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TMI Blog2012 (11) TMI 811X X X X Extracts X X X X X X X X Extracts X X X X ..... encies were deductible as a business expenditure, as the amount was paid during the course of business of the assessee’s business and there was no infraction of law. In favour of assessee Disallowance of Bad debts u/s 36 – Bad debts in relation to the value of shares transacted by the assessee as a stock broker on behalf of his clients – AO argued that bad debt can be allowed only to the extent brokerage earned on the transactions – Held that:- Following the decision in case of Shri Shreyas S. Morakhia (2012 (3) TMI 103 - BOMBAY HIGH COURT) that the brokerage having been credited to the P&L of the assessee, it was evident that a part of the debt was taken into account in computing the income of the assessee. The fact that the liability to pay the brokerage may arise at a point in time anterior to the liability to pay the value of the shares transacted would not make any material difference to the position. Both constitute a part of the debt which arises from the very same transaction involving the sale or, as the case may be, purchase of shares. Since both form a component part of the debt, the requirements of Sec. 36(2)(i) are fulfilled where a part thereof is taken into accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orporatization and de-mutualizations) Scheme, 2005 to the Allotment money, ignoring the depreciated cost of acquisition of the BSE Card. REVENUES S GROUNDS OF APPEAL: 1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of Rs.22,02,508/- made in respect of VSAT charges paid to Stock Exchange and technical services of Rs.5,79,137/- being penalty charges paid to NSE. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition on bad debts amounting to Rs.3,00,10,302/- . 3. On the facts and in the circumstances of the case, the impugned order of the Ld. CIT(A) is contrary to law to be set aside and that of the Assessing Officer be restored. ITA NO.6044/MUM/11- REVENUE S APPEAL: 2. The assessee is a stock broker registered with both BSE NSE. The Exchange charge VSAT charges for use of installation of VSAT and leaseline facilities, the fees paid by the assessee which has been considered to be in the nature of fee for technical services and an amount of Rs. 22,02,508/- has been added to the income of assessee to which Ground No.1 of Departmental appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that VSAT, and leaseline charges, were reimbursement of expenses to the stock exchanges for use of standard facilities and transaction charges were not disallowable in view of the decision of the Tribunal in case of Kotak Securities Ltd. 5.1.4 We find that the issue of transaction charges is covered by the judgment of Hon ble High Court of Bombay in case of CIT(A) vs. Kotak securities Ltd.( 15 Taxmann.com77). The J Honble High Court in that case held that the transaction charges paid by the assessee were of the nature of fees for technical services. However, the Hon ble High Court noted that both parties were under bonafide belief for nearly a decade that no tax was required to be deducted and, therefore, this being the first year the disallowance could not be made as the assessee was under the bonafide belief that the claim was allowable. The case of the assessee is identical as. in this year also disallowance has been made for the first time in assessment year 2005-06. No distinguishing features have been brought to our notice by the Id. DR. We therefore, delete the disallowance made by AO on account of transaction charges and confirrr1ed the order of CIT(A) . As regards VS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dditional ground No. 2 is allowed. Learned counsel for the appellant-Revenue has not been able to show why and how the aforesaid findings are wrong and incorrect and the payment was, in fact, in the nature of penalty and not normal interest on the delayed payment. In view of the aforesaid discussion, we do not think that any substantial question of law arises in this appeal. Accordingly, the appeal is dismissed without any order as to costs. Accordingly deletion of Rs.5,79,137/- is also upheld and Ground No.1 of the revenue is dismissed. 3. Coming to Ground No.2 of the revenue this issue has been discussed by AO in para 6 of the assessment order. The following amounts were claimed by the assessee under the head Bad Debt . S.No. Account Code Account code Amount Segment 1. 11182 Harish P. Jashnani 23640836 FNO 2. 70026 Elegance Financials Pvt. Ltd. 6369470 30010306 3.1 The A.O required the assessee to explain as to why the claim should not be restricted to the extent brokerage income as non brokerage part does not fulfill the conditions laid down in section 36(2) of the Income Tax Act, 1961 (t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the very same transaction involving the sale or, as the case may be, purchase of shares. Since both form a component part of the debt, the requirements of section 36(2)(i) are fulfilled where a part thereof is taken into account in computing the income of the assessee. Therefore, the assessee was entitled to deduction by way of bad debts under section 36(1)(vii) read with section 36(2) in respect of the amount which could not be recovered from its clients in respect of transactions effected by him on behalf of his clients, 3.3 In this view of the position, after hearing both parties, we find that Ld. CIT(A) has rightly deleted the addition. The decision of Special Bench relied upon by the Ld. CIT(A) has been confirmed by Hon ble Jurisdictional High Court, therefore, we decline to interfere in the relief granted by Ld. CIT(A). This ground of the revenue is also dismissed. ITA NO.6032/MUM/11- ASSESSEE S APPEAL: 4. The assessee company had sold 7500 shares of BSE Ltd. and calculated long term capital gain thereon. The assessee was claiming depreciation on BSE Card till A.Y 2005-06, therefore, it had taken original cost of BSE Card as the cost of acquisition for the purpose o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the BSE Card as on 1/4/2005 was Rs.20,24,505.61. During the previous year consequent to Corporatisation and demutualization, the BSE become a Limited Company i.e., BSE Ltd. The members of the erstwhile BSE were given shares in BSE(Limited Company) in consideration of their surrendering the BSE Card (erstwhile membership). By virtue of holding such shares and complying with certain other conditions members had trading rights in the BSE(Limited Company). 3. The assessee during the previous year did not claim depreciation of BSE Card because the BSE Card got converted into shares issued by the Stock Exchange (BSE a Limited Company). Section 55(2)(ab) provides as follows: Sec. 55: Meaning of adjusted , cost of improvement and Cost of acquisition . (1) (2)For the purpose of Sec.48 and 49, cost of acquisition (a) . (aa) .. (ab) in relation to a capital asset, being equity share or shares allotted to a shareholder of a recognised stock exchange in India under a scheme for [demutualisation or] corporatisation approved by the Securities and Exchange Board of India established under section 3 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), shall be t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10,000 + Rs.20,24,505/- being the written down value of the BSE Card as per I.T. Act. The assessee submitted that the learned AO s view that it would get the benefit of depreciation on BSE Card as allowed by ITAT of Rs. 1,09,75,465/- in earlier years and on the other hand, the cost of BSE shares would be original cost of BSE Card at Rs. 1,30,00,000/- and thus the assessee would get a double benefit is not correct, as the assesseee has sold the part of the shares, i.e. 6386 share and has taken the cost only at Rs. 12,99,235/- i.e. proportionate to I.T. written down value of the Card + 10,000/- and declared Long Term Capital Gain of Rs.3,17,66,801/- by taking the cost of 6386 shares at Rs. 12,99,235/- and indexing the same and thus it is very clear that the assesseee has not taken the cost of BSE shares at the original cost of Rs.1,30,00,000/-. The assessee enclosed a copy of computation filed with the Return of Income for A.Y 2008-09. 7. The CIT(A) held as follows: 1.3 I have gone through the order of the AO and submission of the appellant. The AO s apprehension that the appellant would get double benefit is found to be not correct in view of the appellant s conduct during A.Y. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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