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TMI Blog2015 (7) TMI 913X X X X Extracts X X X X X X X X Extracts X X X X ..... tely no income has resulted to the assessees, out of these share transactions. The income of ₹ 30,98,785/- and ₹ 29,17,331/- is to be excluded from the hands of Smt.Reetaben R. Thakkar and Shri Monal Y. Thakkar respectively in the Asstt.Year 2006- 07. As far as the claim of the assessee with regard to settlement charges are concerned, we find that there is no corresponding income against this expenditure. The income, which we have already excluded, therefore, the assessees cannot claim the expenditure, because, the expenditure has to be incurred for earning some income. Once the income is not form part of the total income, then against that activity, how the assessee can claim that expenditure ? The SEBI has issued a scheme permitting such defaulters to make payment in order to overcome that default. Thus, the payments were not made in violation of certain penalty provisions. In the present case, no such payment was made by the assessees. The assessees have financed certain fictitious entities and benami persons to apply for IPOs. There modus operandi is against SEBI regulatons, particularly, Section 12A of the SEBI Act, and therefore, the payment was on account o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d cornered the shares of certain Initial Public Offers (IPOs) by making applications in fictitious/benami names with each of the applications being of small value so as to make it eligible for allotment under retail category. It was also observed that subsequent to the allotment of IPO shares, this fictitious/benami allottees had transferred the said shares to their principals (key operators/master account holders) who in turn transferred the shares to the persons (the financiers) who made available fund for making subscription to the respective IPOs., through off-market transactions prior to the date of listing on the stock exchange. The financiers have also sold the said shares immediately on the date of listing and made huge profit. The SEBI examined the dealings in IPOs. of Yes Bank and IDFC Ltd., where it was found that certain persons including Smt. Rupal Naresh Panchal and Sugandh Estate and Investment Pvt. Ltd. have cornered large portion of the shares in various IPOs., reserved for retail category of investors. In view of this finding, SEBI referred the matter to other government agencies including Income Tax Department, Ministry of Company Affairs and Reserve Bank of Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 36,16,736/- as assessable under the head capital gains . 10. With the assistance of learned representative, we have gone through the record carefully. Before we embark upon an inquiry, as to assessability of ₹ 36,16,736/- and ₹ 30,78,423/- in the hands of Smt. Reetaben R. Thakkar and Shri Monal Y. Thakkar, in the Asstt.Year 2006- 07 respectively, it is pertinent to bear in mind certain basic features emerge out from the proceedings of the SEBI. As stated earlier, the assessees have financed certain benami/fictitious applicants to apply for allotment of shares in initial public offer, which is against section 12A of Securities and Exchange Board of India Act, 1992. The SEBI has initiated inquiry and ultimately issue was settled. The SEBI has passed order in the case of Smt. Reetaben R. Thakkar on 6.11.2008 whereby, Smt. Reetaben R. Thakkar was directed to disgorge a sum of ₹ 30,98,785/- as well as settlement charge of ₹ 6,20,215/-. The order of the SEBI reads as under: CO/ISD/ 86 /2008 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA, MUMBAI CONSENT ORDER ON THE APPLICATION SUBMITTED BY SHRI MONAL Y. THAKKAR IN THE MATTER O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... five only) being the unlawful gain made by her in the alleged irregularity and ₹ 6,20,215 (Rupees six lakh twenty thousand two hundred and fifteen only) as the settlement charges. 4. For the sole purpose of settling the matter on hand and without admission or denial of guilt on the part of applicant to the findings of fact or conclusion of law, the applicant has remitted a total sum of ₹ 37,19,000 (Rupees thirty seven lakh nineteen thousand only) comprising of ₹ 30,98,785 (Rupees thirty lakh ninety eight thousand seven hundred and eighty five only) towards disgorgement and ₹ 6,20,215 (Rupees six lakh twenty thousand two hundred and fifteen only) towards settlement charges vide demand drafts No. 982666 (Rs. 8,00,000), 982668 (Rs. 8,00,000), 982669 (Rs. 8,00,000), 982670 (Rs. 5,19,000), dated October 27, 2008, drawn on State Bank of Patiala, payable at Mumbai. 5. In view of the above, it is hereby ordered that this consent order disposes of the proceedings under Sections 11 and 11B of the SEBI Act, 1992 and the adjudication proceedings against the applicant and revokes the directions in the ad interim ex parte Order dated April 27, 2006 passed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the pending proceedings. Thereafter, SEBI constituted one high power advisory committee, which considered the consent terms proposed by the appellant and recommended the case for settlement. As per the terms of settlement, the appellant shall disgorge ₹ 30,98,785/-, being the unlawful gain made by the appellant and ₹ 6,20,215/-as the settlement charges. In consideration to this order, the appellant has remitted total sum of ₹ 37,19,000/- vide demand draft, drawn on State Bank of Patiala payable at Mumbai. 15. The appellant's contention that income earned out of the share transactions to the extent of ₹ 30,68,351/- should be directed to be reduced from the income assessed by the Assessing Officer, is not accepted for the following reasons :- (a) The SEBI's order has been passed on 05.11.2008, whereas the previous year in the impugned assessment orders ended on 31.03.2006. Therefore, the SEBI's order has been passed after the end of the previous year of the assessment year under consideration. (b) As mentioned in the instant appellate order, the appellant has acquired certain shares in the IPOs by fraudulent and illegal method ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the head business income . Alternatively, on the strength of SEBI order, he contended that no income ultimately resulted to both the assessee, therefore, the amount of Rs. ₹ 30,98,785/- and ₹ 29,17,331/- is to be excluded from the assessments of both these assessees, respectively in the Asstt.Year 2006-07. He further contended that capital gain is assessed under the head business income by the ld.CIT(A). Consequently, loss on account of repayment of this income to the SEBI is to be allowed to the assessees. The payment has been made in the Asstt.Year 2009-10, therefore, this amount is to be allowed to the assessees in the Asstt.Year 2009-10. 14. As far as the settlement charges are concerned, he contended that payment was not made for violation of any law. It was paid for settlement of dispute with the SEBI and it is compensatory in nature. It does not come within the ambit of Explanation-1 appended to section 37 of the Income Tax Act. Therefore, the settlement charges paid by these assessees deserve to be allowed to the assessees. In support of his contentions, he relied upon the order of the ITAT, Mumbai in the case of Kaira Can Company Ltd. Vs. DCIT, 127 TTJ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iture has to be incurred for earning some income. Once the income is not form part of the total income, then against that activity, how the assessee can claim that expenditure ? Apart from the above, we find that the order of the ITAT in the case of Kaira Can Company Ltd. (supra) is altogether on different footings, rather, it is against the assessees. The Tribunal has considered the expression of offence and made the following discussion: 20. The word offence has not been defined in the Act. As per Websters Encylopedic Abridged Dictionary, it means violation or breach of law or rule; a transgression of the criminal law, especially one which is not felony; a cause of transgression. As per Blacks Law Dictionary, it means,-a violation of the law; a crime, often a minor one. As per Illustrated Oxford Dictionary, it means-illegal act or a transgression. A perusal of the above definitions clearly shows that if there is a breach or violation of law or rule then it is to be treated as offence. 21. In the present case, admittedly, the assessee is governed by the provisions of SEBI Act. Certain Regulations were made under this Act which arc called as SEBI (Substan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Revenue. This ground of appeal is rejected. 20. In the result, the ITA No.573/Ahd/2010 and 574/Ahd/2010 is partly allowed, whereas, the ITA No.786/Ahd/2010 is dismissed. 21. As far as the appeals of the assessees i.e. ITA No.555/Ahd/2010 and 554/Ahd/2010 for the Asstt.Year 2009-10 are concerned, these are consequential appeals. We have held that a sum of ₹ 30,98,785/- and ₹ 29,17,331/- are to be excluded from the taxable income of the assessees in the Asstt.Year 2006-07, on the ground that this income has ultimately not resulted to the assessees. In this year, both the assessees have claimed expenditure on account of payments of these amounts to the SEBI. Since we have already excluded these amounts from the taxable income of the assssees in the Asstt.Year 2006-07, resultantly, the assessees cannot claim expenditure in the Asstt.Year 2009-10 i.e. the year of payment. 22. In view of the above, we do not find any merit in the appeals of the assessees. 21. We summarize the result as under: i) The ITA No.573/Ahd/2010 and ITA No.574/Ahd/2010 for the Asstt.Year 2006-07 are partly allowed. ii) The ITA No.554/Ahd/2010, ITA No.555/Ahd/2010 and ITA No.786/A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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