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Facts
The assessee, engaged in trading shares and mutual funds, claimed certain amounts as exempt income. The Assessing Officer (AO) treated a portion of this as taxable and also disallowed interest paid on delayed payments for share purchases, adding it to the assessee's total income. The CIT(A) upheld the disallowance of delayed payment interest.
Held
The Tribunal held that the charges paid to share brokers for delayed payments were an expenditure necessarily incurred for earning income and should be allowed. The Tribunal found that the First Appellate Authority's disallowance, based on it being interest on borrowed funds, was an incorrect appreciation of facts.
Key Issues
Whether delayed payment charges incurred by the assessee on share transactions are an allowable expenditure for earning income. Whether the disallowance of these charges by the authorities below was justified.
Sections Cited
10(38), 68, 48, 143(3), 271(1)(c)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, SMC BENCH, LUCKNOW
Before: SHRI. SUDHANSHU SRIVASTAVA
Assessment Year: 2015-16 Smt. Manju Singh v. The ITO L-12, GSVM Medical College Ward 3(2) Kanpur Kanpur TAN/PAN:AEBPS3395D (Appellant) (Respondent) Appellant by: Shri Rakesh Garg, Advocate Respondent by: Shri Sunil Kumar Rajwanshi, D.R. O R D E R This appeal has been preferred by the Assessee against order dated 12.10.2021, passed by the National Faceless Appeal Centre, Delhi (NFAC) for Assessment Year 2015-16.
2.0 The brief facts of the case are that the assessee was engaged in trading of Shares, Securities and Mutual Funds. The assessee filed her return of income for the year under consideration on 11.09.2015, declaring a total income of Rs.3,05,350/-. In the computation of income, the assessee had claimed Rs.55,99,694/- as exempt income under section 10(38) of the Income Tax Act, 1961 (hereinafter called “the Act’) on sale of Mutual Funds. However, as per the Assessing Officer (AO), the assessee had earned exempt income of Rs.50,81,234/- on sale of Mutual Funds and, accordingly, the assessee had claimed excess amount of Rs.5,18,640/- as exempt income under section 10(38) of the Act. The AO, therefore, added the excess amount of Rs.5,18,640/-, claimed by the assessee as exempt under section 10(38) of the Act, to the income of the assessee under section 68 of the Act. In the computation of income, the assessee had also debited an amount of Rs.3,94,724/- as interest on delayed payment from purchase cost of shares while calculating the Short Term Capital Gain on sale of shares. The AO held the same as not allowable under section 48 of the Act and added the same also to the income of the assessee. The AO completed the assessment under section 143(3) of the Act, computing the income of the assessee as under:
Total income as per return of income : Rs.3,05,350/- Addition u/s. 68 of the Act : Rs.5,18,460/- Addition on a/c of STCG : Rs.3,94,724/- Total income : Rs.12,18,534/- Total income (rounded off) : Rs.12,18,540/- 2.1 The also initiated penalty proceedings under section 271(1)(c) of the Act, separately.
3.0 Aggrieved, the assessee preferred an appeal before the NFAC, which partly allowed the appeal of the assessee by deleting the addition of Rs.5,18,460/- made by the AO under section 68 of the Act and sustaining the addition of Rs.3,94,724/- made by the AO on account of Short Term Capital Gain by observing that the said payment was in the nature of interest paid on borrowings, which was not an allowable expenditure.
4.0 Now, the assessee has approached this Tribunal challenging impugned order of the NFAC, sustaining the addition of Rs.3,94,724/-, by raising the following grounds of appeal:
1. Because the CIT (A) has failed to appreciate the facts and circumstances of the case as well as the written submissions filed and has arbitrarily upheld the disallowance of Rs.3,94,724/- being interest paid to the share brokers on account of non-timely payments made towards purchase of shares and securities which expenditure having been incurred, is an allowable expenditure.
2. Because the CIT (A) has failed to appreciate, that the assessee has earned a sum of Rs.1,61,791/ net of expenses of Rs.3,94,725/-, on account of transactions of purchase and sale of shares through PMS, brokers, Aditya Birla Money Limited (in short ABML), i.e. after deducting the sum of Rs.3,94,723/- on account of delayed payment, such expenditure being incurred for earning income, is and be allowed as an allowable expenditure.
3. Because in any case and in all circumstances of the case the authorities below were not justified in disallowing the amount of Rs.3,94,723/-, treating it to be an expenditure other than for purposes other than for earning income. The disallowance made be deleted.
5.0 The Ld. Authorized Representative for the assessee (Ld. A.R.) submitted that there is a delay of 272 days in filing the appeal before the Tribunal. He further submitted that the assessee had filed an application dated 05.04.2023 for condonation of delay, duly supported by an Affidavit of the assessee, Smt. Manju Singh, stating therein that the impugned order passed by the NFAC was not visible on the Income Tax site due to glitches in the computer system and that there was no communication from the Department either through SMS or email about passing of the impugned order and its dispatch/uploading on the system and further that when the assessee was surfing on the Income Tax site to gather details of the income tax return to be filed for assessment year 2022-23, the assessee came to know about passing of the impugned order by the NFAC and immediately thereafter the assessee filed the appeal before the Tribunal. It was submitted that the delay caused in filing the appeal was not deliberate and that it was beyond the control of the assessee, which may please be condoned and the appeal be heard on merits.
6.0 The Ld. Sr. D.R. had no objection to the delay being condoned.
7.0 In view of the prayer made by the Assessee, duly supported by an Affidavit and no objection by the Ld. Sr. D.R., we condone the delay in filing of the appeal and admit the appeal for hearing.
8.0 The Ld. A.R. submitted that the AO had made the impugned addition which was, in fact, charges paid to the share brokers for delay in payments. It was submitted that the AO treated the charges for delayed payments as being penal in nature and he had disallowed the same as being charges which could have been avoided and also for the reason that they were excessive. It was submitted that the fact that the payment was deducted is not in dispute and it is evident that the payment was deducted by the broker from the statement of account provided by the Portfolio Management Company. It was submitted that this expenditure was necessarily incurred for the purpose of earning income and, therefore, it was an allowable expenditure. It was also submitted that the Ld. First Appellate Authority had incorrectly sustained the impugned addition on the ground that the impugned payment was interest paid on borrowed money for acquisition of shares, whereas the statement of account of Aditya Birla Money Ltd. would show that the same pertained to charges debited for delayed payments. The Ld. A.R. reiterated that sale and purchase of shares has to be considered in its entirety and only net income earned has to be brought to tax and, therefore, the same should be allowed.
8.1 In response, the Ld. Sr. D.R. placed reliance on the findings of both the lower authorities and prayed that the assessee’s appeal be dismissed.
9.0 I have heard the rival submissions and have also perused the material on record. I have also perused the statement of Aditya Birla Money Ltd. and a perusal of the same shows that the narration in the said statement specifically mentions ‘delayed payment charges’. Thus, the contention of the Ld. A.R. is correct that the Ld. First Appellate Authority has sustained the impugned addition on wrong appreciation of facts inasmuch as the Ld. First Appellate Authority has sustained the disallowance on the ground that the impugned payments pertained to interest on funds borrowed for investing in shares. The case laws, on which the Ld. First Appellate Authority has relied upon while sustaining the disallowance, also pertain to cases where interest expenditure on borrowed funds was held to be as not allowable. I also agree with the contentions of the Ld. A.R. that interest paid on delayed payments would necessarily be towards earning of income from shares and since it has not been expressly provided in the Act to be not allowable, the same will have to be allowed. Accordingly, I set aside the order of the Ld. First Appellate Authority on the issue and direct the AO to delete the impugned disallowance.