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2006 (12) TMI 260

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..... primary market. It revealed that the total brokerage earned by the assessee was of Rs. 1,52,17,036. Out of this brokerage assessee had paid a sub-brokerage of Rs. 65,99,474. The ld. Assessing Officer accepted the sub-brokerage paid by the assessee except sub-brokerage paid to the three concerns namely : (1) M/s. Tulsi Investment : Rs. 20 lacs (2) M/s. Monark Investment : Rs. 15 lacs (3) M/s. Kapri Investment : Rs. 20 lacs The learned Assessing Officer doubted the genuineness of sub-brokerage payment with regard to these three concerns and, therefore, he directed the assessee to furnish detailed justification for payment of sub-brokerage to these three parties. He also directed the assessee to indicate the basis on which a brokerage was paid and the manner in which the amounts were computed along with addresses and copies of the accounts, etc. In response to the query of Assessing Officer assessee had furnished confirmation letter before the Assessing Officer. The assessee also disclosed the mode of payment of the sub-brokerage. According to the assessee brokerage was paid through account payee cheque and .....

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..... that addresses given in the confirmation letter are correct. If the assessee failed to bring the sub-broker before the Assessing Officer or failed to demonstrate that the sub-broker had not paid the tax on the sub-brokerage it would not be construed that assessee had not made the payment of sub-brokerage. These facts are to be viewed to the extent relevant to the assessee. It was further contended that in the year ending on 31-3-1991 assessee has shown net profit of Rs. 2,71,000. This profit rose to Rs. 21.82 lacs in the year ending on 31-3-1992. According to the assessee this growth of ten times clearly indicate the expansion of assessee s business. In the next assess- ment year assessee has shown the income at Rs. 68.63 lacs. The assessee further pointed out that the net brokerage received by the assessee in the year ending on 31-3-1991 had Rs. 30 lacs, it increased to Rs. 86.18 lacs at the year ending on 31-3-1992 i.e., in the present assessment year. It was contended by the assessee that while evaluating the income generation factor responsible for such generation of income i.e., expenses deserves to be considered. It was emphasized that after this disallowance of Rs. 55 l .....

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..... yments have been made through normal banking channels and the receipt of the amounts was confirmed and accepted by Shri Ketan Mehta. (2)Shri Ketan Mehta has affirmed that the three concerns were in existence at the relevant point of time. (3)As per Shri Ketan Mehta, the payments which were received were encashed and the amounts were given away to one Sureshbhai, whose whereabouts are not known to him. (4)In spite of service of summons by the Assessing Officer a couple of times during the remand stage, Shri Ketan Mehta has not made himself available for cross examination by him. (5)Shri Ketan Mehta as per his own statement has not paid any taxes on the income earned by him. (6)Shri Ketan Mehta himself is a sub-broker and a dealer in shares and he has at the original stage signed the confirmation letters showing receipt of payments for sub-brokerage and does not stand to logic to accept his claim that he was not aware of the implications of the same, specially when the payments had been received by him. (7)The statements given by Shri Ketan Mehta obviously cannot be accepted as true in view of the fact that his intention appears to be to avoid payment of tax. (8)There i .....

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..... he assessee took us through the order of ld. CIT(A) and emphasized on the point that the moment ADIT, Pune was able to locate Shri Ketan Mehta, identity of the sub-broker is proved. The sub-broker has confirmed the transaction and gave a confirmation to the assessee at the time when he received the payment. He also disclosed that Kapri Investment was started by him in 1991 and was closed down in financial year 1992-93. His concern has accepted the receipt of money in the Bank Account. On the basis of the above disclosure from the statement of Shri Ketan Mehta, ld. counsel for the assessee pointed out that existence of the payee is proved, payment was made through banking channel, thus genuineness of the transaction is established. The only circumstances which remained to be explained by the assessee is the nature of service. He submitted a list of 250 persons allegedly have been introduced by the sub-broker. According to the ld. counsel for the assessee the sub-broker has introduced the assessee with these persons. On the strength of decision of ITAT, Calcutta rendered in the case of M/s. Trans Scan Securities , in [IT Appeal No. 1970/Cal./04] he contended that Tribunal has accept .....

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..... available. From this letter he pointed out that on the first date of hearing assessee sought adjournment in advance and the hearing was adjourned for 23-12-1996. Thereafter assessee never sought adjournment but the witness never appeared in response to the summons. 7. We have duly considered the rival contentions and gone through the record careful. In order to claim any expenditure not being expenses described in sections 30 to 36 and not being in the nature of capital expenses or personal expenses laid out and spent wholly and exclusively for the purpose of business, one s claim has to be examined under the residuary provision of section 37. Hence in order to be eligible for an expenses under this section one has to fulfil the conditions : ( i ) the expenditure must not be governed by the provisions of sections 30 to 36, ( ii ) expenditure must have been laid out wholly and exclusively for the purpose of the business of the assessee, ( iii ) the expenditure must not be personal in nature, ( iv ) the expenditure must not be capital in nature. The expression "wholly" employed in section 37 refers to the quantum of expenditure, while the word "exclusively" refers to the motive, .....

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..... etheless we proceed to decide the issue on the basis of the material before us. 8. Adverting to the facts of the present case we find that Assessing Officer has disbelieved the claim of assessee on the ground that at the first instance nobody was found at the addresses given in the confirmation. Hence identity of the recipient was in doubt. However, in the subsequent development identity of the payee is established. Thereafter the Assessing Officer has doubted the nature of services provided by the sub-broker as well as doubted that payment is just a hawala entry. We have gone through these reasonings of the ld. Assessing Officer comprised in the assessment order as well as in the remand report whose extract have been reproduced by the ld. CIT(A). The first dispute is nature of services. It is to be seen that assessee is in the business of share broking. He wanted the details of interested parties to whom he can contact and pursue or convince for making investment. In one way it is a peculiar type of business where it is quite difficult to produce the demonstrative proof of rendering services. According to the assessee sub-broker provided the details of more than 250 persons, t .....

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