JANKI PRASAD M. SHAH, MUMBAI V. ACIT CEN CIR-35, MUMBAI

ITA 989/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 7455 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-03-2010
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: J
• Next Hearing Date: 15-03-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 13-02-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S K MADHUK
• Keywords: Business income; Income from undisclosed sources; Capital Gains
• Section: 54F; 153A; 22; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH J, MUMBAI BEFORE SHRI R.V. EASWAR, SR. VICE PRESIDENT & SHRI R.K.PANDA, AM I.T.A. NO. 989/MUM/2009 (ASSESSMENT YEAR 2003-04) SHRI JANKI PRASAD M. SHAH C/O. MAHARASHTRA STEEL & ROLLING MILLS P. LTD. 190, LBS MARG, BHANDUP (W), MUMBAI-400 078 PAN: AAHPS8072K VS. ACIT CENTRAL CIRCLE 35 MUMBAI APPELLANT RESPONDENT APPELLANT BY : SHRI PRAMOD KUMAR PARIDA/ MS. SANJUKTA CHOWDHURY RESPONDENT BY : SHRI S.K. MADHUK ORDER DATE OF HEARING: 15.03.2010 DATE OF ORDER: 22.03.2010 PER R.K.PANDA, AM , THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER DATED 10.11.2008 OF THE CIT(A), CENTRAL-VI, MUMBAI RELATING TO ASSESSMENT YEAR 2003-04. 2. GROUNDS OF APPEAL NO. 1 BY THE ASSESSEE READS AS UN DER: I. THE LD. CIT(A) ERRED IN CONFIRMING THE ADDITION WITHOUT APPRECIATING TO THE FACT THAT THE TRANSACTIONS ARE NOT BOGUS. THEREFORE, DISALLOWANCE OF CAPITAL GAINS AND THE CLAIM OF EXEMPTION U/S. 54F ARE NOT JUSTIFIED AND THE ADDITION OF RS.53,78,315/- MAY BE DELETED. II. WITHOUT PREJUDICE TO ABOVE, WHETHER ON THE CIRCUMSTANCES WHERE THE APPELLANT FOLLOWS CASH SYSTEM OF ACCOUNTING, THE APPELLANT IS LIABLE TO PAY TAXES ON THE INCOME WHICH OUGHT TO HAVE BEEN EARNED. ITA NO. 989/MUM/2009 SHRI JANKI PRASAD M. SHAH ====================== 2 III. WITHOUT PREJUDICE TO ABOVE, MERELY ON THE BASIS OF CONFESSIONAL STATEMENT, NO ADDITION IS JUSTIFIED. IV. THE LD. CIT(A) ERRED IN NOT ALLOWING THE CAPITAL LO SS REFLECTED BY THE APPELLANT. THE ASSESSEE HAS ALSO TAKEN AN ADDITIONAL GROUND WH ICH READS AS UNDER: I. THE LD. CIT(A) ERRED IN NOT APPRECIATING THAT WHEN CAPITAL GAINS IN TOTALITY WERE TAKEN FOR TAXATION, THE LOSS ARISING OUT OF NON-RECEIPT OF PAYMENT AGAINST CAPITAL GAINS FROM THE DEFAULTED BROKER OUGHT TO HAVE BEEN ALLOWED AS CAPITAL LOSS SUBSEQUENTLY. THEREFORE, TREATING THE SAME AS INCOME FROM THE UNDISCLOSED SOURCES IS NOT JUSTIFIED. II. WITHOUT PREJUDICE TO ABOVE, AS A SINGLE TRANSACTION AMOUNTS TO AN ADVENTURE IN THE NATURE OF TRADE, IN THE ALTERNATIVE, THE CASE SHOULD HAVE BEEN CONSIDERED AS A BUSINESS LOSS U/S. 28 SUBSEQUENTLY. 3. AFTER HEARING BOTH THE SIDES, THE ADDITIONAL GROUND RAISED BY THE ASSESSEE IS ADMITTED FOR ADJUDICATION. 4. FACTS OF THE CASE, IN BRIEF, ARE THAT IN THE ORIGIN AL RETURN OF INCOME FILED BY THE ASSESSEE ON 27.11.2003 A SUM OF RS.52,83,426/- WAS DECLARED AS NET LONG TERM CAPITAL GAIN ARISING ON A CCOUNT OF SALE OF SHARES OF DATABASE FINANCE LTD., AND THE SAME WAS C LAIMED AS EXEMPT U/S. 54F OF THE INCOME-TAX ACT, 1961 (THE AC T). IT WAS FOUND DURING THE SEARCH OPERATION THAT THE SHARES IN QUES TION WERE SHOWN TO HAVE BEEN ACQUIRED ON 23.04.2001 FOR A SUM OF RS.92 ,888/- WHICH WAS ADJUSTED AGAINST BOGUS SPECULATION PROFIT CREATED I N THE NAME OF THE ASSESSEE. SUCH SHARES WERE DEMATERIALISED AFTER AN UNDULY LONG PERIOD FROM THE ALLEGED DATE OF PURCHASE. THE FACTS AND C IRCUMSTANCES IN THE CASE SUGGESTED THAT THE ASSESSEE HAD FABRICATED THE TRANSACTION OF PURCHASE AND SALE OF SHARES TO TAKE ADVANTAGE OF THE PROVISIONS OF SECTION 54F OF THE ACT. WHEN CONFRONTED, THE ASSES SEE VIDE HIS REPLY TO Q. NO. 19 OF THE STATEMENT DATED 2 ND MARCH, 2006 RECORDED U/S. 132(4) OF THE ACT EXPRESSED HIS INABILITY TO ESTABLISH THE GENUINENESS OF THE ITA NO. 989/MUM/2009 SHRI JANKI PRASAD M. SHAH ====================== 3 TRANSACTION AND ADMITTED THAT THE TRANSACTIONS WERE NOT GENUINE AND HENCE OFFERED THE ENTIRE CAPITAL GAIN FOR TAXATION AS UNDISCLOSED INCOME. FURTHER THE ASSESSEE VIDE HIS LETTER DATED 7 TH MARCH, 2006 RECONFIRMED HIS ADMISSION MADE IN THE STATEMENT U/S . 132(4) OF THE ACT AND PROMISED TO PAY THE TAX ON OR BEFORE 28 TH MARCH, 2006. HOWEVER, SUBSEQUENTLY THE ASSESSEES REPRESENTATIVES SHAPARI A & MEHTA, CAS FILED A LETTER DATED 8 TH JUNE, 2006 WHEREIN IT WAS STATED THAT OUT OF THE TOTAL SALE CONSIDERATION OF RS.53,76,315 ONLY A SUM OF RS.12,00,000 WAS RECEIVED AND THE BALANCE OF RS.41,76,315 WAS STILL RECEIVABLE FROM THE SHARE BROKER, M/S. ACTION FINANCIAL SERVICES (I) LT D. 5. ACCORDINGLY, THE ASSESSEE OFFERED RS.2,00,000 AND R S.10,00,000 AS INCOME FROM OTHER SOURCES IN HIS RETURNS OF IN COME FILED IN RESPONSE TO NOTICE U/S. 153A FOR A.Y. 2004-05 & 200 5-06, RESPECTIVELY. NO INCOME WAS SHOWN IN THE A.Y. 2003-04 ON THIS ACC OUNT ON THE GROUND THAT SINCE THE TRANSACTION WAS ONLY A BOOK E NTRY WHEREBY THE AMOUNT IN CHEQUE HAS TO BE RECEIVED FROM THE SHARE BROKER THE INCOME HAS TO BE OFFERED ONLY IN THE YEAR OF RECEIP T OF THE AMOUNT. HOWEVER, THE AO DID NOT FIND MERIT IN THE CONTENTIO N OF THE ASSESSEE AND TREATED THE ENTIRE CONSIDERATION OF RS.53,76,31 5 AS INCOME FORM OTHER SOURCES FOR THE A.Y. 2003-04. 6. BEFORE CIT(A) IT WAS SUBMITTED THAT THE SAID TRANSA CTIONS ARE GENUINE AND ENTIRE EVIDENCES ARE ON RECORD TO PROVE THE GENUINENESS OF THE TRANSACTION. IT WAS SUBMITTED THAT WHATEVER INCOME WAS RECEIVED HAS BEEN OFFERED FOR TAXATION SINCE UNDER THE CASH SYSTEM OF ACCOUNTING ACTUAL RECEIPTS ONLY ARE REQUIRED TO BE OFFERED FOR TAXATION. SINCE NO CASH WAS RECEIVED DURING THE YE AR UNDER CONSIDERATION, THEREFORE, NO INCOME IN THIS RESPECT WAS REQUIRED TO BE DISCLOSED DURING THE YEAR. VARIOUS CASE DECISION W ERE ALSO RELIED UPON. IT WAS ALTERNATIVELY ARGUED THAT ASSUMING THE SAID INCOME ACTUALLY RELATED TO THE A.Y. 2003-04 AND SINCE THE ASSESSEE HAS NOT RECEIVED ANYTHING AS THE BROKER WAS DECLARED AS DEFAULTER AN D THERE BEING NO ITA NO. 989/MUM/2009 SHRI JANKI PRASAD M. SHAH ====================== 4 CHANCE OF ANY RECOVERY, THE SAID AMOUNT SHOULD BE T REATED AS LOSS U/S. 28 OF THE ACT OR CAPITAL LOSS. 7. HOWEVER, THE VARIOUS ARGUMENTS ADVANCED BY THE LEAR NED COUNSEL FOR THE ASSESSEE DID NOT FIND FAVOUR WITH T HE CIT(A). HE OBSERVED THAT THE SUM OF RS.53,76,315 WAS ADMITTED BY THE ASSESSEE IN THE STATEMENT DATED 2 ND MARCH, 2006 RECORDED U/S. 132(4) OF THE ACT AS UNDISCLOSED INCOME AFTER ADMITTING THAT THE SAID TRANSACTIONS IN SHARES OF DATABASE FINANCE LTD. WERE NOT GENUINE. FURTHER THE ASSESSEE VIDE ITS LETTER DATED 7 TH MARCH, 2006 RECONFIRMED HIS ADMISSION REGARDING THE NON-GENUINENESS OF THE TRANSACTION MA DE IN HIS STATEMENT U/S. 132(4) AND PROMISED TO PAY THE TAXES ON THE SAID INCOME. HE OBSERVED THAT BY MAKING A CONFESSIONAL STATEMENT THE ASSESSEE STOPPED ANY FURTHER INVESTIGATION ON THE PART OF THE ASSESSING OFFICER. HE OBSERVED THAT ONCE A TRANSACTION IS AD MITTED BY THE ASSESSEE AS BOGUS TRANSACTIONS, THERE IS NO NECESSI TY ON THE PART OF THE ASSESSING OFFICER TO FURTHER INVESTIGATE THAT TRANS ACTION TO BRING MORE FACTS ON RECORD. THEREFORE, DURING THE APPEAL PROC EEDINGS IT IS NOT OPEN FOR THE ASSESSEE TO SAY EITHER THAT THE SAID T RANSACTIONS WERE GENUINE OR THAT THE ASSESSING OFFICER DID NOT CONDU CT FURTHER ENQUIRY FROM THE STOCK EXCHANGE ETC. FURTHER THE ASSESSEE HAVING ADMITTED THAT THE SAID CAPITAL GAIN RECEIVED REFLECTED IN BO OKS OF ACCOUNT ARE BOGUS AND REPRESENTED UNACCOUNTED INCOME IT IS NOT OPEN TO THE ASSESSEE TO DENY THE TAXABILITY OF THAT INCOME ON T HE GROUND OF NON- RECEIPT OF PAYMENT AGAINST THAT CREDIT. HE OBSERVE D THAT THE INCOME WRONGLY REFLECTED IN THE BOOKS AS CAPITAL GAIN DULY REPRESENTED THE UNEXPLAINED INCOME ALREADY EARNED BY THE ASSESSEE A S ADMITTED DURING THE STATEMENT U/S. 132(4) OF THE ACT. THERE FORE, THE INCOME HAVING ALREADY BEEN EARNED BEFORE IT WAS CAMOUFLAGE D AS CAPITAL GAIN INCOME, THERE IS NO QUESTION OF NON-RECEIPT OF SUCH INCOME. HE OBSERVED THAT IT IS COMMON KNOWLEDGE THAT THE HANDI NG OVER THE CASH AND RECEIPT OF CHEQUES IN LIEU THEREOF ARE DONE SIM ULTANEOUSLY IN SITUATIONS LIKE THIS. THEREFORE, THERE IS NO QUEST ION OF ANY LOSS U/S. 28 OF THE ACT OR CAPITAL LOSS ETC., OR STAGGERING OF INCO ME IN THE YEAR OF ITA NO. 989/MUM/2009 SHRI JANKI PRASAD M. SHAH ====================== 5 RECEIPT OF CASH, ETC., SINCE THE INCOME HAS ALREADY BEEN EARNED DURING THE YEAR UNDER CONSIDERATION AS ADMITTED BY THE ASSESSEE IN HIS STATEMENT U/S. 132(4) OF THE ACT. HE OBSERVED THAT THE PLEA OF THE ASSESSEE THAT THE BALANCE AMOUNT WAS NOT RECEIVED B Y HIM IS AGAIN MISPLACED SINCE THE INCOME WAS ALREADY AVAILABLE WI TH HIM WHEN THE INCOME FROM CAPITAL GAIN WAS SHOWN IN THE BOOK TO T AKE ADVANTAGE OF SECTION 54F OF THE ACT. HE ACCORDINGLY REJECTED TH E PLEA OF THE ASSESSEE AND UPHELD THE ACTION OF THE ASSESSING OFF ICER. AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE ASSESSEE IS IN A PPEAL BEFORE US. 8. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SAME SUBMISSIONS AS MADE BEFORE THE CIT(A). REFERRING T O VARIOUS PAGES OF THE PAPER BOOK HE SUBMITTED THAT OUT OF TOTAL SALE CONSIDERATION OF RS.53,76,315 THE ASSESSEE HAS RECEIVED AN AMOUNT OF RS. 12 LAKHS ONLY OUT OF WHICH AN AMOUNT OF RS. 2 LAKHS WAS RECEIVED DURING THE FINANCIAL YEAR 2003-04 AND ANOTHER RS.10 LAKHS DURING THE FIN ANCIAL YEAR 2004-05 AND THEY WERE OFFERED TO TAXATION ACCORDINGLY. THE REFORE, TAXING OF ENTIRE AMOUNT DURING THIS YEAR IS NOT AT ALL JUSTIF IED. HE SUBMITTED THAT SINCE THE ASSESSEE IS FOLLOWING CASH SYSTEM OF ACCO UNTING HE IS LIABLE TO PAY TAX ONLY WHEN HE RECEIVES THE ACTUAL PAYMENT. HE SUBMITTED THAT THE LOSS ARISING OUT OF NON-RECEIPT OF PAYMENT AGAI NST CAPITAL GAIN FROM THE DEFAULTED BROKER SHOULD BE ALLOWED AS CAPITAL L OSS SUBSEQUENTLY. IN HIS ALTERNATE CONTENTION, HE SUBMITTED THAT A SI NGLE TRANSACTION AMOUNTS TO ADVENTURE IN THE NATURE OF TRADE AND, TH EREFORE, THE SOLE TRANSACTION MAY BE CONSIDERED AS AN ADVENTURE IN T HE NATURE OF TRADE AND THE FAILURE ON THE PART OF THE BROKER TO PAY TH E AMOUNT SHOULD BE CONSIDERED AS BUSINESS LOSS IN THE SUBSEQUENT YEAR. HE ACCORDINGLY SUBMITTED THAT IF THE AMOUNT IS TAXED DURING THIS Y EAR THE SAME SHOULD BE TAXED AS BUSINESS INCOME AND A DIRECTION MAY BE GIVEN TO TREAT THE LOSS ON ACCOUNT OF DEFAULTING PAYMENT BY THE BROKER AS A BUSINESS LOSS U/S. 28 OF THE ACT IN SUBSEQUENT YEARS. HE ALSO R ELIED ON THE ORDER OF THE TRIBUNAL IN THE CASE OF DCIT VS. SAROJWALA A. J AIN VIDE I.T.A. NO. 3356/MUM/07 ORDER DATED 21 ST FEBRUARY, 2009 FOR THE A.Y. 2004-05. ITA NO. 989/MUM/2009 SHRI JANKI PRASAD M. SHAH ====================== 6 9. THE LEARNED DR , ON THE OTHER HAND, STRONGLY RELIED ON THE ORDER OF THE CIT(A). HE SUBMITTED THAT ALL POINTS HAVE B EEN CONSIDERED BY THE CIT(A). SINCE THE ASSESSEE HAS ALREADY CONFESS ED TWICE THAT IT IS THE BOGS INCOME, THEREFORE, THE ORDER OF THE CIT(A) SHOULD BE UPHELD. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY BO TH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. TH ERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE IN HIS ORIGINAL RETURN O F INCOME FILED ON 27 TH NOVEMBER, 2003 HAD DECLARED AN AMOUNT OF RS.52,83,4 26 AS NET LONG TERM CAPITAL GAIN ARISING ON ACCOUNT OF SALE OF SHA RES OF DATABASE FINANCE LIMITED AND CLAIMED THE SAME AS EXEMPT U/S. 54F OF THE ACT. THERE IS ALSO NO DISPUTE TO THE FACT THAT CONSEQUEN T TO THE SEARCH OPERATION THE STATEMENT OF THE ASSESSEE WAS RECORDE D WHERE THE ASSESSEE IN HIS REPLY TO QUESTION NO. 19 OF THE STA TEMENT DATED 2 ND MARCH, 2006 RECORDED U/S. 132(4) OF THE ACT EXPRESS ED HIS INABILITY TO ESTABLISH THE GENUINENESS OF THE TRANSACTION AND HA S ADMITTED THAT THE TRANSACTION WAS NOT GENUINE AND OFFERED THE ENTIRE CAPITAL GAIN FOR TAXATION AS UNDISCLOSED INCOME. THERE IS ALSO NO D ISPUTE TO THE FACT THAT THE ASSESSEE VIDE HIS LETTER DATED 7 TH MARCH, 2006 RECONFIRMED HIS ADMISSION MADE IN THE STATEMENT U/S. 132(4) AND PRO MISED TO PAY THE TAX ON OR BEFORE 20 TH MARCH, 2006. SINCE THE ASSESSEE HAD SOLD SHARES AND MADE CAPITAL GAIN OF RS.52,83,426 AND CLAIMED T HE SAME AS EXEMPT U/S. 54F OF THE ACT, THEREFORE, WE DO NOT FI ND ANY MERIT IN THE PLEA OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT T HE TRANSACTION SHOULD BE CONSIDERED AS ADVENTURE IN THE NATURE OF TRADE AND THE PROFIT SHOULD BE TREATED AS BUSINESS INCOME AND TO CONSIDER THE BALANCE AMOUNT NOT RECEIVED FROM THE BROKER AS A BU SINESS LOSS IN SUBSEQUENT YEARS. WE ALSO DO NOT FIND ANY MERIT IN THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE ASSES SEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND THEREFORE, THE ASSESSEE SHOULD BE TAXED ONLY ON THE BASIS OF ACTUAL RECEIPT OF PAY MENTS. WE FIND THE CIT(A) AFTER CONSIDERING THE ENTIRE ASPECTS HAD TAK EN A CONSCIOUS VIEW AND HAS HELD THAT THERE IS NO QUESTION OF LOSS U/S. 28 OR CAPITAL LOSS OR ITA NO. 989/MUM/2009 SHRI JANKI PRASAD M. SHAH ====================== 7 THE STAGGERING OF INCOME IN THE YEAR OF RECEIPT OF CASH ETC., SINCE THE INCOME HAS ALREADY BEEN EARNED DURING THE YEAR UNDE R CONSIDERATION AS ADMITTED BY THE ASSESSEE DURING THE STATEMENT RE CORDED U/S. 132(4) OF THE ACT. IN VIEW OF THE ELABORATE ORDER PASSED BY THE CIT(A) ON THIS ISSUE, WE DO NOT FIND ANY INFIRMITY IN THE SAME AND ACCORDINGLY UPHOLD THE SAME. THE GROUNDS RAISED BY THE ASSESSEE ARE A CCORDINGLY DISMISSED. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE. IS DISMISSED. PRONOUNCED ON 22 ND MARCH, 2010 SD/- (R.V. EASWAR) SR. VICE PRESIDENT SD/- (R.K. PANDA) ACCOUNTANT MEMBER MUMBAI, DATED 22 ND MARCH, 2010 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A), CENTRAL-VI, MUMBAI 4. THE CIT, CENTRAL-III, MUMBAI 5. THE DR J BENCH. //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT MUMBAI BENCHES, MUMBAI TPRAO