ACIT, Ernakulam v. M/s Vertex Securities Ltd., Cochin

ITA 888/COCH/2008 | 2005-2006
Pronouncement Date: 06-05-2010

Appeal Details

RSA Number 88821914 RSA 2008
Assessee PAN AAACV7979E
Bench Cochin
Appeal Number ITA 888/COCH/2008
Duration Of Justice 1 year(s) 7 month(s) 6 day(s)
Appellant ACIT, Ernakulam
Respondent M/s Vertex Securities Ltd., Cochin
Appeal Type Income Tax Appeal
Pronouncement Date 06-05-2010
Appeal Filed By Department
Bench Allotted DB
Tribunal Order Date 06-05-2010
Date Of Final Hearing 17-03-2010
Next Hearing Date 17-03-2010
Assessment Year 2005-2006
Appeal Filed On 30-09-2008
Judgment Text
VV IN THE INCOME TAX APP ELLATE TRIBUNAL COCHIN BENCH COC HIN BEFORE S/SHRI N.VIJAYAKUMARAN JM AND SANJAY ARORA AM I.T.A. NO.888 /COCH./2008 ASSESSMENT YEAR :2005-06 THE ASSISTANT COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-1 ERNAKULAM. VS. M/S. VERTEX SECURITIES LTD. THOTTATHIL TOWERS MARKET ROAD COCHIN-682 014. [PAN: AAACV 7979E] (REVENUE-APPELLANT) (ASSESSEE-RESPONDENT) REVENUE BY DR. BABU JOSEPH SR. DR ASSESSEE BY SHRI R.VENUGOPAL CA O R D E R PER SANJAY ARORA AM : THIS APPEAL BY THE REVENUE ARISES OUT OF THE ORDER BY THE COMMISSIONER OF INCOME-TAX (APPEALS)-I KOCHI (CIT(A) FOR SHORT) DATED 4.7.2008 AND THE ASSESSMENT YEAR (A.Y.) UNDER REFERENCE IS 2005-06. 2. THE FACTS OF THE CASE IN BRIEF ARE THAT THE ASSE SSEE-COMPANY IS IN THE BUSINESS OF STOCK BROKING. DURING THE COURSE OF ITS BUSINESS I T UNDERTAKES TRADING IN STOCKS AND SECURITIES BOTH FOR SELF AS WELL AS FOR AND ON BEH ALF OF ITS CUSTOMERS YIELDING BROKERAGE INCOME. TRANSACTIONS IN PURCHASE AND SALE OF SHARES ENTAILS TRANSACTIONS WHICH WOULD QUALIFY TO BE SPECULATIVE TRANSACTIONS WITHIN THE MEANING OF THE TERM AS DEFINED U/S. 43(5) OF THE INCOME-TAX ACT 1961 ('THE ACT' HEREIN AFTER) SO THAT THE SAME WOULD RESULT IN SPECULATION PROFIT OR LOSS AS THE CASE MAY BE. FOR THE YEAR UNDER REFERENCE THE RETURN OF INCOME STOOD FILED ON 31.10.2005 AT AN INCOME OF RS . 37.36 LAKHS I.E. BESIDES A SPECULATION LOSS OF RS. 4 77 323/-. THE SPECULATION INCOME MANDATED FOR BEING COMPUTED SEPARATELY WHILE AGGREGATING THE TOTAL INCOME UNDER CHAPTER VI OF THE ACT VIDE SECTION 73 OF THE ACT STOOD RETURNED SEPARATELY AND FURTHER ARRIVED AT BY INCLUDING THEREIN THE SPECULATION LOSS BROUGHT FORWARD FROM EARLIER YEARS AT RS. 4 84 530/-. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS U/S. 143(3) THE QUESTIO N AS TO THE ALLOCATION OF THE OVERHEAD ITA. NO.888/COCH./2008 2 EXPENSES INCURRED FOR THE YEAR IN THE SUM OF RS. 3 4.73 LAKHS AROSE. THIS AS THE ASSESSEE WAS ADMITTEDLY UNDERTAKING BOTH SPECULATIVE AND NON -SPECULATIVE BUSINESSES AND INCOME FROM WHICH AS STATED EARLIER HAD TO BE COMPUTED S EPARATELY IN TERMS OF THE PROVISIONS OF THE ACT PARTICULARLY CONSIDERING THAT THE FORMER B ORE A LOSS. THE ASSESSING OFFICER (A.O.) WHILE COMPUTING THE TURNOVER OF THE BUSINES S AT RS. 223.56 LAKHS EXCLUDED THAT RELATING TO THE CLIENTS BUSINESS DETERMINING THE SHARE OF THE SPECULATIVE BUSINESS AT 42%. THE OVERHEAD EXPENSES AS WELL AS THE INFRASTRUCTUR E UTILISATION WERE FOR THE ENTIRE BUSINESS ACTIVITY IRRESPECTIVE OF WHETHER THE TRAD ING WAS DONE ON OWN ACCOUNT OR ON CLIENTS ACCOUNT AND THUS THERE WAS NO REASON FOR NOT ALLOCATING THE SAME BY INCLUDING THAT QUA THE CLIENT BUSINESS. FURTHER THE ALLOCATION WAS T O BE DONE ADOPTING A UNIFORM BASIS I.E. BY TAKING THE TURNOVER OF THE CLIENT B USINESS AND NOT THE BROKERAGE INCOME ONLY TREATING IT AS THE SURROGATE MEASURE OF THE T URNOVER QUA THE SAME. TAKING THE ACTUAL TURNOVER SPECULATIVE AND NON-SPECULATIVE AS THE B ASIS OF ALLOCATION WOULD RESULT IN THE SHARE OF THE OVERHEAD EXPENSE TOWARD SPECULATIVE BU SINESS AT 0.08% THEREOF SO THAT THE PROPORTIONATE DISALLOWANCE WOULD WORK TO RS. 27 338 /-. THE SAID ARGUMENT FOUND FAVOUR WITH THE LD. CIT(A) HOLDING LIKE-WISE. AGGRIEVED THE REVENUE IS IN APPEAL. 3. BEFORE US BOTH THE PARTIES RELIED ON THE ORDERS BY THE AUTHORITIES BELOW I.E. AS FAVOURABLE TO THEM. FURTHER THE LD. DR RELIED ON THE GUIDANCE NOTES FOR TAX AUDIT U/S. 44AB OF THE ACT IN RESPECT OF SHARE BROKERS ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. THE LD. AR WOULD SUBMIT THAT THE MATTER STANDS IN FACT ALREADY COVERED IN THE ASSESSEES FAVOUR BY THE TRIBUNAL IN ITS OWN CASE FOR THE PRECEDING YEARS BEING AYS 2001-02 TO 2004-05 WHERE A SIMILAR ISSUE AROSE PLACING A COPY OF THE SAID ORDER ON RECORD (IN I.T.A. NOS. 1198 & 1199/COCH/20 05 AND 278 AND 560/COCH/2007 DATED 10.9.2008). VIDE PARA 8 OF ITS ORDER THE T RIBUNAL HAS ENDORSED THE VIEW OF THE FIRST APPELLATE AUTHORITY WHO HAD HELD LIKEWISE I.E. A S IN THE PRESENT CASE. FURTHER THE PRINCIPLE OF ALLOCATION WOULD DICTATE THAT BOTH THE NUMERATOR (TURNOVER OF THE SPECULATIVE BUSINESS) AND THE DENOMINATOR (TOTAL TURNOVER OF TH E BUSINESS) ARE TAKEN ON THE SAME BASIS WHICH IS NOT SO IN THE PRESENT CASE. ITA. NO.888/COCH./2008 3 4. WE HAVE HEARD THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. THERE IS NO DENYING THE FACT THAT THE EXPENSES UNDER REFERENCE ALLOCAT ION OF WHICH IS IN DISPUTE PERTAIN TO THE ENTIRE BUSINESS WHETHER SPECULATIVE OR NON-SPECULA TIVE AND FURTHER WHETHER UNDERTAKEN ON OWN ACCOUNT OR ON THAT OF THE CLIENTS. THERE IS ALSO NO DISPUTE WITH REGARD TO THE BASIS OF ALLOCATION I.E. ON TURNOVER BASIS. THIRDLY AS IT APPEARS THERE IS NO DISPUTE QUA THE TURNOVER FIGURES WHICH ARE MATERIAL TO THE COMPUTA TION EVEN AS THE WORKING BY THE ASSESSEE FINDS MENTION ONLY IN THE IMPUGNED ORDER. AS SUCH WE FIND NO MERIT IN THE ARTIFICIAL RESTRICTION OF THE TURNOVER OF THE NON-S PECULATION BUSINESS IN COMPUTING THE TOTAL TURNOVER TO THAT UNDERTAKEN BY THE ASSESSEE-COMPAN Y ON OWN ACCOUNT ONLY. THIS IS WHAT HAD APPEALED TO AND FOUND FAVOUR WITH THE APPELLATE AUTHORITIES IN THE ASSESEES CASE FOR THE EARLIER YEARS SO THAT THE PRESENT CASE COULD W ELL BE SAID TO BE COVERED IN THE ASSESSEES FAVOUR BY THE TRIBUNALS ORDER CITED SUPRA . THE RELIANCE BY THE LD. DR ON THE GUIDANCE NOTE ISSUED BY ICAI FOR COMPUTING THE TURNOVER OF THE SHARE BROKERS IS MISPLACED. THIS IS FOR THE SIMPLE REASON THAT THE TWO BUSINESSES I .E. TRADING ON OWN ACCOUNT OR FOR AND ON BEHALF OF THE CUSTOMERS ARE ON THE SAME FOOTING; T HE ONLY DIFFERENCE BEING THAT WHILE IN ONE THE RISK AND REWARD IS BORNE BY THE CLIENTS YI ELDING BROKERAGE INCOME TO THE ASSESSEE IN THE OTHER IT IS TO THE ASSESSEES OWN ACCOUNT A ND WHICH IS NOT A RELEVANT FACTOR QUA THE ISSUE AT HAND I.E. THE BASIS OF ALLOCATION OF COM MON EXPENSES GIVEN THE FACT THAT THE TURNOVER PROVIDES A REASONABLE BASIS FOR THE SAME. IN FACT IT IS THIS DIFFERENCE BEING RELIED ON WHICH FORMS THE BASIS OF THE CITED GUIDANCE NOT E I.E. THAT PROPERTY IN THE SHARES (GOODS) (DEALT WITH FOR & ON BEHALF OF THE CLIENTS) NOT BELONGING TO THE ASSESSES ITS VALUE SHOULD NOT BE CONSIDERED FOR THE PURPOSE OF COMPUTI NG TURNOVER FOR TAX-AUDIT PURPOSES. THE SAME AS WOULD BE APPARENT HAS NO APPLICATION IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE. WE DECIDE ACCORDINGLY. 5. IN THE RESULT REVENUES APPEAL IS DISMISSED. SD/- SD/- (N.VIJAYAKUMARAN) (SANJAY ARORA) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: ERNAKULAM DATED: 6 TH MAY 2010 GJ COPY TO: 1. M/S. VERTEX SECURITIES LTD. THOTTATHIL TOWERS MARKET ROAD COCHIN-682 014. ITA. NO.888/COCH./2008 4 2. THE ASSISTANT COMMISSIONER OF INCOME TAX CENTRA L CIRCLE-1 ERNAKULAM. 3. THE COMMISSIONER OF INCOME-TAX (APPEALS)-I KOCH I. 4. THE COMMISSIONER OF INCOME-TAX CENTRAL KOCHI. 5. D.R./I.T.A.T. COCHIN BENCH COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR)