Mr. Arun Kumar Jain, Delhi V. DCIT, New Delhi

ITA 4393/DEL/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4112 (ITAT-DELHI)
• Duration Of Justice: 6 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 09-03-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 30-09-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANUSHA KHURANA
• Assessee Lawyers: H P AGGARWAL
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A BEFORE HONBLE VICE PRESIDENT SHRI G.E.VEERABHADRAP PA AND SHRI A.D.JAIN, JUDICIAL MEMBER ITA NO. 4393/DEL/2010 ASSTT.YEAR: 2007-08 MR. ARUN KUMAR JAIN, VS DY. C.I.T. 4415/14, GALI LOTAN JAT, CIR. 39(1), NEW DELHI. PAHARI DHEERAJ, SADAR BAZAR, DELHI-110006. PAN: AEDPJ3511L. (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI H.P.AGGARWAL, CA RESPONDENT BY: MS ANUSHA KHURANA, SR.D.R O R D E R PER VEERABHADRAPPA, V.P. THIS APPEAL BY THE ASSESSEE ARISES OUT OF THE ORDER DATED 26.07.2010 OF THE CIT (APPEALS) FOR THE ASSESSMENT YEAR 2007-08. 2. THE FIRST ISSUE IN THIS APPEAL RELATES TO AN ADD ITION OF RS 4,40,390/- MADE BY THE ASSESSING OFFICER. THE ASSESSEE IS AN I NDIVIDUAL AND WAS ENGAGED IN THE BUSINESS OF SHARES AND SECURITIES. H E HAD MEMBERSHIP OF LUDHIANA STOCK EXCHANGE AND HE WAS ALSO A DIRECTOR IN SOME OF THE COMPANIES FROM WHICH HE RECEIVED SALARY. THE ASSESS EE WAS DEALING WITH TWO BROKERS M/S COMPOSITE SECURITIES LTD. AND M/S S AM GLOBAL SECURITIES LTD., MEMBERS OF NATIONAL STOCK EXCHANGE. IT WAS CL AIMED DURING THE YEAR IN QUESTION THE ASSESSEE CARRIED OUT TRANSACTIONS F OR AND ON BEHALF OF CLIENTS ITA NO. 4393/DEL/2010 2 AND PROFIT OR LOSS, IF ANY, ARISING ON ACCOUNT OF T HOSE TRANSACTIONS WERE DEBITED OR CREDITED TO THEIR ACCOUNTS. THE ASSESSEE CLAIMED THAT THESE TRANSACTIONS WERE MADE WITH ITS CLIENTS ON PRINCIPA L TO PRINCIPAL BASIS ON MUTUAL TERMS AND THE TRANSACTIONS WERE REGULAR BUSI NESS TRANSACTIONS IN THE MARKET. THE A.O. ASSESSED THE PROFIT ARISING TO OTH ER PERSONS THROUGH THE ASSESSEE, TREATING AS THE ASSESSEES OWN. THIS DECI SION OF THE A.O WAS BASED ON THE MODUS OPERANDI OF THE ASSESSEE DISCUSSED IN DETAIL IN THE ASSESSMENT YEAR 2005-06 AND 2006-07. THE ASSESSEE WAS ACTING A S A FACILITATOR TO PROVIDE PROFIT ENTRIES TO THOSE PERSONS. THE LEARNE D COUNSEL FOR THE ASSESSEE WHO APPEARED AT THE TIME OF HEARING POINTED OUT THA T THE IDENTICAL ISSUE CAME UP BEFORE THE TRIBUNAL IN THE ASSESSMENT YEAR 2005- 06 AND 2006-07. THE TRIBUNAL, VIDE ORDER DATED 19.06.2009 FOR THE ASSES SMENT YEAR 2005-06 AND VIDE ITS ORDER DATED 17.07.2009 FOR THE ASSESSMENT YEAR 2006-07 HAS HELD THAT THE ASSESSEE FILED ALL THE DETAILS INCLUDING P AN NUMBER, LEDGER ACCOUNT OF THE PARTIES AND BANK STATEMENT TO PROVE THE IDEN TITY, MODE OF TRANSACTION AND CAPACITY OF THE PARTIES AND PLEADED THAT THE AD DITION CANNOT BE MADE IN THE HANDS OF THE ASSESSEE AND IT WAS ALSO PLEADED T HAT THE PERSONS WITH WHOM THE ASSESSEE HAD BUSINESS DEALINGS HAVE EVENTUALLY CONFIRMED THESE TRANSACTIONS IN THE COURSE OF ENQUIRY CONDUCTED BY THE A.O AND, THEREFORE, IN THE LIGHT OF THIS, THE TRIBUNAL APPROVED THE ORDER OF THE CIT(A) WHO HAD DELETED THE ADDITIONS. INFACT IT WAS POINTED OUT IN THE ASSESSMENT YEAR 2006- 07 THAT THE ORDER OF THE TRIBUNAL WAS TAKEN UP BEFO RE THE HIGH COURT OF DELHI AND THE SAME WAS AFFIRMED VIDE ITS ORDER DATE D 13.08.2010. IN THE LIGHT OF THIS, IT WAS PLEADED BY THE LEARNED COUNSE L FOR THE ASSESSEE THAT THE ISSUE IN QUESTION STANDS CONCLUDED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE JURISDICTIONAL HIGH COURT AND IN THE LIGHT O F THIS, IT WAS PLEADED THAT THE ASSESSEES CONTENTIONS BE ACCEPTED. ITA NO. 4393/DEL/2010 3 3. WE HAVE HEARD THE LEARNED D.R WHO FAIRLY ADMITTE D THAT THE IDENTICAL ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL IN THE ASSESSMENT YEARS 2005-06 AND 2006-07 AND THE DELHI HIGH COURT HAS AFFIRMED AFORESAID ORDER OF THE TRIBUNAL. IN THE LI GHT OF THIS BACKGROUND, THE DEPARTMENTAL ACTION OF MAKING THE ADDITION OF RS 4, 40,390/- CANNOT BE UPHELD. THE SAME STANDS DELETED. 4. THE NEXT DISPUTE IN THE ASSESSEES APPEAL RELATE S TO DISALLOWANCE OF RS 35,207/- BY APPLYING THE PROVISIONS OF SECTION 14A OF THE INCOME-TAX ACT. THE LEARNED COUNSEL FOR THE ASSESSEE PLEADED THAT T HE ASSESSEE HAD EXEMPT INCOME OF RS 1,54,796/- FROM LONG TERM CAPITAL GAIN S AND RS 39,730/- FROM DIVIDEND. THE A.O HAS MADE A DISALLOWANCE OF RS 35, 207/- BASED ON HALF PERCENT OF THE AVERAGE INVESTMENT OF THE ASSESSEE B Y INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT. ACCORDING TO THE ASSESSE E, THE DISALLOWANCE IS CLEARLY EXCESSIVE AND UNWARRANTED. 5. THE DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HA ND, SUPPORTED THE DISALLOWANCE IN THE LIGHT OF THE DISCUSSIONS IN THE IMPUGNED ORDERS. 6. WE HAVE CAREFULLY GONE THROUGH THE RECORDS INCLU DING THE DISCUSSIONS IN THE IMPUGNED ORDERS. IN OUR VIEW ALTHOUGH THE AC TION OF THE DISALLOWANCE OF SOME AMOUNT U/S 14A IS CALLED FOR BUT THE DISALL OWANCE MADE IS HIGHLY EXCESSIVE HAVING REGARD TO THE POSSIBLE EXPENDITURE THAT MIGHT HAVE BEEN INCURRED BY THE ASSESSEE IN EARNING THE EXEMPT INCO ME. WE, THEREFORE, ESTIMATE SUCH EXPENDITURE TO BE IN THE RANGE OF 5% OF THE TOTAL EXEMPT INCOME OFFERED BY THE ASSESSEE. THE A.O SHALL RE-WO RK THE DISALLOWANCE. IN ITA NO. 4393/DEL/2010 4 THE LIGHT OF THE ABOVE DISCUSSIONS, THE APPEAL IS T O BE TREATED AS PARTLY ALLOWED. PRONOUNCED IN OPEN COURT ON 29.04.2011. SD/- SD/- (A.D.JAIN) (G.E.VEERABHADRAPPA) JUDICIAL MEMBER VICE PRESIDENT DATED: APRIL 29 ,2011. DRS COPY OF THE ORDER FORWARDED TO: 1. MR ARUN KUMAR JAIN, 4415/14, GALI LOTAN JAT, PAHARI DHEERAJ, SADAR BAZAR, DELHI-110006. 2. DY.CIT, CIR. 39(1), NEW DELHI. 3. CIT 4. CIT(A)XXVIII, NEW DELHI. 5. DR ASSTT.REGISTRAR, ITAT