DCIT 4(1), MUMBAI V. ISE SECIRITIES & SERVICES LTD, NAVI MUMBAI

ITA 659/MUM/2012

• Counselvise Citation: 65919914 RSA 2012
• Duration Of Justice: 1 year(s) 8 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2013
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 25-09-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 01-02-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: O P SINGH
• Assessee Lawyers: AJAY R SINGH
• Keywords: Depreciation; Business expenditure; Rule of consistency; Transactions in derivatives

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I, MUMBAI . . , ! ' #'' '$ , % ! & BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER . : 372 / / 2012, : 2008-2009 ITA NO. : 372/MUM/2012 , AY 2008-2009 M/S ISE SECURITIES AND SERVICES LTD., INTERNATIONAL INFOTECH PARK, TOWER 7, 5 TH FLOOR, SECTOR 30, VASHI RLY STN. COMPLEX. VASHI, NAVI MUMBAI -400 703 VS DCIT 4(1), 6 TH FLOOR, R NO. 640, AAYAKAR BHAVAN, M K ROAD, CHURCHGATE, MUMBAI -400 020 (APPELLANT) (RESPONDENT) . : 659 / / 2012, : 2008-09 ITA NO. : 659/MUM/2012 , AY 2008-09 DCIT 4(1), MUMBAI -400 020 VS M/S ISE SECURITIES AND SERVICES LTD., MUMBAI -400 020 (APPELLANT) (RESPONDENT) CO 20/MUM/2013 ARISING OUT OF ITA NO. 659/MUM/2012, AY 2008-2009 M/S ISE SECURITIES AND SERVICES LTD., NAVI MUMBAI -400 703 VS DCIT 4(1), 6 TH FLOOR, MUMBAI -400 020 .: PAN: AAACI 6011 L ASSESSEE-CROSS OBJECTOR BY : SHRI AJAY R. SINGH RESPONDENT-REVENUE BY : SHRI O.P. SINGH /DATE OF HEARING : 25-09-2013 !' / DATE OF PRONOUNCEMENT : 09-10-2013 * O R D E R #'' '$ , : PER VIVEK VARMA, JM: APPEALS HAVE BEEN FILED BY THE ASSESSEE AND THE DEPART MENT, AGAINST THE ORDER OF CIT(A) 8, MUMBAI, DATED 04.11.2011. IN ITA NO. 372/MUM/2012 (ASSESSEES APPEAL) AND IN ITA NO. 659/MUM/ 2012 (DEPARTMENT APPEAL), GROUND NO. 1 EMANATE FROM THE COMMON ORDER PERTAINING TO DISALLOWANCE MADE U/S 40(1)(IA). M/S ISE SECURITIES AND SERVICES LTD. ITAS NO. 372 & 659/MUM/2012 CO 20/MUM/2013 2 2. THE FACTS ARE THAT THE ASSESSEE IS A WHOLLY OWNED S UBSIDIARY OF INTERCONNECTED STOCK EXCHANGE OF INDIA LIMITED. IT DEALS IN CAPITAL MARKET AND F&O SEGMENTS OF NSE AND BSE. IN ITS PROFIT AN D LOSS ACCOUNT, THE ASSESSEE HAS DEBITED RS. 1,00,05,506/- UNDE R THE HEAD REIMBURSEMENT OF ACTUAL EXPENSES TO ISE. THE AO SOUGH T TO CLARIFY AS TO WHETHER TAS HAS BEEN DEDUCTED ON THIS AMOUNT, TO W HICH THE ASSESSEE FILED DETAILS EXPLAINING AND GIVING DETAILS ON SUCH SU MS. THE AO, IN THE ASSESSMENT PROCEEDINGS CONCLUDED THAT ON PAY MENTS AMOUNTING TO RS. 56,37,366/- THERE WAS A REQUIREMENT TO DEDUCT TAS, AND SINCE THE ASSESSEE DID NOT DEDUCT THE TAX, AS REQU IRED BY THE RELEVANT PROVISIONS UNDER THE ACT, DISALLOWED THE SAME. 3. AGGRIEVED, THE ASSESSEE APPROACHED THE CIT(A). 4. BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THAT THE PA YMENTS HAD BEEN MADE TO ITS PARENT COMPANY, AS REIMBURSEMENT OF TH OSE EXPENSES, WHICH THE PARENT COMPANY HAD INCURRED ON BEH ALF OF THE ASSESSEE. TO PROVE ITS POINT, PLACED ON RECORD, THE COPY OF AGREEMENT BETWEEN THE ASSESSEE AND ITS PARENT COMPANY AND POINT ED THE RELEVANT CLAUSE (AS REPRODUCED IN THE ORDER OF THE CIT(A) NOW THESE PRESENTS WITNESS AND IT IS AGREED BY AND BETWEEN THE PARTIES AS UNDER. 1. THE PARTY OF THE FIRST PART AGREES TO PROVIDE N ECESSARY INFRASTRUCTURE FACILITIES AND OTHER RELATED SERVICES WITH EFFECT F ROM APRIL 1, 2003 SO AS TO ENABLE THE PARTY OF THE SECOND PART TO CARRY ON ITS ACTIVITIES. 2. THE PARTY OF THE SECOND PART HEREBY AGREES TO A VAIL THE INFRASTRUCTURE FACILITIES AND OTHER RELATED SERVICES OFFERED BY TH E PARTY OF THE FIRST PART. 3. THE INFRASTRUCTURE FACILITIES AND OTHER RELATED SERVICES OFFERED BY THE PARTY OF THE FIRST PART AND AVAILED BY THE PARTY OF THE SECOND PART INCLUDE, BUT ARE NOT RESTRICTED TO, USE OF COMPUTER HARDWARE, SOFTWARE AND NETWORKING FACILITIES, TELEPHONES, TAXES, PRINT ERS, OFFICE SPACE, FURNITURE AND FIXTURES, ETC. PROVISION OF ELECTRICI TY, WATER AND OTHER UTILITIES, ETC. PROVISION OF ADMINISTRATIVE SUPPORT IN TERMS OF STAFF COURIER, POSTAGE, TRAVELLING, OFFICE REFRESHMENTS, CONSERVAN CY AND ROUTINE UPKEEP AND MAINTENANCE ETC. 4. IN CONSIDERATION OF THE PARTY OF THE FIRST PART PROVIDING THE INFRASTRUCTURE FACILITIES AND OTHER RELATED SERVICES AS AFORESAID, THE PARTY OF THE SECOND PART SHALL PAY AND REIMBURSE TO THE PARTY OF THE FIRST PART, THE ACTUAL EXPENSES BORNE/INCURRED BY THE PARTY OF THE FIRST PART FOR THE SAME. IN THE CASE OF ANY FIXED ASSET BELONGING TO T HE PARTY OF THE FIRST PART AND USED BY THE PARTY OF THE SECOND PART UNDER THIS AGREEMENT, THE REIMBURSEMENT SHALL BE THE ACTUAL DEPRECIATION CHAN GED IN THE BOOKS OF THE PARTY OF THE FIRST PART. M/S ISE SECURITIES AND SERVICES LTD. ITAS NO. 372 & 659/MUM/2012 CO 20/MUM/2013 3 5. ON GOING THROUGH THE RELEVANT CLAUSE OF THE AGREEMEN T, THE CIT(A) HELD, READING OF THE ABOVE CLAUSES CLEARLY SHOW THAT THE ONLY THOSE EXPENSES HAS TO BE REIMBURSED WHICH ARE OF THE NATU RE OF UTILITY ITEMS I.E. OFFICE EXPENSES LIKE PHOTO COPY CHARGES, REPAI RS AND MAINTENANCE, TELEPHONE, OFFICE STATIONERY, PRINTING ETC. THERE I S NO AGREEMENT FOR SHARING OF MANAGEMENT FEES, RENT AND OTHER PROFESSI ONAL FEES. OUT OF THE TOTAL REIMBURSED EXPENSES AMOUNTING TO RS. 1,00 ,05,506, THE APPELLANT HAS DEDUCTED TDS ON RENT OF RS. 30,68,140 AND MANAGEMENT FEES OF RS. 30,00,000, WITH THE RESULT THAT ON THE BALANCE AMOUNT OF RS. 56,37,366 NO TDS HAS BEEN DEDUCTED, AND THE SAME WA S DISALLOWED BY THE AO U/S. 40(A)(IA). THE ASSESSEE COULD NOT GIVE ANY EXPLANATION AS TO WHY NO TDS HAS BEEN DEDUCTED ON OTHER PROFESSIONAL FEES WHEN THE ASSESSEE HIMSELF HAS DEDUCTED TDS ON THE MANAGEMENT FEES. THE OTHER PROFESSIONAL FEES ARE NOT UTILITY ITEMS WHICH ARE C OVERED UNDER THE AGREEMENT FOR SHARING OF EXPENSES AND HENCE TDS SHO ULD HAVE BEEN DEDUCTED BY THE APPELLANT. FURTHER, IN THE CASE OF ITO VS. DR.WILLIMAR SCHWABEL INDIA (P) LTD. (2005) 3 SOT 7 (DELHI), IT IS CLEARLY HELD THAT REIMBURSEMENT OF ACTUAL EXPENSES WHICH DO NOT HAVE ANY ELEMENT OF PROFIT ARE SAVED BY THE RIGORS OF TDS U/S. 194J. TH E REIMBURSEMENT OF THE OTHER PROFESSIONAL FEES CANNOT BE SAID TO HAVE NO ELEMENT OF PROFIT EMBEDDED IN THEM, AND HENCE THEY ARE NOT EXCLUDED F ROM THE TDS DEDUCTION U/S. 194J. HENCE, THE OTHER PROFESSIONAL FEES AMOUNTING RS.12,96,751 ARE HELD TO BE DISALLOWABLE U/S. 40(I) (IA) AS NO TDS HAS BEEN DEDUCTED U/S. 194J. REGARDING THE OTHER REIMBU RSED EXPENSES SINCE, THEY ARE MADE ON THE COST BASIS WITHOUT ANY PROFIT ELEMENT, ARE EXEMPT FROM TDS IN VIEW OF THE DECISION IN THE CASE OF ITO VS. DR. WILLIMAR SCHWABEL INDIA (P) LTD. (SUPRA). HENCE, OU T OF TOTAL DISALLOWANCE OF RS. 56,37,366/- U/S. 40(A)(IA), DIS ALLOWANCE AMOUNTING TO RS. 12,96,751 IS CONFIRMED AND THE REST IS DELET ED. HENCE, THIS GROUND OF APPEAL IS PARTLY ALLOWED. THE CIT(A), THEREFORE, DELETED THE DISALLOWANCE OF RS. 43,40,5 15/- AND SUSTAINED THE DISALLOWANCE OF RS. 12,96,751/-. 6. AGAINST THIS FINDING BY THE CIT(A), THE ASSESSEE AS WELL A S THE DEPARTMENT ARE IN APPEAL BEFORE THE ITAT. 7. BEFORE US, THE AR, OPENING THE SUBMISSIONS ON BEHALF OF THE ASSESSEE SUBMITTED THAT THERE CANNOT BE ANY DISALLOWANCE U/S 40(A)(IA) BECAUSE FIRSTLY IT WAS REIMBURSEMENT OF EXPENSES AND SEC ONDLY THERE WAS NO PROFIT ELEMENT INVOLVED IN SUCH PAYMENTS MADE TO T HE PARENT COMPANY. THE AR, ONCE AGAIN REFERRED TO THE ARGUMENT (AS REPRODUCED ABOVE) AND POINTED OUT THAT THE PAYMENTS HAD BEEN MADE TO ITS PARENT COMPANY, AS REIMBURSEMENT OF THOSE EXPENSES, WHICH THE P ARENT COMPANY HAD INCURRED ON BEHALF OF THE ASSESSEE. TO PROV E ITS POINT, THE AR REFERRED TO THE COPY OF AGREEMENT BETWEEN THE ASSESSEE AND ITS M/S ISE SECURITIES AND SERVICES LTD. ITAS NO. 372 & 659/MUM/2012 CO 20/MUM/2013 4 PARENT COMPANY, WHICH WAS REFERRED TO BEFORE THE CIT(A), AND POINTED THE RELEVANT CLAUSE (AS REPRODUCED IN THE ORDER OF THE C IT(A) AND PLACED IN THE APB). 8. HE FURTHER REFERRED TO THE AGREEMENT, WHEREIN, THE AS SESSEE HAD REQUESTED ITS PARENT COMPANY TO PROVIDE OTHER RELATED SERVICES INCLUDING, BUT NOT LIMITED TO THE ADMINISTRATIVE SET UP OF EXPERIENCED AND QUALIFIED PERSONAL . THE AR POINTED OUT THAT SINCE THE ASSESSEE WAS AVAILING THE SERVICES OF QUALIFIED STAFF AS WELL, WHOSE PAYMENTS AND TAS WERE DULY TAKEN CARE BY THE PARENT COMPANY WOULD NOT AMOUNT TO AN EXPENSE WHICH INVOLVED ANY PROFIT ELEMENT BENEFITING THE PAR ENT CO., WHICH HAPPENED TO BE A GOVERNMENT ENTERPRISE. THE AR S UBMITTED THAT THE CASE OF ITO VS DR. WILLIMAR SCHWABBE INDIA (P) LTD . (2005) REPORTED IN 3 SOT 7 (DEL), SQUARELY COVERS THE ISSUE. HE FURTHER POINT ED OUT THAT THE ISSUE OF THE ASSESSEE WAS IMPUGNED BEFORE THE COORDINATE BENCH IN ITAT MUMBAI IN ITA NO. 6391/M/2009 FOR ASSESSME NT YEAR 2006-07, WHEREIN IT WAS HELD, 5 WE HAVE CONSIDERED THE RIVAL CONTENTION AS WELL AS THE RELEVANT MATERIAL ON RECORD. VIDE AGREEMENT DT 10.8.2004, TH E ASSESSEE AND ITS HOLDING COMPANY ISE ENTERED INTO AGREEMENT REGARDIN G PROVIDING CERTAIN SERVICES. AS PER THE SAID AGREEMENT, BOTH T HE PARTIES HAVE AGREED FOR SHARING OF EXPENSES ON SUCH SERVICES. IN CLAUSE 4 & 5 OF THE SAID AGREEMENT THE PARTIES HAVE AGREED FOR REIMBURS EMENT OF THE ACTUAL EXPENSES AND DEPRECIATION 5.1 THE CLAUSES 4 & 5 OF THE AGREEMENT READ AS UNDER: 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 REIMBURS E TO THE PARTY OF THE FIRST PART, THE ACTUAL EXPENSES BORNE/ INCURRED BY THE PARTY OF THE FIRST PART FOR THE SAME. IN THE CA SE OF ANY FIXED ASSET BELONGING TO THE PARTY OF THE FIRST PART AND USED BY THE PARTY OF THE SECOND PART UNDER THIS AGREEMENT, THE REIMBURSEMENT SHALL BE THE ACTUAL DEPRECIATION CHAR GED IN THE BOOKS OF THE PARTY OF THE 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 MAY BE MUTUALLY DECIDED FROM TIME TO TIME AND WITHIN SU CH TIME AS MAY BE MUTUALLY AGREED UPON. 5.2 THUS, IT IS CLEAR FROM THE RECORDS AS WELL AS THE FINDINGS GIVEN BY THE CIT(A) THAT THE AMOUNT IN QUESTION IS ONLY REIMBURS EMENT OF THE ACTUAL EXPENSES AND THERE IS NO ELEMENT OF ANY MARGIN OR P ROFIT. THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF UTI LITY POWERTECH LTD M/S ISE SECURITIES AND SERVICES LTD. ITAS NO. 372 & 659/MUM/2012 CO 20/MUM/2013 5 (SUPRA) WHEREIN ONE OF US (JUDICIAL MEMBER) IS THE PARTY AND AUTHOR HAVE CONSIDERED AND DECIDED AN IDENTICAL ISSUE BY F OLLOWING THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT I N THE CASE OF CIT VS M/S SIEMENS AKTIONGESLLSCHAFT AS UNDER: 5. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND P ERUSED THE RECORD. THE JURISDICTIONAL HIGH COURT IN THE CASE O F CIT VS. SELMENS AKTIONGESEIISCHAFT (SUPRA) HAS HELD THAT RE IMBURSEMENT OF EXPENSES CANNOT BE REGARDED AS REVENUE IN THE HA NDS OF THE PAYEE. WHILE DECIDING THE ISSUE, THE HONBIE HIGH C OURT HAS FOLLOWED THE DECISION OF HONBLE DELHI HIGH COURT I N THE CASE OF CIT VS. INDUSTRIAL ENGG. PROJECTS P.LTD (202 ITR 10 14). IT IS A SETTLED PROPOSITION OF LAW FROM THE VARIOUS DECISIO NS OF HIGH COURTS AND PARTICULARLY THE DECISION OF HONBLE JUR ISDICTIONAL HIGH COURT (SUPRA) THAT WHEN THERE IS NO ELEMENT OF INCOME AND THE PAYMENT IS ONLY AS A REIMBURSEMENT OF EXPENSES INCURRED BY THE PAYEE, THEN NO DISALLOWANCE CAN BE MADE U/S.40( A)(IA). IN THE CASE IN HAND, THE AO HAS NOT GIVEN A FINDING TH AT THE EXPENSES WERE FOR OFFICE UP KEEPING AS REVENUE RECE IPT IN THE HANDS OF RELIANCE ENERGY LTD. AND NOT A PURE REIMBU RSEMENT OF EXPENSES. RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT (SUPRA), WE DECIDE THI S ISSUE 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 TRIBUN AL; THEREFORE, TO MAINTAIN THE RULE OF CONSISTENCY, WE DECIDE THIS IS SUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. ACCORDINGLY, THE ORDER OF THE CIT(A) IS UPHELD ON THIS ISSUE. 9. THE AR, THEREFORE, SUBMITTED THAT IN VIEW OF THE ABOVE DECISIONS INCLUDING THE DECISION IN THE ASSESSEES OWN CASE, READ WIT H RELEVANT CLAUSES OF THE AGREEMENT, THE ASSESSEES APPEAL SHOULD B E ALLOWED AND DEPARTMENTS APPEAL SHOULD BE REJECTED. 10. THE DR ON THE OTHER HAND RELIED ON THE ORDER OF TH E AO & SUBMITTED THAT THE DISALLOWANCE HAD BEEN MADE, AS NO EVID ENCE HAD BEEN PLACED ON RECORD BY THE ASSESSEE, WHICH WOULD INDICA TE THAT THESE PAYMENTS WERE ACTUALLY IN THE NATURE OF REIMBURSE MENT OF EXPENSES. 11. IN THE REJOINDER, THE AR POINTED OUT THAT DEBIT NOT ES ALONG WITH DETAILS OF EXPENSES WHICH WERE REIMBURSED TO THE PARENT COMPANY WAS PLACED BEFORE THE REVENUE AUTHORITIES TO PROVE THAT THE NATURE OF PAYMENT WAS ACTUALLY REIMBURSEMENT OF EXPENSES, AND WIT H NO PROFIT ELEMENT. M/S ISE SECURITIES AND SERVICES LTD. ITAS NO. 372 & 659/MUM/2012 CO 20/MUM/2013 6 12. THE AR ALSO SUBMITTED THAT ACTUAL PAYMENTS HAD BEE N MADE BY THE PARENT COMPANY, WHO WAS UNDER THE OBLIGATION FOR DED UCTION OF TAS AND WHO HAD DEDUCTED THE TAS. THE AR POINTED OUT THAT THE PARENT COMPANY HAD ISSUED THE CERTIFICATE AS WELL ON THIS FACT. 13. WE HAVE HEARD THE ARGUMENTS AND HAVE PERUSED TH E EVIDENCE AND MATERIAL PLACED BEFORE US. THE FACTS THAT THERE WAS P AYMENT BY THE ASSESSEE TO ITS PARENT COMPANY IS NOT DISPUTED BY THE REVENUE AUTHORITIES, BUT THE FACT THAT THE ASSESSEE HAS NOT BEE N ABLE TO FULLY SATISFY THE REVENUE AUTHORITIES WITH THE AUTHENTICITY OF T HE FACT THAT THE PAYMENTS SO MADE WERE ONLY REIMBURSEMENT AND DID NOT INVOLVE ANY PROFIT ELEMENT TO FALL SQUARELY WITHIN THE PRECINCT OF THE D ECISIONS IN DR. WILLIMAR SCHWABBE ( SUPRA ), UTILITY POWER ( SUPRA ) AND SIEMENS AKTIONGESLLSCHAFT ( SUPRA ) AND THE ASSESSEES OWN CASE IN ASSESSMENT YEAR 2006-07 (SUPRA) . 14. WE CANNOT IGNORE THE FACT THAT THE AR HAS STATED BAR THAT THE PARENT COMPANY HAS ISSUED THE CERTIFICATE CLARIFYING THE R ECEIPT OF REIMBURSEMENT AMOUNTS FROM THE ASSESSEE COMPANY. 15. KEEPING THE ENTIRE GAMUT OF ARGUMENTS IN CONSIDERATIO N, AS MADE BY THE ASSESSEE AND THE DEPARTMENT WE FEEL THAT IN THE INTERESTS OF JUSTICE, THE ISSUE OF APPLICABILITY OF SECTION 40(A)(IA) BE RE- ADJUDICATED BY THE AO, AFTER TAKING THE MATERIAL AND EVIDE NCE INTO CONSIDERATION. NEEDLESS TO MENTION THAT ADEQUATE AND REA SONABLE OPPORTUNITY SHALL BE PROVIDED TO THE ASSESSEE TO PRESENT ITS CASE . 16. IN THE LIGHT OF OUR OBSERVATIONS GROUND NO. 1 IN BOTH THE APPEALS, I.E. ITA NO. 372/MUM/2012 (FILED BY THE ASSESSEE) AND 659/MUM/2012 (FILED BY THE DEPARTMENT) , RESPECTIVELY, ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 17. IN ITA NO. 372/MUM/2012, FILED BY THE ASSESSEE, GROUN D NO. 2 PERTAINS TO DISALLOWANCE OF RS. 4,61,364/- BEING INTEREST ON DELAYED SERVICE TAX PAYMENT. M/S ISE SECURITIES AND SERVICES LTD. ITAS NO. 372 & 659/MUM/2012 CO 20/MUM/2013 7 18. THE AR SUBMITTED THAT THE DISALLOWANCE HAS NOT BEEN MADE ON ACCOUNT OF ANY VILIFICATION OR VIOLATION AMOUNTING TO PENALTY. 19. THIS PAYMENT IS ONLY COMPENSATORY IN NATURE. THE AR POINTED OUT THAT SIMILAR DISALLOWANCE WAS MADE IN ASSESSMENT YEAR 2006-07, WHICH HAS BEEN DELETED BY THE COORDINATE BENCH IN ITA N O. 6391/MUM/2009, 8 HAVING CONSIDERED THE RIVAL CONTENTION AND OTHE R 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 HELD AS UNDER: 3. AS REGARDS QUESTION (C) IS CONCERNED THE FINDIN G OF FACT RECORDED BY THE ITAT IS THAT THE AMOUNT PAID AS PENALTY WAS ON ACCOUNT OF IRREGULARITIES COMMITTED BY THE ASSESSEES CLIEN TS. SUCH PAYMENTS WERE NOT ON ACCOUNT OF ANY INFRACTION OF L AW AND HENCE ALLOWABLE AS BUSINESS EXPENDITURE. IN SUCH A CASE THE EXPLANATION TO SECTION 37A WOULD NOT APPLY. ACCORDI NGLY QUESTION (C ) RAISED BY THE REVENUE CANNOT BE ENTER TAINED. 8.1 ACCORDINGLY, WHEN THE PAYMENT MADE ON VIOLATIO N OF BYE-LAWS CANNOT SAID TO BE PAYMENT OF ANY INFRACTION OF LAW AND CAN NOT BE DISALLOWED. THIS GROUND OF THE REVENUE IS ACCORDINGLY DISMISSED . THE AR ALSO PLACED RELIANCE ON THE DECISION OF COORDINATE B ENCH OF DTA AT DELHI IN THE CASE OF DCIT VS MESSEE DUSSELDORF IND IA (P) LTD. IN ITA NO. 4113/DEL/2009 (COPY PLACED ON RECORD), WHEREIN IT WAS HELD, INTEREST PAID FOR DELAYED PAYMENT OF SERVICE-TAX I S COMPENSATORY AND HAS THE SAME CHARACTER AS SERVICE-TAX AND, THEREFORE, IT IS ALLOWABLE AS DEDUCTION. 20. THE AR, THEREFORE, SUBMITTED THAT THERE SHOULD NOT BE ANY DISALLOWANCE. 21. THE DR RELIED ON THE ORDER OF THE REVENUE AUTHORITIES. 22. WE HAVE HEARD THE ARGUMENTS AND WE FIND THAT EVEN THE REVENUE AUTHORITIES HAVE NOT DEVIATED FROM THE FACT THAT THE IMPU GNED PAYMENT PERTAINS TO INTEREST ON DELAYED SERVICES TAX PAYMENT, WH ICH ONLY IS COMPENSATORY IN NATURE AND THAT IT ACTUALLY PARTAKES T HE NATURE OF PRINCIPAL SUM OF SERVICE TAX ITSELF. WE ARE OF THE CONSIDERED OPINION THAT THE ISSUE IS DIRECTLY AND SQUARELY COVERED BY THE DECISION OF MESSEE DUSSELDORF INDIA (P) LTD. ( SUPRA ), WHICH IS ALSO ON THE ISSUE OF INTEREST ON DELAYED PAYMENT OF SERVICE TAX. M/S ISE SECURITIES AND SERVICES LTD. ITAS NO. 372 & 659/MUM/2012 CO 20/MUM/2013 8 23. RESPECTFULLY FOLLOWING THE DECISION OF COORDINATE BENCH AT DELHI IN THE CASE OF MESSEE DURSOLDORF, AND IN ASSESSEES OWN CASE IN ITA NO. 6391/MUM/2009, WE SET ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE AO TO DELETE THE DISALLOWANCE. GROUND NO. 2 IS THEREFORE ALLOWED. APPEAL, AS FILED BY THE ASSESSEE IS PARTLY ALLOWED. C.O. 20/MUM/2013 : 24. THE CO IS FILED BY THE ASSESSEE, TAKING THE FOLLOWING GROUNDS: 1. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT ON LY AMOUNT PAYABLE AND NOT AMOUNT PAID COULD BE DISALLOWED U/S 40(A)(IA) OF THE ACT. 2. THE LEARNED CIT(A) ALSO FAILED TO APPRECIATE THA T THE PAYEE ARE ASSESSED TO TAX AND ALREADY PAID TAXES ON THE SAID AMOUNT AND THEREFORE THERE SHOULD NOT BE ANY DISALLOWANCE, THE AFORESAID VIEW IS ALSO SUPPORTED BY THE SUBSEQUENT AMENDMENT MADE BY THE FINANCE ACT 2012 INSERTING PROVISO TO SECTION 4 0(A)(IA) OF THE ACT WHICH IS CLARIFACTORY IN NATURE AND INSERTED WI TH A VIEW TO RATIONALIZE THE PROVISIONS OF DISALLOWANCE, THEREFO RE THE AMENDMENT SHOULD BE APPLICABLE WITH RETROSPECTIVE E FFECT. 25. AT THE TIME OF HEARING, THE AR SUBMITTED THAT CO HA D BEEN FILED AS AN ABUNDANT PRECAUTION, IN CASE, THE APPEAL IN ITA NO. 659/MUM/2012 IS REJECTED . 26. SINCE WE HAVE RESTORED THE ENTIRE ISSUE TO THE FILE O F THE AO FOR RE-ADJUDICATION, THEREBY ALLOWING THE APPEALS FILED BY BOTH T HE PARTIES, THE CO BECOMES INFRUCTUOUS, HENCE IT IS DISMISSED. ITA NO. 659/MUM/12 27. THE SOLITARY ISSUE PERTAINED TO PART ALLOWANCE OF DISALLO WANCE MADE BY THE AO U/S 40(A)(IA). IN ITA NO. 372/MUM/2012, WE H AVE RESTORED THE ENTIRE ISSUE PERTAINING TO SECTION 40(A)(IA) TO THE FILE OF THE AO. SINCE THERE IS NO OTHER ISSUE INVOLVED, THE APPEAL FILED B Y THE DEPARTMENT IS TREATED AS PARTLY ALLOWED. 28. IN THE RESULT, M/S ISE SECURITIES AND SERVICES LTD. ITAS NO. 372 & 659/MUM/2012 CO 20/MUM/2013 9 ITA NO. 372/MUM/12, FILED BY THE ASSESSEE IS PARTLY ALLOWED. ITA NO. 659/MUM/12, FILED BY THE DEPARTMENT IS PARTLY ALLOWED C.O. NO. 20/M/13, FILED BY THE ASSESSEE IS DISMISSED ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH OCTOBER, 2013. SD/- SD/- ( . . ) ( #'' '$ ) ! ! (P.M. JAGTAP) (VIVEK VARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 9 TH OCTOBER, 2013 / COPY TO:- 1) / THE APPELLANT. 2) / THE RESPONDENT. 3) & &' ( ) 8 MUMBAI, / THE CIT (A)- 8 , MUMBAI. 4) & &' 4, MUMBAI / THE CIT4, MUMBAI, 5) ()* + & , & + , ,- / 6) *. / COPY TO GUARD FILE. &01 / BY ORDER / / TRUE COPY / / [ 2 / 3 4 & + , ,- DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI *673 . . * CHAVAN, SR. PS