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2008 (9) TMI 612 - AT - Income TaxBusiness expenditure - Disallowance on account of remissery charges/sub-brokerage charges - Addition on account of loan taken from Shri Hitesh Joshi and Smt. Hansa Jhaveri - Disallowance of bad debts. Business expenditure - Disallowance on account of remissery charges/sub-brokerage charges - assessee failed to prove the genuineness of such expenditure - HELD THAT - It is the settled proposition of law that for claiming any expenditure the onus is always on the assessee to discharge the burden cast on him. In the instant case, the assessee failed to discharge the onus cast on him. The assessee at no point of time has furnished the details to substantiate the genuineness of payment of such commission/sub-brokerage. We find the AO in the body of the assessment order has given a finding that the assessee has earned brokerage income - We further find at no point of time the assessee has given the details of clients which were introduced by late Shailesh Sheth or the nature of services rendered by him to prove the genuineness of the payment. The various papers filed in the Paper Book are only self serving documents without proving the genuineness of the payments - In this view of the matter, we do not find any infirmity in the order of the CIT(A) in confirming the disallowance of sub-brokerage made by the AO. The ground raised by the assessee is dismissed. Addition on account of loan taken from Shri Hitesh Joshi and Smt. Hansa Jhaveri - assessee failed to prove the identity and creditworthiness of the loan creditors and the genuineness of the transactions - HELD THAT - Assessee has also not brought any other evidence before us so as to prove the identity and creditworthiness of the two persons and the genuineness of the transactions. Mere submissions by the ld counsel for the assessee that the matter may be sent back to the file of the AO so as to enable the assessee to produce the parties, in our opinion, has got no merit and do not find much force, especially in the absence of any fresh material - Therefore, we do not find any infirmity in the order of the ld CIT(A) sustaining the addition in the case of Shri Hitesh Joshi and in the case of Smt. Hansa Jhaveri as unexplained cash credit. Grounds of appeal Nos. 2 and 3 by the assessee are accordingly dismissed. Disallowance of bad debts - assessee is a stock/share broker registered with the stock exchange - On account of bad delivery or non-recovery of brokerage and cost of the scrip became due from different parties - revenue s contention is that, only brokerage which were taken into account while preparing the profit and loss account and in computing the income of the assessee, can only be considered as a bad debt for the purpose of deduction u/s 36(1)(vii) and not the remainder - HELD THAT - It is also evident from the record that any part of these amounts i.e., cost of the scrips, were never taken into account by the assessee in computing its income of the relevant previous year, as such, the condition laid down in sub-section (2) is not complied with for these debts - We are of the considered opinion that assessee is entitled to claim for deduction of the bad debt on its writing off in the books of account from its total income u/s 36(1)(vii) only with regard to the brokerage which has been taken into account while computing the total income of the assessee. Since the cost of the scrips were never taken into account, while computing the income of the assessee, it cannot be called to be the bad debt for the purpose of section 36(1)(vii). It can, at the most to be termed as the trading loss which can be allowed subject to fulfilment of other conditions prescribed in this regard. In the instant case, since the bifurcation of the brokerage and the cost of the scrip or compensation are not given, the matter is restored to the file of the AO to re-adjudicate the issue afresh. In the result, appeal of the assessee is allowed for statistical purposes.
Issues Involved:
1. Disallowance of sub-brokerage charges. 2. Addition of unexplained loans. 3. Disallowance of interest on bogus loans. 4. Disallowance of bad debts. Issue-wise Detailed Analysis: 1. Disallowance of Sub-brokerage Charges: The assessee challenged the disallowance of Rs. 11,62,897 made by the Assessing Officer (AO) on account of remissery charges/sub-brokerage charges. The AO observed that the assessee, a member of the Bombay Stock Exchange, failed to provide sufficient details to substantiate the sub-brokerage payments. Despite the assessee's claim that the sub-brokerage was paid to Mr. Shailesh Sheth for introducing clients, the AO disallowed the expense due to lack of confirmation and supporting documents. The CIT(A) upheld the AO's decision, noting that the assessee failed to produce Mr. Sheth or provide a death certificate, and the address given was found to be bogus. The Tribunal agreed with the CIT(A), emphasizing that the onus of proving the genuineness of the expenditure lies with the assessee, which was not discharged. Therefore, the disallowance was confirmed. 2. Addition of Unexplained Loans: The assessee contested the addition of Rs. 5 lakhs from Shri Hitesh Joshi and Rs. 50,000 from Smt. Hansa Jhaveri as unexplained loans. The AO made the addition due to the absence of loan confirmations containing basic details like PAN and the non-verifiability of the creditors' addresses. The CIT(A) sustained the addition after the AO's remand report confirmed that the addresses were bogus and the creditors were not produced for examination. The Tribunal upheld the CIT(A)'s decision, stating that the assessee failed to prove the identity, creditworthiness of the loan creditors, and the genuineness of the transactions, thus confirming the addition as unexplained cash credit. 3. Disallowance of Interest on Bogus Loans: The assessee also challenged the disallowance of interest paid to Shri Hitesh Joshi and Smt. Hansa Jhaveri amounting to Rs. 40,663. Since the loans from these parties were treated as bogus, the CIT(A) disallowed the interest. The Tribunal upheld this decision, noting that since the loans were not genuine, the interest paid on such loans could not be allowed as a deduction. 4. Disallowance of Bad Debts: The assessee claimed bad debts of Rs. 1,11,910, which the AO disallowed due to insufficient details. The CIT(A) upheld the disallowance, stating that the debts did not meet the conditions under section 36(2) of the Income-tax Act as they were not proved to be related to brokerage income. The Tribunal examined the nature of the debts and the relevant provisions of the Act, distinguishing between share traders and share brokers. It concluded that only the brokerage, which was taken into account in computing the income, could be considered as bad debt. The Tribunal restored the matter to the AO to re-adjudicate the issue, directing the AO to bifurcate the brokerage and the cost of the scrip or compensation and allow the deduction accordingly. Conclusion: The Tribunal dismissed the assessee's appeal on the issues of sub-brokerage disallowance, unexplained loans, and interest on bogus loans, while allowing the appeal for statistical purposes on the issue of bad debts, directing a re-examination by the AO.
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