Income Tax Appellate Tribunal - Delhi
Acit, New Delhi vs Smt. Usha Malhotra, New Delhi on 5 April, 2018
ITA No. 2032/Del /12
A. Y. 2001-02
INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "H": NEW DELHI
BEFORE SHRI R. K. PANDA, ACCOUNTANT MEMBER
AND
SMT. BEENA A. PILLAI, JUDICIAL MEMBER
ITA No. 2032/Del/202012
A Y 2001-02
ACIT, Circle - 27 (1) Vs Usha Malhotra
Room No. -218, D- D-163, Mansarover
Block, Vikas Bhawan, Garden
New Delhi New Delhi
PAN AAIPM7867N
(Appellant) (Respondent)
Appellant by : Sh. Amit Jain, Sr. DR
Respondent by: Sh. Gurjit Singh, CA
Sh. B. L. Goyal, CA
Date of Hearing 10/01/2018
Date of pronouncement 05/04/2018
ORDER
PER BEENA A. PILLAI, JUDICIAL MEMBER
1. The present appeal has been filed by the revenue against order dated 27/12/04 passed by Ld. CIT (A) 24, New Delhi, for assessment year 2001-02 on the following grounds of appeal:
1. On the facts and circumstances of the case, the Ld. CIT(A) erred in deleting addition of Rs. 1,53,429/- on account of difference in valuation of fabric in closing stock and an adhoc addition of Rs. 50,000/- on account of difference in 'Valuation of miscellaneous fabric in closing stock.
2. On the facts and circumstances of the case, the CIT(A) erred in allowing the loss of Rs. 14,28,000/- on account of loss on sale of 1 of 20 ITA No. 2032/Del /12 A. Y. 2001-02 shares of Zee Telefilms Ltd by holding it to be genuine trading loss.
3. On the facts and circumstances of the case, the CIT(A) erred in directing the AO to treat the share trading loss of Rs. 65,55,659/- as trading loss by holding that constructive delivery or passive delivery to the d-mat account of the agent is also treated as delivery and such transaction move out of the purview of section 43(5) of the Act and cannot be termed as speculative transactions.
4. On the facts and circumstances of the case, the CIT(A) erred in in accepting self serving documents not corroborated by cross examination or produced before the Assessing Officer.
5. Set aside the order of the CIT(A) and restore the matter back to the AO to reexamine fresh evidences in a holistic manner and as per law.
2. Brief facts of the case are as under:
2.1 Assessee filed her return of income declaring loss of Rs.1,52,21,318/-and long-term capital loss of Rs.2,11,518/-on 29/10/01. The assessee had also claimed speculation loss of Rs.4,57,40,813/-. The return was processed under section 143(1) (a) of the act and the case was selected for scrutiny. In response to notices issued under section 143(2) and 142(1) detailed questionnaire was issued which was attended by representatives of assessee from time to time and had filed details as called for.
Ld.AO observed that assessee was engaged in sale and purchase of shares of listed companies on the primary market and was also indulged in forward trading of shares without actual delivery in shares. Assessee was also carrying on export of ready-made garments.
2 of 20 ITA No. 2032/Del /12 A. Y. 2001-02 2.2 During the assessment proceedings assessee was directed to file bills of purchase made. He also observed that in audit report, the closing stock has not been declared by assessee. The Ld.AO from the details filed found that purchase price of goods normally varied from Rs.210/- to Rs.300/- per KG as a result of which he computed the closing stock by taking the average rate of Rs.250/- per KG instead of Rs.193.87/- per KG adopted by the assessee. The difference in the closing stock amounting to Rs.5,34,710/-was added to the income of assessee. Further from the details filed, during the assessment proceedings Ld.AO noticed that assessee declared closing stock of miscellaneous fabrics at Rs.2,77,923/-. As assessee did not file any details as to how she arrived at the said figure of closing stock, Ld.AO made a lump-sum addition of Rs.50,000.
2.3 Further Ld.AO observed that assessee purchased 4200 shares of Zee Telefilms at Rs.497/- on 25/08/00 Rs.4,20,87,400/-from Shri.S.C. Malhotra and later on, on 14/03/01 sold 18,700 shares of the same company at Rs.157/-for an amount of Rs.29,42,204/-. Ld.AO found that on the same date on which assessee purchased shares from her husband, her husband purchased shares of Zee Telefilms from M/s.Orbis Securities Pvt.Ltd. Further Ld.AO observed that no details pertaining to these transactions of shares between assessee and her husband and M/s.Orbis 3 of 20 ITA No. 2032/Del /12 A. Y. 2001-02 Securities Pvt.Ltd had been furnished. In the absence of any banking transactions and considering that the shares were not physically taken over by assessee nor were reflected in the demat account, Ld.AO concluded that shares were purchased at high prize of Rs.497/-and sold at a low price of Rs. 157/-were basically transacted on paper to book loss of Rs.14,28,000/-. Ld.AO accordingly, reduce the loss declared by assessee by said amount.
2.4 On an appeal before Ld.CIT(A), the additions made by Ld.AO were confirmed. On an appeal before this Tribunal, this Tribunal vide order dated 29/06/07 remanded these issues back to Ld.AO for deciding them on the basis of the materials on record a fresh, in accordance with law and after affording reasonable opportunity of being heard to assessee.
2.5 Ld.AO while passing order effect to the Tribunal's order, confirmed these additions after considering relevant submissions and documents filed by assessee. 2.6 On an appeal before Ld.CIT(A) against the assessment order passed on 30/12/08, partial relief was granted to assessee.
Against the order of Ld.CIT(A) revenue is in appeal before us now.
3. Ground No. 1 has been raised against the difference of the valuation of closing stock of fabrics and miscellaneous fabrics and which is deleted by Ld. CIT (A).
4 of 20 ITA No. 2032/Del /12 A. Y. 2001-02 3.1 Ld.DR submitted that assessee is carrying on export of ready-made garments and had not declared in audit report values of closing stock of fabrics and miscellaneous fabrics. He submitted that during assessment proceedings on demand by this Tribunal, assessee produced bills of purchase. It was pointed out that Ld.AO categorically observed that assessee failed to furnished actual method of valuation of closing stock and has not given the basis for valuation of stock, Ld. DR submitted that valuation made by assessee thus cannot be accepted on the face of it. He thus submitted that addition made by Ld.AO is fully justified. Ld. DR further submitted that even during the 2nd round before Ld.CIT (A) assessee submitted certain bills, wherein the price of fabrics were showing at Rs.132.90/-. It has been observed by authorities below that these pay bills were always available with assessee, which were not produced before Ld.AO during the remand proceedings. And Ld.CIT(A) has rightly rejected the additional evidence filed by assessee. He submitted that assessee had sufficient opportunity to establish its claim before Ld.AO as this Tribunal had remanded the issue for de novo consideration.
3.2 On the contrary Ld.AR submitted that the valuation of closing stock has been made on the basis of cost or market price whichever is less. He submitted that there is no change in the method of valuation of closing stock and on 5 of 20 ITA No. 2032/Del /12 A. Y. 2001-02 comparison of GP rate from the preceding years this year it was 34.91% Ld.AR submitted that there is no justification to make the addition in the closing stock at Rs. 210/-as against Rs.193.89/-per KG as offered by assessee. The Ld.AR further submitted that assessing officer made addition of Rs.50,000 on account of difference in the valuation of miscellaneous stock on estimated basis, to cover up possible leakages. Ld.AR in this connection submitted that miscellaneous stock was out of the scraps/cut pieces, that is left out after the garment is prepared from the fabrics. He submitted that these miscellaneous stocks are not salable in open market, as it cannot be used for any manufacturing purposes, and therefore is sold it to Kabari's. He thus submitted that the addition made by Ld.AO is unwarranted for.
3.3 We have perused the submissions advanced by both the sides in the light of the records placed before us.
3.4 At the outset we observe that Ld. CIT (A) decided the issue against assessee and has confirmed the addition made by Ld. AO. We thus fail to understand the reason why these grounds have been raised by revenue in its appeal before us. The categorical observations confirming the addition on these issues are present at page 3-4 of Ld.CIT (A) order.
We are therefore inclined to hold these grounds raised by revenue as in fructuous.
6 of 20 ITA No. 2032/Del /12 A. Y. 2001-02
4. Ground No. 2 is in respect of the disallowance made by Ld.AO to extent of Rs.14,28,000/-on account of loss on sale of Zee Telefilms shares. Revenue is aggrieved by the order of Ld.CIT (A) in deleting the above addition.
4.1 Ld. DR raised suspicion upon genuineness of loss. He submitted that the scripts cannot be transferred to anybody else but to assessee through her own De-mat account and therefore Ld. AO was justified in treating the transactions of sale and purchase as a mechanism for the purposes of purchasing losses.
4.2 On the contrary Ld. AR submitted that husband of assessee purchased 4200 shares of Zee telefilms on 28/06/00 Rs. 4.19, 58, 996/-and sold the same on 14/08/00 to some other buyer for Rs.15,99,822/-and sustained loss of Rs.3,59,174/-. Husband of assessee again purchased 4200 shares of Zee telefilms on 25/08/00 Rs.4,20,84,584/- and sold these shares to the assessee for Rs.20,87,400/- having a profit of Rs.6,816/-. Ld.AR submitted that the transaction between assessee and her husband has been rooted through the running account in which payments were made through account payee cheques and assessee purchased the shares through Orbis securities which is confirmed by the said broker. He submitted that the said transaction was conducted at market rate and the payment thereof were made through account payee cheques and the delivery of shares were 7 of 20 ITA No. 2032/Del /12 A. Y. 2001-02 taken through De-mat account. He placed his reliance upon the observations of Ld. CIT (A) wherein the said transaction has been submitted to be genuine.
4.3 We have perused the submissions advanced by both the sides in the light of the records placed before us.
It is observed that in the 1st round of appeal proceedings, this Tribunal set aside the issue back to file of Ld.AO by observing as under:
"20. We have heard the parties and perused the record of the case. It is seen that the assessee claimed to have purchased 4200 shares of Zee Telefilm and kept in demat account of Shri SC Maihotra and M/s Orbis Securities. However, the same has been rejected on the ground that no such evidence w as filed before the Assessing Officer at the time of assessment proceedings. Moreover, these shares were neither registered in the demat account of the assessee nor have been physically transferred to the assessee However, it is seen that the assessee has filed a copy of confirmation dated 27.5.2004 from MO Orbis Securities. A copy of which is placed at page 15 of paper book wherein it has been certified that 4200 shares of Zee Telefilm v/ere transferred from Shri H.C. Maihotras demat account No.10101676 on behalf of Smt. Usha Maincra towards margin /security on 15.10.2000 and more kept as margin money from 25.10.2000 to 1 3.2001. The said share (4200 shares) were sold by Smt. Usha Malhotra on 1.3.2001 in settlement No.2001009 through them and the delivery of the shares were transferred on behalf of Smt Usha Malhotra to NSE from the above demat account. It is not clear as to why the said shares remain in demat account of Shri H C 8 of 20 ITA No. 2032/Del /12 A. Y. 2001-02 Malhotra when Smt. Usha Malhotra maintains his own demat account. It is also not clear as to why the said 4200 shares were transferred from Shri H.C Malhotra's demat account towards margin/security oil 25.10.2000 when the same were purchased by Smt, Usha Malhotra from husband, Shri H.C Malhotra on 25.8.2000. Thee facts needs further enquiry in the matter, in the circumstances, the issue is set aside and restored to the file of the Assessing Officer who may examine the matter afresh in accordance with law after affording a reasonable opportunity of being heard to the assessee.
4.4 On the next issue of deleting the disallowance in respect of trading loss, this Tribunal observed as under:
24. We have heard the parties and perused the record of the case. It is seen that Assessing Officer has referred to the letter of Orbis Securities Ld., however, the same did not bear any date of issue of certificate.
The copy confirmation placed at page 14-25 of the paper book they all bear the date Thus, these confirmation were the additional evidence filed along with application under Rule 46A before the CIT, which were not admitted by him. Thus, the claim of the Ld. Counsel before us that these confirmation were filed before the Assessing Officer is not correct. However, since these additional evidence filed by the assessee are material evidence in order to consider the issue in proper perspective, the same needs to be examined. In the facts and circumstances of the case, we set aside this issue and restore the same to the file of the Assessing Officer., who may examine the matter afresh in accordance with the law after affording a reasonable opportunity of being heard to the assessee.
4.5 Subsequently in the remand proceedings Ld.AO observed that assessee purchased 4200 shares of Zee telefilms at Rs.497/-on 25/08/00 Rs.420,87,400/-from her husband, 9 of 20 ITA No. 2032/Del /12 A. Y. 2001-02 and later on, on 14/03/01 sold 18,700 shares of the same company at Rs.157/- for an amount of Rs.29,42,204/-. Ld.AO observed from the ledger account of Zee Telefilms Ltd in the books of assessee that on 25/08/08 assessee purchased shares from her husband and on the same date her husband purchased shares of Zee Telefilms Ltd from M/s.Orbis Securities Pvt.Ltd presently known as India Bulls. It is also observed that that the said fact has been confirmed by M/s.Orbis Securities Pvt.Ltd vide their letter dated 27/05/04 raised at page 54 of paper book.
4.6 The above facts clearly shows that assessee claimed to have incurred loss of Rs.14,28,000/- on account of sale of 4200 shares of Zee telefilms Ltd. The peculiar facts shows that the assessee purchased these 4200 shares of Zee telefilms from her husband on 25/08/00 Rs.8497/-per share amounting to total sum of Rs.20,87,000/-. She then sold 18700 shares on 14/03/01 which includes 4200 shares originally purchased by assessee from husband. Thus the assessee purchased shares her husband earned profit of Rs.6816 and at the time of sale of shares she incurred loss of Rs.14,28,000/-.
4.7 Before the authorities below assessee gave explanation regarding holding of shares and its consequential transfer in the De-mat account of the broker. Though Ld. the AO disbelief this entire submissions given by assessee, Ld.CIT (A) blind foldedly accepted the version of assessee and 10 of 20 ITA No. 2032/Del /12 A. Y. 2001-02 deleted the addition. On examination of complete transaction by us, it is evident that assessee dealt with shares of such huge magnitude and did not have the shares transferred into her De-mat account. It is interesting to note that assessee bought shares without payment of any consideration on 25/08/00 and sold the shares without receipt of any consideration on 14/03/01. Neither assessee nor her husband got any time to get the shares transferred into proper De-mat account during the interregnum period nor did they exchange consideration of purchase and sale of shares into the respective accounts. The decisions relied upon by Ld.AR do not support the case of assessee, as therein authorities below observed categorically that shares in dispute were physically transferred to De-mat account and actual delivery to place which is not the case before us.
4.8 Assessee submitted that broker being Orbis Securities presently known as India Bulls Pvt. Ltd., were holding shares in De-mat account of different person which was purchased by assessee. Thus in our considered opinion the share broker has held the shares and has given certificate dated 27/05/14 (placed at page 57 of the paper book) that shares were transferred in a different De-mat account to purchase it in name of assessee when assessee herself has a De-mat account being 10040495. We are surprised that such a certificate has been issued by India Bulls, which is 11 of 20 ITA No. 2032/Del /12 A. Y. 2001-02 in blatant violation of SEBI Act. Ld. AO may take note of this and may refer the matter to SEBI for appropriate action against broker as well as the person in whose account shares were transferred.
4.9 In so far as the transaction of loss is concerned in our considered opinion is hit by section 60 of the Act which reads as under:
"60. Transfer of income where there is no transfer of assets.- All income arising to any person by virtue of a transfer whether revocable or not and whether effected before or after the commencement of this Act shall, where there is no transfer of the assets from which the income arises, be chargeable to income-tax as the income of the transferor and shall be included in his total income".
4.10 In our considered opinion, in the present case, loss incurred by husband has been transferred to assessee without any transfer of asset or without any transfer of consideration. In view of the above facts this transaction is devoid of any genuinity and order of Ld. Assessing Officer deserves to be restored in this respect.
We accordingly allow this ground raised by revenue.
5. Ground No. 3 is in respect of deletion of Rs.65,55,659/- by Ld.CIT(A) by holding that constructive delivery or passive delivery to the De-mat account of broker is also treated as delivery, and such transaction move out of the purview of section 43 (5) of the Act, thereby do not amount to speculative transactions.
12 of 20 ITA No. 2032/Del /12 A. Y. 2001-02 The 2nd part of transaction is in respect of following shares viz.,Wipro, Zee telefilms, Silver line, Pentafor, HCL.
5.1 It has been contended by Ld.DR that these were speculative losses. Ld.DR submitted that the transactions were not settled by delivery or transfer of scripts and therefore it does not satisfy the requirements of section 43(5) of the Act of being an eligible transaction. He submitted that these shares were kept in the De-mat account of M/s Orbis securities because full payment of shares was not made by assessee and upon these shares having sold by Orbis Securities, they were transferred to assessee, which leads to the conclusion that these shares were never transferred to her De-mat account. Ld.DR thus submitted that the trading loss of Rs.65,55,659/- on sale of shares gives, it a colour of speculative transaction.
5.1 On the contrary Ld.AR placed reliance upon following decision in support of his arguments:
· CIT vs. Dr.S.Thilagavathy , reported in (2012) 17 ITR (Trib) 506 (Chennai) · Smt.Jayshree Roychowdhury vs. ACIT reported in (2005) 93 TTJ 714 5.3 He placed reliance upon page 78 being a certificate issued by India Bulls (erstwhile M/s Orbis securities), wherein it has been stated that the said shares were held by broker in their De-mat account on behalf of assessee 13 of 20 ITA No. 2032/Del /12 A. Y. 2001-02 due to the purchase price payable by assessee to the broker. In the certificate Assessing Officer issued, it is stated by broker that an interest of Rs.42,322/- was charged from assessee for late payment.
We have perused the submissions advanced by both the sides in the light of the records placed before us.
5.4 During the year assessee has claimed loss of Rs.65,55,659/-as trading loss in securities. Assessee claims that the delivery of these shares were not taken but were kept in the demat account of broker from whom shares were purchased, because assessee did not make the payment to broker for the purchases made. As a confirmation of the purchases, assessee placed in the paper book, certificates issued by broker at pages 78, 79, 83, 94. The broker in these certificates has provided certain details regarding number of shares purchased on behalf of assessee, script name, date of purchase, settlements number and the cost. Assessee has placed purchase bills in respect of the scripts. Ld. CIT (A) treated the loss incurred by assessee on sale of such shares as business loss since these were constructive purchases, made by assessee through broker by placing reliance upon the decision of coordinate bench of this Tribunal in CIT vs. Dr.S.Thilagavathy (supra) and Smt.Jayshree Roychowdhury vs. ACIT (supra).
14 of 20 ITA No. 2032/Del /12 A. Y. 2001-02 5.5 We shall 1st analyse the decision in view of the facts in the present case before us.
In CIT vs. Dr.S.Thilagavathy (supra), the facts before Tribunal was that, assessee therein had shown the transaction being reflected on the electronic screen in the name of assessee therein. But in the present facts of the case there has been no contract notes that has been presented before us in respect of purchase of the shares by the broker or behalf of assessee rather these are only sale bills showing the alleged purchases issued by Orbis securities. We refer to pages 80-82, 84-93, 95-99 of the paper book. It appears to be an internal bill that has been generated by Orbis securities which does not amount to a conclusive proof regarding the purchases being made by the broker on behalf of assessee.
In the case of Smt.Jayshree Roychowdhury vs. ACIT (supra), it is observed that purchases were made as per the instruction by assessee therein, and it was on the instruction of the assessee itself that they were kept with the broker.
In the present case there is no such document which shows that the shares were held and sold by broker at the instruction of assessee. On the contrary the certificate issued by broker shows that the transfer of shares were not made in assessee's name since assessee had not paid the 15 of 20 ITA No. 2032/Del /12 A. Y. 2001-02 purchase cost. Therefore in our considered opinion the broker was in fact in holding the shares as an unpaid purchaser.
5.6 In our view, decision relied on by assessee are distinguishable on facts. In our considered opinion Ld. CIT (A) blindly accepted submissions of assessee, without going into factual aspects of these decisions vis-a-vis that of assessee. Assessee has merely placed on record sale bills issued by Orbis securities which does not become conclusive proof of what has been submitted by assessee regarding the shares being held by the broker or on behalf of assessee. The present appeal do not reflect any details of De-mat account held by assessee. There is no document issued from National stock exchange which shows that these shares have been purchased by broker on behalf of assessee.
Further broker in all the certificates issued (hereinabove referred to, which is placed in the paper book) has mentioned that these shares were kept in the demat account of the broker bearing account number 1000 9892 on behalf of assessee. Assessee has not produced the relevant details of this account number showing the shares being held by the broker or behalf of assessee neither before authorities below nor before us. In view of the above we do not find the decision of Ld. CIT (A) to be correct in holding that the scripts were constructively held by broker 16 of 20 ITA No. 2032/Del /12 A. Y. 2001-02 on behalf of assessee, in order to satisfy the provisions of section 45 (3) of the Act.
In the 1st order passed by this Tribunal dated 29/06/07, this issue was set aside to Ld. AO for verification of the confirmations issued by the broker. However there were no proper directions for carrying out verification. We therefore in the interest of Justice find it necessary that Ld. AO may examine the claim of assessee once again as per following directions:
· Assessee is directed to produce the Broker/ its representative before Ld. Assessing Officer. Ld. AO shall call for the De-mat account of broker being number 10009892, wherein these shares have been earmarked as being purchased by the broker or behalf of assessee and whether disclosures that requires to be made by broker in respect of the shares purchased by it on behalf of assessee, as per SEBI Act has been made.
· Ld. AO shall issue summons and / or direct to present broker and examine how these shares were purchased on behalf of assessee and to examine if there is any written instruction by assessee and whether such kind of arrangement is permitted as per law.
· Ld. AO shall call for details from the broker and / or direct assessee to present the broker to obtain details like date, transaction time, market value in respect of the
17 of 20 ITA No. 2032/Del /12 A. Y. 2001-02 scripts purchased by broker or behalf of assessee, which then he may send then to NSE for verification of the same. · Ld. AO shall examine assessee as well as broker regarding the payment that has been made for the purposes of purchase of the shares, when and how the account was duly settled by assessee. This detail is relevant for determining whether there was a constructive holding of the scripts by the broker on behalf of assessee. · The requisite details of assessee shall be called for from the broker as well as from NSE to verify that these transactions actually happened in the name of assessee and/or on behalf of assessee.
· Ld. Assessing Officer shall also verify the De-mat account of assessee being 10040495 and verify the transaction by assessee during the financial year relevant to assessment year under consideration.
After receiving the above information and examining it threadbare, Ld. AO may allow the claim of assessee if it is found in accordance with law. In the event assessing officer is not satisfied with the correctness of the details filed, the same shall be brought to the notice of NSE along with all the details/evidences collected, for necessary action.
Needless to say that assessing officer shall grant proper opportunity as per law to assessee and the broker. The 18 of 20 ITA No. 2032/Del /12 A. Y. 2001-02 details/information provided by assessee and broker shall be provided to Ld.AO as called for.
We accordingly allow this ground raised by revenue for statistical purposes.
As we have setting aside this issue back to Ld.AO Ground No.4 becomes infructuous, accordingly the same stands dismissed.
In the result appeal filed by the revenue stands allowed. Order pronounced in the open court on 05/04/2018 Sd/- Sd/-
(R. K. PANDA) (BEENA A. PILLAI)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 05/04/2018
*Neha*
Copy forwarded to
1. Applicant
2. Respondent
3. CIT
4. CIT (A)
5. DR:ITAT
ASSISTANT REGISTRAR
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