DCIT CIR. 2(2)(1), MUMBAI V. KISHCO LTD., MUMBAI

ITA 6894/MUM/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 3365 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-04-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Assessment Year: 2010-2011
• Appeal Filed On: 06-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Transactions in derivatives; Avoidance of tax; Tax effect
• Section: 143(3); 133(6); 148

Judgement Text

1 IN THE INCOME-TAX APPELLATE TRIBUNAL H BENCH MUMB AI BEFORE SHRI G.S. PANNU, VICE- PRESIDENT AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO. 6894/PN/2017 (ASSESSMENT YEAR 2010-11 ) ACIT-2(2)(1) ROOM NO. 545, 5 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, CHURCHGATE, MUMBAI-400020. VS. M/S KISHCO LIMITED PLOT NO. 71-E TO T, GOVT. INDUSTRIAL ESTATE, CHARKOP, KANDIVLI (WEST), MUMBAI- 400067. PAN: AAACK2894F APPELLANT RESPONDE NT APPELLANT BY : SHRI SAURABH KUMAR RAI (DR) RESPONDENT BY : SHRI PARESH SHAPARIA (AR) DATE OF HEARING : 16.04.2019 DATE OF PRONOUNCEMEN T : 23.04.2019 ORDER UNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER; 1. THIS APPEAL BY REVENUE UNDER SECTION 253 OF INCOME- TAX ACT (ACT) IS DIRECTED AGAINST THE ORDER OF LD. COMMISSIONER OF I NCOME-TAX (APPEALS)- 5, MUMBAI [HEREINAFTER REFERRED AS LD. CIT(A)] DATE D 19.09.2017 FOR ASSESSMENT YEAR 2010-11. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: I) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW LD. CIT(A) WAS RIGHT IN DELETING THE ADDITION MADE ON A CCOUNT OF UNEXPLAINED INCOME BY THE ASSESSEE WITHOUT APPRECIA TING THE FACT THAT IN CASES, WHERE FACTITIOUS AND UNEXPLAINED INCOME O FFERED BY ASSESSEE THROUGH MISUSING CLIENT CODE MODIFICATION FACILITY IN F&O SEGMENT OF NSE STOCK EXCHANGE, ONUS LIES ON THE ASSESSEE TO SH OW THAT THE CORRESPONDING TRANSACTION MADE WITH OTHER PARTY ARE GENUINE AND ITA NO. 6894 MUM 2017-M/S KISHCO LIMITED 2 BONAFIDE SINCE THE REGULAR SEBI VEHEMENTLY DENIES T HESE TRANSACTIONS WHICH ARE MADE ONLY FOR AVOIDING THE TAX. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS EN GAGED IN THE BUSINESS OF MANUFACTURING OF CUTLERY AND KITCHENWARE. THE ASSES SEE ALSO MAKES INVESTMENT IN SHARES AND FUTURE & OPTIONS (F&O) TRA NSACTION. THE ASSESSEE FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2010-11 ON 30.09.2010. THE SCRUTINY ASSESSMENT UNDER SECTION 1 43(3) WAS COMPLETED ON 28.03.2013. SUBSEQUENTLY, THE ASSESSME NT WAS RE-OPENED ON THE BASIS OF INFORMATION RECEIVED FROM PRINCIPAL DIRECTOR OF INCOME (PR DIT) TAX (INVESTIGATION), MUMBAI THAT SOME BROK ERS ARE MISUSING THE CLIENT CODE MODIFICATION (CCM) FACILITY IN FUTU RES & OPOTIONS SEGMENT OF NATIONAL STOCK EXCHANGE AND ARE INDULGIN G IN CREATING NON- GENUINE LOSSES OR PROFIT. THE PR DIT INFORMED THE A SSESSING OFFICER THAT CCM TRANSACTION OBTAINED FROM NSE AND AFTER DETAILE D ANALYSIS, IT WAS NOTED BY INVESTIGATION WING THAT THE BROKERS ARE MI SUSING THE CCM AND CREATED NON-GENUINE PROFIT & LOSS. ON THE BASIS OF INFORMATION, THE ASSESSING OFFICER FORMS AN OPINION FOR RE-OPENING T HE ASSESSMENT UNDER SECTION 147. THE NOTICE UNDER SECTION 148 DATED 17. 03.2015 WAS SERVED ON THE ASSESSEE ON 23.03.3015. IN RESPONSE TO THE N OTICE, THE ASSESSEE FILED ITS REPLY DATED 19.10.2015 AND STATED THEREIN THAT RETURN ALREADY FILED UNDER SECTION 139(1) ON 30.09.2010 BE TREATED AS RETURN IN RESPONSE TO THE NOTICE UNDER SECTION 148. THE ASSESSEE REQUE STED TO SUPPLY THE REASONS RECORDED FOR RE-OPENING. THE REASONS RECORD ED WERE PROVIDED TO ITA NO. 6894 MUM 2017-M/S KISHCO LIMITED 3 THE ASSESSEE. DURING THE RE-ASSESSMENT THE ASSESSIN G OFFICER NOTED THAT IN THE PROFIT AND LOSS ACCOUNT THE ASSESSEE HAS SHOWN PROFIT OF RS. 55,00,579/- ON ACCOUNT OF PROFIT ON SALE OF INVE STMENT, WHICH CONSIST OF SHORT TERM CAPITAL GAIN (STCG) OF RS. 14,899/-, LONG TERM CAPITAL GAIN (LTCG) OF RS. 2,20,181/- AND BUSINESS INCOME O F F&O OF RS. 52,65,499/-. THE ASSESSING OFFICER FURTHER NOTED TH AT THE ASSESSEE TRANSACTED THROUGH BROKER NAMELY M/S INVENTURE GROW TH & SECURITIES LIMITED (BROKER CODE NO. 9017). THE DETAILS OF THE SAID BROKER AND DATE WISE TRADE REPORTED ARE RECORDED BY ASSESSING OFFIC ER IN PARA 4.1.2 OF ASSESSMENT ORDER. THE ASSESSING OFFICER ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE TO FILE FURNISH THE DETAILS OF THE TRANSAC TION IN F&O SEGMENTS. THE ASSESSEE FILED ITS REPLY DATE 09.02.2016 AND ST ATED THAT F&O TRANSACTION WAS CARRIED THROUGH BROKER INVENTURE GR OWTH & SECURITIES LIMITED. THE ASSESSEE ALSO FURNISHED ALL THE BILLS ALONG WITH THE DETAILS OF F&O ISSUED BY THE BROKER. IT WAS FURTHER STATED THAT NO FICTITIOUS PROFIT WAS BOOKED BY THE ASSESSEE BY USING CCM. THE Y EARNED NET PROFIT OF RS.52,65,499/- WHICH HAS BEEN OFFERED IN P& L AC COUNT. THE ASSESSEE ALSO OBJECTED TO RE-OPENING AND NOTICE UNDER SECTIO N 148. THE ASSESSING OFFICER ISSUED NOTICE UNDER SECTION 133(6) TO INVEN TURE GROWTH & SECURITIES LIMITED ON 11.01.2016 FOR SEEKING CERTAI N DETAILS. M/S INVENTURE GROWTH & SECURITIES LIMITED SENT ITS REPL Y DATED 20.01.2015 AND STATED THAT ALL CCM ARE GENUINE TRANSACTIONS IN NSE. THEY RECEIVED ITA NO. 6894 MUM 2017-M/S KISHCO LIMITED 4 INSTRUCTIONS FROM THEIR CLIENT TO MODIFY OR CANCEL THE TRADE. THE ASSESSING OFFICER TOOK HIS VIEW THAT THE REPLY OF T HE ASSESSEE THAT MODIFICATION WAS MADE BY BROKER OF HIS OWN. THE CCM APPEARED IN LARGE SCALE AND HAVE EFFECT THE REDUCING THE TAX LI ABILITY WHICH IS A DEVICE FOR AVOIDANCE OF TAX. THE ASSESSING OFFICER AFTER REFERRING THE MODUS OPERANDI OF CCM TREATED THE INCOME OF F&O SEG MENT OF RS. 53,59,168/- AS SAME TRANSACTION AS UNEXPLAINED INC OME. THE ASSESSING OFFICER COMPLETED THE RE-ASSESSMENT ON 29.03.2016 U NDER SECTION 143(3) READ WITH SECTION 147. ON APPEAL BEFORE THE LD. CIT (A), THE ADDITION OF UNEXPLAINED INCOME TO THE EXTENT OF RS. 52,65,499 /- WAS DELETED AND FOR REMAINING [RS.53,59168/- (-) RS52,65,499/-] THE ASSESSING OFFICER WAS DIRECTED TO BE VERIFY FROM THE DETAILS FURNISHE D BY ASSESSEE. THUS, AGGRIEVED BY THE ORDER OF LD. CIT (A), THE REVENUE HAS FILED THE PRESENT APPEAL BEFORE US. 3. WE HAVE HEARD THE SUBMISSION OF LD. DEPARTMENT REPR ESENTATIVE (DR) FOR THE REVENUE AND LD. AUTHORIZED REPRESENTATIVE ( AR) OF THE ASSESSEE AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE L D. DR FOR THE REVENUE SUPPORTED THE ORDER OF THE ASSESSING OFFICER. THE L D. DR SUBMITS THAT THE INVESTIGATION WING CONDUCTED INQUIRY ABOUT THE MODU S OPERANDI OF CCM AND THE ASSESSING OFFICER MADE ADDITION AFTER GRANT ING OPPORTUNITY TO THE ASSESSEE. THE LD DR PRAYED FOR SETTING ASIDE THE OR DER OF THE LD CIT(A) AND TO RESTORE THE ORDER OF ASSESSING OFFICER. ITA NO. 6894 MUM 2017-M/S KISHCO LIMITED 5 4. ON THE OTHER HAND THE LD AR FOR THE ASSESSEE SUPPOR TED THE ORDER OF THE LD CIT(A). THE LD AR FOR THE ASSESSEE SUBMITS THAT THE TAX EFFECT INVOLVE IN THE PRESENT APPEAL IS LESS THAN THE MONETARY LIM IT FIXED BY CBDT IN ITS CIRCULAR NO.3/2018. ON MERIT OF THE CASE THE LD . AR FOR THE ASSESSEE FURTHER SUBMITS THAT THE ASSESSING OFFICER ISSUED N OTICE UNDER SECTION 133(6) TO M/S INVENTURE GROWTH & SECURITIES LIMITED . M/S INVENTURE GROWTH & SECURITIES LIMITED SENT THEIR REPLY TO THE ASSESSING OFFICER. THE REPLY AND THE INFORMATION FURNISHED BY INVENTUR E GROWTH & SECURITIES LIMITED WERE NOT SHARED BY ASSESSING OFF ICER WITH THE ASSESSEE. ALL THE TRANSACTION MADE BY ASSESSEE IN F & O IS GENUINE. THE ASSESSEE FURNISHED COMPLETE DETAILS TO THE ASSESSIN G OFFICER, THE PROFIT EARNED BY THE ASSESSEE HAS BEEN OFFERED FOR TAXATIO N IN HIS P&L ACCOUNT. THE ASSESSING OFFICER MADE ADDITION ON THE BASIS OF THIRD PARTY INFORMATION AND WITHOUT GIVING OPPORTUNITY TO COUNT ER SUCH INFORMATION. 5. IN THE REJOINDER SUBMISSIONS THE LD DR FOR THE REVE NUE SUBMITS THAT THE CASE IS COVERED BY EXCEPTION CLAUSE OF PARA 10E OF CBDT CIRCULAR, CLEARLY SPECIFIES THAT THE CASES SHOULD BE CONTEST ON MERIT INSPITE THE FACT THAT TAX EFFECT IS LESS THAN THE MONETARY LIMIT IN THE CASES WHERE ADDITION IS BASED ON THE INFORMATION RECEIVED FROM EXTERNAL SOURCES IN THE NATURE OF LAW ENFORCING AGENCY. IN THIS CASE, THE ADDITION WAS MADE ON THE BASIS OF INFORMATION RECEIVED FROM PR DIT. ITA NO. 6894 MUM 2017-M/S KISHCO LIMITED 6 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PA RTIES AND HAVE GONE THROUGH THE ORDERS OF THE LOWER AUTHORITIES. THE AS SESSING OFFICER TREATED THE INCOME OF F&O SEGMENTS AS UNEXPLAINED AS UNEXPL AINED INCOME WHILE PASSING THE ASSESSMENT ORDER UNDER SECTION 14 3(3) RWS 147 ON 29.03.2016. WE HAVE NOTED THAT DURING THE RE-ASSESS MENT THE ASSESSING OFFICER NOTED THAT IN THE PROFIT AND LOSS ACCOUNT T HE ASSESSEE HAS SHOWN PROFIT OF RS. 55,00,579/- ON ACCOUNT OF PROFIT O N SALE OF INVESTMENT, WHICH CONSIST OF SHORT TERM CAPITAL GAIN (STCG) OF RS. 14,899/-, LONG TERM CAPITAL GAIN (LTCG) OF RS. 2,20,181/- AND BUSI NESS INCOME OF RS. 52,65,499/-. THE ASSESSEE TRANSACTED THROUGH BROKER NAMELY INVENTURE GROWTH & SECURITIES LIMITED. THE ASSESSING OFFICER ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE TO FILE FURNISH THE DETAILS OF THE TRANSACTION IN F&O SEGMENTS. THE ASSESSEE IN HIS REPLY DATE 09.02.2016 AND STATED THAT F&O TRANSACTION WAS CARRIED THROUGH BROKER INVENTURE GR OWTH & SECURITIES LIMITED AND FURNISHED ALL THE BILLS ALONG WITH THE DETAILS OF F&O ISSUED BY THE BROKER AND ALSO STATED THAT NO FICTITIOUS PR OFIT WAS BOOKED BY THE ASSESSEE BY USING CCM. THE ASSESSEE EARNED NET PROF IT OF RS.52,65,499/- WHICH HAS BEEN OFFERED IN P& L ACCOU NT. THE ASSESSING OFFICER ISSUED NOTICE UNDER SECTION 133(6) TO INVEN TURE GROWTH & SECURITIES LIMITED ON 11.01.2016 FOR SEEKING CERTAI N DETAILS. M/S INVENTURE GROWTH & SECURITIES LIMITED SENT ITS REPL Y DATED 20.01.2015 AND STATED THAT ALL CCM ARE GENUINE TRANSACTIONS IN NSE. THE BROKER ITA NO. 6894 MUM 2017-M/S KISHCO LIMITED 7 RECEIVED INSTRUCTIONS FROM THEIR CLIENT TO MODIFY O R CANCEL THE TRADE. FROM THE REPLY OF THE BROKER AND THE ASSESSEE THE A SSESSING OFFICER TOOK HIS VIEW THAT THE REPLY OF THE ASSESSEE THAT MODIFI CATION WAS MADE BY BROKER OF HIS OWN IS CONTRARY TO THE REPLY OF THE B ROKER. THE ASSESSING OFFICER WAS FURTHER OF THE VIEW THAT CCM APPEARED I N LARGE SCALE AND HAVE EFFECT THE REDUCING THE TAX LIABILITY WHICH IS A DEVICE FOR AVOIDANCE OF TAX. THE ASSESSING OFFICER TREATED THE INCOME OF F&O SEGMENT OF RS. 53,59,168/- AS SAME TRANSACTION AS UNEXPLAINED INC OME. 7. THE LD. CIT(A), DELETED THE ADDITION OF UNEXPLAINE D INCOME TO THE EXTENT OF RS. 52,65,499/- AND FOR REMAINING [RS.53, 59168/- (-) RS52,65,499/-] THE ASSESSING OFFICER WAS DIRECTED T O BE VERIFY FROM THE DETAILS FURNISHED BY ASSESSEE. THE LD CIT(A) AFTER EXAMINING THE DETAILS FURNISHED BY THE ASSESSEE HAS CONCLUDED THAT GAIN R ECEIVED BY THE ASSESSEE HAS ALREADY OFFERED BY HIM FOR TAX AND THA T NO FURTHER ADDITION CAN BE MADE ON THE GROUND THAT IT WAS A FICTITIOUS OR SHAM TRANSACTION. WE HAVE NOTED THAT NEITHER THE INFORMATION RECEIVED FROM PR DIT (I) NOR THE REPLY FURNISHED BY THE BROKER WAS SHARED WITH T HE ASSESSEE. NO OPPORTUNITY TO CONFRONT WITH THE REPLY OF BROKER WA S PROVIDED TO THE ASSESSEE. NO ADVERSE COMMENT WAS MADE BY ASSESSING OFFICER ON THE DOCUMENTARY EVIDENCES FURNISHED BY THE ASSESSEE. TH E STAND OF THE ASSESSEE THROUGHOUT THE ASSESSMENT WAS THAT THEY HA VE EARNED PROFIT ON GENUINE TRANSACTION OF F&O SEGMENTS. IT WAS ALSO TH E CONTENTION OF THE ITA NO. 6894 MUM 2017-M/S KISHCO LIMITED 8 ASSESSEE THAT THE PROFIT/ INCOME EARNED BY ASSESSEE WERE ALREADY OFFERED FOR TAX. NO INDEPENDENT INQUIRY WAS CONDUCTED BY TH E ASSESSING OFFICER EXCEPT SENDING NOTICE TO THE BROKER. THE REPLY OF T HE SAID BROKER WAS NEITHER SHARED WITH THE ASSESSEE NOR THE ASSESSEE W AS GIVEN ANY OPPORTUNITY TO COUNTER ANY ADVERSE IN THE ALLEGED R EPORT OF THE PR.DIT(I). IN OUR VIEW THE LD CIT(A) HAS TAKEN A REASONABLE VI EW AFTER CONSIDERING THE FACTUAL MATRIX AND DOCUMENTARY EVIDENCES FURNIS HED BY THE ASSESSEE. NO CONTRARY FACT EVIDENCES OR LAW IS BROUGHT TO OUR NOTICE TO TAKE THE OTHER VIEW. THUS, WE AFFIRM THE ORDER OF LD CIT(A) . IN THE RESULT THE GROUND OF APPEAL RAISED BY THE REVENUE IS DISMISSED . 8. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 23/04/2019. SD/- SD /- G.S. PANNU PAWAN SINGH VICE-PRESIDENT JUDICIAL MEMBER MUMBAI, DATE: 23.04.2019 SK COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. DR H BENCH, ITAT, MUMBAI 6. GUARD FILE BY ORDER, DY./ASST. REGISTRAR ITAT, MUMBAI