2010 (10) TMI 1105 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of depreciation on BSE Membership Card and FEDAI Membership.
2. Disallowance of bad debts.
3. Disallowance of Club Membership charges.
4. Addition on account of penalty for short margin.

Summary:

1. Disallowance of Depreciation on BSE Membership Card and FEDAI Membership:
The Revenue appealed against the deletion of disallowance of depreciation of Rs. 6,22,925/- on BSE Membership Card and Rs. 28,12,500/- on FEDAI Membership. The Tribunal noted that the issue regarding depreciation on the BSE Membership Card was settled by the Hon'ble Supreme Court in favor of the assessee in the case of M/s. Techno Shares & Stocks Ltd. vs. CIT. Consequently, the Tribunal upheld the CIT(A)'s deletion of the disallowance on the BSE Membership Card. Regarding the FEDAI Membership, the Tribunal remanded the matter back to the A.O. to decide in light of the Supreme Court's decision in Techno Shares & Stocks Ltd.

2. Disallowance of Bad Debts:
The A.O. disallowed Rs. 3,78,634/- claimed as bad debts, arguing that the debt was not proven irrecoverable and was not a trading debt. The CIT(A) deleted the disallowance, following the appellate order for A.Y. 2003-04 and various judicial decisions. The Tribunal upheld the CIT(A)'s decision, referencing the Special Bench decision in DCIT vs. Shreyas S. Morakhia, which held that amounts receivable by a share broker from clients constitute trading debts, and the brokerage/commission forms part of such debts, thus satisfying the conditions of section 36(2)(i).

3. Disallowance of Club Membership Charges:
The A.O. disallowed Rs. 1,50,000/- claimed as amortization fees paid to the Cricket Club of India Ltd., treating it as capital expenditure. The CIT(A) deleted the disallowance, citing the jurisdictional High Court's judgments and the appellate order for A.Y. 2003-04. The Tribunal upheld the CIT(A)'s decision, noting that similar disallowance was deleted in the assessee's own case for A.Y. 2003-04, recognizing club membership expenses as business expenditure.

4. Addition on Account of Penalty for Short Margin:
The A.O. added back Rs. 7,66,669/- claimed as a penalty for short margin, treating it as non-allowable u/s 37. The CIT(A) deleted the addition, observing that the payment was for irregularity in following BSE regulations, not for infraction of law, and had been allowed as business expenditure in earlier years. The Tribunal upheld the CIT(A)'s decision, referencing the Tribunal's previous decisions that treated such penalties as compensatory payments allowable as revenue expenditure.

Conclusion:
The assessee's appeal was dismissed, and the Revenue's appeal was partly allowed for statistical purposes. The Tribunal's order was pronounced in the open court on 6th October 2010.