SOVEREIGN SECURITIES, MUMBAI v. DCIT 4(2), MUMBAI

ITA 70/MUM/2010 | 2006-2007
Pronouncement Date: 30-11-2011 | Result: Partly Allowed

Appeal Details

RSA Number 7019914 RSA 2010
Assessee PAN AAECS5874P
Bench Mumbai
Appeal Number ITA 70/MUM/2010
Duration Of Justice 1 year(s) 10 month(s) 24 day(s)
Appellant SOVEREIGN SECURITIES, MUMBAI
Respondent DCIT 4(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 30-11-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted E
Tribunal Order Date 30-11-2011
Date Of Final Hearing 12-02-2014
Next Hearing Date 12-02-2014
Assessment Year 2006-2007
Appeal Filed On 05-01-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI E BENCH BEFORE SHRI B.R.MITTAL JUDICIAL MEMBER & BEFORE SHRI T.R.SOOD ACCOUNTANT MEMBER I.T.A.NO.70/MUM/2010 A.Y 2006-07 M/S. SOVEREIGN SECURITIES PVT. LTD. 5 A KHATAU BLDG. ALKESH DINESH MODI MARG FORT MUMBAI 400 023. PAN: AAECS 5874 P VS. DY. COMMISSIONER OF I.T. 4(2) MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : MR. VIPUL B. JOSHI. RESPONDENT BY : MR. G.P.TRIVEDI. DATE OF HEARING: 16-11-2011 DATE OF PRONOUNCEMENT: 30-11-2011 O R D E R PER T.R.SOOD AM: IN THIS APPEAL ASSESSEE HAS RAISED THE FOLLOWING T WO GROUNDS: 1. THE LEARNED COMMISSIONER OF INCOME-TAX (A) I (CI T(A) I ERRED IN CONFIRMING OF ADDITION MADE OF RS 50 31 250/- ON PR OTECTIVE BASIS ON ACCOUNT OF ALLEGED EXCLUSIVE BENEFIT AROSE TO APPEL LANT FROM SHARE BROKING BUSINESS & ALLEGED RECOVERY BACK THE ALLOWA NCE OF DEPRECIATION ON BSE TRADING RIGHTS CLAIMED U/S 41(1 ) (A). 2. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN CONFIRMING THE DISALLOWING OF INTEREST PAID BY APPE LLANT AMOUNTING RS 292208/- ON ALLEGATION THAT THE AMOUNT BORROWED BY APPELLANT WAS DIVERTED TO SISTER CONCERN FOR THE NON-BUSINESS PUR POSE. 2. GROUND NO.1: AFTER HEARING BOTH THE PARTIES WE FIND THAT AO NOTED THAT ASSESSEE HAS CLAIMED DEPRECIATION OF BOM BAY STOCK EXCHANGE CARD WHICH HAS BEEN HELD TO BE ALLOWABLE B Y THE TRIBUNAL AND THE REVENUE HAD PREFERRED AN APPEAL BEFORE THE HIGH COURT. DURING THE RELEVANT YEAR THE STOCK EXCHANGE WAS DEM UTUALISED AND THE ASSETS OF THE ERSTWHILE AOP I.E. BOMBAY STOCK EXCH ANGE WERE TAKEN ITA NO.70 OF 2010 2 OVER BY THE BOMBAY STOCK EXCHANGE LIMITED (BSEL). T HE MEMBERS OF THE ERSTWHILE AOP WERE ALLOTTED 10 000 SHARES OF BS EL PLUS THE TRADING RIGHTS. ACCORDING TO THE AO AS PER THE PROVISIONS O F SEC.55[2][AB] THE COST OF EQUITY SHARES ALLOTTED TO THE SHAREHOLDERS AT BSEL ON DEMUTUALISATION OF THE STOCK EXCHANGE SHALL BE THE COST OF ACQUISITION OF ITS ORIGINAL MEMBERSHIP. THUS ASSESSEE HAD A RI GHT TO SUBSTITUTE COST OF ORIGINAL MEMBERSHIP. SINCE ASSESSEE HAS ALR EADY GOT THE BENEFIT OF DEPRECIATION THEREFORE THIS WOULD AMOUNT TO DO UBLE BENEFIT. THE AO HIMSELF OBSERVED VIDE PARA 8.8 AS UNDER: 8.8 IT MAY BE ARGUED THAT THE BENEFIT WILL ARISE ON LY IN THE YEAR OF TRANSFER AND NOT THE CURRENT YEAR. HOWEVER THE FACT REMAINS THAT SINCE THE EXCHANGE HAS TAKEN PLACE IN THE RELEVANT YEAR THE BENEFIT OF SECTION 55(AB) ACCRUES IN THIS YEAR ALTHOUGH IT MA Y BE REALIZED LATER. IN VIEW OF THE ABOVE HE FURTHER OBSERVED THAT REVE NUE BELIEVED THAT DEPRECIATION CANNOT BE ALLOWED ON BSE MEMBERSHIP T HEREFORE ADDITION WAS MADE ONLY ON THE PROTECTIVE BASIS AND ACCORDINGLY DEPRECIATION OF RS.50 31 250/- WAS DISALLOWED ON PR OTECTIVE BASIS. 3. ON APPEAL LD. CIT(A) DECIDED THE ISSUE VIDE PAR AS 1.1 & 1.2 WHICH ARE AS UNDER: 1.1. THE FACT IS BEYOND DISPUTE THAT TWO DEDUCTION OF ONE EXPENSE CANNOT BE CLAIMED OR ALLOWED. THE PROTECTIVE ASSESS MENT HAS BEEN RECOGNIZED FOR THE PURPOSE OF INCOME-TAX ACT BY THE SUPREME COURT IN THE CASE OF LALJI HARIDAS -VS- ITO 43 ITR 387 SO T HAT THE REVENUE MAY NOT BE IRRETRIEVABLY LOST IF THE FINAL OUTCOME OF DISPUTE IS DIFFERENT AND SUCH PARALLEL OF THE PROTECTIVE ASSESSMENT ARE THE REFORE PERMISSIBLE IN LAW. IN CASE OF PROTECTIVE ASSESSMENT HOWEVER RECO VERY OF TAX IS NOT POSSIBLE AS HAS BEEN HELD BY JAGANNATH BAWRI -VS- C IT 234 ITR 464 AND CIT -VS- SMT SARASWATI DEVI 212 ITR 445 (RAJAST HAN). 1.2. PROTECTIVE ASSESSMENT TO PROTECT THE INTEREST .OF REVENUE AND TO ENSURE THAT TWO DEDUCTIONS ARE NOT ALLOWED WITH RES PECT TO ONE EXPENSE IS PERFECTLY LEGAL AND ACTION OF THE A.O. IS THEREFORE FOUND TO BE VALID AND IS CONFIRMED. GROUND I IS DISMISSED. ITA NO.70 OF 2010 3 4. BEFORE US LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT AS FAR AS THE ISSUE REGARDING DEPRECIATION ON STOCK EXCHANGE MEMBERSHIP CARD IS CONCERNED THE SAME HAS BEEN SETTLED BY THE DECI SION OF THE HON'BLE SUPREME COURT IN THE CASE OF TECHNO SHARES AND STOC KS LTD. VS. CIT [327 ITR 323] WHEREIN DEPRECIATION ON MEMBERSHIP CA RD OF BSEL WAS HELD TO BE ALLOWABLE. AS FAR AS BENEFIT U/S.55[2][A B] IS CONCERNED THERE IS NO QUESTION OF THE SAME BECAUSE THE SHARES OF BSEL HAVE NOT BEEN SOLD DURING THE YEAR. IN ANY CASE THIS ISSUE HAS ALREADY BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY MUMBAI BENCH O F THE TRIBUNAL IN VARIOUS DECISIONS WHICH ARE AS UNDER: A) I.T.A.NOS.6437 & 6441/M/09 IN THE CASE OF PRABHUDAS LILADHER PVT. LTD. VS. DCIT. B) I.T.A.NOS.5858 & 5937/M/09 IN THE CASE OF HDFC SECU RITIES LTD. VS. ACIT. 5. ON THE OTHER HAND LD. DR RELIED ON THE ORDER OF THE AO AND THE CIT(A). 6. AFTER CONSIDERING THE RIVAL SUBMISSIONS CAREFULL Y WE FIND THAT DEPRECIATION HAS ALREADY BEEN HELD TO BE ALLOWABLE BY THE HON'BLE APEX COURT IN THE CASE OF TECHNO SHARES AND STOCKS LTD. VS. CIT [SUPRA]. FURTHER ASSESSEE HAS NOT SOLD ANY SHARES DURING TH E YEAR THEREFORE PROVISIONS OF SEC.55[2][AB] CANNOT BE INVOKED IN TH IS YEAR. PERHAPS AO WAS AWARE OF THIS SITUATION AND THAT IS WHY IN PARA -8.8 AS EXTRACTED BY US ABOVE HE HAS HIMSELF OBSERVED THAT ADDITION CAN NOT BE MADE IN THIS YEAR AND ADDITION HAS BEEN MADE ON PROTECTIVE BASIS . FURTHER WE FIND THAT SIMILAR ISSUE CAME UP FOR CONSIDERATION OF THE TRIBUNAL IN THE CASE OF PRABHUDAS LILADHER PVT. LTD. VS. DCIT IN I.T.A.N OS.6437 & ITA NO.70 OF 2010 4 6441/M/09 AND THE SAME WAS DECIDED BY THE TRIBUNAL VIDE PARA-12 WHICH IS AS UNDER: 12. ON THE CONSIDERATION OF BOTH THE ARGUMENTS WE ARE OF THE CONSIDERED OPINION THAT THE ASSESSEE SHOULD SUCCEED IN THIS MATTER FOR THE REASON THAT THERE IS NO TRANSFER OF ANY ASSET D URING THE YEAR AND HENCE THE QUESTION OF APPLICATION OF SECTION 55(2) (AV) DOES NOT ARISE. THE TRIBUNAL IN HDFC SECURITIES LTD. (SUPRA) HAS AT PARA-10/PAGE-7 CLEARLY HELD THAT THE APPLICABILITY OF SECTION 55(2 )(AV) MAY BE CONSIDERED AT THE TIME OF SALE. IT IS ALSO HELD THA T THE PROVISIONS OF SECTION 55(2)(AV) CANNOT BE APPLIED IN THE YEAR OF ALLOTMENT OF SHARES IN LIEU OF THE STOCK EXCHANGE CARD. IN THIS DECISIO N IT IS ALSO HELD THAT THIS IS NEITHER BENEFIT OF PERQUISITE ASSESSABLE AS BUSINESS INCOME UNDER SECTION 28(V) OF THE ACT. RESPECTFULLY FOLLOWING TH IS DECISION AND ALSO FOR THE REASON THAT THERE CANNOT BE A PROTECTIVE AS SESSMENT WITHOUT THERE BEING A SUBSTANTIVE ASSESSMENT WE DELETE THI S ADDITION AND ALLOW THE GROUND RAISED BY THE ASSESSEE. THEREFORE IN OUR OPINION THIS ADDITION IS REQUIRE D TO BE DELETED AND ACCORDINGLY WE SET ASIDE THE ORDER OF THE LD. CIT(A ) AND DELETE THIS ADDITION. 7. GROUND NO.2 : AFTER HEARING BOTH THE PARTIES WE FIND THAT DURI NG THE ASSESSMENT PROCEEDINGS AO NOTICED THAT ASSESSEE HAD DECLARED SOME TAX FREE DIVIDEND AS WELL AS INCOME FROM LONG TERM CAPITAL GAINS. ACCORDINGLY AO INVOKED PROVISIONS OF SEC.14A R.W.S . 8D OF I.T.RULES AND DISALLOWED A SUM OF RS.4 27 086/- OUT OF INTERE ST AND OTHER EXPENSES. 8. ON APPEAL ACTION OF THE AO HAS BEEN CONFIRMED B Y THE LD. CIT(A). 9. BOTH THE PARTIES WERE HEARD. 10. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIN D THAT THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG . CO.LTD. VS. DCIT [SUPRA] HAS HELD AS UNDER: ITA NO.70 OF 2010 5 HELD THAT THE PROVISIONS OF RULE 8D OF THE RULES WHICH HAVE BEEN NOTIFIED W.E.F. 24TH MARCH 2008 SHALL APPLY W ITH EFFECT FROM ASSESSMENT YEAR 2008-09. EVEN PRIOR TO ASSESSM ENT YEAR 2008-09 WHEN RULE 8D WAS NOT APPLICABLE THE ASSES SING OFFICER HAS TO ENFORCE THE PROVISIONS OF SUB-SECTION (1) OF SECTION 14A. FOR THAT PURPOSE THE ASSESSING OFFICER IS DUTY BOU ND TO DETERMINE THE EXPENDITURE WHICH HAS BEEN INCURRED I N RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INC OME UNDER THE ACT. THE ASSESSING OFFICER MUST ADOPT A REASONA BLE BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT FACTS AND C IRCUMSTANCES AFTER FURNISHING A REASONABLE OPPORTUNITY TO THE AS SESSEE TO PLACE ALL GERMANE MATERIAL ON THE RECORD. THE PROCE EDINGS FOR ASSESSMENT YEAR 2002-03 SHALL STAND REMANDED BACK T O THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL DETE RMINE AS TO WHETHER THE ASSESSEE HAS INCURRED ANY EXPENDITURE ( DIRECT OR INDIRECT) IN RELATION TO DIVIDEND INCOME/INCOME FRO M MUTUAL FUNDS WHICH DOES NOT FORM PART OF THE TOTAL INCOME AS CONTEMPLATED UNDER S. 14A. THE ASSESSING OFFICER CA N ADOPT A REASONABLE BASIS FOR EFFECTING THE APPORTIONMENT. W HILE MAKING THAT DETERMINATION THE ASSESSING OFFICER SHALL PRO VIDE A REASONABLE OPPORTUNITY TO THE ASSESSEE OF PRODUCING ITS ACCOUNTS AND RELEVANT OR GERMANE MATERIAL HAVING A BEARING ON THE FACTS AND CIRCUMSTANCES OF THE CASE. THUS IT IS CLEAR THAT RULE 8D IS APPLICABLE ONLY F ROM A.Y 2008-09 AND IS NOT APPLICABLE FOR A.YR. 2006-07. THEREFORE WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND REMIT THE MATTER BACK TO THE FIL E OF THE AO TO RECOMPUTE THE DISALLOWANCE U/S.14A IN THE LIGHT OF THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & B OYCE MFG. CO.LTD. VS. DCIT [SUPRA]. 11. IN THE RESULT APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 3 0-11-2011. SD/- SD/- (B.R.MITTAL) (T.R.SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 30-11-2011. P/-* ITA NO.70 OF 2010 6