The ACIT, Circle-4(1), Visakhapatnam v. M/s Steel City Securities Ltd., Visakhapatnam

ITA 378/VIZ/2010 | misc
Pronouncement Date: 27-08-2010 | Result: Partly Allowed

Appeal Details

RSA Number 37825314 RSA 2010
Assessee PAN AAECS0970L
Bench Visakhapatnam
Appeal Number ITA 378/VIZ/2010
Duration Of Justice 2 month(s) 11 day(s)
Appellant The ACIT, Circle-4(1), Visakhapatnam
Respondent M/s Steel City Securities Ltd., Visakhapatnam
Appeal Type Income Tax Appeal
Pronouncement Date 27-08-2010
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted Not Allotted
Tribunal Order Date 27-08-2010
Assessment Year misc
Appeal Filed On 16-06-2010
Judgment Text
ITA NO.378/VIZAG/2010 STEEL CITY SECURITIES LTD. VISAKHAPATNAM PAGE 1 OF 4 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV JUDICIAL MEMBER AND SHRI BR BASKARAN ACCOUNTANT MEMBER ITA NO. 378/VIZAG/2010 ASSESSMENT YEAR: 2005-06 ADDL. CIT RANGE-4 VISAKHAPATNAM VS. M/S. STEEL CITY SECURITIES LTD VISAKHAPATNAM (APPELLANT) (RESPONDENT) PAN NO.AAECS 0970L APPELLANT BY: SHRI D.S. SUNDER SINGH (DR) RESPONDENT BY: SHRI G.V.N. HARI CA ORDER PER SHRI B. R. BASKARAN ACCOUNTANT MEMBER: THE APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 30.3.2010 PASSED BY LD. CIT(A) VISAKHAPATNAM AND I T RELATES TO THE ASSESSMENT YEAR 2005-06. 2. FOLLOWING TWO ISSUES ARE URGED IN THIS APPEA L. A) ALLOWABILITY OF COMMISSION PAID TO SUB BROKERS AMOUNTING TO RS.76 68 190/-. B) ELIGIBILITY OF DEPRECIATION ON THE BSE MEMBERS HIP CARD. 3. THE FACTS RELATING TO THE FIRST ISSUE ARE TH AT THE ASSESSEE HEREIN HAD PAID COMMISSION TO SUB BROKERS WHO ARE NOT FOUND T O BE REGISTERED WITH THE SEBI. ACCORDINGLY THE ASSESSING OFFICER DISALL OWED THE CLAIM OF THE ASSESSEE BY TREATING THE SAID PAYMENT AS ILLEGAL EX PENDITURE. SINCE THE LEARNED CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE T HE REVENUE IS IN APPEAL BEFORE US. DURING THE COURSE OF HEARING IT WAS BR OUGHT TO OUR NOTICE THAT AN IDENTICAL ISSUE WAS ADJUDICATED BY THIS BENCH IN THE ASSESSEES OWN CASE ITA NO.378/VIZAG/2010 STEEL CITY SECURITIES LTD. VISAKHAPATNAM PAGE 2 OF 4 FOR THE ASSESSMENT YEAR 2006-07; VIDE ITS ORDER DAT ED 13-08-2010. WE HAVE GONE THROUGH THE SAID ORDER AND EXTRACT BELOW THE RELEVANT OBSERVATIONS: 5. IT WAS ALSO CONTENDED BEFORE THE CIT(A) THAT TH IS EXPENDITURE INCURRED ON PAYMENT TO SUB-BROKERS WAS INCURRED FOR THE BUSINESS PURPOSE AND IT WAS NOT HI T BY THE EXPLANATION TO SECTION 37(1) WHICH WAS INSERTED BY FINANCE ACT 1998 WITH RETROSPECTIVE EFFECT FROM 1.4.1962 ACCORDING TO WHICH ANY EXPENDITURE INCURR ED BY AN ASSESSEE FOR ANY PURPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW IS NOT ALLOWABLE. THE CIT(A) RE- EXAMINED THE ISSUE IN THE LIGHT OF THE ASSESSEES CONTENTIONS AND BEING CONVINCED WITH IT HE HAS DIR ECTED THE A.O. TO ALLOW THE CLAIM OF PAYMENT OF THE ASSES SEES. WHILE DELETING THE ADDITION THE CIT(A) HAS OBSERVE D THAT UNDER THE SEBI RULES AND REGULATIONS THERE IS NO BA R THAT A SUB-BROKER CANNOT CARRY ON ITS BUSINESS DURING TH E PENDANCY OF HIS APPLICATION. HE HAS ALSO OBSERVED THAT A.O. HAS NOT MADE OUT A CASE THAT PAYMENTS MADE TO THE UNREGISTERED SUB-BROKERS WERE NOT FOR THE PURPOSE OF BUSINESS OR BOGUS. HE SIMPL Y DISALLOWED THE SAID EXPENDITURE ON THE GROUND OF ILLEGALITY FOR VIOLATING THE PROVISIONS CONTAINED I N SEBI REGULATIONS 1992. 6. NOW THE REVENUE IS BEFORE US WITH THE SUBMISSIONS THAT CIT(A) HAS WRONGLY OBSERVED THAT S UB- BROKER CAN CARRY ON ITS BUSINESS DURING THE PENDANC Y OF HIS APPLICATION OR TILL ITS REFUSAL. THE LD. D.R. FURTHER CONTENDED THAT SUB-BROKERS CAN ONLY CARRY ON ITS BUSINESS AFTER OBTAINING THE CERTIFICATE FROM THE B OARD UNDER THE REGULATIONS. IN SUPPORT OF HIS CONTENTIO N HE HAS INVITED OUR ATTENTION TO RULE 11 OF THE SEBI REGULATIONS 1992 AND SEBI RULES 1992 ACCORDING TO WHICH NO SUB-BROKER SHALL ACT AS SUCH UNLESS HE HO LDS A CERTIFICATE GRANTED BY THE BOARD UNDER THE REGULATI ONS. SINCE THE PAYMENTS WERE MADE TO A SUB-BROKER WHO IS NOT AUTHORIZED TO CARRY ON ITS BUSINESS ON THE STOC K EXCHANGE THE PAYMENT WAS RIGHTLY 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 PAY MENTS MADE TO THE SUB-BROKERS WERE FOR BUSINESS EXIGENCIE S OR ITA NO.378/VIZAG/2010 STEEL CITY SECURITIES LTD. VISAKHAPATNAM PAGE 3 OF 4 THE BUSINESS PURPOSE. IN THIS 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 THE SE PAYMENTS WERE MADE FOR THE BUSINESS PURPOSE. 8. WE HAVE GONE THROUGH THE NATURE OF EXPENSES AND WE FIND THAT THESE EXPENSES WERE INCURRED FOR T HE BUSINESS PURPOSE. THE REVENUE HAS NOT MADE OUT A C ASE THAT THE PAYMENTS WERE MADE IN CONTRAVENTION TO SOM E LEGAL PROVISIONS OR AGAINST THE PUBLIC POLICIES. T HE PAYMENTS WERE ADMITTEDLY MADE TO THE SUB-BROKERS WH O HAS RENDERED SERVICES FOR THE ASSESSEES AND FOR THE BUSINESS PURPOSE. AS SUCH THESE PAYMENTS CANNOT B E DENIED U/S 37(1) OF THE ACT. A QUESTION IS ONLY LE FT OUT WHETHER THE SUB-BROKER WAS AUTHORIZED TO CARRY ON H IS BUSINESS UNDER THE SEBI RULES? IN THIS REGARD WE AR E OF THE VIEW THAT IF THE SUB-BROKER HAS CARRIED ON ITS BUSINESS 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 CONTRAVENTION T O 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 EA CH AND EVERY ASPECT IN HIS ORDER. WE THEREFORE FIND N O INFIRMITY IN HIS ORDER AND WE CONFIRM THE SAME. CONSISTENT WITH THE VIEW TAKEN THEREIN WE UPHOLD T HE ORDER PASSED BY THE LEARNED CIT(A) ON THIS ISSUE. 4. THE NEXT ISSUE RELATES TO THE ALLOWABILITY O F DEPRECIATION ON THE BSE MEMBERSHIP CARD. THE CLAIM OF DEPRECIATION ON THE BSE MEMBERSHIP CARD WAS DISALLOWED BY THE ASSESSING OFFICER. IN THE AP PEAL PREFERRED BY THE ASSESSEE LEARNED CIT(A) ALLOWED THE CLAIM OF DEPRE CIATION BY PLACING RELIANCE ON THE DECISION OF HON'BLE ITAT COCHIN IN THE CASE OF PENINSULAR CAPITAL MARKET LTD (ITA NO.190 (COCH)/2005 AND 245 (COCH)/2006. NOW THE REVENUE IS CONTESTING THE SAID DECISION BY PLAC ING RELIANCE ON THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE O F CIT VS.TECHNO SHARES AND STOCKS LTD (323 ITR 69; 225 CTR 337). WE HAVE GONE THROUGH THE SAID ITA NO.378/VIZAG/2010 STEEL CITY SECURITIES LTD. VISAKHAPATNAM PAGE 4 OF 4 DECISION OF HON'BLE BOMBAY HIGH COURT AND NOTICE TH AT THE HON'BLE HIGH COURT HAS HELD THAT THE TERM LICENCE USED IN SECT ION 32(1)(II) OF THE ACT CONTEMPLATES THE BUSINESS OR COMMERCIAL RIGHTS RELA TING TO INTELLECTUAL PROPERTIES AND NOT ALL CATEGORIES OF BUSINESS OR CO MMERCIAL RIGHTS. ACCORDINGLY THE HON'BLE BOMBAY HIGH COURT HELD THAT DEPRECIATION UNDER SECTION 32 WAS NOT ALLOWABLE ON THE STOCK EXCHANGE MEMBERSHIP CARD. IN VIEW OF THE DECISION OF HON'BLE BOMBAY HIGH COURT WE SET ASIDE THE ORDER OF LEARNED CIT(A) AND CONFIRM THE DISALLOWANCE OF D EPRECIATION MADE BY THE ASSESSING OFFICER ON THE BSE MEMBERSHIP CARD. 5. IN THE RESULT THE APPEAL OF THE REVENUE IS PARTL Y ALLOWED. PRONOUNCED IN THE OPEN COURT ON 27 TH AUGUST 2010. SD/- SD/- (SUNIL KUMAR YADAV) (B R BASKARAN ) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM DATE: 27 TH AUGUST 2010 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 4. THE CIT 2 VISAKHAPATNAM THE CIT(A) VISAKHAPATNAM 5 THE DR ITAT VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM