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TMI Blog2014 (10) TMI 955X X X X Extracts X X X X X X X X Extracts X X X X ..... A) has rightly upheld the order of the Assessing Officer treating the same as speculation loss - Decided against assessee Disallowance of bad debts - Held that:- We find that after 01.04. 1989,the only requirement of writing off of bad debt is entries in the books of accounts by the assessee concerned. It has not to prove the justification of its action i.e.writing off,once it makes necessary entries in the P & L account. The Hon’ble Apex Court in the matter of T.R.F. Ltd. (2010 (2) TMI 211 - SUPREME COURT) had laid down the above basic principle and same is being followed by various Courts. Respectfully following the same we decide ground no.2 in favour of the assessee. Depreciation on BSE Membership Card - Held that:- We find that in the matter of Techno Shares and Stocks Ltd [2010 (9) TMI 6 - SUPREME COURT OF INDIA] has held - “on a consideration of the BSE rules, that the right of membership was a "business or commercial right" and could be said to be owned by the assessee and used for business purposes in terms of section 32(1)(ii). The right of membership, which included the right of nomination, was a "licence" or "akin to a licence" which was one of the items which fel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance. In fact, infrastructure pointed out by the Assessing Officer is only with regard to facilities of trading. The Assessing Officer has totally ignored the fact that the customers were procured only through network of ICICI Bank Ltd., across the country. The rendering of services by ICICI Bank Ltd., which have already set out above, contributed to the business of the assessee and payment of commission, in our view was fully justified. - Decided in favour of assessee. Disallowance of expenses on software development - Held that:- We find that as far as incurring of expenditure is concerned the AO has doubted it. He was of the opinion that same was of capital nature.From the records it is clear that the assessee had made payment to HCL Comnet Ltd. and CWIP amounting to ₹ 27,72,471/-,for development of software programme, but the project could not materialise,that no depreciation was allowed with regard to the payment in question. We are of the opinion that the expenditure incurred by the assessee was incurred for carrying out the business for the year under consideration and it suffered a loss in the transaction. - Decided in favour of assessee. Penalty u/s 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowing the bad debts of ₹ 6,09,334 claimed by us on the ground that appellant had failed to establish that the debts had become bad and thus wrongly written off the same. 5]The CIT (A) ought to have appreciated as under: 1. The Appellant has an elaborate internal system for write off of bad debts and only when the debts are irrecoverable the same are written off through Bad Debts 2. The appellant all through out in the preceding years has consistently followed this method of write off. 3. Whether a particular debt is irrecoverable would be left to the prudence and judgment of the appellant. (C)Re: Interest under Section 234B and Interest u/s 234D [6]The CIT(A) erred in not adjudicating the ground regarding charging if interest under section 234B and 234D of the Act holding that the same is not appeallable. (D)General [7]The Appellant craves leave and reserves its rights to vary, amend alter and/or add to the grounds of appeal and to produce such oral and documentary evidence and file such compilation of documents as may be necessary at the time of hearing of the appeal. ITA /6529/Mum/2008: The grounds of appeal filed by the AO read as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e facts and circumstances of the case and in law, the Ld.CIT(A) erred in restricting disallowance of client Assistance charges amounting to ₹ 10,33,98,497/-paid to ICICI Bank inspite of the fact that the assessee company has its own infrastructure facilities required for the purpose of the broking business having its own membership card of stock exchange and its own office premises etc. 5.On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of client assistance charges amounting to ₹ 10,33,98,497/- paid to ICICI Bank without appreciating the fact that the asseessee failed to substantiate that the payments are made at Market rate and are not exorbitant and excessive. 6. On the facts and circumstances of the case and in law, the Ld. CIT(A) failed to appreciate the decision of the Hon ble Bombay High Court in the case of Shatrunjay Diamond (2003) 261 ITR 258 (Bom). 7. On the facts and circumstances of the case and in law, the id C.I.T(A) has erred in holding that the software expenses incurred by the assessee is a business loss allowable u/.s.28 without appreciating the fact that the expenses were incurred fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alty levied under section 21(1)(c) of the Act be deleted. General [5]The Appellant craves leave and reserves its rights to vary, amend alter and/or add to the grounds of appeal and to produce such oral and documentary evidence and file such compilation of documents as may be necessary at the time of hearing of the appeal. 2.The assessee company has a website providing internet based services to the investors to execute and settle their order/trades in securities on Stock Exchange.It functions as a service provider, offering client servicing and marketing for various financial products offered online. The assessee is a member of both NSE and SSE as a broker.It filed its return of income on 29.10. 2004 declaring income of ₹ 9,76,34,310/-.The AO finalised the assessment u/s.143(3)of the Act,on 28.12.2006,determining the income of the assessee at ₹ 32,23,11,800/-. ITA 6304/Mum/2008: 2.1.First ground of appeal filed by the assessee,is about not allowing loss of ₹ 24.97 lakhs and ad hoc disallowance of ₹ 2,50,000/-.During the assessment proceedings,the AO found that the assessee had shown share trading loss of ₹ 24,97,985/-. The assessee wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e total share trading loss of the asessee was determined at ₹ 29,97,985/- + 5,00,000/-) was held to be speculative loss in view of Explanation to Section 73 of the Act and the same is permitted to be carried forward and may be set-off with speculative income in future. 2.2.Aggrieved by the order of the AO,the assessee preferred an appeal before the First Appellate Authority(FAA).After considering the submissions of the assessee and the assessment order,he held that in the earlier assessment year his predecessor had decided the identical issue against the assessee,that provisions of explanation to section 73 were applicable to the transaction.He confirmed the order of the AO. However, he restricted the disallowance to half i.e.to ₹ 2.5 lakhs. 2.3.Before us,the Authorised Representative(AR) stated that the Tribunal had decided the issue against the assessee while deciding the appeal for the earlier years.We find that adjudicating the appeal for the AY.2003-04(ITA6560/Mum/2006/,dated 20.08.2010)the Tribunal had held as under: 9.We have heard the rival submissions. Identical issue had come up before the Tribunal in assessee s own case in A.Y. 2001-02 in ITA No. 29 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n all activiUes involved in share broking on behalf of the clients by the Assessee, viz., identification of shares to be traded, valuation of shares in the market, transaction cost in purchase and sale of share and cost of utilization of funds deployed for the share trading activity. Keeping in mind these parameter5~ learned CIliA) thought it fit to reduce the disallowance made by the Assessing Officer to ₹ 1,85,943/-. We are therefore of the view that action of learned CIT(A) cannot be said to be without any basis. Consequently, order of learned CIT(A) is confirmed on this issue also. Thus, ground No, A of the assessee and Ground 2 of the revenue are dismissed. Respectfully, following the above, we decide first effective ground(GOA.1-3)against the assessee. 3.Second effective ground(GOA-4 5)is about bad debts. During the assessment proceedings, the AO found that the assessee company had written off bad debts of ₹ 6,09,334/-.He, vide his letter dated 15.11.2006,directed the assessee to submit details of bad debts and its justification. As per the AO, the assessee did not file any justification. As a result, he disallowed the bad debt claim of the assessee of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ip card did not fall within the meaning of Section 32 of the Act, that the fluctuation in the price could not be equated with diminution in value,that assets, whose cost fluctuated depending on the market forces could not be treated as depreciable asset. Referring to the matter of Vinay Bubna (155 CTR 519),he held that the membership of a Stock Exchange was not a franchise as no sole right of engaging in the business of share trading and brokerage was been given to a particular member, that the membership was not a license,that even without the membership of the Stock Exchange share trading and share broking was legally permissible, that even under the new provisions of Sec.32, depreciation could not be held to be allowable on the membership of the Stock Exchange. 5.1.In the appellate proceedings, the FAA, following the order of the Tribunal delivered in the assesee s own case for the AY.2001-02(ITA4326/Mum/-4,dated 09.05.2007)held that it was entitled to claim depreciation on the BSE card. Before us, DR stated that issue was decided in favour of the assessee by the order of the Hon ble Bombay High Court in assessee s own case, that the Hon ble Court had followed the judgment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat M/s. ICICI Webtrade Ltd.had been formed for the specific purpose of providing internet based broking services in consideration of which it would be charging brokerage from its clients,that the assessee company was in possession of its own internet based technology with the help of which these brokerage services were provided on a platform called ICICI demat.com., that it was not at all depending on M/s. ICICI Bank Ltd. as far as the technology was concerned, that the assessee was having its own membership card of various stock exchanges, that it had own office premises and had own staff headed by full time Directors, that for all practical purposes assessee was an independent broking outfit having its own complete infrastructure facilities alongwith its own technology and specialised manpower, that assessee company had itself arranged a massive advertising campaign nationwide to create mass awareness among the Indian public in addition to the huge expenditure claimed by the said company in the earlier years,that the assessee had further failed to substantiate that the payment had been made to ICICI Bank Ltd.at market rate,that it was not in-exorbitant/excessive,that that there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance as he was of the opinion that the payment was made to a party covered by the provisions of section 40(A)(2)(b) of the Act.We find that he has not given the basis as how he arrived at the conclusion that ICICI Bank,the receiver of the payment,was a party covered by the provisions of the said section.For invoking the provisions of 40A regarding related party,it has to be proved that the assessee had incurred an expenditure by making payment to the person referred to in clause (b).We find that the AO had presumed that payment was made to related party.He has also not explained as how the payment was excess or unreasonable.For arriving at such a conclusion,he should have compared the case with similar type of cases and proved that the payment was above normal practice of the trade.He has not made any attempt to prove the fact.In these circumstances,in our opinion,the order of the AO was rightly reversed by the FAA. We further find that while deciding the appeal for the AY.2003-04,the Tribunal has dealt almost all the issue that have been raised by the AO in the original as well as in the revised grounds of appeal.Here,we would like to reproduce the order for the AY.2003-0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roking accounts to prospective customers. iii)Organizing micro marketing initiatives like conducting road shows, corporate presentations etc. iv)The BSE approach the customers and complete the account opening formalities by collecting necessary documentation and filing up of forms. v)The forms are verified and sent to ~WTL s office at Mumbai. vi)In case of rejection by the company on account of incomplete documentation or otherwise the forms are sent back to the branches who in turn ask the USE to complete them and send them back to IWTL s office at Mumbai. vii)All queries pertaining to pre account opening like status of applications, progress in account opening etc. is handled by the branches in consultation with IWTL. ICICI Bank branches arrange for franking of the account opening forms. The people in the branches are constantly trained so that they are up to date on the new features and products of ICICI direct.com. viii)All post account opening queries/complaints like account locked, fund allocation, problems with the site etc. ix)ICICI bank branches arrange for dispatching contract notes to the customers at their addresses. x)Call on the customers regul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such expenses would prompt investing community to enroll themselves as clients of the assessee. Those expenses also created assessee s own brand equity. 16.The Assessing Officer found that the assessee had paid a sum of ₹ 35,91,150/- which was the payment at Its. 75/- per account outsourced through ICICI Bank Ltd. In addition to the above, the assessee had claimed a sum of ₹ 3,69,29,155/- being 50% of the net brokerage. According to the Assessing Officer, generally recipient of such brokerage undertakes entire gamut of activities right from the sourcing of new clients upto the settlement of the transaction including delivery, payment and also bearing the risk element involved in the share market transaction in the case of default by any of the clients. The Assessing Officer found that the ICICI Bank Was not shouldering any such responsibility. For all the above reasons, the Assessing Officer held that the payment of 50% of the net brokerage received by the assessee of Its. 3,69,29,155/~ was unreasonable, excessive having regard to the fair market value of the service provided by ICICI Bank Ltd. The Assessing Officer, however, allowed deduction of ₹ 35,91,150/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch person is, at any time during the previous year, beneficially entitled to not less than twenty per cent, of the profits of such business or profession. 14.We find force in the submission of the learned AR that section 40A is not applicable as the assessee does not fall in category (b) of section of sub-section (2) of section 40A of the Act. The learned AR referred page 14 of the paper book reads as under:- A SHARE CAPITAL Authorised 40,000,000 Equity Shares of ₹ 10/- each 400,000,000 400.000.000 Issued, Subscribed and Paid up 30,000,000 Equity Shares of ₹ 10 each 300,000,000 300.000,000 2,99,99,300 shares are held by ICICI Trusteeship Services Limited at the trustee of ICICI Equity Fund and 700 shares are held by nominees of ICICI Limited. 15.The learned AR with refe rence to above facts and from Explanation (b) of sub section 2 of section 40A has clearly demonstrated that the assessee was not having ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsel for the assessee on the other hand relied on the order of Tribunal and reiterated the stand of the Assessee as was taken before the revenue authorities. 22.We have considered the rival submissions, In our view the Tribunal has considered all aspects of the matter in the aforesaid decision and reasons given by the Tribunal for deleting the addition on merits will equally apply to the present assessment year also. In our view, services rendered by the assessee have not been disputed by the Assessing Officer. In the present year through ICICI Bank Ltd. 47,882 customers had been introduced as assessee s customers. There has been increase in brokerage income from ₹ 11.92 crores in A.Y. 2002-03 to ₹ 24.09 crores in A.Y. 2003-04. It is thus clear that increase in the brokerage income is as a result of increase in number of customers sourced by ICICI Bank Ltd. In our view, there is no yardstick mentioned by the AG or CIT(A) as to what is fair market value of the goods, services or facilities for which the payment is made. Further nothing has been brought on record to show that the expenditure in question was excessive or unreasonable considering legitimate needs of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re us, the DR supported the order of the AO and the AR relied upon the order of the FAA. We have heard the rival submissions.We find that as far as incurring of expenditure is concerned the AO has doubted it.He was of the opinion that same was of capital nature.From the records it is clear that the assessee had made payment to HCL Comnet Ltd. and CWIP amounting to ₹ 27,72,471/-,for development of software programme,but the project could not materialise,that no depreciation was allowed with regard to the payment in question.We are of the opinion that the expenditure incurred by the assessee was incurred for carrying out the business for the year under consideration and it suffered a loss in the transaction.Therefore,confirming the order of the FAA,we decide last ground of appeal against the AO. ITA 500/Mum/2012: 9. After the disposal of appeal by the FAA for the year under consideration,the AO issued a fresh notice u/s.271(1)(c)of the Act on 10.03.2010 requiring the assessee to show cause as to why penalty under the said section should not be levied for the following two items: i. Share trading loss disallowed(Rs.24,97,985/-)and disallowance of expenses(Rs.2.5 l ..... X X X X Extracts X X X X X X X X Extracts X X X X
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