EMKAY GLOBAL FINANCIAL SERVICES LTD, MUMBAI v. ADDL CIT RG 4(1), MUMBAI

ITA 343/MUM/2011 | 2007-2008
Pronouncement Date: 22-10-2013 | Result: Partly Allowed

Appeal Details

RSA Number 34319914 RSA 2011
Assessee PAN AAACE0994L
Bench Mumbai
Appeal Number ITA 343/MUM/2011
Duration Of Justice 2 year(s) 9 month(s) 8 day(s)
Appellant EMKAY GLOBAL FINANCIAL SERVICES LTD, MUMBAI
Respondent ADDL CIT RG 4(1), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 22-10-2013
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted E
Tribunal Order Date 22-10-2013
Date Of Final Hearing 22-10-2013
Next Hearing Date 22-10-2013
Assessment Year 2007-2008
Appeal Filed On 13-01-2011
Judgment Text
EMKAY GLOBAL FINANCIAL SERVICES LTD - 1 - VK;DJ VIHYH; VF/KDJ.K BZ U;K;IHB EQACBZ ESAA IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH MUM BAI JH JKTSUNZ FLAG YS[KK LNL; OA JH LAT; XXZ] U;KF;D LNL; DS LE{K BEFORE SHRI RAJENDRA SINGH ACCOUNTANT MEMBER AND SH RI SANJAY GARG JUDICIAL MEMBER VK;DJ VIHY LA[;K /ITA NO. 343/MUM/2011 FU/KKZJ.K O'KZ @ ASSESSMENT YEAR: - 2007-08 EMKAY GLOBAL FINANCIAL SERVICES LTD 4D 4 TH FLOOR HAMAM HOUSE AMBALAL DOSHI MARG FORT MUMBAI 400 023. CUKE@ VS. ADDITIONAL COMMISSIONER OF INCOME TAX RANGE 4(1) MUMBAI. PAN:- AAACE0994L VIHYKFKHZ @ APPELLANT IZR;FKHZ @ RESPONDENT VK;DJ VIHY LA[;K /ITA NO. 1129/MUM/2011 FU/KKZJ.K O'KZ @ ASSESSMENT YEAR: - 2007-08 ADDITIONAL COMMISSIONER OF INCOME TAX RANGE 4(1) MUMBAI 400 020. CUKE@ VS. EMKAY GLOBAL FINANCIAL SERVICES LTD 4D 4 TH FLOOR HAMAM HOUSE AMBALAL DOSHI MARG FORT MUMBAI 400 023. PAN:- AAACE0994L VIHYKFKHZ @ APPELLANT IZR;FKHZ @ RESPONDENT FU/KKZFJRH DH VKSJ LS @ ASSESSEE BY SHRI PITAMBAR DAS JKTLP DH VKSJ LS @ REVENUE BY SHRI SANJIV M. SHAH VKNS'K@ VKNS'K@ VKNS'K@ VKNS'K@ ORDER PER RAJENDRA SINGH AM THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER DATED 24.11.2010 OF CIT(A) FOR THE ASSESSMENT YEAR 2007-0 8. THESE APPEALS LQUOKBZ DH RKJH[K @ DATE OF HEARING 22-10-2013 ?KKS'K.KK DH RKJH[K @ DATE OF PRONOUNCEMENT 22-10-2013 EMKAY GLOBAL FINANCIAL SERVICES LTD - 2 - WHICH WERE HEARD TOGETHER ARE BEING DISPOSED OFF BY A SINGLE CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2. WE FIRST TAKE UP THE APPEAL OF THE ASSESSEE IN I TA NO. 343./MUM/2011 . THE ASSESSEE IN THIS APPEAL HAS RAISED DISPUTES O N FOUR DIFFERENT GROUNDS. 2.1 THE FIRST DISPUTE IS REGARDING DISALLOWANCE OF EXPENSES RELATING TO EXEMPT INCOME U/S 14A OF THE IT ACT. AO DURING THE ASSESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE HAD EARNED DIVI DEND INCOME OF RS. 4 36 140/- WHICH WAS EXEMPT FROM TAX BUT THE ASSESS EE HAD NOT ALLOCATED ANY EXPENSES RELATING TO EXEMPT INCOME. T HE AO THEREFORE COMPUTED THE DISALLOWANCE OF EXPENSES U/S 14A AS PE R RULE 8D AT RS. 11 76 685/-. 2.1.1 IN APPEAL CIT(A) OBSERVED THAT IN VIEW OF THE JUDGMENT OF HONBLE HIGH COURT OF BOMBAY IN CASE OF GODREJ & BO YCE MANUFACTURING CO. LTD. ( 328 ITR 81 ) RULE 8D WAS NOT APPLICABLE FOR ASSESSMENT YEAR 2007-08 AND DISALLOWANCE HAS TO BE MADE ON REASONAB LE BASIS. CIT(A) THEREAFTER DIRECTED THE AO TO DISALLOW THE DIRECT E XPENSES OF INTEREST OF RS. 18 484/- AND .5% OF AVERAGE INVESTMENT TOWAR DS ESTABLISHMENT EXPENSES AGGREGATING TO RS. 8 86 063/-. AGGRIEVED B Y THE DECISION OF CIT(A) THE ASSESSEE IS IN APPEAL BEFORE TRIBUNAL. 2.1.2 WE HAVE HEARD BOTH THE PARTIES PERUSED THE R ECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REG ARDING DISALLOWANCE OF EXPENSES RELATING TO EXEMPT DIVIDEND INCOME U/S 14A OF THE IT ACT. UNDER THE PROVISIONS OF THE SAID SECTION THE EXPEN SES RELATING TO EXEMPT INCOME HAS TO BE COMPUTED AS PER THE METHOD PRESCRIBED BY THE GOVERNMENT WHO HAVE SINCE NOTIFIED RULE 8D FOR THIS PURPOSE. HONBLE HIGH COURT ON BOMBAY IN CASE OF GODREJ & BO YCE MANUFACTURING CO. LTD. (SUPRA) HAVE HELD THAT RULE 8D IS APPLICAB LE ONLY FROM EMKAY GLOBAL FINANCIAL SERVICES LTD - 3 - ASSESSMENT YEAR 2008-09 AND THAT IN RESPECT OF PRIO R YEARS THE DISALLOWANCE HAS TO BE MADE ON A REASONABLE BASIS A FTER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. IN THIS CAS E THE AO HAS APPLIED RULE 8D THOUGH CIT(A) HAS HELD THAT RULE 8D WAS NO T APPLICABLE BUT THE BASIS ADOPTED BY HIM FOR DISALLOWANCE IS ON THE PAT TERN OF RULE 8D. THE ORDER OF CIT(A) CANNOT BE UPHELD. THE MATTER IN OU R VIEW REQUIRES FRESH EXAMINATION AT THE LEVEL OF AO IN THE LIGHT O F JUDGMENT OF HONBLE HIGH COURT OF BOMBAY IN CASE OF GODREJ & BOYCE MANU FACTURING CO. LTD (SUPRA). WE THEREFORE SET ASIDE THE ORDER OF THE CIT(A) AND RESTORE THE MATTER TO THE FILE OF AO FOR PASSING AFRESH ORD ER AFTER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. 2.2 THE SECOND DISPUTE IS REGARDING DISALLOWANCE OF DEPRECIATION ON MEMBERSHIP CARD OF BSE. THE ASSESSEE HAD CLAIMED DE PRECIATION OF RS. 1 00 169/- ON MEMBERSHIP CARDS. THE AO DISALLOWED T HE CLAIM OF DEPRECIATION FALLOWING THE JUDGMENT OF HONBLE HIGH COURT OF BOMBAY IN CASE OF M/S TECHNO SHARE AND STOCK LTD. & OTHERS IN WHICH IT WAS HELD THAT STOCK EXCHANGE CARD DOES NOT CONSTITUTE A N INTANGIBLE ASSET AS MENTIONED IN SECTION 32(1)(II) AND THUS WAS NOT ENT ITLED FOR DEPRECIATION. 2.2.1 IN APPEAL CIT(A) OBSERVED THAT IN VIEW OF THE JUDGMENT OF HONBLE SUPREME COURT IN CASE OF TECHNO SHARES AND STOCK VS. CIT (327 ITR 323 ) THE STOCK EXCHANGE CARD WAS ELIGIBLE FOR DEPRECIATION U/S 32(1)(II). CIT(A) FURTHER OBSERVED THAT IN TERMS OF THE SCHEME OF CORPORATIZING AND DEMUTUALIZATION 2005 OF THE STOCK EXCHANGE THE NEW TRADING RIGHTS WERE GIVEN TO THE ASSESSEE BIFURCATI NG THE OWNERSHIP AND MANAGEMENT FROM THE TRADING RIGHTS. THE VALUE OF NE W TRADING RIGHT HAS TO BE CONSIDERED AS NIL AS PER PROVISO TO SECTION 5 5(2)(AB). THEREFORE THE VALUE OF BSE CARD BEING THE TRADING RIGHT BECAM E NIL. CIT(A) THEREFORE HELD THAT THE ASSESSEE HAD WRONGLY CLAIM ED DEPRECIATION ON BSE CARD AFTER CORPORATIZING AND DEMUTUALIZATION OF STOCK EXCHANGE. HE EMKAY GLOBAL FINANCIAL SERVICES LTD - 4 - HOWEVER ALLOWED DEPRECATION IN RESPECT OF NSE CARD AMOUNTING TO RS. 64 573/- FOLLOWING THE JUDGMENT OF HONBLE SUPREME COURT IN CASE OF TECHNO SHARES AND STOCKS LTD. (327 ITR 323). AGGRIE VED BY THE DECISION OF CIT(A) THE ASSESSEE IS IN APPEAL BEFORE TRIBUNAL . 2.2.2 WE HAVE HEARD BOTH THE PARTIES PERUSED THE R ECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REG ARDING ALLOWABILITY OF DEPRECIATION ON THE BSE MEMBERSHIP CARD. WE FIND TH AT THE SAME ISSUE HAD BEEN CONSIDERED BY THE MUMBAI BENCH OF TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2006-07 IN ITA NO. 6479 /MUM/2009. THE TRIBUNAL NOTED THAT IN VIEW OF THE JUDGMENT OF HON BLE SUPREME COURT IN CASE OF TECHNO SHARES AND STOCKS LTD. (SUPRA) D EPRECIATION WAS ALLOWABLE IN RESPECT OF BSE/NSE MEMBERSHIP CARD. TH E TRIBUNAL FURTHER OBSERVED THAT MUMBAI BENCH OF TRIBUNAL IN CASE OF S INO SECURITIES PVT. LTD IN (ITA 6264/MUM/2009) AFTER CONSIDERING THE JU DGMENT OF APEX COURT HELD THAT AFTER DEMUTUALIZATION AND CORPORATI ZATION OF STOCK EXCHANGES THE ASSESSEE HAD BEEN ALLOTTED SHARES AG AINST MEMBERSHIP CARDS AND THEREFORE JUDGMENT WAS NOT APPLICABLE. THE TRIBUNAL IN THE SAID CASE AFTER DETAILED EXAMINATION HELD THAT THE VALUE OF TRADING RIGHT WAS NIL AND THEREFORE THE ASSESSEE WOULD NOT BE E NTITLED FOR DEPRECIATION. THE TRIBUNAL HOWEVER NOTED THAT IN THE SAID CASE THE TRIBUNAL HAD NOT CONSIDERED THE PROVISIONS OF SECTI ON 43(6)(C)(B) AS PER WHICH ONCE WDV HAS BEEN COMPUTED THE SAME CAN BE R EDUCED ONLY BY THE VALUES OF THE ASSET IN THE YEAR IN WHICH THE SA ME IS DISCARDED DEMOLISHED OR SOLD. THE TRIBUNAL THEREFORE RESTOR ED THE ISSUE TO THE FILE OF AO FOR PASSING A FRESH ORDER AFTER NECESSAR Y EXAMINATION OF ALL ASPECTS AND AFTER ALLOWING OPPORTUNITY OF HEARING T O THE ASSESSEE. THE FACTS THIS YEAR ARE IDENTICAL. THEREFORE RESPECTFU LLY FOLLOWING THE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE IN ASSE SSMENT YEAR 2006-07 WE RESTORE THE ISSUE TO THE FILE OF AO FOR A FRESH ORDER AFTER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. EMKAY GLOBAL FINANCIAL SERVICES LTD - 5 - 2.3 THE THIRD DISPUTE IS REGARDING COMPUTATION OF R EBATE U/S 88E OF THE IT ACT. AO NOTED THAT THE ASSESSEE HAD SHOWN PR OFIT FROM DERIVATIVE TRANSACTION AT RS. 20 36 445/- AND LOSS FROM SHARES TRANSACTION AT RS. 7 06 390/- BUT NO EXPENDITURE HAD BEEN ALLOCATED T OWARDS SUCH INCOME/LOSS AND REBATE U/S 88E HAD BEEN CLAIMED ON THE GROSS PROFIT. THE ASSESSEE HAD DEBITED TOTAL EXPENSES OF RS. 46 5 5 27 000/- TO THE P&L ACCOUNT UNDER VARIOUS HEADS AND THE TOTAL INCO ME SHOWN WAS RS. 60 76 03 000/-. AO THEREFORE ALLOCATED THE EXPENS ES TOWARDS DERIVATIVE TRANSACTION AND SHARE TRADING IN THE RAT IO OF INCOME FROM SUCH ACTIVITIES TO TOTAL INCOME. AFTER ALLOCATING S UCH EXPENSES PROFIT FROM DERIVATIVE TRANSACTION WAS COMPUTED AT RS. 4 7 6 183/- AND LOSS FROM SHARE TRANSACTION AT RS. 12 47 604/- WHICH WAS ALLOWED TO BE CARRIED FORWARD. AO OBSERVED THAT AFTER CONSIDERING THE LOSS ON SHARE TRADING THERE WAS NO INCOME LEFT FOR THE PURPOSE O F REBATE U/S 88E. HE THEREFORE DISALLOWED THE CLAIM OF REBATE. 2.3.1 IN APPEAL CIT(A) OBSERVED THAT METHOD OF ALL OCATION OF EXPENSES TOWARDS SHARE TRADING AND SPECULATIVE ACTIVITIES HA D BEEN ADOPTED BY AO BASED ON THE DECISION TAKEN IN THE EARLIER YEARS WHICH HAS BEEN CONFIRMED BY CIT(A) IN ASSESSMENT YEAR 2006-07. CIT (A) OBSERVED THAT THE ASSESSEE HAD NOT MAINTAINED SEPARATE ACCOUNT OF EACH SEGMENT AND THEREFORE ALLOCATION MADE BY AO WAS PROPER. C IT(A) HOWEVER HELD THAT THE ASSESSEE IS ENTITLED TO BE ALLOWED RE BATE U/S 88E IN RESPECT OF INCOME FROM DERIVATIVE AT RS. 4 76 183/- . CIT(A) ACCORDINGLY ALLOWED THE REBATE U/S 88E IN RESPECT OF INCOME FRO M DERIVATIVE OF RS. 4 76 183/-. AGGRIEVED BY THE DECISION OF CIT(A) THE ASSESSEE IS IN APPEAL BEFORE TRIBUNAL. 2.3.2 BEFORE US THE LEARNED AR FOR THE ASSESSEE SU BMITTED THAT THE ASSESSEE HAD MAINTAINED THE SEPARATE ACCOUNTS IN RE SPECT OF SPECULATIVE TRANSACTIONS IN RELATION TO WHICH REPOR T U/S 88E WAS AVAILABLE. THERE WAS NO EXPENDITURE INCURRED IN RES PECT OF SAID EMKAY GLOBAL FINANCIAL SERVICES LTD - 6 - TRASACTIONS AND THEREFORE THE AUTHORITIES BELOW W ERE NOT CORRECT IN ALLOCATING THE EXPENSES TOWARDS SPECULATIVE TRANSAC TION AND THUS REDUCING THE REBATE U/S 88E. IT WAS ACCORDINGLY URG ED THAT THE CLAIM MADE BY THE ASSESSEE SHOULD BE ALLOWED. IT WAS ALSO POINTED OUT THAT IN EARLIER YEARS THE CLAIM OF THE ASSESSEE HAS BEEN AL LOWED BY THE TRIBUNAL. THE LEARNED DR ON THE OTHER HAND POINTED OUT THAT CIT(A) HAS GIVEN A CLEAR FINDING THAT THE ASSESSEE HAD NOT MAI NTAINED SEPARATE ACCOUNTS AND THEREFORE ALLOCATION OF EXPENSES WAS JUSTIFIED. 2.3.3 WE HAVE PERUSED THE RECORDS AND CONSIDERED TH E MATTER CAREFULLY. THE DISPUTE IS REGARDING COMPUTATION OF REBATE IN RESPECT OF SECURITY TRANSACTION TAX (STT) U/S 88E. UNDER THE P ROVISIONS OF SAID SECTION REBATE IN RESPECT OF PROFIT AND GAINS OF B USINESS ARISING FROM TAXABLE SECURITY TRANSACTION IS ALLOWABLE AS PER TH E METHOD PRESCRIBED IN THE SAID SECTION. THE ASSESSEE HAD SHOWN LOSS FR OM SPECULATIVE TRANSACTION IN SECURITIES AS WELL AS INCOME FROM DE RIVATIVE TRANSACTION. THE ASSESSEE HAS NOT ALLOCATED ANY EXPENSES TOWARDS THE SPECULATIVE TRANSACTIONS. THE AO HOWEVER ALLOCATED EXPENSES IN RATIO OF INCOME FROM SUCH TRANSACTIONS TO THE TOTAL INCOME AND BEIN G NOT LOSS AO HAS NOT ALLOWED REBATE U/S 88E. CIT(A) HAS UPHELD THE B ASIS OF ALLOCATION OF EXPENSES TOWARDS SPECULATIVE TRANSACTIONS AND DERIV ATIVE TRANSACTIONS FOLLOWING THE DECISION IN ASSESSMENT YEAR 2006-07 B UT HAD DIRECTED THE AO TO ALLOW REBATE IN RESPECT OF DERIVATIVE TRANSAC TIONS. THE CASE OF THE ASSESSEE IS THAT IT HAD MAINTAINED SEPARATE ACC OUNTS IN RESPECT OF SPECULATIVE TRANSACTIONS AND IT HAD NOT INCURRED AN Y EXPENDITURE IN RELATION TO SUCH TRANSACTIONS AND ACCORDINGLY ALLOC ATION OF EXPENSES IS NOT JUSTIFIED AND REBATE SHOULD BE ALLOWED IN RELAT ION TO LOSS AS DERIVED FROM SPECULATIVE TRANSACTINS. WE FIND THAT BOTH THE AUTHORITIES BELOW HAVE GIVEN A CLEAR FINDING THAT NO SEPARATE ACCOUNT S HAD BEEN MAINTAINED IN RESPECT OF SPECULATIVE TRANSACTIONS A ND NO EVIDENCE HAS BEEN PRODUCED BEFORE US TO CONTROVERT THE SAID FIND ING. MOREOVER WE ALSO FIND THAT THE SAME ISSUE HAS ALREADY BEEN CONS IDERED BY THE EMKAY GLOBAL FINANCIAL SERVICES LTD - 7 - TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2006-07 IN ITA 6479/MUM/2009 IN WHICH THE SAME BASIS OF ALLOCATION OF EXPENSES HAD BEEN ADOPTED BY THE AO WHICH WAS NOT DISPUTED BY TH E ASSESSEE. AS REGARDS THE ALLOWABILITY OF REBATE IN RELATION TO L OSS FROM SPECULATIVE TRANSACTIONS TRIBUNAL NOTED THAT REBATE U/S 88E WA S ALLOWABLE ONLY IN RESPECT OF INCOME ARISING FROM TAXABLE SECURITY TRA NSACTIONS INCLUDED IN THE TOTAL INCOME AND SINCE THE LOSS FROM SPECULATIV E TRANSACTIONS HAD NOT BEEN INCLUDED IN TOTAL INCOME HAD BEEN CARRIED FORWARD BY THE AO TO THE SUBSEQUENT YEAR NO REBATE WAS ALLOWABLE IN RESPECT OF SPECULATIVE TRANSACTIONS. THE TRIBUNAL ACCORDINGLY HELD THAT THE REBATE IS ALLOWABLE ONLY IN RESPECT OF INCOME FROM DERIVAT IVE TRANSACTIONS INCLUDED IN TOTAL INCOME AS PER THE METHOD PRESCRIB ED SUBJECT TO OVER ALL LIMIT OF STT ACTUALLY PAID IN RELATION TO DERIV ATIVE TRANSACTIONS. WE THEREFORE UPHOLD THE ORDER OF CIT(A) HOLDING THAT REBATE WAS ALLOWABLE ONLY IN RESPECT OF INCOME FROM DERIVATIVE TRANSACTI ONS. 2.4 FOURTH DISPUTE RAISED BY THE ASSESSEE IS REGARD ING DISALLOWANCE OF EXPENSES OF RS. 12 67 586/-. AO NOTED THAT THE ASSE SSEE HAD DEBITED THE SUM OF RS. 12 67 586/- IN THE P&L ACCOUNT ON AC COUNT OF SHARE OF PROFIT PAID TO THE PARTIES. THE AO ASKED THE ASSESS EE TO EXPLAIN THE MATTER BUT THE EXPLANATION GIVEN BY ASSESSEE WAS NO T FOUND ACCEPTABLE BY AO. ACCORDINGLY FOLLOWING THE DECISION OF EARLIE R YEARS HE DISALLOWED THE CLAIM MADE BY ASSESSEE. 2.4.2 IN APPEAL CIT (A) OBSERVED THAT THE ARRANGE MENT OF THE ASSESSEE WITH M/S J S FINANCIAL SERVICES WAS IN THE NATURE O F JOINT VENTURE WHERE PROFIT SHARING WAS ESSENTIAL. HE DID NOT ACCEPT THE CLAIM OF THE ASSESSEE THAT THERE WAS NO LOSS SHARING BETWEEN THE ASSESSEE AND THE SAID CONCERN AS THERE WAS NO SUCH PROVISION IN THE AGREEMENT. CIT(A) FURTHER OBSERVED THAT THE PROFIT OF THE BRANCH AFTE R DEDUCTING ALL THE EXPENSES INCLUDING BAD DEBTS WAS BEING SHARED BY TH E TWO PARTIES IN THE RATIO OF 35 TO 65. CIT(A) THEREFORE UPHELD TH E VIEW TAKEN BY THE EMKAY GLOBAL FINANCIAL SERVICES LTD - 8 - AO THAT THE CLAIM OF DEDUCTION ON ACCOUNT OF SUCH P ROFIT WAS NOT ALLOWABLE TO THE ASSESSEE. AGGRIEVED BY THE DECISIO N OF CIT(A) THE ASSESSEE IS IN APPEAL BEFORE TRIBUNAL. 2.4.2 BEFORE US THE LEARNED AR FOR THE ASSESSEE SU BMITTED THAT ARRANGEMENT MADE BY THE ASSESSEE WITH M/S J S FINAN CIAL SERVICES WAS NOT A JOINT VENTURE. IT WAS POINTED OUT THAT THE IS SUE WAS COVERED BY THE DECISION OF MUMBAI BENCH OF TRIBUNAL IN ASSESSE ES OWN CASE IN ASSESSMENT YEAR 2006-07 IN ITA 6479/MUM/2009 IN WHI CH THE TRIBUNAL ACCEPTED THE CLAIM OF THE ASSESSEE THAT THE ARRANGE MENT WAS NOT A CASE OF JOINT VENTURE. IT WAS ACCORDINGLY URGED THA T THE CLAIM OF THE ASSESSEE SHOULD BE ALLOWED. THE LEARNED DR ON THE OTHER HAND SUPPORTED THE ORDERS OF AUTHORITIES BELOW AND PLACE D RELIANCE ON THE FINDINGS GIVEN IN THE RESPECTIVE ORDERS. 2.4.3 WE HAVE PERUSED THE RECORDS AND CONSIDERED TH E MATTER CAREFULLY. THE DISPUTE IS REGARDING ALLOWABILITY OF CLAIM OF DEDUCTION ON ACCOUNT OF SHARE OF PROFIT PAID TO M/S J S FINANCIA L SERVICES. THE AUTHORITIES BELOW HAVE DISALLOWED THE CLAIM ON THE GROUND THAT M/S J S FINANCIAL SERVICES WAS A JOINT VENTURE OF THE ASSES SEE AND THEREFORE NO DEDUCTION CAN BE ALLOWED ON ACCOUNT OF SHARE OF PROFIT GIVEN TO THE SAID CONCERN. HOWEVER WE FIND THAT THE SAME ISSUE H AS ALREADY BEEN CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE I N ASSESSMENT YEAR 2006-07 IN ITA 6479/MUM/2009 IN WHICH THE TRIBUNAL ACCEPTED THE CLAIM OF THE ASSESSEE THAT ARRANGEMENT WAS NOT A CA SE OF JOINT VENTURE. HOWEVER THE TRIBUNAL ALSO HELD THAT NATURE OF WORK DONE BY THE M/S J S FINANCIAL SERVICES WAS PROFESSIONAL OR MANAGERIAL A S THEY WERE MANAGING DAY TO DAY WORK OF THE BRANCH BY PROVIDING PROFESSIONAL SERVICES. THE TRIBUNAL THUS HELD THAT PROVISIONS OF SECTION 194J WERE APPLICABLE AND THE ASSESSEE WAS REQUIRED TO DEDUCT TAX AT SOURCE. THE TRIBUNAL THEREFORE RESTORED THE ISSUE TO THE FILE OF AO TO PASS A FRESH ORDER AFTER NECESSARY VERIFICATION IN THE LIGHT OF DECISION OF SPECIAL EMKAY GLOBAL FINANCIAL SERVICES LTD - 9 - BENCH OF TRIBUNAL IN CASE OF MERILYN SHIPPING AND TRANSPORTERS VS. ADDL. CIT (16 ITR (TRIB.) 01). WE THEREFORE SET A SIDE THE ORDER OF CIT(A) AND RESTORE THIS ISSUE TO THE FILE OF AO FOR PASSING A FRESH ORDER AFTER NECESSARY EXAMINATION AND AFTER ALLOWING OPPO RTUNITY OF HEARING TO THE ASSESSEE. WE ALSO MAKE IT CLEAR THAT THE DEC ISION OF SPECIAL BENCH OF TRIBUNAL IN CASE OF MERILYN SHIPPING AND T RANSPORTERS VS. ADDL. CIT (SUPRA) HAS BEEN STAYED BY THE HONBLE HIGH COU RT OF ANDHRA PRADESH AND THERE ARE JUDGMENTS OF OTHER HIGH COUR TS IN WHICH VIEW TAKEN BY THE SPECIAL BENCH HAS NOT BEEN UPHELD. THE AO WILL TAKE INTO ACCOUNT ALL THESE JUDGMENTS BEFORE PASSING THE ORDE R AFTER HEARING THE ASSESSEE. 3. THE APPEAL OF THE REVENUE IN ITA NO . 1129/MUM/2011. THE REVENUE IN THIS APPEAL HAS RAISED DISPUTES ON TWO D IFFERENT GROUNDS. 3.1 THE FIRST GROUND RAISED BY THE REVENUE IN ITS A PPEAL IS REGARDING ALLOWABILITY OF CLAIM OF BAD DEBT OF RS. 1 36 948/- . THE ASSESSEE IS A STOCK BROKER DOING SHARE TRANSACTION ON BEHALF OF T HE CLIENTS. THE ASSESSEE HAS CLAIMED BAD DEBT ON ACCOUNT OF MONEY P AID ON BEHALF OF CLIENTS WHICH COULD NOT BE RECOVERED. THE AO TOOK T HE VIEW THAT THE ASSESSEE WAS A STOCK BROKER HAVING INCOME ONLY IN T HE FORM OF BROKERAGE AND THE MONEY PAID ON BEHALF OF THE CLIE NT HAD NOT BEEN TAKEN INTO ACCOUNT IN THE COMPUTATION OF INCOME AND THEREFORE THE CONDITIONS FOR ALLOWABILITY OF BAD DEBT PRESCRIBED U/S 36(2) WAS NOT FULFILLED. THE AO THEREFORE DISALLOWED THE CLAIM. 3.1.1 IN APPEAL CIT(A) HAS ALLOWED THE CLAIM OF TH E ASSESSEE FOLLOWING THE DECISION OF SPECIAL BENCH OF TRIBUNAL IN CASE O F DCIT VS. SHREYAS S. MORAKHIA (42 DTR 320). AGGRIEVED BY THE DECISION OF CIT(A) REVENUE IS IN APPEAL BEFORE TRIBUNAL. EMKAY GLOBAL FINANCIAL SERVICES LTD - 10 - 3.1.2 WE HAVE HEARD BOTH THE PARTIES PERUSED THE R ECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REG ARDING CLAIM OF BAD DEBT ON ACCOUNT OF MONEY PAID BY THE ASSESSEE ON BE HALF OF CLIENTS WHICH COULD NOT BE RECOVERED. THE CLAIM HAS BEEN DI SALLOWED BY THE AO ON THE GROUND THAT THE AMOUNT HAS NOT BEEN TAKEN IN TO ACCOUNT IN THE COMPUTATION OF INCOME OF THE ASSESSEE IN THE EARLIE R YEARS AND THEREFORE THE CLAIM OF BAD DEBT COULD NOT BE ALLOW ED. WE FIND THAT THE SPECIAL BENCH OF TRIBUNAL IN CASE OF DCIT VS. SHREY AS S. MORAKHIA (SUPRA) HAS TAKEN THE VIEW THAT OF THE CORRESPONDIN G BROKERAGE HAS BEEN TAKEN INTO ACCOUNT IN THE COMPUTATION OF INCOM E THE CLAIM OF BAD DEBT ON ACCOUNT OF MONEY OUTSTANDING FROM CLIEN TS WHICH COULD NOT BE RECOVERED HAS TO BE ALLOWED. THE VIEW TAKEN BY T HE SPECIAL BENCH HAS BEEN UPHELD BY THE HONBLE HIGH COURT OF BOMBAY AS REPORTED IN (342 ITR 285). THE CLAIM OF THE ASSESSEE IS THUS AL LOWABLE SUBJECT TO VERIFICATION IF THE CORRESPONDING BROKERAGES HAD BE EN DECLARED BY THE ASSESSEE AS INCOME. WE THEREFORE CONFIRM THE ORDE R OF CIT(A) SUBJECT TO VERIFICATION BY AO THAT CORRESPONDING BROKERAGES HAD BEEN DECLARED BY THE ASSESSEE AND AFTER ALLOWING OPPORTUNITY OF H EARING TO THE ASSESSEE. 3.2 THE SECOND DISPUTE RAISED BY THE REVENUE IS REG ARDING ADDITION MADE ON ACCOUNT OF PENALTY OF RS. 16 96 747/- FOR V IOLATION OF BYE LAWS OF STOCK EXCHANGE. THE AO NOTED THAT THE ASSESSEE H AD PAID A SUM OF RS. 3 17 727/- CHARGED BY THE BSE AND RS. 13 69 020 /- CHARGED BY THE NSE FOR NON/PARTIAL COLLECTION OF MARGIN MONEY. AO OBSERVED THAT THE STOCK BROKER WAS GONE BY SEBI ACT 1992 AND THEREFO RE IF THE STOCK BROKER HAD NOT COLLECTED SUFFICIENT MARGIN OR NOT M AINTAINED KYC NORMS AND DELAYED REMITTING SECURITIES THIS AMOUNTED TO INFRACTION OF RULES FRAMED BY SEBI. AO THEREFORE HELD THAT THE CHARGE S LEVIED BY BSE AND NSE WERE PENAL IN NATURE AND NOT ALLOWABLE AS DEDUC TION IN VIEW OF THE EXPLANATION TO SECTION 37(1). THE AO PLACED RELIANC E ON THE DECISION OF TRIBUNAL IN CASE OF ASSTT. CIT VS SUBHASH CHAND SHO REWALA (91 TTJ 57). EMKAY GLOBAL FINANCIAL SERVICES LTD - 11 - 3.2.1 THE ASSESSEE DISPUTED THE DECISION OF AO AND SUBMITTED BEFORE CIT(A) THAT THE CHARGES LEVIED BY BSE AND NSE WERE FOR DELAY IN PROCEDURAL COMPLIANCE AND WERE COMPENSATORY IN NATU RE AND WERE THUS ALLOWABLE AS DEDUCTION. CIT(A) AGREED WITH THE SUBMISSION OF THE ASSESSEE THAT CHARGES FOR NON COLLECTION OF MARGIN MONEY AND FOR NOT FOLLOWING THE PROCEDURES AND THE BY LAWS WERE MEREL Y BREACH OF CONTRACTUAL LIABILITY AND NOT FOR INFRINGEMENT OR I NFRACTION OF ANY STATUTORY LAW. CIT(A) THEREFORE HELD THAT EXPLAN ATION TO SECTION 37(1) WAS NOT APPLICABLE. CIT(A) PLACED RELIANCE ON THE D ECISION OF TRIBUNAL IN CASE OF GOLDCREST CAPITAL MARKET LTD. VS. ITO (36 DTR 177). HE ACCORDINGLY DELETED THE ADDITION M ADE AGGRIEVED BY WHICH THE REVENUE IS IN APPEAL BEFORE TRIBUNAL. 3.2.2 BEFORE US THE LEARNED AR FOR THE ASSESSEE SUB MITTED THAT THE ISSUE WAS COVERED BY THE DECISION OF TRIBUNAL IN AS SESSEES OWN CASE IN ASSESSMENT YEAR 2008-09 IN ITA NO. 5502/MUM/2011. T HE LEARNED DR ON THE HAND PLACED RELIANCE ON THE ORDERS OF AO. 3.2.3 WE HAVE PERUSED THE RECORDS AND CONSIDERED TH E MATTER CAREFULLY. THE DISPUTE IS REGARDING DISALLOWANCE OF CHARGES LEVIED BY BSE AND NSE FOR NON/PARTIAL COLLECTION OF MARGIN MO NEY. AO HAS HELD THAT THE CHARGES WERE FOR INFRACTION OF LAW AND TH EREFORE NOT ALLOWABLE AS DEDUCTION IN TERMS OF EXPLANATION TO S ECTION 37(1). CIT(A) HAS HOWEVER HELD THAT THERE WAS NO INFRACTION OF LA W INVOLVED AND THE VIOLATION WAS CONTRACTUAL IN NATURE AND HAS ACCORDI NGLY DELETED THE ADDITION. WE FIND THAT THE SAME ISSUE HAS ALREADY B EEN CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT Y EAR 2008-09 VIDE ORDER DATED 15.6.2012 IN ITA NO. 5502/MUM/2011. THE TRIBUNAL REFERRED TO THE JUDGMENT OF JURISDICTIONAL HIGH COU RT OF BOMBAY IN CASE OF M/S STOCK AND BOND TRADING COMPANY IN INCOME TAX APPEAL NO. 4117/2010 DATED 14.10.2011 IN WHICH IT HAS BEEN HEL D THAT PAYMENT EMKAY GLOBAL FINANCIAL SERVICES LTD - 12 - MADE BY THE ASSESSEE TO THE STOCK EXCHANGE FOR VIOL ATION OF THE REGULATIONS WAS NOT FOR ANY OFFENCE OR PROHIBITED B Y LAW. THE PROVISIONS OF EXPLANATION TO SECTION 37(1) WERE NOT APPLICABLE . FACTS IN THE PRESENT YEAR ARE IDENTICAL. THEREFORE RESPECTFULLY FOLLOWING THE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE IN ASSE SSMENT YEAR 2008-09 WE CONFIRM THE ORDER OF CIT()A DELETING THE ADDITIO N MADE. 4. IN THE RESULT BOTH THE APPEALS ARE PARTLY ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 22-10-2 013 SD/- SD/- (SANJAY GARG) (RAJENDRA SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER SKS SR. P.S MUMBAI DATED 22.10.2013 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR I BENCH ITAT MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES MUMBAI