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2012 (7) TMI 133 - AT - Income TaxRegarding disallowance of Security Transaction Tax - on account of STT payment in case of broker while computing total income - AO observed that any amount paid on account of STT was not allowable in view of provision of section 40(a)(ib) inserted by the finance act, 2004 Held that:- Liability on account of STT is the liability of the clients of the assessee who are buying and selling shares and, therefore, the provisions of section 40(a)(ib) will be applicable in those cases and it is because of this reason, the rebate under section 88E is also allowable in case of buyer/seller of shares under section 88E of the Act. The assessee is only a broker who has collected STT on behalf of the stock exchanges and has paid the same to the latter - STT is required to be excluded while computing the income of the assessee from brokerage - authorities are not justified in disallowing the claim of deduction on account of STT in case of the assessee In favor of assessee Regarding disallowance of loss on account of error trade - loss had occurred on those transactions undertaken on behalf of the clients in which there were errors and transactions were not as per orders booked by the clients Held that:- in case of brokers loss arising on account of purchase and sale of shares under forced circumstances and under compulsion will not be covered by Explanation to Section 73. - Matter requires fresh examination and in case loss is found to have occurred on account of error trades conducted by assessee on behalf of clients, the claim has to be accepted as business loss matter remanded to AO for fresh order Regarding disallowance of expenses under section 14A AO had disallowed the expenses @ 5% of dividend income - CIT(A) has directed the AO to compute the disallowance as per Rule 8D Held that:- Same issue had been considered by the Tribunal in assessment year 2004-05 and the Tribunal has reduced the disallowance to Rs. 2.00 lacs - in this year are almost identical as no major distinguishing factors have been brought to notice by the ld. Departmental Representative disallowance of expenses relating to dividend income at Rs. 2,20,000 Regarding disallowance of VSAT, leaseline charges and transaction charges paid by the assessee to the stock exchange as brokerage - AO had disallowed the claim holding that payments were fees for technical service covered by Section 40(a)(ia) and since the assessee had not deducted tax at source the claim had been disallowed Held that:- VSAT, and leaseline charges, were reimbursement of expenses to the stock exchanges for use of standard facilities and transaction charges were not disallowable - transaction charges paid by the assessee were of the nature of fees for technical services In favor of assessee Regarding allowability of expenditure incurred by the assessee on account of payment made to stock exchanges for violation of their bye-laws - AO had treated the expenditure as payment for violation of law and disallowed the same under section 37(1) Held that:- Violation of regulations of stock exchanges did not amount to violation of law - no infirmity in allowing the claim In favor of assessee Allowability of deduction on account of bad debt - amounts had been taken into account in the computation of the earlier year - AO disallowed the amount only on the ground that the assessee had not established that the debt had become irrecoverable Held that:- In view of the amendment to section 36(1)(vii) w.e.f. 1.4.1989, the burden is no longer on the assessee to prove that the debt has become bad/irrecoverable - only conditions for allowability of bad debt is that the amount should have been taken into account in the computation of income of earlier year and should have been actually written off in the books - no dispute regarding fulfillment of these conditions - claim of bad debts can not be disallowed Business loss - out of pocket expenses incurred by the assessee in connection with certain work relating to these clients Held that:- Eexpenses which were required to be reimbursed by the clients were not reimbursed as transactions did not go through - claim has not been controverted by the AO by placing any material on record. Therefore, these expenses which were actually incurred and about which there is no dispute has to be allowed as business loss
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