SATISH C. SEHGAL, MUMBAI V. DCIT 12(2), MUMBAI

ITA 5239/MUM/2014

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8492 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 2 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-11-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2004-2005
• Appeal Filed On: 14-08-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAM TIWARI
• Assessee Lawyers: RM GULATI
• Keywords: Business income; Principle of natural justice

Judgement Text

1 ITA NO.5239/MUM/2014 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E, MUMBAI BEFORE SHRI MAHAVIR SINGH (JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) I.T.A NO.5239/MUM/2014 (ASSESSMENT YEAR: 2004-05) SHRI SATISH C SEHGAL 7, MAISON BELVEDERE, MAHARASHI KARVE ROAD, CHURCHGATE, MUMBAI-400 020 PAN : AAHPS5823Q VS DY.CIT-12(2), MUMBAI APPELLANT RESPONDEDNT APPELLANT BY SHRI RM GULATI RESPONDENT BY SHRI RAM TIWARI DATE OF HEARING 26-10-2017 DATE OF PRONOUNCEMENT 08-11-2017 O R D E R PER G MANJUNATHA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGA INST THE ORDER OF CIT(A)- 10, MUMBAI DATED 31-03-2013 AND IT PERTAINS TO AY 2 004-05. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ORIGINAL A SSESSMENT IN THIS CASE WAS COMPLETED ON 21-12-2006 U/S 143(3), DETERMINING TAX ABLE INCOME OF RS.1,08,99,893. IN THE ORIGINAL ASSESSMENT, THE AO HAS DISALLOWED EXPENSES CLAIMED AGAINST SHORT TERM CAPITAL GAIN LIKE INTERE ST ON BORROWED CAPITAL, SERVICE TAX AND AUDIT FEES ON THE GROUND THAT THE A SSESSEE HAS FAILED TO 2 ITA NO.5239/MUM/2014 ESTABLISH NEXUS BETWEEN THE BORROWED FUNDS AND THE INVESTMENT IN SHARES. THE AO FURTHER OBSERVED THAT LIABILITY OF OTHER EXP ENSES LIKE AUDIT FEES AND SERVICE TAX IS NOT RELATED TO THE INVESTMENT ACTIVI TY OF THE ASSESSEE. THE APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT( A) HAS BEEN SET ASIDE BY THE ITAT, WITH THE DIRECTION TO THE AO TO AFFORD ONE MO RE OPPORTUNITY TO THE ASSESSEE TO SUBSTANTIATE EXPENSES WITH NECESSARY EV IDENCE. IN THE SECOND ROUND OF ASSESSMENT, THE AO HAS DISALLOWED EXPENSES CLAIMED BY THE ASSESSEE AGAINST INCOME FROM SHORT TERM CAPITAL GAIN ON THE GROUND THAT THE ASSESSEE HAS FAILED TO ESTABLISH NEXUS BETWEEN LOANS AND INV ESTMENT IN SHARES. THE RELEVANT PORTION OF THE ORDER OF AO IS EXTRACTED BE LOW:- 5 NOT WITHSTANDING THE OBSERVATIONS / REMARKS OF THE APPELLATE AUTHORITIES REPRODUCED ABOVE ,SINCE T HE ASSESSMENT PROCEEDINGS ARE QUASI-JUDICIAL PROCEEDINGS THE ASSE SSEE WAS GIVEN A LONG ROPE TO PROVE HIS CASE THE TRIBUNAL HAS DIRE CTED THE ASSESSING OFFICER TO GIVE ONE MORE OPPORTUNITY BUT IN THE INTEREST OF NATURAL JUSTICE AND FAIR PLAY THREE OPPORTUNITIES O N 11.02.2010 ,17.02.2010 AND 20.02.2010 WERE GIVEN TO THE ASSESS EE TO ESTABLISH HIS CASE. BUT NO NEW EVIDENCE OR NEW SUBMISSION WAS PROVIDED BY THE ASSESSEE. HAD THE ASSESSEE PROVIDED A NEW EVIDE NCE MEW SUBMISSION IT WOULD HAVE BEEN POSSIBLE TO CONSIDER THE ENTIRE ISSUE AFRESH BUT SINCE THE ASSESSEE HAS NOT GIVEN NEITHER ANY NEW EVIDENCE NOR ANY NEW SUBMISSION IT IS NOT POSSIBLE TO ARRIVE AT A NEW DECISION . HOWEVER TAKING INTO CONSIDERATION OF THE SPIRIT OF THE ORDER OF THE TRIBUNAL THE MATERIAL PRODUCED WAS CAR EFULLY EXAMINED AFTER A CAREFUL PERUSAL OF THE EVIDENCE PRODUCED BE FORE ME THE SAME IS REJECTED AS THE ASSESSEE HAS FAILED TO ESTA BLISH THE NEXUS BETWEEN THE BORROWED FUNDS / INTEREST PAYMENT AND T HE INVESTMENT IN SHARES. HENCE, THE SUBMISSION OF THE ASSESSEE IN T HIS REGARD IS REJECTED AND THE ADDITION MADE IN THE ORIGINAL ASSE SSMENT ORDER DATED 21.12.06 IS CONFIRMED. 3 ITA NO.5239/MUM/2014 6 IN CONNECTION WITH THE THIRD ISSUE THE REPRESENTA TIVE OF THE ASSESSEE PRODUCED THE PHOTO-COPIES OF FIVE S HARE BROKER'S BILLS DATED 21.10.03 , PHOTO- COPY OF LEDG ER ACCOUNT OF D-MAT ACCOUNT CHARGES, PHOTOCOPY OF THE BILL OF ACCOUNTING CHARGES PAID TO MR. GULATI CA FOR PROFES SIONAL SERVICES THE ASSESSEE HAS CLAIMED THAT THE SERVICE TAX PAYMENTS AND D-MAT CHARGES, ACCOUNTING CHARGES PAID TO M R GULATI SHOULD BE ALLOWED AS EXPENDITURE IN THE COMP UTATION OF SHORT TERM CAPITAL GAIN. THE REPRESENTATIVE HAS STATED TH AT ALL THE ABOVE EXPENDITURE ARE DIRECTLY RELATED TO THE EARNING OF SHORT TERM CAPITAL GAIN. IN RESPECT OF THE ACCOUNTING CHARGES PAID TO MR GULATI CA THE REPRESENTATIVE ALSO SUBMITTED AN ALTE RNATIVE PLEA THAT IF THE EXPENDITURE IS NOT ALLOWED UNDER THE HEAD 'S HORT TERM CAPITAL GAIN 'THE SAME NEEDS TO BE CONSIDERED FOR ALLOWANCE UNDER THE HEAD ' BUSINESS INCOME.' THE REPRESENTATIVE HAS NOT ESTABLISHED THAT HOW THE D'MAT CHARGES AND THE SERVICE TAX MENT IONED IN SHARE BROKERS BILL ARE DIRECTLY RELATED TO THE TRANSFER O F SHARES RESULTING IN SHORT TERM CAPITAL GAIN THE D'MAT CHARGES AND THE S HARE BROKERS BILL FOR SERVICE TAX ARE COMMON EXPENDITURE INCURRE D IN RELATION TO THE ENTIRE GAMUT OF THE SHARE TRANSACTIONS INDUL GED IN BY THE ASSESSEE AND THEY DO NOT HAVE ANY DIRECT LINK W ITH THE SPECIFIC SHARE TRANSACTIONS RESULTING IN SHORT TERM CAPITAL GAIN. THE ASSESSEE HAS FAILED TO ESTABLISH THE LINK .MERE PRODUCTION OF FIVE PHOTOCOPIES OF FIVE CONTRACT NOTES DATED 21.10 .03 AND LEDGER ACCOUNT OF D'MAT CHARGES IS NOT SUFFICIENT T O ESTABLISH THAT THE ABOVE EXPENDITURE IS RELATED TO THE STCG . HENCE THE CLAIM OF THE ASSESSEE IN THIS REGARD IS REJECTED. 3. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PRE FERRED APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE ASSESSEE HAS FI LED ELABORATE WRITTEN SUBMISSIONS. THE ASSESSEE FURTHER CONTENDED THAT I T HAS BORROWED LOANS FROM VARIOUS PARTIES WHICH IS EVIDENT FROM THE FACT THAT LOANS HAS BEEN CREDITED TO THE BANK ACCOUNT WHICH ARE USED FOR INVESTMENT IN S HARES. THE ASSESSEE FURTHER CONTENDED THAT DEMAT CHARGES AND SERVICE TA X ON BROKERS BILL IS PAID 4 ITA NO.5239/MUM/2014 EXCLUSIVELY IN CONNECTION WITH PURCHASE AND SALE OF SHARES. THEREFORE, THE AO WAS INCORRECT IN DISALLOWING EXPENSES AGAINST INCOM E FROM SHORT TERM CAPITAL GAIN. THE CIT(A), AFTER CONSIDERING RELEVANT SUBMI SSIONS OF THE ASSESSEE OBSERVED THAT EXCEPT MAKING REPEATED SUBMISSIONS WH ICH WERE PUTFORTH IN EARLIER APPELLATE PROCEEDINGS BEFORE THE CIT(A) AS WELL AS BEFORE ITAT, THE ASSESSEE HAS NOT AT ALL ADDUCED ANY DOCUMENTS OR EV IDENCE TO SUBSTANTIATE ITS CLAIM OF INTEREST EXPENDITURE AS WELL AS DEMAT CHAR GES. IT IS IMPORTANT THAT THE ASSESSEE SHOULD GIVE EVIDENCE OR DOCUMENTS TO PROVE THAT SUCH INTEREST EXPENDITURE AND DEMAT CHARGES ARE INCURRED FOR THE PURPOSE OF EARNING THE INCOME WHICH WAS SUBJECTED TO TAX. THE CIT(A) FURT HER OBSERVED THAT INSPITE OF SEVERAL OPPORTUNITIES, THE ASSESSEE COULD NOT ADDUC E ANY SUCH DOCUMENTS OR EVIDENCE TO JUSTIFY EXPENSES. THEREFORE, HE CONSID ERED IT APPROPRIATE HELD THAT THE AO WAS COMPLETELY CORRECT AND JUSTIFIED IN DENY ING THE CLAIM OF INTEREST EXPENDITURE AS WELL AS DEMAT CHARGES. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATERIA L AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IN THE FIRST ROUND OF LITIGATION, THE ITAT HAS SET ASIDE THE ISSUE TO THE FILE OF THE AO FOR FRESH ADJUDICATION. THE AO HAS REJECTED THE EXPLANATIONS OF THE ASSESSEE WITH REGARD TO THE CLAIM OF INTEREST EXPENDITURE AND DEMAT CHAR GES ON THE GROUND THAT THE 5 ITA NO.5239/MUM/2014 ASSESSEE HAS FAILED TO ESTABLISH NEXUS BETWEEN BORR OWED FUNDS AND INVESTMENT IN SHARES. IT IS THE CONTENTION OF THE ASSESSEE TH AT IT HAS BORROWED FUNDS FROM VARIOUS PARTIES TO INVEST IN SHARES WHICH IS EVIDEN T FROM THE FACT THAT THE LOANS BORROWED HAS BEEN ROUTED THROUGH BANK ACCOUNT FROM WHICH THE ASSESSEE HAS MADE PAYMENTS FOR INVESTMENT IN SHARES. THE ASSESS EE FURTHER CONTENDED THAT DEMAT CHARGES ARE DIRECTLY LINKED TO INVESTMENT ACT IVITY OF THE ASSESSEE WHICH HAS BEEN PAID FOR MAINTAINING DEMAT ACCOUNT, THEREF ORE, THERE IS A DIRECT NEXUS BETWEEN EXPENDITURE INCURRED TOWARDS DEMAT CHARGES AND INCOME GENERATED FROM INVESTMENT ACTIVITY. 5. HAVING HEARD BOTH SIDES, WE FIND FORCE IN THE ARGUM ENTS OF THE ASSESSEE FOR THE REASON THAT THE ASSESSEE HAS FILED A PAPER BOOK CONTAINING VARIOUS DETAILS OF LOANS BORROWED AND INVESTMENT IN SHARES. ON PERUSAL OF THE DETAILS FILED BY THE ASSESSEE, WE FIND THAT THE ASSESSEE HA S ROUTED LOANS BORROWED FROM HIS BANK ACCOUNT WHICH HAS BEEN USED FOR INVES TMENT IN SHARES. THEREFORE, WE ARE OF THE VIEW THAT THE AO WAS INCOR RECT IN DISALLOWING INTEREST PAID ON LOANS BORROWED. INSOFAR AS DEMAT CHARGES I S CONCERNED, THE ASSESSEE HAS PAID DEMAT CHARGES FOR MAINTAINING PORTFOLIO IN VESTMENTS WHICH IS HAVING DIRECT NEXUS WITH THE INCOME GENERATION ACTIVITY OF THE ASSESSEE. THE ASSESSEE HAS FILED DETAILS OF PAYMENT OF DEMAT CHARGES. IN RESPECT OF SERVICE TAX PAID ON PURCHASE AND SALE OF SHARES, THE ASSESSEE HAS FILED CONTRACT NOTES IN SUPPORT OF 6 ITA NO.5239/MUM/2014 PAYMENT OF SERVICE TAX. ON VERIFICATION OF THE DET AILS FILED BY THE ASSESSEE, WE FIND THAT THE ASSESSEE HAS PAID SERVICE TAX ON PURC HASE AND SALE OF SHARES. THEREFORE, WE ARE OF THE VIEW THAT THERE IS A DIREC T NEXUS BETWEEN EXPENDITURE INCURRED BY THE ASSESSEE AND INVESTMENT ACTIVITY. HENCE, WE ARE OF THE VIEW THAT THE AO WAS INCORRECT IN DISALLOWING SERVICE TA X AND DEMAT CHARGES. THE CIT(A), WITHOUT APPRECIATING THE FACTS HAS SIMPLY U PHELD ADDITIONS MADE BY THE AO. HENCE, WE SET ASIDE THE ORDER OF CIT(A) AND DI RECT THE AO TO ALLOW EXPENDITURE CLAIMED BY THE ASSESSEE TOWARDS INTERES T, SERVICE TAX AND DEMAT CHARGES. 6. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLO WED. ORDER PRONOUNCED IN THE OPEN COURT ON 08 TH NOVEMBER, 2017. SD/- SD/- (MAHAVIR SINGH) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 08 TH NOVEMBER, 2017 PK/- COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI