ITO 4(2)(1), MUMBAI v. PARKLIGHT INVESTMENT P. LTD, MUMBAI

ITA 1456/MUM/2009 | 2005-2006
Pronouncement Date: 21-05-2010 | Result: Dismissed

Appeal Details

RSA Number 145619914 RSA 2009
Bench Mumbai
Appeal Number ITA 1456/MUM/2009
Duration Of Justice 1 year(s) 2 month(s) 18 day(s)
Appellant ITO 4(2)(1), MUMBAI
Respondent PARKLIGHT INVESTMENT P. LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 21-05-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted C
Tribunal Order Date 21-05-2010
Date Of Final Hearing 29-04-2010
Next Hearing Date 29-04-2010
Assessment Year 2005-2006
Appeal Filed On 04-03-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C : MUMBAI BEFORE SHRI D.K. AGARWAL (JM) AND SHRI T.R. SOOD (AM) SL.NO. ITA NO. /CROSS OBJECTION NO. APPELLANT/CRO- SS OBJECTOR RESPONDENT/APP ELLANT IN APPEAL ASSESSME- NT YEAR 1. 380/MUM/2009 M/S. PARKLIGHT INVESTMENTS PVT. LTD. BOMBAY MUTUAL CHAMBERS BLOCK NO.36 B.S. MARG MUMBAI-400 023. (P.A. NO.AAACP 9065 D) INCOME TAX OFFICER WARD 4(2)(1) ROOM NO.644 6 TH FLOOR AAYAKAR BHAVAN MUMBAI-400 020. 2005-06 2. 1456/MUM/2009 INCOME TAX OFFICER WARD 4(2)(1) MUMBAI-20 M/S. PARKLIGHT INVESTMENTS PVT. LTD. MUMBAI-400 023. 2005-06 3. C.O. NO.168/MUM/2009 ( ARISING OUT OF ITA NO.1456/MUM/2009 ) M/S. PARKLIGHT INVESTMENTS PVT. LTD. MUMBAI-400 023. INCOME TAX OFFICER WARD 4(2)(1) MUMBAI-20 2005-06 ASSESSEE BY : SHR I REEPAL G. TRAISHAWALA REVENUE BY : SHRI ARUN BHARAT O R D E R PER D.K. AGARWAL (JM). THESE CROSS APPEALS BY ASSESSEE AND REVENUE ARE DIRECTED AGAINST THE ORDER DATED 3.12.2008 PASSED BY THE LD. C IT(A) FOR THE ASSESSMENT YEAR 2005-06. THE ASSESSEE HAS ALSO FILED CROSS OBJE CTION AGAINST THE APPEAL FILED BY THE REVENUE SUPPORTING THE ORDER OF THE LD. CIT(A). BOTH THESE APPEALS AND CROSS OBJECTION ARE DIS POSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. ITA NOS.380 & 1456 & CO 168/M/09 A.Y:05-06 2 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSESSEE COM PANY IS ENGAGED IN THE BUSINESS OF BROKERAGE AND SHARE TRADING . THE RETURN WAS FILED DECLARING TOTAL INCOME OF RS.23 888/-. HOWEVER THE ASSESSMENT WAS COMPLETED AT AN INCOME OF RS.32.00 450/- VID E ORDER DATED 24.12.2007 PASSED U/S. 143(3) OF THE I.T. ACT 1 961(THE ACT). ON APPEAL THE LD. CIT(A) PARTLY ALLOWED THE APPEAL. 3. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A) T HE ASSESSEE AND REVENUE BOTH ARE IN APPEAL BEFORE US. ITA NO.380/M/09 (ASSESSEE'S APPEAL)(ASSESSMENT YEAR 2005-06):- 4. GROUND NO.1 IS AGAINST THE SUSTENANCE OF DISALLOWANCE OUT OF MEMBERSHIP EXPENSES RS.59 729/-. 5. THE BRIEF FACTS OF THE ABOVE ISSUE ARE THAT DURING T HE COURSE OF ASSESSMENT PROCEEDING IT WAS INTERALIA OBSERVED BY THE ASSESSI NG OFFICER THAT THE ASSESSEE HAS DEBITED RS.5 92 797/-AS MEMB ERSHIP EXPENSES. THE ASSESSEE WAS ASKED TO SUBMIT THE DETAILS OF SUCH EXPENSES BILLS PROOF OF PAYMENTS AND RELATION OF SUCH E XPENSES WITH THE BUSINESS OF THE ASSESSEE. THE ASSESSEE VIDE LETTER DATE D 20.11.2007 HAS SUBMITTED THE COPY OF MEMBERSHIP ACCOUNT AND SOME COPIES OF CREDIT CARD STATEMENT. ON VERIFICATION OF THE COPY OF ACCOUNT AND CREDIT CARD STATEMENT THE ASSESSING OFFICER NOTED THAT CREDIT CARD ITA NOS.380 & 1456 & CO 168/M/09 A.Y:05-06 3 OF ABN AMRO BANK WAS IN THE NAME OF MR. UDAY H. VORA AND MRS. SONAL U. VORA JOINTLY AND CREDIT CARDS OF CITI BANK & HSBC BANK WERE IN THE NAME OF MR. UDAY H. VORA. MOST OF THE EXPENSE S WERE INCURRED FOR THE PAYMENT OF PETROL PUMP SERVICE STATIONS HOTE L BILLS BAR & RESTAURANTS BILLS STORES LIKE SHOPPER STOP SHOPPING H OUSES CATERERS AIRLINES BARBER SHOP ETC. THE ASSESSEE WAS AGAIN ASKED TO EXPLAIN THE RELATION OF THESE EXPENSES WITH THE BUSINESS ALONG W ITH SUPPORTING DOCUMENTARY EVIDENCES. IT WAS SUBMITTED BY THE ASSESSEE TH AT MR. UDAY VORA IS KEY PERSONAL WHO IS SOLELY RESPONSIBLE FOR T HE GROWTH OF THE BUSINESS. HE IS LIVING IN AHMEDABAD WHEREAS THE BUSI NESS IS BEING CARRIED FROM MUMBAI SO HE HAS TO TRAVEL FREQUENT LY FROM AHMEDABAD TO MUMBAI FOR REVIEWING THE OPERATIONS OF THE BUSINESS. AT THE SAME TIME AS MENTIONED BEING A KEY PERSON HE HAS TO APPROACH NEW CLIENTS ALL THE DAY AND ALSO BOUND TO MEET THEM AS PER CONVENIENCE OF THE CLIENTS. ACCORDINGLY ALL SUCH EXPEND ITURE WAS EXPENDED BY UDAY VORA THROUGH HIS CREDIT CARD SO AS TO A VOID ANY UN- DUE DELAY. THE SAME HAS BEEN REIMBURSED BY THE COMPANY TO HIM. THE ASSESSING OFFICER AFTER CONSIDERING ASSESSEES REPLY THAT ALL THE EXPENSES SHOWN UNDER THE HEAD MEMBERSHIP FEES WERE INCURR ED THROUGH CREDIT CARDS STANDING IN THE NAME OF MR. UDAY V ORA AND MR. UDAY VORA & MRS. SONAL VORA JOINTLY AND MOST OF EXPEN SES WERE INCURRED FOR PAYMENT OF BILL OF HOTEL BAR & RESTAURA NT SHOPPING ITA NOS.380 & 1456 & CO 168/M/09 A.Y:05-06 4 AIRLINES EXPENSES ETC. FURTHER THE FACT THAT THE ASSESSE E HAS NOT SUBMITTED ANY DOCUMENTARY EVIDENCES WHICH SHOWS THAT THE EXPENSES WERE NOT INCURRED EXCLUSIVELY AND WHOLLY FOR THE PURPO SE OF THE BUSINESS. THE POSSIBILITY OF EXPENSES INCURRED FOR PERSON AL PURPOSE CAN NOT BE RULED OUT. HENCE IN ABSENCE OF PROPER DOCUMEN TARY EVIDENCES AND CONSIDERING THE FACT THAT THE DIRECTOR MR. UDAY VORA IS HAVING ANOTHER BUSINESS SET UP IN AHMEDABAD THE ASSESSING OFFICER DISALLOWED AN AMOUNT EQUAL TO 50% OF THE ABOVE EXPEN SES WHICH WORKED OUT TO RS.2 96 399/- ARE CONSIDERED FOR NON-BUSI NESS PURPOSE. 6. ON APPEAL LD. CIT(A) AFTER EXAMINING THE STATEME NT OF CREDIT CARDS OBSERVED THAT THE MAJOR EXPENDITURE ARE ON ACCOUNT OF STAY IN HOTEL AND PAYMENT TO RESTAURANT AT BOMBAY PAYMENT F OR PETROL BILLS ETC. HE FURTHER OBSERVED THAT THE APPELLANTS SUBMISSION THAT SUCH EXPENDITURE WAS REQUIRED TO BE INCURRED FOR THE PUR POSE OF BUSINESS AT MUMBAI IS BOUND TO BE CORRECT BUT CERTAIN PERSONAL EXPEN SES CANNOT BE RULED OUT. HENCE HE RESTRICTED THE DISALLOWANCE TO R S.59 729/- BEING 10% OF TOTAL MEMBERSHIP EXPENSES. 7. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE A SSESSEE WHILE REITERATING THE SAME SUBMISSIONS AS SUBMITTED BEFORE THE ASSESSING OFFICER AND THE LD. CIT(A) FURTHER SUBMITS THAT IT IS A CASE OF PRIVATE COMPANY THEREFORE IN VIEW OF THE DECISION IN SAYAJI IRON AND ENGG. ITA NOS.380 & 1456 & CO 168/M/09 A.Y:05-06 5 CO. VS. CIT(2002) 253 ITR 749(GUJ.) NO SUCH DISALLOWAN CE IS CALLED FOR. 8. ON THE OTHER HAND THE LD. DR SUBMITS THAT THE EXPE NSES INCURRED BY THE ASSESSEE ARE PERSONAL IN NATURE AND HAVE NOT BEE N INCURRED WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSES THEREFORE THE LD. CIT(A) WAS FULLY JUSTIFIED IN SUSTAINING THE DISALLOWA NCE OF RS.59 729/- AND HENCE THE ORDER PASSED BY THE LD. CIT(A) BE UPHE LD. 9. HAVING CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSING THE MATERIAL AVAILABLE ON RECORD WE FIND THAT THERE IS NO DISPUTE THAT THE EXPENSES WERE INCURRED THROUGH CREDIT C ARDS STANDING IN THE NAME OF MR. UDAY VORA AND MR. UDAY VORA & MR S. SONAL VORA JOINTLY AND MOST OF EXPENSES WERE INCURRED FOR PAYMENT OF BILL OF HOTEL BAR AND RESTAURANT SHOPPING AIRLINES EXPENSES ETC. IN THE ABSENCE OF ANY MATERIAL TO SHOW THAT ALL THE EXPENSES WERE INCURRE D WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS WE ARE OF THE V IEW THAT THE LD. CIT(A) WAS MORE THAN REASONABLE TO SUSTAIN THE DISALLOW ANCE ONLY TO THE EXTENT OF RS.59 729/- BEING 10% OF TOTAL EXPENSE OF RS.5 92 797/-. IN SAYAJI IRON AND ENGG. CO. (SUPRA) THE ASSESSEE A PRIVATE COMPANY HAD INCURRED RS.96 653/- TOWARDS MAIN TENANCE OF ITS VEHICLES AND CLAIMED AS BUSINESS EXPENDITURE. ONE SIXTH OF THE EXPENDITURE WAS DISALLOWED ON THE GROUND THAT ALL THE VEHICLES WERE ITA NOS.380 & 1456 & CO 168/M/09 A.Y:05-06 6 NOT EXCLUSIVELY USED FOR THE BUSINESS AS ITS DIRECTORS WERE A LL USING THEM FOR THEIR PERSONAL PURPOSES. IT HAS BEEN HELD (PA GE 749 HEADNOTE): (I) THAT THE DIRECTORS OF THE ASSESSEE WERE ENTIT LED TO USE THE VEHICLES FOR THEIR PERSONAL USE IN ACCORDAN CE WITH THE TERMS AND CONDITIONS ON WHICH THEY WERE APPOINT ED AND THE PERQUISITES GIVEN TO THE DIRECTORS FORMED P ART OF THEIR REMUNERATION UNDER THE EXPLANATION TO SECTI ON 198 OF THE COMPANIES ACT 1956 FOR THE PURPOSE OF DETERMINING THEIR REMUNERATION UNDER SECTION 309 OF THAT ACT. ONCE SUCH REMUNERATION WAS FIXED AS PROVIDED I N SECTION 309 IT WAS NOT POSSIBLE TO STATE THAT THE A SSESSEE INCURRED THE EXPENDITURE FOR THE PERSONAL USE OF TH E DIRECTORS. EVEN IF THERE WAS ANY PERSONAL USE BY TH E DIRECTORS THAT WAS AS PER THE TERMS AND CONDITIONS OF SERVICE AND IN SO FAR AS THE ASSESSEE WAS CONCERNE D IT WAS BUSINESS EXPENDITURE AND NO PART OF THE EXPENDI TURE COULD BE DISALLOWED. IN THE ABOVE CASE THE ISSUE WAS IN RESPECT OF DISALLOWA NCE OF MAINTENANCE OF VEHICLE EXPENSES WHEREAS IN THE CASE BEFORE US THE DISALLOWANCE IS OF PERSONAL EXPENSES DEBITED UNDER THE HE AD MEMBERSHIP EXPENSES AND IN THE ABSENCE OF ANY TERMS AND CONDITIONS OF APPOINTMENT OF DIRECTORS OR BOARDS RESOLUTION WE ARE OF THE VIEW THAT THE DECISION RELIED ON BY THE LD. COUNSEL FOR TH E ASSESSEE IS DISTINGUISHABLE AND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. IN THIS VIEW OF THE MATTER WE ARE INCLINED TO UPHOLD TH E FINDING OF THE LD. CIT(A) IN SUSTAINING THE DISALLOWANCE OF RS.59 729/- OU T OF ITA NOS.380 & 1456 & CO 168/M/09 A.Y:05-06 7 RS.5 92 797/- OF MEMBERSHIP EXPENSES. THE GROUND TAKEN BY THE ASSESSEE IS THEREFORE REJECTED. 10. GROUND NO.2 IS AGAINST THE SUSTENANCE OF DISALLOWANCE OUT OF TRAVELLING EXPENSES RS.321426/-. 11. THE BRIEF FACTS OF THE ABOVE ISSUE ARE THAT IT WAS O BSERVED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS DEBITED RS.6 19 951/- AS TRAVELING EXPENSES. DURING THE COURSE OF ASSESSMENT PROCE EDINGS THE ASSESSEE HAS SUBMITTED THE LEDGER COPY OF ACCOUNT OF TRAVELI NG EXPENSES AND COPY OF SOME BILLS. ON VERIFICATION OF TH E COPIES OF BILLS IT WAS NOTICED THAT THE ASSESSEE HAS DEBITED THE EXPENSES OF FOREIGN TRAVEL MADE BY MR. UDAY VORA MRS. SONAL VORA AND MA STER DEEP VORA AND TRAVELING EXPENSES OF OTHER FAMILY MEMBER OF MR. UDAY VORA FROM AHMEDABAD TO MUMBAI. IN THIS REGARD THE ASSESSEE WAS ASK ED TO SUBMIT THE SUPPORTING DOCUMENTARY EVIDENCES TO SHOW THAT ALL EXPENSES INCURRED FOR TRAVELING WERE FOR THE PURPOSE OF BUSINESS. IN REPLY THE ASSESSEE SUBMITTED THE COPY OF LEDGER ACCOUNT AND ALL NECESSARY AIR LINES BILLS VIDE ANNEXURE 5 AND STATED THAT THIS EXPENDITURE WAS INCURRED FOR THE PURPOSE OF BUSINESS. THE ASSESSEE ALSO FILED DETAILS SHOWING THE RELATIONSHIP WITH THE P ERSONS IN WHOSE NAME TICKETS HAVE BEEN BOOKED. THE ASSESSEE VIDE LETTER DATED 13.12.2007 FURTHER SUBMITTED THAT MR. UDAY VORA CHA IRMAN AND ITA NOS.380 & 1456 & CO 168/M/09 A.Y:05-06 8 DIRECTOR OF THE COMPANY HAS TO CONSTANTLY TRAVEL BETWEEN THE TWO CITIES AND ALSO HAS TO GO ABROAD FROM TIME TO TIME FOR PROMO TING THE BUSINESS AND FOR MARKETING OF THE FIRM. THESE CONSTANT TRAVELS BETWEEN THE TWO CITIES PREVENT HIM FROM HAVING A PROP ER NORMAL FAMILY LIFE. IT PREVENTS HIM FROM SPENDING QUALITY TIME WITH HIS FAMILY. IF SUCH A SITUATION CONTINUES FOR A LONG TI ME THE EMPLOYEE GETS DISGRUNTLED AND MAY NOT BE ABLE TO CONTINUE WORKI NG WITH ZEST. IN ORDER TO PREVENT THIS FROM HAPPENING AND TO KEEP ONE OF THEIR STAR EMPLOYEES HAPPY THE COMPANY FROM TIME TO TIME INCURS EX PENDITURE FOR THE TRAVEL OF MR. VORAS FAMILY TO MUMBAI AND BA CK. ALSO IN ORDER TO REWARD HIM FOR GOOD PERFORMANCE AND AS AN INCENTIVE THE ASSESSEE WOULD HAVE SPONSORED THE TICKETS TO LONDON FOR PURPOSES OF A VACATION. SUCH EXPENDITURE IS INCURRED IN ACKNOWLEDGME NT OF HIS EFFORTS AND TO MOTIVATE HIM TO REGULARLY PARTICIPAT E IN THE EXPANSION OF THE COMPANY. THIS EXPENDITURE IS TO BE TREATED AS BUS INESS EXPENDITURE AND NOT PERSONAL EXPENDITURE. A COMPANY ASSESSEE CANNOT INCUR ANY PERSONAL EXPENDITURE ON ITS BEHALF. I T IS A CORPORATE ENTITY AND DOESNT HAVE ANY PERSONAL EXPENSES. THIS E XPENDITURE IS INCURRED BY THE ASSESSEE THAT IS THE COMPANY ON BEHALF OF THE DIRECTOR. ALSO IT HAS BEEN EXPENDED FOR THE GROWTH OF THE BUSINE SS. IT IS INCURRED OUT OF THE PROFIT OF THE CURRENT YEAR AND HE NCE IT IS AN ALLOWABLE EXPENDITURE. HOWEVER THE ASSESSING OFFICER AFT ER ITA NOS.380 & 1456 & CO 168/M/09 A.Y:05-06 9 CONSIDERING ASSESSEES REPLY OBSERVED THAT THE ASSESSEE IS DOING THE BUSINESS OF BROKING AND SHARE TRADING AND THERE IS NO CON NECTION OF THIS BUSINESS WITH THE FOREIGN TOUR. THE ASSESSEE HAS NOT SUBMITTED/EXPLAINED THE CIRCUMSTANCES UNDER WHICH IT HAS T O PROMOTE THE BUSINESS AND MARKETING THE FIRM IN FOREIGN COUNTRY WHERE ALL THE CLIENTS OF THE ASSESSEE ARE SITUATED IN INDIA AND IT HAS M ADE THE TRADING IN INDIAN MARKET. AS FAR AS SPONSORING THE HO LIDAY OF DIRECTOR WHO IS ALSO HAVING ITS INDIVIDUAL BUSINESS IS CONCERNED IT CAN NOT BE TREATED AS BUSINESS EXPENDITURE. CONSIDERING THE ABOVE THE ASSESSING OFFICER TREATED THE EXPENSES INCURRED FOR THE FOREIGN T OUR AS EXPENSES FOR NON BUSINESS PURPOSE OR PERSONAL EXPENSES OF DIRECTOR. WITH REGARD TO OTHER TRAVELING EXPENSES THE ASSESSING OFFICER O BSERVED THAT MR. UDAY VORA DIRECTOR OF THE COMPANY WAS STAYING IN A HMEDABAD. THE COPY OF RETURN SHOWS THAT HE HAS UNDERTAKEN VARIOUS TRANSACTIONS OF SALE/PURCHASES OF SHARES. HE IS HAVING ANOTHER BUSINESS SE TUP IN AHMEDABAD FOR HIS OWN BUSINESS. THEREFORE HE HAS TO LOOK AFTER BOTH THE BUSINESS I.E. THE BUSINESS OF THE ASSESSEE AS DIRECTOR AND HIS OWN BUSINESS. IN FACT THE INCOME EARNED BY MR. UDAY VORA IS MUCH HIGHER THAN THE INCOME EARNED BY THE ASSESSEE. HOWEVER MR. U DAY VORA HAS DEBITED ONLY RS.97 750/- AS TRAVELING EXPENSES TO HI S PROFIT AND LOSS ACCOUNT AGAINST THE INCOME OF RS.5 35 14 640/-. CON SIDERING THE ABOVE FACT AND THE FACT THAT THE ASSESSEE HAS FAILED TO P ROVE THAT ALL ITA NOS.380 & 1456 & CO 168/M/09 A.Y:05-06 10 EXPENSES WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE P URPOSE OF THE BUSINESS THE ASSESSING OFFICER DISALLOWED AMOUNT OF RS.3 00 156/- INCURRED FOR FOREIGN TRAVEL AND TRAVEL BY FAMILY MEM BERS AS PERSONAL EXPENSES AND RS.1 59 898/- BEING 50% OF BALANCE TRAVEL ING EXPENSES AS INCURRED FOR THE PURPOSE OF OTHER THAN THE ASSESSEES BU SINESS OR PERSONAL PURPOSE. 12. ON APPEAL THE LD. CIT(A) WHILE OBSERVING THAT SO FAR AS EXPENSES PERTAINING TO TRIP TO LONDON AND ZURICH OF MR. UDAY VORA MRS. SONAL VORA AND MASTER DEEP VORA IS CONCERNED IT WAS A PLEASURE TRIP BY VORA AND HIS FAMILY AND IT WAS NOT FOR THE PURPOSE OF BUSINE SS OF THE COMPANY AND IN FACT IT WAS VERY MUCH OF PERSONAL EXPE NDITURE CONFIRMED THE DISALLOWANCE OF RS.3 00 156/- ON ACCOUNT OF FOREIGN TOUR. WITH REGARD TO THE EXPENDITURE OF TRAVEL OF M R. UDAY VORA AND HIS FAMILY TO AHMEDABAD AND MUMBAI IS CONCERNED THE LD. CI T(A) WAS OF THE VIEW THAT THE SAME IS FOR BUSINESS PURPOSES. WITH RE GARD TO THE OTHER EXPENDITURE OF RS.21 270/- INCURRED ON THE TRA VELLING OF MR. RATNESH BHATT SISTERS HUSBAND MRS. MANISHABEN SISTER MR. NEHAL SISTERS SON MR. HASMUKHBHAI FATHER MRS. SUNITABEN M OTHER THE LD. CIT(A) WAS OF THE VIEW THAT THE SAME IS NOT FOR BUSINESS PURPOSE OF THE COMPANY AND HENCE HE CONFIRMED THE SAME. IN OTHE R WORDS HE ALLOWED A RELIEF OF RS.1 38 628/- ON THIS ACCOUNT. ITA NOS.380 & 1456 & CO 168/M/09 A.Y:05-06 11 13. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE ASSESSEE WHILE REITERATING THE SAME SUBMISSIONS AS SUBMITTED BEFORE THE ASSESSING OFFICER AND THE LD. CIT(A) FURTHER SUBMITS THAT THE FO REIGN TRAVELLING EXPENSES WERE INCURRED FOR PROMOTING THE BUSINESS AND FO R MARKETING OF THE FIRM. HE FURTHER SUBMITS THAT THE TRAVEL TO LO NDON WAS FOR THE PURPOSE OF BUSINESS BEING INCENTIVE IN THE NATURE OF R EWARD FOR GOOD PERFORMANCE TO MOTIVATE MR. UDAY VORA WHO REGULARLY PARTICIPATED IN THE EXPANSION OF THE COMPANY. THE OTHER EXPENSES OF AHM EDABAD AND MUMBAI HAVE BEEN INCURRED FOR THE PURPOSE OF BUSINESS O NLY. HE THEREFORE SUBMITS THAT THE DISALLOWANCE MADE BY THE A O AND SUSTAINED BY THE LD. CIT(A) BE DELETED. 14. ON THE OTHER HAND THE LD. DR SUPPORTS THE ORDER O F ASSESSING OFFICER AND THE CIT(A). 15. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE R IVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WITH R EGARD TO FOREIGN TRAVEL EXPENSES RS.3 00 156/- WE FIND THAT THERE IS NO DISPUTE THAT THE ASSESSEE IS DOING THE BUSINESS OF SHARE BROKING AND SHARE TR ADING IN INDIA. THERE IS NO MATERIAL ON RECORD TO SHOW THAT TH E ASSESSEE HAS ANY CONNECTION OF HIS BUSINESS WITH THE FOREIGN COUNTRY OR HAS VISITED FOREIGN COUNTRY TO PROMOTE THE SAID BUSINESS. THE ASSESSEE HAS ALSO FAILED TO BRING ON RECORD ANY BOARDS RESOLUTION TO SHOW THAT THE VISIT TO ITA NOS.380 & 1456 & CO 168/M/09 A.Y:05-06 12 FOREIGN COUNTRY WAS FOR THE PURPOSE OF THE BUSINESS. TH IS BEING SO AND KEEPING IN VIEW THAT THE ASSESSEE HAS FAILED TO DISCH ARGE HIS BURDEN TO SHOW THAT THE FOREIGN TRAVELLING EXPENSES HA VE BEEN WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINESS WE ARE OF THE VIEW THAT THE LD. CIT(A) WAS FULLY JUSTIFIED IN SUSTAI NING THE DISALLOWANCE OF FOREIGN TRAVEL EXPENSES RS.3 00 156/-. W ITH REGARD TO THE DISALLOWANCE OF OTHER TRAVELLING EXPENSES OF RS.21 2 70/- WE FIND THAT IT HAS BEEN OBSERVED BY THE LD. CIT(A) THAT THE EXPENDITURE OF RS.21 270/- WAS INCURRED ON THE TRAVELLING OF MR. RAT NESHBHAI SISTERS HUSBAND MRS. MANISHABEN SISTER MR. NEHAL SIST ERS SON MR. HASMUKHBHAI FATHER MRS. SUMITABEN MOTHER WAS NOT CON NECTED FOR THE BUSINESS PURPOSES OF THE COMPANY . IN THE ABSENCE OF A NY CONTRARY MATERIAL PLACED ON RECORD BY THE ASSESSEE AGAINST THE FINDING OF THE LD. CIT(A) WE DECLINE TO INTERFERE WITH THE O RDER PASSED BY THE LD. CIT(A) ON THIS ACCOUNT AND ACCORDINGLY THE GROUND TA KEN BY THE ASSESSEE IS REJECTED. 16. GROUND NO.3 IS AGAINST THE SUSTENANCE OF DISALLOWANCE OF MOTOR CAR EXPENSES DEPRECIATION AND INSURANCE RS.6 24 707/- 17. THE BRIEF FACTS OF THE ABOVE ISSUE ARE THAT IT WAS INTERALIA OBSERVED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS DEBITE D RS.2 44 849/- AS MOTOR CAR EXPENSES RS.5 42 793/- AS DEP RECIATION ITA NOS.380 & 1456 & CO 168/M/09 A.Y:05-06 13 ON MOTOR CARS AND RS.1 04 709/- AS INSURANCE ON MOTOR CAR. ON VERIFICATION OF THE DETAILS IT WAS NOTICED THAT NO CAR WAS REGISTERED IN THE NAME OF THE COMPANY. ALL THE CARS ARE PURCHASED IN AHMEDABAD AND REGISTERED EITHER IN THE NAME OF THE DIRECTOR OR MR. UDAY VORA OR IN THE NAME OF OTHER PERSONS. IN VIEW OF THE ABOVE T HE ASSESSEE WAS ASKED SUBSTANTIATE HIS CLAIM. IN RESPONSE IT WAS INTERALIA SUBMITTED BY THE ASSESSEE VIDE LETTER DATED 4.12.2007 THAT: - ..OUR BUSINESS OPERATIONS ARE PRIMARILY CARRIED OUT IN MUMBAI AND AHMEDABAD. FURTHER WE HAVE ALREADY MENTIONED THAT OUR DIRECTOR MR. UDAY VORA IS RESIDI NG IN AHMEDABAD AND ACCORDINGLY HE CARRIES OUT PART OF TH E OPERATIONS SUCH AS MEETING WITH NEW CLIENTS AND ALS O TO CONSULT EXISTING CLIENTS. ACCORDINGLY THE SAID EXPENDITURE IS NO DOUBT BUSINESS EXPENDITURE AND IT SHOULD BE FULLY ALLOWED. HOWEVER THE ASSESSING OFFICER OBSERVED THAT MR. UDAY VORA THE DIRECTOR OF THE COMPANY IS HAVING SEPARATE BUSINESS SET UP IN AHMEDABAD AND OFFERED RS.5 35 14 840/- AS INCOME. FU RTHER ON VERIFICATION OF STATEMENT OF FIXED ASSETS SUBMITTED ALO NG WITH THE RETURN IT IS SEEN THAT MR. UDAY VORA HAS NOT SHOWN ANY MOTOR CAR AS FIXED ASSETS. MOREOVER HE HAS NOT CLAIMED ANY DEPRECIA TION AND EXPENSES OF MOTOR CAR. IT MEANS THAT HE HAS USED THE CARS SHOWN IN THE ASSETS OF THE COMPANY FOR THE PURPOSE OF HIS BUSINESS A LSO. THE ASSESSING OFFICER AFTER CONSIDERING ALL THE ABOVE DETAILS EXPLANATION FACTS AS DISCUSSED ABOVE AND IN ABSENCE OF PROPER SUPPORTING ITA NOS.380 & 1456 & CO 168/M/09 A.Y:05-06 14 DOCUMENTARY EVIDENCE IN RESPECT OF THE ASSESEES CLAIM DECIDE D THE MATTER AS UNDER (PAGE 14-15 OF THE ASSESSMENT ORDER ): 9.4 ONLY ONE CAR WHICH WAS REPAIRED AND MAINTAINED IN MUMBAI I.E. HONDA CITY IS TREATED AS USED FOR THE PU RPOSE OF THE ASSESSEES BUSINESS IN MUMBAI. HENCE EXPE NSES INCURRED FOR REPAIRING AND OTHER EXPENSES LIKE PETR OL ETC IS ALLOWABLE AS EXPENSES. THE CAR IS REPAIRED AND FUE LED MOSTLY IN NATIONAL GARAGE MUMBAI. HENCE THE AMOUN T PAID TO NATIONAL GARAGE OF RS.88 313/- AND INSURANC E OF RS.14 806/- IS ALLOWED AS EXPENSES. THE ASSESSEE HAS NOT CLAIMED DEPRECATION ON THE HONDA CITY CAR. HENC E IT IS NOT ALLOWED. 9.5 ONE CAR I.E. MERCEDES BENZ WAS REGISTERED IN TH E NAME OF MR. HASMUKH VORA IN AHMEDABAD REPAIRED AND MAINTAINED IN AHMEDABAD AND ALL THE BILLS IN RESPEC T OF THE CARS WERE IN THE NAME OF MR. HASMUKH VORA. THE ASSESSEE HAS FAILED TO ESTABLISH THAT THIS CAR WAS USED FOR THE PURPOSE OF THE ASSESSEES BUSINESS. HENCE THE AMOUNT OF DEPRECATION CLAIMED IN RESPECT OF SUCH CA R OF RS.3 50 860/- INSURANCE PAID OF RS.59 388/- AND AN AD- HOC AMOUNT OF RS.50 000/- (AS ACTUAL AMOUNT OF REPA IRS IS NOT AVAILABLE) FOR REPAIRS AND MAINTENANCE OF THE S AID CAR IS DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 9.6 IN RESPECT OF OTHER CARS AS MR. UDAY VORA RESI DES AT AHMEDABAD AND HE HAS TO LOOK AFTER THE ASSESSEE S AS WELL AS HIS OWN BUSINESS AN AMOUNT EQUAL TO 50% OF BALANCE AMOUNT OF (AFTER REDUCING THE EXPENSES AND DEPRECIATION OF HONDA CITY AND MERCEDES BENZ) INSURANCE REPAIRS AND DEPRECIATION HAS BEEN DISALL OWED TREATED AS UTILIZED FOR THE PURPOSE OTHER THAN THE ASSESSEES BUSINESS. ACCORDINGLY HE DISALLOWED RS.4 46 797/- OUT OF DEPRECIAT ION RS.74 645/- OUT INSURANCE AND RS.1 03 265/- OUT REPAIRS & MAINTENANCE AND ADDED TO THE INCOME OF THE ASSESSEE. ON APPEAL LD. CIT(A) FOR THE REASONS AS DISCUSSED IN ASSESSMENT ORDER CONFIRM ED THE TOTAL DISALLOWANCE OF RS.6 24 707/-. ITA NOS.380 & 1456 & CO 168/M/09 A.Y:05-06 15 18. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE ASSESSEE WHILE REITERATING THE SAME SUBMISSIONS AS SUBMITTED BEFORE TH E AO AND THE LD. CIT(A) FURTHER SUBMITS THAT THE APPELLANT COMPAN Y WAS OWNING SIX CARS WHICH WERE USED FOR THE PURPOSE OF ITS BUSINESS. THESE CARS WERE OLD AS WELL AS NEW. SINCE THE APPELLANT COMPANY HAS BOUGHT NEW CARS; IT HAS DISPOSED OF THREE CARS DURING THE YEAR. THESE CARS WERE USED BY BOTH THE DIRECTORS AS WELL AS TOP LEVEL MAN AGER PLACED AT AHEMDABAD & MUMBAI. HE FURTHER SUBMITS THAT IT IS A M ATTER OF COMMON KNOWLEDGE THAT THERE ARE HEAVY TAXES ON PURCHASE OF CAR IN THE NAME OF THE ENTITY AS AGAINST THE INDIVIDUAL. TH IS IS PRECISELY WHY THE ASSESSEE HAD PURCHASED CAR IN THE NAME OF ITS DIRECTORS AS WELL AS OTHER PERSONS. HOWEVER THE PAYMENTS THEREOF WERE MA DE BY THE COMPANY AND THE CARS WERE ALWAYS USED BY THE DIRECTORS OF THE COMPANY OR BY THE HIGHER LEVEL MANAGER FOR MEETING T HE CLIENTS ETC. THUS THE BENEFICIAL OWNERSHIP OF THE CAR LIES WITH THE APPELLANT COMPANY. THIS POSITION OF ASSESSEE COMPANY WAS PREVALENT I N THE EARLIER YEARS AND THE DEPRECIATION ON MOTORCAR AND INSU RANCE ETC. HAVE ALWAYS BEEN ALLOWED AS SUCH. IN ORDER TO SUBSTANTIATE T HE GENUINENESS OF THE CLAIM THE ASSESSEE COMPANY HAS ALSO SUBMITT ED BEFORE THE ASSESSING OFFICER THE REGISTRATION BOOKS COPY O F ACCOUNT OF MOTORCAR REPAIRS INSURANCE ETC. ALONGWITH SOME BILLS OF EXPENSES FOR VERIFICATION. HE FURTHER SUBMITS THAT THERE ARE FACTUAL MISTAKES IN THE ITA NOS.380 & 1456 & CO 168/M/09 A.Y:05-06 16 OBSERVATIONS MADE BY THE ASSESSING OFFICER. ACCORDING TO ASSESSI NG OFFICER MR. UDAY VORA DIRECTOR OF THE COMPANY HAS OFF ERED HIS INCOME RS.5 35 14 840/-. HOWEVER THE SAID INCOME IS MAINLY F ROM SHORT TERM CAPITAL GAINS AS OBSERVED BY THE LD. CIT(A) IN PARA 2.3 OF HIS ORDER ....THAT FROM THE COPY OF THE RETURN OF I NCOME OF MR. UDAY VORA IT IS CLEAR THAT THERE IS NO PERSONAL BUSINESS ACTI VITY AND THE INCOME IS ON ACCOUNT OF SHORT TERM CAPITAL GAIN OF APPROX IMATELY RS.5.00 CRORES FOR WHICH NO TRAVELLING EXPENSES ARE REQUI RED..... HE FURTHER SUBMITS THAT IN PARA 9.4 OF THE ASSESSMENT ORDER THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS NOT CLAIMED DEPRECI ATION ON THE HONDA CITY CAR WHEREAS AS PER ANNEXURE-A APPEARING AT PAGE 5 OF ASSESSEE'S PAPER BOOK THE ASSESSEE HAS CLAIMED DEPRECIATION ON ALL THE THREE CARS. HE FURTHER SUBMITS THAT MR. HASMUKH VORA IS SEN IOR EXECUTIVE OF THE COMPANY AND HE HAS USED THE CAR FOR THE PURPOSE OF ASSESSEE'S BUSINESS. HE THEREFORE SUBMITS THAT THE ASSESSEE HA S FURNISHED ALL THE DETAILS OF EXPENSES THEREFORE THE A DHOC DISALLOWANCE MADE BY THE ASSESSING OFFICER IS NOT SUSTAINABLE AND BE DE LETED. 19. IN ALTERNATIVE HE SUBMITS THAT ALL THE CARS ARE FALLING UNDER BLOCK OF ASSET THEREFORE THE ASSESSEE IS ENTITLED TO DEPRECIATI ON AND INDIVIDUAL ITEMS IN BLOCK CANNOT BE INVESTIGATED AND FO R THIS PREPOSITION THE RELIANCE WAS ALSO PLACED IN M/S. SWATI SYNTHETICS LTD. VS. ITO IN ITA NO.1165/M/2006 FOR THE ASSESSMENT YEAR 2001-02 ORDE R DATED ITA NOS.380 & 1456 & CO 168/M/09 A.Y:05-06 17 17.12.2009 AND FLUROSCENT FIXTURES (P.) LTD. VS. ITO ( 2009) 34 SOT 48 (MUM). HE ALSO PLACED ON RECORD THE ORDER OF THE TRIBU NAL IN SWATI SYNTHETICS LTD. (SUPRA). 20. ON THE OTHER HAND THE LD. DR WHILE RELYING ON T HE ORDER OF THE ASSESSING OFFICER AND THE LD. CIT(A) FURTHER SUBMITS THAT IN VIEW OF THE NEW PLEA TAKEN BY THE LD. COUNSEL FOR THE ASSESSEE AT TH IS STAGE THE ISSUE MAY BE SET ASIDE TO THE FILE OF THE ASSESSING OFFICER . 21. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE R IVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE ASSESSING OFFICER HAS MADE THE DISALLOWANCE OF DEPRECIATION OF MERCEDES BENZ CAR RS.3 50 860/- AND RS.95 973/- BEING 5 0% OF BALANCE AMOUNT OF DEPRECIATION CLAIMED RS.1 91 875/-. WE FURTHER FIND THAT IN PARA 9.4 OF THE ASSESSMENT ORDER REPRODU CED ABOVE HE MENTIONED THAT THE ASSESSEE HAS NOT CLAIMED DEPRECIATION O N HONDA CITY CAR WHEREAS AS PER ANNEXURE-5 OF ASSESSEE'S PAPER BOO K THE ASSESSEE HAS CLAIMED DEPRECIATION ON ALL THE THREE CARS IN CLUDING HONDA CITY CAR. WE FURTHER FIND THAT THE ASSESSING OFFICE R WITHOUT ANY COGENT REASONS HAS MADE DISALLOWANCE OF INSURANCE REPAIRS A ND MAINTENANCE. 22. IN SWATI SYNTHETICS (SUPRA) IT HAS BEEN HELD (PA RA 7.15): ITA NOS.380 & 1456 & CO 168/M/09 A.Y:05-06 18 THAT USE OF INDIVIDUAL ASSET FOR THE PURPOSE OF BUSINESS CAN BE EXAMINED ONLY IN THE FIRST YEAR WHE N THE ASSET IS PURCHASED. IN SUBSEQUENT YEARS USE OF BLO CK OF ASSETS IS TO BE EXAMINED. EXISTENCE OF INDIVIDUAL ASSET IN BLOCK OF ASSET ITSELF AMOUNTS TO USE FOR THE PURPOS E OF BUSINESS.. 23. RECENTLY IN CIT VS. SONAL GUM INDUSTRIES (2010)322 ITR 542 (GUJ.) IT HAS BEEN HELD (HEADNOTE ): HELD THAT ONCE THE FACTORY BUILDING WAS PUT TO USE IT WAS NOT POSSIBLE TO RESTRICT THE DEPRECIATI ON ON THE BUILDING BY STATING THAT ONLY A PORTION THEREOF HAD BEEN PUT TO USE. SIMILARLY IN RELATION TO THE BLOCK OF ASSETS IT IS NOT POSSIBLE TO SEGREGATE ITEMS FALLING WITHIN T HE BLOCK FOR THE PURPOSES OF GRANTING DEPRECIATION OR RESTRI CTING THE CLAIM THEREOF. ONCE IT WAS FOUND THAT THE ASSETS WE RE USED FOR BUSINESS IT WAS NOT NECESSARY THAT ALL TH E ITEMS FALLING WITHIN PLANT AND MACHINERY HAVE TO BE SIMULTANEOUSLY USED FOR BEING ENTITLED TO DEPRECIAT ION. THE ASSESSEE WAS ENTITLED TO DEPRECIATION ON THE BL OCK OF ASSETS FOR THE ASSESSMENT YEAR 1988-89. 24. THAT BEING SO AND KEEPING IN VIEW THAT THE ORDE R PASSED BY THE LD. CIT(A) IN THIS REGARD IS NOT A SPEAKING ORDER AND THE LEGAL PLEA TAKEN BY THE ASSESSEE AT THIS STAGE THAT THE ASSESSEE IS ENT ITLED TO DEPRECIATION AS PER BLOCK OF ASSET WITHOUT CONSIDERING INDIVIDUAL ITEMS IN THE BLOCK WE ARE OF THE VIEW THAT IN THE INTEREST OF JUSTICE THE MATTER SHOULD GO BACK TO THE FILE OF THE ASSESSING OFFICER AND ACCORDINGLY WE SET ASIDE THE ORDER PASSED BY THE REVENUE AUTHORITIES ON THIS ACCOUNT AND SEND BACK THE MATTER TO THE FILE OF THE ASSESSING OFFICER WHO SHALL DECIDE THE SAME AFRESH AND ACCORDING TO LAW AFTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO T HE ASSESSEE. THE ITA NOS.380 & 1456 & CO 168/M/09 A.Y:05-06 19 GROUND TAKEN BY THE ASSESSEE IS THEREFORE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO.1456/M/09 (A. Y. :2005-06)(REVENUES APPEAL) : 25. GROUND NO.1-5 ARE AGAINST THE DELETION OF DISALLO WANCE OF PENALTY TO BSE OF RS.2 95 054/-. 26. THE BRIEF FACTS OF THE ABOVE ISSUE ARE THAT IT WAS OBSERVED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS DEBITED RS.2 95 054/- AS PENALTY TO BSE UNDER THE HEAD STOCK EXCHANGE CHARG ES. THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY IT SHOULD NOT BE D ISALLOWED AS PER PROVISIONS OF EXPLANATION TO SECTION 37(1) OF THE ACT. IT WAS INTERALIA EXPLAINED BY THE ASSESSEE THAT THE ASSESSEE IS SUPPOSED TO COMPLY WITH THE VARIOUS REQUIREMENTS/COMPLIANCES FRAMED BY BSE AS PER THEIR RULES AND BYE-LAWS. THE PENALTY/FINE REPRESE NTS THE AMOUNT PAID FOR IRREGULARITIES OBSERVED DURING THE COURSE OF U SUAL PERIODICAL INSPECTION CARRIED OUT BY THE BSE. THE SAID FINE HAS BE EN LEVIED JUST TO ENSURE THE COMPLIANCE OF CERTAIN RECOMMENDATION DRAW N OUT BY THE BSE DURING THE SAID INSPECTION AND TO AVOID FUTURE IRR EGULARITIES. HENCE THE AMOUNT PAID IS COMPENSATORY IN NATURE AND PAI D FOR BREACH OF MODALITIES ASSOCIATED WITH BENCH MARK ACTIVITIES IT CA NNOT BE CONSIDERED AS PENAL IN NATURE AND ALLOWABLE AS BUSINESS EX PENDITURE. HOWEVER THE ASSESSING OFFICER AFTER CONSIDERING THE EXPLAN ATION TO ITA NOS.380 & 1456 & CO 168/M/09 A.Y:05-06 20 SECTION 37(1) AND CERTAIN DECISIONS OBSERVED THAT ALL THE RULES AND REGULATIONS LAY RESTRICTIONS ON THE FREEDOM OF TRADE AN D THEY JUST CANNOT BE IGNORED THEIR VIOLATIONS HOWSOEVER TRIVIAL OR TECHNICAL EVEN IF THEY HAVE BEEN TO OBTAIN MORE BUSINESS CANNOT BE CON SIDERED FOR THE PURPOSES OF BUSINESS AND ACCORDINGLY HE DISALLOWED PEN ALTY OF RS.2 95 054/- AND ADDED TO THE INCOME OF THE ASSESSEE. ON APPEAL THE LD. CIT(A) WHILE OBSERVING THAT STOCK EXCHANGES ARE NOT GOVERNMENT OR SEMI-GOVERNMENT BODIES BUT THEY ARE COM PANIES THE PAYMENTS MADE TO STOCK EXCHANGE FOR VIOLATION OF THEIR REGULATION ARE NOT EXPENDITURE WHICH ARE FOR ANY PURPOSE WHICH IS AN O FFENCE OR PROHIBITED BY LAW HENCE INVOCATION OF EXPLANATION T O SECTION 37(1) TOWARDS PAYMENT TO STOCK EXCHANGE AND DISALLOWANCE OF TH E CLAIM OF RS.2 95 054/- IS NOT CORRECT AND ACCORDINGLY DELETED THE DISALLOWANCE. 27. AT THE TIME OF HEARING THE LD. DR SUPPORTS THE O RDER OF THE ASSESSING OFFICER. 28. ON THE OTHER HAND THE LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET SUBMITS THAT THE IMPUGNED ISSUE IS COVERED IN FA VOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN ASSESSEE'S OWN CASE IN PARKLIGHT INVESTMENT PVT. LTD. VS. ITO IN ITA NO.65 6/MUM/08 FOR ASSESSMENT YEAR 2002-03 ORDER DATED 28.7.2009 WHEREIN T HE TRIBUNAL ITA NOS.380 & 1456 & CO 168/M/09 A.Y:05-06 21 VIDE PARA-6 OF ITS ORDER HAS DELETED THE SIMILAR DISALL OWANCE. HE ALSO PLACED ON RECORD THE COPY OF THE SAID ORDER OF THE TRIB UNAL. 29. HAVING CAREFULLY HEARD THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSING THE MATERIAL AVAILABLE ON RECORD WE FIND ME RIT IN THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN ASSESSEE'S OWN CASE SUPRA WHEREIN THE TRIBUN AL DELETED THE SIMILAR DISALLOWANCE BY FOLLOWING THE DECISION OF TH E CO-ORDINATE BENCH OF THE TRIBUNAL IN GOLDCREST CAPITAL MARKETS LTD . VS. ITO AND VICE VERSA IN ITA NO.1240 1241 1415 & 1416/M/2006 FOR ASSESSMENT YEARS 2002-03 AND 2003-04 ORDER DATED 21.1.2009 WHER EIN IT HAS BEEN HELD THAT THERE WAS NO VIOLATION OF LAW BY THE ASSESSEE AND THE FINE PAID WERE ONLY FOR NON-OBSERVATION OF INTERNAL REGULATIONS OF STOCK EXCHANGE. IN THE ABSENCE OF ANY DISTINGUISHING FEATURE BROUGHT ON RECORD BY THE REVENUE WE RESPECTFULLY FOLLOWING THE OR DER OF THE TRIBUNAL SUPRA HOLD THAT THERE WAS NO VIOLATION OF L AW BY THE ASSESSEE AND FINE/PENALTY PAID WERE ONLY FOR NON-OBSERVATION OF INTERNAL RULES AND REGULATIONS OF THE STOCK EXCHANGE AND ACCORDINGLY W E ARE INCLINED TO UPHOLD THE FINDING OF THE LD. CIT(A) IN DELETING THE SAME. THE GROUNDS TAKEN BY THE REVENUE ARE THEREFORE REJECTED . ITA NOS.380 & 1456 & CO 168/M/09 A.Y:05-06 22 30. GROUND NO.6 IS AGAINST DELETION OF DISALLOWANCE OF RS.4 20 872/- ON ACCOUNT OF INTEREST TO SEBI. 31. THE BRIEF FACTS OF THE ABOVE ISSUE ARE THAT ON VERI FICATION OF THE DETAILS OF TRANSACTION CHARGES PAID TO SEBI THE ASSESSING OFFICER NOTICED THAT THE AMOUNT OF TRANSACTION CHARGES OF RS.9 2 2 462/- INCLUDES RS.4 20 872/- AS INTEREST WHICH PERTAINS TO THE EARLIER YEARS. THE ASSESSING OFFICER AFTER CONSIDERING THE ASSESSEE'S REPLY A ND THE AMENDMENT DATED 16.12.1998 UNDER SEBI (BROKER AND S UB-BROKER) REGULATIONS 1992 WAS OF THE VIEW THAT THE INTEREST PAID TO SEBI ON ARREARS OF TURNOVER FEE CANNOT BE CONSIDERED AS TURNOVE R FEE ITSELF AND THEREFORE IT WILL NOT BE ALLOWED ON THE BASIS OF THE PAYMENT HAVING BEEN MADE IN THIS YEAR AND ACCORDINGLY DISALLOWED A SUM OF RS.4 20 872/- AND ADDED TO THE INCOME OF THE ASSESSEE. O N APPEAL THE LD. CIT(A) FOLLOWING THE RATIO OF DECISION OF HON BLE SUPREME COURT IN THE CASE OF MAHALAXMI SUGAR MILLS CO VS. CIT (1980) 123 ITR 429(SC) WHILE OBSERVING THAT THE INTEREST ON SEBI FEE PARTAKES THE CHARACTER OF SEBI FEES ITSELF AND IS THUS ALLOWABLE ON TH E BASIS OF ACTUAL PAYMENT U/S. 43B DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 32. THE LD. DR RELIED ON THE ORDER OF THE ASSESSING OF FICER. ITA NOS.380 & 1456 & CO 168/M/09 A.Y:05-06 23 33. ON THE OTHER HAND THE LD. COUNSEL FOR THE ASSESSEE SU BMITS THAT THIS ISSUE IS ALSO COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL THEREFORE TH E ORDER PASSED BY THE LD. CIT(A) BE UPHELD. 34. AFTER HEARING THE RIVAL PARTIES AND PERUSING THE MATERIAL AVAILABLE ON RECORD WE FIND THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL IN THE CASE OF WALLFORT SHARE & STOCK BROKERS PVT. LTD. VS. ITO AND VICE VERSA I N ITA NO.5958 AND 5984/MUM/2008 FOR THE ASSESSMENT YEAR 2005-06 ORDE R DATED 12.2.2010 IN WHICH ONE OF US (JM) WAS A PARTY WHER EIN IT HAS BEEN HELD VIDE PARA-11 OF THE ORDER AS UNDER : 11. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS O F THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABL E ON RECORD. WE FIND THAT THE FACTS ARE NOT IN DISPUTE INASMUCH AS ACCORDING TO SEBI (INTEREST LIABILITY REGULATIONS SCHEME) 2004 WHEREBY ONE TIME WAIVER WA S GIVEN TO THE BROKERS TO PAY ONLY 20% OF THE INTERES T ACCRUED SO FAR IN FULL AND FINAL SETTLEMENT OF THEI R DUES THE ASSESSEE HAS PAID INTEREST AMOUNTING TO RS 5 85 194/- TO SEBI. CO-ORDINATE BENCH OF THE TRIBU NAL IN ITO VS SURESHCHAND JAIN (2006) 284 ITR (AT) 160 (MU M) HAS HELD AT PAGE 161 OF THE HEAD NOTE AS UNDER: HELD ACCORDINGLY THAT IT WAS NOT A CASE WHERE A ONE-TIME LICENCE FEE OR CHARGE WAS REQUIRED TO BE PAID BY THE ASSESSEE. IT WAS A CASE WHERE A PARTICULAR PERCENTAGE OF TURNOVER WAS TO BE CHARGED AS TURNOVER CHARGES. THE TURNOVER CHARGES WERE IN THE NATURE OF TAX DUTY CESS OR FEES PAYABLE UNDER A LAW. NOTHING HAD BEEN BROUGHT ON RECORD TO PROVE THAT THE TURNOVER CHARGES WERE NOT PAYABLE UNDER THE LAW ENACTED BY THE CENTRAL GOVERNMENT. THEREFORE THE TURNOVER ITA NOS.380 & 1456 & CO 168/M/09 A.Y:05-06 24 CHARGES PAID BY THE ASSESSEE TO THE BOARD FELL WITHIN THE PURVIEW OF SECTION 43B. THE ABOVE DECISION HAS ALSO BEEN FOLLOWED IN ITO VS S S J FINANCE AND SECURITIES PVT LTD IN ITA NO.5981 AND 5982/MUM/2008 FOR AY 2005-06 ORDER DATED 2ND DECEMBER 2009 WHEREIN ONE OF US (JM) WAS A PARTY. IN THE ABSENCE OF ANY DISTINGUISHING FEATURE BROUGHT O N RECORD BY THE REVENUE WE RESPECTFULLY FOLLOWING TH E CONSISTENT VIEW OF THE TRIBUNAL HOLD THAT THE PAYME NT OF INTEREST MADE BY THE ASSESSEE AMOUNTING TO RS 5 85 194/- TO SEBI IS ALLOWABLE IN THE YEAR UNDER CONSIDERATION AND ACCORDINGLY WE ARE INCLINED TO U PHOLD THE FINDING OF CIT (A) IN DELETING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. GROUNDS TAKEN BY THE REV ENUE ARE THEREFORE REJECTED. IN THE ABSENCE OF ANY CONTRARY MATERIAL BROUGHT ON RECO RD BY THE REVENUE WE RESPECTFULLY FOLLOWING THE ORDER OF THE TR IBUNAL AND KEEPING IN VIEW THE RULE OF CONSISTENCY UPHOLD THE ORDE R OF THE LD. CIT(A) IN DELETING THE DISALLOWANCE OF INTEREST OF RS.4 20 872/- AND ACCORDINGLY THE GROUND TAKEN BY THE REVENUE IS REJECTED . 35. GROUND NO.7-13 ARE AGAINST THE DELETION OF DISALL OWANCE OF 3 14 381/- MADE IN RESPECT OF PAYMENTS MADE TO LEASE LI NE CHARGES TRANSACTION CHARGES AND V-SAT CHARGES. 36. THE BRIEF FACTS OF THE ABOVE ISSUE ARE THAT IT WAS FOUND BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS DEBITED RS.40 000/- A S V-SAT EXPENSES RS.69 811/- AS LEASE LINE CHARGES AND RS.2 04 570 /- AS TRANSACTION CHARGES UNDER THE HEAD STOCK EXCHANGE CHARGES. THE ASSESSEE WAS ASKED TO FURNISH DETAILS OF TDS ON THE ABOVE PAYMENTS ITA NOS.380 & 1456 & CO 168/M/09 A.Y:05-06 25 AND TO EXPLAIN AS TO WHY THE ABOVE AMOUNT SHOULD NOT BE DISALLOWED IN CASE OF NON-DEDUCTION OF TAX U/S.40(A)(IA) OF THE ACT. THE ASSESSING OFFICER AFTER CONSIDERING ASSESSEE'S EXPLANATION WAS OF THE VIEW THAT THE ABOVE PAYMENTS ARE NOT A STANDARDISED SERVICES BUT A VERY USER SPECIFIC SERVICE. JUST A FACT THAT THE SERVICES ARE RENDERED BY A COMPUTER SYSTEM OR NETWORK DOES NOT TAKE THEM OUT OF PU RVIEW OF A SERVICE AND ACCORDINGLY HE DISALLOWED THE SAME AND ADDED TO THE INCOME OF THE ASSESSEE FOR NON-DEDUCTION OF TAX AT SOURCE. ON APPEAL THE LD. CIT(A) FOLLOWING THE DECISION OF THE TRIBUNA L IN KOTAK SECURITIES LTD. VS. ADDL. CIT SINCE REPORTED IN (2009) 318 ITR(A T) 268(MUM.) DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 37. AT THE TIME OF HEARING BOTH PARTIES HAVE AGREED THAT THE ABOVE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN KOTAK SECURITIES LTD. VS. ADDL. CIT (S UPRA) THEREFORE THE ISSUE MAY BE DECIDED ACCORDINGLY. 38. HAVING CAREFULLY HEARD THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSING THE MATERIAL AVAILABLE ON RECORD WE FIND MER IT THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISI ON OF THE TRIBUNAL IN KOTAK SECURITIES LTD. VS. ADDL. CIT (SUPR A) WHEREIN IT HAS BEEN HELD THAT THE TRANSACTION FEE PAID CANNOT BE SAID TO BE A FEE PAID IN CONSIDERATION OF STOCK EXCHANGE RENDERING ANY TECHNICAL SERVICES ITA NOS.380 & 1456 & CO 168/M/09 A.Y:05-06 26 AND HENCE DISALLOWANCE U/S.40(A)(IA) OF THE ACT IS NOT I N ACCORDANCE WITH LAW. 39. RECENTLY IN DCIT VS. ANGEL BROKING LTD. (2010) 35 SOT 457 (MUM.) IT HAS BEEN HELD BY THE TRIBUNAL IN PARA-10 O F ITS ORDER DATED 9.12.2009 AS UNDER : 10. WE HAVE ALREADY GIVEN NATURE OF VSAT CHARGES A ND LEASE LINE CHARGES OTHER CHARGES BOLT CHARGES DE MAT CHARGES PAID BY THE ASSESSEE. STOCK EXCHANGES AS MEASURE OF PROVIDING INFRASTRUCTURE TO ITS MEMBERS INSTALLS VSAT LEASE LINE FACILITIES BOLT CHARGES AND DEMAT CHARGES TO ITS MEMBERS. FEES COLLECTED IN THI S REGARD IS NOTHING BUT FEE PAID FOR USE OF FACILITIE S PROVIDED BY THE STOCK EXCHANGE. SUCH FACILITIES ARE AVAILABL E FOR USE BY ANY MEMBER. SATELLITE BASED TRADING ENABLES TRADING MEMBER TO TRADE ON EXCHANGE FROM THEIR PLAC E OF WORK ACROSS THE COUNTRY. STOCK EXCHANGE HAS TO GET PERMISSION OF DEPARTMENT OF TELECOMMUNICATION FOR INSTALLING AND SETTING UP VSAT OR LEASE LINE SYSTEM . CHARGES LEVIED BY THE STOCK EXCHANGE ON ITS MEMBERS ARE FOR THE PURPOSE OF RECOVERY OF ITS COST IN PROVIDIN G THESE FACILITIES TO THE MEMBERS. STOCK EXCHANGES DO NOT P ROVIDE ANY TECHNICAL SERVICES BY INSTALLING VSAT NETWORK. IT IS THE FACILITY PROVIDED TO ITS MEMBERS SUCH PAYMENT CANNOT BE SAID TO BE NATURE OF FEES FOR ANY TECHNICAL SERV ICES RENDERED. STOCK EXCHANGES MERELY PROVIDE FACILITIES FOR ITS MEMBERS TO PURCHASE AND SELL SHARES WITHIN FRAME WO RK OF ITS BYE-LAWS. IT ALSO PROVIDES FOR A MECHANISM F OR SETTLEMENT OF DISPUTE BETWEEN THE BROKERS AND ITS CUSTOMERS. STOCK EXCHANGES DO NOT INVOLVE THEM IN PROVIDING ANY TECHNICAL SERVICES TO ANY OF ITS MEMB ERS. WE ARE OF THE VIEW THAT THIS RATIO OF HON'BLE MADRAS HIGH COURT WILL APPLY TO THE FACTS OF THE PRESENT CASE. THE ASSESSING OFFICER IN COMING TO THE CONCLUSION THAT THE PAYMENT WAS FOR FEE FOR TECHNICAL SERVICES HAS RELI ED ON THE FACT THAT THE SCREEN BASED TRADING IS SOPHISTIC ATED METHOD OF TRADING. THIS BY ITSELF WILL NOT BE SUFFI CIENT TO HOLDING TECHNICAL SERVICES BEING RENDERED. THE ASSE SSING OFFICER HAS ALSO HELD THAT SERVICES ARE NOT AVAILAB LE TO THE PUBLIC AT LARGE BUT ONLY TO REGISTERED MEMBERS AGA IN THIS BY ITSELF WILL NOT MAKE THE SERVICES IN QUESTION AS TECHNICAL SERVICES. ANOTHER REASON GIVEN BY THE ASS ESSING ITA NOS.380 & 1456 & CO 168/M/09 A.Y:05-06 27 OFFICER IS THAT SPEED AT WHICH TRANSACTIONS WERE COMPLETED AND THE EASE WITH WHICH TRANSACTIONS ARE DONE IN SCREEN BASED TRADING. THIS AGAIN IS NOT RELEVANT CRITERIA FOR HOLDING THAT THE SERVICES RENDERED WERE TECHNIC AL SERVICES. FACT THAT THE DATA PROVIDED ON SCREEN WIL L PROVIDE BETTER DATA FOR CARRYING OUT TRANSACTION WI LL NOT AGAIN BE SUFFICIENT TO HOLD THAT TECHNICAL SERVICES ARE BEING RENDERED. ALL THE ABOVE FEATURES PRESENT IN S CREEN BASED TRADING SAVES TIME. THIS IS THE RESULT OF IMP ROVED TECHNOLOGY. THAT DOES NOT MEAN THAT STOCK EXCHANGE IS PROVIDING TECHNICAL SERVICES. MEMBERS OF THE STOCK EXCHANGE AND THE PUBLIC AT LARGE ARE BENEFICIARIES OF THESE TECHNICAL IMPROVEMENTS. STOCK EXCHANGES ARE N OT THE OWNER OF THIS TECHNOLOGY TO PROVIDE THEM FOR A FEE TO PROSPECTIVE USE. THEY ARE THEMSELVES CONSUMERS OF T HE TECHNOLOGY. WE ARE THEREFORE OF THE VIEW THAT LEARN ED CIT(A) WAS RIGHT IN HOLDING THAT THE PAYMENT IN QUE STION IS NOT FEE FOR TECHNICAL SERVICES RENDERED. WE THER EFORE CONFIRM THE ORDER OF LEARNED CIT(A) AND DISMISS THI S APPEAL OF THE REVENUE. 40. IN THE ABSENCE OF ANY DISTINGUISHING FEATURE BROUGH T ON RECORD BY THE REVENUE WE RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL SUPRA HOLD THAT THE PAYMENT OF LEASELINE CHARGES TRA NSACTION CHARGES AND V-SAT CHARGES CANNOT BE CONSIDERED AS FEES FOR TECHNI CAL SERVICES RENDERED AND ACCORDINGLY WE ARE INCLINED TO UPHOLD THE ORDER OF THE LD. CIT(A) IN DELETING THE DISALLOWANCE MADE BY THE AO. THE GROUNDS TAKEN BY THE REVENUE ARE THEREFORE REJECTED. C.O. NO.168/M/09 (A.Y. 2005-06)(BY ASSESSEE): 41. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE A SSESSEE SUBMITS THAT ALL THE GROUNDS TAKEN IN THE C.O. ARE IN SUPPOR T OF THE ORDER PASSED BY THE LD. CIT(A) AND THERE IS NOW GROUND/PLEA TAKEN BY THE ITA NOS.380 & 1456 & CO 168/M/09 A.Y:05-06 28 ASSESSEE THEREFORE THE C.O. MAY BE DECIDED ACCORDINGLY W HICH WAS NOT OBJECTED TO BY THE LD. DR. 42. THAT BEING SO AND KEEPING IN VIEW OF OUR FINDIN G RECORDED IN REVENUES APPEAL SUPRA WE ARE OF THE VIEW THAT THE G ROUNDS TAKEN BY THE ASSESSEE IN THE CROSS OBJECTION DO NOT REQUIRE ANY FRESH ADJUDICATION AND ACCORDINGLY THE SAME ARE REJECTED. 43. IN THE RESULT ASSESSEE'S APPEAL STANDS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND REVENUES APPEAL AND ASSESSEES CROSS OBJECTION ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 21.5.2010. SD/- SD/- (T.R. SOOD) ( D.K. AGARWAL ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DATED:21.5.2010. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT CONCERNED MUMBAI THE CIT(A) CONCERNED MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR ITAT MUMBAI. ITA NOS.380 & 1456 & CO 168/M/09 A.Y:05-06 29 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 29.4.10 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 30.4.10 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON 21.5.10 SR.PS/PS 7. FILE SENT TO THE BENCH CLERK 24.5.10 SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER