Appeal details
Counselvise Citation
[2018] 119 COUNSELVISE.COM (IT) 1244 (ITAT-KOLKATA)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
7 month(s) 19 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
28-11-2018
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
A
Assessment Year
2013-2014
Appeal Filed On
09-04-2018
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : KOLKATA [BEFORE HONBLE SHRI S.S.GODARA, JM & HONBLE SHRI M.BALAGANESH, AM] I.T.A NO. 846/KOL/2017 I.T.A. NO. 637/KOL/2018 ASSESSMENT YEAR : 2013-1 4 MARUTI TRADERS & INVESTORS -VS- ACIT, CIRCLE-3 1, KOLKATA [PAN: AAQFM 9294 C] (APPELLANT) (RESPONDENT) FOR THE APPELLANT : SHRI D.S. DAMLE, A R SHRI S.D. VERMA, AR FOR THE RESPONDENT : SHRI P.K. SRIHARI, C IT DR SHRI SAURABH KUMAR, ADDL. CIT SR. DR DATE OF HEARING : 13.11.2018 DATE OF PRONOUNCEMENT : 28.11.2018 ORDER PER M.BALAGANESH, AM ITA NO. 846/KOL/2017 ASSESSEE APPEAL 1. THIS APPEAL BY THE ASSESSEE ARISES OUT OF THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-10, KOLKATA [IN SHORT THE LD CI T(A)] IN APPEAL NO.18/CIT(A)- 2 ITA NO.846/KOL/2017 ITA NO.637/KOL/2018 MARUTI TRADERS & INVESTORS A.YR. 2013-14 2 10/C-35/2016-17/KOL DATED 16.02.2017 AGAINST THE ORDER PASSED BY ACIT, CIRCLE-35, KOLKATA [ IN SHORT THE LD AO] UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 22.03.2016 FOR THE ASSESSME NT YEAR 2013-14. 2. THE FIRST ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LD CITA WAS JUSTIFIED IN UPHOLDING THE DISALLOWANCE MADE U/S 14A OF THE A CT IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 2.1. THE BRIEF FACTS OF THIS ISSUE ARE THAT THE ASS ESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF TRADING IN SECURITIES AND DERIVATIVES O N STOCK EXCHANGE THROUGH THEIR BROKER. THE RETURN OF INCOME FOR THE ASST YEAR 2013-14 WAS FILED BY THE ASSESSEE ON 29.9.2013 DECLARING TOTAL LOSS OF RS 1,65,13,565/-. THE ASSE SSEE OFFERED A SUM OF RS 10,329/- FOR DISALLOWANCE U/S 14A OF THE ACT IN THE RETURN OF IN COME AS EXPENSES INCURRED FOR EARNING EXEMPT INCOME. THE ASSESSEE FIRM DERIVED DIVIDEND INCOME OF RS 30,03,253/- AND CLAIMED THE SAME AS EXEMPT IN THE RETURN OF INC OME. THE ASSESSEE HELD ALL THE SHARES AS STOCK IN TRADE AND DID NOT POSSESS ANY SHARES AS INVESTMENTS. THE LD AO SHOW CAUSED THE ASSESSEE AS TO WHY DISALLOWANCE U/S 14A OF THE ACT SHOULD NOT BE MADE IN ACCORDANCE WITH THE METHOD PRESCRIBED IN RULE 8D(2) OF THE INCOME TAX RULES. THE ASSESSEE EXPLAINED THAT SINCE THE SHARES ARE HELD B Y IT ONLY AS STOCK IN TRADE, THE DIVIDEND INCOME EARNED THEREON IS A BY-PRODUCT OF S HARE TRADING OPERATIONS AND THAT NO PURCHASE AND SALE OF SHARES WERE MADE WITH A SPECIF IC MOTIVE TO EARN DIVIDEND. THE FIRM HAD EARNED DIVIDEND DUE TO ITS DAY TO DAY OPERATION S WHICH WERE CARRIED OUT IN ITS NORMAL COURSE OF BUSINESS AND NO SPECIFIC EXPENDITU RE WAS INCURRED BY THE FIRM FOR THE PURPOSE OF EARNING SUCH DIVIDEND INCOME, EXCEPT THE DEPOSITORY CHARGES AMOUNTING TO RS 10,329/- WHICH MAY BE ASSUMED AS INDIRECT EXPENS ES RELATED TO THE DIVIDEND EARNED. IT WAS ALSO SUBMITTED THAT THE SAID SUM OF RS 10,32 9/- WAS VOLUNTARILY OFFERED BY THE ASSESSEE FOR DISALLOWANCE IN THE RETURN OF INCOME. IT WAS EXPLAINED THAT THE INTEREST DEBITED IN THE PROFIT AND LOSS ACCOUNT TO THE TUNE OF RS 6,12,03,084/- REPRESENTS INTEREST 3 ITA NO.846/KOL/2017 ITA NO.637/KOL/2018 MARUTI TRADERS & INVESTORS A.YR. 2013-14 3 PAID ON BORROWED FUNDS UTILIZED FOR THE PURPOSE OF BUSINESS ACTIVITIES OF THE FIRM AND ARE SPECIFICALLY ADMISSIBLE EXPENSES. THE LD AO HOWEVE R DISREGARDED THE CONTENTIONS OF THE ASSESSEE AND BY PLACING RELIANCE ON THE SPECIAL BENCH DECISION OF MUMBAI TRIBUNAL IN THE CASE OF ITO VS DAGA CAPITAL MANAGEMENT P LTD REPORTED IN 117 ITD 169 AND HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF DH ANUKA & SONS VS CIT REPORTED IN 339 ITR 319 (CAL) ARRIVED AT THE AVERAGE OF SHARES HELD AS STOCK IN TRADE AND APPLIED 0.5% THEREON AND MADE DISALLOWANCE U/S 14A OF THE A CT IN THE SUM OF RS 28,41,850/-. 2.2. THE ASSESSEE CLEARLY POINTED OUT FROM ITS AUDI TED FINANCIAL STATEMENTS FOR THE YEAR UNDER CONSIDERATION AS WELL AS IN THE SUBSEQUENT AS SESSMENT YEARS THAT IT HAD RETAINED THE INVESTMENTS ONLY AS STOCK IN TRADE. THE ASSESS EE FIRM STRONGLY OBJECTED THE NATURE OF BUSINESS MENTIONED BY THE LD AO IN THE FIRST PAGE O F THE ASSESSMENT ORDER THAT NATURE OF BUSINESS IS TRADING & INVESTMENT IN SHARES AS AGA INST THE TRUE NATURE OF BUSINESS OF THE FIRM CONSISTING OF TRADING IN SHARES , COMMODI TIES AND CURRENCY DERIVATIVES. THE ASSESSEE PLEADED THAT WHEN THE SHARES ARE HELD AS STOCK IN TRADE , THE COMPUTATION MECHANISM PROVIDED IN RULE 8D OF THE RULES WOULD FA IL AND HENCE THE SAME SHOULD NOT BE APPLIED. THE LD CITA OBSERVED THAT THE ONUS IS CAST UPON THE ASSESSEE TO DEMONSTRATE FIRSTLY THAT THE INVESTMENT IN SHARES H AVE BEEN MADE OUT OF OWN FUNDS AND SECONDLY TO DEMONSTRATE THE ONE TO ONE CORRELATION BETWEEN THE FUNDS AVAILABLE AND FUNDS DEPLOYED IN THE INVESTMENT, WHICH HAS NOT BEE N DONE BY THE ASSESSEE IN THE INSTANT CASE. ACCORDINGLY, HE UPHELD THE ACTION OF THE LD AO IN MAKING THE DISALLOWANCE U/S 14A OF THE ACT IN THE SUM OF RS 28,41,850/- . AGGRI EVED, THE ASSESSEE IS IN APPEAL BEFORE US. 2.3. WE HAVE HEARD THE RIVAL SUBMISSIONS. AT THE OU TSET, WE FIND FROM THE AUDITED ACCOUNTS OF THE ASSESSEE, THAT THE SHARES WERE HELD AS STOCK IN TRADE BY THE ASSESSEE AND NOT AS INVESTMENTS. HENCE THE COMPUTATION MECHANIS M PROVIDED IN RULE 8D OF THE RULES CANNOT BE APPLICABLE. WE FIND THAT THE LD AO THOUGH HAD NOT MENTIONED THAT THE 4 ITA NO.846/KOL/2017 ITA NO.637/KOL/2018 MARUTI TRADERS & INVESTORS A.YR. 2013-14 4 DISALLOWANCE HAS BEEN MADE IN ACCORDANCE WITH THIRD LIMB OF RULE 8D(2) OF THE RULES EXPLICITLY IN HIS ORDER, HOWEVER, RESORTED TO TAKE THE COMPUTATION MECHANISM PROVIDED THEREIN AT 0.5% OF AVERAGE VALUE OF INVESTMENTS. W E HOLD THAT SINCE RULE 8D OF THE RULES CONTEMPLATES CONSIDERATION OF AVERAGE VALUE O F INVESTMENTS ONLY AND NOT AS STOCK IN TRADE, THE SAME CANNOT BE ADOPTED IN THE FACTS O F THE INSTANT CASE. NOW IT IS WELL SETTLED BY THE HONBLE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENTS REPORTED IN 402 ITR 640 (SC) THAT THE DISALLOWANCE U/S 14A OF T HE ACT IS TO BE MADE EVEN IF THE SHARES ARE HELD AS STOCK IN TRADE. SINCE RULE 8D CA NNOT BE ADOPTED HEREIN, THE DISALLOWANCE SHOULD BE MADE BASED ON THE ACCOUNTS O F THE ASSESSEE. 2.3.1. WE FIND THAT THE HONBLE SUPREME COURT IN TH E CASE CITED SUPRA IN PARA 39 OF THE ORDER HAD ALSO OBSERVED THAT EVENTHOUGH THE DIVIDEN D HAS BEEN EARNED AS AN INCIDENTAL ACTIVITY IN RESPECT OF SHARES HELD AS STOCK IN TRAD E, IT TRIGGERS THE APPLICABILITY OF SECTION 14A OF THE ACT AND DEPENDING UPON THE FACTS OF EACH CASE, THE EXPENDITURE INCURRED IN ACQUIRING THOSE SHARES AND MAINTAINING THOSE SHARES WOULD HAVE TO BE APPORTIONED BETWEEN TAXABLE AND EXEMPT INCOME. THE LD AR PLACE D RELIANCE ON THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF D CIT VS S.G. INVESTMENTS & INDUSTRIES LTD REPORTED IN 89 ITD 44 (KOL) DATED 29.5.2003 WHE REIN THE LD AO DETERMINED THE SUM OF RS 19,14,940/- OUT OF TOTAL INTEREST PAID OF RS 3,69,36,637/- AS INTEREST RELATABLE TO EARNING OF EXEMPTED DIVIDEND BY WORKING OUT THE PER CENTAGE OF DIVIDEND VIS A VIS TOTAL TURNOVER DURING THE YEAR. THE DIVIDEND EARNED IN T HAT CASE WAS RS 41,38,924/- WHICH WORKED OUT TO 5.27% OF TOTAL EARNINGS AND ACCORDING LY PROPORTIONATE INTEREST DEBITED IN PROFIT AND LOSS ACCOUNT AT THE SAME PERCENTAGE WAS DISALLOWED U/S 14A OF THE ACT IN THAT CASE. THIS ACTION OF THE LD AO WAS UPHELD BY THIS T RIBUNAL. THE LD AR BEFORE US STATED THAT THE NAME OF S.G. INVESTMENTS & INDUSTRIES LTD GOT CHANGED TO ISG TRADERS LTD. WE FIND THAT THIS TRIBUNAL DECISION DATED 29.5.2003 H AD BEEN UPHELD BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF ISG TRADER S LTD VS CIT IN ITA NO. 264 OF 2003 DATED 22.9.2011. HENCE BY RESPECTFULLY FOLLOWING T HE SAID DECISION , WE HOLD THAT THE 5 ITA NO.846/KOL/2017 ITA NO.637/KOL/2018 MARUTI TRADERS & INVESTORS A.YR. 2013-14 5 EXPENDITURE TO BE DISALLOWED U/S 14A OF THE ACT IS TO BE WORKED OUT IN THE SIMILAR FASHION. WE FIND THAT THE LD AR HAD FAIRLY PLACED THE WORKINGS OF THE SAID DISALLOWANCE IN PAGE 156 OF THE PAPER BOOK WHICH IS REPRODUCED A S UNDER:- 2.3.2. ACCORDINGLY WE HOLD THAT THE DISALLOWANCE U/ S 14A OF THE ACT SHOULD BE RESTRICTED TO RS 2,74,633/- IN THE FACTS AND CIRCUMSTANCES OF THE INSTANT CASE IN THE LIGHT OF THE AFORESAID DECISION OF HONBLE JURISDICTIONAL HIGH C OURT. ACCORDINGLY, THE GROUNDS 1(A) TO 1(C ) RAISED BY THE ASSESEE ARE PARTLY ALLOWED. 6 ITA NO.846/KOL/2017 ITA NO.637/KOL/2018 MARUTI TRADERS & INVESTORS A.YR. 2013-14 6 3. THE GROUND NOS. 2(A) AND 2(B) RAISED BY THE ASSE SSEE WAS STATED TO BE NOT PRESSED BY THE LD AR AT THE TIME OF HEARING. ACCORDINGLY THE SAME ARE DISMISSED AS NOT PRESSED. 4. THE NEXT ISSUE TO BE DECIDED IN THIS APPEAL IS A S TO WHETHER THE LD CITA WAS JUSTIFIED IN CONFIRMING THE ADDITION MADE IN THE SUM OF RS 2, 09,85,684/- AS UNEXPLAINED CASH CREDIT AND UNEXPLAINED EXPENDITURE TOWARDS ALLEGED COMMISSION IN THE SUM OF RS 2,55,273/- IN THE FACTS AND CIRCUMSTANCES OF THE CA SE. 4.1. THE BRIEF FACTS OF THIS ISSUE ARE THAT THE ASS ESSEE PURCHASED THE SHARES OF M/S TUNI TEXTILE MILLS LIMITED IN ASST YEAR 2013-14 FOR RS 3,00,68,816/- AND SOLD THE SAME IN ASST YEAR 2013-14 ITSELF FOR RS 5,10,54,500/-. THE ASSESSEE OFFERED THE GAINS DERIVED ON SALE OF SHARES AS ITS BUSINESS INCOME. SINCE TH E MAIN ACTIVITY OF THE ASSESSEE IS TRADING IN SHARES, THE GAINS RECEIVED ON SALE OF SH ARES OF M/S TUNI TEXTILE MILLS LIMITED WAS ALSO OFFERED TO TAX BY THE ASSESSEE AS INCOME F ROM BUSINESS IN THE RETURN OF INCOME. THE LD AO OBSERVED THAT THE ASSESSEE WAS INVOLVED I N A LONG DRAWN PROCESS OF RIGGING OF STOCK MARKET PRICES IN COLLUSION WITH THE VARIOU S ENTRY OPERATORS. HE OBSERVED THAT THE ASSESSEE HAD INVESTED IN THE SHARES OF M/S TUNI TEXTILE MILLS LIMITED, A COMPANY, NOT HAVING ANY SOUND FINANCIAL POSITION OR BUSINESS ACTIVITY SO AS TO JUSTIFY THE HUGE GAINS IN ISSUE. THE CASES OF SUMATI DAYAL VS. CIT 214 ITR 801 (SC) AND CIT VS. DURGA PRASAD MORE (1971) 82 ITR (SC) WERE QUOTED IN SUPPORT TO PLEAD THAT THE ASSESSEE HAD ACTED IN COLLUSION WITH VARIOUS ENTRY OPERATORS FOR THE PURPOSE OF BOGUS LTCG IN ISSUE. THIS OBSERVATION OF LD AO WAS ADMITTEDLY BASED ON T HE REPORT OF THE INVESTIGATION WING OF KOLKATA INCOME TAX DEPARTMENT. THE ASSESSEE SP ECIFICALLY PLEADED BEFORE THE LD AO IN THE ASSESSMENT PROCEEDINGS THAT IT HAD NOT OF FERED ANY SHORT TERM CAPITAL GAINS ON SALE OF SHARES AT CONCESSIONAL RATE OF TAX NOR HAD CLAIMED ANY EXEMPTION TOWARDS LONG TERM CAPITAL GAINS AS ALLEGED BY THE LD AO. THE A SSESSEE STATED BEFORE THE LD AO THAT IT HAD DECLARED A SUM OF RS 2,09,85,684/- AS PROFIT IN SHARE TRADING EARNED ON SHARES OF 7 ITA NO.846/KOL/2017 ITA NO.637/KOL/2018 MARUTI TRADERS & INVESTORS A.YR. 2013-14 7 M/S TUNI TEXTILE MILLS LTD DURING ASST YEAR 2013-14 WHICH WAS OFFERED TO TAX AS BUSINESS INCOME BY THE ASSESSEE. THE ASSESSEE SUBM ITTED THE FOLLOWING DETAILS :- A) LEDGER ACCOUNT OF M/S TUNI TEXTILE MILLS LTD AS APPEARING IN THE BOOKS OF THE ASSESSEE FOR THE ASST YEAR 2013-14. B) SCRIP WISE LEDGER ACCOUNT OF TUNI TEXTILE MILLS LTD AS APPEARING IN THE BOOKS OF BROKER M/S EUREKA STOCK & SHARE BROKING SERVICES LT D FOR ASST YEAR 2013-14. C) DEMAT TRANSACTION STATEMETN OF TUNI TEXTILE MILL S LTD, UNNO INDUSTRIES LTD AND COMP DISC IN . D) LEDGER ACCOUNT OF EUREKA STOCK & SHARE BROKING S ERVICES LTD AS APPEARING IN THE BOOKS OF THE ASSESSEE FOR THE MONTHS OF JULY & NOVE MBER 2012 . E) COPIES OF BANK STATEMENT OF RELEVANT PAGES WHERE IN PAYMENTS MADE TO EUREKA STOCK & SHARE BROKING SERVICES LTD ARE HIGHLIGHTED. F) COPIES OF CONTRACT NOTES RELATED TO TRANSACTIONS REGARDING TUNI TEXTILE MILLS LTD. 4.2. IT WAS SPECIFICALLY POINTED OUT THAT THE ASSES SEE HAD PURCHASED AND SOLD THE SHARES OF TUNI TEXTILE MILLS LTD AT PREVAILING MARKET PRIC ES ON THE DATE OF PURCHASE AND SALE OF SHARES. THE ASSESSEE ALSO GAVE THE HIGH , LOW, AVE RAGE PRICE OF SHARES OF TUNI TEXTILE MILLS LTD, NUMBER OF SHARES TRADED, NUMBER OF TRADE S, OPENING RATE OF SHARE, CLOSING PRICE OF SHARE , QUANTITY ETC ON THE RELEVANT DATES IN JULY AND NOV 2012. THE ASSESSEE ALSO REQUESTED THE LD AO TO PROVIDE THE COPY OF TRA NSACTION DETAILS / EVIDENCES AVAILABLE WITH THE REVENUE AUTHORITIES, IF ANY, SEBI ORDER E TC AS MENTIONED IN THE SHOW CAUSE NOTICE TO ENABLE IT TO MAKE FURTHER SUBMISSIONS IN THE MATTER. WITHOUT PREJUDICE TO THE ABOVE, THE ASSESSEE ALSO SUBMITTED THAT THERE WERE NO BOGUS PURCHASES / SALES TRANSACTIONS CARRIED OUT BY IT AND ACCORDINGLY PLEA DED THAT NO ADVERSE INFERENCE BE DRAWN ON THE THIRD PARTY DOCUMENTS SUBMITTED BY THE ASSESSEE. THE LD AO HOWEVER, DID NOT HEED TO THE CONTENTIONS OF THE ASSESSEE AND CLA SSIFIED THE RELEVANT SCRIP AS PENNY 8 ITA NO.846/KOL/2017 ITA NO.637/KOL/2018 MARUTI TRADERS & INVESTORS A.YR. 2013-14 8 STOCK AND SIMPLY RELIED ON THE INVESTIGATION REPORT OF KOLKATA INCOME TAX DEPARTMENT BY ALLEGING THAT THE ASSESSEE WAS INVOLVED IN PRICE RIGGING OF SHARES ARTIFICIALLY WHICH THE RELEVANT COMPANY DID NOT DESERVE WITH A MALIGN INTENTION TO EITHER DERIVE EXEMPT LONG TERM CAPITAL GAINS OR SHORT TERM CAPITAL LOSS SO AS TO EVADE PAYMENT OF TAXES. ACCORDINGLY, HE PROCEEDED TO TREAT THE PROFIT FROM SALE OF SHARES AS INGENUINE BY STATING THAT THE ASSESSEE HAD CONNIVED WITH ITS BROKERS AND ENTRY OPERATORS FOR ARTIFICIAL PRICE RIGGING OF SHARE PRICES AND THEREBY LEGALIZED HIS U NACCOUNTED MONEY IN THE FORM OF SALE PROCEEDS OF SHARES. HENCE HE TREATED THE GAINS RECE IVED ON SALE OF SHARES OF RS 2,09,85,684/- AS UNEXPLAINED CASH CREDIT U/S 68 OF THE ACT AND TAXED UNDER INCOME FROM OTHER SOURCES IN THE ASSESSMENT. HE ALSO ADDED THE CORRESPONDING EXPENDITURE OUGHT TO HAVE INCURRED BY THE ASSESSEE FOR OBTAINING THESE B OGUS CREDITS AND ADDED COMMISSION AT THE RATE OF 0.50 PER RS 100 AND MADE ADDITION TO WARDS UNEXPLAINED EXPENDITURE IN THE SUM OF RS 2,55,273/- (5,10,54,500 * 0.5%) . IN EFFE CT, HE MADE AN ADDITION OF RS 2,12,40,957/- ( 2,09,85,684+2,55,273) UNDER THE HEA D INCOME FROM OTHER SOURCES. 4.3. THE LD AO COMPUTED THE TOTAL INCOME OF THE ASS ESSEE AS UNDER:- NET LOSS FOR THE YEAR AS CLAIMED IN THE RETURN OF I NCOME (-) 1,65,13,565 PROFIT AND GAINS FROM SPECULATIVE BUSINESS ADD: (I) DISALLOWANCE U/S 14A 28,41,850 (II) DISALLOWANCE U/S 94(7) 22,415 -------------- 28,64,265 -------------------- ASSESSED INCOME (-) 1,36,49,300 UNEXPLAINED CASH CREDIT U/S 68 FOR TRADING IN BOGUS PENNY STOCK 2,12,40,957 _____________ 9 ITA NO.846/KOL/2017 ITA NO.637/KOL/2018 MARUTI TRADERS & INVESTORS A.YR. 2013-14 9 4.4. THE ASSESSEE SUBMITTED BEFORE THE LD CITA THAT ADDITION MADE TOWARDS UNEXPLAINED CASH CREDIT IN THE SUM OF RS 2,09,85,684/- WAS ALRE ADY INCLUDED BY THE ASSESSEE IN THE RETURNED LOSS FIGURE OF (-) RS 1,65,13,565/- AND T AXING THE SAME ONCE AGAIN U/S 68 OF THE ACT AMOUNTED TO DOUBLE TAXATION. THE ASSESSEE EFFEC TIVELY CONTESTED THE FOLLOWING ADDITIONS / DISALLOWANCES BEFORE THE LD CITA :- TAXING OF ALREADY OFFERED INCOME RS 2,09,85,684 DISALLOWANCE U/S 14A RS 28,41,850 DISALLOWANCE U/S 94(7) RS 22,415 UNEXPLAINED CASH CREDIT U/S 68 FOR TRADING IN BOGUS PENNY STOCK RS 2,09,85,684 UNEXPLAINED COMMISSION FOR TRADING IN BOGUS PENNY STOCK RS 2,55,273 4.5. THE LD CITA DID NOT CONSIDER THE AFORESAID CON TENTIONS OF THE ASSESSEE AND DISMISSED THE APPEAL BY UPHOLDING THE ASSESSMENT FR AMED IN THE HANDS OF THE ASSESSEE. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 4.6. WE HAVE HEARD THE RIVAL SUBMISSIONS. AT THE OU TSET, WE FIND THAT THE LOWER AUTHORITIES HAD PROCEEDED ON AN ERRONEOUS ASSUMPTIO N THAT THE ASSESSEE HAD CLAIMED BOGUS LONG TERM CAPITAL GAINS AS EXEMPT OR BOGUS SH ORT TERM CAPITAL LOSS WITH A VIEW TO EVADE PAYMENT OF TAX ON SALE OF SHARES OF M/S TUNI TEXTILE MILLS LTD. FACTUALLY, WE FIND THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS O F TRADING IN SHARES AND HAD PRACTICALLY TRADED IN 191 SCRIPS DURING THE YEAR UNDER CONSIDER ATION. WE FIND THAT THE ASSESSEE HAD EARNED PROFIT OF RS 2,09,85,684/ ON SALE OF SHARES OF M/S TUNI TEXTILE MILLS LTD AND HAD OFFERED THE SAME AS BUSINESS INCOME IN THE RETURN O F INCOME. INFACT WE ALSO FIND THAT THE ASSESSEE HAD INCURRED LOSS FROM TRADING IN SHAR ES AND SECURITIES TO THE TUNE OF RS 8,81,58,685/- AFTER ADJUSTING THE PROFIT OF RS 2,09 ,85,684/- ON SALE OF SHARES OF TUNI TEXTILE MILLS LTD. IN EFFECT, THE ASSESSEE DURING THE YEAR HAD INCURRED LOSS ON TRADING OF 10 ITA NO.846/KOL/2017 ITA NO.637/KOL/2018 MARUTI TRADERS & INVESTORS A.YR. 2013-14 10 SHARES UNDER THE HEAD BUSINESS TO THE TUNE OF RS 10,91,44,369/-. THE LD AO HAD ACCEPTED THE TRANSACTIONS OF TRADING IN SHARES IN R ESPECT OF 190 SCRIPS AS FALLING UNDER THE HEAD BUSINESS. THE DOCUMENTATION MAINTAINED BY THE ASSESSEE IS THE SAME FOR ALL THE 191 SCRIPS AND WHEN THE SAID DOCUMENTS ARE ACCEPTED BY THE LD AO FOR 190 SCRIPS, THERE IS NO REASON TO DISBELIEVE THE SAME FOR SHARES OF T UNI TEXTILE MILLS LTD ALONE. THERE IS ABSOLUTELY NO DISPUTE THAT THE ASSESSEE HAD DULY FI LED THE REQUISITE DOCUMENTS IN CONNECTION WITH THE PURCHASE AND SALE OF SHARES AS DETAILED SUPRA AND THAT THE PRICES THEREON WERE MARKET DRIVEN. APART FROM THIS, THE AS SESSEE HAD ALSO EARNED PROFIT FROM TRADING IN COMMODITIES TO THE TUNE OF RS 24,40,680/ - DURING THE YEAR UNDER CONSIDERATION AMONG OTHER INDIRECT INCOMES IN THE F ORM OF INTEREST, DIVIDEND AND INTEREST ON IT REFUND. WE FIND THAT THE LD AO CALLED FOR TH E DETAILS ON PURCHASE AND SALE OF SHARES OF TUNI TEXTILE MILLS LTD IN THE QUESTIONNAI RE ISSUED ALONG WITH NOTICE U/S 142(1) OF THE ACT WHICH ARE ENCLOSED IN PAGES 49 TO 50 OF THE PAPER BOOK WHICH WAS SPECIFICALLY ON THE POINT OF CLAIM OF LONG TERM CAP ITAL GAINS AND SHORT TERM CAPITAL LOSS. WE FIND THAT THE ASSESSEE HAD CLARIFIED BEFORE THE LD AO MORE THAN ONCE IN WRITING THAT IT HAD NOT CLAIMED ANY LONG TERM CAPITAL GAINS AS E XEMPT OR CLAIMED ANY SHORT TERM CAPITAL LOSS IN THE RETURN OF INCOME. THE EVIDENCES IN THIS REGARD ARE ENCLOSED IN PAGES 51 TO 56 OF PAPER BOOK. SINCE THE LOWER AUTHORITIE S HAD PROCEEDED ON AN ERRONEOUS ASSUMPTION THAT THE ASSESSEE HAD CLAIMED BOGUS LONG TERM CAPITAL GAINS AS EXEMPT OR INCURRED SHORT TERM CAPITAL LOSS WITH A VIEW TO EVA DE TAX, THE ENTIRE FINDINGS GIVEN BY THEM IN THEIR RESPECTIVE ORDERS BECOMES TOTALLY IRR ELEVANT. MOREOVER, WE FIND THAT THE LOWER AUTHORITIES GROSSLY ERRED IN MAKING AN ADDITI ON IN THE SUM OF RS 2,09,85,684/- TWICE IN VIEW OF THE FACT THAT THE LD AO HAD STARTE D THE COMPUTATION OF INCOME FROM NET LOSS AS PER PROFIT AND LOSS ACCOUNT AND THAT THE SAID NET LOSS OF RS 1.65 CRORES IS AFTER CREDITING RS 2.09 CRORES PROFIT ON SALE OF SH ARES OF TUNI TEXTILE MILLS LTD. MOREOVER, WE FIND THE ISSUE OF GAINS ARISING OUT OF SHARES OF TUNI TEXTILE MILLS LTD HAD BEEN THE SUBJECT MATTER OF ADJUDICATION BY THIS TRI BUNAL IN THE CASE OF SMT. SAVITA BHURA 11 ITA NO.846/KOL/2017 ITA NO.637/KOL/2018 MARUTI TRADERS & INVESTORS A.YR. 2013-14 11 VS DCIT IN ITA NO. 12/KOL/2017 DATED 19.9.2018 FOR ASST YEAR 2013-14 WHEREIN IT WAS HELD AS UNDER:- 3. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUG H THE FACTS AND CIRCUMSTANCES OF THE CASE. AT THE TIME OF HEARING, LD. AR BROUGH T TO OUR NOTICE THAT IN A SIMILAR CASE WHEREIN THE ASSESSEE HAD PURCHASED SHARES OF M/S. T UNI TEXTILE MILLS LTD. AND SOLD THE SAME IN AY 2013-14 THE TRIBUNAL HAS DELETED THE ADD ITION IN THE CASE OF KIRAN KOTHARY, HUF VS. ITO IN ITA NO. 443/KOL/2017, AY 2013-14 BY ORDER DATED 15.11.2017 WHEREIN THE TRIBUNAL IN THAT CASE HAS HELD THAT SALE OF SHA RES OF M/S. TUNI TEXTILE MILLS LTD. WAS A GENUINE TRANSACTION. THE LD. DR, ON THE OTHER HA ND, COULD NOT CONTROVERT THIS FACT WHICH WAS BROUGHT TO OUR NOTICE IN RESPECT OF SALE OF SHARES OF M/S. TUNI TEXTILES MILLS LTD. THAT THE TRIBUNAL IN SIMILAR CASE FOR THE SAME ASSESSMENT YEAR HAS DEALT SIMILAR ADDITION MADE BY THE AO/LD. CIT(A) IN RESPECT OF T HE CLAIM OF THE ASSESSEE OF LTCG ON SALE OF SHARE OF M/S. TUNI TEXTILE MILLS LTD. WH ICH IS REPRODUCED AS UNDER: 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RECORDS. WE NOTE THAT IN THE PRESENT CASE, THE APPELLANT HAD PURCHASED 13 500 SHARES OF M/S. TUNI TEXTILE MILLS PRIVATE LIMITED ON 06.04.2011 FROM A STOCK BROKER IN OFF-MARKET TRANSACTIONS FROM M/S BADRI PRASAD & SONS, WHO WAS A MEMBER OF CALCUTTA STOCK EXCHANGE. THESE SHARES WERE HELD IN THE DEMAT ACCOUNT OF THE ASSESSEE MAINTAINED WITH M/S CD EQUISEARCH PVT. LTD , A MEM BER OF MUMBAI STOCK EXCHANGE AND ULTIMATELY THESE SHARES WERE SOLD THRO UGH M/S. CD EQUISEARCH AND ON SUCH SALE, SECURITY TRANSACTION TAX WAS DULY PAID. PAYMENTS WERE DULY RECEIVED IN THE BANK ACCOUNT OF THE ASSESSEE. WE TA KE NOTE THAT THE PURCHASE OF SHARES BY OFF-MARKET TRANSACTIONS FOR PURCHASE OF S HARES IS NOT ILLEGAL AS WAS HELD BY THE COORDINATE BENCH OF THIS TRIBUNAL IN TH E CASE OF DOLARRAI HEMANI VS ITO IN ITA NO.19/KOL/2014 DATED 02.12.2016. THE TRANSACTIONS WERE ALL THROUGH A REGISTERED BROKER (PAGES 18 AND 19 OF THE PAPER BOOK), BACKED BY A CONTRACT NOTE (PAGE 22 OF THE PAPER BOOK) AND SHARE S WERE CREDITED IN THE DEMAT ACCOUNTS (PAGE 25 OF THE PAPER BOOK) AND DULY REFLECTED IN THE BOOKS OF ACCOUNT. IN THE LIGHT OF THESE EVIDENCES ON RECORD WE ARE OF THE OPINION THAT THE PURCHASE OF SHARES PER-SE CANNOT BE HELD TO BE BAD. 9.1. WE NOTE THAT THERE WAS A SURVEY CONDUCTED U/S 133A OF THE ACT BY THE MUMBAI INVESTIGATION WING AGAINST M/S. TUNI TEXTILE MILLS PVT. LTD ON 02.06.2015 AND IN THE SURVEY A DEPOSITION WAS TAKEN ON OATH WHEREIN THE MANAGING DIRECTOR OF THE SAID COMPANY SHRI N.P.SURE KHA WAS EXAMINED AND HE STATED THAT 47 PERSONS WERE ALLOTTED PREFERENCE SHA RES ON 25.01.2010 AND A SUM OF RS.7.50 CRORES WAS RAISED BY THE COMPANY. HE FUR THER SUBMITTED THAT THIS ENTIRE DEAL WAS DONE BY ONE SHRI MANISH BAID AND TH EN THESE 47 INVESTORS USED THE SHARES ALLOTTED TO THEM, SOLD THE SAME AT JACKE D UP PRICE AND IN THE PROCESS THEY EARNED BOGUS LONG TERM CAPITAL GAIN FROM SUCH TRANSACTIONS WHICH WAS STAGE MANAGED BY SHRI M.BAID. BASED ON THIS STATEME NT, THE LOWER AUTHORITIES CONCLUDED THAT THE TRANSACTIONS OF THE ASSESSEE WER E ALSO PART OF THE BOGUS TRANSACTIONS AND THE SAME WAS ACCORDINGLY HELD TO B E UNEXPLAINED CASH CREDIT 12 ITA NO.846/KOL/2017 ITA NO.637/KOL/2018 MARUTI TRADERS & INVESTORS A.YR. 2013-14 12 U/S 68 OF THE ACT. WE DO NOT SUBSCRIBE TO THE SAID VIEW TAKEN BY THE AUTHORITIES BELOW FOR THE REASONS STATED BELOW:- WE NOTE THAT THE ASSESSEE WAS NOT A PART OF 47 PERS ONS, WHO THE MANAGING DIRECTOR HAS NAMED IN THE LIST OF 47 PERSO NS AND WE ALSO NOTE THAT THERE IS NO MATERIAL TO REMOTELY SUGGEST THAT THE ASSESSEE DEALT WITH THE SAID ENTRY OPERATOR SHRI MANISH BAID, WHO IS SAID TO HAVE STAGE MANAGED AND UNDERTAKEN THE ENTIRE TRANSACTION S. WE ALSO FIND THAT THE ASSESSEE HAS NOT DEALT WITH ANY PERSON OR BROKER NAMED IN QUESTION NO.28 OF THE STATEMENT WHICH HAS BEEN RECORDED ON OATH BY THE SURVEY TEAM AND WHICH HAS BEEN REPRODUCED BY THE LD . CIT(A) FROM PAGES 31 TO 36 OF THE IMPUGNED ORDER(QUESTION NO.2 8 FINDS PLACE IN PAGE-35 OF THE IMPUGNED ORDER). WE THEREFORE FIND M ERIT IN THE SUBMISSIONS OF THE ASSESSEE THAT THE STATEMENT RECO RDED ON OATH DURING THE SURVEY CANNOT BE THE SOLE BASIS FOR ADVERSE FIN DING AGAINST THE ASSESSEE. FOR THIS WE RELY ON THE DECISION OF THE H ONBLE SUPREME COURT IN THE CASE OF CIT VS KHADER KHAN SON 352 ITR 480 (SC) WHEREIN IT HAS BEEN HELD THAT SECTION 133A (SURVEY) DOES NOT EMPOWER ANY INCOME TAX AUTHORITIES TO EXAMINE ANY PERSON ON OATH, HENCE ANY SUCH STATEMENT LACKS EVIDENTIARY VALUE AND ANY ADMI SSION MADE DURING THE SURVEY CANNOT BY ITSELF BE MADE THE BASIS OF AD DITION. WE THEREFORE HOLD THAT THE STATEMENT OF SHRI N.P.SUREKHA RECORDE D ON OATH DURING THE SURVEY PROCEEDINGS CANNOT BE THE SOLE BASIS TO MAKE THE IMPUGNED ADDITION. WE NOTE THAT THE ASSESSEE HAD NOT PURCHASED THE SHA RES BY THE PREFERENCE SHARE ROUTE AS STATED BY THE PARTY BEFORE THE SURVEY PARTY. THE ALLOTMENT MADE IN PREFERENCE SHARE WAS ON 25-01-2010, WHEREAS THE ASSESSEE PURCHASED THE SHARES ON 06-04-2011 THROUGH THE BROKER. ( I.E AFTER MORE THAN ONE YEAR AND THREE MONTHS) WE F IND THAT THE TRANSACTIONS OF CAPITAL GAINS AS CLAIMED BY THE ASS ESSEE WAS DULY BACKED BY RELEVANT DOCUMENTARY EVIDENCES WHICH INCL UDE THE FOLLOWING :- (I)THE BALANCE SHEET OF THE ASSESSEE FOR THE FINANC IAL YEAR 2011-12 WHEREIN THE INVESTMENT MADE IN THESE SHARES WERE DU LY RECORDED AND REFLECTED (PAGE 16 OF THE PAPER BOOK); II) THE BILLS OF PURCHASE OF SHARES OF M/S. TUNI T EXTILE MILLS PVT. LTD (PAGE 18 OF THE PAPER BOOK) III)COPY OF THE DEMAT STATEMENT MAINTAINED WITH M/S . CD EQUI SEARCH WHERE THE SHARES WERE HELD (PAGE 24 OF THE PAPER BO OK) IV) COPY OF THE CONTRACT NOTES ISSUED BY M/S. CD EQ UI SEARCH LTD, MEMBER OF MUMBAI STOCK EXCHANGE HAVING SEBI REGISTR ATION NO.INB010781133 AND CODE NO.087 (PAGE 19 TO 22 OF THE PAPER BOOK V) THE BANK STATEMENT MAINTAINED BY THE ASSESSEE WI TH BANK OF MAHARSHTRA REFLECTING THE PAYMENT RECEIVED FOR THE SALE OF SHARES (PAGE 23 OF THE PAPER BOOK). 9.2. WE FIND FORCE IN THE CONTENTIONS OF THE LD . AR THAT THE AO AND CIT(A) WAS NOT JUSTIFIED IN REJECTING THE CLAIM OF THE ASS ESSEE ON THE BASIS OF THEORY OF SURROUNDING CIRCUMSTANCE, HUMAN CONDUCT AND PREPOND ERANCE OF PROBABILITY 13 ITA NO.846/KOL/2017 ITA NO.637/KOL/2018 MARUTI TRADERS & INVESTORS A.YR. 2013-14 13 WITHOUT BRINGING ON RECORD ANY RELEVANT LEGALLY ADM ISSIBLE EVIDENCE AGAINST THE ASSESSEE. FOR THE SAID PROPOSITION WE RELY ON THE J UDGMENT OF THE SPECIAL BENCH OF MUMBAI BENCH IN THE CASE OF GTC INDUSTRIES LTD. (SUPRA). THE VARIOUS FACETS OF THE CONTENTION OF THE AO, TO ROPE IN THE ASSES SEE FOR DRAWING ADVERSE INFERENCES WHICH REMAIN UNPROVED BASED ON THE EVIDE NCE AVAILABLE ON RECORD ARE NOT REITERATED FOR THE SAKE OF BREVITY. THE PRI NCIPLES LAID DOWN IN VARIOUS CASE LAWS RELIED UPON BY THE LD. AR ARE ALSO NOT RE ITERATED FOR THE SAKE OF BREVITY. WE FURTHER FIND THAT NEITHER THE REPORTS R ELIED ON BY THE AO HAS NOT BEEN BROUGHT ON RECORD NOR IS THERE ANY REFERENCE O F FINDING OF SUCH REPORT TO IMPUTE THE ASSESSEE IS THERE ON RECORD. THE AO HAS MERELY CARVED OUT CERTAIN FEATURES/MODUS- OPERANDI OF COMPANIES INDULGING IN PRACTICES NOT SANCTIONED BY LAW AND AS MENTIONED IN SUCH REPORT. HOWEVER, WE NOTE THAT NEITHER ANY INVESTIGATION WAS CARRIED OUT AGAINST THE ASSESSEE NOR AGAINST THE BROKERS TO WHOM THE ASSESSEE DEALT WITH THE PURCHASE AND SALE OF SHARES IN QUESTION. THUS THE AO HAS FAILED TO BRING ON RECORD ANY MATERIAL C ONTAINED IN THE PURPORTED REPORTS WHICH ARE HAVING SO CALLED ADVERSE IMPACT O N THE ASSESSEE. WE FURTHER FIND THAT THE COMPANY UNDER SCANNER WAS HAVING SHAR E CAPITAL AS ON 31.03.2013 OF RS.13.18 CRORES AND WAS HAVING ASSETS WORTH RS.24.25 CRORES AND A TURN OVER OF RS.19.32 CRORES AND PROFIT OF RS .1.35 CRORES. THUS THE ALLEGATION THAT THESE COMPANIES DID NOT HAVE FINANC IAL CREDENTIALS IS NOT CORRECT AND SO IS PERVERSE AND THEREFORE WE DO NOT SUBSCRIB E TO THE SAID FINDING AND NECESSARILY NEGATE THE FINDING. AT THE COST OF REPETITION, WE FIND THAT THE TRANSAC TIONS OF SALE OF SHARES BY THE ASSESSEE WAS DULY BACKED UP BY MATERIAL/EVIDENCE IN CLUDING CONTRACT NOTES, DEMAT STATEMENT, BANK ACCOUNT REFLECTING TRANSACTIO NS, THE STOCK BROKERS HAVE CONFIRMED THE TRANSACTIONS (PAGES 24-25 OF THE PAPE R BOOK), THE SHARES HAVING BEEN SOLD ON THE ONLINE PLATFORM OF THE STOCK EXCHA NGE AND EACH TRADE OF SALE OF SHARES WERE HAVING UNIQUE TRADE NUMBER AND TRADE TI ME. IT IS NOT THE CASE OF THE AO THAT THE SHARES WHICH WERE SOLD ON THE DATE MENT IONED IN THE CONTRACT NOTE WERE NOT THE TRADED PRICE ON THAT PARTICULAR DATE. THE AO DOUBTED THE TRANSACTIONS DUE TO THE HIGH RISE IN THE STOCK PRIC E AND FOR THAT THE ASSESSEE CANNOT BE BLAMED UNLESS THERE WAS ANY MATERIAL/EVID ENCE TO PROVE THAT THE ASSESSEE OR ANY ONE ON HIS BEHALF HAS RIGGED THE ST OCK PRICE. IT SHOULD BE NOTED THAT THE STOCK EXCHANGE AND SEBI ARE THE STATUTORY AUTHORITIES APPOINTED BY THE GOVT. OF INDIA TO ENSURE THAT THERE IS NO STOCK RIG GING OR MANIPULATION. THE AO HAS NOT BROUGHT ANY EVIDENCE ON RECORD TO SHOW THAT THESE AGENCIES HAVE ALLEGED ANY STOCK MANIPULATION AGAINST THE ASSESSEE OR THE BROKERS OR THE COMPANY IN QUESTION. IN ABSENCE OF ANY EVIDENCE TO BACK THE CONCLUSION OF AO/CIT(A), IT CANNOT BE SAID THAT MERELY BECAUSE TH E STOCK PRICE MOVED SHARPLY, THE ASSESSEE WAS TO BE BLAMED FOR BOGUS TR ANSITIONS. IT IS ALSO PERTINENT TO NOTE THAT THE ASSESSEE HAS PURCHASED THE STOCKS THROUGH REGISTERED BROKERS AND THEREAFTER THE ASSESSEE HAS SOLD THE SHARES TH ROUGH THE REGISTERED SHARE/STOCK BROKERS WITH CALCUTTA STOCK EXCHANGE, A ND BOTH HAVE CONFIRMED THE TRANSACTIONS AND HAVE ISSUED VALID CONTRACT NOT ES AS PER LAW; AND IN SIMILAR CASE, THE HONBLE CALCUTTA HIGH COURT IN THE CASE O F PRINCIPAL CIT VS RUNGTA PROPERTIES IN ITA NO.105 OF 2016 DATED 08 MAY, 2017 WHEREIN IT WAS HELD THAT ON THE LAST POINT, THE TRIBUNAL HELD THAT THE AO H AD NOT BROUGHT RELEVANT MATERIAL TO SHOW THAT THE TRANSACTIONS IN SHARES OF THE COMPANY INVOLVED WERE 14 ITA NO.846/KOL/2017 ITA NO.637/KOL/2018 MARUTI TRADERS & INVESTORS A.YR. 2013-14 14 FALSE OR FICTITIOUS. IT IS THE FINDING OF THE AO TH AT THE SCRIPTS OF THIS COMPANY WAS EXECUTED BY A BROKER AND THE BROKER WAS SUSPENDED F OR SOME TIME. IT IS THE ASSESSEES CONTENTION THAT EVEN THOUGH THERE ARE AL LEGATIONS AGAINST THE BROKER, AND FOR THAT REASON THE ASSESSEE CANNOT BE HELD LIA BLE ON THIS POINT, THE TRIBUNAL HELD THAT AS A MATTER OF FACT THE AO DOUBTED THE INTEGRITY O F THE BROKER AND THE BROKER FIRM AND ALSO AO OBSERVED THAT THE ASSESSEE HAD NOT FURNISHED ANY EXPLANATION IN RESPECT OF ANY DISCUSSION OF TRA DING OF SHARES. THE AO RELIED THE LOSS OF RS.25,30,396/- ONLY ON THE BA SIS OF INFORMATION SUBMITTED BY STOCK AS FICTITIOUS. THE AO HAS ALSO N OT DOUBTED THE GENUINENESS OF THE DOCUMENTS PLACED BY THE ASSESSEE ON RECORD. THE AOS OBSERVATION AND CONCLUSION ARE MERELY BASED ON INFORMATION. THEREFORE ON SUCH BASIS, NO DISALLOWANCE CAN BE MAD E AND ACCORDINGLY WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) , WHO HAS RIGHTLY ALLOWED THE CLAIM OF THE ASSESSEE. THIS GROUND NO.1 OF THE REVENUE IS DISMISSED. WE AGREE WITH THE REASONING OF THE TRIBUNAL ON THIS POINT ALSO. WE DO NOT FIND ANY REASON TO INTERFERE WITH THE IMPUGNED ORDER. THE SUGGESTED QUESTION, IN OUR OPINION DO NOT RAISE ANY SUBSTANTI AL QUESTION OF LAW. 9.3. IN THE LIGHT OF THE DOCUMENTS STATED I.E. (I T O V) IN PAGE14(SUPRA) WE FIND THAT THERE IS ABSOLUTELY NO ADVERSE MATERIAL T O IMPLICATE THE ASSESSEE TO THE ENTIRE GAMUT OF UNFOUNDED/UNWARRANTED ALLEGATIONS L EVELED BY THE AO AGAINST THE ASSESSEE, WHICH IN OUR CONSIDERED OPINION HAS N O LEGS TO STAND AND THEREFORE HAS TO FALL. WE TAKE NOTE THAT THE LD. DR COULD NOT CONTROVERT THE FACTS WHICH ARE SUPPORTED WITH MATERIAL EVIDENCES FURNISH ED BY THE ASSESSEE WHICH ARE ON RECORD AND COULD ONLY RELY ON THE ORDERS OF THE AO/CIT(A). WE NOTE THAT THE ALLEGATIONS THAT THE ASSESSE/BROKERS GOT INVOLV ED IN PRICE RIGGING/MANIPULATION OF SHARES MUST THEREFORE CONSE QUENTLY FAIL. AT THE COST OF REPETITION, WE NOTE THAT THE ASSESSEE HAD FURNISHED ALL RELEVANT EVIDENCE IN THE FORM OF BILLS, CONTRACT NOTES, DEMAT STATEMENT AND BANK ACCOUNT TO PROVE THE GENUINENESS OF THE TRANSACTIONS RELEVANT TO THE PUR CHASE AND SALE OF SHARES RESULTING IN LONG TERM CAPITAL GAIN. NEITHER THESE EVIDENCES WERE FOUND BY THE AO NOR BY THE LD. CIT(A) TO BE FALSE OR FICTITIOUS OR BOGUS. THE FACTS OF THE CASE AND THE EVIDENCE IN SUPPORT OF THE EVIDENCE CLEARLY SUPPORT THE CLAIM OF THE ASSESSEE THAT THE TRANSACTIONS OF THE ASSESSEE WERE GENUINE AND THE AUTHORITIES BELOW WAS NOT JUSTIFIED IN REJECTING THE CLAIM OF T HE ASSESSEE EXEMPTED U/S 10(38) OF THE ACT ON THE BASIS OF SUSPICION, SURMIS ES AND CONJECTURES. IT IS TO BE KEPT IN MIND THAT SUSPICION HOW SO EVER STRONG, CAN NOT PARTAKE THE CHARACTER OF LEGAL EVIDENCE. IN THE AFORESAID FACTS AND CIRCUMST ANCE, FOR ALLOWING THE APPEAL WE RELY ON THE DECISION OF THE HONBLE CALCUTTA HIG H COURT IN THE CASE OF M/S. ALIPINE INVESTMENTS IN ITA NO.620 OF 2008 DATED 26 TH AUGUST, 2008 WHEREIN THE HIGH COURT HELD AS FOLLOWS : IT APPEARS THAT THERE WAS LOSS AND THE WHOLE TRANS ACTIONS WERE SUPPORTED BY THE CONTRACT NOTES, BILLS AND WERE CAR RIED OUT THROUGH RECOGNIZED STOCK BROKER OF THE CALCUTTA STOCK EXCHA NGE AND ALL THE 15 ITA NO.846/KOL/2017 ITA NO.637/KOL/2018 MARUTI TRADERS & INVESTORS A.YR. 2013-14 15 BILLS WERE RECEIVED FROM THE SHARE BROKER THROUGH A CCOUNT PAYEE WHICH ARE ALSO FILED IN ACCORDANCE WITH THE ASSESSMENT. IT APPEARS FROM THE FACTS AND MATERIALS PLACED BEFO RE THE TRIBUNAL AND AFTER EXAMINING THE SAME, THE TRIBUNAL ALLOWED THE APPEAL BY THE ASSESSEE. IN DOING SO THE TRIBUNAL HELD THAT THE TRANSACTIONS CANNOT BE BRUSHED ASIDE ON SUSPICION AND SURMISES. HOWEVER IT WAS HEL D THAT THE TRANSACTIONS OF THE SHARES ARE GENUINE. THEREFORE W E DO NOT FIND THAT THERE IS ANY REASON TO HOLD THAT THERE IS NO SUBSTA NTIAL QUESTION OF LAW HELD IN THIS MATTER. HENCE THE APPEAL BEING ITA NO. 620 OF 2008 IS DISMISSED. 4. SINCE THE FACTS ARE SIMILAR AND ONLY THE DIFFERE NCE IS IN RESPECT OF DATE OF PURCHASE AND SALE OF SCRIPS AND ALL THE FACTS REMAI N SAME, SCRIPS ARE ALSO THE SAME, TRANSACTION AND THE DOCUMENTS BEFORE US ARE ALSO OF THE SIMILAR NATURE, AND THE LD DR COULD NOT POINT OUT ANY CHANGE IN FACTS OR LAW, RES PECTFULLY FOLLOWING THE REASONING, FACT AND LAW AS PER THE ORDER OF THE TRIBUNAL DATED 15.1 1.2017 IN KIRAN KOTHARI, HUF, SUPRA, WE ARE INCLINED TO ALLOW THE APPEAL OF THE A SSESSEE AND DIRECT DELETION OF ADDITION ON THIS COUNT. THEREFORE, THE APPEAL OF AS SESSEE IS ALLOWED. 4.7. WE FURTHER FIND THAT THE LD AO HAD OBSERVED TH AT THE GAINS OF RS 2,09,85,684/- IS TREATED AS BOGUS AND SOUGHT TO TAX THE SAME U/S 115 BBE OF THE ACT TO BE CONSEQUENTIALLY TAXED AT 30% ON THAT INCOME. IN THE INSTANT CASE, WE HAVE ALREADY HELD HEREINABOVE THAT THE PROFITS FROM SALE OF SHARES OF TUNI TEXTIL E MILLS LTD IS TO BE TAXED AS INCOME FROM BUSINESS AS OFFERED BY THE ASSESSEE AND NOT U/ S 68 OF THE ACT UNDER THE HEAD INCOME FROM OTHER SOURCES, THE PROVISIONS OF SECT ION 115BBE OF THE ACT CANNOT BE MADE APPLICABLE IN THE INSTANT CASE. 4.8. IN VIEW OF THE AFORESAID FINDINGS IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND RESPECTFULLY FOLLOWING THE JUDICIAL PRECEDENT RELIE D UPON HEREINABOVE, WE HOLD THAT THE LOWER AUTHORITIES HAD ERRED IN MAKING AND CONFIRMIN G THE ADDITION OF RS 2,09,85,684/- BEING GAINS ON SALE OF SHARES OF TUNI TEXTILE MILLS LTD AS BOGUS AND CONSEQUENTIALLY 16 ITA NO.846/KOL/2017 ITA NO.637/KOL/2018 MARUTI TRADERS & INVESTORS A.YR. 2013-14 16 ADDING A SUM OF RS 2,55,273/- AS UNEXPLAINED EXPEND ITURE TOWARDS COMMISSION . BOTH THE ADDITIONS TOTALING TO RS 2,12,40,957/- ARE HERE BY DIRECTED TO BE DELETED. ACCORDINGLY, THE GROUNDS 3 TO 7 RAISED BY THE ASSESSEE ARE ALLOW ED. 5. NO SPECIFIC ARGUMENTS WERE ADVANCED IN RESPECT O F GROUND NO. 8 RAISED BY THE ASSESSEE AND HENCE THE SAME IS HEREBY DISMISSED. 6. THE GROUND NO. 9 RAISED BY THE ASSESSEE IS GENER AL IN NATURE AND DOES NOT REQUIRE ANY SPECIFIC ADJUDICATION. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN ITA NO. 846/KOL/2017 IS PARTLY ALLOWED. ITA NO. 637/KOL/2018 ASST YEAR 2013-14 ASSESSEE APPEAL 8. THIS APPEAL BY THE ASSESSEE ARISES OUT OF THE ORDER OF THE LEARNED PRINCIPAL COMMISSIONER OF INCOME TAX-12, KOLKATA [IN SHORT TH E LD CIT] IN MEMO NO.PR.CIT- 12/KOL/TECH/263/2017-18/2432-34 DATED 26.03.2018 PA SSED U/S 263 OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) AGAINST THE ORDE R PASSED BY THE ACIT, CENTRAL CIRCLE-35, KOLKATA [IN SHORT THE LD. AO] UNDER SEC TION 143(3) OF THE ACT DATED 22.03.2016 FOR THE ASSESSMENT YEAR 2013-14. 9. THE ONLY ISSUE INVOLVED IN THIS APPEAL IS AS TO WHETHER THE LD CIT WAS JUSTIFIED IN INVOKING REVISIONARY JURISDICTION U/ 263 OF THE ACT IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 9.1. THE BRIEF FACTS OF THIS ISSUE ARE THAT THE ASS ESSEE IS ENGAGED IN TRADING IN SHARES AND COMMODITIES AND HAD FILED ITS RETURN OF INCOME FOR THE ASST YEAR 2013-14 ON 29.9.2013 17 ITA NO.846/KOL/2017 ITA NO.637/KOL/2018 MARUTI TRADERS & INVESTORS A.YR. 2013-14 17 DECLARING TOTAL INCOME OF RS NIL AND CLAIMING CARRY FORWARD OF LOSSES. THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT ON 22.3.2016 MA KING VARIOUS ADDITIONS AND DISALLOWANCES. ONE SUCH DISALLOWANCE MADE BY THE L D AO THEREON WAS U/S 14A OF THE ACT IN THE SUM OF RS 28,41,850/- BEING 0.5% OF AVER AGE VALUE OF SHARES HELD AS STOCK IN TRADE. THE LD AO SPECIFICALLY OBSERVED IN HIS ORD ER THAT THE PROVISIONS OF SECTION 14A OF THE ACT ARE INDEED APPLICABLE EVEN IF THE SHARES WERE HELD AS STOCK IN TRADE. THE LD AO ALSO PLACED RELIANCE ON THE DECISION OF SPECIAL BENCH OF MUMBAI TRIBUNAL IN THE CASE OF ITO VS DAGA CAPITAL MANAGEMENT P LTD REPORT ED IN (2009) 117 ITD 169 , AMONG OTHER DECISIONS, WHEREIN THE APPLICABILITY OF PROVISIONS OF RULE 8D OF THE INCOME TAX RULES 1962 WAS DISCUSSED AT LENGTH AND THAT THE DISALLOWANCE IS TO BE MADE AS PER THE COMPUTATION MECHANISM PROVIDED IN RULE 8D OF TH E RULES. FINALLY, THE LD AO WHILE CONCLUDING THE ASSESSMENT MADE DISALLOWANCE O F RS 28,41,850/- BEING 0.5% OF AVERAGE VALUE OF INVESTMENTS , PURPORTEDLY APPLYING THE THIRD LIMB OF RULE 8D(2) OF THE RULES , THOUGH NO SPECIFIC MENTION OF RULE 8D WAS MADE BY THE LD AO IN HIS ORDER. THIS ACTION OF THE LD AO WAS UPHELD BY THE LD CITA IN FIRST APPEAL. AGGRIEVED, THE ASSESSEE HAD PREFERRED AN APPEAL BEFORE THIS TRIBUN AL WHICH HAD BEEN ALREADY ADJUDICATED ELSEWHERE IN THIS ORDER. 9.2. WHILE IT IS SO, THE LD CIT SOUGHT TO INVOKE HI S REVISIONARY JURISDICTION U/S 263 OF THE ACT BY HOLDING THAT THE ORDER OF THE LD AO IS ERRON EOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE IN VIEW OF THE FACT THAT THE DISALLOWAN CE U/S 14A OF THE ACT WAS NOT MADE BY THE LD AO BY APPLYING THE COMPUTATION MECHANISM PROVIDED IN RULE 8D OF THE RULES. THE LD CIT ACCORDINGLY SHOWCAUSED THE ASSESS EE IN THIS REGARD. THE ASSESSEE REPLIED THAT THE PROVISIONS OF RULE 8D PERSE CANNOT BE MADE APPLICABLE IN THE FACTS OF THE INSTANT CASE AS THE SHARES WERE HELD BY THE ASS ESSEE ONLY AS STOCK IN TRADE AND THAT RULE 8D TALKS ABOUT SHARES HELD AS INVESTMENTS AN D HENCE THE COMPUTATION MECHANISM PROVIDED THEREON FAILS. THE ASSESSEE BROUGHT TO T HE NOTICE OF THE LD CIT THAT IT IS 18 ITA NO.846/KOL/2017 ITA NO.637/KOL/2018 MARUTI TRADERS & INVESTORS A.YR. 2013-14 18 ENGAGED PRIMARILY IN THE BUSINESS OF TRADING IN SHA RES AND COMMODITIES AND IS OFFERING BUSINESS INCOME THEREON AND THAT THE SHARES HELD TH EREON WERE ONLY STOCK IN TRADE OF THE ASSESSEE AND WERE NOT HELD FOR THE PURPOSE OF EARNI NG DIVIDEND. IT WAS ALSO SUBMITTED THAT EVEN THOUGH THE LD AO IN THE ORIGINAL ASSESSME NT FRAMED U/S 143(3) OF THE ACT HAD MADE A DISALLOWANCE U/S 14A OF THE ACT IN THE SUM O F RS 28,41,850/-, THE SAME WAS AGITATED IN APPEAL BEFORE THE LD CITA AND THAT THE SAID APPEAL WAS DISPOSED OFF BY THE LD CITA IN APPEAL NO. 18/CIT(A)-10/C-35/2016-17/KOL DA TED 16.2.2017 WHEREIN THE ACTION OF THE LD AO WAS UPHELD IN THIS REGARD. IT WAS ALSO STATED THAT THE APPEAL AGAINST THIS CITA ORDER WAS PENDING BEFORE THIS TRIBUNAL. IT WAS ALSO POINTED OUT BY THE ASSESSEE BEFORE THE LD CIT THAT THE ASSESSEE HAD DU LY SUBMITTED BEFORE THE LD AO REGARDING THE NON-APPLICABILITY OF PROVISIONS OF SE CTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES AND THAT SPECIFIC EXPLANATION FOR N ON-APPLICABILITY OF PROVISIONS OF RULE 8D(2)(II) OF THE RULES WERE ALSO MADE REGARDING NON -APPLICABILITY OF CALCULATION OF PROPORTIONATE INTEREST. THESE SUBMISSIONS WERE DU LY CONSIDERED BY THE LD AO AND THE LD AO ACCORDINGLY HELD THAT THE INTEREST PAID ON BO RROWINGS WERE USED FOR SHARE TRADING ACTIVITIES OF THE ASSESSEE AND NOT FOR THE PURPOSE OF EARNING ANY DIVIDEND AND ACCORDINGLY ADMISSIBLE U/S 36(1)(III) OF THE ACT. IT WAS ALSO SPECIFICALLY POINTED OUT BY THE ASSESSEE BEFORE THE LD CIT THAT SINCE THE ISSUE OF APPLICABILITY OF PROVISIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RUL ES HAD BEEN ELABORATELY DEALT BY THE LD AO IN THE ASSESSMENT PROCEEDINGS AND SOME DISALL OWANCE MADE THEREON, WHICH ACTION WAS ALSO UPHELD BY THE LD CITA IN FIRST APPE AL, THE SAME CANNOT BE THE SUBJECT MATTER OF REVISION PROCEEDINGS IN VIEW OF SPECIFIC PROVISIONS CONTAINED IN EXPLANATION 1 CLAUSE (C ) OF SECTION 263(1) OF THE ACT. IT WAS F URTHER POINTED OUT THAT THERE WAS ALREADY POINTED OUT THAT ON THE DATE OF PASSING OF AN ORDER BY THE LD AO U/S 143(3) OF THE ACT DATED 22.3.2016, THERE WAS ALREADY A DECISION OF T HIS TRIBUNAL IN THE CASE OF DCIT VS GULSHAN INVESTMENT CO. LTD IN ITA NO. 1012/KOL/2010 WHEREIN IT WAS HELD THAT NO DISALLOWANCE U/S 14A OF THE ACT BY APPLYING RULE 8D OF THE RULES COULD BE MADE IF THE SHARES WERE HELD AS STOCK IN TRADE. HENCE THE VIEW TAKEN BY THE LD AO IN THE ASSESSMENT 19 ITA NO.846/KOL/2017 ITA NO.637/KOL/2018 MARUTI TRADERS & INVESTORS A.YR. 2013-14 19 COULD BE CONSIDERED AS ONE OF THE POSSIBLE VIEWS TA KEN AND THE LD CIT TRYING TO SUBSTITUTE HIS VIEW ON THE VERY SAME ISSUE IN THE R EVISION PROCEEDINGS U/S 263 OF THE ACT WAS NOT WARRANTED. IT WAS FURTHER SUBMITTED THAT T HE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS G K K CAPITAL MARKETS PRIVATE LIMITED VIDE ORDER DATED 10.2.2017 HAD HELD THAT THE PROVISIONS OF SECTION 14A READ WI TH RULE 8D WOULD NOT APPLY TO SHARES HELD AS STOCK IN TRADE AND IN THIS JUDGEMENT, THE E ARLIER DECISION OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF DHANUKA & SONS VS CIT (33 9 ITR 319) WAS ANALYSED AND CONSIDERED. THE LD CIT HOWEVER IGNORED ALL THE C ONTENTIONS OF THE ASSESSEE AND PROCEEDED TO TREAT THE ORDER OF THE LD AO AS ERRONE OUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE U/S 263 OF THE ACT AND SET ASIDE THE OR DER WITH A DIRECTION TO MAKE NECESSARY INVESTIGATION ON THE ISSUE OF COMPUTATION OF DISALL OWABLE EXPENDITURE UNDER RULE 8D OF THE RULES AND PASS A FRESH ASSESSMENT ORDER THEREON . AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 9.3. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE FACT S STATED HEREINABOVE ARE NOT REITERATED FOR THE SAKE OF BREVITY. IT IS NOT IN DI SPUTE THAT THE PROVISIONS OF SECTION 14A OF THE ACT ARE APPLICABLE EVEN IF THE SHARES ARE HELD AS STOCK IN TRADE AS DECIDED RECENTLY BY THE HONBLE SUPREME COURT IN THE CASE OF MAXOPP INV ESTMENTS REPORTED IN 402 ITR 640 (SC). WE FIND THAT WE HAVE ALREADY HELD ELSEWHERE I N THIS ORDER , MORE PARTICULARLY IN PARAS 2.3, 2.3.1 AND 2.3.2 OF THE ORDER HEREINABOVE , WHEREIN WE HAVE HELD THAT THE DISALLOWANCE U/S 14A OF THE ACT SHOULD BE RESTRICTE D TO RS 2,74,633/- IN THE FACTS AND CIRCUMSTANCES OF THE INSTANT CASE IN THE LIGHT OF T HE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF ISG TRADERS LTD VS CIT IN ITA NO. 264 OF 2003 DATED 22.9.2011. IN VIEW OF OUR AFORESAID FINDING AND DECISION, WHEREIN WE HAVE HELD THAT THE DISALLOWANCE U/S 14A OF THE ACT CANNOT BE MADE BY APPLYING THE COMPUTATION MECHANISM PROVIDED IN RULE 8D OF THE RULES IN THE F ACTS AND CIRCUMSTANCES OF THE 20 ITA NO.846/KOL/2017 ITA NO.637/KOL/2018 MARUTI TRADERS & INVESTORS A.YR. 2013-14 20 INSTANT CASE, WE HAVE NO HESITATION IN QUASHING TH E REVISION PROCEEDINGS U/S 263 OF THE ACT. ACCORDINGLY, THE GROUNDS RAISED BY THE ASSESSE E IN THIS REGARD ARE ALLOWED. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN IT A NO. 637/KOL/2018 FOR ASST YEAR 2013-14 IS ALLOWED AND APPEAL OF THE ASSESSEE IN IT A NO. 846/KOL/2017 IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 28.11.2018 SD/- SD/- [S.S. GODARA] [ M .BALAGANESH ] JUDICIAL MEMBER ACCOUNTANT MEM BER DATED : 28.11.2018 SB, SR. PS COPY OF THE ORDER FORWARDED TO: 1. MARUTI TRADERS & INVESTORS, C/O RAMESH KUMAR SOM ANI, NO.7, LYONS RANGE, KOLKATA-700001. 2. ACIT, CIRCLE-31, KOLKATA, AAYAKAR BHAWAN POORVA, 110, SHANTIPALLY, 8 TH FLOOR, KOLKATA-700107. 3..C.I.T.(A)- 4. C.I.T.- KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER A SSISTANT REGISTRAR ITAT , KOLKATA BENCHES
