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Income Tax Appellate Tribunal, “K”
Before: HON’BLE SHRI G. S. PANNU, VP & HON’BLE SHRI SANDEEP GOSAIN, JM
आदेश / O R D E R Per Shri Sandeep Gosain, Judicial Member: These four appeals filed by the assessee as well as revenue are against the order of Commissioner of Income Tax(Appeals) - 56, Mumbai dated 26.02.15 for AY 2004-05 and 2005-06 respectively. Since all the issues involved in these four appeals are 2. common, therefore, they have been clubbed, heard together and a (AY 2004-05) 3. First of all we take up assessee’s appeal in for assessment year 2004-05 as lead case. The ground of appeal are mentioned herein below:-
Aggrieved by the order passed by the Commissioner of Income-tax (Appeals)-56, Mumbai [hereinafter referred to as the learned CIT], under section 250 of the Income Tax Act, 1961 (Act) and based on the facts and circumstances of the case, J.P. Morgan India Private Limited [hereinafter referred to as the Appellant] respectfully submits that the learned CIT(A) erred in partly upholding the order of the Income-tax Officer - Range 4(3)(4), Mumbai, on the following grounds:
1. In disallowing the loss of Rs 19,07,427 incurred on account of error trades recorded in the books of account of the Appellant.
The Appellant craves leave to add, alter, vary, omit, substitute or amend the grounds of appeal, at any time before or at, the time of hearing of the appeal, so as to
4. As per the facts of the present case, the assessee company is engaged in the business of providing merchant banking and related financial and investment advisory services. The return of income for the year under consideration was filed on 01.11.04 declaring total income at Rs. 87,20,91,350/-. This was referred to the TPO for an examination of the international transactions of the assessee and the TPO vide his order dated 27.10.06 recommended a transfer pricing adjustment of Rs. 80,65,086/- for the international transaction of brokerage received from its AEs in the case of DVP trade transaction. This transfer pricing adjustment was incorporated in the assessment order passed by the AO on 13.12.06 wherein the assessee’s total income was computed after certain other disallowances and additions to the returned income at Rs. 88,88,10,890/-. Aggrieved by the order of AO, assessee preferred appeal before Ld. CIT(A) and Ld. CIT(A) after considering the case of both the parties partly allowed the appeal of the assessee.
5 ITA No, 2745, 2746, 2452 & 2453/Mum/2015 J. P. Morgan India Pvt. Ltd. Aggrieved by the order of Ld. CIT(A), both i.e. assessee as well as the revenue have filed their respective appeals before us. However at present we are dealing with the appeal filed by the assessee on the grounds mentioned herein above.
The solitary ground raised by the assessee relates to challenging the order of Ld. CIT(A) in confirming the action of AO in disallowing the loss of Rs 19,07,427 incurred on account of error trades recorded in the books of account of the assessee.
6. Ld. AR appearing on behalf of the assessee reiterated the same arguments as were raised by him before Ld. CIT(A). Ld. AR further submitted before us that the present case is covered by the order of Hon’ble ITAT in for AY 2006-07 in assessee’s own case wherein the identical ground raised in the present appeal has already been decided on merits.
On the other hand, Ld. DR relied upon the orders passed by revenue authorities.
6 ITA No, 2745, 2746, 2452 & 2453/Mum/2015 J. P. Morgan India Pvt. Ltd.
We have heard counsels for both the parties and we have also perused the material placed on record, judgment cited by the parties as well as the orders passed by revenue authorities. We find from the records that the identical ground has already been decided by the Coordinate Bench of Hon’ble ITAT in for AY 2006-07 in assessee’s own case. The operative portion of the order of Hon’ble ITAT contained in para no. 6 to 6.6 at page no. 8 to 12 , which is reproduced below:-
6. By way of Ground of appeal no. 3, the grievance of the assessed is with respect to the disallowance of Rs. 77,74,691/- representing loss on account of error trades .
6.1 In this context, assessee had claimed before the lower authorities that the aforesaid amount represented losses incurred on account of equity error trades and derivative error trades. It was explained that in the normal course of business, assessee executed trades as per the orders placed by its clients but sometimes errors crept into the execution, whereby the executed trade is not as per the client’s requirements. For instance, it has been explained that if the sales person places an order for a wrong
7 ITA No, 2745, 2746, 2452 & 2453/Mum/2015 J. P. Morgan India Pvt. Ltd. stock/wrong quantity or mis-communication of details of the client, such loss is absorbed by the assessee. Thirdly, it was pointed that the personnel employed to carry out actual trading on the terminal of Stock Exchanges commit certain errors, for instance, placing of an order for a wrong stock/wrong quantity etc, such losses are also borne by the assesee. In sum and substance, the plea of the assessee was that in the course of carrying out activity on behalf of the clients on the Stock Exchanges, losses suffered because of errors are borne by the assessee and such losses amounting to Rs. 77,74,691/- had been claimed as deduction.
6.2 We find that the Assessing Officer has disallowed the claim primarily on the ground that assessee has not furnished evidence to show any nexus between business transactions in normal course and the impugned loss claimed on account of errors.
6.3 Before us the Ld. Representative for the assessee has vehemently pointed out that complete details of the losses were furnished and in this context he has referred to the details of such loss placed at pages 37 to 77 of the Paper Book. On the basis of such details, it is sought to be explained that the type of error, the scrip involved, quantity of scrips involved and the loss
8 ITA No, 2745, 2746, 2452 & 2453/Mum/2015 J. P. Morgan India Pvt. Ltd. suffered thereof have been itemized. Further, it has been pointed out that assessee has also detailed the respective clients as also the employee responsible for committing such error. Apart from the aforesaid, the Ld. Representative pointed out that the ratio of the Judgment of Hon’ble Supreme Court in the case of Badridas Daga v. CIT [1958] 34 ITR 10 is clearly applicable inasmuch as the impugned loss has taken place in the course of carrying on of the business. Reliance has also been placed on the decision of Mumbai Bench of the Tribunal in the case of M/s HSBC Securities and Capital Markets (India) Pvt. Ltd Vs Addl. CIT in dated 29.06.2012, wherein, loss suffered on account of error in trades executed on behalf of the clients has been accepted as a business loss. For the said proposition reliance has also been placed on the decision of the Mumbai Bench of the Tribunal in the case of D.S. Purbhoodas & Co. Vs. DCIT in ITA No. 138/Mum/2000 dated 23.07.2009.
6.4 On the other hand, the Ld. DR appearing for the Revenue has rejected the objections taken by the Assessing Officer in denying the aforesaid loss as per the discussion contained in para 6(ii) of the assessment order.
9 ITA No, 2745, 2746, 2452 & 2453/Mum/2015 J. P. Morgan India Pvt. Ltd. 6.5 We have carefully considered the rival submissions. Factually speaking there is no assertion by the Assessing Officer that the impugned loss claimed by the assessee is incurred in the course of an activity not connected to business. In fact, the Assessing Officer acknowledges the furnishing of requisite details by the assessee wherein details of date of error, scrip, nature, person responsible, counter party, etc has been furnished. Therefore, insofar as the nature of loss and incurrence of the same in the normal course of the carrying on business activity of the assessee is concerned, the same is not disputed. The Hon’ble Supreme Court in the case of Badridas Daga (supra) has laid down that once it is established that the loss for which the deduction is claimed springs directly from carrying on of the business and is incidental to it, then the deduction for the same ought to be allowed. In the present case, it is evident that assessee is, inter-alia engaged in the business of broking and, therefore, such losses suffered in the course of carrying on such business cannot be denied. Coming to the specific objection of the Assessing Officer to the effect that assessee has not shown direct nexus between business transaction and the loss claimed, the same in our view is unsustainable having regard to the material which was available to the 10 ITA No, 2745, 2746, 2452 & 2453/Mum/2015 J. P. Morgan India Pvt. Ltd. Assessing Officer for verification. The relevant details have been placed in the Paper Book at pages 37 to 77; and, having perused the same, we find that the requisite information was available for the Assessing Officer to carry out any verification exercise that he may have deemed fit. So however, instead of carrying out any verification exercise, the details sought to be furnished by the assessee have been merely disbelieved and brushed-aside. The said approach in our view is quite untenable, and cannot be sustained.
6.6 Therefore, considering the entirety of facts and circumstances, in our view, the impugned loss suffered by the assessee on account of client errors, dealing errors or sale errors is incurred in the ordinary course of its business and being incidental to its business activity, , deserves to be allowed as a business loss. Thus insofar as Ground of appeal no. 3 is concerned, assessee succeeds.
After having gone through the facts of the present case as well as considering the orders passed by revenue authorities and Hon’ble ITAT as mentioned above in assessee’s own case, we find that the identical issues have already been decided by the Hon’ble ITAT in assessee’s own case for AY 2006-07 in ITA
11 ITA No, 2745, 2746, 2452 & 2453/Mum/2015 J. P. Morgan India Pvt. Ltd. No. 8193/Mum/10. Therefore, respectfully following the decision of the Coordinate Bench of Hon’ble ITAT and in order to maintain judicial consistency, we apply the same findings which are applicable mutatis mutandis in the present case. Resultantly, this ground raised by the assessee is allowed.
In the net result, the appeal filed by the assessee stands allowed.
ITA No. 2452/Mum/2015 for AY 2004-05. 10. Now we take up revenue’s appeal filed in for AY 2004-05 on the grounds mentioned herein below:-
1- "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the AO to delete the disallowance club expenses of Rs. 2,92,397/- and social club expenses of Rs.30,9747- when the expenses ware capital in nature".. 2- "On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in directing the AO to delete the disallowance of Miscellaneous/ software expenses of Rs. 2.81.887/- when the expenses ware capital in nature"..
12 ITA No, 2745, 2746, 2452 & 2453/Mum/2015 J. P. Morgan India Pvt. Ltd. 3- On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the AO. to delete the disallowance of Rs. 1,56,234/- which the assessee paid the fines to National Securities Clearing Corporation Ltd., the expenses penal in nature is not allowable in terms of the Explanation to section 37(1) of Income tax Act." 4- "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the AO to delete the disallowance of client entertainment expenses of Rs. 9,12,661/- when the assessee had not been able to establish that the expenses were incurred wholly and exclusively for business purpose. 5. "On the facts and in the circumstances of the case and in law, the Ld. IT(A) erred in directing the AO to delete the disallowance of Prior period expenses of Rs. 47,80,474/- when the assessee is following the 'mercantile system of accounting". 6. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the AO to reduce Transfer pricing adjustment from Rs. 80,65,086/- to Rs. 70,41,832/- by considering the plus/minus 5% variation from the ALP without appreciating that as per CBDT;s circular No. 5/2010 dated 3.6.2010, the amended provision is applicable from A.Y. 2009-10 onwards". 7. "The appellant craves leave to amend or alter any ground or add a new ground which may be necessary."
Ground No. 1 11. This ground raised by the revenue relates to challenging the order of Ld. CIT(A) in directing the AO to delete the 13 ITA No, 2745, 2746, 2452 & 2453/Mum/2015 J. P. Morgan India Pvt. Ltd. disallowance of club expenses of Rs. 2,92,397/- and social club expenses of Rs.30,9747- when the expenses ware capital in nature.
Ld. AR appearing on behalf of the assessee reiterated the same arguments as were raised by him before Ld. CIT(A). Ld. AR further submitted before us that the present case is covered by the order of Hon’ble ITAT in for AY 2006-07 in assessee’s own case wherein the identical ground raised in the present appeal has already been decided on merits.
On the other hand, Ld. DR relied upon the orders passed by AO.
We have heard counsels for both the parties and we have also perused the material placed on record, judgment cited by the parties as well as the orders passed by revenue authorities. We find from the records that the identical ground has already been decided by the Coordinate Bench of Hon’ble ITAT in for AY 2006-07 in assessee’s own case. The
8. By way of Ground of appeal no. 5, the grievance of assessee is with regard to a disallowance of Rs. 3,13,753/- representing club entry fees and subscription charges. In this context, it is noticed that assessee has claimed entrance fee and subscription charges of Rs. 3,92,191/- as expenditure in Profit & Loss Account. In respect of aforesaid club expenses, the explanation of assessee was that such facility was provided to its employees to find suitable avenues to further the business of assessee company. The Assessing Officer following the directions of DRP considered 20% of the said expenditure as related to business and balance of Rs. 3,13,753/- has been disallowed.
8.1 In this context it was a common ground between the parties that in the assessee’s own case for assessment year 2002-03, the Tribunal vide its order in dated 12.02.2014 has allowed the claim of assessee following the Judgment of Hon’ble Supreme Court in the case of CIT Vs. United Glass Manufacturing Co. Ltd. dated 12.09.2012. Following the precedent, the Assessing Officer is 15 ITA No, 2745, 2746, 2452 & 2453/Mum/2015 J. P. Morgan India Pvt. Ltd. directed to delete the impugned addition of Rs. 3,13,753/- out of club fees and subscription charges. Thus on this aspect assessee succeeds.
After having gone through the facts of the present case as well as considering the orders passed by revenue authorities and Hon’ble ITAT as mentioned above in assessee’s own case, we find that the identical issues have already been decided by the Hon’ble ITAT in assessee’s own case for AY 2006-07 in ITA No. 8193/Mum/10. Therefore, respectfully following the decision of the Coordinate Bench of Hon’ble ITAT and in order to maintain judicial consistency, we apply the same findings which are applicable mutatis mutandis in the present case. Resultantly, this ground raised by the revenue is dismissed.
Ground No. 2. 15. This ground raised by the revenue relates to challenging the order of Ld. CIT(A) in directing the AO to delete the disallowance of Miscellaneous/ software expenses of Rs. 2,81,887/- when the expenses ware capital in nature.
We have heard the counsels for both the parties at length and we have also perused the material placed on record as well as the orders passed by revenue authorities. Before we decide the merits of the case, it is necessary to evaluate the orders passed by Ld. CIT(A). The Ld. CIT(A) has dealt with the above grounds raised by the revenue in para no. 6 of its order and the same is reproduced below:-
Ground of appeal four is with reference to the disallowance of certain miscellaneous expenses in the assessment order amounting to Rs.2,81,887. These expenses relating to repairs and maintenance with reference to software charges, projector and dish antenna expenses were treated by the AO as capital expenditure. As regards software expenses, it is seen that in the assessee's own case, for A.Y.2001-02, the Hon'ble Tribunal had remanded this matter back to the AO to decide the alloy/ability in the light of the decision of the Delhi Special Bench ruling of the Tribunal in the case of Amway India Enterprises (301 ITR 1). Subsequently, the AO in the order pursuant to the directions of the Hon'ble Tribunal, having regard
17 ITA No, 2745, 2746, 2452 & 2453/Mum/2015 J. P. Morgan India Pvt. Ltd. to the facts and relying on the principles laid out in the Amway India case held that the software expenses were revenue in nature and allowed the same as business expenses. In all subsequent years, the appellate authorities have allowed the claim of the assessee in this regard. As regards the projector expenses, the concerned expenses relate to annual maintenance charges on the projectors used by the assessee in the normal course of its business. The dish antenna expenses are in the nature of rental for space for installation of a dish antenna on the terrace of the building from which the assessee carries out its business. Given the facts of this case, none of these expenses would be capital in nature and each of them would be allowable as revenue expenses. The AO is hereby directed to delete such addition and the appeal filed by the assessee on this ground is hereby allowed.
After have gone through the orders passed by the revenue authorities and hearing the parties at length, we find that the expenses as claimed by the assessee relates to repairs and maintenance with reference to software charges, projector and dish antenna expenses, which were treated by the AO as capital
18 ITA No, 2745, 2746, 2452 & 2453/Mum/2015 J. P. Morgan India Pvt. Ltd. expenditure. As regards software expenses, we find that in assessee's own case, for A.Y.2001-02, the Coordinate Bench of the Tribunal had remanded the matter back to the AO to decide the allowability in the light of the decision of the Delhi Special Bench ruling of the Tribunal in the case of Amway India Enterprises (301 ITR 1). Subsequently, the AO in the order pursuant to the directions of the Tribunal, having regard to the facts and relying on the principles laid out in the case of Amway India (supra) held that the software expenses were revenue in nature and allowed the same as business expenses. Thereafter in all the subsequent years, the appellate authorities have allowed the claim of the assessee in this regard. As far as the projector expenses are concerned, the same relates to annual maintenance charges on the projectors used by the assessee in the normal course of their business. Similarly, the dish antenna expenses are also in the nature of rental for space for installation of a dish antenna on the terrace of the building from which the assessee carries out its business. Thus in this way, none of these expenses could be capital in nature and each of them would be allowable as revenue expenses. Even otherwise, the Hon’ble Bombay High
19 ITA No, 2745, 2746, 2452 & 2453/Mum/2015 J. P. Morgan India Pvt. Ltd. Court in the case of CIT Vrs. Raychem RPG Ltd. (2012) 21 taxmann.com 507(Bom) had held that where enterprise resource planning (ERP) package software facilitated assessee’s trading operations or enabling management to conduct assessee’s business more efficiently or more profitably but it was not in nature of profit making apparatus, software expenditure was allowable as revenue expenditure. Even otherwise, no new facts or contrary judgments have been brought on record before us in order to controvert or rebut the findings so recorded by Ld. CIT(A). Therefore, there are no reasons for us to interfere into or deviate from the findings recorded by the Ld.CIT(A). Hence, we are of the considered view that the findings so recorded by the Ld. CIT (A) are judicious and are well reasoned. Resultantly, this ground raised by the revenue stands dismissed.
Ground No. 3. 17. This ground raised by the revenue relates to challenging the order of Ld. CIT(A) in directing the AO. to delete the
We have heard the counsels for both the parties at length and we have also perused the material placed on record as well as the orders passed by revenue authorities. Before we decide the merits of the case, it is necessary to evaluate the orders passed by Ld. CIT(A). The Ld. CIT(A) has dealt with the above grounds raised
by the revenue in para no. 8 of its order and the same is reproduced below:-
8. The fifth ground of appeal is against the disallowance of payment of fines to National Securities Clearing Corporation Limited (NSCCL) towards fine paid for the non confirmation of clearing house trades and client code modifications. The assessee had claimed these as deductible expenditure u/s.37(1) whereas the AO had disallowed the same for being penal in nature and, therefore not allowable in terms of the Explanation to section 37(1) of the Act. The relevant facts are that the NSCCL carries out clearing and settlement of trades executed in the equity and derivative segments in the stock market. With the intention of ensuring operational efficiency, the 21 ITA No, 2745, 2746, 2452 & 2453/Mum/2015 J. P. Morgan India Pvt. Ltd. NSCCL lays down certain procedures for its principal brokers and also imposes fines for certain non compliances to such procedures. However, NSCCL was an independent body and the byelaws made by it for the regulation of its members did not have the force of statutory law. Such bye laws could at best be seen as private contracts and any violation of the same could not have equated with an offence or with an act prohibited by law as held by the jurisdictional Mumbai Tribunal in the case of Gold Crest Capital Markets (130 TTJ 446). The charges that were imposed on the assessee and paid by it to NSCCL cannot accordingly be treated as penalty for breach of a statutory provision. These charges were imposed for certain procedural lapses and could not be termed as expenditure incurred for an offence or a violation of law disallowable in terms of the Explanation to section 37 of the Act. It is noted that the Jurisdictional Bombay High Court in the case of CIT vs Angel Capital and Debit Market Ltd. (ITA No.475 of 2011) on similar facts has held that penalty paid to the Stock Exchange was on account of irregularities committed by the assessee and were not on account of any infraction of law and, therefore, allowable as business expenses. Being both contractual and compensatory in nature and incurred in the regular course of the business of 22 ITA No, 2745, 2746, 2452 & 2453/Mum/2015 J. P. Morgan India Pvt. Ltd. the assessee, payment of such fines would be permissible as business expense. The AO is accordingly directed to delete the disallowance made of fines paid to NSCCL and appeal filed on this ground by the assessee is allowed.
After have gone through the orders passed by the revenue authorities and hearing the parties at length, we find that the disallowance in the present case relates to payment of fines to National Securities Clearing Corporation Limited (NSCCL) towards fine paid for the non confirmation of clearing house trades and client code modifications. Whereas the assessee had claimed these as deductible expenditure u/s.37(1). The said NSCCL carries out clearing and settlement of trades executed in the equity and derivative segments in the stock market and laid down certain procedures for its principal brokers and also imposes fines for certain non compliances to such procedures. Being an independent body, the byelaws made by NSCCL for the regulation of its members did not have the force of statutory law and thus at the most can be considered as private contracts and hence violation of any such contractual obligation cannot be equated with an offence or with an act prohibited by law. In this 23 ITA No, 2745, 2746, 2452 & 2453/Mum/2015 J. P. Morgan India Pvt. Ltd. respect, we rely upon the decision of the Coordinate Bench of Mumbai Tribunal in the case of Gold Crest Capital Markets (130 TTJ 446). As per the facts of the present case, the charges imposed on the assessee were imposed for certain procedural lapses and thus cannot termed as expenditure incurred for an offence or a violation of law disallowable in terms of the Explanation to section 37 of the Act. Even otherwise Hon’ble Bombay High Court in the case of CIT vs Angel Capital and Debit Market Ltd. (ITA No.475 of 2011) on similar facts has held that penalty paid to the Stock Exchange was on account of irregularities committed by the assessee and were not on account of any infraction of law and, therefore, allowable as business expenses. No new facts or contrary judgments have been brought on record before us in order to controvert or rebut the findings so recorded by Ld. CIT(A). Therefore, there are no reasons for us to interfere into or deviate from the findings recorded by the Ld.CIT(A). Hence, we are of the considered view that the findings so recorded by the Ld. CIT (A) are judicious and are Ground No. 4 19. This ground raised by the revenue relates to challenging the order of Ld. CIT(A) in directing the AO to delete the disallowance of client entertainment expenses of Rs. 9,12,661/- when the assessee had not been able to establish that the expenses were incurred wholly and exclusively for business purpose.
Ld. AR appearing on behalf of the assessee reiterated the same arguments as were raised by him before Ld. CIT(A). Ld. AR further submitted before us that the present case is covered by the order of Hon’ble ITAT in for AY 2006-07 in assessee’s own case wherein the identical ground raised in the present appeal has already been decided on merits.
On the other hand, Ld. DR relied upon the orders passed by AO.
We have heard counsels for both the parties and we have also perused the material placed on record, judgment cited by the parties as well as the orders passed by revenue authorities. We find from the records that the identical ground has already been decided by the Coordinate Bench of Hon’ble ITAT in for AY 2006-07 in assessee’s own case. The operative para is contained in para no. 8.2 & 8.3 of the said order and the same is reproduced below:-
8.2 By way of Ground of appeal no. 6, the assessee has assailed the action of Assessing Officer in disallowing 7,42,851/- out of client entertainment expenses. The assessee was found to have incurred an expenditure of Rs. 14,85,703/- as client entertainment expenses and the Assessing Officer disallowed 50% of the same i.e. 7,42,851/- on the ground that there was no concrete material to establish the authenticity and commercial expediency of such expenses. Against the aforesaid, the Ld. Representative for the assessee pointed out that complete details of expenditure were furnished, copies of which have been placed in the Paper Book at pages 200 to 209. It was also pointed out that Fringe Benefit
26 ITA No, 2745, 2746, 2452 & 2453/Mum/2015 J. P. Morgan India Pvt. Ltd. Tax (FBT) on such expenditure was also paid and that similar expenditure was disallowed in assessment year 2003-04, which was allowed by the CIT(A). The Ld. Representative stated at Bar that the aforesaid decision of CIT(A) was not contested by the Department in the appeal before the Tribunal and, therefore, there was no justification for the Assessing Officer to have made such ad hoc disallowance. 8.3 We have considered the objections put forth by the assessee and find that the disallowance made by the Assessing Officer is based on pure conjectures and surmises. Apart from making a very generalized observation, the Assessing Officer has not pointed out any particular instance which could demonstrate that the expenditure was incurred for any non business purpose. It is also not the case of Revenue that the explanation furnished by the assessee in the course of assessment proceedings was lacking in any manner. Therefore, we direct the Assessing Officer to delete the addition of Rs. 7,42,851/-. Thus, assessee succeeds on this aspect also.
Therefore, respectfully following the decision of the Coordinate Bench of Hon’ble ITAT in assessee’s own case and in order to maintain judicial consistency, we apply the same findings which are applicable mutatis mutandis in the present Ground No. 5. 23. This ground raised by the revenue relates to challenging the order of Ld. CIT(A) in directing the AO to delete the disallowance of Prior period expenses of Rs. 47,80,474/- when the assessee is following the ‘mercantile system of accounting’.
We have heard the counsels for both the parties at length and we have also perused the material placed on record as well as the orders passed by revenue authorities. Before we decide the merits of the case, it is necessary to evaluate the orders passed by Ld. CIT(A). The Ld. CIT(A) has dealt with the above grounds raised by the revenue in para no. 10 of its order and the same is reproduced below:-
The seventh ground of appeal is against the disallowance of an amount of Rs.47,80,474 as prior period expenses by the AO in. the assessment order. The relevant expenditure incurred was for the payment of additional turnover fee amounting to Rs.2,55,090 by 28 ITA No, 2745, 2746, 2452 & 2453/Mum/2015 J. P. Morgan India Pvt. Ltd. the assessee to the SEBI and an interest of Rs.39,20,790 on account of delay 'in the payment of the turnover fees. The payment of the concerned turnover fees had been under litigation till the Hon'ble Supreme Court through its judgement dated 01.02.2011 in the matter of BSE Brokers Forum vs SEBI upheld the concerned regulations and the power of SEBI to levy turnover fees. However, the brokers took up the matter with SEBI for waiver of interest on delayed payments and the SEBI issued the notification in 2004 to provide a one time opportunity to the stock brokers to regularize their defaults. Thereafter, based on the advice received from SEBI, the assessee discharged its liability in respect of the outstanding fees and interest thereon. The concerned liability had consequently been crystallized during the period under consideration, the assessee had debited the concerned amounts in its books for the first time and had claimed a deduction thereon during the period under consideration. Similarly, with reference to a property tax payment by the assessee amounting to Rs.6,04,594, though relating to the period from 01.04.2000 to 30.09.2003 was paid by the assessee in compliance to an order passed by the Bombay Municipal Corporation on 04.03.2004 directing such payments. Here again, the liability had crystallized during the year and was claimed for the 29 ITA No, 2745, 2746, 2452 & 2453/Mum/2015 J. P. Morgan India Pvt. Ltd. first time in the books during the period relevant to A.Y. 2004-05 presently under consideration. The AO had disallowed these payments on the ground that the assessee had followed the mercantile system of accounting and, therefore, prior period expenses would not be deductible. However, even under the mercantile system of accounting, the liability arises in the period when it gets crystallized. The liability for all the concerned amounts had been crystallized during the period presently under consideration and had not been claimed in the books of account or the return of income filed, in any of the preceding years, the same are found to be allowable for the period presently under consideration. The AO is hereby directed to delete the disallowance made on this account and the appeal filed by the assessee on this ground is allowed.
After have gone through the orders passed by the revenue authorities and hearing the parties at length, we find that the disallowance of an amount claimed by the assessee as prior period expenses as the said expenditure was incurred for the payment of additional turnover fee amounting to Rs.2,55,090 by the assessee to the SEBI and an interest of Rs.39,20,790 on account of delay in the payment of the turnover fees. As per the 30 ITA No, 2745, 2746, 2452 & 2453/Mum/2015 J. P. Morgan India Pvt. Ltd. facts of the case, the said payment of the concerned turnover fees was under litigation till the Hon'ble Supreme Court through its judgement dated 01.02.2011 in the matter of BSE Brokers Forum vs SEBI upheld the concerned regulations and the power of SEBI to levy turnover fees. However, the brokers took up the matter with SEBI for waiver of interest on delayed payments and the SEBI issued the notification in 2004 to provide a one time opportunity to the stock brokers to regularize their defaults. Thereafter, based on the advice received from SEBI, the assessee discharged its liability in respect of the outstanding fees and interest thereon. Thus in this way, the said liability had crystallized during the period under consideration and therefore the assessee had debited the concerned amounts in its books for the first time and had claimed a deduction thereon during the period under consideration. Similarly, with reference to a property tax payment by the assessee amounting to Rs.6,04,594, though relating to the period from 01.04.2000 to 30.09.2003 was paid by the assessee in compliance to an order passed by the Bombay Municipal Corporation on 04.03.2004 directing such payments. On this ground also, the liability had crystallized
31 ITA No, 2745, 2746, 2452 & 2453/Mum/2015 J. P. Morgan India Pvt. Ltd. during the year and was claimed for the first time in the books during the period relevant to A.Y. 2004-05 presently under consideration. Even Hon’ble Bombay High Court in the case of CIT vrs. Phalton Sugar Works Ltd (1986) 162 ITR 622(Bom) had held that if the liability is ascertained only during the year under consideration and debited and claimed as deduction in the assessment for that year, then in that eventuality, while relying upon another judgment of Hon’ble Supreme Court in the case of Swadeshi Cotton and Flour Mills Pvt. Ltd (1964) 53 ITR 154 had held that assessee is entitled to claim deduction in that year when the dispute if any is finally adjudicated upon or settled. As per the facts of the present case the liability of all the concerned amounts had crystallized during the period presently under consideration and had not been claimed in the books of account or the return of income filed, in any of the preceding years, then the same was correctly found to be allowable for the period presently under consideration.
No new facts or contrary judgments have been brought on record before us in order to controvert or rebut the findings so 32 ITA No, 2745, 2746, 2452 & 2453/Mum/2015 J. P. Morgan India Pvt. Ltd. recorded by Ld. CIT(A). Therefore, there are no reasons for us to interfere into or deviate from the findings recorded by the Ld.CIT(A). Hence, we are of the considered view that the findings so recorded by the Ld. CIT (A) are judicious and are well reasoned. Resultantly, this ground raised by the revenue stands dismissed.
Ground No. 6. 25. This ground raised by the revenue relates to challenging the order of Ld. CIT(A) in directing the AO to reduce Transfer pricing adjustment from Rs. 80,65,086/- to Rs. 70,41,832/- by considering the plus/minus 5% variation from the ALP.
We have heard the counsels for both the parties at length and we have also perused the material placed on record as well as the orders passed by revenue authorities. Before we decide the merits of the case, it is necessary to evaluate the orders passed by Ld. CIT(A). The Ld. CIT(A) has dealt with the above grounds raised by the revenue in para no. 14 of its order and the same is reproduced below:-
33 ITA No, 2745, 2746, 2452 & 2453/Mum/2015 J. P. Morgan India Pvt. Ltd. 14. The twelfth ground of appeal is that, without prejudice to the grounds ten and eleven filed before the undersigned, the AO erred in computing the ALP by not considering the plus/minus 5% variation from the ALP permitted to the assessée in terms of the provisions of section 92C(2) of the Act. Several case laws were relied upon by the assessee in support of this claim. In view of the facts of this case and respectfully following the decisions relied upon by the assessee and taking into account the fact that the proviso to section 92. C(2) of the Act has been amended subsequently and as per the Circular of CBDT No.5/2010 dated 03.06.2010, the amended provisions were applicable with effect from 01 .04.2009, that is for the assessment year 2009-10 and subsequent years, the benefit of plus/minus 5% as sought by the assessee is found to be acceptable for the period presently under consideration. Taking into account such relief statutorily available to the assessee, the transfer pricing adjustments recommended by the TPO and incorporated in the assessment order would be reduced from Rs.80,65,086 to Rs.70,41,832. Such modification is hereby directed to be carried out by the AO/TPO. Ground of appeal filed in this respect may be treated as allowed.
34 ITA No, 2745, 2746, 2452 & 2453/Mum/2015 J. P. Morgan India Pvt. Ltd. After having gone through the orders passed by the revenue authorities and hearing the parties at length, we find that as per the facts of the present case, the AO computed the ALP by not considering the plus/minus 5% variation from the ALP permitted to the assessée in terms of the provisions of section 92C(2) of the Act. However, as per the proviso to section 92 C(2) of the Act, the same was amended subsequently and as per the Circular of CBDT No.5/2010 dated 03.06.2010, the amended provisions were applicable with effect from 01 .04.2009 i.e. for the assessment year 2009-10 and subsequent years. Thus in this way, the benefit of plus/minus 5% as sought by the assessee was found to be acceptable for the period presently under consideration and as such Ld. CIT(A) rightly directed the AO /TPO to reduced the TP adjustment recommended by the TPO from Rs.80,65,086 to Rs.70,41,832.
Even no new facts or contrary judgments have been brought on record before us in order to controvert or rebut the findings so recorded by Ld. CIT(A). Therefore, there are no reasons for us to interfere into or deviate from the findings
35 ITA No, 2745, 2746, 2452 & 2453/Mum/2015 J. P. Morgan India Pvt. Ltd. recorded by the Ld.CIT(A). Hence, we are of the considered view that the findings so recorded by the Ld. CIT (A) are judicious and are well reasoned. Resultantly, this ground raised by the revenue stands dismissed.
Ground No. 7 27. This ground raised by the revenue is general in nature, thus requires no specific adjudication.
In the net result, the appeal filed by the revenue stands dismissed with no order as to cost.
ITA No. 2746/Mum/2015 for AY 2005-06. 29. Now we take up assessee’s appeal filed in for AY 2005-06. Since we have already decided the main appeal filed by the assessee in ITA No. 2745/Mum/15 for AY 2004-05 in assessee’s own case, therefore in view of our decision in the assessee’s appeal, we ordered accordingly.
ITA No. 2453/Mum/2015 for AY 2005-06. 30. Now we take up revenue’s appeal filed in for AY 2005-06. On the perusal of appeal, we find that all the grounds except ground no. 2 are identical with the grounds raised in ITA No. 2452/Mum/15 for AY 2004-05 filed by the revenue, therefore in view of our decision in the said revenue’s appeal, we ordered accordingly.
However, as far as ground no. 2 in the present appeal is concerned, the same relates to challenging the order of Ld. CIT(A) in deleting the disallowance of depreciation on motor car.
In this respect, we have heard the counsels for both the parties and we have also perused the material placed on record, judgment cited by the parties as well as the orders passed by revenue authorities. We find from the records that the identical ground has already been decided by the Coordinate Bench of Hon’ble ITAT in for AY 2006-07 in
7. By way of Ground of appeal no. 4, the grievance of assessee is against the denial of depreciation on Motor Car amounting to Rs. 1,44,702/- on the ground that the Motor vehicle was not registered in the name of assessee company. Before the Assessing officer it was explained that the Motor vehicle was purchased and was provided for use of one of its employee and, thus, the same was used for its business purposes. The Motor vehicle was not registered in the name of the assessee but in the name of J.P. Morgan West Bank, a group concern. Assessee contended that since the Motor vehicle was used by the assessee for its business, though registered in the name of a group concern, depreciation was allowable on the same in the hands of assessee. In the absence of the registration of the vehicle in the name of assessee company, the depreciation claimed of Rs. 1,44,702/- was disallowed by the Assessing Officer. 7.1 Before us, the Ld. Representative pointed out that not only the possession of vehicle was with the assessee but it was also being used for its business purposes; and the full price was also paid by the assessee itself. At the time of hearing,
38 ITA No, 2745, 2746, 2452 & 2453/Mum/2015 J. P. Morgan India Pvt. Ltd. reliance was placed on the Judgment of Hon’ble Bombay High Court in the case of CIT Vs. Dilip Singh Saradarsingh Bagga. 201 ITR 995 in support of claim of depreciation 7.2 The Ld. DR appearing for the Revenue has defended the action of Assessing Officer for the reason that the ownership of Motor vehicle could not be established in the absence of its registration in the name of assessee company. 7.3 We have carefully considered the rival submissions. Quite clearly, the facts emerging from the order of the Assessing Officer establish that the said Motor Car was acquired by the assessee in the immediately preceding year though it has been registered in the name of another group concern under the Motor Vehicles Act, 1988. There is no denying the fact that the assessee has paid full price for acquiring the Motor vehicle and it has been using the same for its business. In the year under consideration, assessee has claimed depreciation on written down value (WDV) of Motor vehicle and the same, in our view, cannot be denied following the Judgment of Hon’ble Bombay High Court in the case of Dilip Singh Saradarsingh Bagga (supra). In view of the Judgment of Hon’ble Bombay High Court, we direct the Assessing Officer to allow depreciation to the assessee on the WDV of the
Therefore, respectfully following the decision of the Coordinate Bench of Hon’ble ITAT in assessee’s own case and in order to maintain judicial consistency, we apply the same findings which are applicable mutatis mutandis in the present case. Resultantly, this ground raised by the revenue stands dismissed.
In the net result, both the appeals filed by the assessee stands allowed and both the appeals filed by the revenue stands dismissed with not order as to cost. Order pronounced in the open court on 26th June , 2019. Sd/- Sd/- (G. S. Pannu) (Sandeep Gosain) Vice President Judicial Member मुंबई Mumbai;ददनांकDated : 26.06.2019 Sr.PS. Dhananjay