2018 (12) TMI 1398 - HC - Income Tax

Disallowance to 10% of the sub brokerage expenses - Held that - Taking into consideration the volume of the business, the assessing officer was directed to recompute disallowance at 10% of sub-brokers expenses claimed by the assessee in its books of accounts. We further note that that there is no dispute regarding genuineness of the expenses. The only issue with respect of percentage of expenses to be disallowed on account of payment made to the sub-brokers. We find that considering the facts and circumstances of the case, the Tribunal not accepting 20% disallowance and limiting the disallowance to 10% in these facts cannot be said to be perverse in any manner. Further, in any view of the matter the percentage of disallowance of expenses on the basis of estimate which is a plausible estimate, no substantial question of law would arise. Thus, both the appeals do not merit consideration.

Summary

Issues:
- Challenge to common order of the Income Tax Appellate Tribunal regarding disallowance of sub brokerage expenses for A.Ys. 2007-08 and 2009-10.

Analysis:
The appeals challenged the common order of the Income Tax Appellate Tribunal regarding the disallowance of sub brokerage expenses for the assessment years 2007-08 and 2009-10. The main question of law urged by the Revenue was whether the Tribunal was justified in restricting the disallowance to 10% of the sub brokerage expenses claimed by the respondent-assessee. The respondent, engaged in fee-based corporate financial services, debited sub-brokerage expenses of ?1.78 crores against total earnings of ?3.69 crores for A.Y. 2009-10. The assessing officer disallowed the entire expenses claimed by the respondent, stating that the payments to sub-brokers were not genuine.

The respondent's appeal to the Commissioner of Income Tax (Appeals) was dismissed, leading to further appeal to the Tribunal. The Tribunal noted that while the assessing officer doubted the genuineness of the services rendered by the sub-brokers and disallowed the entire expenditure, the respondent had filed an affidavit explaining the transactions. The Tribunal observed that the sub-brokers were common for the relevant assessment years and that no disallowance was made for A.Y. 2008-09. It also considered that disallowance was made to the extent of 20% for A.Y. 2010-11, which could not be directly applied due to differences in turnover. Therefore, after evaluating the facts and nature of the business, the Tribunal decided to restrict the disallowance to 10% for each of the assessment years under consideration.

The Revenue argued that the 20% disallowance should have been accepted, as done for A.Y. 2010-11. However, the Tribunal found that the volume of business in different years was not comparable, and the assessing officer was directed to recompute the disallowance at 10% of the sub-brokers' expenses claimed by the assessee. The Tribunal emphasized that there was no dispute regarding the genuineness of the expenses, and the only issue was the percentage of expenses to be disallowed due to payments made to sub-brokers. Ultimately, the Tribunal's decision to limit the disallowance to 10% was deemed reasonable and not perverse, as it was based on a plausible estimate. Therefore, both appeals were dismissed, upholding the Tribunal's decision on the disallowance of sub brokerage expenses.