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TMI Blog2010 (8) TMI 1089X X X X Extracts X X X X X X X X Extracts X X X X ..... firming the disallowance of adhoc expenses of ₹ 1,85,943/- treating the same as incurred towards the speculation business. Ground raised by the revenue : 2) On the facts and circumstances of the case and in law, learned CIT(A) erred in restricting the disallowance at 50% i.e. ₹ 1,85,843/- as against total disallowance of ₹ 3,71,888/- made by the Assessing Officer on account of expenditure attributable to speculative business. 4. Facts giving rise to the aforesaid grounds are as follows :- The assessee is in the business of share broking. The assessee has a website providing internet based services to the investors to execute and settle their orders/trades in securities on Stock Exchange. The assessee as a service provider offers its clients servicing and marketing for various financial products offered online. The assessee is also member of both NSE and BSE and acts as a broker. In course of assessment proceedings, the Assessing Officer noticed that the assessee had shown share trading loss of ₹ 81,942/-. As per explanation to section 73, where the assessee is a company and if the assessee engages itself in purchase and sale of shares of other co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 24.7 crores. The aforesaid expenditure of ₹ 3,71,886/- was disallowed and added to the total income of the Assesse. The said expenditure was however treated as part of the speculative loss and allowed to be carried forward. 7. On appeal by the assessee, learned CIT(A) confirmed the action of the Assessing Officer in treating the loss of sale of share of ₹ 81,942/- as speculative loss. With regard to disallowance of expenses incurred in doing business of sale of securities which resulted in speculative loss, learned CIT(A) reduced the disallowance made by the Assessing Officer from ₹ 3,71,886/- to ₹ 1,85,943/-. 8. Aggrieved by the order of learned CIT(A) not treating the loss on sale of securities as normal business loss; and not deleting entire disallowance of expenses incurred in doing business of purchase and sale of securities, assessee has raised Ground No. (A) before the Tribunal. Aggrieved by the order of learned CIT(A) in reducing the head of disallowance of expenses from ₹ 3,71,886/- to ₹ 1,85,943/-, the revenue has raised ground No. 2 before the Tribunal. 9. We have heard the rival submissions. Identical issue had come up b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does not call for any interference. The learned CIT(A) had taken into consideration all activities 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 parameters, learned CIT(A) 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. 12. Ground No. B raised by the assessee and Ground No. 3 raised by the revenue can be conveniently decide together. These grounds reads as follows :- Assessee s ground (B) disallowance of marketing agency frees paid ₹ 1,84,64,577/- Learned CIT(A) erred in restricting deduction for marketing agent fees paid to ICICI Bank Ltd. to ₹ 1,84,64,577/- against the claim of appellant at ₹ 3,69,29,155/- as per prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ise the forms are sent back to the branches who in turn ask the BSE 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 regularly to maintain relationship and allow them to trade through the website provided by IWTL at the branch if there is a connectivity problem. 14. The assessee further pointed out that it had not engaged any other agents. The assessee also explained that internet based trading is relatively a new concept and awareness of the same has to be created among the public at large. The assessee also pointed out that even after a demat account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 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/- which was payment of ₹ 75/- per account introduced by ICICI Bank Ltd. 17. On appeal by the assessee, learned CIT(A) reduced the disallowance made by the Assessing Officer from ₹ 3,69,29,155/- to ₹ 1,84,64,577/-. 18. Aggrieved by the order of learned CIT(A) in not deleting the entire disallowance, assessee has raised ground No. (B) before the Tribunal. Aggrieved by the order of learned CIT(A) i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 reference to above facts and from Explanation (b) of sub section 2 of section 40A has clearly demonstrated that the assessee was not having 20% shareholding; therefore, it does not fall in the persons referred in sub-section (b) of section 40A of the Act therefore we are of the view that the AO is not correct in applying section 40A (2) of the Act. On merit, we find that the expenditure is not genuine as the AO himself has accepted part amount and allowed the same. It is not the case of the AO that expenditure was incurred without any servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment 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 AO 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 business or profession of the assessee or benefit by or accruing to the assessee. The fact that the assessee has its own infrastructure or that it has incurred huge advertisement expenses cannot be a ground to make the 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 cus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rsonal permission granted by the BSE is not a descendent of common ancestry or akin to know-how, copyrights, patents, trademarks, franchises in origin, nature and quality but far wary from intangible assets mentioned in section 32(1)(ii) of the I.T. Act. iii) It was not appreciated that as the basic ingredients of ownership are not present in the membership card, the assessee cannot claim that it is owner of the asset and is entitled to deprecation of the same. iv) Findings of the Supreme Court in the cases of Stock Exchange, Ahmedabad Vs. ACIT, 248 ITR 209 and Vinay Bubna Vs. Mumbai Stock Exchange 97 Comp Cas 874 and the findings of the Mumbai Tribunal in the case of DCWT Vs. Ashwin C. Shah, 82 ITD 473 (Mum) were not accepted. 27. The assessee is a Member of Bombay Stock Exchange and carrying on business as share and stock brokers. The issue raised by the revenue in the aforesaid ground of appeal is as to whether the assessee is entitled to depreciation on BSE card. The Learned CIT(A) allowed the claim of the assessee following the order of the ITAT, Mumbai, in the case of M/s. Techno Shares Stocks Limited, ITA 778/Mum/2004, holding that Depreciation on BSE Card has to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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