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TMI Blog2012 (6) TMI 387X X X X Extracts X X X X X X X X Extracts X X X X ..... s of account cannot be rejected simply because the assessee failed to reconcile the turnover to the satisfaction of AO. There is no allegation that the assessee was indulging in any transactions outside the books outside the stock exchange. The books of account were also audited. Hence, CIT (A) was correct in accepting the assessee’s books of account and rejection of estimation at 1% therein, and allowing the expenditure - Decided in favor of assessee. Business Income vs Income from Other Sources - other Income viz IPO referral fee, auction charges and Interest received - Held that:- There is no dispute with reference to the IPO referral fee, auction charges and Interest received being part of business operations and business income except the Income tax Refund. We uphold the order of the CIT (A) as it does not have any tax impact on the small amount of Rs.3,300/-. - ITA No.2556/Mum/2010 - - - Dated:- 4-5-2012 - B Ramakotaiah, V Durga Rao, JJ. For Appellant: Smt Usha Nair, CIT-DR For Respondent : Shri Vijay Mehta ORDER Per: B Ramakotaiah: This is Revenue appeal against the order of CIT (A)-Mumbai dated 4.10.2010. The revenue has raised eight grounds on fou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Ltd is holding though more than 10% but less than 20% so as to have substantial interest . Revenue is aggrieved and preferred above grounds. 5. The learned Departmental Representative relied on orders of Assessing Officer whereas learned Counsel not only submitted that the issue under section 2(22)(e) was decided by Special Bench in the case of Asst. CIT vs. Bhaumik Colour Pvt. Ltd. (2009) 313 ITR 146 (Mum) (AT) (SB) which in turn was confirmed by the Hon'ble Bombay High Court in CIT vs. Universal Medicare Pvt. Ltd. (2010) 324 ITR 263 (Bom) . It was further submitted that Assessing Officer did not accept that M/s Predict Investment does not have any substantial share holding and reasoned that explanation-3 covers only an individual and not company, whereas he has not considered section 2(32) where a person who has a substantial interest in a company refers to a person carrying not less than 20% of voting power. Therefore, even on that reason, addition cannot be made. 6. We have considered the issue. As seen from order of Assessing Officer, he has considered that a common share holder M/s Predict Investment has substantial share holding of more than 10%. While analyzing su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TT. 6. On the facts and circumstances of the case and in law, the learned CIT (A) erred in deleting the addition of Rs.5,60,89,831/- made by the Assessing Officer estimating the income at the rate of 1% of total turnover as the assessee had failed to reconcile the turnover . 8. The issue in above grounds is with reference to failure of assessee to reconcile turnover disclosed in Profit Loss A/c and consequently rejection of books of account by Assessing Officer and estimating income at 1% of turnover. The facts as stated in AO order is as under: Para No.7: During the course of assessment proceedings the assessee was asked to reconcile the turnover disclosed in the Profit Loss A/c with reference to the gross sales and purchases in all the securities traded by the assessee. The assessee has furnished the arbitrage turnover scrip-wise which is stated at Rs.347,07,03,891/- on purchase side and Rs.347,06,31,082/- on sale side. Since the said details submitted by assessee does not include day trading/speculative transaction, a comprehensive effort was made to co-relate the transaction with reference to STT and transaction charges paid and claimed by the assessee. The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rges levied by the exchanges. The assessee did not furnish the reconciliation of the transactions asked from it from it s books of account but only placed reliance on form 10DB issued by the broker. This is a clear refusal of submitting the information as required for the purpose of scrutiny. Even the transactions disclosed in the form No.10DB were also not reconciled by the assessee with reference to the profits shown in the Profit Loss A/c filed with the record. This attitude of assessee only leads to conclusion that assessee neither have any details nor willing to bring the material facts on record for determination of the correctness of the income disclosed in the return filed for the year. The details available in form 10DB are summarized as under: S.No Name of the Broker Code of transaction Amount of transaction entered into during the financial year STT Paid 1 Anand Rathi Securities Ltd 01 410420370 408530 02 331104296 325744 03 842754002 165365 2 Navratna Capital Securities Pvt. Ltd 01 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in making the assessment and therefore provisions of section 271A of the Act are not attracted. This view is supported by the decisions of the Tribunal in the case of Harilal Dhanwani and Papalal Gaur. In the appellant s Case the appellant is regularly maintaining all required books of account which would enable the assessing officer to complete the assessment and hence under the above circumstances, we request your honour to treat that all books of account are maintained by the as required to complete the assessment and rejection of the books by the Learned Income Tax Officer is erroneous and such rejections of books of accounts be quashed. Consequent to the rejection of books the income taken on estimation basis at Ra. 5,60,89,831 by invoking section 145(3) r.w.s. 144 of the Act is erroneous. The learned Income Tax officer erred in trying to match the figures on arbitrary basis and when not satisfied on her working she rejected the books of account and took 1% Income on turnover derived by herself on hypothetical, assumption and surmise basis. The learned Income Tax officer has failed to appreciate the following facts: i. The difference in turnover as alleged by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The rates of all segments are different and not equal. The rates can not be taken arbitrary as there are different definite rates at which STT and transaction charges to be charged prescribed by the Govt. of India. It may be appreciated that all transactions of appellant have been undertaken on Recognized Stock Exchanges (BSE and NSE) of eligible equity shares only. The estimated working of profitability in those circumstances is not valid and justified. All the transactions are - completely transparent and can be verified from 10DB certificate. We therefore request your honour to take the actual figures as declared and direct the learned Income Tax officer not to take any income on estimation basis and request to allow the all expenses as claimed an4 also allow security transaction tax paid as Rebate u/s 88E of the Act and oblige. In case of arbitrage activity, profit margin is very low and if the appellant company does the arbitrage activity other than its own broker house it will have to pay more brokerage and in that case there will hardly be any earning of profit. Therefore arbitrage activity is done mostly through in house brokerage where brokerages are nominal. vi. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the business of the appellant and worked out turnover of the appellant in a summary and vague manner. By no stretch of imagination a reverse turnover can be worked out based on STT rules which were different at different times and nature of trading involved is different in different segments at BSE and NSE. All transactions are duly made on either of the exchanges and recorded in books. If a close look at the STT statement is given, the figures are voluminous and to arrive arbitrarily at any figures by rejecting the books of account and estimating the income at 1% is not called for. Hence I hold that the decision of the Assessing Officer regarding the rejection of the books of account of the appellant cannot be upheld. This ground of appeal is allowed. 11. Before us learned CIT-DR vehemently argued stating that CIT (A) erred in not upholding order of Assessing Officer as assessee failed to give reconciliation of turnover and in the absence of any verification of turnover the books of account cannot be accepted. She supported the order of Assessing Officer. 12. The learned Counsel however, submitted that assessee is involved in various business activities in stock exchange ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to investment in unquoted shares and how those transactions are to be treated as business income but not capital gain. Inspite of explaining that there are different STT charges as stated in page 34 of the order and furnishing complete details, evidence on the basis of the form 10DB furnished by various clients, Assessing Officer not only considered amounts wrongly but arrived at decision of rejecting books of account and estimated turnover at 1% without any basis or comparative figures, arbitrarily. He explained reconciliation made before CIT (A) and supported order of CIT (A). 14. We have examined the issue. The assessee shows turnover of direct purchase and sale in the books of account whereas in F D segment, arbitrage, auctions etc., only net amounts are accounted while STT was paid on value of transaction. Therefore, reconciling the turnover on the basis of STT is if not impossible, virtually cumbersome considering the nature of the business, turnover involved and different rates of STT paid for different transactions. On certain transactions in F AO there is no STT on buy amounts but only on sale amounts. Therefore, the Assessing Officer exercise of asking the assessee to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of business operations and business income. The only issue that may arise is with reference to interest received of Rs.5,58,562/-. Further details of the above amounts are as under: Particulars Amount in Rs Income Tax Refund 3,300 Shine Capital Securities Pvt. Ltd 1,125 Shree Capital Securities Pvt. Ltd 1,845 Indiacoach.COM Pvt. Ltd 9,750 Amit Capital Securities Pvt.Ltd 13,497 Preetraj Finvest Pvt. Ltd 21,832 Nischal Enterprises Pvt. Ltd 46,275 Pushap Capital Securities Pvt. Ltd 83,600 AR Venture Funds Management Ltd 1,59,523 Dynamic Orbits Advisory Pvt. Ltd 2,17,815 5,58,562 Except the Income Tax refund interest of Rs.3,300/-, all amounts are received in the course of business and there was payment of interest also which was allowed as business expenditure, on which there is no dispute from Assessing Officer. Considering these, we are of the opinion that the CIT (A) order is to be upheld. Since there is no effect by treat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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