TaxTMI 
TaxTMI 
TaxTMI 
2010 (12) TMI 1233
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....s 142(1) containing a detailed questionnaire. In the said questionnaire apart from asking for various details, the AO specifically asked the assessee to explain the details of transactions of shares in which total loss of 8901 crores has been incurred. He also asked the assessee to give details of purchase of shares and date of declaration of dividend, complete details of speculation loss of Rs. 58,11,300/-. The assessee did not submit the details on the due date. The AO issued another questionnaire and asked the assessee to furnish complete details with regard to each and every purchase and sale of shares. He also asked the assessee to specify whether these transactions are dealt on stock exchange or not. He also asked the assessee to submit the details of know your clients (KYC) form in the case of clients with whom it has entered into these speculative transactions. Since the assessee did not respond to the questionnaire, the Assessing Officer again issued show cause notice and asked the assessee to explain why the loss of Rs. 58,11,382/- incurred on account of share transactions should not be disallowed in the absence of any evidence to prove the genuineness of the ....
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.... come or where confirmations are not complete. He noted from the figures disclosed in the P&L account under the head 'profit from operations' that the assessee has adjusted loss arising from nondelivery based transactions which are admitted to be speculative in nature. According to the AO, these transactions are neither spot transaction nor are contracted on the Bolt of the Stock Exchange. In certain transactions, the nomenclature of transactions appears to be brought forward which are nondelivery based transactions. Further, the assessee has not even submitted bills of transactions. On careful examination of the same, the Assessing Officer was of the opinion that the transactions are shown only in order to generate loss or generate profit and are not genuine share transactions. 2.6 He referred to the circular no.SMDRP/Policy/CIR-32/99 dated 14.9.1999 issued by SEBI which prohibited negotiated deals and cross deals except in the circumstances mentioned in the circular. According to the said circular, if transactions are done outside the floor of the stock exchange, it is mandatory for the broker to report such transactions. However, in the case of the assessee, no such repo....
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.... transaction, both speculative and non speculative carried on by the assessee fall in the same period. Therefore, the findings of the JPC report are clearly applicable to the facts of the case. He noted that the assessee failed to rebut the findings of the Assessing Officer that the transactions carried out by the assessee were manipulative and fraudulent in nature with an intention of distorting the market equilibrium for making personal gains. Further, the assessee has failed to produce any evidence to show that the transactions carried on by it were not off market transactions and were reported to the Stock Exchange. The assessee has also failed to controvert the findings of the Assessing Officer that the transactions were not off market cross deals banned by SEBI after 14.9.1999. He noted that various queries raised by the Assessing Officer remain unanswered and the adverse findings of the Special Auditors and the findings of the JPC have remained non-rebutted by the assessee before the Assessing Officer. Some of the pertinent points noted by the CIT(A) at para 5.5 of his order are as under: a) The transactions made outside the floor of the Stock Exchange was required to be i....
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....ue, sale/purchase during the year containing the details of quaintly, rate and value and the closing stock of quantity, rate and value. Referring to the said annexure, he submitted that contract note bill and De-mat account were also furnished before the Assessing Officer. He submitted that scrip wise details of profit and loss with supporting details were furnished. Therefore, transaction simply cannot be treated as non-genuine. He submitted that the observations of the Assessing Officer that assessee has submitted that details of DP account have been destroyed by white ant are wrong and erroneous and due to non application of mind. He submitted that the assessee never stated before the Assessing Officer that the DP statements have been destroyed by white ant. The Assessing Officer has merely copied the observations of another Assessing Officer in the case of a sister concern. Referring to the order of the Tribunal vide ITA No.4229/Mum/2007 order dated 27.4.2009 for the Assessment Year 2001-02 in the case if Sai Mangal Investrade Ltd, he submitted that the Tribunal under identical facts and circumstances has allowed the loss claimed by the assessee company since the CIT(A) w....
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....contract. Referring to the order of the SEBI as relied on by the Assessing Officer/CIT(A), he submitted that there is no mention that scrips of those companies appears in the case of the assessee. H submitted that the scrips discussed by SEBI are different from those scrips traded by the assessee. He accordingly submitted that the order of the CIT(A) should be set aside and the loss claimed by the assessee be allowed. 6. We have considered the rival submissions made by both the parties, perused the orders of the authorities below and the paper book filed on behalf of the assessee. From the copy of the assessment order, we find the Assessing Officer made an addition of ` 58,11,372/- under the head 'speculation loss' and another addition of ` 60,04,791/- on account of share trading loss. 6.1 So far as the addition of `. 58,11,372/- on account of speculation loss is concerned, we find the Assessing Officer elaborately discussed the reasons for such disallowance which has already been brought out in the facts of the case. So far as the share trading loss of ` 60,04,791/ is concerned, we find the reasons given by the Assessing Officer is that the assessee did not furnish the movement ....
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....ssing Officer with the direction to decide the issue afresh and in accordance with law after giving reasonable opportunity of being heard to the assessee. We hold and direct accordingly. This ground of the assessee is accordingly allowed for statistical purpose. 7 In grounds of appeal no.2, the assessee has challenged the order of the CIT(A) in not allowing depreciation of Rs. 18,28,125/- on membership rights of the Stock Exchange. 8 At the time of hearing, it was agreed by both the parties that the issue stands decided against the assessee by the decision of the Hon'ble Bombay High Court in the case of Techno Shares &Stocks Ltd & others reported in 84 Taxman 103. However, it has come to our notice that the above decision of the Hon'ble Bombay High Court has since been reversed by the Hon'ble Supreme Court wherein it has been held that the assessee is entitled to depreciation on stock exchange membership card. Since this issue was not argued in detail by either of the sides; therefore, in the interest of justice, we deem it proper to restore this issue back to the file of the Assessing Officer with a direction to decide the issue afresh in the light of the decision of the Hon'ble....
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.... noted that the Assessing Officer had called for relevant details pertaining to bad debts as per detailed questionnaire dated 9.12.2003 by seeking details of bad debt written off and basis for claiming the deduction. The assessment order was passed on 30.3.2004. Therefore, it is not correct on the part of the assessee to state that the Assessing Officer did not ask for necessary details or did not accord sufficient opportunity. Since the assessee failed to give justifiable reason for entertaining additional evidences before him as required under Rule 46A, the CIT(A) rejected the additional evidences and upheld the action of the Assessing Officer in making the disallowance. The CIT(A) further observed that even primary details were not furnished before the Assessing Officer and the onus is on the assessee to discharge the burden cast on it. Aggrieved with such order of the CIT(A), the assessee is in appeal here before us. 12 The ld counsel for the assessee referring to the evidences filed before the CIT(A) as additional evidence submitted that the same should have been admitted by him. He, accordingly, prayed that in the interest of justice the matter should be sent back to t....
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....arred from carrying on share trading activity by SEBI as it along with other group concerns led by Shri Ketan Parekh was involved in Securities Scam which was unearthed in the year 2000. From April 2001, the whole group including the assessee could not carry out such trading. He noted that as per the past records, this was the only business activity of the assessee. However, the assessee was also earning certain residual income in the form of interest on FDR etc. He noted from the P&L account that major part of the income of the assessee was derived from other income amounting to ` 94.40 lakhs which included interest, dividend and miscellaneous income. Rest of other income comprised of brokerage and income from shares and securities etc., amounting to ` 2.45 lakhs and `. 2.07 lakhs respectively. The total receipts amounted to ` 98.93 lakhs only. Since the assessee has not furnished any details giving the exact nature of miscellaneous income, he assumed that such an income is residual income other than business income and is also liable to be taxed as other sources. However, the assessee has claimed deduction amounting to ` 8.10 crores as expenses, which incl....
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....2004 cancelling the certificate of registration granted to the company. The company then preferred an appeal to the Securities Appellate Tribunal (SAT) in April, 2004 against the order dated 8.3.2004 passed by SEBI and the appeal of the assessee was dismissed vide order dated 11.5.2007. He submitted that the company has not been delisted as member of the Stock Exchange. He submitted that the company has not discontinued its business operations but has been forced not to undertake any business activity by virtue of the aforesaid order of the SEBI, which was confirmed by the SAT. According to the ld AR though there is suspension of broking activity by virtue of the order of the SEBI, the company cannot be said to be not carrying on business during the period up to May, 2007or at least till 8.3.2004 being the date of cancellation of certificate of registration by the SEBI. Relying on a couple of decisions and more particularly the order of the Tribunal in the case of KNP Securities P Ltd vide ITA Nos. 5008 & 5009/Mum/2007, he submitted that under identical facts and circumstances, the Tribunal after considering a number of decisions has held that various expenses incurred by the asses....
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.... and 10.4.2001 debarring them from undertaking any fresh business as a stock broker and merchant bankers till further orders should be continued. This action of the SEBI has been challenged by the assessee before the appropriate authorities. Copy of the petition filed before the Securities Appellate Tribunal is placed at page 94 of the paper book. In view of these facts and circumstances, the assessee was not allowed to do its business activity in share on the stock exchange floor. 5.1 Not doing business activity was not on account of assessee's will but on account of forced circumstances; therefore, it cannot be said that the assessee has closed/discontinued its business activity its own. The establishments of the assessee were intact and they were to be maintained. Staff members were kept and salaries were paid to them. Loans taken from various banks and others for the purpose of business activity in past were outstanding during the year under consideration; therefore, any interest accrued was to be paid during the year under consideration or was payable. The assessee is having valid BSE card which could not be used for the reason that SEBI has passed an order barring the asse....
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....the Act. The possible resumption of the business was dependent on the outcome of the appeals pending before the Supreme Court. The amounts claimed were also not very substantial. The Tribunal had taken a broad view of the matter and had held in favour of the assessee. There was no ground to differ" 6.1 The facts before the Hon'ble High Court were that the assessee was a private electric company. Its undertaking vested with the State Government by reason of the enactment of the Tamil Nadu Electricity Supply Undertakings (Acquisition) Act, 1973. After an unsuccessful attempt to challenge the validity of that Act in the High Court, the assessee had filed appeals before the Supreme Court which were pending during the relevant years i.e. AYs 1975-76 to 1979-80. The AO held that the assessee was not carrying on any business and limited the salary paid to the employees of the assessee to 10% and the audit fee was limited to 15%. That was affirmed by the first appellate authority. However, the Tribunal held that the assessee was carrying on business and was entitled to the deductions claimed by the assessee. On reference, the Hon'ble Madras High Court affirmed the view taken by the Trib....
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....ied on without interference. The amounts expended by the company n that behalf were expenditure laid out wholly and exclusively for the purpose of its business and were deductible u/s 10(2)(xv). It was further held that; "the question of admissibility u/s 10(2)(xv) had to be decided not on what was found or observed by the High Court in appeal from the order in the proceedings u/s 45 of the Specific Relief Act or by the Privy Council but upon the findings of fact recorded by the Tribunal. Expenditure incurred to resist in a civil proceedings the enforcement of a measure, legislative or executive, which imposes restrictions on the carrying on of a business, or to obtain a declaration that the measure is invalid, would, if other conditions are satisfied, be admissible as a deduction u/s 10(2)(xv)" 7.1 The ratio of the decision of the Apex Court also goes in favour of the assessee as the litigation expenses incurred in respect to its business were held as business expenditure. 7.2 In the present case also all the expenses incurred are connected with the business of the assessee only; therefore, the expenses claimed by the assessee are allowable. 8 In the case of M/s Mar....
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.... has disallowed the expenditure on the ground that they are not allowable as the assessee has not done any business activity. Therefore, for the purpose of examining the admissibility/genuineness of these expenses, the mater is sent to the file of the AO. The assessee has contended that depreciation and interest have been allowed by the Tribunal as allowable while passing order for AY 2000-01. The AO will take into consider the order of the Tribunal and if it is found that facts are similar then of course, in view of the decision of the Tribunal, the claim of the assessee on account of depreciation and interest has to be allowed." 17.1 Since the facts of the impugned appeal are identical to the facts in the case of the sister concern of the assessee i.e KNP Securities P Ltd ; therefore, respectfully following the decision of the Tribunal, we hold that the assessee is entitled to claim various expenses debited in the P&L account. We hold and direct accordingly. The ground raised by the assessee is accordingly allowed. 18 In grounds of appeal no.1, the assessee has challenged the order of the CIT(A) in upholding the action of the Assessing Officer in disallowing depreciation....
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....he assessee is in appeal here before us. 22 The ld counsel for the assessee, at the outset, submitted that the issue of bad debts in the case of share broker is covered by the decision of the Special Bench in the case of DCIT vs Shri Shreyas S Morakhia reported in (2010) TIOL 390 (Mum)(SB). 22.1 The ld DR, on the other hand submitted that since the CIT(A) had held that the assessee has not carried our any business activity during the year, the same cannot be allowed as allowable deduction from the other income. 23 After hearing both the parties, we find the issue of carrying on of business has already been decided by us in favour of the assessee in grounds of appeal no.4(a). We find the Assessing Officer disallowed the bad debt on the ground that the assessee is a share broker and credits only brokerage income to its P&L account. Since the assessee has not credited the entire amount receivable from the clients on account of purchase on his behalf; therefore, such bad debt not collectible from the clients does not fall under the ambit of sec. 36(2). We find the issue is now decided in favour of the assessee by the decision of the Special Bench of the Tribunal in the case of Shri ....
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....o decisions, he submitted that the issue stands covered in favour of the assessee. 25.2 The ld DR, on the other hand supported the order of the CIT(A). 26 After hearing both the sides, we find the Assessing Officer disallowed the amount of `3,750/- paid to BSE for violation of its Rules and Regulations on the ground that the same is in the nature of penalty and is not an allowable deduction. In appeal, the CIT(A) upheld the action of the Assessing Officer on the ground that the assessee is not conducting any business activity during the year. 27 The issue of carrying on the business has already been decided by us in favour of the assessee in grounds of appal 4(a). As regards to allowability of expenditure, the issue has been decided by the coordinate Bench of the Tribunal in the case of the sister concern i.e. Classic Shares & Stock Broking Services Ltd. (supra). Respectfully following the decision of the coordinate Bench of the Tribunal in the case of another sister concern of the assessee and in absence of any contrary material brought to our notice by the DR, we hold that the assessee is entitled to deduction of claim of ` 3,750/- being penalty paid to Stock Exchange for viol....