Treatment of brokerage expenditure under the Income Tax Act, 1961

THE INCOME TAX APPELLATE TRIBUNAL
“SMC” Bench, Mumbai
 Shri Shamim Yahya (AM) & Shri Amarjit Singh (JM)

 I.T.A. No. 5379/Mum/2019 (Assessment Year 2013-14)

DCIT-6(1)(2)
Room No.506, 5th Floor
Aaykar Bhawan
M.K.Road,
Mumbai-400 020
(Appellant) 

Vs. 

Axis Asset Management
Co.Ltd.
Axis House, 1st Floor
C-2, Wadala International
Center, Panduranga Budhkar
Marg Worli, Mumbai-400 025
PAN : AAHCA5892J
(Respondent)

Assessee by Shri Percy Pardiwala
Department by Shri Anoop

Date of Hearing 19.05.2021
Date of Pronouncement 13.07.2021

 O R D E R

Per Shamim Yahya (AM) :-

This appeal by the Revenue is directed against the order of learned CIT(A)-12 dated 23.04.2019 and pertains to Assessment Year 2013-14.

2. The grounds of appeal read as under :

1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in directing the Assessing Officer to delete addition of Rs. 11,26,94,520/- made on account of deferred brokerage expenditure without appreciating the fact that even the assessee has not debited such expenditure in its P&L A/c,

2. Whether on the facts and in the circumstances of the case and in law, the Ld, CIT (A) has erred in deleting the addition of Rs 11,26,94,520/- made on account of deferred brokerage expenditure without appreciating the fact that the corresponding income also has not been recognized as Income. Thus, the claim of assessee is against the basic principal of matching of revenue with expenditure. 

3. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in deleting the addition of Rs.1 1,26,94,520/- made on account of deferred brokerage expenditure relying on Hon'ble Apex Court decision in Taparia Tools Ltd vs. JCIT reported in 372 ITR 605 (SC) without appreciating the fact that In the instant case, income is offered by the assessee for more than one year and hence, as per revenue matching principle, expenditure has to be claimed for more than one year and not in the first year itself; and hence, the facts are distinguishable..

4. The Appellant prays that the order of the CIT (Appeals) on the above grounds be set aside and that of the AO be restored

3. Brief facts of the case are that the assessee company engaged in the business of investment management services & Portfolio management services. The assessee claimed deduction towards brokerage expenses of Rs.11,26,94,520 in the statement of computation on the plea that it was not debited to the profit and loss account. It was explained to the AO that though the assessee incurred an expenditure of Rs.14,82,88,820 during the a year, a sum of Rs.3,55,94,300/- is debited to profit & loss account and a sum of Rs.11,26,94,520 is shown as deferred revenue expenditure in books of account and the same appears in the balance sheet under the head Other assets. Assessee further submitted that the same is the cost that has already incurred in the current year although as per the accounting treatment in books the same is transferred to prepaid expenses and such cost is recorded as deferred revenue expenditure and claimed over the period of maturity of underlying schemes. The brokerage becomes due and the liability to pay arises the moment investor invests in mutual fund schemed. Assessee also relied upon the Hon’ble Supreme Court’s decision in the case of Kedarnath Jute Mfg.Co Vs. CIT 82 ITR 36 and the decision of Hon’ble Gujarath High Court’s decision in the case of General Co-operative Bank v. ACIT in civil application No.16483 of 2010. Assessee further submitted that the same practice has been consistently being followed for treatment of brokerage expenses I its books as well as income tax return. 

The Assessing Officer was not convinced. He observed that In this cse, the assessee itself claims that the expenditure on brokerage relates to the investments which will yield income over a period of more than one year and hence, debited only a portion of such expenditure relatable to the year under consideration. That here, the prime question is whether the entire expenditure can be treated as the expenditure is relating to the year under consideration, while a contrary view is taken by the assessee itself. That further, in the Income tax Act, the income of a particular year is determined, which means that the expenditure also should be allowed on the same lines. That with due respect to the rationale determined in the case laws cited by the assessee, it is stated that the assessee’s case is quite distinguishable, in that the expenditure claimed by the assesee is not governed by a particular provisions of the Income tax Act. That in view of the above discussion and also in view of the stand taken in assessee’s own case for AY 2012-13, claim made by the assessee in the computation of income on account of Deferred Brokerage expenses of Rs.11,26,94,520/- is not allowed. 

To know more in details find the attachment file