Appeal Details
Counselvise Citation
[2015] 140 COUNSELVISE.COM (IT) 99830 (ITAT-KOLKATA)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
4 year(s) 4 month(s) 24 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
29-09-2015
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
A
Assessment Year
2006-2007
Appeal Filed On
05-05-2011
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH A KOLKATA BEFORE SHRI, S.V. MEHROTRA, ACCOUNTANT MEMBER AND SHRI MAHAVIR SINGH, JUDICIAL MEMBER ITA NO. 670 / KOL / 2011 & ITA NO.677/KOL/2011 ASSESSMENT YEAR :2006-07 ITA NO. 676/KOL/2011 ASSESSMENT YEAR: 2007-08 M/S MILLENNIUM STOCK BROKING (P) LTD., 1, R.N. MUKHERJEE ROAD, 1 ST FL. ROOM NO. 9 KOLKATA 01 [ PAN NO. AACCM 2853 Q ] ITO, WARD-4(2), 8 TH FLOOR, P-7, CHOWRINGHEE SQUARE, KOL-69 M/S MILLENNIUM STOCK BROKING (P) LTD., R.N. MUKHERJEE ROAD, 1 ST FL. ROOM NO. 9, KOLKATA-01 V/S . V/S . V/S . DCIT CIRCLE-6, P-7, CHOWRINGHEE SQUARE KOLKATA 01 M/S MILLENNIUM STOCK BROKING PVT.4 TH FLOOR, 1, R.N.MUKHERJEE ROAD, KOLKATA-01 DCIT, CIRCLE-6, P-7, CHOWRINGHEE SQUAR, KOLKATA-01 /APPELLANT .. / RESPONDENT / BY ASSESSEE SHRI J.P.KHAITAN, SENIOR ADVOCATE SHRI ANIRBAN GHOSH, ADVOCATE /BY REVENUE SHRI PINAKI MUKHERJEE, JCIT-SR-DR /DATE OF HEARING 13-08-2015 /DATE OF PRONOUNCEMENT 29-09-2015 / O R D E R ITA NO.670, 676, 677/KOL/2011 A.YS. 2006-07 & 2007-08 M/S MILLENNIUM STOCK BROKING (P) V, DCUT CIR-6 KOL. PAGE 2 PER S.V.MEHROTRA, ACCOUNTANT MEMBER:- THESE THREE APPEALS TWO BY ASSESSEE AND ONE BY R EVENUE ARE AGAINST THE DIFFERENT ORDERS OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-VI KOLKATA DATED 28.02.2011 FOR THE ASSESSMENT YEARS 2 006-07 AND 2007-08 RESPECTIVELY. 2. BRIEF FACTS OF THE CASE ARE THAT IN THE RELEVANT ASSESSMENT YEAR 2006-07, THE ASSESSEE DERIVED INCOME FROM SHARE TRADING, JOB BING, ARBITRAGE, DERIVATIVE AND BROKERAGE ETC. IT FILED ITS RETURN OF INCOME OF RS.4,97,56,692/-. ASSESSEE HAD CLAIMED REBATE U/S 8E ON 30% (AVERAE RATE) ON S T INCOME OF RS.4,91,73,037/- OR STT PAID I.E. 1,80,13,120/-, WH ICH EVER WAS LESS. THE NON STT INCOME WAS RS.5,5,68,876/-. 2.1 THEREAFTER, THE CASE WAS REOPENED U/S 148 OF TH E INCOME TAX ACT, FOR ALLOWING INACCURATE REBATE OF CLAIM U/S 88E. THE AO IN THE ASSESSMENT ORDER U/S. 147/143(3) DATED 31-12-09 OF THE ACT HAS OBSER VED THAT THE STT PAID INCOME OF RS.4,91,73,037/- WAS COMPUTED BY ASSESSEE BY DEBITING EXPENSES OF RS.65,15,839/- FROM STT INCOME OF RS.5,56,88,876 /- (AS PER ASSESSEE). HE NOTED THAT ASSESSEE HAD ALLOCATED TOTAL EXPENSES OF RS.1,66,63,904/- IN THE RATIO OF 25% / 75% BASIS BETWEEN STT INCOME OF RS.5 5,688,876/- AND NON- STT INCOME OF RS.1,07,31,720/-. HE OBSERVED THAT AS SESSEE FAILED TO EXPLAIN LOGIC OF SUCH EXPENSE ALLOCATION TO ARRIVE AT THE S TT INCOME FOR THE PURPOSE OF REBATE U/S. 88E CALCULATION AND, THEREFORE, REOPENI NG WAS MADE. 2.2. BRIEF FACTS LEADING TO REOPENING ARE LIKE THI S: THE ORIGINAL ASSESSMENT WAS COMPLETED AS UNDER:- RS. RS. NET PROFIT AS PER P & L A/C PAID 3,17,75,642/ - ADD; 1] STT 1,80,13,120/- 2] DEPRECIATION [TO BE CONSIDERED SEPARATELY] 4,86,205/- ITA NO.670, 676, 677/KOL/2011 A.YS. 2006-07 & 2007-08 M/S MILLENNIUM STOCK BROKING (P) V, DCUT CIR-6 KOL. PAGE 3 3] PRELIMINARY EXP. 10,702/- 4] DONATION 3,000/- ADD: AS DISCUSSED ABOVE: A] U/S 14A 1,500/- B] EXPENSES 27,892/- 29,392/- 5,03,18,061 LESS: DIVIDEND [EXEMPT] 29,97 4/- DEPRECIATION [AS PER I.T. RULES] 5,02,003/- 5,31,977/- TOTAL INCOM E 4,97,86,084/- R.O. RS.4,97,86,080/- CALCULATIN OF TAX INCOME TAX THEREON 1,49,35,824/- LESS: REBATE U/S. 8E @ 30% OF RS.4,91,73,037/- 1,47,51,911/- [ACTUAL PAID RS.1,80,13,120/-] TAX ON NON-STT INCOME OF RS.6,13,047/- @ 3 0% 1,83,914/- ADD: S.C @ 10% 18,391/- ADD: EDUCATION 2% 4,046/- 2,06,351/- LESS : T.D.S. 2,02,900/- PAYABLE 3,451/- 2.3 HE OBSERVED THAT OUT OF TOTAL INCOME OF RS.5,85 ,71,389/- FOLLOWING WAS THE BREAK UP OF NON-STT AND STT INCOME:- BROKERAGE RS. 98,45,114 SHARE DERIVATIVE 47 809695 INTEREST RS. 9,16,580 STT 47809695 NON-STT RS. 1,07,61,694 2.4 HE FURTHER POINTED OUT THAT OUT OF TOTAL EXPENS ES DEBITED TO THE PROFIT AND LOSS ACCOUNT OF RS.3,46,74,928/-, EXPENSES RELATED TO STT INCOME WERE AT RS.3,26,07,206/- AND RS.20,67,722/- RELATED TO BOTH STT INCOME AND NON-STT INCOME. THE ASSESSING OFFICER DETERMINED THE COMMON EXPENSES ATTRIBUTABLE TO NON-STT INCOME AS UNDER:- RS.(1,07,61,694) X RS.20,67,722 RS.5,85,71,389/- RS.98,45,114 + RS.9,16,580 RS.3,79,916 ITA NO.670, 676, 677/KOL/2011 A.YS. 2006-07 & 2007-08 M/S MILLENNIUM STOCK BROKING (P) V, DCUT CIR-6 KOL. PAGE 4 2.5 THEREFORE, NET NON-STT INCOME WAS ARRIVED AT RS .1,03,81,778/- AS UNDER:- (RS.98,45,114 + RS.9,16,580) RS.3,79,516 = RS.1, 03,81,778/- 2.6 HE, ACCORDINGLY DETERMINED NON-STT AT RS.1,03, 81,778/- AND STT INCOME AT RS.1,03,81,778/-, OUT OF TOTAL ASSESSED I NCOME OF RS.4,98,04,282/-. REBATE U/S.88E WAS ALLOWED AT RS.11826751 BEING 30% OF RS.3,94,22,505/-. AGGRIEVED, ASSESSEE WENT IN APPEAL BEFORE LD. CIT(A ). 3. BEFORE LD. CIT(A) THE ASSESS HAD ASSAILED THE RE OPENING ON THE GROUND THAT OBJECTIONS OF THE ASSESSEE HAD NOT BEEN DISPOS ED OFF. LD. CIT(A) DID NOT ACCEPT THE ASSESSEES PLEA, INTER ALIA, OBSERVING T HAT ASSESSING OFFICER HAD DISPOSED OFF THE OBJECTION BY POINTING OUT DEFECT I N ORIGINAL ASSESSMENT. ON MERITS, ASSESSEE EXPLAINED THE CALCULATION U/S. 88E AS UNDER:- THE DETAIL OF APPELLANT RETURNED INCOME IS AS BELO W: BUSINESS AMOUNT SHARE TRADING 4605962 JOBBING, ARBITRAGE DEALINGS 2856925 F/O PROFIT 53939839 BROKERAGE/OTHERS 10731720 EXPENSES AS PER RETURNED OF INCOME (16663904) RETURNED INCOME 49756692 THE EXPENSES WERE BIFURCATED ON OVERALL BUSINESS AN D ACTUAL IN THE UNDER MENTIONED BASIS PARTICULARS OWN CLIENT TOTAL REMARKS TRANSACTIONS CHARGES 7464182 2488061 99522443 75: 25 TERMINAL OPERATING CHGS. 1095649 365216 1460865 75:25 DEPOSITORY CHARGES 184060 61353 245413 75:25 ELECTRICITY CHARGES 64857 21619 86476 75:25 FEES & SUBSCRIPTION 283391 94464 377855 75:25 DEPRECIATION 276102 225901 502003 55:45 OTHERS (AS PER P/L & COMPUTATION ETC.) 4523 4034526 4039049 ACTUAL ITA NO.670, 676, 677/KOL/2011 A.YS. 2006-07 & 2007-08 M/S MILLENNIUM STOCK BROKING (P) V, DCUT CIR-6 KOL. PAGE 5 9372764 7291140 16663904 THE APPELLANT BROUGHT TO THE NOTICE OF AO THE CIRCU LARS OF CBDT, PROVISIONS OF ACT, ITR 6 AND FURNISHED THE FOLLOWIN GS: A) STT INCOME 58545801 LESS: EXPENSES ETC. 9372764 49173037 B) NON STT INCOME 10731720 LESS: EXPENSES ETC. 7291140 LESS: SET OFF U/S 70 2856925 583655 3.1 THE FIRST CONTENTION OF THE ASSESSEE WAS THAT O UT OF THE EXPENSES DEBITED TO THE PROFIT AND LOSS ACCOUNT UNDER HEAD OTHERS, OF RS.40,39,049/-, THE SUM PERTAINING TO CLIENTS ACCOUNT WAS AT RS.40,34,526/ - AND ON OWN ACCOUNT WAS ONLY RS.4,523/-. THE ASSESSEE HAD GIVEN THE JUSTIFI CATION IN THE FOLLOWING MANNER WE HAVE TO STATE THAT OUR BASIC WORK IS CARRYING O F BROKERAGE BUSINESS IN THE NATIONAL STOCK EXCHANGE. IF OUR INTENTION HA D BEEN TO DO BUSINESS ON OWN ACCOUNT WE COULD HAVE APPROACHED VA RIOUS BROKERAGE HOUSES AND THAT WOULD HAVE BEEN EASY PROPOSITION AS WELL COMFORTABLE FOR US IN ALL FRONTS. IT MAY NOT BE OUT OF PLACE TO MENTION THAT IN ORDER TO DO BROKERAGE BUSINESS BASIC MINIMUM ESTABLISHMENT / OFFICE / INFRASTRUCTURE HAS TO BE MAINTAINED TOGETHER WITH T HE PARAPHERNALIAS UNIQUE TO CARRYING ON THE BUSINESS IN THE ON LINE E NVIRONMENT IN WHICH IT WORKS. THE VARIOUS EXPENSES OF VSAT & LEASE LINE CH ARGES, REPAIR & MAINTENANCE, PRINTING & STATIONARY, STAMP EXPENSES ON BROKERAGE, BANK CHARGES, SALARY & BONUS ETC., BOOKS & PERIODICALS, RENT & MAINTENANCE CHARGES, RATES & TAXES, INSURANCE, TELE PHONE, MISC. EXPENSES, AUDIT FEES ETC., ARE VERY MUCH PART AND P ARCEL OF CARRYING ON BROKERAGE BUSINESS. THE SAME HAVE TO BE INCURRED IR RESPECTIVE OF THE BUSINESS GENERATED ON ACCOUNT OF BROKERAGE AND IS D IRECTLY ATTRIBUTABLE TO BROKERAGE BUSINESS. THE CLIENTS CAN BE CATERED I N THE AFORESAID ENVIRONMENT ONLY WHO CONDUCTS BUSINESS THROUGH US A S WELL AS WHO SEEKS REGULAR ADVICE / MEETING WITH US. THE SAME IS ON GOING PROCESS WHICH LASTS THROUGH OUT THE FINANCIAL YEAR. WE CATE GORICALLY STATE THAT SUBSTANTIAL EXPENDITURES UNDER VARIOUS AFORESAID HE ADS ARE TO BE INCURRED FOR MAINTAINING THE STRUCTURE OF STOCK BRO KING BUSINESS AS WELL AS CARRYING OF BROKERAGE BUSINESS AND THE AFORESAID FACTS CANNOT BE DISPUTED IN THE SCENARIO OF TECHNOLOGICAL AD SYSTEM IC DEVELOPMENT IN STOCK MARKETS. IN A NUTSHELL MAINTAINING OF STRUCTU RE OF BUSINESS AS WELL AS CARRYING OF BROKERAGE BUSINESS THUS ENTAILS SUBS TANTIAL EXPENDITURES. EXPENSES ARE ALLOCATE DONE THE BASIS OF OVERALL BUS INESS AND ACTUAL FOR REBATE U/S. 88E. ITA NO.670, 676, 677/KOL/2011 A.YS. 2006-07 & 2007-08 M/S MILLENNIUM STOCK BROKING (P) V, DCUT CIR-6 KOL. PAGE 6 4. THE SECOND DISPUTE WAS IN REGARD TO LOSS OF RS. 28,56,925/- FROM JOBBING AND ARBITRAGE DEALINGS WHICH HAD BEEN SET O FF BY ASSESSEE AGAINST NON-STT INCOME ON THE GROUND THAT IT WAS NON STT IN COME. LD. CIT(A) DID NOT ACCEPT THIS PLEA OBSERVING AS UNDER:- HOWEVER, IT IS SEEN THAT THE JOBBING AND ARBITRAGE TRANSACTIONS OF THE ASSESSEE VERY MUCH INVOLVE PAYMENT OF SIT BY THE AS SESSEE. THEREFORE, THERE IS NO DOUBT THAT THE INCOME/ LOSS FROM JOBBING AND ARBITRAGE DEALING IS A PART OF THE SIT RELATED TRAN SACTIONS. THEREFORE, THE LOSS OF RS.28,56,925/- FROM THESE DEALINGS HAVE TO BE CONSIDERED IN THE CALCULATION OF STT RELATED INCOME. 4.1. THUS, LD. CIT(A) OBSERVED THAT ALLOCATION AS D ONE IN AN ARBITRARY MANNER. DURING APPEAL PROCEEDINGS ASSESSEE WAS REQU IRED TO PROVIDE DETAILS ABOUT THE VOLUME OF TRANSACTIONS DONE BY THE ASSESS EE ON ITS OWN ACCOUNT AND ON ACCOUNT OF ITS CLIENTS FROM WHICH IT TRANSP IRED AS UNDER:- OWN TRANSACTIONS RS.249141541578.47 CLIENT TRANSACTIONS RS.51113102336.90 4.2. HE, ACCORDINGLY, OBSERVED THAT 83% OF THE TRAN SACTIONS WERE ASSESSEES OWN TRANSACTIONS AND ONLY 17% WERE TRANSACTIONS BEL ONGING TO THE CLIENTS. THUS, HE OBSERVED THAT THE SUBSTANTIAL PORTION OF T HE TRANSACTIONS WERE ASSESSEES OWN TRANSACTION AND IT WAS WRONG FOR THE AE TO CLAIM THAT IT MAINLY MAINTAIN ITS ESTABLISHMENT FOR ITS CLIENTS. HE POIN TED OUT THAT OUT OF TE TOTAL EXPENSES, OTHER THAN THE STT CHARGES DEBITED IN THE PROFIT AND LOSS ACCOUNT ONLY THE EXPENSES FOR STAMP DUTY CHARGES AMOUNTING TO RS.22,31,939/- COULD BE SAID TO BE FULLY RELATED TO CLIENTS TRANSACTION S. ALL REMAINING EXPENSES HAD BEEN INCURRED BOTH FOR ASSESSEES OWN TRANSACTIONS AS WELL AS THE TRANSACTIONS OF THE CLIENTS. THEREFORE, OUT OF TOTA L EXPENSES OF RS.1,66,63,904/-, THE COMMON EXPENSES WERE AT RS.1, 44,31,965/- (1,66,63,904 22,31,939) AND THESE HAD TO BE APPOR TIONED BETWEEN THE STT AND NON-STT INCOME WHICH HE ALLOCATED IN THE RATIO 83% TO 17% OF THE COMMON EXPENSES AMOUNTING TO RS.24,53,434/- RELATED TO NON-STT INCOME. HE COMPUTED NET STT AND NON-STT INCOME AS UNDER:- STT INCOME RS.5,85,45,801 ITA NO.670, 676, 677/KOL/2011 A.YS. 2006-07 & 2007-08 M/S MILLENNIUM STOCK BROKING (P) V, DCUT CIR-6 KOL. PAGE 7 LESS: JOBBING & ARBITRAGE LOSS RS.28,56,925 LESS: RELATED EXP. RS. 1,19,78,531 NET STT INCOME RS.4,37,10,343 NON STT INCOME RS.1,07,31,720 LESS: RELATED EXP. RS.24,53,434 DIRECT NON STT EXP. RS.22,31,939 NET NON STT INCOME RS.60,46,347 4.3 THUS, LD. CIT(A) COMPUTED THE REBATE U/S 88E AT RS.1,31,13,103/- AS AGAINST RS.1,18,26,751/- ALLOWED BY AO IN REASSESSM ENT PROCEEDINGS. 5. BEING AGGRIEVED, ASSESSEE IS IN APPEAL BEFORE US AGAINST THE ORDER OF LD. CIT(A) NOT ALLOWING SET OFF OF ARBITRAGE / JOBB ING LOSS OF RS.28,56,925/- AGAINST NON-STT INCOME AND REVENUE IS IN APPEAL BEF ORE US AS LD. CIT(A) ALLOWED EXCESS REBATE OF RS.12,86,352/- U/S.88E OF THE ACT. 6. FIRST WE TAKE UP ASSESSEES APPEAL RAISING THE F OLLOWING GROUNDS OF APPEAL:- 1) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE CIT(A) ERRED IN CONCLUDING THAT PROCEEDINGS U/S. 147 INITIATED BY T HE AO, RECORDED REASON AS WELL AS COMPLETING THE ASSESSMENT WAS AS PER LAW. 2) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE CIT(A) ERRED IN NOT SETTING OFF THE ARBITRAGE/JOBBING LOSS OF RS.28 56925/- FROM NON STT BUSINESS INCOME AS CLAIMED AND AS PER OPTION EXERCI SED BY THE APPELLANT. 3) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE CIT(A) ERRED IN IGNORING THE PROVISION OF SECTION 70 AND SETTLED LA W AND FACTS AND APPELLANT/S CONTENTIONS WHILE CALCULATING STT BUSIN ESS INCOME/NON STT BUSINESS INCOME AND REBATE U/S 88E. 7. VIDE GROUND NO.1 ASSESSEE CHALLENGES THE VALIDIT Y OF INITIATION OF PROCEEDINGS U/S. 147 OF THE ACT LD. COUNSEL REFERRE D TO PAGE 21 OF PAPER BOOK WHEREIN REASONS FOR REOPENING DATED 12-11-2009 ARE CONTAINED AND POINTED OUT THAT THE SAME DOES NO REFER TO ANY ESCAPEMENT O F INCOME BUT ALLOWING OF EXCESS REBATE. LD. COUNSEL SUBMITTED THAT REBATE U/ S 88E DEPENDS ON INCOME DETERMINED. HE SUBMITTED THAT ASSESSEES INCOME REM AINS UNALTERED AND, THEREFORE, THERE WAS NO 4ESCAPEMENT OF INCOME. HE R EFERRED PAGES 29 AND 30 ITA NO.670, 676, 677/KOL/2011 A.YS. 2006-07 & 2007-08 M/S MILLENNIUM STOCK BROKING (P) V, DCUT CIR-6 KOL. PAGE 8 OF THE PAPER BOOK FILED BY ASSESSEE WHEREIN THE FOR M NO. 10DB IS CONTAINED TO DEMONSTRATE THAT STT WAS PAID ON ASSESSEES OWN TRANSACTIONS. HE RELIED THE FOLLOWING CASE LAWS:- A) BAIJNATH SABOO AND OTHERS V. ITO AND OTHERS 113 ITR 303 (CAL) B) CIT V. BIRLA JAN KALYAN TRUST 190 ITR 351 (CAL) C) CIT V. BOMBAY GAS CO. LTD 120 ITR 822 (BOM) 7.1 LD. COUNSEL FURTHER POINTED OUT THAT IT IS A CA SE OF CLEAR CHANGE OF OPINION. 8. LD. DR REFERRED TO EXPLANATION-2 CLAUSE(E) OF (I II) / (IV) TO SECTION 147 AND POINTED OUT THAT ASSESSEE HAS BEEN ALLOWED EXCE SSIVE RELIEF AND, THEREFORE, IT IS CLEARLY COVERED BY THE DEEMING PRO VISION OF SECTION 147 OF THE ACT. HE POINTED OUT THAT NO OPINION WAS FORMED BY A O IN ORIGINAL ASSESSMENT ON VARIOUS ASPECT IN REGARD TO DETERMINATION OF STT INCOME AND NON-STT INCOME AS PER THE PROVISION OF U/S 88E. 9. WE HAVE CONSIDERED THE SUBMISSION OF BOTH THE PA RTIES AND HAVE PERUSED THE RECORD OF THE CASE. AS FAR AS THE FIRST PROPOSITION ADVANCED BY LD. COUNSEL FOR THE ASSESSEE THAT THERE IS NO ESCAPEMEN T OF INCOME, IS CONCERNED, WE DO NOT FIND ANY MERIT IN THE SAME. AS PER THE DEEMING PROVISIONS CONTAINED IN EXPLANATION TO SECTION 147, IF THE INCOME HAS BEEN SUBJECTED TO EXCESSIVE RELIEF UNDER ACT THEN ALSO I T IS DEEMED THAT THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. IN THE OR IGINAL PROCEEDINGS, AO MERELY ACCEPTED ASSESSEES CLAIM WITHOUT EXAMINING THE RELEVANT DETAILS WHETHER ANY INCOME COMES UNDER STT INCOME OR NON ST T INCOME AND, FURTHER, DETAILS REGARDING ALLOCATION OF EXPENSE BE TWEEN STT AND NON-STT, WERE NOT AVAILABLE BEFORE THE AO. HE HAD ONLY ACCEP TED THE COMPUTATION WITHOUT EXAMINING THE CORRECT LEGAL POSITION U/S. 8 8E. IF A CLAIM IS NOT LEGALLY SUSTAINABLE AND REASSESSMENT PROCEEDINGS HAVE BEEN INITIATED IN ORDERED TO ARRIVE AT THE CORRECT TAXABLE INCOME ON WHICH THE R EBATE IS ADMISSIBLE, THEN IT CANNOT BE SAID TO A CASE OF CHANGE OF OPINION BECAU SE IF THE LAW HAS NOT ITA NO.670, 676, 677/KOL/2011 A.YS. 2006-07 & 2007-08 M/S MILLENNIUM STOCK BROKING (P) V, DCUT CIR-6 KOL. PAGE 9 CORRECTLY BEEN APPLIED THEN THE SAME CANNOT BE EQUA TED WITH A SITUATION WHERE TWO VIEWS ARE POSSIBLE. FOR ALLOWING PROPER R EBATE U/S 88E, TOTAL INCOME ARISING FROM TAXABLE SECURITY TRANSACTION HA D TO BE COMPUTED. THE AO RECORDED THESE REASONS AFTER ARRIVING AT A CONCLUSI ON THAT STT RELATED INCOME WAS CALCULATED EXCESSIVELY WITH REGARD TO ALLOCATIO N OF EXPENSES LEADING TO EXCESSIVE REBATE U/S.8E. WE ARE OF THE OPINION THAT IT IS NOT A CASE OF CHANGE OF OPINION BUT A CASE WHERE LEGAL POSITION WITH REG ARD TO REBATE U/S. 88E HAD NOT CORRECTLY BEEN APPLIED TO THE ACTS OF THE CASE, WHICH RESULTED IN GRANTING EXCESSIVE REBATE OF INCOME TAX. WE, ACCORDINGLY, UP HOLD THE ORDER OF LD. CIT(A) IN SUSTAINING THE INITIATION OF REASSESSMENT PROCEEDINGS. THIS GROUND OF ASSESSEE IS DISMISSED. 10. NOW COMING TO THE MERITS OF THE CASE. THE FIRST DISPUTE RAISED BY LD. COUNSEL IN COURSE OF HEARING IS REGARDING ALLOCATIO N OF ESTABLISHMENT EXPENSES INCURRED BY ASSESSEE. BEFORE, WE PROCEED T O CONSIDER THIS ASPECT, WE MAY POINT OUT THAT ASSESSEE HAS NOT TAKEN ANY GR OUND ON THIS ISSUE, BUT IN COURSE OF HEARING LD. SENIOR COUNSEL RAISED THIS IS SUE. SINCE THE ISSUE ARISES FROM LD. CIT(A)S ORDER AND ALL FACTS ARE THERE ON RECORD, WE PROCEED TO DECIDE THIS ISSU9E UNDER RULE 27 OF THE ITAT RULES. THE AS SESSEES CLAIM WAS THAT ESTABLISHMENT EXPENSES WERE MAINLY INCURRED ON BEHA LF OF CLIENTS FROM WHOM THE NON-STT INCOME WAS EARNED AND, THEREFORE, THE E XPENSES HAD BEEN ALLOCATED TOWARDS NON-STT INCOME WHEREAS LD. CIT(A) HAS ALLOCATED 83% OF EXPENSES TOWARDS STT TRANSACTIONS, WHICH WERE ON AS SESSEES OWN ACCOUNT, AFTER CONSIDERING THE RATIO OF TURNOVER OF STT TRAN SACTIONS TO NON-STT TRANSACTIONS. LD. SR. COUNSEL FOR THE ASSESSEE POIN TED OUT THAT IN SUBSEQUENT YEAR THE AO HIMSELF HAS ALLOCATED ONLY 15% OF THE E STABLISHMENT EXPENSES TOWARDS OWN TRANSACTIONS RESULTING INTO STT INCOME. 10.1 LD. DR HAS SUBMITTED THAT MERELY BECAUSE IN SU BSEQUENT YEAR THE AO HAS ACCEPTED 15% EXPENSES TOWARDS STT TRANSACTIONS THAT CAN NOT AUTOMATICALLY BE APPLIED FOR CURRENT YEAR. AFTER CO NSIDERING SUBMISSIONS OF ITA NO.670, 676, 677/KOL/2011 A.YS. 2006-07 & 2007-08 M/S MILLENNIUM STOCK BROKING (P) V, DCUT CIR-6 KOL. PAGE 10 BOTH THE PARTIES AND TAKING INTO CONSIDERATION THE EXPLANATION REPRODUCED EARLIER, WE ARE OF THE OPINION THAT THERE IS CONSID ERABLE FORCE IN THE ARGUMENT OF LD. COUNSEL OF ASSESSEE THAT ASSESSEE COULD ENTE R INTO OWN TRANSACTIONS EVEN WITHOUT HAVING SUCH HUGE INFRASTRUCTURE. HOWEV ER, IT CANNOT BE IGNORED THAT CONSIDERING THE VOLUME OF ASSESSEES TRANSACTI ON, SOME INFRASTRUCTURE WAS VERY MUCH REQUIRED. IN OUR OPINION, ENDS OF JUS TICE WOULD BE MET IF 25% OF THE ESTABLISHMENT EXPENSES ARE ALLOCATED TOWARDS AS SESSEES OWN TRANSACTIONS AND 75% ARE ALLOCATED TOWARDS CLIENTS TRANSACTION (NON-STT INCOME) IN RESPECT OF ESTABLISHMENT EXPENSES. ON OT HER EXPENSES THERE IS NO DISPUTE. 11. NOW THE SECOND ISSUE IS REGARDING THE SET OFF B EING CLAIMED U/S 70 OF THE ACT IN REGARD TO LOSS INCURRED BY ASSESSEE ON A CCOUNT OF ARBITRAGE AND JOBBING TRANSACTIONS ON WHICH ADMITTEDLY STT WAS PA ID. ASSESSEES CONTENTION IS THAT IT IS ENTITLED TO SET OFF THE LO SS FROM JOBBING / ARBITRAGE TRANSACTION AGAINST THE NON-STT TRANSACTION FOR COM PUTING REBATE U/S 88E. IN THIS REGARD, LD. COUNSEL FOR ASSESSEE RELIED ON THE CASE LAW IN THE CASE OF CIT V. K.L. VARADARAJAN 75 ITR 23 (MAD) AND IN THE CASE OF CIT V. B.K. BIRLA 174 ITR 361 (CAL). 12. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AT LENGTH. THE CONTENTION OF LD. DR IS THAT SECTION 88E IS A SPECI FIC PROVISION AND, THEREFORE, IT HAS TO BE GIVEN PREFERENCE OVER OTHER PROVISIONS AND THE COMPUTATION HAD TO BE MADE AS CONTEMPLATED UNDER THAT SECTION. IN ORDE R TO APPRECIATE THE CONTROVERSY, WE REPRODUCE SECTION 88E: [REBATE IN RESPECT OF SECURITIES TRANSACTION TAX. 88E.(1) WHERE THE TOTAL INCOME OF AN ASSESSEE IN A PREVIOUS YEAR INCLUDES ANY INCOME, CHARGEABLE UNDER THE HEAD PRO FITS AND GAINS OF BUSINESS OR PROFESSION, ARISING FROM TABLE SECURIT IES TRANSACTIONS, HE SHALL BE ENTITLED TO A DEDUCTION, FROM THE AMOUNT O F INCOME-TAX ON SUCH INCOME ARISING FROM SUCH TRANSACTIONS, COMPUTED IN THE MANNER PROVIDED IN SUB-SECTION (2), OF AN AMOUNT EQUAL TO THE SECURITIES TRANSACTION TAX PAID BY HIM IN RESPECT OF THE TAXAB LE SECURITIES TRANSACTIONS ENTERED INTO IN THE COURSE OF HIS BUSI NESS DURING THAT PREVIOUS YEAR: ITA NO.670, 676, 677/KOL/2011 A.YS. 2006-07 & 2007-08 M/S MILLENNIUM STOCK BROKING (P) V, DCUT CIR-6 KOL. PAGE 11 PROVIDED THAT NO DEDUCTION UNDER THIS SUB-SECTION SHALL BE A LLOWED UNLESS THE ASSESSEE FURNISHED ALONG WITH THE RETURN OF INCOME, EVIDENCE OF PAYMENT OF SECURITIES TRANSACTION TAX I N THE PRESCRIBED FORM : PROVIDED FURTHER THAT THE AMOUNT OF DEDUCTION UNDER THIS SUB -SECTION SHALL NOT EXCEED THE AMOUNT OF INCOME-TAX ON SUCH I NCOME COMPUTED IN THE MANNER PROVIDED IN SUB-SECTION (2). (2) FOR THE PURPOSES OF SUB-SECTION (1), THE AMOUNT OF INCOME-TAX ON THE INCOME ARISING FROM THE TAXABLE SECURITIES TRAN SACTIONS, REFERRED TO IN THAT SUB-SECTION, SHALL BE EQUAL TO THE AMOUNT C ALCULATED BY APPLYING THE AVERAGE RATE OF INCOME- TAX ON SUCH INCOME. [(3) NO DEDUCTION UNDER THIS SECTION SHALL BE ALLOW ED IN, OR AFTER, THE ASSESSMENT YEAR BEGINNING ON THE 1 ST DAY OF APRIL, 2009.] EXPLANATION.-FOR THE PURPOSES OF THIS SECTION, THE EXPRESSIONS, TAXABLE SECURITIES TRANSACTION AND SECURITIES TRANSACTION TAX SHALL HAVE THE SAME MEANINGS RESPECTIVELY ASSIGNED TO THEM UNDER C HAPTER VII OF THE FINANCE (NO 2) ACT, 2004.] 12.1. A BARE PERUSAL MAKES IT CLEAR THAT THE SECTI ON HAS FOLLOWING INGREDIENTS (A) TOTAL INCOME OF ASSESSEE INCLUDES THE INCOME CH ARGEABLE UNDER THE HEAD PROFIT AND GAINS OF BUSINESS (B) SUCH INCOME IS ARI SING FROM TAXABLE SECURITIES TRANSACTIONS; (C) DEDUCTION UNDER THE SECTION IS AL LOWABLE FROM THE AMOUNT OF INCOME TAX ON SUCH INCOME ARISING FROM SUCH TRANSAC TION. THUS, THE TOTAL INCOME USED IN THIS SECTION CANNOT BE GIVEN A GENER AL MEANING AND HAS TO BE ASCRIBED THE MEANING AS CONTEMPLATED IN THE CONTEXT IN WHICH SECTION 88E HAS BEEN INSERTED BY THE FINANCE ACT 2004 WITH EFFE CT FROM 1.4.2005. THE OBJECT OF SECTION 88E CLEARLY IS TO PROTECT THE ASS ESSEE FROM DOUBLE TAXATION. FIRSTLY, BY WAY OF PAYMENT OF STT AND SECONDLY BY W AY OF INCOME TAX ON THE INCOME EARNED FROM STT TRANSACTION. THE CONCEPT OF TOTAL INCOME AS CONTEMPLATED UNDER SECTION 2 SUB-SECTION (45) CANNO T BE IMPUTED HERE. THE OPENING WORDS OF SECTION 2 DEALING WITH THE DEFINIT ION ARE THAT UNLESS THE CONTEXT OTHERWISE REQUIRES. THEREFORE, THE TOTAL IN COME AS CONTEMPLATED U/S 88E IS NOT SAME AS CONTEMPLATED U/S 2(45). IT HAS B EEN CONSIDERED IN ENTIRELY DIFFERENT CONTEXT IN SECTION 88E. THE TERM TOTAL I NCOME AS INTERPRETED BY ITA NO.670, 676, 677/KOL/2011 A.YS. 2006-07 & 2007-08 M/S MILLENNIUM STOCK BROKING (P) V, DCUT CIR-6 KOL. PAGE 12 VARIOUS DECISIONS RELIED UPON BY LD. COUNSEL CANNOT BE MADE APPLICABLE TO THE FACTS OF THE CASE WHICH IS IN CONTEXT TO SECTION 88 E. THEREFORE, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A ) IN HOLDING THAT BUSINESS LOSS OCCURRED ON ARBITRAGE AND JOB WHICH WERE STT P AID TRANSACTIONS COULD NOT BE ADJUSTED AGAINST THE NON-STT TRANSACTION BEL ONGING TO CLIENTS. IT HAD TO BE DEDUCTED FROM STT PAID TRANSACTIONS ONLY ON ASSE SSEES OWN ACCOUNT. THERE IS ONE MORE REASON. THE REBATE U/S. 88E IS AL LOWABLE FROM THE TAX PAID. HOWEVER, IN CASE OF ARBITRAGE LOSS ASSESSEE HAD ADM ITTEDLY NOT PAID ANY INCOME TAX. THEREFORE, IF ASSESSEES PLEA IS ACCEPT ED THEN IT WOULD LEAD TO DOUBLE RELIEF TO ASSESSEE FIRSTLY, BY ALLOWING SE T OFF U/S 70 AGAINST STT INCOME AND THEN ALLOWING REBATE FROM INCOME-TAX. TH IS IS DEFINITELY NOT THE INTENTION OF LEGISLATURE. WE ACCORDINGLY DO NOT FIN D ANY REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A) AND GROUND TAKEN BY ASSESSE E IS DISMISSED. COMING TO REVENUES APPEAL IN ITA NO. 677/KOL/2011 13. THE REVENUE HAS TAKEN FOLLOWING GROUND OF APPEA L:- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , LD. CIT(A)-VI, KOLKATA HAS ERRED IN LAW AS WELL AS ON THE FACTS BY ALLOWING EXCESS REBATE OF RS.12,86,352/- U/S.88E OF THE ACT TO THE ASSESSEE THOUGH THE AO HAS CALCULATED THE SAME IN A CORRECT MANNER. 14. WE FIND THAT AO HAD COMPUTED STT INCOME OF RS. 4,78,09,695/- WHICH WAS RECTIFIED BY LD. CIT(A) BY OBSERVING AS UNDER:- AS REGARDS THE CALCULATION DONE BY THE AO I FIND THAT IT IS ERRONEOUS BECAUSE WHILE TAKING STT INCOME OF RS.4,78,09,695/- . FROM THE GP CALCULATION SHEET THE AO FORGOT TO ADD THE VALUE OF CLOSING STOCK OF RS.78,79,181/-. THOUGH IN THE DIRECT EXPENSES HE IN CLUDED THE VALUE OF OPENING STOCK OF RS.99,52,243/-. EVEN IN RESPECT OF ALLOCATION OF EXPENSES BETWEEN ST AND NON-STT INCOME I AM OF THE VIEW THAT EXCEPT FOR FEW DIRECT EXPENSES AS DISCUSSED ABOVE T HE BEST WAY TO ALLOCATE THE REMAINING COMMON EXPENSES SIS TO DO SO N THE RATIO OF THE VOLUME OF TRANSACTIONS FOR STT INCOME (OWN TRANSACT ION) AND NON-STT INCOME (CLIENTS TRANSACTION). THEREFORE I DO NOT A GREE WITH THE METHOD OF CALCULATION ADOPTED BY THE AO. THUS WITH NET STT INCOME OF RS.4,37,10,345/- THE RE BATE ALLOWABLE U/S 88E WILL BE 0.30 X 4,37,10,345 = RS.1,31,13,103/- A S AGAINST THE REBATE ITA NO.670, 676, 677/KOL/2011 A.YS. 2006-07 & 2007-08 M/S MILLENNIUM STOCK BROKING (P) V, DCUT CIR-6 KOL. PAGE 13 OF RS.1,18,26,751/- ALLOWED BY THE AO IN THE REASSE SSMENT PROCEEDINGS. 14.1. LD. DR HAS NOT BEEN ABLE TO POINT OUT ANY MI STAKE IN THE COMPUTATION MADE BY LD. CIT(A) AND, THEREFORE, WE DO NOT FIND A NY REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A). THIS GROUND OF REVENUES A PPEAL IS DISMISSED. COMING TO ASSESSEES APPEAL IN ITA NO.676/KOL/2011. 15. THE ASSESSEE HAS TAKEN FOLLOWING GROUND:- 1) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE CIT(A) ERRED IN NOT SETTING OFF THE ARBITRAGE/JOBBING LOSS OF RS.45 20558/- FROM NON STT BUSINESS INCOME AS CLAIMED AND AS PER OPTION EXERCI SED BY THE APPELLANT. 2) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE CIT(A) ERRED IN IGNORING THE PROVISION OF SECTION 70 AND SETTLED LA W AND FACTS AND APPELLANTS CONTENTIONS WHILE CALCULATING STT BUSIN ESS INCOME/NON STT BUSINESS INCOME AND REBATE U/S 88E. 16. WE HAVE CONSIDERED THE ISSUE INVOLVED IN ASSESS EES OWN CASE IN ITA NO.670/KOL/2011 FOR AY 2006-07 AND, THEREFORE, FOR THE REASONS GIVEN THEREIN, CONFIRM THE ORDER OF LD. CIT(A) AND THIS ISSUE OF A SSESSEES APPEAL IS DISMISSED. 17. IN THE RESULT, APPEALS OF BOTH ASSESSEE AS WELL AS REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT 29 /09/2015 SD/- SD/- (MAHAVIR SINGH) (S.V.MEHROTRA) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) KOLKATA, ORDER PRONOUNCED IN OPEN COURT 29/091 5 SD/- SD/- M.S. W.A (J.M. (A.M) *DKP '- 29/09/2015 ITA NO.670, 676, 677/KOL/2011 A.YS. 2006-07 & 2007-08 M/S MILLENNIUM STOCK BROKING (P) V, DCUT CIR-6 KOL. PAGE 14 / COPY OF ORDER FORWARDED TO:- 1. /ASSESSEE- M/S MILLENNIUM STOCK BROKING (P) 1, R.N. MUKHERJEE ROAD 1 ST FLOOR, ROOM NO. 9 KOLKATA-01 2. REVENUE- ITO, WD-4(2) / DCIT CIRCLE-6 8 TH FLOOR, P-7, CHOWRINGHEE SQUARE KOLKATA 700 069 3. / 1 / CONCERNED CIT KOLKATA 4. 1- / CIT (A) KOLKATA 5. 3 66/, /, / DR, ITAT, KOLKATA 6. : / GUARD FILE. BY ORDER/ , / /,
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