ITO, Ward - 56(2), Kolkata, Kolkata V. M/s. PKS Holdings, Kolkata

ITA 1677/KOL/2011

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4676 (ITAT-KOLKATA)
• Duration Of Justice: 4 year(s) 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-06-2016
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 24-05-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 08-12-2011
• Court: TRIBUNAL
• Department Lawyers: RANU BISWAS
• Assessee Lawyers: A K UPDHAY
• Keywords: Opportunity of being heard; Transactions in derivatives; Permanent establishment; Speculation loss; Onus to prove; Sham transactions
• Section: 37(1); 43(5); 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : KOLKATA [BEFORE HONBLE SRI N.V.VASUDEVAN, JM & SHRI M.BA LAGANESH, AM] I.T.A NO. 1677/KOL/20 11 ASSESSMENT YEAR : 2007-0 8 I.T.O., WARD-56(2) -VS.- M/S. PKS .HOLDI NGS KOLKATA KOLKATA [PAN : AAIFP7778G] (APPELLANT) (RESPONDENT) FOR THE APPELLANT : SMT. RANU BISWAS , JCIT, SR.DR FOR THE RESPONDENT : SHRI A.K.UPDHAY, AR DATE OF HEARING : 24.05.2016. DATE OF PRONOUNCEMENT : 01.06.2016 ORDER PER N.V.VASUDEVAN, JM THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORDER DATED 08.09.2011 OF CIT(A)- XXXVI, KOLKATA, RELATING TO AYR. 2007-08. 2. THE GROUNDS OF APPEAL RAISED BY THE REVENUE REA D AS FOLLOWS :- THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE TH E LD. COMMISSIONER OF INCOME TAX (APPEALS)-XXXVI, KOLKATA ERRED IN DELETING THE ADDI TION OF RS.3,19,76,907/-. THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-XXXVI, KOLKATA HAS ERRED IN NOT CONSIDERING THE FACTS AND CIRCUMSTANCES ON VARIOUS ISSUES, I.E. UND ER THE HEAD LOSS ON DERIVATIVES RS.3,19,76,907/-, UNDER THE HEAD LOSS IN SHARES IN SECURITIES RS.37,95,959/-, UNDER THE HEAD COMMISSION PAID RS.66,00,000/-, AND UNDER THE HEAD CO-ORDINATION CHARGES RS.51,00,000/-. 3. IN THE GROUNDS OF APPEAL, THE REVENUE HAS CHALLE NGED THE ORDER OF CIT(A) WHEREBY THE CIT(A) DELETED FOUR ADDITIONS MADE BY THE AO. THE REVENUE HAS RAISED ONE SINGLE GROUND OF APPEAL IN WHICH IT HAS QUESTIONED THE COR RECTNESS OF THE DECISION OF THE CIT(A) DELETED FOUR DIFFERENT ADDITIONS MADE BY THE AO. THE REVENUE WAS GIVEN OPPORTUNITY TO FILE REVISED GROUNDS SETTING OUT THE CHALLENGE TO EACH ONE OF THE FOUR ADDITIONS DELETED BY THE CIT(A) INDEPENDENTLY. THE REVENUE HAS HOWEVER FAILED TO COMPLY WITH THE DIRECTIONS DESPITE ADEQUATE OPPORTU NITIES. WE THEREFORE PROCEED TO 2 ITA NO.1677/KOL/2011 M/S. PKS HOLDINGS A.YR.2007-08 2 DECIDE THE APPEAL CONSIDERING INDIVIDUALLY EACH ONE OF THE ADDITIONS MADE BY THE AO THAT WAS DELETED BY THE CIT(A). 4. WE SHALL FIRST CONSIDER THE ADDITION OF RS.3,19 ,76,907/- MADE BY THE AO WHICH WAS DELETED BY THE CIT(A). THE ASSESSEE IS A PARTNERSH IP FIRM DEALING IN PROPERTY AND SHARES. THE ASSESSEE CLAIMED THAT IT HAD INCURRED A LOSS OF RS.3,19,76,907/- WHILE TRADING IN DERIVATIVES. THE ASSESSEE HAS CLAIMED L OSS ON DERIVATIVES OF RS. 31976907/- ARISING FROM FUTURE OPTION LOSS ON TRANSACTIONS ENT ERED ON NSE AS APPEARED FOR FROM 10DB. IN TERMS OF RULE 20AB OF THE INCOME TAX RULES, 1962 (RULES), EVERY A SSESSEE WHO HAS ENTERED PURCHASED AND SOLD SECURITIES IN A RECOGNISED STOCK EXCHANGE HAS TO FURNISH EVIDENCE OF PAYMENT OF SECURITY TRANSACTION TAX FOR CLAIMING DEDUCTION UNDER SECTION 88E OF THE INCOME TAX ACT, 1961 (ACT). TH E EVIDENCE OF PAYMENT OF SECURITIES TRANSACTION TAX WHICH IS REQUIRED TO BE FURNISHED A LONG WITH THE RETURN OF INCOME BY THE ASSESSEE UNDER FIRST PROVISO TO SECTION 88E, ON VA LUE OF TRANSACTION ENTERED INTO BY HIM IN A RECOGNISED STOCK EXCHANGE, SHALL BE IN FURNISH ED IN FORM NO. 10DB AND SHALL BE VERIFIED IN THE MANNER INDICATED THEREIN. AS PER THE CONTENT OF FORM 10DB THE SALE VALUE OF THE TRANSACTION WAS RS., 99,25,12,859/- ON WHICH STT OF RS.1,68,727/- WAS PAID. THE ASSESSEE HAS SET OFF THE LOSS IN TRADING IN DERIVATIVES AGAINST THE PROFIT EARNED FROM THE SALE OF LAND ALONG WITH DEVELOPMENT RIGHT WHICH WAS SOLD AT A PRICE OF RS. 30CRORE. 5. THE AO CALLED UPON THE ASSESSEE TO SUBSTANTIATE THE LOSS. IN RESPONSE TO THE QUERY OF THE AO, THE ASSESSEE FILED LEDGER COPY OF M/S SHILP A STOCK BROKER PVT. LTD., AND FROM 10DB TO SUBSTANTIATE THE SAME. 6. THE AO NOTICED THAT ON 27.11.2006 THE ASSESSEE SOLD ITS LAND AND EARNED FEW CRORES OF RUPEES AS PROFIT ON SALE. IMMEDIATELY ON RECEIPT OF THE MONEY I.E. 29/11/06 AND 30/11/2006, THE ENTIRE AMOUNT OF SALE PROCEED WERE TRANSFERRED TO PARTNER OR TO THEIR RELATED CONCERN. FROM 27/02/2007, THE ASSESSEE STAR TED THE TRANSACTION WITH SHILPA STOCK BROKER PVT. LTD. WHICH ULTIMATELY LED TO THE DERIVA TIVES LOSS. THE AO NOTICED THE 3 ITA NO.1677/KOL/2011 M/S. PKS HOLDINGS A.YR.2007-08 3 FOLLOWING PECULIAR FEATURES OF THE TRANSACTIONS IN DERIVATIVES WHICH LEAD TO THE LOSS IN QUESTION:- 1) THE TRANSACTION OF F&O STARTED ON 27/02/07 AND E NDED ON 31/03/07 WHICH RESULTED IN ENTIRE LOSS. 2) EACH & EVERY F&O TRANSACTION ENTERED IN THESE 30 DAYS WAS PURCHASED ON THE SAME DAY & SOLD ON THE SAME DAY. 3) EACH AND EVERY TRANSACTION RESULTED IN LOSS. 4) MARGIN REQUIREMENT AS PER SEBI TO BE PAID TO STO CK BROKER WAS NOT FOLLOWED AND THERE RULES WERE VIOLATED. 5) LOSSES WERE IN THE ODD FIGURES, HOWEVER THE ASSE SSEE PAID THE BROKER IN ROUND FIGURES AS PER LEDGER COPY SUBMITTED BY THE ASSESSE E. 6) THE BROKER LEDGER WHICH WAS FROM 11/1/2000 TO 15 /04/2009 AND FOR THE ENTIRE PERIOD OF 9 YEARS IT IS SEEN THAT ASSESSEE H AS ENTERED INTO THE TRANSACTIONS ONLY ON 27/02/2007 TO 31/03/2007 7) NO. RETURN OF THE ASSESSEE WAS FILED FOR ASS. YE AR 2008-09 & ASS. YEAR 2009- 10 . 7. THE AO WAS OF THE VIEW THAT FROM THE ABOVE FACT S IT WAS APPARENT THAT LOSS ON DERIVATIVES WAS AN ARRANGED AFFAIR, THE TRANSACTION DEFY NORMAL HUMAN BEHAVIOR AND HUMAN PROBABILITY. THIS IS BECAUSE THE ASSESSEE CON TINUES TO ENTER LOSS IN EACH AND EVERY TRANSACTION AND STILL CONTINUED TO TRANSACTIO N F&O AND INCREASED ITS LOSS. SUCH TRANSACTIONS STOPPED IMMEDIATELY AFTER THE END OF A SS. YEAR 2007-08 BECAUSE ASSESS THEREAFTER WAS NOT IN NEED OF ANY FURTHER LOSS EVEN PRIOR TO OR POST AY 2007-08. IN THE CIRCUMSTANCES, THE AO WAS OF THE VIEW THAT THE LOSS WAS A MAKE BELIEF AFFAIR ARRANGED IN MANNER TO MANUFACTURE LOSS AND THUS THE SAME BEING A SHAM TRANSACTION WHICH LEAD TO A BOGUS LOSS. 8. IN COMING TO THE ABOVE CONCLUSION THE AO REFERR ED TO THE LEGAL POSITION VIS-A-VIS POWERS OF INCOME-TAX AUTHORITIES IN RELATION TO SHA M TRANSACTIONS, AS EMERGING FROM VARIOUS JUDICIAL AUTHORITIES AND SUMMED UPON THE LE GAL POSITION AS FOLLOWS: 4 ITA NO.1677/KOL/2011 M/S. PKS HOLDINGS A.YR.2007-08 4 (A) THE TAXING AUTHORITY IS ENTITLED AND IS INDEED BOUND TO DETERMINE THE TRUE LEGAL RELATION RESULTING FROM A TRANSACTION. MOTIVE ALONE CANNOT MAKE UNLAWFUL WHAT THE LAW ALLOWS BUT AT THE SAME TIME IF THERE I S PRESENCE OF BAD FAITH OR FRAUD OR LACK OF BONA FIDE IN THE TRANSACTION. THE TAXING AUTHORITIES ARE NOT BOUND TO CONSIDER THE LEGAL EFFECT OF THE TRANSACTION. IF TH E ASSESSEE'S ACTS ARE NOT BONA FIDE BUT ARE AMBIGUOUS, SHAM OF MAKE BELIEVE IT IS OPEN TO THE TAXING AUTHORITIES TO QUESTION AND DOUBT THE TRANSACTION AND TO FIND OUT THE TRUE, CORRECT AND REAL MEANING AND RESULT THEREOF. THE MAKE BELIEVE TRANSA CTIONS, THOUGH SEEMINGLY LEGAL, ARE NOT FREE FROM JUDICIAL SCRUTINY. (B) IN THE CONTEXT OF DETERMINING WHETHER A TRANSAC TION IS SHAM OR ILLUSORY OR A DEVICE OR A RUSE OR A MAKE-BELIEVE, THE TAXING AUTH ORITIES ARC ENTITLED TO PENETRATE THE VEIL COVERING IT AND ASCERTAIN THE TRUTH. TAXIN G AUTHORITIES ARE NOT REQUIRED TO PUT ON BLINKERS WHILE LOOKING AT THE DOCUMENTS PROD UCED BEFORE THEM. THEY ARE ENTITLED TO LOOK INTO THE SURROUNDING CIRCUMSTANCES TO FIND OUT THE REALITY OF THE RECITALS MADE ON THE DOCUMENTS. IT IS THE DUTY OF T HE COURT IN EVERY CASE, WHERE INGENUITY IS EXPENDED TO AVOID FACING ANY WELFARE L EGISLATIONS, TO GET BEHIND THE SMOKE- SCREEN AND DISCOVER THE TRUE STATE OF AFFAIR S. THE COURT T IS NOT TO BE SATISFIED WITH THE FORM AND LEAVE ALONE THE SUBSTAN CE OF THE TRANSACTIONS. (C) THE TRANSACTIONS SHOULD NOT BE SEEN IN ISOLATIO N BUT IN CONSONANCE WITH EACH OTHER. THE MATTER MAY ALSO BE CONSIDERED AND DECIDE D UPON IN THE LIGHT OF HUMAN PROBABILITIES AND THE SURROUNDING FACTS AND CIRCUMS TANCES. (D) THE PRINCIPLE 'WHAT IS APPARENT IS REAL' IS NOT SACROSANCT AND MAY BE OVERLOOKED IF SURROUNDING CIRCUMSTANCES SO SUGGEST. (E) IT IS TRUE THAT EVERY PERSON IS ENTITLED TO SO ARRANGE HIS AFFAIRS AS TO AVOID TAXATION BUT THE ARRANGEMENT MUST BE REAL OR BONA F IDE AND NOT. A SHAM OR MAKE- BELIEVE OR COLOURABLE DEVICE. TAX PLANNING MAY BE L EGITIMATE PROVIDED IT IS WITHIN THE FRAME- WORK OF THE LAW. COLOURABLE DEVIC ES CANNOT BE PART OF TAX PLANNING AND IT IS WRONG TO ENCOURAGE OR ENTERTAIN THE BELIEF THAT IT IS HONOURABLE TO AVOID THE PAYMENT OF TAX OR TO OBTAIN ANY ADVANT AGE OR BENEFIT FOR TAX PURPOSE BY DUBIOUS METHOD. (F) A COLOURABLE TRANSACTION IS ONE WHICH IS SEEMIN GLY VALID, BUT A FEIGNED OR COUNTERFEIT TRANSACTION ENTERED INTO FOR SOME ULTER IOR PURPOSES. THE TRANSACTION CIRCUMSTANCES OF EACH AND EVERY CASE. (VII) THE PRINCIPLE IN THE MATTER OF TAX EVASION AN D TAX AVOIDANCE AS LAID DOWN BY THE 5 ITA NO.1677/KOL/2011 M/S. PKS HOLDINGS A.YR.2007-08 5 (VII) THE PRINCIPLE ON THE MATTER OF TAX EVASION AN D TAX AVOIDANCE AS LAID DOWN BY THE SUPREME COURT IN LANDMARK JUDGMENT IN THE CA SE OF MCDOWELL & CO. LTD. V. CTO (1985) 154 ITR 148/22 TAXMAN 11 (SC) CAN HA VE ITS APPLICATION ONLY WHERE COLOURABLE OR ARTIFICIAL DEVICES ARE ADOPTED AND NOT TO THE TRANSACTIONS WHICH ARE OTHERWISE LEGITIMATE AND ARE UNDERTAKEN B ONA FIDE IN THE ORDINARY COURSE OF BUSINESS. IN OTHER WORDS, MCDOWELL & CO. LTD'S CASE (SUPA) CAN HAVE ITS APPLICATION WHERE THE DEVICES THOUGH SEEMINGLY LEGAL ARE ADOPTED IN COLLUSION OR WHERE DEVICES ADOPTED ARE NOT GENUINE OR BONA FI DE BUT ARE SHAM, MAKE- BELIEVE OR CAMOUFLAGED TO ESCAPE THE LIABILITY FOR TAX OR TO OBTAIN CERTAIN BENEFIT FOR TAX PURPOSE. THE TAX AUTHORITIES ARE EMPOWERED TO GO BEHIND THE TRANSACTION TO FIND OUT THE REAL AND IF A TRANSACTION, ON THE BASIS OF EVIDENCE AND THE SURROUNDING CIRCUMSTANCES OF THE CASE, APPEARS TO BE NON-GENUIN E OR BOGUS OR A MAKE BELIEVE OR SHAM, WITH A VIEW TO AVOID THE TAX LIABILITY OR IF IT APPEARS THAT THE SERIES OF TRANSACTIONS EFFECTED BY THE ASSESSEE TO ACHIEVE TH E DESIRED RESULT IS SHAM OR COLLUSIVE OR NON-GENUINE, THE TAX AUTHORITIES CAN I GNORE THE TRANSACTION. SUCH POWER OF TAX AUTHORITIES ARE LEGALLY RECOGNIZED. FR OM THE DECISION OF HON'BLE SUPREME COURT IN MCDOWELL & CO. LTD.'S CASE IT IS S EEN THAT THE PRINCIPLES EMERGED FROM THE DECISION IS THAT THE BONA FIDE BUS INESS ARRANGEMENT WITH INCIDENTAL FALL OUT BY WAY OF TAX BENEFIT CAN BE TO LERATED BUT TAX AVOIDANCE OR TAX EVASION BY MEANS OF COLOURABLE DEVICE OR MAKE BELIE VE TRANSACTION AND DUBIOUS MEANS CANNOT BE RECOGNIZED. IN OTHER WORDS, IT CAN BE SAID THAT WHERE THE TRANSACTIONS EFFECTED BY THE ASSESSEE ARE NOT BONA FIDE OR GENUINE BUT ARE SHAM, MAKE BELIEVE, ARRANGED ONE AND ARE COLLUSIVE THEY C AN BE REGARDED AS HOLLOW AND COLOURABLE DEVICE AND ARE NOT TO BE ACCEPTED AS SUC H BY THE TAX AUTHORITIES. 9. THE AO THUS CONCLUDED THE FACTS AS SET OUT ABOV E CLEARLY REVEALED THAT THE TRANSACTIONS WITH BROKER M/S. SHILPA STOCK BROKER P VT. LTD. DURING THE YEAR UNDER CONSIDERATION ARE NOTHING BUT A MAKE BELIEVE AFFAIR S AND ARRANGED ONE IN COLLUSION WITH THE ASSESSEE FOR TAX EVASION OR TAX AVOIDANCE. ON BASIS OF THE PRINCIPLE LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF MCDOWELL & CO. LTD. 154 ITR 148 (SC) AND CERTAIN OTHER JUDICIAL PRONOUNCEMENTS REFERRED TO I N THE ORDER OF THE AO THAT COLORABLE DEVICES TO EVADE TAXES CAN BE DISREGARDED BY THE RE VENUE, THE AO HELD THAT THE LOSS IN QUESTION WAS NOT A GENUINE LOSS AND DISREGARDED THE CLAIM OF THE ASSESSEE FOR SET OFF THE LOSS IN QUESTION AGAINST THE PROFIT ON SALE OF PROP ERTY. 6 ITA NO.1677/KOL/2011 M/S. PKS HOLDINGS A.YR.2007-08 6 10. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREFERRED APPEAL BEFORE CIT(A) AND SUBMITTED BEFORE CIT(A) THAT THE AO DISALLOWED THE SET OFF OF LOSS IN QUESTION NOT ON THE BASIS OF ANY INCRIMINATING DOCUMENTS OR BRINGIN G ANY ADVERSE EVIDENCE ON RECORD, BUT WITH THE OBSERVATION THAT THE TRANSACTIONS FAIL ED TO SATISFY THE TEST OF HUMAN PROBABILITY AND THE OBJECTIVES OF THE TRANSACTIONS WAS TAX EVASION. IT WAS ARGUED THAT THE AO DID NOT DOUBT THE GENUINENESS OF THE TRANSACTION S CARRIED OUT BY THE ASSESSEE WHICH RESULTED IN THE LOSS. THE ASSESSEE POINTED OUT THA T EVEN IN THE REMAND REPORT FILED BEFORE CIT(A), THE AO ACCEPTED THE VERACITY OF THE DOCUMENTS FILED BY THE ASSESSEE IN SUPPORT OF THE LOSS BUT HAS IGNORED THE LOSS ONLY O N THE GROUND THE TRANSACTIONS WERE COLOURFUL AND SHAM DEVICE TO AVOID TAX PAYABLE ON P ROFIT ON SALE OF LAND. THE ASSESSEE ALSO DISTINGUISHED ALL THE DECISIONS RELIED UPON BY THE AO IN SUPPORT OF HIS CONCLUSION THAT THE REVENUE CAN IGNORE TRANSACTIONS WHICH ARE INTENDED TO AVOID PAYMENT OF TAXES. 11. THE CIT(A) FOUND THAT THE DECISIONS RELIED UPO N BY THE AO WERE NOT APPLICABLE TO THE FACTS OF THE ASSSESSEES CASE. HE HELD THAT D ECISION RENDERED BY THE HONBLE SUPREME COURT IN THE CASE OF MCDOWELL & CO. LTD. (S UPRA) WAS A CASE IN WHICH THE ISSUE WAS WHETHER THE LIABILITY TO PAY EXCISE DUTY WAS THAT OF THE ASSESSEE. EVEN IF THE LIABILITY TO PAY EXCISE DUTY WAS OF THE ASSESSEE, W HETHER THE AMOUNT OF EXCISE DUTY, DIRECTLY PAID BY THE BUYER, WAS INCLUDIBLE IN THE T URNOVER OF THE ASSESSEE FOR PAYMENT OF SALES TAX? REFERRING TO SEVERAL EARLIER PRECEDENTS WHEREIN THE CONCEPT OF EXCISE DUTY HAD BEEN ELABORATED, THE CONSTITUTION BENCH HELD THAT T HE INCIDENCE OF EXCISE DUTY WAS DIRECTLY RELATABLE TO MANUFACTURE AND ITS PAYMENT I S THE PRIMARY AND EXCLUSIVE OBLIGATION OF THE MANUFACTURER BUT (ONLY) ITS COLL ECTION CAN BE DEFERRED TO A LATER STAGE AS A MEASURE OF CONVENIENCE OR EXPEDIENCY. AS TO TH E OTHER ISSUE RELATING TO TURNOVER ALSO, THE SUPREME COURT HELD THAT EXCISE DUTY IS A PART OF THE CONSIDERATION WHICH A BUYER PAYS TO PURCHASE LIQUOR AND IS INCLUDIBLE IN THE TURNOVER OF THE ASSESSEE (MANUFACTURER) ALTHOUGH THE BUYER HAD DIRECTLY PAID IT TO THE EXCISE DEPARTMENT. THE SUPREME COURT HELD THAT THE ASSESSEE CANNOT INDULGE IN A COLORABLE DEVICE TO EVADE TAX 7 ITA NO.1677/KOL/2011 M/S. PKS HOLDINGS A.YR.2007-08 7 BY ASKING THE BUYER TO DIRECT PAY EXCISE DUTY TO TH E EXCISE DEPARTMENT. ACCORDING TO THE CIT(A) THE ABOVE OBSERVATIONS OF THE HONBLE SU PREME COURT WERE RENDERED IN A TOTALLY DIFFERENT CONTEXT AND CANNOT BE APPLIED TO THE FACTS OF THE CASE OF THE ASSESSEE. SIMILARLY THE CIT(A) POINTED OUT THAT IN THE CASE O F CIT VS. DURGA PRASAD MORE 82 ITR 540 (SC) WAS A CASE WHERE THE HONBLE SUPREME C OURT OBSERVED THAT COURTS AND TRIBUNALS WHEN TESTING THE RELIABILITY FO EVIDENCE HAS TO APPLY THE TEST OF HUMAN PROBABILITIES. THE CIT(A) HELD THAT THE AFORESAID OBSERVATIONS MADE IN THE CONTEXT OF AN ASSESSEES ATTEMPT TO AVOID TAX BY CLAIMING THAT PROPERTY BELONGED TO A TRUST CREATED BY HIS WIFE, WHEN THE EVIDENCE SHOWED THAT THE PROP ERTY BELONGED TO HIM AND NOT TO HIS WIFE. THE CIT(A) WAS OF THE VIEW THAT THIS DECISIO N WAS ALSO RENDERED IN A DIFFERENT CONTEXT AND NOT RELEVANT TO THE CASE OF THE ASSESSE E. THE CIT(A) WAS ALSO OF THE VIEW THAT THE DECISION IN THE CASE OF SUMATI DAYAL VS. C IT 214 ITR 801 (SC) WAS A CASE WHERE THE : THE ASSESSEE HAD PLEADED THAT SHE HAS E ARNED INCOME BY WINNING FROM HORSE RACES, WHICH WAS EXEMPT FROM TAX. BUT THE INCOME TA X AUTHORITIES PROVED THAT IT WAS HER UNACCOUNTED MONIES, MAINLY ON THE GROUNDS THAT THE ASSESSEE HAD POOR KNOWLEDGE OF RACING, IMPROBABILITY THAT ONE PERSON WILL WIN JACK POT IN THREE SEASONS CONTINUOUSLY. THE CIT(A) AGREED WITH THE ASSESSEES SUBMISSION TH AT IN THE CASE OF THE ASSESSEE HAD SUFFERED LOSSES ON DERIVATIVES TRANSACTIONS IN THE NATIONAL STOCK EXCHANGE AND BOMBAY STOCK EXCHANGE. THERE IS NO SCOPE TO ARRANGE THE TR ANSACTIONS AFTER THE EVENT. THE APPARENT IS NOT REAL, AS OBSERVED IN THE VASE WAS B ASED ON SURROUNDING CIRCUMSTANCES SUCH AS THE LACK OF KNOWLEDGE OF RACING, NO CLAIM O F EXPENDITURE OF PURCHASES OF TICKETS AND NO DISCLOSURE OF ANY LOSSES SUFFERED. THESE SUR ROUNDING CIRCUMSTANCES PREVAILED OVER THE EVIDENCE OF CERTIFICATES FROM RACE COURSES . THE CIT(A) HELD THAT IN THE CASE OF THE ASSESSEE, APART FROM MERE SUSPICION, THERE WAS NO CASE MADE OUT BY THE ASSESSING OFFICER. 12. THE CIT(A) ALSO HELD THAT THE DECISION BY THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. L.N. DALMIA 207 ITR 89 (CAL), WAS A CASE WHERE THE HONBLE CALCUTTA HIGH COURT HELD THAT WHERE THE SHARES OF A COMPANY WERE SOLD TO ANOTHER COMPANY BY A 8 ITA NO.1677/KOL/2011 M/S. PKS HOLDINGS A.YR.2007-08 8 INDIVIDUAL, AND WHEN THE PURCHASING COMPANY IS FLOA TED AND MAJORITY OWNED BY THE SAME INDIVIDUAL, THAT ASPECT CANNOT BE OVERLOOKED B Y THE TAX AUTHORITIES. FURTHER THERE WAS NO CHANGE IN CONTROL OF THE TARGET COMPANY, HEN CE THERE WAS NO REAL CHANGE AND THE TRANSFER CLAIMED WAS A SHAM TRANSFER. THE AFORESAI D DECISION WAS THEREFORE NOT APPLICABLE TO THE FACTS OF THE CASE OF THE ASSESSEE . THE CIT(A) HELD THAT THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF SMT . NAYANTARA O. AGARWAL VS. CIT 207 ITR 639 (BOM) AND DECISION OF THE HONBLE CALCU TTA HIGH COURT IN THE CASE OF CIT VS. SHEKHAWATI RAJPUTANA TRADING CO (P) LTD. 236 IT R 950 (CAL), WERE NOT APPLICABLE TO THE CASE OF THE ASSESSEE, AS THE TRANSACTIONS IN THOSE CASES WERE COLLUSIVE IN NATURE AND NOT A REAL TRANSACTION WITH UNRELATED PARTIES, AS IN THE CASE OF THE ASSESSEE. SIMILARLY, THE CIT(A) HELD THAT THE DECISION OF ITA T MUMBAI IN THE CASE OF BOMBAY OIL INDUSTRIES LTD. VS. DY. CIT [2002] 82 ITD 626 ( MUM) WAS ALSO A CASE OF TAX AVOIDANCE WITH COLLUSION OF A RELATED PARTY. 13. THE FINAL CONCLUSION OF THE CIT(A) WERE AS FOL LOWS: 4.4.3. IN VIEW OF THE FORGOING, I FIND THAT THE AO HAS NOT REFUTED ANY OF THE DOCUMENTS FILED BY THE AR EVEN DURING REMAND PROCEEDINGS BUT DISALLOWED LOSS ON DERIVATIVES ON THE BASIS OF DOUBTS AND SUSPICIOUSNESS HOWEVER, THE AO FAILED TO SUBSTANTIATE AND CONVERT HIS DOUBTS INTO A STRONG AND FOOLPROOF CASE TO DENY THE CLAIM OF THE APPELLANT. THE DOUBT IS A THOUGHT WHICH NEEDS TO WORK UPON AND EVALUATED WITH STRONG REASONING BASED ON FINDINGS TO BE A CONVICTION. THE AO HAS NO T BROUGHT IN ANY EVIDENCE TO ESTABLISH THAT THE LOSS BOOKED BY THE APPELLANT AS ALLEGED WAS RECEIVED BACK BY THE APPELLANT IN SOME OR OTHER FORMS SUBSEQUENTLY. IN A BSENCE OF SAME A MERE DOUBT CANNOT BE TAKEN AS FACT. IN VIEW OF THE SUBMISSIONS FILED BY THE AR OF THE APPELLANT WITH EVIDENCES, I AM OF THE OPINION THAT THE AO HAS NOT MADE OUT ANY CASE FOR SUCH DISALLOWANCE OF LOSS, AS HIS OBSERVATIONS ARE BASED ON MERE SUSPICIONS AND IMPROPER INTERPRETATION OF CERTAIN JUDICIAL PRONOUNCEMENTS. THE AO IS THEREFORE, DIRECTED TO ALLOW LOSS FROM FUTURE & OPTION TRANSACTIONS. THE A DDITION OF RS.3,19,76,907/- IS THEREFORE, DELETED. 14. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVE NUE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. WE HAVE HEARD THE SUBMISSIONS OF THE LEARNED DR WHO REITERATED THE STAND OF THE AO AS REFLECTED IN THE ORDER OF AS SESSMENT. THE LEARNED COUNSEL FOR THE 9 ITA NO.1677/KOL/2011 M/S. PKS HOLDINGS A.YR.2007-08 9 ASSESSEE REITERATED SUBMISSIONS MADE BEFORE CIT(A) AND RELIED ON THE ORDER OF THE CIT(A). 15. WE HAVE GIVEN A VERY CAREFUL CONSIDERATION TO THE RIVAL SUBMISSIONS. THE LAW AS LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF MC.DOWELL & CO. (SUPRA) HAS BEEN EXPLAINED IN A LATER JUDGMENT IN THE CASE OF V ODAFONE 341 ITR 1 (SC) AND THE RATIO LAID DOWN THEREIN IS THAT ALL TAX PLANNING IS NOT I LLEGAL/ILLEGITIMATE/IMPERMISSIBLE. IT IS ONLY WHEN COLOURABLE OR DUBIOUS DEVICES ARE EMPLOYE D OR TRANSACTIONS ARE SHAM OR WHEN ARRANGEMENTS ARE A MERE SUBTERFUGE, AS PART OF TAX PLANNING CAN IT BE SAID THAT THEY ARE ILLEGAL, ILLEGITIMATE, AND IMPERMISSIBLE. FOR ASCERTAINING WHAT THE REAL INTENTION OF THE PARTIES WAS, IT IS PERMISSIBLE TO GO BEHIND T HE DOCUMENTS. GENERALLY ONE MUST PROCEED ON THE BASIS OF THE INTENTION AS EXPRESSED IN THE TRANSACTION OR DOCUMENT. IF THAT IS CHALLENGED AS NOT TRUE ON GOOD GROUNDS THEN THE REAL INTENTION CAN BE LOOKED INTO. IF IT IS FOUND THAT THE ARRANGEMENT IS A MAKE-BELIEVE AFFAIR, OR A DUBIOUS DEVICE AND THE REAL INTENTION WAS TAX EVASION THEN THE ARRANGEMENT NEED NOT BE GIVEN EFFECT TO. IN CASES WHERE TRANSACTIONS OR ARRANGEMENT ARE EVIDENCED BY WRITTEN AGREEMENT/ARRANGEMENT IT IS NOT POSSIBLE TO REWRITE THE AGREEMENT/ARRANGEMENT. THE RIGHT OF THE PARTIES TO ENTER INTO TRANSACTIONS ACCORDING TO THEIR FREE WILL AND CHOIC E HAS ALWAYS BEEN PROTECTED, THE ONLY RIDER BEING THAT BOTH THE PROFESSED INTENTION AND T HE REAL INTENTION SHOULD BE THE SAME. ANY TRANSACTION IN WHICH THE PROFESSED INTENTION AN D THE INTENTION GATHERED FROM THE DOCUMENTATION ARE THE SAME MUST BE CONSIDERED TO BE GENUINE. IN THE PRESENT CASE THE AO DISALLOWED THE SET OFF OF LOSS IN QUESTION NOT O N THE BASIS OF ANY INCRIMINATING DOCUMENTS OR BRINGING ANY ADVERSE EVIDENCE ON RECOR D, BUT WITH THE OBSERVATION THAT THE TRANSACTIONS FAILED TO SATISFY THE TEST OF HUMAN PR OBABILITY AND THE OBJECTIVES OF THE TRANSACTIONS WAS TAX EVASION. THE AO DID NOT DOUBT THE GENUINENESS OF THE TRANSACTIONS CARRIED OUT BY THE ASSESSEE WHICH RESULTED IN THE L OSS. EVEN IN THE REMAND REPORT FILED BEFORE CIT(A), THE AO ACCEPTED THE VERACITY OF THE DOCUMENTS FILED BY THE ASSESSEE IN SUPPORT OF THE LOSS BUT HAS IGNORED THE LOSS ONLY O N THE GROUND THE TRANSACTIONS WERE COLOURABLE AND SHAM DEVICE TO AVOID TAX PAYABLE ON PROFIT ON SALE OF LAND. THIS 10 ITA NO.1677/KOL/2011 M/S. PKS HOLDINGS A.YR.2007-08 10 CONCLUSION IN THE LIGHT OF THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF VODAFONE (SUPRA) CANNOT BE SUSTAINED. CONSEQUENTLY , THE CIT(A) WAS FULLY JUSTIFIED IN DELETING THE ADDITION MADE BY THE AO AND DIRECTING THE LOSS TO BE ALLOWED TO BE SET OFF AS CLAIMED BY THE ASSESSEE. WE FIND NO GROUNDS TO INTERFERE WITH THE ORDER OF THE CIT(A). ACCORDINGLY, THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 16. THE NEXT GRIEVANCE PROJECTED BY THE REVENUE IN THE GROUNDS OF APPEAL IS AGAINST THE ACTION OF THE CIT(A) IN TREATING THE LOSS OF RS.37, 95,659/- AS GENUINE LOSS BUT SPECULATIVE LOSS WHICH WAS ALLOWED TO BE CARRIED FO RWARD FOR SET OFF AGAINST SPECULATIVE INCOME IN FUTURE AS PER LAW. THE FACTUAL DETAILS W ITH REGARD TO THIS GROUND OF APPEAL OF THE REVENUE ARE THAT THE ASSESSEE HAD CLAIMED A LOS S OF RS, 37, 95,659/- IN SHARE TRADING. THE TRANSACTIONS OF PURCHASE AND SALE WERE ENTERED INTO BY THE ASSESSEE ON THE SAME DATE. NO DELIVERY OF THE SHARES WERE TAKEN AND THES E TRANSACTIONS WERE INTRA-DAY TRANSACTIONS WHICH WERE SPECULATIVE IN NATURE. IN VIEW OF ABOVE THE TRADING THE LOSS OF RS. 37,95,659/- WAS REQUIRED TO BE TREATED AS SPECU LATION LOSS U/S. 43(5) OF THE ACT AND AS PER PROVISIONS OF SECTION 73 OF THE ACT, THE SET OFF OF SPECULATION BUSINESS LOSS WITH NON SPECULATION LOSS COULD NOT BE ALLOWED. THEREFO RE THE LOSS OF RS. 37,95,659/- WAS REQUIRED TO BE ASSESSED AS SPECULATIVE LOSS. THE PL EA OF THE ASSESSEE THAT THE LOSS IN QUESTION WAS A BUSINESS LOSS AND NOT SPECULATIVE LO SS WAS REJECTED BY THE AO. THE AO ALSO WENT ON TO HOLD THAT THE TRANSACTION WITH M/S SHIPA STOCK BROKER PRIVATE LIMITED (THROUGH WHOM THE ASSESSEE DID THE SHARE TRADING) W AS HELD TO BE SHAM TRANSACTIONS IN THE CONTEXT OF LOSS IN DERIVATIVES WHICH WAS DISCUS SED IN THE EARLIER PARAGRAPHS OF THIS ORDER AND IN VIEW OF THE REASONS RECORDED UNDER THE HEAD LOSS ON DERIVATIVES, THE LOSS OF RS. 3795659 ON SHARE TRADING WAS ALSO TREATED AS BO GUS BY THE AO. 17. BEFORE CIT(A), THE ASSESSEE CONCEDED THAT THE LOSS IN QUESTION WAS SPECULATIVE IN NATURE BUT CHALLENGED THE FINDING OF THE AO THAT LO SS IN QUESTION WAS ARISING OUT OF SHAM TRANSACTIONS AND THE LOSS ITSELF WAS TO BE DIS REGARDED. THE CIT(A) AGREED WITH THE PLEA OF THE ASSESSEE AND HE HELD AS FOLLOWS: 5.2. THE SUBMISSION OF THE LD. AR OF THE APPELLANT HAS BEEN CONSIDERED. THE APPELLANT CLAIMED RS.37,9.5,659/- AS BUSINESS LOSS FROM SHARE TRANSACTIONS. HOWEVER, THE AO 11 ITA NO.1677/KOL/2011 M/S. PKS HOLDINGS A.YR.2007-08 11 UPON VERIFICATION OF THE TRANSACTIONS TREATED THE S AID LOSS AS SPECULATIVE LOSS AS THE TRANSACTIONS (BOTH PURCHASES AND SALES) WERE INTRA- DAY AND NO DELIVERY OF THE SHARES WAS TAKEN. THE AR HAS ADMITTED THE SAID FINDINGS OF THE AO THAT THE LOSS WAS SPECULATIVE IN NATURE .. IN VIEW OF SUCH, LOSS FROM SHARE TRANSACT IONS AT RS.37,95,659/- IS TAKEN AS SPECULATIVE LOSS. 18. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSE SSEE HAS RAISED THE AFORESAID GROUND OF APPEAL BEFORE THE TRIBUNAL. THE LEARNED DR RELI ED ON THE ORDER OF THE AO AND THE LEARNED COUNSEL FOR THE ASSESSEE RELIED ON THE ORDE R OF THE CIT(A). 19. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE TRANSACTIONS OF PURCHASE AND SALE OF SHARES CARRIED OUT BY THE ASSESSSEE WERE GENUINE AND REAL. THE LOSS SUFFERED BY THE ASSESSEE IN SUCH TRADING WAS ALSO GENUINE. THE TRA NSACTIONS WERE HOWEVER SPECULATIVE IN NATURE IN ACCORDANCE WITH SEC.43(5) OF THE ACT A ND THE LOSS IN QUESTION WAS SPECULATIVE IN NATURE REQUIRING SPECIAL TREATMENT I N VIEW OF EXPLANATION TO SEC.73 OF THE ACT. SINCE THE TRANSACTIONS WERE GENUINE AND PROV ED AS REAL BY THE ASSESSEE, THE OBSERVATION OF THE ASSESSING OFFICER THAT THE SAME WERE SHAM IS BAD IN LAW AND IS CONTRARY TO FACTS. THE ASSESSEE HAS SUFFERED LOSSES OF RS 37, 95,659 ON TRANSACTIONS ON SHARES ENTERED INTO ELECTRONICALLY SCREEN BASED TRA NSACTION IN A RECOGNIZED STOCK EXCHANGE, I.E. BSE AND NSE. THE PARTICULARS SUPPORT ING AND EVIDENCES WERE FILED DURING THE COURSE OF HEARING BEFORE THE ASSESSING O FFICER. THE COPY OF LETTER DATED 7 TH MAY, 2009 SUBMITTED TO THE ASSESSING OFFICER ALONG WITH THE COPIES OF THE ABOVE STATED SUPPORTING(S) ON THE LOSSES ON SHARES, WAS DULY FIL ED BY THE ASSESSEE BEFORE THE CIT(A). THESE DOCUMENTS WERE NEITHER DISPUTED OR DISBELIEVE D BY THE AO. IN SUCH CIRCUMSTANCES THE CONCLUSIONS OF THE AO IN OUR VIEW WERE RIGHTLY HELD TO BE UNSUSTAINABLE BY THE CIT(A). THE CIT(A) WAS FULLY JUSTIFIED IN HIS CONCLUSION THAT THE LOSS CANNOT BE REGARDED AS SHAM AND HAD TO BE REGAR DED AS REAL BUT TREATED AS SPECULATIVE LOSS DESERVING SPECIAL TREATMENT IN TER MS OF SET OFF IN ACCORDANCE WITH EXPLANATION TO SEC.73 OF THE ACT. WE FIND NO GROUN DS TO INTERFERE WITH THE ORDER OF THE CIT(A) ON THIS ISSUE AND THE RELEVANT GROUND OF APP EAL OF THE REVENUE IS DISMISSED. 12 ITA NO.1677/KOL/2011 M/S. PKS HOLDINGS A.YR.2007-08 12 20. THE NEXT GRIEVANCE PROJECTED BY THE REVENUE IN ITS GROUNDS OF APPEAL IS AGAINST THE ORDER OF THE CIT(A) ALLOWING THE CLAIM OF THE ASSES SEE OF DEDUCTION OF RS.66 LACS WHILE COMPUTING TOTAL INCOME. THE ASSESSEE AS WE HAVE AL READY SEEN IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF TRADING IN PROPERTIES AN D SHARES. THE ASSESSEE HAD PAID OF RS. 33,00,000/-- TO MRS. RUPALI K, SHAH AND RS. 33, 00,000/- PRIYA K. SHAH AS COMMISSION FOR PURCHASE OF PROPERTY IN MUMBAI. TH E AO CALLED UPON THE ASSESSEE TO JUSTIFY THE EXPENDITURE. IN SUPPORT OF THE CLAIM F OR DEDUCTION OF THE AFORESAID SUM THE ASSESSSEE FILED A COPY OF BILLS AND SUBMITTED THAT TDS HAS BEEN DEDUCTED ON SAME AND EXPENDITURE ARE REASONABLE AND IT SHOULD BE ALLOWED . THE BILLS FOR PAYMENT OF COMMISSION WAS RAISED BY THE AFORESAID TWO PERSONS VIDE BILLS DATED 05/05/2006. THE HUSBAND OF THE AFORESAID TWO PERSONS BECAME PARTNER OF THE PARTNERSHIP FIRM ONLY ON 08/05/2006 AND THEREFORE THE PAYMENT AS ON THE DAT E WHEN SERVICES WERE CLAIMED TO HAVE BEEN RENDERED WAS NOT HIT BY THE PROVISIONS OF SEC.40A(2)(B) OF THE ACT. ACCORDING TO THE AO, EXCEPT FILING OF COPY OF BILL & TDS CERTIFICATES, THE ASSESSEE HAD NOT DISCHARGED HIS ONUS TO PROVE THE SERVICES RENDE RED FOR WHICH COMMISSION WAS PAID. HE HELD THAT MERELY MAKING PAYMENTS OR DEDUCTION OF TAX IS NOT EVIDENCE ENOUGH TO PROVE THAT THE EXPENSE IS DEDUCTIBLE U/S. 37(1) OF THE INCOME TAX ACT. HE HELD THAT THE LAW WAS WELL SETTLED THAT THE ONUS TO PROVE THE ALL OWABILITY OF EXPENSES IS ON THE ASSESSEE. THE AO ALSO OBSERVED THAT: 1). THERE WAS NO NEED OF THIS EXPENDITURE AS THE AS SESSEE FAILED TO EXPLAIN THE NECESSITY OF SUCH EXPENSE. 2).THE COMMISSION AGENTS DO NOT HOLD ANY TECHNICAL QUALIFICATION OR KNOWLEDGE WHICH CAN JUSTIFY THERE CAPABILITY OF RENDERING SUCH SERV ICE. 3). ON THE PERUSAL OF THE BANK STATEMENT THE PAYMEN T TO BOTH THE LADIES WERE MADE ON 23.05.2006, WHEREAS THEIR HUSBAND WERE INDUCTED AS PARTNER ON 08/05/2006. THE TWO NEW PARTNERS HAD BROUGHT IN CAPITAL ON 21.05.2006 A ND THE PAYMENT WERE MADE FROM THE CAPITAL CONTRIBUTED BY THESE PARTNERS. HENCE THE MO NEY WAS TAKEN BACK BY THE PARTNERS THROUGH THEIR RESPECTIVE WIFE. 13 ITA NO.1677/KOL/2011 M/S. PKS HOLDINGS A.YR.2007-08 13 4) THERE WAS NO AGREEMENT OR DOCUMENTS EXCEPT AND SAVE BILL AND TDS CERTIFICATES TO JUSTIFY THE NATURE AND CLAIM OF SUCH HUGE EXPENDITU RE OF RS. 66,00,000/- 5). ON THE PERUSAL OF THE COMPUTATION AND PROFIT & LOSS OF THESE COMMISSION AGENTS FILED BY THE ASSESSEE, IT IS OBSERVED THAT THE ABOV E COMMISSION INCOME WERE SHOWN AS INCOME FROM OTHER SOURCE AND THEY DID NOT HAVE ANY MAJOR INCOME APART FROM ABOVE. HENCE THEY HAVE RENDERED SERVICE ONLY THE ASSESSEE, IN WHICH THEIR HUSBAND ARE PARTNER, AND NOT TO ANY OTHER PERSON DURING THE SAID ASS.YEA R. HENCE THIS EXPENSE APPEARS TO BE INTENTIONALLY MANUFACTURED IN ORDER TO REDUCE THE P ROFIT GENERATED FROM SALE OF LAND. (RELIANCE IS PLACED ON THE JUDGMENTS REPORTED AS CI T V CALCUTTA AGENCY LIMITED {19ITR 191 (SC)}, GOPINATH VIR BHAN V CIT {6 ITR 24 2}, VIJAY KUMAR MILLS LTD. V CIT {50 ITR 332}, VISHNU COTTON MILLS LTD. V CIT {1 17 ITR 754}, MADURAI KNITTING CO. V CIT {30 ITR 764} AND HATZ TRUST, SIMLA V CIT {21 ITR 149}. THE AO HELD THAT THE ASSESSEE HAS FAILED TO PROVE R ENDERING OF SERVICES BY THE TWO LADIES WHO ARE ALSO WIFE OF THE PARTNERS. HENCE IN ABSENCE OF EVIDENCES OF RENDERING OF SERVICES BY THE SAID BROKERS THE EXPENSES OF RS. 66 LAKHS WAS NOT ALLOWED AS IT FAILED TO SATISFY THE TEST OF SECTION 37( 1). 21. ON APPEAL BY THE ASSESSEE, THE CIT(A) DELETED THE ADDITION MADE BY THE AO OBSERVING AS FOLLOWS: 6.4. I HAVE CAREFULLY CONSIDERED THE SUBMISSION O F THE AR OF THE APPELLANT AND SEEN THE DETAILS/EVIDENCES FILED. THE APPELLANT CLAIMED TO H AVE PAID RS.33,00,000/- EACH TO MRS.RUPALI K. SHAH AND PRIYA K. SHAH AS COMMISSION FOR PURCHASE OF THE PROPERTY. THE RECORD SUGGESTS THAT THEIR HUSBANDS BECAME PARTNER IN THE FIRM ON 08.05.2006, WHEREAS THE LADIES RENDERED THEIR SERVICE ON 05/05/2006. BO TH THE LADIES, I.E. THE PROPERTY BROKERS ARE IDENTIFIED INDIVIDUAL AND ASSESSED TO TAX. FROM THE COPY OF THE LT. RECORDS FILED IT IS SEEN THAT BOTH RECIPIENTS HAVE DISCLOSED SUCH COMMI SSION IN THEIR RESPECTIVE RETURNS AND PAID TAX. THERE IS NO DISPUTE ON THESE ISSUES. DURI NG THE REMAND REPORT, THE AO OBTAINED THE CONFIRMATION FROM THE VENDOR OF THE PROPERTY NA MELY VADILAL DOLATAM & SONS, MUMBAI. THE VENDOR CONFIRMED THAT BOTH M/S PRIYA K SHAH AND MRS RUPALI K.SHAH ACTED AS BROKER ON BEHALF OF THE PURCHASER, (THE AP PELLANT) WITH THEM FOR DEALING IN TRANSFERRING THEIR IMMOVABLE PROPERTY TO THE APPELL ANT. THE 1'.0 OBJECTED TO THE CLAIM OF DEDUCTION MAINLY ON THE GROUND THAT THESE LADIES AR E THE WIFE OF THE TWO PARTNERS OF THE FIRM AND .HERE WAS NO NEED FOR MAKING SUCH PAYMENTS . IT APPEARS THAT THE AO TREATED THE COMMISSION/BROKERAGE PAYMENTS TO MRS. RUPALI SHAH A ND MRS. PRIYA SHAH AS SHAM, AT PAR WITH THE LOSS ON DERIVATIVES, AS DISCUSSED SUPR A. 6.4.1. THE AR HAS CONTENDED THAT THE NECESSITY OF A NY EXPENDITURE IS BASED ON THE NATURE OF TRANSACTIONS, NEED THEREOF AND THE CIRCUM STANCES IN WHICH IT IS INCURRED FOR THE PURPOSE OF BUSINESS AS THINK PROPER BY THE BUSINESS MAN. THE INCOME TAX AUTHORITIES 14 ITA NO.1677/KOL/2011 M/S. PKS HOLDINGS A.YR.2007-08 14 CANNOT TAKE OVER THE METTLE OF BUSINESSMAN TO JUDGE HIS PRUDENCE, HIS DECISION MAKINGS AND REQUIREMENT OF PAYING ANY OUTGO. NO BUSINESSMAN WOULD INCUR ANY COST TILL IT IS NECESSARY FOR HIS BUSINESS THE AR FURTHER SUBMITTED THAT THE APPELLANT WAS OFFERED A PIECE OF LAND AND PROPERTY BY THESE BROKERS. THE AP PELLANT HAS NO PERMANENT ESTABLISHMENT IN THE CITY OF MUMBAI AND ALSO NOT A REGULAR DEALER OF PROPERTIES IN THAT CITY AND THERE WERE NO OFFER IN PUBLIC DOMAIN, SUCH AS NEWSPAPERS, TRADE BULLETINS AND OR MAGAZINES. THE OFFER SEEMED LUCRATIVE FOR THE AP PELLANT TO GO AHEAD AND PROCURED THE PROPERTY THROUGH BROKERS. THIS DEAL COULD NOT H AVE TAKEN PLACE UNLESS THERE WAS INTERMEDIARY IN BETWEEN . THE APPELLANT AND THE VEN DOR. 6.4.2. GOING BY THE FACTS OF THE CASE AS WELL AS IN VIEW OF THE CONFIRMATIONS FILED BY THE RECIPIENTS OF COMMISSION -AND THE VENDOR, THE DEDUC TION CLAIMED BY THE APPELLANT IS ADMISSIBLE. EVEN IF THE HUSBAND OF T.IE RECIPIENTS JOINED THE APPELLANT FIRM ON LATER DATE, IT DID NOT DETER SUCH ADMISSIBILITY, UNLESS EVIDENC ES ARE BROUGHT ON RECORD SHOWING SUCH EXPENDITURE WAS EITHER BOGUS OR EXCESSIVE. THE AO H AS NOT MADE ANY CASE TO QUALIFY SUCH EXPENDITURE WAS BOGUS OR EXCESSIVE. HENCE, THE ADDITION OF RS.66,00,000 IS DELETED. 22. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE LEAR NED DR REITERATED STAND OF THE AO AS CONTAINED IN THE ORDER OF ASSESSMENT. THE LEARNED AR RELIED ON THE ORDER OF THE CIT(A). WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE LAW IS WELL SETTLED THAT ANY PAYMENT OF COMMISSION SHOULD BE FOR SERVICES RENDERED BY THE R ECIPIENT OF THE COMMISSION. THE ASSESSEE TO CLAIM EXPENDITURE ON ACCOUNT OF COMMISS ION HAS TO PROVE THAT SERVICES WERE IN FACT RENDERED, BY THE RECIPIENT OF THE COMMISSIO N FROM THE ASSESSEE. THE FACT THAT THE PAYMENT IS MADE BY ACCOUNT PAYEE CHEQUE OR THE FACT THAT TAX HAD BEEN DEDUCTED AND SOURCE OR THE FACT THAT THE RECIPIENT OF COMMISSION HAS DECLARED COMMISSION IN HIS RETURN OF INCOME AND PAID TAXES THEREON, ARE ALL IRRELEVAN T CONSIDERATIONS. IN THE PRESENT CASE, EVIDENCE REGARDING THE NATURE OF SERVICES RENDERED BY THE RECIPIENT OF COMMISSION HAS NOT BEEN PLACED ON RECORD BY THE ASSESSEE. THE FAC T THAT THE RECIPIENT OF COMMISSION WERE WIFE OF PARTNERS, THE FACT THAT THE PROPERTY T HAT WAS PURCHASED BY THE ASSESSEE WAS IN MUMBAI ARE CIRCUMSTANCES WHICH GO AGAINST THE AS SESSEE. AS TO HOW THE PROPERTY WAS IDENTIFIED BY THE RECIPIENT OF COMMISSION, WHAT IS THEIR EXPERTISE IN THE FIELD OF ACTING AS INTERMEDIARIES FOR PURCHASE AND SALE OF P ROPERTIES, WHETHER THE RECIPIENTS HAVE ANY PAST OR FUTURE HISTORY OF RENDERING SIMILAR SER VICES AND EARNING INCOME THEREON ARE ALL RELEVANT CONSIDERATIONS, WHICH OUGHT TO HAVE BE EN EXAMINED BY THE CIT(A) BEFORE 15 ITA NO.1677/KOL/2011 M/S. PKS HOLDINGS A.YR.2007-08 15 ALLOWING RELIEF TO THE ASSESSEE. IN THE GIVEN FACT S AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE VIEW THAT IT WOULD BE JUST AND PROPER TO SET ASIDE THE ORDER OF CIT(A) ON THIS ISSUE AND REMAND THE ISSUE TO THE AO FOR FRESH CONSIDERAT ION, WITH LIBERTY TO THE ASSESSEE TO ESTABLISH THE INGREDIENTS NECESSARY FOR CLAIMING CO MMISSION EXPENSE AS ALLOWABLE DEDUCTION. WE MAKE IT CLEAR THAT THE BURDEN TO PRO VE THE INGREDIENTS NECESSARY FOR CLAIMING COMMISSION PAID AS ALLOWABLE EXPENSE HAS T O BE ESTABLISHED BY THE ASSESSEE. THE AO WILL AFFORD OPPORTUNITY OF BEING HEARD TO TH E ASSESSEE BEFORE DECIDING THE ISSUE. 23. THE NEXT ISSUE THAT ARISES FOR CONSIDERATION I S THE CO-ORDINATION CHARGES PAID TO M/S.ONKAR MANAGEMENT PVT.LTD., WHICH WAS DISALLOWED BY THE AO FOR WANT OF PROOF OF RENDERING OF SERVICES BY THE RECEIPIENT OF THE CO-O RDINATION CHARGES. THE ASSESSEE HAD CLAIMED AS DEDUCTION IN COMPUTING ITS TOTAL INCOME CO-ORDINATION. CHARGES OF RS. 51,00,000/- PAID. TO M/S ONKAR MANAGEMENT PRIVATE L IMITED. IT WAS EXPLAINED THAT THIS ONKAR MANAGEMENT PRIVATE LIMITED, A COMPANY HAVING ITS REGISTERED OFFICE AT KOLKATA (NO DOCUMENTARY EVIDENCE WERE FILLED TO PROVE ITS E STABLISHMENT IN MUMBAI) HAS BEEN PAID THIS SUM FOR CO-ORDINATING THE SALE OF PROPERT Y. THE AO NOTICED THE FOLLOWING FACTS IN RESPECT OF THE SAID PAYMENT AND DISALLOWED THE C LAIM OF THE ASSESSEE FOR DEDUCTION:- 1) AS PER ASSESSEE'S LEDGER THE PAYMENT WAS FOR SAL E OF PROPERTY AS APPARENT FROM DEBIT MADE ON 05/01/2007 IN THE ASSESSEE'S BOOK. 2) THE BILL ISSUED BY ONKAR MANAGEMENT PRIVATE LIMI TED DATED 14/12/2006, IS FOR (CO- ORDINATION CHARGES FOR PROCUREMENT OF PROPERTY). TH IS ITSELF PROVE THAT THE PERSON RENDERING THE SERVICE FOR THE PURCHASE OF THE PROPE RTY WHICH WAS PURCHASED BY THE ASSESSEE MUCH BEFORE THAN THE SERVICE RENDERED BY T HE SAID PARTY . 3) THE ONLY EVIDENCE THE ASSESSEE FILED TO JUSTIFY THE CLAIM OF EXPENDITURE WAS THE COPY OF THE BILL, TDS CERTIFICATE. NO EVIDENCE WHAT SO E VER WAS BROUGHT ON RECORD TO ESTABLISH THE RENDERING OF SERVICE BY THE SAID PART Y, INSPECTOR REPORTED THAT THERE WAS NO SUCH CONCERN EVER EXISTED IN THE SAID PREMISES. IN ABSENCE OF VITAL EVIDENCE REGARDING RENDERING OF SERVICES, THE EXPENDITURE CLAIMED CANN OT BE ALLOWED, AND THUS THE EXPENDITURE IS DISALLOWED. 16 ITA NO.1677/KOL/2011 M/S. PKS HOLDINGS A.YR.2007-08 16 4) WITHOUT PREJUDICE TO ABOVE IT IS ALSO FOUND THAT THE ASSESSEE HAS VIOLATED PROVISIONS OF SECTION 40(A)(IA) IN RESPECT THIS PAYMENT AS BEC AUSE THE ASSESSEE DEBITED IT: BOOKS OF A/C ON 05/0112007 AND WAS LIABLE TO DEDUCT TDS @ 2% AND CESS AS APPLICABLE. HOWEVER ASSESSEE DEDUCTED ONLY 0.10% BASED ON CERTI FICATE U/S 197 OF THE IT DATED 09/0112007 WHICH WAS AFTER THE DATE OF DEBIT IT) TH E BOOKS OF ACCOUNTS. IT IS SETTLED LAW THAT CERTIFICATE U/S 197 DOES NOT HAVE RETRO RESPEC TIVE EFFECT AND GOVERN DEBIT OF EXPENDITURE MADE ON OR AFTER THE ISSUE OF CERTIFICA TE. IN THIS CASE THE CERTIFICATE WAS ISSUED ON 09/0112007 AND DEBIT IN THE BOOKS WAS MAD E ON 05/0112007. THEREFORE THE CERTIFICATE DOES NOT COVER OR EXTEND IN THE CONCESS ION OF LOWER DEDUCTION IN RESPECT OF THE DEBIT NOTE MADE ON 05/0112007 THEN THIS PAYMENT ALSO IS LIABLE TO BE DISALLOWED U/S 40 A (IA) WHICH- HAS NOT BEEN DONE BECAUSE FOR THE PURPOSE OF BUSINESS. 5) IN VIEW OF THE SAME AND WITHOUT PREJUDICE TO THE ABOVE THAT DEDUCTION CANNOT BE ALLOWED U/S 40A(IA) OF THE IT ACT 1961. HOWEVER AS THE EXPENSES HAS BEEN ALREADY DISALLOWED AS IT FAILED TO SATISFY THE TEST OF SECTION 37(1) IN CASE IT ANY PROCEEDINGS THE AO HEL D THAT THE EXPENSES IS OTHERWISE ALLOWABLE THEN THE SAID EXPENSES SHALL BE DISALLOWA BLE U/S 40(A)(IA) OF THE IT ACT 1961. 24. BEFORE CIT(A), THE ASSESSEE FILED ADDITIONAL E VIDENCE, ON WHICH THE AO FILED THE FOLLOWING REMAND REPORT: A LETTER DATED 16-08-10 WAS ALSO SENT TO ONKAR MAN AGEMENT (P) LTD, TO VERIFY THE AUTHENTICITY OF THE AGREEMENT SUBMITTED IN THE APPE LLATE PROCEEDINGS FIRST TIME. THE LETTER WAS RETURNED BY THE POSTAL AUTHORITIES. ON B EING ASKED FOR, THE AR FILED A LETTER DATED 10.09.2010 WRITTEN BY THE APPELLANT IN WHICH THE COMPLETE POSTAL ADDRESS OF ONKAR MANAGEMENT (P) LTD WAS GIVEN. THEN, ANOTHER L ETTER WAS ISSUED TO THE SAID COMPANY TO CONFIRM THE DOCUMENTS. IN REPLY, THE SAI D COMPANY CONFIRMED THE PAYMENT OF COORDINATION CHARGES. A LETTER DATED 17,08.2010 WAS ALSO SEND WITH INSPEC TOR TO THE SRI P. K. DUTA, NOTARY FOR CONFIRMATION OF AGREEMENT. INSPECTOR IN HIS REPORT CONFIRM THE ENTRY IN THE REGISTER. HOWEVER, I AM ALSO WITH THE OPINION OF AO THAT THES E CHARGES CLAIMED BY ME APPELLANT ARE BOGUS. THIS MATTER IS THOROUGHLY DISCUSSED BY T HE AO IN ITS ASSESSMENT ORDER THAT THE ASSESSEE HAS FAILED TO PROVE RENDERING OF SERVI CES BY THE THIS COMPANY. OA ALSO DISCUSSED THE PAYMENT TO THE OMKAR MANAGEMENT (P) L TD BY THE ASSESSEE IS NOT ALLOWABLE U/S 40(A)(IA) OF THE I.T.ACT. 17 ITA NO.1677/KOL/2011 M/S. PKS HOLDINGS A.YR.2007-08 17 25. BEFORE CIT(A), THE ASSESSEE CLAIMED THAT ONKAR MANAGEMENT PRIVATE LIMITED, COORDINATED ACTIVITIES IN MAKING THE PROPERTY ACQUI RED AS MARKETABLE. THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE, OBSERVING AS FOL LOWS: 7.4.1. HAVING EXAMINED THE DOCUMENTS SUBMITTED BY THE AR, I AM INCLINED TO ACCEPT AR'S VERSION THAT THE PAYMENT OF CO-ORDINATION CHAR GES TO ONKAR MANAGEMENT PVT.. LTD. IS AN ALLOWABLE DEDUCTION U/S. 37(1) OF THE ACT. TH E SAID PAYMENT IS ALSO NOT DISALLOWABLE U/S. 40(A)(IA) AS THERE WAS NO VIOLATI ON OF SECTION 194C OF THE ACT. THE AR TILED THE DOCUMENTARY PROOF AND A SWORN AFFIDAVIT O F THE SAID ONKAR MANAGEMENT PVT. LTD. ABOUT ITS EXISTENCE. THE CERTIFICATE U/S. 197 WAS ISSUED BY THE ITO, TDS, KOLKATA 011 0910112007 FOR DEDUCTION OF 0.10% TAX AT SOURC E, WHICH CLEARLY MENTIONED THE NAME .OF THE APPELLANT AND THE PERIOD OF VALIDITY W AS FINANCIAL YEAR 2006-07. THE AR ASSERTED THAT THE PAYMENT TO THE ONKAR BE VERIFIED FROM THE BANK STATEMENT OF THE ASSESSEE. THE AO HAS NOT DISPUTED TO THIS CLAIM OF THE AR IN HIS REMAND REPORT. IN VIEW OF SUCH, I AM OF THE OPINION THAT THE PAYMENT OF RS .51,00,000/- IS NEITHER DISALLOWABLE U/S. 37(1) NOR U/S. 40(A)(IA) OF THE ACT. THE ALLOW ABILITY OF SUCH EXPENDITURE DEPENDS ON THE CIRCUMSTANCES AND THE EVENTS OF THE BUSINESS; O N THIS THE ORDER OF THE AO IS SILENT. THE AO HAS NOT BROUGHT IN ANY EVIDENCE TO ESTABLISH THAT THE ALLEGED PAYMENT TO ONKAR MANAGEMENT PVT. LTD. WAS RECEIVED BACK BY THE APPEL LANT IN SOME OR OTHER FORMS SUBSEQUENTLY. IN ABSENCE OF SAME A MERE DOUBT CANNO T BE TAKEN AS FACT. IN VIEW OF THE SUBMISSIONS FILED BY THE AR OF THE APPELLANT WITH E VIDENCES, I AM OF THE OPINION THAT THE AO HAS NOT MADE OUT ANY CASE FOR DISALLOWANCE O F CO-ORDINATION CHARGES, AS HIS OBSERVATIONS ARE BASED ON MERE SUSPICIONS. THE ADDI TION OF RS.51,00,000/- IS THEREFORE, DELETED. 26. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVE NUE IS IN APPEAL BEFORE THE TRIBUNAL. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE LEARNED D R REITERATED STAND OF THE AO AS CONTAINED IN THE ORDER OF ASSESSMENT. THE LEARNED AR RELIED ON THE ORDER OF THE CIT(A). WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. 27. THE LAW IS WELL SETTLED THAT ANY PAYMENT OF C OMMISSION SHOULD BE FOR SERVICES RENDERED BY THE RECIPIENT OF THE COMMISSION. THE A SSESSEE TO CLAIM EXPENDITURE ON ACCOUNT OF COMMISSION HAS TO PROVE THAT SERVICES WE RE IN FACT RENDERED, BY THE RECIPIENT OF THE COMMISSION FROM THE ASSESSEE. THE FACT THAT THE PAYMENT IS MADE BY ACCOUNT PAYEE CHEQUE OR THE FACT THAT TAX HAD BEEN DEDUCTED AND SOURCE OR THE FACT THAT THE RECIPIENT OF COMMISSION HAS DECLARED COMMISSION IN HIS RETURN OF INCOME AND PAID TAXES THEREON, THE FACT THAT THERE IS AN AGREEMENT FOR RE NDERING SERVICES ARE ALL IRRELEVANT 18 ITA NO.1677/KOL/2011 M/S. PKS HOLDINGS A.YR.2007-08 18 CONSIDERATIONS. IN THE PRESENT CASE, EVIDENCE REGA RDING THE NATURE OF SERVICES RENDERED BY THE RECIPIENT OF COMMISSION HAS NOT BEEN PLACED ON RECORD BY THE ASSESSEE. THE OBSERVATIONS THAT WE HAVE MADE IN PARAGRAPH 23 OF T HIS ORDER WILL EQUALLY APPLY TO THIS GROUND ALSO. FOR THE REASONS STATED THEREIN AND ON THE SAME LINES AS INDICATED THEREIN THE ISSUE IS SET ASIDE TO THE AO FOR FRESH CONSIDER ATION. THE AO WILL AFFORD OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE BURDEN WILL BE ON THE ASSESSEE TO PROVE THE NATURE OF SERVICES RENDERED AND ALL OBSERVATIONS IN PARAGR APH-23 OF THIS ORDER WILL APPLY TO THIS GROUND OF APPEAL OF REVENUE ALSO. 28. IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON 01.06.2016. SD/- SD/- [M.BALAGANESH] [ N.V.VASUDEVAN ] ACCOUNTANT MEMBER JUDICI AL MEMBER DATED : 01.06.2016. [RG PS] COPY OF THE ORDER FORWARDED TO: 1.M/S. PKS HOLDINGS, 15, CHITTARANJAN AVENUE, KOLKA TA-700072. 2. I.T.O., WARD-56(2), KOLKATA. 3. CIT(A)-XXXVI, KOLKATA 4. CIT-XXI, KOLK ATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER ASSTT.REGISTRAR, ITAT, KOLKATA BENCHES 19 ITA NO.1677/KOL/2011 M/S. PKS HOLDINGS A.YR.2007-08 19