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Kisan Ratilal Choksey Shares & Securities Pvt.Ltd., 1102, Stock Exchange Towers, Dalal Street, Fort, Mumbai-400001 Vs. Add.Commissioner of Income Tax, Range 4(3), Mumbai.
June, 06th 2015
                 ,   "" 
  IN THE INCOME TAX APPELLATE TRIBUNAL "E" BENCH, MUMBAI

   BEFORE S/SHRI B.R.BASKARAN (AM) AND AMIT SHUKLA, (JM)
     .. ,        ,                                  

                   ./I.T.A. No.3325/Mum/2011
                 (   / Assessment Year :2007-08)

Kisan Ratilal Choksey Shares &   / Add.Commissioner of Income Tax,
Securities Pvt.Ltd.,                 Range 4(3), Mumbai.
                                 Vs.
1102, Stock Exchange Towers,
Dalal Street, Fort,
 Mumbai-400001
      ( /Appellant)              ..    (    / Respondent)


                   ./I.T.A. No.4371/Mum/2011
                 (   / Assessment Year :2007-08)


Dy.Commissioner of Income        / M/s Kisan Ratilal Choksey Shares
Tax, Range 4(3),                 Vs. & Securities Pvt.Ltd.,
6th floor, No.649,                     1102, Stock Exchange Building,
Aayakar Bhavan,                        Dalal Street, Fort,
Mumbai-400020                          Mumbai-400001

      ( /Appellant)              ..    (    / Respondent)


        . /   . /PAN/GIR No. :AAACK4716G

           / Assessee by              Shri Nishit Gandhi
              /Revenue by             Shri Asghar Zain V P



             / Date of Hearing
                                           :   23.04.2015
            /Date of Pronouncement : 05.6.2015
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                              / O R D E R

PER B.R. BASKARAN (AM)

      These cross-appeals are directed against the order dated 10.3.2011
passed by the Ld.CIT (A)-11, Mumbai and they relate to the assessment
year 2007-08.


2.    Briefly stated facts of the case are that the assessee is engaged in
the business of Share Broking and Other Related Financial Services. The
assessment for the year under consideration was completed by the AO
making various disallowances. In the appeals filed before the ld.CIT(A),
the First Appellate Authority allowed the appeal of the assessee in part.
Aggrieved by his order, both the parties have filed these appeals appeal
before us.




3.    First we shall take up the appeal filed by the Revenue. The first
issue relates to disallowance of Rs.5,30,107/-, being depreciation claimed
on motor car. The assessee had purchased vehicles in the name of its
Director, but disclosed the same as part of its assets.       Accordingly, it
claimed depreciation on the vehicles. However, the AO disallowed the
depreciation on the reasoning that the vehicles were not in the name of
Assessee Company. The ld. CIT(A), however, allowed the deprecation by
following the decision dated 30.9.2010 rendered by the Tribunal in
assessee's own case in ITA nos. 4917/Mum/2009 and          4821/Mum/2009
relating to assessment year 2006-07.


3.1   The assessee has furnished a copy of the order passed by the
Mumbai Bench of the Tribunal for the assessment year 2006-07, wherein
the Tribunal has followed the decision rendered on an identical issue in
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assessee's own case for assessment year 2005-06.               In the assessment
year 2005-06, the Tribunal had followed the decision rendered by the
Delhi    Bench   of    the   Tribunal   in   the   case   of   USHA        RECTIFIER
CORPORATION           (I)    PVT.   LTD.     V/s    INSPECTING            ASSISTANT
COMMISSIONER [1989] 35 TTJ 602 (ITAT)[Del]) and also the decision of
the Jurisdictional      High Court in the case of          CIT V/s Dilip Singh
Sardarsingh Bagga reported in 201 ITR 995 (Bom), wherein it has been
held that the registration under Motor Vehicle Act is not an essential
requirement for acquiring ownership of the motor vehicle and that an
assessee purchasing a motor vehicle for valuable consideration and using
the same for his business cannot be denied benefit of depreciation on the
ground that the vehicle was not registered under Motor Vehicle Act.


3.2     In the instant case, the ld. CIT(A) has only followed the decision of
the Co-ordinate Bench of this Tribunal on this issue and hence, we do not
find any reason to interfere with his order on this issue.



4.      The next issue contested by the revenue relates to disallowance of
bad debts amounting to Rs.10,05,297/-. The AO disallowed the bad debt
claimed by the assessee on the reasoning that the assessee has not
declared the same as its income in the earlier years.               The ld.CIT(A),
however, allowed the claim of the assessee by following the decision of
Special Bench of Mumbai Tribunal in the case of DCIT V/s SHREYAS S.
MORAKHIA [2010] 40 SOT 432 (ITAT[Mum]).The ld.CIT(A) also noticed
that an identical disallowance made in the assessment year 2006-07 has
been deleted by the Mumbai Bench of the Tribunal in assessee's own case.

4.1     At the time of hearing, the ld.AR pointed out that the decision
rendered by the Special Bench of the Mumbai Tribunal in the case of
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SHREYAS S. MORAKHIA (supra) has since been approved by the Hon'ble
Bombay High Court in its decision reported in [2012] 342 ITR 285 (Bom).
The Hon'ble High Court held that the value of the shares transacted by the
assessee as a stock broker on behalf of its client is very much a part of the
debt as is the brokerage which is charged by the assessee on the
transaction. Since the brokerage and value of shares 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. Further, it is not disputed that the assessee has
written off the debts as bad in its books of account. Under these set of
facts, we notice that the assessee complied with the provisions of sections
36(1)(vii) as well as 36(2)(i). Hence, by following the decision of
Jurisdictional High Court rendered in the case of SHREYAS S. MORAKHIA
(supra), we uphold the order of the ld.CIT(A) on this issue.

5     The next issue contested by the revenue relates to claim of
computer and software development expenditure of Rs.64.61 lakhs as
revenue expenditure.     The AO treated the entire amount of software
expenditure as capital in nature and accordingly disallowed the claim. The
ld.CIT (A), upon examination of details, noticed that the assessee has
purchased 6 laptops for an amount of Rs.3,41,069/- and one another
hardware for a sum of Rs.1,67,440/-, both aggregating to Rs.5,08,509/-
and both the items had been included in Software and web development
expenditure. The ld.CIT(A) disallowed the claim of Rs.5,08,509/- referred
above. However, the ld.CIT(A) took the view that the assessee has been
consistently claiming the software web development expenditure at higher
level over the years and accordingly disallowed 20% of the expenses,
holding the same as excessive and unreasonable and allowed the
remaining amount.
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5.1   The ld. DR submitted that the software development expenditure
should be treated as capital expenditure and hence the ld.CIT(A) was not
justified in allowing part of the same as revenue expenditure.

5.2   On the contrary, the ld.AR submitted that the assessee, being a
share broker, is required to continuously update its software and hence
the ld.CIT(A) was not justified in holding that the said expenditure is
excessive or unreasonable.

5.3   We notice that both the parties have failed to furnish the breakup
details of the software and web development expenditure.               The issue
relating to the same has since been decided by the Special Bench of the
Tribunal in the case of AMWAY INDIA ENTERPRISES V/s DCIT [2008] 111
ITD 112 (ITAT)(SB)[Del]). Since the break-up details of the expenditure
are not available on record, we are of the view that this issue requires
fresh examination at the end of the AO. Accordingly, we set aside the
order of ld. CIT(A) on this issue and restore the same to the file of AO with
a direction to examine the same in the light of the decision of ITAT in the
case of AMWAY India Enterprises (supra) by duly considering the break-up
details, information and explanation that may be furnished by the
assessee.

6.    The next issue relates to disallowance of penalty of Rs.2,63,945/-
paid to the Stock Exchange for violation of its bye-laws. The ld.CIT(A)
noticed that Mumbai Bench of the Tribunal in the case of ITO V/s VRM
Share Broking (P) Ltd reported in 27 SOT 569 and GOLDCREST CAPITAL
MARKETS LTD. V/s ITO [2010] 2 ITR (Trib) 355 (ITAT[Mum]) have held
that Explanation to Sec 37(1) are not applicable to the penalty paid on
contravention of    bye-laws of the Stock      Exchange.     Accordingly, he
allowed the claim of the assessee. The ld. AR pointed out that the co-
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ordinate Bench of the Tribunal has considered an identical issue in
assessee's own case for the assessment year 2005-06 passed in ITA
NO.4347/Mum/2009 and 4033/Mum/2009 dated 4.6.2010. We notice that
the co-ordinate Bench of the Tribunal has deleted an identical disallowance
made in the assessment year 2005-06 by following the decision rendered
in the case of VRM Share Broking (P) Ltd (supra). Under these set of
facts, we do not find any infirmity in the decision of ld. CIT(A) on this
issue.

7.       Now, we shall take up the appeal filed by the assessee. The first
issue contested by the assessee relates to the disallowance made under
section 14A of the Act. The AO disallowed a sum of Rs.4,65,945/- under
section 14A by applying the provisions of Rule 8D. The ld.CIT(A), though
agreed with the contentions of the assessee the the provisions of Rule 8D
are not applicable to the year under consideration in view of the decision
of the jurisdictional High Court in the case of Godrej & Boyce Mfg Co. Ltd
(234 CTR 1)(Bom), yet he held that disallowance of Rs.4,65,945/- made
by AO is reasonable. The ld.AR pointed out that the AO has made an
identical disallowance in the assessment year 2006-07 and the Tribunal
has restored the matter to the file of the AO to decide the same afresh.
Since the provisions of Rule 8D are not applicable to the year under
consideration, the disallowance to be made u/s 14A of the Act should be
computed in a reasonable manner. We have earlier noticed that the AO
has applied the provisions of Rule 8D for computing the disallowance.
Hence, we are of the view that this issue requires fresh examination.
Accordingly, we set the order of ld. CIT(A) on this issue and restore the
same to the file of AO with a direction to compute the disallowance u/s
14A in a reasonable manner as held by the Hon'ble Jurisdictional High
Court in the case of Godrej & Boyce Mfg Co. Ltd(supra).
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8.    The next issue contested by the assessee relates to partial
confirmation of web and software development expenses. While dealing
with the appeal filed by the Revenue, we have restored back this issue to
the file of AO for fresh consideration. Hence, the assessee is directed to
submit its contentions before the AO in the set aside proceedings. The AO
is directed to take appropriate decision after hearing the assessee.

9.    The next issue contested by the assessee relates to disallowance of
Bombay Stock Exchange Card Amortization expenditure of Rs.6,42,500/-.
The assessee had amortized 1/10th BSE card and claimed the same as
deduction. Before the AO, the assessee submitted that the assessee had
valued its BSE card at Rs.65.75 lakhs as per Accounting Standard 26
issued by the ICAI.    This amount together with value of equity shares
allotted to the assessee in Bombay Stock Exchange Ltd and was disclosed
as Investment in Balance-sheet and remaining amount paid for acquisition
of card i.e. Rs.64,25,000 was amortized by the assessee in 10 equal
installment beginning from the financial year 1997-98. The AO disallowed
the claim of the assessee by holding that depreciation on BSE card is not
allowed by department.

9.1   The ld. CIT(A) noticed that the assessee company was entitled to
claim depreciation on BSE card up to 19.8.2005 only. He further held that
the assessee has also failed to show that such amortization is allowable
under any of the provisions of the Act. Accordingly, he upheld the order of
AO.

9.2   Before us, in support of this submissions, the ld.AR placed his
reliance on the decision of the Hon'ble Supreme Court in the case of
TECHNO SHARES AND STOCKS LTD. V/s CIT [2010] 327 ITR 323 (SC).
The decision rendered by the Hon'ble Supreme Court relates to the
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depreciation allowable on membership card of Stock exchange. The
submission of the assessee is that it has already capitalised the value of
BSE card at Rs.65.75 lakhs.        What is claimed now relates to the
amortization of the excess payment. Hence, in our view, the decision of
Hon'ble Supreme Court, referred supra, is not applicable to this claim. We
notice that this is the last year of claim, which means that the assessee
had made similar amortisation claim in earlier years also. However, it was
not shown to us by either parties that the said claim was allowed or
disallowed in earlier years. Be that as it may, the ld. CIT (A) has pointed
out that, after corporatisation of BSE, even the depreciation on BSE card is
allowable up to 19.8.2005 only. Under these set of facts, we are of the
view that the assessee has failed to demonstrate us as to how the
amortization amount of Rs.6,42,500/- is allowable as deduction under the
Income Tax Act. Hence, we are of the view that the ld. CIT(A) was
justified in confirming the disallowance made by AO.

10.   The next issue relates to assessment of "Short Term Capital Gains"
arising on sale of shares as business income of the assessee. The assessee
declared STCG of Rs.33,61,813/-. The AO noticed that the assessee has
indulged in the intraday transactions and hence resultant profit should be
considered as speculative profit. However, the AO treated the above said
amount as business income of the assessee and the same was confirmed
by the ld.CIT(A).

10.1 Before us, the ld.AR contended that the assessee has acted as
investor also and the capital gain declared in the earlier years has been
accepted by the revenue and hence the department should follow
consistency in its approach as held in the decision of Hon'ble Supreme
Court in the case of CIT V/s EXCEL INDUSTRIES LTD. [2013] 358 ITR 295
(SC) and also in the decision rendered by the Hon'ble jurisdictional High
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Court in the case of CIT V/s GOPAL PUROHIT [2011] reported in 336 ITR
287 (Bom), which has since been approved by the Hon'ble Supreme Court
reported in (2011) 334 ITR (St.) 108(SC).

10.2         However, we notice that both the tax authorities have given
findings that the assessee has earned above said amount on purchase and
sale of shares on the very same date. It is well established principle that
the intention of a person at the time of purchase of shares is one of the
most important criteria to be considered while deciding about the nature of
a transaction.    The very fact that the assessee has been indulging in
intraday transaction, i.e., purchase and sale of shares on the very same
day would only show that the assessee has not intended to purchase them
as an investor. Hence, we are of the view that the ld.CIT(A) was justified
in confirming the assessment of STCG as business income of the assessee.

11.     In the result, both the appeals filed by Revenue as well as the
assessee are treated as partly allowed.

             05th June, 2015    

        Sd                                       sd

(    / AMIT SHUKLA)                   (..  / B.R. BASKARAN)
     / JUDICIAL MEMBER                 / ACCOUNTANT MEMBER

 Mumbai: 5th June,2015.

. ../ SRL , Sr. PS

        /Copy of the Order forwarded to :
1.  / The Appellant
2.       / The Respondent.
3.       () / The CIT(A)- concerned
4.        / CIT concerned
5.        ,     ,                   /
       DR, ITAT, Mumbai concerned
                       10              I T A 3 3 2 5 / Mu m / 2 0 1 1
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6.     / Guard file.
                                      / BY ORDER,
True copy
                                   (Asstt. Registrar)
                                ,   /ITAT, Mumbai

 
 
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