Hem Raj Tejuja, Mumbai vs Department Of Income Tax

आयकर अपील य अ धकरण, एच खंडपीठ मंब ु ई INCOME TAX APPELLATE TRIBUNAL,MUMBAI - H BENCH सव ी आई पी बंसल , या यक सद य एवं राजे , लेखा सद य Before S/Sh. I P Bansal,Judicial Member & Rajendra,Accountant Member आयकर अपील सं/.ITA No.6741/Mum/2012, नधारण वष/Assessment Year-2007-08 ACIT-19(2) Shri Hem Raj Tejuja Room No.315, 3rd Floor 601, Anand Bhawan East Piramal Chambers, lalbaug Vs East Avenue, Santacruz (W) Parel, Mumbai-400 012 Mumbai-400 054.

PAN:ABXPT 0533 D (अपीलाथ /Appellant) ( यथ / Respondent) नधा रती ओर से/Assessee by :None राज व क ओर से/ Revenue by :Shri Sanjay Punglia-DR सुनवाई क तार ख/ Date of Hearing : 11-05-2015 घोषणा क तार ख / Date of Pronouncement : 11-05-2015 आयकर अ ध नयम,1961 क धारा 254(1)के अ तगत आदे श Order u/s.254(1)of the Inco me-tax Act,1961(Act)

Challenging the order dt.7.8.12 of the CIT(A)-35,Mumbai, Assessing Officer(AO) has raised following Grounds of Appeal:

"1.On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the disallowance of expenses on account of dealing errors of Rs.19,97,521/- and delay paying charges of Rs.10,29,908/- after holding that these expenses are normal expenditure as per SEBI guidelines which are to be paid by the sub-broker to the main broker due to delay in settlement of account and fully allowable as business expenses, without appreciating the facts that the delay payment charges and dealing error payments are penal payments which are not allowable expenses for the business purposes as per provisions of the Act and also the assessee is silent on further recovery of these charges from the clients of the assessee.

2. The appellant prays that the order of the CIT(A) on the above ground be set aside and that of the Assessing Officer be restored."

Assessee,an individual, is a sub-broker and had filed its return of income on 31.10. 2007, admitting his total income at Rs.18.56 lacs.The AO completed the assessment u/s.143(3) of the Act,on 24/12/2009,determining the income of the assessee at Rs.39.63 lacs

2.During the assessment proceeding the AO found that the assessee had shown brokerage income Rs.1.01 crores, that he had debited various expenses against the said income which included dealing error of Rs.19.97 lacs and 'delayed payment of charges'Rs.10.29 lacs.He directed the assessee to explain as to how the above expenditure was allowable. After considering the explanation of the assessee,the AO held that delayed payment and dealing error (Rs.19.97 lacs) were on account of defaults /delay in settlement of accounts committed by the clients which in turn had resulted in levy of the same by the assessee's principal broker,that the assessee had not recovered the expenses from the clients,that the default committed by the clients was taken over by the assessee,that the payment made by the assessee was not compelled by business exigenci- es,that it could not be held as business expenditure,that the same did not qualify for deduction 6741/12 Hem Raj Tejuja (AY:07-08)

from the income offered for taxation,that the expenses incurred by the assessee were not legitimate business expenditure.As a result,he made additions under the both the heads to the total income of the assessee.

3.Aggrieved by the order of the AO,the assessee preferred an appeal before the First Appellate Authority(FAA).Before him,it was argued that the details of dealing errors,alongwith confirma - tion and ledger account,were produced before the AO,that details produced by him were not considered by the AO,that copy of broking account from the main broker i.e. Sharekhan clearly reflected the dealing errors charged by the main broker,that the dealing errors were normal business expenditure in the business of broking of shares,that the errors were committed by the staff of the assessee at the time of punching of purchases/sales of shares on behalf of the clients, that the said amount for dealing errors could not be recovered from the clients as held by the AO,that the AO disallowed Rs.19.97 lacs against dealing error charges, that the assessee had filed confirmations and the ledger account copy of the broking firm,that the AO had not given any reason for disallowance of the expenditure,that the delay in paying charges was normal business expenditure as per SEBI guidelines.After considering the submissions of the assessee and the assessment order,the FAA held that the observation made by the AO that dealing errors and delay payment charges were not compelled by the business exigencies was not justifiable, that the nature of the business of the assessee was share broking,that the expenses incurred by the assessee were the normal business expenses which were related to the normal business transaction,that the expenses were fully allowable.He referred to the case of Gold Crest Capital Market Ltd.(33ITCL283of "B"Bench of Mumbai Tribunal)in that regard.Accordingly,he directed the AO to delete the addition.

4.Before us,Departmental Representative(DR) relied upon the order of the AO.None appeared for assessee,as stated earlier.We find that the AO had disallowed dealing errors and delayed payment charges, that he was of the opinion that the expenditure was not incurred wholly and exclusively for the business or that there was no business exigencies, that the assessee had filed detailed explanation of both the items of expenditure. The assessee being a share broker had to deal with the clients and the main share broker.It is common feature of the share broking business where punching errors happen regularly.The sub-brokers are supposed to make payment for these errors as the mistakes would be committed by the staff of the sub-broker. Clearly,the payment is directly related with the sub-broking business.The AO has not doubted the genuineness of the payment.The assessee has not violated any law of the land. Similar is the position of the other payment for which the assessee had furnished all the necessary details. The AO cannot decide the requirement of the business of an assessee.It is the prerogative of the assessee to run its business in its own way and the expenditure incurred by it has to be allowed unless and until it is not as per provisions of sec.37 of the Act. In the case under consideration the AO has not brought on record anything that could justify the disallowance.In these circumstances,we are of the opinion that the order of the FAA does not suffer from any legal or factual infirmity.Therefore, confirming his order,we decide the effective ground of appeal against the AO.

As a result,appeal filed by the AO stands dismissed.

फलतः नधा रती अ धकार वारा दा खल क गई अपील नामंजूर क जाती है.

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Order pronounced in the open court on 11th ,May,2015. आदे श क घोषणा खल ु े यायालय म दनांक 11मई,2015 को क गई ।

Sd/- Sd/- (आई पी बंसल/I P Bansal) (राजे / RAJENDRA) या यक सद य / JUDICIAL MEMBER लेखा सद य / ACCOUNTANT MEMBER मुंबई/Mumbai, दनांक/Date: 11.05.2015 Jv.Sr.PS आदे श क त ल प अ े षत/Copy of the Order forwarded to : 1.Appellant /अपीलाथ 2. Respondent / यथ

3.The concerned CIT(A)/संब ध अपील य आयकर आयु त, 4.The concerned CIT /संब ध आयकर आयु त

5.DR "A" Bench, ITAT, Mumbai / वभागीय त न ध, ए खंडपीठ,आ.अ. याया.मुंबई

6.Guard File/गाड फाईल स या पत त //True Copy// आदे शानस ु ार/ BY ORDER, उप/सहायक पंजीकार Dy./Asst. Registrar आयकर अपील य अ धकरण, मुंबई /ITAT, Mumbai.

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