Edelweiss Financial Advisors Ltd., Ahmedabad V. The Jt.CIT.,Range-3, Ahmedabad

ITA 876/AHD/2011

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 3880 (ITAT-AHMEDABAD)
• Duration Of Justice: 7 year(s) 7 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-10-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 02-08-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 22-03-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: LALIT P SHAH
• Assessee Lawyers: PARIN SHAH ARS; S N SOPARKAR
• Keywords: Capital asset; Business income; Depreciation; Business expenditure; Transactions in derivatives; Earning of tax free income; Speculation loss; Bad and doubtful debts; Commercial expediency
• Section: 43B; 14A; 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD BEFORE SHRI PRAMOD KUMAR VICE PRESIDENT & MS. MADHUMITA ROY, JUDICIAL MEMBER 1. I.T.A. NO.803/AHD/2011 - A.Y. 2007-08 2. I.T.A. NO.876/AHD/2011 - A.Y . 2007-08 1.THE ACIT CIRCLE - 3 AHMEDABAD 2. EDELWEISS FINANCIAL ADVISORS LTD. ( FORMERLY KNOWN AS ANAGRAM CAPITAL LTD. ) ANAGRAM HOUSE, NAVRANGPURA AHMEDABAD VS. 1.ANANGRAM CAPITAL LIMITED ( FORMERLY KNOWN AS ANAGRAM SECURITIES LTD.) ANAGRAM HOUSE DARSHAN SOCIETY H.L. COMM.SIX ROAD, NAVRANGPURA, AHMEDABAD. 2. THE JCIT RANGE-3 AHMEDABAD [PAN NO.AABCA 2916K] ( APPELLANTS ) .. ( RESPONDENTS ) REVENUE BY : SHRI LALIT P.SHAH, DR ASSESSEE BY : SHRI S.N. SOPARKAR & SHRI PARIN SHAH, ARS DATE OF HEARING : 01/08/2018 DATE OF PRONOUNCEMENT : 26 / 1 0 /201 8 O R D E R PER MS. MADHUMITA ROY JM THESE CROSS-APPEALS HAVE BEEN PREFERRED BY THE REVE NUE AND ASSESSEE AGAINST THE ORDER DATED 13.01.2011 PASSED U/S.250 OF THE INCO ME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS 'THE ACT') BY THE COMMISSIONER OF INCOME TAX(APP EALS)-XVI, AHMEDABAD [LD.CIT(A) IN SHORT] FOR ASSESSMENT YEAR (AY) 2007-08 ARISING OUT OF THE ORDER DATED 30.12.2009 PASSED BY THE DCIT, AHMEDABAD RANGE-3 AHMEDABAD U/S.143(3) OF THE ACT. - 2 - ITA NOS. 803 & 876/AHD/2011 ACIT VS. ANAGRAM CAPITAL LTD. (CROSS APPEALS) ASST.YEAR 2007-08 2. SINCE THE APPEALS ARE CONNECTED AND OF THE SAME ASSESSEE, THE SAME ARE HEARD ANALOGOUSLY AND ARE BEING DISPOSED OF BY THIS CONSO LIDATED ORDER FOR THE SAKE OF CONVENIENCE. 3. THE ASSESSEE ENGAGED IN THE BUSINESS OF STOCK BR OKING FILED ITS RETURN OF INCOME ON 29.10.2007 DISCLOSING TOTAL INCOME AT RS.8,03,49,92 0/-. THE SAME WAS PROCESSED U/S.143(1)OF THE INCOME TAX ACT, 1961. UPON SCRUTI NY UNDER CASS, NOTICE U/S.143(2) OF THE ACT DATED 23.07.2008 WAS ISSUED AND THE SAME WAS SE RVED UPON THE ASSESSEE BY RPAD ON 29.07.2008. IN CONTINUATION THERETO UPON ASSIGNMEN T OF THE MATTER TO THE PRESENT LD. ASSESSING OFFICER, FURTHER NOTICE U/S.143(2) OF THE ACT WAS ISSUED ON 18.09.2009 AND WAS SERVED UPON THE ASSESSEE ON 23.09.2009 REQUESTING T HE ASSESSEE TO SUBMIT THE DETAILS MENTIONED THEREIN. IN RESPONSE THEREOF, THE AUDIT REPORT U/S.44AB OF THE ACT WAS FURNISHED BY THE ASSESSEE. CLAIM OF THE ASSESSEE WAS PARTLY ALLOWED WHEREUPON APPEAL PREFERRED WHICH WAS ALLOWED BY THE LD. CIT(A) AND HENCE THE INSTANT APPEALS. ITA NO.803/AHD/2011 FOR AY 2007-08 (REVENUES APPEA L) 4. THE REVENUE RAISED THE FOLLOWING GROUNDS IN ITS APPEAL:- 1. THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN DELETI NG THE ADDITION OF RS.75,535/- MADE ON ACCOUNT OF DISALLOWANCE OF PENALTY LEVIED B Y NSE. 2. THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN RESTRIC TING THE DISALLOWANCE OF RS.2,50,000/- OUT OF TOTAL DISALLOWANCE OF RS.19,45 ,550/- OUT OF INTEREST AND RS.2,81,376/- OUT OF OTHER EXPENSES U/S.14A OF THE ACT. 3. THE LD.CIT(A) ERRED IN LAW AND ON FACTS IN DELETING DISALLOWANCE OF RS.11,11,400/- MADE BY THE AO U/S.36(1)(III) OF THE ACT. 4. THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN RESTRIC TING THE DISALLOWANCE ON ACCOUNT OF SAUDAFER LOSS TREATED AS SPECULATION LOS S WITHIN THE MEANING OF EXPLANATION TO SECTION 73 OF THE ACT TO RS.15,43,13 4/- OUT OF TOTAL DISALLOWANCE OF RS.36,63,892/- ADMITTING FRESH EVIDENCE IN VIOLATIO N OF RULE 46A WITHOUT GIVING OPPORTUNITY TO AO TO REBUT THE SAME. 5. THE LD.CIT(A) ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.2,35,901/- ON ACCOUNT OF BAD DEBTS. 6. THE LD.CIT(A) ERRED IN LAW AND ON FACTS IN RESTRICT ING THE ADDITION OF RS.3,13,508/- ON ACCOUNT OF DEDUCTION OF BROKERAGE REBATE, OUT OF TOTAL ADDITION OF RS.29,12,088/-. - 3 - ITA NOS. 803 & 876/AHD/2011 ACIT VS. ANAGRAM CAPITAL LTD. (CROSS APPEALS) ASST.YEAR 2007-08 7. THE LD.CIT(A) ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.28,756/- ON ACCOUNT OF UNPAID EMPLOYEES CONTRIBUTION TO PF AND ESI. 8. THE LD.CIT(A) ERRED IN LAW AND ON FACTS IN DIRECTIN G THE LD. ASSESSING OFFICER TO GIVE PROPORTIONATE CREDIT FOR DEDUCTION U/S.194C MA DE INSTEAD OF 1941 IN RESPECT OF DISALLOWANCE OF RS.40,46,873/- MADE U/S.40(A)(IA ) TOWARDS POOL INTERACTIVE AND OTHER CHARGES. 5. THE FIRST GROUND RELATES TO THE DISALLOWANCE OF PENALTY LEVIED BY NATIONAL STOCK EXCHANGE OF RS.75,535/-. 6. THE ASSESSEE HAS PAID PENALTY OF RS.75,535/-. THE SAME WAS NOT DISALLOWED BY THE ASSESSEE SINCE THE PENALTY LEVIED BY THE NATIONAL S TOCK EXCHANGE FOR VIOLATION OF ITS BY-LAWS WHICH IS NOT DISALLOWABLE IN TERMS OF THE EXPLANATI ON OF SEC.37(1) OF THE ACT. THE PENALTY IS NOT TOWARDS VIOLATION OF ANY LAW. THE LD. ASSESSIN G OFFICER WAS NOT SATISFIED WITH SUCH EXPLANATION AND DISALLOWED THE SAME. IN APPEAL, TH E LD.CIT(A) ALLOWED THE CLAIM IN FAVOUR OF THE ASSESSEE. HENCE, THE APPEAL BY REVENUE BEFO RE US. 7. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US THAT THE ISSUE IS COVERED IN FAVOUR OF ASSESSEE BY THE DECISION OF THE LD.TRIBUNAL IN T HE CASE OF GOLDCREST CAPITAL MARKETS LTD. VS. ITO REPORTED AT (2010) 130 TTJ (MUM.) 446. HE FURTHER SUBMITTED THAT HIS CASE IS SQUARELY COVERED BY THE ORDER PASSED BY THE CO-ORD INATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2006-07 AS WELL AS FOR AY 2008-09. THE LD. DR SUBMITTED THAT THE LD.CIT(A) WAS NOT JUSTIFIED IN ALLOWING THE CLAIM O F THE ASSESSEE BY DELETING THE ADDITION MADE BY THE LD. ASSESSING OFFICER. HE RELIED UPON THE ORDER PASSED BY THE LD. ASSESSING OFFICER. 8. WE HAVE HEARD THE RESPECTIVE REPRESENTATIVE OF T HE PARTIES. WE HAVE GONE THROUGH THE RELEVANT MATERIALS AVAILABLE ON RECORD. WE HAVE A LSO PERUSED THE ORDER PASSED BY THE CO- ORDINATE BENCH IN ITA NO.1181/AHD/2011 FOR AY 2006 -07, DATED 09.10.2015, THE RELEVANT PORTION WHEREOF IS AS FOLLOWS: - 4 - ITA NOS. 803 & 876/AHD/2011 ACIT VS. ANAGRAM CAPITAL LTD. (CROSS APPEALS) ASST.YEAR 2007-08 4. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED TH E MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE LD.CIT(A) HAS DECIDED THE ISSUE BY OBSERVING AS UNDER:- 3.2. I HAVE CAREFULLY CONSIDERED THE ASSESSMENT OR DER AND SUBMISSION MADE BY THE APPELLANT. THE APPELLANT HAS MADE PAYMENT OF PENAL TY TO NSE FOR VIOLATION OF ITS RULES AND REGULATIONS. WHAT IS PROVIDED UNDER THE EXPLAN ATION 37 (1) IS THAT ANY PERSON WHO VIOLATES ANY LAW OF THE LAND OR WHO COMMITS AN OFFENCE WHICH IS PROHIBITED BY LAW, EXPENDITURE INCURRED IN CONNECTION WITH THIS V IOLATION OF LAW ARE NOT ALLOWABLE. THE PENALTY PAYMENT TO NSE CANNOT BE TERMED AS VIOL ATION OF LAW. WITH REGARDS TO THE DECISION OF HAJI AZIZ & ABDUL SHAKOOR BROS VS. CIT 41 ITR 350 RELIED UPON BY ASSESSING OFFICER, IT IS A CASE WHERE THAT ASSESSES IMPORTED DATE FROM IRAQ WHICH PROHIBITED. THE PROVISIONS OF SEAS CUSTOMS ACT FOR THE VIOLATION OF THE RELEVANT PROVISIONS OF THE ACT AND THERE WAS NO QUESTION OF COMPENSATORY ELEMENT BEING PART OF SUCH PENALTY. EVEN, THE FACTS OF CIT VS. MADDI VE NKATARANTNAM & CO. RELIED UPON BY AO CANNOT BE APPLIED TO THE PRESENT CASE AS IN THAT CASE PAYMENTS WERE MADE IN VIOLATION OF FERA PROVISIONS. IN THE CASE OF APPELLANT, PAYMENT IS TOWARDS COMPEN SATION FOR DELAYED SUBMISSION OF COMPLIANCE REPORT TO NSE AND THAT TOO WHICH IS NOT AN OFFENCE OR TOWARDS INFRACTION OF LAW. IT VIEW OF AFORESAID FACTS, RATIO OF AFORESAI D DECISION RELIED UPON BY AO IS NOT APPLICABLE TO THE FACTS OF CASE OF APPELLANT. THE CASE OF APPELLANT IS SQUARELY COVERED BY DECISION OF HONBLE MUMBAI I.T.A.T. IN CASE OF C REST CAPITAL MARKET VS. ITO REFERRED SUPRA AND RESPECTFULLY FOLLOWING SAID ORDE R, ADDITION MADE BY THE ASSESSING OFFICER IS DELETED. 4.1. WE FIND THAT THE LD.CIT(A) HAS FOLLOWED THE DE CISION OF THE COORDINATE BENCH (ITAT MUMBAI) PASSED IN ITA NOS.1240 & 1241/MUM/2006 IN T HE CASE OF GOLDCREST CAPITAL MARKETS LT. VS. ITO REPORTED AT (2010) 36 DTR 177(M UM.)(TRIB.). THE LD.SR.DR COULD NOT POINT OUT AS TO HOW THE FACTS OF THIS CASE ARE DIFF ERENT. THEREFORE, IN VIEW OF THE DECISION OF THE COORDINATE BENCH-SUPRA, WE DO NOT SEE ANY REASO N TO INTERFERE WITH THE ORDER OF THE LD.CIT(A), SAME IS HEREBY UPHELD. THUS, THIS GROU ND OF REVENUES APPEAL IS REJECTED. 9. WE FIND THAT THE ISSUE IS SIMILAR AND ON THE BASIS OF THE RATIO LAID DOWN BY THE JUDGMENT PASSED BY THE CO-ORDINATE BENCH IN ITA NO.1181/AHD/ 2011 FOR AY 2006-07, WE FIND NO INFIRMITY IN THE ORDER PASSED BY THE LD.CIT(A). W E THEREFORE UPHOLD THE SAME. IN THE RESULT, REVENUES APPEAL ON THIS GROUND IS REJECTED . - 5 - ITA NOS. 803 & 876/AHD/2011 ACIT VS. ANAGRAM CAPITAL LTD. (CROSS APPEALS) ASST.YEAR 2007-08 10. THE SECOND GROUND RELATES TO THE ORDER PAS SED BY THE LD. CIT(A) IN RESTRICTING THE DISALLOWANCE U/S.14A OF THE ACT OF RS.2,50,000/- OU T OF THE TOTAL DISALLOWANCE OF RS.19,45,550/- OUT OF THE INTEREST AND RS.2,81,37 6/- OUT OF OTHER EXPENSES. 11. THE ASSESSEE INVESTED A SUM OF RS.3,37,75,313/- IN THE SHARES OF ARVIND MILLS LTD. FURTHER, THE APPELLANT HAS ALSO CLAIMED DIVIDEND OF RS.8,10,124/- AS EXEMPT INCOME U/S.10(34)/10(35) OF THE ACT DURING THE AY 2007-08. ACCORDING TO THE LD. ASSESSING OFFICER, THE ASSESSEES ACCOUNT DOES NOT GIVE THE C ORRECTNESS OF THE CLAIM OF EXPENDITURE INCURRED FOR THE PURPOSE OF EARNING EXEMPT INCOME A ND THEREFORE THE PROVISION OF SECTION 14A OF THE ACT R.W.RULE 8D OF INCOME TAX RULES, 1962 I S APPLICABLE THERETO. THE ASSESSEE HAS NOT SUBMITTED DAY-TO-DAY FUND FLOW STATEMENT AS ALS O OBSERVED BY THE LD. ASSESSING OFFICER AND ULTIMATELY DISALLOWED THE AMOUNT OF RS.22,26,92 6/- U/S.14 OF THE ACT. WHILE MAKING SO, HE HAS OBSERVED AS FOLLOWS: HENCE THE TOTAL DISALLOWANCE U/S 14A OF THE ACT AS COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF RULE 8D OF THE INCOME TAX RULES WORKS OUT TO NIL + RS.19,45,550/- + RS.2,81,376/-, I.E. RS.22,26,926/-. HENCE THE SAID SUM OF RS.22,26,926/- IS DISALLOWED AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. IN VIEW OF FACTS MENTIONED ABOVE I AM SATISFIED THAT THE ASSESSEE HAS FURNISHED INACCURAT E PARTICULARS OF ITS INCOME AND HENCE PENALTY PROCEEDINGS U/S.271(1)(C) OF THE ACT IS INI TIATED SEPARATELY FOR FURNISHING INACCURATE PARTICULARS ON THIS ACCOUNT. 12. IN APPEAL, THE LD. CIT(A) PARTLY ALLOWED THE SA ME BY RESTRICTING THE DISALLOWANCE TO THE TUNE OF RS.2,50,000/- WITH THE FOLLOWING REASON S: 4.3 I HAVE CONSIDERED THE SUBMISSION MADE BY THE A PPELLANT AND OBSERVATION OF THE AO. FROM THE ABOVE SUBMISSION IT IS CLEAR THAT THE ASSE SSEE HAS INTEREST FREE FUNDS OF 30.22 CRORES IN THE FORM OF SHARE CAPITAL AND RESERVES AND SURPL USES. THE TOTAL LOAN TAKEN IS ONLY 5.89 CRORE OUT OF WHICH 2.7 CRORE IS OVERDRAFT AND UNSEC URED LOAN IS ONLY RS.3.1 IT CRORE. THE INVESTMENT IN SHARES IS RS.3.37 CRORE AND HENCE THE INTEREST-FREE FUNDS ARE SUFFICIENT TO COVER THE SAME. THE APPELLANT HAS RELIED ON THE DECISION OF THE ITAT, AHMEDABAD, IN ACIT VS HIPOLIN LTD. (SUPRA), WHICH IS BASED ON THE DECISIO N OF HONORABLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES (SUPRA). AS PER THE BOMB AY HIGH COURT IN THE CASE OF GODREJ & - 6 - ITA NOS. 803 & 876/AHD/2011 ACIT VS. ANAGRAM CAPITAL LTD. (CROSS APPEALS) ASST.YEAR 2007-08 BOYCE A REASONABLE DISALLOWANCE CAN BE MADE IF THE APPELLANT DENIES THAT EXPENDITURE WAS INCURRED FOR EARNING EXEMPT INCOME ESPECIALLY IF TH E NEXUS IS NOT ESTABLISHED BY THE APPELLANT BETWEEN INTEREST FREE FUNDS AND INVESTMENT ON WHICH EXEMPT INCOME IS EARNED. IN MY VIEW CONSIDERING THAT EXEMPT INCOME IS RS.8,10,124/- IT WOULD BE APPROPRIATE TO RESTRICT THE EXPENDITURE RELATABLE TO THE EXEMPT INCOME AT RS.2. 5 LAKH INCLUDING INTEREST AND OTHER ADMINISTRATIVE EXPENSES. THE DISALLOWANCE IS THEREF ORE RESTRICTED TO RS.2,50,000/- AND THIS GROUND OF APPEAL IS PARTLY ALLOWED. 13. AT THE TIME OF HEARING OF THE INSTANT APPEAL, T HE LD.DR RELIED UPON THE ORDER OF THE LD. ASSESSING OFFICER. ON THE CONTRARY, THE LD. REPRE SENTATIVE OF THE ASSESSEE SUBMITTED BEFORE US THAT THE SAME ISSUE WAS DECIDED IN FAVOUR OF ASS ESSEE IN THE PREVIOUS ASSESSMENT YEAR 2006-07 BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL I N ITA NO.1181/AHD/2011. 14. WE HAVE HEARD THE PARTIES. WE HAVE PERUSED TH E RECORDS. WE FIND THAT THE ORDER PASSED BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL WH ILE ALLOWING THE CLAIM OF THE ASSESSEE BY CONFIRMING THE ORDER PASSED BY THE LD.CIT(A) THEREB Y REJECTING THE APPEAL PREFERRED BY THE REVENUE OBSERVED AS FOLLOWS: 8. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED TH E MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT THE RULE-8D IS NOT APPLICABLE IN THE YEAR UNDE R APPEAL. THE LD.CIT(A) HAS DECIDED THIS ISSUE BY OBSERVING AS UNDER:- 7.2 I HAVE CAREFULLY CONSIDERED THE SUBMISSION MA DE BY APPELLANT AND OBSERVATION MADE BY THE ASSESSING OFFICER. I FOLLOW THE DECISION OF HON 'BLE MUMBAI HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD THAT RULE 8D IS NOT APP LICABLE FOR AY 2007-08. HOWEVER, THE EXPENSES WHICH ARE INCURRED IN RELATION TO EARNING SUCH INCOME WERE STILL TO BE APPORTIONED, AS HELD BY THE HON'BLE HIGH COURT. THE ASSESSEE'S C ASE INVOLVES A NUMBER OF FADS AND CIRCUMSTANCES WHICH MAKES THE APPORTIONMENT OF INTE REST EXPENSES A VERY DIFFICULT TASK . THE FOLLOWING OBSERVATIONS ARE MADE REGARDING THE FUNDS BOTH SELF AND BORROWED AVAILABLE WITH .. A) THE ASSESSEE WAS GIVEN A TASK TO ESTABLISH DIREC T NEXUS WITH HIS OWN FUNDS OR BORROWED FUNDS ON THE DATE THE INVESTMENTS ON WHICH NO INCOME IS TAXABLE WERE MADE. THE ASSESSEE COULD NOT ESTABLISH THIS. B) IT IS A FACT THAT THE ASSESSEE HAS SUBSTANTIAL O WN FUNDS AND LESSER BORROWED FUNDS. ALTHOUGH THEORETICALLY THE INVESTMENTS IN THE PRESE NT YEAR COULD BE CLAIMED TO BE - 7 - ITA NOS. 803 & 876/AHD/2011 ACIT VS. ANAGRAM CAPITAL LTD. (CROSS APPEALS) ASST.YEAR 2007-08 MADE FROM OWN FUNDS, BUT THE POSSIBILITY OF BORROWE D FUNDS BEING USED FOR THE PURPOSE CANNOT BE CATEGORICALLY RULED OUT. C) THE ASSESSEE HAD TOTAL 6.29 CRORES AS INTEREST I NCOME (1.40 CRORES FROM FDR AND 4.88 CRORES FROM DELAYED PAYMENTS RECEIVED FROM CLI ENTS OF BUSINESS); AND AGAINST THIS THE ASSESSEE HAD TOTAL INTEREST EXPENDITURE OF 4.50 CRORE (1.88 CRORES PAID TO CLIENTS OF BUSINESS, 2.20 CRORES PAID TO BANK AND 40 LACS TO O THERS). IN THIS WAY THE ASSESSEE HAS ACTUALLY EARNED NET INTEREST OF 1.79 CRORES. THE APPORTIONMENT OF INTEREST EXPENSES IN THE ABOVE CIRCUMSTANCES, CONSIDERING THE ABOVE FACTS WITH ASSESSEE HAVING CONSIDERABLE SURPLUS OWN MONEY, NET INTEREST INCOME RATHER THAN EXPENSE, BUT NO DIRECT NEXUS PROVABLE ONE WAY OR TH E OTHER; CAN BEST BE AN ESTIMATE. 1.88 CRORES PAID TO CLIENTS OF BUSINESS IS WHOLLY AND 2. 20 CRORES PAID TO BANK IS MAINLY RELATED TO PAYMENT FOR DEPOSITING MARGIN MONEY'S WHICH HAS BEE N MORE THAN OFFSET BY INTEREST INCOME FROM CLIENTS. THE REMAINING INTEREST CAN BE SAID TO BE POSSIBLY PAID FOR PARTLY BUSINESS ASSETS AND PARTLY FOR INVESTMENTS, THAT TOO WHICH HAVE NOT BEEN MET FROM OWN FUNDS. IN TOTALITY OF CIRCUMSTANCES, PARTICULARLY LOOKING AT HUGE OWN FUN DS AND SURPLUS INTEREST INCOME; AND IN ABSENCE OF PROOF THAT BORROWED FUNDS HAVE AT ALL NO T BEEN USED FOR MAKING INVESTMENTS EARNING NON-TAXABLE INCOME; I CONSIDER IT REASONABL E TO APPORTION RS.4 LACS AS INTEREST COST TO BE DISALLOWED UNDER SECTION 14 A. THE REMAINING ADDITION ON ACCOUNT OF DISALLOWANCE OF INTEREST IS DELETED. FURTHER, A REASONABLE DISALLOWANCE HAS TO BE MADE T O FROM ADMINISTRATIVE EXPENSES EVEN IF THE APPELLANT DENIES THAT EXPENDITURE WAS I NCURRED FOR EARNING EXEMPTED INCOME. CONSIDERING THE INVESTMENTS MADE BY APPELLANT AND D IVIDEND THE DISALLOWANCE IS, THEREFORE, RESTRICTED TO RS.4,00,000/- FROM INTERES T EXPENDITURE ND RS.2,00,000 FROM OTHER ADMINISTRATIVE EXPENSES AND THE GROUND OF APPEAL IS PARTLY ALLOWED. 8.1. SINCE THE RULE-8D OF I.T.RULES, 1962 IS NOT AP PLICABLE, THEREFORE IN OUR CONSIDERED VIEW THE AO WAS NOT JUSTIFIED IN APPLYING THE RULE 8D FOR MAKING DISALLOWANCE. THE LD.CIT(A) HAS GIVEN A FINDING THAT THE ASSESSEE WAS HAVING SUBSTANTIAL FUNDS AND LESSER BORROWED FUNDS. THIS FINDING OF THE LD.CIT(A) IS N OT CONTROVERTED BY THE REVENUE BY PLACING ANY CONTRARY MATERIAL ON RECORD, THEREFORE, WE DO N OT SEE ANY REASON TO INTERFERE WITH THE FINDING OF THE LD.CIT(A), SAME IS HEREBY UPHELD. THUS, THIS GROUND OF REVENUES APPEAL IS REJECTED. 9. REMAINING GROUNDS OF REVENUES APPEAL ARE GENERA L IN NATURE WHICH REQUIRE NO INDEPENDENT ADJUDICATION. 10. AS A RESULT, REVENUES APPEAL IS DISMISSED. - 8 - ITA NOS. 803 & 876/AHD/2011 ACIT VS. ANAGRAM CAPITAL LTD. (CROSS APPEALS) ASST.YEAR 2007-08 15. IN VIEW OF THE ORDER PASSED BY THE CO-ORDINATE BENCH IN FAVOUR OF ASSESSEE FOR THE AY 2006-07 ON THE SAME ISSUE, WE FIND NO REASON TO INT ERFERE WITH THE ORDER PASSED BY THE LD.CIT(A). WE THEREFORE REJECT THE GROUND OF APPEA L PREFERRED BY THE REVENUE. 16. THE THIRD GROUND RELATES TO THE ORDER OF DELETI ON OF DISALLOWANCE OF RS.11,11,400/- MADE BY THE LD. CIT(A) U/S.36(1)(III) OF THE ACT. 17. AT THE VERY OUTSET OF THE MATTER, THE LD.REPRES ENTATIVE OF THE REVENUE RELIES UPON THE ORDER PASSED BY THE LD. ASSESSING OFFICER IN MAKING DISALLOWANCE OF RS.11,11,400/- AND ADDITION THEREOF TO THE TOTAL INCOME OF THE ASSESSE E. 18. ON THE CONTRARY, THE LD. REPRESENTATIVE OF THE ASSESSEE SUBMITTED BEFORE US THAT THIS PARTICULAR ISSUE HAS ALREADY BEEN DECIDED BY THE CO -ORDINATE BENCH IN ITA NO.1181/AHD/2011 (BY REVENUE) FOR AY 2006-07 AND I N ITA NO.1531/AHD/2011 (BY REVENUE) FOR AY 2008-09 IN FAVOUR OF ASSESSEE. A C OPY OF THE SAID ORDERS HAS BEEN ANNEXED TO THE PAPER-BOOK FILED BY THE ASSESSEE BEFORE US. 19. WE HAVE HEARD THE LD.REPRESENTATIVES APPEARING FOR THE PARTIES. WE HAVE PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT WHILE DEALING THE ISSUE THE CO-ORDINATE BENCH OF THIS TRIBUNAL OBSERVED AS FOLLOWS:- 2. THE SECOND SUBSTANTIVE GROUND SEEKS TO RESTOR E SECTION 36(1)(III) INTEREST DISALLOWANCE OF RS.4,61,573/-. THE ASSESSING OFFICER NOTICED ASS ESSEES INTEREST EXPENDITURE PAID OF RS.1,00,61,155/- AND THAT OF RS.4,80,08,632/- IN CA SE OF OTHER ENTITIES. HE WAS OF THE VIEW THAT THE SAME HAD TO BE DISALLOWED U/S 36(1)(III) TO THE EXTENT OF INTEREST FREE LOANS TO ASSOCIATE COMPANIES AND RELATING TO SHARE INVESTMENTS MADE IN CASE OF M/S. ARVIND MILLS WITHOUT ANY BUSINESS PURPOSE. HE CONSIDERED RELEVANT EXPLANATIO N RENDERED QUA THESE LOANS/ADVANCES TO M/S. ARVIND CLOTHING LTD., ARVIND MURJANI BRANDS L TD., ARVIND FASHION LTD., AND ARVIND BRANDS LTD THAT CERTAIN EXPENSES HAD BEEN MET ON BE HALF OF THESE ENTITIES TO BE LACKING ANY BUSINESS PURPOSE IN ABSENCE OF DETAILS BEING FILED. THE ASSESSING OFFICER WAS FURTHER OF THE VIEW THAT SUCH REIMBURSEMENTS COULD NOT BE TAKEN AS LOANS/ADVANCES. HE CITED LACK OF DETAILS QUA THE ADVANCES IN QUESTION OF RS.32,03,147/-. - 9 - ITA NOS. 803 & 876/AHD/2011 ACIT VS. ANAGRAM CAPITAL LTD. (CROSS APPEALS) ASST.YEAR 2007-08 AND OBSERVED THAT ASSESSEE HAD PAID HUGE INTEREST S UMS ON THE ONE HAND AND ADVANCED ITS INTEREST BEARING FUNDS WITHOUT CHARGING INTEREST TO ABOVE STATED ENTITIES. THIS WOULD MAKE THE ASSESSING OFFICER TO COMPUTE THE PROPORTIONATE INTE REST DISALLOWANCE IN QUESTION OF RS.4,61,573/- IN ASSESSMENT ORDER DATED 30.12.2010. 3. WE COME TO THE LOWER APPELLATE PROCEEDINGS NOW. THE CIT(A) PREPARES A PARTY-WISE TABULATION QUA LOANS IN QUESTION OF RS.32,03,147/- AS INCURRED IN REIMBURSEMENT OF EXPENSES. HE FINDS THE SAME TO HAVE BEEN INCURRED IN BUSINESS PURPOSES AS PER CASE LAW OF S A BUILDERS VS. CIT, 288 ITR 01 (SC) AS HAVING BUSINESS EXPEDIE NCY ELEMENT EMBEDDED THEREIN. THE REVENUES ARGUMENTS STRONGLY SUPPORT ASSESSING OFFI CERS ACTION. IT TRANSPIRES FROM THE CASE FILE THAT ASSESSEES INTEREST FREE FUNDS AS ON 31.0 3.2008 READ A FIGURE OF RS. 1,25,83,17,835/- IN THE NATURE OF SHARE CAPITAL, RESERVES AND SURPLU S ETC. IT FILES TRIBUNALS ORDER IN ITS OWN CASE FOR AY 2004-05 IN ITA NO.1890/AHD/2007 DECIDED ON 19.12.2008 DECIDING THE VERY ISSUE IN ITS FAVOUR IN IDENTICAL CIRCUMSTANCES. WE FOLL OW SUIT IN THESE FACTS AND REJECT THIS REVENUES GROUND AS WELL. 20. RESPECTFULLY FOLLOWING THE SAME, WE CONFIRM THE ORDER PASSED BY THE LD. CIT(A). AS A RESULT, THIS GROUND OF REVENUES APPEAL IS REJECT ED. 21. GROUND NO.4 : THIS GROUND OF APPEAL RELATES TO SAUDAFER LOSS TO RS.15,43,134/- TREATING AS SPECULATION LOSS WITHIN THE MEANING OF EXPLANATION TO SECTION 73 OF THE ACT. FROM THE ASSESSMENT ORDERS, IT APPEARS THAT THE ASS ESSEE EXPLAINED THAT THE LOSS IS ARISING DUE TO MISTAKE WHILE EXECUTING ORDERS OF CLIENTS, WRONG EXECUTION OF THE ORDERS, CLIENTS DISOWNING TRANSACTION, NON-DELIVERY OF SHARE EXCHANGE. HOWEV ER, THE SAID EXPLANATION WAS NOT ACCEPTED BY THE LD. ASSESSING OFFICER AND HE THUS ADDED THE AMOUNT TO THE INCOME OF THE ASSESSEE. SUCH ADDITION WAS MADE ON THE BASIS THAT THE LD. AS SESSING OFFICER HAS NOT GIVEN DETAILS AND THE SUPPORTING DOCUMENTS. FURTHER THAT, SIMILAR DI SALLOWANCE MADE IN THE CASE OF THE ASSESSEE FOR AYS 1996-97 & 1998-99 CONFIRMED BY ITAT WAS TAK EN CARE OF BY THE LD. ASSESSING OFFICER. - 10 - ITA NOS. 803 & 876/AHD/2011 ACIT VS. ANAGRAM CAPITAL LTD. (CROSS APPEALS) ASST.YEAR 2007-08 21.1. THE LD.REPRESENTATIVE OF THE REVENUE AT THE T IME OF HEARING OF THE APPEAL, ARGUED AGAINST THE ORDER PASSED BY THE LD.CIT(A). ACCORDI NG TO HIM, THE ENTIRE AMOUNT OUGHT TO HAVE BEEN DISALLOWED BY THE LD.CIT(A). 21.2. ON THE OTHER HAND, THE ASSESSEE CLAIMED THAT SUCH RESTRICTION IS NOT WARRANTED IN THE PRESENT FACTS AND CIRCUMSTANCES OF THE CASE. 22. WE HAVE HEARD THE LD.REPRESENTATIVES OF THE PAR TIES. WE HAVE PERUSED THE RELEVANT MATERIALS AVAILABLE ON RECORD. WE FIND IN APPEAL T HE LD.CIT(A) OBSERVED THAT THE APPELLANT HAS RIGHT FROM BEGINNING EXPLAINED THAT THE LOSS HA S ARISEN ON ACCOUNT OF SAUDAFER IN EARLIER SUBMISSIONS. SPECIFIC COPIES OF DIFFERENT CORRESPO NDING IN THIS REGARD PARTICULARLY IN RESPECT OF MAJOR ITEMS OF LOSS WAS ALSO SUBMITTED BY THE AP PELLANT AS INDICATED BY THE LD. CIT(A). MORE SO, THE LIST OF CLIENTS OF WHOSE BEHALF THE T RANSACTIONS WERE CARRIED OUT AND THE LOSS HAS ARISEN AS SAUDAFER HAS ALREADY BEEN SUBMITTED BY TH E ASSESSEE. SUCH AMOUNTS TOTALLING TO RS.21,20736/- WHICH IS CLEAR FROM THE SUBMISSIONS C ONCLUDED THEREIN. HOWEVER, SINCE IN RESPECT OF BALANCE AMOUNT OF RS.15,43,134/- THE APP ELLANT HAS NOT BEEN ABLE TO JUSTIFY BY ADDUCING SUPPORTING DOCUMENTS AND/OR EVIDENCES, THE LD.CIT(A) FOUND IT FIT TO RESTRICT THE DISALLOWANCE TO THE TUNE OF RS.15,43,134/-, THE BAL ANCE RS.21,20,736/- HAS BEEN ALLOWED SINCE THE SAME WAS SUPPORTED BY EVIDENCES AS TO THE LOSS FULLY ALLOWABLE AS BUSINESS EXPENDITURE. WE FIND REASONS AND/OR JUSTIFICATION FOR SUCH RESTRICTIONS MADE BY THE LD. CIT(A) TO THE TUNE OF RS.15,43,134/-. IN THAT VIEW OF THE MATTER, WE CONFIRM THE ORDER PASSED BY THE LD.CIT(A). IN THE RESULT, THIS GROUND OF R EVENUES APPEAL IS ALLOWED. 23. GROUND NO.5 : THIS GROUND RELATES TO ADDITION OF BAD DEBTS O F RS.2,35,901/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS REQUESTED TO EXPLAIN AS TO WHETHER THE SAID BAD DEBTS WAS OFFERED AS INCOME IN ANY OF THE YEAR. AS TO WHETHER THE REQUIREMENT OF SECTION 36(2) OF THE ACT HAS BEEN COMPLIED WITH AS ALSO DIRECTED TO BE EXPLAINED BY THE ASSESSEE. THE ASSESSEE DULY EXPLAINED THE SAME BY WRITTEN SUBMISSION. HOWEVER, THE LD. - 11 - ITA NOS. 803 & 876/AHD/2011 ACIT VS. ANAGRAM CAPITAL LTD. (CROSS APPEALS) ASST.YEAR 2007-08 ASSESSING OFFICER WAS NOT SATISFIED WITH THE EXPLAN ATION GIVEN BY THE ASSESSEE AND HE THEN ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE HAS NEITHER SUBMITTED BY PROOF THAT THE DEBTS UNDER CONSIDERATI ON HAS ACTUALLY BECOME BAD NOR HAS PROVED THAT THE DEBTS FOR WHICH THE CLAIM HAS BEEN MADE AS BAD DEBT WAS OFFERED FOR TAXATION COMPLYING THE REQUIREMENT OF SECTION 36(2) OF THE A CT. PROOF OF STEPS TAKEN TO RECOVER THE DEBTS HAS ALSO NOT BEEN SUBMITTED BY THE ASSESSEE A S OBSERVED BY HIM. FURTHER, THAT THE FOLLOWING WAS ALSO OBSERVED BY THE LD.AO. 9.4. THE ASSESSEES ALTERNATE ARGUMENT THAT IF NO T UNDER SECTION 36(1)(III), THEN THE SAID BAD DEBTS IS OTHERWISE ALLOWABLE AS BUSINESS L OSS U/S.28 OF THE ACT, IS ALSO DEVOID OF MERITS AS IT IS SETTLED LEGAL POSITION THAT IF A NY EXPENSE IS GOVERNED BY ANY SPECIFIC OR SPECIAL PROVISIONS OF THE ACT, THEN THE ALLOWABI LITY OF THE SAME HAS TO BE DECIDED IN THAT PARTICULAR SPECIAL PROVISIONS AND NOT UNDER GE NERAL PROVISION, SINCE THE SPECIAL PROVISIONS OVERRIDES THE GENERAL PROVISIONS. THE M AXIM OF GENERALIA SPECIALIBUS NON DEROGANT AND GENERALIA SPECIALIA DEROGANT, I.E. IF A SPECIAL PROVISION IS MADE ON A CERTAIN MATTER THAT MATTER IS EXCLUDED FROM THE GEN ERAL PROVISION IS WELL SETTLED IN INDIA AND THE SAME IS ALSO APPLICABLE TO INCOME TAX PROVISIONS. 24. IN APPEAL, THE LD. CIT(A) DELETED THE DISALLOWA NCE MADE BY THE LD. ASSESSING OFFICER WITH THE FOLLOWING OBSERVATION: 7.1. THESE ARE REGARDING DISALLOWANCE OF BAD DEBTS OF RS.2,35,901/-. IN THE ASSESSMENT ORDER, THE AO HAS STATED THAT THE ASSESS EE HAS CLAIMED BAD DEBT AT RS.2,35,901/-. DURING THE COURSE OF ASSESSMENT PR OCEEDINGS THE ASSESSEE WAS REQUESTED TO EXPLAIN WHETHER THE SAID BAD DEBTS HAS BEEN OFFERED AS INCOME IN ANY OF THE YEAR OR NOT I.E. WHETHER THE REQUIREMENT OF SEC TION 36(2) OF THE ACT HAS BEEN COMPLIED OR NOT. IN RESPONSE TO THE SAME, THE ASSE SSEE REPLIED THAT MOST OF THE BAD DEBT INDIVIDUALLY IS IN THE NATURE OF KASAR/VATAV N ATURE OF MINOR AMOUNT AND SOME ENTRIES ARE OF IRRECOVERABLE AMOUNT BELOW RS.5,000/ -, WHICH IS CLEAR FROM THE DETAILS FILED. SINCE THE AMOUNTS ARE VERY SMALL, NO LEGAL SUITS WERE FILED. THE ASSESSEE STATED THAT THESE DEBTS ARE IN RESPECT OF WHICH BROKERAGE INCOME WAS OFFERED FOR TAX. THESE AMOUNTS ARE NOT RECOVERED FOR VARIOUS REASONS, AND THEREFORE THEY HAVE BEEN INCURRED IN THE COURSE OF BUSINESS AND HENCE THEY SHOULD BE ALLOWED IN THIS REGARD, THE ASSESSEE RELIED ON THE DECISION IN THE CASE OF JCIT VS. SHRE YAS S.MORAKHIA (ITA NO.2647/MUM/99) (ITAT MUMBAI BENCH C. THE LD. AS SESSING OFFICER DID NOT ACCEPT THE EXPLANATION SAYING THAT APART FROM THE G ENERAL EXPLANATION THE ASSESSEE HAS NEITHER SUBMITTED ANY PROOF THAT THE DEBTS UNDER CO NSIDERATION HAS ACTUALLY BECOME BAD NOR HAS PROVED THAT THE DEBTS FOR WHICH THE CLA IM HAS BEEN MADE AS BAD DEBT WAS - 12 - ITA NOS. 803 & 876/AHD/2011 ACIT VS. ANAGRAM CAPITAL LTD. (CROSS APPEALS) ASST.YEAR 2007-08 OFFERED FOR TAXATION I.E. THE REQUIREMENT OF SECTIO N 36(2) OF THE ACT HAS BEEN COMPLIED WITH. THE AO DISALLOWED THE CLAIM, RELYING ON THE DECISION IN THE CASE OF CIT V. KHEM CHAND BAHADUR CHAND, (1982) 134 ITR 65 (PUNJ), T.S. PL.P. CHIDAMBARAM CHETTIAR V. CIT (1967) 64 ITR 181, 186 (MAD), R.B. CHAMPALAL RAMSARUP V. CIT, (1964) 52 ITR 194 (ALL) AHMEDABAD ELECTRICITY CO. VS. CIT (26 2 ITR 97) (GUJ), DHALL ENTERPRISES AND ENGINEERS PVT.LTD. VS. CIT REPORTED IN 207 CTR 729. 7.2.1. DURING THE APPELLATE PROCEEDING, THE APPELLA NT STATED THAT IT HAS SUBMITTED THE PARTY WISE BREAK UP OF AMOUNT WRITTEN OFF AS BAD AL ONG WITH THEIR NAME AND ADDRESSES AND THE REASONS FOR WRITING OFF OF THE SAME. HENCE , SO FAR AS THE PRIMARY CONTENTION RAISED BY THE ASSESSING OFFICER WITH REGARDS TO INA BILITY OF THE APPELLANT FOR PRODUCING ANY EVIDENCE ESTABLISHING SUCH DEBTS BEING BAD OR I NABILITY OF THE DEBTOR TO PAY ITS DEBTS, IS CONCERNED, THE APPELLANT SUBMITTED THAT T HE SAID ISSUE REGARDING WRITING OFF OF DEBTS AND ITS ALLOWANCE U/S.36(1)(VII) OF THE ACT I S NOW SETTLED BY THE RECENT RULING OF HONBLE SUPREME COURT IN CASE OF TRF LTD. VS. CIT 3 23 ITR 397, DATED 9.2.2010, IN FAVOUR OF APPELLANT. 7.2.2. APART FROM THIS, AND WITH REGARD TO THE OBSE RVATION OF ASSESSING OFFICER THAT SINCE THE ASSESSEE COMPANY HAS OFFERED ONLY BROKERA GE INCOME FOR TAXATION AND THE ENTIRE CLIENTS RECEIPTS HAVE NOT BEEN CREDITED TO P ROFIT & LOSS ACCOUNT, THE BAD DEBTS CLAIMED CANNOT BE ALLOWED, IT WAS STATED THAT THE A PPELLANT COMPANY IS A SHARE-BROKER, AND ACCORDINGLY DURING THE COURSE OF ITS BUSINESS T HE PURCHASE/SALES ON BEHALF OF CLIENTS, THE TRANSACTION RESULTS INTO TWO ITEMS; ON E IS THE BROKERAGE AND OTHER IS THE PAYMENT/RECOVERY FOR PURCHASES/SALES MADE BY THE CL IENTS. THE BROKERAGE IS CREDITED INTO PROFIT & LOSS ACCOUNT AND PAYMENTS FOR PURCHAS E ARE ENTERED INTO CLIENTS ACCOUNTS. FURTHER WHEN SHARES ARE SOLD BY THE APPE LLANT ON BEHALF OF THE CLIENTS, THE APPELLANT RECOVERS SALE PRICE OF SHARES ON BEHALF O F CLIENTS. THUS, THE BROKERAGE EARNED BY THE APPELLANT WHICH IS A PART OF THE DEBT HAS BEEN CREDITED IN THE PROFIT & LOSS ACCOUNT AND HAS BEEN DULY OFFERED TO THE TAXAT ION. THE APPELLANT RELIED ON THE FOLLOWING CASES WHERE IN ON SIMILAR FACTS MAY DEBTS HAVE BEEN ALLOWED:- CIT VS. BONANZA PORTFOLIO (DELHI HIGH COURT) 320 IT R 178 DY.CIT VS. SHREYAS S.MORAKHIA (2010) 131 TTJ 641 (S B)(MUM.) DECISION OF AHMEDABAD ITAT IN CASE OF MADHUR SHARES & STOCKS PVT.LTD. VS. ACIT DATED 31.05.2010 IN ITA NOS.615/AHD/2005 AND 704/AH D/2005. 7.3. I HAVE CONSIDERED THE SUBMISSION MADE BY THE A PPELLANT AND OBSERVATION OF THE AO. IN A RECENT DECISION THE BOMBAY INCOME TAX TRI BUNAL SPECIAL BENCH DECISION IN THE CASE OF SHREYAS S.MORAKHIA (2010) 40 SOT 432 HA S DECIDED THAT SUCH DEBTS ARE ALLOWABLE AS BAD DEBTS. THE FACTS IN THE APPELLANT S CASE ARE SAME. THIS GROUND OF APPEAL IS THEREFORE ALLOWED. - 13 - ITA NOS. 803 & 876/AHD/2011 ACIT VS. ANAGRAM CAPITAL LTD. (CROSS APPEALS) ASST.YEAR 2007-08 25. THE LD. REPRESENTATIVE APPEARING FOR THE REVE NUE AT THE TIME OF HEARING OF THE MATTER, RELIED UPON THE ORDER PASSED BY THE LD. ASSESSING O FFICER. THE LD.AR SUBMITTED THAT THIS ISSUE OF BAD DEBTS HAS BEEN CONSIDERED BY THE CO-OR DINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE IN HIS FAVOUR FOR AY 2008-09. 26. WE HAVE HEARD THE LD. REPRESENTATIVES OF THE PA RTIES. WE HAVE PERUSED THE MATERIALS AVAILABLE ON RECORD. WE HAVE FURTHER GONE THROUGH THE ORDER PASSED BY THE CO-ORDINATE BENCH IN ITA NO.1531/AHD/2011 FOR AY 2008-09 IN ASS ESSEES OWN CASE. 4. THE REVENUES THIRD SUBSTANTIVE GROUND ASSAILS CORRECTNESS OF THE CIT(A) ACTION IN DELETING BAD DEBT DISALLOWANCE OF RS.27,35,991/- CO MPRISING OF DEBIT BALANCE WRITTEN OFF OF RS.25,60,148/- AND BAD DEBT OF RS.1,75,843/-. THES E ENTRIES ARE MAINLY IN THE NATURE OF VATAV KASAR. SOME OF THEM ARE LESS THAN OF RS.10,000/- E VEN. THE ASSESSING OFFICER OBSERVED THAT THERE WAS NO MATERIAL ON RECORD TO PROVE THE SAME T O HAVE BEEN ACTUALLY BECOME BAD. AND ALSO THAT THE ASSESSEE HAD OFFERED ONLY BROKERAGE S UMS AS ITS INCOME U/S 36(2) OF THE ACT IN PROFIT AND LOSS ACCOUNT. HE ACCORDINGLY MADE THE IMPUGNED DISALLOWANCE OF THIS BAD DEBTS CLAIM. 5. THE CIT(A) DELETES THIS BAD DEBTS DISALLOWANCE A FTER QUOTING CASE LAW OF TRF LTD. VS. CIT, 323 ITR 397 (SC) TO THE FACT THAT IT IS NOT NE CESSARY TO PROVE THE SAME TO HAVE ACTUALLY BECOME BAD AS PER THE RELEVANT LAW AMENDED FROM 01. 04.1989. THE CIT(A) COMES TO LATTER ASPECT (SUPRA). THE ASSESSEE SUBMITTED IN THE LOWE R APPELLATE PROCEEDINGS THAT IT HAD ALREADY CREDITED ITS BROKERAGE INCOME IN PROFIT AND LOSS AC COUNT THEREBY OFFERING IT FOR TAXATION. IT CLARIFIED THAT SALE/PURCHASE PRICE OF SHARES HAD BE EN CREDITED IN THE RESPECTIVE ACCOUNTS. THE CIT(A) FOLLOWS SPECIAL BENCH DECISION OF THE TRIBUN AL (2010) 5 ITR (TRIB) 1 (BOM.) DCIT VS. SHREYAS S. MORAKHIA AS UPHELD IN (2012) 342 ITR 285 (BOM.) CIT VS. SHREYAS S. MORAKHIA THAT VALUE OF THE SHARE TRANSACTED BY A BROKER-ASSE SSEE ON BEHALF OF THE CONCERNED CLIENT IS VERY MUCH ALLOWABLE AS BAD DEBTS. THE REVENUE FAIL S TO REBUT THIS LEGAL POSITION. WE REJECT THIS THIRD SUBSTANTIVE GROUND ACCORDINGLY. 27. RESPECTFULLY RELYING UPON THE AFORESAID ORDER P ASSED BY THE CO-ORDINATE BENCH, WE UPHOLD THE ORDER PASSED BY THE LD.CIT(A). ACCORDIN GLY, THE GROUND OF APPEAL PREFERRED BY THE REVENUE IS REJECTED. - 14 - ITA NOS. 803 & 876/AHD/2011 ACIT VS. ANAGRAM CAPITAL LTD. (CROSS APPEALS) ASST.YEAR 2007-08 28. THE NEXT GROUND RELATES TO RESTRICTING THE ADDI TION ON ACCOUNT OF DEDUCTION OF BROKERAGE REBATE TO THE TUNE OF RS.15,43,134/- OUT OF THE TOTAL AMOUNT OF RS.29,12,088/-. 29. WE FIND FROM THE RECORDS THAT THE ISSUE ON THE SIMILAR SET OF FACTS IS COVERED IN ASSESSEES OWN MATTER BEING ITA NOS.1531/AHD/2011 ( BY REVENUE) FOR AY 2008-09 PASSED BY THE CO-ORDINATE BENCH. THE SAME WAS ALSO RELIED UPON BY THE LD. COUNSEL APPEARING FOR THE ASSESSEE. HOWEVER, THE LD.REPRESENTATIVE OF TH E DEPARTMENT RELIES UPON THE ORDER PASSED BY THE LD. ASSESSING OFFICER. WHILE ALLOWING THE APPEAL PREFERRED BY THE ASSESSEE, THE CO- ORDINATE BENCH OBSERVED AS FOLLOWS: 6. THIS LEAVES US WITH THE REVENUES FORTH AND LAS T SUBSTANTIVE GROUND SEEKING TO RESTORE BROKERAGE REBATE DISALLOWANCE OF RS.34,67,507/-. T HIS SUM REPRESENTS ASSESSEES REBATE TO ITS CLIENT ON THE GROUND THAT THE BROKERAGE RATE CH ARGED WAS FOUND TO BE MORE THAN THAT AGREED, THE SAME WAS REDUCED IN ORDER TO RETAIN THE CLIENTELE AND IT IS A VOLUME-BASE PROMOTION SCHEME BY FOLLOWING COMMERCIAL EXPEDIENCY . THE ASSESSING OFFICER CITED LACK OF EVIDENCE OF THESE SUMS BEING RETURNED TO CLIENTS. HE WAS OF THE VIEW THAT THERE WAS NO MATERIAL FORTHCOMING WHICH COULD ESTABLISH REVISION OF THE ORIGINAL CONTRACT NOTES. HE REFERRED TO SEBI GUIDELINES NOT ALLOWING ANY KICKBA CKS, REBATE RETURNS OR DIVISION OF BROKERAGE. THE SAME RESULTED IN THE IMPUGNED DISAL LOWANCE. 7. THE CIT(A) TREATS ASSESSEES EXPLANATION SUPPORT IVE OF THE IMPUGNED REBATE CLAIM AS GENUINE. AND HOLDS THAT THE SAME WAS GIVEN IN THE RESPECTIVE LEDGER ACCOUNT OF THE CLIENTS. THE ASSESSEES LEDGER BALANCE IN THIS REGARD WAS FO UND TO BE ACCORDINGLY REDUCED IN ALL CASES. ALL THIS RESULTS IN DELETION OF THE IMPUGNE D DISALLOWANCE. 8. WE HAVE HEARD BOTH THE PARTIES. IT TRANSPIRES F ROM PAGES 91 TO 102 OF THE PAPER-BOOK THAT ASSESSEES GROSS BROKERAGE INCOME IS OF RS.59, 23,26,790/-. THE CORRESPONDING BROKERAGE REFUND FIGURE IN QUESTION IS @ 0.59% OF T HIS GROSS INCOME. THE RELEVANT SEGMENTS ARE CASH AND F&O OF RS.9,06,412.88 AND RS.25,61,094 .25; RESPECTIVELY. PAGES 93 TO 102 CONTAIN LIST OF ASSESSEES CLIENTS ALONGWITH CODES AND AMOUNTS REFUNDED IN ALL CASES. THE REVENUE IS UNABLE TO REBUT CORRECTNESS THEREOF. WE HOLD IN THESE FACTS THAT ASSESSEES CLAIM OF BROKERAGE REBATE IN QUESTION DOES NOT LACK GENUI NENESS ELEMENT. IT HAS COME ON RECORD THAT IT IS IN STOCK BROKING BUSINESS. IT HAS ACCORD INGLY OFFERED THE IMPUGNED REBATE OF RS.34,67,507/- IN BUSINESS EXPEDIENCY. WE DO NOT F IND ANY GROUND TO INTERFERE WITH THE LOWER APPELLATE FINDINGS UNDER CHALLENGE. THIS FORTH AND LAST GROUND IS ALSO REJECTED. REVENUES APPEAL ITA NO.1531/AHD/2011 IS DISMISSED . - 15 - ITA NOS. 803 & 876/AHD/2011 ACIT VS. ANAGRAM CAPITAL LTD. (CROSS APPEALS) ASST.YEAR 2007-08 30. IN THAT VIEW OF THE MATTER, WE FIND NO REASON T O INTERFERE WITH THE ORDER PASSED BY THE LD.CIT(A) AND WE THUS CONFIRM THE ORDER PASSED BY T HE LD. CIT(A). THUS, REVENUES APPEAL ON THIS GROUND STANDS REJECTED. 31. GROUND NO.7 : THE REVENUE HAS COME UP IN APPEAL AGAINST THE DE LETION OF ADDITION OF RS.28,756/- MADE ON ACCOUNT OF UNPAID EMPLOYEES CO NTRIBUTION TO PF & ESIC. 32. IT APPEARS FROM THE RECORDS THAT THE EMPLOYEES CONTRIBUTION OF PF & ESIC FOR CERTAIN MONTHS WAS NOT REMITTED BY THE ASSESSEE WITHIN THE DUE DATES AS PER RESPECTIVE PF & ESIC ACT. EXPLANATION WAS ASKED FOR IN THIS REGARD FR OM THE ASSESSEE BY THE REVENUE. THE ASSESSEE BY FILING A WRITTEN SUBMISSION INTENDED TO JUSTIFY THAT THE PAYMENTS WERE MADE BEFORE THE DUE DATE OF FILING OF RETURN OF INCOME M ENTIONED IN SECTION 139(1) OF THE ACT. THE ASSESSEE FURTHER RELIED UPON CERTAIN DECISIONS IN S UPPORT OF CLAIM OF DISALLOWANCE IN THIS REGARD SHOULD NOT BE MADE. HOWEVER, THE SAID EXPLA NATION WAS NOT ACCEPTED BY THE LD. ASSESSING OFFICER. ACCORDING TO HIM, THE PROVISIO N OF SECTION 43B OF THE ACT IS APPLICABLE ONLY IN RESPECT OF EMPLOYERS CONTRIBUTION AND NOT IN RESPECT OF EMPLOYEES CONTRIBUTION. ACCORDING TO THE ASSESSEE, THE TAXABILITY/ALLOWABIL ITY OF EMPLOYEES CONTRIBUTION OF PF AND ESIC HAS TO BE DECIDED AS PER THE PROVISIONS OF SEC TION 2(24)(X) READ WITH SECTION 36(1)(VA) OF THE ACT. HE THUS DISALLOWED THE AMOUNT OF RS .28,756/- AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE. IN APPEAL, THE LD.CIT(A) D ELETED THE ADDITION. 32.1. THE LD. COUNSEL APPEARING FOR THE ASSESSEE FAIRLY SUBMITTED BEFORE US THAT THE ISSUE HAS BEEN DECIDED BY THE HONBLE JURISDICTIONAL HIGH COURT AGAINST THE ASSESSEE. THE LD. DR DID NOT RAISE OBJECTION TO THE SUBMISSIONS MADE BY THE LD.AR. 33. HEARD THE RESPECTIVE PARTIES, PERUSED THE M ATERIALS ON RECORD. WE FIND THAT THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GS RTC LTD. REPORTED IN 366 ITR 170 (GUJ.) - 16 - ITA NOS. 803 & 876/AHD/2011 ACIT VS. ANAGRAM CAPITAL LTD. (CROSS APPEALS) ASST.YEAR 2007-08 PASSED AN ORDER AGAINST THE ASSESSEE ON THE SIMILAR ISSUE WHEREIN IT WAS HELD THAT IF AN ASSESSEE FAILS TO DEPOSIT EMPLOYEES CONTRIBUTION T O PF ACCOUNT WITHIN DUE DATE PROVIDED IN P.F. ACT, THEN EXPENDITURE WOULD NOT BE ALLOWED AS DEDUCTION. THE LD. CIT(A) HAS FAILED TO CONSIDER THE RATIO LAID DOWN ON THE ISSUE BY THE HONBLE JURISDICTIONAL HIGH COURT AS DISCUSSED ABOVE. WE, THEREFORE, REJECT THE ORDER P ASSED BY THE LD. CIT(A) AS IMPUGNED BEFORE US. THUS, THE GROUND OF REVENUES APPEAL IS ALLOWED. 34. GROUND NO.8 : THE REVENUE HAS CHALLENGED THE ORDER PASSED BY THE LD. CIT(A) IN DIRECTING THE LD. ASSESSING OFFICER IN DIRECTING TH E LD.ASSESSING OFFICER TO GIVE PROPORTIONATE CREDIT FOR DEDUCTION U/S.194C INSTEAD OF SECTION 194-1 IN RESPECT OF DISALLOWANCE OF RS.40,46,873/- MADE U/S.40(A)(IA) T OWARDS POOL INTERACTIVE AND OTHER CHARGES. 35. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS FOUND THAT THE ASSESSEE HAS CLAIMED FOLLOWING EXPENSES UNDER STOCK EXCHANGE SET TLEMENT COST ON WHICH TDS WAS REQUIRED TO BE DEDUCTED:- (A) NSE LEASE LINE CHARGES RS. 2,30,190/- (B) NSE VSAT CHARGES RS.13,63,883/- (C) LEASE LINE EXPENSES RS. 7,01,878/- 36. THE ASSESSEE HAS FURTHER CLAIMED A SUM OF RS.40 ,46,873/- UNDER THE HEAD POOL INTERACTIVE AND OTHER CHARGES. THE SAID CHARGES WE RE PAID FOR VSAT AND BANDWIDTH/LEASE LINE CHARGES PAID TO BHARATI COMTEL LTD. WHILE GIVI NG EXPLANATION AS ASKED FOR, THE ASSESSEE VIDE LETTER DATED 08.12.2009, DULY SUBMITTED THAT IT HAS DEDUCTED TDS ON POOL & INTERACTIVE CHARGES U/S.194C OF THE ACT SINCE THE EXPENSES ARE IN NATURE OF VSAT CONNECTIVITY CHARGES. HOWEVER, NO TDS HAS BEEN DEDUCTED LEASE LINE EXPENS ES SINCE THE SAME ARE OF THE NATURE OF RENT. THE EXPLANATION RENDERED BY THE ASSESSEE WAS NOT ACCEPTED AND THE LD.AO DISALLOWED THE SAME WITH THE FOLLOWING OBSERVATION: - 17 - ITA NOS. 803 & 876/AHD/2011 ACIT VS. ANAGRAM CAPITAL LTD. (CROSS APPEALS) ASST.YEAR 2007-08 16.8 IN VIEW OF THE ABOVE MENTIONED ACTS AND STA TUTORY PROVISIONS THE ASSESSEES ARGUMENTS ARE REJECTED AND MDE LEASE LINE CHARGES A T RS.2,30,190/-. NSE VSAT CHARGES AT RS.13,63,883/-. LEASE LINE EXPENSES AT RS.7,01,878/- AND POOL & INTERACTIVE CHARGES AT RS.40,46,873/- ARE LIABLE TO BE DISALLOWED U/S.40(A)(IA) OF THE ACT. ACCORDINGLY, A SUM OF RS.63,42,824/- IS DISAL LOWED U/S.40(A)(IA) OF THE ACT AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. IN VIE W OF FACTS MENTIONED ABOVE I AM SATISFIED THAT THE ASSESSEE HAS FURNISHED INACCURAT E PARTICULARS OF ITS INCOME AND HENCE PENALTY PROCEEDINGS U/S.271(1)(C) OF THE ACT IS INI TIATED SEPARATELY FOR FURNISHING INACCURATE PARTICULARS ON THIS ACCOUNT. 37. IN APPEAL, THE LD.CIT(A) ALLOWED THE CLAIM OF T HE ASSESSEE. HE FURTHER OBSERVED THAT IN RESPECT OF THE POOL, INTERACTIVE AND OTHER CHARG ES, THE ENTIRE EQUIPMENTS ARE OWNED BY THE ASSESSEE AND THE CONNECTIVITY IS ONLY BETWEEN ITS O WN BRANCHES AND HENCE USE OF THE SAME IS NOTHING BUT RENT. IN THAT VIEW OF THE MATTER, THE TDS SHOULD HAVE BEEN DEDUCTED U/S.194-I OF THE ACT. SINCE THE ASSESSEE HAS DEDUCTED SOME TDS U/S.194-C OF THE ACT, THE DISALLOWANCE MADE THEREIN HAS BEEN CONFIRMED BY THE LD.CIT(A), B UT CREDIT SHOULD BE GIVEN FOR TDS DEDUCTED ON PROPORTIONATE BASIS AND DISALLOWANCE WA S PARTLY CONFIRMED. 38. AT THE TIME OF HEARING OF THE INSTANT APPEAL, T HE LD. COUNSEL FOR THE ASSESSEE RELIED UPON THE JUDGMENT PASSED BY THE HONBLE JURISDICTI ONAL HIGH COURT AND THE HONBLE APEX COURT AS WELL. THE FOLLOWING JUDGMENTS WERE RELIED UPON BY THE ASSESSEES REPRESENTATIVE IN ITS FAVOUR: I) PRAYAS ENGINEERING LTD. IN TAX APPEAL NO.1237 OF 2014 (GUJ HIGH COURT) II) S.K. TEKRIWAL REPORTED IN 361 ITR 432 (CAL.) III) KOTAK SECURITIES LTD. REPORTED IN 383 ITR 1 ( SC) IV) ANSAL LANDMARK TOWNSHIP (P.) LTD. REPORTED IN 377 ITR 635 (SC) 39. ON THE CONTRARY, THE LD.DR RELIES UPON THE ORDE R PASSED BY THE LD. ASSESSING OFFICER. 40. TAKING INTO CONSIDERATION THE ENTIRE ASPECT OF THE MATTER, THE ORDER PASSED BY THE HONBLE APEX COURT ON THIS ISSUE INVOLVED IN THIS M ATTER, WE FIND NO REASON TO INTERFERE WITH THE ORDER PASSED BY THE LD. CIT(A). HENCE, THE APP EAL ON THIS PARTICULAR GROUND PREFERRED BY THE REVENUE IS DISMISSED. - 18 - ITA NOS. 803 & 876/AHD/2011 ACIT VS. ANAGRAM CAPITAL LTD. (CROSS APPEALS) ASST.YEAR 2007-08 41. IN THE RESULT, REVENUES APPEAL IN ITA NO.803/A HD/2011 FOR AY 2007-08 IS PARTLY ALLOWED. ITA NO.876/AHD/2011 FOR AY 2007-08 (ASSESSEES APP EAL) 42. THE CROSS-APPEAL PREFERRED BY THE ASSESSEE BEFO RE US ARE WITH THE FOLLOWING GROUNDS:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT (APPEALS) ERRED IN CONFIRMING THE ASSESSING OFFICERS FINDING THAT DEPRECIATION ON VSAT EQUIPMENT, WHICH IS AN INTEGRAL PART OF APPELLANTS COMPUTER SYSTEM, IS ALLOWABLE AT THE RATE OF 15% INSTEAD OF 60% AS CLAIMED BY THE APPELLANT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(APPEALS) ERRED IN CONFIRMING DISALLOWANCE U/S.14A OF THE INCOME TA X ACT TO THE EXTENT OF RS.2,50,000/- FROM OUT OF THE TOTAL DISALLOWANCE OF RS.22,26,926 MADE BY THE ASSESSING OFFICER. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(APPEALS) ERRED IN CONFIRMING DISALLOWANCE TO THE EXTENT OF RS.15,4 3,134/- FROM OUT OF THE TOTAL DISALLOWANCE OF SAUDAFER LOSS OF RS.36,63,892/- M ADE BY THE ASSESSING OFFICER ON THE ASSUMPTION THAT THE SAID LOSS WAS IN THE NAT URE OF SPECULATION LOSS WITHIN THE MEANING OF THE EXPLANATION TO SE 73 OF THE INCOME T AX ACT. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(APPEALS) ERRED IN CONFIRMING ADDITION OF RS.5,82,413/-MADE BY THE ASSESSING OFFICER ON ACCOUNT OF INTEREST INCOME ON BANK DEPOSITS, ON THE GROUND THA T THE GROSS INTEREST AS PER TDS CERTIFICATES WAS RS.2,22,50,613/- WHEREAS IN THE PR OFIT & LOSS ACCOUNT INTEREST OF ONLY RS.2,16,68,200/- WAS CREDITED. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(APPEALS) ERRED IN CONFIRMING DISALLOWANCE TO THE EXTENT OF RS.3,13 ,508/- FROM OUT OF THE TOTAL DISALLOWANCE OF RS.29,12,088/- MADE BY THE ASSESSIN G OFFICER ON ACCOUNT OF DEDUCTION FOR BROKERAGE REBATE CLAIMED BY THE APPEL LANT. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(APPEALS) ERRED IN CONFIRMING DISALLOWANCE OF RS.47,95,263/- MADE B Y THE ASSESSING OFFICER IN RESPECT OF DEDUCTION CLAIMED BY THE APPELLANT FOR A CCRUED LIABILITY FOR PAYMENT OF LEAVE ENCASHMENT TO THE EMPLOYEES BY INVOKING SEC 4 3B(F), SUBJECT TO VERIFICATION OF THE APPELLANTS ALTERNATIVE CLAIM THAT EVEN IF S EC 43B(F), IS APPLIED THE CORRECT AMOUNT OF DISALLOWANCE WOULD BE RS.25,52,255/- ONLY . 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(APPEALS) ERRED IN CONFIRMING DISALLOWANCE BY THE ASSESSING OFFICE R OF DEPRECIATION OF RS.188 - 19 - ITA NOS. 803 & 876/AHD/2011 ACIT VS. ANAGRAM CAPITAL LTD. (CROSS APPEALS) ASST.YEAR 2007-08 CLAIMED BY THE APPELLANT ON AHMEDABAD STOCK EXCHANG E MEMBERSHIP CARD, IN SPITE OF THE FACT THAT THE ISSUE IS COVERED IN APPE LLANTS FAVOUR BY THE HONBLE SUPREME COURT DECISION IN THE CASE OF TECHNO SHARES AND STOCKS LTD. VS. CIT 327 ITR 323. 8. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(APPEALS) ERRED IN CONFIRMING DISALLOWANCE OF EXPENDITURE INCURRED BY THE APPELLANT IN RESPECT OF (A) POOL, INTER0ACTIVE AND OTHER CHARGES (RS.40,46, 873), (B) NSC LEASE LINE CHARGES (RS.2,30,190), NSE VSAT CHARGES (RS.13,63,8 83) AND (D) LEASE LINE EXPENDITURE (RS.7,01,879) AGGREGATING TO RS.63,42,8 24/-, MADE BY THE ASSESSING OFFICER INVOKING PROVISIONS OF SEC 40-(A)(IA) OF TH E INCOME TAX ACT, ON THE GROUND THAT TAX AT SOURCE WAS NOT DEDUCTED, SUBJECT TO SOM E PARTIAL RELIEF TO THE APPELLANT ON PROPORTIONATE BASIS HAVING REGARD TO TAX AT SOUR CE DEDUCTED BY THE APPELLANT U/S.194C OF THE INCOME TAX ACT. 9. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(APPEALS) ERRED IN CONFIRMING THE FINDING OF THE ASSESSING OFFICER THAT INCOME OF RS.1,63,103/- SHOWN BY THE APPELLANT BY WAY OF SHORT TERM CAPITAL GAIN, IS TO BE ASSESSED AS BUSINESS INCOME. 43. GROUND NO.1 IS NOT PRESSED BY THE LD. COUNSEL A PPEARING FOR THE ASSESSEE AT THE TIME OF HEARING OF THE SAME BEFORE US. THE GROUND IS TH US DISMISSED AS NOT PRESSED. 44. THE SECOND GROUND RELATES TO CONFIRMATION OF DI SALLOWANCE U/S.14A OF THE ACT UPTO RS.2,50,000/-. THIS GROUND IS IDENTICAL TO THAT OF THE GROUND NO.2 OF THE DEPARTMENTS APPEAL IN ITA NO.803/AHD/2011 FOR AY 2007-08 WHICH WE HAVE ALREADY DECIDED IN FAVOUR OF ASSESSEE. THE CONTENTION MADE BY THE ASSESSEE AGAI NST THE CONFIRMATION OF DISALLOWANCE U/S.14A OF THE ACT UPTO RS.2.5 LAKHS HAS ALREADY B EEN DEALT WITH BY THE CO-ORDINATE BENCH IN ASSESSEES OWN MATTER BEING CO NO.158/AHD/2011 ( EDELWEISS FINANCIAL ADVISORS LTD. VS. ACIT) FOR AY 2006-07. WHILE PARTLY ALLOWING THE CR OSS OBJECTION PREFERRED BY THE ASSESSEE, THE LD. TRIBUNAL OBSERVED AS FOLLOWS: 14. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED T HE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE DECISIONS/JUDGEMENTS RELIED UPON BY THE LD.COUNSEL FOR THE ASSESSEE. AS PER SE CTION 14A(2) OF THE ACT, IT IS INCUMBENT UPON THE AO TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. THEREFORE, IN THE FIRST STEP, THE AO IS REQUIRED TO TAKE IS TO FIND OUT THE EXPENDITU RE RELATED TO THE EXEMPT INCOME. IN THE CASE IN HAND, THE LD.CIT(A) CONFIRMED THE ADDITION ON TH E BASIS THAT APPORTIONMENT OF INTEREST - 20 - ITA NOS. 803 & 876/AHD/2011 ACIT VS. ANAGRAM CAPITAL LTD. (CROSS APPEALS) ASST.YEAR 2007-08 EXPENSES BY CONSIDERING THE FACTS THAT THE ASSESSEE WAS HAVING CONSIDERABLE SURPLUS OWN- MONEY, NET INTEREST INCOME RATHER THAN EXPENSE, BUT NO DIRECT NEXUS PROVABLE ONE WAY OR THE OTHER; CAN BEST BE AN ESTIMATE. HE FURTHER CONCLUD ED THAT RS.1.88 CRORES PAID TO CLIENTS OF BUSINESS IS WHOLLY AND RS.2.20 CRORES PAID TO BANK IS MAINLY RELATED TO PAYMENT FOR DEPOSITING MARGIN MONEYS WHICH HAS BEEN MORE THAN OFFSET BY INTEREST INCOME FROM CLIENTS. THE REMAINING INTEREST CAN BE SAID TO BE POSSIBLY P AID FOR PARTLY BUSINESS ASSETS AND PARTLY FOR INVESTMENTS, THAT TOO WHICH HAVE NOT BEEN MET F ROM OWN FUNDS. IN TOTALITY OF CIRCUMSTANCES, PARTICULARLY LOOKING AT HUGE OWN FUN DS AND SURPLUS INTEREST INCOME; AND IN ABSENCE OF PROOF THAT BORROWED FUNDS HAVE AT ALL NO T BEEN USED FOR MAKING INVESTMENTS EARNING NON-TAXABLE INCOME. THE LD.CIT(A) DEEMED I T PROPER AND REASONABLE TO APPORTION RS.4 LACS AS INTEREST COST TO BE DISALLOWED U/S.14A . THIS REASONING OF THE LD.CIT(A) IS CONTRARY TO THE JUDICIAL PRONOUNCEMENTS AS RELIED U PON BY THE LD.COUNSEL FOR THE ASSESSEE. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE L D.CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THIS DISALLOWANCE. HENCE, WE HEREBY DIRECT THE AO TO DELETE THIS DISALLOWANCE. IN RESPECT OF DISALLOWANCE OF RS.2 LACS PERTAINING TO THE ADMINIS TRATIVE EXPENSES, THE LD.SR.DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED T HAT FOR HANDLING THE EXEMPT INCOME, CERTAIN EXPENSES RELATED TO EXEMPT INCOME TOWARDS A DMINISTRATIVE EXPENSES ARE REQUIRED TO BE DISALLOWED. HE SUBMITTED THAT BY NO STRETCH OF IMAGINATION, IT CAN BE INFERRED THAT WITHOUT INCURRING ANY EXPENDITURE, THE ASSESSEE CAN MANAGE AND EARN THE EXEMPT INCOME. 14.1. ON THE CONTRARY, LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AUTHORITIES BELOW WERE NOT JUSTIFIED IN MAKING DISALLOWANCE. 14.2. LOOKING TO THE TOTALITY OF THE FACTS AND CIRC UMSTANCES OF THE CASE, WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE HAS MADE INVESTME NT AND EARNED EXEMPT INCOME OF RS.3 LACS. THEREFORE, WE DO NOT SEE ANY REASON TO INTER FERE WITH THE FINDING OF THE LD.CIT(A) ON THIS ISSUE BECAUSE IT CANNOT BE ASSUMED THAT THE EX EMPT INCOME HAS BEEN EARNED WITHOUT INCURRING ANY ADMINISTRATIVE EXPENDITURE. THUS, GR OUND RAISED IN ASSESSEES CROSS-OBJECTION IS PARTLY ALLOWED. 44.1. RESPECTFULLY FOLLOWING THE SAME, WE CONFIRM T HE ORDER PASSED BY THE LD.CIT(A). THUS, THE APPEAL PREFERRED BY THE ASSESSEE IS PARTL Y ALLOWED. 45. GROUND NO.3 RELATING TO CONFIRMATION OF DISALLO WANCE TO THE EXTENT OF RS.15,43,134/- OUT OF THE TOTAL DISALLOWANCE OF RS .36,63,892/- TOWARDS SAUDAFER LOSS AS MADE BY THE LD. ASSESSING OFFICER ON THE ASSUMPT ION THAT THE SAID LOSS WAS IN THE NATURE OF SPECULATION LOSS WITHIN THE MEANING OF EX PLANATION TO SECTION 73 OF THE I.T.ACT. IDENTICAL TO THAT OF THE GROUND NO.4 OF RE VENUES APPEAL HAS ALREADY BEEN - 21 - ITA NOS. 803 & 876/AHD/2011 ACIT VS. ANAGRAM CAPITAL LTD. (CROSS APPEALS) ASST.YEAR 2007-08 DECIDED BY US IN FAVOUR OF REVENUE. IN THAT VIEW OF THE MATTER, THE SAID GROUND PREFERRED BY THE ASSESSEE IS DISMISSED. 46. GROUND NO.4 RELATES TO ADDITION OF RS.5,82,413/ - ON ACCOUNT OF INTEREST INCOME ON DEPOSITS WITH BANK. THE ASSESSEE HAS ACCOUNTED IN TEREST INCOME ON FDR/DEPOSITS AT RS.2,16,68,200/- WHEREAS AS PER TDS CERTIFICATES SU BMITTED BY IT, THE GROSS AMOUNT OF INTEREST RECEIVED/ACCRUED WORKS OUT TO THE TUNE OF RS.2,22,5 0,612.95. SINCE THE ASSESSEE FAILED TO RECONCILE THE DIFFERENCE AS ASKED FOR BY THE LD. AS SESSING OFFICER, THE AMOUNT WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. LD. REPRESENTAT IVE OF THE ASSESSEE SUBMITTED BEFORE US THAT THERE WAS NO REASON TO DISBELIEVE THE ASSESSEES EX PLANATION ESPECIALLY IN VIEW OF ASSESSEES AUDITED BOOKS OF ACCOUNTS AND FURTHER THAT THE PART IES IN QUESTION BEING BANKS THERE WAS NO SCOPE FOR ANY INTEREST RECEIVED OR RECEIVABLE FROM THEM TO REMAIN UNACCOUNTED. ON THE CONTRARY, THE LD.DR RELIED UPON THE ORDERS PASSED B Y THE AUTHORITIES BELOW. 46.1. HEARD THE RESPECTIVE PARTIES AND WE PERUSED T HE RECORDS. WE FIND THAT SINCE SUCH CONTENTION MADE BY THE ASSESSEE WAS NOT EXPLAINED F ROM THE BOOKS OF ACCOUNTS WITH REFERENCE TO TDS CERTIFICATES THAT THE ENTIRE INTEREST INCOME HAS BEEN OFFERED AND IN THE ABSENCE OF RECONCILIATION FILED BY THE ASSESSEE THE ADDITION M ADE BY THE LD. ASSESSING OFFICER HAS BEEN CONFIRMED BY THE FIRST APPELLATE AUTHORITY. WE FI ND NO INFIRMITY IN THE ORDER PASSED BY THE LD.CIT(A) IN THE ABSENCE OF RECONCILIATION MADE BY THE ASSESSEE. WE, THEREFORE, CONFIRM THE SAME. IN THE RESULT, GROUND OF ASSESSEES APPEAL I S DISMISSED ON DEVOID OF MERITS. 47. GROUND NO.5 : THIS GROUND OF DISALLOWANCE UPTO RS.3,13,508/- MA DE ON DEDUCTION OF BROKERAGE REBATE HAS ALREADY BEEN DECIDED BY US IN FAVOUR OF ASSESSEE IN THE APPEAL PREFERRED BY THE DEPARTMENT IN ITA NO.803/AHD/2011 (SUPRA). ACCORDINGLY, THIS GROUND OF APPEAL IS PARTLY ALLOWED IN FAVOUR OF ASSESSEE. - 22 - ITA NOS. 803 & 876/AHD/2011 ACIT VS. ANAGRAM CAPITAL LTD. (CROSS APPEALS) ASST.YEAR 2007-08 48. GROUND NO.6 : THIS GROUND OF APPEAL RELATES TO ADDITION OF RS .47,95,263/- IN RESPECT OF LEAVE ENCASHMENT PAYABLE TO THE EMPLOYEES. FRO M THE AUDITED REPORT U/S.44AB OF THE ACT, IT APPEARS THAT DURING THE FINANCIAL YEAR 2006-07 T HE ASSESSEE HAD CLAIMED THE EXPENSES ON ACCOUNT OF LEAVE ENCASHMENT AND THE SAME WAS OUTSTA NDING AS ON 31.3.2007 AT RS.40,98,452/-. AN AMOUNT OF RS.8,11,018/- WAS PAI D UPTO TH DATE OF FILING OF RETURN OF INCOME U/S.139(1) OF THE ACT, THEREFORE A SUM OF RS .32,87,434/- WAS REMAINED OUTSTANDING AND/OR NOT PAID UPTO THE DATE OF FILING OF RETURN O F INCOME. ACCORDING TO THE LD. ASSESSING OFFICER, IN VIEW OF THE PROVISIONS OF SECTION 43BF READ WITH PROVISO THERETO, THE CLAIM OF LEAVE ENCASHMENT PAYMENT WHICH REMAINED OUTSTANDING /UNPAID TILL THE DUE DATE OF FILING OF INCOME CANNOT BE ALLOWED AS DEDUCTION AND THE TOTAL UNPAID AMOUNT OF RS.47,95,263/- WAS DISALLOWED AND ADDED BACK TO THE TOTAL INCOME OF TH E ASSESSEE BY THE LD. ASSESSING OFFICER. 49. IN APPEAL, THE LD. CIT(A) ON MERIT DELETED THE EXCESS DISALLOWANCE OF RS.22,43,008/-. WHILE DOING SO, THE LD. CIT(A) OBSERVED AS FOLLOWS: 10.3. I HAVE CONSIDERED THE SUBMISSION MADE BY T HE APPELLANT AND OBSERVATION OF THE AO. THE HONORABLE SUPREME COURT HAS CLEARLY ST ATED THAT ONLY PENALTY AND INTEREST WILL NOT BE RECOVERED. BUT THE ASSESSEE HAS TO PAY TAX AS PER THE PROVISIONS OF SECTION 43B(F). THEREFORE, THE ADDITION MADE BY THE LD. ASSESSING OFFICER IS CORRECT. HOWEVER, AS REGARDS QUANTUM/DUPLICATION IS CONCERNE D, THE AO IS DIRECTED TO VERIFY THE CONTENTION OF THE APPELLANT IN THE LIGHT OF THE ABOVE SUBMISSION ONLY TO THE EXTENT OF VERIFYING THE FIGURES. IF THE CONTENTION OF THE AP PELLANT IS FOUND TO BE CORRECT THEN WITH RESPECT TO THE CORRECTNESS OF FIGURE THE SAME SHOUL D BE ADOPTED OR ELSE THE CORRECT FIGURES SHOULD BE ADOPTED. IN VIEW OF THIS REASON THE CLAIM CAN ONLY BE ALLOWED UNDER SECTION 43B(F). TO THAT EXTENT, THE ORDER OF THE A O IS CONFIRMED BUT WITH RESPECT TO THE CORRECTNESS OF FIGURE THE GROUND OF APPEAL IS PARTL Y ALLOWED SUBJECT TO THE VERIFICATION AS STATED ABOVE. 49.1. HOWEVER, LD. ADVOCATE APPEARING FOR THE AS SESSEE PLACED RELIANCE ON THE ORDER PASSED BY THE COORDINATE BENCH OF THIS TRIBUNAL IN ITA NO. 2646/AHD/2012 FOR AY 2007-08 WHEREBY AND WHEREUNDER THE MATTER HAS BEEN REMITTED TO THE FILE OF LD. ASSESSING OFFICER FOR MAKING THE ASSESSMENT AFRESH. THE LD.DR RELIED UPO N THE ORDER PASSED BY THE LD.AO. - 23 - ITA NOS. 803 & 876/AHD/2011 ACIT VS. ANAGRAM CAPITAL LTD. (CROSS APPEALS) ASST.YEAR 2007-08 49.2. WE HAVE HEARD THE RESPECTIVE PARTIES AND PERU SED THE RELEVANT MATERIAL AVAILABLE ON RECORD. WE HAVE GONE THROUGH THE ORDER PASSED BY T HE CO-ORDINATE BENCH, RELEVANT PORTION WHEREOF IS AS FOLLOWS: 8. WE FIND THAT ACCORDING TO THE SECTION 43B OF THE ACT, AN AMOUNT WHICH IS OTHERWISE ALLOWABLE TO THE ASSESSEE ACCORDING TO THE METHOD O F ACCOUNTING FOLLOWED BY THE ASSESSEE IS TO BE ALLOWED DEDUCTION WHILE COMPUTING INCOME OF T HE ASSESSEE IF THE SAID AMOUNT IS ACTUALLY PAID EITHER DURING THE FINANCIAL YEAR OR BEFORE THE DUE DATE OF FILING OF RETURN OF INCOME U/S. 139(1) OF THE ACT. THUS, ACCORDING TO SECTION 43B, DISALLOWANCE CAN BE MADE ONLY OF THAT AMOUNT WHICH HAS BEEN CLAIMED DEDUCTION IN THE PROF IT AND LOSS ACCOUNT OF THE YEAR OR IN THE COMPUTATION OF INCOME OF THE YEAR BY THE ASSESSEE B UT HAS NOT BEEN ACTUALLY PAID BEFORE THE DUE DATE OF FILING OF RETURN OF INCOME U/S. 139(1) OF THE ACT BY THE ASSESSEE. SINCE THE OPENING BALANCE BROUGHT FORWARD FROM EARLIER YEARS IS NOT C LAIMED AS DEDUCTION BY THE ASSESSEE IN PROFIT AND LOSS ACCOUNT OF THE YEAR OR IN COMPUTATI ON OF INCOME OF THE YEAR BY THE ASSESSEE, THEREFORE NO DISALLOWANCE OF SUCH AMOUNT CAN BE MAD E. IN THE INSTANT CASE, WE FIND THAT ONLY RS 18,55,494/-WAS DEBITED IN THE PROFIT AND LOSS AC COUNT OF THE YEAR UNDER CONSIDERATION ON ACCOUNT OF LEAVE ENCASHMENT. THUS, THE MAXIMUM DISA LLOWANCE WHICH COULD HAVE BEEN MADE BY THE ASSESSING OFFICER WAS OF RS 18,55,494/-. THU S, THE DISALLOWANCE OF RS 47,95,263/- MADE BY THE ASSESSING OFFICER IS CLEARLY UNSUSTAINA BLE. THE ASSESSEE CLAIMED BEFORE US THAT OUT OF RS 18,55,494/- DEBITED DURING THE YEAR, RS 8 ,11,018/- WAS ACTUALLY PAID BY THE ASSESSEE BEFORE THE DUE DATE OF FILING OF THE RETURN U/S. 139(1) OF THE ACT. IN OUR CONSIDERED VIEW, IF IT IS SO, THEN THE DISALLOWANCE OF ONLY RS.10,44,476/-CO ULD BE MADE U/S. 43B(F) OF THE ACT. WE, THEREFORE, SET ASIDE THE ORDERS OF LOWER AUTHORITIE S AND REMAND THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER FOR MAKING THE ASSESSMENT AFRESH ON THIS ISSUE IN THE LIGHT OF THE DISCUSSIONS MADE HEREINABOVE AFTER VERIFICATION ABOUT THE PAYME NT OF RS 8,11/018/- BEFORE THE DUE DATE U/S. 139(1) AS CLAIMED BY THE ASSESSEE. NEEDLESS TO MENTION THAT THE ASSESSING OFFICER SHALL ALLOW REASONABLE OPPORTUNITY OF HEARING TO THE ASSE SSEE BEFORE ADJUDICATING THE ISSUE AFRESH. THUS, THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOW ED. 49.2. TAKING INTO CONSIDERATION THE ENTIRE ASPECTS OF THE MATTER AND THE DECISIONS PASSED BY THE CO-ORDINATE BENCH IN THE SELF SAME FACTS, WE FI ND NO INFIRMITY IN THE ORDER PASSED BY THE LD.CIT(A) AS DISCUSSED ABOVE DULY FOLLOWING THE JUD GMENT PASSED BY THE TRIBUNAL AS ABOVE. IN THE RESULT, ASSESSEES THIS GROUND OF APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 50. GROUND NO.7 : THIS GROUND RELATES TO CONFIRMATION OF DISALLO WANCE OF DEPRECIATION OF RS.188/- ON STOCK EXCHANGE MEMBERSHIP CARD AS CHALL ENGED BY THE ASSESSEE IN THIS APPEAL - 24 - ITA NOS. 803 & 876/AHD/2011 ACIT VS. ANAGRAM CAPITAL LTD. (CROSS APPEALS) ASST.YEAR 2007-08 WHICH HAS ALREADY BEEN DECIDED IN ITA NO.1718/AHD/2 011 FOR AY 2008-09 IN ASSESSEES OWN CASE IN ITS FAVOUR IN THE MANNER AS FOLLOWS: 13. THE ASSESSEES NEXT GROUND RAISED IN THE INSTA NT APPEAL CHALLENGES DISALLOWANCE OF DEPRECIATION ON AHMEDABAD STOCK EXCHANGE CARD OF RS .141/- MADE IN THE COURSE OF ASSESSMENT AND AFFIRMED IN THE LOWER APPELLATE PROC EEDINGS. BOTH THE LOWER AUTHORITIES HOLD THAT STOCK EXCHANGE MEMBERSHIP CARD IS NOT AN ELIGI BLE ASSET U/S 32 OF THE ACT AS HELD BY HONBLE BOMBAY HIGH COURT IN M/S. TECHNOSHARES AND STOCKS LTD. VS. CIT 193 TAXMAN 248. THE CIT(A) OBSERVES THAT THE HONBLE APEX COURT HAS REVERSED THE ABOVE STATED DECISION AS REPORTED IN 327 ITR 323 WITH A RIDER THAT THE SAME RELATES TO BOMBAY STOCK EXCHANGE CARD ONLY. HE REPRODUCES RELEVANT PORTION OF THIS JUDGM ENT AS WELL. HOWEVER, THE REVENUE FAILS TO POINT OUT ANY DISTINCTION BETWEEN THE ASSESSEES AH MEDABAD STOCK EXCHANGE CARD AND RELEVANT FEATURES OF BOMBAY STOCK EXCHANGE CARD. N OR SUCH A DISTINCTION IS FORTHCOMING FROM HONBLE APEX COURT DECISION. WE FIND THAT A C O-ORDINATE BENCH OF THE TRIBUNAL IN CASE OF ASSESSEES SISTER CONCERNS CASE M/S. EDELWEISS STO CK BROKING LTD. VS. CIT, ITA NO. 1168/AHD/2011 DECIDED ON 11.07.2014 FOR AY 2006-07 GRANTS IDENTICAL DEPRECIATION RELIEF. WE ALSO DRAW SUPPORT THEREFROM FOR ALLOWING THE IMP UGNED DEPRECIATION CLAIMED. THIS GROUND IS ACCEPTED. 50.1. RELYING ON THE SAME, WE ALLOW THE SAID CLAIM OF DEPRECIATION OF THE ASSESSEE. IN THE RESULT, THIS GROUND OF APPEAL IS ALLOWED. 51. GROUND NO.8 : THIS GROUND OF APPEAL HAS ALREADY BEEN TAKEN C ARE OF BY US WHICH IS IDENTICAL TO THE ISSUE INVOLVED IN GROUND NO.8 OF D EPARTMENTS APPEAL IN ITA NO.803/AHD/2011 (SUPRA). WE HAVE DECIDED THE MATTE R IN FAVOUR OF ASSESSEE AND THUS FOLLOWING THE SAME THIS GROUND OF APPEAL IS ALLOWED . 52. GROUND NO.9 : THIS RELATES TO CONFIRMATION OF SHORT TERM CAPI TAL GAIN OF RS.1,63,103/- ASSESSED AS BUSINESS INCOME. THE A SSESSEE IS ENGAGED IN THE BUSINESS OF STOCK BROKING AND IS MEMBER OF NSE. IT HAS OFFERED INCO ME CONSISTING OF CAPITAL GAIN ON PURCHASE AND SALE OF MUTUAL FUND OF RS.1,63,103/- UNDER THE HEAD SHORT TERM CAPITAL GAIN. THE COMPANY IS NOT INTO THE BUSINESS OF SALE AND PURCHA SE OF SHARES FOR ITS OWN INVESTMENT/BUSINESS PURPOSE NEITHER THE TRADING OF SHARE IS PERMITTED BY THE MEMORANDUM - 25 - ITA NOS. 803 & 876/AHD/2011 ACIT VS. ANAGRAM CAPITAL LTD. (CROSS APPEALS) ASST.YEAR 2007-08 AND ARTICLE OF ASSOCIATION OF THE COMPANY. INVESTM ENT IN MUTUAL FUND IS PURELY AN INVESTING ACTIVITY DONE IN ORDER TO MAXIMIZE ITS RETURN AND N OT RELATED TO BUSINESS OF STOCK BROKING UNDERTAKEN THE ASSESSEE. THE ASSESSEE IN SUPPORT O F HIS CLAIM CONTENDED BEFORE THE LD. ASSESSING OFFICER AS FOLLOWS:- THUS INVESTMENT IN UNITS OF MUTUAL FUND AS UNDERTA KEN BY THE ASSESSEE IS A PURE INVESTMENT ACTIVITY WHICH IS DONE ONLY OCCASIONALLY I.E. ONLY IN THREE MONTHS OUT OF 12 MONTHS, THE ASSESSEE HAS UNDERTAKEN SALE/PURCHASE O F MUTUAL FUND UNITS. FURTHER IN THE YEAR UNDER CONSIDERATION YOUR GOODSELF WILL APP RECIATE THAT ASSESSEE HAS PURCHASED MUTUAL FUND UNITS ONLY FOR INVESTING ITS LIQUID FUNDS AND CANNOT BE TREATED AS ITS STOCK IN TRADE. THE ASSESSEE ITSELF HAD TRE ATED THE INVESTMENT OF DIVIDEND INCOME AS CAPITAL INVESTMENT FOR THE PURPOSES OF DETERMINA TION OF THE SHORT TERM CAPITAL GAIN. IN VIEW OF ABOVE DISCUSSIONS CAPITAL GAIN OF RS.1,6 3,103/- CANNOT BE TREATED AS BUSINESS INCOME. 52.1. THE LD. ASSESSING OFFICER DID NOT ACCEPT THE EXPLANATION RATHER IT HAS OBSERVED THAT THE ASSESSEE HAS ENGAGED ITSELF IN SYSTEMATIC ACTIV ITY OF SELLING AND PURCHASE OF MUTUAL FUNDS. IN THAT VIEW OF THE MATTER, THAT THE ASSESSEE HAS E NGAGED ITSELF IN BUSINESS OF SALE AND PURCHASE OF MUTUAL FUNDS THE INCOME ARISING OUT OF IT TO THE TUNE OF RS.1,63,103/- HAS BEEN TREATED AS INCOME OR PROFIT FROM BUSINESS OR PROFES SION AND TAXED ACCORDINGLY. 53. IN APPEAL, THE LD. CIT(A) CONFIRMED THE ORDER O F ADDITION MADE BY THE LD. ASSESSING OFFICER WITH THE FOLLOWING OBSERVATION : 16.2.3 SO LONG AS THE OBSERVATION OF THE ID. ASS ESSING OFFICER WITH RESPECT TO THE MAGNITUDE OF THE TRANSACTION IS CONCERNED, APPELLANT STATES T HAT INVESTMENTS ARE IN LIQUID FUNDS AND NOT IN GROWTH FUNDS, APPELLANT SUBMITS THAT THE MAGNITU DE OF THE TRANSACTIONS DOES NOT CHANGE THE VARY NATURE OF THE TRANSACTION BEING IN THE NATURE OF INVESTMENT ACTIVITY. THE APPELLANT SUBMITS THAT THE TRANSACTIONS SHOULD BE CONSTRUED I N THEIR TRUE SENSE TAKING INTO CONSIDERATION ALL THE RELEVANT FACTS AND CIRCUMSTANCES OF THE CAS E AND NO ISOLATED OBSERVATION WITH REGARDS TO THE VOLUME OF TRANSACTION MAY BE GIVEN UNDUE CON SIDERATION. EVEN OTHERWISE IT IS SUBMITTED THAT LOOKING TO THE HUGE VOLUME OF TURNOV ER OF APPELLANT COMPANY, THE INVESTMENT IN MUTUAL FUNDS MADE BY IT ARE MOST COMMENSURATE AN D DOES NOT REQUIRE ANY ADVERSE INFERENCE IN THAT REGARD. - 26 - ITA NOS. 803 & 876/AHD/2011 ACIT VS. ANAGRAM CAPITAL LTD. (CROSS APPEALS) ASST.YEAR 2007-08 16.2.4 THE RELEVANT QUESTION ALSO AROSE BEFORE TH E HON'BLE ITAT MUMBAI IN THE CASE OF JANAK S. RANGWALLA VS. ACIT- 11 SOT 627. IT WAS HEL D THAT THE QUESTION CANNOT BE DETERMINED MERELY, ON THE BASIS OF VOLUME / MAGNITU DE OF TRANSACTIONS, IT WAS ALSO HELD THAT THE VIEW ADOPTED BY THE DEPARTMENT IN THE PRECEDING YEARS CANNOT BE CHANGED IN THE ABSENCE OF ANY MATERIAL CHANGE IN THE FACTS AND CIRCUMSTANC ES.. 16.2.5 WITH REGARDS TO OBSERVATION OF AO THAT APPE LLANT IS REGULARLY ENGAGED IN TRADING OF SHARES/MUTUAL FUNDS, AND HOLDING IS LESS THAN ONE Y EAR, APPELLANT SUBMITS THAT THERE IS ONLY TWO-SALE TRANSACTIONS OF MUTUAL FUND DURING THE YEA R AND IT CAN BE SEEN FROM ANNUAL ACCOUNTS THAT INVESTMENTS IN QUOTED SECURITIES ARE SAME AS O N 31/03/2007 AND 31/03/2006. EVEN WITH REGARDS TO HOLDING PERIOD, APPELLANT SUBMITS THAT T HAT ASSESSING OFFICER HAS FAILED TO APPRECIATE THAT THE VERY SCHEME OF THE INCOME-TAX A CT, 1961 EMERGING FROM THE DEFINITION OF THE EXPRESSION 'SHORT TERM CAPITAL ASSET' (AS AMEND ED WITH EFFECT FROM 1-4-1987) AND IN TURN, OF SNORT TERM CAPITAL GAIN' AS APPLICABLE TO SOME OF THE FINANCIAL 'ASSETS (SHARES IN A COMPANY, OR ANY OTHER SECURITY LISTED IN A RECOGNIZ ED STOCK EXCHANGE IN INDIA, MUTUAL FUND UNITS ETC) AND FROM SECTION 111A (INSERTED WITH EFF ECT FROM 1-4-2.005, SIMULTANEOUSLY WITH THE INTRODUCTION OF THE LEVY BY WAY OF SECURITIES T RANSACTION FAX) PROVIDING FOR A FAVOURABLE TAX TREATMENT OF SUBJECTING SHORT TERM CAPITAL GAIN S FROM THE TRANSFER OF LISTED SHARES OR EQUITY ORIENTED MUTUAL FUND UNITS WHICH ARE SUBJECT TO THE LEVY OF SECURITIES TRANSACTION TAX, SHOWS THAT THE APPROACH OF THE LEARNED ASSESSI NG OFFICER AT SOMEHOW OR THE OTHER TREATING THE ASSESSEE'S TRANSACTIONS AS 'BUSINESS T RANSACTIONS SO THAT THE FAVOURABLE TAX TREATMENT PROVIDED FOR BY THE LEGISLATURE IS DENIED AND INSTEAD TAX MAY BE GATHERED AT THREE TIMES THE CONCESSIONAL RATE, IS ENTIRELY MISPLACED; THAT PERTINENTLY, THIS SCHEME OF THE INCOME-TAX ACT HAS COME ABOUT LONG AFTER THE JUDICIAL DECISIONS ON THE BASIS OF WHICH THE CBDT INSTRUCTION AND CIRCULAR WERE ISSUED, WERE REN DERED BY THE SUPREME COURT AND HIGH COURTS; THAT THE VARIOUS PRINCIPLES AND/OR CRITERIA TO WHICH THE CBDT HAS REFERRED IN ITS INSTRUCTION NO. 1827 DATED 31.8.1989 AND IN CIRCULA R NO.4 DATED 15.6.2007 AND WHICH HAVE BEEN CULLED OUT FROM JUDICIAL DECISIONS RENDERED UN DER THE LAW AS IT READ BEFORE THE RELEVANT AMENDMENTS WERE MADE WITH EFFECT FROM 1-4-1988 [IN THE EASE OF SECTION 2(42A)] AND WITH EFFECT FROM 1-4-2005 WHEN SECTION 111A WAS INTRODUC ED SIMULTANEOUSLY WITH THE INTRODUCTION OF A NEW LEVY IN THE FORM OF SECURITIES TRANSACTION TAX IGNORE THE VERY FUNDAMENTAL ASPECT OF THE LAW OF INCOME-TAX WHICH IS THAT CLAUSE (42A) OF SECTION 2 OF THE INCOME-TAX ACT, 1961 PROVIDES FOR A DEFINITION OF THE EXPRESSION 'SHORT -TERM CAPITAL ASSET'. 16.2.6 THAT THUS, EVEN AS THE LEGISLATURE HAS PRO VIDED THAT A SHORT-TERM CAPITAL ASSET MEANS A CAPITAL ASSET HELD FOR A PERIOD NOT EXCEEDING 36 MONTHS IMMEDIATELY PRECEDING ITS TRANSFER, IT HAS ALSO PROVIDED, BY MEANS OF THE PROVISO IN SE CTION 2(42A), THAT INSOFAR AS SHARES IN A COMPANY OR ANY OTHER SECURITY LISTED IN A RECOGNIZE D STOCK EXCHANGE OR UNITS OF MUTUAL FUNDS ETC. ARE CONCERNED, THE PRESCRIBED HOLDING PE RIOD IS UPTO 12 MONTHS. IN OTHER WORDS, THE LEGISLATURE HAS EXPRESSLY PROVIDED THAT EVEN AS THE HOLDING PERIOD FOR A LONG-TERM CAPITAL ASSET IN GENERAL IS 'MORE THAN 36 MONTHS, THE HOLD ING PERIOD FOR SHARES AND OTHER LISTED - 27 - ITA NOS. 803 & 876/AHD/2011 ACIT VS. ANAGRAM CAPITAL LTD. (CROSS APPEALS) ASST.YEAR 2007-08 SECURITIES OR UNITS OF MUTUAL FUNDS ETC., IN ORDER THAT THEY MAY QUALIFY TO BE LONG-TERM- CAPITAL ASSETS, IS ONLY L/3 FD THEREOF VIZ., MORE THAN 12 MONTHS. IT ALSO MEANS T HAT EVEN AS CAPITAL ASSETS IN GENERAL WOULD BE REGARDED ' AS SH ORT-TERM CAPITAL ASSETS THOUGH THEY MAY HAVE BEEN HELD FOR AS LONG AS UPTO 36 MONTHS, THE C ORRESPONDING REQUIREMENT IN THE CASE OF SHARES ETC. IS ONLY UPTO 12 MONTHS. ACCORDINGLY, A CAPITAL ASSET IN GENERAL WOULD HAVE TO BE REGARDED AS A SHORT-TERM CAPITAL ASSET IF HELD FOR ANY DURATION FROM 1 DAY TO 3.6 MONTHS WHEREAS IN THE CASE OF SHARES ETC., THE DURATION IS FROM 1 DAY TO JUST 12 MONTHS. WHEN THE LEGISLATURE HAS MADE SUCH EXPRESS PROVISIONS REQUIR ING A FAR SHORTER HOLDING PERIOD FOR SHARES ETC. TO BE TREATED AS SHORT-TERM CAPITAL ASS ETS THAN THE PERIOD REQUIRED IN THE CASE OF OTHER CAPITAL ASSETS , EVEN INVESTMENTS HELD FOR L ESS THAN 1 YEAR IS REQUIRED TO BE ASSESSED AS INCOME FROM CAPITAL GAIN. 16.2.7 THIS APART, FROM THE VARIOUS DECISIONS REL IED UPON BY THE ID. ASSESSING OFFICER IN SUPPORT OF HIS CONTENTION OF ASSESSING THE CAPITAL GAINS AS .BUSINESS OF INCOME OF APPELLANT, IT IS INFERRED THAT THE ASSESSING OFFICER HAS PROBABLY BEEN MISGUIDED BY THE FACT THAT APPELLANT WAS BROKER AND A MEMBER OF STOCK EXCHANGE AND HENCE THE PURCHASE AND SALE OF MUTUAL FUNDS IN THE PRESENT CASE WAS IN THE COURSE OF APPELLANT' S BUSINESS ACTIVITY. HOWEVER, AS HAS BEEN CATEGORICALLY MENTIONED HEREIN ABOVE AND FURTHER AS EXPLAINED TO THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS THERE W AS ABSOLUTELY NO JUSTIFICATION TO TREAT THE PRESENT TRANSACTION OF INVESTMENT IN MUTUAL FUNDS A S BUSINESS INCOME OF APPELLANT. BE THAT AS MAY, THE APPELLANT IN THIS REGARD RELIED ON THE DE CISION OF HONBLE MUMBAI ITAT DATED 30.11.2007 IN CASE OF J.M. SHAH & STOCK BROKERS VS. JCIT - ITA NOS. 2801,2802,5488 AND 5155 WHEREIN THE HON'BLE ITAT HAVE HELD THAT 'THERE IS NO BAR ON A STOCK BROKER HOLDING SHARES AS AN INVESTMENT. THE MERE FACT THAT THE AS SESSES IS AN EXPERT IN SHARE TRADING DOES NOT MEAN THAT HE CANNOT HOLD SHARES AS A CAPITAL AS SET. 16.2.8. IN VIEW OF THE ABOVE, THE APPELLANT STATE D THAT THE CAPITAL GAIN EARNED FROM THE INVESTMENT IN MUTUAL FUNDS MADE BY THE APPELLANT MA Y BE TREATED AS CAPITAL GAIN ONLY. 16.3. I HAVE CONSIDERED THE SUBMISSION MADE BY THE APPELLANT AND OBSERVATION OF THE AO. FROM THE RECORDS, IT CAN BE SEEN THAT IN STANDARD C HARTERED LIQUID FUND THERE IS A TOTAL DEBIT OF RS.525137069/- AND THERE IS A CREDIT OF EQUAL AM OUNT I.E. RS.525137069/-. SIMILARLY, IN KOTAK LIQUID FUND THERE IS TOTAL DEBIT OF RS.500361 59/- AND CREDIT OF EQUAL AMOUNT I.E. 50036159/-. HENCE, FROM THE SAME IT CAN BE SEEN TH AT THE ASSESSEE HAS UTILIZED SUBSTANTIAL FUND IN SALE AND PURCHASE OF MUTUAL FUNDS. FURTHER FROM THE SAID ACCOUNT OF MUTUAL FUNDS IT CAN BE SEEN THAT THE ASSESSEE HAS BEEN PURCHASING A ND SELLING THE UNITS OF MUTUAL FUNDS ON REGULAR OR PERIODICAL BASIS. IN VIEW OF THIS REASO N, THE ACTION OF THE AO IS CONFIRMED AND THIS GROUND OF APPEAL IS DISMISSED. - 28 - ITA NOS. 803 & 876/AHD/2011 ACIT VS. ANAGRAM CAPITAL LTD. (CROSS APPEALS) ASST.YEAR 2007-08 53.1. WE DO NOT FIND ANY INFIRMITY IN THE ORDER PAS SED BY THE LD. CIT(A). IN VIEW OF THE CLARIFICATION MADE BY THE FIRST APPELLATE AUTHORITY IN THE ORDER IMPUGNED BEFORE US, WE THEREFORE CONFIRM THE SAME. IN THE RESULT, A SSESSEES APPEAL ON THIS GROUND IS DISMISSED. THIS ORDER PRONOUNCED IN OPEN COURT ON 26/ 10/2018 SD/- SD/- ( PRAMOD KUMAR ) ( MS. MADHUMITA ROY ) VICE PRESIDENT JUDICIAL MEMBER AHMEDABAD; DATED 26/ 10/2018 .., . ../ T.C. NAIR, SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A)-XVI, AHMEDABAD 5. !'# , $ , / DR, ITAT, AHMEDABAD 6. #() *+ / GUARD FILE. / BY ORDER, ! //TRUE COPY// / ( DY./ASSTT.REGISTRAR) !, / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 22.10.2018 (DICTATION-PAD 35+21PAGES ATTACHED AT THE END OF THIS APPEAL-FIL E) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 23.10.2018/29.10.2018/30.10.18 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.26.10.2018 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 26.10.2018 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER