TaxTMI 
TaxTMI 
2016 (1) TMI 447
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....ges, new issue expenses while computing profit from investment in shares. By the impugned order, the ld. CIT(A) confirmed both the additions against which the assessee is in further appeal before us. 3. From the record we found that the A.O. has disallowed De-mat charges which are as under:- A.Y. Amount 2004-05 Rs.1,26,688/- 2005-06 Rs. 3,06,942/- 2006-07 Rs.6,07,564/- The A.O. has taken a stand that since the expenses incurred by the assessee are for the purpose of earning illegal income, the same are subjected to disallowances. It is stated that the assessee was making multiple applications in contravention of the rules and was manipulating the allotment of shares in IPO and therefore, the expenses pertaining to such illegal activity cannot be allowed as business expenditure. On the other hand, the assessee has relied upon the following decisions:- "reliance is placed on the decision of Honble Supreme Court in Maddi "Venkatraman and Co. P.L. vs. CIT 229 ITR 534 wherein the Hon'ble Supreme Court ruled that where the entire business of the assessee is illegal and that the income is sought to be taxed by the ITO then the expenditure incurred in the illegal activi....
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....er to the assessee asking the assessee to clear the dues payable by the assessee failing which Court action was threatened by them. The AO has added Rs. 47,53,110/- to the income of the assessee by stating that since M/s Viraj Investments has written off the amount in his books of account it has to be income in the case of the assessee as he obtained the benefits accruing to him. By the impugned order the CIT(A) confirmed the AO's action against which assessee is in furhter appeal before us. 8. We have considered the rival contentions and found that during the year the assessee has not written off the amount payable to M/s Viraj Investments and further more M/s Viraj Investments has also wrote letter to the assessee asking repayment of dues payable by the assessee and failing which court action was threatened by them. Under these circumstances, mere on a plea that M/s Viraj Investment written off the amount in its books of account will not empower the A.O. to add the income in assessee's hands unless it is proved that assessee is not going to pay the amount. In the interest of justice and fair play, we restore this issue to the file of the A.O. to verify the actual payment made by....
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.... 7.4 It is clear from the facts of the case and the evidences gathered that the basic incentive for the financiers to provide funds to the appellant to make a large number of applications during IPOs was in the nature of a commitment to transfer of shares by the appellant at IPO issue price itself. The confirmation letters filed also have indicated that the issue price was taken as the basis for the purpose of arriving at capital gains, if any, as and when such transferred shares are sold by transferees / financiers. 7.5 After taking cognizance of the modus operandi recorded by the SEBI in its order in the Matter of IDFC Ltd, the statements recorded and the confirmation letters provided by the financiers it is seen that the stand taken by the appellant that 50% of the IPO shares were transferred by the appellant to the financiers at issue price is found to be corroborated. In the paper book submitted by the appellant, a consent proposal preferred by the appellant before SEBI is taken note of. Gist of the proposal is as under:- "After having considered my aforesaid requests / conditions practical difficulties J herein enclosed (Exhibit I) the statement giving detailed calculati....
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....and Rs. 1,72,20,502/- made in the A.Yrs.2004-05, 2005-06 and 2006-07 respectively are hereby deleted." 12. We have considered rival contentions and found from the record that confirmation letters have been filed by the financiers before the AO with regard to the price paid by them. After considering the statement recorded by the AO as well as confirmation filed by the financiers, the CIT(A) recorded a finding to the effect that the shares were transferred by the assessee to the financiers at an issue price in accordance with the arrangement entered into between the assessee and the financiers. As the statement recorded by the AO from the financiers corroborated the stand of the assessee that the assessee had transferred 50% of shares allotted in IPO to the financiers at issue price and not at the listed price, the additions so made by the AO was not warranted. The detailed finding recorded by CIT(A) at para 7.3 to 7.6 has not been controverted by ld. DR by brining any positive material on record. Accordingly, we do not find any reason to interfere in the order of the CIT(A) for deleting the addition made on account of transfer of 50% of IPO shares to the financiers. 13. Similar f....