The Commissioner Of Income-Tax-I, Chennai v. M/S.cholamandalam Securities Ltd., 28, Rajaji Salai, Chennai-600 001

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 06.06.2007 Coram : THE HONOURABLE MR.JUSTICE P.D.DINAKARAN AND THE HONOURABLE MR.JUSTICE P.P.S.JANARTHANA RAJA Tax Case (Appeal) No.424 of 2007 The Commissioner of Income-tax-I,Chennai. ..AppellantVs M/s.Cholamandalam Securities Ltd.,28, Rajaji Salai,Chennai-600 001. ..Respondent Appeal under Section 260A of the Income-tax Act, 1961 against theorder of the Income Tax Appellate Tribunal, "A" Bench, Chennai in I.T.A.No.1620/Mds/2002 dated 06.10.2006 for the assessment year 1997-98 agaisntthe order of the Commissioner of Income Tax, (A) III Chennai dated24.6.2002 and made in ITA.No. TR. 348/2001-202/A III GI.No. PA.No. 36 CAssessment Year 1997-98 against the order of Deputy Commissioner of IncomeTax Company Circle I(i) Chennai 34, dated 6.1.2000 PA/GI.No. 36.C,Assessment Year 1997-98. For Appellant :Mr.J.Naresh Kumar,Standing Counsel forIncome-tax Department JUDGMENT (Judgment of the Court was delivered byP.P.S.Janarthana Raja, J.) This appeal is filed under Section 260A of the Income Tax Act, 1961by the Revenue, against the order of the Income Tax Appellate Tribunal,"A" Bench, Chennai in I.T.A. No.1620/Mds/2002 dated 06.10.2006 raising thefollowing substantial question of law:- Whether in the facts and circumstances of the case, theTribunal had properly exercised its discretion and wasright in deleting the penalty imposed u/s 271(1)(c),when clearly the assessee had not included the totalbrokerage received by it in its profit and loss https://hcservices.ecourts.gov.in/hcservices/ account? 2.The facts leading to the above substantial question of law areas under: The assessee is a Company incorporated on 28.09.1994 as a 100%subsidiary of M/s.Cholamandalam Investments and Finance Co. Ltd. Thecompany is a member of the Madras Stock Exchange and is doing business asa share broker. The relevant assessment year is 1997-98 and thecorresponding accounting year ended on 31.03.1997. The assessee filedReturn of income on 01.12.1997 admitting taxable income at Rs.3,31,710/-.The Return was processed under Section 143(1)(a) of the Income-tax Act("Act" in short) and thereafter taken up for scrutiny and notice underSection 143(2) was served. The Assessing Officer completed the assessmentunder Section 143(3) of the Act on 30.11.1999 on a total income ofRs.27,44,016/- and made the following additions and disallowances to theIncome-tax Return:- Aggrieved by the order, the assessee filed an appeal to the Commissionerof Income-tax (Appeals). The C.I.T.(A) confirmed the additions anddisallowances made as per Sl.Nos.i), iii), iv) and v) mentioned above anddirected that the disallowance of the loss of Rs.1,36,000/- should beexamined again after affording an opportunity to the assessee. TheAssessing Officer also passed a Consequential Order after giving anopportunity to the assessee and the said assessment order has also beenaccepted by the assessee. During the course of assessment proceedings,the assessee was served with a show cause notice for concealment ofbrokerage of income. In response to the show cause notice, the assesseefiled a letter dated 02.02.2000 and offered an explanation. The AssessingOfficer, not satisfied with the explanation offered by the assesseeregarding concealment of income earned by way of brokerage income, leviedthe penalty in dispute. The Assessing Officer levied a penalty of Rs.10lakhs. Aggrieved by the order the assessee filed an appeal to theCommissioner of Income-tax (Appeals). The C.I.T.(A) allowed the appealand held that the assessee had not filed any inaccurate particulars ofincome and has also not concealed any income from the Revenue. Aggrieved,the Revenue filed an appeal to the Income-tax Appellate Tribunal https://hcservices.ecourts.gov.in/hcservices/ https://hcservices.ecourts.gov.in/hcservices/ ("Tribunal" in short). The Tribunal dismissed the appeal filed by theRevenue and upheld the order of the C.I.T.(A) cancelling the penalty.Hence the present appeal is filed by the Revenue. 3.Learned Standing Counsel appearing for the Revenue submittedthat the assessee had not shown the sub-brokerage in the profit and lossaccount. The assessee had shown only the net-brokerage in the profit andloss account which is against the method of accounting adopted by theassessee. It is further submitted that the Assessing Officer called thedetails of current liability in Schedule VII of the Balance Sheet. Onlyafter examination, it was found by the Assessing Officer that there wasunderstatement of brokerage receipts and hence the levying of penalty bythe Assessing Officer is in confirmity with law. 4.Heard the counsel. The assessee is a member of Stock Exchangeand is a Share Broker. During the course of assessment proceedings, theAssessing Officer found that the assessee had admitted profit of Rs.68.32lakhs as brokerage. However, on examination it was found that grossbrokerage earning was Rs.88.32 lakhs. The assessee himself had deductedthe sub brokerage payable to M/s.Cazenove and Co. amounting to Rs.19.98lakhs and only the net brokerage of Rs.68.32 lakhs had been admitted inthe profit and loss account. The sub brokerage of Rs.19.98 lakhs payablewas shown as liability in the balance sheet in Schedule VII. The assesseehad filed all the details before the Assessing Officer and also notconcealed anything from the Department on the basis of the availablerecord and details furnished by the assessee. It is seen from the recordthat the assessee has been following the accounting practice of nettingthe brokerage earned against sub brokerage payable and only the net amountwas reflected in the profit and loss account. Since the sub brokerage hasnot been paid, it was shown as outstanding in the balance sheet. Hencethere has been no concealment of income or there is no furnishing ofinaccurate particulars of income. The only mistake committed by theassessee is not showing the sub brokerage as payable in the profit andloss account. Instead he has shown the net brokerage receivable andcorrespondingly the outstanding sub brokerage payable has been shown inthe balance sheet. This is an acceptable system of accounting. TheAssessing Officer has found out only from the details available from theaccounts furnished. The Tribunal as well as the first appellate authoritywere of the view that this is not a case where inaccurate particulars ofincome have been furnished or there is concealment of income by theassessee. Rather, this is a case where a genuine and bona fide mistake ofnot showing sub brokerage explicitly in the profit and loss account, hasbeen committed, because the assessee was following the netting ofbrokerage earned. For the purpose of levying penalty, there should be adirect attempt of concealment of items of income or a portion thereof fromthe knowledge of Income-tax Authority. The imposition of penalty is notautomatic and in this case, the mistake committed by the assessee isaccidental or inadvertant and not intentional. It is also seen that theassessment has been accepted and tax has been paid since the entriesrelating to the sub brokerage have been written back in the financial year1999-2000. https://hcservices.ecourts.gov.in/hcservices/ https://hcservices.ecourts.gov.in/hcservices/ 5.Both the authorities have given a concurrent finding that thereis no concealment or inaccurate particulars furnished by the assessee andit is only a bona fide mistake and not intentional. The findings given bythe Tribunal as well as the First Appellate Authority were based on validmaterials and evidence. Recently, the Supreme Court in the case ofCommissioner of Income-tax Vs. P.Mohanakala (291 ITR 278), held thatwhenever there is a concurrent factual finding by the authorities below,the same should be accepted and no interference should be called for bythe High Court. Under these circumstances, we do not find any error orlegal infirmity in the order of the Tribunal so as to warrantinterference. 6.In view of the foregoing reasons, no substantial question of lawarises for consideration of this Court and accordingly the tax case isdismissed. No costs. km Sd/Asst. Registrar /true copy/ Sub Asst.Registrar To 1. The Assistant Registrar, Income-tax Appellate Tribunal, "A" Bench, Chennai. 2. The Assistant Ragistrar, Income Tax Apellate Tribunal, IIIrd floor,Rajaji Bhavan, Besant Nagar, Madras 90. 3.The Secretary, Central Board of Direct Taxes, New Delhi. 4. The Commissioner of Income-tax (Appeals) III, Chennai. 5. The Deputy Commissioner of Income-tax, Company Circle I(1), Chennai-34.+ One cc to M/s Pusya Sitaraman, SR.Sc SR 32690AKR (co)sg 22/6/07 T.C.(A) No.424 of 2007 06.06.2007