TaxTMI 
TaxTMI 
TaxTMI 
2025 (8) TMI 1178
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....lowed by AO (G=lower of Column (F)&(B) CMS Computer Ltd 1,50,00,00,000 80,96,00,896 77,24,81,242 72,75,18,758 29,92,12,840 42,83,05,918 42,83,05,918 2015 Grover Family Trust 16,50,00,000 4,63,79,164 10,90,98,636 5,59,01,364 5,59,01,364 4,63,79,164 Total 48,42,07,282 47,46,85,082 3. Since the facts and findings recorded by the authorities below in both the cases are identical, for the sake of ready reference appeal of M/s.CMS Computers Ltd., is taken as a lead matter and our finding given therein will apply mutatis mutandis in the appeal of 2015 Grover Family Trust. 4. The assessee, a limited company, filed its return of income on 17.10.2016 and a revised return on 09.03.2017, declaring a total income of Rs.15,00,90,979/-. The return was originally processed under section 143(3) on 01.09.2018 determining total income at Rs.15,53,22,394/-. Subsequently, based on information arising out of a survey in the case of JM Financial Asset Management Ltd. as well as a survey at the assessee's own premises, the case was reopened under section 147. The reassessment culminated in an order dated 30.03.2023 determining the total....
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....he summary of the findings of the Investigation Wing in the following manner:- "6.11 Summary of findings: 6.11.1 The modus operandi identified as per the findings during the course of survey action as well as post survey inquires is being summarized as under: i. JM Financial Asset Management Company, internally creates and floats few schemes with their employees as subscribers to the scheme ii. While the scheme has only 2 or maximum 3 subscribers (all of whom are internal employees/associate companies) with minimum investment amounts, the IER is increased over a long period of time to show huge distributable surplus, the ratio of which is applied to all the inflow of funds iii. Once a significant IER is created on a small AUM base, the sales team reaches out to other distributors/NHIs/Big Corporates with the plan of providing fictitious STCL and distributing dividend (exempt from täxation) which would not fall within the purview of section 94(7) of the IT Act. iv. The target Investors are about the modus operandi and the possible tax benefit that they would avall by subscribing to schemes as genuine investors. v. In the meantime, the Income Equalization Reserve (....
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....had disallowed the short term capital loss of Rs.42.84 Crores which were set off against long term capital gain of Rs.52.82 Crores. In sum and substance, the finding of the ld. AO can be summarized in the following manner:- i. Ld.AO alleged that during the survey in case of JM Financials, it was found that JM Balanced Fund Annual Dividend Option Regular Plan of JM Financial had manipulated accounting methodology so as to artificially inflate the distributable surplus. It was alleged by department that the dividend received by the investors from the said Plan was out of sham transactions generated from colorable devices. ii. Ld AO has stated that the said fund has violation the SEBI circular No. SEBI/IMD/CIR No 18/198647/2010 which instructs the fund houses that the unit premium reserve shall be treated at par with Unit Capital and cannot be utilized to declare dividends and the mutual fund houses cannot distribute dividends from Unit Premium Reserve. It was also alleged that the mutual funds house has rigged up the distributable surplus, in a planned manner iii. Ld. AO stated that assessee is one of the beneficiaries of the said scam. It was contended that assessee has claime....
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....ne with the provisions of the Act. Also, I find that the AO has not disputed the amount of such cost or sales consideration, thus doubting the short-term capital loss arising from such figures is not correct. Further, it is not the case of the AO that the appellant has violated the provisions of section 94(7) of the Act. Further, it is noted that the appellant is a regular investor and has also incurred losses of Rs.7,25,636/- in BOI AXA Equity Mutual Fund which has not been doubted by the AO. It is also noted that the appellant has also received dividend of Rs. 18,68,861/- from Infosys Limited, Bharat Electronic Limited & BOI AXA Equity Mutual Fund. This shows that the investment in JM financial fund is not an isolated transaction. In the assessment order, it is noted that AO has heavily relied on findings of survey action conducted in case of JM Financial Asset Management Limited on 15.02.2021 wherein it has been alleged that JM Financial had manipulated accounting methodology so as to artificially inflate the distribute surplus thereby floating the SEBI guidelines. I find that AO has failed to bring on record any SEBI enquiry or order on JM Financials which supports the cont....
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....to establish his allegation. It is also noted that the said fund is still active in the market and has given overall return of 11.51% against the benchmark return of 11.33% as reflected in the annual report of JM Financials for FY 2014-15. It is also noted that an investor makes investment after analysing the performance and publicly available data of the Mutual Fund. The assessee has shown that the said scheme is an open-ended scheme floated by the Mutual Fund, so any person can enter the scheme at the price available in the open market and exit the scheme at any time at the market price. Therefore, the chances of assessee being specifically being involved in the alleged pre-planned transaction gets reduce in the absence of clear evidences bought on record by the AO. Further, I find that the entire transaction of purchase and sale has been done through proper banking channels. The appellant is a regular investor and has invested in similar funds. Units have been sold through proper and approval channels and the fund has been approved by SEBI. Also, the said fund is still active as on date. AO has not bought on record any evidence which could show that SEBI has suspended the said....
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....n shares and securities including the mutual funds. Ld.CIT(A) noted that in the same year, assessee has also incurred losses of Rs.7,25,636/-in BOI AXA Equity Mutual Fund which has not been doubted by the AO. Further, LD.CIT(A) also noted that assessee has received dividend of Rs. 18,68,861/- from Infosys Limited. Bharat Electronic Limited & BOI AXA Equity Mutual Fund. This shows that the investment in JM financial fund is not an isolated transaction. (v) With regards to findings of id AD based on the survey in case IM Financial Asset Management Limited. Ld.CIT(A) observed that Id. AO has failed to bring on record any SEBI enquiry or order on JM Financials which supports the allegations of the Id AO. (vi) With regards to statements of various employees of JM Financials which has been relied upon by the AO Ld. CIT(A) observed that none of the employees have admitted that the manipulation has been done for the purpose of providing tax benefit to the assessee or other investors. Ld. CIT(A) also noted that employees of JM Financials have mentioned name of CEO Mr. Bhanu Katoch, but no statement of the said CEO has been recorded or relied upon by AO. Further, Ld. CIT(A) also noted th....
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....oted that there are several balances and checks provided by the Statute and several independent Government and Semi Government bodies to ensure the bonafide, genuineness of the Scheme floated by a Mutual Fund. Therefore, unless a very specific allegation supported by direct and cogent evidence by SEBI, allegations made by AO is merely on suspicion (xiii) Ld CIT(A) has also relied on the decision of Mumbai Tribunal in the case of M/s. Goldiam International Ltd. Vs. DCIT in ITA No. 3218/Mum/2023 dated 05.04.2024, wherein similar facts involving JM Financials, Hon'ble Tribunal has held that it is natural for NAV to drop after dividend declaration and investor incurring loss on redemption thereafter Thus, transactions entered by the assessee cannot be said to be fictitious/ sham on that account 12. Here it would be relevant to discuss the brief facts of M/s.2015 Grover Family Trust are that assessee had acquired units of JM Financials mutual fund JM Balanced Fund for Rs. 16,50,00,000/- on 28.10.2015 Against the same the assessee had earned dividend income of Rs 4,63,79,164/- on 30.03.2016 Further assessee had redeemed mutual funds of the said company in the year under considerat....
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....s of purchase and redemption are supported by unimpeachable documentary evidence including mutual fund folio statements and bank statements and have been duly recorded in the regular books of account. The computation of short-term capital loss has been carried out strictly in accordance with section 48 of the Act, wherein the cost of acquisition and expenses on transfer are deducted from the full value of consideration. Significantly, the Assessing Officer has not disputed either the cost of acquisition or the redemption value. Further, the assessee's have themselves disallowed, under section 94(7), the loss to the extent of the dividend component, thereby adhering to the statutory disallowance mechanism. 17. We further note that the assessee's are not occasional or isolated participants in the mutual fund market. They are regular and consistent investors in shares, securities, and mutual funds. In the same assessment year, they have undertaken similar investments, for example, in BOI AXA Equity Mutual Fund which have resulted in losses accepted as genuine by the Department. They have also earned dividend income from reputed listed companies such as Infosys Ltd. and Bharat Electro....
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....e evidence, that a transaction is colourable or devoid of commercial substance. In the present cases, that burden has not been discharged. What emerges instead is that the investments were genuine, made through proper banking channels, duly reflected in the books, and supported by contemporaneous documentation. 22. The legal position is also well settled. In CIT v. Walfort Share & Stock Brokers (P) Ltd. (2010) 41 DTR 233 (SC), the Hon'ble Supreme Court held that a transaction otherwise in accordance with law cannot be disregarded merely because it results in a tax advantage, unless it is devoid of commercial purpose and is a mere facade. Even assuming that the investments were made with awareness of the dividend record dates and the inevitable fall in NAV thereafter, such awareness does not render the transaction non-genuine if it is otherwise lawful and commercially permissible. 23. We also derive persuasive guidance from the coordinate bench decision in Goldiam International Ltd. v. DCIT (ITA No. 3218/Mum/2023, order dated 05.04.2024), where, on substantially identical facts involving the same fund house, the Tribunal held that a fall in NAV after declaration of dividend, and t....
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.... insight portal, i.e., survey u/s.133A of the Income Tax Act, 1961, was conducted on 15.02.2021 in the case of M/s. JM Financial Asset Management Limited ("JM Financial"), Mumbai. In the course of survey, it was found that JM Balanced Fund- Annual Dividend Option Regular Plan (the "Plan") of JM Financial had manipulated accounting methodology so as to artificially inflate the distributable surplus. In the process, the SEBI guidelines have been flouted by the JM Mutual Fund by classifying a portion of capital as distributable surplus and thereafter artificial payout to the investor in the form of dividend. 4. It was also communicated that though dividend received by the unit holders from the equity based mutual fund is exempt from taxation u/s 10(35) of the Act, however, the same cannot be applied as said provisions are for genuine investments in market regulated mutual funds. On detailed investigation, the DDIT (Inv.) had concluded that the dividend received was from sham transaction generated using colorable devices. The dividend received is not on account of appreciation of the investment but is return of a part of the capital itself and hence it can't qualify as dividend. ....
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....ethodology to artificially inflate distributable profits which lead to the conclusion by the ld. AO that dividend received by the investors from the said fund was out of sham transaction; * Secondly, ld. AO has relied heavily upon SEBI Circular No. SEBI/IMD/CIR No 18 / 198647 /2010 which instructed that the Unit Premium Reserve shall be treated at par with unit capital and cannot be utilized to declare dividends and the mutual fund houses cannot distribute dividends from Unit Premium Reserve. Ld. AO has also referred to some statement recorded by various employees of J.M Financial Asset Management Ltd. 10. Whereas, the assessee's case before us that he is a regular investor in shares and mutual funds and he has made investment of Rs.6 Crores in J.M. Financial Asset Management Ltd., and has earned dividend income of Rs.1,83,65,846/- and the said units were sold for consideration of Rs.4,00,63,648/- which had resulted into premium capital loss. Thus, it has been submitted that J.M. Financial Asset Management Ltd., has issued a market update on 30/09/2014 wherein, the details of the funds were made public based on that assessee made investment on December 2014, thus, the investmen....
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....the position recognized under s. 10(33) of the Act. The assessee had made use of the said provision of the Act. That such use cannot be called "abuse of law", Even assuming that the transaction was pre-planned there is nothing to impeach the genuineness of the transaction. With regard to the ruling in McDowell & Co. Ltd. vs. CTO (1985) 47 CTR (SC) 126 : (1985) 154 ITR 148 (SC), it may be stated that in the later decision of this Court in Union of India vs. Azadi Bachao Andolan & Anr (2003) 184 CTR 450,263 ITR 706 (SC) it has been held that a citizen is free to carry on its business within the four corners of the law. That, mere tax planning, without any motive to evade taxes through colourable devices is not frowned upon even by the judgment of this Court in McDowell & Co. Ltd. 's case (supra). Hence, in the cases arising before 1st April, 2002, losses pertaining to exempted income cannot be disallowed. " 12. Thus, loss incurred cannot be held to be non-genuine merely because the dividend has been issued by J.M. Financial funds. It is not in dispute that the purchase / investment of Rs.6 Crores and sale had duly been recorded and reflected in the bank statement and as per the....
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....t of J.M. Financial Management Ltd., for A.Y.2014-15. Thus, when assessee has made investment in open-ended scheme floated by the Mutual Fund and assessee has made investment as per the price available in the open market and has exited at the time based on market price, then it cannot be said that assessee was involved in alleged pre-planned transaction. 16. Ld. CIT (A) has also relied upon the co-ordinate Bench decision of the ITAT, Mumbai in the case of Goldiam International Ltd. Vs. DCIT wherein similar facts involved in J.M. Financial Asset Management Ltd., was involved. The relevant observation and the finding of the Tribunal are as under:- "7. Even on the merits of the case, the facts clearly shows that assessee purchased JM balanced fund mutual fund on 17/6/2015 and the record date of dividend was 18/6/2015 as per the notice dated 13 June 2015 that a dividend of 4.75 per unit is to be declared. The assessee purchased mutual fund of 300 lakhs (11,36,316.29 units). The assessee earned dividend on 18/6/2015 of Rs.5,397,502/-, Further on December 21, 2015, and notice was issued by the mutual fund for declaration of dividend of Rs. 4 per unit. The record-date record was fixed....
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....sessee also received dividend at the rate of 18 per cent on those units, which worked out to be Rs. 63 lakh. Thus, in connection with the aforesaid transaction, the assessee incurred a loss of Rs. 63,84,000 which is the subject matter of dispute .............................. 9. After hearing the learned counsel for the parties and after going through the aforesaid decision of the Supreme Court, we find that it is now clear that the fact that the dividend received by the assessee was tax free is the position recognized under section 10(33) of the Income-tax Act. It appears that the assessee has utilized the sald provision of the statute and as such, the same cannot be called as an abuse of the process of law. As pointed out by the Supreme Court, even if we assume for the sake of argument, that the transaction was a preplanned one, there was nothing to Impeach the genuineness of the transaction. As regards the observation of O Chinnappa Reddy, J. in the case of McDowell & Co. Ltd. v. CTO [1985] 154 ITR 148 /22 Taxman 11, it was pointed out by the Supreme Court in the later decision of the Supreme Court in the case of Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706/132 ....