PRIME BROKING COMPANY (I) LTD, MUMBAI V. ACIT CIR 4(2), MUMBAI

ITA 6627/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8518 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-10-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 04-10-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 14-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A C TEJPAL
• Assessee Lawyers: VIPUL B JOSHI; ADITYA BHATT
• Keywords: Business expenditure; Rule of consistency; Wholly owned subsidiary
• Section: 37(1); 37

Judgement Text

ITA NO.6627 OF 2010 PRIME BROKING COMPANY INDIA LT D PAGE 1 OF 7 IN THE INCOME TAX APPELLATE TRIBUNAL 'C' BENCH, MUMBAI BEFORE SHRI D.K. AGARWAL, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO.6627/MUM/2010 (ASSESSMENT YEAR: 2007-08) PRIME BROKING COMPANY (I) LTD, CAS, 2 ND FLOOR, VOLTAS INTERNATIONAL HOUSE, 28 G.N. VAIDYA MARG, FORT, MUMBAI 400001 PAN: AAACP 3113 C VS. ACIT, CIRCLE 4(2), MUMBAI (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI VIPUL B.JOSHI & SHRI ADITYA BHATT DEPARTMENT BY: SHRI A.C. TEJPAL, CIT(DR) DATE OF HEARING: 04/10/2012 DATE OF PRONOUNCEMENT: 19/10/2012 O R D E R PER B. RAMAKOTAIAH, A.M. THIS IS AN ASSESSEES APPEAL AGAINST THE ORDER OF THE CIT (A)-8 MUMBAI DATED, 29.07.2010. ASSESSEE HAS RAISED TWO G ROUNDS ON TWO ISSUES IN THE GROUNDS OF APPEAL. 2. WE HAVE HEARD THE LEARNED COUNSEL AND THE LEARNED D R AND PERUSED THE PAPER BOOK PLACED ON RECORD CONTAINING WRITTEN SUBMISSIONS MADE TO CIT (A) ALONG WITH THE ENCLOSUR ES. 3. GROUND NO.1 IS ON THE ISSUE OF DISALLOWANCE OF AN A MOUNT OF ` .3,78,948/- PAID TO STOCK EXCHANGES WHICH WERE DISA LLOWED BY AO ON THE REASON THAT THESE ARE PAID IN VIOLATION OF L AW AND PENALTY CANNOT BE ALLOWED AS AN EXPENSE. THE CIT (A) CONFIR MED THE SAME. 4. AS SEEN FROM THE DETAILS OF AMOUNTS INVOLVED IN THI S BREAK UP OF THE CHARGES, DUES AND LATE FEES REQUIRED BY THE EXCHANGES ARE AS UNDER: ITA NO.6627 OF 2010 PRIME BROKING COMPANY INDIA LT D PAGE 2 OF 7 PARTICULARS CHARGES BY NSE CHARGES BY BSE CHARGES FOR EXCEEDING EXPOSURE LIMITS 65,000 34,685 DUES FOR NON SETTLEMENT 1,20,353 - CHARGES FOR OPEN LIMIT 94,864 - CHARGES FOR NON REGISTRATION OF CODES 7,400 9,400 CHARGES FOR NON CONFIRMATION OF 6A/7A - 31,865 CHARGES FOR NON REPORTING 5,800 1,000 OTHER CHARGES INCLUDING IN WDM SEGMENT 8,225 356 TOTAL 301,642 77,306 AS CAN BE SEEN FROM THE ABOVE, THE PAYMENTS ARE FOR VIOLATION OF VARIOUS LIMITS PLACED BY THE STOCK EXCHANGE OR FOR NON-REPORTING OF SOME DATA ETC., THERE IS NO PENALTY FOR VIOLATION O F ANY LAW OR STATUTE. THESE ARE ONLY FOR CONTRACTUAL VIOLATIONS, IN THE NATURE OF TECHNICAL VIOLATIONS. ASSESSEE RELIED BEFORE CIT(A) ON THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CHEMIC ALS & FIBERS OF INDIA LTD, 124 ITR 413 THAT BREACH OF OBLIGATION DO ES NOT AMOUNT TO INFRACTION OF LAW OR PUBLIC POLICY. NOW THIS ISSUE IS COVERED BY THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CA SE OF CIT VS. ANGEL CAPITAL & DEBIT MARKET LTD IN ITA NO.475 OF 2 011 DATED 28 TH JULY,2011 WHEREIN THE HON'BLE HIGH COURT HELD THAT THE AMOUNT PAID AS PENALTY TO STOCK EXCHANGES WAS ON ACCOUNT O F IRREGULARITIES COMMITTED BY ASSESSEE CLIENTS AND SUCH PAYMENTS WER E NOT ON ACCOUNT OF INFRACTION OF LAW AND HENCE ALLOWABLE AS BUSINESS EXPENDITURE. HON'BLE HIGH COURT HELD THAT THE ITAT FINDINGS ON THIS ISSUE IS SIMILAR TO THE CASE OF CIT VS. THE STOCK A ND BOND TRADING COMPANY IN ITA NO.4117 OF 2010 DATED 14 TH OCTOBER, 2011, AND HELD AS UNDER: 3. AS REGARDS THE SECOND QUESTION IS CONCERNED, TH E FINDING OF FACT RECORDED BY THE CIT (A) AND UPHELD BY THE ITAT IS THAT THE PAYMENTS MADE BY ASSESSEE TO THE ITA NO.6627 OF 2010 PRIME BROKING COMPANY INDIA LT D PAGE 3 OF 7 STOCK EXCHANGE FOR VIOLATION OF THEIR REGULATION AR E NOT AN ACCOUNT OF AN OFFENCE OR WHICH IS PROHIBITED BY LAW. HENCE, THE INVOCATION OF EXPLANATION TO SECTION 37 OF THE INCOME TAX ACT 1961 IS NOT JUSTIFIED. IN OUR OPINIO N, IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, NO FAULT CAN BE FOUND WITH THE DECISION OF THE ITAT. ACCORDINGLY, THE SECOND QUESTION CANNOT BE ENTERTAINED. 5. EVEN THOUGH THE LEARNED CIT (DR) TRIED TO DISTINGUI SH ON THE BASIS OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF ORGANO CHEMICAL INDUSTRIES AND ANOTHER VS. UNION OF INDIA, AIR 1979 (SC) 1803 TO SUBMIT THAT THE DAMAGES ARE FOR B REACH OF STATUTORY OBLIGATIONS, THE SAID DECISION IS NOT APP LICABLE AS THE ISSUE WAS EXAMINED BY THE HON'BLE SUPREME COURT WHILE ANA LYZING THE DAMAGES PAID UNDER THE EMPLOYEES PROVIDENT FUNDS AN D MISCELLANEOUS PROVISIONS ACT 1952 (SECTION 14B) WHE REAS THE PAYMENTS MADE TO THE STOCK EXCHANGES ARE NOT IN VIO LATION OF ANY ACT, BUT CONTRACTUAL VIOLATIONS BETWEEN THE STOCK E XCHANGES AND THE BROKER CLIENTS. THESE AMOUNTS CANNOT BE CONSIDE RED AS PAYMENTS FOR INFRACTION OF LAW. ACCORDINGLY, RESPEC TFULLY FOLLOWING THE PRINCIPLES LAID DOWN BY THE JURISDICTIONAL HIGH COURT IN THE ABOVE REFERRED CASES, WE HOLD THAT THE CHARGES LEVI ED AND COLLECTED BY THE NSE AND BSE DOES NOT VIOLATE THE PROVISIONS OF SECTION 37(1) AND THEREFORE, ALLOWABLE AS BUSINESS EXPENDITURE. G ROUND NO.1 IS ACCORDINGLY ALLOWED. 6. GROUND NO.2 IS ON THE ISSUE OF DISALLOWANCE UNDER S ECTION 40(A)(IA) OF AN AMOUNT CLAIMED AS REIMBURSEMENT OF RENT. THE FACT RELATING TO THE PRESENT ISSUE WAS THAT ASSESSEE IS 100% SUBSIDIARY OF PRIME SECURITIES LTD (PSL) AND THEY WERE OCCUPYI NG THE OFFICE PREMISES KNOWN AS PHOENIX HOUSE AND PSL PAID ` .31,94,070/- INCLUDING PARKING AND DISH ANTENNA CHARGES TO GROUP OF CO-OWNERS AND MADE TDS ON THE AMOUNTS SO PAID. SINCE ASSESSE E IS SHARING THE SAME PREMISES WITH THE SAID PSL, IT RAISED DEBI T NOTES FOR REIMBURSEMENT OF EXPENSES AT 80% OF THE RENT, 40% O F PARKING ITA NO.6627 OF 2010 PRIME BROKING COMPANY INDIA LT D PAGE 4 OF 7 CHARGES AND 60% OF DISH ANTENNA CHARGES EVERY MONTH AND ACCORDINGLY ASSESSEE PAID AN AMOUNT OF ` .25,55,256/- TO THE PARENT COMPANY. IT WAS THE SUBMISSION THAT THIS AMOUNT IS ONLY REIMBURSEMENT OF EXPENDITURE ON WHICH TDS UNDER SEC TION 194I NEED NOT BE DEDUCTED. IT WAS FURTHER SUBMITTED THAT THE TDS WAS ALREADY MADE BY THE SAID PSL WHEN PAID TO THE CO-OW NERS ON THE GROSS AMOUNT AND AS ASSESSEE DOES NOT HAVE ANY SEPA RATE AGREEMENT OR HAS NOT SUBLET THE PREMISES, THERE IS NO NEED FOR DEDUCTING THE TAX. ASSESSEE RELIED ON THE CLARIFICA TIONS ISSUED BY THE BOARD CIRCULAR NO.715 AND ALSO THE DECISION OF THE ITAT IN THE CASE OF INCOME TAX OFFICER VS. DR. WILLMAR SCHWABE (I) P . LTD. [2005] 3 SOT 71 ( DELHI ). IT FURTHER RELIED ON VARIOUS OTHE R CASES TO SUBMIT THAT PROVISIONS OF SECTION 40(A)(IA) DOES NOT APPLY . THE CIT (A) HOWEVER, DID NOT AGREE WITH ASSESSEES CONTENTIONS AND UPHELD AOS ORDER THAT PROVISIONS OF SECTION 194I WILL APPLY AN D SINCE ASSESSEE DID NOT DEDUCT THE TAX AMOUNT OF ` .25,55,256/- HAS TO BE DISALLOWED IN VIEW OF THE PROVISIONS OF SECTION 40(A)(IA). 7. THE LEARNED COUNSEL REFERRING TO VARIOUS SUBMISSION S MADE BEFORE AO AND THE CIT (A) SUBMITTED THAT THERE IS N O PAYMENT OF RENT BUT ONLY REIMBURSED THE COST OF COMMON UTILITI ES AND FILED THE SUBMISSIONS MADE TO AO IN ASSESSMENT YEAR 2006-07 W HEREIN IN ADDITION TO THE RENT AND OTHER CHARGES, ASSESSEE AL SO REIMBURSED THE SALARIES, OFFICE MAINTENANCE EXPENSES, TRAVELLI NG EXPENSES WHICH WERE ACCEPTED BY AO WITHOUT ANY DISALLOWANCE UNDER SECTION 40(A)(IA). AS FAR AS LEGAL PROVISIONS ARE CONCERNED , ASSESSEE RELIED ON THE FOLLOWING CASE LAW: (A) G.E. INDIA TECHNOLOGY CENTRE (P) LTD VS. CIT (2010) 327 ITR 456 (SC). (B) CIT VS. SIEMENS AKKITONGESELSCHAFT (2009) 310 ITR 3 20 (BOM.) (C) MAHINDRA & MAHINDRA VS. DCIT (2010) 122 ITD 216 (MUM.) ITA NO.6627 OF 2010 PRIME BROKING COMPANY INDIA LT D PAGE 5 OF 7 (D) DRESSER-RAND INDIA (P) LTD VS. ACIT (2012) 13 ITR 4 22 (MUM.TRIB). (E) DCIT VS. LAZARD INDIA (P) LTD (2010) 41 SOT 72 (MUM .) (F) ACIT VS. RESULT SERVICES (P) LTD (2012) 52 SOT 598 (DEL.) (G) GLOBAL E-BUSINESS OPERATIONS (P) LTD VS. DCIT (2012 ) 23 TAXMANN.COM 455 (BANG.) (H) EMERSONS PROCESS MANAGEMENT INDIA (P) LTD VS. ADD. CIT (2011) 47 SOT 157 (MUM.) (URO). 8. AFTER CONSIDERING THE ISSUE AND RIVAL CONTENTIONS, WE ARE OF THE VIEW THAT THERE IS NO REQUIREMENT OF ANY TDS ON THE REIMBURSEMENT OF THE EXPENDITURE. THERE IS NO DISPU TE WITH REFERENCE TO ASSESSEE SHARING THE OFFICE PREMISES W ITH THE 100% HOLDING COMPANY PSL. THERE IS ALSO NO DISPUTE THAT IN ASSESSMENT YEAR 2006-07 ASSESSEE NOT ONLY REIMBURSED THE RENT AND OTHER CHARGES BUT ALSO SALARY, OFFICE EXPENSES, TRAVELLIN G EXPENSES ETC WHICH WERE ACCEPTED BY AO AND NO DISALLOWANCE WAS M ADE UNDER SECTION 40(A)(IA). THIS INDICATES THAT ASSESSEE IS ONLY REIMBURSING THE EXPENDITURE AND THERE IS NO LESSOR AND LESSEE R ELATIONSHIP BETWEEN THE PSL AND ASSESSEE. IN ADDITION, THE SAID PSL DEDUCTED THE TAX ON THE ENTIRE GROSS AMOUNT PAID TO CO-OWNER S AS PER THE DETAILS ON RECORD. THEREFORE, WE ARE OF THE OPINION THAT THE PROVISIONS OF SECTION 194I DOES NOT APPLY. 9. SIMILAR ISSUE WAS CONSIDERED BY THE COORDINATE BENC H IN THE CASE OF ACIT VS. RESULTS SERVICES (P) LTD, 52 SOT 5 98 (DEL), WHEREIN ASSESSEE WAS A 100% SUBSIDIARY OF HOLDING COMPANY M. THE HOLDING COMPANY HAD TAKEN OFFICE PREMISES ON RENT A ND IT PERMITTED ASSESSEE TO USE PORTION OF SAID PREMISES. ASSESSEE REIMBURSED CERTAIN AMOUNT TO THE HOLDING COMPANY WITHOUT DEDUC TING ANY TDS. THE RENT FOR THE WHOLE PREMISES WAS PAID DIRECTLY B Y THE HOLDING COMPANY TO THE LESSOR AND THE TAX WAS DEDUCTED AS P ER PROVISIONS OF SECTION 194-I. IN COURSE OF ASSESSMENT, AO OPINED T HAT ASSESSEE WAS LIABLE TO DEDUCT TDS UNDER SECTION 194-I ON PAY MENT MADE TO THE HOLDING COMPANY FOR THE USE OF OFFICE PREMISES. ON ASSESSEES ITA NO.6627 OF 2010 PRIME BROKING COMPANY INDIA LT D PAGE 6 OF 7 FAILURE TO DO SO, AO DISALLOWED PAYMENT MADE BY ASS ESSEE BY INVOKING PROVISIONS OF SECTION 40(A)(IA). ON APPEAL , THE COMMISSIONER (APPEALS) DELETED THE DISALLOWANCE. ON FURTHER APPEAL, THE TRIBUNAL HELD THAT THE AMOUNT ONLY REPR ESENTED REIMBURSEMENT OF ACTUAL RENT EXPENSES AND SINCE THE RE WAS NO LESSOR AND LESSEE RELATIONSHIP, PROVISION OF SECTIO N 194-I ARE NOT ATTRACTED. 10. SIMILAR PRINCIPLE WERE ESTABLISHED IN THE OTHER CAS ES RELIED UPON BY THE LEARNED COUNSEL CITED SUPRA. THEREFORE, LEGALLY THE AMOUNT OF REIMBURSEMENT DOES NOT ATTRACT THE PROVIS ION OF SECTION 194-I. 11. HOWEVER, A QUESTION WAS RAISED HOW ASSESSEE IS CLAI MING THE EXPENDITURE IN ITS BOOKS WHETHER AS RENT OR OTHERWI SE. NO SUCH DETAILS WERE PLACED ON RECORD. MOREOVER, HOW THE AM OUNT WAS TREATED BY M/S PSL IN THEIR BOOKS OF ACCOUNT WAS AL SO NOT MADE AVAILABLE. IN CASE THE SAID PSL IS CLAIMING THE GRO SS RENT AGAINST THE PROFIT & LOSS A/C AND SHOWING THE REIMBURSEMENT OF RENT AS INCOME, THEN THE ISSUE MAY HAVE TO BE EXAMINED WHET HER THERE IS ANY LESSEE OR LESSOR RELATIONSHIP BETWEEN THE TWO C OMPANIES WHICH ARE INDEPENDENT LEGAL ENTITIES. IN THE CASE OF RESU LT SERVICES (SUPRA), THERE IS AN AGREEMENT WITH THE OWNERS THAT THE PREMISES WILL BE USED ALONG WITH ITS SUBSIDIARIES/ASSOCIATED COMPANIES ETC. AND EXTRACTS OF THOSE AGREEMENT WERE TAKEN INTO CON SIDERATION IN HOLDING THAT THE EXPENDITURE WAS REIMBURSEMENT OF E XPENDITURE. NEITHER AO NOR THE CIT (A) EXAMINED THE LEASE AGREE MENT WITH THE OWNERS, NOR THE ACCOUNTING TREATMENT GIVEN BY THE S AID PSL OR ASSESSEE IN THE BOOKS OF ACCOUNT. THEREFORE, IN ORD ER TO EXAMINE THE FACTS THE MATTER HAS TO BE RESTORED TO THE FILE OF AO TO EXAMINE THE LEASE DEED ENTERED BY THE SAID PSL AND THE CO-OWNER S AND WHETHER THEY HAVE A RIGHT TO SHARE THE ACCOMMODATION WITH T HE GROUP CONCERNS/SUBSIDIARY COMPANIES AS CONSIDERED BY THE COORDINATE ITA NO.6627 OF 2010 PRIME BROKING COMPANY INDIA LT D PAGE 7 OF 7 BENCH IN THE ABOVE CASE OF RESULT SERVICES (SUPRA). THE ACCOUNTING TREATMENT GIVEN BY THE RESPECTIVE PARTIES HAS A BEA RING ON THE ISSUE AND HAS TO BE EXAMINED WHILE DECIDING THE ISSUE WHE THER SECTION 194-I PROVISIONS ARE APPLICABLE. BEFORE DECIDING TH E ISSUE, ASSESSEE SHOULD BE GIVEN DUE OPPORTUNITY AND AO IS ALSO DIRE CTED TO KEEP IN MIND THE STAND TAKEN IN EARLIER YEARS OR LATER YEAR S SO THAT RULE OF CONSISTENCY CAN ALSO BE FOLLOWED. WITH THESE DIRECT IONS THE GROUND IS RESTORED TO THE FILE OF AO TO EXAMINE THE FACTS FIRST AND DECIDE ON PRINCIPLES OF LAW. ACCORDINGLY, THE MATTER IS THERE FORE, SET ASIDE TO THE FILE OF AO FOR FRESH CONSIDERATION. 12. IN THE RESULT APPEAL FILED BY ASSESSEE IS CONSIDERE D ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH OCTOBER, 2012. S D/ - SD/- (D.K. AGARWAL ) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED 19 TH OCTOBER, 2012. VNODAN/SPS COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, C BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI