The Mumbai bench Income Tax Appellate Tribunal ( ITAT ) directed readjudication on account of failure to establish legal expenses incurred from the trading loss as civil expenditure.
The Two member bench of BR Baskaran, ( Accountant Member ) & Pavan Kumar Gadale, ( Judicial Member ) rendered the above decision after examining the submission of Dharan Gandhi, Assessee Representative ( AR ) and Manoj Kumar Sinha, Department Representative ( DR ).
In this case the assesses AC Chokshi Share Brokers Pvt Ltd, is engaged in the business of stock broking and operates in the equity, cash and derivatives segments of both NSE and BSE. After filing the return of income assesses case was selected for scrutiny.
During the proceedings the Assessing Officer ( AO ) on perusal of the audited financial statements, in particular profit and loss account found that the assessee has debited an amount of Rs. 1,23,30,000/- as “exceptional item” and in the notes to financial statements.
Whereas the AO found that the claim is not incurred for the purpose of business purpose. Hence disallowed the expenditure.
Aggrieved by the order assesee filed an appeal before the CIT(A). The CIT(A) dismissed the appeal filed by the assessee. Thereafter the assessee filed an appeal before the tribunal.
During the adjudication counsel for assessee argued that the expenses has been incurred by way of out of court settlement as there has been a criminal complaint filed against the assessee by its client. Hence Rs. 85 lakhs was claimed as out of court settlement and Rs.38,30,000/- was claimed as lawyer fees. Therefore the expenditure wholly and exclusively for the purpose of business and it is a allowable expense under Section37(1) of the Income Tax Act.
Counsel for revenue argued that due to misconduct by the assessee ,there was a criminal case filed by the client of the assessee and it is purely a criminal act done by the assessee broking company without the consent of client in his account and therefore the assessee cannot be allowed the claim of expenditure debited to profit & loss account
The tribunal observed that the assessee is a stock broker and was in the business as stock broking services and due to trading in the clients account, the client has filed the criminal case. However the assessee could not establish with the supporting evidence that the claim of the assessee is a civil expenditure allowable under the Income Tax Act.
Therefore the bench set aside the order of the CIT(A) and restore the disputed issues to the file of the Assessing Officer to decide afresh on merits and the assessee should be provided adequate opportunity of hearing and to file the information and evidences on the disputed issue.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
