9911796707
TMI Blog2013 (10) TMI 541X X X X Extracts X X X X X X X X Extracts X X X X ..... & 2005-06. All these appeals are connected because in the case of company, similar disallowance was made by the AO in four years on substantive basis which was deleted by the ld. CIT(A) in all the four years and protective addition was made by the AO in the cases of these two individuals which were also deleted by the ld. CIT(A) on a consequential basis. Hence, all these appeals were heard together and are being disposed of by this common order for the sake of convenience. 2. Since substantive addition was made by the AO in the hands of the company M/s. Prudent Finance (P.) Ltd., first we decide the four appeals filed by the Revenue in this case. In this case also, the issue involved in all the years is identical and it was agreed by both the sides that the same can be decided in any one year and that order can be followed in the remaining years. Hence, we take up the appeal of the Revenue for AY 2002-03 in ITA No.2452/Ahd/2008. 2.1 Brief facts till the assessment stage and the submissions before the ld. CIT(A) and his decision are available in para Nos.8 to 19 of the order of the CIT(A) and the same are reproduced below for the sake of ready reference: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer, that the analysis of digital data found during, the search, reveal that the off market transactions carried out by the appellant with connected concerns as well as others had resulted in huge losses. With a view to verify the genuineness of losses claimed, the Assessing Officer called for the details of transactions conducted by the appellant with the above named 10 concerns. From the order of assessment it is seen that in response to this requisition, the appellant need not submit the details called for in the tabular format for each scrip on day to day basis as it involved voluminous data. Thereafter, after observing that the appellant had avoided furnishing the data called for, the Assessing Officer asked the appellant to establish that the transactions were genuine, supported by actual delivery of shares and that they had been carried out at the market rate in respect of certain transactions only, for different years. In the assessment order it is mentioned that the assessee did not provide even the alternative details called for. Thereafter, the Assessing Officer issued a show-cause notice to the appellant as to why the losses arising on account of off market transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to her, the transactions were not genuine but were colourable device, however, the Assessing Officer has gone on to discuss the applicability of section 19(1) of Securities Contracts (Regulation) Act, 1956. The Assessing Officer has agreed with the appellant's contentions regarding the reduction of losses arising from the transactions with M/s. N.P.C. Capital Market. The Assessing Officer, however, disagreed with the appellant's submissions regarding the genuineness of off market transactions, to ignore the transactions carried out with concerns other than sister concerns and also the appellant's submission regarding netting of losses. The main contentions of the Assessing Officer on these issues and the appellant's submissions thereon are summarized as under:- Assessing Officer's observation Appellant's rebuttal in statement of facts Assessee company's affairs are managed by one of its directors Shri Nitin B. Parikh The AO has proceeded on wrong perception that assessee company's affairs are managed by one director. The fact is that it was not Shri Parikh alone who was looking after the business affairs of the appellant company but he had the other director Shri Jolit Shah in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come casier to verify whether assessee has carried out off market transactions on market rate or not. Annexure stated in reply date 24/12/2007 regarding market proof is not submitted Assessee has failed to prove that off market transactions were at market rate The appellant vehemently objects to a patently wrong statement made by the Assessing Officer in stating that the annexure containing the details called for by her in regard to transactions carried out on a particular date claimed to have been submitted alongwith the appellant's submission on 24/12/2007 were in fact not submitted. The appellant submits that the annexure mentioned in their reply dated 24/12/2007 was submitted on next working day, as the details of market rates required to be submitted as part of the format took a considerable time to be downloaded from the official website of the Bombay Stock Exchange. In other words, the details as called for were submitted though a day late and for valid reasons. If required, the appellant is even prepared to submit affidavits of their representatives who were regularly appearing before the Assessing Officer during the course of assessment proceedings to confirm that the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich is recognized for the said purpose by the Government. We once again reiterate that the transactions that we have entered into to on principal to principal basis, it cannot be classified under any of the substantive activity attributable to a Stock Exchange. In other words, we have not provided any trading platform to the concerns for inter-se transaction in securities, i.e., we have not brought together the buyers and sellers of securities and facilitated their securities transactions in any manner, no do we regulate or control the securities trading. (As submitted before assessing officer dated 24/12/2007) The Assessing Officer that the intention of SEBI in putting ban of off market transactions with certain exceptions is just to protect the interest of the investors. The appellant humbly submits that no ban has been put by SEBI on off market transactions as is being observed by the Assessing Officer. The off market transactions are perfectly legitimate transactions and assessee relies on submission made vide letter dated 24th December, 2007 to AO The appellant does not come within the ambit of exception provided to Section 19(1) of SCRA, 1956, i.e. "Spot Delivery Contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow loss incurred in the transactions chosen by the A.O. Therefore, one has to consider the data as a whole and not to adopt pick and choose method so as to delete the transactions from that data which are found inconvenient to the Department. Appellant relies on following decisions: (a) Glass Line Equipment Company Ltd. v. Commissioner of Income-tax 253 ITR 454(Guj.) (b) Dhanvarsha Builders & Dev. Pvt. Ltd. 102 ITD 375 (c) Chander Mohan Mehta 71 ITD 245 (d) Hanshyambhai Thakker 88 Taxman 65) (Para 1.2 of submission) This may be further appreciated in view of following few examples: (i) For example loss in the transaction with Nitin Parikh (Ind.) has been disallowed at Rs. 50,44,592/- whereas same statement shows profit in transactions with the proprietary concern of Nitin Parikh (Ind.) viz. Nitin Parikh & co. (PNB) Rs. 24,40,464/-; Nitin B. Parikh Rs. 3,64,68,436/-. In this case the above profit in off market transaction is taxed whereas loss is disallowed. (ii) Similarly in the case of transaction with Heenaben (HNP Traders) has been disallowed at Rs. 1,00,79,744/- whereas in transaction with her another proprietary conc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO has observed that losses or planned losses from mutual funds and profits were transferred to them. On one hand the Assessing Officer has observed that the profits had been transferred to related concerns, who had losses or had planned losses from the mutual fund transactions, the same Assessing Officer, while assessing M/s. HNP Traders has accepted the losses arising from their mutual fund transactions as genuine. The profit/loss arising in the hands of the other is not relevant sofaras assessment of the appellant is concerned. That the activity of the appellant is within the frame work of law has been admitted by the Assessing Officer when she observed that "the issue involved in the case of the assessee is not legitimacy of "off market transactions" ". Further, scant evidence has been adduced to establish that the device adopted by the appellant was 'colorable' or that the appellant's methods were 'dubious'. The AO has relied on decision of Macdowell company Ltd. v. CTO(1985) 154 ITR 148. The Appellant relies on decision of Gauhati High Court in the case of George Williamson (Assam Ltd.) (265 ITR 626) wherein Court has held as under: "In view of the aforesaid legal princi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s/concerns were with Assessee. However, AO is off the view that there was no one to one banking transactions. In other words, when sale was made it was not followed by cheques received nor when purchases were made were followed by cheque payment. Even while settling the account, netting was done and on majority occasion net amount payable to such concerns were credited to their accounts. AO has not doubted that fund of aforesaid persons were with appellant. Conducting transactions on principal to principal basis with any one entity regularly, pre-supposes complete trust with regards to purchase and sale transactions and its execution. In the assessment order, the Assessing Officer admits the availability of the funds of the parties concerned with the appellant but ignores the reality of a running account. Not a single instance has been cited by the Assessing Officer to impute that funds are supplied by the appellant in any account which went into deficit. The appellant states that the aforesaid entities have made day to day transactions with assessee company hence it was not possible to make bill to bill payment payment/receipt of amount due. It is stated that even when transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lls issued by assessee are self serving documents and they are devoid of any third party evidences. During the course of assessment proceedings, appellant has submitted details stated in para 2.4 of SOF alongwith market price, your goodhonour may appreciate that whether the appellant's case is devoid of third party evidence. Moreover, if the quality of evidence submitted was suspect, the Assessing Officer could as well have examined the parties concerned to satisfy herself in this regard. 10. It may be relevant to put on record some basic issues involved in share transactions generally for better appreciation of issues involved in this case. From reading the assessment order and after going through the submissions made by the appellant's representatives, it seems these basics have remained to be appreciated by the Assessing Officer while dealing with this case. No statute can prohibit or put restrictions on the transfer of a property which legitimately belongs to the transferor. However, if a system for such transfer is in place which has some statutory support, the transferor and the transferee can avail of the legal recourse in the event something goes wrong. In other words, if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arket transactions' had taken place outside the price band of the day for any security to the transaction, she would have been perfectly justified in making her own calculations of profit/ loss on the prices available in the price band. Therefore, apart from legitimacy of the 'off market transactions' involved in this case which has not been disputed by the Assessing Officer, the question regarding genuineness had to be settled with reference to the identities of the parties, fund flow and prices of the day. The submissions made by the appellant success fully, address these three vital aspects of genuineness in contradistinction to the averments made by the Assessing Officer. 10.2 Yet another expression which has been repeatedly used by the Assessing Officer in her order, which needs to be clarified, is "spot delivery". From the reading of the assessment order, it appears that the Assessing Officer has equated 'off market transactions' with 'spot delivery'. It may be relevant to mention that whereas 'spot delivery' is a statutorily recognized mode of share transaction, 'off market transactions' as a mode of share dealing, though perfectly legitimate, does not find any mention in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gulating or controlling the business of share transactions. No evidence has been brought, on record by the Assessing Officer that the appellant was engaged in-the function of assisting, regulating or controlling the business of share transactions either for themselves or for others. 12. Considering the above position, what is left to. be examined is whether the appellant's modo of securities transactions with entities connected with themselves and some outsiders on principal to principal basis was legitimate and genuine. In other words, whether the 'off market transactions' conducted by the appellant on principal to principal basis was legally permissible and even if it was legally permissible whether the-transactions the appellant carried out were in fact genuine and not merely paper transactions, as has been held by the Assessing Officer, with the prime .motive of transferring profits to other entities. 13. At the outset, it must be put on record that .the Assessing Officer's observation (page 19. of the assessment order) on this issue, is some what contradictory. To quote: " ... .... the issue involved in the case of the assessee is not legitimacy of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the funds and its availability with the concerned entities. However, the Assessing Officer's sole reasons for treating these transactions as non-genuine appear to arise from her view that the transactions have not been carried out at market rate and that in her view the appellant has engineered a unique method for exploiting' the provisions of law, in such a manner that no tax is paid by the appellant, by transferring profits and the profits so transferred to sister concerns are offset by losses generated on sale of units of mutual funds thereby avoiding any incidence of tax on them as well In her final view, the transactions are not genuine because even though they may legally correct these transactions have been devised to defraud the Revenue. In other words, according to the Assessing Officer, if a tax-payer is lowering the incidence of tax payable or pays no tax through legitimate tax planning conducting perfectly legal and genuine transactions he can be accused of defrauding the Revenue and for this sole reason, his transactions can be held us non-genuine. I am afraid this view is for from correct as has been shown by the appellant's representatives in their submissions on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, it was merely the Assessing Officer's suspicion that the transactions were not genuine. 15. Coming to the other observation of the Assessing Officer to hold these transactions as non-genuine by alleging that the transactions had not been carried out at market rate, in their arguments before me, the appellant's representatives vehemently objected to the Assessing Officer's remark that the transactions had not been carried out at the market rate. In their submissions it was argued that the market rates of the relevant dates were down loaded from the website of the Bombay Stock Exchange and provided to the Assessing Officer for verification. Presuming but not admitting it was further argued that even if the appellant did not provide the rates, which in fact they did, before making such huge disallowances the Assessing Officer could as well have verified the rates from the website of the 'exchange herself. It was, therefore, argued that no material has been brought on record by the Assessing Officer to conclude that the transactions had not been carried out at the market rate. Finally, it was argued that every single transaction carried out by the appellant either with the sister ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decisions of the Honorable Ahmedabad Bench of ITAT in the case of Ghanshyambhai R. Thakker (88 Taxman 65) was also brought to my attention where in regard to a statement made during the course, of a Survey, the Honorable Tribunal had held that statement of the assessee should not considered choosing one part or other of it but had to be considered in its entirety. In the light of these decisions, it was argued that the Assessing Officer was unfairly ignoring the part of the seized documents favourable to the appellant. 17. As regards the Assessing Officer's observation that the transactions had been devised in such a manner that the profits transferred to the sister concerns had been offset against the losses generated from the sale of units of the mutual funds, once again avoiding any incidence of tax on thorn as well, it was pointed out by the appellant's representative that the losses incurred by the sister concern were within the ambit of section 94(7) of the Income-tax Act, 1961. On this issue, the appellant's representatives also cited the decision of ITAT Special Bench, Mumbai in the case of Wallfort Shares and Stock Brokers Ltd. (96 TTJ 673) where the ratio of the decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the money for the transaction, whenever moved, moved through the banking channel and finally the delivery of the shares were given as and when asked for by the parties. All these clearly establish that the transactions of the appellant with the parties listed by the Assessing Officer in her order were legitimate and genuine off market transactions and I also agree with the appellant's contention that the Assessing Officer, in contravention of section 132(4), selectively chose the losses for disallowance treating them as non-genuine whereas in the same set of transactions the profits were treated as genuine. In view of these, therefore, the disallowance of losses made by the Assessing Officer is uncalled for and is deleted.' 3. Since the disallowance was deleted by the ld. CIT(A) in all the four years, now the Revenue is in appeal before us in all the four years. 4. Ld. DR of the Revenue supported the assessment order. He vehemently argued that the order of the CIT(A) on this issue should be reversed and that of the AO should be restored. DR of the Revenue also made written submissions which are reproduced below:- &nbs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officers is dated 12.04.2013 in above cases is enclosed, as desired. In addition to the above submissions, regarding disallowance of loss in off-market transactions, it is also respectfully submitted that :- (1) Physical delivery of shares was not handed over by the assessee company in individuals/concerns. This is the basic requirement of off-market transaction, as is evident from page-9 para-4.5 of AO's order. The assessee would merely issue purchase/sale bills at his own discretion. (2) One to one banking transactions were missing in these off-market transactions, as is clear from page-20 para-8.6 (A.Y.2004-05) of AO's order. The off-market transactions are not followed by corresponding one to one bank entries for receipt and payment on sale/purchase. (3) In case of sister concerns i.e. HNP Traders and Nitin B. Parikh also, loss was set off against the profit transferred from the assessee company by off-market transactions resulting in loss to revenue in the case of sister concerns as well (Page-18 Para 8.3 , A.Y.2004-0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 2. As desired, kindly find a written submission defending the department's case in the above mentioned case for above mentioned Assessment Years as under:- 3. In this case a search action u/s 132 of the IT Act was carried out on 22/09/2005. Accordingly notices u/s. 153 A of the Act were issued for the above mentioned Assessment Years and assessments were finalised. The details of returned income, additions made by the A.O and assessed income for these Assessment Years are given in the following table. A.Y. Returned Income in Rs. Additions Made in Rs. Assessed Income in Rs. U/s.14A Disallowance of loss in off Market Trading 1,18,290/- 2000-01 2,780/- 1,15,510/- - 5,14,973/- 2001-02 7,949/- 5,07,024/- - 4,51,84,305/- 2002-03 10,490/- 1,80,305/- 4,49,93,613/- 9,89,85,761/- 2003-04 13,390/- - 9,89,72,371/- 10,22,82,910/- 2004-05 2,780/- 85,86,619/- 9,36,93,513/- 12,89,54,170/- 2005-06 98,15,720/- 88,842/- 11,90,49,610/- 3.1 As can be seen from the above table, additions / ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as under:- "Section 14A of the Income-tax Act, 1961 - Expenditure Incurred in relation to income not inclinable in total income - Assessment years 2001-02 and 2002-03 - Whether section 14A is a special provision which deals with disallowance of expenditure incurred by assessee in relation to income which does not form part of total income under Act and thus, in view of specific provisions of section 14A , expenses falling under any head or section which are otherwise deductible as business expenditure or under other respective heads, would call for disallowance to extent to which those expenses have been incurred in relation to income exempt from tax - Held, yes - Whether sub-sections (2) and (3) of section 14A are procedural in nature and, hence, retrospective - Held, yes - Whether far purpose of section 14A what is relevant is to work out expenditure in relation to exempt income and not to examine whether expenditure incurred by assessee has resulted into exempt income or taxable income - Held, yes - Whether intention behind using expression 'in relation to' in section -14A is to encompass not only direct but also indirect expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. JMP Traders 7. Darshana fiscal (P.) Ltd. 8. Anjali Exim (P.) Ltd. 9. Shri Parshwa Profin (P.) Ltd. 10. Varuneshkumar Rameshwar Prasad On analyzing accounting data seized during the course of search from the business premises of the assessee, A.O observed that the assessee had earned hefty profit in stock market in the transactions carried out through the brokers registered with SEBI. However, the A.O. also observed that in the off market transactions made with above mentioned parties, assessee had shown huge loss which resulted into offsetting of profit earned in regular share market. In order to verify loss shown by the assessee in off-market transactions, A.O had asked the assessee to prove that the off market transactions were carried out on market rate prevailing on the date of transaction. During the course assessment proceedings, to verify the genuineness of loss, the assessee was asked to furnish details of sale and purchase of shares made with the above named parties. In this regard the assessee was given a format by the A.O. However, the same was not submitted by the assessee. Further, the A.O. a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l, Ld. CIT(A) has deleted the addition observing that the off market transactions with the family members and others were carried out at market rate and therefore. those being genuine one loss claimed by the assessee in off market transaction was allowable. 6.2 On careful consideration of the decision of the Ld. CIT(A) it is seen that while deciding the issue in favour of the assessee, Ld. CIT(A) has been carried away simply by the submission of the assessee which is not supported by any factual evidences. It is evident from the order of the Ld. CIT(A) that even during the appellate proceedings before him assessee has not furnished any details to prove that the off market transactions were carried out at market rates. Though A.O has mentioned for more than once in the assessment order that assessee had not furnished any details to prove its case that the off market transactions with family members and others were carried out at market rate, while deciding the issue. Ld. ClT(A) simply overlooked such assertions of the A.O. 6.3 The C1T(A) has failed to apply the ratio of the decision of M/s. McDowell v. CIT. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ock exchanges through registered market intermediaries; and b) transactions with certain individuals/concerns on principal to principal basis. The individuals/concerns as reflected from seized documents were the following: (i) M/s. N.B.P. Traders (sister concern) (ii) M/s. H.N.P. Traders (sister concern) (iii) M/s. Prudent Financial Consultants (sister concern) (iv) Nitin Parikh & Co. (sister concern) (v) Manubhai & Co. (vi) J.M.P. Traders (vii) Darshana Fiscal (P.) Limited (viii) Anjali Exim (P.) Limited (ix) Shree Parshwa Profin (P.) Limited (x) Varunesh Kumar Rameshwar P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was set off against the profit transferred. Tiic.3, this is a device to avoid payment of tax (Page 17-18 of assessment order). (f) So far as identity of person with whom off-market transactions have been conducted, there is no doubt about it; as regards the availability of funds of concerns, funds were there with the assessee. Availability of funds of such concerns is not denied at all. But, the sale and purchase is not conducted through banking channel and therefore, funds available with the assessee can at best be regarded as loans and deposits- (Page 20 of assessment order). (g) The action of not transferring the shares to Demat Account was aimed at enabling the assessee to issue sale and purchase bill at its will ignoring prevailing market rate and allocating particular set of transactions to other entities depending on their tax status (Page 21 of the assessment order). (h) The assessee failed to prove that off-market transactions were carried out at market rate of particular scrip on the date of transaction (Page 22 of the assessment order). 1.2 From the above averments of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -tax (Appeals) where the learned Commissioner of Income-tax (Appeals) was explained this issue which was also appreciated by him while drawing the final conclusion. It was pointed out that given the short settlement cycle where the securities were required for day to day transaction to reduce market risk and also to reduce the cost of transfer and other administrative cost, the shares bought or sold were retained by the assessee on the basis of general written instructions of the individual/concern. It was further pointed out that whenever any party to such transactions wanted delivery of shares in their account such requests were promptly complied with. It would, therefore, be wrong to conclude that the physical delivery of shares was not given, however, it was given only on the instruction of counter-party. This explanation was also provided to the Assessing Officer at para 4.5 of its written submission filed vide letter dated 24th December, 2007, which is also reproduced at page No. 9 of Assessment Order for A.Y. 2004-05. 2.2 The next issue repeated by the learned Commissioner of Income-tax (DR) in para 2.2 of her written submission is that one to one b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... very same Assessing Officer has accepted the losses in the case of M/s. H.N.P. Traders arising from their mutual fund transactions as genuine. Therefore, even if the sister concern has got the benefit of set off of its loss against profit earned through the assessee, the entire transaction is evidently genuine and has been accepted as such by the same Assessing Officer. The assessee would like to draw attention of Hon'ble Bench to para 16 of CIT (A)'s order at page No. 24 wherein Learned CIT(A) has observed as under: "16. During the course of argument, it was further brought to my notice that in another set of transactions which the assessee had conducted on principal to principal basis, the assessee had earned substantial profits. The details of such transactions were annexed to the Assessing Officer's Show-Cause Notice dated 18th December, 2007 itself. Therefore, it was entirely incorrect on the Assessment Officer's part to observe that the transactions had been conducted by the assessee only with a view to transfer profit.... The assessee's representative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e transactions." The issue raised by Learned. CIT (DR) has been also dealt with in statement of facts filed before the CIT (A) wherein at page No. 17 assessee has explained as under: "The assessee vehemently objects to a patently wrong statement made by the Assessing Officer in stating that the annexure containing .the details called for by her in regard to transactions carried out on a particular date claimed to have been submitted alongwith the assessee's submission on 24/12/2007 were in fact not submitted. The assessee submits that the annexure mentioned in their reply dated 24/12/2007 was submitted on next working day, as the details of market rates required to be submitted as part of the format took a considerable time to be downloaded from the official website of the Bombay Stock Exchange. In other words, the details as called for were submitted though a day late and for valid reasons. If required, the assessee is even prepared to submit affidavits of their representatives who were regularly appearing before the Assessing Officer during the course of assessment proceedings to confirm that the said annexure containing the det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p; (i) It was further clarified that insofar as the scrip-wise date-wise transaction details are concerned, the same was in any case available with Department in the seized documents and before dubbing the entire gamut of transactions in 4 years aggregating to approx. Rs. 25.67 crores as non-genuine merely on the ground that the assessee had not furnished the day rates of the securities traded, the same were also available to the Assessing Officer from the official website of Mumbai Stock Exchange. (ii) However, be as it may, the assessee did furnish the details of scrip-wise, date-wise transaction including the relevant details of market rate on the trading days. Considering all the submissions made by the assessee along with the details of transactions carried out at market rate, Learned CIT(A) has decided the issue in favour of Assessee by holding in para 19 on Page 27 of appellant order as under: "Considering the arguments of the appellant's representatives on the observations of the Assessing Officer for making this disallowance, I am inclined to agree with the appellant that the disallowance has been made without any justifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In this regard, the kind attention of the Honourable Bench is drawn to our reply to the learned Commissioner of Income-tax (DR)'s averment at item 2 on page 5 above as also page 15-16 of the order of Commissioner of Income-tax (Appeals) containing our submissions on this issue. It is, once again, reiterated that in the scenario of day to day transactions, it is not possible to make bill by bill payment for payments and receipts and the accounts are settled only after netting and finally debiting or crediting the account of the entity concerned. If the learned Commissioner of Income-tax (DR) happens to be suggesting that the settlement by book entries was merely paper settlement, without being followed up by giving or receiving cheque, the kind attention is invited to para 4.4 of our submission dated 24/12/2007 wherein we had categorically submitted that: "Further, during the year, we have made payments by banking channels and received amounts again through the banking channels for all the transactions. Even while settling our accounts, we have made or received payments through banking channels, which again established the genuineness further transactions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Lords in their decision in the case of Inland Revenue Commissioner v. Breben (76 ITR 436) reproduced on page 14-15 of the order of Commissioner of Income-tax(Appeals). To repeat: "When the question of carrying out a genuine commercial transaction, as this was, is reviewed, the fact that there are two ways of carrying it out - one by paying maximum amount of tax and the other by paying no or much less tax -it would be quite wrong as a necessary consequence to draw the inference that in adopting the latter course, one of the main objects is, for the purposes of this section, avoidance of tax. No commercial man in his senses is going to carry out a commercial transaction except upon the footing of paying the smallest amount of tax that he can." 2.8 In view of aforesaid facts, it is respectfully submitted that the appeal filed by department on this ground may kindly be dismissed." 5. We have considered the rival submissions, perused the material from record and gone through the orders of the authorities below. We find that the main objections of the AO for making disallowance of loss incurred by the assessee are following:- &nb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ling or dealing in securities". 5.3 From the very provisions of section 19(1) of Securities Contract (Regulation) Act, 1956 reproduced above, we find that the provisions of this section will apply if a person is organizing or is a Member of Stock Exchange (other than a recognized Stock Exchange) for the purpose of assisting in, entering into or performing any contracts in securities. In the present case, by way of carrying out "off market transactions" on principal to principal basis, the assessee had neither become a Member of any unrecognized Stock Exchange nor has organized or assisted in organizing any activity for the purpose of assisting in, entering into or performing any contract in securities. In our considered opinion, as per this section, any person is barred from becoming a Member of any unrecognized stock exchange or carrying out any activity in the nature of a stock exchange and since the assessee is only having some transactions on "off market" and on the basis of principal to principal basis, it cannot be said that the assessee is a Member of any unrecognized stock exchange or the assessee is organizing or assisting in organizing any activity for the purpose of ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of the AO that these "off market transactions" were settled without delivery. Only objection of the AO is this that such delivery or payment was not effected separately for each transaction but was effected after a period on cumulative basis. In our considered opinion, this objection is also without any basis. 5.6 The most important objection of the AO is that this "off market transactions" were not carried out by the assessee at market price. In this regard, the AO has made a general comment on page 22 of the assessment order for AY 2004-05 in which he has stated that the assessee has failed to prove that "off market transactions" were carried out at market rate of a particular script on the date of transaction. Thereafter, he says that these "off market transactions" are carried out by the assessee simply by issuing purchase bill or sale bill by ignoring market rate. We are very surprised to note that not a single instance has been given by the AO highlighting that any purchase or sale was effected by the assessee in respect of these "off market transactions" which is not at market rate. As per written submissions filed by the ld.AR of the assessee before us, he vehemently co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... low price of the concerned share on the relevant date. This allegation of the AO that "off market transactions" are not at market rate is baseless and is to be rejected. 5.7 There was one more contention of the assessee raised before the AO that in similar transactions, the assessee has earned profit also and even if the AO is making disallowance of the loss in "off market transactions", then he should disregard the profit also in similar transactions and hence, only net loss can at best be disallowed. But the AO has taxed the profit earned by the assessee in such transactions and disallowed the losses only. This goes to show that the AO has also accepted "off market transactions" as genuine and valid where the assessee has earned profit, but in similar transactions, where the assessee has incurred losses, the AO had disallowed such loss by holding that such transactions are only paper transactions or bogus transactions. This is not permissible. If the transaction in which the assessee is earning profit is accepted to be genuine, then similar transactions in which the assessee had incurred losses is also required to be accepted as genuine unless the AO has established some adverse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee is a dealer of shares and securities then it cannot be said that such purchases of shares and holding of shares were for the purpose of earning of dividend income and hence, expenditure incurred in acquiring cannot be u/s. 14A of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'). In the case, this is admitted position of fact that assesses is a dealer in shares and securities and this fact is noted by Assessing Officer also in his assessment order and inspite of this contention raised by Ld. AR of the assessee before us, nothing has been brought on record by Ld. CIT-DR of the Revenue to show otherwise. Since assessee is dealing in shares, we hold by following this judgment of Hon'ble Karnataka High Court that disallowance made by AO u/s. 14A of the Act on account of interest expenditure on proportionate basis cannot be sustained. We therefore do not find any reason to interfere in the order of Ld. CIT(A) on this issue. Accordingly, this ground of Revenue's appeal is rejected." 7. Since the facts in the present case are identical and it is accepted position that the company is also dealing in shares, we do not find any reason to interfere in the order o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law and on facts in directing not to treat the profit on shares shown by the assessee from Prudent Finance Pvt. Ltd. on protective basis. 2. On the facts and in the circumstances of the case, the Ld. CIT(A) ought to have upheld the order of the Assessing Officer. 3. It is, therefore, prayed that the order of the ld. CIT(A) may be set aside and that of the Assessing Officer be restored to the above extent. 14. Both the sides agreed that in the case of this individual also, addition was made on protective basis as a consequence to disallowance of losses in the hands of the company M/s. Prudent Finance Pvt. Ltd. Since we have already decided the case of that company, at para Nos. 5 to 5.7 of this order above, that the disallowance made by the AO is not justified and no interference is called for in the order of the CIT(A) in that case, as a consequence, in the case of this individual also, no interference is called for in the order of the CIT(A). As a result, all the three appeals of the Revenue in the case of Nitin B. Parikh (supra) are also dismissed. 15. In the result, all the appeals of the Revenue in the case(s) of Prudent Fin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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