M/s. FALCON BROKERAGE PVT. LTD., MUMBAI v. ITO 4(1) (1), MUMBAI

ITA 5566/MUM/2004 | 2001-2002
Pronouncement Date: 23-12-2010 | Result: Dismissed

Appeal Details

RSA Number 556619914 RSA 2004
Assessee PAN AAACF2220J
Bench Mumbai
Appeal Number ITA 5566/MUM/2004
Duration Of Justice 6 year(s) 4 month(s) 26 day(s)
Appellant M/s. FALCON BROKERAGE PVT. LTD., MUMBAI
Respondent ITO 4(1) (1), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 23-12-2010
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 23-12-2010
Date Of Final Hearing 02-12-2010
Next Hearing Date 02-12-2010
Assessment Year 2001-2002
Appeal Filed On 28-07-2004
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B MUMBAI BEFORE SHRI N.V. VASUDEVAN JM AND SHRI T.R. SOOD AM I.T.A. NO . ASSESSMENT YEAR 5566/M/04 2001-02 495/M/06 2002-03 3328/M/07 2003-04 3329/M/07 2004-05 6247/M/08 2005-06 M/S. FALCON BROKERAGE PVT. LTD. 1001 STOCK EXCHANGE PLAZA DALAL STREET MUMBAI 400 001. PAN: AAACF 2220 J VS. THE DY. COMMISSIONER OF INCOME-TAX RANGE 4(1) 6 TH FLOOR AAYKAR BHAVAN M.K. ROAD MUMBAI 400 020. (APPELLANT) (RESPONDENT) APPELLANT BY : S/SHRI VIPUL B. JOSHI/SAMEER G. DAL AL RESPONDENT BY : MS. REENA JHA & SHRI TRIPATHI O R D E R PER T.R. SOOD AM: THESE APPEALS BY THE ASSESSEE ARE DIRECTED AGAINS T ORDERS OF THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS)-IV MUMBAI FO R THE ASSESSMENT YEARS 2001-02 TO 2005-06. SINCE THE ISSUES ARE COMMON IN THESE APPEALS THEY WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY A CONSO LIDATED ORDER FOR THE SAKE OF CONVENIENCE. ITA NO. 5566/MUM/2004 : ASST.YEAR : 2001-02 2. IN THIS APPEAL VARIOUS GROUNDS HAVE BEEN RAISED BUT AT THE TIME OF HEARING THE LEARNED COUNSEL FOR THE ASSESSEE SUBMI TTED THAT THE ONLY TWO ISSUES ARE INVOLVED WHICH READ AS UNDER: 1. CONSIDERATION OF BUSINESS LOSS AMOUNT ING TO RS.2 71 80 422/- AS SPECULATION LOSS; 2. CONSIDERATION OF RS. 4 54 650/- BEING 2% OF TOTAL ADMINISTRATION EXPENSES INCURRED FOR SPECULATION BUSINESS. 3. AS FAR AS THE FIRST GROUND IS CONCERNED AFTER H EARING BOTH THE SIDES WE FIND THAT THE ASSESSEE HAS SHOWN A LOSS ON ACCOUNT OF CAPITAL MARKET OPERATION OF I.T.A.NOS.5566/M/04 495/M/06 3328-29/M/07 & 6247/MUM/2008 M/S. FALCON BROKERAGE PVT. LTD. 2 RS.2 84 78 356/-. THE ASSESSING OFFICER RAISED A Q UERY WHY THIS LOSS SHOULD NOT BE TREATED AS SPECULATION LOSS IN VIEW OF EXPLANATION TO SECTION 73 OF THE ACT. THE ASSESSEE GAVE A DETAILED NOTE EXPLAINING THE REASON S WHY THE SAME SHOULD NOT BE TREATED AS SPECULATION LOSS. HOWEVER THE ASSESSIN G OFFICER DID NOT AGREE BECAUSE EXPLANATION TO SECTION 73 ACCORDING TO HIM VERY CL EARLY PROVIDED THAT BUSINESS OF ANY COMPANY CONSIST OF SALE AND PURCHASE OF SHARES OF OTHER COMPANIES THEN THE SAME HAS TO BE TREATED AS SPECULATION LOSS. HE WORK ED OUT THIS LOSS AT RS. 2 71 80 422/-. HE FURTHER OBSERVED THAT SOME OF TH E ADMINISTRATION EXPENSES MUST HAVE BEEN INCURRED EVEN FOR THE PURPOSE OF SPE CULATION BUSINESS AND SINCE SUCH SPECULATION COULD NOT BE CONSIDERED AGAINST TH E NORMAL PROFITS. HE FURTHER ALLOCATED 2% OF ADMINISTRATION EXPENSES AND ADDED A SUM OF RS. 4 54 650/- TOWARDS SPECULATION LOSS AND THUS DISALLOWED TRADIN G LOSS AT RS.2 76 35 072/- AS SPECULATION LOSS. 4. ON APPEAL THE ACTION OF THE ASSESSING OFFICER W AS CONFIRMED BY THE LEARNED CIT(A). 5. BEFORE US THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS SPECULATION LOSS CONSIST OF A SUM OF RS.1 19 09 963 /- ON ACCOUNT OF DELIVERY BASED TRANSACTION. FURTHER A SUM OF RS.47 03 127.50 WAS O N ACCOUNT OF LOSS ON VALUATION OF STOCK. HOWEVER HE FAIRLY CONCEDED THAT BOTH THE ISSUES ARE COVERED AGAINST THE ASSESSEE BY THE DECISIONS OF THE HONBLE JURISDICTI ONAL HIGH COURT IN THE CASE OF LOKMAT NEWSPAPER PVT. LTD. (322 ITR 43)(BOM.) AND M /S. PRASAD AGENTS PVT. LTD. V. ITO (I.T. APPEAL NO. 19 OF 2009) DECIDED ON 20 TH MARCH 2009. 6. ON THE OTHER HAND THE LEARNED DEPARTMENTAL REPR ESENTATIVE STRONGLY RELIED ON THE ORDERS OF THE LOWER AUTHORITIES AS WE LL AS THE DECISIONS OF THE HONBLE HIGH COURT DECISIONS. I.T.A.NOS.5566/M/04 495/M/06 3328-29/M/07 & 6247/MUM/2008 M/S. FALCON BROKERAGE PVT. LTD. 3 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AN D WE FIND THAT ON SIMILAR CIRCUMSTANCES THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF CIT V. LOKMAT NEWSPAPER PVT. LTD. (SUPRA) HAS OBSERVED AS UNDER: THE EXPLANATION TO SECTION 73 OF THE INCOME-TAX AC T 1961CREATES A DEEMING FICTION THAT WHERE THE ASSESSEE IS A COMPAN Y AND WHERE ANY PART OF THE BUSINESS OF THE COMPANY CONSISTS OF THE PURC HASE AND SALE OF SHARES OF OTHER COMPANIES THE ASSESSEE IS FOR THE PURPOSE S OF SECTION 73 DEEMED TO CARRY ON SPECULATION BUSINESS TO THE EXTENT TO WHICH THE BUSINESS CONSISTS OF THE PURCHASE AND SALE OF SHARES. THE DEFINITION OF THE EXPRESSION SPECULATIVE TRAN SACTION IN SECTION 43(5) WHICH DEFINES IT TO MEAN A TRANSACTION IN WHICH A C ONTRACT FOR THE PURCHASE OR SALE OF ANY COMMODITY INCLUDING STOCKS AND SHAR ES IS PERIODICALLY OR ULTIMATELY SETTLED OTHERWISE THAN BY THE ACTUAL DEL IVERY OR TRANSFER OF THE COMMODITY OR SCRIPS CANNOT BE READ INTO THE PROVIS IONS OF SECTION 73 HAVING REGARD TO THE PLAIN MEANING OF THE EXPLANATI ON TO SECTION 73. THE CONTENTION THAT A LOSS WHICH ARISES ON ACCOUNT OF A TRANSACTION OF THE SALE AND PURCHASE OF SHARES WOULD CONSTITUTE A LOSS FROM A SPECULATION BUSINESS FOR THE PURPOSES OF THE EXPLANATION BUT TH AT THE PROFIT WHICH ARISES FROM A TRANSACTION INVOLVING THE ACTUAL DELI VERY OF SHARES WOULD NOT CONSTITUTE A PROFIT FOR THE PURPOSES OF SUB-SECTION (1) AND (2) OF SECTION 73 IN RESPECT OF WHICH A SET OFF CAN BE GRANTED INTRO DUCES A RESTRICTION INTO THE SCOPE AND AMBIT OF THE DEEMING FICTION WHICH IS CREATED BY THE EXPLANATION TO SECTION 73 WHICH IS NOT CONTEMPLATE D BY PARLIAMENT. THE DEEMING FICTION CREATED BY THE EXPLANATION TO SECTI ON 73 ARISES SPECIFICALLY IN THE CONTEXT OF THE PROVISIONS OF SECTION 73 AND IS CONFINED TO THAT PURPOSE ALONE. WHETHER IT IS A PROFIT OR LOSS THAT HAS RESULTED FROM CARRYING ON SUCH BUSINESS IS A CONSIDERATION ALIEN TO THE M EANING OF WHAT CONSTITUTES A SPECULATION BUSINESS BY THE EXPLANATI ON TO SECTION 73. ONCE AN ASSESSEE IS DEEMED TO BE CARRYING ON SPECULATION BUSINESS FOR THE PURPOSE OF SECTION 73 ANY LOSS COMPUTED IN RESPECT OF THAT SPECULATION BUSINESS CAN BE SET OFF ONLY AGAINST THE PROFIT AN D GAINS OF ANOTHER SPECULATION BUSINESS. SIMILARLY FOR THE PURPOSES O F SUB-SECTION (2) THE LOSS IN RESPECT OF A SPECULATION BUSINESS WHICH HAS NOT BEEN SET OFF EITHER IN WHOLE OR IN PART CAN BE CARRIED FORWARD AND CAN BE SET OFF AGAINST PROFITS AND GAINS OF ANY SPECULATION BUSINESS. THE EXPRES SION ANY SPECULATION BUSINESS MEANS A SPECULATION BUSINESS OF THE ASSES SEE IN RESPECT OF WHICH PROFITS AND GAINS FOR THE ASSESSMENT YEAR IN QUESTI ON HAVE ARISEN AND THERE IS JUSTIFICATION TO RESTRICT THE CONTENT OF THAT SP ECULATION BUSINESS WHERE PROFITS HAVE ARISEN BY EXCLUDING A BUSINESS INVOLVI NG ACTUAL DELIVERY OF SHARES. NO SUCH RESTRICTION IS FOUND IN THE EXPLAN ATION. IN OTHER WORDS ONCE THE ASSESSEE IS CARRYING ON A SPECULATION BUSI NESS AND THE PROFITS AND GAINS HAVE ARISEN FROM THAT BUSINESS DURING THE COU RSE OF THE ASSESSMENT YEAR THE ASSESSEE IS ENTITLED TO SET OFF THE LOSSE S CARRIED FORWARD FROM A SPECULATION BUSINESS ARISING OUT OF A PREVIOUS ASS ESSMENT YEAR. FOR THE ASSESSMENT YEAR 2003-04 THE ASSESSEE SHOWE D A PROFIT ON THE SALE OF SHARES AND SECURITIES HELD AS STOCK-IN-TRADE OF FERED IT AS A PROFIT OF SPECULATION BUSINESS SET IT OFF AGAINST SPECULATIO N LOSS BROUGHT FORWARD FROM THE ASSESSMENT YEARS 1996-97 TO 1998-99 AND SH OWED THE BALANCE AS SPECULATION INCOME. THE ASSESSING OFFICER DID NOT TREAT THE INCOME WHICH AROSE FROM THE SALE OF SHARES AS INCOME FROM A SPEC ULATION BUSINESS ON THE GROUND THAT THE ASSESSEE HAD SETTLED ITS TRANSACTIO NS OF SALE AND PURCHASE OF SHARES THROUGH PHYSICAL DELIVERY AND REFUSED TO ALLOW SET OFF OF THE INCOME FROM THE SALE OF SHARES AGAINST THE LOSS ON ACCOUNT OF SPECULATION I.T.A.NOS.5566/M/04 495/M/06 3328-29/M/07 & 6247/MUM/2008 M/S. FALCON BROKERAGE PVT. LTD. 4 BUSINESS BROUGHT FORWARD FROM THE ASSESSMENT YEARS 1996-97 TO 1998-99. THE COMMISSIONER OF INCOME-TAX (APPEALS) CONFIRMED THE ORDER OF THE ASSESSING OFFICER. THE TRIBUNAL HELD THAT THE PROFI T FROM THE SALE OF SHARES FELL WITHIN THE PURVIEW OF THE EXPLANATION TO SECTI ON 73 AND WAS TO BE SET OFF AGAINST BROUGHT FORWARD LOSSES. ON APPEAL: HELD DISMISSING THE APPEAL THAT THE VIEW OF THE T RIBUNAL WAS CONSISTENT WITH THE PROVISIONS OF SECTION 73. THEREFORE THE EXPLANATION 73 IS SQUARELY APPLICAB LE EVEN IF THE ASSESSEE HAS DEALT WITH THE SHARES BY ACTUAL DELIVERY. FURT HER THE HONBLE HIGH COURT IN THE CASE OF M/S. PRASAD AGENTS PVT. LTD. V. ITO (SUPR A) HAD OCCASION TO CONSIDER WHETHER LOSS ON ACCOUNT OF VALUATION OF STOCK WOULD ALSO AMOUNTS TO SPECULATION LOSS. THIS QUESTION WAS ANSWERED BY THE HONBLE BOM BAY HIGH COURT VIDE PARA 9 WHICH READS AS UNDER: IN OUR OPINION THERE CAN BE NO DIFFERENCE BETWEEN THE LOSSES SUFFERED IN THE COURSE OF TRADING BY DELIVERY AND LOSSES IN TERMS OF THE BOOK VALUE. AS LONG AS THE ASSESSEE IS CARRYING ON BUSINESS OF TRADING BY WAY OF PURCHASE AND SALE OF SHARES EVEN IF IN RESPECT OF ANY FINANCIAL YEAR THERE ARE NO TRANSACTION AND YE T THE COMPANY HAS STOCK IN TRADE OF SHARES THE BOOK VALUE WILL HAVE TO BE CONSIDERED F OR THE PURPOSE OF CONSIDERING THE PROFIT AND LOSS IN CASE OF SPECULATIVE BUSINESS. THERE CAN BE NO DOUBT THAT THE EXPLANATION TO SECTION 71 CANNOT BE READ TO MEAN ONLY WHEN THERE I S A PURCHASE AND SALE OF SHARES IN THE COURSE OF THE FINANCIAL YEAR. THE EXPLANATION WILL COVER BOTH SHARES WHICH ARE STOCK IN TRADE AND SHARES WHICH ARE TRADED IN THE COURSE OF THE FINANCIAL YEAR FOR THE PURPOSE OF CONSIDERING THE LOSS AND PROFIT FOR THAT YEAR. THE TRIBUNAL IN OUR OPINION HAS CORRECTLY ANSWERED THE ISSUE BY HOLDING THAT THE LOSS OF PROF IT ON ACCOUNT OF VALUATION AMOUNTS TO REVENUE LOSSES OR REVENUE RECEIPT. THE SECOND QUES TION THEREFORE ALSO WILL HAVE TO BE ANSWERED AGAINST THE ASSESSEE AND IN FAVOUR OF THE REVENUE. RESPECTFULLY FOLLOWING THE ABOVE DECISIONS WE DECI DE THE ISSUE AGAINST THE ASSESSEE. 8. REGARDING THE SECOND ISSUE AS NOTED ABOVE ASSE SSING OFFICER ALLOCATED 2% OF THE ADMINISTRATIVE EXPENSES TOWARDS SPECULATI ON BUSINESS WHICH HAS BEEN CONFIRMED BY THE LEARNED CIT(A). 9. BEFORE US THE LEARNED COUNSEL FOR THE ASSESSEE C OULD NOT GIVE ANY SATISFACTORY EXPLANATION OR LOGIC WHY EVEN FOR SPEC ULATION BUSINESS SOME ADMINISTRATION EXPENDITURE MUST HAVE BEEN INCURRED. ULTIMATELY HE AGREED THAT HE WOULD CONCEDE THIS DECISION IF A YARDSTICK IS AP PLIED IN THE OTHER YEARS ALSO. I.T.A.NOS.5566/M/04 495/M/06 3328-29/M/07 & 6247/MUM/2008 M/S. FALCON BROKERAGE PVT. LTD. 5 10. ON THE OTHER HAND THE LEARNED DEPARTMENTAL RE PRESENTATIVE RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. 11. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIN D THAT THE A.O. IS CORRECT IN OBSERVING THAT SOME ADMINISTRATIVE EXPENSES MUST HA VE BEEN INCURRED EVEN FOR SPECULATION BUSINESS AND THEREFORE WE CONFIRM THE ADDITION OF RS. 4 54 650/- BEING 2% OF THE TOTAL EXPENDITURE TOWARDS ADMINISTR ATIVE EXPENSES AS SPECULATION BUSINESS. 12. IN THE RESULT THE ASSESSEES APPEAL IS DISMISSE D. ITA NO. 495/MUM/06 ASSESSMENT YEAR :2002-03 13. IN THIS APPEAL THE FOLLOWING DISPUTES HAVE BEEN RAISED BY THE ASSESSEE: 1. TREATING OF BUSINESS LOSS AMOUNTI NG TO RS. 53 85 593/- + 4 42 488/- ON ACCOUNT OF INTEREST COST TOWARDS TRADING IN SHAR ES AND RS.9 33 504/- TOWARDS ADMINISTRATIVE EXPENSE. 2. DISALLOWANCE OF CLAIM OF BAD DEBTS 3. TREATMENT OF SOFTWARE EXPENDITURE AS CAPITAL EXPEN DITURE. 14. AS REGARDS THE FIRST ISSUE IS CONCERNED AFTER HEARING BOTH THE PARTIES WE FIND THAT THE ISSUE IS IDENTICAL TO THE ISSUE RAISE D IN APPEAL FOR THE ASSESSMENT YEAR 2001-02 IN ITA NO. 5566/MUM/04. THE ONLY DIFFERENC E IS IN THIS YEAR THE ASSESSING OFFICER HAS FURTHER ALLOCATED EVEN THE IN TEREST COST TOWARDS SHARE TRADING AS INTEREST INCURRED FOR SPECULATION BUSINESS. FUR THER IN THIS YEAR THE ADMINISTRATIVE EXPENSES HAVE BEEN ALLOCATED ON THE BASIS OF TOTAL TURNOVER WHICH IS TO BE TREATED AS SPECULATION BUSINESS. 15. THE LEARNED COUNSEL FOR THE ASSESSEE MAINLY SUB MITTED THAT IN SPECULATION BUSINESS NORMALLY NO AMOUNTS ARE TO BE INVESTED BEC AUSE BY VERY NATURE OF SPECULATION BUSINESS NO DELIVERIES ARE TAKEN. IN A NY CASE AT BEST THE INTEREST SHOULD HAVE BEEN ADDED TO ADMINISTRATIVE EXPENSES A ND REASONABLE DISALLOWANCE AT THE RATE OF 2% COULD HAVE BEEN MADE AS DONE IN T HE ASSESSMENT YEAR 2001-02. IN RESPECT OF ADMINISTRATIVE EXPENSES HE MADE DETA ILED ARGUMENTS MAINLY ON THE PRINCIPLE THAT WHY ADMINISTRATIVE EXPENSES IN RESPE CT OF SHARE DELIVERIES WHICH ARE I.T.A.NOS.5566/M/04 495/M/06 3328-29/M/07 & 6247/MUM/2008 M/S. FALCON BROKERAGE PVT. LTD. 6 TO BE TREATED AS SPECULATION EXPENSES BECAUSE EXPLA NATION TO SECTION 73 WHICH IS A DEEMING SECTION COULD NOT BE EXTENDED FOR ALLOCATIO N OF EXPENSES ALSO. 16. ON THE OTHER HAND THE LEARNED DEPARTMENTAL REP RESENTATIVE STRONGLY SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 17. AFTER CONSIDERING THE RIVAL CONTENTIONS CAREFUL LY WE FIND THAT PRINCIPALLY THE ISSUE REGARDING SPECULATION LOSS IS COVERED AGA INST THE ASSESSEE BY THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT WHICH WE HAVE CONSIDERED IN THE ABOVE NOTED APPEAL IN ITA NO. 5566/M/04 FOR THE ASS ESSMENT YEAR 2001-02 AT PARA 7 ABOVE AND THEREFORE FOLLOWING THE DECISIO N WE DECIDE THE PRINCIPAL ISSUE AGAINST THE ASSESSEE. 18. AS FAR AS INTEREST ALLOCATION AND ADMINISTRATIV E EXPENSES ARE CONCERNED WE ARE OF THE VIEW THAT REVENUE SHOULD HAVE TAKEN C ONSISTENT STAND AND IT SEEMS REASONABLE IF THE WHOLE OF THE INTEREST COST IS ADD ED TO THE ADMINISTRATIVE EXPENSES AND ULTIMATELY 2% OF SUCH AMOUNT IS DISALLOWED THAT WOULD MEET THE ENDS OF JUSTICE. THEREFORE IN RESPECT OF ALLOCATION OF INT EREST AND ADMINISTRATIVE EXPENSES TOWARDS SPECULATION BUSINESS WE SET ASIDE THE ORDE R OF THE LEARNED CIT(A) AND REMIT THE MATTER BACK TO THE FILE OF THE A.O. WITH DIRECTION THAT INTEREST SHOULD BE CLUBBED WITH ADMINISTRATION EXPENSES AND 2% SHOULD BE MADE TOWARDS SPECULATION BUSINESS TO BE TREATED AS SPECULATION LOSS. 19. AS FAR AS SECOND ISSUE REGARDING BAD DEBT IS CO NCERNED BOTH THE PARTIES FAIRLY CONCEDED THAT THE ISSUE IS COVERED BY THE DE CISION OF THE SPECIAL BENCH IN THE CASE OF DCIT VS. SHREYAS S. MORAKIA (131 TTJ 641(BO M). IN THAT CASE IT WAS HELD THAT IN CASE OF STOCK BROKERS THE AMOUNTS NOT RECOV ERABLE FROM CUSTOMERS WERE ULTIMATELY ALLOWABLE AS BAD DEBTS UNDER SECTION 36( 1)(VII) AND CREDIT OF BROKERAGE WOULD COMPLY WITH THE CONDITIONS SPECIFIED U/S.36(I I) OF THE ACT. HOWEVER THE MATTER WAS SET ASIDE FOR VERIFICATION THAT WHETHER THE BROKERAGE HAS REALLY BEEN CREDITED TO THE ACCOUNT OF PARTICULAR CUSTOMER IN W HOSE CASE THE BAD DEBT HAS I.T.A.NOS.5566/M/04 495/M/06 3328-29/M/07 & 6247/MUM/2008 M/S. FALCON BROKERAGE PVT. LTD. 7 BEEN CLAIMED. FURTHER IT WAS OBSERVED THAT IT ALSO NEEDS BE VERIFIED WHETHER MARGIN MONEY IF ANY RECEIVED FROM THE CUSTOMER OR S ECURITIES WHICH WERE PURCHASED AND FOR WHICH DELIVERY HAS NOT BEEN TAKEN BY SUCH CUSTOMER WHETHER THEY HAVE ADJUSTED IN THE ACCOUNTS OF THAT CUSTOMER AND BAD DEBT SHOULD BE ALLOWED ONLY AFTER SUCH ADJUSTMENT. THEREFORE FOLL OWING THE ABOVE DECISION WE SET ASIDE THE ORDER OF THE LEARNED CIT(A) AND REMIT THE MATTER BACK TO THE FILE OF THE AO WITH DIRECTION TO EXAMINE WHETHER BROKERAGE HAS BEEN RECEIVED FROM THE CUSTOMERS AGAINST WHOM SUCH BAD DEBT HAD BEEN CLAIM ED. FURTHER THE A.O. SHOULD VERIFY WHETHER MARGIN MONEY IF ANY RECEIVED FROM SUCH CUSTOMERS AND THE SECURITIES FOR WHICH DELIVERY HAS NOT BEEN TAKEN BY SUCH CUSTOMERS HAS BEEN ADJUSTED IN THE ACCOUNT OF THE CUSTOMER AND IF YES THEN SUCH BAD DEBT SHOULD BE ALLOWED OTHERWISE THE ISSUE MAY BE DECIDED AS PER L AW. 20. REGARDING THE ISSUE OF TREATING THE PURCHASE OF COMPUTER SOFTWARE AS CAPITAL ASSET AS AGAINST REVENUE EXPENDITURE AFTER HEARING BOTH THE PARTIES WE FIND THE ASSESSEE HAS CLAIMED SOFTWARE EXPENSES OF RS.16 000/-. HOWEVER THE A.O. ALLOWED DEPRECIATION AT THE RATE OF 25% AND AD DED A SUM OF RS. 12 000/- BEING IN THE NATURE OF CAPITAL EXPENDITURE. 21. BEFORE US THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF AMWAY INDIA E NTERPRISES V. DCIT (111 ITD 112) HAS ALREADY HELD THAT THE NATURE OF EXPENDITU RE HAS TO BE SEEN BEFORE HOLDING THAT SOFTWARE EXPENSES ARE IN THE NATURE OF REVENUE EXPENDITURE OR CAPITAL EXPENDITURE. IN THE CASE OF STOCK BROKERS NORMALLY THE EXPENSES ARE INCURRED FOR ANNUAL MAINTENANCE AND OR ANNUAL RENEWAL OF VARIOUS SOFT-WARES. THEREFORE IT CANNOT BE CALLED AS CAPITAL EXPENDITURE. 22. ON THE OTHER HAND THE LEARNED DEPARTMENTAL REP RESENTATIVE RELIED ON THE ORDER OF THE LOWER AUTHORITIES. I.T.A.NOS.5566/M/04 495/M/06 3328-29/M/07 & 6247/MUM/2008 M/S. FALCON BROKERAGE PVT. LTD. 8 23. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FI ND FORCE IN THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE. WE FIND THAT THE A.O. HAS NOT DISCUSSED THE NATURE OF EXPENDITURE ON SOFTWARE. THIS CANNOT BE HELD TO BE IN THE NATURE OF CAPITAL FILED WITHOUT ANALYZING THE NATURE OF SUCH EXPENDITURE. THEREFORE WE SET ASIDE THE ORDER OF THE LEARNED CIT(A) AND REMIT THE MATTER BACK TO THE FILE OF THE A.O. WITH DIRECTION TO ANALYZE THE NATURE OF SOFTWA RE EXPENSES AND THEN DECIDE THE ISSUE AFRESH. 24. IN THE RESULT THE APPEAL IS PARTLY ALLOWED FO R STATISTICAL PURPOSES. ITA NO.3328/M/07 ASSESSMENT YEAR : 2003-04 25. IN THIS APPEAL TWO DISPUTES ARE INVOLVED WHIC H ARE AS UNDER: 1. TREATING THE BUSINESS LOSS OF RS. 90 14 709/- AS SPECULATION LOSS + RS.3 91 042/- ON BEING ALLOCATED INTEREST TOWARDS S PECULATION BUSINESS + RS.3 33 641/- BEING ALLOCATION OF ADMIN ISTRATIVE EXPENSES TOWARDS SPECULATION BUSINESS. 2. TREATMENT OF SOFTWARE EXPENSE AS C APITAL EXPENDITURE. 26. AFTER HEARING BOTH THE PARTIES WE FIND THAT TH E ISSUES RAISED IN THIS APPEAL ARE IDENTICAL TO THE ISSUES RAISED IN EARLIER YEARS . WE HAVE ALREADY ADJUDICATED THE ISSUE IN THE ASSESSMENT YEAR 2002-03 IN ITA NO. 495 /M/06 THAT PRINCIPALLY THE ISSUE IS COVERED AGAINST THE ASSESSEE. IN THAT CASE WE HAVE ALREADY HELD THAT AS FAR AS THE MAIN ISSUE REGARDING BUSINESS LOSS IS CO NCERNED THE SAME HAS TO BE TREATED AS SPECULATION LOSS IN THE LIGHT OF THE DEC ISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF LOKMAT NEWSPAPER PVT. LTD. (32 2 ITR 43). AS FAR AS THE ISSUE REGARDING INTEREST AND ADMINISTRATIVE EXPENSES WE HAVE HELD THAT INTEREST SHOULD BE CLUBBED WITH THE ADMINISTRATION EXPENSE AND 2% O F SUCH ADMINISTRATION EXPENSES SHOULD BE ALLOCATED TOWARDS SPECULATION BU SINESS AND TREATED AS SPECULATION LOSS. THEREFORE IN THIS YEAR ALSO WE S ET ASIDE THE ORDER OF THE LEARNED CIT(A) AND DIRECT THE A.O. TO TREAT THE SHARE HOLDI NG AS BUSINESS LOSS AS SPECULATION LOSS. AS FAR AS INTEREST IS CONCERNED THE SAME SHOULD BE ADDED TO I.T.A.NOS.5566/M/04 495/M/06 3328-29/M/07 & 6247/MUM/2008 M/S. FALCON BROKERAGE PVT. LTD. 9 ADMINISTRATION EXPE NSES AND 2% OF THE TOTAL ADMINI STRATION EXPENSES MAY BE ALLOCATED TOWARDS SPECULATION LOSS. 27. AS FAR AS THE SECOND ISSUE IS CONCERNED AGAIN THE A.O. HAS NOT DISCUSSED THE NATURE OF SOFTWARE EXPENSES. HOWEVER IN THIS YEAR HE HAS ALLOWED THE DEPRECIATION AT THE RATE OF 60% IN VIEW OF THE AMEN DMENT IN APPENDIX I TO THE INCOME-TAX RULES WHEREIN THE SOFTWARE HAS ALSO BEEN ADDED TO THE COMPUTERS FOR DEPRECIATION PURPOSES. SINCE THE NATURE OF EXPENDIT URE HAS NOT BEEN EXAMINED WE SET ASIDE THE ORDER OF THE LEARNED CIT(A) TO EXAMIN E THE NATURE OF EXPENDITURE IN THE LIGHT OF THE SPECIAL BENCH OF THE TRIBUNAL IN T HE CASE OF AMWAY INDIA ENTERPRISES V. DCIT (111 ITD 112) AND THEN DECIDE T HE ISSUE ACCORDINGLY. 28. IN THE RESULT THE APPEAL IS ALLOWED FOR STATIS TICAL PURPOSES. ITA NO. 3329/M/07 ASSESSMENT YEAR: 2004-05 29. IN THIS APPEAL TWO DISPUTES ARE INVOLVED WHIC H ARE AS UNDER: 1. TREATING THE BUSINESS LOSS OF RS. 7. 37.520/- AS SPECULATION LOSS + RS.5 17 150/- ON BEING ALLOCATED INTEREST TOWARDS S PECULATION BUSINESS + RS.2 53 676/- BEING ALLOCATION OF ADMIN ISTRATIVE EXPENSES TOWARDS SPECULATION BUSINESS. 2. TREATMENT OF SOFTWARE EXPENSE AS C APITAL EXPENDITURE. 26. AFTER HEARING BOTH THE PARTIES WE FIND THAT TH E ISSUES RAISED IN THIS APPEAL ARE IDENTICAL TO THE ISSUES RAISED IN EARLIER YEARS . WE HAVE ALREADY ADJUDICATED THE ISSUE IN THE ASSESSMENT YEAR 2002-03 IN ITA NO. 495 /M/06 THAT PRINCIPALLY THE ISSUE IS COVERED AGAINST THE ASSESSEE. IN THAT CASE WE HAVE ALREADY HELD THAT AS FAR AS THE MAIN ISSUE REGARDING BUSINESS LOSS IS CO NCERNED THE SAME HAS TO BE TREATED AS SPECULATION LOSS IN THE LIGHT OF THE DEC ISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF LOKMAT NEWSPAPER PVT. LTD. (32 2 ITR 43). AS FAR AS THE ISSUE REGARDING INTEREST AND ADMINISTRATIVE EXPENSES WE HAVE HELD THAT INTEREST SHOULD BE CLUBBED WITH THE ADMINISTRATION EXPENSE AND 2% O F SUCH ADMINISTRATION EXPENSES SHOULD BE ALLOCATED TOWARDS SPECULATION BU SINESS AND TREATED AS SPECULATION LOSS. THEREFORE IN THIS YEAR WE SET A SIDE THE ORDER OF THE LEARNED I.T.A.NOS.5566/M/04 495/M/06 3328-29/M/07 & 6247/MUM/2008 M/S. FALCON BROKERAGE PVT. LTD. 10 CIT(A) AND DIRECT THE A.O. TO TREAT THE BUSINESS LO SS AS SPECULATION LOSS. AS FAR AS INTEREST IS CONCERNED THE SAME SHOULD BE ADDED TO ADMINISTRATION EXPENSES AND 2% OF THE TOTAL ADMINISTRATION EXPENSES MAY BE ALLO CATED TOWARDS SPECULATION LOSS. 27. AS FAR AS THE SECOND ISSUE IS CONCERNED AGAIN THE A.O. HA NOT DISCUSSED THE NATURE OF SOFTWARE EXPENSES. HOWEVER IN THIS YEAR HE HAS ALLOWED THE DEPRECIATION AT THE RATE OF 60% IN VIEW OF THE AMEN DMENT IN APPENDIX I TO THE INCOME-TAX RULES WHEREIN THE SOFTWARE HAS ALSO BEEN ADDED TO THE COMPUTERS FOR DEPRECIATION PURPOSES. SINCE THE NATURE OF EXPENDIT URE HAS NOT BEEN EXAMINED WE SET ASIDE THE ORDER OF THE LEARNED CIT(A) TO EXAMIN E THE NATURE OF EXPENDITURE IN THE LIGHT OF THE SPECIAL BENCH OF THE TRIBUNAL IN T HE CASE OF AMWAY INDIA ENTERPRISES V. DCIT (111 ITD 112) AND THEN DECIDE T HE ISSUE ACCORDINGLY. 28. IN THE RESULT THE APPEAL IS ALLOWED FOR STATIS TICAL PURPOSES. ITA NO. 6247/MUM/08 ASST. YEAR : 2005-06 29. IN THIS APPEAL THE FIRST ISSUE IS IN RESPECT OF TREATING BUSINESS LOSS OF RS. 7 31 061/- AS SPECULATION LOSS U/S.73 OF THE ACT. WE HAVE DECIDED THIS ISSUE IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2001-02 IN ITA NO. 5566/M/04 IN PARAS 3 TO 7 OF THE TRIBUNAL ORDER ABOVE. ACCORDIN GLY THE ISSUE IS DECIDED AGAINST THE ASSESSEE AND IN FAVOUR OF THE REVENUE. 30. AS FAR AS SECOND ISSUE REGARDING BAD DEBT IS CO NCERNED BOTH THE PARTIES FAIRLY CONCEDED THAT THE ISSUE IS COVERED BY THE DE CISION OF THE SPECIAL BENCH IN THE CASE OF DCIT VS. SHREYAS S. MORAKIA (131 TTJ 641(BO M). IN THAT CASE IT WAS HELD THAT IN CASE OF STOCK BROKERS THE AMOUNTS NOT RECOV ERABLE FROM CUSTOMERS WERE ULTIMATELY ALLOWABLE AS BAD DEBTS UNDER SECTION 36( 1)(VII) AND CREDIT OF BROKERAGE WOULD COMPLY WITH THE CONDITIONS SPECIFIED U/S.36(I I) OF THE ACT. HOWEVER THE MATTER WAS SET ASIDE FOR VERIFICATION THAT WHETHER THE BROKERAGE HAS REALLY BEEN CREDITED TO THE ACCOUNT OF PARTICULAR CUSTOMER IN W HOSE CASE THE BAD DEBT HAS I.T.A.NOS.5566/M/04 495/M/06 3328-29/M/07 & 6247/MUM/2008 M/S. FALCON BROKERAGE PVT. LTD. 11 BEEN CLAIMED. FURTHER IT WAS OBSERVED THAT IT ALSO NEEDS BE VERIFIED WHETHER MARGIN MONEY IF ANY RECEIVED FROM THE CUSTOMER OR S ECURITIES WHICH WERE PURCHASED AND FOR WHICH DELIVERY HAS NOT BEEN TAKEN BY SUCH CUSTOMER WHETHER THEY HAVE ADJUSTED IN THE ACCOUNTS OF THAT CUSTOMER AND BAD DEBT SHOULD BE ALLOWED ONLY AFTER SUCH ADJUSTMENT. THEREFORE FOLL OWING THE ABOVE DECISION WE SET ASIDE THE ORDER OF THE LEARNED CIT(A) AND REMIT THE MATTER BACK TO THE FILE OF THE AO WITH DIRECTION TO EXAMINE WHETHER BROKERAGE HAS BEEN RECEIVED FROM THE CUSTOMERS AGAINST WHOM SUCH BAD DEBT HAD BEEN CLAIM ED. FURTHER THE A.O. SHOULD VERIFY WHETHER MARGIN MONEY IF ANY RECEIVED FROM SUCH CUSTOMERS AND THE SECURITIES FOR WHICH DELIVERY HAS NOT BEEN TAKEN BY SUCH CUSTOMERS HAS BEEN ADJUSTED IN THE ACCOUNT OF THE CUSTOMER AND IF YES THEN SUCH BAD DEBT SHOULD BE ALLOWED OTHERWISE THE ISSUE MAY BE DECIDED AS PER L AW. 31. IN THE RESULT THE APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN COURT ON 23 RD DECEMBER 2010. SD. SD. (N.V. VASUDEEVAN) (T. R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI DATED THE 23 RD DECEMBER 2010. KN COPY TO: 1. THE ASSESSEE 2. THE REVENUE 3. THE CIT CITY - 4 MUMBAI 4. THE CIT(A)-IV MUMBAI 5. THE DR B BENCH MUMBAI BY ORDER /TRUE COPY/ ASST. REGISTRAR ITAT MUMBAI I.T.A.NOS.5566/M/04 495/M/06 3328-29/M/07 & 6247/MUM/2008 M/S. FALCON BROKERAGE PVT. LTD. 12