ITO Wd. - 4(1)(2), MUMBAI V. M/s. HARVESTDEAL SECURITIES LTD., MUMBAI

ITA 826/MUM/2007

• Counselvise Citation: 82619914 RSA 2007
• Duration Of Justice: 4 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-05-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 18-04-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 25-01-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: GOLI SRINIVAS RAO
• Assessee Lawyers: HERO RAI
• Keywords: Business income; Speculation loss
• Section: 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H MUMBAI BEFORE SHRI BEFORE SHRI BEFORE SHRI BEFORE SHRI R.S. SYAL R.S. SYAL R.S. SYAL R.S. SYAL (AM) AND SMT. ASHA VIJAYARAGHAVAN (JM) (AM) AND SMT. ASHA VIJAYARAGHAVAN (JM) (AM) AND SMT. ASHA VIJAYARAGHAVAN (JM) (AM) AND SMT. ASHA VIJAYARAGHAVAN (JM) ITA NO. 826/MUM/2007 ASSESSMENT YEAR-2003-04 THE ITO, WARD - 4(1)(2), AAYAKAR BHAVAN, MUMBAI-400 020 VS. M/S. HARVESTDEAL SECURITIES LTD., SURYA MAHAL, NAGINDAS MASTER ROAD, FORT, MUMBAI-400 023 PAN-AAACH8152R (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI GOLI SRINIVAS RAO RESPONDENT BY: SHRI HERO RAI O R D E R O R D E R O R D E R O R D E R PER ASHA VIJAYARAGHAVAN (JM) PER ASHA VIJAYARAGHAVAN (JM) PER ASHA VIJAYARAGHAVAN (JM) PER ASHA VIJAYARAGHAVAN (JM) THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AGAI NST THE ORDER DATED 14.11.2006 PASSED BY THE LD. CIT(A)-IV FO R THE ASSESSMENT YEAR 2003-04. 2. THE ASSESSEE COMPANY IS SHARE & STOCK BROKERS AND CARR YING ON BUSINESS OF DEALING IN SHARES AND OTHER SECURITIES ON BEHA LF OF CLIENTS AS WELL AS ON OWN ACCOUNT. THE ASSESSEE COMPANY ALSO MAKE S INVESTMENTS IN SHARES, SECURITIES. THE RETURN OF INCOME FOR THE ASSESSMENT YEAR UNDER APPEAL WAS FILED ON 1.12.2003 DECL ARING LOSS OF `. 3,54,57,945/-,. THE ASSESSMENT WAS COMPLETED U/S. 14 3(3) ON 28.2.2006 FOR A TOTAL LOSS OF `. 59,68,945/-. ITA NO. 826/M/07 2 3. THE LD. CIT(A) HELD AS FOLLOWS: I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND PERUSED THE ASSESSMENT ORDER. IN ORDER TO APPRECIATE THE FACTS OF THE CASE AND THE TRANSACTION I N QUESTION IN THE RIGHT PERSPECTIVE, IT WILL BE RELEVANT TO EX AMINE THE GAMUT OF EVENTS AND CIRCUMSTANCES SURROUNDING THE CASE POINT- WISE AS UNDER : I. THE APPELLANT WAS IN POSSESSION OF 4,75,000 SHARES OF NEDUNGADI BANK LTD. (NBL FOR SHORT) WHICH HAD BEEN ACQUIRED FROM TIME TO TIME IN THE EARLIER VARIOUS YE ARS. II. THE FINANCIAL POSITION OF NBL WEAKENED AND VALUE OF ITS SHARES DWINDLED TO THE EXTENT THAT ITS SHARES WERE RUMOURED TO BE DE-LISTED ON THE BSE. III. UNDER THE CIRCUMSTANCES, EVERY PRUDENT BUSINESSMAN WOULD THINK OF DISPOSING OFF THE SHARES NBL AT WHATEVE R VALUE HE COULD REALIZE TO ESCAPE TOTAL LOSS BECAUSE ONC E THE SHARES OF A COMPANY ARE DE-LISTED, NO TRANSACTION I N THE SAME COULD BE EXECUTED TILL THE TIME THE POSITION OF THE COMPANY IMPROVES TO THE EXTENT THAT ITS SHARES ARE RE- LISTED. IV. INCIDENTALLY, THOUGHT THE APPELLANT WAS A STOCK BROK ER, ITS BSE CARD WAS NOT OPERATIVE FOR ONE REASON OR THE OTHE R AS IT STOOD SUSPENDED BY BSE FOR NOT MEETING CERTAIN NORM S. THEREFORE, THESE SHARES COULD NOT HAVE BEEN TRANSFERRED AT ESE BY THE APPELLANT ON ITS OWN CARD AND SUCH TRANSAC TION COULD HAVE BEEN EXECUTED THROUGH ANY OTHER BROKER. V. HOWEVER, IT WAS ALSO A FACT THAT AS PER THE RULES AND REGULATIONS OF THE BSE A STOCK BROKER COULD NOT ENTER INTO ANY TRANSACTION OF SHARES THROUGH ANOTHER BROKER OF T HE STOCK EXCHANGE. VI. UNDER THE CIRCUMSTANCES, THE OPTIONS BEFORE THE APPELL ANT WERE; A) TO RETAIN THE SHARES AND WAIT FOR THE TIME T HE FINANCIAL POSITION OF NBL IMPROVED WHICH WAS NOT TO B E AS THAT COMPANY WAS DELISTED AND STILL TO TILL DATE); B) RETAIN THE SHARES AND SUFFER 100% LOSS (WHICH WAS NOT POSSIBLE IF VIEWED FROM A PRUDENT BUSINESSMANS MIND AND ALSO IN VIEW OF POSSIBILITY OF TOTAL DISALLOWANCE BY THE ASSESSING ITA NO. 826/M/07 3 OFFICER IN SUBSEQUENT YEARS); C) APPROACH ANOTHER STOCK BROKER AND THE BSE ITSELF FOR APPROVAL FOR THIS PARTI CULAR TRANSACTION (WHICH AGAIN WAS NOT POSSIBLE IN VIEW OF T HE RULES AND REGULATIONS OF SEBI/BSE; D) GO IN FOR AN INTERMEDIARY WHO COULD APPROACH A STOCK BROKER TO SEL L THE SHARES ON BSE ON BEHALF OF SUCH INTERMEDIARY AS THIS WAY , THE RULES AND REGULATIONS OF THE SEBI OR BSE WOULD NO T BE VIOLATED AND THE PURPOSE OF THE APPELLANT WOULD BE SE RVED. THIS LAST OPTION WAS EVENTUALLY ADOPTED BY THE APPELLA NT. THE APPELLANTS CONTENTION THAT IF THE TRANSACTION IN QUESTION IS VIEWED FROM THE ASSESSING OFFICERS POINT OF VIEW THEN IT WOULD RESULT IN ABSURDITY OF LAW APPEARS TO BE CORRECT. THE LAW REGULATES AND FACILITATES THE BUSINE SS AND IS NOT INTENDED TO OBSTRUCT THE SAME. IF THE APPELLA NT HAD OPTED FOR ANY OTHER OPTION AVAILABLE TO IT, THE REV ENUE WOULD NOT HAVE GAINED ANYTHING. IT WOULD RATHER HA VE LOST SOME REVENUE AS THEN THE ASSESSEE WOULD HAVE SUFFERED TOTAL LOSS. IT WOULD HAVE BEEN LOSS TO THE ASSESSEE AS WEL L AS THE DEPARTMENT. NOW IT COULD RETRIEVE AT LEAST A S PART OF THE COST OF SHARES. THE DEPARTMENT HAS TO DEAL WIT H THE BUSINESS OF THE ASSESSEE AND THE INCOME ARISING THEREFROM. WHAT IS LEGAL OR ILLEGAL FROM THE ANGLE OF A PROVISIO N OF ANY OTHER LAW IS NOT MUCH MATERIAL TO THE PROVISIONS OF T HE I.T. ACT UNLESS THAT ACTIVITY VIOLATES ANY PROVISIONS OF THE I.T. ACT. IF THE SEBI/BSE HAD PROCEEDED AGAINST THE ASSESSE E FOR THIS VIOLATION IF IT REALLY IS, AND PERHAPS NOTHIN G OF THE SORT HAPPENED, THE ASSESSEE MIGHT HAVE BEEN ABLE TO CONVINCE THOSE AUTHORITIES REGARDING THE CIRCUMSTANCES OF ITS CASE. OTHERWISE ALSO, IT WAS NOT TO CIRCUMVENT THE RULES AND REGULATIONS OF SEBI/BSE BUT TO ABIDE BY THE SAME THAT THE ASSESSEE PROCEEDED THROUGH AN INTERMEDIARY. THERE WAS, THEREFORE, NOTHING ILLEGAL IN THE TRANSACTION. THUS, TAKING INTO CONSIDERATION THE ENTIRETY OF CIRCUMSTANC ES AND THE FACTS OF THE CASE, I BELIEVE THAT THE ASSESSING OFFI CER WAS NOT JUSTIFIED IN DISALLOWING THE LOSS OF ` 3,34,89, 000/- SUFFERED ON ACCOUNT OF TRANSACTION IN THE SHARES OF NB L. HE IS DIRECTED TO TREAT THIS LOSS AS GENUINE AND INCURRED A S PER PROVISIONS OF LAW. HOWEVER, AS THE ASSESSEE IS ENGAGED IN THE BUSINESS OF SHARE TRADING, EXPLANATION TO SECTION 73 IS APPLICABLE TO IT. HENCE, THIS LOSS OF ` 3,34,89,000/- WILL BE TREATED AS SPECULATION LOSS AND WILL BE ALLOWED TO BE CARRIED FORWARD FOR SET OFF AGAINST SPECULATION PROFIT OF SUBSEQUENT YEARS. ITA NO. 826/M/07 4 4. AGGRIEVED, REVENUE IS IN APPEAL BEFORE US. THE LD . COUNSEL FOR THE ASSESSEE SHRI HERO RAI REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES WHICH IS AS UNDER: I) THE COMPANY HAD PURCHASED 4,75,000 SHARES IN NEDUNGADI BANK LTD. FOR A CONSIDERATION OF ` 3,83,57,750/- FRO M TIME TO TIME IN THE EARLIER YEARS. THIS WAS REFLECTED IN OUR STOCK-IN- TRADE OF EARLIER YEARS. II) DURING THE YEAR, THE MARKET WAS NOT VERY GOOD AND TH E SHARES OF THE SAID NEDUNGADI BANK LTD. WERE LIKELY TO BE DE LISTED FROM THE STOCK EXCHANGES. IN ANTICIPATION OF SUCH D ELISTING, THE SHARES STARTED DECLINING SHARPLY. FINALLY, THESE SHA RES WERE DELISTED ON 07.02.2003. III) ON RECEIPT OF SUCH RUMOUR AROUND JANUARY 2003 THAT THE SHARES WERE LIKELY TO BE DELISTED, THE MANAGEMENT OF T HE COMPANY DECIDED TO LIQUIDATE THEIR HOLDING IN NEDUN GADI BANK LTD. AS EARLY AS POSSIBLE. IV) ACCORDINGLY, FROM 15 TH JANUARY, 2003 ONWARDS THE COMPANY STARTED DISPOSING OFF THE SHARES IN NEDUNGADI BANK LTD. V) AT THE RELEVANT POINT OF TIME, THE MEMBERSHIP CARD O F THE ASSESSEE COMPANY WAS NOT OPERATIVE/ACTIVE. AS SUCH, THE COMPANY COULD NOT HAVE SOLD THE SHARES IN ITS OWN NAME. THUS, THE COMPANY HAD TO FIND OUT A DIFFERENT BROKER FOR DISPOSING OFF THE SHARES. IT WAS BROUGHT TO THE NOTICE OF THE MANAGEMENT HAT A MEMBER OF THE BOMBAY STOCK EXCHANG E PERHAPS COULD NOT HAVE HA SHARE TRANSACTIONS WITH ANOTH ER FELLOW BROKER OF THE BSE. VI) IN THE ABOVE SITUATION, IT WAS NOT POSSIBLE FOR THE COM PANY TO SELL THE SHARES IN NEDUNGADI BANK LTD.THROUGH ANOTHER BROKER (SHRIKANT G. MANTRI) DIRECTLY. THEREFORE, THE ONL Y OPTION LEFT WITH THE ASSESSEE COMPANY WAS TO KEEP ONE INTERMEDIARY I N ORDER TO SAVE THE COMPANY FROM ANY INFRINGEMENT OF B YE-LAWS OF THE BSE. VII) ACCORDINGLY, THE SHARES OF NEDUNGADI BANK LTD. WERE F IRST SOLD TO HANUMAN SECURITIES PVT. LTD. THE PHOTOCOPY OF T HE BILL RAISED IN THE NAME OF HANUMAN SECURITIES PVT. LTD. HA S ALREADY BEEN PLACED ON RECORD. HOWEVER, A COPY IS ONCE ITA NO. 826/M/07 5 AGAIN ENCLOSED HEREWITH FOR YOUR READY REFERENCE. [A NNEXURE 1] VIII) IT WOULD NOT BE OUT OF PLACE TO MENTION HERE THAT T HE SHARES WERE SOLD TO HANUMAN SECURITIES PVT. LTD. AT THE PREV ALENT MARKET RATE AT THE RELEVANT POINT OF TIME. THE PHO TOCOPIES OF THE LISTS OF STOCK PRICE (FOR PURCHASE AND SALES) HAVE AL READY BEEN FILED. HOWEVER, THE COPIES ARE ONCE AGAIN ENCL OSED HEREWITH FOR YOUR READY REFERENCE. [ANNEXURE 2] THUS, THE SHARES WERE NOT TRANSFERRED AT SUPPRESSED VALUE NOR WERE PURCHASED AT INFLATED VALUE. THIS ITSELF ESTABLISHES TH E GENUINENESS AND BONAFIDE INTENTION OF THE TRANSACTION. IX) SUBSEQUENTLY, THESE SHARES WERE SOLD BY HANUMAN SECURITI ES PVT. LTD. IN THE OPEN MARKET OF BSE THROUGH SHRIKAN D G. MANTRI AT THE PREVALENT MARKET RATES AT THE RELEVANT POINT OF TIME. ALL THE TRANSACTIONS OF SALE OF 4,75,000 SHARES I N NEDUNGADI BANK LTD. WERE SOLD THROUGH THE TERMINAL O F THE STOCK EXCHANGE AND THE SHARES WERE DELIVERED IN THE MARKET THROUGH THE POOL ACCOUNT OF SHRIKANT G. MANTRI. TH US, ONCE AGAIN THSESE TRANSACTIONS WERE THROUGH THE STOCK EXCHA NGE TO AN UNKNOWN BUYER, WHERE THE ASSESSEE COMPANY OR ANY OF IT ASSOCIATES HAD NO INTEREST AT ALL. THESE FACTS CAN BE VERIFIED FROM THE SAUDA SHEETS OF EITHER SHRIKANT G. MANTRI OR FROM THE STOCK EXCHANGE. THE PHOTOCOPIES OF SALE BILLS OF HA NUMAN SECURITIES PVT. LTD. THROUGH SHRIKANT G. MANTRI ARE BEING ENCLOSED HEREWITH FOR YOUR READY REFERENCE [ANNEXURE 3] X) IT MAY KINDLY BE NOTED THAT THESE SHARES WERE HELD BY THE ASSESSEE COMPANY IN THEIR DEMAT ACCOUNT, WHICH WERE TRANSFERRED FROM THE DEMAT ACCOUNT OF HANUMAN SECURI TIES PVT. LTD. AND NO DISPOSAL OF THESE SHARES THROUGHT SHRI KANT G. MANTRI, THESE SHARES WERE TRANSFERRED FROM THE DEMAT ACCOUNT OF HANUMAN SECURITIES TO THE POOL ACCOUNT OF SHRIKANT G. MANTRI AND FROM SHRIKANT G. MANTRIS POO L ACCOUNT, THESE SHARES WERE TRANSFERRED TO THE STOCK EXCHANGE. TH E PHOTOCOPIES OF DEMAT STATEMENT OF THE ASSESSEE COMPANY 9I.E. HARVESTDEAL SECURITIES LTD.) AND OF HANUMAN SEC URITIES PVT. LTD. (PROPERLY EARMARKED /HIGHLIGHTED) ARE ENC LOSED HEREWITH FOR YOUR READY REFERENCE. [ANNEXURE 4] XI) IT MAY FURTHER BE NOTED THAT THE SHARES SOLD TO HANUMA N SECURITIES PVT. LTD. BY THE ASSESSEE COMPANY WERE FURTHE R SOLD BY HANUMAN SECURITIES PVT. LTD. AT THE PREVALEN T MARKET RATE AND THERE WAS NOT MATERIAL DIFFERENCE (AS COMPAR ED TO ITA NO. 826/M/07 6 THE LOSSES INCURRED BY THE ASSESSEE COMPANY) IN THE PURCH ASE PRICE AND SALE PRICE IN THE HANDS OF HANUMAN SECURITI ES PVT. LTD. THUS, THERE WAS NO INTENTION TO HAVE ARTIFICIA L LOSS IN THE BOOKS OF THE ASSESSEE COMPANY (I.E. HARVESTDEAL SECURITI ES LTD.). IN VIEW OF THE ABOVE, YOU WILL KINDLY OBSERVE THAT T HE AFORESAID TRANSACTION WAS A GENUINE TRANSACTION AND WAS NOT ENTE RED INTO WITH AN INTENTION TO CREATE ARTIFICIAL LOSS. THE SHAR ES WERE ULTIMATELY SOLD IN THE OPEN MARKET AND NOT TO ANY ASS OCIATE CONCERN. AS SUCH, THE LOSS CLAIMED BY THE ASSESSEE COMPANY SHOULD BE TREATED AS GENUINE AND BE ALLOWED TO BE CAR RIED FORWARD. 5. WE HEARD BOTH THE PARTIES. WE ARE OF THE OPINION THAT THE ASSESSEE HAD NO OTHER OPTION EXCEPT TO GO IN FOR AN INT ERMEDIARY WHO COULD APPROACH A STOCK BROKER TO SELL THE SHARES ON BSC ON BEHALF OF SUCH INTERMEDIARY AS THIS WAY, THE RULES AND REGULATION S OF THE SEBI OR BSE WOULD NOT BE VIOLATED AND THE PURPOSE OF THE ASSE SSEE WOULD BE SERVED. THE ASSESSEE HAS ALSO PRODUCED PHOTOCOPY OF THE BILL RAISED IN THE NAME OF HANUMAN SECURITIES PVT. LTD. AT THE PREV ALENT MARKET IT IS ALSO TO BE NOTED THAT THE SHARES WERE ULTIMATELY SOLD IN THE OPEN MARKET AND NOT TO ANY ASSOCIATE CONCERN. FURTHER TH ERE IS NO CONSIDERABLE DIFFERENCE IN THE PURCHASE PRICE AND SALE PRICE IN THE HANDS OF HANUMAN SECURITIES PVT. LTD. ALL THESE FACTO RS MAKE THE CLAIM OF THE ASSESSEE GENUINE AND THEREFORE CARRY FORWARD LOSS IS TO BE ALLOWED. WE CONFIRM THE ORDER OF THE LD. CIT(A) AND DISMISS THE REVENUES APPEAL ON THIS ISSUE. 6. THE SECOND GROUND RELATES TO ADDITION OF `. 5,85,1 55/- ON ACCOUNT OF INTEREST ON FIXED DEPOSITS. DURING THE ASSESSMENT PROCE EDINGS, THE ASSESSING OFFICER NOTICED THAT THE BALANCE SHEET AS ON 3 1.03.2003 SHOWED FIXED DEPOSIT RECEIPTS (FDRS) WITH NEDUNGADI BA NK LTD. AT `.59,35,254/- AS AGAINST `.79,35,254/- AS ON 31.03.200 2. HOWEVER, THE INTEREST RECEIVED WAS SHOWN AT NIL AS AGAINST `.8,32,40 0/- AS ON 31.03.2002. WHEN ASKED TO EXPLAIN AS TO WHY THE INTER EST ON FDR WITH ITA NO. 826/M/07 7 NEDUNGADI BANK WAS NOT INCLUDED AS INCOME IN THE P & L A/C, THE ASSESSEE SUBMITTED COPY OF THE SUIT FILED AGAINST PUNJAB NATIONAL BANK WHICH HAD TAKEN OVER NEDUNGADI BANK LTD. THIS SUIT WA S FILED AGAINST THE APPROPRIATION OF THE FDRS OF THE ASSESSEE BY NEDUNG ADI BANK LTD. FOR CERTAIN DEFAULTS IN THE TRANSACTIONS BETWEEN THE SAID BANK AND THE ASSESSEE. INFORMATION U/S.133(6) WAS CALLED FROM PUNJAB N ATIONAL BANK WITH REGARD TO INTEREST CREDITED TO THE ASSESSEE IN RESPO NSE TO WHICH IT WAS INTIMATED THAT INTEREST OF `.5,85,155/- (`.5,33,8 67/- + `.51,288/-) WAS PAID ON 22.06.2002 AFTER DEDUCTING TDS OF `.1,22 ,883/- (`.1,12,113/- + `.10,770/-). ACCORDINGLY, A SHOW CA USE LETTER WAS ISSUED TO THE ASSESSEE, IN RESPONSE TO WHICH THE ASSESSEE SUBMITTED T HAT IT WAS SURPRISED BY THE RESPONSE GIVEN BY PNB WITH REFEREN CE TO FDR AS THE BANK HAD NEVER INTIMATED THE ASSESSEE OF HAVING G IVEN CREDIT OF INTEREST ON FIXED DEPOSIT. THE AO DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE. HE OBSERVED THAT SINCE THE ASSESSEE WAS FOLLOWING MERCANTILE METHOD OF ACCOUNTING AND THE FACT WAS TH AT IT HAD FILED A SUIT AGAINST THE BANK CLAIMING THAT IT HAD PLACED DE POSITS WITH THE BANK AS MARGIN MONEY FOR ISSUING BANK GUARANTEE IN FAV OUR OF STOCK EXCHANGE AND DEMANDED THE REPAYMENT OF THE PRINCIP AL AMOUNT OF FDR ALONGWITH INTEREST, IT PERHAPS INTENDED TO ACCOUN T FOR THE INTEREST ON FDR ON RECEIPT BASIS, WHICH WAS A DEVIATION FROM TH E METHOD OF ACCOUNTING OF ACCRUAL BASIS AS ADOPTED BY THE ASSESSEE. AC CORDINGLY, THE INTEREST OF `.5,85,155/- WAS HELD TO BE BUSINESS INC OME OF THE ASSESSEE AND ADDED TO THE TOTAL INCOME. HOWEVER, CREDIT FOR TDS WAS NOT ALLOWED AS THE PRESCRIBED FORM NO.16A WAS NOT SUBMI TTED. 7. THE LD. AR SUBMITTED THAT DURING THE YEAR, NO PRO VISION FOR INTEREST WAS MADE BY THE APPELLANT COMPANY FOR THE RE ASON THAT THERE WAS A DISPUTE WITH THE BANK AND THE BANK HAD APPROPRI ATED FDR AGAINST CERTAIN DISPUTES RAISED BY THEM IN RESPECT OF SH ARE TRANSACTIONS WITH THE ASSESSEE. THE ASSESSEE HAD FILED A SUIT AGAINST ITA NO. 826/M/07 8 PUNJAB NATIONAL BANK, WHICH HAD TAKEN OVER NEDUNGAD I BANK LTD. SINCE THE PRINCIPAL AMOUNT WAS IN DISPUTE AND THE BANK HAD NEVER INTIMATED ANY SUCH CREDIT OF INTEREST IN RESPECT OF THE FIXED DE POSIT WITH THEM, THE ASSESSEE DID NOT MAKE ANY PROVISIONS IN ITS BOOKS OF A CCOUNTS IN RESPECT OF ACCRUED INTEREST ON SUCH FDR. MOREOVER NEIT HER ANY ENTRY WAS MADE BY THE BANK IN THE BANK STATEMENT NOR THE C ERTIFICATES OF `.1,22,883/- WERE SENT TO THE APPELLANT. HE FURTHER SUBMITTED THAT THE BANK STATEMENTS OF ALL THE FDS WERE FURNISHED TO THE AO AND THE SAME SHOWED CREDIT OF INTEREST ON FDR ONLY UPTO 31.03.2002 . THEREAFTER NO CREDIT WAS GIVEN FOR INTEREST AT ALL. THE ONLY CREDIT WAS IN RESPECT OF TDS FOR EARLIER YEARS. THE BANK ALSO DID NOT MAKE ANY PAYMENT OF INTEREST. THE AO NEITHER SUPPLIED A COPY OF INFORMATI ON RECEIVED TO THE APPELLANT COMPANY, NOR DID HE ALLOW TO THE APPELLAN T TO CROSS EXAMINE THE BANK IN RESPECT OF THE STATEMENT SENT BY IT. HE SI MPLY INFORMED TO THE APPELLANT ABOUT THE INFORMATION RECEIVED FROM T HE BANK AND ADDED THE AMOUNT OF INTEREST OF `.5,85,155/- TO THE TOTAL INCOME WITHOUT UNDERSTANDING THE FACTS AND CIRCUMSTANCES OF THE CASE. THE LD.A.R. CONTENDED THAT THE AO DID NOT TAKE COGNIZANCE OF TH E INFORMATION FURNISHED BY THE ASSESSEE. IN LIGHT OF THE ABOVE, HE SHO ULD NOT HAVE MADE ADDITION ON ACCOUNT OF INTEREST ON FDR ON NOTIO NAL BASIS AS NOT INTEREST ACCRUED AT ALL AS THE BANK HAD ALREADY ADJUST ED THE AMOUNT OF FDRS. 8. AGGRIEVED, ASSESSEE IS IN APPEAL BEFORE THE LD. CIT(A ). THE LD. CIT(A) DELETED THE ADDITION MADE AMOUNTING TO `. 5, 85,155/- ON ACCOUNT OF INTEREST AFTER DISCUSSION AT PAGE 7 & 8 OF P ARA 3.2 OF HIS ORDER. 9. AGGRIEVED, REVENUE IS IN APPEAL BEFORE US. WE FIND THAT THE PUNJAB NATIONAL BANK HAS FURNISHED INFORMATION U/S. 13 3(6) STATING THAT INTEREST OF `.5,85,155/- HAS BEEN PAID ON 22.06.2002. IT ALSO STATES ITA NO. 826/M/07 9 THAT TDS OF `.1,22,883/- WAS DEDUCTED. THE AO IN HIS ORDER HAS MENTIONED THAT HAVING TAKEN INTO CONSIDERATION THE I NFORMATION FURNISHED U/S. 133(6) THAT INTEREST HAS BEEN PAID ON 22 .6.2002 AND TDS HAS BEEN DEDUCTED, THE ASSESSEE WAS REQUIRED TO INCLUDE THE INTEREST OF `. 5,85,155/- AS INCOME ACCRUING OUT OF THE FDRS PLACED WITH NEDUNGADI BANK LTD. THE AO OBSERVED THAT THIS IS NOT DONE BY THE ASSESSEE. THE ASSESSEE HAS INFACT NOT FURNISHED ANY SUBMISSION S FOR NOT INCLUDING THE SAID INTEREST AS INCOME. THEREFORE, THE INTEREST OF `. 5,85,155/- WAS HELD BY THE AO TO BE BUSINESS INCOME OF THE ASSESSEE AND HE ADDED THE SAME TO THE TOTAL INCOME. THE AO F URTHER DID NOT ALLOW CREDIT FOR TDS AS THE PRESCRIBED FORM NO. 16A W AS NOT SUBMITTED. HENCE WE ARE OF THE OPINION THAT THE LD. CIT(A)S OB SERVATION WHICH IS AS FOLLOWS IS INCORRECT. THE QUESTION THAT AROSE DURING THE ASSESSMENT PROCEEDINGS WAS THAT PNB INTIMATED THE AO THAT IT HAD CREDITED AND PAID `.5,85,155/- TO THE APPELLANT AND HAD ACTUALLY DEDUCTED TAX AT SOURCE ON THE SAME AMOUNTING TO `.1,22,883/- AND THE APPELLANT REFUTED THIS CLAIM OF PNB. THE AO CLOSED THE MATTER HERE WITHOUT GOING FURTHER INTO THE VERACITY OF THE COUNTER CLAIMS. IT WAS NOT A PROP ER COURSE OF ACTION. THE PROPER COURSE OF ACTION WOULD B E THAT THE AO SHOULD HAVE CALLED FROM THE BANK THE STATEMENT OF ACCOUNT OF FDR AND INTEREST THEREON AS PER BOOKS OF ACCOUNT OF THE BANK AND CONFRONTED THE SAME TO THE APPELLANT. HE SHOULD ALSO HAVE CALLED FOR THE FORM NO .16A ISSUED BY THE BANK REFLECTING THE TDS ON FDR INTEREST AND THE DATE OF SUCH PAYMENT TO THE GOVERNMENT. HE SHOUL D ALSO HAVE VERIFIED FROM THE RECORDS OF THE APPELLANT AS TO WHETHER IT HAD CLAIMED CREDIT OF ANY SUCH TDS IN THE RETURN OF INCOME. THE ISSUE COULD HAVE BEEN CONCLUSIVELY RESOL VED AS ALL THE FACTS WERE VERIFIABLE FROM RECORDS OF THE APPELLANT OR NBL/PNB. IT REQUIRED ONLY A BIT MORE D ILIGENCE ON THE PART OF THE AO. 10. FROM THE RECORDS WE FIND THAT THE AO HAS FROM THE INFORMATION FURNISHED U/S. 133(6) FROM PNB HAS EXAMINED AND FOUND THAT THE ASSESSEE HAS NOT MADE OUT A CASE FOR NOT INCLUDING THE I NTEREST OF `. ITA NO. 826/M/07 10 5,85,155/- AS BUSINESS INCOME AND DID NOT GIVE CREDIT F OR TDS AS FORM NO. 16A WAS NOT SUBMITTED. FURTHER, THE DIRECTION O F THE LD. CIT(A) WHICH IS MISCONCEIVED IS AS UNDER: HE IS, THEREFORE, DIRECTED TO VERIFY FROM THE RECOR DS AS MENTIONED ABOVE AS TO WHETHER THE BANK HAD ISSUED FORM NO.16A REGARDING THE TDS AND PAID THE SAME TO GOVERNMENT AND WHETHER THE APPELLANT HAD CLAIMED TH E CREDIT OF SUCH TDS OR NOT. IF THE BANKS VERSION TURN S OUT TO BE FALSE, HE IS DIRECTED DELETE THE ADDITION MADE AMOUNTING TO `.5,85,155/- ON ACCOUNT OF INTEREST. 11. THE LD. CIT(A)S ORDER IS TO BE OVERTURNED IN AS M UCH AS THE AO HAD WITH ALL DILIGENCE VERIFIED FROM THE RECORDS AND IN THE ABSENCE OF TDS CERTIFICATES HAD ADDED THE AMOUNT OF THE INTEREST TO THE TOTAL INCOME OF THE ASSESSEE. HENCE, WE CONFIRM THE ORDER OF THE AO. THE REVENUES APPEAL ON THIS GROUND IS ALLOWED. 6. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 18 TH DAY OF MAY, 2011 SD/- SD/- (R.S. SYAL) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 18 TH MAY, 2011 RJ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR H BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI ITA NO. 826/M/07 11 DATE INITIALS 1 DRAFT DICTATED ON: 6 .0 5 . 2011 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 9 .0 5 .2011 ______ SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: _________ ______ JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: _________ ______ JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: _________ ______ SR. PS/PS 6. KEPT FOR PRONOUNCEMENT ON: _________ ______ SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: _________ ______ SR. PS/PS 8. 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK: DATE ON WHICH FILE GOES TO AR _________ ______ 10. DATE OF DISPATCH OF ORDER: _________ ______