Appeal details
Counselvise Citation
[2016] 132 COUNSELVISE.COM (IT) 9543 (ITAT-CHENNAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 year(s) 27 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
05-05-2016
Appeal Filed By
Assessee
Order Result
Dismissed
Bench Allotted
D
Assessment Year
2010-2011
Appeal Filed On
08-04-2015
Judgement Text
, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI . . . , . !'# ! , % !& BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ ITA NOS.733, 734 & 735/MDS/2015 ( )( / ASSESSMENT YEARS : 2008-09, 2010-11 & 2011-12 M/S SHRIRAM INSIGHT SHARE BROKERS LIMITED, MOOKAMBIKA COMPLEX, NO.4, LADY DESIKA ROAD, MYLAPORE, CHENNAI - 600 004. PAN : AAACI 2727 H V. THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 6(1), CHENNAI - 600 034. (+,/ APPELLANT) (-.+,/ RESPONDENT) +, / 0 / APPELLANT BY : SHRI R. SIVARAMAN, ADVOCATE -.+, / 0 / RESPONDENT BY : SHRI ARUN C. BHARAT, CIT 1 / 2% / DATE OF HEARING : 04.02.2016 3') / 2% / DATE OF PRONOUNCEMENT : 05.05.2016 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: ALL THE THREE APPEALS OF THE ASSESSEE ARE DIRECT ED AGAINST THE RESPECTIVE ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS)-15, CHENNAI, FOR THE ASSESSMENT YEAR 2008 -09, 2010-11 AND 2011-12. SINCE COMMON ISSUE ARISES FOR CONSID ERATION IN ALL 2 I.T.A. NOS.733 TO 735/MDS/15 THESE APPEALS, WE HEARD THESE APPEALS TOGETHER AND DISPOSING OF THE SAME BY THIS COMMON ORDER. 2. THE FIRST ISSUE ARISES FOR CONSIDERATION IS WITH REGARD TO REOPENING OF ASSESSMENT UNDER SECTION 147 OF THE IN COME-TAX ACT, 1961 (IN SHORT 'THE ACT'). 3. SHRI R. SIVARAMAN, THE LD.COUNSEL FOR THE ASSESS EE, SUBMITTED THAT THE ISSUE OF REOPENING OF ASSESSMENT ARISES FOR CONSIDERATION FOR THE ASSESSMENT YEAR 2008-09. ACC ORDING TO THE LD. COUNSEL, THE ASSESSEE-COMPANY IS ENGAGED IN THE BUSINESS OF SHARE BROKING. THE ORIGINAL ASSESSMENT WAS PASSED UNDER SECTION 143(3) OF THE ACT ON 13.12.2010. SUBSEQUENTLY, THE ASSESSING OFFICER ISSUED NOTICE ON 26.03.2012 TO REOPEN THE A SSESSMENT UNDER SECTION 147 OF THE ACT ON THE GROUND THE ESOP COST OF ` 1,11,18,000/- CANNOT BE ALLOWED AS EXPENDITURE IN T HE HANDS OF THE ASSESSEE-COMPANY. ACCORDING TO THE LD. COUNSEL, TH E SHARES OF THE ASSESSEE-COMPANY WERE PURCHASED BY SHRIRAM INSIGHT WELFARE TRUST AT THE RATE OF ` 340/- PER EQUITY SHARE FROM THE EMPLOYEES OF THE ASSESSEE-COMPANY. THIS COST OF ACQUISITION OF 32,700 EQUITY SHARES OF THE COMPANY TO THE EXTENT OF ` 1,11,18,000/- WAS CLAIMED AS EXPENDITURE BY THE ASSESSEE AS ESOP COST. THE A SSESSING 3 I.T.A. NOS.733 TO 735/MDS/15 OFFICER, HOWEVER, FOUND THAT THIS CANNOT BE ALLOWED AS EXPENDITURE AND REOPENED THE ASSESSMENT BY ISSUING NOTICE UNDER SECTION 148 OF THE ACT. THE LD.COUNSEL SUBMITTED THAT ALL THE PARTICULARS WERE AVAILABLE WITH THE ASSESSING OFFICER, THEREFORE, TH E REOPENING OF ASSESSMENT IS ONLY DUE TO CHANGE OF OPINION. ACCOR DING TO THE LD. COUNSEL, WHEN THE ASSESSEE HAS FILED THE DETAILS BE FORE THE ASSESSING OFFICER, THE ASSESSING OFFICER ALLOWED TH E CLAIM OF THE ASSESSEE IN THE ORIGINAL ASSESSMENT. THERE CANNOT BE ANY REASON FOR REOPENING THE ASSESSMENT ON THE GROUND THAT THE PARTICULARS OF INCOME IN THE NATURE OF ESOP COST ESCAPED ASSESSMEN T. THEREFORE, ACCORDING TO THE LD. COUNSEL, REOPENING OF ASSESSMENT IS INVALID. HENCE, THE CONSEQUENT ASSESSMENT MADE BY THE ASSESSING OFFICER CANNOT STAND IN THE EYE OF LAW. 4. ON THE CONTRARY, SHRI ARUN C. BHARAT, THE LD. DE PARTMENTAL REPRESENTATIVE, SUBMITTED THAT THE ASSESSEE REIMBUR SED THE COST OF PURCHASE OF SHARES FROM ITS EMPLOYEES BY SHRIRAM IN SIGHT WELFARE TRUST TO THE EXTENT OF ` 1,11,18,000/-. ACCORDING TO THE LD. D.R., EXPENDITURE FOR PURCHASING THE SHARES OF THE ASSESS EES EMPLOYEES BY THE TRUST CANNOT BE A BUSINESS EXPENDITURE. THE REFORE, IT IS NOT AN ALLOWABLE EXPENDITURE EITHER UNDER SECTION 37 OF THE ACT OR 4 I.T.A. NOS.733 TO 735/MDS/15 OTHERWISE. THE LD. D.R. SUBMITTED THAT THE ASSESSI NG OFFICER HAS NOT DISCUSSED ANYTHING IN THE ASSESSMENT ORDER ABOU T THE ALLOWABILITY OF THE COST OF ESOP. THEREFORE, IT CA NNOT BE SAID THAT THE ASSESSING OFFICER HAS TAKEN ONE OF THE POSSIBLE VIEW. ACCORDING TO THE LD. D.R., REOPENING THE ASSESSMENT IS NOT DUE TO CHANGE OF OPINION. IN THE ABSENCE OF ANY OPINION F RAMED BY THE ASSESSING OFFICER IN THE ORIGINAL ASSESSMENT ORDER, ACCORDING TO THE LD. D.R., IT CANNOT BE SAID THAT THE ASSESSING OFFI CER REOPENED THE ASSESSMENT DUE TO CHANGE OF OPINION. THE LD. D.R. FURTHER SUBMITTED THAT THE ASSESSMENT PROCEEDING WAS REOPEN ED UNDER SECTION 147 OF THE ACT WITHIN FOUR YEARS FROM THE E ND OF THE RELEVANT ASSESSMENT YEAR. SINCE THE ENTIRE EXPENDITURE WAS INCURRED BY SHRIRAM INSIGHT WELFARE TRUST AND NOT BY THE ASSESS EE-COMPANY, ACCORDING TO THE LD. D.R., THE ASSESSING OFFICER HA S RIGHTLY REOPENED THE ASSESSMENT. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. ADMITTEDLY, THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF TH E ACT ON 13.12.2010. THERE WAS NO DISCUSSION IN THE ASSESSM ENT ORDER ABOUT THE COST INCURRED BY THE ASSESSEE FOR ESOP SC HEME. WHEN THE ASSESSING OFFICER HAS NOT FRAMED ANY OPINION IN THE ORIGINAL 5 I.T.A. NOS.733 TO 735/MDS/15 ASSESSMENT, THIS TRIBUNAL IS OF THE CONSIDERED OPIN ION THAT IT CANNOT BE SAID THAT THE ASSESSING OFFICER REOPENED THE ASS ESSMENT DUE TO CHANGE OF OPINION. FOR CHANGE OF OPINION, AN OPINI ON MUST HAVE BEEN FORMED BY THE ASSESSING OFFICER IN THE ORIGINA L ASSESSMENT ORDER. IN THE ABSENCE OF ANY OPINION FORMED BY THE ASSESSING OFFICER IN THE ORIGINAL ASSESSMENT UNDER SECTION 14 3(3) OF THE ACT, AT NO STRETCH OF IMAGINATION IT CAN BE SAID THAT TH E ASSESSING OFFICER REOPENED THE ASSESSMENT DUE TO CHANGE OF OPINION. IN VIEW OF THE ABOVE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION T HAT THE ASSESSING OFFICER HAS RIGHTLY REOPENED THE ASSESSMENT WITHIN A PERIOD OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR. IN VIEW OF THIS, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE W ITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY, THE SAME IS CONFIR MED. 6. THE NEXT GROUND OF APPEAL IS REGARDING DISALLOWA NCE OF ` 1,11,18,000/- TOWARDS ESOP EXPENSES. 7. SHRI R. SIVARAMAN, THE LD.COUNSEL FOR THE ASSESS EE, SUBMITTED THAT THE ASSESSEE-COMPANY INTRODUCED EMPL OYEE STOCK OPTION PLAN 2006 WITH AN INTENTION TO MOTIVATE THE EMPLOYEES OF THE ASSESSEE-COMPANY TO ENCOURAGE THEM TO INCREASE THEI R PERFORMANCE. THE LD.COUNSEL SUBMITTED THAT THE ASS ESSEE- 6 I.T.A. NOS.733 TO 735/MDS/15 COMPANY HAS DISCRETION TO OFFER THE EMPLOYEES STOCK OPTION PLAN SCHEME EITHER DIRECTLY BY THE COMPANY ITSELF OR THR OUGH A TRUST. IN THIS CASE, THE ASSESSEE-COMPANY OPTED TO FORM A TRU ST WITH A VIEW TO OFFER THE STOCK OPTION TO ITS EMPLOYEES. REFERR ING TO THE EMPLOYEES STOCK OPTION PLAN 2006, THE LD.COUNSEL SU BMITTED THAT THE ESOP COMMITTEE DETERMINED TO OFFER THE OPTION T O THE ELIGIBLE EMPLOYEES. ON ACCEPTANCE BY THE RESPECTIVE EMPLOYE ES, SHARES WERE ALLOTTED TO THEM. THEREFORE, THE EXPENDITURE INCURRED BY THE ASSESSEE HAS TO BE ALLOWED UNDER SECTION 37 OF THE ACT. REFERRING TO THE SECURITIES AND EXCHANGE BOARD OF INDIA (SHAR E BASED EMPLOYEE BENEFITS) REGULATIONS, 2014, THE LD.COUNSE L SUBMITTED THAT THE COMPANY MAY GRANT THE BENEFIT OF STOCK OPT ION EITHER DIRECTLY OR INDIRECTLY TO THE ELIGIBLE EMPLOYEES. THEREFORE, MERELY BECAUSE THE ASSESSEE ESTABLISHED A TRUST FOR IMPLEM ENTATION OF ESOP SCHEME, THE EXPENDITURE INCURRED BY THE ASSESS EE CANNOT BE DISALLOWED. REFERRING TO THE ORDER OF THE CIT(A PPEALS), THE LD.COUNSEL SUBMITTED THAT THE ESOP PLAN WAS APPROVE D BY THE BOARD AND SHAREHOLDERS, THE ASSESSEE HAS ADVANCED A SUM OF ` 1,76,25,000/- TO THE TRUST TO ENABLE THEM TO PURCHA SE AND ALLOT THE SHARES TO THE EMPLOYEES. IN FACT, THE TRUST PURCHA SED 3,50,000 EQUITY SHARES FROM EXISTING PROMOTERS OF THE COMPAN Y AT A PRICE OF 7 I.T.A. NOS.733 TO 735/MDS/15 ` 15/- PER EQUITY SHARES WHICH WERE SOLD TO THE ELIGI BLE EMPLOYEES AT ` 15/- PER EQUITY SHARE. SUBSEQUENTLY, THE TRUST PUR CHASED THE SHARES FROM THE EMPLOYEES TO WHOM THE SHARES WERE A LLOTTED. THE EXPENDITURE INCURRED BY THE TRUST TO THE EXTENT OF ` 1,11,18,000/- TO BUY BACK THE EQUITY SHARES WAS CLAIMED AS EXPENDITU RE BY THE ASSESSEE-COMPANY. THE LD.COUNSEL SUBMITTED THAT TH E ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE IN RES PECT OF ` 1,11,18,000/- WHICH WAS UTILISED TO BUY BACK THE EQ UITY SHARES FROM THE RESPECTIVE EMPLOYEES. THE LD.COUNSEL SUBM ITTED THAT ALL THE EXPENDITURES WERE INCURRED BY THE ASSESSEE IN E SOP SCHEME, THEREFORE, THERE IS NO REASON TO DISALLOW THE CLAIM OF THE ASSESSEE. THE PURCHASE OF SHARES BY THE SHRIRAM INSIGHT WELFA RE TRUST FROM THE EMPLOYEES BY USING THE FUNDS ADVANCED BY THE AS SESSEE- COMPANY IS FOR THE BENEFIT OF EMPLOYEES, THEREFORE, IT IS ALLOWABLE UNDER SECTION 37 OF THE ACT. 8. ON THE CONTRARY, SHRI ARUN C. BHARAT, THE LD. DE PARTMENTAL REPRESENTATIVE, SUBMITTED THAT THE ASSESSEE HAS NOT ALLOTTED EVEN A SINGLE SHARE TO ITS EMPLOYEES DURING THE YEAR UNDER CONSIDERATION. NO SHARES WERE ISSUED TO THE SHRIRAM INSIGHT WELFAR E TRUST DURING THE YEAR UNDER CONSIDERATION. THEREFORE, THE CONTE NTION OF THE 8 I.T.A. NOS.733 TO 735/MDS/15 ASSESSEE THAT THE ESOP SCHEME WAS IMPLEMENTED THROU GH THE TRUST IS NOT JUSTIFIED. IN THE CASE BEFORE US, THE TRUST PURCHASED THE SHARES FROM THE EMPLOYEES OF THE ASSESSEE-COMPANY O N A CONSIDERATION OF ` 340/- PER EQUITY SHARE. ACCORDING TO THE LD. D.R. , THE ESOP SCHEME CANNOT BE EXTENDED FOR REIMBURSING THE EXPENDITURE INCURRED BY THE TRUST TO BUY BACK THE S HARES FROM THE ASSESSEES EMPLOYEES. REFERRING TO THE JUDGMENT OF MADRAS HIGH COURT IN CIT-III V. PVP VENTURES LIMITED (211 TAXMA NN 554), THE LD. D.R. SUBMITTED THAT IN THE CASE BEFORE THE MADR AS HIGH COURT, THE ISSUE WAS WHETHER THE EXCESS MARKET PRICE PAID BY THE ASSESSEE OVER AND ABOVE THE VALUE OF THE SHARES ALL OTTED TO THE EMPLOYEES ARE ALLOWABLE AS DEDUCTION OR NOT? IN TH IS CASE, IT IS NOT THE EXCESS MARKET VALUE PAID BY THE COMPANY FOR ALL OTTING THE SHARES TO ITS EMPLOYEES. IT IS A CASE OF BUY BACK OF SHARES FROM EMPLOYEES BY THE TRUST. THEREFORE, THE COST OF PUR CHASE OF SHARES BY THE TRUST CANNOT BE A BUSINESS EXPENDITURE IN TH E HANDS OF THE ASSESSEE-COMPANY. THEREFORE, ACCORDING TO THE LD. D.R., THE CIT(APPEALS) HAS RIGHTLY CONFIRMED THE ADDITION MAD E BY THE ASSESSING OFFICER. 9 I.T.A. NOS.733 TO 735/MDS/15 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE CLAIMS THAT IT IM PLEMENTED ESOP SCHEME TO THE BENEFIT OF ITS EMPLOYEES. THE SCHEME WAS SAID TO BE IMPLEMENTED THROUGH SHRIRAM INSIGHT WELFARE TRUS T. IN FACT, THE TRUST PURCHASED 3,50,000/- EQUITY SHARES FROM THE E XISTING PROMOTERS OF THE COMPANY AT A PRICE OF ` 15/- PER EQUITY SHARE. THEREAFTER IT WAS ALLOTTED TO ELIGIBLE EMPLOYEES AT A PRICE OF ` 15/- PER EQUITY SHARE. SUBSEQUENTLY, THE TRUST PURCHASE D 32,700 EQUITY SHARES FROM THE EMPLOYEES AT A PRICE OF ` 340/- PER EQUITY SHARE. THE ASSESSEE-COMPANY GRANTED A SUM OF ` 1,11,80,000/- FOR THE PURPOSE OF BUYING BACK THE EQUITY SHARES BY THE TRU ST FROM ITS EMPLOYEES. THE QUESTION ARISES FOR CONSIDERATION IS WHETHER THE SUM OF ` 1,11,18,000/- ADVANCED BY THE ASSESSEE TO THE TRUST FOR BUYING BACK THE EQUITY SHARES FROM ITS EMPLOYEES CA N BE ALLOWED AS EXPENDITURE OR NOT? AS PER THE SCHEME OF ESOP, AS APPROVED BY THE SECURITIES AND EXCHANGE BOARD OF INDIA (SHARE B ASED EMPLOYEE BENEFITS) REGULATIONS, 2014, THE SCHEME CA N BE IMPLEMENTED EITHER DIRECTLY OR THROUGH A TRUST. IN THIS CASE, THE ASSESSEE OPTED TO IMPLEMENT THE SCHEME THROUGH A TR UST. THE CIT(APPEALS) FOUND THAT THE TRUST IS A SEPARATE LEG AL ENTITY AND THE 10 I.T.A. NOS.733 TO 735/MDS/15 EXPENDITURE INCURRED FOR BUYING BACK THE SHARES FRO M ITS EMPLOYEES WAS ACCOUNTED IN THE BOOKS OF ACCOUNT OF THE TRUST. THEREFORE, THE CIT(APPEALS) FOUND THAT THE AMOUNT ADVANCED BY THE ASSESSEE FOR BUYING BACK THE SHARES FROM THE EMPLOYEES HAS TO BE TREATED AS LOAN. EVEN THOUGH THE ASSESSEE HAS PRODUCED MATER IAL BEFORE THE AUTHORITIES BELOW FOR PURCHASE OF 3,50,000 EQUITY S HARES FROM THE EXISTING PROMOTERS OF THE COMPANY AT A PRICE OF ` 15/- PER EQUITY SHARE, THERE IS NO MATERIAL AVAILABLE ON RECORD TO SUGGEST THAT WHEN THE SHARES WERE ALLOTTED TO THE EMPLOYEES OF THE AS SESSEE- COMPANY. WHEREAS THE ASSESSEE-COMPANY CLAIMS THAT THE SHARES PURCHASED BY THE TRUST FROM THE PROMOTERS OF THE AS SESSEE- COMPANY WERE ALLOTTED TO THE ELIGIBLE EMPLOYEES AT A PRICE OF ` 15/- PER EQUITY SHARE. THE ASSESSEE ALSO CLAIMS THAT TH E TRUST AGAIN PURCHASED THE SHARES FROM THE EMPLOYEES AT ` 340/- PER SHARE. IT IS NOT KNOWN WHEN THE SHARES WERE SAID TO BE ALLOTTED AT ` 15/- PER EQUITY SHARE, WHY THE VERY SAME SHARES WERE CLAIMED TO BE PURCHASED AT A COST OF ` 340/- PER EQUITY SHARE? THIS ARRANGEMENT OF PURCHASE OF VERY SAME SHARES SAID TO BE ALLOTTED AT ` 15/- PER EQUITY SHARE WERE BOUGHT BACK AT ` 340/- PER EQUITY SHARE CREATES A DOUBT WHETHER THE SHARES WERE IN FACT ALLOTTED TO T HE RESPECTIVE EMPLOYEES OR NOT? IN THE ABSENCE OF ANY MATERIAL, THIS TRIBUNAL IS 11 I.T.A. NOS.733 TO 735/MDS/15 OF THE CONSIDERED OPINION THAT THE CIT(APPEALS) HAS RIGHTLY CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OF FICER. 10. WE HAVE CAREFULLY GONE THROUGH THE DECISION OF BANGALORE BENCH OF THIS TRIBUNAL IN NOVO NORDISK INDIA PVT. L TD. V. DCIT (2014) 63 SOT 242. IN THE CASE BEFORE THE BANGALOR E BENCH, THE ACTUAL ISSUE OF SHARES OF THE PARENT COMPANY BY THE ASSESSEE TO ITS EMPLOYEES IS NOT IN DISPUTE. THEREFORE, THE DIFFER ENCE BETWEEN THE FAIR MARKET VALUE OF THE SHARES OF THE PARENT COMPA NY ON THE DATE OF ISSUE OF SHARES AND THE PRICE AT WHICH THOSE SHARES WERE ISSUED BY THE ASSESSEE TO ITS EMPLOYEES WAS REIMBURSED BY THE ASSESSEE TO ITS PARENT COMPANY. THIS SUM WAS CLAIMED AS EXPEND ITURE IN THE PROFIT & LOSS ACCOUNT. THE BANGALORE BENCH OF THE TRIBUNAL IN FACT FOUND THAT THE DIFFERENCE BETWEEN FAIR MARKET VALUE OF THE SHARES AND THE PRICE AT WHICH THE SHARES WERE ALLOTTED TO THE EMPLOYEES IS REVENUE EXPENDITURE AND THEREFORE, IT HAS TO BE ALL OWED AS DEDUCTION WHILE COMPUTING THE INCOME. THE BANGALOR E BENCH FURTHER FOUND THAT THE VERY OBJECT OF ISSUING OF SH ARES TO THE EMPLOYEES AT A DISCOUNTED PREMIUM IS TO COMPENSATE THEM FOR THE CONTINUITY OF THEIR SERVICES IN THE COMPANY. IN TH E CASE BEFORE US, IT IS THE CASE OF THE ASSESSEE-COMPANY THAT THE TRUST ALLOTTED THE 12 I.T.A. NOS.733 TO 735/MDS/15 SHARES TO ITS EMPLOYEES. THE ASSESSEE-COMPANY ADVA NCED FUNDS TO THE TRUST FOR PURCHASING SHARES OF THE PROMOTERS OF THE COMPANY AT A PRICE OF ` 15/-. THE VERY SAME SHARES WERE CLAIMED TO BE PURCHASED FROM THE EMPLOYEES AT ` 340/-. THE ASSESSEE IS NOT CLAIMING DIFFERENCE BETWEEN FAIR MARKET VALUE AND A LLOTMENT PRICE AS EXPENDITURE. THE ASSESSEE IS CLAIMING THE PURCHASE PRICE AT ` 340/- FROM ITS EMPLOYEES AS EXPENDITURE. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE DECISION OF BANGALORE B ENCH IN NOVO NORDISK INDIA PVT. LTD. (SUPRA) IS NOT APPLICABLE T O THE FACTS OF THE CASE. SINCE THE SHARES WERE PURCHASED BY THE TRUST FROM THE PROMOTERS OF THE ASSESSEE-COMPANY AT THE RATE OF ` 15/- PER EQUITY SHARE AND THE SAME WAS ALSO CLAIMED TO BE ALLOTTED TO THE EMPLOYEES OF THE ASSESSEE-COMPANY AT A PRICE OF ` 15/- PER EQUITY SHARE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION T HAT THE BUY BACK OF THE SHARES FROM THE VERY SAME EMPLOYEES AT A COST O F ` 340/- PER EQUITY SHARE CANNOT BE AN EXPENDITURE FOR THE ASSES SEE-COMPANY. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE CLAIM OF THE ASSESSEE IS ONLY TO REDUCE THE TAXABLE INCOME OF TH E ASSESSEE. THEREFORE, THE SAME CANNOT BE ALLOWED UNDER SECTION 37 OF THE ACT. IN VIEW OF THE ABOVE, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE 13 I.T.A. NOS.733 TO 735/MDS/15 WITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDING LY, THE SAME IS CONFIRMED. 11. NOW COMING TO ASSESSMENT YEAR 2010-11, THE FIRS T ISSUE RAISED BY THE ASSESSEE IS WITH REGARD TO ADDITION O F ` 50,23,360/-. 12. SHRI R. SIVARAMAN, THE LD.COUNSEL FOR THE ASSES SEE, SUBMITTED THAT THE ASSESSEE DISCLOSED BROKERAGE INC OME OF ` 50,23,360/- OUT OF ` 51,21,960/-. ACCORDING TO THE LD. COUNSEL, THE BALANCE AMOUNT OF ` 98,600/- REPRESENTS SERVICE TAX PAYABLE TO SECURITY DEPOSIT. THE ASSESSEE EXPLAINED BEFORE TH E ASSESSING OFFICER THAT A SUM OF ` 78,000/- REPRESENTS SECURITY DEPOSIT AND ANOTHER SUM OF ` 20,600/- REPRESENTS SERVICE TAX AND THE BALANCE AMOUNT OF ` 50,23,360/- REMAINED AS PAYABLE. ACCORDING TO THE LD. COUNSEL, THE AMOUNT COLLECTED BY THE ASSESSEE REPRE SENTS EXCESS BROKERAGE CHARGED ON THE CLIENTS AND WHICH WAS DISP UTED BY THE CLIENTS. THEREFORE, THE AMOUNT WAS KEPT PENDING TI LL THE DISPUTE IS RESOLVED. IF THE CLIENTS REFUSE TO PAY HIGHER BROK ERAGE, THEN THE ASSESSEE-COMPANY HAS TO REFUND THE SAME TO THE CLIE NTS. SINCE THE AMOUNT IS SUBJECTED TO DISPUTE, ACCORDING TO THE LD . COUNSEL, A SUM OF ` 50,23,360/- WAS NOT SHOWN AS INCOME OF THE ASSESSEE . 13. ON THE CONTRARY, SHRI ARUN C. BHARAT, THE LD. D EPARTMENTAL REPRESENTATIVE, SUBMITTED THAT THE ASSESSEE HAD DIS CLOSED A SUM 14 I.T.A. NOS.733 TO 735/MDS/15 OF ` 50,23,360/- AS BROKERAGE IN THE PROFIT & LOSS ACCOU NT. IT IS ALSO CLAIMED THAT THE SAME IS PAYABLE TO VARIOUS PARTIES . THE ASSESSEE IN FACT TREATED THE AMOUNT PAYABLE TO THE EXTENT OF ` 50,23,360/- AS REVENUE EXPENDITURE. THE ASSESSING OFFICER REJECTE D THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE IS EXP ECTED TO REFUND THE AMOUNT ONLY IN CASE THE DISPUTE WAS DECIDED IN FAVOUR OF RESPECTIVE CLIENTS. AS ON TODAY, THE ASSESSEE IS R ETAINING THE AMOUNT WITH IT, THEREFORE, IT HAS TO BE TREATED AS INCOME OF THE ASSESSEE. THE LD. D.R. FURTHER POINTED OUT THAT TH E ASSESSEE WAS UNABLE TO SUBSTANTIATE THE EXISTENCE OF CORRESPONDI NG LIABILITY. THE LD. D.R. FURTHER SUBMITTED THAT THE ASSESSEE CHARGE D BROKERAGE FROM VARIOUS CUSTOMERS AND ACCEPTED THE SAME AS TRA DING RECEIPT IN THE BOOKS OF ACCOUNT. HOWEVER, FOR THE YEAR UNDER CONSIDERATION, A PART OF AMOUNT RECEIVED FROM THE CUSTOMERS AS PAYAB LE AND SAME WAS SHOWN AS LIABILITY IN THE BALANCE SHEET WITHOUT ANY SUBSTANTIVE EVIDENCE. THE ASSESSEE IS ADMITTEDLY FOLLOWING MER CANTILE SYSTEM OF ACCOUNTING. THE GROSS BROKERAGE INCOME WAS SHOW N AS TRADING RECEIPT IN THE BOOKS OF ACCOUNT. THEREFORE, THE CL AIM OF THE ASSESSEE THAT THE PART OF THE AMOUNT TO THE EXTENT OF ` 50,23,360/- WAS NOT RECEIVABLE IS NOT CORRECT. THEREFORE, ACCO RDING TO THE LD. 15 I.T.A. NOS.733 TO 735/MDS/15 D.R., THE CLAIM OF THE ASSESSEE THAT A SUM OF ` 50,23,360/- IS A REVENUE EXPENDITURE IS NOT JUSTIFIED. 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. ADMITTEDLY, THE PROFIT & LOSS ACCOUNT SHOWS BROKERAGE INCOME AFTER NETTING TO THE EXTENT OF ` 50,23,360/-. THE CLAIM OF THE ASSESSEE THAT A SUM OF ` 50,23,360/- IS PAYABLE TO VARIOUS CLIENTS SINCE THE RE WAS DISPUTE PENDING AMONG THEM, WAS NOT SUBSTANTIATED BY ANY MA TERIAL. THE ASSESSEE COULD NOT PRODUCE ANY EVIDENCE BEFORE THE AUTHORITIES BELOW THAT THE LIABILITY HAS ARISEN DURING THE YEAR UNDER CONSIDERATION. IT IS ALSO NOT IN DISPUTE THAT THE BROKERAGE INCOME WAS SHOWN AS TRADING RECEIPT IN THE BOOKS OF ACCOUN T. THE ONLY CONTENTION OF THE ASSESSEE BEFORE THE ASSESSING OFF ICER IS THAT THE REFUND ARISES ONLY IN CASE THE CASE WAS DECIDED IN FAVOUR OF RESPECTIVE CLIENTS. THEREFORE, THE LIABILITY OF TH E ASSESSEE IS CONTINGENT ONE ON DECIDING THE ISSUE IN FAVOUR OF R ESPECTIVE CLIENTS. AS ON TODAY, THE AMOUNT WAS TREATED AS TRADING RECE IPT IN THE BOOKS OF ACCOUNT, AND THE ASSESSEE IS NOT EXPECTED TO REF UND THE SAME TILL THE ISSUE WAS DECIDED IN FAVOUR OF RESPECTIVE CLIEN TS, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE CIT(APPEALS) HAS RIGHTLY FOUND THAT THE CLAIM OF THE ASSESSEE CANNOT BE ALLOWED AS REVENUE 16 I.T.A. NOS.733 TO 735/MDS/15 EXPENDITURE. IN THE ABSENCE OF ANY MATERIAL TO SHO W THE LIABILITY OF THE ASSESSEE, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY TH E SAME IS CONFIRMED. 15. THE NEXT GROUND OF APPEAL IS DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF THE INCOME-TAX RULES, 1962. 16. SHRI R. SIVARAMAN, THE LD.COUNSEL FOR THE ASSES SEE, SUBMITTED THAT THE ASSESSING OFFICER DISALLOWED A S UM OF ` 4,37,291/-. ACCORDING TO THE LD. COUNSEL, THE ASSE SSEE RECEIVED DIVIDEND INCOME OF ` 15,41,947/- AND CLAIMED THE SAME AS EXEMPTED UNDER THE PROVISIONS OF INCOME-TAX ACT. T HE ASSESSEE CLAIMED THAT NO EXPENDITURE WAS INCURRED FOR EARNIN G THE DIVIDEND INCOME OF ` 15,41,947/-. THE ASSESSEE CLAIMED A SUM OF ` 7,200/- AS EXPENDITURE FOR EARNING THE EXEMPTED INCOME. HO WEVER, THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSES SEE. THE CIT(APPEALS) ALSO CONFIRMED THE ADDITION MADE BY TH E ASSESSING OFFICER. ACCORDING TO THE LD. COUNSEL, UNLESS THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE, THE ASSESSING OFFICER SHALL NOT DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN CONNECTION WITH EARNING OF THE INCOME W HICH IS 17 I.T.A. NOS.733 TO 735/MDS/15 WARRANTED UNDER THE PROVISIONS OF THE INCOME-TAX AC T. THE LD.COUNSEL FURTHER SUBMITTED THAT THE EXPENDITURE I N RELATION TO EXEMPTED INCOME NEEDS TO BE SATISFACTORILY CONSIDER ED. 17. ON THE CONTRARY, SHRI ARUN C. BHARAT, THE LD. D EPARTMENTAL REPRESENTATIVE, SUBMITTED THAT RULE 8D PROVIDES FOR METHOD OF COMPUTATION OF DISALLOWANCE UNDER SECTION 14A OF TH E ACT. THE ASSESSING OFFICER, AFTER TAKING INTO CONSIDERATION OF RULE 8D, FOUND THAT THE AVERAGE INCOME COMPUTED UNDER SECOND AND T HIRD LIMB OF RULE 8D(2) NEEDS TO BE DISALLOWED. ACCORDINGLY, TH E ASSESSING OFFICER COMPUTED THE AVERAGE EXPENDITURE BY APPLYIN G SECOND AND THIRD LIMB OF RULE 8D(2), AND ARRIVED AT ` 4,44,491/-. THE EXPENDITURE ADMITTED BY THE ASSESSEE TO THE EXTENT OF ` 7,200/- WAS ALSO REDUCED AND THE EXPENDITURE WAS COMPUTED TO ` 4,37,291/-. THIS WAS DISALLOWED BY THE ASSESSING OFFICER. 18. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE CIT(APPEALS), AFTER CONSIDERING THE MATERIAL AVAILA BLE ON RECORD, FOUND THAT THE ASSESSEE HAS EARNED DIVIDEND INCOME OF ` 15,41,947/- WHICH WAS EXEMPTED FROM THE PROVISIONS OF INCOME-TAX ACT. THE ASSESSEE CLAIMED BEFORE THE LOWER AUTHORI TIES THAT A SUM 18 I.T.A. NOS.733 TO 735/MDS/15 OF ` 15,41,947/- WAS RECEIVED THROUGH ECS CREDIT. THERE FORE, NO EXPENDITURE WAS INCURRED FOR EARNING THE DIVIDEND I NCOME. THE ASSESSEE ITSELF DISALLOWED A SUM OF ` 7,200/- TOWARDS ADMINISTRATIVE EXPENSES. BEING NOT SATISFIED WITH THE EXPLANATION OF THE ASSESSEE, THE ASSESSING OFFICER ADOPTED THE PROVISIONS OF RUL E 8D AND FOUND THE AVERAGE EXPENDITURE BY APPLYING LIMB (II) AND ( III) OF RULE 8D(2) TO ` 4,44,491/-. AFTER REDUCING THE EXPENDITURE ADMITTE D BY THE ASSESSEE TO THE EXTENT OF ` 7,200/-, THE BALANCE OF ` 4,37,291/- WAS TREATED AS EXPENDITURE FOR EARNING THE EXCESS INCOM E. SINCE THE CIT(APPEALS), AFTER APPLYING THE PROVISIONS OF RULE 8D(2), WHICH IS MANDATORY FOR THE YEAR UNDER CONSIDERATION, RIGHTLY CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AT ` 4,37,291/-, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH T HE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY THE SAME IS CONFIRM ED. 19. THE NEXT GROUND OF APPEAL IS WITH REGARD TO COM PUTATION OF BOOK PROFIT UNDER SECTION 115JB OF THE ACT. 20. SHRI R. SIVARAMAN, THE LD.COUNSEL FOR THE ASSES SEE, SUBMITTED THAT AN AMOUNT OF ` 4,44,491/- WAS ADDED IN THE BOOK PROFIT OF THE ASSESSEE-COMPANY. THE EXPENDITURE RE LATING TO ` 4,44,491/- WAS TO BE ADDED TO THE BOOK PROFIT. 19 I.T.A. NOS.733 TO 735/MDS/15 21. ON THE CONTRARY, SHRI ARUN C. BHARAT, THE LD. D EPARTMENTAL REPRESENTATIVE, SUBMITTED THAT THE ASSESSEE HAS NOT PROPERLY COMPUTED THE RECEIPT RELATING TO EXPENDITURE INCOME FOR THE PURPOSE OF SECTION 115JB OF THE ACT. THEREFORE, THE ASSESS ING OFFICER COMPUTED THE INCOME ON THE BASIS OF MATERIAL AVAILA BLE ON RECORD. THE QUESTION ARISES FOR CONSIDERATION IS WHEN THE D ISALLOWANCE WAS MADE UNDER SECTION 14A READ WITH RULE 8D, WHETHER S UCH DISALLOWANCE WOULD GO TO INCREASE THE TOTAL INCOME OF THE ASSESSEE IN COMPUTING INCOME UNDER SECTION 115JB OF THE ACT? ACCORDING TO THE LD. D.R., IN THE ABSENCE OF ANY SPECIFIC PROVIS ION IN 115JB OF THE ACT, DEDUCTION CANNOT BE ALLOWED. 22. REFERRING TO SECTION 115JB OF THE ACT, THE LD. D.R. SUBMITTED THAT ONCE BOOK PROFIT WAS COMPUTED ACCORDING TO THE PROVISIONS OF COMPANIES ACT, THE SAME HAS TO BE INCREASED OR REDU CED AS PROVIDED IN EXPLANATION TO SECTION 115JB OF THE ACT . IN THE CASE BEFORE US, ACCORDING TO THE LD. D.R., EXPLANATION 1 (F) TO SECTION 115JB(2) OF THE ACT CLEARLY PROVIDES FOR INCREASING THE AMOUNT OF EXPENDITURE RELATABLE TO ANY INCOME TO WHICH SECTIO N 10 (OTHER THAN THE PROVISIONS CONTAINED IN CLAUSE (38) THEREOF). IN THIS CASE, THE EXPENDITURE WAS INCURRED ON EARNING THE DIVIDEND IN COME WHICH 20 I.T.A. NOS.733 TO 735/MDS/15 WAS EXEMPTED UNDER SECTION 10(34) OF THE ACT. THE REFORE, THE BOOK PROFIT COMPUTED UNDER THE COMPANIES ACT HAS TO BE INCREASED BY THE EXPENDITURE RELATABLE TO EARNING OF EXEMPTED INCOME. 23. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. A SUM OF ` 4,37,291/- WAS DISALLOWED BEING AN EXPENDITURE FOR EARNING DIVIDEND INCOME. THE QUESTION ARISES FOR CONSIDERA TION IS WHETHER ` 4,37,291/- WAS TO BE INCREASED WHILE COMPUTING INCO ME UNDER SECTION 115JB OF THE ACT? WE HAVE CAREFULLY GONE T HROUGH THE PROVISIONS OF SECTION 115JB OF THE ACT. EXPLANATIO N 1(F) TO SECTION 115JB(2) OF THE ACT CLEARLY SAYS THAT THE AMOUNT OF EXPENDITURE RELATABLE TO ANY INCOME TO WHICH SECTION 10 (OTHER THAN THE PROVISIONS CONTAINED IN CLAUSE (38) THEREOF) HAS TO BE INCREASED WITH BOOK PROFIT COMPUTED UNDER THE PROVISIONS OF PARTS II AND III OF SCHEDULE VI TO THE COMPANIES ACT, 1956. IN THE CAS E BEFORE US, THE DIVIDEND INCOME EARNED BY THE ASSESSEE TO THE EXTEN T OF ` 15,41,947/- IS EXEMPTED UNDER SECTION 10(34) OF THE ACT. THEREFORE, THE EXPENDITURE RELATABLE TO SUCH INCOME HAS TO BE INCREASED AFTER COMPUTING THE BOOK PROFIT UNDER THE PROVISIONS OF COMPANIES ACT. IN VIEW OF THE SPECIFIC PROVISION I N EXPLANATION 1(F) 21 I.T.A. NOS.733 TO 735/MDS/15 TO SECTION 115JB(2) OF THE ACT, THIS TRIBUNAL DO NO T FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY THE SAME IS CONFIRMED. 24. THE NEXT GROUND OF APPEAL IS WITH REGARD TO DED UCTION OF INTEREST UNDER SECTION 244A OF THE ACT TO THE EXTEN T OF ` 16,51,266/-. 25. SHRI R. SIVARAMAN, THE LD.COUNSEL FOR THE ASSES SEE, SUBMITTED THAT THE ASSESSEE RECEIVED INTEREST UNDER SECTION 244A OF THE ACT. HOWEVER, THE SAME WAS ADDED TO THE INC OME OF THE ASSESSEE. ACCORDING TO THE LD. COUNSEL, THIS INCOM E RELATES TO ASSESSMENT YEAR 2007-08, THEREFORE, NO ADDITION CAN BE MADE FOR THE YEAR UNDER CONSIDERATION. 26. ON THE CONTRARY, SHRI ARUN C. BHARAT, THE LD. D EPARTMENTAL REPRESENTATIVE, SUBMITTED THAT THE ASSESSEE BY LETT ER DATED 03.09.2012 SUBMITTED BEFORE THE ASSESSING OFFICER T HAT AN AMOUNT OF ` 7,11,919/- MAY BE ADDED TO THE INCOME OF THE ASSESS EE. IN PURSUANCE OF THE LETTER DATED 03.09.2012, THE SAME WAS TAKEN AS INCOME OF THE ASSESSEE. THEREFORE, THE CIT(APPEALS ) HAS RIGHTLY CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICE R. 22 I.T.A. NOS.733 TO 735/MDS/15 27. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. A BARE READING OF ASSESSMENT ORDER SHOWS THAT THE ASSESSEE BY LETTER DATED 03.09.2012 ACCEPTED THE INTEREST AMOUNT RECEIVED TO THE EXTENT OF ` 7,11,919/- WHICH NEEDS TO BE ADDED TO THE TOTAL INC OME OF THE ASSESSEE. THE ASSESSEE ITSELF ADMITTED BEFORE THE ASSESSING OFFICER BY LETTER DATED 03.09.2012 THAT THE INTERES T INCOME OF ` 7,11,919/- MAY BE ADDED TO THE TOTAL INCOME. IN VI EW OF THIS, THE ASSESSING OFFICER HAS RIGHTLY FOUND THAT THE SUM OF ` 7,11,919/- WOULD FORM PART OF TOTAL INCOME. THE CIT(APPEALS) CONFIRMED THE ORDER OF THE ASSESSING OFFICER. THIS TRIBUNAL DO N OT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY THE SAME IS CONFIRMED. 28. THE NEXT GROUND OF APPEAL IS WITH REGARD TO DIR ECTION OF THE CIT(APPEALS) TO EXCLUDE A SUM OF ` 32,300/- BEING AN EXCESS INTEREST. 29. SHRI R. SIVARAMAN, THE LD.COUNSEL FOR THE ASSES SEE, SUBMITTED THAT THE ASSESSING OFFICER CHARGED INTERE ST UNDER SECTION 234A OF ` 1,41,740/-, EVEN THOUGH THE RETURN OF INCOME WAS FI LED WITHIN THE STIPULATED PERIOD. ACCORDING TO THE LD. COUNSEL, THE DUE 23 I.T.A. NOS.733 TO 735/MDS/15 DATE OF RETURN OF INCOME WAS EXTENDED UPTO 15.10.20 10 FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. THEREFORE, TH E INTEREST, IF ANY, HAS TO BE RECOMPUTED IN ACCORDANCE WITH THE CB DT NOTIFICATION. 30. ON THE CONTRARY, SHRI ARUN C. BHARAT, THE LD. D EPARTMENTAL REPRESENTATIVE, SUBMITTED THAT THE DUE DATE FOR FIL ING OF RETURN OF INCOME WAS 15.10.2010. AFTER TAKING INTO CONSIDERA TION THE DUE DATE, AND THE CBDT CIRCULAR DATED 27.09.2010, THE C IT(APPEALS) DIRECTED THE ASSESSING OFFICER TO COMPUTE THE INTER EST KEEPING IN VIEW OF THE CBDT CIRCULAR. THEREFORE, ACCORDING TO THE LD. D.R., NO INTERFERENCE IS CALLED FOR. 31. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. SECTION 244A OF THE ACT PROVIDES FOR REFUND OF INTEREST ON ANY AMOU NT DUE TO THE ASSESSEE. IN THE CASE BEFORE US, THE ASSESSEE CLAI MED THAT THE RETURN OF INCOME WAS FILED WITHIN THE DUE DATE EXTE NDED BY THE CBDT. THEREFORE, THE CIT(APPEALS) DIRECTED THE ASS ESSING OFFICER TO VERIFY THE DUE DATE FOR FILING OF RETURN OF INCO ME AND THEREAFTER COMPUTE THE INTEREST ACCORDINGLY. IN VIEW OF THE A BOVE DIRECTION OF THE CIT(APPEALS), THIS TRIBUNAL DO NOT FIND ANY REA SON TO INTERFERE 24 I.T.A. NOS.733 TO 735/MDS/15 WITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDING LY, THE SAME IS CONFIRMED. 32. THE NEXT GROUND OF APPEAL IS WITH REGARD TO CRE DIT FOR TDS TO THE EXTENT OF ` 13,81,600/-. 33. SHRI R. SIVARAMAN, THE LD.COUNSEL FOR THE ASSES SEE, SUBMITTED THAT THE TDS WAS ` 38,17,769/-. THE ASSESSING OFFICER GAVE A CREDIT OF ` 24,36,169/-. HOWEVER, THE CREDIT WAS NOT GIVEN TO THE EXTENT OF ` 13,81,600/-. ACCORDING TO THE LD. COUNSEL, SINCE T HE TDS WAS DEDUCTED FROM THE AMOUNT PAID TO THE ASSESS EE, IT HAS TO BE GIVEN CREDIT. 34. ON THE CONTRARY, SHRI ARUN C. BHARAT, THE LD. D EPARTMENTAL REPRESENTATIVE, SUBMITTED THAT THE ASSESSING OFFICE R GAVE A CREDIT OF ` 38,17,769/-. NO EVIDENCE WAS FILED EITHER BEFORE T HE ASSESSING OFFICER OR BEFORE THE CIT(APPEALS) TO THE EXTENT OF ` 13,81,600/-. THEREFORE, ACCORDING TO THE LD. D.R., THE CIT(APPEA LS) DIRECTED THE ASSESSING OFFICER TO VERIFY THE RECORDS WITH RESPEC T TO THE TDS AMOUNT AND COMPLY WITH THE DIRECTION OF THE CBDT AF TER MAKING DUE VERIFICATION. THEREFORE, ACCORDING TO THE LD. D.R. , NO INTERFERENCE IS CALLED FOR. 25 I.T.A. NOS.733 TO 735/MDS/15 35. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IN THE ABSENCE OF ANY EVIDENCE FOR TDS TO THE EXTENT OF ` 13,81,600/-, THE CIT(APPEALS) DIRECTED THE ASSESSING OFFICER TO VERI FY THE CLAIM ON THE BASIS OF CBDT CIRCULAR. THIS TRIBUNAL IS OF TH E CONSIDERED OPINION THAT THE ASSESSING OFFICER HAS TO VERIFY TH E CLAIM AND IF ANY TDS WAS MADE, CREDIT SHOULD BE GIVEN IN ACCORDANCE WITH THE PROVISIONS OF INCOME-TAX ACT AND THE INSTRUCTION GI VEN BY THE CBDT. THEREFORE, THIS TRIBUNAL DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY THE SAME IS CONFIRM ED. 36. NOW COMING TO THE ASSESSMENT YEAR 2011-12, THE FIRST GROUND IS WITH REGARD TO DISALLOWANCE MADE BY THE A SSESSING OFFICER UNDER RULE 8D OF INCOME-TAX RULES, 1962. 37. SHRI R. SIVARAMAN, THE LD.COUNSEL FOR THE ASSES SEE, SUBMITTED THAT THE ASSESSEE RECEIVED A SUM OF ` 15,51,317/- AS DIVIDEND INCOME THROUGH ECS SYSTEM, THEREFORE, NO E XPENDITURE WAS INCURRED. HOWEVER, THE ASSESSING OFFICER ESTIM ATED THE EXPENDITURE BY APPLYING THE PROVISIONS OF RULE 8D. ACCORDING TO THE 26 I.T.A. NOS.733 TO 735/MDS/15 LD. COUNSEL, IN THE ABSENCE OF ANY EXPENDITURE INCU RRED BY THE ASSESSEE, THERE IS NO QUESTION OF DISALLOWANCE. 38. ON THE CONTRARY, SHRI ARUN C. BHARAT, THE LD. D EPARTMENTAL REPRESENTATIVE, SUBMITTED THAT THE ASSESSING OFFICE R IS NOT SATISFIED BY THE CLAIM OF THE ASSESSEE, THEREFORE, HE RECOMPU TED THE EXPENDITURE BY APPLYING PROVISIONS OF RULE 8D. THE ASSESSING OFFICER HAS TAKEN THE AVERAGE EXPENDITURE AS PER LI MB (II) AND (III) OF RULE 8D. 39. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. AS RIGHTLY SUBMITTED BY THE LD. D.R., THE ASSESSING OFFICER CO MPUTED THE DISALLOWANCE BY APPLYING LIMB (II) AND (III) OF RUL E 8D(2) AND TOOK THE AVERAGE AS EXPENDITURE. SINCE THE APPLICATION OF R ULE 8D IS MANDATORY FOR THE YEAR UNDER CONSIDERATION, THIS TR IBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY THE SAME IS CONFIRMED. 40. THE NEXT GROUND OF APPEAL IS WITH REGARD TO ADD ITION OF LOSS ON ARBITRATION TO THE EXTENT OF ` 3,30,348/-. 27 I.T.A. NOS.733 TO 735/MDS/15 41. SHRI R. SIVARAMAN, THE LD.COUNSEL FOR THE ASSES SEE, SUBMITTED THAT THREE CLAIMS OF THE ASSESSEE APPEARE D IN ARBITRATION PROCEEDING. ON THE BASIS OF ARBITRATION AWARD, THE ASSESSEE HAS TO PAY TO THE CLIENTS A SUM OF ` 3,30,348/-. ACCORDING TO THE LD. COUNSEL, THIS IS ONLY CONSEQUENT TO THE ARBITRATION AWARD AS MECHANISM FOR DISPUTE RESOLUTION, THEREFORE, IT CAN NOT BE CONSTRUED AS PENALTY. 42. ON THE CONTRARY, SHRI ARUN C. BHARAT, THE LD. D EPARTMENTAL REPRESENTATIVE, SUBMITTED THAT THE CLAIM MADE BY TH E ASSESSEE WAS FOR VIOLATING THE CONTRACTUAL OBLIGATION. PENALTY HAS ALSO BEEN IMPOSED FOR VIOLATION OF RULES AND REGULATIONS FRAM ED BY SECURITIES AND EXCHANGE BOARD OF INDIA WITH REGARD TO SETTLEME NT OF STOCKS. THEREFORE, THE ARBITRATOR DECIDED THE DISPUTE IN FA VOUR OF THE CLAIMANT. HENCE, ACCORDING TO THE LD. D.R., THE AS SESSING OFFICER FOUND THAT THE PAYMENT OF ` 3,30,348/- IS NOT A BUSINESS EXPENDITURE. THEREFORE, ACCORDING TO THE LD. D.R., THE CIT(APPEA LS) HAS RIGHTLY CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICE R. 43. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE PAYMENT OF ` 3,30,348/- WAS IN PURSUANCE OF ARBITRATION AWARD PA SSED BY 28 I.T.A. NOS.733 TO 735/MDS/15 ARBITRATORS IN THE COURSE OF BUSINESS ACTIVITY. OF COURSE, THERE WAS A VIOLATION OF CONTRACTUAL OBLIGATION. THEREFORE, TH E ARBITRATOR DECIDED THE MATTER IN FAVOUR OF CLAIMANT. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT MEETING THE OBLIGATIONS PURSUANT TO AW ARD PASSED BY ARBITRATION CANNOT BE CONSTRUED AS PENAL CONSEQUENC E. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE EXPE NDITURE OF ` 3,30,348/- INCURRED BY THE ASSESSEE CONSEQUENT TO A RBITRATION, WAS FOR THE PURPOSE OF MEETING THE BUSINESS EXPENDITURE . THEREFORE, IT CANNOT BE CONSTRUED AS PENALTY. THIS IS ONLY VIOLA TION OF CONTRACTUAL OBLIGATION. HENCE, THE EXPENDITURE HAS TO BE ALLOW ED AS REVENUE IN NATURE. THEREFORE, THIS TRIBUNAL IS UNABLE TO UPHO LD THE ORDERS OF THE LOWER AUTHORITIES. ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE AND THE ADDITION OF ` 3,30,348/- IS DELETED. 44. THE NEXT GROUND OF APPEAL IS WITH REGARD TO DIS ALLOWANCE OF BAD DEBT OF ` 11,36,85,242/-. 45. SHRI R. SIVARAMAN, THE LD.COUNSEL FOR THE ASSES SEE, SUBMITTED THAT THE ASSESSEE CLAIMED A SUM OF ` 11,36,85,242/- AS BAD DEBT WRITTEN OFF IN THE BOOKS OF ACCOUNT. ACCO RDING TO THE LD. COUNSEL, ONE SMT. NIRMALA BEN SHAH AND M/S GRANNAYA K TRADERS PVT. LTD., BEING THE CLIENTS OF THE ASSESSEE, REQUE STED THE ASSESSEE 29 I.T.A. NOS.733 TO 735/MDS/15 TO PURCHASE SHARES. ACCORDINGLY, THE ASSESSEE PURC HASED SHARES ON THEIR REQUEST. THE DEBIT BALANCE IN THE ACCOUNT S WAS INTIMATED TO THEM AND INSPITE OF SEVERAL REQUESTS, THE PAYMEN T WAS NOT MADE. THE SHARE PRICE WENT DOWN TO ` 6.35. IF THE SHARES WERE SOLD AT THAT PRICE, THE ASSESSEE HAS TO INCUR HEAVY LOSS. SINCE THE CLIENTS HAVE NOT HONOURED THEIR COMMITMENT, THE AMOUNT DUE FROM THE CLIENTS WAS WRITTEN OFF IN THE BOOKS OF ACCOUNT. REFERRING TO THE REGULATIONS OF THE STOCK EXCHANGE, THE LD.COUNSEL SUBMITTED THA T THE ASSESSEE HAS TO SETTLE THE AMOUNT TO THE STOCK EXCHANGE REGA RDLESS OF WHETHER THE ASSESSEE RECEIVED THE PAYMENT FROM THE CLIENTS OR NOT. IF THE PAYMENT WAS NOT MADE, THE ASSESSEE WILL BE D ECLARED AS DEFAULTER AND THE ASSESSEE WILL NOT BE ALLOWED TO T RANSACT BUSINESS IN EXCHANGES. THEREFORE, THE ASSESSEE WAS FORCED TO MAKE THE PAYMENT. SIMILARLY, IN THE CASE OF M/S GRANNAYAK T RADERS PVT. LTD., THE SHARE PRICE WENT DOWN TO ` 31.85 AS ON 31.03.2011. THE CLIENT FAILED TO HONOUR ITS COMMITMENT. THEREFORE, AN AMO UNT OF ` 72,77,034/- WAS WRITTEN OFF. SINCE THE DEBT COULD NOT BE RECOVERED FROM THE RESPECTIVE CLIENT, ACCORDINGLY, THE SAME W AS CLAIMED AS BAD DEBT. 46. ON THE CONTRARY, SHRI ARUN C. BHARAT, THE LD. D EPARTMENTAL REPRESENTATIVE, SUBMITTED THAT THE BAD DEBT HAS TO BE ALLOWED 30 I.T.A. NOS.733 TO 735/MDS/15 PROVIDED THE CONDITIONS STIPULATED IN SECTION 36 OF THE ACT ARE COMPLIED WITH. SECTION 36(1)(VII) OF THE ACT CLEAR LY SAYS THAT THE DEDUCTION OF BAD DEBT CAN BE ALLOWED PROVIDED THE S AME WAS WRITTEN OFF. THE DEBT SHOULD BE AN ACTUAL DEBT WHI CH WAS OFFERED FOR TAXATION IN THE EARLIER ASSESSMENT YEAR. IN THE CA SE BEFORE US, ACCORDING TO THE LD. D.R., THE ASSESSEE IS NOT DOIN G ANY MONEY LENDING BUSINESS. IT IS NOT THE CASE OF THE ASSESS EE THAT THE BAD DEBT CLAIM WAS FORMED PART OF INCOME IN ANY OF THE EARLIER ASSESSMENT YEARS. THE BUSINESS OF THE ASSESSEE IS PURCHASE AND SELLING OF SHARES. THE INCOME OF THE ASSESSEE IS O NLY FROM BROKERAGE AND COMMISSION FOR THE PURCHASE AND SALE OF SHARES FROM THE REGISTERED CLIENTS OF THE ASSESSEE. THERE FORE, WHAT FORMS THE INCOME OF THE ASSESSEE IS ONLY A COMMISSION OR BROKERAGE. REFERRING TO THE ORDER OF THE ASSESSING OFFICER, TH E LD. D.R. SUBMITTED THAT IN CASE THE ASSESSEE SPENDS ` 100/- FOR PURCHASE OF SHARE AND SELLS THE SAME FOR ` 102/-, THEN THE ACTUAL INCOME OF THE ASSESSEE IS ONLY ` 2/-. IF AT ALL THERE IS ANY LOSS, THE ASSESSEE AT THE BEST CAN CLAIM ONLY ` 2/- AND NOT THE ENTIRE AMOUNT OF ` 102/-. THE AMOUNT WHICH IS REMAINED TO BE SETTLED BY CLIENTS F OR PURCHASING OF SHARES CANNOT BE CONSTRUED AS BAD DEBT. THE STOCK PURCHASED BY THE ASSESSEE IS VERY WELL WITH THE ASSESSEE. THE A SSESSEE CAN SELL 31 I.T.A. NOS.733 TO 735/MDS/15 THE SAME AT ANY TIME AND REIMBURSE THE COST. THERE FORE, ACCORDING TO THE LD. D.R., AT ANY STRETCH OF IMAGINATION, IT CANNOT BE SAID THAT THE AMOUNT CANNOT BE RECOVERED FROM THE CLIENTS. A T THE BEST, WHAT CAN BE CLAIMED AS LOSS IS THE DIFFERENCE BETWEEN TH E AMOUNT INVESTED BY THE ASSESSEE AND SALE PROCEEDS RECOVERE D ON SALE OF THE SHARES. IN THIS CASE, ACCORDING TO THE LD. D.R ., THE SHARES WERE NOT SOLD SO FAR. IT REMAINS WITH THE ASSESSEE. TH EREFORE, ACCORDING TO THE LD. D.R., MERELY BECAUSE THE MARKET RATE WEN T DOWN FROM PURCHASE PRICE, IT CANNOT BE CONSTRUED AS LOSS IN T HE HANDS OF THE ASSESSEE AS ON TODAY. IT MAY BE LOSS IN THE HANDS OF THE CLIENTS OF THE ASSESSEE. THEREFORE, ACCORDING TO THE LD. D.R. , THE OUTSTANDING AMOUNT FROM THE CLIENTS CANNOT BE CONSTRUED AS DEBT . 47. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. SECTION 36(2)(I) OF THE ACT READS AS FOLLOWS:- 36(2) IN MAKING ANY DEDUCTION FOR A BAD DEBT OR PART T HEREOF, THE FOLLOWING PROVISIONS SHALL APPLY - (I) NO SUCH DEDUCTION SHALL BE ALLOWED UNLESS SUCH DEBT OR PART THEREOF HAS BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE OF THE PREVIOUS YEAR IN WHICH THE AMOUNT OF SUCH DEBT OR PART THEREOF IS WRITTEN OFF OR OF AN EARLIER PREVIOUS YEAR, OR REPRESENTS MONEY LENT IN THE 32 I.T.A. NOS.733 TO 735/MDS/15 ORDINARY COURSE OF THE BUSINESS OF BANKING OR MONEY-LENDING WHICH IS CARRIED ON BY THE ASSESSEE. IN VIEW OF THE ABOVE, IT IS FOR THE ASSESSEE TO EST ABLISH THAT THE BAD DEBT HAS BEEN TAKEN INTO ACCOUNT IN COMPUTING THE I NCOME OF THE ASSESSEE OF ANY OF THE PREVIOUS YEAR OR THE MONEY W AS LENT IN THE COURSE OF ORDINARY BUSINESS OF THE ASSESSEE. IN CA SE THE MONEY LENDING IS NOT THE BUSINESS OF THE ASSESSEE, THEN T HE ASSESSEE HAS TO NECESSARILY ESTABLISH THAT THE SO-CALLED DEBT WA S TAKEN AS INCOME OF THE ASSESSEE FOR THE PREVIOUS YEAR IN WHICH THE AMOUNT OF SUCH DEBT OR PART THEREOF IS WRITTEN OFF OR OF AN EARLIE R PREVIOUS YEAR. THERE IS NO MATERIAL ON RECORD TO SUGGEST THAT THE AMOUNT INVESTED IN SHARES WAS TAKEN AS INCOME OF THE ASSESSEE IN AN Y OF THE PREVIOUS YEAR. MOREOVER, AS RIGHTLY SUBMITTED BY T HE LD. D.R., THE SHARES PURCHASED BY THE ASSESSEE REMAINED WITH ASSE SSEE. THE PRICE OF THE SHARE MIGHT HAVE GONE DOWN CONSIDERABL Y, HOWEVER, THE FACT REMAINS THAT THE SHARES REMAINED WITH THE ASSESSEE AND THE ASSESSEE HAS A RIGHT TO HOLD THE SAME TILL THE PAYMENT WAS MADE BY THE RESPECTIVE CLIENTS. THEREFORE, MERELY BECAUSE THE CLIENTS COULD NOT HONOUR THEIR RESPECTIVE COMMITMEN T OF PAYING THE PURCHASE PRICE, IT DOES NOT MEAN THAT THE ASSESSEE SUFFERS LOSS AT THIS STAGE. THE ASSESSEE HAS TO FIRST SELL THE SHA RES AND THE 33 I.T.A. NOS.733 TO 735/MDS/15 ASSESSEE COULD NOT REALISE THE ENTIRE AMOUNT INVEST ED, THEN THE AMOUNT WHICH COULD NOT BE REALIZED MAY BE CLAIMED A S BUSINESS LOSS. AT NO STRETCH OF IMAGINATION, IT CAN BE SAID THAT THE AMOUNT DUE FROM THE CLIENTS IS BAD DEBT. SINCE THE PROVIS IONS OF SECTION 36(2)(I) WAS NOT COMPLIED WITH, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE OUTSTANDING AMOUNT CANNOT BE CONST RUED AS BAD DEBT. THEREFORE, THERE IS NO QUESTION OF ALLOWING THE SAME AS BAD DEBT. SINCE THE SHARES REMAINED WITH THE ASSESSEE AND IT CAN BE SOLD AT ANY TIME, AT THE BEST, IT CAN BE CLAIMED AS BUSINESS LOSS IN THE YEAR IN WHICH THOSE SHARES ARE SOLD PROVIDED TH ERE IS ANY ACTUAL LOSS. ACCORDINGLY, THE ASSESSING OFFICER SHALL VER IFY WHETHER THE ASSESSEE SOLD THE SHARES DURING THE YEAR UNDER CONS IDERATION AND SUFFERED ANY LOSS. IF THE ASSESSEE SUFFERED LOSS O N SALE OF SUCH SHARES, THE SAME SHALL BE ALLOWED AS BUSINESS LOSS. 48. IN THE RESULT, I.T.A. NOS.733 & 734/MDS/2015 AR E DISMISSED AND I.T.A. NO.735/MDS/2015 IS PARTLY ALLOWED. 34 I.T.A. NOS.733 TO 735/MDS/15 ORDER PRONOUNCED ON 5 TH MAY, 2016 AT CHENNAI. SD/- SD/- (. !'# ! ) ( . . . ) (A. MOHAN ALANKAMONY) (N.R.S. GANESAN) % / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 5 /DATED, THE 5 TH MAY, 2016. KRI. / -267 87)2 /COPY TO: 1. +, /APPELLANT 2. -.+, /RESPONDENT 3. 1 92 () /CIT(A)-15, CHENNAI 4. 1 92 /CIT-6, CHENNAI 5. 7: -2 /DR 6. ( ; /GF.
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