V. Durga Rao, J.M:— These three appeals pertain to one assessee and the same are directed against the orders of CIT(A) for the assessment years, 2002-2003 to 2004-2005. Since identical issues are involved in these appeals, they were heard together and, therefore, a common order is passed for the sake convenience.
ITA No. 3272.M/08 for AY 2002-2003
2. Ground No. 1 is relating to reopening of assessment. At the time of hearing the learned counsel for the assessee has submitted that he has a good case to argue on reopening of assessment whereas the learned DR has submitted that reopening was made within four years, Both the parties submitted that most of the issues involved in this appeal are, on merit, covered by either assessee's own case or by the decisions of the ITAT, therefore, this ground with regarding to reopening is not required to be adjudicated by us as it is merely academic in nature. Accordingly, this ground of the assessee is not adjudicated.
3. Ground No. 2 pertains to disallowance of depreciation of stock exchange membership card.
4. Briefly the facts relating to raise this ground are that the assessee had stated that during the FY 1995-1996, the assessee had purchased first BSE Membership Card for a sum of Rs. 2.00 crores and had incurred Rs. 13,25,000/- as incidental & transfer expenses. During the course of assessment proceedings, the assessee had made a claim for depreciation on first stock exchange card amounting to Rs. 53,31,250/- on the ground that BSE Membership Card is a plant and an apparatus to carry on stock broking business and it is a tool of trade. The AO rejected the submissions of the assessee and disallowed the claim of depreciation. The CIT(A) confirmed the disallowance on the ground that the assessee is not entitled for depreciation on first BSE Membership Card purchased during the financial year 1995-1906. Aggrieved by the order of CIT(A), the assessee is in appeal before the ITAT.
5. Before us the learned counsel for the assessee has canvassed that the issue under consideration is covered by the decision of ITAT in assessee's own case in AY 2005-2006 in ITA No. 1955.Mum/08 vide order dated 26 August, 2008 (25 SOT 440 (Mum), a copy of which has been filed on record. The learned DR, on the other hand, did not controvert the submissions of the assessee.
6. After hearing the learned representatives of the parties and perusing the record, we find that in AY 2005-2006 in assessee's own case (supra), the ITAT allowed the depreciation of stock exchange membership card by observing as under:—
“11. ITAT Mumbai Benches having consistently been taking a view that depreciation on membership card of stock exchange is to be allowed. Following are some of the cases in this regard:—
1. Tata Warehouse Securities v. DCIT, ITA No. 6600.Mum/04
2. Panencular Capital Market Ltd. v. ACIT, 19 SOT 42
3. Kand walla Finance Ltd., ITA No. 6986.Mum/02
4. Manjesh J. Patel, ITA No. 3710.Mum/97
12. In the light of the af oresaid decision, we are of the view that stand taken on behalf of the revenue is without merit. We, Therefore, hold, by follo wing earlier decisions of the Tribunal, that the assessee would be entitled to claim depreciation on WDV of the membership right of the stock exchange Mumbai.”
7. Since the issue raised in years under consideration is identical to that of AY 2005-2006, respectfully following the decision of the ITAT in that year, we set aside the order of CIT(A) and allow depreciation of stock exchange membership card. Accordingly, this ground of appeal raised in years under consideration is allowed.
8. Ground No. 3 is pertaining to disallowance of software expenses.
9. The assessee had incurred an expenditure amounting to Rs. 83,15,883/- on computer software and related expenses which was considered as capital expenditure by the AO and after allowing depreciation of Rs. 11,02,632/- @ 25%, balance of Rs. 72,13,251/- was disallowed by him. Before the CIT(A), the assessee submitted that software becomes obsolete very fast and requires constant upgradation and modification in line with the fast changing technology and methods and the software does not given any enduring benefit, therefore, the said expenditure incurred by the assessee is allowable as revenue expenditure. The CIT(A) following the decision of the ITAT, confirmed the action of the AO. Aggrieved, the assessee is in appeal before ITAT.
10. The learned counsel for the assessee has submitted that this issue is covered by the decision of ITAT in assessee's own case in AY 2001-2002 vide ITA No. 2950.M/05 & 3842.M/05, order dated 31st March, 2001, a copy of which has been filed on record. He has also submitted that this issue is also covered by the decision of ITAT Special Bench Delhi in the case of Amway India Enterprises v. DCIT, 111 ITD 112 (Del)(SB). On the other hand the learned DR, did not controvert the facts on record.
11. After hearing the learned representatives of the parties and perusing the record, we find that ITAT in AY 2001-2002 (supra) remitted the issue back to the file of the AO with a direction to decide the issue afresh in the light of the decision of Special Bench in the case of DCIT v. Amway Enterprises, 111 ITD 112 (Del)(SB) after giving reasonable opportunity to the assessee. Since the issue under consideration is identical to that of AY 2001-2002, we respectfully follow the decision of the ITAT in that year and in the light of that we set aside the order of CIT(A) and remit the matter back to the file of the AO to decide the issue afresh with identical direction as given by the ITAT in AY 2001-2002. Accordingly, this ground of appeal is treated as allowed for statistical purposes.
12. Ground No. 4 pertains to disallowance out of repairs.
13. The assessee had incurred expenditure of Rs. 41,60,736/- on repairs to office premises located at Mumbai, Bangalore, Kolkatta, Cochin, Goa & Pune. The submission of the assessee before the AO was that after the tenure of the lease, the entire benefit of expenditure on renovation and repairs ceases to accrue to the assessee. The AO rejected the submission of the assessee disallowed the said expenditure by treating it as capital expenditure. On appeal, the CIT(A) confirmed the disallowance made by the AO. Assessee is aggrieved and carried the matter in appeal before the ITAT.
14. At the time of hearing before us, the learned counsel for the assessee submitted that the expenditure incurred by the assessee towards breaking of flooring, false ceiling, painting, false ceilings, partitions etc. do not result in any asset of enduring benefit, therefore, the same is allowable as revenue expenditure. The learned counsel for the assessee submitted that the bifurcation of the expenditure has been filed before the AO. He further submitted that this issue is covered by the decision of ITAT in assessee's own case for AY 2001-2002 (supra) wherein the ITAT held as under:—
“5. Breaking of flooring, false ceiling, painting, false ceilings, par titions etc. do not result in any asset of enduring benef it. These expenses were incurred on leased premises, which the assessee as lessee would be using for a limited period. These expenses even if incurred in assessee's own premises, would be revenue expenses. These are expenses incurred for better carrying on the day to day business. Hence they are in the nature of revenue expenses. The decisions in the cases of CIT v. Kishenchand Chellaram (I) Ltd. (13) ITR 385 Mad), Ins talment Supply P. Ltd. v. CIT (149 ITR 52 Del.), Allied Metal Products v. CIT (137 ITR 689 P&H), CIT v. Ooty dasaprakash (237 ITR 902 Mad), Commissioner Of Income-Tax v. Hi Line Pens Pvt. Ltd. (306 ITR 182 (Del) have held that expenses incurred for redesigning and ref urbishing off ice premises are for carrying on business more profitably and efficiently and any benef it accruing is an advantage in a commercial sense and hence such expenditure are revenue expenditure. However, expenditure incurred for acquiring assets like chairs, tables etc. would constitute expenditure for acquiring capital assets and cannot be allo wed as revenue expenditure. We Therefore uphold the order of the CIT(A) holding Rs. 15,78,972/- represents capital expenditure.”
15. On the other hand, the learned DR, on the other hand, relied upon the orders of the authorities below.
16. After hearing both the sides, we find that the issue under consideration is identical to that of AY 2001-2002 (supra), we respectfully follow the decision of ITAT in that year and in the light of we remit the matter to the file of the AO with a direction to decide the issue by examining the expenditure incurred by the assessee whether the same are revenue in nature or capital in nature and allow the expenditure, if revenue in nature, in the light of the decision of ITAT in AY 2001-2002. Needless to say that the AO shall provide an opportunity of being heard to the assessee in the matter. Accordingly, this ground of appeal is treated as allowed for statistical purposes.
17. Ground No. 5 is in respect of disallowance of bad debts.
18. The AO had disallowed bad debts amounting to Rs. 58,76,826/- which was due from various parties for the secondary market transactions and was claimed by the assessee as bad debts u/s. 36(1)(vii) r.w.s 36(2) of the Act. On appeal, the CIT(A) confirmed the action of the AO by observing as under:—
“……….The AO has also expressed in his finding that out of the bad debts written off Rs. 29,21,843/- is claimed as commission income recognized as income in earlier year. The balance amount of Rs. 1,33,58,579/- as bad debts written off pertains to client. It is found by the AO that the amount written off is more than the income earned/credited in the profit & loss account. Accordingly, the AO restricted the claim of the appellant to the extent of income earned/credited in the profit & loss account. Thus, allo wable amount was worked at Rs. 74,81,754/- and the balance amount of Rs. 58,76,825/- is disallowed.”
19. Aggrieved by the order of CIT(A) the assessee is in appeal before the ITAT.
20. At the time of hearing before us, the learned counsel for the assessee has canvassed that the issue is covered by the decision of ITAT in various cases including the asessee's own case for AY 2001-2002 (supra) and the decision of High Court and the Supreme Court in the case of TRF Ltd. v. CIT 323 ITR 397 (SC). The learned DR did not object the submissions of the assessee.
21. After hearing the learned representatives of the parties and perusing the record, we find that the ITAT in asesssee's own case for AY 2001-2002, allowed the bad debts claim of the asesssee by observing as under:—
“7………….We find that the issue is covered in favour of the asesssee by the decision of the Special Bench of the Mumbai ITAT in the case of Shreyas S. Morakhia (2010) 40 SOT 440. Respectfully following the decision of the Mumbai Special Bench in the case of Shreyas Morakhia, supra, we allow the entire amount of Rs. 34,91,528/- written off by the assessee as a bad debt u/s. 36(1)(vii). Assessee's appeal on this issue is allo wed.”
22. Since the issue under consideration is identical to that of A.Y 2001-2002, we respectfully follow the decision of ITAT in that year and in the light of that we set aside the order of CIT(A) and allow the bad debts claim of the assessee. Accordingly, the ground raised in all the three years under consideration is allowed.
23. Ground Nos. 6 & 7 have not been pressed by the learned counsel for the assessee at the time of hearing before us, therefore, the same are dismissed as not pressed.
24. Ground No. 8 is pertaining to levy of interest u/s. 234D of the Act.
25. The assessee had received refund of Rs. 27,90,674/- on 29/08/03 and Rs. 10,25,030 on 30/09/03, which were withdrawn in the reassessment proceedings on account of various additions/disallowances. The AO charged interest u/s. 234D on the said amounts. On appeal, before the CIT(A) the assessee had submitted that section 234D came into effect from 1st June, 2003 the provisions of section 234D do not apply to assessment year in question. It was contended that the law dealing with imposition of interest is substantive and not procedural law and, therefore, interest under s. 234D cannot be charged in respect of assessment years prior to coming into force of these provisions i.e 2004-2005. However, the CIT(A) held that Explanation to section 2343D clarifies ‘where, in relation to an assessment year, an assessment is made for the first time under section 147 or section 153A, the assessment so made shall be regarded as a regular assessment for the purpose of this section. He, therefore, confirmed the action of the AO following the decision of ITAT in the case of Sardar Sarovar Nigam, 93 ITD 321 (Ahd.). Aggrieved by the order of CIT(A), the assessee is in appeal before the ITAT.
26. Before us the learned counsel for the assessee has placed reliance on the decisions in the case of ITO v. Ekta Promoters Ltd., 113 ITD 719 (Delhi)(SB) and DIT v. Jacobs Civil Incorporated, 333 ITR 578 (Del). The learned DR, on the other hand, has relied upon the orders of the revenue authorities.
27. We have heard the learned representatives of the parties and perused the record as well as gone through the decisions cited. We find that the special bench of ITAT, Delhi in the case of Ekta Promoters Ltd. held that “…….the interest under section 234D was chargeable from the assessment year 2004-2005 and it could not be charged for earlier years even though regular assessments for those years were framed after 01/06/2003 or the ref und was granted for those years af ter the said date.” The Hon'ble Delhi High Court in the case of Jacobs Civil Incorporated (supra) held that “section 234D is applicable only from the assessment year 2004-2005 onwards and not in the earlier assessment years and Therefore no in terest under that provision could be levied for the period prior to the assessment year 2004-2005. Since the assessment year under consideration is AY 2002-2003, section 234D is not applicable to the case of the asesssee, therefore, we set aside the order of the CIT(A) and delete the penalty levied u/s. 234D of the Act. Accordingly, this ground of appeal of the assessee is allowed.
28. In the result, appeal of the assessee is treated as partly allowed for statistical purposes.
ITA No. 1501.M/07 for AY 2003-2004
29. Ground No. 1 is in respect of disallowance of depreciation on the first stock exchange membership card. Similar ground is adjudicated by us in AY 2002-2003 in Ground No. 2 (Supra). Since this ground is materially identical to that of AY 2002-2003, following the conclusions drawn therein, we set aside the order of CIT(A) and allow depreciation of stock exchange membership Card. This ground is allowed.
30. Ground No. 2 is in respect of disallowance out of office repairs. & maintenance of Rs. 59,76,254/-. This ground is also similar to the ground No. 4 in AY 2002-2003. Respectfully following the conclusions drawn therein, we uphold the order of CIT(A) in confirming the disallowance out of repairs and maintenance and dismiss this ground.
31. Ground No. 3 is in respect of disallowance of bad debts amounting to Rs. 10,65,964/-.
32. The AO disallowed bad debts amounting to Rs. 10,65,904/- which was due from various parties for the secondary market transactions and was claimed by the assessee as bad debts u/s. 36(1)(vii) r.w.s 36(2) of the Act, on the ground that it does not fulfil the conditions of sec. 36(2). On appeal, the CIT(A) confirmed the action of the AO.
33. In AY 2002-2003 similar ground raised by the assessee as Ground No. 5 and the same has been decided by us (supra). Since the issue is identical to that of the ground raised by the assessee in AY 2002-2003, we respectfully follow the decision therein and in the light of that, we set aside the order of CIT(A) and allow the bad debts claim of the assessee.
34. In the result, appeal of the assessee is allowed.
ITA No. 1502.M/07 for AY 2004-2005.
35. Ground No. 1 is in respect of disallowance of depreciation on the first stock exchange membership card. Similar ground is adjudicated by us in AY 2002-2003 in Ground No. 2 (Supra). Since this ground is materially identical to that of AY 2002-2003, following the conclusions drawn therein, we set aside the order of CIT(A) and allow depreciation of stock exchange membership Card. This ground is allowed.
36. Ground No. 2 is in respect of disallowance of bad debts.
37. 31. The AO disallowed bad debts amounting to Rs. 14,20,899/- which was due from various parties for the secondary market transactions and was claimed by the assessee as bad debts u/s. 36(1)(vii) r.w.s 36(2) of the Act, on the ground that it does not fulfil the conditions of sec. 36(2). On appeal, the CIT(A) confirmed the action of the AO.
38. In AY 2002-2003 similar ground raised by the assessee as Ground No. 5 and the same has been decided by us (supra). Since the issue is identical to that of the ground raised by the assessee in AY 2002-2003, we respectfully follow the decision therein and in the light of that, we set aside the order of CIT(A) and allow the bad debts claim of the assessee.
39. Ground No. 3 in AY 2004-2005 is pertaining to levy of interest u/s. 234C of the Act.
40. The AO levied interest u/s. 234C of the Act at Rs. 59,78,046/- of the Act. On appeal, before the CIT(A) the contention of the AR of the assessee is that the assessee made its estimates at various stages of paying advance tax bonafide and with due care and on the basis of the facts and information available to it at the time of making respective estimates and made the previous shortfall good, every time the upward estimate was made. He further submitted that it had earned major income only during the last quarter and surge in come was totally unexpected and could not have been anticipated at all, at the time of paying earlier installments. After considering the submissions of the assessee, the CIT(A) confirmed the action of the AO by observing as under:—
“6.9 I have caref ully considered the facts and submissions. The provision of section 234C are very clear and provide that interest u/s. 234C of the IT Act is chargeable when the advance tax paid on the current income on various due dates for payment of advance tax falls lower than certain percentage of tax due on the returned income. The section does not give any discre tion to the AO not to charge interest u/s. 234C under any circums tances in case there is short fall in the payment of advance tax in respect of various instalments except due to capital gains or income ref erred to in 2(24)(ix) of IT Act. Evidently, the case of the appellant is not covered by the af oresaid exceptions. Further, in the case of CIT v. Anjum Ghaswala & Others. 252 ITR 1 (SC), the apex court held that the in terest chargeable u/s. 234A, 234B and 234C is mandatory in nature and there was no power to reduce or waive the same except in the conditions as prescribed under CBDT Circulars. As the appellan t's case was not covered in any such conditions, the AO was justif ied levying interest u/s. 234C of the Act. Accordingly, this ground of appeal is rejected.”
41. Aggrieved by the order of CIT(A), the assessee is in appeal before the Tribunal.
42. Before us, the learned counsel for the assessee has submitted that the assessee has not committed any default for payment of advance tax and, therefore, charging interest u/s. 234C is not justified. The payment of advance has to be calculated based on the estimation of the tax that has to be paid by the assessee. It is submitted that it had earned major income only during the last quarter and surge in come was totally unexpected and could not have been anticipated at all, therefore, it is difficult to anticipate what has to be paid. In support of assessee's case, the learned counsel for the assessee relied upon the following case laws:
1. Priyanka Overseas Ltd. v. DCIT, 79 ITD 353 (Del.)
2. CIT v. Revathi Equipments Ltd., 298 ITR 67 (Mad)
3. CIT v. Sedco Forex International Drilling Co. Ltd., 264 ITR 320 (Utt)
4. CIT v. Reading & Bates Exploration co., 278 ITR 47 (Utt)
5. Haryana Warehousing Corpn. v. DCIT, 75 ITD 155 (Del)
6. Hind Products Pvt. Ltd. v. Commissioner Of Income-Tax, Bombay City-1. 121 ITR 903 (Bom)
43. In addition to the above decisions, the learned counsel has, mainly, relied upon the judgment of the Hon'ble Bombay High Court in the case of Prime Securities Ltd. v. ACIT, [2011] 333 ITR 464 (Bom.)
44. On the other hand, the learned DR has relied upon the orders of the revenue authorities.
45. We have heard the learned representatives of the parties and perused the record as well as gone through the orders of the authorities below and the decisions cited. It is observed that the AO charged interest u/s. 234C of the Act, on the ground of shortfall in the payment of advance tax by the Assessee. The CIT(A) confirmed the action of the AO following the judgment of the Hon'ble Supreme Court in the case of CIT v. Anjum Ghaswala, 252 ITR 1 (SC). In the case of Prime Securities Ltd. (supra), on which reliance placed by the learned counsel for the assessee, the Hon'ble Jurisdictional High Court held as under:—
“Held, allo wing the appeal, that interest is payable u/s. 234B if the advance tax is not paid in consonance with the law in force at the time when the advance tax is paid and there is a def ault. Therefore, for charging interest u/s. 234B, def ault in payment of advance tax is the condition precedent. For the purpose of payment of advance tax the assessee has to estimate his current income and then calculate income-tax on that income at the rate in force in the financial year. Thus, the amount of advance tax is to be decided by the assessee af ter estimating his current income and then applying the law in force for deciding the amount of tax. Admittedly, on the date on which the assessee paid the advance tax it had estimated its income and liability for payment of advance tax in accordance with law that was in force. Therefore, there was no failure on the part of the assessee to pay advance tax in advance with the provisions of section 208 and 209. The assessee was not liable to pay in terest u/s. 234B of the Act. It was not possible for the assessee to anticipate the events that were to take place in the next financial year and pay advance tax on the basis of those anticipated events. The amount of interest recovered from the assessee was to be refunded with in terest in accordance with law.
46. The Hon'ble jurisdictional High Court in the above case further observed that in our opinion, when the Supreme Court in Ghaswala's case [2001] 252 ITR 1 says that charging of interest under section 234B is mandatory, what is really means is that once the assessee is found liable to pay interest, then recovery of interest is mandatory and recovery of the interest cannot be waived for any reason. But for charging interest under that section, it has to be established that the assessee has committed default in payment of advance tax. In the case under consideration, neither the AO nor the CIT(A) has examined and brought on record that the assessee has committed default in payment of advance tax. After considering the facts of the case and in view of the decision of the Jurisdictional High Court in the case of Prime Securities Ltd. (supra), we remit the matter back to the file of the AO with a direction to examine and decide the issue in the light of the decision of the Hon'ble Jurisdictional High Court in the case of Prime Securities Ltd. (supra) after giving reasonable opportunity of hearing to the assessee. This ground is treated as allowed for statistical purposes.
47. In the result, appeal of the assessee is allowed for statistical purposes.
48. To sum up, appeal being 3272.M/06 is treated as partly allowed for statistical purposes, appeal being 1501.M/07 is allowed and the appeal being 1502.M/07 is treated as allowed for statistical purposes.