Harish Chandra Gutt & Co. Pvt. Ltd., ... vs Assessee

सर्वश्री आय.सी.शभमव, रेखम सदस्म एवुं श्री वर्र्ेक र्भमव, न्ममयमक सदस्म BEFORE : SHRI R.C.SHARMA, AM & SHRI VIVEK VARMA, JM

आमकय अऩीर सं./ITA No.2622/Mum/2012 ( नििाारण वषा / Assessment Year :2008-09) Harish Chandra Gutt & Co. Vs. ITO, 4(1)(2), Mumbai Pvt. Ltd., Bank of Maharashtra Building, 4th Floor, 45/47, Mumbai Samachar Marg, Fort, Mumbai-400001 स्थममी रेखम सं ./ जीआइआय सं ./ PAN/GIR No. : AAACH 2825 B (अऩीरमथी /Appellant) .. (प्रत्मथी / Respondent)

यनधमवरयती की ओर से /Assessee by : Shri J.P.Bairagra laयमजस्र् की ओर से /Revenue by : Shri Jeetendra Kumar

सुनर्मई की तमयीख / Date of Hearing : 07/01/2015 घोषणम की तमयीख/Date of Pronouncement : 22/04/2015 आदे श / O R D E R

PER R.C.SHARMA (A.M.) :

This appeal is filed by the assessee against the order of CIT(A),

dated 21-2-2012 for assessment year 2008-09 in the matter of order

passed u/s.143(3) of the I.T.Act, wherein following grounds have been

raised by the assessee :-

"Ground No.1: Disallowance of Rs.7,57,600/- :

1. On the facts and in the circumstances of the case and in law, the CIT(A) erred in confirming the action of the Income Tax Officer, 4(1)(2), Mumbai ("the AO") of disallowing a sum of Rs. 7,57,600/-, being an expenditure, in the nature of compensation, incurred towards sister concern for executing transactions on the Bombay Stock Exchange for clients of such sister concern on the ground that 2 ITA No.2622/12

the Appellant has not proved as to whether such compensation was offered to tax by the sister concern in its return of income.

2. The Appellant prays that it be held that the action of the lower authorities be deleted and the claim made by the Appellant in its return of income be allowed.

Ground No.2: Disallowance under section 40 (a) (ia) - Rs.8,05,864/-

1. On the facts and in the circumstances of the case and in law, the (IT (A) erred in confirming the action of the AO of disallowing Rs. 805,864/- under section 40 (a) (i a) of the Act.

2. The Appellant prays that it be held that the action of the lower authorities be deleted.

Ground No.3: Disallowance of repairs and maintenance expenses - Rs. 4,36,848/- :

1. On the facts and in the circumstances of the case and in law, the CIT(A) erred in giving direction to the AO to allow the expenditure subject to perusal of supporting documents though the same were made available to him in the course of the appellate proceedings.

2. The Appellant prays that repairs and maintenance expenditure as claimed in the return of income be allowed to it.

Ground No.4: Disallowance of short-term capital loss- Rs.155.41.499/-

1. On the facts and in the circumstances of the case and in law, the CIT(A) erred in confirming the action of the AO of making disallowance of Rs.155,41,499/-, being loss on trading in derivatives transactions, by treating the same as bogus.

In upholding that the disallowance of loss of Rs.1,55,41,499/-, as bogus, the CIT(A) has further erred in rejecting the appellant's in respect of non grant of adequate opportunity.

3. The Appellant prays that it be held that the action of the lower authorities be deleted and the claim of the Appellant as made in the return of income be allowed.

Without prejudice to above

If at all the action of the lower authorities be upheld then, in that case, the transactions of trading in derivatives be treated as off market transactions and loss on such transactions be allowed to the Appellant.

Without prejudice to grant of 4 above

Ground No.5: Trading in derivative-whether speculative transaction:

3 ITA No.2622/12 1. On the facts and in the circumstances of the case and in law the CIT(A) erred in dismissing the ground raised by the Appellant as to whether the transaction of trading in derivatives is speculative transaction without giving any finding to that effect. Ground No.6: General"

2. Rival contentions have been heard and record perused. Facts in

brief are that assessee is a share broker. During the course of scrutiny

assessment the AO disallowed assessee's claim of short term capital loss

on sale of shares by treating the same as bogus. The AO also disallowed

compensation paid to sister concern amounting to Rs.7,57,600/-, repair

and maintenance expenses of Rs.4,36,848/-, Rs.10,44,594/- u/s.43B etc.

By the impugned order, the CIT(A) confirmed the disallowance of

compensation paid to sister concern Rs.805,864/-, disallowance made

u/s.40(a)(ia), maintenance expenses and short term capital loss. Against

which assessee is in further appeal before us.

3. We have considered rival contentions, carefully gone through the

orders of the authorities below and found that assessee is a broker, who

deals on the Bombay Stock Exchange only. HSSBL is registered as a

share brokers with NSE and executes transactions on the National Stock

Exchange only. Therefore if any of the clients of HSSBL want to execute

transactions on the Bombay Stock Exchange, HSSBL approaches the

assessee to execute them on behalf of their clients on the Bombay Stock

Exchange and it is vice versa when the assessee receives orders for

execution on the National Stock Exchange. In light of the services availed

by the assessee from HSSBL a compensation of Rs.7,57,600 lakhs was 4 ITA No.2622/12

paid to them. The AO disallowed the compensation paid to M/s SCG

Stock & Share Brokers Ltd.(HSSBL), Rs.757,600/- after having discussion

at para 6, on the plea that consideration was paid as compensation to the

sister concern and not as a broker. By stating that assessee was not able

to furnish its books of account for verification, AO disallowed the same. By

the impugned order, the CIT(A) confirmed the action of the AO by

observing at para 3 that assessee has not produced copy of the return of

income filed by sister concern (HSSBL) to ascertain as to whether the

income has been offered to tax. We found that assessee has submitted its

computation of total income, balance sheet for the relevant assessment

year along with details of brokerage received by HCGSSL from which it is

clear that the sister concern HCGSSL declared the said amount in their

profit and loss account which is placed at page 511 to 533 of the paper

book. Even the CIT(A) has also observed that assessee has produced the

particulars of the transaction and the basis on which the compensation of

Rs.7,57,600/- was paid to the said HSSBL. We found that the payment

was made out of commercial expediency and for the purpose of business

expenditure. The details of brokerage received by the HCGSSL filed

before the lower authorities indicates that the sister concern has already

offered the said amount for taxation. Accordingly, we direct the AO to

delete the disallowance.

4. The AO has also disallowed demat transaction charges of

Rs.2,28,815/-, general charges-BSE Rs.4,31,395/-, transaction charges-

BSE of Rs.57,452/- totaling to Rs.7,17,662/-. We found that the audit fees 5 ITA No.2622/12

of Rs.38,202/- was disallowed as no TDS was deducted therefrom. We

confirm the action of the AO for the disallowance so made.

5. The AO also disallowed professional fees of Rs.50,000/-. The

CIT(A) has dealt with the issue in para 4.9 and held that professional fees

paid on 7-6-2007 on which TDS deducted and paid on 30-7-2008 i.e.

before the due date of filing the return of income. However, by following

the Special Bench decision in the case of Bharati Shipyard Ltd., 141

TTJ 129, he confirmed the disallowance.

6. We have considered rival contentions and found that payment of

professional fees was disallowed on the plea that no tax has been

deducted at source. We found that assessee has deducted and paid tax

on the professional fees on 30-7-2008, which was before the due date of

filing return of income. In view of the decision of Hon'ble Kolkata High

Court in the case of Virgin Creation, reported in [TS-810-HC-

2011(CAL)] and the decision of Delhi High Court in the case of Oracle

Software India Ltd., (2007) 293 ITR 353, amendment made in Section

40(a)(ia) by the Finance Act, 2010, which provides for deductibility of

expenditure if TDS paid within return filing due date, amendment is

curative in nature, therefore, should be given retrospective operation.

Accordingly, we direct the AO to verify the date of actual payment of TDS

and if he finds that the same was paid before the last date of filing of the

return, he should delete the disallowance so made.

7. The AO has disallowed expenditure on repairs and maintenance by

having discussion at para 7. The disallowance was made on the plea that 6 ITA No.2622/12

assessee has not provided details of TDS deducted u/s.194C/194J. By

the impugned order, the CIT(A) directed the AO to allow the said

expenditure after perusal of the bills along with the log book with

reference to the provisions of Section 40(a)(ia) of the I.T.Act. We do not

find any infirmity in this direction of CIT(A).

8. The AO has also disallowed Rs.1,55,41,499/- being loss on trading

in derivative transactions by treating the same as bogus. The AO has

dealt this issue exhaustively in para 4 of his order. The AO has recorded

the statement u/s.131 of Ms. Varsha Vaidya director of the assessee

company on 14-12-2010. He has also recorded the statement of

Managing Director of the assessee company Mr. Arvind Bhinde on 15-12-

2010 and also recorded the statement of Mr. Anil Agarwal the Proprietor

of M/s Trishla Commodities, the MCX Broker through whom transactions

has been entered into by the assessee. The CIT(A) has called for the

remand report from the AO which is submitted by the AO on 24-01-2012.

The assessee company has filed letter dated 14-2-2012 during the course

of the appellate proceedings in rebuttal to the remand report of the AO.

However, the CIT(A) has confirmed the disallowance of short term capital

loss incurred on derivative transactions by upholding the action of the AO

to the effect that the loss so incurred was bogus.

9. We have considered rival contentions and found that assessee has

surrendered the shares of Bombay Stock Exchange under the buyback

offer and earned long term capital gain of Rs.1,55,99,087/-. At the very

same time assessee has entered into transaction of purchase and sale of 7 ITA No.2622/12

derivatives through Trishla a Prop. Concern of Anil Agarwal and incurred

loss of Rs.1,55,41,449/- and claimed it as short term capital loss and

setted off against the long term capital gains of Rs.1,55,99,087/-. The

lower authorities have declined the claim of observing that from the

intimation received from MCX, the assessee was not registered as client

with M/s Trishla Commodities. As per ld. AR since the transactions has

been done off market therefore the same is not reported to MCX, the

assessee was not registered as client with M/s Trishla Commodities. The

AO has also observed that Ms. Varsha Vaidya director of the assessee

company has confirmed that the transactions entered into with Trishla on

which assessee has incurred a loss are bogus. The contention of the

learned AR was that the AO has not considered the Question 20 and its

answer which was given by Ms. Varsha in her statement recorded u/s.131

which proves in what context she agrees that the said transactions are

bogus. Question No.20 and its answer given by Varsha are reproduced as

under :-

"Q.20 As stated in answer to Q.no.19 that the transaction reflected in the contract notes issued by M/s Trishla Commodities a member of M CX, are genuine. Now I am showing you letter dated

10.11.2010 issued fry MCX where it is categorically stated that your company M/s Harishchandra Gutt & Co. Pvt Ltd (PAN:

A4.ACH2825B) was not registered as client with M/s. Trishla Commodities (CMID-12865) during F Y. 2007-08 and no trades were recorded in client code «H001" ,please go through this and offer your comments

Answer: Sir; when MCX confirms that our company was not registered as client during the F. y'2007-08 with M/s. Trishla Commodities and the trades are reflected in our company's name then the contract' notes issued by M/s. Trishla Commodities in our company's name are totally bogus.

8 ITA No.2622/12 10. With regard to the AO's reliance on the answer to question No.22

by Mr. Arvind Bhinde, the contention of the learned AR was that Mr.

Arvind Bhide has confirmed this on account of the facts that if the

transaction are not through MCX means they are bogus however AO has

not quoted Question No. 21 and its reply given by Mr. Arvind Bhide which

is as under:

"Q.21 Now I am showing you the letter dated 10.11.2010 issued by MCX, wherein it is critically stated that you were not registered as client of M/ s. Trishla Commodities in MCX and the transaction for which contract notes were issued by M/ s. Trishla Commodities have not entered in M CX Please offer your comments.

Ans- I have nothing to explain. However I am surprised to see the findings of the MCX ."

This reply is given by Mr. Bhide as he also came to know for the 1st time

that transaction entered by the company was off market and not through

MCX. He was also of the opinion that the transaction should be entered

through MCX only and if it is not entered through MCX then it will be

bogus.

''Q.22 It means the transaction entered into through M/s. Trishla Commodities, as claimed, are bogus?

Ans- Yes, It can be said like that if MCX confirms the same.

''Q.23 Please tell whether at any instance, you have received any amount from M/s Trishla Commodities.?

Ans- No, I have never received any amount from that concern during the course of trade."

11. It was the contention of ld. AR that the AO not considered the

answer to Question No. 14 and 19 which are as under: 9 ITA No.2622/12

"Q.14. Now I am showing you the copies of bills as well as contract notes issued by M/ s. T rishla Commodities. Please confirm about the genuineness of the same. Whether these bills/ contract notes were issue by your proprietary concern?

Ans- Yes" these bills and contract notes are issued by my proprietary concern and signed by Shri. Ravindra Jain" one of my authorized signatory. Further to enforce that this business was looked after by myself, Shri. Devendra Jain and Shri. Ravindra Jain.

(Q.19 As stated, you have provided these bills and contract notes on bogus transaction on . communication basis. Please tell now the entire amount of transaction effects with said company), were credited in your account. If it was a commission based bogus transaction, only commission amount should have been credited in your account?

Ans- Sir" I cannot say anything about it since Shri. Devendra Jain was handling these matters and since he is no more now only Shri. Arvind Bhide, Director of that company may explain these properties."

12. Considering the entire material placed on record vis-à-vis the

questions and answers given by the assessee as well as by Directors

of M/s Trishla Commodities, answers given during the course of cross

verification, we found that assessee was not registered in Multi

Commodities exchange as client of Trishla during the year under

consideration. The transaction entered by the assessee was off

market, wherein registration with MCX was not required. As per the

bills, copy of the account of derivatives, bank statement evidencing the

payment, we hold that transaction was off market and speculative in

nature. This conclusion is supported by the observation of the AO at

page 14 para 4.8, which reads as under :-

10 ITA No.2622/12

"4.8 Further, without prejudice to the above, it can be seen from the details submitted as well as answer given to Q.no.-24 above, wherein the assessee itself has admitted that it has never taken possession of goods traded in commodity market through M/s Trishla Commodities; accordingly, in no way it can be said that it was a short term capital loss and contrary to the assessee's claim, as per Section 43(5) of the Act, it shall be a speculation loss which also is not allowable for setting off against any other income except against profits and gains, if any, of another speculation business as per provisions of Section 73(1) of the Act."

13. In view of the above, we hold that the loss so incurred was

speculative loss, which is not eligible for set off against the long term

capital gains declared by assessee. However, such speculation loss is

eligible to be carried forward u/s.73(1) to be set up against speculation

profit only in the subsequent year as per provisions of law. We direct

accordingly.

14. In the result, appeal of the assessee is allowed in part.

Order pronounced in the open court on this 22nd April, 2015.

Sd/- Sd/- (वर्र्ेक र्भमव,) (आय.सी.शभमव) (VIVEK VARMA) (R.C.SHARMA) न्यानयक सदस्य / JUDICIAL MEMBER ऱेखा सदस्य / ACCOUNTANT MEMBER भुंफई Mumbai; ददनमंक Dated 22/04/2015 प्र.कु.मभ/pkm, यन.स/ PS

आदे श की प्रनिलऱपप अग्रेपषि/Copy of the Order forwarded to :

1. अऩीरमथी / The Appellant प्रत्मथी / The Respondent. आदे शािसार/ BY ORDER,

2.

3. आमकय आमुक्त(अऩीर) / The CIT(A), Mumbai.

4. आमकय आमुक्त / CIT

5. वर्बमगीम प्रयतयनधध, आमकय अऩीरीम अधधकयण, भुंफई / DR, ITAT, Mumbai उप/सहायक पुंजीकार

6. गमर्व पमईर / Guard file. (Asstt. Registrar) आयकर अपीऱीय अधिकरण, भुंफई /

सत्ममवऩत प्रयत //True Copy// ITAT, Mumbai