JACK FINANCIAL SERVICES PVT LTD, V. I.T.O. WARD 9(2)(1), NAVI MUMBAI

ITA 1674/MUM/2011

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3542 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 10 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 01-10-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 28-02-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR DIPAK RIPOTE
• Keywords: Capital asset converted into stock in trade; Transactions in derivatives; Earning of tax free income
• Section: 45(2); 14A; 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH I, MUMBAI BEFORE SHRI D.KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI SANDEEP GOSAIN, JUDICIAL MEMBER ITA NO.1674/MUM/2011 ASSESSMENT YEAR: 2007-08 JACK FINANCIAL SERVICES PVT. LTD. C/O NAVEEN MAHESHWARI (DIRECTOR), F-78, INDUSTRIAL AREA PARBATPURA, AJMER-305 002 (RAJASTHAN), PAN:AABCJ3215A VS. ITO WARD 9(2)(1) , MUMBAI. (APPELLANT) (RESPONDENT) ASSESSEE BY : NONE REVENUE BY : SHRI DR. DIPAK RIPOTE (DR) DATE OF HEARING : 01.10.2015 DATE OF PRONOUNCEMENT : 13.01.2016 O R D E R PER SANDEEP GOSAIN, JM: THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE A GAINST THE ORDER DATED 10.12.2010 PASSED BY THE CIT(A)-20, MUMBAI TH EREBY DISMISSING THE APPEAL FILED BY THE ASSESSEE AND UPHOLDING THE ASSESSMENT ORDER 2 ITA NO.1674/M/2011 JACK FINANCIAL SERVICES PVT. LTD. DATED 21.12.2009 PASSED BY THE ASSESSING OFFICER (A O) ON THE FOLLOWING GROUNDS OF APPEAL: 1. THE LD. ASSESSING OFFICER AND CIT(A) HAVE ERRED IN FACT AND IN LAW MAKING ADDITION IN STOCK DUE TO CONVERSION OF RS. 4 5,284/-. 2. THE LD. ASSESSING OFFICER AND CIT(A) HAVE ERRED IN FACT AND IN LAW MAKING DISALLOWANCE IN LONG TERM CAPITAL GAIN OF RS . 2,54,740/-. 3. THE LD. ASSESSING OFFICER AND CIT(A) HAVE ERRED IN FACT AND IN LAW MAKING DISALLOWANCE IN EXPENSES OF RS. 8,764/- U/S. 14A R.W.R. 8D OF INCOME TAX ACT. 4. THE ASSESSEE CRAVES RIGHT TO ADD, ALTER OR AMEND AN Y OF THE GROUNDS OF APPEAL. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E-COMPANY IS ENGAGED IN THE BUSINESS OF TRADING IN SHARES AND DE RIVATIVE SEGMENTS. DURING THE PREVIOUS YEAR 2006-07,THE ASSESSEE HAD S HOWN LOSS IN TRADING OF EQUITY SHARES AND THAT IN DERIVATIVE (F&O) SEGME NT. THE ASSESSEE VIDE LETTER NO. ITO/9(2)-1/SCRUTINY/2009-10 DATED 2 5.09.2009 WAS FURTHER ASKED TO PRODUCE THE DETAILS SUCH AS FORM N O. 10DB FOR ALL THE ELIGIBLE TRANSACTIONS, COPY OF D'MAT STATEMENT, COP Y OF LEDGER STATEMENT MAINTAINED WITH BROKER ETC. IN RESPONSE ASSESSEE FI LED DETAILS AS PER ITS LETTER DATED 23.10.2009. HOWEVER DETAILS ARE NOT CO MPLETE. IN ORDER TO CROSS CHECK THE GENUINENESS OF TRANSACT IONS AND HOLDING POSITION OF SHARES AS CLAIMED BY ASSESSEE I N IT'S ACCOUNTS, INFORMATION'S, SUCH AS TRANSACTION STATEMENT, GLOBA L REPORT ETC WERE CALLED FOR FROM IT'S DEPOSITORY PARTICIPANT M/S. KO TAK SECURITIES LTD. U/S. 3 ITA NO.1674/M/2011 JACK FINANCIAL SERVICES PVT. LTD. 133(6) OF THE I T ACT. THE DETAILS FROM M/S. KOTAK SECURITIES LTD. WERE RECEIVED ON 11.12.2009. THE SAME WERE VERIFIED BY THE AO AND ULTIMATELY TOT AL INCOME OF THE ASSESSEE WAS ASSESSED BY ORDER DATED 21.12.2009 . 3. AGGRIEVED BY THE ORDER OF AO THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A), HOWEVER, THE CIT(A) AFTER PROVIDING AN OPPORTUNITY OF HEARING TO THE ASSESSEE DISMISSED THE APPEAL. 4. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESS EE FILED THE PRESENT APPEAL BEFORE US ON THE GROUNDS REPRODUCED HEREINABOVE. 5. ALTHOUGH THE MATTER WAS KEPT FOR HEARING ON DIFF ERENT DATES BUT NOBODY APPEARED BEFORE US, THEREFORE, NECESSARY NOT ICES THROUGH RPAD WERE SENT FROM TIME TO TIME ON VARIOUS OCCASIONS ON THE ADDRESS MENTIONED BY THE ASSESSEE IN FORM-36. EVEN INSPITE OF SENDING SEVERAL NOTICES, NONE-APPEARED ON BEHALF OF THE ASSESSEE, W HICH SHOWS THAT THE ASSESSEE IS NOT INTERESTED IN PURSUING THE PRESENT APPEAL, HOWEVER, CONSIDERING THE INTEREST OF JUSTICE AND CONSIDERING THE FACT THAT THE IMPUGNED ORDER AS WELL AS ASSESSMENT ORDER ARE BEFO RE US AND IN ADDITION THE ASSESSEE HAS ALSO FILED HIS GROUNDS OF APPEAL THEREBY CHALLENGING THE IMPUGNED ORDER PASSED BY THE CIT(A) , WE ARE OF THE CONSIDERED VIEW THAT THE MATTER CAN BE DECIDED ON M ERITS AFTER 4 ITA NO.1674/M/2011 JACK FINANCIAL SERVICES PVT. LTD. EVALUATING AND CONSIDERING THE IMPUGNED ORDERS AS W ELL AS GROUNDS OF APPEAL EVEN IN THE ABSENCE OF ASSESSEE, THEREFORE, WE HAVE DECIDED TO DECIDE THE APPEAL ON MERITS. 6. WE HAVE CAREFULLY GONE THROUGH THE ORDERS PASSED BY AO. OUR FINDING ON GROUNDS OF APPEAL ARE AS UNDER: GROUND NO.1 THE LD. ASSESSING OFFICER AND CIT(A) HAVE ERRED IN FACT AND IN LAW MAKING ADDITION IN STOCK DUE TO CONVERSION OF RS. 45,284/-. 7. IT IS UNDISPUTED FACT THAT THE ASSESSEE IS A TRA DER IN SHARES, IT HAS CLOSING STOCK OF 790 SHARES OF IVRCL AND 176 SHARES OF TCS. THE CIT(A) IN HIS DECISION HAS OBSERVED THAT THE ASSESSEE HAD INCLUDED THEREIN 40 SHARES OF IVRCL. AS SAID BEFORE THE APPELLANT IS A TRADER IN SHARES . IT HAD CLOSING STOCK OF 790 SHARES OF IVRCL AND 176 SHARES OF TCS. THE A O OBSERVED THAT THE APPELLANT HAD INCLUDED THEREIN 40 SHARES OF IVR CL AND 76 SHARES OF TCS WHICH WERE CONVERTED FROM INVESTMENT INTO ST OCK IN TRADE. HE WORKED OUT A SUM OF RS. 45,284/- AND ADDED AS BUSIN ESS INCOME ON VALUING THESE SHARES BASED ON THE LAST TRANSACTION VALUE BEFORE THEIR CONVERSION. THE APPELLANT HAS NOT STATED ANYTHING M ATERIAL EXCEPT MERELY CHALLENGING THE ADDITION. THEREFORE, THE CIT(A) HAS RIGHTLY REJECTED THE SAI D GROUND AND UPHOLD THE ORDER OF AO, WE CONCUR WITH THE FINDING RECORDED BY CIT(A) AS ASSESSEE HAS NOT PROVED ANY DOCUMENT TO PROVE T HAT FINDING OF AO & CIT(A) ARE WRONG. HENCE, WE UPHOLD THE ORDER PASSED BY CIT(A). 5 ITA NO.1674/M/2011 JACK FINANCIAL SERVICES PVT. LTD. GROUND NO.2: THE LD. ASSESSING OFFICER AND CIT(A) HAVE ERRED IN FACT AND IN LAW MAKING DISALLOWANCE IN LONG TERM CAPITAL GAIN OF RS. 2,54, 740/-. THE APPELLANT IS A DEALER IN SHARES AND ALSO HOLDS SHARES AS INVESTMENT. IT IS THE CASE OF THE APPELLANT THAT WHENEVER IT WA S RUNNING SHORT OF SHARES OF DELIVERY IN COURSE OF ITS BUSINESS OF TRA DING IN SHARES IT USED TO CONVERT SHARES LYING AS INVESTMENT INTO STOCK-IN-TR ADE AND REPLENISH THEM AS INVESTMENT WHEN ACQUIRED LATER. THE AO OBS ERVED THAT IN THIS MANNER THE APPELLANT HAD CONVERTED 790 SHARES OF IV RCL AND 88 ORIGINAL AND EQUAL NUMBER OF BONUS SHARES OF TCS FROM INVEST MENT TO STOCK IN TRADE. GIVING WORKING IN THE ASSESSMENT ORDER HE CO MPUTED CAPITAL GAIN U/S 45(2) ON ACCOUNT OF SUCH CONVERSION AT TOTAL SU M OF RS. 2,54,740/- AND ADDED TO THE INCOME OF THE APPELLANT. 8. BEING AGGRIEVED BY THE ORDER OF ASSESSMENT, THE ASSESSEE MERELY STATED BEFORE THE CIT(A) THAT IT IS THE PRACTICE OF CONVERTING THE SHARES HELD AS INVESTMENT INTO STOCK-IN-TRADE. IT HAS NOT CHALLENGED THE QUANTUM OF CAPITAL GAIN COMPUTED. IN THE ABSENCE OF ANY EXPLANATION OR MATERIAL TO THE CONTRARY, THE CIT(A) HAD RIGHTLY DI SMISSED THE SAID GROUND AND UPHELD THE ORDER OF AO. THEREFORE, WE CO NCUR WITH THE FINDING RECORDED BY THE CIT(A) AND UPHELD THE SAME. GROUND NO.3: 6 ITA NO.1674/M/2011 JACK FINANCIAL SERVICES PVT. LTD. THE LD. ASSESSING OFFICER AND CIT(A) HAVE ERRED IN FACT AND IN LAW MAKING DISALLOWANCE IN EXPENSES OF RS. 8,764/- U/S. 14A R. W.R. 8D OF INCOME TAX ACT. THE APPELLANT EARNED DIVIDEND OF RS. 5.857 AND CLAI MED AS EXEMPT U/S 10(34) OF THE ACT. THE AO FOUND THAT THE APPELLANT HAD NOT ADDED BACK EXPENSES INCURRED IN RELATION TO EXEMPT INCOME WHIL E COMPUTING THE INCOME RETURNED. APPLYING THE METHOD PRESCRIBED UND ER RULE 8D OF THE INCOME TAX RULES, HE WORKED OUT RS. 8.765 AS EXPEND ITURE INCURRED IN RELATION TO EXEMPT INCOME AND ADDED BACK TO THE INC OME RETURNED. THIS GROUND WAS ALSO RIGHTLY CONSIDERED BY THE CIT (A) AND RIGHTLY HELD THAT THE APPLICATION OF PROVISION U/S 14A IS M ANDATORY AND THEREFORE, RIGHTLY DISMISSED THE SAID GROUND AND CO NFIRMED THE ADDITION. 9. CONSIDERING THE AFOREMENTIONED FACTUAL POSITION, WE ARE OF THE OPINION THAT THERE IS REASON TO INTERFERE INTO ORDE RS PASSED BY CIT(A). IT IS A SETTLED PROPOSITION IN LAW THAT RULE 8D DOES N OT APPLY TO THE AY UNDER CONSIDERATIONS. THEREFORE, WE REMAND THIS ISS UE TO THE FILE OF THE AO FOR FRESH EXAMINATION AND DECISION AFTER GRANTIN G OPPORTUNITY TO THE ASESSEE. THUS, THIS ISSUE IS ALLOWED FOR STATISTICA L PURPOSE. 10. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 13 TH DAY OF JANUARY, 2015. SD/- SD/- (D.KARUNAKARA RAO) (SANDEEP GOSAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED:13.01.2016 7 ITA NO.1674/M/2011 JACK FINANCIAL SERVICES PVT. LTD. SHARWAN P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR I BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.