Transaction charges incurred wholly and exclusively for business is allowable expenditure

N.K. Proteins Pvt. Ltd Vs DCIT (ITAT Ahmedabad)

ITAT Ahmedabad held that the transaction charges are actually additional cost of funds raised for the purpose of business. Hence, expenditure incurred on account of the same was wholly and exclusively for the purpose of business.

Facts- The assessee challenges the disallowance of Rs.1,30,29,338/- made by AO and confirmed by the learned CIT(A) on account of transaction charges. Notably, during the course of Special Audit, it was noticed that transaction charges were paid by the assessee-company for transactions on NSEL platform in connection to caster seeds, soya bean seeds, castor oil and cotton wash oil. Although it was submitted on behalf of the assessee that such transaction charges were not debited to the profit and loss account, the Assessing Officer found that the same were debited and included in the purchases. According to AO, the transaction charges were recoverable by the assessee-company from clients and since it could not produce any documentary evidence to substantiate its claim that it was not obligatory to recover the transaction charges, he disallowed the entire transaction charges of Rs.1,30,29,338/-.

Secondly, assessee also challenged addition on the basis of unexplained cash credit stating that that the entire amount of Rs.244.98 crores was utilized by the assessee-company for making payment against purchase as a part of the trade cycle and consequently even the balance amount of Rs.52.01 cores cannot be treated as unexplained cash credit under Section 68 of the Act merely on the ground that the same had remained unpaid.

Conclusion- The transaction charges actually represented additional cost of funds raised by the assessee-company for the purpose of its business and the expenditure incurred on account of the same was wholly and exclusively for the purpose of business of the assessee as rightly contended by the learned Counsel for the assessee. In the case of Khambhatta Family Trust (supra) cited by the learned Counsel for the assessee, the Hon’ble Gujarat High Court has held that the requirement for allowability of any expenditure as business expenditure is that the same should be wholly and exclusively incurred for the purpose of business and not necessarily. Keeping in view the said decision of Hon’ble jurisdictional High Court and having regard to the facts of the case as discussed above, we are of the view that the disallowance made by the Assessing Officer and confirmed by the learned CIT(A) on account of transaction charges is not justifiable and deleting the same.

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