GILTEDGE FINANCIAL AND MANAGEMENT SERVICES, MUMBAI V. ITO 4(1)(2), MUMBAI

ITA 6117/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9212 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 10-12-2012
• Assessment Year: 2003-2004
• Appeal Filed On: 09-08-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PARVATHY IYER
• Keywords: Notional interest

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G, MUMBAI BEFORE SHRI RAJENDRA SINGH , ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER ITA NO. 6117/MUM/2010 (ASSESSMENT YEAR: 2003-04) ITA NO. 6118/MUM/2010 (ASSESSMENT YEAR: 2004-05) GILTEDGE FINANCIAL AND MANAGEMENT SERVICES, 103, LIBERTY APT., 80-A SAROJINI ROAD, VILE PARLE (WEST), MUMBAI-400 056 PAN: AABCG 1699 K VS INCOME-TAX OFFICER, WARD- 4(1)(2), AAYAKAR BHAVAN, MUMBAI-400 020 (APPELLANT) (RESPONDENT) APPELLANT BY : MS PARVATHY IYER RESPONDENT BY : SHRI MOHIT JAIN DATE OF HEARING :10-12-2012 DATE OF PRONOUNCEMENT :19-12-2012 O R D E R PER VIVEK VARMA, JM: THE TWO APPEALS FILED BY THE ASSESSEE FOR THE ASSESSMEN T YEARS 2003-04 & 2004-05 ARISE FROM THE TWO ORDERS OF CIT(A) 8, MUMBAI DATED 17.05.2010. AS THE ISSUES AND GROUNDS OF APPEAL AR E IDENTICAL, WE FOR THE SAKE OF CONVENIENCE AND BREVITY, ARE PASSING A CONSOLIDATED ORDER FOR BOTH THE ASSESSMENT YEARS. 2. THE AR POINTED THAT DETAILED DISCUSSION HAS BEEN MADE IN THE ASSESSMENT YEAR 2003-04, WE, THEREFORE, ARE TAKING UP AS SESSMENT YEAR 2003-04. 3. THE FOLLOWING GROUNDS HAVE BEEN TAKEN UP BY THE ASSE SSEE FOR BOTH THE ASSESSMENT YEARS: GILTEDGE FINANCIAL AND MANAGEMENT SERVICES ITA NOS. 6117 AND 6118/MUM/2010 2 1. THE LEARNED CIT(A)-8 ERRED IN CONFIRMING THE ADD ITION OF RS 1,00,000/- ON ACCOUNT OF BROKERAGE INCOME AS AT THE YEAR END B Y CONSIDERING THE QUANTUM OF CLOSING STOCK IN TRADE AS ON 31 ST MARCH, 2002. 2. THE LEARNED CIT(A)-8 ERRED IN FAILING TO APPRECI ATE THAT APPLICANT WAS PROHIBITED FROM ENTERING INTO ANY TRANSACTIONS IN S HARES AND SECURITIES BY SEBI VIDE ITS ORDER DATED 16 TH MAY, 2002 SMO/8418/2002, EVEN THE BANK ACCOUNTS OF THE APPLICANT WERE FROZEN AS PER T HE DIRECTIONS OF C.B.I. AND THAT THE APPLICANT COULD NOT HAVE TRANSA CTED ANY BUSINESS OR EARNED ANY INCOME DURING THE ASSESSMENT YEARS UNDER REVIEW. 3. THE LEARNED CIT(A)-8 ERRED IN CONFIRMING THE ADD ITION OF RS 454366/- MADE BY THE ASSESSING OFFICER PURSUANT TO ESTIMATIO N OF NOTIONAL INTEREST ON INTEREST FREE ADVANCES. HE ERRED IN FA ILING TO APPRECIATE THAT THE LOANS AND ADVANCES AS ON AY 2002-03 WERE NON-IN TEREST BEARING AND NO INTEREST HAS BEEN EARNED BY THE APPLICANT IN ANY YEAR. 4. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEN D ANY OF THE GROUNDS OF APPEAL AND SUBMIT A DETAILED STATEMENT OF FACTS AND CASE LAWS RELIED UPON AT THE TIME OF THE HEARING. 4. THE FACTS OF THE CASE ARE THAT THE ASSESSEE WAS INV OLVED IN KETAN SHETH SECURITIES SCAM AND AS A CONSEQUENCE OF WHICH, TH E ASSESSEE WAS BARRED BY SEBI TO UNDERTAKE ANY BUSINESS ACTIVITY FORTHWITH. STOCK EXCHANGE AND SEBI ALSO, HAD CANCELLED THE ASSESSE E LICENSE TO ACT AND CONDUCT AS A SUB-BROKER, ITS BUSINESS OF SHARE TRADING. THE ASSESSEE BANK ACCOUNTS HAD BEEN FROZEN AND ALL AVENUES FOR BUSINESS WERE CLOSED. 5. IN THE BALANCE SHEET FILED WITH THE RETURN OF INCOME, TH E ASSESSEE HAD SHOWN ADVANCES AT RS. 45,43,660 AND CLOSING STOCK OF SHARES AT RS. 30,59,748. 6. IN THE ASSESSMENT PROCEEDINGS, THE ASSESSEE DID NOT PRESENT ITS CASE AS A CONSEQUENCE THEREOF, ASSESSMENT WAS FRAMED U /S 144, WHEREIN THE AO HELD, IN A.Y. 2002-03 AND CLOSING STOCK IN TRADE IS SHOW N AT RS. 30,59,748/- SIMILARLY THE LOANS AND ADVANCES GIVEN HAS BEEN SHO WN AT RS. 45,43,660/-. ASSUMING INTEREST ON LOAN AND ADVANCE S AT @ 10% A SUM OF RS. 4,54,366/- IS CONSIDERED AS INCOME FROM INTE REST. SIMILARLY CONSIDERING THE QUANTUM OF CLOSING STOCK IN TRADE, A SUM OF RS. 1,00,000/- IS ADDED AS BROKERAGE INCOME IN THE TOTA L INCOME OF THE ASSESSEE. GILTEDGE FINANCIAL AND MANAGEMENT SERVICES ITA NOS. 6117 AND 6118/MUM/2010 3 7. THE ONLY BASIS ADOPTED BY THE AO TO ARRIVE AT SUCH A DECISION WAS THAT NO DETAILS WERE FILED/SUBMITTED. SIMILAR DECISION WAS TAKEN IN THE SUBSEQUENT YEAR (WHICH IS ALSO IMPUGNED BEFORE THE ITAT). 8. THE ASSESSEE APPROACHED THE CIT(A), BEFORE WHOM, THE ASSESSEE FILED ALL THE DETAILS AND EVIDENCE THAT THE ASSESSEE WANTED TO FILE. IT W AS CONTENDED BY THE ASSESSEE THAT SEBI HAD PUT PROHIBITORY ORDER S ON THE ASSESSEE TO ENTER INTO ANY TRANSACTION IN SHARES AND S ECURITIES & HAD CANCELLED ITS REGISTRATION VIDE ORDER DATED 16.05.2002. SINCE ONE OF THE BROTHERS OF THE PROMOTERS OF THE ASSESSEE FIRM WAS ALSO ARRESTED, THE DETAILS COULD NOT BE FILED. IT WAS FURTHER POINTED OUT THAT E VEN THE BANK ACCOUNTS OF THE ASSESSEE FIRM WERE FROZEN BY CBI. 9. ON THE FACTS, IT WAS APPARENT, THE ASSESSEE COULD NOT HAVE ENTERED ANY TRANSACTION. BUT THE AO CONCLUDED AND FRAM ED THE ASSESSMENT AT AN ESTIMATED AN INCOME OF RS. 1,00,000 AS BROKERAGE O N CLOSING STOCK AND ESTIMATED INTEREST INCOME OF RS. 4,54,360 ON LOANS AND ADVANCES AT RS. 45,43,660. 10. THE CIT(A), DISREGARDED THE SUBMISSIONS AND HELD, I HAVE GONE THROUGH THE ORDER OF THE AO AND SUBMIS SIONS OF THE APPELLANT. THE APPELLANTS CONTENTION THAT IT COULD HAVE DONE ANY BUSINESS AS THE BANK ACCOUNT OF THE ASSESSEE HAD BE EN FROZEN BY THE GOVERNMENT AUTHORITIES AND SEBI CLASSIFIED THE ASSE SSEE AS RELATED TO SHRI. KETAN SHETH AND PROHIBITED IT FROM ENTERING I N TRANSACTION OF SHARES AND SECURITIES AND CANCELLED ITS REGISTRATIO N CERTIFICATE VIDE ORDER DATED 16 TH MAY, 2002 IS FOUND TO BE HALF-TRUTH. THE RESTRAINED ORDER OF SEBI VIDE ORDER DATED MAY 1 6, 2002 WAS OPERATIVE UPTO 30 TH MAY, 2002 WHICH IS OBVIOUS FROM PAGE 8 OF THE PAPER BOOK. THE ORDER OF SEBI DATED 28 TH MARCH, 2002 IS VALID ONLY UP TO 30 TH JUNE, 2002 AS IS OBVIOUS FROM PAGE 9 OF THE PAPER BOOK. THUS, IT IS OBVIOUS THAT THE APPELLANT WAS FREE TO DO BUS INESS AFTER 30 TH JUNE, 2002 . THE APPELLANTS SUBMISSIONS THAT THE BANK ACCOUNT W AS FROZEN, THEREFORE, IT COULD NOT DO BUSINESS IS FOUND TO BE NOT VALID AS THE APPELLANT COULD HAVE DONE BUSINESS BY OPENING ANOTH ER BANK ACCOUNT OR EVEN WITH OUT HAVING A BANK ACCOUNT. THE APPELLANTS SUBMISSION THAT LOANS AND ADVANCES IN THE BALANCE SHEET FOR A.Y. 2002-03 SHOW INTEREST FREE LOAN, DEP OSITS, TELEPHONE DEPOSITS, THEREFORE TAKING 10% OF THE SAME IS NOT C ORRECT. WHEN NO DETAIL IS FURNISHED BY THE APPELLANT, THE AO HAS NO OPTION BUT TO MAKE BEST JUDGMENT ASSESSMENT ON THE BASIS OF AVAILABLE ACCOUNT. GILTEDGE FINANCIAL AND MANAGEMENT SERVICES ITA NOS. 6117 AND 6118/MUM/2010 4 THE APPELLANTS SUBMISSION THAT LOANS AND ADVANCES IN THE BALANCE SHEET FOR A.Y. 2002-03 SHOW INTEREST FREE LOAN, STA FF LOAN, DEPOSITS, TELEPHONE DEPOSITS, THEREFORE TAKING 10% OF THE SAM E IS NOT CORRECT. WHEN NO DETAIL IS FURNISHED BY THE APPELLANT, THE A O HAS NOT OPTION BUT TO MAKE BEST JUDGMENT ASSESSMENT ON THE BASIS OF AV AILABLE RECORDS. THERE IS NOTHING TO SUGGEST THAT FRIENDLY LOAN OF R S. 38 LACS GIVEN TO SHRI. RAKESH CHANDAK WAS INTEREST-FREE EVEN DURING A.Y. 2003-04. THE AO HAS ESTIMATED THE INCOME ON THE BASIS OF FACTS A VAILABLE WITH FIRM. AS A MATTER OF FACT, THE APPELLANT HAD CAPITAL FUND OF RS. 28.35 LACS, THE LOAN FOUND OF RS. 11 LACS, THUS TOTAL FUND AVAILABL E BEING RS. 39.35 LACS. THE APPELLANT WAS FREE TO DO BUSINESS AND UNDER THE CIRCUMSTANCES ESTIMATING TOTAL INCOME AT RS. 5,54,366/- IS EXTREM ELY REASONABLE, ESPECIALLY, LOOKING IN TO THE FACT THAT THE ADVANCE TAX AND TDS FOR A.Y. 2000-01 WAS RS. 4,01,001/-. 11. THE ASSESSEE IS NOW BEFORE THE ITAT FOR BOTH THE IM PUGNED YEARS. 12. GROUNDS NO. 1 AND 2 : ADDITION OF BROKERAGE INCOME, AT RS. 1,00,000. 13. THE AR POINTED OUT THAT THE SEBI HAD BARRED THE ASSESSEE TO CONDUCT ANY BUSINESS. THE AO WHILE FRAMING THE ASSESSMEN T ESTIMATED BROKERAGE INCOME OF RS. 1,00,000 ON THE CLOSING S TOCK OF SHARES. 14. THE CIT(A), SUSTAINED THE ADDITION. 15. THE ASSESSEE IS NOW BEFORE THE ITAT. 16. BEFORE US, THE AR POINTED OUT THAT EVEN THIS ADDITION IS ENTIRELY BASED ON CONJECTURES AND SURMISES AND THE ADDITION HAS BEEN MADE ON ESTIMATED BASIS ON THE FROZEN STOCKS, SHOWING ONLY AS CLOSING STOCKS. EVEN THE BASIS OF ADDITION IS ESTIMATED INCOME. THE AR PLEADED THAT THE ADDITION CANNOT BE MADE BECAUSE THE ASSESSEE WAS STILL BARRED FROM CONDUCTING ANY BUSINESS AS THE PROCEEDING W ERE STILL PENDING BEFORE VARIOUS FORA. GILTEDGE FINANCIAL AND MANAGEMENT SERVICES ITA NOS. 6117 AND 6118/MUM/2010 5 17. THE DR RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES. 18. WE HAVE HEARD THE ARGUMENTS AND HAVE PERUSED THE ORDERS AND THE PAPER BOOK FILED BEFORE US AND WE FIND THAT THE ASSES SEE WAS BARRED FROM CONDUCTING ANY BUSINESS. WE CANNOT ACCEPT T HE CIT(A)S APPREHENSION THAT THE BAR FOR CONDUCT OF BUSINESS WAS R EMOVED ON 30.06.2006, AND THE ASSESSEE COULD HAVE OPENED ANY OTHE R ACCOUNT IN ANY OTHER BANK ACCOUNT. THIS ARGUMENT CANNOT BE ACCEP TED BECAUSE, THE ASSESSEE WAS INVOLVED IN THE SCAM PROCEEDINGS, WHERE A NUMBER OF FORA WERE INVOLVED AND THE ASSESSEE WAS BARRED AND THE BANKS HAD SUSPENDED THE ASSESSEE DEALINGS. 19. IN THESE CIRCUMSTANCES, WE SET ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE AO TO DELETE THE ADDITION MADE. GROUNDS NO. 1 AND 2 ARE, THEREFORE, ALLOWED. 20. GROUNDS NO. 3 AND 4 : ADDITION ON ACCOUNT OF NOTIONAL INTEREST AT RS. 4,54,366. 21. THE FACTS OF THE CASE WERE REITERATED BY THE AR B EFORE US AND POINTED OUT THAT BOTH THE ORDERS ARE ON CONJECTURES AND SURMISES AND BOTH THE IMPUGNED ADDITIONS ARE ON PRESUMPTIONS. IT WAS POINTED OUT THAT WHEN THE BAR WAS STILL SUBSISTING ON THE ASSESSEE T O CONDUCT ANY BUSINESS, THERE COULD BE NO PRESUMPTIVE BROKERAGE INCOM E. THE AR FURTHER POINTED OUT THAT SINCE THE BANKS WERE FROZEN AN D ASSESSEE BARRED FROM CONDUCTING ANY BUSINESS EVEN THE LOANS WERE STANDING AS SUCH AND THE REVENUE AUTHORITIES HAVE MADE THE ADDITION S ON PRESUMPTION OF NOTIONAL INTEREST ON CLOSING BALANCE, WHICH WA S THE CLOSING BALANCE OF THE PRECEDING YEAR AND OPENING BALANCE FOR THE CURRENT YEARS. GILTEDGE FINANCIAL AND MANAGEMENT SERVICES ITA NOS. 6117 AND 6118/MUM/2010 6 22. THE AR, THEREFORE, SUBMITTED THAT REVENUE AUTHORITIE S WERE WRONG TO MAKE THE IMPUGNED ADDITION. 23. THE DR RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES. 24. WE HAVE HEARD THE ARGUMENTS OF EITHER SIDE ON BOTH THE IMPUGNED ISSUES. WE FIND THAT THE REVENUE AUTHORITIES HAV E MADE THE ADDITION ON ACCOUNT OF ESTIMATED NOTIONAL INTEREST, BASED E NTIRELY ON SURMISES AND CONJECTURES THAT THE ASSESSEE COULD HAVE EARNED AN INTEREST. BUT THE FACTS SPEAK OTHERWISE, THAT IS, THE ENTIR E BUSINESS PROCEEDINGS OF THE ASSESSEE HAD BEEN BARRED AND ITS BA NKS WERE FROZEN AND ONE OF THE PARTNERS WAS BEHIND BARS ON THESE FACTS , IT WAS IMPOSSIBLE FOR THE ASSESSEE TO HAVE EARNED INTEREST. THE CREDITS OF RS. 45,43,660 HAD BEEN APPEARING AS CLOSING BALANCE AND SINCE ANY MOMENT WAS BARRED BY CBI AND OTHER STATUTORY AUTHOR ITIES, NO INTEREST COULD HAVE EVEN ACCRUED. THE AR HAS PLACED RELIANCE ON THE DECISION O F THE HONBLE GAUHATI HIGH COURT IN THE CASE OF KESHRICHAN D JAISUKHLAL VS CIT, REPORTED IN 248 ITR 47, WHEREIN THE HONBLE GAUH ATI HIGH COURT HAS HELD, IF THE ASSESSEE HAD NOT BARGAINED FOR INTEREST, OR HAD NOT COLLECTED INTEREST, THE INCOME TAX AUTHORITIES CANN OT FIX A NOTIONAL INTEREST AS DUE OR COLLECTED BY THE ASSESSEE. 25. WE ARE IN AGREEMENT WITH THE ARGUMENTS OF THE ASSES SEE, LOOKING INTO THE FACTUAL ASPECT OF THE CASE AND RESPECTFULLY RELY ING ON THE CITED CASE OF KESHRICHAND JAISUKHLAL (SUPRA), THAT WHEN THE ASSESSEE WAS BARRED FROM LOOKING INTO ITS FINANCIAL RECORDS, SUCH AS BANK ACCOUNTS, STOCKS ETC., THE QUESTION OF EARNING OF INTEREST CANNOT AR ISE. MOREOVER, THE AMOUNT IS COMING AS OPENING BALANCE FROM EARLIER YEAR , WHERE NO NOTIONAL INTEREST WAS ASSESSED AND THEREFORE, THE DEPART MENT, IN THIS YEAR, WAS NOT JUSTIFIED IN ASSESSING NOTIONAL INTEREST IN THE INSTANT YEARS ON THE SAME AMOUNT. GILTEDGE FINANCIAL AND MANAGEMENT SERVICES ITA NOS. 6117 AND 6118/MUM/2010 7 26. WE, THEREFORE, SET ASIDE THE ORDER OF CIT(A) AND DIR ECT THE AO TO DELETE THE ADDITION OF NOTIONAL INTEREST ADDED TO THE INC OME OF THE ASSESSEE AT RS. 4,54,366. 27. GROUNDS NO. 3 AND 4 ARE, THEREFORE, ALLOWED. 28. SINCE THE FACTS, ADDITIONS AND GROUNDS ARE IDENTICAL IN ASSESSMENT YEAR 2004-05, APPEAL FOR ASSESSMENT YEAR 20 04-05 IS ALSO ALLOWED. 29. THE APPEALS FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH DECEMBER, 2012. SD/- SD/- (RAJENDRA SINGH) (VIVEK VARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI: 19 TH DECEMBER, 2012 COPY TO: 1) THE APPELLANT 2) THE RESPONDENT 3) THE CIT (A)-8, MUMBAI. 4) THE CIT -4, MUMBAI 5) THE DR, G BENCH MUMBAI BY ORDER / / TRUE COPY / / ASST. REGISTRAR, ITAT, MUMBAI *CHAVAN