The Ahmedabad bench of the Income Tax Appellate Tribunal (ITAT) allowed the disallowance under Section 37(1) of the Income Tax Act, 1961, and held that the expenses on account of interest on margin facility and late payment to brokers shall not be in nature of penalty.
The assessee is aggrieved by the order of the Commissioner of Income Tax (Appeal) [CIT(A)] in confirming the disallowance made by the Assessing Officer. The Assessing Officer had made disallowance treating the expenses as being penal in nature, not allowable under Section 37(1) of the Income Tax Act.
In the absence of the assessee being able to furnish any evidence to substantiate its claim that expenses were incurred wholly and exclusively for the purpose of the business of the assessee. The CIT(A) has confirmed the same.
The counsel submitted that the books of accounts of the assessee were produced during the assessment proceedings, and ledger accounts of all the expenses incurred were placed before the Assessing Officer, which revealed the true nature of the expenses. Also, the Assessing Officer was aware that the assessee was in the business of dealing in shares and securities.
He contended that neither narration of the expenses nor copy of the ledger account of these expenses revealed any fact leading to the conclusion or finding that these expenses pertained to penalty for infringement of any law which is not allowed in terms of provisions of Section 37(1) of the Income Tax Act. He therefore pleaded that the disallowance must be deleted.
The Departmental Representative supporting the order of the CIT(A) stated that the assessee had not filed any evidence to prove its claim that these expenses were incurred for the purpose of the business of the assessee.
The Two-member bench comprising of Annapurna Gupta (Accountant member) and T.R. Senthil Kumar (Judicial member) held that the books of accounts admittedly were all produced before the Assessing Officer, and the ledger account of these expenses also did not reveal any such fact so as to arrive at a finding that these expenses were disallowable being penalty in nature.
The assessee being in the nature of trading in shares and securities, the expenses incurred on account of interest on margin facility and late payment to brokers were undoubtedly incurred in the course of business. There was no requirement for the assessee to prove they were not in the nature of penalty, disallowable under Section 37(1) of the Income Tax Act. Thus, the appeal of the assessee was allowed.
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