PORECHA GLOBAL SECURITIES, MUMBAI v. DCIT WD 4(2), MUMBAI

ITA 1590/MUM/2010 | 2006-2007
Pronouncement Date: 04-04-2014 | Result: Partly Allowed

Appeal Details

RSA Number 159019914 RSA 2010
Assessee PAN AAACP6288N
Bench Mumbai
Appeal Number ITA 1590/MUM/2010
Duration Of Justice 4 year(s) 1 month(s) 2 day(s)
Appellant PORECHA GLOBAL SECURITIES, MUMBAI
Respondent DCIT WD 4(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 04-04-2014
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted C
Tribunal Order Date 04-04-2014
Date Of Final Hearing 11-12-2012
Next Hearing Date 11-12-2012
Assessment Year 2006-2007
Appeal Filed On 02-03-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH MUMBAI BEFORE SHRI R.C.SHARMA A M & DR.STM PAV A LAN J M ITA NO. 1590 / MUM/20 1 0 ( ASSESSMENT YEAR : 2006 - 07 ) M/S PORECHA GLOBAL SECURITIES PVT. LTD. PG - 14 RONTUNDA BLDG. STOCK EXCHANGE GR. FLOOR B.S.MARG MUMBAI - 400 023 VS. DCIT 4(2) MUMBAI PAN/GIR NO. : A A AC P 6288 N ( APPELLANT ) .. ( RESPONDENT ) AND ITA NO. 3105 / MUM/20 1 2 ( ASSESSMENT YEAR : 2008 - 0 9 ) M/S PORECHA GLOBAL SECURITIES PVT. LTD. PG - 14 RONTUNDA BLDG. STOCK EXCHANGE GR. FLOOR B.S.MARG MUMBAI - 400 023 VS . A CIT 4(2) MUMBAI PAN/GIR NO. : A AACP 6288 N ( APPELLANT ) .. ( RESPONDENT ) /ASSESSEE BY : MR. JAYANT BHATT /REVENUE BY : MR. O.P.SINGH & MR. M.L.PERUMAL DATE OF HEARING : 12 TH MARCH 201 4 DATE OF PRONOUNCEMENT : 4 TH APRIL 201 4 O R D E R PER R.C.SHARMA ( A .M.) : TH ESE TWO APPEALS HAVE BEEN FILED BY THE ASSESSEE AGAINST THE OF CIT(A) FOR THE ASSESSMENT YEAR S 2006 - 07 & 2008 - 09. ITA NO S . 1590 /2010 &3105 /20 1 2 2 2 . FIRST COMMON ISSUE IN BOTH THE YEARS RELATE TO DISALLOWANCE OF BROKERAGE OF RS. 15 LAKHS PAID BY THE ASSESSEE TO M/S PORECHA BROTHERS. THE FACTS IN BRIEF ARE THAT ASSESSEE IS A PRIVATE LIMIT ED COMPANY ESTABLISHED IN 1997 - 1998. THE ASSESSEE IS INTO SHARE BROKERING BUSINESS CONNECTED WITH MUMBAI STOCK EXCHANGE . EARLIER THIS BUS INESS WAS EXCLUSIVELY HELD BY M/ S PORECHA BROS. AS P ARTNERSHIP FIRM OR ORIGINAL FLAGSHIP CONCERN OF THE GROUP. THIS FIRM WAS CARD MEMBER OF STOCK EXCHANGE. THE PARTNERS THEN DECIDED TO CORPORATIZE THEIR BUSINESS AND HENCE ESTABLISHED THE PRIVATE LIMITED COMPANY. THE SAID PARTNERSHIP FIRM THEN TRANSFERRED THE CARD TO THE ASSESSEE COMPANY WITH THE TACIT UNDERSTANDING THAT THE FIRM WILL CONTINUE TO G ET THE BROKERAGE OR RATHER SUB - BROKERAGE FROM THE BUSINESS CONDUCTED BY THE ASSESSEE COMPANY WITH THE INSTITUTIONAL CLIENTS OF THE ERSTWHILE PARTNERSHIP FIRM. ACCORDINGLY THE BUSINESS IS BEING CARRIED OUT BY ASSESSEE COMPANY SINCE 1997 - 98 AND APPELLANT COM PANY HAS BEEN PAYING THE BROKERAGE TO ITS SISTER CONCERN THE PARTNERSHIP FIRM M / S PORECHA BROS. DURING THE YEAR UNDER APPEAL ASSESSEE COMPANY HAD TURNOVER OF RS. 1 70 36 691 / - COMPRISING OF INSTITUTIONAL CLIENTS AND RETAIL CLIENTS PLUS IT ALSO INCLUDES DI SCOUNT SERVICE TAX AND INTEREST . THE ASSESSEE ALSO BOOKED GROSS INCOME IN THE FORM OF BROKERAGE OF RS. 1 56 08 090 1 - AND OTHER INCOME RS . 14 28 601 / - . AS AGAINST THIS THE ASSESSEE HAD PAID SUB - BROKERAGE TO THE TUNE OF RS. 51.98.835 / - WHICH WAS DEDUCTED FRO M T HE GROSS INCOME ALONG WITH SERVICE TAX PAID TO THE TUNE OF RS 16 02 892 / - AND ITA NO S . 1590 /2010 &3105 /20 1 2 3 THE NET INCOME FROM BROKERAGE OF RS. 99.74 520 / - WAS SHOWN IN THE PROFIT &B LOSS A / C. OUT OF THE BROKERAGE SO PAID A SUM OF RS. 15 LACS WAS PAID TO M/S PORECHA BROTHERS. HOWEVE R THE AO DECLINED BROKERAGE OF RS. 15 LACS PAID TO M/S PORECHA BROTHERS BY STATING THAT THE PROFIT AND LOSS ACCOUNT OF PARTNERSHIP FIRM M/S PORECHA BROTHERS HAS VERY LOW INCOME . THE AO DISCUSSED REGARDING PROFIT OF PARTNERSHIP FIRM AND ITS GROSS RECEIPTS A ND THEREAFTER DISALLOWED THE PAYMENT MADE TO M/S PORECHA BROTHERS AND THE ACTION OF THE AO WAS CONFIRMED BY THE CIT(A). ASSESSEE IS IN FURTHER APPEAL BEFORE US. 3 . WE HAVE CONSIDERED RIVAL CONTENTIONS CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND FOUND FROM RECORD THAT BROKERAGE WAS PAID FOR THE SERVICES RENDERED BY THE PARTNERSHIP FIRM IN CONNECTION TO PROCUREMENT INSTITUTIONAL CLIENTS. D ETAILS OF SERVICES RENDERED ALONG WITH THE LIST OF INSTITUTIONAL CLIENTS WERE ALSO PLACED ON RECORD . THE ASSESSEE COMPANY HAS DEDUCTED TAX AT SOURCE OUT OF SUCH BROKERAGE PAID TO M/S PORECHA BROTHERS P AYMENT WAS MADE BY ACCOUNT PAYEE CHEQUE AND THE SAME WAS PROVED BY NECESSARY DOCUMENTATION . NEITHER EXPENSES NOR THE RECIPIENT OF PAYMENT WAS IN DOUBT NOR IDENTITY OF THE RECIPIENT . WE FOUND THAT THE ASSESSEE COMPANY HAS TAKEN OVER THE MEMBERSHIP CARD OF PARTNERSHIP AND AS PER THE UNDERSTANDING THEY WERE SUPPOSED TO PAY BROKERAGE TO THE SAID PARTNERSHIP FIRM. WE FOUND THAT IN THE SCRUTINY ASSESSMENT FOR THE ASSESSMENT YEAR 2005 - 06 SIMILAR CLAIM OF PAYMENT WAS ACCEPTED BY THE DEPARTMENT . THERE IS NO CHANGE IN THE FACTS AND CIRCUMSTANCES OF ITA NO S . 1590 /2010 &3105 /20 1 2 4 THE CASE DURING THE YEAR. THERE IS NO MATERIAL ON RECORD TO SUGGEST THAT PARTNERSHIP FIRM HAS NOT RENDERED ANY SERVICES TO THE ASSESSEE COMPANY RATHER AS PER MATERIAL PLACED ON RECORD THE PARTNERSHIP FIRM HAS PUT LOT OF EFFORTS IN BUILDING UP CLIENTELE BASE AS PER THE UNDERSTANDING THEY WERE ENTITLED TO THESE BROKERAGE. THE ALLEGATIONS MADE BY THE AO THAT PORECHA BROTHERS HAVE LOW INCOME ARE MERE CONJECTURE AND SURMISES. THERE IS NO DISPUTE TO THE FACT THAT PAYMENT OF BROKERAGE WAS MADE TO M/S PRORECHA BROTHERS WHO COMES UNDER MISCHIEF OF SECTION 40 A(2)(B ) AS THE DIRECTORS ARE COMMON PARTNER. EVEN WHILE DISALLOWING PAYMEN T MADE TO A CONCERN FALLING UNDER SECTION 40 A(2)(B) ONUS IS ON THE REVENUE TO PROVE THAT CONSIDERATION PAID BY THE ASSESSEE IS IN EXCESS OF THE FAIR MARKET VALUE OF THE SERVICES FOR WHICH SUCH CONSIDERATION IS PAID. MEANING THEREBY IF THE AO BRINGS SOMETH ING ON RECORD TO PROVE THAT ASSESSEE HAS PAID SOMETHING MORE TO ITS SISTER CONCERN WHICH IS IN EXCESS OF WHAT IS BEING PAID IN THE OPEN MARKET FOR THE SIMILAR SERVICES THEN TO THE EXTENT OF SUCH EXCESS PAYMENT DISALLOWANCE IF ANY CAN BE MADE UNDER S ECTION 40 A ( 2 ). IN THE INSTANT CASE WE FOUND THAT THERE WAS PROPER DOCUMENTATION IN THE FORM OF AGREEMENT BETWEEN THE ASSESSEE COMPANY AND PARTNERSHIP FIRM WHICH IS ALSO BACKED BY THE MINUTES OF THE MEETINGS OF THE BOARD OF DIRECTORS OF THE ASSESSEE COMPA NY. THERE IS ALSO MATERIAL ON RECORD TO SUGGEST THAT FIRM HAS GIVEN THE SERVICES TO THE ASSESSEE AND HAS BEEN FORWARDING ITS REPORT AND RECOMMENDATIONS. EVEN THOUGH IT WAS ALLEGED BY THE AO THAT SUCH ITA NO S . 1590 /2010 &3105 /20 1 2 5 REPORT S BEAR THE NAME OF ASSESSEE COMPANY IT WAS REPLY OF THE ASSESSEE THAT SINCE THESE REPORTS ARE TO BE FORWARDED TO THE CLIENTS OF THE ASSESSEE COMPANY THEREFORE THESE REPORTS BEAR THE NAME OF ASSESSEE COMPANY. HOWEVER THE FACT CANNOT BE DENIED THAT THESE REPORTS WERE PREPARED BY THE PEOPLE ATTACHED TO T HE PARTNERSHIP FIRM. CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE VIS - - VIS KIND OF SERVICES RENDERED WE DEEM IT APPROPRIATE TO ALLOW THE BROKERAGE TO THE PARTNERSHIP FIRM TO THE EXTENT OF RS. 12 LAKHS IN EACH OF THE YEAR AS AGAINST RS. 15 LAKHS PAID BY THE ASSESSEE. THUS THE GROUND TAKEN BY THE ASSESSEE IN BOTH THE YEARS ARE ALLOWED IN PART IN TERMS INDICATED HEREINABOVE. 4 . THE NEXT GRIEVANCE OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2008 - 09 RELATE TO ENHANCEMENT OF CAPITAL GAIN OFFER ED BY THE ASSESSEE ON SALE OF SHARES OF BOMBAY STOCK EXCHANGE. FACTS IN BRIEF ARE THAT THE BUSINESS OF STOCK EXCHANGE WAS EARLIER TAKEN CARE OF BY M/S PORECHA BROTHERS AS PARTNERSHIP FIRM. THIS FIRM WAS CARD HOLDER OF BOMBAY S TOCK E XCHANGE. THE PARTNERS O F THE FIRM THEN DECIDED TO CORPORAT IZATION THEIR BUSINESS AND HENCE ESTABLISHED THE PRESENT COMPANY. THE SAID PARTNERSHIP FIRM THEN TRANSFERRED THE CARD TO THE ASSESSEE COMPANY IN THE FINANCIAL YEAR 1997 - 98 . THIS A CTION WAS TAKEN TO TAKE THE ADVANTAGE OF SCHEME INTRODUCED BY THE FINANCE MINISTRY FOR WAVER OF CAPITAL GAINS ON TRANSFER OF BSE CARD TO THE CORPORATE ENTITY BY THE EXISTING CARD HOLDER BROKERAGE FIRMS. THEREAFTER PURSUANT TO THE SCHEME FOR DEMUTUALIZATION OF THE STOCK EXCHANGES APPROVED BY ITA NO S . 1590 /2010 &3105 /20 1 2 6 SEB I THE ASSESSEE COMPANY WAS ALLOTTED ON 21 ST JANUARY 2006 10 000 SHARES IN BSE LTD. IN LIEU OF MEMBERSHIP HELD IN BOMBAY STOCK EXCHANGE IN ACCORDANCE WITH THE BSE (CORPORATIZATION AND DEMUTUALIZATION) SCHEME 2005 . SECTION 47(XIIIA) OF INCOME - TAX ACT 1 961 PROVIDES THAT TRANSFER OF A CAPITAL ASSET BEING MEMBERSHIP RIGHT OF RECOGNIZED STOCK EXCHANGE IN INDIA FOR ACQUISITION OF SHARES AND TRADING AND CLEARING RIGHTS IN THAT STOCK EXCHANGE IN ACCORDANCE WITH A SCHEME FOR DEMUTUALIZATION AND CORPORATIZATION WHICH IS APPROVED BY SEBI SHALL NOT BE REGARDED AS A TRANSFER. DURING THE YEAR UNDER CONSIDERATION IN MAY 2007 THE ASSESSEE COMPANY HAS TRANSFERRED 9 123 SHARES OF BSE LTD. AS T HE ASSESSEE COMPANY HAS TAKEN THE STOCK EXCHANGE CARD FROM THE PARTNERSHIP F IRM IN THE YEAR 1997 THE PRICE PAID BY IT WAS TAKEN AS THE BASIS FOR COMPUTING THE INDEXED COST OF ACQUISITION AND ACCORDINGLY LONG TERM CAPITAL GAIN WAS OFFERED BY THE ASSESSEE. HOWEVER THE CIT(A) HELD THAT SINCE THE SHARES WERE ALLOTTED TO THE ASSESSEE COMPANY IN JANUARY 2006 THE ASSESSEE IS ELIGIBLE FOR INDEXATION ONLY FROM JANUARY 2006 AND NOT FROM THE YEAR IN WHICH STOCK EXCHANGE CARD WAS TRANSFERRED IN THE NAME OF THE ASSESSEE COMPANY. THERE IS NO JUSTIFICATION IN THE ACTION OF THE CIT(A) FOR ALL OWING INDEXATION FROM THE YEAR 2006 INSOFAR AS ASSESSEE COMPANY HAS TAKEN THE MEMBERSHIP CARD FROM PARTNERSHIP FIRM IN THE YEAR 1997 THE COST PAID BY THE ASSESSEE COMPANY TO THE PARTNERSHIP FIRM IS ELIGIBLE FOR INDEXATION FROM THE YEAR 1997 AND NOT THE Y EAR 2006 AS PER PROVISIONS OF SECTION 55 (2)(B) R.W. CLAUSE (III) OF EXPLANATION TO SECTION ITA NO S . 1590 /2010 &3105 /20 1 2 7 48. NOW WE TAKE THE DECISION RELIED UPON BY THE LEARNED DR IN THE CASE OF M/S D.J.SHAH SECURITIES PVT. LTD. PASSED IN ITA NO. 2314/ MUM/2012 VIDE ORDER DATED 22 - 1 1 - 2013 WHEREIN I T WAS HELD THAT INDEXED COST IS TO BE COMPUTED WITH REFERENCE TO THE WDV OF THE STOCK EXCHANGE CARD ON WHICH THE ASSESSEE HAS ALREADY CLAIMED DEPRECIATION . HOWEVER IN THE INSTANT CASE BEFORE US IT IS NOT THE CASE OF THE DEPARTMENT THAT ASSESSEE HAS CLAIMED ANY DEPRECIATION ON THE STOCK EXCHANGE CARD HELD BY IT. WHEN NO DEPRECIATION HAS BEEN CLAIMED THERE IS NO REASON TO ALLOW DEDUCTION O F SUCH DEPRECIATION OUT OF THE ORIGINAL COST PAID BY THE ASSESSEE COMPANY. ACCORDINGLY THE DECISION CITED BY THE LEARNED DR IS OF NO HELP TO THE REVENUE INSOFAR AS IT NOWHERE SUGGESTS THAT INDEXATION IS TO BE ALLOWED ONLY FROM THE YEAR IN WHICH SHARES WERE ALLOTTED IN LIEU OF STOCK EXCHANGE CARD. ACCORDINGLY THERE IS NO INFIRMITY IN THE ACTION OF THE A SSESSEE IN CLAIMING INDEXATION FROM THE YEAR 1997 WHILE COMPUTING CAPITAL GAINS ON TRANSFER OF SHARES OF BSE LTD. ACCORDINGLY WE ALLOW THE GROUND TAKEN BY THE ASSESSEE WITH REGARD TO THE COMPUTATION OF LONG TERM CAPITAL GAIN ON SALE OF SHARES OF BSE LTD. 5 . IN THE RESULT APPEAL S OF THE ASSESSEE ARE ALLOWED IN PART . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 4 TH APRIL . 201 4 . 4 TH APRIL 2014 SD/ - SD/ - ( ) ( DR. S.T.M.PAV A LAN ) ( ) ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED 04 / 0 4 /2014 ITA NO S . 1590 /2010 &3105 /20 1 2 8 /PKM PS COPY OF THE ORDER FORWARDED TO : / BY ORDER ( ASSTT. REG ISTRAR) / ITAT MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A) MUMBAI. 4. / CIT 5. / DR ITAT MUMBAI 6. GUARD FILE. //TRUE COPY//