2015 (5) TMI 543 - AT - Income Tax

Disallowance of compensation paid to sister concern for executing transactions on the Bombay Stock Exchange - Held that - Assessee has submitted its computation of total income, balance sheet for the relevant assessment year along with details of brokerage received by HCGSSL from which it is clear that the sister concern HCGSSL declared the said amount in their profit and loss account which is placed. Even the CIT(A) has also observed that assessee has produced the particulars of the transaction and the basis on which the compensation of ₹ 7,57,600/- was paid to the said HSSBL. We found that the payment was made out of commercial expediency and for the purpose of business expenditure. The details of brokerage received by the HCGSSL filed before the lower authorities indicates that the sister concern has already offered the said amount for taxation. Accordingly, we direct the AO to delete the disallowance. - Decided in favour of assessee. Audit fees disallowed - Held that - As no TDS was deducted therefrom. We confirm the action of the AO for the disallowance so made. - Decided against assessee. Disallowance of professional fees - no TDS was deducted - Held that - assessee has deducted and paid tax on the professional fees on 30-7-2008, which was before the due date of filing return of income. In view of the decision of Virgin Creation 2011 (11) TMI 348 - CALCUTTA HIGH COURT and the decision of Oracle Software India Ltd., 2007 (5) TMI 204 - DELHI High Court ) amendment made in Section 40(a)(ia) by the Finance Act, 2010, which provides for deductibility of expenditure if TDS paid within return filing due date, amendment is curative in nature, therefore, should be given retrospective operation. Accordingly, we direct the AO to verify the date of actual payment of TDS and if he finds that the same was paid before the last date of filing of the return, he should delete the disallowance so made. - Decided in favour of assessee for statistical purposes. Disallowance of expenditure on repairs and maintenance - assessee has not provided details of TDS deducted u/s.194C/194J - Held that - CIT(A) directed the AO to allow the said expenditure after perusal of the bills along with the log book with reference to the provisions of Section 40(a)(ia) of the I.T.Act. We do not find any infirmity in this direction of CIT(A).- Decided in favour of assessee Disallowance of loss on trading in derivative transactions by treating the same as bogus - Held that - Considering the entire material placed on record vis- -vis the questions and answers given by the assessee as well as by Directors of M/s Trishla Commodities, answers given during the course of cross verification, we found that assessee was not registered in Multi Commodities exchange as client of Trishla during the year under consideration. The transaction entered by the assessee was off market, wherein registration with MCX was not required. As per the bills, copy of the account of derivatives, bank statement evidencing the payment, we hold that transaction was off market and speculative in nature. Thus the loss so incurred was speculative loss, which is not eligible for set off against the long term capital gains declared by assessee. However, such speculation loss is eligible to be carried forward u/s.73(1) to be set up against speculation profit only in the subsequent year as per provisions of law. - Decided in favour of assessee.

Issues Involved:
1. Disallowance of Rs. 7,57,600 as compensation to sister concern.
2. Disallowance under section 40(a)(ia) - Rs. 8,05,864.
3. Disallowance of repairs and maintenance expenses - Rs. 4,36,848.
4. Disallowance of short-term capital loss - Rs. 1,55,41,499.
5. Trading in derivatives - whether speculative transaction.

Issue-wise Detailed Analysis:

1. Disallowance of Rs. 7,57,600 as Compensation to Sister Concern:
The assessee, a share broker, paid Rs. 7,57,600 to its sister concern HSSBL for executing transactions on the Bombay Stock Exchange. The AO disallowed this payment, arguing that it was made as compensation to a sister concern and not as a broker, and that the assessee failed to furnish its books of account for verification. The CIT(A) confirmed the AO's action, noting that the assessee did not produce the sister concern's return of income to verify if the income was offered to tax. However, the Tribunal found that the payment was made out of commercial expediency and for business purposes. The assessee provided sufficient documentation, including the sister concern's profit and loss account, indicating that the amount was offered for taxation. Consequently, the Tribunal directed the AO to delete the disallowance.

2. Disallowance under Section 40(a)(ia) - Rs. 8,05,864:
The AO disallowed demat transaction charges, general charges-BSE, and transaction charges-BSE totaling Rs. 7,17,662, and audit fees of Rs. 38,202 due to non-deduction of TDS. The Tribunal confirmed the disallowance of audit fees. Additionally, professional fees of Rs. 50,000 were disallowed because the tax was not deducted at source. However, the Tribunal noted that the assessee deducted and paid the tax before the due date of filing the return. Citing the Kolkata High Court's decision in Virgin Creation and the Delhi High Court's decision in Oracle Software India Ltd., the Tribunal held that the amendment to Section 40(a)(ia) by the Finance Act, 2010, is retrospective. Therefore, the Tribunal directed the AO to verify the date of TDS payment and delete the disallowance if the tax was paid before the return filing due date.

3. Disallowance of Repairs and Maintenance Expenses - Rs. 4,36,848:
The AO disallowed the expenditure on repairs and maintenance, citing the assessee's failure to provide details of TDS deducted under sections 194C/194J. The CIT(A) directed the AO to allow the expenditure after verifying the bills and log book in accordance with Section 40(a)(ia). The Tribunal found no infirmity in this direction and upheld the CIT(A)'s order.

4. Disallowance of Short-term Capital Loss - Rs. 1,55,41,499:
The AO disallowed the short-term capital loss on trading in derivatives, treating it as bogus. The CIT(A) upheld this disallowance. The Tribunal considered the statements of the assessee's directors and the proprietor of M/s Trishla Commodities, through whom the transactions were conducted. The Tribunal found that the transactions were off-market and speculative in nature, not requiring registration with MCX. The Tribunal concluded that the loss was speculative and not eligible for set-off against long-term capital gains but could be carried forward under Section 73(1) for set-off against future speculative profits.

5. Trading in Derivatives - Whether Speculative Transaction:
The Tribunal held that the transactions in derivatives were speculative, as the assessee did not take possession of the traded goods. Consequently, the loss incurred was speculative and could not be set off against long-term capital gains. However, it could be carried forward for set-off against future speculative profits.

Conclusion:
The Tribunal allowed the appeal in part, directing the AO to delete certain disallowances and confirming others based on the evidence and legal provisions. The order was pronounced in open court on April 22, 2015.

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