M/s. NH SECURITIES LTD., MUMBAI V. ACIT CENT CIR. - 40, MUMBAI

ITA 78/MUM/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48771 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-05-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 04-05-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 05-01-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR P DANIEL
• Keywords: Opportunity of being heard; Speculation loss; Set aside; Capital Gains
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, B, MUMBAI BEFORE S/SHRI D.K.AGARWAL (JM) AND T.R.SOOD(A.M ) ITA NO.78/MUM/2009 (ASSESSMENT YEAR : 2002-03) NH SECURITIES LTD. BHUPEN CHAMBERS, GROUND FLOOR, 9, DALAL STREET, FORT MUMBAI 400023 PAN - AAACS 7140 Q ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 40, MUMBAI- APPELLANT V/S RESPONDENT APPELLANT BY : SHRI RAJIV KHANDELWAL RESPONDENT BY : DR.P.DANIEL. O R D E R PER D.K.AGARWAL (JM) THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 16.10.2008 PASSED BY THE LE ARNED CIT(A) FOR THE ASSESSMENT YEAR 2002-03. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE AS SESSEE COMPANY IS ENGAGED IN THE BUSINESS OF SHARE BROKI NG, TRADING IN SHARES AND SECURITIES, FILED RETURN DECL ARING LOSS OF RS.25,75,04,370/-. HOWEVER, ASSESSMENT WAS COM PLETED AT A LOSS OF RS.5,68,53,690/- VIDE ORDER DATED 30.0 3.2005 PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT). ON APPEAL, THE LEARNED CIT(A) PARTLY ALL OWED THE APPEAL. ITA NO.78/MUM/2009 (ASSESSMENT YEAR : 2002-03) 2 3. BEING AGGRIEVED BY THE ORDER OF THE LEARNED CIT (A), THE ASSESSEE IS IN APPEAL BEFORE US. 4. GROUND NO.1 IS AGAINST THE SUSTENANCE OF DISALL OWANCE OF LOSS OF RS.5,21,28,447/- IN RESPECT OF TRANSACTI ON BACKED BY DELIVERY AND RS.1,30,00,183/- IN RESPECT OF T RANSACTION NOT BACKED BY DELIVERY. 5. THE BRIEF FACTS OF THE ABOVE ISSUE ARE THAT I T HAS BEEN OBSERVED BY THE ASSESSING OFFICER THAT THE ASSES SEE HAS SHOWN LOSS OF RS.6,51,28,623/- ON SHARE TRADING. THE ASSESSEE FURNISHED THE DETAILS OF SHARE TRADED DU RING THE YEAR. HOWEVER, IT HAD NOT FURNISHED BROKERS BILLS AND CONTRACT NOTES IN SUPPORT OF THE SAID LOSSES. IT W AS FURTHER STATED THAT THE SHARES TRADED BY THE ASSESSEE AND SUFFERED LOSSES ON THE SAME SHARES WHICH ARE MENTIONED BY THE JPC IN THEIR REPORT. THE PERIOD UNDER CONSIDERATIO N IS AN EXTENSION OF THE SCAM PERIOD. THE DETAILED DISCUS SION WAS MADE IN THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 2001- 02 ABOUT HOW THE LOSSES WERE CREATED BY THE ASSESSE E GROUP DURING THE SCAM PERIOD. THE LOSSES DURING THE AY 2001-02 WERE DISALLOWED BY THE AO AND THE CIRCUMSTANCES IN THIS YEAR HAVE NOT CHANGED. THOUGH THE ASSESSEE WAS GIVEN AN OPPORTUNITY OF PROVING THE LOSS AS GENUINE, THE AS SESSEE HAS FAILED TO PROVE THE SAME. IN THE ABSENCE OF BROKER S ITA NO.78/MUM/2009 (ASSESSMENT YEAR : 2002-03) 3 NOTES/BILLS AND CORRESPONDING ENTRIES IN THE BOOKS OF ACCOUNT OF THE OPPOSITE PARTIES, THE LOSS CLAIMED BY THE AS SESSEE WAS HEREBY DISALLOWED. TOTAL DISALLOWANCE WAS AS UNDER : SPECULATION LOSS : RS.1,30,00,183/- LOSS ON DELIVERY BASED TRANSACTION : RS. 5,21,28,447/- RS.6,51,28,630/- 6. ON APPEAL, THE LEARNED CIT(A) WHILE OBSERVING TH AT THE SIMILAR ISSUE CAME UP FOR ADJUDICATION IN THE APPEA L FILED BY THE APPELLANT AGAINST THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2001-02 AND AFTER DETAILED FINDING AND OBSERVATIONS, THE ACTION OF THE AO WAS UPHELD IN AP PEAL VIDE ORDER DATED 16.01.2008, AND SINCE THE FACTS ARE IDE NTICAL, UPHELD THE DISALLOWANCE MADE BY THE AO. 7. AT THE TIME OF HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITS THAT THE TRIBUNAL IN THE ASSESSE ES OWN CASE FOR THE ASSESSMENT YEAR 2001-02 IN M/S. NH SECURITIES LTD. V/S ACIT IN ITA NO. 792/MUM/2008 FO R THE ASSESSMENT YEAR 2001-02 ORDER DATED 30.03.2011 H AS SET ASIDE THE ISSUE TO THE FILE OF THE AO, THEREFORE FOR THE SAME REASONS, THE ISSUE MAY BE SET ASIDE TO THE FILE OF THE AO. HE ALSO PLACED ON RECORD THE COPY OF THE SAID ORDER OF THE TRIBUNAL. ITA NO.78/MUM/2009 (ASSESSMENT YEAR : 2002-03) 4 8. ON THE OTHER HAND, THE LEARNED DR SUPPORTS THE O RDER OF THE AO AND THE LEARNED CIT(A). 9. HAVING CAREFULLY HEARD THE SUBMISSIONS OF THE RI VAL PARTIES AND PERUSING THE MATERIAL AVAILABLE ON RE CORD, WE FIND THAT THERE IS NO DISPUTE THAT THE FACTS OF THE IMPUGNED ISSUE ARE SIMILAR TO THE FACTS FOR THE ASSESSMENT Y EAR 2001- 02. IT HAS ALSO BEEN OBSERVED BY THE AO THAT THE CIRCUMSTANCES IN THIS YEAR HAVE NOT BEEN CHANGED. IN THE ASSESSMENT YEAR 2001-02, THE TRIBUNAL IN ASSESSEE S OWN CASE (SUPRA) HAS SET ASIDE THE ISSUE TO THE FILE OF THE AO VIDE FINDINGS RECORDED IN PARAGRAPH 6 OF THE ORDER DATED 30.3.2011 WHICH ARE REPRODUCED AS UNDER : 6. CONSIDERING THE VOLUMINOUS DETAILS FILED BEFORE US SUPPORTING THE ASSESSEES CLAIM AND ON PERUSAL OF T HE ORDERS OF THE A.O. AND THE CIT(A), WE ARE OF THE OP INION THAT THE A.O. HAS DISALLOWED THE CLAMS ON CERTAIN G ENERAL PRINCIPLES ABOUT THE KETAN PAREKH GROUP CASES AND OBSERVATIONS OF THE JPC AND SEBI WITHOUT EXAMINING THE INDIVIDUAL DETAILS OF THE ASSESSEE COMPANY FOR THE IMPUGNED YEAR. IN VIEW OF THIS, WE ARE OF THE OPINI ON THAT THE MATTER REQUIRES RE-EXAMINATION BY THE A.O. IT I S ALSO NOTICED THAT IN THE CASE OF SAI MANGAL INVESTRADE L TD. THE COORDINATE BENCH VIDE ORDER DATED 25.11.2009 HA S ACCEPTED THAT THE TRANSACTIONS ARE GENUINE AND THE LOSS CLAIMED PERTAINS TO VALUATION OF STOCK AT COST OR N ET REALISABLE VALUE AND ACCORDINGLY THE GROUNDS OF THE ASSESSEE WERE ALLOWED. IN VIEW OF THIS FINDING OF F ACT IN ANOTHER GROUP CONCERN, WE ARE OF THE OPINION THAT T HE A.O. SHOULD EXAMINE THE NATURE OF THE TRANSACTION UNDERTAKEN BY THE ASSESSEE WITHOUT GETTING AFFECTED/PERSUADED BY THE OBSERVATIONS OF THE SEBI AND JPC, UNLESS THEY ARE APPLICABLE TO THE FACTS IN ASS ESSEE CASE. IT IS ALSO BROUGHT TO OUR NOTICE THAT THERE W AS SPECIAL AUDIT CONDUCTED OF ASSESSEES TRANSACTIONS AND THE REPORT WAS NOT PLACED ON RECORD. THE A.O. IS DI RECTED TO CONSIDER THE ISSUES AFRESH IN THE LIGHT OF THE F ACTS ON ITA NO.78/MUM/2009 (ASSESSMENT YEAR : 2002-03) 5 RECORD AND NEEDLESS TO SAY THAT THE ASSESSEE SHOULD BE GIVEN OPPORTUNITY BEFORE DECIDING THE ISSUES. FOR T HIS PURPOSE THE ORDERS OF THE A.O. AND CIT(A) ON THIS I SSUE ARE SET ASIDE AND THE ASSESSMENT IS RESTORED BACK T O THE A.O. TO CONSIDER IT AFRESH AFTER EXAMINING THE FACT S AND ACCORDING TO THE LAW. IN THE ABSENCE OF ANY DISTINGUISHING FEATURES BROUG HT ON RECORD BY THE LEARNED DR, WE RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL (SUPRA) SET ASIDE THE ORDERS PASSE D BY THE REVENUE AUTHORITIES ON THIS ACCOUNT AND SEND BACK T HE MATTER TO THE FILE OF THE AO TO CONSIDER AFRESH IN THE LI GHT OF THE DIRECTION OF TRIBUNAL (SUPRA) AND ACCORDING TO LAW AFTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE GROUND TAKEN BY THE ASSESSEE IS THE REFORE PARTLY ALLOWED FOR STATISTICAL PURPOSES. 10. GROUND NO.2 IS AGAINST THE SUSTENANCE OF DISALL OWANCE OF INTEREST OF RS.8,47,77,146/-. 11. THE BRIEF FACTS OF THE ABOVE ISSUE ARE THAT IT WAS OBSERVED BY THE AO THAT THE ASSESSEE HAS DEBITED A N AMOUNT OF RS.8,47,77,146/- AS INTEREST LIABILITY NOT PROVIDED AS PER NOTE B(A) AND (10) OF SCHEDULE L OF ANNUA L ACCOUNTS. IT HAS BEEN MENTIONED IN THE AUDIT REPOR T THAT THE COMPANY HAS NOT PROVIDED FOR INTEREST OF RS.8,45,64 ,646/- ON SECURED LOANS FROM A BANK FOR A PERIOD AFTER 30 TH SEPT.2001. THE BANK ALSO HAS NOT PROVIDED FOR THE INTEREST AFT ER THE SAID DATE. THE ASSESSEE HAS SUBMITTED VIDE LETTER DATED ITA NO.78/MUM/2009 (ASSESSMENT YEAR : 2002-03) 6 22.03.2005 THAT THE COMPANY HAD NOT PROVIDED FOR I NTEREST OF RS.8,47,77,146/- ON SECURED LOANS FROM MADHAVPURA MERCANTILE CO-OPERATIVE BANK LTD FOR THE PERIOD F ROM 1.10.2001 TO 31.3.2002. HOWEVER THOUGH NOT ACCOUNT ED, THE COMPANY IS CONTRACTUALLY LIABLE TO PAY INTEREST AN D HENCE ALLOWABLE. HOWEVER, THE AO WAS OF THE VIEW THAT SINCE THE LIABILITY HAS NOT ARISEN, THE ASSESSEE CANNOT CLAI M IT AS AN EXPENDITURE AND HENCE HE DISALLOWED RS.8,47,77,146/ -. 12. ON APPEAL, THE LEARNED CIT(A) WHILE AGREEING W ITH THE VIEW OF THE AO UPHELD THE DISALLOWANCE MADE BY THE AO. 13. AT THE TIME OF HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE WHILE REFERRING TO THE COPY OF THE STATEME NT OF BANK ACCOUNT APPEARING ON PAGES 50 AND 51 OF THE ASSESSEES PAPER BOOK TO SHOW THAT THE BANK HAS MA DE PROVISIONS OF INTEREST AMOUNTING TO RS.4,48,61,464/ - ON 1.12.2001 AND RS.3,96,98,182 ON 30.03.2002 AGGREGAT ING TO RS.8,45,64,646/-, THEREFORE, DESPITE THE FACT T HAT THE ASSESSEE HAS NOT MADE NECESSARY ENTRIES IN THE BOO KS OF ACCOUNT, THE ASSESSEE IS ENTITLED TO THE DEDUCTION OF THE SAID AMOUNT OF INTEREST AND FOR THIS PROPOSITION THE REL IANCE WAS ALSO PLACED ON THE ORDER OF THE TRIBUNAL IN THE CA SE OF M/S CHAT COMPUTER PVT LTD V/S DCIT IN ITA NO.4818/MUM/ 2007 FOR THE ASSESSMENT YEAR 2002-03 DATED 30.12.2010, WHEREIN ITA NO.78/MUM/2009 (ASSESSMENT YEAR : 2002-03) 7 THE TRIBUNAL ON THE SIMILAR FACTS AND CIRCUMSTANCES HAS ALLOWED THE INTEREST AS CLAIMED BY THE ASSESSEE. HE ALSO PLACED ON RECORD THE COPY OF THE SAID ORDER OF THE TRIBUNAL. WITH REGARD TO THE AMOUNT OF INTEREST OF RS.2,12, 500/- HE SUBMITS THAT THE SAME MAY ALSO BE ALLOWED FOR THE S AME REASONS. AT THIS STAGE, THE LEARNED COUNSEL FOR T HE ASSESSEE ALSO SUBMITS THAT THE ASSESSEE ITSELF HAS DISALLOWE D THE INTEREST OF RS.4,80,00,000/- BEING NOT UTILISED F OR THE PURPOSE OF BUSINESS AS MENTIONED IN THE PARAGRAPHS 5 OF THE ASSESSMENT ORDER. HE, THEREFORE, SUBMITS THAT IN THE LIGHT OF THE ABOVE DUE RELIEF BE ALLOWED TO THE ASSESSEE. 14. ON THE OTHER HAND, THE LEARNED DR SUPPORTS THE ORDER OF THE AO AND THE LEARNED CIT(A). 15. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE INTEREST OF RS.8,47,77,146/- WAS DISALLOWED ON THE GROUND THAT NEITHER THE BANK HAS DEBITED T HE ASSESSEES LOAN ACCOUNT WITH INTEREST NOR THE ASSES SEE HAS CREDITED THE BANK ACCOUNT. ON APPEAL, THE LEARNED CIT(A) WHILE OBSERVING THAT NOTHING HAS BEEN BROUGHT ON RE CORD TO SHOW THAT THE LIABILITY WAS, IN FACT, CRYSTALLISED AND ASCERTAINED DURING THE RELEVANT YEAR AGREED WITH TH E VIEWS OF THE AO AND UPHELD THE DISALLOWANCE MADE BY THE A O. HOWEVER, FROM THE STATEMENT OF BANK ACCOUNT WE FIND THAT ITA NO.78/MUM/2009 (ASSESSMENT YEAR : 2002-03) 8 THE MADHAVPURA MERCANTILE CO-OPERATIVE BANK LTD, MA NDVI BRANCH, MUMBAI, HAS PASSED NECESSARY ENTRIES OF I NTEREST ON 1.12.2001 FOR RS.4,48,61,464/- AND ON 30.03.200 2 FOR RS.3,96,98,182/- AGGREGATING TO RS.8,45,59,646/- AS PER THE STATEMENT OF ACCOUNT APPEARING AT PAGES 50 AND 51 OF THE ASSESSEES PAPER BOOK. THE POSITION OF LAW IS WE LL SETTLED THAT MAKING OF AN ENTRY OR ABSENCE OF AN ENTRY IN THE BOOKS OF ACCOUNT CANNOT DETERMINE RIGHTS AND LIABILITY OF PARTY. 16. IN M/S CHAT COMPUTER PVT LTD V/S DCIT (SUPRA) ON THE SIMILAR ISSUE IT HAS BEEN HELD BY THE TRIBUNAL I N PARAGRAPH 6 OF THE ORDER THAT SINCE THE AMOUNT ARE BORROWED THE LIABILITY TO PAY INTEREST FOR THE WHOLE YEAR HAS CRYSTALLISED. IN VIEW OF THIS, THE AMOUNT DEBITED TO ASSESSEES ACCOUNT BY THE SAID BANK IN THE BANK STATEMENT AT RS.9,93,67, 932/- IS CERTAINLY AN ALLOWABLE AMOUNT . THIS BEING SO AND IN THE ABSENCE OF ANY DISTINGUISHING FEATURES BROUGHT ON RECORD BY THE REVENUE, WE ARE OF THE VIEW THAT IN VIEW OF TH E BANK STATEMENT, THE ASSESSEE IS ENTITLED TO THE DEDUCTI ON OF INTEREST AS CLAIMED BY IT. HOWEVER, KEEPING IN V IEW THAT THE ASSESSEE HAS ITSELF DISALLOWED AN AMOUNT OF INT EREST OF RS.4,80,00,000/- BEING NOT UTILISED FOR THE PURPOS E, THE AO IS DIRECTED TO ALLOW THE BALANCE AMOUNT OF INTERES T OF RS.3,65,59,646/- ITA NO.78/MUM/2009 (ASSESSMENT YEAR : 2002-03) 9 17. WITH REGARD TO THE OTHER ITEM OF INTEREST OF RS.2,12,500/-, WE FIND THAT NEITHER THERE IS ANY MATERIAL NOR THERE IS ANY FINDING RECORDED EITHER BY THE AO OR BY THE LEARNED COMMISSIONER OF INCOME TAX (A) ON THIS ISSU E, THEREFORE, IN THE INTERESTS OF JUSTICE, WE SET ASID E THE ISSUE TO THE FILE OF THE AO WHO SHALL DECIDE THE SAME AFRE SH AND ACCORDING TO LAW AFTER PROVIDING A REASONABLE OP PORTUNITY OF BEING HEARD TO THE ASSESSEE. THE GROUND TAKEN B Y THE ASSESSEE, IS THEREFORE, PARTLY ALLOWED FOR STATIST ICAL PURPOSES. 18. GROUND NO.3 IS AGAINST THE SUSTENANCE OF DISAL LOWANCE OF NOT ALLOWING CARRIED FORWARD OF LONG TERM CA PITAL LOSS OF RS.1,08,74,098/-. 19. THE BRIEF FACTS OF THE ABOVE ISSUE ARE THAT IT WAS OBSERVED BY THE AO THAT THE ASSESSEE HAS SHOWN LO NG TERM CAPITAL LOSS OF RS.1,08,74,098/- ON ACCOUNT OF SA LE OF SHARES OF SANKHYA INFOTECHS, THE ASSESSEE HAS FIL ED ONLY THE CHART SHOWING SALE AND PURCHASE OF SHARES. IN T HE ABSENCE OF ANY BROKERS NOTES AND OTHER DETAILS, T HE AO DISALLOWED THE LONG TERM CAPITAL LOSS, NOT ALLOWED TO BE CARRIED FORWARD. ITA NO.78/MUM/2009 (ASSESSMENT YEAR : 2002-03) 10 20. ON APPEAL, THE LEARNED COMMISSIONER OF INCOME T AX (A), IN THE ABSENCE OF ANY WRITTEN SUBMISSION CONF IRMED THE DISALLOWANCE MADE BY THE AO. 21. AT THE TIME OF HEARING, THE LEARNED COUNSEL FO R THE ASSESSEE SUBMITS THAT THE ASSESSEE HAS FILED THE COMPUTATION OF CAPITAL GAINS AND DEBIT NOTE OF SAL E OF SHARES APPEARING AT PAGES 3 AND 49 OF THE ASSESSEES PAPER BOOK, THEREFORE, THE CLAIM MADE BY THE ASSESSEE BE ALLOWE D. 22. ON THE OTHER HAND, THE LEARNED DR SUPPORTS THE ORDER OF THE AO AND LEARNED COMMISSIONER OF INCOME TAX (A). 23. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS O F THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. AFTER CONSIDERING THE FACTS AND CIRCUMSTANCES OF TH E CASE, WE OBSERVED THAT THE AO AND LEARNED COMMISSIONER OF I NCOME TAX(A) DESPITE OF THE FURNISHING THE DEBIT NOTE BY THE ASSESSEE HAS NOT EXAMINED THE ISSUE PROPERLY, THERE FORE, IN THE INTERESTS OF JUSTICE, WE CONSIDER IT FAIR AND R EASONABLE THAT THE MATTER SHOULD GO BACK TO THE FILE OF THE A O. ACCORDINGLY, WE SET ASIDE THE ORDERS PASSED BY THE REVENUE AUTHORITIES ON THIS ACCOUNT AND SEND BACK THE MATTE R TO THE FILE OF THE AO TO DECIDE THE SAME AFRESH AND ACC ORDING TO LAW AFTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ITA NO.78/MUM/2009 (ASSESSMENT YEAR : 2002-03) 11 24. IN THE RESULT, THE ASSESSEES APPEAL STANDS PA RTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 11TH MAY,2 011. SD SD (T.R.SOOD) (D.K.AGARWAL) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 11TH MAY 2011 SRL:5511 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT CONCERNED 4. LEARNED CIT(A) CONCERNED 5. DR CONCERNED BENCH 6. GUARD FILED. BY ORDER TRUE COPY ASSTT. REGISTRAR, ITAT, MUMBAI