DCIT, Circle - 4, Kolkata, Kolkata v. M/s. M.P.C. Securities Ltd., Kolkata

ITA 1036/KOL/2011 | 2008-2009
Pronouncement Date: 29-11-2011 | Result: Dismissed

Appeal Details

RSA Number 103623514 RSA 2011
Assessee PAN AACCM1049E
Bench Kolkata
Appeal Number ITA 1036/KOL/2011
Duration Of Justice 4 month(s) 4 day(s)
Appellant DCIT, Circle - 4, Kolkata, Kolkata
Respondent M/s. M.P.C. Securities Ltd., Kolkata
Appeal Type Income Tax Appeal
Pronouncement Date 29-11-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 29-11-2011
Assessment Year 2008-2009
Appeal Filed On 25-07-2011
Judgment Text
' IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : KOLKATA ( ) . . ) [BEFORE SRI S.V. MEHROTRA A.M. & SRI MAHAVIR SING H J.M.] ! ! ! ! / I.T.A NO. 1036/KOL/2011 ASSESSMENT YEAR : 2008-2009 DEPUTY COMMISSIONER OF INCOME TAX -VS.- M/S. M.P.C. SECURITIES LIMITED KOLKATA CIRCLE-4 KOLKATA (PAN : AACCM 1049 E) ( '# /APPELLANT ) ( $%'# / RESPONDENT ) FOR THE APPELLANT ( '# ) : SHRI S.K. ROY D.R. FOR THE RESPONDENT ( $%'# ) : SHRI D.S. DAMLE A.R. &' ( ) * &' ( ) * &' ( ) * &' ( ) * /DATE OF HEARING : 24.11.2011 + ) * + ) * + ) * + ) * /DATE OF PRONOUNCEMENT : 29.11.2011 - / ORDER PER SHRI S.V. MEHROTRA ACCOUNTANT MEMBER/ . . :- THIS APPEAL FILED BY THE REVENUE IS AGAINST THE OR DER OF LD. COMMISSIONER OF INCOME- TAX (APPEALS)-IV KOLKATA DATED 25.03.2011 FOR THE ASSESSMENT YEAR 2008-09. 2. AS PER OFFICE NOTE THE DEPARTMENTAL APPEAL IS D ELAYED BY 8 DAYS. THE DEPARTMENT HAS FILED A PETITION DATED 25.07.2011 OF DCIT CIRCLE-4 KOLKATA WHEREIN HE HAS GIVEN THE FOLLOWING REASONING :- DATE REASON 17.07.2011 SUNDAY 18.07.2011 TO 21.07.2011 THIS OFFICE WAS NOT INFORM ED THAT SECOND APPEAL WAS TO BE FILED. 22.07.2011 APPLICATION FOR FILING SECOND APPEAL WAS COMMUNICATED 23.07.2011 TO 24.07.2011 SATURDAY AND SUNDAY 25.07.2011 THE PAPERS ARE BEING FILED FOR SECOND AP PEAL THAT THE DELAY IS NOT DELIBERATE AND THE RESPONDENT DOES NOT GAIN IN ANY MANNER BY DELAY COMMITTED. AFTER CONSIDERING THE ADMINISTRATIVE REASONS WE CO NDONE THE DELAY AND THE APPEAL IS ADMITTED. ITA NO. 1036/KOL./2011 2 3. BRIEF FACTS OF THE CASE ARE THAT DURING THE RELE VANT ASSESSMENT YEAR THE ASSESSEE CARRIED ON THE BUSINESS OF STOCK BROKING AND TRADING AND IN VESTMENT IN SHARES AND SECURITIES. IT HAD FILED ITS RETURN OF INCOME DECLARING TOTAL INCOME O F RS.9 38 64 395/-. THE ASSESSING OFFICER HOWEVER DETERMINED THE TOTAL INCOME AT RS.9 38 68 145/- BY MAKING A DISALLOWANCE OF RS.3 750/- UNDER SECTION 35D. HE FURTHER NOTED THAT THE ASSESSEE HAD WRONGLY CALCULATED DEDUCTION UNDER SECTION 88E AND ALLOWED REBATE UNDE R SECTION 88E DETERMINING THE SAME AT RS.1 93 157/- INSTEAD OF RS.15 24 763/- CLAIMED BY THE ASSESSEE. THE ASSESSEE PREFERRED APPEAL BEFORE THE LD. CIT(APPEALS) WHO ALLOWED THE ASSESS EES APPEAL. BEING AGGRIEVED WITH THE ORDER OF LD. CIT(APPEALS) THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL ON THE FOLLOWING GROUNDS :- (1) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE LD. COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN LAW IN DELETING T HE DISALLOWANCE OF RS.3 750/- ON ACCOUNT OF AMORTIZATION OF PRELIMINAR Y EXPENSES SINCE THERE IS NO PROVISION UNDER SECTION 35D WHERE PRELIMINARY FINAN CE MAY BE ALLOWED. (2) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE LD. CIT(A.) HAS ERRED IN LAW IN DIRECTING THE AO TO GRANT REBATE UNDER SECTION 8 8E FOR RS.16 18 236/- WITHOUT APPRECIATING THE FACT THAT IN CALCULATING REBATE UN DER SECTION 88E EXPENSES INCURRED HAVE TO BE ALLOCATED ON THE BASIS OF TOTAL VOLUME OF STT PAID AND NON- STT PAID TRANSACTION AND NOT ON THE BASIS OF PROFIT OR LOSSES EARNED ON THEM AS PROFIT OR LOSS IS NOT CORRECT PARAMETER BUT THE VOL UME OF TRANSACTION ENTERED INTO EACH SEGMENT OF BUSINESS IS APPROPRIATE PARAMETER T O DETERMINE THE EXPENDITURE INVOLVED. 4. BRIEF FACTS APROPOS GROUND NO. 1 ARE THAT THE AS SESSING OFFICER DISALLOWED A SUM OF RS.3 750/- CLAIMED IN PROFIT & LOSS A/C. AS PRELIM INARY FINANCE OBSERVING THAT THE SAME WAS NOT ALLOWABLE AS DEDUCTION UNDER SECTION 35D. LD. C IT(APPEALS) ALLOWED THE ASSESSEES APPEAL AFTER CONSIDERING THE NATURE OF EXPENSES CLAIMED BY THE ASSESSEE WHICH WERE PRELIMINARY EXPENSES INCURRED ON INCORPORATION OF THE COMPANY SUCH AS DRAFTING OF MEMORANDUM AND ARTICLES OF ASSOCIATION REGISTRATION FEES AND STAM PING CHARGES TO REGISTRAR OF COMPANIES PRINTING EXPENSES ETC. 5. HAVING HEARD BOTH THE PARTIES WE DO NOT FIND AN Y REASON TO INTERFERE WITH THE ORDER OF LD. CIT(APPEALS) AS IT IS NOT DISPUTED THAT THE IMP UGNED AMOUNT WAS TOWARDS PRELIMINARY EXPENSES INCURRED BY THE ASSESSEE BEFORE INCORPORAT ION OF THE COMPANY. THESE EXPENSES WERE CLEARLY ALLOWABLE UNDER SECTION 35D(2)(C). RESULTA NTLY GROUND NO. 1 OF THE APPEAL IS DISMISSED. ITA NO. 1036/KOL./2011 3 6. WITH REGARD TO GROUND NO. 2 BRIEF FACTS ARE THA T THE ASSESSEE HAD CLAIMED DEDUCTION UNDER SECTION 88E OF RS.15 24 763/-. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD CALCULATED THE DEDUCTION UNDER SECTION 88E ON THE B ASIS OF THE INCOME EARNED FROM STT AND NON-STT PAID TRANSACTIONS I.E. IT HAD BIFURCATED T HE EXPENSES RELATING TO STT PAID TRANSACTION AND NON-STT PAID TRANSACTION ON THE BASIS OF PROFIT OR LOSS EARNED ON EACH TYPE OF TRANSACTION. HE DID NOT ACCEPT THE BASIS AND OBSERVED THAT SINCE THE EXPENSES INCURRED HAD TO BE ALLOCATED ON THE BASIS OF TOTAL VOLUME OF STT PAID AND NON-ST T PAID TRANSACTIONS THEREFORE THE EXPENSES SHOULD ALSO BE ALLOCATED ACCORDINGLY. HE THEREFORE CONCLUDED THAT PROFIT OR LOSS IS NOT THE CORRECT PARAMETER BUT THE VOLUME OF TRANSAC TION ENTERED INTO EACH SEGMENT OF BUSINESS IS THE APPROPRIATE PARAMETER SINCE LOGICALLY HIGHER EXPENSES SHOULD BE ALLOCATED TO THAT SEGMENT OF BUSINESS WHICH WAS HAVING HIGHER VOLUMES. 7. BEFORE LD. CIT(APPEALS) IT WAS INTER ALIA SU BMITTED THAT THE ASSESSING OFFICER ALLOCATED THE COMMON BUSINESS ESTABLISHMENT EXPENSE S BY TAKING INTO CONSIDERATION TURNOVER OF TRANSACTION IN TAXABLE SECURITIES CARRIED OUT BY TH E ASSESSEE ON PROPRIETARY ACCOUNT BUT OMITTED TO CONSIDER THE VOLUME OF STOCK BROKING BUSINESS CA RRIED ON BY THE ASSESSEE BY USING THE SAME BUSINESS ESTABLISHMENT. IT WAS SUBMITTED THAT THE B USINESS ESTABLISHMENT EXPENSES WERE INCURRED FOR ASSESSEES PROPRIETARY BUSINESS AS ALS O IN CONNECTION WITH STOCK BROKING OPERATIONS. IT WAS FURTHER SUBMITTED THAT IN CONNEC TION WITH STOCK BROKING BUSINESS THE ASSESSEE HAD INCURRED SUBSTANTIAL ESTABLISHMENT EXP ENSES AND THEREFORE IN COMPUTING TAXABLE INCOME OF STOCK BROKING BUSINESS THE ASSESSING OFF ICER SHOULD HAVE ALLOCATED THE ESTABLISHMENT EXPENSES TAKING INTO CONSIDERATION TU RNOVER OF BOTH SHARE TRADING AND STOCK BROKING BUSINESS. 8. LD. CIT(APPEALS) IN HIS IMPUGNED ORDER AT PARA 1 0 HAS HELD AS UNDER :- 10. AFTER CONSIDERING THE ABOVE FACTS AND FIGURES I AGREE WITH THE SUBMISSIONS OF THE A/R THAT THE BASIS ADOPTED BY TH E AO FOR ALLOCATING THE EXPENSES AMONGST DIFFERENT BUSINESS SEGMENTS WAS NO T SCIENTIFIC. RATHER IT WAS HIGHLY ARBITRARY AND ILLOGICAL. THE AO MAY BE RIGHT IN COMING TO THE CONCLUSION THAT THE QUANTUM OF ADMINISTRATIVE EXPEN SES MAY NOT BE PROPORTIONAL TO GROSS MARGINS OR INCOME DERIVED BY DIFFERENT BUSINESS SEGMENTS. THE QUANTUM OF BUSINESS OVERHEADS & ESTAB LISHMENT EXPENSES ON MANY OCCASIONS HAVE SIGNIFICANT CORRELATION WITH TH E TURNOVERS DERIVED BY DIFFERENT BUSINESS SEGMENTS. EXPENSES SUCH AS TRANS ACTION CHARGES STOCK EXCHANGE EXPENSES ETC ARE INCURRED BY THE STOCK BR OKERS AND SHARE TRADERS IN ITA NO. 1036/KOL./2011 4 THE PROPORTION OF THE TURNOVER ACHIEVED. IN THE LIG HT OF THESE FACTS I AGREE WITH THE PRIMARY CONCLUSION OF THE AO THAT FOR DETERMINI NG THE SEGMENTAL PROFITS AND CONSEQUENTLY TO DETERMINE ELIGIBILITY FOR REBAT E FOR STT PAID THE SEGMENTAL INCOME WAS REQUIRED TO BE DETERMINED TAKING INTO CO NSIDERATION THE TURNOVER ACHIEVED BY DIFFERENT BUSINESS SEGMENTS. HOWEVER F OR THE PURPOSES OF ALLOCATING COMMON BUSINESS EXPENSES AMONGST DIFFERE NT BUSINESS SEGMENTS THE AO WAS NOT JUSTIFIED IN CONSIDERING ONLY THE TURNOV ER OF APPELLANTS PROPRIETARY TRADES IN SHARES & SECURITIES. IT APPEA RED FROM RECORDS THAT JUST AS PROPRIETARY SHARE TRADING WAS SIGNIFICANT BUSINESS SEGMENT STOCK BROKING & TRADING IN UNITS CONSTITUTED SIGNIFICANT BUSINESS S EGMENTS & ALSO CONTRIBUTED SUBSTANTIALLY TO THE NET PROFIT OF THE ASSESSEE. AS NOTED FROM THE FACTS ON RECORD; GROSS MARGIN DERIVED BY THE ASSESSEE IN PRO PRIETARY SHARE TRADING WAS RS.1 00 83 643/ WHICH ASSESSEE HAD DERIVED FROM TUR NOVER OF RS.1071.24 CRORES. THE GROSS MARGIN IN STOCK BROKING & MUTUAL FUND TRADING BUSINESS OF THE ASSESSEE WAS RS.79 50 701/-. IT THEREFORE APPEA RED THAT EVEN THOUGH THE ASSESSEES OTHER BUSINESS INCOME WAS SIGNIFICANT TH E AO ALLOCATED ALMOST 95% OF COMMON BUSINESS EXPENSES TOWARDS ASSESSEES SHAR E TRADING BUSINESS AND LESS THAN 5% OF THE EXPENSES WERE ALLOCATED AGAINS T OTHER BUSINESS SEGMENTS WHICH CONTRIBUTED OVER 44% OF THE GROSS BUSINESS RE VENUE FOR THE F. Y. 2007- 08. THESE FIGURES CLEARLY PROVED THE ABSURDITY IN T HE AOS ASSUMPTION IN ALLOCATING 95% OF ALL EXPENSES TOWARDS ASSESSEES S HARE TRADING ON PROPRIETARY ACCOUNT. IF THE AO WAS TO ALLOCATE THE COMMON ESTAB LISHMENT EXPENSES AMONGST DIFFERENT BUSINESS SEGMENTS ON THE BASIS OF TURNOVER THEN THE AO SHOULD HAVE CONSIDERED THE BUSINESS TURNOVER OF NOT ONLY PROPRIETARY SHARE TRADING BUT ALSO THE TURNOVER OF THE BUSINESS STOCK BROKING & MUTUAL FUND TRADING. BEFORE ME THE AIR FURNISHED THE STATEMENT OF APPELLANTS TURNOVER FROM CAPITAL MARKET OPERATIONS AS CERTIFIED BY THE STOCK EXCHANGE. THE TURNOVER CERTIFIED BY THE EXCHANGE INCLUDED VALUE O F SHARE TRANSACTIONS CONDUCTED BY THE ASSESSEE IN ALL SEGMENTS OF CAPITA L MARKETS. IN MY OPINION THE BUSINESS ESTABLISHMENT EXPENSES WERE INCURRED B Y THE ASSESSEE FOR MAINTAINING ONE SINGLE COMPOSITE ESTABLISHMENT WHIC H CATERED TO NEEDS OF ALL BUSINESS SEGMENTS OF THE ASSESSEE. IN THE CIRCUMSTA NCES SUCH EXPENSES SHOULD HAVE BEEN ALLOCATED AMONGST ALL BUSINESS SEGMENTS; IN THE PROPORTION OF TURNOVERS ACHIEVED IN ALL BUSINESS SEGMENTS. FROM T HE INFORMATION ON RECORD IT APPEARED THAT THE TOTAL TURNOVER IN SHARES & SEC URITIES FROM WHICH THE APPELLANT DERIVED BUSINESS INCOME WAS RS.2042.73 CR ORES. ON THE OTHER HAND THE TURNOVER OF PROPRIETARY TRADING IN SHARES AND S ECURITIES WAS RS.1071 CRORES. IF THE EXPENSES ON COMMON BUSINESS ESTABLIS HMENT OF RS.89 44 379/- ARE ALLOCATED IN THE RATIO OF 1071:2042.73; THEN TH E EXPENSES ATTRIBUTABLE TO THE INCOME DERIVED FROM SHARE TRADING ON PROPRIETAR Y ACCOUNT; WORKS OUT RS.46 89 523/-. DEDUCTING SUCH EXPENSES FROM THE GR OSS MARGIN OF RS.1 00 83 643/- DERIVED FROM SHARE TRADING IN PROP RIETARY TRADES; THE NET INCOME FROM SHARE TRADING ON PROPRIETARY ACCOUNT (O N WHICH SIT WAS PAID) WORKS OUT RS.53 94 120/-. THE TAX PAYABLE ON SUCH I NCOME WORKS OUT TO RS.16 18 236/- WHEREAS THE STT PAID BY THE ASSESSEE ON PROPRIETARY TRADES WAS RS.43 39 431/-. SINCE THE STT PAID WAS MORE THAN TH E TAX PAYABLE ON THE INCOME DERIVED BY THE APPELLANT FROM TRANSACTIONS I N TAXABLE SECURITIES; THE AO SHOULD HAVE ALLOWED REBATE U/S 88E FOR RS.16 18 236 /-. FOR THE REASONS DISCUSSED IN THE FOREGOING I DIRECT THE AO TO GRAN T REBATE U/S 88E FOR RS.16 18 236/-. GROUND NOS. 2 TO 6 ARE ACCORDINGLY ALLOWED. ITA NO. 1036/KOL./2011 5 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE R ECORDS OF THE CASE. IN THE LIGHT OF ABOVE OBSERVATIONS OF LD. CIT(APPEALS) IF WE EXAMI NE THE GROUND RAISED BY THE DEPARTMENT WE FIND THAT NO GRIEVANCE IS BEING MADE OUT BY THE DEPARTMENT BECAUSE LD. CIT(APPEALS) HAS DIRECTED THAT FOR CLAIMING REBATE UNDER SECTION 88E EXPENSES INCURRED HAD TO BE ALLOCATED ON THE BASIS OF TOTAL VOLUME OF STT PAID AND NON-STT PAID TRANSACTIONS AND NOT BUSINESS PROFIT OR LOSS EARNED ON THEM. THUS IN PRINCIPLE HE HELD THAT PRO FIT OR LOSS IS NOT THE CORRECT PARAMETER BUT TURNOVER IS THE CORRECT BASIS FOR ALLOCATION OF EXP ENSES. LD. CIT(APPEALS) HAS IN PRINCIPLE ACCEPTED THE ASSESSING OFFICERS VIEW POINT ON THIS ISSUE BUT SINCE THE ASSESSING OFFICER HAD NOT CORRECTLY APPLIED THE PRINCIPLE WITH REFERENCE TO PROPRIETARY BUSINESS AS WELL AS STOCK BROKING BUSINESS THEREFORE LD. CIT(APPEALS) DIREC TED THE ASSESSING OFFICER TO GRANT REBATE AND ACCORDINGLY COMPUTED THE REBATE UNDER SECTION 88E AT RS.16 18 236/- AS AGAINST RS.15 24 763/- CLAIMED BY THE ASSESSEE. THE GROUND RAISED BY THE DEPARTMENT IS MISCONCEIVED AND THEREFORE DISMISSED. 4. IN THE RESULT THE APPEAL FILED BY THE REVENUE I S DISMISSED. . / 0 1 .0 2 3. ORDER PRONOUNCED IN THE OPEN COURT ON 29/ 11/2011. & / 5 - 29/11/2011. SD/- SD/- [ MAHAVIR SINGH / ] [S.V. MEHROTRA/ ( . . )] JUDICIAL MEMBER/ ACCOUNTANT MEMBER/ DATED : 29/ 11/ 2011 COPY OF THE ORDER FORWARDED TO: 1. M/S. MPC SECURITIES LIMITED 41/2B SARAT BOSE ROAD KOLKATA-20. 2 DCIT CIRCLE-4 KOLKATA P-7 CHOWRINGHEE SQUARE K OLKATA-700 069. 3. COMMISSIONER OF INCOME-TAX (APPEALS)- KOLKATA 4. CIT- KOLKATA 5. DR KOLKATA BENCHES KOLKATA (TRUE COPY) BY ORDER ASSISTANT REGISTRAR I.T.A.T. KOLKATA LAHA SR. P.S.