TaxTMI 
TaxTMI 
2017 (1) TMI 1107
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....he year 1992, which led to enactment of a special Act known as "Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992. The assessee was also implicated as a person involved in the securities scam. A custodian was appointed to take control of all the assets of persons implicated in the scam. All the persons so implicated were called as "Notified persons". Hence the assessee became one of the notified persons. Prior to the enactment of the above said Special Act, a Committee named as "Janakiraman Committee" was appointed to probe the scam related matters. A Joint Parliamentary Committee was also formed to investigate into the matters. 3. The CBI conducted search on the assessee on 22.06.1992 and the income tax department conducted search on the assessee on 16.10.1992. The appeals under consideration have been filed in the second round of proceedings. The assessments were originally completed after the search operations. The assessee challenged the assessment orders by filing appeal before Ld CIT(A) and then the matters were taken before the ITAT by both the parties on the issues decided by Ld CIT(A) against each of them. Before the Tribunal, the assess....
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....option to sell them before its maturity date, depending upon their requirement of funds or market conditions. Since the interest rates are regulated by the RBI by increasing or decreasing the same, the market value of securities would also increase or decrease and the same would also trigger sale of securities. The banks and financial institutions are required to maintain a portion of their liabilities as deposits in banks and Government securities as per the Statutory liquidity ratio (SLR) fixed by RBI. The Government Securities is one of the most preferred methods of investments by the banks/financial institutions. Since the liabilities in the form of deposits keeps changing, the banks/financial institutions are required to vary the SLR investments either by making fresh purchases or by selling the existing holding. Similarly, the banks, financial institutions, provident funds, other enterprises and even individuals may also like to invest their surplus funds in the Government Securities. Over the years, the number of Securities available in the market has increased and so the sellers and buyers. Hence there arose a necessity to create a platform, where the sellers and buyers cou....
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....certificates with RBI for crediting them into SGL account. The RBI has also allowed reconversion of securities held in SGL Account into physical format, if the investor desires so. The sale of securities held in SGL account was carried by issuing a "SGL transfer form", which was akin to transfer deeds. The buyer of securities shall lodge the SGL transfer form with RBI. Upon receipt of SGL transfer form, the RBI shall reduce the securities by debiting the SGL account of the seller and add the same to the account of the buyer by crediting his SGL account. Upon passing of this entry by RBI, the transfer of securities shall stand completed. It is pertinent to note that the facility of holding SGL account was restricted only to Banks and large financial institutions. Hence, whenever the banks/financial institutions sell their securities to persons who are not having SGL Account, they are required to reconvert the securities held in their SGL account into physical format and deliver them to the buyers. 9. The second method of issuing securities is by way of "Promissory notes" and they are transferrable by endorsement and delivery. The Holder in due course is required to lodge his clai....
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.... Ledger account in the name of dealer-broker in its accounts, i.e., "CLIENT SECURITY LEDGER ACCOUNT". The routing bank shall receive and deliver the securities /SGL transaction slips on behalf of its client. For example, if the dealer-broker (client) purchases a security, it would accept delivery of the security slips and would credit the "Client Security Ledger account" of the dealer with the details of securities. The payment for the said purchase would be made by debiting the bank account of the dealer-broker. When the dealer-broker sells any security, the Client ledger account of the dealer shall be debited and the sale proceeds shall be credited to the bank account of the dealer-broker. In most of the occasions, the routing bank shall extend overdraft loan facilities to the dealerbroker on the security of the Securities held by it on behalf of the client. Since the security transaction slips/securities are directly sent/received to/from the routing bank, it is stated that the dealer-broker shall have only contract notes as evidence for purchase and sale of securities. For example, if the dealer-broker purchases a security, say from Bank of Maharashtra on his own account, he wo....
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....0 (d) Vikram U Patel - 10,000 94,100 15.1 The first cash credit relates to Rita Chopra. In the books of the assessee, the balance outstanding as on 31.12.1986 in the name of the above party was shown at Rs. 2,11,500/-. During the calendar year ending 31.12.1986, the assessee had received fresh credit of Rs. 1,12,500/-. However in the confirmation obtained from the above said party, the total payment was shown at Rs. 80,400/-. Hence the AO added the difference of Rs. 32,100/- as unexplained cash credit. The assessee could furnish the confirmation letter pertaining to 31.12.1987 and not 31.12.1986. Since the assessee did not furnish confirmation letter, the Ld CIT(A) confirmed this addition. 15.2 The Ld A.R submitted that the assessee has submitted the confirmation letter for the year ending 31.12.1987. The assessee could not obtain confirmation letter for the year ending 31.12.1986, since Rita Chopra has migrated to USA. He submitted that the Ld CIT(A) had deleted this addition in the first round of proceeding by accepting the explanation of the assessee that it could not obtain confirmation letters for the reasons beyond ....
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....ed reliance on the repayment of Rs. 93,000/- made on 10-05-1991 made to this creditor. The assessee has stated that he could not obtain any confirmation letter from the party due to passage of long time. Thus, we notice that the assessee has simply placed reliance on his books of account to substantiate this credit and the assessee did not produce any confirmation letter pertaining to either prior years or to subsequent years. We further notice that the assessee has paid interest of Rs. 11,890/- to this creditor during the year under consideration. Thus, we are of the view that the sources to the extent of Rs. 12,000/- can be considered to have been explained in view of the payment of interest, referred above. Accordingly we modify the order passed by Ld CIT(A) on this issue and direct the AO to sustain the addition in respect of this cash credit to the extent of Rs. 28,000/-. We order accordingly. 17. The next addition relates to the cash credit of Rs. 12,000/- received from Shri Saurin Patel. In this case also, the assessee has placed reliance on his own books of account and did not furnish any other corroborative material. The assessee has cited the reason of passage of time ....
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....st received at the time of sale of securities. During the year relevant to AY 1987-88, this account, viz., "Interest on Securities" account was showing debit balance of Rs. 47.45 lakhs and the assessee claimed the same as expenditure. 20. The AO noticed that the Securities purchased by the assessee did not remain with the assessee for a long time, i.e., they were sold within few days. Hence the AO took the view that the interest paid on securities and interest received on securities should have been equal and hence the net interest expenditure could not have been at a high figure of Rs. 47.45 lakhs. In the first round of proceedings, the assessee furnished month wise details of gross amount of interest paid and received. The assessee also furnished instances of interest paid and received through bank accounts. The assessee submitted that the interest payments and receipts are also transferred from Securities account by way of journal entries, when they are accounted in other accounts. It is stated that the assessing officer has disallowed the net interest claim in the first round of proceedings, only on the ground that the assessee did not furnish the details of interest account....
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.... of the cases, there is timing mis-match, i.e., the cuminterest paid at the time of purchase of security shall be debited in one year and the "coupon date", i.e., the date of receipt of interest may fall in the succeeding year. For example, if the interest on a security is payable on 30th June and 31st December and if the assessee purchases a security on 28th February, he shall pay cuminterest for the period from 1st January to 28th February and the same shall be claimed as expenditure under the head "Interest on securities". If the assessee continues to hold the security till 30th June, then he will receive interest on 30th June of the succeeding year and the same shall be credited to "Interest on PDO account" in the succeeding year. The assessee is following cash system of accounting and hence the interest payment as well as receipt were accounted only when it was paid or received. (d) Sometimes, there would be a timing gap between the sale of securities and purchase of securities. The interest pertaining to that delayed period shall be borne by the assessee. For example, if a client wanted to purchase a security from the assessee on 19th May of a year, the assessee would issu....
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....ng and selling securities as a dealer and hence his volume of turnover was high. Hence interest expenditure borne by him even for few days would run into lakhs of rupees. The presumption made by the tax authorities that the securities were not held for a long period, but they have been sold within few days is not borne out of the record. The fact that the assessee was holding securities in his hands is evidenced by the opening balance and closing balance of securities shown in the Balance Sheet. (g) The cum-interest paid at the time of purchase of securities is generally debited directly to "Interest on securities account" at the time of purchase itself. Some time, the assessee would debit the consolidated amount of payment to "Securities Account" and thereafter would transfer the "cum-interest" to "Interest on securities account" by passing a journal entry. However, the fact remains that the consolidated amount is paid at the time of purchase through assessee's bank account only. Hence the tax authorities are not correct in presuming that the "interest on securities" debited by way of journal entries are bogus or inflated figures. (h) All the payments of "cum-interest" as we....
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....s amount without understanding the method of accounting followed by the assessee and also the trade practice prevailing in this kind of trade. Accordingly he submitted that the impugned addition should be deleted. 26. On the contrary, the Ld D.R submitted that the assessee was not correct in stating that the copies of incriminating materials and other relevant papers were not provided to him. He submitted that the assessee has been provided with opportunity to take copies of the required documents. In this regard, he invited our attention to the following observations made by Ld CIT(A) in paragraph 7.1 of his order:- "7.1 Before these grounds are considered, it is worthwhile to mention that while this appellate proceedings was in progress, the appellant also filed a writ petition no.1404 of 2009 with the Hon'ble Bombay High Court for stay of recovery proceedings, in which the issue of inspection/photocopy was raised, in response to which Hon'ble High Court, vide their order dated 24.09.2009, provided a guideline for allowing inspection/photocopy, hearing of appellate proceedings...... 7.2 As per order sheet noting dated 21/01/2010 which is kept in the appeal proceedings fo....
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....uments during the course of search proceedings. With these back ground, we shall proceed to address the issue under consideration. 28. The assessing officer has taken the view that there should not be debit balance to the extent claimed by the assessee in the Interest on securities account. This is for the reason that the assessee usually sells the securities within few days of purchase, i.e., the assessee does not retain the securities for a longer period. The assessee explained the trade practice followed with regard to the purchase and sale of securities, the concept of cum-interest, the method adopted by the assessee while selling securities, the method of accounting followed, method of accounting of cum-interest on securities, receipt of interest from public debt office etc. During the course of first assessment proceedings, the assessee has explained that the "cum-interest" is received and paid through banking channels. It was further submitted that the assessee also accounts entire payment in "Securities account" and thereafter the "cum interest" portion is transferred by way of journal entries. The AO, in the first round, disallowed the claim mainly for the reason that t....
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....ounting followed by the assessee. We notice that the assessing officer has not noted down the "method of accounting" followed by the assessee in the assessment order in both original assessment order and reassessment order. The Ld A.R submitted that the assessee is following cash system of accounting and this submission was not controverted by the Ld D.R. Further, explanations given by the assessee about the purchase and sale of securities, cum-interest, interest received on coupon date and the explanations given as to how they are accounted for in the books of account, in our view, substantiate the claim of the assessee that he is following cash system of accounting. 30. When the matter of recognising income/expenditure, there is considerable difference between cash system of accounting and mercantile system of accounting. Under mercantile system of accounting, the income/expenditure accrued during the year shall be accounted for. However, under cash system of accounting, the expenditure/income shall be accounted for on payment/receipt basis. This difference will lead to computing different amount of income under both the methods. This difference can be explained by way of an i....
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.... 1000 (Cr.) Interest on PDO Account 6000 (Cr.) The net effect is that the assessee has accounted net income of Rs. 5000/- when both the years are combined together. We have noticed that the assessee has submitted that the expenditure claimed under the "Interest on securities" should be netted off against income accounted under the head "Interest from PDO Account". Considering the method of accounting explained by the assessee, there is merit in the said submissions. However, we notice that the assessing officer has rejected the same without furnishing any valid reason. 32. Another major reason explained by the assessee with regard to the debit balance available in the Interest on securities Account is the "sale of securities", which are not available on hand. The assessee has explained that he would issue sales contract, when he receives order for purchase of security even if it is not available in his hands. The amount received from his client is deposited into his Overdraft Account. According to the assessee, he has to pay "cum-interest" at the rate of around 6% or may be upto 9%. However, the amount deposited into his Overdraft account....
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....id payment would be accounted as under, viz., Rs. 1,00,000/- will be debited to "Securities Account" and Rs. 1000/- will be debited to "Interest on securities Account". Suppose if the assessee has debited entire payment of Rs. 1,01,000/- to "Securities Account", then there arises a necessity to pass a journal entry to transfer the Interest on securities account from the Securities Account. A journal entry shall be passed by debiting Interest on securities account and crediting the Securities Account. 35. It may be noticed here that the assessee has paid the consolidated amount of Rs. 1,01,000/- by way of cheque only and the passing of journal entry was necessitated only for the reason of incorrect accounting. It may also be noticed that the passing of Journal entries are part and parcel of normal accounting procedure and it is necessitated in many situations. We may give certain illustrations:- (a) A person purchases goods for Rs. 5,00,000/- on credit. He would debit the Purchases account with Rs. 5,00,000/- and credit Supplier account with the same amount. Subsequently, he negotiates with the supplier and settle the payment at Rs. 4,90,000/-. After making payment, the Suppli....
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....ssessee. We notice that the tax authorities did not make any attempt to examine the same. 37. Further, the "journal voucher" per se is not the evidence in support of the expenditure claim. It is only a method of transferring a transaction from one account to another account. In trade circles, cash voucher shall be prepared when the payment is made by way of cash and a bank voucher shall be prepared when the payment is made by way of cheque. These vouchers are mere documents to show the way in which the expenditure was accounted. Hence, they are not per se evidence in support of the expenditure. Instead, the genuineness of the expenditure shall always be examined with reference to underlying evidences, viz., the invoice, bills, payment details, the party details etc., whether the expenditure is accounted through journal vouchers or through cash vouchers or bank vouchers. Thus, the methodology of examining the genuineness of expenditure is identical in all the three method of accounting the expenditure. We notice that the tax authorities have failed to understand this fundamental principle and instead proceeded to suspect the expenditure only for the reason that the same has been ....
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.... are of the view that the necessity to establishing nexus may not be relevant, since the purchase of securities and sale of securities are two different and independent transactions so far as the assessee is concerned. When he purchases the security, he would also pay for cum-interest and when he sells the security, he would receive cum-interest. When he holds the security till the coupon date, he would receive interest from PDO, which will be accounted in Interest on PDO account. It can be visualised that a person who purchases a security from the assessee will not bother to ascertain the "cum-interest" received by the assessee from the person from whom the assessee had purchased the security. The purchaser will only ensure that the he makes payment towards cum-interest from the last coupon date to the date of purchase. Hence the question of nexus, in our view, may not arise in these type of transactions. 41. We notice that the Ld CIT(A) has also confirmed the addition without critically examining the issue. However, the foregoing discussions would show that the interest expenditure claimed under the head Interest on securities have been made only on surmises and conjectures. W....
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....ide his order dated 01-01- 1999, restored the matter to the file of the AO for examining the same afresh after providing the working sheets to the assessee and after hearing the assessee. We have earlier noticed that the ITAT also, in the first round of proceedings, directed the AO to do the assessment de-nova. 45. In the second round of proceedings, i.e., impugned proceedings also, the AO made the addition with the observation that the assessee could not satisfactorily explain the negative balance in securities. The Ld CIT(A) confirmed the same by following his decision rendered in AY 1991-92 in the second round of proceedings. 46. The Ld A.R submitted that the stock summary has been prepared by the assessing officer himself and he has not furnished the basis for arriving alleged negative stock. He submitted that the Tribunal, in the first round of proceeding, had given following directions:- "We would like to reiterate that if the relevant material on the basis of which any addition is proposed, is not confronted to the assessee, the Assessing officer shall not make any such addition." The Ld A.R submitted that the assessing officer has made the addition again without....
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....t the Ld CIT(A) has made identical addition in AY 1991-92 and following the same he has also confirmed the addition of this year. He submitted that the order passed by Ld CIT(A) on this issue needs to be confirmed, since the assessee did not furnish any explanation or reconciliation. 49. We heard the parties on this issue and perused the record. We notice that the Tribunal, in the first round of proceeding, has given following directions to the AO, in its order dated 30-03-2006 passed in ITA No.1621/Mum/1999 relating to AY 1987-88:- "7. In view of the discussion given above and following our order for the assessment year 1992-93 referred to supra, we set aside the assessment orders passed by the Assessing Officer for the assessment years under appeal with the direction that the assessments should be reframed after allowing adequate opportunity to the assessee and after confronting the assessee with relevant material. We would like to reiterate that if the relevant material on the basis of which any addition is proposed, is not confronted to the assessee, the Assessing Officer shall not make any addition." There is no dispute with regard to the fact that the assessee was pr....
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....als filed by both the parties for AY 1988-89. 54. In this year also, the assessee has raised certain legal grounds and before considering them, we prefer to dispose of the grounds urged on merits. The first issue relates to the addition of Rs. 19.61 lakhs pertaining to Negative Brokerage. During this year, the assessee has undertaken trading in shares under the firm name M/s B.C.Devidas. He has also carried out share transactions on behalf of his clients on brokerage basis, besides trading in his own account. Though the assessee was a recognised broker of BSE, yet it is stated that he was not operating his card. Hence, it is stated that the share transactions were carried out through other brokers. 55. The method of accounting followed by the assessee in respect of these transactions is stated to be as under:- (a) All share transactions shall be entered in "Position Book", which contain details regarding the transaction, viz., name of party, number of shares, price, date of delivery etc. These transactions have been maintained scrip wise. (b) All the transactions are supported by Contract notes and Bills, which again contain all the relevant details stated above. B-1 vo....
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.... disallowed the Negative brokerage. 57. In the set aside proceedings, the assessee contended before the AO that there is no question of any negative brokerage and the losses pointed out by the AO actually represents trading loss in trading of shares. He further submitted that he is not given the basis of arriving at the summary of brokerage. The assessee also gave a list of transactions of purchase and sale of shares, where he made profit. However, the AO held that, in the examples given in the first round of proceedings, the purchase and sale of shares have taken place with the same party on the same date, where as in the examples given by the assessee, the purchase and sale of shares were on different dates with different persons. Accordingly he came to the conclusion that the losses shown in the patawat sheets have been engineered by the assessee for booking artificial losses. Accordingly, the AO again disallowed the amount of Rs. 19,61,363/- observing the same as negative brokerage. 58. The Ld CIT(A) observed that the assessee has not brought on record any third party confirmation at least in respect of transactions included in the illustrative list prepared by the AO. Be....
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....s on 15.12.1986, i.e., the assessee has sold the shares initially without having stock of the same and then covered the same by purchasing the same later. This is called short sale, which is quite common in share trading circles. Similarly, the AO has stated that the assessee purchased and sold 900 shares of Hindustan Cocoa on 28.02.1987. The assessee has explained the above said shares were purchased on 24.12.1986 and sold on 17.2.1987. 61. In some of the illustrations, the AO has pointed out that the purchase and sale of shares have been carried out with the same person. For example, in the illustration No.10, the AO has pointed that the assessee has purchased and sold 11000 shares of Tata Tea from M.D. Shukla as per Patawar Sheet No.6004. The assessee has explained the same to be badla transactions. We have earlier noticed that a buyer/seller of shares is entitled to roll over his position to the next settlement period on payment of prescribed fees, in which case, the existing position shall be closed on the last day of the settlement period and a corresponding new position will be created on the first day of succeeding settlement period. This is called as badla transactions ....
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....n nature in all of the years. 65. In view of the foregoing discussions, we are of the view that the assessing officer should not have come to such a conclusion without examining relevant contract notes issued by the third party brokers. Accordingly we are of the view that the tax authorities have not given proper justification in presuming that the loss shown by the assessee is bogus one and constitutes negative brokerage. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete this addition. 66. The next issue urged by the assessee relates to the addition of Rs. 29,61,353/- pertaining to Undisclosed investment in Stock, which was sustained to the extent of Rs. 20,59,607/- sustained by Ld CIT(A). The assessee has purchased and sold shares on his own account, which was accounted under the head "BCD Share Account". The AO analysed the transactions accounted in that account by entering the details in a computer and arrived at the position of closing stock. This statement of closing stock was compared with the list of closing stock of shares furnished by the assessee. In many cases, there were mismatch and hence the AO made an addition of....
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....mining the same. 69. On the contrary, the Ld D.R invited our attention to paragraph 9.6 of the order passed by Ld CIT(A), wherein he has observed that the assessee has not furnished specific replies. 70. We have heard the parties on this issue and perused the record. We notice that the assessee has pointed out the mistakes that occurred in the computation made by the Assessing officer, which included the sale/renunciation of rights, i.e., the renunciation of rights have been considered as sale of shares by the assessing officer. The assessee has also pointed out other mistakes also. We notice that the AO has accepted the other mistakes, but did not give any reason for not accepting the mistakes pointed out by the assessee in respect of renunciation of right to apply for shares. Even though the Ld CIT(A) has observed that the assessee has failed to give specific replies, yet we notice that the tax authorities have also failed to address the specific mistake pointed out by the assessee. In order to arrive at the alleged undisclosed stock, the assessing officer has adopted an estimated rate of Rs. 111/- per share. 71. Since the assessee has held fully convertible debentures o....
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.... verification was possible. It was further noticed that the credit balance outstanding in the name of M/s Champaklal Devidas was increasing every year, i.e., as on 31.12.1987 the balance was shown at Rs. 1.26 crores and the same increased to Rs. 14.12 crores as on 31.3.1991. It was further noticed that the assessee has settled the balance by paying a sum of Rs. 15.40 crores by way of cheques to M/s Champaklal Devidas. However, the above said amount was returned back to the assessee and his group companies on 26.3.1992. Further M/s champaklal Devidas has not charged any interest from the assessee on the huge outstanding amount. Accordingly a view was taken in those years that the assessee has shifted his profits to M/s Champaklal Devidas. The AO took note of the observations made in AY 1990-91 and 1991-92. Accordingly, he came to the conclusion that the balance shown in the account of M/s Champaklal Devidas was not genuine one. Accordingly he added outstanding balance of Rs. 1,26,12,036/- in the first round of proceedings. 74. The Ld CIT(A), in the first round of proceedings, examined the ledger account of M/s Champaklal Devidas and noticed that the share transactions were having....
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....ny evidence. However, the Ld CIT(A) has noticed that the accounts relating to AY 1987-88 were available with the AO and hence accepted the contentions of the assessee. Since the accounts relating to AY 1987-88 are available with the AO, we are also of the view that the AO could not have observed that the assessee did not prove the opening balance. The addition of opening balance, if required, may be made in the respective year of transactions and not during the year under consideration. Accordingly, we do not find any infirmity in the decision so taken by him. Accordingly we dismiss the appeal filed by the revenue for AY 1988-89. 78. The assessee is contesting the addition of Rs. 71,98,594/- confirmed by the Ld CIT(A). The main contention of the assessee is that the assessee was having trading transactions with M/s Champaklal Devidas and the AO has added the outstanding closing balance without making any independent enquiry with regard to the veracity of the transactions. The AO has mainly relied upon certain observations made in subsequent years, i.e., AY 1990-91 & 1991-92. The Ld A.R submitted that the assessing officer did not make any type of verification in the original as ....
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....l Devidas has been added without looking into entire volume of transaction and also arrival and disbursement of money have not gone into by the AO. I have a copy of account of Champaklal Devida in the books of the assessee filed by the Learned A.R. It is also found that on certain dates the credit balance was Rs. 1,40,00,000/-. This date is 3.1.1987. It is not denied that the assessee has transactions of securities and shares with Champaklal Devidas. The AO has tried to tax only the last credit balance. The question of taxability for the purposes of section 68, 69 etc., have to be decided with reference to the dates of arrival or funds. As no inquiry in this aspect of the matter has been made by the AO there would not be any justification for this addition. Nevertheless, it is required that each entry of debit and credit appearing in the account of Champaklal Devidas has to be verified as to whether they are recorded in the bank account of Champaklal Devidas. The reference to the bank account is made by me because it is the claim of Champaklal Devidas that his books of accounts have been destroyed. The system of account followed by the assessee is that B-1 vouchers are for all rece....
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.... recipient have transferred the funds through banking channels to other concerns, we are unable to understand as to how the same would make the transactions non-genuine. 82. The AO has observed that M/s Champaklal Devidas has not charged interest on the balance due from the assessee. It is a matter to be decided between the parties and it is well settled proposition that the tax authorities are not entitled to sit in the arm chair of the businessman to regulate the business affairs. In any case, non-charging of interest only benefits the assessee herein and the cause of action does not arise here. Another important point is that the Ld A.R has stated that the proprietor of M/s Champaklal Devidas, Shri J P Gandhi has confirmed the transactions and he is also assessed to income tax by the very same assessing officer. In these set of facts, we are of the view that the tax authorities are not justified in holding that the transactions entered with M/s Champaklal Devidas are not genuine. When the transactions entered with this concern has been accepted as genuine in the earlier year, then the transactions entered during this year should not have been doubted with, without bringing an....
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....t of Rs. 15,000/- represents three credits by way of bills, meaning thereby, the amount of Rs. 15,000/- does not represent cash credit. The ledger account copy is placed at page 377 of the paper book. The assessee has also furnished ledger account copy of this assessee for year ending 31.12.1984 at page 365 of the paper book, which shows that this creditor is having account from past years also. The assessee is also regularly paying interest to this creditor. The assessee has also furnished confirmation letter obtained from this creditor for the year ending 31.12.1986 and 31.3.1991. In view of the above, we are of the view that there is no reason to suspect the sources of Rs. 15,000/-. Accordingly we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete this addition. 85.3 The third item of the addition relates to the amount of Rs. 3.00 lakhs received from M/s Mamta Enterprises. The assessee has furnished account copy of the creditor, copy of receipt issued to the creditor, confirmation letter obtained for the year ending 31.3.1989 and 31.3.1991. The confirmation letters contain the GIR number of the creditor. The submission of the assessee is that th....
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....sessee. The assessee has furnished confirmation letter obtained for 31.12.1985 and also the ledger account copy of the subsequent year. In view of these facts, we are of the view that there is no reason to suspect the credit or Rs. 10,000/- received during this year. Accordingly we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete this addition. 85.8 The next item of addition relates to the amount of Rs. 1,25,000/- received from Shri V.C.Patel. The assessee has furnished ledger account copy for the year 1992 to show that the creditor's account is being regularly serviced with interest and it has been repaid in that year by way of pay order. The assessee has submitted that he could not obtain confirmation letters due to passage of time. Considering the ledger account copy as well as the repayment details, we are of the view that there was genuine difficulty for the assessee to obtain confirmation letter from this creditor. Accordingly, we are of the view that the genuineness of this creditor may be accepted. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete this addition. 85.9 The last item of addi....
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....lance sheet and has taken adverse view of the matter. According to the assessee, he was having huge interest free sundry creditors balance with him and the AO has failed to recognize the same. In our view, there is merit in the said submissions of the assessee. When interest free funds and interest bearing funds are mixed together, they loose their respective identity and hence the presumption should be that the assessee has used interest free funds to give interest free advances. For this proposition, we get support from the decision rendered by Hon'ble Bombay High Court in the case of Reliance Utilities and Power Ltd (313 ITR 340). Accordingly we are of the view that there is no justification in disallowing interest claim, when the assessee is possessing huge interest free funds. Accordingly we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete this disallowance. 89. The next issue urged by the assessee relates to the disallowance of interest paid on securities. The assessee had claimed a sum of Rs. 38,02,299/- as interest paid on securities. Since the assessee has purchased and sold the securities within a short span of time and corresponding in....
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....1-92. The Ld CIT(A) has rightly pointed out that the assessing officer should have examined specific entries found in "Interest on securities" account and should have reached the conclusion on the basis of such examination. We notice that the AO, in the second round of proceedings also, has been persuaded by general presumptions, i.e., the AO did not examine the explanations given by the assessee with the ledger account. We notice that the Ld CIT(A), in the second round of proceedings, has simply upheld the order of the AO passed on this issue. In the absence of such kind of examination and in the absence of pointing out any case of bogus booking, we have no other option but to delete the addition by following the decision rendered by us in AY 1987- 88. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete this addition. 91. The next issue contested by the assessee relates to the disallowance of loss on securities transactions. The assessee had shown loss on purchase and sale of certain securities at Rs. 16,05,045/-. The AO further noticed that the loss has been booked by the assessee by passing journal entries. In the first round of p....
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....submitted that the Ld CIT(A) has also pointed out that the transactions carried on by the assessee are in contravention of the rules framed by the Indian Banks Association and RBI. Further the assessee has failed to give instances, where he has made profits. 94. We notice that the assessing officer has disallowed this claim in the first round of proceedings mainly on the reasoning that the assessee has passed the journal entries to book the losses. In the second round, the AO changed his stand and disallowed the claim on the reasoning that the assessee has failed to furnish explanations. We notice that the assessee furnished vouchers relating to certain transactions before the Ld CIT(A), but the first appellate authority also confirmed the addition by following the decision rendered by him in a subsequent year. The assessee has explained that purchase and sale of securities were by way of account payee cheques only. It is submitted that after the sale of security, the resulting profit/loss are transferred to the revenue account by passing journal entry only. In the earlier paragraphs, we have explained certain situations, wherein the journal entries are passed and further passin....
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.... of the Act. The levying of interest is consequential and hence this issue does not require adjudication. 98. The assessee has also raised certain legal grounds. As observed by us in AY 1987-88, we do not find it necessary to adjudicate them, since we have deleted most of the additions on merits. 99. The revenue is contesting the relief granted by Ld CIT(A) in respect of addition relating to M/s Champaklal Devidas. We have deleted the entire addition made by the AO while dealing with this issue in assessee's appeal. Hence all the grounds urged by the revenue on this issue are liable to be dismissed. We order accordingly. 100. We shall now take up the appeal filed by the assessee for AY 1989-90. The first issue relates to the disallowance of interest of Rs. 12,19,181/- paid to banks and others. As in AY 1988-89, the AO disallowed the above said claim on the reasoning that the assessee has diverted interest bearing funds for giving interest free advances. However, the said addition was deleted by us in the preceding paragraph on the reasoning that the assessee also possessed interest free sundry creditors balances. The Ld A.R submitted that the position is same during the AY....
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....d CIT(A) also confirmed the same. 102.1 The first item of addition is the cash credit of Rs. 14,15,157/- taken from Shr Paresh Patel. During the year under consideration, the aggregate amount of credit available in this account was Rs. 15,53,929/-. However, in the confirmation letter, a sum of Rs. 1,38,772/- alone was confirmed. Hence the AO made addition of difference amount of Rs. 14,15,157/-. The Ld A.R submitted that the aggregate credit of Rs. 15,53,929/- relate to the trading transactions and the closing balance available at the end of the year was Rs. 1,38,772/-. Hence the creditor has confirmed the closing credit balance only. He submitted that very same balance was carried forward in the succeeding years and the creditor has also confirmed the balance available on 31.3.1991 also. The said amount was repaid on 14.6.1991. Thus, we notice that the assessing officer has made the addition without properly examining the replies given by the assessee as well as ledger account copy of the creditor. When the debit entries of the trading transactions are accepted as genuine, there is no reason to suspect the corresponding credit entries. Further, the creditor has only confirmed t....
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....opy of the creditor. When the debit entries of the trading transactions are accepted as genuine, there is no reason to suspect the corresponding credit entries. Further, the creditor has only confirmed the closing balance, which is in agreement with the books of account of the assessee. Accordingly, we are of the view that the AO has made this addition without proper reasoning and accordingly the deserves to be deleted. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete this addition. 101.5 The next item of addition relates to the cash credit of Rs. 3,94,415/- taken from Shri V.C.Patel. In this case also, the aggregate amount of credits were Rs. 5,14,127/-, but the confirmation was given for Rs. 1,19,712/-. Hence the difference was added by the AO. It is submitted that the credit transactions relate to the share trading transactions and major portion of the credit has been repaid during the instant year and the outstanding balance of Rs. 47,715/- was settled after 31.3.1991. The Ld A.R submitted that the credits found in the account consisted of both loan transactions and trading transactions. Thus, we notice that the assessing offi....
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....f Ld CIT(A) on these issues and hence the same has attained finality. The assessee alone went in appeal before ITAT challenging the additions confirmed by Ld CIT(A). As stated earlier, the Tribunal restored those additions which were confirmed by the Ld CIT(A) to the file of the AO for fresh examination. In the set aside proceedings, the AO assessed various additions aggregating to Rs. 10,89,30,545/- again, even though they have already been deleted by Ld CIT(A) in the first round of proceedings and the concerned matters have attained finality. These factual aspects were appreciated by Ld CIT(A) in the second round of proceedings and accordingly he held that the AO was not legally entitled to make these additions again in the second round of proceedings. The revenue is aggrieved by the said decision. 106. We heard the parties on this issue and perused the record. For the sake of convenience, we extract below the operative portion of the order passed by Ld CIT(A) on this issue:- "11.1 As is apparent from the ground itself that these additions had been deleted in the earlier round of appeal by my Ld. Predecessor based on the reasons given in his order. Since no appeal against t....