Case Law Details
Dhaval R Ajmera Vs ITO (ITAT Mumbai)
Though the assessee has raised several grounds, the only effective issue involved in the impugned appeal is as to whether the ld. CIT(A) was justified in confirming the disallowance of Rs.7,89,745/- on account of alleged purchase of shares through M/s. Alliance Intermediates and Network Private Limited and alleged related commission expenditure of Rs.39,487/- in the facts and circumstances of the instant case.
We also find from the computation of income of the assessee and the details of purchase and shares made through other two registered share brokers i.e. Alankit Assignments Ltd., and RBK Share Broking, which are enclosed in pages 16 & 17 of the paper book, the assessee had not made any purchase of shares to the tune of Rs.7,89,745/- through Alliance Intermediates and Network Pvt. Ltd., From the documents available on record, it is very clear that purchase and sale of share transactions were carried out by the assessee through the registered brokers i.e. Alankit Assignments and RBK Share Broking and Speculative transactions were carried out through the registered broker i.e. Alliance Intermediates and Network Pvt. Ltd. The assessee had incurred short term capital loss and earned long term capital gains in respect of purchase and sale of shares carried out through Alankit Assignments and RBK share broking which has been duly disclosed in the return of income. We find that the assessee had only incurred speculation loss of Rs.33,83,516/- in respect of future and option transactions carried out through Alliance Intermediates and Network Pvt. Ltd during the year and this loss has not been set off with any speculation profit either during the year or in any subsequent assessment years. This factual aspect has been ignored by the lower authorities in the instant case and the addition has been merely made based on information received from a third party and ignoring the documents placed on record.
We also find that in the case of Ms. Kokila S. Ajmera vs. DCIT in ITA No.2959/Mum/2017 for A.Y.2007-08, this Tribunal under same set of facts had categorically held that the speculation loss incurred by those individuals (who are relatives of this assessee before us) had not claimed set off of the same with future speculation income. Even if the speculation loss incurred by the assessee is treated as non-genuine, the same would be of no consequence so far as the determination of tax liability of the assessee in the instant case as well as in the subsequent years is concerned.
In view of the aforesaid observations, we hold that the entire disallowance of Rs.7,89,745/- has been made on complete incorrect assumption of facts and on mistaken premise. We categorically hold that there is no purchase of shares of Rs.7,89,745/- made by the assessee through Alliance Intermediates and Network Pvt. Ltd which was claimed as deduction in return of income. Hence, there is absolutely no question on making any disallowance of Rs.7,89,745/- on account of purchase of shares in the assessment. Hence, the same is hereby directed to be deleted. Once the disallowance made on account of purchase of shares is deleted, the alleged related commission expenditure u/s.69C of the Act in the sum of Rs.39,487/- also automatically gets deleted. We direct accordingly. Hence, the grounds raised by the assessee are allowed.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal in ITA No.2746/Mum/2019 for A.Y.2007-08 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-28, Mumbai in appeal No.CIT(A)-28/ITO-17(1)(4)/IT-167/2015-16 dated 19/02/2019 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) r.w.s. 147 of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 31/03/2015 by the ld. Income Tax Officer, Ward 17 (1)(4), Mumbai (hereinafter referred to as ld. AO).
2. Though the assessee has raised several grounds, the only effective issue involved in the impugned appeal is as to whether the ld. CIT(A) was justified in confirming the disallowance of Rs.7,89,745/- on account of alleged purchase of shares through M/s. Alliance Intermediates and Network Private Limited and alleged related commission expenditure of Rs.39,487/- in the facts and circumstances of the instant case.
3. We have heard rival submissions and perused the materials available on record. We find that a search and seizure action u/s.132 of the Act was undertaken in the case of M/s. Mahasagar Securities Pvt. Ltd., (now known as M/s. Alag Securities Pvt. Ltd.,) and its group companies which are mainly M/s. Mihir Agencies Pvt. Ltd., M/s. Goldstar Finvest Pvt. Ltd., and M/s. Alliance Intermediates and Network Pvt. Ltd., on 25/11/2009. The assessee is deriving salary income, house property income, short term and long term capital gains and income from other sources. The return of income for the A.Y.2007-08 was filed by the assessee on 31/07/2007 declared total income of Rs.5,76,992/-. The assessment was originally completed u/s.143(3) of the Act on 29/12/2009 determining total income at Rs.5,81,390/-. Later based on the information received from Directorate of Income Tax (Intelligence and Criminal Investigation), New Delhi with respect to search action conducted in the case of Maha Sagar Group of cases on 25/11/2009 and Shri Mukesh Chokshi, the case of the assessee was sought to be reopened by issue of notice u/s.148 of the Act after recording the following reasons:-
“The assessee, Shri Dhaval Rajnikant Ajmera is an individual having its office af 2nd Floor, Rehman Building, 24, Veer Nariman Road, Bombay-400 00? and is assessed in this charge, fn this case, the assessment was completed u/s. I43(3) of the Income tax Act on 29/12/2009 computing total income at Rs. 5,81,390/-.
2. Further, information is received from the Directorate of Income Tax (Intelligence & Criminal Investigation], New Delhi with respect to search action conducted in the case of M/s. Mahasagar group of cases on 25.11.2009. During search proceedings, statement of Shri Mukesh Choksi, key person of M/s Mahasagar group of cases is recorded wherein he has stated in his sworn-in statement and admitted that he and his group were engaged in fraudulent billing activities and in giving accommodation entries in order to enable the clients to declare Speculation profit/loss, Short Term Capital Gain, Long Term Capital Gain, profit/loss on account of Commodity, Trading, introduce Share Applicable Money, or introduce money in the form of Gifts.
3. From the information, it is also seen that Mr. Choksi himself has stated and admitted that he was only involved in giving accommodation entries. He also perused all the data before giving such statement. In the latest sworn statement dated 16.01.2013, Shri Mukesh Choksi Identified 829 names of the beneficiaries and certified that they are accommodation entries and Shri Dhaval Rajnikant Ajmera is one of the beneficiaries. From the data forwarded to this office, it is seen that the assessee has purchased shares of Rs. 7,89.745/- through M/s. Alliance Intermediatories & Network Pvt. Ltd. Mr. Choksi in his sworn-in statement dated 16.01.2013 before the DCIT, Central Circle-46, Mumbai, in reply to Question No. 10 has stated that one of his sub-broker, Shri Satish Mandowara used the bank account in the name of M/s. Alliance Intermediatories & Network Pvt. Ltd. and all transactions of payment and receipt related to fictitious sale and purchase bills were reflect in the said bank account. Also, Shri Mukesh Choksi was thoroughly examined during search proceedings who explained the modus operandi adopted by him in issuing accommodation entries. This clearly proves that there was no genuine business being carried on by any of the companies run by Mukesh Choksi and associates and they were all engaged in the business of issuing bogus bills for providing Long Term Gains/Loss, Speculation Profit/Loss.
4. It is seen from the details provided by the ACIT, Central Circle-46, Mumbai, that during the previous year 2006-07 relevant to A.Y. 2007-08, the assessee has made purchase of shares worth Rs. 7,89,745/- through M/s. Alliance Intermediatories & Network Pvt. Ltd. It has been admitted by Shri Mukesh Chokshi who is the key person of M/s. Mahasagar Group of Companies that his various companies had given bogus entries. Thus, by taking a bogus entry, the assessee has introduced his unaccounted money through the above fictitious transaction.
In view of the aforesaid facts, I have reason to believe that Rs. 7,89.745/-has escaped assessment within the meaning of section 147 of the I.T. Act, 1961. “
3.1. The assessee during the course of re-assessment proceedings furnished the transactions carried out through Alliance Intermediates and Network Pvt. Ltd., which is a registered share broker of NSE and with whom the assessee is having current account transactions as the assessee had indulged in future and options transactions with the said registered broker and had not engaged in any purchase and sale of shares through that broker. The assessee gave the workings of both short term and long term capital gains, speculation loss and speculation profits, derivative profits / losses together with the supporting documents in the form of broker contract notes corroborating the relevant transactions with the bank statements of the assessee. The assessee also submitted the ledger account of M/s Alliance Intermediates and Network Pvt Ltd to cross verify the transactions stated to have been carried out by the assessee. The ld. AO however, ignored all the contentions of the assessee and proceeded to make the disallowance of purchase of shares of Rs.7,89,745/- in the assessment. The ld. AO also added alleged payment of commission expenditure u/s.69C of the Act in the sum of Rs.39,487/- while completing the assessment.
3.2. Before the ld. CIT(A), the assessee pleaded that first of all, the ld. AO had not even given the break-up of Rs.7,89,745/- as mentioned in the reasons recorded. It was reiterated that no deduction of Rs.7,89,745/- was even claimed by the assessee on account of purchase of shares in the return of income. Hence, there cannot be any disallowance of the same as such.
3.3. As regards transactions carried out through Alliance Intermediates and Network Pvt. Ltd., the assessee submitted that it had done only speculative transactions through the said broker wherein the assessee had incurred loss of Rs.33,83,516/- and has not made any purchase of shares through the said broker. It was also submitted that assessee had neither claimed the said speculation loss incurred of Rs.33,83,516/- with Alliance Intermediates and Network Pvt. Ltd., for the relevant period or in any subsequent assessment years. The assessee submitted the copy of ITR acknowledgements together with the computation of total income of subsequent years , in support of its contentions. It was also submitted that the ld. AO erred in stating in the assessment order that the short term capital loss of Rs.23,593/- reflected in the computation of income is incurred out of the transactions carried out through Alliance Intermediates and Network Pvt. Ltd. It was clarified by the assessee that the said loss was incurred on transactions carried out through Alankit Assignments Ltd., which is also a registered broker with National stock exchange (NSE). It was specifically pointed out that assessee had purchased shares only through Alankit Assignments Ltd and RBK Share Broking, another registered share broker. The assessee also placed on record the complete details of share purchases and sales through these two registered brokers. It was also pointed out that the very same documents were also duly submitted before the ld. AO in the reassessment proceedings. The ld. AO without verifying any of these facts proceeded to make the disallowance only on the basis of information received about search conducted from Shri Mukesh Chokshi thereon and passed the assessment order in haste. As regards the addition made on account of commission @5% amounting to Rs.39,487/-, the assessee pointed out that since no transactions of purchase of shares were made through Alliance Intermediates Pvt. Ltd., there is no question of making payment of any commission thereon in the sum of Rs.39,487/- and the same requires to be deleted along with disallowance made in the sum of Rs.7,89,745/-.
3.4. We find that the ld. CIT(A) called for remand report from the ld. AO in respect of the aforesaid submissions made by the assessee. During the course of remand proceedings, the workings for Rs.7,89,745/- as stated in the reasons recorded were provided by the ld. AO to the assessee asking him to explain the same. The assessee duly clarified that the same represents futures and options transactions only which are in the nature of speculative transactions and not purchase of shares made through Alliance Intermediates and Network Pvt. Ltd. The assessee even reconciled each and every transaction mentioned thereon before the ld. AO in the remand proceedings. The ld. AO however, reiterated his old submissions made in the assessment order in his remand report also. A copy of the remand report is enclosed in page 97 of the paper book. The ld. CIT(A) by placing reliance on the said remand report, ignored all the contentions of the assessee and confirmed the action of the ld. AO.
3.5. Before us, the ld. AR drew our attention to pages 77-78 of the paper book containing submissions made by the assessee before the ld. AO furnishing details of speculation loss incurred during the year while transacting through Alliance Intermediates and Network Pvt. Ltd. The workings of Rs.33,83,516/- being speculation loss was also given bill wise together with relevant contract notes issued by the said broker and also corroborating the transactions with the bank statements of the assessee. We find that in the remand proceedings, the ld. AO had given the details of Rs.7,89,745/- which are enclosed in pages 99-104 of the paper book. We find that the transactions mentioned thereon are duly matching with the contract notes given by Alliance Intermediates and Network Pvt. Ltd., which are enclosed in pages 33-36 of the paper book. From the contract notes, it is very much evident that these transactions are merely speculative transactions carried out by the assessee, wherein the assessee had incurred loss of Rs.33,83,516/-. We find that assessee had not made any purchases at all to the tune of Rs.7,89,745/- in respect of purchase of shares through Alliance Intermediates and Network Pvt. Ltd.
We also find from the computation of income of the assessee and the details of purchase and shares made through other two registered share brokers i.e. Alankit Assignments Ltd., and RBK Share Broking, which are enclosed in pages 16 & 17 of the paper book, the assessee had not made any purchase of shares to the tune of Rs.7,89,745/- through Alliance Intermediates and Network Pvt. Ltd., From the documents available on record, it is very clear that purchase and sale of share transactions were carried out by the assessee through the registered brokers i.e. Alankit Assignments and RBK Share Broking and Speculative transactions were carried out through the registered broker i.e. Alliance Intermediates and Network Pvt. Ltd. The assessee had incurred short term capital loss and earned long term capital gains in respect of purchase and sale of shares carried out through Alankit Assignments and RBK share broking which has been duly disclosed in the return of income. We find that the assessee had only incurred speculation loss of Rs.33,83,516/- in respect of future and option transactions carried out through Alliance Intermediates and Network Pvt. Ltd during the year and this loss has not been set off with any speculation profit either during the year or in any subsequent assessment years. This factual aspect has been ignored by the lower authorities in the instant case and the addition has been merely made based on information received from a third party and ignoring the documents placed on record.
3.6. We also find that in the case of Ms. Kokila S. Ajmera vs. DCIT in ITA No.2959/Mum/2017 for A.Y.2007-08, this Tribunal under same set of facts had categorically held that the speculation loss incurred by those individuals (who are relatives of this assessee before us) had not claimed set off of the same with future speculation income. Even if the speculation loss incurred by the assessee is treated as non-genuine, the same would be of no consequence so far as the determination of tax liability of the assessee in the instant case as well as in the subsequent years is concerned.
3.7. In view of the aforesaid observations, we hold that the entire disallowance of Rs.7,89,745/- has been made on complete incorrect assumption of facts and on mistaken premise. We categorically hold that there is no purchase of shares of Rs.7,89,745/- made by the assessee through Alliance Intermediates and Network Pvt. Ltd which was claimed as deduction in return of income. Hence, there is absolutely no question on making any disallowance of Rs.7,89,745/- on account of purchase of shares in the assessment. Hence, the same is hereby directed to be deleted. Once the disallowance made on account of purchase of shares is deleted, the alleged related commission expenditure u/s.69C of the Act in the sum of Rs.39,487/- also automatically gets deleted. We direct accordingly. Hence, the grounds raised by the assessee are allowed.
4. In the result, appeal of the assessee is allowed.
Order pronounced on 23/06 /2022 by way of proper mentioning in the notice board.
