2019 (2) TMI 1198 - AT - Income Tax

Rejection of books - Held that - Complete books of account are easily retrievable and accordingly, was drawn on the basis of contemporary records as well as seized material. He explained that bulk of the transactions were undertaken by the assessee through brokerage firms on behalf of the family members and corporate entities promoted by them, all of whom have been assessed by the same AO. It was explained that these entities have placed copies of contract note, bills and others materials during the course of assessment/ appellate proceedings, all of which, records were available with the AO to undertake verification but the same was not carried out by the AO. We are of the view that it is coming out that the books of account are not maintained in regular course of business and assessee itself admit that these are incomplete and does not possible to reconcile each and every entry. Hence, we are of the view that the AO has rightly rejected the books of account and which CIT(A) also confirmed. In view of the above position, we dismiss this ground of assessee s appeal. Addition on account of Money Market Oversold Position (MMOP) including addition on account of 11.5% central loan 2011 - Revenue is in appeal against deletion of addition in relation to money market oversold position - Held that - Despite several reminders and even after taking up the matter with the superior officers no report was submitted by the AO. Further, it is observed that though the CIT(A) has himself verified the various evidences placed on record before him and given a detailed finding in case of each of the security he has directed the AO to re-verify the same and recomputed the oversold position. Ld Counsel stated that the AO has carried out detailed verification by taking almost a year before passing the order u/s 154 of the Act dated 02.05.2018 in respect of the order giving effect dated 28.09.2017. Vide order u/s 154 of the Act the AO has granted relief to the extent of ₹ 856.75 crores in relation to money market oversold position. No contrary fact was brought before us by revenue. Addition on account of oversold position in 11.5% Central Loan - Held that - We noted from the order of the CIT(A) that he has given a detailed finding on this issue. He has categorically mentioned in his order that the assessee has filed ample evidences for explaining the nature of the transaction in respect of which the additions were made. CIT(A) has not set aside the assessment. Direction given by this appellate authority to the lower authority for verification will not tantamount, in our opinion, to setting aside the assessment. It is a case where the CIT(A) gave the relief and allowed the ground of the assessee but subject to the verification by the AO. Power of the CIT(A) u/s 251 of the tax Act. In our opinion, what the CIT(A) has done is that he has directed the AO to do what he has not done while making an assessment. We, therefore, are of the view that once the AO after verification of the evidences and the material filed by the assessee, gave relief to the assessee. This proves that the AO was satisfied with the explanation of the assessee with regard to MMOP and to the extent he found explanation given by the assessee to be proper, he allowed the relief to the assessee. It is the satisfaction of the AO which matters not the satisfaction of the Ld CIT-DR. If the AO is satisfied with the explanation of the assessee and allowed the relief to the assessee while giving effect to the order of the CIT(A).- Decided against Revenue. Difference of purchase and sales in respect of 11.5% Central Loan-2011 - Held that - In the absence of any cogent material or evidence to support the said negative balance, we are of the view that the addition of ₹ 29,70,53,629/- cannot be survived. It is a settled law if the revenue wants to tax any income; the onus is on the revenue to prove that the assessee has earned income. Even otherwise, for the negative opening balance, addition cannot be made as per the provisions of Section 69 of the Act in the impugned assessment year. If an addition has to be made that has to be made in the earlier assessment year from which negative opening balance has been brought forward. We, accordingly, delete the addition of ₹ 29,70,53,629/- out of the sum of ₹ 223,83,58,173/-. Addition of oversold units - Held that - The assessee has asked for the details of such oversold units but no such details were provided to the assessee so that the assessee can contradict the same. Before us also the Ld Counsel taken the said contention but the CIT-DR even though relied on the order of the AO and brought voluminous record but could not bring to our knowledge any specific record or evidence which may prove that the assessee has sold such Units 64. In the absence of any evidence, which may prove that the assessee has oversold Units 64, we cannot sustain this addition and we are bound to delete the same. No addition can be made or sustained merely on the basis of the suspicion, howsoever strong it may be. Addition on account of Money market unexplained stock - Held that - Set aside this issue and restore it to the file of the AO with the direction that the AO shall re-verify the evidences in respect of claim of the assessee for 9% HUDCO Bonds as well as Units 64 whether they belong to the assessee or not in case if he finds these assets do not belong to the assessee, the amount included in the addition of ₹ 66,18,18,047 in respect of these assets would stand deleted out of the said addition. Addition on account of Money Market Trading Profit (i.e. Money Market Difference received) - Held that - AO while making the addition under the head money market difference has not considered the sum of ₹ 39,19,17,531/- which was paid by the assessee as is apparent from Annexure K and received by UCO Bank on account of SBI Mutual Fund, which we verified during the course of hearing. We, therefore, delete the said addition. Thus, the Ground No. 9 is allowed. Addition on account of Interest on Money Market Securities - Held that - The Ground taken by the assessee could not be fully allowed but since the assessee has not received the interest to the extent of ₹ 26,41,49,667/- in any of the bank account, the interest to that extent cannot be added in the income of the assessee. We, therefore, delete the addition of ₹ 26,41,49,667/-. Thus, this issue of assessee s appeal and that of Revenue s appeal is partly allowed. Addition of Share Market Trading Profit - Held that - Neither the assessee nor the Ld CIT-DR could bring the evidence to what extent the assessee has traded in the shares on own account and on behalf of his client. The appeal relates to the AY 1992-93 and already more than 26 years have passed and this issue has been restored again and again to the file of the authorities below. We, therefore, in the interest of the justice and fair play to both the parties and to end the litigation direct the AO to treat 50% of such profit on share trading belonging to the third party on whose behalf the assessee might have carried out the share trading. Thus the addition is reduced to 50% of ₹ 16,02,65,407/-. Thus, the assessee gets a relief of ₹ 8,01,32,703/-. Thus, this ground in assessee s appeal is partly allowed. Addition on account of share market speculative profit - Held that - As the initial onus lies on the Revenue to prove that the said income has been earned by the assessee on his own account, but the assessee could not bring any evidence that he has not earned any income on his own account and the issue has come before this Tribunal third time. In the absence of burden being discharged by the Revenue, we cannot shift the burden of proving otherwise on the assessee. This matter, we noted, relate to the AY 1992-93 and is pending for the last over 25 years by that time at least one generation would have changed. Since, the revenue could not discharge its onus and addition in our view is based just on surmises and conjectures. We, therefore, delete the addition. Thus, this ground of assessee s appeal is allowed. Addition on account of profit on sale of shares in shortage - Held that - AO failed to appreciate the fact that the shares were either in physical possession of the assessee or were stolen or seized or were found to be registered in the names of third parties. The presumption that the shares have been sold without any piece of direct or indirect evidence or explanation is bad in law and needs to be reconsidered and accordingly the entire addition deserves to be deleted. There had been search and seizure action against the assessee and assessee group on 28.2.1992, the evidences regarding sales outside the books must have been found if the assessee made any sales. No such evidence being found in respect of unaccounted sales being made as otherwise such evidence would have been produced or brought before us by the revenue. This is the settled law that Suspicion whatever strong it may be, it cannot take the place of actuality. We agree with the submission of the Ld A R that when the purchases have been estimated on average cost, how the sales have been estimated merely on the basis of the rate prevailing as on 31.3.1992 and how these shortage computed as on 8.6.92 will relate to this assessment year 1992-93. Even no material or evidence has been brought before us working out the shortage of shares as on 31.3.1992 so that the addition could be co-related to this assessment year if it has to be sustained on the basis of material if brought on record. In view of aforesaid discussion, we are of the firm view that the additions have been made by the assessing officer merely on estimate basis without bringing the evidences in this regard. Therefore, we delete the addition Addition on account of Badla Income - Held that - We asked the ld. DR the basis and the supporting evidence on the basis of which this compilation has been made and also provide it to the ld. AR but no such evidences and the material were placed before us or provided to the assessee as contended by ld. A.R. We pursued the remand report also as has been relied by ld. DR and had been referred to by us in the preceding paragraph. We, therefore, respectfully following our finding given in the preceding paras while disposing of grounds, delete this addition Addition on account of share market oversold position - Held that - If the revenue is making any addition, onus is on the revenue to prove that the assessee has earned the income. The revenue since has not produced any material or evidence to prove that the assessee has earned this income during the year, the addition so made cannot survive. We, therefore, delete the said addition. Thus, the ground no.18 of assessee s appeal is allowed and that of the revenue is dismissed. Unexplained Money under section 69A - Held that - DR although relied on the order of the CIT(A) but could not adduce any cogent material or evidence to contradict the evidence filed by the assessee. These evidences clearly prove that these four amounts totaling to ₹ 123,05,66,015/- cannot be regarded to be unexplained amount. We, therefore, delete the said addition. For the sum of ₹ 1,80,50,965/-, we perused the explanation given by the ld. AR to which we could not be satisfied. In our view, once the assessee has deposited the money in his bank account, the onus lies on the assessee to explain the nature and source of such deposit consisting of each and every entry. In the absence of onus being discharged by the assessee, we sustain the addition of ₹ 1,80,50,965/-. So far the deletion of the addition by the CIT(A) amounting to ₹ 25,48,16,855/- is concerned, we do not find illegality or infirmity in the order of the CIT(A) in deleting the said addition and this amount also in our view cannot be regarded to be the unexplained money. Addition on account of transactions with Mr. Niranjan J. Shah - Held that - No independent evidence corroborating the statement of Niranjan shah has been brought on record. The report of JPC, in our view cannot be regarded to be the incriminating material to be used against the assessee. In view of this, we are bound to delete the said addition. Addition on account of alleged payment to June Investments Pvt. Ltd. - Held that - The addition has been made merely on the basis of the document found from the possession of third party, no collaborative evidence is being brought on record by way of statement on behalf of June Investments P Ltd or by way of any evidence being found or seized during the course of search being carried out at the premises of the assessee showing that actually the assessee hold or purchased the shares of M/s Lan Steel. Onus is on the revenue to prove that the assessee has actually paid the money to third party during the impugned assessment year and for which the assessee is not able to explain the source. No addition can be sustained merely on the basis of assumption and presumption without given the opportunity to the assessee to controvert the same. Addition on account enhancement on account of Interest receivable from related parties - Held that - Tribunal, thus in AY 89-90 deleted the addition before us even though the Ld. DR vehemently relied on the order of the authorities below but could not bring to our knowledge any decision contrary to the decision of the Tribunal for the AY 89-90. In assessee s own case holding that interest income has to be recognized in the case of the assessee on actual receipt basis. The ld. DR even did not deny that the assessee was following the cash system of accounting in respect of interest income - addition to be deleted Addition on differences in the books of account - Held that - The assessee has also submitted complete reconciliation in these cases and ultimate difference unreconciled of their inter account considering their proprietorship concern also came to ₹ 2,18,397/- only. In the case of Jyoti Mehta also, while making detailed submission in respect of ground no 15 it was worked out that ultimately there was no difference and the difference unreconciled remains between Ashwin Mehta and Harshad Mehta to the extent of ₹ 2,80,397/-. We therefore reduce the addition to ₹ 218397/-. Addition on account of alleged liabilities shown as other income - Held that - The addition has been made on the presumption that the assessee would have been benefited by this amount. This is the settled law that no addition can be made until and unless the income is accrued or received by the assessee. No iota of evidence was brought to our knowledge which may prove that an income had accrued to or received by the assessee. Income tax is leviable on the income which is chargeable as per the provision of section 5 of the Act. Section 5 of the Act nowhere makes any nominal income to be chargeable to tax. We, therefore, in the absence of any evidence being placed before us about the accrual or receipt of the income by the assessee, delete the addition so made Set-off of addition made on account of sources of income against the expenses/ investment/application of such source based on telescoping theory - Held that - Direct the AO that in case any addition is survived in the preceding paragraphs on account of unexplained receipts or profit on trading in shares and also on account of unexplained investments or expenditures, to allow set off and telescoped of these additions and such unexplained investments or unexplained expenditures should be deemed to have been made or incurred out of such receipts or profit on trading in shares etc. The AO will compute the income after giving effect to this order after considering these directions and after confronting the assessee. Levy of interest u/s 234A, 234B and 234C - Held that - Levy of interest is mandatory. We, therefore, dismiss ground no 31 regarding levy of interest, but direct the AO in respect of ground no.32 and 33 that the interest levied under section 234A,234B and 234C be recomputed after excluding the income which is subject to TDS. So far as the issue relating to the levy of interest u/s 234B till the date of original assessment or upto the date of the assessment subsequently made after it being set aside by the appellate authorities is concerned. Section 234B(1) clearly states that the assessee shall be liable to pay simple interest @ 2% for every month or part of the month comprised in the period from 1stApril next following such financial year to the date of determination of total income u/s 143(1) or regular assessment under section 143(3) or section 144 of the Act. - No contrary decision was brought to our notice by the DR that the interest can be charged u/s 234B upto the date of passing the order in consequence of the order of the appellate authority. We, therefore, direct the AO to recompute the interest u/s 234B upto the date of original assessment passed u/s 144 dt 27.3.1995. When there is a case to which the computation provisions cannot apply at all, it is evident that such a case was not intended to fall within the charging section. In this case before us, there is a failure of computation of interest provision due to non-filing of valid return by the assessee, interest u/s 234C cannot be levied and we accordingly direct the AO not to charge interest u/s 234C. Levy of interest u/s 220(2) - Held that - We do not find any illegality or infirmity in the order of the CIT(A) directing the AO to charge interest u/s 220(2) from the date of default of the fresh demand notice issued after the fresh assessment made in consequence of the order of the appellate authorities.

Summary

Issues Involved:
1. Inconsistencies in Annexure M-1 and M-2.
2. Inaccuracy of seized material.
3. Decrees awarded by the Special Court.
4. Tribunal's order for AY 1990-91.
5. Presumption of delivery of securities.
6. Verification and re-computation of stock and oversold position.
7. Jurisdiction of CIT(A) in directing AO.
8. Nexus between transactions and decrees.
9. Contradictory stand by the assessee.
10. Addition on account of money market oversold position.
11. Addition on account of unexplained stock.
12. Addition on account of money market trading profit.
13. Addition on account of interest on money market securities.
14. Addition on account of share market trading profit.
15. Addition on account of share market speculative profit.
16. Addition on account of profit on sale of shares in shortage.
17. Addition on account of transactions with Mr. Niranjan J. Shah.
18. Addition on account of payment to June Investments Pvt. Ltd.
19. Addition on account of interest receivable from related parties.
20. Addition on account of alleged liabilities shown as other income.
21. Rejection of cash system of accounting.
22. Set-off of addition made on account of sources of income.
23. Deduction on account of interest, business expenditure, business loss, and depreciation.
24. Deduction and allowances under Chapter VIA of the Act.
25. Levy of interest under sections 234A, 234B, and 234C.
26. Levy of interest under section 220(2).
27. Treatment of speculative loss as normal business loss.

Detailed Analysis:

1. Inconsistencies in Annexure M-1 and M-2:
The Tribunal noted that there were various inconsistencies observed in Annexure M-1 and M-2 as tabulated by the CIT(A). The CIT(A) directed the AO to verify the evidence submitted by the assessee and re-compute the position of stock and the addition of oversold position on account of securities.

2. Inaccuracy of Seized Material:
The assessee consistently argued that the seized material was inaccurate, containing operational data subject to correction, addition, and change. The Tribunal noted that the deal file was not free from errors, and the revenue did not controvert the arguments made by the assessee.

3. Decrees Awarded by the Special Court:
Several decrees were awarded against the assessee and in favor of banks/financial institutions, establishing the absence of delivery in transactions. The CIT(A) considered these decrees while directing the AO to verify and re-compute the stock position.

4. Tribunal's Order for AY 1990-91:
The Tribunal's order for AY 1990-91 was referred to, indicating that the AO had set off unexplained investments comprising purchases against unexplained investments comprising sales. The Tribunal directed the AO to follow a similar approach for the current year.

5. Presumption of Delivery of Securities:
The Tribunal noted that the presumption of delivery of securities under section 292C of the Act did not follow from the facts disclosed by the deal file. The deal file recorded only the intended date of delivery, not the factum of delivery.

6. Verification and Re-computation of Stock and Oversold Position:
The CIT(A) directed the AO to verify the evidence submitted by the assessee and re-compute the position of stock and the addition of oversold position on account of securities. The AO was also directed to rework the money market trading profit/loss for the said securities.

7. Jurisdiction of CIT(A) in Directing AO:
The CIT-DR argued that the CIT(A) exceeded his jurisdiction by directing the AO to decide the issue on merit after verification of records. The Tribunal held that the CIT(A) acted within his powers under section 251 of the Act by directing the AO to verify the evidence and re-compute the stock position.

8. Nexus Between Transactions and Decrees:
The CIT-DR argued that the CIT(A) misunderstood the issue involved in the decrees awarded by the Special Court and the Supreme Court. The Tribunal noted that the CIT(A) had directed the AO to verify the nexus between the transactions and the decrees.

9. Contradictory Stand by the Assessee:
The CIT-DR pointed out that the assessee had taken a contradictory stand by challenging the data in soft form, which was finalized with his consent. The Tribunal noted that the assessee had consistently argued for an itemized breakup of the additions made.

10. Addition on Account of Money Market Oversold Position:
The Tribunal directed the AO to verify the evidence submitted by the assessee and re-compute the addition on account of money market oversold position. The CIT(A) had provided relief to the extent of ?856.75 crores in relation to money market oversold position.

11. Addition on Account of Unexplained Stock:
The Tribunal noted that the AO had made an addition of ?290.55 crores on account of unexplained stock of money market securities. The CIT(A) directed the AO to verify the securities amounting to ?174.37 crores, which do not belong to the assessee.

12. Addition on Account of Money Market Trading Profit:
The AO made an addition of ?35.55 crores on account of money market trading profit. The Tribunal directed the AO to verify the evidence submitted by the assessee and re-compute the addition.

13. Addition on Account of Interest on Money Market Securities:
The AO made an addition of ?58.27 crores on account of interest on money market securities. The Tribunal directed the AO to verify the evidence and re-compute the addition, considering the interest received by the assessee in his bank account.

14. Addition on Account of Share Market Trading Profit:
The AO made an addition of ?16.02 crores on account of share market trading profit. The Tribunal directed the AO to verify the evidence and re-compute the addition.

15. Addition on Account of Share Market Speculative Profit:
The AO made an addition of ?2.85 crores on account of share market speculative profit. The Tribunal directed the AO to verify the evidence and re-compute the addition.

16. Addition on Account of Profit on Sale of Shares in Shortage:
The AO made an addition of ?253.16 crores on account of profit on sale of shares in shortage. The Tribunal directed the AO to verify the evidence and re-compute the addition.

17. Addition on Account of Transactions with Mr. Niranjan J. Shah:
The AO made an addition of ?12 crores on account of transactions with Mr. Niranjan J. Shah. The Tribunal directed the AO to verify the evidence and re-compute the addition.

18. Addition on Account of Payment to June Investments Pvt. Ltd.:
The AO made an addition of ?62.50 lakhs on account of payment to June Investments Pvt. Ltd. The Tribunal directed the AO to verify the evidence and re-compute the addition.

19. Addition on Account of Interest Receivable from Related Parties:
The AO made an addition of ?11.85 crores on account of interest receivable from related parties. The Tribunal directed the AO to verify the evidence and re-compute the addition.

20. Addition on Account of Alleged Liabilities Shown as Other Income:
The AO made an addition of ?69.63 crores on account of alleged liabilities shown as other income. The Tribunal directed the AO to verify the evidence and re-compute the addition.

21. Rejection of Cash System of Accounting:
The Tribunal upheld the rejection of the cash system of accounting followed by the assessee, as the books of account were not reliable and non-verifiable.

22. Set-off of Addition Made on Account of Sources of Income:
The Tribunal directed the AO to allow set-off and telescoping of additions made on account of unexplained receipts or profit on trading in shares against unexplained investments or expenditures.

23. Deduction on Account of Interest, Business Expenditure, Business Loss, and Depreciation:
The Tribunal dismissed the ground relating to deduction on account of interest, business expenditure, business loss, and depreciation as not pressed.

24. Deduction and Allowances Under Chapter VIA of the Act:
The Tribunal dismissed the ground relating to deduction and allowances under Chapter VIA of the Act as not pressed.

25. Levy of Interest Under Sections 234A, 234B, and 234C:
The Tribunal directed the AO to re-compute the interest under sections 234A, 234B, and 234C after excluding the income subject to TDS and considering the date of filing of the return.

26. Levy of Interest Under Section 220(2):
The Tribunal directed the AO to charge interest under section 220(2) from the due date of issuance of fresh notice of demand after the fresh assessment made in consequence of the order of the appellate authorities.

27. Treatment of Speculative Loss as Normal Business Loss:
The Tribunal upheld the CIT(A)'s decision to treat the speculative loss incurred by the assessee as normal business loss to be adjusted against other heads of income.