Income Tax Appellate Tribunal - Kolkata
Nopany & Sons, Kolkata vs Assessee on 11 May, 2016
1
IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH 'B' KOLKATA
[Before Hon'ble Shri N.V.Vasudevan, JM & Shri M.Balaganesh, AM ]
ITA No.1248/Kol/2012
Assessment Year : 2008-09
M/s.Nopany & Sons , -versus- I.T.O., Ward-56(4),
Kolkata Kolkata
(PAN:AACFN5493N)
(Appellant) (Respondent)
For the Appellant: Shri S.K.Tulsiyan, Advocate
For the Respondent: Shri Rajendra Prasad, JCIT, Sr.DR
Date of Hearing : 05.04.2016.
Date of Pronouncement : 11.05.2016.
ORDER
PER N.V.VASUDEVAN, JM:
This is an appeal by the assessee against the order dated 08.06.2012 of CIT(A) XXXVI, Kolkata, relating to AY 2008-09.
2. Grounds of appeal raised by the Assessee read as follows :-
"1. For that in view of the facts and circumstances of the case the Ld. CIT(A) was wholly wrong and unjustified in continuing the addition of Rs. 4,25,6501- made in assessment as alleged profit on sale of 1 lakh shares of M/s Shree Hanuman Sugar & Ind. Ltd. made during the year without considering the facts and the details with evidences filed before both of them that those shares were acquired in the preceding year and that there was no such profit as wrongly presumed by the AO without any basis on such sale.
The huge arbitrary addition made and confirmed in appeal are therefore liable to be wholly deleted.
2. For that in view of the facts and circumstances of the case the Ld. CIT(A) was wholly wrong and unjustified in confirming the addition of Rs. 1,80,0001- made in assessment on a/c of alleged undisclosed investment in 18,000 shares of M/s Shree Hanuman Sugar & Ind. Ltd. without considering the facts and the details with evidences filed before both of them that those bonus shares were acquired in the preceding year ( F.Y 2006-07 corresponding to the AY 2007-08 ) and their cost of acquisition was Rs Nil. The arbitrary and baseless addition made and confirmed in appeal are therefore liable ITA No.1248/Kol/2012-M/s. Nopany & Sons, A.Y.2008-09 2 to be wholly deleted.
3. For that in view of the facts and circumstances of the case the Ld. CITCA) was wholly wrong and unjustified in not allowing the claim of deduction of Expenses of Rs. 6,68,037/- incurred under different heads and debited to P&L a/c in spite of the facts that such expenses were wholly and exclusively incurred in connection with the assessee's existing business of dealing as well as investment in shares and furthermore such expenses were duly allowed by the A.O in the scrutiny assessments of earlier years.
The actions of both the A.O and the Ld. CITCA) were wholly unreasonable, uncalled for and bad in law.
4. For that in view of the facts and circumstances of the case the Ld. CITCA) was wholly wrong and unjustified in directing the AO to apply the provision of section 14A of the LT Act read with Rule 8D and disallow the expenses accordingly ( out of the aforesaid Expenses of Rs. 6,68,037 claimed by the assessee) without considering the facts that section 14A I Rule 8D are not applicable in the very facts of the case and moreover proper opportunity of hearing was not given to the assessee by issue of a statutory notice before issuing such wrongful direction to the AO.
The action of the Ld. CITCA) was wholly unreasonable, uncalled for and bad in law.
5. For that in view of the facts and circumstances of the case the Ld. CIT(A) was wholly wrong and unjustified in dismissing the additional ground of appeal and confirming the arbitrary and baseless addition of Rs. 5,63,910/- made in assessment on a/c of increase in the value of jewellery during the year on the baseless ground of being a mere book adjustment completely disregarding and ignoring the very facts and the evidences duly filed before both of them that the said increase in value was due to fresh purchase of jewellery, being 93 pieces of sovereign, made during the year under appeal.
The actions of both the A.O and the Ld. CIT(A) were wholly unreasonable, uncalled for and bad in law.
6. For that your petitioner craves the tight to put additional grounds and / or to alter amend/modify the present grounds before or at the time of hearing."
3. As far as ground Nos. 1 and 2 raised by the Assessee are concerned the facts are as follows :-
The Asessee is a partnership firm. In the course of assessment proceedings for A.Y.2008-09 the AO noticed that the assessee had sold certain shares but the same has not been reflected in the profit and loss account. When the AO confronted the assessee with the aforesaid discrepancy, the assessee pointed out that the shares were held as investments and were sold. There was neither profit nor loss on sale of shares and therefore the same was not reflected in the profit and loss account. The AO however ITA No.1248/Kol/2012-M/s. Nopany & Sons, A.Y.2008-09 3 found that as per the balance sheet of the Assessee as on 1.4.2008, the assessee was holding 10,01,000 shares of a company by name M/s. Hanuman Sugar & Industries Ltd., valued at Rs.14,95,000/-. The assessed had during the previous year sold 1 lakh shares for a consideration of Rs.5,75,000/-. According to the AO the assessee had made a profit of Rs.4,25,650/- on sale of the shares of M/s. Shree Hanuman Sugar & Industries Ltd which were arrived at by the AO in the following manner :-
Sale price of 100000 shares shown by the assessee Rs.5,75,000/- Less: Cost price of such shares = 1495000 x 100000 Rs.1,49,350/-
1001000
Profit out of sale of 100000 shares Rs.4,25,650/-
The AO therefore held that the contention of the Assessee that the investments were sold at cost price and since there was neither profit nor loss the same was not reflected in the profit and loss account was not correct. The AO also observed that the evidence of purchase of sale of shares was asked for but no such documentary evidence was provided. The AO further observed that the share transactions were off market one and purchase and sale had been shown in the books as mere adjustment entries. The AO also observed that no proof was brought on record to show that there was actual purchase. However, since the asset of the assessee had increased by such sale to the extent of Rs.4.25,650/- the same was added back to the total income.
4. The AO also noticed that the Assessee had shown receipt of Dividend of Rs. 3,05,700/- from M/s. Hanuman Sugar & Industries Ltd. for the F.Y. 2007-08 on 10,19,000 Equity Shares of Rs.10/- each but as per Balance Sheet as on 31.03.2007 the number of shares held in M/S.Hanmuman Sugar & Industries Ltd., was shown at 10,01,000. The AO called upon the Assessee to explain the difference of 18,000 shares of M/S.Hanmuman Sugar & Industries Ltd., as per Balance Sheet and as per the record of dividend received from M/S.Hanmuman Sugar & Industries Ltd. The AO also called upon the assessee to show cause why the difference in no. of shares ITA No.1248/Kol/2012-M/s. Nopany & Sons, A.Y.2008-09 4 furnished by the assessee and shown in the Dividend Certificate furnished by the assessee in respect of Shree Hanuman Sugar & Industries Ltd. , be not construed as undisclosed investment of Rs.1,80,000/-.
5. In reply the Assessee submitted that the figure of number of shares as reflected in the Balance sheet was a typographical error and the correct figure of 1,19,000 shares ought to have been reflected in the Balance Sheet and therefore there was no unexplained investment in 18000 shares of M/S.Hanmuman Sugar & Industries Ltd. The Assessee also pointed out that there was issue of bonus shares by M/S.Hanmuman Sugar & Industries Ltd., and thereafter in subsequent years the mistake was rectified by increasing the number of shares by 18000 in the investment schedule B of the Balance Sheet.
6. The AO however rejected the claim of the Assessee. He observed that the Assessee had not provided any evidence in support of its claim. He also observed that there was issue of bonus shares were brought into picture only when the matter was detected by the department Therefore the contention of the assessee is liable to be rejected as it is an excuse which is a result of afterthought. Accordingly cost of 18,000 shares @ 10/- each of Rs.1 ,80,000/- was added back to the total income of the Assessee.
7. Aggrieved by the addition made by AO assessee preferred appeal before CIT(A). Before CIT(A) assessee filed before CIT(A) regarding addition of Rs. 4,25,650/-, in respect of sale of 1,00,000 shares of M/s Shree Hanuman Sugar & Industries Ltd., a complete reconciliation statement. The said reconciliation is given as an annexure to this order for better appreciation of facts. The Assessee contended that from a perusal of the said reconciliation it can be seen that as on 2.4.2006 the Assessee held 3,00,000 shares of M/S.Shree Hanuman Sugar & Industries Ltd., and the cost of acquisition of those shares was Rs.14,95,000 @ 4.98 Ps. per share (purchased on 2.4.2006 2,00,000 shares purchased from Doulatram Rawatmull Pvt.Ltd. @ Rs.5/-
ITA No.1248/Kol/2012-M/s. Nopany & Sons, A.Y.2008-09 5per share and 1,00,000 shares purchased from Sri B.K.Nopany @ Rs.137.07 per share). On the holding of 3,00,000 shares the Assessee received bonus shares on 7.7.2006 of 7,20,000 shares from M/S.Hanuman Sugar & Indusstries Ltd., which by mistake was recorded instead 7,20,000 as 7,02,000 in the books. It was further argued that as regards addition of Rs. 4,25,650/-, the AO had made such addition by wrongly assuming the cost price of 1,00,000 shares sold during the year by dividing cost of acquisition of Rs.14,95,000 by 10,01,000 shares to arrive at average cost of shares of Rs.1.4935 Ps. per share to arrive at a cost of Rs.1,49,350 and treated the difference between the actual sale price of Rs.5.75Ps. and Rs.1.493 5 Ps. as profit on sale of shares. The Assessee pointed out that after the amendment of section 55 and introduction of section 55(aa)(B)(iiia) of the Act, the cost of acquisition of bonus shares have to be treated as nil. The Assessee further pointed out that bonus shares were not sold during the previous year and therefore the profit on sale of shares at best would be the difference in the cost of acquisition of the shares viz., Rs.4.98 Ps. Per share and sale price of Rs.5.75 Ps. per share. The same works out to Rs.77,000 on sale of 100000 shares. In view of the aforesaid facts and circumstances, the Assessee prayed that the addition of Rs.4,25,650/- may kindly be deleted.
8. As far as addition of Rs. 1,80,000/- on account of unexplained investment in acquiring 18,000 shares of M/s Shree Hanuman Sugar & Industries Ltd. @ Rs. 10/- per share, the Assessee pointed out that it had already explained in connection with grounds No. 1 that the Assessee received Bonus shares of 7,20,000 in respect of 3,00,000 shares held by the firm as on 7.7 .2006 (during the year ended 31.3.2007). In support of the same, the Assessee filed copy of letter from M/s Shree Hanuman Sugar & Industries Ltd., certifying that 7,20,000 shares had been allotted as Bonus shares to Sri Bimal Kumr Nopany as partner of M/s Nopany & Sons (Assessee). The Assessee also enclosed a copy of the Demat Account for the year ended 31.3 .2007 . Perusal of the same shows that 7,20,000 shares had been credited to the account of the firm through the demat account of the partner, Sri Bimal Kumar Nopany. Shares cannot be held in the name of firm and therefore were held in the name of partner. The Assessee ITA No.1248/Kol/2012-M/s. Nopany & Sons, A.Y.2008-09 6 again pointed out that in the books of the firm instead of 7,20,000 being credited as Bonus shares, through mistake and oversight only 7,02,000 shares had been credited. The Assessee thus pleaded that addition for unaccounted purchase of 18,000 shares in A. Y 2008-09 is wholly bad, illegal, unjustified and uncalled for.
9. Without prejudice it was contended that 18,000 shares (7,20,000 shares received as Bonus from the Company less 7,02,000 shares wrongly credited in the books) having been received by the firm during the year ended 31.3.2007 relevant to A.Y 2007-08, question of treating such amount as income in A.Y 2008-09 did not arise at all even otherwise also.
10. The CIT(A) however did not find any merit in the aforesaid submissions made by the assessee and he observed as follows :-
"As regards the addition of Rs.4,25,650/- in respect or sale of 1,00,000 shares of M/s. Shree Hanuman Sugar & Industries Ltd. it was observed that the appellant has failed to reconcile the shareholding before the A.O. Even in the reconciliation filed before me during the appellate proceedings it was submitted that Bonus shares have received by the appellant were shown at Rs.7,02,000/- instead of Rs.7,20,000/-. However, the appellant failed to submit the shareholder register of M/s. Shree Hanuman Sugar & Industries Ltd., or a copy of annual return of M/s. Shree Hanuman Sugar & Industries Ltd. as filed before ROC in such respect and mere letter from such company will not serve; the purpose. Hence, this ground of the appellant is being dismissed."
11. Since the receipt of bonus shares was not believed by CIT(A) he held that the investments in 18,000 shares of M/s. Shree Hanuman Sugar & Industries Ltd. Was not properly explained by the assessee and he sustained the addition of Rs.1,80,000/- made by AO.
12. Aggrieved by the order of CIT(A) assessee has raised ground nos. 1 and 2 before the Tribunal.
13. We have heard the submissions of the learned counsel for the assessee, who reiterated the stand of the assessee as was put forth before CIT(A). Our attention was ITA No.1248/Kol/2012-M/s. Nopany & Sons, A.Y.2008-09 7 also drawn to the Demat account of the assessee with ICICI Bank, a copy of which is placed at page 54 of the assessee's paper book. He drew our attention to the fact that on 07.07.2006 bonus shares of 7,20,000 has been issued by M/s. Shree hanuman Sugar & Industries Ltd in favour of the assessee. Our attention was also drawn to the confirmation given by M/s. Shree hanuman Sugar & Industries Ltd with regard to the issue of bonus shares to the assessee. It was submitted by him in the light of the documentary evidence CIT(A) was not justified in this conclusion that the assessee has failed to prove that there was issue of bonus shares by M/s. Shree Hanuman Sugar & Industries Ltd. The learned DR relied on the order of CIT(A).
14. We have given a very careful consideration to the rival submissions. In our opinion the fact that the demat account with ICICI bank shows credit of 7,20,000 bonus shares of M/s. Shree Hanuman Sugar & Industries Ltd., in favour of the assessee is sufficient to establish the fact that the assessee received 7,20,000 bonus shares. It cannot be disputed that there can be no cost of acquisition of bonus shares. The CIT(A)'s conclusion that production of share of register of M/s. Shree Hanuman Sugar & Industries Ltd., and copy of annual return of M/s. Shree hanuman Sugar & Industries Ltd filed before ROC will alone establish the factum of issue of bonus shares by M/s. Shree Hanuman Sugar & Industries Ltd is not correct. We therefore hold that the assessee had received bonus shares of 7,20,000 for which there was no cost of acquisition. The shares sold by the Assessee during the previous year were original shares and not bonus shares. The cost of acquisition original shares cannot be spread over as the cost of acquisition of bonus shares and original shares as has been done by the AO. The cost of acquisition of the original shares was Rs.4.98 Ps. The shares were sold for Rs.5.75 Ps. per share, resulting in an profit of Rs.77,000/-. Only this sum ought to have been added by the AO to the total income of the Assessee as profit on sale of shares. We direct the AO accordingly to make the addition of Rs.77,000/- instead of the sum of RS.4,25,650/-.
ITA No.1248/Kol/2012-M/s. Nopany & Sons, A.Y.2008-09 815. As far as the addition of value of 18,000 shares of M/s. Shree Hanuman Sugar & Industries Ltd is concerned it has been duly explained by the assessee in the annexed reconciliation filed before CIT(A) that instead of showing receipt of bonus shares of 7,20,000, the assessee had shown owing typographical error, the receipt of 7,02,000 shares. The AO however held that the assessee failed to explain the source of fund for having purchased 18,000 shares of M/s. Shree Hanuman Sugar & Industries Ltd. And made addition of Rs.1,80,000/- to the total income of the assessee. In view of the evidence available on record that the bonus shares issued by M/s. Shree Hanuman Sugar & Industries Ltd of 7,20,000, we are of the view that the plea of the assessee that there was a typographical error in the share holding in M/s. Shree Hanuman Sugar & Industries Ltd as disclosed in the Balance Sheet has to be accepted. Consequently the addition of Rs.1,80,000/- made by AO is without any basis and the same is directed to be deleted.
16. In the result ground nos. 1 and 2 raised by the assessee are allowed.
17. As far as ground nos. 3 and 4 are concerned the same relate to disallowance made u/s 14A of the Act read with Rule 8D (2)(iii) of the Rules. It is not in dispute before us that the assessee earned dividend income of Rs.3,06,000/- and share income from a partnership firm of Rs.5,79,779/-. The AO disallowed a sum of Rs.6,68,037/- as other expenses disallowable u/s 14A of the Act r.w. Rule 8D(2)(iii). The CIT(A) confirmed the action of AO. Before us the plea of the learned counsel for the assessee was that while applying rule 8D(2)(iii), AO should consider only the investments which yielded dividend income during the previous year and not the entire investments as appearing in the balance sheet. This submission is made by the assessee keeping in view of the decision of the Tribunal rendered in the case of REI Agro Ltd. Vs DCIT in ITA NO.1331/Kol/2011 wherein it was held that the only investments yielding dividend income during the previous year are to be considered in computation of disallowance u/s 14 A read with Rule 8D of the Rules. Assessee has given a ITA No.1248/Kol/2012-M/s. Nopany & Sons, A.Y.2008-09 9 computation of disallowance to be made under Rule 8D(2)(iii) of the Rules which are as follows :-
"Applying the above in the present case the maximum disallowance u/s 14A is worked out as under :
= 0.5% of the average value of investment (yielding dividend income) = 0.5% of (Rs.1495000/- + Rs.920000/-) 2 = 0.5% of Rs.1207500/- = Rs.6,037/-"
18. The learned DR relied on the order of CIT(A).
19. After considering the rival submissions we are of the view that in the light of the decision referred to by the learned counsel for the assessee the plea of the assessee for restricting the disallowance u/s 14A of the Act is found to be justified. The AO is accordingly directed to consider the average value of investments only by considering the investments which yield tax free income during the previous year. These grounds of appeal are partly allowed.
20. As far as ground no.5 raised by the assessee is concerned the facts are as follows :
In the course of assessment proceedings the AO noticed that the value of jewellery as per the books of accounts of the assessee was Rs.47,99,054/- as on 31.03.2008. The book value of jewellery as on 31.03.2007 was Rs.42,31,144/-. The assessee was asked to explain the difference of Rs.5,63,910/- . In reply the assessee produced bill issued by one M/s. Super Scanes & System Pvt. Ltd which evidenced purchase of sovereign for a sum of Rs.5,63,910/-. The director of M/s. Super Scans & Systems Pvt. Ltd., has also given an affidavit that it had sold items of jewellery to the assessee on 31.03.2008.The AO held that the bill produced by the assessee did not have a bill number and other registration number and therefore treated the difference of Rs.5,63,910/- as not satisfactory explanation and added the said sum to the total income of the assessee.ITA No.1248/Kol/2012-M/s. Nopany & Sons, A.Y.2008-09 10
21. Before CIT(A) the assessee raised a plea that despite an affidavit and particulars of M/s. Super Scans & Systems Pvt. Ltd being available on record, the AO has drawn adverse inference without examining the concerned party and hence addition was not justified. Since the affidavit of the director of M/s. Super Scans and Systems Pvt. Ltd., was filed before CIT(A), he called for remand report from the AO. In his remand report, the AO has without examining the director submitted that the affidavit did not contain rate and weight etc of the sovereign gold. CIT(A) taking note of this remand report of the AO confirmed the action of AO.
22. Aggrieved by the order of CIT(A) assessee has raised ground no.5 before the Tribunal.
23. We have heard the rival submissions. The learned counsel for the assessee reiterated the submissions made before CIT(A). The learned DR relied on the order of CIT(A). We are of the view that additions sustained by CIT(A) deserves to be deleted. Admittedly director of M.s. Super Scans & Systems Pvt. Ltd had filed an affidavit confirming the transactions. AO did not make any attempt to examine the deponent of the affidavit and has drawn inference purely on assumption and surmises. In the light of the documentary evidence, we are of the view that the addition cannot be made. We may also add that since this item has already been recorded in the books of account no addition whatsoever can be made u/s 69 of the Act or any other provision of the act. The addition so made is therefore deleted..
24. In the result the appeal of the assessee is partly allowed.
Order pronounced in the Court on 11.05.2016.
Sd/- Sd/-
[M.Balaganesh ] [ N.V.Vasudevan ]
Accountant Member Judicial Member
Dated : 11.05.2016.
[RG PS]
ITA No.1248/Kol/2012-M/s. Nopany & Sons, A.Y.2008-09
11
Copy of the order forwarded to:
1.M/s. Nopany & Sons, C/o Salarpuria Jajodia & Co., 7, Chittaranjan Avenue, Kolkata-700072.
2. I.T.O., Ward-56(4), Kolkata.
3. CIT(A)-XXXVI, Kolkata 4. CIT-XXI, Kolkata.
5. CIT(DR), Kolkata Benches, Kolkata.
True Copy By order, Asst. Registrar, ITAT, Kolkata Benches ITA No.1248/Kol/2012-M/s. Nopany & Sons, A.Y.2008-09