M/S. JSB SECURITIES LTD., MUMBAI V. THE DY.C.I.T. RANGE 3(2), MUMBAI

ITA 5919/MUM/2008

• Counselvise Citation: [2011] 119 COUNSELVISE.COM (IT) 7263 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 10 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-08-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: J
• Next Hearing Date: 28-07-2011
• Assessment Year: 1994-1995
• Appeal Filed On: 26-09-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D S SUNDER SINGH
• Assessee Lawyers: SANJAY R PARIKH
• Keywords: Business income
• Section: 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'J' BENCH, MUMBAI BEFORE SHRI R.S. PADVEKAR, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 5919/MUM/2008 (ASSESSMENT YEAR: 1994-95) M/S. JSB SECURITIES LTD. DCIT, RANGE 3(2) 141, MAKER CHAMBER III AAYAKAR BHAVAN, M.K. ROAD NARIMAN POINT, MUMBAI 400021 VS. MUMBAI 400020 PAN - AAACJ 1402 A APPELLANT RESPONDENT APPELLANT BY: SHRI SANJAY R. PARIKH RESPONDENT BY: SHRI D.S. SUNDER SINGH DATE OF HEARING: 28.07.2011 DATE OF PRONOUNCEMENT: 05.08.2011 O R D E R PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF THE CIT(A)- III, MUMBAI DATED 15.07.2008 CONFIRMING THE PENALTY OF ` 3,33,647/- LEVIED BY THE A.O. UNDER SECTION 271(1)(C) OF THE I.T. ACT. 2. BRIEFLY STATED, THE RETURN OF INCOME OF A.Y. 1994-9 5 WAS FILED ON 30.11.1994 DECLARING TOTAL INCOME OF ` 55,58,370/-. THIS RETURN WAS ACCEPTED UNDER SECTION 143(1)(A). HOWEVER, CONSEQUE NT TO CERTAIN ADDITIONS MADE IN A.Y. 1995-96, ASSESSMENT FOR THIS YEAR WAS ALSO REOPENED UNDER SECTION 147 AND THE ASSESSMENT WAS COMPLETED ON 12. 03.2001 ON A TOTAL INCOME OF ` 61,88,235/- BY MAKING THE FOLLOWING DISALLOWANCES: - 1. INTEREST EXPENSES ` 1,69,950/- 2. SOFTWARE EXPENSES ` 15,968/- 3. SUB-BROKERAGE PAYMENT ` 3,33,647/- 4. CAPITAL GAINS AS BUSINESS INCOME ` 1,10,327/- 3. IT SEEMS THAT ASSESSEE HAS NOT PREFERRED ANY APPEAL ON THE ABOVE DISALLOWANCES CONSEQUENT TO THE ORDERS IN A.Y. 1995 -96 WHEREIN RELIEF WAS ITA NO. 5919/MUM/2008 M/S. JSB SECURITIES LTD. 2 GRANTED BY THE CIT(A). THE A.O. LEVIED PENALTY UNDE R SECTION 271(1)(C) ON THE ABOVE FOUR ISSUES. THE CIT(A), VIDE ORDER DATED 15. 07.2008, DELETED THE PENALTY ON THREE ISSUES AND CONFIRMED THE PENALTY O N SUB-BROKERAGE PAYMENT. THE ASSESSEE IS IN APPEAL AGAINST THE CONF IRMATION OF PENALTY ON SUB-BROKERAGE. 4. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSESSEE IS DOING SHARE BROKING BUSINESS AND IN A.Y. 1995-96 THE A.O. ASKED THE CLAIM OF SUB-BROKERAGE PAYMENT TO BE CONFIRMED BY EACH OF TH E SUB-BROKERS. SINCE THERE ARE NUMBER OF SUB-BROKERS RUNNING TO 1400 ASS ESSEE COULD NOT FURNISH ALL THE CONFIRMATIONS. THEREFORE THERE WERE DISALLOWANCES OF THE AMOUNTS TO THE EXTENT OF 50%. LATER ON, IN THE REMA ND PROCEEDINGS ASSESSEE COULD SUBMIT CONFIRMATIONS UP TO 70% OF THE CLAIMS AND LOOKING INTO ALL FACTS AND COMPARABLE CASES THE A.O. ALLOWED 85% OF THE SUB-BROKERAGE CLAIM OUT OF THE TOTAL RECEIPT OF SUB-BROKERAGE INC ENTIVE AND UNDER WRITING COMMISSION OF ` 3,76,91,971/- IN AY 1995-96. IN THIS YEAR, THE CLAI M MADE BY THE ASSESSEE TOWARDS SUB-BROKERAGE PAYMENT WAS ` 3,23,71,822/- AS AGAINST THIS, FOLLOWING THE ALLOWANCE OF 85% IN EAR LIER YEAR, THE A.O. CONSIDERED PAYMENT OF ` 3,20,38,175/- AS GENUINE AND THE DIFFERENCE OF ` 3,33,647/- WAS DISALLOWED FOR THE SAME REASON AS WA S DONE IN A.Y. 1995- 96. IT WAS FURTHER SUBMITTED THAT ASSESSEE DID NOT PREFER ANY APPEAL ON THIS QUANTUM AS IT WAS NOT POSSIBLE TO GET CONFIRMATIONS OF ALL THE SUB-BROKERS AND ASSESSEE HAS ACCEPTED THE SMALL ADDITION MADE I N THE ASSESSMENT ORDER. IT WAS LEARNED COUNSELS SUBMISSION THAT ASSESSEE B ONAFIDELY PAID THE AMOUNT TO VARIOUS SUB-BROKERS AND FURNISHED ALL THE DETAILS BEFORE THE A.O. INCLUDING THE COPIES OF CHEQUE PAYMENT AND ACCOUNT COPIES AND OTHER RELEVANT MATERIAL IN SUPPORT OF THE CLAIM OF SUB-BR OKERAGE. IT WAS HIS SUBMISSION THAT JUST BECAUSE CONFIRMATIONS COULD NO T BE FURNISHED FROM ALL THE PARTIES AND THAT TOO IN A.Y. 1995-96, THE A.O. DETERMINED 85% OF BROKERAGE AMOUNT AS GENUINE AND THE DIFFERENCE WAS ONLY RS.3,33,647/-. IT WAS FURTHER SUBMITTED THAT THERE IS NO PENALTY PROC EEDINGS UNDER SECTION 271(1)(C) IN A.Y. 1995-96 WHERE THERE WERE DETAILED ENQUIRIES BY THE A.O. BUT PENALTY WAS LEVIED IN THIS ASSESSMENT YEAR WHEN THE DISALLOWANCE WAS BASED ON A.Y. 1995-96. HE FURTHER REFERRED TO THE S UBMISSIONS IN PARA 6.3 TO ITA NO. 5919/MUM/2008 M/S. JSB SECURITIES LTD. 3 6.5 BEFORE THE CIT(A) TO SUBMIT THAT THE GETTING CO NFIRMATIONS OF MORE THAN 1400 PARTIES WAS NOT POSSIBLE AND PENALTY PROCEEDIN GS COULD NOT BE CONSIDERED ON DISALLOWANCES MADE ON ESTIMATE BASIS. IT WAS FURTHER SUBMITTED THAT CIT(A) HAS WRONGLY CONSIDERED THAT D ETAILS WERE NOT FURNISHED BEFORE THE A.O. WHEREAS ALL THE DETAILS W ERE FURNISHED BEFORE THE A.O. IT WAS SUBMITTED THAT THERE WAS NO NEED FOR LE VY OF PENALTY WHEN ASSESSEES BONAFIDE CLAIMS WERE NOT ALLOWED BY THE A.O. AND RELIED ON THE PRINCIPLES ESTABLISHED BY THE HON'BLE SUPREME COURT IN THE CASE OF RELIANCE PETROCHEMCIALS LTD. 322 ITR 158. 5. THE LEARNED D.R., HOWEVER, SUBMITTED THAT ASSESSEE HAS NOT FURNISHED CONFIRMATIONS FROM THE SUB-BROKERS TO JUSTIFY THE P AYMENT OF BROKERAGE AMOUNT AND THEREFORE THE A.O. AND CIT(A) WERE JUSTI FIED IN LEVYING AND CONFIRMING THE PENALTY. HE RELIED ON THE ORDERS OF THE A.O. AND THE CIT(A) AND PARTICULARLY PARA 8 WHERE THE CIT(A) DISCUSSED THE DEFAULT COMMITTED BY ASSESSEE IN NOT FURNISHING THE CONFIRMATIONS. 6. WE HAVE CONSIDERED THE ISSUE. AS SEEN FROM THE ASSE SSMENT ORDER THERE IS NO ENQUIRY MADE BY THE A.O. WITH REFERENCE TO THE SUB-BROKERAGE PAYMENTS DURING THIS YEAR. IN FACT, BASED ON THE FI NDINGS IN A.Y. 1995-96 WHERE THE ASSESSEE COULD PRODUCE CONFIRMATIONS OF 7 0% OF THE SUB- BROKERAGE PAYMENTS, THE A.O. ALLOWED 85% OF THE SUB -BROKERAGE RECEIPTS AS GENUINE CLAIM. BASED ON THIS FINDING IN A.Y. 1995-9 6 THE A.O. DETERMINED THE DISALLOWABLE AMOUNT AT ` 3,33,647/- FOR THIS YEAR. THERE IS NO DISCUSSION ABOUT ASSESSEES FURNISHING OF INFORMATION OR FURNI SHING OF PROOF PAYMENT BY WAY OF CHEQUE ETC. THE CONTENTIONS MADE BY THE ASSE SSEE ABOUT THE GENUINENESS OF THE PAYMENT WERE EXAMINED OR ANALYSE D. SIMPLY GUIDED BY THE FINDINGS IN A.Y. 1995-96 THE A.O. DISALLOWED TH E AMOUNT OF ` 3,33,647/- OUT OF THE TOTAL CLAIM OF ` 3,76,91,971/-. AS SEEN FROM THE CLAIM ALSO ASSESSEE HAS MADE A CLAIM TO THE EXTENT OF 86% WHER EAS THE A.O. ALLOWED 85% OF THE RECEIPT. THERE WERE NO DISALLOWANCES OF BROKERAGE PAYMENT BY WAY OF EXAMINATION OR BY PROVING THAT ANY AMOUNT WA S NOT GENUINE. IN THESE CIRCUMSTANCES, WE SEE NO REASON TO CONSIDER T HE DISALLOWANCE MADE ON ESTIMATE BASIS AS A BASIS FOR LEVY OF PENALTY. W E WERE ALSO NOT IN ITA NO. 5919/MUM/2008 M/S. JSB SECURITIES LTD. 4 AGREEMENT WITH THE CIT(A)S OBSERVATION THAT ASSESS EE HAS NOT JUSTIFIED THE CLAIM. WHEN THE DISALLOWANCE WAS MADE ON THE FINDIN GS IN A.Y. 1995-96 AND NOT BASED ON ANY EXAMINATION OF THE DETAILS FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, WE ARE ENABLE TO UNDERSTAND HOW THE FACTS WILL LEAD TO CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE P ARTICULARS. RESPECTFULLY FOLLOWING THE PRINCIPLES ESTABLISHED BY THE HON'BLE SUPREME COURT IN THE CASE OF RELIANCE PETROCHEMCIALS LTD. (SUPRA) WE AR E OF THE OPINION THAT THERE IS NO NEED FOR LEVY OF PENALTY WHEN THE CLAIM OF TH E ASSESSEE WAS NOT ALLOWED FULLY BUT, ON AN ESTIMATE BASIS ADOPTED IN ANOTHER ASSESSMENT YEAR. MOREOVER, IT WAS ALSO SUBMITTED THAT THERE WAS NO L EVY OF PENALTY UNDER SECTION 271(1)(C) IN A.Y. 1995-96. THEREFORE, WE HA VE NO HESITATION IN CANCELLING THE PENALTY LEVIED BY THE A.O. ON DISALL OWANCE OF SUB-BROKERAGE PAYMENT. ASSESSEES GROUNDS ARE ALLOWED. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 5 TH AUGUST 2011. SD/- SD/- (R.S. PADVEKAR) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 5 TH AUGUST 2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) III, MUMBAI 4. THE CIT III, MUMBAI CITY 5. THE DR, J BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.