M/s. TOWER CAPITAL & SECURITIES P. LTD., MUMBAI V. DCIT CIR. 4(2), MUMBAI

ITA 7383/MUM/2005

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8193 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-08-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 12-07-2012
• Assessment Year: 2002-2003
• Appeal Filed On: 16-12-2005
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M MURLI
• Assessee Lawyers: RAJEN J DAMANI
• Keywords: Speculation loss; Onus to prove
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES G MUMBAI BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI RAJENDRA, ACCOUNTANT MEMBER ITA NO. 7383/MUM/2005 ASSESSMENT YEAR 2002-03 M/S. TOWER CAPITAL & SECURITIES PRIVATE LTD., ABAN HOUSE, 25/31, ROPEWALK LANE, OFF RAMPORT ROAD, MUMBAI 400 023. PAN: AAACT 2154 M VS. DCIT, CIRCLE 4(2), MUMBAI. (APPELLANT ) (RESPONDENT) ASSESSEE BY : SHRI RAJEN J. DAMANI REVENUE BY : SHRI M. MURLI DATE OF HEARING : 12-07-2012 DATE OF PRONOUNCEMENT : 01-08-2012 ORDER PER RAJENDRA, A.M. CHALLENGING THE ORDER DATED 28.09.2005 OF THE CIT( A)-IV, MUMBAI ASSESSEE- COMPANY HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1:1. THE LEARNED ASSESSING OFFICER HAS ERRED IN DIS ALLOWING RS. 25.00 LACS, ON AD HOC BASIS, TOWARDS SHARE TRADING EXPENSES ON ERRONEOUS ASSUMPTION THAT THE APPELLANT HAS INCURRED EXPENDITURE TOWARDS SPECULATION BUSINESS A ND ALLOCATED ON PROPORTION BASIS THE TOTAL EXPENDITURE WITHOUT ANALYSING THE NATURE OF EXPENDITURE WHICH ARE DIRECTLY RELATED TO THE BROKING ACTIVITY WHICH IS THE PRINCI PAL BUSINESS OF THE APPELLANT. 1:2. THE APPELLANT HAD EARNED SPECULATIVE INCOME OF RS. 53,974 ARISING FROM FEW PROPRIETARY TRADES ON THE PORTFOLIO OF SHARES AND G OVERNMENT SECURITIES AND VALUATION OF SECURITIES ACQUIRED IN EARLIER YEARS. THE APPELL ANT ALSO SUBMITS THAT THE TRADING IN GOVERNMENT IS OUTSIDE THE PURVIEW OF EXPLANATION TO SECTION 73 OF THE INCOME TAX ACT AND THE PROFIT ARISING FROM VALUATION AT THE END OF THE YEAR DO NOT ENTAIL ANY EXPENDITURE ALLOCABLE TO THIS BUSINESS. ITA NO. 7383/MUM/2005 M/S. TOWER CAPITAL & SECURITIES PRIVATE LTD., 2 1.3: THE APPELLANT SUBMITS THAT CONSIDERING THE FA CTS AND CIRCUMSTANCES OF THE CASE AND THE LAW PREVAILING ON THE SUBJECT THE LEARNED ASSES SING OFFICER WAS NOT JUSTIFIED TO DISALLOW EXPENDITURE INCURRED FOR BROKING BUSINESS AS SPECULATION BUSINESS AND THE ADDITION MADE BY THE LEARNED ASSESSING OFFICER OF S UCH AMOUNT IS ERRONEOUS, UNWARRANTED, MISCONCEIVED AND SHOULD BE DELETED. 1.4. THE APPELLANT SUBMITS THAT THE ASSESSING OFFI CER BE DIRECTED TO DELETE THE ADDITION SO MADE BY HIM. 2. DISALLOWANCE OF STATIONERY EXPENSES RS. 199,502/ - 2:1.THE LEARNED ASSESSING OFFICER HAS ERRED IN DISA LLOWING EXPENDITURE INCURRED TOWARDS STATIONERY EXPENSES OF RS. 199,502. 2:2.THE APPELLANT SUBMITS THAT THE LEARNED ASSESSI NG OFFICER WAS NOT JUSTIFIED TO DISALLOW LEGITIMATE STATIONERY EXPENSES INCURRED BY THE APPE LLANT FOR THE PURPOSE OF THE BUSINESS. THE BILLS WERE IN THE NAME OF ITS HOLDING COMPANY B UT WERE PAID BY THE ASSESSEE AND THE RELEVANT STATIONERY WAS CONSUMED ARID UTILISED BY T HE APPELLANT FOR THE PURPOSE OF BUSINESS. 2:3.THE APPELLANT SUBMITS THAT CONSIDERING THE FAC TS AND CIRCUMSTANCES OF THE CASE AND THE LAW PREVAILING ON THE SUBJECT THE LEARNED ASSES SING OFFICER WAS NOT JUSTIFIED TO DISALLOW LEGITIMATE STATIONERY EXPENSES AND THE ADD ITION MADE BY THE LEARNED ASSESSING OFFICER OF SUCH AMOUNT IS ERRONEOUS, UNWARRANTED, M ISCONCEIVED AND SHOULD BE DELETED. 2 : 4.THE APPELLANT SUBMITS THAT THE ASSESSING OFFICER BE DIRECTED TO DELETE THE ADDITION SO MADE BY HIM. 3. DISALLOWANCE U/S 14A RS. 5,000/- 3.1.THE LEARNED ASSES SING OFFICER DISALLOWING ADHOC EXPENDITURE OF RS. 5 ,000/-EARNING INCOME FROM DIVIDEND. 3.2.THE APPELLANT SUBMI TS THAT THE LEARNED ASSESSING OFFICER WAS NOT JUSTI FIED TO DISALLOW ADHOC EXPENSES INCURR ED OF RS. 5,000 ON PURE ASSUMPTION WITHOUT PROVING ANY EXPENDITURE DIRECTLY INCURRED FOR EARNING DIVIDEND INCOME. IT IS ALSO EVIDENT THAT ACQUISITIONS OF SHARES ARE NOT MADE ONLY FOR EARNING MEAGER DIVIDEND BUT FOR APPRECIATION RESUL TING IN PROFITS AND IS SUBJECT TO TAX. 3.3.THE APPELLANT SUBMITS THAT CONSIDERING THE FACTS ARID CIRCUMSTANCES OF T HE CASE AND THE LAW PREVAILING ON THE SUBJ ECT THE LEARNED ASSESSING OFFICER WAS NOT JUSTIF IED TO DISALLOW ADHOC EXPENDITURE AND TH E ADDITION MADE BY THE LEARNED ASSESSING OFFICER OF SUCH AMOUNT IS ERRONEOUS, UNWARRANTED, MISC ONCEIVED AND SHOULD BE DELETED. 2. ASSESSEE-COMPANY, ENGAGED IN THE BUSINESS OF BROKIN G AND TRADING IN SECURITIES, FILED ITS RETURN OF INCOME ON 31.10.200 2 DECLARING TOTAL INCOME OF RS.1.07 CRORES. ASSESSMENT ORDER WAS PASSED U/S.143(3) OF THE INCOME-TAX ACT, 1961(ACT) ON 23.02.2005 DETERMINING THE TOTAL INCOME AT RS. 2,13 ,66,151/-. 3. FIRST GROUND OF APPEAL PERTAINS TO DISALLOWANCE OF SHARE TRADING EXPENSES AMOUNTING TO RS.58,08,505/-. DURING THE ASSESSMENT PROCEEDINGS ASSESSING OFFICER ITA NO. 7383/MUM/2005 M/S. TOWER CAPITAL & SECURITIES PRIVATE LTD., 3 (AO) FOUND THAT THE ASSESSEE-COMPANY HAD CREDITED T HE FOLLOWING AMOUNTS IN ITS PROFIT AND LOSS ACCOUNT: BROKERAGE INCOME - RS.6,89,68,081/ - INCOME FROM SHARE TRADING - RS.53,974/- OTHER INCOME - RS.5,62,97 4/-. HE FOUND THAT THE ASSESSEE-COMPANY HAD TREATED ITS ACTIVITY OF TRADING IN SHARES AS SPECULATIVE AND HAD COMPUTED INCOME FROM THE SAM E SEPARATELY, THAT IT HAD ALSO SET OFF BROUGHT FORWARD SHARE LOSSES OF AY.1997-98 AGAI NST THE SHARE INCOME OF THE YEAR UNDER CONSIDERATION. HE NOTED THAT ASSESSEE HAD NOT APPORTIONED ANY EXPENSES TOWARDS THE SPECULATION ACTIVITY. HE ASKED THE ASSESSEE TO EXPLAIN AS TO WHY PROPORTIONATE EXPENSES INCURRED FOR SPECULATION BUSINESS SHOULD N OT BE ALLOCATED WHILE DETERMINING SPECULATION, PROFIT. AFTER CONSIDERING THE REPLIES FILED BY THE ASSESSEE-COMPANY, AO HELD THAT THE DETERMINATION OF SHARE TRADING PROFIT COULD NOT BE COMPUTED WITHOUT ALLOCATION OF EXPENSES WHICH ARE INVARIABLY INCURRE D FOR SHARE TRADING. RELYING ON DECISIONS OF EASTERN AVIATION AND INDUSTRIES LTD, ( 208 ITR 1023) AND SIND INVESTMENT SUPER MILLS PVT. LTD (121 ITR 742), AO HELD THAT TH E PROPORTIONATE EXPENSES INCURRED TOWARDS SPECULATION LOSS HAS TO BE DISALLOWED. AFT ER CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, THE AO CONCLUDED THAT 10 % OF THE ABOVE EXPENSES I.E. RS.58,08,505/- (10% RS.5.80 CRORES) PERTAINED TO TH E SHARE TRADING ACTIVITIES OF THE ASSESSEE. 3.1. DISALLOWANCE OF THE SAID AMOUNT MADE BY THE AO WAS CHALLENGED BY THE ASSESSEE BEFORE THE FIRST APPELLATE AUTHORITY (FAA) . AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE-COMPANY FAA HELD THAT THE AO HAD COMMITTED AN ERROR BY ASSUMING THAT 10% OF THE TOTAL EXPENDITURE OF RS .5.8 CRORES COULD BE ALLOCATED FOR THE INCOME ARISING FROM TRADING IN SHARES WHICH AMO UNTED TO A SUM OF RS.53,974/-, THAT OUT OF TOTAL INCOME OF RS. 6.96 CRORES RS. 6.8 9 CRORES WAS BROKERAGE INCOME, THAT THE SAID BROKERAGE INCOME COULD NOT BE BROUGHT UNDER EXPLANATION TO SECTION 73 OF THE ACT. AFTER EXAMINING THE EXPENDITURE STATEME NT SUBMITTED BY THE ASSESSEE- COMPANY FAA HELD THAT 86.24% OF THE EXPENDITURE CO ULD NOT DIRECTLY BE ATTRIBUTED ONLY TO BROKING ACTIVITY, THAT THE EXPENDITURE INCU RRED UNDER THE HEADS-COMMUNICATION EXPENSES, MEMBERSHIP AND SUBSCRIPTION EXPENSES, BUS INESS SERVICE CENTRE CHARGES, PERSONAL EXPENSES, ELECTRICITY CHARGES, SOFTWARE EX PENSES, MISCELLANEOUS EXPENSES, SALES PROMOTION EXPENSES, VEHICLE EXPENSES, REPAIRS AND MAINTENANCE-COULD NOT BE EXCLUSIVELY FOR BROKING ACTIVITY.HE RESTRICTED THE DISALLOWANCE TO RS. 25 LAKHS. 3.2. BEFORE US, THE AUTHORISED REPRESENTATIVE(AR) SUBMIT TED THAT SHARES WERE HELD AS INVESTMENT BY THE ASSESSEE-COMPANY, THAT INVOCAT ION OF EXPLANATION TO SECTION 73 OF THE ACT BY THE AO WAS NOT AS PER THE PROVISIONS OF LAW,THAT BROKERAGE INCOME WAS ABOUT SIX CRORES RUPEES, THAT INCOME FROM SHARE-TRA DING WAS RS.53,974/-ONLY, THAT SAID INCOME WAS ALSO ON ACCOUNT OF VALUATION OF THE SHARES, THAT SHARES WERE HELD IN THE EARLIER YEARS, THAT THERE WAS NO SALE OR PURCHA SE OF THE SHARES, THAT THERE WAS NO SPECULATION ACTIVITY IN THE YEAR UNDER CONSIDERATIO N, THAT GOVERNMENT SECURITIES WERE NOT COVERED BY THE EXPLANATION TO THE SECTION 73 OF THE ACT, THAT FROM THE SHARE TRANSACTION MEAGRE AMOUNT WAS REALISED. HE RELIED UPON THE CASES OF JPS SHAREBROKERS PRIVATE LTD (163 TAXMAN 89) AND PARKER SECURITIES LTD (102TTJ235). DEPARTMENTAL REPRESENTATIVE (DR), RELIED ON THE ORD ER OF THE FAA . ITA NO. 7383/MUM/2005 M/S. TOWER CAPITAL & SECURITIES PRIVATE LTD., 4 3.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE AVAILABLE MATERIAL. FROM THE DETAILS FURNISHED BY THE ASSESSEE COMPANY BEFOR E THE LOWER AUTHORITIES, IT IS EVIDENT THAT THE MAIN SOURCE OF INCOME OF THE ASSES SEE COMPANY FOR THE YEAR UNDER CONSIDERATION WAS FROM BROKER IS (98.96%. OF THE TO TAL INCOME),WHEREAS INCOME FROM TRADING IN SHARES AND SECURITIES WAS ONLY .08%. IN THE RELEVANT YEAR ASSESSEE COMPANY HAD CARRIED OUT ONLY ONE PURCHASE AND SALE TRANSACT ION IN SHARES AND THREE TRANSACTIONS IN SECURITIES. THE TRANSACTION IN SHARES RESULTED I N PROFITS OF RS. 27/-. IT IS ALSO FOUND THAT THERE WAS GAIN ON THE VALUATION OF SHARES PURC HASED IN THE EARLIER YEARS. IN OUR OPINION, SUCH TRANSACTIONS ARE NOT COVERED BY EXPLA NATION TO SECTION 73 OF THE ACT. SIMILARLY, THE SAID EXPLANATION IS ALSO NOT APPLICA BLE TO THE TRADING OF GOVERNMENT SECURITIES. NEITHER THE AO NOR THE FAA HAS BROUGHT ANY MATERIAL ON RECORD TO PROVE THAT THE ASSESSEE-COMPANY HAD INCURRED ANY EXPENDIT URE TOWARDS SPECULATION ACTIVITIES. AFTER GOING THROUGH THE ORDERS OF THE AO AND THE FAA, WE ARE OF THE OPINION THAT THE EXPENDITURE INCURRED BY THE ASSESS EE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION WAS FOR EARNING BROKERAGE INCOME ONLY . AS THERE WAS NO NEXUS BETWEEN THE EXPENSES INCURRED AND SHARE ACTIVITY, S O, WE DELETE THE ADDITION MADE BY THE AO AND PARTIALLY UPHELD BY THE FAA . GROUND NUMBER 1 IS DECIDED IN FAVOUR OF THE ASSESSE E 4. NEXT GROUND OF APPEAL IS ABOUT DISALLOWANCE OF RS.1 ,99,502/- MADE BY THE AO ON ACCOUNT OF STATIONARY EXPENSES. ON THE VERIFICATI ON OF RECORDS DURING THE COURSE OF ASSESSMENT PROCEEDINGS AO F OUND THAT THE BILLS FOR PURCHASE OF STATIONARY WERE NOT IN THE NAME OF THE ASSESSEE-COMP ANY BILLS ISSUED BY DEEPAK STATIONARY AND XEROX A ND RINKLE STATIONERY MART WERE ISSUED IN THE NAME OF DEVDUTT INVESTMENT I.E. HO LDING COMPANY. AO HELD THAT THE SAID EXPENDITURE WAS NOT INCURRED BY THE ASS ESSEE - COMPANY. AS A RESULT, AN ADD ITION OF RS. 1.99 LAKHS WAS MADE TO THE TOTAL INCOM E OF THE ASSESSEE. 4.1. ASSESSEE PREFERRED AN APPEAL BEFORE THE FAA WHO HEL D THAT THERE WAS NO EVIDENCE ON RECORD WHICH COULD ESTABLISH THAT THE A CTUAL CONSUMPTION OF STATIONARY ALLEGEDLY PURCHASE THROUGH M/S. DEVDUTT INVESTMENTS WAS INDEED CONSUMED BY THE APPELLANT ITSELF, THAT IT WAS DIFFICULT TO APPRECIA TE THE ARGUMENT THAT THE PAYMENT OF THIS NATURE WOULD AT ALL BE ROUTED BY THE APPELLANT COMP ANY TO ITS HOLDING COMPANY. HE UPHELD THE ADDITION MADE BY THE AO. 4.2. BEFORE US, THE AR SUBMITTED THAT THE EXPENDITURE IN CURRED ON ACCOUNT OF STATIONARY WAS ACTUALLY INCURRED BY THE ASSESSEE CO MPANY, THAT ONLY BILLS WERE ISSUED IN THE NAME OF THE HOLDING COMPANY, THAT PAYMENT SH OULD BE ALLOWED. DR SUBMITTED THAT ASSESSEE HAD FAILED TO ESTABLISH THAT THE SAID EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS OF THE ASSESSEE- COMPA NY, THAT THERE WAS NO NEED FOR THE ASSESSEE TO GET THE BILLS IN THE NAME OF THE HOLDIN G COMPANY. 4.3. AFTER HEARING THE RIVAL SUBMISSIONS WE ARE OF THE O PINION THAT THE ASSESSEE HAS NOT PROVED AS WHY THE BILLS WERE OBTAINED IN THE NA ME OF THE HOLDING COMPANY. CORRESPONDENCE BETWEEN THE HOLDING COMPANY AND THE ASSESSEE COMPANY, IN THIS REGARD, HAS NOT BEEN PRODUCED BEFORE THE LOWER AUTH ORITIES OR BEFORE US. IT WAS THE DUTY OF THE ASSESSEE-COMPANY TO PROVE THAT THE SAID EXPENDITURE WAS INCURRED BY IT FOR CARRYING ON THE BUSINESS FOR THE ASSESSMENT YEAR UN DER CONSIDERATION. AS THE ASSESSEE- ITA NO. 7383/MUM/2005 M/S. TOWER CAPITAL & SECURITIES PRIVATE LTD., 5 COMPANY HAS FAILED TO DO DISCHARGE BURDEN OF PROOF CAST UPON IT, WE DISMISS THE GROUND NO.2. 5. GROUND NO. 3 WAS NOT PRESSED BY THE AR OF THE ASSES SEE, SO, WE TREAT IT IS DISMISSED. 6. AS A RESULT, APPEAL FILED BY THE ASSESSEE COMPANY S TANDS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 ST AUGUST, 2012 SD/- SD/- (VIJAY PAL RAO) (RAJENDRA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATE 1 ST AUGUST, 2012 TNMM COPY TO: 1. APPELLANT 2. RESPONDENT 3. THE CONCERNED CIT (A) 4. THE CONCERNED CIT 5. DR G BENCH, ITAT, MUMBAI 6. GUARD FILE (TRUE COPY) BY ORDER ASST. REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI