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TMI Blog2019 (9) TMI 936X X X X Extracts X X X X X X X X Extracts X X X X ..... ch has lead to increase in expenditure which fact the AO has ignored while passing the assessment order. Further, we find that the turnover of the assessee for the year under consideration has substantially increased to ₹ 269.58 Crores as compared to assessment year 2005-06 wherein turnover was ₹ 154.31 Crores and assessment year 2004-05 wherein the turnover was ₹ 95.09 crore. Thus, the increased cost of client assistance is justified by the corresponding increase in revenues of the assessee. No merit in the observation made by the AO in the assessment order. Increase in client assistance cost is justified by the corresponding increase in turnover and moreover, the increase in cost was due to the fact that the Bank had served more locations as compared to the preceding year, which can be termed as an expansion of business and not excess payment, as sought to be made out by the Assessing Officer. We accordingly set aside the order of CIT(A) and direct the Assessing Officer to allow the entire Client Assistance Charges paid by the assessee to Bank. Disallowance towards Client Maintenance Charges - related party payment in terms of Section 40A(2)(b) - AO di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .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 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 principal and same is being followed by various Courts. Addition on account of depreciation allowed in the earlier years on BSE membership card - treating it as a benefit flowing to the assessee in the current year on protective basis for the reason that assessee has been allotted shares of BSE Ltd. pursuant to it holding BSE membership card - apprehension of the Assessing Officer is that the assessee may claim cost of BSE membership card as expenditure while computing the Capital Gains at the time of sale of shares of BSE Ltd. - HELD THAT:- No addition can be made merely on an apprehension that the assessee may take a double benefit in future. Assessment of income has to be made on the basis of real income theory and not on the basis of any perceived future contingent happening. Moreover, in the instant case, it has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee and the Revenue, directed against the order of CIT(A) - 8, Mumbai dated 14.05.2010 pertaining to assessment year 2006-07, which in turn has arisen from an order passed by the Assessing Officer dated 26.12.2008 under Section 143(3) of the Income Tax Act 1961 (in short the Act ). 2. First, we may take-up the appeal of the assessee in ITA No. 5789/Mum/2010 wherein the Grounds of appeal read as under:- (A) Re : Non allowance of depreciation on stock exchange card - ₹ 29,49,800 [Para 2, page 1 of the CIT(A) order] [2] On the facts and circumstances of the case and in law, the CIT(A) erred in confirming the disallowance of depreciation on Stock Exchange membership amounting to ₹ 29,49,800. (B) Re: Disallowance of client assistance charges - ₹ 20,29,59,185 and client maintenance charges ₹ 42,43,44,600 aggregating to ₹ 62,73,03,785 under section 40A(2)(b) of the Act [Para 5, pages 2 to 13 of the CIT(A) order] [3] On the facts and circumstances of the case and in law, the CIT(A) erred in invoking provisions of section 40A(2)(b) of the Act without appreciating the fact that ICICI Bank Limited is not the holding company of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntly, the case of the assessee was selected for scrutiny assessment and order under Section 143(3) of the Act dated 26.12.2008 was passed after making addition on various grounds. Aggrieved by the same, assessee preferred an appeal before the CIT(A) who allowed partial relief to the assessee. Not being satisfied by the same, assessee is in appeal before us and the Revenue is in appeal against the reliefs allowed by the CIT(A). We shall first deal with the appeal of the assessee. 4. The first Ground raised by the assessee pertains to disallowance of Depreciation of ₹ 29,49,800/- on Stock Exchange Card. The claim of Depreciation on Stock Exchange Card was disallowed by the Assessing Officer. On appeal, CIT(A) held that the issue of claim of Depreciation on Stock Exchange Card is covered against the assessee by the decision of Hon ble Bombay High Court in the case of CIT vs. Techno Shares Stock Limited in ITA No. 971 of 2006 and 218 of 2007. Aggrieved by the order of CIT(A), assessee is in appeal before us. 5. At the time of hearing, the ld. Representative for the assessee fairly pointed out that the above issue is covered by the decision of co-ordinate bench in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et/intranet facilities at the Bank's branch and conducting customer training sessions at regular intervals, etc. In consideration of the aforesaid set-up of resources and services, the Bank charged the assessee on the basis of the following parameters - number of branches, manpower allocated, computers, office space, office infrastructure, number of customer queries handled and number of training sessions for customers. The charges varied for metro, urban and semi-urban branches of the service provider. 8. The details of Client Assistance Charges comprised of charges for the deputed staff location-wise and fixed amount per session cost for metro and non-metro locations in assessment year 2005-06 and present year i.e. assessment year 2006-07 are placed at page 65 of the Paper Book. The assessee paid a sum of ₹ 62,33,14,500/- to the Bank for Client Assistance Charges out of which ₹ 20,29,59,185/- was disallowed by the Assessing Officer. 9. A separate agreement dated 01.04.2005 catered to provision of services by the Bank to assessee's customers through its Finnacle system to enable them to trade online using the assessee's platform called ICICI Direct.co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement; and, page 65 of the Paper Book contains a comparative statement of payments made in assessment year 2005-06 under the agreement dated 30.06.2004 and amendment dated 20.03.2006 along with the basis of the charges by the Bank. In respect of disallowance of ₹ 42,43,44,600/-, the ld. Representative for the assessee submitted before us that assessee was providing an online trading platform to its customers. For a customer to trade online, his account with the assessee had to be linked to his Bank account and Depository account with the Bank. The assessee's online share trading platform could not operate independently. It was dependent on the Finnacle system of the Bank for allocation/de-allocation of funds and Deposit systems of the Bank as Depository participant for allocation/de-allocation of securities through computer to computer link ( CTCL ) application of the Bank. The efficacy of the assessee's online trading platform when linked to the Bank and Depository accounts, which each customer maintained with the Bank, resulted in the growth of its customer base by 38% from 603390 as on 01.04.2005 to 835117 as on 31.03.2006, the market turnover was 173% of the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Revenue cannot claim to put itself in the armchair of the businessman and disallow the expenditure. It was open to the Assessing Officer to disallow expenditure which he considered excessive or unreasonable under Section 40A(2) of the Act provided the onus of proving the expenditure to be excessive or unreasonable was discharged. According to the ld. Representative, barring a passing reference to Section 40A(2) of the Act in paragraph 8.23 of the assessment order, the expenditure has been disallowed as not incurred wholly and exclusively for the purpose of the assessee's business. It has been pointed out that the assessee had paid Dividend Distribution Tax of ₹ 3,19,77,000/- on the amount distributed as dividend in financial year 2005-06, and that both the assessee and the Bank were profit making companies, thus there was no attempt to avoid payment of taxes. 13. It was further submitted that the stand of the Assessing Officer that the Client Maintenance Charges were paid to ICICI Bank in lieu of dividend to evade the Dividend Distribution Tax is not justified for the reason that the agreement pursuant to which the Client Maintenance Charges were fixed was entered in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wed. The assessee was utilising the Bank's India wide network of branches and specialized staff including sales executives and other support staff who were performing the various activities enumerated in the agreement dated 04.06.2004. It has also been argued that the fact that services were indeed rendered is not disputed since sum of ₹ 42,03,55,315/- has been allowed out of ₹ 62,33,14,500/-. The disallowance of ₹ 20,29,59,185/- on the ground that such increase was not genuine has no basis. 15. On the other hand, the ld. DR appearing for the Revenue has defended the stand of the lower authorities by reiterating the reasoning contained in the respective orders. As in the earlier paras we have already noted in sufficient detail the stand of the lower authorities, we do not repeat the same for the sake of brevity. 16. We have carefully considered the rival submissions and perused the material on record. The limited controversy before us is whether the Client Assistance Charges and Client Maintenance Charges paid by the assessee to Bank for services provided by the Bank is allowable or not. Firstly, we shall discuss the Client Assistance Charges paid by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion in assessment year 2005-06 on account of Client Assistance Charges, which was deleted by the Tribunal in ITA No. 6860/Mum/2008. As such, we find that once the Tribunal has allowed the expenditure pursuant to an agreement in one year, the said agreement cannot be treated as colourable device in subsequent assessment year and payment made pursuant to the said agreement cannot be disallowed in subsequent assessment year. On perusal of the working of Client Assistance Charges, we find that it is not the cost per location, per branch which has increased, but the number of branches served by the Bank has increased, which has lead to increase in expenditure which fact the Assessing Officer has ignored while passing the assessment order. Further, we find that the turnover of the assessee for the year under consideration has substantially increased to ₹ 269.58 Crores as compared to assessment year 2005-06 wherein turnover was ₹ 154.31 Crores and assessment year 2004-05 wherein the turnover was ₹ 95.09 crore. Thus, the increased cost of client assistance is justified by the corresponding increase in revenues of the assessee. Thus, we do not find any merit in the observ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bank incurs various expenditure for operation and maintenance of the software and, in turn, recovers it from the assessee. It is not the case of the Assessing Officer that the software on which clients of the assessee carry on the transactions is owned by the assessee. The question that arises for consideration is, if the Bank does not own any software, how does it serve its customers? This question remains unanswered in the assessment order. Secondly, if the assessee was owning and maintaining such software, the assessee would have incurred huge sum of expenditure and, in that case, the same would have been allowed as business expenditure. Instead of making such huge investment, the assessee is availing the services provided by ICICI Bank Ltd. and, in turn, paying the amount charged by it for providing services which the Assessing Officer has treated to be not for the purpose of the business. It was also pointed out before us that both the assessee and ICICI Bank Ltd. have earned profits and as such, it cannot be the case that instant arrangement is a modus operandi used by the assessee for reduction of tax liability. The Assessing Officer further noted that in cases where custom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s submitted that assessee had sufficient own funds to make the investments and no interest bearing funds were utilized for the purpose of investment and, therefore, no disallowance under Section 14A r.w.r 8D of the Rules was warranted. The Assessing Officer without assigning any reason for rejecting the claim of the assessee proceeded to invoke Rule 8D of the Rules and disallowed ₹ 22,68,864/- being proportionate interest expenditure and ₹ 2,60,996/- being 0.5% of the average value of investment. On appeal, CIT(A) upheld the action of Assessing Officer in making disallowance of ₹ 22,68,864/- and ₹ 2,60,996/-. Aggrieved by the same, assessee is in appeal before us. 22. Before us, the ld. Representative for the assessee submitted that assessee was having own funds in the form of Share Capital and Reserves of ₹ 38,38,14,093/- as against investment of ₹ 5,52,93,567/-. As such, it was having sufficient own funds and no disallowance of interest expenditure was warranted under Section 14A r.w.r.8D of the Rules. The ld. Representative for the assessee further relied on the decision of Reliance utilities Power Ltd. 331 ITR 340 (Bom.) to state that wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee s own case. In this regard, the ld. Representative contended before us that there is no dispute that the bad debts have been actually written-off in the books of account of the assessee. It was further argued that as per Section 36(1)(vii) of the Act, the only condition for claiming deduction of bad debts is that the bad debts must be written-off in the books of account of the assessee; and, the assessee is neither required to give any justification for writing-off the bad debt and nor is he required to establish that the debt has actually become bad. In this regard, reliance has been placed on the decision of the Hon ble Supreme Court in the case of T.R.F. Limited vs. CIT, 323 ITR 397 (SC). It was further pointed out that in assessment year 2004-05, similar matter had travelled to the Tribunal, and the claim has been allowed. 27. On the other hand, the ld. DR has defended the stand of the Assessing Officer by reiterating that the justification for write-off has not been spelt out and no efforts have been shown to be made for recovery. 28. We have carefully considered the rival submissions and perused the material on record. We find that in assessment year 2004-05, on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ignoring the fact that the services rendered by the brokers are not standard services but services that has been developed to cater to the needs of the broker community to facilitate trading. v. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has overlooked the fact that the brokers, have in subsequent years themselves started deducting the TDS on such payments and that there is no reason to give a different treatment in this year. 4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of ₹ 65,660/- made in respect of mark to market losses of open interest in derivative transactions at the end of the year relying upon the Supreme Court of India in the case of CIT vs Woodward Governor India P. Ltd. 312 ITR 254 (SC). 5. 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. 31. The first Ground raised by the Revenue in its appeal pertains to deletion of addition of Depreciation of ₹ 1,23,00,800/- allowed in earlier years on BSE Card under Section 28(iv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis for the reason that assessee has been allotted shares of BSE Ltd. pursuant to it holding BSE membership card; and, the apprehension of the Assessing Officer is that the assessee may claim cost of BSE membership card as expenditure while computing the Capital Gains at the time of sale of shares of BSE Ltd. In our opinion, no addition can be made merely on an apprehension that the assessee may take a double benefit in future. Assessment of income has to be made on the basis of real income theory and not on the basis of any perceived future contingent happening. Moreover, in the instant case, it has been factually explained by the assessee that at the time of sale of part shares of BSE Ltd. in assessment year 2008-09, assesee has claimed cost of shares at ₹ 1 and has not derived any double benefit as apprehended by the Assessing Officer and thus, addition on protective basis is not warranted. In our view, the CIT(A) has rightly analysed the fact-position that assessee has not derived any double benefit and accordingly, deleted the addition made by the Assessing Officer. We thus uphold the order of the CIT(A), and accordingly Revenue fails on this Ground. 35. The next ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T vs. DICGC restored the matter to the file of Assessing Officer to ascertain whether the return of income for assessment year 2007-08 was filed before the completion of proceedings for assessment year 2006-07 (when the transaction charges were first disallowed) and whether the assessee was under a bonafide belief that it was not liable to deduct tax from transaction charges. The assessee in present case filed its return of income for assessment year 2006-07 on 30.11.2006 and the disallowance of transaction charges was first made in assessment year 2005-06 and assessment order for that year was passed after 30.11.2006. As such, assessee was under bonafide belief that tax was not deductible. It was thus argued that in light of the decision of our co-ordinate bench in the case of Kotak Securities Ltd. (supra) the disallowance has been rightly deleted by the CIT(A). 39. We have carefully considered the rival submissions. It is pertinent here to refer to the decision of the Hon ble Supreme Court in the case of CIT vs. Kotak Securities Ltd. [2016] 383 ITR 1 (SC) wherein it was held that transaction charges are in the nature of payments made for facilities provided by the Stock Exchan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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