Appeal Details
Counselvise Citation
[2016] 131 COUNSELVISE.COM (IT) 1707 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
5 year(s) 10 month(s) 19 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
09-12-2016
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
G
Next Hearing Date
01-12-2015
Assessment Year
1990-1991
Appeal Filed On
20-01-2011
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI BEFORE SHRI B.R. BASKARAN (AM) & SHRI SANDEEP GOSAIN (JM) I.T.A. NO. 554/MUM/2011 (ASSESSMENT YEAR 1990 - 1991) SHRI BHUPENDRA C. DALAL BHUPEN CHAMBERS, GROUND FLOOR, DALAL STREET, FORT, MUMBAI 400 001. VS. DCIT OSD II/CR 7 4 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. ( APPELLANT ) .. ( RESPONDENT ) I.T.A. NO. 1670/MUM/2011 (ASSESSMENT YEAR 1990 - 1991) DCIT OSD II/CR 7 4 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. VS. SHRI BHUPENDRA C. DALAL BHUPEN CHAMBERS, GROUND FLOOR, DALAL STREET, FORT, MUMBAI 400 001. ( APPELLANT ) .. ( RESPONDENT ) PAN NO.AABP D3308H ASSESSEE BY : SHRI VIPUL JOSHI DEPARTMENT BY : DR. P. DANIEL DATE OF HEARING : 1 3 .0 5 .2016 DATE OF PRONOUNCEMENT : 09 . 12 .2016 O R D E R PER BENCH : THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER PASSED BY LD CIT(A) - 40, MUMBAI FOR ASSESSMENT YEAR 1990 - 91. 2. THE FACTS RELATING TO THE ASSESSEE ARE DISCUSSED IN BRIEF. THE ASSESSEE IS A REGISTERED BROKER IN SHARES AND SECURITIES AND IS REGISTERED WITH BOMBAY 2 SHRI BHUPENDRA C. DALAL ITA NOS. 554 & 1670/MUM/2011 STOCK EXCHANGE. HE WAS ALSO ONE OF THE RECOGNISED BROKERS FOR DEALING IN GOVERNMENT SECURITIES. THE ASSESSEE HAS ALSO CARRIED ON TRADING ACTIVITIES IN SECURITIES ON HIS OWN ACCOUNT. A MAJOR SECURITIES SCAM WAS UNEARTHED IN THE YEAR 1992, WHICH LED TO ENACTMENT OF A SPECIAL ACT KNOWN AS SPECIAL COURT (TRIAL OF OFFENCES RELATING TO TRANSACTIONS IN SE CURITIES) ACT, 1992. THE ASSESSEE WAS ALSO IMPLICATED AS A PERSON INVOLVED IN THE SECURITIES SCAM. A CUSTODIAN WAS APPOINTED TO TAKE CONTROL OF ALL THE ASSETS OF PERSONS IMPLICATED IN THE SCAM. ALL THE PERSONS SO IMPLICATED WERE CALLED AS NOTIFIED PERS ONS. HENCE THE ASSESSEE BECAME ONE OF THE NOTIFIED PERSONS. PRIOR TO THE ENACTMENT OF THE ABOVE SAID SPECIAL ACT, A COMMITTEE NAMED AS JANAKIRAMAN COMMITTEE WAS APPOINTED TO PROBE THE SCAM RELATED MATTERS. A JOINT PARLIAMENTARY COMMITTEE WAS ALSO FOR MED TO INVESTIGATE INTO THE MATTERS. 3. THE CBI CONDUCTED SEARCH ON THE ASSESSEE ON 22.06.1992 AND THE INCOME TAX DEPARTMENT CONDUCTED SEARCH ON THE ASSESSEE ON 16.10.1992. THE APPEALS UNDER CONSIDERATION HAVE BEEN FILED IN THE SECOND ROUND OF PROCE EDINGS. THE ASSESSMENTS WERE ORIGINALLY COMPLETED AFTER THE SEARCH OPERATIONS. THE ASSESSEE CHALLENGED THE ASSESSMENT ORDERS BY FILING APPEAL BEFORE LD CIT(A) AND THEN THE MATTERS WERE TAKEN BEFORE THE ITAT BY BOTH THE PARTIES ON THE ISSUES DECIDED BY LD CIT(A) AGAINST EACH OF THEM. BEFORE THE TRIBUNAL, THE ASSESSEE CONTENDED THAT THE ASSESSING OFFICER HAD MADE HUGE ADDITIONS ON THE BASIS OF CERTAIN MATERIALS, WHICH WERE NOT CONFRONTED WITH HIM. HENCE, THE TRIBUNAL SET ASIDE THE ORDERS OF TAX AUTHORITIE S AND RESTORED ALL THE MATTERS TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTION TO COMPLETE THE ASSESSMENTS AFRESH AFTER PROVIDING ALL THE MATERIALS, WHICH WERE RELIED UPON BY THE AO TO MAKE ADDITIONS, TO THE ASSESSEE. CONSEQUENTLY, THE PRESENT ASS ESSMENT ORDERS WERE PASSED BY THE ASSESSING OFFICER IN THE SECOND ROUND OF PROCEEDINGS. THE ASSESSEE AGAIN CHALLENGED THE ASSESSMENT ORDERS BY FILING APPEALS BEFORE LD CIT(A) AND BOTH THE PARTIES HAVE FILED THE APPEALS 3 SHRI BHUPENDRA C. DALAL ITA NOS. 554 & 1670/MUM/2011 UNDER CONSIDERATION CHALLENGING THE ORDERS PASSED BY LD CIT(A) ON THE ISSUES DECIDED AGAINST EACH OF THEM. 4. THE ASSESSEE HAS FILED RETURNS OF INCOME FOR AY 1987 - 88 TO 1991 - 92. HOWEVER THE ASSESSEE DID NOT FILE RETURNS OF INCOME FOR AY 1992 - 93 AND 1993 - 94. IT WAS EXPLAINED THAT HE C OULD NOT FILE THE RETURN OF INCOME FOR THOSE YEARS, SINCE ALL THE RECORDS WERE SEIZED BY THE CBI/REVENUE AND FURTHER HE WAS CONSTRAINED TO UNDERGO IMPRISONMENT AND TO FACE ENQUIRIES OF VARIOUS INVESTIGATING AGENCIES. 5. IN THE ORDER DATED 09 - 11 - 2016 PASSED BY US IN THE HANDS OF THE ASSESSEE FOR AY 1987 - 88 TO 1989 - 90, WE HAVE DISCUSSED IN BRIEF THE NATURE OF BUSINESS ACTIVITIES CARRIED ON BY THE ASSESSEE. THE DISCUSSIONS ARE AVAILABLE IN PARAGRAPH 5 TO 13 OF THE ORDER. THE SAME MAY BE READ AS PART O F THIS ORDER ALSO. 6. DURING THIS YEAR, THE ASSESSING OFFICER DIRECTED FOR A SPECIAL AUDIT U/S 142(2A) OF THE ACT. HENCE THIS YEARS ASSESSMENT IS BASED ON CERTAIN OBSERVATIONS MADE BY THE SPECIAL AUDITORS. THE SPECIAL AUDITORS REPORTED THAT THEY A RE NOT ABLE TO EXPRESS ANY OPINION ON THE ACCOUNTS AS UNDER: - IN VIEW OF OUR OBSERVATIONS IN THE ATTACHED SCHEDULE - I AND ANNEXURES, WE ARE UNABLE TO EXPRESS OUR OPINION WHETHER THE SAID ACCOUNTS GIVE A TRUE AND FAIR VIEW: - (I) IN THE CASE OF BALANCE SHEET, OF THE STATE OF THE ABOVE NAMED ASSESSEES AFFAIRS AS AT 31 ST MARCH, 1990. (II) IN THE CASE OF PROFIT AND LOSS ACCOUNTS, OF THE PROFIT OF THE ABOVE NAMED ASSESSEE FOR THE ACCOUNTING YEAR ENDING 31 ST MARCH 1990. 4 SHRI BHUPENDRA C. DALAL ITA NOS. 554 & 1670/MUM/2011 ACCORDING TO T HE SPECIAL AUDITORS, THE ASSESSEE HAS NOT MAINTAINED CERTAIN SUBSIDIARY BOOKS AND FURTHER CERTAIN TYPES OF TRANSACTIONS RECORDED IN THE BOOKS OF ACCOUNTS ARE NOT PROPERLY VERIFIABLE. THE AUDITORS ALSO LISTED OUT INSTANCES OF EXCEPTIO NAL LOSS ES, EXCEPTIONA L PROFITS, EXCEPTIONAL DIFFERENCE OF RATE, TRANSACTIONS EFFECTED THROUGH JOURNAL ENTRIES ETC. ACCORDINGLY, THE SPECIAL AUDITORS HAVE DECLINED TO EXPRESS ANY OPINION ON THE FINANCIAL STATEMENTS OF THE ASSESSEE. BASED ON THE OBSERVATIONS OF THE AUDITORS AN D THE REPLIES SUBMITTED BY THE ASSESSEE TO THE QUERIES RAISED, THE ASSESSING OFFICER HAS SUMMARISED CERTAIN POINTS RELATING TO METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE AS UNDER: - (I) REGARDING SECURITY TRANSACTIONS, THE ASSESSEE HAD NOT MAINTAINED/ RECO RDS SEPARATELY FOR OWN TRADING OR TRADING ON BEHALF OF CLIENTS, INSTITUTIONS OR BANK. HE FURTHER ARGUED THAT HE WAS FOLLOWING THE SAME PRACTICE FOR LAST SO MANY YEARS (REPLY OF ASSESSEE DATED 2.01.1993). (II) THE ASSESSEE HAD NOT MAINTAINED SAUDA BOOK FOR SHARE TRANSACTIONS. HERE ALSO HE HAD STATED THAT BILLS TO VARIOUS BROKERS WERE NOT ISSUED BY HIM. (REPLY OF ASSESSEE TO AUDITOR DATED 16.06.1993) (III) DEAL SLIPS WERE NOT PREPARED BY THE ASSESSEE (REPLY OF ASSESSEE TO AUDITOR DATED 16.06.1993) (IV) CONTRACT NOTES FOR SECURITIES MAY OR MAY NOT HAVE SIGNATURES (REPLY OF ASSESSEE TO AUDITOR DATED 16.06.1993) (V) IN RESPECT OF SECURITY TRANSACTIONS NO CONTRACT NOTES WERE ISSUED TO MARKET BROKERS (STATEMENT OF ASSESSEE RECORDED ON 22.09.1993) 5 SHRI BHUPENDRA C. DALAL ITA NOS. 554 & 1670/MUM/2011 (VI) NO SEPARATE RECORDS WERE MAI NTAINED FOR RECEIPT AND DELIVERY OF SECURITIES (STATEMENT OF ASSESSEE RECORDED ON 22.09.1993). (VII) THE ASSESSEE ENTERED INTO SECURITY TRANSACTIONS WITH A NUMBER OF BANKS AND RESERVE BANK OF INDIA BUT NO LEDGER ACCOUNTS WAS MAINTAINED FOR ALL THESE PARTIES. H E REPLIED THAT FOR SECURITY TRANSACTIONS WITH ALL THESE PARTIES THE SECURITY ACCOUNT WAS DEBITED OR CREDITED AND CORRESPONDING ENTRY WAS MADE IN THE BANK ACCOUNT FROM WHERE THE CHEQUE WAS ISSUED OR THE CHEQUE WAS RECEIVED. (STATEMENT OF ASSESSEE RECORDED O N 22.09.1993). (VIII) IN THE SECURITY LEDGER OF THE ASSESSEE, THE TRANSACTIONS WERE RECORDED ON THE BASIS OF DATES OF DELIVERY. THEREFORE, FROM THE SECURITY LEDGER ALONE IT WAS NOT POSSIBLE TO ASCERTAIN THE DATE OF CONTRACT. (IX) IN THE SECURITY LEDGER A NUMBER OF TRANSACTIONS WERE RECORDED BY JOURNAL ENTRY ONLY. ACCORDINGLY THE AO CAME TO THE CONCLUSION THAT THE ASSESSEE HAD MAINTAINED HIS BOOKS IN SUCH A MANNER THAT HIS INCOME COULD NOT HAVE BEEN CORRECTLY DERIVED THERE FROM. 7 . AS IN OTHER YEARS, THE ORIGINAL ASSESSMENT WAS SET ASIDE BY THE TRIBUNAL AND THE PRESENT ASSESSMENT ORDER HAS BEEN PASSED IN THE SET ASIDE PROCEEDINGS. 8 . THE FIRST ISSUE CONTESTED BY THE ASSESSEE RELATES TO THE DISALLOWANCE OF EXCEPTIONAL LOSSES I NCURRED IN CERTAIN SECURITY TRANSACTIONS. THE SPECIAL 6 SHRI BHUPENDRA C. DALAL ITA NOS. 554 & 1670/MUM/2011 AUDITORS HAD GIVEN A LIST OF TRANSACTIONS IN ANNEXURE - 1 OF AUDIT REPORT, WHEREIN THE ASSESSEE HAD INCURRED SUBSTANTIAL LOSSES. FOR EXAMPLE, IN A TRANSACTION OF RS.10.00 CRORES, THE ASSESSEE HAD INCURR ED LOSS OF RS.16,38,849/ - . FURTHER IT WAS NOTICED THAT IN ALL THESE TRANSACTIONS, THE BROKER INVOLVED THEREIN WAS ALSO IN VOLVED IN SECURITY SCAM. SINCE THE SUPPORTING VOUCHERS WERE INADEQUATE, THE SPECIAL AUDITORS HAD REPORTED THAT THE AUTHENTICITY OF TH ESE TRANSACTIONS WERE NOT VERIFIABLE. THE AGGREGATE AMOUNT OF EXCEPTIONAL LOSSES WAS REPORTED TO BE RS.1,20,36,929/ - . SINCE THE ASSESSEE DID NOT FURNISH REPLIES TO EACH OF THE EXCEPTIONAL TRANSACTIONS, THE AO DISALLOWED THE ABOVE SAID AMOUNT IN THE ORIGI NAL PROCEEDINGS. 9 . IN THE SET ASIDE PROCEEDINGS, THE ASSESSEE SUBMITTED THAT THIS ADDITION WAS MADE BY THE AO ON THE GROUND THAT THE GENUINENESS OF LOSSES WAS UNVERIFIABLE. IN ORDER TO ARRIVE AT THIS DECISION, THE AO HAD PLACED RELIANCE ON THE REPORT GIVEN BY SPECIAL AUDITORS. THE ASSESSEE SUBMITTED THAT THE AUDITORS HAVE NOT DOUBTED THE GENUINENESS OF THE TRANSACTIONS, BUT HAVE ONLY REPORTED EXCEPTIONAL TRANSACTIONS. THE ASSESSEE FURTHER SUBMITTED THAT THOSE EXCEPTIONAL TRANSACTIONS ARE ALSO NORMAL COMMERCIAL TRANSACTIONS ENTERED DURING THE NORMAL COURSE OF BUSINESS. FURTHER THE PROFIT OR LOSS OF THE TRANSACTIONS WOULD DEPEND UPON THE MARKET CONDITIONS PREVAILING AT A PARTICULAR POINT OF TIME/DATE. IT WAS FURTHER PLEADED THAT THE ASSESSEE HA S ALSO MADE EXCEPTIONAL PROFITS IN CERTAIN TRANSACTIONS OF PURCHASE AND SALE OF SECURITIES AGGREGATING TO RS.38,08,318/ - . 10 . WITH REGARD TO THE AUDITORS OBSERVATIONS, THE ASSESSEE SUBMITTED THAT THE AUDITORS HAVE PLACED ON RECORD THE COOPERATION GI VEN BY THE CLIENTS AND STAFF. FURTHER THEY HAVE REPORTED THAT DUE TO SHORTAGE OF TIME, THEY HAVE NOT BEEN ABLE TO COVER ALL ASPECTS. IT WAS CONTENDED THAT THE AUDITORS HAVE NOT DOUBTED THE GENUINENESS OF THE TRANSACTIONS, BUT HAVE ONLY EXPRESSED THE VIEW ABOUT THE INADEQUACY OF THE SUPPORTING DOCUMENTS. 7 SHRI BHUPENDRA C. DALAL ITA NOS. 554 & 1670/MUM/2011 11 . THE AO WAS NOT CONVINCED WITH THE ABOVE SAID EXPLANATIONS OF THE ASSESSEE. HE TOOK THE VIEW THAT THE ASSESSEE IS URGING VERY SAME CONTENTIONS AS WAS URGED BEFORE HIM IN THE ORIGINAL ASSESSMENT P ROCEEDINGS. ACCORDINGLY THE AO TOOK THE VIEW THAT THE LOSS ARISING FROM SALE OF SECURITIES ARE NOT GENUINE AND ACCORDINGLY DISALLOWED THE SAME. 12 . IN THE APPELLATE PROCEEDINGS, THE LD CIT(A) TOOK COGNIZANCE OF ANOTHER DISALLOWANCE MADE BY THE AO, V IZ., THE LOSS OF RS.7,87,500/ - REPORTED BY THE ASSESSEE IN RESPECT OF SECURITY TRANSACTION ENTERED WITH M/S GANESH BOOK BINDING WORKS. IN THE STATEMENT TAKEN FROM THE OWNER OF M/S GANESH BOOK BINDING WORKS, HE HAD DENIED THE TRANSACTION S AND WHEN IT WAS P UT TO THE ASSESSEE, HE COULD NOT FURNISH ANY CONVINCING REPLY. HENCE THE AO DISALLOWED THE ABOVE SAID LOSS OF RS.7,87,500/ - AND IT WAS CONFIRMED BY THE LD CIT(A) IN THE FIRST ROUND OF PROCEEDINGS. TAKING THE ABOVE SAID TRANSACTION AS A SAMPLE CASE, THE LD CIT(A) EXPRESSED THE VIEW THAT THE CLAIM OF LOSS CAN BE ACCEPTED ONLY IF A THIRD PARTY CONFIRMATION COULD BE SUBMITTED BY THE ASSESSEE. WITH REGARD TO THE PLEA OF THE ASSESSEE THAT THE AO HAS EXAMINED ONLY EXCEPTIONAL TRANSACTIONS WHERE LOSS HAS OCCURRED AND DID NOT EXAMINE PROFIT TRANSACTIONS , THE LD CIT(A) EXPRESSED THE VIEW THAT THE AO WAS ENTITLED TO EXAMINE AS TO WHETHER THE EXPENSES HAVE BEEN INFLATED. 13 . WE HEARD THE PARTIES ON THIS ISSUE AND PERUSED THE RECORD. THE MAIN CONTENTION OF THE LD A.R WAS THAT THE SPECIAL AUDITORS HAVE NOT DOUBTED THE GENUINENESS OF THE TRANSACTIONS AND IN THEIR OPINION, THESE LOSSES WERE EXCEPTIONAL. THE PARAMETERS FOLLOWED BY THE AUDITORS TO IDENTIFY EXCEPTIONAL NATURE OF TRANSACTIONS WERE: - (A) THE PREVAILING RATE S ON THE DATE OF TRANSACTIONS ARE NOT AVAILABLE. 8 SHRI BHUPENDRA C. DALAL ITA NOS. 554 & 1670/MUM/2011 (B) APPARENTLY THE LOSSES/PROFITS ARE EITHER TOO LOW OR ABOVE MODERATE OR TOO HIGH. (C) GENERALLY ONE SIDE OF TRANSACTION (I.E. SELLER OR BUYER) IS ALWAYS A BROKER WITH WHOM THE ASSESSEE HAS TRADED HEAVILY DURING TH E COURSE OF THE YEAR. WITH REGARD TO THE ABOVE SAID OBSERVATIONS, THE LD A.R MADE FOLLOWING SUBMISSIONS: - (A) THOUGH THE GOVERNMENT SECURITIES WERE QUOTED ON STOCK EXCHANGES, BUT HARDLY THERE WERE ANY TRANSACTION ON THE FLOOR OF EXCHANG E. HENCE THERE WAS N O SYSTEM FOR ASCERTAINING PREVAILING RATES AND THE RATES WERE DECIDED BETWEEN THE PARTIES ON THE BASIS OF YIELD OF SECURITIES AND THE MATURITY PERIOD AT THE TIME OF ENTERING THE TRANSACTIONS. (B) ALL THE TRANSACTIONS HAVE BEEN ENTERED AT ARM LENGTH AND THROUG H BANKING CHANNELS, WHEREIN THE ULTIMATE PARTIES WERE BANKS AND FINANCIAL INSTITUTIONS. HENCE THE LOSSES/PROFITS AROSE DURING THE COURSE OF NORMAL BUSINESS TRANSACTIONS. (C) THE BANKS AND FINANCIAL INSTITUTIONS HAVE EMPLOYED BROKERS FOR PURCHASE AND SALE OF TRANSACTIONS AND HENCE THE ASSESSEE WAS CONSTRAINED TO DEAL WITH REGISTERED BROKERS ONLY. THE SAID BROKERS HAVE ENTERED INTO THE TRANSACTIONS ON BEHALF OF THE BANKS AND FINANCIAL INSTITUTIONS. ACCORDINGLY THE LD A.R CONTENDED THAT THE PARAMETERS DETERMIN ED BY THE SPECIAL AUDITORS WERE NOT CORRECT AND THEY HAVE BEEN FIXED WITHOUT APPRECIATING THE PREVAILING AND PRACTICAL MARKET PRACTICE. HE FURTHER SUBMITTED THAT THE AUDITORS HAVE EXPRESSED THEIR RESERVATIONS ABOUT THE SO CALLED 9 SHRI BHUPENDRA C. DALAL ITA NOS. 554 & 1670/MUM/2011 EXCEPTIONAL TRANSACTIONS, S INCE SUPPORTING EVIDENCES WERE NOT AVAILABLE. HENCE THEIR REPORT CANNOT BE THE BASIS TO SUSPECT GENUINENESS OF TRANSACTIONS. HOWEVER, THEY HAVE FAILED TO APPRECIATE THAT THE TRANSACTIONS HAVE BEEN ENTERED THROUGH BANKING CHANNELS AND THE ULTIMATE BUYER/S ELLER WAS ANY ONE OF THE BANKS OR FINANCIAL INSTITUTIONS. FURTHER, MOST OF THE RECORDS WERE SEIZED BY THE CBI AND INCOME TAX DEPARTMENT AT THE TIME OF SPECIAL AUDIT. ONE OF THE MAIN STAFFS HAD LEFT THE EMPLOYMENT. HENCE, THE ASSESSEE COULD NOT OFFER EXP LANATIONS TO THE SATISFACTION OF THE AUDITORS, WHICH HAS LED THE AUDITORS TO MAKE SUCH KIND OF OBSERVATIONS. ACCORDINGLY THE LD A.R SUBMITTED THAT THE TAX AUTHORITIES ARE NOT JUSTIFIED IN TAKING ADVERSE VIEW ON THE BASIS OF AUDITORS OBSERVATIONS. 14 . THE LD A.R SUBMITTED THAT THE ASSESSEE HAD ALSO MADE PROFITS IN SUCH KIND OF TRANSACTIONS AND THE SAID FACT HAS BEEN CONVENIENTLY IGNORED BY THE AO. HE SUBMITTED THAT THE TRANSACTION MADE WITH BANK OF AMERICA IN 11.5% 2008 SECURITIES RESULTED IN A LOSS O F RS.5,50,800/ - IN THE MONTH OF APRIL (PAGE NO.413 OF PAPER BOOK). HOWEVER, THE TRANSACTION ENTERED WITH BANK OF AMERICA ON THE VERY SAME SECURITY SUBSEQUENTLY HAS RESULTED IN A PROFIT OF RS.5,50,000/ - (PAGE NO.417 OF PAPER BOOK). THE TRANSACTION SHOWN A T SR. NO.3 AT PAGE 416 OF PAPER BOOK IN 11.5% 2006 SECURITY RESULTED IN A LOSS OF RS.18.60 LACS. SUBSEQUENTLY, THE ASSESSEE MADE A PROFIT OF RS.12.87 LACS IN THE VERY SAME SECURITY SUBSEQUENTLY (SR. NO.10 AT PAGE 418). ACCORDINGLY THE LD A.R SUBMITTED THA T THE TAX AUTHORITIES HAVE MADE THIS ADDITION WITHOUT APPLYING THEIR MIND ON THIS ISSUE AND HENCE THE SAME SHOULD BE DELETED. 15 . ON THE CONTRARY, THE LD D.R SUBMITTED THAT THE ASSESSEE IS HAVING SUPPORT OF PAYMENT AND RECEIPT VOUCHERS ONLY AS SUPPORT ING DOCUMENTS. HE SUBMITTED THAT PAYMENTS AND RECEIPTS ALONE CANNOT PROVE THAT THERE WAS CORRE S PONDING RECEIPT AND ISSUE OF SECURITIES. IN THE ABSENCE OF CONTRACT 10 SHRI BHUPENDRA C. DALAL ITA NOS. 554 & 1670/MUM/2011 VOUCHERS/DETAILS OF SECURITIES, THE LOSS SHOWN BY THE ASSESSEE CANNOT BE ACCEPTED BY THE TA X AUTHORITIES. 16 . WE NOTICE THAT THE AO HAS PLACED RELIANCE FULLY ON THE OBSERVATIONS MADE BY THE AUDITORS FOR MAKING THIS DISALLOWANCE. THE LD CIT(A) HAS EXPRESSED THE VIEW THAT THE THIRD PARTY CONFIRMATIONS WERE NOT AVAILABLE TO PROVE THE LOSSES AND HENCE HE HAS CONFIRMED THE ADDITION. IT IS A FACT THAT THE ASSESSEE COULD NOT PRODUCE THIRD PARTY CONFIRMATIONS AS WELL AS CONTRACT NOTES TO SUBSTANTIATE THE CLAIM OF EXCEPTIONAL LOSSES IN THE SECURITIES TRANSACTIONS. HOWEVER, THE ASSESSEE HAS ALSO POINTED THAT HE HAS MADE PROFITS IN SUCH TYPE OF TRANSACTIONS AND THE SAID FACT HAS NOT BEEN DENIED BY THE TAX AUTHORITIES. IN FACT, THEY HAVE ACCEPTED THE PROFITS SO DECLARED BY HIM. THE ASSESSEE HAS ALSO EXPRESSED HIS HANDICAP IN EXPLAINING THESE TRANS ACTIONS, VIZ., SEIZURE OF RECORDS BY CBI AS WELL AS INCOME TAX DEPARTMENT, RESIGNATION OF MAIN STAFF ETC. EVEN THOUGH THE ASSESSEE COULD NOT FURNISH SUPPORTING VOUCHERS, THE FACT REMAINED THAT THE TRANSACTIONS HAVE BEEN CARRIED THROUGH BANKING CHANNELS ON LY. THE ASSESSEE HAS ALSO GIVEN CERTAIN EXAMPLES, WHEREIN HE HAD MADE PROFITS IN DEALING WITH VERY SAME SECURITIES. 17 . THE LD A.R, DURING THE COURSE OF HIS ARGUMENTS, EFFECTIVELY MADE SUBMISSIONS AS TO HOW THE OBSERVATIONS MADE BY THE SPECIAL AUDITO RS WERE NOT CORRECT. AT THE RELEVANT POINT OF TIME, IT WAS STATED THAT THE SECURITIES WERE NOT TRADED ON DAILY BASIS ON THE FLOOR OF THE STOCK EXCHANGES. HENCE THE PRICES WERE DETERMINED BETWEEN THE PURCHASERS AND SELLERS. THE ASSESSEE HAS ALSO EXPLAINE D THAT ONE SIDE OF BROKER IS REPRESENTING A BANK/FINANCIAL INSTITUTION. SINCE THE TRANSACTIONS WERE CARRIED THROUGH BANKING CHANNELS, IT WAS EXPLAINED THAT THEY HAVE BEEN DONE DURING THE NORMAL COURSE OF CARRYING ON THE BUSINESS. IN OUR VIEW, THE ABOVE S AID EXPLANATIONS ALSO APPEAR TO BE REASONABLE. WHEN THE TRANSACTIONS HAVE BEEN ENTERED BETWEEN A WILLING SELLER AND WILLING BUYER, THE SAME SHOULD NOT BE DOUBTED WITH UNLESS SOME 11 SHRI BHUPENDRA C. DALAL ITA NOS. 554 & 1670/MUM/2011 MATERIALS TO THE CONTRARY ARE BROUGHT ON RECORD. IT WOULD ALWAYS BE DIFFICU LT TO ANYONE TO PROVE A NEGATIVE FACT. 18 . AT THE SAME TIME, THERE IS A MAJOR DEFICIENCY ON THE PART OF THE ASSESSEE, I.E., HE COULD NOT FURNISH RELEVANT CONTRACT NOTES NOR HE COULD GET CONFIRMATION FROM THE OTHER BROKER OR HIS CLIENT IN SUPPORT OF THE FINANCIAL TRANSACTION. AS SUBMITTED BY LD D.R , A FINANCIAL TRANSACTION ENTERED THROUGH BANKING CHANNELS, MAY NOT ALWAYS PROVE THE TRANSACTION OF PURCHASE AND SALES UNLESS THE DETAILS OF SECURITIES, BUYER, SELLER ETC. ARE ALSO FURNISHED. 19 . WE HAVE ALSO EARLIER NOTICED THAT THE ASSESSEE HAS ALSO D ECLARED EXCEPTIONAL PROFITS IN CERTAIN TRANSACTIONS. HENCE WE ARE OF THE VIEW THAT THE DISALLOWANCE OF ENTIRE AMOUNT OF LOSS DECLARED BY THE ASSESSEE MAY NOT BE APPROPRIATE UNDER THE FACTS DISCUSSED ABOVE, I.E., WE ARE OF THE VIEW THAT A PORTION OF THE LO SS MAY BE DISALLOWED TO TAKE CARE OF DEFICIENCIES, IF ANY, IN THE CLAIM SO MADE. HENCE, ON A CONSPECTUS OF THE MATTER, WE ARE OF THE VIEW THAT A DISALLOWANCE OF 20% OF THE EXCEPTIONAL LOSS CLAIMED ON SALE OF SECURITIES MAY BE REASONABLE. ACCORDINGLY, WE SET ASIDE THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO RESTRICT THE DISALLOWANCE OF 20% OF THE AMOUNT DISALLOWED BY HIM. WE ORDER ACCORDINGLY. 20 . THE NEXT ADDITION CONTESTED BY THE ASSESSEE RELATES TO THE DISALLOWANCE OF RS.29,23,336 / - RELATING TO DIFFERENCE OF RATE (DOR). AT THE TIME OF PURCHASE AND SALE OF SECURITIES, THE ASSESSEE QUOTES DIFFERENT RATE TO SELLER AND PURCHASER AND THE DIFFERENCE IS BEING TAKEN AS INCOME/EXPENDITURE. FOR EXAMPLE, IF CENTRAL BANK OF INDIA WANTS TO SE LL A SECURITY HAVING A PAR VALUE OF RS.100/ - . THE ASSESSEE MAY QUOTE RS.100.05 TO THE SELLER AND HE MAY QUOTE RS.100.10 TO THE BUYER. IF BOTH THE DEALS ARE STRUCK, THEN THE ASSESSEE WOULD EARN DOR OF RE.0.05. THIS AMOUNT IS INITIALLY CREDITED TO THE SEC URIT IES ACCOUNT AND AT THE YEAR END; THE SAME IS TRANSFERRED TO THE PROFIT AND LOSS 12 SHRI BHUPENDRA C. DALAL ITA NOS. 554 & 1670/MUM/2011 ACCOUNT AS DOR FROM THE SECURITIES ACCOUNT. THE SPECIAL AUDITORS REPORTED CERTAIN TRANSACTIONS, WHEREIN THE ASSESSEE HAD INCURRED EXCEPTIONAL LOSSES. IN THE FIRST ROUND O F PROCEEDINGS, THE AO DISALLOWED ENTIRE LOSS OF RS.34,80,607/ - REPORTED BY SPECIAL AUDITORS AS EXCEPTIONAL CASES. EVEN THOUGH THE ASSESSEE HAD CITED INSTANCES, WHEREIN HE HAD MADE EXCEPTIONAL PROFITS ALSO, YET THE AO DISALLOWED THE LOSSES FOR THE REASON T HAT THE ASSESSEE HAS FAILED TO OFFER ANY CONVINCING EXPLANATION. IN THE SET ASIDE PROCEEDINGS, THE ASSESSEE GAVE SOME MORE INSTANCES, WHERE EXCEPTIONAL PROFITS HAD BEEN MADE. HE ALSO PLEADED THAT THE SPECIAL AUDITORS REPORT SHOULD NOT BE RELIED UPON BLIN DLY. HE SUBMITTED THAT THE DOR IS DETERMINED ON THE BASIS OF MARKET CONDITIONS. THE ASSESSEE ALSO POINTED OUT A CASTING ERROR OF RS.3,92,000/ - FOUND IN THE COMPUTATION MADE BY THE SPECIAL AUDITORS. HOWEVER, THE AO DID NOT ACCEPT THE EXPLANATIONS OF THE ASSESSEE AND ACCEPTED CASTING ERROR AND FURTHER EXPLANATIONS WITH REGARD TO RS.1,65,271/ - . ACCORDINGLY HE AGAIN MADE ADDITION OF RS.29,23,336/ - . THE LD CIT(A) ALSO CONFIRMED THE ADDITION BY FOLLOWING HIS DECISION RENDERED IN THE FIRST ROUND OF PROCEEDING S, WHEREIN HE HAD TAKEN THE VIEW THAT THE ASSESSEE HAD CLAIMED BOGUS LOSSES TO WIPE OUT THE EXCEPTIONAL PROFITS. 21 . WE HEARD THE PARTIES ON THIS ISSUE AND PERUSED THE RECORD. THE MAIN CONTENTION OF THE ASSESSEE IS THAT THE SPECIAL AUDITORS HAVE NOT SET ANY PARAMETER TO DETERMINE A TRANSACTION AS EXCEPTIONAL IN NATURE. ACCORDING TO THE ASSESSEE, THESE TRANSACTIONS HAVE BEEN ENTERED IN THE NORMAL COURSE OF BUSINESS. SINCE THE DELIVERY OF SECURITIES HAS BEEN MADE DIRECTLY BY THE SELLER TO THE BUYER, THE S AME HAS NOT COME TO THE HANDS OF THE ASSESSEE. THE TRANSACTIONS ARE SUPPORTED BY THE BANK ADVICES FOR PAYING DOR. THE ASSESSEE WAS ISSUING DELIVERY INSTRUCTIONS TO THE SELLER AND THE SAME CONSTITUTE THE SUPPORTING DOCUMENT. THE LD A.R SUBMITTED THAT THE ASSESSEE HAS ALSO MADE EXCEPTIONAL PROFITS AROUND RS.50 LAKHS IN DOR TRANSACTIONS. 13 SHRI BHUPENDRA C. DALAL ITA NOS. 554 & 1670/MUM/2011 22 . ON THE CONTRARY, THE LD D.R PLACED STRONG RELIANCE ON THE ORDERS PASSED BY THE TAX AUTHORITIES. HE SUBMITTED THAT THE ASSESSEE HAS FAILED TO FURNISH CONVINCING EXPLAN ATIONS AS TO HOW THESE LOSSES WERE INCURRED. 23 . ON A CONSIDERATION OF RIVAL SUBMISSIONS, WE FIND MERIT IN THE SUBMISSIONS MADE BY THE ASSESSEE. IN THE INSTANT CASE, IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE HAS ENTERED THESE TRANSACTIONS THROU GH ANOTHER BROKER. THE SPECIAL AUDITORS HAVE REPORTED THAT THE DOR LOSS WAS EXCEPTIONAL IN CERTAIN TRANSACTIONS. NEITHER THE SPECIAL AUDITOR NOR THE TAX AUTHORITIES HA S PROBED THOSE TRANSACTIONS FURTHER TO ASCERTAIN AS TO WHETHER THE LOSS SO INCURRED COU LD BE A CASE OF ARTIFICIAL ENHANCEMENT OF LOSSES . THE ASSESSEE HAS ALSO LISTED OUT TRANSACTIONS, WHERE HE HAD MADE EXCEPTIONAL PROFITS. THERE IS MERIT IN THE SUBMISSIONS OF THE ASSESSEE THAT THE MARKET RATE OF A SECURITY IS DEPENDENT UPON MANY FACTORS AND HENCE THE SAME WOULD BE FLUCTUATING. THE TAX AUTHORITIES HAVE NOT BROUGHT ANY MATERIAL ON RECORD TO SHOW THAT THE PRICES AT WHICH THE SECURITIES WERE PURCHASED AND SOLD WERE NOT MARKET RATES. WE HAVE NOTICED THAT THE ASSESSEE WAS IN THE HABIT OF ENTERING INTO THE BUYING AND SELLING THE SECURITIES BY TAKING RISKS. IN SUCH KIND OF BUSINESS TRANSACTIONS, THE POSSIBILITY OF MAKING EXCEPTIONAL LOSSES/PROFITS COULD NOT BE RULED OUT. HENCE WE FIND MERIT IN THE SUBMISSIONS THAT THE EXCEPTIONAL LOSSES, PER SE, W OULD NOT TURN THE SAME TO BE A BOGUS OR ARTI FI CIALLY HIKED LOSS. THE TAX AUTHORITIES SHOULD HAVE PROBED THE MATTER FURTHER BY MAKING ENQUIRIES FROM THE CONCERNED SELLER & BUYER , ABOUT PREVAILING MARKET RATES ETC., AND THEN THEY SHOULD HAVE COME TO A CONCL USION. IT IS PERTINENT TO NOTE THAT THE SPECIAL AUDITORS HAVE ONLY REPORTED THE SAME AS EXCEPTIONAL CASES, BUT THEY HAVE NOT BRANDED THE SAME AS BOGUS. HENCE, IN OUR VIEW, THIS CLAIM HAS BEEN DISALLOWED BY THE TAX AUTHORITIES ONLY ON SURMISES AND NOT BAS ED UPON ANY CREDIBLE EVIDENCE. ACCORDINGLY WE DO NOT FIND ANY JUSTIFICATION IN DISALLOWING THIS CLAIM. ACCORDINGLY, WE SET ASIDE THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO DELETE THIS ADDITION. 14 SHRI BHUPENDRA C. DALAL ITA NOS. 554 & 1670/MUM/2011 24. THE NEXT ADDITION CONTESTED BY THE ASSESSEE RELATES TO THE DISALLOWANCE OF LOSS ARISING WITH PURCHASE AND SALE OF SECURITIES ON THE SAME DATE WITH THE SAME PARTY. THE AUDITORS REPORTED TRANSACTIONS IN WHICH PURCHASE AND SALE OF SECURITIES WERE FOUND TO HAVE BEEN MADE WITH THE SAME PARTY ON THE SAME DATE, BUT AT DIFFERENT RATES. SUCH TRANSACTIONS RESULTED IN LOSS AGGREGATING TO RS.53,03,007. IN THE ORIGINAL ASSESSMENT PROCEEDINGS, THE ASSESSEE OFFERED EXPLANATIONS WITH REGARD TO CERTAIN ENTRIES, I.E., THE ASSESSEE HAD RECO VERED MONEY AGAINST LOSS OF RS.9,20,527/ - POINTED BY THE AUDITORS; CERTAIN TRANSACTIONS HAVE TAKEN PLACE ON DIFFERENT DATES ETC. THE AO ACCEPTED THE EXPLANATION WITH REGARD TO THE LOSS OF RS.9,20,527/ - AND DID NOT ACCEPT EXPLANATIONS OF REMAINING TRANSACT IONS ACCORDINGLY HE DISALLOWED THE LOSS OF RS.43,82,480/ - (RS.53,03,007/ - LESS RS.9,20,527/ - ) WITH THE REASONING THAT THE TRANSACTIONS REMAINED UNVERIFIABLE. 25 . THE MAJOR PORTION OF LOSS WAS FOUND TO HAVE BEEN INCURRED IN THE TRANSACTIONS ENTERED WITH S HRI M.J.PATEL, I.E., TO THE TUNE OF RS.33,15,000/ - . THE AO ALSO RECORDED A STATEMENT FROM HIM SUBSEQUENT TO THE COMPLETION OF ORIGINAL ASSESSMENT , WHEREIN HE ALSO CONFIRMED THE TRANSACTIONS. HOWEVER HE HAS STATED THAT HE WAS GIVEN CONTRACT NOTES AND CHEQ UES ONLY, MEANING THEREBY HE DID NOT RECEIVE THE SECURITIES. THE ASSESSEE SUBMITTED THAT THE SECURITIES ARE USUALLY DELIVERED DIRECTLY BY THE SELLING BANK TO THE BUYING BANK. THE ASSESSEE ALSO POINTED OUT CERTAIN INSTANCES, WERE THE TRANSACTIONS WE RE NOT ON THE SAME DAY, VIZ. (A) TRANSACTIONS MENTIONED BY THE AUDITORS AT SR. NO.13 RS.1,48,334/ - (B) TRANSACTIONS MENTIONED BY THE AUDITORS AT SR. NO.5 RS.1,100/ - (C) TRANSACTIONS MENTIONED BY THE AUDITORS AT SR. NO.12 RS.7,85,500/ - . 15 SHRI BHUPENDRA C. DALAL ITA NOS. 554 & 1670/MUM/2011 HOWEVER, THE AO PLACED RELIAN CE ON THE STATEMENT GIVEN BY SHRI M J PATEL, WHEREIN HE HAD STATED THAT HE WAS GIVEN ONLY SECURITY VOUCHERS AND CHEQUES. THE AO FURTHER NOTICED THAT SOME OF THE PARTIES T O WHOM THE SECURITIES WERE SOLD WERE NOT TRACEABLE. ACCORDINGLY THE AO TOOK THE VIEW THAT THE ASSESSEE HAS ENGINEERED THE LOSS AND HENCE THIS CLAIM IS NOT GENUINE. ACCORDINGLY HE DISALLOWED THE CLAIM TO THE TUNE OF RS.43,82,480/ - . THE LD CIT(A) ALSO CONFIRMED THE ADDITION BY FOLLOWING THE DECISION RENDERED BY HIM IN THE FIRST ROUND OF PROCEEDINGS. 26 . THE LD A.R PLACED FULL RELIANCE ON THE BOOKS OF ACCOUNT AND SECURITY REGISTER/VOUCHERS AND SUBMITTED THAT THE TAX AUTHORITIES HAVE DISALLOWED THE CLAIM WITHOUT PROPERLY APPRECIATING THE FACTUAL MATRIX. HE SUBMITTED THAT THE TAX AUTHORI TIES HAVE NOT APPRECIATED THE FACT THAT MOST OF THE TRANSACTIONS WERE NOT CARRIED OUT ON THE SAME DATE AS POINTED OUT BY THE AUDITORS. HE SUBMITTED THAT, AS PER THE ACCOUNTING PROCEDURE FOLLOWED, THE TRANSACTIONS MIGHT HAVE BEEN ENTERED UPON DIFFERENT DATE S BUT ALL THE TRANSACTION S ARE ENTERED IN THE SECURITIES LEDGER AT THE END OF THE MONTH. WITH REGARD TO THE LOSS INCURRED IN RESPECT OF M.J. PATELS TRANSACTIONS, THE LD A.R SUBMITTED THAT HE HAS CONFIRMED THE TRANSACTIONS AND HENCE THE TAX AUTHORITIES AR E NOT JUSTIFIED IN REJECTING THE SAME. HE SUBMITTED THAT THESE TRANSACTIONS HAVE BEEN ENTERED INTO BY THE ASSESSEE IN THE NORMAL COURSE OF BUSINESS OPERATIONS. 27 . ON THE CONTRARY, THE LD D.R SUBMITTED THAT THE ASSESSEE COULD NOT SUBSTANTIATE THE CL AIM OF LOSS WITH PROPER SUPPORTING EVIDENCES. HE SUBMITTED THAT THE SECURITY VOUCHERS PREPARED BY THE ASSESSEE ARE SELF SERVING DOCUMENTS AND HENCE THE ASSESSEE SHOULD HAVE OBTAINED CONFIRMATIONS FROM ULTIMATE BUYERS/SELLERS. 16 SHRI BHUPENDRA C. DALAL ITA NOS. 554 & 1670/MUM/2011 28 . WE HAVE HEARD THE PARTIES ON THIS ISSUE AND PERUSED THE RECORD. WE NOTICE THAT THIS ADDITION HAS BEEN MADE ON THE BASIS OF OBSERVATIONS MADE BY THE SPECIAL AUDITORS THAT THESE LOSSES HAVE BEEN INCURRED ON INTRADAY TRANSACTIONS. DURING THE COURSE OF ORIGINAL ASSESSMENT PRO CEEDINGS AND ALSO DURING THE COURSE OF SECOND ROUND OF ASSESSMENT PROCEEDINGS, THE ASSESSEE HAS POINTED OUT THAT CERTAIN TRANSACTIONS HAVE NOT BEEN ENTERED ON THE VERY SAME DAY, BUT ACCOUNTED FOR ON A SINGLE DATE. IN THE FIRST ROUND, THE TRANSACTIONS AT S L. NO.11 & 13 WERE POINTED OUT AND IN THE SECOND ROUND, THE TRANSACTIONS SHOWN AT SL. NO.5, 12 & 13 WERE P OINTED OUT TO BE TRANSACTIONS CARRIED ON DIFFERENT DATES. WE NOTICE THAT THIS CLAIM OF THE ASSESSEE HAS NOT BEEN EXAMINED AT ALL BY THE TAX AUTHORITIE S. 29 . THE MAJOR PORTION OF LOSS HAS BEEN INCURRED IN THE TRANSACTIONS ENTERED WITH M.J. PATEL. THE STATEMENT FROM SHRI M.J. PATEL HAS BEEN TAKEN AFTER THE COMPLETION OF THE ORIGINAL ASSESSMENT PROCEEDINGS, I.E., AT THE TIME OF ORIGINAL ASSESSMEN T, THE STATEMENT OF SHRI M.J. PATEL WAS NOT AVAILABLE BEFORE THE AO. IN THE STATEMENT, SHRI M.J. PATEL HAS CONFIRMED ALL THE TRANSACTIONS, BUT HE SUBMITTED THAT HE HAS RECEIVED ONLY CONTRACT NOTES AND CHEQUES AND NOT ANY OTHER DOCUMENTS. THE RELEVANT EXTR ACT FROM THE STATEMENT GIVEN BY SHRI M.J. PATEL IS GIVEN BELOW: - Q.NO.2 : - WHAT ARE THE EVIDENCES BEFORE YOU TO PROVE THAT THE ABOVE SAID TWO TRANSACTIONS IN 11.5% 2006 & IDBI BONDS WERE GENUINE TRANSACTIONS? ANS.: - EXCEPT FOR THE SECURITIES CONTRACT IS SUED BY B.C. DEVIDAS & THE RECEIPT OF THE ABOVE SAID THREE CHEQUES OF RS.33.15 LAKHS FROM B.C. DEVIDAS, I DONT HAVE ANY OTHER EVIDENCE. Q.NO.3: - THESE EVIDENCES CAN BE CREATED BY YOU AND B.C. DEVIDAS IN ORDER TO GIVE A LOSS ENTRY OF RS.33.15 LACS TO HIM. PL. CONFIRM. 17 SHRI BHUPENDRA C. DALAL ITA NOS. 554 & 1670/MUM/2011 ANS.: - AS STATED IN MY EARLIER REPLY, EXCEPT FOR THE SECURITIES VOUCHERS & RECEIPT OF CHEQUE, I DONT HAVE ANY OTHER EVIDENCE TO PROVE THE GENUINENESS OF THE ABOVE SAID TRANSACTIONS IN SECURITIES & BONDS. WE NOTICE THAT THE M.J. PATEL H AS CLAIMED TO HAVE ENTERED INTO THESE TRANSACTIONS ON BEHALF OF PARTIES LOCATED IN WEST BENGAL AND MUMBAI. THE AO HAS ALSO POINTED OUT THE ABOVE SAID PARTIES WERE NOT TRACEABLE AT THE ADDRESS GIVEN BY THEM. FURTHER THE PAYMENTS TO WEST BENGAL PARTIES WER E CLAIMED TO HAVE BEEN SQUARED UP ONLY IN MAY, 1992, EVEN THOUGH HE HAD RECEIVED CHEQUES FROM THE ASSESSEE IN MAY, 1989. EVEN THOUGH THE ASSESSEE CANNOT HAVE CONTROL OVER THE TRANSACTIONS CARRIED ON BY SHRI M.J. PATEL, THE FACT THAT THE CUSTOMERS OF SHRI M.J. PATEL ARE NOT TRACEABLE AND THE BELATED PAYMENTS, IN OUR VIEW, CASTS SHADOW OF DOUBT ON THE TRANSACTIONS ENTERED BETWEEN THE ASSESSEE AND SHRI M.J. PATEL. AT THE SAME, THE UNDISPUTED FACT REMAINS THAT THE PAYMENTS HAVE BEEN MADE THROUGH BANKING CHANN ELS AND FURTHER THEY HAVE BEEN BACKED BY THE SECURITY VOUCHERS ISSUED BY THE ASSESSEE. IN OUR VIEW, THESE EVIDENCES COULD NOT BE ALTOGETHER BRUSHED ASIDE. IN THESE SET OF FACTS, WE ARE OF THE VIEW THAT THE ENTIRE LOSS CLAIMED BY THE ASSESSEE ALSO SHOULD NOT HAVE BEEN DISALLOWED. 30 . ACCORDINGLY, WE ARE OF THE VIEW THAT THE TRANSACTIONS CLAIMED TO HAVE BEEN MADE ON DIFFERENT DATES HAVE TO BE ACCEPTED, SINCE THE SAID CLAIM HAS NOT BEEN DISPROVED BY THE TAX AUTHORITIES. ACCORDINGLY, OUT OF THE ADDITION OF RS.43,82,480/ - , THE LOSSES PERTAINING TO TRANSACTIONS NOTED DOWN IN SR. NO.5, 12 AND 13 ARE DIRECTED TO BE DELETED. IN THE FIRST ROUND OF PROCEEDINGS, THE ASSESSEE HAD ALSO CLAIMED THAT THE TRANSACTION S NOTED IN SL.NO.11 HAVE ALSO BEEN ENTERED ON DIFFERENT DATES, BUT THE SAID CLAIM WAS NOT MADE IN THE SECOND ROUND PROCEEDINGS. HENCE WE RESTORE THE ISSUE RELATING TO TRANSACTIONS NOTED IN SR. NO. 11 TO THE FILE OF THE AO WITH THE DIRECTION TO DELETE THE ADDITION, IF THE TRANSACTIONS HAVE BEEN EN TERED ON TWO DIFFERENT 18 SHRI BHUPENDRA C. DALAL ITA NOS. 554 & 1670/MUM/2011 DATES. WITH REGARD TO THE LOSS OF RS.33,15,000/ - IN RELATION TO THE TRANSACTIONS ENTERED WITH M.J. PATEL, WE ARE OF THE VIEW THAT A PARTIAL DISALLOWANCE OUT OF THE ABOVE SAID LOSS WOULD SETTLE THIS DISPUTE, SINCE THERE ARE DEFICIENC IES ON BOTH SIDES. ACCORDINGLY, WE DIRECT THE AO TO RESTRICT THE DISALLOWANCE OF THE ABOVE SAID ITEM TO 20% OF RS.33,15,000/ - TO TAKE CARE OF DEFICIENCIES, IF ANY, AND IN OUR VIEW THE SAME WOULD MEET THE ENDS OF JUSTICE. WE ORDER ACCORDINGLY. IN RESPECT OF OTHER ITEMS OF DISALLOWANCE, WE DO NOT FIND ANY DISCUSSION ABOUT THE SAME AND ACCORDINGLY CONFIRM THEIR ADDITION. THE ORDER OF LD CIT(A) STANDS MODIFIED ACCORDINGLY. 31 . THE NEXT ITEM OF ADDITION RELATES TO THE DISALLOWANCE OF NET LOSS OF RS.1.08 CRO RES INCURRED IN READY FORWARD TRANSACTIONS. THE SPECIAL AUDITORS HAVE PREPARED A LIST OF TRANSACTIONS WHEREIN THE PURCHASE AND SALE OF TRANSACTIONS WERE ENTERED WITH THE VERY SAME PARTY. THE ASSESSEE HAD PURCHASED THE SECURITIES ON A HIGHE R RATE AND SOLD THE SAME TO THE VERY SAME PARTY AT A LOWER RATE ON A SUBSEQUENT DATE RESULTING IN LOSS TO THE ASSESSEE. SOMETIMES, THE ASSESSEE HAD PURCHASED SECURITIES AT A LOWER RATE AND SOLD THEM TO THE VERY SAME PARTY AT A HIGHER RATE MAKING PROFITS ALSO. DURING TH E YEAR UNDER CONSIDERATION, THE ASSESSEE INCURRED LOSS OF RS.1,57,34,386/ - AND MADE PROFIT OF RS.48,92,460/ - . THUS, THE NET RESULT OF THESE TRANSACTIONS WAS LOSS OF RS.1,08,41,926/ - . SINCE THE ASSESSEE DID NOT FURNISH ANY EXPLANATIONS DURING THE ORIGINAL ASSESSMENT PROCEEDINGS, THE AO DISALLOWED THE SAME. 32 . IN THE SECOND ROUND, THE ASSESSEE SUBMITTED THAT THESE TRANSACTIONS ARE IN THE NATURE OF LOAN TRANSACTIONS, I.E., THE ASSESSEE SHALL RECEIVE LOAN ON PLEDGING THE SECURITY, BUT ON PAPERS IT WOU LD BE SHOWN AS PURCHASE OF SECURITIES. AT THE TIME OF SALE, THE SECURITIES WOULD BE SOLD AT A PRICE, WHICH WOULD COVER THE INTEREST FACTOR. BUT THE AO WAS NOT SATISFIED WITH THE SAID EXPLANATION AND HE TOOK THE VIEW THAT THE ASSESSEE HAS MANIPULATED TRANS ACTIONS IN SUCH A WAY THAT HE WOULD INCUR LOSS. ACCORDINGLY HE AGAIN 19 SHRI BHUPENDRA C. DALAL ITA NOS. 554 & 1670/MUM/2011 DISALLOWED THE NET LOSS IN THE SECOND ROUND ALSO. THE LD CIT(A) CONFIRMED THE SAME BY FOLLOWING HIS DECISION RENDERED IN THE ORIGINAL ROUND OF PROCEEDINGS. 33 . WE HEARD THE PARTIE S ON THIS ISSUE. WE NOTICE THAT THE MAIN CONTENTION OF THE ASSESSEE IS THAT THESE TRANSACTIONS OF PURCHASE AND SALE WERE AIMED IN GETTING/GIVING LOANS. THE DIFFERENCE IN PURCHASE AND SALE RATE ACTUALLY REPRESENTED INTEREST ELEMENT. WE NOTICE BOTH THE TA X AUTHORITIES HAVE FAILED TO EXAMINE THIS CLAIM WITH THE RELEVANT TRANSACTIONS BEFORE REJECTING THIS EXPLANATION OF THE ASSESSEE. 34 . THE ASSESSEE HAS FURNISHED THE DETAILS OF THESE TRANSACTIONS AT PAGE 483 OF THE PAPER BOOK. THE SAID STATEMENT IS TH E ANNEXURE 4 REFERRED TO IN THE ORIGINAL ASSESSMENT ORDER AND THE SAME HAS BEEN PREPARED BY THE SPECIAL AUDITORS. HOWEVER, THE ANNEXURE 4 APPEARS TO BE INCOMPLETE ONE. A PERUSAL OF THE SAME SHOWS THAT THE ASSESSEE HAS TRANSACTED WITH BANK OF AMERICA, EXC EL CO., OSWAL AGRO, STATE BANK OF HYDERABAD, BMC BANK ETC. ACCORDING TO THE ASSESSEE, THESE TRANSACTIONS ARE ONE LEG OF TRANSACTIONS AND OTHER LEG OF TRANSACTIONS WERE NOT CONSIDERED BY THE TAX AUTHORITIES. ACCORDING TO THE ASSESSEE, HE COULD NOT ALSO EX PLAIN ABOUT THE OTHER SIDE OF TRANSACTIONS IN THE ABSENCE OF SECURITIES REGISTERS, WHICH HAVE BEEN SEIZED BY THE REVENUE. A PERUSAL OF THE STATEMENT WOULD SHOW THAT THE ASSESSEE HAS GIVEN DETAILS OF PURCHASE AND SALE, PARTYS NAME, THE LOSS OR PROFIT IN T HE PURCHASE AND SALE, INTEREST RECEIVED AND INTEREST PAID, THE NET RESULT (PROFIT/LOSS IN TRADING PLUS NET INTEREST). THE VERY FACT THAT THE SPECIAL AUDITOR HAS NOTED DOWN THE INTEREST RECEIPTS AND PAYMENTS SHOW THAT THE CLAIM OF THE ASSESSEE THAT THESE TRANSACTIONS ARE, IN EFFECT, FUNDING TRANSACTIONS APPEARS TO BE A CORRECT CLAIM . 35 . ACCORDING TO THE ASSESSEE, THESE KIND OF FUNDING TRANSACTIONS ARE QUITE COMMON IN THE SECURITIES TRADING CIRCLES. WE NOTICE THAT THE ASSESSEE HAS 20 SHRI BHUPENDRA C. DALAL ITA NOS. 554 & 1670/MUM/2011 TRANSACTED WITH REPUTE D BANKS AND COMPANIES. HENCE THE LOSS CLAIMED BY THE ASSESSEE IS IN THE NATURE OF INTEREST EXPENDITURE ONLY. WE ALSO NOTICE THAT THE ASSESSING OFFICER HAS CONSIDERED THESE TRANSACTIONS AS STAGE MANAGED ONE, SINCE THE ASSESSEE DID NOT GIVE ANY SPECIFIC EXPLANATION WITH ANY SPECIFIC TRANSACTION. HOWEVER WE NOTICE THAT THE ASSESSEE HAS OFFERED GENERAL EXPLANATIONS WITH REGARD TO THESE TRANSACTIONS. IN THAT CASE, THE TAX AUTHORITIES COULD HAVE EXAMINED THE NET LOSS VIS - - VIS NORMAL INTEREST EXPENDITURE. THESE KIND OF EXAMINATION HAS NOT BEEN CARRIED OUT BY THE TAX AUTHORITIES IN ORDER TO FIND OUT AS TO WHETHER THE LOSS VIS - - VIS IS EXCESSIVE OR UNREASONABLE. WE FURTHER NOTICE THAT THE ASSESSING OFFICER HAS NOT CONDUCTED ANY ENQUIRY WITH THE CONCERNED PAR TIES. 36 . WE ALSO NOTICE THAT THE RATE OF IN TEREST GIVEN IN THE LAST COLUMN RANGES FROM 8.03% TO 14.95%. IN OUR VIEW, THE SAME APPEARS TO BE REASONABLE RATES ALSO. HENCE, WE ARE OF THE VIEW THAT THERE IS NO REASON TO REJECT THE EXPLANATION OF THE ASSES SEE THAT THE SAME ACTUALLY REPRESENTS FUNDING TRANSACTIONS. ACCORDINGLY, WE SET ASIDE THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO DELETE THIS ADDITION. 37 . THE NEXT ADDITION RELATES TO THE DISALLOWANCE OF LOSS ARISING FROM SECURITY T RANSACTION ENTERED WITH MAR UTI UDYOG LTD. THE ASSESSEE HAD CREDITED THE ACCOUNT OF MARUTI UDYOG LTD WITH RS.15.30 CRORES ON 27.6.1989 AND DEBITED WITH THE AMOUNT OF RS.15.47 CRORES ON 10.7.1989. THUS, HE DECLAR ED A LOSS OF RS.16,95,247/ - FROM THESE TRANSACTIONS. WHEN THE AO MADE ENQUIR IES, M/S MARUTI UDYOG LTD REPORTED THAT IT DID NOT CARRY ON ANY TRANSACTION WITH THE ASSESSEE. THE AO FURTHER ASCERTAINED THAT THE ABOVE SAID AMOUNT OF RS.15.30 CRORES HAS BEEN RECEIVED FROM ANDHRA BANK FROM A CURRENT ACCOUNT BELONGING TO HITEN DALAL. THE AMOUNT OF RS.15.47 CRORES HAVE BEEN PAID FROM THE BANK ACCOUNT OF THE ASSESSEE WITH THE INSTRUCTION TO REMIT THE SAME TO THE ACCOUNT OF M/S MARUTI UDYOG LTD. 21 SHRI BHUPENDRA C. DALAL ITA NOS. 554 & 1670/MUM/2011 38 . THE ASSESSEE SUBMITTED THAT HE HAD CARRI ED THE TRANSACTION WITH M/S JAYANTILAL KHANDWALA (BROKER OF MARUTI UDYOG LTD) AND ALSO WITH M/S HITEN DALAL. ORIGINALLY THE SECURITY WAS PURCHASED FROM HITEN DALAL AND SOLD TO MARUTI UDYOG LTD THROUGH JAYANTILAL KHANDWALA. IT WAS A FUNDING TRANSACTION AN D THE DEAL WAS FOR 60 DAYS. HOWEVER, HITEN DALAL FORECLOSED IT WITHIN IN 30 DAYS AND PAID THE MONEY TO THE ASSESSEE. AFTER 60 DAYS, THE ASSESSEE RETURNED THE MONEY TO JAYANTILAL KHANDWALA, I.E., BY DIRECT REMITTANCE TO MARUTI UDYOG LTD. IN THE ACCOUNTS OF THE ASSESSEE, THE LEDGER ACCOUNT WAS OPENED IN THE NAME OF MARUTI UDYOG LTD INSTEAD OF JAYANTILAL KHANDWALA. THE ABOVE SAID EXPLANATION WAS NOT ACCEPTABLE TO THE AO AND HENCE HE DISALLOWED THE LOSS OF RS.16,95,247/ - IN THE ORIGINAL ASSESSMENT PROCEEDIN GS. 39 . IN THE SET ASIDE PROCEEDIN G S, THE ASSESSEE SUBMITTED THE LETTER OF CONFIRMATION AS WELL AS LEDGER ACCOUNT COPY OBTAINED FROM M/S JAYANTILAL KHANDWALA AND SUBMITTED THAT THE TRANSACTIONS WERE ENTERED WITH THE ABOVE SAID PARTY ONLY, WHO WAS THE BROK ER OF MARUTI UDYOG LTD. ACCORDINGLY IT WAS SUBMITTED THAT LEDGER ACCOUNT WAS WRONGLY OPENED IN THE NAME OF MARUTI UDYOG LTD. THE AO DID NOT ACCEPT THE SAID EXPLANATIONS AND HENCE HE DISALLOWED THE LOSS OF RS.16,95,247/ - . THE LD CIT(A) ALSO CONFIRMED THE SAME. 40 . WE HEARD THE PARTIES AND PERUSED THE RECORD. WE HAVE GONE THROUGH THE LEDGER ACCOUNT COPY IN THE NAME OF THE ASSESSEE AS AVAILABLE IN THE BOOKS OF M/S JAYANTILAL KHANDWALA, WHICH IS PLACED AT PAGE 505 OF PAPER BOOK. A PERUSAL OF THE SAME SHOWS THAT THE A SSESSEE HAS RECEIVED A SUM OF RS.15,03,68,128/ - ON 19.5.1989 AND REPAID A SUM OF RS.15,23,55,557/ - ON 10.7.1989. THE DIFFERENCE BETWEEN THE TWO WORKS OUT TO RS.19,87,429/ - . THE LEDGER ACCOUNT FURTHER SHOWS THAT THESE TRANSACTIONS WERE IN CONNECTION WITH PURCHASE AND SALE OF 13.50 CRORES 7.25% IDBI LOAN AND 1.35 CRORES 22 SHRI BHUPENDRA C. DALAL ITA NOS. 554 & 1670/MUM/2011 7.50% IDBI LOAN. THE AGGREGATE PAR VALUE OF BOTH THE SECURITIES IS 14.85 CRORES. HOWEVER THE LEDGER ACCOUNT COPY AS EXTRACTED IN PAGE 47 OF THE ASSESSMENT ORDER REFERS THE SECURITY AS 14.85 CRORES 6.25% IDBI - 92. THUS THERE IS A CONTRADICTION IN THE DESCRIPTION OF THE TYPE OF SECURITY, BUT THE PAR VALUE OF THE SECURITIES TALLIES. 41 . THE ASSESSEE HAS CLAIMED THAT HE HAS PURCHASED THE SECURITIES FROM HITEN DALAL AND SOLD THE SAME TO JA YANTILAL KHANDWALA. HOWEVER THE LEDGER ACCOUNT COPY OF HITEN DALAL IS NOT AVAILABLE ON RECORD. HOWEVER THE BANK ACCOUNT COPY OF THE ASSESSEE PLACED AT PAGE 503 SHOWS THE RECEIPT OF RS.15.30 CRORES ON 27.6.89 AND THE BANK ACCOUNT COPY PLACED AT PAGE 502 S HOWS PAYMENT OF RS.15.47 CRORES ON 10.7.1989. THUS THERE IS A DIFFERENCE OF RS.16,95,247/ - BETWEEN THE TWO. 42 . THE FOREGOING DISCUSSIONS SHOW THAT THERE IS CONFUSION IN THE ASSESSEES EXPLANATION ALSO. THE AMOUNT ORIGINALLY RECEIVED FROM MARUTI U DYOG WAS RS.15.03 CRORES ON 19.5.1989 AND ACCORDING TO THE ASSESSEE IT WAS RECEIVED BY HITEN DALAL. THEREAFTER, HITEN DALAL REPAID A SUM OF RS.15.30 CRORES TO THE ASSESSEE ON 27.6.1989 AND THE SAME WAS CREDITED IN THE ACCOUNT OF MARUTI UDYOG LTD. THER E AF TER, THE ASSESSEE RETURNED A SUM OF RS.15.47 CRORES ON 10.07.1989 CLAIMED TO BE TRANSFERRED DIRECTLY TO MARUTI UDYOG LTD. THE CONFUSION ARISES ON ACCOUNT OF ENTRIES MADE BY JAYANTILAL KHANDWALA, SINCE HE HAS SHOWN RECEIPT OF RS.15.23 CRORES ONLY ON 10.7.1 989. 43 . WHEN THE ASSESSEE IS RETURNING A SUM OF RS.15.47 CRORES, WHY M/S JAYANTILAL KHANDWALA SHOULD CREDIT THE ACCOUNT OF THE ASSESSEE WITH RS.15.23 CRORES. THIS CONFUSION STANDS UN - CLARIFIED TILL DATE. 44 . BE THAT AS IT MAY, THE ASSESSING O FFICERS ENQUIRY MADE WITH BANK OF KARAD SHOWS (CLAUSE (D) IN PAGE 48 OF THE ASSESSMENT ORDER) THAT THE AMOUNT 23 SHRI BHUPENDRA C. DALAL ITA NOS. 554 & 1670/MUM/2011 OF RS.15.47 CRORES WAS PAID TO BANK OF AMERICA WITH INSTRUCTIONS TO REMIT THE SAME TO THE ACCOUNT OF MARUTI UDYOG LTD. THIS FACT, WHICH WAS ASCE RTAINED BY THE ASSESSING OFFICER HIMSELF, SHOWS THAT THERE MAY BE MERIT IN THE SUBMISSIONS MADE BY THE ASSESSEE. ACCORDING TO THE ASSESSEE, HE WAS FACING MUCH DIFFICULTY IN OFFERING PROPER EXPLANATIONS DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS , SINCE A LL THE BOOKS WERE SEIZED BY CBI AND INCOME TAX DEPARTMENT . THE SET ASIDE PROCEEDINGS WERE COMPLETED AFTER EXPIRY OF 16 YEARS FROM THE END OF THE ACCOUNTING YEAR AND IT WOULD BE DIFFICULT TO OBTAIN RELEVANT DETAILS FROM ANYBODY. ACCORDING L Y, IT APPEARS THAT THE ASSESSEE HAS OFFERED EXPLANATIONS WITH THE AVAILABLE RECORDS. 45 . EVEN THOUGH THE LEDGER ACCOUNT COPY OF THE ASSESSEE AS AVAILABLE IN THE BOOKS OF M/S JAYANTILAL KHANDWALA CREAT E S FURTHER CONFUSION, YET THE FACT THAT THE SUM OF RS.15.47 CRORES HAS BEEN INSTRUCTED TO BE PAID TO THE ACCOUNT OF MARUTI UDYOG LTD , IN A WAY , SUPPORTS THE CLAIM OF THE ASSESSEE. FURTHER THE LEDGER ACCOUNT IN THE BOOKS OF M/S JAYANTILAL KHANDWALA SHOWS THAT IT WAS ACTING AS BROKER OF M/S MARUTI UDYOG LT D AND THE SAME FURTHER PROVES THAT THE ASSESSEE DID NOT HAVE DIRECT DEALING WITH M/S MARUTI UDYOG LTD. HENCE THE EXPLANATION OF THE ASSESSEE THAT THE LEDGER ACCOUNT WAS WRONGLY OPENED IN THE NAME OF MARUTI UDYOG LTD NEEDS TO BE ACCEPTED UNDER THESE SET OF FACTS . 46 . HOWEVER, SINCE THERE IS CONFUSION ABOUT THE AMOUNT THAT WAS RECEIVED AND PAID, WE ARE OF THE VIEW THAT THE EXPLANATIONS OF THE ASSESSEE ARE INSUFFICIENT. HOWEVER, THE FACT REMAINS THAT THE ASSESSEE HAS RECEIVED A SUM OF RS.15.30 CRORES ON 27.6.1989 AND REPAID A SUM OF RS.15.47 CRORES ON 10.07.1989, I.E., THE ASSESSEE HAS USED THE FUNDS FOR 13 DAYS. ACCORDING TO THE ASSESSEE, THE ABOVE SAID PURCHASE AND SALE WERE IN THE NATURE OF FUNDING TRANSACTIONS ONLY. HENCE, IN OUR VIEW, THE INTERE ST CALCULATED AT 12% P.A. ON THE ABOVE SAID TRANSACTION MAY BE ACCEPTED AND THE SAME WOULD MEET THE 24 SHRI BHUPENDRA C. DALAL ITA NOS. 554 & 1670/MUM/2011 ENDS OF JUSTICE ALSO. ACCORDINGLY, THE INTEREST COMPUTED AT 12% P.A. FOR A PERIOD OF 13 DAYS ON THE AMOUNT OF RS.15.30 CRORES WORKS OUT TO RS.6,63,300/ - . ACCORDINGLY, WE ARE OF THE ABOVE THAT THE ABOVE SAID AMOUNT OF RS.6,63,300/ - MAY BE ALLOWED IN THE PLACE OF RS.16,95,247/ - CLAIMED BY THE ASSESSEE. ACCORDINGLY, WE SET ASIDE THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO ALLOW THE AMOUNT OF RS.6,63,300/ - AGAINST THE CLAIM OF RS.16,95,427/ - MADE BY THE ASSESSEE. WE ALSO NOTICE THAT THE ABOVE SAID LOSS CLAIMED BY THE ASSESSEE ALSO FORMS PART OF DISALLOWANCE OF RS.1,08,41,926/ - RELATING TO READY FORWARD TRANSACTIONS. HENCE THE DISALLOWANCE OF RS.16,95,427/ - RESULTS IN DOUBLE DISALLOWANCE. SINCE WE HAVE DELETED THE ABOVE SAID DISALLOWANCE OF RS.1,08,41,926/ - , TH ERE WAS A NEED TO ADJUDICATE THE DISALLOWANCE OF RS.16,95,427/ - SEPARATELY. 47 . THE NEXT ITEM OF ADDITION RELATES TO THE DISALLO WANCE OF INTEREST PAID IN RESPECT OF CERTAIN SECURITY TRANSACTIONS , TREATING THE SAME AS PAYMENT OF EXCESS INTEREST. THE SPECIAL AUDITORS HAVE LISTED SOME INSTANCES, WHERE THE ASSESSEE APPEARS TO HAVE PAID INTEREST AT HIGH RATES. SINCE THE ASSESSEE DID N OT OFFER PROPER EXPLANATIONS, THE AO DISALLOWED THE CLAIM OF RS.1,48,92,400/ - AS EXCESSIVE INTEREST PAYMENT IN THE ORIGINAL ASSESSMENT PROCEEDINGS. IN THE SET ASIDE PROCEEDINGS, THE AO REPEATED THE SAME ADDITION. THE LD CIT(A) GAVE A RELIEF OF RS.38,46,7 50/ - (RELATING DOUBLE ENTRY OF SAME ITEM) AND ACCORDINGLY RESTRICTED THE ADDITION TO RS.1,10,45,650/ - . 48 . WE HAVE HEARD THE PARTIES ON THIS ISSUE. THIS ADDITION HAS BEEN MADE BY THE AO MAINLY ON THE REASONING THAT THE RATE OF INTEREST WORKS OUT TO A HIGHER FIGURE AND THE ASSESSEE HAS NOT SHOWN AS TO HOW HE RECEIVED CORRESPONDING INTEREST FROM SECURITIES. THE AO HAS RELIED UPON THE SPECIAL AUDITORS REPORT IN THIS REGARD. A PERUSAL OF ANNEXURE 6 ATTACHED TO THE ORIGINAL ASSESSMENT ORDER WOULD SHOW T HAT THE SPECIAL AUDITOR HAS LISTED OUT THE PAYMENTS, WHERE HE DID NOT RECEIVE PROPER EXPLANATION, I.E., THE SPECIAL 25 SHRI BHUPENDRA C. DALAL ITA NOS. 554 & 1670/MUM/2011 AUDITOR HAS NOT STATED THAT THE ASSESSEE HAS PAID INTEREST AT HIGH RATE OF INTEREST. 49 . THE PAYMENT OF INTEREST AT EXCESSIVE RATE IS RELEVANT UNDER THE INCOME TAX ACT ONLY IF IT IS PAID TO RELATED PARTIES SPECIFIED IN SEC. 40A(2)(B) OF THE ACT. IN THE INSTANT CASE, IT IS NOT THE CASE OF THE TAX AUTHORITIES THAT THESE INTEREST HAVE BEEN PAID TO ANY RELATED PARTY. IN THE INSTANT CASE, IT IS THE SUBMISSION OF THE ASSESSEE THAT THE IMPUGNED INTEREST HAS BEEN PAID IN THE NORMAL COURSE AS PER TRADE PRACTICE TO THE THIRD PARTIES . 50 . THE ISSUE RELATING TO INTEREST PAID ON SECURITIES HAS BEEN DEALT BY US IN DETAIL WHILE DEALING WITH THE APPEAL OF THE ASSESSEE RELATING TO AY 1987 - 88. THE OBSERVATIONS MADE BY US IN THAT YEAR SHALL APPLY TO THE ISSUE UNDER CONSIDERATION IN THIS YEAR ALSO. IN THE SET ASIDE PROCEEDINGS, WE NOTICE THAT THE ASSESSEE HAS RECONCILED CERTAIN INTEREST PAYMENTS AN D INTEREST RECEIPTS AS UNDER: - (A) INTEREST PAID TO CITI BANK RS.34,83,892/ - . (SL. NO. 8 OF ANNEXURE 6 OF ORIGINAL ASSESSMENT ORDER). CORRESPONDING INTEREST RECEIVED WAS RS.34,83,892/ - TRANSFERRED FROM HITEN DALAL ACCOUNT TO INTEREST FROM PDO ACCOUNT AS ON 31.3.1990. (B) SL. NO.7 OF ANNEXURE 6 7% AP 1993 SOLD TO BANK OF AMERICA. THE ASSESSEE HAS EXPLAINED SEQUENCE OF EVENTS , I.E., HE RECEIVED INTEREST OF RS.35.00 LAKHS ON SALE OF 7% AP 1993 SECURITY WORTH RS.10.00 CRORES. BUT THE ASSESSEE REPAID RS.6.00 CRORES AND HENCE THE CORRESPONDING INTEREST OF RS.20.50 LAKHS WAS REMITTED TO BANK OF AMERICA. (C) SL. NO.14 & 15 INTEREST PAID TO ALLAHABAD BANK RS.48,87,500/ - AND INTEREST RECEIVED THEREON RS.51,75,000/ - . 26 SHRI BHUPENDRA C. DALAL ITA NOS. 554 & 1670/MUM/2011 HOWEVER, NEITHER THE ASSESSING OFFICER NOR THE LD CIT(A) DID EXAMINE THE ABOVE SAID EXPLANATIONS FURNISHED BY THE ASSESSEE. BOTH HAVE FOLLOWED THEIR RESPECTIVE EARLIER ORDERS TO MAKE THIS DISALLOWANCE AGAIN. 51 . WHILE CONSIDERING AN IDENTICAL ISSUE IN AY 1987 - 88, WE HAVE ARRIVED AT A CONCLUSION T HAT THIS DISALLOWANCE HAS BEEN MADE ONLY ON SURMISES AND CONJECTURES. IN OUR VIEW, THE TAX AUTHORITIES HAVE MADE THIS ADDITION IN THIS YEAR ALSO ONLY ON SURMISES AND CONJECTURES, EVEN WITHOUT EXAMINING THE EXPLANATIONS FURNISHED BY THE ASSESSEE. ALL THESE PAYMENTS HAVE BEEN MADE TO THIRD PARTIES, I.E., UNRELATED PARTIES AND ACCORDING TO THE ASSESSEE THESE TRANSACTIONS ARE COMMERCIAL TRANSACTIONS ENTERED IN THE NORMAL COURSE OF BUSINESS. HENCE WE DO NOT FIND ANY JUSTIFICATION IN MAKING THIS ADDITION. ACCO RDINGLY, WE SET ASIDE THE ORDER PASSED BY LD CIT(A) AND DIRECT THE AO TO DELETE THIS ADDITION. 52 . THE NEXT ISSUE RELATES TO THE ADDITION OF NEGATIVE BALANCE OF SECURITIES. AS IN EARLIER YEARS, THE ASSESSING OFFICER PREPARED QUANTITY DETAILS OF PURCHASE AND SALE OF SECURITIES ON THE BASIS OF ENTRIES MADE IN THE SECURITIES LEDGER. HIS WORKING REVEALED THAT THE ASSESSEE HAS SOLD THE SHARES WITHOUT HAVING STOCK OF THE SAME. HENCE THE AO INTERPRETATED THAT THE NEGATIVE STOCK REPRESENTS INCOME OF THE ASSESSE E. THE ASSESSEE EXPLAINED THE MODALITIES OF THE TRADE AND THE ACCOUNTING PRACTICE FOLLOWED BY HIM, I.E., THE ENTRIES FOR PURCHASE AND SALE OF SECURITIES ARE MADE ON CASH BASIS, CONVERSION OF PHYSICAL SHARES INTO SGL, SGL SHARES INTO PHYSICAL SHARES, SPLIT TING UP OF SHARES, CONSOLIDATION OF SHARES ETC., AND SUBMITTED THAT ALL THESE ACTIVITIES MIGHT HAVE RESULTED IN A CONFUSION. THE ASSESSEE ALSO POINTED OUT THAT THERE WERE PUNCHING ERRORS IN THE STATEMENT PREPARED BY THE AO. HOWEVER, THE AO TOOK THE VIEW THAT THE EXPLANATIONS GIVEN BY THE ASSESSEE ARE NOT SATISFACTORY IN RESPECT OF NEGATIVE BALANCE OF VARIOUS SECURITIES LISTED IN PAGE 57 TO 60 OF 27 SHRI BHUPENDRA C. DALAL ITA NOS. 554 & 1670/MUM/2011 THE ASSESSMENT ORDER, WHICH AGGREGATED TO RS.75,69,07,150/ - , THE AO, IN THE ORIGINAL PROCEEDINGS, ADDED THE SA ME AS INCOME OF THE ASSESSEE. 53 . IN THE SET ASIDE PROCEEDINGS, THE ASSESSEE ASKED THE AO TO FURNISH THE DETAILS OF WORKINGS MADE BY HIM TO ARRIVE AT THE ALLEGED NEGATIVE BALANCE. WITHOUT PREJUDICE TO THE SAME, THE ASSESSEE ALSO SUBMITTED THAT THE TRANSA CTIONS OF PURCHASE AND SALE ARE CARRIED OUT FOR RBI, BANKS AND OTHER REPUTED INSTITUTIONS. HE ALSO SUBMITTED THAT THE ASSESSEE SELLS SECURITIES WITHOUT HAVING STOCK, BUT LATER COVER THE SAME BY BUYING FROM THE MARKET. THE ASSESSEE ALSO SUBMITTED THAT THE READY FORWARD TRANSACTIONS, IN WHICH THE SALE MADE SHALL BE REVERSED SUBSEQUENTLY, WOULD ALSO GIVE RISE TO A SITUATION OF NEGATIVE BALANCE. THE SAID EXPLANATIONS WERE NOT SATISFACTORY TO THE AO AND HENCE HE AGAIN MADE THE ADDITION OF RS.75,69,07,150/ - IN THE SET ASIDE PROCEEDINGS ALSO. THE LD CIT(A) ALSO CONFIRMED THIS ADDITION BY FOLLOWING HIS DECISION RENDERED IN THE ORIGINAL ASSESSMENT PROCEEDINGS. 54 . WE HEARD THE PARTIES ON THIS ISSUE AND PERUSED THE RECORD. IDENTICAL ADDITIONS TOWARDS NEGATIVE BALANCE OF SECURITIES WERE MADE IN AY 1987 - 88. WE HAVE DEALT WITH THE SAME IN A DETAILED MANNER IN THAT YEAR. IN THE INSTANT YEAR, THE ASSESSING OFFICER HAS LISTED OUT 35 SCRIPS, WHEREIN THE ALLEGED NEGATIVE BALANCE WAS NOTICED. HOWEVER, DETAILED WORKI NGS HAVE BEEN GIVEN IN RESPECT OF THREE SCRIPS ONLY. IN RESPECT OF THE THREE SCRIPS, THE ASSESSEE HAS OFFERED FOLLOWING EXPLANATIONS: - (A) 7% U.P. 1993: - THE AO HAS WORKED OUT NEGATIVE BALANCE OF RS.12,16,78,900/ - . THERE WAS A PUNCHING ERROR AT THE TIME O F RECORDING OF PURCHASES ON 05.6.1989, I.E., THE FACE VALUE WAS PUNCHED AS RS.1.00 CRORES INSTEAD OF RS.10.00 CRORE S . FURTHER RS.2.00 CRORES WORTH SECURITIES PURCHASED ON 13.5.1989 HAS BEEN WRONGLY POSTED IN OTHER SECURITY ACCOUNT. SALE VALUE OF RS.2.19 28 SHRI BHUPENDRA C. DALAL ITA NOS. 554 & 1670/MUM/2011 CRORES OF ANOTHER SECURITY SOLD TO HITEN DALAL ON 12.6.1989 WAS WRONGLY POSTED IN THIS ACCOUNT. ALL THESE MISTAKES STOOD RECTIFIED IN THE SECURITIES LEDGER BEFORE THE END OF THE YEAR. HENCE THERE IS NO NEGATIVE BALAN C E IN THIS SECURITY. (B) 7% STATE 1993: -- (RS.5,22,50,000/ - ) IT WAS A READY FORWARD TRANSACTION (FUNDING TRANSACTION). THE SALE WAS REVERSED BEFORE THE END OF THE YEAR. HENCE THERE IS NO NEGATIVE BALANCE. THE SPECIAL AUDITORS HAVE ALSO INCLUDED THIS ITEM IN THE LIST OF READY FORWARD TRANSACTIO N ONLY. (C) 8.75% IDBI 2000: (RS.14,99,73,000/ - ) - THIS IS ALSO A READY FORWARD TRANSACTION WITH M/S EXCEL & CO. THE SAME WAS REPURCHASED ON 31.7.1989 AND HENCE THERE IS NO NEGATIVE BALANCE IN THIS ITEM ALSO. IN RESPECT OF OTHER ITEMS ALSO, THE ASSESSEE HAS RECONCILED AND OFFERED PROPER EXPLANATIONS, WHICH ARE PLACED IN PAGE 552 TO 705 OF THE PAPER BOOK. ACCORDINGLY THE LD A.R CONTENDED THAT THE AO HAS MADE THIS ADDITION WITHOUT EXAMINING THE EXPLANATIONS OF THE ASSESSEE. ON THE CONTRARY, THE LD D.R PLA CED STRONG RELIANCE ON THE ORDERS PASSED BY THE TAX AUTHORITIES. 55 . FROM THE PAPER BOOK FURNISHED BY THE ASSESSEE, WE NOTICE THAT THE ASSESSEE HAS OFFERED EXPLANATIONS WITH REGARD TO THE 35 ITEMS LISTED OUT BY THE AO IN THE ORIGINAL ASSESSMENT PROCE EDINGS. THE EXPLANATIONS ARE AVAILABLE AT PAGES 552 TO 705 OF THE PAPER BOOK. AS SUBMITTED BY THE LD A.R, THESE EXPLANATIONS HAVE NOT BEEN EXAMINED AT ALL BY THE AO. A PERUSAL OF THE EXPLANATIONS WOULD SHOW THAT THE ASSESSEE HAS GIVEN THE DETAILS OF TRA NSACTIONS IN RESPECT OF EACH OF THE SECURITY AND ALSO ATTACHED THE RELEVANT SECURITY VOUCHERS. THE DETAILS SHOW THAT THE SALE IS COVERED BY THE SUBSEQUENT PURCHASES. THE ASSESSEE HAS ALSO POINTED OUT MISTAKES 29 SHRI BHUPENDRA C. DALAL ITA NOS. 554 & 1670/MUM/2011 COMMITTED IN HIS BOOKS OF ACCOUNT AND ALSO FU RNISHED THE DETAILS OF RECTIFICATION CARRIED OUT. THE ASSESSEE HAS ANALYSED THE ALLEGED NEGATIVE STOCK AS UNDER: - A) RECTIFICATION ENTRIES PASSED IN ACCOUNTS, WHICH WERE NOT CONSIDERED 14,44,16,300 B) SUBSEQUENT PURCHASES NOT CONSIDERED 2,85,47,850 C) SALES TO PROVIDENT FUND FOR WHICH DELIVERY COMPLETED LATER 1,35,000 D) SALES REVERSED 42,000 E) READY FORWARD TRANSACTIONS 46,92,20,000 F) DOUBLE ENTRY (SR. NO.26 & 34) 10,45,46,000 G) NO NEGATIVE BALANCE IN SR. NO.31 1,00,00,000 H) OPENING BALANCE NOT CONSIDERED 46,000 75,69,07,150 56 . THUS, WE NOTICE THAT THE ASSESSEE HAS OFFERED EXPLANATIONS IN RESPECT OF THE ITEMS THAT WERE POINTED OUT BY THE AO. IN RESPECT OF REMAINING ITEMS, NO DETAILS WERE FURNISHED TO THE ASSESSEE, SINCE THE WORKINGS WERE NOT GIVEN BY THE AO AND H ENCE THERE WAS NO OCCASION FOR THE ASSE SSEE TO FURNISH ANY EXPLANATION . WE HAVE NOTICED EARLIER THAT THE TAX AUTHORITIES HAVE NOT EXAMINED THESE EXPLANATIONS AND PROVED THE SAME TO BE FALSE. IN THE ABSENCE OF ANY CONTRADICTION, WE ARE OF THE VIEW THAT THE EXPLANATIONS OFFERED BY THE ASSESSEE SHOULD BE ACCEPTED. WE HAVE ALSO NOTICED THAT THE ASSESSEE ALSO MAKES SHORT SALES AND IT IS SUBMITTED THAT THIS IS ALSO A PREVALENT CO MMERCIAL PRACTICE. HENCE, WHAT IS REQUIRED TO BE SEEN IS THAT THE SHORT SALE WAS ULTIMATELY COVERED UP OR NOT. IN OUR VIEW, THE CLAIM OF SHORT SALE COULD VERY WELL BE EXAMINED BY THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS, WHICH HE HAS FAILED TO DO SO. UNDER THESE SET OF FACTS, WE ARE OF THE VIEW THAT THERE IS NO JUSTIFICATION IN MAKING ADDITION ON ACCOUNT OF ALLEGED NEGATIVE STOCK. ACCORDINGLY, WE SET ASIDE THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO DELETE THIS ADDITION. 30 SHRI BHUPENDRA C. DALAL ITA NOS. 554 & 1670/MUM/2011 57 . THE NEXT ISSUE RELATES TO THE DISALLOWANCE OF LOSS ARISING IN THE SECURITY TRANSACTIONS ENTERED WITH OSWAL AGRO LTD. THE AO NOTICED THAT THE ASSESSEE HAS ENTERED INTO SERIES OF TRANSACTIONS , RESULTING IN RECEIPT S AND PAYMENT S OF MONEY FROM /TO M/S OSWA L AGRO LTD. THE DETAILS OF THE SAME ARE REPORTED IN PAGE 69 OF THE ASSESSMENT ORDER. THE NET EFFECT OF THE TRANSACTIONS WAS THAT THE ASSESSEE HAD MADE EXCESS PAYMENT OF RS.12,56,943/ - AND THE ASSESSEE CLAIMED THE SAME AS EXPENDITURE IN THE NATURE OF INTE REST. THE AGGREGATE AMOUNT OF RECEIPTS WAS RS.90.61 CRORES AND THE AGGREGATE AMOUNT OF PAYMENTS WAS RS.90.78 CRORES. THE AO TOOK THE VIEW THAT THE ASSESSEE HAS NOT EXPLAINED AS TO HOW THE FUNDS RECEIVED WERE USED BY HIM. ACCORDINGLY HE TOOK THE VIEW THA T THE INTEREST CLAIM OF RS.12,56,943/ - WAS NOT ALLOWABLE AND ACCORDINGLY DISALLOWED THE SAME IN THE ORIGINAL ASSESSMENT PROCEEDINGS. 58 . IN THE SET ASIDE PROCEEDINGS, THE ASSESSEE EXPLAINED THAT ALL THE TRANSACTIONS WERE ROUTED THROUGH THE BANKS AND THE F UNDS GIVEN BY OSWAL AGRO WAS USED BY THE ASSESSEE FOR HIS BUSINESS PURPOSES ONLY. THE AO CONSIDERED THE SAME AS VAGUE REPLY AND ACCORDINGLY DISALLOWED THE ABOVE SAID INTEREST CLAIM IN THE SET ASIDE PROCEEDINGS ALSO. THE LD CIT(A) ALSO CONFIRMED THE ADDITI ON. 59 . WE HEARD THE PARTIES ON THIS ISSUE AND PERUSED THE RECORD. THE MAIN CONTENTION OF THE ASSESSEE IS THAT OUT OF FUNDS OF 90 CRORES RECEIVED, ABOUT RS.72 CRORES WERE RECEIVED IN THE FORM OF SECURITIES, IN WHICH THE QUESTION OF DIVERSION OF FUNDS DOE S NOT ARISE. HE FURTHER SUBMITTED THAT THE ASSESSEE HAS RECEIVED REMAINING AMOUNTS THROUGH BANKING CHANNELS AND IT WAS USED FOR THE PURPOSE S OF BUSINESS ONLY. THE LD A.R FURTHER SUBMITTED THAT THE ASSESSING OFFICER HAS NOT POINTED OUT AS TO HOW THE FUNDS WERE DIVERTED BY THE ASSESSEE. ACCORDINGLY HE SUBMITTED THAT THE LD CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THIS DISALLOWANCE. 31 SHRI BHUPENDRA C. DALAL ITA NOS. 554 & 1670/MUM/2011 60 . THE LD D.R, ON THE CONTRARY, SUBMITTED THAT THE ASSESSEE HAS NOT FURNISHED THE DETAILS OF UTILISATION OF FUNDS RECEIVE D FROM OSWAL AGRO. 61 . HAVING HEARD RIVAL CONTENTIONS, WE ARE OF THE VIEW THAT THERE IS MERIT IN THE CON T ENTIONS OF THE ASSESSEE. OUT OF THE AGGREGATE AMOUNT OF ABOUT RS.90 CRORES, THE ASSESSEE SUBMITS THAT HE HAS RECEIVED ABOUT RS.72 CRORES BY WAY O F SECURITIES, WHEREIN THERE IS NO QUESTION OF DIVERSION. IN RESPECT OF REMAINING FUNDS ALSO, THE SAME HAS BEEN RECEIVED THROUGH THE BANK ACCOUNT OF THE ASSESSEE AND, IN THE ABSENCE OF SPECIFIC FINDING ABOUT DIVERSION, IT WOULD GET MIXED UP WITH THE BUSINESS FUNDS AND ACCORDINGLY IT SHOULD BE PRESUMED THAT THE SAME HAS BEEN USED FOR THE PURPOSES OF BUSINESS OF THE ASSESSEE. IN THAT VIEW OF THE MATTER, THE EXCESS PAYMENT OF RS.12,56,943/ - WOULD PARTAKE THE CHARACTER OF INTEREST ONLY, WHICH THE ASSESSE E IS ENTITLED TO CLAIM. THE ASSESSEE HAS ALSO POINTED OUT THAT HE HAS MADE A PROFIT OF RS.12,56,943/ - IN RESPECT OF SECURITIES TRANSACTIONS ENTERED WITH M/S OSWAL AGRO. IN VIEW OF THE ABOVE, WE SET ASIDE THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE AND DI RECT THE AO TO DELETE THIS DISALLOWANCE. 62 . THE NEXT ITEM OF ADDITION RELATES TO THE DISALLOWANCE OF LOSS ARISING IN THE SECURITY TRANSACTION ENTERED WITH GANESH BOOK BINDING WORKS. THE ASSESSEE HAD SHOWN SECURITY TRANSACTIONS WITH THE ABOVE SAID COMP ANY AND INCURRED A LOSS OF RS.7,85,500/ - . THE AO CONDUCTED SURVEY OPERATIONS U/S 133A OF THE ACT ON GANESH BOOK BINDING WORKS AND THE PROPRIETOR OF THE ABOVE SAID CONCERN DENIED THE TRANSACTIONS. WHEN THE STATEMENT GIVEN BY THE ABOVE SAID PARTY WAS CONFR ONTED WITH THE ASSESSEE, HE GAVE ONLY EVASIVE REPLIES AND SOUGHT TIME TO EXAMINE THE BOOKS OF ACCOUNT. HENCE THE AO DISALLOWED THE LOSS OF RS.7,85,500/ - IN THE ORIGINAL ASSESSMENT PROCEEDINGS. 63 . IN THE SET ASIDE PROCEEDINGS, THE ASSESSEE MERELY REITERA TED THAT HE HAS GIVEN THE DIFFERENCE AMOUNT OF RS.7,85,500/ - TO THE ABOVE SAID PARTY. HE 32 SHRI BHUPENDRA C. DALAL ITA NOS. 554 & 1670/MUM/2011 FURTHER SUBMITTED THAT HE WAS NOT GIVEN OPPORTUNITY TO CROSS EXAMINE THE WITNESS. SINCE THE ASSESSEE DID NOT ASK FOR CROSS EXAMINATION IN THE ORIGINAL ASSESSMENT PRO CEEDINGS THAT TOOK PLACE IN FY 1993 - 94, THE AO TOOK THE VIEW THAT THE ASSESSEE IS ASKING FOR CROSS EXAMINATION IN THE SET ASIDE PROCEEDINGS, AFTER EXPIRY OF ABOUT 14 YEARS , ONLY TO EVADE HIS ONUS. ACCORDINGLY HE DISALLOWED THE CLAIM OF RS.7,85,500/ - IN TH E SET ASIDE PROCEEDINGS ALSO. THE LD CIT(A) ALSO CONFIRMED THE ADDITION. 64 . WE HEARD THE PARTIES ON THIS ISSUE. ADMITTEDLY, THE ASSESSEE COULD NOT PROVE THE GENUINENESS OF THE TRANSACTIONS ENTERED WITH GANESH BOOK BINDING WORKS. SINCE THE ASSESSEE HAS ASKED FOR CROSS EXAMINATION OF THE WITNESS AFTER EXPIRY OF 14 YEARS, IT MAY NOT BE FEASIBLE FOR THE ASSESSING OFFICER TO PROVIDE THE SAME AFTER EXPIRY OF SUCH A LONG PERIOD. HOWEVER, THE FACT REMAINS THAT THE ASSESSEE COULD NOT SUBSTANTIATE THE TRANS ACTIONS ENTERED WITH GANESH BOOK BINDING WORKS. ON THE CONTRARY, THE AO HAS PROVED THAT THE SAID TRANSACTIONS ARE NOT GENUINE. HENCE WE ARE OF THE VIEW THAT THE LD CIT(A) WAS JUSTIFIED IN CONFIRMING THIS ADDITION. 65 . THE NEXT ISSUE RELATES TO THE CLAIM OF LOSS IN TRADING IN SHARES, WHICH WAS DEBITED TO THE BROKERAGE ACCOUNT. THE AUDITORS HAD REPORTED CERTAIN TRANSACTIONS ENTERED BY THE ASSESSEE WITH HIS CLIENTS, WHICH RESULTED IN A LOSS OF RS.3,75,000/ - IN THE ACCOUNT OF B.C. DALAL SHARE TRADING ACCOUN T. THE AUDITORS ALSO REPORTED THAT THE ASSESSEE HAS ACCOUNTED DEBIT AND CREDIT ENTRIES WITH THE SAME PARTY ON 31.3.1990, WHICH SHOWED A LOSS OF RS.1,13,231/ - . THE AO DISALLOWED THE ABOVE SAID TWO CLAIMS IN THE ORIGINAL AS WELL AS IN SET ASIDE PROCEEDINGS . THE LD CIT(A) ALSO CONFIRMED THE SAME. 66 . WE HEARD THE PARTIES AND PERUSED THE RECORD. THE CONTENTION OF THE ASSESSEE IS THAT THE SHARE TRANSACTIONS WERE ENTERED IN THE NORMAL COURSE OF BUSINESS AND CERTAIN SHARES HAVE RESULTED IN LOSS. IT WAS SUBMI TTED THAT THE 33 SHRI BHUPENDRA C. DALAL ITA NOS. 554 & 1670/MUM/2011 ASSESSEE HAS MADE NET PROFIT OF RS.11,99,386/ - FROM SHARE TRANSACTIONS AND HENCE IT WAS NOT CORRECT TO ISOLATE THE LOSS TRANSACTIONS ALONE AND DISALLOW THE SAME. WE FIND MERIT IN THE SAID CONTENTIONS OF THE ASSESSEE. THE AUDITORS HAVE MEREL Y HIGHLIGHTED THE LOSS TRANSACTIONS AND THEY HAVE NOT REPORTED THE SAME TO BE BOGUS. WHEN THE AO IS ACCEPTING THE PROFIT MAKING TRANSACTIONS, THERE IS NO REASON TO ISOLATE THE LOSS MAKING TRANSACTIONS AND DISALLOW THE SAME. WITH REGARD TO THE LOSS OF RS. 1,13,231/ - POINTED OUT BY THE AUDITORS ARE CONCERNED, WE HAVE NOTICED IN AY 1988 - 89 THAT THE PATAWAT SHEETS CONTAIN TRANSACTIONS ENTERED THROUGHOUT THE MONTH AND HENCE IT WAS NOT CORRECT TO PRESUME THAT THE PURCHASE AND SALE HAS TAKEN PLACE ON THE LAST DAY OF MONTH. FURTHER THE CONTENTION OF THE ASSESSEE IS THAT THESE TRANSACTIONS HAVE BEEN ROUTED THROUGH BANK ACCOUNT. HENCE THERE IS NO REASON TO MAKE SUCH KIND OF PRESUMPTION AND HENCE T H E DISALLOWANCE OF RS.1,13,231/ - IS NOT JUSTIFIED. ACCORDINGLY, WE SE T ASIDE THE ORDER PASSED BY LD CIT(A) ON THE ABOVE SAID ISSUES AND DIRECT THE AO TO DELETE THE DISALLOWANCES. 67 . THE NEXT ITEM OF ADDITION RELATES TO THE DISALLOWANCE OF RS.1,64,285/ - ON THE GROUND THAT THE SAME HAS RESULTED IN REDUCTION OF BROKERAGE. THE ASSESSEE SUBMITTED THAT THE ABOVE SAID BROKERAGE HAVE RESULTED ON ACCOUNT OF SHARE TRADING ACTIVITY CARRIED ON BY THE ASSESSSEE, THE PROFIT OR LOSS OF WHICH WAS ALSO RECORDED IN THE BROKERAGE ACCOUNT. THE SAME WAS NOT ACCEPTED AND SINCE THE AUDITORS H AVE GIVEN LIST OF NEGATIVE BROKERAGE, THE AO DISALLOWED THE SAME IN THE ORIGINAL AS WELL AS IN THE SET ASIDE PROCEEDINGS. THE LD CIT(A) ALSO CONFIRMED THE SAME. 68 . WE HEARD THE PARTIES ON THIS ISSUE AND PERUSED THE RECORD. WE NOTICE THAT THE AUDITO RS HAVE ONLY GIVEN THE LIST OF REDUCTION IN BROKERAGE ACCOUNT. THE ASSESSEE HAS EXPLAINED THAT THE SAME REPRESENTS LOSS INCURRED IN THE SHARE TRADING. WE NOTICE THAT THE AO HAS REJECTED THE EXPLANATION WITHOUT EVEN EXAMINING THE SAME. THE CONTENTION OF THE ASSESSEE IS THAT BOTH PROFIT 34 SHRI BHUPENDRA C. DALAL ITA NOS. 554 & 1670/MUM/2011 AND LOSS ARISING IN SHARE TRADING WERE ALSO ACCOUNTED IN BROKERAGE ACCOUNT ONLY . SINCE THERE IS NO MATERIAL TO CONTRADICT EXPLANATIONS GIVEN BY THE ASSESSEE, WE ARE OF THE VIEW THAT THERE IS NO JUSTIFICATION IN REJECTING T HE SAME. ACCORDINGLY, WE SET ASIDE THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO DELETE THIS DISALLOWANCE. 69 . THE NEXT ADDITION RELATES TO THE DISALLOWANCE OF LOSS BOOKED IN BCD SHARE TRADING ACCOUNT. THE AO COLLECTED LEDGER ACCOUNT COPIES FROM SOME OF THE BROKERS WITH WHOM THE ASSESSEE HAD MADE SHARE TRADING. COMPARISON OF THE SAME WITH THE BOOKS OF ACCOUNT REVEALED THAT THE OPENING AND CLOSING BALANCES DID NOT TALLY. THE ASSESSEE SUBMITTED THAT HE HAS MAINTAINED BOOKS OF ACCOUNT O N CASH BASIS, WHILE OTHER BROKERS MIGHT HAVE MAINTAINED UNDER ME R CANTILE SYSTEM AS PER SETTLEMENT BASIS. FURTHER, THE AO NOTICED THAT THE ASSESSEE HAS BOOKED LOSSES IN EIGHT TRANSACTIONS AGGREGATING TO RS.42,42,350/ - . THE ASSESSEE SUBMITTED THAT A SUM OF RS.34,54,000/ - OUT OF THE ABOVE TRANSACTIONS ARE IN THE NATURE OF REIMBURSEMENT OF DIVIDEND INCOME TO THE FOLLOWING PARTIES: - DIANA PROPERTIES LTD. 30,48,750 NASHVILLE INVESTMENTS 2,08,500 JALVEG INVESTMENTS 1,96,750 ------------- T OTAL 34,54,000 ======= ACCORDING TO THE ASSESSEE THE SHARES WERE SOLD ON CUM - DIVIDEND BASIS AND SINCE THE ASSESSEE RECEIVED THE DIVIDENDS IN RESPECT OF SOLD SHARES, THE SAME WAS REIMBURSED TO THE BUYERS BY PASSING JOURNAL ENTRIES BY CREDITING THEIR RESPECTIVE ACCOUNTS. IN RESPECT OF OTHER TRANSACTIONS, THE ASSESSEE CONTENDED THAT THEY HAVE BEEN ENTERED IN THE NORMAL COURSE OF BUSINESS. HE FURTHER SUBMITTED THAT THESE TRANSACTIONS ARE NOT SAME DAY TRANSACTIONS AS PRESUMED 35 SHRI BHUPENDRA C. DALAL ITA NOS. 554 & 1670/MUM/2011 BY THE AO. HOWEVER, THE AO WAS NOT CONVINCED WITH THE EXPLANATIONS OF THE ASSESSEE AND ACCORDINGLY DISALLOWED THE LOSS OF RS.42,42,350/ - IN BOTH ORIGINAL AS WELL AS IN SET ASIDE PROCEEDINGS. THE LD CIT(A) ALSO CONFIRMED THE SAME. 70 . WE HEARD THE PARTIES ON THIS ISSUE. W E NOTICE THAT THERE IS A TOTALLING MISTAKE IN THE AGGREGATE AMOUNT COMPUTED BY THE AO. THE TOTAL OF THE EIGHT TRANSACTIONS WORK OUT TO RS.41,42,350/ - , WHERE AS THE AO HAS CASTED THE SAME AS RS.42,42,350/ - . ACCORDINGLY, THE ASSESSEE GETS RELIEF OF RS.1.00 LAKH ON THIS ACCOUNT. 71 . IN RESPECT OF RS.34,54,000/ - REFERRED ABOVE, THE ASSESSEE HAS CLAIMED THAT HE HAS PASSED JOURNAL ENTRIES IN ORDER TO TRANSFER DIVIDEND AMOUNT TO THEIR RESPECTIVE ACCOUNTS, SINCE THE SHARES WERE SOLD ON CUM - DIVIDEND BASIS. NORMA LLY WHEN THE DIVIDEND IS DECLARED, THE MARKET PRICE OF THE SHARES GETS ADJUSTED TO INCLUDE DIVIDEND ALSO. HENCE THE CONCEPT OF CUM - DIVIDEND, THOUGH THEORETICALLY EXISTS, BUT IN PRACTICE IT IS NOT FOLLOWED. HENCE THE EXPLANATION OF THE ASSESSEE IN THIS R EGARD IS HARD TO BELIEVE. BUT, IF THE AGREEMENT BETWEEN THE PARTIES WAS LIKE THAT , THEN IT WAS THE RESPONSIBILITY OF THE ASSESSEE TO SHOW THAT THE DIVIDEND AMOUNT WAS ACTUALLY REIMBURSED TO THE BUYER OF SHARES. THIS CAN BE PROVED BY SHOWING THE PAYMENT D ETAILS. IN THE INSTANT CASE, THE ASSESSEE HAS NOT DONE THE SAME. IT MAY BE DIFFICULT FOR THE ASSESSEE TO GET CONFIRMATION AT THIS STAGE, DUE TO PASS AGE OF LONG TIME. AL TERNATIVELY, THE PAYMENT DETAILS SHOULD BE AVAILABLE IN THE LEDGER ACCOUNT OF THE RES PECTIVE PARTIES. ACCORDINGLY, WE ARE OF THE VIEW THAT THE CLAIM OF REIMBURSEMENT OF DIVIDEND INCOME MAY BE ACCEPTED, IF THE ASSESSEE IS ABLE TO MATCH THE DIVIDEND CREDIT IN HIS BOOKS AND THE PAYMENTS ACTUALLY MADE TO THE RESPECTIVE PARTIES. SINCE THIS FA CT REQUIRES VERIFICATION, WE RESTORE THIS ISSUE TO THE FILE OF THE AO WITH THE DIRECTION TO EXAMINE THIS ISSUE IN THE LIGHT OF DISCUSSIONS MADE SUPRA. THE ORDER OF LD CIT(A) STANDS MODIFIED ACCORDINGLY. 36 SHRI BHUPENDRA C. DALAL ITA NOS. 554 & 1670/MUM/2011 72 . IN RESPECT OF REMAINING ITEMS, THE ASSESSEE HAS SUBMITTED THAT THEY ARE NOT SAME DAY TRANSACTIONS AS PRESUMED BY THE TAX AUTHORITIES. IT HAS BEEN FURTHER SUBMITTED THAT THE REMAINING ITEMS INCLUDE A SUM OF RS.2,00,450/ - PERTAINING TO HOSEIN INVESTMENT, WHICH HAS ALREADY BEEN DISALLOWED WHILE MAKING AD DITION OF RS.3,75,000/ - . THE ASSESSEE HAS ALSO CONTENDED THAT THESE LOSSES WERE INCURRED IN THE NORMAL COURSE OF CARRYING ON THE BUSINESS. 73 . THE LD D.R, ON THE CONTRARY, PLACED RELIANCE ON THE ORDERS OF TAX AUTHORITIES. HAVING HEARD RIVAL SUBMISSION S, WE ARE OF THE VIEW THAT THERE IS MERIT IN THE SUBMISSIONS MADE BY THE ASSESSEE. WE HAVE NOTICED EARLIER WHILE DISPOSING THE APPEALS OF THE ASSESSEE FOR EARLIER YEARS THAT THE PATAWAT SHEETS IS ONLY SUMMARY OF TRANSACTIONS ENTERED DURING THE MONTH AND T HE SAME WERE PREPARED AT THE END OF THE MONTH. HENCE, EVEN THOUGH THE TRANSACTIONS APPEAR TO HAVE BEEN ENTERED ON THE LAST DAY OF MONTH, THE FACT REMAINS THAT THEY WOULD HAVE BEEN ENTERED ON DIFFERENT DAYS IN THAT MONTH. FURTHER, IT WAS NOT SHOWN BY AO T HAT THESE TRANSACTIONS ARE NOT REGULAR BUSINESS TRANSACTIONS, I.E., IT WAS EXTRA ORDINARY ONE. ACCORDINGLY WE ARE OF THE VIEW THAT THERE IS NO JUSTIFICATION IN MAKING ADDITION OF REMAINING AMOUNT OF LOSS. ACCORDINGLY WE SET ASIDE THE ORDER PASSED BY THE LD CIT(A) IN RESPECT OF REM A INING ITEMS AND DIRECT THE AO TO DELETE THE SAME. 74 . THE NEXT ISSUE RELATES TO THE ADDITION OF DIFFERENCE IN CLOSING STOCK OF RS.2.64 CRORES. DURING THE COURSE OF SEARCH FLOPPIES CONTAINING DATA WERE SEIZED AND THE PRINT OUTS WERE GENERATED FROM THEM. A LIST OF CLOSING STOCK AS ON 31.3.1990 WAS GENERATED, WHICH DISCLOSED SHARES OF 130 COMPANIES VALUE D AT RS.1,04,48,151/ - . THE FLOPPIES ALSO CONTAINED ANOTHER LIST OF STOCK ON WHICH NO DATE WAS MENTIONED. THE SAID LIST CONTAINED SHARES OF 153 COMPANIES VALUE D OF RS.3,69,47,542/ - . THOUGH THE SECOND STATEMENT WAS UNDATED, MOST OF THE ITEMS OF SHARES TALLIED WITH THE FIRST STATEMENT. HENCE, THE AO CONFRONTED THE SAME WITH THE ASSESSEE. HE REPLIED THAT THE SAME WAS 37 SHRI BHUPENDRA C. DALAL ITA NOS. 554 & 1670/MUM/2011 ROUGH SHEET PREPARED BEFORE CARRYING OUT NECESSARY CORRECTIONS, I.E., IT MAY INCLUDE SHARES THAT WERE PURCHASED ON BEHALF OF ITS CLIENTS ETC. IT WAS SUBMITTED THAT THE SECOND LIST IS THE FINAL COPY WHICH HAS BEEN ACCEPTED BY THE AUDITORS U/S 44AB OF THE ACT AS WELL AS BY THE SPECIAL AUDITORS. BUT THE EXPLANATIONS OF THE ASSESSEE WERE NOT CONVINCING TO THE AO AND HENCE HE ADDED THE DIFFERENCE OF R S.2.64 CRORES TO THE TOTAL INCOME OF THE ASSESSEE. THE LD CIT(A) ALSO CONFIRMED THE SAME. 75 . WE HAVE HEARD THE PARTIES ON THIS ISSUE AND PERUSED THE RECORD. THE FACT THAT THE SECOND STOCK STATEMENT IS NOT DATED HAS BEEN ACCEPTED BY THE AO. HE HAS GI VEN IMPORTANCE TO THE SAME ONLY FOR THE REASON THAT SOME OF THE SHARES MENTIONED THEREIN TALLIED WITH THE ORIGINAL STOCK STATEMENT. HOWEVER, NO STEP WAS TAKEN BY THE AO TO ASCERTAIN AS TO WHETHER THE EXTRA SHARES NOTED IN THE SECOND LIST WERE, IN FACT, PU RCHASED BY THE ASSESSEE. THE AO COULD HAVE ASCERTAINED THE SAME FROM THE SECURITIES REGISTER AVAILABLE WITH HIM. SINCE THE SECOND STATEMENT WAS NOT DATED, THE AO HAS PRESUMED THE SAME TO BE OF 31.3.1990 WITHOUT ANY BASIS. ACCORDINGLY THE IMPUGNED ADDITI ON HAS ALSO BEEN MADE ON SURMISES AND CONJECTURES. ACCORDINGLY, WE FIND NO MERIT IN THIS ADDITION. ACCORDINGLY, WE SET ASIDE THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO DELETE THIS ADDITION. 76 . THE NEXT ITEM OF ADDITION RELATES T O THE DISALLOWANCE OF LOSS ON SALE OF SHARES TO CIFCO LTD. THE AO NOTICED THAT THE ASSESSEE HAS PURCHASED SHARES OF HCL LTD FROM CIFCO LIMITED AND ALSO SOLD THEM AT A PRICE LOWER THAN THE PURCHASE PRICE TO CIFCO . THESE KIND OF PURCHASE AND SALE OF SHARES HAVE BEEN UNDERTAKEN ON THREE OCCASIONS. THE AGGREGATE AMOUNT OF LOSS INCURRED IN THESE TRANSACTIONS WAS RS.1,61,950/ - . SINCE CIFCO LTD WAS A SISTER CONCERN AND SINCE THE ASSESSEE DID NOT MAINTAIN ADEQUATE RECORDS TO SUPPORT THESE TRANSACTIONS, THE AO D ISALLOWED THE CLAIM IN THE ORIGINAL AS WELL AS IN THE SET ASIDE ASSESSMENT. THE LD CIT(A) ALSO CONFIRMED THE SAME. 38 SHRI BHUPENDRA C. DALAL ITA NOS. 554 & 1670/MUM/2011 77 . WE HEARD THE PARTIES ON THIS ISSUE. THE LD A.R SUBMITTED THAT THE PROFIT OF RS.1,61,950/ - EARNED BY THE SISTER CONCERN CIFCO LTD HAS BEEN ACCEPTED IN ITS HANDS. HE FURTHER SUBMITTED THAT THE ASSESSEE COULD NOT PRODUCE EVIDENCES, SINCE THE RECORDS WERE IN DISARR A Y DUE TO RAIDS BY CBI AND INCOME TAX DEPARTMENT. HE SUBMITTED THAT THESE TRANSACTIONS WERE ENTERED INTO IN THE NORMAL COURSE OF BUSINESS AND HENCE THE DISALLOWANCE OF LOSS SHOULD BE DELETED. 78 . ON THE CONTRARY, THE LD D.R SUBMITTED THAT THE ASSESSEE HAS ALWAYS INCURRED LOSS IN THE TRANSACTIONS ENTERED WITH HIS SISTER CONCERN AND HENCE THE BURDEN TO PROVE GENUINENESS OF THE SAM E LIES UPON THE ASSESSEE, WHICH HE HAS FAILED TO DISCHARGE. 79 . WE NOTICE THAT THE ASSESSEE HAS INCURRED LOSS IN ALL THE THREE OCCASIONS OF PURCHASE OF SHARES OF HCL LTD FROM CIFCO LTD AND SALE OF SAME SHARES AGAIN TO CIFCO. THE REPEATED TRANSACTIONS OF PURCHASE AND SALE OF VERY SAME SHARES AT A LOWER PRICE, IN FACT, CREATES DOUBT IN THE MINDS OF ANYONE. HENCE, THE POSSIBILITY OF STAGE MANAGING THE LOSS BY THE TRANSACTIONS ENTERED WITH THE SISTER CONCERN CANNOT BE RULED OUT. THOUGH THE ASSESSEE CLAIMS T HAT THESE TRANSACTIONS HAVE BEEN ENTERED IN THE NORMAL COURSE OF BUSINESS, YET THE FACT THAT THE ASSESSEE WAS INCURRING LOSS ON EVERY OCCASION IS NOT UNDERSTANDABLE. THE ASSESSMENT OF PROFITS IN THE HANDS OF SISTER CONCERN, IN OUR VIEW, WILL NOT TAKE AWAY THE RESPONSIBILITY OF THE ASSESSEE TO PROVE THE GENUINENESS OF THESE TRANSACTIONS. IN THE ABSENCE OF ANYTHING TO PROVE THEIR GENUINENESS, WE ARE OF THE VIEW THAT THE LD CIT(A) WAS JUSTIFIED IN CONFIRMING THE ADDITION OF RS.1,61,950/ - MADE BY THE AO BY DI SALLOWING THE LOSS INCURRED ON SECURITY TRANSACTIONS ENTERED WITH CIFCO LTD. 39 SHRI BHUPENDRA C. DALAL ITA NOS. 554 & 1670/MUM/2011 80 . THE NEXT ITEM OF ADDITION RELATES TO THE UNEXPLAINED CASH DEPOSIT OF RS.5.00 LAKHS. THE AO MADE AN ADDITION OF RS.7,50,000/ - RELATING TO CASH DEPOSIT MADE INTO THE BANK A CCOUNT OF THE ASSESSEE, SINCE THE SOURCES OF THE SAME WERE NOT PROPERLY EXPLAINED. BEFORE LD CIT(A), THE ASSESSEE FURNISHED THE DETAILS OF WITHDRAWALS OF CASH AND DEPOSITS AND CONTENDED THAT THE WITHDRAWALS EARLIER MADE WERE USED TO MAKE SUBSEQUENT DEPOSI TS. THE DETAILS OF WITHDRAWALS AND DEPOSITS ARE DETAILED BELOW: WITHDRAWALS: - DATE BANK AMOUNT 04.11.89 BANK OF KARAD 2,50,000 15.11.89 2,00,000 29.11.89 50,000 29.11.89 1,00,000 14.12.89 1,50,000 ---------------- 7,50,000 ========= DEPOSITS: - 11.07.1989 50,000 06.11.1989 2,50,000 26.02.1990 3,00,000 18.03.1990 1,50,000 ---------------- 7,50,000 ========= THE AO DID NOT ACCEPT THE EXPLANATIONS OF THE ASSESSEE AND HE ASSESSED THE SUM OF RS.7,50,000/ - AS INCOME OF THE ASSESSEE RELATING TO UNEXPLAINED CASH DEPOSITS. THE LD CIT(A) TOOK THE VIEW THAT THE WITHDRAWAL OF RS.2,50,000/ - MADE ON 04.11.89 COULD HAVE BEEN UTILISED TO MAKE DEPOSIT OF EQUAL AMOUNT ON 06.11.1 989. ACCORDINGLY HE GAVE RELIEF OF RS.2,50,000/ - AND CONFIRMED THE ADDITION TO THE EXTENT OF RS.5,00,000/ - . 40 SHRI BHUPENDRA C. DALAL ITA NOS. 554 & 1670/MUM/2011 81 . THE LD A.R REITERATED THE CONTENTIONS MADE BEFORE THE AO AND THE LD D.R SUBMITTED THAT THE LD CIT(A) HAS ANALYSED THE ISSUE IN A PROPER PERSPE CTIVE. 82 . WE HAVE HEARD THE PARTIES ON THIS ISSUE AND PERUSED THE RECORD. WE NOTICE THE ASSESSEE HAS MADE WITHDRAWALS IN THE MONTH OF NOVEMBER & DECEMBER, 1989 AND MADE THE DEPOSITS IN FEBRUARY & MARCH, 1990. THUS THERE IS A GAP OF ABOUT THREE MONTHS B ETWEEN THE DATE OF WITHDRAWALS AND DEPOSITS. HENCE THE TAX AUTHORITIES HAVE REFUSED TO ACCEPT THE WITHDRAWALS AS THE SOURCE OF DEPOSITS . HOWEVER, IT IS NOT CLEAR AS TO WHETHER THE ASSESSEE HAS SPENT AWAY ALL THE WITHDRAWALS. IN RESPECT OF DEPOSIT OF RS. 50,000/ - MADE ON 11.07.1989, THERE WAS NO PRIOR WITHDRAWALS AND HENCE THE SAME SHOULD BE CONSIDERED AS UNEXPLAINED DEPOSIT. WITH REGARD TO THE WITHDRAWALS AGGREGATING TO RS.5,00,000/ - MADE BETWEEN 15.11.1989 TO 14.12.1989, WE ARE OF THE VIEW THAT THE ASSE SSEE MAY BE GIVEN CREDIT OF 50% OF THE SAME, SINCE THE CLAIMS OF BOTH THE PARTIES ARE NOT SUPPORTED BY THE ANY EVIDENCE. ACCORDINGLY, WE ARE OF THE VIEW THAT THE ASSESSEE MAY BE GIVEN FURTHER RELIEF OF RS.2,50,000/ - . ACCORDINGLY, WE MODIFY THE ORDER PASS ED BY LD CIT(A) AND DIRECT THE AO TO CONFIRM THE ADDITION ON THIS ISSUE TO THE EXTENT OF RS.2,50,000/ - . 83 . THE NEXT ADDITION RELATES TO THE DISALLOWANCE OF LOSS INCURRED IN THE SECURITY TRANSACTION ENTERED WITH MILAN MAHINDRA AMOUNTING TO RS.4,73,472 / - . THE AO MADE THIS ADDITION IN THE SET ASIDE PROCEEDINGS WITHOUT DISCUSSING THE SAME. SINCE THIS ADDITION WAS SET ASIDE BY THE ITAT IN THE ORIGINAL ASSESSMENT PROCEEDINGS, THE LD CIT(A) (AND ALSO THE AO IN HIS REMAND REPORT) TOOK THE VIEW THAT THE ASSE SSEE SHOULD HAVE TAKEN THE RESPONSIBILITY TO EXPLAIN THE TRANSACTIONS ENTERED WITH M/S MILAN MAHINDRA. THE LD CIT(A) ALSO EXPRESSED THE VIEW THAT THE FAILURE ON THE PART OF THE AO TO DISCUSS ABOUT THIS 41 SHRI BHUPENDRA C. DALAL ITA NOS. 554 & 1670/MUM/2011 ADDITION WILL NOT MAKE THE ADDITION VOID. SINCE THE ASSESSEE FAILED TO ADDUCE ANY ARGUMENT OR EVIDENCE, THE LD CIT(A) CONFIRMED THIS ADDITION. 84 . THE LD A.R SUBMITTED THAT THE ASSESSING OFFICER DID NOT DISCUSS ABOUT THIS ADDITION AND HENCE THE ASSESSEE COULD NOT HAVE VISUALIZED THE SAME AND MET THE CONTEN TIONS OF THE AO. 85 . WE HEARD LD D.R AND PERUSED THE RECORD. SINCE THERE IS NO DISCUSSION ABOUT THIS ADDITION EITHER IN THE ASSESSMENT ORDER OR IN THE ORDER OF LD CIT(A), THERE IS MERIT IN THE CONTENTIONS OF THE ASSESSEE THAT HE COULD NOT HAVE VISUALISE D THE MIND OF THE AO AND OFFER EXPLANATIONS. HOWEVER, A PERUSAL OF THE PARAGRAPH 9.7 OF THE ORIGINAL ASSESSMENT ORDER SHOWS THAT THE AO DISALLOWED THE CLAIM ON THE REASONING THAT THE ASSESSEE HAS ALWAYS INCURRED LOSSES IN A SERIES OF PURCHASE AND SALE OF R ELIANCE CHEM DEBENTURES WITH M/S MILAN MAHINDRA. WE HAVE EARLIER TAKEN A VIEW THAT THE TRANSACTIONS ENTERED WITH UNRELATED PARTIES AND ALSO THROUGH BANKING CHANNELS MAY NOT BE DOUBTED WITH, UNLESS DUE ENQUIRIES WERE CARRIED OUT TO ASCERTAIN THE NON - GENUIN ENESS OF TRANSACTIONS. UNDOUBTEDLY, NO SUCH ENQUIRY OR INVESTIGATION WAS CARRIED OUT BY THE AO EITHER IN THE ORIGINAL ASSESSMENT PROCEEDINGS OR IN THE SET ASIDE PROCEEDINGS. ACCORDINGLY WE DO NOT FIND ANY MERIT IN THIS ADDITION ALSO. ACCORDINGLY, WE SET ASIDE THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO DELETE THIS ADDITION. 8 6. THE NEXT ITEM OF ADDITION RELATES TO THE DISALLOWANCE OF LOSS IN C URRED IN SHARE TRANSACTIONS AMOUNTING TO RS.4,19,200/ - AND RS.3,86,450/ - . THE FOLLOWING PARTIES HAD PURCHASED SHARES OF M/S BARODA RAYON LTD FROM THE ASSESSEE: - (A) RANDOM HOUSE INVESTMENT AND TRADING CO. PVT LTD (B) NAVDHA INVESTMENTS AND TRADING CO. P LTD 42 SHRI BHUPENDRA C. DALAL ITA NOS. 554 & 1670/MUM/2011 THE ASSESSEE, HOWEVER, DID NOT DELIVER THE SHARES AND IT WAS CARRIED FORWARD FROM ONE SETTLEMENT PERIOD TO ANOTHER SETTLEMENT PERIOD. FINALLY, WHEN THE TRANSACTION WAS CLOSED, THE ASSESSEE BOOKED LOSS OF RS.4,19,200/ - IN RESPECT OF TRANSACTION WITH M/S RANDOM HOUSE AND LOSS OF RS.3,86 ,450/ - IN RESPECT OF TRANSACTION WITH M/S NAVDHA INVESTMENT. THE AO DOUBTED THE GENUINENESS OF THESE TRANSACTIONS AND ACCORDINGLY DISALLOWED THE SAME IN THE ORIGINAL ASSESSMENT PRO C EEDINGS. 87 . IN THE SET ASIDE PROCEEDINGS, THE ASSESSEE EXPLAINED THE SAME TO BE IN THE NATURE OF FUNDING TRANSACTION S AND THE LOSS INCURRED ACTUALLY REPRESENTS INTEREST PAYMENTS. HE FURTHER SUBMITTED THAT THE ASSESSEE HAS CARRIED OUT ALL THESE TRANSACTIONS THROUGH BA NKING CHANNELS AND THERE ARE CASES, WHERE HE HAS MADE PROFITS ALSO IN THE FUNDING TRANSACTIONS. THE ASSESSEE FURTHER SUBMITTED THAT THESE TRANSACTIONS HAVE BEEN ENTERED IN THE NORMAL COURSE OF CARRYING THE BUSINESS AND ACCORDINGLY CONTENDED THAT THERE IS NO REASON TO DISALLOW THE CLAIM. THE AO WAS NOT CONVINCED WITH THESE EXPLANATIONS AND ACCORDING L Y DISALLOWED THE LOSS. THE LD CIT(A) ALSO CONFIRMED THE SAME. 88 . WE HEARD THE PARTIES AND PERUSED THE RECORD. BOTH THE CONCERNS REFERRED ABOVE ARE NOT RELA TED PARTIES. ALL THE TRANSACTIONS HAVE BEEN ENTERED THROUGH BANKING CHANNELS. THE VERY FACT THAT THE ASSESSEE DID NOT DELIVER THE SHARES SHOWS THAT THE SAME MAY BE A FUNDING TRANSACTION AS CLAIMED BY THE ASSESSEE. IN THE CASE OF FUNDING TRANSACTION, THE RECEIVER OF THE FUNDS HAS TO GIVE INTEREST TO THE LENDER. ACCORDING TO THE ASSESSEE, THE LOSS ON SECURITIES IS ACTUALLY IN THE NATURE OF INTEREST PAID TO THE ABOVE SAID LENDERS. ACCORDING TO THE ASSESSEE, THE ABOVE SAID METHOD OF FUNDING IS QUITE PREVAL ENT IN THE SHARE TRADING CIRCLES. THE SAID CLAIM HAS NOT BEEN PROVED TO BE WRONG. FURTHER THE AO HAS NOT BROUGHT ON RECORD THE DETAILS OF QUANTUM OF FUNDS RAISED AND THE RATE AT WHICH THE INTEREST ACTUALLY WORKS OUT TO. THE ASSESSEE HAS ALSO NOT 43 SHRI BHUPENDRA C. DALAL ITA NOS. 554 & 1670/MUM/2011 FURNISH ED THOSE DETAILS. IN ANY CASE, THE TRANSACTIONS HAVE BEEN ENTERED THROUGH BANKING CHANNELS AND BOTH THESE PARTIES ARE NOT RELATED PARTIES. WE FURTHER NOTICE THAT THE EXPLANATIONS OF THE ASSESSEE THAT THE SAME WERE FUNDING TRANSACTIONS HAVE BEEN REJECTED BY THE TAX AUTHORITIES WITHOUT EXAMINING THE CORRESPONDING PARTIES OR THE GAMUT OF WHOLE TRANSACTIONS. HENCE, WE ARE OF THE VIEW THAT THERE IS NO REASON TO SUSPECT THESE TRANSACTIONS, MERELY ON THE REASONING THAT THE ASSESSEE HAS INCURRED LOSS IN THESE T RANSACTIONS. ACCORDINGLY, WE SET ASIDE THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO DELETE THIS ADDITION. 89 . WE SHALL NOW TAKE UP THE APPEAL FILED BY THE REVENUE. THE FIRST ISSUE CONTESTED BY THE REVENUE RELATES TO THE RELIEF OF RS. 2,50,000/ - GRANTED BY THE LD CIT(A) IN RESPECT OF ADDITION RELATING TO UNEXPLAINED CASH DEPOSITS. WE HAVE DISCUSSED THE FACTS OF THIS ISSUE IN THE PRECEDING PARAGRAPHS AND HAVE NOTICED THAT THE DEPOSIT OF RS.2,50,000/ - MADE ON 6.11.1989 WAS EXPLAINED TO B E FROM THE WITHDRAWAL OF EQUAL AMOUNT MADE ON 04.11.1989. IN VIEW OF THE PROXIMITY OF THE BOTH DATES, REFERRED ABOVE, WE ARE OF THE VIEW THAT THE LD CIT(A) WAS J USTIFIED IN GRANTING RELIEF TO THE EXTENT OF RS.2,50,000/ - . 90. THE NEXT ISSUE RELATES TO THE RELIEF OF RS.88,98,250/ - GRANTED BY LD CIT(A) IN RESPECT OF ADDITION RELATING TO THE TRANSACTIONS ENTERED WITH J.P.GANDHI. THE ASSESSEE HAD MADE PROFIT OF RS.88,98,250/ - IN RESPECT OF TRANSACTIONS OF TRADING IN SHARES WITH M/ S CHAMPAKLAL DEVIDAS, THE PROPRIETARY CONCERN OF SHRI J.P.GANDHI. HOWEVER, THE ASSESSEE HAD DECLARED OVERALL PROFIT OF RS.11,99,386/ - ONLY IN RESPECT OF TRADING IN SHARE TRANSACTIONS. HENCE THE AO TOOK THE VIEW THAT THE ASSESSEE MIGHT NOT HAVE DECLARED THE ABOVE SAID PROFIT AND ACCORDINGLY MADE THE ADDITION IN THE FIRST ROUND OF PROCEEDINGS. BEFORE THE LD CIT(A), IN THE FIRST ROUND OF PROCEEDINGS, THE ASSESSEE SUBMITTED THAT THE TRANSACTIONS ENTERED WITH SHRI J.P.GANDHI HAS ALREADY BEEN INCLUDED IN HIS BOOKS OF ACCOUNT AND NO SEPARATE ADDITION IS 44 SHRI BHUPENDRA C. DALAL ITA NOS. 554 & 1670/MUM/2011 CALLED FOR. THE LD CIT(A) NOTICED THAT THE AO DID NOT INTEND TO MAKE ANY ADDITION, EVEN THOUGH HE HAS DISCUSSED ABOUT THESE TRANSACTIONS AND THOSE DISCUSSIONS WERE INTENDED TO SUBSTANTIATE THE DISALLOWANCES OF LOSSES ONLY. THE LD CIT(A) ALSO OBSERVED THAT THE ABOVE SAID POSITION WAS ALSO ACCEPTED BY THE AO DURING THE COURSE OF HEARING OF THE APPEAL. ACCORDINGLY THE LD CIT(A) DELETED THE ABOVE SAID ADDITION IN THE FIRST ROUND OF PROCEEDINGS. 91 . IN THE SET ASI DE PROCEEDIN GS, THE AO AGAIN MADE THE ADDIT ION AND THE LD CIT(A) DELETED THE SAME BY FOLLOWING HIS ORDER PASSED IN THE FIRST ROUND. THE REVENUE IS AGGRIEVED BY THIS DECISION. 92 . WE HEARD THE PARTIES ON THIS ISSUE AND PERUSED THE RECORD. THE AO HAS NOTE D DOWN THIS ISSUE FROM THE BOOKS OF ACCOUNTS OF THE ASSESSEE AND HENCE THERE IS MERIT IN THE CLAIM OF THE ASSESSEE THAT THE PROFIT COMPUTED BY THE AO HAS ALREADY BEEN INCLUDED IN THE PROFITS FROM SHARE TRADING. FURTHER, THE ASSESSING OFFICER HIMSELF HAS C ONFIRMED BEFORE THE LD CIT(A) IN THE FIRST ROUND OF PROCEEDINGS THAT HE DID NOT INTEND TO MAKE SEPARATE ADDITION OF THE PROFITS, CITED ABOVE. UNDER THESE SET OF FACTS, THE LD CIT(A) HAS DELETED THIS ADDITION AND HENCE, WE DO NOT FIND ANY REASON TO INTERFE RE WITH HIS ORDER PASSED ON THIS ISSUE. 93 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AND THE APPEAL OF DEPARTMENT IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 9 T H DECEMBER, 2016. SD/ - SD/ - (SANDEEP GOSAIN) ( B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 9 T H DECEMBER, 2016 *SSL* 45 SHRI BHUPENDRA C. DALAL ITA NOS. 554 & 1670/MUM/2011 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
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