Tribunal rules in favor of assessee on expenses disallowance for assessment years

The Tribunal allowed the assessee's appeal in part and dismissed the revenue's appeals for assessment years 2003-04 & 2004-05. The disallowance of brokerage, procurement expenses, software expenses, and introduction fee was overturned in favor of the assessee, while depreciation on the BSE membership card, incentive payments, and procurement expenses were upheld. The Tribunal found the expenses to be in line with market practices and directed the AO to delete the disallowances.

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Issues:
Cross appeals filed by assessee and revenue against CIT(A)'s order for assessment years 2003-04 & 2004-05 under Section 143(3) of the I.T. Act.

Analysis:
1. The AO disallowed 95% of the total brokerage earned by the assessee in respect of incentive paid to ICICI Bank invoking Section 40A(2)(b). The CIT(A) deleted disallowance to the extent of 50%. Assessee argued that incentives passed to ICICI Bank were comparable with those passed to other independent concerns. The Tribunal found that the incentive paid to ICICI Bank was allowable under Section 37(1) as it was based on market practice and comparable to other entities. The entire disallowance was directed to be deleted.

2. Disallowance of 25% on procurement expenses made to ICICI Bank was challenged. The Tribunal, following its own precedent in the assessee's case, directed the AO to delete the disallowance.

3. Disallowance of software expenses of Rs. 1,20,000 was contested. The Tribunal, relying on a decision of the Bombay High Court, found no merit in the disallowance, deeming it as revenue in nature.

4. Share trading loss treated as speculative loss under Explanation to Section 73 was challenged. The Tribunal dismissed this ground based on a decision against the assessee by the Bombay High Court.

5. Revenue raised grievances on depreciation of BSE membership card, incentive disallowance, and procurement expenses. The Tribunal upheld the CIT(A)'s decision allowing depreciation on the membership card and 100% of incentive payments and procurement expenses.

6. The revenue's objection to the disallowance of an introduction fee paid to an entity based in the USA was dismissed. The Tribunal found the payment to be in line with market conditions and Transfer Pricing Rules, directing the AO to delete the disallowance.

7. The Tribunal allowed the assessee's appeal in part and dismissed the revenue's appeals for the assessment years 2003-04 & 2004-05. The orders were pronounced on 24/05/2016.

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