STRATCAP SECURITIES INDIA P.LTD, MUMBAI v. DCIT 4(2), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL 'F' BENCH MUMBAI BEFORE SHRI S.V. MEHROTRA ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO JUDICIAL MEMBER ITA NO. 2405/MUM/2010 (ASSESSMENT YEAR: 2006-07) M/S. STRATCAP SECURITIES (I) P. LTD. DCIT - 4(2) 44 MINT ROAD FORT MUMBAI MUMBAI 400001 VS. PAN - AAACS 7113 H APPELLANT RESPONDENT APPELLANT BY: SHRI VIMAL PUNMIYA RESPONDENT BY: SHRI P.C. MAURYA O R D E R PER S.V. MEHROTRA A.M. THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF THE CIT(A)-VIII MUMBAI DATED 11.02.2009 FOR A.Y. 2006-07. 2. THE ASSESSEE IN THE RELEVANT ASSESSMENT YEAR WAS ENGAGED IN THE BUSINESS OF SECURITY BROKING MUTUAL FUND DISTRIBUT ION AND MERCHANT BANKING SERVICES. IT HAD FILED ITS RETURN OF INCOME DECLARING TOTAL INCOME AT ` 3 50 65 935/-. THE ASSESSMENT WAS COMPLETED AT A TO TAL INCOME OF ` 4 50 55 526/- INTER ALIA MAKING FOLLOWING DISALLO WANCES: I) DISALLOWANCE UNDER SECTION 40(A)(IA) ` 5 89 168/- R.W.S. 194J II) CAPITALIZATION OF EXPENDITURE ON LEASED PREMIS ES ` 20 71 363/- III) SPECULATION LOSS PRIOR TO 25 TH JANUARY 2006 ` 5 12 033/- 3. BEING AGGRIEVED BY THE ORDER OF THE LEARNED CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US AND HAS TAKEN THE FOLLOWING GROUND S OF APPEAL: - 1. THE LD COMMISSIONER OF INCOME TAX (A0 ERRED IN DIRECTING THE ASSESSING OFFICER TO VERIFY THE PAYMENT OF TDS WITH RESPECT TO THREE PARTIES REGARDING ADDITION MADE OF RS.5 89 61 8/- TOWARDS THE NON-DEDUCTION OF TDS ON PAYMENTS MADE U/S. 40(A )(IA) R.W.S. 194J EVEN WHEN ALL SUPPORTING EVIDENCES WERE FILED BEFORE HIM. ITA NO. 2405/MUM/2010 M/S. STRATCAP SECURITIES (I) P. LTD. 2 2. THE LD. COMMISSIONER OF INCOME TAX (A) ERRED IN CONFIRMING AND TREATING THE REVENUE EXPENDITURE AS CAPITAL EXPENDI TURE ON OFFICE BUILDING OF RS.20 71 363/- AND CAPITALIZED AS FITTI NG TO THE BUILDING AND THE LD. COMMISSIONER OF INCOME TAX (A) ERRED IN ALLOWING ONLY RS.30 000/- TOWARDS AMC CONTRACT EXPE NSE OF STAR TECH COMMUNICATION AS REVENUE EXPENSES AND TRE ATED THE REST OF THE EXPENSES FOR RENOVATION AND NOT FOR CUR RENT REPAIR AND THEREBY CONFIRMED THE ADDITION OF RS.18 66 127/- AF TER ALLOWING DEPRECIATION. 3. THE ASSESSEE HAS INCURRED A LOSS OF RS.5 07 033/ - WHICH IS TREATED AS SPECULATIVE IN NATURE ` 5 000/- IS ESTIMATED TO EARN THE INCOME. THE LD. COMMISSIONER OF INCOME TAX (A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.5 12 033/- SPECUL ATION LOSS PRIOR TO 25.01.2006 AND CARRIED FORWARD THE SAME. 4. THE LD. COMMISSIONER OF INCOME TAX (A) ERRED IN CONFIRMING THE INTEREST U/S. 234A 234B 234C AND 234D OF THE INCO ME TAX ACT 1961. 5. THE LD. COMMISSIONER OF INCOME TAX (A) ERRED IN CONFIRMING THE PROVISIONS OF SECTION 271(1)(C) OF INCOME TAX ACT 1961. 4. THE BRIEF FACTS APROPOS GROUND NO. 1 ARE THAT THE A .O. NOTICED THAT THE ASSESSEE HAD SUBSCRIBED TO THE SERVICES OF THE FOLL OWING PROFESSIONAL AGENCIES WHICH WERE IN THE BUSINESS OF COLLECTING COLLATING AND ANALYSING OF SUCH INFORMATION WHICH FORMED THE BASIS OF DECISION MAKING: - I) BLOOM BERG DATA SERVICES II) INDIAN QUOTATION SYSTEMS III) FINANCIAL TECHNOLOGIES 5. BEFORE THE LEARNED CIT(A) IT WAS POINTED OUT THAT I N FACT THE ASSESSEE HAD DEDUCTED TDS AND PAID THE SAME. HE THEREFORE DIRECTED THE A.O. TO VERIFY THE PAYMENT OF TDS WITH RESPECT TO THESE THR EE PARTIES AND ALLOW THE SAME ACCORDINGLY. 6. AFTER HEARING BOTH THE PARTIES WE FIND NO REASON TO INTERFERE WITH THE FINDINGS OF THE LEARNED CIT(A) AS HE HAS GIVEN CLEA R DIRECTIONS TO THE A.O. FOR VERIFICATION OF TDS. WE REITERATE THESE DIRECTIONS OF THE LEARNED CIT(A) AND RESTORE THE MATTER TO THE FILE OF THE A.O. TO VERIF Y THE PAYMENT OF TDS WITH RESPECT TO THESE THREE PARTIES AND ALLOW THE SAME A CCORDINGLY. IN THE RESULT THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. ITA NO. 2405/MUM/2010 M/S. STRATCAP SECURITIES (I) P. LTD. 3 7. THE BRIEF FACTS APROPOS GROUND NO. 2 ARE THAT THE A .O. NOTICED THAT THE ASSESSEE HAD MADE EXCESSIVE ADDITIONS IN THE RENTED OFFICE PREMISES LOCATED AT MARSHALL HOUSE. THE TOTAL EXPENDITURE IN THE TWO YEARS WAS AS UNDER: - A.Y. 2005-06 ` 1 34 62 000 A.Y. 2006-07 ` 36 27 835 TOTAL ` `` ` 1 70 89 835 8. HE NOTICED THAT THE ASSESSEE HAD INCURRED EXPENDITU RE ON OFFICE BUILDINGS ALREADY IN USE AND ALSO AT THE LEASED PRE MISES I.E. MARSHALL HOUSE. THE DETAILS OF AMOUNT EXPENDED AT MARSHALL H OUSE WERE AS UNDER: - S. NO. PARTY NAME BUILDING AMOUNT (RS.) DATE ADMISSIBLE DEPRECATION 1 METRO ART FURNISHES MARSHALL HOUSE 42 525 29.06.05 6 379 2 ASHISH BUILDWELL MARSHALL HOUSE 1 93 696 23.07.05 29 095 3 ASHISH BUILDWELL MARSHALL HOUSE 58 628 16.09.08 8 794 4 ASHISH BUILDWELL MARSHALL HOUSE 42 442 27.10.08 3 183 5 SHARP ELECTRICALS MARSHALL HOUSE 1 87 396 22.02.06 14 055 6 METRO ART MARSHALL HOUSE 12 62 949 03.03.06 94 721 7 SHARP ELECTRICAL WORK MARSHALL HOUSE 2 53 454 03.03.06 19 009 8 STAR TECH COMMUNICATION MARSHALL HOUSE 30 000 28.03.06 2 250 TOTAL 20 71 363 1 77 486 HE NOTED THAT THE WORK DONE DURING THE YEAR WAS OF SIMILAR NATURE AS WAS DONE IN THE PREVIOUS YEAR ON THE SAME PROPERTY. HE POINTED OUT THAT IT WAS CONTINUATION OF WORK DONE ON THE SAME PREMISES. HE NOTED THAT THE ASSESSEE AFTER GETTING THE PROPERTY ON LEASE HAD DONE EXCESSIVE REMODELLING OF THE STRUCTURE TO SUITE TO HIS NEEDS. APART FROM THIS EXCESSIVE ELECTRIC WORK OF FIBRE OPTIC CABLE NET WORK HAD ALSO BEEN LAID TO SUITE ASSESSEES NEED WHICH WAS CARRIED OUT DURING THE YEAR UNDER CONSIDE RATION ALSO. HE CONCLUDED THAT THE EXPENDITURE INCURRED BROUGHT INT O EXISTENCE A NEW FURNISHED ASSET IN TERMS OF BUILDING WHICH PROVIDED AN ENDURING BENEFIT TO THE ASSESSEE. ASSESSEE HAD CREATED A NEW WELL FURNI SHED OFFICE ACCORDING TO ITA NO. 2405/MUM/2010 M/S. STRATCAP SECURITIES (I) P. LTD. 4 HIS NEEDS. HE THEREFORE CONCLUDED THAT THE EXPEND ITURE WAS CAPITAL IN NATURE AND IN VIEW OF EXPLANATION 1 TO SECTION 32 A LLOWED DEPRECIATION BY TREATING THE AMOUNT AS FITTINGS TO THE BUILDING @15 % AND 7.5% RESPECTIVELY. THE LEARNED CIT(A) AFTER EXAMINING THE BILLS CONCL UDED THAT THE AMC CONTRACT EXPENSES OF STAR TECH COMMUNICATION OF ` 30 000/- WAS ALLOWABLE AS REVENUE EXPENDITURE. 9. THE LEARNED COUNSEL SUBMITTED THAT THE ASSESSEE HAS TAKEN THE PREMISES ON LEASE FOR 4 YEARS AND HAD REMODELLED TH E OFFICE PREMISES TO SUITE TO HIS BUSINESS REQUIREMENTS. HE SUBMITTED THAT IN BOMBAY AFTER EVERY MONSOON EXTENSIVE REPAIRS HAVE TO BE CARRIED OUT IN ORDER TO PROTECT THE BUILDING FROM SEEPAGE ETC. HE REFERRED TO PAGE 111 OF THE PAPER BOOK WHEREIN THE DETAILS OF REPAIRS AND MAINTENANCE ARE GIVEN. 10. THE LEARNED D.R. SUBMITTED THAT ALL THE AMOUNTS SPE NT ARE OF CAPITAL IN NATURE. 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSE D THE RECORD. AS PER SECTION 30 CLAUSE (A)(1) WHERE THE PREMISES ARE OCCUPIED BY THE ASSESSEE AS A TENANT AND HE HAD UNDERTAKEN TO BEAR THE COST OF REPAIRS TO THE PREMISES THE AMOUNT PAID ON ACCOUNT OF SUCH REPAIR S IS TO BE ALLOWED AS DEDUCTION. HOWEVER EXPLANATION TO SECTION N30 READ S AS UNDER: - [EXPLANATION.FOR THE REMOVAL OF DOUBTS IT IS HERE BY DECLARED THAT THE AMOUNT PAID ON ACCOUNT OF THE COST OF REPAIRS R EFERRED TO IN SUB- CLAUSE (I) AND THE AMOUNT PAID ON ACCOUNT OF CURRE NT REPAIRS REFERRED TO IN SUB-CLAUSE (II) OF CLAUSE (A) SHALL NOT INC LUDE ANY EXPENDITURE IN THE NATURE OF CAPITAL EXPENDITURE.] THUS IF THE EXPENDITURE IS IN CAPITAL FIELD DEDUCT ION CANNOT BE ALLOWED AND ONLY IN TERMS OF EXPLANATION 1 TO SECTION 32(1) DEP RECIATION CAN BE ALLOWED. 12. THE LEARNED COUNSEL RELIED ON VARIOUS CASE LAWS WHI CH ARE PRIOR TO THE INSERTION OF THE EXPLANATION AND THEY ARE OF NO HEL P TO THE ASSESSEE. NOW WE HAVE TO EXAMINE THE NATURE OF THE EXPENSES INCURRED . THE FIRST BILL AT PAGE NO.111 IS OF METRO ART WHICH HIS MAINLY FOR PROVID ING AND FIXING DOORS IN THE TOILET MID-OFFICE AND SERVER ROOM. THUS IT IS CLEARLY IN CAPITAL FIELD. THE SECOND BILL IS OF ASHISH BUILDWELL WHICH IS IN RES PECT OF DEMOLITION WORK FOR ` 1 93 698/- AND IS ENTIRELY IN THE CAPITAL FILED. NE XT TWO BILLS ALSO BELONGS TO ITA NO. 2405/MUM/2010 M/S. STRATCAP SECURITIES (I) P. LTD. 5 ASHISH BUILDWELL FOR BREAKING OLD FLOORING REPLACI NG WITH INDIAN PALTI STONE FLOORING AND PROVIDING STEEL BEAMS ETC. WHICH ARE ALSO CAPITAL IN NATURE. THE FIFTH AND SEVENTH BILLS OF SHARP ELECTRICAL WORKS ARE FOR ELECTRICAL WORKS SUCH AS WIRING AND ELECTRICAL FITTINGS AND SUPPLY A ND INSTALLATION OF CABLES FOR DATA AND VOICE . THIS IS ALSO IN CAPITAL FIELD. THE BILL OF METRO ART DATED 03.03.2006 IS FOR REMODELLING OF THE OFFICE. THUS P RIMARILY THE EXPENDITURE WAS IN CAPITAL FIELD. HOWEVER THE LEARNED COUNSEL SUBMITTED THAT ON ACCOUNT OF HEAVY MONSOON EVERY YEAR ASSESSEE HAS TO CARRYOU T EXTENSIVE REPAIRS AND THEREFORE KEEPING IN VIEW THE ENTIRETY OF FACTS AND CIRCUMSTANCES OF THE CASE WE ARE OF THE OPINION THAT 10% OF THE EXPENSES TREA TED AS CAPITAL IN NATURE BY THE LEARNED CIT(A) HAVE TO BE FURTHER ALLOWED AS IN REVENUE FIELD. WE DIRECT ACCORDINGLY. IN THE RESULT THIS GROUND IS P ARTLY ALLOWED. 13. BRIEF FACTS REGARDING GROUND NO. 3 ARE THAT TAKING NOTE OF BOARDS NOTIFICATION NO. 89(E) DATED 27 TH JANUARY 2006 THE A.O. OBSERVED THAT DERIVATIVES TRANSACTIONS AFTER 26 TH JANUARY 2006 CANNOT BE TREATED TO BE SPECULATIVE IF THEY WERE ELIGIBLE TRANSACTIONS CARR IED OUT ON RECOGNISED STOCK EXCHANGE. HE NOTED THAT THE ASSESSEE HAD INCURRED A LOSS OF ` 5 07 033/- PRIOR TO 25 TH JANUARY 2006 AND THEREFORE THE SAME HAD TO BE TREA TED AS SPECULATIVE IN NATURE. HE ALLOCATED ` 5 000/- OUT OF THE EXPENSES TOWARDS EARNING OF THE INCOME AND THUS MADE DISALLOWANCE OF ` 5 12 033/-. THE LEARNED CIT(A) DISMISSED ASSESSEES APPEAL ON THIS ISSUE. 14. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THERE WAS NO LOSS UP TO 25 TH JANUARY 2006 AND THEREFORE THE FINDING RECORDED BY THE A.O. IS NOT CORRECT. IN THIS REGARD THE LEARNED COUNSEL REF ERRED TO PAGE 124 TO 126 OF THE PAPER BOOK WHEREIN THE SUB-TOTAL FROM 2 ND AUGUST 2005 TO 24 TH JANUARY 2006 IN REGARD TO VARIOUS DERIVATIVES TRANSACTIONS IS CONTAINED WHICH SHOWS THAT THERE WAS PROFIT OF ` 5 07 033/-. HE FURTHER REFERRED TO PAGE 1226 & 127 TO DEMONSTRATE THAT FROM 26 TH JANUARY 2006 TO 31 ST MARCH 2006 THERE WAS DERIVATIVES LOSS OF ` 50 24 263/-. THE LEARNED COUNSEL FURTHER SUBMITTED THAT SINCE THERE WAS BUSINESS LOSS OF ` 50 24 263/- THE SAME CAN BE ADJUSTED AGAINST SPECULATIVE GAIN OF ` 5 07 033/-. ITA NO. 2405/MUM/2010 M/S. STRATCAP SECURITIES (I) P. LTD. 6 15. THE LEARNED D.R. SUBMITTED THAT THE SPECULATIVE PRO FIT IS TO BE TAXED SEPARATELY AND CANNOT BE SET OFF AGAINST BUSINESS L OSS. 16. WE HAVE CONSIDERED THE RIVAL SUBMISSION AND PERUSED THE RECORD. WE FIND THAT AO PROCEEDED ON WRONG PRESUMPTIONS BY TRE ATING THE SUM OF ` 5 07 033/- AS SPECULATIVE LOSS WHEN ACTUALLY AS PE R ASSESSEE IT WAS SPECULATIVE GAIN. THEREFORE THE MATTER NEEDS TO GO BACK TO THE FILE OF THE A.O. FOR DE NOVO ADJUDICATION OF THIS ISSUE AFTER VERIFY ING THE FACT IN ACCORDANCE WITH LAW. WE DIRECT ACCORDINGLY. 17. GROUND NO. 4 REGARDING INTEREST UNDER SECTION 234A 234B 234C & 234D IS CONSEQUENTIAL IN NATURE WHICH DOES NOT REQU IRE SEPARATE ADJUDICATION. 18. GROUND NO. 5 REGARDING CONFIRMING THE PROVISIONS OF SECTION 271(1)(C) IS MISCONCEIVED AT THIS STAGE OF PROCEDURES AND THE REFORE IT IS DISMISSED AS NOT ADMITTED. 19. IN THE RESULT APPEAL IS PARTLY ALLOWED FOR STATIST ICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH FEBRUARY 2011. SD/- SD/- (VIJAY PAL RAO) (S.V. MEHROTRA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI DATED: 25 TH FEBRUARY 2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) VIII MUMBAI 4. THE CIT IV MUMBAI CITY 5. THE DR F BENCH ITAT MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI N.P.