CREATIVE GLOBAL STOCK BROKING PVT.LTD., MUMBAI v. DCIT 4 (1), MUMBAI

ITA 4375/MUM/2010 | 2005-2006
Pronouncement Date: 18-11-2011 | Result: Partly Allowed

Appeal Details

RSA Number 437519914 RSA 2010
Assessee PAN AABCC6279R
Bench Mumbai
Appeal Number ITA 4375/MUM/2010
Duration Of Justice 1 year(s) 5 month(s) 20 day(s)
Appellant CREATIVE GLOBAL STOCK BROKING PVT.LTD., MUMBAI
Respondent DCIT 4 (1), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 18-11-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted I
Tribunal Order Date 18-11-2011
Date Of Final Hearing 25-10-2011
Next Hearing Date 25-10-2011
Assessment Year 2005-2006
Appeal Filed On 28-05-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL 'C' BENCH MUMBAI BEFORE SHRI D. MANMOHAN VICE PRESIDENT AND SHRI R.S. SYAL ACCOUNTANT MEMBER ITA NO. 4375/MUM/2010 (ASSESSMENT YEAR: 2005-06) M/S. CREATIVE GLOBAL STOCK BROKING D C I T - 4(1) PRIVATE LIMITED 6TH FLOOR AAYAKAR BHAVAN CAMA INDUSTRIAL ESTATE 1ST FLOOR VS. M.K. ROAD MUMBAI 400020 SUN MILL COMPOUND LOWER PAREL MUMBAI 400013 PAN - AABCC 6279 R APPELLANT RESPONDENT ITA NO. 4873/MUM/2010 (ASSESSMENT YEAR: 2005-06) D C I T - 4(1) M/S. CREATIVE GLOBAL STOCK BROKING 6TH FLOOR AAYAKAR BHAVAN PRIVATE LIMITED M.K. ROAD MUMBAI 400020 VS. CAMA INDUSTRIAL ESTATE 1ST FLOOR SUN MILL COMPOUND LOWER PAREL MUMBAI 400013 PAN - AABCC 6279 R APPELLANT RESPONDENT ASSESSEE BY: SHRI RAJIV KHANDELWAL REVENUE BY: SHRI V.S. SHASTRI DATE OF HEARING: 25.10.2011 DATE OF PRONOUNCEMENT: 18.11.2011 O R D E R PER D. MANMOHAN V.P. THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) VIII MUMBAI DATED 05.03.2010 AND PERTAIN TO A.Y. 2 005-06. 2. THE ONLY GROUND RAISED BY THE ASSESSEE COMPANY READ S AS UNDER: - 1. THE LEARNED CIT(A) ERRED IN CONFIRMING AS WELL ENHANCING THE ADDITION U/S. 14A R.W.R. 8D RESULTING IN THE TOTAL DISALLOWANCE AMOUNTING TO RS.26 25 433/-. 3. AT THE TIME OF HEARING BOTH THE PARTIES ADMITTED TH AT THE ISSUE REQUIRED TO BE RECONSIDERED IN THE LIGHT OF THE DEC ISION OF THE HON'BLE ITA NO. 4735 & 4873/MUM/2010 M/S. CREATIVE GLOBAL STOCK BROKING P. LTD. 2 BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG . CO. LTD. VS. DCIT REPORTED IN 328 ITR 81. THE LEARNED COUNSEL SUBMITT ED THAT THE DISALLOWANCE MADE BY THE A.O. EVEN BY APPLICATION OF SECTION 14 A ITSELF IS EXCESSIVE. 4. THE FACTS IN SHORT ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF TRADING IN SHARES AS WELL SHARE BROKING . FOR THE YEAR UNDER CONSIDERATION ASSESSEE DECLARED A TOTAL INCOME OF ` 1 82 97 707/-. THOUGH THE RETURN WAS PROCESSED UNDER SECTION 143(1) ON 04.05. 2006 SUBSEQUENTLY THE SAME WAS SELECTED FOR SCRUTINY AND ASSESSMENT CAME TO BE MADE UNDER SECTION 143(3) R.W.S 144 OF THE ACT. DURING THE COU RSE OF ASSESSMENT PROCEEDINGS THE A.O. NOTICED THAT ASSESSEE HAD SHOW N DIVIDEND INCOME OF ` 15 21 596/- WHICH WAS CLAIMED AS EXEMPT UNDER SECT ION 10(34) OF THE INCOME TAX ACT. IN HIS OPINION ASSESSEE HAVING NOT ALLOCATED ANY EXPENDITURE INCURRED BY IT TOWARDS EARNING OF THE TAX EXEMPT DI VIDEND INCOME AS REQUIRED UNDER SECTION 14A 5% OF THE DIVIDEND INCOME CAN RE ASONABLY BE ESTIMATED TO BE THE TOTAL EXPENSES ATTRIBUTABLE TO EARNING OF SU CH DIVIDEND. HE ACCORDINGLY DISALLOWED A SUM OF ` 76 080/- BY INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT. 5. ON AN APPEAL FILED BY ASSESSEE THE LEARNED CIT(A) OBSERVED THAT RULE 8D OF THE I.T. RULES ARE ALSO APPLICABLE WITH RETRO SPECTIVE EFFECT. BY RELYING UPON THE DECISION OF THE ITAT MUMBAI (SPECIAL BENC H) IN THE CASE OF DAGA CAPITAL MANAGEMENT PVT. LTD. 26 SOT 603 THE A.O. WA S DIRECTED TO REWORK OUT THE DISALLOWANCE. 6. PRESUMABLY THE DISALLOWANCE MIGHT WORKOUT TO ` 26 25 433/- BY APPLICATION OF RULE 8D AND HENCE ASSESSEE COMPANY PREFERRED AN APPEAL AGAINST THE ORDER OF THE CIT(A). THE LEARNED COUNSE L RELIED UPON THE ORDER OF THE ITAT L BENCH MUMBAI IN THE CASE OF M/S. J.P. MORGAN INDIA PVT. LTD. (ITA NO. 6919/M/2004) DATED 20.04.2011 TO SUBMIT TH AT ONLY REASONABLE EXPENDITURE ATTRIBUTABLE TO EARNING OF DIVIDEND IN COME IS TO BE DISALLOWED BY APPLYING THE PROVISIONS OF SECTION 14A OF THE AC T AND PERCENTAGE OF THE DIVIDEND INCOME CANNOT BE A PROPER YARDSTICK WHEN S HARES WERE ACQUIRED OUT OF SHARE CAPITAL AND RESERVES AND NO BORROWED F UNDS HAVE BEEN UTILISED FOR ACQUIRING THE SHARES. IN THE ABOVE MENTIONED CA SE THE TRIBUNAL WAS OF ITA NO. 4735 & 4873/MUM/2010 M/S. CREATIVE GLOBAL STOCK BROKING P. LTD. 3 THE OPINION THAT INSTEAD OF DISALLOWANCE OF ` 2 12 872/- WHICH WAS WORKED OUT AT 5% OF THE DIVIDEND INCOME A TOKEN DISALLOWA NCE OF ` 10 000/- WOULD MEET THE ENDS OF JUSTICE AND DIRECTED THE A.O. ACCO RDINGLY. THE LEARNED COUNSEL SUBMITTED THAT EVEN IN THE CASE ON HAND THE FACTS ARE MORE OR LESS IDENTICAL. ASSESSEE MADE INVESTMENTS OUT OF OWN FUN DS. SHARE CAPITAL RESERVES AND SURPLUS AVAILABLE WITH ASSESSEE WORKS OUT TO BE ` 12.98 CRORES WHEREAS THE INVESTMENT IN SHARES WAS ONLY TO THE TU NE OF ` 5 00 00 000/- AND HENCE IT CANNOT BE SAID THAT ANY INTEREST EXPEN DITURE WAS INCURRED IN RELATION TO INVESTMENT IN SHARES. RELIANCE WAS PLAC ED UPON THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS . RELIANCE UTILITIES AND POWER LTD. 313 ITR 340. HOWEVER THE DETAILS AS TO WHEN THE SHARES WERE PURCHASED AND WHETHER OWN FUNDS WERE UTILIZED OR NO T COULD NOT BE FURNISHED SINCE IT WAS STATED THAT THE RECORDS ARE DESTROYED BY FIRE. AT ANY RATE IT IS SUBMITTED THAT THE DISALLOWANCE IN THE INSTANT CASE IS HIGHLY EXCESSIVE HAVING REGARD TO THE INTERPRETATION PLACE D UPON THE LANGUAGE EMPLOYED IN SECTION 14A. 7. ON THE OTHER HAND THE LEARNED D.R. FIRMLY RELIED O N THE ORDER PASSED BY THE A.O. AND SUBMITTED THAT ASSESSEE HAS TAKEN C ERTAIN LOANS ALSO AND IT IS NOT SHOWN AS TO WHEN THE SHARES WERE PURCHASED A ND WHETHER INTEREST FREE FUNDS WERE UTILIZED OR INTEREST BEARING FUNDS WERE UTILIZED. 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE RECORD. IN THE LIGHT OF THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DCIT REPOR TED IN 328 ITR 81 RULE 8D IS NOT APPLICABLE TO A.Y. 2005-06 IN WHICH EVENT D ISALLOWANCE UNDER SECTION 14A HAS TO BE WORKED OUT BY TAKING INTO ACCOUNT AS WHAT WOULD BE THE REASONABLE EXPENDITURE REFERABLE TO TAX FREE INCOME EARNED BY ASSESSEE. IN THE INSTANT CASE THE CASE OF ASSESSEE IS THAT OWN FUND S WERE UTILISED AND EVEN THE UNSECURED LOANS TO THE TUNE OF ` 25 00 00 000/- WERE NOT INTEREST BEARING LOANS. HOWEVER IT CANNOT BE LOST SIGHT OF THAT ASS ESSEE HAS MADE HUGE INVESTMENTS IN SHARES I.E. SHARES WORTH ` 5 20 55 11/- WERE PURCHASED AND IT IS ABSOLUTELY NECESSARY TO KEEP TRACK OF ACCRUAL OF DIVIDEND INCOME; ORDINARILY IF DIVIDEND IS NOT RECEIVED ON TIME IT HAS TO BE REPORTED TO THE COMPANY FOR ISSUANCE OF FRESH CHEQUE OR IF A CHEQUE OR DIVIDEND WARRANT IS ITA NO. 4735 & 4873/MUM/2010 M/S. CREATIVE GLOBAL STOCK BROKING P. LTD. 4 RECEIVED THE SAME HAS TO BE DEPOSITED ON TIME AND S ERVICES OF SOME STAFF MEMBERS IS REQUIRED TO COLLECT TAX FREE INCOME. HAV ING REGARD TO THE CIRCUMSTANCES OF THE CASE WE ARE OF THE OPINION THA T DISALLOWANCE OF ROUND SUM AMOUNT OF ` 50 000/- REFERABLE TO EXPENDITURE NECESSARY FOR TH E PURPOSE OF EARNING OF TAX FREE INCOME WOULD MEET THE ENDS OF JUSTICE AND WE DIRECT THE A.O. ACCORDINGLY. 9. THIS LEAVES US WITH THE APPEAL FILED BY REVENUE WHE REIN THE MAIN ISSUE IS WITH REFERENCE TO DISALLOWANCE MADE BY THE A.O. UNDER SECTION 40(A)(IA) OF THE INCOME TAX ACT. THE A.O. NOTICED THAT ASSESSEE COMPANY DEBITED THE FOLLOWING EXPENDITURE IN ITS P & L ACCOUNT BUT TDS HAS NOT BEEN DEDUCTED ON THE SUMS: - I) DEPOSITORY CHARGES ` 10 20 433/- II) PAYMENT TO BSE ` 20 02 681/- III) PAYMENT OF NSE ` 38 58 563/- ` 68 81 677/- ============ A.O. HAS GIVEN DETAILED REASONS IN SUPPORT OF HIS C ONCLUSION THAT THE AMOUNTS PAID TO BSE/NSE ARE FOR RENDERING TECHNICAL SERVICES IN THE FORM OF TRANSACTION CHARGES AND HENCE ASSESSEE IS DUTY BOUN D TO DEDUCT TAX AT SOURCE AS OTHERWISE PROVISIONS OF SECTION 40(A)(IA) WOULD AUTOMATICALLY COME INTO PLAY. ACCORDINGLY HE DISALLOWED A SUM OF ` 68 81 677/-. 10. THE LEARNED CIT(A) SET ASIDE THE ADDITION FOLLOWING THE DECISION OF THE ITAT MUMBAI BENCH IN THE CASE OF KOTAK SECURITIES VS. ACIT 25 SOT 440 WHEREIN THE BENCH HELD THAT A STOCK EXCHANGE DOES N OT PROVIDE ANY MANAGERIAL SERVICE AND THE FEES PAID BY THE MEMBERS OF THE STOCK EXCHANGE IS NOT FOR ANY TECHNICAL SERVICE RENDERED IN WHICH EVENT TDS IS NOT DEDUCTIBLE ON SUCH PAYMENTS. 11. FURTHER AGGRIEVED REVENUE IS IN APPEAL BEFORE US. THE CASE OF THE LEARNED D.R. IS THAT THESE SERVICES ARE ESSENTIAL I N NATURE AS THEY CAN BE AVAILED ONLY BY MEMBERS OF THE STOCK EXCHANGE AND T HESE ARE COMPOSITE CHARGES FOR PROFESSIONAL AND TECHNICAL SERVICES. IT IS ALSO BROUGHT TO OUR NOTICE THAT THE BROKERS HAVE IN FACT STARTED DEDUCT ING TDS ON SUCH PAYMENTS IN SUBSEQUENT YEARS AND HENCE THERE IS NO REASON TO GIVE A ITA NO. 4735 & 4873/MUM/2010 M/S. CREATIVE GLOBAL STOCK BROKING P. LTD. 5 DIFFERENT TREATMENT IN THIS YEAR. THE LEARNED D.R. RELIED UPON THE ORDER PASSED BY THE A.O. WHEREAS THE LEARNED COUNSEL APP EARED ON BEHALF OF THE ASSESSEE RELIED UPON THE ORDER OF THE ITAT MUMBAI BENCH (SUPRA) TO SUBMIT THAT THE ORDER PASSED BY THE LEARNED CIT(A) IS IN A CCORDANCE WITH LAW. SINCE IT HAS COME TO THE NOTICE OF THE BENCH THAT THE HON 'BLE BOMBAY HIGH COURT WAS SEIZED OF THIS MATTER IN THE CASE OF KOTAK SEC URITIES AND IN FACT IT PASSED A VERDICT ON THE ISSUE ON 21.10.2011 WE REQ UESTED THE LEARNED COUNSEL AND THE LEARNED D.R. TO VERIFY THROUGH WEBS ITE AS TO WHETHER THE MATTER WAS DEALT WITH BY THE HON'BLE HIGH COURT. BO TH THE PARTIES ARE BLISSFULLY UNAWARE OF THIS FACT AND HENCE THE MATTE R WAS TREATED AS HEARD ON THE CONDITION THAT THE DECISION ON THIS ISSUE WOULD BE BASED ON THE INTERPRETATION PLACED UPON THE SAID PROVISION BY TH E HON'BLE BOMBAY HIGH COURT. SUBSEQUENTLY IT HAS COME TO OUR NOTICE THAT IN THE CASE OF CIT VS. KOTAK SECURITIES (ITA NO. 3111 OF 2009) THE HON'BLE BOMBAY HIGH COURT VIDE ITS ORDER DATED 21.10.2011 HELD THAT THE SERV ICES RENDERED BY THE STOCK EXCHANGE DESERVES TO BE TREATED AS TECHNICAL OR MAN AGERIAL SERVICES AND HENCE PROVISIONS OF TDS ARE APPLICABLE TO SUCH PAYM ENTS. HOWEVER THEIR LORDSHIPS HELD THAT SO FAR AS THAT CASE IS CONCERNE D SECTION 40(A)(IA) NEED NOT NECESSARILY BE INVOKED. RESPECTFULLY FOLLOWING THE DECISION OF THE HON'BLE BOMBAY HIGH COURT CITED ABOVE WE SET ASIDE THE MAT TER TO THE FILE OF THE A.O. WHO IS DIRECTED TO RECONSIDER THE ISSUE IN TH E LIGHT OF THE VIEWS TAKEN BY THE HON'BLE BOMBAY HIGH COURT AND ON AN APPLICAT ION OF THE RELEVANT PROVISIONS OF LAW. 12. IN THE RESULT APPEALS FILED BY ASSESSEE AND REVENU E ARE TREATED AS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH NOVEMBER 2011. SD/- SD/- (R.S. SYAL) (D. MANMOHAN) ACCOUNTANT MEMBER VICE PRESIDENT MUMBAI DATED: 18 TH NOVEMBER 2011 ITA NO. 4735 & 4873/MUM/2010 M/S. CREATIVE GLOBAL STOCK BROKING P. LTD. 6 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) VIII MUMBAI 4. THE CIT IV MUMBAI CITY 5. THE DR C BENCH ITAT MUMBAI 6. BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI N.P.