SHAREKHAN LTD, MUMBAI V. ACIT CC 22, MUMBAI

ITA 9065/MUM/2010

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 92564 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 4 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-05-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 28-08-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 27-12-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Speculation loss; Bad and doubtful debts; Revenue expenditure; Capital expenditure
• Section: 14A; 32; 37; 28

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI . . , . , BEFORE SHRI I.P. BANSAL, JM AND RAJENDRA, AM ./ I.T.A. NO.9065/MUM/2010 ( / ASSESSMENT YEAR : 2007-08 M/S. SHAREKHAN LTD., 10 TH FLOOR, BETA BUILDING, ITHINK CORPORATE CAMPUS, KANJUR VILLAGE ROAD, KANJUR MARG(E), MUMBAI 400 016. / VS. THE ACIT, CC 22, AAYKAR BHAVAN, MK ROAD, MUMBAI 400 020 ./ ./ PAN/GIR NO. : AAECS 5096H ( / APPELLANT ) .. ( / RESPONDENT ) ITA NO.1027/MUM/2011 A.Y.2007-08 THE ACIT, CC 22, AAYKAR BHAVAN, MK ROAD, MUMBAI 400 020 / VS. M/S. SHA REKHAN LTD., 10 TH FLOOR, BETA BUILDING, ITHINK CORPORATE CAMPUS, KANJUR VILLAGE ROAD, KANJUR MARG(E), MUMBAI 400 016. ./ ./ PAN/GIR NO. : AAECS 5096H ( / APPELLANT ) .. ( / RESPONDENT ) REVENUE BY SH RI HIRO RAI ASSESSEE BY SHRI SANJAY PUNGLIA ' #$ / DATE OF HEARING : 05/05/2015 ' #$ / DATE OF PRONOUNCEMENT : 05/05/2015 / O R D E R PER I.P.BANSAL, J.M: THESE ARE CROSS APPEALS AND ARE DIRECTED AGAINST ORDER PASSED BY LD. CIT(A) DATED 29/11/2010 FOR ASSESSMENT YEAR 2007-0 8. GROUNDS OF APPEAL READ AS UNDER: ./ I.T.A. NO.9065/MUM/2010 ( / ASSESSMENT YEAR : 2007-08 ./ I.T.A. NO.1027/MUM/2011 ( / ASSESSMENT YEAR : 2007-08 2 ASSESSEES GROUNDS OF APPEAL: 1. UNDER THE FACTS AND CIRCUMSTANCES OF YOUR APPE LLANT, THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ADDITION MADE BY THE LE ARNED A.O. OF RS. 24,20,059/- BEING CLAIM OF DEPRECIATION ON THE BS E MEMBERSHIP CARD. 1.01. THE LEARNED CIT (A) HAS ERRED IN HOLDING THAT THE TRADING RIGHTS OF BSE CARD WERE, THEREFORE, EXTINGUISHED AND THE NEW SHAR EHOLDER WERE GIVEN TRADING RIGHTS WITHOUT CONSIDERATION. 1.02. THE LEARNED CIT (A) ERRED IN STATING THAT, TH ERE IS NEITHER ANY VALUE OF THIS NEW TRADING RIGHT, NOR ANY COST. . 1.03. THE LEARNED CIT (A) FAILED TO APPRECIATE THAT THE ACTUAL COST OF ORIGINAL MEMBERSHIP CARD, IS TO BE ASSIGNED TO THE NEW MEMBE RSHIP CARD. 1.04. THE LEARNED CIT (A) IS IN ERROR WHILE STATIN G THAT IT WAS NOT POSSIBLE TO ALLOCATE THE CONSIDERATION PAID BY THE ASSESSEE TOW ARDS THESE RIGHTS SEPARATELY. 2. UNDER THE FACTS AND THE CIRCUMSTANCES OF YOUR AP PELLANT, THE LEARNED CI'T (A) HAS ERRED IN CONFIRMING THE ADDITION MADE BY LE ARNED A.O. IN DISALLOWING THE ADVANCES GIVEN FOR CUSTOMIZING THE SOFTWARE RS. 5,05,000/.- 2.01. WITHOUT PREJUDICE TO THE ABOVE GROUNDS OF APP EAL, THE LEARNED CIT (A) HAS ERRED IN STATING THAT NO DETAILS ON THE SOFTWAR E SCRAP HAVE BEEN SUBMITTED BY THE ASSESSEE. 2.02.WITHOUT PREJUDICE TO THE GROUND NO 2 & 2.0], T HE LEARNED CIT (A) HAS ERRED IN REJECTING OUR ALTERNATE CLAIM TO ALLOW SOF TWARE SCRAP OF RS. 5,05,000/- AS A EXPENSES U/S 37 OR BUSINESS LOSS U/S 28/29 OF THE INCOME TAX ACT, 1961 3. UNDER THE FACTS AND THE CIRCUMSTANCES OF YOUR A PPELLANT, THE LEARNED CIT (A) HAS ERRED IN CONFIRMING THE ADDITION MADE BY LE ARNED A.O. ON ACCOUNT OF DISALLOWANCE OF THE NON COMPETE FEES PAID RS. 26,62 ,000/-, AND TREATING THE SAME AS A CAPITAL EXPENDITURE. 3.01.THE LEARNED CIT (A) FAILED TO APPRECIATE THE SUBMISSION MADE BY YOUR APPELLANT, ABOUT THE ALLOW ABILITY OF THE NON COMPE TE FEES PAID TO VARIOUS SUB BROKER. REVENUES GROUNDS OF APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITIONS AMOUNTING TO RS. 1, 20,25,2881 - RELYING ON THE DECISION OF THE HON'BLE ITAT SPL. BENCH IN THE CASE OF SHREYAS S MORAKHIA IGNORING THE FACT THAT THE SAME IS NOT ACCEPTED BY THE DEPARTMENT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION AMOUNTING TO RS.2,23 ,77,5231- WITHOUT APPRECIATING THE FACT THAT THE AO HAS RIGHTLY TREAT ED THE VANDA LOSS & TRADING LOSS AS SPECULATIVE LOSS A PER SECTION 73 OF THE AC T. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) HAS ERRED IN ALLOWING THE DEPRECIATION TO TH E NON- COMPETE FEES EVEN ./ I.T.A. NO.9065/MUM/2010 ( / ASSESSMENT YEAR : 2007-08 ./ I.T.A. NO.1027/MUM/2011 ( / ASSESSMENT YEAR : 2007-08 3 THOUGH THE ASSESSEE HAS NOT ACQUIRED ANY ASSET WHIC H CAN DEPRECIATE WITH TIME. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN DIRECTING THE AO TO DISALLOW THE EXPEN SES U/S. 14A REASONABLY AND NOT IN ACCORDANCE WITH RULE 80 OF THE I.T. RULE S 1962. ASSESSEES APPEAL & GROUND NO.3 OF REVENUES APPEAL : 2. GROUND NO.1 IS AGAINST THE ADDITION UPHELD BY LD . CIT(A) IN RESPECT OF DEPRECIATION CLAIMED ON BSE MEMBERSHIP CARD. DURI NG THE COURSE OF HEARING, IT WAS FAIRLY CONCEDED BY LD. AR THAT THI S ISSUE IS COVERED AGAINST THE ASSESSEE BY THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. TECHNO SHARES AND STOCK LTD. & OTHERS, 323 ITR 69, WHEREIN HONBLE BOMBAY HIGH COURT HAS HELD THAT DEPRECIATIO N IS NOT ALLOWABLE ON THE BSE MEMBERSHIP CARD AS IT DOES NOT FALL IN ANY OF THE CATEGORIES SPECIFIED IN SECTION 32(1) OF THE INCOME TAX ACT 19 61 (THE ACT). THEREFORE, AFTER HEARING BOTH THE PARTIES WE DISMISS GROUND NO .1 FILED BY THE ASSESSEE. 3. APROPOS GROUND NO.2, THE SAME WAS NOT PRESSED BY LD. AR, THEREFORE, THE SAME IS DISMISSED BEING NOT PRESSED. 4. APROPOS GROUND NO.3, THIS GROUND IS COMMON WITH THE REVENUES GROUND NO.3. DURING THE YEAR UNDER CONSIDERATION A SSESSEE HAS PAID NON- COMPETE FEE TO THE FOLLOWING PARTIES: S.NO. NAME OF THE PARYTY AMOUNT 1. SHAILESH TANNA 112,000 2. PARAS POPAT 500,000 3. VIGNAHARTH INVESTMENT & FINANCE CO PVT. LTD. 500,000 4. NEXUS SECURITY 300,000 5 KUBER SECURITIES 50,000 6. R ANILKUMAR 100,000 7. SAMYAK CONSU LTANCY 300,000 8. J ARUN 300,000 9. V L ASSOCIATES 300,000 10. RAJARAM MUTHUKUMAR 200,000 ./ I.T.A. NO.9065/MUM/2010 ( / ASSESSMENT YEAR : 2007-08 ./ I.T.A. NO.1027/MUM/2011 ( / ASSESSMENT YEAR : 2007-08 4 TOTAL 2,662,000 THE AFOREMENTIONED AMOUNT WAS CLAIMED AS REVENUE EX PENDITURE ON THE GROUND THAT ASSESSEE HAD BEEN REGULARLY PAYING SUB- BROKERAGE TO THESE PARTIES AND DETAILS OF SUB-BROKERAGE PAID TO THESE PARTIES IN THE LAST THREE YEARS WAS ALSO SUBMITTED AND IT WAS CLAIMED THAT TH ESE EXPENDITURE SHOULD BE ALLOWED AS REVENUE EXPENDITURE. THE AO DID NOT ACCEPT SUCH SUBMISSION OF THE ASSESSEE AND TREATED SUCH EXPENDITURE AS CAP ITAL EXPENDITURE. BEFORE LD. CIT(A) ONE OF THE ALTERNATIVE CONTENTION WAS T HAT IF THE EXPENDITURE IS TREATED AS CAPITAL EXPENDITURE THEN DEPRECIATION M AY BE ALLOWED UPON THE SAME. LD. CIT(A) HAS EXAMINED VARIOUS CLAUSES OF T HE AGREEMENT ENTERED INTO BY THE ASSESSEE FOR NON COMPETITION AND AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE HAS ARRIVED AT A CONCLU SION THAT IN VIEW OF THE DECISION OF SPECIAL BENCH IN THE CASE OF TECHMSEH V S. ADDL. CIT, ITA NO.3759/DEL/2003 A.Y. 1998-99 ORDER DATED 30.07.20 10 THE CASE OF THE ASSESSEE CANNOT BE ACCEPTED FOR ALLOWABILITY OF THI S EXPENDITURE AS REVENUE EXPENDITURE. HE OBSERVED THAT NON-COMPETE RIGHT AC QUIRED BY THE ASSESSEE IS COMMERCIAL RIGHT, THEREFORE, IN VIEW OF THE DEC ISION OF ITAT CHENNAI IN THE CASE OF MEDICON TECHNOLOGY LTD 122 TTJ 394 THE DE PRECIATION IS ALLOWABLE ON THE AMOUNT PAID AS NON-COMPETE FEE. THE ASSESSE E IN ITS GROUNDS OF APPEAL CLAIMED THAT THE SAME BE ALLOWED AS REVENUE EXPENDITURE AS AGAINST THAT REVENUE IN ITS GROUNDS OF APPEAL AGITATED THE DECISION OF LD. CIT(A) VIDE WHICH IT HAS BEEN HELD THAT ASSESSEE IS ENTITLED T O GET DEPRECIATION. 4.1 LD. AR SUBMITTED THAT THERE CAN BE THREE POSSIB ILITIES, ONE IS TO ALLOW EXPENDITURE AS REVENUE EXPENDITURE; SECOND POSSIBIL ITY IS TO ALLOW DEPRECIATION AND THIRD POSSIBILITY IS TO AMORTIZE T HE EXPENDITURE INTO THREE YEARS AND ALLOW THE SAME AS 1/3 RD IN EACH YEAR. HE SUBMITTED THAT THE PERIOD OF NON-COMPETE FEE IS THREE YEARS, THEREFORE , IT WILL REQUIRE AMORTIZATION. HE SUBMITTED THAT ASSESSEE IS SATISF IED IF DEPRECIATION IS ./ I.T.A. NO.9065/MUM/2010 ( / ASSESSMENT YEAR : 2007-08 ./ I.T.A. NO.1027/MUM/2011 ( / ASSESSMENT YEAR : 2007-08 5 GRANTED. FOR CLAIMING DEPRECIATION ON AMOUNT PAID AS NON-COMPETE FEE LD. AR RELIED UPON THE FOLLOWING DECISIONS. 1. 264 CTR 187 (MAD) PENTASOFT TECHNOLOGIES LTD. V S. DCIT 2. 19 ITR 483 (MUM-TRIB) IND GLOBAL CORPORATE FINA CE PVT. LTD. VS. ITO 3.120 TTJ 983 (CHEN-TRIB) ASSTT. CIT V. REAL IMAGE TECH. P. LTD. 4. 122 TTJ 394 (HEN-TRIB) ITO V. MEDICROP TECHNOLOG IES INDIA LTD. 4.2 ON THE OTHER HAND, IT WAS SUBMITTED BY LD. DR T HAT PAYMENT MADE BY THE ASSESSEE AS NON-COMPETE FEE IS CAPITAL IN NATUR E. HE SUBMITTED THAT THOUGH THE SAME IS CAPITAL IN NATURE BUT NO DEPRECI ATION SHOULD BE ALLOWED AS NON-COMPETE FEE HAS NOT BEEN CONSIDERED AS CAPI TAL ASSET FOR THE PURPOSE OF GRANT OF DEPRECIATION IN SECTION 32 OF T HE ACT. 5. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTEN TIONS HAVE CAREFULLY BEEN CONSIDERED. WE HAVE ALSO GONE THROUGH THE DEC ISIONS RELIED UPON BY LD.AR. WHILE ALLOWING DEPRECIATION LD. CIT(A) HAS RELIED UPON THE DECISION OF ITAT CHENNAI IN THE CASE OF MEDICON TECHNOLOGIES LTD(SUPRA) AND REAL IMAGE TECH PVT. LTD.(SUPRA). IN THE CASE OF REAL I MAGE TECH PVT. LTD,. IT HAS BEEN HELD THAT COMMERCIAL RIGHTS COMES INTO EXIST ENCE WHENEVER THE ASSESSEE MAKE PAYMENT FOR NON-COMPETE FEE AND AFTER OBTAINING NON- COMPETE RIGHT, THE ASSESSEE CAN DEVELOP AND RUN HIS BUSINESS WITHOUT BOTHERING ABOUT COMPETITION AND, THEREFORE, NON-COM PETE RIGHT IS INTANGIBLE ASSET ELIGIBLE FOR DEPRECIATION. IN THE CASE OF O RCHID CHEMICALS AND PHARMACEUTICALS LTD., 131 ITD 385, WHICH RELIED WA S UPON BY LD. AR FOR THE PURPOSE OF AMORTIZATION, IT HAS BEEN HELD THAT SINCE THE NON-COMPETE AGREEMENT WAS FOR A PERIOD OF FOUR YEARS, THE SAME WAS DIRECTED TO BE ALLOWED AS REVENUE EXPENDITURE OVER A PERIOD OF FO UR YEARS. 5.1 IN THIS VIEW OF THE SITUATION, AS LD. AR HAS EX PRESSED HIS SATISFACTION ONLY WITH GRANT OF DEPRECIATION AS HAS BEEN ALLOWE D BY LD. CIT(A)AND ALSO IN VIEW OF THE FACT THAT LD. DR COULD NOT CITE ANY D ECISION TO CONTRADICT THAT ./ I.T.A. NO.9065/MUM/2010 ( / ASSESSMENT YEAR : 2007-08 ./ I.T.A. NO.1027/MUM/2011 ( / ASSESSMENT YEAR : 2007-08 6 PROPOSITION, WE ARE OF THE OPINION THAT LD. CIT(A) DID NOT COMMIT ANY ERROR IN HOLDING THAT ASSESSEE WAS ENTITLED TO GET DEPRE CIATION ON THE AMOUNT PAID BY IT AS NON-COMPETE FEE. ACCORDINGLY, WE DEC LINE TO INTERFERE IN SUCH DECISION OF LD. CIT(A). THE REVENUES GROUND AS W ELL AS ASSESSEES GROUND ON THIS ISSUE ARE DISMISSED. REVENUESS APPEAL: 6. APROPOS GROUND NO.1, THE ONLY GRIEVANCE OF THE R EVENUE IN THIS GROUND IS THAT LD. CIT(A) HAS ERRED IN ALLOWING RE LIEF ON THE BASIS OF DECISION IN THE CASE OF SHREYAS S. MORAKHIA SPECIAL BENCH (M UM) AS THE SAME IS NOT ACCEPTED BY THE DEPARTMENT. NOW IT IS THE CASE OF LD. AR THAT HONBLE BOMBAY HIGH COURT HAS UPHELD THE SAID DECISION OF S PECIAL BENCH IN THE APPEAL FILED BY THE REVENUE AND REFERENCE WAS MADE TO THE DECISION IN THE CASE OF CIT VS. SHREYAS S.MORARKIA, 342 ITR 285(BO M). 6.1 LD. AO DISALLOWED A SUM OF RS.1,18,82,970/-, RS .90,035 AND RS.52,283/-,WHICH WERE CLAIMED AS BAD DEBTS WRITTE N OFF IN THE P&L ACCOUNT. LD. CIT(A) ALLOWED THE SAME ON THE BASIS OF SPECIAL BENCH DECISION IN THE CASE OF SHREYAS S. MORARKHIA (SUPRA). AGAIN ST THE AFOREMENTIONED DECISION OF SPECIAL BENCH, THE REVENUE TOOK UP T HE MATTER IN FURTHER APPEAL BEFORE HONBLE BOMBAY HIGH COURT AND IT WAS HELD THAT THE VALUE OF THE SHARES TRANSACTED BY THE ASSESSEE AS STOCK BROK ER ON BEHALF OF HIS CLIENTS WAS AS MUCH A PART OF THE DEBT AS WAS CHARG ED BROKERAGE BY THE ASSESSEE ON THE TRANSACTION. THE BROKERAGE HAVING BEEN CREDITED TO THE P&L ACCOUNT OF THE ASSESSEE, IT WAS EVIDENT THAT A PART OF THE DEBT WAS TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE. T HE FACT THAT THE LIABILITY TO PAY BROKERAGE MAY ARISE AT A POINT IN TIME ANTER IOR TO THE LIABILITY TO PAY THE VALUE OF THE SHARES TRANSACTED WOULD NOT MAKE A NY MATERIAL DIFFERENCE TO THE POSITION. BOTH CONSTITUTE A PART OF THE DEB T WHICH ARISES FROM SAME TRANSACTION INVOLVING THE SALE OR, AS THE CASE, PUR CHASE OF SHARES. SINCE ./ I.T.A. NO.9065/MUM/2010 ( / ASSESSMENT YEAR : 2007-08 ./ I.T.A. NO.1027/MUM/2011 ( / ASSESSMENT YEAR : 2007-08 7 BOTH FORM A PART OF COMPONENT OF DEBT, THE REQUIREM ENT OF SECTION 36(2)(I) ARE FULFILLED, WHERE A PART THEREOF IS TAKEN INTO A CCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE. THEREFORE, IT WAS HELD THA T ASSESSEE IS ENTITLED TO DEDUCTION BY WAY OF BAD DEBT UNDER SECTION 36(1)(VI II) R.W.S. 36(2) IN RESPECT OF AMOUNT WHICH COULD NOT BE RECOVERED FROM ITS CL IENTS IN RESPECT OF TRANSACTIONS EFFECTED BY HIM ON BEHALF OF HIS CLIEN TS. 7. IN THIS VIEW OF THE SITUATION, AFTER HEARING BOT H THE PARTIES, WE FOUND NO INFIRMITY IN THE RELIEF GRANTED BY LD. CIT(A), T HEREFORE, GROUND NO.1 OF THE REVENUES APPEAL IS DISMISSED. 8. APROPOS GROUND NO.2, IT MAY BE MENTIONED HERE TH AT THE RELIEF ALLOWED BY LD. CIT(A) IS A SUM OF RS.2,32,77,523/-. HOWEVER, IN THE GROUND OF APPEAL THERE IS A TYPING ERROR AND THE AMOUNT HA S WRONGLY BEEN WRITTEN AS RS.2,23,07,523/-. THIS AMOUNT WAS DEBITED UNDER THE HEAD BAD DEBTS AS TRADING LOSS BEING UNRECOVERABLE FROM THE CLIENTS. IN RESPONSE TO QUERY RAISED BY THE AO IT WAS SUBMITTED THAT SUCH LOSS A CCRUED TO THE ASSESSEE AS A RESULT OF ERRORS CAUSED BY TIME PRESSURE WHICH RE SULTED IN WRONG PUNCHING OF CLIENTS IDENTITY CODE / WRONG EXECUTION OF TR ADE. IT WAS SUBMITTED THAT THE LOSS WAS INCURRED IN THE COURSE OF CARRYING ON BUSINESS AND SHOULD BE ALLOWED AS BUSINESS LOSS. THE AO DID NOT ACCEPT SU CH EXPLANATION OF THE ASSESSEE. ACCORDING TO AO ONCE THE CLIENT HAS DISO WNED THE TRANSACTION, THEN THE ASSESSEE STEPS INTO THE SHOES OF CLIENT AN D IT IS IN THE INTEREST OF THE ASSESSEE THAT THE TRANSACTION IS SQUARED OFF AT THE EARLIEST AND THE LOSSES, IF ANY, ARE MINIMIZED. THE AO OBSERVED T HAT ASSESSEE DID NOT ESTABLISH THIS FACT AND THE TRANSACTIONS WERE SETTL ED BEYOND REASONABLE TIME, THEREFORE, LOSSES HAVE BEEN INCURRED WHICH IMPLIED THAT THE ASSESSEE WAS WORKING FOR A OPPORTUNE MOMENT, WHERE TRANSACTION W OULD RESULT INTO A PROFIT. THE LOSS WAS ONLY AS A RESULT OF BUSINESS OF THE ASSESSEE OF PURCHASE AND SALE OF SHARES. APPLYING EXPLANATION TO SECTIO N 73 OF THE ACT LD. AO HAS HELD SUCH TRANSACTION AS SPECULATION TRANSACTI ON AND IN THIS MANNER A SUM OF RS.2,32,77,523/- WAS DISALLOWED. WHILE ALLO WING THE RELIEF LD. CIT(A) ./ I.T.A. NO.9065/MUM/2010 ( / ASSESSMENT YEAR : 2007-08 ./ I.T.A. NO.1027/MUM/2011 ( / ASSESSMENT YEAR : 2007-08 8 HAS TAKEN INTO CONSIDERATION THE FACT THAT THE ASS ESSEE IS ONE OF THE DOMINANT RETAIL STOCK BROKING HOUSE IN INDIA AND IS HAVING A NET WORK OF 159 OWN BRANCHES AND 1000 PLUS BUSINESS PARTNERS ACROSS THE COUNTRY. THE CLIENTAL OF THE ASSESSEE IS OVER TEN LACS RETAI L CUSTOMERS AND HAS A DP CLIENTAL OF APPROXIMATELY TEN LACS CLIENTS AND IT E MPLOYS 3500 PERSONNEL OPERATING IN 360 CITIES NATION WIDE. IN VIEW OF T HESE FACTS, LD. CIT(A) HAS OBSERVED THAT THERE ARE CHANCES OF MISTAKE WHICH R ESULTED INTO DISOWN BY THE PERSON IN WHOSE ACCOUNT SUCH TRANSACTION HAS B EEN ENTERED . KEEPING IN VIEW ALL THESE FACTS LD. CIT(A) HAS HELD THAT EX PLANATION TO SECTION 73 WOULD NOT BE APPLICABLE IN VIEW OF THE DECISION OF ITAT IN THE CASE OF M/S. PARKER SECURITIES LTD. VS. DCIT, 102 TTJ 235. LD. CIT(A) HAS REPRODUCED THE RELEVANT PORTION FROM THE SAID DECISION AND HAS GR ANTED IMPUGNED RELIEF TO THE ASSESSEE. THE REVENUE IS AGGRIEVED, HENCE, HAS FILED AFOREMENTIONED GROUND. 8.1 LD. DR RELIED UPON THE ORDER PASSED BY AO, AS A GAINST THAT LD. AR HAS RELIED UPON THE FOLLOWING DECISIONS: 1. ITA NO.3756/MUM/2012 IN ASST. CIT VS. IDFC SSKI SEC. LTD. 2.102 TTJ 235 (AHD-TIB) PARKAR SECURITIES LTD. VS. DY. CIT 3. 91 TTJ 57 (DEL-TRIB) ASST. CIT VS. SUBHASH CHAND SHOREWALA 8.2 IT WAS CONTENDED THAT LD. CIT(A)DID NOT COMMIT ANY ERROR IN GRANTING THE RELIEF TO THE ASSESSEE AND AFOREMENTIONED DECIS IONS SUPPORT THE CASE OF THE ASSESSEE. 9. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTENT IONS HAVE CAREFULLY BEEN CONSIDERED. IN THE CASE OF ACIT VS. IDFC SSK I SECURITIES LTD. (SUPRA), SIMILAR GROUND WAS RAISED BY THE REVENUE. THE GROU ND RAISED IN THAT CASE READ AS UNDER: ./ I.T.A. NO.9065/MUM/2010 ( / ASSESSMENT YEAR : 2007-08 ./ I.T.A. NO.1027/MUM/2011 ( / ASSESSMENT YEAR : 2007-08 9 1.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD.CIT(A) ERRED IN ALLOWING THE LOSS OF RS.2,36,36,821/- AS B USINESS LOSS EVEN WHEN THE SAME IS SPECIFICALLY COVERED UNDER SECTION 73 OF TH E ACT. 2. THE APPELLANT CRAVES TO LEAVE TO ADD, TO AMEND AND/OR ALTER ANY OF THE GROUNDS OF APPEAL, IF NEED BE 9.1 THE ASSESSEE PLACED RELIANCE UPON FOLLOWING DEC ISIONS: 1. ITO VS. GDV SHARE & STOCK BROKING SERVICES LTD ., 88 TTJ (CAL) 352 2. M/S.PARKER SECURITIES LTD. VS. DCIT, 102 TT J (AHD) 235. 3.33 CCH 124 (MUM-TRIB) HSBC SECURITIES & C APITAL MARKETS INDIA P. LTD., VS. ACIT 4.139 R 149 (AP), CIT VS. SHAH PRATAPCHAND NOWPAJI 5. 91TTJ 57 (DEL-TRIB) ACIT VS. SUBHASH CHANDRA SHOREW ALA. 6.50 SOT 592 (AHD-TRIB) ITO VS. RAJIV SECURITIES P. LTD. AFTER CONSIDERING THESE DECISIONS THE TRIBUNAL HAS HELD AS UNDER: 5. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTEN TIONS HAVE CAREFULLY BEEN CONSIDERED. RIGHT FROM THE ASSESSMENT PROCEED INGS IT WAS THE CASE OF THE ASSESSEE THAT THE IMPUGNED LOSS HAS OCCURRED TO THE ASSESSEE IN RESPECT OF ERROR TRADE. DUE TO DISPUTE WITH THE CLIENTS, FOR THE TRANSACTION, IT DOES NOT CHANGE THE RELATION OF PRINCIPAL AND THE AGENT. THE ASSESSEE FOR BUSINESS CONSIDERATION CHOOSES NOT TO RECOVER THE LOSSES. THESE LOSSES ARE IN THE COURSE OF BUSINESS AND SHOULD BE ALLOWED AS SUCH UN DER SECTION 28 OF THE ACT. ALL THESE CONTENTIONS OF THE ASSESSEE HAVE BE EN RECORDED IN THE ASSESSMENT ORDER IN PARA 3.3. THE AO HAS NOT BROU GHT ANY MATERIAL ON RECORD TO SUGGEST THAT THESE CONTENTIONS OF THE ASS ESSEE ARE EITHER FALSE OR INCORRECT. NO MATERIAL HAS ALSO BEEN BROUGHT ON R ECORD THAT THESE LOSSES ARE ON ACCOUNT OF ASSESSEES OWN TRADING IN SHARES. IF IT IS SO, THE LOSS ACCRUED TO THE ASSESSEE WILL BE GOVERNED BY THE AFOREMENTIONED DECISIONS OF TRIBUNAL WHERE CONSISTENT VIEW HAS BEEN TAKEN THAT LOSS OCC URRED TO SHARE BROKER ON ACCOUNT OF CLIENT DISOWNING TRANSACTION IS BUSIN ESS LOSS AND NOT SPECULATIVE LOSS. THEREFORE, WE ARE OF THE OPINION THAT LD. CI T(A) DID NOT COMMIT ANY ERROR IN ACCEPTING THE CLAIM OF THE ASSESSEE. ACCORDINGL Y, WE DECLINE TO INTERFERE AND DEPARTMENTAL APPEAL ON THIS GROUND IS DISMISSE D. 5.1 BEFORE PARTING OF THE DEPARTMENTAL APPEAL IT MA Y BE MENTIONED THAT AMOUNT STATED BY THE DEPARTMENT IN ITS GROUNDS OF A PPEAL IS WRONGLY MENTIONED AS RS.2,36,36,821/-, WHEREAS THE SAME IS RS.2,65,07,464/-. IN VIEW OF THE ABOVE DISCUSSIONS THE DEPARTMENTAL APPE AL IS DISMISSED. IN THE AFOREMENTIONED DECISION BOTH OF US ARE PARTI ES. THEREFORE, FOLLOWING THE AFOREMENTIONED VIEW WE HOLD THAT LD. CIT(A) HAS RIGHTLY DECIDED THE ./ I.T.A. NO.9065/MUM/2010 ( / ASSESSMENT YEAR : 2007-08 ./ I.T.A. NO.1027/MUM/2011 ( / ASSESSMENT YEAR : 2007-08 10 ISSUE AND WE DECLINE TO INTERFERE AND THIS GROUND OF THE REVENUE IS DISMISSED. 10. APROPOS GROUND NO.4, THE ASSESSEE EARNED DIVIDE ND INCOME OF RS.1.26.78,000/-, WHICH WAS CLAIMED TO BE EXEMPT UN DER SECTION 10(33) OF THE ACT. APPLYING RULE 8D AO DISALLOWED ASUM OF RS .36,14,810/-. LD. CIT(A) FOLLOWING THE DECISION OF HONBLE BOMBAY HI GH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD., VS. DCIT, 328 ITR 81 (BOM) HAS HELD THAT RULE 8D IS NOT APPLICABLE TO ASSESSMENT YEAR 2007- 08. HE FURTHER HELD THAT A REASONABLE DISALLOWANCE IS REQUIRED TO BE MADE AN D HE HAS DIRECTED THE AO TO MAKE DISALLOWANCE UNDER SECTION 14A KEEPING I N VIEW THE GUIDELINES ISSUED BY HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DCIT(SUPRA). 11. ON THIS ISSUE, WE HAVE HEARD BOTH THE PARTIES A ND AFTER CONSIDERING THEIR SUBMISSIONS, WE ARE OF THE OPINION THAT THERE IS NO INFIRMITY IN THE ORDER PASSED BY LD. CIT(A) VIDE WHICH HE HAS DIRECT ED THE AO TO RECOMPUTE THE DISALLOWANCE IN VIEW OF THE SUBMISSIONS OF THE ASSESSEE AS WELL AS THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE O F GODREJ &BOYCE MFG. CO. LTD.(SUPRA). WE DECLINE TO INTERFERE AND THIS GROUND OF THE REVENUE IS DISMISSED. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED AND APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 15/05/2015 ' + ,- 15/05/2015 ' SD/- SD/- (RAJENDRA) . . (I.P.BANSAL) /ACCOUNTANT MEMBER /JUDICIAL MEMBER MUMBAI; , DATED 15/05/2015 ./ I.T.A. NO.9065/MUM/2010 ( / ASSESSMENT YEAR : 2007-08 ./ I.T.A. NO.1027/MUM/2011 ( / ASSESSMENT YEAR : 2007-08 11 !'# $#! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. 0# ( ) / THE CIT(A)- 4. 0# / CIT 5. 12 #34 , $ 34 , / DR, ITAT, MUMBAI 6. 5 / GUARD FILE. / BY ORDER, 1# # //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI . . .VM , SR. PS