ITO, WD-44(2), KOLKATA, Kolkata V. M/s M. Prasad & Co. Ltd., Kolkata

ITA 1159/KOL/2015

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 4509 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 10 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-08-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 11-09-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A BHATTACHARJEE CIT LD
• Assessee Lawyers: P J BHIDE FCA LD
• Keywords: Unexplained investment; Transactions in derivatives; Source of fund
• Section: 142(1); 14A; 69

Judgement Text

1 IT A NO . 1159/KOL/2015 M/S. M. PRASAD & CO.LTD. IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: KOLKATA BEFORE: SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER I.T.A NO. 1159/KOL/2015 A.Y: 2010 - 11 I.T.O. WARD 42(1), KOLKATA VS. M/S. M. PRA S AD & CO.LTD PAN: AACCM 1798E [APPELLANT] [RESPONDENT] FOR THE APPELLANT : SHRI A.BHATTACHARJEE, ADDL.CIT, LD.SR.DR FOR THE RESPONDENT : SHRI P.J BHIDE, FCA, LD.AR DATE OF HEARING : 17 - 05 - 2018 DATE OF PRONOUNCEMENT : 08 - 08 - 201 8 ORDER SHRI S.S. VISWANETHRA RAVI, JM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), 2, KOLKATA DT. 19 - 06 - 2015 FOR THE A.Y 2010 - 11. 2. BRIEF FA CTS OF THE CASE ARE THAT THE ASSESSE IS A COMPANY AND IS A STOCK BROKER DEALS IN DERIVATIVES AND SECURITIES . THE ASSESSE FILED ITS E - RETURN OF INCOME FOR THE A.Y UNDER CONSIDERATION DECLARING TOTAL INCOME RS. NIL AND CLAIMED CARRY FORWARD LOSS OF RS. 9,7 6,081/ - . NOTICES U/S. 143(2) AND 142(1) OF THE ACT WERE ISSUED. IN RESPONSE TO WHICH, THE A/RS REPRESENTING THE ASSESSE APPEARED BEFORE HE AO IN ASSESSMENT PROCEEDINGS AND FILED BOOKS OF ACCOUNT, RELEVANT BILLS, VOUCHERS AND BANK STATEMENT. THE AO DETERMIN ED THE ASSESSED INCOME AT RS.65,85,920/ - BY MAKING THE FOLLOWING ADDITIONS VIDE ORDER PASSED U/S.143(3) OF THE ACT DT. 23 - 03 - 2013: - 1. DISALLOWANCE U/S. 14A RS. 5,47,941/ - 2. DISLLOWACNE ON LOSS IN F &O RS. 69,53,809/ - 3. DISALLOWANCE OF MEMBERSHIP FEE S RS. 60,000/ - 4. DISALLOWANCE OF INTEREST ON FBT RS. 252/ - RS.65,85,920/ - 2 IT A NO . 1159/KOL/2015 M/S. M. PRASAD & CO.LTD. 3. THE REVENUE FILED AN APPLICATION DT. 18 - 04 - 2018, COPY OF THE SAME IS ON RECORD, SEEKING TO ADJUDICATE THE REVISED GROUNDS OF APPEAL. 4. THE LD. DR SUBMITS THAT THE REVISED GROUNDS OF APPEAL MAY BE TAKEN UP FOR ADJUDICATION AND GROUNDS OF APPEAL FILED INITIALLY MAY BE WITHDRAWN. ACCORDINGLY, THE GROUNDS OF APPEAL INITIALLY FILED ARE DISMISSED AS WITHDRAWN. 5. GROUND NO.1 OF REVISED GROUNDS OF APPEAL IS RELAT ING TO DELETION OF DISALLOWANCE MADE U/S. 14A OF THE ACT. 6. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD, WE FIND THAT THE AO FOUND THAT THE ASSESSE HAS SHOWN DIVIDEND INCOME TO AN EXTENT OF RS.11,94,522/ - . THE ASSESSE CONTENDED THAT THE DIVIDEN D EARNED ON THE STOCK, WHICH WAS HELD AS STOCK - IN - TRADE AND AS SUCH NO DISALLOWANCE OF EXPENDITURE CAN BE MADE. THE CIT - A HELD THAT NO SUCH DISALLOWANCE CAN BE MADE BY INVOKING RULE 8D(2) IN RESPECT OF SHARES HELD AS STOCK - IN - TRADE AND AS SUCH DELETED THE ADDITION MADE ON THIS ISSUE BY THE AO. THE HONBLE SUPREME COURT IN THE CASE OF MAX OPP INVESTMENT LTD REPORTED IN (2018) 91 TAXMAN.154(SC) HELD THE PROV ISIONS OF SECTION 14A OF THE ACT WOULD BE APPLICABLE EVEN WHEN THE SHARES ARE HELD AS STOCK - IN - TRADE. THE CO - ORDINATE BENCH OF THIS TRIBUNAL ( ITAT, KOLKATA BENCHES, KOLKATA) IN THE CASE OF M/S. MARUTI TRADERS & INVESTORS, ITA NO. 2204/KOL/2016 FOR THE A. Y 2012 - 13, ORDER DT. 11 - 04 - 2018, BY PLACING RELIANCE ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENT LTD SUPRA, REMANDED THE MATTER TO THE FILE OF AO TO WORK OUT THE DISALLOWANCE . RELEVANT PORTION OF WHICH IS REPRODUCED HEREIN BELOW FOR BETTER UNDERSTANDING: - 5. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND THAT THE HONBLE SUPREME COURT IN ITS RECENT DECISION IN THE CASE OF M AXOPP INVESTMENT LTD VS. CIT REPORTED IN [2018] 91 TAXMANN 154 (SC) DATED 12.02.2018 HAD HELD THAT THE PROVISION OF SECTION 14A WOULD BE APPLICABLE EVEN WHEN THE SHARES ARE HELD AS STOCK - IN - TRADE IN VIEW OF THE FACT THAT THE RESULTANT DIVIDEND INCOME EARNE D WOULD BE EXEMPT IN ANY CASE. HENCE, WE HOLD THAT THE APPLICABILITY OF PROVISION OF SECTION 14A IN RESPECT OF SHARES HELD AS STOCK - IN - TRADE HAS BEEN SETTLED BY THE AFORESAID HONBLE SUPREME COURTS DECISION. NOW, THE 3 IT A NO . 1159/KOL/2015 M/S. M. PRASAD & CO.LTD. SHORT POINT THAT ARISES FOR OUR CONSID ERATION IS AS TO WHAT AMOUNT COULD BE DISALLOWED BY THE LD. AO. THE LD.AO IN THE INSTANT CASE, HAD APPLIED THE THIRD OF RULE 8D(2) OF THE RULES AND MADE DISALLOWANCE OF RS.38,93,332/ - . THE ASSESSE HAS MADE SUO - MOTO DISALLOWANCE IN ITS RETURN OF INCOME IN T HE SUM OF RS.12,881/ - TOWARDS DEMAT CHARGES. THE LD.CITA HAD RESTRICTED THE TOTAL DISALLOWANCE OF RS.9,47,339/ - BEING 10% OF DIVIDEND INCOME OVER AND ABOVE THE FIGURE OF RS.12,881/ - SUO - MOTO DISALLOWED BY THE ASSESSE. WE FIND THAT THE LD. AO CANNOT DIRECTL Y RESORT TO THE COMPUTATION MECHANISM PROVIDED IN RULE 8D(2) OF THE RULES FOR THE PURPOSE OF MAKING DISALLOWANCE U/S. 14A OF THE ACT. IT IS INCUMBENT ON THE PART OF THE LD.AO TO VERIFY THE ACCOUNTS OF THE ASSESSE AND ASCERTAIN THE AMOUNT OF DISALLOWANCE FR OM THE SAID ACCOUNTS U/S. 14A OF THE ACT. ACCORDINGLY, WE DEEM IT FIT AND APPROPRIATE IN THE INTEREST OF JUSTICE AND FAIR PLAY, TO REMAND THIS ISSUE TO THE FILE OF LD.AO FOR DE NOVO ADJUDICATION. ACCORDINGLY, GROUND RAISED BY THE REVENUE IS ALLOWED FOR STA TISTICAL PURPOSE. 7. IN VIEW OF ABOVE, THE IMPUGNED ORDER OF THE CIT - A ON THIS ISSUE IS SET ASIDE AND REMAND THE MATTER TO THE FILE OF THE AO FOR DE NOVO ADJUDICATION FOR COMPUTING THE EXPENDITURE OF DISALLOWANCE IN TERMS OF DECISION OF THE HONBLE S UPREME COURT IN THE CASE OF SUPRA FOR THE PURPOSE OF SECTION 14A OF THE ACT. GROUND NO. 1 RAISED BY THE REVENUE ON THIS ISSUE IS ALLOWED FOR STATISTICAL PURPOSE. 8. GROUND NO. 2 IS RELATING TO DELETION OF ADDITION ON ACCOUNT OF F & O ( FUTURE & OPTIONS )LOSS OF RS.69,53,809/ - . 9. DURING THE ASSESSMENT PROCEEDINGS THE AO FOUND THAT THE ASSESSE DEBITED AN AMOUNT OF RS.69,53,809/ - ON ACCOUNT OF LOSS ON DERIVATIVES. BEFORE THE AO, THE ASSESSE STATED THAT IT OFFERED THE SAID LOSS UNDER F&O OBLIGATION MARGIN THROUG H M/S. SPARK SECURITIES P.LTD. ( IN SHORT, SSPL) THE AO REQUESTED THE NATIONAL STOCK EXCHANGE (NSE) FOR VERIFICATION OF VERACITY AND CREDITWORTHINESS OF THE TOTAL TRANSACTIONS AND TO CONFIRM WHETHER THE SAID TRANSACTIONS DULY RECORDED OR SETTLED AS PER THE RECORDS OF NSE. IN RESPONSE, THE NSE REPORTED THAT NO TRAD ING WERE FOUND FOR THE COMBINATION OF MEMBER AND CLIENT CODE DURING THE PERIOD FROM APRIL 01, 2009 TO MARCH, 31, 2010 IN FUTURE & OPTIONS SEGMENT. ON SUCH CONTROVERTED REPORT OF NSE, THE ASSES SEE BY LETTER DT. 15 - 03 - 2013 STATED THAT THE TRANSACTIONS HAVING RECORDED IN THE BOOKS OF ACCOUNT OF NSE, ONLY THE CLIENT CODE OF THE ASSESSE COMPANY WAS NOT MENTIONED BY SSPL INADVERTENTLY . ANOTHER BY LETTER DT.20 - 03 - 2013, THE ASSESSEE STATED THAT THE T RANSACTION IN QUESTION WAS NOT ENTERED INTO THE BOOKS OF 4 IT A NO . 1159/KOL/2015 M/S. M. PRASAD & CO.LTD. NSE, AS IT WAS IN THE OFF MARKET TRANSACTION AND STT WAS DULY CHARGED AND PAID BY THE ASSESSE. THE AO FOUND THAT THE REPLIES OF ASSESSE WERE CONTRADICTORY AND BEING NOT SATISFIED, ADDED AN AMOUNT OF RS.69,53,809/ - TO THE TOTAL INCOME OF ASSSESSEE. 10. IN THE FIRST APPELLATE PROCEEDINGS, IT WAS CONTENDED THAT THE ASSESSE IS A MEMBER OF BOMBAY STOCK EXCHANGE. IN FUTURE & OPTION ( F & O ) TRANSACTION IN THE DERIVATIVES SEGMENT, ARE CARRIED OUT AT NATIO NAL STOCK EXCHANGE (NSE). THE SAID TRANSACTIONS HAVE BEEN DULY REFLECTED IN THE FINANCIAL ACCOUNT IN THE BOOKS OF BROKER OF M/S. SSPL. DUE TO OFF MARKET TRANSACTION, THE ASSESSE DID NOT ENTER INTO THE TRANSACTION AND THE BROKER OF SSPL DID NOT INFORM THE NSE AND IN SUPPORT OF THIS, FILED LEDGER ACCOUNT OF ASSESSE AND RECORDS OF M/S. SSPL SHOWING THE 1) ORDER NO. 2) DATE & 3) TRADING TIME ETC. 11. THE CIT - A CONSIDERING THE ABOVE AND BY PLACING HIS RELIANCE ON THE ORDER DT. 15 - 12 - 2005 OF ITAT BOMBAY IN THE CASE OF MUKESH R. MADOLIA VS. ADDL.CIT DELETED THE IMPUGNED ADDITION MADE BY THE AO . 12. THE LD. DR RELIED ON THE ORDER OF THE AO. ON THE OTHER HAND, THE LD. AR OF THE ASSESSE HAS REITERATED HIS SAME SUBMISSIONS AS MADE BEFORE THE CIT - A AND PLACED RELIANC E ON THE ORDER DT. 15 - 12 - 2005 OF ITAT BOMBAY IN THE CASE OF SUPRA AND REFERRED TO PAGE - 39 OF THE PAPER BOOK AND ARGUED THAT THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF SHRI MUKESH RATILAL MAROLIA (ITA NO. 456 OF 2007 DT. 7 - 9 - 2011 CONFIRMED THE VIEW TAK EN BY THE ITAT BOMBAY IN THE CASE OF SUPRA AND FURTHER SUBMITTED THAT THE FACTS OF THE PRESENT CASE ARE IDENTICAL TO THE FACTS OF THE CASE OF THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF SUPRA AND REFERRED TO PARA 4 TO 7 OF THE ORDER . 13. HEARD RIVAL S UBMISSIONS AND PERUSED THE RECORD INCLUDING THE CASE LAWS AS AVAILABLE BEFORE US. W E FIND THE FACTS OF THE CASE BEFORE THE BOMBAY TRIBUNAL WAS THAT THE ASSESSE THEREIN PURCHASED A RESIDENTIAL FLAT AT KOLABA (MAHARASHTRA). ACCORDING TO ASSESSE E , THAT 5 IT A NO . 1159/KOL/2015 M/S. M. PRASAD & CO.LTD. HE SO LD SHARES AND OFFICE PREMISES AND DECLARED CAPITAL GAIN AND CLAIMED DEDUCTION U/S. 54E OF THE ACT AGAINST PURCHASE OF SAID FLAT. FURTHER, THE SAID INVESTMENT IN THE FLAT WAS MADE OUT FROM SALE PROCEEDS OF SHARES AND OFFICE PREMISES. THE AO HELD THAT CLAI M OF ASSESSE REGARDING THE PURCHASE OF SHARES WAS BOGUS AND NO SUCH SHARES WAS PURCHASED BY THE ASSESSE. CONSEQUENTLY, SALE OF SHARES WERE HELD TO BE AS BOGUS AND ADDED THE SAME AS UNEXPLAINED INVESTMENT U/S. 69 OF THE ACT. THE CIT - A CONFIRMED THE ADDITIO N MADE ON ACCOUNT OF PURCHASE AND SALE OF SHARES AS BOGUS AS VIEWED BY THE AO. THE TRIBUNAL HELD THAT THE PURCHASE OF SHARES WERE ENTERED INTO THE BOOKS OF ASSESSE AND ALSO REFLECTED IN THE BALANCE SHEET AND DECLARED THE SAME IN THE RETURN OF INCOME. FURTH ER, PURCHASE AND SALE OF SHARES WERE OUTSIDE THE FLOOR OF STOCK EXCHANGE IS NOT AN UNLAWFUL ACTIVITY AND OFF MARKET TRANSACTIONS ARE NOT ILLEGAL AND AS SUCH DELETED THE ADDITION MADE BY THE AO AS CONFIRMED BY THE CIT - A. THE HONBLE HIGH COURT OF BOMBAY CON FIRMED THE VIEW OF TRIBUNAL IN THE CASE OF SUPRA AND HELD AS UNDER: - 4. THE ASSESSING OFFICER HAS HELD THAT NEITHER THE PURCHASE NOR SALE OF SHARES WERE GENUINE AND THAT THE AMOUNT OF RS.1,41,08,484/ - STATED TO HAVE BEEN RECEIVED BY THE ASSESSEE ON SALE O F SHARES WAS UNDISCLOSED INCOME AND ACCORDINGLY MADE ADDITION UNDER SECTION69 OF THE INCOME TAX ACT, 1961. THE APPEAL FILED BY THE ASSESSE WAS DISMISSED BY CIT(A). 5. ON FURTHER APPEAL, THE ITAT BY THE IMPUGNED ORDER ALLOWED THE CLAIM OF THE ASSESSEE BY R ECORDING THAT THE PURCHASE OF SHARES DURING THE YEAR 1999 - 2000 AND 2000 - 2001 WERE DULY RECORDED IN THE BOOKS MAINTAINED BY THE ASSESSEE. THE ITAT HAS RECORDED A FINDING THAT THE SOURCE OF FUNDS FOR ACQUISITION OF THE SHARES WAS THE AGRICULTURAL INCOME WHIC H WAS DULY OFFERED AND ASSESSED TO TAX IN THOSE ASSESSMENT YEARS. THE ASSESSEE HAS PRODUCED CERTIFICATES FROM THE AFORESAID FOUR COMPANIES TO THE EFFECT THAT THE SHARES WERE IN - FACT TRANSFERRED TO THE NAME OF THE ASSESSEE. IN THESE CIRCUMSTANCES, THE DECIS ION OF THE ITAT IN HOLDING THAT THE ASSESSEE HAD PURCHASED SHARES OUR OF THE FUNDS DULY DISCLOSED BY THE ASSESSEE CANNOT BE FAULTED. 6. SIMILARLY, THE SALE OF THE SAID SHARES FOR RS.1,41,08,484/ - THROUGH TWO BROKERS NAMELY, M/S. RICHMOND SECURITIES PVT. LT D AND M/S. SCORPIO MANAGEMENT CONSULTANTS PVT. LTD CANNOT BE DISPUTED, BECAUSE THE FACT THAT THE ASSESSEE HAS RECEIVED THE SAID AMOUNTS IS NOT IN DISPUTE. IT IS NEITHER THE CASE OF THE REVENUE THAT THE SHARES IN QUESTION ARE STILL LYING WITH THE ASSESSEE N OR IT IS THE CASE OF THE REVENUE THAT THE AMOUNTS RECEIVED BY THE ASSESSEE ON SALE OF THE SHARES IS MORE THAN WHAT IS DECLARED BY THE ASSESSEE. THOUGH THERE IS SOME DISCREPANCY IN THE STATEMENT OF THE DIRECTOR OF M/S. RICHMAND SECURITIES PVT. LTD. REGARDIN G THE SALE TRANSACTION, THE TRIBUNAL RELYING ON THE STATEMENT OF THE EMPLOYEE OF M/S. RICHMAND SECURITIES PVT. LTD HELD THAT THE SALE TRANSACTION WAS GENUINE. 7. IN THESE CIRCUMSTANCES, THE DECISION OF THE ITAT IN HOLDING THAT THE PURCHASE AND SALE OF SHAR ES ARE GENUINE AND THEREFORE, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN HOLDING THAT THE AMOUNT OF RS. 1,41,08,484/ - REPRESENTED UNEXPLAINED INVESTMENT UNDER SECTION 69 OF THE INCOME TAX ACT, 1961 CANNOT BE FAULTED. 6 IT A NO . 1159/KOL/2015 M/S. M. PRASAD & CO.LTD. 14. CONSIDERING THE ABOVE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF SUPRA, WE FIND THAT IN THE PRESENT CASE THE CIT - A EXAMINED THE BOOKS OF ACCOUNT, LEDGER ACCOUNT OF ASSESSE AND RECORDS OF BROKER OF M/S. SSPL AND FOUND SATISFIED THAT THE TRANSACTION IN RESPECT OF SHARE I. E OR DER DATE, TRADING AND TIME ETC WERE RECORDED. F URTHER THAT THE FACTS OF THE PRESENT CASE AND THE FACTS OF THE CASE OF THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF SUPRA ARE IDENTICAL AND SIMILAR. RESPECTFULLY FOLLOWING THE ABOVE, WE FIND NO INFIRMITY IN THE IMPUGNED ORDER OF THE CIT - A. WE UPHOLD THE SAME. GROUND NO. 2 RAISED BY THE REVENUE IS DISMISSED. 15. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 08 - 08 - 2018 SD/ - SD/ - J. SUDHAKAR REDDY S.S. VISWANETHRA RAVI ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 08 - 08 - 2018 PP(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1. APPELLANT /REVENUE : I.T.O, WARD 4(2), KOLKATA P - 7 CHOWRINGHEE SQUARE, 8 TH FLOOR, KOLKATA - 69. 2 RESP ONDENT /ASSESSEE: M/S. M.PRASAD & CO. LTD. 7 LYONS RANGE, 3 RD FLOOR, ROOM NO.7, KOLKATA - 700 001. 3. THE CIT(A), KOLKATA 4. 5. CIT , KOLKATA DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, SR.PS/H.O.O ITAT KOLKATA