TMI Blog2010 (6) TMI 714X X X X Extracts X X X X X X X X Extracts X X X X ..... why proportionate expenses should also not be allocated to share trading transaction while determining speculation loss, the assessee submitted that the assessee did not have separate business of buying and selling of securities, and all the expenses incurred were for the purpose of and in relation to the broking business of the assessee carried through website. The AO did not accept the assessee's explanation and concluded that the assessee's case was covered under the provisions of Explanation to section 73 of the Act and the share trading loss was nothing but speculation loss. He also held that determination of share trading loss could not be possible without allocating expenses which were invariably incurred for share trading business. Therefore, the AO treated the loss of Rs. 2,08,036/- on purchase/sale of securities as speculation loss and he allocated Rs. 20,000/- to the speculation business and disallowed the same from other income. The CIT(A) confirmed the action of the AO. 5. At the outset the learned AR submitted that this issue has already been decided by the ITAT against the assessee in assessee's own case for AY 2001-02 vide ITA No. 2972/Mum/05 order da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. Briefly the facts of the case are that the assessee has entered into an agreement with ICICI Capital Services Ltd. by way of which a commission shall be paid by the assessee to M/s ICICI Capital Services Ltd. @ Rs. 500/- for every new client account opened subject to submission of completed forms in all respects. Further, an amount of Rs. 2.75 crores is payable as assistance expenditure. It is submitted that the claim for Rs. 2.75 crores was not made during the year. This expense is claimed to be met out of registration charges of Rs. 750 collected from each new client registered with its assessee for its Web services. After a detailed discussion on the issue, the AO disallowed the claim of marketing agent fee of Rs. 4,87,15,760/-. The CIT(A) restricted the addition to Rs. 3,73,13,820/- by giving part relief of Rs. 1,24,37,940/- by observing as under:- . .................it also cannot be altogether ruled out that no assistance was received from I-Caps for using its centres and its infrastructure in addition to salary paid to its own employees. Keeping in view the fact that the appellant was entitled to receive certain part of the fees to be collected from p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enses on advertisement, DP, printing, travelling etc., therefore, there is no justification for the impugned payment. The learned DR, further submitted that there is no denial of the services rendered against the payment by the assessee but the question is only the payment should be reasonable. The assessee has failed to establish that the payment made to sister concerns was a reasonable payment. The assessee did not furnish any details in this regard neither before the AO, nor before the CIT(A) and even at this stage also. The learned DR submitted that in section 40A (2) the words clearly used is not exhaustive, as per which the list given is not exhaustive list. The learned DR submitted that this section requires also verifying reasonableness of the amounts even though there is no indirect link of the assessee and recipient payments. The assessee has failed to demonstrate that there is no indirect link. The Alternate submission of the learned DR is that there is some confusion regarding facts which have not been properly appreciated and put forth before the AO. The AO has examined only reasonableness of the expenditure but the AO failed to examine whether it is wholly and exclusi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d gains of business or profession . (2)(a) Where the assessee incurs any expenditure in respect of which payment has been or is to be made to any person referred to in clause (b) of this sub-section, and the Assessing Officer is of opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods, services or facilities for which the payment is made or the legitimate needs of the business or profession of the assessee or the benefit derived by or accruing to him therefrom, so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction. (b) The persons referred to in clause (a) are the following, namely:-- Explanation.--For the purposes of this sub-section, a person shall be deemed to have a substantial interest in a business or profession, if,-- (a) in a case where the business or profession is carried on by a company, such person is, at any time during the previous year, the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) carrying not less than twenty per cent. of the voting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iture, because the AO himself allowed the part amount.. Since it is not a case that falls u/s 40A of the Act, we are of the considered view that the orders of the revenue authorities cannot be sustained and in the light of that the addition sustained by the CIT(A) is hereby deleted. Grounds Nos. 6 7 of the assessee's appeal is allowed and ground No.2 of the revenue is dismissed. 16. Ground No. 8 is in respect of disallowance of Rs. 34,28,589/- on account of SEBI turnover tax/fees. The objection of the AO is that the amount was not deposited in the previous year itself. The view of the AO has been confirmed by the CIT(A). 17. The learned AR submitted that the amount was paid before the due date of filing of return. She submitted that in accordance with the judgment of the Apex Court in the case of Allied Motors Pvt. Ltd. and others Vs. CIT, [1997] 224 ITR 677 (SC), the assessee is entitled for deduction in this connection. 18. After hearing the learned DR, we find that turnover tax paid before the date of filing of return is allowable, which is as per the ratio laid down by the Apex court in the case of Allied Motors Pvt. Ltd. (supra). Therefore, in principle we agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the customer reaching the eligible turnover limit and could not be termed as contingent liability. The actual credit to the customer account in the following year was of no consequence. The learned AR referred pages 46 to 55 of the assessee's paper book where details of incentive on turnover have been placed. The learned DR, on the other hand, relied upon the orders of the revenue authorities and submitted that list pointed out by the learned AR were not before the AO. The said list is required to be verified by the AO, therefore, the matter may be sent back to the file of the AO. 22. We have heard the learned representatives of the parties and perused the record. On specific query by the Bench regarding accounting treatment of this amount, the learned AR while referring page 18 of details of income from operations has been placed submitted that income from operations- d) Brokerage Income, which is the net amount after adjustment of the impugned amount. Similarly the learned AR referred page 17 of the assessee's paper book where details of the 'current liabilities and provisions' and submitted that provisions of Rs. 15,491,177/- includes provisions also. From ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vered against the assessee in the case of CIT Vs. Techno Shares Stocks Ltd. Ors., 225 CTR (Bom) 337 wherein it has been held that Expression 'licenses' in s. 32(1)(ii) has to be construed restrictively so as to apply to licences relating to acquisition/user of intellectual property rights and not all licenses; further, what s. 32(1)(ii) contemplates is the business or commercial rights relating to intellectual properties and not all categories of business or commercial rights; depreciation is not therefore allowable on the Bombay Stock Exchange Membership Card as it does not fall in any of the categories specified in s. 32(1)(ii). Therefore, we set aside the order of the CIT (A) and restore that order of the AO and allowed the revenue's ground. 28. Ground No. 2 is common to that of assessee's ground No.6 and 7,t he CIT(A) erred in restricting deduction for marketing agent fees paid to ICICI capital services limited (l-caps) to Rs. 1,24,37,940/- against the claim of appellant at Rs. 4,97,51,760 as per provisions of section 40A(2)(a) of the Act. Ground NO 7 is also related to above issue. Ground No.2 of Revenue's appeal is that on the facts and in the circ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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