M/s. KOTAK SECURITIES LTD., MUMBAI v. ADDL. CIT Rg. 4(1), MUMBAI

ITA 2950/MUM/2005 | 2001-2002
Pronouncement Date: 31-03-2011 | Result: Partly Allowed

Appeal Details

RSA Number 295019914 RSA 2005
Bench Mumbai
Appeal Number ITA 2950/MUM/2005
Duration Of Justice 5 year(s) 11 month(s) 9 day(s)
Appellant M/s. KOTAK SECURITIES LTD., MUMBAI
Respondent ADDL. CIT Rg. 4(1), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 31-03-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 31-03-2011
Date Of Final Hearing 28-12-2009
Next Hearing Date 28-12-2009
Assessment Year 2001-2002
Appeal Filed On 21-04-2005
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A MUMBAI BEFORE SHRI P.M. JAGTAP (AM) AND SMT. ASHA VIJAYARA GHAVAN (JM) ITA NO.2950/MUM/2005 ASSESSMENT YEAR- 2001-02 M/S. KOTAK SECURITIES LTD. 1 ST FLOOR BAKTHAWAR 229 NARIMAN POINT MUMBAI-400 021 PAN-AAACK-3436F VS. THE ACIT RANGE 4(1) AAYAKAR BHAVAN MUMBAI-400 020 (APPELLANT) (RESPONDENT) ITA NO.3842/MUM/2005 ASSESSMENT YEAR- 2001-02 THE ACIT RANGE 4(1) AAYAKAR BHAVAN MUMBAI-400 020 VS. M/S. KOTAK SECURITIES LTD. 1 ST FLOOR BAKTHAWAR 229 NARIMAN POINT MUMBAI-400 021 PAN-AAACK-3436F (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI F.V. IRANI DEPARTMENT BY: SHRI SANJAY DUTT O R D E R PER ASHA VIJAYARAGHAVAN (JM) THIS SET OF CROSS APPEALS CONSISTING OF ONE APPEAL FILED BY THE ASSESSEE AND THE OTHER APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 17.2.2005 PASSED BY THE LD. CIT(A)- XIV IN THE MATTER OF ASSESSMENT U/S. 143(3) OF THE INCOME TAX ACT 1961 FOR THE ASSESSMENT YEAR 2001-02. AS THESE APPEALS WERE HEARD TOGETHER AND INVOLVED CONNECTED ISSUES BOTH OF THESE APPEALS ARE BEING D ISPOSED OFF BY WAY OF THIS CONSOLIDATED ORDER. KOTAK SECURITIES LTD. 2 ITA NO. 2750/M/05- ASSESSEES APPEAL: 2. THE FIRST GROUND OF APPEAL OF THE ASSESSEE IS AG AINST THE REFUSAL OF THE LOWER AUTHORITIES TO GRANT DEPRECIATION ON THE COST OF STOCK EXCHANGE CARD. WE FIND THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE APEX COURT IN THE CASE OF TECHNO SH ARES AND STOCKS LTD V CIT (327 ITR 323) WHEREIN THE SUPREME COURT HAS HE LD THAT THE MEMBERSHIP IN THE STOCK EXCHANGE CONSTITUTES A COMM ERCIAL RIGHT OWNED BY THE MEMBER AND USED FOR THE PURPOSES OF HIS BUSI NESS. IT IS AKIN TO A LICENSE AND IS ENTITLED DEPRECIATION U/S 32(1)(II). RESPECTFULLY FOLLOWING THE DECISION OF THE APEX COURT WE HOLD THAT THE AS SESSEE IS ENTITLED TO DEPRECIATION ON THE COST OF ACQUISITION/ WDV OF THE MEMBERSHIP CARD OF STOCK EXCHANGE. 3. THE NEXT ISSUE IN APPEAL IS REGARDING TREATMENT OF SOFTWARE EXPENSES OF RS. 33 24 740/-. THE ASSESSEE HAD INCUR RED EXPENDITURE OF RS. 82 00 653/-AND CLAIMED THE SAME AS REVENUE EXPE NDITURE. THE AO HELD THE ENTIRE EXPENDITURE AS CAPITAL. ON APPEAL T HE CIT(A) HELD RS. 48 75 913/- AS REVENUE EXPENDITURE AND HELD THE BAL ANCE EXPENDITURE OF RS. 33 24 740/- AS CAPITAL EXPENDITURE. THE ASSESSE E IS ON APPEAL AGAINST THE DECISION OF THE CIT(A) TREATING EXPENDI TURE OF RS. 33 24 740/- AS CAPITAL EXPENDITURE. WE DEEM IT FIT TO SET ASIDE THIS ISSUE TO THE FILE OF THE AO FOR DECIDING THIS ISSUE AFRESH IN THE LIGHT OF THE DECISION OF THE SPECIAL BENCH IN THE CASE OF DCIT V AMWAY ENTERPRIS ES 111 ITD 112 DEL SB AFTER GIVING REASONABLE OPPORTUNITY TO THE ASSE SSEE. 4. THE NEXT GROUND OF APPEAL IS AGAINST THE TREATME NT OF EXPENSES OF RS. 15 78 972/- ON OFFICE REPAIRS AND MAINTENANCE A S CAPITAL. ASSESSEE HAD SPENT RS. 40 58 602/- TOWARDS SUCH EXPENDITURE WAS INCURRED ON OFFICE PREMISES AT MUMBAI DELHI KOLKATA AND AHMED ABAD. THESE PREMISES WERE TAKEN ON LEASE WITH THE LEASE PERIOD FROM 1 TO 3 YEARS. KOTAK SECURITIES LTD. 3 EXPENDITURE IN MUMBAI AND DELHI WERE INCURRED FROM REDESIGNING THE OFFICE PREMISES. THE CIT(A) AFTER EXAMINING THE LEG AL AND FACTUAL POSITIONS HELD THAT COST OF AND PROPORTIONATE EXPENDITURE PA ID TO SHILPI FURNITURES P LTD AS CAPITAL EXPENDITURE ON WHICH DEPRECIATION IS TO BE ALLOWED AND ALLOWED THE BALANCE RS. 24 79 630/- AS REVENUE EXPE NDITURE. 5. BREAKING OF FLOORING FALSE CEILING PAINTING F ALSE CEILINGS PARTITIONS ETC DO NOT RESULT IN ANY ASSET OF ENDURI NG BENEFIT. THESE EXPENSES WERE INCURRED IN LEASED PREMISES WHICH TH E ASSESSEE AS LESSEE WOULD BE USING FOR A LIMITED PERIOD. THESE EXPENSES EVEN IF INCURRED IN ASSESSEES OWN PREMISES WOULD BE REVENUE EXPENSES. THESE ARE EXPENSES INCURRED FOR BETTER CARRYING ON THE DAY TO DAY BUSINESS. HENCE THEY ARE IN THE NATURE OF REVENUE EXPENSES. THE DEC ISIONS IN THE CASES OF CIT VS KISHENCHAND CHELLARAM (I) LTD (130 ITR 385 MAD) INSTALMENT SUPPLY P LTD VS CIT (149 ITR 52 DEL) ALLIED METAL PRODUCTS V CIT (137 ITR 689 P&H) CIT VS OOTY DASAPRAKASH (237 ITR 902 MAD) CIT V HI LINE PENS LTD (306 ITR 182 (DEL) HAVE HELD THAT E XPENSES INCURRED FOR REDESIGNING AND REFURBISHING OFFICE PREMISES ARE FO R CARRYING ON BUSINESS MORE PROFITABLY AND EFFICIENTLY AND ANY BENEFIT ACC RUING IS AN ADVANTAGE IN A COMMERCIAL SENSE AND HENCE SUCH EXPENDITURE AR E REVENUE EXPENDITURE. HOWEVER EXPENDITURE INCURRED FOR ACQUI RING ASSETS LIKE CHAIRS TABLES ETC WOULD CONSTITUTE EXPENDITURE FOR ACQUIRING CAPITAL ASSETS AND CANNOT BE ALLOWED AS REVENUE EXPENDITURE . WE THEREFORE UPHOLD THE ORDER OF THE CIT(A) HOLDING RS. 15 78 9 72/- REPRESENTS CAPITAL EXPENDITURE. 6. THE NEXT ISSUE IS REGARDING DISALLOWANCE OF BAD DEBTS. ASSESSEE HAD WRITTEN OFF RS. 91 37 355/- DURING THE YEAR. TH E AO DISALLOWED RS. 7 16 755/- OUT OF THIS AMOUNT. ON APPEAL THE CIT(A) ENHANCED THE DISALLOWANCE AND DISALLOWED A SUM OF RS. 34 91 528/ -. THIS AMOUNT REPRESENTED AMOUNTS DUE FROM CLIENTS ON ACCOUNT OF PURCHASE AND SALE KOTAK SECURITIES LTD. 4 OF SHARES ON THEIR BEHALF. THE MAIN CONTENTION OF T HE LD. CIT(A) IS THAT THE AMOUNT CLAIMED WAS NOT OFFERED AS INCOME IN THE EARLIER YEARS AND HENCE CANNOT BE ALLOWED AS A BAD DEBT U/S 36(1)(VII ). THESE AMOUNTS REPRESENT UNREALIZED AMOUNTS DUE FROM CLIENTS ON AC COUNT OF SHARES PURCHASED ON THEIR BEHALF. SUCH AMOUNTS WERE NOT OF FERED AS INCOME IN THE EARLIER YEARS. THEREFORE THE PROVISIONS OF SEC 36(1)(VII) READ WITH SEC 36(2) WAS NOT SATISFIED. HENCE THE ASSESSEES CLAIM FOR ALLOWANCE OF THE SAME AS BAD DEBTS U/S 36(1)(VII) CANNOT BE ALLOWED. THE ASSESSEE RAISED AN ALTERNATE PLEA THAT THIS AMOUNT BEING ADVANCED I N THE COURSE OF BUSINESS NON RECOVERABLE ADVANCES SHOULD BE ALLOWE D AS A BUSINESS LOSS. HOWEVER THE LD.CIT(A) HELD THAT WHAT CAN BE A LLOWED AS A BUSINESS LOSS IS ONLY THE LOSS INCURRED IN THE CURRENT YEAR. AS THESE AMOUNTS WERE DUE FROM THE EARLIER YEAR IT CANNOT BE ALLOWED AS A BUSINESS LOSS ALSO. 7. AGGRIEVED THE ASSESSEE IS ON APPEAL. WE FIND THA T THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F THE SPECIAL BENCH OF THE MUMBAI ITAT IN THE CASE OF SHREYAS S. MORAKHIA (2010) 40 SOT 440. RESPECTFULLY FOLLOWING THE DECISIONS OF THE MUMBAI SPECIAL BENCH IN THE CASE OF SHREYAS MORAKHIA SUPRA WE ALLOW THE ENTIRE AMOUNT OF RS. 34 91 528/- WRITTEN OFF BY THE ASSESSEE AS A BAD DE BT U/S 36(1)(VII). ASSESSEES APPEAL ON THIS ISSUE IS ALLOWED. 8. THE ASSESSEE HAS NOT PRESSED OTHER GROUNDS REGAR DING CLAIM OF BAD DEBT OF RS. 96 32 006/- DISALLOWANCE OF RS. 1 58 0 73/- U/S 14A AND DISALLOWANCE OF MEMBERSHIP EXPENSES OF RS. 27 832/- AND HENCE THEY ARE DISMISSED AS NOT PRESSED. 9. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PART LY ALLOWED FOR STATISTICAL PURPOSES. KOTAK SECURITIES LTD. 5 ITA NO 3842/M/05- DEPARTMENTAL APPEAL : 10. THE FIRST ISSUE IN THE REVENUES APPEAL IS AGAI NST THE ORDER OF THE LD. CIT(A) ALLOWING THE CLAIM OF THE ASSESSEE TOWAR DS SOFTWARE EXPENSES OF RS. 48 75 913/- AS REVENUE EXPENDITURE. THE LD.C IT(A) HAD ALSO HELD PART OF THE EXPENDITURE ON SOFTWARE AMOUNTING TO RS . 33 24 740/- AS CAPITAL AGAINST WHICH THE ASSESSEE PREFERRED AN APP EAL. AS HELD BY US IN THE ASSESSEES APPEAL SUPRA WE REMIT THE ISSUE TO THE FILE OF THE AO FOR DECIDING IT AFRESH IN THE LIGHT OF THE DECISION OF THE SPECIAL BENCH IN THE CASE OF DCIT V AMWAY ENTERPRISES 111 ITD 112 DEL (S B) AFTER GIVING REASONABLE OPPORTUNITY TO THE ASSESSEE. 11. THE NEXT GROUND OF APPEAL IS AGAINST THE CIT(A) ALLOWING THE CLAIM OF THE ASSESSEE RS. 24 79 690/- OUT OF THE REPAIRS AND MAINTENANCE EXPENSES AS REVENUE. HERE ALSO THE LD. CIT(A) HAD HELD PART OF THE EXPENDITURE ON REPAIRS AND MAINTENANCE INCURRED TO THE EXTENT OF RS. 15 78 972/- AS CAPITAL AGAINST WHICH THE ASSESSEE HAD COME UP ON APPEAL. IN THE ASSESSEES APPEAL SUPRA WE HAVE HEL D THAT BREAKING OF FLOORING FALSE CEILING PAINTING FALSE CEILINGS PARTITIONS ETC DO NOT RESULT IN ANY ASSET OF ENDURING BENEFIT. THESE EXPENSES WE RE INCURRED IN LEASED PREMISES WHICH THE ASSESSEE AS LESSEE WOULD BE USI NG FOR A LIMITED PERIOD. THESE EXPENSES EVEN IF INCURRED IN ASSESSEE S OWN PREMISES WOULD BE REVENUE EXPENSES. THESE ARE EXPENSES INCUR RED FOR BETTER CARRYING ON THE DAY TO DAY BUSINESS. HENCE THEY ARE IN THE NATURE OF REVENUE EXPENSES. THE DECISIONS IN THE CASES OF CIT V KISHENCHAND CHELLARAM (I) LTD (130 ITR 385 MAD) INSTALMENT SU PPLY PVT LTD VS CIT (149 ITR 52 DEL) ALLIED METAL PRODUCTS VS CIT (1 37 ITR 689 P&H) CIT VS OOTY DASAPRAKASH (237 ITR 902 MAD) CIT VS HI LI NE PENS LTD (306 ITR 182 DEL) HAVE HELD THAT EXPENSES INCURRED FOR REDESIGNING AND REFURNISHING OFFICE PREMISES ARE FOR CARRYING ON BU SINESS MORE PROFITABLY AND EFFICIENTLY AND ANY BENEFIT ACCRUING IS AN ADVA NTAGE IN A COMMERCIAL KOTAK SECURITIES LTD. 6 SENSE AND HENCE SUCH EXPENDITURE ARE REVENUE EXPEND ITURE. IN THIS VIEW OF THE MATTER WE UPHOLD THE ORDER HOLDING THE EXPE NDITURE OF RS. 24 79 690/- INCURRED TOWARDS REPAIRS AND MAINTENANC E IS REVENUE IN NATURE AND DISMISS THE REVENUES APPEAL ON THIS ISS UE. 12. THE NEXT GROUND OF APPEAL IS AGAINST THE CIT(A) ALLOWING THE DEDUCTION OF RS. 31 752/-BEING EMPLOYEES CONTRIBUT ION TO P.F. WHICH WAS PAID BEYOND THE DUE DATE BUT BEFORE THE DUE DAT E FOR FILING . THIS ISSUE IS COVERED BY THE DECISION OF THE SUPREME COU RT IN THE CASE OF CIT VS ALOM EXTRUSIONS LTD (319 ITR 306) AND THE DECISI ON OF THE DELHI HIGH COURT IN THE CASE OF CIT V AIMIL LTD (229 CTR 418) WHEREIN IT HAS BEEN HELD THAT PAYMENT OF EMPLOYEES CONTRIBUTION MADE B EFORE THE DUE DATE FOR FILING OF THE RETURN CA NOT BE DISALLOWED U/S 4 3B. RESPECTFULLY FOLLOWING THESE DECISIONS WE UPHOLD THE ORDER OF T HE CIT(A) ALLOWING THE DEDUCTION OF RS. 31 752/- BEING EMPLOYEES CONTRIBU TION PAID BEFORE THE DUE DATE FOR FILING OF THE RETURN AND DISMISS THE R EVENUES APPEAL ON THIS ISSUE. 13. IN THE RESULT THE ASSESSEES APPEAL IN ITA NO 2 950/M/05 AND THE REVENUES APPEAL IN 3842/M/05 ARE PARTLY ALLOWED FO R STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 31 ST DAY OF MARCH 2011 SD/- SD/- (P.M. JAGTAP) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DATED 31 ST MARCH 2011 RJ KOTAK SECURITIES LTD. 7 COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR A BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR I.T.A.T MUMBAI KOTAK SECURITIES LTD. 8 DATE INITIALS 1 DRAFT DICTATED ON: 2 5 . 0 3 .201 1 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 2 8 .0 3 .2011 ______ 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: _________ ______ SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: _________ ______ SR. PS/PS 8. 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK: DATE ON WHICH FILE GOES TO AR _________ ______ 10 . DATE OF DISPATCH OF ORDER: _________ ______