TaxTMI 
TaxTMI 
2016 (7) TMI 1556
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....cer be directed to allow deduction for sub-brokerage incurred - Rs. 26,20,0,780/- as claimed by the appellant in its return of income." 3. At the outset, the Ld. Counsel for the assessee submits that all the issues in assessee's appeal have been decided in assessee's own case for the Assessment Year 2011-12 in ITA No. 1777/M/2015 dated 5.2.2016 wherein the findings of the Ld. CIT(A) that the provisions of Sec. 194H are attracted to the payments made by the assessee to the sub-brokerage and since there is a specific provision dealing with commission and brokerage, the provision u/s. 194H are attracted to such payments and not the provisions of Sec. 194J. The Ld. Counsel for the assessee further submits that in respect of the findings of the Ld. CIT(A) that the provisions of Sec. 40A(2)(b) are attracted and the sub-brokerage paid is in excess, the Tribunal did not agree with the Ld. CIT(A) and set aside the order on this issue. He submits that facts and circumstances being similar this year also, the order for the Assessment Year 2011-12 may be followed. 4. The Ld. Departmental Representative vehemently supported the orders of the Assessing Officer. 5. On a perusal of the Tri....
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.... is a specific provision dealing with commission and brokerage, the same would attract to the payments made by the assessee and not the provisions of Section 194J of the Act. We also find that Sec. 194H carves out an exception in respect of transactions in securities and therefore no tax is deductible in respect of subbrokerage paid. The decisions of the Mumbai Bench and Kolkata Bench in the case of S.J. Investment Agencies Pvt. Ltd. (supra) and Noble Enclave & Towers (P) Ltd (supra) are to this effect. 7.2. However, in respect of the finding that the provisions of Sec. 40A(2)(b) are attracted and the sub-brokerage paid is in excess, we do not agree with the findings of the conclusions of the Ld. CIT(A). 7.3. In the course of the assessment proceedings as well as the appellate proceedings, the assessee very much contested that the payment of sub-brokerage is not unusual that it ranges more than 50%. The assessee also furnished list of sub-broking companies who paid sub-brokerage in the ratio of 60:40 and 80:20. The assessee also given an instance in the case of a broker name Kaonain Securities Pvt. Ltd. where 70% of its brokerage was paid by way of subbrokerage. It is also su....
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....he payment is made or the legitimate needs of the business or profession of the assessee or the benefit derived by or accruing to him therefrom, so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction. The scheme requires the Assessing Officer to establish the fair market value of the services for which payment is made and any amount that he finds to have been paid by the assessee in excess of such fair market value of the services alone can be disallowed under the said section. It is, therefore, condition precedent without resorting to the disallowance under section 40A(2)(b). So far as the expenditure being excessive or unreasonable having regard to the fair market services is concerned, that the fair market value of such services is to be determined first. Unless this benchmark is set, there cannot be any question of resorting to disallowance under section 40A(2)(b) for excessive payment vis-à-vis fair market value of services. In the case of Batlivala & Karanai Vs ACIT ( 2 SOT 379), a coordinate bench of this Tribunal has observed as follows Section 40A(2) provides that where the Assessing Officer is of....
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....e as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction. In other words, if the expenditure incurred by the assessee is considered by the AO to be of excessive or unreasonable, having regard to the fair market value of the goods, services or facilities for which the payment is made or the legitimate needs of the assesee for business or profession or the benefit derived by the asessee or accruing to the assessee for payment, then so much of the expenditure as is so considered by the AO to be excessive or unreasonable shall not be allowed as a deduction. If the above conditions are fulfilled, the AO can disallow the expenditure to the extent he considers it excessive or unreasonable by the above objective standards or otherwise. The object, scope and effect of the introduction of Section 40A(2)(a) was explained by the Board in its Circular No.6P of 1968 dated 6.7.1968 and in that Circular at para 74, the Board has stated that where payment for any expenditure is found to have been made of a relative or associate concern falling within the specified categories, it will be necessary for the AO to scrutinize the reasonableness of the expenditure ....
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....c. 40A(2) are attracted. The grounds raised by the assessee are allowed. 6. Coming to the Revenue's appeal in ground No. 1,2 & 3 relating to the action of the Ld. CIT(A) in not accepting that the payment made to the assessee false within the purview of Sec. 194J of the Act and in restricting sub-brokerage to 50% of the total brokerage incurred by the assessee . 6.1. Since we have already held in assessee's appeal that the provisions of Sec. 194J are not attracted and sub-brokerage paid would fall under the provisions of Sec. 194H, provisions of Sec. 40A(2) have no application in the facts and circumstances of the case. Therefore, ground Nos. 1,2 & 3 raised by the Revenue are dismissed. 7. The next issue in the appeal of the Revenue is that the Ld. CIT(A) erred in not giving opportunity to the Assessing Officer to examine sundry creditors in violation of Rule 46A of the I.T. Rules for which additional evidence was given by the assessee. 8. The Ld. Departmental Representative submits that the assessee has filed additional evidence before the Ld. CIT(A) without giving an opportunity to the Assessing Officer. He has decided the issue in violation of Rule 46A therefore he plea....