M/s Ratnabali Commodities Pvt. Ltd., Kolkata V. ITO, Ward-12(3), Kolkata, Kolkata

ITA 191/KOL/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1622 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 3 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-06-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 31-05-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 20-02-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SALLONG YADDEN
• Assessee Lawyers: S K TULSIYAN
• Keywords: Transactions in derivatives; Wholly owned subsidiary; Tangible material; Corroborative evidences
• Section: 133(6)

Judgement Text

, D , IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH D KOLKATA BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI S.S.VISWANETHRA RAVI, JUDICIAL MEMBER ITA NO.191/KOL/2015 ASSESSMENT YEAR:2009-10 M/S RATNABALI COMMODITIES PVT. LTD., A- 7 & 8, FMC FORTUNA, 4 TH FLOOR, 234/3A, A.J.C. BOSE ROAD, KOLKATA- 700020 [ PAN NO.AAACU 3187 F ] / V/S . INCOME TAX OFFICER, WARD-12(3), KOLKATA /APPELLANT .. /RESPONDENT /BY APPELLANT SHRI S.K. TULSIYAN, ADVOCATE /BY RESPONDENT SHRI SALLONG YADDEN, ADDL. CIT-DR ! /DATE OF HEARING 31-05-2017 ! /DATE OF PRONOUNCEMENT 16-06-2017 /O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:- THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER O F COMMISSIONER OF INCOME TAX (APPEALS)-XII, KOLKATA DATED 24.10.2014. ASSESS MENT WAS FRAMED BY ITO WARD- 12(3), KOLKATA U/S 143(3)/147 OF THE INCOME TAX ACT , 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE HIS ORDER DATED 28.12.2011 FOR ASSE SSMENT YEAR 2009-10. SHRI S.K. TULSIYAN LD. ADVOCATE APPEARED ON BEHALF OF ASSESSEE AND SHRI SALLONG YADDEN, LD. DEPARTMENTAL REPRESENTATIVE REPRESENTED ON BEHALF OF REVENUE. 2. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE BROU GHT TO OUR NOTICE THAT HE HAS BEEN INSTRUCTED NOT TO PRESS ADDITIONAL GROUNDS OF APPEAL SUBMITTED DATED 20-1-2017. AFTER HEARING LD. DR IN THIS REGARD, THE SAID ADDIT IONAL GROUNDS RAISED BY ASSESSEE ARE DISMISSED AS NOT PRESSED. ITA NO.191/KOL/2015 A.Y. 2009-10 M/S RATNABALI COMMODITIES PVT. LTD. VS. ITO WA RD-12(3) PAG E 2 3. SOLE ISSUE RAISED BY ASSESSEE IN ITS GROUNDS OF APPEAL IS THAT LD. CIT(A) ERRED IN HOLDING THE LOSS OF 19,76,538/- IN THE TRANSACTIONS OF DERIVATIVES AS B OGUS LOSS. 4. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY AND ENGAGED IN THE BUSINESS OF DEALING IN COMMODITIES. THE ASSESSEE IN THE YEAR UNDER CONSIDERATION HAS INCURRED LOSS OF 45,23,943/- IN DERIVATIVES TRANSACTIONS OF SHARES. THE ABOVE LOSS WAS INCURRED BY THE ASSESSEE AT THE FAG-END OF THE RELEVANT ASSESSMENT YEAR I.E. FROM 18.03.2009 TO 26.03.2009. ALL THE TR ANSACTIONS WERE CARRIED OUT THROUGH A BROKER NAMELY M/S RATNABALI CAPITAL MARKETS LTD. (RCML FOR SHORT) A MEMBER OF NATIONAL STOCK EXCHANGE (NSE FOR SHORT). THE DIRECT OR IN THE ASSESSEE-COMPANY AND RCML WERE COMMON AND THE NAME OF RCML WAS APPEARING IN THE LIST OF SPECIFIED PERSON AS ENVISAGED U/S. 40(A)(2)(B) OF THE ACT. TH E ASSESSEE HAS ALSO PAID BROKERAGE TO RCML FOR 92,566/- ONLY FOR THE ABOVE STATED TRANSACTIONS. TH E ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS TO VERI FY THE VERACITY OF THE LOSS CLAIMED BY ASSESSEE HAS CONFIRMED FROM NSE BY ISSUING A NOT ICE U/S. 133(6) OF THE ACT. AS PER THE CONFIRMATION RECEIVED FROM NSE, THE AO OBSERVED THAT THE NAME OF THE CLIENT AND CODE HAS BEEN MODIFIED DURING THE PROCESS OF SAID T RANSACTIONS. THEREFORE, THE AO HAD A DOUBT ABOUT THE GENUINENESS OF THE IMPUGNED LOSS AND THEREFORE HAS SOUGHT THE EXPLANATION FROM THE ASSESSEE. IN COMPLIANCE THERET O THE DIRECTOR OF THE ASSESSEE- COMPANY AND RCML NAMELY, SHRI VIKASH SOMANI IN HIS STATEMENT RECORDED DATED 22.12.2010 SUBMITTED THAT THE NAME OF THE CLIENT AN D CODE WAS MODIFIED DUE TO PUNCHING ERRORS BY THE CLERICAL STAFF. IT WAS ALSO SUBMITTED THAT ALL THE MODIFICATION IN THE NAME OF CLIENT AND ITS CODE WERE CARRIED OUT WI THIN THE TIME PERMITTED BY THE STOCK EXCHANGE. THE ASSESSEE ALSO SUBMITTED THAT THE SECU RITY TRANSACTION TAX (STT) WAS PAID IN RESPECT OF ALL THE TRANSACTIONS GIVING RISE TO THE IMPUGNED LOSS. HOWEVER, AO DISAGREED WITH THE CONTENTION OF ASSESSEE ON ACCOUN T OF FOLLOWING REASONS:- (A) THE IMPUGNED LOSS WAS INCURRED BY THE ASSESSEE AT THE FAG-END OF THE YEAR AND SIMILAR LOSS WAS ALSO INCURRED IN THE IMMEDIATE PRECEDING AY 2008-09 AT THE FAG-END OF THE YEAR WHICH WAS ALSO DISALLOWED. (B) THE CLIENT CODE AND NAME WERE MODIFIED BY RCML WITHOUT HAVING INSTRUCTION FROM THE ASSESSEE. ITA NO.191/KOL/2015 A.Y. 2009-10 M/S RATNABALI COMMODITIES PVT. LTD. VS. ITO WA RD-12(3) PAG E 3 (C) THE NATURE OF MODIFICATION CARRIED OUT IN THE C LIENTS NAME AND CODE DO NOT SUGGEST THAT IT WAS A CLERICAL PUNCHING ERROR RATHE R IT IS SUGGESTING THAT THE LOSS WAS TAKEN BY THE ASSESSEE IN ORDER TO REDUCE ITS PR OFIT WHICH IS NOT PERMISSIBLE IN THE EYES OF LAW. IN VIEW OF THE ABOVE, AO TREATED THE IMPUGNED LOSS OF 19,76,538/- AS BOGUS AND ACCORDINGLY ADDED TO THE TOTAL INCOME OF ASSESSEE. 5. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE L D. CIT(A). THE ASSESSEE BEFORE LD. CIT(A) SUBMITTED THAT THE CLIENTS NAME AND CODE WERE MODIFIED WITHIN THE TIME PERMITTED BY NATIONAL SECURITIES CLEARING CORP ORATION LTD., (NSCCL SHORT) WHICH IS THE WHOLLY OWNED SUBSIDIARY OF NSE. THE AS SESSEE ALSO SUBMITTED THAT THERE IS ALWAYS HUGE RUSH DURING THE MARKETING HOURS AND THEREFORE THERE IS HIGH POSSIBILITY OF HUMAN ERRORS DUE TO EXTREMELY HIGH VOLUME OF ORD ERS WHICH ARE PLACED ON SCREENS ON REAL TIME BASIS. THE ASSESSEE ALSO SUBMITTED THA T ALL THE TRANSACTIONS WERE CARRIED OUT THROUGH BANKING CHANNEL AND THIS WAS SUPPORTED WITH THE CONTRACT NOTES. THE ASSESSEE ALSO PRODUCED FORM NO.10BB WHICH EVIDENCED THE PAYMENT OF STT ON THE IMPUGNED TRANSACTIONS IN RECOGNIZED STOCK EXCHANGE. HOWEVER, LD. CIT(A) DISREGARDED THE CONTENTION OF ASSESSEE AND CONFIRME D THE ORDER OF AO BY OBSERVING AS UNDER:- THE FACTS IN THIS CASE HAVE BEEN CONSIDERED AN D IT IS APPREHENDED THAT THERE IS A POSSIBILITY THAT THE MODIFICATIONS MIGHT HAVE BEEN MADE TO ACCOMMODATE THE APPELLANT AS THE BROKER OF THE APPE LLANT WAS A SISTER CONCERN. EVEN THOUGH APPARENTLY IT HAS NOT BEEN ESTABLISHED THAT THE SUCH MODIFICATION HAD BEEN DONE IN VIOLATION OF RULES AND REGULATIONS PRESCRIBED BY SEBI AND THE AO HAD PROCEEDED ON SUSPICION, HOWEVER AT THE SAME TIME IT ALSO CANNOT BE CONCLUDED EITHER THAT THE LOSS WOULD NOT BE ATTRIBU TABLE TO THESE MODIFICATIONS . THUS, I FIND MERIT IN THE CONTENTION OF THE AO. THEREFORE, THE APPELLANTS CONTENTION IN RESPECT OF THE CLAIM OF L OSS CANNOT BE ACCEPTABLE AS THE SAME PERTAINED TO THE MODIFIED TRANSACTIONS BEI NG ENTERED INTO BY THE APPELLANTS SISTER CONCERN WHO WAS THE BROKER AND H ELPED IN MANIPULATION FOR THE BENEFIT OF THE APPELLANT. I ALSO FIND THAT SIMI LAR ADDITION WAS MADE BY THE AO ON THE SAME GROUND IN THE PREVIOUS AY 2008-09 AN D THE CIT(A)-XXX, KOLKATA HAS PARTLY CONFIRMED THE ADDITION SO MADE B Y THE AO VIDE APPEAL ORDER DATED 23.11.2012. HENCE DISALLOWANCE MADE BY THE AO FOR THE LOSS OF RS.19,76,538/- CLAIMED TO BE INCURRED BY THE APPELL ANT COMPANY IS CONFIRMED AS IT WAS DONE WITH THE INTENTION OF REDUCING APPEL LANT COMPANYS TAXABLE INCOME MANIPULATION OF TRANSACTIONS ENTERED INTO BY THE APPELLANTS SISTER ITA NO.191/KOL/2015 A.Y. 2009-10 M/S RATNABALI COMMODITIES PVT. LTD. VS. ITO WA RD-12(3) PAG E 4 CONCERN WHO WAS THE BROKER AND HELPED IN MANIPULATI ON FOR THE BENEFIT OF THE APPELLANT. HENCE, THIS GROUND OF APPEAL OF THE APPE LLANT IS DISMISSED. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) ASSESSE E CAME IN SECOND APPEAL BEFORE US. 6. LD. AR FOR THE ASSESSEE FILED PAPER BOOK WHICH I S RUNNING PAGES FROM 1 TO 20 AND CITED CASE LAW. LD. AR FOR THE ASSESSEE REITERA TED THE ARGUMENTS THAT WERE PLACED BEFORE LD. CIT(A). FURTHER, HE ALSO SUBMITTED THE C OPIES OF CONTRACT NOTES IN SUPPORT OF THE TRANSACTIONS GIVING RISE TO THE IMPUGNED LOS S WHICH ARE PLACED ON PAGES 1 TO 5 OF THE PAPER BOOK. HE ALSO SUBMITTED THE EVIDENCE F OR THE PAYMENT OF STT ON SUCH TRANSACTIONS WHICH IS PLACED ON PAGES 6 OF THE PAPE R BOOK. LD. AR ALSO SUBMITTED THE COPY OF BANK STATEMENT OF THE ASSESSEE AND RCML ALO NG WITH THE LEDGER COPY OF THE BROKER AND THE ASSESSEE IN THE RESPECTIVE BOOKS OF ACCOUNTS WHICH ARE PLACED ON PAGES 7 TO 20 OF THE PAPER BOOK. ON THE OTHER HAND, LD. DR VEHEMENTLY RELIED ON THE ORDER OF AUTHORITIES BELOW. 7. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD; INCLUD ING THE JUDICIAL PRONOUNCEMENTS CITED AND PLACED RELIANCE UPON. THE ISSUE BEFORE US REVOLVES FOR THE AMOUNT OF LOSS CLAIMED BY ASSESSEE FOR 19,76,538/- WHICH WAS TREATED BY THE AUTHORITIES BE LOW AS BOGUS MAINLY DUE TO THE MODIFICATION CARRIED OUT IN THE NAME AND CODE OF THE ASSESSEE BY THE BROKER. THE DIRECTOR OF THE ASSESSEE-COMPANY AND THE DIRECTOR OF THE BROKER COMPANY LISTED WITH NSE ARE SAME PERSON. THE IMPUGN ED LOSS WAS TREATED AS BOGUS DUE TO SEVERAL REASONS SUCH AS IT WAS INCURRED AT T HE FAG-END OF THE YEAR, TO REDUCE THE TAXABLE PROFIT EARNED BY ASSESSEE DURING THE YEAR A ND SIMILAR KIND OF LOSS WAS ALSO DISALLOWED IN THE IMMEDIATE PRECEDING YEAR. 7.1 FROM THE FOREGOING DISCUSSION, WE FIND THAT IND EED THE CLIENTS CODE AND NAME WERE MODIFIED IN RESPECT OF TRANSACTIONS CLAIMED BY ASSESSEE. HOWEVER, ON PERUSAL OF RECORD, WE FIND THAT THE IMPUGNED TRANSACTIONS WERE CARRIED OUT THROUGH BANKING CHANNEL AND ALL THE SUPPORTING EVIDENCE SUCH AS CON TRACT NOTE, PAYMENT OF STT WERE FILED AT THE TIME OF ASSESSMENT PROCEEDINGS. WE ALS O FIND THAT LD. CIT(A) CONFIRMED THE ORDER OF AO ON THE BASIS OF HIS GUESS-WORK AS E VIDENT FROM HIS APPELLATE ORDER WHICH IS REPRODUCED BELOW:- ITA NO.191/KOL/2015 A.Y. 2009-10 M/S RATNABALI COMMODITIES PVT. LTD. VS. ITO WA RD-12(3) PAG E 5 THERE IS A POSSIBILITY THAT THE MODIFICATIONS MIGHT HAVE BEEN MADE TO ACC OMMODATE THE APPELLANT AS THE BROKER OF THE APPELLANT WAS A SISTER CONCERN. FURTHER THE LD. CIT-A HAS OBSERVED IN HIS ORDER AS UNDER:- EVEN THOUGH APPARENTLY IT HAS NOT BEEN ESTABLISHED THAT THE SUCH MODIFICA TION HAD BEEN DONE IN VIOLATION OF RULES AND REGULATIONS PRE SCRIBED BY SEBI AND THE AO HAD PROCEEDED ON SUSPICION, HOWEVER AT THE SAME TIME IT ALSO CANNOT BE CONCLUDED EITHER THAT THE LOSS WOULD NOT BE ATTRIBUTABLE TO THESE MODIFICATIONS ON PERUSAL OF THE ORDER, WE FIND THAT LD. CIT(A) HA S CONFIRMED THE ORDER OF AO ON HIS OWN SURMISE AND CONJECTURE WHICH IS NOT PERMISSIBLE IN THE EYES OF LAW. LD. DR HAS ALSO NOT BROUGHT ANYTHING ON RECORD CONTRARY TO THE ADVANCE ARGUMENTS PLACED BY LD. AR FOR THE ASSESSEE AS WELL AS NO DEFECTS OF WHATSO EVER HAS BEEN POINTED OUT IN THE DOCUMENTS PRODUCED BY ASSESSEE IN SUPPORT OF ITS IM PUGNED LOSS. WE ALSO FIND WHATEVER MODIFICATIONS WERE CARRIED OUT BY THE BROK ER THEY WERE CARRIED OUT WITHIN THE TIME PERMITTED BY THE NSE FOR THE PURPOSE OF MO DIFICATION. THUS, WE ARE OF THE VIEW THAT THE ORDER OF AUTHORITIES BELOW IS BASED O N SURMISE AND CONJECTURE AND SAME IS NOT BASED ON TANGIBLE MATERIAL TO TREAT THE IMPU GNED LOSS AS BOGUS LOSS. 7.2 MOREOVER, WE ALSO FIND THAT THE DETAILS FURNISH ED BY THE ASSESSEE IN RESPECT OF TRANSACTIONS GIVING RISE TO THE LOSS WERE EXACTLY M ATCHING WITH THE DETAILS FURNISHED BY THE NSE. IN NONE OF THE CASE, AUTHORITIES BELOW HAV E BROUGHT ON RECORD WHERE ANY MISMATCH IS FOUND BETWEEN THE BOOKS OF THE ASSESSEE AND THE CONFIRMATION RECEIVED FROM NSE. HAD THERE BEEN ANY MANIPULATION IN THE IM PUGNED LOSS THEN IT COULD HAVE BEEN REVEALED FROM THE CONFIRMATION RECEIVED FROM N SE. THEREFORE, THE MODIFICATIONS IN THE CLIENTS NAME AND CODE CANNOT JUSTIFY THE IM PUGNED LOSS AS BOGUS. THUS, WE CONCLUDE THAT THE IMPUGNED ADDITION HAS BEEN MADE B Y THE AUTHORITIES BELOW ON THE BASIS OF SURMISE AND CONJECTURE WHICH IS NOT PERMIS SIBLE IN THE EYES OF LAW AS HELD BY THE HON'BLE SUPREME COURT IN THE CASE OF LALCHAND BHAGAT AMBICA RAM VS. CIT BIHAR AND ORISSA (1959) 159 ITR 289 (SC). THEREFORE, WE HOLD THAT T HE IMPUGNED LOSS CANNOT BE SUBJECT-MATTER OF ADDITION ON THE BASIS O F SUSPICION. IN THIS REGARD WE ALSO RELY IN THE CASE OF CIT VS. KUNDAN INVESTMENT LTD. REPORTED IN 263 ITR 626 (CAL) WHERE HON'BLE JURISDICTIONAL HIGH COURT HAS HELD:- THE TRIBUNAL HAD FOUND THAT ALL RELEVANT DOCUMENTS RELATING TO CONTRACT NOTES, BILLS, THE QUOTED PRICE AND OTHER MATERIALS WERE PRODUCED. THE TRANSACTIONS WERE MADE ITA NO.191/KOL/2015 A.Y. 2009-10 M/S RATNABALI COMMODITIES PVT. LTD. VS. ITO WA RD-12(3) PAG E 6 THROUGH CHEQUES. ALL THE SHARES RELATED TO THE REPU TED COMPANIES AND WERE QUOTED SHARES IN THE STOCK EXCHANGES AND WERE PURCHASED AN D SOLD AT THE PREVALENT QUOTED MARKET RATES, WHICH WAS VERIFIED FROM THE STATEMENT OF THE STOCK EXCHANGES. ON THESE BASIS, THE TRIBUNAL FOUND THAT THE CIT(A) HAD PROCE EDED ON THE BASIS OF SUSPICION THAT THERE MIGHT BE SOME INGENUINITY IN THE TRANSACTIONS . ON THE BASIS OF THE MATERIALS PRODUCED, THE TRIBUNAL CAME TO A FINDING OF FACT, W HICH DOES NOT SEEM TO BE PERVERSE. WHETHER THE SHARES COULD BE SOLD IMMEDIATELY ON THE DATE OF PURCHASE OR NOT WAS A QUESTION OF BUSINESS EXPEDIENCE. WHETHER THE DECISI ON WAS CORRECT OR WRONG CANNOT BE A QUESTION, WHICH CAN BE A SUBJECT-MATTER OF DEC ISION IN SUCH A CASE. IN ORDER TO FIND OUT WHETHER THE TRANSACTION IS GENUINE OR INGE NUINE, IT IS NEITHER THE EXPEDIENCE OR CORRECTNESS OF THE DECISION NOR THE BUSINESS EXP ERTISE OF THE PERSON TO BE CONSIDERED. IT IS TO BE CONSIDERED ON THE BASIS OF THE MATERIALS THAT THERE WAS NO SUCH TRANSACTION AND THAT THESE SHARE TRANSACTIONS WERE PAPER TRANSACTIONS. THE SUFFERING OF LOSS COULD NOT BE A FACTOR FOR SUCH PURPOSE. HAV ING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE, THE VIEW TAKEN BY THE TR IBUNAL ALLOWING SHARE LOSS CANNOT BE SAID TO BE ERRONEOUS OR PERVERSE. CIT VS. EMERALD COMMERCIAL LTD. & ANR. (2001) 171 CTR (CAL) 193 : (2001) 250 ITR 539 (CAL) , CIT VS. DHAWAN INVESTMENT & TRADING CO. LTD. (1999) 238 ITR 486 (CAL) AND CIT VS. CURRENCY INVESTMENT CO. LTD. (2000) 158 CTR (CAL) 361 : (2000) 241 ITR 494 (CAL) RELIED ON. RESPECTFULLY FOLLOWING THE SAME, WE HOLD THAT THE I MPUGNED LOSS CLAIMED BY ASSESSEE IS GENUINE LOSS IN THE ABOVE FACTS AND CIRCUMSTANCE S OF THE CASE AND THEREFORE ELIGIBLE FOR DEDUCTION. ACCORDINGLY, AO IS DIRECTED. THIS GR OUND OF ASSESSEES APPEAL IS ALLOWED. 8. IN THE RESULT, ASSESSEES APPEAL STANDS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 16/06/2017 SD/- SD/- (%&') (!&') (S.S.VISWANETHRA RAVI) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER *DKP-SR.PS )&*+ - 16/06/2017 / KOLKATA / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT-M/SRATNABALICOMMODITIESPVT. LTD.,A-7&8, F MC FORTUNA, 4 TH FLOOR, 234/3A, A.J.C. BOSE RD, KOL-20 2. /RESPONDENT-INCOME TAX OFFICER, WARD-12(3), KOLKATA 3. **, - / CONCERNED CIT 4. - - / CIT (A) 5. ./0 %%, , , / DR, ITAT, KOLKATA 6. 012 / GUARD FILE. BY ORDER/ & , /TRUE COPY/ SR. PRIVATE SECRETARY, HEAD OF OFFICE/DDO , ,