Tribunal upholds 10% sub brokerage expense disallowance for assessment years 2007-08 and 2009-10

The Tribunal upheld the decision to restrict the disallowance of sub brokerage expenses to 10% for the assessment years 2007-08 and 2009-10. Despite the Revenue's argument for a 20% disallowance based on a previous year, the Tribunal found the differences in business turnover made direct comparison inappropriate. The Tribunal directed the assessing officer to recalculate the disallowance at 10%, emphasizing the genuineness of the expenses and the reasonableness of the estimation. Both appeals were dismissed, affirming the Tribunal's decision on the sub brokerage expenses disallowance.

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Issues:
- Challenge to common order of the Income Tax Appellate Tribunal regarding disallowance of sub brokerage expenses for A.Ys. 2007-08 and 2009-10.

Analysis:
The appeals challenged the common order of the Income Tax Appellate Tribunal regarding the disallowance of sub brokerage expenses for the assessment years 2007-08 and 2009-10. The main question of law urged by the Revenue was whether the Tribunal was justified in restricting the disallowance to 10% of the sub brokerage expenses claimed by the respondent-assessee. The respondent, engaged in fee-based corporate financial services, debited sub-brokerage expenses of Rs. 1.78 crores against total earnings of Rs. 3.69 crores for A.Y. 2009-10. The assessing officer disallowed the entire expenses claimed by the respondent, stating that the payments to sub-brokers were not genuine.

The respondent's appeal to the Commissioner of Income Tax (Appeals) was dismissed, leading to further appeal to the Tribunal. The Tribunal noted that while the assessing officer doubted the genuineness of the services rendered by the sub-brokers and disallowed the entire expenditure, the respondent had filed an affidavit explaining the transactions. The Tribunal observed that the sub-brokers were common for the relevant assessment years and that no disallowance was made for A.Y. 2008-09. It also considered that disallowance was made to the extent of 20% for A.Y. 2010-11, which could not be directly applied due to differences in turnover. Therefore, after evaluating the facts and nature of the business, the Tribunal decided to restrict the disallowance to 10% for each of the assessment years under consideration.

The Revenue argued that the 20% disallowance should have been accepted, as done for A.Y. 2010-11. However, the Tribunal found that the volume of business in different years was not comparable, and the assessing officer was directed to recompute the disallowance at 10% of the sub-brokers' expenses claimed by the assessee. The Tribunal emphasized that there was no dispute regarding the genuineness of the expenses, and the only issue was the percentage of expenses to be disallowed due to payments made to sub-brokers. Ultimately, the Tribunal's decision to limit the disallowance to 10% was deemed reasonable and not perverse, as it was based on a plausible estimate. Therefore, both appeals were dismissed, upholding the Tribunal's decision on the disallowance of sub brokerage expenses.

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