DCIT 4(1)(1), MUMBAI V. SUNIL J ANANDPARA, MUMBAI

ITA 3132/MUM/2015

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9516 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-09-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 25-05-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M C OMI NINGSHEN
• Assessee Lawyers: RAJESH S KOTHARI; HEMALI R SONI
• Keywords: Capital asset; Gift; Cost of acquisition
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I MUMBAI BEFORE SHRI SAKTIJIT DEY (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 3132/MUM/2015 ASSESSMENT YEAR: 2010 - 11 DCIT - 4(1)(1) ROOM NO. 640 , 6 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD MUMBAI - 400020. VS. SHRI SUNIL J. ANANDPARA 103, LAXMI VILLA, OPP. KALI HANUMAN TEMPLE, MG ROAD, KANDIVALI (W), MUMBAI - 400067. PAN NO. A AMPA5030G APPELLANT RESPONDENT REVENUE BY : MR. M.C. OMI NINGSHEN, D R ASSESSEE BY : MR. RAJESH S. KOTHARI & MS. HEMALI R. SONI, A R DATE OF HEARING : 1 9 /06/2017 DATE OF PRONOUNCEMENT : 15/09/2017 ORDER PER N.K. PRADHAN, A.M. THIS IS AN APPEAL FILED BY THE REVENUE . THE RELEVANT ASSESSMENT YEAR IS 2010 - 11. THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISS IONER OF INCOME TAX (APPEALS) - 45 , MUMBAI AND ARISES OUT OF THE ASSESSMENT COMPLETED U/S 143(3) OF THE INCOME TAX ACT 196 1, ( T HE ACT). ITA NO. 3132/MUM/2015 2 2. THE GROUND S OF APPEAL FILED BY THE REVENUE READ AS UNDER: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF FACT AND IN LAW, THE LD. CIT(A) ERRED IN COMPUTING THE CAPITAL GAINS ARISING ON TRANSFER OF A CAPITAL ASSET ACQUIRED BY THE ASSESSEE UNDER GIFT, WHETHER THE INDEXED COST OF ACQUISITION HAS TO BE COMPUTED WITH REFERENCE TO THE YEAR IN WHICH THE PREVIOUS OWNER FIRST HELD THE ASSET OR THE YEAR IN WHICH THE ASSESSEE BECAME THE OWNER OF THE ASSET? 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF FACT AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE ON ACCOUNT OF PROFIT TRANSFERRED DUE TO CLIENT CODE CHANGES IN SPITE OF THE FACT THAT THE ASSESSEE HAS DONE THIS TRANSFER DURING THE MARKET HOURS AND THE VOLUME O F THESE TRANSFERS IS ALSO HUGE. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE ON ACCOUNT OF PROFIT TRANSFERRED DUE TO CLIENT CODE CHANGES IN SPITE OF THE FACT THAT THE ASSESSEE HAS NOT SUBSTANTIATED ANY CONCRETE REA SON FOR THESE TYPE OF TRANSFERS EXCEPT HUMAN ERROR. 3. WE BEGIN WITH THE 1 ST GROUND OF APPEAL. IN A NUTSHELL , THE FACTS ARE THAT THE ASSESSEE HAD DECLARED LONG TERM CAPITAL GAINS (LTCG) OF RS.6,01,238/ - ON SALE OF DIAMONDS. THESE DIAMONDS WERE RECEIVED AS GIFT ON 10.09.2009 FROM MS. CHETAN MERCHANT. THE DONOR, MS. MERCHANT HAD ACQUIRED THESE DIAMONDS PRIOR TO 1 ST APRIL, 1981. THE ASSESSING OFFICER (AO) CONSIDERED THE HOLDING PERIOD OF DIAMONDS STARTING FROM THE DATE OF GIFT I.E. 10.09.2009 TO THE DATE OF SA LE AND BROUGHT TO TAX THE GAIN AS SHORT TERM CAPITAL GAINS (STCG). THOUGH THE ASSESSEE CITED BEFORE THE AO THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. MANJULA J. SHAH (2012) 249 CTR (BOM) 270, STILL THE AO DID NOT FOLLOW IT ON THE GROUND THAT THE SAID DECISION HAS NOT BEEN ACCEPTED BY THE REVENUE AND A SPECIAL LEAVE PETITION HAS BEEN FILED ITA NO. 3132/MUM/2015 3 BEFORE THE HONBLE SUPREME COURT. THUS THE AO BROUGHT TO TAX RS.88,39,125/ - AS STCG. 4. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A). WE FIND THAT THE LD. CIT(A) HAS FOLLOWED THE DECISION IN THE CASE OF MANJULA J. SHAH (SUPRA) AND ALLOWED THE APPEAL FILED BY THE ASSESSEE. 5. BEFORE US, THE LD. DR SUPPORTS THE ORDER PASSED BY THE AO. ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSESSEE SUPPORTS THE ORDER P ASSED BY THE LD. CIT(A) AND RELIES ON THE DECISION IN THE CASE OF MA N JULA J. SHAH (SUPRA) , ARUN SHUNGLOO TRUST VS. CIT (2012) 249 CTR (DEL) 294 AND CIT VS. SMT. DAISY DEVAIAH (2014) 50 TAXMANN.COM 234 (KARN.). 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED TH E RELEVANT MATERIALS ON RECORD. IT HAS BEEN HELD BY BOMBAY HIGH COURT IN MANJULA J. SHAH (SUPRA) THAT THE EXPRESSION HELD BY THE ASSESSEE USED IN EXPLANATION (III) TO SECTION 48 HAS TO BE UNDERSTOOD IN THE CONTEXT AND HARMONIOUSLY WITH OTHER SECTIONS AND AS THE COST OF ACQUISITION STIPULATED IN SECTION 49 MEANS THE COST FOR WHICH THE PREVIOUS OWNER HAD ACQUIRED THE PROPERTY, THE TERM HELD BY THE ASSESSEE SHOULD BE INTERPRETED TO INCLUDE THE PERIOD DURING WHICH THE PROPERTY WAS HELD BY THE PREVIOUS OWNER. HENCE, INDEXATION OF COST OF IMPROVEMENT SHALL BE ALLOWED FROM THE DATE THE PREVIOUS OWNER ACQUIRED THAT ASSET. FURTHER, HONBLE DELHI HIGH COURT IN CASE OF ARUN SHUNGLOO TRUST (SUPRA) HAS ALSO HELD THAT BENEFIT OF INDEXATION COST OF IMPROVEMENT BY PREVIOUS OWNERS IN CASES COVERED BY SECTION 49 WOULD BE ALLOWED. ITA NO. 3132/MUM/2015 4 ALSO IN SMT. DAISY DEVAIAH (SUPRA) , THE HONBLE KARNATAKA HIGH COURT HAS HELD THAT WHEN AN ASSET IS AC QUIRED BY WAY OF INHERITANCE, COST OF ACQUISITION OF ASSET SHOULD BE CALCULATED ON BASIS OF COST OF ACQUISITION BY PREVIOUS OWNER AND SAID COST OF ACQUISITION HAS TO BE CALCULATED ON BASIS OF INDEXED COST OF ACQUISITION AS PROVIDED IN EXPLANATION (3) TO SE CTION 48. WE FIND THAT THE PRESENT ISSUE IS SQUARELY COVERED BY THE ABOVE JUDGMENTS. WE THEREFORE, UPHOLD THE ORDER OF THE LD. CIT(A) . 7 . NOW WE DEAL WITH THE 2 ND AND 3 RD GROUND S OF APPEAL TOGETHER AS THEY ADDRESS A COMMON ISSUE. THE AO RECEIVED INFORMATION THAT THE CLIENT CODE OF CERTAIN TRANSACTIONS WAS MODIFIED FROM THE ASSESSEES CODE TO OTHER PERSONS. THE NET GAIN ARISING ON SUCH TRANSACTION AMOUNTING TO RS.1,19,28,273/ - WAS ADDED BY THE AO TO THE TOTAL INCOME OF THE ASSESSEE. THE REASO NS GIVEN BY THE AO ARE THAT THE CONCERNED TRANSACTIONS TOOK PLACE IN MARCH, 2010 WHICH INDICATE THAT THE ASSESSEE HAD A FAIRLY GOOD IDEA ABOUT THE GAINS HE WAS LIKELY TO MAKE BY 31 ST MARCH, 2010 AND HE HAD TRANSFERRED THE GAINS ARISING OUT OF THE TRANSACTIONS IN THE SCRIPS TO VARIOUS APPARENTLY UNRELATED BENEFICIARIES TO REDUCE HIS TAXABLE INCOME SIGNIFICANTLY. 8 . AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A). WE FIND THAT THE LD. CIT(A) HAS FOLLOWED THE ORD ER OF THE TRIBUNAL IN THE CASE OF M/S SAMBHAVNATH INVESTMENT VS. ACIT [ITA NO. 3109/MUM/2011], ITO VS. E NET INFOWAYS P. LTD. [ITA NO. 2180/DEL /2012] AND ALLOWED THE APPEAL OF THE ASSESSEE. ITA NO. 3132/MUM/2015 5 9 . BEFORE US, THE LD. DR SUPPORTS THE ORDER PASSED BY THE AO. HE SUBMITS THAT THE ASSESSEE HAS SYSTEMATICALLY TRANSFERRED THE GAINS OF RS.1,19,28,273/ - TO OTHER PERSONS ON ALL SUCH TRADES WHERE THE CLIENT CODES WERE MODIFIED IN ORDER TO SHOW THE BENEFICIARY A S SOMEONE OTHER THAN THE ASSESSEE. THEREFORE, THE LD. DR PLEADS THAT THE ADDITION OF RS.1,19,28,273/ - MADE BY THE AO BE CONFIRMED. 10 . ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSESSEE SUPPORTS THE ORDER PASSED BY THE LD. CIT(A) AND RELIES ON THE ORDER O F THE TRIBUNAL IN THE CASE OF M/S SAMBHAVNATH INVESTMENT (SUPRA) , E. NET INFOWAYS P. LTD. (SUPRA) , ITO VS. M/S PAT COMMODITY SERVICES (P) LTD. (ITA NO. 3498 AND 3499/2012) AND ACIT VS. KUNVARJI FINANCE (P) LTD. (2015) 170 TTJ (AHD) 345. 11 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. IT WOULD BE APPOSITE TO DISCUSS THE RELEVANT DECISIONS ON THE PRESENT ISSUE. IN THE CASE OF SAMBHAVANATH INVESTMENT (SUPRA) , THE TRIBUNAL HAS HELD AS UNDER: AT THIS STAGE, WE FAILED TO UNDERSTAND HOW CAN THE ASSESSEE MODIFY THE CLIENT CODE OR THE DETAILS OF TRANSACTIONS WHICH HAVE BEEN TRANSACTED BY THE AUTHORIZED BROKER RSBL ON MCX. A PERSON TRANSACTING THROUGH A REGISTERED BROKER CANNOT HAVE ANY ACCESS TO THE TERMINAL OF T HE REGISTERED BROKER WITH THE EXCHANGE BE IT STOCK EXCHANGE OR COMMODITY EXCHANGE. THUS THE ALLEGATION OF THE REVENUE AUTHORITIES THAT THE ASSESSEE HAS MODIFIED THE CLIENT CODE DOES NOT HAVE ANY BASIS. ON THE CONTRARY, THE TRANSACTIONS OF THE ASSESSEE WITH RSBL WHO IN TURN HAS TRANSACTED WITH MCX ARE SUPPORTED BY VARIOUS CONTRACT NOTES. THERE IS NO MORE EVIDENCE TO SHOW THAT THE BROKER ITA NO. 3132/MUM/2015 6 RSBL HAS DENIED TO HAVE ENTERED INTO THESE TRANSACTIONS ON BEHALF OF ASSESSEE. ALSO IN THE CASE OF E NET INFOWAYS P. LTD. (SUPRA) , THE TRIBUNAL HAS HELD: WRONG PUNCHING OF CLIENT CODE, REQUIRING SUBSEQUENT CHANGE IN CLIENT CODE IS RECTIFIED BY THE NSE, WHICH HAS FORMULATED RULES AND STRICTLY IMPLEMENTS THEM. IT IS NOT CORRECT TO ASSUME THAT THESE CHANGES WERE FRAUDULENTLY DONE. MISTAKE HAS OCCURRED DUE TO WRONG PUNCHING OF CLIENT CODE BY THE STAFF OF THE BROKER AND THE SAME WAS LATER ON RECTIFIED WITH THE NSE. IT MAY BE MENTIONED THAT EVEN THE NSE WAS AWARE OF THE FACT THAT CLIENT CODE WAS INITIALLY PUNCHED WRONG AND THER EAFTER IT HAS BEEN CORRECTED BY THE BROKER. THERE IS NO ILLEGALITY NOTICED IN THIS CHANGE OF CLIENT CODE. THIS IS A MERE HUMAN ERROR AND IT CAN HAPPEN IN EVERY SPHERE OF LIFE. THEREFORE, THIS ERROR IS NOT SO IMPORTANT WHICH CAN LEAD TO DISALLOWANCE OF ENTI RE LOSS. FURTHER IN M/S PAT COMMODITY SERVICES P. LTD. (SUPRA) THE TRIBUNAL HELD: WE NOTICE THAT THE ASSESSEE HAS OFFERED EXPLANATIONS AS TO WHY IT CARRIED OUT THE TRANSACTIONS IN ITS OWN CODE, I.E. SINCE THE TIMING OF ENTERING THE TRANSACTIONS IS CRUCIAL IN THE ONLINE TRADING, THE STAFFS OF THE ASSESSEE COMPANY FOUND IT CONVENIENT TO P UNCH ITS OWN CODE. FURTHER, WE NOTICE THAT THE FACT THAT THE ASSESSEE HAS CHANGED THE CODE TO THE CONCERNED CLIENTS ACCOUNT AT THE END OF THE DAY HAS NOT BEEN DISPROVED. IF AT ALL ANY PERSON COMES WITH A REQUEST SEEKING PROFITS, THERE WILL NORMALLY BE TIM E LAG AND HENCE THE FACT THAT THE ASSESSEE HAS CHANGED THE CODES AT THE END OF THE DAY ONLY SHOWS THAT THE ASSESSEE HAS CARRIED OUT THE TRANSACTIONS ON BEHALF OF ITS CLIENT ONLY. ITA NO. 3132/MUM/2015 7 IF THE ASSESSEE HAD REALLY SHIFTED THE PROFITS TO AN OUTSIDER, THEN THE HUMA N PROBABILITIES WOULD SUGGEST THAT THE ASSESSEE WOULD HAVE RECEIVED BACK CORRESPONDING AMOUNT FROM THE RECIPIENT OF PROFIT. HOWEVER, IN THE INSTANT CASE, THE AO HAS NOT BROUGHT ANY MATERIAL ON RECORD TO SHOW THAT THE ASSESSEE HAD RECEIVED BACK CORRESPONDIN G AMOUNT EQUIVALENT TO THE AMOUNT OF PROFIT CLAIMED TO HAVE BEEN SHIFTED TO THE CLIENTS. THE AO HAS MAINLY RELIED UPON THE REPORT GIVEN BY THE MCX AND HAS DRAWN ADVERSE CONCLUSIONS WITHOUT BRINING AN Y MAT ERIAL TO SUPPORT HIS VIEW. ALSO IN KUNVARJI FINANCE (P) LTD. (SUPRA) THE TRIBUNAL HAS HELD: AS PER CIRCULAR OF COMMODITY EXCHANGE, CLIENT CODE MODIFICATION UPTO 1% IS QUITE NORMAL AND IS PERMITTED WITHOUT ANY PENALTY. FROM THE CIRCULAR OF THE COMMODITY EXCHANGE, IT IS EVIDENT THAT CLIENT CODE MODIFICAT ION IS PERMITTED ON THE SAME DAY. WHEN THE CLIENT CODE WAS MODIFIED ON THE SAME DAY, THERE CANNOT BE ANY MALA FIDE INTENTION. WHEN THE TRANSACTION HAS BEEN DULY ACCOUNTED FOR AND THE PROFIT/LOSS HAS ACCRUED TO THE CONCERNED PARTIES IN WHOSE NAMES TRANSACT IONS HAVE BEEN CLOSED, THERE CANNOT BE ANY BASIS OR JUSTIFICATION FOR CONSIDERING THOSE PROFIT/LOSS IN THE CASE OF THE ASSESSEE ON THE BASIS OF MERE PRESUMPTION OR SUSPICION. IT IS NOT THE CASE OF THE REVENUE THAT SUCH ALLEGED PROFIT HAS ACTUALLY BEEN RECE IVED BY THE ASSESSEE. 1 2 . THE PRESENT ISSUE IS SQUARELY COVERED BY THE DECISION WE HAVE NARRATED AT PARA 1 1 HEREINBEFORE. WE FOLLOW THEM AND UPHOLD THE ORDER OF THE LD. CIT(A). ITA NO. 3132/MUM/2015 8 13 . IN THE RESULT, THE APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 15/09/2017. SD/ - SD/ - ( SAKTIJIT DEY ) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 15/09/2017 RAHUL SHARMA, SR. P.S. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI