DCIT (IT)-3(1)(2), Mumbai V. M/S LAZARD ASSET MANAGEMENT LLC AC CIMCO INC, Mumbai

ITA 2324/MUM/2022

AI Insights

The case revolves around the Deputy Commissioner of Income Tax (IT)-3(1)(2) challenging the order of the CIT(A)-57, Mumbai, which had favored M/s Lazard Asset Management LLC, a Foreign Institutional Investor (FII). The primary contention was regarding the deletion of an addition of Rs.1,96,36,85,939 as Short Term Capital Gain for the Assessment Year 2012-13. The Assessing Officer (A.O) had initially treated this amount as taxable under the assessee's name, based on transactions recorded under its PAN. However, the CIT(A) found that these transactions were actually allocated to other PANs post-trading, as per SEBI regulations, and thus, did not pertain to the assessee. The Tribunal's decision affirmed the CIT(A)'s ruling, dismissing the revenue's appeal.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 130169 (ITAT-MUMBAI)
• Duration Of Justice: 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-02-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 23-01-2023
• Assessment Year: 2012-2013
• Appeal Filed On: 13-09-2022
• Laws Referred To: SEBI Circular No MRD/DOP/SE/Cir 35/2004
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Set aside
• Section: 148; 133(6)

Judgement Text

P a g e | 1 ITA No.2324/Mum/2022 DCIT (IT)-3(1)(2) Vs. M/s Lazard Asset Management LLC IN THE INCOME TAX APPELLATE TRIBUNAL “I” BENCH, MUMBAI BEFORE SHRI VIKAS AWASTHY, JUDICIAL MEMBER & SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ITA No. 2324/Mum/2022 (A.Y.2012-13) Deputy Commissioner of Income Tax (IT)-3(1)(2) Room No. 1628, 16 th Floor, Air India Building, Nariman Point, Mumbai – 400021 Vs. M/s Lazard Asset Management LLC A/c CIMCO, C/o Deloitte Haskins & Sells LLP, India Bulls Finance Centre, Tower 3, 27 th – 32 nd Floor, Elphinstone Mil Compound, Mumbai - 400013 स्थायी लेखा सं./जीआइआर सं./PAN/GIR No: AABCL0070F Appellant .. Respondent Appellant by : Soumendu Kumar Dash Respondent by : Niraj Sheth Date of Hearing 24.01.2023 Date of Pronouncement 10.02.2023 आदेश / O R D E R Per Amarjit Singh (AM): The present appeal filed by the revenue is directed against the order passed by the ld. CIT(A)-57, Mumbai, dated 02.06.2022 for A.Y. 2012-13. The revenue has raised the following grounds before us: “1. Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A) has erred in deleting the addition on Short Term Capital Gain of Rs.1,96,36,85,939/- yielding from trade transaction on assessee's own code. P a g e | 2 ITA No.2324/Mum/2022 DCIT (IT)-3(1)(2) Vs. M/s Lazard Asset Management LLC 2. Whether on facts and circumstances and in law, the Ld CIT(A) had erred in arriving at a conclusion that no trade was booked in the name of LAM LLC A/C CIMCO when in fact trades were booked on its PAN and profits accrued to it. 3. Whether on facts and circumstances and in law, Ld CIT(A) has erred in ruling in favour of the assessee as the assessee has not provided any documentary proof to substantiate its claims, even those claims that pertain to its own group entities. 4. The appellant prays that the order of the Ld. CIT(A) on the above ground(s) be set aside and that of Assessing Officer be restored. 5. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary.” 2. The fact in brief is that the assesse is a Foreign Institutional Investor (FII). The A.O noticed from the departments data base (ITD), that assesse had not filed its return of income for assessment year 2012-13 and assesse had entered into transaction of Rs.9,63,74,35,734/- as per the individual transaction statement. The detail of the transaction entered into by the assesse are given below: Sr. No. F.Y. Code of info Information Type Total value 1 2011-12 CIB 1. Share Transaction of Rs.20,000/- more 2. Premia of Rs.10,000/- and above. 3. Contract of Rs.10,10,0000 or more in the commodities exchange. Rs.963,74,35,734/- 3. Therefore, the case of the assesse was reopened by issuing of notice u/s 148 dated 30.03.2019 on the basis of aforesaid information in the ITD assessment under NMS (non-filer) category, that the assesse had not filed its return of income for assessment year 2012-13. The A.O observed from the data as per ITD database that the assesse had entered into purchase and sale of equities on stock exchanges/commodities exchanges, however, the capital gain income P a g e | 3 ITA No.2324/Mum/2022 DCIT (IT)-3(1)(2) Vs. M/s Lazard Asset Management LLC from the sale of the said investment by the assesse was not shown since the assesse had not filed return of income for the year. 4. The assesse explained that it was a sub-account of Lazard Asset Management LLC a Foreign Institutional Investor (FII) registered with the SEBI. It was also explained that assesse had not filed the return of income for assessment year 2012-13 as the assesse had sold all its investment and surrendered its FII registration with the SEBI. The assesse also explained that trades listed in ITS statement referred by the assessing officer were actually allocated to some other PAN and for that submitted the confirmation of broker. 5. However, the AO has not agreed with the submission of the assesse and stated that assesse could not explain the taxability trades reflected in ITC details. The assessing officer was of the view that average return in share trading in Indian stock exchange was about 10 to 15%, therefore, treated the profit on sale of share @ 15% to the amount of Rs.29,45,52,891/- as short term capital gain and taxed in the hands of the assesse. 6. Aggrieved, the assesse filed the appeal before the ld. CIT(A). The ld. CIT(A) has deleted the impugned addition holding that these transactions did not belong to the assesse and were allocated to other PAN, therefore, the A.O cannot ask the assesse to explain the ultimate taxability of the transaction. The relevant part of the decision of CIT(A) is reproduced as under: “5.1.3 Before me, the assessee submitted that as per SEBI Circular No MRD/DOP/SE/Cir 35/2004, the transactions were first entered in the name of the parent FII at the order entry level and the allocation to the individual sub- accounts can be done in the post closing session. The assessee stated that it has stopped trading in shares. However, its PAN was used at the entry level and subsequently, the trades were allocated to other PANS. 5.1.4 This fact was verified by the AO. by issuing notices u's. 133(6) However, he further asked the assessee to explain the ultimate taxability of the P a g e | 4 ITA No.2324/Mum/2022 DCIT (IT)-3(1)(2) Vs. M/s Lazard Asset Management LLC transactions present in ITS details and since it was not explained the AO. estimated the income on such transactions @ 15%. 5.1.5 In my view, once it is accepted by the AO that these transactions do not belong to assessee and were allocated to other PANS, then the AO cannot ask the assessee to explain the ultimate taxability of the transactions. In such circumstances, the best course available to A.O. is to intimate the AOS of the other PANS to ensure that these transactions are reported /accounted for by such PANS. 5.1.6 Considering the above, I am of the opinion that no income can be attributed to the assessee once it is accepted by the AO. that these transactions belong to and were allocated to other PANS as per the SEBI circular.” 7. Heard both the sides and perused the material on record. Without reiterating the facts as discussed supra in this order the assesse had surrendered its FII license and the confirmation of the same was received from SEBI on 7 th April, 2011. The assesse had sold off of its investment prior to the commencement of financial year 2011-12 and did not undertake any investment in listed securities in India. Since, the assesse has not earned any income during the year, therefore, it had not filed return of income for assessment year 2012-13. During the course of assessment the assesse also submitted that as per SEBI Circular No. MRD/DOP/SE/Circular -35/2004 dated 26.10.2004 has clarified that FIIs can provide the unique client code pertaining to the parent FII at the order entry level and the allocation to the individual sub-accounts of the FII can be done in the post closing session. It was also explained that accordingly the trades mentioned in the AIR data were booked under PAN of the assesse but were subsequently allocated and settled in various other PAN. The assesse also explained that in its case the brokers have reconciled the AIR and provided the details of post allocation PAN to which the trades mentioned in AIR were finally allocated. Further, the brokers have also provided information that no trades were booked under PAN of the assesse. In the light of the above facts and finding we don’t find any infirmity in the decision of CIT(A), accordingly, ground of appeal 1 to 3 of the revenue stand dismissed. P a g e | 5 ITA No.2324/Mum/2022 DCIT (IT)-3(1)(2) Vs. M/s Lazard Asset Management LLC 8. In the result, the appeal of the revenue stand dismissed. Order pronounced in the open court on 10.02.2023 Sd/- Sd/- (Vikas Awasthy) (Amarjit Singh) Judicial Member Accountant Member Place: Mumbai Date 10.02.2023 Rohit: PS आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपीलाथी / The Appellant 2. प्रत्यथी / The Respondent. 3. आयकर आयुक्त(अपील) / The CIT(A)- 4. आयकर आयुक्त / CIT 5. विभागीय प्रविविवि, आयकर अपीलीय अविकरण DR, ITAT, Mumbai 6. गार्ड फाईल / Guard file. सत्यावपि प्रवि //True Copy// आदेशानुसार/ BY ORDER, उि/सहायक िंजीकार (Dy./Asstt. Registrar) आयकर अिीिीय अतिकरण/ ITAT, Bench, Mumbai.