DCIT -4(1), MUMBAI V. ICICI SECURITIES LTD, MUMBAI

ITA 7037/MUM/2008

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88104 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 1 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-02-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 03-02-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 11-12-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KISHAN VYAS
• Keywords: Depreciation; Transactions in derivatives; Bad and doubtful debts
• Section: 234B; 32

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, M UMBAI BEFORE S/SHRI N. K. BILLAIYA, (AM) AND AMIT SHUKL A, (JM) . . , , , ./I.T.A. NO.6860/MUM/2008 ( !' #! / ASSESSMENT YEAR 2005-06) M/S ICICI SECURITIES LIMITED (EARLIER KNOWN AS ICICI BROKERAGE SERVICES LIMITED) IN THE CASE OF ERSTWHILE ICICI WEB TRADE LIMITED WHICH WAS MERGED WITH ICICI BROKERAGE SERVICES LIMITED) TAXATION DEPARTMENT, ICICI BANK LTD, ICICI BANK TOWERS, 9 TH FLOOR, EAST WING, SOUTH TOWER, BANDRA-KURLA COMPLEX, BANDRA (E), MUMBAI-400051 / VS. THE DY COMMISSIONER OF INCOME TAX, RANGE 4(1), AAYAKAR BHAVAN, M K ROAD, MUMBAI-400020 ( $% / APPELLANT) .. ( &' $% / RESPONDENT) ./I.T.A. NO.7037/MUM/2008 ( !' #! / ASSESSMENT YEAR 2005-06) THE DY COMMISSIONER OF INCOME TAX, RANGE 4(1), AAYAKAR BHAVAN, M K ROAD, MUMBAI-400020 / VS. M/S ICICI SECURITIES LIMITED ( $% / APPELLANT) .. ( &' $% / RESPONDENT) $ ./ () ./PAN/GIR NO. :AAAC16284P $% * / ASSESSEE BY MS.AARTI VISSANJI &' $% + * / REVENUE BY SHRI KISHAN VYAS + , / DATE OF HEARING : 3.2.2015 -.#' + , /DATE OF PRONOUNCEMENT : 3.2.2015 7037/MUM/2008 & 6860/M/2008 2 / O R D E R PER N. K. BILLAIYA (AM) THESE ARE CROSS- APPEALS BY REVENUE AND ASSESSEE A RE AGAINST THE VERY SAME ORDER OF THE LD. CIT(A) -4, MUMBAI, DATED 17.9.2008 PERTAINING TO THE ASSESSMENT YEAR 2005-0 6 . BOTH THE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER, FOR THE SAKE OF CONVENIENCE. I.T.A. NO.7037/MUM/2008 (BY REVENUE) 2. THE REVENUE HAS RAISED 8 SUBSTANTIVE GROUNDS OF APPEAL. AT THE VERY OUTSET, THE LD. REPRESENTATIVE FROM BOTH T HE SIDES AGREED THAT THE ISSUES INVOLVED IN THESE APPEALS ARE COVER ED EITHER IN FAVOUR OF THE ASSESSEE OF IN FAVOUR OF THE REVENUE BY THE EARLIER ORDERS OF THE TRIBUNAL. 3. THE FIRST GROUND RELATES TO THE DISALLOWANCE OF DEPRECIATION OF MEMBERSHIP OF BOMBAY STOCK EXCHANGE. WE FIND THAT THE FIRST APPELLATE AUTHORITY WHILE ALLOWING THE CLAIM OF DEP RECIATION ON BSE CARD, HAS FOLLOWED THE DECISION OF THE TRIBUNAL I N ASSESSEES OWN CASE IN ITA NO.4326/MUM./2004 (AY-2000-01) DATED 9. 5.2007. RESPECTFULLY FOLLOWING THE DECISION OF THE CO-ORDIN ATE BENCH OF THE TRIBUNAL, GROUND NO.1 TAKEN BY THE REVENUE IS DISM ISSED 7037/MUM/2008 & 6860/M/2008 3 4. GROUND NO.2 IS THAT THE LD. CIT(A) ERRED IN ALLO WING DEPRECIATION OF RS.4.5 LAKHS. THE LD. CIT(A) HAS CONSIDERED TH IS ISSUE AT PARA 3 OF HIS ORDER. AT PARA 3.2, THE LD. CIT(A) HAS OBSERVE D THAT THE ASSESSEE DID NOT CLAIM DEPRECIATION ON COMPUTER, OFFICE EQ UIPMENT, SOFTWARE FOR AYS 2001-02 TO 2004-05 ON WHICH THE AO HAS ALLO WED NOTIONAL DEPRECIATION. THE AO HAS DRAWN SUPPORT FROM EXPLA NATION 5 TO SECTION 32 OF THE ACT. 5. WE HAVE CAREFULLY PERUSED THE ORDERS OF AUTHORI TIES BELOW. THE DEPRECIATION IS TO BE ALLOWED ON THE WRITTEN DO WN VALUE(WDV) AS DEFINED IN SECTION 43(6)(B) OF THE ACT. WE ACCORDI NGLY, RESTORE THIS ISSUE TO THE FILE OF THE AO. THE AO IS DIRECTED TO COMPUTE DEPRECIATION ON WDV AS PER THE PROVISIONS OF LAW. GROUND NO.2 IS ALLOWED FOR STATISTICAL PURPOSES. 6. GROUNDS NO.3 TO 5 OF THE APPEAL ARE AGAINST THE ALLOWANCE OF LOSS ON DERIVATIVE TRANSACTIONS AS NON-SPECULATIVE. THIS ISSUE IS NO MORE RES INTEGRA 7. WE FIND THAT THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2003-04 HAS CONSIDERED THE SIMILAR ISSUE IN ITA NO.6560/MUM/2006, DATED 20.8.2010, WHEREIN THE TRIB UNAL HAS CONSIDERED THIS ISSUE QUA GROUND NO.(A) AND AFTER C ONSIDERING THE FACTS AND SUBMISSIONS AT PARA 11, THE TRIBUNAL HAS DISMISSED THE 7037/MUM/2008 & 6860/M/2008 4 ASSESSEES APPEAL. RESPECTFULLY FOLLOWING THE DECI SION OF THE CO- ORDINATE BENCH , GROUND NOS.3 TO 5 ARE DISMISSED. 8. GROUNDS NO.6 TO 8 RELATE TO THE DISALLOWANCE O F CLIENT ASSISTANCE CHARGES AMOUNTING TO RS.23,27,39,958/-. THIS ISSUE HAS BEEN CONSIDERED BY THE FIRST APPELLATE AUTHORITY I N PARA 5 OF HIS ORDER, WHEREIN HE HAS FOLLOWED HIS OWN FINDING GIVE N IN AY 2004-05 WHILE DELETING THE ADDITION. SIMILAR ISSUE AROSE IN AY 2002-03 WHICH WAS CONSIDERED BY THE TRIBUNAL IN ITA NO.7035/MUM /2006, ORDER DATED 25.6.2010. THE TRIBUNAL HAS DISCUSSED THE IS SUE AT LENGTH FROM PARAGRAPHS 8 TO 15 OF ITS ORDER AND AT PARAGRA PH 15, AFTER CONSIDERING THE FACTS AND SUBMISSIONS HELD THAT IT IS NOT A CASE THAT FALLS U/S 40A OF THE ACT. ACCORDINGLY, ALLOWED THE APPEAL OF THE ASSESSEE AND DISMISSED REVENUES APPEAL. RESPECTF ULLY FOLLOWING THE DECISION OF CO-ORDINATE BENCH OF THE TRIBUNAL, GROUNDS OF APPEAL NO.6 TO 8 ARE DISMISSED. THE APPEAL OF THE REVENUE IS PARTLY ALLOWED. I.T.A. NO.6860/MUM/2008(BY ASSESSEE) 9. THE FIRST GRIEVANCE OF THE ASSESSEE IS AGAINST T HE DISALLOWANCE OF BAD DEBTS. THE LD. CIT(A) HAS CONSIDERED THIS I SSUE AT PARA 6 AT PAGE 3 OF HIS ORDER, WHEREIN HE HAS DISMISSED THE A PPEAL OF THE ASSESSEE FOLLOWING HIS OWN ORDER FOR THE ASSESSMENT YEAR 2004-05. 7037/MUM/2008 & 6860/M/2008 5 10. WE FIND THAT THE TRIBUNAL IN AY 2004-05 IN ITA NO.6304/MUM/2008 REVERSED THE FINDING OF THE LD.CIT (A) AND DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. THE FINDINGS OF THE TRIBUNAL IS GIVEN IN PARA 3 OF ITS ORDER. RESPECTFULLY FOLLOWIN G THE DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL GROUND NO.1 OF ASSESSEES APPEAL IS ALLOWED. 11. GROUND NO.2 RELATES TO DISALLOWANCE OF TRANSACT ION CHARGES PAID TO STOCK EXCHANGE U/S 40(A)(IA) OF THE ACT. TH IS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V/S KOTAK SECURITIES LIMITED (BOM) 340 ITR 333, WHEREIN THE HONBLE HIGH COURT HAS OBSERVE D THAT THE REVENUE DID NOT INVOKE RELEVANT PROVISIONS OF TDS FOR 10 YEARS, THEREFORE, THE ASSESSEE COULD NOT BE HELD TO BE IN DEFAULT FOR NON DEDUCTING TDS ON TRANSACTION CHARGES PAID TO THE STOCK EXCHANGE. RESPECTFULLY FOLLOWING THE FINDINGS OF THE HONBLE HIGH COURT, WE DIRECT THE AO TO DELETE THE ADDITION OF RS.1,66, 63,866/-. 12. GROUND NO.3 RELATES TO DISALLOWANCE OF RS.37,4 0,000/-. THIS ISSUE HAS BEEN CONSIDERED BY THE AO IN PARA13 OF H IS ORDER, WHEREIN THE AO HAS OBSERVED THAT THE ASSESSEE HAS NOT CLA IMED LOSS ON FUTURE AND OPTION MARGIN IN THE COMPUTATION OF INCO ME. HOWEVER, THE ASSESSEE VIDE CLAUSE 5 TO THE NOTE ATTACHED FO RMING PART OF THE RETURN HAS STATED THAT CERTAIN CUSTOMERS OF THE AS SESSEE HAD TAKEN 7037/MUM/2008 & 6860/M/2008 6 POSITION IN THE DERIVATIVE MARKET DUE TO HUGE FLUCT UATION IN THE PRICE OF THE DERIVATIVES CONTRACT MARGIN ERODED AND THE POSI TION WAS SQUARED UP. THE AO HOWEVER, OBSERVED THAT THE ASSESSEE COU LD NOT RECOVER THE AMOUNT FROM ITS CUSTOMERS. IT WAS BROUGHT TO TH E NOTICE OF THE AO THAT THE AMOUNT OF RS.37.40 LAKHS HAS BEEN DEBITED UNDER THE HEAD BAD DEBTS IN THE PROFIT AND LOSS ACCOUNT. THE LD . CIT(A) HAS CONSIDERED THIS ISSUE AT PARA 9 OF ITS ORDER, WHER EIN HE HAS SIMPLY INCORPORATED THE FINDING OF THE AO. 13. A PERUSAL OF THE ASSESSMENT ORDER CLEARLY SHOW S THAT THE AO HAS ADMITTED IT TO BE WRITE OFF ACCOUNT OF CUSTOMER S BALANCES. HOWEVER, THE AO HIMSELF HAS ACCEPTED THAT THE ASSES SEE HAS DEBITED THIS AMOUNT UNDER THE HEAD BAD DEBTS IN IT PROFI T AND LOSS ACCOUNT, THEREFORE, TREATING THE SAME AS LOSS ON FUTURE AND OPTION MARGINS IS TOTALLY AGAINST THE FACTS OF THE CASE. IN OUR CONSI DERED OPINION, IT IS NOTHING BUT BAD DEBTS AND IS TO BE ALLOWED FOLLOWIN G THE RATIO LAID DOWN BY HE HONBLE SUPREME COURT IN THE CASE OF T RF LIMITED REPORTED IN 230 CTR 14 (SC). ACCORDINGLY, GROUND N O.3 TAKEN BY THE ASSESSEE IS ALLOWED. 14. GROUND NO.4 IS AGAINST THE LEVY OF INTEREST U/ S 234B AND 234C OF THE ACT. THE LEVY OF INTEREST UNDER THESE SECTIO NS ARE MANDATORY THOUGH CONSEQUENTIAL. WE ACCORDINGLY DIRECT THE AO TO LEVY INTEREST AS PER THE PROVISIONS OF ACT. 7037/MUM/2008 & 6860/M/2008 7 15. IN THE RESULT THE APPEAL OF THE REVENUE IS PART LY ALLOWED AND THE APPEAL OF THE ASSESSEE IS ALLOWED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 3RD FEB, 2015 . -.#' / 0 1 3RD FEB, 2015 . + 2 3 SD SD ( / AMIT SHUKLA ) ( . . , / N. K. BILLAIYA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI: 3RD FEB,2015. . . ./ SRL , SR. PS ! '#$% &%'# / COPY OF THE ORDER FORWARDED TO : 1. $% / THE APPELLANT 2. &' $% / THE RESPONDENT. 3. ( ) / THE CIT(A)- CONCERNED 4. / CIT CONCERNED 5. 67 2 &8 , , 8 ' , / DR, ITAT, MUMBAI CONCERNED 6. 2 9! : / GUARD FILE. / BY ORDER, TRUE COPY ; ( (ASSTT. REGISTRAR) , 8 ' , /ITAT, MUMBAI