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TMI Blog2015 (11) TMI 177X X X X Extracts X X X X X X X X Extracts X X X X ..... ved the payments having been made to the parties for services rendered by them. Likewise wise the sub-brokerage to JMSSB was paid for primary market transactions. In view of these facts and observations , we are of the view that the disallowances of ₹ 1,05,000 paid to Jaswant Shah, ₹ 1,07,125/- paid to Ramco Financial Services, ₹ 82,27,229/- C.S. Boston (Hong Kong) Ltd and ₹ 91,839/for primary market transactions paid to JMSSB were not justified as these expenses were incurred by the assessee for the purpose of business as assessee required the services of sub-brokers to carry out business in stock market Mumbai and also activities in the primary markets on behalf of its clients and thus these disallowances are hereby deleted. - Decided in favour of assessee in part. Disallowance u/s. 40A(2)(b) - Held that:- We note that the provisions of section 40A(1) begins with non abstante clause & (2) provides that where the assessee has incurred any expenditure by making the payment to any person as referred to clause( b) which is excessive , unreasonable having regard to the fair market value of that expenditure or services or goods, then so much of the expenditur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ff by this common order for the sake brevity and convenience. We first take the ITA No 3493/Mum/2013. The grounds raised in the form No 36 for assessment year 1997-98 read as under:- A) Considering business loss as Speculation loss - ₹ 1,46,03,171/- 1) The learned Commissioner of Income Tax (Appeals) 4, Mumbai [CIT(A)] erred on facts and in law in upholding the order of the Additional Commissioner of Income Tax, Special Range 49, Mumbai (AO) considering the business loss suffered by the appellant amounting to ₹ 1,46,03,171/as the speculation loss as per the provisions of Explanation to section 73. 2) The appellant prays that your honour hold that the business loss suffered by the appellant amounting to ₹ 1,46,03,171/cannot be considered to be speculation loss as per the provisions of Explanation to section 73. B) Disallowance of sub-brokerage - ₹ 89,32,288/- 3) The learned CIT(A) erred on facts and in law in confirming the order of the AO disallowing the subbrokerage paid by the appellant to the extent of ₹ 89,32,288/on the alleged ground that the appellant had not explained the nature and genuineness of the said subbrokerage no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry out the work for the clients of the assessee in the stock exchange in Bombay , the assessee had to hire the services of other sub-brokers to whom sub-brokerage was paid as per the rates prescribed by the Bombay Stock Exchange. 7. The AO disallowed the sub brokerage paid to various sub-brokers on the ground that assessee did not furnish the details/evidences regarding such sub-brokerage paid, confirmations of parties and nature of services rendered by them as per details below:- Sr. No. Name of the Party Amount (i) Mukesh Purohit 18,968/- (ii) Jaswant Shah 1,05,000/- (iii) Ramco Financial Services 1,07,125/- (iv) Jitesh Shah 37,360/- (v) C.S. First Boston 82,27,229 (vi) JMSSB 91,839/- (vii) Other Subbrokers 3,44,767 Total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x by the assessee suo motto upon denial of permission to remit the payment by the Reserve Bank of India on 20th November, 1997 . As the assessee had filed confirmations from two parties exhibited at page no 143 144 of the paper book and also proved the payments having been made to the parties for services rendered by them. Likewise wise the sub-brokerage to JMSSB was paid for primary market transactions. In view of these facts and observations , we are of the view that the disallowances of ₹ 1,05,000 paid to Jaswant Shah, ₹ 1,07,125/- paid to Ramco Financial Services, ₹ 82,27,229/- C.S. Boston (Hong Kong) Ltd and Rs. 91,839/for primary market transactions paid to JMSSB were not justified as these expenses were incurred by the assessee for the purpose of business as assessee required the services of sub-brokers to carry out business in stock market Mumbai and also activities in the primary markets on behalf of its clients and thus these disallowances are hereby deleted. Therefore, the ground no. 2 of assessee s appeal is partly allowed. 13. Ground no. 3 is against disallowance of ₹ 43,04,449/- u/s 40A(2)(b). 14. The assessee made payment of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 462 . 17. We have considered the rival submissions and perused the relevant material on record including the various decisions relied upon by the assessee. We note that the provisions of section 40A(1) begins with non abstante clause (2) provides that where the assessee has incurred any expenditure by making the payment to any person as referred to clause( b) which is excessive , unreasonable having regard to the fair market value of that expenditure or services or goods, then so much of the expenditure as is considered excessive and unreasonable shall be disallowed by the assessing officer. In this case Rs. ₹ 86,08,898/- were paid as sub-brokerage to the persons covered by the clause (b) of section 40A(2). We further note that the assessing officer no where observed these expenses were either excessive or unreasonable and disallowed and proceeded to make the disallowance and thus the pre-conditions for disallowance u/s 40A(2b) were not satisfied. It is nowhere pointed out by both the authorities that payment is excessive or unreasonable from prevalent market rates for such services. We also note that 50% disallowance was made on purely adhoc basis which is not permissib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the head Sundry Debtors . 22. The AO during the course of assessment proceedings, observed that the shares worth ₹ 156.43 Lacs were purchased on behalf of the directors and their family members and amounts were shown as receivable under the head Sundry Debtors from them. The AO further observed that since the assessee was paying interest on the borrowed funds, it could not divert the fund for financing the transactions to the related parties thereby causing loss to the revenue and thus added 15% of ₹ 156.43 lacs which comes out to ₹ 23,45,450/- . 23. CIT(A) upheld the disallowance by observing in para 9 as under:- I have considered the facts of the case and submissions of the assessee. Undisputedly, the assessee has paid interest on the borrowed funds, whereas, no interest has been charged from directors of their family members, whereas, assessee has failed to show that the loan or advances have been given to directors or family members for any business purpose, no evidence in this regard is produced. Therefore, disallowance @ 15% out of the interest paid against such interestfree advances/loan is upheld. 24. Aggrieved by the order of CI ..... X X X X Extracts X X X X X X X X Extracts X X X X
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