2019 (7) TMI 1860 - AT - Income Tax

Expenses claimed u/s 57 - various expenses incurred by the assessee viz. PMS charges professional fees salary is integral to the investment activity undertaken by him and to earn the income returned in the return of income for the previous year - admission of additional evidence of assessee accepted - HELD THAT - PMS charges - There is no mention about any investment in foreign securities in this PMS agreement. This is also seen that as per the balance sheet the investment in Indian companies is only about securities and not any bank deposit income of which is taxable. Hence on the entire investment of the assessee through PMS the only income which can be earned is dividend income or capital gain and none of these two incomes is taxable under the head Income from other sources and therefore such expenses is not allowable u/s. 57(iii) of the IT Act. Hence the additional evidence filed by the assessee is not rendering any help to assessee in the present case. The second major head of expenses is Salary and bonus - the narrations given in the ledger account the name of the employees is given and there is no such detail as to what work is entrusted to these employees and whether the work entrusted to these employees is regarding earning of income taxable under the head Income from other sources . Hence this expenditure on Salaries and bonus is not correlated by assessee with earning of income taxable under the head Income from other sources and therefore this expenditure of Salaries and bonus is also not allowable u/s. 57(iii) of the IT Act. Professional charges - only detail available is this as to whom it was paid and for which period. There is no such detail available as to whether such professional charges is in respect of earning of income taxable under the head Income from other sources and therefore even after considering the additional evidence these expenses of Professional charges also cannot be held to be allowable u/s. 57(iii). Hence it is held that these three expenses i.e. PMS charges Salaries and bonus and Professional charges are not allowable u/s. 57(iii) of the IT Act and the remaining expenses is very small and less than the amount of expenses already allowed by the AO.- Decided against assessee.

Summary

Issues Involved:
1. Disallowance of expenses claimed under Section 57 of the Income Tax Act, 1961.
2. Consideration of additional evidence under Rule 29 of ITAT Rules, 1963.
3. Alternative claim for deduction under Section 48 of the Income Tax Act, 1961.

Detailed Analysis:

1. Disallowance of Expenses Claimed under Section 57:

The primary issue revolves around the disallowance of ?18,60,702 claimed by the assessee under Section 57 of the Income Tax Act, 1961. The assessee argued that various expenses such as PMS charges, professional fees, and salaries are integral to the investment activity and should be allowed as deductions. The assessee also voluntarily disallowed a portion of the expenditure related to exempt income under Section 14A. However, the Tribunal noted that the expenses claimed under Section 57 must be "laid out or expended wholly and exclusively for the purpose of making or earning such income" under the head 'Income from Other Sources'. The Tribunal found that the major expenses, including PMS charges, salaries, and professional charges, were not sufficiently correlated with earning taxable income under this head. Therefore, these expenses were not allowable under Section 57(iii).

2. Consideration of Additional Evidence under Rule 29:

The assessee submitted additional evidence to support the claim for expenses under Section 57, citing the Tribunal's earlier order for Assessment Year 2012-13, which disallowed similar claims due to lack of specific details. The Tribunal admitted the additional evidence but found that it did not provide any new or relevant information to support the claim. The additional evidence included ledger extracts and contracts, but these did not demonstrate that the expenses were incurred to earn taxable income under 'Income from Other Sources'. Consequently, the additional evidence did not help the assessee's case, and the disallowance was upheld.

3. Alternative Claim for Deduction under Section 48:

The assessee alternatively argued that if the expenses were not allowable under Section 57, they should be considered as part of the cost of acquisition or as expenses incurred wholly and exclusively in connection with the transfer of securities under Section 48 for the purpose of computing capital gains. The Tribunal rejected this argument, stating that the expenses in question were not related to the cost of acquisition, improvement, or transfer of the capital asset. Therefore, the alternative claim under Section 48 was also dismissed.

Conclusion:

The Tribunal upheld the disallowance of ?18,60,702 claimed under Section 57, finding that the expenses were not sufficiently linked to earning taxable income under 'Income from Other Sources'. The additional evidence submitted by the assessee did not provide any new support for the claim. The alternative argument for deduction under Section 48 was also rejected. Consequently, the appeal filed by the assessee was dismissed.