2014 (7) TMI 1312 - AT - Income Tax

Disallowance of sub-brokerage expenses - burden of proof for the claim u/s. 37(1) - HELD THAT - The assessee has admittedly not filed confirmations in respect of the expenditure to the extent of 26, 54, 460/- (the same may in view of an admitted difference of 59, 103/- would stand restricted to 25, 95, 357 / refer paras 3.4 3.7 of this order). There is accordingly and clearly no discharge of the initial onus on the assessee u/s. 37(1) to that extent. The expenditure consequently cannot be allowed except in the circumstance of the noticee responding agreeably i.e. with the assessee s record with the A.O. having not acted upon the same so that there is no reason or nothing on record to doubt the veracity or the authenticity of the information furnished by the payee. There is no such response in the instant case. As such irrespective of whether the notices u/s.133(6) stand issued by the A.O. or not (which could again be for the reason of lack of proper address etc.) the initial onus having not been discharged in its respect expenditure to that extent i.e. 26, 54, 460/- stands to be disallowed. Expenditure with reference to any particular payee (sub-broker) - HELD THAT - We are in agreement with the ld. DR that the Revenue has in fact acted liberally allowing the claim for expenditure where as much as a valid confirmation as to the receipt of payment stands filed. We may further add that the figures stated by us in this order have been adopted as furnished by the assessee before us upon being sourced from the A.O. under RTI Act. The same therefore would be subject to confirmation by the A.O. while giving appeal effect to this order. Further there being admittedly a difference of 59, 103/- the assessee shall either explain or reconcile the said difference by locating the source of error. In case however the same cannot be and neither is the same found by the A.O.; the total expenditure claimed being at a amount lower (by that amount) for which the detail stands submitted the benefit of doubt would go to the assessee so that the expenditure to be allowed with reference to any particular payee (sub-broker) shall be as stated i.e. without any adjustment or modification on account of the said error/difference. We decide accordingly.

Summary

Issues Involved:
1. Disallowance of sub-brokerage expenses amounting to Rs. 51,67,026/- for the assessment year 1998-99.

Detailed Analysis:

Background of the Case:
The assessee, engaged in share and stock brokering, was assessed for the year 1998-99, and the assessment included a disallowance of sub-brokerage expenses totaling Rs. 51,67,026/-. The disallowance was due to the assessee's failure to furnish addresses of sub-brokers despite several reminders. The CIT(A) initially restricted the disallowance to Rs. 10,51,975/-, but the Tribunal remanded the case to the Assessing Officer (A.O.) for verification of the details provided by the assessee.

Verification Process:
During the set aside proceedings, the assessee provided names and addresses of 34 sub-brokers. The A.O. issued notices under section 133(6) to confirm the brokerage payments. Most notices were either unserved or not responded to, with one entity denying receipt of any brokerage. Consequently, the A.O. allowed claims amounting to Rs. 11,86,266/- and disallowed the remaining Rs. 51,67,026/-. The CIT(A) upheld this disallowance, leading to the present appeal.

Burden of Proof:
The primary issue revolves around the burden of proof under section 37(1) of the Income Tax Act, 1961. The assessee argued that non-response from sub-brokers should not disadvantage them, as payments were made through banking channels. The Revenue contended that the assessee failed to meet the burden of proof, and the A.O. acted liberally by allowing claims where confirmations were provided.

Detailed Figures and Analysis:
The Tribunal examined the figures and details provided by the assessee, highlighting discrepancies and the need for further verification. It was noted that the assessee did not file confirmations for expenses amounting to Rs. 26,54,460/-, which led to a disallowance of the same. For expenses where confirmations were filed but notices under section 133(6) were not issued, the Tribunal allowed the claim amounting to Rs. 2,74,069/-.

Non-Response and Denials:
For expenses where notices were issued but not served or responded to, the Tribunal upheld the disallowance. Specifically, for Rs. 21,52,226/-, where sub-brokers claimed inability to confirm due to old records, the Tribunal found the confirmations suspicious and required further verification. This included amounts confirmed by K.C. Patel and Paresh D. Shah, whose confirmations lacked complete details and raised doubts about their veracity.

Conclusion and Directions:
The Tribunal concluded that the burden of proof under section 37(1) lies with the assessee. The matter was partly allowed for statistical purposes, with directions for further verification by the A.O. The Tribunal emphasized that the assessee's failure to furnish necessary details initially and during the set aside proceedings contributed to the disallowance. The figures provided by the assessee were to be confirmed by the A.O., and any unexplained difference would benefit the assessee.

Order Pronouncement:
The appeal was partly allowed and partly allowed for statistical purposes, with the order pronounced in the open court on July 16, 2014.