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15 ITA 567/JP/2019_ M/s Agencies Rajasthan Pvt. Ltd. Vs. ITO

13. In view of above documentary evidence, we found that the lower authorities completely failed to rebut evidences and explanations so filed by these agencies so as to conclude that it was a colourable device or any connivance with the companies to evade tax by booking loss.

14. With regard to allegation of the A.O. that no proper security was furnished for taking a loan of Rs. 50.00 crores from M/s IIFL, we found that as a security of loan the assessee has pledged (lien) the units so purchased. It is true that IIFL provided funds to the assessee but IIFL is neither the investment consultant of the assessee nor provided the funds to specifically invest in JMF-MF. The IIFL entered into the transaction in a normal course of business and received the interest. It is pertinent to note that this is not the ordinary business loan but this is a margin finance facility provided by the broker M/s IIFL. This is the common practice in the stock market that the brokers provide the margin facility to its customers and get interest in return. In the ordinary course every broker provides margin finance of 15 times and some broker are providing margin even up to 48 times. Such margin is provided to the customer to finance his trading/investment and the broker gets the interest if the investor is carrying forward the position next day. The margin facility so provided by the IIFL was to trade / invest by paying 11.70% p.a. to IIFL however, the funds were not specifically provided to 16 ITA 567/JP/2019_ M/s Agencies Rajasthan Pvt. Ltd. Vs. ITO invest in JMF-MF. Hence allegation of the AO that no security except the equitable mortgage of the units purchased (from such funds), is a mere suspicion and is an allegation premature in nature.

15. The sanction letter of IIFL itself shows the security towards loan as under:

10. Diversified Securities approved and acceptable by IIFL. The List of acceptable security can change anytime at the sole discretion of IIFL.

12. The Borrower agrees and covenant that the Borrower being the promoter of company shall disclose to the company as well as the Exchanges for pledging of the shares of the company as security for the loan taken by them from the lender within 7 days of the creation of pledge in favour of IIFL and shall provide IIFL with the confirmation of disclosure. The Borrower further agrees that the same will be considered as one of the events of defaults, in the events of default, they fail to do so."

It is thus, clear that the assessee has pledged (lien) his units as security for the loan."

16. The allegation of the A.O. that the assessee has concocted a story beautifully in connivance with the JMF-MF and IIFL attempted to prepare a colorable device just to set off the capital gains earned on sale of immovable property and also by claiming exemption on the dividend earned just within three to five months is baseless in so far as the IIFL has got nothing to do either with the present assessee or with the JM 17 ITA 567/JP/2019_ M/s Agencies Rajasthan Pvt. Ltd. Vs. ITO Financial or with the tax affairs of the present assessee i.e. neither for nor against the Income Tax Department. It was a commercial deal of getting a loan based on agreement between the parties i.e. the lender IIFL and the borrower assessee. Assuming it was so and IIFL knew the fact of declaration of high dividend, then why IIFL should have sanctioned a huge loan to the assessee and instead IIFL itself could have done so and earned substantially.

54. The ld. CIT(A) also alleged that the assessee used the services of IIFL only for particular transactions also, the assessee otherwise is a small investor or does not invest large sum in other mutual funds nor has substantial income from such investment. In this regard we observe that it was only a presumption of the CIT(A). From the record we found that the assessee did not use the services of IIFL only for one particular transaction but in the past as also in the later years including the current year, the assessee has been using the services of IIFL in one way or other. The ld. CIT(A) also alleged that the IIFL has already been proved as indulging in providing bogus capital gains/loss etc. On the basis of all these facts discussed above it is clear that the huge dividend which is 48 ITA 567/JP/2019_ M/s Agencies Rajasthan Pvt. Ltd. Vs. ITO exempt under section 10 was earned by the assessee within a very short period of time by investing in a mutual fund whose fundamentals, did not support such a huge dividend. In this regard we observe that this allegation of the ld. CIT(A) is factually incorrect. There is no iota of evidence brought by the AO or CIT(A) on record to prove IIFL as indulging in providing bogus capital gain/losses etc. In any case, at least in context of the assessee there is no such evidence referred to or whispered by the authorities below even remotely. Such an allegation is nothing more than a suspicion. We found that similar allegations were also raised by the revenue before the Hon'ble Supreme Court in the case of Walfort Share (supra) but rejected by the Hon'ble Supreme Court.