M/s. HSBC SECURITIES & CAPITAL MARKET (I) P. LTD., MUMBAI V. ACIT CIR. 4(1), MUMBAI

ITA 6762/MUM/2005

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8354 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 11 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 18-09-2012
• Assessment Year: 2002-2003
• Appeal Filed On: 21-11-2005
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RUPINDER BRAR
• Keywords: Depreciation; Business expenditure; Bad and doubtful debts; Commercial expediency; Revenue expenditure; Capital expenditure
• Section: 234B; 37(1); 37

Judgement Text

ITA NOS.6762 7135 OF 2005 AND CO NO 186 OF 2006 HSBC SECURITIES & CAPITAL MARKETS INDIA LTD PAGE 1 OF 12 IN THE INCOME TAX APPELLATE TRIBUNAL 'F' BENCH, MUMBAI BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO.6762/MUM/2005 (ASSESSMENT YEAR: 2002-03) HSBC SECURITIES & CAPITAL MARKETS (INDIA) PVT. LTD, 52/60 MAHATHMA GANDHI ROAD, MUMBAI 400001 PAN: AAACJ 1395 E VS. ACIT CIRCLE-4(1) 6 TH FLOOR, ROOM NO.640, AAYAKAR BHAVAN, MUMBAI 400020 (APPELLANT) (RESPONDENT) ITA NO.7135/MUM/2005 (ASSESSMENT YEAR: 2002-03 ACIT CIRCLE-4(1) 6 TH FLOOR, ROOM NO.640, AAYAKAR BHAVAN, MUMBAI 400020 VS. HSBC SECURITIES & CAPITAL MARKETS (INDIA) PVT. LTD, 52/60 MAHATHMA GANDHI ROAD, MUMBAI 400001 PAN: AAACJ 1395 E (APPELLANT) (RESPONDENT) CO NO.186/MUM/2006 (ARISING OUT OF ITA NO.7135/MUM/2005) (ASSESSMENT YEAR 2002-03) HSBC SECURITIES & CAPITAL MARKETS (INDIA) PVT. LTD, 52/60 MAHATHMA GANDHI ROAD, MUMBAI 400001 PAN: AAACJ 1395 E VS. ACIT CIRCLE-4(1) 6 TH FLOOR, ROOM NO.640, AAYAKAR BHAVAN, MUMBAI 400020 (CROSS OBJECTOR) (RESPONDENT) DEPARTMENT BY: SMT. RUPINDER BRAR, CIT(DR) ASSESSEE BY: SHRI YOGESH THAR DATE OF HEARING: 25/09/2012 DATE OF PRONOUNCEMENT: 31/10/2012 ITA NOS.6762 7135 OF 2005 AND CO NO 186 OF 2006 HSBC SECURITIES & CAPITAL MARKETS INDIA LTD PAGE 2 OF 12 O R D E R PER B. RAMAKOTAIAH, A.M. THESE ARE CROSS APPEALS FOR THE ASSESSMENT YEAR 200 2-03 AGAINST THE ORDERS OF THE CIT (A)-IV, MUMBAI DATED 5.10.2005 AND THE CROSS OBJECTION ON ONE OF THE ISSUE BY ASSESSEE . 2. WE HAVE HEARD THE LEARNED COUNSEL AND THE LEARNED D R IN DETAIL AND THE LEARNED COUNSEL ALSO PLACED ON RECOR D PAPER BOOK AND A CHART INDICATING THE GROUNDS AND THE DECISION S RELIED UPON BY ASSESSEE INCLUDING THE COORDINATE BENCH ORDERS IN A SSESSEES OWN CASE. ITA NO. 6762/MUM/2005 3. IN THIS APPEAL ASSESSEE HAS RAISED SIX GROUNDS. 4. GROUND NO.1 PERTAINS TO THE DISALLOWANCE UNDER SECT ION 14A. ASSESSEE HAS SHOWN DIVIDEND INCOME OF ` 3,53,85,721/- WHICH WAS CLAIMED AS EXEMPT UNDER SECTION 10(33). AO ESTIMATE D 5% OF THE DIVIDEND INCOME AS EXPENDITURE ATTRIBUTABLE TO EARN ING SUCH TAX FREE DIVIDEND INCOME CONSIDERING BOTH DIRECT AND IN DIRECT EXPENSES INCURRED BY ASSESSEE. ACCORDINGLY HE ARRIVED AT THE DISALLOWANCE OF ` .16,69,286/- BEING 5% OF THE DIVIDEND INCOME. THE S AME WAS CONFIRMED BY THE CIT (A) DIFFERING FROM THE ORDERS OF HIS PREDECESSOR IN A Y 2001-02. 5. THE LEARNED COUNSEL SUBMITTED THAT THE ITAT IN A Y 2004-05 AND 2005-06 HAS DETERMINED THE REASONABLE AMOUNT A T A LUMP SUM AMOUNT OF ABOUT ` .2 LAKHS AND ACCORDINGLY HE HAS NO OBJECTION IF PROPORTIONATE AMOUNT WAS DISALLOWED BU T NOT AT THE RATIO ADOPTED BY AO. 6. THE LEARNED DR HOWEVER, SUBMITTED THAT BY THE ORDER OF THE ITAT IN 2001-02, AMOUNT OF 5% HAS BEEN CONFIRMED. 7. WE HAVE EXAMINED THE ISSUE AND THE DETAILS PLACED O N RECORD. IN A Y 2001-02, THE DIVIDEND INCOME WAS ONLY RS.4,9 1,884/- AND AN AMOUNT OF ` .24,594/- WAS DISALLOWED AND WAS CONFIRMED BY THE ITAT. HOWEVER, IN THE LATER YEARS BASED ON THE FACT THAT AMOUNT OF ITA NOS.6762 7135 OF 2005 AND CO NO 186 OF 2006 HSBC SECURITIES & CAPITAL MARKETS INDIA LTD PAGE 3 OF 12 DIVIDEND WAS EARNED FROM ONLY ONE COMPANY TO AN EXT ENT OF ` .3.30 CRORES, COORDINATE BENCH CONSIDERED THAT IT WAS RE ASONABLE ESTIMATE DISALLOWANCE AT ` .2.00 LAKHS AS ASSESSEE HAS NOT BORROWED ANY FUNDS, NOR THERE IS ANY FINDING THAT ANY INTERE ST IS ATTRIBUTABLE TO EARNING THE DIVIDEND INCOME. FACTS ARE SIMILAR I N THIS YEAR AND LARGE AMOUNT OF DIVIDEND WAS EARNED FROM ONE COMPAN Y ALONE. IN VIEW OF THIS, RESPECTFULLY FOLLOWING THE DECISION O F THE COORDINATE BENCHES IN ASSESSMENT YEARS 2004-05 AND 2005-06, TH E DISALLOWANCE IS RESTRICTED TO AN AMOUNT OF ` .2.00 LAKHS. GROUND IS PARTLY ALLOWED. 8. GROUND NOS.2 & 3 PERTAIN TO THE CLAIM OF BAD DEBTS/ LOSS, THE CLAIMS WHICH HAVE BEEN MADE WITHOUT PREJUDICE TO ON E ANOTHER. 9. AO IN THE ASSESSMENT ORDER DISALLOWED THE AMOUNT ST ATING THAT A DEBT UNLESS IT HAS BECOME BAD, CANNOT BE ALL OWED UNDER SECTION 36(1)(VII) AND NO LOSS CAN BE ALLOWED UNLES S THE SAME HAS CRYSTALLIZED APPLYING THE PRINCIPLES AND DEPENDING ON THE DECISION OF THE ITAT IN THE CASE OF THERMITE CORPORATION DISALL OWED ENTIRE AMOUNT OF ` .3,36,147/-. THE CIT (A) AFTER CONSIDERING THE SUBMISSIONS OF ASSESSEE, HOWEVER, ALLOWED AN AMOUNT OF ` .71,942/- BEING THE AMOUNT WRITTEN OFF GIVEN AS ADVANCE TO ON E OF THE EMPLOYEES WHICH COULD NOT BE RECOVERED AND WITH REF ERENCE TO THE BALANCE AMOUNT, HE CONFIRMED AOS ACTION. 10. THE FACTS RELATING TO THE BAD DEBTS ARE THAT ASSESS EE HAD THE FOLLOWING AMOUNTS WRITTEN OFF IN THE BOOKS OF ACCOU NT: S.NO NAME OF THE PARTY AMOUNT ( ` `` ` .) 1 TEAM ASIA GREAVES SEMI- CONDUCTOR LTD 2,33,70,000 2 WILLIAMSON TEA HOLDINGS PLC 15,01,569 3 BAD DELIVERY DEBTORS 87,02,430 TOTAL 3,35,73,999 A) WITH REFERENCE TO TEAM ASIA SEMICONDUCTOR LTD, IT W AS THE SUBMISSION THAT ASSESSEE WAS RETAINED BY THE CLIENT AS AN ITA NOS.6762 7135 OF 2005 AND CO NO 186 OF 2006 HSBC SECURITIES & CAPITAL MARKETS INDIA LTD PAGE 4 OF 12 ADVISOR TO ASSIST IN RAISING PRIVATE EQUITY FOR EXP ANSION. ASSESSEE WAS TO BE PAID 4% OF THE INVESTMENT PROCEE DS RECEIVED FROM PRIVATE EQUITY INVESTORS BY THE CLIEN T, SUBJECT TO A MAXIMUM SUCCESS FEE OF USD 6,50,000 WHICH WAS INC LUSIVE OF UPFRONT FEE AND OUT OF POCKET AND OTHER EXPENSES . ASSESSEE BILLED A TOTAL OF ` .3,03,70,000/- UPTO 31 ST MARCH,2002 OUT OF WHICH ONLY AN AMOUNT OF ` .70,00,000/- WERE RECEIVED DURING THE YEAR ENDED ON 31.3.2002. AS THE BALANCE AMOUNT WAS NOT RECEIVED AND THE CLIENT EXPRESSED HIS INABILITY TO PAY THE AMOUNT BEING A SICK COMPANY, ASSESSEE WROTE OFF THE BALANCE AMOUNT. THERE IS NO DISPUTE WITH REFERENCE TO THE W RITE OFF OF THE AMOUNT IN THE PROFIT & LOSS A/C. B) WITH REFERENCE TO THE WILLIAMSONS TEA HOLDING S PLC. ASSESSEE WAS MANDATED AS AN EXCLUSIVE ADVISOR TO PR OTECT THE INTEREST OF WILLIAMSON TEA HOLDINGS IN INDIA IN THE WILLIAMSON MAGOR GROUP IN RESPONSE TO BUSINESS INTEREST BY KHA ITAN FAMILY IN INDIA. IN CONSIDERATION FOR THE SERVICES ASSESSEE WAS ENTITLED TO A MONTHLY RETAINER FEE OF USD 50,000 SU BJECT TO A MINIMUM OF USD 2,50,000. ALL OUT OF POCKET EXPENSES ARE TO BE REIMBURSED. IN THE COURSE OF SERVICE ASSESSEE PA ID PROFESSIONAL FEES TO VARIOUS LEGAL ADVISORS ON BEHA LF OF THE CLIENT TOTALING TO ` .13,99,689/-. FURTHER TRAVEL EXPENSES AND OTHER MISCELLANEOUS EXPENSES WERE ALSO CLAIMED TO A N EXTENT OF ` .15,01,569/-. SINCE THE CLIENT WAS NOT SATISFIED WI TH THE SERVICES RENDERED BY ASSESSEE, IT REFUSED TO REIMBU RSE THE SAID EXPENSES. THEREFORE, ASSESSEE WROTE OFF THE AM OUNT. C) WITH REFERENCE TO THE BAD DELIVERY DEBTORS, ASS ESSEE BEING A STOCK BROKER CLAIMED BAD DELIVERY DEBTORS AMOUNTING TO ` .87,02,430/- AS BAD DEBTS. THESE AMOUNTS ARE DUE FR OM THE BROKERS OF THE SELLING PARTIES FOR CLAIMS OF THE CL IENTS ON ACCOUNT OF DIVIDEND OR BONUS SHARES RECEIVABLE FROM THE SELLERS. AS THESE CLAIMS ARE NOT HONOURED BY THE SA ID BROKERS, ASSESSEE HAD TO PAY ALL ITS CLIENTS TO SETTLE THEIR DUE AND WROTE OFF THE AMOUNT DUE FROM SELLING PARTIES BROKERS BY CHARGING ITA NOS.6762 7135 OF 2005 AND CO NO 186 OF 2006 HSBC SECURITIES & CAPITAL MARKETS INDIA LTD PAGE 5 OF 12 THEM TO THE PROFIT & LOSS A/C. IT WAS THE CLAIM OF ASSESSEE THAT SUCH WRITE OFF IS IN THE REGULAR COURSE OF THE BUSINESS. 11. AFTER CONSIDERING THE ABOVE FACTS AND PE RUSING THE ORDERS OF AO AND THE CIT (A), WE ARE OF THE OPINION THAT THE AMOUNTS ARE TO BE ALLOWED AS BAD DEBTS. CONSEQUENT TO THE AMENDMENT T O THE PROVISIONS OF SECTION 36(1)(VII), IT IS NOT REQUIRE D TO ESTABLISH THAT THE DEBT HAS BECOME BAD. THIS ISSUE WAS DECIDED BY THE HON'BLE SUPREME COURT IN THE CASE OF TRF LTD VS. CIT, 323 I TR 397 WHEREIN IT WAS HELD THAT AFTER 1.4.1989 IT IS NOT NECESSARY FOR ASSESSEE TO ESTABLISH THAT THE DEBT IN FACT HAS BECOME IRRECOVE RABLE. IT IS ENOUGH IF BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN ACCOUNTS OF ASSESSEE. FOLLOWING THE ABOVE PRINCIPLES, THERE IS NO DISPUTE WITH REFERENCE TO THE AMOUNTS RECEIVABLE FROM THE TEAM A SIA SEMICONDUCTOR LTD AND WILLIAMSONS TEA HOLDINGS PLC THAT THESE AMOUNTS WERE TAKEN INTO ACCOUNT AS INCOME IN EARLIE R YEARS AND WAS WRITTEN OFF AS IRRECOVERABLE. WITH REFERENCE TO THE THIRD ITEM OF BAD DELIVERY DEBTORS, ASSESSEE BEING A STOCK BROKER , THE AMOUNTS PAYABLE TO THE CLIENTS IN THE BUSINESS IS ALSO CONS IDERED AS TAKEN INTO ACCOUNT UNDER THE PROVISIONS OF SECTION 36(2) AND ANY NON- RECOVERY CAN BE CLAIMED AS BAD DEBT. THIS ISSUE WAS CONSIDERED BY THE SPECIAL BENCH OF THE ITAT IN THE CASE OF DCIT V S. SHREYAS MORAKHIA 5 ITR (TRIB.)1/40 SOT 432 WHICH WAS UPHELD BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. SH REYAS S. MORAKHIA IN APPEAL NO.89 OF 2011. IN VIEW OF THIS W E DIRECT AO TO ALLOW THE AMOUNTS AS BAD DEBTS AS CLAIMED. GROUNDS ARE CONSIDERED ALLOWED. 12. GROUND NO.4 PERTAINS TO CLAIM OF SOFTWARE E XPENSES. ASSESSEE SPENT AN AMOUNT OF ` .21,59,151/- TOWARDS VARIOUS LICENSE FEES PAID FOR ACQUIRING SOFTWARE FOR RUNNING ITS COMPUTERS. A SSESSEE CLAIMED THE SAME AS REVENUE EXPENDITURE. AO WAS OF THE VIEW THAT THE SOFTWARE EXPENSES GAVE AN ENDURING BENEFIT; THEREFO RE, THEY ARE CAPITAL IN NATURE. ACCORDINGLY HE ALLOWED 25% DEPRE CIATION BY CAPITALIZING THE SAID AMOUNT AND MAKING ADDITION OF DIFFERENCE OF ` .16,19,363/-. THE CIT (A) UPHELD PART OF THE AMOUNT RELYING ON THE ITA NOS.6762 7135 OF 2005 AND CO NO 186 OF 2006 HSBC SECURITIES & CAPITAL MARKETS INDIA LTD PAGE 6 OF 12 DECISION OF THE HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. ARAVALLLI CONSTRUCTION PVT. LTD. (2003) 259 ITR 30 (RAJ). IT WAS THE CONTENTION THAT ASSESSEE HAS NOT OBTAINED ANY ENDUR ING BENEFIT AND ONLY PAID LICENSE FEE FOR UTILIZING THE SAME IN EXI STING COMPUTERS. ACCORDINGLY THE EXPENDITURE IS REVENUE IN NATURE. ASSESSEE RELIED ON THE FOLLOWING DECISIONS: I) VARINDER AGRO CHEMICAL LIMITED, 309 ITR 272 (P&H HIGH COURT) II) CIT VS. ASAHI INDIA SAFETY GLASS LTD, 15 TAXMANN.CO M 382 (DELHI). III) CIT VS. RAYCHEM RPG LTD., (BOMBAY HIGH COURT) (ITA NO.4176 OF 2009) IV) DCIT VS. MAHINDRA REALITY & INFR. DEVELOPERS (ITA NO.1160/MUM/2010) V) DIAGEO INDIA PVT. LTD VS. DCIT (13 TAXMANN.COM 62(MUM.) VI) M/S AMWAY INDIA ENTERPRISES V. DCIT (111 ITD 112) (TDELS). 13. CONSIDERING THE NATURE OF THE EXPENDITURE AS SE EN FROM ANNEXURE-A TO THE SUBMISSIONS BEFORE THE CIT (A), E VEN THOUGH THE EXPENDITURE MAY GIVE AN ENDURING BENEFIT, SINCE NO ASSET HAS BEEN CREATED BY PAYING LICENSE FEES FOR UTILIZATION OF T HE SOFTWARE, WE ARE OF THE OPINION THAT THE EXPENDITURE IS ALLOWABLE AS REVENUE EXPENDITURE. THE PRINCIPLES LAID DOWN IN THE ABOVE CASES RELIED ON BY ASSESSEE SUPPORTS THE ABOVE CONTENTIONS. ACCORDI NGLY AO IS DIRECTED TO ALLOW THE CLAIM OF LICENSE FEE ON SOFTW ARE EXPENDITURE CLAIM OF ` .21,51,151/- AS REVENUE EXPENDITURE AND CONSEQUENTL Y WITHDRAW THE DEPRECIATION ALLOWED ON THE SAID AMOUN T. GROUND IS CONSIDERED ALLOWED. 14. GROUND NO.5 PERTAINS TO THE ISSUE OF SOFTWARE E XPENSE AMOUNTING TO ` .40,60,000/-. ASSESSEE DID NOT PRESS THE GROUND AS ASSESSEE ITSELF CLAIMED IT AS CAPITAL EXPENDITURE I N THE RETURN OF INCOME AND THE ISSUE WHETHER DEPRECIATION WILL BE A LLOWED AT 60% OR 25% WAS CONTESTED SEPARATELY. THEREFORE, THIS GR OUND IS TREATED AS WITHDRAWN. ITA NOS.6762 7135 OF 2005 AND CO NO 186 OF 2006 HSBC SECURITIES & CAPITAL MARKETS INDIA LTD PAGE 7 OF 12 15. GROUND NO.6 PERTAINS TO INTEREST UNDER SECTION 234B, 234C AND 234D. AO IS DIRECTED TO RECALCULATE THE INTERES T WHILE GIVING EFFECT TO THIS ORDER AND ALSO KEEPING IN MIND THE A MENDMENTS MADE TO THE PROVISIONS OF SECTION 234B BY THE FINANCE AC T, 2012. WITH THESE DIRECTIONS THE APPEAL IS CONSIDERED PARTLY AL LOWED. 16. IN THE RESULT APPEAL NO.6762/MUM/2005 IS PART LY ALLOWED. ITA NO.7135/MUM/2005 17. THIS IS A REVENUE APPEAL IN WHICH THE REVENUE HAS C ONTESTED THREE ISSUES IN THE GROUNDS OF APPEAL. 18. GROUND NO.1 PERTAINS TO THE ISSUE OF DISALLOWANCE O F INTEREST MADE UNDER SECTION 36(1)(III) ON THE INTEREST FREE ADVANCES OUT OF INTEREST BEARING FUNDS TO THE GROUP COMPANIES. AO I N THE ORDER HAS STATED THAT THOUGH ASSESSEE HAS CLAIMED FINANCIAL C HARGES OF ` .3,55,60,000/-, IT HAS NOT CHARGED INTEREST ON THE FOLLOWING ADVANCES/INVESTMENTS. PARTICULARS BALANCE AS ON 31.3.2002( ` `` ` .) HSBC INVESTMENT BANK PLC 3,22,000/- HSBC SECURITIES (DELHI) LTD 3,22,000/- HSBC ASSET MANAGEMENT (I) LTD 8,32,000/- TOTAL 14,76,000/- ON THE REASON THAT THE AMOUNTS WERE ADVANCED OUT OF THE BORROWED FUNDS ON WHICH ASSESSEE PAID 15.8% INTEREST, AO WOR KED OUT THE DISALLOWANCE AT ` .26,77,452/- UNDER SECTION 36(1)(III). THE CIT (A) DELETED THE SAME HOLDING THAT ASSESSEE HAS MORE CAP ITAL AND RESERVES THAN WHAT WAS ADVANCED TO THE SISTER CONCE RNS AND FOLLOWING HIS ORDER IN A Y 2001-02 HE DELETED THE S AID DISALLOWANCE. REVENUE IS AGGRIEVED. 19. IT WAS FAIRLY ADMITTED THAT IN AY 2001-02 THE ISSUE WAS RESTORED TO THE FILE OF AO FOR EXAMINATION AFRESH A S DIRECTED IN PARA 17 OF THE ORDER IN ITA NO.6894/MUM/2004: 17. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. AO HAS CATEGORICALLY FOUND THAT INTEREST FREE ADVANCES TO ASSESSEES RELATED CONCER NS ARE ITA NOS.6762 7135 OF 2005 AND CO NO 186 OF 2006 HSBC SECURITIES & CAPITAL MARKETS INDIA LTD PAGE 8 OF 12 OUT OF INTEREST BEARING HSBC OVERDRAFT ACCOUNT, ON WHICH ASSESSEE HAD CLAIMED DEDUCTION OF INTEREST IN ITS P ROFIT & LOSS A/C. THIS FINDING OF AO HAS NOT BEEN DISLODGED BY THE LEARNED CIT (A). ON THE OTHER HAND, HE HELD THA T AO HAS FAILED TO ESTABLISH THE NEXUS BETWEEN INTEREST BEARING FUNDS AND INTEREST FREE ADVANCES. WE FIND F ROM THE ORDERS OF AUTHORITIES BELOW THAT THE ISSUE HAS NOT BEEN CONSIDERED FROM THE POINT OF COMMERCIAL EXPEDI ENCY WHICH IS THE PROPOSITION LAID DOWN BY THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF S.A. BUILDERS REPORTED IN 288 ITR 1(SC). THE HON'BLE SUPREME COUR T HELD AS UNDER: IN OUR OPINION, THE HIGH COURT IN THE IMPUGNED JUDGMENT, AS WELL AS THE TRIBUNAL AND THE INCOME-TAX AUTHORITIES HAVE APPROACHED THE MATTER FROM AN ERRONEOUS ANGLE. IN THE PRESENT CASE, ASSESSEE BORROWED THE FUND FROM THE BANK AND LENT SOME OF IT TO ITS SISTER CONCERN (A SUBSIDIARY) AS INTEREST FREE LOAN. THE TEST, IN OUR OPINION, IN SUCH A CASE IS REALLY WHETHER THIS WAS DONE AS A MEASURE OF COMMERCIAL EXPEDIENCY. 18. SINCE AUTHORITIES BELOW HAVE NOT CONSIDERED THE QUESTION OF COMMERCIAL EXPEDIENCY IN ADVANCING THE LOAN TO THE SUBSIDIARY CONCERN NECESSARILY IN THE LIGHT OF THE DECISION OF THE HONBLE SUPREME COURT CITED SUPRA, WE DEEM IT APPROPRIATE TO REMIT THIS ISSUE BACK TO THE FILE OF THE AO TO DECIDE THE MATTER AFRESH IN THE LIGHT OF THE DICTUM LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF S.A. BUILDERS (SUPRA). THEREFORE, THIS GROUND OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES 20. RESPECTFULLY FOLLOWING THE ABOVE SINCE THE CIT (A) ALSO FOLLOWED THE ORDER FOR THE A Y 2001-02 WHILE GIVING RELIEF, IN THE INTEREST OF JUSTICE WE RESTORE THE ISSUE TO THE FILE OF AO TO E XAMINE THE FACTS AFRESH. AO IS ALSO DIRECTED TO EXAMINE THE AMOUNT O F ADVANCE AS THE AMOUNTS STATED IN THE ASSESSMENT ORDER AS ADVANCES TO SISTER CONCERN WAS ONLY AN AMOUNT OF ` .14,76,000/-, WHEREAS THE INTEREST ON THE ABOVE AMOUNT AT 15.8% WAS WORKED OUT AT ` .26,77,452/-. AO IS DIRECTED TO STATE THE CORRECT AMOUNT ADVANCED TO SISTER CONCERN AND GIVE THE WORKING IN CASE THE AMOUNTS AR E INDEED ADVANCED OUT OF THE BORROWED FUNDS. THE FINDINGS IN A Y 2001-02 WILL HAVE A BEARING ON THIS ISSUE. THEREFORE, AO IS DIRECTED TO KEEP ITA NOS.6762 7135 OF 2005 AND CO NO 186 OF 2006 HSBC SECURITIES & CAPITAL MARKETS INDIA LTD PAGE 9 OF 12 THIS ALSO IN MIND. ASSESSEE SHOULD BE GIVEN DUE OPP ORTUNITY TO SUPPORT ITS CONTENTIONS. WITH THESE DIRECTIONS THE ISSUE IN GROUND NO.1 IS RESTORED TO THE FILE OF AO FOR FRESH CONSID ERATION. 21. GROUND NO.2 IS ON THE ISSUE OF PENALTY LEVIED BY TH E STOCK EXCHANGE. THE CLAIM IS AN AMOUNT OF ` .1,15,663/- ON ACCOUNT OF PAYMENT MADE TO THE STOCK EXCHANGE FOR VIOLATION OF BYELAWS OF THE STOCK EXCHANGE. ASSESSEE SUBMITTED THAT THE STOCK E XCHANGES ARE NOT STATUTORY AUTHORITIES AND THEREFORE, VIOLATION OF THEIR BYELAWS COULD NOT BE CONSIDERED AS VIOLATION OF LAW AND IS ONLY A BREACH OF CONTRACTUAL OBLIGATION AND THEREFORE, CLAIM IS ALLO WABLE AS A DEDUCTION. AO HOWEVER, WAS OF THE OPINION THAT THE PENALTY PAID VIOLATES THE PROVISIONS OF SECTION 37(1) AND THEREF ORE, THE SAME CANNOT BE ALLOWED AS BUSINESS DEDUCTION. THE CIT (A ) ALLOWED THE AMOUNT STATING THAT THE STOCK EXCHANGES ARE NOT GOV ERNMENT OR SEMI-GOVERNMENT BODIES AND THE PAYMENTS ARE ONLY FO R TECHNICAL VIOLATION OF REGULATIONS WHICH CANNOT BE CONSIDERED AS PAYMENT PROHIBITED BY LAW OR IN CONNECTION WITH AN OFFENCE. THE REVENUE IS AGGRIEVED BY THIS. 22. SIMILAR ISSUE WAS CONSIDERED IN FAVOUR OF ASSESSEE IN A YS 2003-04 AND 2005-06 BY THE COORDINATE BENCH OF THE ITAT COPIES OF WHICH WERE PLACED ON RECORD. THIS ISSUE IS NOW DIRE CTLY COVERED BY THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN TH E CASE OF CIT VS. ANGEL CAPITAL & DEBIT MARKET LTD IN ITA NO.475 OF 2011 DATED 28 TH JULY, 2011 WHEREIN THE HON'BLE HIGH COURT HELD THA T THE AMOUNT PAID AS PENALTY TO STOCK EXCHANGES WAS ON AC COUNT OF IRREGULARITIES COMMITTED BY ASSESSEE CLIENTS AND SU CH PAYMENTS WERE NOT ON ACCOUNT OF INFRACTION OF LAW AND HENCE ALLOWABLE AS BUSINESS EXPENDITURE. HON'BLE HIGH COURT UPHELD THE ITAT FINDING ON THIS ISSUE IN THE CASE OF CIT VS. THE STOCK AND 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 STOCK EXCHANGE FOR VIOLATION OF THEIR REGULATION AR E NOT ITA NOS.6762 7135 OF 2005 AND CO NO 186 OF 2006 HSBC SECURITIES & CAPITAL MARKETS INDIA LTD PAGE 10 OF 12 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. 23. IN VIEW OF THIS, WE DO NOT SEE ANY REASON TO DISTUR B THE FINDINGS OF THE CIT (A) AND REJECT THE GROUND OF TH E REVENUE. 24. GROUND NO.3 PERTAINS TO THE ISSUE OF ALLOWANCE OF A N AMOUNT OF ` .4,34,400/- PAID AS SOFTWARE EXPENDITURE AS REVENUE EXPENDITURE. 25. THIS ISSUE WAS DISCUSSED IN GROUND NO.4 OF ASSESSEE S APPEAL ABOVE. OUT OF THE TOTAL AMOUNT OF ` .21,51,151/-, THE CIT (A) CONSIDERED AN AMOUNT OF ` .17,24,751/- AS CAPITAL IN NATURE WHILE ALLOWING ` .4,34,400/- AS REVENUE IN NATURE. THE REVENUE IS CONTESTING THE ABOVE FINDINGS OF THE CIT (A). SINCE WE HAVE ALREADY DECIDED THAT THE ENTIRE EXPENDITURE FOR SOFTWARE LI CENSES IS REVENUE IN NATURE, THERE IS NO NEED FOR DISTURBING THE FIND INGS OF THE CIT (A) WHO CORRECTLY ALLOWED THE AMOUNT OF ` .4,34,400/- AS REVENUE EXPENDITURE. ACCORDINGLY THE GROUND IS REJECTED. 26. IN THE RESULT, REVENUE APPEAL NO.7135/MUM/2005 IS P ARTLY ALLOWED FOR STATISTICAL PURPOSES. C.O.NO.186/MUM/2006 (ARISING FROM ITA NO.7135/MUM/2 005) 27. ASSESSEE CLAIMED IN THE C.O. THE ISSUE OF DEPRECIAT ION ON COMPUTER SOFTWARE AT 60% AS AGAINST 25% ALLOWED BY AO. ASSESSEE CLAIMED AN AMOUNT OF ` .40,60,000/- AS CAPITAL EXPENDITURE AND CLAIMED DEPRECIATION AT 60% THEREON IN THE COMPUTAT ION OF INCOME. AO HOWEVER, WAS OF THE VIEW THAT ASSESSEE HAS PURCH ASED SPECIFIC SOFTWARE LICENSE FOR USE OF RITECHOICE SPECTRUM-200 0 WHICH IS ONLY A LICENSE AND ACCORDINGLY TREATING IT AS INTANGIBL E ASSET ALLOWED DEPRECIATION AT 25% AS PER DEPRECIATION SCHEDULE. F URTHER HE WAS OF THE VIEW THAT SINCE ASSESSEE DID NOT UTILIZE FOR TH E FULL PERIOD TO CLAIM DEDUCTION AT 25%, HE ALLOWED 50% THEREOF AS A SSESSEE CAPITALIZED W.E.F. 31.12.2001 AND ACCORDINGLY ADDED BACK AN AMOUNT OF ` .35,62,650/- BEING EXCESS DEPRECIATION CLAIM ON ITA NOS.6762 7135 OF 2005 AND CO NO 186 OF 2006 HSBC SECURITIES & CAPITAL MARKETS INDIA LTD PAGE 11 OF 12 SOFTWARE PURCHASE. ASSESSEE BEING AGGRIEVED ALONG W ITH THE DISALLOWANCE OF SOFTWARE EXPENSES (GROUND 4 IN ASSE SSEE APPEAL) CONTESTED BEFORE THE CIT (A) THAT THE ENTIRE AMOUNT OF ` .40,60,000/- WAS ALLOWABLE AS REVENUE EXPENDITURE. THERE IS NO D ISPUTE BEFORE THE CIT (A) WITH REFERENCE TO THE RATE OF DEPRECIAT ION. THE CIT (A) NOTED THAT ASSESSEE HAD ACQUIRED A SOFTWARE KNOWN A S RITECHOICE SPECTRUM 2000 FROM RITECHOICE FOR ` .40,60,000/- COMPRISING THE BASIC PRICE OF ` .24,25,000/-, CUSTOMIZATION OF ` .7,35,000/- AND IMPLEMENTATION OF ` .4,00,000/-. HE FURTHER NOTED THAT THIS SOFTWARE IS USED FOR BACK OFFICE ACCOUNTING AND SETTLEMENTS BY HSBC FOR HANDLING STOCK BROKING. THE CIT (A) HOWEVER, CONSID ERING THE ISSUE WHETHER THE SAID EXPENDITURE IS REVENUE OR CAPITAL IN NATURE UPHELD AOS OPINION THAT PURCHASE OF THIS SOFTWARE CANNOT BE CONSIDERED AS REVENUE IN NATURE. IN THE PRESENT CROSS OBJECTION A SSESSEE IS CONTESTING THE ACTION OF AO STATING THAT THE CORREC T DEPRECIATION IS TO BE ALLOWED AT 60%. 28. WE HAVE HEARD THE LEARNED COUNSEL AND THE LEARNED D R. WE NOTICE FROM THE DEPRECIATION SCHEDULE APPLICABLE FO R A Y 2002-03 THAT THERE IS NO SPECIFIC HEADING FOR SOFTWARE EXPE NSES AS PART OF COMPUTER. THE SCHEDULE IN PART-A (III)(2B) CONTAINS ONLY COMPUTERS AT 60%. WITH EFFECT FROM AY 2003-04 ONWARDS PART II I (5) WAS MODIFIED AS UNDER: (5) COMPUTERS INCLUDING COMPUTER SOFTWARE 60% (SEE NOTE 7 BELOW TABLE) . NOTE 7 STATES THAT THE COMPUTER SOFTWARE MEANS ANY COMPUTER PROGRAMME RECORDED ON ANY DISK, TAPE OR ANY OTHER I NFORMATION STORAGE DEVICE. AS SEEN FROM THE FACTS OF THE CASE, ASSESSEE HAS PURCHASED SPECIFIC SOFTWARE WHICH WAS NOT SUPPLIED ALONG WITH THE COMPUTER. THEREFORE, THE PURCHASE OF SPECIFIC SOFTW ARE FOR USE IN THE BUSINESS CANNOT BE INCLUDED AS PART OF COMPUTERS AN D SINCE THERE IS NO SPECIFIC ITEM OF COMPUTER SOFTWARE IN THE DEP RECIATION SCHEDULE FOR THE IMPUGNED A Y 2002-03, WE ARE OF TH E OPINION THAT AO IS CORRECT IN TREATING THE COMPUTER SOFTWARE AS A LICENSE AND ALLOWING DEPRECIATION AT 25%. AS STATED EARLIER, A SSESSEE ALSO HAS ITA NOS.6762 7135 OF 2005 AND CO NO 186 OF 2006 HSBC SECURITIES & CAPITAL MARKETS INDIA LTD PAGE 12 OF 12 NOT CONTESTED THE ISSUE BEFORE THE CIT (A) WITH REF ERENCE TO THE RATE OF DEPRECIATION. IN VIEW OF THIS, WE ARE OF THE OPI NION THAT AO HAS CORRECTLY DETERMINED THE RATE OF DEPRECIATION AT 25 % FOR THIS YEAR. THE RELIANCE BY ASSESSEE ON THE DEPRECIATION SCHEDU LE IN THE LATER YEAR CANNOT HELP ITS CASE AS THE SAID 60% ON COMPUT ER SOFTWARE HAS BECOME PART OF THE DEPRECIATION SCHEDULE FROM A Y 2 003-04 ONWARDS. 29. IN THE RESULT CROSS OBJECTION NO.186/MUM/2006 FILED BY ASSESSEE IS DISMISSED. ASSESSEES APPEAL IN ITA NO. 6762/MUM/2005 IS PARTLY ALLOWED AND REVENUE APPEAL IN ITA NO. 7135/MUM/2005 IS PARTLY ALLOWED FOR STATISTICAL PUR POSES. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST OCTOBER, 2012. SD/- SD/- (I.P. BANSAL) (B. RAMAKOTAIAH) JUDICIAL MEMBER AC COUNTANT MEMBER MUMBAI, DATED 31 ST OCTOBER, 2012. VNODAN/SPS COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, F BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI