P.P.S. Janarthana Raja, J.@mdashThis appeal is filed u/s 260A of the Income Tax Act, 1961, by the Revenue, against the order of the Income Tax Appellate Tribunal, "A" Bench, Chennai, in I.T.A. No. 1620/ Mds/2002 dated October 6, 2006, raising the following substantial question of law:
Whether in the facts and circumstances of the case, the Tribunal had properly exercised its discretion and was right in deleting the penalty imposed u/s 271(1)(c), when clearly the assessee had not included the total brokerage received by it in its profit and loss account?
2. The facts leading to the above substantial question of law are as under:
The assessee is a company incorporated on September 28, 1994, as a 100 per cent, subsidiary of Cholamandalam Investments and Finance Co. Ltd. The company is a member of the Madras Stock Exchange and is doing business as a share broker. The relevant assessment year is 1997-98 and the corresponding accounting year ended on March 31, 1997. The assessee filed the return of income on December 1, 1997, admitting taxable income at Rs. 3,31,710. The return was processed u/s 143(1) (a) of the Income Tax Act ("Act" in short) and thereafter taken up for scrutiny and notice u/s 143(2) was served. The Assessing Officer completed the assessment u/s 143(3) of the Act on November 30, 1999, on a total income of Rs. 27,44,016 and made the following additions and disallowances to the Income Tax return:
(Rs.)
(i) Disallowance u/s 43B, 34,247
(ii) Loss on purchase and sale of shares disallowed as speculation loss 1,36,000
u/s 73
(iii) Brokerage payable to Cazenove and Co., UK disallowed under Sec- 19,97,845
tion 40
(iv) Interest to Cazenove and Co., UK disallowed u/s 40 1,79,269
(v) Short admission of interest 29,307
3. Aggrieved by the order, the assessee filed an appeal to the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) confirmed the additions and disallowances made as per SI. Nos. (i), (iii), (iv) and (v) mentioned above and directed that the disallowance of the loss of Rs. 1,36,000 should be examined again after affording an opportunity to the assessee. The Assessing Officer also passed a consequential order after giving an opportunity to the assessee and the said assessment order has also been accepted by the assessee. During the course of assessment proceedings, the assessee was served with a show-cause notice for concealment of brokerage of income. In response to the show-cause notice, the assessee filed a letter dated February 2, 2000, and offered an explanation. The Assessing Officer, not satisfied with the explanation offered by the assessee regarding concealment of income earned by way of brokerage income, levied the penalty in dispute. The Assessing Officer levied a penalty of Rs. 10 lakhs. Aggrieved by the order the assessee filed an appeal to the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) allowed the appeal and held that the assessee had not filed any inaccurate particulars of income and has also not concealed any income from the Revenue. Aggrieved, the Revenue filed an appeal to the Income Tax Appellate Tribunal ("Tribunal" in short). The Tribunal dismissed the appeal filed by the Revenue and upheld the order of the Commissioner of Income Tax (Appeals) cancelling the penalty. Hence the present appeal is filed by the Revenue.
4. Learned standing counsel appearing for the Revenue submitted that the assessee had not shown the sub-brokerage in the profit and loss account. The assessee had shown only the net-brokerage in the profit and loss account which is against the method of accounting adopted by the assessee. It is further submitted that the Assessing Officer called the details of current liability in Schedule VII of the balance-sheet. Only after examination, it was found by the Assessing Officer that there was understatement of brokerage receipts and hence the levying of penalty by the Assessing Officer is in conformity with law.
5. Heard the counsel. The assessee is a member of stock exchange and is a share broker. During the course of assessment proceedings, the Assessing Officer found that the assessee had admitted profit of Rs. 68.32 lakhs as brokerage. However, on examination it was found that gross brokerage earning was Rs. 88.32 lakhs. The assessee himself had deducted the sub-brokerage payable to Cazenove and Co. amounting to Rs. 19.98 lakhs and only the net-brokerage of Rs. 68.32 lakhs had been admitted in the profit and loss account. The sub-brokerage of Rs. 19.98 lakhs payable was shown as liability in the balance-sheet in Schedule VII. The assessee had filed all the details before the Assessing Officer and also not concealed anything from the Department on the basis of the available record and details furnished by the assessee. It is seen from the record that the assessee has been following the accounting practice of netting the brokerage earned against sub-brokerage payable and only the net amount was reflected in the profit and loss account. Since the sub-brokerage has not been paid, it was shown as outstanding in the balance-sheet. Hence there has been no concealment of income or there is no furnishing of inaccurate particulars of income. The only mistake committed by the assessee is not showing the sub-brokerage as payable in the profit and loss account. Instead he has shown the net brokerage receivable and correspondingly the outstanding sub-brokerage payable has been shown in the balance-sheet. This is an acceptable system of accounting. The Assessing Officer has found out only from the details available from the accounts furnished. The Tribunal as well as the first appellate authority were of the view that this is not a case where inaccurate particulars of income have been furnished or there is concealment of income by the assessee. Rather, this is a case where a genuine and bona fide mistake of not showing sub-brokerage explicitly in the profit and loss account, has been committed, because the assessee was following the netting of brokerage earned. For the purpose of levying penalty, there should be a direct attempt of concealment of items of income or a portion thereof from the knowledge of Income Tax authority. The imposition of penalty is not automatic and in this case, the mistake committed by the assessee is accidental or inadvertant and not intentional. It is also seen that the assessment has been accepted and tax has been paid since the entries relating to the sub-brokerage have been written back in the financial year 1999-2000.
6. Both the authorities have given a concurrent finding that there is no concealment or inaccurate particulars furnished by the assessee and it is only a bona fide mistake and not intentional. The findings given by the Tribunal as well as the first appellate authority were based on valid materials and evidence. Recently, the Supreme Court in the case of
In view of the foregoing reasons, no substantial question of law arises for consideration of this Court and accordingly the tax case is dismissed. No costs.
