Mukesh Rasiklal Shah Vs ITO (ITAT Ahmedabad)
Held that the assessee was not carrying on any share trading business, and it was the benami business of other assessee. Accordingly, denial of the claim of loss justified.
Facts-
The assessee filed return declaring loss of Rs. 41311931/- being loss in business of share trading transactions from a proprietary concern, M/s. Dindayal Associates. AO held that the claim of loss in the name of M/s. Dindayal Associates, which was not actually carried on as the business of the assessee, was not the loss of the assessee and therefore, the loss claimed was assessed at NIL.
The claim of the revenue is that this share trading business was the benami of “SG” and not of the assessee, therefore denied claim of loss.
CIT(A) upheld the rejection of loss and disallowance of the same. Being aggrieved, the assessee preferred the present appeal.
Conclusion-
Held that the ld.CIT(A) has rightly upheld the order of the AO holding that the assessee was not carrying on any share trading business, and it was the benami business of other assessee. It is a fact on record that on three different occasions, ranging from 20-8-2001, 3.9.2003 and 8-10-2003, that is within a span of two years, the assessee had repeatedly stated that this business did not belong to him & that he was only an employee of “SG”. He had also stated that he was man of no means, having no immovable property, and drawing a mere salary of Rs.5000/- per month. This fact was corroborated with the details in his personal bank account with Cooperative Bank wherein the CIT(A) has noted there were very few transactions, showing that he was a man of meager means. In the light of this fact,we agree with the Ld.CIT(A) that being a man of few means, it was impossible for him to conduct share transaction having a volume of over Rs.384 crores.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
The above seven appeals relate to two different assessees and have been preferred against separate orders passed by the ld.Commissioner of Income-Tax (Appeals)-I, Ahmedabad [hereinafter referred to as “CIT(A)”] under section 250(6) of the Income Tax Act, 1961 (“the Act” for short).
2. It was a common ground that the issue involved in the appeals relating to both the assessees was inter-linked. It was pointed out that in the case of Shri Mukesh Rasiklal Shah (“MRS” for short) losses claimed by him on account of an alleged proprietary concern of his,by indulging in share trading transaction, was disallowed by the Revenue on the ground that the same was benami of one Shri Sureshbhai Gadecha (“SG” for short),the other assessee before us, and accordingly this business of share trading was assessed in the hands of “SG”. In the case of “MRS” initially regular assessment was framed under section 143(3) of the Act denying benefit of losses and order for the Asst.Year 2001-02, 2002-03 and 2003-04 was accordingly passed, which denial of claim of loss was upheld by the Ld. CIT(A) against which the assessee has come up before us in ITA No.736/Ahd/2005, ITA No. 3487 and ITA No. 3488/Ahd/2007 pertaining to Asst.Year 2001-02, 2002-03 and 2003-04 respectively.
3. Further in the case of “MRS”, for Asst.Year 2001-02 ,reassessment was made under section 147 of the Act vide order dated 31.12.2007 which was further rectified by the AO vide order passed under section 154 of the Act dated 12.2.2008. Both these orders of the AO were upheld by the CIT(A), against which the assessee has come up in appeal before us in ITANo.2043/Ahd/2010 and ITA No. 3331/Ahd/2010. Therefore, to put briefly, out of five appeals filed by the assessee “MRS”, three pertain to Asst.Year 2001-02 in the proceedings relating to regular assessment, re-assessment and rectification, while other two appeals pertain to Asst.Year 2002-03 and 2003-04 in regular assessment proceedings.
4. As for the other assessee before us, “SG”, the business of proprietorship firm allegedly run by “MRS” was assessed in his hands in block assessment proceedings under section 158BD of the Act. The ld.CIT(A) partly allowed the assessee’s appeal against the order passed by the AO, against which both assessee and Revenue have come up appeal before us in IT(SS)A.No.113/Ahd/2007 and 108/Ahd/2007 respectively.
5. As is evident from the above, since issue involved in all the appeals are interlinked, they were all taken up together for hearing and are being disposed by this common consolidated order.
6. We shall first deal with the appeals of “MRS”. It was common ground that the issue involved in the appeals pertaining to the regular assessment framed in the case of the assessee, under section 143(3) of the Act ,were identical being denial of loss claimed on account of share trading transactions, purportedly carried on by the proprietorship concern of the assessee, which concern the Revenue claimed was the benami of “SG”. We shall deal with the facts in the case of the assessee viz. “MRS” for Asst.Year 2001-02 and our decision rendered therein, therefore,will apply mutatis mutandis to the appeals of the assessee pertaining to Asst.Year 2002-03 and 2003-04 also.
ITA No.736/Ahd/2005 (Asst.Year 2001-02)
7. Solitary ground raised by the assessee reads as under:
“1. The ld.CIT(A) has erred in law and on facts in upholding the disallowance of loss of Rs.4,13,11,931/- as made by the ld.AO on the observation that in absence of any justification to support the incurring of any genuine loss by the appellant in any business carried on in the name and style of M/s.Dindayal Associates.”
8. Brief facts of the case relating to the assessee, as emanating from the order of the Ld.CIT(A) are that the assessee had filed return declaring loss of Rs.4,13,11,931/-, being loss in business of share trading transactions from a proprietary concern, M/s.Dindayal Associates (“DA” for short). During assessment proceedings, the assessee, “MRS”, denied being proprietor of this concern, stating that he was working as salaried employee only and all these transactions were being undertaken by his employer, “SG” in his name. The AO made verification of the share transactions conducted in the said proprietorship concern ,from the parties who had conducted such business, as was reflected in the books of “DA”, i.e. K.K. Investments, H.Nyalchand Financial Services Ltd. and Poojan Securities Pvt.Ltd. These parties also stated the transactions being undertaken through “SG” for the business to be carried out with the concern, “DA”. Based on all the facts of the case as revealed in the investigation, the AO held that the claim of loss in the name of “DA”, which was not actually carried on as the business of the assessee, was not the loss of the assessee and therefore, the loss claimed was assessed at NIL.
9. The assessee carried the matter in appeal before the ld.CIT(A) wherein he challenged the disallowance of loss and claimed on the contrary that the business was actually carried out by him and loss was incurred in the same. He contended that the accounts of the business of the assessee were maintained and duly audited. He further contended before the Ld.CIT(A) that no opportunity of cross-examination was provided with regard to the recorded statement of Shri Krishnavatar Kabra and Dhiren H. Vora of H. Nyalchand Financail Servies Ltd., and Shri Kunal Thakkar of Poojan Securities P.Ltd. The ld.CIT(A) dismissed all the contentions of the assessee, holding that the assessee himself had on three occasions denied having nothing to do with the share trading business conducted in his proprietorship concern, “DA”; that he had admitted to be only an employee of “SG”, who he had categorically stated on all three occasions to be actually conducting the business of share transactions. The ld.CIT(A) also noted that this fact was corroborated by the investigation and inquiry conducted by the AO from three parties with whom these transactions were conducted, who had confirmed the involvement of “SG” only in the transaction, and the ld.CIT(A) therefore rejected the retraction of the said admission by the assessee stating that it was just a retraction and no evidence was produced by the assessee to corroborate the same. He further noted that the assessee was man of no-means; that from his personal bank account with Manek Chowk Cooperative Bank in Ghatlodia Branch, Ahmedabad wherein a very few transactions were made, and ld.CIT(A) therefore held that it was not possible for a man of few means to be able to carry on business of share trading transactions to extent of approximately Rs.384 crores. As for cross-examination of three persons who had also stated to have conducted transactions with “SG” only, the ld.CIT(A)held that additions had been made on the basis of statement of the assessee himself and there was no need for cross-examination of these transactions. The relevant findings of the ld.CIT(A) at para-2.3 of the order read as under:
“2.3 I have carefully considered the facts of the case and the submissions adequate opportunity right from the time of assessment proceedings and even in these appeal proceedings. The conduct of the appellant in assessment proceedings, has been reported in detail by the A.O. in the assessment order and it is very obvious therefrom that the assessee was given repeated opportunities to make his submissions on the nature of the business carried on and on three separate occasions being 20TH Aug., 2001, 3rd Sept.,, 2003 & 8th Oct., 2003 he had clearly stated in his statement recorded under oath, that he was not carrying on any such business of dealing in shares and that he was totally unaware of the conduct of any such business. He had also clearly stated that he had merely signed the return of income or on bank transactions at the behest of his employer Shri Sureshbhai Gadecha from whom he was in respect of salary of less than Rs.5000/- p.m. It can therefore, not be said that from the date of filing of return i.e. 14th August, 2001 and upto the 3rd statement recorded on 8th October,2003 that the appellant was not given adequate opportunity to make submissions in support of his return of income and admitted to be signed by him. After making such categorical denial of conduct of business from the date of being first administered oath before recording of statement on 20th Oct., 2003, the appellant cannot claim that the AO has not given adequate opportunity to make submissions in support of the return of income filed. In fact the letters submitted dtd.18th Feb.2004. 2nd March,2004, 10th March,2004, 13th March,04 And 24th March,04 besides last letter dtd.29th March,04 which have been perused by me from the paper book tiled, clearly show that the appellant has not given any valid reason for the A.O. to ignore the contents of his statements recorded under oath:
However, a claim has been made as under:
“It is to be taken note of that as I have incurred heavy losses and also having burden of heavy liability in market, I am remaining in severe depression and accordingly as and when the I. T.Authorities put up the question as regards to the losses incurred by me or liability that has to be borne by me in respect of M/s.Dindayal Associates, under depression and menial stress, I have always given the answers whereby 1 tried to disown my liabilities to be honoured by me in the market.”
This claim is not supported by any evidence and is merely a generalised denial of the contents of his statement given on three separate occasions over a period of more than two years which claim cannot be accepted as true.
2.4 In the light of the above, I do not find any justification to accept the generalized claim made by the appellant through representative i.e. his C.A. that he was actually carrying on the business of M/s.Dindayal Associates, and dealing shares to the extent of approximately 384 crores, when the appellant is clearly a man of no means. He has written even I above referred letters fled before the AO in assessment proceedings that he has no immovable property and that he has only a two wheeler in the name of his wife and that he is the only break winner of the family having salary of less than Rs.5000/- p.m. It cannot therefore, be accepted that while in receipt of salary income of less than Rs.5000/- p.m., he would be in any manner able to conduct and carry on a business of which had no knowledge and to the extent of approximately Rs.384 crores of purchase and approximately 380 crores of sales of shares and securities. He has personally not attended even when notice u/s.131 was issued to him in assessment proceedings, and has excused himself under pretext of having got his statement recorded earlier. The A.O. cannot be expected to accept such a change of stand between recorded statements on three different occasions, and the totally opposite claim made through C.A. in assessment proceedings.
2.5 The attempt by the appellant and his C.A. to make the issue as one of the lack of adequate opportunity is found to be not at all justified. A simple reading of the assessment proceedings, and submissions made in these appeal proceedings shows that this is but an attempt to side track the crux of the issue which is that appellant is a man of no means and he does not have knowledge or the capacity to carry on the alleged business of M/s.Dindayal Associates. The appellant’s own personal bank account as per letter dtd.5/3/04 was S.B.A/c.No.3196 with Manek Chowk Co.op.Bank, Ghatlodia, Ahmedabad, which had a very few transactions and after 31.3.99, he claimed to have not prepared any personal profit & loss account and balance sheet because there were no transactions in individual capacity which crossed the minimum taxable limit. Further the appellant’s claim that he was not crossed the minimum taxable limit. Further, the appellant’s claim that he was not given opportunity to cross examine Shri K.K.Kabra, Dhiren H.Vora & Shri Kunal Thakkar is found to be yet another attempt to side track the issue of his categorical denial of having conducted any such business in the name and style of M/s.Dindayal Associates. The AO has made the assessment based on the appellant’s own statements and has only taken support from the statements of these three persons. As such there was no necessity for cross examination of these parties by the appellant. I also find that the copies of statements given by the AO to the appellant vide letter dtd 19th March,2004 in 42 sheets included 29 sheets of his own statement, contents of which were known to him right from 20th Aug.,2001, 3rd Sept.,2003 & 8th Oct.,2003 when the same were recorded.
2.6 Therefore, I do not find any substance in the arguments advanced and I do not find any justification for appellant’s claim that adequate opportunity had not been granted by the A.O. prior to completion of assessment proceedings. I further do not find any substance in the various arguments advanced in support of claim of grant of inadequate opportunity- With due respect to the case laws cited by the appellant, it is not denied that adequate opportunity is to be granted to an assessee by the Assessing Officer but in present case such adequate opportunity had been provided. Under the circumstances, in absence of any justification to support the incurring of any genuine loss by the appellant in any business carried on in the name and style of M/s.Dindayal Associates, the treatment given by the AO is found to be justified. The rejection of the loss and the disallowance of the same is upheld. Ground of appeal Nos.1 & 2 are thus rejected.
10. Aggrieved by the order of the ld.CIT(A), the assessee has come up in further appeal before the Tribunal.
11. Before us, the contentions of the ld.counsel for the assessee was that the fact of share trading business being carried in the proprietorship firm “DA” is not disputed by the AO; only contention is that it was a benami business of “SG” and not the assessee, and for this reason, the claim of loss on the business was rejected. The ld.counsel for the assessee contended that independent and separate books of accounts of proprietorship concern carrying on share trading business had been kept and books were duly audited and there is no evidence of fund being flown from “SG” to the assessee. He drew our attention to paper book (PB) page no.112 pointing out that debtors, creditors and trade depositors as duly reflected in the books of accounts were duly furnished during the assessment proceedings. He thereafter drew our attention to page no.19 of the PB being balance sheet of “DA” pointing out that none of the deposits was found to be belonged to “SG”. He therefore contended that there was no basis for the authorities below to have come to the finding that business of share trading was carried on by the alleged benami “SG” and not the assessee. He further contended that finding that the business was not actually that of the assessee but of the “SG”, the Revenue ought to have made protective addition in the hands of the assessee, which was not done. He therefore contended that the finding of the Revenue authorities that no share trading business was being carried on by the assessee in the proprietorship firm, “DA” was not in accordance with facts and circumstances of the case and the denial of claim of loss, therefore of Rs.4,13,11,931/- was also not correct. The ld.counsel for the assessee relied on the following case laws in support of his contentions:
i) Manoharlal v. Income-tax Officer, 37 ITD 96 (Jp)
ii) Prakash Narain vs.Commissioner of Income-tax And Wealth-tax, 6 Taxman 159 (ALL)
iii) CIT Vs. Shakti Industries, 217 taxmann 77
12. Alternatively, the ld.counsel for the assessee pleaded that necessary direction be given for assessing the loss in the hands “SG” whose benami business it was found to be by the Revenue, being run in the name of the proprietorship firm, “DA”.
13. On the other hand, the ld.DR relied on the finding of the authorities below.
14. We have heard contentions of both the parties and have also carefully considered the orders of the authorities below.
15. The issue in dispute before us is related to the claim of loss in the business of Rs.4,13,11,931/- allegedly incurred in the proprietorship firm, “DA” where the assessee purportedly was carrying on share trading business. The claim of the Revenue is that this share trading business was the benami of “SG” and not of the assessee, and therefore denied claim of loss.
