Shree Nath Kapoor, Kolkata V. DCIT, CIR-36, KOLKATA, Kolkata

ITA 859/KOL/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 4259 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 6 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-11-2016
• Appeal Filed By: Assessee
• Bench Allotted: SMC
• Next Hearing Date: 23-08-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 05-05-2014
• Court: TRIBUNAL
• Department Lawyers: BANIBRATA DUTTA
• Keywords: Capital asset; Business expenditure; Earning of tax free income; Bad and doubtful debts; Revenue expenditure; Capital expenditure
• Section: 143(3); 14A; 37(1)

Judgement Text

1 ITA NO. 859/KOL/2014 SHREE NATH KAPOOR AY: 2008-09 IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH: KOL KATA [BEFORE SHRI K. NARASIMHA CHARY, JM & DR. A. L. SA INI, AM] I.T.A NO. 859/KOL/2014 ASSESSMENT YEAR: 2008-09 SHREE NATH KAPOOR VS. DEPUTY COMMISSIONER OF IN COME-TAX, (PAN: AFAPK8822M) CIRCLE-36, KOLKATA. ( APPELLANT ) ( RESPONDENT ) DATE OF HEARING: 19.10.2016 DATE OF PRONOUNCEMENT: 11.11.2016 FOR THE APPELLANT: SHRI SUBASH AGARWAL, ADVOCA TE FOR THE RESPONDENT: SHRI BANIBRATA DUTTA, ADDL . CIT ORDER PER SHRI K. NARASIMHA CHARY, JM: THIS APPEAL BY ASSESSEE IS ARISING OUT OF ORDER OF CIT(A)-XX, KOLKATA VIDE APPEAL NO. 265/CIT(A)-XX/CIRCLE-36/2010-11/KOL DATED 30.01 .2014. ASSESSMENT WAS FRAMED BY DCIT, CIRCLE-36, KOLKATA U/S. 143(3) OF THE INCOME- TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR AY 2008-09VIDE HIS ORDER DATED 23.12 .2010. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S A STOCK BROKER REGISTERED WITH CALCUTTA STOCK EXCHANGE ASSOCIATION LTD. FOR THE ASSESSMENT YEAR 2008-09 HE FILED HIS RETURN OF INCOME ON 18.8.2008 DECLARING A TOTAL INCOME OF RS. 16,01,190/-. DURING THAT YEAR THE EXCHANGE DEDUCTED A SUM OF RS.1,59,380/- TOWARDS TH E EQUAL DISTRIBUTION OF SETTLEMENT GUARANTEE FUND UTILIZED IN MARCH 2001 CRISIS, WHICH THE ASSESSEE HAD WRITTEN OFF IN THE P & L ACCOUNT AS BAD DEBTS. FURTHER THE ASSESSEE PAID A SUM OF RS.50,000/- TOWARDS TECHNOLOGY EXPENSES TO THE CALCUTTA STOCK EXCHANGE TO OPERATIO NALIZE THE ARRANGEMENT WITH THE BOMBAY STOCK EXCHANGE, WHICH WAS ALSO DEBITED IN TH E P&L ACCOUNT. HOWEVER, THE ASSESSING OFFICER OPINED THAT CONSIDERING THE PROVI SIONS OF SECTION 36(2)(I) OF THE ACT WHICH SAYS NO SUCH DEDUCTION SHALL BE ALLOWED UNLES S SUCH DEBT OR PART THEREOF HAS BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE A SSESSEE OF THE PREVIOUS YEAR IN WHICH THE AMOUNT OF SUCH DEBT OR PART THEREOF IS WRITTEN OFF OR OF AN EARLIER PREVIOUS YEAR, THE SAME CANNOT BE ALLOWED. SO ALSO IN RESPECT OF THE TECHN OLOGY EXPENSES THE ASSESSING OFFICER HELD THAT SINCE THIS IS ONE TIME PAYMENT AND ITS B ENEFIT CAN BE REAPED BY THE ASSESSEE IN THE YEARS TO COME, THE SAME CANNOT BE TREATED AS REVENU E EXPENDITURE. FURTHER THE ASSESSING 2 ITA NO. 859/KOL/2014 SHREE NATH KAPOOR AY: 2008-09 OFFICER INVOKED PROVISIONS UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES STATING THAT THE ASSESSEE HAS EARNED EXEMPT INCOME BY WAY OF INTEREST ON PUBLIC PROVIDENT FUND, LONG TERM CAPITAL GAINS FROM SALE OF INVESTME NT SHARES AND DIVIDEND INCOME. ON THESE GROUNDS HE ADDED BACK SUCH SUMS TO THE TOTAL INCOME OF THE ASSESSEE, AND ASSESSED THE SAME AT RS. 18,73,210/-. 3. CHALLENGING THE SAME, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LEARNED CIT(APPEALS) AND THE LEARNED CIT(APPEALS) BY WAY OF IMPUGNED ORDER CONCURRED WITH THE FINDINGS OF THE ASSESSING OFFICER ON ALL THE COUNTS AND DISMISSED THE APPEAL OF ASSESSEE. AGGRIEVED BY THE ORDER OF DISMISSAL OF APPEAL, THE ASSESSEE FILED THIS APPEAL BEFORE US ON THE FOLLOWING GROUNDS: 1) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. CIT (A) WAS NOT JUSTIFIED IN CONFIRMING THE DISALLOWANCE MADE BY THE A.O. TO THE TUNE OF RS 1,59,380/-, WHICH WAS DEDUCTED BY THE CALCUTTA STOCK EXCHANGE FROM THE DE POSITS LYING WITH IT, FOR PERMITTING DEALING THROUGH BOMBAY STOCK EXCHANGE. 2) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS 50,000/- MADE BY THE A.O. ON ACCOUNT OF PAYMENT MADE TO THE CALCUTTA STOCK EXCHANGE AS TECHNOLOGY EXPENSES BY W RONGLY TREATING THE SAME AS CAPITAL EXPENDITURE. 3) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, LD. CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE OF RS 62,642/- MADE BY THE A.O. U/ S 14A R.W. RULE 8D OF THE ACT. 4. IT IS THE ARGUMENT OF THE LD. AR THAT THE STOCK EXCHANGE DEDUCTS AMOUNT FROM THE DEPOSITS OF THE ASSESSEE FOR UTILISATION OF THE SAM E IN PAYMENT CRISIS AND IN THAT CONTEXT DURING THE RELEVANT YEAR THE CALCUTTA STOCK EXCHANG E DEDUCTED A SUM OF RS.1,59,380/- FOR EQUAL DISTRIBUTION OF SETTLEMENT GUARANTEE FUND AS SUCH, IT IS A BUSINESS EXPENDITURE AND ALLOWABLE AS DEDUCTION. HOWEVER, BOTH THE AUTHORIT IES BELOW MISDIRECTED THEMSELVES DUE TO THE IMPROPER NOMENCLATURE USED BY THE ASSESSEE AND THEY FAILED TO SEE THAT THIS AMOUNT IS DEDUCTIBLE UNDER LAW. HIS FURTHER ARGUMENT IS THAT THE PAYMENT OF RS.50,000/- TOWARDS TECHNOLOGY EXPENSES IS THE PAYMENT TOWARDS THE EXPE NSES INCURRED BY THE EXCHANGE TO OPERATIONALISE THE ARRANGEMENT AND IT DOES NOT CREA TE ANY ASSET. HE ADMITS THAT THOUGH THIS IS ONE TIME PAYMENT IT ONLY FACILITATES EVEN OPERAT ION OF THE BUSINESS AND GENERATES MORE INCOME WITH MORE EFFICIENT OPERATION AS SUCH, IT HA S TO BE TREATED AS REVENUE EXPENDITURE BUT NOT AS CAPITAL EXPENDITURE. LASTLY, RELYING ON THE RATIO LAID DOWN ON THE DECISION OF A 3 ITA NO. 859/KOL/2014 SHREE NATH KAPOOR AY: 2008-09 COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF RE I AGRO LTD. VS. DCIT 144 ITD 141(CAL) AND ALSO IN THE CASE OF BALARAMPUR CHINI MILLS LTD. VS. DCIT (2011) 140 TTJ 73 (CAL), HE SUBMITTED THAT WHERE THE ASSESSEE CLAIMS THAT NO EX PENDITURE HAS BEEN INCURRED BY IT FOR THE PURPOSE OF EARNING INCOME NOT CHARGEABLE TO TAX, AO IS NOT JUSTIFIED IN MAKING ADDITION U/S. 14A OF THE ACT READ WITH RULE 8D OF THE I. T. RULE S. HIS SUBMISSION IS THAT THE ASSESSEE HAD ITS OWN CAPITAL OF RS.1000 CR. AND BORROWED FUN DS WERE USED FOR ACQUISITION OF FIXED ASSETS AND NO PART OF IT WAS UTILISED FOR ACQUISITI ON OF SHARES. 4A) PER CONTRA, IT IS THE ARGUMENT OF LD. DR THAT THE ASSESSEE HIMSELF CLAIMED THE DEDUCTION OF RS.1,59,380/- UNDER THE HEAD BAD DEBTS AND THE CLAIM OF BAD DEBTS WAS ALLOWABLE ONLY WHEN THE AMOUNT WAS TAKEN INTO ACCOU NT WHILE COMPUTING THE INCOME OF THE EARLIER YEAR U/S. 36(2) OF THE ACT. SO FAR AS THE CLAIM OF ASSESSEE FOR DEDUCTION OF RS.50,000/- IS CONCERNED, ARGUMENT OF THE LD. DR IS THAT SUCH PAYMENT MADE BY THE ASSESSEE WAS FOR AN ENDURING BENEFIT AS SUCH, THE A UTHORITIES BELOW ARE JUSTIFIED IN TREATING THE SAME AS CAPITAL EXPENDITURE. LASTLY, IT IS SUB MITTED BY THE LD. DR THAT SINCE THE ASSESSEE EARNED THE EXEMPT INCOME DURING THE RELEVANT PREVIO US YEAR THE AO WAS JUSTIFIED IN INVOKING RULE 8D OF THE RULES WHILE CALCULATING THE ADDITION AND THE CASE DECISION IN THE CASE OF BALARAMPUR CHINI MILLS LTD., SUPRA HAS NO A PPLICATION TO THE FACTS OF THIS CASE. FOR THIS REASON, HE PRAYED TO DISMISS THE APPEAL OF ASS ESSEE. 5. LD. AR RELIED ON A DECISION IN THE CASE OF ACIT VS. TAPAN KUMAR BARDHAN IN ITA NO. 542/KOL/2011 DATED 25.11.2011, WHEREIN THE TRI BUNAL HAS HELD AS UNDER: 4. COMING TO THE SECOND ISSUE REGARDING DISALLOWAN CE OF RS.2,50,000/- WHICH THE LD. CIT(A) DELETED ON THE GROUND THAT IT IS AN ALLOWABLE EXPENDITURE U NDER SECTION 37(1) OF THE ACT. THE NATURE OF PAYMEN T IS THAT RS.2,50,000/- WAS FORFEITED/ADJUSTED BY THE CALCUTTA STOCK EXCHANGE. ACCORDING TO ASSESSING OFFICER, IT IS PENAL IN NATURE. HOWEVER, LD. CIT(A) WAS OF THE VIEW THAT THE ABOVE ADJUSTMENT WAS NOT PENAL IN NATURE BUT, IN FACT, ADJUSTED BY THE STOCK EXCHANGE OUT OF THE DEPOSITS MADE BY THE ASSESSEE IN PURSUANCE TO THE SETTLEMENT GUARANTEE FUND BYE LAWS . THE SAID AMOUNT WAS UTILIZED IN FULL BY THE CALCUTTA STOCK EXCHANGE FOR THE PAYMENT CRISIS IN 2 001. THIS CLEARLY SHOWS THAT THIS ADJUSTMENT IS NOT PENAL IN NATURE BUT BY WAY OF COMPENSATORY AS IT IS INCURRED FOR THE PURPOSE OF BUSINESS WHICH IS PAID AS PER CALCUTTA STOCK EXCHANGE IN PURSUANCE TO SETT LEMENT GUARANTEE FUND BYE LAWS. HENCE, IT IS AN ALLOWABLE EXPENDITURE WHICH THE LD. CIT(A) AS PER L AW ADJUDICATED AND WE HAVE NO HESITATION IN CONFIRMING THE ORDER OF LD. CIT(A) WHO RIGHTLY DELE TED THE DISALLOWANCE. 6. IN SUPPORT OF HIS SUBMISSION THAT NOMENCLATURE D OES NOT MATTER MATCH WHEN THE NATURE OF PAYMENT IS ELIGIBLE FOR DEDUCTION, LD. CO UNSEL RELIED ON A SERIES OF DECISIONS, THE GIST OF WHICH IS AS FOLLOWS: K. C. P. LTD. VS. CIT 245 ITR 421 (SC) 4 ITA NO. 859/KOL/2014 SHREE NATH KAPOOR AY: 2008-09 IN THE CASE AT HAND THE EXCESS AMOUNT OF RS. 14,96 ,130 WAS REALISED BY THE APPELLANT COMPANY IN THE ORDINARY MANNER OF ITS BUSINESS ACTIVITIES AND AS T HE PRICE OF SUGAR SOLD BY IT. THE AMOUNT WAS RETAIN ED BY THE ASSESSEE AS PRICE OF THE SUGAR SOLD BY IT THOUG H THE RIGHT OF THE APPELLANT COMPANY TO REALISE THE AMOUNT WAS SUBJECT OF DISPUTE. THE INTERIM ORDER OF THE HI GH COURT, LOOKING TO THE PHRASEOLOGY EMPLOYED THERE IN, WOULD NOT MAKE ANY DIFFERENCE IN THE NATURE OF RECE IPTS BY THE ASSESSEE. THOUGH THE LEARNED SENIOR COU NSEL FOR THE APPELLANT SUBMITTED THAT THE EXCESS AMOUNT WAS RETAINED IN A SEPARATE ACCOUNT THAT WOULD ALSO NOT MAKE ANY DIFFERENCE IN OUR OPINION. FIRSTLY, THE CO NSISTENT VIEW OF THIS COURT, AS NOTICED HEREINABOVE , IS THAT MERELY MAINTAINING A SEPARATE ACCOUNT UNDER A HEADI NG GIVEN BY THE ASSESSEE WOULD NOT ALTER THE NATURE OF THE RECEIPT IF IT ACTUALLY BE A TRADING RECEIPT. SE CONDLY, NOTHING IS AVAILABLE ON RECORD TO FIND OUT HOW AND IN WHAT MANNER THE SEPARATE ACCOUNT WAS MAINTAINED BY THE ASSESSEE. M/S. SUPER POLY FABRIKS LTD., PETITIONER V. CIT 217 CTR 107 (SC) THERE CANNOT BE ANY DOUBT WHATSOEVER THAT A DOCUMEN T HAS TO BE READ AS A WHOLE. THE PURPORT AND OBJECT WITH WHICH THE PARTIES THERETO ENTERED INTO A CONTR ACT OUGHT TO BE ASCERTAINED ONLY FROM THE TERMS AND CONDITIONS THEREOF. NEITHER THE NOMENCLATURE OF THE DOCUMENT NOR ANY PARTICULAR ACTIVITY UNDERTAKEN BY THE PARTIES TO THE CONTRACT WOULD BE DECISIVE. IN V. LAKSHMANAN V. B. R. MANGALAGIRI AND ORS. [199 5 SUPP. (2) SCC 33], THE SUPREME COURT IN REGARD TO INTERPRETATION OF THE CLAUSE STIPULATING THE PAYMEN T OF MONEY AS ADVANCE AND NO EARNEST MONEY PROVIDED FOR IN THE SALE DEED OPINED: 'THE NOMENCLATURE OR LABEL GIVEN IN THE AGREEMENT A S ADVANCE IS NOT EITHER DECISIVE OR IMMUTABLE. ' IN ASSAM SMALL SCALE IND. DEV. CORP. LTD. AND ORS. V. J.D. PHARMACEUTICALS AND ANR. [2005 (8) SCALE 29 8 = (2005) 13 SCC 19J, ON THE DECISIVENESS OF THE NOM ENCLATURE OF THE AGREEMENT ENTERED INTO BETWEEN THE STATE CORPORATION AND SMALL SCALE INDUSTRIAL UNIT, OPINED: 'THE EXPRESSIONS 'PRINCIPAL' AND 'AGENT' USED IN A DOCUMENT ARE NOT DECISIVE. THE NATURE OF TRANSACTIO N IS REQUIRED TO BE DETERMINED ON THE BASIS OF THE SU BSTANCE THERE AND NOT BY THE NOMENCLATURE USED. DOCUMENTS ARE TO BE CONSTRUED HAVING REGARD TO THE CONTEXTS THEREOF WHEREFOR 'LABELS' MAY NOT BE OF MUCH RELEVANCE.' IN PUNIAB DISTILLING INDUSTRIES LTD. VS. CIT (1959) 35 ITR 519 (SC) : TC 13R.487 THE ASSESSEE CARRIED ON BUSINESS AS A DISTILLER OF COUNTRY LIQUOR AND SOLD THE PRODUCE TO LICENSED WHOLESALER. THE GOVERNMENT DEVISED A SCHEME ENTITLI NG THE DISTILLERS TO CHARGE THE WHOLESALERS A PRICE FOR THE BOTTLES IN WHICH THE LIQUOR WAS SUPPLIED, AT TH E RATES FIXED BY THE GOVERNMENT WHICH PRICE WAS BOU ND TO BE REPAID ON RETURN OF THE BOTTLES. THE DISTILLER O LLECTED FROM THE WHOLESALERS CERTAIN AMOUNT AS SECU RITY DEPOSITS THOUGH NOT AUTHORISED BY THE GOVERNMENT SC HEME. THIS SECURITY DEPOSIT WAS ALSO RETURNED AS AN D WHEN THE BOTTLES WERE RETURNED. THIS ADDITIONAL SUM WAS ENTERED BY THE ASSESSEE UNDER THE HEADING EMP TY BOTTLES RETURN DEPOSIT ACCOUNT'. A QUESTION AROSE W HETHER THE ASSESSEE COULD BE ASSESSED TO TAX ON THE BALANCE OF THE AMOUNTS OF THESE ADDITIONAL SUMS LEF T WITH THE ASSESSEE AFTER THE REFUNDS WERE MADE. TH IS COURT HELD THAT IN REALISING THE ADDITIONAL AMOUNT DESCRIBED AS SECURITY DEPOSIT THE ASSESSEE WAS REAL LY CHARGING AN EXTRA PRICE FOR THE BOTTLES. THE ADDITI ONAL AMOUNTS TAKEN WERE AN INTEGRAL PART OF THE COMMERCIAL TRANSACTION OF THE SALE OF LIQUOR AND BO TTLES AND WHEN THEY WERE REALISED THEY WERE THE MON EYS OF THE ASSESSEE AND REMAINED THEREAFTER THE MONEYS OF THE ASSESSEE. THEY WERE THE ASSESSEE'S TRADING R ECEIPTS AND, THEREFORE, THE BALANCE OF THESE ADDITIONAL SUM S LEFT IN THE HANDS OF THE ASSESSEE AFTER THE REFUN DS WERE ASSESSABLE TO TAX. THIS COURT FURTHER HELD THAT IT DID NOT MAKE ANY DIFFERENCE THAT THE ADDITIONAL AMO UNT WAS ENTERED IN A SEPARATE LEDGER UNDER THE HEAD 'EMPTY BOTTLES RETURN DEPOSIT ACCOUNT' AS THE ASSESSEE'S S TYLE OF WRITING UP THE ACCOUNT BOOKS IN A PARTICULAR MANNER COULD NOT ALTER THE REAL NATURE OF THE RECEIPTS. CIT VS. PROVINCIAL FARMERS (PVT.) LTD. 108 ITR 219 (CAL) IT IS ALSO ELEMENTARY THAT THE ENTRIES IN THE BOOK S OF ACCOUNT CANNOT ALTER OR AFFECT THE NATURE, QUA LITY AND CHARACTER OF ANY TRANSACTION AND THAT FOR THE PURPO SES OF TAXATION THE SUBSTANCE OF THE TRANSACTION IN QUESTION HAS TO BE LOOKED AT. THE SUBSTANCE OF THE MATTER, IN THE INSTANT CASE BEFORE US, MUST BE VIEW ED IN THE LIGHT OF THE SAID LITIGATION INCLUDING THE DECREE A ND THE SAID ORDER PASSED THEREIN. FURTHER, THE CONV EYANCE IN THIS CASE SHOULD ALSO BE READ AND UNDERSTOOD IN THE CONTEXT OF THE SAID DECREE AND THE ORDER INCLUDING THE FACTS AND THE CIRCUMSTANCES OF THE CASE AS FOUND BY THE TRIBUNAL. 5 ITA NO. 859/KOL/2014 SHREE NATH KAPOOR AY: 2008-09 THE CHARGE IS NOT ON THE ENTRIES IN THE BOOKS OF AN Y ASSESSEE BUT ON THE CAPITAL GAINS, IF ANY, ACCRUED TO HIM UNDER SECTION 12B OF THE ACT. THE AS SESSEE KEEPS HIS ACCOUNTS FOR HIS OWN PURPOSES, AND THOUGH HIS METHOD OF ACCOUNTING IS VI TAL, IT IS NOT DECISIVE FOR THE PURPOSE OF TAXATION BECAUSE THE SUBSTANCE OF THE MATTER CANNOT BE ALTERED BY A MERE METHOD OF ACCOUNTING AS LAID DOWN BY THE SUPREME COURT IN THE CASE OF KESHAV MILLS LTD. V. COMMISSIONER OF INCOME-TAX [1953J 23 ITR 230 (SC). SHUBH TIMB STEELS LTD. V. UNION OF INDIA & ANR. 236 CTR 562 (P&H) THE NOMENCLATURE OF A LEVY IS NOT CONCLUSIVE FOR D ECIDING ITS TRUE CHARACTER AND NATURE. FOR DECIDING THE TRUE CHARACTER AND NATURE OF A PARTICU LAR LEVY, WITH REFERENCE TO THE LEGISLATIVE COMPETENCE, THE COURT HAS TO LOOK INTO THE PITH AND SUBSTANCE OF THE LEGISLATION. CIT VS. AUTO KASHYAP INDIA PVT. LTD 330 ITR 435 (DE L) MERE CHANGE OF NOMENCLATURE IN THE BOOKS OF ACCOUN T WITHOUT ANYTHING MORE BRINGS NO BENEFIT TO THE ASSESSEE AND ITS LIABILITY TO PAY TO THE CREDITOR DOES NOT GET EXTINGUISHED, MERELY BY CHANGE OF NOMENCLATURE OR BY CHANGE OF THE SUB-H EAD UNDER WHICH THE LIABILITY IS SHOWN IN THE ACCOUNT BOOKS OF THE ASSESSEE. WHAT IS RELEVANT IS THAT THE LIABILITY OF THE ASSESSEE TO PAY THE AMOUNT OF RS. 11,81,045/- TO ITS CREDITORS DID NOT COME TO AN END MERELY ON ACCOUNT OF THE AFORESAID CHANGE IN THE SUB-HEAD UNDER WHICH THE LI ABILITY WAS SHOWN IN THE ACCOUNT BOOKS. TRANSFER OF LIABILITY FROM ONE SUB-HEAD TO ANOTHER DOES NOT ABSOLVE THE ASSESSEE OF ITS OBLIGATION TO PAY THAT AMOUNT. THERE IS NO CESSATIO N OF LIABILITY IN SUCH A CASE AND THE COMPANY STILL REMAINS LIABLE TO ITS ASSESSEE. IT CA NNOT BE SAID THAT THE CREDITORS OF THE ASSESSEE WOULD NOT HAVE BEEN ABLE TO RECOVER THE AFORESAID A MOUNT FROM IT MERELY ON ACCOUNT OF A CHANGE MADE IN THE SUB-HEAD UNDER WHICH THE LIABILI TY WAS SHOWN IN THE ACCOUNT BOOKS OF THE ASSESSEE COMPANY. THE COMPANY WAS LIABLE TO PAY FOR THE PURCHASES MADE ON ITS BEHALF AND FOR ITS BENEFIT AND IT CONTINUED TO REMAIN LIABLE E VEN AFTER AFORESAID CHANGE IN THE ACCOUNT BOOKS. NO BENEFIT ACCRUED TO THE ASSESSEE BY CHANGI NG THE NOMENCLATURE AND, THEREFORE, THE OUTSTANDING CREDIT BALANCE CANNOT BE DEEMED TO BE P ROFIT AND GAINS OF THE BUSINESS OF THE ASSESSEE COMPANY WITHIN THE MEANING OF SECTION 41 O F THE ACT. COMMISSIONER OF INCOME-TAX V. SAKTHI SOYAS LTD. 283 ITR 194 (MAD) CAPITALISATION OF THOSE EXPENDITURE IN THE BOOKS O F ACCOUNT ALONE WAS NOT THE DECISIVE FACTOR IN EXAMINING AN EXPENDITURE FOR THE PURPOSE OF INCO ME-TAX. THE NAME GIVEN TO AN EXPENDITURE OR A NOMENCLATURE GIVEN TO AN EXPENDITURE IN THE BO OKS OF ACCOUNT OF THE ASSESSEE IS NOT THE LITMUS TEST TO DECIDE THE EXACT NATURE OF EXPENDITU RE FOR THE PURPOSE OF INCOME-TAX. THE PURPOSE OF THE COMPANIES ACT IS DIFFERENT FROM THE PURPOSE OF THE INCOME-TAX ACT. THEREFORE, THE CLASSIFICATION OF THOSE EXPENSES AS CAPITAL IN NATURE FOR THE PURPOSE OF TILE COMPANIES ACT, DOES NOT IPSO FACTO MAKE THAT EXPENDITURE A CAPITAL EXPENDITURE FOR THE PURPOSE OF THE INCOME- TAX ACT. SO, WE ARE OF THE VIEW THAT THE CROP DEVEL OPMENT EXPENSES AND NEW PROJECT LAUNCHING EXPENSES WERE RIGHTLY HELD BY THE AUTHORITIES AS RE VENUE EXPENDITURE. 7. IT IS, THEREFORE, CLEAR THAT THE DEBITING OF RS. 1,59,380/- BY THE ASSESSEE IN HIS P&L ACCOUNT TOWARDS THE AMOUNT WHICH THE CALCUTTA STOCK EXCHANGE UTILIZED FOR EQUAL DISTRIBUTION OF SGH IN MARCH, 2001 CRISIS IS SQUARE LY COVERED BY THE DECISION IN THE CASE OF TAPAN KUMAR BARDHANS CASE AND WRONG MENTIONING OF PHRASEOLOGY OR NOMENCLATURE IN THE BOOKS OR WRITTEN OF ACCOUNT DOES NOT ALTER THE STAT US OF EXPENSES OTHERWISE ELIGIBLE FOR 6 ITA NO. 859/KOL/2014 SHREE NATH KAPOOR AY: 2008-09 DEDUCTION. WHILE RESPECTFULLY FOLLOWING THIS LINE OF DECISIONS, WE ALLOW GROUND NO.1 AND DELETE THE ADDITION OF RS.1,59,380/-. 8. NOW COMING TO THE PAYMENT OF RS.50,000/- TOWARDS THE TECHNOLOGY EXPENSES, THERE IS EVERY FORCE IN THE ARGUMENT OF THE LD. AR THAT THIS PAYMENT DOES NOT CREATE ANY NEW ASSET IN THE HANDS OF THE ASSESSEE BUT IT ONLY FACILITATES E FFICIENT OPERATION OF THE BUSINESS TO GENERATE MORE BUSINESS DUE TO SUCH EFFICIENT OPERATION EVEN A ONE-TIME PAYMENT FOR SUCH EFFICIENT RUNNING OF THE EXISTING BUSINESS TO BETTER THE PROF ITABILITY HAS TO BE TREATED AS REVENUE EXPENDITURE, BUT NOT AS CAPITAL EXPENDITURE INASMUC H AS SUCH EXPENDITURE WAS ONLY CONDUCIVE FOR BETTER EXPLOITATION OF THE EXISTING B USINESS AND INCREASE PROFITS. IN PEERLESS SECURITIES LTD. VS JOINT COMMISSIONER OF INCOME TAX 2005 94 ITD 89 KOL, IT WAS HELD AS UNDER: ON READING THE AFORESAID TERMS AND CONDITIONS OF AP POINTMENT AS A DEALER ON THE OTC EXCHANGE OF INDIA, IT IS SEEN THAT THE ASSESSEE HAS BEEN APPOINTED AS A DEALER TO OPERATE THE COUNTER FOR CONDUCTING THE ASSESSEE'S BUSINESS AS A SHARE-DEALER BY MAINTAINING THE NORMS AS PRESCRIBED BY THE OTC EXCHANGE OF INDIA. IT IS ALSO SEEN THAT THE ASSESSEE WAS ALLOWED TO USE THE OTC INFRASTRUCTURE FACILITIES AND EQUIPMENT ONL Y FOR THE PURPOSE FOR WHICH THESE INFRASTRUCTURE FACILITIES AND EQUIPMENT WERE MEANT AND WAS NOT ALLOWED TO USE FOR ANY OTHER PURPOSE. IT IS ALSO SEEN THAT THE ASSESSEE WAS REQU IRED TO OPERATE AS A DEALER ON THE COUNTER OF THE OTC EXCHANGE OF INDIA BY OR THROUGH EMPLOYEE OR EMPLOYEES OF THE ASSESSEE, WHO HAD TO UNDERGO SUCH A QUALIFICATION PROCEDURE AS MAY BE PR ESCRIBED BY THE OTC EXCHANGE OF INDIA. FOR THE PURPOSE OF CONTINUATION OF SUCH DEALERSHIP, THE ASSESSEE WAS REQUIRED TO EMPLOY QUALIFIED PERSONS, WHO HAVE QUALIFIED THROUGH OTC E XCHANGE OF INDIA'S QUALIFICATION PROCEDURE. SUCH EMPLOYEES WERE REQUIRED TO BE IN FU LL TIME EMPLOYMENT WITH THE DEALER. IT IS FURTHER SEEN THAT THE ADMISSION FEE OF RS. 6,00,000 WAS NEITHER REFUNDABLE NOR WAS THE DEALERSHIP TRANSFERABLE. IF THE ASSESSEE DECIDES OR FORCED TO TERMINATE THE DEALERSHIP OR IF THE OTC EXCHANGE OF INDIA TERMINATES THE DEALERSHIP, TH IS FEE OF RS. 6,00,000 WAS NOT RETURNABLE BY THE OTC EXCHANGE OF INDIA. A LIMIT UPTO WHICH TH E TOTAL BUSINESS EXPOSURE ALLOWED TO BE CARRIED OUT BY THE ASSESSEE ON THE OTC EXCHANGE OF INDIA HAS BEEN PRESCRIBED BY THE OTCEI, AND OTCEI RESERVES THEIR RIGHT TO DEMAND SECURITY D EPOSIT IN A MANNER SATISFACTORY TO OTCEI FOR PERMITTING ANY BUSINESS ON OTCEI. THERE IS NO D OUBT THAT THE SECURITY DEPOSIT SO DEMANDED BY OTCEI FOR PERMITTING ANY BUSINESS ON OTCEI IS ON SEPARATE FOOTING. THE DEALER IS REQUIRED TO ABIDE BY SUCH CODE OF CONDUCT, VARIOUS RULES AND REGULATIONS, GUIDELINES, ENACTMENTS AND NOTIFICATIONS, ETC. AS PRESCRIBED FROM TIME TO TIME BY OTCEI OR UNDER OTHER LAWS FOR THE TIME BEING IN FORCE, IN DEFIANCE THEREOF THE DEALERSHIP MAY RESULT IN FOR REVIEW BY OTCEI. IT IS ALSO SEEN THAT HOLDERS OR DONEES OF THE POWER OF ATTORNE Y GIVEN BY THE ASSESSEE ARE NOT ALLOWED TO OPERATE THE OTC COUNTER, EXCEPT WITH THE PRIOR WRIT TEN CONSENT OF THE OTC EXCHANGE OF INDIA. TO ALLOW HOLDERS OR DONEES OF POWER OF ATTORNEY AND TO EXECUTE DOCUMENTS ON OTC EXCHANGE WAS AT THE SOLE DISCRETION OF THE OTC EXCHANGE OF I NDIA. CONSIDERING THE TOTALITY OF THE NATURE OF THE DEALERSHIP GRANTED BY THE OTC EXCHANGE OF IN DIA TO THE ASSESSEE AND THE TERMS AND CONDITIONS RELATED THERETO, WE ARE OF THE VIEW THAT THE ADVANTAGE OF BEING A DEALER ON THE OTC EXCHANGE OF INDIA AND TO OPERATE THE COUNTER AT THE OTC EXCHANGE OF INDIA, IS IN THE NATURE OF AN ADVANTAGE IN THE COMMERCIAL SENSE AND NOT IN THE CAPITAL FIELD. CONSIDERING THE PURPOSE FOR WHICH ADMISSION FEE AND THE TECHNOLOGY COST WAS PAI D TO OTC EXCHANGE OF INDIA AND ITS INTENDED OBJECT AND EFFECT, AND CONSIDERING THE SAM E IN A COMMON SENSE HAVING REGARD TO THE BUSINESS REALITIES OR RAPIDLY CHANGING ECONOMIC REA LITIES FOR BEING A SHARE DEALER, WE ARE OF 7 ITA NO. 859/KOL/2014 SHREE NATH KAPOOR AY: 2008-09 THE VIEW THAT THE PAYMENT OF ADMISSION FEE FOR BECO MING, A DEALER ON OTC EXCHANGE OF INDIA AND THE TECHNOLOGY COST PAID BY THE ASSESSEE WAS FO R THE PURPOSE OF CARRYING OR RUNNING THE ASSESSEE'S BUSINESS OF SHARE TRADING IN A PROFITABL E MANNER. THE SAID PAYMENT WAS NECESSARY FOR CARRYING ON THE ASSESSEES DAY-TO-DAY BUSINESS. NO CAPITAL ASSET OR ADVANTAGE OF ENDURING BENEFIT ON CAPITAL FIELD HAS BEEN ACQUIRED BY THE A SSESSEE. ON PERUSAL OF THE TERMS AND CONDITIONS OF APPOINTMENT AS A DEALER ON THE OTC EX CHANGE OF INDIA, IT IS CLEAR THAT BECOMING A DEALER ON OTC EXCHANGE OF INDIA DOES NOT CREATE I N HIS FAVOUR ANY RIGHT OR INTEREST IN THE SHARE CAPITAL OF THE OTC EXCHANGE OF INDIA OR DOES NOT ENTITLE HIM TO ACQUIRE ONE OR MORE SHARE OF THE OTC EXCHANGE OF INDIA AS IN THE CASE O F MEMBERSHIP OF CALCUTTA STOCK EXCHANGE OF INDIA LTD. WHERE THE PERSON ADMITTED AS A MEMBER OF THE ASSOCIATION SHALL AS CONDITION PRECEDENT TO HIS REGISTRATION AS A MEMBER ACQUIRE O NE OR MORE SHARE OF THE ASSOCIATION AND SHALL HAVE RIGHT FOR REGISTRATION OF SHARE CERTIFIC ATE FOR ONE OR MORE SHARE IN HIS FAVOUR. GETTING APPOINTMENT AS A DEALER ON THE OTC EXCHANGE OF INDIA ONLY ENABLES ONE TO DO TRADING OF SECURITIES THROUGH A NETWORK OF COMPUTERS OF OTC EI DEALERS, LOCATED IN DIFFERENT CITIES, WHICH ARE CONNECTED TO THE CENTRAL COMPUTER OF THE OTCEI THROUGH A SATELLITE LINKUP. IN THIS SENSE, IT, THUS, HELPS THE DEALER IN CARRYING ON OR RUNNING OR MANAGING THE BUSINESS OF SHARE DEALER/DEALINGS OR SHARE BROKERAGE EFFICIENTLY AND PROFITABLY WITHOUT CREATING IN HIS FAVOUR ANY ADVANTAGE OF ENDURING BENEFIT ON CAPITAL FIELD. IN INFOSYS TECHNOLOGIES LTD. VS JOINT COMMISSIONER OF INCOME TAX (2007) 109 TTJ BANG 631 IT WAS HELD AS FOLLOWS: 3.1 DURING THE YEAR, THE ASSESSEE PAID A SUM OF RS. 44.43 LAKHS TO NATIONAL SECURITY DEPOSITORY LTD. (NSDL) AS ONE-TIME CHARGES FOR CONV ERTING 80,08,600 SHARES OF COMPANY FROM PHYSICAL CERTIFICATE INTO DEMATERIALIZE FORM. THE AO FOUND THAT AS PER THE LETTER OF NSDL DT. 21ST JULY, 1997, THE ASSESSEE COMPANY HAS TAKEN OVER THE LIABILITY OF SHAREHOLDERS. HE HELD THAT SINCE THE LIABILITY IS THAT OF SHAREHOLDERS AN D NOT THAT OF COMPANY, THE SAME IS NOT ALLOWABLE. THE AO FURTHER HELD THAT EVEN IF THE LIA BILITY IS TO BE TREATED AS THAT OF THE COMPANY, THE SAME IS NOT ALLOWABLE AS REVENUE EXPEN DITURE, AS THE ASSESSEE DERIVES AN ENDURING BENEFIT FROM ONE-TIME PAYMENT AND HENCE TH E EXPENSES ARE CAPITAL IN NATURE. LEARNED CIT(A) HELD THAT THE PAYMENT TO NSDL CANNOT BE SAID TO BE WHOLLY AND EXCLUSIVELY FOR THE APPELLANT'S BUSINESS INASMUCH AS IT WAS NOT A LIABILITY OF THE APPELLANT TO GET THE SHARES CONVERTED INTO DEMAT FORM BUT THE LIABILITY IS THAT OF THE RESPECTIVE SHAREHOLDERS. THE EXPENDITURE IS RELATED MORE TO THE EASY HANDLING OF THE SHARES RATHER THAN BUSINESS OF APPELLANT. LEARNED CIT(A) ACCORDINGLY HELD THAT THE EXPENDITURE CANNOT BE SAID TO BE INCURRED IN THE NORMAL COURSE OF ITS BUSINESS. 9. THE TWO DECISIONS REFERRED TO ABOVE ARE ON THE P OINT INVOLVED IN THE CASE ON HAND AND MERELY BECAUSE THE ONE-TIME PAYMENT IS ENDURABLE IN NATURE, SO LONG AS IT RELATES TO EASY AND EFFICIENT HANDLING OF THE BUSINESS FOR EARNING MORE PROFIT AND BETTER EXPLOITATION OF THE EXISTING BUSINESS, IT CANNOT BE TREATED AS CAPITAL EXPENDITURE AND IT IS ONLY REVENUE IN NATURE. BASING ON THIS, WE ALLOW THE SECOND GROUND OF ASSES SEES APPEAL. 10. NOW COMING TO THE INVOCATION OF SECTION 14A REA D WITH RULE 8D OF THE I. T. RULES IS CONCERNED, LD. COUNSEL FOR THE ASSESSEE PLACED RELI ANCE ON THE DECISION OF REI AGRO LTD., 144 ITD 141 FOR THE FOLLOWING PRINCIPLES: 8 ITA NO. 859/KOL/2014 SHREE NATH KAPOOR AY: 2008-09 8. IN RESPECT OF PROVISIONS OF RULE 8D(2)(III), WHI CH IS THE SUBJECT-MATTER OF THE APPEAL IN THE ASSESSEES HAND, A PERUSAL OF THE SAID PROVISION SH OWS THAT WHAT IS DISALLOWABLE UNDER RULE 8D(2) (III) IS THE AMOUNT EQUAL TO PERCENTAGE OF THE AVERAGE VALUE OF INVESTMENT THE INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE T OTAL INCOME. THUS, UND R SUB-CLAUSE (III), WHAT IS DISALLOWED IS PERCENTAGE OF THE NUMERATOR B IN RULE 8D(2)(II). AGAIN THIS IS TO BE CALCULATED IN THE SAME LINE AS MENTIONED EARLIER IN RESPECT OF NUMERATOR B IN RULE 8D(2)(II) OF THE ACT. 8.1 THUS, NOT ALL INVESTMENTS BECOME THE SUBJECT-MA TTER OF CONSIDERATION WHEN COMPUTING DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D. T HE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D IS TO BE IN RELATION TO THE INCOME WHI CH DOES NOT FORM PART OF THE TOTAL INCOME AND THIS CAN BE DONE ONLY BY TAKING INTO CONSIDERATION THE INVESTMENT WHICH HAS GIVEN RISE TO THIS INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME . UNDER THE CIRCUMSTANCES, THE COMPUTATION OF THE DISALLOWANCE UNDER SECTION 14A R EAD WITH RULE 8D(2)(III), WHICH IS ISSUE IN THE ASSESSEES APPEAL, IS RESTORED TO THE FILE OF T HE AO FOR RECOMPUTATION IN LINE WITH THE DIRECTION GIVEN ABOVE. NO DISALLOWANCE UNDER SECTIO N 14A READ WITH RULE 8D(2)(I) AND (II) CAN BE MADE IN THIS CASE. 11. ON PERUSAL OF ASSESSMENT ORDER SHOWS THAT THE A O HAS TAKEN INTO ACCOUNT ONLY A SUM OF RS.1,17,07,787/- WHICH REPRESENTS THE AMOUNT INV ESTED IN PPF, STOCK AND SHARES AND WORKED OUT 0.5% OF AVERAGE INVESTMENTS THEREOF AS T HE EXPENSES IN RULE 8D(2)(III) OF THE RULES. THE DEMAT CHARGES WERE THERE TO THE TUNE OF RS.4,103/- AND PUT TOGETHER THE DISALLOWANCE U/S. 14A OF THE ACT READ WITH RULE 8D OF THE I. T. RULES COMES TO RS.66,642/-. THIS IS IN ACCORDANCE WITH THE PRINCIPLES OF REI AG RO LTD. DECISION. THE ASSESSEE POSSESSING SUFFICIENT CAPITAL RESERVES HAS NO BEARI NG ON RULE 8D(2)(III) OF THE RULES AND CONSIDERING THE SAME AO DID NOT CHARGE ANYTHING UND ER RULE 8D(2)(III) OF THE RULES. WE, THEREFORE, FIND THAT THE AUTHORITIES BELOW ARE RIGH T IN MAKING THIS ADDITION AND THERE IS NO MERIT IN THE ARGUMENT OF THE ASSESSEE. WE ACCORDIN GLY, DISMISS THIS GROUND OF APPEAL OF ASSESSEE. 12. IN THE RESULT, APPEAL OF ASSESSEE IS PARTLY ALL OWED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 11.11.201 6 SD/- SD/- (DR. A. L. SAINI) (K. NARASIMHA CHARY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED :11TH NOVEMBER, 2016 JD.(SR.P.S.) 9 ITA NO. 859/KOL/2014 SHREE NATH KAPOOR AY: 2008-09 COPY OF THE ORDER FORWARDED TO: 1 . APPELLANT SHREE NATH KAPOOR, 7, LYONS RANGE, 3 RD FLOOR, KOLKATA- 700 001. 2 RESPONDENT DCIT, CIRCLE-36, KOLKATA. 3 . THE CIT(A), KOLKATA 4. 5. CIT , KOLKATA DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, ASSTT. REGISTRAR .