2011 (8) TMI 259 - AT - Income Tax

Disallowance - Expenses of commission and brokerage - Assessee established the genuineness of payment of commission/brokerage by furnishing PAN details of brokers and all of them reflected brokerage in their individual returns, the ld. CIT(A) allowed the claim - Decided in favour of assessee. Keyman insurance premium - mercantile system of accounting - benefit of the same was availed for a longer period - Since the liability had arisen in the previous year and it was a single premium policy in respect of which the agreement with insurance company had been entered in to by the assessee, expenses to be allowed in the year when paid. Incentive payment to staff - Genuineness of payment was not doubted while deduction was allowed on account of similar payment in the preceding year - Expenses allowed. Treatment of capital gains as business income - Long term capital gain and short term capital gain was earned on sale of mutual funds and a small amount represented from bonds and equity shares - Since the shares and mutual funds were shown as investments in balance sheet, the ld. CIT(A) concluded that that there was no justification for treating the said income as business income - Revenue did not place any material before us in order to controvert these findings of facts recorded by the ld. CIT(A) nor placed any such material, evidencing that the assessee was carrying on the business of trading in shares, so as to enable us to take a different view in the matter - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of commission and brokerage expenses.
2. Disallowance of Keyman Insurance Premium.
3. Disallowance of incentive payment.
4. Treatment of Short Term Capital Gain (STCG) and Long Term Capital Gain (LTCG) as business income.
5. General grounds for upholding the Assessing Officer's (AO) order.
6. Prayer for setting aside the CIT(A) order and restoring the AO's order.

Detailed Analysis:

1. Disallowance of Commission and Brokerage Expenses:
The AO disallowed Rs.18,26,800/- claimed by the assessee for commission and brokerage due to lack of documentary evidence and justification for the payments. The AO also noted discrepancies in the bills and non-deduction of TDS for a portion of the amount. The CIT(A) deleted the disallowance, observing that brokerage payments were customary, and the assessee provided PAN details of brokers who declared the brokerage in their returns. The Tribunal upheld the CIT(A)'s decision, noting that similar payments were allowed in previous years and the Revenue did not provide contrary evidence.

2. Disallowance of Keyman Insurance Premium:
The AO disallowed Rs.9,97,260/- of the Keyman Insurance Premium paid for a director, arguing it should be prorated under the mercantile system. The CIT(A) deleted the disallowance, stating the premium covered the director's life and was fully deductible in the year of payment. The Tribunal agreed, emphasizing that the liability arose in the year under consideration, and previous similar payments were fully allowed.

3. Disallowance of Incentive Payment:
The AO disallowed Rs.1,65,000/- paid as incentives due to lack of business expediency and detailed evidence. The CIT(A) deleted the disallowance, noting that the payments were genuine staff incentives and similar payments were allowed in previous years. The Tribunal upheld this view, finding no basis to interfere as the Revenue did not provide contrary evidence.

4. Treatment of STCG and LTCG as Business Income:
The AO treated Rs.1,98,355/- (STCG) and Rs.3,50,845/- (LTCG) as business income due to the volume and frequency of transactions. The CIT(A) reversed this, noting that the gains were from mutual funds and bonds, shown as investments in the balance sheet. The Tribunal upheld the CIT(A)'s decision, finding no evidence that the assessee was engaged in share trading as a business.

5. General Grounds for Upholding AO's Order:
Grounds 5 and 6 were general prayers for upholding the AO's order and did not require separate adjudication. The Tribunal dismissed these grounds due to lack of specific submissions.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s deletions of disallowances and reclassifications, and affirming the treatment of gains as capital gains rather than business income. The order was pronounced on 12.8.2011.