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2021 (5) TMI 538
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....ditions and disallowances were substantially confirmed by Ld. CIT(A) vide his impugned order dated 31.12.2018 and the aggrieved assessee is in appeal before us. The various grounds raised by the assessee are as under: "1) On the facts and the circumstances of the case, the Hon'ble CIT(A) erred in rejecting the Appellant's contention that the learned AO legally erred in invoking Section 144 of the Act and making best judgement assessment while assessing the income of the Appellant. 2) On the facts and the circumstances of the case, the Hon'ble CIT(A) erred in holding that there is no bar on the AO in resorting to the presumptions provided under section 292C or 132(4A) while completing the assessment and rejecting the Appellant's contention that presumptions raised under section 132(4A) of the Act cannot be used for making routine assessment. 3) On the facts and the circumstances of the case, the Hon'ble CIT(A) erred in rejecting the Appellant's contention that the learned AO erred in making the additions on the material and / information received from third parties without furnishing copies of the same for inspection and / or providing an opportunity of....
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.... 4. The issue raised in ground No.4 is against the order of Ld. CIT(A) upholding the addition of Rs. 81,15,850/- made by the AO towards profit in money market operations. 5. The assessee has also filed an additional ground vide letter dated 03.03.2020 a part whereof is connected to ground no. 4 and is required to be adjudicated together. The additional ground is reproduced as under: "1. The learned CIT(A) has erred in not accepting audited books of accounts and also in not considering security trading loss of Rs. 76,76,455/- and depreciation of Rs. 4,72,678/-." 6. The said additional ground is being taken up at this stage because the security trading loss of Rs. 76,76,455/- has a bearing on ground No.4 as the assessee has submitted before the Bench that this loss may kindly be allowed to be set off against the addition made of Rs. 81,15,850/-. The assessee has also raised the issue of depreciation of Rs. 4,72,678/- with the prayers that the same may kindly be allowed as the same has been provided in the assets used in the business of the assessee. The Ld. A.R. submitted before the Bench that in the first round of litigation the Tribunal vide its order dated 26.06.2007 passed ....
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....ransactions issued by M/s. Harshad S. Mehta to the assessee, observed that assessee has earned an aggregate of Rs. 81,15,850/- from seven money market transactions and accordingly added the same to the income of the assessee. In the first round of litigation, the Ld. CIT(A) noted that assessee has entered into money market transactions resulting into a profit of Rs. 81,15,850/- which even the assessee has not disputed. The Ld. CIT(A) also noted in the first round that only grievance of the assessee was that it had also entered into similar transactions resulting into losses which have not been allowed to be set off against the profit from money market transactions. 10. In the second round of litigation, the assessee submitted before the Ld. CIT(A) that it has earned a net income of Rs. 4,39,395/- after claiming a set off of trading losses of Rs. 76,76,455/- and offered the same as income from speculation business in its books of accounts. It was submitted that the said books of accounts have been duly audited by the auditors and their genuineness can not be doubted or questioned in absence of any contrary evidences being brought on records , however, the Ld. CIT(A) dismissed the a....
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....eal is dismissed." 11. The Ld. A.R. submitted before the Bench that Ld. CIT(A) has failed to appreciate the facts as available on record. The Ld. A.R. submitted that profit from money market transactions of Rs. 81,15,850/- is a speculative profit and eligible to be set off against the loss from share transactions which were of speculative in nature on which the assessee has incurred an aggregate loss of Rs. 76,76,455/-. The Ld. A.R. referred to the page No.70 of the paper book which is a share trading account and contains entries in respect of the aforesaid money market transactions and submitted that in the said account only the difference is credited as profit without taking total value of transactions of purchase and sale for the reason that assessee has not taken delivery of securities as the same was not intended. The Ld. A.R. submitted that these transactions were in fact settled without taking and giving any delivery and therefore assessee was entitled to only the difference between purchase and sale price of transactions. The Ld. A.R. submitted that had the assessee carried out these transactions by taking physical delivery it would have accounted for the purchase and sale....
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.... Ld. CIT(A) has given a finding that transaction of money market are always backed by bank receipts or actual bonds and thus profit or loss arising from money market transactions are non speculative in nature, however, after examining the records before us we find that in this case the physical delivery has not taken place and therefore the transactions of sale and purchase of securities are speculative transactions and so is the profit resulting from those transactions. The speculative transactions are defined under section 43(5) of the Act and are eligible to be set off against the loss of share transactions. Accordingly, we hold that the speculative loss from share market transactions of Rs. 76,76,455/- is eligible to be set off against the profit from trading in money market securities at Rs. 81,15,850/-. The case of the assessee is also covered by the decision of the co-ordinate bench of the Tribunal in the case of Growmore Research and Assets Management Ltd. vs. DCIT (supra) wherein the coordinate bench of the Tribunal has held as under: "3.6. We have gone through the orders passed by the lower authorities and submissions made by both the sides as well as judgment relied up....
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....se of R13! Vs. Peerless General Finance and Investment Co. Ltd AIR 1987 SC 1023 that the Legislatures resort to inclusive definitions also to bring under one nomenclature all transactions possessing certain similar features but going under different names. Depending on the context, in the process of enlarging, the definition may even become exhaustive. In my opinion, therefore; the word "include" is used in Section 2(h), in truth and substance, to give exhaustive definition of the term "securities" for the purpose of Securities Contract Act. Therefore, as on the relevant date the units of the Mutual Funds which was the subject matter of the ready forward transaction between the parties was not securities within the meaning of the Securities Contract Regulation Act, the transaction was not hit by the notification issued by the Central Government under Section 16 and therefore, the transaction cannot be said to be an illegal transaction as it was not prohibited by the Securities Contract Regulation Act. Issues Nos. 4 & 5 are, therefore, answered accordingly." 5.6 Thus, the Special Court has held that forward transactions in Government securities are not illegal. 5.7 The case of t....
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....very would fall within the scope of speculative transactions as defined in section 43(5). Therefore, loss/profit from shares market transactions can very well be set off/adjusted against loss/profit of money market transactions. This issue has already been decided in favour of the assessee by the Tribunal in the case of group company of the assessee namely M/s. Growmore Leasing Investment (supra) as discussed above also. No distinction has been pointed out on facts or legal position by the Ld. Special Counsel of the Revenue, therefore respectfully following the order of the Tribunal in the case of M/s. Growmore Leasing Investment (supra) as well as ANZ Grindlays Bank v. DCIT (supra), we find that the claim of the assessee is allowable. Therefore disallowance made by the AO is directed to be deleted. Thus, ground no.2 is allowed." 13. In view of the above facts and circumstances and also the decision of the co-ordinate bench of the Tribunal we are inclined to set aside the order of Ld. CIT(A) and direct the AO to assess the net income of Rs. 4,39,395/- which is the difference between the profit from trading in money market securities of Rs. 81,15,850/- and losses from share market ....
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....considered as squared up on 31.03.1992 or wherever information of change in position is available on the day when the position is changed. Based on this conclusion, the AO calculated the profit on squaring up of positions by presuming that on each day subsequent to the date of the sheet the position originally held in the name of the assessee was squared off calculation whereof are as under: Particulars Amount (in Rs.) Position between 24.01.1992 and 12.02.1992 4,53,42,998 Position between 12.02.1992 and 18.02.1992 (-)25,08,750 Position between 18.02.1992 and 21.02.1992 20,02,40,875/- Position between 27.02.1992 and 31.03.1992 71,99,04,250 TOTAL 97,29,79,373 17. Accordingly, the AO made the addition of Rs. 97,29,79,373/- on account of speculative income by squaring up of positions in various scrips. 18. In the first round of litigation before Ld. CIT(A) these additions were confirmed by Ld. CIT(A). In the set aside proceedings before the Ld. CIT(A) also these additions were confirmed by the ld CIT(A) by holding and observing as under: "14.11 The contentions of the assessee have been duly considered. It is noted that in course of search action, documents were found ....
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....ame "CASCADE HOLDINGS /CASCADE" in respect of the shares purchased / sold on behalf of its various clients till the sauda book was validated / corrected and only thereafter the said transactions of the clients were posted in their respective ledgers and contract notes issued. It was submitted that the initial entries were being made by the junior staff of M/s. J.H. Mehta and therefore were prone to mistakes. The assessee contends that only few of the transactions as per the said seized documents relate to it and they have been duly recorded in its regular books and the bulk of the transactions relate to the other entities of its group namely M/s Growmore Leasing, M/s Growmore Research, M/s Harsh Estates, Jyoti H Mehta -investments, Jyoti H Mehta - trading, M/s Mazda Industries, Deepika Mehta, Harshad Mehta, Hitesh Mehta, Pratima Mehta, Rasila Mehta, Sudhir Mehta & Rina Mehta. In support of this claim, the assessee also submitted an affidavit of M/s J H Mehta confirming the same. 14.13 On the above contentions, it is noted that the reliance placed by the assessee on the affidavit submitted by M/s J H Mehta, confirming that only some of the transactions as per the said seized docum....
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....td. as concluded by the Assessing Officer in the order. In support of the same, I state as follows:- (i) that the last column containing 'C. No.' represents 'Contract Number". It may be noted that for practically each and every transaction listed in this above material, no contract number is mentioned. In fact, this conclusively establishes that these are not the actual transactions but only a test list. ..................................................in the alternative, I am open to establish the same directly to the ACIT or CIT(Appeals) by producing the relevant records. 14.15 However, in the present appellate proceedings, it has been contended that the said transactions as per the seized documents have actually taken place but only some of them relate to the assessee and the balance relate to the other entities of the Harshad Mehta Group, etc. This itself shows that the claim made by M/s J H Mehta in her affidavit as well as the contentions now being made that the entire transactions do 'not pertain to the assessee but bulk of them pertain to other entities of the Harshad Mehta Group, is only an afterthought. Similarly, the other contention that the initial....
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....s J H Mehta were examined. From the ledger accounts, it was observed that there is no actual payment / receipt by way of cash / cheque and there are only adjustments by way of Journal entries. Therefore, the assessee vide order sheet noting dated 08,10.2018 was asked to submit details of actual payments made other than the adjustments made by way of journal entry in respect of the shares purchased by the said other entities of the Harshad Mehta Group and details of actual receipts other than adjustments by way of journal entry for the shares sold by the said other entities. Moreover, the assessee was also asked to submit the proof of delivery with distinctive numbers since it was the claim of the assessee that the conclusion of the AO that the said transactions are forward transactions without delivery, is not correct. However, till the passing of the appellate order, the desired information was not submitted. In respect of genuine share trading transactions carried out by a client through a broker, the features which are routinely found include features like (i) for a purchase transaction, at the end of the settlement period, either delivery of shares is taken or the same is carri....
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....eized by the various investigative agencies for which even Shri Harshad Mehta himself could not identify the owners for a substantial period of time and even now a large number of such tainted/benami shares are lying in a common pool created by the Custodian since, the owners have still not been identified. It is also noted that even while informing the Custodian about the ownership of the said tainted/benami shares, no proof of delivery was provided. Thus, the action of the AO of presuming that the said stock of shares as per the seized documents belong to the assessee which was carried forward and squared up on or before 31.03.1992, cannot be faulted. 14.19 The assessee has further contended that the total quantum of forward transactions undertaken by M/s J H Mehta on the various Stock Exchanges for all its clients is much less than the forward transactions carried out by the assessee alone as per the working of the AO and therefore the presumption of the AO that the said shares were carried forward and subsequently squared up by not taking delivery, is not correct. In respect of this contention, it is relevant to note that other than the floor of Stock Exchange, the trading ....
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....992, cannot be faulted. 14.21 Further, the assessee contends that in Calcutta Stock Exchange, carry over was not allowed and therefore the conclusion drawn by the AO and the resultant additions after presuming sale on squaring up, is not correct. Moreover, the assessee also contended that if it had actually earned such huge profits, it would have received payments from the said 4 broker firms of Calcutta. On these contentions, it is observed that it is not the case of the AO that the said purchase/sale transactions in respect of the stock noted in the said seized documents were carried out at Calcutta Stock Exchange. The notings on the said seized documents suggested purchases at various stock exchanges and also outside the floor of Stock Exchange. However, there were no notings on the said seized documents related to the sale of the said stock and the assessee also could not even provide necessary evidences in respect of the ultimate fate, proof of delivery, etc. Thus the said contentions of the assessee are rejected. 14.22 The assessee further submitted that as per the order of the Hon'ble Special Court, the stock of shares noted in the said documents have been duly regis....
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....for transfer of shares belonging to the Harshad Mehta Group of Entities in the name of the Custodian. While making this application, attention of the Special Court was invited to the fact that the Custodian had convened a meeting of the Harshad Mehta Group Entities on 18.01.2003 for ascertaining the names of the entities to whom the shares belong. This meeting did not take place and was again reconvened on 23.01.2003. In this respect, following particular observations were made by the Custodian. "Para 11- However, even after detailed discussions and enquiry, it could not be ascertained as to which particular notified entities the said shares belonged. The notified entities expressed their inability to identify the entities to who the said shares belong. Accordingly, the Harshad Mehta Group entities unanimously requested the Custodian to transfer the said shares in the name of the notified entities and / or the Custodian in a manner deemed fit by the Custodian................ Para 12 - Thus, the Harshad Mehta Group entities have failed to disclose the names of the entities to whom the said shares belong and also to carry out the correlation exercise. Further, they have left the ....
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....o furnish the requisite information along with evidences, it will be presumed that the said shares have been carried forward and squared up on 31.03.1992. However, there was no compliance by the assessee. Even in the present appellate proceedings, the assessee has neither furnished the requisite details of the ultimate fate of the said shares nor the proof of delivery of shares with details of distinctive numbers. Therefore, the action of the AO of presuming that the said shares were sold on 31.03,1992, cannot be faulted. Further, this issue has also been adjudicated by my Ld predecessor in the case of Harshad Mehta for AY 1992-93 in order dated 24.03.2010 in IT. 59/95-96 and the said case laws relied upon by the assessee have been distinguished. The relevant portion of the order on this issue is reproduced as under:- "11.3.1 The appellant has placed reliance on some decisions in support of his claim. Looking into these decisions in the context of the facts in the appellant's case, I find the appellant's reliance on the decisions misplaced. In the case ACIT and M/s. Triumph International Finance Ltd., the decision has been given in the context of buying and selling on....
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....ore us that the addition made by the AO as well as its subsequent confirmation by Ld. CIT(A) even in the second round of litigation is factually and legally incorrect. The Ld. A.R. submitted that admittedly the some loose sheets were found and seized at the time of search action which showed rough notings and contained some references to dates like 27.1.1992, 12.02.1992, 18.02.1992 & 27.02.1992, however, no other evidence was found during the course of search which either confirms or corroborates any of these rough notings or the purchase of shares by the assessee. The Ld. A.R. submitted that the said rough sheets seized from the office of brokerage firm M/s. J.H. Mehta can not be accepted to be outstanding shares position of the assessee and thus it can not be presumed that shares were purchased by the assessee and assessee was holding these shares of various companies. The Ld. A.R. submitted that such sheets were regularly prepared by the brokerage firms before undertaking and accounting for the transactions and no presumptions can be made on the basis of such rough sheets as made by the AO. Since the broker, M/s. J.H. Mehta alongwith other family brokerage firms, were conducting....
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....ion of the bench to the letter dated 21.01.1991 [Enclosed with letter dated 07.09.2020 filed before Your Honour which was filed before the DDIT (Inv.) pursuant to the earlier search carried carried out on 27.09.1990. In the said letter, Mr Harshad Mehta had explained the source of payments made for various investments made by this family members and corporate entities, including the appellant. In the said letter, Mr. Harshad Mehta, as well as the other brokers of the family had explained the manner in which the transactions carried out by them for the clients were recorded in the loose sheets. It was duly explained that the notings on such loose sheets cannot be considered to be final unless reconciliation and authentication is carried out regarding them. The said crucial letter therefore proves that the daily position sheets found at the time of search from the premises of M/s. J H. Mehta cannot be considered to be correct and reliable account of the transactions much less it can be concluded to be pertaining to the appellant for the purpose of determining income of the appellant. 19.1. The ld AR argues that perusal of the seized pages shows that they are dumb documents reflectin....
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....s and jottings about trading transactions carried out or yet to be carried out by the broker, M/s. J H. Mehta. Such sheets containing rough notings cannot be considered for the purpose of making additions without any corroborative evidences found as a result of search. The ld AR submits that no cognizance can be taken in respect of the notings on such documents not reflecting true, correct and final position of the transactions undertaken by the brokerage firm of M/s j H Mehta much less they can be used to make numerous presumptions as made by AO to fasten any liability to pay tax on the appellant. The AR of the assessee submits that in order to make any addition on the basis of the notings reflected in such sheets, it is imperative on part of the AO to bring some corroborative evidences found as a result of search, which can substantiate the notings on the said sheets establishing concluded transactions undertaken by the appellant. 19.2 The ld AR submits that during the course of the assessment proceedings, the assessee had strongly denied the correctness of the sheets and the notings therein. In fact to corroborate the same, the assessee also filed the copies of the Ledger accou....
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....eclaration was sought by the Department from M/s J H Mehta or the assessee in respect of the income arising from the alleged transactions. This itself proves that the notings on these pages do not reflect the actual transactions earned out by M/s J H Mehta for the appellant and the same are merely rough jottings and notings made by the staff of the broker M/s J H Mehta. In fact, looking at the size of the appellant company with the share capital of just Rs. 200, it cannot be said that the appellant company was capable of earning income of such magnitude. The presumption of sale of such huge quantity of shares on one day is also not tenable as it is easy to examine and ascertain the transactions of M/s J. H Mehta undertaken on 31.03.1992 with the BSE. 19.4. As regards the presumption made by the AO of sale of all the positions on 31.03.1992, the AR relied upon the decision of Tribunal dated 24.08.2005 in the case of related companies Topaz Holdings Pvt. Ltd. v. ACIT [ITA No. 2828/Mum/2001] wherein, vide its order dated 24.08.2005, it was held that income cannot be determined by presuming sale of shares when no evidences have been found to establish that the shares were sold by the ....
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....filed at Page no. 47-54 of PB, the appellant was also informed that enquiries were conducted by the AC, with other brokers pertaining to the share transactions of the assessee. The details of the share transactions are also reflected in the said notice issued to the appellant. The Annexure attached to the said notice gives complete details of the transactions carried out by the appellant in the shares of several companies through various brokers. The extensive enquiries conducted by the AO clearly prove that all efforts were made by him to ascertain complete details of purchase and sale of shares made by the appellant during the year. In spite of these extensive inquiries, no corroboration to the seized documents has been brought on record by the AO. It may be important to note that no addition has been made in respect of information obtained from the enquiries caused with the several brokers thereby establishing the fact that all the transactions pertaining to the assessee were correctly and properly recorded by the assessee and that none of the information reflected any unexplained investments in the hands of the appellant. 19.6. The ld AR further submits that the accounts of th....
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....hare position and have the assessee's name mentioned in front of various scrips. The Ld. D.R. submits that the assessee has been given various opportunities to explain the said entries, however, assessee, despite several opportunities, fails to furnish any evidences to negate the notings in the said documents. The Ld. D.R. submits that since the additions were made on the basis of incriminating documents seized during the course of search and there was no way than to presume that assessee might have squared off these position at the year end. The Ld. D.R., therefore, prayed before the Bench that the order of Ld. CIT(A) may kindly be confirmed. 21. We have heard the rival submissions of both the parties and perused the material on record. The undisputed facts are that certain papers were found during the course of search from the premises of brokerage firm M/s. J.H. Mehta which contains the notings reflecting market position in the name of the assessee on 24.01.1992. Accordingly , the AO calculated the profit on the transactions of shares reflected in these papers and made an addition of Rs. 1,92,05,630/-. Similarly, some daily position sheets were found and seized from the premise....
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....n February 1992 and March 1992 of such magnitude. We also note that despite seized material containing transactions carried out by share brokerage firm M/s. J.H. Mehta, no statement was recorded of any employee or official of M/s. J.H. Mehta at the time of search or during the course of assessment proceedings and therefore the AO has not taken any steps to bring on record any material to corroborate the rough bottings on these sheets and merely proceeded on the basis of surmises and conjuncture. The case of the assessee is also squarely covered by the decision of a related company in the case of Topaz Holding Company Pvt. Ltd. vs. DCIT in ITA No.2828/M/2001 A.Y. 1992-93 and DCIT vs. M/s. Pallavi Holdings Pvt. Ltd. in ITA No.1912/M/2000 wherein the coordinate bench of the Tribunal had held that income can not be determined by presuming the sale of shares without no evidences have been found to establish that shares were sold by the appellant. The DR could not bring any decision to the contrary. In view of the above facts and circumstances and the ratio laid down in the two decisions of the co-ordinate bench of the Tribunal, we are not in agreement with the conclusion drawn by the Ld....
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....2 before DDIT (Inv.) the assessee has made a disclosure of Rs. 100 crores because Shri Harshad Mehta was not in a position to determine the exact income earned from dividend, share trading, profit, capital gain etc. The Ld. A.R. submits that the said disclosure was made in absence of complete books of accounts and was purely passed on estimation basis but now the income has been assessed on the basis of entries in the books of accounts and there is no undisclosed income in the hands of the assessee as the income has been assessed on the basis of bank statements and the books of accounts. The Ld. A.R. submitted that once the income of the assessee has been assessed on the basis of accounting records, the estimate made in the disclosure can not be separately added in the hands of the assessee. In defence of his arguments, the Ld. A.R. relied on the decision of co-ordinate bench of the Tribunal in the case of M/s. Orion Travels Pvt. Ltd. vs. ACIT ITA No.939/M/2019 A.Y. 1991-92 a related group entity wherein the identical addition based on the declaration was deleted by the Tribunal. The Ld. A.R. prayed before the Bench that following the said decision of the co-ordinate bench of the T....
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.... and also expenses which are not supported by any documentary evidences. Therefore, AO disallowed a sum of Rs. 1,67,014/- in respect of various items of expenses which was upheld by the Ld. CIT(A) in the first round of litigation.Again the AO disallowed the same amount added to the income of the assessee. 29. The Ld. CIT(A) in the second round again dismissed the appeal of the assessee on this issue by observing and holding as under: "16.1 In the present appellate proceedings, the assessee submitted that it has incorporated the entire expenditure of Rs. 3,49,042/- in the books of accounts subsequently submitted which have also been subjected to audit. Accordingly, the assessee contended that the entire disallowance made by the AO of Rs. 1,67,014/-. 16.2 The contentions of the assessee have been duly considered. Even in the present appellate proceedings, the assessee has not submitted the supporting evidences in respect of the said claim of expenditure. Therefore, no infirmity is found in-the action of the AO in making the said disallowance of Rs. 1,67,014/-. Accordingly, ground No.12 of the appeal is dismissed." 30. The Ld. A.R. submits before the Bench that the expenses d....
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....ia need verification at the level of the AO and accordingly restored to the file of the AO with the direction verify the date of payment of bonus and exgratia payment and in case they are paid before due date of filing the return, needless to say that same are to be allowed. Otherwise the same may be allowed on payment basis in the subsequent years. The ground is partly allowed for statistical purposes. 33. Vide ground No.8 the assessee has challenged the confirmation of short term capital loss by Ld. CIT(A) on sale of 9% of IRFC bonds amounting to Rs. 48,93,466/- by invoking section 94(4) of the Act. 34. The facts in brief are that the assessee received tax free interest income of Rs. 45 lakhs on 9% of IRFC bonds purchased on 26.09.1991 for Rs. 10,06,39,041/-. These bonds were sold on 11.10.1991 for a consideration of Rs. 9,57,46,575/- resulting into a short term capital loss of Rs. 48,93,466/-. The AO invoked the provision of section 94(4) and disallowed the short term capital loss of Rs. 48,93,466/- claimed by the assessee. In the first round of litigation, the Ld. CIT(A) confirmed the addition by holding that provisions of section 94(4) of the Act are applicable to the asses....
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....the case of Harshad S. Mehta, hence the prerequisites of section 94(4) has not been satisfied and therefore prayed that disallowance made by the AO may kindly be deleted by setting aside the order of Ld. CIT(A). 37. The Ld. D.R., on the other hand, relied on the order of the AO and Ld. CIT(A). 38. We have heard the rival submissions of both the parties and perused the material on record. The short issue involved in the present ground is against the confirmation of disallowance by Ld. CIT(A) of Rs. 48,93,466/- which has resulted from sale of 9% of IRFC bonds. The AO has invoked provisions of section 94(4) of the Act on the ground that the assessee has purchased the bonds before the record date and after receiving the tax free interest of Rs. 45 lakhs, these investments were sold after the record date resulting into short term capital loss of Rs. 48,93,466/-. The primary contentions of the Ld. A.R. of the assessee is that the provisions of section 94(4) of the Act can not be invoked unless and until the relevant income is brought to tax in the hands of the counter party under section 94(4) of the Act meaning thereby that unless the interest arising and accruing from the security is....
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....--- (3) ----------------------------------- (4) Where any person carrying on a business which consists wholly or partly in dealing in securities, buys or acquires any securities and sells back or retransfers the securities, then, if the result of the transaction is that interest becoming payable in respect of the securities is receivable by him but is not deemed to be his income by reason of the provisions contained in sub- section (1), no account shall be taken of the transaction in computing for any of the purposes of this Act the profits arising from or loss sustained in the business. (5)------------------------------------------- 7. From the above provision, it is clear that where the honour of any securities sales or transfers those securities and buys back or reacquire the securities, then, if the result of the transaction is that any interest becoming payable in respect of securities is receivable otherwise then by the owner, the interest payable thereof shall be deemed to be the income of the owner for the purposes of chargeable to income tax under this Act. It means that, in the present case before us, the IRFC bonds was owned by Harshad S Mehta and assessee purcha....
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....e party from whom the shares in question were purchased and to whom the same were sold by the assessee. The bonds in question were purchased and re-sold to Harshad S. Mehta, but the provisions of Sec.94(1) of the Act had not been invoked in the said case, and, therefore, the provisions of Sec.94(4) of the Act could not be invoked in the case of the assessee. Going by the intent, we are of the view that the provisions of Sec.94(4) of the Act had been introduced with a view to levy tax on the interest income, which was being sought to be avoided by certain persons by carrying on transactions in shares and securities. The intention of the Legislature was to tax the interest income in the right hands, which had been avoided by transferring the shares and then repurchasing the some after the interest was received by the other persons. Therefore, it was necessary for the AO to prove that the assessee had attempted to avoid payment of tax. Since the interest income on 9% IREC Bonds was exempt from tax, there was no question of the assessee or Harshad S. Mehta adopting any such methods to avoid tax on the income. Further, we are of the view that the provisions of Sec.94(4) of the Act would....
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.... the Act. On this aspect, pleas of the assessee are two fold. First, the plea is to the effect that the provisions of section 234A, 234B and 234C are not applicable to notified entity. This aspect of the matter is required to be held against the assessee following the judgment of the Hon'ble Bombay High Court in the case of Divine Holdings Pvt. Ltd( ITA No.3334 of 2010 dated 7/3/2012), as decided by our Co-ordinate Bench in the case Eminent Holdings Pvt. Ltd. in ITA NO.2139/Mum/2013 dated 18/6/2014, which also was a case of notified entity under the Special Court (Trial of Offences relating to transactions in Securities) Act, 1992. At the time of hearing this aspect of the matter was fairly conceded by the Ld. Representative of the assessee. 6.1 The second plea of the assessee is with regard to the quantum of interest chargeable under section 234A, 234B & 234C of the Act which is to the effect that the interest should be charged after considering the amount of tax deductible at source on the income assessed. Similar plea of the assessee was upheld by our Co-ordinate Bench in the case of Eminent Holdings Pvt. Ltd. (supra). Following the same, we deem it fit and proper to restore....