ITAT Ahmedabad Quashes Reassessment Against Tipsons Stock Brokers, Deletes ₹1.33 Crore Disallowance

The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) has recently quashed reassessment proceedings against Tipsons Stock Brokers Pvt. Ltd. It held that the Income Tax Department reopened the assessment solely by re-examining material already on record. The tribunal also deleted a disallowance of about ₹1.33 crore made against the company.

A bench of Vice President Dr. B.R.R. Kumar and Judicial Member Rahul Chaudhary observed that the conditions for reopening an assessment beyond four years were not met. It found no failure by the company to fully and truly disclose material facts.

"we are of the considered view that the conditions prescribed under the first proviso to section 147 are not satisfied. The reopening is based solely on re-examination of existing material and therefore amounts to a mere change of opinion. Accordingly, we hold that the assumption of jurisdiction u/s 147 is invalid." It held.

The company had filed its income tax return for the assessment year 2015-16 declaring an income of about ₹79.41 lakh. The return was accepted after scrutiny.

More than four years later, the Income Tax Department reopened the assessment. It alleged that the payment of about ₹1.33 crore to the company's directors represented sub-brokerage prohibited under Regulation 15A of the SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992. On that basis, it disallowed the expenditure.

Tipsons challenged the reassessment. It argued that the payments had already been disclosed during the original scrutiny through its tax audit report, audited financial statements and replies filed before the assessing officer.

The company also contended that the payments were not sub-brokerage. Instead, they represented a share of arranger fees earned from a public issue of bonds.

The tribunal found that the reasons recorded for reopening relied only on the assessment records already available with the department. They did not refer to any fresh material, external information or investigation report obtained after completion of the original assessment.

"The Assessing Officer himself admits that the annual report, audited accounts and books of account were furnished by the assessee. Having accepted the existence of such disclosure, no specific material fact alleged to have been withheld by the assessee has been identified in the reasons recorded. The bald observation that the facts were “embedded” in the records cannot substitute the statutory requirement of demonstrating failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment.", the court noted.

Although the tribunal held that the reassessment itself was invalid, it also examined the disallowance on merits for the sake of completeness. It found that the revenue had wrongly assumed the payment to the directors was in the nature of sub-brokerage.

The tribunal observed that about ₹1.84 crore received from Shriram Transport Finance Company Ltd. was arranger fees earned for assisting in a public issue of bonds. The payment made to the directors was merely a share of those arranger fees for the services they rendered in arranging the issue.

"The amount of Rs.1,84,50,000/- received by the assessee from Shriram Transport Finance Company Ltd. was not brokerage from stock-broking activities but arranger fees earned for assisting in the public issue of bonds. The payment made to the Directors was merely a share of such arranger fees for the services rendered by them in arranging the issue.", the tribunal ruled.

Finding no material on record to show that the directors acted as sub-brokers of the company, the tribunal held that the Revenue had proceeded on a wrong factual premise. It deleted the disallowance of about ₹1.33 crore and allowed the company's appeal.

For Appellant: Satyaprakash Singh, CA

For Respondent: Abhijit, Sr. DR