Income Tax Appellate Tribunal - Delhi
Multiplex Capital Ltd, New Delhi vs Assessee on 2 July, 2009
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH : E : NEW DELHI
BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER
AND
SHRI K.G. BANSAL, ACCOUNTANT MEMBER
ITA No.3885/Del/2009
Assessment Year : 2004-05
Income Tax Officer, Vs. M/s Multiplex Capital Ltd.,
Ward 5 (4), 100/28, Rajpur Sector-9,
New Delhi. Rohini,
Delhi - 85.
PAN : AAACM1761B
CO No.356/Del/2009
(ITA No.3885/Del/2009)
Assessment Year : 2004-05
M/s Multiplex Capital Ltd., Income Tax Officer,
100/28, Rajpur Sector-9, Ward 5 (4),
Rohini, New Delhi.
Delhi - 85.
PAN : AAACM1761B
(Appellant) (Respondent)
Assessee by : Shri Ajay Wadhwa, CA
Revenue by : Shri.G.S. Sahota, Sr. DR
ORDER
PER I.P. BANSAL, JUDICIAL MEMBER
The appeal is filed by the revenue and Cross Objections by the assessee. Both are directed against the order of the CIT (A) dated 2nd July, 2009 for assessment year 2004-05. Grounds of appeal read as under:-
1. The order of the Ld. CIT (A) is erroneous and contrary to facts & law.
2. On the facts and in the circumstances of the case and in 2 ITA No.3885/Del/2009 CO No.356/Del/2009 law, the Ld. CIT (A) has erred in deleting the addition of Rs.8,12,580/- being the prior period expenses.
2.1. The CIT (A) did not appreciate the fact that the assessee was aware of his liability in respect of SEBI turnover tax in the years of accrual.
3. On the facts and in the circumstance of the case and in law, the Ld. CIT (A) erred in deleting the addition of Rs.1,44,756/- being the penalty levied by NSE.
4. The Ld. CIT (A) did not appreciate the fact, that the penalty is levied by the NSE for disablement of trading terminal due to marginal violation of exchange.
Grounds of Cross Objections read as under:-
1. There is no merit in the ground taken by the Assessing Officer that the Ld. CIT (A)-VIII, New Delhi erred in deleting the addition of Rs.8,12,580/- being prior period expenses.
2. The Ld. CIT (A) is perfectly justified in deleting the addition of Rs.8,12,580/- by holding that the same is otherwise allowable on payment basis u/s 43B of the Income-tax Act, 1961.
3. There is no merit in the ground taken by the Assessing Officer that the Ld. CIT (A) erred in deleting the addition of Rs.1,44,756/- being penalty levied by NSE.
4. The Ld. CIT (A) is perfectly justified in deleting the addition of Rs.1,44,756/- by holding that the same is compensatory in nature rather than against any offence prohibited by law.
5. The Ld. CIT (A) has erred in not admitting the additional evidence filed under rule 46A of Income-tax Rules, 1962 in respect of purchase of computer systems, hardware and VSATs service equipments etc., thereby denying with appreciation available on these assets.
6. The Ld. CIT (A) has erred in upholding the action of A.O. in disallowing of depreciation on Rs.9,000/- being annual maintenance charges which is fully allowable as revenue expenditure but wrongly capitalized.
7. The Ld. CIT (A) has erred in directing the A.O. to disallow depreciation on 3 VSAT which were purchased during the 3 ITA No.3885/Del/2009 CO No.356/Del/2009 period relevant to the assessment year under consideration and were put to use for less than 180 days.
8. That the Ld. CIT (A) has erred in directing the Assessing Officer to disallow depreciation on computer system purchased and installed during the year under consideration and were put to use for less than 180 days.
9. That the Ld. CIT (A) has erred in directing the A.O. to disallow depreciation on computer software purchased from M/s R.A.C. Technologies for Rs.33,000/- on 09.01.2004.
10. That the Ld. CIT (A) has erred in upholding the action of A.O. in working of Rs.71,000/- u/s 68 of the Income-tax Act, 1961, being margin money received from clients namely, Anita Aggarwal, Bhavna Jain and Sonali Sachdeva.
Revenue's Appeal
2. Ground No.1 is general in nature, therefore, need no adjudication.
3. In ground No.2 and 2.1, the grievance of the revenue is against deletion of addition of Rs.8,12,580/-. The Assessing Officer has discussed this issue in para 3 of the assessment order. The said amount represented payment made to SEBI during the year under consideration which is debited on paid basis. The Assessing Officer has disallowed the said sum on the ground that the said amount paid by the assessee does not relate to the year under consideration. According to the Assessing Officer, the said liability of the assessee was crystalised in earlier years and, therefore, the same cannot be allowed during the year under consideration even if it is paid in the year under consideration. Ld. CIT (A) has deleted the disallowance on the ground that even if it is held that such charges are not allowable on accrual basis, but they are allowable on payment basis u/s 43B irrespective of method of accounting followed by the assessee and, for this purpose, Ld. CIT (A) has relied upon the decision of ITAT, Mumbai, in the case of ITO vs. Suresh Chand Jain 102 TTJ 907 (Mum) in which such charges were held to be covered by the provisions of Section 43B and he also referred to the decision of Hyderabad ITAT in the case of CIT vs. GMR 4 ITA No.3885/Del/2009 CO No.356/Del/2009 Holdings Company, 6 DTR 401 (Hyd) where similar amount of SEBI turnover fee was held allowable u/s 43B. It has been made clear in the order of CIT (A) that the said amount does not contain any interest component as the entire sum paid is principal amount and for this purpose he has referred to the letter issued by National Stock Exchange dated 23rd August, 2002 and the undertaking given by the assessee company dated 24th August, 2002.
4. After narrating the facts, Ld. DR relied upon the order of the Assessing Officer. He submitted that it has been held by CIT (A) that the turnover fees paid by the assessee during the current financial year pertained to the earlier year and if it is so, then, according to mercantile system of accounting, the assessee cannot claim the said expenditure in the year under consideration.
5. On the other hand, relying on the order of CIT (A) it was submitted by Ld. AR that even if the said turnover fee pertained to earlier year, but according to Section 43B it was to be allowed in the year in which the said amount was paid and, for this purpose, he relied upon the decisions relied upon before the CIT (A) and, thus, he submitted that the order of CIT (A) on this issue may be upheld.
6. We have carefully considered the rival submissions in the light of the material placed before us. The turnover fees has been claimed by the assessee on the basis of actual payment made during the year though the same related to earlier years. Ld. CIT (A) has allowed the relief to the assessee on the ground that such claim of the assessee was admissible under the provisions of Section 43B according to which any tax or fees paid by the assessee though pertained to earlier year shall be allowed in the year of actual payment. For such purpose Ld. CIT (A) has referred to the two decisions; one of Mumbai Benches and the other of Hyderabad Benches. Ld. DR was not able to bring to our notice any contrary decision and Ld. AR of the assessee stated that according to his information there is no contrary decision. In this view of the situation, as the view taken by 5 ITA No.3885/Del/2009 CO No.356/Del/2009 the CIT (A) is based on the decision of two Benches of the Tribunal, we see no infirmity in the deletion made by CIT (A), therefore, we dismiss these grounds.
7. Apropos Ground No.3 and 4 which relate to deletion of addition of Rs.1,44,756/-. This issue has been discussed by the Assessing Officer in para 7 of the assessment order. According to the assessee the said amount was in the nature of financial charges levied by NSE towards exposure margin and, therefore, did not relate to any violation of law. A letter from Globe Capital Market dated 17th August, 2006 was filed wherein as per clause 3 it was written that as per Exchange requirement that every disablement of trading terminal due to initial margin violation, exchange imposes a penalty of Rs.5,000/- for each occasion on incremental basis. The Assessing Officer referring to the said letter observed that the letter in itself was evident to the fact that the amount paid by the assessee was in the nature of penalty imposed by NSE and, in the circumstances, the said amount was disallowed. This issue has been discussed by the CIT (A) in para 6 to 6.4.3. To contend that such amount paid by the assessee could not be treated to be in the nature of penalty. The assessee had placed reliance on the following decisions:-
i) ITO vs. GDR Share and Stock Broking Services Ltd. 88 TTJ (Cal) 352.
ii) Master Capital Services Ltd. vs. DCIT 108 TTJ 389 (Chd)
iii) Chandrakant Kantilal Shah vs. ACIT 9 SOT 717 (Mum).
8. Considering these decisions, Ld. CIT (A) has observed that from the certificate submitted by the assessee dated 17th August, 2006 from Globe Capital Market Ltd. it was apparent that the said amount was imposed for default in initial margin violation and such payment cannot be treated to be a payment made in an offence which is prohibited by any law and, for that purpose, relying on the aforementioned decisions, the CIT (A) has granted the relief to the assessee. The department is aggrieved, hence, in appeal.
6 ITA No.3885/Del/2009 CO No.356/Del/20099. Ld. DR after narrating the facts relied upon the order of Assessing Officer.
10. On the other hand, relying on the order of CIT (A) it was submitted by Ld. AR that Ld. CIT (A) is right in deleting a sum of Rs.1,44,756/-. He submitted that in addition to the decisions relied upon by Ld. CIT (A) the assessee is also placing reliance on the decision in the case of Classic Share and Stock Broking Services Ltd. vs. DCIT 11 SOT 377 (Mum).
11. We have heard both the parties and their contentions have carefully been considered. The amount paid by the assessee is for default in initial margin violations. This issue was considered by this Tribunal in the case of Classic Shares and Stock Broking Services Ltd. vs. DCIT 11 SOT 377 (Mum) wherein the violation fine (margin) has been considered to be in the nature of penalty. The relevant portion of the said decision is reproduced below:-
"10. Second ground relates to deletion of addition of Rs. 4,75,335 being penalty charged by National Stock Exchange. 10.1 The Assessing Officer has disallowed a sum of Rs. 4,75,335 being penalty debited to Profit & Loss Account by holding the same is in violation of the provisions of Act and accordingly the same is not allowable as tax. The CIT(A) deleted the addition by holding that the penalty charges which were charged by the National Stock Exchange were on account of the following reasons :
- Auction short delivery charges
- Delivery margin pay-in-shortage Bad delivery charges Interest on aforesaid charges Violation fines (Margin) The penalty was charged by NSE on the above shortcomings and the shortcomings are such which can be stated that they were in violation of the provisions of law. While deleting the addition, the CIT(A) has also taken into consideration various case laws relied upon by the ld. counsel for the assessee before him. 10.2 We have seen the findings of the CIT(A) and found that the CIT(A) was justified in allowing the ground of the assessee. The findings of the CIT(A) are given at para 6.6 of his order which are as under :7 ITA No.3885/Del/2009 CO No.356/Del/2009
"I have carefully considered the submission of the appellant and facts on record. The appellant was a member of NSC and the NSE did levy various charges for contractual violation. The tax audit report pointed out that the payment of Rs. 4,75,335 was made on account of penalty or fine charged by National Stock Exchange of India Limited during the course of business for various defaults like violation of gross exposure limit, short delivery, funds shortage, shortage of margin money, delay in bad delivery and other misc. charges and the assessee had submitted that these essential payments for violation for various contractual obligation particularly violation for various limits set by them, the appellant had basically submitted that the nature of expenses would show that the expenditure involved was not for any purpose which was an offense or which was prohibited by law. It was also argued that as per the explanation given in the Circular No. 772, dated 23- 12-1998 explaining the provisions of Explanation to section 37(1), the above expenditure was not the category of expenditure which would be hit by the mischief of the said section. Alternatively it was argued that the payment are largely compensatory in nature charged by the SSE for certain default and basically to compensate the NSE for the loss involved in the process as the transaction involved financial dealing. On that basis it was argued that the payment being for the purpose of the violation of contractual obligation is part and parcel of transactions which are arising out of ordinary course of business and has to be allowed as routine expenditure incidental to carrying on of the business under section 37(1). In this connection it has been further argued that this is a normal occurrence in the NSE where there is delay and violations etc., which are routine for which the appropriate compensation was provided and this payment is part of the same and is the regular business expenditure which is allowable, as in any other case. Considering the entirety of the situation, the nature of practices and the ground realities and the fact that the said expenditure was not hit by mischief of Explanation to section 37(1) as discussed earlier, I am of the view that the disallowance has to be deleted. In the result appellant's plea as per ground of appeal No. 5 succeeds."8 ITA No.3885/Del/2009 CO No.356/Del/2009
10.3 Neither the findings of the CIT(A) could not be controverted by the ld. Departmental Representative nor any other material was brought on record to establish otherwise. Therefore, in view of the reasoning given by the ld. CIT(A), we confirm his order on this issue."
12. In this view of the situation, as no contrary decision has been brought to our notice, we find that there is no infirmity in the order of the CIT (A) on this issue. Therefore, on this issue the order of CIT (A) is upheld and these grounds of the revenue are dismissed.
Cross Objections
13. Ld. AR did not press ground Nos.1 to 9 stating that ground No.1 to 4 were only supporting the order of the CIT (A) and ground No.5 to 9 are not pressed, hence, the only ground surviving for consideration is ground No.10. This ground relates to an addition of Rs.71,000/- related to three cash credits existing in the books of account of the assessee in the name of three persons the details of which are as follows:-
1) Ms Amita Aggarwal - Rs.25,000/-
2) Ms Bhawna Jain - Rs.11,000/-
3) Ms Sonia Sachdeva - Rs.40,000/-
14. The assessee did not submit any evidence and the letter sent by the Assessing Officer u/s 133 (6) were not complied with. Therefore, the Assessing Officer added a sum of Rs.71,000/- to the income of the assessee as unexplained cash credits. Before CIT (A) the assessee sought to submit additional evidences by making an application for admission of those evidences under the provisions of Rule 46A of Income-tax Rules, 1962. Ld. CIT (A) has also called for remand report which has been submitted by Assessing Officer vide letter dated 21st May, 2009. The Assessing Officer objected the admission of evidence on the ground that the assessee was given sufficient opportunity.
9 ITA No.3885/Del/2009 CO No.356/Del/2009Ld. CIT (A) has declined to admit the additional evidences submitted by the assessee vide para 4.2 of the impugned order. The assessee sought to submit the copies of margin account, trading account, individual client form, PAN and address, etc. of these three persons. The CIT (A) has declined to admit those evidences as per following observations in para 4.4:-
" In view of the above, and the position of the law discussed in para 3.3.2 above, I am of the considered opinion that the additional evidence brought on record by the appellant company on this issue cannot be admitted in either of the sub-clauses (a) or (b) or (c) of Rule 46A(1) and the matter is being decided on merits of the case without recourse to such additional evidence."
15. It was submitted by Ld. AR that due to the death of Financial Director the assessee could not submit all these evidences though they were in the possession of the assessee and, thus, he submitted that Ld. CIT (A) was required to take into consideration those additional evidences and, for this purpose, he relied upon the decision in the case of Mrs. Aruna Jain vs. DCIT 21 SOT 218 to contend that natural justice required that additional evidences should have been admitted by CIT (A).
16. On the other hand, Ld. DR relied upon the order of the CIT (A) wherein it has been held that the assessee could not justify his case for admission of the additional evidence.
17. We have carefully considered the rival contentions in the light of the material placed before us. The assessee had stated a reasonable cause for non- submission of evidence. In this view of the situation, we are of the opinion that rule of natural justice require that those evidence should have been considered by the CIT (A). Therefore, taking into account the rule of natural justice, we consider it just and proper to restore this issue to the file of Assessing Officer with a direction to give the assessee a reasonable opportunity of hearing to prove the genuineness of cash credits and thereafter re-adjudicate this issue in accordance with law. We direct accordingly.
10 ITA No.3885/Del/2009 CO No.356/Del/200918. For statistical purposes Ground No.10 of the Cross Objections is treated to be allowed.
19. In the result, the appeal filed by the Department is dismissed and the Cross Objections filed by the assessee are partly allowed for statistical purposes.
The order pronounced in the open court on 09.04.2010.
Sd/- Sd/-
[K.G. BANSAL] [I.P. BANSAL]
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated, 09.04.2010.
dk
Copy forwarded to: -
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT
TRUE COPY
By Order,
Deputy Registrar,
ITAT, Delhi Benches