The Ad CIT, Range-4, Visakhapatnam., Visakhapatnam v. M/s Steel City Securities Ltd., Visakhapatnam

ITA 351/VIZ/2009 | 2006-2007
Pronouncement Date: 13-08-2010 | Result: Dismissed

Appeal Details

RSA Number 35125314 RSA 2009
Bench Visakhapatnam
Appeal Number ITA 351/VIZ/2009
Duration Of Justice 1 year(s) 1 month(s) 27 day(s)
Appellant The Ad CIT, Range-4, Visakhapatnam., Visakhapatnam
Respondent M/s Steel City Securities Ltd., Visakhapatnam
Appeal Type Income Tax Appeal
Pronouncement Date 13-08-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted DB
Tribunal Order Date 13-08-2010
Assessment Year 2006-2007
Appeal Filed On 16-06-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV JUDICIAL MEMBER AND SHRI BR BASKARAN ACCOUNTANT MEMBER ITA NO.351/VIZAG/2009 ASSESSMENT YEAR : 2006-07 ADDL. CIT RANGE-4 VISAKHAPATNAM M/S. STEEL CITY SECURITIES LTD VISAKHAPATNAM (APPELLANT) VS. (RESPONDENT) PAN NO.AAECS 0970L APPELLANT BY: SHRI SUBRATA SARKAR DR RESPONDENT BY: SHRI G.V.N. HARI CA ORDER PER SHRI S.K. YADAV JUDICIAL MEMBER:- THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST T HE ORDER OF THE CIT(A) ON A SOLITARY GROUND THAT CIT(A) HAS ERRED I N LAW AND FACTS IN DELETING THE DISALLOWANCE OF RS.4 74 37 467/- PAID TO THE SU B-BROKER WHICH WAS NOT REGISTERED AS PER THE SEBI RULES AND REGULATIONS. 2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULL Y PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND DOCUMENTS PLACED ON RE CORD. 3. FACTS IN BRIEF BORNE OUT FROM THE RECORD ARE THA T THE ASSESSEE COMPANY IS A SHARE BROKER AND IS A MEMBER OF BOMBAY STOCK EXCHANGE AND NATIONAL STOCK EXCHANGE. FOR THE ASSESSMENT YEAR 2006-07 THE RETURN OF INCOME WAS FILED DISCLOSING INCOME OF RS.7 70 34 99 0/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS NOTICED BY THE A.O. THAT ASSESSEE HAS CLAIMED AN EXPENDITURE OF RS.7 97 80 937/- TOWARDS BUSINESS DEVELOPMENT WHICH CONSISTED PAYMENTS MADE TO SUB-BROKERS. FROM THE DETAILS OF PAYMENTS IT WAS NOTICED THAT AN AMOUNT OF RS.3 23 4 3 470/- WAS PAID TO REGISTER SUB-BROKERS AND THE BALANCE AMOUNT OF RS.4 74 37 467/- WAS PAID TO UNREGISTERED SUB-BROKERS. THE A.O. DISALLOWED THE PAYMENTS MADE TO UNREGISTERED SUB-BROKERS BY REFERRING TO SEBI (STOCK BROKERS & SUB-BROKERS) REGULATIONS 1992 THAT NO SUB-BROKER SHALL ACT AS S UCH UNLESS HE HOLDS A CERTIFICATE GRANTED BY THE BOARD UNDER REGULATIONS OF SEBI. 2 4. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT( A) WITH THE SUBMISSIONS THAT THE SUB-BROKER HAS FILED THE APPLI CATION FOR REGISTRATION AND TILL THE REGISTRATION IS GRANTED THE SUB-BROKER CA N CARRY ON ITS BUSINESS. MEANING THEREBY THE SUB-BROKERS WERE NOT DEBARRED FROM CARRYING ON THEIR BUSINESS BEFORE THE REFUSAL OF THE APPLICATION. IT WAS ALSO EXPLAINED THAT WHATEVER PAYMENT WAS MADE IT WAS MADE TO THOSE SUB -BROKERS WHO HAVE ALREADY APPLIED FOR CERTIFICATE AND THE APPLICATION WAS NOT REFUSED DURING THAT PERIOD. 5. IT WAS ALSO CONTENDED BEFORE THE CIT(A) THAT THIS EXPENDITURE INCURRED ON PAYMENT TO SUB-BROKERS WAS INCURRED FOR THE BUSI NESS PURPOSE AND IT WAS NOT HIT BY THE EXPLANATION TO SECTION 37(1) WHICH W AS INSERTED BY FINANCE ACT 1998 WITH RESTROSPECTIVE EFFECT FROM 1.4.1962 ACCO RDING TO WHICH ANY EXPENDITURE INCURRED BY AN ASSESSEE FOR ANY PURPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW IS NOT ALLOWABLE. THE C IT(A) RE-EXAMINED THE ISSUE IN THE LIGHT OF THE ASSESSEES CONTENTIONS AND BEIN G CONVINCED WITH IT HE HAS DIRECTED THE A.O. TO ALLOW THE CLAIM OF PAYMENT OF THE ASSESSEES. WHILE DELETING THE ADDITION THE CIT(A) HAS OBSERVED THAT UNDER THE SEBI RULES AND REGULATIONS THERE IS NO BAR THAT A SUB-BROKER CANN OT CARRY ON ITS BUSINESS DURING THE PENDENCY OF HIS APPLICATION. HE HAS ALS O OBSERVED THAT A.O. HAS NOT MADE OUT A CASE THAT PAYMENTS MADE TO THE UNREG ISTERED SUB-BROKERS WERE NOT FOR THE PURPOSE OF BUSINESS OR BOGUS. HE SIMPLY DISALLOWED THE SAID EXPENDITURE ON THE GROUND OF ILLEGALITY FOR VIOLATI NG THE PROVISIONS CONTAINED IN SEBI REGULATIONS 1992. 6. NOW THE REVENUE IS BEFORE US WITH THE SUBMISSION S THAT CIT(A) HAS WRONGLY OBSERVED THAT SUB-BROKER CAN CARRY ON ITS B USINESS DURING THE PENDENCY OF HIS APPLICATION OR TILL ITS REFUSAL. T HE LD. D.R. FURTHER CONTENDED THAT SUB-BROKERS CAN ONLY CARRY ON ITS BUSINESS AFT ER OBTAINING THE CERTIFICATE FROM THE BOARD UNDER THE REGULATIONS. IN SUPPORT O F HIS CONTENTION HE HAS INVITED OUR ATTENTION TO RULE 11 OF THE SEBI REGULAT IONS 1992 AND SEBI RULES 1992 ACCORDING TO WHICH NO SUB-BROKER SHAL L ACT AS SUCH UNLESS HE HOLDS A CERTIFICATE GRANTED BY THE BOARD UNDER THE REGULATIONS. SINCE THE PAYMENTS WERE MADE TO A SUB-BROKER WHO IS NOT AUTHO RIZED TO CARRY ON ITS 3 BUSINESS ON THE STOCK EXCHANGE THE PAYMENT WAS RIG HTLY DISALLOWED BY THE A.O. 7. DURING THE COURSE OF HEARING A SPECIFIC QUERY W AS RAISED FROM THE LD. D.R. TO SPECIFY WHETHER THE PAYMENTS MADE TO THE SU B-BROKERS WERE FOR BUSINESS EXIGENCIES OR THE BUSINESS PURPOSE. IN THI S REGARD THE LD. D.R. HAS CANDIDLY ADMITTED THAT THE A.O. HAS NOT DISPUTED TH E NATURE OF EXPENSES RATHER HE HAS ACCEPTED THAT THESE PAYMENTS WERE MAD E FOR THE BUSINESS PURPOSE. 8. WE HAVE GONE THROUGH THE NATURE OF EXPENSES AND WE FIND THAT THESE EXPENSES WERE INCURRED FOR THE BUSINESS PURPOSE. T HE REVENUE HAS NOT MADE OUT A CASE THAT THE PAYMENTS WERE MADE IN CONTRAVEN TION TO SOME LEGAL PROVISIONS OR AGAINST THE PUBLIC POLICIES. THE PAY MENTS WERE ADMITTEDLY MADE TO THE SUB-BROKERS WHO HAS RENDERED SERVICES F OR THE ASSESSEES AND FOR THE BUSINESS PURPOSE. AS SUCH THESE PAYMENTS CANN OT BE DENIED U/S 37(1) OF THE ACT. A QUESTION IS ONLY LEFT OUT WHETHER TH E SUB-BROKER WAS AUTHORIZED TO CARRY ON HIS BUSINESS UNDER THE SEBI RULES? IN TH IS REGARD WE ARE OF THE VIEW THAT IF THE SUB-BROKER HAS CARRIED ON ITS BUSI NESS IN CONTRAVENTION TO THE RULES HE CAN BE PENALIZED UNDER THE SEBI RULES BUT FOR THE REASONS THAT SUB- BROKER HAS ACTED OR CARRIED ON HIS BUSINESS IN CONT RAVENTION TO THE SEBI RULES PAYMENTS MADE TO IT CANNOT BE DISALLOWED AS IT WAS INCURRED FOR THE BUSINESS PURPOSE. 9. WE HAVE CAREFULLY EXAMINED THE ORDER OF THE CIT( A) AND WE FIND THAT HE HAS LUCIDLY DISCUSSED EACH AND EVERY ASPECT IN H IS ORDER. WE THEREFORE FIND NO INFIRMITY IN HIS ORDER AND WE CONFIRM THE S AME. 10. IN THE RESULT THE APPEAL OF THE REVENUE IS DISM ISSED. PRONOUNCED IN THE OPEN COURT ON 13.8.2010 SD/- SD/- (BR BASKARAN) (SUNIL KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER VG/SPS VISAKHAPATNAM DATED 13 TH AUGUST 2010 4 COPY TO 1 THE ADDL. CIT RANGE-4 VISAKHAPATNAM 2 M/S. STEEL CITY SECURITIES LTD. 49-52-5/4 SRI K ANYA TOWERS SANTHIPURAM VISAKHAPATNAM 3 THE CIT VISAKHAPATNAM 4 THE CIT(A) VISAKHAPATNAM 5 THE DR ITAT VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM