Income Tax Appellate Tribunal - Ahmedabad
Shah Investor'S Home Ltd.,, Ahmedabad vs Jt. Cit.,Range-3,, Ahmedabad on 9 November, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD "B" BENCH
Before: Shri Rajpal Yadav, Judicial Member
and Shri Amarjit Singh, Accountant Member
ITA Nos. 3111/Ahd/2013
Assessment Year 2010-11
Shah Investor's Ho me Ltd. The JCIT,
SIHL House, Opp. Range-3
Ambawadi Jain Te mple, Vs Ahmedabad (Respondent)
Nr. Nehrunagar Cross
Road, Ambawadi,
Ahmedabad
PAN: AAFCS4436C
(Appellant)
ITA Nos. 142/Ahd/2014
Assessment Year 2010-11
The Dy. CIT, Shah Investor's Ho me
Circle-3 Ltd. SIHL House, Opp.
Ahmedabad Vs Ambawadi Jain Te mple,
(Appellant) Nr. Nehrunagar Cross
Road, Ambawadi,
Ahmedabad
PAN: AAFCS4436C
(Respondent)
Revenue by: Shri James Kurian, Sr. D.R.
Assessee by: Shri S.N. Soparkar &
Shri Parin Shah, A.R.
I.T.A No. 3111/Ahd/2013 & 142/Ahd/2014 A.Y. 2010-11 Page No 2
Shah Investor's Home Ltd. vs. JCIT
Date of hearing : 20-09-2016
Date of pronounce ment : 09-11-2016
आदेश /ORDER
PER : AMARJIT SINGH, ACCOUNTANT MEMBER:-
These cross-appeals filed by assessee and Revenue for A.Y. 2010-11, arise from a common order of the CIT(A)-VIII, Ahmedabad dated 31-10- 2013 in appeal no. CIT(A)-III/JCIT.R-3/220/12-13, in proceedings under section 143(3) of the Income Tax Act, 1961; in short "the Act".
2. The assessee has raised following grounds:-
"1. Ld. CIT (A) has erred in law and on facts in confirming action of AO for disallowing loss of Rs. 2, 94, 422/- in mark to market in future & option segment. The loss being claimed by the appellant as per accounting principles, the same ought to have been allowed. It be so held now.
2. Ld. CIT (A) has erred in law and on facts in confirming action of AO for proportionate disallowance of transaction charges of Rs. 1,01,48,148/- and other charges of Rs. 23,56,820/- paid to NSE and transaction charges of Rs. 23,70,170/- paid to BSE out of total disallowance of Rs. 1,48,75,138/-u/s 40(a)(ia) of the Act holding that 194J is applicable for the said transaction when the appellant had deducted TDS u/s 194C of the Act. Ld. CIT (A) ought to have deleted entire addition made by AO as appellant has correctly deducted TDS. Also provisions of section 40(a)(ia) of the Act are not applicable for short deduction of TDS. It be so held now.
3. Without prejudice to the ground no. 2 above, the disallowance u/s 40(a)(ia) of the Act ought to have been deleted in view of the amended provisions of section 40(a)(ia) inserted by Finance Act, 2012 applicable retrospectively.
4. Ld. CIT (A) has erred in law and on facts in confirming action of AO for disallowance of lease line charges paid to BSNL of Rs. 1,30,618/- and I.T.A No. 3111/Ahd/2013 & 142/Ahd/2014 A.Y. 2010-11 Page No 3 Shah Investor's Home Ltd. vs. JCIT prepaid charges of A.Y. 2009-10 of Rs. 4,11,871/- u/s 40(a)(ia) of the Act ignoring circular no. 699 dated 30/10/1995, which stipulates no TDS is required to be deducted on the amount paid to the government.
5. Ld. CIT (A) has erred in law and on facts in confirming action of AO for proportionate disallowance of NSDL charges of Rs. 39,48,531/- and CDSL charges of Rs. 1,57,227/- u/s 40(a)(ia) of the Act holding that 194J is applicable for the said transaction when the appellant had deducted TDS u/s 194C of the Act. Ld. CIT(A) ought to have deleted entire addition made by AO as appellant has correctly deducted TDS. Also provisions of section 40(a)(ia) of the Act are not applicable for short deduction of TDS. It be so held now.
6. Without prejudice to the ground no. 5 above, the disallowance u/s 40(a)(ia) of the Act ought to have been deleted in view of the amended provisions of section 40(a)(ia) inserted by Finance Act, 2012 applicable retrospectively.
7. Ld. CIT (A) has erred in law and on facts in confirming action of AO for disallowance of Rs. 19,50,000/- paid to M/s Ashwin Chinubhai Broking Pvt. Ltd. for office management charges paid as per the business development agreement u/s 40(a)(ia) of the Act holding that 1941 is applicable for the said transaction when the appellant had deducted TDS u/s 194J of the Act . Ld. CIT (A) ought to have deleted entire addition made by AO as appellant has correctly deducted TDS. Also provisions of section 40(a)(ia) of the Act are not applicable for short deduction of TDS. It be so held now.
8. Without prejudice to the ground no. 7 above, the disallowance u/s 40(a)(ia) of the Act ought to have been deleted in view of the amended provisions of section 40(a)(ia) inserted by Finance Act, 2012 applicable retrospectively.
9. Ld. CIT (A) has erred in law and on facts in considering short term capital gain on sale of shares of Rs. 11,925/- held by appellant for less than 30 days as business income ignoring the fact that there is no provision in the Act which stipulates such condition. Ld. CIT (A) ought to have considered intention of the appellant and accept the same as declared by the appellant. It be so held now.
10. Ld. CIT (A) has erred in law and on facts in re computing book profit u/s 115JB of the Act by adding amount of disallowance of Rs. 1 0,7 1,217/- made u/s 14A r.w.r. 8D of the Act I.T.A No. 3111/Ahd/2013 & 142/Ahd/2014 A.Y. 2010-11 Page No 4 Shah Investor's Home Ltd. vs. JCIT
11. Levy of interest u/s 234B & 234C of the act is not justified.
12. Initiation of penalty proceedings u/s 271(1)(c) is unjustified"Ground No. 1
3. During the course of assessment, the assessee was asked by the Assessing Officer to submit the details of claim of "Market to market" losses on F & O contracts. The Assessing Officer noticed that the assessee has claimed market to market loss of Rs. 2,94,422/- on the contracts which were open as on balance sheet dated 31-03-2010 and such loss was not crystallized. The Assessing Officer disallowed the sum of Rs. 2,94,422/- as contingent/unascertained liability. The assessee filed appeal before the Ld. Commissioner of Income Tax(A) which was decided by on the basis of identical disallowance of Assessment Year 2009-10 made by the Assessing Officer in the preceding Assessment Year and disallowed the claim of current Assessment Year. The decision of the Ld. Commissioner of Income Tax(A) is reproduced as under:-
"11. AO observed that the appellant has provided mark-to-market losses of Rs, 294,422/- on-open contracts for Future & Option position as on 31- 03-2010, as such losses are in the nature of contingent liability. The Id. AR argued that the provision of losses are made as per requirement of guidance note issued by ICAI with regard to accounting for open interests in future contracts as on the date of balance sheet. Such provisions of losses are reversed in next year on first day and thereafter actual profit or loss is accounted for at the time of maturity. Therefore, such provision of mark-to-market losses on the future & option contracts are in the nature of business losses and therefore the same may be allowed. It was further argued by the Id, All that if the losses are not allowed in AY 2010-11, then at least losses which were disallowed in AY 2009-10 at Rs, 195,394/-,may I.T.A No. 3111/Ahd/2013 & 142/Ahd/2014 A.Y. 2010-11 Page No 5 Shah Investor's Home Ltd. vs. JCIT kindly be allowed as set-off, as the same are reversed and the profit or loss on the date of maturity is offered in current year.
12. In view of the nature of provision, and CBDT instruction no. 3/2010 dated 23-03-2010, such notional loss is contingent in nature and cannot be allowed to be set-off against the taxable income. Therefore, I hold that the AO has rightly rejected the claim and made addition of provision of mark- to-market losses of Rs. 292,422/-. This action of AO is confirmed. However, there is disallowance in Assessment Year 2009-10 at Rs. 195,394/- made by AO. The AO is directed to allow such set-off in AY 2010-11, if the respective addition is confirmed in Appellate proceedings of AY 2009-10, Ground no. 2 of the appeal is thus dismissed and Ground no. 3 of the appeal is thus allowed subject to verification as mentioned above."
The Ld. A.R. before us contended that this loss was claimed as per accounting principles and the same ought to have been allowed. He placed reliance on the pronouncement of 72 taxman. com 141 (Mum) and 69 taxmann. com 81 (Mum). On the other hand, the Ld. D.R. relied on the order of the lower authorities. We have heard both the parties and perused the material on record carefully. We noticed that the assessee has claimed mark to mark loss at Rs. 2,94,422/- on the contracts which were open as on balance sheet dated 31-03-2010 and was not crystalized. The Ld. Commissioner of Income Tax(A) held that on the basis of CBDT instruction no. 3/2010 such loss is contingent in nature and cannot be allowed to be set off against the taxable income. The assesses has contended before the Ld. Commissioner of Income Tax(A) that the mark to mark losses were provided as per guidance note of ICAI with regard to accounting for open interest in future contracts as on the date of balance sheet date accordingly the losses in open contracts as on 31-03-2010 were provided at Rs. 2,94,422/- so that the correct position of profit and losses can be accounted for and such losses were rejected on the next day as there will be actual profit and loss in the I.T.A No. 3111/Ahd/2013 & 142/Ahd/2014 A.Y. 2010-11 Page No 6 Shah Investor's Home Ltd. vs. JCIT open contract on the date of maturity and such profit or loss is accounted for on the date of maturity. The Hon'ble ITAT of Mumbai bench decided the identical issue in the case of Mili Consultants & Investments P. Ltd. vs. DCIT on 1st June, 2016. The relevant part of the decision is reproduced as under:-
"The gist of the decision in the case of Oil Natural Gas Corpn. Ltd. (supra), rendered after considering its' earlier decision in Woodward Governor India (P) Ltd. (supra), is vide para 10 of the Judgment, which reads as under:
'10. Having carefully perused the decision of this Court in Woodward's case (supra), we are of the opinion that both the issues stand concluded by the said decision. Dealing with the said issues extensively, speaking for the Bench, S.H. Kapadia, J. summarised the following factors which should be taken into account in order to find out if an expenditure on account of fluctuation in the foreign currency rates, when the Assessee is following mercantile system of accounting, is deductible:-
(i) whether the system of accounting followed by the assessee is the mercantile system, which brings in the debits of the amount of expenditure for which a legal liability has been incurred even before it is actually disbursed and credits, what is due, immediately it becomes due even before it is actually received;
(ii) whether the same system is followed by the assessee from the very beginning and if there was a change in the system, whether the change was bona fide;
(iii) whether the assessee has given the same treatment to losses claimed to have accrued and to the gains that may accrue to it;
(iv) whether the assessee has been consistent and definite in making entries in the account books in respect of losses and gains;
(v)whether the method adopted by the assessee for making entries in the books both in respect of losses and gains is as per nationally accepted accounting standards;
(vi) whether the system adopted by the assessee is fair and reasonable or is adopted only with a view to reducing the incidence of taxation.
I.T.A No. 3111/Ahd/2013 & 142/Ahd/2014 A.Y. 2010-11 Page No 7 Shah Investor's Home Ltd. vs. JCIT Applying these factors on the facts of that case, it was held that the "loss" suffered by the Assessee, maintaining accounts regularly on mercantile system and following accounting standards prescribed by the Institute of Chartered Accountants of India (ICAI), on account of fluctuation in the rate of foreign exchange as on the date of balance-sheet was an item of expenditure under Section 37(1) of the Act, notwithstanding that the liability had not been discharged in the year in which the fluctuation in the rate of foreign exchange occurred.' The question of booking 'gain', i.e., on an appreciation of the contract value/s, as would be apparent, does not arise. Providing for a liability with reference to the market value, which is adopted as a surrogate measure for realizable value, net of cost, if any, toward realization, i.e., at net realizable value, where held on revenue account, is on the basis of the accounting principle of prudence which suggests booking of all known losses and liabilities. Providing for the same is on the premise that the enterprise following accrual method of accounting, the loss had accrued even though the liability may not have crystallized or its amount may not be quantifiable with exactness and, therefore, represents only an estimate thereof, based on the best available information. Such estimates are called accounting estimates, which inform and permeate the preparation and presentation of final accounts, the background facts with regard to which are generally communicated through the notes to the accounts.
As aforesaid, the controversy before us is limited to whether the unrealized gain, i.e., as may stand to arise on the basis of the market values (of the underlying shares) as at the close of the year on open contracts, prior to the settlement date, could be taken into account for the purpose of closing accounts and recognizing income for the relevant year. The price/s obtaining on the settlement date/s, subsequent to the valuation (balance-sheet) date, may well be different and not in agreement with that as at the year-end, anterior thereto. In fact, even if anticipated, the gain is proscribed for being booked, militate as it clearly does against the accounting principle of prudence, advocating the provision for all known liabilities while at the same time not recognizing any anticipated income. The said principle, prescribed per AS-I issued by the Board, since notified u/s. 145(2) of the Act, therefore acquires the force of law. Reference in this context may also be made to AS-9 (Recognition of income) issued by Institute of Chartered Accountants of India, which again assumes legal status in view of section 209 of the Companies Act, 1956. The statement of a trade liability, at current value, is on an entirely different footing.
Finally, before parting, we may add that the loss on the basis of 'mark to market' open derivative contracts, standing thus to be allowed in the facts and circumstances of the case, the A.O. shall be at liberty to withdraw the said loss on the settlement date/s........................" I.T.A No. 3111/Ahd/2013 & 142/Ahd/2014 A.Y. 2010-11 Page No 8 Shah Investor's Home Ltd. vs. JCIT
4. We have heard both the sides and perused the material on record. In this connection we also rely on the decision of Hon'ble Mumbai ITAT bench in the case of Mili Consultants & Investment (P.) Ltd. (supra), the loss on the basis of market to market open derivatives are allowed to the assessee and if there is a gain on the balance brought forward contract that could be taxed in its settlement.
We find that keeping in view prudence as a consideration for the preparation of financial statement, a provision for the anticipated loss in respect of open future contracts showed he made as per the guidance note issued by the ICAI. Such losses were reversed on the next day of the year as there will be actual profit and loss in the open contract on the date of maturity and such profit or loss is accounted for in the date of maturity. In view of the above stated facts and findings, we delete the addition sustained by the Ld. CIT(A).
Ground No. 2 & 35. The Assessing Officer had disallowed payments made to NSE on account of transaction charges at Rs. 1,01,48,148/- and other charges at Rs. 23,56,820/- and to BSE on account of transaction charges at Rs. 2,30,170/- on the ground that assessee has deducted TDS u/s. 194C instead of u/s. 194J of the I.T. Act. The Assessing Officer decided that the charges paid to stock exchange are in the nature of fees for technical services and TDS is required to be made on such payment u/s. 194J of the Act. The Ld. Commissioner of Income Tax(A) has confirmed the disallowance made by the Assessing I.T.A No. 3111/Ahd/2013 & 142/Ahd/2014 A.Y. 2010-11 Page No 9 Shah Investor's Home Ltd. vs. JCIT Officer u/s. 40(a)(ia) of the act. The decision of the Ld. Commissioner of Income Tax(A) is reproduced as under:-
"27. The appellant company is share broker paying transaction charges and other charges for utilizing computer base -platform of stock exchanges providing online entire spectrum in trading in securities. Such services are highly technical in nature. Therefore, the AC) has rightly concluded that the TDS was required to be deducted u/s, 194-J and not u/s. 194-C of the Act. On similar issue of disallowance u/s. 40(a)(ia) on ground of deduction under different sections, my predecessor in AY 2008-09, confirmed the decision of AO in applying different provision for deduction of tax and given proportionate benefit of TDS already deducted and, paid in. time and disallow the balance amount, 1 therefore hold that AO is justified In applying provisions of section 194-J for deduction of tax instead of section 194-C and his action is confirmed. However, AO is directed to give proportionate benefit of TDS already deducted and paid in time and disallow only the balance amount. Ground no. 6 of the appeal is thus partly allowed."
6. In the course of appellate proceedings before us, the Ld. A.R. stated that the assesse has rightly deducted tax under the provision of sec. 194C of the Act. He further stated that provisions of sec. 40(a)(ia) of the act not appreciable for short deduction of TDS. On the other hand, the Ld. D.R. relied on the order of the Ld. Commissioner of Income Tax(A). We reproduce the submission of the asssessee made before the Ld. Commissioner of Income Tax(A) as under:-
"25. Appellant in its written submission argued that:
In assessment proceedings, the L.d. AO vide show cause notice dated 15- 03-2013 called for to furnish details off transaction charges and other charges paid to NSE / BSE along with TDS deducted thereon. In response to notice, the appellant company furnished explanation to the AO vide letter dated 20-03-2013, copy of reply furnished (Pg, no. 215 to 216), the same is reproduced hereunder:
Show cause reply dated 20-03-2013 I.T.A No. 3111/Ahd/2013 & 142/Ahd/2014 A.Y. 2010-11 Page No 10 Shah Investor's Home Ltd. vs. JCIT Point No. (e) -- Nature of services rendered by the Exchanges and details of payment made to them along with the details of TDS.
It is furnished that Stock exchanges provide platform for trading to our clients on various segments. The stock exchange recovers various charges from brokers such as connectivity charges i.e. V-sat and Lease Line charges, auction commission. Transaction Charges etc. On V- set and lease line charges, TDS are deducted u/s, 194-I and on TO Charges TDS is deducted u/s. 194-C. Detail of various payments made and TDS here on is as under:
SN Particulars Amt (Rs.) U/s TDS
Payment to NSE
1 V-Sat & Lease Line Charges 1011332 194-I 101133
2 TO Charges 10148148 194-C 239464
3 Other Charges 2356820 194-C 48045
Total 13516300
Payment of BSE
1 V-Sat & Lease Line Charges 547268 194-I 54727
2 TO Charges 2370170 194-C 56201
3 Auction Commission 285469 194-H 29814
Total 3202907
Details of Lease Line charges paid are as under:-
Name of Party Amt TDS Amt TDS U/s
HCL Comnet Ltd 100630 10065 194-J
HCL Infinet Ltd 27583 8965 194-J
Tulip Telecom Ltd 1107193 122716 194-J
BSNL 130618 NA NA
Total 1366024
Add: Prepaid Expense 411871
from A.Y. 09-10
Net Expense Claimed 1777895
In view of the above, TDS is deducted on V-Sat Charges u/s. 194-I, & Lease line u/s. 194-J and transaction charges to exchange u/s. 194-C. We request your good self that no disallowance should be made u/s. 40(a)(ia) of the Act, chart showing details of party wise payment and TDS enclosed Exb-23. Further, it is furnished that assesssee company has made payment of Lease I.T.A No. 3111/Ahd/2013 & 142/Ahd/2014 A.Y. 2010-11 Page No 11 Shah Investor's Home Ltd. vs. JCIT line charges of Rs. 130,618/- on BSNL on which TDS is not required to be deducted as the BSNL is Govt. Undertaking.
On the disallowance u/s. 40(a)(ia), the assessee company relies on the following judgments of Hon'ble Courts and Tribunals:
In this regard, Assessee Company relies on the ratio laid down by the Hon'ble Mumbai Tribunal in the case of DCIT Mumbai v. M/s Asset Alliance Securities Pvt. Ltd ITA 4 NO. 1488/Mum/2009. In this case the Hon'ble Tribunal held that:
"The Revenue is in appeal to reiterate that the payment made to the Stock Exchanges represented fees for technical services within the meaning of section 194J read with Explanation 2 to clause (vii) of sub-section (1) of section 9. This issue has considered in the order of the Mumhai Bench of the Tribunal cited supra, which is now reported in (2009) 124 TTJ 241 equivalent to (2008) 25 SOT 440 equivalent (2009) 24 DTR 214. In this case it was held that the transaction charges paid by a Member to the Stock Exchange on the basis ofthe volume of transactions is a payment for the use of the facilities provided by the Stock Exchange and not for any services, either technical or managerial, and therefore the provisions of section 194j and consequently section 40(a)(ia) are not attracted. In coming to this conclusion the Tribunal has relied on the judgment of the Madras High Court in Skycell Communications Ltd. vs. DCIT (2001) 251 ITR 53 (Mad). The learned representative for the assessee has also drawn our attention to the judgment of the Delhi High court in CIT vs. Bharti Cellular Lid (2009) 319 ITR 139 (Del) in which the identical issue has been decided by holding that section 194J read with Explanation 2 below section 9(1)(vii) of the Act is not applicable to payments made by the companies engaged in providing cellular telephone facilities to the interconnection providers, access charges and port charges. In this judgment it was held that the services rendered qua interconnection / port access did not involve any human interface and, therefore, the services could not be regarded as technical services as 'contemplated by section 194J. It was observed that though the facility of interconnection and port access was technical in the sense that it made use of sophisticated technology, but the expression "technical services" in section was not to be construed in the abstract and general sense but in the narrower sense as circumscribed by the expressions "managerial services" and "consultancy services" which appear in in Explanation 2 below section 9 (1)(vii) of the Act, The Delhi High Court further went on to observe that the expression "technical services" would have reference to only technical services rendered by a human being but I.T.A No. 3111/Ahd/2013 & 142/Ahd/2014 A.Y. 2010-11 Page No 12 Shah Investor's Home Ltd. vs. JCIT would not include any services provided by machines or robots. In coming to this conclusion the Delhi High Court agreed with the views expressed by the Madras High court in Skycell Communications Ltd. (supra). The Delhi High Court further examined the question, which was not before the Madras High Court, as to what would be the nature of the payment made by one cellular network provider to another. It was in this context that the provisions of section 194J read with Explanation 2 below section 9(1)(vii) were examined and the observations as noted earlier were made.
Further, it is furnished that Hon'ble ITAT Kolkala in the case of M/s. S. K. Tekriwal ITA No. 1135/Kol/2010, dated 21-10-2011, the Hon'ble Tribunal held that:
We are of the view that the provisions of section 40(a)(ia) of the Act has two limbs, one is where, inter- alia, assessee has to deduct tax and the second where after deducting tax, inter alia, the assessee has to pay into Government Account. There is no nothing in the said section to treat, inter alia, the assessee as defaulter where there is a shortfall in deduction. With regard to the shortfall, it cannot he assumed that there is a default as the deduction is not as required by or under the Act, but the facts is that this expression, 'on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction-has not been paid on or before the due date specified in sub-section (1) of section 139'. This section 40(a)(ia) of the Act refers only to the duty to deduct tax and pay to government account. If-there is any shortfall due to any difference of opinion as to the taxability of any item or the nature of payments falling under various TDS provisions, the assessee can be declared to be an assessee in default n/s. 201 of the Act and no disallowance can be made by invoking the provisions of section 40(a)(ia) of the Act.
In view of above, It is furnished that Assessee Company has complied with provisions of section 40(a)(ia) of the IT Act, 1961, and therefore, there is no disallowance of any expenses required to be made.
9.3: The appellant submits following explanations on the issue of disallowance of transaction charges and other charges paid to National Stock Exchange (NSE) and Bombay Stock Exchange. (BSE) u/s. 40(a)(ia) in Appellate proceedings for your kind perusal:
(i) It is submitted that the appellant company has deducted TDS u/s. 194C on transaction charges and other charges paid to National Stock Exchange I.T.A No. 3111/Ahd/2013 & 142/Ahd/2014 A.Y. 2010-11 Page No 13 Shah Investor's Home Ltd. vs. JCIT (NSE) of Rs. 125,04,968/- and Bombay Stock Exchange (BSE) of Rs.
23,70,170/- and deposited tax with the Central Govt,
(ii) The exchanges are providing services to their member i.e. the appellant company for purchases and sales of shares of their clients. The charges for such services are in the nature of transaction charges and other charges, which cannot be said for providing professional services or providing technical services, but the charges merely recovery of cost/ expenses of exchanges at large and such recoveries are in the nature of contractual payment for sale and purchase of shares.
(iii) The appellant company has deducted TDS on transaction charges and other charges u/s, 194C and deposited such TDS in the Govt. A/c, whereas, the Assessing Officer is considering such TDS is required to be deducted u/s. 194J. In this regard, the Hon'ble Kolkala High Court in the case of CIT vs. S. K Tekriwal (2013) 260 CTK 73 (Cal) (Pg. no. 43 to -45) held that if there is any shortfall in deduction of TDS due to any difference in opinion, as to the taxability of any item or the nature of payments falling under various TDS provisions, no disallowance can be made by invoking the provisions of section 40(a)(ia) of the Act. The above judgment was based on decision of Hon'ble 1TAT Kolkata in the case of M/s. S. K. Tekriwal ITA 1135/Kol/2010 dated 21-10-2011.
(iv) The ld. A.O has stated on Pg, no. 15 of the assessment order that "the said proposition of law gets further fortified from the proviso inserted by the Finance Act 2102, which provides that "where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of chapter XVII-B on any such sums". The uses of words "whole or any part of the tax" makes it evident that the TDS not only need to be deducted but the same need to be deducted at appropriate rate under applicable section in Chapter XVII-B of the Act. The provisions of section 40(a)(ia) do not provide for grossing up of amount of TDS deducted and allowing proportionate credit for same against the total payments/credit made by the assessee. "
The ld. AO has not properly appraised the spirit of inserting new proviso by Finance Act 2012, which states that "provided further that where an aasessee fails to deduct the whole or any part of the tax in accordance with the provisions of ChapterXVII-B on any such sum but is not deemed to be an assessee in default under the first proviso to sub-section (1) of section 201, then, for the purpose of this sub-clause, it shall he deemed that the assessee has deducted and paid the tax on such sum on the date of I.T.A No. 3111/Ahd/2013 & 142/Ahd/2014 A.Y. 2010-11 Page No 14 Shah Investor's Home Ltd. vs. JCIT furnishing of return of income by the resident payee referred to in the said provision."
The aforesaid provisions are liberal provisions to reduce hardship on the assesses for non-deduction or deduction under other sections, which is part judgment of the Hon'ble ITAT Kolkata in the case of Ms. S. K. Tekriwal ITA No. 1135/Kol/2010, dated 21-10-2011, where it was held that under such circumstances, the assessee can be declared to be an assessee in default u/s. 201 of the Act and no disallowance can be made by invoking the provisions of me lion 40(a)(ia) of the Act.
(v) It is worthwhile to bring the CBDT Instruction F. No. 275/201/95-IT(B) dated 29-01-.1997 that "the board is of the view that no deemed visualized under section 201(1) of the Income Tax Act should be enforced after the tax deductor has satisfied the officer in charge of TDS that taxes have been paid by the deductee-assessee. (Pg. 82). The said circular is appraised by the Hon'ble Delhi High Court in the case of Hindustan Coca-Cola Beverages Pvt. Ltd. which was approved by the Hon'ble Supreme Court, as reported in (2007) 293 ITR 226 (SC), (Pg. no. 77(0.81).
(vi) In the present case, the NSE and BSE are stock exchanges, duly authorized by Govt of India, Ministry of Finance and working under the control of SESI (Securities and Exchange Board of India), thus, if TDS of such bodies incorporated or governed by Govt. of India through SEBI on daily basis will be a defaulter or non taxpayer, it is quite surprising? The returns of income are filed by these bodies / exchanges duly on 30-09-2010 and the assessment is completed on 28-03-2013. Thus, it is duty of A.O./tax department to find out whether such institutions are defaulter and whether they have paid taxes or not.
(vi) In this process, the appellant company requested Natoinal Stock Exchange (NSE) to provide a certificate that the return of income is filed for AY 2010-11, the NSE vide 'letter dated 18-02-2013, provided informations that NSE1L has offered tramaction charges to tax and file return of income for AY 2010-11 with Addl. CIT, Range-7(1), Aaykar Bhawan, Mumbai. copy of letter furnished (Pg. no. 240A).
9.4. In view of the above facts, submissions and explanations, it is submitted that the appellant company has complied with the provisions of TDS by deducting tax u/s. 194C of transaction charges and other charges levied by NSE and BSE for shares sale and purchase of clients. The appellant is covered under Instruction of CBDT, decision of Hon'ble I.T.A No. 3111/Ahd/2013 & 142/Ahd/2014 A.Y. 2010-11 Page No 15 Shah Investor's Home Ltd. vs. JCIT Supreme Court in the case of Hindustan Coca-Cola and decision of Hon'ble Kolkata High Court in the case of S.K. Tekriwal. The amendment in the provisions of section 40(a)(ia) of the Act through proviso clarifies that when the assessee is not treated as assessee in default u/s. 201(1), then, on the date of furnishing of return, it is deemed that the assessee has deducted and paid the tax on such sum. Whereas in the present case, the appellant company has deducted tax and paid. Therefore, it is prayed that addition made by disallowing transaction charges and other charges paid to NSE and BSE of Rs. 148,75,138/- may kindly be deleted."
7. We have heard both the sides and perused the material on record. We find that the Ld. Commissioner of Income Tax(A) has not elaborated with relevant reasons in his order that why TDS was required to be deducted u/s. 194J and not u/s. 194C of the Act. He simply stated that on similar issue his predecessor in Assessment Year 2008-09 confirmed the decision of the Assessing Officer. We considered that the stock exchange are providing services to the assessee company for purchases and sales of shares of their clients. Such charges are merely recovery of cost/expenses of exchanges at large which cannot be said as charges for providing for any professional technical services. We have also perused the details of submission of the assessee made before the ld. Commissioner of Income Tax(a). In view of the above stated facts and findings, we considered that Ld. Commissioner of Income Tax(A) is not justified in sustaining the disallowance made by the Assessing Officer, therefore, the same is deleted.
Ground No. 48. The Assessing Officer has made disallowance u/s. 40(a)(ia) on account of non-deduction of tax on payments made to BSNL of Rs. 1,30,618/- and prepaid expenses of Rs. 4,11,871/-. The Ld. Commissioner I.T.A No. 3111/Ahd/2013 & 142/Ahd/2014 A.Y. 2010-11 Page No 16 Shah Investor's Home Ltd. vs. JCIT of Income Tax(A) has sustained the disallowance made by the Assessing Officer. The decision of the Ld. Commissioner of Income Tax(A) is reproduced as under:-
"31. Facts of the case and arguments of the appellant have been carefully considered. The AO observed that the assessee has not deducted tax on lease line expenses paid to BSNL at Rs. 130,618/- and prepaid expenses of Rs. 411,871/- u/s. 194-1 of the Act. The ld. AR argued that the BSNL is Government Company; therefore, no TDS is deducted on payment to BSNL. Appellant submitted that the TDS is required u/s. 194-1, only when the payment during the financial year exceeds Rs. 180,000/- and as such the payments to BSNL were of Rs. 130,618/- i.e. lesser than required limit, therefore, no TDS is required to be deducted. Similarly, the ld. AR further argued and furnished details that on the prepaid expenses, TDS is deducted in AY 2009-10, in the year, when the payment was made and the proportionate expenses are claimed in this year, the TDS is property deducted from the payments in last year, therefore, no TDS is required to be deducted again in this year. The ld. AR relied on the decision of Hon'ble Mumbai Tribunal in the case of ACIT vs. Twenty First Century Shares & Securities Ltd reported in 25 ITR (Trib) 63 [2013], where it is held that no tax at source was required to be deducted by the assessee with regard to lease line charges and V-SAT charges, therefore, no disallowance may be made.
32. From the perusal of records it is found that the issue is squarely covered by the order of my predecessor in A.Y. 2007-08 dtd. 29/12/2010. In that order after considering all arguments of appellant it was held that the payments are in the nature of rent on which TDS should have been deducted u/s. 194I. Facts are same for this year, I therefore hold that action of AO is justified, however, he is directed to give proportionate benefit of TDS already deducted and paid in time by appellant and disallow the balance amount. Ground No.7 is thus partly allowed."
I.T.A No. 3111/Ahd/2013 & 142/Ahd/2014 A.Y. 2010-11 Page No 17 Shah Investor's Home Ltd. vs. JCIT
9. Ld. A.R. contended before us that the BSNL is Govt. company, therefore, no TDS was deducted on payment to BSNL. He also stated that TDS u/s. 194I is required only when the payment during the F.Y. exceeds Rs. 1,80,000/- and such payment to BSNL was only R. 1,30,618/-. He has also placed reliance in the ITA order 633/Ahd/2011 decided by the ITAT Ahmedabad in the case of the assessee. The Ld. D.R. relied on the order of Ld. CIT(A).
10. We have heard both the sides and perused the material on record carefully. We noticed that the TDS on prepaid expenses was deducted in A.Y. 2009-10 in the year when the payment was made and the proportionate expenses are claimed in this year. We have also considered the correctness in the submission of the A.R. that the TDS is required to be made u/s. 194I only when the payment made during the F.Y. exceeds Rs. 180000/-
In view of above stated facts and findings, we delete the addition sustained by the Ld. Commissioner of Income Tax(A).
Ground No. 5 & 611. The Assessing Officer has made disallowance of payment made to NSDL/CSDL u/s. 40(a)(ia) on the ground that these payments are in the nature of "fees for professional or technical service" on which the TDS to be deducted u/s. 194J but the assessee has deducted TDS u/s. 194C of the act. Aggrieved against the order of the Assessing Officer, the asssessee filed appeal before the Ld. Commissioner of Income Tax(A). The Ld. I.T.A No. 3111/Ahd/2013 & 142/Ahd/2014 A.Y. 2010-11 Page No 18 Shah Investor's Home Ltd. vs. JCIT Commissioner of Income Tax(A) has sustained the disallowance made by the Assessing Officer. The decision of the Ld. Commissioner of Income Tax(a) is reproduced as under:-
"37. The appellant company is share broker cum depository service company, providing demat facility to clients and paying demat service charges to NSDL and C.DSL for utilizing computer base platform of such depository companies to transfer shares electronically online, which includes other related services holding securities in electronic form, special services likes pledge, hypothecation of securities, automatic delivery of securities to clearing corporation, distribution of corporate benefits viz. bonus, rights, IPO etc, stock landing, speedy transfer facility, SMS facility etc. Such services are highly technical and cannot be said as merely in the nature of postage / courier services or locker charges, therefore, such services are falling in the nature of technical services. Therefore, the AO has rightly concluded that the TDS was required to be deducted u/s, 194-J and not u/s. 194- C of the Act. On similar issue of disallowance u/s, 40(a)(ia) on ground of deduction under different sections, my predecessor in AY 2008-09, confirmed the decision of AO in applying different provision for deduction of tax and given proportionate benefit of TDS already deducted and paid in time and disallow the balance amount. I therefore hold that AO is justified in applying provisions of section 194-J for deduction of tax instead of section 194-C and his action is confirmed. However, AO is directed to give proportionate benefit of TDS already deducted and paid in time and disallow the balance. Ground no. 8 of the appeal is thus partly allowed."
12. The Ld. counsel contended before us that the assessee has complied with the provisions of TDS by deducting tax u/s. 194C for demat charges and other charges levied by NSDL and CSDL for providing demat services. He also placed reliance on the decision of the coordinate bench of ITAT Ahmedabad in the case of the assessee vide ITA No. 633 and 3134/Ahd/2011 and he further placed reliance in the case of Ansal I.T.A No. 3111/Ahd/2013 & 142/Ahd/2014 A.Y. 2010-11 Page No 19 Shah Investor's Home Ltd. vs. JCIT handmark township 377 ITR 635(Del). On the other hand, the Ld. D.R. relied on the order of the Ld. Commissioner of Income Tax(A).
13. We have heard both the sides and perused the material on record. In this connection, the submission of the assessee made before the Ld. Commissioner of Income Tax(A) is reproduced as under:-
"35. Appellant in its written submission argued that:
11.2 In assessment proceedings, the Ld. A.O. vide notice dated 15-03-2013 called for to furnish details of NSDL charges and CSDL Charges along with TDS thereon. In response to notice, the appellant company furnished explanation vide letter dated 20-03-2013, copy of reply furnished {'Pg. no. 21 7 to 218), the same is reproduced hereunder:
Show cause reply dated 20-03-2013 Point No. (p) - TDS on NSDL/CDSL charges.
Detail of NSDL/CDSL charges are as under:
Particulars Amt TDS TDS/U/s.
Amt
Charges Paid to
NSDL
NSDL charges 3,932,795
(demate)
PAN Card Processing 13,236
Charges
Ideas fees 2500
Total 3,948,531 86652 194-C
Charges Paid to
CDSL
CSDL Charges 83,727
(demate)
CSDL Account Maint 5,500
Charges
CDSL User Facility 67,000
Charges
CDSL SEBI Charges 1,000
Total 157,227 3459 194-C
Grand Total 4,105,759
I.T.A No. 3111/Ahd/2013 & 142/Ahd/2014 A.Y. 2010-11 Page No 20
Shah Investor's Home Ltd. vs. JCIT
The NSDL /CDSL charges are paid by Assesses Company to National Securities Depository Lid, Central Depository Services Ltd for the use of depository activities i.e. facilities provided by NSDL / CDSL, which are in turn recovered from the customers who are utilizing Demal facilities.
Further, it is furnished that Assesses Company relies on the ratio laid down by Hon'ble ITAT Kolkata in the case of M/s. S.K. Tekriwal ITA No. 1135/Kol/2010, dated 21-10-2011.
In view of above, it is furnished that Assesses Company has complied with provisions of section 40(a)(ia) of the IT Act, 1961 and therefore, there is no disallowance of any expenses required to be made.
11.3. The appellant submits following explanations on the issue of disallowance of NSDL charges and CSDL charges paid to NSDL (National Securities Depository Ltd of Rs. 39,48,561/- and CSDL (Central Securities Depository Lid) u/s, 40(a)(ia) in Appellate proceedings for your kind perusal:
(i) It is submitted that the appellant company has deducted TDS u/s. 194C on mainly Demat facility charges paid to NSDL (National Securities Depository Ltd of Rs. 39,48, 531/- and CSDL (Central Securities Depositary Ltd) of Rs. 157227/- and deposited such tax with the Central Govt.
(ii) The NSDL and CSDL are providing Demat services i.e. receiving and delivering shares of clients, as the facility is in electronic form. The charges for such services are in the nature of postage / courier charges and locker charges as the shares are received / delivered / kept in a specific post box i.e. account of client in electronic farm. These services cannot be said for providing professional services or providing technical services, but the charges are merely recovery of cost /expenses of NSDL and CSDL at large and such recoveries are in the nature of contractual payment for shares deliveries and keeping the same in the account.
(iii) The appellant company has deducted TDS on Demat and other charges paid to NSDL and CSDL u/s. 194C and deposited such TDS in the Govt.
A/c, whereas the AO is considering such TDS is required to be deducted u/s. 194J. In this regard, the Hon'ble Kolkata High Court in the case of CIT vs. S. K, Tekrival (2013) 260 CTR 73 (Cat) held that if there is any shortfall in deduction of TDS due to any difference in opinion, as to the taxability of any item or the nature of payment falling under various TDS provisions, no disallowance can be made by invoking provisions of section 40(a)(ia)of the Act (Pg. no. 43 to 45). The above judgment was based on I.T.A No. 3111/Ahd/2013 & 142/Ahd/2014 A.Y. 2010-11 Page No 21 Shah Investor's Home Ltd. vs. JCIT decision of Hon'ble ITAT Kolkata in the case of M/s. S. K. Tekriwal ITA No. 1135/Kol/2010, dated 21-10-2011.
(iv) The ld, AO has stated on Pg. no. 19 of the assessment order that the said proposition of law gets farther fortified from the proviso inserted by the Finance Act 2102, which provides that "when; an assessae fails to deduct the whole or any part of the tax in accordance with the provisions of chapter XVI1-B on any such sums. The uses of words "whole or any part of the tax" makes it evident that the TDS not only need to be deducted but the same need to be deducted at appropriate rate, under applicable section in Chapter XVII-B of the Act. The provisions-of section 40(a)(ia) do not provide for grossing up of amount of TDS deducted and allowing proportionate credit for same against the total payments/credit made by the assessee,"
The ld. AO has not property appraised the spirit of inserting new proviso by Finance Act 2012, which states that "provided further that where an assesses fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XV1I-B on any such sum but is not deemed to be an assessee in default under the first proviso of to sub-section (1) of section 201, then, for the purpose of this sub-clause, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee referred to in the said provision."
The aforesaid provisions are liberal provisions to reduce hardship on the assessee for non-deduction or deduction under other sections, which is part of judgment of the Hon'ble ITAT Kolkata in the case of M/s. S. K. Tekriwal ITA No. 1135/Kol/2010, dated 21-10-2011, where it was held that under such circumstances, the assesses can be declared to be an assessee in default U/S 201 of the Act and no disallowance can be made by invoking the provisions; of section 40(a)(ia) of the Act.
(v) It is worthwhile to bring the CBDT Instruction F. No. 275/201/95 - 1T(B) dated 29-01-1997 that the board is of the view that no demand visualized under section 201(1) of the Income Tax Act should be enforced after the tax deductor has satisfied the officer in charge of TDS that taxes have been paid by the dedudee-assessee. " (Pg. no. 82). The said circular is appraised by the Hon'ble Delhi High Court in the case of Hindustan Coca- Cola Beverages Pvt, Ltd. which was approved by the Hon'ble Supreme Court, as reported in (2007) 293 ITR 226 (SC). (Pg. no. 77 to 81). I.T.A No. 3111/Ahd/2013 & 142/Ahd/2014 A.Y. 2010-11 Page No 22 Shah Investor's Home Ltd. vs. JCIT
(vi) In the present case, the NSDL and CSDL are depository service providers, duty authorized by Govt, of India, Ministry of Finance and working under the control of SEB1 (Securities and Exchange Board of India), thus, if TDS of such bodies incorporated or governed by Govt of India through SEBI on daily basis will be a defaulter or non taxpayer, it is quite surprising? The returns of income are filed by these bodies / exchanges duly on 30-09-2010 and the assessment is completed on 28-03- 2013. Thus, it is duty of AO/ tax department to find out whether such institutions are defaulter and whether they have paid taxes or not. 11.4 In view of the above facts, submissions and explanations, it is submitted that the appellant company has complied with the provisions of TDS by deducting tax u/x. 194C of Demat charges and other charges levied by NSDL and CSDL for providing Demat services i.e. receiving and delivering of shares of clients, as the facility is in electronic form. The appellant is covered under Instruction of CBDT, decision of Hon'ble Supreme Court in the case of Hindustan Coca-Cola and decision of Hon'ble Kalkata High Court in the case of S.K. Tekriwal. The amendment in the provisions of section 40(a)(ia) of the Act through proviso clarifies that when assessee is not treated as assesseee in default u/s. 201(1) then on the date of furnishing of return, it is deemed that the assessee has deducted and paid the tax on such sum. Whereas in the present case, the appellant company has deducted tax and paid. Therefore it is prayed that addition made by disallowing Demat charges and other charges paid to NSDL and CSDL of Rs. 41,05,758/- (Rs. 39,48,541/- + Rs. 157,227/- may kindly be deleted."
14. We find that the NSDL and CSDL are providing demand services i.e. receiving and delivering of shares of clients. Such charges are merely recovery of cost/expenses at large which cannot be said to be of the nature of providing any professional/technical services. We have also considered the reliance made by the assessee on the decision of Hon'ble Kolkata High court in the case of CIT vs. S.K. Tekriwal (2013) 260 CTR 73 (Cal) wherein it was held that if there is any shortfall in deduction of TDS due to any difference in pinion, as to the taxability of any item on the nature of payments falling under various TDS provisions, no disallowance can be made by invoking the provisions of sec. 40(a)(ia) of the act. In view of I.T.A No. 3111/Ahd/2013 & 142/Ahd/2014 A.Y. 2010-11 Page No 23 Shah Investor's Home Ltd. vs. JCIT above stated facts and judicial findings we have considered the submissions of both the sides and find that the Ld. Commissioner of Income Tax(A) is not justified in upholding the disallowance made by the Assessing Officer, therefore, we allow the appeal of the assessee.
Ground No. 7 & 815. The Assessing Officer has made disallowance u/s. 40(a)(ia) of the act of Rs. 19,50,000/- regarding payment made by the assessee to M/s. Ashwin Chinubhai Broking P. Ltd for office management charges on account of deducing tax u/s. 194J instead of section 194I of the Act. Aggrieved against the order of the Assessing Officer, the assessee has made appeal before the Ld. Commissioner of Income Tax(A). The Ld. Commissioner of Income Tax(A) has sustained the disallowance made by the Assessing Officer. The decision of the Ld. Commissioner of Income Tax(A) on this issue is reproduced as under:-
"43. On identical issue of payment of office management charges for use of premises and infrastructure disallowance u/s, 40{a)(ia) -on ground of deduction under different sections, my predecessor in AY 2008-09, confirmed the decision of AC) in applying different provision for deduction of tax and given proportionate benefit of TDS already deducted and paid in lime and disallow the balance amount, I therefore hold that AO is justified in applying provisions of section 194-1 for deduction of tax instead of section 194-J in respect of payment of Rs. 19,50,000/- and his action is confirmed. However, AO is directed to give proportionate benefit of TDS already deducted and paid in time and disallow the balance. Thus, the disallowance made by AO is reduced to this extent."
16. Before us, the Ld. A.R. contended that payments are in the nature of managerial services as the payees is sub-broker of the assesseee company, I.T.A No. 3111/Ahd/2013 & 142/Ahd/2014 A.Y. 2010-11 Page No 24 Shah Investor's Home Ltd. vs. JCIT therefore, TDS was deducted on payment made for office management charges. He also placed reliance on the order of ITAT Ahmedabad ITA 633 and 3134/Ahd/2011. On the other hand, the Ld. D.R. relied on the order of the ld. Commissioner of Income Tax(A).
17. We have heard both the sides and perused the material on record. In this connection, the assessee has submitted before the Ld. Commissioner of Income Tax(A) as under:-
"40. Appellant In its written submission argued that:
12.2 In assessment proceedings, the Ld. AO called for to furnish details of payments to broker and business developer M/s. Ashwin Chinubhai Broking Pvt. Ltd of Rs. 39,00,000/- office management charges and Rs.29,98,599/-
as reimbursement of expenses to notice, the appellant company furnished explanation to AO vide letter dated 15-02-2013, copy of reply famished (Pg. no. 128 to 130), in this reply, the appellant company furnished copy of business development agreement and its addenda (Pg. Ma, 154 to 170), copies of bills for management fees and reimbursement of expenses (Pg. no. 171 to 194), and vide show cause reply dated 20-03-2013, copy of reply furnished (Pg. no. 212 to 215), the same is reproduced hereunder:
Letter dated. 15-02-2013 Point No. p - Assessee Company has entered into business development agreement with Forum Broking Pvt. Ltd., Ashvin Chinubhai Broking P. Lid.. Pearl Broking Services Ltd and S.R Financial Services P. Ltd for development Promotion & Expansion of business. Under this agreement Pearl Broking Services Ltd are marketing, promoting and managing the business of the company, Brief of the work done by the Business
(a) They have to introduce the interested Investors/Clients/Sub-brokers who are inclined to have dealing through us and getting registered as Client / Sub-broker / Remiser of us.
(b) They have to satisfy themselves as to the genuineness of the Clients/Sub-
brokers/Remiser and the financial status of the same. I.T.A No. 3111/Ahd/2013 & 142/Ahd/2014 A.Y. 2010-11 Page No 25 Shah Investor's Home Ltd. vs. JCIT
(c) They have to register the Investors as clients and shall ensure that the Clients/Constituent have completed the necessary formalities for getting registered as Clients / Constituent by signing the "Client Registration Form " as prescribed by us.
(d) They have to forward the dully filled 'forms to us and after we confirm that the forms are in order, allocate the Unique Client Code.
(e) They have agreed to carry out advertisement and publicity campaigns if required. They have to attend to all the complaints of the clients and any grievance of the clients and it should be reported to us and must be resolved by them in reasonable time. They have to circulate the developments of stock market feedback at regular interval and have to arrange seminars, talks of exhibition for display.
(f) Further in addition to the work of the development of business they also have to handle following operational works in relation to monitoring of the clients' accounts & Sub-brokers /remisers.
Daily follow-up of pay-in, pay-out, collection and issue of cheques. Printing and issue of contract notes.
Maintenance of exposure limits of sub-brokers & their client's. Total surveillance & maintenance of Sub-brokers & their clients. Maintenance of servers Maintenance of connectivity between the sub-brokers & company and to the concern exchange.
(g) Under the agreement the company is agreed to pay certain amount to the Business Developers for business accumbency for carrying out business activities.
(h) It is agreed between all the Business Developers that they will look after the business in the region as specified in the agreement and as per the mutually decided by time to time as per the requirements of the company.
Copy of Audited Balance Sheet and Profit & Loss Accounts and ITR Ackn of Pearl Broking Services Ltd are furnished Exb-20.
Letter dated 20-03-2013 I.T.A No. 3111/Ahd/2013 & 142/Ahd/2014 A.Y. 2010-11 Page No 26 Shah Investor's Home Ltd. vs. JCIT Point No. (n) - Payment made to Ashvia Chimthhai Broking Pvt. Ltd u/s. 40(a)(ia) It is submitted that the assessee company has made following payments to M/s. Ashwin Chinubhai Broking Pvt. Ltd.
Ashvin Names of Amount TDS TDS
Chinubhai Services Paid deducted
Broking P. Ltd Office Mgt 3900000 454011 194J
2nd Floor
Madhusudan
House, Nr.
Navrangpura Reimbursement 2998599 309263 194J
Tele. Exch. of Expenses
Ellisbridge,
Ahmedabad-
380006
PAN:
AABCA3579J
With regard to payments to M/s. Ashwin Chinubhai Broking Pvt. Ltd. (Sub- broker), brief submission is as under:
(i) M/s. Ashwin Chinubhai Broking Pvt. Ltd was broker of Bombay Stock Exchange (BSE) and the company was associated with Ashwin Ashwin Chinubhai Broking Pvt. Ltd for broking business of its Ahmedabad clients with Bombay Stock Exchange, as the company was having NSE brokership only.
(ii) Subsequently, in the year 2004-05, the company has purchased the card of Bombay Stock Exchange (BSE) from M/s. Ashwin Chinubhai Broking Pvt. Ltd along with its running business and M/s. Ashwin Chinubhai Broking Ltd was associated with appellant company as sub-
broker. Accordingly, the business of Ashwin Chinubhai Broking Pvt. Ltd and its sub-brokers was taken over by the company.
(iii) To facilitate the above arrangement of broking business and with intention to keep the business of Ashwin Chinubhai Broking Pvt. Ltd. with company a business agreement was made, accordingly after sale of BSE card, M/s. Ashwin Chinubhai Broking Pvt. Ltd was handling the business, which was handled by them prior to selling BSE card to the company and I.T.A No. 3111/Ahd/2013 & 142/Ahd/2014 A.Y. 2010-11 Page No 27 Shah Investor's Home Ltd. vs. JCIT also agreed for development of business of the company at Ahmedabad and Mumbai.
(iv) Accordingly M/s. Ashwin Chinubhai Broking Pvt. Ltd. continued with the appellant company as sub-broker to provide broking facilities to their original sub-brokers, for this company agree to pay M/s. Ashwin Chinubhai Broking Pvt. Ltd brokerage for the business directly handled by them, sub-brokerage to their sub-brokers directly, office management fees and reimbursement of expenses for maintaining business of their sub- brokers and for development of new broking business clients for the company.
(v) For these purposes, M/s. Ashwin Chinnuhhai Broking Pvt. Ltd has carried out business from their premises namely at (!) 44, Bhupen Chambers, 2nd floor. Dalal Street, Fort, Mumbai (having area about 600 sq. ft.) and at (2)CJD Wing, 2nd Floor, Madhsudan House, Nr, Navrangpura Telephone Exchange, Ahmedabad (having area about 1600 sq. ft.). At the same time, they were also looking after the work at the company's branch office situated at 408-409, Shail Building, Opp. Madhusudan House, Nr. Navrangpura Telephone Exchange, Ahmedabad (having area about 640 sq.ft.).
(vi) During the year the company has earned brokerage through the clients/sub-brokers of M/s. Ashwin Chinubhai Pvt. Ltd. and made payments to M/s. Ashwin Chinubhai Broking Pvt. Ltd.
(vii) The office premises belonging to Ms, Ashwin Chinubhai Broking Pvt. Ltd are never treated as our branch offices, which can be seen from list of branch offices published in the annual accounts. The properties of M/s. Ashwin Chinnubhai Broking Pvt. Ltd are used by them as their offices as sub-broker and no rent is paid to them at any time by the appellant company. The payments of Office Management fees of Rs. 39 lacs are made for providing services to sab-brokers and clients of the appellant company at the premises of company i.e. at 408-409, Shail Building, Opp:
Madhusudan House, Nr: Navrangpura Telephone Exchange, Ahmedabad and the expense of said building of Rs. 29,98,599/~ are reimbursed to M/s. Ashwin Chinubhai Pvt. Ltd.
In view of the above, it is submitted that M/s. Ashwin Chinuhhai Broking Pvt. Ltd is Sub-Broker of the company, they are in the field of broking business much prior to the inception of the company. The payments of office management fees of Rs. 39,00,000/- (Rs. 325,000/- per month) are I.T.A No. 3111/Ahd/2013 & 142/Ahd/2014 A.Y. 2010-11 Page No 28 Shah Investor's Home Ltd. vs. JCIT paid to them as consulting charges for providing services to the clients and sub-brokers of the appellant company, hence the same are allowable as business expenditures. It is submitted that no-any rent is given to M/s Ashwin Chinubhai for using their premises as the same are used by them for their own business as sub-brokers of the company. TDS u/s. 194-J is deducted for far the payments of management fees.
With regard to reimbursement of expenses of Rs. 29,98,599/~ to M/s, Ashwin Chinubhai Broking Pvt. Ltd for the services render to the clients /sub-brokers of the company, the expenses are reimbursed as per bill of M/s. Ashwin C'hmubhai Broking Pvt. Ltd for the services render to the clients/sub-brokers of the company, the expenses are reimbursed as per bill of M/s. Ashwin Chinubhai Broking Pvt. Ltd. The salary, telephone, electricity expenses are reimbursed, no TDS is required on reimbursement of expense as per Circular no, 715 dated 08-08-1995, where in reply to Qn, 30 it was staled that "no TDS is required to be made on reimbursement of expenses, if separate bill is raised." In this regard Hon'ble ITAT Ahmedabad in the case of M/s. Om Satya Exim Pvt. Ltd vs. ITO Ward 1(4), Surat ITA no. 1335 / AM/ 2010 for A.Y. '2007-08 vide order dated 13-05-
2011, the Tribunal held that:
7. We have considered rival submissions and perused the material on record and gone through the orders of the authorities below and the judgment cited by the learned counsel of the assessee. We have also considered- Board circular dated 8-8-1975, copy of which has been submitted by the learned DR of the Revenue. In the present case, it has been submitted before us by the learned AR that the commission agent has raised separate bills for reimbursement of the expenses. With all these facts, when we consider the Board Circular No. 715 dated 8-8-1995, we find that this Board Circular cannot be made applicable to the present case because in the present case, there is no composite bill raised by the commission agent and as per the learned AR of the assessee, separate bill was raised by the commission agent for reimbursement of expenses and the learned DR could not contradict this submission of the learned AR of the assessee. We also find that the Tribunal has also considered the Board Circular No. 715 dated 8-8-1973 in the case of Dr. Wilmar Schwabe India P. Ltd. (supra) and it was held that when the bill for reimbursement of expenses has been separately raised by the-consultant, Section 194J is not applicable. Hence, by respectfully following this Tribunal decision, we hold that in the present case also, since bills for reimbursement of expenditure have been raised by the commission agent separately, TDS was not required to be deducted from such reimbursement of expenses and as a consequence, Section I.T.A No. 3111/Ahd/2013 & 142/Ahd/2014 A.Y. 2010-11 Page No 29 Shah Investor's Home Ltd. vs. JCIT 40(a)(ia) is not applicable with regard to such payments. Other Tribunal decisions cited by learned A.R of the assesssee rendered in the case of Medicon Network P. Ltd. and Grandprix P. Ltd. (supra) also support the case of the assessee and hence, by respectfully fallowing all the above Tribunal decisions, we hold that no TDS required to be deducted in the present case for reimbursement of expenses for which separate bills were raised by the commission agent and hence, the provisions of Section 40(a)(ia) is not applicable to such payments. Therefore, disallowance made by the Assessing Officer is to be deleted.
In view of the above, it is submitted that no TDS is required to be deducted for reimbursement of expenses for which separate bills were raised and hence, the provisions of Section 40(a)(ia) is not applicable to such payments. Though the assesses company has deducted TDS from April 2009 to January 2010 u/s. 194C (2%), whereas, the TDS for February 2010 and March 2010 is deducted u/s. 194J (10%), summary of such payments are as under:
Period of Amount Paid TDS deducted TDS u/s.
Services
April 2513787 52155 194C(2%)
2009 to
January
2010
0 208627 194J(10%-2%)
February 243614 24361 194J(10%)
2010
March 241198 24120 194J(10%)
2010
Total 2998599 309263 TDS u/s.194J
Payments
As the company has properly deducted taxes u/s. 1 94 J for management fees and reimbursement of expenses, no disallowance may kindly be made u/s. 40(a)(ia).
12.3. 'The appellant submits following explanations on the issue of disallowance of business development expenses and reimbursement I.T.A No. 3111/Ahd/2013 & 142/Ahd/2014 A.Y. 2010-11 Page No 30 Shah Investor's Home Ltd. vs. JCIT expenses paid to Ashwin Chinubhai Broking Pvt. Ltd. u/s. 40(a)(ia) in Appellate proceedings for your kind perusal:
(i) It is submitted that M/s. Ashwin Chinubhai Broking Pvt. Ltd (ACBPL) is providing sub-broking facility to the clients of M/s. ACBPL for this the appellant company is paying brokerage for the business directly handled by them, sub-brokerage to their directly, office management fees and reimbursement of expenses for maintaining business of their sub-brokers and for development of new broking business / new clients for the appellant company.
(ii) M/s. ACBPL is using his premises at Mumbai having are about 600 sq. ft and at Ahmedahad having area about 1000 sq. ft. against which the appellant company has given management charges for development of business of Rs. 39, 00, 000/~. The payment of such management charges are not in the form of rent as the company has not taken any premises on rent, but the same are for providing earnings in the nature of brokerage from shares and securities business (Pg. no. 246). During the year the appellant company has earned brokerage through the clients/sub-brokers of Ashvin Chinuhhai Brokerage Pvt. Ltd and made payments to M/s.
Ashhwin Chinubhai Broking Pvt. Ltd for various services rendered as under:
Particulars Amount Total Earnings from broking business through 41105946 Ashwin Chinubhai Broking Pvt. Ltd Less: Sub-brokerage paid to Sub-brokers -23244093 introduced by M/s. Ashwin Chinubhai Broking Pvt. Ltd Less: Business Procurement Charges paid to 0 Ashwin Chinubhai Broking Pvt. Ltd (i) Brokerage payment 3227349 0 (ii) Office Management Fee 3900000 0 (iii) Reimbursment of Expenses 2998599 0 Net Income Earned from broking business 7735905 through M/s. Ashwin Chinubhai Broking Pvt.
Ltd
(iii) The ld. AO on page no. 25 reproduced Q. no. 23 Q. no. 24 with replies reported by the CBDT vide circular no. 715 dated 08-08-1995. In I.T.A No. 3111/Ahd/2013 & 142/Ahd/2014 A.Y. 2010-11 Page No 31 Shah Investor's Home Ltd. vs. JCIT Q. No. 23 it was called for whether payment made by company taking premises on rent, but styling the agreement as the business centre agreement would attract provisions of section 194I? it is submitted that there is not business centre agreement, but the agreement is for broking business and its development, the income from broking business. Thus, the broking business cannot be termed as business centre agreement.
Similarly, in Q. no. 24. it was called for whether in a case of composite agreement for the use of premises and provision of manpower for which consideration is paid as a specified percentage of turnover, section 1941 of the act would be attracted?, it is submitted that there is agreement for broking business and its development , the incomes are from broking business. Thus, the broking business cannot he termed as agreement for la king premises on rent.
(iv) It is submitted that M/s. ACBPL is Sub-Broker of the appellant company, they are in the field of broking business much prior to the inception of the appellant company. The payments-of office management fees of Rs. 39,00,000/~ are paid to them as consulting charges for providing services to the clients and sub-brokers of the appellant company TDS is deducted u/s. 194J. It is submitted that the agreement is for broking business and there is no agreement for taking premises on rent, as the same are used by them for their own business as sub-brokers of the appellant of the company. Thus, the, appellant company deducted TDS u/s. 194J, which is the proper head to deduct TDS on payment of office management charges far share broker business.
(v) With regard to reimbursement of expenses of Rs. 29,98,599/- to M/s. ACBPl for the services render to the clients / sub-brokers of the appellant company, the expenses are reimbursed as per bill of M/s. Ashwin Chinubhai Broking Pvt. Ltd (Pg. no. 183 to 194). The salary and telephone are reimbursed, no TDS is required on reimbursement of expenses as per Circular no. 715 dated 08-08-1995, where in reply to Qn. 30 it was stated that no TDS is required to be made on reimbursement of expenses, if separate bill is raised. " In this regard Hon'ble I.TAT Ahmedabad in the case of M/s. Om Satya- Exim Pvt. Ltd vs. ITO Ward 1(4), Surat in ITA no. 1335 / Ahd / 2010 for A. Y. 2007-08 vide order dated 13-05-2011, copy of enclosed (Pg. no 270 to 274).
(vi) With regard to payment of reimbursement of expenses, though there is CBDT Circular for non-deduction of TDS in case of separate bills. TDS had been deducted u/s. 194J (till January 2010 TDS was made u/s. 194C I.T.A No. 3111/Ahd/2013 & 142/Ahd/2014 A.Y. 2010-11 Page No 32 Shah Investor's Home Ltd. vs. JCIT i.e. @ 2%, but at the time of TDS payment of January 2010, the differential TDS of 194J i.e. @ 10% and 194C were made , thus, on the whole year payment of reimbursement of expenses, TDS u/s, 194J was deducted). Thus, the appellant company has complied with the provisions of TDS deduction on reimbursement of expenses.
(viii) The appellant company has deducted TDS on office management charges and reimbursement of expanses u/s. 194J and deposited such TDS in the Govt. A/c, whereas, the Assessing Officer is considering such TDS is required to be deducted u/s. 194-I. In this regard, the Hon'ble High Court in the case of CIT vs. S. K. Tekriwal (2013) 260 CTR 73 (Cat) (Pg. no. 43 to 45) held that if there is any shortfall in deduction TDS due to, any difference in opinion, as to the taxability of any item or the nature of payments falling under various TDS provisions, no disallowance can be made by invoking the provisions of section 40(a)(ia) of the Act. The above judgment was based on decision -of Hon'ble ITAT Kolkata in the case of M/s. S. K. Tekriwal ITA No. 1135/K0l/2010, dated 23-10-2011.
(ix) The ld. AO has stated on Pg. no. 19 of the assessment order that the assessment order that the said proposition of law gets further fortified from the proviso inserted by the Finance Act-2102, which provides that "where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of chapter XVII-B on any such". The uses of "whole or any part of the tax" makes it evident that the TDS not only need to be deducted but the same need to be deducted at appropriate rate under applicable section in Chapter XVII-B of the Act. The provisions of section 40(a)(ia) do not provide for grossing up of amount of TDS deducted and allowing proportionate, credit for same against the total payments/credit made by the assesses."
The ld. AO has not properly appraised the spirit of inserting new proviso by Finance Act 2012, which states that "provided further that where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B on any such sum but is not deemed to be an assessee hi default under the first proviso to sub-section (1) of section 201then for the purpose of this sub-clause, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of Income by the resident payee referred to in the said provision. "
The aforesaid provisions are liberal provisions to reduce hardship on the assessee for non-deduction or deduction under other sections, which is part I.T.A No. 3111/Ahd/2013 & 142/Ahd/2014 A.Y. 2010-11 Page No 33 Shah Investor's Home Ltd. vs. JCIT of judgment of the Hon'ble ITAT Kolkata in the case of M/s. S. K. Tekriwal ITA No. 1135/Kol/2010 , dated 21-10-2011, where it was held that under such circumstances, the assessee can be declared to be an assessee in default u/s. 201 of the Act and no disallowance can be made by invoking the provisions of section 40(a)(ia) of the Act.
(x) It is worthwhile to bring the CBDT Instruction F. No. 275/201/95 -
IT(B) dated 29-01-1997 that "the board is of the view that no demand visualized under Section 201 (1) of the income Tax Act should be enforced after the tax deductor has satisfied the officer in charge of TDS that taxes have been paid by decutee-assessee. " (Pg. no. 82). The said circular is appraised by the Hon'ble Delhi High Court in the case of Hindustan Coca- Cola Beverages Pvt. Ltd, which was approved, by the Hon'ble Supreme Court, as reported in {2007} 293 I.TR 226 (SC). (Pg, no, 77 to 81).
(xi) The appellant company has collected return filing details and set of audited accounts of M/s. ACBPL for AY 2010-11, the return of income is filed for Assessment Year 2010-11 on 13-10-2010 with ITO Ward4(l)(l). (Pg. no. 247 to 262).
12.4 In view of the above facts, submissions and explanations, it is submitted that the appellant company has complied with the provisions of TDS by deducting tax u/s. 194J on office management charges paid to sub- broker M/s Ashwin Chinubhai Broking Pvt, Ltd, who is in the field of broking business much prior to the inception of the appellant company. The payments of office management fees of Rs. 39, 00,000/~ are paid to them as consulting, charges for providing services to the clients and sub-brokers of the appellant company, TDS is deducted u/s. 194J. It is submitted that the agreement is for broking business and its development and there are no agreement for taking premises on rent, as the same are used by them for their own business as sub-brokers of the appellant company.
In view of the above, it is submitted that no TDS is required to be deducted for reimbursement of expenses for which separate bills are raised and hence the provisions of Section 40(a)(ia) are not applicable in such payments, though the appellant company had deducted TDS u/s. 194-J on reimbursement of expenses.
The appellant company is covered under Circular / Instruction of CBDT, decision of Hon'ble Supreme Court in the case of Hindustan Coca-Cola and decision Hon'ble Kolkata High Court in the case of S.K. Tekriwal and decision of Hon'ble Ahmedabad ITAT in the case of M/s Om Satya Exim I.T.A No. 3111/Ahd/2013 & 142/Ahd/2014 A.Y. 2010-11 Page No 34 Shah Investor's Home Ltd. vs. JCIT Pvt. Ltd. Furthermore, the amendment in the provisions of Section 40(a)(ia) of the Act through proviso clarifies that when the assessee is not treated as assessee in default u/s. 201(1) then on the date of furnishing of return, it is deemed that the assessed has deducted the tax on such sum. Whereas in the present case, the appellant company has deducted tax and paid. Therefore it is prayed that addition made by disallowing payment of office management charges of Rs. 19,50,000/~ and reimbursement of expenses of Rs. 25, 13,787/~ paid to Ms. Ashwin Chinubhai Broking Pvt. Ltd, may kindly be deleted"
18. In this regard we have heard both the sides and perused the material on record.We have noticed that the payee is providing broking facility to the clients of the assessee company who were previously clients of payee and the assesssee company is paying him for office management fees, reimbursement of expenses for maintaining business of their sub-brokers for the development of new broking business and new clients for the assessee. We considered that these payments are of the nature of managerial services, therefore, the assessee is justified in deducing TDS u/s. 194J of the act. In the view of the above stated facts and circumstances, we allow the appeal of the assessee on this ground Ground No. 9
19. The Assessing Officer observed that the assessee is engaged in the business of sale and purchase of shares/securities/mutual funds and he treated the income shown as income from business or profession which was shown by the assesse as income from short term gain of Rs. 1,66,87,811 and long term capital gain of Rs. 11159942/-. Aggrieved against the order of Assessing Officer, the assessee has filed appeal before the Ld. Commissioner of Income Tax(A) who has partly allowed the appeal of the I.T.A No. 3111/Ahd/2013 & 142/Ahd/2014 A.Y. 2010-11 Page No 35 Shah Investor's Home Ltd. vs. JCIT assessee. The decision of the Ld. Commissioner of Income Tax(A) is reproduced as under:-
"49. On identical issue of capital gain on shares, my predecessor in AY 2008-09, treated the shares held for the period more than 30 days as investment resulting in long-term and short-term capital gain and wherever shares are held up to 30 days, the income arising there from is treated as business income in view of decision of Jurisdictional ITAT in the case of Shri Sughamchand C. Shah vs. ACIT, Circle-3, Surat in ITA Nos. 3554/Ahd/2008 for AY 2005-06 and 1932/Ahd/2009 for AY 2006-07. Since facts are same for this year, there is no reason to come to a different conclusion. The AO is directed to re-calculate income under the head capital gain (long-term capital gain and short-term capital gain) for the shares held for more than 30 days period and business income for the shares held up to 30 days period. Ground no. 10 of the appeal is partly allowed."
20. The Ld. A.R. contended before us that the Ld. Commissioner of Income Tax(A) has erred in considering the short term capitals gain of Rs. 11925/- being gain on sale of shares held for 30 days as business income.
21. The Revenue has filed cross appeal on this issue and the Ld. D.R. relied on the order of the Assessing Officer to treat the entire LTCG/STCG as income from business profession.
22. We have heard both the sides and perused the material on record. We considered that the Commissioner of Income Tax(A) is justified to treat the shares received for the period more than 30 days as investment resulting in long term and short-term capital gain and wherever shares are held up to 30 days, the income arising from these is treated as business income in view of the decision of the jurisdictional ITAT in the case of Shri Shyamchand C. Shah vs. Act, Circle -3, Surat in ITA Nos. 3554/Ahd/2008 for 2005-06 and I.T.A No. 3111/Ahd/2013 & 142/Ahd/2014 A.Y. 2010-11 Page No 36 Shah Investor's Home Ltd. vs. JCIT 1932/Ahd/2009 for A.Y. 2006-07. Therefore, we dismiss the appeal of the assessee and cross appeal filed by the Revenue on this issue in view of the facts and findings stated above.
Ground No. 10.
23. The Assessing Officer has re-computed the book profit u/s. 115JB by adding amount of disallowance made u/s. 14A of the act r.w.s 8D of Rs. 10,71,217/-. Aggrieved against the order of the Assessing Officer, the assesssee has filed appeal before the Ld. Commissioner of Income Tax(A). The Ld. Commissioner of Income Tax(A) held that this issue is only academic in nature having no impact on charging of tax and dismissed the appeal. The decision of the Ld. Commissioner of Income Tax(A) is reproduced as under:-
"54. It is seen that the book profit is worked out at Rs. 14,10,30,561/- whereas the normal profit as per assessed income is of Rs, 1.8,02,65,763/-, which is higher than book profit. The tax rate on normal profit is 30% and on book profit under MAT is 15%. In view of this, the action of the AO for increasing book profit by amount of I4A disallowance does not have any tax effect during the year as the tax payment under normal provisions is higher than tax payment under MAT, As such this issue is only academic in nature having no impact on charging of tax, Accordingly, Ground no, 11 of the appeal is dismissed."
24. The Ld. A.R. contended that the Assessing Officer erred in computing work project u/s. 115JB of the Act. The Ld. D.R. relied on the order of the Assessing Officer. We have considered submission of both the sides and perused the material as per record. We find that the Ld. Commissioner of Income Tax(A) has rightly decided that this action of the Assessing Officer for increasing book profit by amount of u/s. 14A I.T.A No. 3111/Ahd/2013 & 142/Ahd/2014 A.Y. 2010-11 Page No 37 Shah Investor's Home Ltd. vs. JCIT disallowance has no impact on charging of tax. Accordingly, we dismiss the appeal of the assessee on this issue.
25. The Revenue has raised following grounds:-
"(1) The CIT(A) has erred in law and on facts by allowing bad debts ofRs.32.92 lacs despite the fact that the same represents the principal amount towards purchase of shares payable by clients which has never been considered as income of the assessee.
(2) The CIT(A) has not appreciated that as per the provisions of section 36(2), deduction of bad debts is not allowed unless such debts has been taken into account in computing the income of the assessee for the previous year or ear Her year.
(3) The CIT(A) has erred in law and on facts in deleting the addition of Rs.3.36 lacs u/s 69 despite the fact that during assessment proceedings, the assessee could not establish the ownership of shares lying in its Demant account.
(4) The CIT(A) has erred in law and on facts by deleting the addition of Rs.25.13 lacs u/s 40(a)(ia) despite the fact that the assessee had not deducted TDS u/s 1941 on rent expenses as per the applicable provision.
(5) The CIT(A) has erred in law and on facts by treating profit from shares held for more than 30 days as LTCG/STCG instead of business income.
(6) The CIT(A) has not appreciated the findings of the AO in the assessment order which clearly show that the activity of purchase/sale of shares undertaken by the assessee is a business activity.
(7) The CIT(A) has erred in law and on facts in allowing the claim of LTCG against STCG shown by the assessee in its return of income.
I.T.A No. 3111/Ahd/2013 & 142/Ahd/2014 A.Y. 2010-11 Page No 38 Shah Investor's Home Ltd. vs. JCIT (8) The CIT(A) has not appreciated the fact that mistake committed in the return of income can only be corrected by filing a revised return as held by the Apex Court in the case of Goetz India Ltd. (284 ITR
323)."
Ground No. 1 & 226. The Assessing Officer has disallowed the claim of the assessee of bad debit of Rs. 3,29,2657/- on the ground that it also contained the principal amount of transactions and provision of section 36(2) of the Act have not been complied. The assessee has filed appeal before the Ld. Commissioner of Income Tax(A) against the order of the A.O. The Ld. Commissioner of Income Tax(A) has allowed the appeal of the assessee. The decision of the Ld. Commissioner of Income Tax(A) is reproduced as under:-
"16. Facts of the case and arguments of the appellant have been carefully considered. The A.O. observed that the provisions of section 36(2) of the Act are not complied with and therefore the assesseee's claim of bad debts is not allowable. The ld. A.R. argued that the Hon'ble Delhi High Court in the case of Bonanza Portfolio Ld. held that the brokerage payable by the client is a part of the debt and that debt had been taken into a/c in the computation of the income, the conditions stipulated u/s. 36(2) r.w.s. 36(1)(ii) of the IT Act stand satisfied, hence the debt which has become irrecoverable is allowed as bad debt. On similar facts, bad debts was allowed by Hon'ble Delhi High court in the case of D.B. (India) Securities Ltd. reported in 318 ITR 46 and Hon'ble Bombay High court in the case of Shreyans S. Morakhiya reported in 342 ITR 282 (Bom.). It was further submitted by the Ld. A.R. that the Hon'ble Supreme Court has dismissed SLP filed by the department against the decision of Delhi High Court and on such basis the addition in A.Y. 2008-09 was deleted by the Ld. CIT(A) vide order in Appeal No. CIT(A)VI/AC.Cir.3/699/10-11, therefore, no disallowance may be made.
17. I have gone through the decisions of Bonanza Portfolia Ltd, D.B. (India) Securities Ltd and Shreyans S. Morakhiya,. On this isuse, my predecessor in A.Y. 2008-09 allowed appellant's claim of bad on identical I.T.A No. 3111/Ahd/2013 & 142/Ahd/2014 A.Y. 2010-11 Page No 39 Shah Investor's Home Ltd. vs. JCIT facts by order dated 05-11-2011. I therefore hold that A.O. is not justified to disallow the claim of bad debts. Addition of Rs. 32,92,657/- is directed to be deleted. Ground no. 4 of the appeal is thus allowed."
27. The Ld. D.R. relied on the order of the Assessing Officer. On the other hand, Ld. A.R. relied on the order of the Ld. Commissioner of Income Tax(A). We have heard both the sides and perused the material on record. We find that the Ld. Commissioner of Income Tax(A) is justified in deleting this addition made by the Assessing Officer after placing reliance on the judicial pronouncements stated above in the decision of the Ld. Commissioner of Income Tax(A). We considered that the brokerage payable by the assessee is a part of the debt and that debt had been taken into a/c. in the computation of the income and the conditions stipulated u/s. 36(2) r.w. 36(i)(vii) of the act stand satisfied.
28. In view of the above stated facts and findings, we dismiss the appeal of the Revenue on this issue.
Ground No. 329. The Assessing Officer decided that the assessee could not identify the clients to whom 100 shares of Grasim Industries Ld. and 27 shares of SBI belong so he made addition of Rs. 3,36,025/- u/s. 69 of the Act. Against the order of the Assessing Officer, the assessee has filed appeal before the Ld. Commissioner of Income Tax(A). The Ld. Commissioner of Income Tax(A) has deleted the addition made by the Assessing Officer. The I.T.A No. 3111/Ahd/2013 & 142/Ahd/2014 A.Y. 2010-11 Page No 40 Shah Investor's Home Ltd. vs. JCIT decision of the Ld. Commissioner of Income Tax(A) is reproduced as under:-
"21. Facts of the case and arguments of the appellant have been carefully considered. The AO observed that 100 shares of Grasim Industries Ltd and 27 shares of State Bank of India were lying in demat account of the assessee as on 31-03-2010 and the assessee could not identify the clients to whom such shares belongs and treated the value of same as unaccounted investment in shares. The Id. AR argued that the appellant company is having 30,000 client base, who are buying and selling shares on day to day basis, the shares are traveling through demat of company either client sell shares or purchases shares and in this process shares are lying in demat of the company. In the event of issue of bonus share, splitting of shares etc. the shares are allotted to the demat account where in specific period shares were lying, therefore, client shares received to the company and many times it is difficult to find to whom such shares belongs, therefore, the company wait, for sometime so that clients can claim such shares. After a reasonable time, in absence of any claimant, the 100 shares of Grasim are sold out on 21-05-2010 (Pg. no. 240) and 27 shares of SBI are sold out on 27-01-2012 (Pg. no. 239) and prayed that these are not unexplained investments of the appellant company and sale proceeds of such shares is offered in next years, therefore, no addition may be made."
30. Before us, the Ld. D.R. relied on the order of Assessing Officer. On the other hand, the Ld. A.R. relied on the order of Ld. Commissioner of Income Tax(A). We have heard both the sides and perused the material on record. The submission of the asssessee before the Ld. Commissioner of Income Tax(A) is reproduced as under:-
"20. Appellant in its written submission argued that:
8.2 In assessment proceedings, the Ld. AO vide show cause notice dated 15-03-2013 called for to furnish explanation on the stock found in demat but not linked with client shares. In response to notice, the appellant company furnished explanation to the AO vide letter dated 20-03-2013, copy of reply furnished (Pg. no. 212), the same is reproduced hereunder:
Show cause reply dated 20-03-2013 Point No. (m) - Stock not linked with the clients in the A.Y. 2010-11 I.T.A No. 3111/Ahd/2013 & 142/Ahd/2014 A.Y. 2010-11 Page No 41 Shah Investor's Home Ltd. vs. JCIT In this regard, it is furnished that 100 shares of Grasim Industries Ltd are of our esteemed clients, but as we have active clients about 30,000, therefore, we were not able to find the exact client name, therefore, shares of Grasim Industries Ltd were sold out by company in Assessment Year 2011-12 and sale proceeds are offered in P & L A/c.
Similarly, 27 shares of State Bank of India are of our esteemed clients, but as we have active clients about 30,000, therefore, we were not able to find the exact client name, therefore shares of Grasim Industries Ltd were sold out by company in AY 2012-13 and sale proceeds are offered in P & L A/c.
However, as called for by your goodself, it is submitted that the rate of Grasim Industries as on 31-03-2010 is of Rs. 2800/- per share and rate of State Bank of India as on 31-03-2010 is of Rs. 2075/- per share.
As such sale proceeds are offered in the next years, we request you to kindly consider it sympathetically.
8.3. In this regard, the appellant now before your goodself in appellate proceedings furnishes as under for your kind perusal:
(i) The appellant company is in the business of share broking and having 30,000 client base, who are buying and selling shares on day-to-
day basis. Due to computerization in share market, the delivery of shares is also shifted from physical to demat, therefore, all the shares, if purchased for clients, received in demat and if sold for clients, the deliveries are given through demat. Thus, the company is having demat accounts, where if shares are purchased for clients, the deliveries are received from stock exchanges (NSE and BSE) and at the same time, if the shares are sold the deliveries are received from clients. In this process, the shares are lying in the demat account of the appellant company for some time and the company is also receiving shares from clients as security against their trade dues.
(ii) In this process, many times shares are received as bonus, split etc. after some time in the demat account, in which the shares were lying in the specific period, thus, some client shares are received in the demat of the company, which are returned to such clients after verification on their claim but in some cases, it is difficult to find out any co-relation with client and clients are also not claiming such shares. Under such circumstances, the shares are lying with us for a period, so that in case of any claim, the same can be delivered to the respective client.
I.T.A No. 3111/Ahd/2013 & 142/Ahd/2014 A.Y. 2010-11 Page No 42 Shah Investor's Home Ltd. vs. JCIT
(iii) Thus, the 100 shares of Grasim Industries Ltd and 27 shares of State Bank of India received during the year in demat were kept for some time and when there was no claimant, such shares were sold out by company in the next years i.e. in A.Y. 2011-12 and in A.Y. 2012-13 and full sale proceeds is offered as income in profit and loss account.
(iv) The ld. A.O. treated such shares as unaccounted investment and taxed u/s. 69 of the Act, it is respectfully submitted that such shares are duly recorded in the books of accounts i.e. received in demat from companies in the corporate action and lying in the official demat account, the nature and source of such share duly explained and finally in absence of any claimant such shares were sold out and the sale proceeds were offered for taxation.
(v) In view of the above facts, submissions and explanations, it is submitted that unclaimed shares of client were lying in various Pull Demat a/c, such shares are belonging to clients and not an unexplained investment of the appellant company. Such shares were sold out in next years and sale proceeds were offered as income from Business & Profession. It is therefore prayed that the additions so made may kindly be deleted."
31. We have heard both the sides and perused the material on record and considered that these were the unclaimed shares of clients which were lying in various full demat a/c and these shares were belonging to clients and not an unexplained investment of the assessee company. In view of the above stated facts/findings, we dismiss the appeal of the Revenue.
Ground No. 432. This ground of appeal of the Revenue has been decided as per the ground of appeal no. 7 of the assessee stated above in this order.
Ground No. 5 & 6I.T.A No. 3111/Ahd/2013 & 142/Ahd/2014 A.Y. 2010-11 Page No 43 Shah Investor's Home Ltd. vs. JCIT
33. This ground of appeal of the Revenue has been decided as per ground no. 9 of appeal of the assessee as stated above in this order.
Ground No. 7.
34. The assessee has requested the Assessing Officer to rectify the mistake regarding long term gain in mutual fund of Rs. 14,59,800/- taxable @ 10% offered in IT return as short term capital gain paid taxes @ 30%. The Assessing Officer has rejected the claim of the assesse on ground that the assessee has not made any such claim in the return filed by the assessee. The assessee has filed appeal before the Ld. Commissioner of Income Tax(A) against the orders of the assessee. The Ld. Commissioner of Income Tax(A) has allowed the appeal of the assessee. The decision of the Ld. Commissioner of Income Tax(A) is reproduced as under:-
"58. Facts of the case and arguments of the appellant have been carefully considered. The AO relying on the decision of the Hon'ble SC in the case of Goetze (India) Ltd vs. GIT reported in 284 ITR 323 (SJC) rejected the assessee's alternate/additional claims made during the course of assessment proceedings. The Id. AR argued that the appellant company has offered capital gain on mutual fund of Rs. 35,88,514/- as short-term capital gain and paid taxes @ 30%, whereas, such capital gain include amount of Rs. 14,59,800/-, which was for a period more than 12 months i.e. in the nature of long-term capital gain and such details were furnished to AO. Such LTCG is taxable @ 10% as per provisions u/s. 112(1) of the Act. The ld. AR further argued that it is not a fresh claim, as held by the Hon'ble Supreme Court in the case of Goetze (India) Ltd. for which revised return is to be filed. Due to such claim, there is change in tax rate otherwise there is no change in income as it is merely a mistake of allocating income as STCG instead of LTCG and relied upon decision of Hon'ble Punjab & Haryana High Court in the case of CIT vs. Ramco International (2011) 332 ITR 306 (P&H). The appellant I.T.A No. 3111/Ahd/2013 & 142/Ahd/2014 A.Y. 2010-11 Page No 44 Shah Investor's Home Ltd. vs. JCIT further stated that in the appellate proceedings of AY 2008-09 the ld.
CIT(A) vide order in Appeal no. CIT(A)-VI/ACIT.Cir.3/699/2010-ll dated 05-10-2011 on identical ground of additional claim of long- term capital gain held that Assessing Officer is not justified in rejecting the revised working of long-term capital gain on sale of 5474 shares of BSE Ltd for Rs. 246,88,513/- and directed AO to tax correct long-term capital gain after considering appellant's revised working.
59. On identical issue of allowing additional capital gain on shares, my predecessor in AY 2008-09, relying upon decision of CIT(A)- XVI/Ahmedabad in the case of M/s. Amrapali Capital and Finance Services Ltd. in the Appeal for AY 2008-09 vide order dated 26-05-2011, allowed claim of Appellant. It has been held by various judicial authorities including the Hon'ble Supreme Court that the State authorities should not raise technical pleas if the citizens have a lawful right and the lawful right is being denied to them merely on technical grounds. The State authorities cannot adopt the attitude which private litigants might adopt. In this case of allocating of capital gain as short- term capital gain instead of long-term capital gain is merely a mistake. Therefore, the AO is directed to tax correct long-term capital gain and short-term capital gain after considering appellant's revised working. The Ground no. 12 of the appeal is allowed."
35. Before us, the Ld. D.R. relied on the order of the Assessing Officer. On the other hand, the ld. A.R. relied on the order of Ld. Commissioner of Income Tax(A).
36. We have heard both the sides and perused the material on record. We considered that the assessee has not made fresh claim and it was merely a rectification of mistake and the authority has the jurisdiction as well as duty to correct all errors . In view of the above stated facts and circumstances, we uphold the decision of Ld.CIT(A) on this issue and dismiss the appeal of the revenue.
I.T.A No. 3111/Ahd/2013 & 142/Ahd/2014 A.Y. 2010-11 Page No 45 Shah Investor's Home Ltd. vs. JCIT Ground No. 8
37. The assessee made the claim that addition on account of donation as per books amount was Rs. 11,06,000/- whereas due to typological mistake addition was made of Rs. 11060000/-. The Assessing Officer has rejected the claim of the assesee on the ground that he has not made this claim in the return of income filed by him and also not filed any revised return of income. The assessee made appeal before the Ld. Commissioner of Income Tax(A) against the order of the Assessing Officer. The Ld. Commissioner of Income Tax(A) has allowed the appeal of the assessee and the decision of the Ld. Commissioner of Income Tax(A) is reproduced as under:-
"63. Facts of the case and arguments of the appellant have been carefully considered. The AO relying on the decision of the Hon'ble SC in the case of Goetze (India) Ltd vs. CIT reported in 284 ITR 323 (SC) rejected the assessee's alternate/additional claims made during the course of assessment proceedings. The ld. AR argued that the appellant company has made general donations of Rs. 11,06,000/-, but at the time of e-filing of return, by mistake of computer operator, the figure of disallowance of interest was entered by adding one more zero i.e. by Rs. 110,60,000/-, whereas, deduction u/s. 80G is claimed on Rs. ll,06,000/-in the said return. The Appellant therefore made an application for rectification of such mistake apparent on record. The ld. AR further argued that it is not a fresh claim, as held by the Hon'ble Supreme Court in the case of Goetze (India) Ltd. for which revised return is to be filed. Such claim is merely a rectification of mistake and relied upon decision of Hon'ble Punjab & Haryana High Court in the case of CIT vs. Ramco International (2011) 332 ITR 306 (P&H). The appellant further stated that in the appellate proceedings of AY 2008-09, the ld. CIT(A) vide order in Appeal no. CIT(A)- VI/ACIT.Cir.37699/2010-11 dated 05-10-2011 on such identical ground of additional claim of long-term capital gain held that Assessing Officer is not justified in rejecting the revised working of long-term capital gain on sale of 5474 shares of BSE Ltd for Rs. 246,88,513/- and directed AO to tax I.T.A No. 3111/Ahd/2013 & 142/Ahd/2014 A.Y. 2010-11 Page No 46 Shah Investor's Home Ltd. vs. JCIT correct long-term capital gain after considering appellant's revised working.
64. This is also a matter of rectification only. Hon'ble Supreme Court has held in the case of Price Waterhouse Coopers Pvt. Ltd. that a tax payer cannot be penalized for bonafide omission or mistake. In this case also, the mistake is of clerical natures which can be rectified u/s. 154. AO is directed to rectify the claim of disallowance of donation after verifying all facts and evidences on record. Ground no. 13 of the appeal is allowed."
We have considered the submission of both the sides and find that it was matter of only rectification of bonafide mistake, therefore ,we uphold the decision of Ld.CIT(A) and the appeal of the revenue is rejected.
38. In the end the appeal of the assessee is partly allowed and cross appeal filed by the revenue are rejected.
Order pronounced in the open court on 09-11-2016
Sd/- Sd/-
(RAJPAL YADAV) (AMARJIT SINGH)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad : Dated 09/11/2016
आदेश क त ल प अ े षत / Copy of Order Forwarded to:-
1. Assessee
2. Revenue
3. Concerned CIT
4. CIT (A)
5. DR, ITAT, Ahmedabad
6. Guard file.
By order/आदेश से,
I.T.A No. 3111/Ahd/2013 & 142/Ahd/2014 A.Y. 2010-11 Page No 47
Shah Investor's Home Ltd. vs. JCIT
उप/सहायक पंजीकार
आयकर अपील य अ धकरण,
अहमदाबाद