KISAN RATILAL CHOKSEY SHARES & SECURITIES P.LTD,MUMBAI vs. DCIT RG 4(3), MUMBAI

We have heard the submissions made by respective representatives and our adjudication on the issues under appeal is given in the succeeding paragraphs.

The first issue is related with treatment of Short Term Capital Gains [STCG] earned by the assessee during the impugned AY. During assessment proceedings, it was noted that the assessee reflected STCG on sale of shares for Rs. 54.37 Lakhs and accordingly the assessee was asked to furnish the details of the sale and purchase of the shares along with the value and dates of transactions. Upon perusal of these details, Ld. AO noted that the transactions were substantial in nature and of high-frequency and in few cases there was no delivery of shares. Therefore, a part of these transactions giving rise to income of Rs.20.40 Lacs, in the opinion of Ld. AO, was speculative in nature and therefore, assessable as Business Income instead of STCG as reflected by the assessee in the return of income. The stand of Ld. AO, upon ITA.No.1099/Mum/2012 Kisan Ratilal Choksey Shares & Securities Pvt.Ltd. Assessment Year-2008-09 confirmation by Ld. first appellate authority, is under appeal before us. The Ld. AR has placed reliance on the stand of this Tribunal in assessee’s own case for earlier years, which we have perused. We find that similar treatment as given by Ld. AO in AY 2004-05 has been negated by Tribunal vide order dated 03/11/2017 on the rule of consistency. At the same time, the Tribunal in AY 2007-08 vide ITA No.3325/Mum/2011 order dated 05/06/2015 confirmed the stand of lower authorities in treating the same as Business Income since the transactions being carried out by the assessee in that AY were intra- day in nature. Therefore, by applying the combined ratio of these orders, we direct Ld. AO to segregate the intra-day / without delivery transactions / transactions of very short duration in nature (up-to 30 days) out of Rs.20.40 Lacs and treat the same as Business Income whereas the rest of the transactions out of Rs.20.40 Lacs shall be accepted as STCG. In this regard, the assessee is directed to provide necessary details to Ld. AO. This ground stand partly allowed.

The second issue is related with aggregate club-house expenses of Rs. 5.67 Lacs paid by assessee comprising of membership fees of Rs.4.50 Lacs to an entity namely Aakash Lavlesh Leisure Private Limited and another Rs. 1.17 Lacs paid to Surat Cricket Association. Both the subscriptions / membership have been taken in the name of the director of the assessee. The same got disallowed since the impugned expenditure, in the opinion of Ld. AO, was personal in nature and not incurred for business of the assessee which was share-broking and investments. The Ld. CIT(A) has confirmed the stand of Ld. AO by relying upon the judgment of Hon’ble Kerala High Court rendered in ITA.No.1099/Mum/2012 Kisan Ratilal Choksey Shares & Securities Pvt.Ltd. Assessment Year-2008-09 Framatone Connector OEN Ltd. on the premise that the impugned expenditure was one time expenditure and brought into existence asset or advantage of enduring in nature and therefore, the same could not be allowed to the assessee. As rightly pointed out by the assessee, we find that Ld CIT(A) has proceeded on wrong assumption of facts since the expenditure was disallowed since the same, in the opinion of Ld. AO, was personal in nature. The Ld. AR has submitted that the expenditure was incurred for the business purposes and therefore, allowable u/s 37(1). The Ld. DR has submitted that complete onus to substantiate the same was on assessee. Upon careful consideration of factual matrix, we deem it fit to restore the matter back to the file of Ld. AO with a view to provide another opportunity to the assessee to substantiate the admissibility of the impugned expenditure at the threshold of Section 37(1). This ground stand allowed for statistical purposes.

The last issue pertains to disallowance of software expenses of Rs.6 Lacs stated to be paid by the assessee to an entity namely Accord Fintech and claimed as revenue expenditure. The same has been disallowed as revenue expenditure by Ld. AO but the depreciation against the same @12.5% [for half year] has been allowed and accordingly, the addition of balance amount of Rs.5.25 Lacs has been made in the hands of the assessee. Upon perusal of copy of invoice issued by payee as placed on record, we find that the expenditure has been incurred for Website development, Web content, web tracker etc. The nature of the stated expenditure, in our opinion, has not resulted into enlargement of profit making apparatus for the assessee and no new asset has come into existence rather the expenditure was more towards ITA.No.1099/Mum/2012 Kisan Ratilal Choksey Shares & Securities Pvt.Ltd. Assessment Year-2008-09 enabling the assessee to run the business smoothly and efficiently. The nature of payment is not under dispute since Ld. AO has already allowed the depreciation against the same. Therefore, we hold that the impugned expenditure was revenue in nature and allowable in full to the assessee. The deprecation of Rs.0.75 Lacs as allowed by Ld. AO stand reversed. This ground stand allowed.

Resultantly, the appeal stand partly allowed. Order pronounced in the open court on 19th September, 2018.