9911796707
TMI Blog2013 (9) TMI 521X X X X Extracts X X X X X X X X Extracts X X X X ..... llowed the brokerage and commission charges - the CIT (A) was correct in allowing the brokerage and consulting charges claimed by assessee for obtaining various loans – Decided against Revenue. Disallowance of Sub-Brokerage – Held that:- During the course of assessment proceedings the appellant had furnished information of Shri Madhusudan Kela, though those were not treated sufficient by the AO to consider genuineness of the person as well as the payment of sub-brokerage - Assessee had not filed any confirmation either during the special audit or before AO, in view of the factual findings given by the CIT (A), we have no other option than to accept his findings in the absence of any contrary evidence placed by the Revenue - The Revenue had also not raised any ground with reference to admission of any additional evidence which indicate that the factual aspect that assessee filed confirmation letters before AO in the course of the assessment proceedings were to be accepted - It was also seen that the learned CIT (A) directed to verify the receipt of payments given to Shri Madhusudan Kela and after examination directed AO to allow the claim - We do not see any reason to interfere w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the former/ defaulting member to the Exchange, Clearing House, etc. - the right of membership (including the right of nomination) vests in the Exchange only when a member commits default - Otherwise, he continued to participate in the trading session on the floor of the Exchange; that he continued to deal with other members of the Exchange and even had the right to nominate subject to compliance of the Rules - Moreover, by virtue of Explanation 3 to Section 32(1)(ii) the commercial or business right which is similar to a "licence" or "franchise" was declared to be an intangible asset - Therefore, the right of membership, which included right of nomination, was a "licence" or "akin to a licence" which was one of the items which falls in Section 32(1)(ii) of the 1961 Act - The right to participate in the market had an economic and money value - It was an expense incurred by the assessee which satisfied the test of being a "licence" or "any other business or commercial right of similar nature" in terms of Section 32(1)(ii) - the Tribunal was right in holding that depreciation was allowable on the cost of the membership card under Section 32(1)(ii) of the 1961 Act. Disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he disallowance of Rs.62,75,916/- on account of interest paid. 2. On the facts and circumstances of the case and in law, the learned CIT (A) erred in deleting the disallowance towards finance brokerage and consulting charges of Rs.6,00,412/- made by AO. 3. On the facts and circumstances of the case and in law, the learned CIT (A) erred in deleting the disallowance made by AO in respect of sub-brokerage paid to Shri Madhusudan Kela amounting to Rs.1,19,00,000/-. 4. On the facts and circumstances of the case and in law, the learned CIT (A) erred in deleting the addition of service charges of Rs.1,83,750/-, made by AO . 3. We have heard the learned DR and the learned Counsel for assessee in detail. After considering the submissions and examining the paper book placed on record, we decide the issues as under: 4. Ground No.1 pertains to the issue of disallowance of interest of Rs.62,75,916/-. AO disallowed the interest claim on the ground that assessee borrowed interest bearing loans amounting to Rs.6,89,16,040/- and advanced loans to the following concerns without charging any interest. a) M/s Jayantilal Khandwala Sons Rs.27,68,30,295/- (Peak debit balance as on 23-3-2002 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the overall debit balance of Rs.2,22,03,196/-. The payment made is excess which has rightly been considered as loan advanced for non business purpose. As regards Triumph Securities Pvt. Ltd., the AO stated that there are five entries, two entries on credit side indicating the bill raised amounting to Rs.5,25,00,000/-.The total entries on debit side is Rs.5,25,00,000/-. Since the amounts are squared up it cannot be said that there was any loan given for non business purpose. 7. In the rejoinder to the remand report, assessee vide letter dated 28-02- 2011 submitted that M/s. Jayantilal Khandwala Sons is their client for which they purchased and sold shares as directed by them which has been also admitted by the AO in his remand report dated 11-02-2011. It was submitted that assessee is following trading practice in the business that no interest is charged in the balances in the account of sundry debtors and similarly no interest is paid on the balances in the account of sundry creditors. Therefore, following the business practice, no interest was charged on the debit balance in its account as on 31-03-2000. The AO assumed that assessee has taken interest bearing loans which were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o seen that the interest paid approximately by a sum of Rs.3,30,000/- and the relevant borrowals made are reflected in the increase in volume of business and current assets. The AR relied in the case of Reliance Utility Power Ltd (2009) 313 ITR 340(Bom), wherein it was held that if there are funds available both interest free and overdraft or loan taken then a presumption would arise that investment would be out of interest free funds generated or available with the company, if the interest free funds were sufficient to meet the investment. 2.3.1 I am, therefore, unable to hold that interest bearing loans taken by the appellant were utilized by it in advancing any interest free loans. Further the accounts maintained were running accounts and not represented loan transaction. In case of Triumph Securities, the AO has clearly stated in the remand report dated 11- 02-2011 that it cannot be said that thee was any loan given for non business purpose. In view of these, no disallowance of interest can be made. The decisions relied upon by the appellant are also supports its case. The AO was therefore, not correct in disallowing interest of Rs.62,75,916/-. This disallowance is deleted. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulting charges claimed by assessee for obtaining various loans. Therefore, the ground of Revenue is dismissed. 12. Ground No.3 pertains to disallowance of sub-brokerage paid to Shri Madhusudan Kela amounting to Rs.1,19,00,000/-. Assessee claimed payment of Rs.1,19,00,000/- as brokerage paid to Shri Madhusudan Kela. AO disallowed this expenditure on the ground that this person was not produced personally for examination though assessee was asked to do so. AO has also stated that the details of services rendered by Shri Madhusudan Kela were not furnished to AO. It was submitted before CIT(A) that confirmation letter dated 27-03-2001 addressed to Sri Madhusudan Kela and acknowledged by him was furnished to the AO. During the course of hearing, it was explained, that the services rendered by Sri Madhusudan Kela were mentioned to the AO. In particular it was stated before the AO that this sub broker procured business from NRI clients and other corporations like Can Bank Off Shore Mutual Fund, Alliance Capital Mutual funds, Lloyd George Mutual Funds, M/s. FR - Mann Ltd., Mr. Shyan Bhatia, Mr. Harshad Dhakkan and several others. Sri Madhusudan Kela could not be personally produced befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dispose of this ground." Before me, also, the AR reiterated his original submission as made before my predecessor CIT(A). The AR further filed a copy of ledger account as appearing in his bank accounts and a copy of bank account evidencing payments made by cheques and encashed by Shri Madhusudan Kela. Therefore, considering the finding of my predecessor CIT(A), the AO is directed to verify the receipts of payments shown by Shri Madhusudan Kela, in his I T return and if found correct then allow the claim. This ground is therefore, treated as allowed subject to verification . 14. Even though the learned DR vehemently argued that assessee has not filed any confirmation either during the special audit or before AO, in view of the factual findings given by the CIT (A), we have no other option than to accept his findings in the absence of any contrary evidence placed by the Revenue. The Revenue has also not raised any ground with reference to admission of any additional evidence which indicate that the factual aspect that assessee filed confirmation letters before AO in the course of the assessment proceedings are to be accepted. It is also seen that the learned CIT (A) directed to ve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cured/secured loans outstanding at Rs.19,88,10,884/- as on 31-03-2003. AO held that assessee had diverted and utilized the borrowed funds for non business purposes and therefore finance expenses incurred at Rs.95,23,575/- were disallowed as having been incurred for non business purposes. 21. Before the CIT (A) it was contended that the following sister concerns were having debit balances in the books of assessee as on 31-03-2003: 1 M/s Khandwala Shares Brokers Pvt Ltd Rs.2,50,01,566/- 2 Nirjay Securities Pvt. Ltd Rs.27,47,80,331/- 3 M/s Jayantilal Khandwala Sons Rs.1,62,91,990/- It was explained that all the accounts in the above cases were running accounts; all the three concerns were constituents of assessee and the debit balances had arisen in the course of the business of assessee. It was further submitted that the debit balance in the case of the third concern M/s Jayantilal Khandwala Sons had come down from Rs.8,33,18,432/- as on 1-04-02 to Rs.1,62,91,990/- as on 31-03-03. It was stated that the interest bearing loans taken by assessee were fully utilized in its business and were not utilized for giving interest free advances. It was submitted that the AO had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not used for purposes of business but diverted to the sister concerns. In view of the aforesaid discussion, the disallowance made at Rs.95,23,575/- is restricted to Rs.90,64,896/-. Accordingly this ground of appeal is partly allowed . 24. Before us the learned Counsel submitted that these two accounts are running trading accounts and in one account there was reduction of old credit balances. It was submitted that assessment year 2000-01 was relied by AO while disallowing the amount, which were allowed by the CIT (A) in that year (which was considered in the Revenue appeal at Ground No.1 in above appeal). It was submitted that since assessee has utilized the funds in the course of business, these amounts are allowable as business expenditure. The learned DR however, relied on the orders of AO and the CIT (A). 25. We have examined the issue and the paper book placed on record with reference to this assessment year. In our opinion both AO and the CIT (A) did not examine the issue on factual basis but carried away by the findings in earlier years with reference to the same issue. As seen from the balance sheet and the Profit Loss A/c particularly schedules placed in the pape ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ground is considered allowed for statistical purposes. 26. Ground No.2 pertains to issue of disallowance of depreciation on BSE Membership Card. For clarity on the issue, the grounds raised by assessee are extracted as under: 2(a) The CIT (A) erred in confirming disallowance of depreciation on the BSE Membership card owned by the appellant and utilized by it in its business. (b) The first appellate authority failed that the Registrar of Companies was informed by the appellant that BSE Member Ship Card was acquired from one of the Directors of the appellant for a sum of Rs.1,30,00,000/- by issuing 13,00,000 equity shares of the appellant company at Rs.10/-per share. The audited statements of account furnished by the appellant to AO also confirm this position. (c) The CIT (A) erred in observing that the BSE Membership Card owned by the appellant was not used in the relevant accounting year in the appellant s business. This is perhaps based on the presumption that AO found that the Membership Card of the appellant was suspended. This is factually not correct as the appellant carried on business as a Member of the BSE in the year ended 31-3-2003 and earned substantial commiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns (P) Ltd will start doing the business in the market w.e.f. 6.4.1998 and in the same day M/s Jayantilal Khandwala Sons will cease to do the business in the market on 6.4.1998. As per the above, the Stock Exchange has certified that M/s Jayantilal Khandwala Sons, a separate partnership concern of assessee group ceased to do business w.e.f. 6.4.1998, whereas business is continued in the name of Jayantilal Khandwala Sons (P) Ltd. However, this certificate was issued on 21st March 1998 w.e.f. 6.4.1998 i.e. assessment year 1999-2000. Except this document which could have led to above finding, we do not find any evidence on record to support the findings of AO that assessee s Membership Card was suspended. Therefore, in the interest of justice, we restore the issue to the file of AO to examine this aspect and give a clear finding whether assessee s Membership Card was suspended in the year under consideration. If the card is not used for the purpose of business, the question of allowing depreciation does not arise. However, if the Card is used for the purpose of business, following the principles laid down by the Hon'ble Supreme Court in the case of Technoshares Stocks Ltd. and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f expenses. It was fairly admitted that such disallowance in earlier years was deleted by the CIT (A). Considering the facts of the case and the arbitrary disallowance made by AO under various heads, we are of the opinion that there is no need for disallowing 20% of the expenditure as was done by the CIT (A) under the heads travelling, conveyance, staff welfare, miscellaneous expenditure etc. We direct AO to allow the amount as claimed. Ground is accordingly allowed. 34. Ground No.5 pertains to the addition of Rs.25 lakhs representing the amount received by assessee from Shri I.R. Khandwala through Khandwala Securities Ltd. Briefly stated AO observed that in the notes to the accounts, it was stated the assessee company had accepted a fraudulent unconfirmed transfer of Rs.25 lakhs which stood shown as sundry creditor. Since assessee failed to explain this non existing liability, in the absence of any explanation, the amount of Rs.25 lakhs was added by AO as unexplained credit. It was contended before CIT(A) that assessee was passing through a period of financial crises and was in need of funds. It therefore, approached Shri I.R. Khandwala for a loan. Shri I.R. Khandwala consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es Ltd. the amount was received back from M/s Jayantilal Khandwala Sons Pvt.Ltd. However, no loan confirmations were produced by Shri I.R. Khandwala inspite of several opportunities given to him. Shri LR. Khandwala was the Auditor of the company M/s Jayantilal Khandwala Sons Pvt. Ltd. The remark that 'the assessee company had accepted fraudulent unconfirmed transfer of Rs.25,00,000/- which has been shown as sundry creditors' was correctly mentioned by him and the same can be seen from the reply received from Shri I.R. Khandwala. As from the statement of affairs as on 31-3-2002 and 31-3-2004, it is seen that Shri I.R. Khandwala is showing an amount of Rs.25,00,000/- as due from M/s Khandwala Securities Ltd and not M/s Jayantilal Khandwala Sons Pvt. Ltd. A copy of the reply dated 6-3-2007 received from Shri I.R. Khandwala is enclosed herewith for necessary action at your end . 36. The CIT (A) confirmed the same by stating as under: 30. On careful consideration of the relevant facts and submissions and AO's comments, it is clear that on 01-04-02, the appellant had shown the amount Rs.25 lakhs as received from Mr.I.R.Khandwala through a journal entry. However this entry wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the year and submitted on the facts of the case, there is no need for making any addition under section 68 of the Act. Learned DR however, relied on the note of the statutory auditor that there are fraudulent transactions and assessee has bogus liability and therefore, the Revenue is correct in bringing the amount to tax. 38. We have considered the issue. We are unable to understand how these transactions can be considered as unexplained cash credit. First of all there is no dispute with reference to the advance amount of Rs.25 lakhs to Khandwala Securities Ltd, a public limited company, which in turn passed on the loan to the assessee company. The entries in the earlier years in the books of account are a credit in the name of Khandwala Securities Ltd. To that extent the credit stands explained. Consequent to the dispute between the parties on 1.4.2002, a journal entry was passed by crediting to the account of Shri I.R. Khandwala and debiting to the Khandwala Securities Ltd. This journal entry was stated to be fraudulent entry and on that basis the amount was taken as unsecured loan. There is evidence on record that Shri I.R. Khandwala made a summary civil case before the Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccordingly the Revenue is aggrieved. 41. After considering the arguments of the learned DR and the Authorized Representative, we are of the opinion that the CIT (A) order per se cannot be faulted. However, as seen from the appeal for the assessment year in quantum, the issue of BSE Membership and interest claim of borrowed funds were restored to the file of AO for fresh consideration. Therefore, to that extent levy or deletion of penalty on the issue does not arise at this point of time as the issues were already restored to the file of AO for fresh adjudication. We set aside the orders of AO and the CIT (A) on the above two issues and restore the penalty on the above issues to the file of AO for fresh consideration, after finalizing the issue of claim of depreciation on Membership Card and claim of interest on borrowed funds. With reference to the penalty on unexplained cash credit of Rs.25 lakhs, we agree with the findings of the CIT (A) in deleting the penalty. Moreover, in assessee appeal for assessment year 2003-04, we also deleted the addition so made under section 68 vide Para 38 above. Since the addition which is basis for the levy of penalty was allowed in favour of asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
