2018 (4) TMI 406 - HC - Income Tax

Allowing compensation paid to sister concern - whether merely making payments which are recorded in the books does not prove the genuineness of the transaction being for the purpose of business ? - Held that - It found that, receipt of amount of compensation was reflected in the Profit & Loss Account of the sister concern. Besides, the particulars of the transaction which formed the basis of the compensation having been produced before the lower authorities. It also found that the sister concern had offered the aforesaid amount of ₹ 7.57 lakhs for tax. Consequently, it allowed the Appeal of the respondent, assessee by holding that the payment of compensation/brokerage was made for the purpose of business. - Decided in favour of assessee Appeal admitted on the substantial question of law at Sr. no.2 - Whether on the facts and in the circumstances of the case and in law, the Tribunal was right in allowing the addition made by the Assessing Officer of Short Term Capital Gain and treating it as speculative transaction without appreciating the fact that it was not the nature of transaction but the existence of transaction which needed to be proved?

Summary

Issues:
1. Whether the Tribunal was right in allowing compensation paid to sister concern without proving the genuineness of the transaction for the purpose of business?
2. Whether the Tribunal was correct in treating Short Term Capital Gain as a speculative transaction without proving the existence of the transaction?

Analysis:

Regarding Question No.1:
The respondent, a share-broker, paid compensation to a sister concern, which the Assessing Officer disallowed as brokerage due to lack of evidence. This resulted in an addition to the income for Assessment Year 2008-09. The CIT (A) upheld this decision, although acknowledging that the respondent had provided transaction details supporting the compensation paid. On further appeal, the Tribunal allowed the respondent's appeal by considering the evidence provided, including a computation of income, profit and loss account, and balance sheet of the sister concern. The Tribunal found that the compensation payment was reflected in the sister concern's Profit & Loss Account and that the sister concern had offered the amount for tax. Consequently, the Tribunal held that the compensation was paid for the purpose of business. The High Court noted that the Tribunal's findings were factual and not shown to be perverse. As the details of the transaction were produced before the lower authorities, the question did not give rise to any legal issue and was not entertained.

Regarding Question No.2:
The appeal was admitted on the substantial question of law related to whether treating Short Term Capital Gain as a speculative transaction required proof of the existence of the transaction. The High Court directed the Registry to provide a copy of the order to the Tribunal for further proceedings.

This detailed analysis of the judgment from the Bombay High Court highlights the issues raised, the arguments presented, and the court's reasoning and decisions for each question posed in the appeal under the Income Tax Act, 1961.