ITO 4(1)(2), MUMBAI v. GRISHMA SECURITIES P. LTD, MUMBAI

ITA 6162/MUM/2010 | 2007-2008
Pronouncement Date: 30-11-2011 | Result: Allowed

Appeal Details

RSA Number 616219914 RSA 2010
Assessee PAN AABCG1300K
Bench Mumbai
Appeal Number ITA 6162/MUM/2010
Duration Of Justice 1 year(s) 3 month(s) 19 day(s)
Appellant ITO 4(1)(2), MUMBAI
Respondent GRISHMA SECURITIES P. LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 30-11-2011
Appeal Filed By Department
Order Result Allowed
Bench Allotted G
Tribunal Order Date 30-11-2011
Assessment Year 2007-2008
Appeal Filed On 11-08-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G MUMBAI BEFORE SHRI P.M. JAGTAP ACCOUNTANT MEMBER AND SHRI V. DURGA RAO JUDICIAL MEMBER I.T.A. NO. 6162/MUM/2010 ASSESSMENT YEAR : 2007-08. THE INCOME-TAX OFFICER M/S GRISHMA SECURITIES PVT.LTD. 4(1)(2) MUMBAI. VS. 92/4 NIRBHAY NIWAS BHAU DAJI CROSS ROAD NO. 10 MATUNG A MUMBAI 400 019. PAN AABCG1300K. APPELLANT. RESPONDENT AP PELLANT BY : SHRI A.K.NAYAK. RESPONDENT BY: SHRI VIJAY MEHTA. DATE OF HEARING : 24-11-2011. DATE OF PRONOUNCEMENT : 30-11-2011. O R D E R. PER P.M. JAGTAP A.M. : THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST TH E ORDER OF LEARNED CIT(APPEALS)-8 MUMBAI DATED 07-06-2010 WHEREBY HE DELETED THE DISALLOWANCE OF RS.26 30 456/- MADE BY THE AO U/S 40(A)(IA) ON A CCOUNT OF TRANSACTION CHARGES ETC. PAID BY THE ASSESSEE TO STOCK EXCHANGE FOR ITS FAILURE TO DEDUCT THE TAX AT SOURCE FROM THE PAYMENT THEREOF. 2. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WH ICH IS ENGAGED IN THE BUSINESS OF STOCK BROKING AS A MEMBER OF BOMBAY STO CK EXCHANGE AND NATIONAL 2 ITA NO.6162/MUM/2010 ASSESSMENT YEAR : 2007-08 STOCK EXCHANGE. THE RETURN OF INCOME FOR THE YEAR U NDER CONSIDERATION WAS FILED BY IT ON 26-08-2007 DECLARING TOTAL INCOME OF RS.9 08 490/-. IN THE PROFIT & LOSS ACCOUNT FILED ALONG WITH THE SAID RETURN A SUM OF RS.26 30 456/- WAS DEBITED BY THE ASSESSEE ON ACCOUNT OF TRANSACTION CHARGES PAID TO THE STOCK EXCHANGE. ACCORDING TO THE AO THE ASSESSEE WAS REQUIRED TO D EDUCT TAX AT SOURCE FROM THE PAYMENT OF TRANSACTION CHARGES MADE TO THE STOCK EX CHANGE AS PER THE PROVISIONS OF SECTION 194J. SINCE NO SUCH DEDUCTION OF TAX AT SOURCE WAS MADE BY THE ASSESSEE HE DISALLOWED THE DEDUCTION CLAIMED BY TH E ASSESSEE ON ACCOUNT OF TRANSACTION CHARGES BY INVOKING THE PROVISIONS OF S ECTION 40(A)(IA). ON APPEAL THE LEARNED CIT(APPEALS) DELETED THE SAID DISALLOWANCE FOLLOWING THE DECISION OF THE MUMBAI BENCH OF ITAT IN THE CASE OF KOTAK SECURITIE S VS. ADDL.CIT 25 SOT 440 WHEREIN IT WAS HELD THAT THE SERVICES RENDERED BY S TOCK EXCHANGE TO ITS MEMBERS NOT BEING IN THE NATURE OF MANAGERIAL OR TECHNICAL SERVICES TAX AT SOURCE WAS NOT DEDUCTIBLE FROM THE PAYMENT MADE BY THE ASSESSEE AS STOCK BROKER TO THE STOCK EXCHANGE ON ACCOUNT OF TRANSACTION CHARGES. AGGRIEV ED BY THE ORDER OF THE LEARNED CIT(APPEALS) THE REVENUE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 3. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT THE DECISIO N OF THE TRIBUNAL IN THE CASE OF KOTAK SECURITIES (SUPRA) RELIED UPON BY THE LEARNE D CIT(APPEALS) IN HIS IMPUGNED ORDER WHILE GIVING RELIEF TO THE ASSESSEE ON THE IS SUE UNDER CONSIDERATION HAS BEEN SUBSEQUENTLY OVERRULED BY THE HONBLE BOMBAY HIGH C OURT VIDE ITS JUDGMENT DATED OCTOBER 21 2011 PASSED IN ITA NO. 3111 OF 2 009 WHEREIN IT IS HELD THAT WITH A VIEW TO REGULATE THE TRADING IN SECURITIES THE STOCK EXCHANGE PROVIDES RISK MANAGEMENT AND SURVEILLANCE TO THE STOCK BROKERS T O ENSURE THE SAFETY OF THE MARKET. IT IS HELD THAT THE SURVEILLANCE FUNCTION I NVOLVES PRICE MONITORING EXPOSURE OF THE MEMBERS RUMOUR VERIFICATION ON A D AILY BASIS AND REMEDIAL ACTIONS 3 ITA NO.6162/MUM/2010 ASSESSMENT YEAR : 2007-08 LIKE REDUCTION OF FILTERS IMPOSITION OF SPECIAL M ARGIN SUSPENSION OF SCRIPS / MEMBERS. IT IS HELD THAT THESE ARE SOME OF THE IDEN TIFIED MANAGERIAL SERVICES RENDERED BY THE STOCK EXCHANGE FOR WHICH TRANSACTIO N CHARGES ARE LEVIED AND THE ASSESSEE WHO IS A STOCK BROKER IS LIABLE TO DEDUCT TAX AT SOURCE BEFORE CREDITING THE TRANSACTION CHARGES TO THE ACCOUNT OF THE STOCK EXC HANGE AS PER THE PROVISIONS OF SECTION 194J. THIS ISSUE THUS NOW STANDS COVERED IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE BY THE DECISION OF HONBLE BOM BAY HIGH COURT IN THE CASE OF KOTAK SECURITIES LTD. (SUPRA) AND THIS POSITION HAS BEEN ACCEPTED EVEN BY THE LEARNED COUNSEL FOR THE ASSESSEE IN SO FAR AS THIS ASPECT OF THE ISSUE IS CONCERNED. 4. THE LEARNED COUNSEL FOR THE ASSESSEE HOWEVER H AS CONTENDED THAT THE DECISION OF THE TRIBUNAL HOLDING THAT DISALLOWANCE MADE BY THE AO ON ACCOUNT OF TRANSACTION CHARGES U/S 40(A)(IA) WAS NOT SUSTAINAB LE HAS BEEN FINALLY UPHELD BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF KOTAK SECURITIES LTD. (SUPRA) ON THE GROUND THAT THE ASSESSEE HAD BONAFIDE REASON TO BEL IEVE THAT THE TAX WAS NOT DEDUCTIBLE AT SOURCE FROM THE PAYMENT OF TRANSACTIO N CHARGES U/S 194J AND THE AO THEREFORE WAS NOT JUSTIFIED IN DISALLOWING THE TRA NSACTION CHARGES BY INVOKING SECTION 40(A)(IA) IN THIS CONTEXT HE HAS INVITED O UR ATTENTION TO THE RELEVANT OBSERVATIONS RECORDED BY THE HONBLE HIGH COURT IN PARAGRAPH NO. 31 OF THE JUDGMENT WHICH IS EXTRACTED BELOW : THE OBJECT OF INTRODUCING SECTION 40(A)(IA) AS EX PLAINED IN THE CBDT CIRCULAR NO. 5 DATED 15/7/2005 IS TO AUGMENT COMPLI ANCE OF TDS PROVISIONS IN THE CASE OF RESIDENTS AND CURB BOGUS PAYMENTS. M OREOVER THOUGH SECTION 194J WAS INSERTED WITH EFFECT FROM 1/7/1995 TILL T HE ASSESSMENT YEAR IN QUESTION THAT IS AY 2005-06 BOTH THE REVENUE AND TH E ASSESSEE PROCEEDED ON THE FOOTING THAT SECTION 194J WAS NOT APPLICABLE TO THE PAYMENT OF TRANSACTION CHARGES AND ACCORDINGLY DURING THE PER IOD FROM 1995 TO 2005 4 ITA NO.6162/MUM/2010 ASSESSMENT YEAR : 2007-08 NEITHER THE ASSESSEE HAS DEDUCTED TAX AT SOURCE WHI LE CREDITING THE TRANSACTION CHARGES TO THE ACCOUNT OF THE STOCK EXC HANGE NOR THE REVENUE HAS RAISED ANY OBJECTION OR INITIATED ANY PROCEEDINGS F OR NOT DEDUCING THE TAX AT SOURCE. IN THESE CIRCUMSTANCES IF BOTH THE PARTIES FOR NEARLY A DECADE PROCEEDED ON THE FOOTING THAT SECTION 194J IS NOT A TTRACTED THEN IN THE ASSESSMENT YEAR IN QUESTION NO FAULT CAN BE FOUND WITH THE ASSESSEE IN NOT DEDUCTING THE TAX AT SOURCE UNDER SECTION 194J OF T HE ACT AND CONSEQUENTLY NO ACTION COULD BE TAKEN UNDER SECTION 40(A)(IA) OF THE ACT. IT IS RELEVANT TO NOTE THAT FROM AY 2006-07 THE ASSESSEE HAS BEEN DED UCTING TAX AT SOURCE WHILE CREDITING THE TRANSACTION CHARGES TO THE ACCO UNT OF THE STOCK EXCHANGE THOUGH NOT AS FEES FOR TECHNICAL SERVICES BUT AS RO YALTY. IT IS FURTHER RELEVANT TO NOTE THAT IT IS NOT THE CASE OF THE REVENUE THAT ON ACCOUNT OF THE FAILURE ON THE PART OF THE ASSESSEE TO DEDUCT TAX AT SOURCE T HE REVENUE HAS SUFFERED PRESUMABLY BECAUSE THE STOCK EXCHANGE HAS DISCHARG ED ITS TAX LIABILITY FOR THE ASSESSMENT YEAR IN QUESTION. IN ANY EVENT IN T HE FACTS OF THE PRESENT CASE IN VIEW OF THE UNDISPUTED DECADE OLD PRACTICE THE ASSESSEE HAD BONAFIDE REASON TO BELIEVE THAT THE TAX WAS NOT DEDUCTIBLE A T SOURCE UNDER SECTION 194J OF THE ACT AND THEREFORE THE ASSESSING OFFIC ER WAS NOT JUSTIFIED IN INVOKING SECTION 40(A)(IA) OF THE ACT AND THEREFOR E THE ASSESSING OFFICER WAS NOT JUSTIFIED IN INVOKING SECTION 40(A)(IA) OF THE ACT AND DISALLOWING THE BUSINESS EXPENDITURE BY WAY OF TRANSACTION CHARGES INCURRED BY THE ASSESSEE. 5. THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITT ED THAT THE RELEVANT FACT SITUATION INVOLVED IN THE PRESENT CASE IS SIMILAR T O THE ONE INVOLVED IN THE CASE OF KOTAK SECURITIES LTD. (SUPRA) ON THE BASIS OF WHICH THE ASSESSEE IN THAT CASE WAS HELD TO HAVE BONAFIDE REASON TO BELIEVE THAT TAX WA S NOT DEDUCTIBLE AT SOURCE FROM THE PAYMENT OF TRANSACTION CHARGES U/S 194J. HE HAS CONTENDED THAT THIS PART OF THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF KOTAK SECURITIES LTD. (SUPRA) THUS IS IN FAVOUR OF THE ASSESSEE IN THE PR ESENT CASE AND THE IMPUGNED ORDER OF THE LEARNED CIT(APPEALS) GIVING RELIEF TO THE AS SESSEE BY DELETING THE 5 ITA NO.6162/MUM/2010 ASSESSMENT YEAR : 2007-08 DISALLOWANCE MADE BY THE AO U/S 40(A)(IA) DESERVES TO BE UPHELD BY FOLLOWING THE SAME. HE HAS ALSO MADE AN ATTEMPT TO DEMONSTRATE TH AT THE FACTS INVOLVED IN THE PRESENT CASE ARE SIMILAR TO THE FACTS INVOLVED IN T HE CASE OF KOTAK SECURITIES LTD. (SUPRA) WHICH FORMED THE BASIS OF THE RELIEF GIVEN BY THE HONBLE BOMBAY HIGH COURT. WE HAVE ALSO HEARD THE LEARNED DR ON THIS I SSUE. 6. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD WE FIND MERIT IN THE CONTENTION OF THE LEAR NED COUNSEL FOR THE ASSESSEE THAT THE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF TRANS ACTION CHARGES BY INVOKING SECTION 40(A)(IA) HAS BEEN FINALLY HELD TO BE UNSUS TAINABLE BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF KOTAK SECURITIES LTD. (SU PRA) ON THE GROUND THAT THE ASSESSEE IN THE FACTS AND CIRCUMSTANCES INVOLVED I N THAT CASE HAD BONAFIDE REASON TO BELIEVE THAT THE TAX WAS NOT DEDUCTIBLE AT SOURC E FROM THE PAYMENT OF TRANSACTION CHARGES U/S 194J. ALTHOUGH THE LEARNED COUNSEL FOR THE ASSESSEE HAS TRIED TO DEMONSTRATE BEFORE US THAT THE RELEVANT FACTS INVOL VED IN THE PRESENT CASE ARE SIMILAR TO THE CASE OF KOTAK SECURITIES LTD. (SUPRA ) WE ARE OF THE VIEW THAT THIS STAND OF THE ASSESSEE REQUIRES VERIFICATION SINCE T HIS ASPECT OF THE MATTER HAS COME UP FOR CONSIDERATION FOR THE FIRST TIME BEFORE THE TRIBUNAL. WE THEREFORE CONSIDER IT FAIR AND PROPER AND IN THE INTEREST OF JUSTICE T O RESTORE THIS ISSUE TO THE FILE OF THE AO FOR VERIFYING THE STAND OF THE ASSESSEE FROM THE RELEVANT RECORD AND DECIDE THE SAME AFRESH ON SUCH VERIFICATION IN THE LIGHT OF GU IDELINES LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN PARAGRAPH NO. 31 OF TH E JUDGMENT AS EXTRACTED ABOVE. 6 ITA NO.6162/MUM/2010 ASSESSMENT YEAR : 2007-08 7. IN THE RESULT THE APPEAL OF THE REVENUE IS TREA TED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF NOV. 2011. SD/- SD/- (V. DURGA RAO) (P.M. JAGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI DATED : 30 TH NOV. 2011. WAKODE COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR G-BENCH. 6. GUARD FILE. (TRUE COPY ) BY ORDER ASSTT. REGISTRAR ITAT MUMBAI.