2017 (9) TMI 1767 - AT - Income Tax

Disallowance of expenses not relating to long term capital gain - assessee also seeks direction to assess the Long term capital gains at concessional rate of tax - assessee is a share trading and investment company - Held that - As earlier noticed that the assessee has generated income only by way of capital gains out of its investment activities. In that case, the natural corollary is that the services of the directors and employees have been mainly used in connection with the investment activities only. It is also true that the directors and employees would have contributed in connection with the corporate activities related to maintaining corporate structure. It is the view that 25% of salary expenses incurred on directors as well as other staffs can be considered as having been incurred in connection with maintaining corporate structure. Accordingly modify the order passed by CIT(A) on this issue and direct the AO to treat 25% of the salary expenses as revenue expenses incurred in maintaining corporate structure. The assessee has not given details of office expenses of ₹ 3,121/-. Hence, in my view, 50% thereof may be considered as incurred in maintaining corporate structure and allowed. Interest expenditure, demat charges and security transaction charges cannot be considered as expenses relating to maintaining corporate structure. Accordingly confirm the disallowance of the same. The assessee has not explained the nature of Stock exchange expenses and legal expenses. Hence no other option but to confirm their disallowance. Direct the AO to compute the expenses allowable as per the discussions made supra. The next ground urged by the assessee relates to the tax computed by the assessee. A.R submitted that the assessing officer has computed tax on the capital gain arising in off-market transactions at regular rate, whereas they have to be taxed at concessional rate. Set aside this issue to the file of the AO to examine the claim of the assessee. - Appeal of the assessee is partly allowed.

Summary

Issues:
1. Disallowance of expenses not relating to long term capital gain
2. Treatment of administrative expenses as revenue expenditure for maintaining corporate structure
3. Disallowance of various expenses by AO and CIT(A)
4. Tax computation on capital gains at concessional rate

Issue 1: Disallowance of Expenses not Relating to Long Term Capital Gain
The appeal was filed against the disallowance of expenses amounting to ?13.87 lakhs not related to long term capital gain earned by the assessee. The assessee sought direction to assess long term capital gains at a concessional tax rate.

Issue 2: Treatment of Administrative Expenses as Revenue Expenditure for Maintaining Corporate Structure
The Tribunal observed that while certain expenses were allowed by the AO in a previous assessment year, the total expenditure had increased in the current year. The Tribunal directed the AO to determine reasonable expenditure required to maintain the corporate structure and allow it as revenue expenditure.

Issue 3: Disallowance of Various Expenses by AO and CIT(A)
The AO disallowed several expenses including salary, stock exchange expenses, demat charges, legal expenses, security transaction tax, office expenses, and interest paid. The CIT(A) confirmed the disallowance due to the lack of detailed expense information provided by the assessee.

Issue 4: Tax Computation on Capital Gains at Concessional Rate
The AO computed tax on capital gains from off-market transactions at the regular rate instead of the concessional rate claimed by the assessee. The Tribunal set aside this issue for the AO to re-examine the tax computation.

In conclusion, the Tribunal partially allowed the appeal, directing the AO to recompute allowable expenses and review the tax computation on capital gains. The judgment emphasized the treatment of expenses related to maintaining corporate structure as revenue expenditure and highlighted the importance of providing detailed expense information for proper assessment.