AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2019 (6) TMI 1469
X X X X Extracts X X X X
X X X X Extracts X X X X
....on account of alleged low withdrawals. d. The direction for special audit u/s 142(2A) of the Act. 2. Order under appeal is not only bad in law and invalid, but also against the principals of natural law of equity and justice. 3. The appellant craves leave to add, to amend, alter / delete and /or modify the above ground on or before the final date of hearing. 3. The brief facts of the case are that assessee is a proprietor of M/s. Ajit Enterprises. However, no business was carried out in the above proprietary concern. Assessee declared income from F & O transactions, speculation loss, short term capital gain and interest income. The return of income was e-filed by the assessee on 29/09/2009 of Rs. 2,68,67,060/-. The return was processed u/s.143(1) of the Act. However, later on, the case was selected for scrutiny and after serving statutory notices and after providing opportunity of being heard to the assessee, the AO referred the case for Special Audit u/s.142(2A) of the Act and after receiving the report of the Special Auditor and providing opportunity to the assessee, the order of assessment dated 11/06/2012 was passed. 4. Aggrieved by the order of the AO, assessee preferr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e additional ground raised by the assessee goes to the root of the case and legal in question, therefore, we have decided to dispose the said ground firstly. 8. The brief facts of the case are that the assessee is engaged in share trading and F & O transactions. The assessee had declared short term capital gain of Rs. 1,39,91,448/- calculated as sales - purchases=gains. However, according to the AO neither the names of the shares and quantities, nor the dates of purchases, costs, dates of sales, amount of sales and profit / gains were given, therefore, according to the AO the assessee had simply gave the figures of debit / credit balances in name of three brokers and after reducing the same from the amount of stock sold, arrived at a figure of 1,53,80,700/-. In this respect, according to the ld. AO, assessee was repeatedly requested to give the details of the STCG in the required format as well as of share transactions mentioned in the AIR information containing 1133 entries and also to explain the source of purchases of these shares with documentary evidences. According to the AO, since assessee failed to explain the transactions, income earned on it and also source of purchase o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ovision of Section 142(2A) of the Income Tax Act whereas on the contrary, the ld. DR submitted that vide letter dated 30/11/2011, the assessee was requested to explain the transactions of the shares mentioned in the AIR information. It was also submitted that the copies and details of AIR information available with the AO was already given to the assessee with a request to explain the source of investment / purchases. However, even inspite of receipt of all the documents, the assessee could not explain and only stated vide letter dated 08/12/2011 that the transactions of the above shares are voluminous , therefore, the same cannot be explained, thus, in view of that and having regard to the nature and complexity of the accounts and in the interest of revenue, the required show-cause notice was issued to the assessee and after providing adequate opportunity of hearing, the order u/s.142(2A) of the Income for referring the matter to Special Auditor was passed. 11. We have heard both the Counsel and also perused the judgments cited by the parties and the orders passed by the lower authorities. From the record we find that from the AIR information, the AO sought explanation after sup....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... data consisting of 1133 entries pertaining to share transactions running 66 pages involving 115 crores approximately which remain unverified by the AO. Thus, the AO sought explanation from the assessee but the assessee made excuse by mentioning " reply cannot be given in writing in view of number of days are required to be reduced in writing". Thus, looking at the nature of reply, the AO issued show cause notice to the assessee as to why his case should not be referred to Special Audit u/s.142(2A). However, at the same time, the assessee objected to it and said that there is no complexity in his case. The AO after considering the nature and volume of transactions involved and also substantial amount which remain unverified, thus reached to the conclusion that it is a case of complexity if involved and passed order dated 22.12.11, which is reproduced below:- ORDER U/S 142(2A)OF THE INCOME TAX ACT. 1961 1. During the course of assessment proceedings it was found that AIR data consists of 1133 entries pertaining to share transactions which are running into 66 pages involving approximately Rs. 115 crores amount which remaining unverified so far. Having regard to the nature and vol....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uch audit may be furnished within 120 days of the receipt of this order by the assessee. The expenses of, and incidental to the audit will be paid to M/s Bhuta Shah & Co., Chartered Accountants by the Department as per Rule14(B) of I.T. Rules 1962, The said firm simply maintain time sheet and submit the same to Commissioner of Income Tax - 14 along with the bill. 5. This order has been passed after obtaining necessary approval from the Commissioner of Income Tax -14, Mumbai, as required under the provisions of section 142(2A) of Income Tax Act, 1961. 13. According to the AO, the assessee's non-cooperation attitude had also compounded to the complexity to the accounts of the assessee. The AO specifically mentioned to the accounts of the assessee in his order dated 22/12/2011 before reaching to any conclusion, the AO had provided opportunity to the assessee on 13/12/2011 and only after considering the submissions of the assessee, categorically held that the conduct of the assessee had added to the complexity on account of non-cooperation attitude of the assessee. This fact was not disputed that there are as many as 1133 AIR entries involved pertaining to share transactions running....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the transactions of the assessee on record, which were utmost necessary for the purpose of assessment. We also find that the Special Auditor has given point-wise answers to specific points contained in the scope of work in Part-III of its report, merely because it also expressed its opinion based on specific facts revealed during the special audit, on this reason, the said special audit report cannot be faulted. . It was entirely for the AO to accept or reject such opinion on the given facts. In this context, it is also noteworthy that the AO, after referring the findings of Special Audit Report in para 5 (page no. 3), went deep into the facts to discuss the same at length in paras 6 to 8 (page 5 to 17) of the assessment order, before reaching at a conclusion to treat the activity of assessee as 'Adventure in the nature of trade'. In these circumstances, it cannot be said that the opinion expressed by Special Auditor in its report was the sole factor influencing the judgment of the AO. In our view, the perusal of the Section 142(2A) of the Act would show that the twin conditions of "nature and complexity of account" and "interest of revenue" are pre-requisite for exercis....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... assessee and AO had participated in the proceedings by seeking explanations and replies with regard to the transactions involved in multiple accounts, contra entries, inter account settlement and transfer of funds, investments and bank accounts etc., Thereafter, necessary orders passed. Thus, the judgments cited by the ld. AR in the case of West Bengal State Co-operative Bank Ltd., vs. JCIT (267 ITR 345) and Delhi Development Authority and Another vs. Union of India and Another (350 ITR 432) and RPS Associates vs. DIT (IT) (280 CTR 582) are not applicable to the facts of the present case. Whereas the Hon'ble Delhi High Court in the case of DLF Ltd. and another vrs. Additional Commissioner of Income Tax and another'- 2014 (4) TMI 78 - had held that the powers under Section 142(2A) have to be exercised in terms of the legislative provisions. The object and purpose behind the legislation is to facilitate investigation and proper determination of the tax liability. The importance and relevancy of the legislation cannot be underestimated and it is a power available with the Assessing Officer to aid and assist him. Accounts should be accurate and provide real time record of the fina....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ture in the nature of trade and therefore, all the accruals from the PMS accounts amounting to Rs. 1,39,91,448/- are brought to tax under the head "profit and gains of business or profession" and taxed accordingly. 5.2. The appellant further submitted during appellate proceedings that the express provisions u/s 111 A says that if transactions of sale of equity or units are chargeable to SIT and done through stock exchange, then income shall be chargeable to STCG, liable to 15% tax. It seems that there was an intention of the Parliament to collect huge tax by way of S'lT and thereby to reduce the litigation on account of such transactions; hence the income from shares should be treated as STCG. 5.3. I have perused the assessment order, special audit report, detailed grounds of appeal, written submissions of the appellant, facts and circumstances of the case. I find that the appellant has transacted in shares of only one company i.e. M/s Akruti City Ltd. with three share brokers viz. M/s Ashika Stock Broking Ltd. (Mumbai), M/s Shriram Insight Sharebroker Ltd. (Kolkata) and M/s Centrum Broking Pvt. Ltd, (Mumbai). While the AO has treated the transactions "under PMS" with the b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ppreciation, but to indulge in adventure in the nature of trade. Hence, I uphold the action of the AO in treating the STCG of Rs. 1,39,91,448/- as Business Income. Therefore, Ground Nos. 3 & 4 are dismissed." 21. After carefully gone through the orders passed in the present case and considering the judgments cited by both the parties, we find that as per the facts of the case, the assessee was dealing in shares only with one company ie., Akruti City Ltd., with three share brokers i.e., Ashika Stock Broking Ltd., Shriram Insight Sharebroker Ltd., and Centrum Broking Pvt. Ltd., Although the AO had treated the transactions under PMS with the brokers. However, as per the facts, the assessee has dealt with these three brokers only in one scrip. As mentioned in the special audit report, there were 41 AIR entries amounting to Rs. 5.76 crores, 914 AIR entries amounting to Rs. 47.50 Crores and 178 AIR entries amounting to Rs. 50.90 crores with the three brokers respectively. In total as mentioned there were 1133 reconciled transactions aggregating to a huge amount of Rs. 104.46 Crores and generating profit of Rs. 1,39,91,448/- to the assessee. The assessee made borrowings of more than Rs. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....has covered the issue in para 14 of the assessment order. The AO stated that the assessee stayed in Posh locality at Malabar Hill with four family members. The said withdrawal of the family is Rs. 4,12,444/- which is approximately Rs. 35.000.- per month. This withdrawal is too low for a family of four, including School/ College going children and staying in a posh locality of Malabar Hill. School/ College fees of two children itself would be Rs. 10,000/- per month. On being asked about the low withdrawals, the assessee did not give any explanation and merely gave the details of withdrawals made by the family members aggregating to Rs. 4,12,444/-. Being not satisfied with the explanation given by the assessee, the AO estimated the withdrawal for house hold expenses at Rs. 60,000/- per month, i.e. Rs. 7,20,000/- for the year. Accordingly, the AO made addition of difference amount of Rs. 3,07,556/- 10.2 During appellate proceedings, the appellant stated that the addition on account of alleged low withdrawals is based only on suspicion, assumption and surmises and without any evidences. He stated that the total withdrawals are Rs. 4,12,4447- during FY 2007-08 i.e. 6 years, and the wi....