TOUCHSTONE CAPITAL MARKET SERVICES P. LTD, MUMBAI V. ITO 4(2)(3), MUMBAI

ITA 6555/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9017 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-09-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 30-08-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 29-09-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V KRISHNAMOORTHY
• Keywords: Unexplained cash credit
• Section: 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI R.S. SYAL (AM) & SHRI VIVEK VARMA (JM ) I.T.A. NO. 6555/MUM/2011 (ASSESSMENT YEAR : 2008-09) TOUCHSTONE CAPITAL MARKET SERVICES PVT. LTD. 21/22, KHATAU BUILDING A.D. MODY MARG FORT, MUMBAI-400 023. VS. ITO 4(2)(3) MUMBAI. PAN/GIR NO. AAACT3254E (APPELLANT) .. (RESPONDENT) ASSESSEE BY : SHRI K. GOPAL DEPARTMENT BY : SHRI V. KRISHNAMOORTHY DATE OF HEARING : 30.8.2012 DATE OF PRONOUNCEMENT : 14.09.2012 O R D E R PER VIVEK VARMA (JM) : - THE ASSESSEE FILED BY THE ASSESSEE AGAINST THE ORDE R OF LEARNED CIT(A)-8, MUMBAI DATED 31.12.2010 RAISED TWO GROUNDS OF APPEA LS, WHICH ARE AS UNDER :- 1) ADDITION ON ACCOUNT OF ALLEGED UNEXPLAINED CREDIT O F RS. 5,53,289/- UNDER SECTION 68 OF THE ACT. 2) DISALLOWANCE OF REBATE OF RS. 26,39,702/- U/S 88E O F THE ACT. 2. GROUND NO. 1 : DURING THE COURSE OF ASSESSMENT P ROCEEDINGS, THE ASSESSING OFFICER ON INFORMATION RECEIVED THROUGH AIR, ASKED TH E DETAILS OF SALES OF 4584 SHARES OF GUJARAT AMBUJA CEMENT AMOUNTING TO RS. 5,53,288.80 . ON THIS ENQUIRY, THE ASSESSEE VIDE LETTER DATED 21.12.2010 SUBMITTED THAT WE ARE IN RECEIPT OF CERTAIN AIR INFORMATION. IN RELATION TO A SUM OF RS. 5,53,289/- REFLECTED UNDER INVESTMENT IN EXCESS OF RS. 20,000 IN SHARES AND SECURITIES, WE HAVE TO INFORM YOU THAT WE HAVE VERIFIED OUT BOOKS OF ACCOUNTS AND THAT WE HAVE NOT FOUND ANY SA UDA ON THE BOMBAY STOCK EXCHANGE CORRESPONDING TO THE SAID SUM. SINCE THE ASSESSEE DENIED ANY SHARE TRANSACTION, THE ASSESSING OFFICER WROTE TO THE BOMBAY S TOCK EXCHANGE, WHO CONFIRMED THE ABOVE TRANSACTIONS IN THE NAME OF THE AS SESSEE ON 7.5.2007 VIDE TRADE TOUCHSTONE CAPITAL MARKET SERVICES PVT. LTD. 2 NO. 1969 THROUGH M/S GSB CAPITAL MARKETS LTD. THE A SSESSEE, VIDE LETTER DATED 30.12.2010, ONCE AGAIN PLEADED WITH THE ASSESSING OF FICER, DATED 7 TH MAY, 2007 FOR A SUM OF RS. 5,53,289/- DOES NOT BELONG TO OUR CLIENT. THIS SAUDA IN FACT BELONGS TO ANOTHER CLIENT OF THE SAID BROKER. A LET TER CONFIRMING THE SAID FACT RECEIVED FROM M/S GSB CAPITAL MARKETS LTD. IS ATTACHED HEREW ITH FOR YOUR READY REFERENCE AND RECORD . THE ASSESSING OFFICER, TAKING THE REPLIES INTO CONS IDERATION, HELD THAT THE ASSESSEES ABOVE SUBMISSIONS HAVE BEEN CONSIDERED C AREFULLY. HOWEVER, THE SAME IS NOT ACCEPTED. AS IS SEEN FROM THE CONFIRMATION OF THE B SE LTD., ASSESSEE HAS SOLD 4584 SHARES OF GUJRAT AMBUJA CEMENT LTD.@ RS. 120.70 FOR AN AMOUNT OF RS. 5,53,288/-. FROM THE DETAILS AVAILABLE, IT IS FOUND TH AT THE ASSESSEE HAS NOT DISCLOSED THIS TRANSACTION IN ITS ACCOUNTS FOR THE FINANCIAL YEAR 2007-08 RELEVANT TO A.Y. 2008- 09. THEREFORE, THE SAME IS TREATED AS UNEXPLAINED BSE TRANSACTIONS AND THE SAME IS ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE U/S 68 OF THE I.T. ACT, 1961 BEING UNEXPLAINED CASH CREDIT. THE ASSESSING OFFICER, THER EFORE, MADE AN ADDITION OF RS. 5,53,288/- U/S 68. 3. THE ASSESSEE, APPROACHED THE LEARNED CIT(A) AND REITERATED ITS SUBMISSIONS. BEFORE LEARNED CIT(A), THE ASSESSEE POINTED OUT THAT THE ENTRY CONFUSION WAS CREATED BECAUSE GBS PURCHASED IN T001, CLIENT CODE BELONGING TO THE ASSESSEE, WHICH IN FACT SHOULD HAVE BEEN T013, BELONGING TO TRINITY REALTY & FINVEST. ON THIS CLARIFICATION, THE LEARNED CIT(A) ASKED THE ASSESSEE TO GET THE REQUI SITE CONFIRMATION FROM TRINITY, WHICH THE ASSESSEE COULD NOT PROCURE. CIT(A), THEREF ORE, HELD THAT THE TRANSACTION, IN SUCH CIRCUMSTANCES, HAS TO BE TREATED AS THAT OF THE AS SESSEE. THE CIT(A), SUSTAINED THE ADDITION MADE BY THE ASSESSING OFFICER. 4. THE ASSESSEE IS NOW BEFORE THE ITAT. 5. BEFORE US, THE AR ONCE AGAIN REITERATED THE FACTUA L ASPECT, I.E. WHEN GSB IS CONFIRMING THAT IT WAS A CASE WHERE ITS STAFF PUNCHED IN WRONG CLIENT CODE AND ALSO THAT THERE WAS NO SAUDA DONE BY THE ASSESSEE. THE AR FURTHER SUBMITTED THAT, AT THAT POINT OF TIME, THE ASSESSEE COMPANY DID NOT HAVE REQUI SITE SHARES OF GUJARAT AMBUJA LTD. IN STOCK TO EFFECT THE IMPUGNED SALE TRANSACTION. TH E AR ALSO SUBMITTED THAT AT THE MOST, THE ASSESSEE COULD HAVE GOT THE CONFIRMATION FROM GSB, WHICH WAS PROVIDED TOUCHSTONE CAPITAL MARKET SERVICES PVT. LTD. 3 BY THEM AND WHICH WAS FURTHER SUBMITTED BEFORE CIT(A) . THE ASSESSEE DOES NOT KNOW TRINITY AND ON WHAT GROUNDS, THE ASSESSEE COULD HAV E ASKED TRINITY TO GIVE/PROVIDE CONFIRMATION. THE AR, THEREFORE, SUBMITTED THAT THE REV ENUE AUTHORITY HAD IN FACT PUT THE ASSESSEE IN A SPOT, FROM WHERE, THE ASSESSEE COUL D NOT PROVIDE ANY POSITIVE SUBMISSIONS BEFORE CIT(A). AR THEREFORE, PLEADED THA T ON THE FACTS, THE ADDITION CANNOT BE MADE AND SHOULD BE DELETED. 6. THE DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAD S UPPORTED THE ORDER OF THE REVENUE AUTHORITY AND SUBMITTED THAT THE ASSESSEE WAS GI VEN FULL SUPPORT AND OPPORTUNITY TO PROVE ITS INNOCENCE, WHERE THE ASSESSEE FAILED. SINCE THE ASSESSEE COULD NOT BRING THE ENTIRE MATERIAL TO SUPPORT ITS SUBMI SSIONS, THE PROVISIONS OF SECTION BEING VERY CLEAR, THAT AS SOON AS, .OR THE EXPLANATION OFFERED BY HIM IS NOT, IN THE OPINION OF THE ASSESSING OFFICER, SATISFACTORY , THE SECTION WILL GET ATTRACTED. IN THE INSTANT CASE, SINCE THE EXPLANATION WAS STILL UNSATIS FACTORY, THE ADDITION WAS CORRECTLY MADE. 7. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND HAVE PERUSED THE ORDERS OF THE REVENUE AUTHORITY. TO TRIGGER SECTION 68, A SUM HAS TO BE FOUND CREDITED IN THE BOOKS OF THE ASSESSEE MAINTAINED FOR ANY PREVIOUS YEAR. WHILE GOING THROUG H THE PAPER APPENDED ALONG WITH THE APPEALS, WE FIND THAT THE ASSESSEE HAS MENTIONED THIS POINT IN ITS STATEMENT OF FACTS FILED ALONG WITH GROUND S OF APPEAL IN FORM NO. 35. WE FIND THAT EVEN IN THE IMPUGNED ORDER, AT PAGE 2, THE LEA RNED CIT(A) HAS MADE A PASSING REMARK THAT THE ASSESSEE HAD CONTENDED THAT THE IMPUGNED SUM OF RS. 5,53,289/- NOT FOUND CREDITED IN THE BOOKS . IN OUR CONSIDERED OPINION, THE FIRST HURDLE FOR THE ASSESSING OFFICER AND THE CIT(A), SHOULD HA VE BEEN TO CONFIRM THEMSELVES, WHETHER AT ALL AN ENTRY OF RS. 5,53,289/- STANDS CREDITED IN THE BOOKS OR NOT. IF, AND ONLY IF, THERE IS AN ENTRY IN THE BOOKS MAINTAINED BY THE ASSESSEE, ONLY THEN, THE ASSESSING OFFICER COULD HAVE CALLED FOR AN EXPLANATI ON. WE HAVE NOT SEEN FROM EITHER OF THE ORDER FROM THE REVENUE AUTHORITY THAT THE CASE OF THE DEPARTMENT WRESTS ON THE ENTRY FOUND IN THE BOOKS OF THE ASSESSEE. WE CANNOT P ROCEED FURTHER, TO EVEN LOOK AT THE EXPLANATION CALLED FOR AND GIVEN BY THE ASSESSEE, UNLESS AND UNTIL THERE WAS A POSITIVE FINDING OF THE REVENUE AUTHORITY HOLDING THA T THERE WAS AN ENTRY/ENTRIES OF RS. TOUCHSTONE CAPITAL MARKET SERVICES PVT. LTD. 4 5,53,289/- FOUND CREDITED IN THE BOOKS, MAINTAINED BY THE ASSESSEE . UNDER THESE CIRCUMSTANCES, ACCORDING TO US, PROVISIONS OF SECTION 68 CANNOT BE MADE APPLICABLE. WE THEREFORE SET ASIDE THE ORDER OF CIT(A) ON THIS IS SUE AND DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION OF RS. 5,53,289/-. THE GROUND IS ALLOWED. 8. THE SECOND GROUND IS AGAINST THE DISALLOWANCE OF RS. 26,39,702/-. 9. THE CIT(A), WHILE DEALING WITH THE IMPUGNED ISSUE, REFERRED TO THE FACTS AS NARRATED BY THE AO IN THE ASSESSMENT ORDER AND, WHILE MAKING HIS OBSERVATIONS, THE CIT(A) HELD, RELEVANT FACTS APPEARING FROM THE ASSESSMENT ORDER ARE, THAT WHILE THE ASSESSEE HAD CLAIMED REBATE U/S 88E AMOUNTING TO RS . 1,04,33,446/-, THE ASSESSING OFFICER HAS RESTRICTED SUCH REBATE TO RS. 77,93,744 /-. WHILE CLAIMING REBATE U/S 88E, THE ASSESSEE HAD INCLUDED INTEREST INCOME AND HAD A LLOCATED ADMINISTRATIVE EXPENSES IN RATIO OF 20:80 BETWEEN STT AND NON STT TRANSACTI ON. REJECTING THE APPELLANTS COMPUTATION, THE ASSESSING OFFICER DETERMINED THE R EBATE U/S 88E BY ALLOCATING EXPENSES IN THE RATIO OF 79:21 AND WITHOUT CONSIDER ING INTEREST INCOME AS INCOME FROM STT TRANSACTIONS. THE APPELLANT IN ITS WRITTEN SUBM ISSION HAS CONTENDED THAT INTERESTS INCOME EARNED FROM DEPOSITS ARE PART AND PARCEL OF BUSINESS ACTIVITY AS THE ENTIRE DEPOSITS ARE USED FULLY AND EXCLUSIVELY TO OBTAIN T RADING LIMITS/EXPOSURES AND SETTLE TRADES FOR AND OF ITSELF AND ITS CLIENTS. IT HAS FU RTHER BEEN CONTENDED THAT IF A FICTITIOUS LINE OF DISTINCTION HAS TO BE DRAWN BETWEEN SECURIT IES TRADING AND BROKING BUSINESS, THE INDIRECT EXPENSES MUST BE APPORTIONED IN THE RATIO OF 20:80 RESPECTIVELY. IT HAS FURTHER BEEN POINTED OUT THAT THE ASSESSING OFFICER HAS NOT PROVIDED ANY EXPLANATION OR JUSTIFICATION FOR DISALLOWING THE ASSESSEES CLAIM. THE APPELLANTS SUBMISSION HAS BEEN CONSIDERED. AS REGARDS THE APPELLANTS CONTENTION T HAT ENTIRE INCOME ARISING FROM BUSINESS ACTIVITY INCLUDING INTEREST INCOME BEING D IRECT FALLOUT OF THE FINANCIAL COMMITMENTS AND NOT AN INVESTMENT MADE TO EARN INTE REST CLEARLY FORMS PART OF INCOME ARISING FROM TAXABLE SECURITIES TRANSACTIONS, I FIN D NO MERIT IN SUCH CONTENTION. THE SECTION 88E PROVIDES FOR REBATE OF INCOME TAX ON IN COME ARISING FROM CERTAIN TRANSACTIONS BEING TAXABLE SECURITIES TRANSACTIONS AND NOT FROM INCOME FROM BUSINESS OF TRADING IN SECURITIES OR BROKING. THERE IS NO SCOPE WHATSOEVER FOR INCLUDING THE INTEREST INCOME AS FORMING PART OF INCOME FROM TAXABLE SECUR ITIES TRANSACTIONS. THE ASSESSING TOUCHSTONE CAPITAL MARKET SERVICES PVT. LTD. 5 OFFICERS ACTION IN THIS REGARD IS THEREFORE UPHELD . THE CIT(A), THEREFORE SUSTAINED THE ADDITION. 10. THE ASSESSEE IS NOW BEFORE THE ITAT. 11. BEFORE US, THE AR PLEADED THAT THE REVENUE AUTHORI TY HAS DISALLOWED RS. 26,39,702/- OUT OF A TOTAL CLAIM OF RS. 1,04,33,446/- U/S 88E. THE AR SUBMITTED, THAT THE ASSESSING OFFICER ALLOCATED THE ADMINISTRATIVE EX PENSES IN THE RATIO OF 79:21, AS AGAINST 20:80, WHICH IS ON THE BASIS OF RECORDED STT AND NON STT TRANSACTIONS. THE AR PLEADED THAT SINCE THE PLACE OF BUSINESS IS ONE WHE RE BOTH TYPES OF BUSINESS IS BEING CONDUCTED BY THE SAME STAFF THEN DRAWING UP A FICTITIOUS LINE OF DEMARCATION BETWEEN STT AND NON STT BASED TRANSACTIONS WAS NOT PRO PER. THE AR, HOWEVER, PLEADED THAT EVEN IF IT WAS 20:80, THE AR WOULD ACCEP T THE DISALLOWANCE ON INDIRECT EXPENSES ONLY. THE AR PLEADED THAT DIRECT ADMINISTRATI VE EXPENSES PERTAINS TO THE BUSINESS OF THE ASSESSEE, AND SHOULD NOT ALLOCATED. 12. THE DEPARTMENTAL REPRESENTATIVE DEFENDED AND RELI ED ON THE ORDER OF THE REVENUE AUTHORITY. 13. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND HAVE PERUSED THE ORDERS OF BOTH THE REVENUE AUTHORITIES. WE FIND FROM THE ASSESS MENT ORDER THAT THE ASSESSING OFFICER HAS DONE AN EXERCISE, BASED ON STT AND NON STT TRANSACTIONS AND ALLOCATED THE EXPENSES AGAINST THEM. FROM THIS CHART, AS REPRODU CED AT PAGES 7&8 (APB), WE FIND THAT THE ASSESSING OFFICER HAS MADE THE ALLOCATIO N OF BOTH TYPES OF EXPENSES, I.E. ADMINISTRATIVE AND OTHER INDIRECT EXPENSES AT 79:21, WHICH IS BASED ON THE INCOME EARNED UNDER STT AND NON STT TRANSACTIONS. WE FIND T HIS ALLOCATION, BEING BASED ON A RELATIVE FOUNDATION AGAINST THE ADHOC CLAIM BEING MAD E BY THE AR. WE DO NOT FIND ANY REASON TO DISTURB THIS ALLOCATION, WHICH WE SUSTAIN . TOUCHSTONE CAPITAL MARKET SERVICES PVT. LTD. 6 14. IN THE RESULT, THE APPEAL IS TREATED AS PARTLY ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 14.9.2012. SD/- (R.S. SYAL) ACCOUNTANT MEMBER SD/- (VIVEK VARMA) JUDICIAL MEMBER MUMBAI; DATED 14/09/2012 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A)- 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( (( ( DY./ASSTT. REGISTRAR) ITAT, MUMBAI PS