K. M. DASTUR REINSURANCE BROKERS P. LTD,MUMBAI vs. DCIT 1(2), MUMBAI

In order to appreciate the controversy, we may briefly summarize the background as follows. The appellant before us is engaged in the business of broking for direct insurance and reinsurance businesses. For the Assessment Year 2007-08, it filed a return of income declaring total income of Rs.24,83,92,680/-, which was subject to a scrutiny assessment whereby the total income has been assessed at Rs.26,49,86,430/- in an order passed u/s 143(3) of the Act dated 07.12.2009 which, inter-alia, included an addition of Rs.30,08,604/- on account of understatement of brokerage receipts from four insurance companies. Notably, in the course of assessment proceedings, the Assessing Officer carried out a verification exercise u/s 133(6) of the Act with various insurance companies and found that in the case of four such concerns, namely, Bajaj Allianz Insurance Co., Cholamandalam MSG Insurance Co., ICICI Lombard General Insurance Co. and ICICI Prudential Life Insurance, the broking income disclosed by the assessee did not tally with the amounts disclosed in the account books of the said concerns. The relevant difference has been tabulated in the assessment order, which reads as under :-

The Assessing Officer further records that in the absence of any reconciliation, the difference of Rs.30,08,604/- was added to the returned income as understatement of broking receipts. When the matter was carried in appeal before the CIT(A), assessee made detailed factual submissions by pointing out that the differential amount was primarily on account of broking cheques having been received by the assessee in the subsequent period. A complete reconciliation was furnished and we find that the same has also been reproduced by the CIT(A) in his order passed in the quantum assessment proceedings dated 09.12.2010. However, the CIT(A) adopted an entirely different approach as according to him, the amounts disclosed by the four concerns, in fact, showed brokerage accrued

The aforesaid discussion clearly shows that though the penalties have been imposed by the two authorities, namely, CIT(A) and Assessing Officer, but the reasons for the imposition remain the same, namely, understatement of brokerage receipts.

We have heard the rival parties in the above background and also perused the record and accordingly, proceed to adjudicate the controversy as follows. Insofar as the merits of the controversy is concerned, the learned representative pointed out that assessee has large volume of transactions and practically it was not feasible to reconcile every brokerage amount earned, especially the amounts which have not been actually received during the year itself. It has been emphasised that even after considering the stand of the CIT(A) in the quantum proceedings, the sum and substance of the difference between the assessee and the Revenue relates to non- inclusion of only those brokerage receipts which have not indeed been received by the assessee during the year. Our attention has been also invited to the written submissions made to the lower authorities during the assessment proceedings as also in the penalty proceedings to point out that the assessee had furnished complete detail and reconciliation, which showed that the amounts were indeed not received within the year, and that the same were accounted for as and when the cheques were received or if the same have not been paid to the assessee, such income was not accounted for. The learned representative pointed out that even if one is to go by the real income theory, no fault can be found with the income reported by the assessee inasmuch as the differential amount was not received during the year itself. It has been vehemently pointed out that there was no intention to conceal or hide any income/receipt and thus no penalty u/s 271(1)(c) is attracted.

On the other hand, the ld. DR pointed out that the addition has been accepted by the assessee in the quantum proceedings which itself shows

We have carefully considered the rival submissions. The difference between the returned and assessed income in question is on account of broking receipts shown by the assessee from the four insurance companies. Sec. 271(1)(c) of the Act postulates levy of penalty on existence of two conditions, namely, concealment of the particulars of income or furnishing of inaccurate particulars of such income. It is a quite well-settled proposition that penalty u/s 271(1)(c) of the Act is not leviable merely because there is a difference between the assessed and returned income, and that the said difference cannot be conclusive for levy of penalty because the assessment and the penalty proceedings are independent, as laid down by the Hon'ble Supreme Court in the case of Anantharam Veerasinghaiah & Co. vs CIT, 123 ITR 457 (SC). Notably, the findings in the assessment proceedings may be relevant, but the same, by itself, cannot be conclusive for levy of penalty u/s 271(1)(c) of the Act. Thus, in the instant case, the Assessing Officer as well as the CIT(A) were obligated to demonstrate as to how the impugned addition to the returned income constitutes concealment of particulars of income or furnishing of inaccurate particulars of income within the meaning of Sec. 271(1)(c) of the Act. The tone and tenor of the respective orders passed by the Assessing Officer and CIT(A) u/s 271(1)(c) of the Act show that the penalty has been imposed by merely noticing the difference between the returned and the assessed income qua the amount of broking receipts. In fact, if one is to consider the explanations furnished

Before parting, we may also mention that the assessee has raised an Additional Ground pointing out that the lower authorities have not specified the limb of Sec. 271(1)(c) of the Act under which the proceedings have been initiated, i.e. whether for concealment of particulars of income or for furnishing inaccurate particulars of income and, therefore, the orders imposing penalty are void ab initio. Since assessee has already succeeded on 5814/Mum/2013 M/s. K.M. Dastur Reinsurance Brokers Pvt. Ltd.

Resultantly, both the appeals of the assessee are allowed, as above.