2019 (10) TMI 1514 - AT - Income Tax

Disallowance being 75% of commission expenditure - HELD THAT - The assessee has neither substantiated the services rendered by the recipient of the commission nor furnished the addresses of the recipient of commission parties as a result the genuineness of the commission payment could not be established. Under the circumstances, we consider that the ld. CIT(A) has reasonably restricted the disallowance to 75% of the aforesaid expenditure claimed to be made to 774 parties, therefore, we do not find any infirmity in the decision of ld. CIT(A). Regarding claim of payment of commission to Smt. Padmaben M. Vora who was the mother in law of the assessee, it is observed that in spite of giving a number of opportunities by the assessing officer and ld. CIT(A), the assessee has failed to demonstrate the services rendered by her mother in law against which such huge commission was paid by the assessee. Even the assessing officer has examined Smt. Padmaben M. Vora mother in law of the assessee and recorded her statement u/s. 131(1) of the act and found that Smt. Padmaben M. Vora was not having any experience in stock broking business and she could not substantiate that what were services she had rendered to the assessee on the basis of which the assessee has paid commission to her. Considering the facts and circumstances, we do not find any error in the decision of ld. CIT(A) by holding that the recipient of the commission could not establish rendering of services to the assessee. Therefore, this ground of appeal of the assessee is also dismissed. Disallowance of salary expenses as outstanding during the year under consideration - HELD THAT - We observe that neither the assessee has fully substantiated the claim of outstanding salary expenses with relevant evidences nor the assessing officer has fully disproved the claim of the assessee that she has not deployed any employee during the year under consideration. Considering the above facts, we are of the view that it will be reasonable to restrict the disallowance to the extent of 50% of the outstanding salary to the amount of Rs. 4 lacs. Accordingly, this ground of appeal of the assessee is partly allowed. Short term capital gain as business income - HELD THAT - We observe that ld. CIT(A) has partly allowed the appeal of the assessee as per the alternative contention made by the assessee that share held for less than 30 days be treated as business income, therefore, we do not find any infirmity in the decision of ld. CIT(A). Accordingly, this ground of appeal of the assessee is rejected.

Summary

Issues:
1. Disallowance of commission expenditure
2. Disallowance of commission paid to a specific individual
3. Disallowance of salary expenses
4. Treatment of short term capital gain as business income

Issue 1: Disallowance of commission expenditure

The assessing officer disallowed a commission expenditure of Rs. 9,68,201 paid to 774 parties as the assessee failed to provide addresses and relevant details for verification. The assessee did not produce any party for examination. The disallowance was upheld by the CIT(A) to the extent of 75% of the claimed expenditure, amounting to Rs. 7,26,151. The ITAT found the decision reasonable as the genuineness of the payments could not be established due to lack of evidence.

Issue 2: Disallowance of commission paid to a specific individual

A payment of Rs. 9,35,000 as commission to the mother-in-law of the assessee was disallowed as the services rendered could not be substantiated. The mother-in-law was found to be inexperienced in the stock broking business and could not justify the payment received. The ITAT upheld the CIT(A)'s decision, stating that the recipient failed to establish the services rendered, leading to the disallowance.

Issue 3: Disallowance of salary expenses

The assessee claimed outstanding salary expenses of Rs. 8 lacs, but failed to provide complete employee details for verification. The assessing officer disallowed the amount under section 37 of the Income Tax Act. The ITAT partially allowed the appeal, restricting the disallowance to 50% of the outstanding salary, amounting to Rs. 4 lacs, as the assessee could not fully substantiate the claim.

Issue 4: Treatment of short term capital gain as business income

The assessing officer treated short term capital gain as business income due to the nature of the assessee's stock market activities. The CIT(A) partly allowed the appeal based on the alternative contention that shares held for less than 30 days should be treated as business income. The ITAT upheld the CIT(A)'s decision, finding no error in the treatment of short term capital gain.

In conclusion, the ITAT partly allowed the appeal, upholding the disallowances related to commission expenditure and salary expenses while rejecting the treatment of short term capital gain as business income. The decision was based on the failure of the assessee to substantiate expenses and services rendered, leading to the disallowances.