2010 (8) TMI 1089 - AT - Income Tax

Summary

Issues Involved:
1. Non-allowance of loss on sale of securities and adhoc disallowance of expenses.
2. Disallowance of marketing agency fees paid.
3. Levy of interest under section 234B and 234D.
4. Depreciation on BSE/NSE stock exchange membership card.

Issue-wise Detailed Analysis:

1. Non-allowance of loss on sale of securities and adhoc disallowance of expenses:
The assessee, engaged in share broking, reported a share trading loss of Rs. 81,942. The Assessing Officer (AO) treated this as speculative loss under the explanation to section 73 of the Income Tax Act, 1961, which the CIT(A) upheld. The AO also apportioned expenses related to speculative transactions, disallowing Rs. 3,71,886, which CIT(A) reduced to Rs. 1,85,943. The Tribunal, referencing a prior decision in the assessee's case for A.Y. 2001-02, upheld the treatment of the loss as speculative and confirmed the reduced disallowance of expenses by CIT(A), dismissing both the assessee's and revenue's grounds.

2. Disallowance of marketing agency fees paid:
The assessee paid marketing agency fees to ICICI Bank Ltd., claiming Rs. 3,69,29,155. The AO applied section 40A(2)(a), allowing only Rs. 35,91,150 and disallowing the rest as excessive. CIT(A) reduced the disallowance to Rs. 1,84,64,577. The Tribunal, referencing a decision for A.Y. 2002-03, found that section 40A(2) was not applicable as the parties were not related under section 40A(2)(b). The Tribunal noted the significant increase in brokerage income due to the services rendered by ICICI Bank and found no basis for the AO's disallowance. Consequently, the Tribunal allowed the assessee's ground and dismissed the revenue's ground.

3. Levy of interest under section 234B and 234D:
The Tribunal noted that the levy of interest under section 234B is consequential. Regarding section 234D, the Tribunal referenced the Special Bench decision in ITO Vs. Ekta Promoters Pvt. Ltd., holding that section 234D, being a substantive provision, applies prospectively from A.Y. 2004-05. Therefore, interest under section 234D could not be levied for the assessment year in question. The Tribunal directed the AO not to levy interest under section 234D.

4. Depreciation on BSE/NSE stock exchange membership card:
The revenue challenged the allowance of depreciation on the BSE membership card. CIT(A) had allowed this based on the ITAT decision in Techno Shares & Stocks Ltd. However, the Tribunal referenced the Bombay High Court decision in the same case, which held that depreciation under section 32 cannot be allowed on stock exchange membership cards acquired on or after 1.4.1998. The High Court clarified that such cards do not qualify as "intangible assets" under section 32(1)(ii). Consequently, the Tribunal reversed CIT(A)'s order and restored the AO's decision, disallowing the depreciation claim.

Conclusion:
The appeals by the assessee and the revenue were partly allowed, with specific directions and confirmations based on prior judicial decisions and statutory provisions. The Tribunal upheld the speculative loss treatment, allowed the marketing agency fees, directed no levy of interest under section 234D, and disallowed depreciation on the BSE membership card.