TaxTMI 
TaxTMI 
2023 (11) TMI 1187
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....18/-. 1.3. The Learned CIT(A) failed to appreciate the fact that all the borrowed funds have been direct utilized in the normal course of carrying on broking business of the assessee. 1.4. The Learned CIT(A) failed to appreciate the fact that out of total finance charges of Rs. 5,650,752, Rs 4,949,703/- is for Bank Guarantee Charges which is for giving guarantee to stock exchange and hence is directly related to the broking business of the appellant. It also include bank charges of Rs 189,715 which are also directly related to the Broking Business of the assessee. 2. Under the facts and in law, the learned CIT(A) erred in confirming disallowance of loss of Rs. 15,48,6477- by alleging the same as speculation loss. 2.1 The learned CIT(A) failed to appreciate the fact that assessee has not undertaken any trading equity segment and derivatives segment on its own during the captioned assessment year. 3 Under the facts and in law, the learned CIT(A) erred in confirming disallowance of Bonus payment of Rs 3,50,00,000/-. 3.1 Under the facts and in law, the learned CIT(A) erred in stating that the appellant had filed the return of income beyond t....
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....e providing equity research and stock broking services to institutional clients. The assessee filed the return of income for A.Y. 2012-13 on 29/11/2012 declaring a loss of Rs. 2,14,399/-. The case was selected for scrutiny and the statutory notices were duly served on the assessee. The Assessing Officer made the following disallowance:- Sr.No. Nature of Addition Amount - Rs. 1 Disallowance under section 36(1)(iii) r.w.s. 57(iii) 56,50,752 2 Addition towards business loss held as speculation loss 15,48,647 3 Addition towards bonus liability 3,50,00,000 4 Adhoc disallowance of expenses at 20% 88,76,000 5 Disallowance under section 14A read with rule 8D 46,70,141 6 Transfer pricing adjustment towards professional fees paid to AE 2,87,62,981 7 Transfer pricing adjustment of provision of expenses 1,28,75,981 4. Accordingly, the Assessing Officer completed the assessment under section 143(3) assessing the income of the assessee at Rs. 9,71,70,100/-. The CIT(A), on further appeal, gave marginal relief to the assessee with regard to the above disallowances/additions. The assessee is in appeal before the Tribunal bei....
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....en available for business purposes. Apparently there is no interest bearing funds available with the taxpayer as on 31/3/2012. There is only share capital and reserves and surplus available for investment. Leaving apart reserves and surplus which cannot be appropriated for matters other than declaring dividends (and certain other things like investment) share capital is the only source of capital available for making investment, the assessing officer was mandated to verify the working capital utilised by the taxpayer - the operating expenses as per the IT return can be verified, if funds are remaining after the working capital requirements are met then only it can be deemed that expenses were incurred towards investment in subsidiary. It is pointed out that the temporary OD was utilised directly for the broking business for the usage of funds. There is a direct nexus between borrowal and utilisation of borrowed fund and the interest on OD account is correctly debited and falls under sec 36(1)(iii). To that extend the addition made by the AO @ Rs 5,11,334 is upheld. After going through the written submissions it is found that there is no capital borrowed for the purpose of business.....
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....s debited by the bank towards various banking related activities. From these details, it is clear that the entire finance cost debited by the assessee in the P&L Account are not towards any borrowings which is claimed to have been used for lending interest free loans. We notice that these costs have a direct nexus with the business of the assessee, i.e. stock broking for institutional clients since it is incurred to meet margin requirements of trade executed for assessee's clients. We further notice that the CIT(A), has given a categorical finding Therefore, we are of the considered view that the finance cost should be allowed as a deduction under section 36(1)(iii) of the Act. This ground of the assessee is allowed in favour. ADDITION TOWARDS BUSINESS LOSS HELD AS SPECULATION LOSS 10. The Assessing Officer, during the course of assessment noticed that assessee has offered a net amount of Rs. (-)15,48,648/- under the head 'Profits and gains from business or profession'. The Assessing Officer held that the assessee has derived the loss from the trading of purchase and sale of shares that is settled otherwise than the actual delivery. Accordingly, the Assessing Officer trea....
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....it 45,478,108 9.40 Pertains to the fixed deposit created for broking business. Commission received from fund house 1,628,483 0.33 Pertains to the Broking operations Expenses written back 228,947 Other income 13,950 Other Income 75,675,411 15.63 Total Income 484,165,433 100 It is also noticed that the assessee has submitted the following break up with regard to the advisory income before the Assessing Officer:- Particulars Advisory fees (Rs.) Remark Fees Received from IDFC Capital Limited PAN - AAACS8752N 12,952,258 Sharing of fees towards capital market Fees received from foreign funds 20,075,149 This is a discretionary fees paid by the different fund house towards company / country research update sent on regular basis. Total Advisory fees income 39,027,407 14. It is also noticed that the assessee submitted before the Assessing Officer that there has been a significant fall in the revenue from operations as compared to previous financial year and that to be the reason for the overall loss as per the P&L Account. From the pe....
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....d fund to its employees in the name of bonus. The tax on total bonus of Rs. 350 lacs comes in the tax rate of 30% in the hands of assessee company; whereas by diverting the said fund to its employees in the form of bonus (whose salaries falls in lowest /lower tax slab), assessee company has diverted its fund to avoid tax. 6.3 In the present case, the assessee has not given any justifiable reason of claiming such payment. It also failed to prove that it was made 'wholly & solely' for the purpose of the business. Assessee had no legal liability to pay to its employees bonus payment of Rs. 350 lacs. It sole purpose was to evade tax only by diverting the funds to its employees. Further, it is a disputed and debatable fact that the assessee has paid bonus incentive to its employees in-accordance with the terms of service contracts etc., or not? 6.4 Hence, as discussed above, it cannot be said that assessee has fulfilled the condition for claiming such deduction u/s.37 of the Act. Accordingly, I hold that the said claim of deduction cannot be allowed as business expense u/s.37 of the Act. Hence, disallowance comes to Rs. 350 lacs and is added to the total income....
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....ew that the lower authorities are not correct in making the disallowance by completely ignoring the various factual submissions made by the assessee and accordingly, we delete the disallowance. This ground is allowed in favour of the assessee. DISALLOWANCE UNDER SECITON 14A READ WITH RULE 8D 21. During the year, the assessee has earned a dividend income of Rs. 2,03,69,606/-. The assessee made a suo motu disallowance of Rs. 4,07,392/-. The Assessing Officer held that the suo motu disallowance is not commensurate with the dividend income earned by the assessee and accordingly proceeded to make the disallowance under section 14A read with rule 8D as below:- Amount (Rs.) 1. Amount of expenses directly related to such income [Depository charges] 3,20,003 2. Amount of the interest expenses indirectly attributable to such income, in accordance with the formula AxB/C, where A. Total interest expenditure minus direct interest expenditure on such income. 56,50,752/- (A) B. Average value of such investments on the first and last day or previous year (including st....
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....A r.w.r. 8D(2)(i). With regard to disallowance under rule 8D(2)(iii), it is now a settled position that the investments that are yielding exempt income only should be considered for the purpose of disallowance. Therefore we direct the assessing officer to recomputed the disallowance under section 14A r.w.r 8D(2)(iii) taking into consideration only those investments which are earning tax free income and also take into account the suo moto disallowance made by the assessee. DISALLOWANCE UNDER SECTION 37(1) 25. The Assessing Officer, during the course of assessment called on the assessee to furnish various details with regard to the five ledger expenses. The assessee submitted the details of the expenses along with sample invoices and supporting documents. After considering the submissions of the assessee, the Assessing Officer made an adhoc disallowance of 25% of the entire expenditure by holding that - "8.3 The submissions of the assessee company is considered but the same is not found to be acceptable due to the reason that the same is very general and casual in nature and is not supported by any cogent evidence or strong nexus for inclination to say that the expense....
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....efore making adhoc disallowance questioning the credibility of the expenditure incurred is not correct. Further the accounts of the assessee are subject to audit and no adverse finding is given by the auditors. The Ld.AR accordingly submitted that the lower authorities are not correct in making the disallowance without verifying the details submitted by the assessee with regard to the expenses. 27. We heard the parties and perused the materials on record. We notice that the assessee has vide letter dated 28.11.2014, submitted party wise details of the expenses along with the details of tax deducted on the said expenses. The assessee has also submitted the ledger copies, copy of invoices and other supporting documents substantiating the genuineness of the expenditure (page 88 to 92 of paper book). We further notice that the books of accounts are subject to audit and there is no finding given by the auditors stating that the expenses include anything of personal nature. The lower authorities have made the adhoc disallowance by stating that the certain expenses are claimed through self made vouchers, without recording any specific adverse finds with regard to the various details fu....
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....r, the assessing officer stated that additional evidence should not be admitted and did not give any finding on merits. However, the CIT(A) admitted the TPSR and proceeded to adjudicate the issue on merit. The CIT(A) held that the comparables identified by the TPSR are US companies and using US comparables to benchmark an Indian company's professional services in providing information to non US company where information can be made is very specialized. Therefore, the CIT(A) rejected the TP analysis and upheld the addition made by the assessing officer. During the course of assessment proceedings, the Assessing Officer also made an addition towards provision for expenses to the tune of Rs. 1,28,75,981/-. The assessee submitted that the said provision is made towards professional fees paid to IDFC (USA) Inc which has already been considered for TP adjustment and accordingly, no separate addition can be made for the provision. The CIT(A) in this regard directed the Assessing Officer to verify whether the provision of expenses of Rs. 1,28,75,981/- is included in the TP adjustment of Rs. 2,87,62,981/- and provide relief to the assessee accordingly. 29. Before us, the Ld.AR submitted ....
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....n the following circumstances: (a) where the AO comes to know that the taxpayer has entered into international transactions or specified domestic transactions or both but the taxpayer has either not filed the Accountant's report under Section 92E at all or has not disclosed the said transactions in the Accountant's report filed; (b) where there has been a transfer pricing adjustment of Rs. 10 Crore or more in an earlier assessment year and such adjustment has been upheld by the judicial authorities or is pending in appeal; and (c) where search and seizure or survey operations have been carried out under the provisions of the Income-tax Act and findings regarding transfer pricing issues in respect of international transactions or specified domestic transactions or both have been recorded by the Investigation Wing or the AO. 3.4. For cases to be referred by the AO to the TPO in accordance with paragraphs 3.2 and 3.3 above, in respect of transactions having the following situations, the AO must, as a jurisdictional requirement, record his satisfaction that there is an income or a potential of an income arising and/or being affected on determination ....
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....ional transaction or specified domestic transaction, it is imperative for the AO to ensure that all international transactions or relevant specified domestic transactions or both, as the case may be, are explicitly mentioned in the letter through which the reference is made to the TPO. In this regard, guidelines as under may be followed: (a) If a case has been selected for scrutiny on a TP risk parameter pertaining to international transactions only, then the international transactions shall alone be referred to the TPO: (b) If a case has been selected for scrutiny on a TP risk parameter pertaining to specified domestic transactions only, then the specified domestic transactions shall alone be referred to the TPO; and (c) If a case has been selected for scrutiny on the basis of TP risk parameters pertaining to both international transactions and specified domestic transactions, then the international transactions and the specified domestic transactions shall together be referred to the TPO. Since international transactions may be benchmarked together at the entity level due to the inter-linkages amongst them, if a case has been selected for scrut....