The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) held that the finance cost should be allowed as a deduction under section 36(1)(iii) of the Income Tax Act,1961. DAM Capital Advisors Limited, the appellant assessee was a company engaged in the business of share broking and was a member of the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) the activities of the assessee include providing equity research and stock broking services to institutional clients.
The assessee appealed against the order passed by the Commissioner of Income Tax (Appeals) for confirming the disallowance of Rs. 56,50,7527- under section 36(1)(iii) of the Income Tax Act and for the addition made towards the business loss and also for confirming the addition made by the Assessing Officer (AO) towards transfer pricing adjustments. Hiro Rai / Ritu Punjabi, the counsels for the assessee contended that the interest cost debited to the Profit and Loss( P&L )Account was mainly towards the bank guarantee charge which was required to be submitted to BSE / NSE towards margin for trade executed on behalf of the clients.
Also submitted is that the interest expenses incurred wholly and exclusively for business and the same shall be allowed as a deduction.
Abhishek Kumar Singh, the counsel for the department contended that the finance charges debited to the P&L Account do not pertain to any borrowed funds since the assessee did not have any borrowing and during assessment proceedings, the assessee had given a detailed written submission explaining the nexus between the finance charges paid and the business of the assessee which had not been considered.
The Bench observed that the claim of finance charges was made against the business income of the assessee from the broking business and, therefore, there was no question of triggering disallowance and finance cost should be allowed as a deduction under section 36(1)(iii) of Income Tax Act. The two-member bench comprising Amit Shukla (Judicial) and Padmavathy (Accountant) quashed the disallowance made by the assessing officer.