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Income Tax Appellate Tribunal, AHMEDABAD “B” BENCH, AHMEDABAD
Before: SHRI PRADIP KUMAR KEDIA & SHRI MAHAVIR PRASAD
PER PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER
The captioned appeal has been filed at the instance of the assessee against the order of CIT(A) dated 11.03.2015 arising in the Assessment Order dated 15.03.2013 passed by the Assessing Officer under section 143(3) of the Income Tax Act, 1961 concerning A.Y. 2010-11.
The assessee has agitated several issues in its grounds of appeal which are dealt with as under :-
The assessee has disputed the disallowance made by the Assessing Officer amounting to Rs.22,421/- on account of penalty levied by the National Stock Exchange/NSDL for committing irregularities in conduct of business having regard to Rules, Bye-laws and Regulations of Exchange. We find that the issue is no longer res integra. The Hon’ble Bombay High Court in the case of CIT vs. The Stock and Bond Trading Company in Income Tax Appeal No.4117 of 2010, judgement dated 14.10.2011, has held that payments made by the assessee to the Stock Exchanges for violation of their regulations are not akin to an offence which is prohibited by law,
ITA No.1724/Ahd/2015 A.Y. 2010-11 Page 2 of 4 as contemplated in Explanation to section 37 of the Income Tax Act. Therefore, we are inclined to entertain the appeal of the assessee for admissibility of the expenditure on this score. Consequently, the addition/disallowance made by the Assessing Officer in this ground is directed to be deleted.
The second ground concerns disallowance of Rs.1,35,864/- under section 14A of the Income Tax Act. As pointed out on behalf of the assessee, the co-ordinate bench of ITAT in its own case concerning A.Y. 2012-13 has restricted the amount of disallowance to the extent of exempt income earned. In parity, we restrict the disallowance under section 14A to the extent of exempt income which is stated to be Rs.42,082/-. In the result, aforesaid ground is partly allowed.
Ground no.3 concerns disallowance of Annual Maintenance Charges incurred by the assessee quantified at Rs.5,15,100/-. As pointed out on behalf of the assessee, the Annual Maintenance charges incurred are in the nature of periodical renewal of licence for meeting day-to-day need concerning software used for carrying on the highly complex stock market transactions. We thus agree with the plea of the assessee that Annual Maintenance expenses of such nature corroborated by invoices/bills are revenue in nature in contrast to the capital expenditure held by the revenue. Thus, the Assessing Officer is directed to delete the addition on this score.
Ground no.4 concerns disallowance of Mark to Market Loss of Rs.63,098/-. As pointed out on behalf of the assessee at the time of hearing before us, the aforesaid loss has been incurred by the assessee in open contracts of futures and options segment. It is a case of the assessee that the loss in the open contracts has been booked as per accounting standard prescribed by ICAI and the accounting policy has been followed consistently. We find ourselves in agreement with the plea on behalf of the assessee that Mark to Market Loss on futures and options contract is not a notional loss and the loss has crystallised at the end of the year notwithstanding the continuance of the contract. We also note the plea of the assessee that it has made entries following accounting standard AS-11 of ICAI. The Hon’ble Supreme Court in the case of CIT vs. Woodward Governor India Pvt. Ltd, 179 taxmann 326 (SC) has considered such loss as allowable and not of contingent in nature. In the light of the aforesaid, the Assessing Officer is directed to delete the disallowance towards Mark to Market Losses in open contracts of futures and options.
ITA No.1724/Ahd/2015 A.Y. 2010-11 Page 3 of 4 7. Ground no.5 concerns disallowance of the amount of Rs.1,37,843/- on account of software charges. On behalf of the assessee, it was submitted that the assessee has purchased ODIN client access Software for Rs.1,15,806/- and upgraded a back office software. It was claimed that ODIN software are application software which requires renewals and upgradation from time to time. This being so, in parity with the decision of co-ordinate bench of Mumbai Tribunal in the case of Emkay Share & Stock Brokers Limited in ITA No.6479/Mum/2009 cited on behalf of the assessee, we accept the plea of the assessee for allowability of such expenditure on application software as revenue expenditure. The Assessing Officer is accordingly required to cancel the aforesaid addition/disallowance.
Next ground relates to disallowance of various expenses of Rs.14,52,592/- in aggregate under section 40(a)(ia) of the Act. The aforesaid amount includes payment to NSDL for transaction charges of Rs.11,52,592/- and payment to Stock Exchange towards annual charges and others Rs.1,00,000/- & VSAT charges Rs.2,00,000/-.
8.1 It is the case of the assessee that the assessee has deducted TDS on such payments of NSDL & Stock Exchanges albeit wrongly under section 194C considering that the payments are in the nature of contractual payment. The revenue, on the other hand, contends that these payments of Rs.11,52,592/- & Rs.1,00,000/- are in the nature of fee for technical services and, therefore, TDS ought to have been deducted at a higher rate as per section 194J of the Act.
8.2 Similarly, another payment of Rs.2,00,000/- has been paid by the assessee to the Stock Exchange towards VSAT charges. That the assessee has deducted TDS at a lower rate by applying section 194C of the Act.
8.3 Therefore, while making all these payments towards various expenses, the assessee has, in fact, deducted TDS albeit at a lower rate as controverted on behalf of the revenue. Thus, there is no total failure to withhold TDS on such payments. Needless to say, a short deduction of tax at source by itself does not attract the provisions of section 40(a)(ia) of the Act. Section 40(a)(ia) can be invoked only when two conditions, namely (i) that tax is deductible at source and (ii) such tax has not been deducted, is satisfied. In a situation where tax has been deducted by the assessee under a wrong provision of TDS and there is a shortfall, section 40(a)(ia) disallowance cannot be made as consistently held in long line of judicial precedents
ITA No.1724/Ahd/2015 A.Y. 2010-11 Page 4 of 4 including CIT vs. S.K. Tekriwal, 361 ITR 432 (Calcutta). Therefore, this ground of appeal is allowed. Consequently, the Assessing Officer is directed to delete the disallowance made by invoking section 40(a)(ia) of the Act.
In the result, appeal of the assessee is partly allowed. Order pronounced in the open Court on this 1st day of May, 2018.
Sd/- Sd/- (MAHAVIR PRASAD) (PRADIP KUMAR KEDIA) Judicial Member Accountant Member Ahmedabad, the 1st day of May, 2018
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Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order UE COPY
Assistant Registrar Income Tax Appellate Tribunal Ahmedabad benches, Ahmedabad