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2009 (8) TMI 843

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..... Thus, the total amount disallowed and added back on account of the aforesaid two items came to Rs. 31,53,678. In respect of the jobbing loss, it was the view of the Assessing Officer that it was a loss arising out of speculative business and cannot be claimed to be set off against the brokerage and interest income. For this purpose, he relied on the fact that in the assessment years 1997-98 and 1998-99, the CIT(A) had held that the transactions entered into by the assessee in shares were speculative transaction since no physical delivery of the shares was involved and, therefore, the jobbing loss claimed against the brokerage income cannot be allowed. In respect of the addition made for diversion of income in the name of excess brokerage paid back , the Assessing Officer observed that the assessee s claim that it paid back the brokerage charged from selected clients on account of the volume of business given by them was not substantiated by the assessee. He noticed that the expenses were debited to the sauda brokerage account but the corresponding credits were not given to the parties accounts. He also noted that the assessee had charged brokerage from all the clients regardless o .....

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..... he accounts of the clients but they are debited in the final JV account, (f) no names and addresses or other details of the new clients supposed to have been introduced by the clients to whom part of the brokerage was refunded were furnished and no detailed accounts were maintained for such incentives and (g) the assessee s claim that part of the amount refunded included reimbursement of expenses cannot be accepted as correct because such expenses would have been debited to the respective accounts already maintained by the assessee such as conveyance, tea and coffee expenses, etc. On the basis of these findings, the Assessing Officer held that the assessee was unable to discharge its onus to prove that the debits in the sauda brokerage account did not amount to diversion of income to avoid tax. In para-3.4 of the assessment order, he gave the computation of the income sought to be diverted, which came to Rs. 14,17,888 and disallowed the same in the assessment order. 3. The assessee carried the matter in appeal to the CIT(A) who confirmed both the additions. A further appeal was taken to the Tribunal in ITA No. 80/Ahd./2005. 4. In the assessment year 2001-02, a similar disallowance .....

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..... to section 37(1) of the Act, and, therefore, we do find any infirmity in the orders of the CIT(A) on this point for both the assessment years. So far as assessee s plea of business exigency is concerned, we are of the opinion that the assessee has not brought to our notice any evidence, which could establish that the expenditure incurred by the assessee was on account of business expenditure, the assessee plea is not sustainable on facts of the case and, therefore, the same is rejected. Thus, the Tribunal confirmed the disallowance made by the Assessing Officer under the head Diversion of income in the name of excess brokerage paid back for both the years. 7. In the penalty proceedings initiated by the Assessing Officer under section 271(1)(c) of the Act for concealment of the income, the Assessing Officer has strongly relied on Explanation 1 to section 271(1)(c) of the Act and has held that (a) the assessee has deliberately indulged in an accounting fraud to reduce its taxable income by claiming expenses not incurred, (b) the assessee has failed to substantiate the payment of brokerage back to the clients, (c) any such payment made to the client is illegal and contrary to SEBI Act .....

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..... ent of Rs. 2,05,920 and dismissed the appeal. The assessee is in further appeal before the Tribunal in ITA No. 999/Ahd./2007. 10. In support of the assessee s appeals it was argued on its behalf that full justification for the return of the brokerage charged from the clients was given vide assessee s letter dated 17-3-2003 to the Assessing Officer, a copy of which is placed at pages 18 and 19 of the paper book and it was also pointed out that confirmations from eight parties were filed along with the letter and the confirmations from six parties were filed under cover of the letter dated 19-3-2003 addressed to the Assessing Officer, copies of which are pages 28 to 34 of the paper book. It would appear that there was some confusion as to whether the first set of eight confirmations were filed along with the letter dated 17-3-2003 and in order to clear the same those confirmations were filed with the Assessing Officer under cover of letter dated 31-3-2003 (pages 35 and 36 of the paper book). It was argued by the learned counsel for the assessee that in the light of the above factual position, the finding of the CIT(A) and the Tribunal in the assessment proceedings that the assessee d .....

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..... assessee in the assessment proceedings which he could not substantiate in those proceedings was bona fide and if the disclosure was full and all facts material to the computation of the income have been disclosed. It was, accordingly, contended by the assessee that the penalty imposed is unjustified. 11. The learned Sr. DR appearing for the department, on the other hand, contended that Explanation 1 to section 271(1)(c) was fully applicable to the case because the assessee s explanation regarding the return of the brokerage payment was found incorrect or wrong and it was also not possible for the Assessing Officer to issue summons in the absence of complete address of the clients to whom part of the brokerage was refunded. Our attention was drawn to the confirmation letters filed in the paper book and it was pointed out that the addresses given therein were vague and it was not possible to issue summons to such vague addresses. The learned Sr. DR also contended that despite opportunity the assessee was unable to specify the mode of payment of the brokerage and it was merely stated that there were debit entries in the sauda brokerage accounts which hardly justify the assessee s cla .....

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..... en parties so that summons could be issued to them to verify the correctness of the claim. For example, some of the addresses are (a) Nitan Raval, Sharda Society, Nr. Sharda Mandir, Paldi, Ahmedabad, (b) Pallavi Soni, Dayabhai Park, Maninagar, Ahmedabad, (c) Vikram Nagar, G/8, Sushmita Flat, Vasna, Ahmedabad, (d) Vandanaben Shah, Dhanlaxmi Society, Maninagar, Ahmedabad, etc. No doubt, there are few confirmations which contained slightly more precise addresses. However, that does not take the matter further because the assessee has not been able to meet the queries raised by the Assessing Officer accurately. It has not been able to give details of how much business each client had with it and what was the number of new clients introduced by them so as to justify return of the brokerage charged from them in part. It was the duty of the assessee to show with exact figures the basis of calculating the amount of brokerage to be returned to the existing clients. In fact the assessee itself stated in its letter dated 17-3-2003 that it was having a somewhat raw system of deciding and accounting such claims and that these claims were decided on ad hoc basis by the director upon the request .....

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..... incentive for introducing new clients, one would expect the amounts to be credited first to the personal accounts of the clients after making the necessary calculations in that behalf depending upon the number of new clients introduced, the business given by them, and so and so forth. Thereafter, payments would have been effected or adjustments against the debit for brokerage charged from them would have been made. This would have ensured that the correct amount of brokerage due to them was being returned and would also serve as a kind of control over the entire transactions. But it is very unusual to debit the payment straightaway to the sauda brokerage account. In fact it is not even clear whether the payments were actually made as debited in the sauda brokerage account and it was this aspect that was highlighted by the learned Sr. DR when he submitted that the mode of payment of the brokerage itself has not been proved by the assessee. This submission has relevance to the argument advanced on behalf of the assessee that there is no evidence to show that the payments have come back to the assessee. In our opinion, if the payment itself is not proved beyond doubt, then the argume .....

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