M/s Aswani Financial Services Private Limited, Amritsar. V. The Joint Commissioner of Income Tax, Amritsar.

ITA 595/ASR/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5612 (ITAT-AMRITSAR)
• Duration Of Justice: 1 year(s) 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-05-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 24-04-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 13-11-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: RANDEEP MAHAJAN
• Keywords: Capital expenditure
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. T. S. KAPOOR, ACCOUNTANT MEMBER AND SH. N.K. CHOUDHRY, JUDICIAL MEMBER ITA NO. 595/(ASR)/2015 ASSESSMENT YEARS: 2011-12 PAN: AAFCA2935C M/S. ASHWANI FINANCIAL SERVICES PRIVATE LIMITED, AMRITSAR. VS. JOINT COMMISSIONER OF INCOME TAX, RANGE IV, AMRITSAR. (APPELLANT) (RESPONDENT) APPELLANT BY: SH. RANDEEP MAHAJAN (C.A.) RESPONDENT BY: SH. RAHUL DHAWAN (D.R.) DATE OF HEARING: 24.04.2017 DATE OF PRONOUNCEMENT: 05.05.2017 ORDER PER T. S. KAPOOR (AM): THIS IS AN APPEAL FILED BY ASSESSEE AGAINST THE ORD ER OF LD. CIT (A), AMRITSAR, AND DATED 05.08.2015 FOR ASST. YEAR 2010- 11. 2. THE SOLITARY GROUND TAKEN BY ASSESSEE IN THIS AP PEAL IS DISALLOWANCE SUSTAINED BY LD. CIT(A) OF AN AMOUNT O F RS. 1,54,600/- WHICH THE ASSESSEE HAD CLAIMED TO HAVE PAID TO ITS CLIENTS TO COMPENSATE FOR THIER LOSS WHICH OCCURRED DUE TO NEGLIGENCE OF EMPLOYEES OF ASSESSEE. 3. THE BRIEF FACTS AS NOTED IN THE ASSESSMENT ORDER ARE THAT ASSESSEE IS ENGAGED IN MARKETING OF FINANCIAL PRODUCTS OF VA RIOUS COMPANIES AS DISTRIBUTOR. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY. DURING ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER OBSER VED THAT ASSESSEE HAD CLAIMED IN ITS PROFIT AND LOSS ACCOUNT AN AMOUN T OF RS. 1,54,600/- ITA NO. 595 (ASR)/2015 ASST. YEAR: 2010-11 2 AS EXPENSES ON ACCOUNT OF COMPENSATION FOR LOSS OF CLIENTS. THEREFORE, THE ASSESSEE WAS ASKED TO JUSTIFY THIS CLAIM AND IN REP LY, THE ASSESSEE SUBMITTED THAT THE AMOUNTS WERE PAID TO MR. TARLOCH AN SINGH, MUNISH KUMAR AND MR. JAGMOHAN KHANNA THROUGH CHEQUES. IT W AS FURTHER SUBMITTED THAT THESE PAYMENTS WERE MADE ON ACCOUNT OF LOSS TO THIER CLIENTS DUE TO NEGLIGENCE ON THE PART OF THE EMPLOY EES OF THE COMPANY BY NOT SQUARING OF THE POSITION IN EQUITY DERIVATES AS PER CLIENTS INSTRUCTIONS. THE ASSESSING OFFICER HELD THAT NO SU PPORTING EVIDENCE EXCEPT COPY OF ACCOUNT SHOWING PAYMENT OF SOME AMOU NT BY CHEQUES WAS FILED AND HE HELD THAT THE STATEMENT OF ACCOUNT FILED DOES NOT PROVE THAT PAYMENT WAS MADE ON ACCOUNT OF LOSS TO THESE P ERSONS AND THEREFORE, HE MADE THE ADDITION. AGGRIEVED THE ASSE SSEE FILED APPEAL BEFORE LD. CIT(A) WHO ALSO DISMISSED THE APPEAL OF ASSESSEE HOLDING THAT ASSESSEE HAD FAILED TO ESTABLISH AS TO HOW SO CALLE D BUSINESS LOSS OF 1,54,600/- WAS INCURRED BY IT. 4. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US. 5. AT THE OUTSET, THE LD. AR SUBMITTED THAT ASSESSE E WAS DEALING IN MARKETING OF FINANCIAL INSTRUMENTS INCLUDING SECURI TIES, SHARES, MUTUAL FUNDS ETC. AND IT WAS ALSO WORKING AS SUB BROKERS O F RELIANCE SECURITIES LIMITED TO DEAL IN THE SHARE MARKET. 6. THE LD. AR SUBMITTED THAT ASSESSEE HAD MAINTAINE D THE ACCOUNT OF THESE THREE PERSONS WITH RELIANCE SECURITIES LIMITE D FOR WHOM, IT WAS WORKING AS SUB BROKER. HE FURTHER, SUBMITTED THAT T HESE CLIENTS OF ITA NO. 595 (ASR)/2015 ASST. YEAR: 2010-11 3 ASSESSEE HAD TAKEN POSITION IN NIFTY OF NATIONAL STOCK EXCHANGE AND DURING THE MONTH OF SEPTEMBER, 2010, THERE WAS VOLA TILE FLUCTUATION IN NIFTY WHICH WENT UP TO 11%. THE CLIENTS OF THE APPE LLANT HAD GIVEN A PRICE FOR STOP LOSS TO THE APPELLANT, BUT THE APPEL LANT COULD NOT SQUARE OFF THE TRADES OF THE CLIENT WITHIN GIVEN RATES AND THE REFORE, THE CLIENTS HAD SUFFERED LOSS AND SINCE THE LOSSES WERE SUFFERED BY ITS CLIENTS DUE TO FAULT OF ITS EMPLOYEES AND THEREFORE, THIER LOSSES WERE C OMPENSATED BY ASSESSEE BY ISSUING THE CHEQUES AND IN THIS RESPECT , THE LD. AR INVITED OUR ATTENTION TO THE COPY OF BANK ACCOUNT OF ASSESS EE PLACED AT ANNEXURE 1, 2 & 3 WHERE THE COPY OF BANK ACCOUNTS REFLECTING PAYMENTS MADE TO THESE PERSONS WAS PLACED. THE LD. AR TOOK US TO PAP ER BOOK 4, 5, 6 WHERE THE RECEIPTS ISSUED BY THESE PERSONS OF HAVIN G RECEIVED COMPENSATION WAS PLACED. THE LD. AR SUBMITTED THAT THE EXPENSE WAS WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINESS AND THEREFORE, WAS ALLOWABLE U/S 37 OF THE ACT. THE LD. AR INVITED OUR ATTENTION TO CIRCULAR NO. 35 ISSUED BY BOARD WHEREI N THE BOARD HAD CLARIFIED THAT ANY LOSS ARISING DUE TO EMBEZZLEMENT BY EMPLOYEE OR DUE TO NEGLIGENCE OF EMPLOYEES SHOULD BE ALLOWED IF THE LO SS TOOK PLACE IN THE NORMAL COURSE OF BUSINESS. 7. THE LD. DR, ON THE OTHER HAND, SUBMITTED THAT ASSES SEE HAS NOT BEEN ABLE TO PROVE AS TO HOW THE LOSS WAS PAYABLE B Y IT AS THE LOSSES WERE SUFFERED BY THE CLIENTS AND, THEREFORE, THESE LOSSE S WERE SUFFERED BY ITS CLIENT AND ASSESSEE WAS NOT ENTITLED TO CLAIM IN IT S PROFIT AND LOSS AND ITA NO. 595 (ASR)/2015 ASST. YEAR: 2010-11 4 THEREFORE, THE AUTHORITIES BELOW HAS RIGHTLY MADE A ND UPHELD THE DISALLOWANCE. 8. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GON E THROUGH THE MATERIAL PLACED ON RECORD. WE FIND THAT ASSESSEE IS ENGAGED IN MARKETING AND DISTRIBUTION OF FINANCIAL PRODUCTS AND IS ALSO ENGA GED IN THE SHARE TRADING BUSINESS AND WAS WORKING AS SUB BROKER OF R ELIANCE SECURITIES LIMITED. THE ASSESSEE HAD AMONG OTHER CLIENTS NAMEL Y SHRI TARLOCHAN SINGH, MUNISH KUMAR AND SHRI JAGMOHAN KHANNA WHOSE TRADING ACCOUNTS WERE OPENED WITH THE RELIANCE SECURITIES T HROUGH ASSESSEE WHO WAS WORKING AS SUB BROKER OF RELIANCE SECURITIES. T HESE ASSESSEE INCURRED LOSSES BETWEEN THE PERIOD OF 20 TH SEPTEMBER TO 30 TH SEPTEMBER, 2010 WHICH IS APPARENT FROM THE COPY OF ACCOUNT OF THESE CLIENTS WITH THE RELIANCE SECURITIES PLACED IN PAPER BOOK AT PAGE 7, 8, & 9. THE ASSESSEE HAD CLAIMED THAT THESE LOSSES HAD OCCURRED TO THESE CLIENTS DUE TO NEGLIGENCE OF ITS EMPLOYEES AS THE EMPLOYEES OF ASS ESSEE COULD NOT SQUARE OFF THE POSITIONS TAKEN BY THESE CLIENTS IN NIFTY INDEX OF NATIONAL STOCK EXCHANGE. AGAINST THESE LOSSES SUFFERED BY TH ESE CLIENTS, THE ASSESSEE HAD COMPENSATED THEM PARTLY THROUGH CHEQUE S WHICH FACT IS VERIFIABLE FROM PAPER BOOK PAGE 1, 2, 3 WHERE A COP Y OF BANK ACCOUNT OF ASSESSEE REFLECTING PAYMENTS TO THESE PERSONS IS PL ACED. FURTHER THE RECEIPTS ISSUED BY THESE CLIENTS HIGHLIGHTS THAT TH E SAID AMOUNTS HAD BEEN RECEIVED BY THEM AS COMPENSATION FOR LOSS INCU RRED BY THEM ON ACCOUNT OF NEGLIGENCE ON THE PART OF EMPLOYEES OF T HE ASSESSEE. ALL THESE ITA NO. 595 (ASR)/2015 ASST. YEAR: 2010-11 5 EVIDENCES PROVE THAT ASSESSEE HAD REALLY MADE THE P AYMENTS TO THESE PERSONS AND THE PAYMENTS WERE MADE ON ACCOUNT OF LO SSES SUFFERED BY THEM AS IS APPARENT FROM THE COPY OF ACCOUNT OF THE SE CLIENTS PLACED AT PAPER BOOK PAGE 7 TO 9. THE FINDING OF THE AUTHORIT IES BELOW THAT THE COPY OF STATEMENT DO NOT PROVE THAT PAYMENT WAS MADE ON ACCOUNT OF THIS LOSS OF THESE PERSONS IS NOT CORRECT AS EVERY EVIDENCE I S AVAILABLE TO DEMONSTRATE THAT ASSESSEE HAD MADE PAYMENTS FOR LOS SES SUFFERED BY ITS CLIENTS ON ACCOUNT OF NEGLIGENCE OF ITS EMPLOYEES. THE AMOUNT PAID TO THESE PERSONS IS NECESSARILY AN EXPENDITURE WHICH I S ALLOWABLE U/S 37 OF THE ACT AS SECTION 37 OF THE ACT CLEARLY STATES THA T ANY EXPENDITURE NOT IN THE NATURE OF CAPITAL EXPENDITURE OR PERSONAL EXPEN SE LAID OUT OR EXPENDITURE WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSES OF BUSINESS OR PROFESSION SHALL BE ALLOWED IN COMPUTING THE INC OME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OR BUSINESS OR PROFESSIO N. MOREOVER, CIRCULAR NO. 35 ISSUED BY BOARD CLEARLY STATES THE LOSSES AR ISING DUE TO NEGLIGENCE OF EMPLOYEES HAS TO BE ALLOWED AS EXPENSE IF THE LO SS TOOK PLACE IN THE NORMAL COURSE OF THE BUSINESS AND THE AMOUNT INVOLV ED WAS NECESSARILY KEPT FOR THE PURPOSE OF BUSINESS. IN THE PRESENT CA SE, THE LOSSES WERE NECESSARILY INCURRED IN THE NORMAL COURSE OF BUSINE SS OF ASSESSEE AND THEREFORE, THE EXPENDITURE WAS ALLOWABLE. 9. IN VIEW OF THE ABOVE, WE DELETE THE ADDITIONS S USTAINED BY LD. CIT(A). 10. IN NUTSHELL, THE APPEAL FILED BY ASSESSEE IS AL LOWED. ITA NO. 595 (ASR)/2015 ASST. YEAR: 2010-11 6 ORDER PRONOUNCED IN THE OPEN COURT ON 05.05.2 017. SD/- SD/- (N.K. CHOUDHRY) (T.S. KAPOOR) JUDICIAL MEMBER ACCOUNTA NT MEMBER DATED: 05/ 05/2017 GP/SR.PS/ COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE: 2. THE 3. THE CIT(A) 4. THE CIT 5. THE SR DR, ITAT, AMRITSAR. TRUE COPY BY ORDER