TaxTMI 
TaxTMI 
2023 (11) TMI 1187
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....at 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 the due date and hence the Bonus paid is not allowable u/s 43B of the Income Tax Act, 1961. The lear....
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.... 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 being aggrieved by the order of the CIT (A). DISALLOWANCE UNDER SECTION 36(1)(iii) r.w.s. 57(iii) 5. The Assessing Officer, during the course of assessment proceedings, noticed that the assessee has given loans and advanc....
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....d 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. The taxpayer has internally generated resources to run business. The claim of the taxpayer is allowable u/s 37(1). The taxpayer cannot claim the benefit under a specific section like 36 (1)(iii). It can only claim it under a gener....
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....ee 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 treated the loss as arising out of speculative transaction as per provisions of section 43(5) and held the same as not to be allowed. On appeal, the CIT(A) held that the Assessing Officer has given a categorical finding with regard to the assessees involved in busine....
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.... 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 perusal of records, we notice that the Assessing Officer has considered the net loss computed by the assessee in the computation of income and has treated the same as speculative. On further perusal of the computation we notice that the said loss is computed after making various adjustments towards suo motu disallowances and items considered separately. Therefore, we are unable to appreciate the ba....
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.... 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 of the assessee as not allowable expense u/s.37 of the Act as not incurred wholly & solely for business purpose but to avoid tax on the same." 16. On further appeal, the CIT(A) upheld the disallowance made by the Assessing Officer stating that the assessee has not filed the return of income within the due date. 17. The Ld.AR submitted that the assessee before the lower authorities has shared all the relevant details wit....
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....d 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 stock-in-trade) 18,45,54,650 + 91,10,00,780 = 54,77,77,715/- (B) C. Average of total assets on first and last day or previous year 127,030,01,640 + 179,64,68,720 153,33,85,180/- (C) A X B/C 20,18,642 3. 0.5% of the 'B' above 27,38,888 Total disallowance u/s 14A r.w.r.8D 50,77,533 22. The CIT(A) on further appeal deleted the addition made under rule 8D(2)....
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.... 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 expenses has got a business incidence. On verification of details filed, it is observed that these expenses are not fully supported by proper bills/vouchers and certain expenses are incurred through self made vouchers in cash. Further, the hon'ble jurisdictional High Court in its judgment of Ramanad Sagar vs. DCIT reported in 256 ITR 134(BOM) has laid down that the burden of proof is on the assessee to establish beyond doubt that the expenditure has been solely incurred for the purpose of business. Further, the assessee has not maintained any log book/record for the use of these expenses....
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....ducted 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 furnished by the assessee. We also notice in this regard that the lower authorities did not call on the assessee to submit any further details nor did they confront the assessee with any defects in the supporting documents filed by the assessee. Given the volume of expenditure incurred by the assessee towards various expenses and considering the fact that assessee is part of IDFC in which government holds shares, the lower authorities are not correct in making adhoc disallowance without any specific adverse findings with regard to the details furnished substantiating the expenses. Accordingly we h....
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....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 that the entire TP adjustment is made without proper examining the TPSR of the assessee and the ALP is considered at Nil without any bench marking by the assessing officer. The CIT(A), though has held that additional evidence is admitted, has rejected the TP study to confirm the TP adjustment. Therefore, the Ld.AR prayed that the issue may go back to the Assessing Officer with a direction to examine the TPSR of the assessee. 30. The Ld.DR submitted that the assessee, inspite of several opportunities, did not submit the TPSR before the Assessing Officer, and therefore, the TPSR of the assessee cannot be....
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....ons 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 of the ALP of an international transaction or specified domestic transaction before seeking approval of the PCIT or CIT to refer the matter to the TPO for determination of the ALP: * where the taxpayer has not filed the Accountant's report under Section 92E of the Act but the international transactions or specified domestic transactions undertaken by it come to the notice of the AO,' * where the taxpayer has not declared one or more international transaction or specified domestic transaction in the Accountant's report filed under Section 92E of the Act and the said transaction or transactions come to the notice of the AO; and * where the taxp....
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....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 scrutiny on a TP risk parameter pertaining to one or more international transactions, then all the international transactions entered into by the taxpayer - except those about which the AO has decided not to make a reference as per paragraph 3.4 - shall be referred to the TPO. 3.7. For administering the transfer pricing regime in an efficient manner, it is clarified that though AO has the power under Section 92C to determine the ALP of international transactions or specified domestic transactions, determination of ALP should not be carried out at all by the AO in a case where reference is not made to the TPO. However, in such cases, the AO must record in the body of the assessment order that due to the Board's Instructi....