. CIT(A) ERRED IN IGNORING THE FACT THAT THE PENA LTY IS IMPOSED UNDER SEBI [PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PE NALTY BY ADJUDICATING OFFICER] RULES 1995 WHICH HAS A BINDIN G CHARACTER. 3 GROUND NO.1 IS REGARDING DISALLOWANCE U/S 40(A)(I A) OF THE I T ACT. 3.1 THE ASSESSEE IS A FULLY OWNED SUBSIDIARY OF INT ERCONNECTED STOCK EXCHANGE OF INDIA (ISE). THE ASSESSEE IS A TRADIN G-CUM-CLEARING MEMBER OF NATIONAL STOCK EXCHANGE OF INDIA LTD(NSE) AND BOMBA Y STOCK EXCHANGE LTD (BSE). BY VIRTUE OF BEING A STOCK EXCHANGE SUBSIDIA RY, THE ASSESSEE CANNOT TRADE ON ITS OWN ACCOUNT AND CAN ONLY ALLOW TRADING TO IT S SUB-BROKERS AND AUTHORISED PERSONS. 3.2 DURING THE YEAR THE ASSESSING OFFICER DISALLO WED A SUM OF ` 69,45,623/- ON NON-DEDUCTION OF TAX BY INVOKING PROVISIONS OF SEC. 40(A)(IA) OF THE I T ACT. THE ASSESSEE CONTENDED BEFORE THE ASSESSING OFFICER THAT THIS AMOUNT IS ONLY REIMBURSEMENT OF THE ACTUAL EXPENDITURE TO ISE, WHI CH IS THE HOLDING COMPANY OF THE ASSESSEE AND WHEN THIS IS REIMBURSEMENT OF THE ACTUAL EXPENDITURE INCURRED BY THE HOLDING COMPANY, THEN NO TAX IS REQUIRED TO BE DEDUCTED U/S 194C/194J OF THE ACT. THE ASSESSING OFFICER DID NOT ACCEPT THE C ONTENTION OF THE ASSESSEE AND DISALLOWED THE AMOUNT. 3.2 ON APPEAL, THE CIT(A) NOTICED THAT THE ASSESSEE HAS PRODUCED THE EVIDENCES TO SHOW THAT SEPARATE MONTHLY BILLS ARE RAISED WITH RESPECT TO VARIOUS EXPENSE THAT ARE SHARED BETWEEN THE ASSESSEE AND IT S HOLDING COMPANY ISE. HE HAS REFERRED THE CBDT CIRCULAR NO.715 OF 8.8.1995 A ND HELD THAT WHEN THE PAYMENT WAS ONLY REIMBURSEMENT OF THE ACTUAL EXPENS ES, TDS IS NOT DEDUCTIBLE ON SUCH REIMBURSEMENT OF ACTUAL EXPENSES. ACCORDING LY, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER WAS DELETED. 3 ISE SECURITIES & SERVICES LTD 4 BEFORE US, THE LD DR HAS RELIED UPON THE ORDER OF THE ASSESSING OFFICER AS WELL AS THE DECISION OF THE HONBLE PATNA HIGH COUR T IN THE CASE OF ASSOCIATED CEMENT CO. LTD. V. CIT REPORTED IN 120 ITR 444. 4.1 THE LD AR OF THE ASSESSEE, ON THE OTHER HAND HA S SUBMITTED THAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED AND DECIDED BY THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF UTILITY POWERTECH LTD IN I TA NO.2561/MUM/2009 VIDE ORDER DATED 19.4.2010. HE HAS FILED A COPY OF THE O RDER OF THE TRIBUNAL. HE HAS ALSO FILED A COPY OF THE AGREEMENT BETWEEN THE ASSE SSEE AND THE HOLDING COMPANY REGARDING SERVICES PROVIDED BY THE HOLDING COMPANY AND SHARING OF EXPENSES. 5 WE HAVE CONSIDERED THE RIVAL CONTENTION AS WELL A S THE RELEVANT MATERIAL ON RECORD. VIDE AGREEMENT DT 10.8.2004, THE ASSESSE E AND ITS HOLDING COMPANY ISE ENTERED INTO AGREEMENT REGARDING PROVIDING CERT AIN SERVICES. AS PER THE SAID AGREEMENT, BOTH THE PARTIES HAVE AGREED FOR SHARING OF EXPENSES ON SUCH SERVICES. IN CLAUSE 4 & 5 OF THE SAID AGREEMENT THE PARTIES HAVE AGREED FOR REIMBURSEMENT OF THE ACTUAL EXPENSES AND DEPRECIATI ON 5.1 THE CLAUSES 4 & 5 OF THE AGREEMENT READ AS UNDE R: 4 IN CONSIDERATION OF THE PARTY OF THE FIRST PART PROVIDING THE INFRASTRUCTURE FACILITIES AND OTHER RELATED SERVICE S AS AFORESAID, THE PARTY OF THE SECOND PERT SHALL PAY AND REIMBURSE TO THE PARTY OF THE FIRST PART, THE ACTUAL EXPENSES BORNE/INCURRED BY T HE PARTY OF THE FIRST PART FOR THE SAME. IN THE CASE OF ANY FIXED A SSET BELONGING TO THE PARTY OF THE FIRST PART AND USED BY THE PARTY O F THE SECOND PART UNDER THIS AGREEMENT, THE REIMBURSEMENT SHALL BE TH E ACTUAL DEPRECIATION CHARGED IN THE BOOKS OF THE PARTY OF T HE FIRST PART. 5 THE PARTY OF THE FIRST PART SHALL INTIMATE THE PA RTY OF SECOND PART IN WRITING THE DETAILS OF THE ACTUAL COSTS/CHARGES AND THE PARTY OF THE SECOND PART SHALL PAY REIMBURSE THE SAME TO THE PARTY OF THE FIRST PART ON A MONTHLY BASIS OR IN SUCH MANNER AS MAY BE MUTUALLY DECIDED FROM TIME TO TIME AND WITHIN SUCH TIME AS M AY BE MUTUALLY 4 ISE SECURITIES & SERVICES LTD DECIDED FROM TIME TO TIME AND WITHIN SUCH TIME AS M AY BE MUTUALLY AGREED UPON. 5.2 THUS, IT IS CLEAR FROM THE RECORDS AS WELL AS T HE FINDINGS GIVEN BY THE CIT(A) THAT THE AMOUNT IN QUESTION IS ONLY REIMBURSEMENT OF THE ACTUAL EXPENSES AND THERE IS NO ELEMENT OF ANY MARGIN OR PROFIT. THE CO ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF UTILITY POWERTECH LTD (SUPRA) WHEREI N ONE OF US (JUDICIAL MEMBER) IS THE PARTY AND AUTHOR HAVE CONSIDERED AND DECIDED AN IDENTICAL ISSUE BY FOLLOWING THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COU RT IN THE CASE OF CIT VS M/S SIEMENS AKTIONGESLLSCHAFT AS UNDER: 5. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PE RUSED THE RECORD. THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS . SELMENS AKTIONGESEIISCHAFT (SUPRA) HAS HELD THAT REIMBURSEM ENT OF EXPENSES CANNOT BE REGARDED AS REVENUE IN THE HANDS OF THE P AYEE. WHILE DECIDING THE ISSUE, THE HONBIE HIGH COURT HAS FOLL OWED THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. INDUSTRIAL ENGG. PROJECTS P.LTD (202 ITR 1014). IT IS A SETTLED PROP OSITION OF LAW FROM THE VARIOUS DECISIONS OF HIGH COURTS AND PARTICULAR LY THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT (SUPRA) THAT WHEN THERE IS NO ELEMENT OF INCOME AND THE PAYMENT IS ONLY AS A REIM BURSEMENT OF EXPENSES INCURRED BY THE PAYEE, THEN NO DISALLOWANC E CAN BE MADE U/S.40(A)(IA). IN THE CASE IN HAND, THE AO HAS NOT GIVEN A FINDING THAT THE EXPENSES WERE FOR OFFICE UP KEEPING AS REVENUE RECEIPT IN THE HANDS OF RELIANCE ENERGY LTD. AND NOT A PURE REIMBU RSEMENT OF EXPENSES. RESPECTFULLY FOLLOWING THE DECISION OF TH E HONBLE JURISDICTIONAL HIGH COURT (SUPRA), WE DECIDE THIS I SSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 5.3 WHEN THERE IS A DECISION OF THE JURISDICTIONAL HIGH COURT, WHICH HAS BEEN FOLLOWED BY THE COORDINATE BENCH OF THE TRIBUNAL; T HEREFORE, TO MAINTAIN THE RULE OF CONSISTENCY, WE DECIDE THIS ISSUE IN FAVOUR OF T HE ASSESSEE AND AGAINST THE REVENUE. ACCORDINGLY, THE ORDER OF THE CIT(A) IS U PHELD ON THIS ISSUE. 6 GROUND NO.2 IS REGARDING DISALLOWANCE OF PENALTY OF ` 6,12,511/- FOR VIOLATION OF BYE LAWS OF STOCK EXCHANGE. 5 ISE SECURITIES & SERVICES LTD 7 WE HAVE CONSIDERED THE RIVAL CONTENTION AND CONSI DERED THE RELEVANT MATERIAL ON RECORD. THE LD DR HAS SUBMITTED THAT TH E PENALTY IS IMPOSED UNDER THE SEBI RULES 1995 WHICH IS BINDING CHARACTER; THE REFORE, IT IS FOR VIOLATION OF STATUTORY PROVISIONS AND INFRACTION OF LAW AND AS P ER EXPLANATION TO SEC 37 PAYMENT MADE TO STOCK EXCHANGES CANNOT BE ALLOWED. HE HAS RELIED UPON THE ORDER OF THE ASSESSING OFFICER. 7.1 ON THE OTHER HAND, THE LD AR OF THE ASSESSEE HA S SUBMITTED THAT VIOLATION OF BYE-LAWS OF STOCK EXCHANGE DOES NOT AMOUNT INFRA CTION OF ANY LAW BECAUSE THIS IS A STATUTORY PROVISION. HE HAS FURTHER SUBMI TTED THAT THE TRIBUNAL, IN A NUMBER OF CASES, HAVE HELD THAT PENALTY PAID TO STO CK EXCHANGE FOR VIOLATION DOES NOT AMOUNT TO PENALTY FOR INFRACTION OF LAW AN D IN THE CASE OF CIT VS ANGLE CAPITAL & DEBIT MARKET LTD, THE HONBLE JURISDICTIO NAL HIGH COURT VIDE ORDER DATED 28 TH JULY 2011 HAS UPHELD THE ORDER OF THE TRIBUNAL BY HOLDING THAT THE PAYMENT OF SUCH AMOUNT ARE NOT ON ACCOUNT OF ANY INFRACTION OF LAW. 8 HAVING CONSIDERED THE RIVAL CONTENTION AND OTHER RELEVANT MATERIAL ON RECORD, WE FIND THAT IN THE CASE OF ANGLE CAPITAL & DEBIT MARKET LTD, THE HONBLE JURISDICTIONAL HIGH COURT (SUPRA) IN PARA 3 HAS HE LD AS UNDER: 3. AS REGARDS QUESTION ( C) IS CONCERNED THE FINDI NG OF FACT RECORDED BY THE ITAT IS THAT THE AMOUNT PAID AS PEN ALTY WAS ON ACCOUNT OF IRREGULARITIES COMMITTED BY THE ASSESSEE S CLIENTS. SUCH PAYMENTS WERE NOT ON ACCOUNT OF ANY INFRACTION OF L AW AND HENCE ALLOWABLE AS BUSINESS EXPENDITURE. IN SUCH A CASE T HE EXPLANATION TO SECTION 37A WOULD NOT APPLY. ACCORDINGLY QUESTIO N (C ) RAISED BY THE REVENUE CANNOT BE ENTERTAINED. 8.1 ACCORDINGLY, WHEN THE PAYMENT MADE ON VIOLATION OF BYE-LAWS CANNOT SAID TO BE PAYMENT OF ANY INFRACTION OF LAW AND CANNOT B E DISALLOWED. THIS GROUND OF THE REVENUE IS ACCORDINGLY DISMISSED. 6 ISE SECURITIES & SERVICES LTD 9 IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON THE 30 TH , DAY OF DEC 2011. SD/ SD/. ( (( ( T R SOOD T R SOOD T R SOOD T R SOOD ) )) ) ACCOUNTANT MEMBER ( (( ( VIJAY PAL RAO VIJAY PAL RAO VIJAY PAL RAO VIJAY PAL RAO ) )) ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 30 TH , DEC 2011 RAJ* RAJ* RAJ* RAJ* COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI