M/S AGENCIES RAJASTHAN PVT. LTD., JAIPUR V. INCOME TAX OFFICER, WARD-6-2, JAIPUR

ITA 567/JPR/2019

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 9548 (ITAT-JAIPUR)
• Duration Of Justice: 2 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-07-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2015-2016
• Appeal Filed On: 22-04-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VARINDER MEHTA
• Assessee Lawyers: F. REHMAN ADVS
• Keywords: Business income; Depreciation; Earning of tax free income; Commercial expediency; Capital Gains; Bogus
• Section: 143(3); 244A; 133(6); 205; 43; 48; 10(33); 10(33); 72; 13; 22; 20

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES A, JAIPUR JH JES'K LH 'KEKZ] YS[KK LNL; ,OA JH FOT; IKY JKO] U;KF;D LNL; DS LE{K BEFORE: SHRI RAMESH C SHARMA, AM & SHRI VIJAY PAL RAO, JM VK;DJ VIHY LA -@ ITA NO. 567/JP/2019 FU/KZKJ.K O'KZ@ ASSESSMENT YEAR : 2015-16 M/S AGENCIES RAJASTHAN PVT. LTD., A-2, BANGUS HOUSE, PRITHVI RAJ ROAD, C-SCHEME, JAIPUR-302019. CUKE VS. I.T.O., WARD 6(2), JAIPUR. LFKK;H YS[KK LA -@THVKBZVKJ LA-@ PAN/GIR NO.: AABCA 5667 R VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS @ ASSESSEE BY : SHRI MAHENDRA GARGIEYA & SHRI F. REHMAN (ADVS.) JKTLO DH VKSJ LS @ REVENUE BY : SHRI VARINDER MEHTA (CIT-DR) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 30/05/2019 MN?KKS 'K.KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 01/07/2019 VKNS'K@ ORDER PER: R.C. SHARMA, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF LD.CIT(A)-2, JAIPUR DATED 28/03/2019 FOR THE A.Y. 2015-16 IN THE MATTER OF ORDER PASSED U/S 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT, THE ACT). FOLLOWING GROUNDS HAVE BEEN TAKEN BY THE ASSESSEE: 1. THE IMPUGNED ADDITIONS AND DISALLOWANCES MADE IN THE ORDER U/S 143(3) OF THE ACT DATED 30.12.2017 ARE BAD IN LAW AND ON FACTS OF THE CASE, FOR WANT OF JURISDICTION AND VARIOUS OTHER REASONS AND HENCE THE SAME KINDLY BE DELETED. ITA 567/JP/2019_ M/S AGENCIES RAJASTHAN PVT. LTD. VS. ITO 2 2. THE LD. CIT(A) ERRED IN LAW AS WELL IN THE FACTS OF THE CASE IN CONFIRMING THE DISALLOWANCE OF RS. 24,04,26,504/- CLAIMED ON ACCOUNT OF SHORT-TERM CAPITAL LOSS (STCL) CLAIMED BY THE ASSESSEE. THE LOWER AUTHORITIES PROCEEDED COMPLETELY ON MISCONCEPTION OF FACTS AND LAW, LACK OF KNOWLEDGE WITH REGARD TO THE SHARE AND MUTUAL FUND TRANSACTIONS AS ALSO BEING IGNORANT WITH REGARD TO THE BINDING LAW OF THE LAND. THE DISALLOWANCE OF STCL, SO MADE BEING CONTRARY TO THE PROVISIONS OF LAW AND FACTS, KINDLY BE ALLOWED IN FULL. 3. RS.14,42,282/-: THE LD. CIT(A) ERRED IN LAW AS WELL AS ON THE FACTS OF THE CASE IN RESTRICTING THE DISALLOWANCE UP TO RS.1,00,000/- ON ACCOUNT OF EMPLOYEE BENEFIT EXPENSES. THE DISALLOWANCE SO MADE AND CONFIRMED, BEING CONTRARY TO THE PROVISIONS OF LAW AND FACTS KINDLY BE DELETED FULL. 4. RS.8,13,000/-: THE LD. CIT(A) ERRED IN LAW AS WELL AS ON THE FACTS OF THE CASE IN RESTRICTING THE DISALLOWANCE UP TO RS.50,000/- ON ACCOUNT OF OTHER EXPENSES. THE DISALLOWANCE SO MADE AND CONFIRMED, BEING CONTRARY TO THE PROVISIONS OF LAW AND FACTS KINDLY BE DELETED FULL. 5. THE LD. AO FURTHER ERRED IN LAW AS WELL AS ON THE FACTS OF THE CASE IN CHARGING INTEREST U/S 234A, 234B, 234C AND 234D OF THE ACT AND AS ALSO IN WITHDRAWING INTEREST U/S 244A OF THE ACT. THE APPELLANT TOTALLY DENIES ITS LIABILITY OF CHARGING AND WITHDRAWAL OF ANY SUCH INTEREST. THE INTEREST SO CHARGED/WITHDRAWN, BEING CONTRARY TO THE PROVISIONS OF LAW AND FACTS, KINDLY BE DELETED IN FULL. 6. THE APPELLANT PRAYS YOUR HONOUR INDULGENCES TO ADD, AMEND OR ALTER OF OR ANY OF THE GROUNDS OF APPEAL ON OR BEFORE THE DATE OF HEARING. 2. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. FACTS IN BRIEF ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF BUYING AND SELLING COMMODITIES, ARTICLES AND MERCHANDISE. FOR THE YEAR UNDER ITA 567/JP/2019_ M/S AGENCIES RAJASTHAN PVT. LTD. VS. ITO 3 CONSIDERATION, THE ASSESSEE FILED RETURN DECLARING TOTAL INCOME OF RS. 81,42,790/-, WHICH WAS ASSESSED BY THE A.O. AT RS. 25,15,58,240/-. DURING THE COURSE OF ASSESSMENT, THE A.O. FOUND THAT THE ASSESSEE HAS EARNED LONG TERM CAPITAL GAIN OF RS. 26.79 CRORES ON SALE OF IMMOVABLE PROPERTY, THEREAFTER THE ASSESSEE HAS TAKEN LOAN OF RS. 50.00 CRORES FROM M/S INDIA INFOLINE FINANCE LTD. (IIFL) ON 17/10/2014. THE A.O. FURTHER OBSERVED THAT OUT OF LOAN AMOUNT, THE ASSESSEE HAS PURCHASED UNITS OF MUTUAL FUNDS OF JM FINANCIAL MUTUAL FUND AMOUNTING TO RS. 50.00 CRORES, ON WHICH THE ASSESSEE HAS EARNED DIVIDEND OF RS. 10.33 CRORES AND RS. 17.62 CRORES. THE A.O. FURTHER STATED THAT SOON AFTER EARNING DIVIDEND, A REDEMPTION WAS TAKEN PLACE ON 26/3/2015 WHEREIN THE ASSESSEE HAS SUFFERED LOSS OF RS. 24.04 CRORES. THIS LOSS WAS SET OFF AGAINST THE CAPITAL GAIN OF RS. 26.79 CRORES EARNED BY THE ASSESSEE. THE ASSESSEE HAS ALSO CLAIMED DIVIDEND INCOME EXEMPT U/S 10(33) OF THE ACT. THE A.O. HAS FURTHER OBSERVED THAT IT APPEARS THAT BY ALL THESE WAYS, THE ASSESSEE HAS CONCOCTED A STORY BEAUTIFULLY IN CONNIVANCE WITH M/S JM FINANCIAL MUTUAL FUNDS AND M/S INDIA INFOLINE FINANCE AND ATTEMPTED TO PREPARE A COLORABLE DEVICE JUST TO SET OFF THE CAPITAL GAIN EARNED ON SALE OF IMMOVABLE PROPERTY AND ALSO BY CLAIMING EXEMPTION ON THE DIVIDEND EARNED JUST WITHIN THREE TO FIVE MONTHS. CONSIDERING THAT TRANSACTION WAS NOT GENUINE AND FICTITIOUS, THE A.O. DISALLOWED SET OFF OF SHORT-TERM CAPITAL ITA 567/JP/2019_ M/S AGENCIES RAJASTHAN PVT. LTD. VS. ITO 4 LOSS. THE A.O. ALSO DISALLOWED INTEREST EXPENSES OF RS. 5,83,662/-, DISALLOWANCE ON ACCOUNT OF EMPLOYEE BENEFIT EXPENSES OF RS. 15,42,282/- AND ALSO DISALLOWED OTHER EXPENSES OF RS. 8,63,000/-. 3. BY THE IMPUGNED ORDER, THE LD. CIT(A) CONFIRMED THE ACTION OF THE A.O. WITH RESPECT TO DISALLOWANCE OF SHORT-TERM CAPITAL LOSS OF RS. 24.04 CRORES. INTEREST DISALLOWANCE WAS DELETED BY THE LD. CIT(A). THE LD. CIT(A) HAS ALSO DELETED RS. 1.00 LACS OUT OF DISALLOWANCE OF EMPLOYEE BENEFIT EXPENSES AND RS. 50,000/- ON ACCOUNT OF OTHER EXPENSES. NOW THE ASSESSEE IS IN FURTHER APPEAL BEFORE THE ITAT. 4. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE RELEVANT EXTRACT OF THE ASSESSMENT ORDER WHEREIN THE A.O. HAS MADE VARIOUS ALLEGATIONS FOR DISALLOWING SHORT TERM CAPITAL LOSS AND OTHER EXPENSES ARE AS UNDER: DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS EARNED CAPITAL GAIN OF RS. 267936336/- ON SALE OF IMMOVABLE PROPERTY AND THEREAFTER THE ASSESSEE HAS TAKEN LOAN OF RS, 50 CRORE FROM M/S INDIA INFOLINE FINANCE LTD. ON 17.10.2014 AND ON THE SAME DAY PURCHASED UNITS OF MUTUAL FUNDS OF RS. 50 CRORE FROM JM FINANCIAL MUTUAL FUND AND EARNED DIVIDEND OF RS. 10,33,53,421/- AND RS. 17,62,97,085. SOON AFTER EARNING DIVIDEND, THE REDEMPTION WAS TAKEN ON 26.03.2015 (I.E. A DAY AFTER EARNING DIVIDEND). ON VERIFICATION OF THE DATA OF THE JM FINANCIAL MUTUAL FUND, IT IS FOUND THAT THE JM FINANCIAL MUTUAL FUND HAS NOT DECLARED ANY DIVIDEND IN THE PAST YEARS AND THE ASSESSEE HAS PURCHASED ITA 567/JP/2019_ M/S AGENCIES RAJASTHAN PVT. LTD. VS. ITO 5 MUTUAL FUNDS FROM THIS COMPANY. FURTHER, THE ASSESSEE HAS EARNED 56% DIVIDEND ON THE MUTUAL FUNDS. ON PERUSAL OF THE ABOVE FACTS, IT APPEARS THAT BY ALL THESE WAYS THE ASSESSEE HAS CONCOCTED A STORY BEAUTIFULLY IN CONNIVANCE WITH THE M/S .1 M FINANCIAL MUTUAL FUND AND M/S INDIA INFOLINE FINANCE ATTEMPTED TO PREPARE A COLORABLE DEVICE JUST TO SET OFF THE CAPITAL GAIN EARNED ON SALE OF IMMOVABLE PROPERTY AND ALSO BY CLAIMING EXEMPTION ON THE DIVIDEND EARNED JUST WITHIN THE THREE TO FIVE MONTHS. FOR FURTHER CLARIFICATION, IT WOULD BE APPROPRIATE TO GO THROUGH THE SECTION 94(7) OF THE I.T. ACT WHICH READS AS UNDER: 'WHERE-(A) ANY PERSON..PERSON IS EXEMPT.,' THEN, THE LOSS, IF ANY, ARISING TO HIM ON ACCOUNT OF SUCH PURCHASE AND SALE OF SECURITIES OR UNIT, TO THE EXTENT SUCH LOSS DOES NOT EXCEED THE AMOUNT OF DIVIDEND OR INCOME RECEIVED OR RECEIVABLE ON SUCH SECURITIES OR UNITS, SHALL BE IGNORED FOR THE PURPOSES OF COMPUTING HIS INCOME CHARGEABLE TO TAX. 3.1 HEREIN, THE FACTS OF THE ASSESSEE'S CASE INDICATE THAT THERE IS ATTEMPT BY THE ASSESSEE IN CONNIVANCE WITH THE COMPANIES M/S J M FINANCIAL MUTUAL FUNDS AND M/S INDIA INFOLINE FINANCE TO MAKE SUCH CONDITIONS HAPPEN SO THAT PROVISIONS OF SECTION 94(7) CANNOT BE APPLICABLE IN ITS CASE AND SHORT TERM CAPITAL, LOSS SO CLAIMED TO HAVE OCCURRED CAN BE ADJECTED AGAINST THE CAPITAL GAIN EARNED ON SALE OF IMMOVABLE PROPERTY. THEREFORE, VIDE SHOW-CAUSE LETTER DATED 27.12.2017 THE ASSESSEE WAS REQUIRED TO SHOW-CAUSE AS TO WHY SHORT TERM CAPITAL LOSS ON REDEMPTION OF UNITS OF MUTUAL FUNDS MAY NOT ALLOWED TO BE ADJUSTED AGAINST THE LONG TERM CAPITAL GAIN AND FURTHER CLAIM OF DIVIDEND AS EXEMPT INCOME SHOULD NOT BE DISALLOWED. 3.2 IN RESPONSE THERETO, THE LD. A/ R OF THE ASSESSEE HAS FILED HIS REPLY WHICH IS REPRODUCED AS UNDER: ITA 567/JP/2019_ M/S AGENCIES RAJASTHAN PVT. LTD. VS. ITO 6 WITH REFERENCE TOTO BE FULLY ALLOWED. 3.3 THE REPLY OF THE CONSIDERED AND FURTHER THE ASSESSEE IS REQUIRED TO FURNISH FOLLOWING DETAILS VIDE THIS OFFICE LETTER DATED 29/12/2017:- IN THIS REGARDNOT BE DISALLOWED. 3.4 IN RESPONSE THERETO, THE LD. A/R OF THE ASSESSEE HAS FILED HIS REPLY WHICH IS REPRODUCED AS UNDER: WITH REFERENCE TO.OF OUR CAPABILITIES. 3.5 I HAVE CONSIDERED THE REPLY FILED BY THE ASSESSEE WHICH IS NOT FOUND TENABLE AS THE FACTS AND CIRCUMSTANCES OF THE ASSESSEE'S CASE PRIMA-FACIE INDICATES THAT THERE IS ATTEMPT BY THE ASSESSEE TO EVADE TAX THROUGH A PRE-PLANNED CONSPIRACY IN CONNIVANCE WITH THE M/S J M FINANCIAL MUTUAL FUNDS AND M/S INFOLINE FINANCE LIMITED BY CREATING EXEMPT INCOME OF RS. 27,96,50,506/- FROM MUTUAL FUND JUST WITHIN A PERIOD OF THREE TO FIVE MONTHS, THIS CONTENTION IS FURTHER SUPPORTED BY THE FOLLOWING FACTS: (I) SOON AFTER EARNING SECOND DIVIDEND OF RS. 17,62,97,085/- ON 25.03.2015, THE REDEMPTION WAS TAKEN ON 26.03.2015 SO THAT SHORT TERM CAPITAL LOSS CAN BE CREATED TO SET OFF THE LONG TERM CAPITAL GAIN. (II) THE HUGE AMOUNT OF LOAN OF RS. 50 CRORE WAS GRANTED BY M/S INDIA INFOLINE FINANCIAL LTD. WITHOUT ANY PROPER SECURITIES ON 17.10.2014 AND ON THE SAME DATE UNITS OF MUTUAL FUNDS WERE PURCHASED BY THE ASSESSEE. (III) M/S INDIA INFOLINE FINANCIAL LTD., OPERATING ASSESSEE'S ACCOUNT FOR INVESTING FUNDS INTO JM MUTUAL FUND AS A POWER OF ATTORNEY HOLDER. (IV) THE COMPANY M/S JM MUTUAL FUND HAS NOT DECLARED ANY DIVIDEND IN PAST YEARS BEFORE THIS YEAR. ITA 567/JP/2019_ M/S AGENCIES RAJASTHAN PVT. LTD. VS. ITO 7 (V) THE COMPANY M/S JM MUTUAL FUND HAS DECLARED FIRST DIVIDEND OF RS. 10,33,53,421/- ON 28.1.2015 SOON AFTER COMPLETING 3 MONTHS OF PURCHASING THE UNITS OF MUTUAL FUND ON 17.10.2014. (VI) IN NO WAY, THERE ARE PROBABILITIES OF EARNING 56% OF DIVIDENDS JUST WITHIN A PERIOD OF THREE TO FIVE MONTHS. HOW THE ASSESSEE GET TO KNOW THAT IT WOULD BE EARNING SUCH HUGE AMOUNT OF DIVIDEND JUST WITHIN THREE TO FIVE MONTHS FROM A COMPANY WHICH HAS NOT DECLARED ANY DIVIDEND IN PAST YEARS. (VII) FURTHER, THE ASSESSEE COMPANY WHICH CLAIMS TO HAVE VETERAN DIRECTORS WHO IN THE POSSIBILITIES OF GETTING BETTER MAKE THE COMPANY CHOSE TO MAKE INVESTMENT BY PURCHASING OF UNITS OF MUTUAL FUNDS BY TAKING LOAN OF RS. 50 CR FROM A COMPANY WHICH HAS NOT DECLARED ANY DIVIDEND IN PAST YEARS. (VIII) THE ASSESSEE COMPANY HAS GOT ITS BANK ACCOUNTS BEARING ACCOUNT NUMBER- 50200007646702 OPENED ON 15.09.2014 IN HDFC BANK, MUMBAI AND M/S INDIA INFOLINE FINANCIAL LTD., OPERATING THIS ACCOUNT IN THE CAPACITY OF POWER OF ATTORNEY HOLDER. 3.6 ALL THE ABOVE FACTS CLEARLY SHOW THE MODUS-OPERANDI AS TO HOW A COLORABLE DEVICE HAS BEEN PREPARED BY THE ASSESSEE COMPANY IN CONNIVANCE WITH M/S JM FINANCIAL AND M/S INDIA INFOLINE JUST BY CREATING CAPITAL LOSS TO SET OFF THE LONG TERM CAPITAL GAIN ON SALE OF LAND. THE AIR OF THE ASSESSEE HAS FAILED TO EXPLAIN SATISFACTORILY THE REASONS WHY SUCH HUGE AMOUNT WAS INVESTED IN PURCHASING THE UNITS OF MUTUAL FUNDS OF THE COMPANY WHICH HAS NOT DECLARED ANY DIVIDEND IN PAST YEARS AND IN THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS EARNED HUGE DIVIDEND OF RS. 27 CRORE FROM THE SAID COMPANY. THUS, ALL THIS IS A PRE-PLANNED STORY FABRICATED TO SET-OFF THE SHORT TERM CAPITAL LOSS SO CLAIMED TO HAVE EARNED ON REDEMPTION OF UNITS OF MUTUAL FUNDS AFTER EARNING DIVIDEND OF RS. 27 CRORES AGAINST THE LONG TERM CAPITAL GAIN ON SALE OF IMMOVABLE PROPERTY. ITA 567/JP/2019_ M/S AGENCIES RAJASTHAN PVT. LTD. VS. ITO 8 3.7 THEREFORE, IN THE LIGHT OF THE FACTS NARRATED ABOVE, THE SHORT TERM CAPITAL LOSS CLAIMED BY THE ASSESSEE IS DISALLOWED. FURTHER, SET OFF OF THE SAME AGAINST THE LONG TERM CAPITAL GAIN ON THE SALE OF THE IMMOVABLE PROPERTY IS DISALLOWED AND ADDED IN THE TOTAL INCOME OF THE ASSESSEE.' 5. IN AN APPEAL FILED BEFORE THE LD. CIT(A), THE ASSESSEE HAS FILED DETAILED WRITTEN SUBMISSIONS WHICH WAS FORWARDED BY THE LD. CIT(A) TO THE A.O. FOR HIS COMMENTS. DURING THE REMAND PROCEEDINGS, THE A.O. CONDUCTED SOME ENQUIRIES AT THE BACK OF THE ASSESSEE AND NOTICES WERE ISSUED U/S 133(6) OF THE ACT TO M/S JM FINANCIAL MUTUAL FUNDS, HDFC BANK LTD, IIFL, SEBI, JM FINANCIAL TRUSTEE CO. LTD.. WE FOUND THAT FAVOURABLE REPLIES WERE GIVEN BY ALL THESE INSTITUTIONS, HOWEVER, THE A.O. KEPT A COMPLETE SILENCE ON THE DEVELOPMENT OF THESE VITAL FACTS. HOWEVER, VIDE REMAND REPORT DATED 23/01/2019, THE A.O. AGAIN REPEATED HIS ALLEGATIONS AND FINDINGS AS WERE RECORDED IN THE IMPUGNED ASSESSMENT ORDER. WITHOUT GIVING HIS COMMENTS, HE ALSO FILED COPIES OF NOTICES ISSUED U/S 133(6) OF THE ACT AND REPLIES RECEIVED FROM THEM. 6. BY THE IMPUGNED ORDER, THE LD. CIT(A) CONFIRMED THE ACTION OF THE A.O. BY OBSERVING THAT THE ASSESSEE WITH THE COLLUSION OF BROKER, (IN THIS CASE IT IS IIFL) WHO NOT ONLY PROVIDED SERVICES AS BROKER/CONSULTANT BUT ALSO PROVIDED THE FUNDS TO THE ASSESSEE FOR MAKING THE INVESTMENTS IN THE UNITS OF MUTUAL FUNDS PROMOTED BY JM FINANCIAL MUTUAL FUND HAD INCURRED ITA 567/JP/2019_ M/S AGENCIES RAJASTHAN PVT. LTD. VS. ITO 9 SHORT TERM LOSS ON MUTUAL FUNDS. REFERRING WIKIPEDIA, THE LD. CIT(A) OBSERVED THAT IIFL ALONG WITH FEW OTHER TOP BROKERS HAVE BEEN ACCUSED OF VARIOUS IRREGULARITIES. THE LD. CIT(A) ALSO STATED IN HIS ORDER THAT ECONOMIC OFFENCES WING (EOW)-MUMBAI AND SERIOUS FRAUD INVESTIGATION OFFICE (SFIO) HAVE FOUND THE TOP 5 BROKERS INCLUDING LLFL GUILTY OF MISSELLING NSEL CONTRACTS, KYC MANIPULATION, CLIENT CODE MODIFICATION', BENAMI TRANSACTIONS & INFUSION OF BLACK MONEY THROUGH THEIR NBFCS ON THE EXCHANGE PLATFORM. THE LD. CIT(A) FURTHER OBSERVED THAT THE INVESTMENT WAS MADE IN THE MUTUAL FUND WHICH HAD NOT DECLARED ANY DIVIDEND SINCE 2010 AND SUDDENLY AFTER INVESTMENT WAS MADE BY THE ASSESSEE IT STARTED PAYING DIVIDEND WHICH WAS ABNORMALLY HIGH AS COMPARED TO ITS PAST HISTORY AND NOT COMMENSURATE WITH ITS FINANCIAL POSITION. THE LD. CIT(A) ALSO ALLEGED THAT THE ASSESSEE NEVER MADE SUCH A HUGE INVESTMENT IN ANY MUTUAL FUND EARLIER AND IT IS ONLY IN THE YEAR OF APPEAL WHEN IT HAD CAPITAL GAINS FROM SALE OF IMMOVABLE PROPERTY THAT THE ENTIRE TRANSACTION OF INVESTMENT IN MUTUAL FUND WAS CARRIED OUT. THE INVESTMENT OF RS. 50.00 CRORES WERE MADE BY BORROWING THE FUNDS FROM LLFL AND NO SECURITY EXCEPT THE EQUITABLE MORTGAGE OF THE UNITS PURCHASED FROM SUCH FUNDS WERE PLEDGED. A NEW BANK ACCOUNT WAS ALSO OPENED FOR THIS TRANSACTION. ITA 567/JP/2019_ M/S AGENCIES RAJASTHAN PVT. LTD. VS. ITO 10 7. THE LD. CIT(A) ALSO OBSERVED THAT THE LLFL WAS APPOINTED AS CONSULTANT TOR MAKING OF INVESTMENT OF FUNDS SO BORROWED FORM LLFL ITSELF. THE ASSESSEE ITSELF WAS UNAWARE OF THE FINANCIAL PERFORMANCE OF THE FUND IN WHICH INVESTMENT WAS MADE WHICH WAS DONE BY IIFL. THE PERFORMANCE OF JM FINANCIAL MUTUAL FUND CAN BE SEEN FROM ITS PERFORMANCE CHART. AS PER THE SAME THE FUNDS PREVIOUS AS WELL AS THE SUBSEQUENT PERFORMANCE WAS NOT A BENCH MARK TO SUGGEST ANY INVESTOR FOR MAKING SUCH A HUGE INVESTMENT. 8. THE LD. CIT(A) ALSO ALLEGED THAT BY MAKING SUCH INVESTMENT, A HUGE SHORT-TERM CAPITAL LOSS WAS INCURRED BY GETTING REDEMPTION OF THE UNITS AFTER DISTRIBUTION OF DIVIDEND. THE ENTIRE TRANSACTION WAS A SHAM AS IT IS NEITHER RESULTS OF A COINCIDENCE NOR OF A GENUINE INVESTMENT ACTIVITY BUT WERE CREATED THROUGH WELL PLANNED AND EXECUTED SCHEME IN WHICH THE COMPANY AND THE BROKERS WORKED IN TANDEM TO ACHIEVE THE PREDETERMINED OBJECTIVES. 9. IN VIEW OF THE ABOVE, THE LD. CIT(A) CONCLUDED THAT IN THIS INSTANT CASE EVEN THOUGH PRIMA FACIE IT APPEARS THAT THE ASSESSEE RECEIVED THE DIVIDEND IN NORMAL COURSE AND INCURRED LOSS OUT OF REDEMPTION OF THE UNITS OF JM FINANCIAL MUTUAL FUND, IN REALITY IT WAS HIS OWN FUND WHICH HE RECEIVED BACK THROUGH SOME CLANDESTINE DEALS IN THE SHAPE OF DIVIDEND ITA 567/JP/2019_ M/S AGENCIES RAJASTHAN PVT. LTD. VS. ITO 11 AND CLAIMED IT AS EXEMPT. FURTHER LOSS INCURRED ON SUCH DEALS WAS ADJUSTED AGAINST THE LONG TERM CAPITAL GAIN FROM THE SALE OF IMMOVABLE PROPERTY. 10. WE HAD CAREFULLY GONE THROUGH THE VARIOUS DOCUMENTARY EVIDENCES FILED BEFORE THE LOWER AUTHORITIES IN SUPPORT OF THE GENUINENESS OF THE TRANSACTION WHICH COMPRISES AS UNDER: (A) COPIES OF AUDIT REPORT ALONG WITH BALANCE SHEET, PROFIT & LOSS ACCOUNT FOR AY 2015-16 (PBI 9-27) (B) COPIES OF TRANSACTION STATEMENT OF JM FINANCIAL MUTUAL FUND W.R.T THE SUBJECTED TRANSACTION. (PBI 225/28-30) (C) COPIES OF SANCTION LETTER FROM M/S INDIA INFOLINE FINANCE LIMITED FOR MARGIN FINANCE (PBI 50-52) (D) COPIES OF BANK ACCOUNT STATEMENT OF HDFC BANK FROM 15.09.2014 TO 23.04.2015 (PBI 31-32) (E) COPY OF LEDGER ACCOUNT OF M/S INDIA INFOLINE FINANCE LIMITED IN ASSESSEES BOOKS. (PBI 47-49) (F) COPY OF TRANSACTION STATEMENT OF M/S INDIA INFOLINE FINANCE LIMITED FROM 01.03.2014 TO 31.03.2015. (PBI 53-63) ITA 567/JP/2019_ M/S AGENCIES RAJASTHAN PVT. LTD. VS. ITO 12 WE FOUND THAT FOR PURCHASING OF MUTUAL FUNDS, THE ASSESSEE HAS TAKEN LOAN OF RS. 50.00 CRORES FROM IIFL WHICH HAS BEEN PAID TRHOUGH HDFC BANK LTD. ON DATED 17.10.2014 IN TWO PART I.E. RS.42,85,00,000/- AND RS.7,15,00,000/- TOTALING TO RS. 50,00,00,000/- (PBI 31-32) THROUGH JM FINANCIAL MUTUAL FUND (IN JM BALANCED FUND). IN THIS REGARD, WE FOUND THAT THE ASSESSEE FILED REPAYMENT SCHEDULE OF IIFL VIDE LETTER DATED 11.10.2017, WHICH HAVE ALL ENTRIES INCLUDING INTEREST DUE ALONG WITH REPAYMENT DETAIL. THE ASSESSEE HAS ALSO FILED BANK STATEMENT OF HDFC BANK LTD. BEARING ACCOUNT NUMBER 50200007646702 (PBI 31-32) IN WHICH THE PAYMENT REFLECTED. AS REGARD PURCHASE OF MUTUAL FUND OF RS.50 CRORES, THE ASSESSEE FILED VIDE LETTER DATED 11.10.2017 (PBI 47-48) COPY OF STATEMENT DATED 01.12.2014 ISSUED BY JM FINANCIAL MUTUAL FUND (PBI 30) IN WHICH PURCHASE OF JM BALANCED FUND THROUGH JM FINANCIAL MUTUAL FUND UNIT 1,98,75,657/884 @ 25.1564 ON DATED 17.10.2014 IS CLEARLY SHOWN. IN THE SAME STATEMENT IT IS STATED THAT THE SAME UNIT HAS BEEN LIEN MARKED BY IIFL ON 03.11.2014. 11. WE HAD ALSO GONE THROUGH THE REPLIES RECEIVED BY THE A.O. DURING THE COURSE OF REMAND PROCEEDINGS FROM VARIOUS CONCERNED PARTIES TO WHOM THE A.O. HAS ISSUED NOTICES WHICH CLEARLY ESTABLISHED THE GENUINENESS OF TRANSACTION. HOWEVER, THE REMAND REPORT SENT BY THE A.O. DID NOT REBUT THE REPLY OF THESE AGENCIES AND THE A.O. FAILED TO BRING ANY ITA 567/JP/2019_ M/S AGENCIES RAJASTHAN PVT. LTD. VS. ITO 13 CONTRARY EVIDENCE ON RECORD. HOWEVER, THE A.O. MAINTAINED A CONSPICUOUS SILENCE ON THE VARIOUS VITAL PIECE OF EVIDENCES IN THE SHAPES OF REPLIES GIVEN TO HIM DIRECTLY AT THE BACK OF THE ASSESSEE BECAUSE THE SAME STRONGLY SUPPORT THE ASSESSEE`S CASE. 12. NOW WE ANALYSE THE QUERY RAISED BY THE A.O. AND THE REPLY GIVEN BY THESE AGENCIES, WHICH ARE AS UNDER: (I) REPLY BY M/S J.M. FINANCIAL DATED 04.01.2018 (PBIII 588): THE CONTENTS OF THE REPLY ARE VERY IMPORTANT AND THEY CLEARLY SUPPORT THE CONTENTIONS OF THE ASSESSEE W.R.T. THE CREDENTIAL OF THE JMF, COMPLETELY ELIMINATING ANY POSSIBILITY OF THERE BEEN ANY CONNIVANCE WITH A LAYMAN INVESTOR LIKE ASSESSEE WITH THEM. (II) LETTER BY M/S J.M. FINANCIAL DATED 02.01.2018 (PBIII 587): FURTHER IN LETTER DATED 02.01.2018 BY J.M. FINANCIAL, IT APPEARS THAT THE AO HAD DISCUSSION OVER TELEPHONE ALSO. THE AO WAS ALSO TOLD THAT THE DATA / DOCUMENTS SOUGHT BY HIM COULD BE OBTAINED FROM THE REGISTRAR OF THEM NAME M/S KARVY COMPUTERSHARE PVT. LTD. LOCATED IN HYDERABAD AND ALSO FROM THEIR BANKER. THUS, THE J.M. FINANCIAL WAS FULLY CO-OPERATING. (III) LETTER BY HDFC BANK LTD DATED 04.01.2018 (PBIII 595): IN LETTER DATED 04.01.2018 BY HDFC BANK ADDRESSED TO THE AO U/S 133(6), THE FACT WAS CLEARLY MENTIONED THAT THE SAID ACCOUNT WAS OPERATED BY THE POA NAMELY M/S INDIA INFOLINE FINANCE LTD. AND JUSTIFICATION OF THE ASSESSEE AS TO WHY THE IIFL WAS GIVEN THE POA. THE COPIES OF THE BANK ACCOUNT, ACCOUNT OPENING FORM ETC. WERE ALSO GIVEN BY THE ITA 567/JP/2019_ M/S AGENCIES RAJASTHAN PVT. LTD. VS. ITO 14 BANK TO THE AO. BUT IT IS NOT THE CASE OF THE AO THAT THE SAME VERY DOCUMENTS SUBMITTED / PRODUCED BY THE ASSESSEE BEFORE THE AO WERE FOUND WRONG BY THE A.O. IN ANY MANNER. (III) LETTER BY M/S J.M. FINANCIAL DATED 15.01.2018 (PBIII 589): FURTHER VIDE LETTER DATED 15.01.2018 BY THE J.M. FINANCIAL, THEY SUPPLIED VARIOUS DOCUMENTS I.R.T. THE SUBJECTED INVESTMENT MADE BY THE ASSESSEE COMPANY BEING THE CERTIFICATE FROM HDFC BANK LTD. EVIDENCING RECEIPT OF RS. 50 CR., EVIDENCING PAYMENT OF DIVIDEND BY J.M. FINANCIAL TO THE ASSESSEE AND A FURTHER CERTIFICATE EVIDENCING REDEMPTION PAYMENT (NET OF STT). THUS, THE VERY FACT OF RECEIPT OF THE LOAN FROM IIFL THROUGH HDFC BANK AND THE FACT OF RECEIPT OF DIVIDEND WERE ALL FOUND CORRECT FACTS AND SUCH CONTENTIONS WERE AGAIN AFFIRMED BY A THIRD PARTY. (IV) CONFIRMATION BY HDFC BANK LTD. DATED 15.01.2018: (PBIII 590- 592) FURTHER VIDE LETTER DATED 15.01.2018, VIDE THREE CONFIRMATIONS GIVEN BY HDFC TO THE AO, THE BANK HAS CONFIRMED THE DEBIT CREDIT TRANSACTIONS ENTERED WITH THE ASSESSEE COMPANY AND SHOWN IN THE BANK STATEMENT WITH NARRATION, MEANING THEREBY WHAT THE ASSESSEE STATED BEFORE THE AO HAS BEEN AFFIRMED AND HAS NOT BEEN FOUND FAULT WITH / WRONG. (V) LETTER BY SEBI DATED 27.02.2018 (PBIII 578-579) FURTHER, VIDE LETTER DATED 27.02.2018 FROM THE SURVEILLANCE DEPARTMENT OF THE SEBI, MUMBAI, THE QUERIES RAISED BY THE AO DIRECTLY AT THE ASSESSEE`S BACK WERE DULY REPLIED TO THE SATISFACTION OF THE AO AND IN ADDITION, THE AO WAS ALSO ASKED TO CONTACT DIRECTLY TO THE CONCERN STOCK EXCHANGE. ITA 567/JP/2019_ M/S AGENCIES RAJASTHAN PVT. LTD. VS. ITO 15 13. IN VIEW OF ABOVE DOCUMENTARY EVIDENCE, WE FOUND THAT THE LOWER AUTHORITIES COMPLETELY FAILED TO REBUT EVIDENCES AND EXPLANATIONS SO FILED BY THESE AGENCIES SO AS TO CONCLUDE THAT IT WAS A COLOURABLE DEVICE OR ANY CONNIVANCE WITH THE COMPANIES TO EVADE TAX BY BOOKING LOSS. 14. WITH REGARD TO ALLEGATION OF THE A.O. THAT NO PROPER SECURITY WAS FURNISHED FOR TAKING A LOAN OF RS. 50.00 CRORES FROM M/S IIFL, WE FOUND THAT AS A SECURITY OF LOAN THE ASSESSEE HAS PLEDGED (LIEN) THE UNITS SO PURCHASED. IT IS TRUE THAT IIFL PROVIDED FUNDS TO THE ASSESSEE BUT IIFL IS NEITHER THE INVESTMENT CONSULTANT OF THE ASSESSEE NOR PROVIDED THE FUNDS TO SPECIFICALLY INVEST IN JMF-MF. THE IIFL ENTERED INTO THE TRANSACTION IN A NORMAL COURSE OF BUSINESS AND RECEIVED THE INTEREST. IT IS PERTINENT TO NOTE THAT THIS IS NOT THE ORDINARY BUSINESS LOAN BUT THIS IS A MARGIN FINANCE FACILITY PROVIDED BY THE BROKER M/S IIFL. THIS IS THE COMMON PRACTICE IN THE STOCK MARKET THAT THE BROKERS PROVIDE THE MARGIN FACILITY TO ITS CUSTOMERS AND GET INTEREST IN RETURN. IN THE ORDINARY COURSE EVERY BROKER PROVIDES MARGIN FINANCE OF 15 TIMES AND SOME BROKER ARE PROVIDING MARGIN EVEN UP TO 48 TIMES. SUCH MARGIN IS PROVIDED TO THE CUSTOMER TO FINANCE HIS TRADING/INVESTMENT AND THE BROKER GETS THE INTEREST IF THE INVESTOR IS CARRYING FORWARD THE POSITION NEXT DAY. THE MARGIN FACILITY SO PROVIDED BY THE IIFL WAS TO TRADE / INVEST BY PAYING 11.70% P.A. TO IIFL HOWEVER, THE FUNDS WERE NOT SPECIFICALLY PROVIDED TO ITA 567/JP/2019_ M/S AGENCIES RAJASTHAN PVT. LTD. VS. ITO 16 INVEST IN JMF-MF. HENCE ALLEGATION OF THE AO THAT NO SECURITY EXCEPT THE EQUITABLE MORTGAGE OF THE UNITS PURCHASED (FROM SUCH FUNDS), IS A MERE SUSPICION AND IS AN ALLEGATION PREMATURE IN NATURE. 15. T HE SANCTION LETTER OF IIFL ITSELF SHOWS THE SECURITY TOWARDS LOAN AS UNDER: 10. DIVERSIFIED SECURITIES APPROVED AND ACCEPTABLE BY IIFL. THE LIST OF ACCEPTABLE SECURITY CAN CHANGE ANYTIME AT THE SOLE DISCRETION OF IIFL. 12. THE BORROWER AGREES AND COVENANT THAT THE BORROWER BEING THE PROMOTER OF COMPANY SHALL DISCLOSE TO THE COMPANY AS WELL AS THE EXCHANGES FOR PLEDGING OF THE SHARES OF THE COMPANY AS SECURITY FOR THE LOAN TAKEN BY THEM FROM THE LENDER WITHIN 7 DAYS OF THE CREATION OF PLEDGE IN FAVOUR OF IIFL AND SHALL PROVIDE IIFL WITH THE CONFIRMATION OF DISCLOSURE. THE BORROWER FURTHER AGREES THAT THE SAME WILL BE CONSIDERED AS ONE OF THE EVENTS OF DEFAULTS, IN THE EVENTS OF DEFAULT, THEY FAIL TO DO SO. IT IS THUS, CLEAR THAT THE ASSESSEE HAS PLEDGED (LIEN) HIS UNITS AS SECURITY FOR THE LOAN. 16. THE ALLEGATION OF THE A.O. THAT THE ASSESSEE HAS CONCOCTED A STORY BEAUTIFULLY IN CONNIVANCE WITH THE JMF-MF AND IIFL ATTEMPTED TO PREPARE A COLORABLE DEVICE JUST TO SET OFF THE CAPITAL GAINS EARNED ON SALE OF IMMOVABLE PROPERTY AND ALSO BY CLAIMING EXEMPTION ON THE DIVIDEND EARNED JUST WITHIN THREE TO FIVE MONTHS IS BASELESS IN SO FAR AS THE IIFL HAS GOT NOTHING TO DO EITHER WITH THE PRESENT ASSESSEE OR WITH THE JM ITA 567/JP/2019_ M/S AGENCIES RAJASTHAN PVT. LTD. VS. ITO 17 FINANCIAL OR WITH THE TAX AFFAIRS OF THE PRESENT ASSESSEE I.E. NEITHER FOR NOR AGAINST THE INCOME TAX DEPARTMENT. IT WAS A COMMERCIAL DEAL OF GETTING A LOAN BASED ON AGREEMENT BETWEEN THE PARTIES I.E. THE LENDER IIFL AND THE BORROWER ASSESSEE. ASSUMING IT WAS SO AND IIFL KNEW THE FACT OF DECLARATION OF HIGH DIVIDEND, THEN WHY IIFL SHOULD HAVE SANCTIONED A HUGE LOAN TO THE ASSESSEE AND INSTEAD IIFL ITSELF COULD HAVE DONE SO AND EARNED SUBSTANTIALLY. 17. FROM THE ORDER OF THE A.O. WE FOUND THAT THE AO ALLEGED THE CONNIVANCE BETWEEN ALL THE THREE PARTIES I.E. THE ASSESSEE, JMF-MF AND IIFL BUT AT THE SAME TIME HOWEVER, THE CIT(A) CONFINED SUCH ALLEGED CONNIVANCE BETWEEN THE ASSESSEE AND THE IIFL ONLY, MEANING THEREBY, AS PER CIT(A) THERE WAS NOTHING WRONG WAS FOUND BETWEEN THE ASSESSEE AND THE JMF-MF. RESULTANTLY, THE TRANSACTIONS CARRIED OUT BETWEEN THE ASSESSEE AND JMF-MF WERE THUS BEYOND SUSPICION BY OWN ADMISSION OF THE CIT(A). THE FINDING OF THE CIT(A) TO THIS EXTENT IS ALSO NOT UNDER CHALLENGE BY THE REVENUE AND THEREFORE HAS BECOME FINAL. 18. AS REGARDS ALLEGATION OF CONNIVANCE BETWEEN THE ASSESSEE AND IIFL, WE FOUND THAT LOOKING TO THE STRINGENT REGULATIONS, CLOSE SUPERVISION BY THE STATUTORY BODIES AND IIFL HAVING A STRONG REPUTATION IN THE FINANCE MARKET AND MOREOVER, THE ASSESSEES INVESTMENT BEING A VERY MEAGER ITA 567/JP/2019_ M/S AGENCIES RAJASTHAN PVT. LTD. VS. ITO 18 PART OF THE VARIOUS SCHEMES FLOATED BY IIFL, IT IS A BASELESS ALLEGATION AND MORE IN THE NATURE OF SUSPICION. 19. THE LD. CIT(A) HAS ALSO LEVIED ALLEGATION WITH REFERENCE TO THE ECONOMIC OFFENCES WING, MUMBAI AND SERIOUS FRAUD INVESTIGATION OFFICE WITH REGARD TO TOP FIVE BROKERS INCLUDING IIFL GUILTY OF MISSELLING NSEL CONTRACTS ETC. WE FOUND THAT THE ASSESSEE HAS DEALT WITH THE MUTUAL FUNDS OF M/S J.M FINANCIAL MUTUAL FUNDS WHICH, IS A VERY RENOWNED MUTUAL FUND WHO HAS BEEN IN THE FIELD OF FINANCIAL MARKET SINCE 1973. A PERUSAL OF THE ANNUAL REPORT OF THE SUBJECTED MUTUAL FUND OBTAINED FROM THE WEBSITE ON 10.01.2019 FROM WWW.JMFINANCIALMF.COM AS PLACED ON RECORD CLEARLY SHOWS HUGE NET ASSET VALUE (NAV) OF RS.3604.39 CR. OF THE FUND WHICH IS MANY TIMES MORE THAN THE VALUE WHICH IT HAD AT THE TIME OF THE ISSUANCE OF THE UNITS. THIS REPORT ALSO SHOWS A CONSISTENT UPWARD TREND IN THE PERFORMANCE WHICH HAS ALL ALONG BEEN MORE THAN THE BENCHMARK FIXED IN VARIOUS YEARS STARTING FROM 2013 TO YEAR 2018. THESE FACTS SPEAK OF VERY HIGH OF THE SUBJECTED MUTUAL FUND AND DOESNT NEED ANY FURTHER CERTIFICATION. THIS REPORT FURTHER SHOWS THAT THE INVESTMENT MADE BY THE MUTUAL FUND WERE ALSO IN THE MOST REPUTED INDUSTRIES/COMPANIES WHICH FIND PLACE IN THE LIST OF NIFTY 50 AND SENSEX VIZ. HDFC LTD, RELIANCE INDUSTRIES LTD, HDFC BANK LTD, TCS, INFOSYS, ITC, ICICI BANK LTD TO NAME A FEW. SUCH INFORMATION IS ALSO AVAILABLE IN THE ITA 567/JP/2019_ M/S AGENCIES RAJASTHAN PVT. LTD. VS. ITO 19 PORTFOLIO OF THE JM FINANCIAL TAKEN FROM THE ANNUAL REPORT OF THE JM FINANCIAL FOR THE FY 2014-15. THE AUDITED ACCOUNTS AND ANNUAL REPORTS OF BOTH JMF-MF AND IIFL HAVE ALSO BEEN VERIFIED BY US AS PLACED ON RECORD. 20. WE ALSO OBSERVE THAT THE LD. CIT(A) HAS REFERRED TO AND HEAVILY RELIED UPON AN ARTICLE AVAILABLE ON THE WEBSITE WIKIPEDIA, WHEREIN IT WAS MENTIONED THAT IIFL HAS BEEN ACCUSED OF VARIOUS IRREGULARITIES. THE LD. CIT(A) ON HIS OWN OBTAINED SUCH ARTICLE AND MADE USE OF THE SAME EX- PARTE AGAINST THE ASSESSEE BUT AT THE SAME TIME SHE DID NOT PROVIDE ANY OPPORTUNITY TO THE ASSESSEE TO EXPLAIN THE NEW MATERIAL AND EVEN WITHOUT CONFRONTING THE ASSESSEE WHICH WAS BEING USED AGAINST THE ASSESSEE. A BLIND USE OF SUCH MATERIAL WAS NOT SUFFICIENT IN ITSELF UNLESS THE CONTENTS OF THE MATERIAL ARE TESTED AND VERIFIED AND FOUND FIT FOR THE CONTEXT FOR WHICH, IS BEING USED AND THEREFORE, THE SAME IS NOT CAPABLE OF BEING CITED IN A COURT OF LAW. MOREOVER, THE RELIABILITY OF SUCH MATERIAL, WHICH IS ADMITTEDLY A PUBLICLY EDITABLE SITE IS HIGHLY UNDER DOUBT. THE WIKIPEDIA AGGREGATE THE NEWS/ARTICLES FROM VARIOUS SOURCES AND THE ARTICLE REFERRED BY THE CIT(A) HAS BEEN TAKEN FROM HINDU BUSINESS LINE, ECONOMIC TIMES ETC. THE LD. CIT(A) RELIED UPON THE NEWS OF THESE WEBSITES WITHOUT BRINGING ON RECORD ANY ORDER OF SEBI/SAT FOR SUCH ALLEGED MISCONDUCT. ITA 567/JP/2019_ M/S AGENCIES RAJASTHAN PVT. LTD. VS. ITO 20 21. WITH REGARD TO AUTHENTICITY OF WIKIPEDIA, THE HONBLE SUPREME COURT IN THE CASE OF COMMR. OF CUSTOMS, BANGALORE VS. ACER INDIA PVT. (CITATION 2007(12) SCALE 581) (DPB 20-27), HAS HELD THAT 17. WE HAVE REFERRED TO WIKIPEDIA, AS THE LEARNED COUNSEL FOR THE PARTIES RELIED THEREUPON. IT IS AN ONLINE ENCYCLOPEDIA AND INFORMATION CAN BE ENTERED THEREIN BY ANY PERSON AND AS SUCH IT MAY NOT BE AUTHENTIC. 22. FURTHER THE SERIES OF EVENT WHICH TOOK PLACE IN THE CASE OF IIFL AND SOME OTHER BROKERS AND REFERRED BY THE CIT(A) RELATES TO THE YEAR 2016 ONWARDS WHEREAS THE ASSESSEE ENTERED INTO THE TRANSACTION MUCH EARLIER THROUGH IIFL IN 2014. SECONDLY THESE EVENTS RELATED TO THE COMMODITY DERIVATIVES WHEREAS THE ASSESSEE ENTERED INTO PURCHASE AND SALE OF MUTUAL FUNDS WHICH IS A COMPLETELY DIFFERENT SEGMENT. 22.1 AS REGARDS THE ALLEGATION BY THE AUTHORITIES BELOW THAT A COLOURFUL DEVICE HAS BEEN PREPARED BY THE ASSESSEE IN CONNIVANCE WITH M/S JM FINANCIAL AND M/S INDIA INFOLINE JUST BY CREATING CAPITAL LOSS TO GET SET OFF OF THE LONG-TERM CAPITAL GAIN ON THE SALE OF LAND, WE FOUND THAT ALL THE SCHEMES OF MUTUAL FUND CAN BE CIRCULATED ONLY AFTER FULFILLING ALL THE PRESCRIBED CONDITIONS UNDER THE RELEVANT LAWS, RULES-REGULATIONS ETC. AND ONLY AFTER APPROVAL OF THE PRESCRIBED AUTHORITIES LIKE SEBI AND RBI. THESE REGULATING BODIES GRANT APPROVAL ONLY AFTER ENSURING A STRICT COMPLIANCE OF THE REQUIREMENTS AND THE FULFILMENT OF THE PRESCRIBED CONDITIONS. ITA 567/JP/2019_ M/S AGENCIES RAJASTHAN PVT. LTD. VS. ITO 21 MOREOVER, THE ENTIRE PROCESS OF THE ISSUE FROM A TO Z IS CARRIED OUT UNDER THE STRICT SUPERVISION AND CONTROL OF THE REGULATING BODIES. THIS IS FOR THE SIMPLE REASON THAT THE HARD-EARNED MONEY OF THE SEVERAL INVESTORS AND THE PUBLIC AT LARGE, IS INVESTED IN SUCH MUTUAL FUND SCHEMES AND THE REGULATING BODIES HAVE TO ENSURE THAT ONLY BONAFIDE SCHEMES ARE FLOATED BY THE RENOWNED MUTUAL FUNDS, WHEREIN THERE ARE ABSOLUTELY NO CHANCE OF THE PUBLIC BEING DEFRAUDED. IN THE INSTANT CASE, IT IS NOT DENIED THAT THE SUBJECTED SCHEME HAS ALSO BEEN FLOATED AFTER OBSERVING ALL THE FORMALITIES, GETTING APPROVALS, UNDER SUPERVISION AND SO ON. FURTHERMORE, THE SEBI, THE REGULATORY AUTHORITY FOR INDIAN MUTUAL FUND INDUSTRY HAS CONSISTENTLY INTRODUCED SEVERAL REGULATORY MEASURES IN ORDER TO PROTECT THE INTEREST OF INVESTORS. SEBI (MUTUAL FUNDS) REGULATIONS, 1996, (R/W SEBI ACT, 1992) IS THE PRINCIPAL REGULATION FOR MUTUAL FUNDS. THE ASSESSEE INVESTED IN JM BALANCED FUND WHICH IS A BALANCED FUND SCHEME (SCHEME) FLOATED BY JM FINANCIAL MUTUAL FUNDS. A BALANCED FUND SCHEME NORMALLY CONSIST OF THE MUTUAL FUNDS BASED ON EQUITY AND DEBT FUNDS BOTH. 23. WE ALSO OBSERVE THAT THE MUTUAL FUND IN WHICH THE ASSESSEE HAS INVESTED WAS A BALANCED FUND SCHEME OF JMF-MF WHERE STRATEGIC ALLOCATIONS TO BOTH I.E. DEBT AND EQUITIES, WERE MADE BY THE FUNDS MANAGERS OF THE JMF-MF. THE BALANCED FUNDS HAVE MODERATE RISKS ITA 567/JP/2019_ M/S AGENCIES RAJASTHAN PVT. LTD. VS. ITO 22 BECAUSE THE DEBT PORTFOLIO OF THE SCHEME PROVIDES THE STABILITY AND THE EQUITY PROVIDES THE GROWTH. IN OUR COUNTRY THE SEBI HAS VERY STRICT REGULATIONS FOR MUTUAL FUNDS FOR THE INVESTORS PROTECTION. IN INDIAN CONTEXT RIGHT FROM THE INCEPTION I.E. FROM THE FLOATING OF A SCHEME TILL CARRYING OUT THE OPERATIONS, THERE ARE INVOLVED AS MANY AS FIVE DIFFERENT CONSTITUENTS, WHO ARE QUITE SEPARATE, DISTINCT AND INDEPENDENT FROM EACH OTHER. BEFORE A SCHEME IS LAUNCHED, THE MUTUAL FUND IS FORMED BY A TRUST BODY, THE BUSINESS IS SET UP BY THE SPONSOR, THE MONEY IS INVESTED BY THE ASSET MANAGEMENT COMPANY (AMC) AND THE OPERATIONS ARE MONITORED BY THE TRUSTEES. APART FROM THESE FOUR CONSTITUENTS IN A MUTUAL FUNDS, THREE MARKET INTERMEDIARIES ARE ALSO INVOLVED IN THE FORMATION AND FUNCTIONING OF THE MUTUAL FUND. THE FUNCTION OF ALL THESE CONSTITUENTS AND THE MARKET INTERMEDIARIES, ARE FURTHER ELABORATED AS UNDER WITH REFERENCE TO THE JM FINANCIAL MUTUAL FUNDS: 24. THE SPONSOR IS A COMPANY ESTABLISHED UNDER THE COMPANIES ACT. THE SPONSOR FORMS THE MUTUAL FUND. IN THE CASE OF THE ASSESSEE, JM FINANCIAL LIMITED IS THE SPONSOR FOR THE JM FINANCIAL MUTUAL FUNDS. THE JM FINANCIAL LIMITED IS AN INDEPENDENT ENTITY REGISTERED UNDER COMPANIES ACT, 1956 IN THE YEAR 1973. THE JM FINANCIAL LIMITED IS A COMPANY LISTED IN BOTH BSE AND NSE. THE COMPANY IS WELL REPUTED IN THE INVESTMENT ITA 567/JP/2019_ M/S AGENCIES RAJASTHAN PVT. LTD. VS. ITO 23 MANAGEMENT SECTOR AND HAVING MARKET CAPITALIZATION OF MORE THAN 7500 CRORES. 25. MOREOVER, EVERY MUTUAL FUND IS COMPULSORILY REQUIRED TO APPOINT AN ASSET MANAGEMENT COMPANY TO COMPLY WITH REGULATION 7(F) OF SEBI (MUTUAL FUND) REGULATION, 1996. AS PER REGULATION 21 OF THE SEBI (MUTUAL FUND) REGULATION, 1996 THE SEBI GRANT APPROVAL TO AMC ONLY IF IT HAS A SOUND TRACK RECORD, GENERAL REPUTATION AND FAIRNESS IN ALL TRANSACTIONS. THE DIRECTORS OF THE AMC ARE PERSONS HAVING REQUISITE AND ADEQUATE PROFESSIONAL EXPERIENCE IN THE FIELD FINANCE AND FINANCIAL SERVICES RELATED FIELD AND NOT FOUND GUILTY OF MORAL TURPITUDE OR CONVICTED OF ANY ECONOMIC OFFENCE OR VIOLATION OF ANY SECURITIES LAWS. THE KEY PERSONNEL OF THE AMC SHOULD NOT HAVE BEEN FOUND GUILTY OF MORAL TURPITUDE OR CONVICTED OF ECONOMIC OFFENCE OR VIOLATION OF SECURITIES LAWS OR WORKED FOR ANY AMC OR MUTUAL FUND OR ANY INTERMEDIARY DURING THE PERIOD WHEN ITS REGISTRATION HAS BEEN SUSPENDED OR CANCELLED AT ANY TIME BY THE BOARD. THE BOARD OF DIRECTORS OF SUCH AMC HAS AT LEAST FIFTY PER CENT DIRECTORS, WHO ARE NOT ASSOCIATE OF, OR ASSOCIATED IN ANY MANNER WITH, THE SPONSOR OR ANY OF ITS SUBSIDIARIES OR THE TRUSTEES. THE CHAIRMAN OF THE ASSET MANAGEMENT COMPANY IS NOT A TRUSTEE OF ANY MUTUAL FUND AND AMC HAS A NET WORTH OF NOT LESS THAN 50 CRORE RUPEES. THE AMC IS AN ENTITY REGISTERED UNDER THE COMPANIES ACT TO MANAGE THE MONEY ITA 567/JP/2019_ M/S AGENCIES RAJASTHAN PVT. LTD. VS. ITO 24 INVESTED IN THE MUTUAL FUND AND TO OPERATE THE SCHEMES OF THE MUTUAL FUND AS PER THE MUTUAL FUNDS REGULATIONS, 1996. IT CARRIES THE RESPONSIBILITY OF INVESTING AND MANAGING THE INVESTORS MONEY. PROFESSIONAL FUND MANAGERS ARE APPOINTED BY THE AMC TO ENSURE THAT THE INVESTORS CORPUS IS INVESTED IN THE PROFITABLE SECURITIES BASED ON THE RISK APPETITE OF THE INVESTOR AND ACCORDING TO OBJECTIVES OF MUTUAL FUND SCHEME. 26. IN THE INSTANT CASE, M/S JM FINANCIAL ASSET MANAGEMENT LIMITED IS THE ASSET MANAGEMENT COMPANY FOR JM FINANCIAL MUTUAL FUNDS. THE JM FINANCIAL ASSET MANAGEMENT LIMITED IS COMPANY INCORPORATED UNDER COMPANIES ACT, 1956 ON DATED 09.06.1994 WHICH IS A COMPLETELY DISTINCT ENTITY FROM J M FINANCIAL. 27. IN RESPECT OF THE TRUSTEE, WE OBSERVE THAT THE APPOINTMENT OF TRUSTEES IS COMPULSORILY REQUIRED AS PER REGULATION 7(E) OF SEBI (MUTUAL FUND) REGULATION, 1996. THE TRUST IS HEADED BY TRUSTEES. THE TRUSTEES HOLD THE PROPERTY OF THE MUTUAL FUND IN THE TRUST FOR THE BENEFIT OF THE UNIT HOLDERS AND LOOKS INTO THE LEGAL REQUIREMENTS OF OPERATING AND FUNCTIONING OF THE MUTUAL FUND. THE TRUSTEES ALSO HAVE THE DUTY TO MONITOR THE ACTIONS OF THE AMC TO ENSURE COMPLIANCE WITH THE SEBI REGULATIONS AND TO SEE THAT THE DECISIONS OF THE AMC ARE NOT AGAINST THE ITA 567/JP/2019_ M/S AGENCIES RAJASTHAN PVT. LTD. VS. ITO 25 INTEREST OF THE UNIT HOLDERS. HERE, THE JM FINANCIAL TRUSTEE COMPANY PRIVATE LIMITED IS THE TRUST FOR JM FINANCIAL MUTUAL FUNDS. THE JM FINANCIAL TRUSTEE COMPANY HAS BEEN PROMOTED BY JM FINANCIAL & INVESTMENT CONSULTANCY SERVICES PVT. LTD AND JM FINANCIAL LIMITED (THE SPONSOR). THE TRUSTEE COMPANY IS REGISTERED UNDER COMPANIES ACT, 1956 ON DATED 09.06.1994. THE SPONSOR JM FINANCIAL LIMITED EXECUTED A TRUST DEED ON 01.09.1994 APPOINTING JM FINANCIAL TRUSTEE COMPANY PVT. LTD. AS TRUSTEE COMPANY OF JM FINANCIAL MUTUAL FUND. THE TRUSTEE OF THE JM FINANCIAL TRUSTEE COMPANY PVT. LTD. ARE EMINENT PERSONALITIES WITH VARIED EXPERIENCE OF MANAGING PUBLIC SECTOR MUTUAL FUNDS AND INVESTMENTS. IT IS PERTINENT TO MENTION THAT THE BOARD OF DIRECTORS OF THE JM FINANCIAL MUTUAL FUND CONSIST OF THE EMINENT PERSONALITIES OF THE COUNTRY WHO ARE THE EXPERTS OF THE FINANCIAL MARKET AND THE CEO SHRI NIMESH KAMPANI HAS BEEN THE AWARDED AS THE BEST FUND MANAGER AWARD AS WELL. 28. WE ALSO OBSERVE THAT EVERY MUTUAL FUND IS ALSO REQUIRED TO APPOINT A CUSTODIAN IN ORDER TO KEEP CUSTODY OF SECURITIES AS PER REGULATION 7(G) OF SEBI (MUTUAL FUND) REGULATION, 1996. CUSTODIAN IS A PERSON WHO HAS BEEN GRANTED A CERTIFICATE OF REGISTRATION TO CONDUCT THE BUSINESS OF CUSTODIAL SERVICE UNDER THE SEBI (CUSTODIAN OF SECURITIES) REGULATIONS, 1996. MAINTENANCE OF RECORDS AND COLLECTION OF BENEFIT/RIGHTS ACCRUING TO A CLIENT FALLS WITHIN THE PREVIEW OF CUSTODIAN. THE RENOWNED FINANCIAL ITA 567/JP/2019_ M/S AGENCIES RAJASTHAN PVT. LTD. VS. ITO 26 SERVICE ORGANIZATION HDFC BANK LTD. IS THE CUSTODIAN AND DEPOSITORY FOR THE JM FINANCIAL MUTUAL FUND VIDE SEBI REGISTRATION NO. IN/CUS/001 DATED 02.02.1998. M/S JM FINANCIAL LIMITED IS THE SOLE SPONSOR OF JM FINANCIAL MUTUAL FUND. AS PER REGULATION 7 OF SEBI (MUTUAL FUNDS) REGULATIONS, 1996 THE ELIGIBILITY CRITERIA FOR REGISTRATION ARE AS UNDER; 7(A) THE SPONSOR SHOULD HAVE A SOUND TRACK RECORD AND GENERAL REPUTATION OF FAIRNESS AND INTEGRITY IN ALL HIS BUSINESS TRANSACTIONS. EXPLANATION: FOR THE P U R P O S E S O F T H I S C L A U S E S O U N D T R A C K R E C O R D S H A L L M E A N T H E S P O N S O R S H O U L D (I) BE CARRYING ON BUSINESS IN FINANCIAL SERVICES FOR A PERIOD OF NOT LESS THAN FIVE YEARS; AND (II) THE NET WORTH IS POSITIVE IN ALL THE IMMEDIATELY PRECEDING FIVE YEARS; AND (III) THE NET WORTH IN THE IMMEDIATELY PRECEDING YEAR IS MORE THAN THE CAPITAL CONTRIBUTION OF THE SPONSOR IN THE ASSET MANAGEMENT COMPANY; AND (IV) THE SPONSOR HAS PROFITS AFTER PROVIDING FOR DEPRECIATION, INTEREST AND TAX IN THREE OUT OF THE IMMEDIATELY PRECEDING FIVE YEARS, INCLUDING THE FIFTH YEAR; 7(AA) THE APPLICANT IS A FIT AND PROPER PERSON;] (B) IN THE CASE OF AN EXISTING MUTUAL FUND, SUCH FUND IS IN THE FORM OF A TRUST AND THE TRUST DEED HAS BEEN APPROVED BY THE BOARD; (C) THE SPONSOR HAS CONTRIBUTED OR CONTRIBUTES AT LEAST 40% TO THE NET WORTH OF THE ASSET MANAGEMENT COMPANY THE SPONSOR FULFILLED ALL THE STIPULATED CONDITIONS FOR REGISTRATION AND WAS GRANTED REGISTRATION. AS PER INFORMATION AVAILABLE ABOUT JM FINANCIAL MUTUAL FUND (SOURCE: WEBSITE OF JM FINANCIAL MUTUAL FUND) THE FUND HAS SUCCESSFULLY COMPLETED 179 SCHEMES AND IS HAVING RS.16,161 CRORES ITA 567/JP/2019_ M/S AGENCIES RAJASTHAN PVT. LTD. VS. ITO 27 WORTH OF ASSETS UNDER ITS MANAGEMENT, HAVING HUGE 4 DECADES EXPERIENCE OF WORKING IN INVESTMENT MANAGEMENT. 29. IN VIEW OF THE ABOVE, WE CAN CONCLUDE THAT THE INVESTMENT MAKING, DECLARATION OF DIVIDEND AND ALL OTHER DECISIONS RELATING TO INVESTMENTS OF FUND PROCEEDS ARE TAKEN BY AMC. TO ENSURE INDEPENDENCE OF AMC AND ITS FUND MANAGERS THE REGULATION 16(3) OF SEBI (MUTUAL FUNDS) REGULATIONS PROVIDES THAT NO ASSET MANAGEMENT COMPANY AND NO DIRECTOR (INCLUDING INDEPENDENT DIRECTOR), OFFICER OR EMPLOYEE OF AN AMC SHALL BE ELIGIBLE TO BE APPOINTED AS A TRUSTEE OF ANY MUTUAL FUND. FURTHER REGULATION 16(4) PROVIDES THAT NO PERSON, WHO IS APPOINTED AS A TRUSTEE OF A MUTUAL FUND SHALL BE ELIGIBLE TO BE APPOINTED AS A TRUSTEE OF ANY OTHER MUTUAL FUND. TO ENSURE COMPLETE INDEPENDENCE AND DEMARCATION OF INVESTING DECISIONS AND ADMINISTRATIVE DECISIONS REGULATION 16(5) PROVIDES THAT TWO THIRDS OF THE TRUSTEES SHALL BE INDEPENDENT PERSONS AND SHALL NOT BE ASSOCIATED WITH THE SPONSORS OR TO BE ASSOCIATED WITH THEM IN ANY MANNER WHAT SO EVER. THE SEBI HAS ALSO PROVIDED STRICT REGULATION TO BE COMPLIED WITH BEFORE THE LAUNCH OF ANY SCHEME. AS PER REGULATION 28, THE SCHEME IS LAUNCHED BY THE AMC ONLY AFTER GETTING APPROVAL FROM THE TRUSTEES AND SUBMITTING OFFER DOCUMENT WITH THE SEBI. IN PRINCIPLE, APPROVAL FROM STOCK EXCHANGE IS ALSO REQUIRED IN CASE OF LISTED UNITS. REGULATION 18 OF SEBI (MUTUAL FUND) REGULATION, 1996 REQUIRES THAT BEFORE LAUNCH OF ANY ITA 567/JP/2019_ M/S AGENCIES RAJASTHAN PVT. LTD. VS. ITO 28 SCHEME APPOINTMENT OF FUND MANAGERS ARE TO BE MADE AFTER DULY CONSIDERING THEIR EDUCATIONAL QUALIFICATION AND EXPERIENCE. AUDITORS ARE REQUIRED TO BE APPOINTED BEFORE LAUNCH OF ANY SCHEME. IT IS WORTHWHILE TO NOTE THAT THE FUNDS OF THE JM FINANCIAL HAS BEEN AUDITED BY RENOWNED AUDITING FIRM SR BATLIBOI AND ASSOCIATES. THE AUDITOR OF THE FUND AND AUDITOR OF THE AMC SHALL NOT BE ASSOCIATED IN ANY MANNER AS REQUITED UNDER REGULATION 55(1). REGULATION 18 ALSO REQUIRES TO APPOINT A COMPLIANCE OFFICER WHO SHALL BE RESPONSIBLE FOR MONITORING THE COMPLIANCE OF THE ACT, RULES, REGULATIONS, NOTIFICATIONS, GUIDELINES AND INSTRUCTIONS ETC. REGULATION 18 (4A) OF SEBI (MUTUAL FUND) REGULATION, 1996 REQUIRES THAT THE COMPLIANCE OFFICER APPOINTED UNDER CLAUSE (D) OF SUB REGULATION (4) SHALL IMMEDIATELY AND INDEPENDENTLY REPORT TO THE BOARD ANY NONCOMPLIANCE OBSERVED BY HIM. THE FUND IS ALSO REQUIRED TO PREPARE A PERIODIC COMPLIANCE MANUAL AND DESIGNED INTERNAL CONTROL MECHANISM INCLUDING AN INTERNAL AUDIT SYSTEM. 30. IN VIEW OF ABOVE DISCUSSION, WE OBSERVE THAT THERE ARE SEVERAL BALANCES AND CHECKS PROVIDED BY THE STATUTE AND SEVERAL INDEPENDENT GOVERNMENT AND SEMI GOVERNMENT BODIES AND EXPERTS HAVE BEEN INTRODUCED TO ENSURE THE BONAFIDE, GENUINENESS OF THE SCHEME FLOATED BY A MUTUAL FUND. THEREFORE, UNLESS A VERY SPECIFIC ALLEGATION SUPPORTED BY A ITA 567/JP/2019_ M/S AGENCIES RAJASTHAN PVT. LTD. VS. ITO 29 DIRECT AND COGENT EVIDENCE IS BROUGHT ON RECORD, NOBODY CAN MAKE ALLEGATIONS MERELY ON SUSPICION ON HIS WHIMS AND FANCIES. 31. WE HAD ALSO CAREFULLY GONE THROUGH THE REPLY GIVEN BY JMF DATED 04/01/2018 & 29.11.17 TO AOS LATTER DATED 28.12.2017 & 29.12.2017. THE ALLEGATION OF THE A.O. WAS THAT THE JM FINANCIAL MUTUAL FUNDS HAS NOT DECLARED ANY DIVIDEND IN THE PAST YEAR AND THE ASSESSEE HAD PURCHASED MUTUAL FUNDS FROM THIS COMPANY. FURTHER THE ASSESSEE EARNED 52% DIVIDEND ON THE MUTUAL FUNDS. SIMILARLY, THE ALLEGATION OF THE LD. CIT(A) WAS THAT THE INVESTMENT WAS MADE IN THE MUTUAL FUND WHICH HAD NOT DECLARED ANY DIVIDEND SINCE 2010 AND SUDDENLY AFTER INVESTMENT WAS MADE BY THE ASSESSEE IT STARTED PAYING DIVIDEND WHICH WAS ABNORMALLY HIGH AS COMPARED TO ITS PAST HISTORY AND NOT COMMENSURATE WITH ITS FINANCIAL POSITION. IN THIS REGARD WE OBSERVE THAT THE DIVIDEND MAKING DECISION CAN BE TAKEN BY THE FUND ONLY AFTER DULY CONSIDERING ALL THE REGULATORY REQUIREMENTS. THE STRINGENT PROVISIONS OF REGULATION 18(17) AND 18(18) OF SEBI (MUTUAL FUND) REGULATION, 1996 REQUIRES THAT ALL THE TRANSACTIONS CARRIED OUT BETWEEN THE MUTUAL FUNDS, ASSET MANAGEMENT COMPANY AND ITS ASSOCIATES ARE SUBJECT TO QUARTERLY REVIEW BY THE TRUSTEES. THE TRUSTEES ARE ALSO REQUIRED TO REVIEW THE NET WORTH OF ASSET MANAGEMENT COMPANY AND IN CASE OF ANY SHORT FALL, TO ENSURE THAT THE AMC MAKES UP FOR SHORT FALL. DIVIDENDS ARE DECLARED ONLY AFTER COMPLIANCE ITA 567/JP/2019_ M/S AGENCIES RAJASTHAN PVT. LTD. VS. ITO 30 WITH REGULATION 52A. HAD THERE BEEN ANY MAL PRACTICE BY THE MUTUAL FUND, THE SEBI HAS FULL RIGHTS TO CARRY OUT INSPECTIONS AND AUDIT AS PER REGULATION 61. 32. AS REGARD THE REPEATED ALLEGATION OF LOWER AUTHORITIES THAT JM FINANCIAL HAS NOT DECLARED ANY DIVIDEND IN THE PAST, WE FOUND THAT SUCH A STATEMENT WAS FACTUALLY WRONG. THE NAME OF JM BALANCED MUTUAL FUND, IS PRESENTLY KNOWN AS JM EQUITY HYBRID FUND (D). AS PER NOTICE CUM ADDENDUM ISSUED BY JM FINANCIAL MUTUAL FUND OF THE CHANGE OF THE NAME FROM JM BALANCED FUND TO JM EQUITY HYBRID FUND. A PERUSAL OF THE INFORMATION WITH REGARD TO THE DECLARATION OF THE DIVIDEND BY THE SAID FUND IN DIFFERENT YEARS, AS AVAILABLE ON THE WEBSITE OF WWW.MONEYCONTROL.COM CLEARLY SHOWS THAT THE SAID FUND HAS BEEN CONSISTENTLY DECLARING DIVIDEND IN LAST SEVERAL YEARS AND STARTING SINCE THE YEAR 1998, IT HAS BEEN DECLARING DIVIDEND CONTINUOUSLY SINCE THEN. IT HAS DECLARED DIVIDEND 13 TIMES. THE SUBJECTED DECLARATION OF THE DIVIDEND IS 14 TH AND 15 TH ONE. THOUGH ALL THESE INFORMATIONS ARE ALREADY AVAILABLE IN THE PUBLIC DOMAIN THROUGH THE WEBSITE YET THE AO NEITHER MADE ANY INQUIRY DIRECTLY FROM THE JM FINANCIAL NOR HAS TRIED TO VERIFY FROM MARKET RESEARCH AND INFORMATION WEBSITES. THUS, SUCH ALLEGATION BEING FACTUALLY WRONG AND NO ADVERSE INFERENCE CAN BE DRAWN THEREFROM. ITA 567/JP/2019_ M/S AGENCIES RAJASTHAN PVT. LTD. VS. ITO 31 33. THE A.O. HAS ALSO ALLEGED THAT THE MUTUAL FUND HAS DECLARED DIVIDEND AS HIGH AS 52% AND THEREFORE, THE AO VERY COMFORTABLY SMACKED SOMETHING WRONG AND CONSPIRACY BETWEEN THE ASSESSEE AND THE JM FINANCIAL MUTUAL FUND AS ALSO THE IIFL (THE LENDER). HOWEVER, THE SCENE IS COMPLETELY OTHERWISE IN AS MUCH AS IT WAS NOT AT ALL WITHIN THE HANDS OF THE ASSESSEE OR ANYBODY EMPLOYEES OF THESE ENTITIES OR IN THE HAND OF ANYBODY ELSE FOR THIS REASON TO INFLUENCE OR TO GET THE DIVIDEND DECLARED AT HIS OWN WISHES. THE EARNINGS OF THE MUTUAL FUND ARE DIRECTLY BASED UPON THE TYPE/NATURE OF THE INVESTMENT MADE BY THE MUTUAL FUND. NEEDLESS TO SAY, THAT THE DECLARATION OF THE DIVIDEND BY THE COMPANIES DEPENDS UPON THE SEVERAL FACTORS AND MARKET SENTIMENTS. IT HAS TO BE KEPT IN MIND THAT IT IS NOT GUARANTEED THAT THERE WILL ALWAYS BE A PROFIT BUT THE COMPANIES MIGHT HAVE ALSO SUSTAINED HUGE LOSSES WITH THE RESULT THAT THE MUTUAL FUNDS WOULD NOT HAVE BEEN ABLE TO DECLARE ANY DIVIDEND AT ALL. IT WAS ONLY KEEPING IN MIND THE PAST TRACK RECORD, BETTER PERFORMANCE AND THE GOOD MARKET MOVEMENT IN THE INDIAN CAPITAL MARKET THAT THE AMC MADE INVESTMENTS IN THOSE COMPANIES AND DIRECTORS OF THE ASSESSEE COMPANY ALSO HAVING A VAST EXPERIENCE, DECIDED TO INVEST IN JM MUTUAL FUND. 34. WE ALSO OBSERVE AS PER MATERIAL AVAILABLE ON RECORD THAT AT THE RELEVANT POINT OF TIME THE MODI GOVERNMENT WAS HOPING TO COME IN THE ITA 567/JP/2019_ M/S AGENCIES RAJASTHAN PVT. LTD. VS. ITO 32 CENTER WHICH HAS DIRECTLY INFLUENCE THE MARKET SENTIMENTS AND IT STARTED GOING UP AND WITNESSED A TREMENDOUS INCREASE THEREAFTER. FOR THIS REASON, THE SAID MUTUAL FUND COULD PERFORM BETTER. IN THE ANNUAL REPORT 2014-15 OF JMF-MF IT IS STATED AS UNDER: JM BALANCED FUND IS AN OPEN-ENDED BALANCED SCHEME WITH THE INVESTMENT OBJECTIVE TO PROVIDE STEADY CURRENT INCOME AS WELL AS LONG TERM GROWTH OF CAPITAL. THE SCHEME INVESTS 65-75% IN EQUITY WHILE THE BALANCE IS IN DEBT. THE NORMAL PLAN OF THE SCHEME HAS OUTPERFORMED ITS BENCHMARK DURING FY 2014-15. THE PRIMARY REASON FOR OUTPERFORMANCE HAS BEEN LOW EXPOSURE TO THE EXPENSIVE CONSUMER AND PHARMACEUTICAL SECTORS AND HIGHER EXPOSURE TO QUALITY BLUE CHIP STOCKS. THE DIRECT PLAN OF THE FUND HAS OUTPERFORMED ITS BENCHMARK SINCE INCEPTION. 35. IN VIEW OF THE ABOVE, THE SUSPICION OF THE AO ON THIS ASPECT IS COMPLETELY BASELESS. TO PROVE HIS ALLEGATION THAT 52% DIVIDEND WAS DECLARED IN CONNIVANCE, IT WAS FOR HIM TO HAVE ESTABLISHED BEYOND ALL REASONABLE DOUBTS BUT HE IS COMPLETELY SILENT AS REGARDS THE ONUS LAY UPON HIM. 36. WE ALSO OBSERVE THAT FINAL DIVIDEND WAS TO BE DECLARED AND DISTRIBUTED IS BASED ON THE AVAILABILITY OF THE DISTRIBUTABLE SURPLUS. A PERUSAL OF THE AUDITED FINANCIAL STATEMENTS OF JMF-MF FOR FY 2014-15 REVEALS A HUGE AMOUNT OF THE RESERVES AND SURPLUS STANDING AT RS.483 ITA 567/JP/2019_ M/S AGENCIES RAJASTHAN PVT. LTD. VS. ITO 33 CRORES AND THE CURRENT YEAR PROFITS STOOD AT RS.1772 CRORES. HENCE, THERE IS NOTHING WRONG IN THE FUND DECLARING DIVIDEND AT 52%. WE ALSO FOUND THAT JMF HAS ALSO CONFIRMED THE SAME VIDE 29.11.2017 IN REPLY TO AOS LETTER 22.11.2017. 37. FROM THE RECORD WE ALSO FOUND THAT STARTING FROM 2010, THE LAST DIVIDEND WAS DECLARED ON 19TH MARCH, 2010 @RS.1.50 P.U.. BUT THEREAFTER, THERE HAS BEEN A LONG GAP OF FIVE YEARS AND NEXT DIVIDEND COULD BE DECLARED ONLY ON 28.01.2015 @ RS. 5.20/- P.U.. SINCE THERE HAS BEEN A LONG GAP, HENCE JM MUTUAL FUND HAS DECLARED COMPARATIVE HIGHER AMOUNT OF DIVIDEND TO MAINTAIN ITS GOODWILL ON THE ONE HAND AND ALSO BECAUSE THERE WERE ACCUMULATED PROFITS OF FIVE YEARS AND THE PROFITS STOOD ACCUMULATED IN A PERIOD OF FIVE YEARS AND ACCORDINGLY, NAV WAS ALSO GOING UP ACCORDINGLY. THEREFORE, A HIGHER AMOUNT OF DIVIDEND WAS FOUND TO BE SUITABLE BY THE MANAGEMENT. ANOTHER ASPECT IS THAT, WHEN THIS MUTUAL FUND COULD DECLARE DIVIDEND @25% WAY BACK IN YEAR 2005 ON 09.03.2005 AND THEREAFTER AGAIN DECLARED DIVIDEND OF 19% IN THE YEAR 2006 (AS PER THE CHART GIVEN HEREIN UNDER) CHART OF DIVIDEND HISTORY RECORD DATE DIVIDEND(RS/UNIT) PERCENTAGE 28.01.2015 5.2000 52% 19.03.2010 1.5000 15% 16.02.2006 19300 19.3% ITA 567/JP/2019_ M/S AGENCIES RAJASTHAN PVT. LTD. VS. ITO 34 29.03.2005 2.5000 25% 18.11.2003 1.0000 10% 09.09.2003 1.0000 10% 23.02.2001 0.1000 1% 23.01.2001 0.1000 1% 23.12.2000 0.1000 1% 23.11.2000 0.1000 1% 23.10.2000 0.1000 1% 23.09.2000 0.1000 1% 05.04.199 1.4000 14% 01.04.1998 0.9000 9% THUS, THERE WAS NOTHING ABNORMAL IF THE SAME MUTUAL FUND AFTER A LONG GAP OF MORE THAN TEN YEARS COULD DECLARE A DIVIDEND OF 52%. IF THE A.O. HAS ANY DOUBT WITH REGARD TO RATE OF DIVIDEND SO DECLARED BY JMF, HE SHOULD MAKE DIRECT ENQUIRY FROM JMF. MOREOVER, THE REPEATED CONTENTION OF THE AO OF THE CONSPIRACY BETWEEN THE ASSESSEE AND THE MUTUAL FUND IS FURTHER DISPELLED BY THE FACT THAT EVEN AFTER THE SALE OF THE MUTUAL FUND BY THE ASSESSEE COMPANY, THE SAID MUTUAL FUND DECLARED YET ANOTHER THIRD DIVIDEND ON 27TH JULY,2015. HAD THERE BEEN A CONSPIRACY WHY THE ASSESSEE COMPANY SHOULD HAVE LOST THE DIVIDEND AND IT COULD HAVE ARRANGED TO CLAIM PRIOR TO ITS SALES. ON THIS ASPECT, DETAILED SUBMISSION WAS SUBMITTED BY THE ASSESSEE BEFORE THE AO VIDE LETTER DATED 28.12.2017, IN PARA 9.1 WHICH IS AS UNDER: 9.1 AS REGARD THE OBSERVATION THAT ON VERIFICATION FROM DATA FROM JM MUTUAL FUNDS IT WAS FOUND THAT IT HAD NOT DECLARED DIVIDEND IN SIX YEARS BEFORE THIS YEAR AND IN THE MUTUAL FUNDS PURCHASED BY THE ASSESSEE FROM JMF IT HAS DECLARED ITA 567/JP/2019_ M/S AGENCIES RAJASTHAN PVT. LTD. VS. ITO 35 DIVIDEND IN THIS YEAR. THEREFORE, EVEN THE VERY FACT OF PURCHASE OF MUTUAL FUND MAY BE CONSIDERED AS DOUBTFUL. IT IS SUBMITTED THAT WE ARE NOT AWARE WHAT TYPE OF DATA WAS VERIFIED BY YOUR GOOD SELF BUT OTHERWISE ALSO THE ASSESSEE HAS GOT NOTHING TO DO WITH THE SAID VERIFICATION IN AS MUCH AS THE FACT REMAINS THAT THE ASSESSEE GOT DIVIDEND AS DECLARED BY JM FINANCIAL MUTUAL FUND THROUGH THE BANKING CHANNELS ONLY. ALL THE INFORMATION ARE DULY AND FULLY AVAILABLE ONLINE AND IS FULLY VERIFIABLE. THEREFORE, TO DOUBT THE VERY RECEIPT OF THE DIVIDEND IS NOT JUSTIFIED BY ANY STRETCH OF IMAGINATION. 38. THUS, WE FOUND THAT THE EFFECTIVE RATE OF DIVIDEND WAS 18.95% WITH RESPECT TO NAV OF RS. 27.4423 AND NOT 52% AS ALLEGED BY THE A.O. 39. THE A.O. HAS ALSO ALLEGED THAT THERE IS ATTEMPT BY THE ASSESSE IN CONNIVANCE WITH THE COMPANIES M/S JM FINANCIAL MUTUAL FUNDS AND M/S INDIA INFOLINE FINANCE TO MAKE SUCH CONDITIONS HAPPEN SO THAT PROVISIONS OF SECTION 94(7) CANNOT BE MADE APPLICABLE IN ITS CASE AND SHORT TERM CAPITAL LOSS SO CLAIMED CAN BE ADJUSTED AGAINST THE CAPITAL GAIN EARNED ON SALE OF IMMOVABLE PROPERTY 40. IN THIS REGARD WE OBSERVE THAT THE LOWER AUTHORITIES HAVE ADMITTED THAT THE FACTS OF THE PRESENT CASE COMPLETELY FALLS OUT OF THE PROVISIONS SEC. 94(7) WHICH WAS SPECIFICALLY INTRODUCED BY THE LEGISLATURE, FULLY KNOWING THE FACTS THAT SHARES/UNITS ARE PURCHASED EX-DIVIDEND AT HIGHER PRICES TO BE SOLD AFTER DECLARATION OF DIVIDEND RESULTING INTO LOSS WHICH COULD BE SET OFF ON ONE HAND AND DIVIDEND IS EXEMPT, ON THE OTHER. SUCH ITA 567/JP/2019_ M/S AGENCIES RAJASTHAN PVT. LTD. VS. ITO 36 TRANSACTIONS WHICH ARE POPULARLY KNOWN AS DIVIDEND STRIPPING TRANSACTIONS. THIS LEGISLATIVE INTENT IS FULLY EVIDENT FROM CBDT CIRCULAR NO.14/2001. THE RELEVANT EXTRACTS (PARA 56.2 AND 56.3 REPRODUCE) ARE AS UNDER: 56.2 THE EXISTING PROVISIONS DID NOT COVER A CASE WHERE A PERSON BUYS SECURITIES (INCLUDING UNITS OF A MUTUAL FUND) SHORTLY BEFORE THE RECORD DATE FIXED FOR DECLARATION OF DIVIDENDS, AND SELLS THE SAME SHORTLY AFTER THE RECORD DATE. SINCE THE CUM-DIVIDEND PRICE AT WHICH THE SECURITIES ARE PURCHASED WOULD NORMALLY BE HIGHER THAN THE EX- DIVIDEND PRICE AT WHICH THEY ARE SOLD, SUCH TRANSACTIONS WOULD RESULT IN A LOSS WHICH COULD BE SET OFF AGAINST OTHER INCOME OF THE YEAR. AT THE SAME TIME, THE DIVIDENDS RECEIVED WOULD BE EXEMPT FROM TAX UNDER S. 10(33). THE NET RESULT WOULD BE THE CREATION OF A TAX LOSS, WITHOUT ANY ACTUAL OUTGOINGS. 56.3 WITH A VIEW TO CURB THE CREATION OF SUCH SHORT-TERM LOSSES, THE ACT HAS INSERTED A NEW SUB-S. (7) IN THE SECTION TO PROVIDE THAT WHERE ANY PERSON BUYS OR ACQUIRES SECURITIES OR UNITS WITHIN A PERIOD OF THREE MONTHS PRIOR TO THE RECORD DATE FIXED FOR DECLARATION OF DIVIDEND OR DISTRIBUTION OF INCOME IN RESPECT OF THE SECURITIES OR UNITS, AND SELLS OR TRANSFERS THE SAME WITHIN A PERIOD OF THREE MONTHS AFTER SUCH RECORD DATE, AND THE DIVIDEND OR INCOME RECEIVED OR RECEIVABLE IS EXEMPT, THEN, THE LOSS, IF ANY, ARISING FROM SUCH PURCHASE OR SALE SHALL BE IGNORED TO THE EXTENT SUCH LOSS DOES NOT EXCEED THE AMOUNT OF SUCH DIVIDEND OR INTEREST, IN THE COMPUTATION OF THE INCOME CHARGEABLE TO TAX OF SUCH PERSON. 41. IT IS UNDER THIS BACKGROUND ONLY, WITH A VIEW TO CURB THE EVASION OF SUCH SHORT-TERM LOSSES, SEC. 94(7) WAS INSERTED BY THE FINANCE ACT, 2001 W.E.F. 01.04.2002, BY PROVIDING CERTAIN MINIMUM PERIOD OF HOLDING BEFORE AND AFTER THE RECORD DATE OF DIVIDEND. THOSE, NOT FULFILLING THE CONDITIONS, SHALL LOOSE THE LOSS TO THE EXTENT OF AMOUNT OF DIVIDEND HOWEVER, FOR THOSE NOT FALLING IN THE CLUTCHES OF THE PROVISION, THERE IS ABSOLUTELY NO FURTHER PROVISION IS MADE TO DOUBT THE CLAIM OF THE SHORT-TERM CAPITAL LOSS ITA 567/JP/2019_ M/S AGENCIES RAJASTHAN PVT. LTD. VS. ITO 37 OR THE HIGH AMOUNT OF DIVIDEND IN ANY MANNER WHATSOEVER. THE CBDT NOWHERE TERMS SUCH TRANSACTION AS SHAM OR BOGUS. THEREFORE, IN THIS CASE, ONCE THE AUTHORITIES BELOW ADMITTEDLY FOUND, THAT SUBJECTED TRANSACTION COMPLETELY FALLS OUT OF THE CLUTCHES OF SEC. 94(7) I.E. THE RESTRICTIONS PLACED BY THE LEGISLATURE, IT IS BEYOND ONES COMPREHENSION AS TO HOW THEY STILL BENT UPON TO DENY THE CLAIMS MADE BY THE ASSESSEE. AN UTTER DISREGARD SHOWN BY THE REVENUE WHEN THE LEGISLATURE IN ITS WISDOM, BEING FULLY AWARE OF THE FACT THAT SOME OF THE ASSESSEES MIGHT MAKE USE OF THE TRANSACTIONS TO THEIR BENEFIT AND PLAN THEIR AFFAIR, PUT SOME RESTRICTION BY THE PROSPECTIVE AMENDMENT BY INTRODUCTION OF SECTION 94(7) W.E.F. 1ST APRIL, 2002 BUT WHEN THE CASE OF THE ASSESSEE DO NOT FALL/ SUFFERS FROM THOSE RESTRICTIONS, IT HAS TO BE INFERRED THAT THE ASSESSEE COULD NOT HAVE BEEN DENIED THAT BENEFIT AS CLAIMED. 42. WE FURTHER OBSERVE THAT WHATEVER ALLEGATIONS AND SUSPICIONS RAISED BY THE LOWER AUTHORITIES WAS PRECISELY ISSUE BEFORE THE HONBLE SUPREME COURT IN THE CASE OF WALFORT SHARE & STOCK BROKERS (P) LTD. (2010) 41 DTR 233 (SC) WITH RESPECT TO EARNING OF DIVIDEND CLAIMED BY THE ASSESSEE AS EXEMPT U/S 10(33) OF THE ACT AND AT THE SAME TIME THE CLAIM OF LOSS INCURRED BY THE ASSESSEE ON THE SALE OF SHARES, BUT REJECTED BY THE REVENUE. IN PARA 20 OF THE JUDGMENT, THE HONBLE SUPREME COURT HAS HELD AS UNDER: ITA 567/JP/2019_ M/S AGENCIES RAJASTHAN PVT. LTD. VS. ITO 38 THE REAL OBJECTION OF THE DEPARTMENT APPEARS TO BE THAT THE ASSESSEE IS GETTING TAX-FREE DIVIDEND; THAT AT THE SAME TIME IT IS CLAIMING LOSS ON THE SALE OF THE UNITS; THAT THE ASSESSEE HAD PURPOSELY AND IN A PLANNED MANNER ENTERED INTO A PRE-MEDITATED TRANSACTION OF BUYING AND SELLING UNITS YIELDING EXEMPTED DIVIDENDS WITH FULL KNOWLEDGE ABOUT THE FALL IN THE NAV AFTER THE RECORD DATE AND THE PAYMENT OF TAX-FREE DIVIDEND AND, THEREFORE, LOSS ON SALE WAS NOT GENUINE. AFTER GOING THROUGH THE ORDERS OF THE LOWER AUTHORITIES, WE FOUND THAT EXACTLY SIMILAR OBJECTIONS WERE RAISED BY THE REVENUE AUTHORITIES BEFORE THE HONBLE SUPREME COURT AND THE HONBLE SUPREME COURT OBSERVED AS UNDER: WE FIND NO MERIT IN THE ABOVE ARGUMENT OF THE DEPARTMENT. AT THE OUTSET, WE MAY STATE THAT WE HAVE TWO SETS OF CASES BEFORE US. THE LEAD MATTER COVERS ASSESSMENT YEARS BEFORE INSERTION OF S.94(7) VIDE FINANCE ACT, 2001 W.E.F. 1ST APRIL, 2002. WITH REGARD TO SUCH CASES WE MAY STATE THAT ON FACTS IT IS ESTABLISHED THAT THERE WAS A 'SALE'. THE SALE-PRICE WAS RECEIVED BY THE ASSESSEE. THAT, THE ASSESSEE DID RECEIVE DIVIDEND. THE FACT THAT THE DIVIDEND RECEIVED WAS TAX-FREE IS THE POSITION RECOGNIZED UNDER S. 10(33) OF THE ACT. THE ASSESSEE HAD MADE USE OF THE SAID PROVISION OF THE ACT. THAT SUCH USE CANNOT BE CALLED 'ABUSE OF LAW'. EVEN ASSUMING THAT THE TRANSACTION WAS PRE-PLANNED THERE IS NOTHING TO IMPEACH THE GENUINENESS OF THE TRANSACTION. WITH REGARD TO THE RULING IN MCDOWELL & CO. LTD. VS. CTO (1985) 47 CTR (SC) 126 : (1985) 154 ITR 148 (SC), IT MAY BE STATED THAT IN THE LATER DECISION OF THIS COURT IN UNION OF INDIA VS. AZADI BACHAO ANDOLAN & ANR (2003) 184 CTR 450,263 ITR 706 (SC) IT HAS BEEN HELD THAT A CITIZEN IS FREE TO CARRY ON ITS BUSINESS WITHIN THE FOUR CORNERS OF THE LAW. THAT, MERE TAX PLANNING, WITHOUT ANY MOTIVE TO EVADE TAXES THROUGH COLOURABLE DEVICES IS NOT FROWNED UPON EVEN BY THE JUDGMENT OF THIS ITA 567/JP/2019_ M/S AGENCIES RAJASTHAN PVT. LTD. VS. ITO 39 COURT IN MCDOWELL & CO. LTD.S CASE (SUPRA). HENCE, IN THE CASES ARISING BEFORE 1ST APRIL, 2002, LOSSES PERTAINING TO EXEMPTED INCOME CANNOT BE DISALLOWED. 43. IN THIS REFERENCE, WE WILL QUOTE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF UNION OF INDIA VS AZADI BACHAO ANDOLAN & ANR. 263 ITR 706 (SC) WHEREIN THE HONBLE COURT HAS HELD AS UNDER: IT HAS BEEN HELD THAT A CITIZEN IS FREE TO CARRY ON ITS BUSINESS WITHIN THE FOUR CORNERS OF THE LAW. THAT, MERE TAX PLANNING, WITHOUT ANY MOTIVE TO EVADE TAXES THROUGH COLOURABLE DEVICES IS NOT FROWNED UPON EVEN BY THE JUDGMENT OF THIS COURT IN MCDOWELL & CO. LTD.S CASE (SUPRA). HENCE, IN THE CASES ARISING BEFORE 1ST APRIL, 2002, LOSSES PERTAINING TO EXEMPTED INCOME CANNOT BE DISALLOWED. 44. IN VIEW OF THE ABOVE HONBLE SUPREME COURTS JUDGMENT, WE FOUND THAT THE LOWER AUTHORITIES HAVE WRONGLY DECLINED THE ASSESSEES LEGITIMATE CLAIM MADE WHICH SUPPORTS WITH ALL DOCUMENTARY EVIDENCES WITH REGARD TO CLAIM OF BENEFIT AS EXEMPT U/S 10(33) OF THE ACT AND ALSO CLAIMED A LOSS ON ACCOUNT OF REDEMPTION OF UNITS OF MUTUAL FUNDS. 45. WITH REGARD TO ALLEGATION OF THE A.O. THAT MAKING INVESTMENT THROUGH MUTUAL FUNDS IS A COLORABLE DEVICE UNDERTAKEN BY THE ASSESSEE IN CONNIVANCE WITH THE M/S JM FINANCIAL AND M/S INDIA INFOLINE JUST FOR CREATING LOSS FOR SET OFF LONG TERM CAPITAL GAINS, WE OBSERVE THAT THE MUTUAL FUND A POPULAR MODE, MAKING OF INVESTMENT THROUGH MUTUAL FUND HAS BECOME POPULAR MODE OF INVESTMENTS THESE DAYS. THE GOVERNMENT IS ALSO PROMOTING THE INVESTORS TO ADOPT THIS MODE OF INVESTMENT AND THIS ITA 567/JP/2019_ M/S AGENCIES RAJASTHAN PVT. LTD. VS. ITO 40 PROBABILITY IS INCREASING DAY BY DAY. IT IS FURTHER SUBMITTED THAT THERE ARE MANY INVESTORS WHO ARE NOT ABLE TO INVEST DIRECTLY IN THE STOCK MARKETS DUE LACK OF KNOWLEDGE ABOUT THE CAPITAL MARKETS OR DUE TO LACK OF SUFFICIENT TIME TO TRACK MARKET BEHAVIOUR IN ORDER TO TAKE INFORMED INVESTMENT DECISIONS. MUTUAL FUNDS INDUSTRY HAS EMERGED AS ONE OF THE BEST INVESTMENT CHANNEL FOR SUCH PEOPLE BECAUSE THEY ARE VERY COST EFFICIENT AND IT IS VERY EASY TO INVEST IN THEM. A MUTUAL FUND IS SIMPLY A FINANCIAL INTERMEDIARY THAT ALLOWS A GROUP OF INVESTORS TO POOL THEIR MONEY TOGETHER WITH A PREDETERMINED INVESTMENT OBJECTIVE. THE MUTUAL FUND HAS A PROFESSIONAL FUND MANAGER WHO IS RESPONSIBLE FOR INVESTING THE POOLED MONEY INTO THE SECURITIES MARKET. THESE MANAGERS HAVE BEEN AROUND THE INDUSTRY FOR A LONG TIME AND HAVE THE ACADEMIC CREDENTIALS TO BACK IT UP. THE BIGGEST ADVANTAGE OF MUTUAL FUNDS IS DIVERSIFICATION. DIVERSIFICATION IS THE IDEA OF SPREADING OUT MONEY ACROSS MANY DIFFERENT TYPES OF INVESTMENTS. WHEN ONE INVESTMENT IS DOWN ANOTHER MIGHT BE UP. DIVERSIFICATION REDUCES RISK TREMENDOUSLY. THERE ARE DIFFERENT KINDS OF MUTUAL FUNDS TO CATER TO VARIED INVESTMENT OBJECTIVES SUCH AS - GROWTH FUNDS, INCOME FUNDS, BALANCED FUNDS, AND LIQUID ASSETS FUNDS, ALSO KNOWN AS MONEY MARKET FUNDS. ITA 567/JP/2019_ M/S AGENCIES RAJASTHAN PVT. LTD. VS. ITO 41 46. SO FAR QUESTION OF VAST EXPERIENCE AND EXPERTISE OF THE DIRECTORS OF THE ASSESSEE COMPANY IS CONCERNED, WE FOUND THAT THE DIRECTORS OF THE ASSESSEE COMPANY HAD VAST EXPERIENCE AND EXPERTISE, THEREFORE, WHILE EXPLORING THE POSSIBILITY OF GETTING THE BETTER AND THE BEST RESULT CHOSE TO INVEST IN THE JM FINANCIAL MUTUAL FUND. FROM THE RECORD WE FOUND THAT THE ASSESSEE COMPANY ITSELF HAS BEEN ACTING AS AN INVESTOR FOR LAST SEVERAL YEARS. THERE APART, THE DIRECTORS AND PARTICULARLY SHRI L N BANGUR HAS BEEN IN THE FIELD OF MAKING INVESTMENTS RIGHT SINCE 1966 AND THEREFORE, HE IS HAVING A VAST EXPERIENCE AND RATHER AN EXPERTISE IN THIS FIELD. THEREFORE, IT IS SOLELY BASED ON HIS STUDIES, ANALYSIS OF THIS FIELD ONLY THAT AFTER CARRYING OUT AN INTENSIVE STUDY OF ALL THE RELEVANT FACTORS, THE COMPANY DECIDED TO MAKE INVESTMENT IN THE JM FINANCIAL MUTUAL FUND WITH AN EXPECTATION OF THE BEST ROI ON THE INVESTMENT MADE BY IT. GETTING ON A RETURN OF INCOME ON THE INVESTMENT DEPENDING UPON THE QUANTUM MAY CREATE A DOUBT BUT IT CANNOT BE SAID THAT THE ASSESSEE ONCE MADE AN INVESTMENT IN JM FINANCIAL MUTUAL FUND HAS NOT EARNED THE QUANTUM OF THE DIVIDEND AS DECLARED BY IT. IT IS ONLY A CO-INCIDENCE THAT THE ASSESSEE, THIS YEAR WAS HAVING LTCG FROM THE SALE OF BUILDING BUT AT THE SAME TIME WAS HAVING LOSS FROM THE MUTUAL FUND BUT THAT DOES NOT MEAN THAT THE ASSESSEE HAS MADE ANY ATTEMPT TO EVADE TAXES. ITA 567/JP/2019_ M/S AGENCIES RAJASTHAN PVT. LTD. VS. ITO 42 47. IT IS ALSO PERTINENT TO MENTION HERE THAT IT IS NOT ONLY THE ASSESSEES COMPANY WHO HAS INVESTED, THERE ARE THOUSANDS OF OTHER INVESTORS WHO DEALT WITH THE ABOVE MUTUAL FUNDS I.E. JM BALANCED FUND AND HAVE BEEN DOING IT FOR LAST SEVERAL YEARS IN THE PAST FROM THE SUBJECTED ASSESSMENT YEARS AND EVEN IN THE LATER YEARS. IT IS NOT THE ASSESSEE ALONE, WHO HAD TO SUFFER THE LOSS AND EARNED DIVIDEND BUT THIS MUST HAVE HAPPENED WITH OTHER VARIOUS INVESTORS ALSO. IT WAS QUITE RELEVANT FOR THE AO TO HAVE KNOWN ABOUT SUCH INVESTORS AND WHETHER THEIR CONCERNED AOS HAVE ALSO EXPRESSED SIMILAR DOUBTS AND REJECTED THE CLAIM OR NOT. BUT THIS AO HAS CONVENIENTLY KEPT A COMPLETE SILENCE ON THIS ASPECT. IT APPEARS THAT NO SUCH DISPUTE HAS ARISEN IN OTHERS CASES LIKE THE ONE INVOLVED IN THIS CASE MEANING THEREBY THE DEPARTMENT ITSELF HAS ACCEPTED. 48. WE ALSO OBSERVE THAT THE ALLEGATION OF THE LD. CIT(A) TO THE EFFECT THAT THE ASSESSEE NEVER MADE SUCH HUGE INVESTMENT IN ANY MUTUAL FUNDS EARLIER AND IT IS ONLY IN THIS YEAR WHEN IT HAD CAPITAL GAINS FROM SALE OF IMMOVABLE PROPERTY THAT THE ENTIRE TRANSACTION OF INVESTMENT IN MUTUAL FUND WAS CARRIED OUT. IN THIS REGARD WE OBSERVE THAT THE ASSESSEE WAS MAKING INVESTMENT IN THE SHARES & MUTUAL FUNDS IN THE PAST ALSO. A HUGE AMOUNT WAS INVESTED BY ASSESSEE COMPANY IN A.Y. 2014-15 AS UNDER: ITA 567/JP/2019_ M/S AGENCIES RAJASTHAN PVT. LTD. VS. ITO 43 STATEMENT OF MUTUAL FUND FOR THE YEAR ENDED AS ON 31.03.2014 (A.Y. 2014-15) SCRIP OPENING PURCHASES DIVIDEND TOTAL SALE CLOSING IDFC MUTUAL FUND 3,53,10,251/- 8,00,000/- 6,07,226/- 3,67,17,477/- 3,66,38,319/- 0/- BIRLA SUNLIFE 2,19,273/- 0/- 4,215/- 2,23,488/- 2,23,685/- 0/- SUNDARAM ASSET MANAGEMENT 0/- 2,16,797/- 0/- 2,16,797/- 1,67,089/- 0/- FRANKLIN TEMPLETON 10,18,786/- 0/- 20,620/- 10,39,406/- 10,33,899/- 0/- IDFC DYNAMIC MUTUAL FUND 0/- 50,00,000/- 0/- 50,00,000/- 50,40,940/- 0/- TOTAL 3,65,48,311/- 60,16,797/- 6,32,061/- 4,31,97,168/- 4,31,03,931/- 0/- STATEMENT OF SHARES FOR THE YEAR ENDED AS ON 31.03.2014 (A.Y. 2014-15) SCRIP OPENING PURCHASES DIVIDEND TOTAL SALE CLOSING MISC SHARES 58,340/ - 40,92,686/ - 0.00 41,51,026/ - 3615468/ - 586340/ - TOTA L 58,340/ - 40,92,686/ - 0.00 41,51,026/ - 3615468/ - 586340/ - SIMILARLY, IN A.Y. 2012-13 & 2013-14 ALSO, THE ASSESSEE PURCHASED/ INVESTED AND SOLD SHARES AND MUTUAL FUNDS. THE DETAILS ARE AS UNDER: STATEMENT OF MUTUAL FUNDS FOR THE YEAR ENDED AS ON 31.03.2013 (A.Y. 2013-14) SCRIP PURCHASE (RS.) SALES (RS.) PBI IDFC MUTUAL FUND 5,23,67,972/- 1,75,00,000/- 200 BIRLA SUNLIFE 3,25,00,000/- 4,92,00,000/- 201-204 ITA 567/JP/2019_ M/S AGENCIES RAJASTHAN PVT. LTD. VS. ITO 44 STATEMENT OF SHARES FOR THE YEAR ENDED AS ON 31.03.2013 (A.Y. 2013-14) SCRIP OPENING PURCHASES DIVIDEND TOTAL SALE CLOSING MISC SHARES 0/- 40,92,686/- 3,04,369/- 3,04,369/- 2,60,794/- 58,340/- TOTAL 0/- 40,92,686/- 3,04,369/- 3,04,369/- 2,60,794/- 58,340/- THUS, FROM THE PERUSAL OF ABOVE STATEMENTS IT IS EVIDENTLY CLEAR THAT THE ASSESSEE IS REGULARLY INVESTING IN THE SHARES & MUTUAL FUNDS. IN SUPPORT OF THE SAME THE ASSESSEE HAD FILED COPIES OF ACCOUNTS OF SHARES & MUTUAL FUND BEFORE THE LOWER AUTHORITIES AND ALSO PLACED IN PAPER BOOK FILED BEFORE US. EVEN THE ASSESSMENTS OF SOME OF THE YEARS WERE COMPLETED UNDER SCRUTINY U/S 143(3) (I.E. A.Y.2014-15 & A.Y. 2013-14) YET HOWEVER, NO SIMILAR DISALLOWANCE HAD BEEN MADE IN THE PAST. IT IS, FOR THE FIRST TIME, THE AO HAS MADE THIS DISALLOWANCE DESPITE THERE BEING NO CHANGE IN THE FACT & CIRCUMSTANCES OF THE CASE. THERE WAS NO SPECIAL REASON AS TO WHY THE AO SHOULD HAVE TAKEN A DEPARTURE FROM THE SETTLED POSITION OF LAW & FACTS BETWEEN THE PARTIES. ALTHOUGH THE DOCTRINE OF RES JUDICATA DO NOT APPLY IN THE INCOME TAX PROCEEDINGS YET HOWEVER, IN ABSENCE OF ANY CHANGE IN THE FACTS & CIRCUMSTANCES OF THE CASE, THE DOCTRINE HAS BEEN APPLIED BY THE COURTS. BIRLA SUNLIFE SAVINGS FUND 2,00,00,000/- 2,00,12,066/- 205 FRANKLIN TEMPLETON 10,18,786/- - 206 TOTAL 10,58,86,758/- 8,67,12,066/- ITA 567/JP/2019_ M/S AGENCIES RAJASTHAN PVT. LTD. VS. ITO 45 49. IN SUPPORT OF THE ABOVE PROPOSITION, RELIANCE MAY BE PLACED ON THE FOLLOWING JUDICIAL PRONOUNCEMENT: (I) IN THE CASE OF CIT V/S EXCEL INDUSTRIES LTD. (2013) 358 ITR 295 (SC), IT WAS HELD THAT: SECONDLY, AS NOTED BY THE TRIBUNAL, A CONSISTENT VIEW HAD BEEN TAKEN IN FAVOUR OF THE ASSESSEE, STARTING WITH THE AY 1992-93, THAT THE BENEFITS UNDER THE ADVANCE LICENCES OR UNDER THE DUTY ENTITLEMENT PASS BOOK DO NOT REPRESENT THE REAL INCOME OF THE ASSESSEE. CONSEQUENTLY, THERE WAS NO REASON TO TAKE A DIFFERENT VIEW UNLESS THERE ARE VERY CONVINCING REASONS, NONE OF WHICH HAD BEEN POINTED OUT BY THE REVENUE. IN RADHASOAMI SATSANG SAOMI BAGH V. COMMISSIONER OF INCOME TAX, [1992] 193 ITR 321 (SC) COURT DID NOT THINK IT APPROPRIATE TO ALLOW THE RECONSIDERATION OF AN ISSUE FOR A SUBSEQUENT AY IF THE SAME 'FUNDAMENTAL ASPECT' PERMEATES IN DIFFERENT AYS. IT APPEARS FROM THE RECORD THAT IN SEVERAL AYS, THE REVENUE ACCEPTED THE ORDER OF THE TRIBUNAL IN FAVOUR OF THE ASSESSEE AND DID NOT PURSUE THE MATTER ANY FURTHER BUT IN RESPECT OF SOME AYS THE MATTER WAS TAKEN UP IN APPEAL BEFORE THE HIGH COURT BUT WITHOUT ANY SUCCESS. THAT BEING SO, THE REVENUE COULD NOT BE ALLOWED TO FLIP- FLOP ON THE ISSUE FURTHER. (II) SARDAR KEHAR SINGH V/S CIT (1991) 92 CTR 88/195 ITR 769 (RAJ). 50. IT IS ALSO PERTINENT TO BRING ON RECORD THAT THERE IS NO LOSS TO THE REVENUE IN SO FAR AS THE MUTUAL FUND HAS ALREADY PAID DIVIDEND DISTRIBUTION TAX ON THE DECLARATION OF SUCH DIVIDEND. THERE APART, THE ASSESSEE HAS ALSO PAID STT ON THESE TRANSACTIONS AS EVIDENT FROM THE STATEMENT OF JM FINANCIAL MUTUAL FUND ON THE SUBJECTED TRANSACTION HENCE THERE HAS BEEN NO LOSS TO REVENUE. INTERESTINGLY DDT IS PAID TWICE FOR FIRSTLY BY INVESTEE COMPANIES AND SECONDLY BY JMF TO INVESTOR. ITA 567/JP/2019_ M/S AGENCIES RAJASTHAN PVT. LTD. VS. ITO 46 51. WE ALSO OBSERVE THAT THE ASSESSEES INVESTMENT IN MUTUAL FUND WAS ONLY 1.38% LOOKING TO THE TOTAL SIZE OF FUND OF RS. 3604.39 CRORES, THEREFORE, TO SUSPECT THAT THERE WAS A CONNIVANCE BETWEEN THE ASSESSE COMPANY AND OTHER ENTITIES HIGHLY IMAGINARY. 52. FROM THE ORDER OF THE LOWER AUTHORITIES, WE FOUND THAT THE AO HAS FAILED TO BRING ANY CONTRARY EVIDENCE ON RECORDS TO DISPROVE THE CONTENTIONS OF THE ASSESSEE AND TO FALSIFY THE EVIDENCES BROUGHT ON RECORD AND TO SHOW THE EXAMPLES OF OTHER SIMILARLY PLACED INVESTORS IF SIMILAR CLAIM MADE WAS DISALLOWED/DENIED. PERUSAL OF THE VARIOUS GROUNDS BASED ON WHICH, THE AO DENIED THE CLAIM OF EXEMPTION AND DISALLOWED THE LOSS WILL SHOW THAT THE AO PRESUMED THAT INDIA INFOLINE WAS A CONCERN LIKE A VERY CLOSE OF RELATIVE OF THE ASSESSEE FIRM TO WHOM, THE ASSESSEE WAS IN A POSITION TO GET THE THING DONE IN WHATEVER MANNER IT WANTED. INTERESTINGLY (AS PER AO), M/S INDIA INFOLINE ALREADY KNEW THAT THE ASSESSEE HAD ALREADY SOLD PROPERTY RESULTING INTO LONG TERM CAPITAL GAIN (LTCG) AGAINST WHICH THE ASSESSEE WOULD NEED SOME SHORT-TERM CAPITAL LOSS TO BE SET OFF. SIMILARLY, ALLEGED THAT THE ASSESSEE AND M/S INDIA INFOLINE ENTERED INTO A CONSPIRACY TO DEFRAUD THE REVENUE. ALL THESE ALLEGATIONS PRESUMPTIONS AND ASSUMPTIONS OF THE A.O. WAS WITHOUT BRINGING ANY IOTA OF EVIDENCE ON RECORD TO SUPPORT THE SAME. ITA 567/JP/2019_ M/S AGENCIES RAJASTHAN PVT. LTD. VS. ITO 47 53. WE FOUND THAT THERE IS ALSO ALLEGATION OF THE LD. CIT(A) TO THE EFFECT THAT THE IIFL WAS APPOINTED AS CONSULTANT TOR MAKING OF INVESTMENT OF FUNDS SO BORROWED FORM IIFL ITSELF. IN THIS REGARD WE OBSERVE THAT THERE IS NOTHING MORE THAN A SUSPICION ON THE FACE OF IT IN AS MUCH AS, THE LD. CIT(A) HAS NOT AT ALL REFERRED TO ANY MATERIAL OR EVIDENCE IN THE SHAPE OF AGREEMENT OR APPOINTMENT LETTER OR ANY OTHER UNDERSTANDING/MOU REACHED BETWEEN THE PARTIES IN WRITING. IIFL NEVER ACTED AS A CONSULTANT FOR MAKING INVESTMENT OF FUNDS FOR THE ASSESSEE. HE MERELY ACTED AS A FINANCER PROVIDED MARGIN MONEY ON TERMS AND CONDITIONS AS PER SPECIFIC SEPARATE AGREEMENT. 54. THE LD. CIT(A) ALSO ALLEGED THAT THE ASSESSEE USED THE SERVICES OF IIFL ONLY FOR PARTICULAR TRANSACTIONS ALSO, THE ASSESSEE OTHERWISE IS A SMALL INVESTOR OR DOES NOT INVEST LARGE SUM IN OTHER MUTUAL FUNDS NOR HAS SUBSTANTIAL INCOME FROM SUCH INVESTMENT. IN THIS REGARD WE OBSERVE THAT IT WAS ONLY A PRESUMPTION OF THE CIT(A). FROM THE RECORD WE FOUND THAT THE ASSESSEE DID NOT USE THE SERVICES OF IIFL ONLY FOR ONE PARTICULAR TRANSACTION BUT IN THE PAST AS ALSO IN THE LATER YEARS INCLUDING THE CURRENT YEAR, THE ASSESSEE HAS BEEN USING THE SERVICES OF IIFL IN ONE WAY OR OTHER. THE LD. CIT(A) ALSO ALLEGED THAT THE IIFL HAS ALREADY BEEN PROVED AS INDULGING IN PROVIDING BOGUS CAPITAL GAINS/LOSS ETC. ON THE BASIS OF ALL THESE FACTS DISCUSSED ABOVE IT IS CLEAR THAT THE HUGE DIVIDEND WHICH IS ITA 567/JP/2019_ M/S AGENCIES RAJASTHAN PVT. LTD. VS. ITO 48 EXEMPT UNDER SECTION 10 WAS EARNED BY THE ASSESSEE WITHIN A VERY SHORT PERIOD OF TIME BY INVESTING IN A MUTUAL FUND WHOSE FUNDAMENTALS, DID NOT SUPPORT SUCH A HUGE DIVIDEND. IN THIS REGARD WE OBSERVE THAT THIS ALLEGATION OF THE LD. CIT(A) IS FACTUALLY INCORRECT. THERE IS NO IOTA OF EVIDENCE BROUGHT BY THE AO OR CIT(A) ON RECORD TO PROVE IIFL AS INDULGING IN PROVIDING BOGUS CAPITAL GAIN/LOSSES ETC. IN ANY CASE, AT LEAST IN CONTEXT OF THE ASSESSEE THERE IS NO SUCH EVIDENCE REFERRED TO OR WHISPERED BY THE AUTHORITIES BELOW EVEN REMOTELY. SUCH AN ALLEGATION IS NOTHING MORE THAN A SUSPICION. WE FOUND THAT SIMILAR ALLEGATIONS WERE ALSO RAISED BY THE REVENUE BEFORE THE HONBLE SUPREME COURT IN THE CASE OF WALFORT SHARE (SUPRA) BUT REJECTED BY THE HONBLE SUPREME COURT. 55. THE LD. CIT(A) IN THE IMPUGNED ORDER ALSO ALLEGED THAT THE ENTIRE TRANSACTION WAS A SHAM IT IS AS NEITHER THE RESULT OF A COINCIDENCE NOR OF A GENUINE INVESTMENT ACTIVITY BUT WERE CREATED THROUGH WELL PLANNED AND EXECUTED SCHEME IN WHICH THE COMPANY AND THE BROKERS WORKED IN TANDEM TO ACHIEVE THE PREDETERMINED OBJECTIVES. IN THIS REGARD WE FOUND THAT SUCH AN ALLEGATION IS COMPLETELY CONTRARY TO THE OBSERVATION OF THE HONBLE APEX COURT IN THE CASE OF WALFORT SHARE (SUPRA), WHEREIN, IT WAS HELD AS UNDER: PARA-20 . HOWEVER, AFTER 1ST APRIL, 2002, SUCH LOSSES TO THE EXTENT OF DIVIDEND RECEIVED BY THE ASSESSEE COULD BE IGNORED BY THE AO IN VIEW OF S. ITA 567/JP/2019_ M/S AGENCIES RAJASTHAN PVT. LTD. VS. ITO 49 94(7). THE OBJECT OF S. 94(7) IS TO CURB THE SHORT-TERM LOSSES. APPLYING S. 94(7) IN A CASE FOR THE ASSESSMENT YEAR(S) FALLING AFTER 1ST APRIL, 2002, THE LOSS TO BE IGNORED WOULD BE ONLY TO THE EXTENT OF THE DIVIDEND RECEIVED AND NOT THE ENTIRE LOSS. IN OTHER WORDS, LOSSES OVER AND ABOVE THE AMOUNT OF THE DIVIDEND RECEIVED WOULD STILL BE ALLOWED FROM WHICH IT FOLLOWS THAT THE PARLIAMENT HAS NOT TREATED THE DIVIDEND STRIPPING TRANSACTION AS SHAM OR BOGUS. IT HAS NOT TREATED THE ENTIRE LOSS AS FICTITIOUS OR ONLY A FISCAL LOSS. AFTER 1ST APRIL, 2002, LOSSES OVER AND ABOVE THE DIVIDEND RECEIVED WILL NOT BE IGNORED UNDER S. 94(7). IF THE ARGUMENT OF THE DEPARTMENT IS TO BE ACCEPTED, IT WOULD MEAN THAT BEFORE 1ST APRIL, 2002 THE ENTIRE LOSS WOULD BE DISALLOWED AS NOT GENUINE BUT, AFTER 1 ST APRIL, 2002, A PART OF IT WOULD BE ALLOWABLE UNDER S. 94(7) WHICH CANNOT BE THE OBJECT OF S. 94(7) WHICH IS INSERTED TO CURB TAX AVOIDANCE BY CERTAIN TYPES OF TRANSACTIONS IN SECURITIES. . THE HONBLE SUPREME COURT SPECIFICALLY OBSERVED THAT SIMPLY BECAUSE SUCH TRANSACTIONS ARE DIVIDEND STRIPPING TRANSACTION, THAT BY ITSELF CANNOT BE CONSIDERED AS SHAM OR BOGUS. IN THIS CASE ALSO, THE TRANSACTION THOUGH CARRIED OUT AFTER THE INSERTION OF SEC 94(7) BUT WERE ADMITTEDLY OUT OF THE PROVISION HENCE THE RATIO LAID IS SQUARELY APPLICABLE ON THE PRESENT CASE. 56. THE LD. CIT(A) ALSO MADE AN ALLEGATION THAT IN THE INSTANT CASE EVEN THOUGH PRIMA FACIE IT APPEARS THAT THE ASSESSEE RECEIVED THE DIVIDEND IN NORMAL COURSE AND INCURRED LOSS OUT OF REDEMPTION OF THE UNITS OF JM FINANCIAL MUTUAL FUND, IN REALITY IT WAS HIS OWN FUND WHICH HE RECEIVED BACK THROUGH SOME CLANDESTINE DEALS IN THE SHAPE OF DIVIDEND AND CLAIMED IT AS EXEMPT. IN THIS REGARD WE OBSERVE THAT IT IS NOT AT ALL A CASE ITA 567/JP/2019_ M/S AGENCIES RAJASTHAN PVT. LTD. VS. ITO 50 OF MONEY LAUNDERING. AT THE WORST IT COULD BE A CASE OF CLAIM OF STCL AGAINST THE LTCG BUT NOT MORE THAN THAT. OTHERWISE ALSO THE CIT(A) HAS NOT PROVED ANYTHING EXCEPT MAKING SUSPICION. HOWEVER, NO WHERE THE A.O. HAS MADE ANY SUCH ALLEGATION. THE LD. CIT(A) ALSO ALLEGED THAT FURTHER LOSS INCURRED ON SUCH DEALS WAS CLAIMED ADJUSTED AGAINST THE LONG-TERM CAPITAL GAIN FROM THE SALE OF IMMOVABLE PROPERTY. THE DETAILED ANALYSIS DISCUSSED BY US HEREINABOVE FIRMLY ESTABLISH THE EVENTS IN THE INSTANT CASE. IN THIS REGARD WE OBSERVE THAT AGAIN SUCH AN ALLEGATION IS A CASE OF WALFORT SHARES (SUPRA) HAVE ALREADY DEALT WITH BY THE HONBLE APEX COURT. 57. FROM THE ORDER OF THE LD. CIT(A), WE OBSERVE THAT WHILE CONCLUDING THAT THESE FINANCIAL TRANSACTIONS WERE SHAM ONES AND THIS ENTIRE EDIFICE WAS ONLY A COLOURABLE DEVICE MANUFACTURED FOR EVADING DUE TAXES. HE RELIED ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS: I) ITAT DELHI IN THE CASE OF HERSH WIN CHADHA VS DCIT (L.T.A.NOS.3098 TO 3098 & 3107/DEL/2005). (II) SUMATI DAYAL VS CIT (214 ITR 801) (III) DURGA PRASAD MORE VS CIT (VI) MCDOWELL VS CTO 58. WE HAD CAREFULLY GONE THROUGH AND DELIBERATED ON THESE JUDICIAL PRONOUNCEMENTS AND FOUND THAT THESE WERE RENDERED IN ALTOGETHER ITA 567/JP/2019_ M/S AGENCIES RAJASTHAN PVT. LTD. VS. ITO 51 DIFFERENT LEGAL AND FACTUAL CONTEXT AND HENCE ARE COMPLETELY DISTINGUISHABLE. IN THE CASE OF SUMATI DAYAL AND DURGA PRASAD MORE, THERE IS NO DISPUTE ON THE PROPOSITION LAID DOWN. HOWEVER, THEY ARE NOT AT ALL APPLICABLE ON THE FACTS DISCUSSED ABOVE. THE CASE OF MC. DOWELL SPECIFICALLY DEALT WITH BY THE HONBLE SUPREME COURT IN THE CASE OF WALFORT SHARES (SUPRA). 59. IN VIEW OF THE ABOVE DISCUSSION AND OBSERVATION WELL SUPPORTED BY THE DOCUMENTARY EVIDENCES PLACED ON RECORD, WE DO NOT FIND ANY MERIT IN THE DISALLOWANCE OF ASSESSEES GENUINE CLAIM OF LOSS INCURRED ON REDEMPTION OF MUTUAL FUNDS. THE A.O. IS DIRECTED TO DELETE THE SAME AND ALLOW SET OFF SUCH LOSS AGAINST THE LONG-TERM CAPITAL GAINS SO EARNED. 60. THE NEXT GRIEVANCE OF THE ASSESSEE RELATES TO DISALLOWANCE OF RS. 14,42,282/- ON ACCOUNT OF EMPLOYEE BENEFIT EXPENSES. IN THIS REGARD WE FOUND THAT DURING THE ASSESSMENT PROCEEDINGS THE AO NOTED THAT THE ASSESSEE HAS DEBITED RS.15,42,282/- ON ACCOUNT OF EMPLOYEE BENEFIT HOWEVER, NO BUSINESS ACTIVITY HAS BEEN DONE BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. WHEN ASKED, THE ASSESSEE SUBMITTED THAT THE ASSESSEE COMPANY HAS ALREADY DECLARED BUSINESS INCOME OF RS.59.91 LAKH IN ITS P&L ACCOUNT. THE PAPER FORMALITIES, ACCOUNTING AND BANKING TRANSACTION ETC. WAS NOT POSSIBLE IN ABSENCE OF EMPLOYEES. FURTHER, OUT OF ITA 567/JP/2019_ M/S AGENCIES RAJASTHAN PVT. LTD. VS. ITO 52 THE SALARY PAID OF RS.10 LAC, REMUNERATION PAID TO THE EXTENT OF RS.5.40 LAKH RELATED TO THE DIRECTORS ONLY. SUCH EXPENDITURE THUS HAVING BEEN INCURRED EXCLUSIVELY FOR BUSINESS PURPOSES, WAS FULLY ALLOWABLE. HOWEVER, DISAGREED WITH THE SUBMISSION OF THE ASSESSEE, THE AO CONCLUDED THAT THE ASSESSEE HAS FAILED TO SUBSTANTIATE TO HAVE DONE ANY BUSINESS ON WHICH SUCH EXPENSES CLAIMED. THUS, HE DISALLOWED RS.15,42,282/- ON ACCOUNT OF EMPLOYEE BENEFIT EXPENSES. 61. BY THE IMPUGNED ORDER, THE LD. CIT(A) GIVEN RELIEF OF RS. 1.00 LAC AND RESTRICTED THE DISALLOWANCE TO THE EXTENT OF RS. 14,42,282/-. 62. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND FOUND FROM THE RECORD THAT AS PER MATERIAL PLACED ON RECORD, IT IS WRONG TO SAY THAT THE ASSESSEE WAS NOT ENGAGED ANY BUSINESS IN AS MUCH AS THE ASSESSEE HAS ALREADY DECLARED BUSINESS INCOME OF RS.59.91 LAKH. THIS WAS THE INCOME GENERATED IN CONNECTION WITH VARIOUS MUTUAL FUNDS (OTHER THAN THE MUTUAL FUNDS PURCHASED THROUGH JM FINANCIAL LTD.). THERE APART, THE ASSESSEE COMPANY HAS DECLARED HUGE INTEREST INCOME OF RS.21.06 LAC (PB 229) FROM SEVERAL DEBTORS TO WHOM INTEREST BEARING LOANS WERE ADVANCED AND INTEREST ON FDR OF RS.7.74 LAC TOTALING TO RS.28,80,856/- WAS ALSO DECLARED. TO CARRY OUT THE ACTIVITIES AT SUCH A LARGE SCALE, ONE CERTAINLY ITA 567/JP/2019_ M/S AGENCIES RAJASTHAN PVT. LTD. VS. ITO 53 NEEDS SOME PERSONS TO MANAGE THE SHOW. THE OBSERVATION OF THE PAPER FORMALITIES, ACCOUNTING AND BANKING TRANSACTION AND RECEIVING/DELIVERY OF THE PAPERS/DOCUMENTS, CONSULTATION WITH COUNSEL AND OTHER GOVERNMENT AGENCIES/INVESTMENT ADVISORS, WAS NOT POSSIBLE IN ABSENCE OF EMPLOYEES. OTHERWISE ALSO, OUT OF THE SALARY PAID OF RS.10 LAC, REMUNERATION PAID TO THE EXTENT OF RS.5.47 LAC RELATED TO THE DIRECTORS ONLY. SUCH EXPENDITURE THUS HAVING BEEN INCURRED EXCLUSIVELY FOR BUSINESS PURPOSES WAS FULLY ALLOWABLE. IT IS NOT THE CASE OF THE A.O. THAT ANY PERSONAL ELEMENT WAS INVOLVED IN THESE EXPENSES. WE ALSO FOUND THAT THE SAME A.O. WAS ALSO ASSESSING THESE INCOMES AS BUSINESS INCOME ONLY. MOREOVER, THE BORROWED FUNDS HAVING BEEN UTILIZED WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSES AND THE AO NOT HAVING POINTED OUT ANY PERSONAL USER OR DIVERSION FOR NON-BUSINESS PURPOSES, THE SUBJECTED INTEREST WAS FULLY ALLOWABLE U/S 36(1)(III) OF THE ACT. 63. FROM PERUSAL OF NOTE NO. 8 ANNEXED TO THE AUDITED A&L ACCOUNT, WE FOUND THAT THE HEAD EMPLOYEE BENEFIT EXPENSES CONSISTED OF SALARY TO STAFF OF RS. 4,92,000/-, DIRECTORS REMUNERATION INCLUDING MEETING FEES OF RS.5,47,000/-, STAFF WELFARE EXPENSES OF RS.3,282/- AND GRATUITY & BONUS OF RS.5,00,000/- TOTALING TO RS.15,42,282/- AS AGAINST RS.3,78,621/- CLAIMED IN THE PRECEDING YEAR. THE CLAIM THIS YEAR OF COURSE IS ON A HIGHER SIDE YET HOWEVER, THERE ARE SUFFICIENT AND JUSTIFIABLE REASONS BEHIND SUCH ITA 567/JP/2019_ M/S AGENCIES RAJASTHAN PVT. LTD. VS. ITO 54 AN INCREASE. THE ASSESSEE HAS INCOME OF RS.59,02,21,502/- THIS YEAR, AS ABOVE, AS AGAINST RS.11,29,188/- LAST YEAR. PERTINENTLY, THIS IS A VERY OLD COMPANY OF 1949 AND A FEW EMPLOYEES ARE VERY-VERY OLD THEREFORE, PAYMENT TO THEM IS CERTAINLY IN THE LARGER INTEREST OF THE BUSINESS. 64. LOOKING TO THE NATURE OF EXPENSES, WE FOUND THAT THERE IS A LONG LIST OF 9-10 BORROWERS. EVERY TIME, THE EMPLOYEES HAVE TO GIVE THE CHEQUE OF LOAN AMOUNT AND TO COLLECT THE SAME BACK IN CASE OF REFUND AFTER THE EXPIRY PERIOD. AGAIN, IN EVERY 2 MONTHS, THE EMPLOYEE HAS TO GO TO COLLECT THE CHEQUE FROM ALL OF THEM. SIMILARLY, THE ASSESSEE COMPANY IS HOLDING EQUITY SHARES OF AROUND 15 COMPANIES AS PER LIST AND THE DIVIDEND WARRANT OF THOSE COMPANIES ARE BEING DEPOSITED PHYSICALLY. THE ASSESSEE COMPANY HAS NOT YET ENTERED INTO E-BANKING SYSTEM AND ALL BANKING WORK HAS BEEN DONE MANUALLY ONLY. COLLECTION OF THE CHEQUE OF LEASE RENT, THE REPAIR OF THE PROPERTY, THE SELECTION OF THE PROPERTY TO BE PURCHASED, MANAGEMENT AND MAINTENANCE OF THE PROPERTY PURCHASED AND GIVEN ON LEASE ARE ALL THE JOBS REQUIRING A SUBSTANTIAL MAN POWER AND HENCE IT CANNOT BE PRESUMED THAT THE DIRECTOR ALONE OR WITH 1 OR 2 EMPLOYEES WOULD BE ABLE TO DISCHARGE SUCH JOBS. THE HUGE QUANTUM OF THE RELATED INCOME GOES TO STRONGLY SUGGEST THE STRENUOUS AND REPETITIVE EFFORTS MUST HAVE BEEN MADE BY THE ASSESSEE COMPANY TO EARN SUCH INCOME. ITA 567/JP/2019_ M/S AGENCIES RAJASTHAN PVT. LTD. VS. ITO 55 65. IN THIS REGARD, RELIANCE IS PLACED BY THE LD AR ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF JK WOOLEN MANUFACTURERS 72 ITR 612 (SC), HONBLE KARNATAKA HIGH COURT DECISION IN THE CASE OF T.T. PVT. LTD. V/S ITO (1980) 121 ITR 551 (KAR), HONBLE M.P. HIGH COURT DECISION IN THE CASE OF CIT V/S UDHOJI SHRIKRISHNADAS (1983) 139 ITR 827 (MP) IN SUPPORT OF THE PROPOSITION THAT THE DECISION TAKEN BY A BUSINESS MAN OUT OF COMMERCIAL EXPEDIENCY, IT WAS AN EXPENDITURE INCURRED BY THE ASSESSEE SOLELY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. IT WAS ALSO CONTENDED BY THE LD AR THAT NO DISALLOWANCE FOR SUCH EXPENSES MADE IN THE A.Y. 2014-15 WHILE FINALIZING THE SCRUTINY ASSESSMENT U/S 143(3) OF THE ACT. KEEPING IN VIEW THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE VIS A VIS OBSERVATION OF THE A.O., WE RESTRICT THE DISALLOWANCE TO THE EXTENT OF 10% OF THE EXPENDITURE SO INCURRED AMOUNTING TO RS. 15,42,282/-. ACCORDINGLY, THE A.O. IS DIRECTED TO RESTRICT THIS DISALLOWANCE TO RS. 1,54,228/-. 66. THE A.O. HAS ALSO DISALLOWED RS. 8,13,000/- ON ACCOUNT OF OTHER EXPENSES. BY THE IMPUGNED ORDER, THE LD. CIT(A) ALLOWED EXPENSES UP TO RS.50,000/-. 67. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND FOUND THAT FOLLOWING EXPENDITURE WAS INCURRED BY THE ASSESSEE DURING THE YEAR: ITA 567/JP/2019_ M/S AGENCIES RAJASTHAN PVT. LTD. VS. ITO 56 S.NO. PARTICULARS AMOUNT 1. TRAVELLING EXPENSES 1,19,218/- 2. ELECTRIC & WATER EXP 1,02,485/- 3. POSTAGE, TELEGRAM & TELEPHONE 19,134/- 4. MEMBERSHIP FEES AND SUBSCRIPTION 2,189/- 5. DONATION (ALREADY REDUCED IN COMPUTATION PB 2) 51,000/- 6. OFFICE EXPENSES 54,218/- 7. LEGAL EXPENSES 8,874/- 8. ROC FILLING FEE 3,200/- 9. REPAIR & MAINTENANCE 4,64,860/- 10. AUDIT FEES 17,100/- 11. RIICO CHARGES 1,430/- 12. MISC. EXPENSES 15,855/- 13. PRINTING & STATIONARY 3,865/- TOTAL 8,63,428/- 68. FROM THE RECORD WE FOUND THAT THE ASSESSEE CLAIMED EXPENSES OF RS.8,63,428/- [RS.18,38,428/- LESS RS.9,75,000/- (REDUCED FROM INCOME IN COMPUTATION)] ON TOTAL BUSINESS INCOME OF RS.60,53,568/- THIS YEAR AS AGAINST EXPENSES OF RS.4,67,361/- CLAIMED ON TOTAL BUSINESS OF RS.(-) 4,58,003/- IN LAST YEAR I.E. A.Y. 2014-15 IN THE PRECEDING YEAR. THE CLAIM MADE THIS YEAR, WAS PROPORTIONATELY MUCH LOWER BECAUSE QUA THE BUSINESS INCOME SUCH EXPENSES STOOD AT 14.26% ONLY AS AGAINST 102% CLAIMED LAST YEAR. FURTHER, THOUGH THERE IS SOME INCREASE IF ONLY QUANTUM IS COMPARED BUT THERE ARE SUFFICIENT AND JUSTIFIABLE REASONS BEHIND SUCH AN INCREASE. TO ACHIEVE SUCH A HUGE INCOME THE ASSESSEE HAS TO INCUR SUCH A MEAGRE EXPENSE. SUCH EXPENSES WERE MAINLY INCURRED ON ITA 567/JP/2019_ M/S AGENCIES RAJASTHAN PVT. LTD. VS. ITO 57 TRAVELLING, ELECTRIC EXPENSES AND REPAIR & MAINTENANCE. NO SPECIFIC INSTANCE OF DISALLOWABLE NATURE WAS POINTED OUT BY THE A.O. 69. WE ALSO FOUND THAT THE DONATION PAID OF RS.51,000/- HAS BEEN REDUCED WHILE COMPUTING THE INCOME UNDER THE HEAD BUSINESS & PROFESSION. IN OTHER WORDS, THE ENTIRE DONATION OF RS.51,000/- HAS BEEN ADDED BACK TO THE BUSINESS INCOME AS EVIDENT FROM THE COMPUTATION OF THE TOTAL INCOME . HENCE THERE IS NO ADDITION TO THIS EXTENT ALSO. IT IS SETTLED LAW THAT A BUSINESSMAN IS THE BEST JUDGE TO TAKE CARE OF ITS OWN INTEREST & TO TAKE DECISIONS. HERE, WHATEVER DECISIONS WERE TAKEN BY THE ASSESSEE, HAS TO BE UNDERSTOOD AS TAKEN OUT OF COMMERCIAL EXPEDIENCY. ACCORDINGLY, WE DO NOT FIND ANY JUSTIFICATION FOR THE DISALLOWANCE SO MADE. 70. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED IN PART IN TERMS INDICATED HEREINABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 01 ST JULY, 2019. SD/- SD/- FOT; IKY JKO JES'K LH 'KEKZ (VIJAY PAL RAO) (RAMESH C SHARMA) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 01 ST JULY, 2019 ITA 567/JP/2019_ M/S AGENCIES RAJASTHAN PVT. LTD. VS. ITO 58 *RANJAN VKNS'K DH IZFRFYFI VXZSFKR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ @ THE APPELLANT- M/S AGENCIES RAJASTHAN PVT. LTD., JAIPUR. 2. IZR;FKHZ @ THE RESPONDENT- THE ITO, WARD 6(2), JAIPUR. 3. VK;DJ VK;QDR @ CIT 4. VK;DJ VK;QDRVIHY @ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ @ DR, ITAT, JAIPUR 6. XKMZ QKBZY @ GUARD FILE (ITA NO. 567/JP/2019) VKNS'KKUQLKJ @ BY ORDER, LGK;D IATHDKJ @ ASST. REGISTRAR