Saurin Investment Pvt.Ltd., Ahmedabad V. The Dy.CIT.,(OSD) Circle-8, Ahmedabad

ITA 4456/AHD/2007

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 2063 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 1 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-02-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 10-02-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 18-12-2007
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: G S SOURYAWANSI
• Keywords: Business expenditure; Question of law; Difference of opinion; Commercial expediency
• Section: 37; 63

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH AHMEDABAD (BEFORE S/SHRI BHAVNESH SAINI, JM AND N. S. SAINI, AM) ITA NO.4456/AHD/2008 A. Y.: 2004-05 SAURIN INVESTMENT PVT. LTD., MANGAL MURTI, 10 ARUN SOCIETY, PALDI, AHMEDABAD VS THE D. C. I. T.,(OSD), CIRCLE -8, AHMEDABAD PA NO. AACCS 1134 G (APPELLANT) (RESPONDENT) ITA NO.2160/AHD/2010 A. Y.: 2004-05 THE D. C. I. T.,(OSD), CIRCLE -8, AHMEDABAD VS SAURIN INVESTMENT PVT. LTD., MANGAL MURTI, 10 ARUN SOCIETY, PALDI, AHMEDABAD PA NO. AACCS 1134 G (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI RAJESH C. SHAH, AR DEPARTMENT BY SHRI G. S. SOURYAWANSI, DR O R D E R PER BHAVNESH SAINI: THE APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A)-XI V, AHMEDABAD DATED 17-10-2007 FOR ASSESSMENT YEAR 2004-05 CHALL ENGING DISALLOWANCE OF A SUM OF RS.16,93,000/- OUT OF SUB- BROKERAGE PAID TO VARIOUS SUB-BROKERS. THE REVENUE IS IN APPEAL C HALLENGING THE ORDER OF THE LEARNED CIT(A)-XIV, AHMEDABAD DATED 16 -03-2010 ITA NO.4456/AHD/2007 AND 2160/AHD/2010 SAURIN INVESTMENTS PVT. LTD. 2 CANCELING THE PENALTY U/S 271 (1) ( C ) OF THE IT A CT FOR THE SAME ASSESSMENT YEAR 2004-05 ON THE SAME MATTER IN ISSUE ON QUANTUM. BOTH THE APPEALS ARE ACCORDINGLY DISPOSED OF BY THI S COMMON ORDER. 2. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE AO D ISALLOWED RS.16,93,000/- OUT OF SUB-BROKERAGE PAYMENT. THE A SSESSEE IS A SHARE BROKER WORKING WITH NSE. THE ASSESSEE HAS REC EIVED GROSS BROKERAGE OF RS.1,04,66,299/- OUT OF WHICH RS.41,29 ,054/- WAS PASSED ON PASSED ON AS SUB BROKERAGE AND THE NET AM OUNT OF RS.63,37,245/- IS SHOWN AS NET BROKERAGE RECEIPT. T HE ASSESSEE CLAIMED THAT SUB BROKERAGE WAS PAID FOR COMMON SERV ICES RENDERED BY THE SUB-BROKERS TO INTRODUCE CLIENTS, PLACE ORDE RS, CONFIRM ORDERS, DELIVERY OF CONTRACT NOTES, BILLS SHARES AND PAYMEN TS. THE AO ON THE BASIS OF STATEMENT RECORDED, CONCLUDED THAT THE SUB -BROKERS IN SUPPORT OF ACTUAL RENDERING OF SERVICES HAD NO CONT EMPORARY VERIFIABLE EVIDENCES. IN ALL THE CASES, THE SUB-BRO KERS CLAIMED UP TO 70% OF THE BROKERAGE EARNED FROM THE CLIENTS INTROD UCED BY THEM TO THE ASSESSEE COMPANY AND WAS BEING PAID BACK TO THE M AS SUB- BROKERS. THEY DID NOT MAINTAIN ANY BOOKS DETAILING THE SUB BROKERAGE DUE TO THEM. THE AO FURTHER FOUND THAT NO SUB BROKE RAGE WAS PAID TO THE SUB-BROKERS IN THE NEXT FINANCIAL YEAR 2004-05, EVEN THOUGH THE CLIENTS BY THEM CONTINUED TO DO THE BUSINESS DURING THE YEAR. THE AO FOUND THAT NO EVIDENCE REGARDING ACTUAL INTRODUCTIO N OF CLIENTS BY THE NAMED SUB-BROKERS COULD BE FURNISHED DURING THE ASS ESSMENT PROCEEDINGS. EVEN FORMAL CONTRACT WITH ANY OF THE S UB-BROKERS HAS BEEN FURNISHED. THESE SUB BROKERAGES WERE BUNCHED I N THE LAST MONTH OF THE YEAR AND NO EVIDENCE OF ACTUAL RENDERI NG THE WORK WAS ITA NO.4456/AHD/2007 AND 2160/AHD/2010 SAURIN INVESTMENTS PVT. LTD. 3 FURNISHED. HENCE, THE AO DISALLOWED PAYMENT OF BROK ERAGE TO 16 SUB-BROKERS TOTALING TO RS.16,93,000/- 3. THE ADDITION WAS CHALLENGED BEFORE THE LEARNED C IT(A) AND IT WAS SUBMITTED THAT THE SUB-BROKERS HAVE CONFIRMED T HAT THEY HAVE RECEIVED THE SUB BROKERAGE AND THEY INTRODUCED THE CLIENTS, THEREFORE, NO DISALLOWANCE SHOULD BE MADE. ALL THE PAYMENTS AR E VERIFIABLE AND THE CONCERNED SUB-BROKERS HAVE SHOWN SUB BROKERAGE RECEIPTS AS THEIR INCOME. CERTAIN DECISIONS WERE RELIED UPON. T HE LEARNED CIT(A) HOWEVER, CONFIRMED THE ADDITION. HIS FINDINGS IN PA RA 2.3 OF THE IMPUGNED ORDER ARE REPRODUCED AS UNDER: 2.3 I HAVE CONSIDERED THE FACTS OF THE CASE AND TH E SUBMISSIONS OF THE APPELLANT. I DO NOT AGREE WITH T HE APPELLANTS VIEW. ALTHOUGH THE SUB BROKERS HAVE PRO DUCED THE CONFIRMATION THAT THEY RECEIVED SUB BROKERAGE, THEY COULD NOT GIVE INDEPENDENT EVIDENCE THAT THEY HAVE RENDERED SOME SERVICES. FOR EXAMPLE, IN THE STATEME NT OF SHRI EARL DONALD MARKS, IT WAS STATED THAT HE IS IN THE BUSINESS AND HE HAS DONE SUB BROKERAGE FOR THE FINA NCIAL YEAR 2003-04 BY PRODUCING CLIENTS, BUT ADMITTED THA T HE DOES NOT HAVE THE LIST OF NAMES AND ADDRESS OF THE CLIENTS INTRODUCED BY HIM. HE NEVER MAINTAINED ANY ACCOUNT OF THE TRANSACTION DONE BY THE CLIENTS INTRODUCED BY H IM. HENCE, THE AO WAS JUSTIFIED IN DISALLOWING THE CLAI M WHEN HE IS NOT ABLE TO PROVIDE NAMES AND ADDRESSES OF TH E CLIENTS AND THE FACT OF RENDERING SERVICES CANNOT B E INDEPENDENTLY VERIFIED. THE SUB BROKERS ALSO ADMITT ED THAT HE HAS NOT DONE ANY SHARE BROKERAGING TO ANY OTHER CONCERN AND NOT DONE ANY SUB BROKERAGE IN ANY OTHER YEAR. THERE WAS NO FORMAL AGREEMENT BETWEEN THE BROKERS AND SUB BROKERS AND NO VERIFIABLE DOCUMENTA RY EVIDENCE IN SUPPORT OF RENDERING SERVICES. AS PER T HE DECISION OF HON. SUPREME COURT IN THE CASE OF LAXMINARAYAN MADAN LAL, 86 ITR 439 (SC), EVEN IF TH ERE ITA NO.4456/AHD/2007 AND 2160/AHD/2010 SAURIN INVESTMENTS PVT. LTD. 4 IS AGREEMENT IN EXISTENCE AND PAYMENTS HAVE BEEN MADE, IT IS STILL OPEN TO INCOME TAX OFFICER TO EXA MINE THE COMMISSION PAYMENT. AS PER THE DECISION OF HON. CALCUTTA HIGH COURT IN THE CASE OF VISHNU COTTON MI LLS LTD., 117 ITR 754 (CAL) IF THERE IS NOTHING TO SHOW THAT THE AGENTS HAD RENDERED ANY SERVICES AT ALL TO THE ASSE SSEE, THE PAYMENTS CANNOT BE ALLOWED. AS PER THE DECISION OF HON. BOMBAY HIGH COURT IN THE CASE OF CHEMAUX PVT. LTD., 109 ITR 705 (BOM), THE ONUS OF ESTABLISHING T HAT THE PAYMENTS OF COMMISSION WERE ALLOWABLE EXPENSES IS O N THE ASSESSEE. THEREFORE, THE AO WAS JUSTIFIED IN EXAMINING THE PAYMENT OF COMMISSION AND IF AND WHEN THE RENDERING OF SERVICES WAS NOT ESTABLISHED, HE W AS JUSTIFIED IN DISALLOWING THE SUB BROKERAGE. THE FAC TS OF THE CASE LAWS, AS RELIED UPON BY THE APPELLANT ARE QUIT E DIFFERENT THAN THE FACTS OF THE PRESENT CASE. IT IS ALSO RELEVANT TO POINT OUT HERE THAT IN THE PRECEDING YE AR, I.E. 2003-04, THE AMOUNT OF SUB BROKERAGE PAID WAS RS.6,47,622/- ON TOTAL GROSS BROKERAGE OF RS. 27,68 ,751/-, WHICH COMES TO 23.39%, WHEREAS THIS YEAR THE SUB BROKERAGE PAYMENT WAS RS.41.29 LAKHS ON GROSS BROKERAGE RECEIPT OF RS.104.66 LAKHS, WHICH COMES T O 39.45%. AFTER THE DISALLOWANCE OF SUB BROKERAGE OF RS.16,93,000/-, THE REMAINING SUB BROKERAGE PAYMENT WAS OF 24.36 LAKHS, WHICH COMES TO 23.27%, WHICH IS COMPARABLE TO THE PRECEDING YEAR. IN VIEW OF THE FA CTS NARRATED ABOVE, IT IS HELD THAT THE AO WAS JUSTIFIE D IN DISALLOWING THE CLAIM OF BROKERAGE AND THE GROUND O F APPEAL IS REJECTED. 4. ON PENALTY, THE ASSESSEE SIMILARLY MADE THE SUBM ISSIONS BEFORE THE LEARNED CIT(A) AND IT WAS SUBMITTED THAT THE SUB BROKERAGE WAS PAID TO THE SUB-BROKERS THROUGH ACCOU NT PAYEE CHEQUES AND THEY HAVE CONFIRMED RECEIPT OF THE AMOU NT FROM THE ASSESSEE WHICH IS SHOWN AS INCOME IN THEIR RETURN O F INCOME. MERELY BECAUSE PART AMOUNT IS DISALLOWED WOULD NOT AUTOMAT ICALLY MEAN THAT THE ASSESSEE HAS CONCEALED THE INCOME OR FILED INAC CURATE PARTICULARS ITA NO.4456/AHD/2007 AND 2160/AHD/2010 SAURIN INVESTMENTS PVT. LTD. 5 OF INCOME. THE ASSESSEE RELIED UPON THE DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS CAFCO SYNDI CATE SHIPPING CO., 174 TAXMAN 406 WHEREIN IT HAS BEEN HELD THAT MERE INCAPACITY OF THE ASSESSEE TO PRODUCE VOUCHERS FOR EXPENSES INCURRED WOULD NOT AMOUNT TO CONCEALMENT OF INCOME SO AS TO WARRANT IMPOSITION OF PENALTY. THE ORDER OF THE ITAT, LUCKNOW BENCH IN THE CASE OF ASHOK GRUH UDYOG KENDRA PVT. L TD. VS ACIT, 120 ITD 151 WAS RELIED UPON IN WHICH IT WAS HELD TH AT THERE WAS ONLY DIFFERENCE OF OPINION REGARDING ALLOWABILITY O F EXPENDITURE BETWEEN THE ASSESSEE AND THE DEPARTMENT. THE LEARNED CIT(A) CONSIDERING THE ABOVE, NOTED THAT THE ASSESSEE HAS DISCLOSED ALL THE MATERIAL FACTS TO THE DEPARTMENT AND ALL THE PAYMEN TS ARE MADE THROUGH ACCOUNT PAYEE CHEQUES. THEREFORE, ON MERE D ISALLOWANCE OF EXPENDITURE, THE PENALTY SHOULD NOT BE IMPOSED. THE LEARNED CIT(A) ACCORDINGLY CANCELED THE PENALTY ORDER AND ALLOWED THE APPEAL OF THE ASSESSEE FOR WHICH THE REVENUE IS IN APPEAL. 5. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BO TH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND C ONSIDERED THE MATERIAL AVAILABLE ON RECORD. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSION MADE BEFORE THE AUTHORITI ES BELOW AND SUBMITTED THAT THE AO EXAMINED 5 OF THE SUB-BROKERS ON OATH IN WHICH THEY HAVE CONFIRMED RECEIPT OF THE AMOUNT FRO M THE ASSESSEE. COPIES OF THEIR STATEMENTS ARE FILED IN THE PAPER B OOK. HE HAS REFERRED TO PB 133 WHICH IS THE CHART OF THE GROSS BROKERAGE AND SUB BROKERAGE AND SUBMITTED THAT EVEN IN THE PAST SUB B ROKERAGE CHARGES WERE PAID. HE HAS ALSO REFERRED TO THE DETAILS OF T HE CLIENTS INTRODUCED ITA NO.4456/AHD/2007 AND 2160/AHD/2010 SAURIN INVESTMENTS PVT. LTD. 6 BY THE SUB-BROKERS FROM PAGES 134 TO 148 OF THE PAP ER BOOK. HE HAS SUBMITTED THAT ADDITION WAS WRONGLY MADE BY THE AUT HORITIES BELOW AND THAT PENALTY HAS BEEN RIGHTLY CANCELED BY THE L EARNED CIT(A). HE HAS RELIED UPON THE FOLLOWING DECISIONS; (I) DECISION OF THE HONBLE GUJARAT HIGH COURT IN T HE CASE OF SWASTIC TEXTILE CO. PVT. LTD. 150 ITR 155 IN WHICH IT WAS HELD THAT STATEMENT OF N THAT HE HAD BROUGHT THE TWO PARTIES TOGETHER HAD REMAINED UNCONTROVERTED BY THE REVENUE. THE ASSESSEE WAS THEREFORE, ENTITLED FOR DEDUCTION. (II) DECISION OF HONBLE RAJASTHAN HIGH COURT IN TH E CASE OF LAXMI ENGINEERING INDUSTRIES VS ITO 298 ITR 203 IN WHICH IT WAS HELD THAT EVIDENCE IN AFFIDAVITS BEFORE TRIBUNAL SHOWING NATURE OF SERVICES RENDERED AND EVENTUALITY FOR PAYMENT OF COMMISSION NON-READING OF AFFIDAVITS AND DISALLOWING CLAIM NOT JUSTIFIED . (III) DECISION OF HONBLE CALCUTTA HIGH COURT IN TH E CASE OF CIT VS HINDUSTHAN DEVELOPMENT CORPORATION LTD. 101 TAXMAN 146 IN WHICH IT WAS HELD THAT GENUINENESS OF AGREEMENT BETWEEN ASSESSEE AND ISC FOR SERVICES AND SALES WAS NOT DISPUTED NOR PAYMENTS DENIED. THE CIT(A) AND TRIBUNAL HELD THAT SERVICES HAVE BEEN RENDERED FOR COMMISSION PAID WAS HELD TO BE NOT PERVERSE ORDER. (IV) ORDER OF THE ITAT LUCKNOW BENCH IN THE CASE OF STAR INTERNATIONAL P. LTD. VS ACIT 308 ITR (AT) 33 IN WH ICH IT WAS HELD NOTHING ON RECORD TO SHOW CLAIM BOGUS OR THAT MONEY OR CHEQUE DID NOT GO TO ARTISANS. THE AO IMPOSED PENALTY ON PRESUMPTION NOT PROPER. (V) DECISION OF THE HONBLE MADRAS HIGH COURT IN TH E CASE OF CIT VS TEXTOOL CO. LTD. 315 ITR 91 IN WHICH IT WAS HELD THAT ASSESSEE SATISFACTORILY EXPLAINING THAT ITA NO.4456/AHD/2007 AND 2160/AHD/2010 SAURIN INVESTMENTS PVT. LTD. 7 EXPENDITURE INCURRED EXCLUSIVELY FOR THE PURPOSE OF BUSINESS EXPENDITURE ALLOWABLE. (VI) ORDER OF THE ITAT MUMBAI BENCH IN THE CASE OF BHARAT BIJLEE LTD. VS DCIT 71 ITD 412 IN WHICH IT WAS HELD THAT WHERE THE ASSESSEE FILED CONFIRMATION FROM THE PARTIES FOR PAYMENT OF COMMISSION WHICH WAS NOT PAID THROUGH ACCOUNT PAYEE CHEQUE, MERELY BECAUSE PARTY WAS NOT FOUND AT THE GIVEN ADDRESS WOULD NOT JUSTIFY DISALLOWANCE OF COMMISSION. (VII) DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF ASGAR JAN VS CIT 298 ITR 60 IN WHICH IT WAS HELD THAT AMOUNT WAS PAID AS BROKERAGE WHICH WAS REFLECTED IN THE RETURN OF INCOME AND ACCEPTED BY THE DEPARTMENT. IT WAS HELD THAT THERE COULD NOT BE TWO VIEWS ON THE SAME ISSUE. THE AMOUNT PAID BY THE ASSESSEE TOWARDS BROKERAGE WAS DEDUCTIBLE. (VIII) ORDER OF THE ITAT JODHPUR BENCH IN THE CASE OF MADAN LAL VS ITO, 99 TTJ 538 IN WHICH IT WAS HELD THAT THE ASSESSEE HAVING ADDUCED EVIDENCES TO SHOW THAT PAYMENT WAS MADE TO TWO PERSONS FOR PROMOTING THE SALES. DEDUCTION ALLOWABLE. (IX) ORDER OF THE ITAT DELHI BENCH IN THE CASE OF A CIT VS PUSHPSONS INTERNATIONAL 162 TAXMAN (MAG) 42 IN WHIC H IT WAS HELD THAT THE PAYEES HAVE CONFIRMED THAT THEY HAVE RECEIVED COMMISSION FROM THE ASSESSEE FOR THE SERVICES RENDERED BY THEM FOR THE BUSINESS OF THE ASSESSEE. DEDUCTION ALLOWED. (X) ORDER OF THE ITAT CHANDIGARH BENCH IN THE CASE OF SMT. SATINDERJEIT KAUR VS ITO 52 TTJ 388 IN WHICH IT WAS HELD THAT PAYMENT OF COMMISSION HAVING BEEN MADE ACTUATED BY COMMERCIAL EXPEDIENCY, SAME WAS ALLOWABLE. (XI) DECISION OF THE HONBLE SUPREME COURT IN THE C ASE OF RELIANCE PETROPRODUCTS PVT. LT. 323 ITR 158. ITA NO.4456/AHD/2007 AND 2160/AHD/2010 SAURIN INVESTMENTS PVT. LTD. 8 5.1 HE HAS ALSO REFERRED TO THE LETTER DATED 31-03- 2005 REGARDING IMPLEMENTATION OF SEBI (STOCK BROKER AND SUB BROKER REGULATION) AND SUBMITTED THAT THE REQUIREMENT RELATING TO TRI- PARTITE AGREEMENT CAME FROM 01-12-2004 WHICH WAS EXTENDED UP TO 01-01 -2005, THEREFORE, THE CIRCULAR WOULD NOT APPLY TO THE CASE OF THE ASSESSEE. 6. ON THE OTHER HAND, THE LEARNED DR RELIED UPON TH E ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE ASSESSEE H AS NOT PRODUCED ANY EVIDENCE TO SHOW THAT SUB BROKERS HAVE RENDERED ANY SERVICES FOR THE ASSESSEES BUSINESS. HE HAS SUBMITTED THAT THE OBJECTION OF THE AO HAVE NOT BEEN REBUTTED BY THE ASSESSEE EITHE R BEFORE THE LEARNED CIT(A) OR BEFORE THE TRIBUNAL. THEREFORE, I N THE ABSENCE OF ANY EVIDENCE ON RECORD, THE ADDITION ON MERIT BE MA INTAINED. THE LEARNED DR SUBMITTED THAT PENALTY ON CONFIRMING QUA NTUM MAY ALSO BE MAINTAINED. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND MAT ERIAL AVAILABLE ON RECORD. THE HONBLE SUPREME COURT IN THE CASE OF LACHMINARAYAN MADAN LAL VS CIT 86 ITR 439 HELD AS U NDER: HELD THAT THE FINDINGS OF THE TRIBUNAL WERE FINDINGS OF FACT AND NO QUESTION OF LAW AROSE OUT O F THE TRIBUNALS ORDER. THIS WAS A CASE WHERE THE ASSESSEE, BY ADOPTING A DEVICE, HAD MADE IT TO APPEAR THAT HT INCOME WHICH BELONGED TO IT HAD BEEN EARNED BY SOME OTHER PERSON. THE MERE EXISTENCE OF AN AGREEMENT BETWEEN THE ASSESSEE AND ITS SELLING AGENTS OR PAYMENT OF CERTAIN AMOUNTS AS COMMISSION, ASSUMING THERE WAS SUCH PAYMENT, DOES NOT BIND THE INCOME-TAX OFFICER TO HOLD THAT THE PAYMENT WAS MADE EXCLUSIVELY AND ITA NO.4456/AHD/2007 AND 2160/AHD/2010 SAURIN INVESTMENTS PVT. LTD. 9 WHOLLY FOR THE PURPOSE OF THE ASSESSEES BUSINESS. ALTHOUGH THERE MIGHT BE SUCH AN AGREEMENT INEXISTENCE AND THE PAYMENTS MIGHT HAVE BEEN MADE, IT IS STILL OPEN TO THE INCOME-TAX OFFICER TO CONSI DER THE RELEVANT FACTS AND DETERMINE FOR HIMSELF WHETHE R THE COMMISSION SAID TO HAVE BEEN PAID TO THE SELLIN G AGENTS OR ANY PART THEREOF IS PROPERLY DEDUCTIBLE UNDER SECTION 37 OF THE ACT. 8. THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF DCIT VS MCDOWELL AND CO. LTD. 291 ITR 107 HELD AS UNDER: BUSINESS EXPENDITURE COMMISSION PAID TO AGENTS NO EVIDENCE TO PROVE COMMISSION AGENTS RENDERED SERVICES TO ASSESSEE NOT ENTITLED TO DEDUCTION INCOME-TAX ACT, 1961, S. 37. 9. THE AO NOTED IN THE ASSESSMENT ORDER THAT THE AS SESSEE CLAIMED THAT SUB-BROKERS HAVE INTRODUCED CLIENTS, P LACED ORDERS AND CONFIRMED ORDERS, DELIVERED CONTRACT NOTE, BILLS SH ARES AND PAYMENTS. EVEN THOUGH 5 BROKERS WHO APPEARED BEFORE THE AO HA VE CONFIRMED TO HAVE RECEIVED SUB BROKERAGE, THEY COULD NOT GIVE ANY INDEPENDENT EVIDENCE THAT THEY HAVE RENDERED ANY SERVICES FOR T HE BUSINESS OF THE ASSESSEE. THE AO FURTHER NOTED FROM THE PERUSAL OF THE DETAILS THAT FOR MANY SUB-BROKERS PAYMENT FOR WHOLE OF THE PREVI OUS YEAR WERE BUNCHED AND PAYMENTS HAVE BEEN MADE IN THE LAST MON TH OF THE YEAR. BUT, NO EXPLANATION WAS FILED WHY PAYMENT TO SUB-BROKERS WAS BUNCHED IN THE LAST MONTH OF THE YEAR. THE SUB-BROK ERS HAVE NOT MAINTAINED ANY BOOKS GIVING DETAILS OF SUB BROKERAG E DUE TO THEM FOR DOING ANY SERVICES FOR THE ASSESSEE. THE AO FURTHER FOUND THAT NO SUB BROKERAGE WAS PAID TO THE SUB-BROKERS IN THE NE XT FINANCIAL YEAR 2004-05, EVEN THOUGH THE CLIENTS INTRODUCED BY THEM CONTINUED TO DO ITA NO.4456/AHD/2007 AND 2160/AHD/2010 SAURIN INVESTMENTS PVT. LTD. 10 THE BUSINESS DURING THAT YEAR. NO EVIDENCE REGARDIN G ACTUAL INTRODUCTION OF THE CLIENTS BY THE SUB-BROKERS COUL D BE FURNISHED. NO FORMAL CONTRACT WAS FURNISHED AND THE SUB-BROKERS W ERE APPOINTED ONLY FOR THE YEAR UNDER CONSIDERATION. IN SPITE OF SPECIFIC DIRECTION TO PRODUCE LEDGER ACCOUNT OF SUB-BROKERS, THE SAME WAS NOT PRODUCED BEFORE THE AO. THE AO NOTED STATEMENT OF ONE OF THE SUB-BROKERS IN THE ASSESSMENT ORDER AS WELL AS STATEMENT OF THE AS SESSEE AND CAME TO THE FINDING ON VERIFICATION OF THE MATERIAL ON RECORD THAT THE ASSESSEE FAILED TO SUBSTANTIATE ACTUAL RENDERING OF THE SERVICES BY THE SUB-BROKERS. NO EVIDENCE REGARDING ACTUAL INTRODUCT ION OF THE CLIENT WAS FILED. NO EXPLANATION AS TO HOW THE CREDIT RISK OF CLIENT WAS BORNE BY THE SUB-BROKERS WAS FURNISHED. NO EXPLANATION OR KNOWLEDGE OR PAST EXPERIENCE FOR DOING SUB BROKERAGE BUSINESS HA S BEEN FURNISHED. THE BROKERS HAVE CLAIMED TO HAVE RECEIVE D 70% OF THE GROSS BROKERAGE RECEIPT BUT NO EVIDENCE WAS FURNISH ED AS TO WHAT SERVICES THEY HAVE RENDERED. THE LEARNED COUNSEL FO R THE ASSESSEE REFERRED TO THE NAMES OF THE CLIENTS REFERRED BY TH E SUB-BROKERS IN THE PAPER BOOK AND THE DETAILS SHOW THAT THE PAYMENTS M ADE TO THE SUB- BROKERS AS IS NOTED BY THE AO IN THE ASSESSMENT ORD ER DIFFER FROM THE FIGURES GIVEN IN THE PAPER BOOK. THE AO NOTED ROUND FIGURES IN THE ASSESSMENT ORDER WHICH ARE ALLEGED TO HAVE BEEN PAS SED ON TO THE SUB-BROKERS BUT THE DETAILS CONTAINED IN THE PAPER BOOK SHOW THAT THE SAME WERE HAVING ODD FIGURES AND DID NOT MATCH WITH THE FIGURES NOTED BY THE AO AS PER THE BOOKS OF ACCOUNTS MAINTA INED BY THE ASSESSEE. THE BROKERS ALLEGED TO HAVE BEEN PAID COM MISSION WHICH VARIES PERSON TO PERSON AND CONTAIN 50%, 60%, 65%, 70% AND 75% OF THE COMMISSION. NO DETAIL HAS BEEN FURNISHED AS TO WHY THERE WAS ITA NO.4456/AHD/2007 AND 2160/AHD/2010 SAURIN INVESTMENTS PVT. LTD. 11 VARIATION WITH REGARD TO COMMISSION PAYMENT. THE MA JOR PART OF THE BROKERAGE INCOME IS PASSED ON TO THE SUB-BROKERS WI THOUT ANY PLAUSIBLE REASON. THUS, THE CLAIM OF THE ASSESSEE H AD BEEN THAT FOR INTRODUCTION OF THE CLIENTS ONLY, SUBSTANTIAL INCOM E WAS PASSED ON TO THE SUB-BROKERS. THE CONDUCT OF THE ASSESSEE DOES NOT SUPPORT ITS CASE. IT WOULD ALSO PROVE THAT HEAVY PAYMENTS HAVE BEEN PAID JUST FOR INTRODUCTION OF THE CLIENTS. THE HONBLE SUPREM E COURT IN THE CASE OF CIT VS DURGA PRASAD MORE 82 ITR 540 AND IN THE C ASE OF SUMATI DAYAL 214 ITR 801 HAVE HELD THAT THE COURTS AND THE TRIBUNALS SHALL HAVE TO JUDGE THE EVIDENCES BEFORE THEM AFTER CONSIDERING THE SURROUNDING CIRCUMSTANCES AND APPLYING THE TEST OF HUMAN PROBABILITIES. IF SUCH PRINCIPLE IS APPLIED TO THE CASE OF THE ASSESSEE, IT WOULD LEAD TO THE CONCLUSION THAT THE ASSESSEE HAS FAILED TO PROVE THAT THE SUB-BROKERS HAVE DONE ANY SERVICE S FOR THE BUSINESS OF THE ASSESSEE. ALL THE OBJECTIONS OF THE AO HAVE BEEN NOTED IN PARA 11 OF THE ASSESSMENT ORDER WHICH HAVE NOT BEEN REBUTTED BY THE ASSESSEE THROUGH ANY EVIDENCE OR MA TERIAL ON RECORD. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO REFERRED TO PB 133 WHICH IS THE STATEMENT OF GROSS BROKERAGE RECEIVED AND SU B BROKERAGE PAID. THE LEARNED CIT(A) ON CONSIDERATION OF THE SAME FOU ND THAT EXORBITANT PAYMENTS HAVE BEEN MADE TO THE SUB-BROKE RS. ON FURTHER VERIFICATION WE FIND THAT THERE IS NO CO-RELATION B ETWEEN THE GROSS BROKERAGE RECEIVED AND PAYMENT MADE TO THE SUB-BROK ERS EVEN IN THE PRECEDING ASSESSMENT YEARS. EVEN THE ASSESSEE H AS FAILED TO PRODUCE ANY EVIDENCE TO SHOW AS TO WHAT SERVICES HA VE BEEN RENDERED BY THE SUB-BROKERS. MERE GIVING OF NAMES O F THE CLIENTS WOULD NOT SERVE ANY PURPOSE. THE DECISIONS CITED BY THE LEARNED ITA NO.4456/AHD/2007 AND 2160/AHD/2010 SAURIN INVESTMENTS PVT. LTD. 12 COUNSEL FOR THE ASSESSEE WOULD NOT SUPPORT THE CASE OF THE ASSESSEE IN ANY MANNER. CONSIDERING THE FACTS AND CIRCUMSTAN CES NOTED ABOVE, WE ARE OF THE VIEW THAT THE ASSESSEE FAILED TO PROVE THAT THE SUB-BROKERS HAVE RENDERED ANY SERVICES FOR ITS BUSI NESS. THEREFORE, THE AUTHORITIES BELOW WERE JUSTIFIED IN MAKING AND CONFIRMING THE ADDITION ON MERIT. IN THE RESULT, WE DO NOT FIND AN Y MERIT IN THE APPEAL OF THE ASSESSEE. THE SAME IS ACCORDINGLY DISMISSED. 10. AS REGARDS THE PENALTY APPEAL, WE DO NOT FIND A NY MERIT IN THE DEPARTMENTAL APPEAL. IT IS SETTLED LAW THAT QUANTU M APPEAL PROCEEDINGS ARE DISTINCT AND INDEPENDENT PROCEEDING S. THE ASSESSEE CLAIMED TO HAVE PAID BROKERAGE TO SEVERAL SUB-BROKE RS AND ONLY PART DISALLOWANCE HAS BEEN MADE BY THE AO IN RESPECT OF 16 SUB-BROKERS. THE ASSESSEE CLAIMED THAT ALL MATERIAL FACTS WERE D ISCLOSED AT THE STAGE OF ASSESSMENT AND EVEN SOME OF THE BROKERS WE RE PRODUCED BEFORE THE AO FOR EXAMINATION ON OATH IN WHICH THEY HAVE CONFIRMED RECEIPT OF THE AMOUNT FROM THE ASSESSEE. THE PAYMEN TS WERE MADE THROUGH BANKING CHANNEL. THE DISALLOWANCE WAS MADE ON SEVERAL REASONS BECAUSE THE ASSESSEE COULD NOT SATISFY THE AO REGARDING THE SERVICES RENDERED BY THE SUB-BROKERS FOR THE BUSINE SS OF THE ASSESSEE. MERELY, BECAUSE PART OF THE EXPENDITURE W AS DISALLOWED WOULD NOT AMOUNT TO CONCEALMENT OR INCOME OR FURNIS HING OF INACCURATE PARTICULARS OF INCOME SO AS TO WARRANT I MPOSITION OF PENALTY. 11. THE HONBLE SUPREME COURT IN THE CASE OF CIT VS RELIANCE PETROPRODUCTS PVT. LTD. 322 ITR 158 (SC) HELD THAT A GLANCE AT THE ITA NO.4456/AHD/2007 AND 2160/AHD/2010 SAURIN INVESTMENTS PVT. LTD. 13 PROVISIONS OF SECTION 271(1) (C ) OF THE INCOME-TAX ACT, 1961, SUGGEST THAT IN ORDER TO BE COVERED BY IT, THERE HA S TO BE CONCEALMENT OF PARTICULARS OF THE INCOME OF THE ASS ESSEE. SECONDLY, THE ASSESSEE MUST HAVE FURNISHED INACCURA TE PARTICULARS OF HIS INCOME. THE MEANING OF THE WORD PARTICULARS USED IN SECTION 271(1) (C) WOULD EMBRACE THE DETAIL S OF THE CLAIM MADE. WHERE NO INFORMATION GIVEN IN THE RETURN IS F OUND TO BE INCORRECT OR INACCURATE, THE ASSESSEE CANNOT BE HEL D GUILTY OF FURNISHING INACCURATE PARTICULARS. IN ORDER TO EXPO SE THE ASSESSEE TO PENALTY, UNLESS THE CASE IS STRICTLY CO VERED BY THE PROVISION, THE PENALTY PROVISION CANNOT BE INVOKED. BY NO STRETCH OF IMAGINATION CAN MAKING AN INCORRECT CLAI M TANTAMOUNT TO FURNISHING INACCURATE PARTICULARS. THERE CAN BE NO DISPUTE THAT EVERYTHING WOULD DEPEND UPON THE RETURN FILED BY THE ASSESSEE, BECAUSE THAT IS THE ONLY DOCUMENT WHERE T HE ASSESSEE CAN FURNISH THE PARTICULARS OF HIS INCOME. WHEN SUCH PARTICULARS ARE FOUND TO BE INACCURATE, THE LIABILI TY WOULD ARISE. TO ATTRACT PENALTY, THE DETAILS SUPPLIED IN THE RET URN MUST NOT BE ACCURATE, NOT EXACT OR CORRECT, NOT ACCORDING TO TH E TRUTH OR ERRONEOUS. WHERE THERE IS NO FINDING THAT ANY DETAI LS SUPPLIED BY THE ASSESSEE IN ITS RETURN ARE FOUND TO BE INCORREC T OR ERRONEOUS OR FALSE THERE IS NO QUESTION OF INVITING THE PENAL TY UNDER SECTION 271(1) ( C ). A MERE MAKING OF A CLAIM WHICH IS NOT SUSTAINABLE IN LAW, BY ITSELF, WILL NOT AMOUNT TO FURNISHING INACC URATE PARTICULARS REGARDING THE INCOME OF THE ASSESSEE. S UCH A CLAIM MADE IN THE RETURN CANNOT AMOUNT TO FURNISHING INAC CURATE PARTICULARS. DECISION OF THE GUJARAT HIGH COURT AFF IRMED. ITA NO.4456/AHD/2007 AND 2160/AHD/2010 SAURIN INVESTMENTS PVT. LTD. 14 12. THE HONBLE SUPREME COURT IN THE CASE OF M/S. R AJASTHAN SPINNING & WEAVING MILLS 2009 PIOL 63 SC HELD THAT ON EVERY DEMAND PENALTY IS NOT AUTOMATIC. HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS SAHABAD CO -OP. SUGAR MILLS LTD. 322 ITR 73 (P&H) HELD THAT MAKING OF WRO NG CLAIM IS NOT AT PAR WITH CONCEALMENT OR GIVING OF INACCURATE INFORM ATION, WHICH MAY CALL FOR LEVY OF PENALTY U/S 271 (1) ( C ) OF THE A CT. THE HONBLE PUNJAB & HARYANA HIGH COURT AGAIN IN THE CASE OF CIT VS SI DHARTHA ENTERPRISES 322 ITR 80 (P & H) HELD THAT LOSS SUFFE RED ON SALE OF MACHINERY WRONGLY TAKEN AGAINST PROFIT OF BUSINESS. ASSESSEE ON REALIZATION MISTAKE COMMITTED BY THE COUNSEL ACCEPT ED THE DECISION OF THE AO. NO DELIBERATE DEFAULT. APPELLATE AUTHORI TIES JUSTIFIED IN DELETING THE PENALTY U/S 271 (1) ( C ) OF THE IT AC T. 13. CONSIDERING THE FACTS OF THE CASE AS NOTED ABOV E, IN THE LIGHT OF THE ABOVE DECISIONS AND IN THE LIGHT OF THE FINDING S OF THE LEARNED CIT(A), WE ARE OF THE VIEW THAT IT IS NOT A FIT CAS E FOR IMPOSITION OF PENALTY. THE LEARNED CIT(A) HAS ON PROPER APPRECIAT ION OF FACTS AND MATERIAL ON RECORD RIGHTLY CANCELLED THE PENALTY U/ S 271 (1) ( C ) OF THE IT ACT. WE ACCORDINGLY CONFIRM HIS FINDINGS AND DIS MISS THE APPEAL OF THE REVENUE. 14. AS A RESULT, THE DEPARTMENTAL APPEAL IS DISMISS ED. ITA NO.4456/AHD/2007 AND 2160/AHD/2010 SAURIN INVESTMENTS PVT. LTD. 15 15. AS A RESULT, BOTH THE APPEAL OF THE ASSESSEE AN D THE REVENUE ARE DISMISSED. ORDER PRONOUNCED ON 15-02-2011 SD/- SD/- (N. S. SAINI) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 15- 02-2011 LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR, ITAT, AHMEDABAD