DCIT 4(1), MUMBAI v. ENAM SECURITIES P. LTD, MUMBAI

ITA 4179/MUM/2009 | 2006-2007
Pronouncement Date: 14-05-2010 | Result: Dismissed

Appeal Details

RSA Number 417919914 RSA 2009
Assessee PAN AAACE5146N
Bench Mumbai
Appeal Number ITA 4179/MUM/2009
Duration Of Justice 10 month(s) 7 day(s)
Appellant DCIT 4(1), MUMBAI
Respondent ENAM SECURITIES P. LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 14-05-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted E
Tribunal Order Date 14-05-2010
Assessment Year 2006-2007
Appeal Filed On 07-07-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E MUMBAI BEFORE SHRI R.V. EASWAR SR. VICE PRESIDENT & SHRI R.K.PANDA AM I.T.A. NO. 4178/MUM/2009 (ASSESSMENT YEAR 2005-06) I.T.A. NO. 4179/MUM/2009 (ASSESSMENT YEAR 2006-07) DY. CIT-4(1) 6 TH FLOOR R. NO. 640 AAYAKAR BHAVAN MUMBAI-400 020 VS. M/S. ENAM SECURITIES PVT. LTD. 24 B.D. RAJABAHADUR COMPOUND 1 ST FLOOR AMABALAL DOSHI MARG MUMBAI-400 001 PAN: AAACE5146N APPELLANT RESPONDENT APPELLANT BY : SHRI NAVEEN GUPTA RESPONDENT BY : SHRI RAJNIKANT V. CHERIYAN ORDER DATE OF HEARING: 06.05.2010 DATE OF ORDER: 14.05.2010 PER R.K.PANDA AM THE ABOVE TWO APPEALS FILED BY THE REVENUE ARE DIR ECTED AGAINST THE ORDERS DATED 17 TH APRIL 2009 AND 6 TH APRIL 2009 OF THE CIT(A)-IV MUMBAI RELATING TO ASSESSMENT YEARS 2005-06 AND 200 6-07 RESPECTIVELY. SINCE COMMON GROUNDS ARE INVOLVED IN BOTH THE APPEA LS THEREFORE THESE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY TH IS COMMON ORDER FOR THE SAKE OF CONVENIENCE. I.T.A. NO. 4178/MUM/2009 (A.Y. 2005-06): 2. GROUNDS OF APPEAL NO. 1 BY THE REVENUE READS AS UND ER: I. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) ERRED IN ALLOWING THE PENALTY OF RS.13 16 099/- LEVIED BY STOCK EXCHANGE SHC LTD. A ND N?SCCL. THE LD. CIT(A) FAILED TO APPRECIATE THAT T HE ITA NOS. 4178& 4179/MUM/2009 M/S. ENAM SECURITIES PVT. LTD. ========================= 2 PENALTY LEVIED BY STOCK EXCHANGE SHC LTD. AND NSCC L IS FOR THE OFFICE FOR VIOLATION OF THE LAW. 3. AFTER HEARING BOTH THE SIDES WE FIND THE ASSESSING OFFICER DISALLOWED AN AMOUNT OF RS.13 16 099 BEING PENALTIE S/FINES PAID BY THE ASSESSEE TO BOMBAY STOCK EXCHANGE AMOUNTING TO RS.3 9 494 STOCK HOLDING CORPORATION OF INDIA LTD. AMOUNTING TO RS.3 5 939 AND NSCCL AMOUNTING TO RS.12 40 676 ON THE GROUND THAT THE SA ME IS PENAL IN NATURE. 4. IN APPEAL THE LEARNED CIT(A) DELETED THE ABOVE DIS ALLOWANCE HOLDING THAT STOCK EXCHANGES ARE NOT GOVERNMENT OR SEMI GOVERNMENT BODIES BUT THEY ARE COMPANIES. THE PAYMENTS MADE T O STOCK EXCHANGE FOR VIOLATION OF THEIR REGULATIONS ARE NOT EXPENDITURE FOR ANY PURPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW. HENCE IN VOCATION OF EXPLANATION TO SECTION 37 IS NOT CORRECT. 4.1 WE FIND THE ABOVE ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE FOLLOWING DECISIONS OF THE TRIBUNAL: 1. GOLDCREST CAPITAL MARKETS LTD. V. ITO 36 DTR 1 77 (MUM). 2. ITO VS. VRM SHARE BROKING PVT. LTD. 27 SOT 469 (MUM). 3. MASTER CAPITAL SERVICES LTD. V. DCIT 108 TTJ 3 89 (CHD.) 4. CLASSIC SHARES & STOCK BROKING SERVICES LTD. (IT A NOS. 2324 & 4258/MUM/2004). 5. ITO VS. GDB SHARE AND STOCK BROKING SERVICES LT D. 3 SO 569 (KOL). 5. IN THE CASE OF GOLDCREST CAPITAL MARKETS LTD. (SUPR A) IT HAS BEEN HELD THAT THOUGH EVERY MEMBER OF NSE LTD. IS OBLIG ED TO ABIDE BY ITS RULES AND REGULATION A VIOLATION THEREOF CANNOT BE TREA TED AS VIOLATION OF A STATUTORY LAW OR RULE AND THEREFORE FINE IMPOSED ON THE ASSESSEE A MEMBER OF NSE FOR VIOLATION OF REGULATIONS OF NSE CANNOT BE DISALLOWED. 6. IN THE CASE OF VRM SHARE BROKING PVT. LTD. (SUPRA) WE FIND THE TRIBUNAL AT PARA 10 OF THE ORDER HAS OBSERVED AS UN DER: 10. WE HAVE HEARD THE RIVAL SUBMISSIONS THE AMOUN T PAID IS A PENALTY AS PER THE NOMENCLATURE RAISED PAID PA GE 10 OF ITA NOS. 4178& 4179/MUM/2009 M/S. ENAM SECURITIES PVT. LTD. ========================= 3 THE PAPER BOOK AND SAME IS LEVIED FOR VIOLATION OF THE MARGINS IMPOSED BY THE SEBI ON THE SHARE BROKERS. WE HAVE ALSO EXAMINED THE IMPORTANCE OF THE MARGIN IMPOSED BY TH E SEBI IN THIS REGARD. AS SEEN FROM THE NOTIFICATIONS ISS UED BY THE SEBI. WE FIND THAT SUCH MARGINS ARE IMPOSED IN ORD ER TO REDUCE THE RISK COMPONENTS AND THEREFORE THESE AR E BASICALLY RISK MANAGEMENT ORIENTED PENALTIES WHICH ARE ROUTI NE IN NATURE. WE ALSO FIND THAT THESE VIOLATIONS ARE OFF ER BY PAYMENT OF PENALTY AS IN THE INSTANT CASE. HAVING REGARD TO THE PURPOSE OF THE PROVISIONS OF SECTION 37(1) WHIC H IS AIMED AT PROVIDING DETERRENCE FOR INFRACTION OF ACTS OF T HE COUNTRY THE VIOLATION AS IN THE INSTANT CASE ARE NOT FOUND TO ATTRACT THE PROVISIONS OF THE SAID PROVISO. THEREFORE WE ARE OF THE CONSIDERED OPINION THAT THIS IS NOT FIT CASE FOR IN VOKING SAID PROVISO. ACCORDINGLY ORDER OF THE CIT(A) DOES NOT CALL FOR ANY INTERFERENCE. ACCORDINGLY GROUND 3 OF THE REVENUE IS DISMISSED. 7. SIMILARLY WE FIND THE CHANDIGARH BENCH OF THE TRIB UNAL IN THE CASE OF MASTER CAPITAL SERVICES LTD. (SUPRA) HAS HELD TH AT FINES AND PENALTIES PAID BY ASSESSEE TO NSE FOR TRADING BEYOND EXPOSURE LIMIT LATE SUBMISSIONS OF MARGIN CERTIFICATES DUE TO COMPUTER SOFTWARE PROBLEM AND DELAY IN MARKETING DELIVERIES OF SHARES DUE TO DEFI CIENCIES THE PAYMENTS MADE IN REGULAR COURSE OF BUSINESS AND NOT FOR INFR ACTION OF LAW HENCE ALLOWABLE. THE OTHER DECISIONS CITED ABOVE ALSO S UPPORT THE CASE OF THE ASSESSEE. 8. IN VIEW OF THE DECISIONS CITED ABOVE AND IN ABSENCE OF ANY DISTINGUISHABLE FEATURES BROUGHT TO OUR NOTICE AGAI NST THE DECISIONS OF THE CO-ORDINATE BENCHES OF THE TRIBUNAL WE RESPECTFULL Y FOLLOWING THE ABOVE DECISIONS DO NOT FIND ANY INFIRMITY IN THE ORDER O F THE CIT(A) AND ACCORDINGLY UPHOLD THE SAME. THIS GROUND RAISED BY THE REVENUE IS ACCORDINGLY DISMISSED. 9. GROUNDS OF APPEAL NO. 2 BY THE REVENUE READS AS UND ER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN DELETING THE EXPENSES OF RS .2 50 460/- WRITTEN OFF BY WAY OF SUNDRY BALANCES WITHOUT APPRE CIATING THE FACT THAT THE SAME WERE NOT INCIDENTAL TO BE BU SINESS. ITA NOS. 4178& 4179/MUM/2009 M/S. ENAM SECURITIES PVT. LTD. ========================= 4 10. AFTER HEARING BOTH THE SIDES WE FIND THE ASSESSING OFFICER DISALLOWED AN AMOUNT OF RS.2 50 460 CLAIMED BY THE ASSESSEE AS SUNDRY BALANCES WRITTEN OFF ON THE GROUND THAT THE CONDITI ONS OF SECTION 36(1)(VII) R.W.S. 36(2) ARE NOT MET AND THEREFORE DEDUCTION CANNOT BE ALLOWED ON THE SAME AS A BAD DEBT. SIMILARLY HE AL SO DISALLOWED THE SAME AS BUSINESS LOSS IN ABSENCE OF DETAILS. 11. BEFORE THE CIT(A) IT WAS SUBMITTED THAT THESE ARE BROKERAGE DIFFERENCES VALAN ACCOUNT DIFFERENCES WHICH WERE W RITTEN OFF. THE LEDGER ACCOUNTS OF ALL THESE PARTIES WERE FILED BEFORE THE CIT(A). BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE THE CIT(A) HELD THAT THE ASSESSEE HAS DECLARED TOTAL INCOME OF RS. 25.12 CRORES IN TH E RETURN OF INCOME AND HAS EXTREMELY HUGE TURNOVER AND THE VALAN DIFFERENC ES IS IN THE REGULAR COURSE OF BUSINESS AND IS AN ALLOWABLE EXPENDITURE. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REVENUE IS IN APPEAL BEFOR E US. 12. THE LEARNED DR SUPPORTED THE ORDER OF THE ASSESSING OFFICER. 13. THE LEARNED COUNSEL FOR THE ASSESSEE WHILE SUPPORTI NG THE ORDER OF THE CIT(A) SUBMITTED THAT THE SUNDRY BALANCES WRITT EN OFF AMOUNTING TO RS.2 50 460 IS ON ACCOUNT OF SMALL DIFFERENCES WHIC H ARISE ON ACCOUNT OF ROUNDING OFF OF THE ACCOUNT. AS THE SAME WAS NOT R ECOVERABLE IT HAS BEEN WRITTEN OFF AS SUNDRY BALANCE WRITTEN OFF. HE SUBM ITTED THAT THE TOTAL TURNOVER OF THE COMPANY FOR THE RELEVANT ASSESSMENT YEAR WAS RS. 12 850 CRORES AND THE COMPANY HAS RECEIVED BROKERAGE INCOM E OF RS.39 74 47 225. HE SUBMITTED THAT THE DIFFERENCE OCCURS AS CLIENTS CALCULATE THE BROKERAGE ON MARKET VALUE WHEREAS THE ASSESSEE COMPANY CALCULATES THE BROKERAGE ON PER SHARE BASIS WITH TH E TOTAL TRADED QUANTITY. HE SUBMITTED THAT THERE ARE BOTH POSITIVE AND NEGAT IVE INCOMES ON SUCH ROUNDING UP OF INCOME AND THE ASSESSEE HAS WRITTEN OFF THE NET AMOUNT ONLY. THE ASSESSING OFFICER HAS WRONGLY UNDERSTOOD THE AFFAIRS OF THE ASSESSEE COMPANY AND DISALLOWED THE CLAIM WHICH WAS RIGHTLY ALLOWED BY THE CIT(A). ITA NOS. 4178& 4179/MUM/2009 M/S. ENAM SECURITIES PVT. LTD. ========================= 5 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY BO TH THE SIDES PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE FIND THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE PRESUMING THE SAME AS BAD DEBT WRITTEN OFF. HOWEVER IT IS THE CONTENTION OF THE ASSESSEE THAT THE SAME IS ON ACCOUNT OF ROUNDING UP OF SUCH INCOME AND THERE ARE BOTH POSITIVE AND NEGATIVE ITEMS AND ONLY THE NET AMOUNT HAS BEEN WRI TTEN OFF WHICH IS CONSISTENTLY BEING FOLLOWED BY THE ASSESSEE COMPANY . SINCE THE ASSESSING OFFICER HAS NOT CONSIDERED THE SAME FROM THIS ANGLE AND SINCE THE ORDER OF THE CIT(A) IS ALSO VERY BRIEF AND CRYPTIC WE IN T HE INTEREST OFJUSTICE DEEM IT PROPER TO RESTORE THE ISSUE TO THE FILE OF THE A SSESSING OFFICER FOR FRESH ADJUDICATION OF THE ISSUE. NEEDLESS TO SAY THE AS SESSING OFFICER SHALL GIVE DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND DECIDE THE ISSUE AS PER LAW. GROUNDS OF APPEAL NO. 2 BY THE REVENUE IS ACC ORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 15. GROUNDS OF APPEAL NO. 3 BEING GENERAL IN NATURE IS DISMISSED. I.T.A. NO. 4179/MUM/2009 (A.Y. 2006-07): 16. GROUNDS OF APPEAL NO. 1 BY THE REVENUE READS AS UND ER: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) ERRED IN ALLOWING HE PENALTY OF RS.12 89 895/- LEVIED BY BSE & NSE. THE LD. CIT(A) FAILED TO APPR ECIATE THAT THE PENALTY LEVIED BY BSE & NSE IS FOR THE OFFENCE FOR VIOLATION OF THE LAW. 17. AFTER HEARING BOTH THE SIDES WE FIND THE ABOVE GRO UND IS IDENTICAL TO GROUNDS OF APPEAL NO. 1 VIDE I.T.A. NO. 4178/MUM /2009. WE HAVE ALREADY DECIDED THE ISSUE AND THE GROUND RAISED BY THE REVENUE HAS BEEN DISMISSED. FOLLOWING THE SAME RATIO THIS GROUND BY THE REVENUE IS DISMISSED. 18. GROUNDS OF APPEAL NO. 2 BY THE REVENUE READS AS UND ER: 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD. CIT(A) ERRED IN FOLLOWING ITS DECIS ION IN THE ASSESSEES OWN CASE FOR A.Y. 2002-03 & 2004-05 AND DELETING ITA NOS. 4178& 4179/MUM/2009 M/S. ENAM SECURITIES PVT. LTD. ========================= 6 THE DISALLOWANCE OF RS.33 33 333/- MADE ON ACCOUNT OF LONG TERM CAPITAL LOSS ARRIVED AT AFTER INDEXATION HOLDI NG THAT ASSESSEES CASE SQUARELY FALLS WITHIN CLAUSE (I) OF SEC. 2(47) OF THE ACT AND ACCORDINGLY REDEMPTION OF SHARES WILL FALL WITHIN THE MEANING OF TRANSFER IN RELATION TO THE CAPITAL ASSET AND THEREFORE THE ASSESSEE IS ENTITLED TO CLAIM INDEXA TION ON SUCH REDEMPTION OF SHARES. 19. FACTS OF THE CASE IN BRIEF ARE THAT IN THE RETURN OF INCOME. THE ASSESSEE CLAIMED LONG TERM CAPITAL LOSS AMOUNTING T O RS.33 33 333 ARISING ON ACCOUNT OF REDEMPTION OF 2 00 000 8% NON CUMULA TIVE REDEEMABLE PREFERENCE SHARES OF FACE VALUE OF RS.100/- OF ALLI ANCE HOLDING PVT. LTD. THESE SHARES WERE REDEEMED AT PAR DURING THE YEAR U NDER ASSESSMENT AND LONG TERM CAPITAL LOSS WAS COMPUTED BY INDEXING THE COST OF ACQUISITION OF SHARES. THE ASSESSEE FILED A DETAIL ED WRITTEN SUBMISSION IN THIS REGARD. ON PERUSAL OF THE ASSESSEES ASSESSME NT RECORDS OF EARLIER YEARS THE ASSESSING OFFICER NOTED THAT SIMILAR LOS SES ON ACCOUNT OF REDEMPTION OF PREFERENCE SHARES WERE DISALLOWED IN THE ORDERS U/S. 143(3) FOR A.Y. 2002-03 AND 2004-05. HE ALSO NOTED THAT THESE DISALLOWANCES WERE DELETED BY THE CIT(A) IN HIS APP ELLATE ORDER AND DEPARTMENT IS IN APPEAL BEFORE THE ITAT MUMBAI AG AINST THE ORDERS OF THE CIT(A). HENCE FOLLOWING THE ASSESSMENT ORDERS FOR A.Y. 2002-03 AND 2004-05 THE ASSESSING OFFICER DISALLOWED THE LOSS ON ACCOUNT OF REDEMPTION OF PREFERENCE SHARES FOR THIS YEAR ALSO AND ACCORDINGLY DID NOT ALLOW THE LOSS TO BE CARRIED FORWARD. 20. IN APPEAL THE LEARNED CIT(A) FOLLOWING HIS ORDERS FOR THE EARLIER YEARS DELETED THE DISALLOWANCE. AGGRIEVED WITH SUC H ORDER OF THE CIT(A) THE REVENUE IS IN APPEAL BEFORE US. 21. AFTER HEARING BOTH THE SIDES WE FIND THE CIT(A) FO LLOWING HIS ORDERS FOR THE EARLIER YEARS DELETED THE DISALLOWAN CE MADE BY THE ASSESSING OFFICER. WE FIND THE ORDER OF THE CIT(A) FOR THE A.Y. 2002-03 HAS BEEN UPHELD BY THE TRIBUNAL IN ITS CONSOLIDATED ORDER VIDE I.T.A. NO. 3233/MUM/2006 AND I.T.A. NO. 3474/MUM/2006 ORDER DA TED 19 TH DECEMBER 2008 FOR THE A.Y. 2002-03 WHEREIN IT HAS BEEN HELD THAT THE ITA NOS. 4178& 4179/MUM/2009 M/S. ENAM SECURITIES PVT. LTD. ========================= 7 ASSESSEE IS ENTITLED TO INDEXATION AS PROVIDED IN S ECTION 48 OF THE ACT ON NON CUMULATIVE REDEEMABLE PREFERENCE SHARES. SINCE THE CIT(A) HAS FOLLOWED THE ORDER OF HIS PREDECESSOR FOR THE A.Y. 2002-03 WHICH HAS BEEN UPHELD BY THE TRIBUNAL THEREFORE IN ABSENCE OF AN Y CONTRARY MATERIAL BROUGHT TO OUR NOTICE AGAINST THE DECISION OF THE T RIBUNAL THE SAME IS UPHELD AND THE GROUND RAISED BY THE REVENUE IS DISM ISSED. 22. GROUNDS OF APPEAL NO. 3 BY THE REVENUE BEING GENERA L IN NATURE IS DISMISSED. 23. IN THE RESULT I.T.A. NO. 4178/MUM/2009 IS PARTLY A LLOWED FOR STATISTICAL PURPOSES AND I.T.A. NO. 4179/MUM/2009 I S DISMISSED. PRONOUNCED ON 14 TH MAY 2010 SD/- (R.V. EASWAR) SR. VICE PRESIDENT SD/- (R.K. PANDA) ACCOUNTANT MEMBER MUMBAI DATED 14 TH MAY 2010 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A)-IV MUMBAI 4. THE CIT-4 MUMBAI 5. THE DR E BENCH. //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI TPRAO