Income Tax Appellate Tribunal - Ahmedabad
Wealth First Advisors Pvt.Ltd.,, ... vs Department Of Income Tax on 8 August, 2011
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH "C"
Before SHRI MUKUL SHRAW AT, JUDICI AL MEMBER
And SHRI A N P AHUJ A, ACCOUNTANT MEMBER
ITA no.1877/Ahd/2009
(Assessment Year:-2006-07)
Assistant Commissioner of V/s W ealth First Advisors Pvt.
Income-tax, Circle-8, 4 t h Ltd., 809, Raheja Centre,
Floor,Ajanta Commercial Nariman Point, Mumbai-400
Centre,A W ing,Ashram 021
Road,Ahmedabad
PAN: AAACW 4022 H
[Appellant] [Respondent]
Revenue by :- Shri G S Sooryawanshi,DR
Assessee by:- Shri Mukesh M Patel, AR
Date of hearing : 8.8.2011
Date of [pronouncement: : 12.8.2011
O R D E R
A N Pahuja: This appeal by Revenue against an order dated 31-03- 2009 of the ld. CIT(Appeals)-XIV, Ahmedabad, for the Assessment Year 2006-07, raises the following grounds:-
"[1] The Ld. CIT(A) has erred in law and on facts in deleting the disallowance of Rs.18,26,800/- being expenses of commission and brokerage.
[2] The Ld. CIT(A) has erred in law and on facts in deleting the disallowance of Rs.9,97,260/- out of Keyman Insurance Premium.
[3] The Ld. CIT(A) has erred in law and on facts in deleting the disallowance of incentive payment of Rs.1,65,000/-.
[4] The Ld. CIT(A) has erred in law and on facts in directing not to treat the STCG of Rs.1,98,355/- and LTCG of Rs.3,50,845/- as business income.
[5] On the facts and in the circumstances of the case, the Ld. Commissioner of Income-tax (A)-XIV, Ahmedabad ought to have upheld the order of the AO.
[6] It is, therefore, prayed that the order of the ld. Commissioner of Income-tax (A)-XIV, Ahmedabad may be set aside and that of the AO be restored."
2 ITA no.1877/Ahd/2009
2. Adverting first to ground no.1 in the appeal, facts, in brief, as per relevant orders are that return declaring income of Rs.16,31,680/-, filed on 28-12-2006 by the assessee, an investment broker, after being processed u/s 143(1) of the Income-tax Act, 1961 [hereinafter referred to as the "Act"], was selected for scrutiny with the service of a notice u/s 143(2) of the Act on 11.10.2007.During the course of assessment proceedings, the Assessing Officer[AO in short] noticed that the assessee reflected income of Rs.42,92,410/- on account of commission/brokerage income and claimed deduction of Rs.18,26,800/- towards commission / brokerage paid by it. To a query by the AO, seeking details of brokers, copies of agreement executed, nature of services received and justification for the payment, the assessee replied that there was no such agreement with the brokers and the brokerage was paid for introduction of clients. However, the AO did not accept the submissions of the assessee and disallowed the claim on the ground that no documentary evidence / justification was submitted for payment of brokerage and simply on introduction of customers, such a huge amount could not be allowed. Besides an amount of Rs.7,31,000/- was disallowed by the assessee as the TDS was not deducted. Inter alia, since the bills issued by shri Shri Nimesh Kenia to whom an amount of Rs.11.15 lacs had been paid were not serially numbered nor basis of brokerage was evident and even the bills raised by other agents were also not serially numbered and proper details of work carried out was also not mentioned while the assessee failed to establish the services rendered by the brokers nor commercial expediency , the AO disallowed the amount of Rs.18,26,800/- .
3. On appeal, the learned CIT(A) deleted the disallowance as under:-
"2.3 I have considered the facts of the case and the submissions of the A.R. of appellant. It is seen from the details furnished by the A.R. that the payment of brokerage for procurement of business is customary in the appellant's line of business and entering into an agreement is not mandatory and mere absence of same cannot lead to any conclusion that 3 ITA no.1877/Ahd/2009 the genuineness of the same was not proved. Further, it is seen that the brokers not only introduced customers to the appellant but also motivated them to make further investments and undertook required follow up of the investment formalities. Without the assistance of brokers, the appellant would not have been able to generate this large volume of business. It is further seen that as against the mutual fund commission of Rs.68.41 lacs earned by the appellant the brokerage paid is Rs.13.26 lacs, which works out to around 27% and cannot be said to be unreasonable in any manner. The appellant offered the disallowance for part amount u/s 40(a)(ia) of the IT Act for the reason that the TDS deducted during the year was paid late which was due to lack of administrative coordination. From the detailed chart furnished during the appellate proceedings, the appellant has been able to prove the genuineness of payment of commission / brokerage by furnishing PAN details of brokers and all of them have shown brokerage in their individual returns of income, as also by furnishing the comparable payments during the last two years. Further it is seen that after filing the details of brokerage before the A.O., the A.O. never confronted the appellant with his proposed action to disallow the entire brokerage and made an addition even without issuing a show cause notice. In view of these facts, I am of the view that the disallowance made in respect of commission/brokerage is not justified and the same is directed to be deleted."
4. The Revenue is now in appeal before us against the aforesaid findings of the learned CIT(A). The learned DR supported the order of the AO while the learned AR on behalf of the assessee supported the findings of the learned CIT(A) .
5. We have heard both the parties and gone through the facts of the case. Though the ld. DR contended before us that the assessee did not furnish any evidence of services rendered by the recipients of the brokerage, he did not dispute the fact that similar payment of brokerage to shri Nimesh Kenia and Shri Rakesh Mehta had been allowed by the AO himself in the preceding assessment year 2005-06. It is noticed that the deduction for payment to other brokers mentioned on page 10 of the paper book has been allowed in the AY 2004-05 & 2005-06. In the instant case, the ld. CIT(A) observed that the payment of brokerage for procurement of business was customary in the assessee's line of business and the brokers not only introduced customers to the assessee but also motivated them to make further investments and undertook follow up of the investment formalities. Since the assessee established the genuineness of 4 ITA no.1877/Ahd/2009 payment of commission / brokerage by furnishing PAN details of brokers and all of them reflected brokerage in their individual returns , the ld. CIT(A) allowed the claim. The ld. DR did not place any material before us in order to controvert aforesaid findings of facts recorded by the ld. CIT(A) so as to enable us to take a different view in the matter. In the absence of any basis ,especially when similar payments of brokerage have been allowed by the AO himself in the preceding assessment year, we are not inclined to interfere. Therefore, ground no.1 in the appeal is dismissed.
6. Ground no.2 in the appeal relates to disallowance of Rs.9,97,260/- on account of keyman insurance premium. The AO noticed that keyman insurance policy was taken in the name of Shri Ashish Shah, a director of the company and the premium of Rs. 10 lacs was paid only on 31/03/2006 in terms of policy no.8117542. Since the assessee followed mercantile system of accounting and the insurance premium was paid for a year until 30/03/2007 while the decisions relied upon by the assessee in CIT vs. United Credit Ltd. (2002) 177 CTR (Cal) 251;CIT vs. Smt. Vimla D Sonawani & Others (1996) 212 ITR 430 (Bom) and CIT vs. Balapur Vibhag Jungle Kamdar Mandali Ltd. (1991) 22 CTR Guj 214 related to the period prior to the amendment to provisions of sec. 145 of the Act , the AO disallowed an amount of Rs.9,97,260/-.
7. On appeal, the learned CIT(A) deleted the disallowance in the following manner:-
"3.3 I have considered the facts of the case and the submissions of the appellant. From the details, it is seen that Keyman insurance covers the life of the MD of the company until death and hence the observation of the A.O. that it was valid only for one year is not correct. Further, the premium paid earlier by the appellant for A.Y. 2005-06 was fully allowed by the Department . I agree with the contention of the A.R. that the entitlement for deduction is always in the year of payment when the premium is due and paid, though the benefit of the same is availed for a longer period or for life time. Further, it is seen that the benefit of Keyman Insurance is available to the M.D. of the appellant company until death and hence, the disallowance of premium on the ground that it only covers one year is not justified and hence the same is directed to be deleted."
5 ITA no.1877/Ahd/2009
8. The Revenue is now in appeal before us against the aforesaid findings of the learned CIT(A). The learned DR supported the order of the AO while the learned AR on behalf of the assessee supported the findings of the learned CIT(A) .
9. We have heard both the parties and gone through the facts of the case. The issue before us is as to whether the deduction for premium paid under the keyman insurance policy is to be allowed on prorata basis for the period falling in the previous year relevant to the assessment year under consideration under the mercantile method of accounting followed by the assessee. Under the mercantile system of accounting, the assessee is entitled to claim deduction on the basis of incurring the liability irrespective of the date of payment. Even such liability can be claimed on the basis of provision made where such liability is not quanified. On the other hand, under the cash system of accounting, the assessee is entitled to claim deduction on the basis of payment irrespective of the date of incurring of liability. In the present case, indisputably, the assessee was following the mercantile system of accounting and therefore, deduction can be claimed only if it is established that liability has been incurred in the year under consideration. We find that the ld. CIT(A) allowed the claim on the basis that premium was due and paid in the year under consideration even when the benefit of the same was availed for a longer period or for life time. Indisputably, insurance premium of Rs.10 lacs paid on 28/03/2005 was fully allowed in full in A.Y. 2005-06, when the keyman insurance policy came to be issued. In the year under consideration the premium was paid to keep the keyman insurance policy in force. Since the liability had arisen in the previous year and it was a single premium policy in respect of which the agreement with insurance company had been entered in to by the assessee, we do not find any infirmity in the approach of the ld. CIT(A) in allowing the entire claim in the year under consideration. In view thereof, especially when the Revenue have not placed any material before us so as to enable us to take a different view in the matter nor invited our attention to any contrary decision, we are not inclined to interfere. Consequently, ground no.2 in the appeal is dismissed.
6 ITA no.1877/Ahd/2009
10. Ground no.3 in the appeal relates to disallowance of Rs.1,65,000/- on account of incentive payment. The AO noticed during the assessment proceedings that the assessee paid incentive of Rs.1,65,000/-, of which major amount was debited on 31.3.2006 and Rs.15,000/- on 19.4.2005. On verification it transpired that an amount of Rs.50,000/- was paid to Shriadhar Thoda and Rs.1,00,000/- was paid to Shri Purav Mehta by way of bonus. To a query by the AO, the assessee replied that similar amount was disallowed in last year also and their appeal was pending before the ld. CIT(A). Since the assessee did not establish the business expediency of the payment nor relevant details were filed while expenses were debited only on 31/03/2006 and relevant details of actual payment were also not submitted , the amount of Rs.1,65,000/- was disallowed by the AO .
11. On appeal, the ld. CIT(A) deleted the disallowance in the following manner:-
"5.3 I have considered the facts of the case and the submissions of the A.R. and I find from the assessment order and appellate order for A.Y. 2005-06 that mere was no disallowance made on this count in A.Y. 2005- 06 and hence the disallowance made on the line that such disallowance was made in the earlier year cannot be justified. Further the A.O, has not doubted the payment and the amount has been paid as incentive to staff which is allowable as expenditure, hence, the disallowance made in this respect is directed to be deleted."
12. The Revenue is now in appeal before us against the aforesaid findings of the learned CIT(A). The learned DR supported the order of the AO while the learned AR on behalf of the assessee supported the findings of the learned CIT(A) .
13. W e have heard both the parties and gone through the facts of the case. Indisputably, the aforesaid amount has been paid to staff by way of incentives. Since the genuineness of payment was not doubted while deduction was allowed on account of similar payment 7 ITA no.1877/Ahd/2009 in the preceding year , the ld. CIT(A) allowed the claim in the year under consideration. In fact, the AO himself found on verification that an amount of Rs.50,000/- was paid to Shriadhar Thoda and Rs.1,00,000/- was paid to Shri Purav Mehta by way of bonus. Under the mercantile system of accounting such payments are allowable in the year in which the liability to pay is incurred. The ld. DR did not place any material before us in order to controvert aforesaid findings of facts recorded by the ld. CIT(A) so as to enable us to take a different view in the matter. In the absence of any basis ,especially when similar payments on account of staff incentives have been allowed by the AO himself in the preceding assessment years, we are not inclined to interfere. Therefore, ground no.3 in the appeal is dismissed.
14. Ground no.4 in the appeal relates to treatment of capital gains as business income. The AO noticed that the assessee reflected short term capital gain[STCG] of Rs.1,98,355/- and long term capital gain[LTCG] of Rs.3,50,845/- in its return. The LTCG was claimed exempt and STCG was offered to tax at concessional rates. During the year, the assessee purchased Govt. securities worth Rs.1,27,02,856/- and sold such securities worth Rs.1,27,46,691/- while the total turnover exceeded Rs.2.54 crores. To a query by the AO regarding share trading activities, the assessee replied that the assessee company was in the business of advising and distribution of financial service products and the investments were made out of surplus funds .It was clarified that the assessee did not indulge in any share trading activity. However, the AO did not accept the submissions of the assessee on the ground that turn over in respect of sale & purchases of securities was Rs.2.54 crores while income from brokerage was quite low in comparison to transactions in shares. Keeping in mind the holding period of securities and frequency of transactions, the AO observed that the motive of the assessee was share trading and not investment . Accordingly, while holding the trading activity in securities as part of its business and 8 ITA no.1877/Ahd/2009 profession, the AO assessed the entire capital gain of Rs.5,49,200/- (Rs.1,98,355/- + Rs.3,50,845/-) under the head business.
15. On appeal, the learned CIT(A) has accepted the claim of the assessee in the following terms:-
"6.3 I have considered the facts of the case and the submissions of the A.R. of the appellant. From the details furnished by the A.R., it is seen that the long term capital gain was exclusively earned only out of investment in mutual funds and in no case the same could be held as business income, which was earned from trading activity of shares. It is also seen that out of total transactions made, the short term capital gain mainly related to mutual funds and a small amount in fact represented from bonds and equity shares, which were effected from a few transactions during the year, I. also find that the shares and mutual funds which have been sold were shown as investments in balance sheet. I therefore, hold that there is no justification for treating the said incomes as business income. This ground is thus allowed."
16. The Revenue is now in appeal before us against the aforesaid findings of the learned CIT(A). The learned DR supported the order of the AO while the learned AR on behalf of the assessee supported the findings of the learned CIT(A) .
17. W e have heard both the parties and gone through the facts of the case. Indisputably, the aforesaid amount of long term capital gain and short term capital gain was earned on sale of mutual funds and a small amount represented from bonds and equity shares. Since the shares and mutual funds were shown as investments in balance sheet , the ld. CIT(A) concluded that that there was no justification for treating the said income as business income. The ld. DR did not place any material before us in order to controvert these findings of facts recorded by the ld. CIT(A) nor placed any such material, evidencing that the assessee was carrying on the business of trading in shares, so as to enable us to take a different view in the matter. In the absence of any basis, we are not inclined to interfere. Therefore, ground no.4 in the appeal is dismissed. 9 ITA no.1877/Ahd/2009
18. Ground nos.5 & 6 being mere prayer nor any submissions having been made before us on these grounds, do not require any separate adjudication and are, therefore, dismissed.
19. In the result, appeal is dismissed.
Order pronounced in the court today on 12 -08-2011
Sd/- Sd/-
(MUKUL SHRAW AT) (A N P AHUJ A)
JUDICI AL MEMBER ACCOUNTANT MEMBER
Dated : 12-08-2011
Copy of the order forwarded to:
1. W ealth First Advisors Pvt. Ltd., 809, Raheja Centre, Nariman Point, Mumbai-400 021
2. Assistant Commissioner of Income-tax, Circle-8, 4th Floor,Ajanta Commercial Centre,A W ing, Ashram Road,Ahmedabad
3. CIT concerned
4. CIT(A)-XIV, Ahmedabad
5. DR, ITAT, Ahmedabad Bench-C, Ahmedabad
6. Guard File BY ORDER Deputy Registrar Assistant Registrar ITAT, AHMEDABAD