ITO 4(2)(2), MUMBAI v. TOWR CAPITAL & SECURITIES P. LTD, MUMBAI

ITA 924/MUM/2011 | 2007-2008
Pronouncement Date: 09-10-2013 | Result: Partly Allowed

Appeal Details

RSA Number 92419914 RSA 2011
Assessee PAN AAACT2154M
Bench Mumbai
Appeal Number ITA 924/MUM/2011
Duration Of Justice 2 year(s) 8 month(s) 7 day(s)
Appellant ITO 4(2)(2), MUMBAI
Respondent TOWR CAPITAL & SECURITIES P. LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 09-10-2013
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted H
Tribunal Order Date 09-10-2013
Date Of Final Hearing 30-09-2013
Next Hearing Date 30-09-2013
Assessment Year 2007-2008
Appeal Filed On 01-02-2011
Judgment Text
INCOME TAX APPELLATE TRIBUNAL MUMBAI - H BENCH. . !'# !'# !'# !'# !$%&' !$%&' !$%&' !$%&' %! %! %! %! () () () () BEFORE S/SH.D.MANMOHAN VICE-PRESIDENT & RAJENDR A ACCOUNTANT MEMBER /. ITA NO.924/MUM/2011 ! ! ! ! * * * * / ASSESSMENT YEAR-2007-08 ITO CIR 4(2)(2) R.NO. 644 6 TH FLOOR AAYAKAR BHAVAN M.K.ROAD MUMBAI- 400020 VS. TOWER CAPITAL & SECURITIES P. LTD. 25/31 ABAN HOUSE ROPEWALK LANE FORT MUMBAI- 400023 PAN:AAACT2154M ( !+ / APPELLANT) ( -.+ / RESPONDENT) !+ !+ !+ !+ / / / / % %% % / APPELLANT BY : SHRI PITAMBAR DAS -.+ 0 / % / RESPONDENT BY : NONE ! ! ! ! 0 00 0 1! 1! 1! 1! / DATE OF HEARING : 30-09-2013 2* ! 0 1! / DATE OF PRONOUNCEMENT : 09-10-2013 1961 0 00 0 ! !! !! !! ! 254(1) % %% % &131 &131 &131 &131 (%4 (%4 (%4 (%4 ORDER U/S.254(1)OF THE INCOME-TAX ACT 1961(ACT) PER RAJENDRA A.M: CHALLENGING THE ORDER DATED 01.12.2010 OF THE CIT(A )-8 MUMBAI ASSESSING OFFICER(AO) HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1.I.ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS.929 895/ MADE IN RESPECT OF VSAT CHARGES LEASED LINE CHARGE S OF RS. 48 462/- AND TRANSACTION CHARGES OF RS. 698 383/ U/S 40(A)(IA) WITHOUT APPRECIATING THE FACTS THAT THES E WERE COMPOSITE CHARGES FOR PROFESSIONAL AND TECHNICAL SERVICES RENDERED BY THE STOCK EXCHANGE TOOK ITS M EMBERS AND THE ASSESSEE HAS FAILED TO DEDUCT TDS THEREON.. II. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN IGNORING THE FACT THAT THE SERVICES ARE ESSENTIAL IN NATURE AS THEY CAN ONLY BE AVAIL ED BY MEMBERS OF STOCK EXCHANGE. III.ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN IGNORING THE FACTS THAT USE OF TECHNOLOGY AND ALGORITHMIC BASED PROGRAMS HAVE CONVERTED AN ERSTWHILE PHYSICAL MARKET INTO A DIGITAL LY OPERATED MARKET. IV.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW THE LD. CIT(A) ERRED IN IGNORING THE FACT THAT THE SERVICES RENDERED BY THE BROKERS ARE NOT STANDARD SERVICES BUT SERVICES THAT HAS BEEN DEVELOPED TO CATER TO THE NEEDS OF THE BROKER COMMUNITY TO FACILITATE TRAINING. V. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN L AW THE LD. CIT(A) HAS OVERLOOKED THE FACT THAT THE BROKERS HAVE IN SUBSEQUENT YEARS THEMSELVES STARTED DEDUCTING TH E TDS ON SUCH PAYMENTS AND THAT THERE IS NO REASON TO GIVE A DIFFERENT TREATMENT IN THIS YEAR. 2.I. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND I N LAW THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE O N ACCOUNT OF PENALTY OF RS. 231 587/- ON VIOLATION OF THE BYE-LAWS OF T HE STOCK EXCHANGE WHICH ARE STATUTORY IN CHARACTER AND THUS AMOUNTED TO INFRINGEMENT OF LAW. II.ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND I N LAW THE LD. CIT(A) ERRED IN IGNORING THE FACT THAT THE PENALT Y IS IMPOSED UNDER SEBI [PROCEDURE FOR HOLDING ENQUIRY AND IMPOSING PENAL TY BY ADJUDICATING OFFICERS RULES 1995 WHICH HAS A BINDING CHARACTER. 3.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE IMPUGNED ORDER OF THE LD. CIT(A) IS CONTRARY TO LAW AND CONSEQUENTLY MERITS TO BE SET ASIDE AND THAT OF THE ASSESS ING OFFICER BE RESTORED. 4.THE APPELLANT CRAVES LEAVE TO COMMENT OR ALTERED ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 2 ITA NO. 924/MUM/2011 TOWER CAPITAL & SECURITIES P. LTD 2. ASSESSEE-COMPANY ENGAGED IN THE BUSINESS OF BROKING IS A MEMBER OF NATIONAL STOCK EXCHANGE AND BOMBAY STOCK EXCHANGE LTD. IT FILED ITS RETURN OF INCOME ON 31.10.2010 DECLARING LOSS OF RS. 5.71 LACS ASSESSMENT WAS FINALISED ON 21.12.2009 B Y THE AO U/S. 143(3) OF THE ACT DETERMINING THE INCOME OF THE ASSESSEE AT RS. 23.48 LACS. 2.1. FIRST GROUNDS OF APPEAL IS ABOUT DISALLOWANCE OF VS AT LEASE LINE AND TRANSACTION CHARGES FOR NON-DEDUCTION OF TAX DEDUCTED AT SOURCE. DURING THE ASSESSMENT PROCEEDINGS AO FOUND THAT ASSESSEE HAD PAID RS. 6.98 LACS RS.48 246 AND RS.1 .82 LACS ON ACCOUNT OF TRANSACTION CHARGES LEASE CHARGES AND VSAT CHARGES RESPECTIVELY.HE HELD THAT ASSESSEE HAD TO DEDUCT SOURCE AT TAX AS PER THE PROVISIONS OF SECTION 40(IA) OF THE ACT. AS THE ASSESSEE HAD NOT DEDUCT THE TAX AT SOURCE SO AN ADDITION OF RS. 9.29 LACS WAS MADE BY HIM TO THE TOTAL INCOME OF THE ASSESSEE. 2.2 .ASSESSEE PREFERRED AN APPEAL BEFORE THE FAA.RELYIN G UPON THE ORDER OF THE KOTAK SECURITIES LTD.(124 TTJ 241)AND ANGEL BROKING LTD. (35 SOT 457 -MUMBAI) HE HELD THAT ADDITION MADE BY THE AO ON ACCOUNT OF NON-DEDUCTION OF TAX FOR VSAT LEASE LINE AND TRANSACTION CHARGES HAD TO BE DELETED.BEFORE US DEPARTMENTAL REPRESENTATIVE(DR )SUBMITTED THAT MATTER MIGHT BE DECIDED ON MERITS 2.3 .WE HAVE PERUSED THE MATERIAL BEFORE US.WE FIND THA T IN THE CASE OF FIRST GLOBAL STOCKBROKING P.LTD.(ITA NO. 8105/MUM/2010 DATED 28 TH SEPTEMBER 2012)THE TRIBUNAL FOLLOWED THE EARLIER DECISION OF THE ITAT AS WELL AS THE HON'BLE BOMBAY HIGH COURT TO OBSERVE THAT THE AMOUNT PAID TO THE EXCHANGE CANNOT BE TREATED AS FEES FOR TECH NICAL SERVICES AND HENCE THERE IS NO NEED TO DEDUCT TAX AT SOURCE. CONSEQUENTLY NO DISALLOWANCE CAN BE MADE U/S.40(A)(IA) OF THE ACT.SINCE THE VIEW TAKEN BY THE FAA IS IN CONFORMITY WITH THE VIE W TAKEN THEREIN AND IN THE ABSENCE OF ANY CONTRARY DECISION BROUGHT TO OUR NOTICE WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY HIM.ACCORDINGLY GROUND NO. 1 IS DECIDED AGAINST THE AO. 3. SECOND GROUND OF APPEAL IS ABOUT ADDITION MADE ON A CCOUNT OF PENALTY AMOUNTING TO RS. 2 31 587/- ON VIOLATION OF BYE LAWS OF STOCK EXCHAN GE. DURING THE ASSESSMENT PROCEEDINGS AO FOUND THAT ASSESSEE HAD PAID AN AMOUNT OF RS. 2 31 587/- BY WAY OF PENALTY TO NATIONAL STOCK EXCHANGE OF INDIA LTD.HE CALLED FOR EXPLANATION OF THE ASSESSEE IN THIS REGARD. ASSESSEE SUBMITTED THAT PENALTY LEVIED BY NATIONAL STOCK EXCHANGE OF I NDIA LTD. WAS TOWARDS CERTAIN DELAYS/TECHNICAL NON-COMPLIANCES ETC. THAT PENALTY WAS NOT LEVIED B Y SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI).AO WAS OF THE OPINION THAT PAYMENT MADE BY T HE ASSESSEE WAS HIT BY EXPLANATION TO SECTION 37(1) OF THE ACT. HE REFERRED TO THE CASE O F VIMAL SHAH (ITA NO. 2024/ MUM/2006 DTD.04.07.2007) AND HELD THAT PENALTIES OF NON-COMP LIANCE OF DISCIPLINARY REQUIREMENT COULD NOT BE ALLOWED WHILE COMPUTING THE INCOME OF THE ASSESS EE. HE FURTHER HELD THAT PAYMENT MADE BY THE ASSESSEE WAS NOT COMPENSATORY IN NATURE. 3.1. ASSESSEE PREFERRED AN APPEAL BEFORE THE FAA.FOLLOWI NG THE ORDER OF HIS PREDECESSOR FOR THE A.Y.2006-07 HE HELD THAT PENALTY PAID TO STOCK EXCH ANGE WAS ALLOWABLE THAT EXPLANATION TO SECTION 37(1) WAS NOT APPLICABLE TO THE PENALTY LEV IED BY NATIONAL STOCK EXCHANGE.DELETING THE PENALTY IMPOSED BY AO HE ALLOWED THE APPEAL FILED B Y THE ASSESSEE.BEFORE US DR SUBMITTED THAT PENALTY AMOUNT PAID BY THE ASSESSEE WAS IN NATURE O F INFRINGEMENT OF LAW. 3.2. WE HAVE PERUSED THE MATERIAL BEFORE USE.WE FIND THA T AO HAD NOT ENQUIRED INTO THE MATTER TO FIND OUT AS WHAT WAS THE NATURE OF THE PENALTY.AS P ER THE PROVISIONS OF EXPLANATION TO SECTION 37(1) OF THE ACT PAYMENT MADE AGAINST THE PUBLIC PO LICY OR FOR CONTRAVENTION OF LAW IS NOT ALLOWABLE. WE ARE OF THE OPINION THAT BEFORE INVOKI NG THE SAID EXPLANATION TO THE SECTION AO HAS TO CLEARLY MENTION THAT WHAT WAS THE NATURE OF THE PAYMENT I.E. WHETHER IT WAS COMPENSATORY OR PENAL IN NATURE.SECONDLY HE HAS ALSO TO MENTION AS HOW THE PAYMENT WAS OF PENAL NATURE. FAA HAS ALSO NOT ENQUIRED INTO APPLICABILITY OF THE PRO VISIONS OF EXPLANATION TO SECTION 37(1) OF THE ACT. IN THESE CIRCUMSTANCES WE ARE OF THE OPINION THAT MATTER SHOULD BE ADJUDICATED AFRESH BY THE AO.SO IN THE INTEREST OF JUSTICE ISSUE OF ALLOWABIL ITY OF EXPENDITURE INCURRED BY THE ASSESSEE 3 ITA NO. 924/MUM/2011 TOWER CAPITAL & SECURITIES P. LTD AMOUNTING TO RS. 2 31 587/- IS RESTORED BACK TO THE FILE OF THE AO.HE IS DIRECTED TO AFFORD A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. GROUND NO. 2 IS ALL OWED IN PART IN FAVOUR OF THE AO. AS A RESULT APPEAL FILED BY THE AO STANDS PARTLY ALLOWED. 5 !)6 !51 7!! (!8 4 6 % ):1 0 $!1 ; . ORDER PRONOUNCED IN THE OPE N COURT ON 9 TH OCTOBER 2013 (%4 0 2* ! % &!! < =(! 9 >? @ 2013 0 3 A SD/- SD/- ( . / D. MANMOHAN ) ( !$%&' !$%&' !$%&' !$%&' / RAJENDRA) !'# !'# !'# !'# / VICE-PRESIDENT %! %! %! %! () () () () /ACCOUNTANT MEMBER / MUMBAI =(! /DATE: 09.10 .2013 SK (%4 (%4 (%4 (%4 0 00 0 -1B -1B -1B -1B C%B*1 C%B*1 C%B*1 C%B*1 / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / !+ 2. RESPONDENT / -.+ 3. THE CONCERNED CIT(A)/ D E 4. THE CONCERNED CIT / D E 5. DR H BENCH ITAT MUMBAI / BF!3 -1 . . . &!! . 6. GUARD FILE/ 3! G! .!B1 -1 //TRUE COPY// (%4!! / BY ORDER / ! $! DY./ASST. REGISTRAR /ITAT MUMBAI 4 ITA NO. 924/MUM/2011 TOWER CAPITAL & SECURITIES P. LTD DATE INITIALS 1. DRAFT DICTATED ON 24.09.2013 2. DRAFT PLACED BEFORE AUTHOR 25.09.2013 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 5. APPROVED DRAFT COMES TO THE SR.PS 6. KEPT FOR PRONOUNCEMENT 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 8. DATE ON WHICH FILE GOES TO THE A.R. FOR SIGNATURE O F THE ORDER 9. DATE OF DISPATCH OF THE ORDER