TaxTMI 
TaxTMI 
2019 (9) TMI 936
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....d - Rs. 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 Rs. 29,49,800. (B) Re: Disallowance of client assistance charges - Rs. 20,29,59,185 and client maintenance charges Rs. 42,43,44,600 aggregating to Rs. 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 the Appellant and does not come within the purview of the section 40A(2)(b) of the Act. [4] On the facts and circumstances of the case and in law, the CIT(A) erred in confirming the disallowance of client assistance charges of Rs. 20,29,59,185 and client maintenance charges of Rs. 42,43,44,600 made to ICICI Bank Limited in pursuance to the service provider agreements dated June 30, 2004 and April 1, 2006 respectively. [5] The CIT(A) ought to have appreciated that the clien....
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.... first Ground raised by the assessee pertains to disallowance of Depreciation of Rs. 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 of Sino Securities (P.) Ltd. vs. ITO [2012] 134 ITD 321 (Mumbai) wherein it was held that BSE Card is not an asset of the nature referred under Section 32(1)(ii) of the Act and thus, depreciation on the said asset is not allowable. Thus, the ld. Representative agrees that the issue is covered against the assessee and in favour of the Revenue. As such, this Ground of appeal is dismissed. 6. The next issue pertains to disallowance of Client Assistance Charges and Client Maintenance Charges ....
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....0/- to the Bank for Client Assistance Charges out of which Rs. 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.com. Charges of the Bank were fixed at Rs. 150 per quarter per customer for the 3-in-1 account which linked the customer's Trading account with his Bank account and Depository account maintained with the Bank. The Bank, in turn, incurs costs for Finnacle licences, annual maintenance and support of the systems, lease lines, IT security, etc. apart from other operation costs. Copy of the agreement along with Annexure - A enumerating the scope of services is placed at pages 66-76 of the Paper Book. A flow chart showing the link between the customer, the assessee and the Bank as the service provider, is annexed to the assessment order. The payment of Rs. 42,43,44,660/- by the assessee has been disallowed in totality. 10. The Assessing Officer disallowed (a) Rs. 42,43,44,600/- being payments made by the assessee under the agreement dated....
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....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 turnover in financial year 2004-05. The integration of the customers' Bank account and Demat account in the Bank with the broking account with the assessee through the system provided by the Bank, was essential for conduct of online trade. The payment was, therefore, wholly for the purpose of its business. In the past, disallowance was made under Section 40A(2)(b) of the Act and deleted by the Tribunal, whereas in this assessment year, it has been disallowed on the ground that expenditure has not been incurred by the assessee for the purpose of its business. In support, copy of the order of Tribunal for assessment year 2004-05 has been placed at pages 57-62 of the Paper Book. It has been asserted that during the year, the Bank continued to render services to the assessee as in the past. 12. The ld. Representative referred to the discussion by the Asse....
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....f 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 into on 01.04.2005, i.e. at the beginning of the year, at which point in time the assessee could not have predicted whether or to what extent it would earn profits during the year. These charges were paid irrespective of profits earned by the assessee. 14. In respect of the disallowance of Rs. 20,29,59,185/-, it was submitted that the Assessing Officer has worked out the disallowance by comparing the salary cost per employee per branch per annum mentioned in the agreement dated 04.06.2004 and the amendment dated 20.03.2006. It has been explained that in doing so, the Assessing Officer has overlooked the amendment dated 30.06.2004; and, that it was clear from a comparison of the salary cost per employee per branch per annum under the original agreement and the two subsequent amendments that there is no increase between the first and second amendments to the origi....
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....Assessing Officer disallowed only Rs. 20,29,59,185/- treating the same to be excessive. Thus, it is an undisputed fact that the Bank has provided services to the assessee and it is not the case of the Assessing Officer that no services have been provided by the Bank to the assessee. Thus, the Assessing Officer, in effect, has disputed the quantum of expenditure and we shall accordingly restrict ourselves to that question. The Assessing Officer has disallowed the excess payment holding that during the year under consideration the assessee has increased the Client Assistance Charges paid to the Bank as compared to earlier year and such increase was not justified and, therefore, the increased amount was disallowed by the Assessing Officer. It was also held by the Assessing Officer that the Bank is a related party and assessee has tried to shift the profit to Bank to avoid paying Dividend Distribution Tax on profits earned by the assessee which can be distributed to the ICICI Bank. It is also the case of the Assessing Officer that the agreement entered into by the assessee is a colourable device. In this regard, it was pointed out by the ld. Representative for the assessee that in asse....
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....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. 18. As regards the disallowance of Rs. 42,43,44,660/- towards Client Maintenance Charges, the Assessing Officer noted that the assessee has entered into agreement dated 01.04.2005 with the Bank to pay Rs. 150 per customer per quarter towards Client Maintenance Charges. The Assessing Officer noted that in earlier years also, similar payments were made and the scope of this service is covered in the main agreement and that there was no need to enter into separate agreement for this service. As per the Assessing Officer, the entire arrangement is a colourable device and has been entered in order to shift the profits to ICICI Bank, which is stated by him to be a related party in terms of Section 40A(2)(b) of the Act. Before us, the ld. Representative for the assessee has ....
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....e amount paid by the assessee to ICICI Bank Ltd. is not towards soliciting clients, but for the purpose of technical support extended by the ICICI Bank Ltd. to the assessee. Further, similar payment was made in earlier years also, and the same has been allowed. The instant agreement entered into by the assessee is merely extension of the past agreement and nothing else. The Assessing Officer has disallowed the expenditure in this year stating that the same is not incurred wholly and exclusively for the purpose of business. As discussed above, the expenditure incurred by the assessee was very much for the purpose of business of the assessee and rather, these services are vital for running the business of the assessee. As regards various other contentions raised by the Assessing Officer in the assessment order, we find that the same have been extensively dealt with by our co-ordinate bench while allowing the appeal of the assessee for assessment year 2004-05 in ITA No. 6304/Mum/2008, wherein it was held that ICICI Bank Ltd. does not fall in the definition of 'related party' in terms of Section 40A(2)(b) of the Act. Thus, following the precedent, the contentions of the Assessing Offic....
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....eiterating the reasoning contained in the respective orders. 24. In this regard, we find that it is undisputed that as per Balance sheet of the assessee for the year ended 31.03.2006, Share Capital and Reserves stood at Rs. 38,38,14,093/- as against investment of Rs. 5,52,93,567/-. Thus, admittedly, the own funds of assessee are higher than the investment made by the assessee. The Hon'ble Bombay High Court in the case of Reliance utilities & Power Ltd. (Supra) has held that if the own interest free funds of the assessee are higher than the amount of investment, then it should be presumed that the investment has been made out of the own funds and no disallowance of interest expenditure should be made. Respectfully following the decision of Jurisdictional High Court in the case of Reliance utilities & Power Ltd. (Supra), we hereby set-aside the order of CIT(A) and direct the Assessing Officer to delete the addition made in this ground. 25. Further, we find that Rule 8D was inserted in the statute w.e.f. assessment year 2008-09 and the Hon'ble Supreme Court in the case of CIT vs. Essar Techholdings Ltd. [2018] 90 taxmann.com 2 (SC) held that Rule 8D is prospective in operation a....
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.....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 P & L account. The Hon'ble Apex Court in the matter of T.F.R. Ltd. (supra) had laid down the above basic principal and same is being followed by various Courts. Respectfully following the same we decide ground no. 2 in favour of the assessee." Following the above decision, we hereby allow the claim of bad debts of the assessee and delete the addition made by the Assessing Officer. Thus, on this Ground, assessee succeeds. 29. In the result, appeal of the assessee is allowed. 30. Now, we take up the appeal of the Revenue wherein the Grounds of appeal read as under:- "1. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition of Rs. 123,00,800/- u/s. 28(iv) on account of depreciation on BSE Membership Card. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 2,35,929/- made by Assessing Officer. 3. (i) On the fac....
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....rores and was allowed depreciation of Rs. 1.23 crores till 31.03.2005. The Assessing Officer brought to tax the depreciation allowed to the assessee in earlier year as a benefit chargeable under Section 28(iv) of the Act on protective basis. On appeal, CIT(A) deleted the addition on the ground that the Assessing Officer's reasoning that the assessee would get a double benefit was not correct as the assessee had taken only Rs. 1 per share as the cost when it sold 5,474 shares of BSE Ltd. in assessment year 2008-09. Aggrieved by the same, Revenue is in appeal before us. 32. Before us, the ld. DR relied on the order of Assessing Officer to contend that the allowance of Depreciation to the assessee will amount to double deduction in the hands of the assessee; firstly, by way of allowance of Depreciation; and, secondly, while computing Capital Gains at the time of sale of share. Thus, to protect the Revenue, protective addition in the hands of the assessee to the extent of Deprecation claimed by the assessee was justified. 33. Per contra, the ld. Representative for the assessee submitted that in the present assessment year no benefit can be said to have been derived by the assesse....
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....rd original cost of the assets. The Assessing Officer computed notional depreciation for assessment years 2000-01 and 2001-02 and re-computed the revised WDV of the assets in this year and allowed Depreciation on the same and disallowed the excess Deprecation. At the time of hearing, both the parties agreed that this issue is covered in favour of the assessee by way of the order of the Tribunal in assessee's own case for assessment year 2005-06 vide ITA No. 7037/Mum/2008 dated 03.02.2015. Accordingly, the Ground raised by the Revenue is hereby dismissed with direction to the Assessing Officer to apply the order of the Tribunal dated 03.02.2015 (supra). 36. The next issue pertains to addition on account of non-deduction of TDS on transaction charges under Section 40(a)(ia) of the Act. The assessee paid transaction charges amounting to Rs. 3,21,50,353/- to the Stock Exchanges and did not deduct any TDS on the same. The Assessing Officer disallowed the expenditure under Section 40(a)(ia) of the Act relying upon his order for assessment year 2005-06. On appeal, CIT(A) deleted the addition made by the Assessing Officer relying on the decision of our co-ordinate bench in the case of K....