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TMI Blog2019 (1) TMI 258X X X X Extracts X X X X X X X X Extracts X X X X ..... m capital loss with a view to evade tax, the entire findings given by them in their respective orders becomes totally irrelevant. The profits from sale of shares of Tuni Textile Mills Ltd is to be taxed as income from business as offered by the assessee and not u/s 68 of the Act under the head ‘income from other sources’, the provisions of section 115BBE of the Act cannot be made applicable in the instant case - lower authorities had erred in making and confirming the addition being gains on sale of shares of Tuni Textile Mills Ltd as bogus and consequentially adding as unexplained expenditure towards commission. Both the additions directed to be deleted - decided in favour of assessee Revisionary jurisdiction u/ 263 - disallowance u/s 14A of the Act was not made by the ld AO by applying the computation mechanism provided in Rule 8D - Held that:- Provisions of section 14A of the Act are applicable even if the shares are held as stock in trade as decided in the case of Maxopp Investments [2018 (3) TMI 805 - SUPREME COURT OF INDIA]. We find that we have already held elsewhere in this order that the disallowance u/s 14A should be restricted to ₹ 2,74,633/- in the facts and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng operations and that no purchase and sale of shares were made with a specific motive to earn dividend. The firm had earned dividend due to its day to day operations which were carried out in its normal course of business and no specific expenditure was incurred by the firm for the purpose of earning such dividend income, except the depository charges amounting to ₹ 10,329/- which may be assumed as indirect expenses related to the dividend earned. It was also submitted that the said sum of ₹ 10,329/- was voluntarily offered by the assessee for disallowance in the return of income. It was explained that the interest debited in the profit and loss account to the tune of ₹ 6,12,03,084/- represents interest paid on borrowed funds utilized for the purpose of business activities of the firm and are specifically admissible expenses. The ld AO however disregarded the contentions of the assessee and by placing reliance on the special bench decision of Mumbai Tribunal in the case of ITO vs Daga Capital Management P Ltd reported in 117 ITD 169 and Hon ble Jurisdictional High Court in the case of Dhanuka Sons vs CIT reported in 339 ITR 319 (Cal) arrived at the average o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the accounts of the assessee. 2.3.1. We find that the Hon ble Supreme Court in the case cited supra in para 39 of the order had also observed that eventhough the dividend has been earned as an incidental activity in respect of shares held as stock in trade, it triggers the applicability of section 14A of the Act and depending upon the facts of each case, the expenditure incurred in acquiring those shares and maintaining those shares would have to be apportioned between taxable and exempt income. The ld AR placed reliance on the decision of the co-ordinate bench of this tribunal in the case of DCIT vs S.G. Investments Industries Ltd reported in 89 ITD 44 (Kol) dated 29.5.2003 wherein the ld AO determined the sum of ₹ 19,14,940/- out of total interest paid of ₹ 3,69,36,637/- as interest relatable to earning of exempted dividend by working out the percentage of dividend vis a vis total turnover during the year. The dividend earned in that case was ₹ 41,38,924/- which worked out to 5.27% of total earnings and accordingly proportionate interest debited in profit and loss account at the same percentage was disallowed u/s 14A of the Act in that case. This action of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 214 ITR 801 (SC) and CIT vs. Durga Prasad More (1971) 82 ITR (SC) were quoted in support to plead that the assessee had acted in collusion with various entry operators for the purpose of bogus LTCG in issue. This observation of ld AO was admittedly based on the report of the investigation wing of Kolkata Income Tax Department. The assessee specifically pleaded before the ld AO in the assessment proceedings that it had not offered any short term capital gains on sale of shares at concessional rate of tax nor had claimed any exemption towards long term capital gains as alleged by the ld AO. The assessee stated before the ld AO that it had declared a sum of ₹ 2,09,85,684/- as profit in share trading earned on shares of M/s Tuni Textile Mills Ltd during Asst Year 2013-14 which was offered to tax as business income by the assessee. The assessee submitted the following details :- a) Ledger account of M/s Tuni Textile Mills Ltd as appearing in the books of the assessee for the Asst Year 2013-14. b) Scrip wise ledger account of Tuni Textile Mills ltd as appearing in the books of Broker M/s Eureka Stock Share Broking Services Ltd for Asst Year 2013-14. c) Demat Transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning these bogus credits and added commission at the rate of 0.50 per ₹ 100 and made addition towards unexplained expenditure in the sum of ₹ 2,55,273/- (5,10,54,500 * 0.5%) . In effect, he made an addition of ₹ 2,12,40,957/- ( 2,09,85,684+2,55,273) under the head income from other sources. 4.3. The ld AO computed the total income of the assessee as under:- Net Loss for the year as claimed in the return of income (-) 1,65,13,565 Profit and gains from Speculative business Add: (i) Disallowance u/s 14A 28,41,850 (ii) Disallowance u/s 94(7) 22,415 28,64,265 Assessed Income (-) 1,36,49,300 Unexplained cash credit u/s 68 for trading in Bogus Penny Stock 2,12,40,957 4.4. The assessee submitted before the ld CITA that addition made towards unexplained cash credit in the sum of ₹ 2,09,85,684/- was already includ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares of Tuni Textile Mills Ltd alone. There is absolutely no dispute that the assessee had duly filed the requisite documents in connection with the purchase and sale of shares as detailed supra and that the prices thereon were market driven. Apart from this, the assessee had also earned profit from trading in commodities to the tune of ₹ 24,40,680/- during the year under consideration among other indirect incomes in the form of interest, dividend and interest on IT refund. We find that the ld AO called for the details on purchase and sale of shares of Tuni Textile Mills Ltd in the questionnaire issued along with notice u/s 142(1) of the Act which are enclosed in pages 49 to 50 of the paper book which was specifically on the point of claim of long term capital gains and short term capital loss. We find that the assessee had clarified before the ld AO more than once in writing that it had not claimed any long term capital gains as exempt or claimed any short term capital loss in the return of income. The evidences in this regard are enclosed in pages 51 to 56 of paper book. Since the lower authorities had proceeded on an erroneous assumption that the assessee had claimed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duly received in the bank account of the assessee. We take note that the purchase of shares by off-market transactions for purchase of shares is not illegal as was held by the Coordinate Bench of this Tribunal in the case of Dolarrai Hemani vs ITO in ITA NO.19/Kol/2014 dated 02.12.2016. The transactions were all through a registered broker (pages 18 and 19 of the paper book), backed by a contract note (page 22 of the paper book) and shares were credited in the demat accounts (page 25 of the paper book) and duly reflected in the books of account. In the light of these evidences on record we are of the opinion that the purchase of shares per-se cannot be held to be bad. 9.1. We note that there was a survey conducted u/s 133A of the Act by the Mumbai Investigation Wing against M/s. Tuni Textile Mills Pvt. Ltd on 02.06.2015 and in the survey a deposition was taken on oath wherein the Managing Director of the said company Shri N.P.Surekha was examined and he stated that 47 persons were allotted preference shares on 25.01.2010 and a sum of ₹ 7.50 crores was raised by the company. He further submitted that this entire deal was done by one Shri Manish Baid and then these 47 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee for the financial year 2011-12 wherein the investment made in these shares were duly recorded and reflected (page 16 of the paper book); ii) The bills of purchase of shares of M/s. Tuni Textile Mills Pvt. Ltd (page 18 of the paper book) iii)Copy of the demat statement maintained with M/s. CD Equi Search where the shares were held (page 24 of the paper book) iv) Copy of the contract notes issued by M/s. CD Equi Search Ltd, Member of Mumbai Stock Exchange having SEBI Registration No.INB010781133 and Code No.087 (page 19 to 22 of the paper book v) The bank statement maintained by the assessee with Bank of Maharshtra reflecting the payment received for the sale of shares (page 23 of the paper book). 9.2. We find force in the contentions of the ld. AR that the AO and CIT(A) was not justified in rejecting the claim of the assessee on the basis of theory of surrounding circumstance, human conduct and preponderance of probability without bringing on record any relevant legally admissible evidence against the assessee. For the said proposition we rely on the judgment of the Special Bench of Mumbai Bench in the case of GTC Industries Ltd. (supra). The va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsure that there is no stock rigging or manipulation. The AO has not brought any evidence on record to show that these agencies have alleged any stock manipulation against the assessee or the brokers or the company in question. In absence of any evidence to back the conclusion of AO/CIT(A), it cannot be said that merely because the stock price moved sharply, the assessee was to be blamed for bogus transitions. It is also pertinent to note that the assessee has purchased the stocks through registered brokers and thereafter the assessee has sold the shares through the registered share/stock brokers with Calcutta Stock Exchange, and both have confirmed the transactions and have issued valid contract notes as per law; and in similar case, the Hon ble Calcutta High Court in the case of Principal CIT vs Rungta Properties in ITA No.105 of 2016 dated 08 May, 2017 wherein it was held that on the last point, the tribunal held that the AO had not brought relevant material to show that the transactions in shares of the company involved were false or fictitious. It is the finding of the AO that the scripts of this company was executed by a broker and the broker was suspended for some time. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he claim of the assessee exempted u/s 10(38) of the Act on the basis of suspicion, surmises and conjectures. It is to be kept in mind that suspicion how so ever strong, cannot partake the character of legal evidence. In the aforesaid facts and circumstance, for allowing the appeal we rely on the decision of the Hon ble Calcutta High Court in the case of M/s. Alipine Investments in ITA No.620 of 2008 dated 26th August, 2008 wherein the High Court held as follows : It appears that there was loss and the whole transactions were supported by the contract notes, bills and were carried out through recognized stock broker of the Calcutta Stock Exchange and all the bills were received from the share broker through account payee which are also filed in accordance with the assessment. It appears from the facts and materials placed before the Tribunal and after examining the same, the tribunal allowed the appeal by the assessee. In doing so the tribunal held that the transactions cannot be brushed aside on suspicion and surmises. However it was held that the transactions of the shares are genuine. Therefore we do not find that there is any reason to hold that there is no subst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /Kol/Tech/263/2017-18/2432-34 dated 26.03.2018 passed u/s 263 of the Income Tax Act, 1961 (in short the Act ) against the order passed by the ACIT, Central Circle-35, Kolkata [in short the ld. AO] under section 143(3) of the Act dated 22.03.2016 for the Assessment Year 2013-14. 9. The only issue involved in this appeal is as to whether the ld CIT was justified in invoking revisionary jurisdiction u/ 263 of the Act in the facts and circumstances of the case. 9.1. The brief facts of this issue are that the assessee is engaged in trading in shares and commodities and had filed its return of income for the Asst Year 2013-14 on 29.9.2013 declaring total income of Rs Nil and claiming carry forward of losses. The assessment was completed u/s 143(3) of the Act on 22.3.2016 making various additions and disallowances. One such disallowance made by the ld AO thereon was u/s 14A of the Act in the sum of ₹ 28,41,850/- being 0.5% of average value of shares held as stock in trade. The ld AO specifically observed in his order that the provisions of section 14A of the Act are indeed applicable even if the shares were held as stock in trade. The ld AO also placed reliance on the decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the ld CIT that the assessee had duly submitted before the ld AO regarding the non-applicability of provisions of section 14A of the Act read with Rule 8D of the Rules and that specific explanation for non-applicability of provisions of Rule 8D(2)(ii) of the Rules were also made regarding non-applicability of calculation of proportionate interest. These submissions were duly considered by the ld AO and the ld AO accordingly held that the interest paid on borrowings were used for share trading activities of the assessee and not for the purpose of earning any dividend and accordingly admissible u/s 36(1)(iii) of the Act. It was also specifically pointed out by the assessee before the ld CIT that since the issue of applicability of provisions of section 14A of the Act read with Rule 8D of the Rules had been elaborately dealt by the ld AO in the assessment proceedings and some disallowance made thereon, which action was also upheld by the ld CITA in first appeal, the same cannot be the subject matter of revision proceedings in view of specific provisions contained in Explanation 1 clause (c ) of section 263(1) of the Act. It was further pointed out that there was already pointed out ..... X X X X Extracts X X X X X X X X Extracts X X X X
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