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TMI Blog2016 (2) TMI 383X X X X Extracts X X X X X X X X Extracts X X X X ..... rokerage paid would fall under the provisions of Sec. 194H and not under the provisions of Section 194J, the provisions of Sec. 40A(2) have no application in the facts and circumstances of the case, we dismiss the Revenue s appeal. - I.TA No. 1777/Mum/2015, I.TA No. 1669/Mum/2015, I.TA No. 5004/Mum/2015 - - - Dated:- 5-2-2016 - Shri C. N. Prasad, Judicial Member And Shri Rajesh Kumar, Accountant Member For the Petitioner : Shri F.V. Irani , Shri Z. Mehta For the Respondent : Shri Manjunatha Swamy, Shri R. A. Dhyani ORDER Per C. N. Prasad, JM ITA Nos. 1777/M/2015 1669/M/2015 are the appeals by the assessee and the Revenue preferred against the very same orders passed by the Ld. CIT(A)-9, Mumbai dated 28.01.2015 for assessment year 2011-12 arising out of the assessment order passed u/s. 143(3) of the Act. ITA No. 1669/M/2015 is the appeal filed by the assessee against the order passed by the Ld. CIT(A)-9, Mumbai dt. 28.01.2015 pertaining to assessment year 2011-12 against the penalty order u/s. 271(1)(c) of the Act. Since issues are common in all these appeals, they were heard together and disposed of by this common order for the sake of convenience a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owever, the Ld. CIT(A) by invoking the provisions of Sec. 40A(2)(b) held that since the assessee and Stock Holding Corporation of India Ltd are related entities covered u/s. 40A(2)(b), he restricted the allowance of subbrokerage to 50% of the brokerage incurred. 5. The Ld. Counsel for the assessee submits that the Ld. CIT(A) invoked the provisions of Sec. 40A(2)(b) of the Act stating that there is excessive payment of sub-brokerage to the Stock Holding Corporation of India Ltd which is a holding company of the assessee. He submits that no exercise has been done by the lower authorities to say that the sub-brokerage paid by the assessee is excessive. Referring to page-47 of the Paper Book, it is the submission of the Ld. Counsel that several entities have paid sub-brokerage higher than 50% and in fact copy of documents stating that broker named M/s. Kaonain Securities Pvt. Ltd had paid almost 70% of brokerage by way of sub-brokerage was also submitted to the lower authorities. Ld. Counsel submits that assessee also enclosed copy downloaded from Internet of Economic Times stating that the trend of sub-brokerage payment is approximately 70% of the brokerage received. It was also su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Mumbai Tribunal that the provisions of Sec. 194H have no application for the sub-brokerage paid in connection with the services rendered in the course of buying and selling of units of Mutual Funds or in relation to transactions relating to Mutual funds. For this proposition, he also places reliance on the decision of the Kolkata Bench in the case of DCIT Vs Noble Enclave Towers (P) Ltd (50 SOT 05). 5.3. The Ld. Counsel for the assessee placing reliance on the decision of the Mumbai Bench in the case of Orchard Advertising (P) Ltd Vs ACIT (8 Taxmann.Com 162) submits that in order to invoke the provisions of Sec. 40A(2) one has to see for the expenditure incurred in respect of which payment is made to the specified persons, is excessive or unreasonable having regard to the market value of goods services or facilities for which the payment is made or the legitimate needs of the business of the assessee or the benefit derived by or accruing to him. The Ld. Counsel for the assessee submits that it is not brought on record by the lower authorities how the sub-brokerage paid by the assessee is excessive or unreasonable having regard to the market value of services or faciliti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ince the securities are exempt, provisions of Sec. 194H have no application. However, he invoked the provisions of Sec. 40A(2) of the Act and restricted the disallowance to 50% of brokerage. According to him there is excess payment of sub-brokerage by the assessee. He held that it is for the assessee to prove beyond all doubt that the payment made constituted the fair market value of the services received. As far as the findings of the Ld. CIT(A) that the payments are attracted the provisions of Sec. 194H is concerned, we completely agree with the Ld. CIT(A) that since there is a specific provision dealing with commission and brokerage, the same would attract to the payments made by the assessee and not the provisions of Section 194J of the Act. We also find that Sec. 194H carves out an exception in respect of transactions in securities and therefore no tax is deductible in respect of sub-brokerage paid. The decisions of the Mumbai Bench and Kolkata Bench in the case of S.J. Investment Agencies Pvt. Ltd. (supra) and Noble Enclave Towers (P) Ltd (supra) are to this effect. 7.2. However, in respect of the finding that the provisions of Sec. 40A(2)(b) are attracted and the sub-br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he market conditions. The lower authorities have not made any enquiries to disprove the submissions of the assessee. 8. In the case of Orchard Advertising (P) Ltd. (supra), the Mumbai Bench of the Tribunal held as under: We see merits in the plea of the assessee. The impugned disallowance under section 40A(2)(b) viz provides that where the assessee incurs any expenditure in respect of which payment has been made to specified person, and the Assessing Officer is of opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the services for which the payment is made or the legitimate needs of the business or profession of the assessee or the benefit derived by or accruing to him therefrom, so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction. The scheme requires the Assessing Officer to establish the fair market value of the services for which payment is made and any amount that he finds to have been paid by the assessee in excess of such fair market value of the services alone can be disallowed under the said section. It is, therefore, condition precedent without r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome under the had profits and gains of business or profession. Sub-Section 2(a) of Section 40A provides that where the assessee incurs any expenditure in respect of which payment has been made or is to be made to the persons specified in that Section and the AO is of opinion that such expenditure is excessive or unreasonable having regard to the market value of the goods, services or facilities for which the payment is made or the legitimate needs of business or profession of the assessee or the benefit derived by or accruing to the assessee therefrom, so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction. In other words, if the expenditure incurred by the assessee is considered by the AO to be of excessive or unreasonable, having regard to the fair market value of the goods, services or facilities for which the payment is made or the legitimate needs of the assesee for business or profession or the benefit derived by the asessee or accruing to the assessee for payment, then so much of the expenditure as is so considered by the AO to be excessive or unreasonable shall not be allowed as a deduction. If the above con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the disallowance made u/s 40A(2)(a) was deleted. We further notice that the Hon ble Bombay High Court has expressed identical view in the case of V.S. Dempo Co. (P) Ltd (336 ITR 209) also. The Hon ble Punjab Haryana High Court has also expressed similar view in the case of CIT Vs. Siya Ram Garg (HUF) (2011)(237 CTR 321). 11. In view of our discussion above and the case laws referred to above, we are not in agreement with the Ld. CIT(A) in holding that the brokerage paid should be restricted by invoking the provisions of Section 40A(2) of the Act. Thus we set aside the order of the Ld. CIT(A) on this issue. ITA No. 1669/M/2015 Revenue s appeal 12. The Revenue has raised following grounds of appeal. 1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not accepting the fact that the payment made to M/s SHCIL Ltd, being a holding company of the assessee falls within the preview of section 194J of the I.T. Act? 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not confirming the action of the Assessing Officer that the payments of sub brokerage paid by the assessee falls under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X
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