Case Law Details

Case Name : Threadneedle Investment Fund ICVC Asia Fund Vs Assistant Director of Income-tax (International Taxation) - 2(2) (ITAT Mumbai)
Appeal Number : IT Appeal No. 8016 (MUM.) OF 2011
Date of Judgement/Order : 27/11/2012
Related Assessment Year : 2008-09

IN THE ITAT Mumbai Bench ‘L’

Threadneedle Investment Fund ICVC Asia Fund


Assistant Director of Income-tax (International Taxation) – 2(2)

IT APPEAL NO. 8016 (MUM.) OF 2011


NOVEMBER 27, 2012


B. Ramakotaiah, Accountant Member

This is assessee’s appeal against the order of AO which was ii pursuance of order of the DRP-II Mumbai under section 143(3) r.w. section 144C(13) of the I.T. Act.

2. Briefly stated, assessee a foreign company is in the business of FIIs/Sub Account (Investment in Indian Capital Market). It filed return of income declaring a total income at Rs. 40,95,670/-. Being a non resident corporate entity, assessee is registered with the Stock Exchange Board of India (SEBI) as a sub account holder under the FII – ‘Threadneedle Investment Fund ICVC Asia Fund’ for carrying out investment activity in Indian market. During the course of the assessment proceedings AO asked assessee to reconcile the AIR data provided by the Bombay Stock Exchange (BSE) of various transactions reflected in assessee’s name. A copy of the data was given to assessee and assessee was asked to reconcile the same. AO gave two weeks of time to reconcile the data just before the proposed draft order was finalised. It was assessee’s contention that the transaction reported by AIR does not pertain to assessee and moreover the details furnished by the AIR do not indicate any specific information with reference to the contact number, scrip name, quantity etc.. Assessee pleaded its inability to reconcile the transactions on one-to-one basis in the absence of complete details. It further submitted vide letter dated 7.12.2010 that assessee’s total transactions during the year was to the tune of Rs. 66.37 crores as per the contracts and the transactions reflected in the AIR information was only Rs. 11,32,38,770/- and furnished its contract notes and details as per the books of account of assessee. At the same time assessee also asked BSE for clarifying the transactions reported in its name. AO in Para 5.6 of the order without referring to the explanations of assessee or examining the nature of the details came to a conclusion that assessee made investment in the scrip ‘Steel Authority of India’ of 485909 shares valued at Rs. 11,32,38,770/- on 17.12.2007 and as this transaction was not reconciled or explained, the amount was treated as unexplained investment under section 69 and taxed at the rate of 40%.

3. Assessee filed further details before the DRP explaining that the transactions were not entered on behalf of assessee and the broker M/s Credit Suisse has undertaken the transactions on behalf of the five other funds which are under the control of Threadneedle Asset management Ltd and filed confirmations of trades by M/s Credit Suisse before the DRP. It also filed letter from the custodian (NSDL) indicating that the transaction does not pertain to assessee. It also filed letters from other brokers that they have no transactions in ‘Steel Authority of India’ shares on behalf of assessee. Assessee also placed the PAN Nos. of the other funds and relevant trades entered in on behalf of them by Threadneedle Asset Management Ltd on the given day and the reconciliation of transactions accounted by them, even though assessee is not involved in the transactions. It explained to the DRP that the AIR information stated to be belonging to assessee does not pertain to it. The DRP however, did not agree with assessee a) that the time provided by AO of two weeks is reasonable b) that assessee did not reconcile the transactions properly c) assessee did not plead for admission of additional evidence and also d) did not explain why PAN of assessee has been continuously used by Threadneedle Asset Management Ltd. It was also noted that when the opportunity was given by the DRP on 21.07.2011 posting the case on 5.8.2011 no reply was received and further when the case was fixed on 16.09.2011, none appeared on behalf of assessee. Therefore, the DRP rejected the documents filed as photocopies and unauthenticated and confirmed the draft order of AO.

4. The learned Counsel submitted that the addition under section 69 is not warranted as these transactions are not ‘buy’ transactions but are ‘sold’ transactions in the Stock Exchange by the Broker M/s Credit Suisse Ltd. Threadneedle Asset management Ltd entered these transactions on behalf of five other funds detailed in page 6 of the DRP order and assessee is able to furnish the confirmation from M/s Credit Suisse with reference to the various transactions and referred to various reconciliations placed in the paper book. It was his contention that the BSE information through the AIR does not contain any details of assessee transactions, therefore, they could not reconcile before AO in the 14 days time given to it and further before the DRP after inquiry from BSE, the necessary details were also furnished which were rejected by the DRP without giving any opportunity.

5. With reference to the observation that assessee did not reply, assessee placed on record, copy of the letter addressed to the DRP dated 25.07.2011 filed on 29.07.2011 which was not considered by the DRP. A confirmation from Threadneedle Asset Management Ltd that the PAN of Threadneedle Investment Funds ICVC Asia Funds – AACCT 5709 L ( assessee) has not been used or quoted for executing any of the trades as mentioned in the AIR report. The details contained in AIR pertaining to the ‘Power grid Corporation of India’ shares have already been matched with the details in the tax return during the course of the assessment proceedings. Further it was also argued that the posting of case on 16.03.2011 by the DRP has not been communicated to assessee, therefore, there is no attendance before the DRP. It was submitted that the DRP did not give any opportunity to assessee nor examined the details filed before them and requested for setting aside the orders and restoring the issue to AO for fresh examination.

6. The learned CIT (DR) however, reiterated the arguments of AO and the CIT (A). When specifically asked whether the transactions pertain to the investment or sale of shares, he fairly admitted that this can be examined by AO afresh.

7. We have considered the rival submissions and the documents on record. We are of the opinion that the matter requires re-examination by AO for the following reasons:

(a)  It is true that after receipt of AIR information assessee was given only 14 days time to reconcile. We have seen the AIR information. As far as the first transaction in the AIR it is with reference to the PAN No.AACCT 5709 L pertain to the Threadneedle Investment ICVC Asia Fund with ‘tax type’- AIR ‘txn code’- 005 for acquiring shares of Rs. 1.00 lakh and above. This information pertains to the ‘Power Grid Corporation of India Ltd’ was reconciled by assessee on which there is no objection. The balance of the transactions running from No.1 to 64 are reported by ‘tax type’ N-CIB and ‘txn code’ 321 giving name and address of the investors and persons who have been entered into share transactions of Rs. 20,000 and above. Under this head there are 64 transactions on17.12.2007 in which the ‘Bombay Stock Exchange Ltd’ was reported both in the name of the scrip as well as tax filer address. On the basis of this AIR information the total transactions of the above 64 Nos. coming to Rs. 11,32,38,770 was taken as investment by assessee and asked to reconcile. Assessee pleaded its inability to reconcile because it does not contain any details either of the scrip name or of the contract name or transaction No. of the BSE. This document of AIR simply informs that the tax filer address is BSE and the transaction pertains to the BSE. In the absence of any details assessee naturally could not reconcile the transactions. Therefore, the objection No.1 raised before the DRP that assessee was not given sufficient opportunity has to be upheld.

(b)  Before the DRP, assessee filed details obtained by writing to the BSE about these transactions which pertain to share of Steel Authority of India Ltd by M/s Credit Suisse Ltd. It also filed letters from other brokers with whom it is transacting that there are no transactions of SAIL at the relevant point of time. It also filed confirmation letter from the custodian that no such transactions were undertaken by the assessee fund. Even though it is not pertaining to assessee, assessee had obtained complete details transaction-wise in Annexure A & B of Credit Suisse Securities India (P) Ltd and filed vide letter dated 20.05.2011 which was addressed to M/s Threadneedle Asset Management Ltd. These details were rejected by the DRP on the reason that these documents are not authenticated. We are unable to understand the stand of the DRP. Just because an AIR report was generated indicating the PAN No. of assessee, the onus does not shift completely to assessee. It is the responsibility of AO to examine complete details before asking for reconciliation and whether the transactions were indeed undertaken or not. The AIR report also does not contain any authentication but since it is generated by the Department, credit was given by AO and DRP about its authenticity. Assessee after obtaining the details and making efforts to reconcile filed the documents on record duly certified as ‘true copy’ before the DRP. What further authentication was required could not be understood. In our view, the DRP should have examined the transactions, which could not be done before AO due to lack of time and details.

(c)  As seen from the findings on record, it is not clear whether the transaction is a purchase or sale. As mentioned earlier in both the places of transactions it is mentioned BSE Ltd, as the scrip transacted and the address of the person transacted. As far as the tax type AIR Txn Code 005 is concerned, assessee’s PAN and address was clearly mentioned including Power Grid Corporation of India as name of the scrip. This scrip details were totally reconciled by assessee without any problem. However, the balance of the 64 transactions stated to be of assessee reported with same PAN No. and address could not be reconciled as there are no details of these transactions except the date and amount. whether these are purchase or sale transactions also could not be verified from AIR report. Without even examining the nature of transaction, AO came to a conclusion that the transaction was an investment in SAIL on 17.12.2007 of assessee which was unexplained. Now the data available on record indicate that these are not purchase transactions but sale transactions by M/s Credit Suisse Ltd on behalf of various other funds being managed by Threadneedle Asset management Ltd. Once these are sale transactions, provisions of section 69 does not apply, which can be invoked for unexplained investment. It is not case of AO that assessee purchased outside books so as to sell on 17-12-2007. Therefore, on that ground the addition per se cannot be sustained.

8. In view of the above, we are of the opinion that the matter require re-examination by AO by giving due opportunity to assessee. AO is directed to examine the transaction report of AIR on 17.12.2007, for which he can obtain fresh details from the BSE, the brokers involved, custodians as all the relevant information which will be duly available with the relevant authorities including the custodians of FIIs. Further the details filed by assessee with reference to various reconciliations including the PAN Nos. given by the respective investment funds are to be examined as this information was not filed before AO and the DRP simply rejected the same. AO also can examine why assessee’s PAN was utilized. AO can examine when the said scrips in SAIL were purchased by the relevant FIIs and whether the transactions were reported in the respective funds. Unless complete inquiry was conducted, it is not proper on the part of AO to make an assessment of sale of transactions as investment, as is done in this case. Therefore, for proper examination and coming to a conclusion on facts, the orders of the DRP-II and the order of AO in this regard are set aside and the assessment is restored to the file of AO for fresh consideration. Needless to say, assessee should be given due and proper opportunity. Assessee is also directed to furnish the details filed before the DRP to AO and explain the transactions. With these directions, the grounds are considered allowed.

9. In the result appeal filed by assessee is allowed for statistical purposes.

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