2014 (4) TMI 307 - AT - Income Tax

Disallowance of brokerage Brokerage paid for the services rendered in connection to procurement institutional clients - Held that - There is no change in the facts and circumstances of the case during the year - the allegations made by the AO that Porecha Brothers have low income are mere conjecture and surmises - onus is on the Revenue to prove that consideration paid by the assessee is in excess of the fair market value of the services for which such consideration is paid - there was proper documentation in the form of agreement between the assessee company and partnership firm but, the fact cannot be denied that the reports were prepared by the people attached to the partnership firm thus, it would be appropriate to allow the brokerage to the partnership firm to the extent of Rs.12 lakhs in each of the year as against Rs.15 lakhs paid by the assessee Decided partly in favour of Assessee. Enhancement of capital gain Sale of shares of BSE Held that - There is no justification in the action of the CIT(A) for allowing indexation from the year 2006, insofar as assessee company has taken the membership card from partnership firm in the year 1997 - the cost paid by the assessee company to the partnership firm is eligible for indexation from the year 1997 and not the year 2006 as per provisions of Section 55 (2)(b) r.w. clause (iii) of Explanation to Section 48 thus, there is no infirmity in the action of the assessee in claiming indexation from the year 1997 while computing capital gains on transfer of shares of BSE Ltd. Decided in favour of Assessee.

Summary

Issues:
1. Disallowance of brokerage paid to a sister concern.
2. Computation of long-term capital gain on sale of shares.

Issue 1: Disallowance of Brokerage Paid to a Sister Concern:
The appellant, a Private Limited Company engaged in share brokering business, paid brokerage to M/s Porecha Brothers, its sister concern, for services rendered in procuring institutional clients. The Assessing Officer (AO) disallowed the brokerage payment citing low income of M/s Porecha Brothers. However, the appellant provided details of services rendered and institutional clients, deducted tax at source, and made payments through proper documentation. The Tribunal found no change in circumstances from the previous assessment year where a similar claim was accepted. The AO alleged excess payment without proving it, but the Tribunal noted proper agreements and board meeting minutes supporting the payments. Despite reports bearing the appellant's name, they were prepared by the partnership firm. Considering the services rendered, the Tribunal allowed Rs. 12 lakhs as brokerage in each year, reducing the disallowed amount to Rs. 3 lakhs.

Issue 2: Computation of Long-Term Capital Gain on Sale of Shares:
The appellant received shares in BSE Ltd. in 2006 in exchange for the stock exchange card acquired in 1997. The AO allowed indexation only from 2006, contrary to the appellant's claim from 1997. Referring to a relevant case, the Tribunal clarified that indexation should be based on the WDV of the stock exchange card if depreciation was claimed. Since no depreciation was claimed, the original cost paid by the appellant should not be reduced. The Tribunal upheld the appellant's claim for indexation from 1997, ensuring the correct computation of long-term capital gains on the sale of shares of BSE Ltd.

In conclusion, the Tribunal partially allowed the appeals of the assessee, resolving the issues related to the disallowance of brokerage paid to a sister concern and the computation of long-term capital gain on the sale of shares.