TaxTMI 
TaxTMI 
2012 (10) TMI 16
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....5,823/- under section 14A of the I.T. Act. The facts emerging from the assessment order are that the assessee earned dividend of Rs. 6,58,333/- on shares and mutual funds and Rs. 39,07,070/- from long term capital gains. Against these incomes, the assessee informed the AO that no expenditure has been incurred. The AO observed that, "a certain percentage of the expenses claimed by the assessee would be definitely attributable to the tax free income earned by the assessee". The AO relied on the decision of ACIT v/s Citicorp Finance (India) Ltd. reported in 108 ITD 457 (Mum) and observed, "it is difficult to ascertain the exact amount of expenditure incurred to earn the tax free income". But the following expenses are directly or indirectly related to the earning of exempt income : A. Directors remuneration Rs. 14,64,000/- B. Stock Exchange expenses Rs. 14,34,738/- The AO, therefore, estimated the ratio of exempt income to total income which came at 14% and applied this 14% on Rs. 28,98,738/- (aggregate of the above two figures). He, accordingly computed the disallowance at Rs. 4,05,823/- and added it back to the income of the assessee. 5. Aggrieved, the assessee approached....
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....nce to the above, they are our regular clients and they have started & securities business with us in the year 1999-2000. These above transactions through Bombay Stock Exchange and we have executed the sauda on behalf of them and the contract note! Bill being delivered to them. We have also sent the periodic statement of account to them in time to time. In spite of our repeated reminders and telephonic communications, they haven't made the above payments. After considering the fact that the above amount is not recoverable from the above two parties, we have claimed for bad debts account in the financial year 2004-05 (Assessment Year 2005- 06). " 6.3 The explanation of the assessee was considered, but not found acceptable on the following grounds: Claim as Bad Debt u/s 36(1)(vii) & 36(2):- Non-satisfaction of provision of section 36(1)(vii) Without prejudice, even if the amount outstanding is considered to be a debt, then also it cannot be said that it had become Bad. A bad debt is a debt which is worthless or the debt which is not worthy of being recovered. Thus, if a debt is bad in nature, the chances of its recovery are bleak and remote. Assessee has not furnis....
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....el) 319 that an infraction of law committed in the carrying on of a lawful business cannot be treated as a normal incidence of business. The rules and regulations of the stock exchange are as statutory in character, as has been held in the case of Hemendra V. Shah Vs Stock Exchange, Bombay by the Bombay High Court. The facts show that the amount of bad debt in the assessee's case would be nothing but expenditure incurred towards violation of Rules & regulations of the stock exchange and SEBI, specially the impugned SEBI circular, hence not allowable m view of explanation to section 37. The details filed by the assessee show that sufficient margins have not been collected, and also transactions have not been closed out with its client. The said debt became the liability of the assessee only because assessee failed to carry on the business as laid down in the regulations and notifications issued. Hence, in view of the foregoing discussion, allowing the bad debt as business loss also cannot be considered as the said loss is towards violation of law and therefore not allowable in view of explanation to section 37 & abovereferred decisions. However and without prejudice to the above, e....
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....tion Tax amounting to Rs. 3,25,483/- which has not been added to the computation of income even though it is not an allowable expenditure as per Sec. 40(ib). The assessee was asked why this amount has not been added back. The A.R. of the assessee explained that this amount pertained to client on whose behalf we have executed the saudas and the STT pertaining to those saudas is borne by the assessee. We have debited this amount which is a lawful expense for procuring the business during the year 2004-05. The arguments of the assessee have been considered but the same are not acceptable since STT paid is specifically prohibited under the Act as a deduction. The claim with regard to rebate could have been made by the concerned clients. Or if the clients have declared capital gains such a deduction is specifically prohibited by proviso 5 to section 48. But no evidence brought on record to refute the claim. Further, an expenditure which is specifically prohibited cannot be allowed as an expenditure even if it pertains to some one else". 18. The assessee not satisfied, approached the CIT(A), who observed as under: "(a) The provisions of section 40(a)(ib) clearly prescribes that....
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....ioned that it is STT inclusive. The A.R. submitted that since the invoice raised is all inclusive, the assessee first credits the receipts of payments as per the invoice, then it debits STT and service tax to the Profit & Loss account to balance out the statutory liabilities, which have in any case is to be paid by the assessee. The A.R. pointed out that except for Bank of Maharashtra, invoices in all other cases are made in normal manner, i.e. statutory liabilities are separately mentioned. The A.R. therefore pleaded that under no circumstance, the assessee is making any attempt to break any law, as observed by the CIT(A) in his order that it is a case of infraction of law, and as per Explanation to section 37, the expenses is not allowable. 21. The DR on the other hand supported the order of the revenue authorities. 22. We have perused the submissions made and the orders passed by the revenue authorities and we find that assessee, per force, has to circumvent the statutory provisions in the case of its major client. We also find that, in so far as the question of revenue is concerned, there is no revenue loss to the exchequer, because the assessee is making that payment, which ....
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....estor on the other hand and this position is being carried on since the preceding years, where no deviating stands have been taken, he, therefore, referred to the case of Hon'ble Bombay High Court in the case of CIT Vs Gopal Purohit, reported in 336 ITR 287 and submitted that both conditions, as specified in the case of Gopal Purohit (supra) stand satisfied, i.e. having distinct portfolios and having a consistency in book results. He, therefore, prayed that even on this point, the disallowance made should be deleted. He, also pointed out that the consistency does not call for the import of doctrine of Resjudicata. 26. The A.R. also pointed out that the cases referred to by the assessee before the revenue authorities cannot be ignored. 27. The DR on the other hand strongly supported the observations of the revenue authorities and strongly refuted the arguments of the A.R. especially on the issue of borrowings. The DR submitted that the amounts shown by the AO and the CIT(A) are actually loan figures, which were raised and squared up during the year itself and because of this reason, there was no occasion for them to be shown in the balance sheet. This being a major change in facts....