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2022 (9) TMI 969 - AT - Income TaxDepreciation on intangible assets - HELD THAT - The issue in dispute is a recurring issue coming to the assessee from A.Y.1999-2000 onwards. We find that the same is covered in favour of the assessee by the order of this Tribunal for A.Y.1999-2000 wherein by placing reliance on the decision of the Hon ble Supreme Court in the case of CIT vs. Smifs Securities Ltd. 2012 (8) TMI 713 - SUPREME COURT this Tribunal had already granted depreciation on the intangible assets to the assessee. Similar depreciation was allowed to the assessee upto A.Y.2010-11. We find that the ld. CIT(A) after narrating the entire facts of his order had placed reliance on the orders passed by his predecessor for A.Yrs. 2003-04 to 2010-11 and had granted relief to the assessee - AR before us placed on record the consolidated Tribunal order passed for A.Yrs. 1999-00 to 2010-11 in the case of the assessee wherein this issue is covered in favour of the assessee. Respectfully following the said Tribunal order, the ground No.1 raised by the Revenue is dismissed. Disallowance of assessee's claim of exceptional losses on account of certain trades - HELD THAT - We are unable to persuade ourselves to accept to this argument of the AR in view of the fact that the clients had incurred losses due to neglect of ABML. Hence it is the goodwill of ABML that would be ruined and not the assessee. Hence there is no question of retention of goodwill for which this loss was absorbed by the assessee. Even assuming if the goodwill of the assessee is to be retained by keeping its clients in good humor by absorbing their losses, the assessee should have recovered the said loss from ABML as admittedly the loss had been incurred only due to neglect of ABML and not the assessee herein. In any event, there is absolutely no justification for the assessee to claim the said loss in its books as deduction. Hence we deem it fit and appropriate to address the entire issue on the first principle basis without placing reliance on any decisions. The ratio laid down in each of the decision is to be seen from the facts prevailing in those cases and could be made applicable only for those facts. Hence the various decisions relied upon by the ld. AR on the aspect of commercial expediency principle and the loss being allowable as trading loss of the assessee either u/s 28 or u/s 37 of the Act would not advance the case of the assessee. AR before us also submitted that the losses incurred by clients of ABML in Options Maxima Scheme were not due to any neglect of ABML and it was caused due to various other factors which were outside the control of ABML. We find that ABML is only the main broker who had developed Options Maxima Scheme and offered it to its clients pursuant to Risk Disclosure Document signed by the clients in favour of ABML. Actually if there is any loss incurred on the said transaction, the same shall have to be borne only by the clients. Even if the clients losses are to be indemnified, it is for ABML to absorb those losses in its books. Merely because those clients had been sourced or referred by assessee to ABML, the losses of those clients cannot be shifted by ABML to assessee by placing reliance on Clause 2.1A of Business Partner Agreement dated 23.08.2010. We hold that the loss of clients incurred under Options Maxima Scheme claimed by the assessee in its return is not allowable and accordingly we reverse the findings of the ld. CIT(A) in this regard and uphold the findings of the ld. AO on the impugned issue. Accordingly, the Ground Nos. 2 3 raised by the revenue are allowed. Disallowance on account of assessee's claim on account of loss arising out of irregularities committed by certain employees - whether the losses had occurred due to embezzlement carried out by employees of assessee or employees of ABML? - HELD THAT - This matter requires factual verification which would decide the issue in dispute before us. The reliance placed on the decision of Badridas Daga 1958 (4) TMI 2 - SUPREME COURT would certainly come to the rescue of the assessee, if the employee of the assessee had embezzled . On the contrary, if the employee of ABML had done some mischief, then the said loss though borne by the assessee on behalf of the clients should have to be recovered from ABML by the assessee. Hence the allowability of loss could be decided on the facts being brought on record in this regard. Hence we deem it fit and appropriate, in the interest of justice and fairplay, to remand this issue to the file of ld. AO for deciding in accordance with law in the light of aforesaid directions. Ground No. 4 raised by the revenue is allowed for statistical purposes. TDS u/s 194J - Disallowance of provision made for expenses u/s.40(a)(ia) - HELD THAT - We find that the Tribunal had stated that the said expenses are cost to cost payments falling under the ambit of reimbursement. In that context, it was decided that TDS would not be applicable thereon. Whereas for the year under consideration, we find that assessee had never taken a plea that it is reimbursement of expenses. Even in the statement of facts filed before the CIT(A), the assessee had only stated that these are provisions for expenses made on best estimate basis and tax would be deducted at the time of making actual payment thereon. Hence, we hold that reliance placed on the decision of this Tribunal in assessee s own case would not come to the rescue of the assessee. However, in the interest of justice, we hold that assessee would be liable for deduction of this expenditure in the year in which the tax deducted at source had been duly remitted to the account of the Central Government. Accordingly, the ground raised in the cross objection of the assessee is partly allowed.
Issues Involved:
1. Depreciation on intangible assets. 2. Disallowance of exceptional losses on account of certain trades. 3. Disallowance of loss arising out of irregularities committed by certain employees. 4. Disallowance of provision made for expenses under Section 40(a)(ia) of the Income Tax Act. Issue-wise Detailed Analysis: 1. Depreciation on Intangible Assets: The Revenue challenged the action of the CIT(A) in allowing depreciation on intangible assets. The Tribunal noted that the assessee, engaged in marketing and distribution of financial products, had been granted depreciation on intangible assets by the Tribunal in previous years, including up to A.Y. 2010-11. The CIT(A) had relied on these precedents and granted relief to the assessee. The Tribunal, following its earlier order and the decision of the Hon'ble Supreme Court in CIT vs. Smifs Securities Ltd., dismissed the Revenue's ground, affirming the allowance of depreciation on intangible assets. 2. Disallowance of Exceptional Losses on Account of Certain Trades: The Revenue contested the deletion of disallowance of exceptional losses claimed by the assessee due to certain trades amounting to Rs.95,68,91,785/-. The assessee had entered into a business partner agreement with ABML, under which it referred clients to ABML's Options Maxima Scheme. The clients incurred significant losses due to market conditions, and the assessee absorbed these losses, claiming them as exceptional losses. The CIT(A) allowed this claim based on commercial expediency and the business partner agreement clause 2.1A, which made the assessee liable for client losses. However, the Tribunal found that the losses were due to ABML's scheme and should be borne by ABML, not the assessee. The Tribunal held that the loss claimed by the assessee was not allowable and reversed the CIT(A)'s decision, upholding the AO's disallowance. 3. Disallowance of Loss Arising Out of Irregularities Committed by Certain Employees: The Revenue challenged the deletion of disallowance of Rs.1,63,27,011/- claimed by the assessee due to embezzlement by a branch employee. The CIT(A) allowed the claim, noting that the assessee had provided details of the loss and argued it was incurred in the regular course of business. The Tribunal found that the details provided were insufficient to determine whether the loss was due to the assessee's or ABML's employee. The Tribunal remanded the issue back to the AO for factual verification to decide the allowability of the loss based on the correct facts. 4. Disallowance of Provision Made for Expenses Under Section 40(a)(ia): The assessee contested the disallowance of Rs.59,815/- for call center expenses provision under Section 40(a)(ia) due to non-deduction of TDS. The AO disallowed the provision, stating TDS should have been deducted. The CIT(A) upheld the disallowance, noting that TDS provisions apply at the time of provision or payment, whichever is earlier. The Tribunal found that the assessee did not argue the expenses were reimbursements and upheld the disallowance but allowed the deduction in the year TDS was remitted to the Central Government. Conclusion: The Tribunal dismissed the Revenue's appeal regarding depreciation on intangible assets, allowed the Revenue's appeal regarding exceptional losses and remanded the issue of embezzlement loss for further verification. The Tribunal also upheld the disallowance of provision for expenses but allowed the deduction in the year of TDS remittance. The appeal of the Revenue was partly allowed for statistical purposes, and the assessee's cross-objection was partly allowed.
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