High Court Of Gujarat
Navkar Share And Stock Brokers (P.) Ltd. vs. ACIT Circle 1(3)
Section 37(1), 147
Assessment year 2009-10
M.R. Shah And B.N. Karia, JJ.
Special Civil Application No. 14513 Of 2016
November 21, 2016
M.R. Shah, J. – RULE. Ms. Mauna Bhatt, learned advocate waives service of notice of rule on behalf of the respondent.
2. In the facts and circumstances of the case and with the consent of the learned advocates appearing on behalf of the respective parties, the present petition is taken up for final hearing today.
3. By way of this petition under Article 226 of the Constitution of India the petitioner – assessee has prayed to quash and set aside the impugned notice dated 09/03/2016 issued under Section 148 of the Income Tax Act, 1961 by which the assessment for the Assessment Year 2009-10 is sought to be reopened in exercise of powers under Section 147 of the Income Tax Act beyond the period of four years.
4. Heard Shri R.K. Patel, learned advocate appearing on behalf of the petitioner and Ms. Mauna Bhatt, learned advocate appearing on behalf of the respondent.
5. It is not in dispute that the assessment for the Assessment Year 2009-10 is sought to be reopened beyond the period of four years. The reasons recorded for reopening reads as under;
“1. In this case, the assessee has filed Income Tax return for AY 2009-10 on 24/09/2009 declaring loss of Rs. 24,61,628/-. Assessment under Section 143(3) of the IT Act was finalized on 20/10/2011 determining total income at Rs. 95,990/-
2. The assessee is in the business of shares, stock broking and investment. The assessee filed its return for Assessment Year 2009-10 declaring loss of Rs. 24,61,628/- on 24/09/2009. The income was assessed to Rs. 95,989/- under Section 143(3) of the Act on 20/10/2011. The assessee company was a member and registered share broker of Stock Exchange of Ahmedabad (ASE), Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). During the year the assessee carried out its trading activity through stock exchanges recognized under the Securities Contracts (Regulation) Act, 1956 and has earned brokerage income of Rs. 3,95,42,490/-. As against the above the assessee company has paid Rs. 2,09,99,129/- as commission/remission. The remisers are providing services only for introducing clients and all other services in relation to transaction of shares are provided by the sub broker or broker. Since, the remisers does not play any role in transaction of securities, the payment made to remisers does not get covered under the exception stated in Explanation under Section 194H. Hence, assessee was liable to deduct tax at source under Section 194H from the payment made to the remisers. However, it was noticed from the ledger account that the assessee had not complied with the provisions of Chapter XVII-B; and as against deductible Rs. 21,62,910/- under Section 194H the assessee deducted Rs. 13,38,354/- resulting in short deduction of TDS of Rs. 8,24,556/- under Section 194H on the above remission charges paid to the remisers. Hence, the proportionate amount of Rs. 80,05,400/- on which TDS was not paid was required to be disallowed under Section 40(a)(Ia). This being not done resulted in under assessment of income of Rs. 80,05,400/-.
As per the percentage share of brokerage allowed under the Bye Laws 218 of ASE, the commission so paid cannot exceed 40 percent of the brokerage received by the assessee. The commission to the extent it exceeds 40 percent of the brokerage received by the assessee from the client was clearly prohibited by law and to that extent requires to be disallowed under the provisions of Explanation to Section 37(1) of the Act.
In view of the above, commission expenses of Rs. 51,82,133/- was required to be disallowed under Section 37(1) of the Act. This being not done resulted under assessment of income of Rs. 51,82,133/-.
3. In view of the above facts, I have reason to believe that income chargeable to tax has escaped assessment to the extent of Rs. 1,31,87,533/- (80,05,400 + 51,82,133). Thus, this is a fit case for re-opening the assessment under Section 147 of the Income Tax Act, 1961 for Assessment Year 2009-10.”
6. Having heard the learned advocates appearing on behalf of the respective parties and considering the material on record, it appears that at the time of scrutiny assessment proceedings for the year under consideration, all necessary details were furnished by the assessee with respect to commission/remission to the concerned respective remisiers as well as the brokerage received by the assessee. In the scrutiny assessment proceedings, details of the customers/remisiers/remiser commission/Bye Laws on behalf of the Company as well as remissery commission paid to remisiers were disclosed and full particulars were given. Thereafter deduction under Section 146H (sic.) of the IT Act on the remission charges to the remisiers were allowed even with respect to the percentage share of the brokerage. The assessee specifically disclosed the name of 33 remisiers on the role of the Company who were registered with Bombay Stock Exchange.
7. From the reasons recorded for reopening, it appears that according to the Assessing Officer (i) proportionate amount of Rs. 80,54,000/- on which TDS was not paid was required to be disallowed under Section 40(a)(Ia) and (ii) considering the Bye Laws 218 of Ahmedabad Stock Exchange, the commission so paid cannot exceed 40 percent of the brokerage received by the assessee, and therefore, such brokerage beyond the extended 40 percent was disallowed under the provisions of Explanation under Section 37(1) of the Act. Therefore, according to the Assessing Officer the commission expenses of Rs. 51,81313/- was required to be disallowed under Section 37(1) of the IT Act and this being not done resulted under assessment of income of Rs. 51,82,133/-. The aforesaid hardly can be a valid ground to reopen the concluded assessment beyond the period of four years. The condition as provided under Section 147 of the IT Act to reopen the completed assessment beyond the period of four years are not satisfied. Even there is no allegation in record reopening of the assessment that there was any non disclosure on the part of the assessee, which has resulted into escapement of the income. At this stage, it is required to be noted that even in the objection against the reasons recorded it was the specific case on behalf of the assessee that since August, 2004 it was not having any transaction with Ahmedabad Stock Exchange and more particularly during the year under consideration. In the reasons recorded, there is nothing on record that the Assessing Officer on facts formed an opinion that during the year under consideration the assessee was having the transaction with Ahmedabad Stock Exchange. In that view of the matter, even Bye Law No. 218 of the Ahmedabad Stock Exchange, upon which reliance has been placed, shall not be attracted and/or applicable at all. In any case, as stated hereinabove, there does not appear to be any non disclosure on the part of the assessee in not disclosing true and correct facts, and therefore, the conditions stipulated under Section 147 to reopen the assessment beyond 4 years are not satisfied. On the aforesaid ground alone, the impugned notice and reassessment proceedings deserves to be quashed and aside.
8. In view of the above and for the reasons recorded hereinabove, the petition succeeds. The impugned notice of reopening of the assessment for the Assessment Year 2009-10, which is beyond the period of four years, is quashed and set aside. Rule is made absolute accordingly. No order as to costs.
[Citation : 393 ITR 362]