TMI Blog2023 (11) TMI 1187X X X X Extracts X X X X X X X X Extracts X X X X ..... e executed on behalf of clients and that the assessee has submitted sample copies of the bank guarantee issued in favour of exchangers before the lower authorities. The third item in the finance cost is the bank charges debited by the bank towards various banking related activities. The entire finance cost debited by the assessee in the P L Account are not towards any borrowings which is claimed to have been used for lending interest free loans. These costs have a direct nexus with the business of the assessee, i.e. stock broking for institutional clients since it is incurred to meet margin requirements of trade executed for assessee's clients. We further notice that the CIT(A), has given a categorical finding Therefore finance cost should be allowed as a deduction under section 36(1)(iii) of the Act. This ground of the assessee is allowed in favour. Nature of loss - addition towards Business loss held as Speculation loss - AO held that the assessee has derived the loss from the trading of purchase and sale of shares that is settled otherwise than the actual delivery, thus treated the loss as arising out of speculative transaction as per provisions of section 43(5) and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ening the Demat account which is a statutory requirement for the members of NSE / BSE. Therefore there is merit in the contention that the said expense is incurred in the normal course of broking business and accordingly we hold that the depository charges should not be disallowed under section 14A r.w.r. 8D(2)(i). With regard to disallowance under rule 8D(2)(iii), it is now a settled position that the investments that are yielding exempt income only should be considered for the purpose of disallowance. Therefore we direct the assessing officer to recomputed the disallowance under section 14A r.w.r 8D(2)(iii) taking into consideration only those investments which are earning tax free income and also take into account the suo moto disallowance made by the assessee. Adhoc disallowance of 25% of the entire expenditure u/s 37(1) - HELD THAT:- As books of accounts are subject to audit and there is no finding given by the auditors stating that the expenses include anything of personal nature. The lower authorities have made the adhoc disallowance by stating that the certain expenses are claimed through self made vouchers, without recording any specific adverse finds with regard t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k Kumar Singh Sr. D.R. ORDER PER PADMAVATHY S (AM): This appeal is filed against the order of the Commissioner of Income-tax (Appeals), National Faceless Appeal Centre, Delhi [in short, the CIT(A) ] dated 08/07/2022 for A.Y. 2012-13. 2. The assessee raised the following grounds of appeal:- 1. Under the facts and in law, National Faceless Appeal Centre (CIT(A)) erred in confirming disallowance of Rs. 56,50,7527- under section 36(1)(iii) of Income Tax Act, 1961 (the Act). 1.1. Under the facts and in law, the learned CIT(A) failed to appreciate the submission made by the appellant. 1.2. Under the facts and in law, the learned CIT(A) erred in stating that the appellant has not raise any ground on the addition made by the assessing officer of Rs 51,39,418/-. 1.3. The Learned CIT(A) failed to appreciate the fact that all the borrowed funds have been direct utilized in the normal course of carrying on broking business of the assessee. 1.4. The Learned CIT(A) failed to appreciate the fact that out of total finance charges of Rs. 5,650,752, Rs 4,949,703/- is for Bank Guarantee Charges which is for giving guarantee to stock exchange and hence is di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessing officer. 6.2 Under the facts and in law, the learned CIT(A) failed to appreciate the submission made by the appellant. 7. Under the facts and in law, the learned CIT(A) erred in confirming disallowance of provision of professional fees payment to IDFC Capital USA of Rs 1,28,75,981/-. 8. Under the facts and in law, the learned A.O. erred in charging Interest u/s 234B of the Income Tax Act, 1961 on higher side. 9. The appellant craves leave to add, alter or delete any of the above grounds of appeal. 3. The assessee is a company engaged in the business of share broking and is a member of Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). The activities of the assessee include providing equity research and stock broking services to institutional clients. The assessee filed the return of income for A.Y. 2012-13 on 29/11/2012 declaring a loss of Rs. 2,14,399/-. The case was selected for scrutiny and the statutory notices were duly served on the assessee. The Assessing Officer made the following disallowance:- Sr.No. Nature of Addition Amount Rs. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from broking business and, therefore, there is no question of triggering disallowance under section 57(iii). The Assessing Officer held the submissions of the assessee to be unacceptable stating that the nexus has not been established by the assessee and the assessee was not able to fulfill the conditions prescribed under section 36(1)(iii) and section 57(iii) of the Act. Accordingly, the assessing officer disallowed the interest expenses. The CIT(A) upheld the disallowance by upholding that 13. What is pertinent is that taxpayer has not charged interest on loans and advances to subsidiary concern, the assessment order has also not dealt with it elaborately. Out of the interest expenses, only a small portion can be directly linked i.e interest on temporary OD @ Rs 5,11,334. Apart from that bank guarantee charges of Rs 49,49,703 and bank charges of Rs 1,89,715 are debited under finance charges. Since the taxpayer has diverted funds to subsidiary concern without charging interest to that extend interest bearing funds were diverted without yielding income and the same would have been available for business purposes. Apparently there is no interest bearing funds available with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties and perused the material on record. We notice that the assessee has submitted the break up of the finance cost as extracted below before the lower authorities:- Particulars Amount Rs. Interest on Bank Overdraft 511,334 Bank Guarantee Charges-note 1 4,949,703 Bank Charges-note 2 189,715 Total 5,650,752 9. With regard to the interest on bank overdraft, we notice that as per the submissions it is paid towards the temporary overdraft facility to meet the margin requirements for trades executed on behalf of the various institutional clients. The CIT(A), in his order, as extracted hereinabove, has given a finding that there is a direct nexus between the interest on OD account and the broking business of the assessee. With regard to the bank guarantee, we notice that the same is required to be submitted to BSE / NSE towards margin call trade executed on behalf of clients and that the assessee has submitted sample copies of the bank guarantee issued in favour of exchangers before th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k up of fees income as required by the Assessing Officer. The Ld.AR also submitted that the Assessing Officer has ignored the various submissions made by the assessee and has simply taken the loss from the computation of income and held the same to be arising out of share transactions which are speculative in nature. The Ld.AR drew our attention to the break up of total income as has been extracted in the assessment order to submit that the assessee has not derived any income out of share trading and, therefore, the addition made in this regard is not tenable. 12. The Ld.DR relied on the order of lower authorities. 13. We heard the parties and perused the material on record. We notice that the assessee is deriving income as per the break up given below:- Head of Income Income of (Rs.) % of total income Remark Brokerage Income 369,462,615 Advisory Fee income 39,027,407 Income from Operations 408,490,022 84.37 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng various adjustments towards suo motu disallowances and items considered separately. Therefore, we are unable to appreciate the basis on which, the Assessing Officer has come to the conclusion that the loss computed by the assessee is arising out of share trading. The CIT(A) also has completely ignored the various submissions made by the assessee on the merits of the issue but has simply relied on the finding given by the Assessing Officer that the income is arising out of share trading. From the above extracted break up of income, it is clear that the assessee is not deriving any income out of share trading that is speculative in nature and, therefore, the finding given by the lower authority stating that assessee is involved in speculation is factually incorrect. In view of this discussion, we delete the addition made by the Assessing Officer and allow the ground in favour of the assessee. DISALLOWNCE OF BONUS 15. The assessee had debited a sum of Rs. 3.50 crores towards bonus in the P L Account. Out of the said amount, the assessee has disallowed a sum of Rs. 50,77,000/- in the computation of income as unpaid bonus. The Assessing Officer called on the assessee to fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the return of income within the due date. 17. The Ld.AR submitted that the assessee before the lower authorities has shared all the relevant details with regard to the bonus payment which have been completely ignored. The Ld.AR further submitted that the assessee himself has made a suo motu disallowance to the extent of unpaid bonus and there is double disallowance to this extent since the assessing officer has once again disallowed the entire amount. 18. The Ld.DR relied on the order of the lower authorities. 19. We heard the parties and perused the material on record. From the perusal of details submitted by the assessee before the Assessing Officer (pages 42 to 72) we notice that the assessee has submitted relevant details to substantiate the payment of bonus to the employees. We also notice that the assessee has made a suo motu disallowance of Rs. 50,77,000/- towards unpaid bonus. The assessee before the CIT(A) has made a submission with regard to the bonus provision and the actual payment as below:- Particulars Amount in Rs Remarks Provision for bonus FY 12 3,50,00,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 56,50,752/- (A) B. Average value of such investments on the first and last day or previous year (including stock-in-trade) 18,45,54,650 + 91,10,00,780 = 54,77,77,715/- (B) C. Average of total assets on first and last day or previous year 127,030,01,640 + 179,64,68,720 153,33,85,180/- (C) A X B/C 20,18,642 3. 0.5% of the B above 27,38,888 Total disallowance u/s 14A r.w.r.8D 50,77,533 22. The CIT(A) on further appeal deleted the addition made under rule 8D(2)(ii) for Rs. 20,18,642 and upheld the rest of the disallowance. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the five ledger expenses. The assessee submitted the details of the expenses along with sample invoices and supporting documents. After considering the submissions of the assessee, the Assessing Officer made an adhoc disallowance of 25% of the entire expenditure by holding that 8.3 The submissions of the assessee company is considered but the same is not found to be acceptable due to the reason that the same is very general and casual in nature and is not supported by any cogent evidence or strong nexus for inclination to say that the expenses has got a business incidence. On verification of details filed, it is observed that these expenses are not fully supported by proper bills/vouchers and certain expenses are incurred through self made vouchers in cash. Further, the hon'ble jurisdictional High Court in its judgment of Ramanad Sagar vs. DCIT reported in 256 ITR 134(BOM) has laid down that the burden of proof is on the assessee to establish beyond doubt that the expenditure has been solely incurred for the purpose of business. Further, the assessee has not maintained any log book/record for the use of these expenses for the use of business as well as no business purpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also submitted the ledger copies, copy of invoices and other supporting documents substantiating the genuineness of the expenditure (page 88 to 92 of paper book). We further notice that the books of accounts are subject to audit and there is no finding given by the auditors stating that the expenses include anything of personal nature. The lower authorities have made the adhoc disallowance by stating that the certain expenses are claimed through self made vouchers, without recording any specific adverse finds with regard to the various details furnished by the assessee. We also notice in this regard that the lower authorities did not call on the assessee to submit any further details nor did they confront the assessee with any defects in the supporting documents filed by the assessee. Given the volume of expenditure incurred by the assessee towards various expenses and considering the fact that assessee is part of IDFC in which government holds shares, the lower authorities are not correct in making adhoc disallowance without any specific adverse findings with regard to the details furnished substantiating the expenses. Accordingly we hold that the adhoc disallowance made by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion towards provision for expenses to the tune of Rs. 1,28,75,981/-. The assessee submitted that the said provision is made towards professional fees paid to IDFC (USA) Inc which has already been considered for TP adjustment and accordingly, no separate addition can be made for the provision. The CIT(A) in this regard directed the Assessing Officer to verify whether the provision of expenses of Rs. 1,28,75,981/- is included in the TP adjustment of Rs. 2,87,62,981/- and provide relief to the assessee accordingly. 29. Before us, the Ld.AR submitted that the entire TP adjustment is made without proper examining the TPSR of the assessee and the ALP is considered at Nil without any bench marking by the assessing officer. The CIT(A), though has held that additional evidence is admitted, has rejected the TP study to confirm the TP adjustment. Therefore, the Ld.AR prayed that the issue may go back to the Assessing Officer with a direction to examine the TPSR of the assessee. 30. The Ld.DR submitted that the assessee, inspite of several opportunities, did not submit the TPSR before the Assessing Officer, and therefore, the TPSR of the assessee cannot be admitted for adjudication. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me-tax Act and findings regarding transfer pricing issues in respect of international transactions or specified domestic transactions or both have been recorded by the Investigation Wing or the AO. 3.4. For cases to be referred by the AO to the TPO in accordance with paragraphs 3.2 and 3.3 above, in respect of transactions having the following situations, the AO must, as a jurisdictional requirement, record his satisfaction that there is an income or a potential of an income arising and/or being affected on determination of the ALP of an international transaction or specified domestic transaction before seeking approval of the PCIT or CIT to refer the matter to the TPO for determination of the ALP: where the taxpayer has not filed the Accountant s report under Section 92E of the Act but the international transactions or specified domestic transactions undertaken by it come to the notice of the AO, where the taxpayer has not declared one or more international transaction or specified domestic transaction in the Accountant s report filed under Section 92E of the Act and the said transaction or transactions come to the notice of the AO; and where the taxpaye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions shall alone be referred to the TPO; and (c) If a case has been selected for scrutiny on the basis of TP risk parameters pertaining to both international transactions and specified domestic transactions, then the international transactions and the specified domestic transactions shall together be referred to the TPO. Since international transactions may be benchmarked together at the entity level due to the inter-linkages amongst them, if a case has been selected for scrutiny on a TP risk parameter pertaining to one or more international transactions, then all the international transactions entered into by the taxpayer except those about which the AO has decided not to make a reference as per paragraph 3.4 - shall be referred to the TPO. 3.7. For administering the transfer pricing regime in an efficient manner, it is clarified that though AO has the power under Section 92C to determine the ALP of international transactions or specified domestic transactions, determination of ALP should not be carried out at all by the AO in a case where reference is not made to the TPO. However, in such cases, the AO must record in the body of the assessment order that due to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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