2019 (10) TMI 1514 - AT - Income Tax

ITAT decision: Commission and salary expenses upheld, short-term capital gain not business income

Smt. Swetalben R. Vora Versus The DCIT, Circle-1, Bhavnagar

Smt. Swetalben R. Vora Versus The DCIT, Circle-1, Bhavnagar - TMI Issues:1. Disallowance of commission expenditure2. Disallowance of commission paid to a specific individual3. Disallowance of salary expenses4. Treatment of short term capital gain as business incomeIssue 1: Disallowance of commission expenditureThe assessing officer disallowed a commission expenditure of Rs. 9,68,201 paid to 774 parties as the assessee failed to provide addresses and relevant details for verification. The assessee did not produce any party for examination. The disallowance was upheld by the CIT(A) to the extent of 75% of the claimed expenditure, amounting to Rs. 7,26,151. The ITAT found the decision reasonable as the genuineness of the payments could not be established due to lack of evidence.Issue 2: Disallowance of commission paid to a specific individualA payment of Rs. 9,35,000 as commission to the mother-in-law of the assessee was disallowed as the services rendered could not be substantiated. The mother-in-law was found to be inexperienced in the stock broking business and could not justify the payment received. The ITAT upheld the CIT(A)'s decision, stating that the recipient failed to establish the services rendered, leading to the disallowance.Issue 3: Disallowance of salary expensesThe assessee claimed outstanding salary expenses of Rs. 8 lacs, but failed to provide complete employee details for verification. The assessing officer disallowed the amount under section 37 of the Income Tax Act. The ITAT partially allowed the appeal, restricting the disallowance to 50% of the outstanding salary, amounting to Rs. 4 lacs, as the assessee could not fully substantiate the claim.Issue 4: Treatment of short term capital gain as business incomeThe assessing officer treated short term capital gain as business income due to the nature of the assessee's stock market activities. The CIT(A) partly allowed the appeal based on the alternative contention that shares held for less than 30 days should be treated as business income. The ITAT upheld the CIT(A)'s decision, finding no error in the treatment of short term capital gain.In conclusion, the ITAT partly allowed the appeal, upholding the disallowances related to commission expenditure and salary expenses while rejecting the treatment of short term capital gain as business income. The decision was based on the failure of the assessee to substantiate expenses and services rendered, leading to the disallowances.