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TMI Blog2015 (2) TMI 250X X X X Extracts X X X X X X X X Extracts X X X X ..... behalf of its clients. It filed its return of income declaring loss of Rs. 1,40,938/- on 31.3.2006. During scrutiny assessments, the Assessing Officer noticed that the assessee has received payments to the tune of Rs. 12,95,636.08, on account of brokerage on new issue of shares. The assessee company transferred the entire amount in toto to one M/s Prasad & Co. which is a registered Partnership Firm owned by the Directors of the assessee company Shri Rohit Prasad and Shri Rajat Prasad. The assessee was asked to explain these transfers. It submitted as follows. "Prasad & Co. Is a sister concern of the company and is working as broker in the primary financial market. Prasad & Co. Is using our name as we are member of NSE & DSE. We are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s Prasad & Co. along with Mr.Rajat Prasad. The firm M/s Prasad & Co. works as broker in primary financial markets and it was the Member of the Delhi Stock Exchange having Membership No. D- 201 and allotted IPO broker code no. 5/0201/4. After the incorporation of the assessee company, the Membership of DSE and the IPO broker code no. belonging to the partnership firm, had been transferred to the assessee company. It was further submitted that the assessee company was dealing only in sale and purchase of shares on behalf of clients and the business relating to IPO, was being carried on by the partnership firm M/s Prasad & Co. using the IPO broker code 5/0201/4, which was transferred by the partnership firm to the assessee company. It was ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and in such circumstances no tax can be levied in the hands of the assessee company on the same amount. 3.2. The First Appellate Authority rejected the contentions of the assessee by holding that there is no diversion of income by way of over riding title. He held that the receipt has to be acknowledged in the hands of the assessee in the first stage as its income. He held that, at best the assessee could have claimed the expenses to the extent of amount payable to M/s Prasad & Co. He rejected the contentions of the assessee that it has legal sanctitiy and on the ground that it is not backed by any documentary evidence on such arrangement. He upheld the order of the AO. 4. Aggrieved the assessee is in appeal before us on the following gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... routed through the assessee company as the DSE membership broker license is with the company for IPO subscription but the business is being done by Prasad & Co. Partnership firm because they hold the same membership number in the past. 7. The CIT(A) has erred on facts and in law in not appreciating that the income cannot be earned unless the assessee has incurred expenditure to earn such income. No such expenditure ahs been incurred by the assessee. Therefore, the revenue cannot tax income. The addition made is on surmises and conjectures and may be deleted. 8. The above grounds are independent without prejudice to each other. 9. The appellant prays that he may be allowed to add, amend, alter or forego any of the grounds at the time of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e have been accepted and hence on the principle of consistency the assessee's claim should be accepted. (d) entire loss can never be taxed as income and principle of netting should be applied. For this proposition he relied on the decision of Hon'ble Delhi High Court in CIT vs. UK Bose (2013) 212 Taxman 399 (Del). (e) the arrangement is a simple commercial business arrangement done in good faith and the taxation principles have to be applied in accordance with legal rights of the parties which are not in dispute. (f) the assumptions of the Ld.AO that the brokerage is received by the company on account of work done by the Directors is without any evidence. (g) the Tax rates of the assessee company and that of M/s Prasad & Co. are same an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. The income from IPOs as well as the expenditure on the same, is undisputedly incurred by M/s Prasad & Co. The arrangement has not been disputed by the AO. It is a fact that the entire income has been accounted for by the partnership firm M/s Prasad & Co. In our considered opinion the entire amount transferred by the assessee company to M/s Prasad & Co. should have been allowed as expenditure of the assessee company. The First Appellate Authority has at page 5 recognised this fact that the assessee could have claimed expenses to the extent of the amount payable to M/s Prasad & Co. While observing so, he chose to uphold the illegal action of the AO in bringing the tax to gross receipts. When the assessee has not received any income from th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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