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2009 (8) TMI 843

..... he Respondent. ORDER R.V. Easwar, Vice-President. - These appeals relate to the same assessee and were heard together. Accordingly, they are disposed of by a single order. In respect of the assessment year 2000-01, both the assessee and the department are in appeal. For the assessment year 2001-02, the appeal is by the assessee. The assessee is a private limited company engaged in the business of share broking. All the three appeals relate to penalties imposed on it under section 271(1)(c) of the Income-tax Act. 2. We may notice the facts giving rise to the appeals in brief. In respect of the assessment year 2000-01, while completing the assessment under section 143(3), the Assessing Officer disallowed the jobbing loss of Rs. 17,35,790 and another sum of Rs. 14,17,888 as diversion of income in the name of income excess brokerage paid back. 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 .....

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..... ivert its income in the guise of return of a part of the brokerage was not justified. These submissions were not accepted by the Assessing Officer who examined them in detail in paras 3.3 and 3.4 of the assessment order. The gist of the findings is; (a) the assessee has been selective in returning the brokerage to some persons only, though a uniform brokerage has been charged from all of them, (b) there is no basis given for calculating the excess brokerage paid back and they are in round figures, without any rate or basis being mentioned, (c) sometimes, the refund of the brokerage has been made in cash, (d) the return of the excess brokerage should have been done at the end of the vallan period but the assessee has debited the same in the very first day of vallan on many occasions, (e) the return of the brokerage has not been debited to the 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 .....

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..... income by returning the excess brokerage paid by the clients the Tribunal dealt with this issue in its order cited supra in paras 5.1 to 9 of its order dated 28-11-2008. After quoting elaborately from the order of the CIT(A) for the assessment year 2000-01 and after briefly noticing the arguments of both the sides in paras 7 and 8, the Tribunal recorded its finding in para 9 as under: 9. Having heard rival submissions, facts and circumstances and various documents placed on PB to which our attention was drawn, and the decision of the Supreme Court in the case of S.A. Builders (supra), we are of the opinion that CIT(A) has dealt with the issue in details and the assessee has not brought any evidence to our notice contrary to the findings of the CIT(A) which are on appreciation of facts as well as consideration of legal provisions relating 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 as .....

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..... efective. For all these reasons he sustained the penalty imposed with reference to the disallowance of the excess brokerage paid back and allowed the assessee s appeal in part. Whereas the assessee has come in appeal before the Tribunal in ITA No. 998/Ahd./2007 questioning the levy of penalty with reference to the excess brokerage payment, the department has come in appeal raising the following grounds in ITA No. 1052/Ahd./2007 : 1. The CIT(A) has erred in law and on facts in directing to recompute the penalty considering the excess brokerage paid back amounting to Rs. 14,17,888 as concealed income and not on the total addition of Rs. 31,53,678. 9. In respect of the assessment year 2001-02, the CIT(A) following his order for the assessment year 2000-01 sustained the levy of penalty with reference to the disallowance of the brokerage repayment 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 .....

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..... dl. CIT v. Prem Chand Garg [2009] 31 SOT 97 in which case also the true meaning and purpose of Explanation 1 was explained. Relying on these decisions, it was submitted that the assessee s explanation has to be found to be false in order that the Explanation 1 below section 271(1)(c) can be successfully invoked. Reliance is also placed on the following judgments of the Hon ble Gujarat High Court : (a) National Textiles v. CIT [2001] 249 ITR 1251 where it was held that unless the assessee s explanation was false, no penalty can be imposed by invoking Explanation 1 if the facts and circumstances were equally consistent with the explanation offered by the assessee, and (b) Sarabhai Chemicals (P.) Ltd. v. CIT [2002] 257 ITR 3552 where it was held that the deeming fiction contained in Explanation 1 will not apply if the explanation given by the 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 depar .....

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..... ot able to substantiate and also fails to prove that his explanation was bona fide. We are of the view that the assessee in the present case has offered an explanation which he was not able to substantiate and also failed to prove that the explanation was bona fide. The assessee has also not disclosed all the facts relevant to the explanation and material to the computation of his income. Clause (B) of Explanation 1 is attracted to the case. When called upon to prove the repayment of the brokerage to a few selected clients, fourteen in number, the assessee was under duty to comply with all the queries raised in the questionnaire issued by the Assessing Officer. Theoretically the assessee has tried to explain the questions raised by the Assessing Officer. However, the assessee has not been able to furnish the precise addresses of the fourteen 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 .....

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..... t such expenses to the brokerage returned account. In any case, the break-up into conveyance, remuneration, tea, coffee, etc., was not given by the assessee. The Assessing Officer had also made a point that the debits to the sauda brokerage account were in abbreviated forms from which nothing could be made out and the assessee s answer to the same was that the narrations were entered by the accountant and because of the limitation in the software regarding the number of characters, he had to use abbreviations. Another valid point raised by the Assessing Officer was that the return of the brokerage has not been credited to the clients personal accounts but has been made through final J.V. account (which probably means journal vouchers). If the assessee s claim is true that it returned part of the brokerage charged from high-value clients as 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 a .....

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