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TMI Blog2022 (9) TMI 969X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A) in allowing depreciation on intangible assets. 2.1. We have heard rival submissions and perused the materials available on record. The assessee is engaged in the business of marketing and distribution of financial products such as mutual fund units, fixed deposits, bonds, initial public offers, real estate broking and deriving management fees. The assessee also offers services such as investment, planning and research. The issue in dispute is a recurring issue coming to the assessee from A.Y.1999-2000 onwards. We find that the same is covered in favour of the assessee by the order of this Tribunal in ITA No.5874/Mum/2009 for A.Y.1999-2000 dated 25/09/2018 wherein by placing reliance on the decision of the Hon"ble Supreme Court in the case of CIT vs. Smifs Securities Ltd., reported in 348 ITR 320, this Tribunal had already granted depreciation on the intangible assets to the assessee. Similar depreciation was allowed to the assessee upto A.Y.2010-11. We find that the ld. CIT(A) after narrating the entire facts from para 6.2.1. to 6.2.7 of his order had placed reliance on the orders passed by his predecessor for A.Yrs. 2003-04 to 2010-11 and had granted relief to the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... over positions due to high Span margins imposed by NSE; * Inability to reduce positions due to high mark to market losses; High volatility; * Low liquidity, as Aditya Birla Money held more than 50% of the open interest in certain strikes. 3.3. Risk disclosure document was signed between clients and ABML and assessee is not at all involved in this. As per the risk disclosure document, any loss that occurs to the client under the options maxima scheme offered by ABML would have to be borne by the clients. In the instant case, the loss incurred by clients under the options maxima scheme offered by ABML has been absorbed by the assessee company which is not at all a party to the agreement entered into between ABML and clients. The assessee contended that as per Clause 2.1A of business partner agreement dated 23/08/2010 entered into between ABML and assessee, it was agreed that assessee would absorb all the losses or defaults, amounts due and payable by clients serviced by it. Accordingly, the assessee company paid Rs.90 Crores to ABML on 29/09/2010, Rs.153,33,063/- on 30/06/2011, Rs.36,00,401/- on 20/07/2011 and balance amount was adjusted through income receivable from ABML. Thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment dated 23/08/2010 has already been entered into by ABML with assessee company wherein vide clause 2.1A, the losses incurred by the clients would have to be absorbed by assessee company. Accordingly, the decision to refund the collaterals back to the clients by ABML and decision to bear the loss of the clients by the assessee company was taken as a measure of commercial expediency. On the ground of commercial expediency, the assessee relied on various decisions of the Hon"ble High Courts and Hon"ble Supreme Court before the ld. CIT(A). Accordingly, it was argued that if the assessee which carries on business finds that it is commercially expedient to incur certain expenditure directly or indirectly, it would be open to such an assessee to do so, notwithstanding the fact that a formal deed does not warrant the incurring of such expenditure. Heavy reliance was placed on Clause 2.1A of the business partner agreement dated 23/08/2010 entered into between ABML and assessee company by virtue of which the loss of clients under "Options Maxima Scheme" offered by ABML was borne by the assessee company. It was also pointed that the entire losses incurred by the clients were not absorbed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the broker is supposed to collect up front margin and sufficient collateral securities and then only allow clients to trade in derivative segment. Accordingly, the ld. AO observed that in the brochure of Options Maxima Scheme brought in by ABML, clients have been offered two options of paying margins i.e Base Capital Securities of Rs 3 lakhs or Cash Margin of Rs 2 lakhs. Hence as per the brochure, ABML is supposed to collect adequate margins from its clients before allowing them to trade under Options Maxima Scheme. It is not in dispute that ABML had collected collateral securities in the form of shares from its clients. In the instant case, soon after the losses were incurred by the clients of ABML, it chose to refund the shares to the clients and passed on the losses in the clients accounts to the assessee before us. It is not in dispute that the Options Maxima Scheme developed by ABML had failed miserably and all its clients who had made investment thereon, had incurred huge losses. In our considered opinion, the clients had clearly understood the terms and conditions of the risk disclosure document signed with ABML while making the investment in Options Maxima Scheme. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ween ABML and the clients. In this regard, we find that the ld. AO had rightly observed that as per section 225 of the Indian Contract Act, 1873, the Principal must make compensation to his agent in respect of any injury caused to such agent by the Principal"s neglect for want of skill. Here it is actually the reverse, wherein the Principal had shifted its loss to the agent. This fact is further fortified by the replies given by the 109 clients in response to notices issued u/s 133(6) of the Act by the ld. AO, wherein they had stated that ABML personnel had referred the Options Maxima Scheme to them. When this fact was confronted to the assessee during the assessment proceedings, the assessee had replied that the clients had erroneously mentioned ABML instead of ABMML (i.e the assessee herein). Hence in no way, the loss incurred by the clients of ABML in Options Maxima Scheme at the behest of ABML"s neglect or for whatever reason, be shifted to the assessee herein, who has got absolutely no locus standi with the said transaction. First of all, there is no business conducted by the assessee herein as far as Options Maxima Scheme is concerned. The entire activities were carried out o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ple and the loss being allowable as trading loss of the assessee either u/s 28 or u/s 37 of the Act would not advance the case of the assessee. 3.10. The ld. AR before us also submitted that the losses incurred by clients of ABML in Options Maxima Scheme were not due to any neglect of ABML and it was caused due to various other factors which were outside the control of ABML. We find that ABML is only the main broker who had developed Options Maxima Scheme and offered it to its clients pursuant to Risk Disclosure Document signed by the clients in favour of ABML. Actually if there is any loss incurred on the said transaction, the same shall have to be borne only by the clients. Even if the clients losses are to be indemnified, it is for ABML to absorb those losses in its books. Merely because those clients had been sourced or referred by assessee to ABML, the losses of those clients cannot be shifted by ABML to assessee by placing reliance on Clause 2.1A of Business Partner Agreement dated 23.08.2010. 3.11. In view of the aforesaid observations, we hold that the loss of clients incurred under Options Maxima Scheme claimed by the assessee in its return is not allowable and according ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed AO did not ask any particular details of the said losses instead of clear disclosure of loss by the assessee in notes to computation of total income as well as in Balance Sheet. iv. The background as mentioned in Ground above regarding the provision of the services to various clients by the assessee continues to hold good in respect of the ground under consideration. In continuance, an agreement was also entered into with ABML which mandated to source clients to ABML. In lieu of such service, the assessee earned margin of as high as 70% of the brokerage generated by such clients to ABML. v. Certain employees of the company along with employee of ABML met certain clients and convinced them to enter into some hedged trading strategies which will give 1%-2% returns with no or minimal risk of capital erosion. In this connection, the assessee on being assured of high returns to the Clients had introduced 42 clients to ABML These clients were publishers, professionals, senior managers of corporate and such other professionals. Subsequently, in the month of August 2010, some of the clients sourced by the assessee started complaining about the loss in their accounts due to some na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would certainly come to the rescue of the assessee, if the employee of the assessee had embezzled . On the contrary, if the employee of ABML had done some mischief, then the said loss though borne by the assessee on behalf of the clients should have to be recovered from ABML by the assessee. Hence the allowability of loss could be decided on the facts being brought on record in this regard. Hence we deem it fit and appropriate, in the interest of justice and fairplay, to remand this issue to the file of ld. AO for deciding in accordance with law in the light of aforesaid directions. Accordingly, the Ground No. 4 raised by the revenue is allowed for statistical purposes. 5. The Ground No. 5 & 6 raised by the revenue is general in nature and does not require any specific adjudication. 6. In the result, appeal of the Revenue is partly allowed for statistical purposes. CO No.12/Mum/2018 (A.Y.2011-12) Assessee Cross Objection 7. At the outset, we find that there is a delay of 16 days in filing of these cross objections by the assessee. The reasons stated by the assessee are convincing and hence, we are inclined to condone the delay of 16 days and admit the cross objections for adju ..... X X X X Extracts X X X X X X X X Extracts X X X X
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