Income Tax Appellate Tribunal - Mumbai
Axa World Funds A/C. Axa World ... vs Assessee on 20 March, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES, 'A', MUMBAI
BEFORE SHRI DINESH KUMAR AGARWAL (JM) AND SHRI N.K.BILLAIYA (AM)
ITA No.8462/Mum/2011
(Assessment Year:2008-09)
AXA World Funds A/c Deputy Director of Income
AXA World Funds- Tax,
Talents Brick (International Taxation)-1(1),
C/o Deutsche Bank AG V/s 1st Floor,
Block B-1, Scindia House,
Nirlon Knowledge Park, N.M.Road,
Off Western Express Highway, Ballard Pier,
Goregaon (E), Mumbai-400038.
Mumbai-400063
PAN: AAFCA7456C
APPELLANT RESPONDENT
ITA No.8463/Mum/2011
(Assessment Year:2008-09)
AXA World Funds A/c Deputy Director of Income
AXA World Funds- Tax,
Aedificandi Global (International Taxation)-1(1),
C/o Deutsche Bank AG V/s 1st Floor,
Block B-1, Scindia House,
Nirlon Knowledge Park, N.M.Road,
Off Western Express Highway, Ballard Pier,
Goregaon (E), Mumbai-400038.
Mumbai-400063
PAN: AAGCA2818K
APPELLANT RESPONDENT
ITA No.8462 to 8464/Mum/ 2011
2 (Assessment Year:2008-09)
ITA No.8464/Mum/2011
(Assessment Year:2008-09)
AXA World Funds A/c Deputy Director of Income
AXA World Funds- Tax,
Talents Absolute, (International Taxation)-1(1),
C/o Deutsche Bank AG V/s 1st Floor,
Block B-1, Scindia House,
Nirlon Knowledge Park, N.M.Road,
Off Western Express Highway, Ballard Pier,
Goregaon (E), Mumbai-400038.
Mumbai-400063
PAN: AAFCA7452G
APPELLANT RESPONDENT
Date of Hearing : 20.3.2012
Date of Pronouncement : 29.3.2012
Appellant by : Shri Vikas Srivastava and
Ms.Akansha Aggarwal
Respondent by : Mrs.Usha Nair
ORDER
PER DINESH KUMAR AGARWAL (JM) These appeals preferred by the respective assessees are directed against the separate orders dated 11.10.2011, 21.12.2010 and 11.10.2011 passed by the AO u/s 143(3) read with section 144C (13) of the Income Tax Act, 1961 (the Act) for the assessment year 2008-09. Since the facts are identical and issue involved is common all these three appeals are disposed of by this common order for the sake of conveyances.
ITA No.8462 to 8464/Mum/ 2011 3 (Assessment Year:2008-09)
2. Briefly stated the undisputed facts, extracted from AXA World Funds A/c AXA World Funds-Talents Brick in ITA No.8462/Mum/2011 are as under (pages 4 and 5 of Directions u/s 144C(5) dated 23.9.2011):
"5. The relevant facts as discussed in the draft assessment order are as under:
i) The assessee has filed its return of income for A.Y. 2008-09 on 22.9.2008 declaring income of Rs.23,54,362/-. The case was taken up for scrutiny. The assessee is a non resident corporate entity registered with Securities & Exchange Board of India (SEBI) as a sub account under the FII, AXA World-Funds for carrying out investment activity in Indian capital markets.
ii) In the return of income, the assessee has shown both long term & short term capital gains on sale of securities, and dividend income.
iii) The AO found from the data base of the department (AIR data) received from Bombay Stock Exchange and the Brokers that the assessee has entered into various share trading transactions during the F.Y. 2007-08. The same is extracted and copy given to the assessee during the scrutiny of the case with a request to reconcile the same with the return of income, its statements of income filed and as to how the transactions shown in the AIR data are reflected into its accounts.
iv) The AO has furnished a soft copy of the Data in MS Excel Format, and also details like the date of trade, trade time, scrip code, scrip name, trade No. & value, trade quantity, trade rate, buy / sell order No. broker code, client code, sub-broker code, sub client code, buy / sell terminal ID in respect of the transactions found in the assessee's name.
v) However, the assessee could not reconcile the data nor furnish any evidence to show that the transactions reflected in the AIR data provided to them is either reflected in the accounts or does not belong to them.
ITA No.8462 to 8464/Mum/ 2011 4 (Assessment Year:2008-09)
vi) The assessee instead of explaining / reconciling data has questioned the authenticity of the data. It was claimed that they are not required to have physical contract notes issued by the brokers and therefore the same cannot be furnished.
vii) The AO however, did not accept the assessee's claim / contention. As the assessee has directly entered into transactions with the broker and the custodian is only a clearing house and therefore the contention of the assessee that the custodian (Stock Exchange) is not furnishing the data of transactions is not correct. The AO is of the view that details of transactions entered into by the assessee must be available with them, and if not the particulars of income and expenditure shown in the return are not reliable.
viii) In the assessee's case, the data is obtained from the details of transactions furnished by broker to BSE and contains the name & PAN of the assessee and complete details of transactions entered into by the assessee. Not only did the assessee fail to produce reconciliation of the data but also refused to furnish the broker's note, observed (sic by) the AO.
ix) As the assessee has not explained the investment in shares appearing in the AIR data, AO has proceeded to treat the total value of transactions which were not, reconciled or explained by the assessee as its unexplained investments u/s.69 of the Act totaling Rs.16,51,49,573/- in respect of 10 transactions as "Income from Other Sources" and taxed it at 40%."
3. The assessee has filed an application in Form No.35A alongwith the objections u/s 144C of the Act on 31.01.2011 against the income proposed by the AO in his draft assessment order dated 21.12.2010. During the course of hearing before the DRP, the assessee furnished the copy of bank account with Deutsche Bank and confirmation from various brokers for ITA No.8462 to 8464/Mum/ 2011 5 (Assessment Year:2008-09) executing the trade during the period from 1.4.2007 to 31.3.2008 and stated that the assessee has only one bank account through which the investment activities are carried out. The DRP forwarded the same to the assessing officer calling for specific comments and report. The DRP after considering the remand report of the AO and the assessee's submissions, has observed as under (pages 8 and 9 of Directions u/s 144C(5) dated 23.9.2011):
"7.1. The DRP has considered the facts of the case, AO's observations and findings, assessee's objections and submissions thereof and the remand report of the AO. DRP's findings and directions on the issue are as under:
i) The assessee in spite of sufficient opportunities given by the DRP and again by the AO during the remand proceedings was unable to reconcile the AIR data reflecting the transactions of purchase and sale of scrips in its name, made on NSE / BSE, with the return of income and supporting documents filed. The assessee should have furnished the data (provided by the AO), to its broker in respect of such transactions which are not appearing in the books of accounts or electronic contract notes, seeking clarifications and reasons for such transactions being reflected in its accounts with the broker. The assessee has made no efforts in that direction at any time. When authentic data is provided with full details including a soft copy by the AO, the onus is on the assessee to prove that the transactions reflected in the AIR data do not belong to them and belong to someone else.
ii) AO has furnished the PAN, name of the person in whose name trading in securities took place and all the relevant details to the assessee but assessee has made no efforts to reconcile the data with its books of accounts and return of income.
ITA No.8462 to 8464/Mum/ 2011 6 (Assessment Year:2008-09)
iii) In a similar case, it was found that the transactions by FII are done and recorded as under by the brokers and exchange.
"FII / sub-accounts are permitted to execute the trades at the order entry level using a single client code for a group of sub-account and then, later at the end of the day, allocate the total traded quantity for each scrip to individual sub-accounts using their respective Custodian Participant Code (CP Code). It has come to notice that as per the current market practice, brokers (DSP Merrill Lynch Limited and Citi Group Global Markets India Pvt. Ltd.) acting on behalf of FIIs are still entering the 'Client EDs' (and not the UCC) of the parent FIIs at the order entry level and subsequently, the trades executed using the Client ID of the parent FIIs are allocated to the individual sub-
accounts of the FIIs using their respective CP Codes. This practice has been confirmed by the BSE during the enquiry of the other case u/s. 133(6)"
iv) In view of the above practice adopted by the brokers as mentioned above, it is only the broker, who could have given the details of real purchaser/seller of the shares appearing in the assessee's account as communicated by BSE/NSE in the AIR Data furnished to the Income-tax department. However, the assessee has made no effort to make a complete verification of the data provided to him by the AO. Failure on the part of the assessee to do so, had led to the present situation where 10 transactions which have been treated as unexplained / undisclosed investments u/s.69 by the AO in the assessment order, remain unreconciled and unexplained till date.
v) When other tax payers similarly placed are able to make complete verification and furnish reconciliation before the AO or after assessment during the hearing before the DRP, there is no reason or justification for the assessee not being able to do so, with the result that the transactions which are treated as unexplained investments of the assessee by AO continue to remain so even now.
vi) The AO reported in his remand report dated 22.9.2011 that in spite of further opportunities given, ITA No.8462 to 8464/Mum/ 2011
7 (Assessment Year:2008-09) the assessee is unable to obtain confirmation from its brokers (DSP Merrill Lynch Limited and Citi Group Global Markets India Pvt. Ltd.) to show that the trades / transactions which are considered by AO as unexplained investment in fact do not belong to the assessee and belong to other clients and explain the reason that led to present situation.
vii) As the assessee has neither submitted the reconciliation of the transactions / trades which are considered as unexplained investment by AO in the assessment order, nor reconciliation is found possible from the data and details submitted by assessee before the AO & DRP, DRP is of the view that no interference as such is called for in the addition proposed by AO of Rs.16,51,49,573/- treating the unreconciled transactions as unexplained investments u/s.69 of the Act......." The DRP while rejecting the objections raised by the assessee directed the AO to verify the claim of the assessee with regard to the levy of interest u/s 234A, 234B as per law. Accordingly, the AO passed the impugned assessment order at a total income of Rs.16,90,64,826/- including the addition of undisclosed investment u/s 69 Rs.16,51,49,573/- vide order dated 11.10.2011 passed u/s 143 read with section 144C(13) of the Act.
4. Being aggrieved by the above order of the AO, the assessee is in appeal before us taking following grounds of appeal :
"1. The learned Deputy Director of Income Tax (International Taxation) - 1(1), Mumbai (hereinafter referred as DDIT) erred in confirming the addition of Rs.165,149,573/- as undisclosed income under section ITA No.8462 to 8464/Mum/ 2011 8 (Assessment Year:2008-09) 69 of the Income tax Act, 1961 ('the Act') under the head Income from Other Sources' ignoring the fact that your appellant neither owned the impugned shares nor did it sell those shares.
2. The learned DDIT ought to have considered only the initial investment and not the gross sale value for addition under section 69 of the Act and the profits made on sale should be taxed under the head 'Capital Gains'.
3. The learned DDIT erred in making the addition of Rs.16,51,49,573/- in contravention of the principles of natural justice.
4. The learned DDIT erred in not providing complete details as requested by your appellant for the purpose of reconciling the data as per the Central Information Bureau ('CIB') report with the return of income.
5. The learned DDIT ought to have applied the rate of 10% as provided in Section 115AD read with Section 111A of the Act on capital gains as against 40% on the entire transaction value of Rs.16,51,49,573/-.
6. The learned DDIT erred in not granting credit for advance tax paid of Rs.1,71,760/- without assigning any reasons for the same.
7. The learned DDIT erred in levying interest tinder section 234B of Rs.2,90,46,836/-"
5. At the time of hearing, the ld. Counsel for the assessee, at the outset, submits that the whole addition was made on the ground that the assessee could not reconcile the transactions which were considered by the AO as unexplained investments. He further submits that post the assessment order, the assessee has been able to obtain from the respective brokers letters confirming the practice adopted by ITA No.8462 to 8464/Mum/ 2011 9 (Assessment Year:2008-09) the said brokers as well as the details of pre and post allocation of the trades executed by them on behalf of the Foreign Instrumental Investment (FII). Accordingly, the assessee has been successful in identifying the real sub- account to whom the transactions mentioned in the CIB report were allocated and thus, has been able to reconcile the unconcealed transactions which had been treated as unexplained investment by the AO. In the light of the above, he submits that the said additional evidence appearing at pages 1 to 93 of the assessee's paper book may be admitted under Rule 29 of the Income Tax (Appellate Tribunal ) Rules, 1963. He further submits that in view of the above the additional evidence filed before the Tribunal he has no objection, if the issue is set aside to the file of the AO to examine and consider the same which was not objected to by the ld. DR.
6. We have carefully considered the submissions of the rival parties and perused the material available on record. We find that there is no dispute that during the assessment proceedings or the proceedings before the DRP the assessee has not filed any reconciliation of the transactions despite sufficient opportunity was provided to the assessee. However, before the Tribunal, the assessee has filed such details ITA No.8462 to 8464/Mum/ 2011 10 (Assessment Year:2008-09) appearing at pages 1 to 93 of the assessee's paper book along with the application under Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963, seeking permission to file additional evidence. In the absence of any objection raised by the Revenue and considering the totality of the facts and circumstances of the case and also keeping in view that the additional evidence submitted by the assessee at this stage goes to the root of the matter, we in the interests of justice, admit the additional evidence filed by the assessee. Since the said additional evidence was not filed before the AO or DRP, therefore, we consider it fair and reasonable that the matter pertaining to all the grounds should go back to the file of the AO to examine the same afresh after considering the additional evidence filed by the assessee and according to law after providing reasonable opportunity of being heard to the assessee. The grounds taken by the assessee, are therefore, partly allowed for statistical purposes. AXA World Funds A/c AXA World Funds-Aedificandi Global, ITA Nos.8463/Mum/2011, A.Y.2008-09 And AXA World Funds A/c AXA World Funds- Talents Absolute, ITA Nos.8464/Mum/2011, A.Y.2008-09.
7. At the time of hearing both parties have agreed that the facts of the issues raised in these appeals are similar to the ITA No.8462 to 8464/Mum/ 2011 11 (Assessment Year:2008-09) facts of the case of AXA World Funds A/c AXA World Funds- Talents Brick in ITA No.8462/Mum/2011 for assessment year 2008-09, therefore, the plea taken by them in the said appeal for the said assessment year may be considered while deciding the above appeals.
8. We have carefully considered the submissions of the rival parties and perused the material available on record. In the absence of any contrary material placed on record by the Revenue, we direct the AO to follow our findings recorded in paragraph 6 of this order. We hold and order accordingly. The grounds taken by the assessees are, therefore, partly allowed for statistical purposes.
9. In the result, the assessees' appeals stand partly allowed for statistical purposes.
Order pronounced in the open court on 29th Mar., 2012.
Sd sd
(N.K.BILLAIYA) (DINESH KUMAR AGARWAL)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, 29th March, 2012
SRL:
ITA No.8462 to 8464/Mum/ 2011
12 (Assessment Year:2008-09)
Copy to:
1. Appellant
2. Respondent
3. CIT Concerned
4. CIT(A) concerned
5. DR concerned Bench
6. Guard file.
BY ORDER
True copy
ASSTT. REGISTRAR,
ITAT, MUMBAI