ANSH MERCHANDISE P.LTD, MUMBAI V. ADDL CIT 5(2), MUMBAI

ITA 398/MUM/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3102 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 8 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-09-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 21-05-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 14-01-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A RAMACHANDRAN
• Assessee Lawyers: RAHUL K HAKANI
• Keywords: Opportunity of being heard; Principle of natural justice; Earning of tax free income; Question of law; Tax effect; Commercial expediency
• Section: 143(3); 14A

Judgement Text

A IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO.411 /MUM/2013 ( / ASSESSMENT YEAR : 2008-08) ANSH MERCHANDISE PRIVATE LIMITED, 11, 2 ND FLOOR, 84, APPOLLO HOUSE, BOMBAY SAMACHAR MARG, FORT, MUMBAI-400 023 / V. DCIT 5(2), AAYAKAR BHAVAN, MUMBAI 400 020. ./ PAN : AABCN8176E ( / APPELLANT ) .. ( / RESPONDENT ) ./ I.T.A. NO. 398/MUM/2013 ( / ASSESSMENT YEAR : 2009-10) ANSH MERCHANDISE PRIVATE LIMITED, 11, 2 ND FLOOR, 84, APPOLLO HOUSE, BOMBAY SAMACHAR MARG, FORT, MUMBAI-400 023 / V. ADDL. CIT 5(2), AAYAKAR BHAVAN, MUMBAI 400 020. ./ PAN : AABCN8176E ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY SHRI RAHUL K.HAKANI REVENUE BY : SHRI A. RAMACHANDRAN / DATE OF HEARING : 23-6-2016 / DATE OF PRONOUNCEMENT : 19-09-2016 ITA 411 /MUM/2013 & 398/MUM/2013 2 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER THESE TWO APPEAL, FILED BY THE ASSESSEE COMPANY, B EING ITA NO. 411/MUM/2013 AND ITA NO. 398/MUM/2013, ARE DIRECTED AGAINST TWO SEPARATE APPELLATE ORDERS DATED 09 TH OCTOBER, 2012 AND 11 TH SEPTEMBER 2012 RESPECTIVELY PASSED BY LEARNED COMMISSIONER OF INCO ME TAX (APPEALS)- 9, MUMBAI (HEREINAFTER CALLED THE CIT(A)), FOR THE A SSESSMENT YEARS 2008-09 AND 2009-10 RESPECTIVELY, THE APPELLATE PROCEEDINGS BEFORE THE LEARNED CIT(A) ARISING FROM THE SEPARATE ASSESSMENT ORDERS DATED 2 2 ND DECEMBER, 2010 AND 30 TH DECEMBER 2011 RESPECTIVELY BOTH PASSED BY THE LEAR NED ASSESSING OFFICER (HEREINAFTER CALLED THE AO) U/S 143(3) OF THE INC OME TAX ACT,1961 (HEREINAFTER CALLED THE ACT). 2. FIRST WE SHALL TAKE APPEAL FOR ASSESSMENT YEAR 2 008-09 VIDE ITA NO. 411/MUM/2013 . THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE COMPANY IN THE MEMO OF APPEAL FILED WITH THE INCOME TAX APPELL ATE TRIBUNAL, MUMBAI (HEREINAFTER CALLED THE TRIBUNAL) READ AS UNDER:- 1. THE LEARNED COMMISSIONER OF INCOME TAX(APPEAL) HAD ERRED BY UPHOLDING THE WRONG ACTION OF LEARNED ASSESSING OFFI CER WRONGLY CALCULATING LOSS AMOUNTING TO RS. 3,83,03,181/- FROM SALE OF PLYWOOD /FURNITURE INSTEAD OF PROFIT EARNED BY APPELLANT COMPA NY AMOUNTING TO RS. 9,213/-. 2. THE LEARNED COMMISSIONER OF INCOME TAX(APPEAL) H AD AGAIN ERRED BY APPROVING THE INCORRECT ACTION OF LEARNED ASSESSING O FFICER OF DISALLOWING THE LEGITIMATE REBATE AND CLAIM AMOUNTING TO RS.18679300 /-. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS ENGAGED IN THE BUSINESS OF TRADING OF VARIOUS GOODS AND COMMODITIE S. IT WAS OBSERVED BY THE AO FROM THE SCHEDULES GIVING DETAILS OF PURCHASES A ND SALES THAT IN RESPECT OF ITA 411 /MUM/2013 & 398/MUM/2013 3 SALE OF PLYWOOD/FURNITURE, THE ASSESSEE HAD INCURRE D LOSS OF RS.3,71,01,964/. THE FIGURES FOR SALE/PURCHASE AS PER RETURN OF INCO ME FILED BY THE ASSESSEE ARE AS UNDER: PLYWOOD/FURNITURE SALE : RS.3,71,01,964/- LESS: PURCHASE : RS. 9,09,78,075/- ------------------------ : RS.5,38,76,111/- LESS: CLOSING STOCK : RS.1,55,72,930/- ------------------------ LOSS: : RS.3,83,03,181/- ------------------------- IT WAS OBSERVED BY THE AO THAT IN THESE TRANSACTION S FOR PURCHASE/SALE OF PLYWOOD/FURNITURE, THE ASSESSEE HAS NOT TAKEN PHYSI CAL DELIVERY OF GOODS BUT THE DELIVERY WAS DIRECTLY GIVEN TO THE ASSESSEES B UYER AND THE TRANSACTION WAS ROUTED THROUGH THE ASSESSEE BY WHICH THE ASSESS EE WAS RECEIVING PURCHASE BILL FROM THE SUPPLIER AND WAS SUBSEQUENTL Y RAISING SALES BILL ON THE BUYER. THUS, THE ASSESSEE WAS LIABLE ONLY TO THE EX TENT OF COMMISSION OR DIFFERENCE IN PRICE OF MATERIAL , THE ASSESSEE WAS ASKED TO EXPLAIN THAT HOW LOSSES WERE INCURRED BY THE ASSESSEE. THE ASSESSEE IN RESPONSE FAILED TO GIVE JUSTIFICATI ON FOR SAID LOSS CLAIMED BY IT OR PRODUCE ANY DOCUMENTARY EVIDENCE TO SHOW THAT HO W LOSS IS ATTRIBUTABLE TO THE ASSESSEE. THE AO OBSERVED THAT THE ASSESSEE IS ACTING ONLY AS AN CONDUIT/AGENT OF THE PARTIES CONCERNED AND BOOK PUR CHASE ONLY AGAINST FINDING OF SUITABLE BUYER. THUS, THE ASSESSEE IS EN TITLED TO THE EXTENT OF DIFFERENCE IN PRICE WHICH AMOUNTS TO COMMISSION FOR ARRANGING THE ITA 411 /MUM/2013 & 398/MUM/2013 4 TRANSACTION. THUS, THE AO HELD THAT THE LOSS SHOWN BY THE ASSESSEE IS NOT A REAL LOSS ATTRIBUTABLE TO THE ASSESSEE AND THE SAME WAS DISALLOWED BY THE AO VIDE ASSESSMENT ORDER DATED 22-12-2010 PASSED BY TH E AO U/S. 143(3) OF THE ACT. SECONDLY, IT WAS NOTED BY THE AO FROM THE PROFIT AN D LOSS ACCOUNT THAT THE ASSESSEE HAS CLAIMED REBATE OF RS.1,86,79,300/-. TH E ASSESSEE WAS ASKED TO EXPLAIN THE SAME AND JUSTIFY THE ALLOWABILITY OF CL AIM. THE ASSESSEE SUBMITTED THAT M/S PREMIUM PAPER AND BOARD INDUSTRIES LIMITED HAS PURCHASED GOODS FROM THE ASSESSEE IN VARIOUS LOTS. WHEN THE GOODS W ERE USED BY THE SAID BUYER, IT WAS FOUND THAT THE GOODS WERE NOT IN GOOD CONDITION AND HENCE THE CLAIM WAS LODGED BY THE SAID BUYER FOR REBATE. THE ASSESSEE SUBMITTED THAT IT SURVEYED AND VERIFIED THE GOODS SUPPLIED BY THE ASS ESSEE AND FOUND VARIOUS DEFICIENCIES IN GOODS AT THE END OF THE ASSESSEE. T HE DEFECTS NOTICED BY THE ASSESSEE WERE AS UNDER: 1. THE GOODS WERE NOT PROPERLY STORED IN GODOWNS AND W ERE SOAKED ON WATER AND GOT MOISTURE IN MANY LOTS. 2. GSM VARIETIES WERE FOUND IN SOME LOTS OF PAPER. 3. SHINING/BRIGHTNESS GOT REDUCED AFTER MOISTURE OF PA PER AND BECAME LOWER AND INFERIOR QUALITY MATERIAL. 4. THERE WAS SOME DEFECTIVE LOT OF PAPER AND BOARDS. THUS, IT WAS OBSERVED THAT THE PRODUCT WAS NOT IN A POSITION TO BE SOLD IN THE OPEN MARKET AS FRESH AND HENCE THE ASSESSEE HAD TO ALLOW CREDIT OF RS.1,86,79,300/- TO M/S. PREMIUM PAPER AND BOARD IN DUSTRIES LIMITED WHICH IS ONE OF THE LARGEST AND REPUTED PAPER AND BOARD D EALERS OF THE COUNTRY. THE ASSESSEE SUBMITTED DEBIT NOTE SUPPLIED BY M/S P REMIUM PAPER AND BOARD INDUSTRIES LIMITED ON THE ASSESSEE, WHEREIN T HE ACCOUNT OF THE ITA 411 /MUM/2013 & 398/MUM/2013 5 ASSESSEE WAS DEBITED TOWARDS INFERIOR QUALITY OF MA TERIAL SUPPLIED BY THE ASSESSEE AS ALSO CREDIT NOTES WERE SUBMITTED BY THE ASSESSEE WHEREIN THE ASSESSEE HAS CREDITED THE ACCOUNT OF THE SAID PARTY M/S PREMIUM PAPER AND BOARD INDUSTRIES LIMITED TOWARDS INFERIOR QUALITY O F MATERIAL SUPPLIED BY THE ASSESSEE TO THE SAID PARTY. THE AO OBSERVED THAT THE ASSESSEE HAS NOT TAKEN DEL IVERIES OF THESE GOODS AND IN CASE IF THE ASSESSEES SUPPLIER HAS SUPPLIED DEFECTIVE MATERIAL, THE ASSESSEE SHOULD RAISE DEBIT NOTES IN THEIR FAVOUR S INCE REAL TRANSACTION OF PURCHASE AND SALE OF GOODS IS BETWEEN THE ASSESSEE S SUPPLIERS AND THE PURCHASER M/S PREMIUM PAPER AND BOARD INDUSTRIES LI MITED AND THE ASSESSEE IS ONLY ACTING AS CONDUIT AND THUS NOT RES PONSIBLE FOR THE DEFECTIVE MATERIAL SUPPLIED BY THE SUPPLIERS AND HENCE THE LO SS SUFFERED CANNOT BE ATTRIBUTED TO THE ASSESSEE AND HENCE THE ASSESSEES CLAIM OF REBATE AND CLAIM OF RS.1,86,79,300/- WAS DISALLOWED BY THE AO AND AD DED TO THE INCOME OF THE ASSESSEE VIDE ASSESSMENT ORDER DATED 22.12.2010 PAS SED BY THE AO U/S 143(3) OF THE ACT. 4.AGGRIEVED BY THE ASSESSMENT ORDER DATED 22.12.201 0 PASSED BY THE AO U/S. 143(3) OF THE ACT, THE ASSESSEE FILED FIRST APPEAL WITH THE LEARNED CIT(A) . 5. THE ASSESSEE SUBMITTED BEFORE THE LEARNED CIT(A) TH AT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING IN VARIOUS GOODS AND COMMODITIES AS ALSO IN INVESTING AS WELL AS TRADING IN SHARES. IT WAS SUBMITTED THAT THE AUDITORS OF THE ASSESSEE COMPANY INADVERTENTLY OVERLAPPED SOME OF THE TRADED ITEMS IN THE AUDITED BALANCE SHEETS GROUPING AND SCHEDULE . THE ASSESSEE SUBMITTED THAT THE ACTUAL PROFIT WAS RS.9,213/- FROM TRADED ITEMS OF PLYWOOD AND FURNITU RE INSTEAD OF LOSS OF RS.3,83,03,181/- MISTAKENLY DETERMINED BY THE AO. ITA 411 /MUM/2013 & 398/MUM/2013 6 IT WAS SUBMITTED THAT PURCHASE OF PLYWOOD/FURNITURE WAS RS.5,20,96,701/- INSTEAD OF RS.9,09,78,075/- AS INA DVERTENTLY CONSIDERED BY THE AO WHILE ASSESSING THE CASE OF THE ASSESSEE. THE RECONCILIATION AND OTHER DETAILS WERE SUBMITTED BEFORE THE AO BUT HE M ISTAKENLY OVERLOOKED THE SAME , WAS THE SUBMISSION OF THE ASSESSEE BEFOR E LEARNED CIT(A). THE ASSESSEE SUBMITTED BEFORE LEARNED CIT(A) THAT THE A O NEVER ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE BEFORE MAKING THIS INC ORRECT AND UNJUSTIFIED HUGE ADDITIONS. IT WAS SUBMITTED BY THE ASSESSEE TH AT THE AO NEVER MADE ANY ENQUIRIES WITH THE SUPPLIERS OF THE ASSESSEE U/ S. 131/133(6) OF THE ACT. WITH RESPECT TO THE SECOND ISSUE WITH RESPECT TO NO N ALLOWABILITY OF REBATE AND CLAIM OF RS.1,86,79,300/- , IT WAS SUBMITTED BY THE ASSESSEE BEFORE LEARNED CIT(A) THAT THE ASSESSEE SUPPLIED THE GOODS I.E. PAPER AND BOARDS TO ITS CUSTOMERS IN VARIOUS LOTS. THE GOODS WERE FO UND BY THE CUSTOMERS TO BE NOT IN GOOD CONDITION HENCE THEY LODGED CLAIM WI TH THE ASSESSEE FOR REBATE. WHEN THE ASSESSEE SURVEYED AND VERIFIED THE GOODS, SEVERAL DEFICIENCIES WERE FOUND IN THE GOODS AT THE END OF THE ASSESSEE WHICH ARE SET OUT ABOVE IN PRECEDING PARAS OF THIS ORDER AND NOT REPEATED HERE. THE ASSESSEE SUBMITTED THAT THE FINDING OF THE AO THAT THE ASSESSEE IS CONDUIT OF PURCHASER IS BASELESS AND THE LOSS IS GENUINELY INCURRED BY THE ASSESSEE. THE AO DID NOT ISSUE ANY SHOW CAUSE TO TH E ASSESSEE BEFORE MAKING HEAVY AND UNJUSTIFIED ADDITIONS. THE SUBMISS IONS MADE BY THE ASSESSEE WERE IGNORED AND OVERLOOKED MISTAKENLY BY THE AO WHILE SENDING REMAND REPORT TO THE LEARNED CIT(A), WAS THE SUBMI SSION OF THE ASSESSEE BEFORE LEARNED CIT(A). IT WAS SUBMITTED THAT THE AS SESSEE DEALT WITHIN SEVERAL PRODUCTS SUCH AS PLYWOOD, FURNITURE , CEMEN T, GLASSES, PAPER ETC AND THE AUDITOR OF THE ASSESSEE OVERLAPPED CERTAIN TRADED ITEMS IN THE AUDITED BALANCE SHEETS GROUPING/SCHEDULES. IT WAS SUBMITTED THAT THE ITA 411 /MUM/2013 & 398/MUM/2013 7 LOSS DETERMINED BY THE AO FROM PLYWOOD/FURNITURE WA S MISTAKENLY DETERMINED AT RS.3,83,03,181/- INSTEAD OF PROFIT OF RS.9,213/- BOTH DURING ASSESSMENT AS WELL AT THE TIME OF SENDING REMAND RE PORT TO LEARNED CIT(A). DURING REMAND REPORT PROCEEDINGS, IT WAS SUBMITTED THAT COMPLETE DETAILS OF PURCHASE , SALE AND RECONCILIATION STATEMENT WAS SUBMITTED BY THE ASSESSEE TO THE AO BUT THE AO MISTAKENLY OVERLOOKE D TO CONSIDER THE VITAL DETAILS IN THE SAME. IT WAS SUBMITTED THAT PURCHASE S BEING FACTUAL MATTER ARE RECORDED IN THE BOOKS OF ACCOUNTS WHICH NO BODY CAN ALTER THE SAME AND THE SAME CAN BE VERIFIED. THE LEARNED AO IN REMAND REPORT SUBMITTED TO LEARNE D CIT(A) REITERATED ITS FINDINGS AS WERE IN THE ASSESSMENT ORDER AND ALSO O BSERVED THAT THE ASSESSEE IS NOW TAKING THE PLEA OF OVERLAPPING/REGR OUPING DONE BY THE AUDITORS WHICH WAS INCORRECT IN ORIGINAL AUDIT REPO RT. THE RECTIFIED PAGE OF AUDIT REPORT SUBMITTED NOW BY THE ASSESSEE VITIATES THE AUTHENTICITY OF ORIGINAL AUDIT REPORT AND HENCE THE AO STATED IN RE MAND REPORT THAT THE AO HAS CORRECTLY PASSED THE ASSESSMENT ORDER AND T HE EVIDENCES NOW SUBMITTED BE REJECTED AND THE APPEAL BE DECIDED ON MERITS. THE REMAND REPORT WAS CONFRONTED TO THE ASSESSEE WHEREIN THE A SSESSEE SUBMITTED THAT THE AUDITORS HAVE OVERLAPPED SOME OF THE TRADED ITE MS IN THE AUDITED BALANCE SHEETS SCHEDULE AND INFACT PURCHASE OF PLYW OOD/FURNITURE WAS RS. 5,20,96,701/- INSTEAD OF RS.9,09,78,075/- AND H ENCE IT WAS SUBMITTED THAT THE ASSESSEE SHOULD NOT SUFFER BECAUSE OF THE INACCURACIES IN THE AUDIT REPORT AND IN AUDITED BALANCE SHEET AND PROFI T AND LOSS ACCOUNT. THE LEARNED CIT(A) REJECTED THE CONTENTIONS OF THE ASSESSEE BY HOLDING THAT THE ASSESSEE IS NOW CONTENDING THAT THERE IS AN MIS TAKE IN AUDIT REPORT AND AUDITED FINANCIAL STATEMENTS. THE LEARNED CIT(A ) OBSERVED THAT THE AUDITORS HAVE NOT REVISED THE AUDITED FINANCIAL STA TEMENTS AND THE AUDIT REPORT , NOR THE AUDITORS HAVE ISSUED ANY CLARIFICA TION WITH REGARD TO ANY ITA 411 /MUM/2013 & 398/MUM/2013 8 ERRORS IN THE AUDITED FINAL ACCOUNTS. THE ASSESSEE COULD NOT CONTRADICT THAT IT IS ONLY ACTING AS CONDUIT /AGENT OF PARTIES CONCERNED AND BOOK PURCHASES ONLY AGAINST FINDING A SUITABLE BUYER. TH US, THE LOSSES BELONGS TO PRINCIPALS AND NO EVIDENCE IS ON RECORD THAT AUD IT REPORT AND FINAL ACCOUNTS SIGNED BY THE ASSESSEES DIRECTORS AND THE AUDITORS ARE ERRONEOUS, WHOLLY OR PARTLY. THUS, THE LEARNED CIT( A) CONFIRMED THE DISALLOWANCE OF RS.3,83,03,181/- TOWARDS LOSS CLAIM ED BY THE ASSESSEE ON TRADING OF PLYWOOD/FURNITURE VIDE APPELLATE ORDER D ATED 09-10-2012 PASSED BY LEARNED CIT(A). WITH RESPECT TO SECOND DISALLOWANCE OF CLAIM OF RS. 1,86,79,300/- TOWARDS DEFECTIVE MATERIAL, IT WAS OBSERVED BY LEARNED CIT( A) THAT THE ASSESSEE HAS NOT BROUGHT ON RECORD ANY MATERIAL OR EVIDENCE TO P ROVE THAT THE ASSESSEE WAS RESPONSIBLE FOR ANY DEFECT IN THE MATERIAL SUPP LIED BY THE SUPPLIER TO THE END USERS. NO COPY OF COMMISSION AGREEMENT NOR THE TERMS AND CONDITIONS OF PURCHASE MADE BY THE ASSESSEE AND SAL ES MADE BY THE ASSESSEE HAVE BEEN BROUGHT ON RECORD BEFORE LEARNE D CIT(A). THUS, VIDE APPELLATE ORDER DATED 09-10-2012 PASSED BY LEARNED CIT(A), THE ASSESSEE CLAIM OF RS.1,86,79,300/- TOWARDS REBATE FOR DEFECT IVE MATERIAL WAS REJECTED BY LEARNED CIT(A). 6. AGGRIEVED BY THE APPELLATE ORDERS DATED 09-10-2012 PASSED BY LEARNED CIT(A), THE ASSESSEE FILED SECOND APPEAL WITH THE T RIBUNAL. 7. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS AS WERE MADE BEFORE THE AUTHORITIES BELOW AND SUBMITTED THA T THERE WAS A MISTAKE WHICH OCCURRED BY THE AUDITORS IN GROUPING/SCHEDULE WITH RESPECT TO REFLECTING PURCHASE OF PLYWOOD/FURNITURE WHERE IN C ORRECT FIGURE OF PURCHASE IS RS.5,20,96,701/- INSTEAD OF RS.9,09,78, 075/- WHICH IS REFLECTED IN AUDITED FINANCIAL STATEMENTS WHICH WAS POINTED OUT TO THE ITA 411 /MUM/2013 & 398/MUM/2013 9 AUTHORITIES BELOW AND HENCE INSTEAD OF LOSS OF RS.3 ,83,03,181/- AS CLAIMED IN RETURN OF INCOME FILED WITH THE REVENUE ON TRADI NG OF PLYWOOD/FURNITURE, THE ASSESSEE EARNED PROFIT OF RS.9,213/- . THE LEAR NED COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO THE ORDERS OF LEARNE D CIT(A) PAGE 6/PARA 5.2 WHEREIN IT IS STATED THAT AS PER AUDITED BALANC E SHEET AS AT 31-03- 2008, THE ASSESSEE EARNED PROFIT OF RS.9,213/- INST EAD OF LOSS OF RS.3,83,03,181/- WHILE AS PER SCHEDULES OF PURCHASE AND SALES , THE AO NOTED THAT THE ASSESSEE INCURRED LOSS OF RS.3,83,03 ,181/- IN THE BUSINESS OF PLYWOOD/FURNITURE. THE LEARNED COUNSEL FOR THE A SSESSEE DREW OUR ATTENTION TO PAGE 36-39/PAPER BOOK WHEREIN ATTENTIO N WAS DRAWN OF THE AUTHORITIES BELOW TO THE ERROR WHICH CREPT IN THE F IGURES OF PURCHASE DUE TO INADVERTENT MISTAKE OF THE AUDITORS. THE LEARNED CO UNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO THE STATEMENT OF FACT FILED B EFORE LEARNED CIT(A) WHICH IS PLACED IN THE FILE TO REITERATE ITS SUBMIS SIONS. IT WAS SUBMITTED THAT GREAT PREJUDICE HAS BEEN CAUSED TO THE ASSESSE E DUE TO ERROR COMMITTED BY THE AUDITORS AND THE AUTHORITIES BELOW HAVE NOT CONSIDERED THE SUBMISSIONS OF THE ASSESSEE IN RIGHT PERSPECTIV E AND IT WAS SUBMITTED THAT THE ISSUE MAY BE SET ASIDE TO THE FILE OF AO W HO MAY BE DIRECTED TO RE- VERIFY THE LOSSES INCURRED BY THE ASSESSEE OF RS.3. 83 CRORES. THE LD DR ON THE OTHER HAND RELIED ON THE ORDERS OF THE LEARNED CIT(A). SIMILARLY, WITH RESPECT TO SECOND ISSUE , THE ASSES SEES COUNSEL REITERATED THE SUBMISSIONS AS WERE MADE BEFORE THE AUTHORITIES BELOW AND SUBMITTED THAT THE MATTER BE SET ASIDE TO FILE OF THE AO FOR RE-EXAMINATION/ RE- VERIFICATION OF THE ISSUE AND THE AUTHORITIES BELOW REJECTED THE CONTENTIONS OF THE ASSESSEE WITHOUT ANY VERIFICATIONS, ENQUIRY AND EXAMINATION. THE LD DR RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. 8. WE HAVE CONSIDERED THE RIVAL CONSIDERATION AND PERU SED THE MATERIAL ON RECORD. WE HAVE OBSERVED THAT IT IS STATED BY THE A SSESSEE THAT DUE TO ITA 411 /MUM/2013 & 398/MUM/2013 10 ERROR/MISTAKE COMMITTED BY THE AUDITORS , THE FIGUR ES OF PURCHASE WAS MISREPORTED IN THE SCHEDULES/ GROUPINGS WHICH LED T O THE CLAIM OF LOSS OF RS.3,83,03,181/- AS AGAINST PROFIT OF RS.9,213/- AS PER AUDITED BALANCE SHEET, WHEREIN PURCHASES OF PLYWOOD/FURNITURE WAS MISTAKENLY REPORTED BY AUDITORS IN SCHEDULE/GROUPING AT RS. 9,09,78,075 /- INSTEAD OF RS. 5,20,96,701/- AND SINCE THE AUTHORITIES BELOW REJEC TED THE CONTENTIONS OF THE ASSESSEE . IN OUR CONSIDERED VIEW IN THE INTER EST OF JUSTICE AND FAIR PLAY, THE ISSUE NEEDS TO BE SET ASIDE AND RESTORED TO THE FILE OF THE AO FOR RE-VERIFICATION AND DE-NOVO DETERMINATION OF THE IS SUE ON MERITS AFTER ENQUIRY, EXAMINATION AND VERIFICATION AS MAY BE CON SIDERED APPROPRIATE BY THE AO. THE AO SHALL EXAMINE THE MATTER COMPREHENSI VELY INCLUDING IMPLICATION OF CONTENTION OF THE ASSESSEE THAT THE PURCHASE WERE SHOWN AT HIGHER FIGURE OF RS.9,09,78,075/- DUE TO INADVERTEN T MISTAKE INSTEAD OF ACTUAL PURCHASES BEING OF RS.5,20,96,701/- , AND IT S IMPLICATION THEREOF ON THE TAXABILITY OF THE DIFFERENTIAL AMOUNT AS NOW TH E EXPENDITURE STOOD REDUCED BY THE AMOUNT OF RS.3,88,81,374/- DUE TO WI THDRAWAL OF CLAIM OF INFLATED PURCHASES , AS TO THAT EXTENT THE TOTAL TA XABLE INCOME WILL STOOD INCREASED .THE ASSESSEE IS DIRECTED TO APPEAR BEFOR E THE AO AND PRODUCE ALL RELEVANT AND NECESSARY EVIDENCES IN SUPPORT OF ITS CONTENTIONS IN ITS DEFENSE WHICH SHALL BE ADMITTED BY THE AO AND ADJUD ICATED ON MERITS IN ACCORDANCE WITH LAW. NEEDLESS TO SAY PROPER AND ADE QUATE OPPORTUNITY OF BEING HEARD SHALL BE PROVIDED BY THE AO TO THE ASSE SSEE IN ACCORDANCE WITH PRINCIPLES OF NATURAL JUSTICE IN ACCORDANCE WI TH LAW. WE ORDER ACCORDINGLY. WITH RESPECT TO SECOND ISSUE OF DISALLOWANCE OF CLA IM OF REBATE OF RS.1,86,79,300/- BY THE AUTHORITIES BELOW ON ACCOUN T OF DEFECTIVE MATERIAL SUPPLIED BY THE ASSESSEE TO ITS CUSTOMER, WE AFTER CONSIDERING THE RIVAL CONTENTIONS AND PERUSING THE MATERIAL ON RECORD ARE AGAIN OF CONSIDERED VIEW KEEPING IN VIEW FACTS AND CIRCUMSTANCES OF THE CASE, THAT THIS MATTER ITA 411 /MUM/2013 & 398/MUM/2013 11 ALSO NEED TO BE SET ASIDE AND RESTORED TO THE FILE OF THE AO FOR DE-NOVO DETERMINATION OF THE ISSUE ON MERITS AFTER EXAMINAT ION, ENQUIRY AND VERIFICATION BY THE AO AS MAY BE CONSIDERED APPROPR IATE BY THE AO TO DETERMINING THE GENUINENESS OF THE CLAIM AND ALSO Q UANTIFICATION OF THE LOSS ALLOCABLE TO THE ASSESSEE FOR DEFECTIVE MATERI AL SUPPLIED BY THE ASSESSEE TO ITS SUPPLIERS IN ACCORDANCE WITH THE TE RMS OF SUPPLIES. THE ASSESSEE IS DIRECTED TO APPEAR BEFORE THE AO AND PR ODUCE ALL RELEVANT AND NECESSARY EVIDENCES IN SUPPORT OF ITS CONTENTIONS I N ITS DEFENSE TO PROVE THE GENUINENESS OF ITS CLAIM OF REBATE FOR DEFECTIV E MATERIAL , WHICH SHALL BE ADMITTED BY THE AO AND ADJUDICATED ON MERITS IN ACC ORDANCE WITH LAW. NEEDLESS TO SAY PROPER AND ADEQUATE OPPORTUNITY OF BEING HEARD SHALL BE PROVIDED BY THE AO TO THE ASSESSEE IN ACCORDANCE WI TH PRINCIPLES OF NATURAL JUSTICE IN ACCORDANCE WITH LAW. WE ORDER AC CORDINGLY. 9. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IN ITA NO. 411/MUM/2012 IS ALLOWED FOR STATISTICAL PURPOSES. 10. NOW, WE SHALL TAKE APPEAL FOR ASSESSMENT YEAR 2009- 10 VIDE ITA NO. 398/MUM/2013 . THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE COMPANY IN THE MEMO OF APPEAL FILED WITH THE INCOME TAX APP ELLATE TRIBUNAL, MUMBAI (HEREINAFTER CALLED THE TRIBUNAL) READ AS UNDER:- FOLLOWING ARE THE GROUNDS OF APPEAL WITHOUT PREJU DICE TO ONE ANOTHER: 1. THE LEARNED COMMISSIONER OF INCOME TAX(APPEAL) HAD ERRED BY APPROVING THE WRONG ACTION TAKEN BY LEARNED ASSESSI NG OFFICER OF APPLYING WRONGLY THE RULE 8D PURSUANT TO THE PROVIS IONS OF SECTION 14A TO THE ASSESSEE COMPANY WHO IS ENGAGED IN THE B USINESS OF TRADING IN COMMODITIES AND INVESTMENT IN EQUITY SH ARES. 2. THE LEARNED COMMISSIONER OF INCOME TAX(APPEAL) HAS AGAIN ERRED BY APPROVING THE UNFAIR AND UNREASONABLE STAND TAKEN B Y LEARNED ASSESSING OF CONSIDERING GENUINE SHORT TERM CAPITAL LOSS ON SALE OF ITA 411 /MUM/2013 & 398/MUM/2013 12 LAND AT HASTEDA (RAJASTHAN) AMOUNTING TO RS.1142742 0/- AS SHAM TRANSACTION. 11. ON VERIFICATION OF AUDITED ACCOUNTS AND THE COMPUTA TION OF INCOME STATEMENT FILED ALONG WITH THE RETURN OF INCOME BY THE ASSESSEE, IT WAS OBSERVED BY THE AO THAT AVERAGE INVESTMENT MADE IN SHARES AND MUTUAL FUNDS WERE RS.11,72,73,815/- . THE ASSESSEE HAD EAR NED DIVIDEND INCOME OF RS.79,975/- WHICH WAS CLAIMED AS EXEMPT INCOME U /S. 10(34) OF THE ACT. IT WAS OBSERVED BY THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS U/S. 143(3) READ WITH SECTION 143(2) OF THE ACT UPON EXAMINATION OF THE ASSESSEES ACCOUNTS THAT IT IS N OT POSSIBLE TO PINPOINT THE EXPENSES RELATED TO VARIOUS HEADS OF INCOME INC LUDING EXEMPT INCOME. ALL THE EXPENSES WERE INCURRED OUT OF COMMON POOL F UNDS AS WELL AS THE ASSESSEE HAS MAINTAINED COMPOSITE BOOKS OF ACCOUNTS FOR TAXABLE AS WELL EXEMPT INCOME. THE ASSESSEE PAID INTEREST OF RS. 5, 03,805/- AND THE ASSESSEE WAS ASKED TO GIVE COMPUTATION OF DISALLOWA NCE U/S 14A OF THE ACT READ WITH RULE 8D OF INCOME TAX RULES, 1962. THE AS SESSSEE SUBMITTED THE DETAILS WHICH WORKED OUT TO DISALLOWANCE OF RS. NIL U/R 8D(2)(I), RS.66,358/- U/R 8D(2)(II) AND RS. 5,86,369/- U/R 8D (2)(III) OF INCOME TAX RULES, 1962, AGGREGATING TO DISALLOWANCE OF RS. 6,5 2,727/- U/S 14A OF THE ACT READ WITH RULE 8D OF INCOME TAX RULES, 1962, WH ICH WAS IN-FACT DISALLOWED BY THE AO VIDE ASSESSMENT ORDER DATED 30 -12-2011 PASSED U/S 143(3) OF THE ACT. 12. AGGRIEVED BY THE ASSESSMENT ORDER DATED 30-12-2011 PASSED BY THE AO U/S. 143(3) OF THE ACT, THE ASSESSEE FILED FIRST AP PEAL BEFORE LEARNED CIT(A). 13. BEFORE THE LEARNED CIT(A), THE ASSESSEE CONTENDED T HAT THE ASSESSEE NEVER BOUGHT THE SHARES WITH MOTIVE OF EARNING DIVI DEND INCOME WHICH IS AN EXEMPT INCOME. THE ASSESSEE SUBMITTED THAT IN FE W CASE IT GOT THE ITA 411 /MUM/2013 & 398/MUM/2013 13 DIVIDEND WHICH DOES NOT MEAN THAT THE DIVIDEND EARN ING WAS THE MOTIVE OF THE ASSESSEE. THE ASSESSEE SUBMITTED THAT NO PROXIM ITY IS ESTABLISHED BETWEEN THE EXPENDITURE INCURRED AND THE INCOME NOT FORMING PART OF THE TOTAL INCOME. THE ASSESSEE RELIED UPON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE MANUFACT URING COMPANY LIMITED V. DCIT (2010) 328 ITR 81(BOM.) AND YATISH TRADING COMPANY PRIVATE LIMITED V. ACIT (2011) 129 ITD 237(MUM.TRIB .). THE LEARNED CIT(A) REJECTED THE CONTENTIONS OF THE ASSESSEE AS IN THE OPINION OF LEARNED CIT(A) THE ASSESSEE IS NOT ABLE TO SHOW BY PRODUCTION OF MATERIAL THAT THE SHARES WERE ACQUIRED FROM THE OWN ED FUNDS AVAILABLE AT THE ASSESSEES HAND AT RELEVANT POINT OF TIME WITH TAKING BENEFIT OF LOANS BEARING INTEREST.THE ASSESSEE WAS NOT ABLE TO GIVE ANY DETAILS TO WORK OUT THE DIRECT NEXUS OF THE INTEREST EXPENDITURE RELATE D TO THE EXEMPTED INCOME WHICH WAS NOT INCLUDED IN THE TOTAL TAXABLE INCOME. THE ASSESSEES PRESENT CASE IS COVERED BY PROVISIONS OF SECTION 14 A(3) OF THE ACT BECAUSE THE ASSESSEE HAS CLAIMED THAT THE NO EXPENDITURE WA S INCURRED BY THE ASSESSEE IN RELATION TO THE EXEMPTED INCOME WHICH D ID NOT FORM PART OF THE TOTAL INCOME. IT WAS ALSO OBSERVED BY LEARNED CIT(A ) THAT THE ASSESSEE CASE IS ALSO COVERED BY SECTION 14A(2) OF THE ACT AS THE AO WAS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE I N RESPECT OF SUCH EXPENDITURE INCURRED IN RELATION TO EARNING OF INCO ME WHICH DOES NOT FORM PART OF THE TAXABLE INCOME. THE LEARNED CIT(A) RELI ED UPON THE DECISION OF SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF DAGA C APITAL MANAGEMENT REPORTED IN (2008) 26 SOT 603(MUM.) AND HELD THAT I T IS THE VALUE OF INVESTMENT THAT IS TO BE CONSIDERED WHILE CALCULATI NG DISALLOWANCE U/R 8D(2)(II) OF INCOME TAX RULES, 1962 AND NOT THE SHA RES HELD AS AN INVESTMENT. THEREFORE, IT WAS HELD THAT THE SHARES HELD AS STOCK IN TRADE SHALL ALSO BE CONSIDERED FOR PURPOSES OF DISALLOWAN CE. THUS, THE LEARNED CIT(A) CONFIRMED THE DISALLOWANCE OF RS.6,52,727/- MADE BY THE AO U/S ITA 411 /MUM/2013 & 398/MUM/2013 14 14A OF THE ACT READ WITH RULE 8D OF INCOME TAX RULE S, 1962, VIDE APPELLATE ORDER DATED 11.09.2012 PASSED BY LEARNED CIT(A). 14. AGGRIEVED BY THE APPELLATE ORDER DATED 11.09.2012 P ASSED BY LEARNED CIT(A), THE ASSESSEE FILED SECOND APPEAL WITH THE T RIBUNAL. 15. BEFORE THE TRIBUNAL, THE LEARNED COUNSEL FOR THE AS SESSEE CONTENDED THAT THE ASSESSE EARNED DIVIDEND INCOME OF RS.79,97 5/- DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR AND T HE DISALLOWANCE U/S 14A OF THE ACT READ WITH RULE 8D OF THE ACT CANNOT EXCEED DIVIDEND INCOME EARNED BY THE ASSESSEE, WHILE THE AO DISALLOWED THE AMOUNT OF RS. 6,52,727/- WHILE APPLYING SECTION 14A OF THE ACT RE AD WITH RULE 8D OF INCOME TAX RULES, 1962. THE ASSESSEE RELIED ON DECI SION OF MUMBAI TRIBUNAL IN THE CASE OF SYLVEX CABLES COMPANY PRIVA TE LIMITED V. DCIT IN ITA NO 8581/MUM/2011 AS WELL ON DECISION OF PR. CIT V. EMPIRE PACKAGING PRIVATE LIMITED AND DECISION OF HONBLE D ELHI HIGH COURT IN THE CASE OF JOINT INVESTMENT PRIVATE LIMITED V. CIT (20 15) 372 ITR 694(DEL HC) TO CONTEND THAT THE DISALLOWANCE U/S. 14A OF THE AC T CANNOT EXCEED THE DIVIDEND INCOME EARNED BY THE ASSESSEE. THE LD DR R ELIED UPON THE ORDERS OF LEARNED CIT(A). 16. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD INCLUDING CASE LAWS RELIED UPON, WE HAVE OBSERVED T HAT THE ASSESSEE HAS EARNED DIVIDEND INCOME OF RS.79,975/- WHICH WAS CLA IMED EXEMPT U/S. 10(34) OF THE ACT. THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE IN RELATION TO EARNING OF INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME AS PER PROVISIONS OF THE ACT. THE DISALLOWANCE OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO EARNING OF INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME AS PER PRO VISIONS OF THE ACT HAS TO BE WORKED OUT IN ACCORDANCE WITH SECTION 14A(2) OF THE ACT HAVING REGARDS ITA 411 /MUM/2013 & 398/MUM/2013 15 TO THE ACCOUNTS OF THE ASSESSEE. THE ASSESSEE HAS C LAIMED THAT NO EXPENDITURE IS INCURRED IN RELATION TO EARNING OF I NCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME OF THE ASSESSEE AS PE R PROVISIONS OF THE ACT. THE AUTHORITIES BELOW HAVE GIVEN A FINDING OF FACT THAT THE ASSESSEE HAS MAINTAINED COMPOSITE BOOKS OF ACCOUNTS AND IT IS NO T POSSIBLE TO WORK OUT THE EXPENDITURE INCURRED IN RELATION TO EARNING OF EXEMPT INCOME. THE ASSESSEE ALSO DID NOT CAME FORWARD TO PRESENT THE D ISALLOWANCE OF EXPENDITURE INCURRED IN RELATION TO EARNING OF INCO ME NOT FORMING PART OF THE TOTAL INCOME AS PER PROVISIONS OF THE ACT AND I NSTEAD CLAIMED THAT NO EXPENDITURE HAS BEEN INCURRED WHICH CAN BE DISALLOW ED U/S. 14A OF THE ACT.THUS, IN OUR CONSIDERED VIEW KEEPING IN VIEW FA CTUAL MATRIX OF THE CASE, THE AO HAS RIGHTLY INVOKED THE PROVISIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D OF INCOME TAX RULES, 1962 . HOWEV ER, WE ARE ALSO OF CONSIDERED VIEW THAT WHILE CALCULATING AVERAGE INVE STMENT HELD BY THE ASSESSEE, THE SHARES/SECURITIES HELD AS STOCK IN TR ADE CANNOT BE INCLUDED FOR COMPUTING DISALLOWANCE U/S 14A OF THE ACT READ WITH RULE 8D OF INCOME TAX RULES, 1962 FOR WHICH REFERENCE IS DRAWN TO RECENT DECISION OF MUMBAI TRIBUNAL IN THE CASE OF FIDUCIARY SHARES AND STOCK PRIVATE LIMITED V. ACIT IN (2016) 70 TAXMANN.COM 23(MUM. TR IB.) WHEREIN THE TRIBUNAL HELD AS UNDER: 4.4.1 WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PAR TIES AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RE CORD; INCLUDING THE JUDICIAL PRONOUNCEMENTS CITED AND PLACED RELIANCE U PON. THE ISSUE FOR ADJUDICATION BEFORE US IS AS TO WHETHER THE SHARES HELD BY THE ASSESSEE- COMPANY UNDER THE HEAD 'STOCK-IN-TRADE' ARE TO BE C ONSIDERED FOR MAKING DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D. AS SUB MITTED BY THE LEARNED A.R. FOR THE ASSESSEE WE FIND THAT THE HON' BLE JURISDICTIONAL COURT IN THE CASE OF INDIA ADVANTAGE SECURITIES LTD . (SUPRA) HAS HELD THAT DISALLOWANCE, IF ANY, TO BE MADE UNDER SECTION 14A R.W. RULE 8D SHOULD ITA 411 /MUM/2013 & 398/MUM/2013 16 ONLY BE MADE WITH REGARD TO INVESTMENTS AND NOT WIT H REGARD TO SHARES HELD AS STOCK-IN-TRADE. THIS DECISION OF THE HON'BL E BOMBAY HIGH COURT (SUPRA) HAS BEEN FOLLOWED BY THE COORDINATE BENCH O F THIS TRIBUNAL IN THE CASE OF DEVKANT SYNTHETICS (INDIA) (P.) LTD. (SUPRA ) WHEREIN AT PARA 12 AND 13 THEREOF IT HAS BEEN HELD AS UNDER: '12. WE HEARD THE PARTIES AND PERUSED THE RECORD. W E NOTICE THAT THE HON'BLE KARNATAKA HIGH COURT HAS HELD IN T HE CASE OF CCI LTD. (SUPRA) THAT THE SHARES HELD AS STOCK I N TRADE SHOULD BE EXCLUDED FOR THE PURPOSE OF COMPUTING DISALLOWAN CE U/S 14A OF THE ACT, SINCE THEY CANNOT BE SAID TO BE 'INVEST MENT' MADE FOR THE PURPOSE OF EARNING DIVIDEND INCOME. IN THE CASE OF INDIA ADVANTAGE SECURITIES LTD. (SUPRA), THE HON'BLE BOMB AY HIGH COURT HAS NOTICED THAT THE CIT(A) TOOK INTO ACCOUNT THE WORDS OF THE RULE AND FOUND THAT THE FIGURES AS DERIVED BY T HE ASSESSING OFFICER CANNOT BE TAKEN INTO CONSIDERATION. THE LD CIT(A) HAD OBSERVED THAT, ONE CAN AT BEST DISALLOW THE EXPENSE S WHICH ARE INCURRED FOR EARNING DIVIDEND INCOME AND FOR THAT P URPOSE, THE FIGURES UNDER THE HEAD 'INVESTMENT' COULD BE TAKEN AND SOME CHARGES APPORTIONED FOR THE PURPOSE OF COMPUTING EX PENSES. THE DECISION RENDERED BY THE TRIBUNAL IN THE CASE O F INDIA ADVANTAGE SECURITIES LTD. (SUPRA) WAS FOUND TO BE N EITHER PERVERSE NOR VITIATED BY ANY ERROR OF LAW APPARENT ON THE FACE OF RECORD BY HON'BLE BOMBAY HIGH COURT. WE FURTHER NOT ICE THAT THE DECISION RENDERED IN THE CASE OF CCI LTD (SUPRA ) HAS BEEN FOLLOWED BY THE CO-ORDINATE BENCHES OF TRIBUNAL IN THE CASE OF INDIA ADVANTAGE SECURITIES LTD (ITA NO.6711/MUM/ 2011 AND GANJAM TRADING CO. PVT LTD (SUPRA). 13. IN THE CASE OF GANJAM TRADING CO. P. LTD. (SUPR A), THE TRIBUNAL TOOK NOTE OF THE DECISION RENDERED BY THE SPECIAL ITA 411 /MUM/2013 & 398/MUM/2013 17 BENCH OF THE TRIBUNAL IN THE CASE OF ITO V. DAGA CA PITAL MANAGEMENT (P.) LTD. [2009] 117 ITD 169 (MUM.)(SB) ALSO. HOWEVER, FOLLOWING THE DECISION OF HON'BLE KARNATAK A HIGH COURT IN THE CASE OF CCI LTD. (SUPRA), THE TRIBUNAL HELD THAT THE DISALLOWANCE OF INTEREST IN RELATION TO DIVIDEND RE CEIVED FROM SHARES HELD AS STOCK-IN-TRADE CANNOT BE MADE.' 4.4.2 RESPECTFULLY FOLLOWING THE DECISIONS OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF INDIA ADVANTAGE SECURITIES LTD . (SUPRA), THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CCI LTD. (SUPRA ) AND THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF DEVKANT SYNTH ETICS (INDIA) (P.) LTD.(SUPRA), WE HOLD THAT THE DISALLOWANCE UNDER SE CTION 14A R.W. RULE 8D CANNOT BE MADE IN RESPECT OF SHARES HELD AS STOC K-IN-TRADE AND THEREFORE DIRECT THE AO TO DELETE THE DISALLOWANCE MADE UNDER SECTION 14A R.W. RULE 8D. CONSEQUENTLY, GROUND NO. 1 OF THE ASSESSEE'S APPEAL IS ALLOWED. THE PROPOSITION OF THE ASSESSEE THAT THE DISALLOWAN CE U/S 14A OF THE ACT CANNOT EXCEED DIVIDEND INCOME CAME FOR ADJUDICATION BEFORE THE MUMBAI, TRIBUNAL IN A VERY RECENT APPEAL IN THE CASE OF FOO DS AND INNS LIMITED V. ACIT (2016) 159 ITD 1007(MUM. TRIB.) , WHEREIN THE TRIBUNAL HELD AS UNDER: 3.3.1 FOR ASSESSMENT YEARS 2009-10 AND 2010-11 THE ASSESSEE HAD EARNED EXEMPT DIVIDEND INCOME OF R S. 41,126/- AND RS. 40,003/- RESPECTIVELY, BUT SUO MOTO DISALLO WED AN AMOUNT OF RS. 40,000/-AS EXPENDITURE INCURRED FOR EARNING EXEMPT INCOME ONLY IN A.Y. 2010-11. THE AO INVOKING THE PROVISION S OF SECTION 14A R.W. RULE 8D DISALLOWED RS. 18,86,195/- FOR A.Y . 2009-10 AND RS. 17,38,275/- FOR A.Y. 2010-11. ON APPEAL, THE LE ARNED CIT (A) RESTRICTED THE DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D TO RS. ITA 411 /MUM/2013 & 398/MUM/2013 18 1,07,754/- FOR A.Y. 2009-10 AND TO % OF AVERAGE IN VESTMENTS FOR A.Y. 2010-11. 3.3.2 BEFORE US, REVENUE FOR A.Y. 2009-10 AND THE ASSESS EE BY WAY OF COS FOR A.Y. 2009-10 AND 2010-11 HAVE ASSAIL ED THE ORDERS OF THE LEARNED CIT (A) IN RESPECT OF HIS FIN DING/DECISION ON THE ISSUE OF DISALLOWANCE UNDER SECTION 14A R.W. RU LE 8D. REVENUE IN A.Y. 2009-10 ASSAILS THE ORDERS OF THE LEARNED C IT (A) IN RESTRICTING THE DISALLOWANCE TO % OF THE AVERAGE I NVESTMENT FOR ADMINISTRATIVE EXPENSES. ON THE OTHER HAND, THE ASS ESSEE IN ITS COS FOR ASSESSMENT YEARS 2009-10 AND 2010-11 HAS CH ALLENGED THE IMPUGNED ORDERS OF THE LEARNED CIT (A) IN DIREC TING THE AO TO COMPUTE THE DISALLOWANCE UNDER SECTION 14A R.W. RUL E 8D @0.5% OF THE TOTAL AVERAGE INVESTMENT FOR ADMINISTRATIVE EXP ENSES WITHOUT ASSIGNING ANY REASONS, WHEN SUCH DISALLOWANCE OUGHT TO BE MADE ONLY IN RESPECT OF 0.5% OF AVERAGE INVESTMENTS YIEL DING TAX FREE INCOME. 3.3.3 WE HAVE HEARD BOTH THE LEARNED D.R. FOR REVENUE AN D THE LEARNED A.R. FOR THE ASSESSEE. IN THE COURSE OF HEA RING, THE LEARNED A.R. FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE H AD EARNED EXEMPT DIVIDEND INCOME OF RS. 41,216/- IN A.Y. 2009 -10 AND RS. 40,003/- IN A.Y. 2010-11 AND THAT WHILE THE ASSESSE E HAD CLAIMED THAT NO EXPENDITURE HAD BEEN INCURRED FOR EARNING T HIS INCOME IN A.Y. 2009-10, RS. 40,000/- WAS SHOWN TO HAVE BEEN I NCURRED FOR EARNING THE EXEMPT INCOME IN A.Y. 2010-11 IT WAS CO NTENDED THAT IN THE LIGHT OF THE DECISIONS OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF PR. CIT V. EMPIRE PACKAGE (P.) LTD. [IT APPEAL NO. 415 OF 2015, DATED 12-1-2016] AND OF THE HON'BL E PUNJ. & HAR. HIGH COURT IN THE CASE OF CIT V. DEEPAK MITTAL [2014] 361 ITR 131/[2013] 38 TAXMANN.COM 83/219 TAXMAN 314 (PUNJ. & HAR.) , ITA 411 /MUM/2013 & 398/MUM/2013 19 THE DISALLOWANCE UNDER SECTION 14A R.W. RULE 9D IN THE CASE ON HAND @ 0.5% OF INVESTMENT IN TAX FREE SECURITIES CA NNOT EXCEED THE EXEMPT INCOME AND SHOULD BE RESTRICTED ACCORDINGLY. 3.3.4 WE HAVE PERUSED THE CITED JUDGEMENTS. IN THE CASE OF EMPIRE PACKAGE (P.) LTD. (SUPRA), THE QUESTION R AISED BY REVENUE BEFORE THE HON'BLE COURT WAS: 'WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE HON'BLE ITAT IS JUSTIFIED IN LAW TO HOLD THAT THE DISALLOWA NCE MADE UNDER SECTION 14A READ WITH RULE 8D CANNOT EXCEED EXEMPT INCOME, IN THE ABSENCE OF ANY SUCH INSTRUCTION BEING THERE IN THE RELEVANT SECTION OR RULE?' THE HON'BLE HIGH COURT DISMISSED REVENUE'S APPEAL H OLDING AS UNDER AT PARAS 3 TO 5: '3. WE HAVE HEARD LEARNED COUNSEL FOR THE APPELLANT -REVENUE. 4. THE TRIBUNAL HAS ONLY REMANDED THE MATTER TO THE ASSESSING OFFICER AFTER CONSIDERING THE FACTUAL POSITION AND THE RELEVANT CASE LAW ON THE POINT. IT RELIED UPON THE DECISION RENDE RED BY THIS COURT IN CIT V. DEEPAK MITTAL, [2013] 38 TAXMANN.COM 83 (PUNJ. & HAR.) HOLDING THAT DISALLOWANCE UNDER SECTION 14A OF THE ACT REQUIRES FINDING OF INCURRING OF EXPENDITURE IN RES PECT OF EXEMPTED INCOME AND WHERE IT IS FOUND THAT FOR EARNING EXEMP TED INCOME, NO EXPENDITURE HAS BEEN INCURRED, DISALLOWANCE UNDER S ECTION 14A OF THE ACT CANNOT STAND. IN THE PRESENT CASE, WHEN THE ASSESSEE CLAIMED THAT IT HAD NOT MADE ANY EXPENDITURE ON EAR NING EXEMPT INCOME, THE ASSESSING OFFICER IN TERMS OF SUB SECTI ON (2) OF SECTION 14A OF THE ACT WAS REQUIRED TO COLLECT SUCH MATERIA L EVIDENCE TO DETERMINE EXPENDITURE IF ANY INCURRED BY THE ASSESS EE IN RELATION TO EARNING OF EXEMPT INCOME. THE INCOME FROM DIVIDE ND HAD BEEN ITA 411 /MUM/2013 & 398/MUM/2013 20 SHOWN AT RS. 1,11,564/- WHEREAS DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D OF THE RULES WORKED OUT BY THE AS SESSING OFFICER CAME TO RS. 4,09,675/-. THUS, THE ASSESSING OFFICER DISALLOWED THE ENTIRE TAX EXEMPT INCOME WHICH IS NOT PERMISSIBLE A S PER SETTLED POSITION OF LAW. CONSEQUENTLY, THE TRIBUNAL REMITTE D THE MATTER TO THE ASSESSING OFFICER WITH A DIRECTION TO DECIDE TH E SAME AFRESH IN ACCORDANCE WITH LAW AFTER AFFORDING DUE AND REASONA BLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE REL EVANT FINDING RECORDED BY THE TRIBUNAL READS THUS:- '7. IN THE INSTANT CASE, THE INCOME FROM DIVIDEND H AS BEEN SHOWN AT RS. 1,11,564/-, THE DISALLOWANCE UNDER SEC TION 14A READ WITH RULE 8 D WORKED OUT BY THE ASSESSING OFFICER COMES TO RS. 4,09,675/-. THUS, IT IS CLEAR THAT THE AO HAS DISALLOWED THE ENTIRE TAX EXEMPT INCOME WHICH IS NO T PERMISSIBLE IN VIEW OF THE JUDGMENT OF THE HON'BLE DELHI HIGH COURT REFERRED TO ABOVE. THE HON'BLE DELHI HIGH COU RT HELD THAT THE WINDOW FOR DISALLOWANCE IS INDICATED IN SE CTION 14A, AND IS ONLY TO THE EXTENT OF DISALLOWING EXPENDITUR E 'INCURRED BY THE ASSESSEE IN RELATION TO THE TAX EXEMPT INCOM E'. THE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D AS WORKED OUT BY THE ASSESSING OFFICER IS NOT IN ACCOR DANCE WITH LAW AND AS SUCH WORKING IS NOT SUSTAINABLE. 8. IN VIEW OF THE ABOVE OBSERVATIONS, I THINK IT IS APPROPRIATE TO SET ASIDE THE ORDER OF THE LEARNED CIT (A) ON TH IS ISSUE AND REMIT THE MATTER TO THE FILE OF AO WITH A DIRECTION TO DECIDE THE ISSUE AFRESH IN ACCORDANCE WITH LAW AFTER AFFOR DING DUE AND REASONABLE OPPORTUNITY OF BEING HEARD TO THE AS SESSEE.' ADDITIONALLY, THE TAX EFFECT INVOLVED IS OF RS. 1,2 6,589/- ONLY. ITA 411 /MUM/2013 & 398/MUM/2013 21 5. THE VIEW ADOPTED BY THE TRIBUNAL BEING A PLAUSIB LE VIEW BASED ON FACTUAL POSITION AND THE RELEVANT CASE LAW ON TH E POINT, DOES NOT WARRANT ANY INTERFERENCE BY THIS COURT. LEARNED COU NSEL FOR THE APPELLANT-REVENUE HAS NOT BEEN ABLE TO SHOW ANY ILL EGALITY OR PERVERSITY IN THE IMPUGNED ORDER. THUS, NO SUBSTANT IAL QUESTION OF LAW ARISES. CONSEQUENTLY, THE APPEAL STANDS DISMISS ED.' 3.3.5 RESPECTFULLY FOLLOWING THE DECISION OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IN EMPIRE PACKAGE (P.) LTD. (SUP RA) AND OF THE HON'BLE PUNJ. & HAR. HIGH COURT IN THE CASE OF DEEP AK MITTAL (SUPRA), WE ARE OF THE CONSIDERED VIEW THAT THE LEARNED CIT (A) HAS NOT GIVEN ANY PROPER BASIS FOR WORKING OUT THE DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D; SPECIF ICALLY WHEN THE DISALLOWANCE IS FAR IN EXCESS OF THE EXEMPT DIVIDEN D INCOME EARNED IN THE YEAR UNDER CONSIDERATION. IN THIS VIEW OF TH E MATTER, WE SET ASIDE THE IMPUGNED ORDER OF THE LEARNED CIT (A) ON THIS ISSUE AND RESTORE THE MATTER TO THE FILE OF THE AO TO DECIDE THE ISSUE AFRESH, IN ACCORDANCE WITH LAW IN THE LIGHT OF THE RATIO LAID DOWN BY THE ABOVE JUDICIAL PRONOUNCEMENTS (SUPRA) AFTER AFFORDING REA SONABLE OPPORTUNITY TO THE ASSESSEE OF BEING HEARD AND TO F ILE SUBMISSIONS/DETAILS REQUIRED IN THIS REGARD. CONSEQ UENTLY, ASSESSEE'S GROUND NO. (A) IN CO FOR 2009-10 AND CO FOR A.Y. 2010- 11 AND REVENUE'S GROUND NO. 1 FOR A.Y. 2010-11 ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. WE HAVE PERUSED THE OTHER CASE LAWS RELIED UPON BY THE ASSESSEE. IN THE INSTANT CASE, THERE IS A FINDING RECORDED BY THE AU THORITIES BELOW THAT THE ASSESSEE IS MAINTAINING COMPOSITE BOOKS BOTH WITH R ESPECT TO TAXABLE AND EXEMPT INCOME AND IT IS NOT POSSIBLE TO WORK OUT DI SALLOWANCE U/S 14A OF THE ACT HAVING REGARD TO THE ACCOUNTS OF THE ASSESS EE. THUS BASED ON THE ITA 411 /MUM/2013 & 398/MUM/2013 22 FACTS AND CIRCUMSTANCES OF THE INSTANT CASE, WE ARE SETTING ASIDE AND RESTORING THE ABOVE ISSUE TO THE FILE OF LEARNED AO FOR DE-NOVO WORKING OUT DISALLOWANCE OF EXPENDITURE U/S 14A OF THE ACT READ WITH RULE 8D OF INCOME TAX RULES, 1962 IN ACCORDANCE WITH OUR ABOVE DIRECTIONS AND ALSO KEEPING IN VIEW DECISIONS OF HONBLE BOMBAY HIGH CO URT IN THE CASE OF CIT V. RELIANCE UTILITIES AND POWER LTD. (2009) 313 ITR 340(BOM HC) AND IN THE CASE OF HDFC BANK LTD. V. DCIT (2014) 366 ITR 5 05(BOM HC) AND DECISION OF HON'BLE BOMBAY HIGH COURT IN WRIT PETIT ION IN HDFC BANK LIMITED V. DCIT(2016) 67 TAXMANN.COM 42(BOM. HC) . WE ORDER ACCORDINGLY. 17. NEXT ISSUE IN THIS APPEAL IS WITH RESPECT TO TREATM ENT BY REVENUE OF SHORT TERM CAPITAL LOSS INCURRED BY THE ASSESSEE ON SALE OF LAND AT HASTEDA(RAJASTHAN) AMOUNTING TO RS.1,14,27,420/- AS ARISING OUT OF SHAM TRANSACTION. ON PERUSAL OF THE DETAILS OF CAPITAL GAINS/LOSSES INCURRED BY THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEE DINGS U/S. 143(3) READ WITH SECTION 143(2) OF THE ACT, IT WAS OBSERVED BY THE AO THAT THE ASSESSEE HAD INCURRED LOSS OF RS. 1,14,27,420/-- ON SALE OF LAND AT HASTEDA, TAL, CHOMU DISTRICT, JAIPUR WHICH SHORT TERM CAPITAL LOS S WAS SET OFF AGAINST OTHER CAPITAL GAINS EARNED BY THE ASSESSEE. THE AO FROM THE PERUSAL OF DOCUMENTS SUBMITTED IN CONNECTION THEREWITH OBSERVE D THAT AGREEMENT TO SALE DATED 10-03-2008 WAS ENTERED INTO BY THE ASSES SEE WITH SIYARAM EXPORTS INDIA PRIVATE LIMITED AND THE ASSESSEE WHER EIN IT IS MENTIONED THAT THE ASSIGNOR I.E. SIYARAM EXPORTS INDIA PRIVAT E LIMITED SHALL TRANSFER AND ASSIGN TO THE ASSIGNEE I.E. THE ASSESSEE(OR ITS NOMINEES) 7.33 HECTARE OF LAND WITH THEIR APPURTENANCES FREE FROM ENCUMBRA NCES FOR A PRICE OF RS.1,71,50,000/- . THE ASSIGNEE ( I.E. THE ASSESSEE ) HAD PAID RS.10,00,000/- IN CASH ON 10-03-2008 AND THE BALANC E AMOUNT OF RS.1,61,50,000/- WILL BE PAID BY THE ASSIGNEE ON OR BEFORE 31-12-2008 TO THE ASSIGNOR. THE ASSESSEE ALSO SUBMITTED TWO REGIS TERED SALE DEEDS DATED ITA 411 /MUM/2013 & 398/MUM/2013 23 16-01-2009 IN FAVOUR OF SMT ANJU YADAV AND SECONDLY WITH SMT. SAVITRI DEVI YADAV AND SMT. NIRMALA YADAV RESIDENTS OF JAIP UR FOR RS.20,40,000/- AND RS.38,00,000/- RESPECTIVELY. THE ASSESSEE SUBM ITTED REGISTRATION DEEDS OF THE PROPERTY. IT WAS OBSERVED BY THE AO TH AT SALE DEED WAS EXECUTED BY MR. RAJENDRA KUMAR SONI RESIDENT OF JAI PUR AS POWER OF ATTORNEY HOLDER OF THE ASSESSEE COMPANY ON 22-01-20 09.THE PAYMENTS FOR THE LAND PURCHASE BY THE ASSESSEE WERE MADE WHEN TH E LAND WERE SOLD AFTER NEARLY TEN MONTHS AND RESULTED IN LOSS OF RS. 1,14,27,420/- . THE ASSESSEE WAS ASKED TO EXPLAIN THAT WHY THE SAID LOS S ON SALE OF HASTEDA LAND SHOULD NOT BE DISALLOWED. THE ASSESSEE SUBMITTED BEFORE THE AO THAT THE ASSES SEE BOUGHT THE SAID LAND ADMEASURING 7.33 HECTARES IN MARCH 2008 AT HA STEDA TEHSIL, CHOMU DISTRICT , JAIPUR WITH THE INTENTION OF EARNING SHO RT TERM CAPITAL GAINS , FROM SIYARAM EXPORTS INDIA PRIVATE LIMITED FOR RS.1 71.50 LACS , AGAINST WHICH THE ASSESSEE MADE PAYMENT OF RS.10 LACS IN MA RCH 2008 WHILE BALANCE PAYMENTS OF RS.161.50 LACS WERE MADE IN THE MONTH OF JANUARY 2009. IT WAS SUBMITTED THAT THE ASSESSEE GOT THE IN FORMATION FROM THE RELIABLE SOURCES THAT NEW TOWNSHIP WOULD BE DEVEL OPED BY REPUTED BUILDERS FROM JAIPUR AT HASTEDA AND HENCE THE ASSES SEE TOOK DECISION TO BUY THIS PARCEL OF LAND.SINCE THE PLAN COULD NOT GO THROUGH AND HENCE THE ASSESSEE SOLD THIS LAND TO SMT. ANJU YADAV AND TO S MT. SAVITRI YADAV AND SMT. NIRMALA YADAV. THE SALE DEED WAS REGISTERED ON 16-01-2009. IT WAS SUBMITTED THAT TRANSACTION IS GENUINE AND MERELY BE CAUSE PAYMENT TO SIYARAM EXPORTS PRIVATE LIMITED WAS MADE LATE , IT COULD NOT BE HELD TO BE BOGUS TRANSACTION. THE ASSESSEE HAS PAID FULL CONSI DERATION TO THE SELLER PARTY AND THE ASSESSEE HAS ALSO GOT FULL PAYMENT FR OM BUYER PARTY. THE DOCUMENTS HAVE BEEN DULY REGISTERED WITH APPROPRIAT E AUTHORITY I.E. SUB- REGISTRAR AND STAMP DUTY HAS BEEN DULY PAID TO THE GOVERNMENT. ITA 411 /MUM/2013 & 398/MUM/2013 24 THE AO HELD THAT THESE ARE SHAM TRANSACTION AS THE ASSESSEE COMPANY HAS ACCOMMODATED BOTH THE PARTIES I.E. SELLERS AND BUYE RS WHEREIN SELLERS GOT FULL CONSIDERATION AND BUYER ALSO PAID FULL CONSIDE RATION BEING LESSER AMOUNT . THE THEORY OF NEW TOWNSHIP IS COOKED UP AN D INFORMATION IS NOT FROM PUBLIC SOURCES BUT FROM SO CALLED RELIABLE SOURCES WHICH HAS NO CREDENCE. THE TRANSACTION DEFIES LOGIC AND THE BALA NCE SHEET DOES NOT SHOW ANY STRESS SIGN AND AT BEST THE ASSESSEE COULD HAV E LOST ADVANCE PAYMENT OF RS. 10 LACS IF THE ASSESSEE WAS NOT ABLE TO CARR Y FORWARD THE SALE TRANSACTION AND COMPLETE THE SALE BY 31-12-2008 AS THERE WAS NO NEED FOR SALE AND TO INCUR LOSS OF RS.1.14 CRORES AND INSTEA D LOSS COULD HAVE BEEN ONLY RS. 10 LACS. THUS, THE AO HELD BASED ON THE SE RIES OF EVENTS MENTIONED ABOVE AND ALSO CONDUCT OF ENTIRE TRANSACT ION THAT THE TRANSACTION IS A SHAM TRANSACTION AND LOSS GENERATE D IS NOT GENUINE AND LOSS OF CAPITAL RS.1,14,27,420/- ON THIS TRANSACTIO N WAS DISALLOWED BY THE AO VIDE ASSESSMENT ORDER DATED 30-12-2011 PASSED BY THE AO U/S 143(3) OF THE ACT. 18. AGGRIEVED BY THE ASSESSMENT ORDER DATED 30-12-2011 PASSED BY THE AO U/S. 143(3) OF THE ACT, THE ASSESSEE FILED FIRST AP PEAL WITH THE LEARNED CIT(A). 19. THE ASSESSEE REITERATED ITS SUBMISSIONS BEFORE LEAR NED CIT(A) AS WERE SUBMITTED BEFORE THE AO WHICH ARE NOT REPEATED. THE LEARNED CIT(A) DIRECTED THE ASSESSEE TO FILE PROOF IN THE FORM OF EXTRACTS FROM REVENUE RECORDS IN THE PRESCRIBED 7/12 REGISTERS. IT WAS OB SERVED BY LEARNED CIT(A) THAT IT IS AN UNDISPUTED POSITION THAT IMPUGNED LAN D AT VILLAGE HASTEDA IS WHOLLY AND FULLY AGRICULTURAL LAND. THE LAND WAS RE GISTERED IN NAME OF SIYARAM EXPORTS PRIVATE LIMITED . THE ASSESSEE DID NOT SUBMIT EXTRACTS FROM 7/12 REGISTERS. THUS, LEARNED CIT(A) HELD THAT THE ASSESSEE HAD FAILED TO PROVE THE BONAFIDES IN ACCOMMODATING M/S SIYARAM EXPORTS PRIVATE ITA 411 /MUM/2013 & 398/MUM/2013 25 LIMITED BY PAYING HIGHER SALES CONSIDERATION OF RS. 171.50 LACS WHEN THE SAME LAND WAS REGISTERED AND SOLD FOR A SUM OF RS. 58.40 LACS. THE ASSESSEE AS PER LEARNED CIT(A) ALSO FAILED TO PROVE THE BONAFIDE IN ACCOMMODATING SMT ANJU YADAV, SMT SAVITRI YADAV AND SMT. NIRMALA YADAV FOR A SALE CONSIDERATION OF RS.58.40 LACS WHE N THE ASSESSEE ITSELF PAID RS. 171.50 LACS FOR THE SAID LAND. FURTHER, MO ST OF PAYMENT I.E. RS.161.50 LACS WERE MADE AFTER THE LAND WAS TRANSFE RRED TO THE BUYERS NAMELY SMT ANJU YADAV, SMT SAVITRI YADAV AND SMT. N IRMALA YADAV. THUS, AS PER LEARNED CIT(A) THE GENUINENESS OF THE TRANSACTION LEADING TO ALLEGED CAPITAL LOSS OF RS.1,14,27,420/- IS NOT PRO VED . ACCORDINGLY THE APPEAL OF THE ASSESSEE WAS DISMISSED BY LEARNED CIT (A) VIDE APPELLATE ORDERS DATED 11.09.2012. 20. AGGRIEVED BY THE APPELLATE ORDERS DATED 11.09.2012 PASSED BY LEARNED CIT(A), THE ASSESSEE FILED SECOND APPEAL WITH THE T RIBUNAL. 21. BEFORE THE TRIBUNAL, THE LEARNED COUNSEL FOR THE AS SESSEE STATED THAT NAME OF COMPANY WAS CHANGED FROM NEW PLANET TRADING COMPANY PRIVATE LIMITED TO ANSH MERCHANDISE PRIVATE LIMITED .THE LE ARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE ENTERED INTO A GREEMENT TO SELL DATED 10-03-2008 WITH SIYARAM EXPORTS PRIVATE LIMITED TO PURCHASE 7.33 HECTARE OF AGRICULTURAL LAND AT VILLAGE HASTEDA, DI STRICT JAIPUR FOR RS. 171.5 LACS WITH A VIEW TO EARN SHORT TERM CAPITAL GAINS E XPECTING HUGE INCREASE IN VALUATION OF LAND WITHIN SHORT PERIOD OF TIME ON AC COUNT OF DEVELOPMENT OF TOWNSHIP. THE ASSESSEE PAID RS. 10 LACS IN CASH AT TIME OF PURCHASE AGREEMENT WHILE REST OF THE CONSIDERATION OF RS.161 .50 LACS WAS PAID IN THE MONTH OF JANUARY 2009 STARTING FROM 17 TH JANUARY 2009. THE SAID AGREEMENT IS PLACED IN PAPER BOOK / PAGE 26-28 FILE D WITH TRIBUNAL. IT WAS SUBMITTED THAT THE LAND PRICES DID NOT APPRECIATE A ND THE ASSESSEE HAD TO FULFILL OBLIGATION TO PAY BALANCE SALES CONSIDERATI ON. THE SAID LAND WAS SOLD ITA 411 /MUM/2013 & 398/MUM/2013 26 BY THE ASSESSEE VIDE TWO SEPARATE SALE DEEDS BOTH 1 6-01-2009 FOR TOTAL CONSIDERATION RS. 58.40 LACS TO SMT. ANJU YADAV AND SECONDLY TO SMT. SAVITRI YADAV AND SMT. NIRMALA YADAV. THE BALANCE C ONSIDERATION OF RS. 161.50 LACS FOR THE PURCHASE OF LAND WAS PAID BY T HE ASSESSEE TO SIYARAM EXPORTS PRIVATE LIMITED AFTER SELLING THE LAND ON 16-01-2009 TO SMT. ANJU YADAV AND SECONDLY TO SMT. SAVITRI YADAV AND SMT. N IRMALA YADAV. THE TWO SALE DEEDS ARE PLACED IN PAPER BOOK/PAGE 29-58. THE ASSESSEE INCURRED LOSS OF RS.1,14,27,420/- IN THE SAID PURCHASE AND S ALE OF LAND. IT WAS SUBMITTED THAT ALL THE FACTS WERE BROUGHT TO THE KN OWLEDGE OF THE AUTHORITIES BELOW BUT THEY ERRED IN HOLDING THAT TH E SAID TRANSACTION IS NOT GENUINE AND IS A SHAM TRANSACTION. IT WAS SUBMITTED THAT BY ENTERING AGREEMENT TO SALE DATED 10-03-2008 WHEREIN THE ASSE SSEE PAID RS. 10 LACS AS INITIAL CONSIDERATION TO SIYARAM EXPORTS INDIA P RIVATE LIMITED, THE ASSESSEE ACQUIRED VALUABLE RIGHTS IN THE CAPITAL AS SET AND THE ASSESSEE RELIED UPON DECISION OF HONBLE BOMBAY HIGH COURT I N THE CASE OF CIT V. TATA SERVICES LIMITED (1980) 122 ITR 594(BOM) AND C IT V. VIJAY FLEXIBLE CONTAINERS (1990) 186 ITR 693(BOM) AND HENCE OBSERV ATION OF THE LEARNED CIT(A) THAT THE ASSESSEE NAME DOES NOT APPEAR IN 7/ 12 EXTRACT IS IRRELEVANT. IT WAS SUBMITTED THAT SINCE THE ASSESSE E WAS UNABLE TO PERFORM ITS OBLIGATION OF PAYING THE CONSIDERATION UNDER AG REEMENT TO SELL , THE ULTIMATE SALE DEEDS DATED 16-01-2009 HAD BOTH SIYA RAM EXPORTS INDIA PRIVATE LIMITED AND THE ASSESSEE AS A PARTY TO THE SALE DEED SO THAT THERE ARE NO DEFECTS IN THE TITLE. IT WAS SUBMITTED THAT BOTH THE PARTIES ARE NOT RELATED TO THE ASSESSEE. THE SALE IS BY REGISTERED SALE DEED AND THE AO DID NOT CONDUCT ANY ENQUIRY. IT WAS SUBMITTED THAT AS P ER AGREEMENT TO SALE DATED 10-03-2008, THE ASSESSEE HAD TO PAY ENTIRE BA LANCE CONSIDERATION TOGETHER, THE ASSESSEE PAID THE SAME IN JANUARY 200 9 AND PART OF THE CONSIDERATION WAS OBTAINED BY SELLING THE RIGHTS TO SMT ANJU YADAV AND TO SMT SAVITRI YADAV AND SMT. NIRMALA YADAV VIDE TWO SALE DEEDS BOTH DATED ITA 411 /MUM/2013 & 398/MUM/2013 27 16-01-2009. THUS , IT WAS SUBMITTED BY LEARNED COUN SEL FOR THE ASSESSEE THAT THE TRANSACTION IS GENUINE AND DISALLOWANCE OU GHT TO BE DELETED. 22. THE LD DR RELIED UPON THE ORDERS OF LEARNED CIT(A). IT IS ALSO SUBMITTED THAT LAND BEING AGRICULTURAL LAND, THE CAPITAL GAIN S ON SALE OF AGRICULTURAL LAND ARE NOT CHARGEABLE TO TAX AS PER PROVISIONS OF THE ACT AND SIMILARLY THE CAPITAL LOSSES ARISING ON SALE OF AGRICULTURAL LAND ARE NOT ALLOWABLE TO BE SET OFF AGAINST OTHER CAPITAL GAINS EARNED BY TH E ASSESSEE. 23. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. WE HAVE OBSERVED THAT THE ASSESSEE HAD PURC HASED THE AGRICULTURAL LAND BEARING KHASRA NO 1779, 1780 , 1779/2120, 1780 /2121 , 1781 , 1785/2131 , 1782 AND 1817 IN AGGREGATE 7.33 HECTARE ( 8 RAKBA) SITUATED AT VILLAGE HASTEDA , PATWAR AREA HASTEDA , LAND REC ORD INSPECTION AREA HASTEDA , TEHSIL CHOMU, DISTRICT JAIPUR, RAJASTHAN FROM SIYARAM EXPORTS INDIA PRIVATE LIMITED WHO WERE THE OWNERS VIDE AGRE EMENT TO SALE DATED 10-03-2008 FOR A TOTAL STATED CONSIDERATION OF RS.1 71.50 LACS AGAINST WHICH THE ASSESSEE PAID CASH OF RS. 10 LACS ON 10-0 3-2008. THE BALANCE CONSIDERATION OF RS.161.50 LACS WAS PAID FROM 17-01 -2009 ONWARDS IN THE MONTH OF JANUARY 2009 TO SIYARAM EXPORTS INDIA PRIV ATE LIMITED. THE AGREEMENT TO SALE DATED 10-03-2008 STIPULATED THAT IF THE ASSESSEE FAILED TO PAY BALANCE CONSIDERATION OF RS.161.50 LACS ON O R BEFORE 31-12-2008, THE SAID AMOUNT OF RS.10 LACS PAID AS AN ADVANCE WI LL BE FORFEITED BY THE SELLERS M/S SIYARAM EXPORTS INDIA PRIVATE LIMITED. THE ASSESSEE HAD STATED THAT THE LAND WAS PURCHASED ON 10-03-2008 WI TH AN OBJECTIVE OF SELLING IT WITHIN A SHORT PERIOD OF TIME AND MAKIN G CAPITAL GAINS AS IT WAS EXPECTED THAT THERE WILL BE HUGE INCREASE IN VALUAT ION OF LAND AS THERE WAS SOME RELIABLE INFORMATION THAT SOME NEW TOWNSHIP IS BEING DEVELOPED BY SOME PRIVATE BUILDER IN HASTED. BUT, NO EVIDENCE IS BROUGHT ON RECORD EVEN BEFORE US TO SUBSTANTIATE THE BASIS OF THE SO CALLE D RELIABLE INFORMATION ITA 411 /MUM/2013 & 398/MUM/2013 28 WHICH INDUCED ASSESSEE TO PURCHASE THE LAND. THE SA ID AGREEMENT TO SALE DATED 10-03-2008 IS PLACED IN PAPER BOOK/PAGE 26-28 FILED WITH THE TRIBUNAL. THE ASSESSEE SOLD THE SAID LAND ADMEASURI NG 7.33 HECTARES VIDE TWO SEPARATE SALE DEEDS BOTH DATED 16-01-2009 TO SM T ANJU YADAV AND SECONDLY TO SMT SAVITRI YADAV AND SMT. NIRMALA YADA V FOR TOTAL CONSIDERATION OF RS. 58.40 LACS. THE ASSESSEE , THE REAFTER, MADE BALANCE PAYMENT OF RS.161.50 LACS IN THE MONTH OF JANUARY 2 009 STARTING FROM 17 TH JANUARY 2009 TO SIYARAM EXPORTS INDIA PRIVATE LIMI TED FOR COMPLETING PURCHASE OF AFORE-STATED LAND WHICH WAS PURCHASED V IDE AGREEMENT TO SALE DATED 10-03-2008, WHILE TWO SALE DEEDS EXECUTED BY THE ASSESSEE IN FAVOUR OF SMT ANJU YADAV AND SECONDLY TO SMT SAVITRI YADAV AND SMT. NIRMALA YADAV ARE DATED 16-01-2009 AND THAT TOO FOR A SUBST ANTIAL LOWER AMOUNT OF RS. 58.40 LACS WHICH DEFIES ALL LOGIC, PRINCIPLE S OF COMMERCIAL EXPEDIENCY AND RATIONALITY AS THE HUGE LOSS IS SUFFERED BY THE ASSESSEE VIDE THESE PURCHASE AND SALE OF LAND TRANSACTIONS, AMOUNTING T O RS. 1,14,00,420/- . THE ASSESSEE HAS ALSO NOT BEEN ABLE TO BRING ON REC ORD ANY JUSTIFICATION, REASONS OR COGENT EVIDENCES/EXPLANATION TO SUBSTAN TIATE HUGE FALL IN VALUATION OF LAND FROM RS 171.5 LACS IN MARCH 2008 TO RS 58.40 LACS IN THE MONTH OF JANUARY 2009 , I.E. JUST IN 10 MONTHS. BOTH THE SALES DEEDS DATED 16-01-2009 FOR TOTAL CONSIDERATION OF RS. 58. 40 LACS WITH SMT ANJU YADAV AND SECONDLY WITH SMT SAVITRI YADAV AND SMT. NIRMALA YADAV ARE PLACED IN PAPER BOOK/PAGE 29-58. THE ASSESSEE IN I TS AGREEMENT TO SALE DATED 10-03-2008 WITH SIYARAM EXPORTS INDIA PRIVATE LIMITED FOR PURCHASE OF THE SAID LAND FOR RS.171.50 LACS WHEREIN CASH AD VANCE OF RS.10 LACS WAS ONLY PAID BY THE ASSESSEE ON 10-03-2008 HAD AN EXIT CLAUSE IN THE SAID AGREEMENT WHEREIN THE ASSESSEE COULD HAVE ASKED THE SIYARAM EXPORTS INDIA PRIVATE LIMITED TO FORFEIT ADVANCE OF RS 10 L ACS PAID BY THE ASSESSEE ON 10-03-2008 IF THE ASSESSEE WAS NOT ABLE TO COMPL ETE THE TRANSACTION OF PURCHASE OF LAND OF ITS OWN BY 31-12-2008 DUE TO AN Y REASONS WHATSOEVER AND THE LOSS WOULD HAVE BEEN LIMITED AND RESTRICTED TO RS. 10 LACS ONLY, ITA 411 /MUM/2013 & 398/MUM/2013 29 BUT THE MANNER IN WHICH THE ASSESSEE WENT AHEAD IN JANUARY 2009 AND ENTERED INTO TWO SALES DEED BOTH DATED 16-01-2009 F OR SALE OF AFORESAID LAND TO SMT ANJU YADAV AND SECONDLY TO SMT SAVITRI YADAV AND SMT. NIRMALA YADAV FOR A MEAGER SUM OF RS. 58.40 LACS TO SELF PREJUDICE ITSELF BY SADDLING WITH AN AVOIDABLE AND UNWARRANTED CAPITAL LOSS OF RS 114 LACS INSTEAD OF RESTRICTING THE SAID CAPITAL LOSS TO RS. 10 LACS AS DESCRIBED ABOVE BY ASKING THE SELLER SIYARAM EXPORTS INDIA PRIVATE LIMITED TO FORFEIT THE ADVANCE, CLEARLY DEFIES ALL LOGIC, RATIONALITY AND PRINCIPLES OF COMMERCIAL EXPEDIENCY KNOWN TO THE BUSINESS WORLD WHICH CLEARL Y INDICATES TO IRRESISTIBLE AS WELL ONE AND ONLY ONE CONCLUSION TH AT THE WHOLE TRANSACTION FOR PURCHASE AND SALE OF AFORE-STATED LAND WERE ACC OMMODATING IN NATURE WHEREBY INTERESTS OF BOTH THE PURCHASER AND SELLER IN RECEIVING OR GIVING SALE CONSIDERATION THROUGH CONSIDERATION AMOUNTS RE CORDED IN BOOKS OF ACCOUNTS WERE DULY LOOKED BY THE ASSESSEE WHEREIN S ELLER WAS ACCOMMODATED WITH MAKING OF HIGHER PAYMENTS ON RECO RD AND BUYERS WERE ACCOMMODATED TO GIVE LESSER PRICE ON RECORD FO R THE SAME PARCEL OF LAND , AND ON THE TOUCHSTONE OF PREPONDERANCE OF PR OBABILITIES IT REFLECTS THAT THE REST OF THE MONEY PURPORTEDLY EXCHANGE HA NDS AS ON-MONEY WHICH WERE NOT BROUGHT TO TAX ON RECORD . THE TRAN SACTIONS FOR SALE AND PURCHASE OF LAND WERE ENTERED INTO BY THE ASSESSEE AND ONCE THE REVENUE HAS DOUBTED THE TRANSACTIONS AS BEING NOT GENUINE F OR THE REASONS AS SET OUT ABOVE, THEN THE ONUS SHIFTS BACK TO THE ASSESSE E TO PROVE BY COGENT EVIDENCES AND EXPLANATIONS THAT THE TRANSACTIONS FO R PURCHASE AND SALE OF LAND WERE IN FACT GENUINE WHICH THE ASSESSEE IN TH E INSTANT CASE FAILED TO DO SO. THUS, THESE TRANSACTIONS FOR PURCHASE AND SA LE ARE NOT PROVED BY THE ASSESSEE TO BE GENUINE TRANSACTIONS AND ARE HEL D BY US TO BE SHAM AND COLORABLE DEVICES AND SHORT TERM CAPITAL LOSS OF RS. 114 LACS INCURRED BY THE ASSESSEE CANNOT BE ALLOWED UNDER THE PROVISI ONS OF THE ACT . WE THEREFORE CONFIRM/SUSTAIN THE ORDER OF LEARNED CIT( A) IN WHICH WE DONOT FIND ANY INFIRMITY. WE ORDER ACCORDINGLY. ITA 411 /MUM/2013 & 398/MUM/2013 30 24. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IN ITA NO. 398/MUM/2012 IS PARTLY ALLOWED AS INDICATED ABOVE. 25. IN THE RESULT APPEAL FILED BY THE ASSESSEE IN ITA N O. 411/MUM/2012 FOR ASSESSMENT YEAR 2008-09 IS ALLOWED FOR STATISTICAL PURPOSES WHILE APPEAL IN ITA NO. 398/MUM/2012 FOR ASSESSMENT YEAR 2009-10 IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH SEPTEMBER, 2016. # $% &' 19 -09-2016 ( ) SD/- SD/- (MAHAVIR SINGH) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER $ MUMBAI ; & DATED 19-09-2016 [ .9../ R.K. R.K. R.K. R.K. , EX. SR. PS !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. : ( ) / THE CIT(A)- CONCERNED, MUMBAI 4. : / CIT- CONCERNED, MUMBAI 5. =>( 99?@ , ?@ , $ / DR, ITAT, MUMBAI A BENCH 6. (BC D / GUARD FILE. / BY ORDER, = 9 //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , $ / ITAT, MUMBAI