Prime Share & Stock Pvt.Ltd.,, Ahmedabad v. The ACIT., Circle-3,, Ahmedabad

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C AHMEDABAD BEFORE S/SHRI MAHAVIR SINGH JM. AND A. N. PAHUJA AM PRIME SHARES & STOCKS (P) LTD. 6 FOUNTAIN PALACE NR. MITHAKHALI SIX ROAD NAVRANGPURA AHMEDABAD-380009. V/S . ASSTT. CIT CIR.3 5 TH FLOOR INSURANCE BUILDING ASHRAM ROAD AHMEDABAD 380009. (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI TUSHAR P. HEMANI AR RESPONDENT BY:- SHRI B. D. BAROT DR O R D E R PER MAHAVIR SINGH JUDICIAL MEMBER. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF CIT(A) IN APPEAL NO.CIT(A)VIII/CIR.3/41/2006-07 DATED 19.1.20 07 FOR ASST. YEAR 2001- 02. THE ASSESSMENT WAS FRAMED BY ACIT CIRCLE-3 AHM EDABAD U/S 143(3) OF THE INCOME TAX ACT 1961(HEREIN AFTER CALLED AS THE ACT) VIDE ORDER DATED 26.02.2004. 2. THE ONLY ISSUE IN THIS APPEAL OF THE ASSESSEE IS AGAINST THE ORDER OF CIT(A) CONFIRMING THE LEVY OF PENALTY U/S 271(1)(C) OF THE ACT BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLOWANCE OF THE FOLLOWING EXPENSES IN THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT:- DISALLOWANCE OF SUB-BROKERAGE RS.2 80 000/- DISALLOWANCE OF PROFESSIONAL FEE RS.1 60 000/- ----------------- TOTAL RS.4 40 00 0/- 3. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE HAVE ALSO PERUSED THE CASE RECORDS INCLUDING THE ASSESSMENT ORDER PENALTY ORDER THE ORDER OF C IT(A) AND THE CASE LAW RELIED ON. WE FIND FROM THE ORDER OF THE ASSESSING OFFICER THAT THE DISALLOWANCE IN RESPECT OF SUB-BROKERAGE WAS MADE O NLY ON ONE PREMISE THAT ITA NO.1193/AHD/2007 ASST. YEAR :2001-02 2 THE PARTIES WHO HAD BEEN PAID SUB-BROKERAGE ARE SH ARE HOLDERS AND SOME OF THEM ARE PART OF THE SAME FAMILY. ACCORDING TO THE ASSESSING OFFICER IT IS HIGHLY IMPROBABLE AND ILLOGICAL TO THINK THAT EVEN SHARE HOLDERS WOULD BE NEEDING AN INCENTIVE TO CHANNEL THEIR BUSINESS IN S HARE MARKET THROUGH THE ASSESSEE. THE ASSESSING OFFICER MADE THIS DISALLOWA NCE IN THE ABSENCE OF EXPLANATION WITH EVIDENCES. THE ASSESSEE CHALLENGED THIS ADDITION BEFORE CIT(A) BUT WITHDREW ITS APPEAL STATING AS UNDER :- WE REFER TO THE NOTICE OF HEARING OF THE ABOVE CAS E. IN THIS CONNECTION WE HAVE TO STATE THAT TO BUY MENTAL PEACE OF MIND AND TO CO-OPERATE WITH THE DEPARTMENT WE HAVE DECIDED NOT TO PURSUE THIS APPE AL. ACCORDINGLY WE WITHDRAW THIS APPEAL. WE REQUEST YOUR HONOUR TO PLE ASE TREAT THIS APPEAL AS WITHDRAWN. THE ASSESSING OFFICER SUBSEQUENTLY STARTED PENALTY PROCEEDINGS BY ISSUING SHOW CAUSE NOTICE. ASSESSEE SUBMITTED A DETAILED RE PLY AND STATED THAT MERELY BECAUSE THE PAYEES ARE SHARE HOLDERS OF THE COMPANY THE GENUINE PAYMENT OF SUB-BROKERAGE CANNOT BE DISALLOWED. THE ASSESSING OFFICER HAS NOT DISPUTED THE GENUINENESS OF PAYMENT SERVICES R ENDERED BUT ONLY DISPUTED THAT THESE ARE PAYMENTS TO SHARE HOLDERS W HICH IS HIGHLY IMPROBABLE AND ILLOGICAL. NOT AGREEING WITH THE EXPLANATION OF THE ASSESSEE LEVIED PENALTY U/S 271(1)(C) AND THE CRUX OF THE FINDINGS RECORDED BY HIM READS AS UNDER :- AS DISCUSSED IN THE FOREGOING PARAS THE ASSESSEE HAS DEVISED A LONG AND CIRCUITOUS METHOD TO DIVERT ITS INCOME TO OTHER PAR TIES SPECIALLY DIRECTORS OF THE COMPANY AND REDUCE THE PROFITS OF THE COMPANY. THE ONUS OF PROVING THAT ITS ACTION WAS BONA FIDE AND WITHOUT AN INTENTION TO DE FRAUD THE REVENUE WAS ON ASSESSEE. THIS ONUS HAS NOT BEEN DISCHARGED BY IT. NO SATISFACTORY SUBMISSION HAS BEEN MADE BY THE ASSESSEE TO JUSTIFY THE DIVERSION OF INCOME DONE BY IT. 4. THE CIT(A) ALSO CONFIRMED THE PENALTY BY RELYIN G ON THE DECISION OF HONBLE APEX COURT IN THE CASE K.P. MADHUSUDAN VS. CIT (2001) 251 ITR 99 (SUPREME COURT) AND STATING THAT ASSESSEE HAS CLAIM ED BOGUS DEDUCTION AND THEREBY REDUCING/UNDERSTATING THE INCOME. 5. WE FIND FROM THE FACTS OF THE CASE THAT ALL PART ICULARS OF INCOME WERE PROPERLY DISCLOSED BEFORE THE ASSESSING OFFICER DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS AND IN ITS RETURN OF INCOME. THE PAYMENT OF SUB BROKERAGE WAS REFLECTED AND DISCLOSED IN THE PROFIT & LOSS ACCOUNT. THERE WAS 3 NO MALA FIDE INTENTION ON THE PART OF THE ASSESSEE AS THIS EXPENDITURE WAS MADE TO BRING THE BUSINESS INCENTIVE IS ALWAYS REQ UIRED AND WAS GIVEN ON THE BASIS OF QUANTUM OF BUSINESS BROUGHT IN. THE DETAIL S OF BUSINESS BROUGHT VIS- A-VIS SUB BROKERAGE PAID WERE FILED BEFORE THE ASSE SSING OFFICER AS WELL AS BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). TH E LOWER AUTHORITIES HAVE FAILED TO CONSIDER THE FACT AND EVIDENCES PRODUCED AND HAD HELD THAT PARTICULARS OF INCOME HAVE BEEN CONCEALED. WE ARE O F THE VIEW THAT THE LOWER AUTHORITIES OUGHT TO HAVE CONSIDERED THE FACT THAT THE ABOVE DISALLOWANCES WERE ALSO CHALLENGED IN THE REGULAR APPEAL BUT TO C O-OPERATE WITH THE DEPARTMENT AND TO BUY MENTAL PEACE OF MIND THE ASS ESSEE HAD WITHDRAWN THE APPEAL AND PAID THE TAX DUE. THIS AVOIDANCE OF LITIGATION SHOULD NOT BE CONSIDERED AS ACCEPTANCE OF DISALLOWANCES. FURTHER MORE WE ARE OF THE VIEW THAT THE BROKERAGE IS PAID AS PER BYE LAWS 218 OF T HE STOCK EXCHANGE OF AHMEDABAD. THIS BYE LAWS READS AS UNDER :- 218(A) A MEMBER MAY SHARE BROKERAGE AS PROVIDED IN SUB-CLAUSE (B) WITH A REMISIER AUTHORIZED CLERK OR EMPLOYEE IN HI S OWN EXCLUSIVE EMPLOYMENT. HE MAY SIMILARLY SHARE BROKERAGE WITH A NY OTHER PERSON INTRODUCING A CONSTITUENT PROVIDED SUCH PERSON - (I) IS NOT ONE FOR OR WITH WHOM MEMBERS ARE FORBIDD EN TO DO BUSINESS UNDER THE RULES BYE-LAWS AND REGULATION O F THE EXCHANGE; (II) IS NOT A REMISIER AUTHORIZED CLERK OR EMPLOYE E IN THE EMPLOYMENT OF ANOTHER MEMBER; (III) DOES NOT ADVERTISE IN THE PUBLIC PRESS OR IN ANY OTHER MANNER THAT HE IS ACTING AS A BROKER; (IV) DOES NOT ACT AS A BROKER WITHIN A DISTANCE OF FIFTY MILES OF THE CITY OF AHMEDABAD; (V) DOES NOT PASS CONTRACTS IN HIS OWN NAME OR ISSU E PRICE LISTS ON PAMPHLETS OR CIRCULARS IN RESPECT OF BUSINESS IN SECURITIES IF WORKING WITHIN A DISTANCE OF FIFTY MILES OF THE CITY OF AHMEDABAD; (VI) DOES NOT ISSUE PRICE LISTS OR PAMPHLETS OR CIR CULARS IN RESPECT OF BUSINESS SIN SECURITIES TO OTHER THAN HIS OWN CO NSTITUENTS IF ACTING AS A BROKER BEYOND THE DISTANCE OF FIFTY MIL ES FROM THE CITY OF AHMEDABAD. PERCENTAGE SHARE OF BROKERAGE (B) A MEMBER MAY PAY HIS REMISIER OR AUTHORIZED CLE RK A SHARE NOT EXCEEDING 50 PER CENT AND ANY OTHER EMPLOYEE O R OTHER PERSON SHARE BROKERAGE AS PROVIDED IN SUB-CLAUSE (A ) A 4 SHARE NOT EXCEEDING 40 PER CENT OF THE BROKERAGE CH ARGED TO THE CONSTITUENT ENTRODUCED BY HIM. FROM THE READING OF THIS BYE-LAW ALSO IT IS APPARE NTLY CLEAR THAT THERE IS NO PROHIBITION IN THE PAYMENT OF THE COMMISSION TO ANY OTHER PERSON INTRODUCING THE CLIENT TO THE ASSESSEE PROVIDED IT DOES NOT FAL L WITHIN BYE LAW 218(A)(I) TO (VI). CLAUSE (B) OF BYE-LAW 218 PUTS A RESTRICTION ON THE PERCENTAGE OF THE SHARING OF BROKERAGE WITH SUCH PERSONS WHO ARE NOT REMISIER OR AUTHORIZED CLERK. TO SUCH PERSON THE ASSESSEE CANNOT PAY BROKE RAGE MORE THAN 40% OF THE BROKERAGE CHARGED FROM THE CUSTOMERS INTRODUCED BY HIM. THE LD. COUNSEL OF THE ASSESSEE MADE STATEMENT AT BAR THAT IN ANY O F THE CASE THE BROKERAGE IS NOT MORE THAN 40% AND IT IS WITHIN THE REGULATIO N 218 OF THE AHMEDABAD STOCK EXCHANGE I.E. 40% OF THE BROKERAGE PROVIDED T HE PERSON TO WHOM THE COMMISSION IS PAID COMPLIES WITH THE CONDITION AS S TIPULATED UNDER THIS BYE LAW. IT MEANS THAT THERE IS NO RESTRICTION FOR MAKI NG PAYMENT OF BROKERAGE TO THESE PERSONS. 6. AS REGARDS TO PAYMENT OF PROFESSIONAL FEE TO M.D .FUSI HUF FOR RS.1 60 000/- THE ASSESSEE SUBMITTED ALL PARTICULA RS OF INCOME PROPERLY BEFORE THE ASSESSING OFFICER AND THE PAYMENT OF PRO FESSIONAL FEES WAS REFLECTED AND DISCLOSED IN THE PROFIT & LOSS ACCOUN T. WE FIND FROM THE RECORDS THAT THE ASSESSEE HAS FILED DETAILS OF SERVICES REN DERED BEFORE THE ASSESSING OFFICER AS WELL AS BEFORE COMMISSIONER OF INCOME TA X (APPEALS). THE LOWER AUTHORITIES OUGHT TO HAVE CONSIDERED THE FACT THAT THE ABOVE DISALLOWANCES WERE ALSO CHALLENGED IN THE REGULAR APPEAL BUT TO C O-OPERATE- WITH THE DEPARTMENT AND TO BUY MENTAL PEACE OF MIND THE ASS ESSEE HAD WITHDRAWN THE APPEAL AND PAID THE TAX DUE. THE AVOIDANCE OF L ITIGATION SHOULD NOT BE CONSIDERED AS ACCEPTANCE OF DISALLOWANCES. WE FIND THAT THIS PAYMENT IS MADE ON ACCOUNT OF PROFESSIONAL SERVICE RENDERED TO ASSESSEE BY A CHARTERED ACCOUNTANT AND THIS IS EXPENDITURE FOR TH E PURPOSE OF BUSINESS AND HENCE ALLOWABLE. 7. WE FIND FROM THE ABOVE FACTS AND CIRCUMSTANCES T HAT THIS NOT A CASE OF LEVY OF PENALTY FOR FURNISHING OF INACCURATE PARTIC ULARS OF INCOME RATHER THIS IS MERE A DISALLOWANCE OF EXPENDITURE. WE DRAW STRENGT H FROM THE RECENT 5 JUDGMENT OF HON. APEX COURT IN THE CASE OF CIT VS. RELIANCE PETROPRODUCTS PVT. LTD. (2010) 322 ITR 158 (SUPREME COURT) WHERE IN IT IS HELD AS UNDER: WE ARE NOT CONCERNED IN THE PRESENT CASE WITH THE MENS REA. HOWEVER WE HAVE TO ONLY SEE AS TO WHETHER IN THIS CASE AS A MATTER OF FACT THE ASSESSEE HAS GIVEN INACCURATE PARTICULARS . IN WEBSTERS DICTIONARY THE WORD INACCURATE HAS BEEN DEFINED AS: NOT ACCURATE NOT EXACT OR CORRECT ; NOT ACCORDING TO TRUTH ERRONEOUS AS AN INACCURATE STATEMENT COPY OR TRA NSCRIPT. WE HAVE ALREADY SEEN THE MEANING OF THE WORD PARTI CULARS IN THE EARLIER PART OF THIS JUDGMENT. READING THE WORDS IN CONJUNCTION THEY MUST MEAN THE DETAILS SUPPLIED IN THE RETURN WHICH ARE NOT ACCURATE NOT EXACT OR CORRECT NOT ACCORDING TO TRUTH OR ERR ONEOUS. WE MUST HASTEN TO ADD HERE THAT IN THIS CASE THERE IS NO F INDING THAT ANY DETAILS SUPPLIED BY THE ASSESSEE IN ITS RETURN WERE FOUND T O BE INCORRECT OR ERRONEOUS OR FALSE. SUCH NOT BEING THE CASE THERE WOULD BE NO QUESTION OF INVITING THE PENALTY UNDER SECTION 271( 1)(C) OF THE ACT. A MERE MAKING OF THE CLAIM WHICH IS NOT SUSTAINABLE IN LAW BY ITSELF WILL NOT AMOUNT TO FURNISHING INACCURATE PARTICULARS REG ARDING THE INCOME OF THE ASSESSEE. SUCH CLAIM MADE IN THE RETURN CANNOT AMOUNT TO THE INACCURATE PARTICULARS. ACCORDINGLY WE FIND THAT IT IS NOT A CASE OF LEVY OF PENALTY U/S 271(1)(C) OF THE ACT FOR FURNISHING OF INACCURATE PARTICULARS OF INC OME IN THE GIVEN FACTS AND CIRCUMSTANCES AND RESPECTFULLY FOLLOWING THE HON. A PEX COURT JUDGMENT IN THE CASE OF CIT VS. RELIANCE PETROPRODUCTS PVT. LTD. (SUPRA) WE DELETE THE PENALTY. 8. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALL OWED. SD/- SD/- (A. N. PAHUJA) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDI CIAL MEMBER AHMEDABAD DATED : 20/05/2010 MAHATA/- ORDER PRONOUNCED IN OPEN COURT ON 20/05/2010 6 COPY OF THE ORDER FORWARDED TO :- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR ITAT AHMEDABAD 6. GUARD FILE. BY ORDER DEPUTY / ASSTT.REGISTRAR ITAT AHMEDABAD