SAMEER SAMPAT, MUMBAI V. ADDL DIT (IT) RG 2, MUMBAI

ITA 6359/MUM/2012

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9681 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 9 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 05-11-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 17-10-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Transactions in derivatives; Earning of tax free income; Accommodation entries
• Section: 143(3); 14A; 133(6)

Judgement Text

1 INCOME TAX APPELLATE TRIBUNAL, BENCH E, MUMBAI BEFORE SHRI P.K.BANSAL, VICE PRESIDENT AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO 6359/MUM/2012 FOR ASSESSMENT YEAR 2009-10 IN THE MATTER OF SAMEER SAMPAT, THEKKER &THEKKER , 109-D, MAHENDRA INDUSTRIAL ESTATE, 612, A EMBASSY CENTER, NARIMAN POINT,MUMBAI-400021 PAN: AAEPS4095B ----------- APPELLANT VERSUS ADDITIONAL DIRECTOR OF INCOME TAX INTERNATIONAL TAXATION, RANGE -2 MUMBAI ---------- RE SPONDENT APPELLANT THROUGH : SH. VIPUL JOSHI (AR) RESPONDENT THROUGH : DR. A.K. NAYAK - DR RESERVE FOR ORDER: 15 JUNE 2017 DATE OF PRONOUNCEMENT: 31 JULY 2 017 ORDER UNDER SECTION 254(1) OF INCOME-TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER ; 1. THIS APPEAL BY ASSESSEE UNDER SECTION 253 OF INCOME -TAX ACT IS DIRECTED AGAINST THE ORDER OF COMMISSIONER (APPEALS)-11, MUM BAI, DATED 12.07.2012 FOR ASSESSMENT YEAR 2009-10. THE ASSESSE E HAS RAISED FOLLOWING GROUNDS OF APPEAL: (I) THE LEARNED COMMISSIONER (APPEALS) ERRED IN CONFIRM ING ADDITION OF RS.4,91,561/- ON ACCOUNT OF DISALLOWANCE UNDER SECT ION 14A READ WITH RULE 8D. 2 (II) THE LEARNED COMMISSIONER (APPEALS) ERRED IN CONFIRM ING DISALLOWANCE OF FUTURE & OPTIONS (F&O) LOSS OF RS. 18,09,360/-WITHO UT CONSIDERING THE FACTS AVAILABLE ON RECORD . 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PROPRIETOR OF M/S T&T CONSULTING, A CONSULTING FIRM ON CORPORATE AND MANA GEMENT AFFAIRS, FILED RETURN OF INCOME FOR RELEVANT ASSESSMENT YEAR ON 29 SEPTEMBER 2009 DECLARING TOTAL INCOME OF RS. 1,82,66,900/-. THE AS SESSMENT WAS COMPLETED ON 27 DECEMBER 2011 UNDER SECTION 143(3). THE ASSES SING OFFICER WHILE FRAMING ASSESSMENT ORDER THE DISALLOWED RS. 4,91,5 61/- UNDER SECTION 14A AND RS. 18,09,889/- ON ACCOUNT OF LOSS IN F&O TRANS ACTION OF. ON APPEAL BEFORE COMMISSIONER (APPEALS) BOTH THE ADDITION/DIS ALLOWANCE WAS CONFIRMED. THUS, FURTHER AGGRIEVED BY THE ORDER OF COMMISSIONER (APPEALS) THE ASSESSEE HAS FILED PRESENT APPEAL. 3. WE HAVE HEARD THE LEARNED AR OF THE ASSESSEE AND TH E LEARNED AND DR FOR THE REVENUE AND PERUSED THE MATERIAL AVAILABLE ON R ECORD. FIRST GROUND OF APPEAL RELATES TO DISALLOWANCE UNDER SECTION 14A RE AD WITH RULE 8D. THE LEARNED AR OF THE ASSESSEE ARGUED THAT DURING THE A SSESSMENT YEARS THE ASSESSEE RECEIVED DIVIDEND INCOME OF RS. 6,19,683/- IN HIS PROPRIETARY CONCERN/ FIRM AND DIVIDEND INCOME OF RS.66,29,260/ - IN HIS PERSONAL ACCOUNT FROM THE INVESTMENT MADE BY HIM. THERE WAS NO DIRECT EXPENSE INCURRED IN RELATION TO EARNING OF DIVIDEND INCOME AS THE DIVIDEND INCOME WAS RECEIVED THROUGH ECS IN HIS ACCOUNT. THE ASSESS EE WAS HAVING SUFFICIENT INTEREST FREE FUND AVAILABLE WITH HIM IN HIS ACCOUNT. THE ASSESSEE 3 VOLUNTARILY OFFERED REASONABLE DISALLOWANCE IS OF E XPENDITURE UNDER SECTION 14A. THE ASSESSING OFFICER BEFORE MAKING THE DISALL OWANCE HAS NOT REJECTED THE WORKING OF THE VOLUNTARY DISALLOWANCE MADE BY A SSESSEE AND / OR THE ASSESSING OFFICER HAS NOT RECORDED HIS DISSATISFACT ION ABOUT THE ASSESSEES CLAIM REGARDING THAT NO EXPENDITURE WAS INCURRED IN RELATION TO EXEMPT INCOME. THE LEARNED AND AR OF THE ASSESSEE RELIED U PON THE DECISION OF BOMBAY HIGH COURT IN RELIANCE UTILITY REPORTED VIZ 313 ITR 340 (BOMBAY) AND HDFC BANK AND THE LATEST DECISION OF HONBLE AP EX COURT IN GODREJ AND BOYCE MANUFACTURING COMPANY LTD VERSUS DCIT REP ORTED IN [2017]81 TAXMAN.COM111(SC). ON THE OTHER HAND THE L EARNED AND DR FOR THE REVENUE SUPPORTED THE ORDER OF AUTHORITIES BELO W. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE PART IES AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE LOWER AUTHORIT IES HAVE NOT DISPUTED THE QUANTUM OF DIVIDEND INCOME. THE ASSESSING OFFICER H AS NOT RECORDED THE DISSATISFACTION ABOUT THE CORRECTNESS OF ASSESSEES CLAIM ABOUT THE VOLUNTARY DISALLOWANCE OFFERED BY ASSESSEE FOR EARNING THE EX EMPT INCOME. THE ASSESSING OFFICER HAS NOT MENTIONED AS TO HOW, THE ASSESSING OFFICER CAME TO THE CONCLUSION FOR DISALLOWANCE OF RS. 4,91,561/-. WE HAVE SEEN THAT THE ASSESSEE OWNED RS.1.92/- CRORE AS ON 31 MARCH 2009 IN HIS CAPITAL ACCOUNT. THE ASSESSEE MADE THE INVESTMENT FROM HIS OWN FUNDS IS NOT DISPUTED BY LOWER AUTHORITIES. THE HONBLE JURISDICTIONAL HIGH COURT IN CASE OF 4 RELIANCE UTILITIES AND POWER LTD. REPORTED IN 313 I TR 340 (BOMBAY) HELD THAT: IF THERE BE INTEREST FREE FUNDS AVAILABLE TO THE A SSESSEE WHICH ARE SUFFICIENT TO MEET THE INVESTMENT AND ADDED THE SAME TIME THE ASS ESSEE HAS RAISED A LOAN, IT CAN BE PRESUMED THAT INVESTMENT WERE FROM THE INTER EST FREE FUNDS AVAILABLE . FURTHER THE HONBLE DELHI HIGH COURT IN CASE TITLED AS JOINT INVESTMENT PRIVATE LTD. VS. CIT IN ITA NO. 117/2015 DECIDED ON 25.02.2 015, WHILE RELYING ON TAIKISHA ENGINEERING (SUPRA) PERTINENTLY OBSERVED: THUS, SECTION 14A(2) OF THE ACT AND RULE 8D(1) IN UNISON AND AFFIRMATIVELY RECORD THAT THE COMPUTATION OR DISALL OWANCE MADE BY THE ASSESSEE OR CLAIM THAT NO EXPENDITURE WAS INCURRED TO EARN EXEMPT INCOME MUST BE EXAMINED WITH REFERENCE TO THE ACCOU NTS, AND ONLY AND WHEN THE EXPLANATION/CLAIM OF THE ASSESSEE IS NOT S ATISFACTORY, COMPUTATION UNDER SUB RULE (2) TO RULE 8D OF THE RU LES IS TO BE MADE. ADMITTEDLY NO SUCH DISSATISFACTION IS RECORDED BY A O AND LD. CIT(A) IGNORED THE RELEVANT INGREDIENT OF SUB-RULE (1) OF RULE 8D OF THE ACT. HOWEVER, CONSIDERING THE FACTS OF THE CASE THE ASSESSEE EARN ED SUBSTANTIAL AMOUNT OF DIVIDEND INCOME DURING THE RELEVANT ASSESSMENT YEAR , THE ASSESSEE MUST HAVE INCURRED SOME EXPANSES TO EARN SUCH INCOME, HENCE A REASONABLE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D WILL MEET THE E ND OF JUSTICE. THUS, CONSIDERING THE CIRCUMSTANCES OF THE FACTS WE RESTR ICT THE DISALLOWANCE UNDER SECTION 14A TO RS.50,000/- (FIFTY THOUSAND ONLY). A CCORDING TO OUR VIEW THE DISALLOWANCE OF RS.50,000/- (FIFTY THOUSAND ONLY) W OULD MEET THE END OF JUSTICE. WE ORDER ACCORDINGLY. IN THE RESULT THE GROUND NO .1 OF THE APPEAL IS PARTLY ALLOWED. 5 5. THE GROUND NO. 2 RELATES TO THE DISALLOWANCE ON ACC OUNT OF F &O LOSS OF RS. 18,09,360/-. THE LEARNED AR OF THE ASSESSEE ARG UED THAT DURING THE ASSESSMENT PROCEEDING THE ASSESSEE FILED ALL DOCUME NTS RELATING TO THE F&O TRANSACTION CARRIED THROUGH M/S ALLIANCE INTERMEDIA RIES AND NETWORK PRIVATE LIMITED INCLUDING THE COPY OF BILLS, CONTRA CT NOTE OF THE BROKER AND THE BANK STATEMENT SHOWING THAT PAYMENTS WERE MADE THROUGH BANKING TRANSACTION. DURING THE ASSESSMENT PRECEDING THE AS SESSING OFFICER ISSUED NOTICE UNDER SECTION 133(6) THE NATIONAL STOCK EXCH ANGE AND SHARE BROKER TO VERIFY THE GENUINENESS OF THE TRANSACTION. IN RE SPONSE TO THE ABOVE NOTICE M/S ALLIANCE INTERMEDIARIES AND NETWORK PRIVATE LIM ITED THE REPLIED THAT THEY ARE IN NOT IN A POSITION TO FILE DETAILS AS AL L THE DOCUMENTS WERE SEIZED BY THE INCOME TAX DEPARTMENT DURING THE SEARCH ACTI ON CARRIED OUT AT THEIR PREMISES. HOWEVER, THE NATIONAL STOCK EXCHANGE REPL IED THAT M/S ALLIANCE INTERMEDIARIES AND NETWORK PRIVATE LIMITED WAS A RE GISTERED SUB-BROKER AFFILIATED TO M/S ISE SECURITIES AND SERVICES A REG ISTERED TRADING MEMBER OF EXCHANGE. IT WAS FURTHER MENTIONED IN THE REPLY THA T REGISTRATION OF M/S ALLIANCE INTERMEDIARIES AND NETWORK PRIVATE LIMITED WAS CANCELLED IN FEBRUARY 2004, THUS NO DETAILS WERE AVAILABLE WITH THE EXCHANGE. THE ASSESSEE DISCHARGES PRIMARY ONUS AND ESTABLISHED AN D SUBSTANTIATED THE GENUINENESS OF TRANSACTION. THE ASSESSEE PROVED THE IDENTITY THROUGH WHICH THE TRANSACTIONS WERE MADE AND THE ASSESSEE WAS HAV ING CAPACITY. THE 6 ASSESSING OFFICER DISALLOWED THE LOSS ONLY FOR THE REASONS THAT THE TRANSACTION OF ASSESSEE WAS NOT REFLECTED IN THE RE CORD OF STOCK EXCHANGE AND THE REGISTRATION OF THE SUB-BROKER WAS CANCELLE D IN THE YEAR 2004. IT WAS FURTHER ARGUED THAT M/S ALLIANCE INTERMEDIARIES AND NETWORK PRIVATE LIMITED NEVER REFUSED TO ACCEPT THAT THEY HAVE NOT CARRIED OUT THE FUTURE AND OPTION TRANSACTION ON BEHALF OF ASSESSEE. M/S A LLIANCE INTERMEDIARIES WAS MERELY SUB-BROKER AFFILIATED TO MAIN BROKER AS MENTIONED BY NATIONAL STOCK EXCHANGE IN ITS REPLY TO THE ASSESSING OFFICE R. THE ASSESSING OFFICER DISALLOWED THE CLAIM OF ASSESSEE ONLY BASED ON THE BASIS OF MERE SUSPICION. NO DISALLOWANCE CAN BE MADE SOLELY ON THE GROUND TH AT THE TRANSACTION WERE NOT REFLECTED IN THE STOCK EXCHANGE. IT WAS VE HEMENTLY ARGUED THAT THERE IS NO LAW WHICH PROHIBITS THE OFF MARKET TRAN SACTION FOR FUTURE AND OPTION SECTIONS. THE LEARNED AR FINALLY ARGUED THAT THE LOSS OF THE ASSESSEE WAS LIABLE TO BE ALLOWED. ON THE OTHER HAND THE LEA RNED AND AR FOR THE REVENUE SUPPORTED THE ORDER OF AUTHORITIES BELOW. I T WAS FURTHER ARGUED THAT THE BROKER THROUGH WHICH THE ASSESSEE TRANSACTED BE LONGS TO MUKESH CHOKSI GROUP. MUKESH CHOKSI IN HIS STATEMENT RECORD ED BY INVESTIGATING TEAM CATEGORICALLY STATED THAT HE WAS MERELY AN ENT RY PROVIDER. THE STATEMENT OF MUKESH CHOKSI FURTHER REVEALED THAT HE USED TO CHARGE 2 TO 5% COMMISSION ON PROVIDING THE ENTRY. 7 6. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE PART IES AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE AO MA DE THE DISALLOWANCE OF LOSS CLAIMED ON ACCOUNT OF F&O TRANSACTIONS, HOLDIN G THAT ASSESSEE CLAIMED THE TRANSACTION OF F&O THROUGH M/S ALLIANCE INTERME DIARIES AND NETWORK PRIVATE LIMITED, THE SHARE BROKER REGISTERED WITH N SE. AND ON NOTICE TO THE NSE UNDER SECTION 133(6), THE NSE REPLIED THAT THE REGISTRATION OF M/S ALLIANCE INTERMEDIARIES AND NETWORK PRIVATE LIMITED WAS CANCELLED ON FEBRUARY 19, 2004. THE AO FURTHER CONCLUDED THAT TH E TRANSACTION OF F&O OFF THE MARKET IS NOT POSSIBLE AND DISALLOWED THE C LAIM OF LOSS HOLDING IT AS BOGUS. THE LD CIT(A) WHILE CONSIDERING THIS ISSUE O BSERVED THAT TRIBUNAL HAS ALREADY HELD THAT M/S ALLIANCE INTERMEDIARIES A ND NETWORK PRIVATE LIMITED AND THAT MUKESH CHOKSHI GROUP ARE ENGAGED I N PROVIDING ACCOMMODATION ENTRIES. THE LD CIT(A) ALSO RELIED ON THE STATEMENT OF MUKESH CHOKSHI RECORDED ON 11.12.2009 BY DDIT(INV.) , UNIT I (4), MUMBAI, WHEREIN HE HAS ADMITTED TO HAVE ENGAGED IN PROVIDING ACCOMMODATION ENTRIES. MUKESH CHOKSHI ALSO ADMITTED TO HAVE FLOATED M/S ALLIANCE INTERMEDIARIES AND NETWORK PRIVATE LIMITED . THE LD CIT(A) FURTHER OBSERVED THAT MUKESH CHOKSHI OFFERED BUSINE SS INCOME OF ENTRY PROVIDER WHICH HAS BEEN ACCEPTED BY THE REVENUE FOR THE ASSESSMENT YEAR 2007-08 BY ACIT IN ITS ORDER UNDER SECTION 143(3) D ATED 12.11.2008. ON THE BASIS OF THE ABOVE OBSERVATION THE LD CIT(A) UP HELD THE ACTION OF AO. 8 WE HAVE NOTED THAT NEITHER THE AO NOR LD CIT(A) GAV E FINDING ON THE DOCUMENTARY EVIDENCES FURNISHED BY ASSESSEE. THE AO AND THE LD CIT (A) RELIED ON THE REPORT OF INVESTIGATION WING OF UNIT -4 DDIT, MUMBAI. THE COPY OF THE STATEMENT OF MUKESH CHOKSHI RECORDED BY INVESTIGATION WING WAS NOT PROVIDED TO THE ASSESSEE. NO OPPORTUNITY T O CROSS EXAMINATION OF MUKESH CHOKSI WAS PROVIDED TO THE ASSESSEE. CONSIDE RING THE SUBMISSION OF LD AR FOR THE ASSESSEE THAT THERE IS NO PROHIBIT ION OF F & O TRANSACTION E OFF THE MARKET. WE RESTORE THIS GROUND OF APPEAL TO THE FILE OF AO TO CONSIDER THE ISSUE AND PASS THE ORDER AFRESH IN ACC ORDANCE WITH LAW, AFTER CONSIDERING THE DOCUMENTARY EVIDENCES FURNISHED BY THE ASSESSEE. NEEDLESS TO SAY THAT THE AO SHALL GRANT SUFFICIENT OPPORTUNI TY TO THE ASSESSEE BEFORE PASSING THE ORDER. HENCE, THIS GROUND OF APPEAL IS ALLOWED FOR STATISTICAL PURPOSE. 7. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY ALLO WED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST JULY 2017. (P.K.BANSAL) (PAWAN SINGH) (VICE PRESIDENT) (JUDICIAL MEMBER) MUMBAI; DATED 31/07/2017 COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT.REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY/