2012 (7) TMI 204 - AT - Income Tax

Disallowance of detention charges - A.O. stated that such detention charges are penal in nature and therefore cannot be allowed as deduction - Held that - The expenditure incurred by the assessee for delay in returning the containers is a normal and regular procedure of custom and as such the payment is nothing but in the nature of demurrage and simply because it is paid to the custom department, the nature cannot be changed - the disallowance made by the AO was not justified - favour of assessee. Disallowance of commission - Held that - As the assessee has duly explained the nature of services rendered by the companies to whom commission was paid by account payee cheques. Such commission is a normal business expenditure keeping in view the nature of business the assessee was engaged, dis - allowance is not warranted - in favour of assessee. Treatment of profit of sale of shares - whether as Short term capital gain or business income - Held that - As the AO himself has accepted that the assessee had made investment in limited number of shares and that profit on shares held for more than 12 months as long term capital gain no point to treat the gain arising out of same class of shares held for less than one year as business income - in favour of assessee.

Issues:
1. Disallowance of detention charges as penal in nature.
2. Deletion of disallowance of commission.
3. Treatment of profit from sale of shares as capital gain.

Issue 1: Disallowance of Detention Charges
The Appellate Tribunal ITAT, Indore addressed the disallowance of detention charges amounting to Rs. 2,82,702 by the Assessing Officer, considering it penal in nature during the scrutiny assessment. However, the Commissioner of Income Tax (Appeals) deleted the addition, emphasizing that detention charges were contractual in nature and not a violation of any law. The Tribunal concurred with the Commissioner's findings, stating that the charges were for delay in returning containers, a regular custom procedure, akin to demurrage, and allowable as expenditure under Section 37(1) of the Act.

Issue 2: Deletion of Disallowance of Commission
The next issue revolved around the deletion of disallowance of commission amounting to Rs. 1,20,644. The Assessing Officer disallowed the commission expenditure due to the non-furnishing of income tax return copies of the recipients. The Commissioner of Income Tax (Appeals) overturned this disallowance, noting that the commission payments were genuine, supported by debit notes and account payee cheques. The Tribunal upheld this decision, highlighting the reasonable nature of the commission payments in relation to the business turnover and the substantiated documentation provided by the assessee.

Issue 3: Treatment of Profit from Sale of Shares
The final issue concerned the classification of profit from the sale of shares as either capital gain or business income. The assessee had both long-term and short-term capital gains from share transactions, alongside declared business profit from shares without delivery. The Commissioner of Income Tax (Appeals) directed the short-term capital gains on delivery-based shares held for less than 12 months to be treated as such, aligning with judicial precedents and the intention of the assessee in investing in shares for dividend income. The Tribunal upheld this decision, emphasizing the investment motive behind the transactions and the consistent treatment of shares based on holding period, in line with legal principles and prior court rulings.

In conclusion, the Appellate Tribunal ITAT, Indore dismissed the revenue's appeal, affirming the decisions of the Commissioner of Income Tax (Appeals) on all issues, including the disallowance of detention charges, deletion of commission disallowance, and treatment of profit from share sales. The judgment provides a detailed analysis of each issue, considering factual circumstances, legal interpretations, and precedents to arrive at fair and just conclusions.

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