Shri Monal Y.Thakkar, Ahmedabad V. The ACIT.,Cent.Circle-1(3), Ahmedabad

ITA 573/AHD/2010

• Counselvise Citation: 57320514 RSA 2010
• Duration Of Justice: 5 year(s) 5 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 23-06-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 19-02-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SONIA KUMAR
• Assessee Lawyers: ANKIT TALSANIA
• Keywords: Business income; Business expenditure; Non compliance
• Section: 37(1); 12A; 37; 11; 15

Judgement Text

, D IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD BEFORE SHRI G.D. AGRAWAL, VICE-PRESIDENT AND SHRI RAJPAL YADAV, JUDICIAL MEMBER ITA NO.573/AHD/2010 ASSTT. YEAR: 2006-2007 AND ITA NO.554/AHD/2013 ASSTT.YER : 2009-2010 SHRI MONAL Y. THAKKAR 2, NARAYAN CHAMBERS 3 RD FLOOR, ASHRAM ROAD AHMEDABAD. PAN : ACLPT 2079 H. VS ACIT, CENT.CIR.1(3) AHMEDABAD. ITA NO.574/AHD/2010 ASSTT.YEAR : 2006-2007 AND ITA NO.555/AHD/2013 ASSTT. YEAR: 2009-2010 SMT. REETABEN R. THAKKAR 2, NARAYAN CHAMBERS 3 RD FLOOR, ASHRAM ROAD AHMEDABAD. PAN : AAXPT 9460 E VS ACIT, CENT.CIR.1(3) AHMEDABAD. ITA NO.786/AHD/2010 ASSTT. YEAR: 2006-2007 ACIT, CENT.CIR.1(3) AHMEDABAD. VS SMT. REETABEN R. THAKKAR 2, NARAYAN CHAMBERS 3 RD FLOOR, ASHRAM ROAD AHMEDABAD. / (APPELLANT) / (RESPONDENT) ITA NO.573/AHD/2010 (5 APPEALS) SMT. REETABEN R. THAKKAR AND SHRI MONAL Y. THAKKAR VS.ACIT 2 ASSESSEE BY : SHRI ANKIT TALSANIA REVENUE BY : SMT.SONIA KUMAR, SR.DR / DATE OF HEARING : 23/06/2015 / DATE OF PRONOUNCEMENT: 24/07/2015 / O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: IN THIS BUNCH OF FIVE APPEALS, COMMON ISSUE IS INV OLVED. THEREFORE, WE HEARD THEM TOGETHER, AND DEEM IT APPR OPRIATE TO DISPOSE OF THEM BY THIS COMMON ORDER. IN THE CASE OF SMT. REETABEN R. THAKKAR, THE ASSESS EE AND THE REVENUE ARE IN CROSS APPEALS AGAINST THE ORDER OF T HE LD.CIT(A) DATED 11.1.2010 FOR THE ASSTT.YEAR 2006-07. IN THE ASSTT .YEAR 2009-10, SMT. REETABEN R. THAKKAR ALONE HAS CHALLENGED THE ORDER OF THE CIT(A) DATED 24.12.2012. IN THE CASE OF SHRI MONAL Y. THAKKAR, THE ASSESSEE HAS CHALLENGED ORDERS OF THE CIT(A) DATED 16.11.2009 AND 24.4.2012 FOR THE ASSTT.YEARS 2006-07 AND 2009-10 RESPECTIVELY. 2. BEFORE WE CARVE OUT SPECIFIC GRIEVANCE OF THE AP PELLANTS, WE DEEM PERTINENT TO TAKE NOTE, A BRIEF BACKGROUND OF THE C ASE. 3. IN OCTOBER, 2005, SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI FOR SHORT) NOTICED LARGE SCALE OFF MARKET TRANSACTI ONS OF SHARES OF YES BANK LTD. ON DETAILED EXAMINATION OF DATA COLLECTE D FROM THE DEPOSITORIES AND REGISTRAR TO THE ISSUE, SEBI FOUND THAT MANY DEMAT ACCOUNTS IN FICTITIOUS/ BENAMI NAMES WERE OPENED BY CERTAIN PERSONS, AND THESE PERSONS HAD CORNERED THE SHARES OF CERTAI N INITIAL PUBLIC OFFERS (IPOS) BY MAKING APPLICATIONS IN FICTITIOUS/ BENAMI NAMES WITH EACH OF THE APPLICATIONS BEING OF SMALL VALUE SO AS TO MAKE IT ELIGIBLE FOR ITA NO.573/AHD/2010 (5 APPEALS) SMT. REETABEN R. THAKKAR AND SHRI MONAL Y. THAKKAR VS.ACIT 3 ALLOTMENT UNDER RETAIL CATEGORY. IT WAS ALSO OBSER VED THAT SUBSEQUENT TO THE ALLOTMENT OF IPO SHARES, THIS FICTITIOUS/ BENAMI ALLOTTEES HAD TRANSFERRED THE SAID SHARES TO THEIR PRINCIPALS (KE Y OPERATORS/MASTER ACCOUNT HOLDERS) WHO IN TURN TRANSFERRED THE SHARES TO THE PERSONS (THE FINANCIERS) WHO MADE AVAILABLE FUND FOR MAKING SUBS CRIPTION TO THE RESPECTIVE IPOS., THROUGH OFF-MARKET TRANSACTIONS P RIOR TO THE DATE OF LISTING ON THE STOCK EXCHANGE. THE FINANCIERS HAV E ALSO SOLD THE SAID SHARES IMMEDIATELY ON THE DATE OF LISTING AND MADE HUGE PROFIT. THE SEBI EXAMINED THE DEALINGS IN IPOS. OF YES BANK AND IDFC LTD., WHERE IT WAS FOUND THAT CERTAIN PERSONS INCLUDING SMT. RU PAL NARESH PANCHAL AND SUGANDH ESTATE AND INVESTMENT PVT. LTD. HAVE CO RNERED LARGE PORTION OF THE SHARES IN VARIOUS IPOS., RESERVED FO R RETAIL CATEGORY OF INVESTORS. IN VIEW OF THIS FINDING, SEBI REFERRED THE MATTER TO OTHER GOVERNMENT AGENCIES INCLUDING INCOME TAX DEPARTMENT , MINISTRY OF COMPANY AFFAIRS AND RESERVE BANK OF INDIA. THE INC OME TAX DEPARTMENT HAS ALSO CARRIED OUT SURVEY AND SEARCH. THE ASSESSEE, SMT.REETABEN R. THAKKAR HAD MADE INVESTMENT OF RS.4 CRORES, WHEREAS SHRI MONAL Y. THAKKAR HAD MADE INVESTMENT OF RS.2.8 5 CRORES. THE ASSESSEE, SMT. REETABEN R. THAKKAR HAD ACQUIRED 1,8 0,000 SHARES FROM SUGANDH ESTATE & INVESTMENT P. LTD., AND SHRI MONAL Y. THAKKAR HAD ACQUIRED 85,600 SHARES FROM SUGANDH ESTATE & IN VESTMENT P. LTD. 4. IN THE ABOVE BACKGROUND, LET US NOTE THE FACTS I N THE APPEAL. 5. THE ASSESSEE, SMT. REETABEN R. THAKKAR HAS FILED HER RETURN OF INCOME FOR THE ASSTT.YEAR 2006-07 ON 28.12.2006 DEC LARING TOTAL INCOME OF RS.51,50,280/-. SHE HAS DISCLOSED CAPITA L GAIN OF RS.36,16,736/- WHICH INCLUDES PROFIT OF RS.17,060/- AS SHORT TERM CAPITAL GAIN. 6. SHRI MONAL Y. THAKKAR HAS FILED HER RETURN OF IN COME FOR THE ASSTT.YEAR 2006-07 ON 28.12.2006 BY DECLARING TOTAL INCOME OF ITA NO.573/AHD/2010 (5 APPEALS) SMT. REETABEN R. THAKKAR AND SHRI MONAL Y. THAKKAR VS.ACIT 4 RS.48,00,570/-. SHE HAS SHOWN CAPITAL GAIN IN RESP ECT OF IPOS. ISSUE AT RS.30,78,423/-. 7. DISPUTE IN THE PRESENT APPEALS FOR THE ASSTT.YEA R 2006-07 IS, WHETHER THE PROFIT RESULTED TO THE ASSESSEE ON SHAR E TRANSACTIONS THROUGH IPOS, IS TO BE ASSESSED AS BUSINESS INCOME OR UNDER THE HEAD CAPITAL GAINS. 8. IN THE ASSTT.YEAR 2009-10, THE GRIEVANCE OF BOTH THE ASSESSEES IS THAT THE SEBI HAS PASSED ORDERS IN THE CASE OF BOTH THE ASSESSEES, VIDE WHICH, THE AMOUNTS EARNED BY THE ASSESSEES THROUGH THIS IPOS. ISSUE HAVE BEEN DIRECTED TO BE DISGORGED, AND ACCORDINGLY , ASSESSEES HAVE REMITTED THIS AMOUNT TO THE SEBI. THEREFORE, THEY HAVE NOT EARNED ANY INCOME AND THE ALLEGED ASSESSMENT OF BUSINESS INCOM E IN THE ASSTT.YEAR 2006-07 IS TO BE ALLOWED AS BUSINESS EXPENDITURE IN THE YEAR IN WHICH THE ASSESSEES HAVE MADE PAYMENT TO THE SEBI. APART FROM THE ABOVE, THE ASSESSEES HAD RAISED ADDITIONAL GROUNDS OF APPE AL IN THE ASSTT.YEAR 2006-07, WHEREBY THEY HAVE CLAIMED THAT SINCE THE A LLEGED CAPITAL GAIN HAS BEEN DEPOSITED IN PURSUANCE OF SEBIS ORDER TO THE SEBI, THEREFORE, NO INCOME RESULTED TO THE ASSESSEE, WHICH CAN BE AS SESSED IN THE HANDS OF THE ASSESSEE EITHER UNDER THE HEAD CAPITAL GAIN S OR UNDER THE HEAD BUSINESS INCOME. 9. IN THE APPEAL OF THE REVENUE FOR THE ASSTT.YEAR 2006-07, IN THE CASE OF REETABEN R. THAKKAR, SOLITARY ISSUE IS THAT THE LD.CIT(A) HAS ERRED IN ACCEPTING A SUM OF RS.5,48,385/- OUT OF TH E TOTAL ALLEGED CAPITAL GAIN OF RS.36,16,736/- AS ASSESSABLE UNDER THE HEAD CAPITAL GAINS. 10. WITH THE ASSISTANCE OF LEARNED REPRESENTATIVE, WE HAVE GONE THROUGH THE RECORD CAREFULLY. BEFORE WE EMBARK UPO N AN INQUIRY, AS TO ASSESSABILITY OF RS.36,16,736/- AND RS.30,78,423/- IN THE HANDS OF SMT. ITA NO.573/AHD/2010 (5 APPEALS) SMT. REETABEN R. THAKKAR AND SHRI MONAL Y. THAKKAR VS.ACIT 5 REETABEN R. THAKKAR AND SHRI MONAL Y. THAKKAR, IN T HE ASSTT.YEAR 2006- 07 RESPECTIVELY, IT IS PERTINENT TO BEAR IN MIND CE RTAIN BASIC FEATURES EMERGE OUT FROM THE PROCEEDINGS OF THE SEBI. AS ST ATED EARLIER, THE ASSESSEES HAVE FINANCED CERTAIN BENAMI /FICTITIOUS APPLICANTS TO APPLY FOR ALLOTMENT OF SHARES IN INITIAL PUBLIC OFFER, WHICH IS AGAINST SECTION 12A OF SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992. THE SEBI HAS INITIATED INQUIRY AND ULTIMATELY ISSUE WAS SETTLED. THE SEBI HAS PASSED ORDER IN THE CASE OF SMT. REETABEN R. THAKKAR ON 6. 11.2008 WHEREBY, SMT. REETABEN R. THAKKAR WAS DIRECTED TO DISGORGE A SUM OF RS.30,98,785/- AS WELL AS SETTLEMENT CHARGE OF RS.6 ,20,215/-. THE ORDER OF THE SEBI READS AS UNDER: CO/ISD/ 86 /2008 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA, MUMBAI CONSENT ORDER ON THE APPLICATION SUBMITTED BY SHRI MONAL Y. THAKKAR IN THE MATTER OF IRREGULARITIES RELATING TO INITIAL PUBLIC OFFERINGS (CONSENT APPLICATION NO.21/2007) 1. AS A PART OF ITS ON GOING SURVEILLANCE, SEBI HAD LAUNCHED AN INVESTIGATION UNDER SECTION 11C OF THE SEBI ACT, 19 92 INTO THE DEALINGS IN THE SHARES ISSUED THROUGH INITIAL PUBLI C OFFERINGS (IPOS) DURING 2003-05 BEFORE THESE WERE LISTED ON T HE STOCK EXCHANGES. THE PRELIMINARY INVESTIGATIONS, PRIMA FA CIE, REVEALED THAT A LARGE NUMBER OF DEMATERIALIZED ACCOUNTS WITH COMMON ADDRESSES HAD BEEN OPENED IN BENAMI OR FICTITIOUS N AMES WITH A VIEW TO CORNERING THE SHARES MEANT FOR RETAIL INDIV IDUAL INVESTORS. A FEW FINANCIERS, INCLUDING MS.RITABEN R. THAKKAR ( HEREINAFTER REFERRED TO AS APPLICANT), PROVIDED MONEY FOR MAKIN G IPO APPLICATIONS IN FICTITIOUS/ BENAMI NAMES. THE APPLI CANT WAS, THEREFORE, ALLEGED TO HAVE VIOLATED SECTION 12A OF THE SEBI ACT 1992, REGULATION 3 OF THE SEBI (FRAUDULENT AND UNFA IR TRADE PRACTICES RELATING TO SECURITIES MARKET) REGULATION S, 2003 AND THE PROVISIONS OF THE SEBI (DISCLOSURE AND INVESTOR PRO TECTION) GUIDELINES, 2000 AND TO HAVE MADE AN UNLAWFUL GAIN OF RS. 30,98,785 IN THE PROCESS. ITA NO.573/AHD/2010 (5 APPEALS) SMT. REETABEN R. THAKKAR AND SHRI MONAL Y. THAKKAR VS.ACIT 6 2. BASED ON THESE FINDINGS, SEBI PASSED AN AD INTER IM EX PARTE ORDER DATED APRIL 27, 2006 UNDER SECTIONS 11 AND 11 B OF THE SEBI ACT, 1992 DIRECTING THE APPLICANT NOT TO BUY, SELL OR DEAL IN SECURITIES MARKET, INCLUDING IPOS, DIRECTLY OR INDI RECTLY, TILL FURTHER DIRECTIONS. THE APPLICANT SUBMITTED REPLY VIDE LETT ER DATED MAY 09, 2006. SEBI ALSO INITIATED AN ADJUDICATION PROCEEDIN GS UNDER CHAPTER VI OF THE SEBI ACT, 1992 AGAINST THE APPLIC ANT. THE ADJUDICATING OFFICER ISSUED SHOW CAUSE NOTICE TO TH E APPLICANT ON JUNE 16, 2006. THE APPLICANT SUBMITTED REPLY TO THE ADJUDICATING OFFICER VIDE LETTERS DATED JULY 22, 2006 AND DECEMB ER 15, 2006. 3. WHILE FURTHER PROCEEDINGS IN THE MATTER WERE IN PROGRESS, THE APPLICANT, VIDE LETTER DATED JULY 12, 2007 PROPOSED SETTLEMENT OF THE PENDING PROCEEDINGS THROUGH A CONSENT ORDER. TH E HIGH POWERED ADVISORY COMMITTEE, CONSTITUTED BY SEBI, CO NSIDERED THE CONSENT TERMS PROPOSED BY THE APPLICANT AND AFTER C ONSIDERING THE PERIOD OF PROHIBITION ON BUYING, SELLING OR DEALING IN SECURITIES UNDERGONE BY THE APPLICANT SINCE APRIL 27, 2006, RE COMMENDED THE CASE FOR SETTLEMENT. AS PER THE TERMS OF SETTLE MENT, THE APPLICANT SHALL DISGORGE RS. 30,98,785 (RUPEES THIR TY LAKH NINETY EIGHT THOUSAND SEVEN HUNDRED AND EIGHTY FIVE ONLY) BEING THE UNLAWFUL GAIN MADE BY HER IN THE ALLEGED IRREGULARI TY AND RS. 6,20,215 (RUPEES SIX LAKH TWENTY THOUSAND TWO HUNDR ED AND FIFTEEN ONLY) AS THE SETTLEMENT CHARGES. 4. FOR THE SOLE PURPOSE OF SETTLING THE MATTER ON H AND AND WITHOUT ADMISSION OR DENIAL OF GUILT ON THE PART OF APPLICA NT TO THE FINDINGS OF FACT OR CONCLUSION OF LAW, THE APPLICANT HAS REM ITTED A TOTAL SUM OF RS. 37,19,000 (RUPEES THIRTY SEVEN LAKH NINETEEN THOUSAND ONLY) COMPRISING OF RS.30,98,785 (RUPEES THIRTY LAK H NINETY EIGHT THOUSAND SEVEN HUNDRED AND EIGHTY FIVE ONLY) TOWARD S DISGORGEMENT AND RS. 6,20,215 (RUPEES SIX LAKH TWEN TY THOUSAND TWO HUNDRED AND FIFTEEN ONLY) TOWARDS SETTLEMENT CH ARGES VIDE DEMAND DRAFTS NO. 982666 (RS. 8,00,000), 982668 (RS . 8,00,000), 982669 (RS. 8,00,000), 982670 (RS. 5,19, 000), DATED OCTOBER 27, 2008, DRAWN ON STATE BANK OF PATIALA, P AYABLE AT MUMBAI. 5. IN VIEW OF THE ABOVE, IT IS HEREBY ORDERED THAT THIS CONSENT ORDER DISPOSES OF THE PROCEEDINGS UNDER SECTIONS 11 AND 11B OF THE SEBI ACT, 1992 AND THE ADJUDICATION PROCEEDINGS AGAINST THE APPLICANT AND REVOKES THE DIRECTIONS IN THE AD INTE RIM EX PARTE ORDER DATED APRIL 27, 2006 PASSED BY SEBI TO THE EX TENT SUCH DIRECTIONS ARE AGAINST THE APPLICANT IN THE MATTER OF IPO IRREGULARITIES. ITA NO.573/AHD/2010 (5 APPEALS) SMT. REETABEN R. THAKKAR AND SHRI MONAL Y. THAKKAR VS.ACIT 7 6. THIS ORDER IS WITHOUT PREJUDICE TO THE RIGHT OF SEBI TO TAKE ENFORCEMENT ACTIONS, INCLUDING COMMENCING / REOPENI NG OF THE PENDING PROCEEDINGS AGAINST THE APPLICANT, IF: A. ANY REPRESENTATION MADE BY THE APPLICANT IN THIS CONSENT PROCEEDINGS IS SUBSEQUENTLY DISCOVERED TO BE UNTRUE ; B. THE APPLICANT BREACHES ANY OF THE CONSENT TERMS OR UNDERTAKINGS FILED IN THIS CONSENT PROCEEDINGS. 7. THIS CONSENT ORDER IS PASSED ON THIS DAY, THE 5T H NOVEMBER, 2008 AND SHALL COME INTO FORCE WITH IMMEDIATE EFFEC T. SD/- T. C. NAIR WHOLE TIME MEMBER SD/- M. S. SAHOO WHOLE TIME MEMBER 11. A SIMILAR ORDER HAS BEEN PASSED IN THE CASE OF SHRI MONAL Y. THAKKAR ON 4.11.2008 VIDE WHICH SHE WAS DIRECTED TO DISGORGE A SUM OF RS.29,17,331 AND RS.5,83,669/- AS SETTLEMENT CHARGE S. DURING THE PENDENCY OF THE APPEALS BEFORE THE CIT(A), ON THE S TRENGTH OF THESE ORDERS, THE ASSESSEES HAVE RAISED ADDITIONAL GROUND S OF APPEALS, WHEREBY, THEY PLEADED THAT WHATEVER ASSESSEE HAD RE CEIVED IN THESE SHARE TRANSACTIONS, WHICH WAS FOUND TO BE ASSESSED AS BUSINESS INCOME, ULTIMATELY NOT RESULTED IN ANY INCOME TO THE ASSESS EES, BECAUSE, THEY HAVE DISGORGED THAT AMOUNT TO THE SEBI. WITH REGAR D TO THE QUESTION THAT THE MOMENT EXCLUSION OF THE AMOUNT MADE WOULD BRING THEIR RETURN OF INCOME LOWER THAN THE ONE DISCLOSED BY THEM, THE Y, ON THE STRENGTH OF THE HONBLE GUJARAT HIGH COURT DECISION IN THE C ASE OF GUJARAT GAS CO. LTD. VS. CIT, 245 ITR 84 CONTENDED THAT THE AO HAS TO COMPUTE THE INCOME AS PER THE PROVISIONS OF THE ACT, NOTWITHSTA NDING THE INCOME DISCLOSED IN THE RETURN OF INCOME. IN OTHER WORDS, EVEN IF AN AMOUNT WAS SHOWN AS TAXABLE INCOME IN THE RETURN OF INCOME , AND IT IS NOT TAXABLE, THE SAME CANNOT BE TAXED BY THE AO. THE L D.FIRST APPELLATE AUTHORITY HAS CONSIDERED THIS ALTERNATIVE CONTENTIO N OF THE ASSESSEES, ITA NO.573/AHD/2010 (5 APPEALS) SMT. REETABEN R. THAKKAR AND SHRI MONAL Y. THAKKAR VS.ACIT 8 BUT REJECTED THE SAME. THE RELEVANT FINDINGS OF TH E CIT(A), IN THE CASE OF SMT. REETABEN R. THAKKAR IS WORTH TO NOTE IN THI S CONNECTION. IT READS AS UNDER: 14. I HAVE CONSIDERED THE SUBMISSION OF THE APPELLA NT AND I HAVE ALSO PERUSED THE COPY OF THE ORDER PASSED BY THE SE BI ON 05.11.2008. IN THE SEBI ORDER, SUPRA, IT HAS BEEN C LEARLY - MENTIONED THAT THE APPELLANT, VIDE LETTER DATED 12. 07.2007, PROPOSED SETTLEMENT OF THE PENDING PROCEEDINGS. THE REAFTER, SEBI CONSTITUTED ONE HIGH POWER ADVISORY COMMITTEE, WHIC H CONSIDERED THE CONSENT TERMS PROPOSED BY THE APPELLANT AND REC OMMENDED THE CASE FOR SETTLEMENT. AS PER THE TERMS OF SETTLE MENT, THE APPELLANT SHALL DISGORGE RS.30,98,785/-, BEING THE UNLAWFUL GAIN MADE BY THE APPELLANT AND RS.6,20,215/-AS THE SETTL EMENT CHARGES. IN CONSIDERATION TO THIS ORDER, THE APPELL ANT HAS REMITTED TOTAL SUM OF RS.37,19,000/- VIDE DEMAND DRAFT, DRAW N ON STATE BANK OF PATIALA PAYABLE AT MUMBAI. 15. THE APPELLANT'S CONTENTION THAT INCOME EARNED O UT OF THE SHARE TRANSACTIONS TO THE EXTENT OF RS.30,68,351/- SHOULD BE DIRECTED TO BE REDUCED FROM THE INCOME ASSESSED BY THE ASSESSING OFFICER, IS NOT ACCEPTED FOR THE FOLLOWIN G REASONS :- (A) THE SEBI'S ORDER HAS BEEN PASSED ON 05.11.2 008, WHEREAS THE PREVIOUS YEAR IN THE IMPUGNED ASSESSMEN T ORDERS ENDED ON 31.03.2006. THEREFORE, THE SEBI'S O RDER HAS BEEN PASSED AFTER THE END OF THE PREVIOUS YEAR OF THE ASSESSMENT YEAR UNDER CONSIDERATION. (B) AS MENTIONED IN THE INSTANT APPELLATE ORDER , THE APPELLANT HAS ACQUIRED CERTAIN SHARES IN THE IPOS B Y FRAUDULENT AND ILLEGAL METHODS. THEREFORE, 'PAYMENT MADE OR ANY EXPENDITURE INCURRED FOR THE SETTLEMENT OF S UCH FRAUDULENT AND ILLEGAL METHODS, CANNOT BE ALLOWED A S DEDUCTION IN THE INCOME TAX PROCEEDINGS IN VIEW OF THE PROVISO TO SECTION 37(1) OF THE I.T. ACT. (C) THE GAIN OF RS.30,68,351/- IS THE UNLAWFUL GAIN , AS IS EVIDENT FROM SEBI'S ORDER DATED 05.11.2008. THE APP ELLANT HAS AGREED TO CONSENT TERMS AND MADE THE PAYMENT THEREOF, IN ORDER TO GET REVOKED THE DIRECTIONS MAD E IN THE INTERIM ORDER DATED 27.04.2006, PASSED BY SEBI. ANY PAYMENT MADE FOR REGULARIZING SUCH FRAUDULENT AND I LLEGAL ITA NO.573/AHD/2010 (5 APPEALS) SMT. REETABEN R. THAKKAR AND SHRI MONAL Y. THAKKAR VS.ACIT 9 TRANSACTIONS, CAN NOT BE ALLOWED AS DEDUCTION IN IN COME TAX PROCEEDINGS. 16. IN VIEW OF THE ABOVE, THE ADDITIONAL GROUND OF APPEAL IS TREATED AS DISMISSED. IN THE RESULT, THE APPEAL IS TREATED AS PARTLY ALLOWED. 17. IN THE RESULT, THE APPEAL IS TREATED AS PARTLY ALLOWED. 12. IN VIEW OF THE ABOVE DISCUSSIONS, FOUR ISSUES E MERGE OUT FOR OUR ADJUDICATION, NAMELY, (A) WHETHER THE GAIN ARISEN TO BOTH THE ASSESSEES ON PU RCHASE AND SALE OF SHARES IS TO BE ASSESSED UNDER THE HEAD CAPITAL GAINS OR BUSINESS INCOME ? (B) WHETHER AFTER DISGORGEMENT OF RS.30,98,785/- BY SMT.REETABEN R. THAKKAR AND RS.29,17,331/- BY SHRI MONAL Y. THAKKAR, NO AMOUNTS LEFT IN THEIR HANDS, THEREFO RE, WHETHER THE INCOME TO THIS EXTEND IS TO BE ASSESSED IN THE HANDS OF BOTH THESE ASSESSEES, EITHER UNDER THE HEA D BUSINESS INCOME OR UNDER THE HEAD CAPITAL GAINS ?; (C) IF THE INCOME IS ASSESSED UNDER THE HEAD BUSINESS I NCOME, THEN WHETHER THE AMOUNT OF DISGORGEMENT OF RS.30,98,785/- PAID BY SMT.REETABEN R. THAKKAR AND RS.29,17,331/- PAID BY SHRI MONAL Y. THAKKAR ALONG WITH SETTLEMENT CHARGES OF RS.6,20,215/- AND RS.5,83,669 /- PAID BY THESE ASSESSEES IS TO BE ALLOWED AS BUSINESS LOS S ? (D) THAT EVEN IF INCOME OF RS.30,98,785/- AND RS.29,17, 331/- IS TO BE EXCLUDED FROM THE HANDS OF BOTH THESE ASSE SSES, BEING NOT RECEIVED IN VIEW OF SEBI ORDERS, THEN WHE THER THE SETTLEMENT CHARGES OF RS.6,20,215/- AND RS.5,83,669 /- ARE TO BE ALLOWED TO THE ASSESSEES, VIZ. SMT.REETABEN R . THAKKAR AND SHRI MONAL Y. THAKKAR RESPECTIVELY ? ITA NO.573/AHD/2010 (5 APPEALS) SMT. REETABEN R. THAKKAR AND SHRI MONAL Y. THAKKAR VS.ACIT 10 13. THE LD.COUNSEL FOR THE ASSESSEE, WHILE IMPUGNIN G THE ORDERS OF THE CIT(A) CONTENDED THAT THE ACTIVITY OF THE ASSESSEE IN THE PURCHASE AND SALE OF SHARES IS OF INVESTMENT IN THE SHARES, AND IT CANNOT BE ASSESSED UNDER THE HEAD BUSINESS INCOME. ALTERNATIVELY, O N THE STRENGTH OF SEBI ORDER, HE CONTENDED THAT NO INCOME ULTIMATELY RESULTED TO BOTH THE ASSESSEE, THEREFORE, THE AMOUNT OF RS. RS.30,98,785 /- AND RS.29,17,331/- IS TO BE EXCLUDED FROM THE ASSESSMEN TS OF BOTH THESE ASSESSEES, RESPECTIVELY IN THE ASSTT.YEAR 2006-07. HE FURTHER CONTENDED THAT CAPITAL GAIN IS ASSESSED UNDER THE H EAD BUSINESS INCOME BY THE LD.CIT(A). CONSEQUENTLY, LOSS ON AC COUNT OF REPAYMENT OF THIS INCOME TO THE SEBI IS TO BE ALLOWED TO THE ASSESSEES. THE PAYMENT HAS BEEN MADE IN THE ASSTT.YEAR 2009-10, TH EREFORE, THIS AMOUNT IS TO BE ALLOWED TO THE ASSESSEES IN THE ASS TT.YEAR 2009-10. 14. AS FAR AS THE SETTLEMENT CHARGES ARE CONCERNED, HE CONTENDED THAT PAYMENT WAS NOT MADE FOR VIOLATION OF ANY LAW. IT WAS PAID FOR SETTLEMENT OF DISPUTE WITH THE SEBI AND IT IS COMPE NSATORY IN NATURE. IT DOES NOT COME WITHIN THE AMBIT OF EXPLANATION -1 APPENDED TO SECTION 37 OF THE INCOME TAX ACT. THEREFORE, THE SETTLEMEN T CHARGES PAID BY THESE ASSESSEES DESERVE TO BE ALLOWED TO THE ASSESS EES. IN SUPPORT OF HIS CONTENTIONS, HE RELIED UPON THE ORDER OF THE IT AT, MUMBAI IN THE CASE OF KAIRA CAN COMPANY LTD. VS. DCIT, 127 TTJ 51 4 (MUM). 15. ON THE OTHER HAND, THE LD.DR RELIED UPON THE OR DERS OF THE REVENUE AUTHORITIES BELOW. SHE CONTENDED THAT SEBI ORDER WAS PASSED AFTER THE END OF THE ACCOUNTING PERIOD, AND THEREFO RE, BEFORE THE SEBI ORDER, THE INCOME HAD RESULTED TO BOTH THE ASSESSEE S. ASSESSEES HAVE MADE INVESTMENT OF RS.4 CRORES AND RS.2.8 CRORES BY FINANCING BENAMI INVESTORS. THIS SHOWS THEIR MODUS OPERANDI AND HOW THEY HAVE UNDERTAKEN THE ACTIVITY IN AN ORGANIZED MANNER. IT IS TO BE ASSESSED AS BUSINESS INCOME. SHE FURTHER CONTENDED THAT AS FAR AS SETTLEMENT ITA NO.573/AHD/2010 (5 APPEALS) SMT. REETABEN R. THAKKAR AND SHRI MONAL Y. THAKKAR VS.ACIT 11 CHARGES ARE CONCERNED, THESE ARE PAID BY THE ASSESS EE IN VIOLATION OF SEBI RULES. THESE ARE IN VIOLATION OF RULES, AND T HEREFORE, NOT COMPENSATORY IN NATURE. ALTERNATIVELY, SHE CONTEND ED THAT IF THE ALTERNATIVE CONTENTION OF THE ASSESSEES IS ACCEPTED BY THE REVENUE, THEN THERE IS NO INCOME LEFT WITH THE ASSESSEE, AGA INST WHOM THEY CAN CLAIM SETTLEMENT CHARGES. 16. WE HAVE DULY CONSIDERED RIVAL CONTENTIONS, AND GONE THROUGH THE RECORD CAREFULLY. FROM THE FINDINGS OF THE SEBI, I T IS IMPLICIT CLEAR THAT BOTH THE ASSESSEES HAVE INDULGED IN VIOLATION OF SE BI REGULATIONS, WHILE MAKING INVESTMENTS IN IPOS. WHATEVER AMOUNTS THEY HAVE ILLEGALLY EARNED, WHICH COULD BE ASSESSED AS THEIR INCOME, HA S BEEN TAKEN AWAY FROM THEM. THEY HAVE ALREADY DISGORGED THE AMOUNT, THOUGH, THE PAYMENT WAS MADE AFTER THE CLOSE OF ACCOUNTING YEAR , AND EVEN AFTER PASSING OF THE ASSESSMENT ORDER. BUT THESE PAYMEN TS RELATED TO SAME SHARE TRANSACTIONS, WHICH HAVE GIVEN RISE TO THE AL LEGED INCOME IN THE HANDS OF THE ASSESSEE. THE APPEAL BEFORE THE CIT(A ) IS A CONTINUATION OF THE ORIGINAL PROCEEDINGS. BEFORE THE CIT(A), THE ASSESSEE HAVE ALREADY TAKEN ADDITIONAL GROUNDS OF APPEAL ON THE S TRENGTH OF THE SEBI ORDER. THEREFORE, WE FIND FORCE IN THE CONTENTIONS OF THE LD. COUNSEL FOR THE ASSESSEE THAT ULTIMATELY NO INCOME HAS RESULTED TO THE ASSESSEES, OUT OF THESE SHARE TRANSACTIONS. THE INCOME OF RS. 30,98,785/- AND RS.29,17,331/- IS TO BE EXCLUDED FROM THE HANDS OF SMT.REETABEN R. THAKKAR AND SHRI MONAL Y. THAKKAR RESPECTIVELY IN T HE ASSTT.YEAR 2006- 07. 17. AS FAR AS THE CLAIM OF THE ASSESSEE WITH REGARD TO SETTLEMENT CHARGES ARE CONCERNED, WE FIND THAT THERE IS NO COR RESPONDING INCOME AGAINST THIS EXPENDITURE. THE INCOME, WHICH WE HAV E ALREADY EXCLUDED, THEREFORE, THE ASSESSEES CANNOT CLAIM THE EXPENDITU RE, BECAUSE, THE EXPENDITURE HAS TO BE INCURRED FOR EARNING SOME INC OME. ONCE THE ITA NO.573/AHD/2010 (5 APPEALS) SMT. REETABEN R. THAKKAR AND SHRI MONAL Y. THAKKAR VS.ACIT 12 INCOME IS NOT FORM PART OF THE TOTAL INCOME, THEN A GAINST THAT ACTIVITY, HOW THE ASSESSEE CAN CLAIM THAT EXPENDITURE ? APAR T FROM THE ABOVE, WE FIND THAT THE ORDER OF THE ITAT IN THE CASE OF K AIRA CAN COMPANY LTD. (SUPRA) IS ALTOGETHER ON DIFFERENT FOOTINGS, R ATHER, IT IS AGAINST THE ASSESSEES. THE TRIBUNAL HAS CONSIDERED THE EXPRESS ION OF OFFENCE AND MADE THE FOLLOWING DISCUSSION: 20. THE WORD OFFENCE HAS NOT BEEN DEFINED IN THE ACT. AS PER WEBSTERS ENCYLOPEDIC ABRIDGED DICTIONARY, IT MEANS VIOLATION OR BREACH OF LAW OR RULE; A TRANSGRESSION OF THE CRIMI NAL LAW, ESPECIALLY ONE WHICH IS NOT FELONY; A CAUSE OF TRAN SGRESSION. AS PER BLACKS LAW DICTIONARY, IT MEANS,A VIOLATION OF THE LAW; A CRIME, OFTEN A MINOR ONE. AS PER ILLUSTRATED OXFORD DICTIONARY, IT MEANSILLEGAL ACT OR A TRANSGRESSION. A PERUSAL OF THE ABOVE DEFINITIONS CLEARLY SHOWS TH AT IF THERE IS A BREACH OR VIOLATION OF LAW OR RULE THEN IT IS TO BE TREATED AS OFFENCE. 21. IN THE PRESENT CASE, ADMITTEDLY, THE ASSESSEE I S GOVERNED BY THE PROVISIONS OF SEBI ACT. CERTAIN REGULATIONS WER E MADE UNDER THIS ACT WHICH ARC CALLED AS SEBI (SUBSTANTIAL ACQU ISITION OF SHARES AND TAKEOVERS) REGULATIONS, 1997. UNDER THES E REGULATIONS, THE ASSESSEE WAS ADMITTEDLY REQUIRED T O MAKE CERTAIN DISCLOSURES AND NON-COMPLIANCE OF THE SAME WAS LIABLE TO PENALTY NOT EXCEEDING RS. 5,000 FOR EVERY DAY DURIN G WHICH SUCH NON COMPLIANCE CONTINUED. IN ADDITION, SUCH PERSONS ARE ALSO LIABLE FOR PROSECUTION UNDER S. 24 OF THE SEBI ACT. IN VIEW OF THE ABOVE PROVISIONS, IT IS CLEAR BEYOND DOUBT THAT NON -DISCLOSURE UNDER THE REGULATIONS OF 1997 WOULD AMOUNT TO VIOLA TION OF LAW OR THE RULE WHICH, IN TURN, WOULD AMOUNT TO AN OFFENCE . THEREFORE, IF ANY PAYMENT IS TO BE MADE BY WAY OF PENALTY UNDER T HE PROVISIONS OF S. 15 A OF SEBI ACT, THEN SUCH PAYMEN T CANNOT BE ALLOWED AS DEDUCTION UNDER S. 37 R/W EXPLANATION. 18. IN THE CASE OF KAIRA CAN COMPANY LTD. (SUPRA), THE TRIBUNAL RECORDED A FINDING THAT THE PAYMENT WAS BY THE COMP ANY TO REGULARIZE DEFAULT, WHICH HAD OCCURRED ON ACCOUNT OF OVERSIGHT AND LACK OF KNOWLEDGE. THE SEBI HAS ISSUED A SCHEME PERMITTING SUCH DEFAULTERS TO MAKE PAYMENT IN ORDER TO OVERCOME THAT DEFAULT. THUS, THE ITA NO.573/AHD/2010 (5 APPEALS) SMT. REETABEN R. THAKKAR AND SHRI MONAL Y. THAKKAR VS.ACIT 13 PAYMENTS WERE NOT MADE IN VIOLATION OF CERTAIN PENA LTY PROVISIONS. IN THE PRESENT CASE, NO SUCH PAYMENT WAS MADE BY THE A SSESSEES. THE ASSESSEES HAVE FINANCED CERTAIN FICTITIOUS ENTITIES AND BENAMI PERSONS TO APPLY FOR IPOS. THERE MODUS OPERANDI IS AGAINST SEBI REGULATONS, PARTICULARLY, SECTION 12A OF THE SEBI ACT, AND THER EFORE, THE PAYMENT WAS ON ACCOUNT OF VIOLATION OF PROVISIONS OF SEBI. THE ASSESSEES CANNOT CLAIM THAT THESE PAYMENTS ARE COMPENSATORY IN NATUR E. FOR THESE REASONS WE DO NOT FIND ANY FORCE IN THE CONTENTIONS OF THE ASSESSEES. 19. AS FAR AS THE APPEAL OF THE REVENUE IN THE CASE OF SMT.REETABEN R. THAKKAR IS CONCERNED, THE LD.FIRST APPELLATE AUT HORITY HAS HELD THAT AMOUNT OF RS.5,48,385/- IS TO BE ASSESSED AS SHORT TERM CAPITAL GAIN. WE FIND THAT THE LD.CIT(A) HAS RECORDED A SPECIFIC FINDING THAT INVESTMENT TO THIS IS A BONA FIDE INVESTMENT OF THE ASSESSEES, AND IT HAS NO LINK WITH THE OTHER IPOS INVESTMENTS. AN ASSESS EE COULD BE TRADER AND INVESTOR AT THE SAME TIME. FOR THE INVESTMENT IN IPOS. THROUGH FICTITIOUS ENTITIES WAS CONSIDERED BY THE CIT(A) AS ORGANIZED BUSINESS ACTIVITY, AND REST WAS AS A SIMPLE INVESTMENT. THE LD.CIT(A) HAS RIGHTLY TREATED THE ASSESSEES AS INVESTOR QUA THE SURPLUS A MOUNT OF RS.5,48,385/-. THEREFORE, WE DO NOT FIND FORCE IN THE APPEAL OF THE REVENUE. THIS GROUND OF APPEAL IS REJECTED. 20. IN THE RESULT, THE ITA NO.573/AHD/2010 AND 574/ AHD/2010 IS PARTLY ALLOWED, WHEREAS, THE ITA NO.786/AHD/2010 IS DISMISSED. 21. AS FAR AS THE APPEALS OF THE ASSESSEES I.E. ITA NO.555/AHD/2010 AND 554/AHD/2010 FOR THE ASSTT.YEAR 2009-10 ARE CON CERNED, THESE ARE CONSEQUENTIAL APPEALS. WE HAVE HELD THAT A SUM OF RS.30,98,785/- AND RS.29,17,331/- ARE TO BE EXCLUDED FROM THE TAXABLE INCOME OF THE ASSESSEES IN THE ASSTT.YEAR 2006-07, ON THE GROUND THAT THIS INCOME HAS ULTIMATELY NOT RESULTED TO THE ASSESSEES. IN T HIS YEAR, BOTH THE ASSESSEES HAVE CLAIMED EXPENDITURE ON ACCOUNT OF PA YMENTS OF THESE ITA NO.573/AHD/2010 (5 APPEALS) SMT. REETABEN R. THAKKAR AND SHRI MONAL Y. THAKKAR VS.ACIT 14 AMOUNTS TO THE SEBI. SINCE WE HAVE ALREADY EXCLUD ED THESE AMOUNTS FROM THE TAXABLE INCOME OF THE ASSSSEES IN THE ASST T.YEAR 2006-07, RESULTANTLY, THE ASSESSEES CANNOT CLAIM EXPENDITURE IN THE ASSTT.YEAR 2009-10 I.E. THE YEAR OF PAYMENT. 22. IN VIEW OF THE ABOVE, WE DO NOT FIND ANY MERIT IN THE APPEALS OF THE ASSESSEES. 21. WE SUMMARIZE THE RESULT AS UNDER: I) THE ITA NO.573/AHD/2010 AND ITA NO.574/AHD/2010 FOR THE ASSTT.YEAR 2006-07 ARE PARTLY ALLOWED. II) THE ITA NO.554/AHD/2010, ITA NO.555/AHD/2010 AND IT A NO.786/AHD/2010 ARE DISMISSED. ORDER PRONOUNCED IN THE COURT ON 24 TH JULY, 2015 AT AHMEDABAD. SD/- SD/- (G.D. AGRAWAL) VICE-PRESIDENT (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 24 /07/2015