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TMI Blog2004 (12) TMI 626X X X X Extracts X X X X X X X X Extracts X X X X ..... essentially of such a nature that there cannot even be any generalizations about as to what should be the fair market value. The charges of professional advice of X lawyer may not necessarily comparable with the charges of Y lawyer, and same should be the case of investment consultants. The factum of expenditure, as also the expenditure being in the nature of business expenses, is not in doubt. There is no material to even suggest, leave aside establish, that the expenditure incurred by the assessee is excessive vis-a-vis the fair market value of such services. We are, therefore, of the considered view that it was not a fit case for invoking the provisions of section 40A(2) on the facts of the case. The CIT(A) should have deleted the entire disallowance. On this issue, therefore, we uphold the contention of the assessee and reject the contention of the revenue. The entire disallowance is to be deleted. Ground No. 3 in revenue s appeal is dismissed and ground No. 3 in assessee s appeal is allowed. Interest to clients on Government securities - loss incurred for unauthorised use of public money is not be allowed as a deduction in business expenditure - HELD THAT:- As a matter of fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... him to backtrack now and demand re-verification of claim. Barring this rider, the Assessing Officer shall examine all the claims for losses afresh in accordance with the above directions. Ground No. 7 in revenue s appeal and ground Nos. 8 to 18 in assessee s appeal are thus allowed for statistical purposes. The appeal filed by the revenue is, therefore, partly allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... professional charges. 11. In fact, while the Assessing Officer had disallowed the entire sum of Rs. 9,70,000 paid to Circon Research & Consultancy Services Private Limited on account of professional charges, the CIT(A) has restricted the disallowance to 50% i.e. 4,85,000. The revenue is aggrieved of the disallowance being restricted to 4,85,000, whereas the assessee, vide ground No. 3 in assessee's appeal, is aggrieved of the disallowance being made to the extent of Rs. 4,85,000. Both of these grounds are, therefore, being taken up together. 12. The material facts are like this. The assessee is a share, stock and security broker, and is a member of the Bombay Stock Exchange. During the relevant previous year, the assessee made a payment of Rs. 9,70,000 to one Circon Research & Consultancy Services Private Limited, admittedly a sister concern, on account of professional charges. In response to Assessing Officer's requisition to explain the nature of services received from the said company, the assessee had submitted that Circon is a research organization specializing in economic, monetary and investment research. It was also submitted that the said concern collects the data and gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reasonable shall not be allowed as deduction. The emphasis is on the market value of the goods or services and not on the costs of such goods or services to the sister concern. The Assessing Officer, however, has only examined the costs of printing the material obtained from Circon first mistake is that the Assessing Officer is looking at the cost and not the fair market value, as is the mandate of the section. The second mistake is that the Assessing Officer has only though about the printing costs - an approach which clearly proceeds on the assumption that whatever is being published is worthless information already in public domain. It is like saying that because printing cost of a particular book cannot be more than Rs. 10, even though its recommended retail price is Rs. 100, section 40A(2) will come to play if an assessee buys that book from a sister concern for Rs. 11. Thirdly, the assessee does not take into account the research costs at all. The CIT(A) has also dealt with the matter at an equally superficial level by only modifying the quantum and without giving any cogent finding about the conditions of applicability of section 40A(2) being satisfied. Unless there is a cle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee in carrying on such fraudulent activity cannot be allowed as a deduction from the Income'. On the matter being carried in appeal, however, the CIT(A) reversed the action of the Assessing Officer. Revenue is aggrieved and in appeal before us. 19. We agree with the well reasoned stand of the CIT(A). Money market in India was, at the material point of time, and is still in its infancy, and the conventions and normally acceptable practices have not yet been codified. As a matter of fact, use of public funds, through such transactions, for financing own business was common enough for the brokers to be termed as a normal financing mode. The very funding of the working capital in the cases of some brokers may be through unscrupulous means but as long as the interest is paid for using the funds which are employed in business, interest continues to be an allowable deduction. The use of fraudulent means to raise the funds, by itself, does not make the interest non-deductible, more so when interest is beyond doubt or dispute compensatory in nature. The payment of interest in such cases cannot be said to be public policy either. In view of these discussions, we approve the conclusions ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g in mind entirety of the case, we are of the view that the CIT(A) ought to have deleted the entire disallowance. We, therefore, reject revenue's grievance on this issue and uphold the assessee's grievance on the same. 26. Accordingly, ground No. 5 is revenue's appeal is dismissed and ground No. 4 in assessee's appeal is allowed. 27. In ground No. 7, revenue is aggrieved that the CIT(A) erred in deleting the disallowances aggregating to Rs. 69,73,557 in respect of various losses claimed against income from Government securities. Specific mention is made about payment of Rs. 2,45,000 to Bank of Madura (based on debit note only), payment of Rs. 2,25,000 to Bank of Madura (based on transfer credit memo; insufficient details), payment of Rs. 1,70,000 to Bank of Madura (only part details; full details not on record) and payments of Rs. 1,33,750 and Rs. 1,78,312 to Naresh Agarwal (based on confirmatory letter alone; insufficient details). 28. In connected ground Nos. 8 to 18 in assessee's appeal, grievance is raised about loss incurred in securities and paid to SBI (Rs. 9,86,793, Rs. 4,00,000, Rs. 1,42,500 and Rs. 5,73,034), disallowance of Rs. 3,80,000 and Rs. 8,67,000 paid to Harsha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to whom gifts have been given' and other relevant details have not been filed. It is also observed that in the absence of details, it is not possible for the Assessing Officer to treat the same as legitimate business expenditure and allow the deduction in respect of the same. The assessee is aggrieved and is in appeal before us. 36. While we have no quarrel with the preposition, so strenuously argued by the learned counsel, that the said expenditure is in the nature of business expenditure and should be fully allowed in principle, we find that the all the related facts to substantiate and establish the factum of expenditure being for business purposes, are not on record. We, therefore, see no need to interfere in the matter. 37. Ground No. 1 is dismissed. 38. The only other ground of appeal before us is that the CIT(A) erred in sustaining the disallowance of Rs. 4,59,214 (including Rs. 24,710 for purchase of telephone equipment and Rs. 37,300 for purchase of air conditioners), treating the same as capital expenditure, out of repairs and maintenance expenses. As far as telephone equipment and AC costs are concerned, and without the benefit of any substantive arguments in support ..... X X X X Extracts X X X X X X X X Extracts X X X X
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