2018 (9) TMI 702 - AT - Income Tax

Payment towards membership of OTC (Delhi stock exchange) - nature of expenditure - AR submitted that membership of OTC enables assessee to use its facilities and do not result in creation of asset of enduring nature so as to held expenditure as capital in nature - provision made for doubtful advance for membership - Held that - Assessee in present facts of case has written off a sum of ₹ 20 Lacs, which is alleged to have been given to Delhi Stock Exchange, towards its membership, which was denied. As these were non-refundable in nature, Delhi stock exchange did not refund the said amount to assessee. Assessee before us has not established by way of documentary evidences regarding its dealing in commodities exchange/shares etc., for which it could have benefited from membership of Delhi stock exchange. Further reason for rejection of its membership by Delhi stock exchange is also not known. It is further observed that assessee has not taken any steps to recover the money from Delhi stock exchange and therefore under such circumstances we do not see necessary fulfilment of section 36(1)(vii) of the Act, in any manner whatsoever. We therefore do not find any reason to interfere with observations of Ld. CIT (A) and the same is upheld. Accordingly ground raised by assessee stands dismissed.

Summary

Issues:
1. Addition of provision for doubtful advance in computation of income.
2. Disallowance under section 14 A read with Rule 8D.
3. Alleged payment towards membership of OTC (Delhi Stock Exchange).

Analysis:
1. The case involved the addition of a provision for doubtful advance in the computation of income. The Assessing Officer (AO) observed that the assessee, engaged in the business of engineering, had made a provision for doubtful advances written off amounting to ?20 lakhs, which was not added back in the income computation. The AO issued a show cause notice to the assessee regarding the addition of the provision. The assessee claimed the amount as a business expenditure, stating it was a payment made for membership of OTC (Delhi Stock Exchange) which was not refunded. However, the AO rejected the contentions and disallowed the ?20 lakhs, adding it back to the income of the assessee.

2. Additionally, the AO made an addition under section 14 A read with Rule 8D. Upon appeal, the Commissioner of Income Tax (Appeals) upheld the addition of ?20 lakhs but deleted the addition made under section 14 A read with Rule 8D. The assessee, aggrieved by the order of the Commissioner, appealed before the Appellate Tribunal.

3. The main issue raised by the assessee pertained to the alleged payment of ?20 lakhs towards membership of OTC (Delhi Stock Exchange). The assessee argued that the membership fee did not result in the creation of an enduring asset and should be treated as a revenue expenditure. The assessee cited relevant case laws to support its claim. On the contrary, the Departmental Representative contended that the membership application was rejected by the exchange, and the amount was not refunded, justifying the write-off as bad debts. The Departmental Representative argued that the assessee failed to fulfill the requirements under section 36(1)(vii) to claim the amount as bad debts.

In the final judgment, the Tribunal observed that the assessee had not provided documentary evidence regarding its dealings in commodities exchange or shares to benefit from the membership of the stock exchange. Moreover, the Tribunal noted that the assessee did not take any steps to recover the money from the stock exchange. Consequently, the Tribunal upheld the decision of the Commissioner, dismissing the appeal filed by the assessee.