M/S. VN PAREKH SECURITIES PVT. LTD, MUMBAI v. THE ACIT CEN CIR-40, MUMBAI

ITA 6876/MUM/2007 | 2002-2003
Pronouncement Date: 23-12-2011 | Result: Allowed

Appeal Details

RSA Number 687619914 RSA 2007
Assessee PAN AABCV0547M
Bench Mumbai
Appeal Number ITA 6876/MUM/2007
Duration Of Justice 4 year(s) 1 month(s) 7 day(s)
Appellant M/S. VN PAREKH SECURITIES PVT. LTD, MUMBAI
Respondent THE ACIT CEN CIR-40, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 23-12-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted F
Tribunal Order Date 23-12-2011
Date Of Final Hearing 15-12-2011
Next Hearing Date 15-12-2011
Assessment Year 2002-2003
Appeal Filed On 15-11-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES F MUMBAI BEFORE SHIRI R. S. PADVEKAR J.M. AND SHRI RAJENDRA SINGH A.M. ITA NO. : 6876/MUM/2007 ASSESSMENT YEAR : 2002-03 & ITA NO. : 7047/MUM/2007 ASSESSMENT YEAR : 2003-04 & ITA NO. : 7048/MUM/2007 ASSESSMENT YEAR : 2004-05 M/S. V. N. PAREKH SECURITIES PVT. LTD. BHUPEN CHAMBERS GR. FLOOR 9 DALAL STREET FORT MUMBAI-400 023 PAN NO: AABCV 0547 M VS. ASSISTANT C OMMISSIONER OF INCOME TAX CENTRAL CIRCLE-40 MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI RAJIV KHANDELWAL RESPONDENT BY : DR. P. DANIEL DATE OF HEARING : 1 5 .1 2 .2011 DATE OF PRONOUNCEMENT : 23.12.2011 ORDER PER BENCH : THESE APPEALS BY THE ASSESSEE ARE DIRECTED AGAINST DIFFERENT ORDERS ALL DATED 14.09.2007 OF CIT(A)-VII MUMBAI F OR THE ASSESSMENT YEARS 2002-03 TO 2004-05. AS THE DISPUTE RAISED IN THESES APPEALS ARE IDENTICAL THESE ARE BEING DISPOSED OFF BY A SINGLE CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. THE DISPUTE RAISED REL ATES TO DISCONTINUE ITA NOS : 6876 7047 & 7048/MUM/2007 M/S. V. N. PAREKH SECURITIES PVT. LTD. 2 OF BUSINESS ALLOWABILITY OF DEPRECIATION ON BSE CA RD AND EMPLOYER / EMPLOYEES CONTRIBUTION TO PF. 2. WE FIRST TAKE UP THE ISSUE RELATING TO DISCONTI NUANCE OF BUSINESS AS THIS IS A BASIC ISSUE HAVING BEARING O N OTHER GROUNDS OF APPEAL AND IS COMMON IN ALL THE YEARS. THE FACTS IN BRIEF ARE THAT THE ASSESSEE WHO WAS A SHARE BROKER HAVING BSE MEMBERSH IP CARD HAD NOT UNDERTAKEN ANY SHARE TRADING ACTIVITIES DURING THE RELEVANT YEARS. THE ASSESSEE HAD RECEIVED INTEREST INCOME FROM FDR PLEDGE FOR THE PURPOSE OF SHARE BROKING AND / OR DIVIDEND INCOME F ROM SHARES HELD IN TRADING ACCOUNT WHICH HAD BEEN DECLARED AS BUSINESS INCOME. THE ASSESSEE HAD HOWEVER CLAIMED VARIOUS EXPENSES INCL UDING DEPRECIATION ON BSE CARD AGAINST THE SAID INCOME. T HE AO DISALLOWED THE DEPRECIATION ON BSE CARD BUT HAD ALLOWED OTHER EXPENSES AND THE NET INCOME WAS DETERMINED AT LOSS. THE AO IN THE AS SESSMENT YEAR 2003-04 TREATED THE INTEREST AND DIVIDEND INCOME A S INCOME FROM OTHER SOURCES BOTH IN ASSESSMENT YEARS 2002-03 AND 2004-05 HE ALLOWED THE SAME AS PART OF BUSINESS INCOME AS CLAI MED BY THE ASSESSEE. IN APPEAL CIT(A) OBSERVED THAT SINCE THE ASSESSEE HAD NOT UNDERTAKEN ANY SHARE TRADING ACTIVITIES THE EXPENS ES SHOULD HAVE BEEN ALLOWED. CIT(A) THEREFORE ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE ASSESSMENT SHOULD NOT BE ENHANCED AND THE E XPENSES SHOULD NOT BE DISALLOWED. AS PER CIT(A) THERE WAS NO RESP ONSE FROM THE ASSESSEE. CIT(A) NOTED THAT SEBI HAD BARRED THE ASS ESSEE FROM DOING ANY SHARE BUSINESS AND THEREFORE THE ASSESSEE COU LD NOT TRADE IN SHARES. AS THERE WAS NO BUSINESS AT ALL THE EXPENS ES CLAIMED BY THE ASSESSEE COULD NOT BE ALLOWED. CIT(A) THEREFORE HELD THAT THE ASSESSEE WAS NOT ENTITLED TO CLAIM ANY BUSINESS LOS S AND CARRY FORWARD THE SAME. ACCORDINGLY HE DIRECTED THE AO TO DISALL OW THE BUSINESS LOSS AND THE BENEFIT OF CARRY FORWARD IN ALL THE THREE Y EARS UNDER REFERENCE. ITA NOS : 6876 7047 & 7048/MUM/2007 M/S. V. N. PAREKH SECURITIES PVT. LTD. 3 AGGRIEVED BY THE DECISION OF THE CIT(A) THE ASSESSE E IS IN APPEAL BEFORE THE TRIBUNAL. 3. BEFORE US THE LD. AR FOR THE ASSESSEE SUBMITTED THAT THE BUSINESS OF THE ASSESSEE HAD NOT BEEN DISCONTINUED BUT HAD ONLY BEEN SUSPENDED DUE TO THE ORDERS OF THE SEBI. IT WA S POINTED OUT THAT SEBI VIDE ORDER DATED 10.04.2001 HAD DEBARRED THE A SSESSEE FROM UNDERTAKING ANY FRESH BUSINESS AS STOCK BROKER AND MERCHANT BANKERS TILL FURTHER ORDERS. SEBI PASSED AN ORDER D ATED 21.06.2001 STATING THAT THE BAN ON BUSINESS WOULD CONTINUE TIL L FURTHER NOTICE. FURTHER VIDE ORDER DATED 08.03.2004 SEBI HAD CANC ELLED THE CERTIFICATE OF REGISTRATION OF THE ASSESSEE. THE AS SESSEE HAD FILED AN APPEAL TO THE SECURITIES APPELLATE TRIBUNAL (SAT) I N APRIL 2004 WHICH WAS ALSO DISMISSED BY ORDER DATED 11.05.2007. IT WA S ARGUED THAT DISMISSAL OF THE APPEAL BY THE ASSESSEE WAS A SUBSE QUENT DEVELOPMENT AND TILL THAT TIME THE BUSINESS OF THE ASSESSEE WAS ONLY SUSPENDED AND NOT CLOSED. IT WAS ALSO POINTED OUT THAT THE ASSESS EE COMPANY HAD NOT BEEN DELISTED AS A MEMBER OF THE STOCK EXCHANGE. I T WAS ARGUED THAT INTEREST AND DIVIDEND INCOME HAD BEEN RIGHTLY OFFER ED AS BUSINESS INCOME. THE LD. AR ALSO SUBMITTED THAT THE SAME ISS UE HAD BEEN CONSIDERED BY THE TRIBUNAL IN CASE OF CLASSIC SHARE & STOCK BROKING SERVICES LTD. VIDE ITA NO. 191/M/2008 AND 1135/M/20 08 FOR THE ASSESSMENT YEAR 2003-04 AND THE TRIBUNAL HAD ACCEPT ED THE CLAIM THAT BUSINESS HAD NOT DISCONTINUED AND EXPENSES WER E ALLOWED. IT WAS ACCORDINGLY URGED THAT ORDER OF THE CIT(A) SHOULD BE SET ASIDE AND THE CLAIM OF THE ASSESSEE SHOULD BE ALLOWED. THE LD. DR ON THE OTHER HAND SUPPORTED THE ORDER OF CIT(A). 4. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE R IVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING THE CLOSURE OF THE ITA NOS : 6876 7047 & 7048/MUM/2007 M/S. V. N. PAREKH SECURITIES PVT. LTD. 4 BUSINESS. THE ASSESSEE WAS IN SHARE BROKING BUSINES S. SEBI VIDE ORDER DATED 10.04.2001 HAD DEBARRED THE ASSESSEE FROM UND ERTAKING ANY FRESH BUSINESS AS STOCK BROKER OR MERCHANT BANKERS TILL FURTHER ORDERS DUE TO ALLEGATION OF IRREGULARITY AND MANIPULATION. SUBSEQUENTLY THE LICENSE OF THE ASSESSEE HAD ALSO BEEN CANCELLED VID E ORDER DATED 04.03.2004. THE ASSESSEE HAD FILED AN APPEAL TO SAT AGAINST THE ORDER OF SEBI WHICH WAS DISMISSED ON 04.05.2007. THE ISS UE IS WHETHER ON THE FACTS OF THE CASE BUSINESS OF THE ASSESSEE CAN BE CONSIDERED AS HAVING BEEN CLOSED. THE SAME ISSUE HAD BEEN CONSIDE RED BY THE TRIBUNAL IN CASE OF ANOTHER CONCERN OF THE SAME GRO UP I.E. M/S. CLASSIC SHARE & STOCK BROKING SERVICES LTD. (SUPRA) IN WHI CH CASE ALSO SIMILAR ORDERS HAD BEEN PASSED BY THE SEBI AND THE APPEAL O F THE ASSESSEE HAD BEEN DISMISSED BY SAT. THE TRIBUNAL OBSERVED TH AT SEBI HAD DEBARRED THE ASSESSEE FROM UNDERTAKING SHARE BUSINE SS TILL FURTHER ORDERS AND THE APPEAL OF THE ASSESSEE HAD BEEN DISM ISSED BY THE SAT ONLY IN THE YEAR 2007 WHICH WAS A SUBSEQUENT EVENT AND THEREFORE DURING THE YEAR UNDER CONSIDERATION THE BUSINESS OF THE ASSESSEE COULD ONLY BE CONSIDERED AS SUSPENDED AND NOT CLOSED. THE TRIBUNAL THEREFORE FOLLOWING THE JUDGMENT OF HON'BLE HIGH C OURT OF MADRAS IN CASE OF CIT VS. VELLORE ELECTRIC CORPORATION LTD. ( 243 ITR 529) HELD THAT THE BUSINESS OF THE ASSESSEE HAD NOT BEEN CLOSED AN D THE CLAIM OF THE EXPENDITURE HAS TO BE ALLOWED AGAINST THE INTEREST INCOME DECLARED AS BUSINESS INCOME. FACTS IN CASE OF THE ASSESSEE ARE IDENTICAL. THEREFORE RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN CASE OF CLASSIC SHARE & STOCK BROKING SERVICES LTD. (SUPRA) WE HOL D THAT THE BUSINESS OF THE ASSESSEE HAD NOT CLOSED AND THE EXPENSES CLA IMED HAVE TO BE ALLOWED IN ALL THE THREE YEARS. 4.1 AS REGARDS THE INTEREST AND DIVIDEND INCOME IN ASSESSMENT YEAR 2003-04 INTEREST INCOME HAD ARISEN FROM FDR PLEDGE FOR THE PURPOSE ITA NOS : 6876 7047 & 7048/MUM/2007 M/S. V. N. PAREKH SECURITIES PVT. LTD. 5 OF BUSINESS AND DIVIDEND INCOME HAD ARISEN FROM SHA RES HELD ON TRADING ACCOUNT. INTEREST INCOME IN IDENTICAL SITUA TION IN CASE OF M/S. CLASSIC SHARE & STOCK BROKING SERVICES LTD. (SUPRA) HAS BEEN HELD ASSESSABLE AS BUSINESS INCOME. THE DIVIDEND INCOME ARISING FROM TRADING SHARES HAS TO BE ASSESSED AS INCIDENTAL BUS INESS INCOME. WE THEREFORE HELD THAT INTEREST AND DIVIDEND INCOME H AS TO BE ASSESSED AS BUSINESS INCOME. 5. THE SECOND DISPUTE WHICH IS ALSO COMMON IN ALL T HE YEARS IS REGARDING ALLOWABILITY OF CLAIM OF DEPRECIATION ON BSE MEMBERSHIP CARD. THE ASSESSEE HAD ACQUIRED THE BSE MEMBERSHIP CARD ON 31.02.1997 AND HAD CLAIMED DEPRECIATION ON THE SAME . THE ASSESSEE CLAIMED THAT BSE MEMBERSHIP CARD WAS A PLANT USED I N THE BUSINESS OF SHARE BROKING AND THEREFORE DEPRECIATION WAS A LLOWABLE. IT WAS ALSO SUBMITTED THAT IT WAS AN INTANGIBLE ASSET ON WHICH DEPRECIATION WAS ALLOWABLE U/S.32(1)(II). THE AO HOWEVER HELD THAT THE BSE CARD COULD NEITHER BE CONSIDERED AS A PLANT NOR AN INTANGIBLE ASSET WITHIN THE MEANING OF THE WORD USED U/S. 32(1)(II). HE THEREF ORE DISALLOWED THE CLAIM OF DEPRECIATION. IN APPEAL CIT(A) OBSERVED THAT THERE WERE CONTRARY DECISIONS OF THE TRIBUNAL ON THIS ISSUE. I N CASE OF TECHNO SHARES AND STOCK LTD. VS. ITO (101 TTJ 349) THE TR IBUNAL HELD THAT BSE CARD WAS AN INTANGIBLE ASSET USED IN THE BUSINE SS AND THEREFORE DEPRECIATION WAS ALLOWABLE. BUT IN CASE OF VYOMIT S HARES STOCK AND INVESTMENTS PVT. LTD. VS. DCIT (107 TTJ 422) IT WA S HELD THAT BSE CARD WAS AN INTANGIBLE ASSET AND DEPRECIATION COULD BE ALLOWED ONLY FROM THE ASSESSMENT YEAR 1999-2000 AS PER SECTION 3 2(1)(II). CIT(A) FURTHER OBSERVED THAT IRRESPECTIVE OF THE FACT WHET HER BSE CARD WAS AN INTANGIBLE ASSET ENTITLED FOR DEPRECIATION OR NOT DEPRECIATION COULD NOT BE ALLOWED AS THERE WAS NO BUSINESS IN EXISTENCE A ND THEREFORE NO USER OF THE CARD. CIT(A) THEREFORE CONFIRMED THE DISALLOWANCE MADE BY ITA NOS : 6876 7047 & 7048/MUM/2007 M/S. V. N. PAREKH SECURITIES PVT. LTD. 6 THE AO AGGRIEVED BY WHICH THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 6. BEFORE US THE LD. AR FOR THE ASSESSEE SUBMITTED THAT DEPRECIATION IN RESPECT OF THE SAME BSE CARD HAS BE EN ALLOWED BY THE AO IN THE ASSESSMENT YEAR 1999-2000 FOLLOWING THE D IRECTION OF ITAT IN ITA NO.3716/MUM/2004 AND THEREFORE DEPRECIATIO N COULD NOT BE DISALLOWED IN THE SUBSEQUENT YEAR IN VIEW OF THE PR INCIPLE OF CONSISTENCY. THE LD. DR ON THE OTHER HAND SUBMITT ED THAT DEPRECIATION ON BSE CARD TREATING THE SAME AS INTAN GIBLE ASSET CAN BE ALLOWED ONLY FROM THE ASSESSMENT YEAR 1999-2000. BU T IN THIS CASE THE ASSET HAD BEEN ACQUIRED PRIOR TO ASSESSMENT YEA R 1999-2000 AND THEREFORE DEPRECIATION SHOULD NOT BE ALLOWED. 7. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE R IVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING THE ALLOWABILITY OF DEPRECIATION ON THE BSE CARD. UNDER THE PROVISIONS OF SECTION 32(1)(II) DEPRECIATION IS ALLOWABLE ON CERTAIN INTANGIBLE ASS ETS SUCH AS KNOW- HOW PATENTS COPYRIGHTS TRADE MARK LICENCES FRA NCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE BE ING INTANGIBLE ASSETS ACQUIRED ON OR AFTER 01.04.1998. WHETHER BSE CARD IS AN INTANGIBLE ASSET OR NOT HAS BEEN A DEBATABLE ISSUE WHICH HAS BEEN FINALLY SETTLED BY THE HON'BLE SUPREME COURT IN THE CASE OF TECHNO SHARES AND STOCK LTD. (327 ITR 323) HOLDING THAT B SE CARD IS AN INTANGIBLE ASSET ENTITLED FOR DEPRECIATION. THEREFO RE THERE IS NO DISPUTE REGARDING THE ALLOWABILITY OF DEPRECIATION ON BSE C ARD. THE ONLY DISPUTE RAISED BY THE LD. DR IS THAT SINCE THE CARD HAD BEEN ACQUIRED PRIOR TO 01.04.1998 NO DEPRECIATION COULD BE ALLOW ED U/S.32(1)(II). HOWEVER WE FIND THAT IN ASSESSEES OWN CASE IN ASS ESSMENT YEAR 1999-2000 DEPRECIATION HAS BEEN ALLOWED IN RESPECT OF THE SAME BSE ITA NOS : 6876 7047 & 7048/MUM/2007 M/S. V. N. PAREKH SECURITIES PVT. LTD. 7 CARD BY THE AO ON THE DIRECTION OF THE ITAT IN ITA NO.3716/MUM/2004. SINCE DEPRECIATION HAS ALREADY B EEN ALLOWED ON THE DIRECTION OF THE ITAT IN THE EARLIER YEAR IN O UR VIEW IT WILL NOT BE APPROPRIATE TO DISALLOW THE SAME IN THE SUBSEQUENT YEAR. WE THEREFORE SET ASIDE THE ORDER OF THE CIT(A) ON THI S POINT AND ALLOW THE CLAIM OF DEPRECIATION. 8. THE THIRD DISPUTE WHICH IS RELEVANT ONLY FOR THE ASSESSMENT YEARS 2002-03 AND 2003-04 IS REGARDING ALLOWABILITY OF DEDUCTION ON ACCOUNT OF CONTRIBUTION MADE BY EMPLOYER AND EMPLOY EES TO PF. THE AO HAD DISALLOWED THE CONTRIBUTION MADE TO THE PF B OTH BY THE EMPLOYER AND EMPLOYEES ON THE GROUND THAT THE SAME HAD NOT BEEN PAID WITHIN DUE DATE. IN APPEAL THE ASSESSEE SUBMI TTED THAT THE CONTRIBUTION HAD BEEN PAID WITHIN THE GRACE PERIOD OF 5 DAYS FROM THE DUE DATE OR BEFORE THE DUE DATE OF FILING THE RETUR N OF THE INCOME AND THEREFORE THE SAME SHOULD BE ALLOWED. CIT(A) HOWEV ER DID NOT ACCEPT THE CONTENTIONS RAISED AND CONFIRMED THE DISALLOWAN CE MADE BY THE AO AGGRIEVED BY WHICH THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 9. WE HAVE HEARD BOTH THE PARTIES PERUSED THE RECO RDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REG ARDING THE ALLOWABILITY OF CONTRIBUTION TO PF BY EMPLOYERS AND EMPLOYEES. UNDER THE STATUTORY PROVISIONS RELATING TO THE PF CONTRI BUTIONS ARE REQUIRED TO BE DEPOSITED BY 15 TH DAY OF THE SUBSEQUENT MONTH. FURTHER A GRACE PERIOD OF 5 DAYS HAS BEEN ALLOWED UNDER THE INTERNA L CIRCULAR OF PF AUTHORITIES. THEREFORE THERE CANNOT BE ANY DISPUTE REGARDING THE ALLOWABILITY OF CLAIM IN CASE THE CONTRIBUTIONS HA VE BEEN DEPOSITED WITHIN THE GRACE PERIOD. HOWEVER THE HON'BLE SUPRE ME COURT IN THE CASE OF ALOM EXTRUSIONS LTD. (319 ITR 306) HAVE HEL D THAT AMENDMENT TO SECTION 43B BY THE FINANCE ACT 2003 IS RETROSPE CTIVE IN NATURE AS ITA NOS : 6876 7047 & 7048/MUM/2007 M/S. V. N. PAREKH SECURITIES PVT. LTD. 8 THE SAME HAD BEEN INSERTED TO REMOVE INTENDED CONSE QUENCES. THE EFFECT OF THE SAID JUDGMENT IS THAT CONTRIBUTIONS D EPOSITED BEFORE THE DUE DATE OF FILING OF RETURN OF INCOME HAS TO BE AL LOWED AS DEDUCTION. FOLLOWING THE SAID JUDGMENT THE VARIOUS BENCHES OF THE MUMBAI TRIBUNAL HAVE BEEN ALLOWING THE CLAIM BOTH IN RELAT ION TO THE EMPLOYERS CONTRIBUTION AND EMPLOYEES CONTRIBUTION IF DEPOSIT IS WITHIN THE DUE DATE OF FILING THE RETURN OF INCOME. WE THEREFORE DIRECT THE AO TO ALLOW THE DEDUCTION IF CONTRIBUTIONS HAVE BEEN PAID BEFORE THE DUE DATE OF FILING THE RETURN OF INCOME AFTER N ECESSARY VERIFICATION. 10. IN THE RESULT ALL THE APPEALS OF THE ASSESSEE ARE ALLOWED IN TERMS OF THE ORDER ABOVE. ORDER PRONOUNCED ON THIS 23 RD DAY OF DECEMBER 2011. S D/ - S D/ - ( R. S. PADVEKAR ) ( RAJENDRA SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI DT: 23/12/2011 COPY FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE C.I.T. 4. CIT (A) 5. THE DR - BENCH ITAT MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI ROSHANI