DCIT, Circle - 10, Kolkata, Kolkata V. M/s. Mira Leather Consultants Pvt. Ltd.,

ITA 95/KOL/2010

• Counselvise Citation: 9523514 RSA 2010
• Duration Of Justice: 3 year(s) 11 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-01-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 08-07-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 15-01-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SABOORUL HASAN USMANI
• Assessee Lawyers: SOUMITR A CHOUDHURY
• Keywords: Business income

Judgement Text

I.T.A. NO.: 95/KOL./2010 AS SESSMENT YEAR : 2006-07 PAGE 1 TO 15 1 IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA B BENCH, KOLKATA CORAM : SHRI MAHAVIR SINGH (JUDICIAL MEMBER) AND SHRI ABRAHAM P. GEORGE (ACCOUNTANT MEMBER) I.T.A. NO.: 95/KOL./ 2010 ASSESSMENT YEAR : 2006-2007 DEPUTY COMMISSIONER OF INCOME TAX,....,........... ....APPELLANT CIRCLE-10, KOLKATA, P-7, CHOWRINGHEE SQUARE, 3 RD FLOOR, KOLKATA-700 069 -VS.- M/S. MIRA LEATHER CONSULTANTS PVT. LTD.,........... ...........RESPONDENT 75/32B, S.N. ROY ROAD, KOLKATA-700 038 [PAN : AABCM 9010 E] APPEARANCES BY: SHRI SABOORUL HASAN USMANI, JCIT, SR. D.R., FOR THE DEPARTMENT SHRI SOUMITRA CHOUDHURY, ADVOCATE, FOR THE ASSESSEE DATE OF CONCLUDING THE HEARING : DECEMBER 17, 2013 DATE OF PRONOUNCING THE ORDER : JANUARY 08, 2014 O R D E R PER ABRAHAM P. GEROGE: 1. IN THIS APPEAL FILED BY THE REVENUE, IT HAS TAKE N FOUR GROUNDS IN WHICH GROUND NO. 3 IS GENERAL IN NATURE AND NEEDS N O ADJUDICATION. 2. THROUGH ITS GROUNDS 1 AND 2 REVENUE IS AGGRIEVED ON LD. CIT(APPEALS)S DIRECTION TO TREAT THE SURPLUS RESUL TING OUT OF SALE OF SHARES AND SECURITIES AS CAPITAL GAIN, WHEREAS ASSE SSING OFFICER HAD CONSIDERED IT UNDER THE HEAD PROFITS AND GAINS OF BUSINESS/PROFESSION. VIDE ITS GROUNDS NO. 4 REVENUE IS AGGRIEVED ON THE DELETION OF AN ADDITION OF RS.3,75,95,906/- MADE BY THE ASSESSING OFFICER FOR CERTAIN DIFFERENCES IN PURCHASE OF MUTUAL FUNDS. I.T.A. NO.: 95/KOL./2010 AS SESSMENT YEAR : 2006-07 PAGE 1 TO 15 2 3. FACTS APROPOS ARE THAT THE ASSESSEE ENGAGED IN T HE BUSINESS OF MANUFACTURE AND EXPORT OF LEATHER GOODS, HAD FILED ITS RETURN DECLARING AN INCOME OF RS.71,25,272/- FOR THE IMPUGNED ASSESSMEN T YEAR. DURING THE COURSE OF HEARING, ASSESSEE WAS REQUIRED TO FURNISH DETAILS REGARDING ITS INVESTMENTS IN MUTUAL FUNDS AND COMPUTATION OF CAPI TAL GAINS ON SALES EFFECTED. ASSESSEE HAD DISCLOSED IN ITS COMPUTATION OF CAPITAL GAINS RS.24,81,609/-. AS PER THE ASSESSING OFFICER DETAIL S SUBMITTED BY THE ASSESSEE ON 13.08.2008 AND SUBSEQUENTLY ON 04.09.20 08 REVEALED SUBSTANTIAL DIFFERENCE. IN THE FIRST LIST PURCHASES OF MUTUAL FUND UNITS WERE SHOWN AT RS.3 CRORES WHEREAS IN THE SECOND LIS T THE PURCHASE WAS SHOWN AT RS.7,28,00,000/-. EXPLANATION WAS SOUGHT F ROM THE ASSESSEE ON SUCH DIFFERENCES AND ALSO SEEKING WHY THE TRANSACTI ONS RESULTING IN SURPLUS SHOULD NOT BE CONSIDERED AS INCOME FROM BUS INESS. 4. IN ITS REPLY ASSESSEE STATED THAT THE ACTUAL CAP ITAL GAIN WAS WORKED OUT ERRONEOUSLY. AS PER THE ASSESSEE AGAINST RS.24, 81,609/- SHOWN IN THE RETURN, THE ACTUAL CAPITAL GAINS CAME TO RS.26,54,7 97/-. IN OTHER WORDS, ASSESSEE OFFERED A FURTHER SUM OF RS.1,73,188/- UND ER THE HEAD CAPITAL GAINS. ASSESSING OFFICER WAS OF THE OPINION THAT R EPLY GIVEN BY THE ASSESSEE WAS NOT CONVINCING. ASSESSING OFFICER BASE D ON AIR INFORMATION ON ASSESSEES OF MUTUAL FUND UNITS CONCLUDED THAT T HERE WERE SUBSTANTIAL DIFFERENCES IN PURCHASES AS APPEARING IN AIR DATA A ND AS SHOWN BY THE ASSESSEE IN THE STATEMENTS FURNISHED TO HIM. SUCH D IFFERENCES WERE COMPILED BY THE ASSESSING OFFICER AS UNDER :- SL. NO. DATE OF PURCHASE NAME OF MUTUAL FUND AMOUNT REMARKS 1. 14.02.2006 SBI, MUTUAL FUND 20,00,000 2 . 29.09.2005 - DO - 5,00,000 3. 31.10.2005 FIDELITY MUTUAL FUND 5,00,000 DISCLOSED 4. 01.12.2005 HDFC MUTUAL FUND 25,00,000 DISCLOSED 5. 02.01.2006 -DO- 10,00,000 I.T.A. NO.: 95/KOL./2010 AS SESSMENT YEAR : 2006-07 PAGE 1 TO 15 3 6. 09.08.2005 STANDARD CHARTERED MF 30,00,000 DISCLOSED 7. 28.06.2005 SUNDARAM BNP PARIBAS MF 35,00,000 DISCLOSED 8. 31.03.2006 KOTAK MAHINDRA MF 15,00,000 9. 01.12.2005 TEMPLETON MF 50,00,000 10. 25.05.2005 - DO - 20,00,000 DISCLOSED 11. 31.05.2005 -DO- 30,00,000 12. 02.01.2006 FRANKLIN TEMPLETON MF 10,00,000 13. 22.12.2005 HSBC MF 15,00,000 DISCLOSED 14. 28.06.2005 DO - 50,00,000 DISCLOSED 15. 19.05.2005 - DO - 40,22,578 DISCLOSED 16. 23.02.2006 -DO- 15,05,906 17. 21.07.2005 -DO- 25,00,000 DISCLOSED 18. 27.12.2005 - DO - 22,00,000 19. 23.02.2006 - DO - 20,00,000 20. 14.1 2.2005 - DO - 20,00,000 21. 29.01.2006 PRUDENTIAL ICICI MF 15,00,000 DISCLOSED 22. 17.02.2006 - DO - 40,00,000 23. 12.12.2005 -DO- 5,00,000 24. 08.12.2005 -DO- 30,00,000 DISCLOSED 25. 26.12.2005 - DO - 5,00,000 26. 19.04.2005 - DO - 25,00,000 DISCLOSED 27. 23.09.2005 - DO - 35,00,000 DISCLOSED 28. 02.01.2006 HDFC MF 5,00,000 29. 25.04.2005 PRUDENTIAL ICICI MF 25,48,649 DISCLOSED 30. 19.12.2005 - DO - 5,00,000 31. 15.09.2005 ABN AMRO MF 35,00,000 DISCLOSED I.T.A. NO.: 95/KOL./2010 AS SESSMENT YEAR : 2006-07 PAGE 1 TO 15 4 32. 23.09.2005 - DO - 30,00,000 DISCLOSED 33. 15.04.2005 -DO- 35,00,000 DISCLOSED 34. 31.08.2005 -DO- 20,00,000 DISCLOSED 35. 14.02.2006 SBI MF 20,00,000 36. 29.09.2005 - DO - 5,00,000 37. 30.06.2005 PRINCIPAL MF 8,00,000 38. 08.12.2005 -DO- 20,00,000 DISCLOSED 39. 30.06.2005 -DO- 15,00,000 4 0. 11.11.2005 - DO - 60,00,000 TOTAL 8,90,77,133 ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE UNDISCL OSED PURCHASES SHOULD NOT BE CONSIDERED AS BUSINESS INCOME. AS PER ASSESSING OFFICER, NO FURTHER EXPLANATIONS WHATSOEVER WERE OFFERED BY THE ASSESSEE. THEREFORE, HE HELD THE UNDISCLOSED PURCHASES TOTALLING TO RS.3 ,75,95,906/- COMPILED FROM THE ABOVE TABLE AS UNEXPLAINED PURCHASES AND A DDITION WAS MADE ACCORDINGLY. 5. ASSESSING OFFICER ALSO NOTED THAT ASSESSEES TRA NSACTIONS IN SHARES AND MUTUAL FUNDS WERE TO EARN PROFIT AND RISKS WERE TAKEN, CONTROL EXERCISED AND MANAGEMENT DONE SKILFULLY TO MAXIMIZE ITS GAIN. LARGE NUMBERS OF TRANSACTIONS OF BUYING AND SELLING OF SH ARES OF UNITS IN MUTUAL FUNDS WERE THERE, AND SUCH SYSTEMATIC ACTIVITY, AS PER THE ASSESSING OFFICER, CONSTITUTED A BUSINESS. IN THIS VIEW OF TH E MATTER, HE HELD THAT THE PROFIT OF RS.28,27,982/- ARISING OUT OF PURCHASE AN D SALE OF UNITS IN THE MUTUAL FUNDS HAD TO BE CONSIDERED UNDER THE HEAD I NCOME FROM BUSINESS. ACCORDINGLY HE DECLINED TO ACCEPT THE CL AIM OF ASSESSEE THAT THE SURPLUS ARISING OUT OF THE PURCHASE AND SALE OF UNITS WAS CAPITAL GAINS AND ASSESSED SUCH SURPLUS UNDER THE HEAD PROFITS A ND GAINS OF BUSINESS/PROFESSION. 6. AGAINST BY THE ABOVE, ASSESSEE MOVED IN APPEAL B EFORE THE LD. CIT(APPEALS). VIS-A-VIS, TREATMENT OF ITS INCOME UN DER THE HEAD I.T.A. NO.: 95/KOL./2010 AS SESSMENT YEAR : 2006-07 PAGE 1 TO 15 5 BUSINESS, ARGUMENT OF THE ASSESSEE WAS THAT ITS MAIN OBJECT WAS NOT DOING BUSINESS IN SHARES. AS PER THE ASSESSEE IT WA S DEALING ONLY IN MUTUAL FUNDS AND NOT DEALING IN SHARES AT ALL. GAIN S ARISING OUT OF SALE OF MUTUAL FUND COULD NOT BE TREATED AS BUSINESS INCOME . RELIANCE WAS PLACED ON THE DECISION OF HONBLE MUMBAI BENCH OF THIS TRI BUNAL IN THE CASE OF BOMBAY GYMKHANA LTD. VS.- ITO [115 TTJ 639]. AS PE R THE ASSESSEE, MUTUAL FUNDS WERE HELD AS INVESTMENT IN ITS ACCOUNT S AND THE INTENTION AT THE TIME OF PURCHASING OF MUTUAL FUND UNITS WERE ON LY INVESTMENT. SURPLUS ARISING WERE ON REDEMPTION OF INVESTMENT IN MUTUAL FUND UNITS. ACCORDING TO ASSESSEE SUCH SURPLUS ON REDEMPTION OF SUCH MUTUAL FUND UNITS, COULD ONLY BE CONSIDERED AS CAPITAL GAINS. 7. LD. CIT(APPEALS) WAS APPRECIATIVE OF THESE CONTE NTIONS. ACCORDING TO HIM, COORDINATE BENCH OF THIS TRIBUNAL IN THE CA SE OF DCIT VS.- RELIANCE TRADING ENTERPRISES LIMITED (ITA NO. 944/K OL/2008- ORDER DATED 03.01.2008) HAD HELD THAT UNITS OF MUTUAL FUN D HELD AS INVESTMENT, WHEN SOLD, WOULD NOT GIVE RISE TO ANY BUSINESS INCO ME. SINCE THE ASSESSEE HAD SHOWN TRANSACTIONS IN MUTUAL FUND UNDER THE HEA D INVESTMENT, AS PER LD. CIT(APPEALS), GAINS ARISING ON REDEMPTION O R SALE COULD ONLY BE TREATED AS CAPITAL GAINS. 8. VIS-A-VIS, THE ADDITION OF RS.3,75,95,906/-, ARG UMENT OF THE ASSESSEE BEFORE THE CIT(APPEALS) WAS THAT THERE WAS NO DISCR EPANCY AS MADE OUT BY THE ASSESSING OFFICER IN PURCHASES OF MUTUAL FUN DS. ASSESSEE SUBMITTED A RECONCILIATION TO THE LD. CIT(APPEALS), ON WHICH LD. CIT(APPEALS) SOUGHT A REMAND REPORT FROM THE ASSESSING OFFICER. IN SUCH REMAND REPORT, ASSESSING OFFICER MENTIONED THAT THERE WERE CERTAIN DISCREPANCIES IN THE RECONCILIATION SUBMITTED BY THE ASSESSEE AND PREPAR ED A SEPARATE CHART MARKED BY HIM AS ANNEXURE B, COMPILING SUCH DIFFE RENCES. ASSESSING OFFICER ALSO POINTED OUT CERTAIN DISCREPANCY BETWEE N THE AUDITED ACCOUNTS OF THE ASSESSEE WHICH GAVE NAMES OF ONLY 1 6 SCHEMES, WHEREAS THERE WERE ACTUAL INVESTMENTS IN 17 SCHEMES. IN OTH ER WORDS, AS PER THE I.T.A. NO.: 95/KOL./2010 AS SESSMENT YEAR : 2006-07 PAGE 1 TO 15 6 ASSESSING OFFICER NAME OF ONE SCHEME WAS NOT MENTIO NED IN THE AUDITED ACCOUNTS. AS PER THE ASSESSING OFFICER THOUGH THE A SSESSEE MENTIONED THE NAME OF THE SCHEME IN THE STATEMENT FURNISHED BEFOR E HIM AS PRUDENTIAL ICICI FLOATING RATE FUND THE PURCHASE AMOUNT SHOWN WAS ONLY RS.30 LAKHS AND THEREFORE, CLOSING BALANCE OUGHT HAVE BEE N RS.30 LAKHS AND NOT RS.27 LAKHS. 9. LD. CIT(APPEALS) SOUGHT EXPLANATION FROM THE ASS ESSEE ON DISCREPANCIES POINTED OUT BY THE ASSESSING OFFICER IN THE REMAND REPORT. ASSESSEE THERE UPON EXPLAINED TO THE LD. CIT(APPEAL S) THAT ASSESSING OFFICER HAD NOT PROPERLY CONSIDERED THE STATEMENT O F STOCK, PURCHASE, SALE, SWITCH IN/OUT AND CLOSING STOCK. THE BANK STA TEMENTS WERE ALSO NOT PROPERLY VERIFIED THOUGH THESE WERE FILED BEFORE TH E ASSESSING OFFICER. AS PER THE ASSESSEE EACH OF THE DISCREPANCIES POINTED OUT BY THE ASSESSING OFFICER WERE EXPLAINED BY HIM TO THE ASSESSING OFFI CER. VIS-A-VIS THE DIFFERENCE IN THE CLOSING STOCK, EXPLANATION OF THE ASSESSEE WAS THAT SCHEDULE 4 OF THE ACCOUNTS GAVE THE BREAK-UP IN THE CLOSING STOCK AND IT TALLIED WITH THE DETAILS FILED BY THE ASSESSEE ON 2 1.05.2009 BEFORE THE ASSESSING OFFICER. THERE WAS ONLY A TYPOGRAPHICAL E RROR WHEREIN THE AUDITOR HAD NOT SHOWN THE NAME OF THE PRUDENTIAL IC ICI FLOWING RATE FUND AGAINST THE SUM OF RS.27 LAKHS. ASSESSEE HAD A LSO FURNISHED A CERTIFICATE FROM ITS AUDITORS OF M/S. S. HOSSAIN & ASSOCIATES CONFIRMING THE TYPOGRAPHICAL MISTAKE, WHEREIN IT WAS MENTIONED AS UNDER :- WE REGRET TO INFORM YOU THAT NAME OF THE MUTUAL FU ND INVESTMENT, PRUDENTIAL ICICI FLOATING RATE FUND W AS INADVENTENTLY NOT PRINTED AGAINST NUMERICAL FIGURE OF ILNVESTMENT OF RS.27,00,000/- ALREADY SHOWN IN SCHE DULE NO. 4 OF INVESTMENT WHICH FORMED PART OF BALANCE SH EET FOR THE YEAR 2005-06. 10. LD. CIT(APPEALS) AFTER CONSIDERING THE REMAND R EPORT, SUBMISSION OF THE ASSESSEE AND THE RECONCILIATION, WAS OF THE OPINION THAT THE DISCREPANCIES POINTED OUT BY THE ASSESSING OFFICER RELATING TO PURCHASES WERE ALL EXPLAINED BY THE ASSESSEE. AS PER LD. CIT( APPEALS), WHAT WERE I.T.A. NO.: 95/KOL./2010 AS SESSMENT YEAR : 2006-07 PAGE 1 TO 15 7 POINTED OUT BY THE ASSESSING OFFICER AS SUPPRESSION OF THE CLOSING STOCK WERE ACTUALLY SWITCH-IN AND SWITCH-OUT BETWEEN VARI OUS MUTUAL FUND SCHEMES. FURTHER AS PER LD. CIT(APPEALS) THE ONLY E RROR IN THE INVESTMENT DISCLOSED IN THE SCHEDULE 4 OF THE AUDITED ACCOUNTS WAS NON-MENTIONING OF THE NAME OF ONE SCHEME, WHICH STOOD CORRECTED IN THE REVISED STATEMENT FURNISHED BY THE ASSESSING OFFICER. HE HE LD THAT THE DIFFERENCES IN PURCHASES WERE RECONCILED BY THE ASSESSEE AND TH ERE WAS NO DIFFERENCE IN THE CLOSING STOCK. IN THE RESULT, THE DELETED TH E ADDITION OF RS.3,75,95,906/-. 11. NOW BEFORE US, LD. DR STRONGLY ASSAILING THE OR DER OF LD. CIT(APPEALS) SUBMITTED THAT THE ASSESSEE WAS IN THE BUSINESS OF TRADING IN MUTUAL FUND UNITS, AS AN ORGANIZED ACTIVITY. BUY ING AND SELLING OF SUCH UNITS WERE DONE TAKING CONSIDERABLE EFFORT. FREQUEN CY OF BUYING AND SELLING UNITS CLEARLY SHOWED THAT ASSESSEE WAS NOT HOLDING MUTUAL FUND UNITS AS INVESTMENT. THE MOTIVE WAS ONLY TO EARN PR OFIT. AS PER LD. DR, ASSESSING OFFICER WAS JUSTIFIED IN TREATING THE SUR PLUS ARISING TO THE ASSESSEE ON SALE OF SUCH UNITS UNDER THE HEAD INCO ME FROM BUSINESS. IN SO FAR AS DELETION OF ADDITION ON ACCOUNT OF UNEXPL AINED PURCHASES, LD. DR ARGUED THAT PURCHASES OF PRUDENTIAL ICICI FLOATING RATE FUND WHICH WAS CITED BY THE ASSESSEE FOR EXPLAINING THE DIFFERENCE IN THE CLOSING STOCK OF RS.27 LAKHS, WAS ACTUALLY FOR RS.30 LAKHS AND WITHO UT ANY SALE OF SUCH MUTUAL FUND UNITS, IT WAS NOT POSSIBLE TO ACCEPT TH AT THE DIFFERENCE AROSE ON ACCOUNT OF A SIMPLE TYPOGRAPHICAL MISTAKE. 12. PER CONTRA, LD. AR SUBMITTED THAT EVERY DISCREP ANCY POINTED OUT IN RECONCILIATION STATEMENT STOOD EXPLAINED BY THE ASS ESSEE. AS PER LD. AR THE ASSESSING OFFICER IN THE REMAND REPORT COULD NO T POINT OUT ANY DIFFERENCE IN PURCHASES. ON THE OTHER HAND, HE HAD TRIED TO MAKE OUT A DIFFERENT CASE. EVEN SUCH NEWLY MADE OUT DISCREPANC IES STOOD PROPERLY EXPLAINED BY THE ASSESSEE. LD. AR POINTED OUT THAT THERE WAS NO I.T.A. NO.: 95/KOL./2010 AS SESSMENT YEAR : 2006-07 PAGE 1 TO 15 8 DIFFERENCE IN STOCK AND MISSING OF A SCHEME NAME WO ULD NOT CHANGE THE VALUE OF CLOSING STOCK. 13. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. FIRSTLY IT IS NECESSARY TO FIN D, WHETHER THE SURPLUS ARISING TO THE ASSESSEE ON ACCOUNT OF PURCHASES AND SALES OF MUTUAL FUND UNITS IS TO BE CONSIDERED UNDER THE HEAD INCOME FR OM CAPITAL GAINS OR INCOME FROM BUSINESS. ASSESSEE HAD SHOWN THE SURP LUS UNDER THE HEAD INCOME FROM CAPITAL GAINS. ASSESSING OFFICER WAS OF THE OPINION THAT THIS WAS TO BE CONSIDERED AS INCOME FROM BUSINESS ONLY. THERE IS NO DISPUTE THAT ASSESSEE HAD ALL ALONG SHOWN THE UNITS PURCHAS ED BY IT UNDER THE HEAD INVESTMENT. ASSESSEE WAS ENGAGED IN THE BUSI NESS OF MANUFACTURING AND EXPORTING OF LEATHER GOODS. LD. C IT(APPEALS) FINDING THAT ASSESSEE HELD THE MUTUAL FUND UNITS AS INVESTM ENTS HAS NOT BEEN EFFECTIVELY REBUTTED BY THE REVENUE. WHEN THE INTEN TION OF THE ASSESSEE WAS ONLY TO MAKE INVESTMENT, SALE THEREOF WOULD ONL Y RESULT IN CAPITAL GAINS. THERE IS NO CASE FOR THE REVENUE THAT ASSESS EES MAIN BUSINESS WAS TRADING IN MUTUAL FUND UNITS OR SHARES. IN THESE CI RCUMSTANCES, WE ARE OF THE OPINION THAT THE SURPLUS ARISING TO THE ASSESSE E WAS RIGHTLY CONSIDERED BY THE LD. CIT(APPEALS) AS INCOME FROM C APITAL GAINS. WE DO NOT FIND ANY REASON TO INTERFERE WITH THE DIRECTION OF LD. CIT(APPEALS). 14. COMING TO THE ADDITION OF RS.3,75,95,906/- FOR UNEXPLAINED PURCHASES IN MUTUAL FUND UNITS, NO DOUBT THERE WAS A DIFFERENCE IN PURCHASE DETAILS FURNISHED BY THE ASSESSEE BEFORE T HE ASSESSING OFFICER ON 13.08.2009 AND 04.09.2009. THE DIFFERENCE BETWEE N THESE TWO STATEMENTS AS COMPILED BY THE ASSESSING OFFICER IS REPRODUCED HEREUNDER :- SL. NO. PARTICULARS AMOUNT IN STATEMENT DATED 13.08.2008 AMOUNT IN STATEMENT DATED 04.09.2008 I) DETAIL OF OPENING STOCK OF RS.3,37,36,856/- RS.3,37,36,856/- I.T.A. NO.: 95/KOL./2010 AS SESSMENT YEAR : 2006-07 PAGE 1 TO 15 9 MUTUAL FUND AS PER DETAIL DATED 13.08.2006 AND BALANCE SHEET DATED 31.03.2005 II) PURCHASE OF SHARES AS PER DETAIL DATED 13.08.2008/ 04.09.2008 RS.3,00,00,0 00/ - RS.7,28,00,000/ - TOTAL RS.6,37,36,856/ - RS.10,65,36,856/ - III) LESS: CLOSING BALANCE MUTUAL FUND AS ON 31.03.2006 AS PER BALANCE SHEET RS.3,59,58,746/- RS.3,59,58,746/- IV) BALANCE, I.E., MUTUAL FUND WORTH RS. SOLD RS.2,77,78,110/ - RS.7,05,78,110/ - V) SALE PRICE AS PER DETAIL DATED 13.08.2006 RS.7,37,56,076/- RS.7,37,56,076/- VI) CAPITAL GAIN RS.4,59,77,966/- RS.31,77,966/- HOWEVER, THEREAFTER ASSESSING OFFICER DID NOT PURS UE ON THE ABOVE CLAIMS BUT MADE A COMPARISON OF THE PURCHASES SHOWN BY THE ASSESSEE AGAINST DETAILS OBTAINED BY HIM FROM AIR DATA. AS P ER THE ASSESSING OFFICER, A SUM OF RS.3,75,95,906/- WAS UNDISCLOSED PURCHASES OF MUTUAL FUND UNITS. THOUGH THE ASSESSEE DID NOT GIVE ANY RE CONCILIATION OF THIS DIFFERENCE AT THE TIME OF ASSESSMENT, IT INDEED GAV E A RECONDILIATION BEFORE THE LD. CIT(APPEALS), WHO SOUGHT A REMAND RE PORT FROM THE ASSESSING OFFICER. IN SUCH REMAND REPORT, THE ASSES SING OFFICER MENTIONED THAT CONSOLIDATED CHART OF OPENING BALANCE, PURCHAS E, SALE AND CLOSING BALANCE FURNISHED BY THE ASSESSEE REVEALED CERTAIN NEW DISCREPANCIES LISTED BY HIM AS ANNEXURE B. THESE DISCREPANCIES ARE REPRODUCED HEREUNDER :- N.B. 1 VIS-A-VIS SL. NO.2 FRANKLIN INDIA FLEXI CA P FUND AS PER DETAIL FILED ON 21.05.2009 THERE IS OPENIN B ALANCE OF I.T.A. NO.: 95/KOL./2010 AS SESSMENT YEAR : 2006-07 PAGE 1 TO 15 10 INVESTMENT FOR RS.40,00,000/- IN THE RESPECTIVE FUN D AND OUT OF IT THE SALE IS SHOWN FOR RS.20,71,140/-. NO CLOSING BALANCE IS SHOWN. IT MEANS EITHER THERE IS LOSS FOR RS.19,28,860/- OR SUPPRESSION OF CLOSING BALANCE BU T NO SUCH LOSS HAS BEEN CLAIMED IN THE RETURN OF INCOME OR IN DETAIL FILED IN COURSE OF HEARING. IT IS ALSO NOTED THAT NO SWITCH OUT/IN IS SHOWN IN THE DETAIL OF SWITCH AND SWITCH OUT FILED IN COURSE OF HEARING FOR REMAND REPORT. N.B. 2 VIS-A-VIS SL. NO. 6 SIMILAR TO N.B. 1 OUT OF OPENING BALANCE OF INVESTMENT RS.40,00,000/- IN THE RESPECT IVE FUND SALE FOR RS.21,29,880/- IS SHOWN AND IN ABSENCE OF ANY CLOSING BALANCE EITHER THERE IS LOSS FOR RS.18,70,1 20/- OR SUPPRESSION OF C.B. BUT NO SUCH LOSS IS CLAIMED. NO SUCH SWITCH IN/OUT IS SHOWN. N.B. 2 VIS-A-VIS SL. NO. 8 OPENING BALANCE OF INV ESTMENT IS RS.17,92,998/- AND IN ABSENCE OF ANY PURCHASE OR SA LE THE CLOSING BALANCE SHOULD HAVE BEEN FOR THE SAME AMOUN T. SWITCH IN/OUT DETAIL SHOWS THAT THERE IS SWITCH INT O RELIANCE VISION FUND FOR RS.15,00,000/- ON 22.12.20 05 AND AGAIN RS.15,00,000/- ON 23.01.2006 SHOWING SWITCH I N AMOUNT FOR RS.14,99,479/- TWICE. NOW SWITCH OUT FOR RS.30.00 LAKH WAS MADE IN ABSENCE OF ANY PURCHASE O .B. OF RS.17,92,998/-. N.B. 2B VIS-A-VIS SL. NO. 7 OPENING BALANCE IS RS .71,728/- BUT CLOSING BALANCE IS RS.99,803/- WITHOUT ANY PURC HASE. IT PROVES THAT PURCHASE FOR RS.28,075/- NOT DISCLOSED. N.B. 3 VIS-A-VIS SL. NO. 14- THERE IS PURCHASE/INVE STMENT FOR RS.20,00,000/- DURING THE YEAR BUT NEITHER SALE NOR CLOSING BALANCE IS SHOWN. IN ABSENCE OF SALE SUPPRESSION OF CLOSING STOCK FOR RS.20,00,000/- IS CONSIDERED. SWITCH IN/O UT DETAIL DOES NOT CONTAIN INFORMATION ABOUT ABN AMRO MONTHLY INCOME FUND. N.B. 4 VIS-A-VIS SL. NO. 15- LIKE N.B. 3, THERE IS PURCHASE IN RESPECTIVE FUND FOR RS.30,00,000/- AND IN ABSENCE O F SALE THE SAME SHOULD HAVE BEEN SHOWN AS CLOSING STOCK. B UT THE ASSESSEE HAS NOT SHOWN THE RESPECTIVE FUND AS CLOSI NG STOCK LEADING TO SUPPRESSION OF VALUE OF CLOSING STOCK. S WITCH IN/OUT DETAIL DOES NOT CONTAIN INFORMATION ABOUT AB N AMRO MONTHLY INCOME FUND. N.B. 5 VIS-A-VIS SL. NO. 17 THE ASSESSEE HAS SHOW N PURCHASE FOR RS.20,00,000/- OF THE RESPECTIVE FUND BUT C.B. IS SHOWN AT RS.35,05,906/-. SWITCH IN/OUT DETAIL SH OWS OUT I.T.A. NO.: 95/KOL./2010 AS SESSMENT YEAR : 2006-07 PAGE 1 TO 15 11 OF RS.15,05,906/- FROM HSBC INCOME FUND TO HSBC ADVANTAGE FUND. THE LIST OF PURCHASE SHOWS (SL. 31) PURCHASE OF RS.50,00,000/- OF HSBC INCOME FUND AND IF RS.15,00,000/- IS SWITCHED OUT THE BALANCE RS.35.00 LAKH SHOULD BE SHOWN AS CLOSING BALANCE IN ABSENCE OF AN Y SALE. N.B. 6 & 7 THE DETAIL SHOWN PURCHASE OF PRUDENTI AL ICICI FLOATING RATE FUND FOR RS.30,00,000/- AND RS.15,00, 000/- OUT OF IT RS.27,00,000/- IS SHOWN AS CLOSING BALANC E. IT MEANS MUTUAL FUND WORTH RS.18,00,000/- IS EITHER SO LD OR SWITCHED OUT. THE DETAIL OF SWITCH IN/OUT SHOWS THA T THERE IS SWITCH OUT FOR RS.45,00,000/- IN AGGREGATE ON SI X OCCASIONS (3 X 5,00,000 + 3 X 10,00,000) FROM PRUDE NTIAL ICICI FLOATING TO PRUDENTIAL EMERGING FUND BUT NO S UCH PURCHASES OF EMERGING FUND ARE SHOWN THOUGH THEE IS SALE FOR RS.16,42,257/- (SL. NO. 51) OF PRUDENTIAL ICICI EMERGING STAR FUND (THOUGH THERE IS SLIGHT DIFFERENCE IN NAM E). EVEN IF IT IS ACCEPTED THE DIFFERENCE I.E. RS.45,00,000 RS.16,42,257/- (RS.28,57,743/- SHOULD HAVE BEEN SHO WN AS CLOSING BALANCE. N.B. 8 VIS-A-VIS SL. NO. 24, 44 & 45 IT SHOWS PUR CHASE FOR RS.50,00,000/- AND SALE FOR RS.20,00,000/-. IT MEAN S THE CLOSING STOCK SHOULD HAVE BEEN APPROXIMATELY RS.30,00,000/- BUT NO SUCH CLOSING STOCK IS SHOWN. IT PROVES SUPPRESSION OF CLOSING STOCK BY RS.30,00,000/- APPROXIMATELY. SWITCH IN/OUT DETAIL DOES NOT SHOW A NY SWITCH OUT FROM RELIANCE FLOATING RATE FUND WEEKL Y DIVIDEND THOUGH THERE IS SWITCH OUT FROM RELIANCE F LOATING RATE FUND TO RELIANCE VISION AND RELIANCE GROWTH FO R RS.30,00,000/- (RS.15,00,000/- + RS.15,00,000/-) AN D RS.20,00,000/- RESPECTIVELY. DETAIL ALSO SHOWS SALE OF RS.19,99,258/- OF RELIANCE GROWTH AND CLOSING BALAN CE OF RS.30,00,000/- OF RELIANCE VISION. N.B. 11 VIS-A-VIS SL. NO. 30 IT SHOWS PURCHASE FO R RS.35,00,000/- DURING THE YEAR BUT IN ABSENCE OF SA LE IT SHOULD BE SHOWN AS CLOSING BALANCE BUT NO CLOSING B ALANCE IS SHOWN. N.B. 12 VIS-A-VIS SL. NO. 31- IT SHOWS PURCHASE FOR RS.50,00,000/- AND IN ABSENCE OF SALE IT SHOULD BE CLOSING STOCK. N.B. 13 VIS-A-VIS SL. NO. 32 IT SHOWS PURCHASE FO R RS.50,00,000/- AND SALE FOR RS.40,37,152/-. IT MEAN S EITHER THERE IS LOSS OR CLOSING BALANCE BUT NONE OF THESE IS SHOWN. I.T.A. NO.: 95/KOL./2010 AS SESSMENT YEAR : 2006-07 PAGE 1 TO 15 12 N.B. 14 VIS-A-VIS SL. NO. 33 IT SHOWS PURCHASE FO R RS.25,00,000/- AND SALE FOR RS.15,17,884/-. IT MEAN S EITHER THERE IS LOSS OR CLOSING BALANCE. BUT NONE OF THESE IS SHOWN. N.B. 15 VIS-A-VIS SL. NO. 34- IT SHOWS PURCHASE OF RS.20,00,000/- AND SALE FOR RS.19,19,950/-. IT MEAN S THERE IS LOSS FOR RS.50/-. N.B. 16 VIS-A-VIS SL. NO. 36 IT SHOWS PURCHASE FO R RS.35,00,000/- BUT NEITHER SALE NOR CLOSING BALANCE IS SHOWN. IT PROVES SUPPRESSION OF CLOSING STOCK. N.B. 17 VIS-A-VIS SL. NO. 38 IT SHOWS PURCHASE FO R RS.25,00,000/- AND IN ABSENCE OF ANY SALE AND CLOSI NG STOCK IT CAN BE CONSIDERED THAT THERE WAS SUPPRESSION OF CLOSING STOCK. N.B. 18 TO 30 VIS-A-VIS SL. NO. 42 TO 52 RESPECTIVE OF THE CHART IN THESE SERIALS THEE ARE SALE/CLOSING STOC K WITHOUT ANY OPENING STOCK AND PURCHASE DURING THE YEAR. THE RECONCILIATION IS REQUIRED. IN ABSENCE OF RECONCILI ATION THE RESPECTIVE SALE AND CLOSING STOCK MAY BE CONSIDERED AS SALE AND CLOSING STOCK OUT OF UNACCOUNTED PURCHASES. 15. EXPLANATION GIVEN BY THE ASSESSEE FOR EACH OF T HE NEW DISCREPANCY POINTED OUT BY THE ASSESSING OFFICER ARE REPRODUCED HEREWITH :- N.B.-1 : THERE WAS A SWITCH OUT OF RS.20,00,000/- T O TEMPLETON FLOATING RATE INCOME FUND ON 25.05.2005 W HICH WAS MENTIONED IN OUR SWITCH IN/OUT STATEMENT. N.B.-2 : THERE WAS A SWITCH OUT OF RS.20,00,000/- T O RELIANCE FLOATING RATE FUND. GROWTH OPTION ON 24.05 .2005. N.B.-2B : THE OPENING AND CLOSING FUNDS ARE TWO DIF FERENT FUND SO THE QUESTION DOES NOT ARISE OF RS.28,075/-. N.B.-2A : THERE WAS A SALE FOR RS.1807172.57 WHICH WAS MENTIONED IN OUR SALE STATEMENT AS SL. NO. 40. N.B.-3 & 4 : THE ABOVE AMOUNT HAS BEEN SHOWN AS CLO SING BALANCE IN OUR CLOSING BALANCE STATEMENT AS SL. NO. 60. N.B.-5 : THERE WAS A SWITCH IN OF RS.15,05,906/- FR OM HSBC INCOME FUND ON 23.02.2006, WHICH WAS MENTIONED IN O UR SWITCH IN/OUT STATEMENT. I.T.A. NO.: 95/KOL./2010 AS SESSMENT YEAR : 2006-07 PAGE 1 TO 15 13 N.B.-6 : THERE WAS THREE SWITCH OUT OF RS.3,00,000/ - (1,00,000 X 3) TO PRUDENTIAL EMERGING FUND, WHICH W AS MENTIONED IN OUR SWITCH IN/OUT STATEMENT AND THE SA ME AMOUNT SHOWN AS CLOSING BALANCE IN OUR STATEMENT AS SL. NO. 70. N.B.-7 : THERE WAS THREE SWITCH OUT OF RS.15,00,000 /- (5,00,000 X 3) TO PRUDENTIAL EMERGING STAR FUND WHI CH WAS MENTIONED IN OUR SWITCH IN/OUT STATEMENT. N.B.-8 : THERE WAS TWO SWITCH OUT OF RS.15,00,000/- EACH TO RELIANCE VISION FUND, WHICH WAS MENTIONED IN OUR SWITCH IN/OUT STATEMENT. N.B.-11 : THERE WAS A SALE FOR RS.36,00,203.68 WHIC H WAS MENTIONED IN SALE STATEMENT AS SL. NO. 49.. N.B.-12 & 17 :THERE WAS A SALE FOR RS.7624295.97, W HICH WAS MENTIONED IN OUR SALE STATEMENT AS SL. NO. 51. N.B.-13 : THERE WAS A SWITCH OUT OF RS.10,00,000/- TO FRANKIN IND. PRIME FUND ON 02.01.2006, WHICH WAS MENTIONED IN OUR SWITCH IN/OUT STATEMENT. N.B.-14 : THERE WAS A SWITCH OUT OF RS.10,00,000/- TO HDFC EQUITY FUND ON 02.01.2006 WHICH WAS MENTIONED IN O UR SWITCH IN/OUT STATEMENT. N.B.-15 : YES. THERE WAS A LOSS FOR RS.50/-. N.B.-16 : THERE WAS A SALE FOR RS.3522753.48/- WHIC H WAS MENTIONED IN OUR SALE STATEMENT AS SL. NO. 45. N.B.-18 : THERE WAS A SWITCH OUT OF RS.15,00,000/- TO HSBC ADVANTAGE FUND ON 23.02.2006, WHICH WAS MENTIONED I N OUR SWITCH IN/OUT STATEMENT. N.B.-20 : THERE WAS TWO SWITCH IN OF RS.20,00,000/- FROM TEMPLETON FLOATING RATE INCOME FUND ON 31.05.2005 & OF RS.10,00,000/- FROM FRANKIN TEMPLETON TRESARY FUND ON 02.01.2006, WHICH WAS MENTIONED IN OUR SWITCH IN/OU T STATEMENT. N.B.-21 : THERE WAS A SWITCH IN OF RS.10,00,000/- F ROM HDFC LIQUID FUND ON 02.,01.2006 WHICH WAS MENTIONED IN OUR SWITCH IN/OUT STATEMENT. N.B.-22 : THERE WAS TWO SWITCH IN OF RS.30,00,000/- (15,00,000 X 2) FROM RELIANCE FLOATING RATE FUND ON I.T.A. NO.: 95/KOL./2010 AS SESSMENT YEAR : 2006-07 PAGE 1 TO 15 14 22.12.2005 & 23.01.2006, WHICH WAS MENTIONED IN OUR SWITCH IN/OUT STATEMENT. N.B.-23 : THERE WAS A SWITCH IN OF RS.20,00,000/- F ROM RELIANCE FLOATING RATE FUND ON 30.05.2005, WHICH WA S MENTIONED IN OUR SWITCH IN/OUT STATEMENT. N.B.-24 : THERE WAS AN OPENING STOCK OF RS.71,728/- , WHICH WAS MENTIONED IN OUR OPENING BALANCE STATEMENT AS S L NO. 83. N.B.-25 : THERE WAS AN OPENING STOCK OF RS.1792998. 71, WHICH WAS MENTIONED IN OUR OPENING BALANCE STATEMEN T AS SL. NO. 84. N.B.-26 : THERE WAS A PURCHASE OF RS.35,00,000/- WH ICH WAS MENTIONED IN OUR PURCHASE STATEMENT AS SL. NO. 24. N.B.-27 : THERE WAS A PURCHASE OF RS.35,00,000/- WH ICH WAS MENTIONED IN OUR PURCHASE STATEMENT AS SL. NO. 18. N.B.-28 : THERE WAS TWO PURCHASE OF RS.50,00,000/- & RS.25,00,000/- WHICH WAS MENTIONED IN OUR PURCHASE STATEMENT AS SL. NO. 19 & 26. N.B.-29 : THERE WAS SIX SWITCH IN OF RS.18,00,000/- (5,00,000 X 3 + 1,00,000 X 3) FROM PRUDENTIAL ICICI FLOATING RATE ON 12.12.2005, 19.1.2.2005 & 26.12.20 05, WHICH WAS MENTIONED IN OUR SWITCH IN/OUT STATEMENT. N.B.-30 : THERE WAS TWO PURCHASE OF RS.50,00,000/- (30,00,000 + 20,00,000) WHICH WAS MENTIONED IN OUR PURCHASE STATEMENT AS SL. NO. 1 & 2. REVENUE HAS NOT BEEN ABLE TO BRING OUT ANYTHING TO SHOW THAT ANY OF THE ABOVE EXPLANATIONS WERE ERRONEOUS OR WRONG. WHEN TH E ASSESSING OFFICER FOUND THAT THE ALLEGED DIFFERENCES IN PURCHASES HIG HLIGHTED BY HIM IN THE ASSESSMENT ORDER STOOD EXPLAINED, HE SOUGHT TO SUBS TITUTE IT WITH A NEW SET OF DISCREPANCIES. EVEN THESE WERE EXPLAINED BY THE ASSESSEE. CIT(APPEALS) HAS GIVEN A FINDING THAT DISCREPANCIES POINTED OUT BY THE ASSESSING OFFICER WERE ON ACCOUNT OF NON-APPLICATIO N OF MIND WHILE PREPARING REMAND REPORT. IN OTHER WORDS, ACCORDING TO HIM ASSESSING OFFICER HAD DONE A COMPILATION WITHOUT MARSHALLING ALL THE TRANSACTIONS I.T.A. NO.: 95/KOL./2010 AS SESSMENT YEAR : 2006-07 PAGE 1 TO 15 15 MENTIONED IN THE RECONCILIATION STATEMENT. AS FOR T HE ALLEGED DIFFERENCE IN CLOSING STOCK, THE CLOSING BALANCE OF MUTUAL FUND O N 31.03.2006 WAS ONE AND THE SAME IN ALL THE STATEMENTS SUBMITTED BY THE ASSESSEE. THIS WAS RS.3,59,58,746/-. THE ONLY DEFECT AS PER ASSESSING OFFICER WAS THAT LIST OF INVESTMENTS IN THE ACCOUNTS DID NOT GIVE THE NAME F OR ONE SCHEME BALANCE OF RS.27 LAKHS. ASSESSEE HAD CLEARLY EXPLAINED IT A S UNITS OF PRUDENTIAL ICICI FLOATING RATE FUND. WE DO NOT FIND ANY REASON TO DISBELIEVE IT. IN OTHER WORDS, NONE OF THE DISCREPANCIES ALLEGED BY T HE ASSESSING OFFICER EXISTED. IN OUR OPINION, LD. CIT(APPEALS) WAS JUSTI FIED IN HOLDING THAT THERE WAS NO DIFFERENCE IN PURCHASE OF UNITS OR CLO SING STOCK OF INVESTMENT IN MUTUAL FUND UNITS. LD. CIT(APPEALS), IN OUR OPINION, WAS JUSTIFIED IN DELETING SUCH ADDITION. WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF LD. CIT(APPEALS). 16. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 8 TH DAY OF JANUARY, 2014. SD/- SD/- MAHAVIR SINGH ABRAHAM P. GEORGE (JUDICIAL MEMBER) (ACC OUNTANT MEMBER) KOLKATA, THE 8 TH DAY OF JANUARY, 2014 COPIES TO : (1) THE APPELLANT (2) THE RESPONDENT (3) CIT (4) CIT(A) (5) THE DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ETC ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCHES, KOLKATA LAHA/SR. P.S.